INTRODUCTION TO FINANCIAL ACCOUNTING AUGUST 2023 PAST PAPER

WEDNESDAY: 23 August 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. The following information was provided by Wima Traders:

2. A firm bought a machine for Sh.1,600,000. It is expected to be used for 5 years then sold for Sh.100,000. What is the annual amount of depreciation if the straight-line method is used?

A. Sh.320,000
B. Sh.325,000
C. Sh.340,000
D. Sh.300,000 (2 marks)

3. Allowance for doubtful debts is created____________________________________.

A. When debtors become bankrupt
B. When debtors cease to be in business
C. To provide for possible bad debts
D. To write off bad debts (2 marks)

4. John Wele, a customer, returned some goods back to Kimbo Traders worth Sh.70,000. What is the correct source document to record the transaction?

A. Sales invoice
B. Debit note
C. Credit note
D. Cash book (2 marks)

5. The total payments made by a petty cashier during the month of April 2023 was Sh.88,900. The balance as at 30 April 2023 was Sh.10,500. What was the cash float received on 1 April 2023?

A. Sh.78,400
B. Sh.99,400
C. Sh.10,500
D. Sh.100,000 (2 marks)

6. You were provided with the following trial balance extract for Milky Traders as at 30 June 2023:

Debit Credit
Sh. Sh.
Trade Receivable 1,200,000
Allowance for doubtful debts 70,000
A customer with unpaid balance of Sh.120,000 was untraceable and his account was written off. This is yet to be recorded in the books. Milky Traders makes an allowance for doubtful debt at the rate of 5% of the trade receivable balances.

Determine the allowance for doubtful debts to be reported in the profit or loss account for the period ended 30 June 2023.

A. Sh.54,000 as income
B. Sh.54,000 as expenses
C. Sh.16,000 as income
D. Sh.16,000 as expenses (2 marks)

7. Kimbilio Limited’s sales for the year ended 31 March 2023 amounted to Sh.39,000,000 and its cost of sales was Sh.21,000,000, dividend income Sh.3,000,000 and the expenses Sh.5,000,000. Determine its net profit.

A. Sh.18,000,000
B. Sh.21,000,000
C. Sh.16,000,000
D. Sh.13,000,000 (2 marks)

8. The debit balance as per cash book of Mimi Ltd. on 30 June 2023 was Sh.1,700,000, cheques deposited but not credited to the account amounted to Sh. 200,000 and cheques issued but not presented amounted to Sh.250,000. What should the balance as per cash book be?

A. Sh.1,750,000
B. Sh.1,650,000
C. Sh.2,150,000
D. Sh.450,000 (2 marks)

Use the following information to answer Question 9 to Question 13:

Given the following fundamental accounting principles: business entity principle, going concern principle, revenue recognition principle, prudence principle, objectivity principle, cost principle and materiality principle; match each of them with the statement that explains them best:

9. It is assumed from a review of AJ Ltd.’s financial statements that the business is continuing with its operations, because contrary information is not included_______________________________________________.

A. Going concern principle
B. Objectivity principle
C. Prudence principle
D. Materiality principle (2 marks)

10. Hali Ltd. purchased a cleaning machine from a supplier at Sh. 600,000 on credit, but it was recognised as a sale in the books of the suppliers____________________________.

A. Prudence principle
B. Business entity principle
C. Cost principle
D. Revenue recognition principle (2 marks)

11. Amina Moraa the director Ajabu Ltd. must not include personal expenses as business expenses_______________.

A. Cost principle
B. Revenue recognition principle
C. Business entity principle
D. Prudence principle (2 marks)

12. New furniture is purchased, the accountant records the transaction based on the invoice prepared by seller which is independent and unbiased__________________________________________.

A. Prudence principle
B. Objectivity principle
C. Cost principle
D. Going concern principle (2 marks)

13. Miwani Ltd. purchased furniture for Sh.500,000. Its recorded as Sh.500,000 although its value in the market is Sh.650,000.

A. Business entity principle
B. Revenue recognition principle
C. Objectivity principle
D. Cost principle (2 marks)

Use the following information to answer Question 14 to Question 18:

You are reviewing the books of Mambo Ltd. and in the process, you have identified the following errors in its books of accounts: error of reversal, error of original entry, transposition error, error of omission, error of principle; Match the errors committed with the statement that best identifies them.

14. Invoice is entered in the accounts receivable as Sh.71,000 instead of Sh.17,000.

A. Error of principle
B. Error of original entry
C. Error of reversal
D. Error of commission (2 marks)

15. The accountant has not included stationery worth Sh.10,000 in the books of account.

A. Error of commission
B. Error of original entry
C. Error of omission
D. Transposition error (2 marks)

16. The accountant entered wages payable as Sh.76,890 instead of Sh.67,980.

A. Error of principle
B. Transposition error
C. Error of reversal
D. Error of original entry (2 marks)

17. The accountant entered Sh.36,000 used to pay for the owner’s dowry as business expenses.

A. Error of original entry
B. Error of principle
C. Error of commission
D. Error of omission (2 marks)

18. The accountant recorded Sh.60,000 in accounts payable instead of accounts receivable.

A. Transposition error
B. Error of principle
C. Error of omission
D. Error of reversal (2 marks)

19. The annual reports are to be prepared and published for circulation among the external end users such as ______________________________.

A. Company, competitors, contributors and employees
B. Customers, creators, collaborators and contractors
C. Government, competitors, owners and top management
D. Shareholders, investors, bankers, debenture holders and creditors (2 marks)

20. AD Ltd. has current assets of Sh.50,000,000 and total assets of Sh.150,000,000. The company has current liabilities of Sh.30,000,000 and total liabilities of Sh.80,000,000. What is the value of AD Ltd.’s equity?

A. Sh.20,000,000
B. Sh.30,000,000
C. Sh.70,000,000
D. Sh.120,000,000 (2 marks)

The following is a statement of financial position for Kazi Ltd. as at 30 June 2023. Use the following information to answer Question 21 to Question 24:

21. As at 1 July 2022 the retained earnings amounted to Sh.7,000,000. What is the profit for the year ended 30 June 2023?

A. Sh.17,500,000
B. Sh.4,500,000
C. Sh.4,000,000
D. Sh.3,500,000 (2 marks)

22. Compute the value of investments for the year ended 30 June 2023.

A. Sh.1,600,000
B. Sh.1,700,000
C. Sh.1,500,000
D. Sh.1,000,000 (2 marks)

23. What is the value of working capital as at 30 June 2023?

A. Sh.8,850,000
B. Sh.10,000,000
C. Sh.18,850,000
D. Sh.1,150,000 (2 marks)

24. The value of each share is Sh.10. How many shares have been issued by the company?

A. 4,000
B. 400
C. 400,000
D. 40,000 (2 marks)

25. Anna sold goods to Gladys on 19 July 2023 worth Sh.600,000. The credit terms are for a 21⁄2% cash discount if payment is received within 14 days. If payment was received on 29 July 2023 then the correct amount paid by Gladys and the discount received respectively would be:

A. Sh.575,000 Sh.25,000
B. Sh.615,000 Sh.6,000
C. Sh.585,000 Sh.15,000
D. Sh.560,000 Sh.40,000 (2 marks)

26. Which of the following is a component of a partnership deed?

A. Age of the partners
B. Profit sharing ratios
C. Profit made by the partnership
D. Remuneration of the partner who takes management roles (2 marks)

27. Nathaniel’s books of account provide the following balances:

What was the cost of sales?

A. Sh.5,647,500
B. Sh.5,265,500
C. Sh.5,445,000
D. Sh.5,827,500 (2 marks)

28. Which of the following will NOT affect the balancing of the trial balance?

(i) Rent received accounts were added up incorrectly to give Sh.100,000 and entered in the books.
(ii) Purchase of motor vehicles of Sh.2,250,000 by cheque was entered in the bank account as Sh.2,520,000.
(iii) Cheque payment of Sh.200,000 for wages was only entered in the cash book.
(iv) Credit sales of Sh.400,000 to J. Mwendwa was entered in J. Mwende’s account.

A. (i) and (iv)
B. (i) and (iii)
C. (ii) and (iii)
D. (iii) and (iv) (2 marks)

29. The entries in a sales ledger control account were as follows:

What is the balance on the sales ledger control account?

A. Sh.150,000
B. Sh.375,000
C. Sh.285,000
D. Sh.225,000 (2 marks)

30. The trial balance of Mwitu Enterprises failed to agree. On further investigation, the following errors were discovered.
(i) Purchases were undercast by Sh.315,000
(ii) Sales undercast by Sh.216,500. The difference was transferred to a suspense account.

What was the balance on the suspense account?

A. Debit Sh.531,500
B. Credit Sh.531,500
C. Debit Sh.98,500
D. Credit Sh.98,500 (2 marks)

31. Faulty goods costing Sh.210,000 were returned to a supplier, but this was recorded as Sh.120,000 in the ledger accounts. What is the journal entry necessary to correct this error?

32. The following information relates to Sheffa Enterprises for the period ending 31 December 2022:

How much was the opening inventory?

A. Sh.530,000
B. Sh.730,000
C. Sh.170,000
D. Sh.370,000 (2 marks)

33. Ryan, Jayden and Dora started a partnership business on 1 July 2022, sharing profits in the ratio of 3:2:1 respectively. They contributed Sh.30,000,000, Sh.15,000,000 and Sh.10,000,000 in the fixed capital account and 10% of each of their fixed capital, in the current accounts. The partnership deed provides interest on fixed capital at a rate of 10% per annum. Each partner receives an annual salary of Sh.2,000,000.
The following additional information is available:
Sh.
Gross profit 27,000,000
Operating expenses (including partner’s salaries) 20,00,000

Required:

Partners current Accounts as at 30 June 2023.
A. Ryan Sh.3,000,000, Jayden Sh.1,500,000, Dora Sh.1,000,000
B. Ryan Sh.8,750,000, Jayden Sh.5,500,000, Dora Sh.4,250,000
C. Ryan Sh.8,000,000, Jayden Sh.5,000,000, Dora Sh.4,000,000
D. Ryan Sh.6,000,000, Jayden Sh.3,000,000, Dora Sh.2,000,000 (2 marks)

34. The following information relates to Kawaida Ltd. for the year ended 30 June 2023:

A. (i), (ii) & (iv)
B. (i), (ii), (iii) & (iv)
C. (ii), (iv) & (i)
D. (i), (ii) & (iii) (2 marks)

36. On 1 July 2023 the balance of receivables was Sh. 330,000. The following took place during the month of July 2023:

Sales Sh.1,800,000
Receipts from customers Sh.1,725,000
Discount allowed Sh.15,000
Discount received Sh.45,000
Dishonoured cheque Sh.135,000
Contra set off Sh.75,000

Calculate the balance of receivables on 31 July 2023.
A. Sh.90,000
B. Sh.60,000
C. Sh.120,000
D. Sh.75,000 (2 marks)

37. The following information relates to the equity account of Kijani Kibichi Limited for the year ended 31 March 2023:

The directors provided for preference share dividends and Sh.2 per share for ordinary dividends. What are the total dividends payable for the year ended 31 March 2023?

A. Sh.3,000,000
B. Sh.12,000,000
C. Sh.7,000,000
D. Sh.4,000,000 (2 marks)

38. The following balances relate to the books of Miganih Limited as at 30 June 2023:

Determine the value of discount received omitted from the records

A. Sh.1,900,000
B. Sh.9,500,000
C. Sh.4,500,000
D. Sh.15,900,000 (2 marks)

39. Which of the following are advantages of historical cost accounting?

(i) It maintains financial and physical capital
(ii) The statement of financial position shows the value of the business
(iii) Reported amounts are objectively verifiable
(iv) The profit concept is well understood

A. (iii) and (iv)
B. (i) and (ii)
C. (i) and (iii)
D. (ii) and (iv) (2 marks)

40. Which of the following highlights the correct order of the stages in the accounting cycle?

A. Journalising, final accounts, posting to the ledger and trial balance
B. Journalising, posting to the ledger, trial balance and final accounts
C. Posting to the ledger, trial balance, final accounts and journalising
D. Posting to the ledger, journalising, final accounts and trial balance (2 marks)

41. Carriage outward in accounting concern is included as?

A. Direct incomes
B. Cost of sale
C. Expenses
D. Production costs (2 marks)

42. Which of the following is NOT a book of original entry?

A. Cash book
B. Sales daybook
C. Return outward journal
D. Purchases ledger (2 marks)

43. Which of the following is NOT an intangible asset?

A. Goodwill
B. Patent
C. Copy right
D. Inventory (2 marks)

44. An increase in the allowance for receivable results in:

A. An increase in net current assets
B. A decrease in net current assets
C. An increase in sales
D. A decrease in drawings (2 marks)

45. Expenses are required to be reported in the period in which they are incurred and each accounting transaction has a debit and credit entry. Which concepts do these statements support?

A. Duality concept and prudence respectively
B. Accrual concept and duality concept respectively
C. Going concern and duality concept respectively
D. Duality concept and accrual concept respectively (2 marks)

46. Which of the following users of accounting information will be interested in management accounting information?

A. Financial institutions
B. Shareholders
C. Managers
D. Revenue Authority (2 marks)

47. Non-current assets are those assets held by a business for___________________________________________.

A. Converting into cash
B. Revenue generation
C. Resale in the ordinary course of business
D. Production of goods and services (2 marks)
ANSWER: D

48. An account whose balance zeros out at the end of an accounting period without a balance brought forward is referred to as?

A. Nominal account
B. Real account
C. True account
D. Accurate account (2 marks)

49. Tibu Limited acquired a motor vehicle on 1 May 2019 at a cost of Sh.3,000,000. Motor vehicles are depreciated on straight line prorata basis at a rate of 10%. On 1 July 2023, the motor vehicle was disposed for Sh.1,400,000.

Calculate the gain or loss on disposal.

A. Gain of Sh.350,000
B. Loss of Sh.1,500,000
C. Loss of Sh.350,000
D. Loss of Sh.500,000 (2 marks)

50. Which of the following errors might cause the trial balance NOT to balance?

A. Errors of transposition
B. Errors of omission
C. Errors of principle
D. Error of computation (2 marks)

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