1.1 A book of prime entry is one in which: A. The rules of double entry bookkeeping do not apply. B. Subsidiary accounts are kept. C. Ledger accounts are maintained. D. Transactions are entered prior to being recorded in the ledger. [2 marks] 1.2 Which of the following is not the purpose of a sales ledger control account? A. A sales ledger control accounts ensures that there are no errors in the personal ledger. B. A sales ledger control accounts helps to locate errors in the trial balance. Control accounts deter fraud. C. A sales leger control account provides a check on the arithmetic accuracy of the personal ledger. D. Control accounts deter fraud. [2 marks] 1.3 A suspense account shows a credit balance of K520,000. This could be due to... A. Omitting a sale of K520,000 from the sales ledger. B. Recording a purchase of K520,000 twice in the purchases account. C. Recording electricity bill paid of K260,000 by debiting the bank account and crediting the electricity account. D. Failing to write off a bad debt of K520,000. [2 marks] 1.4 In a not for profit organization, the accumulated fund is A. Non current assets current liabilities - non current liabilities. B. Non-current liabilities + current liabilities + current assets. C. Non-current assets + net current assets non-current liabilities. D. The balance of the general reserves account. [2 marks] 3 1.5 Which of the four statements below are correct? 1. The maximum loss that a member suffers in a limited liability company is restricted to the amount of his share capital. 2. Partners in a partnership are always required to share profits and losses equally. 3. Sole trader, partnership and limited liability company businesses are created by two or more people. 4. Sole trader, partnership and Limited Liability Company are all separate legal entity A. 1, 2, 3 and 4. B. 1 only . C. 2, 3 and 4 only. D. 1 and 4 only. [2 marks] 1.6 A bank statement shows a balance at bank of K6,400,000. The amount of unpresented cheques is K2,400,000 and the amount of uncredited deposits is K1,400,000. What is the debit balance in the cash book? A. K2,600,000 B. K7,400,000 C. K5,400,000 D. K10,200,000 [2 marks] 1.7 The accounting equation can change as a result of certain transactions. Which one of the following transactions would not affect the accounting equation? A. Selling goods for more than their cost. B. Purchasing a non- current asset on credit. C. The owner withdrawing cash. 4 D. Receivables paying their accounts in full by cash. [2 marks] 1.8 A society has 1000 members and the subscription is K50 per year. During the course of the financial year 2015, all members have paid the correct amount except for 40 members who paid K100 each because they owed for the previous year, and 20 members who have paid for next year. The subscription income for the year 2015 in income and expenditure account is. A. K47,000 B. K48,000 C. K50,000 D. K53,000 [2 marks] 1.9 Mwango is trying to work out his cost of sales for the year ended December 2013. He has the following details for the suppliers and inventory balances: At 1 st January 2013 At 31st December 2013 Supplier K30,528 K33,624 Inventory K12,718 K9,838 In the year to 31st December Mwangos payment to suppliers totaled K 282,648 What was Mwangos cost of sales for the year to 31st December 2013 A. K 298,462 B. K 288,624 C. K 285,744 D. K 282,864 [2 marks] 1.10 A sole trader took some goods costing K800,000 from inventory for his own use. The normal selling price of the goods is K1,600,000. Which of the following journal entries would correctly record this? 5 DR CR K000 K000 A. Drawings account 800 Inventory account 800 B. Sales account 1,600 Drawings account 1,600 C. Drawings account 800 Purchases account 800 D. Drawing account 800 Sales account 1,600 [2 marks] [Total: 20 marks] SECTION B Answer Four (4) questions QUESTION TWO (a) In an attempt to deal with some of the subjectivity, and achieve comparability between different organizations, accounting standards were developed. Discuss briefly the need for setting up the accounting standards. [4 marks] (b) The management of a company has the responsibility of preparing financial statements in accordance with the International Financial Reporting Standards 6 (IFRS). State the users of accounting information and their need for the information. [6 marks] (c) Clara is a sole is trader who sells all her goods at 30% above cost. Her books give the following information as at 31st December 2015. K000 Inventory 1 January 2015 20,000 Inventory 31st December 2015 27,000 Sales for the year 160,000 Expenses are 10% of the of the gross profit Required (i) Ascertain the cost of goods sold for the year ended 31st December 2015. [2 marks] (ii) Show the value of purchases for year ended 31st December 2015. [3 marks] (iii) Calculate the gross profit made by Clara in the year 2015. [3 marks] (iv) Calculate the net profit made by Clara in the year 2015. [2 marks] [Total: 20 marks] QUESTION THREE Cindy Zhang owns a fashion shop in Lusaka. The following trial balance was extract from her ledger books as at 30th June 2015. Cindy Zhang Trial Balance as at 30th June 2015 K000 K000 Sales 251,316 Returns inwards/outwards 12,682 3,804 Receivables and payables 20,000 9,022 Office equipment: 7 Cost 20,000 Accumulated depreciation 1st July 2014 2,000 Motor vehicle: Cost 7,000 Accumulated depreciation 1st July 2014 1,400 Purchases 129,452 Inventory at 1st July 2014 10,000 Carriage inwards 1,816 Carriage outwards 1,054 Bad debts 290 Insurance 2,698 Electricity 3,606 Salaries and wages 23,100 Provision for doubtful debts 800 Rent 17,600 Cash in hand 22,514 Employee income tax payable 906 Capital at 1st July 2014 9,700 Drawings 30,000 Loan from FNB 22,864 301,812 301,812 8 Additional information: 1. The value of inventory on hand at 30th June 2015 was 11,400,000 2. Bank charges incurred to 30th June 2015 are estimated to be K1,200,000 3. Salaries and wages of K400,000 had accrued as at 30th June 2015 4. Rent of K750,000 was prepaid at 30th June 2015 5. Provision for doubtful debts to be adjusted to 6% of Trade receivables. 6. Office equipment is to be depreciated at 10% per annum on cost and Motor vehicle to be depreciated at 20% per annum on cost. Required: (a) Prepare Cindy Zhangs statement of comprehensive Income(profit or loss) for the year ended 30th June 2015. [12 marks] (b) Prepare Cindy Zhangs statement of financial position(Balance Sheet) as at 30th June 2015. [8 marks] [Total: 20 marks] QUESTION FOUR Ifintu Ltd was formed on 1st January 2011. The following information relates to the companys purchases and sale of non-current assets for the first 3 years of its operations. The year end for the company is 31st December every year. Date Asset Transaction Amount 1 January 2011 Motor Vehicle 1 purchase K500, 000 1 April 2012 Motor Vehicle 2 purchase K800, 000 1 July 2013 Motor Vehicle 3 purchase K600, 000 1 July 2013 Motor Vehicle 1 Sale K290, 000 Each Motor Vehicle was expected to last for the 5 years and have the scrap value of 20% of its cost price. Depreciation was by straight line method and the company has policy of charging depreciation every month the asset is owned. 9 Required: (a) Write up the following ledger accounts for the year 2011, 2012 and 2013: (i) Motor Vehicle Account [6 marks] (ii) Allowance for Depreciation Account [8 marks] (iii) Motor Vehicle Disposal Account [3 marks] (b) Explain briefly the reasons for depreciating the companys non-current assets and eventually charging depreciation in income statement. [3 marks] [Total: 20 marks] QUESTION FIVE Lusaka Youth Club was established to empower youths with various skills. The club rents premises in Kalingalinga where it runs a bar for use by its members. It is now end of year 2016 and clubs treasury has produced the following summary of the clubs, receipts and payments for the year ended 31st March 2016. Receipt K000 Payments K000 Cash and bank b/d 1,120 Secretarial expenses 550 Members subscription 4,460 Rent of Premises 1,990 Donations 500 Bar Suppliers 14,700 Bar takings 25,900 Bar expenses 4,180 Grant 13,800 Stationery and printing 1,100 Other expenses 4,820 Cash and Bank c/d 18,440 45,780 45,780 10 The treasurer has also been able to provide the following information: 1 st April 2015 31st March 2016 K000 K000 Subscriptions in arrears 350 460 Subscription in advance 160 60 Owing to bar suppliers 1,300 1,650 Bar inventory 2,670 2,330 Stationery and printing paid in advance 400 300 Valuation of bar equipment 14,500 11,500 The clubs chairman is very interested in seeing the financial report for the year 2016. Required: (a) Prepare the Clubs Subscriptions Account [5 marks] (b) Prepare the Bar Trading Account [7 marks] (c) Prepare Lusaka Youth Clubs Income and Expenditure Statement for the year ended 31st March 2016. [8 marks] [Total: 20 marks] QUESTION SIX (a) Ndaibona, proves the accuracy of its sales and purchases ledger by preparing monthly control accounts. As at 1 December 2013, the following balances existed in the companys accounting records, and control accounts agreed: Debit Credit K000 K000 Sales ledger control account 94,180 1,070 Purchases ledger control account 60 44,705 11 The following are totals of the transactions which took place during the month of December 2013, as extracted from companys records. K000 Credit sales 50,630 Cash sales 60,100 Credit purchases 34,210 Returns inwards 4,580 Returns outwards 2,140 Cash received from customers 45,635 Cash paid to suppliers 35,920 Discount allowed 715 Discount received 440 Bad debts written off 230 Interest charged by supplier on overdue account 50 Balances on the sales ledger set off against balance on purchases ledger 250 As at 31 December 2013, the balances on customers and supplier personal accounts were extracted and totalled as follows: Debit balance Credit balance K000 K000 Sales ledger to be ascertained 1,340 Purchases ledger 45 to be ascertained Required: Prepare sales and purchases ledger control accounts for the month of December 2013 [17 marks] (b) State any three uses of control accounts. [3 marks] [Total: 20marks]