ACCOUNTING FOR LAWYERS: COMPENDIUM OF ILLUSTRATIONS July to Oct.

2017

Illustration 4, CLE, Question 3, July 2009

The following balances were extracted from the books of Nelly Madiba, a sole trader, Long Walk Enterprises as
at 31 March 2009

KShs.
Bank overdraft 1,164,800
Cash in hand 49,140
Drawings 1,456,000
Furniture and fittings 1,176,000
Office equipment 1,848,000
Provision for depreciation: 1 April 2008
Furniture and fittings 235,200
Office equipment 462,000
Bad debts 36,400
Advertising 520,520
15% loan 1,400,000
Purchases 14,133,280
Sales 27,385,400
Loan interest 1 April 2008 157,500
Return inwards 218,400
Office expenses 760,760
Delivery expenses 1,164,800
Wages and salaries 8,010,520
Inventory 1 April 2008 3,657,080
Trade receivables 1,419,600
Trade payables 1,160,600
Capital 2,800,000

Additional information

1. Closing inventory was valued at Kshs. 4,360,720

2. Accrued expenses as at 31 March 2009 amounted to Kshs. 251,160.
3. A provision for doubtful debts of Kshs. 39,200 is required.
4. Interest on loan is paid on a quarterly basis. Interest in respect of the quarter ended 31 March 2009 is
outstanding.
5. Madiba withdrew goods for his personal use amounting to Kshs. 252,000.
6. Depreciation is to be provided on the reducing balance basis as follows;
 Furniture and fittings 20% p.a.
 Office equipment 25% p.a.
7. Included in wages and salaries is Kshs. 75,000 paid to employees for repairing Madiba’s leaking private
residence house roof.

Required:

(i) Statement of profit or loss (income statement) for the year ended 31 March 2009.
(ii) Statement of financial position as at 31 March 2009.

Illustration 5, CLE, Question 3, July 2011

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The following trial balance has been extracted from the books of Mr. Juma:

Kshs. '000 Kshs. '000

Sales 138,078
Purchases 82,350
Carriage inwards 5,144
Drawings 7,800
Rent, rates and insurance 6,622
Postage and stationery 3,001
Advertising 1,330
Salaries and wages 26,420
Bad debts 877
Provision for doubtful debts 130
Trade receivables and payables 12,120 6,471
Cash in hand 177
Bank balance 1,002
Inventory 1 June 2008 11,927
Equipment at cost 58,000
Accumulated depreciation 19,000
Capital 53,091
216,770 216,770
The following additional information was available as at 31 May 2009:

1. Rent accrued Kshs. 210,000.

2. Rates prepaid Kshs. 880,000.
3. Kshs. 2,211,000 of carriage represents carriage inwards on purchases.
4. Equipment is to be depreciated at 15% p.a. using straight line method.
5. Provision for doubtful debts is to be increased by Kshs. 40,000.
6. Inventory at the close of the business was valued at Kshs. 13,551,000.

Required: A statement of profit or loss and a statement of financial position for Mr. Juma as at 31 May 2009.

Illustration 6: Basic financial statements – sole trader (with adjustments)

T. Simiyu’s trial balance for the year ended 31 December 2015 is as follows:

Debit KShs. '000

KShs. '000 KShs.
Capital: 1 Jan. 15 10,000
Drawings 500
Sales and purchases 1,200 3,000
Inventory: 1 Jan. 15 300
Printing, stationery and postage 30
Rent 120
Electricity 10
Motor vehicle running costs 140
Telephone and internet charges 20
Staff salaries 750
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 Sundry expenses 230
Office equipment: Cost 8,500
Accumulated depreciation 1,260
Motor vehicles: Cost 4,500
Accumulated depreciation 960
Provision for doubtful receivables 200
Receivables 300
Payables 240
Balance at bank 940
16,600 16,600
Additional information: (1) Inventory as at 31 December 2015 amounted to KShs. 350,000; (2) Assets are
depreciated at 10% on cost; (3) Rent accrued amounted to KShs. 10,000; (4) Prepaid electricity amounted to KShs.
5,000; (5) The provision for doubtful debts is to be increased by KShs. 50,000.

Required: (1) Statement of profit or loss for the period ended 31 December 2015; and (2) Statement of financial
position as at 31 December 2015.

Illustration 7: Basic financial statements – sole trader (with adjustments)

Heri Square’s trial balance as at 31 December 2014 is as follows:

Debit Credit
KShs. '000 KShs. '000
Capital: 1 Jan. 14 20,200
Drawings 1,200
Sales and purchases 10,300 25,400
Inventory: 1 Jan. 14 1,820
Printing, stationery and postage 130
Rent 1,220
Electricity 60
Motor vehicle running costs 350
Telephone and internet charges 120
Staff salaries 2,050
Sundry expenses 1,230
Office equipment: Cost 18,500
Accumulated depreciation 4,400
Motor vehicles: Cost 14,500
Accumulated depreciation 2,400
Provision for doubtful receivables 1,200
Receivables 6,300
Payables 2,240
Balance at bank 1,940
57,780 57,780

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Additional information: (1) Closing inventory is valued as follows: cost: KShs. 1.2 million, net realizable value:
KShs. 1.3 million; (2) Depreciation is provided at 10% reducing balance; (3) Staff salaries paid in advance: KShs.
100,000; (4) Accrued rent: KShs. 50,000; (5) Heri Square took a loan amounting to KShs. 1 million, which is not
reflected in the trial balance; (6) Provision for doubtful debts is set at 5% of closing receivables balance, after
deducting uncollectible debts of KShs. 100,000.

Required: (1) Statement of profit or loss for the period ended 31 December 2014; and (2) Statement of financial
position as at 31 December 2014.

Illustration 8: Basic financial statements –law firm

A.S. Kimula Advocate’s trial balance as at 31 December 2015 is as follows:

Debit Credit
KShs. '000 KShs. '000
Legal fees receivable 60,500
Clients’ control account 9,500
Printing, stationery and postage 5,250
Rent 6,300
Electricity 900
Motor vehicle running costs 8,430
Telephone and internet charges 4,350
Staff salaries 10,200
Court expenses 870
Sundry expenses 2,790
Office equipment: Cost 14,500
Accumulated depreciation 2,500
Motor vehicles: Cost 9,020
Accumulated depreciation 1,140
Provision for doubtful receivables 450
Receivables 2,650
Payables 1,350
Balance at bank 1,500
Clients’ bank account 10,000
Drawings 4,000
Capital account balance at 1 Jan 2015 4,320
4-year loan 1,000
80,760 80,760
Additional information: (1) Rent has been paid for the fourteen months to 28 February 2016; (2) Outstanding
expenses at 31 December 2015 were: printing KShs 50,000; electricity KShs 60,000; internet KShs 30,000; (3)
Depreciation is to be provided on the straight line basis at 10% p.a. for both office equipment and motor vehicles;
(4) The provision for doubtful receivables is to be reduced to KShs. 200,000.

Required: Prepare A.S. Kimula Advocate’s (1) Statement of profit or loss for the period ended 31 December
2015; and (2) Statement of financial position as at 31 December 2015.

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BANK RECONCILIATION STATEMENT

Illustration 9

The balance in the cashbook of Mr. Chuma as at 31 December 2015 was Ksh. 30,000. On the same date the balance
as per the bank statement was Ksh. 50,000 (credit).
On examining the bank statement and the cash book the following differences were observed.
1. Cheques totaling Ksh. 8,000 had been paid into the bank on 31 December 2015 but were not credited by
the bank until 1 January 2016.
2. Bank charges amounted to Ksh. 600.
3. A standing order to KPLC of Ksh. 800 had been paid by the bank but not entered in the cashbook.
4. Interest income amounting Ksh. 13,000 collected by the bank did not appear in the cash bank.
5. Amounts paid to suppliers but not presented for payment to the bank amount to Ksh. 16,400.
Required
a. Adjusted cash book as at 31 December 2015.
b. Bank reconciliation statement as at 31 December 2015.
Illustration 10

The balance in the cashbook of Mr. K. K as at 31 January 2016 was Kshs. 10,000 (credit). On the same date the
balance as per the bank statement was Ksh. 30, 000.
On examining the bank statement and the cashbook the following differences were observed;
2. Cheques totaling Ksh. 12,000 had been paid into the bank on 31 January 2016 but were not credited by
the bank until 1 February 2016.
3. Bank charges amounted to Ksh. 1,500.
4. A standing order to KPLC of Ksh. 2,200 had been paid by the bank but not entered in the cashbook.
5. Dividend income amount Ksh. 11,000 collected by the bank did not appear in the cashbook.
6. Cheques totaling Ksh. 44,700 had been paid to suppliers but not presented to the bank.
Required
a. Adjusted cash book as at 31 January 2016.
b. Bank reconciliation statement as at 31 January 2016.

Illustration 11
The cash book bank column of J.J for the month December 2015 is as follows:
Date Cheque. Details Amount Date Cheque Details Amount
No (Ksh.) No. (Ksh.)
Dec. 2 015 Kinyua 12,000 Dec. 1 Bal b/d 10,000
10 116 Juma 14,000 5 651 Jogoo 15,000
18 125 Okumu 18,000 12 652 Simba 16,000
22 173 Musa 12,000 20 653 Nyuki 10,000
31 Bal c/d 7,000 20 654 Nyati 12,000
63,000 63,000
The bank provided the following bank statement as at 31 December 2015
Date Cheque Details Debit Credit Balance
(Ksh.) (Ksh.) (Ksh.)
Dec. 1 Bal b/d 10,000 (10,000)
2 015 12,000 2,000
5 651 15,000 (13,000)
10 116 14,000
11 Ledger fees 2,000
12 652 16,000 (17,000)
18 Interest income 3,000 (14,000)

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 Date Cheque Details Debit Credit Balance
(Ksh.) (Ksh.) (Ksh.)
19 Commission 1,000 (15,000)
22 Heritage Insurance 3,000 (18,000)
31 Balance (18,000)
Required
a. Adjusted cash book as at 31 December 2015.
b. Bank reconciliation statement as at 31 December 2015.

Illustration 12: Assignment

(a) Differentiate between a petty cash-book and a three-column cash-book (5 marks)

(b) Briefly explain why it is important for a business entity to prepare a bank reconciliation statement. (3 marks)
(c) You have recently been employed in a medium size company and deployed in the accounts department.
Your head of section has given you the following extract from the cash-book for the month of April 2013:
KSh. KSh.
Receipts during the month 2,938,000 Balance brought forward (1.4.2013) 1,522,000
Balance carried forward (30. 4. 2013) 1,108,000 Payments during the month 2,524,000
4,046,000 4,046,000

The head of section further informs you that all receipts are banked intact and all payments are made by Cheque.
On investigation you discover the following:

1. Bank charges and commissions amounting to Ksh. 272,000 entered on the bank statement had not been
entered in the cashbook.
2. Cheques drawn amounting to Ksh. 534,000 had not been presented to the bank for statement.
3. Cheques received totaling Ksh. 1,524,000 had been entered in the cashbook and paid into the bank, but had
not been credited by the bank until May 2013.
4. A cheque for Ksh. 44,000 had been entered as receipts in the cashbook instead of a payment.
5. A cheque for Ksh. 50,000 had been debited by the bank by mistake.
6. A check received for Ksh. 160,000 had been returned unpaid. No adjustment had been made in the cash-
book.
7. All dividends receivable are credited direct to the bank account. During the month of April 2013, dividends
totaling Ksh. 124,000 were credited by the bank and no entries had been made in the cash-book.
8. A cheque drawn for Ksh. 12,000 had been incorrectly entered in the cashbook as Ksh. 132,000.
9. The balance brought forward should have been Ksh. 1,422,000.
10. The bank statement as at 30 April 2003 showed an overdraft of Ksh. 2,324,000.
Required:
(i) The adjusted cashbook as at 30 April 2013. (6 marks)
(ii) Bank reconciliation statement as at 30 April 2013. (6 marks) (Total: 20 marks)
Illustration 13: Bank reconciliation

(a) Giving relevant examples explain clearly FIVE causes of differences between the cash balance in the
cashbook and balances as per the bank statement.
(b) The bank account for Abubakar, Ambani and Akoro (AAA) Advocates as prepared by the accountant is as
follows:

Bank account - Abubakar, Ambani and Akoro (AAA) Advocates: February 2015
1-Feb Bal. b/d 91,400 2-Feb Petty cash 2313 36,150
3-Feb M & Co. 260,110 3-Feb N & Co. 2314 141,170
3-Feb K, L. & N 112,830 6-Feb B Ltd. 2315 38,040
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 3-Feb Clients 407,540 8-Feb H & Co. 2316 59,320
14-Feb R Ltd 361,020 9-Feb PAYE 2317 106,750
17-Feb PCS Ltd 72,540 9-Feb NSSF 2318 18,100
20-Feb KPL_RTGS 63,400 10-Feb S Ltd 2319 28,420
22-Feb GG Ltd 93,620 14-Feb T Ltd 2320 11,750
28-Feb Clients 235,390 15-Feb Wages 2321 115,520
28-Feb Bal. c/d 221,520 16-Feb THL 2322 44,090
20-Feb NCC - SO 504,220
21-Feb HFCK - DD 196,830
24-Feb UAP - DD 108,640
26-Feb Petty cash 2323 41,200
27-Feb Wages 2324 119,070
28-Feb Salaries - DD 337,740
28-Feb Charges - Jan 12,360
1,919,370 1,919,370

The statement of account for Abubakar, Ambani and Akoro (AAA) for the month of February 2015 is as follows:

Account no: 1005110220092: Equity Bank Kitengela Branch AAA Advocates

Statement as at February 2015
Trans. date Description Value date Money out (Dr.) Money in (Cr.) Balance
1-Feb Opening balance 1-Feb 90,450 Cr.
2-Feb Credit 2-Feb 175,020 265,470 Cr.
2-Feb 2310 2-Feb 111,340 154,130 Cr.
2-Feb 2312 2-Feb 9,180 144,950 Cr.
3-Feb 2309 3-Feb 15,410 129,540 Cr.
3-Feb Credit 3-Feb 780,480 910,020 Cr.
7-Feb 2313 7-Feb 36,150 873,870 Cr.
10-Feb Adjustment 10-Feb 12,900 886,770 Cr.
15-Feb 2315 15-Feb 38,040 848,730 Cr.
16-Feb 2314 16-Feb 141,170 707,560 Cr.
17-Feb Credit 17-Feb 443,560 1,151,120 Cr.
20-Feb Standing order 20-Feb 504,220 646,900 Cr.
21-Feb 2317 21-Feb 106,750 540,150 Cr.
21-Feb Direct debit (DD) 21-Feb 196,830 343,320 Cr.
21-Feb 2320 21-Feb 11,750 331,570 Cr.
22-Feb 1419 22-Feb 212,810 118,760 Cr.
22-Feb Adjustment 22-Feb 10,000 108,760 Cr.
22-Feb 2319 22-Feb 28,420 80,340 Cr.
22-Feb 2320 22-Feb 11,750 68,590 Cr.
22-Feb Credit 22-Feb 93,620 162,210 Cr.
24-Feb Adjustment 24-Feb 212,810 375,020 Cr.
26-Feb Interest: loan a/c 26-Feb 26,350 348,670 Cr.
26-Feb 2321 26-Feb 115,520 233,150 Cr.
28-Feb 2322 28-Feb 44,090 189,060 Cr.

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 28-Feb Direct debit (DD) 28-Feb 108,640 80,420 Cr.
28-Feb Charges 28-Feb 9,140 71,280 Cr.
28-Feb Adjustment 28-Feb 11,750 83,030 Cr.

Required: (1) Adjusted bank account balance; (2) Bank reconciliation statement for the month of February 2015.

ACCOUNTING FOR SPECIALISED BUSINESS ENTITIES

Illustration 14: Partnership

The following list of balances as at 31 December 2014 has been extracted from the books of J. K. Kilonzo (JKK)
and C. O. Oluoch (COO), in partnership as lawyers, sharing their profits and losses in the proportions 3:2
respectively.

Debit Credit
KShs. '000 KShs. '000
Clients’ control account 10,200
Printing, stationery and postage 3,500
Fees receivable 79,380
Rent 4,200
Electricity 600
Staff salaries 47,280
Telephone and internet charges 2,900
Motor vehicle running costs 5,620
Court expenses 580
General expenses 1,860
Office equipment: Cost 26,000
Accumulated depreciation 2,600
Motor vehicles: Cost 10,000
Accumulated depreciation 2,000
Provision for doubtful receivables 300
Drawings: JKK 2,400
COO 1,100
Current account balances: 1 Jan 2014: JKK (Cr) 200
COO (Cr) 100
Capital account balances at 1 Jan 2014: JKK 20,000
COO 9,000
Receivables 6,300
Payables 460
Balance at bank 1,700
Clients’ bank account 10,200

124,240 124,240

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Additional information: (a) JKK and COO are to be credited with salaries at the rate per annum of KShs 2.4
million and KShs 1.8 million respectively; (b) JKK and COO are to be credited with interest on their fixed capital
balances at 10% per annum and charged with interest on their drawings in the amounts of KShs 80,000 and
KShs 30,000 respectively; (c) Rent has been paid for the fourteen months to 28 February 2015; (d) Outstanding
expenses at 31 December 2014 were: Printing KShs 50,000; Electricity KShs 60,000; Internet KShs 30,000; (e)
Depreciation is to be provided on the straight line basis at 10% p.a. for both office equipment and motor vehicles;
(f) The provision for doubtful receivables is to be reduced to KShs 200,000.

Required: (i) Prepare a statement of profit or loss for the year ended 31 December 2014; (ii) Prepare a statement
of financial position as at 31 December 2014, which should include summaries of the partners’ current
accounts for the year ended on that date. (25 marks)

Illustration 15: Partnership - for practice

Joy and Peace have been operating as partners for the last two years, sharing profits and losses in the
ratio of 3:2. The following is the trial balance in the partnership books for the year ended 31 December
2015:
Debit Credit
KShs. ‘000’ KShs. ‘000’
Capital Account at 1 January 2015: Joy 60,000
Peace 40,000
Current Account at 1st January 2015: Joy 17,000
Peace 11,000
Drawings: Joy 9,000
Peace 6,000
Sales 361,220
Purchases 254,100
Motor vehicle at cost 35,000
Land and Buildings 40,000
Furniture Fittings at cost 12,000
Provisions for depreciation at 1 January 2015:
Motor vehicle 12,600
Furniture and 2,280
Fittings
Buildings 1,200
Provision for doubtful debts 1,200
Inventory, at 1 January 2015 43,400
Cash at hand 2,000
Office expenses 25,900
Trade receivables and Trade Payables 32,500 17,500
Bank 3,350
Salaries 26,400
Insurance 3,550
Discounts allowed and discount received 6,400 2,900
513,250 513,250
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The following additional information is available:
a) Inventory at 31 December 2015 was valued at KShs. 65,950.
b) Depreciation is charged on reducing balance method as follows:
Motor vehicle: 20%
Furniture and Fittings: 10%
c) Land and buildings was acquired when the business was incorporated of which the value for
the land was agreed at KShs. 10 million. The partners estimate that they can use the building
for a period of 50 year of which the salvage value will be nil.
d) Bad debts of KShs. 500,000 are to be written off, and the provision for doubtful debts to be
adjusted to 2.5% of the remaining debtors.
e) The partners are entitled to interest on capital at 10% per annum and on drawings at 5%.
Required:
(a) The statement of profit or loss and appropriation account for the year ended 31 December 2015.
(10 marks)
(b) Partners’ current accounts. Note: the partners operate fixed capital accounts. (4 marks)
(c) The firm’s statement of financial position as at 31 December 2015. (8 marks)

Illustration 16: Law Firm

Mary and James are partners in MJ and Company advocates. The trial balance extracted from their books of
accounts as at 31 December 2014 was as follows
KShs. ‘000’ KShs. ‘000’
Capital 6,000
Office equipment 3,000
Fixtures and furniture 1,200
Accumulated depreciation: Equipment 400
Accumulated depreciation: fixtures and furniture 240
Accounts payable 300
Clients account 500
Work-in-Progress 1,400
Client disbursements 700
Bank: Client 1,550
: Office 690
Library books 650
Accruals 250
Loan from bank 1,500
9,190 9,190
The following were carried out by MJ and Company Advocates during the year ended 31 December 2014:
1. Charged clients KShs. 15,000,000 for services rendered during the year.
2. Received KShs. 1,500,000 on behalf of clients.
3. Received KShs. 11,000,000 from clients in settlement of amount due for services rendered
4. Received KShs. 500,000 from clients in settlement of disbursement made on their behalf
5. Purchased library books worth KShs. 300,000 paying cash and repaid Shs. 500,000 of the loan from bank.
6. Incurred the following expenses which were paid for in the year ended 31 December 2014.

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 For office For client
KShs.'000' KShs.'000'
Rent 600 120
Salaries and wages 2,450 150
Office provisions 410 -
7. Incurred the following expenses which had not been paid for as at 31 December 2014:
KShs.
Legal fees 3,400,000
Salaries and wages 1,650,000
Rent 1,720,000
8. Partners withdrew KShs. 1,750,000 from the bank
9. Acquired office premises for KShs. 6,500,000 and paid KShs. 3,000,000 in cash. The balance was to be paid
in 6 months’ time. Assume the office premises were acquired on 1 January 2014
10. Donated KShs. 500,000 to Jisaidie, a Charitable Trust.
11. Represented clients whose work-in-progress as at 31 December 2014 was valued at KShs. 1,100,000
The work-in-progress had not been invoiced to clients.
12. The firm provides for depreciation on non-current assets based on book values at the following rates:
Non-current asset Rate (%)
Office equipment 10
Fixtures and furniture 15
Library books 12.5
Office premises 2.5

Required: Prepare in columnar format (i) Clients account (4 marks), (ii) Cash book (5 marks), (iii) Income
statement for the year ended 31 December 2014 (5 marks) and (iv) Statement of financial position as at 31
December 2014 (6 marks)

Illustration 17: Company (Incorporating Statement of Cash Flows and Basic Analysis): CLE NOVEMBER
2011, Q. 2

E. Phones had a net income of $ 413,000 excluding income tax for the year worth $ 217,000. The statements of
financial position as at 31 December 2015 and 31 December 2014 were as follows:

2015 2014
$ $
ASSETS
Non-current assets
Land 280,000 180,000
Equipment 200,000 140,000
Accumulated depreciation (53,000) (28,000)
Net book-value-equipment 147,000 112,000
Investments - 50,000
427,000 342,000
Current assets
Inventory 100,000 70,000
Accounts receivable 32,000 40,000
Cash 32,000 48,000
164,000 158,000
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 Total assets 591,000 500,000
EQUITY AND LIABILITIES
Equity
Ordinary shares 200,000 100,000
Retained earnings 284,000 126,000
484,000 226,000
Non-current liabilities
Bonds payable - 200,000
Current liabilities
Accounts payable 52,000 62,000
Income tax payable 55,000 12,000
107,000 74,000
TOTAL EQUITY AND LIABILITIES 591,000 500,000

Required: (i) Statement of cash flows for the period ended 31 December 2015. (ii) Briefly analyze the financial
performance of E. Phones.

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