CERTIFIED PUBLIC ACCOUNTANT

FOUNDATION LEVEL 1 EXAMINATION

F1.3: FINANCIAL ACCOUNTING

WEDNESDAY: 4 DECEMBER 2019

INSTRUCTIONS:

1. Time Allowed: 3 hours 15 minutes (15 minutes reading

and 3 hours writing).
2. This examination has two sections; A & B.
3. Section A has one compulsory question to be attempted.
4. Section B has four questions, three questions to be
attempted.
5. Marks allocated to each question are shown at the end of
the question.
6. Show all your workings
7. Any assumptions made must be clearly and concisely stated.

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 SECTION A
QUESTION ONE
a) (i) State and explain any four qualitative attributes of financial information (8marks)
(ii) Explain the term substance over form (2 Marks)
b) The following trial balance was extracted from books of Good Vibes Limited, a company with
several supermarkets and restaurants across Kigali, as at 31 December 2018
Dr Rwf million Cr Rwf million
Land 447
Motor vehicle 68
Investment - 6% 100
Trade receivables 325
Intangible assets 200
Trade payable 247
Fixtures and fittings 215
Share premium
Distribution costs 266
Share capital – 150,00 shares at Rwf 1,000 each 150
Current tax payable 2
Revenue 1,688
Investment income 5
Bank 2
Accumulated Amortization - Intangible assets – 40
31.12.17
Retained Earnings - 31.12.17 482
Allowance for bad debts 12
Purchases 898
Admin expenses 326
Inventory 01.01.2018 79
Accumulated depreciation – motor vehicle 25
31.12.17
Long term loan 125
Accumulated Depreciation - fixture fittings 146
31.12.17
Total 2,924 2,924

The following additional information is relevant

(i) Good vibes Limited’s inventory amounted to Rwf 93 million valued at cost at year-end.
Included in this amount is some inventory, which has been damaged and is beyond repair.
The cost of this Inventory is Rwf 3 million, this can be sold at 60% of the selling price. The
company normally sells at a mark-up of 30% on cost.
(ii) The company purchased some fixtures and fittings on 1st October 2018 for Rwf 60 million
plus import duties of Rwf 3 million. The import duties were expensed as administrative
expense and credited to the bank account rightly upon payment
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(iii) All expenses are evenly distributed between administrative and distribution costs respectively.
(iv) Depreciation policy is as follows,
- Fixtures and fittings 15% straight line method
- Motor vehicle 20% reducing balance method.
- Full year depreciation is charged in year of purchase and none in year of disposal
(v) The company raised Rwf 80 million from sale of 50,000 shares all this amount was deposited
into the bank account
(vi) The intangible asset, which is company’s software for sales, has finite useful life. This was
reviewed on 1st January 2018. It was established that the intangible asset now has 10 years
economic useful life after date of review.
(vii) Income tax for 2018 was estimated to be Rwf 40 million, the company paid Rwf 28 million of
it on 31st December 2018.
(viii) The balance of interest that was due on investments was received on 31 December 2018. This
was not recorded
(ix) The provision for bad debts should be at 5% of trade receivables.
REQUIRED:

In alignment with IFRS, prepare,

i) All the above information in the journal entries (8Marks)
ii) A statement of profit or loss and other comprehensive incomes (12 Marks)
iii) Statement of Financial Position (10 Marks)
N.B: show all the relevant workings with respective journal entries where applicable.
(Total Marks 40)

SECTION B
QUESTION TWO.

The financial controller of Inzozi enterprises Ltd has asked you to address the following for the
financial year ended 31 December 2018.
a) According to IAS 37 provisions, contingent liabilities and contingent assets, write brief
explanations on the following,
i. A provision (2 marks)
ii. A contingent liability (2 marks)
iii. A contingent asset (2 marks)
iv. Recognition criteria for provisions (3 marks)

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b) The company just adopted IFRS 15 – revenue from contracts with customers and the core
principle of IFRS 15 has a five-step model framework.
i) Identify each of the five steps for revenue recognition. (5 marks)
ii) Explain the meaning of performance obligations in a contract as part of the five-step model
under IFRS15. (2 marks)
c) A former director of Inzozi enterprises has sued the company claiming substantial damages for
wrongful dismissal. The company lawyer has advised that the former director is unlikely to
succeed with the claim, but the chances of Inzozi enterprises owing money to the former
director is high. The lawyer estimated the following potential liabilities;
Legal costs (whether ruling is in favour of company or not) 5 million
Settlement of claim if ex-director is successful 50 million

REQUIRED:
In accordance with IAS 37 – provisions, contingent liabilities and contingent assets describe how
this claim should be treated in Inzozi enterprises books. (4 marks)
(Total 20 marks)

QUESTION THREE

The objective of IAS 7 is to require the entity to provide information about the historical changes in
cash and cash equivalents by means of cash flow statement, cash flows are classified into operating
activities, investing and financing activities.

a. With examples, explain the following;

i. Operating activities. (2 marks)
ii. Investing activities. (2 marks)
iii. Financing activities. (2 marks)
b. Indatwa Ltd manufactures highly nutritious fortified foods for infants and breast-feeding
mothers and its financial statements are as follows:

2018 2017
Rwf million Rwf million
Non-current assets
Property plant & equipment 1,950 1,581
Total non-current assets 1,950 1,581

Current assets
Inventory 362 389
Trade receivables 175 160
Cash and cash equipment 100 83

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 Total current assets 637 632
Total assets 2,587 2,213
Equity & liabilities
Equity
Share capital 400 300
Share premium 50 20
Retained earnings 1,451 1,277
Revaluation surplus 74 120
Total equity 1,975 1,717

Non-current liabilities
Long term loan 380 300
Total non-current liabilities 380 300

Current liabilities
Trade payables 184 152
Bank overdrafts 10 18
Current income tax payable 38 26
Total current liabilities 232 196

Total equity & liabilities 2,587 2,213

Indatwa limited statement of profit or loss and other comprehensive incomes for the year ended
31st December 2018

Rwf million
Revenue 4,300
Cost of goods sold (3,600)
Gross profit 700
Distribution and administrative costs (300)
Finance costs (42)
Earnings before tax 358
Income tax expenses (46)
Profit for year 312
Loss on revaluation of property (net of tax) (46)
Total Compressive Incomes for the year 266
Notes:

i. Property plant and equipment with carrying value of Rwf 320,000,000 was sold for Rwf
280,000,000, this asset was purchased at Rwf 450,000,000

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 ii. Depreciation of property, plant and equipment for the year was Rwf 356,000,000
iii. Dividends paid during the year amounted to Rwf 138,000,000 and was reported in statement
of charges in equity.
REQUIRED:

Prepare a statement of cash flows for Indatwa ltd for the year ended 31st December 2018 in
accordance IAS 7 statement of cashflows. (14 marks)

(Total 20 marks)

QUESTION FOUR

a) Define and explain the following

i) Suspense account. (1 mark)
ii) Error of principle. (1 mark)
iii) Complete reversal of entries (1 mark)
iv) Error of omission (1 mark)
b) The trial balance for Mr Jean Luc kamanzi an architect contractor in Musanze district for the
year ended 31st December 2018 did not balance. Mr Kamanzi identified the following issues,
but he is not sure how to account for them and approached you for guidance and help,

1. Discount received of Rwf 500,000 had been debited to the discount allowed account
2. A payment of Rwf 1,500,000 for motor expenses had been debited to motor vehicles
account.
3. A Rwf 3,500,000 payment in relation to insurance expenses had been debited to insurance
and debited to trade payables by error. The balancing entry was posted to suspense account.
4. The total of the purchase’s day book had been carried forward as Rwf 5,315,000, whereas
the correct amount was Rwf 5,513,000, the correct amount had been posted to trade
payables.
5. Mr kamanzi personally paid Rwf 20,000,000 towards purchase of a Volkswagen Amarrok
pick-up for his business. The following entries were made in his financial statement,
Debit bank 20,000,000
Cr motor vehicle 20,000,000
6. An amount of Rwf 150,000 was charged on the bank statement by bank of Kigali for an
international transfer, this amount had been debited to trade payables account,
7. A Value Added Tax credit of Rwf 6,700,000 motor vehicles was incorrectly assumed to be
irrecoverable,

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 8. A prepayment of Rwf 3,200,000 was correctly entered in the bank account and was credited
to rent payable. The balancing entry was posted to suspense account.
9. Mr kamanzi included a suspense credit balance of Rwf 902,000 to balance the trial balance,
REQUIRED:
i. Prepare Journal entries with proper description to correct relevant transactions from the
above information for the financial statements for the year ended 31/12/2018. (12 marks)
ii. Prepare the suspense account for Mr Kamanzi in relation to the above transaction.
(4 marks)
(Total 20 marks)

QUESTION FIVE

On 31st December 2018, the bank statement of Murenzi Trading Limited with Access Bank Rwanda
Ltd showed a credit balance of Rwf 78,750 while the cash book balance revealed that the company
had an overdrawn amount of Rwf 135,000.
On reviewing the bank statement with the cash book, the following observations were noted;
i. A cheque drawn for Rwf 225,000 in favour of Miss Colombe had been entered in the cash
book but had not been presented to the bank for payment.
ii. A cheque received from TNT Trading Ltd amounting to Rwf 180,000, had been entered into
the cash book but not reflected in the bank statement
iii. Bank charges of Rwf 15,750 shown on the bank statement had not been entered into the cash
book.
iv. The payment side of the cash book had been undercast by Rwf 4,500
v. Dividends received amounting to Rwf 90,000 had been paid directly to the bank and not
entered into the cash book
vi. A cheque of Rwf 22,500 drawn on a deposit account was wrongly entered into the cash book
vii. A cheque of Rwf 11,250 which was cancelled and reissued, was never reversed and the
reissued cheque of same amount was equally entered in the cash book. Both cheques were
part of unpresented cheque balance.
viii. Murenzi Trading Limited instructed the Bank to transfer interest on Deposit of Rwf 54,000 to
its current account on 27th December 2018. However, the Bank did not reflect this in the
current account until 3rd January 2019. Murenzi Trading Limited has entered this amount in
the cash balance as at 31st December 2018.

F1.3 Page 7 of 8
REQUIRED
a) Prepare adjusted Cash Book for Murenzi Trading Limited as at 31st December 2018 (8 Mark)
b) Prepare Bank Reconciliation Statement of Murenzi Trading Limited with Access bank Rwanda
Ltd as at 31st December 2018 (12 Marks)
(Total 20 marks)

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