MAASAI MARA UNIVERSITY
REGULAR UNIVERSITY EXAMINATION
2018/2019 ACADEMIC YEAR
FIRST YEAR SECOND SEMESTER
SCHOOL OF BUSINESS AND ECONOMICS
BACHELORS OF COMMERCE, ECONOMICS, ECO0MICS AND
STASTICS, FINANCIAL ECONOMICS, SCIENCE IN AGRICULTURAL
ECONOMIS AND RESOURCE MANAGEMENT, HUMAN RESOURCE
MANAGEMENT AND EDUCATION.
COURSE CODE: BCM 1206
COURSE TITLE: FOUNDATIONS OF ACCOUNTINGN 2
DATE :23RD APRIL,2019 TIME:2.00 P.M- 4.00 P.M
INSTRUCTIONS TO CANDIDATES:
Answers question ONE and any other three.
QUESTION ONE.
a) Explain any three reasons why some businesses do not maintain a
complete set of accounting records. ( 3 marks)
b) On 31.12.2017, subscriptions paid in advance to Amani sports Club
amounted sh. 1,101,200 while those arrears amounted to sh. 1,600,000. As at
31.12.2018, subscriptions in arrears were sh. 2,100,000 and subscriptions
paid in advance amounted sh840,000. The receipts and payments account of
the club showed total subscriptions received in 2018 as sh. 3,220,000. Prepare
a subscriptions account to show the amount of subscriptions earned during
the year ended 31.12.2018 which is to be reflected in the income and
expenditure account. [4 MARKS]
c) Explain five differences between a partnership deed and a partnership Act.
[5MARKS]
d) Name two types of goodwill and explain how each is treated in the books
of accounts of partnerships. (4 marks)
e) Explain any six factors that influence the value of goodwill. (6 marks)
f) Explain the difference between prime costs and manufacturing overheads,
and highlight why they are charged to the manufacturing account and not the
trading profit and loss account. (3 marks)
QUESTION TWO.
The following trial balance was extracted from the books of accounts of KOWA
partnership operated by Kori and Wangui partners for the period ended
31/12/2018 after preparing a trading account.
KOWA partnership Trial balance as at 31/12/2018
Trading gross profit
Additional information:
1. Debtors include an irrecoverable debt of 36,000
2. There was prepaid advertising prepaid expense of 60,000 as at
31.12.2018.
3. Provision for bad and doubtful was to be 5% of the outstanding debts.
4. On 2nd Jan. 2019 a bill of 480,000for water was received for the year
ended 31st Dec. 2018.
5. On 3rd Jan 2019 a credit note of 64,000 from a correction of an error in
meter reading for the month of December 2018 was received from
KPLC.
6. Kori had drawn a monthly salary of 45,000 as an active partner and the
total amount drawn had been included in salaries and wages account.
7. The loan from KCB had been raised on 1st July 2018 and was attracting
an interest rate of 20% p.a.
8. Partners were to be credited with interest on fixed capital account
balance at 12% p.a.
9. Kori and Wangui share profits and losses in the ratio of 2:1 respectively.
10. Depreciation was to be allowed as follows: Plant and machinery at
10% on reducing balance; Furniture at 15% on reducing balance and
motor vehicle at 25% on straight line method.
Required:
a) Prepare a profit and loss appropriation account for the period ended
31st Dec. 2018. ( 9 marks)
b) The partnership balance sheet as at 31st Dec. 2018. ( 6 marks)
QUESTION THREE.
Men Conference Ltd has an authorized share capital of 60,000,000 ordinary
shares of Sh. 10 each and 500,000 shares of Sh. 50 each. The following trial
balance of the company was extracted as at 31.12 2018.
Issued and fully Paid share Capital:
Additional information.:
1. Closing Stock was valued at 41,000,000
2. Directors proposed to transfer 8,000,000 to general reserve and pay
dividends at 3%on ordinary shares.
3. Provide for depreciation of motor vehicles at 10% of cost and on
furniture and fittings at 10% on book value.
a) Prepare the company’s comprehensive income statement for the year
ended 31st Dec. 2018. (8 marks)
b) Statement of the financial position as at 31 December 2018. (7 marks)
QUESTION FOUR.
Kericho Sports Club has been operating for some time now. The treasurer
analysed the cash book and produced the following Receipts and Payments
account for the year ended 31st Dec. 2018.
Additional information:
1. Loan interest outstanding and miscellaneous expenses accrued as at 31st
Dec. 2018 were 33,000 and 75,000 respectively.
2. Depreciation on pavilion for the year was 498,000.
3. Rent prepaid and accrued restaurant expenses as at 31.12.2018 were
16,000 and 65,000 respectively.
Required:
a) Restaurant Trading profit and loss account for the year ended 31.12.2018.
(3 marks)
b) Prepare the sport’s club Income and expenditure account for the year
ended 31 December 2018. (7 marks)
c) The club’s Balance sheet as at 31 December 2018. (5 marks)
QUESTION FIVE.
Handshake owns and manages a small manufacturing business in Narok town.
The following balances have been extracted from his books of account at 31
December 2018:
Additional information:
1. Accruals at 31 Dec. 2018 were:
Factory power – Sh.1, 6000
Rent and rates – Sh. 4, 0000
2. There was prepayment of Sh. 8,000 for salesmen’s motor vehicle
insurance.
3. Inventories at 31 December 2018, were valued at cost as follows:
Raw materials – Sh. 152,000
Work in progress – Sh. 304,000
Finished goods – Sh. 456,000
4. Depreciation is to be charged on plant and equipment, motor vehicle,
furniture and fittings at the rates of 20%, 25% and 10% per annum
respectively on cost.
5. Expenditure on heat and light, and rent and rates is to be apportioned
between the factory and office in the ratio of 9 to 1 and 3 to 2
respectively.
6. Provision for doubtful debts is to be made equal to 5% of outstanding
debtors at 31 December 2018.
Required:
a) Prepare Handshake’s manufacturing, trading and profit and loss account for
the year ended 31 December 2018. (8 marks)
b) Balance sheet as at 31st December 2018. (7marks)
