Financial Accounting 2013 July Knec Past Paper

1. (a) The following balances were extracted from the accounting records of Memory Suppliers as at 30th September, 2011.
Kshs ‘000’
Motor vehicles 15,000
Accounts receivable 850
Motor expenses 230
Rent and rates 250
Discount received 46
Wages and salaries 2,420
Accounts payable 1,850
Provision for Depreciation: Motor vehicles (1st October, 2010) 1,500
Carriage outwards 410
Cash at bank 1,060
Drawings 1,230
Gross profit 8,570
Inventories 5,500
Capital 14,984
Additional information:
• Motor vehicles are to be depreciated at the rate of 20% per annum on reducing balance basis.
• As at 30th September, 2011;
– Salaries and wages outstanding was Ksh.280,000
– Rent and rates was prepaid by Ksh. 150,000.
Prepare:
(i) A statement of financial performance (profit and loss statement) for the year ended 30th September, 2011.
(ii) A statement of financial position (balance sheet) as at 30th September, 2011. (12 marks)
(b) Explain each of the following business documents:
(i) Statement of account;
(ii) Purchase order;
(iii) Delivery note;
(iv) Invoice.

2. (a) Classify the following business costs as either capital expenditure or revenue expenditure:
(i) Costs of partitioning a building;
(ii) Cost of replacing a motor vehicle engine;
(iii) Costs of painting a new building;
(iv) Wages paid to workers engaged in installing a new machine;
(v) Legal costs of collecting debts;
(vi) Wages of computer operators;
(vii) Carriage cost on purchases;
(viii) Cost of buying a “second-hand” motor vehicle.
(8 marks)
(b) Umoja Distributors provides for depreciation on its motor vehicles at 20% per annum on reducing balance basis.
The firm provides for a full year’s depreciation charge in the year of purchase and no depreciation charge in the year of disposal.
The financial year for the firm ends on 31st December.
In the years 2009,2010 and 2011, the following transactions took place:
2009
June 1. Bought motor vehicle ‘X’ for Ksh.9,(XX),000
2010
July 20, Bought motor vehicle ‘Y’ for Ksh.7,000,000
2011
May 20, Bought motor vehicle *Z’ for Ksh.9.200.000
Nov. 23, Sold motor vehicle X’ for KSh.6,300,000.
For the years ended 31 December. 2009, 2()10.and 2011 prepare:
(i) motor vehicles account;
(ii) provision for depreciation on motor vehicles account;
(iii) motor vehicles disposal account (only for the year, 2011);
(iv) an extract for motor vehicles account from the balance sheet to show the balance in the account at the end of each of the three years. (12 marks)Magic Traders operates a petty cash on an imprest system. The monthly cash float is Ksh.30,000. Reimbursement is done at the beginning of each month. The cash balance
on 30th April, 2011 was Ksh.4,700 and reimbursement was done on the due date.
The following transactions took place during the month of May, 2011:
2011 Ksh.
May 2 Postage stamps 1300
5 Staff bus fare 2,000
7 Motor vehicle repairs 1,200
10 Bonde, a supplier 7,600
12 Cleaning detergents 800
16 Photocopying papers 550
18 Postage stamps 700
20 Fuel for motor vehicles 1.600
24 Office chair 1.400
26 Messenger’s bus fare 500
28 Cleaning services 4.500
30 Photocopying papers 600
Prepare a petty cash book with analysis columns for:
– Travelling
– Motor expenses
– Cleaning
– Stationery
– Postage
– General ledger (11 marks)
The following is a summary of bank transactions for Mpatanishi Social club for the year ended 30 June, 2011:
Receipts:
Kshs ‘000’
Sale of raffle tickets 300
Investment income 450
Subscription received 1,340
Registration fees 250
Donations 750
Payments:
Staff wages 150
Insurance 75
Postage and stationery 28
Purchase of fixed assets 180
Rent and rates 56
Cost of raffle 84

Additional information:
Balances as at: 1st July 2010
Ksh ‘000’ 30th June 2011
Ksh ‘000’
Subscription owing 250 300
Subscription in advance 160 200
Value of fixed assets 1,600 ?
Cash at bank 850 3,567
Fixed assets are to be depreciated at 20%.
Prepare:
(i) statement of affairs as at 1st July 2010;
(ii) income and expenditure account for the year ended 30 June, 2011. (9 marks)4. (a) Explain the following accounting concepts:
Business entity concept
Consistency concept
Accruals concept
Money measurement concept
(8 marks)
(b) On 31 st August, 2011, a trial balance extracted from the books of account of Magneta
Logistics did not balance. The totals on the credit side exceeded the totals on the debit side by Ksh24,500. This amount was recorded in a suspense account. The draft final accounts showed a net profit of Ksh650,000.
Subsequent investigations revealed the following errors:
(i) Purchases account was under-cast by Ksh 14,000.
(ii) Motor expenses of Ksh 10,400 was entered in the motor vehicles account.
(iii) Sales account was over cast by Kshl2,500.
(iv) A cash receipt of Ksh28,000 was entered in the cash book as Ksh 18,000.
(v) Rent received of Ksh 12,000 was entered in the cash book only.
(vi) Discount received of Ksh5,000 was credited to the discount allowed account.
Prepare:
Journal entries necessary to correct the errors above;
Statement of corrected net profit for the year ended 31st August, 2011.
The cash txx>k of Ojwang Depots showed a credit balance of Ksh .420,(XX) as at 31st July, 2011. The bank statement for July, 2011 showed a different balance.
On subsequent review, the following information was found:
• Mwcma, a debtor, had made a direct deposit of Ksh.200.(XX) into the bank account.
• A cheque for Ksh.350,000 received from Mwamba during the month had been dishonoured.
• Bank charges amounted to Ksh.45.(XX).
• The bank had effected a standing order for Ksh.160,000.
• A cheque for Ksh.400,000 received from Wamalwa had been credited in the cash book.
• Cheques amounting to Ksh.475,0(X) deposited in the bank on 31st July, 2011 were not entered in the bank statement.
• Cheques for amounts totalling Ksh.360,000 issued to creditors, had not been presented to the bank for payment.
• A cheque for Ksh.145,(XX) issued to Otieno but later stopped for payment by Ojwang Depots, was paid by the bank
Prepare:
(i) An adjusted cash book;
(ii) A bank reconciliation statement for July, 2011.
(10 marks)
Smart Manufacturers had the following transactions in the month of October, 2011: October 1
Bought goods on credit from:
– Omollo for Ksh.46,000
– Mwangi for Ksh.24,000
Returned goods to Omollo for Ksh.2.000
Sold goods on credit to:
– Obasu for Ksh.39,000
– Kagwe for Ksh52,OOO
Goods were returned to Smart Manufacturers by Kagwe worth Ksh.5.000
(i) Post the transactions above to the relevant journals;
(ii) Post the journal entries to the relevant ledger accounts. (10 marks)

6. (a) The following information is extracted from the accounting records of Fresh Milk Processors for the month ended 30th April, 2011.
Balances at 1st April, 2011:
Ksh.
– Purchases ledger (credit) 465,000
– Sales ledger (Debit) 676,000
Totals for the month:
Returns inwards 57,000
Bad debts 45,000
Discounts received 36,000
Returns outwards 49,000
Payments to creditors 575,000
Discount allowed 46,000
Dishonoured cheques 48,000
Receipts from debtors 700.000
Debtors accounts settled by contra accounts with
creditors 74,000
Balances as at 30th April. 2011:
– Purchases ledger (credit) 582,000
– Sales ledger (debit) 441,000
(i) Prepare the control accounts to establish the credit sales and credit purchases forthe month of April, 2011.
(ii) Comment on the level of credit sales and credit purchases. (10 marks)
(b) The bank balance and cash balance of Makinon Freighters as at 31 st May, 2011 were
Ksh.475,000 and Ksh.97,000, respectively.
The following transactions took place during the month of May, 2011.
May 2 Received a cheque of Ksh .285,000 from Loise after deducting a 5% cash discount;
5 Sold goods for Ksh .27,000 in cash;
10 Musoma settled his account of Ksh.85,000 by cheque after deducting 5% cash discount;
20 Withdrew Ksh .75,000 from the bank for business use;
22 Paid Ksh.60,000 for rent in cash;
25 Withdrew Ksh.55,000 from the bank for personal use;
30 All the cash in hand except Ksh .50,000 was deposited into the bank account;
31 Paid Ksh. 184,000 for wages by cheque;
31 The proprietor introduced extra capital of Ksh.50,000 into the business by cheque.
(i) Prepare three column cashbook for the month of May, 2011.
(ii) Post the discount totals to the ledger accounts.

7. (a) Pixel Enterprises whose financial year ends on 31st December, had the following balances as at 1st January, 2010:
Kshs
Rates prepaid 25,000
Rent outstanding 30,000
Commission receivable due 28,(XX)
Stock of packaging materials 40,000
During the year ended 31 December, 2010 the following transactions took place.
• Paid Ksh. 140,000 for rent by cheque;
• Paid Ksh.70,000 for rates by cheque;
• Received commission of Ksh. 150,000 by cheque;
• Paid Ksh.78,000 for packaging materials by cheque.
Balances as at 31st December, 2010:
Kshs
Rates owing 45,000
Rent prepaid 10,(XX)
Commission receivable due 24,000
Packaging materials owing 12,000
(i) Prepare:
(I) rent and rates account;
(II) commission receivable account;
(III) packaging materials account.
(ii) The three accounts above were not taken into account when preparing the profit and loss statement for the year 2010. The profit was Ksh.l ,250,000.
State the effect that the information in the accounts above will have on the reported profit for the year. (12 marks)
(b) The following transactions relate to Fiar Traders for the month of March, 2011:
2011
March 1 Started business with Ksh .450,000 at bank;
5 Bought goods for Ksh.84,000 from Wafula on credit;
10 Sold goods for Ksh. 120,000 to Wanyonyi on credit;
15 Paid Ksh.250,000 for motor vehicle expenses by cheque;
20 Withdrew Ksh. 100,000 from the bank for persona) use;
22 Bought a motor van for Ksh.320,000 on credit from Mix Motors;
28 Received Ksh. 100,000 from Wanyonyi on account;
31 Received Ksh.40,000 for rent by cheque.
Record the transactions in the relevant ledger accounts.

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