Financial Accounting April 2023 past paper

MONDAY: 24 April 2023. Morning Paper.

Time Allowed: 3 hours.

Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your workings. Do NOT write anything on this paper.

QUESTION ONE

1. Using appropriate examples, explain THREE errors that do not affect the trial (6 marks)
2. The following errors were discovered in the books of Eric Barasa for the year ended 31 December 2022:

1. 1. A debit balance of 1,080,000 with respect to Pius Munene was omitted from the list of accounts receivable.
   2. An entry of 270,000 concerning returns outward was made in error in the sales book instead of the purchases returns book.
   3. The purchases day book had been undercast by 2,160,000.
   4. Purchase of new equipment costing 16,200,000 had been recorded in the repairs account (Depreciation on equipment is provided at the rate of 12½% on cost per annum).
   5. A cheque for 135,000 paid to Peter Karanja (a creditor) was correctly entered in the cash book but credited to his account.
   6. Bad debts of 675,000 should have been written off, but this was not done.
   7. Goods valued at 5,400,000 were taken by Eric Barasa for his personal use and no entry had been made in the books.
   8. 2,430,000 discounts received had been correctly entered in the cash book but had been posted to the wrong side of the discounts received account.

Required:

1. Journal entries to correct the above errors (include appropriate narrations). (8 marks.)
2. Suspense account fully balanced indicating the amount by which the trial balance had failed to (6 marks)

(Total: 20 marks)

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QUESTION TWO

Peter Mwangi and Aloyce Onyango began trading as Pengo Manufacturers on 1 January 2022.

The following trial balance was extracted from the books of the partnership as at 31 December 2022:

Additional information:

1. Inventories as at 31 December 2022 were as follows:

2. As at 31 December 2022, accrued electricity expenses amounted to 10,400,000 while prepaid rent and insurance amounted to Sh.7,840,000.

3. The following expenses are to be apportioned between the factory and administration in the ratios indicated:

4. The estimated useful life of plant and machinery is 10 years while that of motor vehicles is 4 The partnership uses the straight-line method to provide for depreciation on motor vehicles and plant and machinery.

5. The partners share profits and losses

6. Allowance for doubtful debts is to be made at the rate of 5% of the accounts receivable as at 31 December

7. Manufactured goods were transferred from the factory to the warehouse at 85,600,000.

8. Loose tools as at 31 December 2022 were valued at 13,600,000.

Required:

1. Manufacturing and statement of profit or loss for the year ended 31 December (14 marks)
2. Statement of financial position as at 31 December (6 marks)

(Total: 20 marks)

QUESTION THREE

The following is the statement of financial position of Riziki Ali, a sole trader, as at 1 January 2022:

Additional Information:

1. During the year ended 31 December 2022, Riziki Ali only maintained the cash book, whose summary is as follows:

2. Accounts receivable and accounts payable as at 31 December 2022 were 1,320,000 and Sh.1,820,000 respectively.

3. During the year ended 31 December 2022, proceeds from cash sales amounting to 1,650,000 were not recorded, but the amount was used as follows:

4. Accrued general expenses as at 31 December 2022 amounted to 400,000.

5. Inventory as at 31 December 2022 was valued at 1,480,000.

6. Depreciation is to be provided on book values as follows:

1. • Buildings – 10% per annum
   • Equipment – 15% per annum
   • Motor vehicles – 20% per annuum
   • House furniture valued at 250,000 was converted to business use. Depreciation on the furniture was to be provided at 12½% per annum on this amount.

Required:

1. Statement of profit or loss for the year ended 31 December (10 marks)
2. Statement of financial position as at 31 December (10 marks)

(Total: 20 marks)

QUESTION FOUR

The following trial balance was extracted from the books of Bahati Ltd. as at 31 March 2023:

Additional Information:

1. The company maintains a gross profit margin of 20%.
2. As at 31 March 2023, accounts receivable balance included 250,000 due from a customer who has been declared bankrupt.
3. The allowance for doubtful debts is to be adjusted to 5% of the accounts receivable as at 31 March
4. As at 31 March 2023, administrative expenses accrued amounted to 175,000 while prepaid selling and distribution expenses amounted to Sh.75,000.
5. The company paid interest on the debentures for the year ended 31 March 2023 on 5 April
6. Depreciation is to be provided as follows:
   • Building –      2% per annum on cost
   • Fixtures and fittings –      10% per annum on reducing balance
7. The company’s directors propose that:
   • The preference dividend be paid
   • A dividend of 10% on ordinary shares be paid
   • 2,500,000 be transferred to general reserves

Required:

1. The value of inventory as at 31 March (2 marks)
2. Statement of profit or loss for the year ended 31 March (10 marks)
3. Statement of financial position as at 31 March (8 marks)

(Total: 20 marks)

 

QUESTION FIVE

1. Analyse FOUR advantages of ratio analysis as a tool for assessing financial (8 marks)
2. Explain the importance of the following ratios to investors:

• Price-to-earnings (P/E) (2 marks)
• Debt-to-equity (2 marks)
• Explain the following terms as used in public sector accounting:
• Appropriations-in-Aid. (2 marks)
• Consolidated (2 marks)
• Describe FOUR benefits of adopting International Financial Reporting Standards (IFRSs). (4 marks)

(Total: 20 marks)