Copyright Reserved

No. of pages: 14

Executive Level
Financial Accounting & Reporting Fundamentals

Instructions to candidates
(1)

Time allowed: Reading and planning 15 minutes

Writing
3 hours

(2)

Total: 100 marks

(3)

Section 1(a): 10 multiple choice questions (MCQs) all questions

are compulsory.
Section 1(b): 10 short answer questions all questions
are compulsory.
Section 2: 4 questions answer any 3 questions.
Section 3: 1 question compulsory

(4)

K
E
1

Answers to Section 1(a) should be in the special paper given to you.

The most suitable answer (A, B, C or D) should be entered in the
paper against the relevant question number.
Answers to questions in all other sections should be in the answer
booklet/s given to you.

(5)

Begin each answer in Section 2 and Section 3 on a separate page in

the answer booklet.

(6)

All answers should be in one language and in the medium applied

for.

MARCH 2015

SECTION 1
All questions are compulsory.
Total marks for Section 1 is 50 marks.
Recommended time for the section is 90 minutes.
Question 01
1(a): You are required to choose the most appropriate answer.
(Total: 20 marks)
1.1.

Consider the following statements:

(i)
(ii)
(iii)

The business entity concept assumes that business entities are separate
from their owners.
Sole proprietorships and partnerships do not have the legal personality.
A limited liability company is legally a separate entity from its owners.

Which of the above statements is/are true?

A.
B.
C.
D.

(i) and (iii) only

(ii) only
(iii) only
All of (i), (ii) and (iii)
(2 marks)

1.2.

You are given the following statements:

Statement 1: Verifiability is a fundamental qualitative characteristic of financial
information
Statement 2: Understandability enhances the quality of financial information
Which of the above statements is/are true with reference to the Conceptual
Framework for Financial Reporting?
A.
B.
C.
D.

KE1 March 2015

Both Statement 1 and Statement 2 are true.

Neither Statement 1 nor Statement 2 is true.
Only Statement 1 is true.
Only Statement 2 is true.

(2 marks)

Page 2 of 14

1.3.

The Conceptual Framework for Financial Reporting refers to faithful

representation as a fundamental qualitative characteristic of financial information.
Which of the following only consists of characteristics of faithful representation as
defined in the conceptual framework?
A.
B.
C.
D.

1.4.

Predictability, Neutrality, Consistency

Consistency, Completeness, Predictability
Classification, Consistency, Completeness
Neutrality, Completeness, Free from error

(2 marks)

Which of the following combinations only consists of elements of the financial

statements as covered in the Conceptual Framework for Financial Reporting?
A.
B.
C.
D.

Expenses, Profits, Provisions

Income, Expenses, Liabilities
Income, Expenses, Provisions
Income, Profits, Liabilities
(2 marks)

1.5.

An income statement of a company for the year ended 31 December 2014 prepared
on the cash basis showed a profit of Rs. 728,000. Information received subsequently
revealed the following:
-

All purchases were on cash basis.

Trade receivables balance at the end of the year was Rs. 112,000 and there
was no opening balance.
Accrued expenses on 31 December 2013 was Rs. 54,000 while on 31
December 2014 it was Rs. 32,000.

What is the profit for the year ended 31 December 2014 on the accrual basis?
A.
B.
C.
D.
1.6.

Rs. 818,000
Rs. 706,000
Rs. 862,000
Rs. 750,000

(2 marks)

The need for preparing a bank reconciliation statement by an entity is to;

A.
B.
C.
D.

KE1 March 2015

Comply with the requirements of LKAS 7 Statement of Cash Flows.

Ensure that the bank balance as per the records of the entity agrees with the
bank statement, and that all cheque payments and deposits have been
approved.
Ensure that any difference between the bank balance as per the records of
the entity and the bank statement are properly treated.
Provide audit evidence that the entity maintains a proper set of books of
accounts to record transactions and prepare financial statements.
(2 marks)
Page 3 of 14

1.7.

Yellow (Pvt.) Limited purchased goods for Rs. 100,000 on credit during the year
ended 31 December 2014. 80% of such goods were sold for Rs. 125,000 on cash
during the year.
Which of the following statements shows the correct impacts on the accounting
equation if these transactions are recorded as per the double entry system?
A.
B.
C.
D.

Assets increase by Rs. 20,000; Capital increases by Rs.

increase by Rs. 100,000
Assets increase by Rs. 125,000; Capital increases by Rs.
increase by Rs. 100,000
Assets increase by Rs. 145,000; Capital increases by Rs.
increase by Rs. 100,000
Assets increase by Rs. 245,000; Capital increases by Rs.
increase by Rs. 100,000

45,000; Liabilities
25,000; Liabilities
45,000; Liabilities
25,000; Liabilities
(2 marks)

1.8.

Which of the following ratios is classified as a profitability ratio?

A.
B.
C.
D.

1.9.

Current ratio
Asset turnover ratio
Quick ratio
Inventory turnover period

(2 marks)

Which of the following combinations consists of prime entry books only?

A.
B.
C.
D.

Cash book, Purchase day book, Journal, Ledger

Petty cash book, Sales day book, Ledger, Trial balance
Cash book, Petty cash book, Bank reconciliation, Journal
Sales returns day book, Sales day book, Petty cash book, Journal
(2 marks)

1.10. If the sales day book was undercast by Rs. 52,000 and posted to the ledger, the
resulting impact on account balances will be;
A.
B.
C.
D.

KE1 March 2015

Only the sales account balance will be understated by Rs. 52,000.

Only the trade receivables control account balance will be understated by
Rs. 52,000.
Both the sales account and the trade receivables control account balances
will be understated by Rs. 52,000.
The trade receivables control account balance will be overstated by
Rs. 52,000 when compared to the total of the individual trade receivables
balances.
(2 marks)
Page 4 of 14

1(b): You are required to provide short answers/calculations to all questions with
attention given to action verbs.
(Total: 30 marks)
1.11. Stakeholders either influence or are influenced by the operations of an entity and
they can be grouped into different categories to understand their interest and risks
involved.
Identify three (03) connected stakeholders of an entity and state one (01) interest
of each.
(3 marks)
1.12. Statements A and B below relate to information provided through financial
accounting and management accounting.
Statement A - Financial accounting provides summarised common information
Statement B - Management accounting provides detailed unique information
(i)

State whether each statement is true or false.

(ii)

Identify three (03) interested parties who use information provided in

financial accounting, and one (01) party who uses information provided in
management accounting.
(3 marks)

1.13. Liabilities can be categorised as current liabilities or non-current liabilities.

State three (03) instances when a liability is classified as a current liability.
(3 marks)
1.14. Accounting policies are applied by an entity consistently from period to period.
LKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, allows a
change in accounting policy under certain conditions.
State the two (02) conditions under which a change in accounting policy is
acceptable under LKAS 8.
(3 marks)

KE1 March 2015

Page 5 of 14

1.15. The following information relates to an entity:

The balance of the accrued electricity charges account as at 31 March 2013:

Rs. 12,000

Unpaid electricity bills as at 31 March 2014: Rs. 23,000

The balance of the electricity expense account as at 31 March 2014:

Rs. 150,000. (This account has been balanced without taking into account the
accrued charges at the beginning and unpaid bills at the year-end.)

Water bills paid amounting to Rs. 5,000 had been posted to the electricity
expense account.

An electricity bill paid amounting to Rs. 16,000 had been posted to the
electricity expense account twice. (This difference is now reflecting in the
suspense account.)

Prepare the electricity expense account with all necessary adjustments, starting
with the given balance of the electricity expense account as at 31 March 2014.
(3 marks)
1.16. A plant with a carrying amount of Rs. 1.2 million as at 31 March 2014 was
completely destroyed by a fire on 15 April 2014. The financial statements of this
company were authorised for issue in June 2014.
Explain whether the above event is an adjusting event or a non-adjusting event in
the financial statements for the year ended 31 March 2014, as per LKAS 10 Events
After the Reporting Period.
(3 marks)
1.17. The following information relates to the sale of goods by an entity.
(i)

Goods sold for cash on 31 March 2014 were left at the business premises at
the buyers request and collected after one week.
(ii) Goods sold to a customer on credit on 31 March 2014 were dispatched on
the same day. However, this amount was unpaid even after the due credit
term.
(iii) An advance was received from a customer on 31 March 2014 to buy goods in
April 2014.
Explain whether each of the above items can be recognised as revenue as per
LKAS 18 Revenue for the year ended 31 March 2014.
(3 marks)

KE1 March 2015

Page 6 of 14

1.18. List three (03) characteristics of a lease agreement that identify a lease as a finance
lease as per LKAS 17 Leases.
(3 marks)
1.19. The following information relates to inventories of an entity:

Cost of the physical inventory balance and book balance as at 31 March 2014
were Rs. 180,000 and Rs. 200,000 respectively.
Net Realisable Value of a particular type of inventory which was specifically
identified was less by Rs. 12,000 compared to its cost.
Goods purchased at an invoice value of Rs. 60,000 on 30 March 2014 were
not taken into account at the time of the inventory count as they were placed
at a different location. The cost incurred in transporting these goods to the
stores is Rs. 2,000.

Calculate the carrying amount of inventories as at 31 March 2014, as per

LKAS 2 Inventories.
(3 marks)
1.20. At the beginning of a particular financial year, the carrying value of a companys
property, plant and equipment (PPE) was Rs. 2,270,000. Depreciation charge for the
year was Rs. 420,000. Year-end carrying value was Rs. 2,100,000. Equipment with a
carrying value of Rs. 240,000 were revalued at Rs. 320,000 during the year. Assume
that there was no disposal of PPE during the year.
(i)

Calculate the amount of cash outflow during the year with respect to the
above PPE.

(ii)

State under which category of activities, the cash flow calculated in (i) above
is shown in the cash flow statement.
(3 marks)

KE1 March 2015

Page 7 of 14

SECTION 2
Three out of the four questions should be answered.
Total marks for Section 2 is 30 marks.
Recommended time for the section is 54 minutes.
Question 02
Elmo and Niles are carrying on a partnership business in the name of Elen Partners. The
following balances of Elen Partners were extracted on 31 December 2014 prior to the
preparation of the appropriation account:
Rs. 000
Dr
Partners capital accounts Elmo
Niles
Partners current accounts Elmo
Niles
Partners drawings
Elmo
Niles
Partners loan
Elmo
Net profit for the year before partners loan interest

Cr
800
600

220
260
120
240
300
640

Additional information:

Elmo and Niles share profits or losses in the ratio of 2:1 respectively.
Interest on capital balances is at 8% per annum.
Niles is entitled to a monthly salary of Rs. 9,000. The salary for the first 11 months
has already been paid to Niles and debited to his current account.
Interest is payable on the partners loan at 10% per annum. No provision has been
made in the accounts for the interest payable for the year.

Required:
1.

Prepare the appropriation account for the year ended 31 December 2014.

2.

Prepare the partners current accounts for the year ended 31 December 2014.
(4 marks)

3.

State the reason for not charging the partners salary and interest on capital in the
profit or loss account and instead showing them under the appropriation account.
(2 marks)

(4 marks)

(Total: 10 marks)

KE1 March 2015

Page 8 of 14

Question 03
(a)

Happy (Pvt.) Limited maintains two bank accounts. Summarised transactions as per
the cash books and bank statements for the month of December 2014 are given
below.
Summaries of bank statements

Balance as at 1 December 2014

Cheque deposits
Cash deposits
Cheque payments
Bank charges
Balance as at 31 December 2014

Rs.
A/c No. 1 A/c No. 2
300,000
(50,000)
2,500,000
(3,000,000)
(10,000)

20,000
1,500,000
(750,000)
-

(210,000)

720,000

Summaries of cash books

Rs.
Balance as at 1 December 2014
Cheque payments
Cheque deposits
Cash deposits
Balance as at 31 December 2014

A/c No. 1
240,000
(3,200,000)
2,800,000
650,000
490,000

A/c No. 2
Rs.
(50,000)
(775,000)
230,000
850,000
255,000

Additional information:

The difference between the cash book and the bank statement of A/c No. 1 as
at 1 December 2014 was only due to unpresented cheques.
Cheques deposited in A/c No. 1 amounting to Rs. 175,000 had been recorded
in the cash book of A/c No. 2.
Cheuqes issued through A/c No. 2 amounting to Rs. 45,000 had been
recorded in the cash book of A/c No.1.

Required:
1.

Prepare the cash book of A/c No.2 showing correcting entries starting from
the balance as at 31 December 2014.
(3 marks)

2.

Prepare the bank reconciliation statement for A/c No.1 as at 31 December

2014.
(4 marks)

KE1 March 2015

Page 9 of 14

(b)

The balance of the trade receivables control account of Happy (Pvt.) Limited as at
31 December 2014 was Rs. 500,000, but this did not agree with the total of the trade
receivables sub ledger accounts. The following were identified as the reasons for the
difference:
-

Discount allowed amounting to Rs. 15,000 was not recorded in the respective
personal account.

The total of sales returns amounting to Rs. 45,000 was not posted to the general
ledger.

A sales invoice of Rs. 60,000 was omitted from the sales journal but the same had
been recorded in the personal account.

Required:
3.

Prepare the trade receivables control account starting with the balance of
Rs. 500,000.
(2 marks)

4.

Calculate the total of the trade receivables sub ledger accounts as at

31 December 2014 before making the corrections.
(1 mark)
(Total: 10 marks)

KE1 March 2015

Page 10 of 14

Question 04
The trial balance of Beeta (Pvt.) Limited extracted on 31 December 2014 did not balance
and a suspense account was opened for the difference. The income statement showed a net
profit of Rs. 520,000. Subsequent investigation revealed the following with respect to the
year ended 31 December 2014:

The sales day book was undercast by Rs. 78,000.

Rent payment of Rs. 25,000 was not posted to the respective expense account.

A credit note for Rs. 12,000 received from a supplier, being a special discount, was
debited to both the discount allowed account and the relevant supplier account.

Salary payment of Rs. 24,000 was posted to the salary account as Rs. 42,000.

An amount of Rs. 28,000 received from a debtor was treated as cash sales.

Return of goods to a supplier, purchased for Rs. 52,000, was completely omitted in
the books of accounts.

Required:
1.

Prepare journal entries to correct the above errors.

2.

Prepare the suspense account showing the adjustments to correct the errors.
(2 marks)

3.

Compute the net profit after making the adjustments to correct the errors.
(2 marks)

(6 marks)

(Total: 10 marks)

KE1 March 2015

Page 11 of 14

Question 05
Aruna, a sole trader, commenced his business on 1 January 2014 by depositing Rs. 500,000
in his bank account. He did not maintain proper books of accounts. A summary of the bank
statements for the year ended 31 December 2014 is as follows:

Balance as at 1 January 2014

Receipts from customers
Cash sales

Rs.
Rs.
500,000 Purchase of equipment
650,000
1,660,000 Payments to suppliers
1,140,000
440,000 Cash purchases
120,000
Salaries paid
115,000
Rent paid
55,000
Cash drawings
72,000
Other expenses
180,000
Balance as at 31 December
268,000
2014
2,600,000
2,600,000

Additional information:

Equipment was purchased on 1 January 2014. Depreciation is to be provided at 20%

per annum on the straight line method.
Total of trade receivables balances as at 31 December 2014 was Rs. 480,000.
Aruna achieves a constant margin of 40% on sales.
Total of trade payables balances as at 31 December 2014 was Rs. 640,000.
Aruna took away some trading stocks for his personal use but the amount is not
known.
Accrued rent payable as at 31 December 2014 was Rs. 5,000.
Total discount allowed by the suppliers during the year amounted to Rs. 110,000.
Closing stock valued at cost amounted to Rs. 410,000.

Required:
1.

Calculate the value of goods taken by Aruna for his personal use during the year.
(4 marks)

2.

Prepare the income statement for the year ended 31 December 2014.

3.

Prepare the statement of financial position as at 31 December 2014.

(3 marks)
(3 marks)

(Total: 10 marks)

KE1 March 2015

Page 12 of 14

SECTION 3
Compulsory question
Total marks for Section 3 is 20 marks.
Recommended time for the section is 36 minutes.
Question 06
The following trial balance has been extracted from the books of Global (Pvt.) Limited as at
31 December 2014.
Rs. 000
Dr
Stated capital
Retained earnings
Property, plant and equipment at cost:
Land & building (Land value: Rs. 2,800,000)
Furniture and fittings
Office equipment
Accumulated depreciation as at 1 January 2014:
Building
Furniture and fittings
Office equipment
Inventory as at 1 January 2014
Trade receivables/trade payables
Cash at bank
Purchases/sales
Cash discounts allowed/received
Administrative expenses
Selling and distribution expenses
Provision for doubtful debts as at 1 January 2014
Carriage inwards
Return inwards
Interim dividend paid
Income tax paid

Cr
3,500
2,350

5,300
820
950
480
320
400
880
1,240
530
7,200
120
1,440
860

1,180
11,750
280
140

220
180
300
360
20,400

20,400

Additional information:
(a)

Inventory on 31 December 2014 at cost is Rs. 1,100,000. Cost and net realisable
values (NRV) of the inventory items were the same except for the following two
items:
Item
Cost (Rs.)
NRV (Rs.)
Classic 125
120,000
150,000
Grand 371
160,000
130,000

KE1 March 2015

Page 13 of 14

(b)

Inventory costing Rs. 300,000 was destroyed by a fire on 1 November 2014. The
insurance company has agreed to pay Rs. 240,000 as compensation but this amount
was not received as at 31 December 2014. No entries have been made in the books
of accounts in respect of these transactions/events.

(c)

An amount of Rs. 40,000 due from a customer became irrecoverable as at

31 December 2014, and is to be written off as a bad debt. Provision for doubtful
debts is to be adjusted to 5% of the trade receivables balance outstanding as at
31 December 2014.

(d)

Trading inventory bought for a cost of Rs. 120,000 was given out to customers as
samples, but no entries have been recorded in this respect in the books of accounts.

(e)

Only addition made to property, plant and equipment during the year was a
computer purchased at a cost of Rs. 50,000 on 1 July 2014.

(f)

Depreciation on property, plant and equipment is to be made on the straight line

method at following rates:
Building
Furniture and fittings
Office equipment

5% per annum
10% per annum
20% per annum

(g)

Land was revalued at Rs. 3 million on 31 December 2014 and the required entries
are yet to be made.

(h)

Accruals and prepayments as at 31 December 2014 were as follows:

Accrued rent
Accrued advertising expenses
Prepaid insurance premium

Rs. 12,000
Rs. 18,000
Rs. 10,000

(i)

The total sales for the year includes an amount of Rs. 160,000, being a 50% advance
payment received on sales yet to be made.

(j)

Income tax for the year has been estimated at Rs. 520,000. Income tax paid during
the year (as shown in the trial balance) includes the balance tax of Rs. 30,000 paid in
respect of the previous year.

Required:
1.

Prepare the statement of comprehensive income for the year ended 31 December
2014.
(7 marks)

2.

Prepare the statement of changes in equity for the year ended 31 December 2014.
(3 marks)

3.

Prepare the statement of financial position as at 31 December 2014.

(10 marks)
(Total: 20 marks)

KE1 March 2015

Page 14 of 14