SECTION A: COMPULSORY

QUESTION 1: (40 MARKS)

The directors of Quateur Ltd have extracted the following balances from the books of account
at 30 September 2017.

Dr (Rs) Cr (Rs)

Purchases 1,200,000
Revenue 4,000,000
Inventory 130,000
Sales returns 50,000
$1 Ordinary shares 600,000
$1 8% Preference shares 400,000
Discounts 18,000 25,000
Rent received 40,000
Retained earnings 28,000
Administrative expenses 720,000
Distribution costs 372,000
Preference dividend paid 32,000
Bad debts 38,000
Trade receivables 160,000
Trade payables 15,000
Property 2,030,000
Office equipment 230,000
Delivery vehicles 280,000
Provision of depreciation of office equipment 120,000
Provision of depreciation of delivery vehicles 90,000
Bank 33,000
12% loan notes 150,000
General reserve 15,000
Revaluation reserve 100,000
Share premium 185,000
Salaries 430,000
Interest paid 15,000
Ordinary dividend paid 30,000

Additional information:
The directors have discovered the following:
1. Inventory at 30 September 2017 was valued at Rs65,000 based on its original cost.
However, Rs10,000 of this inventory has been damaged and the directors have agreed
that they would normally sell for Rs12,000. The items could be repaired at a cost of
Rs2,000 and then sold for Rs5,500.

2. Depreciation is to be provided as follows:

Office equipment depreciation 10% per annum on cost;
Delivery vehicles depreciation 25% per annum using reducing balance method

Office equipment depreciation is split one fifth distribution costs and four fifths
administrative expenses and delivery vehicles depreciation is a distribution cost.

3. As at 30 September 2017, there was an additional accrual for general distribution costs
of Rs9,800.

4. A payment for administrative expenses of Rs9,600 has been made on 15 January 2017
covering the period from 01 April 2017 to 31 March 2018.

5. A provision of 5% for doubtful debts is to be created on the trade receivable balance.

This provision is to be treated as an administrative expenses.

6. During January 2017, a surveyor revalued property to Rs 2,100,000 and no entries have
yet been made in the accounts to reflect this revaluation.

7. Salaries are split equally between administrative expenses and distribution costs.

8. A transfer of Rs72,000 to general reserve is to be made and on ordinary dividend of

Rs250,000 for the year ended 30 September 2017 has been proposed on 25 October
2017.

9. At 30 September 2017, the company made a bonus issue of two for every ten ordinary
shares held. The share premium account was used to finance that issue.

10. Corporation tax liability is estimated at Rs 210,000.

REQUIRED
a) Prepare a Statement of Comprehensive Income for the year ended 30 September 2017
in accordance with International Accounting Standards. (14 marks)

b) Prepare a Statement of changes in Equity for the year ended 30 September 2017.
(6 marks)

c) Prepare the statement of financial position at 30 September 2017 in accordance with

International Accounting Standards. (20 marks)

QUESTION 2: (30 MARKS)

PART A
Following is the cash book of Regent Travel and Tours Ltd for the month of December 2016:

2016 Dr Rs 2016 Cr Rs

Dec 6 J. Hall 1,550 Dec 1 Balance b/f 38,720

Dec 20 C. Walters 1,980 Dec 10 P.Wood 2,060

Dec 31 P. Miller 2,110 Dec 19 M. Roberts 3,150

Dec 31 Balance c/d 39,130 Dec 29 P. Philips 840

44,770 44,770

The bank statement for the month is:

2016 Dr Cr Balance
Dec 1 Balance 38,720 O/D
Dec 6 Cheque deposit 1,550 37,170 O/D
Dec 13 P.Wood 2,060 39,230O/D
Dec 20 Cheque deposit – C. Walters 1,890 37,340 O/D
Dec 22 M. Roberts 3,150 40,490 O/D
Dec 30 Barclays: Standing order 2,000 42,490 O/D
Dec 31 K. Saunders: trader’s credit 1,800 40,690 O/D
Dec 31 Bank Charges 650 41,340 O/D

You are required to:

 a) Write up an updated cash book to account for items in Bank Statement and not yet
entered in the Cash Book. (8 marks)

b) Draw up a bank reconciliation statement for the month of December 2016. (7 marks)

PART B

David is an entrepreneur who maintains a full set of accounting records. She divides her ledger
into three sections – sales ledger, purchases ledger and General ledger. She prepares control
accounts for her purchases and sales ledgers at the end of each month. On 01 December 2013,
the balances brought down on the control accounts were:

RS

Purchases Ledger control account (opening balance) 19,600 CR

Sales Ledger control account (opening balance) 17,000 DR
Sales Ledger control account (opening balance) 3,500 CR
Credit Purchases 130,000
Cash purchases 90,000
Credit sales 300,000
Cash Sales 56,000
Credit purchases returns 24,800
Credit Sales returns 16,300
Cash and cheques received from Sales 174,000
Cash paid to suppliers 125,250
Cheques paid to customers in respect of overpayment 12,300
Discount allowed 8,900
Discount received 9,000
Bad debts 12,000
Provision for bad debts 16,200
Balances in the sales ledger set off against balance in the purchase ledger 18,500
Dishonoured cheques 22,000

Prepare a Sales Ledger control account and a Purchases Ledger control account for the month
of December 2013. (15 Marks)

QUESTION 3: (30 MARKS)

Draft financial statements of Grimace plc have been prepared as follows:

Statement of financial position 2017 2016

as at 30th June Rs.'000 Rs.'000 Rs.'000 Rs.'000
Non current assets
Property, plant and equipment 1,480 940
Development cost 120 95
Investments 180 1,780 145 1,180
Current assets
Inventory 512 548
Trade receivables 492 394
Cash and bank balance 29 1,033 - 942
2,813 2,122

Equity and reserves

Ordinary shares of Rs.1 each 1,200 800
Share premium account 65 40
Retained earnings 647 1,912 276 1,116
Non current liabilities
Obligations on lease finance 212 140
6% Loan Notes 100 400
Deferred tax 32 344 29 569
Current liabilities
Trade payable 312 294
Accrued expenses 27 12
Obligations on lease finance 74 35
Taxation 99 44
Dividend declared 45 25
Bank overdraft - 557 27 437
2,813 2,122

You are informed as follows:

(1) The fair value of a machine, acquired in the year on finance lease terms, was Rs.150,000
and another, acquired for Rs.120,000, several years earlier and written down to
 Rs.48,000 was sold at a gain of Rs.8,000. The gain on disposal has been offset from the
year’s administrative expenses.

(2) An extract from the Statement of income for the year ended 30 th June Rs’000
2017
is shown on the right. Operating profit 648
Operating profit has been Premium paid on loan redemption (60)
identified after deducting Interest on Loan notes and finance lease (45)
depreciation of Rs.145,000 and Profit before taxation 543
amortisation of development Taxation (97)
cost of Rs.30,000. Profit after taxation 446

(3) A bonus issue of one for every four was made on 2nd February 2017, followed a month
later by a cash issue. The cost of the bonus issue as well expenses on the cash issue
amounting to Rs.3,000 were written off against the Share premium account.

(4) Besides the second interim dividend of Rs.45,000 declared on the last day of the year,
another interim dividend of Rs.30,000 had been paid earlier, in January 2017.

Required:

(a) Prepare a Statement of cash flow on the format set out in IAS 7. (25 marks)

(b) On the basis of the information in the Statement of cash flow comment on any changes
in the company’s liquidity during the year ended 30 June 2017. (5 marks)

QUESTION 4: (30 MARKS)

The summarized financial statements of Amazing, a limited liability company engaged in

manufacturing are shown below:
 Extract of Income Statement for the year ended 31 March
2001 (Rs000) 2002(Rs000)
Revenue 2,773 3,390
Cost of Sales (1,952) (2,236)
Gross Profit 821 1,154
Administrative and distribution expenses (455) (584)
Finance cost: Interest (11) (33)
Taxation (120) (190)
235 347

Statement of Financial Position at 31 March

2001 (Rs000) 2002 (Rs000)
Tangible non-current assets 870 1,450
Current assets
Inventory 184 198
Trade receivables 380 510
Cash and cash equivalents 266 210
830 918
Current liabilities
Trade payables 220 330
Other payables: Expenses 68 106
Interest 11 33
Tax 120 (419) 190 (659)
Net current assets 411 259
1,281 1,709
Non-current liabilities
10% Debentures (110) (330)
1,171 1,379
Equity
Ordinary share of Rs0.5 each 700 700
6% Preference share of Rs1 each 150 150
Share Premium 70 70
Retained profits 251 1,171 459 1,379
Required:

(a) Compute the following ratios for each of the two years:
(i) Gross Profit margin
(ii) Net Profit margin
 (iii) Current ratio
(iv) Acid test ratio
(v) Return on capital employed
(vi) Average collection period (18 marks)

(b) Comment briefly on the changes in the company’s results and position between the
two years. (6 marks)

(c) Ratio analysis in general can be useful in comparing the performance of two
companies, but it has its limitations. State and briefly explain three factors which can
cause accounting ratios to be misleading when used for such comparison. (6 marks)