EXAMINATION NO.

____________________

2014 EXAMINATIONS

ACCOUNTING TECHNICIAN PROGRAMME

PAPER TC6: ACCOUNTING/2

WEDNESDAY 3 DECEMBER 2014 TIME ALLOWED : 3 HOURS

9.00 AM - 12.00 NOON

INSTRUCTIONS

1. You are allowed 15 minutes reading time before the examination begins during
which you should read the question paper and, if you wish, make annotations on the
question paper. However, you are not allowed, under any circumstances, to open
the answer book and start writing or use your calculator during this reading time.

2. This paper is divided into two sections.

3. Section A – This ONE question is compulsory and MUST be attempted. The

question carries 40 marks.

4. Section B – Has FOUR questions each carrying 20 marks. Candidates should attempt
any THREE questions from this section.

5. Marks will be awarded for neat presentation and layout.

6. All workings must be shown.

7. Begin each answer on a fresh page.

8. DO NOT OPEN THIS PAPER UNTIL YOU ARE INSTRUCTED BY THE

INVIGILATOR.

This question paper contains 7 pages

This question paper must not be removed from the examination hall.
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SECTION A
This question is compulsory and MUST be attempted

1. (a) You have been asked to prepare financial statements of Chimodzi Ltd for the
year ended 31 October 2014. The company’s trial balance as at 31 October
2014 is as follows:
Dr Cr
K’000 K’000
K1 ordinary share capital 12,000
Retained earnings 12,345
Accounts payables 3,348
Property, plant and equipment – cost 58,463
Property, plant and equipment – accumulated depreciation 27,974
Accounts receivables 6,690
Accruals 387
10% bank loan repayable 2019 16,000
Cash at bank 1,184
Interest paid 560
Sales 50,875
Purchases 35,245
Returns inwards 678
Returns outwards 453
Distribution costs 6,654
Administrative expenses 4,152
Inventories as at 1 November 2013 8,456
Final dividend for the year ended 31 October 2013 700
Interim dividend for the year ended 31 October 2014 ___ 600 ______
123,382 123,382
Additional information

(1) The sales figure in the trial balance does not include the credit sales of
K3,564,000 for October 2014.

(2) The inventories at the close of business on 31 October 2014 cost

K9,786,000.

(3) Goods for resale costing K127,000 purchased on two months’ credit in
October 2014 were returned to the supplier on 30 October 2014. No
entries have been made in the accounts, in the trial balance.

(4) The company paid K48,000 insurance costs in June 2014, which
covered the period 1 July 2014 to 30 June 2015. This was included in
administration expenses in the trial balance.

(5) Interest on the bank loan for the last six months of the year has not
been included in the accounts.

(6) The corporation tax charge for the year has been calculated as
K1,292,000 but K38,000 was already paid.

Continued/……
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(7) The trial balance has not included the issue of an additional 1,000,000 K1
ordinary shares at a price of K5.50. All the shares were fully paid.

(8) Chimodzi Ltd financed 80% of the acquisition of Lero Ltd on 1 August
2014 using an 8% loan of K20,000,000 with a grace period of 6 months.
This transaction has not been included in the books as at 31 October 2014.

Required:

(i) Prepare the necessary journal entries to record the above transactions.
11½ Marks
(ii) Draft the income statement for Chimodzi Ltd for the year ended
31 October 2014. 8½ Marks

(iii) Draft the statement of financial position for Chimodzi Ltd as at 31 October
2014. 12 Marks

(b) “Control is presumed to exist when the parent owns, directly, or indirectly
through subsidiaries, more than half of the voting power of an entity unless, in
exceptional circumstance, it can be clearly demonstrated that such ownership does
not constitute control. Control also exists when the parent owns half or less of the
voting power of an entity…”

Required:

State four exceptional circumstances under which Chimodzi Ltd would still
control Lero Ltd assuming the acquisition of Lero Ltd was for half or less of the
voting power. 8 Marks
(TOTAL: 40 MARKS)

Continued/……
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SECTION B
THREE questions ONLY to be attempted from this section

2. Below is a statement of financial position for Zawo and Lende who have been in
partnership for a decade sharing profits in the ratio of 1:1.

Statement of financial position as at 31 December 2013

Non-current assets Cost Accumulated Net book

Depreciation value
K K K
Freehold land 900,000 0 900,000
Motor vehicles 1,920,000 384,000 1,536,000
Office equipment 216,000 21,600 194,400
2,630,400
Current assets
Inventories 90,400
Accounts receivables 90,600
Cash and bank 100,000
281,000

Total assets 2,911,400

Capital Accounts
Zawo 1,600,000
Lende 800,000

Current Accounts
Zawo (100,000)
Lende 40,000
2,340,000
Current liabilities
Accounts payables 300,000
Bank overdraft 71,400
371,400
Non-current liabilities
Bank loan 200,000
Total assets 2,911,400

Additional information:

Due to some recent misunderstandings, the partners decided to dissolve the

partnership under the following terms:

(1) Zawo took over the freehold land at a valuation of K1,800,000.

(2) Office equipment was sold for K200,000.
(3) Lende took over the motor vehicles at their net book value.
(4) Inventories were sold for K84,000.
Continued/……
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(5) Suppliers granted a cash discount of K50,000 on accounts payables.

(6) Dissolution legal and accounting costs amounted to K13,500.
(7) All loans were paid fully and individual partners met any shortfall in the bank
account as individuals.

(8) K80,000 was realized from accounts receivables.

Required:

To record the dissolution of the partnership:

(a) Prepare the partnership realization account. 9 Marks

(b) Prepare current and capital accounts for the individual partners. 5 Marks

(c) Prepare the partnership bank account. 6 Marks

(TOTAL : 20 MARKS)

Continued/……
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3. The following are summarized financial statements for Likongwe Ltd :

Statement of financial position as at 31 March 2014 2013

K K
Non-current assets 187,500 174,600
Inventories 108,000 73,500
Accounts receivables 62,400 55,200
Cash and bank 9,600 16,800
367,500 320,100

Ordinary share capital 195,000 172,200

Share premium account 24,000 24,300
Retained profit 56,400 34,200
275,400 230,700
Debenture 0 41,700
Accounts payables 52,500 10,500
Taxation 18,000 17,400
Dividends 21,600 19,800
367,500 320,100

Statement of income for the year ended 31 March 2014

K
Profit before taxation 61,500
Taxation 18,000
Profit after taxation 43,500
Dividends: paid 6,000
declared 21,600 27,600
Retained profit for the year 15,900
Balance b/f 40,500
Balance c/f 56,400

Additional information:

(1) Furniture and fittings with a net book value of K4,350 as at 1 April 2013 were
sold for K4,800.

(2) The profit before taxation figure is arrived at after charging depreciation of
K6,300 and interest payments of K3,600.

Required:

Prepare a statement of cash flows for the year ended 31 March 2014.
20 Marks

Continued/……
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4. Below are comparative financial data for Belu Ltd and Makwecha Ltd.

Belu Ltd Makwecha Ltd

K’000 K’000
Non-current assets (net book value) 630 1, 005

Current assets
Inventories 1,260 960
Accounts receivables 375 720
Cash at bank 675 450
2,310 2,130

Total assets 2,940 3,135

K1 ordinary share capital 2,250 1,500

Retained profit 324 966
2,574 2,466

Accounts payables 366 669

Total capital 2,940 3,135

Additional information
Turnover 3,750 3,600
Gross profit 1,125 900
Net profit 450 450
Average inventory 372 1,008

Required:

(a) Compare and comment on the performance of Belu Ltd and Makwecha Ltd in
respect of profitability, liquidity, and efficient use of assets using two calculated
accounting ratios for each. 15 Marks

(b) Give four reasons why comparing the performance of different companies using
accounting ratios could be misleading. 5 Marks
(TOTAL : 20 MARKS)

Continued/……
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5. (a) You are asked by your supervisor to prepare a bank reconciliation and make
payments to creditors.

Required:

List all the documents that are necessary to do a bank reconciliation and make
payments to creditors. 5 Marks

(b) An opaque beer brewing company acquired a pressurized cooker on finance lease
agreement for 5 years. Under the agreement, the company would be paying
K8,465,580 annually in arrears after a deposit of K1,496,000. The cash price for
the machinery was K20,000,000. The transaction was arranged at an interest
charge of 32.45% per annum.

Required:

(i) Calculate annual finance charges and capital repayments over the period
of the finance lease arrangement. 5 Marks

(ii) Prepare journal entries, with narratives, to record the transactions in the
ledger accounts over the period. 10 Marks
(TOTAL : 20 MARKS)

END