Questions

Question 5 (a) (b) (C) Qualitative characteristics are attributes that make financial information useful to users. They are categorised into fundamental and enhancing characteristics and they render information useful to aid decision-making. Required: Explain the applicability of the following characteristics of financial information to financial reporting: (i) Relevance (1 mark) (ii) Faithful representation (1 mark) (iii) Comparability (1 mark) (iv) Timeliness (1 mark) (v) Understandability (1 mark) Discuss the institutional framework for financial reporting in Uganda. (5 marks) The following information relates to transactions carried out during the month of January, 2020 by Mukwano Family Store: Date Details 2 Started business with Shs 20,000,000. 6 Paid rent for business premises cash Shs 600,000. 10 Paid for purchases cash Shs 10,000,000. 12 Received a loan from Equity bank Shs 5,000,000. 14 Bought a delivery truck cash Shs 6,000,000. 15 Cash sales Shs 1,200,000. 18 Deposited Shs 1,000,000 cash into bank. 30 Paid wages cash Shs 500,000. Shs 150,000 was still outstanding at the end of the period. Required: With reference to the accounting equation, demonstrate the effect of each of the above transactions. Hint: Anal sis -_- (15 marks) (Total 25 marks) 5 The company lost milk worth Shs 6.000.000 that went bad in its storage tanks. This milk was not insured. No adiustments had been made in the books of account at the year end. 6 Finished goods are transferred to trading account at Shs 1.200.000.000. Required: Prepare, for the year ended 31 December 2019. Mata Ltd's: (i) Manufacturing cost statement (10 marks) (if) Statement of profit or loss (10 marks) (Total 25 marks) Question 2 (a) Explain how depreciation charge is provided for under the following methods: (i) Straight line (2 marks) (ii) Reducing balance (2 marks) (iii) Revaluation (2 marks) (b) Discuss the treatment of depreciation expense in the statements of profit or loss and financial position. (2 marks) (c) Munaku Footwear Ltd (MFL). specialists in making shoes and other leather products. provided the following information regarding their non-current assets: 1 0n 2 January 2017. two machines were bought: 301 (A) for pattern making and leather cutting at Shs 120,000,000 and 502 (A) for sewing and finishing at Shs 155,000.000. 2 Another machine, Y2T for sole making and fixing. was bought at Shs 87,000.000 on 3 March 2017. 3 On 30 November 2018. MFL bought a new machine, 301 (B) for marking and leather cutting with automatic hydraulic system at Shs 200,000,000. 4 Another machine 802 (B) was bought on 30 June 2019 at Shs 230,000,000. 5 On 12 December 2019. machines 301 (A) and 802 (A) developed mechanical problems and were sold off on 31 December 2019 for Shs 93,000,000 and Shs 115, 000.000 respectively. 6 Machines 301 and 302 are depreciated at 15% on cost while machine Y2T is depreciated at 12% on cost. The firm's policy is to provide for full depreciation in the year of acquisition and none in the year of disposal. 7 MFL's financial year ends on 31 December. Required: Prepare, for the years ended 31 December: 2017, 2018 and2019, Munaku Footwear Ltd's combined ledger account for: (i) Non-current assets (6 marks) (ii) Accumulated depreciation (8 marks) (iii) Disposal of non-current assets (3 marks) (Total 25 marks) Question 3 The following trial balance was extracted from the books of Pondo Lid for the year ended 31 December, 2019. The company, based in Bukwa District, deals in processing and selling coffee. Dr Cr Shs '000' Shs '000' Ordinary share capital of Shs 2,000 650,000 6% Preference shares 300,000 5% Debentures 370,000 Share premium 100,000 General reserves 50,000 Assets at cost: Land 600,000 Buildings 550,000 Plant and machinery 350,000 Motor vehicles 125,000 Other tools 50,000 Balances at 1 January, 2019: Retained earnings 34,000 Inventory 67,500 Purchases and sales 650,000 1,200,000 Discounts 9,000 3,500 Carriages inwards 4,000 Carriages outwards 5,700 Wages and salaries 90,000 Fuel 45,000 Utilities 25,000 Insurance 29,000 General expenses 48,500 Bank charges 8,000Debits Credits Shs \"000' Shs '000' Accounts payable 65.000 15% Bank loan 250,000 Interest paid on loan 37.500 Cash and bank 66.000 Drawings 10.000 Rent 15.000 General office expenses 16.000 Staff salaries 35.000 Bank charges 4,500 Discounts allowed 3,000 Directors' remuneration 50.000 Capital 100.000 MM Additional information: 1 Depreciation of non-current assets is charged on cost as below: Buildings 5% Plant and machinery 15% Delivery trucks 20% Other equipment 10% Depreciation expenses to be apportioned as follows: Factory Office Selling a distribution Buildings 75% '? None Delivery trucks 25% None 75% Other costs to be apportioned as follows: Factory Selling & Office distribution Lighting and heating 314 None '? Insurance 3l5 ? US Advertising None ? 1/4 Delivery trucks maintenance 2l5 315 None Balances at 31 December, 2019: Shs Raw materials 45.000.000 Finished goods 65.000.000 Work in progress 39.500.000 Question 1 (a) Explain what is meant by 'unrealised profits' and why accounts should be adjusted in respect of unrealised profits when preparing financial statements. (2 marks) (b) Describe the elements that constitute 'prime costs' of a manufacturing firm. (3 marks) (C) The following trial balance, for the year ended 31 December 2019, was extracted from the books of Mata Lid, processers of dairy products from fresh milk in Lyatonde Town: Debits Credits Shs '000' Shs '000' Assets (at cost): Land 344,000 Buildings 239,000 Plant and machinery 450,000 Delivery trucks 85,000 Other equipment 47,000 Sales 1,610,000 Purchase of raw materials 710,000 Inventory at 1 January, 2019: Raw materials 37,000 Work in progress 64,500 Finished goods 89,000 Direct factory wages 55,000 Indirect factory wages 30,000 Lighting and heating 40,000 Packaging materials 20,000 Factory service and maintenance 33,000 Carriage inwards 7,000 Carriage outwards 2,000 Insurance 28,000 Advertising 10,000 Commission and allowances on sales 34,500 Delivery trucks maintenance 15,000 Accounts receivable 48,000Dr Cr Shs '000' Shs '000' Interest on bank loan 24,000 12% Bank loan 200,000 Debenture interest 18,500 Directors' remuneration 60,000 Interim dividends paid: Ordinary shares 25,000 Preference shares 18,000 Trade receivables/trade payables 90,700 133,400 Cash and bank 87,000 Provision for doubtful debts 7,000 3.013.300 3013.300 Additional information: 1 Closing inventory was valued at Shs 84,400,000. 2 It is the company policy to depreciate non-current assets on cost at the following rates: Buildings 5% Plant and machinery 15% Motor vehicles 20% Other tools 10% 3 At the year end. costs of stationery Shs 500.000 and electricity Shs 2,500,000 were outstanding. These costs are accounted for under general expenses and utilities respectively. 4 The directors agreed to issue 25,000 new shares at Shs 3,000 to the public. All the shares were subscribed and paid for. 5 The directors agreed to transfer Shs 10,000,000 to general reserves and to increase the provision for doubtful debts by 2.5% of the trade receivables. Required: Prepare, for the year ended 31 December 2019, Pondo Ltd's statement of: (a) Profit or loss (10 marks) (b) Financial position (10 marks) (c) Changes in equity (5 marks) (Total 25 marks) Question 4 (a) Explain what is meant by 'contra entries'. (2 marks) (b) The following information was extracted from the books of Mugwa who runs a wholesale store in Soti Town. However. he does not keep proper records of his transactions. 1. Balances as at 1 January, 2019: Shs '000' Trade receivables 90.000 Inventory 50.000 2. Transactions during the year: Bad debts written off 4.500 Cash received from customers 56,000 Cash deposited to bank by customers 35.000 Returns inward 3.000 Discounts allowed 5.500 Utilities 7.000 Wages 10.000 Bent 8.000 Drawings 5.000 3. Balances as at 31 December 2019: Trade receivables 75.000 Inventory 35.000 4 Mugwa makes a gross profit margin of 25% and all sales are on credit. Required: Determine. for the period ended 31 December 2019. the value of Mugwa's: (1) Credit sales (4 marks) (ll) Purchases (9 marks) (c) Accounting concepts and conventions. being assumptions. conditions and guidelines upon which accounting records and statements are based. help preparers of financial statements to achieve the overall objective of financial reporting. Required: Explain the following concepts and conventions: (i) Business entity (2 marks) (ii) Money measurement (2 marks) (iii) Matching (2 marks) (iv) Going concern (2 marks) (v) Consistency (2 marks) (Total 25 marks)