Financial Accounting — 2023

KNEC Diploma in Supply Chain Management, Module I. Original examination questions with explained model answers for revision.

March/April 2023

Paper codes: 2903/102 (shared paper)
Time: 3 hours
Instructions: Answer any FIVE questions. Show all your workings. Answer the questions in English.

Question 1(a) — 8 marks

Explain each of the following accounting concepts:

(i) Dual aspect concept;

(ii) Accrued concept;

(iii) Prudence concept;

(iv) Money measurement concept.

Model answer

  1. Dual aspect: every transaction has two equal accounting effects, preserving Assets = Capital + Liabilities.
  2. Accrued/accrual concept: recognise income when earned and expenses when incurred, regardless of cash receipt or payment.
  3. Prudence: exercise caution under uncertainty so that assets/income are not overstated and liabilities/expenses are not understated, without deliberately biasing estimates.
  4. Money measurement: record in the accounts those events that can be measured reliably in monetary terms.

Question 1(b) — 12 marks

The following information was obtained from the books of account of Njamah Groceries for the month of September 2022. Prepare: (i) Sales ledger control account; (ii) Purchases ledger control account.

Particulars Ksh
Balances as at 1 September 2022: Sales ledger 2,420,000
Purchases 2,200,000
Totals for the month: Credit sales 800,000
Credit purchases 1,650,000
Returns inwards 45,000
Dishonoured cheques received from customers 30,000
Cash receive from customer 780,000
Cash paid to suppliers 830,000
Set offs 200,000
Credit notes received from suppliers 17,000
Debit notes received from suppliers 10,000
Interest on customers overdue accounts 12,000
Bad debts written off 68,000
Discounts allowed 26,000
Discounts received 42,000
Cheques received from customers 100,000
Cheques paid to suppliers 1,100,000

Model answer

Sales ledger control

Dr — Particulars Ksh Cr — Particulars Ksh
Opening balance 2,420,000 Returns inwards 45,000
Credit sales 800,000 Cash received 780,000
Dishonoured cheques 30,000 Set-offs 200,000
Interest charged 12,000 Bad debts 68,000
Discounts allowed 26,000
Cheques received 100,000
Balance c/d 2,043,000
Total 3,262,000 Total 3,262,000

Balance b/d: Ksh 2,043,000 Dr.

Purchases ledger control

Dr — Particulars Ksh Cr — Particulars Ksh
Cash paid 830,000 Opening balance 2,200,000
Set-offs 200,000 Credit purchases 1,650,000
Credit notes 17,000 Debit notes 10,000
Discounts received 42,000
Cheques paid 1,100,000
Balance c/d 1,671,000
Total 3,860,000 Total 3,860,000

Balance b/d: Ksh 1,671,000 Cr.

Question 2(a) — 8 marks

Wapito Enterprises does not keep proper books of account. The following information was obtained from the business for the year ended 31 December 2022. Prepare an income statement for the year ended 31 December 2022.

Particulars Ksh
Sales 820,000
Purchases 230,000
Inventory (1 January 2022) 650,000

Additional information: Gross profit margin was 25%. Proprietor paid rent of Ksh.20,000 per month.

Model answer

Working Calculation Ksh
Gross profit 820,000 × 25% 205,000
Cost of sales 820,000 × 75% 615,000
Closing inventory 650,000 + 230,000 − 615,000 265,000
Annual rent 20,000 × 12 240,000

Income statement — Wapito Enterprises, year ended 31 December 2022

Particulars Ksh
Sales 820,000
Opening inventory 650,000
Purchases 230,000
Less closing inventory 265,000
Cost of sales 615,000
Gross profit 205,000
Rent expense 240,000
Net loss 35,000

Rent paid personally by the proprietor is still a business expense; the other entry increases proprietor’s capital.

Question 2(b) — 12 marks

The following transactions relate to Patyi Enterprised for the month of August 2022. Enter the transactions above in the relevant ledger accounts.

August 2022 Transaction
1 Sold goods for Ksh.150,000 in cash.
3 Took Ksh.40,000 from the cash till for personal use.
8 Purchased goods for Ksh.300,000 from Tendafa wholesalers on credit.
13 Sold goods for Ksh.450,000 and received a cheque.
28 Paid rent Ksh.30,000 by cheque.
31 Settled the account of Tendafa wholesalers by cheque.

Model answer

Cash

Dr — Particulars Ksh Cr — Particulars Ksh
Aug 1 — Sales 150,000 Aug 3 — Drawings 40,000
Balance c/d 110,000
Total 150,000 Total 150,000

Balance b/d: Ksh 110,000 Dr.

Sales

Dr — Particulars Ksh Cr — Particulars Ksh
Balance c/d 600,000 Aug 1 — Cash 150,000
Aug 13 — Bank 450,000
Total 600,000 Total 600,000

Balance b/d: Ksh 600,000 Cr.

Drawings

Dr — Particulars Ksh Cr — Particulars Ksh
Aug 3 — Cash 40,000 Balance c/d 40,000
Total 40,000 Total 40,000

Balance b/d: Ksh 40,000 Dr.

Purchases

Dr — Particulars Ksh Cr — Particulars Ksh
Aug 8 — Tendafa — payable 300,000 Balance c/d 300,000
Total 300,000 Total 300,000

Balance b/d: Ksh 300,000 Dr.

Tendafa — payable

Dr — Particulars Ksh Cr — Particulars Ksh
Aug 31 — Bank 300,000 Aug 8 — Purchases 300,000
Total 300,000 Total 300,000

Bank

Dr — Particulars Ksh Cr — Particulars Ksh
Aug 13 — Sales 450,000 Aug 28 — Rent 30,000
Aug 31 — Tendafa — payable 300,000
Balance c/d 120,000
Total 450,000 Total 450,000

Balance b/d: Ksh 120,000 Dr.

Rent

Dr — Particulars Ksh Cr — Particulars Ksh
Aug 28 — Bank 30,000 Balance c/d 30,000
Total 30,000 Total 30,000

Balance b/d: Ksh 30,000 Dr.

Question 3(a) — 10 marks

The following information relates to equipment owned by Mwanduma Enterprises. Equipment is depreciated at the rate of 20% per annum on reducing balance. For each of the years ended 31 December 2021 and 2022, prepare: (i) Equipment account; (ii) accumulated provision for depreciation on equipment account.

Equipment Cost Ksh Date of purchase
A 480,000 1 January 2021
B 800,000 1 January 2022

Model answer

Year Asset Working Depreciation Ksh
2021 A 480,000 × 20% 96,000
2022 A (480,000 − 96,000) × 20% 76,800
2022 B 800,000 × 20% 160,000

Equipment — 2021

Dr — Particulars Ksh Cr — Particulars Ksh
Bank — A 480,000 Balance c/d 480,000
Total 480,000 Total 480,000

Balance b/d: Ksh 480,000 Dr.

Equipment — 2022

Dr — Particulars Ksh Cr — Particulars Ksh
Balance b/d 480,000 Balance c/d 1,280,000
Bank — B 800,000
Total 1,280,000 Total 1,280,000

Balance b/d: Ksh 1,280,000 Dr.

Accumulated depreciation — 2021

Dr — Particulars Ksh Cr — Particulars Ksh
Balance c/d 96,000 Income statement 96,000
Total 96,000 Total 96,000

Balance b/d: Ksh 96,000 Cr.

Accumulated depreciation — 2022

Dr — Particulars Ksh Cr — Particulars Ksh
Balance c/d 332,800 Balance b/d 96,000
Income statement (76,800 + 160,000) 236,800
Total 332,800 Total 332,800

Balance b/d: Ksh 332,800 Cr.

Question 3(b) — 10 marks

On 30 September 2022, the petty cashier of Pekon Enterprises received Ksh.12,800 from the main cashier to spend in the first week of October 2022. The following payments were made during the week. Prepare a petty cash book using the following analysis columns: stationery; staff welfare; communication; travelling.

October 2022 Payment Ksh
1 Bus fare 200
2 Taxi 1,580
2 Milk 280
3 Felt pens 1,230
3 Coffee 350
4 Internet subscription 3,000
4 Milk 240
5 Phone airtime 2,000
6 Tea leaves 120
7 Printing papers 1,290

Model answer

Date Details Receipt Ksh Payment Ksh Stationery Ksh Staff welfare Ksh Communication Ksh Travelling Ksh
Opening Balance b/d 0
Start Reimbursement 12,800
1 Bus fare 200 200
2 Taxi 1,580 1,580
2 Milk 280 280
3 Felt pens 1,230 1,230
3 Coffee 350 350
4 Internet 3,000 3,000
4 Milk 240 240
5 Airtime 2,000 2,000
6 Tea leaves 120 120
7 Printing papers 1,290 1,290
Totals 12,800 10,290 2,520 990 5,000 1,780
Balance c/d 2,510

Next reimbursement to restore the same imprest: Ksh 10,290.

Question 4(a) — 8 marks

Explain four qualities of ideal accounting information.

Model answer

  1. Relevance: information helps users assess past performance or make decisions about future actions.
  2. Faithful representation/reliability: information is complete, neutral and free from material error so users can depend on it.
  3. Comparability: consistent policies and presentation allow comparison between periods and businesses.
  4. Understandability: clear classification and explanations make information comprehensible to users with reasonable business knowledge.

Question 4(b) — 12 marks

The trial balance of Chekan logistics prepared as at 31 December 2022, did not agree upon investigation, the following errors were revealed. Prepare: (i) a general journal to correct the errors; (ii) a suspense account duly balanced.

(i) The sales day book had been undercast by Ksh.113,000.

(ii) Payment of electricity expenses of Ksh.155,300 had been recorded in the electricity account as Ksh.185,500.

(iii) The purchases day book had been undercast by Ksh.72,200.

(iv) Discount allowed of Ksh.34,000 had been recorded in the discounts received account.

(v) Cash payment of rent Ksh.120,000 had not been recorded in the books.

Model answer

Entry Account / explanation Debit Ksh Credit Ksh
I
Dr Suspense 113,000
Cr Sales 113,000
II — 185,500 − 155,300
Dr Suspense 30,200
Cr Electricity 30,200
III
Dr Purchases 72,200
Cr Suspense 72,200
IV
Dr Discounts allowed 34,000
Dr Discounts received 34,000
Cr Suspense 68,000
V
Dr Rent 120,000
Cr Cash 120,000

Suspense account

Dr — Particulars Ksh Cr — Particulars Ksh
Sales correction 113,000 Opening difference — derived 3,000
Electricity correction 30,200 Purchases correction 72,200
Discount correction 68,000
Total 143,200 Total 143,200

The errors imply an opening suspense credit of Ksh 3,000: 113,000 + 30,200 − 72,200 − 68,000. The question does not separately state the original difference.

Question 5(a) — 8 marks

Outline four differences between capital expenditure and revenue expenditure.

Model answer

Capital expenditure Revenue expenditure
Acquires/improves a non-current asset Maintains operations or earns current-period income
Benefits more than one period Benefits mainly the current accounting period
Initially recognised as an asset Normally charged as an expense in the income statement
Example: extending a warehouse Example: routine warehouse repairs

Question 5(b) — 12 marks

The following balances were obtained form the books of account of Jekmix Ventures as at 31 December 2022. Prepare a statement of financial position as at 31 December 2022.

Particulars Ksh
Accounts payable 140,400
Accounts receivable 394,300
Furniture 432,600
Accumulated provisions for depreciation on furniture 44,100
Motor vehicles 840,000
Accumulated provision for depreciation on motor vehicles 590,000
Capital (1 January 2022) 1,000,000
Drawings 40,000
Cash at bank 117,400
Bank loan 200,300
Net loss for the year 150,500

Model answer

Jekmix Ventures — Statement of financial position, 31 December 2022

Non-current asset Cost Accumulated depreciation Carrying value
Furniture 432,600 44,100 388,500
Motor vehicles 840,000 590,000 250,000
Total 1,272,600 634,100 638,500
Particulars Ksh
Non-current assets 638,500
Accounts receivable 394,300
Bank 117,400
Current assets 511,700
Total assets 1,150,200
Capital: 1,000,000 − drawings 40,000 − loss 150,500 809,500
Bank loan 200,300
Accounts payable 140,400
Capital and liabilities 1,150,200

Question 6(a) — 8 marks

Explain four benefits of using source documents in a business organization.

Model answer

  1. Evidence: source documents support that a transaction occurred and establish its date, parties and amount.
  2. Accurate recording: they provide the details from which journal and ledger entries are made.
  3. Audit trail and control: numbered documents help trace entries, authorise transactions and detect omissions or irregularities.
  4. Dispute resolution: invoices, receipts and other records help reconcile supplier/customer accounts and substantiate claims.

Question 6(b) — 12 marks

The following is the receipts and payments account of Tuinue Sports Club for the year ended 31 December 2022. Prepare an income and expenditure account for the year ended 31 December 2022.

Receipts Ksh Payments Ksh
Donations 250,000 Salaries and wages 620,000
Canteen sales 330,700 Canteen purchases 200,800
Subscriptions 3,100,000 Lighting and heating 430,100
Equipment 100,000
Rent 600,000
Balanced c/d 1,729,800
Total 3,680,700 Total 3,680,700
Balances as at 31 December 2021 31 December 2022
Subscriptions 3,380,000 1,720,000
Prepaid rent expenses 440,000 300,000
Equipment 631,500 522,000

Model answer

The subscription balances are not described as arrears or advances. The main answer assumes arrears/receivables and unrestricted revenue donations. The alternative for subscription advances is shown below.

Adjustment Working Ksh
Subscription income 3,100,000 + 1,720,000 − 3,380,000 1,440,000
Canteen surplus (no inventories stated) 330,700 − 200,800 129,900
Rent expense 600,000 + 440,000 − 300,000 740,000
Equipment depreciation 631,500 + 100,000 − 522,000 209,500

Income and expenditure account — year ended 31 December 2022

Particulars Ksh
Subscriptions 1,440,000
Donations 250,000
Canteen surplus 129,900
Total income 1,819,900
Salaries and wages 620,000
Lighting and heating 430,100
Rent 740,000
Depreciation 209,500
Total expenditure 1,999,600
Deficit 179,700
Alternative if balances are subscription advances Ksh
Subscription income: 3,100,000 + 3,380,000 − 1,720,000 4,760,000
Total income including donations and canteen surplus 5,139,900
Less total expenditure 1,999,600
Surplus under this interpretation 3,140,300

Question 7(a) — 8 marks

Explain each of the following terms:

(i) Cash discount;

(ii) Quantity discount;

(iii) Trade discount;

(iv) Contra entry.

Model answer

  1. Cash discount: a reduction allowed for prompt settlement of an amount owing; recorded separately when taken.
  2. Quantity discount: a price reduction for buying a specified large quantity.
  3. Trade discount: a reduction from list price, for example for a trade customer; the net amount is entered in the accounts.
  4. Contra entry: a transfer between cash and bank recorded on opposite sides of the same cash book.

Question 7(b) — 12 marks

On 31 October 2022, the cash book (bank column) of Aty Enterprises showed a credit balance of Ksh.182,300 while the bank statement issued on the same date showed a credit balance of Ksh.118,300. Upon investigation, the following discrepancies were revealed. Prepare: (i) an updated cash book; (ii) a bank reconciliation statement.

(i) The bank had received dividends of Ksh.10,000.

(ii) Bank charges were Ksh.1,400.

(iii) A standing order of Ksh.7,000 had been affected.

(iv) The opening balance had been overstated by Ksh.8,300 in the cash book.

(v) Direct deposit were Ksh.75,200.

(vi) A cheque for Ksh.111,000 from a customer had been dishonoured.

(vii) Uncredited cheques amounted to Ksh.80,500.

(viii) A cheque for Ksh.407,000 had not been presented for payment.

Model answer

Treat the overstated opening balance as an overstated overdraft, consistent with the stated credit cash-book balance and the reconciliation.

Updated bank account

Dr — Particulars Ksh Cr — Particulars Ksh
Dividends 10,000 Opening overdraft 182,300
Correction of overstated overdraft 8,300 Bank charges 1,400
Direct deposit 75,200 Standing order 7,000
Balance c/d 208,200 Dishonoured cheque 111,000
Total 301,700 Total 301,700

Balance b/d: Ksh 208,200 Cr.

Particulars Ksh
Bank statement balance (credit / favourable) 118,300
Add uncredited cheques 80,500
Less unpresented cheque -407,000
Adjusted cash-book overdraft -208,200

July 2023

Paper codes: 2903/102 (shared paper)
Time: 3 hours
Instructions: Answer any FIVE questions. Show all your workings. Answer the questions in English.

Question 1(a) — 8 marks

Explain each of the following accounting concepts:

(i) consistency concept;

(ii) materiality concept;

(iii) going concern concept;

(iv) business entity concept.

Model answer

  1. Consistency: use the same appropriate accounting policies from period to period; disclose and explain justified changes.
  2. Materiality: disclose/classify information whose omission or misstatement could influence users’ decisions; significance depends on size and nature.
  3. Going concern: prepare accounts on the assumption that the business will continue operating for the foreseeable future unless liquidation or cessation is intended or unavoidable.
  4. Business entity: keep the business’s transactions separate from those of its owner; personal withdrawals are drawings rather than business expenses.

Question 1(b) — 12 marks

The following transactions relate to Wachungwa Enterprises for the month of February 2023. Prepare the relevant journals to record the transactions above.

February Transaction
8 Bought goods for Ksh.130,000 from Jason on credit.
14 Sold goods for Ksh.48,000 to Crepas on credit.
18 Bought goods for Ksh.201,500 from ABC limited on credit.
20 Returned goods worth Ksh.25,000 to Jason.
24 Sold goods for Ksh.140,000 to Wanjala on credit.
25 Returned goods worth Ksh.17,000 to ABC Ltd.
26 Sold goods for Ksh.20,000 to Almas on credit.
27 Bought goods for Ksh.50,000 from Jason on credit.
28 Sold goods for Ksh.100,000 to Rose on credit.

Model answer

Purchases journal

Date Supplier Ksh
8 Jason 130,000
18 ABC Ltd 201,500
27 Jason 50,000
Total 381,500

Sales journal

Date Customer Ksh
14 Crepas 48,000
24 Wanjala 140,000
26 Almas 20,000
28 Rose 100,000
Total 308,000

Returns outwards journal

Date Supplier Ksh
20 Jason 25,000
25 ABC Ltd 17,000
Total 42,000

No customer returns are stated; there are no entries in the returns inwards journal.

Question 2(a) — 9 marks

The following information relates to equipment owned by Wafulah Limited. The company depreciates its equipment at 25% per annum on reducing balance. A full year’s charge is made in the year of disposal. For each of the years ended 31 December 2021 and 2022, prepare: (i) equipment account; (ii) accumulated provision for depreciation on equipment; (iii) disposal of equipment account.

Equipment Date of Purchase Cost Sh. Date of Disposal Sale Proceeds Sh.
WIX 1 January 2021 500,000 1 July 2022 380,000
WIX2 1 January 2022 290,000

Model answer

Year Asset Working Depreciation
2021 WIX 500,000 × 25% 125,000
2022 WIX 375,000 × 25% (full year) 93,750
2022 WIX2 290,000 × 25% 72,500

Equipment — 2021

Dr — Particulars Ksh Cr — Particulars Ksh
Bank — WIX 500,000 Balance c/d 500,000
Total 500,000 Total 500,000

Balance b/d: Ksh 500,000 Dr.

Equipment — 2022

Dr — Particulars Ksh Cr — Particulars Ksh
Balance b/d 500,000 Disposal — WIX cost 500,000
Bank — WIX2 290,000 Balance c/d 290,000
Total 790,000 Total 790,000

Balance b/d: Ksh 290,000 Dr.

Accumulated depreciation — 2021

Dr — Particulars Ksh Cr — Particulars Ksh
Balance c/d 125,000 Income statement 125,000
Total 125,000 Total 125,000

Balance b/d: Ksh 125,000 Cr.

Accumulated depreciation — 2022

Dr — Particulars Ksh Cr — Particulars Ksh
Disposal — WIX (125,000 + 93,750) 218,750 Balance b/d 125,000
Balance c/d 72,500 Income statement (93,750 + 72,500) 166,250
Total 291,250 Total 291,250

Balance b/d: Ksh 72,500 Cr.

WIX disposal

Dr — Particulars Ksh Cr — Particulars Ksh
Equipment cost 500,000 Accumulated depreciation 218,750
Profit to income statement 98,750 Bank proceeds 380,000
Total 598,750 Total 598,750

Question 2(b) — 11 marks

On 1 February 2023, Etifa Limited had Ksh.200,000 cash in hand a bank overdraft of Ksh.150,000. The following transaction took place during the month. Prepare a two column cash book to record the transactions above.

February Transaction
7 Sold goods for Ksh.30,800 and received a cheque.
10 Paid an electricity bill of Ksh.2,500 in cash.
14 Withdrew Ksh.40,000 from the cash till for personal use.
27 Bought goods for Ksh.20,000 and paid by cheque.
28 Received a cheque for Ksh.43,000 from Amos.
28 Deposited all the cash into the bank except Ksh.19,000.

Model answer

Particulars Ksh
Cash before deposit: 200,000 − 2,500 − 40,000 157,500
Deposit: 157,500 − 19,000 138,500

Dr — Receipts

Date Details Cash Ksh Bank Ksh
1 Balance b/d 200,000 0
7 Sales 0 30,800
28 Amos 0 43,000
28 Cash C 0 138,500
Total 200,000 212,300

Cr — Payments

Date Details Cash Ksh Bank Ksh
1 Balance b/d — overdraft 0 150,000
10 Electricity 2,500 0
14 Drawings 40,000 0
27 Purchases 0 20,000
28 Bank C 138,500 0
End Balance c/d 19,000 0
End Balance c/d 0 42,300
Total 200,000 212,300

Balances brought down: cash Ksh 19,000 Dr; bank Ksh 42,300 Dr. Contra entries are marked C.

Question 3(a) — 12 marks

The following is the trial balance of Safy Enterprises as at 31 December 2022. Prepare a statement of financial position as at 31 December 2022.

Account Dr Ksh Cr Ksh
Land and buildings 2,720,000
Accounts payable 93,968
Capital (1 January 2022) 1,500,000
Accounts receivable 220,001
Furniture at cost 200,000
Provision for accumulated depreciation on furniture 99,366
Drawings 50,205
5 year bank loan 2,000,000
Inventory (31 December 2022) 380,000
Cash 42,500
Net Loss 80,628
Total 3,693,334 3,693,334

Model answer

Safy Enterprises — Statement of financial position, 31 December 2022

Particulars Ksh
Land and buildings 2,720,000
Furniture: 200,000 − 99,366 100,634
Non-current assets 2,820,634
Inventory 380,000
Accounts receivable 220,001
Cash 42,500
Current assets 642,501
Total assets 3,463,135
Capital: 1,500,000 − 50,205 − 80,628 1,369,167
5-year bank loan 2,000,000
Accounts payable 93,968
Capital and liabilities 3,463,135

Question 3(b) — 12 marks

The following information relates to Swit Traders for the month of February 2023. Prepare a purchase ledger control account for the month of February 2023.

Particulars Ksh
February 1 Purchases ledger balance — Cr 320,700
Purchases ledger balance — Dr 1,824
Credit purchases 410,340
Credit notes received from supplies 10,500
Debit notes received from suppliers 9,400
Cheques sent to suppliers 260,715
Cash discounts received 30,100
February 28 Purchases ledger balance — Dr 3,418

Model answer

Purchases ledger control

Dr — Particulars Ksh Cr — Particulars Ksh
Opening debit balances 1,824 Opening credit balances 320,700
Credit notes 10,500 Credit purchases 410,340
Cheques to suppliers 260,715 Debit notes 9,400
Discounts received 30,100 Closing debit balances c/d 3,418
Balance c/d 440,719
Total 743,858 Total 743,858

Balance b/d: Ksh 440,719 Cr.

Bring down Ksh 440,719 Cr and the separate Ksh 3,418 Dr supplier balances. Net amount payable is Ksh 437,301.

Question 4(a) — 8 marks

Explain four reasons for maintaining a petty cash book in a business organisation.

Model answer

  1. Reduces the number of small-payment entries in the main cash book.
  2. Delegates minor payments so the main cashier can focus on larger transactions.
  3. Analyses small payments into expense categories for posting and review.
  4. Improves control through vouchers, a named custodian and regular reconciliation of cash to records.

Question 4(b) — 12 marks

The following transactions relate to Jatix Limited for the month of February 2023. (i) Prepare ledger accounts for the month of February 2023. (ii) Balance off the ledger accounts.

February Transaction
1 Started business with Ksh.150,000 in cash and Ksh.40,000 in the bank account.
4 Bought goods for Ksh.30,000 in cash.
7 Bought goods for Ksh.48,000 from Zedy Supplies on credit.
13 Sold goods or Ksh.25,000 and received a cheque.
15 Brought in personal computers valued at Ksh.60,000 for business use.
19 Paid Zedy’s suppliers in full settlement of their account by cheque of Ksh.4,500.
26 Sold goods for Ksh.50,000 in cash.

Model answer

The printed Ksh 4,500 cheque is retained. Full settlement of Ksh 48,000 therefore implies discount received of Ksh 43,500.

Cash

Dr — Particulars Ksh Cr — Particulars Ksh
Feb 1 — Capital 150,000 Feb 4 — Purchases 30,000
Feb 26 — Sales 50,000 Balance c/d 170,000
Total 200,000 Total 200,000

Balance b/d: Ksh 170,000 Dr.

Bank

Dr — Particulars Ksh Cr — Particulars Ksh
Feb 1 — Capital 40,000 Feb 19 — Zedy Supplies 4,500
Feb 13 — Sales 25,000 Balance c/d 60,500
Total 65,000 Total 65,000

Balance b/d: Ksh 60,500 Dr.

Capital

Dr — Particulars Ksh Cr — Particulars Ksh
Balance c/d 250,000 Feb 1 — Cash, Bank 190,000
Feb 15 — Computers 60,000
Total 250,000 Total 250,000

Balance b/d: Ksh 250,000 Cr.

Purchases

Dr — Particulars Ksh Cr — Particulars Ksh
Feb 4 — Cash 30,000 Balance c/d 78,000
Feb 7 — Zedy Supplies 48,000
Total 78,000 Total 78,000

Balance b/d: Ksh 78,000 Dr.

Zedy Supplies

Dr — Particulars Ksh Cr — Particulars Ksh
Feb 19 — Bank, Discount received 48,000 Feb 7 — Purchases 48,000
Total 48,000 Total 48,000

Sales

Dr — Particulars Ksh Cr — Particulars Ksh
Balance c/d 75,000 Feb 13 — Bank 25,000
Feb 26 — Cash 50,000
Total 75,000 Total 75,000

Balance b/d: Ksh 75,000 Cr.

Computers

Dr — Particulars Ksh Cr — Particulars Ksh
Feb 15 — Capital 60,000 Balance c/d 60,000
Total 60,000 Total 60,000

Balance b/d: Ksh 60,000 Dr.

Discount received

Dr — Particulars Ksh Cr — Particulars Ksh
Balance c/d 43,500 Feb 19 — Zedy Supplies 43,500
Total 43,500 Total 43,500

Balance b/d: Ksh 43,500 Cr.

Question 5(a) — 8 marks

Explain each of the following business documents:

(i) invoice;

(ii) bill of exchange;

(iii) debit note;

(iv) time sheet.

Model answer

  1. Invoice: a seller’s document identifying goods/services supplied, quantities, prices, terms and the amount owed.
  2. Bill of exchange: an unconditional written order by one party directing another to pay a specified sum to a named payee or order at a stated time or on demand.
  3. Debit note: a document notifying an amount to be debited; a supplier may issue it to increase a customer’s debt, while a buyer may send one to request an adjustment for returns/overcharges.
  4. Time sheet: a record of time worked by an employee, often analysed by job, used to calculate pay and allocate labour cost.

Question 5(b) — 12 marks

On 31 December 2022, the trial balance of Kingah Enterprises failed to balance, the credit side exceeding the debit side by Ksh.1,675. The difference was posted to the suspense account. Upon investigations, the following discrepancies were revealed. Prepare: (i) general journal to correct the errors above; (ii) suspense account.

(i) A sale of goods for Ksh.53,130 had been correctly recorded in the cash book but recorded as Ksh.62,410 in the sales account.

(ii) The purchases account had been overcast by Ksh.13,305.

(iii) Cash received from a debtor for Ksh.29,700 had been recorded in the cash book only.

(iv) The opening balance in the bank account had been undercast by Ksh.1,000.

(v) Discounts received of Ksh.5,120 had only been posted to the suppliers account.

(vi) Rent paid Ksh.20,000 had been credited to the rent income account.

Model answer

Assume the understated bank opening balance was a debit balance and the cash side of the rent payment was recorded correctly. The stated opening difference does not fully reconcile with the listed errors; the remaining Ksh 480 credit is shown rather than inventing a correction.

Entry Account / explanation Debit Ksh Credit Ksh
I — sales over-credit 62,410 − 53,130
Dr Sales 9,280
Cr Suspense 9,280
II
Dr Suspense 13,305
Cr Purchases 13,305
III
Dr Suspense 29,700
Cr Debtor 29,700
IV
Dr Bank 1,000
Cr Suspense 1,000
V
Dr Suspense 5,120
Cr Discounts received 5,120
VI
Dr Rent expense 20,000
Dr Rent income 20,000
Cr Suspense 40,000

Suspense account — residual shown

Dr — Particulars Ksh Cr — Particulars Ksh
Opening difference 1,675 Sales correction 9,280
Purchases correction 13,305 Bank correction 1,000
Debtor correction 29,700 Rent correction 40,000
Discount correction 5,120
Balance c/d 480
Total 50,280 Total 50,280

Balance b/d: Ksh 480 Cr.

The listed corrections require an opening debit difference of Ksh 2,155 to clear suspense. The question states Ksh 1,675, leaving Ksh 480 to investigate.

Question 6(a) — 8 marks

Outline four reasons for making adjustments to final accounts.

Model answer

  1. Recognise accrued expenses and income in the correct period.
  2. Exclude prepayments and income received in advance from the current period.
  3. Allocate non-current asset cost through depreciation.
  4. Recognise inventory, bad debts and appropriate receivable allowances so profit and asset values are fairly stated.

Question 6(b) — 12 marks

The following is the receipts and payments accounts for Saidi Social Club for the year ended 31 December 2022. Prepare: (i) A statement of affairs as at 1 January 2022; (ii) A statement of financial position as at 31 December 2022.

Receipts Ksh Payments Ksh
Balance b/d 20,100 Equipment 50,000
Subscriptions 330,500 Bar purchases 23,200
Donations 200,000 Rent 110,000
Salaries 320,000
Electricity 4,500
Balance c/d 42,900
Total 550,600 Total 550,600
Balance as at 1 January 2022 31 December 2022
Bar stocks 40,000 28,000
Accounts payable 180,300 90,000
Accounts receivable 29,900 34,000
Accrued electricity 1,000 —
Equipment 210,000 220,015
Accrued subscriptions 105,240 70,050
Income and expenditure account — 81,025

Model answer

Statement of affairs — 1 January 2022

Particulars Ksh
Equipment 210,000
Bar stocks 40,000
Accounts receivable 29,900
Accrued subscriptions 105,240
Cash 20,100
Total assets 405,240
Accounts payable 180,300
Accrued electricity 1,000
Total liabilities 181,300
Accumulated fund: 405,240 − 181,300 223,940

Statement of financial position — 31 December 2022

Particulars Ksh
Equipment 220,015
Bar stocks 28,000
Accounts receivable 34,000
Accrued subscriptions 70,050
Cash 42,900
Total assets 394,965
Accumulated fund b/d 223,940
Add surplus for the year 81,025
Closing accumulated fund 304,965
Accounts payable 90,000
Accumulated fund and liabilities 394,965

Question 7(a) — 8 marks

Outline four features of capital expenditure.

Model answer

  1. It acquires or improves a non-current asset rather than meeting ordinary running costs.
  2. Its benefits extend beyond the current accounting period.
  3. It increases productive capacity, useful life or operating capability rather than merely restoring normal condition.
  4. It is initially capitalised in the statement of financial position and, where appropriate, allocated through depreciation over the benefiting periods.

Question 7(b) — 12 marks

On 31 January 2023 the cash book (bank column) of Mini Traders showed a debit balance of Ksh.50,180 while the bank statement showed a debit balance of Ksh.12,227 on the same date. Upon investigations, the following discrepancies were revealed. Prepare: (i) an updated cash book; (ii) a bank reconciliation statement.

(i) cheques amounting to Ksh.50,108 had not been presented for payment;

(ii) the bank had received dividends of Ksh.30,100 on behalf of the business;

(iii) the opening balance in the cash book had been overstated by Ksh.10,000;

(iv) A cheque for Ksh.60,050 received from a debtor had been dishonoured;

(v) Bank charges amounted to Ksh.14,220;

(vi) The bank had effected a standing order payment for Ksh.15,000;

(vii) Uncredited cheques amounted to Ksh.43,345.

Model answer

Updated bank account

Dr — Particulars Ksh Cr — Particulars Ksh
Balance b/d 50,180 Overstated opening balance 10,000
Dividends 30,100 Dishonoured cheque 60,050
Balance c/d 18,990 Bank charges 14,220
Standing order 15,000
Total 99,270 Total 99,270

Balance b/d: Ksh 18,990 Cr.

Particulars Ksh
Bank statement overdraft -12,227
Add uncredited cheques 43,345
Less unpresented cheques -50,108
Adjusted cash-book overdraft -18,990
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