CPA FOUNDATION LEVEL

CIFA FOUNDATION LEVEL

FINANCIAL ACCOUNTING

MONDAY: 19 August 2024. Morning Paper. Time Allowed: 3 hours.

Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your
workings. Do NOT write anything on this paper.

QUESTION ONE
Angela Riziki started a wholesale business on 1 July 2023 by depositing Sh.12,000,0000 into a business bank account. Angela
Riziki did not maintain a full set of accounting records. The following transactions took place during the year ended 30 June
2024:

1. Brought in her personal pick-up van valued at Sh.6,000,000 to be used in the business. The van was estimated to
have an economic useful life of 4 years as at 1 July 2023.
2. On 31 December 2023, she took a bank loan of Sh.4,000,000 at an interest rate of 15% per annum. At the end of the
year the loan interest was in arrears.
3. During the year ended 30 June 2024, Angela purchased goods amounting to Sh.79,000,000 on credit and
Sh.6,000,000 on cash paid through the bank. As at 30 June 2024, Sh.3,000,000 accounts payable to suppliers was
still outstanding.
4. Credit sales during the year amounted to Sh.125,000,000 while cash sales amounted to Sh.6,500,000. A customer
who owed Sh.1,500,000 was declared bankrupt and the debt had to be written off. By 30 June 2024, accounts
receivable stood at Sh.5,500,000.
5. During the year, Angela Riziki spent Sh.2,500,000 of the cash sales received for her personal use and Sh.1,200,000 to
pay for telephone and water bills. The balance was banked.
6. Discount received and discount allowed during the year ended 30 June 2024 amounted to Sh.1,800,000 and 1,100,000
respectively.
7. As at 30 June 2024, inventory was valued at Sh.7,200,000.
8. Credit suppliers and credit customers are paid and pay through the bank respectively.
9. The following payments were made through the bank during the year:
Expenses Sh.“000”
Rent expenses 3,600
Purchase of furniture (1 July 2023) 8,000
Salaries and wages 11,000
Transport 4,200
Insurance 2,800
Advertisement 2,100
Repair of motor vehicle (van) 850
Electricity and internet 2,200
Carriage inwards 2,500
10. Furniture was to be depreciated at the rate of 15% per annum on a straight line basis.
11. As at 30 June 2024, electricity bills unpaid amounted to Sh.450,000, while insurance prepaid was Sh.1,200,000.

Required:
(a) Statement of profit or loss for the year ended 30 June 2024. (12 marks)

(b) Statement of financial position as at 30 June 2024. (8 marks)

(Total: 20 marks)

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QUESTION TWO
The following is the receipt and payment account of Vijana Youth Club for the year ended 30 June 2024:

Vijana Youth Club

Receipt and payments account
Sh.“000” Sh. “000”
Balance brought forward 1,400 Motor vehicle 26,000
Subscriptions 25,800 Water and electricity 3,520
Bar takings 40,000 Secretary honoraria 720
Donations 9,600 Bar wages 2,800
Sale of equipment 800 Administrative staff salaries 12,800
Sale of magazines 3,200 Bar payables 29,600
Competition tickets 7,200 Ground maintenance 4,400
Insurance 4,800
______ Balance carried forward ?
88,000 88,000

Additional information:
1. Investment income of 10% per annum is receivable as at 30 June 2024.
2. During the year ended 30 June 2024, equipment with a net book value of Sh.600,000 was disposed of for Sh.800,000.
3. Depreciation policy is on a reducing balance basis at the following rates:
Asset Rate per annum (%)
Motor vehicle 10
Equipment 20
4. The following balances were provided for the years ended 30 June:

2023 2024
Sh.“000” Sh.“000”
Bank 1,400 ?
Land at cost 10,000 10,000
Motor vehicles 20,000 ?
Equipment 14,400 ?
Investment at cost 40,000 40,000
Bar inventory 880 1,440
Bar payables 1,600 2,000
Subscription in arrears 1,840 1,480
Subscriptions in advance 2,880 720
Accrued insurance 800 1,200
Accrued electricity 400 520
Accrued bar wages - 600

Required:
(a) Bar statement of profit or loss for the year ended 30 June 2024. (4 marks)

(b) Income and expenditure account for the year ended 30 June 2024. (8 marks)

(c) Statement of financial position as at 30 June 2024. (8 marks)

(Total: 20 marks)

QUESTION THREE
(a) Describe TWO uses of source documents in accounting. (4 marks)

(b) The following trial balance was extracted from the books of Hibiscus Ltd. as at 30 June 2024:

Sh.“000” Sh.“000”
Ordinary share capital of Sh.100 each 78,000
12% preference share capital of Sh.100 each 13,000
Share premium 10,400
10% debentures 13,000
Accounts payable 19,240
Accounts receivable 42,900
Sales 724,000
Purchases 548,600
Discounts allowed 650
Discounts received 1,690

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 Sh.“000” Sh.“000”
Freehold buildings 165,000
Furniture and fittings 83,200
Accumulated depreciation:
Freehold buildings 6,500
Furniture and fittings 33,280
Inventory (1 July 2023) 54,600
Returns outward 10,400
Rent expenses 16,900
Selling and distribution expenses 21,710
Bad debts written off 520
Allowance for doubtful debts 2,340
Administrative expenses 7,280
Retained earnings (1 July 2023) 47,060
Goodwill 20,800
Bank overdraft ______ 3,250
962,160 962,160

The following additional information is available:

1. Depreciation on non-current assets is provided on a straight line basis at the following rates:
Asset Rate per annum (%)
Freehold buildings 20
Furniture and fittings 12.5
2. As at 30 June 2023, accounts receivables included Sh.130,000 due from Johnson Wetu who has now been
declared bankrupt. It has been decided to write off this debt as a bad debt.
3. The allowance for doubtful debt as at 30 June 2024 is to be adjusted to 10% of accounts receivable.
4. Rent expenses prepaid as at 30 June 2024 amounted to Sh.52,000.
5. Administrative expenses accrued as at 30 June 2024 amounted to Sh.95,000.
6. The company paid the interest on debentures for the year ended 30 June 2024 on 31 July 2024.
7. As at 30 June 2024, inventory was valued at Sh.7,280,000.
8. The company directors propose that the preference shares dividend be paid and a dividend of 10% of the
ordinary shares be paid.
9. Corporation tax is charged at the rate of 30% of the net profit.

Required:
(i) Statement of profit or loss for the year ended 30 June 2024. (10 marks)

(ii) Statement of financial position as at 30 June 2024. (6 marks)

(Total: 20 marks)

QUESTION FOUR
(a) Distinguish between “partners’ capital accounts” and “partners’ current accounts”. (4 marks)

(b) The following are the financial statements of Precious Ltd. for the years ended 31 March 2023 and 31 March 2024:

Precious Ltd.
Statement of profit or loss for the year ended 31 March 2024:

Sh.“000” Sh.“000”
Gross profit 26,700
Operating expenses (22,050)
4,650
Other incomes:
Interest income received 900
Gain on sale of investments 1,800
Less: Loss on sale of plant (450) 2,250
6,900
Interest expenses paid (3,450)
Net profit before tax 3,450
Income tax (1,050)
Net profit after tax 2,400

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 Precious Ltd.
Statement of financial position as at 31 March:
2023 2024
Non-current assets: Sh.“000” Sh.“000”
Property, plant and equipment (cost) 75,750 107,250
Accumulated depreciation (10,200) (15,450)
65,550 91,800
Investments 19,050 17,250
Current assets:
Inventory 16,500 21,600
Accounts receivable 8,250 7,050
Cash 2,250 6,900
Prepayments 750 150
Total current assets 27,750 35,700
Total assets 112,350 144,750
Liabilities and capital:
Ordinary share capital 47,250 69,750
Revenue reserves 19,800 21,000
67,050 90,750
Long term liabilities:
Bonds 36,750 44,250
Current liabilities:
Accounts payable 6,450 7,500
Accrued liabilities 1,350 1,800
Tax payable 750 450
Current liabilities 8,550 9,750
Total liabilities and equity 112,350 144,750

Additional information:
1. Precious Ltd. purchased investments worth Sh.11,700,000 during the year ended 31 March 2024.
2. The company sold investments that had cost Sh.13,500,000 for Sh.15,300,000 during the year.
3. During the year, new machinery worth Sh.18,000,000 was acquired. Some items of property, plant and
equipment that had cost Sh.1,500,000 with accumulated depreciation of Sh.300,000 were disposed of for
Sh.750,000.
4. Included in the operating expenses for the year ended 31 March 2024 is the depreciation charged for the year
amounting to Sh.5,550,000.
5. The company issued bonds worth Sh.15,000,000 at face value in exchange for plant assets on 31 March
2024 and repaid Sh.7,500,000 of bonds at face value.
6. The company issued 2,250,000 ordinary shares at Sh.10 par value during the year.
7. The company paid cash dividends of Sh.1,200,000 during the year ended 31 March 2024.

Required:
Statement of cash flows for the year ended 31 March 2024 in accordance with International Accounting Standard
(IAS) 7 “Statement of Cash Flows”. (16 marks)
(Total: 20 marks)

QUESTION FIVE
(a) Explain the following terms as used in public sector accounting:
(i) Appropriation-in-aid. (2 marks)

(ii) Paymaster general. (2 marks)

(iii) Exchequer account. (2 marks)

(b) Highlight FOUR reasons that may cause a cheque to be dishonoured by a bank. (4 marks)

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(c) The following information relates to the non-current assets of Daraja Ltd. as at 1 April 2023:
Non-current assets Cost Accumulated depreciation
Sh.“000” Sh.“000”
Freehold property 70,000 -
Plant and machinery 52,500 20,230
Office equipment 10,500 5,110
Motor vehicles 31,500 18,200
Additional information:
1. The following non-current assets were acquired during the year ended 31 March 2024:
Date Non-current assets Cost
Sh.“000”
1 April 2023 Machinery 7,000
1 October 2023 Motor vehicle 4,200

2. The following non-current assets were disposed of during the year ended 31 March 2024:
Date Non-current Sales Cost Accumulated depreciation
assets proceeds as at date of disposal
Sh.“000” Sh.“000” Sh.“000”
1 April 2023 Machinery 4,830 6,300 700
1 July 2023 Office equipment 448 560 140
31 March 2024 Motor vehicle 2,240 3,500 350

3. Daraja Ltd. depreciates the assets using the straight-line method on a pro rata basis at the following rates per
annum:
Non-current assets Rate per annum (%)
Plant and machinery 20
Office equipment 15
Motor vehicle 25
4. On 1 April 2023, the management of Daraja Ltd. decided to start depreciating freehold property at the rate of
2.5% per annum.

Required:
Non-current asset movement schedule for the year ended 31 March 2024.
(10 marks)
(Total: 20 marks)
…………………………………………………………………………………

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