‘A’ LEVEL AAOUNTING

HOLIDAY ASSIGNMENT
PAPER 2 & 3 QUESTIONS
Answer all questions.

Form 6-2018

Date given: 28 November 2017

Due date: 15 January 2018

TINOFAMBA NEVANOFAMBA

QUESTION 1
The books of Simon Peter gave the following information for the month of 31 May 2003. All
sales and purchases were on credit.

Sales ledger balance at 1 May 2003 5 627

Purchases ledger balance at 1 May 2003 4 388
Sales for the year 100 384
Purchases for the year 64 987
Sales returns 1 997
Purchases returns 864
Payments received from debtors( all banked ) 92 760
Payments made to creditors 63 520
Debtor’s dishonoured cheque 109
Discount allowed 4 082
Discount received 3 241
Bad debts written off 1 884
Debit balances transferred to purchases ledger control account 208

The total of Simon Peter’s sales ledger balances is $9 387, which differs from the closing
balance in the sales ledger control account.
Required
a) Extract the relevant information from the above and prepare the sales ledger control
account for the month ended 31 May 2003.
The following errors have been discovered since the sales ledger control account was
prepared.
1. A sales invoice for $2 001 had been completely omitted from the books.
2. A page of the sales day book with entries totalling $7 820 had been omitted from the
total sales but the individual entries had been posted to the debtors account.
3. A debit balance of $4 020 had been omitted from the list of debtors.
4. A sales ledger account had been understated by $220
5. Discount allowed had been overstated by $620
6. An entry of $1 620 in the sales day book had been omitted from the debtors account.
7. A contra entry had been made in the purchases ledger for a debit balance of $1 412 in
the sales ledger, but no entry had been made in the control accounts.
8. A receipt of $1 210 was debited to bank but not posted to the debtors account.
9. A credit note for $720 sent to a debtor had been entered in the sales day book and
posted as a sale to both accounts.
10. A debtor owing $1 820 was declared bankrupty during May 2003. The debt was
written off in the control account but no entry have been made in the debtors account.

Required
b) Prepare an amended sales ledger control account, extracting relevant information
from the list of errors given above.
c) Prepare a statement altering the total of the sales ledger balance to agree with the new
sales ledger control account balance.
QUESTION 2
 Codan Ltd purchases a partnership

Mvura and Chibhorani were in partnership sharing profits and losses in the ratio 2:1. The
partnership’s balance sheet at 30 April 2006 is shown below.
Fixed assets $ $
Freehold land 15 000
Freehold buildings 20 000
Equipment 18 000
53 000
Current assets
Stock 11 000
Debtors 6 000
Bank 2 000
19 000
Less current liabilities
Creditors 3 000 16 000
69 000
Capital accounts :Mvura 60 000
Chibhorani 35 000
95 000
Less drawings :Mvura 18 000
Chibhorani 12 000 30 000
65 000
Loan from Mvura at 10%
4 000
69 000
Additional information

i.) Codan Ltd offered to purchase the partnership. The offer was based on the
following revaluation of assets.
$
Freehold land 20 000
Freehold buildings 16 000
Equipment 15 000
Stock 9 000
Debtors 5 000
The bank account was not taken over.

ii) The purchase consideration was $82 000 settled as follows:

1. Mvura received sufficient 8% debentures in Codan Ltd to ensure that hr continued

to receive the same amount of interest as he had been entitled to on his loan in the
partnership.
2. Codan Ltd paid $12 000 into the partnership bank account.
3. The balance of the purchase consideration was settled by an issue of ordinary
shares of $1 each in Codan Ltd at $1,30 per share.
iii) The balance sheet of Codan Ltd at 30 April 2007 before the purchase of the
partnership was as follows:

Fixed assets $ $
Freehold buildings 110 000
Office furniture 12 000
122 000
Current assets
Stock 120 000
Debtors 112 000
Bank 24 000
256 000
Current liabilities
Creditors 114 000 142 000
264 000
Share capital and reserves
Ordinary shares of $1 each 200 000
Profit and loss account 64 000
264 000

Required

a) Statement of financial position of Codan. Ltd as it will appear after the

purchase of the partnership. (14)

b) The directors are deciding to expand the business but they do not have
adequate funds.

i. State any two possible sources of finance. (2)

ii. Explain one advantage and one disadvantage of each source of finance.
(4)
 QUESTION 3
Freddy Ltd has traded at a loss over the past few years and no dividends have been paid to the
shareholders during that time. A scheme of capital reconstruction has recently been approved.
Freddy’s Ltd balance sheet at 31 March 2004 showed the following position:

Cost Accumulated NBV

Depreciation
Non current assets $000 $000 $000
Goodwill 75 - 75
Premises 780 80 700
Plant and equipment 210 65 145
Motor vehicles 350 60 290
1 415 205 1 210

Current assets
Stock 30
Trade debtors 80
110
Current liabilities
Trade creditors 90
Bank 50 140 (30)
1 180
Non-current liabilities
1 (85)
7 % Debentures
2 1 095
Share capital and reserves 800
Ordinary shares of $1 each 200
8% Preference shares of $0,50 each 400
Share premium (305)
Profit and loss 1 095

A scheme of capital reduction has been agreed as follows:

1. Ordinary shares are to be reduced by $0,25 per share.
2. Preference shares are to be reduced to shares of $0,30 each.
3. Motor vehicles are to be sold for $350 000 cash.
4. Goodwill is to be written off.
5. A debt of $30 000 is to be written off as bad.
6. New plant and equipment was purchased for$170 000 on credit.
7. Trade creditors were paid $0,80 in every dollar owed to them in full settlement.
8. The debenture holder agreed to take over the old plant and equipment at a
valuation of $197 000. The balance was paid to the company.
9. A one for four bonus issue was made out of the share premium account.

Required
a) A capital reduction account,(8)
b) A balance sheet at 31 March 2004 immediately after the capital
reconstruction has been implemented.(12)
c) Distinguish between capital reserves and revenue reserves.(8)
 QUESTION 4
Nissi ltd runs a small retail business for the past four years. He has problems with
profit hence there is need to calculate closing stocks using different methods.

The following information relates to his stock for the year ending 31 December 2015:

Purchases (units) Sales (units)

April –June 1998 256 230
July-September 1998 246 222
October-December 1998 364 342
January-March 1999 244 226

On 1 April 1998 there were 160 units in stock.

Up to June 30 1998 each unit cost $20; however subsequently the supplier increased
his prices by 10% each quarter.
Nissi ltd sold her stock in packs of two.
The selling price is $76 per pack.

Required
a) Calculate the values of closing stock at 31 March using:
I. The first in first out(FIFO)method. (9)
II. The last in first out(LIFO)method. (9)
b) Prepare a statement showing the gross profit for the year ended 31 March
1999 using the above methods. (7)
 QUESTION 5

The Quartet is a partnership which owns a manufacturing firm. The balance sheets of the firm
as at 31 December 2004 and 2005 are given below.

As at 31December 2004 2005

Assets $000 $000 $000 $000
Non-current asset
Premises at cost 1 000 1 300
Provision for depreciation (375) 625 (26) 1 274

Plant and equipmet at cost 600 1 400

Provision for depreciation (240) 360 (700) 700

Motor vehicles at cost 840 1440

Provision for depreciation (504) 336 (864) 576
1 321 2 550
Current assets
Stock 750 810
Debtors 649 540
Bank 400 1 799 380 1 730
3 120 4 280

Equity and liabilities

Partner’s capitals at 1 January2 330 2 600
Add revaluation - 675
Net profit 566 739
2 896 4 014
Less drawings 296 2 600 334 3 680

Trade creditors 520 600

3 120 4 280
Notes
i. The premises were revalued on 1 July 2005.
ii. During 2005, motor vehicles which had cost $180 000(net book value $36 000)
were sold for
$30 000.

Required
a. A cash flow statement for the year ended 31 December 2005. (12)
b. State and explain five benefits of preparing cash flow statements.(10)
 QUESTION 6
The following is the Receipts and Payments account of the Outerapsce Sports and Social
Club for the year ended 31 October 2005.

$ $
Balance b/d 5 950 Clubhouse 65 000
Subscriptions 17 600 Equipment 7 400
Restaurant sales 62 100 Wages 23 400
Loan from members 60 000 Equipment repairs 4 320
Restaurant supplies 35 500
Annual dance 3 750
General expenses 5 420
Balance c/d 860
145 650 145 650
Additional information
31 Oct 2004 31 Oct 2005
$ $
Subscriptions in arrears 550 650
Subscriptions in advance 100 450
Restaurant stock 6 390 7 520
Restaurant creditors 4 235 4 785
Annual dance costs owing 50 125
Clubhouse at cost - 65 000
Equipment at cost 8 000 15 400
Loan from members - 60 000
Provision for depreciation on equipment 2 000 ?

The original equipment was purchased on 1 November 2003, the date the club
opened. Depreciation is charged at 2% straight-line on the clubhouse and 25%
reducing balance on equipment. Depreciation is charged for a complete year in the
year of purchase. Repairs were not original equipment.
All subscriptions owing in the year ended 31 October 2004 were paid during the
year ended 31 October 2005. Interest on the loan from members ,which was
received on 1 November 2004,is payable at the rate of 5% per annum.
$2 200 of the new equipment is for use in the restaurant. The general expenses
include $2 100 which should be charged to the restaurant. One third of the wages
are paid to restaurant staff.
Required
a) Calculate the Club’s accumulated fund at 1 November 2004. [4]
b) Prepare the restaurant Trading account for the year ended 31 October 2005. [4]
c) Prepare the club’s Income and Expenditure account for the year 31 October 2005.
[10]
 QUESTION 7

Chido and Chenai, who have in partnership for many years, decided to retire and dissolve the
partnership on 30 September 2003. Profits and losses were shared in the ratio of the
partners’Capital account balances, which were fixed at Chido $80 000 and Chenai $40 000.
The partnership Statement of financial position at 30 September 2003 was as follows.

Fixed assets (net book value) $ $

Buildings 104 000
Fixtures and fittings 35 000
Motor vehicles 26 000
165 000
Current assets
Inventory 10 500
Trade receivables 17 230
Bank 950
28 680
Current liabilities
Trade payables 9 230 19 450
184 450

Capital accounts: Chido 80 000

Chenai 40 000 120 000

Current accounts: Chido 14 430

Chenai (2 580) 11 850
Loan from: Chido 52 600
184 450

The partnership ceased trading on 30 September 2003 and the assets were realized a follows:
$
Buildings 100 000
Fixtures and fittings 37 000
One motor vehicle 15 000
The remaining motor vehicle was taken by Chido at an agreed valuation of 9 500
Inventories 5 200

All debts were collected and banked except for bad debts totaling $900.
Discount allowed amounted to $200
Creditors were paid in full
Dissolution expenses of $1 200 were paid by cheque
Chido’s loan was repaid from the bank account.
Partners’ Current account balances were transferred top their Capital accounts.
Required
Prepare the following accounts for the month of October 2003.
a. Dissolution account {8}
b. Partners’Current accounts, in columnar form {4}
c. Partners’Capital accounts, in columnar form {4}
d. The partnership Bank account {8}
QUESTION 8
Adam, Eve and Pinchmee are in partnership sharing profits and losses in the ratio 3:2:1.
At 31 December 19-1 their balance sheet was as follows:
$ $
Non current assets 106 644
Current assets
Inventory 71 116
Trade receivables 42 655
Bank 24 863
138 634
Less current liabilities
Trade payables 35 278 103 356
210 000
Capital accounts
Adam 100 000
Eve 50 000
Pinchmee 25 000
175 000
Current accounts
Adam 24 000
Eve 10 000
Pinchmee 1 000 35 000
210 000
Adam decided to retire from the partnership on 1 January 19-2
Accordingly it was agreed between the partners that:
1. The balances on their current accounts would be transferred to their respective capital
accounts.
2. Goodwill would be valued at $24 000, but no goodwill would be recorded in the
firm’s ledgers.
3. Non current assets would be revalued at $100 000, inventory at $60 000 and a trade
receivables for $240 would be written as bad.
4. Of the amount due to Adam $100 000 would be transferred to a Loan account and the
balance settled in cash immediately. A bank overdraft facility would be available for
this purpose, if necessary. The loan would be repayable to Adam in for equal annual
instalments, the first being due on 31 December 19-2.
Eve and Pinchmee decided to form a limited company, Evenmee Ltd, to acquire the
partnership business on 2 January 19-2. The company had an authorised share capital
of 100 000 ordinary shares of $1 each and acquired the partnership assets and
liabilities, including the loan from Adam, at their revised book values. Shares were
issued to Eve and Pinchmee at par value in the ratio 3:2. An appropriate cash payment
was made by one of these partners to the other to adjust their rights, and the
partnership receiving the payment immediately used the cash to subscribe for further
shares in Evenmee Ltd. at par.
Required

a) The capital accounts of Adam, Eve and Pinchmee showing the entries in respect of
Adam’s retirement and the aquisition of the business by Evenmee Ltd. (18)

b) The opening balance sheet of Evenmee Ltd as at 2 January 19-2. (7)

 QUESTION 9
1. Benjamin Hove, extracted a trial balance on 31 March 2000, which failed to agree. He
entered the difference in a suspense account to enable him to draft his final accounts.
The draft profit and loss account prepared by Benjamin showed a Gross profit of
$130 000 and a Operating profit of $1 380 000.
After completing the draft final accounts, Benjamin consults you as accountant and you
discover the errors shown below:

i) An item for $1 076 in the Sales Day Book has been entered in Adbel’s account in the
Sales Ledger as $1 760.

ii) At 31 March 2000, Blessing’s account in the Sales Ledger showed a debit balance of
$900. There was also an account for her in the Purchases Ledger and it showed a
credit balance of $650. In offsetting these balances, the ledger clerk had debited
Blessing’s account in the Sales Ledger with $650 and credited her account in the
Purchases Ledger with the same amount.

iii) A purchase of goods costing $1 500 had been credited to the supplier’s account in the
Purchases Ledger but no other entry had been made in the books.

iv) A credit balance of $480 in the Sales Ledger had been included in the list of debtors as
a debit balance.

v) A sales invoice for $1 070 sent to Dunmore had been entered in the Sales Day Book
AS $1 700.

vi) Discount receivable $300 in January 2000 had been debited in the Discount Allowed
account. Discount allowable of $800 for the same month had been credited in the
Discounts Received account.

vii) Some goods have been sent to Poppy, a customer, and invoiced to him for $2 450. The
mark-up on these goods was 40%. Poppy has notified Benjamin on 30 March 2000 tha
he has not ordered the goods and is returning them. No entries regarding the return of
these goods have been made in the books.

Required
a) Prepare the journal entries necessary to correct each of the errors given above.
(narratives not required) (8)

b) Write up the suspense account (5)

c) Prepare computations for the year ended 31 December 2003 of the following:
i) Corrected gross profit (7)

ii) Corrected net profit (7)

 QUESTION 10

Simba, a retailer whose financial year ends on 31 May, failed to check his stock until
8 June 2009. At that date his stock at cost was valued at $72 200. Simba’s mark up is
30% on cost.

During the first ten day of June, the following transactions took place;

(i) Purchases of goods for resale 21 200

(ii) Purchases returns 515
(iii) Sales 25 740
(iv) Sales returns ( at selling price) 273
(v) Goods taken for personal use, at cost 700

After taking stock, Simba discovered that the following items had
been included in the valuation at 8 June:

(vi) A parcel of stock which had been water –damaged. This had been on
sale for $390 but was now worthless.
(vii) Stock which cost $1 200 but was now out of fashion and would have to
be sold for $400 less than cost.
(viii) Goods costing $950 which Simba had acquired on a sale or return
basis. He had not decided whether or not to keep them.
(ix) Goods, sold during May for $1 560, which were awaiting collection by
a customer.

Required

(a) The value of inventory at cost, at 31 May 2009. (13)

(b) What is the basis for stock valuation (3)

TINOFAMBA NEVANOFAMBA

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Thank you….GOD BLESS