CPA
Foundation Leval
Financial Accounting May 2018
Suggested solutions

(a) The income statement for the year ended 31 March 2018.

Asuba enterprises income statement for the year ended 31/03/2018
Sales Less: cost of sales. Opening inventory Add: purchases Less: purchases returns Goods available for sale less: closing stock Gross profit Discount received Total income Less expenses Salaries:1,080,000 - 216,000 Insurance 154,000 - 32,000 General expenses (67,800 + 4,100 - 46,000) Bad debts 14,200 + 50,400 Depreciation buildings 4% x [3,400,000 - 1,000,000] Depreciation equipment 25% × 220,000 Depreciation motor vehicle 40% x [260,000 - 132,500] Electricity Discount allowed Motor vehicle running expenses Interest on loan 120,000 + 15,000 Net profit	242,000 1,673,500 (60,400) 1,855,100 (225,000) 1,296,000 122,000 25,900 64,600 96,000 55,000 51,000 22,300 24,200 15,800 135,000	4,214,500 (1,630,100) 2,584,400 42,700 2,627,100 (1,907,800) 719,300

(b) The statement of financial position as at 31 March 2018.

W1

Salaries
10months = 1,080,000
12 months = ? = 12 / 10 x 1,080,000 = 1,296,000
2/12 x 1,296,000 = 216,000

Asuba enterprises statement of financial position as at 31st March 2018

Non current Assets Land and buildings 3,400,000 - 260,000 - 96,000 Equipment 220,000 - 103,000 - 55,000 Motor vehicles 260,000 - 132,500 - 51,000 Current Assets Inventory Trade receivables 1,101,400 - 50,400 - 31,530 Bank Prepaid Insurance Capital and liabilities Capital Net profits Drawings 320,000 + 46,000 Non current Liabilities 9% Loan Current liabilities Accrued loan interest Accrued salaries Trade payables liabilities

3,044,000 62,000 76,500 225,000 1,019,470 245,110 32,000 4,704,080 1,852,800 719,300 (366,000) 1,500,000 15,000 4,100 216,000 762,880 4,704,080

(c) Explain the accounting concepts involved in each of the additional information notes 1, 3 and 5 above.

Note 1

Accrual basis:- Accrual basis accounting records business revenue and matching expenses as they occur, rather than when money exchanges hands. This means that revenue is recorded when it is earned rather than when it is collected. It also entails recognizing expenses when the corporation incurs the liability for them, rather than when it pays them.

Note 3

Business entity concept: - According to the business entity concept, the transactions linked with a business must be documented independently from those of its owners or other businesses. This necessitates the use of separate accounting records for the organization that totally exclude any other entity's or the owner's assets and liabilities.

Note 5:

Prudence concept: - Prudence is a key accounting principle that ensures revenue and assets are not overstated in the financial statement. It also ensures that liabilities are not overstated and that Provisions for revenue and losses are made. This idea is also known as the conservative principle.

(i) Revised sales ledger control account the year ended 31 March 2018

Revised Sales Ledger Control Account
Balance b/d Credit sales Dishonoured cheques Overstated Discount allowed Dishonoured cheques	Sh.000 128,540 1,144,200 5,000 1,080 6,900 1,285,720	Balance b/d Cheques received Cash received Sales returns Discount allowed Contras(Purchases ledger) Irrecoverable debts Sales returns Irrecoverable debts Revised Balance c/d	Sh.000 2,800 1,046,200 7,100 12,000 2,480 10,640 6,500 2,400 3,500 192,100 1,285,720

(ii) Revised statement showing the correct total of the schedule of receivables for the year ended 31 March 2018.

Revised Sales Ledger Account
Balance b/d Credit sales Dishonoured cheques	Sh.000 189,380 3,520 6,900 199,800	Sales returns Contras Irrecoverable debts Revised Balance c/d	Sh.000 2,400 1,800 3,500 192,100 199,800

(a) Manufacturing account for the year ended 31 December 2017

ABC Ltd Manufacturing account for the year ended 31 Dec 2017
Opening stock of raw materials Add: purchase of raw material Consignment of raw material Less: Closing stock of raw material Raw materials consumed Direct labor Prime cost Add: Factory overheads Depreciation-factory & office buildings 2% × 17,500 × 6 / 7 Plant and machinery (10% x 12,600) Factory heating and electricity (5,550 + 320) Machine repair and maintenance(4,100 + 80) Rates 960 x 3 / 6 x 5 / 6 Insurance premiums 900 x 8/12 x 4/6 Factory wages Factory overheads Add: opening work in progress Total cost of production	Sh 000 18,100 60,350 170 (17,200) 61,420	Sh 000 61,420 11,900 73,320	Sh000 73,320 300 1,260 5,870 4,180 400 400 4,800 8,920 99,450 9,350 (9,950) 98,850

(b) Income statement the year ended 31 December 2017.

ABC LTD Income statement for the year ended 31/12/2017
Sales Cost of sales opening finished goods Add: Total cost of production Less: Closing finished goods Gross profit Less: Expenses Administrative expenses Rates 960 × 3 / 6 x 1 / 6 Insurance premium 900 x 8 / 12 x 1 / 6 Admin expenses Directors remuneration Depreciation: - Motor vehicle 25% x (4,200 - 1,800) x 25% Depreciation-factory & office buildings 2% × 17,500 × 1 / 7 Bad debts Provision for doubtful debts 1% × (24,200 - 200) Salesmen travelling expenses Distribution expenses Insurance premiums 900 x 8 / 12 x 1 / 6 Depreciation:- Motor vehicle 25% x (4,200 - 1,800) x 75% Transport expenses Distribution expenses Profit before tax Less tax Net profit After tax	Sh 000 12,800 98,850 (14,650) 80 100 2,920 1,600 150 50 200 240 60 100 450 70 6,350	Sh 000 112,750 (97,000) 15,750 (13,295) 2,455 (500) 1,955

(c) Statement of financial position as at 31 December 2017.

ABC Ltd Statement of financial position as at 31/12/2017
Assets Non current Assets Land Factory and office buildings Plant and machinery Motor vehicle Current Assets Inventory-Raw materials Work in progress Finished goods Debtors Bank balance Cash in had Prepayment - Rates -Insurance premiums, Equity and liabilities Equity Share capital Share premium Revenue reserves Non current liabilities 8% Debentures Current liabilities Creditors Accruals-Electricity Repairs Salesmens travelling expenses Transport expenses Directors remuneration Commission payable Tax payable Proposed dividend interest Rates Total Equity & liabilities	Sh 000 (17,500-(1,750+350) 12,600- (4,000+1,260) 4,200-(1,800+600) (24,200-200-240) (9,350+1,455-1,200) (18,050+170)	Sh 000 6,000 15,400 7,340 1,800 17,200 9,950 14,650 23,760 1,960 150 480 300 98,970 30,000 17,150 9,605 20,000 18,220 320 80 60 70 250 290 500 1,200 400 98,970

W1

Disposal of investment
Value Sales proceeds Gain on disposal	Sh Million 12.5 15 2.5

W2

Disposal Account for fixtures and fittings
Cost	Sh million 42.5 42.5	Accumulated Depreciation Sales Proceeds Profit and loss (loss)	Sh million 20 16 6.5 42.5

W3

PPE a/c
Balanced b/d Revaluation Cash	Sh million 297.5 4.5 100.5 402.5	Disposal Bal fig	Sh million 42.5 360 402.5

W4

Provision for depreciation for PPE
Disposal Balanced b/d	Sh million 20 170 190	Bal b/d Depreciation	Sh million 145 45 190

W5

Cash and cash equivalent(balances)
Short term investment Cash in hand Bank over draft	2017 Sh Million - 05 (49) (48.5)	2018 Sh Million 25 1 (42.5) 16.5

---

Ole Kina Ltd Statement of cash flow for the year ended 31 March 2018
Cash flows from operating Activities Profit before tax Adjustment Depreciation Loss on disposal of fixtures & fittings Gain on disposed of investments Interest received Interest paid Working capital changes Increase in inventories Increase in receivables Increase in payables Gross cash flows from operating activities Less: Tax paid (55+70-60) Net cash flows from operating activities Cash flows from investing activities Cash proceeds from disposal of investments Cash proceeds from disposal of fixtures & fittings Interest received Cash paid to acquire PPE Purchase at intangible Assets (125-100) Net cash flows from investing activities Cash flows from financing activities Issues of shares (2.5×10) Issues of shares at premium (2.5×2) Dividend paid Loans borrowed (85-25) Interest paid Cash flows from financing activities Net changes in cash and cash equivalent(A + B + C) Add: Beginning cash and cash equivalent Ending cash and cash equivalent	Sh Million (75-51) (195-157.5) (63.5-59.5)	Sh Million 150 45 6.5 (2.5) (12.5) 37.5 (24) (37.5) 4 166.5 (65) 101.5 A 15 16 12.5 (100.5) (25) (82) B 25 5 (40) 60 (37.5) 12.5 C 32 (48.5) (16.5)

(i) Journal entries to correct the above errors (narrations not required).

Tuungane Journal entries to correct the above errors
1 2 3 4 5 6	Sales A/c Suspense A/c PEL Account Provision for Depreciation Suspense A/c Loan A/c Repairs A/c Pavilion A/c Suspense A/c Bar creditors A/c Cash book Suspense	Debit sh 115,000 56,000 450,000 135,000 45000 101,500	Credit sh 115,000 56,000 450,000 135,000 45,000 101,500

(ii) Suspense account dilly balanced

Suspense a/c
Loan Bad creditors	450,000 45,000 495,000	Balance b/d Sales Cash book	278,500 115,000 101,500 495,000

(iii) Statement of adjusted surplus (or deficit) Iòr the year ended 31 December 2017.

Tuungane Statement of adjusted surplus or (deficit) for the year ended 31 Dec 2017
Reported surplus Less: overstated bar takings Depreciation Repairs Adjusted Surplus	Sh 000 115,000 56,000 135,000	Sh 000 141,400 (306,000) (164,600)