Financial Accounting — 2022
KNEC Diploma in Supply Chain Management, Module I. Original examination questions with explained model answers for revision.
November 2022
Paper codes: 2903/102 (shared paper)
Time: Not shown in supplied scan
Instructions: Not shown in supplied scan
Question 1(a) — 8 marks
Explain each of the following source documents:
(i) credit note; (2 marks)
(ii) debit note; (2 marks)
(iii) Local Purchase Order (LPO); (2 marks)
(iv) invoice. (2 marks)
Model answer
- Credit note: a seller’s notice reducing the amount owed by a customer, for example for goods returned or an overcharge.
- Debit note: a notice of a debit adjustment, such as a supplier increasing an undercharged amount; a buyer may also use one to request a supplier credit.
- Local Purchase Order (LPO): a buyer’s authorised document requesting specified goods/services from a local supplier at agreed terms.
- Invoice: a seller’s statement of goods/services supplied, prices and the amount due.
Question 1(b) — 12 marks
The following is the cash book (bank column) of Maria Traders for the month of April 2022. Upon comparison of the cash book and the bank statement issued on 30 April 2022, the following discrepancies were revealed. Prepare: (i) an updated cash book; (ii) a bank reconciliation statement as at 30 April 2022.
Dr Ksh Cr Ksh Balances b/d (1 April 2022) 561,000 Payments 4,189,000 Receipts 3,748,000 Balance c/d (30 April 2022) 120,000 Total 4,309,000 Total 4,309,000 (i) Bank charges amounted to Ksh.8,000.
(ii) Cheques received for Ksh.521,000 had not been credited by the bank.
(iii) Cheques amounting to Ksh.96,000 had not been presented to the bank.
(iv) Direct deposits to the bank amounted to Ksh.42,000.
(v) A cheque of Ksh.17,000 had been dishonoured by the bank.
(vi) The opening balance in the cash book should have been Ksh.651,000.
Model answer
Updated bank account
| Dr — Particulars | Ksh | Cr — Particulars | Ksh |
|---|---|---|---|
| Balance before adjustments | 120,000 | Bank charges | 8,000 |
| Opening correction: 651,000 − 561,000 | 90,000 | Dishonoured cheque | 17,000 |
| Direct deposits | 42,000 | Balance c/d | 227,000 |
| Total | 252,000 | Total | 252,000 |
Balance b/d: Ksh 227,000 Dr.
| Particulars | Ksh |
|---|---|
| Adjusted cash-book debit balance | 227,000 |
| Less uncredited cheques | -521,000 |
| Add unpresented cheques | 96,000 |
| Bank statement balance — overdraft | -198,000 |
Question 2(a) — 8 marks
The following information relates to expenditure incurred by Doka Limited for the year 2021. Calculate the total: (i) capital expenditure; (ii) revenue expenditure.
Particulars Ksh Installation of CCTV cameras 400,000 Salaries and wages 2,100,000 Painting a new building 220,000 Advertisement 180,000 Repair and maintenance 60,000 Development of a website 240,000 Extension of a warehouse 750,000 Fuel and electricity 600,000 Insurance 380,000 Office expenses 460,000 Selling and distribution costs 320,000 Auditor’s fees 280,000
Model answer
Initial painting that makes the new building ready for use is capital. Website development is treated as creating a controlled asset with future benefits; routine website advertising/maintenance would be revenue.
| Item | Capital Ksh | Revenue Ksh |
|---|---|---|
| Installation of CCTV cameras | 400,000 | |
| Salaries and wages | 2,100,000 | |
| Painting a new building | 220,000 | |
| Advertisement | 180,000 | |
| Repair and maintenance | 60,000 | |
| Development of a website | 240,000 | |
| Extension of a warehouse | 750,000 | |
| Fuel and electricity | 600,000 | |
| Insurance | 380,000 | |
| Office expenses | 460,000 | |
| Selling and distribution costs | 320,000 | |
| Auditor’s fees | 280,000 | |
| Total | 1,610,000 | 4,380,000 |
Question 2(b) — 12 marks
On 1 January 2022, Amani Traders commenced business with Ksh.700,000 at the bank and Ksh.340,000 cash in hand. During the month of January, 2022, the following transactions took place. (i) Prepare ledger accounts to record the transactions above; (ii) Balance off the ledger accounts in (i) above.
January Transaction 2 Bought goods worth Ksh.400,000 paying by cheque. 4 Sold goods worth Ksh.150,000 in cash. 10 Took Ksh.30,000 from the cash till for personal use. 15 Sold goods worth Ksh.200,000 and received a cheque. 24 Withdrew Ksh.150,000 from the bank for business use. 30 Transferred Ksh.16,000 from personal savings account into the business cash account. 31 Deposited all the cash into the bank except Ksh.300,000.
Model answer
| Particulars | Ksh |
|---|---|
| Cash before final deposit: 340,000 + 150,000 − 30,000 + 150,000 + 16,000 | 626,000 |
| Deposit: 626,000 − 300,000 | 326,000 |
Bank
| Dr — Particulars | Ksh | Cr — Particulars | Ksh |
|---|---|---|---|
| Jan 1 — Capital | 700,000 | Jan 2 — Purchases | 400,000 |
| Jan 15 — Sales | 200,000 | Jan 24 — Cash | 150,000 |
| Jan 31 — Cash | 326,000 | Balance c/d | 676,000 |
| Total | 1,226,000 | Total | 1,226,000 |
Balance b/d: Ksh 676,000 Dr.
Cash
| Dr — Particulars | Ksh | Cr — Particulars | Ksh |
|---|---|---|---|
| Jan 1 — Capital | 340,000 | Jan 10 — Drawings | 30,000 |
| Jan 4 — Sales | 150,000 | Jan 31 — Bank | 326,000 |
| Jan 24 — Bank | 150,000 | Balance c/d | 300,000 |
| Jan 30 — Capital | 16,000 | ||
| Total | 656,000 | Total | 656,000 |
Balance b/d: Ksh 300,000 Dr.
Capital
| Dr — Particulars | Ksh | Cr — Particulars | Ksh |
|---|---|---|---|
| Balance c/d | 1,056,000 | Jan 1 — Bank, Cash | 1,040,000 |
| Jan 30 — Cash | 16,000 | ||
| Total | 1,056,000 | Total | 1,056,000 |
Balance b/d: Ksh 1,056,000 Cr.
Purchases
| Dr — Particulars | Ksh | Cr — Particulars | Ksh |
|---|---|---|---|
| Jan 2 — Bank | 400,000 | Balance c/d | 400,000 |
| Total | 400,000 | Total | 400,000 |
Balance b/d: Ksh 400,000 Dr.
Sales
| Dr — Particulars | Ksh | Cr — Particulars | Ksh |
|---|---|---|---|
| Balance c/d | 350,000 | Jan 4 — Cash | 150,000 |
| Jan 15 — Bank | 200,000 | ||
| Total | 350,000 | Total | 350,000 |
Balance b/d: Ksh 350,000 Cr.
Drawings
| Dr — Particulars | Ksh | Cr — Particulars | Ksh |
|---|---|---|---|
| Jan 10 — Cash | 30,000 | Balance c/d | 30,000 |
| Total | 30,000 | Total | 30,000 |
Balance b/d: Ksh 30,000 Dr.
Question 3(a) — 8 marks
Explain each of the following accounting concepts:
(i) consistency concept; (2 marks)
(ii) materiality concept; (2 marks)
(iii) accrual concept; (2 marks)
(iv) going-concern concept. (2 marks)
Model answer
- Consistency: use the same appropriate policies over time so results can be compared; explain justified policy changes.
- Materiality: information is significant if its omission/misstatement could influence users’ decisions, considering its amount and nature.
- Accrual: recognise income when earned and expenses when incurred, rather than only when cash changes hands.
- Going concern: assume continued operation for the foreseeable future unless cessation/liquidation is intended or unavoidable.
Question 3(b) — 12 marks
The following is the statement of financial position of Kendo Enterprises as at 1 January 2022. During the month of January 2022, the following transactions took place. Prepare a statement of financial position after effecting the transactions above.
Particulars Ksh Non current assets 1,048,000 Inventory 174,000 Accounts receivable 200,000 Cash at bank 540,000 Cash in hand 130,000 Total current assets 1,044,000 Total assets 2,092,000 Capital 1,835,000 Medium term liability — Loan 97,000 Current liability — Accounts payable 160,000 Liabilities and capital 2,092,000 (i) Sold goods whose cost was Ksh.60,000 for Ksh.72,000 and received cash.
(ii) Furniture valued at Ksh.90,000 was sold for Ksh.102,000 and received a cheque.
(iii) Received a cheque of Ksh.70,000 from a debtor.
(iv) Paid a creditor Ksh.95,000 in cash.
Model answer
| Item | Working | Closing Ksh |
|---|---|---|
| Non-current assets | 1,048,000 − 90,000 | 958,000 |
| Inventory | 174,000 − 60,000 | 114,000 |
| Receivables | 200,000 − 70,000 | 130,000 |
| Bank | 540,000 + 102,000 + 70,000 | 712,000 |
| Cash | 130,000 + 72,000 − 95,000 | 107,000 |
| Capital | 1,835,000 + (72,000 − 60,000) + (102,000 − 90,000) | 1,859,000 |
| Payables | 160,000 − 95,000 | 65,000 |
Kendo Enterprises — Statement of financial position, 31 January 2022
| Particulars | Ksh |
|---|---|
| Non-current assets | 958,000 |
| Inventory | 114,000 |
| Receivables | 130,000 |
| Bank | 712,000 |
| Cash | 107,000 |
| Total assets | 2,021,000 |
| Capital | 1,859,000 |
| Loan | 97,000 |
| Accounts payable | 65,000 |
| Capital and liabilities | 2,021,000 |
Question 4(a) — 8 marks
Talim Traders operates a petty cash book on an imprest system. On 5 March 2021, the petty cashier had Ksh.1,200 cash in hand. On the same date, the main cashier reimbursed the petty cashier to restore the weekly cash float of Ksh.5,000. During the week, the petty cashier made the following payments. Prepare a petty cash book using the following analysis columns: stationery; motor vehicle repairs; staff tea.
March Payment Ksh 6 Photocopy papers 1,200 7 Motor vehicle mechanic 1,000 8 Milk 120 8 Printing papers 800 10 Engine oil 1,200 12 Sugar 200
Model answer
| Date | Details | Receipt Ksh | Payment Ksh | Stationery Ksh | Motor vehicle repairs Ksh | Staff tea Ksh |
|---|---|---|---|---|---|---|
| Opening | Balance b/d | 1,200 | ||||
| Start | Reimbursement | 3,800 | ||||
| 6 | Photocopy papers | 1,200 | 1,200 | |||
| 7 | Mechanic | 1,000 | 1,000 | |||
| 8 | Milk | 120 | 120 | |||
| 8 | Printing papers | 800 | 800 | |||
| 10 | Engine oil | 1,200 | 1,200 | |||
| 12 | Sugar | 200 | 200 | |||
| Totals | 5,000 | 4,520 | 2,000 | 2,200 | 320 | |
| Balance c/d | 480 |
Next reimbursement to restore the same imprest: Ksh 4,520.
Question 4(b) — 12 marks
The trial balance of Kimeu Traders as at 30 April, 2022 failed to agree. The debit side exceeding the credit side by Ksh.84,260. Upon investigations, the following errors were revealed. Prepare a: (I) general journal to correct the errors above; (II) suspense account, duly balanced.
(i) Furniture bought for Ksh.32,000 had been debited to repairs to furniture account.
(ii) Discounts allowed account had been undercast by Ksh.3,680.
(iii) Discounts received Ksh.7,940 had not been posted from the cash book.
(iv) Bank charges of Ksh.760 had not been recorded in the books.
(v) An amount of Ksh.1,600 received from John, a customer, had been credited to Jane’s account.
(vi) A purchase of an office machine for Ksh.57,200 from Wangu Limited had been debited in her account and credited in office machine account.
(vii) A loan of Ksh.40,000 from KCM bank had been debited to the loan account.
Model answer
| Entry | Account / explanation | Debit Ksh | Credit Ksh |
|---|---|---|---|
| i | |||
| Dr Furniture | 32,000 | ||
| Cr Repairs to furniture | 32,000 | ||
| ii | |||
| Dr Discounts allowed | 3,680 | ||
| Cr Suspense | 3,680 | ||
| iii | |||
| Dr Suspense | 7,940 | ||
| Cr Discounts received | 7,940 | ||
| iv | |||
| Dr Bank charges | 760 | ||
| Cr Bank | 760 | ||
| v | |||
| Dr Jane | 1,600 | ||
| Cr John | 1,600 | ||
| vi — reverse and correctly record 57,200 | |||
| Dr Office machine | 114,400 | ||
| Cr Wangu Ltd | 114,400 | ||
| vii — reverse debit and establish credit | |||
| Dr Suspense | 80,000 | ||
| Cr KCM bank loan | 80,000 |
Suspense account
| Dr — Particulars | Ksh | Cr — Particulars | Ksh |
|---|---|---|---|
| Discounts received correction | 7,940 | Opening difference | 84,260 |
| Loan correction | 80,000 | Discounts allowed correction | 3,680 |
| Total | 87,940 | Total | 87,940 |
Question 5(a) — 8 marks
The following transactions relate to Keli Traders for the month of February 2022. Prepare: (i) purchases journal; (ii) sales journal; (iii) returns outwards journal; (iv) returns inwards journal.
February Transaction 1 Purchased goods for Ksh.120,000 on credit from Bano Enterprises. 12 Sold goods amounting to Ksh.240,000 on credit to Tawani Traders. 13 Purchased goods for Ksh.80,000 on credit from Mali Traders. 14 Sold goods for Ksh.120,000 on credit to Fatuma. 25 Purchased goods for Ksh.60,000 on credit from Bano Enterprises. 26 Returned goods for Ksh.30,000 to Bano Enterprises. 27 Returned goods for Ksh.20,000 to Mali Traders. 28 Fatuma returned goods costing Ksh.30,000.
Model answer
Purchases journal
| Date | Supplier | Ksh |
|---|---|---|
| 1 | Bano | 120,000 |
| 13 | Mali | 80,000 |
| 25 | Bano | 60,000 |
| Total | 260,000 |
Sales journal
| Date | Customer | Ksh |
|---|---|---|
| 12 | Tawani | 240,000 |
| 14 | Fatuma | 120,000 |
| Total | 360,000 |
Returns outwards journal
| Date | Supplier | Ksh |
|---|---|---|
| 26 | Bano | 30,000 |
| 27 | Mali | 20,000 |
| Total | 50,000 |
Returns inwards journal
| Date | Customer | Ksh |
|---|---|---|
| 28 | Fatuma | 30,000 |
| Total | 30,000 |
Question 5(b) — 12 marks
On 1 June 2022, Lexy Enterprises had Ksh.80,000 cash in hand and Ksh.320,000 at bank. During the month, the following transactions took place. Prepare a two-column cash book for the month of June 2022.
June Transaction 2 Purchased goods for Ksh.150,000 paying by cheque. 4 Sold goods for Ksh.130,000 in cash. 10 Withdrew Ksh.60,000 from the bank for office use. 14 Received dividends of Ksh.5,000 by cheque. 18 Took Ksh.10,000 from the cash till for personal use. 30 Deposited Ksh.50,000 from the cash till into the bank.
Model answer
Dr — Receipts
| Date | Details | Cash Ksh | Bank Ksh |
|---|---|---|---|
| 1 | Balance b/d | 80,000 | 320,000 |
| 4 | Sales | 130,000 | 0 |
| 10 | Bank C | 60,000 | 0 |
| 14 | Dividends | 0 | 5,000 |
| 30 | Cash C | 0 | 50,000 |
| Total | 270,000 | 375,000 |
Cr — Payments
| Date | Details | Cash Ksh | Bank Ksh |
|---|---|---|---|
| 2 | Purchases | 0 | 150,000 |
| 10 | Cash C | 0 | 60,000 |
| 18 | Drawings | 10,000 | 0 |
| 30 | Bank C | 50,000 | 0 |
| End | Balance c/d | 210,000 | 0 |
| End | Balance c/d | 0 | 165,000 |
| Total | 270,000 | 375,000 |
Balances brought down: cash Ksh 210,000 Dr; bank Ksh 165,000 Dr. Contra entries are marked C.
Question 6(a) — 8 marks
Highlight four differences between a receipts and payments account and an income and expenditure account.
Model answer
| Receipts and payments account | Income and expenditure account |
|---|---|
| Records cash/bank movements | Records income earned and expenses incurred |
| Includes capital and revenue cash transactions | Includes revenue items; excludes capital acquisitions as expenses |
| May include cash relating to earlier/later periods | Uses accruals and prepayments to include only current-period income/expenses |
| Closes with cash/bank balance | Closes with a surplus or deficit for the period |
Question 6(b) — 12 marks
The following information relates to the motor vehicles owned by Maxy Limited for the years ended 31 December 2019, 2020 and 2021. The firm depreciates motor vehicles at the rate of 20 percent per annum using the reducing balance method on pro rata basis. For the years ended 2019, 2020 and 2021, prepare: (I) Motor vehicles account; (II) Accumulated provision for depreciation on motor vehicles account; (III) Motor vehicles disposal account.
Motor vehicle Date of Acquisition Cost Ksh KZA 1 January 2019 500,000 KZB 1 July 2019 820,000 KZC 1 January 2020 640,000 KZD 1 July 2020 750,000 KZE 1 July 2021 580,000
Motor vehicle Date of disposal Disposal Price Ksh KZA 31 December 2020 350,000 KZC 30 June 2021 420,000
Model answer
| Year | KZA | KZB | KZC | KZD | KZE | Total depreciation |
|---|---|---|---|---|---|---|
| 2019 | 100,000 | 82,000 | 0 | 0 | 0 | 182,000 |
| 2020 | 80,000 | 147,600 | 128,000 | 75,000 | 0 | 430,600 |
| 2021 | 0 | 118,080 | 51,200 | 135,000 | 58,000 | 362,280 |
Each full-year charge is 20% of opening carrying value; acquisitions/disposals halfway through a year receive six months’ charge. KZC’s 2021 charge is 512,000 × 20% × 6/12 = 51,200.
Motor vehicles — 2019
| Dr — Particulars | Ksh | Cr — Particulars | Ksh |
|---|---|---|---|
| Bank — KZA | 500,000 | Balance c/d | 1,320,000 |
| Bank — KZB | 820,000 | ||
| Total | 1,320,000 | Total | 1,320,000 |
Balance b/d: Ksh 1,320,000 Dr.
Motor vehicles — 2020
| Dr — Particulars | Ksh | Cr — Particulars | Ksh |
|---|---|---|---|
| Balance b/d | 1,320,000 | Disposal — KZA | 500,000 |
| Bank — KZC | 640,000 | Balance c/d | 2,210,000 |
| Bank — KZD | 750,000 | ||
| Total | 2,710,000 | Total | 2,710,000 |
Balance b/d: Ksh 2,210,000 Dr.
Motor vehicles — 2021
| Dr — Particulars | Ksh | Cr — Particulars | Ksh |
|---|---|---|---|
| Balance b/d | 2,210,000 | Disposal — KZC | 640,000 |
| Bank — KZE | 580,000 | Balance c/d | 2,150,000 |
| Total | 2,790,000 | Total | 2,790,000 |
Balance b/d: Ksh 2,150,000 Dr.
Accumulated depreciation — 2019
| Dr — Particulars | Ksh | Cr — Particulars | Ksh |
|---|---|---|---|
| Balance c/d | 182,000 | Income statement | 182,000 |
| Total | 182,000 | Total | 182,000 |
Balance b/d: Ksh 182,000 Cr.
Accumulated depreciation — 2020
| Dr — Particulars | Ksh | Cr — Particulars | Ksh |
|---|---|---|---|
| Disposal — KZA | 180,000 | Balance b/d | 182,000 |
| Balance c/d | 432,600 | Income statement | 430,600 |
| Total | 612,600 | Total | 612,600 |
Balance b/d: Ksh 432,600 Cr.
Accumulated depreciation — 2021
| Dr — Particulars | Ksh | Cr — Particulars | Ksh |
|---|---|---|---|
| Disposal — KZC | 179,200 | Balance b/d | 432,600 |
| Balance c/d | 615,680 | Income statement | 362,280 |
| Total | 794,880 | Total | 794,880 |
Balance b/d: Ksh 615,680 Cr.
Disposal — KZA, 2020
| Dr — Particulars | Ksh | Cr — Particulars | Ksh |
|---|---|---|---|
| Motor vehicles cost | 500,000 | Accumulated depreciation | 180,000 |
| Profit to income statement | 30,000 | Bank | 350,000 |
| Total | 530,000 | Total | 530,000 |
Disposal — KZC, 2021
| Dr — Particulars | Ksh | Cr — Particulars | Ksh |
|---|---|---|---|
| Motor vehicles cost | 640,000 | Accumulated depreciation | 179,200 |
| Bank | 420,000 | ||
| Loss to income statement | 40,800 | ||
| Total | 640,000 | Total | 640,000 |
Question 7(a) — 8 marks
Explain four uses of control accounts.
Model answer
- Provide an independent check on the totals of customer/supplier subsidiary ledgers.
- Help locate errors by isolating differences to a particular ledger.
- Supply receivables/payables totals quickly for financial statements.
- Support internal control by separating summary records from individual-account maintenance, helping detect omissions or unauthorised changes.
Question 7(b) — 12 marks
The following balances were extracted from the books of account of Pinky Traders as at 31 December 2021. Prepare an income statement for the year ended 31 December 2021.
Particulars Ksh Sales 2,200,000 Returns inwards 40,000 Returns outwards 25,000 Purchases 1,000,000 Salaries 320,000 Insurance 140,000 Electricity 12,000 Rent expense 80,000 Discounts allowed 10,000 Discounts received 12,000 Depreciation 24,000 Bad debts written off 3,000 General expenses 50,000 Inventory (1 January 2021) 420,000 Provision for doubtful debts (1 January 2021) 20,000 Additional information:
(i) As at 31 December 2021: Inventory was valued at Ksh.295,000. Unexpired insurance amounted to Ksh.30,000. Unpaid rent was Ksh.20,000. Actual salaries amounted to Ksh.140,000.
(ii) Increase the provision for doubtful debts by 5%.
Model answer
| Adjustment | Working | Ksh |
|---|---|---|
| Salaries expense | Actual amount stated | 140,000 |
| Insurance expense | 140,000 − 30,000 | 110,000 |
| Rent expense | 80,000 + 20,000 | 100,000 |
| Provision increase | 20,000 × 5% | 1,000 |
| Closing provision | 20,000 + 1,000 | 21,000 |
Pinky Traders — Income statement, year ended 31 December 2021
| Particulars | Ksh |
|---|---|
| Net sales: 2,200,000 − 40,000 | 2,160,000 |
| Opening inventory | 420,000 |
| Net purchases: 1,000,000 − 25,000 | 975,000 |
| Less closing inventory | 295,000 |
| Cost of sales | 1,100,000 |
| Gross profit | 1,060,000 |
| Discounts received | 12,000 |
| Total income | 1,072,000 |
| Salaries | 140,000 |
| Insurance | 110,000 |
| Electricity | 12,000 |
| Rent | 100,000 |
| Discounts allowed | 10,000 |
| Depreciation | 24,000 |
| Bad debts | 3,000 |
| General expenses | 50,000 |
| Provision increase | 1,000 |
| Total expenses | 550,000 |
| Net profit | 522,000 |