Appendix 1- Sole trader

The following trial balance has been extracted by a bookkeeper at John Barclay as at 31 st December 2019

DR (Ksh) CR (Ksh)
Opening Inventory 63,084
Purchases 600,128
Sales Revenue 864,321
Office expenses 33,947
Salaries 122,611
Rent paid 25,000
Printing expenses 1,000
Interest paid 2,000
Discount Allowed 1,100
Office equipment at cost 23,250
Machinery at cost 40,000
Land and Building at cost 207,785
Sales ledger control (receivables) 74,328
Bank 1,197
Cash 100
Capital 155,000
Drawings 21,710
Loan from bank 140,000
Purchases ledger control(payables) 52,919
Value Added Tax 5,000
1,217,240 1,217,240

Closing Inventory is Ksh 66,941.

Required;

a. Prepare the statement of Profit or Loss for John Barclay Ltd for the year ended 31st
December 2019.
b. Prepare the statement of financial position for John Barclay Ltd for the year ended 31st
December 2019.

1
Appendix 2: Partnership

Ahmed, Babu and Chatu formed a partnership business called ABC. During the formation of
the business, they agreed to share profits and losses in the ratio of 3:1:1 respectively after
interest on capital at 10% and salaries to Babu and Chatu of Ksh 300,000 each. Their trial
balance for the period ended 31/12/2019 is as follows.

Dr Cr
Ksh Ksh (000)

Capital Accounts:

Ahmed 3,000
Babu 2,000
Chatu 1500
Sales and Purchase 6,000 10,000
Debtors and Creditors 2,000 8,000
Returns 400 200
Discount 200 300
Office expenses 1000
Current Accounts
Ahmed 500
Babu 400
Chatu 200
General Expenses 1200
Bad Debts 200
Provision for bad and doubtful debt 200
Rent and rate 200
Salaries and wages 500
Land and buildings 4000
Plant and machinery 3000
Motor Vehicle 3000
Accumulated Depreciation
Land and buildings 1000
Plant and Machinery 1500
Motors vehicle 500
21,900 21,900

Additional Information

1. Stock as at 31/12/2019 amount to Ksh 1,000,000

2. Provision for bad and doubtful debt maintained at 10% of debtors

2
3. General expenses amounting Ksh 200,000 were in arrears while rent and rates sh 100,000 are in
advance.

4. Depreciation is charged as follows:

a) Land and buildings 10% on cost

b) Plant and machinery 20% on reducing balance

c) Motor vehicles 15% on cost

Required:

a) Trading, profit and loss account.

b) Current accounts.

3
Appendix 3-Ratio Calculation
Balance sheet as at 31 Dec 2019
31 Dec 2019 31 Dec 2018
Ksh’000 Ksh’000 Ksh’000 Ksh’000
Fixed Assets
Land and buildings 50 25
Fixtures and fittings 25 20

75 45
Current Assets
Stock 10 5
15 10
Debtors
Cash at bank 5 5

30 20
Current Liabilities
Creditors (10) (10)

Net current assets 20 10

Long term liabilities

Bank Loan (30) (30)

Net Assets 65 25

Financed by:

Capital 10 10
Retained profit 55 15

Capital Employed 65 25

4
Profit & Loss for Year Ending 31 Dec 2019
Y/E 31 Dec 2019 Y/E 31 Dec 2018
Ksh’000 Ksh’000 Ksh’000 Ksh’000

Revenue 125 100

Cost of Goods Sold 25 20

Gross Profit 100 80

Operating Expenses
Salaries 15 15
Depreciation 10 10
Rent & Rates 10 5
Other expenses 5 5

Total Expenses 40 35

Operating Profit 60 45

Interest 5 5
Tax 15 10

20 15

Net Profit 40 30

Appendix 4 –Not for profit Organization

Club 5 GB

For you to complete this task, the following information receipts and payments have been provided.

Receipts sh`000´ Payments sh`000´

Cash in hand 150 Salaries and wages 4800

5
Cash at Bank 8230 Rates and taxes 1260
Subscriptions 10710 Printing and stationary 470
Receipts from Fate 2,400 Transport expenses 1,530
Net Enter Proceeds 4,270 Ground man`s wages 840
Bank interest 230 Expenditure on fetes 2390
Bar takings 7,450 Bar purchase 5,770
Repairs 320
New bus (less sale proceed of
old bus sh3M)
12,600

Closing bank balance 3,460

Total 33440 Total 33440

Additional information

1. Balances on 1-10-19 30-9-20

Sh`000´ Sh`000´

Subscription due 1200 980

Owing on Printing 90 30

Bar Stock 710 870

Owings for bar purchases 590 430

2. Club premises and the old bus were acquired 3 years ago for 29M and Ksh12, 190,000 respectively.
The provision for depreciation accounts on 30-9-20 showed balances of Ksh18.8 M for premises and
Ksh10, 290,000 for the bus.

3. Depreciation is to be provided at 5% per annum on the written down value of the club premises and
15% per annum on the bus for the whole year.

Required: Prepare accumulated fund for the year ended 31/10/19 and Income and Expenditure statement
for the year ended 30/09/2020.

Appendix 5: Cash Budget

Jim is planning to start a business .He has prepared the following budgeted Statement of Profit or loss for
the initial four month’s trading.

Jim: Budgeted Statement of Profit or Loss

6
Ksh Ksh
Sales 22,000
Cost of sales:
Opening Stock 0
Purchases 21,000
Closing Inventory (7,000) 14,000
Gross Profit 8,000
Less:
Cash Expenses 4,000
Depreciation 1000 (5000)
Net Profit 3,000

Jim also provides you with the following information regarding his plan:

Sales are to be made on two month`s credit .The sales figures in the budgeted statement of Profit or Loss
are based on monthly sales as follows:

Ksh

Month 1 4,000

Month 2 6,000

Month 3 5,000

Month 4 7,000

Total sales 22,000

Purchases made in the first month must be paid for immediately. Subsequent purchases will be on one
month`s credit .The purchases figure in the budgeted Statement of Profit or Loss is made up as follows:

Ksh

Month 1 6,000

Month 2 6,000

Month 3 4,000

Month 4 5,000

Total purchases 21,000

● Cash expenses are based on paying out ksh 10000 in each of the first four months of the business.
● Equipment is to be bought for Ksh 15,000 in the first month of the business. Depreciation of non-
current assets is the Statement of Financial Position is at 20% per year on a straight line basis.
● Jim has Ksh 25,000 to invest in the business in month 1.
● Jim wishes to withdraw Ksh 2,000 from the business in month 4.

7
Required: Prepare a cash budget in receipt and payments format for the first four month period.

8
Department of business

Module : Accounting Principles

Assessment Title : Application of financial and management accounting techniques in the

preparation and analysis of financial statements in an organisation.

By: Julie Khaoya

Tutor Mr Samson Mutuku

Date: 15,11,2021

9
Acknowledgement
I would like to acknowledge everyone that has helped me get through Accounting Principles
(AP) which I would not have gotten through without their help, more specifically Mr Samson
Mutuku, who helped me understand and do the work to the best of my capability,
Thank You.

DECLARATION
I have read and understood the rules of the college regarding plagiarism and I declare that all the
work in this document is original and to the best of my knowledge is free of direct plagiarism.

10
Table of contents

Required; 9

PURPOSE OF ACCOUNTING IN CARREFOUR 21

Purpose Of The Accounting Function Within Carrefour Supermarket 21

Accounting function within Carrefour in the context of regulatory and ethical constraints. 22

PURPOSE OF ACCOUNTING IN MEETING ORGANISATIONAL AND STAKEHOLDER NEEDS 25

Appendix 1 27

11
Appendix 2 29

Current Accounts 32
Appendix 3 34
Subscription account 38
Trading, profit and loss account for Bar activities 38
Disposal account 38
Owing to printing 39
Owing to supply purchases 39
Depreciation for premises 39
Depreciation for bus 39
Income and expenditure as of 30/09/2020. 40
Statement of Affairs as of 31-Dec-2019 40
Appendix 5 41
Benefits And Limitations Of Budgets And Budgetary Planning And Control And Solutions 42
Benefits 42
Limitations / Corrective actions /Justification of the budgetary control solutions 43
Bibliography 44

PURPOSE OF ACCOUNTING IN CARREFOUR

Definition
Accounting is the process of recording,organizing and understanding a business's financial
information it is often referred to as the language of business .Accounting lets a company know
whether or not the company is making a profit, what the cash flow is, what the current value of
the company’s assets and liabilities are, and what parts of the business are actually making

12
money(Smith, 2019b).Summarizing, analyzing, and reporting transactions to oversight agencies,
regulators, and tax collection entities are all included in the accounting process(Tuovila, 2020) .

Purpose Of The Accounting Function Within

Carrefour Supermarket
Accounting helps keep track of the income and expenditure of the organization, meaning all the
goods purchased and sold by Carrefour are recorded by the accounting department. This also
means Carrefour is able to evaluate themselves and know their financial position based on the
information given to them by the accounting department.

I. Accounting also helps Carrefour make accurate decisions,like what goods and products
to purchase and what not to purchase depending on how good the sales for that specific
good or product was. Accounting provides the appropriate information needed to make
the said decisions.
II. An accountant providing financial statements for Carrefours management enables them
to assess their profit and loss and know if they made a profit or a loss within a particular
time period. They also help the managers understand what is going on in the supermarket
financially.
III. Budgeting and planning is another accounting function that is made possible by the
accounting department of a company.Carrefours accounting department plans and makes
budgets for the next stock purchase according to the information collected from the last
purchase.
IV. Proper accounting ensures that the company has control over all the money that comes in
and out of the company. Carrefour ensures their accounting records are accurate and
uptodate will help the management avoid things like theft within the company and certain
errors and mismanagement of funds in general won't be a problem.

13
Accounting function within Carrefour in the context
of regulatory and ethical constraints.
Ethics in accounting are how to make good and moral choices in regard to the financial
information of a company.An example of an ethical constraint(Freedman, 2019);
Fraudulent Financial Reporting
Fraudulent financial reporting is when there is an intentional misstatement of financial
statements.Myopic management is sometimes used to describe the short term focus on a
company’s finances (Freedman, 2019). If Carrefour have been having a couple of bad financial
months and they know their investors would not be happy to hear about it, it could lead to an
intentional misstatement of their financial statement for that month in hopes of doing better the
next month,is unethical .Financial statement
Misappropriation of Assets
Asset misappropriation is when people who are entrusted to manage the assets of an organisation
steal from it. It can be done by employees,company directors, or anyone entrusted to manage the
assets and interests of an organisation.The stolen assets vary from cash to cash equivalents or
even company data(Action Fraud, 2018). Misappropriation of assets in Carrefour would be when
an employee keys in extra items in a customers receipt and takes the money for themselves. Or a
manager indicating that a purchase worth 10,000 is 15,000 and keeping the extra 5,000 for
themselves is a perfect example of misappropriation of assets.
Inadequate employment of accounting staff
When a company’s Financial records are not properly kept it causes inadequate financial
reporting. This can happen very easily if there are not enough accounting staff in the accounting
department. In Carrefour the management may not want to hire enough accountants so that they
keep the salaries of the absent employees to themselves and would still expect the few
accountants to do the work of said employees which in turn results in inadequate financial
reporting.
GAAP and IFRS
Generally accepted accounting principles, or GAAP are a collection of commonly-followed
accounting rules and standards for financial reporting. GAAP is a combination of standards (set
by policy boards) and the commonly accepted ways of recording and reporting accounting
information (Tuovila, 2020a).IFRS are International Financial Reporting Standards (IFRS), they
consist of a set of accounting rules that determine how transactions are required to be reported in

14
financial statements.They are designed to maintain transparency in the accounting world. This
enables investors to make well informed decisions. They were created to establish a common
language so that financial statements can be easily interpreted from one company to another and
country to country(CFI, 2019a).

Without certain qualities, accounting information wouldn’t be clear and an orderly view of the
business would not be visible(Accounting Capital, 2020). A few of these qualities are:
I. Understandability
Understandability is the extent to which information is easily understood(CFI, 2019).The
accounting department in Carrefour should be keen on making their financial statements and any
information they give should be clear and understandable. This will ensure that certain mistakes
and assumptions are not made. Eg, If the accounting department generated a financial statement
to show how much was spent in the previous month and the information is not clear to the person
assessing the statement and that person makes an inaccurate decision on the next month's
purchases is a good reason as to why the accounting department should always ensure everything
is understandable.
II. Relevance
Relevance in accounting refers to how useful information is, for financial decision-making
processes(CFI, 2019). It implies that all information should help the users in making decisions
and/or predictions.Carrefour providing relevant and accurate information to their investors and
creditors could lead to them investing in a more long term contract.

III. Comparability
Comparison is a very important part of financial information, it helps those using the accounting
information to differentiate, analyze, improve, and make important decisions(Accounting
Capital, 2020). For Carrefour to be able to do certain things like yearly comparisons,
comparability is necessary. Without comparability Carrefour would never know if they did better
the year or month before.

IV. Reliability
Reliability is used as a means to ensure that the accounting statements and records of a business
produce the most accurate information available. For financial information to be useful for

15
auditors, managers, and stakeholders of a company, it needs to be relevant. Relevant information
includes anything that can be considered important, timely, and useful, for decision making.
Carrefour having reliable financial information gives them a better reputation which can draw
more investors their way.

PURPOSE OF ACCOUNTING IN MEETING

ORGANISATIONAL AND STAKEHOLDER NEEDS

According to Woodruff,2018, The purpose of accounting is to provide financial information to

the stakeholders of the business, for example, managers, employees, investors and creditors .This
information enables them to make better decisions. Running a business requires accurate data
about an organization's assets, liabilities, profits and cash position. Knowing this information
helps lenders, investors and stakeholders to understand the company's health and be able to
make informed decisions.

Accounting plays a very important role when it comes to making well informed decisions. For
example, If a company approached Carrefour and wanted them to invest in and purchase their
product that has just come into the market, Carrefour would first need to asses the company and
their product and see if it is worth investing in, or if it is a worthy purchase.If it is they would
need to take a look at their finances and see if they are in a position to make the purchase with a
risk of the new product not doing as expected. Carrefour being able to look at their financial
health puts them in a better position in knowing what purchases to make and which ones to hold
off on, this shows the importance of accounting and how it helps in making financial

16
decisions.Carrefour’s accountants make sure that the stakeholders understand the financial
information they are given.They work with both individuals and the organization to help them
use financial information to deal with any problems they would have.

I. Investors
Take investors for example, they need financial information to be able to make decisions about
investing.Before an investor decides to invest in carrefour they would first need to know the
financial health of the organization, if they are satisfied and pleased with the results of the
organization from a certain period of time to the most current financial statement then they can
make the decision on investing or not.

II. Managers
Managers need accurate financial information to be able to know what actions to take next, for
example, Carrefour's manager needs to know the financial position of Carrefour so that they
know what the budget for a specific time period is and can make the right purchases without
being in debt.

III. Employees
Employees need to know the financial standpoint of a company because if the company is not
doing well financially it means there is going to be a layoff and they need to be financially and
mentally prepared.

17
Appendix 1

John Barclay Ltd

Trading profit and loss account as at 31st December 2019

Ksh (000) Ksh(000) Ksh(000)

Sales 864,321 0 864,321

Opening inventory 63,084

Purchases 600,128

663,212

-
66,941.0
Closing stock 0

Cost of goods 596,271 -596,271

Gross Profit 268,050

Expenses

Office expenses 33,947

Salaries 122,611

Rent paid 25,000

18
Printing expenses 1,000

Interest paid 2,000

Discount Allowed 1,100

Total Expenses 185,658

-185,658

Net Profit 82,392

John Barclay Ltd

Balance Sheet as at 31st December

Ksh(000) Ksh(000)

Non Current Assets

Office equipment at cost 23,250

Machinery at cost 40,000

Land and Building at cost 207,785

Total Non current 271,035

Current Assets

Closing Stock 66,941

Bank 1,197

Cash 100

Sales ledger control (receivables) 74,328

Total Current Assets 142,566

Total Assets 413,601

Non current Liabilities

Loan from bank 140,000

Current Liabilities

Purchases ledger
control(payables) 52,919

Value Added Tax 5,000

19
Total current liabilities 57,919

Total liabilities 197,919

Financed By:

Capital 155,000

Drawings -21,710

Net profit 82,392

215,682

413,601

Appendix 2
ABC Partnership

Trading profit and loss account as of 31 December 2019

Ksh (000) Ksh (000) Ksh (000)

Sales 10,000 0 10,000

Return Inwards 400 400

9,600

Cost of sales

Opening stock 0

Purchases 6,000

Return Outwards 200

Closing inventory 1,000

Total 4,800 -9,600

20
Gross Profit 4,800

Discount received 300 300

Gross total income 5,100

Expenses

Office expenses 1,000

General Expenses 1,400

Rent and rate 100

Salaries and wages 500

Bad Debts 200

Land and buildings 400

Plant and machinery 300

Motor Vehicle 450

Discount allowed 200

Total expenses 4,550.00 4,550

Net Profit 550

ABC Partnership

Trading profit and loss appropriation account as of 31 December 2019

Ksh (000) Ksh (000) Ksh (000)

Net Profit 550

Sales 10,000 0 10,000

Return Inwards 400 400

9,600

Cost of sales

Opening stock 0

Purchases 6,000

21
Return Outwards 200

Closing inventory 1,000

Total 4,800 -9,600

Gross Profit 4,800

Discount received 300 300

Gross total income 5,100

Expenses

Office expenses 1,000

General Expenses 1,400

Rent and rate 100

Salaries and wages 500

Bad Debts 200

Land and buildings 400

Plant and machinery 300

Motor Vehicle 450

Discount allowed 200

Total expenses 4,550.00 4,550

Net Profit 550

22
Current Accounts
Ahmed

Date Details ksh”000” Date Details ksh”000”

420
Loss 31-12-2019

Balance c/d 380 Balance b/d 500

Interest on
capital 300

800 800

380 1-1-20 Balance b/d 380

Babu

Date Details ksh”000” Date Details Ksh “000”

2019 loss 140 31/12/1019

Balance b/d 400

Salary 300

Interest on
Bal c/d 760 capital 200

900 0 900

1/1/2020 Bal b/d 760

23
Chatu

Date Details Ksh “000” Date Details Ksh “000”

2019 Bal b/d 200

140 31-12-2019 Salary 300

Interest on
31/12/19 Bal c/d 110 capital 150

450 450

1-1-2020 Balance b/d 110

24
Appendix 3
Current Ratios
Current ratios as at 2018: 20,000/10,000= 2:1
Current Ratios as at 2019:30,000/10,000= 3:1
This means that Carrefour is in a position that allows them to settle their short term financial
obligations as and when they fall due.

Acid Test Ratio (liquid ratio)

Current asset-stock /current liabilities= ATR
ATR as of 2018= 20-5/10 =1.5:1
ATR as of 2019 = 30-10/10=2.1
Meaning that Carrefour would have been able to settle its current liabilities using the more liquid
assets of the business in 2018 and 2019.

Stock Turnover
Stock turnover =cost of sales/average stock
ST as at 2018 = 20,000/5000 = 4 times
ST as at 2019 = 25,000/7,000=3.3 times
Carrefour would have converted all its stock into sales in 2018 meaning was doing better than it
was in 2019, the amount of times stocks were converted to sales in 2019 reduced meaning that
the performance decreased.

Stock hold period

Stock hold period = 365 days / stock turnover
SHP 2018 = 365/4= 92 days
SHP 2019 = 365/3.3 = 111 days
In 2018 the stock was held in the warehouse for 92 days between being sold while in 2019 it was
held for 111 days in comparison the firm's ability to convert stock into sale is decreasing.

Accounts Receiver turnover

Accounts receivable turnover= annual credit sales/ average debtor

25
ART as at 2018 = 100,000/10,000= 10 times
ART as at 2019= 125,000/12,500= 10 times
This means that the credit customers were turned into sales 10 times for both 2018 and 2019
after paying items due to the firm.

Fixed asset turnover

Fixed asset turnover = annual sales/ fixed assets

FAT as at 2018= 100/ 45=2.2

FAT as at 2019= 125/ 75=1.7

This means that in 2018 the efficiency of the fixed assets that were to be utilized to generate
sales revenue was higher compared to in 2019. It was 2.2 which decreased to 1.7 in 2019.

Total assets turnover

Total asset turnover= annual sales/total assets
TAT as at 2018= 100/65= 1.5
TAT as at 2019= 125/105= 1.3
This means that over the period of one year the efficiency of the business dropped. It utilized
one shilling of the total assets to generate 1.3 and 1.19 of sales in 2018 and 2019.

Cash Ratio
Cash Ratio at bank + short term marketable securities/ current liabilities
Cash ratio as at 2018= 5/10=1.2
Cash ratio as at 2019= 5/10= 1.2
This means that the business cannot use its liquid assets to pay for its current liabilities, because
it has more liabilities than liquid assets.

Gross profit margin

Gross profit margin= gross profit/sales*100
GPM as at 2018 = 80/100*100 = 80%
GPM as at 2019 = 100/125*100 = 80%
This means that 80% is the gross profit and only 20% is what was used for the cost of sales.

26
Operating profit margin
Operating profit margin = operating profit/sales
OPM as at 2018 = 45/100 *100 = 45%
OPM as at 2019 = 60/125/*100 = 48%
This means that 55% of sales in the year 2018 and 52% of 2019 both relate to the cost of sales
and operating expenses, while 45% of sales in 2018 and 48% in 2019 remained as operating
margin profit.This means that the operating profit would be generated by the company improved
from 2018 to 2019.

Net profit margin

Net profit margin = net profit*100+interest/sales
NPM as at 2018 = 30*100+5/100 = 35%
NPM as at 2019 = 40*100+5/125= 36%
This means that in 2018, 65% of sales were made and in 2019, 64% were made, both were taken
up by cost of sales, and 35% in 2018 and 36% in 2019 were the net profit.

Times interest earned ratio

Times interest earned ratio = Operating profit/interest charges

TIER as at 2018 = 45/5=9

TIER as at 2019 = 60/9=12

The firm paid their interest charges from the operating profit 9 times in 2018 and 12 times in
2019.The firm is doing good because it increases in 2019.

Debt/equity ratio

Debt ratio = total debts/total assets

DT as at 2018 = 40/65=61.5%

DT as at 2019 = 40/105=38%

61.5% of the total assets were financed using debt in the year 2018,and 38.5% was financed
using the owner’s equity. In 2019, 38% of the total assets were financed using debt and 62% was
financed using the owner’s equity.

27
Debtors’ collection period

Debtors collection period = 365/debtors’ turnover

DCP as at 2018 = 365/10 = 37 days

DCP as at 2019 = 365/10 = 37 days

This means that in 2018 and 2019 the debt collection period was 37 days which was a very short
period of time for debtors to pay their dues.

Turnover ratios
Stock/inventory turnover
Turnover ratio = cost of sales/average stock
TR as at 2018 = 20,000/5000 = 4 times
TR as at 2019 = 25,000/7500 = 3.3
The business was doing well in 2018 because they turned their stock into sales. In 2019 the
number of times stock was turned into sales reduced.
Appendix 4

Subscription account
Details Ksh (000) Details Ksh (000)

Balance b/d 1,200 Members subscription 10,710

Balance c/d 0 Balance c/d 980

To be taken to income
and expenditure 10,490 Balance b/d 0
11,690 11,690

28
Trading, profit and loss
account for Bar activities
For the year ended 30/09/2020

Ksh (000) Ksh(000)

Sales 7,450

cost of sales

Opening stock 710

Bar purchase 5610

Closing stock -870 -5450

Profit 2000

Disposal account
Details Ksh(000) Details Ksh(000)

Cost value of old Receipts and payment

bus 12,190 proceeds 3,000

Surplus 1,100 Accumulated depreciation 10,290

13,290 13,290

Owing to printing
Details Ksh(000) Details Ksh(000)

Receipts and payment 470 Balance b/d 90

29
Income and
Balance c/d 30 expenditure 410
500 500

Owing to supply purchases

Details Ksh(000) Details Ksh(000)

Receipts and payments 5,770 Balance b/d 590

Balance c/d 430 Purchases 5,610

6,200 6,200

Depreciation for premises

29,000,000 – 18,800,000 = 10,200,000

5% * 10,200,000 = 510,000

Depreciation for bus

Depreciation = 15%*15,600,000 = 2,340,000

3,000,000 + 12,600,000 = 15,600,000

30
Income and expenditure as
of 30/09/2020.
Income Ksh (000) Ksh(000)
Subscriptions 10,490
Subscription from fates 10
Bar Net profit 2,000
Entertainment net
proceeds 4,270
Bank interest 230
Profits on motor vehicle 1,100
Total 18,100
Expenditure
Salaries and wages 4,800
Rates and taxes 1,260
Printing and stationery 410
Ground man’s wages 840
Transport and
miscellanies expenses 1,530
Repairs 320
Depreciation of premises 510
Depreciation of bus 2,340
Total 12,010
Surplus 6,090
Accumulated fund b/d 21,710
Accumulated fund c/d 27,800

Statement of Affairs as of 31-Dec-2019

Non Current assets ksh (000) Ksh(000) Ksh(000)
Premises 29,000 18,000 10,200
Bus 12,190 10,290 1,900

31
Total 12,100
Current Assets
Subscriptions Due 1,200
Bas Stock 710
Cash at bank 8,230
Cash in hand 150
Total Assets 10,290 10,290
Net Assets 22,390
Liabilities
Owings for bar purchase 580
Printing Owing 90 -680
Accumulated Fund 21,710

Appendix 5

Cash Budget

Month1 Month 2 Month 3 Month 4

Receipts ksh(000) ksh(000) ksh(000) ksh(000)

Initial investment 25,000 0 0 0

Receipts from
sales 0 0 4 6
Total Receipts 25 0 4 6

Payments
Purchases 6 0 6 4
Expenses 1 1 1 1
Equipment 15 0 0 0
Drawings 0 0 0 2
Total payments 22 1 7 7
Net Receipts 3 -1 -3 -1
Bank Balance b/f 0 3 2 -1
Bank Balance c/d 3 2 -1 -2

32
BENEFITS AND LIMITATIONS OF BUDGETS
AND BUDGETARY PLANNING AND CONTROL
AND SOLUTIONS
A budget is a financial plan for a specific time period. It is an estimation of revenue and
expenses over a specified period of time and is used by businesses, the government, and even
individuals. An important part of running any business effectively and efficiently is having a
budget(Ganti, 2021). Budgetary control on the other hand is the managing of income and
expenditure, it is the process of regularly comparing actual income or expenditure to the planned
income or expenditure that identifies whether or not corrective action should be taken (Sinclair,
2015).

.
Here are some benefits and limitations of having a budget:

Benefits
I. Budgets facilitate planning
Budgets help make accurate and definite plans by specifying the time and amount that should be
spent by the various heads of departments.

II. Planning orientation.

Creating a budget takes management away from its day to day management of a business and
forces it to think longer-term and to look at the bigger picture and focus on the competitive and
financial position of the business and how to improve it.

33
III. Facilitates delegation of authority
Budgets specify who spends the money and on what. Delegating authority to subordinates to
carry out budgeted activities within the limits that are projected in the budget is made easier by
financial predictions made by top management.

Limitations / Corrective actions /Justification of the

budgetary control solutions
I. Time required.
It is time consuming to create a budget in an unstructured environment where many iterations of
the budget may be required. The time involved can be much less if there is a properly designed
budgeting procedure put in place. Having a proper budgeting procedure will enable the company
to have a more structured environment which reduces the confusion which will help keep things
in order and make decision making easier for the company.

II. Blame for outcomes.

If a department does not achieve its desired budget results, the manager of the department may
blame the other departments that provide services to it for not supporting their department
adequately. To ensure this does not happen, a company would need to invest in the right
budgeting software, to ensure that the blame for not achieving the desired result is not put on the
different department heads. A budgeting software will ensure that all finances are tracked and
can be accounted for, this will help the company make better decisions because they will always
be on the know of what the money was used for and make decisions accordingly.
III. Inflexibility:
Budgets specifically state the amount that is to be spent on various items. If managers do not
have the discretion to change the amount set for different items there is a possibility that there
will be overspending in some areas and under spending in others. A solution for this would be to
either leave room for specific adjustments to be made to the budget or to ensure that the amount
set at the beginning is accurate, this calls for effectiveness and having a software that helps in the

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set up of the budget will be quite effective, it will also help a company make the right decisions
in terms of making the right budget at the beginning of the financial year.

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