Module 10 Practical assignment

Question one
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.

1. 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.
2. 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.
3. On 1 April 2020, Sally was employed as a clerk at a salary of Sh. 720,000 per annum.
4. He had drawn Sh 18,000 per week from the business account for private use during the year.
5. 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.
6. 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.
7. Rates for the year to June 2021 were Sh 36,000 but these had not been paid.
8. 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.
9. You agree with Kimeu that he will pay you Sh 55,000 for accountancy fee.

Required:
(a) Profit and loss account for the year ended 31 March 2021.
(b) Balance sheet 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 182,000
expenses
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 6,178,000 Bank 5,080,000
Bad debts 17,000
________ Bal c/d 1,081,000
6,178,000 6,178,000

Cash book - cash in hand

Sh Sh
Sales 726,000 Bank 5,080,000
Drawings 17,000
Drawings 1,081,000
General Expenses 36,900
______ Bal c/d 30,100
726,000 726,000

Loan interest = 400,000 x 15% x 9/12

Rates = 36,000 x 9/12 = 27,000

Accruals = Electricity bills = 48,000

Rates = 27,000
Agency fees = 55,000
Loan interest = 45,000
175,000
 Kimeu
Profit and Loss Account For the year ended 31 March 2021
Sh Sh
Sales (cash + credit) 6,904,000
Less expenses
Timber used (1,960,000 – 1,802,000
158,000)
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

Kimeu
Balance Sheet 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 liKedenkolities
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 liKedenkolity
Loan 15% 400,000
4,154,100
Question two
Kedenko, 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. Kedenko
supplies you with his trading results for the year ended 30 June 2021 which are as follows:

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

Kedenko 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. Kedenko 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. Kedenko carefully estimated
their takings for that period, and the estimated figure is included in the total of Sh.
5,465,000.
2. Mr. Kedenko 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
2021 2020
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. Kedenko 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 Kedenko’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. Kedenko 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. Kedenko draws Sh. 750 per week for cigarettes and beer.
9. During the year, Mr. Kedenko 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. Kedenko Sh. 33,500 for
goods supplied from the business, the difference was settled by cheque.
10. An insurance policy for Mr. Kedenko’s life matured and realized Sh. 320,500.
11. Mr. Kedenko 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
2021.
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.
NB: All receipts and payments of Mr. Kedenko are made through his business account.
Required:
(a) Mr. Kedenko’s statement of financial position for the business as at 30 June 2020.
(b) Mr. Kedenko’s statement of incomes for the year ended 30 June 2021.
(c) Mr. Kedenko’s statement of financial position for the business at 30 June 2021.

Solution:
Kedenko
Balance Sheet as at 30 June 2020

Current Assets Sh Sh
Stock 97,500
Debtors 229,000
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
Balance b/d 78,000 Drawings – personal expense for 260,000
wife
Sales ledger control a/c 12,500 Drawings – cigarettes and beer 39,000
Insurance (drawings) 320,500 Expenses 565,000
Drawings 50,000 Drawings – second hand car 141,500
Drawings 20,000 Cash in hand 6,500
Debtors 5,591,000 Drawings – friend 50,000
Creditors 4,747,500
Dishonored cheque – drawings 50,000
Drawings 48,000
Income tax 55,000
________ Balance c/d 109,500
6,072,000 6,072,000
 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 expenses 17,500 - 17,500
Decoration 30,000 20,000 10,000
Alterations 80,000 80,000
Other expenses 359,500 359,500 _____
565,000 532,500 53,500

Kedenko
Trading Profit and Loss Account for the year ended 30 June 2021
Sales 5,819,000
Less cost of sales
Opening stock 975,000
Purchases 4,729,500
57,040,500
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

Kedenko
Balance Sheet as at 30 June 2021
Cost Depreciation Book Value
Current Assets:
Stock 950,000
Debtors 245,500
Cash at bank 109,500
Cash in hand 43,500
1,348,500
Current LiKedenkolities
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