FACULTY OF COMMERCE & LAW

DEPARTMENT OF ACCOUNTING & AUDITING

BACC101: FINANCIAL ACCOUNTING 1
ASSIGNMENT 2
AUGUST – DECEMBER 2019

QUESTION 1
The following is MTC’s balances for the year ended 31 December 2018:
Dr. Cr.
$ $
Capital 130 000
Drawings 18 000
Sales 300 450
Inventory (1 Jan 2018)
Raw materials 12 550
Finished goods 10 200
Work in progress 5 000
Purchase of raw material 120 000
Direct wages 72 000
Office salaries 30 000
Customs duty 13 300
Patent fees 15 450
Factory power 20 000
Insurance 19 000
Allowance for doubtful debts 500
Plant and machinery at cost 60 000
Office equipment at cost 45 000
Provision for depreciation:
Plant and machinery 12 000
Office equipment 6 750
Bank 6 500
Accounts receivable and Payable 9 000 6 300
456 000 456 000

Additional information:
i) Inventory: raw materials (31 Dec 2018) 10 800
Finished goods 55 500
ii) There was no closing inventory of work in progress.
iii) Direct wages accrued $3 000
iv) Depreciation:

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 Plant and machinery 20% per annum using reducing balance method.
Office equipment 15% per annum on cost.
v) Insurance prepaid $1 500. It was to apportioned as 3/5 factory and 2/5 office.
vi) Allowance for doubtful debts to be adjusted to 5% of accounts receivable.

Required
a) Manufacturing account for the year ended 31 December 2018 showing total production
cost. (12 1/2)
b) Statement of comprehensive income for the year ended 31 December 2018. (12 ½)

Question 2
Explain the following principles (give examples)
a) Historical cost
b) Going concern
c) Matching and accruals concept
d) Prudence concept
e) Materiality concept (25)
Question 3
A business wants to value its stock at cost price. It deals in one type of goods and has made
the following transactions for the year ended 31 DECEMBER 2018:
Purchases
2018
January bought 40 units at $15 each $600
May: bought 50 units at $20 each $1 000
September: bought 60 units at $25 each $1 500
Total units purchased 150
Total purchase value $3 100

Sales
2018
February: sold 30 units at $25 each $750
July: sold 40 units at 30 each $1 200
November: sold 50 units at 35 each $1 750
Total units sold $120
Total sales value $3 700

a) Calculate the value of stocks using First in First out method. (15)
b) What are the advantages of i) FIFO
ii) AVCO (10)

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