INSTITUTE OF BANKERS IN MALAWI

CERTIFICATE IN BANKING EXAMINATION

SUBJECT: INTRODUCTION TO BUSINESS ACCOUNTING

(IOBM-C101)

Date: Thursday, 8th November 2012

Time Allocated: 3 hours (08:00– 11:00 am)

INSTRUCTIONS TO CANDIDATES

1 This paper consists of TWO Sections, A and B.

2Section A consists of 20 multiple questions, each question carries 2 marks.

Answer ALL questions.

3Section B consists of 5 questions, each question carries 20 marks. Answer ANY THREE questions.

4You will be allowed 10 minutes to go through the paper before the start of the examination, when you may write on this paper but not in the answer book.

5Begin each answer on a new page.

6Please write your examination number on each answer book used. Answer books without examination numbers will not be marked.

7DO NOTopen this question paper until instructed to do so.

SECTION A (40 MARKS)

Answer ALL of the following multiple choice questions

  1. A Creditor of a company is someone who:

(a)Wants to sell shares in the company

(b)Is owed money by the company

(c)Owes money to the company in respect of the new issue of shares

(d)Wants to buy shares in the company.

  1. Those items which a business owns and has used in the long term are known as:

(a)Current Assets

(b)Non-current Assets

(c)Current Liabilities

(d)Capital.

  1. If a company purchases a motor van which it intends to use in the business on credit, the van will be classified as a:

(a)Longer-term Liability

(b)Non-current Asset

(c)Current Asset

(d)Current Liability.

  1. A company buys equipment for K100,000.00 on credit. The effect of this transaction will be to:

(a)Increase Assets and decrease Liabilities

(b)Increase Assets and Increase Liabilities

(c)Decrease Assets and decrease Liabilities

(d)Decrease Assets and increase Liabilities.

  1. A machine is purchased at the start of year one for K30,000.00, and is depreciated on reducing balance method, applying each year a depreciation rate of 12% on the written down value. At the end of year 3 the written down value is to the nearest Kwacha:

(a)K 20,444.00

(b)K 17,991.00

(c)K 23,232.00

(d)K 19,200.00

  1. Discount allowed are shown:

(a)As an expense in the Income Statement

(b)As an addition to Gross Profit in the Trading Account

(c)As a deduction from receivables on the Statement of Financial Position

(d)As an addition to purchases in the Trading Account.

  1. A provision for doubtful receivables is dealt with in the accounts of the trader by:

(a)Charging the current year’s adjustment of the provision as an expense in the Income Statement

(b)Deducting the provision from receivables on the Statement of Financial Position

(c)Adjusting the Gross Profit in the Income Statement

(d)A and B.

  1. A company has capital of K12,200.00, non-current assets of K8,050.00, current liabilities of K2,250.00 and no long-term liabilities. The value of the Company’s current assets is:

(a)K 6,400.00

(b)K 14,450.00

(c)K 4,150.00

(d)K 5,800.00

  1. Which of the following best describes the meaning of “Purchases” in a company’s accounts?

(a)Any item bought

(b)Goods bought on credit

(c)Goods bought for resale

(d)Goods paid for.

  1. The effect of the accrual concept is that:

(a)Similar items should be accounted for in a similar way from one accounting period to the next

(b)Revenue and Profit should not be anticipated

(c)Net Profit is the difference between revenue earned and expenses incurred

(d)Net Profit is the difference between cash received and cash paid out during the year.

  1. Capital expenditure is:

(a)The extra capital paid in by the proprietor

(b)Capital withdrawn by the proprietor

(c)Money spent on selling non-current assets

(d)Money spent on buying non-current assets or adding value to them.

  1. Which of the following entries in the books of an Accountant are correct:

Account to beAccount to be

DebitedCredited

(i)Sold Goods on CreditTrade ReceivablesSales

(ii)Paid WagesWagesCash & Bank

(iii)Paid Interest on a LoanLoanCash & Bank

  1. (ii) and (iii) only
  2. (i) and (iii) only
  3. (i) and (iii) only
  4. (i), (ii) and (iii)
  1. The use of the same method of depreciation throughout the life of a non-current asset is the application of:

(a)The Going Concern Concept

(b)The Prudence Concept

(c)The Accrual Concept

(d)The Consistency Concept.

  1. Which of the following is the correct term for the right side of a Ledger Account?

(a)Credit

(b)Debit

(c)Positive

(d)Negative.

  1. A business buys a new vehicle intended for use in delivering its goods paying by cheque. Which of the following is the correct way for the business to record this transaction?

(a)Debit Bank AccountCredit Vehicle Account

(b)Debit Delivery Expenses AccountCredit Bank Account

(c)Debit Vehicles AccountCredit Bank Account

(d)Debit Bank AccountCredit Delivery Expenses Account

  1. Gross Profit is:

(a)Cost of Sales less Closing Inventory

(b)Sales less Cost of Sales

(c)Net Profit less Expenses for the period

(d)Purchases plus Opening Inventory.

  1. Which of the following is an Asset?

(a)Loan from Angela

(b)Wages

(c)Buildings

(d)Trade Payables.

  1. A company borrows K10,000.00 from its bank on 1st January as a five year loan. The interest is 15% per annum payable at the end of each quarter. Select the correct response from the following statements:

(a)The loan will be shown on the Statement of Financial Position as K8,500.00 at 31st December

(b)The Income Statement will show K375.00 under turnover during the month of March

(c)The half year accounts will show K1,500.00

(d)None of the above.

  1. The Trial Balance of C did not agree and a Suspense Account was opened for the difference. The bookkeeping system revealed a number of errors.
  1. K4,600.00 paid for motor van repairs was correctly treated in the Cash Book but was credited in the Motor Vehicles Asset Account
  2. K360.00 received from B, a customer, was credited in error to the account of BB
  3. K9,500.00 paid for rent was debited to the Rent Account as K5,900.00
  4. The total of the discount allowed column in the Cash Book had been debited in error to the discount receivable account
  5. No entries had been made to record a Cash Sale of K100.00

Which of the errors above would require an entry to the Suspense Account as part of the process of correcting them?

(a)3 and 4

(b)1 and 3

(c)2 and 5

(d)2 and3

  1. Alf, Ben, Connie and Dora are in Partnership. The Capital they have invested in the Partnership is K45,000.00, K30,000.00, K20,000.00 and K15,000.00 respectively. Their Partnership agreement states the following terms:
  • Interest to be allowed on Capital at a rate of 10% per annum
  • Connie and Dora are to receive salaries of K5,000.00 each
  • Any remaining profits are to be shared in the ratio 4:3:2:1 respectively.

In the year ended 31st December 2005 the Partnership earned profits of K 56,000.00

What is the total share of the profits each partner is entitled to in the year ended 31st December 2005?

AlfBenConnieDora

(a)K 14,000.00K 14,000.00K 14,000.00K 14,000.00

(b)K 22,400.00K 16,800.00K 11,200.00K 5,600.00

(c)K 22,500.00K 16,500.00K 11,000.00K 6,000.00

(d)K 18,500.00K 13,500.00K 14,000.00K 10,000.00

SECTION B (60 MARKS)

Answer any THREE questions from this section.

QUESTION 1

Your organization has provided the following information for the month of March 2010.

Purchases LedgerK

Balance at 01 March (Cr) 8,900.00

Cheque paid to Suppliers in the month20,420.00

Purchases on credit from suppliers in the month16,850.00

Sales LedgerK

Balance at 01March (Dr)11,680.00

Credit Sales in the month30,980.00

Cash received from customers in the month15,740.00

Required

(a)Complete the Sales Ledger Control Account and the Purchases Ledger Control Account for the month of March, carrying down the balances at the month end. (12 marks)

(b)Explain, giving brief reasons, where the following two accounts appear in Ledger Control Account:

1)Returns Outwards

2)Returns Inwards (4 marks)

(c)Explain the main purpose of Control Accounts. (4 marks)

(Total 20 marks)

QUESTION 2

(a)Identify four main Ledgers used for bookkeeping in a business organization. (4 marks)

(b)Identify four main purposes of accounting. (4 marks)

(c)All business organizations have different interested users often referred to as internal and external stakeholders.

(i)Identify Six different stakeholders interested in the Accounts of a large business. (6 marks)

(ii)For each of the six stakeholders you have identified, comment on why each might be interested in the Financial Information of the business. (6 marks)

(Total 20 marks)

QUESTION3

Archie and Harold have been in partnership for some years, sharing profits and losses equally. Both receive interest on Partner’s Capital Accounts at the rate of 15% per annum and, in addition, Archie receives an annual salary of K12,000.00. The following figures are available for the year ended 31st December 2010:

K

Sales373,550.00

Purchases245,700.00

Stock at 01-01-10 12,690.00

Heat and Light 14,328.00

Wages 40,570.00

Sundry Expenses 9,212.00

DrawingsArchie 10,000.00

Harold 7,750.00

Premises180,000.00

Plant and Machinery 90,000.00

Provision for depreciation on Plant & Equipment 01-01-10262,000.00

Bank 4,000.00 Dr

Receivables 34,000.00

Payables 23,510.00

Partners’ Capital AccountsArchie120,000.00

Harold 70,000.00

Partners’ Current Accounts 01-01-10Archie 36,100.00 Cr

Harold 1,110.00 Dr

Notes:

1)Depreciation is charged on plant and equipment at 10% per annum, using the reducing balance basis.

2)At 31st December 2010, outstanding wages amounting to K300.00, sundry expenses were pre-paid K500.00 and inventory was valued at K9,320.00 (cost)

Required:

Prepare for Archie and Harold the following:

(a)Trading, Profit and Loss and Appropriation Account for the year ended 31st December 2010. (8 marks)

(b)Partners’ Current Accounts in columnar format for the year ended 31st December 2010. (6 marks)

(c)Statement of Financial Position as at 31st December 2010. (6 marks)

(Total 20 marks)

QUESTION 4

(a)Philip Crown buys and sales sports watches. During May 2011, he made the

following purchases and sales of a new model:

DatePurchasesCost PriceSales

(Quantity)K(Quantity)

May

01 65 10.00

05 80 11.00

08 60

10 20 12.00

12 10

15 30 13.00

Required:

Value the cost of inventory after each purchase and sale using each of the following methods of valuation (i.e. separate sets of valuations are required):

i)FIFO (First In, First Out)

ii)AVCO (Average Cost Out) (14 marks)

(b)State one advantage and one disadvantage of using the FIFO method of inventory valuation. (2 marks)

(c)Explain the following four terms:

(i)Trade Discount

(ii)Cash Discount

(iii)Credit Note

(iv)Debit Note(4 marks)

(Total 20 marks)

QUESTION 5

Louise Park has a retail shop. She employs a Part-time Bookkeeper who has produced the following Trial Balance at 31st December 2009.

DebitsCredits

KK

Sales 37,500.00

Purchases 14,030.00

Inventory at 01 January 20092,190.00

Discount Allowed 720.00

Discount Received 680.00

Heating8,680.00

Advertising 1,810.00

Insurance 1,070.00

Wages 1,290.00

Buildings at Cost 11,420.00

Buildings Accumulated Depreciation at 01 January 20091,142.00

Shop Fittings at Cost 2,640.00

Shop Fitting – Accumulated Depreciation at 1 January 2009 396.00

Receivables 430.00

Motor Vehicle at Cost6,000.00

Motor Vehicles-Accumulated Depreciation at 1 January 2009 3,380.00

Payable 610.00

Cash in Hand 880.00

Bank Overdraft 932.00

Capital Account at 1 January 2009 16,520.00

Drawings 10,000.00

TOTALS 61,160.00 61,160.00

The following notes also needed to be taken into account:

1)Closing Inventory at 31 December 2009 was K 3,680.00

2)Insurance pre-paid at 31 December 2009 was K 710.00

3)Wages unpaid at 31 December 2009 was K1,310.00

4)Depreciation for 2009 needs to be provided as follows:

  • Buildings 5% on Cost
  • Shop Fittings 7.5% on Cost
  • Motor Vehicles 25% per annum on reducing balance basis

Required:

(a)Prepare the Income Statement of Louise Park for the year ended 31 December 2009. (10 marks)

(b)Prepare Statement of Financial Position as at 31 December 2009. (10 marks)

(Total 20 marks)

END OF THE EXAMINATION PAPER

1

A qualification examined by the Institute of Bankers in Malawi