FOUNDATIONS OF ACCOUNTING DECEMBER 2022 PAST PAPER

MONDAY: 5 December 2022.     Morning Paper.        Time Allowed: 2 hours.

This paper is made up of fifty (50) Multiple Choice Questions. Answer ALL the questions by indicating the letter (A, B, C or D) that represents the correct answer. Do NOT write anything on this paper.

1. Who among the following is NOT an internal user of accounting information?

A. Chief Executive Officer of the company
B. Production manager
C. Company inventory clerk
D. The investor of the company (2 marks)

2. Which is the correct double entry for a motor vehicle purchased on credit from General Motors Limited?

A. Debit Motor vehicle expense account, Credit General Motors Limited account
B. Debit Purchases account, Credit General Motors Limited account
C. Debit Motor vehicle account, Credit General Motors Limited account
D. Debit Motor vehicle account, Credit bank account (2 marks)

3. Revenue, incomes and expenditure incurred by business in a financial period are supposed to be recorded in which financial statement of account?

A. Statement of financial position
B. Statement of profit or loss
C. Cash flow statement
D. Statement of changes in equity (2 marks)

Use the information below to answer question 4 and 5.

Baraka Ltd. prepares its financial statements every year. In the year 2021, the total accounts receivables amounted to
Sh.768,000. In the same year, debtors owing Sh.42,000 were declared bankrupt and they were written off. It is the policy of the company to provide 5% of the accounts receivable as doubtful debts.

4. Calculate the balance of the accounts receivable after the adjustment.

A. Sh.689,700
B. Sh.729,600
C. Sh.726,000
D. Sh.768,000 (2 marks)

5. Calculate the amount of the doubtful debts for the year 2021.

A. Sh.38,400
B. Sh.36,300
C. Sh.42,000
D. Sh.78,300 (2 marks)

6. Which of the following information is NOT provided by the accounting equation (Assets = Capital + Liabilities)

A. List of creditors
B. List of debtors
C. Supplies of the resources of the business
D. Dates when the items were acquired (2 marks)

7. Define book of original entry.

A. It is a book that records prime entries
B. It is a book that checks the arithmetic accuracy of accounts
C. It is a book that corrects errors
D. It is a book that shows the totals of accounts (2 marks)

8. The following are reasons why the bank statement shows an overdraft while the cash book shows a debit balance on the same date EXCEPT?

A. Cheques from customers recorded in the cash book but not credited
B. The bank has paid as per the standing orders
C. Cheques recorded in the cash book but returned by the bank
D. Cheques paid to suppliers but not presented to the bank (2 marks)

9. Define the term reserve.

A. Appropriation of profit made for general or specific purpose
B. Appropriation of profit shared among owners
C. Appropriation to increase the dividends
D. Appropriation to replace non-current assets (2 marks)

10. Which of the following statement is TRUE about depreciation?

A. The method fails to take into consideration the efficiency of the asset which declines as it gets old
B. It does not reduce the non-current asset to its residual value
C. The combined effects of depreciation is most felt in later years
D. It is difficult to depreciate additional non-current assets in the course of the year (2 marks)

11. Which of the following is NOT an adjustment in the appropriation section of the partnership income statement.

A. Salary to partners
B. Drawings
C. Interest on drawings
D. Commission to partners (2 marks)

12. Interest on partners’ capital can be defined as:

A. Amount given to partners depending on the amount of money each has in the business
B. Amount given to partners equally
C. Amount given to partners to compensate them for using their money in business
D. Amount given to partners as a percentage of the money each partner has in the business (2 marks)

13. Why do organisations maintain petty cash book using the imprest system?

A. To control petty cashier and petty cash
B. To record expenses
C. To show the totals of all business expenses
D. To pass the entries through the books of original entries (2 marks)

14. At the time of balancing accounts, the totals on both side of the account are double underlined. Why is this done?

A. To close the account
B. To balance the account
C. To get the balancing figure
D. To prevent any more entries being made in the account (2 marks)

15. Balance the following account and state whether it’s a credit or a debit balance.

A. A debit balance of Sh.1,610,400
B. A credit balance of Sh.1,557,400
C. A debit balance of Sh.1,557,400
D. A credit balance of Sh.1,610,000 (2 marks)

16. Proposed dividends are reported in which financial statement?

A. Income statement only
B. Retained earnings statement
C. Statement of financial position only
D. Income statement and statement of financial position (2 marks)

17. Which of the following principles assumes that a business will continue for the foreseeable future?

A. Historical cost
B. Periodicity
C. Objectivity
D. Going concern (2 marks)

18. Invoices received for goods purchased on credit from suppliers would first be entered in the_________________.

A. Purchases day book
B. Sales day book
C. Purchases account
D. Sales account (2 marks)

19. The following entries appeared in the last statement of financial position of Dualmax Ltd.: Plant and machinery at cost Sh.18,000,000 and the accumulated depreciation at Sh.7,200,000 as at 30 September 2021. It is the practice of the company to depreciate machinery at 20% per annum diminishing balance.

Calculate the depreciation charge for the year ended 30 September 2022.
A. Sh.2,160,000
B. Sh.8,640,000
C. Sh.9,360,000
D. Sh.10,800,000 (2 marks)

20. The following are reasons for preparing bank reconciliation statement EXCEPT?

A. Ensure all unpresented cheques are presented
B. Explains the difference between the cash book balance and the bank statement
C. Ascertains the correct balance at the bank
D. Update the cash book (2 marks)

21. What should happen to a three-column cash book at the end of the accounting period?

A. Cash, bank and discount columns are balanced
B. Cash and bank columns are balanced and the discount columns are totalled
C. The cash column is balanced, and bank and discount columns are totalled
D. Cash, bank and discount columns are totalled (2 marks)

22. The primary objective of the trading account is to show the_______________________.

A. overall trading profit or loss for the period under review
B. net trading profit or loss for the period concerned
C. surplus or deficit on the turnover of goods sold in the period
D. difference between income earned and expenditure incurred in the period (2 marks)

23. Which of the following cheques is already issued by a company and is yet to be presented to the bank?

A. Uncredited Cheque
B. Uncollected Cheque
C. Bounced cheque
D. Outstanding cheque (2 marks)

24. The accounts payable as at 1 August 2022 were Sh.24,600 and Sh.48,240 as at 31 August 2022. Transactions for the month were: payments to creditors Sh.384,000, discount received Sh.8,200 and return outwards Sh.10,200.

Determine the credit purchases for the month of August.
A. Sh.426,040
B. Sh.407,640
C. Sh.378,760
D. Sh.389,240 (2 marks)

25. A debit note is a document issued when goods are:

A. Returned
B. Overcharged
C. Sold
D. Undercharged (2 marks)

26. The following balances refer to Mwanahamisi’s assets and liabilities as at 1 May 2022:

• Plant and machinery Sh.30,000
• Cash Sh.3,000
• Land and buildings Sh.300,000
• Bank overdraft Sh.75,000
• Accounts payable Sh.7,500
• Accounts receivable Sh.15,000
Calculate Mwanahamisi’s capital as at 1 May 2022.
A. Sh.82,500
B. Sh.265,500
C. Sh.348,000
D. Sh.430,500 (2 marks)

27. Errors are corrected through double entry. Select the book of account that is used to do so.

A. Purchases journal
B. The trial balances
C. The journal
D. Sales journal (2 marks)

28. Which statement is TRUE about public limited company?

A. Restricted transfer of shares
B. Does not have maximum membership
C. It has minimum membership
D. Owners have unlimited liabilities (2 marks)

29. Which of the following transactions will decrease assets and decrease liabilities.

A. Purchase of inventory
B. Purchasing inventories on credit
C. Payment of a loan by cash or bank
D. Payment of salaries (2 marks)

30. Samuel received Sh.58,650 from one of his debtors. The book keeper debited debtors and credited cash with the same amount of money. Which error did the book keeper commit?

A. Error of principle
B. Error of complete reversal of entries
C. Error of commission
D. Compensating error (2 marks)

31. For a partnership to maintain fixed capital account, which account should they open to maintain this?

A. Capital account
B. Current account
C. Drawings account
D. Goodwill account (2 marks)

32. You were approached by a potential investor regarding the type of shares he would buy. You recommended preference shares to ordinary shares. Why did you give such advice?

A. They are cheap
B. They readily available
C. They are less risky
D. They get more dividends (2 marks)

33. Melinda Ltd. was authorised to issue 80,000 ordinary shares of Sh.100 each and 40,000 12% preference shares of.100 each. The company has issued 60,000 ordinary shares and 24,000 preference shares and they are fully paid. Calculate the amount of the total called up share capital.
A. Sh.8,400,000
B. Sh.12,000,000
C. Sh.3,600,000
D. Sh.6,000,000 (2 marks)

34. During the year ended 31 January 2021 the insurance account of Metro Ltd indicated an opening balance of Sh.8,476 paid in advance, in the year 2021 an amount of Sh.13,728 was paid including prepayment of Sh.4,485.
Calculate the amount of insurance charged in the income statement in the year.

A. Sh.13,728
B. Sh.17,719
C. Sh.22,204
D. Sh.9,243 (2 marks)

35. The source document issued by the supplier to a company for goods returned is referred to as_________________.

A. Invoice
B. Debit note
C. Credit note
D. Statement of account (2 marks)

The following information relates to Ancestor, Baggy and Chotara operating a partnership as ABC Traders, use the
information to answer question 36 and 37.
During the year ended 30 September 2021, Ancestor, Baggy and Chotara who were operating a partnership business made a profit of Sh.120,660. Their partnership agreement provided the following:
1. Profit and loss sharing ratio 3:2:1
2. Baggy was entitled to a salary of Sh.5,000 per month
3. Interest on capital at the rate of 5%
4. Interest on drawing at the rate of 10%

Capital contributed by each partner: Ancestor Sh.250,000, Baggy Sh.200,000 and Chotara Sh.150,000
Drawings made by each partner: Ancestor Sh.100,000, Baggy 80,000 and Chotara Sh.60,000

36. Calculate the amount of profit that was to be shared by partners

A. Sh.120,660
B. Sh.114,660
C. Sh.144,660
D. Sh.54,660 (2 marks)

37. Calculate the profit shared to each partner

A. Ancestor Sh.72,330, Baggy Sh.48,220 and Chotara Sh.24,110
B. Ancestor Sh.27,330, Baggy Sh.18,220 and Chotara Sh.9,110
C. Ancestor Sh.60,330, Baggy Sh.40,220 and Chotara Sh.20,110
D. Ancestor Sh.57,330, Baggy Sh.38,220 and Chotara Sh.19,110 (2 marks)

38. Of the following errors, which one will have an effect on the profit calculated?

A. Unrecorded trade payables
B. Cash paid to a creditor and its correctly entered in the cash book
C. A liability paid recorded in the credit side of the cash book and credited in the loan account.
D. Rent accrued not recorded in the books of accounts (2 marks)

39. Which is the correct double entry for correcting the following error. Discount allowed of Sh.4,800 entered on the debit side of the discount received account.

A. Debit discount allowed account, Credit Discount received account
B. Debit suspense account, Credit Discount Allowed Account
C. Debit discount received account, Credit Suspense Account
D. Debit suspense Account, Credit Discount received Account (2 marks)

40. An accounting software can do the following, EXCEPT?

A. Financial record-keeping and analysis.
B. It records the purchase of goods and services, sales value and other financial transactions.
C. Accounting software enhances employment security
D. It is a business tool for bookkeeping and other financial operations (2 marks)

41. Why would creditors NOT be interested with the financial statements of a business.

A. To find out the amount the business owes them
B. To know the net worth of the business
C. To know whether it is a going concern
D. To find out why the accounts receivable are very high (2 marks)

42. The purpose of the books of original entry in a business is?

A. They contain all the important information regarding business transactions
B. They are easy to maintain
C. They do not involve double entry
D. They help in analysing transactions by keeping similar items together (2 marks)

43. If the two totals of a trial balance do not agree, the difference should be recorded in?

A. The income statements
B. The capital accounts
C. The nominal account
D. The suspense account (2 marks)

44. Which of these errors will NOT affect the trial balance?

A. Amount received from Jemila of Sh.117 is recorded in his account as Sh.711
B. Commission expenses has been debited in the commission receivables account.
C. Credit purchases of Sh.600 entered in the books of accounts as Sh.60.
D. A sale of Sh.2,500 was not recorded in the book of account. (2 marks)

45. Suppliers and creditors of a firm are interested in:

A. The profitability position of the firm
B. The liquidity position of the firm
C. The market share position of the firm
D. The debt position of the firm (2 marks)

46. The cash account is________________________________.

A. A personal account
B. A real account
C. A nominal account
D. None of the above (2 marks)

47. The matching concept matches______________________________.

A. Assets with liabilities
B. Capital with income
C. Revenue with expenses
D. Expenses with capital (2 marks)

48. The accounting concept that requires all identified losses and gains to be recognised with reasonable certainty is called?

A. Materiality
B. Accrual
C. Prudence
D. Subsistence over form (2 marks)

49. Fatma Ali operates a petty cash book using imprest system. At the beginning of the month of November 2022, the petty cash cashier was given Shs.100,000 out of which she spent Shs.80,000. How much will she be reimbursed at the end of the month?

A. Sh.20,000
B. Sh.80,000
C. Sh.100,000
D. Sh.180,000 (2 marks)

50. As of January 1, 2021, Queen’s Store had a balance in its retained earnings account of Sh.150,000. During the year, Queen’s Store had revenues of Sh.120,000 and expenses of Sh.67,500. In addition, the business paid cash dividends of Sh.30,000. What is the balance in Retained Earnings as at December 31, 2021 for Queen’s Store?

A. Sh.150,000
B. Sh.172,500
C. Sh.202,500
D. Sh.232,500 (2 marks)

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