Jemshah · KNEC Diploma in Food and Beverage Management · Module II
Hospitality Accounting and Law — June/July 2023
Paper: 2802/201 · Time: 3 hours
Section A: Question ONE and any other TWO. Section B: Question FIVE and any other FOUR.
Questions are transcribed from the supplied KNEC paper. Answers are independent study explanations, not an official KNEC marking scheme. Attempt each part before reading its Answer.
SECTION A (40 marks)
Answer Question ONE (compulsory) and any other TWO questions in this section.
Question 1(a)
Answer
- Exercise original jurisdiction in civil and criminal matters within its constitutional limits.
- Determine claims concerning violation or threatened violation of fundamental rights.
- Interpret the Constitution and determine the constitutionality of laws or actions.
- Exercise supervisory jurisdiction over subordinate courts and bodies performing judicial or quasi-judicial functions.
Article 165 excludes matters reserved to the Supreme Court and the specialised courts established under Article 162(2).
Question 1(b)
Answer
- Parliament has limited time to handle every administrative detail.
- Technical matters benefit from specialist knowledge.
- Rules can be adjusted promptly to changing circumstances.
- Urgent or local implementation details can be addressed within powers granted by the parent Act.
Question 1(c)
Answer
- Purchase: buy the property and obtain ownership, usually requiring substantial capital.
- Lease or rent: obtain the right to occupy the premises for an agreed period in exchange for rent under stated tenancy terms.
Question 1(d)
Answer
- The requested food or drink is unavailable or the establishment is full.
- The traveller cannot or will not pay the lawful charge.
- Violent, seriously disorderly or threatening conduct endangers others.
- Providing the requested service would breach a legal restriction, such as an alcohol licensing rule.
Refusal must have a lawful reason and must not be discriminatory.
Question 1(e)(i)
Answer
A statutory levy charged on specified hotel or catering business receipts to finance training and development in the hospitality and tourism sector. The paper uses historical terminology associated with the catering and tourism development levy.
Question 1(e)(ii)
Answer
A person appointed to the body responsible for administering and applying the levy fund for its statutory purposes. A trustee is distinct from a hotel operator who collects or remits levy. The Tourism Fund succeeded the former Catering and Tourism Development Levy Trustees.
Question 2
Answer
- Pay wages when due and observe lawful wage and deduction requirements.
- Provide reasonable housing or the applicable housing allowance, subject to lawful consolidated-pay arrangements.
- Provide sufficient wholesome water at work.
- Provide statutory leave and rest entitlements.
- Provide required medical attention and comply with workplace health and safety obligations.
These are general study points under Kenyan employment and safety law; the detailed entitlement depends on the applicable Act and employment terms.
Question 3
Answer
- Maintains order by defining permitted conduct and offences.
- Protects rights and freedoms and provides remedies for violations.
- Offers procedures for resolving disputes peacefully.
- Creates predictable rules for property, contracts and commerce.
- Defines powers and duties of public institutions, supporting accountability.
Question 4
Answer
- Valid contract: has the required elements and creates enforceable obligations.
- Void contract: has no legal effect from the outset.
- Voidable contract: binds the parties unless the entitled party elects to set it aside, for example in certain cases of misrepresentation.
- Unenforceable contract: cannot be enforced through the courts because of a legal defect, such as failure to meet a required formality.
- Illegal contract: concerns prohibited conduct and is not enforceable as a lawful bargain.
SECTION B (60 marks)
Answer Question FIVE (compulsory) and any other FOUR questions in this section.
Question 5(a)
The trial balance of Bahan Traders prepared as at 31 December 2021 did not balance. The difference was placed in a suspense account. On investigation the following errors were revealed:
- Sales day book had been overcast by Ksh 14,000.
- Cash deposit of Ksh 45,000 into the bank account had been recorded in the books as Ksh 5,400.
- Cheque receipt of Ksh 43,000 from Pana had only been entered in the cashbook.
- Purchase of goods of Ksh 21,000 from Apollo had been entered in the personal account as Ksh 2,100.
- Discounts allowed of Ksh 3,600 had been entered in the discounts received account.
Prepare a journal to correct the errors above.
(13 marks)
Answer
| Error | Account debited (Ksh) | Account credited (Ksh) | Explanation |
|---|---|---|---|
| (i) | Sales 14,000 | Suspense 14,000 | Remove sales overcast. |
| (ii) | Bank 39,600 | Cash 39,600 | 45,000 − 5,400; correct both sides of the contra entry. |
| (iii) | Suspense 43,000 | Pana 43,000 | Complete the missing customer credit. |
| (iv) | Suspense 18,900 | Apollo 18,900 | 21,000 − 2,100; increase the creditor balance. |
| (v) | Discounts allowed 3,600 Discounts received 3,600 |
Suspense 7,200 | Remove the wrong credit and record the correct debit. |
Assumptions: error (ii) affects both cash and bank entries; error (v) was credited to discounts received. These follow the normal double-entry treatment of the stated transactions.
Question 5(b)
Answer
| Debit details | Ksh | Credit details | Ksh |
|---|---|---|---|
| Pana — error (iii) | 43,000 | Balance b/d — trial balance difference | 40,700 |
| Apollo — error (iv) | 18,900 | Sales — error (i) | 14,000 |
| — | — | Discount corrections — error (v) | 7,200 |
| Total | 61,900 | Total | 61,900 |
Ksh 40,700
Closing suspense balance = 0
Question 6
Answer
- Records transactions systematically so there is a reliable financial history.
- Measures profit or loss for a period.
- Shows assets, liabilities and capital at a reporting date.
- Supports planning and decisions through cost, cash and performance information.
- Provides evidence for accountability, control and required reporting.
Question 7
The following information relates to Watik Enterprises for the year ended 31 December 2021.
| Item | Ksh |
|---|---|
| Discounts received | 6,200 |
| Commission allowed | 19,500 |
| Repairs to equipment | 48,600 |
| Inventory (1 January 2021) | 29,000 |
| Inventory (31 December 2021) | 37,100 |
| Sales | 1,460,000 |
| Purchases | 881,000 |
| General expenses | 175,000 |
Prepare an income statement.
(10 marks)
Answer
Watik Enterprises — Income statement for the year ended 31 December 2021
| Item | Ksh |
|---|---|
| Sales | 1,460,000 |
| Opening inventory | 29,000 |
| Add purchases | 881,000 |
| Goods available for sale | 910,000 |
| Less closing inventory | (37,100) |
| Cost of sales | (872,900) |
| Gross profit | 587,100 |
| Add discounts received | 6,200 |
| Income before expenses | 593,300 |
| Commission allowed | (19,500) |
| Repairs to equipment | (48,600) |
| General expenses | (175,000) |
| Net profit | 350,200 |
Net profit = 593,300 − 243,100 = Ksh 350,200
Question 8(a)
The following information relates to Homad Retailers for the month of July 2022.
| Item | Ksh |
|---|---|
| Bank balance as per cash book | 44,300 (DR) |
| Bank statement balance | 5,800 (CR) |
| Standing order payment | 18,000 |
| Uncredited cheque | 40,000 |
| Direct deposit | 9,000 |
| Unpresented cheque | 12,000 |
| Bank charges | 1,500 |
Prepare an updated cash book.
(5 marks)
Answer
| Debit details | Ksh | Credit details | Ksh |
|---|---|---|---|
| Balance b/d | 44,300 | Standing order | 18,000 |
| Direct deposit | 9,000 | Bank charges | 1,500 |
| — | — | Balance c/d | 33,800 |
| Total | 53,300 | Total | 53,300 |
The updated bank balance is Ksh 33,800 debit. Uncredited and unpresented cheques are timing differences already recorded in the cash book.
Question 8(b)
Answer
Homad Retailers — Bank reconciliation statement at 31 July 2022
| Item | Ksh |
|---|---|
| Balance per bank statement (credit/favourable) | 5,800 |
| Add uncredited cheque | 40,000 |
| Less unpresented cheque | (12,000) |
| Balance per updated cash book (debit/favourable) | 33,800 |
Question 9(a)
Answer
An amount within equity set aside from profits or arising from another equity adjustment for a stated purpose; it is not necessarily cash kept separately.
Question 9(b)
Answer
A distribution of a company’s profits to shareholders, authorised in accordance with the applicable rules.
Question 9(c)
Answer
A company debt instrument acknowledging borrowed money, usually carrying agreed interest and repayment terms; it may be secured or unsecured.
Question 9(d)
Answer
A unit of ownership whose holders normally have voting rights and receive dividends and residual assets after prior claims, subject to the company’s terms.
Question 9(e)
Answer
A share that gives priority over ordinary shares for specified dividends and/or repayment of capital, according to its issue terms.
Question 10
On 1 July 2022, Obollo Retailers had Ksh 10,000 in cash and Ksh 35,000 at the bank. The following transactions took place during the month:
| July 2022 | Transaction |
|---|---|
| 5 | Received a cheque of Ksh 64,000 from Ann |
| 10 | Sold goods for Ksh 24,000 in cash |
| 15 | Paid rent for Ksh 16,000 by cheque |
| 20 | Deposited Ksh 15,000 of the cash into the bank account |
| 30 | Proprietor took Ksh 4,200 from cash for personal use |
Prepare a two column cash book for July 2022.
(10 marks)
Answer
Obollo Retailers — Two-column cash book, July 2022
| Debit date/details | Cash Ksh | Bank Ksh | Credit date/details | Cash Ksh | Bank Ksh |
|---|---|---|---|---|---|
| 1 Balance b/d | 10,000 | 35,000 | 15 Rent | — | 16,000 |
| 5 Ann | — | 64,000 | 20 Bank (C) | 15,000 | — |
| 10 Sales | 24,000 | — | 30 Drawings | 4,200 | — |
| 20 Cash (C) | — | 15,000 | 31 Balance c/d | 14,800 | 98,000 |
| Totals | 34,000 | 114,000 | Totals | 34,000 | 114,000 |
| 1 August Balance b/d | 14,800 | 98,000 | — | — | — |
C marks the contra entry on 20 July: cash decreases by Ksh 15,000 and bank increases by the same amount.
Closing bank = 35,000 + 64,000 + 15,000 − 16,000 = Ksh 98,000
Legal references: High Court mandate and jurisdiction; Employment Act; Tourism Fund history.
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