Free Financial Accounting 2 revision

Free Financial Accounting 2 Revision

ATD Level 2

Free Financial Accounting 2 revision questions & answers

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ATD 2

Free Financial Accounting revision questions & answers-ATD 2

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Category: ATD 2-Financial Accounting

1. TRUE OR FALSE: The fair value accounting treatment is used for all financial instruments that are intended to be held for sale and not to maintain ownership, whereas the Equity method is used for either joint ventures or significant influence investments.

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Category: ATD 2-Financial Accounting

2. The IAS 2 provided 3 main methods measuring inventory. Which  inventory valuation method tracks every single item in an inventory individually from the time it enters the inventory until the time it leaves it?

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Category: ATD 2-Financial Accounting

3. The three critical attributes intangible asset (IAS 38) are___________

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Category: ATD 2-Financial Accounting

4. The following balances were extracted from the records of Makande a sole trader as at 31 December:

Business transactions

Additional information
i. On 30 September 2021, Makande repaid part of the loan by cheque of kshs 6 million.
ii. Total discount allowed and discount received amounted to kshs 960,000 and kshs 900,000 respectively. Bad debts written -off during the year amounted to kshs 240,000.
iii. Total sales amounted to kshs 360 million, while purchases amounted to kshs 253.2 million. There were no cash sales nor cash purchases.
iv. The following expenses were paid by cheque during the year:

Accruals and prepayments

v. Makande makes a uniform gross profit to cost of sales of 2/3 every year.
vi. Makande did not maintain record on cash withdrawn from the bank for personal use, so the deficit in bank is due to personal drawings.
Required
a. Income statement for the year ended 31 December 2021.
b. Statement of financial position as at 31 December 2021.

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Category: ATD 2-Financial Accounting

5. Malozi, Maloki and Mathayo are partners in the business of selling motorcycles. The trial balance given below was extracted from the books of the partnership as at 31/12/2021.

Trial balance

Additional information
i. Depreciation is to be provided as follows:

Depreciation rates

ii. Included in the value of land and buildings is kshs 9 million which is the cost of land. For the purpose of admission of Mathayo land was revalued to kshs 13.5 million.
iii. Prior to his admission as a partner on 01/07/2021, Maloki was the Sales Manager earning a salary of kshs 45,000 per month (included in salaries).
iv. Mathayo was admitted on 01/07/2021 under the following arrangement:
• To introduce capital of kshs 9 million.
• New profit and loss sharing ratios of 3:2:2 for Malozi, Maloki and Mathayo respectively from 01/07/2021.
• Before the admission of Mathayo,Malozi & Maloki were sharing profits and losses equally. Mathayo was to bring in a goodwill of kshs 1,575,000 (no entry or adjustment for the goodwill has been made yet). Partners agreed to write off this goodwill.
v. The partners are entitled to:
• Interest of 8% per annum on capital balances
• Salaries -Malozi-kshs 68,000 and Maloki-kshs 45,000 per month.
vi. Inventory as at 31/12/2021 was valued at kshs 1,890,000.
vii. The expenses and revenues accrued evenly throughout the year.

Required
Partners income statement and appropriation account for the year ended 31 December 2021.

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Category: ATD 2-Financial Accounting

6. Tigoni ltd had the following trial balance as at 30/09/2021:

Trial balance

Additional information
i. Establishment of expenses prepaid as at 30/09/2021 amounted to kshs 252,000.
ii. Administration expenses accrued as at 30/09/2021 amounted to kshs 441,000.
iii. The company paid the interest on loan stock for the year ended 30/09/2021 and on 5/10/20121.
iv. The trade receivables included kshs 1,260,000 from a debtor who has now been declared bankrupt.
v. Depreciation is provided annually on the cost of non-current assets held at the end of the year as follows:

Depreciation rates

vi. The company’s directors propose that:
• The preference share dividend be paid.
• A dividend of 12.5% on ordinary shares be paid.
• Kshs 15,750,000 be transferred to general reserves.
vii. The provision of doubtful debts is to be adjusted to 6% of trade receivables at 30/09/2021.
viii. Gross profit is at rate of 20% of sales.

Required
a. Income statement for the year ended 30/09/2021.
b. Statement of financial position as at 30/09/2021.

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Category: ATD 2-Financial Accounting

7. TRUE OR FALSE: Non-Cumulative preferred stock is more attractive to investors than cumulative.

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Category: ATD 2-Financial Accounting

8. The ______cost calculates the direct costs of raw materials and labor that are involved in the production of a good.

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Category: ATD 2-Financial Accounting

9. The following trial balance was extracted from the books of White Rhino limited, an Iron sheet manufacturing company as at 30/04/2021.

Trial balance

Additional information
i. As at 30/04/2021 accrued factory wages and office salaries amounted to kshs 6,792,000m and kshs 1,019,000 respectively.
ii. On January 2015, the company paid kshs 5,094,000 being rent for the period 01.01.2021 to 31.12.2021.
iii. Depreciation is provided as follows:

Depreciation rates

iv. The office expenses are to be apportioned between the factory and the office in the ratios indicated below:

Cost apportionment

v. Inventories were values as follows:

inventory

vi. With effect from 01/05/2020, the directors introduced a policy of charging factory profit at a rate of 20% on manufacturing cost.
vii. The directors have proposed a 12% final dividend.
viii. The corporate tax rate is at 30%

Required

Manufacturing and income statement for the year ending 30 April 2021

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Category: ATD 2-Financial Accounting

10. Suleiman has an expected life of 20 years in Zadari Golf club ,and he pays a life membership fee amounting to kshs 200,000 in full. Record this transaction in the life membership fund a/c for years 1 & 2.

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Category: ATD 2-Financial Accounting

11. TRUE OR FALSE: A nominal account starts the next fiscal year with a zero balance, whereas a real account starts with the ending balance from the prior period

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Category: ATD 2-Financial Accounting

The following information has been extracted from the books of Fashari limited as at 31 December 2021
12. Income statement for the year ended 31 December

Income statement

Statement of financial position as at 31 December

Statement of Financial position

i. The taxation balances shown above are agreed with the revenue department.
ii. During the year ended 31 December 2021, non-current assets originally costing kshs 34.1 million were sold for kshs 6.2 million. The accumulated depreciation on these assets as at the date of disposal was kshs 25.56 million.

Required
Statement of cash flows for the year ended 31 December 2021 using the indirect method in accordance with the requirements of IAS 5 (Statement of Cash Flows).

 

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Category: ATD 2-Financial Accounting

13. a)________ratios, also known as activity financial ratios, are used to measure how well a company is utilizing its assets and resources, whereas (b)____________ measure the amount of capital that comes from debt.

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Category: ATD 2-Financial Accounting

14. The following trial balance was extracted from the books of account of Talima, a sole proprietor bases in Mombasa as at 30 September 2021:

Trial balance

Additional information
i. During the year, goods costing kshs 17 million were destroyed by fire. However, the insurance company has accepted a claim for kshs 13.6 million only. No record was made in respect of this transaction.
ii. The following information relates to the firm as at 30 September 2021:

Accruals and prepayments

iii. A debtor had returned goods on 29 September 2021 amounting to kshs 6.8 million. Bosi sells goods at a uniform profit margin of 30%. Thus, transaction was totally omitted from the books of account and the goods returned were not included in the closing inventory in note (i) above.
iv. Provision for depreciation should be provided as follows:

Depreciation rates

v. Allowance for doubtful debts is to be maintained at kshs 7.5 % of the accounts receivable.

Required
a. Income statement for the year ended 30 September 2021.
b. Statement of financial position as at 30 September 2021.

 

 

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Category: ATD 2-Financial Accounting

15. Lukasa, owns a store located in Kisumu, but does not observe the double entry-rule of book-keeping.The following balances were extracted from her books as at 31 October 2020:

Business transactions

i. Sales and purchases were all on credit and amounted to kshs 116,480,000 and kshs 1106,400,000 respectively.
ii. Accrued electricity expenses as at 31 October 2021 amounted to kshs 1,064,000
iii. The following transactions were processed through the bank account:

Bank transactions

iv. The business makes a normal gross profit margin of 30% on selling price.
v. Motor vehicles are depreciated at the rate of 20% per annum on a reducing balance basis. A full year’s depreciation was provided on a motor vehicle disposed of in the course of the year. The motor vehicle had had been bought at kshs 14 million and had an accumulated depreciation of kshs 6,682,000 at the time of disposal.
vi. Discount received and discounts allowed amounted to kshs 2,224,000 and kshs 3,920,000 respectively
vii. Furniture is depreciated at the rate of 10% per annum on cost effective from the date of purchase. The additional furniture was purchased on 1 May 2021 while the cost of the furniture at the beginning of the year was kshs 22.4 million.
viii. Bad debts of kshs 1,120,000 were written off. The allowance for doubtful debts is to be maintained at 5% of the trade receivables at the end of the financial year
Required
a. Income statement for the year ended 31 October 2021
b. Statement of financial position as at 31 October 2021

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