QUESTION

a) When an individual decides to start a business, that business can be organised in one of the
three ways. Provide a definition of each of these business types. 6 Marks
b) Outline your understanding of the term limited liability. 2 Marks
c) Each business type, referred to in part a, has associated advantages and disadvantages. For
each of these business types provide two advantage and two disadvantages. 12 Marks
d) With the aid of appropriate examples, explain the difference between capital and revenue
expenditure and how such expenditure is treated in the financial statements of a business.
5 Marks

Question

The following information relates to the banking transactions of Hue Sang Company for
the month of August 2010:

Cash Book (Bank Column Only)

2020 $ 2020 $

Aug 1 Balance b/d 2,420 Aug 2 General expenses (211012) 67

Aug 4 Sales 835 Aug 9 Wages (211013) 330

Aug 23 Sales 716 Aug 11 Drawings (211014) 410
Aug 31 Company A 185 Aug 12 Purchases (211015) 406
Sales 640 Aug 24 Rent (211016) 290
2,446 Aug 25 Wages (211017) 345
Aug 27 C Limited (211018) 502

Bank Statement
Date DeHuels Dr Cr Balance
2020 $ $ $
Aug 1 Balance b/d 2,420 Cr
Aug 3 CQ211012 67 2,353 Cr
Aug 4 Credit 835 3,188 Cr
Aug 7 Standing order (rates) 136 3,052 Cr
Aug 11 CQ211013 330 2,722 Cr
Aug 1 CQ211014 140 2,582 Cr
 Aug 20 CQ211015 406 2,176 Cr
Aug 23 Direct debt (insurance) 153 2,023 Cr
Credit 716 2,739 Cr
Aug 27 CQ211017 345 2,394 Cr
Aug 30 Credit transfer – B Limited 268 2,662 Cr
Bank interest 8 2,670 Cr

Required:
a) Update the Cash book starting with the Cashbook closing balance as at 31 August 2020.[5]
b) Prepare the Bank Reconciliation Statement as at 31 August 2020. [10]
c) Explain why the entry of Company A in the bank column of the company’s cash book on
31 August 2020 was not credited by the bank even it has already been deposited into the
bank on that date. [5]

d) Explain with FOUR reasons why business needs to use a bank reconciliation statement
for cash control purpose. [5]

Question

Sand and Rock and are in partnership as tutors. Interest is to be allowed on capital and at a
rate of 5% per annum and Rock is to be given a salary of $18 000 per annum. Interest is to be
charged on drawings at 5% per annum and the profits and losses are to be shared Sand 70%
and Rock on 30%. The following Trial Balance was extracted from the books of the
partnership at 31 December 2020
$ $
Capital – Sand 60 000
- Rock 81 000
Current account – Sand 9 000
- Rock 8 000
Drawings – Sand 20 000
- Rock 25 000
Sales 541 750
Purchases 291 830
Returns and out 800 830
Carriage inwards 3 150
Staff salaries 141 150
Rent 2 500
 Insurance - general 1500
Insurance – fixtures and fittings 1 500
Electricity 10 000
General expenses 9 500
Bad debts written off 1 150
Fixtures and fittings –cost 90 000
Fixtures and fittings – depreciation 12 000
Trade receivables and payables 137 500 23 400
Cash 400
______ _______
711 480 711 480
Additional information

1. A provision for doubtful debts is to be created of $1300.

2. Insurances paid in advance at 31 December 2020 were $180, General expenses $90.
3. Staff salaries accrued amounted to$300.
4. Fixtures and fittings are to be depreciated at 5% on cost.
5. Inventory at 31 December 2020 was $2 500.
Required:
a) The Statement of Comprehensive Income for the year ending 31 December 2020.[10]
b) The Appropriation Account for the year ending 31 December 2020. [5]
c) The Statement of Financial Position as at 31 December 2020. [10]

Question
Tichaona has not kept proper records of his business transactions. His assets and liabilities at
the beginning and end of 2020 were as follows:
$ $
Inventory 5 800 4 800
Trade Receivables 3 200 3 900
Trade Payables 2 900 2 400
Rent prepaid 250 150
Electricity owing 350 400
Plant and Equipment 3 700 6500

His bank account for 2020 is summarised as follows:

$ $
Balance at 1 January 2020 640 Payments to creditors 9 700
Receipts from debtors 12 250 Plant purchased 3 500
Cash sales banked 220 Motor expenses 300
Loan from relative 6000 Office expenses 290
 Electricity 900
Rent of premises 500
Loan interest expenses 300

The closing bank balance at 31 December 2020 was $2 200. Any shortfall is assumed to be
drawings. In addition, cash sales which were not banked were used to pay wages amounting
to$380. The loan was held through the year and bears an interest of 10% per annum.

Required:
a) Opening Statement of affairs as at 1 January 2020. [3]
b) The statement of Comprehensive Statement of income for year ending 31 December
2020. [12]
c) The Statement of Financial Position as at 31 December 2020. [10]

Question
Bank
May $ May $
14 Cheque from G.Smith 210 1 Balance b/d 57
20 Cash Sales 350 3 Electricity 123456 150
25 Cheque from F Jones 410 22 Wages 123457 222
25 Cheque from R Black 121 23 Purchases 123458 415
31 Cheque from W Wayne 196 30 Rent 123459 405
31 Balance c/d 9 31 Purchases 123460 47
1296 1296

Leslie, a sole trader, received a bank statement for the month of May as follows:
May Bank statement Dr. Cr. Balance
1 Opening balance 85
3 123456 150 65 O/D
9 123450 42 107 O/D
14 Sundry credit 210 103
18 Interest 24 79
20 Sundry credit 350 429
22 123457 220 209
23 123448 100 109
24 Standing order – rent 10 99
25 Sundry credit 531 630
26 Credit transfer – Mills 25 655
28 423460 100 555
30 123459 405 150
31 Closing balance 150
For the corresponding period, Leslie's own records conHuened the following bank account:
Required:
a) Prepare the update the Cash Book. [7]
b) Prepare the bank reconciliation statement as at 31 May 2020 from the Cash Book and the
Bank Statement. [10]
c) Explain any five causes of the differences between the Cash Book and the Bank
Statement balances. [8]

Question
The following are transactions that took place in Marx’s business.
June 1 Balances brought forward: Cash $720; Bank $7,840.
2. The following paid us by cheque, in each case deducting a 5 per cent cash
discount:S Braga $820; L Pine $320; G Hodd $440; M Rae $1,040.
3 Cash sales paid direct into the bank $740.
5 Paid rent by cash $340.
6 Paid the following accounts by cheque, in each case deducting 5% per cent
cashdiscount: M Peters $360; G Graham $960; F Bell $400.
8 Withdrew cash from the bank for business use $400.
10 Cash sales $1500.
12 Angel paid us their account of $280 by cheque less $4 cash discount.
14 Paid wages by cash $540.
16 We paid the following accounts by cheque: R Todd $310 less cash discount
$15; F Dury$412 less cash discount $12.
20 Bought fixtures by cheque $4,320.
24 Bought lorry paying by cheque $14,300.
29 Received $324 cheque from A Line.
30 Cash sales $980.
30 Bought stationery paying by cash $56.
Required
Prepare the three-column cash book and balance offthe cash book at the end of the month.
[25]

Question
The following transactions are of MTN general dealers, which opened a shop on 1 March
2020.
 March 1, Started in business with $8,000 in the bank.
March 2. Bought goods on credit from the following persons: L Frank $550; G Byers
$290.
March 5, Cash sales $510.
March 6, Paid wages in cash $110.
March 7, Sold goods on credit to: K Park $360; B Tyler $640.
March 9, Bought goods for cash $120.
March 10, Bought goods on credit from: G Byers $410.
March 12, Paid wages in cash $110.
March 13 Sold goods on credit to: K Park $610; B Tyler $205.
March 15, Bought shop fixtures on credit from Stop Ltd $740.
March 17, Paid G Byers by cheque $700.
March 21,Paid Stop Ltd a cheque for $740.
March 24, B Tyler paid us his account by cheque $845.
March 27, We returned goods to L Frank $18.
March 30, G Prince lent us $1,000 by cash.
March 31,Bought a van paying by cheque $6,250
Required:
Post the above transaction to the ledger accounts of MTN general dealers, balance off the
accounts and extract the Trial Balance as at 31 March 2020. [25]

QUESTION

A former colleague, B. Malone, recently started a business. While the first few months of
trading have proved successful, B Malone now realises that she knows very little about
financial accounting and has approached you for advice in relation to the accounting issues
outlined below:

a) An brief explanation of the function of the following books of prime entry and how
the books of prime entry fit into the overall accounting process:
i Sales day book;
ii The cheque payments book;
iii The journal. 6 Marks

a) An explanation of carriage inwards and why it is added to purchases in the Statement

of Profit & Loss. 3 Marks

b) Give us the various users of accounting information and their informational needs. (16
marks)

Question

Samuel owns a general trading business. The following balances were extracted from his
books as at 31 December 2020.
 Sales 320 000
Opening Inventory 17 000
Closing inventory 28 000
General expenses 32 000
Trade payables 61 000
Trade receivables 55 000
Bank 4 000
Capital 1 January 2020 500 000

Additional information:
The mark up on trading is 20%
There were no other current assets and liabilities at 31 December 2020.
Required:
The Income Statement up to net profit for the year ended 31 December 2020. [10]
Calculate the following rations:
a) Current ratio; [2]
b) Liquid acid test ratio; [2]
c) Gross profit margin; [2]
d) Rate of inventory turnover; [2]
e) Inventory holding period; [2]
f) Trade Receivable days [2]
g) Trade payable days. [3]

Question
Gamu is a sole trader. The following balances were extracted from her books on 31
December 2020.

$ $
Capital 100 000
Drawings 9 500 9 500
Computer equipment (cost) 60 000
Provision for depreciation Computer equipment 42 000
Buildings (cost) 166 600
Provision for depreciation buildings 14 000
Shop fixtures (cost) 24 000
Provision for depreciation - Shop fixtures 8 000
Inventory at 1 January 2020 24 500
Revenue 450 000
Trade payables 26 000
 Bank loan (repayable 31 December 2027) 60 000
Purchases 220 000
Bank 20 500
Returns inwards 15 600
Electricity 10 200
Returns outwards 9 500
Trade receivables 35 500
Provision for doubtful debts 1 100
Administration expenses 54 000
Advertising 27 500
Staff salaries 59 500

Insurance 6800 6 800

Rent receivable 15000 15 000

General expenses 14600 15 000 ______
735 100 735 100
Additional information at 31 December 2020
1. Inventory was valued at $20700.
2. Staff salaries owing include $8000
3. Rent receivable, $3000, was owing.
4. General expenses, $5000, were owing.
5. No interest had been paid on the bank loan.
6. Depreciation is charged on non-current assets as follows:
7. Buildings at 5% straight line method
8. Shop fixtures at the rate of 15% per annum using the straight line method.
9. Computer equipment at the rate of 30% per annum using the diminishing
(reducing)balance method.
10. Theprovision for doubtful debts of 5% is to be mainHuened.
Required
Prepare the

a) Statement of Comprehensive Income year ending December 2020. [15]

b) Statement of Financial Position as at that date. [10]

Question
The following information has been extracted from the financial statements of Gora Limited
at 31 December 2020.

$
Revenue 156 000
 Purchases 88 000

Inventory at 31 December 2020 42 000

Cash in hand 1 000

Operating expenses 48 000

Trade receivables 39 000

Other receivables 2 000

Trade payables 29 000

Bank overdraft 10 000

Other payables 8 000

10% Debenture loan 6 000

Additional information
1 Inventory at 31 December 2020 was valued at $34 000.
2 All sales and purchases were on credit.

Required
Calculate the following ratios for Gora Limited;
a) Current ratio to two decimal places; [2]
b) Liquid (acid test) ratio to two decimal places; [2]
c) Trade receivables turnover (days); [2]
d) Trade payables turnover (days) [2]
e) Inventory turnover (days); and [2]
f) Prepare the Income Statement for the ending 31 December 2020. [15]

Question
Bhadela and Tendai are in partnership. Interest is allowed on capital and on the opening
current account balances at 5% pa. Bhadela is to be credited with a salary of $35,000 in
recognition of extra duties. Interest is charged on drawings at 5%.. Bhadela and Tendai agree
to share profits equally. The following trial balance was drawn up on 31 December 2020:
Trial Balance as at 31 December 2020
 $ $
Capital accounts – Bhadela 150 000
Tendai 150 000
Current accounts – Bhadela 40 000
Tendai 10 000
Drawings - Bhadela 50 000
Tendai 40 000
Purchases 327 000
Sales 776 000
Postages and stationery 15 000
Staff wages 130 000
Rent and insurance 32 000
General expenses 16 000
Bad debts written off 2 000
Inventory at 01 January 2020 40 000
Equipment at cost 280 000
Premises 159 000
Trade receivables 78 000
Trade payables 41 000
Bank 6 000
Provision for doubtful debt 8 000

1 175 000 1 175 000

Notes at 31 December 2020: •

1. Stock (inventory) was valued at $32,000
2. Staff wages owing amounted to $6,000
3. Insurance prepaid amounted to $7,000
4. Equipment is to be depreciated at 20% on cost•
5. The provision for doubtful debts is to be increased by $2,000
Required:
Prepare:
a) The firm’s Income Statement for the year ended 31 December 2020. [10]
b) Appropriation account for the year ending 31 December 2020 [5]
c) Prepare the partners’ current accounts for the year ended December 2020. [4]
d) Prepare the firm’s position statement as at 31 December 2020 [6]