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ACHIEVERS COLLEGE OF PROFESSIONALS LTD

P.O BOX 1532 60100 EMBU.


Telephone 0202052834; 072 - 606 888
Email: achieverscollege@yahoo.com

SEPTEMBER 2012
ATC 1, ICTT 1, CICT AND CCP
FINANCIAL ACCOUNTING
Answer ALL questions TIME: 3HRS
QUESTION ONE
(a) Differentiate between capital reserves and revenue reserves (4 Mks)
(b) The following trial balance was extracted from the books of Undugu ltd as at
Sh. 000 sh. 000
Purchases/sales 20,640 35,200
Carriage inwards 580
Carriage outwards 1,360
Discounts 560 1,460
Salaries and wages 2920
Advertising expenses 880
Rent and rates 1,800
Electricity 940
Insurance 420
Salesmens commission 850
Directors slaries 2,100
Repairs and maintenance 350
Interim dividend paid 600
Fixtures and fittings at cost 4,080
Provision for depreciation on fixtures and fittings (1 January 2004) 1,660
Motor vehicles at cost 2,440
Provision for depreciation ton motor vehicles (1 January 2004) 1,020
Share capital (sh. 10 par value) 6,000
Stock (1 January 2004) 6,300
Trade debtors /trade creditors 9,200 4,200
Profit ad loss account balance (1 January 2004) 2,140
Share premium account 2,500
Balance at bank 840
General reserve. 1,000
56,020 59,020
Additional information:
1. Prepayments and accruals as at 31 December 2004 were as follows:
Prepayments Accruals
Sh sh.
Wages 120,000
Insurance 80,000
Commission to sales men 20,000
Auditors remuneration 280,000
2. Depreciation is to be provided for as follows:
- Fixtures and fittings 10% per annum using the straight line method
- Motor vehicle 25% per annum using the reducing balance method.
3. Stock as at 31 December 2004 was valued at sh. 7,280,000
4. A final dividend at sh. 3 per share is proposed by the directors
5. Corporation tax is to be charged at 30% on the reported profit for the year.
6. A provision for doubtful debts is to be made at 2.5% of the debtors balance.
Required:
(i) Trading and profit and loss and appropriation account for the year ened 31 December 2004 (10 Mks)
(ii) Balance sheet as at 31 December 2004. (6 Mks)

QUESTION TWO
Nzombo , Mambo and Pima are in partnership sharing profit and losses in the ration 3:2:1 respectively. The
following is the trial balance of the partnership as at 31 December 2004.
Sh. Sh.
Capital account
Nzombo 234,000
Mambo 156,000
Pima 78,000
Cash in hand 32,500
Current accounts
Nzombo 9,100
Mambo 6,500
Pima 3,900
Debtors and creditors 299,000 455,000
Provision for depreciation
Motor vehicle 104,000
Land and building 156,000
Land and building (at cost) 780,000
Motor vehicle(cost) 260,000
Office expenses 52,000
Purchases 1,105,000
Rates 52,000
Sales 1,950,000
Selling expenses 182,000
Stock (1 Jan. 2004) 260,000
Provision for doubtful debts(1 January 2004) 13,000
Drawings
Nzombo 52,000
Mambo 39,000
Pima 39,000
3,159,000 3,159,000
Additional information
1. Stock as at 31 December 2004 was valued at sh. 390,000
2. Depreciation on ifxed assets was to be provided on a straight line basis as follows:
Motor vehicle - 20% per
annum,
Land and building - 5% per annum
3. The amount owing for selling expenses as at 31 December 2004 was sh. 23,015
4. Prepaid rate as at 31 December 2004 amounted to sh. 26,000
5. A bad debt of sh. 6,500 was to be written off
6. Provision for doubtful debts was to be made at 5% of the outstanding debtors as at 31 December 2004.
7. According to the partnership agreement, appropriations were to be made as follows:
Nzombo was to be allowed a salary of sh. 78,000 per annum
Interest on fixed capital was to be paid at 10% per annum
No interest was to be allowed or charged on current accounts and partners drawings.
Required:
(a) Partnership trading profit and loss and appropriation accounts for the year ended 31 December 2004. (10 Mks)
(b) Partners current accounts for the year ended 31 December 2004 bringing down balance as at this date (5 Mks)
(c) Partnership balance sheet as at 31 December 2004. (5 Mks)


QUESTION THREE
(a) Briefly explain the following
(i) Error of principle (3 Mks)
(ii) Error of commission (3 Mks)
(b) Joshua Mwalo operates a small hardware shop. He extracts a trial balance at the end of every month. The trial balance
extracted as at 30 April 2005 did not balance the credits exceeding the debtors by sh. 184,320. Upon further
investigation, the following errors. Were discovered.
1. A balance of sh. 10,440 on a debtors accounts had been omitted from the schedule of debtors , the total of which
was entered as debtors in the trial balance.
2. The receipts side of the cash book had been under cast by sh. 72,900
3. A credit note for sh. 21,480 received f from a supplier had been posted to the wrong side of his account.
4. A computer purchased for sh. 144,000 had been written off to general expenses.
5. A debtor whose past debts had been the subject of a provision, paid sh. 87,720 to clear his account. His personal
account had been credited but he cheque had not yet been recorded in the cash book.
6. An electricity bill amounting to sh. 8,240 which had not yet been accrued was discovered in a filing tray.
7. The totals in the sales day book had been carried forward as sh. 948,780 whereas the correct amount was sh.
978,480.
Required:
(i) Journal entries to correct the above errors (10 Mks)
(ii) Suspense account to clear the difference between the totals of each of the debt and credit sides (4 Mks)
QUESTION FOUR
(a) Explain why the balance according to an entitys cash book may sometimes differ from the one shown on its bank
statement.
(b) The summary of the bank column of the cash book of Evano Company ltd for the year ended 31 December 2004
was as follows:
Sh.
Opening balance 239,830
Receipts 48,209,310
48,449,140
Payments 45,896,575
Closing balance 2,552,565
Upon further investigation of the accounting records, the following matters were discovered.
1. Standing orders in respect of the following items, had been entered in the bank statement but had been
omitted form the cash book.
Hire purchase of equipment sh. 13,920 per month
Annual insurance premium - sh. 21,750
2. A cheque drawn for sh. 23,900 had been entered in the cash book as sh. 29,300
3. Cheque paid to suppliers amounting to sh. 208,075 had not yet been presented to the bank and cheques
paid into the bank amounting to sh. 234,900 on 31 December 2004 had not yet been credited to the
companys account.
4. Bank charges of sh. 65,540 had been entered in the cash book and the receipt side of the cash book had
been overcast by sh. 29,000
5. A cheque for sh. 34,510 had been debited tot eh companys bank account by mistake.
6. A direct transfer from a creditors account amounting to sh. 11,125 had not been recorded in the cash
book.
Required
(i) Corrected cash book as at 31 December 2004 (8 Mks)
(ii) Bank reconciliation statement as at 31 December 2004. (6 Mks)
QUESTION FIVE
(a) What are books of original entry? Give a comprehensive discussion of five books of original entry (10 Mks)
(b) State six objectives of financial accounting (6 Mks)
(c) Explain the context of a partnership agreement (4 Mks)