DEPARTMENT OF BUSINESS STUDIES

END OF TERM EXAMINATION

PRINCIPLES OF ACCOUNTS

3 Hours

21st July, 2010

INSTRUCTIONS TO CANDIDATES
Answer ALL the FIVE questions. ALL questions carry equal marks. Show ALL you workings

1. (a) The following transactions relate to Ngunjiri kiosk for the month of February,
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2005. February 1. 2. 3. 6. 8. 12. 15. 20. 26. 28. use.

Started a business with KShs.750,000 in cash. Paid for telephone and postage in cash KShs.550. Received KShs.43,000 for the rent by cheque. Bought goods on credit from Barua for KShs.60,000. Bought goods in cash KShs.16,000. Sold goods on credit to Ali KShs.15,000. Returned goods to Barua KShs.4,000. Ali returned goods to the business KShs.2,500. Bought fixtures and fittings KShs.200,000 by cheque. Withdrew KShs.15,500 from the bank for personal

State the account to be debited and the account to be credited for each of the above transactions. (10 marks)

(b)

The information given below was extracted from the records of Mla Chake Cafeteria for the year ended 31 March, 2005.

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Sales Stocks: 31 March, 2004 315,000 31 March, 2005 Return of milk 3,000 Purchases:Wheat flour Meat and fish 420,000 Fruits and vegetables 520,000 Milk Bread and cakes Tea leaves and coffee 145,000 Wages and salaries 340,000 Water 130,000 Repairs and maintenance 180,000 Cleaning materials 125,000 Electricity Laundry Cash at bank 110,000 Cash in hand 12,000 Rent

KShs. 2,750,000

290,000

155,000

250,000 160,000

80,000 60,000

15,000

Prepare a trading and profit and loss account for the year ended 31 March, 2005. (10 marks)

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2.

(a) The following balances were extracted from the books of Kantai as at 31 May, 2005. Land and buildings Motor vehicles Capital Creditors Debtors Outstanding salaries and wages Stocks: 31 May, 2004 380,000 180,000 400,000 151,000 67,500 11,300

64,200 31 May, 2005 Rent received in advance Rates paid in advance Cash at bank Cash in hand Drawings The net profit for the year was KShs.193,850. Prepare a balance sheet as at 31 May, 2005 showing the:(i) (ii)
(iii)

54,600 2,000 4,500 67,350 1,200 3,000

Total fixed assets. Total current assets. Total current liabilities. (8 marks)

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(b) The trial balance of Tomo did not balance and the difference was entered in a suspense account. The following errors were later discovered:(i) A balance of KShs.4,350 on a debtors account had been omitted from the schedule of debtors. (ii) Sales of KShs.43,200 to B. Bett was entered in B. Bettas account. (iii) The debit side of the cashbook had been undercast by KShs.36,000. (iv) A machinery purchased for KShs.60,000 had been recorded in the repairs account. (v) A sale of KShs.470,700 had been recorded as KShs.407,700 in the sales day book. (vi) A credit note for KShs.8,950 received from a supplier had been entered to the wrong side of his account. (vii) Debtors account balance had been undercast by KShs.25,600. (viii) Discounts received of KShs.23,100 was entered in the discounts allowed account on the credit side.

Prepare:(i)
(ii)

Journal entries to correct the above errors. Suspense account dully balanced. (12 marks)

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3. (a) The information below relates to Munyaka Hotel for the first three year of operation:2002 2004 KShs. KShs. Gross profit 600,000 Bad debts written off 21,000 Provision for doubtful debts 2% Other expenses 132,850 Debtors 500,000 427,000 18,000 2% 120,000 400,000 128,750 300,000 KShs. 450,000 20,000 3% 2003

For each of the three years, prepare:(i) (ii) Profit and loss statement. Balance sheet extracts. (12 marks)

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(b) of March,

The following transactions relate to Gichuri traders for the month 2005.

March 1. Bought goods for KShs.15,000 on credit from Kamau Enterprises. 5. Returned goods KShs.3,000 to Kamau Enterprises. 20. Sold goods to Bashiri KShs.20,000 on credit. 25. Bashiri returned goods KShs.1,500. 28. Bought goods from Mbaka KShs.30,000 and was allowed 20% trade discount. 31. Sold goods to Mkulima KShs.15,000 and was allowed a 10% trade discount. (i) Record the above transactions in the books of original entry. Post the entries to the general ledger. (8 marks) 4. (a) Explain four advantages of the First-In-First-Out method of valuing material issues. (8 marks)

(ii)

(b) (i) on the imprest

Explain two advantages of maintaining a petty cash book

system. (4 marks)

(ii)

The balances of Karimiri traders as at 2nd May, 2005 were as given below:KShs. 366,500
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Capital
Principles of Accounts

Trade Creditors Motor Vehicles Stock Trade Debtors Cash in Hand Bank

30,000 340,000 12,500 7,000 25,000 12,000

The balances of the business at the end of the first week of May, 2005 were as follows:KShs. 340,000 57,500 14,500 3,500 15,000 15,500 366,500 22,000 57,500

Motor Vehicles Machinery Stock Debtors Cash Bank Capital Creditors Mehta Ltd.

State the FOUR possible transactions that may have taken place during the first week of May, 2005. (8 marks) 5. (a) (8 marks) Explain FOUR uses of a balance sheet to a business.

(b) Gaturuturu Tourist Hotel had the following equipment at cost as at 1 January, 2002. KShs. Gas cookers Electric cookers Deep freezers 40,000 60,000 80,000

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Accumulated depreciation brought forward as at 1 January, 2002 was KShs.36,000. On 1 July, 2002, a new electric cooker was bought for KShs.30,000. A gas cooker which was bought at KShs.20,000 was sold for KShs.5,000 on 1 April, 2004. Its accumulated depreciation was KShs.12,000. On 1st October, 2004, a deep freezer which cost KShs.40,000 was disposed for KShs.15,000. The freezer had a written down value of KShs.14,000. The management of the hotel depreciates its equipment at the rate of 20% p.a. on the written down value on pro-rata basis during the year of purchase but none in the year of disposal. Prepare:(i) (ii) (iii) Equipment account. Provision for depreciation on equipment account. Disposal of equipment account. (12 marks)

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