SCHOOL OF LAW

L413 - FINANCIAL ACCOUNTING

FINAL EXAMINATION PAPER

TUESDAY, 13 JUNE 2023

14:00 – 17:00 HOURS

TIME ALLOWED: 3 HOURS PLUS 5 MINUTES READING TIME

INSTRUCTIONS TO CANDIDATES

1. Check that you have the correct examination paper in front of you.

2. The paper consists of FOUR (4) SECTIONS. ANSWER ALL QUESTIONS

IN SECTIONS A, B, C AND D.

3. All answers must be written in the answer booklet(s) provided only.

4. Write down the number of questions attempted on the cover page.

5. Begin answering each question on a new page.

6. Candidates are permitted to bring into the examination room their own
calculator only.

7. There shall be no form of communication among students during the

examination. Any attempt to make such communication will lead to
disqualification.

DO NOT TURN THIS PAGE UNTIL TOLD TO DO SO BY THE INVIGILATOR

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SECTION A. (2 Marks Each)
1. Which of the following statements is incorrect?
(A) Assets - Capital = Liabilities
(B) Liabilities + Capital = Assets
(C) Liabilities + Assets = Capital
(D) Assets - Liabilities = Capital

2. Which of the following is not an asset?

(A) Buildings
(B) Cash balance
(C) Trade receivables
(D) Loan from K. Harris

3 , Which of the following is a liability?

(A) Machinery
(B) Trade payables for goods
(C) Motor vehicles
(D) Cash at bank

4. Which of the following are correct? Accounts To record Entry in the account
(i) Assets an increase Debit a decrease Credit
(ii) Capital an increase Debit a decrease Credit
iii) Liabilities an increase Credit a decrease Debit
(A) (i) and (ii)
(B) (ii) and (iii)
(C) (i) and (iii)
(D) (i), (ii) and (iii)

5. Which of the following are correct?

Account to be debited Account to be credited
(i) Bought office furniture for cash Office furniture Cash
(ii) A debtor, P. Sangster, pays us by cheque Bank P. Sangster
(iii) Introduced capital by cheque Capital Bank
(iv) Paid a creditor, B. Lee, by cash B. Lee Cash
(A) (i), (ii) and (iii) only
(B) (ii), (iii) and (iv) only
(C) (i), (ii) and (iv) only
(D) (i) and (iv) only

6. Which of the following are incorrect?

Account to be debited Account to be credited(i) Sold van for cash Cash Van(ii)
Returned some of Office
Equipment to Suppliers Ltd Office Equipment Suppliers Ltd (iii) Repaid part of loan
from C. Charles by cheque Loan from C. Charles Bank (iv) Bought machinery on
time from Betterways Ltd Betterways Ltd Machinery
(A) (ii) and (iv) only
(B) (iii) and (iv) only

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(C) (ii) and (iii) only
(D) (i) and (iii) only

7. Which of the following best describes the meaning of ‘Purchases’?

(A) Items bought
(B) Goods bought on time
(C) Goods bought for resale
(D) Goods paid for

8. Which of the following should not be called ‘Sales’?

(A) Office fixtures sold
(B) Goods sold on time
(C) Goods sold for cash
(D) Sale of item previously included in ‘Purchases’

9. Of the following, which are correct?

Account to be debited Account to be credited (i) Goods sold on time to R. Williams
R. Williams Sales
(ii) S. Johnson returns goods to us Returns inwards S. Johnson
(iii) Goods bought for cash Cash Purchases
(iv) We returned goods to A. Henry A. Henry Returns inwards
(A) (i) and (iii) only
(B) (i) and (ii) only
(C) (ii) and (iv) only
(D) (iii) and (iv) only

10. Of the following, which are correct? Account to be debited Account to be credited
(i) Goods sold on time to R. Williams R. Williams Sales
(ii) S. Johnson returns goods to us Returns inwards S. Johnson
(iii) Goods bought for cash Cash Purchases
(iv) We returned goods to A. Henry A. Henry Returns inwards
(A) (i) and (iii) only
(B) (i) and (ii) only
(C) (ii) and (iv) only
(D) (iii) and (iv) only

11. Which of the following are incorrect? Account to be debited Account to be

credited
(i) Goods sold for cash Cash Sales
(ii) Goods bought on time from T. Carter Purchases T. Carter
(iii) Goods returned by us to C. Barry C. Barry Returns outwards
(iv) Van bought for cash Purchases Cash
(A) (i) and (iii) only
(B) (iii) only
(C) (ii) and (iv) only
(D) (iv) only

12 . Which of the following is correct? (A) Profit does not alter capital
(B) Profit reduces capital (C) Capital can only come from profit
(D) Profit increases capital

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13. Which of the following are correct?
Account to be debited Account to be credited
(i) Received commission by cheque Bank Commission received
(ii) Paid business rates by cash Rates Cash
(iii) Paid motor expenses using debit card Motor expenses Bank
(iv) Received refund of insurance by cheque Insurance Bank

(A) (i) and (ii) only

(B) (i), (ii) and (iii) only
(C) (ii), (iii) and (iv) only
(D) (i), (ii) and (iv) only

14. Of the following, which are incorrect?

Account to be debited Account to be credited
(i) Sold van for cash Cash Sales
(ii) Bought stationery using debit card Stationery Bank
(iii) Took cash out of business for private use Cash Drawings
(iv) Paid general expenses by cheque General expenses Bank
(A) (ii) and (iv) only
(B) (i) and (ii) only
(C) (i) and (iii) only
(D) (ii) and (iii) only

15. Which of the following best describes a trial balance?

(A) It shows the financial position of a business
(B) It is a special account
(C) It shows all the entries in the books
(D) It is a list of balances on the books
(Total Marks:30)

SECTION B (1 marks each)

STATE WHETHER THE STATEMENT IS TRUE OR FALSE

1. Is it true that the trial balance totals should agree? Yes, always

2. The business entity concept is a concept implies that the business is treated as
a separate entity from its owners
3.. A piece of accounting information is said to be no material if leaving it out of the
financial statements, or misstating it, could influence the decisions of users of those
financial statements.
4. To be prudent is to be careful. The concept of prudence requires the accounts to
be constructed with a less fair degree of caution.
5. The Consistency concept states that any accounting methods that are selected
should not be used in a consistent manner.

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6. The accruals concept means that the financial statements are constructed on the
basis that incomes and expenses are linked to the period in which they are
incurred rather than when the money for the income or expense changes hands.
7. Substance over form is the principle that financial events should be presented in
the financial statements in line with their real, actual impact rather than their
technical or legal form.
8. The money measurement concept is a concept that implies that Accountants
will only record items if they can be: (a) measured in monetary terms; and (b)
measured with sufficient reliability.
9. The realization concept means that income should only be recorded when it is
unlikely to realized
10. Straight line and Reducing balance methods are not among the depreciation
methods for non-current assets (Total Marks:10)

SECTION C. (35 marks)

Answer all questions
1. There are two main methods of depreciation used in financial statements:

Straight line and Reducing balance method.

In the foregoing, .If a machine is bought for K100, 000 and depreciation is to be
charged at 20 per cent per annum;

a. What would be the calculations for the first three years using the reducing
balance method?
b. if a machine Cost = K24, 000; scrap (residual) value at end of life K4,000;
estimated useful life = 5 years. • Show the depreciation charge (expense) for
each year using a straight line method? (10 marks)

2. The following information relates to John Lungu Associates

Sales revenue K890,000

Cost of goods sold 465,000

Operating expenses 221,000

Interest expense 12,000

Loss on disposal of equipment 2,000

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 (700,000)

Income before income taxes 190,000

Income tax expense 65,000

Net income 125,000

Additional notes – John Lungu Associates

1. Operating expenses include depreciation expense of K33, 000 and charges from
prepaid expenses of K2, 000.

2. Land was sold at its book value for cash.

3. Cash dividends of K55, 000 were declared and paid in 2017.

4. Interest expense of K12, 000 was paid in cash.

5. Equipment with a cost of K166, 000 was purchased for cash. Equipment with a

cost of K41,000 and a book value of K36,000 was sold for K34,000 cash.

6. Bonds of K10,000 were redeemed at their face value for cash. Bonds of

K30,000 were converted into shares.

7. Shares (K1 par) of K130,000 was issued for cash.

8. Accounts payable pertain to merchandise suppliers

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LUNGU ASSOCIATES – STATEMENT OF FINANCIAL POSITION

ASSETS 2017 2016

CASH 54,000 37,000

ACCOUNTS RECEIVABLE 68,000 26,000
INVENTORY 54,000 0
PREPAID EXPENSES 4,000 6,000
LAND 45,000 70,000
BUILDINGS 200,000 200,000
ACC. DEP - BLDGS (21,000) (11,000)
EQUIPMENT 193,000 68,000
ACC. DEPR. EQUIPMENT (28,000) (10,000)

TOTALS 569,000 386,000

LIABILITIES & EQUITY

ACCOUNTS PAYABLE 23,000 40,000

ACCRUED EXPENSES PAYABLE 10,000 0
BONDS PAYABLE 110,000 150,000
COMMON STOCK 220,000 60,000
RETAINED EARNINGS 206,000 136,000

TOTALS 569,000 386,000

Required:
Prepare the cash flow statement for John Lungu Associate for the year ended
31 December 2017. (25marks)

SECTION D (25 MARKS)

1. Rebecca starts a new business on 1 October, operating as a wholesaler
of cleaning products. You are required to record the following transactions
in T-accounts for her, balance Off her accounts, and produce A trial
balance as at 31 October:

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Oct 1 opens a business bank account with £825 of her own money.
3 Borrows £1,500 from HCBS bank, repayable in five years’
time.
5 Pays £215 to hire a van for the month of October, using debit
card.
7 Buys IT equipment for the business, paying £1,450 by debit
card.
9 Buys goods for resale, paying by cheque £810 straight away.
11 Buys goods for resale £730 on time (i.e. on credit terms) from
G. Sharp.
13 Pays business phone & broadband charges for October, £55
by direct debit.
15 Pays rent on business premises for month of October, £340,
by bank transfer.
17 Sells goods for £1,100, customer pays by bank transfer
straight away.
19 Returns unsatisfactory goods to G. Sharp, original cost of
which was £230.
21 Buys goods for resale on time (i.e. on credit terms) from R.
Kenyon, £640.
23 Sells goods on time (i.e. credit terms) £1,800 to P. Bracewell.
25 Takes £425 from business bank account to use for her personal
living expenses.
27 Pays £500 cheque to G. Sharp.
29 Pays staff wages for October, £180 by bank transfer.
31 Receives £600 cheque from P. Bracewell.

END OF EXAMINATION PAPER

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