KASNEB Financial accounting - Question 1a

The following balances were extracted from the books of Jiwe Traders for the month of November 2022: Sh. Debit balance (1 November 2022) Sales ledger 5,698... [Click to view full question and step-by-step solution]

KASNEB Financial accounting - Question 5a

Explain the following accounting concepts: (i) Materiality concept.(ii) Matching concept. ... [Click to view full question and step-by-step solution]

KASNEB Financial accounting - Question 5d

Analyse FOUR objectives of financial statements. ... [Click to view full question and step-by-step solution]

December 2022

1a

The Accounting Process and Systems

The following balances were extracted from the books of Jiwe Traders for the month of November 2022:

	Sh.
Debit balance (1 November 2022)
Sales ledger	5,698,000
Purchases ledger	36,750
Credit balance (1 November 2022)
Sales ledger	141,750
Purchases ledger	2,288,300
Payment to suppliers	4,057,200
Interest charged by creditors on overdue accounts	241,500
Receipts from credit customers	6,223,000
Bad debts written off	130,200
Customers dishonoured cheques	91,350
Interest charged to customers on overdue accounts	336,350
Debt collection expenses charged to debtors	37,800
Credit notes received from suppliers	93,450
Discounts received	498,750
Discounts allowed	733,950
Purchases (including cash purchases of Sh.532,000)	4,669,000
Cash sales	2,163,000
Credit sales	7,238,700
Credit notes issued to customers	262,500
Contra settlement	129,150
Balances as at 30 November 2022:
Purchases ledger (debit)	50,400
Sales ledger (credit)	177,450

Required:

(i) Sales ledger control account for the month ended 30 November 2022.

(ii) Purchases ledger control account for the month ended 30 November 2022.

1b

Correction of errors and preparing financial statements with incomplete records

Ujenzi Enterprises is a small retail firm. The trial balance of the firm failed to agree on 30 June 2022. The difference was transferred to a suspense account and financial statements prepared. On detailed review of the books, the following errors were revealed:

1. The purchases daybook had been undercast by Sh.1,200,000.

2. Purchases on credit from Demario Ltd. for Sh.600,000 had been posted to their account as Sh.6,000,000.

3. A purchase of a machine worth Sh.8,400,000 had been posted to repairs of machinery account.

4. A customer returned goods worth Sh.1,200,000. This transaction had been entered in the sales returns daybook and posted to the debit of the customer’s account.

5. Sh.7,200,000 owed by Jeru Ltd., a customer, had been omitted when drawing up a schedule of debtors from the ledger.

6. A cash discount of Sh.240,000 had been correctly entered in the cashbook, but has not been posted to the customer’s account.

Required:

(i) Journal entries to correct the above errors. (Narrations not required).

(ii) Suspense account duly balanced (including the opening balance).

2a

Financial Statements of a company

Explain the following terms as used in company accounts:

(i) Discount on shares.

(ii) Allotment of shares.

(iii) Share premium.

2b

Analyzing Financial Statements

The following information was extracted from the books of Viki Ltd. as at 30 September 2021 and 30 September 2022:

Statement of financial position as at 30 September:

	2022	2021
	Sh. “000”	Sh. “000”
Assets:
Non-current assets:
Land and buildings	540,000	240,000
Motor vehicles	120,000	144,000
Furniture and fittings	96,000	168,000
	756,000	552,000
Current assets:
Inventory	96,000	84,000
Accounts receivable	144,000	108,000
Cash and bank	24,000	36,000
	264,000	228,000
Total assets	1,020,000	780,000
Equity and liabilities:
Equity:
Ordinary share capital	480,000	360,000
Share premium	180,000	60,000
Retained earnings	156,000	96,000
	816,000	516,000
Non-current liabilities:
Long-term loan	120,000	180,000
Current liabilities:
Accounts payable	62,400	48,000
Accruals	12,000	24,000
Proposed dividends	9,600	12,000
	84,000	84,000
Total equity and liabilities	1,020,000	780,000

Additional information:

1. Profit after tax for the year ended 30 September 2022 was Sh.84,000,000.

2. Interest expense for the year ended 30 September 2022 charged to the statement of profit or loss was Sh.12,000,000.

3. All the taxes and interest for the year ended 30 September 2022 were paid. Total tax for the year ended 30 September 2022 amounted to Sh.48,000,000.

4. Proposed dividends for the year ended 30 September 2022 amounted to Sh.24,000,000.

5. Land and buildings were acquired during the year ended 30 September 2022 at a cost of Sh.360,000,000.

6. During the year ended 30 September 2022, some motor vehicles which had a net book value of Sh.60,000,000 were disposed of for Sh.72,000,000.

7. Motor vehicles are depreciated at 10% on reducing balance.

Required:

Statement of cash flows in accordance with the requirements of “International Accounting Standard (IAS) 7, “Statement of Cash Flows”, for the year ended 30 September 2022.

3

Financial Statements of a partnership

Kate, Mercy and Nickson have been trading as partners under the name Komon Partnership. The partners share profits and losses in the ratio of 4:3:2 respectively. On 1 November 2021, an employee, Oliver, was admitted as a partner. He was to bring Sh.1,750,000 as capital and Sh.1,680,000 as his share of goodwill. The partners do not intend to open a goodwill account. The admission of Oliver has not been fully recorded in the books of account other than the cash record.

The following trial balance was extracted from the books of Komon Partnership as at 31 October 2022:

		Sh.“000”	Sh.“000”
Capital accounts:	Kate		9,500
	Mercy		7,500
	Nickson		6,000
Current accounts:	Kate		4,350
	Mercy	2,280
	Nickson		3,780
Drawings:	Kate	3,500
	Mercy	3,000
	Nickson	3,200
	Oliver	2,500
Land and buildings		11,500
Furniture and fittings (cost)		7,100
Motor vehicles (cost)		10,000
Accounts receivable		3,550
Allowance for depreciation (1 November 2021)
Furniture and fittings			4,100
Motor vehicles			4,350
Accounts payable			3,050
Oliver’s account			3,430
Sales			86,360
Purchases		56,350
Inventory (1 November 2021)		5,460
Salaries and wages		5,000
Advertising expenses		3,580
Motor vehicle expenses		3,980
Insurance expenses		2,400
Office expenses		3,430
Bad debts		1,730
Cash		1,650
Bank		2,210
		132,420	132,420

Additional information:

1.	The new profit or loss sharing ratio was agreed at 4:3:2:1 for Kate, Mercy, Nickson and Oliver respectively.
2.	On 31 October 2022, inventory was valued at Sh.5,780,000.
3.	As at 31 October 2022, accrued salaries and wages and accrued advertising expenses amounted to Sh.1,790,000 and Sh.1,680,000 respectively.
4.	As at 31 October 2022, prepaid insurance amounted to Sh.660,000.
5.	It was further agreed that since Oliver was a former employee, he would be entitled to a salary of Sh.853,000 per annum with effect from 1 November 2021.
6.	The partners resolved that they would receive an interest of 10% per annum on their respective balances of fixed capital at the beginning of the year.

7.	Depreciation is to be provided per annum on cost as follows:
	Asset	Rate per annum
	Furniture and fittings	12%
	Motor vehicles	15%

Required:

(a) Statement of profit or loss and appropriation account for the year ended 31 October 2022.

(b) Partners’ current accounts.

(c) Statement of financial position as at 31 October 2022.

4

Statements of a not-for-profit entity

Blaze Sports Club is a members only club. The club generates income through member subscriptions, bar sales and sale of sports shoes.

The following information relates to Blaze Sports Club for the year ended 30 September 2022:

Statement of affairs as at 1 October 2021:

	Sh.“000”
Assets
Non-current assets:
Building at cost	15,000
Sports equipment (net book value)	10,500
Current assets:
Cash at bank	18,150
Sports shoes inventory	9,000
Bar inventory	12,000
Prepaid rent (2 months)	3,000
Accrued subscriptions	900
	68,550
Liabilities and accumulated fund:
Life membership fund	21,000
Subscriptions in advance	1,800
Accrued insurance (3 months)	2,250
Accumulated fund	43,500
	68,550

Receipts and payments account for the year ended 30 September 2022

Receipts	Sh.“000”	Payments	Sh.“000”
Balance brought forward	18,150	Rent (for 12 months)	18,000
Subscriptions received for the year ended 30 September:		Bar manager’s wages	30,000
- 2021	600	Bar supplies	28,500
- 2022	16,500	Building repairs	6,750
- 2023	1,200	Purchases of sports equipment	7,500
- Life membership	3,000	18 months insurance	13,500
Sale of sports shoes	13,500	Purchase of sports shoes	7,500
Sale of sports equipment	210
Bar sales	69,900	Balance carried forward	11,310
	123,060		123,060

Additional information:

1. The building was constructed by the club and completed on 30 September 2021. It was commissioned on 1 October 2021 and was estimated to have a useful life of 40 years.

2. Life membership subscriptions are brought into income equally over 10 years in a scheme that begun a few years ago. Since the scheme began, the subscription of Sh.3,000,000 per person has been constant. Prior to the year ended 30 September 2022, eleven (11) life membership subscriptions had been received.

3. As at 30 September 2022, closing bar inventory was valued at Sh.12,750,000 and Sh.1,200,000 was due to the bar suppliers.

4. Four annual subscriptions of Sh.300,000 each had been promised relating to the year ended 30 September 2021, but had not yet been received. Annual subscriptions promised, but not paid, are carried forward for a maximum of 12 months and written off thereafter.

5. As at 30 September 2022, inventory of sports shoes was valued at Sh.13,500,000 while the sports equipment had a net book value of Sh.10,500,000. During the year ended 30 September 2022, sports equipment with a net book value of Sh.200,000 was sold.

Required:

(a) Bar statement of profit or loss for the year ended 30 September 2022.

(b) Income and expenditure statement for the year ended 30 September 2022.

(c) Statement of financial position as at 30 September 2022.

5a

The Accounting Process and Systems

Explain the following accounting concepts:

(i) Materiality concept.

(ii) Matching concept.

5b

Financial Statements of a manufacturing entity

In the context of manufacturing accounts:

(i) Explain the term “unrealised profit”.

(ii) Describe the treatment of unrealised profits in the books of a manufacturing firm.

5c

Accounting in the Public Sector

Explain the following types of funds in the context of public sector accounting:

(i) Revolving funds.

(ii) Fiduciary funds.

5d

Analyzing Financial Statements

Analyse FOUR objectives of financial statements.

December 2022

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