Question One

Abuye Welee, the sole heir to his fathers estate, decided to invest part of his inheritance in a

business venture. Abuye sat for his Kenya Secondary Certificate Examination (KCSE) in 2017

and got a mean grade of B+. He was undecided on whether to join the module II or await

admission into the regular programme. Because of his upbringing on a scheme farm in Luo

Nyanza and love for flora and fauna, he believed he could successfully operate a

landscaping and gardening business as he contemplated on what to do.

During the month of March 2018, Abuye located a small wooden building in Karen that he could rent for Ksh.20,000 per month. After transferring Ksh.400,000 from his inheritance money to a business bank account in the name of Abuye Land scapping and Gardening services, he wrote cheques for rent and for purchasing land scapping equipment and gardening supplies. He decided to deposit all receipts from services performed into the bank account and to make all payments by cheques. He believed that in this way he would have a relatively complete record of his business activities and would not have to maintain complete books of account. Abuye also maintained a listing of all services performed for customers.

On March 1^st 2018, Abuye opened his business to the public. During the three months ended 31^st May 2018, he was unusually busy due to the long rains that started pounding Nairobi as from mid- March.

Early June, Abuye decided to take count of his performance and financial position. Upon enquiry from colleagues, he was informed that you, a long time friend of Abuye, were pursuing an MBA degree at the University of Nairobi and currently studying financial accounting. Abuye has approached you to review his bank account and listing of services rendered to determine how well he has done.

Your review has revealed the following:

1. Total cash deposited in the bank account including his initial investment was Ksh. 880,000
2. The listing of services rendered showed that as at May 31^st 2018, customers owed him Ksh.70,000.
3. The banking from customers included a prepayment by a customer of Ksh.20,000 for gardening services to be provided in July 2018.
4. Cheques were written for:

1. Rent payment totaling Ksh.80,000 for the four months ended June 30^th 2018.
2. The purchase of land scapping equipment totaling Ksh.105,000. The equipment cost Ksh.175,000. Abuye still owed Ksh.70,000 on the purchase. The equipment is estimated to have a useful life of 60 months.
3. Gardening supplies totaling Ksh.20,000. Abuye took count of the supplies as at 31^st May 2018 and estimated that supplies on hand was Ksh.8,000.
4. The payment of fuel for the months of March and April totaling Ksh.19,000. Abuye had just received his bill from Oilaya for the month of May in the amount of Ksh.9,000 but had not yet paid it
5. Advertising in the classified totaling Ksh.40,000.
6. Withdrawals made by Abuye to pay for a weekend holiday trip down at the Coast totaling Ksh.25,000.

5. Abuye had requested a friend to assist him level a garden ready for planting

of flowers. He promised the friend payment of Ksh.6,000 which Abuye is yet to pay.

Required:

1. Prepare the income statement of Abuye landscaping and Gardening services for the three months period ended May 31^st 2018
2. Prepare the statement of changes in owners equity for the three months period ended May 31^st 2018 and the statement of financial position as at 31^st May 2018 for Abuye Land Scapping and Gardening Services (15 marks)

Total: 25 marks