John has been trading since 2012 and his nephew who is not trained in accounting has been assisting him to keep records, in addition to helping in the shop. John would like to know the profit he made in 2017. You have been hired by John who has availed the following information:

1

Analysis of payments made during the year:

Cash sales for 2017 were Shs 66,734,000 and 60% of purchases for the year were in cash. John usually makes sales at a margin of 35%.

Cash and bank receipts from credit customers were Shs 15,500,000 and Shs 50,450,330 respectively. Payments to suppliers during the year were through the bank.

John's nephew has provided the following balances as at 1 January and 31 December, 2017.

5 6

The motorcycle and furniture have a useful

respectively and are depreciated using the straight line method.

It was John's habit to take out cash Shs 100,000 every two weeks from the business for non-business use. This went on for the whole year.

Cash payments: Rent

Water bill Electricity bills Bank payments: Salary and wages Trading license

Shs '000' 18,000 1,500 5,600

6,500 750

Motor cycle (cost Shs 4,500,000) Furniture (cost Shs 9,000,000) Cash

Bank

Inventory

Trade payables Salaries outstanding Trade receivables

1 January Shs 3,600,000 7,500,000 8,650,000 2,300,000 4,560,400 9,567,000 1,700,000 15,450,000

31 December Shs

? ? ? ?

7,560,500 10,564,000 3,400,000 18,765,670

life of 5 years and 6 years

1. 7Further information available shows that:

• The total bill for water for the year was Shs 2,340,000.
• The rent paid covers a period of 18 months to June, 2018.

1. 8During the year John acquired an interest free loan Shs 15,000,000 cash from his cousin and used the whole amount to pay for land where he is to relocate the business. He had repaid the cousin Shs 6,000,000 in cash by the end of the year. The balance was to be repaid in 2018.

Required:

Prepare for John for the year ended 31 December, 2017:

1. (a)a statement of affairs as at 1 January.
2. (b)cash book.
3. (c)a statement of profit or loss.

(Hint: Show all the workings)

Question 3

(a)

The following statement of financial position extract was prepared from the books of Hemp Enterprises Ltd as at 31 December, 2017.

Assets

Non-current assets:

Property, plant and equipment

Current assets:

Inventory

Receivables

Suspense account

cash and bank

Total assets

Capital & liabilities

Capital and reserves Current liabilities:

Trade payables

other payables

Total capital and liabilities

Shs '000'

224,040

34,000 26,000 18,410 10,000

312,450 257,000

46,000 9,450 312,450

In January, 2018 Musana, a junior accountant while checking the books of account for 2017 discovered the following errors committed during the year ended 31 December, 2017.

1 An invoice Shs 4,000,000 received in September 2017 from Bronze Traders was misplaced before it was recorded in the sales journal.

1. 2The accountant credited a cheque receipt Shs 605,000 from a customer to the cash book as Shs 560,000. The corresponding entry in the customer's account though was correctly made.
2. 3Sales Shs 7,680,000 were correctly entered in the cash book but the double entry to the respective account was not completed.
3. 4A discount received Shs 102,000 was credited to the discounts allowed account as Shs 210,000. The corresponding entry was correctly completed.
4. 5The purchases account was under cast by Shs 23,137,000.
5. 6Motor vehicle repairs Shs 840,000 was credited to the motor vehicles account as 840,000. The corresponding entry in the cash book was
6. correctly made.
7. 7Goods worth Shs 2,340,000 taken by directors for personal use were
8. not recorded anywhere in the books.
9. Required:
10. Prepare for Hemp Enterprises Ltd:
11. (i)Journal entries to correct the above errors. (8 marks)
12. (ii)A suspense account after passing entries correcting the errors.
13. (3 marks)

(b) The bookkeeper of Hakuna Mchezo Ltd was unable to do the reconciliation for the month of March 2018. The details provided below were for two months; March and April, 2018.

1

Items for March 2018: Unpresented cheques: Cheque No. 313 Cheque No. 411 Uncredited cheques: Cheque No. 513 Cheque No. 550

Direct debits: Bank charges Excise duty Direct credits Interest received Dividends

Shs 500,000 5,000,000

4,000,000 2,500,000

2,500 250

500,000 1,200,000

Cash book (bank column) and bank statement for the month of April, 2018:

Cash book Details

Balance b/f Cheque No. 300 Cheque No. 45

Shs 28,950,000 500,000 3,000,000

Details Cheque No. 10 Cheque No. 34 Cheque No. 40 Cheque No. 54 Cheque No. 42 Balance c/f

Credit Shs

500,000 300,000

2,250,000 4,000,000 230,000

150,000

680,000

Shs 705,000 2,000,000 1,100,000 680,000 50,000 30,265,000 34,800,000

Cash 2,250,000 Cheque No. 5 100,000 34,800,000

Bank statement:

Debit Shs

Balance b/f

Cheque No. 300

Cheque no. 45

Loan interest 175,000 Cheque No. 10 705,000 Cash

Cheque No 513

Transfer from Obwocha

Bank charges 2,500 Cheque No 411 5,000,000 Commission received

Cheque No. 34 2,000,000 Cheque No. 40 1,100,000 Cheque No. 54

Balance Shs 29,647,250 30,147,250 30,447,250 30,272,250 29,567,250 31,817,250 35,817,250 36,047,250 36,044,750 31,044,750 31,194,750 29,194,750 28,094,750 28,774,750

The bank dishonored cheques No. 5 and No. 42.

Any error, if found, should be deemed to have been caused by the bank.

Required:

Prepare for Hakuna Mchezo Ltd for the month of April, 2018:

(i) (ii)

an adjusted cash book.

a bank reconciliation statement.

Question 4

1. (a)Briefly explain the reasons for the slow growth of entrepreneurs in Uganda.
2. (5 marks)
3. (b)Quality Farm Products Ltd (QFP) is an agri-business company producing quality eggs and horticultural products all year round. The following information was extracted from the farm's assets register as at 1 July, 2016.

Asset

Furniture

Incubator (No.1) Irrigation equipment

Date of purchase

1 July,2015

1 January,2016 1 April,2016

Cost

Shs '000'

6,500 10,000 8,200

Depreciation rate (per annum) 5% 20% 10%

The farm kick-started an expansion program in the financial years 2016 and 2017 that included the following transactions among others:

1

2 3

4

5

On 1 December 2016, the company purchased the following assets: Incubator (No.2) Shs 15,000,000 to increase the capacity of hatching chicks. The incubator was to be depreciated at 20%

per annum.

Generator Shs 3,600,000. The generator was to be depreciated

at 10% per annum.

Removed from the assets' register the entire irrigation equipment after it became dysfunctional on 30 June, 2017.

Generator purchased on 1 December, 2016 was exchanged for a bigger brandy new generator at book value. The farm topped up Shs 5,200,000 to acquire the bigger generator on 30 June, 2017.

All assets are depreciated using the straight line method. The company charges full year depreciation in the year of purchase and none in the year of disposal. Depreciation expense is assumed to accrue evenly throughout the year.

The company's financial year ends 31 December. All payments were made through the bank.

Required:

Prepare the following ledgers for the financial years 2016 and 2017.

1. (i)A single non-current current assets account.
2. (ii)Accumulated depreciation account.
3. (iii)Disposal of non-current asset account.

Question 5

1. (a)Explain the fundamental and any three enhancing qualitative
2. characteristics of accounting information.
3. (5 marks)
4. (b)Okol and Akol are partners in True and Fair Associates, an audit firm providing audit and consultancy services. Okol and Akol share profits and losses in the ratio of 3:2 respectively. Their trial balance for the year ended 31 December, 2017 is shown below.

Details

Website subscription costs

Renewal of license for audit software Practicing fees to ICPAU

Staff development expenses

Other operating expenses

Staff salaries

Audit fees

Furniture & fittings at cost

Computers at cost

Accumulated depreciation 1 January, 2017: Furniture & fittings

Computers

Accrued audit fees

Cash & bank

Consultancy income

Accrued consultancy revenue & expenses payable

Capital accounts:

Okol

Akol

Current accounts:

Okol

Akol

Additional information:

Dr. Shs '000' 800 1,200 2,650 1,700 28,800 20,000

3,500 4,800

46,000 54,310

20,000

183,760

Cr. Shs '000'

134,885

175 1,200

20,000

3,000

9,800 8,700

4,500

1,500 183,760

1 An invoice to Molokony Enterprises of Shs 4,500,000 for consultancy services provided in October 2017 had not yet been honoured by the year end. This information is not included in the trial balance.

2

3

4 5

6 7

Annual subscription for 2017 Shs 450,000 for each partner paid on 31 March, 2017 is included in the staff development costs. It is the firm's policy that annual subscription for partners is not incurred by the firm. This should now be accounted for as drawings by partners. In 2017 the firm introduced a policy of giving partners salaries effective 1 July 2017. Okol and Akol are entitled to annual salaries of Shs 12,000,000 and Shs 16,000,000 respectively. The salaries of these partners for the year to 31 December, 2017 are included in the staff salaries.

The partnership received a cheque of Shs 20,000,000 on 29 December, 2017 in respect of outstanding audit fees. This cheque had not been recognised in the books by the year end.

The firm's depreciation policy is as follows:

Asset

Computers Furniture & fittings

Rate per annum (%) 25

5

Method

Straight line Reducing balance

The partners have agreed to provide for doubtful debts at 2% on all accrued revenues by 31 December, 2017.

Interest on capital is 10% per annum. Required:

(a) (b)

prepare journal entries to record the additional information.

(8 marks)

Prepare statement of profit or loss and an appropriation account for True and Fair Associates for the year ended 31 December, 2017

Question 6

(a) Explain, with examples, the meaning and application of the following accounting concepts:

1. (i)Accrual.
2. (ii)Prudence.
3. (iii)Going concern.
4. (iv)Consistency.