CPA 1 past paper 1 - Financial Accounting

THE PUBLIC ACCOUNTANTS EXAMINATIONS BOARD A Committee of the Council of ICPAU

CPA(U) EXAMINATIONS

LEVEL ONE

FINANCIAL ACCOUNTING PAPER 1

WEDNESDAY, 5 JUNE 2013

INSTRUCTIONS TO CANDIDATES

1. Time allowed: 3 hours 15 minutes. The first 15 minutes of this examination have been designated for reading time. You may not start to write your answer during this time.

2. This examination contains Sections A, B, C and D.

3. Section A is bound separately from Sections B, C and D.

4. Attempt all the 20 multiple-choice questions in Section A. Each question carries 1 mark.

5. Attempt the compulsory question in Section B carrying 30 marks.

6. Attempt two of the three questions in Section C. Each question carries 20 marks.

7. Attempt one of the two questions in Section D. Each question carries 10 marks.

8. Write your answer to each question on a fresh page in your answer booklet.

9. Please, read further instructions on the answer booklet, before attempting any question.

2013 Public Accountants Examinations Board

Financial Accounting Paper 1

5 June 2013 Page 2 of 8

SECTION B

This section has one compulsory question to be attempted.

Question 2

Kefazo and Mario are partners sharing profits and losses equally. They do not maintain proper books of accounts but the following information was obtained from the available records as at 31 March:

2013 2012 Shs 000 Shs 000 Balance at bank 16,968 9,480 Inventory of goods for sale 48,864 54,120 Trade debtors ? 61,200 Trade creditors 30,576 ? Furniture 36,000 Motor vehicles (book value) 192,000

Total sales during the year ended 31 March 2013 amounted to Shs 384,912,000 while purchases, all on credit, for the same period were Shs 295,248,000. On 31 March 2012 Kefazos capital was Shs 20,000,000 less than that of Mario. The analysis of the cash book for the year ended 31 March 2013 shows the following: Shs 000 Receipts: Cash from credit sales 349,152 Additional capital by Kefazo 24,000 Cash sales 58,680 Payments: For purchases 307,008 Salaries 42,000 Rent (for 6 months to 30 September 2012) 14,400 Rates (for 6 months to 30 September 2013) 12,000 Electricity 6,000 Advertising 4,176 Motor vehicle expenses 11,952 Sundry expenses 3,360 Drawings: -Kefazo 13,248

-Mario 10,200



On 31 March 2013 liabilities were as follows:

Shs 000 Electricity 1,248 Advertisement 624 Sundry expenses 360

On 20 March 2013 the firm decided to dispose of its motor vehicles. One vehicle was sold on credit for Shs 64,000,000 while the other was taken over by Kefazo at a valuation of Shs 25,000,000. The combined book value of the two vehicles was Shs 66,000,000. These transactions have not been recorded in the books.

Depreciation at the rate of 10 percent is to be provided on furniture and motor vehicles on hand at 31 March 2013. No depreciation is to be provided for the vehicles which were disposed of.

Required:

(a) Statement of comprehensive income for the year ended 31 March 2013. (17 marks)

(b) Statement of financial position as at 31 March 2013. (8 marks)

(c) Partners capital accounts. (5 marks)

(Total 30 marks)



SECTION C

Attempt two of the three questions in this section.

Question 3

Wizcom Industries Limited specializes in the manufacture of floor and wall tiles. The company also buys from other manufacturers for special tiles which it cannot manufacture in its factory.

The following information was obtained from the books of the company for the year ended 31 December 2012.

Shs 000 Purchases: raw materials 1,125,000

special tiles 176,250 Carriage on raw materials 18,750 Factory wages 1,816,875 Factory expenses 478,125 Warehouse expenses 129,375 Salaries 1,826,625 Office expenses 178,500 Carriage outwards 61,500 Advertising 270,000 Discounts received 52,500 Discounts allowed 45,000 Sales 7,366,500 Sales returns 16,500

Inventory on hand: 1 January 31 December Shs 000 Shs 000 Raw materials 150,000 93,750 Finished tiles 356,250 414,375 Special tiles 127,500 88,125 Work in progress 285,000 262,500

The market value of tiles manufactured was ascertained to be Shs 4,567,500,000 as at 31 December 2012. Plant and machinery is to be depreciated by Shs 412,500,000.



Required:

Prepare, for Wizcom Industries Limited for the year ended 31 December 2012, a:

(a) manufacturing account showing the cost of tiles produced and manufacturing profit.

(10 marks) (b) statement of comprehensive income.

(10 marks) (Total 20 marks)

Question 4

The following balances were extracted from the books of New Polar Retailers on 1 January 2011: Shs 000 Trade receivables 800,000 Bank overdraft 400,000 Provision for bad and doubtful debts 32,000

You ascertain the following information for two years:

For the year ended 31 December 2011: Shs 000 Credit sales 8,000,000 Sales returns 80,000 Receipts from customers 7,200,000 Bad debts written off 40,000 Discounts allowed 32,000 For the year ended 31 December 2012: Shs 000 Total sales (90% on credit) 8,000,000 Sales returns (90% relating to credit customers)

160,000

Receipts from credit customers 7,600,000 Trade receivables balances settled by contra against trade payables balances

240,000

Bad debts written off 120,000 Discounts allowed 40,000



Notes:

(i) Provision for bad and doubtful debts is maintained at 5% of the net trade receivables at the end of the year. At the end of 2011 a specific provision for a debt of Shs 16,000,000 from an insolvent customer was required.

(ii) Bad debts written off during 2012 included 50% of the bad debts due from the insolvent customer, the other 50% having been received in cash from the relative of the insolvent customer during the year.

Required:

Prepare for the years 2011 and 2012 the:

(a) receivables account. (8 marks) (b) provision for bad and doubtful debts account. (8 marks) (c) bad and doubtful debts expense account. (4 marks)

(Total 20 marks) Question 5

The accounts assistant of Mutale Ltd had just completed preparing the draft financial statements for the year ended December 2012, showing a profit of Shs 406,040,000. On the same date the cash book showed a debit balance of Shs 24,450,000. Subsequently the following issues came to light:

1 Cheques amounting to Shs 5,000,000 paid to suppliers had been entered in the cash book but had not yet been presented to the bank for payment.

2 Cheques from customers totaling to Shs 14,450,000 entered in the cash book on 31 December 2012 were not credited by the bank until 3 January 2013.

3 The bank had charged ledger fees amounting to Shs 1,600,000, which amount appeared on the bank statement obtained from the bank on 31 December 2012. However, this amount had not yet been credited in the cash book.

4 A cheque for Shs 64,500,000 for new furniture had been mistakenly entered in the cash book and the furniture account as Shs 14,500,000. A full years deprecation of 10% had been charged in the statement of comprehensive income in respect of this furniture.

5 A cheque for Shs 4,900,000 from a credit customer paid into the bank on 28 December 2012 was subsequently dishonored by the bank. It was decided that the debt be written off because the customer had become bankrupt.

6 A cheque for Shs 12,000,000 in payment for motor vehicles insurance had mistakenly been entered in the cash book as a debit and posted to the credit of motor vehicles account. Depreciation of 25% per annum is



charged on the balance of motor vehicles account at the end of each accounting year on 31 December.

7 The total of the payments side of the cash book had been under cast by 5,000.000. It was also discovered that sales for the year were overstated by Shs 5,000,000.

8 The bank had credited Shs 800,000 on the companys current account on standing instructions from the company is respect of interest on a fixed deposit account of the company maintained at the same bank. In accounting for this transaction, the bookkeeper had made an entry on the payments side of the cash book for this amount and had posted it to the debit of interest payable account.

Required: Prepare for Mutale Ltd for the year ended 31 December 2012:

(a) an adjusted cash book showing the revised balance which should appear in Mutale Ltds statement of financial position.

(8 marks) (b) a bank reconciliation statement.

(5 marks) (c) statement of corrected net profit.


SECTION D

Question 6

Attempt one of the two questions in this section.

IAS 2: Inventories, among other things, prescribes the accounting treatment for inventories and the disclosure requirements in the financial statements in respect of such inventories.

Required:

(a) Define the following terms as used under IAS 2:

(i) Inventories. (3 marks) (ii) Net releasable value. (1 mark) (iii) Fair value. (1 mark)

(b) Briefly explain any five disclosures that must be made in the financial statements in respect of inventories as per IAS 2.




Question 7

The International Accounting Standards Boards Framework for the Preparation and Presentation of Financial Statements requires financial statements to be prepared on the basis that they comply with certain accounting concepts, underlying assumptions and qualitative characteristics.

Required:

With reference to the above, explain the following:

(a) Accruals concept and its application when preparing the statement of comprehensive income.

(6 marks) (b) Prudence concept (2 marks) (c) Prepayments and income in advance (2 marks)

(Total 10 marks)

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CPA 1 past paper 1 - Financial Accounting