2 (a) Pachoto Limited is a family-controlled company which operates a chain of retail outlets specializing in motor spares and accessories.
Branch stocks are purchased by a centralised purchasing function in order to obtain the best terms from suppliers. A 10 per cent handling charge is applied by head office to the cost of the purchases, and branches are expected to add 25 per cent to the resulting figure to arrive at normal selling prices. Although branch managers are authorised to reduce normal prices in special situations, the effect of such reductions must be notified to head office.
On 1stApril, 2012, a new branch was established at Mwanza. The following details have been recorded for the year ending 31stMarch, 2013:
All records in respect of branch activities are maintained at the head office, and the branch profit margin is dealt with through a branch stock adjustment account.
From the information given above:
(i)Prepare the branch stock account at selling prices.
(ii)Prepare the branch stock adjustment account.
(iii)Prepare a statement which shows the stock difference.
(iv)List four possible reasons for the stock difference revealed when a physical stocking at the Mwanza branch on 31stMarch, 2013 showed stock valued at selling prices amounting to sh. 148, 500.
(b) An account clerk extracts a trial balance in the books of M Mjaliwa which fails to agree by sh. 70,700. He places the difference on the credit side in a suspense account and then proceeds to prepare draft income statement for the year ending 31stMay, 2012 which results in a net profit of sh. 50.000. Later he attempts to find the errors which had caused the difference. Investigations reveal the following:
1.Sales day book was undercast by sh. 100,000
2.Discount received of sh. 10,800 from Dandu supplies, has been correctly entered in the cash book but has not been posted to the account of Dandu supplies.
3.Purchases day book has been undercast by sh. 58,500.
4.Sh. 22,000 received from a debtor had been debited to his account.
5.Discount allowed, sh. 2,000 have been posted to the credit side of discounts received account.
6.The cost of new equipment sh. 120,000 had been debited to the repairs account.
Using the above details:
(i) Pass journal entries to correct the above errors. (ii) Prepare suspense account duly balanced.
3. A firm had the following balances on 1stJanuary, 2012.
Provision for bad debts
Provision for discount on debtors
Provision for discount on creditors
During the year bad debts amounted to sh. 20,000, discount allowed were sh.1,000 and discount received were sh. 2,000 During 2013 bad debts amounting to sh. 10,000 were written off while discount allowed and received were sh. 20,000 and sh. 5,000 respectively.
Total debtors on 31stDecember, 2012 were sh. 480,000 before writing off bad debts but after writing off discounts. On 31st December, 2013 the amount of debtors were sh. 190,000 after writing off the bad debts but before allowing discounts. Total creditors on these two dates were sh. 200,000 and 250,000 respectively.
It is the firm's policy to maintain a provision of 5% against bad and doubtful debts and 2% for discount on debtors and a provision of 3% for discount on creditors.
(b) On 1stApril, 2012 Komba Ltd purchased 10,000 ordinary shares of sh. 10 each fully paid in Mbawala Ltd at a cost of sh. 205,000. During the year the following transactions were made:
(i)On 1stSeptember, 2012 Mbawala Ltd declared and paid a dividend of 15% on its shares for the year ending 30thJune, 2012.
(ii)On 1stOctober, 2012 Mbawala Ltd gives its eight members the right to subscribe for one ordinary share for every eight held on 1stNovember, 2012, at a price of sh. 15 per share payable in full on application.
(iii)On 15thNovember, 2012 Komba Ltd purchased for sh. 4 per share the right of another shareholder in Mbawala Ltd to subscribe for 750 shares under the right issue.
(iv)On 30thNovember, 2012 Komba Ltd applied and paid for all the shares in Mbawala Ltd to which it was then entitled.
(v)On 8thSeptember, 2013 Mbawala Ltd declared and paid a dividend for the year ended 30thJune, 2013, of 15% on all ordinary shares including those issued in 2012.
(vi)On 1stOctober, 2013 Komba Ltd sold 4,500 ordinary shares in Mbawala Ltd for sh. 98,750.
(vii)The accounting year of Komba Ltd ends on 31stDecember.
(viii)Komba Ltd does not make apportionments of dividend received or receivable. When part of a holding of shares is sold, it is practice of this company to calculate the cost of the shares sold as an appropriate part of the average cost of all the shares held at the date of the sale.
From the information given above, show the investment account in the books of Komba Ltd for the years ending 31stDecember, 2012 and 2013 bringing down the balance at the end of each year.