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DIPLOMA COURSE IN MANAGEMENT SECTION I

JUNE 2013 EXAMINATION

SUBJECT NAME: FINANCIAL AND COST ACCOUNTING I

SUBJECT CODE: DCM 100

DATE: 12TH JUNE 2013

TIME: 3 HOURS

INSTRUCTIONS:

1. Write your index number in the space provided in the answer booklet.
2. Answer TWO questions from Sections A; TWO questions from section B and
ONE question from either of the sections.
3. All questions carry equal marks.
4. Candidates should show their calculations clearly.
5. NO writing should be done on this question paper.
6. Candidates who commit exam malpractice will be DISQUALIFIED.

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SECTION: A

1. a) What are the objectives of financial statements?


(4 marks)

b) Identify the elements of the financial statements that relates to the achievements of the
objectives you have mentioned above.
(6 marks)

c) What are the limitations of financial statement as a tool for decision making?
(10 marks)

2. A, B and C are partners sharing profits and losses in the ratio of 2: 3: 5. A retired on 31st
March 2007 and D was admitted on the same date into the partnership. The new profit
sharing ratio between B, C and D being 2: 3: 1.

The following was the balance sheet of A, B and C as at 31st March 2007.

Balance sheet
Assets Ksh Liabilities Ksh
Machinery 93,000 Creditors 50,000
Building 10,000 D’s Loan 50,000
Debtors 30,000 Reserves 40,000
Stocks 20,000 Capital account A 10,000
Cash 32,000 B 15,000
C 20,000
185,000 185,000

Additional information
D’s was admitted on the following terms:-
i) Machinery is to be depreciated by Ksh. 3,000/=.
- Building is to be revalued at Ksh. 30,000.
- Stock is to be written off by Ksh. 5,000.
- Creditors be revalued at Ksh. 40,000.
ii) Goodwill was valued at Ksh. 30,000.
iii) The amount due to A is to be retained in business as a loan.
iv) D’s capital contribution should be 1/5 of the combined capital of A and B after making
the above adjustments.
v) D’s share of capital will be transferred from his loan account.
vi) The Goodwill account is to be written off from the books after admission of D.

Required:
Prepare the necessary accounts.
(20 marks)

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3. The following are the financial statement of Mambo vipi account for the two year ended
31st October 2007.

Balance sheet 2007 2006


Assets Ksh ‘000’ Ksh ‘000’
Investments at cost 10,400 16,000
Land 8,800 12,600
Plant and machinery at cost 2,000 2,200
Building 10,000 18,000
Stock 11,000 13,000
Debtors 8,000 10,000
Bank 200 -
50,400 51,800

Liabilities and capital


Ordinary shares of Ksh. 20 each 8,000 10,000
Share premiums 2,600 2,800
Revaluation reserve - 4,000
Profit and loss account 9,000 5,000
10% debentures 16,000 30,000

Accumulative depreciation
Plant and machinery 800 1,000
Building 2,000 2,200
Creditors 8,000 12,000
Proposed dividends 4,000 4,000
Bank - 800
50,400 71,800

Profit and loss account


Sales 40,000 40,000
Cost of sales (20,000) (24,000)
Gross profit 20,000 16,000
Expenses (including interest) 12,000 12,000
Net profit 8,000 4,000
Dividends 4,000 4,000
Retained profit for the year 4,000 -
b/f 5,000 5,000
c/f 9,000 5,000

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Required:
Calculate:-
i. Gross profit percentage.
ii. Net profit percentage.
iii. Debtors turnover.
iv. Creditors turnover.
v. Current ratio.
vi. Return on investment.
vii. Acid test ratio.
viii. Stock turnover ratio.
ix. Dividend cover.
x. Debtors collection period.
(20 marks)

4. The following trial balance was extracted from the books of Bachu account as at 31st
December 2007.

Particulars Debit Credit


Ordinary shares of Ksh. 20 each 30,000,000
Share premium 2,100,000
Profit and loss account 6,430,000
Motor vehicle (cost 6,000,000) 3,600,000
Freehold property 18,000,000
Purchase and sales 80,276,000 121,492,000
Goodwill 3,500,000

Provision for bad debts 300,000


Bad debts 400,000
10% Bank loan 6,000,000
Loan interest accrual 900,000
Debtors and creditors 18,700,000 7,290,000
Rent receivable 1,000,000
Motor vehicle expenses 930,000
General expenses 5,266,000
Bank 6,188,000
Salaries and wages 21,872,000
Rates and insurance 794,000
Opening stocks 15,986,000
175,512,000 175,512,000

Additional information
i) Closing stocks were valued at Ksh. 16,850,000.
ii) Provision for bad debts is to be increased to Ksh. 450,000.
iii) Accrued salaries Ksh. 120,000 which prepaid rates and insurance Ksh. 180,000.
iv) Rent receivable of Ksh. 1,000,000 includes Ksh. 200,000 in respect of the period
1/1/08.
v) Depreciation motor vehicle at cost at the rate of 20% p.a.
vi) Interest on bank loan is yet to be paid.
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vii) Co-operation tax for the year is estimated to be Ksh. 3,575,000.
viii) The director proposed:-
- A sum of Ksh. 2,000,000 be transferred to General Reserve Account.
- Ordinary dividend of Ksh. 2 per share be paid.

Required:
a) Trading profit and loss appropriation account for the year ended 31st December 2007.
(10 marks)

b) Balance sheet as at the same date. (10 marks)

SECTION: B

5. a) Define the term stock control and explain its importance in a company.
(6 marks)

b) i) Define the term economic order quantity and state the assumptions in calculating the
economic order quantity.
(10 marks)

ii) K. K Suppliers replenished its stocks to a maximum level of 1,000 kg at the end of
June 2007. The rate of consumption is 200 kg per month and is planned to remain
constant. The minimum stock level is maintained at 200 kg.

Required:
Calculate the average stock levels.
(4 marks)

6. a) Give five characteristics of ideal costing systems. (10 marks)


b) State five objectives of cost accounting. (10 marks)

7. The budget of wisdom ltd provides for the manufacture and sale of 10,000 units per
month. The unit standard cost being Ksh. 60/= made up as follows.
Direct materials Ksh. 35/=
Direct labour Ksh. 5/=
Fixed overhead Ksh. 20/=
Ksh. 60/=

The selling price of each unit is Ksh. 90/= production and sales quantities for the first and
second quarters were as follows.
1st Quarter 2nd Quarter
Production 10,000 10,000
Sales 8,000 12,000

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Required:
a) Operating statement for each of the two periods assuming the company uses:-
i) Marginal costing method.
ii) Absorption costing method.
(10 marks)

b) Reconcile the profits for each Quarter. (10 marks)

8. a) List and explain four methods of labour remuneration. (8 marks)

b) With suitable examples, itemize and explain the advantages and disadvantages of each
of the methods you have listed above.
(12 marks)

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