This document contains 5 questions related to accounting. Question 1 has two parts asking about bank reconciliation and adjusting cash book balances. Question 2 analyzes financial statements and ratios for a company. Question 3 addresses partnership accounting including capital accounts. Question 4 discusses control accounts and provides a sales and purchases ledger exercise. Question 5 defines accounting terms and concepts.

1. QUESTION FOUR
(a) Explain the term "bank reconciliation" and state the reasons for its preparation.
(6 marks)
(b) Ssemakula, a sole trader received his bank statement for the month of June 2001. At that date the
bank balance was Sh.706,500 whereas his cash book balance was Sh.2,366,500. His accountant
investigated the matter and discovered the following discrepancies:
1. Bank charges of Sh.3, 000 had not been entered in the cashbook.
2. Cheques drawn by Ssemakula totaling Sh.22,500 had not yet been
presented to the bank
3. He had not entered receipts of Sh.26,500 in his cashbook.
4. The bank had not credited Mr. Ssemakula with receipts of Sh.98, 500 paid into the bank on 30
June 2001.
5. Standing order payments amounting to Sh.62, 000 had not been entered
into the cashbook.
6. In the cash book Ssemakula had entered a payment of Sh.74, 900 Sh.79400.
7. A cheque for Sh. 15,000 from a debtor had been returned by the bank marked "refer to drawer"
but had not been written back into the cashbook.
8. Ssemakula had brought forward the opening cash balance of Sh.329, 250 as a debit balance
instead of a credit balance.
9. An old cheque payment amounting to Sh.44, 000 had been written back in the cashbook but the
bank had already honoured it.
10. Some of Ssemakula's customers had agreed to settle their debts by paying directly into his bank
account. Unfortunately, the bank had credited some deposits amounting to Sh.832, 500 to
another customer's account. However, acting on information from his customers, Ssemakula had
actually entered the expected receipts from the debtors in his cashbook.
Required:
(i) A statement showing Ssemakula's adjusted cash book balance as at 30 June 2001.
(9 marks)
(ii) A bank reconciliation statement as at 30 June 2001. (5 marks)
(Total: 20 marks)
On 31 December 2001. an inexperienced book-keeper working for Wanji, a sole trader, extracted a trial
balance. Due to errors committed by the book-keeper, the trial balance failed to balance by
Sh.369.400. He placed the difference in a suspense account as shown below:
Wanji trial balance as at 31 December 2001
Sh. Sh.
Fixed assets-cost 832,000
Stocks
1 January 2001 148.000
31 December 2001 98,800
Trade debtors 76,000
Prepayments 10,000
Trade creditors 34.600
Bank overdraft 15,200
Accruals 16,000
Drawings 359.600
Capital 1,054,000
Sales 1,043,200

2. Provision for depreciation 166,400
Purchases 733.000
Operating expenses 126.000
Provision for doubtful debts 3,800
Discounts received 5,000
Discounts allowed 5,800
Suspense account 369.400
2,548 400 248 400
Investigations carried out after preparing the above trial balance detected the following errors:
1. The total of the sales day book for December 2001 was overcast by Sh.25,700.
2. On 2 July 2001 the business purchased office equipment for Sh.40.000. These were debited to
purchases account.
3. Depreciation on the equipment is at the rate of 10% per annum on cost and based on the
period (months) of usage in the year.
4. A payment to a creditor by cheque of Sh.8.500 was erroneously credited to the creditor's account.
5. A payment of Sh.4.500 for telephone expenses was debited to telephone account as Sh.5.400.
6. An amount of Sh.15.000 received from a debtor was not posted to the debtor's account
from the cash book.
7. An amount of discounts received of Sh.2.500 was debited to discounts allowed
account.
8. Purchases day book for October 2001 was undercast by Sh.28,000.
9. Assume the business had reported a net profit of Sh.85,800 before adjusting for the above errors.
Required:
(a) The adjusted trial balance and the correct balance of the suspense account (6 marks)
(b) Journal entries to correct the errors (Narrations not required) (6 marks)
(c) Suspense account starting with the balance determined in the adjusted trial balance in (a)above.
(4 marks)
(d) The adjusted net profit for the year. (4 marks)
(Total: 20 marks)
QUESTION TWO
The following information has been extracted from the accounts of Madaraka Investments Ltd. for the year
ended 31 December 2001. Comparable figures for the previous year are also shown.
Profit statement for the year ended 31 December
2001 2000
Sh. `000' Sh'000'
Sales 115,200 72.000
Cost of goods sold 70800 42,000
Gross profit 44,400 30,000
Less: Trading expenses 19 800 16,200
24,600 13,800
Less: Debenture interest 900 900
Net profit before taxation 23,700 12,900
Less: Corporation tax 11 520 5.760
Net profit after taxation 12.180 7.140
Less: Ordinary share dividend 6.300 4,500
Undistributed profit for the year 5,880 2,640

3. Balance sheet as at 31 December
2001 2000
Sh.'000' Sh.'000' Sh.'000' Sh.'000'
Assets employed: Fixed assets at
cost
44.400 33.600
Depreciation 9000 7,200
35,400 26,400
Current assets:
Stock 19,800 14,400
Debtors 12,600 9.000
Cash - 32 400 2,880 26,280
67.800 52.680
Less: Current liabilities
Creditors 7,200 5.220
Taxation 11,520 5,760
Proposed
dividends
6,300 4,500
Bank overdraft 2,340 27,360 - 15.480
Net assets 40 440 3 7,.200
Financed by:
Ordinary share capital
Authorised, issued and fully paid
(Sh.25 per share)
18,000 18,000
Undistributed profits 16 080 10,200
34,080 28.200
Long-tern loan: 6 360 9.000
10% debentures (secured) 40 440 37 200
Required:
(a) Calculate six accounting ratios for both 2000 and 2001 that would help in assessing the
profitability and liquidity positions of Madaraka Investments Ltd. (12 marks)
(b) Comment on Madaraka Investment's liquidity position. (4 marks)
(c) Comment on Madaraka Investment's profitability position. (4 marks)
(Total: 20 marks)
QUESTION THREE
Kyamba, Onyango and Wakil were partners in a manufacturing and retail business and shared profits and
losses in the ratio 2:2:1 respectively.
Given below is the balance sheet of the partnership as at 31 March 2001:

4. Balance sheet as at 31 March 2001
Assets Sh. Sh.
Non-current assets:
Fixed assets 465,000
Current assets:
Stocks 294,000
Debtors 209,000
503,000
968 000
Capital and liabilities:
Capital accounts:
Kyamba 160,000
Onyango 140,000
Wakil 200 000
500,000
Current accounts:
Kyamba 65,300
Onyango 49.000
Wakil 53.000
167,300
667,300
Current liabilities:
Bank overdraft 48,700
Trade creditors 252,000
300,700
968 000
Additional information:
1. On 1 April 2001. Wakil retired from the partnership and was to start a business as a sole trader while
Kyamba and Onyango continued in partnership.
On retirement of Wakil, the manufacturing business was transferred to hum while Kyamba and
Onyango continued with the retail business.
2. The assets and liabilities transferred to Wakil were as follows:
Net book value Transfer value
Sh. Sh.
Fixed assets 260,000 306,000
Stocks 166,000 157,000
Debtors 172,000 165,000
Creditors 156,000 156,000
Wakil obtained a loan from a commercial bank and paid into the partnership the net amount due from
him.
On retirement of Wakil from the partnership, goodwill was valued at Sh.200, 000 but was not to be
maintained in the books of the partnership of Kyamba and Onyango.
After retirement of Wakil on 1 April 2001. Kyamba and Onyango agreed on the following terms and
details of the new partnership:

5.  Kyamba and Onyango to introduce additional capital of Sh.48,000 and Sh.68,000 respectively.
 Each partner was entitled to interest on capital at 10% per annum with effect from 1 April
2001 and the balance
of the profits was to be shared equally after allowing for annual salaries of Sh.72,000 to
Kyamba and Sh.60,000 to Onyango.
5. The profit of the new partnership before interest on capitals and partners' salaries was Sh.240, 000
for the year ended 31 March 2002.
6. The profits made by the new partnership increased stocks by Sh.100.000; debtors by Sh.90.000 and
bank balance by Sh.50, 000.
7. Drawings by the partners in the year were Kyamba Sh.85, 000 and OnyanSh go.70,000.
Required:
(a) Profit and loss and appropriation account for the year ended 31 March 2002. (4 marks)
(b) Capital accounts for the year ended 31 March 2002. (4 marks)
(c) Current accounts for the year ended 31 March 2002. (8 marks)
(d) Balance sheet of the new partnership as at 31 March 2002. (4 marks)
(Total: 20 marks)
QUESTIONFOUR
(a) State the reasons for maintaining control accounts. (4 marks)
(b) The following information has been extracted from the books of Mutero Traders Limited for
the month of April 2002.
Balances as at I April 2002:
Sh.
Sales ledger - Debit balances 838,000
- Credit balances 184,000
Purchases ledger -Debit balances 196.000
- Credit balances 598.000
Transactions during the month:
Sales on credit 8,784.000
Purchases on credit 7.849.000
Returns inwards 248,000
Returns outwards 179,000
Cheques received from trade debtors 2.968.000
Cash paid to trade creditors 4,674.000
Cheques paid to trade creditors 1.393.000
Bad debts written-off 139.000
Discounts allowed to trade debtors 162.000
Discounts received from trade creditors 231.000
Credit sales off-set against credit purchases 356.000
Credit purchase of a motor vehicle posted in the purchases ledger 598.000
Dishonoured cheques from trade debtors 193,000
Cash received to replace dishonoured cheques from trade debtor 106.000
An invoice to trade debtors of Sh.174,000 posted as 147.000
Balances as at 30 April 2002:

6. Sales ledger credit balances 123.000
Purchases ledger debit balances 177,000
Required:
The sales ledger and purchases ledger control accounts for the month ended 30 April 2002.
(16 marks)
(Total: 20 marks)
QUESTIONFIVE
(a) Distinguish between each of the following pairs of terms:
(i) Receipts and revenue. (4 marks)
(ii) Balance sheet and statement of affairs. (4 marks)
(iii) Cash basis of accounting and accrual basis of accounting. (4 marks)
(iv)Materiality and substance over form. (4 marks)
(b) What conflicts may exist in the application of the fundamental accounting concepts? (4 marks)
(Total: 20 marks)
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