Assignment and Take away CAT

1.D Moody has the following assets and liabilities as on 31 April 2002:
£
Creditors 15,800
Equipment 46,000
Motor Vehicle 25,160
Stock 24,600
Debtors 23,080
Cash at bank 29,120
Cash in hand 160

During the first week of May 2002 Moody:

a. Bought extra equipment on credit for £5,520.
b. Bought extra stock by cheque £2,280.
c. Paid creditors by cheque £3,160.
d. Debtors paid £3,360 by cheque and £240 by cash.
e. Moody put in extra £1,000 cash as capital.

Required:
a. Determine the capital as at 1st May 2002.
b. Draw up a balance sheet after the above transactions have been completed.

2.Write up the asset, capital and liability accounts in the books of M Crash to record the following
transactions:
2002
June 1 Started business with £50,000 in the bank.
“ 2 Bought motor van paying by cheque £12,000.
“ 5 Bought Fixtures £4,000 on credit from Office Masters Ltd.
“ 8 Bought a van on credit from Motor Cars Ltd £8,000.
“ 12 Took £1,000 out of the bank and put it into the cash till.
“ 15 Bought Fixtures paying by cash £600.
“ 19 Paid Motor Cars Ltd by cheque £8000.
“ 21 A loan of £10,000 cash is received from J Marcus.
“ 25 Paid £8,000 of the cash in hand into the bank account.
“ 30 Bought more Fixtures paying by cheque £3,000.

3.Explain the nature of accounting and the accounting equation (8 marks)

4.Brian Barmouth is a sole trader. At 30 June 2000 the following balances have been extracted from his
books:

Sales 47,600.00

Purchases 22,850.00

Office expenses 1,900.00

 Insurance 700.00

Wages 7,900.00

Rates 2,800.00

Heating and Lighting 1,200.00

Telephone 650.00

Discounts allowed 1,150.00

Opening stock 500.00

Returns inwards 200.00

Returns outwards 150.00

Premises 40,000.00

Plant and Machinery 5,000.00

Motor Vehicles 12,000.00

Debtors 12,500.00

Bank balance 7,800.00

Creditors 3,400.00

Loan-long term loan 10,000.00

Capital 60,000.00

Drawings for the year 4,000.00

Closing stock 550.00

Required:
Construct a trial balance, from the above list of balances.
5.Write up a two-column cashbook from the following details, and balance off as at the end of the
month:

2003

May 1 Started business with capital in cash £1,000.

“ 2 Paid rent by cash £100.

“ 3 F Lake lent us £5,000, paid by cheque.

“ 4 We paid B McKenzie by cheque £650.

“ 5 Cash sales £980.

“ 7 N Miller paid us by cheque £620.

“ 9 We paid B Burton in cash £220.

“ 11 Cash sales paid direct into the bank £530.

“ 15 G Moores paid us in cash £650.

“ 16 We took £500 out of the cash till and paid it into the bank account.

“ 19 We repaid F Lake £1,000 by cheque.

“ 22 Cash sales paid direct into the bank £660.

“ 26 Paid motor expenses by cheque £120.

“ 30 Withdrew £1,000 cash from the bank for business use.

“ 31 Paid wages in cash £970.

6.You are to show the journal entries necessary to record the following items:
• 2003 May 1 Bought a motor vehicle on credit from Motors Ltd for £6,790.
• 2003 May 3 A debt of £34 owing from N Smart was written off as a bad debt.
• 2003 May 8 Furniture bought by us for £490 was returned to the supplier Wood
• Offices, as it was unsuitable. Full allowance will be given us.
• 2003 May 12 we are owed £150 by W Hayes. He is declared bankrupt and we received
• £39 in full settlement of the debt.
• 2003 May 14 we take £45 goods out of the business stock without paying for them.
• 2003 May 28 Some time ago we paid an insurance bill thinking that it was all in respect
• of the business. We now discover that £76 of the amount paid was in fact insurance of
our private house.
• 2003 May 28 Bought Machinery £980 on credit from Xerox Machines Ltd.
7.The prudence concept is applied here in the sense that revenue should not be anticipated, and
included in the trading, profit and loss account, before it is reasonably certain to ‘happen’.
Required
Given that prudence is the main consideration, discuss under what circumstances, if any, revenue might
be recognized at the following stages of a sale.

(a) Goods have been acquired by the business, which it confidently expects to resell very quickly.
(b) A customer places a firm order for goods.
(c) Goods are delivered to the customer.
(d) The customer is invoiced for goods.
(e) The customer pays for the goods.
(f) The customer’s cheque in payment for the goods has been cleared by the bank.

8. Discuss
(a) Explain the nature of the Accounting Equation.
(b) What are accounting standards and why are they important?
(c) Describe the role of the Institute of Certified Public Accountants of Kenya.
(d) In addition to the Kenya Accounting Standards, why is it important for an
Accountant to make use of International Accounting Standards?

9.Read the following and answer the questions below.

A and B own a grocery shop. Their first financial year ended on 31 December 2002.

The following balances were taken from the books on that date:

Capital: A- £60,000; B - £48,000.

Partnership salaries: A - £9,000; B - £6,000.

Drawings: A - £12,000; B - £13,400.

The firm’s net profit for the year was £32,840.

Interest on capital is to be allowed at 10% per year.

Profits and losses are to be shared equally.

10. From the information above prepared the firm’s appropriation account and the partners’ current
accounts.
Draw up a profit and loss appropriation account for the year ended 31 December 19X7 and balance
sheet extracts at the date, from the following:

i. Net profits £30,350

ii. Interest to be charged on capitals: W £2,000; P £1,500; H £900
iii. Interest to be charged on drawings; W £240; P £180; H £130
iv. Salaries to be credited: P £2,000; H £3,500.
v. Profits to be shared: W 50%; P 30%; H20%.
vi. Current accounts: balances b/f W £1,860; P £946; H £717
vii. Capital accounts: balances b/f W £40,000; P £30,000; H £18,000
viii. Drawings: W £9,200; P £7,100; H £6,900.