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CPA
Foundation Leval
Financial Accounting May 2021
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Financial Accounting
Revision Kit

QUESTION 1a

Q Required:
(i) Current assets.

(ii) Current liabilities.

(iii) Liquid assets.

(iv) Inventory.
A

Solution


(i) Current assets.


Current ratio = Current assets / Current liablities

Current ratio = 2.6 / 1

Working capital = Current assets - Current liabilities

2.6 - 1 = 1.6

1.6 = 1,100,000
2.6 = ?

(2.6 x 1,100,000) / 1,6 = 1,787,500

(ii) Current liabilities.


2.6 = 1,786,500
1 = ?

1,787,500 / 2.6 = 687,500

(iii) Liquid assets.


Quick ratio = (Current assets - Inventory) / Current liabilities

Quick ratio = 1.4 / 1

Liquid assets = Current assets - Inventory = 1.4

1 = 687,500
1.4 = ?

1.4 x 687,500 = 962,500

(iv) Inventory.


Liquid assets = Current assets - Inventory

Inventory = Current assets - Liquid assets

1,787,500 - 962,500 = 825,000

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QUESTION 1b

Q Required:
(i) Updated cash book as at 30 October 2020.

(ii) Bank reconciliation statement as at 30 October 2020.
A

Solution


(i) Updated cash book as at 30 October 2020.


Updated cash book

Balance b/d
Chequed recorded twice
Direct deposit




 Sh
894,680
15,100
210,100



1,119,880
Understated payments (310,840 - 301,840)
Bank commission
Bank interest
Dishonoured cheque
Standing order
Balance c/d

 Sh
9,000
169,560
109,100
29,310
15,000
787,910
1,119,880


(ii) Bank reconciliation statement as at 30 October 2020.


Balance as per the updated cash book
Add: Unpresented cheques
Less: Uncredited cash
Balance as per the bank statement		 787,910
395,800
(1,895,000)
(711,290)

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QUESTION 2(a)

Q Required:
(i) Journal entries to correct the above errors. (Narrations not required).

(ii) Suspense account duly balanced.
A

Solution


(i) Journal entries to correct the above errors.




1

2

3

4


5

6

7

Return inward Ac
Suspense A/c
Sales account
Suspense account
Suspense account
Purchase account
Discount allowed
Discount received
Suspense Account
Suspense Account
Sales account
Bad debt A/c
Suspense Account
Purchase A/c
Suspense A/c		 Debit
Sh."000"
2,850

4,800

2,970

2,520
2,520

19,780

6,300

2,650

 Credit
Sh."000"

2,850

4,800

2,970


5,040

19,780

6,300

2,650


(ii) Suspense account duly balanced.


Suspense Account

Sales
Purchases





 Sh."000"
19,780
2,970




22,750
Return inwards
Sales Account
Discount allowed
Bad debts
Purchases
bal fig

 Sh."000"
2,850
4,800
5,040
6,300
2,650
1,110
22,750

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QUESTION 2(b)

Q Required:
A property, plant and equipment schedule from 1 January 2011 to 31 December 2020 with the following details:

Date of purchase.

Cost.

Annual depreciation.

Accumulated depreciation:

Net book value.
A

Solution


Asset Schedule: January 1, 2011, to December 31, 2020, outlining property, plant, and equipment changes.


Year

 Purchase
date		 PPE(Machine)
Sh."000"
2011
Cost - A
Annual depreciation
Accumulated depreciation
Net book value = (cost-Acc)

2012
Cost balance b/d
Annual depreciation
Accumulated depreciation
Net book value

2013
Cost balance b/d
Addition - B
Annual depreciation
Accumulated depreciation
Net book value

2014
Cost balance b/d
Addition - C
Annual depreciation
Accumulated depreciation
Net book value

2015
Cost balance b/d
Annual depreciation
Accumulated depreciation
Net book value

2016
Cost balance b/d
Annual depreciation
Accumulated depreciation
Net book value

2017
Cost balance b/d
Addition - D
Annual depreciation
Accumulated depreciation
Net book value

2018
Cost balance b/d
Addition - E
Annual depreciation
Accumulated depreciation
Net book value

2019
Cost bal b/d
Annual depreciation
Accumulated depreciation
Net book value

2020
cost bal b/d
Annual depreciation
Accumulated depreciation
Net book value		 2/1/2011











17/11/2013






30/06/2014


















10/05/2017






9/10/2018
26,000
2,600
2,600
23,400


26,000
2,600
5,200
20,800


26,000
15,000
4,100
9,300
31,700


41,000
47,500
13,600
22,900
65,600


88,500
11,700
34,600
53,900


88,500
10,180
44,780
43,720


88,500
18,000
12,564
57,344
49,156


106,500
110,000
33,591.2
90,935.2
125,564.8


216,500
31,812.96
123,748.16
92,751.84


216,500
37,151.84
160,900
55,600

Workings


Annual depreciation

2011 A = 26,000 / 10 = 2,600

2012 A = 26,000 / 10 = 2,600

2013
A = 26,000 / 10
B = 15,000 / 10
= 2,600
= 1,500
4,100

2014
A = 26,000 / 10
B = 15,000 / 10
C = 47,500 x 20%
= 2,600
= 1,500
9,500
13,600

2015
A = 26,000 / 10
B = 15,000 / 10
C = (47,500 - 9,500) x 20%
= 2,600
= 1,500
= 7,600
11,700

2016
A = 26,000 / 10
B = 15,000 / 10
C = (47,500 - 9,500 - 7,600) x 20%
= 2,600
= 1,500
= 6,080
10,180

2017
A = 26,000 / 10
B = 15,000 / 10
C = (47,500 - 9,500 - 7,600 - 6,080) x 20%
D = 18,000 / 5
= 2,600
= 1,500
= 4,864
= 3,600
10,180

2018
A = 26,000 / 10
B = 15,000 / 10
C = (47,500 - 9,500 - 7,600 - 6,080 - 4,864) x 20%
D = 18,000 / 5
E = 110,000 / 5
= 2,600
= 1,500
= 3,891.2
= 3,600
= 22,000
33,591.2

2019
A = 26,000 / 10
B = 15,000 / 10
C = (47,500 - 9,500 - 7,600 - 6,080 - 4,864 - 3,891.2) x 20%
D = 18,000 / 5
E = 110,000 / 5
= 2,600
= 1,500
= 3,112.96
= 3,600
= 22,000
32,812.96

2020
A = 26,000 / 10
B = 15,000 / 10
C = (47,500 - 9,500 - 7,600 - 6,080 - 4,864 - 3,891.2 - 3112.96) - 5,000
D = 18,000 / 5
E = 110,000 / 5
= 2,600
= 1,500
= 7,451.84
= 3,600
= 22,000
37,151.84


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QUESTION 3

Q Required:
(a) Statement of profit or loss and appropriation account in columnar form for the two periods ended 30 June 2020 and 31 December 2020.

(b) Partners' current accounts.

(c) Statement of financial position as at 31 December 2020.
A

Solution


(a) Statement of profit or loss and appropriation account in columnar form for the two periods ended 30 June 2020 and 31 December 2020.




Sales
Less: cost of sales
Opening inventory
Add: purchases
Less: clossing inventory
Gross profit
Less: Expenses
Selling aned distribution
Depreciation
Mv = 20% x 18,400
Furniture = 10% x 5,600
Salaries 14,960 - 5,220
Allowance for doubtful debts
Amortization(12,000 / 25)
Rent and rates
Net profit
Less: Interest on capital
A
B
C
Profit to be shared
Shared profit
A
B
C

First 6 months
Sh."000"
40% x 80,000 = 32,000



40% x 42,000 = (16,800)
15,200

0.4 x 5,240 = (2,096)

(1,840)
(280)
(4,870)
(129)
(240)
(420)
5,325

(300)
(270)
(-)
4,755

2 / 3 x 4,755 = 3,170
1 / 3 x 4,755 = 1,585
-
4,755		 Next 6 months
Sh."000"
60% x 80,000 = 48,000



60% x 42,000 = (25,200)
22,800

0.6 x 5,240 = (3,144)

(1,840)
(280)
(4,870)
(80)
(240)
(420)
11,926

(420)
(240)
(160)
11,106

2 / 5 x 11,106 = 4442.4
2 / 5 x 11,106 = 4442.4
2,221.12
11,106		 Total
Sh."000"
80,000

9,600
43,200
(10,800)
38,000

(5,240)

(3,680)
(560 )
(9,740)
(209)
(480)
(840)
17,251

(720)
(510)
(160)
15,861

7,612.4
6,027.4
2,221.2
15,861

Workings


Partners capital a/c


Goodwill written off

Bal c/d

Andrew
Sh."000"
3,600

8,400
12,000		 Benta
Sh."000"
3,600

4,800
8,400		 Chris
Sh."000"
1,800

3,200
5,000

Bal b/d
Addition
Goodwill

 Andrew
Sh."000"
6,000
-
6,000
12,000		 Benta
Sh."000"
5,400
-
3,000
8,400		 Chris
Sh."000"
-
5,000
-
5,000


Goodwill recognized

A - 2 / 3 x 9,000 = 6,000

B - 1 / 3 x 9,000 = 3,000

Goodwill written off

A - 2 / 5 x 9,000 = 3,600

B - 2 / 5 x 9,000 = 3,600

C - 1 / 5 x 9,000 = 1,800

Interest on capital

First 6 months

A - 6,000 x 10% x 6 / 12 = 300

B - 5,400 x 10% x 6 / 12 = 270

Next 6 months

A - 8,400 x 10% x 6 / 12 = 420

B - 4,800 x 10% x 6 / 12 = 240

C - 3,200 x 10% x 6 / 12 = 160

(b) Partners' current accounts.


Partners current a/c


Drawings


Bal c/d

Andrew
Sh."000"
2,540


8,992.4
11,532.4		 Benta
Sh."000"
2,020


6,957.4
8,977.4		 Chris
Sh."000"
660


5,221.2
5,881.2

Bal b/d
Addition
Interest on Capital
Profit share

Andrew
Sh."000"
3,200
-
720
7,612.4
11,532.4		 Benta
Sh."000"
2,440
-
510
6,027.4
8,977.4		 Chris
Sh."000"
-
3,500
160
2,221.2
5,881.2


(c) Statement of financial position as at 31 December 2020.


Andrew Benta and Chris
Statement of financial position as at 31 December 2020
Non Current Assets
Lease hold premises (12,000 - 480)
Motor vehicles 18,400 - (3,680 + 3,680)
Furniture & fittings 5,600 - (960 + 560)
Current assets
Inventory
Account receivable (6,440 - 209)
Bank
Total Assets
Capital and liabilities
Capital a/c
A - 8,400
B - 4,800
C - 3,200
Current a/c
A - 8,992.4
B - 6,957.4
C - 5,221.2
Current liabilities
Total capital and liabilities		 Sh 000
11,520
11,040
4,080

10,800
6,231
2,460
46,131




16,400



21,171
8,560
46,131

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QUESTION 4

Q Required:
(a) Statement of profit or loss for the year ended 30 September 2020.

(b) Statement of financial position as at 30 September 2020.
A

Solution


(a) Statement of profit or loss for the year ended 30 September 2020.


Almond Ltd
Statement of profit or loss for the year ended 30th September 2020

Sales
Less: Cost of sales
Add: Purchases
Less: Closing inventory
Gross profit
Add: Investment income
Total incomes
Less: Expenses
Administrative expenses (34,440 + 160 + 240)
Depreciation:
Buildings 4% x 56,250
Plant & Equipment 15% x 55,000
Furniture & fittings 10% x (35,000 - 9,600 )
Allowance for doubtful debts (4% x 35,700)
Distribution cost .
Debenture interest 6% x 10,000
Profit before tax
Less: Corporate tax
Profit after tax
Less: preference dividend(8% x 12,000)
→ Interim
→ Final
Less: Ordinary dividend:
→ Interim
→ Final 10% x 20,000
Retained profit for the year
Retained earnings balance b/d
Add: Retained earnings balance b/d		 Sh."000"

12,400
147,200
(12,550)




34,840

2,250
8,250
2,540
1,428
22,300
600




480
480

2,000
2,000



 Sh."000"
283,460


(147,050)
136,410
1,500
137,910








(72,208)
65,702
(18,500)
47,202


(960)


(4,000)
42,242
14,160
56,402

(b) Statement of financial position as at 30 September 2020.


Almond Ltd
Statement of financial position as at 30th September 2020
Non current assets
Buildings 56,250 - (18,000 + 2,250)
Plant & Equipment 55,000 - (12,800 + 8,250)
furniture's & fittings 35,000 - (9,600 + 2,540)
Long term investment
Current assets
Inventory
Account receivable (35,700 - 1,428)
Short term investment
Total assets
Equity and liabilities
Ordinary shares (20,000 + 26,000)
Preference share
Revaluation reserve
Retained earnings
Non Current liabilities
60% debentures
Current liabilities
Account payables
Bank overdraft
Corporate tax
Debenture interest payable
Proposed dividend (480 + 2,000)
Accruals (160 + 240)
Totals Equity & liabilities		 Sh."000"
36,000
33,950
22,860
12,000

12,550
34,272
22,500
174,132

46,000
12,000
3,400
56,402
10,000
5,200

17,770
1,680
18,500
300
2,480
400
174,132

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QUESTION 5(a)

Q Highlight four uses of the general journal
A

Solution


Uses of the General Journal


The general journal is a versatile accounting tool used for various purposes in financial record-keeping. Here are some key uses:

  • Recording Transactions: The general journal is used to record day-to-day business transactions, including sales, purchases, and other financial activities.
  • Adjusting Entries: It is employed for making adjusting entries at the end of an accounting period, ensuring that accounts reflect accurate financial information.
  • Correcting Errors: The general journal is useful for correcting errors in the initial recording of transactions or adjusting entries.
  • Accruals and Deferrals: Accruals and deferrals, such as recognizing revenue or expenses that occur but haven't been recorded, are entered using the general journal.
  • Opening Entries: It is utilized for recording opening entries when starting a new accounting period, ensuring a smooth transition from the previous period.
  • Closing Entries: Closing entries, which transfer revenue and expense account balances to retained earnings, are made in the general journal at the end of an accounting period.
  • Account Transfers: The general journal facilitates the transfer of amounts between different accounts, helping maintain accurate balances.
  • Audit Trail: It provides a clear audit trail, allowing auditors to trace and verify the financial transactions recorded in the general ledger.

Overall, the general journal plays a crucial role in the accounting process, ensuring accuracy, transparency, and compliance with accounting principles.



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QUESTION 5(b)

Q Distinguish between the terms "prime cost" and "factory overheads" as applied in manufacturing accounts.
A

Solution


Prime Cost vs. Factory Overheads


In manufacturing accounts, the terms prime cost and factory overheads refer to distinct elements of production costs. Here's a breakdown of each term:

  • Prime Cost:

    • The prime cost represents the direct costs associated with the production of goods. It includes the essential and directly attributable costs to the manufacturing process. The components of prime cost typically include:


    • Direct Materials: The cost of raw materials directly used in the production process.
    • Direct Labor: The cost of labor directly involved in the manufacturing process.
    • Direct Expenses: Other direct costs, such as fuel or specific supplies directly related to production.

  • Factory Overheads:

    • Factory overheads, on the other hand, encompass indirect costs associated with the production process. These costs are necessary for manufacturing but are not directly tied to specific units of production. Factory overheads may include:


    • Indirect Materials: Materials that are essential to the production process but are not directly incorporated into the final product.
    • Indirect Labor: The cost of labor that supports the production process but is not directly involved in the manufacturing of individual units.
    • Indirect Expenses: Other indirect costs, such as factory utilities, maintenance, and depreciation of factory equipment.

Understanding the distinction between prime cost and factory overheads is crucial for accurately assessing the total cost of production in manufacturing accounts.



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QUESTION 5(c)

Q In the context of public sector accounting, explain the following terms:

(i) Social benefits.

(ii) Contingent asset.

(iii) Contingent liability
A

Solution


Public Sector Accounting Terms


  1. Social Benefits:

    2. Social benefits in public sector accounting refer to financial assistance or support provided by the government to individuals or groups within society. These benefits are aimed at improving the overall well-being of citizens and may include:


    • Welfare programs
    • Unemployment benefits
    • Pensions
    • Healthcare services
    • Education subsidies

  2. Contingent Asset:

    3. A contingent asset in public sector accounting is a potential economic benefit that may arise in the future, depending on the occurrence of certain events. The recognition of a contingent asset is contingent upon the realization of future events. Examples include:


    • Legal claims with a favorable outcome
    • Potential grants or gifts
    • Expected reimbursements
    • Expected sales of surplus assets

  3. Contingent Liability:

    4. A contingent liability in public sector accounting is a potential obligation that may arise in the future, depending on the occurrence of specific events. The recognition of a contingent liability is contingent upon the realization of future events. Examples include:


    • Pending legal claims with an uncertain outcome
    • Potential warranty obligations
    • Environmental cleanup costs
    • Possible financial guarantees

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QUESTION 5(d)

Q Explain the following terms as used in not-for-profit organisations:

(i) Crowdfunding.

(ii) Life membership.

(iii) Grants.
A

Solution


Not-for-Profit Organization Terms


  1. Crowdfunding:

    2. Crowdfunding in the context of not-for-profit organizations refers to the practice of raising funds from a large number of people, typically through online platforms. This approach allows supporters to contribute small amounts of money to collectively fund a specific project, cause, or initiative. Crowdfunding is often used for:


    • Initiating community projects
    • Funding specific programs or events
    • Supporting charitable campaigns
    • Engaging the community in fundraising efforts

  2. Life Membership:

    3. Life membership in not-for-profit organizations involves individuals making a one-time payment or fulfilling specific criteria to become members for their entire lives. Life members enjoy certain benefits and privileges within the organization, which may include:


    • Permanent voting rights
    • Access to exclusive events or programs
    • Recognition as a lifetime supporter
    • Special acknowledgments and perks

  3. Grants:

    4. Grants in not-for-profit organizations represent financial assistance provided by external entities, such as government agencies, foundations, or corporations. These funds are typically non-repayable and are awarded to support specific projects, initiatives, or the overall mission of the organization. Grants are commonly used for:


    • Implementing community programs
    • Expanding services or facilities
    • Research projects
    • Capacity-building activities

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