UNIVERSITY EXAMINATIONS: 2017/2018
EXAMINATION FOR THE DEGREE OF BACHELOR OF OF BUSINESS
BUSS200 INTRODUCTION TO ACCOUNTING II
FULL TIME/ PART TIME
DATE: APRIL, 2018 TIME: 2 HOURS
INSTRUCTIONS: Answer all questions.
The following list of balances was extracted from the books of Gilbert and Maxwella, partners in
a wholesale business, on 30 September 2017.
(a) Outstanding expenses: Direct wages Kshs.115; rates Kshs.29
(b) Prepaid expenses: Insurance Kshs.39; office expenses Kshs.31
(c) Loan from Ladder is subject to 8% interest.
(d) 6% interest should be allowed on capital but none charged on drawings.
(e) Plant and machinery and motor lorries should be depreciated by 20% and furniture and
equipment by 10%.
(f) Adjust provision for bad debts to 5% of debtors.
(g) Closing stock is valued at Kshs.14,566.
(a) Income statement and appropriation Account for the year ended 30 September 2017
(c) Partners’ Current Accounts. (5 Marks)
(d) Statement of Financial Position as at 30th September 2017 (7 Marks)
Mrs. Fellicity started business on January 01, 2017 with cash of Sh. 50,000,000 furniture of Shs.
10,000,000 goods of 2,000,000 and machinery worth 20,000,000. During the year she further
introduced Sh. 20,000,000 in her business by opening a bank account. The following additional
information is provided
Mrs. Fellicity used goods worth 2,500,000 for private purposes, which is not recorded in the
books. Charge depreciation on furniture 10% and machinery 20% p.a. on December 31, 2017 her
debtors were worth 70,000,000 and creditors Shs. 35,000,000 stock in trade was valued on that
date at Sh. 25,000,000
Income statement for the year ended 31 December 2017 (9 Marks)
Statement of Financial Position as at 31 December 2017 (6 Marks)
(a) In the context of manufacturing accounts differentiate between direct costs and indirect costs
(b) Billy Jean owns a small business making and selling children’s toys. The following trial
balance was extracted from her books on 31 December 2017:
You are given the following additional information:
1. Stocks at 31 December 2017
Raw materials Shs.2,900,000
Finished goods Shs.8,200,000
There was no work in progress.
2. Depreciation for the year is to be charged as follows:
Plant and machinery Shs.1,500,000
Car Shs. 500,000
3. At 31 December 2017 Insurance paid in advance was Shs.150,000 and office general
expenses unpaid were Shs.75,000.
4. Lighting and rent are to be apportioned: 4/5 factory, 1/5 office. Insurance is to be apportioned:
¾ factory, ¼ office.
5. Jean is the business’s salesperson and her salary and expenses are to be treated as a selling
expense. She has sole use of the firm’s car.
a) A manufacturing account and Income Statement (10 Marks)
b) Statement of Financial position as at 31 December 2017 (6 Marks)
a. X Ltd., has a current ratio of 3.5:1 and quick ratio of 2:1. If excess of current assets over
quick assets represented by inventories is Shs. 24,000, calculate current assets and current
liabilities. (4 Marks)
b. Highlight two key differences between accounting for profit making organizations and
accounting for nonprofit making organizations (3 Marks)
c. Explain why a company which has reported a surplus in its income statement may report
a decrease in cash and cash equivalents in its statement of cash flows over the same
period. (4 Marks)
d. For a recent year a corporation’s financial statements reported the following:
Net Income 100,000
Depreciation expense 10,000
Increase in accounts receivable 30,000
Gain on sale of Lorry 12,000
Decrease in accounts payable 15,000
Based on the above information, what amount will the corporation report as Cash
Provided by Operating Activities on the cash flow statement? (4 Marks)