National 

University of Science and Technology 
 
 
FACULTY OF COMMERCE 
 
 
DEPARTMENT OF ACCOUNTING 
 
 
 
SECOND SEMESTER FINAL EXAMINATION PAPER 
 
DATE:         MAY 2012 
 
SUBJECT:   ACCOUNTING 1B CAC 1208 
 
TIME ALLOWED:       THREE (3) HOURS 
 
MARKS:        100           
 
 
 
 
INSTRUCTIONS TO CANDIDATES 
1. Question 1 is compulsory 
2. Answer any 3 
3. Use the examination book provided 
4. Use black or blue pen 
5. Begin each question on a new page and 
6. Submit all answer books  
   

Page 1 of 8 
 
QUESTION ONE (25 marks)
Patel PLC was established in the year 2000. A trainee accountant has prepared the
following draft summarised financial statements for the year ended 31 March
2010.These accounts contain serious errors of principle and presentation.

Statement of Comprehensive income for the year ended 31 March 2010

$000 $000

Gross profit 1532

Expenses 873
Depreciation 76 949
Operating profit 583
Taxation 160
Ordinary dividends – interim paid 12
final proposed 30
Bonus issue of ordinary shares (note 1) 50
Debenture interest paid 15 267
Retained earnings for the year 316

Statement of Financial Position at 31 March 2010

$ $ $
Non-current assets
Premises at cost (note 4) 500
Other non-current assets (carrying amount) 684
Goodwill (note 2) 250
1 434
Current assets 265

Creditors: amounts falling due in less than one year

Creditors and accruals 245
7½ % debenture (2029) 200 445
Net-current assets (180)
Capital Employed 1 254

Share capital and reserves

Ordinary shares of $0.50 each, valued at issue price of $0.70 each 350
Retained earnings 904
1 254

Additional information
i. A bonus issue of shares was made during the year. For every 5 shares already
held 1 bonus share was issued at par. The bonus issue has been included in the
draft Statement of Comprehensive Income for the year ended 31 March 2010 as an
appropriation of profits and has been credited to retained earnings. It is company
policy to maintain reserves in their most flexible form. The bonus shares did not
attract a dividend in the year ended 31 March 2010.

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ii.The number of customers has doubled since the year 2000 and the value of the
company’s sales has trippled. The company is widely acknowledged to be one of the
market leaders in its field. During the year the directors introduced goodwill into the
company’s books of account. They made the following entries in the ledger.

Dr Goodwill $250 000

Cr Retained earnings $250 000

iii. A bad debt of $40 000 that had been written off in 2007 has been recovered. This
has been credited to retained earnings since the amount recovered arose from a
sale in 2007.

iv. Premises were purchased in the year 2000. The market value of the premises fell
each year and were depreciated until 31 March 2009. They were valued by a
professional valuer on 1 April 2009 at $500 000, the value shown in the Statement of
Financial Position as at 31 March 2009. The increase of $200 000 in the value of the
premises has been credited to retained earnings. The accountant has not charged
the usual 2 % depreciation in the current year since the premises are now no longer
falling in value.

REQUIRED
(a) Prepare a corrected Statement of Comprehensive Income for the year ended 31
March 2010. [10]
(b) Prepare a corrected Statement of financial position at 31 March 2010. [10]

Your friend Brian has just inherited $10 000 and would like to invest in Patel PLC. He
is undecided whether to invest in ordinary shares (the current market price is $1.70
per share) or in 7½ % debentures that can be purchased at par value.

REQUIRED
(c) Advise Brian which investment to choose and give reasons for your choice.   [5] 
 
 

Page 3 of 8 
 
QUESTION TWO (25 MARKS)

An extract from P.E.L.E PLC’s Statement of Comprehensive Income for the year
ended 30 April 2011 was as follows:
$000 $000
Operating profit 1 000
Debenture interest (12.5%) (250)
750
Ordinary dividend paid and proposed 350
Preference dividend paid and proposed 120
Transfer to General Reserve 200 (670)
Retained profit for the year 80

P.E.L.E PLC’s issued share capital and reserves at 30 April 2011 consisted of:
$000
Ordinary shares of $10 4 000
8% Preference shares of $5 1 500
Capital and revenue reserves 900

The market price of the ordinary shares at 30 April 2011 was $30.

REQUIRED
(a) Calculate the following ratios for P.E.L.E PLC
(i) Interest cover
(ii) Dividend covers
(iii) Earnings per share
(iv) Price earnings ratio
(v) Dividend yield
(vi) Gearing
[6]

b) Suggest further information and documents you might wish to see to enable you
to assess the likely future performance of P.E.L.E PLC. [3]

c)Compare and contrast Current Purchasing Power (CPP) and Current Cost
Accounting [6]

d) Using an example of your choice, state any social activities the company could
undertake [5]

e) Suppose you are a Fund manager, and one of your clients has approached you
requesting for advice on which type of investment to make between Unit trusts and
government stocks. Advice your client highlighting the advantages and
disadvantages of each of the two [5]

  

Page 4 of 8 
 
QUESTION THREE (25 MARKS)

The following balances were extracted from the books of XYZ Ltd at 31 December:
2010 2009
$ $
Credits
Ordinary share capital ($1 shares) 110 000 90 000
Share Premium 10 000 -
Revaluation of land and buildings 30 000 -
Retained earnings 78 800 52 900
5% Debentures 40 000 50 000
Loan from Barclays Bank 15 000 9 000
Accumulated depreciation on motor vehicles 35 500 20 000
Bank overdraft - 12 000
Trade and other payables 19 500 16 700
Proposed dividends 9 300 4 900

Debits
Land and buildings at valuation 170 000 100 000
Motor vehicles 85 500 60 000
Investments 14 000 18 000
Trade and other receivables 24 000 16 000
Inventories 34 000 42 000
Loans to directors 9 000 11 000
Tax receivable 8 700 8 500
Bank 2 900 -

Page 5 of 8 
 
Additional information:

i. On 3 January 2010 a rights issue of one share for every nine shares was
made at a premium of $1 per share.
ii. A bonus issue of one share for every ten shares held was made on 1 July
2010.
iii. Corporation tax for the year 2010 amounts to $7 000, being $8 000 current
tax and an overprovision of $1 000 for the previous year.
iv. During the year a delivery vehicle with a book value of $12 000 was
scrapped. This vehicle had originally cost $20 000.
v. The 5% Debenture took place on 3 January 2008 at a premium of $300. This
premium was charged against income.
vi. Investment which had cost $4 000 was sold for $12 000.
vii. Dividends received on Investments amounted to $1 800.
viii. Loans to directors bear interest calculated at 10 % per annum on the opening
balances.
ix. Interest for the period ended 31 December 2008 on the Barclays Bank loan
amounted to $1 800.
x. All interest paid or received was correctly calculated and recorded in the
statement of comprehensive income.
xi. For the year ended 31 December 2008, Sales amounted to $177 400; Cost
of goods sold to $100 000 and Administration expenses to $10 800. Sales
and purchases were all on credit basis.
REQUIRED:
Prepare a Statement of Cashflows for the year ended 31 December 2010 for XYZ
Ltd in accordance with IAS 7 using the direct method. [25]

Page 6 of 8 
 
QUESTION FOUR (25 MARKS)

Oprah and Ellen have been in partnership for some years, sharing profits and losses
in the ratio 2 : 1. The Partnership Statement of Financial Position as at 31 January
2011 was as follows:

Statement of Financial Position at 31 January 2011

$ $ $
Non-Current Assets at Carrying amount
Motor vehicles 58 200
Office equipment 35 400
Fixtures and fittings 39 000
132 600
Goodwill 10 000
142 600
Current Assets
Inventory 64 000
Trade receivables 45 600
Bank 19 200
128 800
Current liabilities
Trade payables 22 400
Net current assets 106 400
249 000
Capital accounts
Oprah 80 000
Ellen 120 000
200 000
Current accounts
Oprah 35 400
Ellen 13 600 49 000
249 000

Oprah and Ellen, who had been renting business premises, accepted an offer by Phil
to move to his premises on 1 February 2011 on condition that he would be accepted
into the partnership on that date.

Additional information:
i. The new partnership commenced on 1 February 2011 with Oprah, Ellen and Phil
sharing profits and losses in the ratio 2 : 1 : 1.
ii. The new partnership took ownership of Phil’s premises on 1 February 2011 at a
valuation of $196 000.
iii. The following revaluations were to take place on 1 February 2011;

-Goodwill was revalued at $30 000 and would still be maintained in the books of
accounts .

Page 7 of 8 
 
-Office equipment was revalued at $34 100

-Inventory was valued at $63 000.

REQUIRED
a. Prepare the partnership Goodwill account at 1 February 2011 following the
amendments [5]

b. Prepare the partnership Revaluation account at 1 February 2011 following the

amendments [5]

c. Prepare Capital accounts for Oprah, Ellen and Phil [5]

d. Prepare the Statement of Financial Position for the Partnership as at 1 February

2011 [10]

END OF EXAMINATION PAPER

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