EXAMINATION No. THE PUBLIC ACCOUNTANTS EXAMINATION COUNCIL OF MALAWI 2011 EXAMINATIONS CERTIFICATE IN FINANCIAL ACCOUNTING PROGRAMME PAPER FA 4 : BUSINESS ACCOUNTING WEDNESDAY 1 JUNE 2011 TIME ALLOWED: 3 HOURS 9.00AM - 12.00 NOON INSTRUCTIONS 1. You are allowed 15 minutes reading time before the examination begins during which you should read the question paper and, if you wish, make annotations on the question paper. However, you will not be allowed, under any circumstances, to open the answer book and start writing or use your calculator during this reading time. 2. Number of questions on paper 7. 3. Answer FIVE question ONLY. 4. Each question carries 20 marks. 5. Marks will be awarded for neatness and layout. All workings forming part of your answers should be shown. 6. Begin each answer on a fresh page. 7. This question paper must not be removed from the examination hall. 8. DO NOT OPEN THIS PAPER UNTIL YOU ARE INSTRUCTED BY THE INVIGILATOR. This question paper contains 6 pages
1 1. ABJ Traders started the business of selling various merchandise in 2005 and have 30 September as their year end. The balances and results for the year ended 30 September 2010 were as follows: Capital K 600,000 Sales 900,000 Non-current assets 850,000 Accumulated depreciation 210,000 Inventories as at 1 October 2009 80,000 Purchases 480,000 Carriage inwards 25,000 Carriage outwards 30,000 Return inwards 20,000 Return outwards 15,000 Salaries 90,000 Rent 10,000 Electricity 5,000 Water 4,000 Bank charges 2,100 Motor expenses 24,000 Stationery expenses 14,000 Sundry expenses 8,000 Travel expenses 18,000 Repair of equipment 12,900 Receivables 57,000 Payables 40,000 Bank 18,000 Cash in hand 3,000 Drawings 14,000 Additional information: (i) The balance for inventories as at 30 September 2010 was K84,000 (ii) Non-current assets comprise land, motor vehicles and office equipment Cost(K) Depreciation (K) Land 200,000 0 Motor vehicles 450,000 170,000 Equipment 200,000 40,000 Depreciation policy - Motor vehicles Equipment 20% straight line 20% on reducing balance method
(iii) Accrued expenses; Electricity 3,000 Water 1000 (iv) Prepaid motor expenses K4,000 (v) 2 ABJ Traders have decided to make a provision for doubtful debts at 6% of closing receivables balance. (a) Prepare the Income Statement for the year to 30 September 2010. 1 Prepare the Balance Sheet as at 30 September 2010. 8 Marks 2. Dziko Limited sells wrist watches. Its inventories record for the month of October 2010 was as follows: 1 October Balance brought forward 70 units at K700 each 2 October Sold 10 units at K1,200 each 5 October Sold 40 units at K1,200 each 10 October Purchased 50 units at K750 each 15 October Purchased 30 units at K820 each 20 October Sold 90 units at K1,200 each 25 October Purchased 40 units at K800 each 30 October Sold 20 units at K1,200 each (a) Outline any three advantages of using the First-In-First-Out (FIFO) method of inventory valuation. 3 Marks From the information provided above, compute the value of closing inventories using the FIFO method. 1 (c) Prepare the Trading Account for the month of October 2010. 5 Marks (TOTAL : 20 MARKS)
3 3. Ulanda Trading operates a chain of retail shops and has 31 October as its financial year end. The schedule for its non-current asset for the year to 31 October 2009 was as follows: Land and Vehicles Office Furniture Total buildings equipment K 000 K 000 K 000 K 000 K 000 Cost Balance b/f 1,200 800 900 700 3,600 Additions 400 200-600 Disposals -_ (300) (400) (100) (800) 1,200 900 700 600 3,400 Depreciation Balance b/f 90 400 300 120 910 Charge 18 180 170 60 428 Disposals - (200) (250) (70) (520) 108 380 220 110 818 Net book value 1,192 520 480 490 2,582 The following information relates to the year ended 31 October 2010. Land and buildings Vehicles Equipment Furniture & fittings A fence costing K200,000 was built around one of the shops. Depreciation is provided at 2% on cost. Of the K1.2 million brought forward, K900,000 was the value of buildings and the remainder was for the land. Two new delivery vans were acquired at a cost of K400,000 each. An old delivery van with an original cost of K250,000 was involved in an accident and has been declared by insurers as a write-off and they have promised to process a refund of K90,000. Accumulated depreciation for this van was K180,000. Depreciation is provided at 20% of cost. Three new computers were acquired at a cost of K40,000 each. Old equipment with an original cost of K200,000 (K160,000 net book value) were sold for K55,000. Depreciation is provided at 20% on reducing balance. New shop fittings were acquired during the year costing K180,000. There were no disposals and depreciation is provided at 20% on reducing balance.
4 (a) Prepare a non-current asset schedule using the same format as that for the 31 October 2009 for the year to 31 October 2010. 18 Marks Define the term residual value in relation to accounting for non-current assets. 4. Financial information assists various users in making decisions relating to the business performance and position. (a) Identify any five users of financial information and state the kind of information that they will be interested in and the type of financial statement where they will find such information. 15 Marks Mention five qualitative characteristics of financial information. 5 Marks (TOTAL:20 MARKS) 5. Masula Village was given a Malambe juice making machine under the One Village, One Product project and has been making Malambe juice called Kathi for the past three years. The production of Kathi passes through three production stages and the information relating to the final stage, for the month of September 2010, was as follows: Input from process 2 Labour Overheads Normal loss Output for September 3,000 litres at K6/ litre 600 hours at K10/hr based on 90% of labour costs 10% of input units 2,800 litres (a) Prepare the process 3 account for the month of September 2010. 8 Marks At 1 September 2010, there were no opening units of juice and during the month of September 2,400 litres of Malambe juice were sold at K25 per litre. (c) Prepare the trading account for the month of September 2010. 4 Marks Prepare the abnormal gain/loss account, assuming the scrap product is sold at K4 per litre. 3 Marks
5 (d) With examples, differentiate a joint product from a by-product and outline the accounting treatment for each. 5 Marks 6. The bank statement for Dzuwa Limited for the month of August 2010 was as follows: Dr Cr Balance K K K 1 Aug Balance b/f 48,000 cr 2 Aug Cash banked 22,000 70,000 cr 5 Aug Rent 15,000 55,000 cr 7 Aug Creditor M Mbewe 20,000 35,000 cr 10 Aug Electricity 4,000 31,000 cr 11 Aug Bank Charges 1,000 30,000 cr 14 Aug Direct credit 18,000 48,000 cr 14 Aug Telephone 3,000 45,000 cr 15 Aug Creditor J Banda 12,000 33,000 cr 19 Aug Direct debit H Phiri 19,000 14,000 cr 20 Aug Sky Ltd Cheque 15,000 29,000 cr 20 Aug Cash banked 35,000 64,000 cr 24 Aug Salaries 52,000 12,000 cr 24 Aug Dishonored cheque Sky Ltd15,000 3,000 dr 25 Aug Creditor M Mbewe 12,600 15,600 dr 30 Aug Bank overdraft interest 400 16,000 cr Cash book K K 1 Aug Balance b/f 48,000 5 Aug Rent 15,000 2 Aug Cash 22,000 7 Aug Creditor M Mbewe 20,000 20 Aug Cash 35,000 10 Aug Electricity 4,000 20 Aug Sky Ltd 15,000 14 Aug Telephone 3,000 30 Aug Cash 48,000 15 Aug Creditor J Banda 12,000 22 Aug Creditor H Jonasi 15,000 24 Aug Salaries 52,000 26 Aug Creditor J Banda 10,000 28 Aug Creditor M Mbewe 12,600 31 Aug Balance c/d 24,400 168,000 168,000 (a) Prepare the updated cash book for the month of August 2010. 6 Marks
6 (c) Prepare the bank reconciliation statement for the month of August 2010. 4 Marks Mention any five items which may appear on the bank statement but not in the cash book. 5 Marks (d) Outline any five controls which a cashier should ensure in relation to handling of cash sales. 5 Marks 7. An accountant for Zathu Estate has resigned and the owner of the farm has heard that you are a student studying for the Certificate in Financial Accounting and would like you to assist him in updating his books of accounts. Prepare journal entries, without narratives, for the following transactions: (a) (c) (d) A computer worth K70,000 bought by the owner has been transferred into the business. Goods worth K24,000 returned to the business by a credit customer J Gunde. One credit customer V Manda passed away before settling his account amounting to K18,000. Estate equipment costing K50,000 (Net book value of K24,000) was stolen and the insurers have paid in a cheque for K42,000 as compensation. 6 Marks (e) Farm produce worth K12,000 was taken for home consumption by the owner. (f) Electricity amounting to K17,000 has not been settled. (g) The farm paid K48,000 as licence to the Ministry of Agriculture but this amount relates to licence fees for the next financial year. (h) Depreciation for the farm van was computed as K35,000. E N D