Question
Accounting is irrelevant in modern business practice. Do you agree with this sentiment? Explain [10 Marks ] State and explain ONE main accounting principle, rule,
- Accounting is irrelevant in modern business practice". Do you agree with this sentiment? Explain [10 Marks]
- State and explain ONE main accounting principle, rule, assumption or any other concept from the conceptual framework of accounting that would be used by an accountant to solve the following financial reporting problems:
- Shareholders have resisted the preparation of the annual financial statements citing the high costs of producing annual reports and their assessment that the business is a small enterprise.
- Economic inflation has had an adverse impact on the firm's investment in marketable securities although there are rumours of a possible economic recovery because of the economic stimulus package implemented by the government.
- An entity's main competitor has initiated a legal suit in the commercial court whose chances of leading to material damages in the course of the next six months has been assessed by the entity's lawyers at 50:50.
- Banks insist on presenting quarterly financial reports even though the regular accounting practice is to publish annual financial reports.
- There is lack of clarity as regards what procedures to use when recognizing a new kind of equipment in the company's statement of financial position. [10 Marks]
QUESTION TWO
- Describe the critical financial information required to be captured in financial reports as stipulated by the International Accounting Standards Board [5 Marks]
- Kijeuri Traders is a Merchandising firm operated by Bibi Kijeuri. The following account balances were extracted from the books of account of the business on 30 September 2013, the business year end.
Sh | Sh. | |||
Land and buildings | 400,000 | Bank overdraft | 4,400 | |
Motor vehicles | 125,000 | Interest paid | 10,000 | |
Vehicles cumulative depreciation | 30,000 | Returns in | 6,500 | |
Equipment | 85,000 | Returns out | 7,600 | |
Equipment cumulative depreciation | 30,000 | Carriage in | 650 | |
Furniture and fittings | 75,000 | Carriage out | 1,200 | |
Furniture cumulative depreciation | 25,000 | Wages and Salaries | 34,750 | |
Stock | 48,500 | Rates and rent | 19,000 | |
Sales | 670,000 | Insurance | 6,500 | |
Purchases | 570,000 | Telephone expense | 4,600 | |
Debtors | 220,000 | Discounts received | 2,500 | |
Creditors | 148,000 | Discounts allowed | 4,500 | |
12% Long term loan | 500,000 | Motor vehicle expenses | 23,300 | |
Wages payable | 2,900 | Prepaid Rates | 3,000 |
Required: A statement of affairs to estimate the firm's equity at 30.9.2013 [10 Marks]
QUESTION THREE
The following has been extracted from the books of Masumbuko Traders Trial balance as at 31 July 2012:
DR (Sh.) | CR (Sh.) | |
Sh.10 ordinary share capital | 300,000 | |
Ordinary share premium | 50,000 | |
10% Sh10 preference share capital | 150,000 | |
Preference share premium | 25,000 | |
Land | 228,000 | |
Buildings | 265,000 | |
Fixtures and fittings | 42,000 | |
Rates | 3,500 | |
Purchases and sales | 950,000 | 1,333,000 |
Returns | 9,000 | 7,000 |
Discounts | 11,000 | 13,000 |
Debtors and creditors | 90,000 | 85,000 |
Wages and salaries | 62,000 | |
Administrative expenses | 5,000 | |
Rents | 40,000 | |
Provision for depreciation 1.8. 20X1 | ||
- Buildings | 22,500 | |
- Fixtures and fittings | 7,000 | |
Provision for doubtful debts | 2,000 | |
Advertising | 26,500 | |
10% long term loan | 105,000 | |
Capital reserves | 100,000 | |
Revenue reserves | 75,000 | |
Bank | 70,000 | |
Consultancy charges | 7,000 | |
Short term investments | 68,000 | |
Stock | 500,000 | |
Retained earnings | 30,000 | |
Loan interest | 7,500 | ________ |
2,344,500 | 2,344,500 |
Additional information:
- Sh.10,000 is to be written off as bad debt and a general provision of 5% of the remaining balance is to be provided for.
- Closing stock at 31 July 2012 was valued at Sh.550,000. Land was re-valued by 25% of the balance brought forward
- The company has invested in securities with an expected income of Sh.70,000 per year which has yet to be received or recorded
- A freight expense on purchases of Sh.7,000 is yet to be recorded nor paid
- Depreciation is still to be provided as follows:
- Buildings: straight line over 10%
- Fixtures and fittings: reducing balance 10%
- The following accruals for expenses at 31 July 2012 need to be made:
- Rates Sh.500
- Administration Sh.1,000.
- Consultancy charges, Sh.3,000
- Accounting is irrelevant in modern business practice". Do you agree with this sentiment? Explain
- State and explain ONE main accounting principle, rule, assumption or any other concept from the conceptual framework of accounting that would be used by an accountant to solve the following financial reporting problems:
- Shareholders have resisted the preparation of the annual financial statements citing the high costs of producing annual reports and their assessment that the business is a small enterprise.
- Economic inflation has had an adverse impact on the firm's investment in marketable securities although there are rumours of a possible economic recovery because of the economic stimulus package implemented by the government.
- An entity's main competitor has initiated a legal suit in the commercial court whose chances of leading to material damages in the course of the next six months has been assessed by the entity's lawyers at 50:50.
- Banks insist on presenting quarterly financial reports even though the regular accounting practice is to publish annual financial reports.
- There is lack of clarity as regards what procedures to use when recognizing a new kind of equipment in the company's statement of financial position.
QUESTION TWO
- Describe the critical financial information required to be captured in financial reports as stipulated by the International Accounting Standards Board
- Kijeuri Traders is a Merchandising firm operated by Bibi Kijeuri. The following account balances were extracted from the books of account of the business on 30 September 2013, the business year end.
Sh | Sh. | |||
Land and buildings | 400,000 | Bank overdraft | 4,400 | |
Motor vehicles | 125,000 | Interest paid | 10,000 | |
Vehicles cumulative depreciation | 30,000 | Returns in | 6,500 | |
Equipment | 85,000 | Returns out | 7,600 | |
Equipment cumulative depreciation | 30,000 | Carriage in | 650 | |
Furniture and fittings | 75,000 | Carriage out | 1,200 | |
Furniture cumulative depreciation | 25,000 | Wages and Salaries | 34,750 | |
Stock | 48,500 | Rates and rent | 19,000 | |
Sales | 670,000 | Insurance | 6,500 | |
Purchases | 570,000 | Telephone expense | 4,600 | |
Debtors | 220,000 | Discounts received | 2,500 | |
Creditors | 148,000 | Discounts allowed | 4,500 | |
12% Long term loan | 500,000 | Motor vehicle expenses | 23,300 | |
Wages payable | 2,900 | Prepaid Rates | 3,000 |
Required: A statement of affairs to estimate the firm's equity at 30.9.2013 [10 Marks]
QUESTION THREE
The following has been extracted from the books of Masumbuko Traders Trial balance as at 31 July 2012:
DR (Sh.) | CR (Sh.) | |
Sh.10 ordinary share capital | 300,000 | |
Ordinary share premium | 50,000 | |
10% Sh10 preference share capital | 150,000 | |
Preference share premium | 25,000 | |
Land | 228,000 | |
Buildings | 265,000 | |
Fixtures and fittings | 42,000 | |
Rates | 3,500 | |
Purchases and sales | 950,000 | 1,333,000 |
Returns | 9,000 | 7,000 |
Discounts | 11,000 | 13,000 |
Debtors and creditors | 90,000 | 85,000 |
Wages and salaries | 62,000 | |
Administrative expenses | 5,000 | |
Rents | 40,000 | |
Provision for depreciation 1.8. 20X1 | ||
- Buildings | 22,500 | |
- Fixtures and fittings | 7,000 | |
Provision for doubtful debts | 2,000 | |
Advertising | 26,500 | |
10% long term loan | 105,000 | |
Capital reserves | 100,000 | |
Revenue reserves | 75,000 | |
Bank | 70,000 | |
Consultancy charges | 7,000 | |
Short term investments | 68,000 | |
Stock | 500,000 | |
Retained earnings | 30,000 | |
Loan interest | 7,500 | ________ |
2,344,500 | 2,344,500 |
Additional information:
- Sh.10,000 is to be written off as bad debt and a general provision of 5% of the remaining balance is to be provided for.
- Closing stock at 31 July 2012 was valued at Sh.550,000. Land was re-valued by 25% of the balance brought forward
- The company has invested in securities with an expected income of Sh.70,000 per year which has yet to be received or recorded
- A freight expense on purchases of Sh.7,000 is yet to be recorded nor paid
- Depreciation is still to be provided as follows:
- Buildings: straight line over 10%
- Fixtures and fittings: reducing balance 10%
- The following accruals for expenses at 31 July 2012 need to be made:
- Rates Sh.500
- Administration Sh.1,000.
- Consultancy charges, Sh.3,000
- The following prepayments for expenses at 31 July 2012 need to be taken into account.
- Salaries Sh..2,000;
- Advertising Sh.12,000.
Required:
- An income statement for the year ended 31 July 2012 if dividend payout ratio is 50% of the after tax profits, the tax rate being 30%. The remainder of the profit is allocated to retained earnings, revenue reserves and capital reserves in the ratio 2:1:1 respectively.
- A statement of financial position as at that date. [20 Marks]
ing prepayments for expenses at 31 July 2012 need to be taken into account.
- Salaries Sh..2,000;
- Advertising Sh.12,000.
Required:
- An income statement for the year ended 31 July 2012 if dividend payout ratio is 50% of the after tax profits, the tax rate being 30%. The remainder of the profit is allocated to retained earnings, revenue reserves and capital reserves in the ratio 2:1:1 respectively.
- A statement of financial position as at that date. [20 Marks]
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