ATP 106 - LPM (ACCOUNTING)

SUGGESTED SOLUTION

Question ONE

Solution:

a) A trial balance is a memoranda statement of credit and debit balances as they appear
in the ledges accounts. The double entry accounting method ensures that for every
debit entry there is a corresponding credit entry and vice versa. Therefore all items
on the debit side of a trial balance should be equal to the total items on the credit
side. It therefore gives a prima facie evidence that the process of bookkeeping has
been correct.

b) Journal entries

No Details Dr Cr
Sh Sh
1 Suspense a/c 2,000
Discount allowed a/c 2,000
(To correct discount allowed overstated)

2a). Electricity a/c 36,710

P&L a/c 36,710
(To record electricity due)

2 b) P & L a/c 22,450

Insurance a/c 22,450
(To record insurance prepaid)

3 Bank a/c 126,550

Cash a/c 126,550
(To record cash deposit)

4 Wages a/c 765,820

Bank a/c 765,820
(To record payment of wages)

5a). Repairs a/c 500,000

Office premises a/c 500,000
(To correct misposting error)
5 b) Provision for depreciation a/c 10,000
P & L a/c 10,000
(To correct depreciation overcharge)

6a) Creditors CB Ltd a/c 163,040

Debtor CB Ltd a/c 163,040
(To record offset accrual)

7 Provision discount allowed 72,130

P&L 72,130
(To record reduction in provision of discount allowed)

8 a) Bad debts a/c 64,800

Debtors a/c 64,800
(To record bad debts)

b i) Debtors a/c 21,440

Bad debts recovered a/c 21,440
(To record bad debts recovered)

b ii) Bank 21,440

Debtors 21,440
(To record cheque from debtor)

b iii) Bad, debt recoverable 21,440

P&L 21,440
(To record bad debt recovered)
Question 2

Patel and Sons

Trading and Profit and Loss Account for the Year Ended 31 December 2005
Shs '000' Shs '000' Shs '000'
Sales 1,352,000
Cost of sales
Opening stock 80,000.00
Purchases (wl) 989,080.00 1,069,080.00
Closing stock (100,000 00) (969,080.00)
Gross profit 382,920.00

Expenses
Rent (w2) 9,600.00
Salaries 37,820.00
Bad debts 4,000.00
Increase in provision for bad debts (w3) 2,410.00
Printing expenses 4,600.00
Postage 3,000.00
Travelling expenses (w4) 18,200.00
Telephone expenses (w5) 3,200.00
Miscellaneous 85,412.00
Insurance Premium (w6) 1,906.67
Legal fees 1,000.00
Depreciation (w7) - Furniture 834.00
- Machinery 11,200.00
Loss on disposal — Furniture (w8) 1,240.00 (184,422.67)
Net profit I98.497,33
 Patel and Sons
Balance sheet as at 31Dember 2005
Non-Current Assets Cost Accum. Depre Net Book Value
Sh.’000’ Sh. ’000’ Sh. ’000’
Machinery 112,00.00 11,200.00 100,800.00
Furniture (w9) 16,680.00 834.00 15,846.00
128.680.00 12,034.00 116,646.00
Current Assets
Stock 100,000.00
Debtors(w10) 167,390.00
Bank 34,780.00
Cash 8,500
prepayment 173,33 310,851.33
427,497.33
Capital and liabilities:
Liabilities
Creditors 83,400.00
Sundry creditors (800.00) 82,600.00

Capital 180,000.00
Net profit 198,497.33
Drawings (33,600.00)
427,497.33

Workings:

W1. Purchases
Shs’000’ Shs’000’
Balance b/d 990,000.00 Furniture 920.00
_____ Balance c/d 989,080.00
990,000.00 990,000.00

W
W2. Rent
Shs’000’ Shs’000’
Balance c/d 19,200.00 Drawings 9,600.00
_____ Balance c/d 9,600.00
19,200.00 19,200.00
 W3. Provision for bad debts a/c
Shs’000’ Shs’000’
Balance c/d 8,810.00 Balance b/d 6,400.00
_____ P & L 2,410.00
8,810.00 8,810.00

W4. Travelling a/c

Shs’000’ Shs’000’
Balance b/d 15,800.00 P & L 18,200.00
Suspense 2,400.00 ________
18,200.00 18,200.00

W5. Miscellaneous a/c

Shs’000’ Shs’000’
Balance b/d 83,612.00 P & L 85,412.00
Suspense 1,800.00 ________
85,412.00 85,412.00

W6. Insurance premium a/c

Shs’000’ Shs’000’
Balance b/d 2,080.00 Bank 173.33
_____ Balance c/d 1,906.67
2,080.00 2,080.00

W7. Depreciation
Machinery: 10% x Shs 112, 000,000 = Shs 11,200,000
Furniture: 5% x 16,680,000 = Shs 834,000

Disposal a/c (furniture)

Shs’000’ Shs’000’
Furniture 2,400.00 Furniture 1,160.00
_____ Loss on depreciation 1,240.00
2,400.00 2,400.00

Furniture a/c
Shs’000’ Shs’000’
Balance b/d 17,000.00 Disposal 2,400.00
T-in-A 1,160.00
Purchases 920.00 Balance c/d 16,680.00
19,080.00 19,080.00
 Debtors a/c
Shs’000’ Shs’000’
Balance b/d 177,800 Disposal 1,600
Prov. For bad debts 8,810
Balance c/d 167,390
177,800 177,800

Suspense a/c
Shs’000’ Shs’000’
Balance b/d 6,000 Travelling 2,400
Legal fees 1,000
Miscellaneous 1,800
Sundry creditors 800
6,000 6,000