[Mulambo]

Q.1. Abigail Manchester set up a business selling keep fit equipment, trading under the name of keep fit. She put K7,000,000 of her own money into a business bank account (transaction A) and in her first period of trading, the following tractions occurred.

Transaction

B Paid rent of shop for the period 3,500,000
C Purchased equipment (inventories) 5,000,000
D Raised loan from bank 1,000,000
E Purchased of shop fittings (for cash) 2,000,000
F Sales of Equipment: Cash 10,000,000
G Sales of equipment: On Credit 2,500,000
H Payments for trade accounts payable 5,000,000
I Payments from trade accounts receivable 2,500,000
J Interest on loan (paid) 100,000
K Other expenses 1,900,000
L Drawings 1,500,000

(a) Explain what you understand by the term depreciation and its relevance in the preparation of financial statements (2 Marks)

(b) Prepare ledger accounts (10 Marks)
( C) Prepare an income statement (4 Marks)
(d) Prepare a balance sheet (4 Marks)

[morgaine300]

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