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QUESTION FOUR
(a)

Explain the term "bank reconciliation" and state the reasons for its preparation.
(6 marks)
(b)
Ssemakula, a sole trader received his bank statement for the month of June 2001. At that date the
bank balance was Sh.706,500 whereas his cash book balance was Sh.2,366,500. His accountant
investigated the matter and discovered the following discrepancies:
1. Bank charges of Sh.3, 000 had not been entered in the cashbook.
2. Cheques drawn by Ssemakula totaling Sh.22,500 had not yet been
presented to the bank
3. He had not entered receipts of Sh.26,500 in his cashbook.
4. The bank had not credited Mr. Ssemakula with receipts of Sh.98, 500 paid into the bank on 30
June 2001.
5. Standing order payments amounting to Sh.62, 000 had not been entered
into the cashbook.
6. In the cash book Ssemakula had entered a payment of Sh.74, 900 Sh.79400.
7. A cheque for Sh. 15,000 from a debtor had been returned by the bank marked "refer to drawer"
but had not been written back into the cashbook.
8. Ssemakula had brought forward the opening cash balance of Sh.329, 250 as a debit balance
instead of a credit balance.
9. An old cheque payment amounting to Sh.44, 000 had been written back in the cashbook but the
bank had already honoured it.
10. Some of Ssemakula's customers had agreed to settle their debts by paying directly into his bank
account. Unfortunately, the bank had credited some deposits amounting to Sh.832, 500 to
another customer's account. However, acting on information from his customers, Ssemakula had
actually entered the expected receipts from the debtors in his cashbook.
Required:
(i)
A statement showing Ssemakula's adjusted cash book balance as at 30 June 2001.
(9 marks)
(ii)
A bank reconciliation statement as at 30 June 2001.
(5 marks)
(Total: 20 marks)
On 31 December 2001. an inexperienced book-keeper working for Wanji, a sole trader, extracted a trial
balance. Due to errors committed by the book-keeper, the trial balance failed to balance by
Sh.369.400. He placed the difference in a suspense account as shown below:
Wanji trial balance as at 31 December 2001
Fixed assets-cost
Stocks
1 January 2001
31 December 2001
Trade debtors
Prepayments
Trade creditors
Bank overdraft
Accruals
Drawings
Capital
Sales

Sh.
832,000

Sh.

148.000
98,800
76,000
10,000
34.600
15,200
16,000
359.600
1,054,000
1,043,200

Provision for depreciation
Purchases
Operating expenses
Provision for doubtful debts
Discounts received
Discounts allowed
Suspense account

166,400
733 .000
126.000
3,800
5,000
2,548 400

5,800
369 .400
248 400

Investigations carried out after preparing the above trial balance detected the following errors:
1. The total of the sales day book for December 2001 was overcast by Sh.25,700.
2. On 2 July 2001 the business purchased office equipment for Sh.40.000. These were debited to
purchases account.
3. Depreciation on the equipment is at the rate of 10% per annum on cost and based on the
period (months) of usage in the year.
4. A payment to a creditor by cheque of Sh.8.500 was erroneously credited to the creditor's account.
5. A payment of Sh.4.500 for telephone expenses was debited to telephone account as Sh.5.400.
6. An amount of Sh.15.000 received from a debtor was not posted to the debtor's account
from the cash book.
7. An amount of discounts received of Sh.2.500 was debited to discounts allowed
account.
8. Purchases day book for October 2001 was undercast by Sh.28,000.
9. Assume the business had reported a net profit of Sh.85,800 before adjusting for the above errors.
Required:
(a) The adjusted trial balance and the correct balance of the suspense account (6 marks)
(b) Journal entries to correct the errors (Narrations not required)
(6 marks)
(c) Suspense account starting with the balance determined in the adjusted trial balance in (a)above.
(4 marks)
(d) The adjusted net profit for the year.
(4 marks)
(Total: 20 marks)
QUESTION TWO
The following information has been extracted from the accounts of Madaraka Investments Ltd. for the year
ended 31 December 2001. Comparable figures for the previous year are also shown.
Profit statement for the year ended 31 December
2001
Sh. `000'
Sales
115,200
Cost of goods sold
70 800
Gross profit
44,400
Less: Trading expenses
19 800
24,600
Less: Debenture interest
900
Net profit before taxation
23,700
Less: Corporation tax
11 520
Net profit after taxation
12.180
Less: Ordinary share dividend
6.300
Undistributed profit for the year
5,880

2000
Sh'000'
72.000
42,000
30,000
16,200
13,800
900
12,900
5.760
7.140
4,500
2,640

Assets employed: Fixed assets at
cost
Depreciation

Balance sheet as at 31 December
2001
2000
Sh.'000'
Sh.'000'
Sh.'000'
44.400
9000
35,400

Sh.'000'
33.600
7,200
26,400

Current assets:

Less:

Stock
Debtors
Cash

19,800
12,600
-

Current liabilities
Creditors
Taxation
Proposed

7,200
11,520
6,300

32 400
67.800

14,400
9.000
2,880

26,280
52.680

5.220
5,760
4,500

dividends
Bank overdraft
Net assets
Financed by:
Ordinary share capital
Authorised, issued and fully paid
(Sh.25 per share)
Undistributed profits
Long-tern loan:
10% debentures (secured)

2,340

27,360
40 440

-

15.480
3 7,.200

18,000

18,000

16 080
34,080

10,200
28.200

6 360
40 440

9.000
37 200

Required:
(a)
Calculate six accounting ratios for both 2000 and 2001 that would help in assessing the
profitability and liquidity positions of Madaraka Investments Ltd. (12 marks)
(b)

Comment on Madaraka Investment's liquidity position.

(c)

Comment on Madaraka Investment's profitability position.

(4 marks)
(4 marks)
(Total: 20 marks)

QUESTION THREE
Kyamba, Onyango and Wakil were partners in a manufacturing and retail business and shared profits and
losses in the ratio 2:2:1 respectively.

Given below is the balance sheet of the partnership as at 31 March 2001:

Assets
Non-current assets:
Fixed assets
Current assets:
Stocks
Debtors

Balance sheet as at 31 March 2001
Sh.

Sh.
465,000

294,000
209,000
503,000
968 000

Capital and liabilities:
Capital accounts:
Kyamba
Onyango
Wakil

160,000
140,000
200 000
500,000

Current accounts:
Kyamba
Onyango
Wakil

65,300
49.000
53.000
167,300
667,300

Current liabilities:
Bank overdraft
Trade creditors

48,700
252,000
300,700
968 000

Additional information:
1.
On 1 April 2001. Wakil retired from the partnership and was to start a business as a sole trader while
Kyamba and Onyango continued in partnership.
On retirement of Wakil, the manufacturing business was transferred to hum while Kyamba and
Onyango continued with the retail business.
2.

The assets and liabilities transferred to Wakil were as follows:

Fixed assets
Stocks
Debtors
Creditors

Net book value
Sh.
260,000
166,000
172,000
156,000

Transfer value
Sh.
306,000
157,000
165,000
156,000

Wakil obtained a loan from a commercial bank and paid into the partnership the net amount due from
him.
On retirement of Wakil from the partnership, goodwill was valued at Sh.200, 000 but was not to be
maintained in the books of the partnership of Kyamba and Onyango.
After retirement of Wakil on 1 April 2001. Kyamba and Onyango agreed on the following terms and
details of the new partnership:




5.
6.
7.

Kyamba and Onyango to introduce additional capital of Sh.48,000 and Sh.68,000 respectively.
Each partner was entitled to interest on capital at 10% per annum with effect from 1 April
2001 and the balance
of the profits was to be shared equally after allowing for annual salaries of Sh.72,000 to
Kyamba and Sh.60,000 to Onyango.
The profit of the new partnership before interest on capitals and partners' salaries was Sh.240, 000
for the year ended 31 March 2002.
The profits made by the new partnership increased stocks by Sh.100.000; debtors by Sh.90.000 and
bank balance by Sh.50, 000.
Drawings by the partners in the year were Kyamba Sh.85, 000 and OnyanSh go.70,000.

Required:
(a)
Profit and loss and appropriation account for the year ended 31 March 2002.
(b)
Capital accounts for the year ended 31 March 2002.
(c)
Current accounts for the year ended 31 March 2002.
(d)
Balance sheet of the new partnership as at 31 March 2002.
(Total: 20 marks)

(4 marks)
(4 marks)
(8 marks)
(4 marks)

QUESTION FOUR
(a) State the reasons for maintaining control accounts.
(4 marks)
(b) The following information has been extracted from the books of Mutero Traders Limited for
the month of April 2002.
Balances as at I April 2002:
Sales ledger

- Debit balances
- Credit balances
Purchases ledger -Debit balances
- Credit balances
Transactions during the month:
Sales on credit
Purchases on credit
Returns inwards
Returns outwards
Cheques received from trade debtors
Cash paid to trade creditors
Cheques paid to trade creditors
Bad debts written-off
Discounts allowed to trade debtors
Discounts received from trade creditors
Credit sales off-set against credit purchases
Credit purchase of a motor vehicle posted in the purchases ledger
Dishonoured cheques from trade debtors
Cash received to replace dishonoured cheques from trade debtor
An invoice to trade debtors of Sh.174,000 posted as

Balances as at 30 April 2002:

Sh.
838,000
184,000
196.000
598.000
8,784.000
7.849.000
248,000
179,000
2.968.000
4,674.000
1.393.000
139.000
162.000
231.000
356.000
598.000
193,000
106.000
147.000

Sales ledger credit balances
Purchases ledger debit balances

123.000
177,000

Required:
The sales ledger and purchases ledger control accounts for the month ended 30 April 2002.
(16 marks)
(Total: 20 marks)
QUESTION FIVE
(a) Distinguish between each of the following pairs of terms:
(i) Receipts and revenue.
(4 marks)
(ii) Balance sheet and statement of affairs.
(4 marks)
(iii) Cash basis of accounting and accrual basis of accounting.
(4 marks)
(iv)Materiality and substance over form.
(4 marks)
(b) What conflicts may exist in the application of the fundamental accounting concepts? (4 marks)
(Total: 20 marks)

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