1 SCHOOL OF BUSINESS AND ECONOMICS DEPARTMENT OF COMMERCE END OF JANUARY 2018 SEMESTER CODE: ACC 111 A &T UNIT: FINANCIAL ACCOUNTING 1 Instructions Time: 2hr 30 Min Answer question ONE as a compulsory and any TWO other questions Question One: The following trial balance was extracted from the books of Kilewe, a sole trader, on 31 December 2017: Kshs. Kshs. Land 220,000 Fixtures and fittings 92,150 Provision for depreciation on fixtures and fittings 27,645 Inventory as at 1/1/2017 24,810 Accounts Receivables and Accounts payables 102,350 72,300 Carriage inwards 4,490 Cash in hand 10,800 Cash at Bank 12,150 Special Trade Payable 7,290 Business rent 32,400 Purchases and Sales 315,410 604,050 Returns 9,270 10,090 Discounts 3,360 4,720 Distribution and advertising 2,850 Light and heat 3,140 Telephone and internet 5,920 Business insurance 23,120 Rates, water charges and refuse 4,520 Wages and salaries 92,250 5% Long term bank loan 62,500 Long term loan interest 2,000 Bad debts 2,640 Drawings 9,090 Profits from the previous year 16,140 Capital 167,985 Totals 972,720 972,720 The following information, which has not been accounted for above, is also available: 1. The inventory count as at 31 December 2017 showed closing inventory valued at Kshs. 29,070. 2. During 2017, Kilewe took goods to the value of Kshs. 1,800 for his personal use. 2 3. Kilewe’s business insurance of Kshs. 5,000 for the year was prepaid. 4. The accounts receivables amount as at 31 December 2017 showed that Kshs. 1,970 was bad debts written off from a customer who could not be able to pay. 5. Then Kilewe provided a final allowance for doubtful debts at 5% of the final accounts receivables balance after the debt was written off. 5. On 31 December 2017, light and heat for Kshs. 940 was outstanding. Also the interest of loan was outstanding as only Kshs. 2,000 was paid according to the trial balance. 6. Provide for depreciation as follows: Land Not depreciated. Fixtures and fittings 15% reducing balance method. (Depreciation should be calculated to the nearest whole number) You are required to prepare: a) The income statement for the year ended 31 December 2017 b) The statement of financial position as at that date (40) Marks Question Two: Cimale, a sole trader, received a bank statement for the month of May 2018 as follows: May Dr. Cr. Balance (Kshs) 1 Opening balance 5,700 3 Chq.123456 15,000 6,500 O/D 9 Chq.123450 for April 2018 4,200 10,700 O/D 14 Sundry credit 21,000 10,300 18 Interest 2,400 7,900 20 Sundry credit 35,000 42,900 22 Chq. 123457 22,000 20,900 23 Chq. 123448 for April 2018 10,000 10,900 24 Standing order – rent 1,000 9,900 25 Sundry credit 53,100 63,000 26 Credit transfer – Millia 2,500 65,500 28 Chq. 423460 10,000 55,500 30 Chq. 123459 40,500 15,000 31 Closing balance 15,000 3 For the corresponding period, Cimale’s own records contained the following bank account: Bank May Kshs. May Kshs. 14 Cheque from Ngari 21,000 1 Balance b/d 5,700 20 Cash Sales 35,000 3 Air Time 123456 15,000 25 Cheque from Kiru 41,000 22 Water 123457 22,200 25 Cheque from Flora 12,100 23 Kenya power 123458 41,500 31 Cheque from Wawire 19,600 30 Njeri - Rent 123459 40,500 31 Balance c/d 900 31 Purchases 123460 4,700 129,600 129600 Required: 1. Prepare an updated cash book for Cimale’s and the bank reconciliation statement as at 31 May 2018. (20 Marks) 2. Explain the reasons why Cimale must do bank reconciliation? (10 Marks) Question Three: The following information was given to you by your client Mr. Kamau in respect of his business transactions for the month of December 2008. He has been dealing on credit and no customer or supplier has ever transacted on cash. He wants you as his bookkeeper to prepare the books of accounts. Date Transaction Amount(Kshs.) 01/12/2008 Purchased goods from J Kirathi Inv No. 1 (less 20% trade discount) 26,000 02/12/2008 Sold goods to P Laila Inv No. 2 (less 20% trade discount) 30,000 05/12/2008 Sold goods to G Haria Inv No. 3 (less 10% trade discount) 50,000 10/12/2008 Purchased goods from T. Jira Inv No. 4(less 20% trade discount) 38,000 12/12/2008 Returned goods to J Kirathi Credit Note No. CR12 14,000 20/12/2008 Purchased goods from Ndira Inv No. 5 (less 15% trade discount) 58,000 22/12/2008 Returns from G Harria Credit Note No. CR13 8,000 27/12/2008 Sold goods to R Musau Invoice No. 6 (less 33% trade discount) 70,000 27/12/2008 Returned goods to T. Jira Credit Note No. CR14 16,000 28/12/2008 Returned goods to B Ndira Credit Note CR15 20,000 You are required to: (a) Prepare the following books: (i) Purchases (ii) Purchases Returns (iii) Sales (iv) Sales returns (10 Marks) (b) Post all the entries to the appropriate ledger accounts. (15 Marks) (c) Extract the trial balance for Mr. Kamau as at 31 December 2008. (5 Marks) Question Four: Write a short note to a client dealing with the following points: (1) List down four users of accounting information (4 Marks) (2) Briefly explain what is meant by: (i) the business entity concept (ii) Accrual Concept (iii) Money measurement (iv) Substance over form (8 Marks) (3) Briefly outline three business entities that you know of. (3 Marks) (4) Explain what is meant by an Imprest System of Petty Cash (8 Marks) (5) Differentiate between “the journal” and the “special/specific journals” (5 Marks) (6) List any two objectives of accounting in the business environment (2 Marks)