In reference to IAS 7,define the following terms
i. Operating activities
ii. Investing activities
iii. Financing activities

2. The following information has been extracted from the books of Chuma limited as at 31 December 2021.

Income statement for the year ended 31 December

Statement of financial position as at 31 December:

Additional information
i. The taxation balances shown above are agreed with the revenue department
ii. During the year ended 31 December 2021, non-current assets originally costing kshs 38.5 million were sold for kshs 7 million. The accumulated depreciation on these assets as at the date of disposal was kshs 26.6 million.

Required
Statement of cash flows for the year ended 31 December 2021 using the indirect method in accordance with the requirements of IAS 5 (Statement of Cash Flows)

The trial balance of Mercury ltd as at 30 June 2021 failed to balance. The difference of kshs 104,700 was on the credit side of the trial balance. A suspense account was opened with that difference. After a thorough scrutiny of the books of accounts, the following errors were discovered:
i. The sales journal was undercast by kshs 52,800.
ii. The purchases return journal was undercast by kshs 35,200.
iii. Bank charges of kshs 26,400 entered in the cash book had not been posted to the ledger.
iv. Discount received column in the cash book was undercast by kshs 44,000.
v. Purchase of goods for private use valued at kshs 22,000 by the proprietor (Mercury) was included in the purchase account.
vi. Purchase of a motor vehicle on 1 October 2019 for kshs 3,520,000 was recorded in motor vehicle expenses account. Depreciation on the motor vehicle should be at the rate of 25% per annum on cost.
vii. Closing inventory on 30 September ,2019 was undercast by kshs 88,000.
viii. A sale of goods on credit from Supta at kshs 4,312 was correctly entered in the sales journal books but posted to his account as kshs 3,412.
ix. Purchase of goods on credit from Mercury at kshs 3,476 was entered in the respective records as kshs 4,376.

3. Required
a. Journal entries to correct the above errors
b. Suspense account duly balanced.
c. Statement of corrected net profit, if profit before correction of the errors was kshs 4,843,608.

4. Define the following types of errors, give an example for each, and outline how the errors can be discovered.

i. Subsidiary entries
ii. Error of omission
iii. Transposition errors
iv. Errors of principles
v. Errors of reversal
vi. Errors of commission

5. Johari and Omari are partners in a tile manufacturing business, started on 01.08.2018 by the name Kongoni Manufacturing enterprises. The following trial balance was extracted from the books of the partnership as at 31/07/2019:

Additional information
i. There was no opening stock of raw materials as at 01/08/2018.
ii. As at 31/07/2018, accrued electricity amounted to kshs 66,560,000, while prepaid rent and insurance amounted to kshs 50,176,000.
iii. Johari and Omari share profits and losses at 5:3 respectively.
iv. Inventories as at 31/07/2018 were as follows:

v. The estimated useful life of plant and machinery is 12 years, while that of motor vehicle is 6 years. The company used straight line method to provide for depreciation on plant and machinery.
vi. Loose tools as at 31/07/2018 were valued at kshs 87,040,000.
vii. Allowance for doubtful debts is to be made at 7.5 % of the accounts receivable.
viii. Manufactured goods were transferred from the factory to the warehouse at kshs 544 million.
ix. The following expenses are to be apportioned between the factory and administration in the ratios below:

Required
a. Manufacturing and income statement for the year ended 31 July 2019.
b. Statement of financial position as at 31 July 2019.

6. ________costs refer to the expenses that cannot be directly attributed to the production process but are necessary for operations, such as electricity or other utilities needed for the manufacturing plant.

7. TRUE OR FALSE: A nominal account starts the next fiscal year with a zero balance, whereas a real account starts with the ending balance from the prior period.

8. The following is the receipts and payments account of Tumbili youth Club for the year ended 30 April 2020:

Additional information
i. The secretarial honoraria paid excludes kshs 24,750 for travelling allowance.
ii. Interest earned on the deposit with Savai & Loans ltd for the year to 30/04/2020 amounted to kshs 48,125.
iii. The barman was also to receive a bonus of 6% of the net income for the bar after charging such bonus.
iv. The pavilion and equipment are to be depreciated at the rate of 10% per annum.
v. From the register of members, unpaid subscriptions as at 30 April 2019 amounted to kshs 140,250, while subscriptions received during the year included kshs 70,125 in respect of the previous year and kshs 46,750 in respect of the year starting 01/05/2020.
vi. The assets and liabilities of the club as at 1 May 2019 were as follows:

vii. The following balances of assets and liabilities of the club were relevant as at 30/04/2020:

Required
a. Income and expenditure account for the year ended 30/04/2020
b. Statement of financial position as at 30/04/2020

9. The following trial balance was extracted from the books of Mabuyu limited as 31 December 2019:

Additional information
i. Inventory as at 31 December 2019 was valued as kshs 714,560,000.
ii. Rent and rated paid in advance as at 31/12/2019 amounted to kshs 13.2 million.
iii. Motor vehicle running expenses due but unpaid as at 31/12/2019 were kshs 18.48 million.
iv. Depreciation is charged as follows:
• Plant and equipment -12.5% per annum on cost
• Motor vehicles -25% per annum on cost
• Buildings to be depreciated but kshs 35.2 million.
v. The directors have proposed a dividend of kshs 4 per share for the year ended 31 December,2019.
vi. The provision for doubtful debts is to be adjusted is to be adjusted to kshs 15.84 million.
vii. Share capital is divided into 132,000 ordinary shares of kshs 10, all of which were issued and fully paid.
viii. Ignore taxation

Required
a. Income statement for the year ended 31 December 2019.
b. Statement of financial position as at 31 December 2019.

10. Outline five ways of classifying debentures

Ayana,Zuberi and Chaniya have been in partnership sharing profits and losses in the ratio  2:1:2 respectively, after charging interest on capital at the rate of 8 % per annum. The financial year end of the partnership is 31/03/2021
Additional information
i. For the purpose of retirement of Chaniya, land was revalued at kshs 32.5 million. Goodwill of the partnership was valued at kshs 5.2 million, but was to be written off immediately.
ii. On 30/09/2020, Chaniya retired from the partnership. Ayana and Zuberi agreed to continue with the partnership and to share profit and losses in the ratio of 2:3 after charging interest of 8 % per annum on capital.
iii. Chaniya agreed to leave the amount due to her in respect of his capital as a loan earning interest of 9 % per annum. The amount due to her in respect of current account was settled in full at the end of financial year.
iv. The relevant adjustment relating to the above transactions had not been made when the following trial balance was extracted on 31/03/2021:

11.

Assume that the net profit accrued evenly throughout the year.

Required
a. Income statement in columnar form for the two periods ended 30/09/2020 and 31/03/2021
b. Partners’ capital accounts.
c. Partners’ current accounts.
d. Statement of financial position as at 31/03/2021.

12. TRUE OR FALSE: In partnerships, the current account is usually fixed, while the capital account is the current total of appropriations and the share of residual profit/loss, less drawings.

13. Which one of the following in not true about a sole proprietorship?

14. Jogoo runs a wholesale business selling children’s clothing. His trial balance for the year ended 30 September 2020 was as follows:

Additional information
i. Allowance for doubtful debts is to be increased by 8.5 %..
ii. Electricity and telephone bills prepaid as at 30 September 2020 amount to kshs 420,000 and kshs 1.26 million respectively.
iii. Rent accrued as at 30 September 2020 amounts to kshs 1.26 million.
iv. Depreciation is provided on motor vehicles and furniture and fixtures at 25% & 12.5% per annum on cost.
v. Inventory as at 30 September 2020 was valued as kshs 16.8 million.
vi. General expenses accrued as at 30 September 2020 amounted to kshs 1.68 million.

Required
a. Income statement for the year ended 30 September 2020.
b. Statement of financial position as at 30 September 2020.

15. The following balances on non-current assets were extracted from the books of Sengi ltd as at 1 May 2019:

The following information relates to the year ended 30 April 2020.
i. An item of plant acquired on 1 November 2014 for kshs 7,175,000 was disposed of during the year for kshs 3.5 million
ii. New machinery was acquired during the year. The following are the costs of acquisition:

Input VAT is recoverable from output VAT.

iii. Land and buildings were revalued by Matata valuers on 2 May 2019 at kshs 15,890,000 and 13,608,000 respectively
iv. The depreciation policy of Sengi is as follows:

A full year’s depreciation is provided in the year of acquisition. Not depreciation is provided in the year of disposal.

v. A delivery van which was purchased in April 2019 for kshs 6,006,000 was stolen during the year. The insurers agreed to compensate the company by paying 90% of the cost.
Required
Property, plant and equipment movement schedule for the year ended 30 April 2020

16. IAS 2 require inventory to be measured at the (a)________and (b)_______

17. Nyuki traders commenced trading on 1 January 2018.During the two years ended 31 December 2018 and 31 December 2019, the following debts were written off to bad debts account on the stated dates:

On 31.12.2018, total debtors amounted to kshs 32 million. It was decided to make an allowance for doubtful debts of 5% of the debtors. On 31.12.2019, the debtors balance stood at kshs 35 million. Allowance for bad debts was maintained at 7.5% of debtors. The accountant of Nyuki Traders did not provide for the bad debts nor did he recognize the bad debts expense in the two years.

Required
a. Debtors account at each year end
b. Bad debts account
c. Allowance for bad debts account

18. Differentiate between a financial asset and a financial instrument.

19. Describe the process followed in the development of accounting standards

20. Under faithful representation concept, financial statement produced must accurately reflect the condition of a business. List three attributes of faithful representation

21. The following transactions relate to Duma traders for the month of June 2019.

Required
Three column cash books to record the above transactions

22. List six contents of a valid invoice as a source document.

23. Highlight three features of a good accounting software .

24. Compute the double entry for Issue of ordinary shares for cash

25. The basis of accounting describes how financial activities are recognized and reported. Describe the two main accounting bases.

26. The accounting equation states that___________