CPA FOUNDATION LEVEL

CIFA FOUNDATION LEVEL

FINANCIAL ACCOUNTING

MONDAY: 22 April 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
(a) Explain the following accounting principles:

(i) Economic entity principle. (2 marks)

(ii) Matching principle. (2 marks)

(b) Citing relevant examples, describe the following terms:

(i) Financial assets. (3 marks)

(ii) Financial liabilities. (3 marks)

(c) Explain the following types of accounting errors:

(i) Complete reversal of entry. (2 marks)

(ii) Transposition error. (2 marks)

(iii) Error of commission. (2 marks)

(d) Highlight FOUR benefits of public sector accounting. (4 marks)

(Total: 20 marks)

QUESTION TWO
Melody and Olivia commenced a partnership business on 1 January 2023 sharing profit or loss in the ratio of 2:1 after
allowing interest on the capital introduced by the partners at a rate of 10% per annum. Olivia was to receive a salary of
Sh.80,000 per month starting from 1 February 2023. Melody and Olivia, have not employed a qualified accountant, hence
the business lacks complete accounting records.

The following summary of the bank statements for the year ended 31 December 2023 was provided:

Receipts: Sh.“000”
Capital introduced - Melody 7,000
- Olivia 4,000
Balance of cash received from customers 25,400
Payments:
Purchase of : - Equipment 5,000
- Motor vehicle 2,000
- Furniture and fittings 750
Godown rent 750
Wages 3,544
Salary to sales team 2,400
Purchase of inventory 19,800
Rates 400
Repairs and maintenance 125
Insurance expenses 110
Motor vehicle operating expenses 373
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The following cash payments were made before banking the balance of the cash received from customers:
Sh.“000”
Motor vehicle operating expenses 258
Wages 296
General administrative expenses 50
Drawings - Melody (per week) 15
- Olivia (per week) 12

Additional information:
1. During the year ended 31 December 2023, discount allowed to customers amounted to Sh.245,000 while
discounts received from suppliers amounted to Sh.110,000.
2. As at 31 December 2023, the amounts owing to suppliers amounted to Sh.1,500,000 and the amount owing by
customers was Sh.3,100,000. An amount of Sh.400,000 owing by a customer was written off.
3. As at 31 December 2023, rates and insurance prepaid amounted to Sh.50,000 and Sh.10,000 respectively.
4. Inventory was valued at Sh.2,410,000 as at 31 December 2023.
5. The go-down had been occupied since 1 January 2023 at an annual rent of Sh.1,000,000.
6. Depreciation is provided on a straight-line basis as follows:
Asset Rate
 Motor vehicles 20% per annum
 Equipment, furniture and fittings 10% per annum
7. The partners had taken goods for their domestic use as follows:
Sh.
 Melody 100,000
 Olivia 150,000

Assume a 52-week year.

Required:
(a) Partnership statement of profit or loss and appropriation account for the year ended 31 December 2023.
(10 marks)

(b) Partners’ current accounts as at 31 December 2023. (4 marks)

(c) Statement of financial position as at 31 December 2023. (6 marks)

(Total: 20 marks)

QUESTION THREE
The following trial balance was extracted from the books of Kwanza Ltd., a manufacturing company, as at 31 March 2024:

Sh.“000” Sh.“000”
Ordinary share capital 42,000
Revenue reserve 10,150
Bank 8,592
Trade receivables 11,080
Trade payables 4,886
Factory building (Land Sh.4,200,000) 10,500
Plant and machinery 10,920
Motor vehicles 7,112
Furniture and fittings 3,400
Accumulated depreciation (1 April 2023):
- Buildings 1,250
- Motor vehicles 2,562
- Plant and machinery 3,958
- Furniture and fittings 980
Inventory (1 April 2023):
- Raw materials 2,870
- Work-in-progress (WIP) 4,830
- Finished goods 9,100
Allowance for doubtful debts 588
Bad debts 406
Rates and insurance 798
Direct wages 6,440
Salaries 7,560
Factory power 1,890
Electricity 1,386
Maintenance 924

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 Sh.“000” Sh.“000”
Returns outward 266
Returns inward 84
Advertising expenses 728
Transport expenses 1,946
Bank charges 238
Sundry expenses 2,436
Purchases and sales 77,000 103,600
170,240 170,240

Additional information:
1. Depreciation is provided using straight-line basis as follows:
Asset Rate per annum
 Plant and machinery 30%
 Motor vehicles 25%
 Furniture and fittings 12.5%
 Building 4%
2. Inventory as at 31 March 2024 was valued as follows:
Sh.
 Raw materials 11,690,000
 Work-in-progress 6,930,000
 Finished goods 8,680,000
3. Allowance for doubtful debts is provided at a rate of 10% of the trade receivables as at 31 March 2024.
4. Electricity, rates and insurance, sundry expenses and maintenance are to be apportioned in the ratio of 2:1
between factory and administration overheads.
5. Manufactured goods are transferred to the warehouse at total factory cost.

Required:
(a) Manufacturing statement for the year ended 31 March 2024. (6 marks)

(b) Statement of profit or loss for the year ended 31 March 2024. (8 marks)

(c) Statement of financial position as at 31 March 2024. (6 marks)

(Total: 20 marks)

QUESTION FOUR
The following are the financial statements of HMK Limited as at 31 December:
Equity and Liabilities: 2023 2022
Equity: Sh.“000” Sh.“000”
Ordinary share capital 900,000 600,000
Share premium 210,000 90,000
Revenue reserves 246,000 84,000
Total equity and reserves 1,356,000 774,000
Non-current liabilities:
Debentures 180,000 300,000
Bank loan - 120,000
Total long term liabilities 180,000 420,000
Current liabilities:
Trade payables 288,000 204,000
Proposed dividends 90,000 45,000
Corporate tax 198,000 129,000
Bank overdraft - 84,000
576,000 462,000
Total equity and liabilities 2,112,000 1,656,000
Non-current assets:
Freehold land (Net book value) 780,000 660,000
Plant and machinery (Net book value) 582,000 450,000
Furniture and fittings (Net book value) 84,000 66,000
1,446,000 1,176,000
Current assets:
Inventory 306,000 222,000
Trade receivables 264,000 256,800
Short term investments 27,600 -
Cash in hand 68,400 1,200
666,000 480,000
Total assets 2,112,000 1,656,000
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Additional information:
1. A machinery with a net book value of Sh.12,000,000 (original cost Sh.48,000,000) was sold for Sh.18,000,000.
Furniture with a net book value of Sh.18,000,000 (original cost Sh.30,000,000) was sold for Sh.13,000,000.
Profits and losses on these transactions had been reported in the statement of profit or loss.
2. Corporate tax for the year ended 31 December 2023 was Sh.80,000,000.
3. The proposed dividends for the year ended 31 December 2022, were paid during the year ended 31 December
2023.
4. There was no disposal or revaluation of freehold property in the year ended 31 December 2023.
5. Interest expense charged to the statement of profit or loss for the year ended 31 December 2023 was
Sh.38,400,000. Accrued interest of Sh.26,400,000 is included in the trade payables as at 31 December 2023.
6. Depreciation charged to the statement of profit or loss for the year ended 31 December 2023 was as follows:
Sh.
 Furniture and fixtures 34,000,000
 Plant and machinery 58,000,000

Required:
Statement of cash flows for the year ended 31 December 2023 in accordance with International Accounting Standard (IAS)
7 “Statement of Cash Flows”. (Total: 20 marks)

QUESTION FIVE
(a) Discuss FIVE reasons why companies do not distribute all their profits to shareholders. (10 marks)

(b) Rahisi Social Club provided the following information from their records for the year ended 31 March 2024:
1. As at 1 April 2023, the club’s bank balance amounted to Sh.7,050,000.
2. During the year ended 31 March 2024, the amount of subscription received amounted to Sh.12,525,000
out of which there was Sh.325,000 represented subscription in arrears. Sh.11,400,000 represented
subscription for the current year while Sh.225,000 was subscription received in advance.
3. The club received donations amounting to Sh.7,800,000 for repairing a roof that was leaking and
Sh.12,250,000 for putting up a new building.
4. The 100,000 shares which the club acquired in Bidii Ltd. paid a dividend of Sh.3 per share.
5. Office furniture acquired during the year ended 31 March 2024 cost the club Sh.5,000,000. Half of the
amount was paid and the balance is to be paid during the year ending 31 March 2025.
6. During the year ended 31 March 2024, the club started printing magazines for sale to the public. As at
31 March 2024, the club had printed 35,000 magazines at a cost of Sh.120 each and sold 32,500
magazines at a price of Sh.170 each.
7. Other payments made during the year ended 31 March 2024 include:
 Salaries and wages amounting to Sh.10,500,000 of which Sh.500,000 relates to the year ended
31 March 2023.
 Rent and rates amounting to Sh.2,550,000 whereby Sh.50,000 was owing as at 1 April 2023.
 Meeting expenses amounting to Sh.2,475,000.
 Stationery, postage and internet charges amounting to Sh.2,250,000.

Required:
(i) Subscriptions account for the year ended 31 March 2024. (4 marks)

(ii) Receipts and payments account for the year ended 31 March 2024. (6 marks)
(Total: 20 marks)

…………………………………………………………………………………

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 CPA FOUNDATION LEVEL

CIFA FOUNDATION LEVEL

FINANCIAL ACCOUNTING

MONDAY: 24 April 2023. 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
(a) Using appropriate examples, explain THREE errors that do not affect the trial balance. (6 marks)

(b) The following errors were discovered in the books of Eric Barasa for the year ended 31 December 2022:

1. A debit balance of Sh.1,080,000 with respect to Pius Munene was omitted from the list of accounts
receivable.
2. An entry of Sh.270,000 concerning returns outward was made in error in the sales book instead of the
purchases returns book.
3. The purchases day book had been undercast by Sh.2,160,000.
4. Purchase of new equipment costing Sh.16,200,000 had been recorded in the repairs account (Depreciation
on equipment is provided at the rate of 12½% on cost per annum).
5. A cheque for Sh.135,000 paid to Peter Karanja (a creditor) was correctly entered in the cash book but
credited to his account.
6. Bad debts of Sh.675,000 should have been written off, but this was not done.
7. Goods valued at Sh.5,400,000 were taken by Eric Barasa for his personal use and no entry had been made
in the books.
8. Sh.2,430,000 discounts received had been correctly entered in the cash book but had been posted to the
wrong side of the discounts received account.

Required:
(i) Journal entries to correct the above errors (include appropriate narrations). (8 marks)

(ii) Suspense account fully balanced indicating the amount by which the trial balance had failed to balance.
(6 marks)
(Total: 20 marks)
QUESTION TWO
Peter Mwangi and Aloyce Onyango began trading as Pengo Manufacturers on 1 January 2022.

The following trial balance was extracted from the books of the partnership as at 31 December 2022:

Sh.“000” Sh.“000”
Capital accounts: Peter Mwangi 115,000
Aloyce Onyango 107,000
Drawings: Peter Mwangi 8,000
Aloyce Onyango 6,400
Trade receivables and trade payables 22,800 28,560
Balance at bank 31,400
Plant and machinery at cost 57,600
Loose tools at cost 16,800
Sales 160,600
Motor vehicles at cost 33,600
Raw materials purchased 44,000
Direct factory wages 40,800
Electricity expenses 13,600
Indirect factory wages 16,000
Plant and machinery repairs 10,880

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 Sh.“000” Sh.“000”
Motor vehicle running expenses 19,200
Rent and insurance 18,880
Administrative staff salaries 34,400
Administrative expenses 16,800
Sales and distribution expenses 20,000 ______
411,160 411,160

Additional information:
1. Inventories as at 31 December 2022 were as follows:
Sh.“000”
Raw materials 15,200
Work-in-progress 19,440
Finished goods 8,000
2. As at 31 December 2022, accrued electricity expenses amounted to Sh.10,400,000 while prepaid rent and insurance
amounted to Sh.7,840,000.
3. The following expenses are to be apportioned between the factory and administration in the ratios indicated:
Factory Administration
Motor vehicle running expenses ½ ½
Electricity expenses ⅔ ⅓
Rent and insurance ¾ ¼
Plant and machinery repairs ⅘ ⅕
Motor vehicle depreciation ½ ½
4. The estimated useful life of plant and machinery is 10 years while that of motor vehicles is 4 years. The partnership
uses the straight-line method to provide for depreciation on motor vehicles and plant and machinery.
5. The partners share profits and losses equally.
6. Allowance for doubtful debts is to be made at the rate of 5% of the accounts receivable as at 31 December 2022.
7. Manufactured goods were transferred from the factory to the warehouse at Sh.85,600,000.
8. Loose tools as at 31 December 2022 were valued at Sh.13,600,000.

Required:
(a) Manufacturing and statement of profit or loss for the year ended 31 December 2022. (14 marks)

(b) Statement of financial position as at 31 December 2022. (6 marks)

(Total: 20 marks)

QUESTION THREE
The following is the statement of financial position of Riziki Ali, a sole trader, as at 1 January 2022:

Assets: Sh.“000” Sh.“000”

Non-current assets:
Building 4,650
Equipment 2,150
Motor vehicles 1,540
8,340
Current assets:
Inventory 1,260
Accounts receivable 885
Cash in hand 73
Cash at bank 387 2,605
Total assets 10,945
Capital and liabilities:
Capital 6,015
Long-term liability:
Bank loan 1,500
Current liabilities:
Accounts payable 1,480
Short-term loan from Paul Sila 600
Accrued general expenses 1,350 3,430
Total capital and liabilities 10,945

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Additional information:
1. During the year ended 31 December 2022, Riziki Ali only maintained the cash book, whose summary is as
follows:
Cash summary
Sh. “000” Sh. “000”
Balance brought forward 460 Bank loan repayment 1,000
Receipts from debtors 8,950 Sila’s loan repayment 500
Additional capital 4,800 Payments to creditors 6,750
Cash sales 4,250 Payment for general expenses 3,000
Rent income 220 Drawings 1,700
Rates 160
Wages 1,190
2. Accounts receivable and accounts payable as at 31 December 2022 were Sh.1,320,000 and Sh.1,820,000
respectively.
3. During the year ended 31 December 2022, proceeds from cash sales amounting to Sh.1,650,000 were not recorded,
but the amount was used as follows:
Sh.“000”
Purchase of goods for sale 1,000
Loan repayment – Paul Sila 100
Office stationery 150
Family use 400
1,650
4. Accrued general expenses as at 31 December 2022 amounted to Sh.400,000.
5. Inventory as at 31 December 2022 was valued at Sh.1,480,000.
6. Depreciation is to be provided on book values as follows:

• Buildings – 10% per annum

• Equipment – 15% per annum
• Motor vehicles – 20% per annum
7. House furniture valued at Sh.250,000 was converted to business use. Depreciation on the furniture was to be
provided at 12½% per annum on this amount.

Required:
(a) Statement of profit or loss for the year ended 31 December 2022. (10 marks)

(b) Statement of financial position as at 31 December 2022. (10 marks)

(Total: 20 marks)

QUESTION FOUR
The following trial balance was extracted from the books of Bahati Ltd. as at 31 March 2023:

Sh.“000” Sh.“000”
Ordinary share capital (Sh.10 par value) 15,000
10% preference share capital (Sh.10 par value) 2,500
Share premium 2,000
8% debentures 2,500
Accounts payable 3,325
Accounts receivable 8,250
Sales 120,000
Purchases 105,500
Bank overdraft 1,000
Discounts received 325
Discounts allowed 125
Building (cost) 22,500
Fixtures and fittings (cost) 6,000
Accumulated depreciation (1 April 2022): Building 6,250
Fixtures and fittings 1,400
Inventory (1 April 2022) 10,500
Returns outward 2,000
Directors’ fees 1,000
Administrative expenses 3,650
Selling and distribution expenses 4,175
Bad debt written off 100
Allowance for doubtful debts (1 April 2022) 450
Retained profit (1 April 2022) 9,050
Investments at fair value 4,000 _______
165,800 165,800
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Additional information:
1. The company maintains a gross profit margin of 20%.
2. As at 31 March 2023, accounts receivable balance included Sh.250,000 due from a customer who has been
declared bankrupt.
3. The allowance for doubtful debts is to be adjusted to 5% of the accounts receivable as at 31 March 2023.
4. As at 31 March 2023, administrative expenses accrued amounted to Sh.175,000 while prepaid selling and
distribution expenses amounted to Sh.75,000.
5. The company paid interest on the debentures for the year ended 31 March 2023 on 5 April 2023.
6. Depreciation is to be provided as follows:
• Building - 2% per annum on cost
• Fixtures and fittings - 10% per annum on reducing balance
7. The company’s directors propose that:
• The preference dividend be paid
• A dividend of 10% on ordinary shares be paid
• Sh.2,500,000 be transferred to general reserves

Required:
(a) The value of inventory as at 31 March 2023. (2 marks)

(b) Statement of profit or loss for the year ended 31 March 2023. (10 marks)

(c) Statement of financial position as at 31 March 2023. (8 marks)

(Total: 20 marks)

QUESTION FIVE
(a) Analyse FOUR advantages of ratio analysis as a tool for assessing financial performance. (8 marks)

(b) Explain the importance of the following ratios to investors:

(i) Price-to-earnings (P/E) ratio. (2 marks)

(ii) Debt-to-equity ratio. (2 marks)

(c) Explain the following terms as used in public sector accounting:

(i) Appropriations-in-Aid. (2 marks)

(ii) Consolidated fund. (2 marks)

(d) Describe FOUR benefits of adopting International Financial Reporting Standards (IFRSs). (4 marks)
(Total: 20 marks)
................................................................................................................

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 CPA FOUNDATION LEVEL

CIFA FOUNDATION LEVEL

FINANCIAL ACCOUNTING

MONDAY: 21 August 2023. 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
(a) Feisal Rajab runs a business as a sole trader under the name Feraj Traders. The following balances of assets and
liabilities were extracted from Feraj Traders’ books of account as at 31 March 2022:

Sh.
Bank loan 450,000
Equipment (Net book value) 5,580,000
Cash balance 830,700
Inventory 1,750,500
Building (Net book value) 15,000,000
Bank loan interest payable 22,500
Trade receivables 2,635,200
Prepaid insurance 85,500
Interest due on customers’ accounts 40,500
Other payables 153,000
Trade payables 2,137,500

The following cash book for the year ended 31 March 2023 was provided:
Cash book
Sh. Sh.
Balance brought forward 830,700 Payment in respect of trade payables 6,769,500
Receipts from trade receivables 5,720,700 Bank loan (including interest of Sh.100,000) 234,000
Bank loan 800,000 Transport for purchases 194,000
Cash sales 2,619,000 Withdrawals for personal use 200,000
Interest on overdue accounts 23,850 Insurance premium 14,700
Rent from building 540,000 Purchase of equipment 500,000
Operating expenses 714,150
Other payables 60,000
Balance carried forward 1,847,900
10,534,250 10,534,250

Additional information:
1. Inventory as at 31 March 2023 was valued at Sh.3,500,000.
2. Returns inwards and returns outwards from credit transactions were Sh.100,000 and Sh.80,000
respectively.
3. Discounts allowed amounted to Sh.75,000 while discounts received were Sh.112,000.
4. Depreciation was to be provided as follows:
Asset Rate per annum
• Building 5% on the reducing balance
• Equipment 25% on the reducing balance
5. Trade payables balance as at 31 March 2023 amounted to Sh.850,000 while trade receivables at the
same date amounted to Sh.1,100,000 excluding interest on overdue accounts. All purchases were on
credit.
6. Trade receivables of Sh.42,000 had been written off during the accounting period. Sh.43,400 of the
trade receivables as at 31 March 2023 may be uncollectible and an allowance for this is required.
7. Prepaid insurance as at 31 March 2023 amounted to Sh.25,000.

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 Required:
(a) Statement of profit or loss for the year ended 31 March 2023. (10 marks)

(b) Statement of financial position as at 31 March 2023. (10 marks)

(Total: 20 marks)

QUESTION TWO
(a) The bank statement of Maji Marefu Enterprises as at 30 June 2023 showed an overdraft of Sh.2,324,000 while
the bank balance as per the cash book showed a credit balance of Sh.1,108,000.

The following extract from the cash book of Maji Marefu Enterprises for the month of June 2023 was provided:

Cash book (extract)

Sh.“000” Sh.“000”
Receipts during the month 2,938 Balance (1 June 2023) 1,522
Balance (30 June 2023) 1,108 Payments during the month 2,524

4,046 4,046

Upon investigation, the following matters were discovered:

1. A cheque received for Sh.160,000 had been returned unpaid. No adjustment had been made in the
cash book.
2. During the month of June 2023, dividends amounting to Sh.124,000 were credited directly into the
bank account, but no entries had been made in the cash book.
3. A cheque drawn for Sh.12,000 had been incorrectly entered in the cash book as Sh.132,000.
4. The balance brought forward as per the above cash book was overstated by Sh.100,000.
5. Bank charges amounting to Sh.272,000 appeared in the bank statement only.
6. Cheques drawn amounting to Sh.554,000 had not been presented to the bank for payment.
7. Cheques received totalling Sh.1,524,000 had been entered in the cash book and deposited in the bank,
but were not credited until 5 July 2023.
8. A cheque for Sh.54,000 had been entered as a receipt in the cash book instead of a payment.
9. A cheque for Sh.50,000 had erroneously been debited by the bank into Maji Marefu’s account.

Required:
(i) The adjusted cash book balance as at 30 June 2023. (6 marks)

(ii) Bank reconciliation statement as at 30 June 2023. (4 marks)

(b) The following balances were extracted from the books of Juhudi Traders for the month of July 2023:

Sh.“000”
Debit balances: (1 July 2023) Sales ledger 1,428,000
(1 July 2023) Purchases ledger 10,500
Credit balances: (1 July 2023) Sales ledger 40,500
(1 July 2023) Purchases ledger 553,800
Discounts received 142,500
Discounts allowed 209,700
Purchases (including cash purchases of Sh.152,000) 1,334,000
Cash sales 618,000
Credit sales 2,068,200
Credit notes issued to customers 75,000
Contra settlements 36,900
Payments to trade payables 1,159,200
Interest charged by trade payables on overdue accounts 69,000
Receipts from trade receivables 1,578,000
Bad debts written off 37,200
Customer’s dishonoured cheques 26,100
Interest charged on customers’ overdue accounts 96,100
Debt collection expenses charged to trade receivables 10,800
Credit notes received from trade payables 26,700
Balances as at 31 July 2023:
Purchases ledger (Debit) 14,400
Sales ledger (Credit) 50,700

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 Required:
(i) Sales ledger control account for the month ended 31 July 2023. (5 marks)

(ii) Purchases ledger control account for the month ended 31 July 2023. (5 marks)
(Total: 20 marks)

QUESTION THREE
Faida Ltd. is a company that manufactures and supplies gas cylinders. The following trial balance was extracted from
the books of the company as at 30 June 2023:
Sh.“000” Sh.“000”
Sales 5,220,294
Purchases of raw materials 1,030,000
Returns inward 37,412
Ordinary share capital 900,000
10% redeemable preference share capital 300,000
Retained profit (1 July 2022) 89,950
Land 80,000
Building (cost) 320,000
Accumulated depreciation (1 July 2022) 15,000
Plant and machinery (cost) 1,400,000
Office equipment (cost) 220,000
Motor vehicles (cost) 400,000
Accumulated depreciation (1 July 2022):
Plant and machinery 401,000
Office equipment 98,000
Motor vehicles 160,000
Bank balance 80,040
General administrative expenses 63,011
Interim dividend on preference shares 15,000
Factory power 70,028
Light and heat 102,054
Bank interest 14,140
Insurance 30,232
Rates 80,342
Office salaries 352,026
Advertising 340,096
Directors’ salaries 119,239
Inventory (1 July 2022):
Raw materials 140,000
Work-in-progress 252,000
Finished goods 500,000
Plant repairs 100,204
Rent 80,126
Carriage inwards of raw materials 170,026
Direct wages 1,062,800
Trade receivables and trade payables 1,000,000 712,452
Allowance for doubtful debts (1 July 2022) 2,000

7,978,736 7,978,736

Additional information:
1. Allowance for doubtful debts is to be maintained at 2% of the trade receivables balance as at 30 June 2023.
2. Inventory as at 30 June 2023 was valued as follows:
Raw materials Sh.116,000,000
Work-in-progress Sh. 64,000,000
3. Light and heat of Sh.1,500,000 and rent of Sh.2,400,000 were accruing as at 30 June 2023, while rates of
Sh.4,200,000 and insurance of Sh.3,200,000 relates to the period ending 30 June 2024.
4. Rent, rates, light and heat as well as insurance are to be apportioned in the ratio 80% to factory and 20% to
administration.
5. Depreciation is to be provided at the following rates:
Rate per annum Basis Allocated to
Building 2.5% Cost Administration
Plant and machinery 10% Cost Factory
Office equipment 10% Cost Administration
Motor vehicles 25% Cost Distribution

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6. The company completed 2,000 units during the year and only 150 units were in the inventory as at
30 June 2023.
7. Corporation tax is to be provided at the rate of 30%.

Required:
(a) Manufacturing statement for the year ended 30 June 2023. (10 marks)

(b) Statement of profit or loss for the year ended 30 June 2023. (10 marks)
(Total: 20 marks)

QUESTION FOUR
The following information was extracted from the financial statements of Biashara Ltd. for the year ended 30 June 2023:

Statement of profit or loss for the year ended 30 June 2023:

Sh.“000”
Revenue 134,400
Cost of sales (105,000)
Gross profit 29,400
Investment income 1,500
Operating expenses (14,000)
Finance cost (2,500)
Profit before tax 14,400
Corporation tax (5,400)
Profit after tax 9,000

Statement of financial position as at 30 June:

2023 2022
Sh.“000” Sh.“000”
Assets:
Non-current assets:
Freehold land 100,800 72,000
Plant and machinery 51,960 55,500
Investments at cost 21,600 22,500
174,360 150,000
Current assets:
Inventory 40,300 32,200
Accounts receivable 36,840 46,800
Short-term investments 10,260 5,040
Cash in hand 1,200 2,580
88,600 86,620
Total assets 262,960 236,620
Equity and liabilities:
Equity:
Ordinary share capital 108,000 90,000
Share premium 9,000 4,500
Revaluation reserve 27,000 -
Retained earnings 36,900 31,500
180,900 126,000
Non-current liabilities:
10% loan 25,000 34,000
Current liabilities:
Accounts payable 35,100 31,500
Bank overdraft 14,340 39,240
Proposed dividends 2,700 2,280
Taxation 4,920 3,600
57,060 76,620
Total equity and liabilities 262,960 236,620

Additional information:
1. The revaluation reserve relates to freehold land.
2. Depreciation on plant and machinery amounting to Sh.6,900,000 was charged to the statement of profit or loss
for the year.
3. Part of the long-term investments were sold during the year at a profit of Sh.960,000.
4. During the year, plant with a net book value of Sh.4,500,000 was sold for Sh.8,820,000. The plant had an
original cost of Sh.18,000,000.

CA11 & CF11 Page 4

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5. The following is an extract from the statement of changes in equity for the year ended 30 June 2023 (Retained
earnings column only):
Sh.“000”
Balance as at 1 July 2022 31,500
Profit after tax for the year 9,000
Interim ordinary dividend paid during the year (900)
Final ordinary dividend proposed (2,700)
Balance as at 30 June 2023 36,900
Required:
(a) Statement of cash flows for the year ended 30 June 2023 in accordance with International Accounting
Standards (IAS) 7 “Statement of Cash Flows”. (14 marks)
(b) Comment on how Biashara Ltd. has generated and used its cash and cash equivalents for the year ended
30 June 2023. (6 marks)
(Total: 20 marks)

QUESTION FIVE
(a) Explain the nature of the accounting equation. (4 marks)
(b) Highlight FOUR advantages of books of prime entry. (4 marks)
(c) The following statement of financial position as at 30 June 2023 was prepared by an inexperienced
bookkeeper:
Utamaduni Ltd.
Statement of financial position as at 30 June 2023
Cost Accumulated Net book value
Depreciation
Sh.“000” Sh.“000” Sh.“000”
Assets:
Non-current assets 363,400 103,500 259,900
Current assets:
Inventory 316,250
Accounts receivable
(Less allowance for doubtful debts) 278,070
Bank balance 25,875 620,195
Total assets 880,095
Capital and liabilities:
Authorised issued and fully paid
Share capital 3,220,000 shares of Sh.100 each 322,000
Share premium 23,000
Profit for the year 132,250
477,250
Current liabilities:
Accounts payable 402,845
Total capital and liabilities 880,095
Additional information:
1. A new machine purchased for Sh.2,300,000 had been recorded in the repairs account.
2. An inventory sheet had been misplaced causing the closing inventory to be undercast by
Sh.2,300,000.
3. An invoice from a supplier of Sh.1,460,500 had been omitted from the books.
4. Bank reconciliation had not been done and the following items on the bank statement had not been
entered in the books:
• Bank charges Sh. 1,150,000
• Standing order for rent payment Sh. 805,000
5. An additional allowance of Sh.575,000 is required in respect of doubtful debts.
6. No provision has been made for electricity expense of Sh.402,500 and audit fees of Sh.1,035,000.
7. The company has signed an agreement to buy a new plant costing Sh.8,050,000 to be delivered and
installed in six months’ time.
8. Depreciation on non-current assets is provided at 10% per annum on straight line basis. A full
year’s depreciation is charged in the year of purchase.
Required:
(i) Journal entries to correct the above errors. (Narrations not required). (6 marks)
(ii) Corrected statement of profit or loss for the year ended 30 June 2023. (6 marks)
(Total: 20 marks)
................................................................................................................

CA11 & CF11 Page 5

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 CPA FOUNDATION LEVEL

CIFA FOUNDATION LEVEL

FINANCIAL ACCOUNTING

MONDAY: 1 August 2022. 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
(a) The finance manager of Wali Traders has provided you with the following information:
Sh. “000”
Cost of sales 22,000
Gross profit 9,500
Interest expense 3,000
Tax expense 1,116
Net profit after tax 4,464

Required:
(i) Interest coverage ratio. (3 marks)

(ii) Gross profit margin ratio. (2 marks)

(b) Grace Solo is a sole trader who runs a commercial bakery. She does not maintain proper records, but has provided
you with the following information.

31 December 2020 31 December 2021

Sh. “000” Sh. “000”
Factory building (at cost) 425,000 425,000
Motor vehicles (at cost) 93,000 ?
Furniture and fittings (at cost) 13,500 13,500
Inventories 13,700 14,930
Accounts receivable 11,450 11,570
Accounts payable 15,460 16,800
Loan 19,500 ?
Salaries and wages due 8,420 8,250
Prepaid rates 7,750 7,860
Rent received in advance 7,900 8,180
Capital 502,320 ?
Accumulated depreciation:
• Factory building 8,500 17,000
• Motor vehicles 2,580 5,422
• Furniture and fittings 1,600 3,200

CA11 & CF11 Page 1

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 Additional information:
1. Grace Solo’s cash summary is provided as follows:

Cash summary
Sh. “000” Sh. “000”
Balance brought forward 1,880 Accounts payable 57,760
Accounts receivable 98,810 Cash purchases 15,640
Cash sales 28,860 Salaries and wages 15,820
Rent 13,700 Rates 9,140
Capital 72,250 Motor vehicle expenses 10,320
Bank charges 7,650
General expenses 4,770
Loan interest 800
Loan repayment 17,500
Motor vehicle 10,500
Drawings 11,100
- Balance carried forward 54,500
215,500 215,500

2. During the year ended 31 December 2021, discounts allowed amounted to Sh.873,000 while discounts
received amounted to Sh.886,000.
3. During the year ended 31 December 2021, Grace Solo took goods valued at Sh.800,000 for her personal
use.

Required:
(i) Statement of profit or loss for the year ended 31 December 2021. (10 marks)

(ii) Statement of financial position as at 31 December 2021. (5 marks)

(Total: 20 marks)

QUESTION TWO
(a) Outline four objectives of accounting regulatory bodies. (4 marks)

(b) The following are the statements of financial position of Sabuni Ltd., a soap manufacturing company for year
ended 30 June 2022 and 30 June 2021:

Sabuni Ltd.
Statements of financial position as at 30 June:

2022 2021
Sh. “000” Sh. “000”
Non-current assets:
Property, plant and equipment 48,080 37,460
Current assets:
Inventories 13,420 11,980
Accounts receivable 6,020 5,120
Cash and cash equivalents 450 1,008
Total current assets 19,890 18,108
Total Assets 67,970 55,568
Equity and liabilities:
Share capital 4,160 3,800
Share premium 540 450
Retained earnings 34,182 21,618
Revaluation reserve 1,080 720
Total equity 39,962 26,588
Non-current liabilities:
Long-term loan 13,500 14,400
Total non-current liabilities. 13,500 14,400
Current liabilities:
Accounts payable 12,448 12,700
Accrued expenses 800 800
Bank overdraft 360 540
Current tax 900 540
Total current liabilities 14,508 14,580
Total equity and liabilities 67,970 55,568

CA11 & CF11 Page 2

Out of 5
Additional information:
1. The cost of property, plant and equipment was Sh.45,740,000 on 1 July 2021.
2. The company disposed of a plant with a carrying value of Sh.3,120,000 on 1 April 2022. The original cost of this
plant was Sh.4,800,000 and the company made a loss of Sh.120,000.
3. It is the policy of the company to depreciate all assets at the rate of 10% per annum on cost from date of purchase
to date of sale.
4. The finance cost incurred and paid in the year ended 30 June 2022 was Sh.288,000, while a dividend of
Sh.516,000 was paid for the same period.
5. Sabuni Ltd. made a profit before tax of Sh.13,458,000 during the year ended 30 June 2022.
6. The income tax expense for the year ended 30 June 2022 was Sh.378,000.

Required:
Statement of cash flows in accordance with the requirement of “International Accounting Standard (IAS)7”, statement of
cash flows, for the year ended 30 June 2022. . (16 marks)
(Total: 20 marks)
QUESTION THREE
Maji Matamu Ltd. is company that manufacturers Tamu juice. On 1 January 2021, 100,000 litres of Tamu juice were in
stock. During the year ended 31 December 2021, the company manufactured 366,000 litres of juice. The company sold
400,000 litres of juice at a price of Sh.600 per litre.
The following trial balance was extracted from the books of the company for year ended 31 December 2021:

Sh.“000” Sh.“000”
240,000 ordinary shares of Sh.100 each 24,000
Retained earnings (1 January 2021) 3,000
Factory land and building at cost (land Sh.11,000,000) 22,700
Plant and machinery (at cost) 35,000
Motor vehicles (at cost) 4,050
Accumulated depreciation (1 January 2021)
• Factory building 7,680
• Plant and machinery 2,930
• Motor vehicles 950
Inventories (1 January 2021)
• Raw materials 3,280
• Work-in-progress 11,000
• Finished goods 50,000
Sales 276,381
Purchases of raw materials 166,101
Factory wages 3,810
Office salaries 1,250
Factory expenses 13,490
Office expenses 3,860
Allowance for doubtful debts 380
Accounts receivable 5,340
Accounts payable . 4,320
Bank . 240
319,881 319,881

Additional information:
1. Inventories as at 31 December 2021 were valued as follows:
Sh. “000”
Raw materials 3,560
Work-in progress 18,400
Finished goods 33,000
2. The allowance for doubtful debts is to be maintained at 5% of the accounts receivable.
3. As at 31 December 2021, accrued factory expenses amounted to Sh.125,000 (including office expenses of
Sh75,000) and prepaid factory expenses amounted to Sh.12,000 (including office rent and rates of Sh.7,000).
4. Depreciation is provided on cost as follows:
Rate per annum
Factory buildings 2%
Factory plant 20%
Motor vehicles 25%
5. The inventory of finished goods of Tamu juice on 1 January 2021 was valued at factory cost.
6. The directors of Maji Matamu decided to transfer all the Tamu juice manufactured to the warehouse at a mark-up
of 10% from 1 January 2021.
7. The directors proposed a dividend of Sh.10 per share issued.
CA11 & CF11 Page 3
Out of 5
Required:
(a) Manufacturing and statement of profit or loss for the year ended 31 December 2021. (12 marks)

(b) Statement of financial position as at 31 December 2021. (8 marks)

(Total: 20 marks)

QUESTION FOUR
The authorised share capital of MLO Ltd. consists of one million ordinary shares of Sh.10 each and 500,000 6%
preference shares of Sh.10.

The following trial balance was extracted from the books of MLO Ltd. as at 30 June 2022:
Sh.“000” Sh.“000”
Ordinary shares fully paid (1 July 2021) 6,000
6% preference shares 5,000
Share premium 500
Revaluation reserve 2,200
General reserve 500
Retained earnings (1 July 2021) 2,500
Land at cost 20,000
Building at cost 8,000
Machinery at cost 10,000
Motor vehicles at cost 8,000
Accumulated depreciation (1 July 2021):
• Building 600
• Machinery 1,500
• Motor vehicles 3,200
Accounts receivable and accounts payable 1,400 600
Distribution expenses 3,800
Administrative expenses 1,800
12% bank loan 6,000
Bank and cash balances 2,100
Dividend paid - Preference (interim) 150
- Ordinary (interim) 600
Suspense account 750
Gross profit 30,740
Bank loan interest paid 240
Inventory (30 June 2022) 4,000 ______
60,090 60,090

Additional information:
1. The suspense account relates to 50,000 new ordinary shares which were issued at a premium of 50% each on
31 January 2022.
2. On 30 November 2021, the directors made a bonus issue of one share for every five shares held at par fully paid
from the revenue reserves.
3. Depreciation is provided per annum on straight line basis as follows:
Asset Rate per annum (%)
Building 2½
Machinery 10
Motor vehicle 20
4. Corporate tax expenses for the year amounted to Sh.3,100,000.
5. The directors proposed the following:
• A transfer of Sh.2,500,000 to general reserve.
• Payment of final dividends for preference shares.
• A dividend of Sh.5 per share for ordinary shares. The additional ordinary shares also qualified for the
final dividend.
6. Land was revalued upwards to Sh.22 million on 1 July 2021.

Required:
(a) Statement of profit or loss for the year ended 30 June 2022. (12 marks)

(b) Statement of financial position as at 30 June 2022. (8 marks)

(Total: 20 marks)

CA11 & CF11 Page 4

Out of 5
QUESTION FIVE
(a) Outline the information required by each of the following users of accounting information:

(i) Owners. (2 marks)

(ii) Customers. (2 marks)

(iii) Suppliers. (2 marks)

(iv) Lenders. (2 marks)

(v) Management. (2 marks)

(b) Discuss two benefits of using the double entry system of bookkeeping to an organisation. (4 marks)

(c) Explain three objectives of the International Public Sector Accounting Standards Board (IPSASB). (6 marks)
(Total: 20 marks)
..........................................................................................

CA11 & CF11 Page 5

Out of 5
 CPA FOUNDATION LEVEL

CIFA FOUNDATION LEVEL

FINANCIAL ACCOUNTING

MONDAY: 4 December 2023. 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
(a) The Conceptual Framework for Financial Reporting (the Conceptual Framework), identifies TWO
fundamental qualitative characteristics and FOUR enhancing qualitative characteristics that useful financial
information is required to have.

Required:
(i) Explain the TWO fundamental qualitative characteristics of useful financial information. (4 marks)

(ii) Describe any TWO enhancing qualitative characteristics of useful financial information. (4 marks)

(b) Explain TWO functions of each of the following in the management of public finances:

(i) Office of the Auditor General. (2 marks)

(ii) Public Accounts Committee. (2 marks)

(c) Explain the difference between “reserves” and “provisions”. (4 marks)

(d) In the context of the issue of ordinary shares, differentiate between a “rights issue” and a “bonus issue”.
(4 marks)
(Total: 20 marks)

QUESTION TWO
Dadu, Elegwa and Fondo have been operating a retail business as partners. The partnership agreement provides that:
1. The partners are to be credited at the end of each year with the following salaries:
Sh.“000”
Dadu 150,000
Elegwa 75,000
Fondo 75,000

2. Each partner is to be credited with interest on capital balances at the beginning of each year at the rate of 5%
per annum.
3. No interest is to be charged on drawings.
4. After charging partnership salaries and interest on capital, Dadu, Elegwa and Fondo are to share profits or
losses in the ratio of 5:3:2 respectively, with a provision that Fondo’s share in any year (exclusive of salary and
interest) shall not be less than Sh.150 million. Any deficiency is to be borne in the profit and loss sharing ratio
by the other partners.

The trial balance of the partnership as at 31 December 2022 was as follows:

Sh.“million” Sh.“million”
Partners’ capital accounts:
Dadu 1,200
Elegwa 750
Fondo 450
Partners’ current accounts:
Dadu 240
Elegwa 180
Fondo 120
CA11 & CF11 Page 1
Out of 5
 Sh.“million” Sh.“million”
Sales 6,975
Freehold land 900
Buildings (purchased during the year) 675
Buildings (renovations and improvements) 375
Purchases 4,200
Trade receivables 309
Trade payables 555
Drawings:
Dadu 255
Elegwa 165
Fondo 135
Furniture and fittings: Cost 540
Accumulated depreciation (1 January 2022) 210
Inventory (1 January 2022) 630
Salaries and wages 960
Office expenses 678
Rent, rates and insurance 157.5
Professional fees 52.5
Allowance for doubtful debts (1 January 2022) 7.5
Bank balance 655.5 _______
10,687.5 10,687.5

Additional information:
1. Inventory as at 31 December 2022 was valued at Sh.540 million.
2. A debt of Sh.9 million is to be written off and the allowance for doubtful debts should be provided at the rate
of 5% of the trade receivables on 31 December 2022.
3. As at 31 December 2022, salaries and wages included the following monthly drawings by the partners:
Sh.“million”
Dadu 7.5
Elegwa 4.5
Fondo 3.75

4. Partners had during the year been supplied with goods from inventory and it was agreed that these should be
charged to them as follows:
Sh.“million”
Dadu 9.0
Elegwa 6.0
Fondo -

5. On 31 December 2022, rates paid in advance and office expenses owing were Sh.37.5 million and Sh.36
million respectively.
6. Professional fees included Sh.37.5 million paid in respect of the acquisition of the buildings.
7. Depreciation is to be provided as follows:
Asset Rate per annum Basis
Buildings 2.5% Cost
Furniture and fittings 15% Cost

8. The buildings were brought into use during the year ended 31 December 2022.

Required:
(a) Partnership statement of profit or loss and appropriation account for the year ended 31 December 2022.
(10 marks)
(b) Partners’ current accounts as at 31 December 2022. (4 marks)

(c) Statement of financial position as at 31 December 2022. (6 marks)

(Total: 20 marks)

CA11 & CF11 Page 2

Out of 5
QUESTION THREE
The following is the statement of financial position of Bidii traders as at 30 September 2023.

The statement of financial position was prepared by an inexperienced accounts clerk and included a suspense account
balance under current assets.

Sh.“000” Sh.“000” Sh.“000” Sh.“000”

Capital and liabilities: Assets:
Capital 694,000 Non-current assets:
Net profit 126,000 Plant and equipment 634,000
820,000 Less: Depreciation (72,000) 562,000
Drawings (160,000) Furniture and fittings 70,000
660,000 Less: Depreciation (14,000) 56,000
618,000
Current liabilities: Current assets:
Accounts payable 50,000 Inventory 28,000
Bank balance 1,520 Accounts receivable 57,000
51,520 Suspense account 8,520 93,520
Total capital and liabilities 711,520 Total assets 711,520

Investigations revealed the following additional information:

1. The purchases day book had been undercast by Sh.2,800,000.
2. An item of equipment costing Sh.2,600,000 had been debited to repairs account. Depreciation on equipment
is charged at the rate of 15% per annum on cost.
3. A debit balance of Sh.2,400,000 for a debtor had been omitted from total accounts receivable.
4. An entry of Sh.2,100,000 for return outwards was made in error in the sales day book instead of the purchases
returns day book.
5. A cheque of Sh.2,250,000 paid to a creditor was correctly posted in the cash book but credited in error to the
creditor’s account.
6. Goods valued at Sh.220,000 were withdrawn for personal use, but no entry had been made in the books of
Bidii Traders.
7. A bad debt of Sh.1,250,000 was yet to be written off from the accounts receivable account.
8. A discount received of Sh.590,000 had been correctly entered in the cash book, but had been posted to the
wrong side of discounts received account.

Required:
(a) Journal entries (including narrations), necessary to correct the above errors. (8 marks)

(b) Suspense account fully balanced. (2 marks)

(c) A statement of adjusted profit for the year ended 30 September 2023. (4 marks)

(d) A corrected statement of financial position as at 30 September 2023. (6 marks)

(Total: 20 marks)

QUESTION FOUR
The following balances were extracted from the books of Sagana Golf Club as at 1 September 2022:

Sh.“000” Sh.“000”
Golf course at cost 80,000
Club house at cost 20,000
Investments representing the building fund:
Ordinary shares 7,400
Deposit with Jamii Building Society 12,000 19,400
Subscriptions received in advance 400
Creditors for bar supplies 350
Life membership fund 5,000
Subscriptions in arrears 600
Bar inventory 4,850
Club house equipment at cost 3,400
Cash in hand 100
Bank balance 950 1,050

CA11 & CF11 Page 3

Out of 5
An analysis of the bank account operated by the club showed the following receipts and payments during the year
ended 31 August 2023:
Sh.“000”
Receipts:
Subscriptions 26,000
Life membership fees 2,000
Tournament fees 1,000
Bar sales 28,600
Dividend from ordinary shares 800
Sh.“000”
Payments:
Maintenance of golf course 17,150
General club house expenses 12,150
Utilities 1,528
Bar supplies 23,500
Purchase of club house equipment 700
Deposit into Jamii Building Society 800
Repainting of club house 1,260

Additional information:
1. The club maintains a building fund separate from the accumulated fund and life membership fund. The
building fund is invested in ordinary shares and also deposited into Jamii Building Society.
2. Jamii Building Society has been instructed to credit the interest on the club’s deposits to the club’s account at
each half year. Jamii Building Society computes interest half yearly on 28 February and 31 August. For the
year ended 31 August 2023, the interest amounted to Sh.840,000. Dividends paid on the ordinary shares are
also added to the building fund by paying them into the building society account.
3. There were five life members as at 1 September 2022, one of whom died before the end of the year. Two
other life members joined the club during the year. Life membership fee is Sh.1,000,000 per member. When
a life member dies, his contribution is transferred to the accumulated fund.
4. General club house expenses included bar wages of Sh.4,200,000.
5. Balances as at 31 August 2023 were as follows:
Sh.“000”
Creditors for bar supplies 1,600
Subscriptions in advance 900
Subscriptions in arrears 300
Bar debtors 650

6. As at 31 August 2023, bar inventory was valued at Sh.4,350,000.

7. An insurance premium of Sh.480,000 was also included in the general club house expenses that had been paid
by cheque. The insurance premium was for the year ended 30 November 2023.

Required:
(a) Bar statement of profit or loss for the year ended 31 August 2023. (4 marks)

(b) Statement of income and expenditure for the year ended 31 August 2023. (8 marks)

(c) Statement of financial position as at 31 August 2023. (8 marks)

(Total: 20 marks)

QUESTION FIVE
(a) Highlight SIX reasons why it is necessary to make adjustments to accounts at the end of the accounting year.
(6 marks)

(b) The following are the financial statements of Utajiri Ltd. for the two years ended 30 September 2022 and
30 September 2023:

Statement of profit or loss for the year ended 30 September:

2022 2023
Sh.“million” Sh.“million”
Net Sales (80% credit sales) 4,400 5,100
Cost of sales (2,200) (2,850)
Gross profit 2,200 2,250
Operating expenses (640) (910)
Net profit before interest and taxes 1,560 1,340
Interest expense (45) (60)
CA11 & CF11 Page 4
Out of 5
 2022 2023
Sh.“million” Sh.“million”
Profit before tax 1,515 1,280
Corporate tax (400) (240)
Net profit after tax 1,115 1,040

Less: Dividends - Interim (50) (65)

- Final (150) (105)
Retained profit 915 870

Statement of financial position as at 30 September:

2022 2023
Sh.“million” Sh.“million”
Assets:
Non-current assets:
Propert, plant and equipment (NBV) 1,400 1,800

Current assets:
Inventory 800 1,200
Trade receivables 490 600
Cash in hand 420 395
1,710 2,195
Total assets 3,110 3,995

Capital and liabilities:

Capital:
Ordinary share capital (Sh.10 par) 1,000 1,000
Revenue reserves 915 1,785
1,915 2,785
Non-current liabilities:
10% debentures 450 600
Current liabilities:
Tax payable 400 240
Trade payables 145 200
Proposed dividends 200 170
745 610
Total capital and liabilities 3,110 3,995

Required:
Compute the following ratios for the years ended 30 September 2022 and 30 September 2023. Assume a 365-day year.

(i) Current ratio. (2 marks)

(ii) Quick ratio. (2 marks)

(iii) Average trade receivables collection period. (2 marks)

(iv) Gross profit margin. (2 marks)

(v) Interest cover. (2 marks)

(vi) Return on capital employed (ROCE). (2 marks)

(vii) Earnings per share (EPS). (2 marks)

(Total: 20 marks)
…………………………………………………………………………………

CA11 & CF11 Page 5

Out of 5
 CPA FOUNDATION LEVEL

CIFA FOUNDATION LEVEL

FINANCIAL ACCOUNTING

MONDAY: 5 December 2022. 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
(a) The following balances were extracted from the books of Jiwe Traders for the month of November 2022:
Sh.
Debit balance (1 November 2022)
Sales ledger 5,698,000
Purchases ledger 36,750
Credit balance (1 November 2022)
Sales ledger 141,750
Purchases ledger 2,288,300
Payment to suppliers 4,057,200
Interest charged by creditors on overdue accounts 241,500
Receipts from credit customers 6,223,000
Bad debts written off 130,200
Customers dishonoured cheques 91,350
Interest charged to customers on overdue accounts 336,350
Debt collection expenses charged to debtors 37,800
Credit notes received from suppliers 93,450
Discounts received 498,750
Discounts allowed 733,950
Purchases (including cash purchases of Sh.532,000) 4,669,000
Cash sales 2,163,000
Credit sales 7,238,700
Credit notes issued to customers 262,500
Contra settlement 129,150
Balances as at 30 November 2022:
Purchases ledger (debit) 50,400
Sales ledger (credit) 177,450

Required:
(i) Sales ledger control account for the month ended 30 November 2022. (6 marks)

(ii) Purchases ledger control account for the month ended 30 November 2022. (5 marks)

(b) Ujenzi Enterprises is a small retail firm. The trial balance of the firm failed to agree on 30 June 2022. The
difference was transferred to a suspense account and financial statements prepared. On detailed review of the
books, the following errors were revealed:
1. The purchases daybook had been undercast by Sh.1,200,000.
2. Purchases on credit from Demario Ltd. for Sh.600,000 had been posted to their account as Sh.6,000,000.
3. A purchase of a machine worth Sh.8,400,000 had been posted to repairs of machinery account.
4. A customer returned goods worth Sh.1,200,000. This transaction had been entered in the sales returns
daybook and posted to the debit of the customer’s account.
5. Sh.7,200,000 owed by Jeru Ltd., a customer, had been omitted when drawing up a schedule of debtors
from the ledger.
6. A cash discount of Sh.240,000 had been correctly entered in the cashbook, but has not been posted to
the customer’s account.

CA11 & CF11 Page 1

Out of 5
 Required:
(i) Journal entries to correct the above errors. (Narrations not required). (6 marks)

(ii) Suspense account duly balanced (including the opening balance). (3 marks)
(Total: 20 marks)
QUESTION TWO
(a) Explain the following terms as used in company accounts:

(i) Discount on shares. (2 marks)

(ii) Allotment of shares. (2 marks)

(iii) Share premium. (2 marks)

(b) The following information was extracted from the books of Viki Ltd. as at 30 September 2021 and
30 September 2022:

Statement of financial position as at 30 September:

2022 2021
Sh. “000” Sh.“000”
Assets:
Non-current assets:
Land and buildings 540,000 240,000
Motor vehicles 120,000 144,000
Furniture and fittings 96,000 168,000
756,000 552,000
Current assets:
Inventory 96,000 84,000
Accounts receivable 144,000 108,000
Cash and bank 24,000 36,000
264,000 228,000
Total assets 1,020,000 780,000
Equity and liabilities:
Equity:
Ordinary share capital 480,000 360,000
Share premium 180,000 60,000
Retained earnings 156,000 96,000
816,000 516,000
Non-current liabilities:
Long-term loan 120,000 180,000
Current liabilities:
Accounts payable 62,400 48,000
Accruals 12,000 24,000
Proposed dividends 9,600 12,000
84,000 84,000
Total equity and liabilities 1,020,000 780,000

Additional information:
1. Profit after tax for the year ended 30 September 2022 was Sh.84,000,000.
2. Interest expense for the year ended 30 September 2022 charged to the statement of profit or loss was
Sh.12,000,000.
3. All the taxes and interest for the year ended 30 September 2022 were paid. Total tax for the year
ended 30 September 2022 amounted to Sh.48,000,000.
4. Proposed dividends for the year ended 30 September 2022 amounted to Sh.24,000,000.
5. Land and buildings were acquired during the year ended 30 September 2022 at a cost of
Sh.360,000,000.
6. During the year ended 30 September 2022, some motor vehicles which had a net book value of
Sh.60,000,000 were disposed of for Sh.72,000,000.
7. Motor vehicles are depreciated at 10% on reducing balance.

Required:
Statement of cash flows in accordance with the requirements of “International Accounting Standard (IAS) 7,
“Statement of Cash Flows”, for the year ended 30 September 2022. (14 marks)
(Total: 20 marks)

CA11 & CF11 Page 2

Out of 5
QUESTION THREE
Kate, Mercy and Nickson have been trading as partners under the name Komon Partnership. The partners share profits
and losses in the ratio of 4:3:2 respectively. On 1 November 2021, an employee, Oliver, was admitted as a partner. He
was to bring Sh.1,750,000 as capital and Sh.1,680,000 as his share of goodwill. The partners do not intend to open a
goodwill account. The admission of Oliver has not been fully recorded in the books of account other than the cash
record.

The following trial balance was extracted from the books of Komon Partnership as at 31 October 2022:
Sh.“000” Sh.“000”
Capital accounts: Kate 9,500
Mercy 7,500
Nickson 6,000
Current accounts: Kate 4,350
Mercy 2,280
Nickson 3,780
Drawings: Kate 3,500
Mercy 3,000
Nickson 3,200
Oliver 2,500
Land and buildings 11,500
Furniture and fittings (cost) 7,100
Motor vehicles (cost) 10,000
Accounts receivable 3,550
Allowance for depreciation (1 November 2021)
Furniture and fittings 4,100
Motor vehicles 4,350
Accounts payable 3,050
Oliver’s account 3,430
Sales 86,360
Purchases 56,350
Inventory (1 November 2021) 5,460
Salaries and wages 5,000
Advertising expenses 3,580
Motor vehicle expenses 3,980
Insurance expenses 2,400
Office expenses 3,430
Bad debts 1,730
Cash 1,650
Bank 2,210 ______
132,420 132,420
Additional information:
1. The new profit or loss sharing ratio was agreed at 4:3:2:1 for Kate, Mercy, Nickson and Oliver respectively.
2. On 31 October 2022, inventory was valued at Sh.5,780,000.
3. As at 31 October 2022, accrued salaries and wages and accrued advertising expenses amounted to Sh.1,790,000
and Sh.1,680,000 respectively.
4. As at 31 October 2022, prepaid insurance amounted to Sh.660,000.
5. It was further agreed that since Oliver was a former employee, he would be entitled to a salary of Sh.853,000 per
annum with effect from 1 November 2021.
6. The partners resolved that they would receive an interest of 10% per annum on their respective balances of fixed
capital at the beginning of the year.
7. Depreciation is to be provided per annum on cost as follows:
Asset Rate per annum
Furniture and fittings 12%
Motor vehicles 25%

Required:
(a) Statement of profit or loss and appropriation account for the year ended 31 October 2022. (10 marks)

(b) Partners’ current accounts. (4 marks)

(c) Statement of financial position as at 31 October 2022. (6 marks)

(Total: 20 marks)
CA11 & CF11 Page 3
Out of 5
QUESTION FOUR
Blaze Sports Club is a members only club. The club generates income through member subscriptions, bar sales and sale
of sports shoes.

The following information relates to Blaze Sports Club for the year ended 30 September 2022:

Statement of affairs as at 1 October 2021:

Sh.“000”
Assets:
Non-current assets:
Building at cost 15,000
Sports equipment (net book value) 10,500
Current assets:
Cash at bank 18,150
Sports shoes inventory 9,000
Bar inventory 12,000
Prepaid rent (2 months) 3,000
Accrued subscriptions 900
68,550
Liabilities and accumulated fund:
Life membership fund 21,000
Subscriptions in advance 1,800
Accrued insurance (3 months) 2,250
Accumulated fund 43,500
68,550

Receipts and payments account for the year ended 30 September 2022

Receipts Sh.“000” Payments Sh.“000”

Balance brought forward 18,150 Rent (for 12 months) 18,000
Subscriptions received for the year Bar manager’s wages 30,000
ended 30 September: Bar supplies 28,500
- 2021 600 Building repairs 6,750
- 2022 16,500 Purchases of sports equipment 7,500
- 2023 1,200 18 months insurance 13,500
- Life membership 3,000 Purchase of sports shoes 7,500
Sale of sports shoes 13,500
Sale of sports equipment 210
Bar sales 69,900 Balance carried forward 11,310
123,060 123,060

Additional information:
1. The building was constructed by the club and completed on 30 September 2021. It was commissioned on
1 October 2021 and was estimated to have a useful life of 40 years.
2. Life membership subscriptions are brought into income equally over 10 years in a scheme that begun a few
years ago. Since the scheme began, the subscription of Sh.3,000,000 per person has been constant. Prior to the
year ended 30 September 2022, eleven (11) life membership subscriptions had been received.
3. As at 30 September 2022, closing bar inventory was valued at Sh.12,750,000 and Sh.1,200,000 was due to the
bar suppliers.
4. Four annual subscriptions of Sh.300,000 each had been promised relating to the year ended 30 September 2021,
but had not yet been received. Annual subscriptions promised, but not paid, are carried forward for a maximum
of 12 months and written off thereafter.
5. As at 30 September 2022, inventory of sports shoes was valued at Sh.13,500,000 while the sports equipment
had a net book value of Sh.10,500,000. During the year ended 30 September 2022, sports equipment with a net
book value of Sh.200,000 was sold.

Required:
(a) Bar statement of profit or loss for the year ended 30 September 2022. (4 marks)

(b) Income and expenditure statement for the year ended 30 September 2022. (8 marks)

(c) Statement of financial position as at 30 September 2022. (8 marks)

(Total: 20 marks)
CA11 & CF11 Page 4
Out of 5
QUESTION FIVE
(a) Explain the following accounting concepts:
(i) Materiality concept. (2 marks)

(ii) Matching concept. (2 marks)

(b) In the context of manufacturing accounts:

(i) Explain the term “unrealised profit”. (2 marks)

(ii) Describe the treatment of unrealised profits in the books of a manufacturing firm. (2 marks)

(c) Explain the following types of funds in the context of public sector accounting:

(i) Revolving funds. (2 marks)

(ii) Fiduciary funds. (2 marks)

(d) Analyse FOUR objectives of financial statements. (8 marks)

(Total: 20 marks)
................................................................................................................

CA11 & CF11 Page 5

Out of 5
 CPA FOUNDATION LEVEL
CIFA FOUNDATION LEVEL
PILOT PAPER
FINANCIAL ACCOUNTING
December 2021. Time Allowed: 3 hours.
Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your workings.
QUESTION ONE
Accountants prepare and maintain financial records for firms and other institutions and extract financial statements as guided
by various International Accounting Standards and other statutory regulations.
Required:
(a) Explain any four fundamental qualities of financial information. (8 marks)
(b) Identify and explain any six users of financial information, indicating clearly the area of interest for each.
(12 marks)
(Total: 20 marks)
QUESTION TWO
Peter and John have been trading in partnership for several years sharing profits and losses equally after allowing interest on
their capitals at the rate of 8% per annum. On 1 September 2020, the Director of their business, James, was admitted as a
partner and was to share one fifth of the profits after interest on capital. Peter and John were to share the balance of the profits
equally but guaranteed that James’s share would not fall below Sh.1,200,000 per annum.
James was not required to introduce any capital at the date of admission but agreed to retain Sh.300,000 of his profit share at
the end of each financial year to be credited to his capital account until the balance reached Sh.1,500,000. Until that time, no
interest was to be allowed on his capital.
Goodwill was agreed at Sh.3,000,000 as at 1 September 2020, but was not to be maintained in the accounts. Land and
buildings were professionally valued at Sh.5,680,000 on the same date while the book value of equipment and motor vehicles
was to be reduced to Sh.3,000,000 as at that date.
James was previously entitled to a bonus of 5% of the gross profit. This bonus was payable half yearly. The Director’s bonus
and the Director’s salary were to cease when he became a partner.
The trial balance below was extracted as at 31 December 2020. No adjustments had yet been made in respect of James’s
admission and the amount he introduced as his contribution for goodwill had been posted to his current account. The drawings
of all the partners had been charged to their current accounts.
Trial balance as at 31 December 2020
Sh. Sh.
Capital accounts : Peter 6,000,000
John 3,000,000
Current accounts : Peter 1,560,000
John 1,420,000
James 360,000
Land and buildings 3,600,000
Equipment and motor vehicles 4,200,000
Inventory 1,840,000
Gross profit 8,400,000
General expenses 3,200,000
Director’s salary 800,000
Director’s bonus 210,000
Debtors 970,000
Creditors 620,000
Bank balance 580,000 _________
18,380,000 18,380,000
CA11 & CF11 Page 1
Out of 4
Additional information:
1. It is assumed that gross profit and general expenses accrued evenly throughout the year except that Sh.200,000 of
the general expenses relate to a bad debt that arose in the period after James’s admission. The balance of the general
expenses accrued evenly.
2. Depreciation is to be charged on equipment and motor vehicles at the rate of 20% per annum on the book value. No
depreciation is to be charged on land and buildings.

Required:
(a) Profit or loss and appropriation account for the year ended 31 December 2020. (10 marks)

(b) Partner’s capital accounts as at 31 December 2020. (4 marks)

(c) Partner’s current accounts as at 31 December 2020. (6 marks)

(Total: 20 marks)

QUESTION THREE
(a) Explain the meaning of the following accounting concepts.

(i) Going concern concept. (2 marks)

(ii) Business entity concept. (2 marks)

(iii) Materiality. (2 marks)

(b) Simba Ltd is a company incorporated to sell Motorcycle spares. The following is a trial balance of the company as
at 31 October 2021:
Sh.“000” Sh.“000”
Ordinary shares of Sh.50 each 40,000
10% Preference shares of Sh.100 each 36,000
10% Debentures 32,000
Land and buildings (net book value) 100,000
Plant and machinery (net book value) 32,000
Motor vehicles (net book value) 8,000
Inventory 24,000
Accounts receivable and payable 80,000 76,000
Cash at bank 16,400
Capital redemption reserve 24,000
Share premium 16,000
Retained profits as at 1 November 2020 12,000
Debenture interest 1,600
Preference dividend 1,800
Gross profit 100,000
Other operating income 16,000
Administrative expenses 52,000
Distribution costs 24,000
Other operating expenses 6,200
Interim ordinary dividend paid 8,000
Corporation tax _______ 2,000
354,000 354,000

Additional information:
1. A building whose net book value is currently Sh.20 million is to be revalued to Sh.36 million
2. The directors have proposed to pay final ordinary dividend of Sh.8 million.
3. The corporation tax for the current year is estimated at Sh.12 million.

Required:
(i) Income statement for the year ended 31 October 2021. (6 marks)

(ii) Balance sheet as at 31 October 2021. (8 marks)

(Total 20 Marks)

CA11 & CF11 Page 2

Out of 4
QUESTION FOUR
Wageni Olympic Sports Club is an amateur baseball club which have been in existence for several years. The following draft
accounts have been prepared by the treasurer of the Club. The treasurer had little accounting knowledge and some figures
appearing in the draft accounts were incorrect.

Income and expenditure account (extract) for the year ended 31 December 2020
Sh.“000” Sh.“000”
Sundry income 96,508
Expenditure
Use of premises 19,248
Printing, postage and stationery 3,132
Overdue members subscriptions written off 480
Members welfare 2,080
Bar purchases 30,880
Wages 8,320
Reference books purchased 9,324 (73,464)
Surplus for the year 23,044

Statement of financial position (extract) as at 31 December 2020

Sh.’000
Assets: Minibus (Cost:: 1 January 2018) 24,000
Library and furniture 5,520
Members subscriptions due 21,600
Cash in hand 480
Bank: Fixed deposit account 6,000
Current account 11,240
10% Treasury bond (Sh.10 million nominal value) 40,000
108,840
Less: Owing for bar purchases _7,468
Club funds as at 31 December 2020 101,372

Additional information:
1. The club’s policy on outstanding subscriptions was to write off amounts outstanding for a period exceeding five
years. As at 1 January 2020, subscriptions outstanding from members were Sh.12,480,000
2. The club’s premises were purchased on 1 October 2020 for Sh.16 million. This amount was posted to the use of
premises account in the draft accounts.
3. The Treasury bond was purchased for Sh.37.2 million on 1 January 2016 by utilizing donations earmarked for a
member’s welfare fund. Up to 31 December 2019, the income received from this investment had been distributed to
members. The income for the year ended 31 December 2020 was included under sundry income as resolved at the
annual general meeting held on 10 April 2020.
4. The club runs a bar for the benefit of members. This bar sells stock at a mark-up of 30%. The income from bar sales
amounting to Sh.39,708,000 was included under sundry income. There was no opening inventory as at 1 January
2020 and the club owed suppliers Sh.6,500,000 as at 1 January 2020. Bar closing inventory as at 31 December 2020
was not ascertained.
5. The balance of the fixed deposit account as at 1 January 2020 amounted to Sh.6,000,000 reflected in the statement
of financial position as at 31 December 2020. No account was taken of interest amounting to Sh.400,000 which had
been credited to the fixed deposit during the year.
6. As at 1 January 2020, cash in hand was Sh.400,000 and the bank current account was overdrawn by Sh.3,572,000.
7. The reference e-books purchased during the year are to be capitalized as part of the library. Library and furniture
are to be revalued to Sh.20,000,000
8. Depreciation is to be provided based on the cost of the assets as follows:
Club premises - 2% per annum
Minibus - 20% per annum

Required:
(a) Income and expenditure account for the year ended 31 December 2020. (10 marks)

(b) Statement of financial position as at 31 December 2020. (10 marks)

(Total: 20 marks)
CA11 & CF11 Page 3
Out of 4
QUESTION FIVE
(a) A bookkeeper extracted a trial balance on 31 December 2020 that failed to agree by Sh.330,000, a shortage on the
credit side of the trial balance. A suspense account was opened for the difference.

In January 202, the following errors made in 2020 were found:

 Sales daybook had been undercast by Sh.100,000.
 Sales of Sh.250,000 to J Church had been debited in error to J Chane account.
 Rent account had been undercast by Sh.70,000.
 Discounts received account had been undercast by Sh.300,000.
 The sale of a motor vehicle at book value had been credited in error to Sales account for Sh.360,000.

Required:
(i) Show the journal entries necessary to correct the errors. (3 marks)

(ii) Draw up the suspense account after the errors described have been corrected. (5 marks)

(iii) If the net profit had previously been calculated at Sh.7,900,000 for the year ended 31 December 2020, show
the calculations of the corrected net profit. (4 marks)

(b) With specific reference to government sector accounting, briefly explain the following concepts:

(i) Budgetary accounting. (4 marks)

(ii) Cash accounting. (4 marks)

(Total: 20 marks)
………………………………………………………………………………..

CA11 & CF11 Page 4

Out of 4