Question 2 SECTION B Differentiate between a trial balance and a statement of financial position. (2 marks) The following is a list of balances of M & B Enterprises Ltd for the year ended 30 June, 2016: Details Sales Purchases Capital Bad debts written off Land Office Equipment at cost Motor Vehicle at cost Inventory 1st July 2015 Accounts receivable Accounts payables Motor Vehicle expenses Returns Rent Electricity Stationery Wages and salaries Cash at hand Cash at bank Accumulated loss 1 July, 2015 Rates Accumulated depreciation: Motor vehicles Office equipment Carriage outwards 10% Bank Loan Interest (10% loan) Discount received Shs '000' Dr Shs '000' Cr 170,100 97,000 700 800 37,400 2,000 7,200 4,000 10,000 9,000 800 700 3,500 2,000 1,000 7,000 300 10,000 10,000 2,000 400 - 197,000 1,600 197,000 400 600 14,000 700 800 1 December, 2017 Page 2 of 9

Additional information: 1. Inventory as at 30 June, 2016 was valued at Shs 7,000,000. 2. Rent outstanding as at 30 June, 2016 was Shs 200,000. 3. The electricity payment was for 16 months. 4. Salaries and wages amounting to Shs 400,000 for June, 2016 were outstanding. 5. The depreciation expense for motor vehicles is Shs 400,000. 6. Office equipment is depreciated at 20% on cost per annum. 7. 10% of the accounts receivables are overdue. An allowance for bad and doubtful debts should be made. 8. Interest on the bank loan for six months is outstanding by 30 June, 2016.

Required: Prepare, for M & B Enterprises Ltd for the year ended 30 June, 2016: (i) a statement of profit or loss and other comprehensive income (ii) a statement of financial position as at 30 June, 2016.

Question 3 (a) Explain the importance of control accounts in business accounting. (4 marks) (b) Droite is a bee farmer in the West Nile region in the second year of operation. During the first year, his cousin, a senior six finalist, was responsible for the book keeping. Upon her departure, Droite was unable to keep proper books of accounts as he lacked the basic accounting skills. He has approached you for assistance and provided the following information: Item Receivables Payables Inventory Cash 1 January, 2015 Shs '000' 5,000 4,010 4,470 2,650 9,500 - 31 December, 2015 Shs '000' 9,325 6,405 6,200 4,730 5,000 1,500 25,000 9,500 500 ? ? Bank Bank loan Land 20,000 Buildings 10,000 Furniture and fittings 800 Motor Vehicles 20,100 Computers 2,500 Additional information: 1. By 31 December, 2016, the Motor vehicle had depreciated by Shs 1,600,000 and computers by Shs 800,000. 2. Every week Droite takes cash Shs 100,000 for his personal use and honey for home consumption worth Shs 50,000 per month.

Required: Determine Droite's profit for the year ended 31 December, 2015. (12 marks)

Required: (a) Write memo to the Managing Partner, explaining the matters you would consider; (i) when drafting the audit engagement letter. (4 marks) (ii) while establishing the overall audit strategy. (6 marks) (b) Discuss; (i) the factors to be considered when planning the audit engagement at DPL (6 marks) (ii) why a professional etiquette letter is necessary before commencing the audit exercise at DPL Question 4 SK Hotels Limited (SKHL) operates a chain of 5 hotels located across Uganda. The hotels offer a wide range of activities that include bar, accommodation, a restaurant and swimming pool facilities. Customers order with cash for all hotel services. During the year ended 2019, the Finance Manager identified major fraud in the cash receipts and inventory acquisitions caused by collusion among staff members. To mitigate this, he established an internal audit department to undertake a fraud investigation. You work in the internal audit department at SKHL. Preliminary investigations indicate that inventories worth Shs 35 million were shown to have been procured in December 2019 but never reached the hotel's central stores for dispatch. Disclosure of the matter will lead to prosecution of some employees.

Required: (a) Discuss; (i) how the internal audit department will help the Finance Manager in preventing and detecting fraud at SKHL. (8 marks) (ii) the challenges to be faced by SKHL in establishing an internal audit department. (4 marks) (b) Explain the areas in which you can apply professional skepticism during the audit process

Question 5 Cheapex Supermarket is a large supermarket located in Nansana along Hoima Road. Due to the increased business in the supermarket, management has devised ways of improving the internal controls including installation of cameras and employment of additional shelves assistants to guide customers. Most of the workers are senior six graduates. Staff work in shifts and are paid Shs 10,000 per day worked with a day-off in a week. All staff who work up to 11pm receive an additional Shs 3,000 per day. They acknowledge receipt by signing in a book and the supervisor is in charge of that exercise. You work as an auditor at Kasella & Associates, Certified Public Accountants, and your audit firm is responsible for the audit of Cheapex Supermarket for the year ended 31 March 2020. You were informed that Cheapex received a PAYE additional assessment of Shs 47.36 million from the tax authorities for under declaration of staff salaries and wages.

Required: (a) Discuss the; (i) wages control objectives at Cheapex Supermarket. (ii) audit procedures Kasella & Associates would perform regarding wages system at Cheapex supermarket. (6 marks) (b) Describe the control environment elements expected at Cheapex Supermarkets. Question 6

Your audit firm TK & Partners, Certified Public Accountants, are the new auditors of Lwassa Contractors Limited (LCL) for the year ended 31 March 2020. LCL deals in construction of buildings, roads and other engineering works. During the audit execution stage, you discovered that two motor vehicles worth Shs 205 million belonging to company directors appeared in both the assets register and the draft financial statements to be audited. Further procedures have revealed that this misstatement started from the 2017 audited financial statements hence a need for make adjustments in the opening balances of non- current assets figure in the statement of financial position. No audit evidence was obtained from the previous working papers.

Required: (a) Explain the control objectives in relation to LCL's non-current assets (4 marks) (b) Explain the substantive procedures performed on motor vehicles regarding the assertion of: (i) valuation (6 marks) (ii) rights and obligation (4 marks) (c) Discuss the significance of audit working papers on TK & Partners in carrying LCL's audit engagement. (6 marks)