1. 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.

2. 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.

3. 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.

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

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

6. 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)?

7. 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.

8. 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.

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 Stock withdrawn by a sole trader for personal consumption should be recorded by:

10. Zora started her transport business, Pheasant West Enterprises, on July 1, 2017. She purchased the following vehicles on the same day:

The following were purchased in 2018:

In the year 2019, the following took place:

i. Disposed of KCA for KES 3 million cash on March 1.
ii. Disposed of KFA for KES 2.5 million on July 1.
iii. Traded in KDA with KMA costing KES 8 million. The dealer requested that Zora pay an additional KES 3 million in cash. The trade-in transaction was completed on 30 June 2019.
iv. Zora provided depreciation at the rate of 25% per annum on cost on a pro-rata basis.

Required
What is the total depreciation(DP) and profit/loss(P/L) on disposal of the following motor vehicles?
i. Pickup KCA(July 1,2018 to March 1,2019)
ii. Pickup KFA(June 2018 TO June 2019)
iii. Lorry KDA(June 2018 to Kune 2019)

11. The following trial balance was extracted from the books of Banex West Limited on 31 March 2025:

Additional information
i. The following information relates to the firm as of 31 March 2021.

ii. A half-year's interest on debentures is owed.
iii. Suspense account is due to the following errors:
• The total sales journal was understated by KES 5,000.
• Total returns inwards of KES 1,000 for March 2025 were erroneously credited to the returns outwards account.
iv. Depreciation should be provided as follows:

v. Directors have proposed that dividends be paid on preference shares and KES 6 per ordinary share after transfer of KES 5,00 to the general reserve

Required:

Given that the retained earnings for the year are 14,128, prepare the Statement of Financial Position as at 31 March 2025, and compute the working capital (WC)and total equity(TE)

12. The cost incurred by any manufacturing entity in converting its raw material into finished goods capable of being sold in the market is referred to as:

13. A sole trader has suffered a loss during an accounting period but his overdraft has decreased. A possible explanation for this change is:

14. 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?

15. The Allowance for Doubtful Accounts is necessary because:

16. In the balance sheet, fixed assets are classified separately from current assets because:

17. The following balances were extracted from the books of Chazo Enterprises on 31 March 2020:

Additional information
i. Accrued salaries as at 31 March 2020 amounted to KES 6,480,000.
ii. The allowance for doubtful debts as at 31/03/2020 is to be maintained at 1.5% of the accounts receivable.
iii. Inventory as at 31/03/2020 was valued at KES 334,368,00.
iv. Chazo trader’s depreciation policy is as follows:

Required
Prepare the Income statement and Statement of financial position for the year ended 31 March 2020 and compute:
i. Net profit (NP)for the year
ii. Net Assets (NA)for the year

18. The following trial balance was extracted from the books of Heshima East Limited as of 30 September 2025:

Additional information
i. The trade receivables include KES 15,000 owed by Salim, who has been declared insolvent has been decided to write off the debt.
ii. The allowance for doubtful debts is to be adjusted to 5% of trade receivables as at 30 September 2025.
iii. Inventory as at 30 September 2025 was valued at KES 540,000.
iv. Selling and distribution expenses prepaid as at 30 September 2025 amounted to KES 3,000.
v. Administrative expenses accrued as at 30 September 2025 amounted to KES 5,250.
vi. The company has not yet paid interest on the debentures for the year ended 30 September 2025.
vii. Depreciation per annum is to be provided on the non-current assets as follows:

viii. The company’s directors propose the following:
 The preference dividend is to be paid.
 A dividend of 12% on the ordinary shares is to be paid.
 Transfer of KES 187,500 to the general reserve.

Required
Prepare the Income statement for the year ended 30 September 2025 and compute the gross income(GI) and the retained earnings(RE) for the year.

19. 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).

20.  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?

21. __________refers to the specific rules and guidelines issued by professional bodies that companies must follow when preparing financial statements.

22. An error of commission occurs when:

23. 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)

24. 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.

25. TRUE or FALSE: If a mutual fund has: Assets = KES 1,000,000,Liabilities = KES 100,000, and Units = 90,000,its Net Asset Value (NAV) = KES 12

26. 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).

27. ________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.

28. Asali Enterprises purchased a manufacturing machine for KES 120,000. The machinery has an estimated useful life of five years or 60,000 units of production and an estimated salvage value of KES 40,000.

Required
i. The amount of depreciation to be recorded for year 2 using the straight-line method.
ii. The amount of depreciation to be recorded for year 2 using the double-declining balance.
iii. The amount of depreciation to be recorded in year 1 using the units-of-activity method and assuming that 10,00 units are produced.

29. 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?

30. 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?

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

Required: Calculate the balance of retained earnings.

32. 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.

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

Sefu and Nafasi are in a partnership in Blossom Traders, sharing profits equally, whose capital is  KES 300,000 as at 31,12, 2019. On January 1, 2020, they agreed to admit a new partner, Niara, into the partnership. Profits will still be shared equally between the three partners. Niara paid KShs 195,000 to join the partnership.
34. Required
Illustrate the journal entry to record Niara’s admission into the partnership and the allocation of the bonus to Sefu and Nafasi.

35. 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.

36. The trial balance of Pelican Enterprises failed to agree as at 31 December 2025. After a thorough scrutiny of the accounts, Halima, the accountant, discovered the following errors:
i. Sales journal had been undercast by KES 300,000.
ii. A total of KES 6,000 from the return inwards journal was posted to the credit side of the return outwards account.
iii. A customer’s personal account had been correctly credited with a discount of KES 180,000, but no corresponding entry was made.
iv. The purchases journal had been overcast by KES 270,000.
v. A receipt of cash amounting to KES 45,000 from Jona Limited had been credited in the cash book and debited in Jona Limited‘s account.
vi. Credit sales of KES 1.2 million to Asali Ltd were debited to Atsali account.

Required
Prepare the Journal entries to correct the above errors and the suspense account duly balanced, compute the corrected income statement for the year ended 31 December. The net profit before correction was KES 522,000.

37. 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.

38. 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)________.

39. The following transactions relate to the business of Jem's enterprises for April 2021:

Required
Prepare a three-column cashbook duly balanced on 30 April 2025, and compute the closing bank balance(balance c/d).

40. 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?