QUESTION TWO
Mr Tono trades as a retailer of electric lamps and related products under the name of Tono Hardware.
Most goods in which he trades are purchased from various suppliers in a finished form. In addition, a
separate department of the firm manufactures various types of lampshades from purchased raw materials.
When finished, the lampshades are transferred to the shop at an agreed transfer price for sale. No
lampshades are sold other than through the shop.
Mr Tono trades as a retailer of electric lamps and related products under the name of Tono Hardware. 12: Bog goods in wach iades are purchased from various suppliers in a finished form. Ifaddition, all separate department of the firm manufactures various types of lampshades from purchased raw materials. When finished, the lampshades are transferred to the shop at an agreed transfer price for sale. No lampshades are sold other than through the shop. N The firm's Accounts Assistant presents you with the following trial balance at 30 June 2020 Sh Sh Capital account - Tono 740,000 Drawings - Tono 95,000 Long term loan (interest at 15% p.a) 240,000 Fixtures and fittings at cost 900,000 Accumulated depreciation at 1 July 2019 350,000 Motor vehicle at cost 208,000 Accumulated depreciation at 1 July 2019 60,000 Stock at 1 July 2019 (at cost): Raw materials for lampshades 40,000 Completed lampshades 20,000 Other goods 328,000 Trade debtors and creditors 122,000 Bank balance 98,000 Sales 4,100,000 Purchases - raw materials for lampshades 855,000 other goods 2,400,000 Wages 254,000 Rent and rates 96,000 Water and electricity 47,000 Motor expenses 60,800 Repairs 12.000 Interest on loan 18,000 Bank charges 4.000 Insurance 18,000 Sundry expenses 21,200 5.597,000 5.597,000 Additional Information: (i) Rent and rates include a prepayment of rates of Sh. 6,000. () The insurance includes a premium for the period ending 31 October 2020. (ili) A trade debt of Sh. 14,000 is not expected to be realized. (iv) During the year a pick-up van, which was bought for Sh. 86,000, was sold for Sh. 30,000, and replaced with another pick-up van costing Sh. 152,000. Both transactions have been posted to the motor vehicle account. No disposal account has been opened. The straight-line rates of depreciation based on cost are 25% p.a. for motor vehicle and 10% p.a. for fixtures and fittings. A full year's depreciation is charged in the year of acquisition and none in the year of disposal. (v) Accruals at 30 June 2020 were: Water and electricity Sh. 5,000 Sundry expenses Sh. 4,000 (vi) Stocks at 30 June 2020 were: Sh. Lampshades raw materials 80,000 Lampshades (at transfer price) 30.000 Other goods at cost 252,000 (vii a) The agreed transfer price for lampshades produced was Sh. 1,000,000. The workshop produced 50,000 lampshades during the year. (b) Wages include those of the lampshades making employee who has been paid Sh. 50,000 for the year. In addition, she is entitled to a commission on the annual profit of her department of 10% p.a. after charging such commission. Shop assistants' wages were Sh. 108,000. (c) The apportionment of rent and rates; and water and electricity to the lampshades is 25% of the total. Required: (a) Prepare a manufacturing, trading and profit and loss accounts for the year ended 30 June 2020, disclosing clearly (i) the profit earned by the lampshades-making department and (ii) the gross profit earned by the shop. (b) Prepare a balance sheet as at 30 June 2020. i) Statement of trading and profit or loss appropriation account for the year ended 30 June 2020 (10 marks) ii) Statement of financial position as at 30* June 2020 (10 marks) O
