EXAMINATION NO.

____________________

2016 EXAMINATIONS
ACCOUNTING TECHNICIAN PROGRAMME
PAPER TC6: ACCOUNTING/2

MONDAY 6 JUNE 2016 TIME ALLOWED : 3 HOURS

9.00 AM – 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 are not allowed, unde r any circumstances, to open the answer book
and start writing or use your calculator during this reading time.

2. The number of questions on paper – 5

3. This paper is divided into two sections.

4. Section A – This ONE question is compulsory and MUST be attempted. The question
carries 40 marks.

5. Section B – Has FOUR questions each carrying 20 marks. Candidates should attempt
any THREE questions from this section.

6. Marks will be awarded for neat presentation and layout.

7. All workings must be shown.

8. Begin each answer on a fresh page.

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

INVIGILATOR.

This question paper contains 8 pages

This question paper must not be removed from the examination hall.
 SECTION A
This question is compulsory and MUST be attempted

1. The following trial balance has been extracted from the accounting records of
Maulana Ltd as at 31 March 2016:

K’000 K’000

Goodwill 12,000
Land and buildings at cost 345,000
Motor vehicles at cost 250,000
Furniture and fittings at cost 68,000
Computer equipment at cost 80,000
Accumulated amortisation 4,000
Accumulated depreciation- Land and buildings 49,000
Accumulated depreciation- Motor vehicles 45,000
Accumulated depreciation- Furniture and fittings 14,000
Accumulated depreciation-Computer equipment 18,500
Inventory 1 April 2015 14,233
Receivables 36,220
Bank and cash 2,462
Account payables 11,332
Sales 957,000
Purchases 509,425
Return inwards 4,472
Carriage inwards 13,448
Motor vehicle maintenance 37,510
Salaries and wages 96,620
Commission 29,275
Printing and Stationery 23,463
Insurance 88,400
Advertising and marketing 9,304
K100 Ordinary share capital 300,000
Share Premium 36,000
20% Preference shares 80,000
22% debentures 35,000
42% Bank loan 25,000
Retained earnings ______ 45,000
1,619,832 1,619,832

Additional information

(1) The board of directors approved a dividend payout for the year ended 31 March 2016
of K1.50 per share.

(2) The cost of land is K85,000,000.

Continued/......

Page 2 of 8
(3) Depreciation is provided as follows:

5% straight line on the cost of buildings

20% reducing balance on the cost of motor vehicles
10% straight line on the cost of furniture and fittings
30% reducing balance on the cost of computer equipment

(4) Goodwill consists of K8,000,000 purchased during takeover in 2014 and K4,000,000
which is deemed to have been internally generated since then and recognised on 31
March 2016 using the retained earnings account. Goodwill has a useful life of 4 years.

(5) Included in advertising and marketing is K1,930,000 for job vacancies in newspapers.

(6) Tax charge for the year ended 31 March 2016 was computed at K6,323,000.

(7) Motor vehicle expenses are apportioned at 30% to administration and 70% to sales
and distribution expenses.

(8) 75% of insurance expenses are for a motor vehicle policy.

(9) Stock as at 31 March 2016 was valued at K27,466,000.

(10) The loan was obtained on 1 January 2016.

Required:

(a) Prepare a statement of comprehensive income for Maulana Limited, for internal use,
for the year ended 31 March 2016. 23 Marks

(b) Prepare a statement of comprehensive income for Maulana Limited, for publication,
for the year ended 31 March 2016. 4 Marks

(c) Prepare a statement of financial position for Maulana Limited, for publication, as at
31 March 2016. 8 Marks

(d) Define the following terms as used in financial records of limited companies:

(i) Share premium 1 Mark

(ii) Goodwill 1 Mark
(iii) Retained earnings 1 Mark
(iv) Debentures 1 Mark
(v) Preference shares 1 Mark
(TOTAL : 40 MARKS)

Continued/......

Page 3 of 8
 SECTION B

THREE questions ONLY to be attempted from this section

2. Chowe Social Club was established on 1 April 2005 to promote the protection and
preservation of the environment. The following information relates to the social club :

(1) There was a total of 18 members as at 31 March 2016 of whom 6 held life
membership and the rest paid annual subscription fees.

(2) Life subscription fee is K600,000 payable on admission with an expected life
span of 15 years while annual subscription is K65,000 for those who are not
life members.

(3) The six remaining life members joined the club as follows:

3 at the time that the club was being established

2 on 1 April 2009
1 on 1 April 2013

(4) During the year ended 31 March 2016, a raffle draw was conducted in which
2,630 tickets were sold at K1,500 each. The grand prize was a tricycle which
was bought at K1,100,000 and other consolation prizes cost K350,000.
Advertising the raffle draw cost K150,000.

(5) Two life members and one non- life member died during the year ended 31
March 2016. The life members had joined the club on 1 April 2008 and the
non- life member on 1 April 2010. The non life member had been subscribing
annually since joining the club.

(6) Various balances from the club’s accounting records as at 31 March 2015
were as follows:
Dr Cr
K K
Land and building(NBV) 7,000,000
Motor vehicles (NBV) 4,500,000
Equipment (NBV) 1,300,000
Subscriptions in arrears 260,000
Subscriptions in advance 195,000
Bank 1,450,230

Continued/......

Page 4 of 8
(7) Balances of other accounts for the year ended 31 March 2016 were as follows:
K
Salaries and wages 1,800,000
Promotions 120,000
Rates 76,000
Maintenance 110,000
Subscription in arrears 325,000
Subscription in advance (130,000)
Bank 4,884,230

(8) The Club’s depreciation rates on reducing balance method were as follows:
Buildings 5%
Motor vehicles 25%
Equipment 20%

(9) The value of land is K2,000,000.

(j) The city rates paid included K30,000 for the half year period to 30 June
2016.

Required:

(a) Prepare an income and expenditure account for Chowe Social Club
for the year ended 31 March 2016. 13 Marks

(b) Prepare the statement of financial position for Chowe Social Club as at
31 March 2016. 7 Marks
(TOTAL : 20 MARKS)

Continued/......

Page 5 of 8
3. Mlare Limited issued 10,000 K100 ordinary shares in 2015 using the following
procedure:

1 October 2015: Applications for shares at K20 each were invited and 15,000
applications for 15,000 shares were received.

31 October 2015: Allotment of shares was done and each applicant was given two
thirds of their application. K25 was paid for each share allotted. Refunds were made
for all unsuccessful applications. Payment for 800 shares was not received and the
shares were forfeited immediately with no refund.

29 November 2015: At first call, K40 was paid for each share. Payment for 1,100
shares (including the 800 on allotment) was not received. Additional shares were
forfeited immediately with no refund.

22 December 2015: At second and final call, K35 was paid for each share (excluding
the 1,100 previously not paid for) including premium.

30 December 2015: Forfeited shares were reoffered to Fulabweka Enterprise at K105

each who made the payment the same day. Any differences on the total amount paid
per share were dealt with in the share premium account.

Required:

Prepare the following ledger accounts to show the effect of the share issue :

(a) Application account 2¼ Marks

(b) Allotment account 2 Marks
(c) First Call account 2 Marks
(d) Second and Final Call account 3¾ Marks
(e) Forfeiture account 2½ Marks
(f) Bank account 3½ Marks
(g) Ordinary Share Capital account 2½ Marks
(h) Share Premium account 1½ Marks
(TOTAL : 20 MARKS)

Continued/......

Page 6 of 8
4. (a) Explain five characteristics of a finance lease agreement. 10 Marks

(b) Makwana Trading acquired a fleet of 4 identical trucks from Stamfield Motors
under a finance lease arrangement that saw Makwana paying K18,450,000 at
the beginning of 2010 and K18,450,000 at the beginning of each of the next
three years (with the exact amount to settle outstanding balance with the
fourth payment). The implied interest rate for the finance lease is 30%. The
cash selling price of each truck was K13,000,000.

Required:

(i) Prepare a schedule showing the finance lease instalment payments, and
interest obligations that will be recorded in the books of Makwana
Trading. 6 Marks

(ii) Show the relevant extracts of statement of financial position items for
Makwana in the four years of the lease, assuming an estimated
economic life for the trucks of 5 years, depreciated using the straight
line method. 4 Marks
(TOTAL : 20 MARKS)

5. (a) Mkanamwano Produce is an enterprise that grows tea and breeds cattle. As at
31 May 2016, the entity had the following assets:

(1) 3 farm houses and a block of administration offices

(2) 25 bulls and 650 cows
(3) Tea growing in 35 hectares of land
(4) 100 tones of tea harvest in the warehouse
(5) Registered patent of Mkanamwano Tea

Required:

Identify and mention the class of assets applicable to each of the above items
and explain how each must be accounted for by mentioning the relevant
Accounting Standard. 10 Marks

Continued/......

Page 7 of 8
(b) Wamkulu Ltd paid K30,000,000 to acquire 3,000,000 shares in Njipiti Limited
as at 1 May 2013. The summarised statements of financial position for Njipiti
Ltd as at 1 May 2013 and 30 April 2016 were as follows:

2016 2013
K’000 K’000
Non-current assets 53,000 48,000
Current Assets 19,000 13,000
72,000 61,000
Financed by:
Ordinary K8 Share capital 32,000 32,000
18% Preference share capital 7,000 10,000
Retained earnings 18,000 5,000
Non-current liabilities 3,000 8,000
Current liabilities 12,000 6,000
72,000 61,000

Required:

Calculate the following:

(i) Wamkulu’s shareholding of Njipiti in percentage terms 2 Marks

(ii) Goodwill on acquisition 2 Marks

(iii) Wamkulu’s share of pre-acquisition reserves 2 Marks

(iv) Wamkulu’s share of post acquisition reserves 2 Marks

(v) Non Controlling Interest as at 30 April 2016 2 Marks

(TOTAL : 20 MARKS)

END

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