December 2010 TC6A

STRICTLY CONFIDENTIAL
THE PUBLIC ACCOUNTANTS EXAMINATION

COUNCIL OF MALAWI
2010 EXAMINATIONS
ACCOUNTING TECHNICIAN PROGRAMME
PAPER TC 6: ACCOUNTING/2
(DECEMBER 2010 )
TIME ALLOWED : 3 HOURS
SUGGESTED SOLUTIONS
1
1.
(a)
Gross margin gross profit/sales (22,400,000 15,920,000)/22,400,000

28.9%
Return on capital employed - profit before interest and taxation/Equity and liabilities
(970,000 + 120,000 + 10,000)/7,200,000
15.3%
Current ratio total current assets/total current liabilities 3,900,000/1,910,000 2.04
Asset turnover turnover/total asset
22,400,000/7,200,000
3.11
Inventory turnover cost of sales/average inventory
15,920,000/1,260,000 12.63
Gearing ratio total long term liabilities/total funds
1,200,000/5,290,000 22.7%
(b)
The companys gross profit margin is 28.9% as against the industry 30% - therefore performing
below the industry average.
The companys current ratio is 2.04 against the industrys 2 therefore performing slightly better
than the industry.
The companys gearing ratio is 22.7% against the industrys 25% - therefore performing better than
the industry.
(c)
Differences in accounting methods between companies

Differences in financial and business risk profile of companies being compared
Differences in management.
)
2.
Partnership dissolution
(a)
Land & bu ild ings
Motor vehicles
Fixtures and fittings
Inventories
Accounts receivables
Dissolution costs
(b)
(i)
Ch imo mbo
Current account
Land & bu ild ings
Motor vehicle
Realisation a/c
Bank a/c
700,000
800,000
39,800
1,539,800
(ii)
Balance b/f
Inventories
Chimo mbo
Realisation A/C
600,000
Chimo mbo
Land & build ings
700,000
800,000
Motor vehicles
800,000
180,000
Discount on payables (1% x 100000) 1,000
80,000
Inventories cash
72,000
60,000
60,000
12,500
Chimo mbo (2/ 5 x 99500)
39,800
________
Chapola
(3/5 x 99500)
59,700
1,732,500
1,732,500
Capital Accounts
Chapola
Balance b/f
60,000
Current account
59,700
380,300
500,000
Chimo mbo Chapola

1,000,000 500,000
200,000
339,800
1,539,800 500,000
Ban k A/C
20,000
Accounts payables (99%x100000) 99,000
72,000
60,000
Capital A/C - Chapola
380,300
339,800
Realisation dissolution costs
12,500
491,800
491,800
2
(c)
3.
Disadvantages of partnership over sole trader

(i)
The profits have to be shared among all the partners.
(ii)
You do not have as much control over the business as there are a number of
owners. All of the partners will want to have a say in important decisions
and this may lead to you being overruled.
(iii)
Deeds of partnership have to be written if a partner leaves or dies, which can

take a lot of time and cost money.
(i v)
There can be disagreements between the partners. This can cause major
difficult ies as partners are bound by any commit ments made by a single
partner, even if they did not agree to it.
Head Office and Branch Income Statement for the year ended 31 Ju ly 2009
Sales
Goods sent to branch
Opening inventories
Goods received by branch
Purchases
Closing inventories
(135,600+100/ 125 x 10,000)
Head Office
K
1,680,000
740,000
2,420,000
Branch
K
880,000
______
880,000
16,000
32,000
730,000
1,820,000
(143,600)
1,692,400
(120,000)
642,000
Gross profit
727,600
238,000
Expenses
Provision for unrealized profit
(25/125x10,000-6,400)
Distribution expenses
Admin istration expenses
Depreciat ion (20% x (600,000 240,000)
Provision for doubtful debts
(2% x 100,000)
(4,400)
160,000
400,000
72,000 (20% x (160,000 48,000)
Net profit
Profit transfer
2,500 (2% x 80,000)

630,100
97,500
73,600
171,100
50,000
90,000
22,400
2,000
164,400
73,600
(73,600)
0
(b)
Statement of financial position as at 31 July 2009
Non-current assets
Head office
Branch
Costs
600,000 (240,000+72,000)
160,000 (48,000 + 22,400)
760,000
Depreciat ion
K
312,000
70,400
382,400
Current assets
Inventories (208000+100/ 125 x 12,000)
Accounts receivables (100000+80000-2500-2000)
Cash and bank (40,000 + 30,000 + 8,000)
Net Boo k Value

K
288,000
89,600
377,600
304,000
175,500
78,000
_______
557,500
Current Liabilities
Accounts payables
Working capital
80,000
477,500
855,100
Financed by
Capital
Less: drawings
Profit and loss
4.
773,600
(89,600)
171,100
855,100
(a)
(i)
Bank a/c
Ordinary share capital (500000x0.60)
(ii)
Balance b/f
Applicant a/c
Share allot ment
Balance b/d
Share Applicant Account

6,000
Bank a/c (60%x1x510,000)
300,000
306,000
Bank Account
1,234,000
306,000
Applicant a/c (60%x1x10,000)
4,700,000
Balance c/d
6,240,000
6,234,000
(iii)
Share Allot ment Account
Ordinary share capital (500000xK0.4)
200,000
500000 shares at (K10-0.6) 9.40
Share premiu m a/c (500000 x K9)
4,500,000
4,700,000
(iv)
Balance c/d
(v)
Balance c/d
Ordinary Share Capital a/c

Balance b/f
(250,000 x 1)
750,000
Share applicants
_______
Share allot ment a/c
750,000
Balance b/d
306,000
______ _
306,000
6,000
6,234,000
6,240,000
4,700,000
________ __
4,700,000
250,000
300,000
200,000
750,000
750,0003_
Share premiu m a/c

Balance b/f
(250,000 x(7.50-1) = 6.50) 1,625,000
6,125,000
Share allot ment a/c
4,500,000
6,125,000
6,125,000
Balance b/d
6,125 ,000
4
(b)
Authorised and paid up capital
(500000+250000)
(c)
Extract of statement of financial position after issue
750,000
750,000 K1 ord inary share capital

Share premiu m
Profit and loss
750,000
6,125,000
2,345,673
9,220,673
Current assets
Cash and bank
6,234,000
(d)
Types of registers
Shareholder reg ister
Directors register
Debenture register etc
5.
(a)
Information in the fixed asset register

Date of purchase of the asset
Type of the asset
Depreciat ion rate
Location of the asset
Fixed asset code
Allocation of asset etc
(b)
Non-current asset schedule

(i)
Land &
build ings
10,600,000
1,100,000
________
11,700,000
Plant &
Machinery
5,250,000
Motor
vehicles
6,200,000
750,000
4,500,000
________
6,200,000
Total
22,050,000
1,100,000
750,000
22,400,000
Accum depn 31/ 12/2008

Charge for the year
Disposal
Accm depn 31/12/2009
2,600,000
280,000
________
2,880,000
960,000
450,000
150,000
1,260,000
2,800,000
1,550,000
________
4,350,000
6,360,000
2,280,000
150,000
8,490,000
Net book value 31/ 12/ 08

Net book value 31/ 12/ 09
8,000,000
8,820,000
4,290,000
3,240,000
3,400,000
1,850,000
15,690,000
13,910,000
Cost 31/ 12/ 2008

Additions
Disposal
Cost 31/ 12/ 2009
Workings
Charge for year
Buildings
(11,700,000 5,000,000 1,100,000) x 5%
Plant & machinery
(4,500,000 x 10%)
Motor vehicles
(6,200,000 x 25%)
Disposal depreciation
Plant & machinery
(750,000 x 10% x 2)
280,000
450,000
1,550,000
(150,000)
5
(ii)
Buildings
Bank/supplier
Dr
1,100,000
1,100,000
Depreciat ion buildings P&L

Accumulated depreciation build ings
280,000
Depreciat ion plant and machinery P&L

Accumulated depreciation plant and machinery
450,000
Disposals
Plant & machinery
750,000
Bank a/c
Disposals
550,000
Accumulated depreciation plant & machinery

Disposals
150,000
280,000
450,000
750,000
550,000
150,000
Loss on disposal (550,000 (750,000 150,000)

Disposal
Depreciat ion motor vehicles P&L
Accumulated depreciation motor vehicles
50,000
50,000
1,550,000
________
4,880,000
6.
(a)
1,550,000
________
4,880,000
Examples:
(i)
Cash flows fro m operating activ ities

Increase decrease or increase in accounts payables
Increase decrease or increase in accounts receivables
Increase decrease or increase in inventories
(ii)
Cash flows fro m investing activities

Disposal or acquisition on non-current assets
Return on investments
(iii)
Cash flow fro m financing activit ies

-
(b)
Cr
Issue of shares or disposal

Issue or redemption of debentures
(iv)
Cash and cash equivalents

Cash balances
Bank balances
(i)
(ii)
Bad debts written off will reduce working capital byK15,500.

Bank balance will increase by K300,000 and therefore working capital.
(iii)
(iv)
Repaid bank overdraft will not affect wo rking capital.

Declared dividends would decrease the working capital by K450,000.
(v)
Payment to supplier would not affect the working capital.
(vi)
Sale of motor vehicle for K700,000 would increase the working capital by
the same amount.
6
(vii)
Purchase of goods for resale on credit would not affect the working capital.
(viii)
Payment for traded in photocopier would decrease the working capital by

K50,000.
(ix)
Receipts from customers and credited to account receivables would not

affect the working capital.
(x)
Proceeds from issue of ordinary shares would increase the working capital
by K1,200,000.
(xi)
Interest receivable accrued would increase working capital K50,000.
(xii)
7.
Provision for a court case would reduce the working capital by K240,000.
(i)
Finance lease a lease that transfers substantially all the risks and rewards incidental to
ownership of an asset. Title may or may not eventually be transferred.
(ii)
Economic useful life o f an asset the period over which an asset is expected to be
economically usable by one or more users.
(iii)
Materiality info rmation is material if its o mission or misstatement could influence the
economic decisions of users taken on the basis of the financial statements.
(iv)
Accounting policies the specific principles, bases, conventions, rules and practices
applied by an entity in preparing and presenting financial statement.
(v)
Rights issue of shares an issue of new shares to existing shareholders at a price below
the current market value.
(vi)
Convertible loans are debentures whose agreements contain clauses whereby the
holder of the debenture is given an option to convert to ordinary shares after specified
period.
(vii)
Articles of association a document that regulates internal affairs of a co mpany in terms

of rights of various classes of shareholders , rules for conduct of meetings, and rights and
duties of members and officers of the co mpany.
(viii)
Dual Concept an accounting concept that purports that every debit entry has a
corresponding credit entry.
(ix)
True and fair view concept that requires that financial statements are presently fairly in
all material respects as at the end of the financial year.
Par value of shares this is the nominal amount assigned to the shares by the issuer. It
is usually a very small amount that bears no relationship to its market price.
(x)
END

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December 2010 TC6A

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STRICTLY CONFIDENTIAL

THE PUBLIC ACCOUNTANTS EXAMINATION

Gross margin gross profit/sales (22,400,000 15,920,000)/22,400,000

Differences in accounting methods between companies

Chimo mbo Chapola

Disadvantages of partnership over sole trader

The profits have to be shared among all the partners.

Deeds of partnership have to be written if a partner leaves or dies, which can

2,500 (2% x 80,000)

Statement of financial position as at 31 July 2009

Net Boo k Value

Share Applicant Account

Ordinary Share Capital a/c

Share premiu m a/c

Authorised and paid up capital

Extract of statement of financial position after issue

750,000 K1 ord inary share capital

Information in the fixed asset register

Non-current asset schedule

Accum depn 31/ 12/2008

Net book value 31/ 12/ 08

Cost 31/ 12/ 2008

Depreciat ion buildings P&L

Depreciat ion plant and machinery P&L

Accumulated depreciation plant & machinery

Loss on disposal (550,000 (750,000 150,000)

Cash flows fro m operating activ ities

Cash flows fro m investing activities

Cash flow fro m financing activit ies

Issue of shares or disposal

Cash and cash equivalents

Bad debts written off will reduce working capital byK15,500.

Repaid bank overdraft will not affect wo rking capital.

Payment to supplier would not affect the working capital.

Payment for traded in photocopier would decrease the working capital by

Receipts from customers and credited to account receivables would not

Interest receivable accrued would increase working capital K50,000.

Articles of association a document that regulates internal affairs of a co mpany in terms

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