CPA – Financial Accounting Revision Kit (Question and answer)

 

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INTRODUCTION

Following our continued effort to provide quality study and revision materials at an affordable price for the private students who study on their own, full time and part time students, we partnered with other team of professionals to make this possible.

This Revision kit (Questions and Answers) contains kasneb past examination past papers and their suggested answers as provided by a team of lecturers who are experts in their area of training. The book is intended to help the learner do enough practice on how to handle exam questions and this makes it easy to pass kasneb exams.

 

PAPER NO. 1 FINANCIAL ACCOUNTING

 

UNIT DESCRIPTION

This paper is intended to introduce the candidate to the overall purpose of accounting, applicable regulations, the accounting treatment and presentation of basic transactions and preparation and analysis of financial statements.

 

LEARNING OUTCOMES

A candidate who passes this paper should be able to:

  • Prepare books of original entry and basic ledger accounts under the double entry system
  • Prepare basic financial statements of sole traders, partnerships, companies, manufacturing entities and not for profit organisations
  • Comply with the regulatory framework in the accounting field
  • Analyse financial statements by use of ratios and statement of cash flows
  • Demonstrate basic understanding of public sector accounting framework

CONTENT

  1. Introduction to Accounting
  • Nature and Purpose of Accounting
  • The objective of Financial Accounting
  • The Elements of Financial Statements
  • The Accounting Equation
  • The Users of Accounting Information
  1. The Accounting Process and Systems
  • The Source documents such as receipts and invoices
  • The Books of Prime entry/Original Entry from the journals, cashbooks, Petty cash books and registers
  • The Ledger and the concept of double entry
  • The Trial Balance
  • The Financial Statements
  1. Regulation and other principles guiding the accounting profession
  • The legal sources of regulation
  • The professional sources of regulation (local and international bodies) and ethical requirements
  • Accounting Standards
  • Common accounting principles/concepts
  • Qualities of useful financial information
  1. Accounting for Assets and Liabilities
  • Property, Plant and Equipment (depreciation, acquisition, disposal, exchange, excluding revaluations)
  • Intangible Assets
  • Financial Assets and Financial Liabilities (Definition, Examples and Classification only)
  • Inventory
  • Cash in hand and cash at bank (bank reconciliation statements)
  • Trade Receivables (Measurement and credit Losses)
  • Trade payables
  • Accrued Incomes/Expenses and Prepaid Incomes/Expenses
  1. Financial Statements of a sole trader
  • Statement of Profit or Loss
  • Statement of Financial Position
  1. Financial Statements of a partnership
  • The partnership deed/agreement
  • The statement of Profit or Loss and appropriation
  • Partners’ capital and current accounts
  • The statement of financial position
  • Accounting treatment and presentation when there is a change in profit/loss sharing ratio, admission/retirement of a partner, dissolution of a partnership
  1. Financial Statements of a company
  • Important concepts of a company (Ordinary and Preference share capital, issuing new shares by way of full market price, bonus shares and rights issue, Reserves, retained profits and corporation tax)
  • Statement of Profit or Loss
  • Other comprehensive incomes
  • Statement of Financial Position
  • Statement of Cash flows
  1. Financial Statements of a manufacturing entity
  • Manufacturing Statement of production
  • Statement of Profit or Loss
  • Statement of Financial Position
  1. Statements of a not-for-profit entity
  • Objectives of Not-for-profit organisations
  • Statement of Income and Expenditure
  • Statement of Financial Position
  1. Correction of errors and preparing financial statements with incomplete records
  • Types and causes of errors
  • Correcting errors in source documents, the books of prime entry, the ledger, the trial balance and financial statements
  • Reasons for incomplete information
  • Preparation of financial statements from incomplete information
  1. Analyzing Financial Statements
  • The objective of analysing financial statements
  • Analysing financial statements using financial ratios (Liquidity, Profitability, Solvency, Efficiency, Investor/Value and Cash Flow categories)
  1. Accounting in the Public Sector
  • Features of public sector entities (as compared to private sector)
  • Structure of the public sector (National and county governments, State Corporations, Departments and Agencies)
  • Regulation and oversight (International Public Sector Accounting Standards Board, Director of Accounting Services, National Treasury, Parliamentary Committees, Accounting Officers at national and county levels)
  • Objectives of public sector financial statements and Standards (IPSAS)
  • Accounting techniques in public sector such as budgeting, cash, accrual, commitment and fund accounting)

 

 

SAMPLE WORK

Complete copy of CPA FINANCIAL ACCOUNTING Revision Kit is available in SOFT copy (Reading using our MASOMO MSINGI PUBLISHERS APP) and in HARD copy 

Phone: 0728 776 317

Email: info@masomomsingi.com

TOPIC 1

 

INTRODUCTION TO ACCOUNTING

 

QUESTION 1

August 2023 Question Five A

Explain the nature of the accounting equation.     (4 marks)

 

ANSWER

Nature of the accounting equations

This states that a company total assets are equal to the sum of its liabilities and its shareholders equity. This straightforward relationship between assets, liabilities and equity is considered to be the foundation of the double entry accounts system.

The accounting equation can be expressed as follows:

Assets = Liabilities + Equities

 

QUESTION 2

December 2022 Question Five D

Analyse FOUR objectives of financial statements.    (8 marks)

 

ANSWER

Objectives Of Financial Statements

  1. To provide information about the economic resources and obligation of a business.
  2. To provide the true and fair view of position of the business
  3. To provide the true and Fairview of financial performance of the entity i.e it revenue and its expenses.
  4. To form basis for education of stakeholders
  5. To report on the effectiveness and efficiency of the management
  6. To increase the under stability of end users

 

QUESTION 3

August 2022 Question Five A

Outline the information required by each of the following users of accounting information:

(i) Owners.             (2 marks)

(ii) Customers.           (2 marks)

(iii) Suppliers.        (2 marks)

(iv) Lenders.         (2 marks)

(v) Management.         (2 marks)

 

ANSWER

  • Owners – They are interested in the financial position of the business. Also the dividend to be received out of their investment
  • Customers – They require accounting information to determine whether company is reliable. They are concerned with financial position
  • Suppliers – Use accounting information to determine whether the company is credit worth and they pay once they buy goods on credit.
  • Lenders – Use Accounting information to evaluate credit worthiness of the company
  • Management – They use accounting information to make day to day routine decisions.

 

QUESTION 4

April 2022 Question One A

Highlight five elements of financial statements.      (5 marks)

 

ANSWER

The main elements of financial statements are as follows:

  1. These are items of economic benefit that are expected to yield benefits in future periods. Examples are accounts receivable, inventory, and fixed assets.
  2. These are legally binding obligations payable to another entity or individual. Examples are accounts payable, taxes payable, and wages payable.
  3. This is the amount invested in a business by its owners, plus any remaining retained earnings.
  4. This is an increase in assets or decrease in liabilities caused by the provision of services or products to customers. It is a quantification of the gross activity generated by a business. Examples are product sales and service sales.
  5. This is the reduction in value of an asset as it is used to generate revenue. Examples are interest expense, compensation expense, and utilities expense.

 

 QUESTION 5

December 2021 Pilot Paper Question One B

Accountants prepare and maintain financial records for firms and other institutions and extract financial statements as guided by various International Accounting Standards and other statutory regulations.

 Required:

Identify and explain any six users of financial information, indicating clearly the area of interest for each.      (12 marks)

 

ANSWER

Users of financial information and there are of interest

  1. Shareholders – they require accounting information in order to know the profit generated by entity for them to know whether to invest in entity for them to know whether to invest in the entity.
  2. Financial institutions (lenders and creditors): They require accounting information in order to determine whether the company can pay loans when granted and the value of assets in the business which can be used as a security for loan.
  3. Management – They require financial information in order to make decisions which are sufficient for operation of the business.
  4. Government – They require accounting information in orders to determine the tax payable by the business and the profitability of such business in order to determine the level of economic growth.
  5. Employees – The require accounting information to be able to negotiate for better terms of employment and to evaluate future of employment.
  6. Customers – they require accounting information so as to determine the reliability of the business.
  7. General public – They require accounting information so as to determine how the company supports the public in corporate social responsibility.

 

QUESTION 6

November 2018 Question One A

In the context of the International Accounting Standards Board’s Conceptual Framework for Financial Reporting, explain the five elements of financial statements.       (10 marks)

 

ANSWER

Explanation of five elements of financial statement

Elements – are the classes of items contained in the financial statements. the element include:

  1. Assets – Are resources owned by the company
  2. Liabilities – Are obligations of a company
  3. Expenses –Are cost incurred on something
  4. Revenue – Money earned for providing services or selling expenses
  5. Gain – An increase in resources / wealth

 

 QUESTION 7

November 2016 Question Three A

Highlight five roles of the accountant general in your country.   (5 marks)

 

ANSWER

Roles of the accountant general

  1. To prepare asset liability and capital entries by compiling and analyzing account information
  2. To document financial transactions by entering account information
  3. To recommend financial actions by analyzing accounting options
  4. Maintain accounting controls by preparing and recommending policies and procedures
  5. To report to management regarding financial activity of the company

SAMPLE WORK

Complete copy of CPA FINANCIAL ACCOUNTING Revision Kit is available in SOFT copy (Reading using our MASOMO MSINGI PUBLISHERS APP) and in HARD copy 

Phone: 0728 776 317

Email: info@masomomsingi.com

   

TOPIC 2

THE ACCOUNTING PROCESS AND SYSTEMS

 

QUESTION 1

August 2023 Question Five B

Highlight FOUR advantages of books of prime entry.   (4 marks)

 

ANSWER

Advantages of books of prime entry

  • They provide a chronological record
  • Journal book records transactions in the occurrence of their date
  • The books of prime entry minimizes the possibility of errors. The nature of the transaction affects the financial position of the business and this is ascertained by recording and analyzing the transaction.
  • Helps to finalize the accounts with the books of prime entry, it provides a basis for ledger posting and the ultimate draft of trial balance.
  • Future references – Reference can be given to the financial transactions that become easy as these transactions are similar and are recorded in one journal
  • Few mistakes and can be easily detected in the ledger accounts.

 

QUESTION 2

August 2022 Question Five B

Discuss two benefits of using the double entry system of bookkeeping to an organisation. (4 marks)

ANSWER

Benefits of using the double entry system of bookkeeping to an organisation

  • Helps in cross checking accounting document
  • Both sides of the transactions are recorded
  • Easy identification of fraudulent transactions
  • Its accurate and implement matching principle
  • It helps in decision making

 

QUESTION 3

December 2021 Question Three A

Identify four books of original entry used in accounting.      (4 marks)

 

ANSWER

Books of original entry used in accounting

  • Sales journal – To record sales invoices issued by the firm when selling goods on credit
  • Purchases journal – to record purchases invoices received by the business from suppliers, when buying goods on credit
  • Return inwards journal – To record sales return from customers
  • Return outwards journal – to record purchases returns to suppliers

 

QUESTION 4

May 2021 Question Five A

Highlight four uses of the general journal.      (4 marks)

 

ANSWER

Uses of general journals

  • To record opening notes
  • To record purchase and sale of fixed assets on credit
  • To record possession of the asset
  • To record transfer of records
  • To record correction of errors
  • To record closing entries

 

QUESTION 5

November 2020 Question Five C

Outline six challenges that might be faced by an organisation that is switching from a manual accounting system to a computerised accounting system.    (6 marks)

 

ANSWER

Challenges that might be faced by an organization that is switching from manual accounting system to a computerized system

  1. Heavy cost of installation
  2. Cost of training the staffs
  3. Fear of employment for staff members
  4. They may system failure
  5. Disruption of work
  6. Time consuming
  7. Unanticipated errors mot known may occur

  

QUESTION 6

November 2019 Question Five A

Highlight five factors that an organisation might consider when sourcing for accounting software.      (5 marks)

 

ANSWER

Factors to consider when sourcing TV accounting software

  1. User friendly software – The ease of use should be a major consideration
  2. Initial cost – whether the firm can be able to afford the initial asking in terms of cost Resources needed to build, deploy and maintain the software
  3. Competitive advantage – whether the software can give the organization an additional advantage in terms of cost saving
  4. Flexibility – whether the software can accommodate other business events

 

QUESTION 7

May 2018 Question Two A

Highlight six uses of the general journal.     (6 marks)

 

ANSWER

Uses of general journals

  • To record opening notes
  • To record purchase and sale of fixed assets on credit
  • To record possession of the asset
  • To record transfer of records
  • To record correction of errors
  • To record closing entries

 

QUESTION 8

November 2016 Question Five D

Discuss four advantages of computerised accounting systems.       (8 marks)

 

ANSWER

Advantages of computerized accounting systems

  1. Automation-it reduces paper work
  2. Data access – it is easier and give easier access to data files when needed.
  3. Accuracy – it completely accurate and data is automatically processed
  4. Security – the data can be password protected.
  5. Spread – it is easier to access the data.

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