KASNEB Financial accounting - Question 1a

Using appropriate examples, explain THREE errors that do not affect the trial balance.... [Click to view full question and step-by-step solution]

KASNEB Financial accounting - Question 1b

The following errors were discovered in the books of Eric Barasa for the year ended 31 December 2022: A debit balance of Sh.1,080,000 with respect to P... [Click to view full question and step-by-step solution]

KASNEB Financial accounting - Question 3

The following is the statement of financial position of Riziki Ali, a sole trader, as at 1 January 2022: Assets:Sh.“000”Sh.“000”Non-current assets: Build... [Click to view full question and step-by-step solution]

KASNEB Financial accounting - Question 4

The following trial balance was extracted from the books of Bahati Ltd. as at 31 March 2023: Sh.“000”Sh.“000”Ordinary share capital (Sh.10 par value) 15,... [Click to view full question and step-by-step solution]

KASNEB Financial accounting - Question 5a

Analyse FOUR advantages of ratio analysis as a tool for assessing financial performance. ... [Click to view full question and step-by-step solution]

KASNEB Financial accounting - Question 5d

Describe FOUR benefits of adopting International Financial Reporting Standards (IFRSs). ... [Click to view full question and step-by-step solution]

April 2023

1a

Correction of errors and preparing financial statements with incomplete records

Using appropriate examples, explain THREE errors that do not affect the trial balance.

1b

Correction of errors and preparing financial statements with incomplete records

The following errors were discovered in the books of Eric Barasa for the year ended 31 December 2022:

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

(i) Journal entries to correct the above errors (include appropriate narrations).

(ii) Suspense account fully balanced indicating the amount by which the trial balance had failed to balance.

2

Financial Statements of a partnership Financial Statements of a manufacturing entity

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:

		Sh.“000”	Sh.“000”
Capital accounts:	Peter Mwangi		115,000
	Aloyce Onyango		107,000
Drawings:	Peter Mwangi	8,000
	Aloyce Onyango	6,400
Trade receivables and trade payables		22,800	28,560
Balance at bank		31,400
Plant and machinery at cost		57,600
Loose tools at cost		16,800
Sales			160,000
Motor vehicles at cost		33,600
Raw materials purchased		44,000
Direct factory wages		40,800
Electricity expenses		13,600
Indirect factory wages		16,000
Plant and machinery repairs		10,880
Motor vehicle running expenses		19,200
Rent and insurance		18,880
Administrative staff salaries		34,400
Administrative expenses		16,800
Sales and distribution expenses		20,000
		411,160	411,160

Additional information:

1.	Inventories as at 31 December 2022 were as follows:
		Sh.“000”
	Raw materials	15,200
	Work-in-progress	19,440
	Finished goods	8,000

2.	As at 31 December 2022, accrued electricity expenses amounted to Sh.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:

3.		Factory	Administration
	Motor vehicle running expenses	½	½
	Electricity expenses	⅔	⅓
	Rent and insurance	¾	¼
	Plant and machinery repairs	⅘	⅕
	Motor vehicle depreciation	½	½

4.	The estimated useful life of plant and machinery is 10 years while that of motor vehicles is 4 years. 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 equally.
6.	Allowance for doubtful debts is to be made at the rate of 5% of the accounts receivable as at 31 December 2022.
7.	Manufactured goods were transferred from the factory to the warehouse at Sh.85,600,000.
8.	Loose tools as at 31 December 2022 were valued at Sh.13,600,000.
Required:
(a)	Manufacturing and statement of profit or loss for the year ended 31 December 2022.
(b)	Statement of financial position as at 31 December 2022.

3

Financial Statements of a sole trader

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

Assets:	Sh.“000”	Sh.“000”
Non-current assets:
Building		4,650
Equipment		2,150
Motor vehicles		1,540
		8,340
Current assets:
Inventory	1,260
Accounts receivable	885
Cash in hand	73
Cash at bank	387	2,605
Total assets		10,945
Capital and liabilities:
Capital		6,015
Long-term liability:
Bank loan		1,500
Current liabilities:
Accounts payable	1,480
Short-term loan from Paul Sila	600
Accrued general expenses	1,350	3,430
Total capital and liabilities		10,945

Additional information:

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

Cash summary

	Sh. “000”		Sh. “000”
Balance brought forward	460	Bank loan repayment	1,000
Receipts from debtors	8,950	Sila’s loan repayment	500
Additional capital	4,800	Payments to creditors	6,750
Cash sales	4,250	Payment for general expenses	3,000
Rent income	220	Drawings	1,700
		Rates	160
		Wages	1,190

2.	Accounts receivable and accounts payable as at 31 December 2022 were Sh.1,320,000 and Sh.1,820,000 respectively.
3.	During the year ended 31 December 2022, proceeds from cash sales amounting to Sh.1,650,000 were not recorded, but the amount was used as follows:

3.		Sh.“000”
	Purchase of goods for sale	1,000
	Loan repayment – Paul Sila	100
	Office stationery	150
	Family use	400
		1,650

4.	Accrued general expenses as at 31 December 2022 amounted to Sh.400,000.
5.	Inventory as at 31 December 2022 was valued at Sh.1,480,000.
6.	Depreciation is to be provided on book values as follows: • Buildings – 10% per annum • Equipment – 15% per annum • Motor vehicles – 20% per annum
7.	House furniture valued at Sh.250,000 was converted to business use. Depreciation on the furniture was to be provided at 12½% per annum on this amount.

Required:

(a) Statement of profit or loss for the year ended 31 December 2022.

(b) Statement of financial position as at 31 December 2022.

4

Financial Statements of a company

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

		Sh.“000”	Sh.“000”
Ordinary share capital (Sh.10 par value)			15,000
10% preference share capital (Sh.10 par value)			2,500
Share premium			2,000
8% debentures			2,500
Accounts payable			3,325
Accounts receivable		8,250
Sales			120,000
Purchases		105,500
Bank overdraft			1,000
Discounts received			325
Discounts allowed		125
Building (cost)		22,500
Fixtures and fittings (cost)		6,000
Accumulated depreciation (1 April 2022):	Building		6,250
	Fixtures and fittings		1,400
Inventory (1 April 2022)		10,500
Returns outward			2,000
Directors’ fees		1,000
Administrative expenses		3,650
Selling and distribution expenses		4,175
Bad debt written off		100
Allowance for doubtful debts (1 April 2022)			450
Retained profit (1 April 2022)			9,050
Investments at fair value		4,000
		165,800	165,800

Additional information:

1.	The company maintains a gross profit margin of 20%.
2.	As at 31 March 2023, accounts receivable balance included Sh.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 2023.
4.	As at 31 March 2023, administrative expenses accrued amounted to Sh.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 2023.
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 Sh.2,500,000 be transferred to general reserves
Required:
(a)	The value of inventory as at 31 March 2023.
(b)	Statement of profit or loss for the year ended 31 March 2023.
(c)	Statement of financial position as at 31 March 2023.

5a

Analyzing Financial Statements

Analyse FOUR advantages of ratio analysis as a tool for assessing financial performance.

5b

Analyzing Financial Statements

Explain the importance of the following ratios to investors:

(i) Price-to-earnings (P/E) ratio.

(ii) Debt-to-equity ratio.

5c

Accounting in the Public Sector

Explain the following terms as used in public sector accounting:

(i) Appropriations-in-Aid.

(ii) Consolidated fund.

5d

Regulation and other principles guiding the accounting profession

Describe FOUR benefits of adopting International Financial Reporting Standards (IFRSs).

April 2023

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