ASSIGNMENT FOR BCOM/BBAM 110: PRINCIPALS OF ACCOUNTING 1
QUESTION ONE :30 MARKS
- The following books of accounts were extracted from wamatangi Enteprises for the year ended 31stDECEMBER 2018:
| Shs. | |
| Opening stock of tea | 100,000 |
| Purchases – Tea | 400,000 |
| Salaries paid | 80,000 |
| Buildings | 95,000 |
| Cash in hand | 2,000 |
| Cash at bank | 135,000 |
| Rent, rates and council taxes | 15,000 |
| Insurance premium paid | 3,000 |
| Miscellaneous receipts | 10,000 |
| Sales | 720,000 |
| Discounts allowed | 4,750 |
| Bad debts | 3,250 |
| Building repairs | 2,900 |
| Miscellaneous expenses | 8,700 |
| Advertisement | 20,000 |
| Commission to sales manager | 32,400 |
| Furniture and fittings | 35,000 |
| Air conditioners | 30,000 |
| Sundry debtors | 100,000 |
| Sundry creditors | 80,000 |
| Loan on mortgage | 70,000 |
| Interest paid on the above | 3,000 |
| Prepaid expenses | 4,000 |
| Drawings | 18,000 |
| Bills payable (Current liability) | 30,000 |
| Bank charges | 2,000 |
| Legal charges | 6,000 |
| Motor vehicles | 80,000 |
| Travelling and conveyance | 10,000 |
| Capital | 280,000 |
The following further information was obtained :
- Closing stock was Shs.55,000.
- Legal charges include Shs.5,000 for the cost of stamps and registration of a new building acquired during the year.
- Purchases include 4000 kg tea valued at Shs.20,000, which was found totally spoilt. An insurance claim of Shs.15,000 has been accepted by the insurance company.
- Travelling and conveyancing include proprietor’s personal travelling for which he is charged Shs.4, 800.
- The sales manager is entitled to commission of 7.5% of the total sales. However any bad debts incurred during the year are deductible from such commission entitlements.
- Debtors include:
- 10, 000 due from M & C0 (Creditors include Shs.18, 000 due to the same party).
- 5, 000 due from the sale of furniture.
- Further bad debts of Shs.2, 000
- Provision for bad debts is to be created at 2% of net amount outstanding from trade debtors.
- Depreciation is chargeable as follows:
Buildings 2.5%
Furniture and Fittings 10%
Air conditioners 15%
Motor vehicles 20%
- Miscellaneous receipts represent sales proceeds of furniture, whose written down value was Shs.12, 000.
- Prepaid expenses include insurance premiums for the next year.
Required:
Prepare a trading, profit and loss account for the year ended 31st December 2018 and a Balance Sheet as at that date.[20 MARKS].
- Explain what is meant by materiality in relation to financial statements and state two factors affecting the assessment of materiality. (5 marks)
- Explain what makes information in financial statements relevant to users. (5 marks)
