Lesson Six

INCOMPLETE RECORDS
Accounting for Incomplete Records
Single entry means any system that is not a complete double entry system, it’s the
incomplete records where some information is provided while others information are
not available and should be extracted from the available records. An incomplete record
situation is whereby, the accounting system falls short of the double entry which may
be due to Lack of records at all; or Insufficient records that will facilitate the preparation
of final accounts.

These missing figures are to be provided by applying the basic principles of double
entry, the records must be understood to enable correction of incomplete records into
complete records and presents the same in final statements

Reasons for incomplete records:

 Managers or owners may not have the skills or expertise in preparing and
maintaining an accounting system (records and procedures).
 It may not be economical for the business to maintain accounting records due to
the volume or/and nature of transactions (small scale businesses)
 Records are destroyed (e.g. through fire), stolen or misplaced.
 Lack of knowledge

There are 4 main approaches in preparing final accounts where there are insufficient
records.
 Estimating income from the net assets.
 Estimating income from the use of ratios.
 Use of a simple cashbook and bank statement.
 Use of control accounts.

Estimating Income from the Net Assets

Where the available records are so deficient (i.e. it is impossible to compile a
reasonable complete cash summary, the only method of estimating the profits or loss
for the period, is to prepare statement of affairs showing the net worth of the business
at the beginning and at the end of the period.

The profit/loss is estimated by use of the following formulas:

Profit or loss = – Opening +Drawings – Additional
Closing
C Capit Capital
apital al

Or where there are no non-current liabilities then this optional formula can be used
Profit or loss = - Opening + Drawings - Additional
Closing
Net Net Net Asset
Asset Asset

Illustration 6.1
A sole trader’s capital position is as follows:
31 December
2022 2023
Shs Shs
Motor vehicle:
Cost 7,500 7,500
Depreciation 3,000 4,500
4,500 3,000
Stock 2,960 3,450
Debtors 1,150 2,060

1
 Bank 925 2,125
Cash 263 54
9,798 10,689
Creditors 2,860 3,340
Net assets 6,938 7,349
He has estimated his drawings for 2023 at Shs 12,500. Estimate his net profit for the
year.

Solution:
Net profit = Closing - Opening + Drawings -
Additional
Net Asset Net Asset Net
Asset
= 7,349 – 6,938 + 12,500
= Shs 12,911

Use of Ratios
There are 3 important ratios to be looked at:
- Gross profit margin
- Mark up
- Stock turnover

If a firm has a uniform Gross Profit for all the items sold then any information available
on sales or purchases can be used to derive the total Gross Profit for the period and
incase there is sufficient information on expenses, then the Net Profit can also be
derived.

The above ratios are computed as follows:

1) Gross Profit Margin = Gross Profit x 100
Sales (selling price)

E.g. If the selling price of a unit is Shs 100 and Gross Profit made per unit is Shs
25, the Gross Profit Margin will be: = 25 x 100
100 = 25%

If a firm sells 1,000 units in a financial period, then the Gross Profit will be:
= 25% (Shs 100,000)
= Shs 25,000

2. Mark up = Gross Profit x 100

Cost of Sales (cost price per unit)

In the above example, the markup will be:

= 25 x 100
75 = 33.33%
N/B: 75 = 100 – 25

Cost = selling price – gross profit

3. Stock Turnover
Measures the rate at which a firm uses its stocks to make sales or turnover.
The formula is: = Cost of Sales
Average Stock expressed as number of times

Average stock = Opening Stock + Closing Stock

2

Illustration 6.2
PK sells his goods at 331/3% above costs, His stock as at 1 January and 31 December

2
2017 were Shs 5,000 and Shs 7,000 respectively. His stock turnover is 10 pa.
Prepare income statement for the year ending 31 December 2017
Solution
Average stock = Opening Stock + Closing Stock = 6000 + 7000
2 2 = Sh 6,000
Stock Turnover = Cost of Sales
Average Stock expressed as number of times
= Cost of Sales = Stock turnover x Average Stock
expressed as number of times
= 6,000 x 10
= Shs 60,000

Gross Profit Margin = 331/3 % 60000 = Shs 20,000

Use of Cashbook and Bank Statement (in addition) Control Accounts.

If there is sufficient information relating to cash payments and receipts, then a simple
cashbook for both cash in hand and cash at bank can be prepared in confirmation of
deposits and payments made from the bank statement.

The information can then be posted to the relevant accounts e.g. any income received
to the relevant income accounts, expenses to relevant expense accounts and assets
and liabilities to relevant accounts.

Information relating to amounts owed to suppliers/creditors and amounts due from

debtors can be posted in summary to the control accounts.

The preparation of the cashbook and control accounts will enable one to estimate any
cash sales or credit sales and cash purchases or credit purchases.

Statement of Affairs
Inorder to find out the opening capital, a statement of affairs is prepared. Total assets
and liabilities are taken into consideration and the difference between these two is
taken as capital at the start of accounting period.

The statement of affairs is a statement of the assets and liabilities ascertained from the
incomplete records and other source of information

The following should be taken into consideration

 The cash book should be balanced and the cash in hand and cash at bank verified
 The debtor and creditors should be prepared from the personal accounts
maintained from the ledgers
 Stock in trade should be taken and valued at cost or market price whichever is
lower
 The value of assets should be ascertained and depreciation charged if any.
 All expenses and incomes should be recognised including advance and accrued
income and expenses.

To be able to ascertain the profit and loss using the statement of affairs the following
should be considered
 Prepare the statement of affairs to determine the amount of capital and the opening
and closing capital
 Determine the drawings and add them back to the capital amount.
 Capital introduced during the year should be deducted from the capital at the end
 Capital at the beginning of the year should be deducted from the end of the year.

Illustration 6.3
P Black does not keep proper records of his business transactions but he gives the
following information as at 1st January 2015.

3
 Shs ‘000’
Balance at bank 550
Debtors 2,880
Creditors 1,970
Motor Vehicles 3,500
Accrued Expenses 150
Prepayments 50
Required:
Prepare the statement of affairs to find his capital as at 1 January 2015.

Solution
Balance as at Bank 550,000
Motor Vehicle 3,500,000
Debtors 2,880,000

Prepayments 50,000
7,020,000
Less: Liabilities
Creditors 1,970,000
Accrued Expenses 150,000 2,120,000
Capital as at 1st January 4,860,000

Reconstruction of Accounts
This is done by trying to find out the missing figures by reconstructing the control
accounts. These accounts are reconstructed by applying the principles of double entry
to the available information.

Creditors and Debtors control accounts are prepared to find out the figures of
purchases and sales, the cash and bank balance are constructed from the cash and
bank.

Illustration 6.4
K Kimani had the following asset and liabilities on the dates shown: as x indicate that
the amount has to be calculated
01.04.2019 31.03.2020
Premises 350,000 350,000
Furniture 60,000 53,000
Motor Car 18,000 x
Stock in Trade 62,800 74,300
Trade debtors 39,500 40,700
Trade Creditors 79,600 93,000
Loan from Equity Bank 120,000 x
Wages and Salary 9,200 7,500
Prepaid Rates 2,500 3.600
Rent Received Advance 4,000 6,800
Capital 363,800 x
He did not maintain his accounting records on a double entry system he however, kept
cash book with the discount columns and a file of invoices issued and received, the
summary of his cash transaction during the year ended 31 st March 2020 is given below;
Cash Summary
Shs Shs
Balances b/d 43,800 Trade Creditors 502,600
Trade Debtors 613,100 Cash Purchases 81,400
Cash Sales 213,600 Wages and 83,200
Salaries
Rent 62,000 Rates and 16,400
Insurance
Capital K Kimani 50,000 Transport 28,200
Bank Charges 1,500

4
 General Expenses 72,700
Loan Interest 6,000
Loan repayments 100,000
New Motor Car 30,000
Drawings 36,000
Balance c/d 24,500
982,50 982,500
0
The following additional information is available
 Discounts allowed during the year amounted to Shs 12,300 and discounts received
to Shs 13,600
 During the year Kimani took goods from the business costing Shs 5,000 for his
personal use without paying for them
 Motor Cars are subject to an annual depreciation of 20% on book value. The new
motor car was bought on 1st January 2020
Required
Provide income statement for the year ended 31.03.2020 and Statement of Financial
Position as at 31.03.2020

Solution
Working
Depreciation of Motor Vehicle
Old Motor Vehicle = 20% x 18000 = 3,600
New Motor Vehicle pa = 20% 30000 = 6,000
3months =6000 3x /12 = 1500
5,100

Motor Cars Accounts 12000 12000

Bal B/d 18000 P/L 5100 0 0
Cash 30000 Bal c/d 42900
account Capital Account
48000 48000 Drawings: 36000 Bal b/d 3638
Cash 00
Debtors Control Account Drawings: 5000 Cash acc 5000
Bal b/d 39500 Cash Rec 61310 Goods 0
0 Bal c/d 46170 Net Profit 8890
Credit 62660 Disc 12300 0 0
Sales 0 Allow 50270 5027
Bal c/d 40700 0 00
66610 66610
0 0
Wages and Salary Accounts
Creditor Control Accounts Cash Paid 83200 Bal b/d 9200
Cash Paid 50200 Bal b/d 79600 Bal c/d 7500 P/L acc 81500
0 90700 90700
Discount 13600 Purchase 52960
Rec 0 Rates and insurance
Bal c/d 93000 Accounts
60920 60920 Bal b/d 2500 P/L acc 15300
0 0 Cash paid 16400 Bal c/d 3600
18900 18900
Loan from Equity Bank Accounts
Cash Acc 10000 Bal b/d 12000 Rent Received
0 0 Accounts
Bal c/d 20000

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P/L acc 59200 Bal b/d 4000
Bal c/d 6800 Cash acc 62000
66000 66000
Income Statement for the year ended 31st March 2020
Sales: Credit Sales 626,600
Cash Sales 213,600
840,200
Less: Cost of Sales
Opening Stock 62,800
Purchase: Credit 529,600
Cash 81.400
611,000
Less: Drawings of goods 5,000 606,000
668,800
Less: Closing Stock 74,300 594,500
Gross Profit 245,700
Add: Discount Received 13,600
Rent Received 59,200
318,500
Less: Expenses
Discount Allowed 12,300
Wages and Salary 81,500
Rates and Insurance 15,300
Transport 28,200
Bank Charges 1,500
General Expenses 72,700
Loan interest 6,000
Depreciation: Motor Vehicles 5,100
Furniture 7,000 229,600
88,900

Statement of Financial Position as at 31 March 2020

Non-Current Asset Cost Acc Depr NBV
Premises 350,000 - 350,000
Motor Vehicle 48,000 5,100 42,900
Furniture 60,000 7,000 53,000
449,900
Current Assets
Stock 74,300
Debtors 40,700
Cash in Hand 24,500
Prepayment 3,600
143,100
Current Liabilities
Creditors 93,000
Advance Rent Received 6,800
Accrued Wages and Salary 7,500 107,300 35,800
481,700
Financed by
Capital 461,700
Loan from Equity Bank 20,000
481,700

Illustration 6.5
Hobbs does not keep proper books of account. You ascertain that his bank payments
and receipts during the year to 31 December 2018 were as follows:
Receipts Payments
Shs Shs
Balance 1 Jan 2018 572 Purchases 10,00
7

6
 Cheques for sales 13,179 Expenses 2,950
Cash banked 14,005 Drawings 11,25
0
Balance 31 Dec 2018 3,751 Delivery van 7,300
31,507 31,50
7
From a cash notebook you ascertain:
Shs
Cash in hand 1 January 20218 62
Cash takings 16,300
Purchases paid in cash 1,850
Expenses paid in cash 375
Cash in hand 31 December 2018 65
Drawings by proprietor in cash Unknown
You discover that assets and liabilities were as follows:
1 Jan 2018 31 Dec 2018
Shs Shs
Debtors 1,850 2,070
Trade creditors 1,250 1,420
Stock on hand 2,650 2,990
Depreciation on the van is to be provided at the rate of 20% per annum.
Required:
Prepare the final statements of Hobbs as at end of the period

Statement of Affairs as at 1 January 2018

Shs
Current Assets
Cash at bank 572
Cash in hand 62
Debtors 1,850
Stock 2,650
5,134
Current Liabilities
Creditors (1,250)
Net Assets 3,884

Capital 3,884

Sales Ledger Control Account

Shs Shs
Balance b/d 1,850 Cash Takings 16,300
Sales 29,699 Bank 13,179
Bal c/d 2,070
31,549 31,549

Purchases Ledger Control Account

Shs Shs
Cash purchases 1,850 Bal b/d 1,250
Bank 10,007 Purchases 12,027
13,277 13,277

Cash in Hand Account

Shs Shs
Balance b/d 62 Creditors 1,850
Debtors/sales 16,300 Expenses 375
Bank 14,005
Bal c/d 65

7
 Drawings 67
16,362 16,362

The capital invested at any point of time in a business by the owner is represented by
the difference between the assets and liabilities at that time. The difference between
the capital at the end and the capital at the beginning of the trading period represents
the trading profit made during that period, unless there were withdrawals or
investments of additional capital.

Hobbs
Income Statement for the year ending 31 December 2018
Shs Shs
Sales 29,699
Less cost of goods sold:
Opening stock 2,650
Add purchases 12,027
14,677
Less closing stock (2,990) 11,687
GROSS PROFIT 18,012
Less Expenses:
Expenses (375 + 2,950) 3,325
Depreciation 1,460 (4,785)
NET PROFIT 13,227

Hobbs
Statement of Financial Position as at 31 December 2018
Shs Shs Shs
Fixed Assets Cost Depreciati NBV
on
Delivery van 7,300 1,460 5,840
Current Assets
Stock 2,990
Debtors 2,070
Cash 65
5,125
Less current liabilities
Creditors 1,420
Bank overdraft 3,751 5,171
5,794
Financed by:
Capital 3,884
Add net profit 13,227
17,111
Less drawings (11,250 + 11,317
67)
5,794

Illustration 6.6
Kimeu commenced his business of making furniture on 1 April 2020. Due to his limited
accounting knowledge he has not maintained proper books of account. You have been
engaged to examine his records and prepare appropriate accounts there from. You
perform an examination of the records and from interviews with Kimeu you ascertain
the following information.
i. At the commencement of business on 1 April 2020, he deposited Sh 1,200,000 into
business bank account. On the same day he brought into the firm his pickup and
estimated that it was worth Sh 660,000 and then that from 1 April 2020 it will have
useful life of three years.
ii. To increase his working capital he borrowed Sh 400,000 at 15% interest per annum
on 1 July 2020 from his sister but no interest has yet been paid.

8
 iii. On 1 April 2020, Sally was employed as a clerk at a salary of Sh. 720,000 per
annum.
iv. He had drawn Sh 18,000 per week from the business account for private use during
the year.
v. He purchased timber worth Sh 1,960,000 out of which Sh 158,000 worth of stock
was retained in the workshop on 31 March 2021. He also spent Sh 960,000 on the
purchase of some equipment at the commencement of the business which he
estimates will last him five years.
vi. Electricity bills received up to 31 January 2021 were Sh 240,000. Bills for the
remaining two months were estimated to be Sh 48,000. Motor vehicle expenses
were Sh 182,000 while general expenses amounted to Sh 270,000 for the year.
Insurance premium for the year to 30 June 2021 was Sh 160,000. All these
expenses have been paid by cheque.
vii. Rates for the year to June 2021 were Sh 36,000 but these had not been paid.
viii. Sally sent out invoices to customers for Sh 6,178,000 but only Sh 5,080,000 had
been received by 31 March 2021. Debt totaling to Sh 17,000 were abandoned
during the year as bad. Other customers for jobs too small to invoice have paid Sh
726,000 in cash for work done of which Sh 560,000 was banked. Kimeu used Sh
75,000 of the difference to pay for his family’s foodstuff, bought Kenya Charity
Sweepstake tickets worth 24,000 and Sally used the rest on general expenses
except for Sh 30,100 which was left in the office on 31 March 2021.
You agree with Kimeu that he will pay you Sh 55,000 for accountancy fee.
Required:
Income Statement for the year ended 31 March 2021 and Statement of Financial
Position as at 31 March 2021.
Solution:
Cash book – Bank
Sh Sh
Capital 1,200,000 Salary 120,000
Loan 400,000 Drawings 936,000
Debtors 5,080,000 Timber 1,960,000
Cash 560,000 Equipment 960,000
Electricity 240,000
Motor vehicle expenses 182,000
General expenses 270,000
Insurance 160,000
Bal c/d 1,812,000
7,240,000 7,240,000

Capital
Sh Sh
Bank 1,200,000
Bal c/d 1,860,000 Pick up 660,000
1,860,000 1,860,000

Debtors
Sh Sh
Sales 6,178,0 Bank 5,080,000
00
Bad debts 17,000
Bal c/d 1,081,000
6,178,0 6,178,000
00

Cash book - cash in hand

Sh Sh
Sales 726,000 Bank 5,080,000
Drawings 17,000

9
 Drawings 1,081,000
General Expenses 36,900
Bal c/d 30,100
726,000 726,000

Loan = 400,000 x 15% x 45,000

interest 9/12
= 27,000
Rates 36,000x9/12 =
Accruals = Electricity bills = 48,000
Rates = 27,000
Agencyfees = 55,000
Loaniniiterest = 45,000
175,00
0
Kimeu
Income Statement For the year ended 31 March 2021
Sh Sh
Sales (cash + credit) Less expenses 6,904,000
Timber used (1,960,000 – 158,000) 1,802,000
Depreciation – motor vehicle 220,000
- Equipment 192,000
Loan interest 45,000
Salary 720,000
Electricity bills 288,000
Motor vehicle expenses 182,000
General expenses 306,900
Insurance premium 120,000
Rates 27,000
Bad debts 17,000
Accountancy fees 55,000 (3,974,900)
Net profit 2,929,100

Statement of Financial Position as at 31 March 2021

Non current Asset Sh Sh Sh
Equipment 960,000 192,000 768,000
Motor vehicle 660,000 220,000 440,000
1,620,000 412,000 1,208,000
Current Assets
Stock 158,000
Debtors 108,000
Insurance – prepayments 40,000
Cash at bank 181,200
Cash in hand 30,000
3,121,100
Less current liabilities
Accruals 175,000 2,946,100
4,154,100
Capital 1,860,000
Add net profit 2,929,100
4,789,100
Less drawings 1,035,000
3,754,100
Non current liability
Loan 15% 400,000
4,154,100

Illustration 6.7
Abi, a proprietor of a grocery and general store has not previously engaged an
accountant. He informs you that this year his bankers have insisted on a proper set of
accounts. Abi supplies you with his trading results for the year ended 30 June 2014
which are as follows:

10
 Sh Sh
Payments for goods 4,747,500 Takings 5,465,000
Payments for expenses 565,000
Profits 152,500
5,465,000 5,465,000
Abi instructs you to examine his records and prepare accounts. From your examination
of the records and interview with your client, you ascertain the following information:
1. The takings are kept in a drawer under the counter; at the end of each day the cash
is counted and recorded on a scrap of paper; at irregular intervals Mrs. Abi
transcribes the figures into a notebook; a batch of slips of paper was inadvertently
destroyed before the figures had been written into the notebook, but Mr. And Mrs.
Abi carefully estimated their takings for that period, and the estimated figure is
included in the total of Sh. 5,465,000.
2. Mr. Abi involved himself in betting for 30 weeks of the year, spending Sh. 500 per
week with cash taken from the drawer. His winnings totaled Sh. 29,500.
3. The following balances are ascertained as correct:
30 June 2014 2013
Sh Sh
Cash in hand 43,500 22,500
Balance at bank 109,500 78,000
Sales debtors 245,500 229,000
Creditors for purchases of stock 121,500 139,500
Stock at cost 950,000 975,000

4. Debts totaling Sh. 178,000 were abandoned during the year as bad; the takings
included Sh 12,500 recovered in respect of an old debt abandoned in the previous
year.
5. Mr. Abi rents the shop for living accommodation at Sh. 1,500 per week for 52 weeks
in a year; the rent is included in expenses of Sh 565,000. The living accommodation
comprises one-third of the building.
6. The total expenses also include:
 Sh. 17,500 running expenses of Abi’s private car;
 Sh. 30,000 for exterior decoration of the whole premises;
 Sh. 80,000 for alterations to the premises to enlarge the storage
accommodation.
7. Mr. Abi takes Sh. 5,000 per week from the business for his wife’s personal
expenses. This excludes the amount indicated in note 8.
8. Mr. Abi draws Sh. 750 per week for cigarettes and beer.
9. During the year, Mr. Abi bought a secondhand car (not for use in the business) from
a friend; the price agreed was Sh. 175,000, but as the friend owed Mr. Abi Sh.
33,500 for goods supplied from the business, the difference was settled by cheque.
10. An insurance policy for Mr. Abi’s life matured and realized Sh. 320,500.
11. Mr. Abi cashed a cheque for Sh. 50,000 for a friend; the cheque was dishonored and
the friend is repaying the Sh. 50,000 by installments. He had paid Sh. 20,000 by 30
June 2014.
12. Other private payments by cheque totaled Sh. 48,000 plus a further sum of Sh.
55,000 for income tax.
13. You are to provide Sh. 21,000 for accountancy fees.
14. All receipts and payments of Mr. Abi are made through his business account.
Required:
Mr. Abi’s balance sheet for the business at 30 June 2013.
Mr. Abi’s profit and loss account for the year ended 30 June 2014.
Mr. Abi’s balance sheet for the business at 30 June 2014

Suggested Solution:
Abi
Balance Sheet as at 30 June 2013
Current Assets Sh Sh
Stock 97,500
Debtors 229,000

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 Cash at bank 78,000
Cash in hand 22,500
1,304,500
Current liabilities
Creditors (139,500) 1,165,000
1,165,000
Capital 1,165,000
Cash at Bank
Sh Sh
Drawings – personal
Balance b/d 78,000 260,000
expense for wife
Sales ledger control Drawings – cigarettes and
12,500 39,000
a/c beer
Insurance
320,500 Expenses 565,000
(drawings)
Drawings 50,000 Drawings – second hand car 141,500
Drawings 20,000 Cash in hand 6,500
5,591,0
Debtors Drawings – friend 50,000
00
Creditors 4,747,500
Dishonored cheque –
50,000
drawings
Drawings 48,000
Income tax 55,000
Balance c/d 109,500
6,072,0
6,072,000
00

Cash in Hand
Sh Sh
Balance b/d 22,500 Drawings 15,000
Drawings – betting 12,500
Bank 6,500 Balance c/d 43,500
58,500 58,500

Sales Ledger Control A/c

Sh Sh
Balance b/d 229,000 Bad debts 178,000
Bad debts recovered 12,500 Bank 12,500
Credit sales 5,819,000 Drawings 33,500
Bank 5,591,000
Balance c/d 245,500
6,060,500 6,060,500

Purchases Ledger Control A/c

Sh Sh
Bank 4,747,500 Balance c/d 139,500
Balance c/d 121,500 Credit purchases 4,729,500
4,869,000 4,869,000

Expenses
Total Business Private
Rent 78,000 52,000 26,000
Motor running 17,500 - 17,500
expenses
Decoration 30,000 20,000 10,000
Alterations 80,000 80,000
Other expenses 359,500 359,500

12
 565,000 532,500 53,500

Abi
Trading Profit and Loss Account for the year ended 30 June 2014
Shs Shs
Sales 5,819,000
Less cost of sales
Opening stock 975,000
Purchases 4,729,500
5,704,500
Less closing stock 950,000 4,754,500
Gross profit 1,064,500
Less expenses
Rent 52,000
Decoration 20,000
Alterations 80,000
Other expenses 359,500
Bad debts 165,500
Accountancy fees 21,000 (698,000)
Net profit 366,500

Abi
Balance Sheet as at 30 June 2014
Cost Depreciation Book Value
Current Assets: Shs Shs Shs
Stock 950,000
Debtors 245,500
Cash at bank 109,500
Cash in hand 43,500
1,348,500
Current Liabilities
Creditors 121,500
Accruals 21,000 (142,500) 1,206,000
Capital 1,165,000
Add net profit 366,500
1,531,500
Less drawings (325,500)
1,206,000

Illustration 6.8
Araka Ltd., a company dealing in retail products, extracted from the following trial
balance as at 30 September 2015:
Sh. ‘000’ Sh. ‘000’
Freehold land: Cost 121,500
Buildings: 431,000
Accumulate depreciation 68,960
Plant and machinery: Cost 64,172
Accumulated depreciation 16,074
Sales 1,312,567
Purchases 839,004
Cash in hand 1,268
Creditors ledger control account 21,172
Electricity 6,917
Ordinary share capital 50,000
Cash at bank 1,210
Debtors ledger control account 61,074
Suspense account 4,300
Inventory as at 1 October 2014 41,912
Retained profits 296,057
Motor vehicle expenses 4,174

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 Sundry expenses 2,002
Salaries and wages 121,600
Directors remuneration 48,999
Bank charges 1,621
Motor vehicles: Cost 28,900
Accumulated depreciation 14,712
1,779,542 1,779,542
Additional information:
1. Provision for doubtful debts should be made at 2% of the debtors ledger balances
after writing of bad debts amounting to Sh 1,370,000.
2. The suspense account was analyzed as follows:
Sh. Sh.
Bad debts written off during the year ‘000’ ‘000’
512
Motor vehicle purchased on 1 April 2015 7,400
7,912
Less: motor vehicle sold on 1 April 2015 3,000
Amounts received in respect of a bad debt 612 (3,612)
recovered
4,300
3. The motor vehicle sold during the year had been purchased on 1 February 2012 for
Sh 6,500,000.
4. Bank statement as at 30 September 2015 showed bank charges of Sh 533,000. This
had not been recorded in the cash book.
5. The debtors’ ledger control account did not agree with the list of balances in
personal accounts. You ascertain that some invoices for October 2015 had been
posted in the personal accounts as at September 2015. The list of balances was
overstated by Sh 4,300,000.
6. Estimated corporation tax for the year ended 30 September 2015 was Sh
131,700,000.
7. The value of inventory as at 30 September 2015 was amounted to Sh 62,047,000.
8. The directors proposed to pay ordinary dividend of 10%.
9. The following petty cash expenditure had not been recorded:
Sh. ‘000’
Motor vehicle expenses 412
Sundry expenses 91
Casual workers’ wages 36
10. Depreciation is provided at the following rates: Buildings – 2% per annum on cost
11. Plant and machinery – 20% per annum on reducing balance basis. Motor vehicle –
25% per annum on cost
12. Full year’s depreciation is provided in the year of purchase and none in the year of
disposal.
Required:
Statement of comprehensive income for the year ended 30 September 2015.
Statement of financial position as at 30 September 2015

Solution
Araka Limited
Statement of Comprehensive Income
Sh. ‘000’ Sh. ‘000
Sales 1,312,567
Less cost of sales
Opening inventory 41,912
Purchases 839,004
880,916
Less closing inventory (62,047) (818,869)
Gross profit 493,698
Gain on disposal 1,375
Bad debt recovered 612

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 495,685
Expenses
Electricity 6,917
Motor expenses (4,174 + 412) 4,586
Sundry expenses (2,002 + 91) 2,093
Salaries and wages (121,600 + 36) 121,636
Directors’ remuneration 48,888
Bank charges (1,621 + 533) 2,154
Depreciation: Freehold building W3 8,620
Plant and machinery W3 9,620
Motor vehicle W3 7,450
Bad debts (1,370 + 512) 1,882
Provision for bad debts W2 1,194 (215,040)
Profit before tax 280,645
Corporation tax (131,700)
Profit after tax 148,945
Less proposed dividend (5,000)
Retained profit for the year 143,945
Retained profit b/f 296,057
Retained profit c/f 440,002

Araka Limited
Statement of financial position as at 30.9.2015
Sh. ‘000’ Sh. ‘000’ Sh. ‘000’
Non-current assets Cost Depreciation NBV
Freehold land 121,500 - 121,500
Freehold buildings 431,000 (77,580) 353,420
Plant and machinery 64,172 (25,694) 38,478
Motor vehicles 29,800 (17,287) 12,513
646,472 120,561 525,911
Current assets
Inventory 62,047
Accounts receivable (59,704 – 58,510
1,194)
Cash in hand [1,268 – (412 + 729
91+36)] N9
Cash at bank (1,210 – 533) N4 677
121,963
Current liabilities
Accounts payable 21,172
Tax payable 131,700
Proposed dividends 5,000 (157,872) (35,909)
490,002
Financed By
Ordinary share 50,000
Retained profits 440,002
490,002
Workings:
Gain on sale of motor vehicles
Dr. Disposal of vehicles A/c Cr
Shs Shs 000
000
Cost 6,500 Depreciation 4,875
Profit and loss 1,375 Bank 3,000
7,875 7,875

Depreciation = 6,500 x 25% x 3 years = Sh 4,875

Accounts receivable Sh. ‘000’
As per trial balance 61,074
Less bad debts W/o 1,370
General provision 2% x (61,074 – 1,370) 1,194 (2,564)

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 58,51
0

Depreciation of non-current assets

Sh. ‘000’
Freehold building
20% x 431,000 8,620
Plant and machinery
20% x[64,172 – 16,074] 9,620
Motor vehicles
25% [28,900 – 6,500 + 7,400] 7,450

Illustration 6.9
Dare is a grocer who had not kept a full set of books.
The following was a summary of his bank statement for the year ended 31 December
2016:
Shs Shs
Amounts credited by bank 32,050 Balance at 1 January 2016 892
Payments to trade creditors 27,380
Rent and rates 475
Fixtures 100
Lighting and heating 210
General expenses 800
Loan interest 120
Drawings 900
Customers’ cheques 180
dishonoured
Balance at 31 December 2016 993
32,050 32,050
You are given the following information:
1. Trading receipts consisted partly of cash and partly of cheques. During the year,
Dare had paid, out of his takings, wages for part-time staff amounting to Shs 2,914
and sundry expenditure of Shs 140. He retained between Shs 2 and Shs 5 per week
pocket money and maintained a balance of Shs 20 in the till for change. The
balance of his takings, together with cheques amounting to Shs 250, which he had
cashed out of his takings for the convenience of certain friends, was paid into the
bank.
2. Cheques drawn payable to trade creditors, but not presented at 1 January 2016,
amounted to Shs 280 and at 31December 2016 to Shs 320.
3. All dishonoured cheques were re-presented and honoured during the year.
4. The loan interest was paid to a close friend, Bryant, who had lent Dare Shs 4,000
some years ago at a nominal rate of interest of 3% per annum. The interest was
duly paid half-yearly on 31 March and 30 September, and the loan was still
outstanding at the end of the year.
5. Discounts allowed by trade creditors amounted to Shs 480 and those allowed to
debtors were Shs 520.
6. Other balances at 1 January and 31 December 2016 are given below:
1 31
January December
Shs Shs
Stocks 4,500 5,800
Trade debtors 2,800 3,200 (including a bad debt of Shs 200 to be
written off)
Accrued general expenses 240 190
Rates paid in advance 40 50
Fixtures valued at 2,800 2,550 (including those purchased during the
year)
Trade creditors 1,800 2,200

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 Creditors for heating and 80 70
lighting
7. There is a standard gross profit margin of 25% on sales.
You are required to prepare:
a. statement of Dare’s capital on 1 January 2016;
b. profit and loss account for the year ended 31 December 2016;
c. Balance sheet as on that date.

Solutions
a.
Dare
Statement of Capital as at 1 January 2016
Assets
Shs Shs
Stocks 4,500
Debtors 2,800
Rates prepaid 40
Fixtures 2,500
10,140
Liabilities
Bank overdraft (add unpresented
1,172
cheques)
Accrued expenses 240
Creditors 1,800
Loan 4,000
Accrued interest [4,000 x 3% x 3/12] 30
Heating and lighting 80 -7,322
2,818
b.
Dare
Profit and loss account for the year ended 31 December 2016
Shs Shs
Gross profit 9,000
Discounts received 480
9,480
Less expenses
Rent and rates 465
Fixtures and fittings (depreciation) 350
Lighting and heating 200
General expenses 450
Loan interest 120
Wages 2,914
Sundry expenses 140
Discounts allowed 520
Bad debt 200 (5,659)
Net profit 3,821
c
Dare
Balance Sheet as at 31 December 2016
Non current assets Shs Shs Shs
Fixtures and fittings 2,550
Current assets
Stocks 5,800
Debtors 3,000
Prepayments 50
Bank (less unpresented
673
cheques)
Cash 20
9,543

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Current liabilities
Creditors 2,200
Accruals _290 -2,490 7,053
9,603
Capital 2,818
Net profit 3,821
6,639
Less drawings -1,036
5,603
Non current liabilities
Loan – 3% 4,000
9,603

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