FOUNDATIONS OF ACCOUNTING DECEMBER 2023 PAST PAPER

MONDAY: 4 December 2023. Morning Paper. Time Allowed: 2 hours.

This paper is made up of fifty (50) Multiple Choice Questions. Answer ALL questions by indicating the letter (A, B, C or D) that represents the correct answer. Each question is allocated two (2) marks. Do NOT write anything on this paper.

1. Which of the following is an element of financial statements.

A. Receipt
B. Invoice
C. Liabilities
D. Credit note (2 marks)

2. The following are revenue expenses, EXCEPT ______________________.

A. Salaries and wages
B. Electricity expense
C. Painting a new building
D. Re-painting building after five years of use (2 marks

3. In the statement of financial position, patents are indicated as _________________.

A. Current liabilities
B. Current assets
C. Tangible assets
D. Intangible assets (2 marks)

4. Which of the following statements BEST describe a debit note?

A. Document used as evidence of credit sale
B. A receipt issued after payment in a supermarket
C. Document used to record an undercharge
D. Document used to record an overcharge (2 marks)

5. Sasa enterprises provided the following data as at 30 September 2023:
Sh.
• Buildings 2,000,000
• Inventory 800,000
• Cash in hand 40,000
• Capital 2,400,000

What is the total liabilities?
A. Sh.840,000
B. Sh.2,800,000
C. Sh.440,000
D. Sh.2,400,000 (2 marks)

6. What is the effect of accrued expenses to the incomes of a business?

A. Net income increases
B. Net income decreases
C. Net income remains unchanged
D. Depends on the accrued expense (2 marks)

7. Koki operates a retail shop. On 1 October 2023, he purchased goods worth Sh.800,000, on credit from a distributor who offered 10% trade discount and 5% cash discount if payment was done in 2-weeks, time. How much did Koki pay if he paid for the goods on 8 October 2023?

A. Sh.720,000
B. Sh.684,000
C. Sh.680,000
D. Sh.800,000 (2 marks)

8. Which of the following is a reason for providing accounting information to external users?

A. Decision-making in the organisation according to the performance
B. Evaluating employee performance so that they can be motivated
C. Complying with tax and penalties regulations as per the laws
D. Assessing the company’s financial health for investment decisions (2 marks)

9. Why are books of prime entry important?

A. They are used to create financial statements
B. They simplify the recording of numerous transactions
C. They are only required for tax purposes.
D. They help with budgeting and forecasting (2 marks)

10. Which of the following statements is TRUE about a partnership?

A. Partners have limited liability in the business
B. Partnerships are separate legal entities from business
C. Partners’ personal assets are at risk for partnership debts
D. Partners are not responsible for partnership losses (2 marks)

Use the following information to answer questions 11, 12 and 13.

A firm purchased machinery at a cost of Sh. 6,000,000, the firm provides depreciation at the rate of 20% per annum.

11. Calculate the net book value of the machine at the end of the fourth year using straight line method.

A. Sh.4,800,000
B. Sh.3,600,000
C. Sh.2,400,000
D. Sh.1,200,000 (2 marks)

12. Calculate the net book value of the machine at the end of the third year using reducing balance method.

A. Sh.2,160,000
B. Sh.3,072,000
C. Sh.2,400,000
D. Sh.2,928,000 (2 marks)

13. Calculate gain or loss on disposal if the machine was disposed on the 1st day of the third year for Sh. 3,000,000 and depreciation was provided at straight line method full year policy.

A. Sh.600,000 profit
B. Sh.600,000 loss
C. Sh.2,400,000 profit
D. Sh.1,800,000 loss (2 marks)

14. Electricity expenses account of Susana traders had the following balances:
Sh.
• Accrued balance 1 January 2022 15,500
• Accrued balance 31 December 2022 32,300
• Electricity paid during the year 2022 220,000

Calculate the amount of Electricity expenses to be charged in the income statement for the year ended 31 December 2022.

A. Sh.277,800
B. Sh.236,800
C. Sh.213,200
D. Sh.252,300 (2 marks)

15. The purpose of day books is to___________.

A. Speed up the location of errors
B. Provides a check on ledger postings
C. Summarise entries of a similar type
D. Provides totals for control accounts (2 marks)

16. The totals of the purchases journal are posted to the

A. Debit of purchases account
B. Debit of the personal accounts concerned
C. Credit of sales account
D. Credit of the personal accounts concerned (2 marks)

17. The purpose of a bank reconciliation statement is to________________________.

A. Ensures cash book (bank columns) and the bank Statement show the same balance
B. Explains the difference between the cash book balance and the bank statement
C. Ascertains the correct balance at the bank and in the cash book
D. Update the bank statement and cash book (bank column) accordingly (2 marks)

18. A business operates its petty cash by using the imprest system. At the beginning of the month, the petty cashier was given Sh.100,000 out of which she spent Sh.80,000. How much will she be reimbursed?

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

19. The purchase of a motor vehicle on credit from Toy Automotive Company for use in a firm should be recorded as

A. Dr. Motor vehicle expense Cr. Toy Automotive
B. Dr. Purchases account Cr. Toy Automotive Company
C. Dr. Motor vehicle Cr. Toy Automotive Company
D. Dr. Motor vehicle Cr. Cash book (2 marks)

Use the information below to answer question 20.

The following account relates to Wabebe Enterprises for the month of May 2023

20. Which of the following represents the balance in the above account?
A. Debit Sh.510,000
B. Debit Sh.370,000
C. Credit Sh.370,000
D. Credit Sh.510,000 (2 marks)

21. What will be the effect on trial balance if Sh.2,000 received as rent and correctly entered in the cash book but not posted to rent account?

A. Debit side of trail balance will exceed by Sh.4,000
B. Debit side of trail balance will decrease by Sh.2,000
C. Credit side of trail balance will decrease by Sh.2,000
D. Credit side of trail balance will exceed by Sh.4,000 (2 marks)

22. The total payments made by a petty cashier during the month of November 2023 was Sh.48,900. The balance at the end of the month was Sh.3,100. What is the cash float at the beginning of the month?

A. Sh.52,000
B. Sh.45,800
C. Sh.55,100
D. Sh.48,000 (2 marks)

23. Which of the following errors will be detected by the trial balance?

A. Errors of commission
B. Errors of omission
C. Under casting errors
D. Errors of principle (2 marks)

24. Which of the following statements explains the error of omission?

A. A transaction that has been posted to the wrong ledger
B. A transaction which has not been included in the trial balance
C. A transaction where the credit entry is posted as a debit entry
D. A transaction that has been completely overlooked (2 marks)

25. Which of the following explains the imprest system of operating petty cash?

A. Weekly expenditure cannot exceed a set amount
B. The amount of expenditure is reimbursed to maintain the imprest amount
C. All expenditure out of the petty cash must be properly authorised
D. Regular equal amounts of cash are transferred into petty cash at intervals (2 marks)

26. Which of the following is a function of financial accounting?

A. To Provide financial information
B. To maintain statement of financial position
C. To minimise taxes and penalties
D. To keep track of liabilities of the business (2 marks)

27. What are accrued Expenses?

A. Expenses which are not paid off in the current balance sheet
B. The necessary purchases that keep a business going from day-to-day
C. Type of expense incurred in one accounting period but not paid until a future accounting period
D. An expense that has been incurred by the owner of the business (2 marks)

28. Which of the following is a personal account?

A. Inventory account
B. Loan account
C. Salary account
D. Motor vehicle account (2 marks)

29. Which of the following is a user of internal accounting information?

A. Store manager
B. Customers
C. Competitors
D. Government (2 marks)

30. The double entry accounting system is __________________.

A. An accounting system that is useful for small business
B. An accounting system involving all interested parties
C. An accounting system in which transactions are recorded from a single aspect
D. An accounting system in which business transactions have a debit and credit entry (2 marks)

Use the information below to answer questions 31 and 32.

Elimu traders gross profit for the period ending 31 December 2022 amounted to Sh.1,250,000. Sales for the period amounted to Sh.4,500,000 and the closing inventory as at 31 December was Sh.180,000.

31. How much was the purchases for the period?

A. Sh.3,250,000
B. Sh.3,070,000
C. Sh.3,430,000
D. Sh.1,430,000 (2 marks)

32. The purchases were all on credit. The total trade creditors balances as at 1 January 2022 were Sh.650,000. Bad debts of Sh.150,000 were written off and Sh.2,500,000 were paid to the suppliers.How much were the suppliers balances as at 31 December 2022?

A. Sh.1,430,000
B. Sh.1,250,000
C. Sh.1,220,000
D. Sh.2,680 (2 marks)

33. Faulty goods costing Sh.15,000 were returned to a supplier but this was recorded as Sh.60,000 in the ledger accounts. What is the journal entry necessary to correct the error?

34. Define the term purchases as used in accounting.

A. Items bought
B. Goods bought on time
C. Goods bought for resale
D. Goods paid for (2 marks)

35. Prepaid expenses are shown as an asset due to:

A. Money measurement concept
B. Business entity concept
C. Going concern concept
D. Matching concept (2 marks)

36. What is the effect of recording purchases of motor vehicle for Sh.6,000,000 as motor vehicle expenses

A. Net profit only would be understated
B. Net profit only would be overstated
C. It would not affect the net profit
D. Both gross profit and net profit would be understated (2 marks)

37. Define the term revenue as used in accounting.

A. Increase in value of assets
B. Money a company earns from the sale of its products and services
C. The total money received from the customers
D. Total money expected to be received from the customers in future (2 marks)

38. As at 1 January 2022, Bride Ltd. had a balance in its retained earnings account of Sh.1,000,000. During the year Bride Ltd. had revenues of Sh.800,000 and expenses of Sh.450,000. In addition, the business paid cash dividends of Sh.200,000. What is the balance in retained earnings as at 31 December 2022 for Bride Ltd.?

A. Sh.1100,000
B. Sh.1,150,000
C. Sh.1,135,000
D. Sh.1,500,000 (2 marks)

39. Shares which are held by the owners of the company are known as ________________.

A. Preference shares
B. Ordinary shares
C. Share premium
D. Issued shares (2 marks)

40. Credit sales are recorded in which book of original entry?

A. Trading account
B. Credit sales
C. Sales account
D. Sales journal (2 marks)

41. Why would a person encourage a business to embrace technology in keeping accounts?

A. There is excess money
B. There is competition
C. There is power supply
D. There is security, efficiency and saves time (2 marks)

Use the following information to answer questions 42 and 43.
During the year ended 30 September 2023, credit sales amounted to Sh.3,450,000.

Amount received from credit customer amounted to Sh.3,243,000. At the start of the year, the balance in the accounts receivable amounted Sh.570,200 and debts totalling to Sh.125,000 proved irrecoverable and were written off. It is the policy of the business to provide for doubtful debt of 5% of the remaining debtors.

42. Calculate the amount provided for provision for doubtful debts.

Sh.570,200
Sh.652,200
Sh.32,610
Sh.38,860 (2 marks)

43. Calculate the amount of accounts receivable at the end of the year to be transferred to the statement of financial position.

A. Sh.777,200
B. Sh.613,340
C. Sh.619,590
D. Sh.652,200 (2 marks)

44. Define the terms accounts payable.

A. Money owed by a company to its creditor
B. These are those people who are owed money by the business
C. These are those people who buy goods from the business
D. These are those people who lend money to the business (2 marks)

Use the following information to answer questions 45 and 46.

Rorich prepared his cash book and later received the bank statement which showed a different balance. Upon investigation he discovered the following:
                                                                                                                     Sh.“000”
Cash at bank as per the bank column of the cash book (debit)            12,510
Money directly deposited in the bank                                                         630
Bank charges on bank statement but not recorded in the cash book     45
Unpresented cheques                                                                                      420
Standing order on bank statement but not in the cash book                    150
Credit transfer received on the bank statement but not in the cash book 660

45. Calculate the adjusted cash book balance.

A. Sh.12,975
B. Sh.12,945
C. Sh.13,605
D. Sh.12,465 (2 marks)

46. Calculate the balance as per the bank statement.

A. Sh.14,025
B. Sh.13,185
C. Sh.13,605
D. Sh.12,510 (2 marks)

47. Wilson Muchora sublets part of his premises. He received rent of Sh.420,000 during the year ended 30 September 2023. Peter Karori the tenant owed Wilson Muchora Sh.53,200 on 30 September 2022 and Sh.58,800 on 30 September 2023. Calculate the rent received to the income statement during the year ended 30 September 2023.

A. Sh.467,600
B. Sh.366,800
C. Sh.425.600
D. Sh.361,200 (2 marks)

48. When goods are taken for own use from the business we should_________.

A. Debit drawings account Credit purchases account
B. Debit purchases account Credit drawing account
C. Debit drawing account Credit inventory account
D. Debit sales account Credit inventory account (2 marks)

49. Which of the following describes the statement of financial position equation?

A. Assets = Capital + Liabilities
B. Assets = Capital – Liabilities
C. Capital = Assets + Liabilities
D. Assets = Liabilities – Capital (2 marks)

50. The amount of dividends paid to preference shareholders is determined by _____________.

A. The profit made by the company during the year
B. Fixed rate agreed in advance
C. A rate agreed during the annual general meeting
D. The total retained profit in the year (2 marks)

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