Reference no: EM133606226

Assignment: Long Distance Programme- Intermediate Accounting

Question A

I. Distinguish between ordinary subscription and life subscription.

II. Toto is a non-profit making organization that commenced activities on 1 January, 2018. The organization runs a trading business of manufacturing and selling t-shirts.

The trial balance for the year ended 31 December, 2018 was as follows:
	Debit Shs	Credit Shs
Sales		86,200,000
Land	47,000,000
Motor vehicles (3)	90,000,000
Buildings	120,000,000
Accumulated fund		101,580,000
Cost of goods fully manufactured	15,600,000
Subscriptions		9,000,000
Inventory (1 January, 2018)	4,500,000
Utilities	2,500,000
Salaries	4,000,000
Donations		100,739,000
Raffle receipts		30,000,000
Donations to other entities	600,000
Raffle expenses	569,500
Discount allowed	500,000
Bad debts written off	750,000
Return inwards (finished goods)	4,000,000
Accounts receivable	8,500,000
Accounts payable		16,000,500
Bank balance	45,000,000	-
	343,519,500	343,519,500

Additional Information:

I. The cost of closing inventory on 31 December, 2018 was Shs 5 million. This inventory could be sold at Shs 5.1 million with a cost to sale of Shs 300,000.

II. The following balances as at 31 December, 2018 were also available:

	Shs '000'
Prepaid utilities	200
Accrued salaries	1,500

III. 70% of utilities and 80% of salaries relate to the t-shirt business.

IV. 60% of the building space is occupied by the t-shirt business. The organisation uses this as a basis to apportion depreciation for the t-shirt business.

V. Two of the motor vehicles (cost Shs 35 million each) shown in the trial balance are used for deliveries of t-shirts.

VI. A provision for bad debts Shs 640,000 is to be made.

VII. Of the subscription received, 20% is life subscription which is to be amortised over a period of 8 years.

VIII. The organization's policy is to depreciate non-current assets at 10% per annum on cost. All non-current assets were acquired during the year ended 31 December, 2018. It is the company's policy to charge full year depreciation in the year of purchase and none in the year of disposal.

Required:

Prepare for Toto a statement of:

1. Profit or loss for the t-shirt business for the year ended 31 December, 2018.
2. Income and expenditure for the year ended 31 December, 2018.
3. Financial position as at 31 December, 2018.

Question B

The following balances were extracted from the books of Kaplan Ltd., a manufacturing and trading company, as at 31 October 2007:

	Shs "000"
Business premises at cost	20,000
Plant and equipment at cost	18,000
Motor vehicles at cost	6,400
Accumulated depreciation as at 1 November 2006:
Business premises	3,200
Plant and equipment	10,000
Motor vehicles	2,400
Ordinary shares (Shs 10 each)	15,000
Share premium	5,000
Retained earnings (1 November 2006)	28,300
Inventory as at 1 November 2006:
Direct materials	1,200
Work in progress	800
Finished goods	1,600
Purchases of direct materials sales	16,400
Production overhead	67,100
Administration overhead	10,400
Trade receivables	4,900
Trade payables	4,600
Other payables:
PAYE	1,300
VAT	2,800
Cash in hand	300
Bank balance	32,900
Direct manufacturing wages	18,000
Selling overhead	200

Additional Information:

I. On 1 November 2006, the company sold an item of plant for Shs 600.000. The item of plant had cost the company Shs 2,000,000 on 1st November 2003. The proceeds from the sale were recorded as a credit to the sales account and a debit to the bank account.

II. Depreciation for the year ended 31 October 2007 is to be provided using the following annual rates:

Asset	Rate
Business premises	4% based on cost
Plant and equipment	20% based on cost
Motor vehicles	25% on reducing balance basis

III. Depreciation on motor vehicles is to be apportioned as follows:

	Rate
Production overhead	50%
Selling overhead	25%
Administration overhead	25%

Depreciation on other assets is to be allocated to production overhead.

IV. Inventory of raw materials as at 31 October 2007 was valued at Shs 1400,000. This inventory included raw material which cost Shs 300,000 and could only realize a scrap value of Shs 100,000.

V. Closing work-in progress as at 31 October 2007 was valued as follows:

	Shs
Direct labour	500,000
Direct material	125,000
Production overhead	200,000
Total	1,700,000

VI. The year end stock taking for finished goods was done on 3 November 2007. These goods were valued at Shs 1,300,000 being the cost production.

VII. The following transactions took place between 1 November 2007 before the stock taking of the finished goods was carried out.

	Shs
Sales to customers at selling price	500,000
Returns by customers at selling price	125,000
Completed work-in progress at total production cost	200,000

The goods sold to customers during the period 1 November 2007 to 3rd November 2007 were at a uniform mark-up of 25% on the production cost.

Required:

1. Manufacturing, trading and statement of comprehensive income for the year ended 31 October 2007.
2. Statement of financial position as at 31 October 2007.

Question C

I. "For every small shopkeeper, market stall, Internet cafe, or other small business to keep its books using a full double entry system would be ridiculous. It is more likely that they would enter details of a transaction using a single-entry system. Many of them would fail to record every transaction, resulting in incomplete records".

Required:

Explain the term "single entry book keeping" and any three reasons why some business have incomplete records or use the single-entry system of book keeping.

II. Senior Hannington runs a second-hand furniture business from a shop which he rents. He does not keep complete accounting records, but is able to provide you with the following information about his financial position at 1 April 2022:

	Shs
Stock of furniture	3,210,000
Trade Receivables	2,643,000
Trade creditors	1,598,000
Motor vehicle	5,100,000
Shop fittings	4,200,000
Motor vehicle expenses owing	432,000

He has also provided the following Cashbook (Bank Column) for the year ended 31 March 2023:

Dr	Cashbook (bank column)		Cr
	Shs		Shs
Balance at 1 Apr 2022	2,420,000	Payments of trade creditors	22,177,000
Cheques from trade receivables	44,846,000	Electricity	1,090,000
Cash sales	3,921,000	Telephone	360,000
		Rent	2,000,000
		Advertising	1,430,000
		Shop fittings	2,550,000
		Insurance	946,000
		Motor vehicle expenses	2,116,000
		Drawings	16,743,000
		Balance at 31 Mar 2023	1,775,000
	51,187,000		51,187,000

 

All cash and cheques received were paid into the bank account immediately.

You find that the following must also be taken into account:

I. Depreciation is to be written off the motor vehicle at 20% and off the shop fittings at 10%.

II. At 31 March 2023 motor vehicle expenses owing were Shs 291,000 and insurance paid in advance was Shs 177,000.

III. Included in the amount paid for shop fittings were:

1. a table bought for Shs 300,000, which Smithson resold during the year at cost,

2. some wooden shelving (cost Shs 250,000), which Smithson used in building an extension to his house.

Other balances at 31 March 2023 were:

	Shs
Trade Receivables	4,012,000
Trade creditors	2,445,000
Stock of furniture	4,063,000

Required:

1. For the year ended 31 March 2023

a. Determine Smithson's sales and purchases,
b. Prepare the Statement of profit or loss for the year ended 31 March 2023.

2. Prepare Smithson's balance sheet as at 31 March 2023.

Question D

I. Explain:

1. any three features of a consignment.
2. the differences between a consignment and a sale, as used in consignment accounts.

II. Tamale and Kibirige entered into a joint venture to buy and sell timber. It was agreed that Tamale would receive a commission of 5% on all sales and was to bear all losses from bad debts, if any. Subject to this arrangement, profits and losses were to be shared equally.

On 1 February, 2018: Tamale purchased timber Shs 34 million for which he paid Shs 24 million in cash, and accepted bills of exchange Shs 4 million and Shs 6 million.

On 2 February, 2018: Tamale sent Kibirige timber which had cost Shs 13,750,000 and Kibirige paid Shs 17.5 million to Tamale.

On 8 February, 2018: Tamale sold timber to Kitaka Shs 2.1 million and to Yoweri Shs 1,250,000 and they accepted bills of exchange for the amounts respectively due from them. Tamale endorsed both these bills over to Kibirige.

On 2 March 2018: Tamale sold timber Shs 9 million. On delivery, the customer rejected timber worth Shs 450,000, and the rejected timber was collected by Kibirige, who sold it to another customer Shs 550,000.

On 10 March, 2018: Kitaka paid his bill but Yoweri's bill was dishonoured. Yoweri has been declared bankrupt by court.

On 4 April 2018: Kibirige paid the bill of exchange Shs 4 million which had been accepted by Tamale, and Tamale paid the second bill of exchange, Shs 6 million.

During the month of April 2018, Tamale sold the remainder of the timber in his possession at Shs 14,550,000 while Kibirige's sales amounted to Shs 17 million. Other bad debts (apart from the amount due from Yoweri) were Shs 210,000, of which Shs 150,000 was in respect of sales by Tamale, and Shs 60,000 was in respect of sales by Kibirige.

On 31 May 2017: the venture was closed. Kibirige took over the stock of timber in his possession valued at Shs 2.5 million, and the sum required to settle accounts between the venture was paid by the party accountable.

Required:

1. Show the joint venture accounts as they would appear in the books of Tamale and Kibirige.

2. Prepare a memorandum joint venture account, showing the net profit. (Hint: show all the necessary workings)

III. Chang, a trader in Hong Kong, sent a consignment of 450 units of his product to Umesh, an agent in Nepal. The goods had cost Chang Shs 68,000 each; he also paid freight and insurance costs amounting to Shs 360,000.

At Chang's financial year end Umesh had sold 380 units for Shs 90,000 each. Umesh had paid landing charges Shs 1,800,000, import duties of Shs 675,000 and other direct expenses of Shs 45,000. Umesh is paid a 5% commission on sales plus a 2.5% del credere commission. At the financial year end Umesh sent Chang Shs 25,000,000.

Required:

1. The consignment account in Chang's books of account.
2. Umesh's account.

Question E

Milly, Calister and Eileen were in partnership sharing profits and losses in the ratio of 2:1:1 respectively. On 30 June, 2017 they decided to dissolve the partnership on the basis of the following statement of the financial position as at 30 June, 2017.

Non-current assets:	Shs "000"	Shs "000"
Land and buildings	210,000
Motor vehicles	30,000
Furniture and fittings	20,000	260,000
Current assets:
Inventory	25,000
Accounts receivable	35,000
Banks balances	50,000
Prepayments	15,000	125,000
Total assets		385,000
Capital & liabilities
Capital accounts
Milly	144,000
Calister	96,000
Eileen	5000	245,000
Current accounts
Milly	20,000
Calister	35,000
Eileen	(45,000)	10,000
Unappropriated profits		25,000
Current liabilities
Accounts payable		105,000
Total capital & liabilities		385,000

Additional Information

I. Milly took over furniture at an agreed price of Shs price of Shs15 million.

II. Trade receivables paid Shs 30 million in full settlement and the firm paid off the accounts payable Shs 95 million in full satisfaction of their claim.

III. Calister took over inventory and prepayments at Shs 20 million and Shs 15 million respectively.

IV. Realisation expenses amounted 5 million.

V. Other assets were realised as follow:

	Shs '000'
Land buildings	300,000
Motor vehicles	20,000

VI. Eileen was declared bankrupt.

Required:

Prepare the following for the partnership

1. Realisation account.
2. Partners' capital accounts (in columnar format).
3. Cash account

Question F

Lucas and Lodge have been in partnership for many years running s medium sized country hotel in Hertfordshire. When they started the business, they did not have a formal written partnership agreement, but agreed to share the profits in the ratio Lucas 2/5 and, Lodge 3/5.
Lucas has produced a summarized balance sheet as at 31 December 2007.

	Shs '000'
Non-current assets
Land	100
Buildings	75
Fixtures and fittings	30
	205
Current assets	40
Net assets	245
Capital accounts
Lucas	90
Lodge	120
	210
Current liabilities	35
	245

After Lucas produced this balance sheet, the partners decided to draw up a written partnership agreement in preparation for the new accounting year, stating, amongst other things, that profits were to be shared equally. At the same time, the partners agreed to make changes to the value of certain assets as follows:

I. The hotel buildings are to be revalued upwards to Shs 115,000 as at 31 December 2007. However, the revaluation is not to remain in the books of the partnership.

II. The land is to be revalued downwards as at 31 December 2007 to Shs 80,000, the revaluation is to remain in the books of the partnership.

III. The values of the fixtures and fittings, current assets and current liabilities are to stay the same as in the balance sheet prepared by Lucas. However, the value of the business as a whole (the net assets) is to be Shs 270,000.

Required:

1. What are the implications for Lucas of the change in profit sharing ratio?

2. Prepare a summarized balance sheet for the partnership as at 1 January 2008, taking account of the new profit-sharing ratio and the above revaluations.

Note. You should present your workings clearly.

3. How and why do each of the following affect the partner's capital accounts?

a. The revaluation of the hotel
b. The revaluation of the land
c. The valuation of the business as a whole

4. Account for the change in the balance on lodge's capital account, showing how each component of the change is different in the case of Lucas. Set out your answer in a table as follows:

Effect on Lodge's capital account +(-)	Explanation	Effect on Lucas's capital account +(-)
Shs '000'		Shs '000'

To what do you attribute the different effects on each partner's capital account? Has either of the partners lost out?

5. If the aim of a balance sheet is to show the financial state of affairs of a business at a given point in time, which of the two balance sheets, the one prepared by Lucas and the one prepared by you in part (2) best fulfils this objective? Give reasons for your answer.