Free financial accounting 1 revision

Free Financial Accounting 1 revision questions & answers

ATD Level 1

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ATD 1

Free Financial Accounting revision question & answers-ATD 1

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Category: ATD 1-Introduction to Financial Accounting

1. 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:

Business transactions

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

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Category: ATD 1-Introduction to Financial Accounting

2. 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 :

Trial balance

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:

Depreciation rates

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.

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Category: ATD 1-Introduction to Financial Accounting

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

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Category: ATD 1-Introduction to Financial Accounting

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

Trial balance

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:

Depreciation rates

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.

 

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Category: ATD 1-Introduction to Financial Accounting

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

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Category: ATD 1-Introduction to Financial Accounting

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

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Category: ATD 1-Introduction to Financial Accounting

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

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Category: ATD 1-Introduction to Financial Accounting

8. 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:

Trial balance

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.

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Category: ATD 1-Introduction to Financial Accounting

9. 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.

Statement of Financial position

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.

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Category: ATD 1-Introduction to Financial Accounting

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

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Category: ATD 1-Introduction to Financial Accounting

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

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Category: ATD 1-Introduction to Financial Accounting

12. 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.

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Category: ATD 1-Introduction to Financial Accounting

13. 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:

Aisha.Balozi.TB

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:

AISHA.BALOZI Depreciation rates

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.

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Category: ATD 1-Introduction to Financial Accounting

14. 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:

Trial balanceAdditional 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:

Depreciation rates

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

 

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Category: ATD 1-Introduction to Financial Accounting

15. Transactions for which there is uncertainty about where they should be recorded are temporary recorded in a:

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Category: ATD 1-Introduction to Financial Accounting

16. TRUE or FALSE: When a partner extracts an asset other than cash from a business, the account in which the asset was recorded is credited and the partner’s current account debited.

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Category: ATD 1-Introduction to Financial Accounting

17. Mwanzia's accountant extracted the following erroneous trial balance as of 30 September 2022:

Trial balance

The Accountant, on noticing the errors in the trial balance, carried out further investigations and discovered the following errors
i. Credit sales of KES 990,000 were correctly posted in the sales account but were credited to the trade receivables account.
ii. The drawings account excludes goods worth KES 502,700 taken for personal use by Mwanzia. These goods were correctly entered into the purchase account.
iii. Acquisition of fixtures and fittings of KES 550,000 on 1 October 2021 was recorded in the cash account but entered in the purchases account.
iv. Interest on the bank loan was partly outstanding as of 30 September 2022. This accrual need not be shown in the trial balance.
v. Depreciation of non-current assets had not been provided for the year ended 30 September 2022.Mwanzia’s depreciation policy is as follows:
Depreciation rates

Required
a. Corrected trial balance as of 30 September 2022.
b. Income statement for the year ended 30 September 2022.
c. Statement of financial position as at 30 September 2022.

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Category: ATD 1-Introduction to Financial Accounting

18. Which of the following double-entry combinations is not possible?

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Category: ATD 1-Introduction to Financial Accounting

19. On January 1, Tartex purchased 250 desks at KES  10 per desk. On February 1, Tartex purchased 350 desks at KES  20 per desk. On March 31, Tartex sold 320 desks. What amount will go to the balance sheet as inventory, if Tartex uses the FIFO method of valuation?

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Category: ATD 1-Introduction to Financial Accounting

20. TRUE or FALSE: Errors of principle cause the trial balance not no balance

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Category: ATD 1-Introduction to Financial Accounting

21. Stock withdrawn by a sole trader for personal consumption should be recorded by:

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Category: ATD 1-Introduction to Financial Accounting

22. Choroa operates a building materials store in Emali. However, though she reports all her cash receipts and payments and maintains her bank statements, she does not maintain proper books of accounts. At the end of each year, she lists all supplier invoices not paid as well as invoices for customers who have not paid. She also undertakes an inventory and assets take of the business and has a policy of depositing all cash sales and collections from customers into her bank account.
The following balances were provided as at 1 January 2021:

A summary of the cash book (bank column only) for the year ended 31 December 2021 was as follows:

Additional information
i. Trade receivables and trade payables were KES 164.9 million and KES 79,783,000 respectively as at 31 December 2021.
ii. A customer who had been invoiced KES 16,975,000 lodged a claim of having never received the goods. It was later discovered that the goods were lost in transit. There was no insurance cover for goods in transit.
iii. Choroa paid KES 7,760,000 out of the drawings to her daughter for assisting her in the hardware business. Bad debts amounting to KES 2,037,000 were written off.
iv. Provision for doubtful debts should be maintained as 3% of the trade receivable at year end.
v. Choroa used construction materials worth KES 8,488,000 from the hardware business to develop his plot.
vi. Depreciation is to be provided as follows:

vii. Insurance prepaid at the year-end amounted to KES 1,213,000 whereas accrued telephone expenses amounted to KES 1,698,000.
viii. Choroa’s policy is to maintain a cash balance KES 485,000 at the year end.
ix. The closing inventory was valued at KES 137,983,000. However, this included goods whose cost was KES 3,638,000 with a net realizable value of KES 2,910,000 and a replacement cost of KES 2,425,000.
Required
a. Income statement for the year ended 31 December 2021.
b. Statement of financial position as at 31 December 2021.

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Category: ATD 1-Introduction to Financial Accounting

23. The following trial balance was extracted from the books of Jambo Limited as of 31 December 2021.

Trial balance

Additional information
i. The trade receivables include KES 17,680,000 due from Sema who has been declared bankrupt. It has been decided that this should be written off as bad debts
ii. The allowance for doubtful debts as of 31 December 2021 is to be maintained at 4% of the debtors as of that date.
iii. Prepaid general expenses as of 31 December 2021 amount to KES 3,536,000.
iv. Administrative expenses accrued as of 31 December 2021 amounted to KES 6,168,000.
v. The company had not paid interest on debentures as of 31 December 2021 amounting to KES 6,168,000.
vi. Gross profit is at the rate of 20% of sales
vii. Depreciation on non-current assets is provided on cost of the asset at the following rates:

viii. The company’s directors propose the following for the year:
• A dividend of 15% on the ordinary shares paid
• Preference share dividend be paid
• Transfer of KES 221 million to general reserves
Required
a. Statement of financial performance for the year ended 31 December 2021
b. Statement of financial position as at 31 December 2021.

 

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Category: ATD 1-Introduction to Financial Accounting

24. Special reserves are funds that are created by business owners to meet specific financial obligations. Which of the following is/are an example of a specific reserve?

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Category: ATD 1-Introduction to Financial Accounting

25. Chui Limited declared cash dividends of KES 0.35 per share. If there are 1 million shares of common stock authorized,750,000 shares issued, and 150,000 shares outstanding at the date of declaration, what is the amount that the company should record for the dividend?

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