Free Financial Accounting 1 Revision

1. The aggregation of accounting information into financial statements is referred to as (i).______accounting, whereas (ii).______accounting refers to the internal processes used to account for business transactions.

2. Luka, a civil servant, has plans to be self-employed. As at 31 May 2019, Luka had saved KES 360,000, to start a business. He started his business in Kisumu on June 1, 2019. His transactions for June were as follows:

Required
A three-column cash book to record the transactions in June 2019 bringing down balances to 1 July 2019.

3. Meshak and Kain are trading as partners sharing profits and losses in the ratio of 3:2 respectively. The following trial balance was extracted from their partnership records as at 31 December 2020 :

Additional information
i. Inventory was valued at KES 5.4 million as of 31 December 20120
ii. Kain is entitled to a salary of KES 135,000 per month
iii. Interest is charged on cash drawings at the rate of 7.5% per annum
iv. Interest on capital account balances is allowed at 6% per annum.
v. Goods taken by partners for personal use that were not yet recorded amounted to KES 450,000 and KES 45,000 for Meshak and Kain respectively.
vi. Depreciation on non-current assets is provided as follows:

vii. As of 31 December 2020, rent and rates outstanding amounted to KES 54,000, while salaries paid in advance amounted to KES 585,000.
viii. Allowance for doubtful debts is to be maintained at 5% of the outstanding trade receivables
Required
a. Income statement for the year ended 31 December 2020.
b. Partners current accounts.
c. Statement of financial position as at 31 December 2020.

4. The ________ equation states that a company's total assets are equal to the sum of its liabilities and its shareholders' equity.

5. The following information was extracted from the books of Berry Limited as at 30 June 2018:

Additional information
i. Accrued administrative expenses as of 30 June 2019 amounted to KES 540,000.
ii. Sales and distribution cost prepaid as of 30 June 2019 amounted to KES 1,080,000
iii. Allowance for doubtful debts is to increase by KES 1,080,000.
iv. Corporate tax is estimated at KES 32.4 million
v. A half of the annual interest on debentures was outstanding as of 30 June 2019.
vi. Depreciation is to be provided as follows:

vii. The directors have proposed the following:
• A dividend be paid to preference shareholders.
• A dividend of KES 2 per share to the ordinary shareholders after the transfer of KES 5.4 million to the general reserve.
Required
a. Income statement as of 30 June 2019.
b. Statement of financial position as at 30 June 2019.

6. A _________refers to a summary account in the general ledger whose main purpose is to help identify errors that appear in the subsidiary ledgers.

7. Outline two(2) reasons why a company might not wish to distribute all its profits to shareholders.

8. TRUE or  FALSE: Long-term debt is a noncurrent asset.

9. Under the double-entry accounting method, every transaction is recorded in two accounts; a debit and a credit. Debit entries result in :

10. Xi, Yiu, and Zao are partners operating a business under the name Baduli. The trial balance for the partnership as of 31 March 2021 was as follows:

Additional information
i. Interest on capital balance is allowed at 12% per annum
ii. The advertising expense includes a payment of KES 1,169,000 which was to cover half a year to 31 may 2021
iii. Depreciation has been provided for motor vehicles at 10% of the cost amount. However, depreciation on furniture & fittings is yet to be provided for at 12.5% on the net book values.
iv. Staff salaries outstanding as of 31 March 2021 were KES 217,000
v. The partnership has made the following transactions but has not yet adjusted the relevant trial balance ledgers;
• Payment of trade payables of KES 195,000 by cheque and KES 108,000 by cash.
• The accountant has banked KES 320,000
• Payment of rent expense of KES 182,000 by cheque
vi. Xi, Yiu, and Zao were entitled to salaries of KES 779,000, KES 606,000, and KES 693,000 respectively.
vii. Profits and losses are shared among Xi, Yiu, and Zao in the ratio of 2:1:3 respectively.
Required
a. Income statement for the year ended 31 March 2021.
b. Partners’ current accounts as of 31 March 2021.
c. Statement of financial position as at 31 March 2021.

11. Mawingu Enterprises shows a difference in their trial balance of KES 29.3 million. This was posted to a suspense account so that the accounts for the year ended 31 march 2020 could be prepared. The following statement of financial position was produced.

On checking the books to eliminate the suspense account, the following errors were found:
i. The debit side of the cash book was undercast by KES 20 million.
ii. A credit item of KES 10million in the cash book on account of a new building has not been posted to the nominal ledger
iii. The purchase day book has been summarized for posting to the nominal ledger but an item of purchases of KES 200,000 has been entered as KES 2 million and a further transport item of KES 900,000 has been entered as KES 90,000.
iv. An item of rent received amounting to KES 90,000 was posted twice to the nominal ledger from the cash book.
v. The debt side of the debtors’ control account was undercast by KES 200,000.
vi. On reconciling the bank statement with the cash book, it was discovered that bank charges of KES 6.5 million had not been entered in the cash book.
vii. Depreciation of motor vehicles was undercharged by KES 1 million.
viii. Inventories were undervalued by KES 2.5 million.
ix. Supplies invoices totaling KES 4.22 million for goods included in the inventories had been omitted from the books.

Required
a. Journal entries necessary to eliminate the balance on the suspense account.
b. Suspense account duly balanced
c. Statement of financial position as of 31 March 2020 after correcting the errors.

12.  Explain the term accounting policy and provide four (4) examples of policies under IFRS(IAS 8).

13. Highlight three(3) benefits of preparing a bank reconciliation statement monthly.

14. An interest charged by the bank, kes 22,000 was entered in the debit side of the cash book and posted to the credit of the interest account. Record the journal entries to correct this error.

15. Aisha and Balozi are partners sharing profits and losses in the ratio of 3:2 respectively. The trial balance for the partnership as at 31 December 2021 was as follows:

Additional information
i. Inventory as of 31 December 2021 was valued at KES 390,000.
ii. Non-current assets were purchased on 1 January 2021.
iii. The depreciation policy is as follows:

iv. Interest on capital balances is allowed at 6% per annum.
v. Interest is to be charged on the debit balance of the partners’ accounts at the rate of 12% per annum.
vi. Interest on drawings by partners is to be charged at 4% per annum.
vii. Salaries to partners for the year amounted to KES 1.56 million and KES 1.885 million per annum for Aisha and Balozi respectively
viii. Interest on loan from partners is to be allowed at 12.5% per annum.

Required
a. Income statement for the year ended 31 December 2021.
b. Partners’ current accounts as of 31 December 2021.
c. Statement of financial position as at 31 December 2021.

16. Baraka operates a stationery enterprise in Nakuru. The following trial balance was extracted from the books of Baraka at the close of business on 31 march 2021:

Additional information
• Inventory as of 31 March 2021 was valued at KES 33,540,000
• Salaries of KES 650,000 is to be accrued as of 31 March 2021
• Depreciation is to be provided as follows based on cost:

Required
a. Income statement for the year ended 31 March 2021.
b. Statement of financial position as at 31 March 2021.