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SECTION B

Question 1

Mr. and Mrs. Sharma run a small private company selling swimwear from China. Mr. Sharma has asked you to prepare set of financial statement for the year ended 31 December 2020 as soon as possible as the previous accountant left the company at very short notice.

	Dr	Cr
Audit and Accountancy	500
Advertising	900
Bank	1,500
Creditors		8,900
Long Term Bank Loan		2,200
Debtors	41,350
Directors remuneration	8,500
Electricity	2,800
Insurance	1,700
Fixtures and Fittings
At Cost	80,000
Accumulated depreciation (at 1.1.2020)	40,000
Motor Vehicle
At Cost	25,000
Accumulated depreciation (at 1.1.2020)	-	1,350
Office expenses	5,700
Ordinary 1 shares (issued and fully paid)	20,000
Profit and loss account (at 1.1.2020)	13,200
Purchases	160,000
Rent and rates	7,500
Sales	-	285,000
Stock (at 1.1.2020)	14,000
Wages and salaries	21,000
Bank Interest	200
	370,650	370,650

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Additional Information:

1. Stock at 31^stDecember 2020 valued at cost amounted to 18000. 2. Depreciation is to be provided on fixtures and fittings at 25% on cost 10% on reducing balance method for motor vehicle.

3. Provision is to be made for electricity for 250.

4. Insurance paid in advance at 31^stDecember 2020 amounted to 400.

Required

1. Prepare Income statement for the year ended 31st December 2020. (10Marks) 2. Prepare Balance Sheet as at 31st December 2020. (15 Marks) 3. Identify FIVE accounting concepts that have been applied in the preparation of financial Statements and explain their meaning. (10 Marks)

Total 35 Marks

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Question 2

The following statements of financial positions for the year ended 31st December 2020 and 2021 have been prepared for Harma Limited.

Statement of financial positions at: 31.12.21 31.12.20

Non-current assets

Plant and machinery at cost 45,000 45,000

Less: Depreciation (10,000) (8,000)

35,000 37,000

Investments at cost - 15,000Current assets

Inventory 36,000 19,000

Trade receivables 24,000 12,000

Cash - 2,000

60,000 33,000

95,000 85,000

Capital and reserves

Ordinary share capital 40,000 40,000

Share premium account 7,000 7,000

Retained earnings 9,000 3,000

Shareholders' funds 56,000 50,000Non-current liabilities

Loans - 10,000Current liabilities

Trade payables 29,000 25,000 Bank overdraft 10,000 39,000

95,000 85,000

Additional information:

There were no purchases or sales of plant and machinery during the year.Required

1. Mrs Harma has asked you to prepare Harma Limited's statement of cash flows for the year ended 31st December 2021. (18 Marks) 2. Write a short memo to Mrs Harma explaining the findings of your statement of cash flow. (7 Marks)

Total 25 Marks