1. An invoice entered in accounts receivable as KES 20,000 instead of KES 2,000 is an example of a _________error.

2. Beno and Kate are partners in Flamingo North Enterprises, sharing profits in the ratio of 3:2
The following information is provided:
• Net profit for the year: KES 720,000
• Kate’s salary: KES 120,000
• Interest on capital: 5%
• Beno’s’s capital: KES 240,000
• Kate’s capital: KES 160,000
• Beno’s drawings :180,000
• Kate’s drawings:120,000
The opening balances on their current accounts were KES 60,000 (Cr) for Beno and KES 24,000 (Cr) for Kate.

Required:
What are the closing balances on the partners’ current accounts after taking into account profit share, salary, interest on capital, drawings, and opening balances?

3. A small-scale farmer supplies Cassava to a large milling company. The milling company has requested the farmer’s financial records before agreeing to a long-term supply contract with 60-day payment terms. The farmer argues that as a small business, he does not keep formal accounting records and that the milling company should just trust him.
Required:
Which combination of basic accounting records should the farmer maintain to provide useful financial information to the milling company?

4. TRUE or FALSE: An increase in an asset must always be accompanied by an equal increase in a liability.

5. The following balances were extracted from the trial balance of White Wren Ltd for the year ended 31 December 2025:
• Sales: KES 2,500,000
• Opening inventory: KES 300,000
• Purchases: KES 1,200,000
• Carriage inwards: KES 50,000
• Carriage outwards: KES 30,000.
• Closing inventory was valued at KES 250,000.

Required
Calculate the Cost of Sales and Gross Profit for the year ended 31 December 2025.

6. Which of the following bodies is primarily responsible for issuing International Financial Reporting Standards (IFRS)?

7. A company in Nairobi has been operating for 10 years and plans to continue indefinitely. However, for reporting purposes, it prepares its financial statements annually on 31 December.

This practice is primarily driven by which accounting concept?

8. At the beginning of 2025, Brown East Enterprises had Assets of KES 640,000 and Liabilities of KES 30,000. During the year, the following occurred:
• The owner introduced additional capital of KES 8,000
• The business earned a net profit of KES 13,000.
• The owner withdrew goods worth KES 1,000 for personal use.
• The business paid dividends (drawings) of KES 4,000

Required:
Assuming the profit increased assets, and there were no other changes in assets or liabilities, what are the closing balances of Total Assets(TA), Total Liabilities(TL), and Total Equity(TE) at the end of 2025?

9. A company in Nairobi enters into a 5-year lease agreement for a delivery vehicle. Although the company does not hold the legal title to the vehicle, it has the right to direct the use of the vehicle and obtain substantially all of its economic benefits.
According to the Conceptual Framework, how should this vehicle be classified?

10. Sahara West Enterprises pays an annual insurance premium of KES 840,000 on 1 October 2025, covering the period from 1 October 2025 to 30 September 2026. The company's financial year ends on 31 December 2025.

Required:
Applying the matching principle, what amounts should be recognized as insurance expense and prepaid insurance (asset) for the year ended 31 December 2025?

11. The accrual principle is fundamentally linked to which of the following accounting treatments?

12. Sinai North Traders provided services to a client on credit for KES 80,000. What is the effect on the accounting equation?

13. At 1 January 2025, Parakeet Enterprises had Total Assets of KES 900,000 and Total Liabilities of KES 360,000. During the year, the following transactions occurred:
• Owner introduced additional cash capital of KES 100,000.
• Purchased equipment on credit for KES 60,000.
• Earned service revenue of KES 240,000 (all received in cash).
• Paid cash expenses totaling KES 120,000.
• Owner withdrew cash for personal use amounting to KES 30,000.

Required:
What are the closing balances of Total Assets, Total Liabilities, and Total Equity at 31 December 2025?

14. Investigative journalists may analyze a company’s financial statements primarily to:

15. On 1 April 2025, the petty cashier of Jomo Ltd was given an imprest of KES 32,000. During April, the following payments were made:
• Postage: KES 4,800
• Stationery: KES 10,000
• Taxi fares: KES 3,200
• Cleaning materials: KES 6,000

Required:
Calculate the following and select the option that correctly gives the three required amounts:
i. The total amount spent.
ii. The amount of the reimbursement cheque to be drawn on 30 April 2025.
iii. The cash in hand balance on 30 April before reimbursement?

16. Bayuda East Traders sold goods on credit to Juma Ltd for KES 50,000. Which combination correctly identifies the source document and the Book of Prime Entry?

17. In a triple-column cash book, the total of the "Discount Received" column on the credit side is posted to:

18. TRUE or FALSE: Internally generated goodwill can be recognized as an intangible asset if the directors can reliably measure its value.

19. Arctic West Ltd.’s Trade receivables at 31 December 2025 were KES 625,000. This includes KES 25,000 owed by a bankrupt customer. The company’s policy is to write off the bankrupt amount and then provide an allowance for doubtful debts of 4.5% on the remaining receivables. The allowance for doubtful debts brought forward was KES 22,500.

Required:
Calculate the irrecoverable debts expense(IDE) for the year and the net trade receivables(NTR) in the Statement of Financial Position.

20. A delivery van costs KES 2,750,000 with an estimated residual value of KES 350,000 and a useful life of 4 years.
Required
Which of the following correctly shows the depreciation charges?

21. The total of the Purchases Returns Journal for the month was KES 45,000, but it was posted to the Purchases Returns account as KES 54,000.
Required:
What is the correcting journal entry?

22. Buruti Transport Ltd spent KES 300,000 on overhauling the engine of a lorry, which extended its useful life by 3 years. The accountant debited the "Motor Vehicle Repairs" expense account.

Required:
Which of the following is the correct journal entry to correct the error, and what accounting principle is involved?

23. The sales journal of Minivet West Ltd was undercast by KES 15,000. Which journal entry is required to correct the error?

24. TRUE or FALSE: In a partnership, if the partnership deed is silent, partners are entitled to receive interest on their capital contributions before profits are shared.

25. Zebi and Mati are partners in Flamingo West Enterprises, sharing profits in the ratio of 2:3.
The following information is provided:
• Net profit for the year: KES 1,800,000
• Zebi’s salary: KES 300,000
• Interest on capital: 4%
• Zebi’s capital: KES 400,000
• Mati’s capital: KES 600,000
Required:
What is the final share of profit for Zebi and Mati after preparing the Profit and Loss Appropriation Account?

26. Under the fixed capital method of partnership accounting, where are partners' shares of profit and drawings recorded?

27. Pwani Ltd paid an interim dividend of KES 100,000 in June 2025. At the year-end (31 December 2025), the directors proposed a final dividend of KES 300,000.

Required:
How should each dividend be treated in the 2025 financial statements?

28. Lenana East Ltd issued 50,000 ordinary shares of KES 20 each at a premium of KES 5 per share. All applications were received in cash.

Required:
What amounts should be credited to the Ordinary Share Capital Account, Share Premium Account, and the total cash received, respectively?

29. Capital reserve is the result of capital profit that is earned by the company from transactions of a capital nature. Which of the following is an example of capital profit?

30. Writing off tangible assets for the period is termed as (i)________, whereas the process of writing off intangible fixed assets is referred to as (ii)________.

31. Angela started a transport business in January 2021, operating under the name Msafiri East Services Ltd. He bought motor vehicles as follows:

Additional notes
i. On 30 June 32020, PURPLE was involved in an accident and was written off. The insurance company paid a compensation of KES 1,360,000.
ii. On 31 March, BLUE was traded with YELLOW, which was valued at KES 2.4 million, and the dealer paid KES 800,000 in cash.
iii. Depreciation on the motor vehicles is provided at the rate of 25% per annum on the straight-line method on a pro rata basis.

Required
Calculate the profit on the disposal of RED, PURPLE, and BLUE.

32. The following information relates to trade receivables extracted from the books of Tausi Limited.

Required
i. The allowance for doubtful debts(DD) amount debited/credited to the P&L a/c for year 2023.
ii. The provision for discounts allowed(DA) for year 2024.

33. Companies may suspend regular dividends in response to which of the following reasons?

34. The following was extracted from the books of Salama East Enterprises, a sole proprietor trading in selling grains on 31 October 2018:

Additional information
i. Inventory remaining as at 31 October 2025 was valued at KES 44,030.
ii. Insurance paid in advance as at 31 October 2025 amounted to KES 830.
iii. Depreciation is to be provided on cost as follows:

iv. Salama decided to write off additional bad debts of KES 1,010.
v. Salaries outstanding as at 31 October 2025 amounted to KES 2,010.
vi. Allowance for doubtful debts is to be maintained at 5% of the outstanding debt.
vii. Rent receivable as at 31 October 2025 amounted to KES 1,275.
viii. Salama discovered that one invoice for KES 4,000 received from a supplier in September 2025 had not been entered in the records.
ix. Allowance for doubtful debts is to be increased by KES 225.
x. Purchases of goods valued at KES 450 in December 2024 were omitted from the books.

Required
Prepare the Income statement for the year ended 31 October 2025 and compute the net profit.

35. Lauren has the following balance sheet accounts and balances:

Required: Calculate the balance of retained earnings.

36. The net debtors in Raven’s balance sheet after a provision of 7.5% were KES 95,000 on 1 January,2025. The net figure on 31 December,2025 was KES 109,200. You are to write off a debt of KES 800 and correct for KES 5,400 received from debtors recorded in error in sales.

What would the closing balance on the bad debt provision account be if the policy to provide for 7.5% of debtors is continued?

37. A sole trader, Edward, has debtors of KES 9,750, creditors of KES 7,800, and a cash/bank balance of KES 5,850. His current ratio is 4:1. What is his closing stock figure?

38. Amina, Bahati, and Charo are in a partnership in Canary West Enterprises, sharing profits and losses in the ratio 2:2:1, respectively. Their partnership agreement provided as follows:
i. Charles is entitled to an annual salary of KES 135,000.
ii. Interest is to be allowed on capital at the rate of 15% per annum
iii. Alex and Brian guaranteed that the total income of Charles from the firm shall not be less than KES 750,000.
The partnership’s trial balance as at 30 June 2025 is as follows:

i. As at 30 June 2025, accrued distribution expenses amounted to KES 75,000, while rent paid in advance was KES 150,000.
ii. Depreciation is provided as follows:

iii. Allowance for doubtful debts is to be increased to 7.5% of the accounts receivable.

Required
Given that the partners' share of profit is KES 1,958,000, prepare the partners’ current account, and the Statement of Financial Position as at 30 June 2025, and compute the Total of Liabilities & Equity(LE) and Current Assets(CA).

39. Acacia West's Accountant extracted the following erroneous trial balance as of 30 September 2025:

The Accountant, on noticing the errors in the trial balance, carried out further investigations and discovered the following errors
i. Credit sales of KES 225,000 were correctly posted in the sales account but were credited in the trade receivables account.
ii. The drawings account excludes goods worth KES 114,250,000 that were taken for personal use by Acacia East. These goods were correctly entered on the purchase account.
iii. The acquisition of fixtures and fittings of KES 125,000 on 1 October 2024 was recorded in the cash account but entered in the purchases account.
iv. Interest on the bank loan was partly outstanding as at 30 September,2025. 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,2025. Acacia’s depreciation policy is as follows:

Required
 Prepare the corrected trial balance as at 30 September 2025, the Income statement for the year ended 30 September 2025, and compute the net profit.

40. The following trial balance was extracted from the books of Croaker West Ltd. as of 31 December 2025:

Additional information
i. The trade receivables include KES 1,040 due from Carp Enterprises, which has been declared bankrupt. It has been decided that this should be written off as bad debts
ii. The allowance for doubtful debts as at 31 December 2025 is to be maintained at 4% of the debtors as at that date.
iii. Prepaid general expenses as at 31 December 2025 amount to KES 208.
iv. Administrative expenses accrued as at 31 December 2025 amounted to KES 364.
v. The company had not paid interest on debentures as at 31 December 2025, amounting to KES 364.
vi. Gross profit is at the rate of 16% of sales
vii. Depreciation on non-current assets is provided on the cost of the asset at the following rates:

viii. The company’s directors propose the following for the year:
• A dividend of 8% on the ordinary shares was paid.
• Preference share dividend is paid.
• Transfer of KES 13,000 to general reserves.

Required
 Given that the Retained earnings  for the year are KES -801, prepare the Statement of Financial Position as at 31 December 2025, and compute the working capital(WC) and total equity(TE)

41.  On December 31, a customer paid Safari KES 2,300 for internet supply for the next six(6) months. Which of the following is the adjusting journal entry?

42. Malia, the accountant of Wren Ltd., discovered that the statement of position for the company did not balance. She put the difference in a suspense account. The following is the statement of financial position of Wren Ltd as at 31 December 2025:

After thorough scrutiny of the books of account, the following errors were discovered:
i. Discounts received of KES 386,000 had been debited to the discounts allowed account
ii. The sales account had been undercast by KES 3 million.
iii. The purchase returns daybook had been correctly entered and totaled at KES 1,848,000 but had not been posted to the ledger.
iv. A credit sale of KES 644,000 had been debited to a customer’s account at KES 441,000.
v. A motor vehicle bought for KES 2.1 million four years ago had been sold at KES 900,000. No entries other than in the bank account had been passed through the books. The motor vehicle was depreciated at a rate of 20% per annum on a straight-line basis on a residual value of KES 300,000.
vi. Accrued electricity expenses of KES 168,000 had been omitted.
vii. A bad debt of KES 468,000 had not been written off, and allowance for doubtful debts is to be maintained at a rate of 10% of the accounts receivable.

Required
i. Prepare the suspense account to correct the errors and the statement of adjustments to compute the correct net profit (NP)for the year ended 31 December, 2025.
ii. Prepare the corrected statement of financial position as at 31 December,2025 and compute the working capital(WC).

43. The supplies account of Tweety Limited had a KES 860 debit balance at the end of the accounting period before adjustment for supplies used. There was an inventory of KES 240 worth of unused supplies on hand. Which of the following is the required adjusting entry?

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

45. Acacia East's Accountant extracted the following erroneous trial balance as of 30 September 2025:

The Accountant, on noticing the errors in the trial balance, carried out further investigations and discovered the following errors
i. Credit sales of KES 225,000 were correctly posted in the sales account but were credited in the trade receivables account.
ii. The drawings account excludes goods worth KES 114,250,000 that were taken for personal use by Acacia East. These goods were correctly entered on the purchase account.
iii. The acquisition of fixtures and fittings of KES 125,000 on 1 October 2024 was recorded in the cash account but entered in the purchases account.
iv. Interest on the bank loan was partly outstanding as at 30 September,2025. 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,2025. Acacia’s depreciation policy is as follows:

Required
Prepare the corrected trial balance as at 30 September 2025 and compute the trial balance totals where the Total Debit Balances = Total Credit Balances.

46. 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.

47. Starling South Enterprises shows a difference in their trial balance of KES 29,300. This was posted to a suspense account so that the accounts for the year ended 31 March 2025 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 20,000.
ii. A credit item of KES 10,000 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 has been entered as KES 2,000, and a further transport item of KES 900 has been entered as KES 90.
iv. An item of rent received amounting to KES 90 was posted twice to the nominal ledger from the cash book.
v. The debt side pf the debtors’ control account was undercast by KES 200.
vi. On reconciling the bank statement with the cash book, it was discovered that bank charges of KES 6,500 had not been entered in the cash book.
vii. Depreciation of motor vehicles was undercharged by KES 1,000.
viii. Inventories were undervalued by KES 2,500.
ix. Supplies invoices totaling KES 4,220 for goods included in the inventories had been omitted from the books.

Required
After correcting these errors, what is the net effect on the profit(Income statement)?

48. The following information was extracted from the books of Berry East Limited as at 30 June 2025:

Additional information
i. Accrued administrative expenses as at 30 June 2025 amounted to KES 400.
ii. Sales and distribution costs prepaid as at 30 June 2025 amounted to KES 800.
iii. Allowance for doubtful debts is to increase by KES 800.
iv. Corporate tax is estimated at KES 24,000.
v. Half of the annual interest on debentures was outstanding as at 30 June 2025.
vi. Depreciation is to be provided as follows:

vii. The directors have proposed the following:
• A dividend is paid to preference shareholders.
• A dividend of KES 2 per share to the ordinary shareholders after the transfer of KES 4,000 to the general reserve.
Required
Prepare the Income statement as at 30 June 2025 and compute the net profit after tax for the year.

49. Meshak and Kain are trading as partners in Turtle East Enterprises, 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 2025:

Additional information
i. Inventory was valued at KES 48 million as at 31 December 2025.
ii. Kain is entitled to a salary of KES 1.2 million 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, which were not yet recorded amounted to KES 4,000,000 and KES 400,000 for Meshak and Kain respectively.
vi. Depreciation on non-current assets is provided as follows:

vii. As at 31 December 2025, rent and rates outstanding amounted to KES 480,000, while salaries paid in advance amounted to KES 5,200,000.
viii. Allowance for doubtful debts is to be maintained at 5% of the outstanding trade receivables

Required
Prepare the Income statement for the year ended 31 December 2025 and compute the profit share for each partner.

50. Luka, a civil servant, has plans to be self-employed. As of 31 May 2025, Luka had saved KES 360,000 to start a business. He started his business in Kisumu on June 1, 2025. His transactions for June were as follows:

Required
Prepare Luka's three-column cash book for June 2025, and compute the cash and bank closing balances.