UNIVERSITY EXAMINATIONS 2021/2022

SCHOOL OF BUSINESS
ORDINARY EXAMINATION FOR BACHEOR OF COMMERCE
ACC 1101: INTRODUCTION TO ACCOUNTING I
FULL TIME
DATE: AUGUST 2022 TIME: 2 HOURS
INSTRUCTIONS: Answer Question ONE and Any other TWO

QUESTION ONE
a) During May 2022, the Keita Company Ltd. made the following transactions:

May 01: Cash balance Sh.2,200,000 bank overdraft Sh.365,000

May 03: Paid Joska ltd by cheque Sh.1,200,000 after discount received amounting to
Sh.15,000
May 05: Received from Absa Limited a cheque for Sh.980,000 discount allowed to them
Sh.20,000.
May 07: Deposited into bank the check received from Absa Limited on May 05.
May 10: Purchased stationery for cash, Sh.150,000.
May 15: Purchased merchandise for cash, Sh.1,300,000.
May 15: Cash sales for the first half of the month, Sh.2,350,000.
May 16: Deposited into bank Sh.1,600,000.
May 18: Cash withdrawn from bank for personal expenses Sh.150,000.
May 19: Issued a cheque for merchandise purchased, Sh.1,650,000.
May 21: Drew cash from bank for office use, Sh.650,000.
May 24: Received a cheque from S & Sons and deposited it into bank, Sh.1,560,000.
May 25: Paid a cheque to Ali Inc. for Sh.400,000 and after receiving a discount of Sh.15,000.
May 27: Purchased furniture in cash for office use, Sh.390,000.
May 29: Paid office rent by cheque, Sh.450,000.
May 30: Cash sales for the second half of the month, Sh.4,300,000.
May 31: Paid salaries by check, Sh.1,760,000.
May 31: Withdrew cash from bank for office use, Sh.1,470,000.

Required:

Record the above transactions in a three column cash book (10 Marks)

b) Based on International Accounting Standards Board’s conceptual frame work answer the
questions below

i. How is “materiality” defined in the Conceptual Framework? (2 Marks)

 ii. Briefly discuss the role of completeness as it relates to faithful representation. (2 Marks)
iii. Your boss observes that under IFRS, the financial statements are prepared on the accrual basis.
According to the Conceptual Framework, what does the “accrual basis” mean? (2 Marks)

c) In the past one year, many media publishers have been selling subscriptions for e-paper on
daily, weekly, monthly and annual basis. Upon publishing its financial statements at the end
of the year 2021, the directors of Standard Media Group seems divided on when the revenue
should be recognized for their subscription incomes from e-paper customers. As the accountant
of the company explain to the directors the timing the recognition of revenue in Standard Media
Group’s accounts with respect to the following. Explain whether revenue should be recognized
at that stage or not and why.

i. The cash sale of the magazine subscription. (2 Marks)

ii. The publication of the magazine every month. (2 Marks)

QUESTION TWO

The following trial balance was extracted from the books of Mapera firm, a sole proprietorship
business, as at 30 June 2022.

Sh. Sh.
Capital - 12,527,100
Drawings 1,414,800 -
Debtors and creditors 5,293,600 3,546,200
Sales - 58,074,200
Purchases 43,410,100 -
Rent and rates 388,000 -
Electricity 24,500 -
Salaries and wages 5,636,750 -
Provision for doubtful debts as 1 July 2021 - 217,450
Stock at 1 July 2021 6,327,400 -
Insurances 17,200 -
General expenses 393,300 -
Bank balance 1,058,200 -
Motor vehicles at cost 5,650,000 -
Provision for depreciation of motor vehicles at 1 July 2021 - 2,460,000
Rental Income received - 175,000
 Motor vehicle expenses 386,100 -
Freehold premises at cost 7,000,000 -
76,999,950 76,999,950

Additional Information

1. Stock at 30 June 2022 was valued at Sh. 6,688,400.

2. Electricity due on 30 June 2022 was Sh. 60,000.
3. Prepaid rates and insurances amounted to Sh. 9,000 and Sh. 9,700 respectively as at 30
June 2022.
4. Of the debtors, Sh. 83,600 are regarded as bad and the provision for doubtful debts is to
be adjusted to 5% of the remaining debtors.
5. Depreciation on motor vehicles is to be provided for at 20% per annum on the straight
line method.

Required:

(a) Statement of profit or loss for the year ended 30 June 2022 (8 Marks)
(b) Balance sheet as at 30 June 2022 ` (7 Marks)

QUESTION THREE
The bookkeeping system of Kikapu Ltd is not computerized, and at 31st December 2021 the
bookkeeper was unable to balance the trial balance. The trial balance totals were: Debit
Sh.1,796,100 Credit Sh.1,852,817
Nevertheless, he proceeded to prepare draft financial statements, inserting the difference as a
balancing figure in the statement of financial position. The draft statement of income statement
profit or loss showed a profit of Sh.141,280 for the year ended 31st December 2021.
He then opened a suspense account for the difference and began to check through the accounting
records to find the difference. He found the following errors and omissions:

1. Sh.8,980 – the total of the sales returns book for December 2021, had been credited to the
purchases returns account.
2. Sh.9,600 paid for an item of plant purchased on 1 September 2021 had been debited to plant
repairs account. The company depreciates its plant at 20% per annum on a straight line basis,
with proportional depreciation in the year of purchase.
3. The cash discount totals for the month of December 2021 had not been posted to the general
ledger accounts. The figures were: Discount allowed Sh.836 Discount received Sh.919.
4. Sh.580 insurance prepaid at December 2020 had not been brought down as an opening balance.
 5. The balance of sh.38,260 on the telephone expense account had been omitted from the trial
balance.
6. A car held as a non-current asset had been sold during the year for sh.4,800. The proceeds of
sale were entered in the cash book but had been credited to the sales account in the general
ledger.

Required:
(a) Open a suspense account for the difference between the trial balance totals. Prepare the journal
entries necessary to correct the errors and eliminate the balance on the suspense account.
Narratives are not required. (12 Marks)
(b) Draw up a statement showing the revised profit after correcting the above errors. (3 Marks)

QUESTION FOUR

The following transactions relate to Mwalimu Munene, a sole proprietor July 2022
July 1 Started business with Sh. 1,480,000 in the bank
2 Received a loan from Tekla, Sh. 59,200 in cash
3 Purchased goods on credit from Fatuma Joan, Sh. 124,320 and Charles Sh. 532,800
4 Sold goods for cash Sh. 29,600
6 Took Sh. 37,000 of the cash and deposited it into the bank
8 Sold goods on credit to Chelagat Sh. 26,640
10 Sold goods to Jelimo, Sh. 32,560 on credit
11 Chelagat returned goods worth Sh. 5,920
12 Bought goods on credit from Fatuma Joan Sh. 54,760
14 Sold goods to Murimi Sh. 28,120 and Petro Sh. 47,360
15 Returned to Fatuma Joan, Goods worth Sh. 20,720
17 Bought van on credit from Amazon Motors Sh. 384,800
18 Bought office furniture on credit from Newline Ltd Sh. 88,800
19 Returned goods to Charles Sh. 16,280
20 Bought goods for cash Sh. 32,560
24 Sold goods for cash Sh. 10,360
25 Paid money owing to Fatuma Joan by cheque Sh. 158,360
26 Goods returned by Murimi Sh. 4,440
27 Returned some of the office furniture costing Sh. 23,680 to Newline Ltd.
28 Mwalimu Munene put a further Sh. 74,000 into the business in the form of cash
29 Paid Amazon Motors Sh. 384,800 by cheque
31 Bought office furniture for cash Sh. 14,800
Required
i. Enter the transactions in the books of the sole trader for the month of July 2022 (10 Marks)

ii. Extract a trial balance at the end of July 2022 (5 Marks)