CPA FOUNDATION LEVEL CIFA FOUNDATION LEVEL FINANCIAL ACCOUNTING
MONDAY: 19 August 2024. Morning Paper. Time Allowed: 3 hours.
Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your workings. Do NOT write anything on this paper.
QUESTION ONE
Angela Riziki started a wholesale business on 1 July 2023 by depositing Sh.12,000,0000 into a business bank account. Angela Riziki did not maintain a full set of accounting records. The following transactions took place during the year ended 30 June 2024:
1. Brought in her personal pick-up van valued at Sh.6,000,000 to be used in the business. The van was estimated to have an economic useful life of 4 years as at 1 July 2023.
2. On 31 December 2023, she took a bank loan of Sh.4,000,000 at an interest rate of 15% per annum. At the end of the year the loan interest was in arrears.
3. During the year ended 30 June 2024, Angela purchased goods amounting to Sh.79,000,000 on credit and Sh.6,000,000 on cash paid through the bank. As at 30 June 2024, Sh.3,000,000 accounts payable to suppliers was still outstanding.
4. Credit sales during the year amounted to Sh.125,000,000 while cash sales amounted to Sh.6,500,000. A customer who owed Sh.1,500,000 was declared bankrupt and the debt had to be written off. By 30 June 2024, accounts receivable stood at Sh.5,500,000.
5. During the year, Angela Riziki spent Sh.2,500,000 of the cash sales received for her personal use and Sh.1,200,000 to pay for telephone and water bills. The balance was banked.
6. Discount received and discount allowed during the year ended 30 June 2024 amounted to Sh.1,800,000 and 1,100,000 respectively.
7. As at 30 June 2024, inventory was valued at Sh.7,200,000.
8. Credit suppliers and credit customers are paid and pay through the bank respectively.
9. The following payments were made through the bank during the year:
| Expenses | Sh.“000” |
| Rent expenses | 3,600 |
| Purchase of furniture (1 July 2023) | 8,000 |
| Salaries and wages | 11,000 |
| Transport | 4,200 |
| Insurance | 2,800 |
| Advertisement | 2,100 |
| Repair of motor vehicle (van) | 850 |
| Electricity and internet | 2,200 |
| Carriage inwards | 2,500 |
10. Furniture was to be depreciated at the rate of 15% per annum on a straight line basis.
11. As at 30 June 2024, electricity bills unpaid amounted to Sh.450,000, while insurance prepaid was Sh.1,200,000.
Required:
(a) Statement of profit or loss for the year ended 30 June 2024. (12 marks)
(b) Statement of financial position as at 30 June 2024. (8 marks)
(Total: 20 marks)
QUESTION TWO
The following is the receipt and payment account of Vijana Youth Club for the year ended 30 June 2024:
| Vijana Youth Club
Receipt and payments account |
|||
| Sh.“000” | Sh. “000” | ||
| Balance brought forward | 1,400 | Motor vehicle | 26,000 |
| Subscriptions | 25,800 | Water and electricity | 3,520 |
| Bar takings | 40,000 | Secretary honoraria | 720 |
| Donations | 9,600 | Bar wages | 2,800 |
| Sale of equipment | 800 | Administrative staff salaries | 12,800 |
| Sale of magazines | 3,200 | Bar payables | 29,600 |
| Competition tickets | 7,200 | Ground maintenance | 4,400 |
| Insurance | 4,800 | ||
| Balance carried forward | ? | ||
| 88,000 | 88,000 | ||
Additional information:
1. Investment income of 10% per annum is receivable as at 30 June 2024.
2. During the year ended 30 June 2024, equipment with a net book value of Sh.600,000 was disposed of for Sh.800,000.
3. Depreciation policy is on a reducing balance basis at the following rates:
Asset Rate per annum (%)
Motor vehicle 10
Equipment 20
4. The following balances were provided for the years ended 30 June:
| 2023 | 2024 | |
| Sh.“000” | Sh.“000” | |
| Bank | 1,400 | ? |
| Land at cost | 10,000 | 10,000 |
| Motor vehicles | 20,000 | ? |
| Equipment | 14,400 | ? |
| Investment at cost | 40,000 | 40,000 |
| Bar inventory | 880 | 1,440 |
| Bar payables | 1,600 | 2,000 |
| Subscription in arrears | 1,840 | 1,480 |
| Subscriptions in advance | 2,880 | 720 |
| Accrued insurance | 800 | 1,200 |
| Accrued electricity | 400 | 520 |
| Accrued bar wages | – | 600 |
Required:
(a) Bar statement of profit or loss for the year ended 30 June 2024. (4 marks)
(b) Income and expenditure account for the year ended 30 June 2024. (8 marks)
(c) Statement of financial position as at 30 June 2024. (8 marks)
(Total: 20 marks)
QUESTION THREE
(a) Describe TWO uses of source documents in accounting. (4 marks)
(b) The following trial balance was extracted from the books of Hibiscus Ltd. as at 30 June 2024:
| Sh.“000” | Sh.“000” | |
| Ordinary share capital of Sh.100 each | 78,000 | |
| 12% preference share capital of Sh.100 each | 13,000 | |
| Share premium | 10,400 | |
| 10% debentures | 13,000 | |
| Accounts payable | 19,240 | |
| Accounts receivable | 42,900 | |
| Sales | 724,000 | |
| Purchases | 548,600 | |
| Discounts allowed | 650 | |
| Discounts received | 1,690 |
| Sh.“000” | Sh.“000” | |
| Freehold buildings | 165,000 | |
| Furniture and fittings | 83,200 | |
| Accumulated depreciation: | ||
| Freehold buildings | 6,500 | |
| Furniture and fittings | 33,280 | |
| Inventory (1 July 2023) | 54,600 | |
| Returns outward | 10,400 | |
| Rent expenses | 16,900 | |
| Selling and distribution expenses | 21,710 | |
| Bad debts written off | 520 | |
| Allowance for doubtful debts | 2,340 | |
| Administrative expenses | 7,280 | |
| Retained earnings (1 July 2023) | 47,060 | |
| Goodwill | 20,800 | |
| Bank overdraft | 3,250 | |
| 962,160 | 962,160 |
The following additional information is available:
1. Depreciation on non-current assets is provided on a straight line basis at the following rates:
Asset Rate per annum (%)
Freehold buildings 20
Furniture and fittings 12.5
2. As at 30 June 2023, accounts receivables included Sh.130,000 due from Johnson Wetu who has now been declared bankrupt. It has been decided to write off this debt as a bad debt.
3. The allowance for doubtful debt as at 30 June 2024 is to be adjusted to 10% of accounts receivable.
4. Rent expenses prepaid as at 30 June 2024 amounted to Sh.52,000.
5. Administrative expenses accrued as at 30 June 2024 amounted to Sh.95,000.
6. The company paid the interest on debentures for the year ended 30 June 2024 on 31 July 2024.
7. As at 30 June 2024, inventory was valued at Sh.7,280,000.
8. The company directors propose that the preference shares dividend be paid and a dividend of 10% of the ordinary shares be paid.
9. Corporation tax is charged at the rate of 30% of the net profit.
Required:
(i) Statement of profit or loss for the year ended 30 June 2024. (10 marks)
(ii) Statement of financial position as at 30 June 2024. (6 marks)
(Total: 20 marks)
QUESTION FOUR
(a) Distinguish between “partners’ capital accounts” and “partners’ current accounts”. (4 marks)
(b) The following are the financial statements of Precious Ltd. for the years ended 31 March 2023 and 31 March 2024:
Precious Ltd.
Statement of profit or loss for the year ended 31 March 2024:
| Sh.“000” | Sh.“000” | |
| Gross profit | 26,700 | |
| Operating expenses | (22,050) | |
| 4,650 | ||
| Other incomes: | ||
| Interest income received | 900 | |
| Gain on sale of investments | 1,800 | |
| Less: Loss on sale of plant | (450) | 2,250 |
| 6,900 | ||
| Interest expenses paid | (3,450) | |
| Net profit before tax | 3,450 | |
| Income tax | (1,050) | |
| Net profit after tax | 2,400 |
Precious Ltd.
Statement of financial position as at 31 March:
| 2023 | 2024 | |
| Non-current assets: | Sh.“000” | Sh.“000” |
| Property, plant and equipment (cost) | 75,750 | 107,250 |
| Accumulated depreciation | (10,200) | (15,450) |
| 65,550 | 91,800 | |
| Investments | 19,050 | 17,250 |
| Current assets: | ||
| Inventory | 16,500 | 21,600 |
| Accounts receivable | 8,250 | 7,050 |
| Cash | 2,250 | 6,900 |
| Prepayments | 750 | 150 |
| Total current assets | 27,750 | 35,700 |
| Total assets | 112,350 | 144,750 |
| Liabilities and capital: | ||
| Ordinary share capital | 47,250 | 69,750 |
| Revenue reserves | 19,800 | 21,000 |
| 67,050 | 90,750 | |
| Long term liabilities: | ||
| Bonds | 36,750 | 44,250 |
| Current liabilities: | ||
| Accounts payable | 6,450 | 7,500 |
| Accrued liabilities | 1,350 | 1,800 |
| Tax payable | 750 | 450 |
| Current liabilities | 8,550 | 9,750 |
| Total liabilities and equity | 112,350 | 144,750 |
Additional information:
1. Precious Ltd. purchased investments worth Sh.11,700,000 during the year ended 31 March 2024.
2. The company sold investments that had cost Sh.13,500,000 for Sh.15,300,000 during the year.
3. During the year, new machinery worth Sh.18,000,000 was acquired. Some items of property, plant and equipment that had cost Sh.1,500,000 with accumulated depreciation of Sh.300,000 were disposed of for Sh.750,000.
4. Included in the operating expenses for the year ended 31 March 2024 is the depreciation charged for the year amounting to Sh.5,550,000.
5. The company issued bonds worth Sh.15,000,000 at face value in exchange for plant assets on 31 March 2024 and repaid Sh.7,500,000 of bonds at face value.
6. The company issued 2,250,000 ordinary shares at Sh.10 par value during the year.
7. The company paid cash dividends of Sh.1,200,000 during the year ended 31 March 2024.
Required:
Statement of cash flows for the year ended 31 March 2024 in accordance with International Accounting Standard (IAS) 7 “Statement of Cash Flows”. (16 marks)
(Total: 20 marks)
QUESTION FIVE
(a) Explain the following terms as used in public sector accounting:
(i) Appropriation-in-aid. (2 marks)
(ii) Paymaster general. (2 marks)
(iii) Exchequer account. (2 marks)
(b) Highlight FOUR reasons that may cause a cheque to be dishonoured by a bank. (4 marks)
(c) The following information relates to the non-current assets of Daraja Ltd. as at 1 April 2023:
| Non-current assets | Cost | Accumulated depreciation |
| Sh.“000” | Sh.“000” | |
| Freehold property | 70,000 | – |
| Plant and machinery | 52,500 | 20,230 |
| Office equipment | 10,500 | 5,110 |
| Motor vehicles | 31,500 | 18,200 |
Additional information:
1. The following non-current assets were acquired during the year ended 31 March 2024:
Date Non-current assets Cost
Sh.“000”
1 April 2023 Machinery 7,000
1 October 2023 Motor vehicle 4,200
2. The following non-current assets were disposed of during the year ended 31 March 2024:
Date Non-current assets Sales proceeds Cost Accumulated depreciation as at date of disposal
| Date | Non-current
assets |
Sales
proceeds |
Cost | Accumulated depreciation
as at date of disposal |
| Sh.“000” | Sh.“000” | Sh.“000” | ||
| 1 April 2023 | Machinery | 4,830 | 6,300 | 700 |
| 1 July 2023 | Office equipment | 448 | 560 | 140 |
| 31 March 2024 | Motor vehicle | 2,240 | 3,500 | 350 |
3. Daraja Ltd. depreciates the assets using the straight-line method on a pro rata basis at the following rates per annum:
Non-current assets Rate per annum (%)
Plant and machinery 20
Office equipment 15
Motor vehicle 25
4. On 1 April 2023, the management of Daraja Ltd. decided to start depreciating freehold property at the rate of 2.5% per annum.
Required:
Non-current asset movement schedule for the year ended 31 March 2024. (10 marks)
(Total: 20 marks)
