1. **QUESTION ONE: Prepare Manufacturing, Trading, Profit and Loss Account and Balance Sheet for AZ Limited** **Problem:** Given trial balance and additional information, prepare the financial statements for the year ended 31 October 1999. **Step 1: Understand the problem and data** - Trial balance includes assets, liabilities, capital, expenses, and incomes. - Adjustments: depreciation, accrued salaries, dividend, transfer to reserve, unpaid debenture interest, overdraft interest. - Closing stock given. **Step 2: Calculate depreciation** - Motor vehicles depreciation = 25% of Sh. 380,000 = $$0.25 \times 380000 = 95000$$ - Plant and machinery depreciation = 10% of Sh. 8,900,000 = $$0.10 \times 8900000 = 890000$$ - Furniture and equipment depreciation = 10% of Sh. 1,350,000 = $$0.10 \times 1350000 = 135000$$ **Step 3: Adjust accrued salaries and unpaid interests** - Add accrued salaries to administration expenses. - Add unpaid debenture interest = 8% of Sh. 30,000,000 = $$0.08 \times 30000000 = 2400000$$ - Add overdraft interest = Sh. 725,000. **Step 4: Prepare Manufacturing Account** - Opening raw materials + purchases - closing raw materials = raw materials consumed. - Add direct wages, direct expenses, factory expenses, indirect materials, factory insurance. - Add opening work-in-progress, subtract closing work-in-progress. **Step 5: Prepare Trading Account** - Sales - cost of goods sold (from manufacturing account + opening finished goods - closing finished goods). **Step 6: Prepare Profit and Loss Account** - Add gross profit from trading account. - Subtract operating expenses including depreciation, salaries, sales room expenses, administration expenses, vehicles running expenses, bad debts. - Subtract interest expenses. - Calculate net profit before tax. - Deduct dividend and transfer to general reserve. **Step 7: Prepare Balance Sheet** - List assets at cost less accumulated depreciation. - List liabilities including debentures, trade creditors, accrued expenses. - Include capital, share premium, reserves, and retained earnings. 2. **QUESTION TWO: Prepare Income Statement and Statement of Financial Position for CORD Ltd** **Problem:** Using given balances and adjustments, prepare income statement and financial position as at 30.06.2020. **Step 1: Calculate depreciation** - Motor vehicles depreciation = 20% of 2,720,000 = $$0.20 \times 2720000 = 544000$$ - Fittings and equipment depreciation = 15% of 10,976,000 = $$0.15 \times 10976000 = 1646400$$ **Step 2: Adjust expenses** - Accrued electricity = 21,920,000 added to expenses. - Adjust insurance for prepaid portion (12,000 premium for 6 months from April to September, so 3 months prepaid at 6/12 = 6,000). - Accrue director's fees and audit fees. - Adjust debenture interest for unpaid portion. **Step 3: Prepare Income Statement** - Start with gross profit. - Deduct wages, rates, postage, light, directors fees, general expenses, depreciation, interest. - Calculate net profit before tax. - Deduct dividends (preference and ordinary). - Transfer to general reserve. **Step 4: Prepare Statement of Financial Position** - List assets at cost less depreciation. - List liabilities including debentures, payables, accruals. - Include share capital, reserves, retained earnings. **Step 5: Discuss reasons for not distributing all profits** - Retain earnings for reinvestment. - Maintain liquidity. - Meet future obligations. - Regulatory requirements. - Cushion against losses. 3. **QUESTION THREE: Prepare Snack Bar Profit or Loss Account and Income and Expenditure Account for Muungano Rugby Club** **Problem:** Using receipts, payments, and inventory data, prepare accounts for year ended 31 Dec 2024. **Step 1: Calculate snack bar profit or loss** - Opening inventory + purchases - closing inventory = cost of goods sold. - Snack bar income - cost of goods sold - snack bar expenses = snack bar profit or loss. **Step 2: Calculate depreciation on games equipment** - Depreciation = 25% of 240,000 = $$0.25 \times 240000 = 60000$$ **Step 3: Prepare Income and Expenditure Account** - Add all income: subscriptions, snack bar income, visitors fees, competition fees. - Deduct all expenses: rent, rates, extension, purchases, secretarial expenses, interest on loan, snack bar expenses, games equipment depreciation. - Calculate net surplus or deficit. **Final answers:** - Detailed financial statements as per above steps.