2014 EXAMINATIONS KNOWLEDGE LEVEL PAPER 1: ACCOUNTING FRAMEWORK

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EXAMINATION NO. 2014 EXAMINATIONS NOWLEDGE LEVEL PAPER 1: ACCOUNTING FRAMEWOR WEDNESDAY 3 DECEMBER 2014 TIME ALLOWED : 3 HOURS 9.00AM - 12.00 NOON INSTRUCTIONS: 1.

1 EXAMINATION NO EXAMINATIONS NOWLEDGE LEVEL PAPER 1: ACCOUNTING FRAMEWOR WEDNESDAY 3 DECEMBER 2014 TIME ALLOWED : 3 HOURS 9.00AM NOON INSTRUCTIONS: 1. You are allowed 15 minutes reading time before the examination begins during which you should read the question paper and, if you wish, make annotations on the question paper. However, you will not be allowed, under any circumstances, to open the answer book and start writing or use your calculator during this reading time. 2. Number of questions on paper The paper is divided into TWO sections A and B. Section A contains one compulsory question. All the candidates are required to answer it. Section B has FOUR questions and candidates are required to answer any THREE. 4. Question one carries 40 marks while all the questions in Section B carry 20 marks each. 5. Marks will be awarded for content, presentation and layout. 6. All workings must be shown. 7. This question paper must not be removed from the examination hall. 8. DO NOT OPEN THIS PAPER UNTIL YOU ARE INSTRUCTED BY THE INVIGILATOR This question paper contains 8 pages

2 1 SECTION A COMPULSORY QUESTION 1. (a) (i) What is a trial balance? 1 Mark (iii) State two reasons why it is necessary to adjust certain items in the trial balance before preparing final financial statements. 3 Marks Explain why the following items do not appear in the trial balance of a business at the end of an accounting period: (1) Closing inventories (2) Depreciation charge (3) Prepaid and accrued expenses (4) Provision for doubtful debts 4 Marks (b) The following trial balance was drawn from the books of alulu Traders on 31 December 2013: Dr Sales Purchases Inventory 1 January Rent Wages Electricity Accounts receivable Accounts payable Cash Accumulated depreciation Other expenses Capital 1 January Drawings 50,000 10,000 5,000 12,000 1,500 9,000 1,000 34,000 6,000 9, ,000 Cr 100,000 8,000 13,000 17, ,000 The following additional information is provided for adjustments before preparing the final financial statements: (1) Goods which cost 1,000,000 were received during 2013 and were included in closing inventories. No invoice was included in purchases for them in (2) Rent of 500,000 was prepaid.

3 2 (3) Electricity of 350,000 is accrued. (4) The depreciation charge for the year is 6,000,000 (5) alulu took goods for own use which cost 450,000. No entry was made in the books in respect of this. (6) Closing inventory is 12,000,000. (7) Bad debts of 150,000 are to be written off. (8) A provision for doubtful debts of 100,000 is to be created. (i) Make the necessary adjustments through journal entries. 6 Marks Prepare an adjusted trial balance. 6 Marks (c) From the information in the adjusted trial balances prepared in (b), above: (i) Prepare a statement of comprehensive income for the year ended 31 December Marks Prepare alulu s statement of financial position as at 31 December Marks (d) For each of the following items, indicate the amount of revenue that should be reported for the current year and the amount that should be postponed to a future period. Mention the applicable accounting concept in each case. (i) (iii) (iv) Leased a building on the first day of the last month of the current year, receiving one year s rent of 48, Marks The firm received in the current year an order for goods to be delivered the following year. The goods had a cost of 25,000 and a selling price of 34, Marks Sold season tickets for a series of four football matches for 40,000. Only one match was played during the current year. 2 Marks Since net income is expected to be extremely small this year, no depreciation expense on fixed assets should be recorded. 2 Marks (TOTAL : 40 MARS)

4 3 SECTION B Answer THREE questions ONLY from this section 2. The following information was extracted from the books of Mwai Women s Club: Balances as at Bar inventory Accounts payable: bar supplies Accounts payable: expenses 31 Dec ,200 4, Dec ,936 4, Balance 1 Jan ,280 Subscriptions received 12,400 Bar sales 107,600 Interest on investment 4,160 Summary of Bank Account ,440 Bar purchases 80,760 Salaries 16,840 Rent of club premises 2,800 Rates 2,000 General expenses 5,360 Cost of new investment 26,000 Balance 31 December 3, ,440 On 1 January 2013 the club held temporary investments which it had purchased for 49,200 and the furniture in use was valued at 30,400. The club is building up its investments to enable it to purchase its own clubhouse in due course. Depreciation should be charged on the furniture at the rate of 10 percent per annum on the opening value. Prepare the following: (a) A bar trading account for the year ended 31 December Marks (b) A general income and expenditure account for the year ended 31 December Marks (c) A statement of financial position as at 31 December Marks (d) Name three items which differentiate financial statements of commercial entities from those of clubs and societies. 3 Marks (TOTAL: 20 MARS)

5 4 3. (a) (i) Define the term parent company. 3 Marks Explain the meaning of consolidated financial statements and state what they include. 3 Marks (iii) Explain the two basic rules of consolidation. 4 Marks (iv) Define the term non-controlling interest. 2 Marks (b) The following statements of financial position were extracted from the books of Peters Ltd and Suzan Fashions Ltd. Peters Ltd: Statement of financial position as at 30 August Investment in Suzan Ltd 1 ordinary shares Inventory Accounts receivable Bank Share capital 1 ordinary shares Share capital 1 ordinary shares 70, ,000 32,000 26,000 2, , ,000 Suzan Fashions Ltd: Statement of financial position as at 30 August 38,000 Inventory 9,000 Accounts receivable 2,000 Bank 1,000 50,000 Additional information 50,000 The investment by Peters represents the cost of 100% of the shares of Suzan Fashions Ltd. (i) Prepare a consolidated statement of financial position for Peters Ltd and Suzan Fashions Ltd. 3½ Marks Prepare a consolidated statement of financial position on the assumption that Peters Ltd had acquired 70% of the shares of Suzan Fashions Ltd for 70,000. 4½ Marks (TOTAL : 20 MARS)

6 5 4. (a) Alice and Beatrice are in partnership sharing profits and losses in the ratio 1:2 respectively. The partnership s statement of financial position as at 31 December 2012 was as follows: Working capital Capital : Alice Beatrice Alice and Beatrice agree on the following: 150, , , , , ,000 (1) To allow Cathy, their friend, to join the partnership on 1 January 2013, after which they would all share profits and losses equally. (2) Cathy would introduce 140,000 cash as her contribution to the capital. (3) The assets would be revalued as follows: Working capital Goodwill 200, ,000 90,000 (4) The original asset values would be reinstated after the adjustments resulting from Cathy s joining the partnership have been made, and goodwill would be written off. (i) Prepare the partnership s revaluation account. 6 Marks Prepare the partners capital accounts after revaluation. 4 Marks (iii) Prepare the partnership s statement of financial position as at 1 January 2013 after Cathy had been admitted and all the adjustments had been made. 3½ Marks

7 6 (b) During the year ended 31 December 2013 the new partnership of Alice, Beatrice and Cathy made a profit of 420,000. They had agreed to: (1) Share the profits equally (2) Draw salaries as follows: Alice 100,000, Beatrice 75,000 and Cathy 50,000. (3) To charge 10% interest on capital balances outstanding at the beginning of the period. (4) To charge 5% interest on drawings which amounted to 6,000, 4,500 and 4,000 for each of the partners respectively. Prepare the appropriation account for the new partnership. 6½ Marks (TOTAL : 20 MARS)

8 7 5. The following trial balance was drawn from the books of Ngowe Agriculture Trading Ltd at 31 May 2013: Dr Cr 35,000 80, ,000 Directors salaries Land Buildings: cost Buildings: depreciation 1 June 2012 Interim dividend Furniture and equipment: cost Furniture and equipment: depreciation 1 June 2012 Share capital (1 share) at 1 June 2012 Retained earnings at 1 June 2012 Accounts receivable control account Accounts payable control account Inventory at 1 June 2012 Purchases Sales Returns inwards Purchases returns Wages Discount received Bank Cash Heating and lighting General expenses Bad debts Proceeds of rights issue The following information is also given: 12,500 35, , , ,000 17,000 98, ,800 18,500 2,800 1,842,500 55,000 6, , ,160 97,840 1,134,000 8,500 12,420 34,780 80,000 1,842,500 (1) On investigation, it was discovered that a debit balance of 180,000 in the accounts receivable ledger had been set off against a credit balance in the accounts payable ledger but the two control accounts have not been adjusted. (2) Goods bought for 821,000 have been recorded in the purchases day book as 871,000 and this amount has been used for all relevant book entries. (3) On 1 September 2013 the company made a rights issue of 1 share, giving one share for every two shares held at that date.

9 8 (4) On 31 December 2013 the company made a bonus issue of one share for every share held. (5) The company has provided for a proposed and final dividend of 10%. (6) Buildings are to be depreciated at 2% on cost. (7) Furniture and equipment are to be depreciated at 20% on the reducing balance. (8) Inventory at 31 May was 256,000. (a) Prepare a statement of comprehensive income for the year ended 31 May Marks (b) Prepare a statement of financial position as at 31 May Marks (c) Explain the meaning of each of the following terms: (i) (iii) Rights issue Bonus issue Share premium 3 Marks (TOTAL : 20 MARS) E N D

2016 EXAMINATIONS KNOWLEDGE LEVEL PAPER 1: ACCOUNTING FRAMEWORK

2016 EXAMINATIONS KNOWLEDGE LEVEL PAPER 1: ACCOUNTING FRAMEWORK EXAMINATION NO 2016 EXAMINATIONS NOWLEDGE LEVEL PAPER 1: ACCOUNTING FRAMEWOR TUESDAY 7 JUNE 2016 TIME ALLOWED : 3 HOURS 9.00AM - 12.00 NOON INSTRUCTIONS: 1. You are allowed 15 minutes reading time before