) Kiawara Enterprises prepares its financial statements on 31st October each year. Given below are..

) Kiawara Enterprises prepares its financial statements on 31st October each year. Given below are the comparative profit and loss statements and balance sheets for the year ended 31st October 2009 and 2010.

Balance Sheet as 31st October

Assets:	2010 Kshs “Millions”	2009 Kshs “Millions”
Non- current assets
Land and buildings	560	630
Machinery and equipment	400	480
Furniture	300	240
	1,260	1,350
Current assets
Stocks	240	130
Debtors	300	240
Prepayments	130	60
Cash in hand and bank	40	20
	710	450
Total assets	1,970	1,800
Equity and Liabilities:
Capital and reserves
Ordinary share capital	500	500
Share premium	200	200
Genera reserve	150	150
Profit and loss account	670	450
	1,520	1,300
Non-current liability
Long term loan	200	300
Current Liabilities
Trade creditors	180	140
Accruals	70	60
Total equity and liabilities	1,970	1,800

Profit and loss account for the year ended 31st October.

	2010 Kshs “Millions”	2009 Kshs “Millions”
Sales	3,600	3,000
Cost of sales	2,400	2,400
Gross profit	1,200	600
Administrative expenses	300	180
Selling and distribution expenses	175	90
Interest	25	30
Total expenses	500	300
Profit before tax	700	300
Tax	(280)	(120)
Profits after tax	420	180
Dividend paid	200	100
Retained profit	220	80

Required:

The following ratios for the two years ended 31st October 2010 and 2009:

i.Gross profit to sales ratio	(2 marks)
ii.Net profit to fixed charges	(2 marks)
iii.Stock turnover (closing stock on 31st October 2008 was Kshs 110 million)	(2 marks)
iv.Current ratio	(2 marks)
v.Acid test ratio	(2 marks)

vi.Debtors collection period (Assume there are 360 days in a year and that all sales are made on credit. (2 marks)vii.Gearing ratio (2 marks) viii.Return on capital employed (2 marks)

(b)Identify four limitations of using accounting ratios for the purpose of analyzing financial statements. (2 marks)QUESTION FOUR

The treasurer of Rumuruti Charity Trust has presented the following information for the year ended 31st October 2009.

	Dr Kshs	Cr. Kshs
Interest		30,000
Rent		12,000
Donations for Clinic Fund		6,000
Sundry Collections from parties		3,000
Salaries	6,000
Medicines and Surgical Expenses	14,000
Clinical Equipment purchased	5,000
Educational Scolarships	10,000
Printing, stationery and postage	800
Travelling Expenses of trustees	1,000
Conveyance allowance to staff	200
Furniture purchased	4,000
Investments(purchased on the last day of the year)	10,000
Cash and Bank Balances: Cash Bank	1,600 13,400
Totals	66,000	66,000

The trust fund originally consisted of buildings valued at Kshs 150,000, 9% Government securities of the face value of Kshs 350,000(cost Kshs 320,000) and bank balance of Kshs 10,000.

Bank interest collectable at the end of the year was Kshs 2,500. Interest accrued on Investments at the beginning of the year was Kshs 3,500 and at the end of the year Kshs 5,000. The trust owed suppliers of medicines Kshs 1,200 and Kshs 800 respectively at the beginning and at the end of the year. Furniture at the beginning of the year was valued at Kshs 3,000.

You have to provide depreciation on the book values of building at 2½ % and on other assets at 20%.

Required:

i)Receipts and Payments Account for the Trust. (8 marks) ii)Income and Expenditure Account for the Trust (8 marks) iii)Balance Sheet for the trust (4 marks)