NUMBER ONE QUESTIONS (a) Briefly explain the salient characteristics of farm accounting. (5 marks) (b) The following information is obtained from Mzee Kavuyo on his farming activities for the year ended 31 March 2000: Crops Group crops Seeds Cattle Cattle food food Fish Fertilizers Purchases during the year: Seeds Cattle Fish Cattle food Fertilizers food Sales during the year: Butter Milk Eggs Crops Flowers Fruits Cattle Fish Vegetables Expenses during the year: Wages Insurance Depreciation Repairs Opening stock Shs. 30,000 22,500 562,500 75,000 67,500 7,500 37,500 112,500 11,250 300,000 7,500 105,000 26,250 22,500 11,250 67,500 97,500 157,500 11,250 30,000 270,000 105,000 45,000 37,500 176,250 11,250 9,000 Closing stock Shs. 37,500 33,750 18,750 787,500 41,250 101,250 24,000 22,500
Consumption of farm products by proprietor: Butter Milk Eggs Vegetables Fish Fruits 3,000 18,750 3,750 4,500 1,500 750 2,250 Required: From the information given above, prepare the following accounts for Mzee Kavuyo for the year ended 31 March 2000: (i) Crop account; (ii) Dairy account; (iii) account (iv) Fishing account; (v) Summarised profit and loss account (15 marks) (Total: 20 marks) NUMBER TWO You have been provided with the following summarised accounts of Golden Times Ltd. For the year ended 31 March 2000: Balance sheet as at 31 March 2000 Fixed assets: Freehold property (Net book value) Plant and machinery (Net book value) Motor vehicles (Net book value) Furniture and fittings (Net book value) 480,000 800,000 200,000 200,000 1,680,000 Current Assets: Stocks Debtors Investments Current liabilities: Trade creditors Bank overdraft Corporation tax Dividends payable Financed by: Authorised share capital 800,000 1 ordinary shares Issued and fully paid: 400,000 1 Ordinary shares Capital reserve Revenue reserve Loan capital: 400,000 10% 1 Debentures 238,400 878,400 176,000 107,200 1,000,000 400,000 120,000 1,500,000 (1,400,000) 120,000 1,800,000 400,000 200,000 800,000 400,000 1,800,000
Profit and loss account for the year ended 31 March 2000 Sales (credit) Profit after charging all expenses except interest on debentures Less: debenture interest Profit before tax Corporation tax Less: ordinary dividend proposed Retained profit transferred to revenue reserve 4,000,000 440,000 40,000 400,000 176,000 224,000 107,200 116,800 The following additional information was available: 1. The purchases for the year were 2,160,000 while the cost of sales was 3,000,000. 2. The market price for Golden Times Ltd. Ordinary shares as at 31 March 2000 was 5 3. The company estimates the current value of its freehold property at 1,100,000. Required: (a) Compute the following ratios for Golden Times Ltd.: (i) Return on capital employees (1 mark) (ii) The profit margin (2 marks) (iii) The turnover of capital (1 mark) (iv) Current ratio; (1 mark) (v) Liquid ratio; (2 marks) (vi) Number of days accounts receivable are outstanding; (1 mark) (vii) Property ratio; (2 marks) (viii) Stock turnover ratio; (1 mark) (ix) Dividend yield ratio; (1 mark) (x) Price earnings ratio. (2 marks) (b) Comment on Golden Times Ltd. Liquidity stating the reference points to which relevant ratios can be compared. (6 marks) (Total: 20 marks) NUMBER THREE (a) Briefly explain the following terms as used by insurance companies: (i) Whole life policy; (1 mark) (ii) Endowment policy; (1 mark) (iii) Surrender value (1 mark) (b) The following balances were extracted from the books of Ulinzi Insurance Company Ltd. As at 31 March 2000:
Debits Expenses of management: Claims paid: Commission: Directors fees Depreciation on furniture Contribution to NSSF Investments Debentures on mortgage bank Interest accrued Shares in companies Premiums outstanding: Sundry debtors Fixed deposits Cash and bank balances Furniture less depreciation Library books Credits Reserve for unexpired risks: Premium less reinsurance: Additional reserves: Claims outstanding on 1 April 1999: Interest on investments Miscellaneous receipts Share capital: 210,000 ordinary shares 100 each General reserve Staff provident fund Sundry creditors Contingency reserve Investment fluctuation reserve 579,000 258,000 840,000 805,500 522,000 370,500 130,500 6,000 22,500 18,886,500 4,402,500 54,000 4,230,000 1,056,000 894,000 289,5000 213,000 981,000 48,000 1,830,000 976,500 2,479,500 1,677,000 1,071,000 112,500 28,500 1,500 385,500 1,500 21,000,000 1,917,000 213,000 900,000 300,000 210,000 The following additional information is available:
1. Estimated liability in respect of claims outstanding at the close of the year was as follows: 39,000 141,000 2. The following provisions are to be made: (i) 150,000 survey expenses for marine insurance claims (ii) 300,000 for taxation 2. An additional reserve of 10% of the net premium was made for the unexpired risks in the case of fire insurance in addition to the balance brought forward. 3. In respect of fire insurance, a reinsurance premium paid 450,000, a claim of 150,000 covered by insurance and a commission at 5% on reinsurance ceded have still to be accounted for. 4. The market value of the investments is 21,375,000. 5. The reserve for unexpired risk should be 100% of the premium less reinsurance in marine business. Required: The revenue accounts and profit and loss account for the year ended 31 March 2000 and a balance sheet as at that date. (17 marks) (Total: 20 marks) NUMBER FOUR (a) Write short notes on the following terms commonly used in banking: (i) Money at call and short notice; (2 marks) (ii) Cash credit; (2 marks) (iii) Overdraft; (2 marks) (iv) Discounting of bills; (2 marks) (v) Bills of collection. (2 marks) (b) List the main details relating to advances that a bank is required to disclose in its published accounts. (10 marks) (Total: 20 marks)
NUMBER FIVE The following balances were extracted from the books of Widows and Orphans Fund for the year ended 30 April 2000: Payments to widows and orphans Refund to bachelors Management expenses Members contributions Interest on investments Provision for exchange losses on foreign investments (30 April 1999) Investment account Employers contributions Fund account 30 April 1999 2,910,000 150,000 70,000 2,012,000 6,000,000 2,000,000 80,000,000 40,000 76,000,000 Cash J.M. Fund C.S.F. Corporation P.M.G 1,000,000 1,600,000 322,000 2,922,000 The following information is also available: 1. A sum of 80,000 was due to be paid to Widows and Orphans, but claims were not received until May 2000. 2. Interest on investments amounting to 800,000 was to be paid to the fund in March 2000, but the cheque was not received until May the same year. 3. The employer contributions for the year should not be less than 3% of the total members contribution for the year. 4. Thirty members of the Fund were late in paying the contribution for the year ended 30 April 2000 amounting to 3,000 each. 5. Provision in case of loss on foreign investments should be adjusted to 1,600,000 Required: (a) A trial balance of the Fund after taking all the above adjustments into account. (6 marks) (b) Income and expenditure account for the year ended 30 April 2000. (7 marks) (c) A balance sheet as at 30 April 2000. (7 marks) (Total: 20 marks)
NUMBER ONE (a) Salient features of farm accounting Consumption of crops and farm products by the farmer. This is treated as income of the farmer and accounted for as his drawings. Family members of the farmer do provide labour for the farm activities. Such labour is valued and added to the cost of production in order to ascertain the correct cost of production. Farming activities are affected by natural calamities like drought, floods, diseases etc. to a great extent. The valuation of farm inventory is very complicated and difficult a task. It is difficult to ascertain the value of standing crops, cattle or poultry which are subject to calamities. The output of one activity may be used as the input of another farming activity e.g. part of the crops produced can be used in cattle breeding, poultry farming etc. (b) Bal b/f: Crops G/Crops Seeds Fertilizers Purchases: Seeds Fertilizer Profit CROP ACCOUNT Sales 30,000 Crops 157,500 22,500 Flowers 11,259 Fruits 30,000 37,500 Vegetables 37,500 Consumption: 11,250 Vegetables 4,500 26,250 Fruits 2,250 213,000 Bal. C/f: Crops 37,500 G/Groups 33,750 Seeds 18,750 Fertilizer 22,500 355,500 355,500
Bal b/f: Cattle Cattle foor Purchases: Cattle Cattle food Profit Bal. B/f food Purchases: food Profit Bal b/f: Fish Purchases: Fish Profit DAIRY ACCOUNT Sales: 562,500 Butter 11,250 75,000 Milk 67,500 Cattle 270,000 300,000 Consumption: 105,000 Butter 3,000 156,750 Milk 18,750 Bal c.d: Cattle 787,500 Cattle food 41,250 1,199,250 1,199,250 POULTRY ACCOUNT Sales: 67,500 Eggs 975,000 7,500 105,000 Consumption: 112,500 Eggs 3,750 22,500 1,500 114,000 Stocks: 101,250 food 324,000 324,000 FISHING ACCOUNT Sales: Fish 45,000 7,500 Consumption 750 47,750 Stock 24,000 69,750 69,750 Profit and Loss A/c For the year ended 31.03.2000 Gross profit: Crops Dairy Fish Less Expenses: Wages Insurance Depreciation Repairs 213,000 156,750 114,000 47,250 176,250 11,250 9,000 531,000 (211,500) Net profit 319,500
NUMBER TWO (a) Golden Times Ltd Formula (i) ROSE Profit before int. & tax Capital employed (ii) Profit margin Gross profit x 100 Sales Net profit x 100 Sales Ratio 440,000 x 100 1,800,000 = 24.4% 1,000,000 x 100 4,000,000 = 5% 400,000 x 100 4,000,000 = 10% (iii) Turnover of capital Sales Capital employed 4,000,000 1,800,000 = 2.22 times (iv) Current ratio Current assets_ Current liabilities (v) Liquid ratio Liquid assets Current liabilities (vi) No. of days a/c s receivable are outstanding Debtors x 365 Credit sales 1,520,000 1,400,000 = 1.08:1 1,520,000 1,000,000 1,400,000 = 0.37:1 400,000_x 365 4,000,000 36½ days (vii) Proprietary ratio Shareholders funds Loans & Current liabilities 1,400,000 1,800,000 = 0.78:1 (viii) Stock turnover Cost of sales Average stock 3,000,000 2,840,000 = 2.11 times (ix) Dividend yield ratio DPS MPS 0.268 x 100 5 = 5% (x) Price earnings ratio MPS EPS 5_ 0.56 = 8.9 (b) Liquidity of Golden Times Ltd. Liquidity can be analysed using the current ratio and liquid ratio. The current ratio of 1.08:1, quite below the standard ratio of 2:1. This can be compared with the industrial average to assess the performance of Golden Times Ltd. For improvement, it can be compared with the same ratio of the previous year. The liquid is not healthy since it is 0.37:1 against a standard ratio of 1:1. Implications are that should Golden Times face liquidation, it cannot be able to pay off its current liabilities through liquid assets. Again, this can be compared with the industrial average ratio and with the previous years ratio to assess improvement.
NUMBER THREE (a) (i) Whole life policy It is a policy under which the insured amount is paid on the death of the insured and the insured has to pay a premium throughout his life. (ii) (iii) Endowment policy A policy which runs for a fixed period (i.e. number of years). Under this policy, the insured amount becomes payable either on the death of the insured or on the expiry of the agreed period, whichever is earlier. Surrender value: The money paid back to the insured party when he decides to cancel the insurance agreement before the period specified. The surrender value is payable only in the case of policies in respect of which at least a few years premium has been paid. (b) Ulinzi Insurance Co. Ltd Insurance Revenue A/c for the year ended 31 March 2000 000 Claims under policies Less: Reinsurance paid during the year (840,000 150,000) Add: Estimated liability for claims o/s at year end whether due or intimated Less o/s at the commencement of the year Commission: on direct business and on reinsurance accepted Expenses on management Balance of the a/c at year end as shown in the b/sheet Reserve for unexpired risk Additional reserve 840,000 39,000 976,500 1,273,950 690,000 39,000 729,000 (28,500) 700,500 522,000 579,000 Balance of the account b/f Reserve for unexpired risks Additional reserve Premium less reinsurance (2,479,500 450,000) Commission reinsurance ceded P & L Account 000 1,789,500 5,104,950 5,104,950 on 976,500 1,071,000 2,047,500 2,029,500 22,500 1,005,450
Claims under policies Less: reinsurance paid during the year. Add: Estimated liability in respect of o/s claims at yar end whether due or intimated Less: o/s at start of the year Provision for survey expenses Commission on direct business and on reinsurance accepted Profit and loss account Balance of the account at year end as shown in the balance sheet. Reserve for unexpired risk Additional reserve Insurance Revenue A/c 000 Balance of the account b/f Reserve for unexpired risks 805,500 Additional reserve Premium less reinsurance 141,000 946,000 1,500 945,000 150,000 370,500 106,500 000 1,830,000 112,500 1,942,500 1,677,000 1,677,000 112,500 1,789,500 3,619,500 3,619,500 Profit and Loss Account Director fees Contribution to NSSF Depreciation furniture Net profit Provision for taxation Sh 130,500 22,500 6,000 382,050 300,000 Interest, dividends & rent not applicable to any particular fund or account Profit from fire business Profit from marine business Miscellaneous receipts Net profit 385,500 47,500 106,500 1,500 343,800 382,050 382,050 BALANCE SHEET AS AT 31 MARCH 2000 Share capital, authorized and issued 210,000 ordinary shares 10 each General reserves Investment fluctuation fund Contingency reserve Balance of funds and accounts insurance insurance Other liabilities: Staff provident fund Due to other insurers Sundry creditors Outstanding Sunday expenses Provision for corporation tax Estimated liability in respect of o/s claims whether due or intimated: 39,000 141,000 Suspense Sh 21,000,000 1,917,000 210,000 300,000 2,350,450 1,789,500 213,000 450,000 900,000 150,000 300,000 Investments (at cost) Debetores on amortgage Bank Shares in companies Outstanding premiums 1,056,000 894,000 Furniture (NBV) Library books Accrued interest Sundry debtors Amounts due from other insurers Fixed deposits Cash and bank balance 18,886,500 4,402,500 4,230,000 1,950,000 48,000 54,000 289,500 172,500 213,000 981,000 180,000 1,500,000 31,242,000 31,242,000
NUMBER FOUR (a) (i) Money at call and short notice: appears on asset side of the balance sheet. It represents temporary loans say for one day for money at call : and loans that can only be called back on notice, say three days for money at short notice Money deposit on liability side of the balance sheet which represents customers deposits in both current, savings and fixed accounts. (ii) Cash credit: arrangement granting customer the right to borrow money from time to time upto a certain limit. This is usually given against a pledged security and extended to current and savings account holders e.g credit card. (iii) Overdraft: available to a customer operating a current account and who have high goodwill and name for honest dealings. The customer pays interest on the sum overdrawn, and must fully secure the borrowing. (iv) Discounting of bills: implies making the payment of the bill prior to maturity date. (v) Bills for collection: drafts and bills drawn by sellers of goods on the purchases of goods and sent to the bank for collection against delivery documents e.g bill of lading. The bank hands over the documents authorizing the delivery of the goods to the borrower only after the collection of the amount of the bill. (b) Disclosure requirements: 1. Debts considered good in respect of which the bank is fully secured. 2. Debts considered good for which the bank holds no other security than the debtors personal security (personal guarantee) 3. Debtors considered good, secured by the personal liabilities of one or more parties in addition to the personal security of the debtor (third party guarantee) 4. Debts considered doubtful or bad not provided for (non-performing loans) 5. Debts due from directors or officers of the bank or any of them either severally or jointly with other persons. 6. Debts due from companies in which the directors of the bank are interested as directors, partners or managers or members of private companies. 7. Maximum total amounts of loan including temporary advances made at any time during the year to directors or managers or officers of the bank. 8. Maximum total advances including temporary advances granted during the year to the companies or firms in which the directors of the bank are interested as directors, partners or in the case of private companies as members. 9. Advances due from other banks. 10. Maturity and segmental analysis of the advances. 11. Off-shore/forex advances 12. Provisions for doubtful debts
NUMBER FIVE (a) Widows and Orphans Fund Trial Balance: Payments to widows & orphans Refund to bachelors Management expenses Member contributions Interest on investments Provision for exchange losses Investment account Employers contributions Fund balance Cash: JM Fund 1,000,000 CSF Fund 1,600,000 PMG 322,000 2,990,000 150,000 70,000 80,000,000 2,922,000 2,102,000 6,800,000 1,600,000 63,060 76,400,000 Receivable from employer Receivable from members Payable to widows and orphans Interest receivable 23,060 90,000 80,000 800,000 87,045,060 87,045,060 (b) Income & Expenditure Statement Member contributions Employers contributions Interest on investments Payments to widows & orphans Refund to bachelors Management expenses 2,102,000 63,060 6,800,000 2,990,000 150,000 70,000 8,965,060 (3,210,000 5,755,060 (c) Balance Sheet as at 30 April 2000 Assets Investment Account Less: Provision for losses Interest receivable on investments Receivable from members Receivable from employer Cash: JM Fund CSF Corporation PMG Liabilities Payable to widows and orphans Accumulated fund balance: Balance b/f Current balance 80,000,000 1,600,000 800,000 90,000 23,060 1,000,000 1,600,000 322,000 76,400,000 5,755,060 78,400,000 913,060 2,922,000 82,235,060 80,000 82,155,060 82,235,060