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NUMBER FIVE (a) Write brief notes on the following in the contest of government accounting: Sinking fund. (2 marks) Revolving fund (2 marks) (b) ABC Led purchases gas cookers at Sh.3,500 each and sells them through consigners as Sh. 5,000 each. Each consignce is entitled to a commission of 5% on sales from consigned goods and full recovery from sales made of any expenses incurred on the consigned goods. The following transactions took place between ABC Led and Xyz Led, a consignee, during She three- month period ended 30 June 2006: 1. ABC Led sent 200 gas cookers to XYZ Led. and incurred the following costs: Packing Sh16,000 Insurance Sh. 30,000 Transport Sh. 42,000 2. On receipt of the cookers, XYZ Lid. incurred Sh. 12,000 on unpacking and preparing the cookers for sale. 3. XZ. Led, sold 160 cookers and incurred carriage out costs of Sh. 18,000. Other incurred by XYZ Led. in the period included casual wages Sh. 15,000, advertising expenses Sh. 5,000 and storage cost Sh.12,000. 4. Some customers returned gas cookers to XYZ Lid. after experiencing gas leakage. XYZ Lid. spent Sh. 10,000 to repair the cookers. 5. In order to sell 40 cookers, they were all fitted with additional safety gadgets at a total cost of Sh. 12,000 which was paid by XYZ Led. XYZ Lid. sold 30 of the cookers fitted with the additional safety gadgets at Sh.6,000 each. XYZ Lid sent ABC Led. an account sales on 30 June 2006 enclosing a cheque for Sh.800,000. Required: The accounts listed below in the books of ABC Led. for the three-month period ended 30 June 2006. (4) Goods sent on consignment account. (6 marks) XYZ Lid. account (6 marks) Profit and loss account for the three-month period ended 30 June 2006. (4 marks) (Total: 20 marks)NUMBER FOUR The balance of Beta Led. as at 31 October 2005 was as given below. Beta Ltd. Balance sheet as at 31 October 2005 Assets Sh.'000" Sh.'000' Non-current assets: 4,000 Machinery and equipment Current assets: Inventories 280 Debtors 320 Bank balance and cash in hand 210 4,810 Equity and liabilities: Capital and reserves: Ordinary share capital 240 Retained profit 70 310 4,810 The following transactions were carried out in the financial year ended 31 October 2006: 1. Sales for the year amounted to Sh. 11,220,00 of which Sh.2,400,000 were made in the quarter of the year 2. Purchases for the year amounted to 9,316,000 of which 2,090,000 were made in the last quarter of the year. 3. The company collected Sh. 11,130,000 from trade debtors and paid trade creditors Sh. 9,236,000 during the year. 4. All outstanding expenses as at 31 October 2005 related to operating expenses including interest on loan. 5. Operating expenses for the year ended 31 October 2006 including Sh.45,000 interest on loan amounted to Sh. 1,449,000 of which Sh. 1,429,000 was paid in the year. 6. The company purchased new equipment costing sh.500,000 on 1 May 2006. Depreciation on the machinery and equipment is provided at the rate of 10% per annum based on the book value with a full years' depreciation being provided on an asset purchased in the course of the year. 7. On 31 July 2006, fire broke out in the premises of Beta Led and destroyed all the trading stock apart from stock valued at Sh. 150,000 which was salvaged. 8. In the year ended 31 October 2005, sales amounted to Sh. 8,540,000 and cost of sales amounted to Sh.7,007,000. The sales included Sh. 190,000 from goods which had cost Sh. 180,000 and which had been damaged necessitating their value to be reduced by Sh.20,000. 9. Before the outbreak of the fire, it was estimated that the gross profit percentage fro the year ended 31 October 2006 was 2% above the gross profit percentage for the year ended 31 October 2005. 10. The company had insured its trading stock for Sh,360,000. After determining the value of stock lost in the fire, the company received compensation from the insurance company on 15 September 2006. The insurance company applied the average provision method in determining the claim to be paid. 11. The company paid a first and final dividend of 6% on 1 October 2006. 12 Stock was valued at Sh.320,000 as at 31 October 2006. 13 Assume all the sales and purchases were made on credit. Required: (a) Cost of stocks lost in the fire stating the amount to be claimed from the insurance company. (8 marks) (b ) Trading, profit and loss accounts for the year ended 31 October 2006. (6 marks) (c) Balance sheet as at 31 October 2006. (6 marks) (Total 20 marks)Obligations under finance lease 10 6 Current tax 58 40 Dividends proposed 8 522 16 360 1,294 976 Additional information: 1. During the year ended 30 September 2006, Wananchi Led. issued 10 million (Sh. 2 per value) ordinary shares at a price which was 100% above their par value, incurring issue costs of Sh. 2 million. 2. During the year ended 30 September 2006, some items of property, plant and equipment were bought under a finance lease amounting to Sh. 56 million. Disposals of assets having a net book value of Sh. 38 million realized Sh. 42 million. Depreciation charge was Sh. 74 million. 3. Investments purchased during the year ended 30 September 2006 include Sh. 160 million loan stock in another company payable after 10 years. The remaining investments were treasury bills redeemable in 3 months time. 4 Interest on finance leases of Sh. 6 million was included in the interest payable charged to the income statement. Required: Cash flow statement for Wananchi Led. for the year ended 30 September 2006 in accordance with IAS 7 (Cash Flow Statements) (16 marks) (Total: 20 marks)NUMBER THREE (a) State any four benefits of a cash flow statement. (4 marks) (b) Wananchi Led. prepared the following draft financial statements for the year ended 30 September 2006. Income statement for the year ended 30 September 2006 Sh."million Sh."million' Sales 710 Interest income 6 Expenses: Operating expenses 470 Interest expense 14 Profit before tax (484 Income tax expense 232 Profit after tax (64) Dividends (paid and proposed) 168 (40) 128 Balance sheets as at 30 September 2006 2005 Sh.million | Sh.million Sh.million | Sh.million Non-current assets: 544 Property, plant and equipment 6 Intangible assets 550 Current assets: 310 Inventories 280 220 Trade receivables 264 Interest receivable 2 Investments 190 744 42 576 Cash in hand 1294 970 Ordinary share capital (Sh.2 per value) 200 180 10% preference share capital (Sh.2 Per value) | 40 40 Share premium 88 70 Revaluation reserve 14 Retained profits 290 162 632 452 Non-current liabilities 6% loan stock 40 Obligations under finance lease 100 140 84 164 Current liabilities: Bank overdraft 16 40 Trade payables 424 254 Interest payable 6 4Eggs 2,800 Salaries and wages: Crops 6,000 Cattle 7,200 Poultry 4,800 Expenses: Crops 2,500 Cattle 4,000 Poultry 3,000 Manager's salary 6,000 Postage and stationery 800 General expenses 7,000 Insurance 3,700 Finance costs 1,750 Depreciation on assets 6,000 Accrued expenses 1,500 Sundry creditors 3,300 Bank loan 20,000 258,300 258,300 Additional information: 1. As at 30 June 2006, stocks were3 valued as follows: Sh.'000" Poultry 2,150 Cattle 6,500 Cattle feed 2,800 Seeds 1,800 Poultry feed 1,200 Fertilizers 2,200 Growing crops 7,100 Eggs 150 2. During the year ended 30 June 2006, the workers consumed products whose values were as shown below: Sh.'000" Poultry 800 Cattle 1,500 Crops 1,200 Eggs 150 3. Depreciation expense for the year ended 30 June 200-6 is to be apportioned in the ratio of 3:2:1 between the crops activity, livestock activity respectively. 4. The directors of the company have recommended a dividend of 10% Required: Crops account, livestock account and poultry account fro the year ended 30 June 2006. (12 marls) General profit and loss account for the year ended 30 June 2006. (4 marks) (Total: 20 marks)NUMBER TWO (a) In the context of IAS 41 (Agriculture), explain 6the meaning of the following terms: Biological transformation (2 Marks) Agricultural activity (2 Marks) (b) Wakulima Led. is a farming business carrying out livestock, poultry and crop farming activities. The information provided below was extracted from the books of the company as at 30 June 2006: Sh. '000" Sh.'000' Stock - 1 July 2005 Fertilizers 2,600 Growing crops 6,800 Cattle 8,300 Cattle feed 3,200 Seeds 2,050 Poultry 3,800 Poultry feed 1,800 200 Land and buildings (net book value) 40,000 Machinery and equipment ( net book value) 20,000 Furniture (net book value) 5.000 Farm tools 4,000 Sundry debtors 5,450 Cash at bank 850 Ordinary share capital 40,000 Share premium 20,000 Profit and loss account (1 July 2005) 6.850 Purchases: Poultry 18,000 Cattle 47,000 Cattle feed 14,-000 Seeds 5,000 Poultry feed 6,000 Fertilizers 11,500 Sales: Crop 35,650 Milk 15,200 Cattle 78,000 Poultry 35,00QUESTIONS NUMBER ONE (a) Briefly explain the meaning of the following terms as used in insurance business. Bonus in reduction of premium (2marks) (ii) Surrender value 2marks) Reinsurance. (2marks) (iv) Annuity. (2marks) (b) The following trial balance was extracted from the books of Bima Insurance Led. as at 30 June 2006. Sh. 000 Sh.000 Net earned premiums: Fire 139,668 Motor 259,456 Net commissions: Fire 3,466 Motor 6,938 Net earned paid: Fire 55,784 Motor 111,562 Net claims outstanding as at 1 July 2005: Fire 72,036 Motor 144,074 Management expenses to be charged to revenue accounts 155,108 Management expenses not to be charged to revenue accounts 20,000 Bad debts 5,000 Treasury bills 199,100 Treasury bonds 11,386 Deposits in banks 474,100 Motor vehicles (net book value-1 July 2005) 1,000 Equipment (Net book value - 1 July 2005) 14,414 Amounts due to other insurance companies 4,000 Amounts due from other insurance companies 6,940 Bank overdraft 16,000 Share capital 120,000 Investment income 72,000 Other income 17,564 Revaluation reserves 50,000 Retained earnings as at 1 July 2005 30,000 Unearned premium reserves as at 1 July 2005: Fire 40,000 Motor 100,00 1,064,798 1,064,798 Additional information: 1. Management expenses are to be apportioned to revenue accounts on the basis of net earned premiums. 2 The management made the following estimates as at 30 June 2006: Sh.'000' Net claims outstanding: Fire 90,000 Motor 158,DO0 3. Reserve for unexpired risks as at 30 June 2006 is to be maintained at 50% of the respective net earned premiums for both the fire and motor businesses. 4 Depreciation on motor vehicles and equipment is to be provided using the reducing balance method at the rates of 20% and 10% per annum respectively. Required: Revenue accounts for the year ended 30 June 2006. 8 marks) Profit and loss account for the year ended e( June 2006. (4 Marks) (Total: 20 Marks)
