What do you understand by accumulated funds, Financial Accounting

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QUESTION 1:

Part A

Malcolm was in business as an import merchant and the following balances were extracted from his books on 31st December 2003:

Purchases

124,000

Sales

236,000

Wages

32,800

Motor Expenses

10,700

Sundry Expenses

600

Air freight charges on Purchases

20,200

Rent and rates paid

11,200

Interest on loan from Donald

900

Loan from Donald at 1st January 2003

10,000

Creditors

10,280

Debtors

25,200

Stock at 1st January 2002

14,240

Fittings and Equipment

9,800

Motor Vehicles at cost

44,000

Cash at bank

4,360

Capital

61,720

Drawings

20,000

Additional Information:

1. Stock at 31st December 2002 was valued at Rs. 17,920.

2. Motor Vehicles are to be depreciated by 20 %.

3. Interest on the loan by Donald is at the rate of 12 % per annum and has been paid to 30 September 2003.

4. A provision for doubtful debts at 5% of debtors is to be made.

5. One quarter of the wages was for staff employed in re-packaging the goods for sale.

6. Rates amounting to Rs.800 has been paid in advance for the year 2003.

Required:

(a) Prepare the Trading Account and the Profit and Loss Account for the year ended 31st December 2003

(b) Prepare the Balance Sheet as at 31st December 2003.

(c) Identify 4 User's of Financial statements and briefly explain their information needs.

Part B

The following two paragraphs were included in the auditor's report of Blue Marlin company limited:

"The accounts have been prepared on a going concern basis and the validity of this depends on the company's bankers who are continuing to support by providing adequate overdraft facilities".

"Because of the materiality of the matters referred to in the previous paragraph we are unable to form an opinion as to whether the accounts give a true and a fair view of the state of affairs of the company:

Required:

Explain the following terms

i. Going concern basis

ii. Materiality

QUESTION 2:

The directors of DPK Limited wish to compare the company's most recent financial statements with those of the previous year. The company's financial statements are given below:

DPK Limited Profit and Loss Accounts Year Ended

 

30-Jun 2002 Rs 000

30-Jun 2001 Rs 000

Sales (note 1)

2,500

1,800

Opening stock

200

180

Purchases (all on credit)

1,960

1,220

 

2,160

1,400

Less closing stock)

(360)

(200)

Cost of sales

1,800

1,200

Gross profit

700

600

Distribution costs

250

160

Administrative expenses

(200)

(200)

Interest payable

( 50)

(50)

Profit before tax

200

190

Taxation

(46)

( 44)

Retained profit

154

146

Note 1: 80% of the sales are on credit.

 

Balance Sheets as at


30-Jun 2002

Rs 000

30-Jun 2001

 Rs 000

Non Current Assets

2,252

1,886

Current assets



Stock

360

200

Debtors - trade

750

400

Cash at bank

120

100


1,230

700

Less current liabilities



Creditors - trade

(380)

(210)

- sundry

(430)

(260)

Taxation

(50)

(48)

 

(860)

(518)

Net current assets

370

182

Total assets less current liabilities

2,622

2,068

10% debentures

(500)

(500)

 

2,122

1,568

Capital and reserves

 

 

Issued ordinary share capital

1,200

1,000

Share premium account

600

400

Profit and loss account

322

168

 

2,122

1,568

Required:

(a) Calculate, for each of the two years, the following accounting ratios which should assist the directors for comparison.

  1. Current Ratio
  2. Quick Ratio
  3. Debtors Collection Period
  4. Creditors Payment Period
  5. Gross Profit Margin
  6. Return on Capital Employed
  7. Return on Equity
  8. Average Stock Turnover
  9. Earnings per share

Show all your workings for each calculation.

(b) Evaluate the liquidity position and the financial performance of the company at 30 June 2001 and 2002.

(c) Suggest possible reasons for changes in the ratios between the two years.

QUESTION 3:

Part A

ABC Ltd finds that its opening bank balance of Rs.180,000 as on April 1 has been converted into an overdraft of Rs.75,000 by the end of the year. The following information are given below:

Particulars

Year beginning

Year end

Fixed assets

750,000

1,120,000

Stock in trade

190,000

330,000

Sundry Debtors

380,000

335,000

Trade Creditors

270,000

350,000

Share Capital

250,000

300,000

Share premium

-

25,000

Bills receivable

87,500

95,000

Additional information:

  • The profit before depreciation and Income tax was Rs 240,000.
  • During the Year, Income Tax to the extent of Rs 137,500 was paid.
  • Dividend paid were final on the Capital as on April 1 at 10 % and interim at 5% on the year end Capital.

Required:

1. Prepare a Cash Flow Statement to show how the opening bank balance of Rs 180,000 has been converted into an Overdraft of Rs.75,000 at the end of the year.

2. Why is a Cash flow Statement considered a necessary component of the primary financial statements and what information is it intended to convey?

Part B

Depreciation has been described as the measure of the wearing out, consumption or other reduction in the useful economic life of a fixed asset.

(a) Give three causes of depreciation, and for each give the type of fixed asset for which that cause is appropriate.

(b) What factors should be taken into account when determining the amount of depreciation and its allocation between different accounting periods?

Question 4

Part A

The following totals relating to the Month of April 2006 were extracted from the books of Techno Ltd, a medium sized business selling computer hardwares:


RS

Trade Creditors - 1st April 2006

1,29,235.00

Trade Debtors - 1st April 2006

2,20,273.00

Credit Purchases

2,48,320.00

Credit Sales

4,15,638.00

Cash and Cheques received from Credit Customers

3,94,288.00

Cash and Cheques paid to Credit Suppliers

1,84,522.00

Credit Sales Returns

19,920.00

Credit Purchases Returns

2,272.00

Discount Allowed to Credit Customers

8,900.00

Discount Received from Credit Suppliers

3,705.20,160.

Credit Customer Cheque Dishonoured

-

Bad Debts Written Off

9,944.00

Interest charged on overdue accounts of Credit Customers

720

Set off of Debit Balances in Sales Ledger with Credit

-

Balances in the Purchases Ledger

4,840.00

REQUIRED

(i) Prepare a Debtors' Control Account and a Creditors' Control Account for the month of April 2006.

(ii) What are the advantages to be derived in keeping Control Accounts?

Part B

(i) What is the difference between a "Receipts and Payments" Account and an "Income and Expenditure" Account?

(ii) Is the "Accrual Concept" applied in the preparation of an "Income and Expenditure" Account? If so, why?

(iii) What do you understand by "Accumulated Funds"?


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