The document contains information regarding Robert Kanyarna's purchase of Premium Meat Suppliers Ltd. for Sh8 million on 1 October 2001. It provides details of the assets and liabilities acquired. It also provides financial information for the year ended 30 September 2002, including cash payments, bank payments, deposits, debtors, creditors, and ending stock values. The document requests preparation of bank and cash accounts, a trading and profit and loss account, and a balance sheet for the period. It also contains a similar case regarding Swara Sports Club involving preparation of forecast financial statements.

1. QUESTION ONE
On 1 October 2001, Mr. Robert Kanyarna bought Premium Meat Suppliers Ltd., a business dealing in
meat products, for a cash price of Sh.8, 000,000. He took over the following assets and liabilities of
the company:
Sh.
`000'
Buildings 2% 6,000
Plant and equipment 10% 1,400
Debtors 800
Stock of meat 400
Creditors (for purchases) 1,200
Mr. Kanyama immediately opened a business bank account in which he deposited as working
capital, Sh.1, 600,000 from himself and Sh.4,000,000 being a long-term loan from J.K. Bank Ltd. The
loan from the bank carried an interest rate of 10% per year.
During the year ended 30 September 2002, Mr. Kanyama did not keep a full set of double - entry
accounting records but relied heavily on close and personal involvement in the business to ensure proper
control and safekeeping of assets of the business. In addition, daily cash summaries were prepared and
counterfoil cheque stubs and bank statements reconciled. The following information relates to
transactions in the year ended 30 September 2002:
1. Before banking proceeds from sales and debtors, payments were made out of cash as
summarised below:
Sh.
`000'
Stock purchase 19,456
Slaughter charges 1,008
Sundry expenses 1,744
Electricity charges 304
Wages expense 328
2. A summary of cheques counterfoil stubs disclosed the following payments through the bank:
Sh.
`000'
Stock purchases 22,608
Shop wages 1,728
Personal drawings 2,096
Rates and licences 1,560
Interest on loan 200
3. Mr. Kanyama had, each week, made deposits into his business bank account all cash on hand after
payments in (I) above) except a till float of Sh.40,000 maintained throughout the year. An
examination of the pay-in slips and bank statements revealed total deposits of Sh32,280,00Q,
exclusive of capital and loan) during the year.
4. At 30 September 2002, Mr. Kanyama was owed Sh.592, 000 by debtors and owed Sh1,720,000 to
trade creditors. Wages outstanding at that date amounted to Sh.270, 000. The stock at 30
September 2002 was valued at cost at Sh. 1, 160,000. The only cash on hand at the year-end was in
the till float.
5. Mr. Kanyama consulted with Chania Accountants and has accepted their advice to make a
provision of 2% per annum for depreciation on buildings and 10°/% per annum for

2. depreciation on plant and equipment. Mr. Kanyama also considers it prudent to provide for the
fact that 1% of the debtors outstanding at the year end will not honour their obligations.
Required:
(a) Bank and cash accounts for the year ended 30 September2002. (8 marks)
(b) Trading, profit and loss account for the year ended 30 September2002. (8 marks)
(c) Balance sheet as at 30 September 2002. (4 marks)
(Total: 20 marks)
QUESTION TWO
The Swara Sports Club had the following assets and liabilities as at 30 September 2002:
Sh.`000' Sh.`000'
Assets
Clubhouse (at cost) 16,800
Equipment Cost 4,600
Accumulated depreciation 2,200 2,400
Bar stock 800
Rates prepaid 200
Insurance prepaid 70
Subscriptions in arrears (one year’s) 32
Cash at bank 1,960
Cash in hand 20
Liabilities
Creditors for bar purchases 1,600
Subscriptions in advance (one year’s) 16
Electricity account owing 60
The treasurer of the club, Mr. Lutomia is in process of drawing up the financial forecast of the club for the
coming year, ending on 30th September2003.
He wishes to prepare a forecast income and expenditure account for the year and a balance sheet as at that
date.
The following information has been collected to assist in the forecast:
1. The club has 300 members and it is intended to raise the subscriptions per member from the current
Sh.8,000 to Sh.10,000 per year. The members who have paid in advance will be allowed subscriptions
at the old rates. It is anticipated that the members currently in arrears with their subscriptions will
pay the arrears during the coming year. It is also anticipated that the number of members whose
subscriptions would be in arrears and those who would have paid in advance on 30 September
2003 would be the same as the corresponding numbers on 30 September 2002.
2. Extensions to the clubhouse are planned which will cost an estimated amount of Sh.3,000,000. Of
this sum, it is anticipated that Sh.2, 000,000 will be paid during the year.
3. Some of the club's sports equipment which cost Sh.500,000 and has a written value of Sh.200,000
will be sold for u estimated value of Sh.100,000 and replaced by new equipment costing
Sh.680,000. All equipment is depreciated on a straight-line basis over four years and none of the
equipment is more than three years old. A full year's provision is charged in the year of acquisition
and none in the year of disposal.
4. Bar purchases are made monthly on credit and paid for in the month following purchase. It is
anticipated that the same volume of business, which is fairly constant on a monthly basis, will be
realised during the coming year but that stock costs will rise by 25% from 1 October 2002.

3. Bar stocks are normally held at the level of one half of one month's purchases. The bar
makes a gross profit margin of 20% on all sales regardless of stock costs. Bar sales are on cash, all
of which is banked daily. The barman, who is paid Sh.20,000 per month, receives a commission of
5% of the gross profit for the year. This is paid with his final wage cheque by the year end.
5. The club runs monthly social evenings and charges members Sh.2,000 per head admission.
An average of 200 members attend each of these evenings. Expenses usually amount to Sh.
1,400 per head.
6. The following expenditure payments are expected to be made by the club during the coming
year:
Sh
Rates 1,000,000
Insurance 160,000
Salary of Club manager 1,200,000
Salary of club grounds man 960,000
Bar annual licence 100,000
Electricity 500,000
Miscellaneous 140,000
The rates are paid on 1 January in respect of the following twelve months. The insurance payment will be
for the Period 1 April 2003 to 31 March 2004. One-fifth of electricity consumption is in respect of the bar.
All payments are made by cheque.
Required:
(a) Forecast bank account for the year ending 30 September 2003. (6marks)
(b) Forecast bar. Trading, profit and loss account for the year ending 30 September 2003
(4marks)
(c) Forecast income and expenditure account for the year ending 30 September 2003.
(8marks)
(d) Balance sheet as at 30 September 2003. (7marks)
(Total: 25 marks)
QUESTION THREE
(a) Explain the legal provisions regarding the establishment and subsequent use of the following
reserves:
(i) Share premium account. (4marks)
(ii) Capital redemption reserve fund. (4marks)
(b) Masaba Company Ltd. is a retail provider with an authorised share capital of
800,000 Sh.20 ordinary shares and 250,000 8% Sh.20 redeemable preference shares.
The following financial information reflects the position of the company as at 31 December 2001 after
preparing the Trading, profit and loss account:
Sh.
`000'
Provision for depreciation Fittings 1,500,
Motor vehicles 3,740
Goodwill 1,200
Issued share capital: 600,000 Sh.20 Ordinary shares 12,000
250,000 Sh.20 Redeemable preference shares 5,000
Share premium account 400

4. Trade debtors and prepayments 1,708
Land and buildings at valuation (Cost Sh.4, 400,000) 18,400
Capital redemption reserve fund 3,000
Fittings at cost 3,000
Motor vehicles at cost 7,940
10`% Debentures 1,600
Trade creditors and accruals 960
Short-term investments (Market value Sh.860,000) 7 8 0
Stock at 31 December 2001 2,960
Bank overdraft 540
Revaluation reserve 1,000
Net profit for the year 1,440
Retained profit at 1 January 2001 4,460
General Reserve 1,100
Provision for doubtful debts 48
Interim dividend paid - Ordinary 600
- Preference 200
The following resolutions relating to year ended 31 December 2001 have been passed by the board of
directors of the company
1. Transfer Sh.500,000 to General Reserve.
2. Provide for 5% final dividend and final preference dividend on shares issued and
outstanding on 31 December 2001.
3. Make a bonus issue of 100,000 fully paid ordinary shares from the retained profits
account.
Required:
(i) The appropriations account of Masaba Company Ltd. for the year ended 31 December 2001.
(4 marks)
(ii) The balance sheet of Masaba Company Ltd. as at 31 December 2001. (8 marks)
(Total: 20 marks)
QUESTION FOUR
Denticare Limited makes its accounts on 30 June every year.
On 1 July 2001, the company's balance sheet included the following figures for non-current assets:
Cost Accumulated
Depreciation
Sh. Sh.
‘000’ ‘000’
Land 40,000 Nil
Buildings 22,000 8,000
Plant and machinery 16,000 6,000
Motor vehicles 6,000 2,000
The company's policy is to charge depreciation at the following rates:
Rate
Land Nil
Buildings 2% on cost
Plant and machinery 15% on cost
Motor vehicles 20% on cost

5. A proportionate charge is made in the year of purchase, sale or revaluation of an asset.
During the year ended 30 June 2002, the following transactions took place:
1. On 1 January 2002 the company decided to adopt a policy of revaluing its buildings. A
professional valuer engaged for this purpose revalued the buildings at Sh.34 million.
2. On 1 January a plant that had cost Sh.3 million was sold for Sh.500, 000. Accumulated
depreciation on this plant on 30 June2001 amounted to Sh.2.3 million. A new plant was then
purchased at a cost of Sh.4 million.
3. On 1 April 2002 a new motor vehicle was purchased for Sh.300, 000 Part of the purchase price
was settled by exchanging another motor vehicle at an agreed value of sh.120, 000 The balance of
Sh.180,000 was paid in cash. The vehicle which was given in part exchange had cost Sh.200,
000 and had a net book value of Sh.100, 000 as at 30 June 2001
Required:
(a) The following ledge accounts to record the above transactions:
(i) Buildings account.
(ii) Provision for depreciation: Buildings.
(iii) Plant and machinery account.
(iv) Provision for depreciation: Plant and Machinery.
(v) Motor vehicles account.
(vi) Provision for depreciation: Motor vehicles. (9 marks)
(b) Property, plant and equipment movement schedule for the year ended 30 June 2002.
(6 marks)
(Total: 15 marks)
QUESTION FIVE
Write short notes to distinguish the following:
(a) Purchased goodwill and non-purchased goodwill. (5marks)
(b) Amortisation and depreciation of fixed assets (5marks)
(c) Provisions and reserves. (5marks)
(d) Compensating errors and errors of principle (5 marks)
(Total: 20 marks)
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