EXAMINATION No.

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THE PUBLIC ACCOUNTANTS EXAMINATION

COUNCIL OF MALAWI

2011 EXAMINATIONS
CERTIF ICATE IN F INANCIAL ACCOUNTING
PROGRAMME

PAPER FA 4 : BUSINESS ACCOUNTING

WEDNESDAY 1 JUNE 2011 TIME ALLOWED: 3 HOURS
9.00AM - 12.00 NOON

INSTRUCTIONS

1. You are allowed 15 minutes reading time before the examination begins during which you should
read the question paper and, if you wish, make annotations on the question paper. However, you
will not be allowed, under any circumstances, to open the answer book and start writing or use
your calculator during this reading time.

2. Number of questions on paper – 7.

3. Answer FIVE question ONLY.

4. Each question carries 20 marks.

5. Marks will be awarded for neatness and layout. All workings forming part of your answers
should be shown.

6. Begin each answer on a fresh page.

7. This question paper must not be removed from the examination hall.

8. DO NOT OPEN THIS PAPER UNTIL YOU ARE INSTRUCTED BY THE

INVIGILATOR.

This question paper contains 6 pages

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1. ABJ Traders started the business of selling various merchandise in 2005 and have 30
September as their year end. The balances and results for the year ended 30 September 2010
were as follows:

K
Capital 600,000
Sales 900,000
Non-current assets 850,000
Accumulated depreciation 210,000
Inventories as at 1 October 2009 80,000
Purchases 480,000
Carriage inwards 25,000
Carriage outwards 30,000
Return inwards 20,000
Return outwards 15,000
Salaries 90,000
Rent 10,000
Electricity 5,000
Water 4,000
Bank charges 2,100
Motor expenses 24,000
Stationery expenses 14,000
Sundry expenses 8,000
Travel expenses 18,000
Repair of equipment 12,900
Receivables 57,000
Payables 40,000
Bank 18,000
Cash in hand 3,000
Drawings 14,000

Additional information:

(i) The balance for inventories as at 30 September 2010 was K84,000

(ii) Non-current assets comprise land, motor vehicles and office equipment
Cost(K) Depreciation (K)
Land 200,000 0
Motor vehicles 450,000 170,000
Equipment 200,000 40,000

Depreciation policy - Motor vehicles 20% straight line

Equipment 20% on reducing balance method

Continued/……
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(iii) Accrued expenses; Electricity 3,000

Water 1000

(iv) Prepaid motor expenses K4,000

(v) ABJ Traders have decided to make a provision for doubtful debts at 6% of closing
receivables balance.

Required:

(a) Prepare the Income Statement for the year to 30 September 2010. 12 Marks

(b) Prepare the Balance Sheet as at 30 September 2010. 8 Marks

(TOTAL: 20 MARKS)

2. Dziko Limited sells wrist watches. Its inventories record for the month of October 2010 was
as follows:

1 October Balance brought forward 70 units at K700 each

2 October Sold 10 units at K1,200 each
5 October Sold 40 units at K1,200 each
10 October Purchased 50 units at K750 each
15 October Purchased 30 units at K820 each
20 October Sold 90 units at K1,200 each
25 October Purchased 40 units at K800 each
30 October Sold 20 units at K1,200 each

Required:

(a) Outline any three advantages of using the First-In-First-Out (FIFO) method of
inventory valuation. 3 Marks

(b) From the information provided above, compute the value of closing inventories using
the FIFO method. 12 Marks

(c) Prepare the Trading Account for the month of October 2010. 5 Marks
(TOTAL : 20 MARKS)

Continued/……
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3. Ulanda Trading operates a chain of retail shops and has 31 October as its financial year
end. The schedule for its non-current asset for the year to 31 October 2009 was as
follows:

Land and Vehicles Office Furniture Total

buildings equipment
K’000 K’000 K 000 K’000 K’000
Cost
Balance b/f 1,200 800 900 700 3,600
Additions 400 200 - 600
Disposals -_ (300) (400) (100) (800)
1,200 900 700 600 3,400

Depreciation
Balance b/f 90 400 300 120 910
Charge 18 180 170 60 428
Disposals - (200) (250) (70) (520)
108 380 220 110 818

Net book value 1,192 520 480 490 2,582

The following information relates to the year ended 31 October 2010.

Land and buildings A fence costing K200,000 was built around one of the shops.
Depreciation is provided at 2% on cost. Of the K1.2 million
brought forward, K900,000 was the value of buildings and the
remainder was for the land.

Vehicles Two new delivery vans were acquired at a cost of K400,000 each.
An old delivery van with an original cost of K250,000 was
involved in an accident and has been declared by insurers as a
write-off and they have promised to process a refund of K90,000.
Accumulated depreciation for this van was K180,000.
Depreciation is provided at 20% of cost.

Equipment Three new computers were acquired at a cost of K40,000 each. Old
equipment with an original cost of K200,000 (K160,000 net book
value) were sold for K55,000. Depreciation is provided at 20% on
reducing balance.

Furniture & fittings New shop fittings were acquired during the year costing K180,000.
There were no disposals and depreciation is provided at 20% on
reducing balance.
Continued/……
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Required:
(a) Prepare a non-current asset schedule using the same format as that for the 31
October 2009 for the year to 31 October 2010. 18 Marks

(b) Define the term ‘residual value’ in relation to accounting for non-current assets.
2 Marks
(TOTAL: 20 MARKS)

4. Financial information assists various users in making decisions relating to the business
performance and position.

(a) Identify any five users of financial information and state the kind of information
that they will be interested in and the type of financial statement where they will
find such information. 15 Marks

(b) Mention five qualitative characteristics of financial information. 5 Marks

(TOTAL:20 MARKS)

5. Masula Village was given a Malambe juice making machine under the ‘One Village, One
Product’ project and has been making Malambe juice called ‘Kathi’ for the past three
years.

The production of Kathi passes through three production stages and the information
relating to the final stage, for the month of September 2010, was as follows:

Input from process 2 3,000 litres at K6/ litre

Labour 600 hours at K10/hr
Overheads based on 90% of labour costs
Normal loss 10% of input units
Output for September 2,800 litres

Required:
(a) Prepare the process 3 account for the month of September 2010. 8 Marks

(b) At 1 September 2010, there were no opening units of juice and during the month
of September 2,400 litres of Malambe juice were sold at K25 per litre.

Required:

Prepare the trading account for the month of September 2010. 4 Marks
(c) Prepare the abnormal gain/loss account, assuming the scrap product is sold at K4
per litre. 3 Marks

Continued/……
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(d) With examples, differentiate a joint product from a by-product and outline the
accounting treatment for each. 5 Marks
(TOTAL: 20 MARKS)
6. The bank statement for Dzuwa Limited for the month of August 2010 was as follows:
Dr Cr Balance
K K K
1 Aug Balance b/f 48,000 cr
2 Aug Cash banked 22,000 70,000 cr
5 Aug Rent 15,000 55,000 cr
7 Aug Creditor – M Mbewe 20,000 35,000 cr
10 Aug Electricity 4,000 31,000 cr
11 Aug Bank Charges 1,000 30,000 cr
14 Aug Direct credit 18,000 48,000 cr
14 Aug Telephone 3,000 45,000 cr
15 Aug Creditor – J Banda 12,000 33,000 cr
19 Aug Direct debit – H Phiri 19,000 14,000 cr
20 Aug Sky Ltd – Cheque 15,000 29,000 cr
20 Aug Cash banked 35,000 64,000 cr
24 Aug Salaries 52,000 12,000 cr
24 Aug Dishonored cheque – Sky Ltd15,000 3,000 dr
25 Aug Creditor – M Mbewe 12,600 15,600 dr
30 Aug Bank overdraft interest 400 16,000 cr
Cash book
K K
1 Aug Balance b/f 48,000 5 Aug Rent 15,000
2 Aug Cash 22,000 7 Aug Creditor – M Mbewe 20,000
20 Aug Cash 35,000 10 Aug Electricity 4,000
20 Aug Sky Ltd 15,000 14 Aug Telephone 3,000
30 Aug Cash 48,000 15 Aug Creditor – J Banda 12,000
22 Aug Creditor – H Jonasi 15,000
24 Aug Salaries 52,000
26 Aug Creditor – J Banda 10,000
28 Aug Creditor – M Mbewe 12,600
31 Aug Balance c/d 24,400
168,000 168,000

Required:
(a) Prepare the updated cash book for the month of August 2010. 6 Marks
Continued/……
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(b) Prepare the bank reconciliation statement for the month of August 2010. 4 Marks

(c) Mention any five items which may appear on the bank statement but not in the
cash book. 5 Marks

(d) Outline any five controls which a cashier should ensure in relation to handling of
cash sales. 5 Marks
(TOTAL: 20 MARKS)
7. An accountant for Zathu Estate has resigned and the owner of the farm has heard that you
are a student studying for the Certificate in Financial Accounting and would like you to
assist him in updating his books of accounts.

Required:

Prepare journal entries, without narratives, for the following transactions:

(a) A computer worth K70,000 bought by the owner has been transferred into the
business. 2 Marks

(b) Goods worth K24,000 returned to the business by a credit customer J Gunde.
2 Marks
(c) One credit customer – V Manda passed away before settling his account
amounting to K18,000. 2 Marks

(d) Estate equipment costing K50,000 (Net book value of K24,000) was stolen and
the insurers have paid in a cheque for K42,000 as compensation. 6 Marks

(e) Farm produce worth K12,000 was taken for home consumption by the owner.
2 Marks
(f) Electricity amounting to K17,000 has not been settled. 2 Marks

(g) The farm paid K48,000 as licence to the Ministry of Agriculture but this amount
relates to licence fees for the next financial year. 2 Marks

(h) Depreciation for the farm van was computed as K35,000. 2 Marks
(TOTAL: 20 MARKS)

END