CERTIFIED PUBLIC ACCOUNTANT

FOUNDATION LEVEL 1 EXAMINATION

F1.3: FINANCIAL ACCOUNTING

MONDAY: 3 DECEMBER 2012

INSTRUCTIONS:

1. Time Allowed: 3 hours 15 minutes (15 minutes reading

and 3 hours writing).
2. This examination has two sections; A & B.
3. Section A has one compulsory question to be attempted.
4. Section B has four questions, three questions to be
attempted.
5. Marks allocated to each question are shown at the end of
the question.
6. Show all your workings.
7. Any assumptions made must be clearly and concisely
stated.

© iCPAR

F1.3 Page 1 of 9
 SECTION A
This section has one compulsory question
QUESTION ONE
a) Explain each of the following terms:
(i) Provision (1mark)
(ii) Reserve (1mark)
(iii) Retained earnings (1mark)
(iv) Ministries and general government departments (public sector) are expected to
present their accounts in either cash based or accrual based IPSAS.
Required: Differentiate between cash basis and accrual basis of accounting.
(6mark)
(v) One of the government financial management functions is use of the
parliamentarians (Deputies) in the financial process. In the recent past the
parliament formed the Public Accounts Committee (PAC).
Describe PAC and indicate its role in public sector financial management
(6mark)

b) You are presented with the following trial balance of Eyowe Ltd at 31 October 2012:
Dr Cr
Frw000 Frw000
Buildings at cost 14,800
Buildings, accumulated depreciation, 1 November 2011 1,200
Plant at cost 6,800
Plant, accumulated depreciation, 1 November 2011 2,200
Land at cost 4,700
Bank balance 1,000
Revenue 36,000
Purchases 22,200
Discounts received 1,800
Returns inwards 700
Salaries and wages (30% administration and 70% cost of sales) 3,600
Energy expenses (10% administration and 90% cost of sales) 2,000
Inventory at 1 November 2011 3,200
Trade payables 5,000
Government grant received 2,400
Trade receivables 6,400
Administrative expenses 1,600
Allowance for receivables, at 1 November 2011 200
Director’s remuneration 1,400
Retained earnings at 1 November 2011 2,600
10% Loan notes 1,000
Dividend paid 600
Selling and distribution cost 2,600
Frw10 Ordinary shares 15,600

F1.3 Page 2 of 9
 Share premium account 1,600
70,600 70,600
Additional information as at 31 October 2012:
1. Closing inventory has been counted and its cost was Frw 3,750,000 and net
realizable value was Frw 3,720,000
2. Land was revalued to Frw 5,900,000
3. An invoice of Frw 800,000 for energy expenses for October 2012 has not been
received.
4. Loan note interest has not been paid for the year and the effective interest rate is
12%.
5. The allowance for receivables is to be adjusted to 5% of trade receivables after
write off of bad debts of Frw 200,000
6. Grant received is in respect of plant that cost Frw 3,000,000 at the start of the
year.
7. Plant is depreciated at 20% per annum using the reducing balance method. The
entire charge is to be allocated to cost of sales.
8. Buildings are depreciated at 5% per annum on their original cost and charged on
cost of sales
9. Tax has been calculated as Frw 4,500,000 for the year.
10. Dividend proposed of Frw. 1 per share

Required:
Prepare the following for external purposes:

(i) Statement of comprehensive income for the year ended 31 October 2010.
(15 marks)
(ii) Statement of financial position as at 31 October 2010.
(10 marks)
(Total 40 marks)

F1.3 Page 3 of 9
 SECTION B
Attempt three of the four questions in this section.
QUESTION TWO
You have been given the following summarized financial information for Bwiza Ltd:
Income statements for years ended 31 October 2012 2011
Frw 000 Frw000
Revenue 245 155
Cost of sales (150 ) (80 )
Gross profit 95 75
Distribution & administrative expenses (32 ) (15 )
Profit before taxation 63 60
Income tax expense (8 ) (5 )
Profit for the year 55 55

Statements of financial position as at 31 2012 2011

October
Frw000 Frw000
Non-current assets
Tangible assets 330 255
Current assets
Inventory 50 20
Receivables 30 40
Cash and cash equivalents 5 75
Total current assets 85 135
Total assets 415 390
Capital and reserves
Frw 1 ordinary share 350 350
Retained earnings 20 15
Total equity 370 365
Current liabilities
Payables 45 25
Total equity and liabilities 415 390
2009 2008
Notes Frw Frw
Dividends 50,000 50,000
Market price per share (at end of year) 1.10 1.06
Required:
a) Calculate the following ratios for the two years:
(i) Return on capital employed.
(ii) Quick/Acid test ratio.
(iii) Inventory turnover (days).

F1.3 Page 4 of 9
 (iv) Receivables collection period (days).
(v) Earnings per share.
(vi) Price earnings ratio.
(vii) Dividend yield.
(viii) Debt ratio.
(16 marks)
b) Briefly explain four limitations of ratio analysis.
(4 marks)
(Total: 20 marks)
QUESTION THREE
On 31 December 2002, the following balances were extracted from the books of Murenzi and
Sons Manufacturing Co. Ltd:

Frw
Sales 989,040,000
Purchases of raw materials 437,200,000
Carriage inwards 5,800,000
Carriage outwards 8,384,000
Stock, 1 January 2011:
Raw materials 22,552,200
Work in progress 3,018,000
Finished goods 19,450,000
Plant and machinery, at cost 98,000,000
Office equipment, at cost 39,500,000
Rent and Rates 39,525,000
Electricity and water 13,440,000
Wages and salaries:
Direct Labour 49,110,000
Indirect Labour 24,000,000
Administrative staff 91,015,000
Repairs to machinery 1,892,800
Other production expenses 32,640,000
Other administrative expenses 19,868,500

Additional information:
i) Stock as at 31 December 2011:
Raw materials 11,529,000
Work in progress 9,484,000
Finished goods 18,190,000

ii) Depreciation is to be provided for as follows:

Plant and machinery 15% on cost
Office equipment 20% on cost

F1.3 Page 5 of 9
iii) Salaries of administrative staff included an amount of Frw 10,000,000 paid to the factory
manager

iv) Electricity and water was to be apportioned as follows:

Factory 75%
Administration 25%

v) Rent and rates was to be apportioned as follows:

Factory 80%
Administration 20%

Required:
a) Briefly explain the difference between direct costs and indirect costs.
(2 marks)
b) Calculate the following

i) Prime cost.
(4 marks)
ii) Total factory overheads.
(4 marks)
iii) Production cost of each unit of finished goods, assuming that Murenzi and Sons
Manufacturing Co. Ltd had produced 500,000 units during the year.
(3 marks)
c) Prepare the Income Statement of Murenzi and Sons Manufacturing Co. Ltd for the year
ended 31 December 2011.
(6 marks)
d) Calculate the mark up and gross profit margin rate from the Income statement of Murenzi
and Sons Manufacturing Co. Ltd.
(1 mark)
(Total 20 marks)

F1.3 Page 6 of 9
QUESTION FOUR
BPO Ltd is a publicly listed company in Rwanda’s Capital Market. Details of its balance sheets
as at 31 December 2010 and 2011 are shown together with other relevant information;

ASSETS 2011 2010

Frw ‘000’ Rwf ‘000’ Frw ‘000’ Frw ‘000’

Non-current assets at cost 2,180 1,910

Accumulated depreciation 1,450 1,060

Non-current assets (net) 730 850

Long term investments 2,500 2,500
Current assets
Inventories 900 1,950
Sundry debtors 1,700 1,200
Interests receivable 100 -
Short term investments 670 135
Cash on hand and balances with banks 200 25
Total assets 6,800 6,660
Equity and Liabilities:
Share capital 1,500 1,250
Reserves 3,410 1,380
Total shareholders' funds 4,910 2,630
Non-current liabilities
Long term debts 1,110 1,040
Current liabilities
Sundry creditors 150 1,890
Interests payable 230 100
Income taxes payable 400 1,000
Total Equity and Liabilities 6,800 6,660
Income Statement for the Period Ended 31 December 2011
Frw ‘000’
Sales 30,650
Cost of sales (26,000)
Gross profit 4,650
Depreciation (450)
Administrative and selling expenses (910)
Interest expenses (400)
Interest income 300
Dividend income 200
Foreign exchange loss (40)
Net profit before taxation and extraordinary income 3,350

F1.3 Page 7 of 9
 Extraordinary item-Insurance proceeds from flood disaster settlement 180
Net profit after extraordinary income 3,530
Income tax (300)
Net profit 3,230
Additional information:
a) An amount of Frw250,000 was raised from the issue of share capital and a further Frw
250,000 was raised from long term borrowings
b) Interest expense was Frw 400,000 of which Frw 170,000 was paid during the period. Frw
100,000 relating to interest expense of the prior period was also paid during the period.
c) Dividend paid were Frw 1,200,000
d) Tax deducted at source on dividends received (included in the tax expense of Frw 300,000
for the year) amounted to Frw 40,000
e) During the period, the enterprise acquired noncurrent assets for Frw 350,000. The payment
was made in cash.
f) Plant with original cost of Frw 80,000 and accumulated depreciation of Frw 60,000 was
sold for Frw 20,000
g) Foreign exchange loss of Frw 40,000 represents the reduction in the carrying amount of a
short term investment in foreign currency designated bonds arising out of a change in
exchange rate between the date of acquisition of the investment and the balance sheet date.
h) Sundry debtors and sundry creditors include amounts relating to credit sales and credit
purchases only.
Required:
Statement of Cash Flows as per IAS 7.
(20 marks)

QUESTION FIVE
a) Distinguish between a Receipt and Payments account and an Income and Expenditure
account.
(6 marks)
b) The following is the receipts and payments account for Tufatanye Social Club as at 31
December 2011:
Receipts Frw. Payments Frw.
Cash in bank 125,000 Salaries 135,000
Subscriptions 525,000 Office expenses 12,500
Annual dinner receipts 268,000 Annual dinner expenses 15,000
Donations 225,000 Telephone expenses 15,000
Dividends 25,000 Other expenses 20,000
Postage 22,000
Shares purchased 750,000
Maintenance of plant 63,400
Cash in bank 135,100
1,168,000 1,168,000

F1.3 Page 8 of 9
 The following additional information is available:
1. The value of the building owned by the club stood at Frw.5, 000,000 as at 1
January 2011 with depreciation being provided at the rate of 2% per annum on
cost.
2. The club had 200 members paying subscriptions at the rate of Frw. 2,500 per
member per annum.
3. As at 1 January 2011, no subscriptions had been received in advance, but
subscriptions were outstanding to the extent of Frw. 10, 000 as at 31 December
2010 and Frw. 15,000 as at 31 December 2011.
4. Postage stamps in the custody of the secretary as at 1 January 2011 and 31
December 2011 were valued at Frw. 2,500 and Frw. 1,500 respectively.
5. The investment in shares as at 1 January 2011 stood at Frw. 50,000.
6. An amount of Frw. 2,500 in respect of annual dinner receipt was yet to be
received as at 31 December 2011.
7. Frw 25,000 for hire of the hall where the dinner was hosted is still outstanding.
8. Telephone services are paid for in advance to the extent of Frw. 3,000.

Required:
i) Income and expenditure account for the year ended 31 December 2011.
(7 marks)
ii) Balance sheet as at 31 December 2011.
(7 marks)
(Total 20 marks)

End of question paper

F1.3 Page 9 of 9