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Table of Contents
                            SOLUTIONS FOR ACTIVITY QUESTIONS
ACTIVITY 1.1
ACTIVITY 1.2
	ACTIVITY 1.3
	ACTIVITY 1.4
SOLUTIONS TO EXERCISES
INTRODUCTION TO FINANCIAL STATEMENTS
INTRODUCTION
TOPIC LIST
LEARNING OBJECTIVES
	Solution
REVENUE AND CAPITAL EXPENDITURE
CHAPTER 4
DOCUMENTATION
INTRODUCTION
Learning Objectives
PURPOSE OF DOCUMENTS
DOCUMENTING BUSINESS TRANSACTIONS
ESSENTIAL FEATURES OF A BUSINESS DOCUMENT
CIRCULATION OF DOCUMENTS
ACCOUNTING USE OF DOCUMENTS
CHAPTER SUMMARY
EXERCISE
	CHAPTER 5
	RULE OF DOUBLE ENTRY AND THE JOURNAL
		INTRODUCTION
		TOPICS
		LEARNING OBJECTIVES
1.1 The Entity Concept
1.2 The Duality Concept
	2.0 THE JOURNAL PROPER
		2.1 STARTING A BUSINESS
		2.1 A CONTINUING BUSINESS
		2.2 PURCHASE OF A NON CURRENT ASSET
2.3 ACTIVITY
	EXERCISES
	SOLUTIONS TO EXERCISES
	CHAPTER 6
		PREPARING BOOKS OF PRIME ENTRY
	INTRODUCTION
	BOOKS OF PRIME ENTRY – CREDIT TRANSACTIONS
	TOPICS
		LEARNING OBJECTIVES
	1.0   ANALYTICAL SALES DAY BOOK
1.1   ILLUSTRATION
	3.1   ILLUSTRATION
	EXERCISES
	SOLUTIONS TO EXERCISES
	CHAPTER 7
	BOOKS OF PRIME ENTRY - CASH TRANSACTIONS
	INTRODUCTION
	TOPICS
	LEARNING OBJECTIVES
	1.0   ANALYTICAL CASHBOOK
		2.0   CASH ACCOUNT
	ILLUSTRATION
		3.0   BANK ACCOUNT
		CHAPTER SUMMARY
	EXERCISES
		SOLUTIONS TO EXERCISES
LEARNING OUTCOMES
	Example of imprest system
	SOLUTION
EXERCISES
7 PETTY CASH BOOK
	CHAPTER 9
	PREPARING LEDGER ACCOUNTS – PART ONE
	INTRODUCTION
	TOPICS
	LEARNING OBJECTIVES
		PURCHASES DAY BOOK
		SALES
		ELECTRICITY
		
	Sales on credit
	Sales Returns
	Purchases on credit
	EXERCISES
		CHAPTER 10
		PREPARING LEDGER ACCOUNTS – PART TWO
		INTRODUCTION
		TOPICS
		LEARNING OUTCOMES
	CHAPTER 11
	CLOSING ACCOUNTS AND EXTRACTING A TRIAL BALANCE
INTRODUCTION
1.0   CLOSING LEDGER ACCOUNTS
	SALES
	Balance c/d	                       234 300.00
		MOTOR VEHICLES
		ELECTRICITY
			TRADE RECEIVABLES
	Balance b/d	 	        6 052 570
		CASH
	TRIAL BALANCE AS AT 30 APRIL 2005
		SELF-TEST QUESTIONS
	EXERCISES
		SALES
		Balance c/d	    340 400
			MOTOR VEHICLES
			ELECTRICITY
				TRADE RECEIVABLES
		Balance b/d	9 318 700
			CASH
		Balance b/d	3 898 000
MORE ABOUT THE TRIAL BALANCE
CHAPTER 13
CONTROL ACCOUNTS
INTRODUCTION
TOPICS
LEARNING OBJECTIVES
	CHISAKAILA
	NGOSA
	MULOTA
	MAMBWE
	POSTING TO THE PURCHASES LEDGER
	
	Balance c/d	234 300.00
		TRADE RECEIVABLES
	Balance c/d	234 300.00
		TRADE RECEIVABLES
		NGOSA
			CORRECTION OF ERRORS
	EXERCISES
		REQUIRED
		SOLUTIONS TO EXERCISES
		Balance c/d	       14 328
	d
		TRADE RECEIVABLES
		Balance c/d	       83 403	Balance c/d	          460
CHAPTER 14
	BANK RECONCILIATION
	LEARNING OBJECTIVES
	TOPICS
	SOLUTION
	BANK RECONCILIATION STATEMENT as at 31 May 2005
	CHAPTER SUMMARY
	EXERCISES
	SOLUTIONS TO EXERCISES
		BANK RECONCILIATION STATEMENT
BAD DEBTS AND ALLOWANCES FOR DOUBTFUL DEBTS
PREPAYMENTS AND ACCRUALS
	NON CURRENT ASSETS AND INTANGIBLE ASSETS
	Components of cost
		Exchange of assets
			Subsequent expenditure
			Measurement subsequent to initial recognition
		Revaluations
			Depreciation
		Review of useful life
		Review of depreciation method
		Impairment of asset values
			Retirements and disposals
			Disclosure
	ACCOUNTING FOR INVENTORIES
		Solution
			
			SKY LTD
			Income statement for the year ended 31 December 20x8
			Income statement for the year ended 31 December 20x8
SOLUTION TO EXERCISES
Activity 1
	Example 1: Suspense account not involved
	Example 2:  Suspense account involved
	Solution
Corrected trial balance
Example 3: With more than one error
Notes
	FINANCIAL STATEMENTS WITH ADJUSTMENTS
	Shoe Black
Current Assets
Non current Liabilities
Current liabilities
	Exercise 2
	Solution
	Mr. Bird Rock
	Mr. Bird Rock
	Balance sheet as at 30 September 20X8
Current Assets
	CHAPTER 22
	PUBLIC SECTOR ACCOUNTING REPORTING
INTRODUCTION
TOPICS
LEARNING OBJECTIVES
	PARTNERSHIP ACCOUNTING
Example 1
Banda and Bwalya
Income Statement for the year ended 31.12.20X4
For drawings
For interest on drawings
	EXERCISES
		SOLUTIONS TO EXERCISES
Activity 1
CHAPTER  25
INCOMPLETE RECORDS
INTRODUCTION
TOPICS
LEARNING OBJECTIVES
SINGLE ENTRY BOOKEEPING
ILLUSTRATION FOR INCOMPLETE RECORDS
RECEIPTS AND PAYMENTS
Summary of transactions through the bank
K 000		K 000
RECEIPTS
Cash banked 						  6 000
Trade Receivables					42 870
48 870
PAYMENTS
Equipment						  5 520
Insurance						     909
Trade Payable						34 000
Loan Interest						      700
Wages & Salaries					  8 300
Stationery						   2 700
(52 129)
SOLUTION
	TRADE RECEIVABLES
	TRADE PAYABLES
	EQUIPMENT
	LOAN
	CAPITAL
	INVENTORY
	PURCHASES
	SALES RETURNS
	SALES
	BAD DEBTS
	DISCOUNT ALLOWED
	DEPRECIATION
	STATIONERY
	WAGES & SALARIES
	LOAN INTEREST
	INSURANCE
	RENT &  RATES
	ELECTRICITY
	DRAWINGS
	COMMISSION
	COST OF SALES
COMMENTS
ELECTRICITY
RENT & RATES
JOEL MUTALE
INCOME STATEMENT for the year ended 30 June 2005
BALANCE SHEET as at 30 June 2005
INCOMPLETE RECORDS
CHAPTER SUMMARY
You should by now have learnt that:
Understanding double entry is very important. You cannot correctly handle a question on single entry without it.
EXERCISE
SOLUTION TO EXERCISE
MPOMWA
	CAPITAL
	CASH
	TRADE RECEIVABLES
	TRADE PAYABLES
	FIXTURE	S
	GENERAL EXPENSES
	RENT
	WAGES
	DRAWINGS
MPOMWA
INCOME STATEMENT for the year ended 31 December 2006
MPOMWA
BALANCE SHEET as at 31 December 2006
CHAPTER 26
CASHFLOW STATEMENTS
INTRODUCTION
TOPICS
LEARNING OBJECTIVES
THE CASH FLOW STATEMENT
FORMATS OF CASHFLOW STATEMENTS
CASHFLOW STATEMENT (DIRECT METHOD)
for the year ended 31 December 2005
CASHFLOW STATEMENT (INDIRECT METHOD)
for the year ended 31 December 2005
ILLUSTRATION
Prenodia
Income Statement for the year ended 30 June 2005
ADDITIONAL INFORMATION
REQUIRED
SOLUTION
	Direct method
	Indirect method							Km	Km
CASHFLOW STATEMENT (INDIRECT METHOD)
for the year ended 31 December 2005
OTHER OBSERVATIONS
CHAPTER SUMMARY
EXERCISES
Revenue								 2,150
CASHFLOW STATEMENT (INDIRECT METHOD)
for the year ended 30 June 2006
	Direct method
		DIVIDEND
Cashflow from Operating Activities:
	Example:
                        
Document Text Contents
Page 184

Subsequent expenditure

11.19.10 How should we treat any subsequent expenditure on long-term assets, after their
purchase and recognition? Subsequent expenditure is added to the carrying
amount of the asset, but only when it is probable that future economic benefits, in
excess of the originally assessed standard of performance of the existing asset,
will flow to the enterprise. All other subsequent expenditure is simply recognized
as an expense in the period in which it is incurred.

11.19.11 The important point here is whether any subsequent expenditure on an asset
improves the condition of the asset beyond the previous performance. The
standard gives the following examples of such improvements.

(a) Modification of an item of plant to extend its useful economic life,
including increased capacity

(b) Upgrade of machine parts to improve the quality of output
(c) Adoption of a new production process leading to large reductions in

operating costs.

11.19.12 Normal repairs and maintenance on property, plant and equipment items merely
maintain or restore value, they do not improve or increase it, so such costs are
recognized as an expense when incurred.

Measurement subsequent to initial recognition

11.19.13 The standard offers two possible treatments here, essentially a choice between
keeping an asset recorded at cost or revaluing it to fair value.

(a) Cost model. Carry the asset at its cost less depreciation and any
accumulated impairment losses.

(b) Revaluation model. Carry the asset at a revalued amount, being its fair
value at the date of the revaluation less any subsequent accumulated
depreciation. Revaluations should be made regularly enough so that the
carrying amount approximates to fair value at the balance sheet date. The
revaluation model is only available if the item can be measured reliably.

Revaluations

11.19.14 The market value of land and buildings usually represents fair value, assuming
existing use and line of business. Such valuations are usually carried out by
professionally qualified valuers.

11.19.15 In the case of plant and equipment, fair value can also be taken as market value.
Where a market value is not available, however, depreciated replacement cost
should be used. There may be no market value where types of plant and
equipment are sold only rarely or because of their specialized nature (i.e. they
would normally only be sold as part of an ongoing business).

11.19.16 The frequency of valuation depends on the volatility of the fair values of
individual items of property, plant and equipment. The more volatile the fair

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value, the more frequently revaluations should be carried out. Where the current
fair value is very different from the carrying value then a revaluation should be
carried out.

11.19.17 Most importantly, when an item of property, plant and equipment is revalued, the
whole class of assets to which it belongs should be revalued.

11.19.18 All the items within a class should be revalued at the same time, to prevent
selective revaluation of certain assets and to avoid disclosing a mixture of costs
and values from different dates in the financial statements. A rolling basis of
revaluation is allowed if the revaluations are kept up to date and the revaluation of
the whole class is completed in a short period of time.

11.19.19 How should any increase in value be treated when a revaluation takes place?
The debit will be the increase in value in the balance sheet, but what about the
credit? IAS 16 requires the increase to be credited to a revaluation surplus (ie
part of owners’ equity), unless the increase is reversing a previous decrease which
was recognized as an expense. To the extent that this offset is made, the increase
is recognized as income; any excess is then taken to the revaluation reserve.

11.19.20 IAS 16 makes further statements about revaluation, but these are beyond the
scope of your syllabus.

Depreciation

11.19.21 The standard reflects the following approach to depreciation.

• The depreciable amount of an item of property, plant and equipment
should be allocated on a systematic basis over its useful life.

• The depreciation method used should reflect the pattern in which the
asset’s economic benefits are consumed by the enterprise.

• The depreciation charge for each period would be recognized as an
expense unless it is included in the carrying amount of another asset.

Most of the comments on depreciation in IAS 16 are dealt with in Section 2.

11.19.22 Land and buildings are dealt with separately even when they are acquired
together because land normally has an unlimited life and is therefore not
depreciated. In contrast buildings do have a limited life and must be depreciated.
Any increase in the value of land on which a building is standing will have no
impact on the determination of the building’s useful life.

11.19.23 Depreciation is usually treated as an expense, but not where it is absorbed by the
enterprise in the process of producing other assets. For example, depreciation of
plant and machinery is incurred in the production of goods for sale (inventory
items). In such circumstances, the depreciation is included in the cost of the new
assets produced.

Review of useful life

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Page 367

Financial analyst and advisers 5
Financial reporting 239
Financial statement 213
financial statements 114, 150
Financial statements 2, 5, 6, 7, 12, 31, 242, 245, 277, 289,

311, 325
financial year end 223
Financing Activities 292
First in first out 202
fixed asset 286
future economic benefits 182

G
General Partners 246
general reserve 312
Going Concern Concept 323
Goods Received Notes 44
goodwill 161
Goodwill 188
Government agencies 4
Gross profit 22
growth and trimming 235

H
Historical Cost 325

I
IAS 16 181
imprest system 73, 77, 82, 83
income statement 21
Income statement 98, 138
Income Statement 28, 223
Incomplete 213, 219, 277
Incomplete records 277
indirect expenses 22, 23, 208, 234
Initial measurement 183
Intangible assets 160
Interest on capital 250
Interest on drawings 249, 250, 254, 255, 256
INTERIM REPORTS 12
internal 44, 56, 129, 133, 189, 307, 315, 326
INTERNATIONAL ACCOUNTING STANDARD 325
International Accounting Standards 243, 322, 323
International Federation of Accountants 239
inventory 191
Inventory 13, 26
Inventory Counting 199
Inventory Lists 44
inventory valuation 191
Investing Activities 292
invoice 57
IOU 78
Issued share capital 310

J
journal 52, 53, 54, 60, 70, 89, 105, 133, 209, 210, 212, 214,

216, 219, 220, 279, 357
Journal Proper 56

L
Last in first out 202
Ledger accounting 242
ledger accounts53, 56, 60, 85, 91, 92, 94, 96, 103, 114, 120,

121, 180, 196, 279, 282, 283, 284, 290, 291, 297, 309,
317

LEDGER ACCOUNTS – PART ONE 85
Legal costs 37
Legal status 245
Lenders 4
liabilities 7, 8, 11, 12, 13, 14, 15, 16, 18, 19, 31, 32, 34, 49,

52, 53, 54, 117, 151, 152, 156, 158, 187, 199, 230, 234,
241, 242, 244, 259, 260, 261, 262, 265, 271, 272, 278,

279, 289, 290, 297, 299, 300, 302, 308, 314, 315, 319,
320, 321, 322, 323, 325, 326, 327, 333, 337, 341, 347,
360, 363, 364

Liability 159, 199, 363
Life Membership 266
LIFO 202, 203, 204, 206, 207, 208
Limited Partners 246
liquidation 3
Local authorities 240
losses 7

M
Managers 4
Manufacturing Account 344, 345, 346, 349, 352, 356
margin 326, 327, 333, 334, 341
market value 167, 168, 184, 331, 332, 333, 336, 344, 348,

349
Matching 20
Materiality 324
MATERIALITY CONCEPT 324
Methods of depreciation 160
Money Measurement 324
Mortgage 15

N
Net book value 175
non current assets 160
Non current assets 13
NOT-FOR-PROFIT 259

O
Objectivity 6
Obsolescence 163
Operating Activities 291
Operating and Financial Review 289
Ordinary shares 308, 332
Other Receivables 66
overheads 32, 326, 345, 346, 349, 351, 353, 358
Owners’ wealth 364

P
Partners salaries 250
PARTNERSHIP 3
Partnership agreement 245
Payment of bonuses 235
perfect integration 121
personal accounts 120
petty cash book 73
PETTY CASH BOOK 73, 78, 84
petty cash voucher 73
plant replacement reserve 313, 314
Posting entries 90
potential investors 4
preference shares 316, 357
prepayments 223
Prepayments 13, 17, 32, 154, 155, 156, 157, 158, 227, 230,

257
Prepayments to the business 155
prime cost 345
Private companies 3
PRIVATE COMPANIES 3
profit and loss account 98, 103, 312
Profitability 235
Profits 7
Property, plant and equipment 182
PRUDENCE 324
prudence concept 142, 169
PUBLIC COMPANIES 3
Purchases 121
Purchases account 102
Purchases Day Book 45, 57, 63, 94

367

Page 368

Purchases on credit 89
Purchases Returns Day Book 57

R
Ratios 325, 326, 327, 328, 330, 332, 337, 339, 340
REALISATION CONCEPT 324
Rebates 127
receipts and payments account 260
receipts and payments accounts 259, 271
Receivables 13
Recognition 182
Recoverable amount 182
Reducing balance method 163, 190
relevance 243, 323
Relevance 5
Reliability 5, 10, 11
Replacement cost 202
research 161
Residual value 182
Returns inwards 127
Returns outwards 127
Revaluation 163, 166, 167, 184, 187, 312, 333
Revaluation method 163
Revaluation model 184
revaluation surplus 185
Revaluations 184
REVENUE 36, 37
Revenue expenditure 36
Revenue income 39
Revenue reserves 312
Rights issue 308, 310
rule of double entry 50
RULE OF DOUBLE ENTRY AND THE JOURNAL 49

S
Sales Day Book 57
sales ledger 121, 125, 138, 139
Sales Ledger 121
Sales on credit 89
Sales Returns 89
Sales Returns Day Book 57
sales tax 60, 125
Sales Tax 52
secured loan stock 333
SECURITY 74
Selling and distribution 23
SEPARATE VALUATION PRINCIPLE 324
share capital 310, 312, 364
Share of profits 250
Shareholders 3, 4
Short term investments 13
Single entry bookkeeping 277

Skill of staff 7
sole trader 2
Sole trader 15
SOLE TRADER 2
Specific allowance 148
Staff schedules 44
Standing order 130
Statement of profit adjustment 217
statutory reserves 312
Straight line 163
STRAIGHT LINE METHOD 163
subscriptions 259, 261, 263, 264, 265, 266, 267, 268, 272,

273, 274, 275
Subscriptions account 263
Subscriptions in arrears 263
SUBSTANCE OVER FORM 324
Sum of digits 163
Supplier Lists 44
Suspense account 213

T
Tax payers 241
Taxation 15, 18, 19, 300, 302, 303, 314, 319, 322, 332, 333,

337, 340, 341, 363
the FLOW 50
The Journal 214
The public 5
Timeliness 6
Trade contacts 4
Trade creditors 14
Trade Payables 67, 97, 120
Trade Receivables 66, 125
Trade Receivables’ 97
trade union representatives 5
Transfers 96
trial balance 66, 85, 94, 96, 102, 103, 105, 114, 115, 117,

118, 119, 139, 173, 209, 210, 211, 213, 214, 215, 216,
217, 218, 219, 220, 221, 226, 254, 272, 355, 356

true and fair 168, 176, 243

U
Understandability 6
Unpresented cheques 130
useful life 186

V
Virement 244

W
WHAT IS ACCOUNTING 1
Work in progress 201, 344, 345, 346, 347, 349, 351, 352,

355
Working capital 31

368

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