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Mbad 611: Financial Accounting Question Paper
Mbad 611: Financial Accounting
Course:Masters Of Business Administration
Institution: Chuka University question papers
Exam Year:2013
CHUKA
UNIVERSITY
UNIVERSITY EXAMINATIONS
FIRST YEAR EXAMINATION FOR THE AWARD OF
MASTERS OF BUSINESS ADMINISTRATION
MBAD 611: FINANCIAL ACCOUNTING
STREAMS: MBAD Y1S1 TIME: 3 HOURS
DAY/DATE: TUESDAY 6/8/2013 5.30 PM – 8.30 PM
INSTRUCTIONS:
• Answer All Questions
• Do not Write on the Question Paper.
QUESTION ONE
(a) Explain three errors that might cause a disagreement in the trial balance. [6 marks]
(b) In the course of preparing the annual accounts for Wema Traders Jackton Kituma, the accountant realized that the trial balance as at the year end on 31 March 2013 had failed to agree. He therefore opened a suspense account where he recorded the difference and went on to prepare the final accounts. There was a debit balance of sh. 186,000. On investigation by the internal auditor, the following errors were discovered:
1. Purchases day book had been under cast by sh. 20,000.
2. A new machine costing sh. 140,000 had been posted to the debit of the repairs to machinery account.
3. Goods bought on credit from a supplier amounting to sh. 10,000 had been posted to the suppliers account as sh. 100,000.
4. Henry Sijapata, a customer returned goods valued at sh. 20,000. This transaction was entered in the sales returns day book and posted to the debit of the customers accounts.
5. Sales on credit of a machine at a book value of sh. 600,000 had been recorded in the sales day book.
6. An amount of sh. 120,000 owed by a debtor was omitted in the schedule of receivables.
7. A cash discount allowed of sh. 4,000 had been correctly entered in the cashbook but had not been posted to the account of Wafwoli, a customer.
8. Rent and rates treated as having been paid in advance in the previous accounting period amounting to sh. 90,000 had not been brought down in the rent and rates account at the start of the year. Instead, the amount was included in prepayment accounts.
Required:
(i) Journal entries to correct the above errors. [8 marks]
(ii) Suspense account duly balanced. [3 marks]
(iii) A statement of corrected net profit given the reported net profit was sh. 80,500. [3 marks]
QUESTION TWO
(a) Explain the following categories of ratios
(i) Liquidity ratios [2 marks]
(ii) Gearing ratios [2 marks]
(iii) Efficiency ratios [2 marks]
(b) The following information was extracted from the financial statements of Sunrise Ltd and Sunset Ltd in respect of the year ended 30 September 2005.
Income statement extracts
For the year ended 30 September 2005
Sunrise Ltd Sunset Ltd
Sh. ‘000’ Sh. ‘000’
Sales 497,000 371, 000
Cost of sales 258, 000 153, 000
Operating profit 138,000 79, 000
Interest expense 19, 000 ___
Balance sheet extracts
As at 30 September 2005
Sunrise Ltd Sunset Ltd
Sh ‘000’ Sh ‘000’
Non –current Assets: 142, 000 92, 000
Current Assets:
Inventory 100, 000 87, 000
Debtors 46, 000 42, 000
Cash at bank 40, 000 44, 000
Current liabilities: 98, 000 108, 000
Long-term loan 33, 000 ___
Shareholders funds 197, 000 157, 000
Required:
For each company, compute the following ratios.
(i) Acid Test ratio [2 marks]
(ii) Inventory turnover ratio [2 marks]
(iii) Average collection period assuming a year has 360 days [2 marks]
(iv) Return on capital employed [2 marks]
(v) Debt-Equity ratio [2 marks]
(vi) Debtors turnover [2 marks]
(c) On the basis of the ratios calculated in (b) above, which firm is more profitable.
[2 marks]
QUESTION THREE
The following balances were extracted form the books of Patel and Sons in respect of the year ended 31 December 2005:
Sh. ‘000’ Sh. ‘000’
Sales 1 352 000
Purchases 990,000
Debtors 177,800
Creditors 83,400
Stock in trade (1 January 2005) 80,000
Machinery (cost) 112,000
Furniture 17,000
Rent for building 19,200
Cash in hand 8,500
Cash at bank 34,788
Drawings 24,000
Capital 180,000
Salaries 37,820
Bad debts 2,400
Suspense account 6,000
Provision for bad debts 6,400
Printing expenses 4,600
Postage 3,000
Travelling expenses 15,800
Telephone expenses 3,200
Miscellaneous expenses 83,612
Insurance premiums _2,080___ _________
1,621,800
======== 1,621,800
========
Additional Information:
1. Old furniture which stood in books (as at 1st January 2005) at sh. 2,400,000 was disposed at sh. 1,160,000 during the year in part exchange for new furniture costing sh. 2,080,000. A new invoice of sh. 920,000 in respect of this transaction was erroneously passed through the purchases day book.
2. The suspense account represented money advanced to sales team detailed to undertake a sales campaign in the Nakuru County. On returning, the sales team disclosed that sh. 2,400,000 was used for travelling, sh. 1,000,000 for legal fees and sh. 1,800,000 for miscellaneous expenses. The balance was yet to be refunded by 31 December 2005.
3. The business is conducted in a rented building and 50% of the building is used for accommodation of the business owner’s family.
4. Depreciation is to be provided on the straight line basis at 10% per annum on machinery and 5% per annum on furniture. Depreciation is to be applied for the whole year regardless of date of purchase of the asset.
5. Total bad debts for the year amounted to sh. 4,000,000. Provision for doubtful debts is to be maintained at 5% of the outstanding debtors.
6. Closing stock amounted to sh.100, 000,000.
7. Insurance premium cover the one year period ended 31 January 2006.
Required:
(a) Trading, profit and loss account for the year ended 31 December 2005. [10 marks]
(b) Balance sheet as at 31 December 2005. [10 marks]
QUESTION FOUR
(a) Explain the qualitative characteristics of accounting information relating to content. [8 marks]
(b) Explain the significance of the conceptual framework of accounting. [6 marks]
(c) Using a suitable diagram, explain accounting as an information system. [6 marks]
QUESTION FIVE
(a) Explain the purpose of provision for depreciation [2 marks]
(b) Mr. Njeru opened a kinyozi shop at Chuka town. The following are transactions relating to his business for the month of may 2012.
1. On 1st May, Njeru opened a bank account with KCB for the business and deposited Ksh. 300,000.
2. On 8th May, he paid rent of sh. 50,000 for two months in advance for a small room at Chogoria plaza.
3. On 15th May he furnished the store by installing new furniture worth sh. 120,000 sold to him on credit by Chuka furniture stores, amount payable after three months.
4. On 20th May he received electricity bill amounting to sh. 10,000. The bill is payable by 10th of the following month.
5. On 31st May, he withdrew sh.90, 000 from the business account for his personal use.
Required:
Show the effect of the above transactions on the accounting equation.
[10 marks]
(c) Explain any four users of accounting information clearly stating their information needs. [8 marks]
______________________________________________________________________________
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