ATD LEVEL II

FINANCIAL ACCOUNTING

MONDAY: 21 August 2023. 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
Grace Kalu runs a hardware as a sole trader. She does not employ a fulltime accountant. The following were her balances as
at 30 June:
2022 2023
Sh.“000” Sh.“000”
Inventory 15,000 20,000
Accounts payable 30,000 40,000
Accrued electricity expenses 1,500 1,750
Insurance prepaid 5,000 6,000
Bank balance 34,000 ?
Motor vehicles 75,000 65,000
Equipment 50,000 70,000
Cash in hand 2,000 1,250

Additional information:
1. Grace Kalu charges a markup of 25% on all purchases.
2. Sales were both on credit and cash sales. Cash sales for the year ended 30 June 2023 amounted to Sh.50,000,000.
3. All credit sales were received and banked during the year ended 30 June 2023.
4. During the year ended 30 June 2023, all receipts were promptly banked and all payments were made by cheque
except:
• Cash payment amounting to Sh.12,000,000 to Trinity Traders, a supplier of timber.
• Weekly casual wages totalling to Sh.5,500,000 per year.
• Weekly cash drawings of Sh.250,000 per week for herself.
5. Equipment with a cost of Sh.25,000,000 was acquired on 1 July 2022 through a 3 year bank loan and an interest rate
of 5% per annum.
6. During the year ended 30 June 2023, the following payments were made through the bank account:
Sh.“000”
Salaries 10,750
General expenses 2,000
Electricity expenses 8,000
Insurance 11,000
Repairs and maintenance 17,000
Purchases 130,000
Motor vehicle running expenses 6,000

Assume a 52-week year.

Required:
(a) Statement of profit or loss account for the year ended 30 June 2023. (12 marks)

(b) Statement of financial position as at 30 June 2023. (8 marks)

(Total: 20 marks)

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QUESTION TWO
(a) The following are summarised accounts of Beba Ltd. for the year ended 30 June:

Income statement: 2022 2023

Sh.“000” Sh.“000”
Sales 20,000 36,000
Cost of sales (16,000) (27,000)
Gross profit 4,000 9,000
Expenses:
Administrative expenses (1,000) (2,000)
Sales and distribution cost (500) (1,300)
Interest on loan (500) (300)
Profit before tax 2,000 5,400
Income tax expense (600) (1,600)
Profit after tax 1,400 (3,800)

Statement of financial position:

2022 2023
Non-current assets: Sh.“000” Sh.“000”
Property, plant and equipment (net book value) 17,500 19,400
Current assets:
Inventory 1,300 1,700
Accounts receivable 2,100 3,300
Bank balance 1,600 -
Total assets 22,500 24,400
Equity and liabilities:
Ordinary shares of Sh.10 each 10,000 10,000
Share premium 2,000 2,000
General reserves 1,000 1,400
Retained earnings
Non-current liabilities: 2,000 4,000
10% bank loan 5,000 3,000
Current liabilities:
Accounts payable 1,600 1,500
Corporation tax 600 1,600
Accrued interest on loan 300 100
Bank overdraft - 800
22,500 24,400

Inventory on 30 June 2021 was valued at Sh.1,100,000.

Assume a 360-day year.

Required:
(i) Net profit margin. (2 marks)

(ii) Inventory turnover in days. (2 marks)

(iii) Current ratio. (2 marks)

(iv) Quick (acid test) ratio. (2 marks)

(v) Return on capital employed (ROCE). (2 marks)

(b) Little Bag Ltd. is a company that manufactures different types of bags and supplies them in East and Central Africa.
On 1 July 2022 the company’s books showed the following balances:

Sh.“000” Sh.“000”
Motor vehicles 40,000
Accumulated depreciation 16,000

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 During the year ended 30 June 2023, the following transactions took place:
1. A motor vehicle purchased on 1 July 2020 at Sh.8,000,000 was traded in for a new vehicle costing
Sh.12,000,000. Little Bag Ltd. paid Sh.6,400,000 in the trade-in transaction which took place on
31 December 2022.
2. On 28 February 2023, a second hand vehicle was purchased form Tiwa Motors at Sh.5,600,000. Tiwa
Motors had purchased the vehicle on 30 June 2019 at Sh.8,000,000.
3. On 1 October 2022, a new motor vehicle was purchased at Sh.8,000,000.
4. On 31 January 2023, a motor vehicle purchased on 1 February 2020 at a cost of Sh.6,400,000 was sold at
Sh.2,400,000.
5. It is the company’s policy to charge depreciation on motor vehicles at 20% per annum on cost with a full
year’s depreciation charge in the year of acquisition and no depreciation charge in the year of disposal.

Required:
(i) Motor vehicle account. (4 marks)

(ii) Accumulated depreciation account. (2 marks)

(iii) Depreciation expense account. (1 mark)

(iv) Disposal account. (3 marks)

(Total: 20 marks)

QUESTION THREE
Stacy and Tobias have been operating a hotel and conference facility as partners sharing profits and losses equally after
allowing for interest on capital at the rate of 10% per annum. They admitted Diana to the partnership on 1 January 2023.

The following trial balance was extracted from the books of the partnership as at 30 June 2023:

Sh.“000” Sh.“000”
Sales 31,084
Sacco loan 4,000
Purchases 24,000
Partners’ capital accounts:
Stacy 8,000
Tobias 6,000
Diana 4,000
Partners’ current accounts:
Stacy 460
Tobias 80
Inventory (1 July 2022) 400
Cash and cash equivalent 2,320
Discounts allowed and discounts received 160 240
Partners drawings:
Stacy 400
Tobias 360
Land and buildings (cost) 14.000
Motor vehicles (cost) 6,800
Furniture and fittings (cost) 5,200
Returns inward 460
Accumulated depreciation:
Buildings 400
Motor vehicles 1,920
Furniture and fittings 640
Carriage inwards 1,680
Administrative expenses 224
Rent, rates and insurance 1,140
Accounts receivable and accounts payable 1,440 1,920
58,664 58,664

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Additional information:
1. On admission of Diana to the partnership, the terms of the partnership agreement were changed. The new terms
provided as follows:
• Diana to introduce capital of Sh.4,000,000.
• Profit or loss sharing ratio was changed to 5:3:2 for Stacy, Tobias and Diana respectively.
• Diana was to earn a monthly salary of Sh.140,000 per month from the date of admission given that she will
dedicate most of her time to the hotel.
• For the purpose of the changes, goodwill was agreed at Sh.5,400,000 and was to be written off
immediately.
• Land was revalued upwards by Sh.1,000,000.
2. Included in the value of land and building is Sh.3,600,000 which is the cost of land.
3. Revenues after admission of Diana were 50% more than before admission. Expenses accrued evenly throughout the
year.
4. Depreciation is provided as follows:
Asset Rate per annum
Building 2.5% on cost
Motor vehicles 20% on reducing balance
Furniture and fittings 10% on reducing balance
5. Inventory as at 30 June 2023 was valued at Sh.1,200,000 at net realisable value and Sh.1,500,000 at cost.
6. The interest on Sacco loan is charged at the rate of 10% per annum. This interest had not been paid as at
30 June 2023.
7. A credit sale of Sh.2,400,000 had not been recorded in the books.
Required:
(a) Statement of profit or loss and appropriation account for the year ended 30 June 2023.
(Prepare in columnar form to show before and after admission of the new partners). (10 marks)
(b) Partners’ current accounts as at 30 June 2023. (4 marks)
(c) Statement of financial position as at 30 June 2023. (6 marks)
(Total: 20 marks)
QUESTION FOUR
Upper-End Ltd. has an authorised share capital of 20,000,000 ordinary shares of Sh.20 each and Sh.10,000,000 8%
preference shares of Sh.1 each. The following trial balance was extracted from the books of the company as at 31 December
2022:
Sh.“000” Sh.“000”
Ordinary share capital (issued, Sh.10 paid per share) 200,000
8% preference share capital (issued and fully paid) 80,000
Inventory (1 January 2022) 102,994
Accounts receivable and accounts payable 227,219 54,818
10% loan notes 40,000
General reserve 15,000
Retained earnings (1 January 2022) 12,411
Loan note interest 2,000
Plant and machinery (at cost) 225,000
Motor vehicles (at cost) 57,200
Computers (at cost) 10,000
Corporate tax payable (1 January 2022) 2,100
Bank 5,035
Purchases and sales 419,211 891,676
General office expenses 13,420
Returns inward 18,400
Carriage inwards 1,452
Salaries and wages 236,519
Rent, rates and insurance 16,240
Directors’ fees 13,415
Accumulated depreciation:
Plant and machinery 32,600
Motor vehicles 18,200
Interim preference dividend 4,000
Allowance for doubtful debts ________ 5,300
1,352,105 1,352,105
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Additional information:
1. As at 31 December 2022, the directors proposed that final dividends on preference shares be paid as well as a
dividend of 10% on the ordinary shares.
2. As at 31 December 2022, prepaid insurance amounted to Sh.4,000,000 and business rates amounting to Sh.800,000
were outstanding.
3. As at 31 December 2022, the directors proposed Sh.8,000,000 to be transferred to the general reserve.
4. Inventory as at 31 December 2022 was valued at Sh.95,000,000.
5. Allowance for doubtful debts is to be increased by Sh.1,150,000.
6. The corporate tax for the year ended 31 December 2022 is estimated to be Sh.8,500,000.
7. Depreciation is to be provided as follows:
Asset Rate per annum and method
Plant and machinery 10% on reducing balance
Motor vehicles 20% on reducing balance
Computers 20% on cost
8. Sales include an amount of Sh.91,000,000 which was collected on behalf of a third party and has not yet been
remitted.

Required:
(a) Statement of profit or loss for the year ended 31 December 2022. (12 marks)

(b) Statement of financial position as at 31 December 2022. (8 marks)

(Total: 20 marks)

QUESTION FIVE
(a) State FOUR causes of depreciation in non-current assets. (4 marks)

(b) Describe the following accounting principles:

(i) Conservatism principle. (2 marks)

(ii) Matching principle. (2 marks)

(c) Identify SIX sources of revenue for not-for-profit organisations. (6 marks)

(d) Explain the following terms as used in manufacturing accounts:

(i) Prime cost. (2 marks)

(ii) Unrealised profit. (2 marks)

(iii) Work-in-progress. (2 marks)

(Total: 20 marks)

……………………………………………………………………

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 ATD LEVEL II

FINANCIAL ACCOUNTING

MONDAY: 24 April 2023. 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
Neno Moja commenced his business on 1 April 2022. Due to his limited accounting knowledge, he did not maintain a
complete set of accounts. He engaged a financial accounting consultant to prepare his financial statements at the end of the
year.

The consultant’s examination revealed the following:

1. On the commencement date he deposited Sh.1,200,000 into the bank account, converted his pick-up valued at
Sh.660,000 into business use and purchased equipment worth Sh.960,000 using a cheque from the business bank
account. As at 1 April 2022, the pick up was estimated to have a remaining useful life of 3 years while equipment has
a useful life of 5 years.
2. On 1 April he employed an office assistant at a monthly salary of Sh.60,000 paid from his bank account.
3. On 1 July 2022, he borrowed Sh.400,000 at 15% per annum from the bank. No interest had been paid as at 31 March
2023.
4. Land rates for 15 months up to 30 June 2023 amounted to Sh.360,000, but had not been paid.
5. The financial accountant’s consultancy fee was agreed at Sh.55,000.
6. Cash withdrawal for office use per week amounted to Sh.18,000. Cash withdrawals were all used for administrative
expenses.
7. Neno Moja provided the following bank payments summary:

Expense Amount
Electricity 240,000
Motor vehicle expenses 182,000
General expenses 270,000
Insurance 160,000
8. Purchases for the period amounted to Sh.1,960,000 all paid from the bank.
9. Credit sales of Sh.6,178,000 were made during the year, out of which Sh.5,080,000 was paid directly by the
customers into the bank account. As at 31 March 2023, debts amounting to Sh.17,000 were written off.
10. During the year, cash sales amounted to Sh.726,000, out of which Sh.560,000 was banked, Sh.99,000 was taken for
personal use, the rest was used on general expenses except Sh.30,100 which was left in the office cabinet as at
31 March 2023.
11. Closing inventory as at 31 March 2023 was valued at Sh.158,000.
12. As at 31 March 2023, electricity outstanding and insurance expense pre-paid amounted to Sh.48,000 and Sh.40,000
respectively.

Assume a year has 52 weeks.

Required:
(a) Statement of profit or loss for the year ended 31 March 2023. (12 marks)

(b) Statement of financial position as at 31 March 2023. (8 marks)

(Total: 20 marks)

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QUESTION TWO
The following trial balance was extracted from the books of Kulah Manufacturers Ltd. as at 31 December 2022:
Sh.“000” Sh.“000”
Sales 920,000
Ordinary share capital 216,000
Share premium 18,000
General reserve 79,200
Land and building (building cost - Sh.84 million) 244,000
Plant and machinery 216,000
Accumulated depreciation:
Building 32,400
Plant and machinery 122,400
Inventory (1 January 2022):
Raw materials 43,200
Work-in-progress 28,800
Finished goods 69,200
Accounts receivable and accounts payable 298,640 39,600
Allowance for unrealised profit (1 January 2022) 3,600
10% debentures 36,000
Bank overdraft 77,040
Allowance for doubtful debts 5,040
Purchases of raw materials 360,000
Purchases of finished goods 3,600
Factory wages 29,880
Indirect factory expenses 38,880
Administrative expenses 81,000
Selling and distribution 133,200
Debenture interest 2,880 ________
1,549,280 1,549,280

Additional information:
1. Inventory as at 31 December 2022 was valued as follows:
Sh.
Raw materials 46,800,000
Work-in-progress 32,400,000
Finished goods 183,600,000
2. Depreciation is charged on the following basis:
Asset Method and rate per annum Apportionment basis
Building 2.5% on straight line 70% manufacturing, 30% administrative
Plant and machinery 10% on reducing balance 60% manufacturing, 40% administrative
3. Bad debts amounting Sh.1,440,000 are to be written off and an allowance for doubtful debts of Sh.6,120,000 is to be
provided.
4. Accrued and prepaid expense as at 31 December 2022 were as follows:
Accrued Prepaid
Sh.“000” Sh.“000”
Factory wages 2,520 -
Administrative expenses 3,240 4,680
Selling and distribution 5,040 720
5. The following were agreed and provided for by the management and the board:
• Corporate tax for the year Sh.28,800,000
• Proposed an ordinary share dividend of Sh.21,600,000.
• Transfer of Sh.3,600,000 to general reserve.
6. Manufactured goods are transferred to the warehouse at cost plus 50% mark-up.

Required:
Prepare the following:

(a) Manufacturing statement and statement of profit or loss for the year ended 31 December 2022. (12 marks)

(b) Statement of financial position as at 31 December 2022. (8 marks)

(Total: 20 marks)

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QUESTION THREE
(a) Describe THREE functions of the International Public Sector Accounting Standards (IPSAS). (6 marks)

(b) The following financial statements were extracted from the books of Mlima Ltd. for the year ended 31 December
2022:

Mlima Ltd.
Statement of profit or loss for the year ended 31 December 2022:

Sh.“000” Sh.“000”
Profit after tax 66,450
Less:
Impairment of goodwill 12,000
Proposed dividends 36,000 (48,000)
Retained profit for the year 18,450
Add: Retained profit brought forward 25,400
Retained profit carried forward 43,850

Statement of financial position as at 31 December:

Non-current assets: 2021 2022

Sh. “000” Sh. “000”
Buildings 64,000 48,000
Plant and machinery 112,000 154,000
Motor vehicles 164,000 302,000
340,000 504,000
Other non current assets:
Investment (at cost) 56,000 -
Goodwill 38,000 26,000
434,000 530,000
Current assets:
Inventory 78,800 101,100
Accounts receivable 96,600 115,000
Bank 67,180 62,350
676,580 808,450
Equity and liabilities:
Equity
Ordinary share capital 350,000 420,000
Preference shares 80,000 50,000
Share premium 28,400 48,400
General reserve 60,000 60,000
Revenue reserve 25,400 43,850
543,800 622,250
Liabilities:
Accounts payable 107,380 113,800
Accrued electricity 4,000 6,400
Dividend payable 21,400 36,000
Tax payable - 30,000
676,580 808,450

Additional information:
1. Investments were sold at a gain of Sh.6,000,000.
2. During the year ended 31 December 2022, depreciation charged on building amounted to Sh.1,600,000. No
other buildings were acquired or constructed during the year.
3. During the year ended 31 December 2022, an item of plant and machinery worth Sh.60,000,000 was
acquired.
4. Motor vehicles which had cost Sh.80,000,000 and with accumulated depreciation of Sh.54,000,000 were
disposed of during the year ended 31 December 2022 at Sh.30,000,000. The total depreciation charge for the
year for all motor vehicles was Sh.30,000,000.

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 Required:
Statement of cash flows in accordance with the requirement of International Accounting Standard (IAS) 7
“Statement of Cash Flows” for the year ended 31 December 2022. (14 marks)
(Total: 20 marks)
QUESTION FOUR
The following balances were extracted from the books of Mchezo Sports Club as at 1 January 2022:

Sh.“000”
Club house 38,000
Sports equipment (cost Sh.40,000,000) 24,000
Furniture (net book value) 5,000
Bar inventory 4,400
Bank 1,500
Subscription in arrears 350
Subscription in advance 265
Bar creditors 3,720
Accrued general expenses 500
Investments 8,000

All cash received was paid into the club bank account and all payments were made by cheque. The bank statements for the
year ended 31 December 2022 have been analysed and the following summary prepared:

Bank account
Receipts Sh.“000” Payment Sh.“000”
Balance brought forward 1,500 New sports equipment 16,000
Life membership fund 12,000 Repairs to sports equipment 2,520
Subscription 7,700 Water and electricity 6,530
Bar sales 69,660 Prizes for tennis tournament 140
Donations 310 Sports uniform 900
Tennis tournament entry fees 240 Travel expenses 2,825
Football ticket sales 180 Renting of football pitch 400
Tennis court entry fees 5,700 Rates on club house 1,100
Investment income 230 Payment for bar supplies 48,400
Bar wages 7,800
Training expenses 3,866
General expenses 4,619
______ Balance carried forward 2,420
97,520 97,520

Additional information:
1. During the year, the club introduced a life membership fund. The contributions to the fund were set at Sh.400 per
member. A tenth of the fund fee will be recognised in the income and expenditure account every year.
2. As at 31 December 2022, creditors for bar purchases and general expenses outstanding amounted to Sh.4,300,000 and
Sh.640,000 respectively.
3. It is the club’s policy to write off the cost of sports equipment over a ten year period. A full year’s depreciation is
recognised in the year of purchase and no depreciation in the year of disposal.
4. Furniture is depreciated at a rate of 10% per annum based on the balance at the year end.
5. Subscription in arrears as at 31 December 2022 amounted to Sh.230,000 and subscription received in advance
amounted to Sh.543,000.
6. As at 31 December 2022, bar inventory was valued at Sh.3,850,000.

Required:
(a) Bar statement of profit or loss for the year ended 31 December 2022. (4 marks)

(b) Income and expenditure account for the year ended 31 December 2022. (8 marks)

(c) Statement of financial position as at 31 December 2022. (8 marks)

(Total: 20 marks)

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QUESTION FIVE
(a) Highlight SIX objectives of public sector accounting. (6 marks)

(b) Explain the following terms as used in public sector accounting:

(i) Commitment accounting. (2 marks)

(ii) Budgetary accounting. (2 marks)

(c) In relation to intangible assets:

(i) Define the term “intangible asset”. (2 marks)

(ii) Cite TWO examples of intangible assets. (2 marks)

(d) Discuss THREE limitations of ratios as financial analysis tools. (6 marks)

(Total: 20 marks)
……………………………………………………………………

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 ATD LEVEL II

FINANCIAL ACCOUNTING

MONDAY: 5 December 2022. 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
(a) Citing FOUR reasons, justify why not-for-profit entities should be subject to regulation. (8 marks)

(b) Vipi Traders’ financial year ends on 31 March. On 1 April 2021, Vipi Traders had a balance on plant account of
Sh.334,800,000 and on accumulated depreciation of plant account of Sh.184,860,000.

Vipi Traders’ policy is to provide depreciation using the reducing balance method applied to the non-current assets
held at the end of the financial year at the rate of 20% per annum. Depreciation charge is not pro-rated.

On 1 September 2021, the company sold for Sh.12,330,000 a plant which it had acquired on 31 October 2018 at a
cost of Sh.32,400,000. Additionally, installation costs totalled Sh.3,600,000. During the year ended 31 March 2020,
major repairs costing Sh.5,670,000 had been carried out on this plant.

A new motor was fitted on the plant on 12 December 2020 at a cost of Sh.3,960,000. Further repairs costing
Sh.2,430,000 were carried out during the year ended 31 March 2021.

The company acquired a new replacement plant on 30 November 2021 at a cost of Sh.8,640,000 inclusive of
installation charges of Sh.6,300,000.

Required:
(i) Plant account. (4 marks)

(ii) Accumulated depreciation on plant account. (6 marks)

(iii) Profit or loss on disposal of plant. (2 marks)

(Total: 20 marks)

QUESTION TWO
(a) The following are summarised financial statements of Tazama Ltd. for the years ended 30 June 2021 and 30 June
2022.

Statement of financial position as at 30 June: 2022 2021

Sh.“000” Sh.“000” Sh.“000” Sh.“000”
Non-current assets:
Property, plant and equipment 12,000 11,000
Intangible assets 500 -
12,500 11,000
Current assets:
Inventory 14,000 13,000
Accounts receivable 16,000 15,000
Bank and cash balances 500 30,500 500 28,500
43,000 39,500

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 Sh.“000” Sh.“000” Sh.“000” Sh.“000”
Equity and liabilities:
Capital and reserves
Ordinary share capital 3,300 3,300
Share premium 1,300 1,300
Revaluation reserves 2,000 2,000
Retained earnings 6,400 7,400
13,000 14,000
Non-current liabilities:
Long-term loan 6,000 5,500
Current liabilities:
Accounts payable 18,000 18,400
Current tax 5,400 1,000
Proposed dividend 600 600
______ 24,000 ______ 20,000
43,000 39,500

Statement of profit or loss from the year ended 30 June:

2022 2021
Sh.“000” Sh.“000”
Revenue 60,000 50,000
Cost of sales (42,000) (34,000)
Gross profit 18,000 16,000
Operating expenses (15,500) (13,000)
Finance cost (2,200) (1,300)
Profit before tax 300 1,700
Income tax expense (350) (600)
Profit (loss) after tax (50) 1,100
Proposed dividend (600) (600)
Retained earnings for the year (650) 500

Additional information:
1. As at 1 July 2020, opening inventory was valued at Sh.11,000,000.
2. As at 1 July 2020, accounts receivable and accounts payable were valued at Sh.18,000,000 and
Sh.17,600,000 respectively.
3. During the years ended 30 June 2021 and 30 June 2022, 80% of sales were on credit while 10% of purchases
were on a cash basis.

Assume a 365-day year.

Required:
Compute each of the following ratios for the years ended 30 June 2021 and 30 June 2022:

(i) Quick ratio. (2 marks)

(ii) Inventory turnover. (2 marks)

(iii) Accounts receivable turnover in days. (4 marks)

(iv) Accounts payable turnover in days. (4 marks)

(v) Times interest earned ratio. (2 marks)

(b) Highlight THREE risks that might arise due to each of the following situations:

(i) Low inventory turnover. (3 marks)

(ii) High debtors turnover. (3 marks)

(Total: 20 marks)

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QUESTION THREE
Jayden and Imani are in a business partnership trading under the name Jayman Partnership. Jayden and Imani share profits and
losses equally. They do not maintain proper books of accounts. They have provided you with the following information for the
year ended 30 September:
2021 2022
Sh.“000” Sh.“000”
Motor vehicle (net book value) 96,000 ?
Furniture and fittings (net book value) 18,000 ?
Accounts receivable 30,600 ?
Accounts payable 21,168 15,288
Inventory 27,060 24,435
Bank balance 4,740 ?
An analysis of the cash book for the year ended 30 September 2022 was as follows:
Receipts Sh.“000” Sh.“000”
Cash from accounts receivable 174,576
Additional capital by Jayden 12,000
Cash sales 29,340
Payments
Motor vehicle expenses 5,976
Internet and stationery 2,088
Electricity expenses 3,000
Insurance expenses 6,000
Rent and rates 4,320
Salaries and wages 16,800
Payment for purchases 153,504
Drawings - Jayden 6,624
- Imani 5,100
Administrative expenses 1,680
Additional information:
1. Credit sales during the year amounted to Sh.163,116. All purchases made during the year ended 30 September 2022
were on credit.
2. On 1 October 2021, Jayden’s capital was Sh.10,000,000 less than that of Imani. Imani’s capital amounted to
Sh.80,000,000.
3. The current accounts for Jayden and Imani each had a balance of Sh.2,616,000 as at 1 October 2021.
4. The capital accounts earn an interest of 1% per annum.
5. During the year ended 30 September 2022, some motor vehicles were disposed of on credit for Sh.32,000,000. Jayden
also sold other partnership’s motor vehicles for Sh.12,500,000 and withdrew the cash for personal use.
The combined net book value of all these motor vehicles was Sh.33,000,000. These transactions have not been
recorded in the books of account.
6. Depreciation is to be provided on a reducing balance method as follows:
Asset Rate per annum
Motor vehicles 12.5%
Furniture and fittings 10%
No depreciation is charged in the year of disposal.
7. As at 30 September 2022, pre-paid insurance amounted to Sh.3,000,000.
8. As at 30 September 2022, the outstanding expenses were as follows:
Sh.“000”
Administrative expenses 180
Electricity expenses 624
Internet and stationery 312
Required:
(a) Statement of profit or loss and appropriation account for the year ended 30 September 2022. (10 marks)
(b) Partners’ current accounts. (4 marks)
(c) Statement of financial position as at 30 September 2022. (6 marks)
(Total: 20 marks)
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QUESTION FOUR
The following balances were extracted from the books of Sukari Ltd. as at 31 October 2022:
Sh.“000”
Ordinary shares of Sh.200 each 600,000
8% preference shares of Sh.20 each 100,000
Share premium account 80,000
6% debentures 100,000
Accounts payable 148,000
Accounts receivable 330,000
Sales 4,800,000
Purchases 4,220,000
Discounts allowed 5,000
Discounts received 13,000
Buildings (at cost) 500,000
Accumulated depreciation (1 November 2021) 50,000
Fixtures and fittings at cost 640,000
Accumulated depreciation (1 November 2021) 256,000
Inventory (1 November 2021) 420,000
Returns outward 80,000
Corporate tax 70,000
Administrative expenses 56,000
Selling and distribution expenses 167,000
Bad debts written off 4,000
Allowance for doubtful debts 18,000
Retained earnings (1 November 2021) 302,000
Goodwill 160,000
Bank 75,000
Suspense account 40,000
General reserves 60,000

The following additional information is available:

1. Depreciation is provided annually on cost of the assets as follows:
• Building - 20%
• Fixtures and fittings - 10%
2. A customer who owed Sukari Ltd. Sh.10,000,000 has been declared bankrupt.
3. The allowance for doubtful debts as at 31 October 2022 is to be adjusted to 5% of outstanding accounts receivable.
4. Additional provision for corporate tax of Sh.25,000,000 is to be made.
5. As at 31 October 2022, administrative expenses accrued amounted to Sh.7,000,000.
6. The company paid the interest on debentures for the year ended 31 October 2022 on 30 November 2022.
7. As at 31 October 2022, closing inventory was valued at Sh.560,000,000 at cost and Sh.480,000,000 on realisable
value.
8. The suspense account relates to issue of additional 100,000 ordinary shares at Sh.400.
9. The company’s directors propose the following:
• Preference shares dividend be paid.
• A dividend of 10% on the ordinary share be paid.
• Sh.13,000,000 to be transferred to general reserves.
Required:
(a) Statement of profit or loss for the year ended 31 October 2022. (12 marks)
(b) Statement of financial position as at 31 October 2022. (8 marks)
(Total: 20 marks)

QUESTION FIVE
(a) State FOUR elements of financial statements. (4 marks)
(b) Explain FOUR reasons why an organisation’s statement of cash flows might be useful and reliable than its statement
of profit or loss. (8 marks)
(c) Argue TWO cases for and TWO cases against the use of accrual method of accounting in the public sector. (8 marks)
(Total: 20 marks)
……………………………………………………………………
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 ATD LEVEL II

FINANCIAL ACCOUNTING
MONDAY: 1 August 2022. 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
The treasurer of Union Club does not keep a complete set of accounting records. However, the following balances have
been extracted from Union Club’s records:

1. Summary of the bank statement for the year ended 31 December 2021:
Sh.“000” Sh.“000”
Balance brought forward (1 January 2021) 2,960 Building extension 13,000
Bar sales 6,640 Dinner dance expenses 7,000
Seminar rentals 3,160 Equipment 6,000
Investment income 4,940 Bar purchases 2,520
Sale of equipment 1,240 Salaries and wages 9,080
Dinner dance tickets 11,960 Other staff expenses 2,580
Subscriptions: 2020 3,160 Visiting speakers expenses 8,880
2021 50,800 Investment purchases 9,000
2022 1,340 General expenses 3,160
Repairs and maintenance 5,920
_____ Balance carried forward 19,060
86,200 86,200

2. Assets and liabilities other than balance at bank:

1 January 2021 31 December 2021
Sh.“000” Sh.“000”
Land and buildings 49,000 ?
Equipment at cost 6,500 ?
Accumulated depreciation on equipment 1,900 ?
Furniture and fittings at cost 6,800 ?
Accumulated depreciation on furniture and fitting 2,500 ?
Subscriptions arrears: 2020 3,700 ?
2021 - 6,480
Subscriptions prepaid: 2021 2,480 ?
2022 1,080 ?
Bar inventory 5,080 6,580
Accrued salaries and wages 460 560
Unpaid dinner dance tickets - 580
Investment 51,000 ?
Bar purchases payables 3,360 4,680
Unpaid building extension works - 1,700
Building extension fund 5,000 ?

Additional information:
1. Equipment with original cost of Sh.1,200,000 was sold during the year for Sh.1,240,000 in cash. The accumulated
depreciation on this equipment at 1 January 2021 amounted to Sh.380,000. Another equipment with an original
cost of Sh.500,000 was sold for Sh.280,000 to a club member. He had not paid the club this money as at
31 December 2021. The accumulated depreciation on this equipment amounted to Sh.140,000.

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2. Depreciation for the year ended 31 December 2021 is to be provided as follows:
Asset Sh.“000”
Equipment 1,620
Furniture and fittings 680
3. Subscriptions in arrears are written off after 12 months.
4. The building extension fund was not utilised during the year ended 31 December 2021.

Required:
(a) Bar income statement for the year ended 31 December 2021. (4 marks)

(b) Income and expenditure account for the year ended 31 December 2021. (8 marks)

(c) Statement of financial position as at 31 December 2021. (8 marks)

(Total: 20 marks)

QUESTION TWO
John, Abel and Raymond have been trading as partners under the name JAR Enterprises. They have been sharing profits
and losses in the ratio 4:3:3 respectively.

Additional information:
1. On 30 June 2021, John retired from the partnership. From that date, Abel and Raymond were to share profits and
losses equally. Profits and losses accrue evenly throughout the year.
2. Interest is to be credited at 5% per annum in the partner’ capital accounts. No interest is to be charged on
drawings.
3. On John’s retirement, goodwill was valued at Sh.11,100,000. This was to be written off immediately.
4. Upon John’s retirement, revaluation of assets was carried out by a valuer. The assets were revalued as follows:
Asset Sh.“000”
Land and buildings 10,000
Furniture and fittings 1,000
5. The amount due to John from his capital account is to receive interest at the rate of 6% per annum from the date of
retirement until it is repaid. As at 31 December 2021, both the amount in his capital account and current account
had not been repaid.
6. The following trial balance was extracted from the books of JAR Enterprises as at 31 December 2021:
Sh.“000” Sh.“000”
Land and buildings 8,000
Accumulated depreciation on buildings 2,000
Furniture and fittings 1,500
Accumulated depreciation on furniture and fittings 800
Accounts receivable and accounts payable 2,000 5,200
Inventory 12,500
Bank 4,000
Operating expenses 20,000
Gross profit 30,400
Capital accounts:
John 5,000
Abel 5,000
Raymond 6,000
Drawings:
John 1,600
Abel 2,400
Raymond 2,400 ______
54,400 54,400
7. The operating expenses comprised of the following:
Sh.“000”
Rent and insurance 2,000
Salaries and wages 12,400
Bad debts 800
Office expenses 1,200
Repairs and maintenance 3,600
8. As at 31 December 2021, accrued rent amounted to Sh.650,000, while office expenses of Sh.135,000 and repairs
and maintenance of Sh.1,080,000 had been prepaid.
9. Each partner draws an annual salary of Sh.2,500,000. This is not included in the salaries and wages.
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Required:
(a) Statement of profit or loss and appropriation account in columnar form for the two periods ended 30 June 2021
and 31 December 2021. (10 marks)

(b) Partners’ current accounts. (4 marks)

(c) Statement of financial position as at 31 December 2021. (6 marks)

(Total: 20 marks)

QUESTION THREE
Linkages Ltd. is a manufacturer of barbed wire. The company’s trial balance as at 31 March 2022 was as follows:
Sh.“000” Sh.“000”
Capital 279,500
Drawings 20,000
Office - Salaries and wages 30,000
- Rent 50,000
- Rates 40,000
Carriage outwards 19,140
Warehouse expenses 2,700
Purchases of raw materials 100,000
Carriage inwards of raw materials 14,000
Sales 440,000
Purchases of finished goods for sale 10,000
Carriage inwards of finished goods for sale 4,000
Inventory at 1 April 2021:
- Raw materials 21,000
- Work-in-progress 15,000
- Finished goods 18,000
Factory wages 84,000
Royalties 20,000
Factory expenses (direct) 28,000
General factory expenses 27,000
Plant and equipment at cost 90,000
Accumulated depreciation (1 April 2021) 36,000
Delivery vehicles running expenses 13,500
Trade receivables and trade payables 74,000 6,500
Bank balances 84,300 34,500
Provision for unrealised profit 4,140
Delivery vehicles at cost 48,000
Accumulated depreciation (1 April 2021) ______ 12,000
812,640 812,640

Additional information:
1. Rates paid in advance as at 31 March 2022 amounted to Sh.6,000,000.
2. Direct factory wages accruing as at 31 March 2022 amounted to Sh.9,000,000.
3. Inventories as at 31 March 2022 were valued as follows:
Sh.“000”
Raw materials 27,000
Work-in-progress 24,000
Finished goods 31,050
4. Depreciation is to be charged at 10% per annum on cost for plant and equipment and 25% per annum on cost for
delivery vehicles.
5. Manufactured goods are transferred to the warehouse at markup of 25% of factory cost.

Required:
(a) Manufacturing account for the year ended 31 March 2022. (6 marks)

(b) Statement of profit or loss for the year ended 31 March 2022. (7 marks)

(c) Statement of financial position as at 31 March 2022. (7 marks)

(Total: 20 marks)

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QUESTION FOUR
(a) In relation to public sector accounting, explain the following terms:

(i) Recurrent expenditure. (2 marks)

(ii) Development expenditure. (2 marks)

(b) The following are the summarised financial statements of Chora Ltd. as at 30 June 2021 and 30 June 2022:

Chora Ltd.
Statement of profit or loss for the year ended 30 June 2022:
Sh. “000”
Revenue 44,280
Cost of sales (28,860)
Gross profit 15,420
Operating expenses (4,710)
Interest expenses (450)
Profit before tax 10,260
Tax expenses (4,860)
Profit for the year 5,400
Other incomes:
Gain on revaluation of property, plant and equipment 3,000
Total income 8,400

Statement of financial position as at 30 June:

2022 2021
Sh.“000” Sh.“000”
Non-current assets:
Property, plant and equipment 27,750 22,110
Intangible assets 8,700 4,800
36,450 26,910
Current assets:
Inventories 10,800 6,810
Trade receivables 8,220 9,720
Treasury bills 4,290 1,380
Cash and cash equivalents 870 3,510
24,180 21,420
Total assets 60,630 48,330
Equity and liabilities:
Equity:
Share capital (Sh.100 ordinary shares) 15,000 12,000
Share premium 10,500 3,000
Revaluation surplus 4,800 1,800
Retained earnings 6,870 7,650
37,170 24,450
Non current liabilities:
10% debentures 4,500 3,000
Bank loan 4,440 3,750
8,940 6,750
Current liabilities 14,520 17,130
60,630 48,330

Additional information:
1. During the year ended 30 June 2022, impairment loss of Sh.180,000 was charged on intangible assets.
2. Current liabilities comprise of the following:
30 June 2022 30 June 2021
Sh.“000” Sh.“000”
Accounts payable 8,220 10,560
Bank interest payable 510 360
Current tax payable 1,680 4,590
Interest on debentures 150 -
Bank overdraft 3,960 1,620
14,520 17,130
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 3. During the year ended 30 June 2022, items of property, plant and equipment with a carrying amount of
Sh.3,090,000 were sold for Sh.3,300,000. Profits on these sales were offset against operating expenses.
4. During the year ended 30 June 2022, depreciation charged on property, plant and equipment amounted to
Sh.1,710,000. Property, plant and equipment of Sh.1,680,000 was acquired through a bank loan during
the year.
5. During the year ended 30 June 2022, Chora Ltd. made a 1 for 8 bonus issue, capitalising its retained
earnings followed by a rights issue.

Required:
Statement of cash flows in accordance with the requirement of International Accounting Standard (IAS) 7,
“Statement of cash flows” for the year ended 30 June 2022. (16 marks)
(Total: 20 marks)

QUESTION FIVE
(a) Outline four criteria that an asset should satisfy for it to be classified as a current asset. (4 marks)

(b) Discuss three guiding ethics for professional accountants. (6 marks)

(c) Explain the following terms:

(i) Bonus issue of shares. (2 marks)

(ii) Rights issue of shares. (2 marks)

(d) Explain the significance of the following:

(i) Return on investment (ROI). (2 marks)

(ii) Gross profit to sales. (2 marks)

(iii) Price earnings ratio (P/E ratios). (2 marks)

(Total: 20 marks)
…………………………………………………………………..

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 ATD LEVEL III

PILOT PAPER

FINANCIAL ACCOUNTING

December 2021. Time Allowed: 3 hours.

Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your workings.

QUESTION ONE
(a) Explain two differences between:

(i) Receipts and payments account and income and expenditure account. (4 marks)

(ii) Debentures and equity shares. (4 marks)

(b) Outline six features of a good accounting software (6 marks)

(c) Discuss three functions of accounting (6 marks)

(Total:20 marks)
QUESTION TWO
The following balances were extracted from the books of Vijana Youth Club for the year ended 30 June 2020:
Sh.“000”
Land at cost 90,000
Equipment (cost Sh.25,000,000) 20,000
Furniture and fittings (cost Sh.80,000,000) 46,000
Bar inventory 18,400
Subscriptions in arrears 5,000
Bank balance 4,500
Long term balance bank deposits 12,000
Long term loan 96,000
Bar creditors 16,800
Subscriptions in advance 1,600
Accrued bar wages 2,300
The clubs’ receipts and payments account for the year ended 30 June 2021 was as follows:
Receipts and payments
Sh.“000” Sh.“000”
Balance brought forward 4,500 Bar wages 151,200
Subscription received 136,000 Rates 20,000
Competition entries 29,600 Loan repayments 39,200
Bar sales 332,000 Bar expenses 58,400
Competition ticket cost 20,800
Bar purchases 149,400
Equipment purchases 14,000
Transfer to long term deposit account 20,000
Balance carried forward 29,100
502,100 502,100

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Additional information:

1. The following information relates to the club as at 30 June 2021:

Sh. “000”
Subscriptions in arrears 4,000
Bar creditors 16,000
Bar inventory 19,800
Subscription in advance 2,400
Bar wages due 3,200
2. Interest receivable on long term deposits amounted to Sh.2,200,000
3. The long-term loan is repaid in annual instalments of Sh.30,000,000 excluding interest.
4. The interest for the year ended 30 June 2021 was Sh.9,200,000

Depreciation is provided as follows;

Asset Rate per annum Method
Equipment 10% Straight line
Furniture and fittings 15% Reducing balance
It is the policy of the club to charge a full year’s depreciation on assets in the year of purchase and no depreciation in the year
of disposal.
Required:
(a) Bar statement of profit or loss for the year ended 30 June 2021. (4 marks)
(b) Statement of income and expenditure for the year ended 30 June 2021. (8 marks)
(c) Statement of financial position as at 30 June 2021. (8 marks)
QUESTION THREE
The following trial balance was extracted from the books of Asubuhi Enterprises Ltd. as at 30 June 2021.
Sh. “000” Sh.“000”
Freehold property at cost 25,000
Plan at cost 26,000
Accumulated depreciation on plant 12,400
Motor vehicles at cost 10,600
Accumulated depreciation on motor vehicles 6,100
Fixtures and fittings at cost 7,941
Accumulated depreciation on fixtures and fittings 2,358
Discounts received 493
15% debentures 20,000
Raw materials purchased 183,476
Sales 244,925
Sundry expenses 5,830
Bank charges 585
Marketing expenses 4,609
Advertising expenses 1,716
Sales returns 269
Raw material purchases returns 634
Salaries 18,000
Plant maintenance 2,194
Lighting and heating 3,256
Factory power 4,512
Factory wages 21,674
Rates and Insurance 1,986
Bad debts 1,700
Allowance for bad debts 2,245
Share capital -1,000,000 ordinary shares of Sh.50 each 50,000
General reserve 44,000

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Revenue reserve (Unappropriated profits) 881
Interim dividend paid 3,200
Cash at bank 6,714
Accounts receivable and accounts payable 26,409 11,647
Inventories at 1 July 2020- Raw materials 6,811
Work in progress 11,532
Finished goods 21,669
395,683 395,683

Additional Information
1. Freehold property includes land at a cost of Sh.15,000,000. The balance is for the cost of buildings.
2. Buildings are to be depreciated using the straight-line method over a fifty-year period commencing 1 July 2020. This
expense is considered to be a factory overhead.
3. Depreciation is to be provided on a reducing balance basis as follows:
Asset Rate per annum
Plant 15%
Motor vehicles 25%
Fixtures and Fittings 10%
Only plant depreciation is charged to the factory. The other depreciation charges are considered administrative expenses.
4. Allowance for doubtful debts is be adjusted to 8% of the accounts receivable.
5. The following expenses are to be apportioned in the ratio 4:1 between factory and administrative overheads:

 Lighting and heating

 Risks and Insurance
 Sundry expenses
6. An amount of Sh. 6,000,000 included in the factory wages account is the factory manager’s salary.
7. The directors wish to provide for a final dividend which will bring the dividend for the year up to Sh.5 per share.
8. Debenture interest for the current year has not yet been paid.
9. Some finished goods which cost Sh. 541,000 have been sold to a customer at an additional profit margin of Sh. 57,000
but the customer has indicated that he intends to return them since they are not what he ordered. This sale was a credit
sale and has been included in the accounts receivable.
10. As at 30 June 2021:
 Lighting and heating accrued was Sh.154,000.
 Insurance prepaid was Sh. 48,000.
 Rates prepaid was Sh.150,000.
11. Inventories as at 30 June 2021 were valued at:
Sh.“000”
 Raw materials 27,851
 Work in progress 16,490
 Finished goods 24,627
Required:
(a) Manufacturing account for the year ended 30 June 2021. (10 marks)
(b) Statement of profit or loss for the year ended 30June 2021. (10 marks)
(Total: 20 Marks)

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QUESTION FOUR
(a) Outline five challenges that could be faced by government and other public entities in implementation of International
Public Sector Accounting Standards (IPSASs). (5 marks)

(b) Esther operates a general supplies shop but does not maintain a full set of accounting records.
The following information was extracted from her records:
Summary of bank account for the year ended 31 July 2021:
Receipts Sh.“000”
Balance (1 August 2020) 3,940
Additional capital 40,000
Cash from trade receivables 192,000
Proceeds on sale of motor vehicle (van) 4,200
240,140
Payments
Rent and rates 5,200
Salaries and wages 30,200
Payment to suppliers 144,000
Purchases of motor vehicle (Lorry) 26,000
Personal drawings 18,400
Insurance 1,600
Postage and stationery 2,720
Repairs and Maintenance 1,300
Motor vehicle running expenses 6,700
Balance (31 July 2021) 4,020
240,140
Additional information:
1. The following balances were provided:
1 August 2020 31 July 2021
Sh.“000” Sh.“000”
Trade payables 9,400 5,180
Trade receivables 14,640 19,000
Accrued rent and rates 400 520
Motor vehicles:
Van - cost 20,000 -
Depreciation 16,000 -
Lorry - Cost - 26,000
Depreciation - ?
Prepaid insurance 320 400
Inventory 9,800 11,800
2. Esther depreciates motor vehicles at the rate of 20% per annum on a straight-line basis. A full year’s depreciation is
provided in the year of purchase and no depreciation is charged in the year of disposal.
3. All receipts are banked and all payments are made from the business bank account.
4. Discount received from the suppliers during the year amounted to Sh.2,200,000.
5. A trade receivable of Sh.600,000 owed by Beba Beba Enterprises and included in the trade receivables as at 31 July
2021 is to be written off.
Required:
(i) Statement of profit or loss for the year ended 31 July 2021. (8 marks)
(ii) Statement of financial position as at 31 July 2021 (7 marks)
(Total: 20 marks)

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QUESTION FIVE
(a) State three reasons why organizations provide for depreciation while measuring the profits of the business.
(6 marks)
(b) The following financial statements relate to Alpha Ltd. for the years ended 31 March 2019 and 2020.
2019 2020
Sh. Million Sh. Million
Ordinary shares of Sh. 10 each 5,000 6,000
Share premium 1,000 1,500
General reserve 400 500
Retained earnings 960 1,058
10% debentures 2,850 2,850
Accounts payable 700 800
Corporation tax 198 200
Dividend payable 300 450
Bank overdraft – 1,050
11,408 14,408
Non -current assets:
Property, plant and equipment 9,012 9,408
Current assets:
Inventory 946 1,948
Accounts receivable 1,000 3,052
Bank balance 450 -
11,408 14,408

The income statement for the year ended 31 March 2020:

Sh. Million
Sales 9,500
Cost of sales 6,650
Gross profit 2,850
Administrative expenses 800
Sales and distribution cost 625
Financial cost 285
Profit before tax 1,140
Corporation tax 342
Profit after tax 798

Additional information

1. Proposed dividend amounted to Sh.600 million.

2. An equipment with a net book value of Sh.112million was sold for Sh.92 million.
3. A new machine was purchased for Sh.800 million.
Required
Statement of cash flows for the year ended 31 March 2020 as per International Accounting Standard (IAS)7 (Statement of
Cash Flows). (14 marks)
(Total: 20 marks)

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