UNIVERSITY EXAMINATION 2017/2018

SCHOOL OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

BBM/ BCOM/ BBIT/ BIT/ BREM/ BECF/ BECS/ BEC/ BEDA/ BSNE
SCHOOL BASED

UNIT CODE: BAF1101 UNIT TITLE: FINANCIAL ACCOUNTING I

DATE: AUGUST 2018 SPECIAL/SUPPLIMENTARY EXAM TIME: 2 HOURS

INSRUCTIONS: ANSWER QUESTION ONE (COMPULSORY) AND ANY OTHER

TWO QUESTIONS

QUSTION ONE
a) Highlight five reasons why the trading profit and loss account is prepared.
(5 Marks)
b) Differentiate between a petty cashbook and a three-column cashbook.(5 Marks)

c) Briefly explain why it is important for a business entity to prepare a bank

reconciliation statement. (3 Marks)

d) You have recently been employed in a medium size company and deployed in
the accounts department. Your head of section has given you the following
extract from the cashbook for the month of April 2003:

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 Sh. Sh.

Receipts during the 2,938,000 Balance brought 1,522,000

month forward (1.4.2003)

Balance carried forward 1,108,000 Payments during 2,524,000

(30.4.2003) the month

4,046,000 4,046,000

The head of section further informs you that all receipts are banked intact and all
payments are made by cheque. On investigation, you discover the following:

i) Bank charges and commissions amounting to Sh. 272,000 entered on the

bank statement had not been entered in the cashbook.
ii) Cheques drawn amounting to Sh. 534,000 had not been presented to the bank
for payment.
iii) Cheques received totaling Sh. 1,524,000 had been entered in the cashbook
and paid into the bank, but had not been credited by the bank until May 2003.
iv) A cheque for Sh. 44,000 had been entered as a receipt in the cashbook
instead of a payment.
v) A cheque for Sh. 50,000 had been debited by the bank by mistake.
vi) A cheque received for Sh. 160,000 had been returned unpaid. No adjustment
had been made in the cashbook.
vii) All dividends receivable are credited direct to the bank account. During the
month of April 2003. Dividends totaling Sh. 124,000 were credited by the bank
and no entries had been made in the cashbook.
viii) A cheque drawn for Sh. 12,000 had been incorrectly entered in the cash book
as Sh. 132,000.
ix) The balance brought forward should have been Sh. 1,422,000.
x) The bank statement as at 30 April 2003 showed on overdraft of Sh. 2,324,000.

Required:

i. The adjusted cashbook as at 30 April 2003. (6 Marks)

ii. Bank reconciliation statement as at 30 April 2003. (6 Marks)

e) Explain three reasons for providing for depreciation (5 Marks)

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QUESTION TWO

a) Briefly explain the following types of errors:

i. Error of commission (2 Marks)
ii. Error of principle (2 Marks)
iii. Complete reversal of entries (2 Marks)
iv. Compensating errors (2 Marks)

b) The trial balance of Amanda Ltd as at 30 April 2004 did not balance. On
investigation, the following errors were discovered:
i) A loan of Sh.2,000,000 from one of the directors has been correctly entered in
the cashbook but posted to the wrong side of the loan account.
ii) The purchase of a motor vehicle on credit fro Sh.2,860,000 had been
recorded by debiting the supplier’s account and crediting the motor expenses
account.
iii) A cheque for Sh.80,000 from Ogola, a customer to whom goods are regularly
supplied on credit, was correctly entered in the cashbook but was posted to
the credit of bad debts recovered account in the mistaken belief that it was a
receipt from Agola, a customer whose debt had been written off three years
earlier.
iv) In reconciling the company’s cash book with the bank statement, it was found
that bank charges of Sh.38,000 had not been entered in the company’s
records.
v) The totals of the cash discount columns in the cashbook for the month of April
2004 had not been posted to the respective discount accounts.

The figures were:

Sh.
Discounts allowed 184,000
Discounts received 397,000

vi) The company had purchased some plant on 1 March 2003 for Sh.1,600,000.
The payment was correctly entered in the cashbook but was debited to the
plant repairs account. Depreciation on such plant is provided for at the rate of
20% per annum on cost.

Required:
i) Journal entries with narrations to correct the above errors. (10 Marks)
ii) Suspense accounts showing the original difference (2 Marks)

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QUESTION THREE

a) The trial balance below was extracted from the books of Ravlon Traders on 31st
December 2012
RAVLON TRADERS
TRIAL BALANCE
AS AT 31 DEC 2012
Dr. Cr.
Sh Sh
Sales 18614
Purchases 11570
st
Stock 1 January 2012 3776
Carriage outwards 326
Carriage inwards 440
Returns outwards 355
Salaries and wages 2447
Motor expenses 664
Rent 576
Sundry expenses 1202
Motor vehicles 3400
Fixtures and fittings 600
Debtors 4577
Creditors 3045
Cash at bank 3876
Cash in hand 120
Drawings 2050
Capital 13844
35858 35858

Additional information;
i) Closing stock amounted to sh 4000
ii) Depreciation is to be charged at the rates of 10% on cost for fixtures and
fittings and 25% on cost for motor vehicles.
iii) Bad debts of sh 800 are to be written off

Required:

a) Prepare Ravlon Traders trading and profit and loss account for the year ending
31 Dec 2012. (10 Marks)

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 b) Explain five errors though present would make a trial balance to balance.
(10 Marks)

QUESTION FOUR
The following transactions relate to Charles traders:
2008
Jan 1. Charles started to deal in watches with capital in cash sh 5000
‘’ 2. Bought 20 watches for cash sh 1000
‘’ 2. Bought 10 watches for cash sh 750
‘’ 4. sold 5 watches for cash sh 700
‘’ 10. sold 10 watches on credit to walker sh 1000
‘’ 12. Bought 15 watches on credit from A. Smith and Co. sh 1200
‘’ 25. paid general expenses in cash sh 200
‘’ 30. sold 17 watches on account to S. William sh 1500
‘’ 31. paid wages to all employees sh 300
‘’ 31. paid cash to A. Smith sh 1200
‘’ 31. Received cash from S. Walker 1000

Required

a) Open relevant ledger accounts enter the above transactions and balance them
off. (10 Marks)

b) Extract a trial balance. (10 Marks)

QUESTION FIVE

The book keeper of Bidii Ltd. prepared the following trial balance as at 31 December
2003:

Sh.’000 Sh.’000
Share capital 100,000
Share premium 50,000
Retained profits as at 1 January 2003 100,000
10% debentures 100,000
Stock (1 January 2003) 200,000
Motor vehicles 100,000
Provision for depreciation as at 1 January 2003 – 60,000

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motor vehicles
Machinery 120,000
Provision for depreciation as at 1 January 2003 – 50,000
machinery
Buildings at cost 230,000
Sales 750,000
Purchases 350,000
Discounts 2,000
Returns 2,000
Carriage 2,000
General expenses 200,000
Advertising 10,000
Creditors 200,000
Debtors 200,000
Provision for doubtful debts (1 January 2003) 6,000
Debenture interest 5,000
Cash at bank _______ ___5,000
1,421,000 1,421,000

Additional information:
i) In an effort to simplify the accounting process, the book keeper posted both
discounts received and discounts allowed to the discounts account. He has also
posted both returns inwards and returns outwards to the returns accounts, and
both carriage inwards and carriage outwards to the carriage account. Discounts
received, returns outwards and carriage outwards were as follows:

Sh.
Discounts received 1,000,000
Returns outwards 1,000,000
Carriage outwards 1,000,000

ii) The following items are already included in general expenses:

 Rates for the 12 months to 31 March 2004, Sh.4,000,000
 Insurance for the 12 months to 31 December 2003 amounted to
Sh.2,000,000. Half of this amount relates to the managing director’s
private expenses.
iii) Accountancy fees of Sh.1,000,000 should be provided for
iv) A debtor for Sh.20,000,000 has been declared bankrupt. The provision for
doubtful debts is to be made at 5% of the debtors.
v) Dividends of Sh.10,000,000 have been proposed by the board of directors.

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vi) Stock as at 31 December 2003 is valued at Sh.180,000,000
vii) Depreciation of Sh.20,000,000 is to be provided on the motor vehicles and
Sh.10,000,000 on the machinery. The buildings are to be revalued upwards by
Sh.30,000,000

Required:
a) Trading and profit and loss and appropriation accounts for the year ended 31
December 2003. (12 Marks)

b) Balance sheet as at 31 December 2003 (8 Marks)

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