Financial Statements - Business Studies Form 4 Notes

Introduction

These are prepared at the end of a given trading period to determine the profit and losses of the business, and also to show the financial position of the business at a given time.
They includes; trading account, profit and loss account, trading profit and loss account and the balance sheet.
They are also referred to as the final statements.
The trading period is the duration through which the trading activities are carried out in the business before it decides to determines it performances in terms of profit or loss. It may be one week, month, six months or even a year depending on what the owner wants.
Most of the business use one year as their trading period. It is also referred to as the accounting period.
At the end of the accounting period, the following takes place;
- All the accounts are balanced off
- A trial balance is extracted
- Profit or loss is determined
- The balance sheet is prepared

Determining the Profit or Loss of a Business

When a business sells its stock above the buying price/cost of acquiring the stock, it makes a profit, while if it sells below it makes a loss. The profit realized when the business sell it stock beyond the cost is what is referred to as the gross profit, while if it is a loss then it is referred to as a gross loss.
It is referred to as the gross profit /loss because it has not been used to cater for the expenses that may have been incurred in selling that stock, such as the salary of the salesman, rent for the premises, water bills, etc. it therefore implies that the businessman cannot take the whole gross profit for its personal use but must first deduct the total cost of all other expenses that may have been incurred.
The profit realized after the cost of all the expenses incurred has been deducted is what becomes the real profit for the owner of the business, and is referred to as Net profit. The net profit can be determined through calculation or preparation of profit and loss account.
In calculating the gross profit, the following adjustments are put in place
- Return inwards/Sales return: - these are goods that had been sold to the customers, but they have returned them to the business for one reason or the other. It therefore reduces the value of sales, and is therefore subtracted from sales to obtain the net sales
  Therefore Net sales = Sales – Return inwards
- Return outwards/purchases return: - these are goods that had been bought from the suppliers to the business and have been returned to them for one reason or the other. It reduces the purchases and is therefore subtracted from the purchases to obtain the net purchases.
- Drawings: - this refers to goods that the owner of the business has taken from the business for his own use. It reduces the value of purchases, and is therefore subtracted from purchases when determining the net purchases. It is different from the other drawing in that it is purely goods and not money
- Carriage inwards/Carriage on purchases: - this is the cost incurred by the suppliers in transporting the goods from his premises to the customers business. It is treated as part of the purchases, and therefore increases the value of purchases. It is added to purchases to determine the actual value of purchases/Net purchases.
  
  Therefore Net Purchases = Purchases + Carriage inwards – Return Outwards - Drawings
- Carriage outwards/Carriage on sales: - this is the cost that the business has incurred in transporting goods from its premises to the customer’s premises. The cost reduces the business profit that would have been realized as a result of the sale, and is therefore treated as an expense and is subtracted from the gross profit, before determining the net profit.
- Opening stock is the stock of goods at the beginning of the trading period, while the closing stock is the stock of the goods at the end of the trading period
  
  Gross profit is therefore calculated as follows;
  
  Gross Profit = Sales – Return inwards – (Opening stock + Purchases + carriage inwards – Return outwards – Closing stock)
  
  Or
  
  Gross profit = Net sales – Cost of Goods Sold (COGS)
  COGS = Opening Stock + Net Purchases – Closing stock
  Net Profit = Gross profit – Total expenses

Trading Account

This is prepared by the business to determine the gross profit/loss during that trading period
It takes the following format:

Name of the business
Trading Account
For the period (date)

Shs Shs
Opening stock xxxxxx
add Purchases xxxxx
add Carriage inwards xxx
less Return Outwards xxx
less Drawings xx xxxxx
Goods available for sale xxxxxx
Less Closing Stock xxx
Cost Of Goods Sold (COGS) xxxxxx
Gross profit c/d xxxx
xxxxxx

Shs Shs
Sales xxxxxx
Less Return inwards xxx
Net sales xxxxxx
xxxxxx

Gross profit b/d xxxx

The trading account is completed by the time the gross profit b/d is determined

For example

The following balances were obtained from the books of Ramera Traders for the year ending may 31st 2010

Sales
Purchases
Return inwards
Carriage outwards
Return outwards
Carriage inwards

670 000
380 000
40 000
18 000
20 000
10 000

Additional information:

During the year the owner took goods worth sh 5 000 for his family use
The stock as at 1st June 2009 was shs 60 000, while the stock as at 31st May 2011 was shs 70 000

Required; Prepare Ramera Traders trading account for the period ending 31st May 2010

Ramera Traders Trading Account For the period ending 31/5/2010
Dr	Cr
Shs Shs Opening stock 60 000 add Purchases 380 000 add Carriage inwards 10 000 less Return Outwards 20 000 less Drawings 5 000 365 000 Goods available for sale 425 000 Less Closing Stock 70 000 Cost Of Goods Sold (COGS) 355,000 Gross profit c/d 275,000 630,000	Shs Shs Sales 670 000 Less Return inwards 40 000 Net sales 630 000 630 000 Gross profit b/d 275 000

NB: Carriage outwards is not an item of Trading account, but profit and loss account as an expense.

Importance of Trading Account

It is used to determine the gross profit/loss for a given trading period for appropriate decision making by the management.
It is used in determining the cost of goods that was sold during that particular accounting period.
It is used to reveal the volume of turnover i.e net sales
May be used to compare the performance of the business in the current accounting period and the previous periods. It can also compare its performance with other similar businesses
It facilitates the preparation of profit and loss account, since the gross profit is carried forward to the profit and loss account.

Profit and Loss Account

In preparation of this account, the gross profit is brought down on the credit sides, with all other revenues/income of the business being credited and the expenses together with the net profit being debited. Net profit = Total Revenues (including Gross Profit) – Total expenses

Name of the business Profit and Loss Account Dr For the period (date) Cr
	Cr.
Shs Expenses Insurance xxx Electricity xxx Water bills xxx Carriage Outwards xxx General expenses xxx Provision for Depreciation xxxx Discount allowed xxx Commission allowed xxxx Rent paid xxxx Any other expense xxxx Net profit c/d xxxx xxxxxx	Shs Gross profit b/d xxxxxx Discount received xxx Rent income xxx Commission received xxx Any other income received xxx xxxxxx Net profit b/d xxxx

The Profit and Loss Account is complete when net profit b/d is obtained. In the trial balance, the revenues/incomes are always credited, while the expenses are debited, and the same treatment is found in the Profit and Loss Account. (Any item that is taken to the Profit and Loss Account with a balance appearing in the Debit (Dr) side of a trial balance is treated as an expense, while those appearing in the Credit (Cr) side are revenue e.g. discount balance appearing in the Dr Side is Discount Allowed, while the one on Cr side is Discount Received)

For example

The following information relates to Akinyi’s Traders for the period ending
March 28th 2010. Use it to prepare profit and loss account.

Gross profit
Salaries and wages
Opening stock
Commission allowed
Repairs
Provision for depreciation

100000
20000
150000
15000
10000
6000

Discount received
Power and lighting
Rent income
Commission received
Discount allowed
Carriage outwards

12000
10000
10000
16000
8000
4000

Akinyi Traders Profit and Loss Account For the period ending 28th March 2010
Dr.	Cr.
Shs Expenses Power and lighting 10 000 Carriage Outwards 4 000 Salaries and wages 20 000 Provision for Depreciation 6 000 Discount allowed 8 000 Commission allowed 15 000 Repairs 10 000 Net profit c/d 65 000 138 000	Shs Gross profit b/d 100 000 Discount received 12 000 Rent income 10 000 Commission received 16 000 138 000 Net profit b/d 65 000

In case the expenses are more than the income, then the business shall have made a net loss, and the loss will be credited.
Net profit/loss can also be found through calculation as follows;

Net profit/loss = Gross profit + Total other revenues – Total expenses

For the above example;
Total other revenues = 12 000 + 10 000 + 16 000= 38 000
Total expenses = 10 000 + 4 000 + 20 000 + 6 000 + 8 000 + 15 000 + 10 000 = 73 000
Therefore; Net profit = Gross profit + Total other revenues – Total expenses
= 100 000 + 38 000 – 73 000= 65 000

Importance of Profit and Loss Account

It shows the revenue earned, and all the expenses incurred during the accounting period
It used to determine the net profit/net loss of a given trading period
It is a requirement by the government for the purpose of taxation
May be used by the employees to gauge the strength of the business, in terms of its ability to pay them well
It is vital for the prospective investor in the business, in terms of determining the viability of the business
The creditors or loaners may use it to assess the business ability to pay back their debts
It is used by the management to make a decision on the future of their business.

Trading, Profit and Loss Account

This is the combination of trading account and trading profit and loss account to form a single document. It ends when the net profit/loss brought down has been determined. That is;

Name of the business Trading, Profit and Loss Account For the period (date)
Dr.	Cr.
Shs Shs Opening stock xxxxxx add Purchases xxxxx add Carriage inwards xxx less Return Outwards xxx less Drawings xx xxxxx Goods available for sale xxxxxx Less Closing Stock xxx Cost Of Goods Sold (COGS) xxxxxx Gross profit c/d xxxx xxxxxx Expenses Insurance xxx Electricity xxx Water bills xxx Carriage Outwards xxx General expenses xxx Provision for Depreciation xxxx Discount allowed xxx Commission allowed xxxx Rent paid xxxx Any other expense xxxx Net profit c/d xxxx xxxxxx	Shs Shs Sales xxxxxx Less Return inwards xxx Net sales xxxxxx xxxxxx Gross profit b/d xxxx Discount received xxx Rent income xxx Commission received xxx Any other income received xxx xxxxxx Net Profit b/d xxxx

End Year Adjustments

The following items may require to be adjusted at the end of the trading period
- Revenues/Income
- Expenses
- Fixed assets

Adjustment on Revenues

The revenue may have been paid in advance in part or whole (prepaid revenue) or may be paid later after the trading period (accrued revenue).
Prepaid revenue is subtracted from the revenue/income to be received and the difference is what is treated in the profit and loss account or trading profit and loss account as an income, while the accrued revenue is added to the revenue/income to be received and the sum is what is treated in the above accounts as the actual revenue.
Only the prepaid amount and the accrued amounts are what are then taken to the balance sheet.

Adjustment on the Expenses

The expenses may have been paid for in advance in part or whole (prepaid expenses) or may be paid for later after the trading period (accrued expenses).
Prepaid expenses is subtracted from the expenses to be paid for and the difference is what is treated in the profit and loss account or trading profit and loss account as an expense, while the accrued expenses is added to the expenses to be paid for and the sum is what is treated in the above accounts as the actual expenses.
NB: Only the prepaid amount and the accrued amounts are what are then taken to the balance sheet.

Adjustment on Fixed Assets

The fixed assets may decrease in value, due to tear and wear. This makes the value to go down over time, what is referred to as depreciation. The amount of depreciation is always estimated as a percentage of cost.
The amount that shall have depreciated is treated in the profit and loss account or T,P&L as an expense, while the value of the asset is recorded in the balance sheet, less depreciation.

For example;

KCSE 1997: The following Trial balance was prepared from the books of Paka Traders as at 31st December 1995. Trial balance December 31st 1995

	Dr. (shs)	Cr. (shs)
Sales		980000
Purchases	600000
Returns	80000	20000
Carraige in		40000
Carraige out	3000
Stock (Jan 1st 1995)	120000
Rent	60000	45000
Discount	15000
Motor vehicle	150000
Machinery	250000
Debtors	120000
Salaries	18000
Commission	7000	12000
Capital		178000
Insurance	15000
Creditors		240000
Cash	122000
	1540000	1540000

Additional information

Stock as at 31st December was 100,000
the provision for depreciation was 10% on the cost of Motor vehicle, and 5% on the cost of Machinery

Required: Prepare trading profit and loss account for the period ending 31st December 1995

Adjustments: Provision for depreciation;
Machinery = ⁵/₁₀₀ × 250 000 = 7500
(New balance of machinery = 250 000 – 7 500 = 242 500. The 242 500 is taken to the balance as Machinery (fixed asset), while 7 500 is taken to the trading profit and loss account as expenses)
Motor vehicle = ¹⁰/₁₀₀ × 150 000 = 15 000
(New balance of Motor Vehicle = 150 000 – 15 000 = 135 000. The 135 000 is taken to the balance as Motor Vehicle (fixed asset), while 15 000 is taken to the trading profit and loss account as expenses)

Paka Traders Trading, Profit and Loss Account For the period 31/12/1995
Dr	Cr
Shs Shs Opening stock 120 000 add Purchases 600 000 add Carriage inwards 40 000 less Return Outwards 20 000 620 000 Goods available for sale 740 00 Less Closing Stock 100 000 Cost Of Goods Sold (COGS) 640 000 Gross profit c/d 260 000 900 000 Expenses Insurance 15000 Carriage Outwards 30000 Salaries 18000 Provision for Depreciation Motor vehicle 15 000 Machinery 7 500 22500 Discount allowed 15 000 Commission allowed 7 000 Rent paid 60 000 Net profit c/d 174 500 342 000	Shs Shs Sales 980 000 Less Return inwards 80 000 Net sales 900 000 900 000 Gross profit b/d 260 000 Discount received 25 000 Rent income 45 000 Commission received 12 000 342 000 Net profit b/d 174 500

The net profit/loss may be taken to the balance sheet.
The items that have been adjusted will be recorded in the balance sheet less the adjustment.

The Balance Sheet

The balance sheet will show the business financial position in relation to assets, capital and liabilities. The adjustment that can be made will be on
- Fixed assets and capital only. That is;
  - Fixed assets are recorded less their depreciation value (should there be provision for depreciation) as the actual value.
  
  Actual value of assets = Old value – depreciation.
  - Capital is adjusted with the following; Net capital, Drawings and additional investment. i.e.
  Closing Capital/Net capital (C.C) = Opening/initial capital (O.C) + Additional
  Investment (I) + Net profit (N.P) or (less Net Loss) – Drawings
  CC = OC + I + NP – D
  
  Where:
  Opening Capital: - the capital at the beginning of the trading period
  Closing capital: - the capital as at the end of the trading period
- Additional Investment: - any amount or asset that the owner adds to the business during the trading period
- Net profit: - the profit obtained from the trading activities during the period. In case of a loss, it is subtracted.

Types of Capital

- The capital in the business can be classified as follows:

Capital Owned/Owner’s Equity/Capital invested; - this is the capital that the owner of the business has contributed to the business.
- It is the Net capital/Closing capital of the business (C = A – L)
Borrowed capital: - the resources brought into the business from the outside sources. They are the long term liabilities of the business.
Working capital: - these are resources in the business that can be used to meet the immediate obligation of the business. It is the difference between the total current assets and total current liabilities
Working Capital = Total Current Assets – Total Current Liabilities
Capital employed: - these are the resources that has been put in the business for a long term. i.e.
Capital Employed = Total Fixed assets + Working Capital
Or
Capital employed = Capital Invested + Long term liabilities

Name of the business Balance Sheet As at (date)
Shs shs Fixed Assets Land xxxxx Buildings xxxxx Motor Vehicle xxxxx Any other fixed assets xxxxx xxxxxx Current Assets Stock xxxx Debtors xxxx Bank xxxx Cash xxxx Prepaid Expenses xxxx Accrued revenues xxxx Any other current assets xxxx xxxxxx xxxxxx	Shs shs Capital xxxxx Add Net profit xxxx Add additional investt xxx Less drawings xxx Net Capital xxxxx Long term liabilities Long term loan xxxx Any other xxxx xxxx Current liabilities Creditors xxxx Short term loan xxxx Accrued expenses xxxx Prepaid revenues xxxx Any other xxxx xxxxx xxxxxx

Example A: The following information were extracted from the trial balance of Mwema traders on 31st December 2010

Sales	750 000	Furniture	288 000
Purchases	540 000	Electricity expenses	16 000
Sales return	24000	Motor vehicle	720000
Return outwards	30000	Rent expenses	2500
General expenses	72000	Capital	842500
Commission received	24000	Bank loan	250000
Cash	156000	Creditors	216000
Debtors	244000

Additional Information

Stock as at 31/12/2010 was ksh 72 000
Electricity prepaid was shs 4 000
Rent expenses accrued shs 3500
Depreciation was provided for as follows

-Motor Vehicle 15% p.a. on cost -Furniture 6% p.a. on cost

Required

Prepare Trading, profit and loss account for the year
Prepare a balance sheet as at 31st December 2012
Determine the following:
1. Owner’s equity
2. Borrowed capital
3. Working capital
4. Capital employed

Adjustments:

Motor Vehicle = ¹⁵/₁₀₀ × 720 000 = 108 000
Therefore Motor vehicle = 612 000
Furniture = ⁶/₁₀₀ × 288 000 = 17 280
Therefore furniture = 270 720

Mwema Traders Trading, Profit and Loss Account For the period 31/12/2010
Dr	Cr
Shs Shs Purchases 540 000 less Return Outwards 30 000 510 000 Goods available for sale 510 000 Less Closing Stock 72 000 Cost Of Goods Sold (COGS) 438 000 Gross profit c/d 288 000 726 000 Expenses General expenses 72 000 Electricity expenses 16 000 Less Electricity prepaid 4 000 12 000 Rent expenses 2500 Accrued rent exp 3 500 6 000 Provision for Depreciation Motor vehicle 108 000 Furniture 17 280 125 280 Net profit c/d 96 720 312 000	Shs Shs Sales 750 000 Less Return inwards 24 000 Net sales 726 000 726 000 Gross profit b/d 288 000 Commission received 24 000 312 000 Net profit b/d 96 720

Mwema Traders Balance Sheet As at 31/12/2010
Shs shs Fixed Assets Motor Vehicle 612 000 Furniture 270 720 882 720 Current Assets Stock 72 000 Debtors 244 000 Electricity prepaid 4 000 Bank 50 000 Cash 156 000 526 000 1 408 720	Shs shs Capital 842 500 Add Net profit 96 720 Net Capital 939 220 Long term liabilities Bank Loan 250000 Current liabilities Creditors 216 000 Accrued rent 3 500 219 500 1 408 720

Basic Financial Ratios

A ratio is an expression of one item in relation to the other. It is used to compare the groups of related items in the business, for the purpose of assessing the performance of the business. They include:

Mark-up

- This is the comparison of gross profit as a percentage of cost of goods sold. i.e.
Mark-up = Gross profit   × 100
Cost of goods sold
= G.P  × 100
COGS
For example: in (example A) above, determine the mark-up of the business.
Mark-up =    Gross profit   × 100
Cost of goods sold
Gross profit = 288 000
COGS = 438 000
Mark-up = 288 000 × 100
438 000
= 65.75%
(This implies that the Gross profit of the business is 65.75% of its cost of goods sold)

Margin

- This is the expression of the gross profit as a percentage of net sales. That is:
Margin = Gross profit × 100
net sales
= G.P. × 100
net sales
For example: in (example A) above, determine the margin of the business

Margin = Gross profit × 100
net sales
Gross profit = 288 000
Net sales = 726 000
288 000 × 100
726 000
= 39.67%
(This implies that the gross profit of the business is 39.67% of the net sales)

Relationship between Margin and Mark-up

- Since margin and mark-up are all the expression of Gross profit, it is possible to change one to the other.

Changing mark-up to margin
- Mark-up can be changed to margin as follows:
1. Convert the mark-up percentage as a fraction in its simplest form.
2. Add the value of the numerator of the fraction to the denominator to come up with the new fraction (margin fraction) that is
  If the mark-up fraction = ^a/_n
  Margin fraction = ^a/_n+a
3. Convert the margin fraction as a percentage to obtain margin
  For example: in the above example,
  Mark –up = 65.75%
  = 65.75
  100
  = 263
  400
  Margin fraction = ²⁶³/₍_400+263)= 39.67%
Changing margin to mark-up
1. Convert the margin percentage as a fraction in its simplest form
2. Subtract the value of the numerator of the fraction from the denominator to come up with the new fraction (mark-up fraction) that is
  If the margin fraction = ⁿ/_aMark-up fraction = ^a/_n-a
3. Convert the mark-up fraction as a percentage to obtain mark-up
  For example: in the above example,
  Margin = 39.67%
  = ^39.67/₁₀₀
  = ²⁶³/₆₆₃Mark-up fraction = 263
  663-263
  =²⁶³/₄₀₀ × 100
  = 65.75%

Current Ratio/Working Capital Ratio

This is the ratio of the current assets to current liabilities. It can also be expressed as a percentage. That is:

Current ratio = current assets
current liabilities
Current assets : Current liabilities

Or
Current ratio = current assets × 100
current liabilities

For examples: in (example A) above, determine the current ratio;
Current assets = 526 000
Current liabilities = 219 500

Current ratio = current assets
current liabilities
= 526 000 = 1052: 439
219 500
Or
= 526 000 × 100
219 500
= 239.64%

Rate of Stock Turnover

- This is the rate at which thestock is bought or sold within a given period of time. It is obtained by;

Rate of stock turnover (ROST) = cost of goods sold
average stock
Average stock = opening stock + closing stock
2
In (example A) above, determine the rate of stock turnover;

The cost of goods sold = 438 000
The closing stock = 72 000
The opening stock = 0
Therefore

The average stock = opening stock + closing stock
2

= 0 + 72000 = 36 000
2
Rate of stock turnover (ROST) = cost of goods sold
average stock
= 438000
36000

= 12.17 Times

Return on Capital

This is the expression of net profit as a percentage of the capital invested. That is;

Return on capital = net profit × 100
capital invested
It can be given as a ratio or a percentage.

For example: in (example A) above, determine the return on capital of the business
Net Profit = 96 720
Capital invested/owner’s equity = 939 220

Return on capital = net profit × 100
capital invested
= 96720 × 100
939220
= 10.33%

Acid Test Ratio/Quick Ratio

This shows how fast the business can convert its current assets excluding stock to settle its current liabilities. That is;

Quick ratio = current aasets − closing stock
current liabilities
It is given in ratio form.For example: in above (example A), determine the quick ratio;
Current assets = 526 000
Stock = 72 000
Current liabilities = 219 500

Quick ratio = current aasets − closing stock
current liabilities
= 526 000 − 72000
219500
= 2.07 (or 207 : 100)

Importance of Financial Ratios

Mark up and margin helps in the following; setting the selling price, calculating profit or losses and determining the sales for a given period of time
Working capital and acid test ratio help in showing whether the business is in a position to meet its short term obligations and checking whether the business is utilizing its resources properly. That is high working capital ratio shows that most of the resources are idle
Return on capital shows the following;
- The performance of the business in relation to other similar businesses
- Comparison of the performance of the business over different periods
- Whether the business finances have been invested or not
- Help the potential investors on the decision on where to invest
Rate of stock turnover also help in determining how fast or slow the stock is moving. It also helps in computing the gross profit or loss.

Past KCSE Questions on the Topic

Paper 1

1. The following is an extract of balances from the books of Otwa traders as at 31st October 1994
  
  Accrued rent 4,000
  Cash in hand 7,500
  Trade creditors 3,000
  Stock 4,000
  Bank overdraft 6,000
  Prepaid insurance 1,400
  Trade debtors 2,600
  Prepare a statement showing working capital (5mks)
2. The capital account of Nyota traders showed a balance of Kshs 50,000 as at 1st July 1994. For the year 30th June 1995, the following information was available.
  1. Proprietor brought in a personal car worth 80,000 for the business use
  2. Net profit amounted Kshs 64, 000. The proprietor withdrew 32,000 from the business for personal use. Prepare the capital account at 30th June 1995
The following account balances were extracted from the books of Sawato traders on 30th September 1995.
Purchases 190,550
Opening stock 35,500
Closing stock 25,000
Sales 256,050
Sales return 4,800
Calculate
1. Cost of goods sold ( 5 mks)
2. Percentage of gross profit and net profit
The following account balances were extracted from the books of Kitu traders on 30th November 1995

Machinery 250,000
Debtor 62,000
Creditors 46,000
Stock 12,680
Cash in hand 1,500
Cash at bank 15,000
Determine the capital as at 30th November 1995
The following balances sheet relates to Jambo Traders as at 30th June 1995
Calculate Jambo Traders current ration (5 mks)
LIABILITIES ASSETS
Capital 127,000 Machines 90,000
Bank Stock 20,000
Overdrafts 12,000 Debtors 32,000
Creditors 25,000 Cash in hand 22,000
164,000 164,000
During the month of July 1995 Kungu made sales worth Kshs.60,000. His margin on sales was 20%, calculate;
1. The cost of goods sold
2. The gross profit
For each of the following transactions indicate with a tick the effect on capital. (4 mks)

Transaction Increase Decrease No effects

(i) Withdrew cash for personal use
(ii) Used personal savings to buy stock
(iii) Paid a creditor by cheque
(iv) Bought office furniture in cash
The following balances were extracted from the books of Waso traders on 30th October 1995.
Cash 20, 520
Bank 160,230
Premises 800,000
Debtors 40,000
Creditors 62,000
2 year loan 40,000
Stock 2,500
Prepare a balance sheet (5 marks)
The following information was extracted from the books of Kwaso traders on 31st August 1997.
Gross profit 130,800
Carriage of sales 4,700
Commission received 8,000
General expenses 18,200
Insurance 4,000
Prepare a profit and loss A/C (5 marks)

The balance sheet of Moba Enterprises for the year ended 30th June 1996 is given below. Moba enterprises sheet as at 30th June 1996. Calculate the return on Capital invested

Moba Enterprises Balance Sheet As at 30/06/1996
Shs shs Fixed Assets 1,400,000 Current Assets 74,000 1,474,000	Shs shs Capital 1,200,000 Add Net profit 240,000 Net Capital 1,440,000 Current liabilities Creditors 34000 1,474,000

(5 marks)

The following account balances were extracted from the books of Kiboko enterprises on 30th June 1997.
Opening stock 65,000
Sales 280,000
Purchases 190,000
Purchases returns 10,000
Sales returns 4,200
Closing stock was Kshs. 70,000 as at 30th June 1997. Prepare the trading a/c for period ended 30th June 1997. (4 marks)
The following information was extracted from the books of Peshau Traders as at April 1998
Cost of goods sold 65,000
General expenses 280,000
Capital for the period was 20% 10,000
Calculate rate of net profit to capital (5 marks)
State four uses of balance sheet for business organizations. (4 marks)
The following information relates to Mali traders for the year ended 31st Dec 1998.
Capital 250,000
Additional investment 68,000
Drawing 92,000
Profit 180,000
Calculate the capital of Mali traders as at 31st Dec 1998 (4 marks)
The following information was obtained from the books of Kina Traders on 30th June 1998
Opening stock 8,000
Purchases bank 53,000
Sales 62,900
Return outwards 2,700
Closing stock 12,700
Prepare Kina Traders balance a/c for the year ended 30th June 1998 (5 marks)
The following balances were obtained from the books of Rah traders
Opening stock 50,000
Sales 360,000
Gross profit 25% of sales
Calculate
1. Cost of goods
2. Rate of stock turnover (5 marks)
Cumvi Traders had a capital of sh 180,000 as at 31.12.1998
Additional information
1. during the year the owner converted her private car worth 90,000 for business use
2. Goods worth sh. 50,000 were taken from the business for her own use
3. Net profit for the year was sh 140,000
  Calculate capital as at 31 Dec. 1999 (3 marks)
The following figures obtained from the records of Buka Enterprises for the year ended 30th June 2000
Sales 500,000
Cost of goods sold 280,000
Calculate the gross margin (4 marks)
The following transactions relates to Tajira Traders for the month of January 2001
Jan 1 started business with Kshs. 20,000 in cash
Deposited 15,000 from cash till into a business Bank account
Bought goods on credit from Wema traders for 6,000
Bought furniture by cheque sh 3,000
Prepare a balance sheet as at 31st January 2001
The following balances were extracted from the books of Vuno Traders for the year ended 31st March 2001
Carriage outwards 13,500
Rent received 34,300
Office expenses 19,600
Salaries 57,000
Prepare a profit and loss for the year ended 31st March 2001 (5 marks)
Ngoma traders had the following transactions
Feb. 2 bought goods costing sh 400,000 from Maiyo traders sh. 650,000 by cheque as a part of payment for goods received. Received the above transaction in the account below and balance it off. (5 marks)

Maiyo traders A/C
Date

Dr. Cr.

Date Details Kshs Date Details Kshs
The following information was extracted from the books of Mutua for the period ended 30th June 2001.
Opening stock 2,000
Purchases 8,500
Closing stock. 2,500
Sales 10,000
Required:
1. The trading Account for the period ended 30th June 2001
2. Calculation of the mark up (5 marks)

Below is a balance sheet of Lela Traders as at 31st Dec 2001

Lela Traders Balance Sheet As at 31/12/2001
Shs shs Fixed Assets 87,800 Current Assets 55,200 143,000	Shs shs Capital 78000 Add Net profit 42000 Net Capital 120,000 Current liabilities 23,000 143,000

Calculate

Correct ratio
Return on capital

Paper 2

The following Trial balance was prepared from the books of Paka Traders as at 31st December 1995.
Trial balance December 31st 1995
Dr. Cr.
Kshs Kshs
Sales 900,000
Purchases 600,000
Returns inwards 80,000
Returns outwards 20,000
Carriage in 40,000
Carriage out 3,000
Stock (Jan) 100,000
Rent 60,000
Creditors 170,000
Debtors 120,000
Interest expenses 18,000
General expenses 7,000
Capital 178,000 1,268,000
Creditors 240,000
6,226,000 6,226,000
Additional information
Stock as at 31st December was 100,000
1. prepare Trading, profit and Loss account for the period ended 31 December 1999
2. calculate return on capital, current ratio and debtor‟s ratio (10 marks)
The following is a balance sheet of Bambu traders as at 31st December 2000

Bambu Traders
Balance sheet as at 31st December 2000
1. Sales during the year amounted to Kshs 2,000,000
2. Stock on 1 January 2000 was Kshs. 100,000
3. Gross profit margin was 20%
  Calculate
  1. Current ratio
  2. Gross profit mark up
  3. Rate of stock turnover
The following trial balance was extracted from the books of Maringo traders on 31st December 2001

Maringo traders Trial Balance as at 31st December 2001
Gross Profit 380,000
Closing stock 274,000
Capital 259,000
Drawings 83,000
Creditors 93,000
Premises 103,000
Debtors 123,000
Cash at bank 33,000
Bank loan (1 yr) 50,000
General expenses 54,000
Commission received 20,000
Wages and salaries 132,000
802,000 802,000
Prepare
1. Profit and loss Account for the year ended 31st December 2001
2. Balance Sheet as at 31st December 2001 (12 mks)
the following information was extracted from the books of Sarai Traders for the year ended 30 April 2003
Sales 480,000
Opening stock (1.5.02) 80,000
Gross profit is calculated at 25%
1. Prepare a trading account for the period ended 30 April 2003
2. Calculate the rate of stock turn over (10 mks)
The following balances were extracted from the Tango traders as at 31st December 2004
Motor vehicle 80,000
Plant and machinery 70,000
Loan from Bank 60,000
Stock 25,000
Debtors 30, 000
Creditors 15,000
Bank 20,000
Prepare a balance sheet for Tango Traders as at 1st December 2004. (5 mks)
The following information refers to tea traders for the year ended 31/12/04
Sales 800,000
Expenses 10,000
Commission received 15,000
Purchases 700,000
Opening stock 250,000
Margin 20%
Prepare trading, profit & loss a/c for the year ended 31/12/04
The following balances were extracted from books of Motop Traders for the year ended 31/12/2004
Rent 48,000
Lighting 7,200
Water 9,220
Salaries 75,000
Commission received 8,500
Discount allowed 4,600
Discount received 8,500
Gross profit 320,000
General Expenses 98,000
Stock 5,250
Motor Vehicle 2,300,000
Furniture & equipment 650,000
Debtors 270,000
Creditors 396,400
Bank 200,000
Cash 50,000
Capital 3,000,000
Prepare:
1. Profit and loss a/c for the year ended 31/12/2004
2. Balance sheet as at 31/12/2003 (4 ½ mks)

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