PRINCIPLES OF ACCOUNTS: CBM 514/CCM 111

1. Mercy is a merchant operating in Kitale town. Her trial balance for the year ended 31/12
2018 is as follows:-

Details Dr Cr.
“000” “000”
Land and building (at cost) 15,000 Fixed Asset-B/S
Motor vehicles 17,000 Fixed Asset-B/S
Inventory 1/1/2018 2,000
Sales 62,000
Purchases 27,000
Rent 550 Exp
Electricity 350 Exp
Telephone 240 Exp
Discount allowed 2,100 Exp
Discount received 1,390
Bad debts 1,350 Exp
Returns inwards 450
Returns outwards 1,300
Capital 18,100 B/S

Drawings 1,400 B/S

Salaries and wages 1,200 Exp
Accounts receivable 3,000 Current Asset-B/S
Accounts payable 2,000 B/S

Cash in hand 12,000 Current Asset-B/S

General expenses 1,150 Exp
84,790 84,790

Additional information:-
i) Stock as at 31/12/2018 amounted to sh. 1,400,000
ii) Prepaid rent amounted to sh. 150,000
iii) Depreciation is provided on land and building at 10% p.a. on cost; motor vehicles
15% p.a. on cost.
iv) Salaries and wages accrued amounted to sh. 210,000
Required:-
a) Income statement for the year ended 31/12/2018. (10 marks)
b) Statement of financial position as at 31/12/2018. (10 marks)

2. a) Explain six reasons why the balance on the cashbook (bank column) may differ from
the balance as per the bank statement. (6 marks)

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 b) The following information relate to the transaction and balances of John with his bank
KCB for the month of May 2017. Cash book balance on 31st May 2018 was sh. 230,000,
on the same date, the balance as per the bank statement was 344,500 (credit).
The following differences were observed:-
i. The bank had not yet credited a cheque of sh. 80,000
ii. Bank changes amounted to sh. 3,500
iii. A standing order to CIC insurance of sh. 3,000 had been paid by the bank but not
entered in the cash book.
iv. A cheque of sh. 10,000 from a debtor had been dishonoured
v. Bank had collected on behalf of John dividend amounting to sh. 151,000.
vi. Amounts paid to suppliers but not presented for payment to the bank amounted to
sh. 60,000.

Required:-
i) Adjusted cash book. (8 marks)
ii) Bank reconciliation statement. (6 marks)

3. The following information was extracted from the books of Baraka limited for the month
of June 2019:-

Details Sh.
Debit balance on 1/06/2019 sales ledger 820,000
Credit balance on 1/06/2019 Purchases 405,000
Credit sales 5,200,000
Credit purchases 3,150,000
Bad debts written off 170,000
Discount allowed 200,000
Discount received 80,000
Cash paid to suppliers 1,250,000
Cheques paid to suppliers 310,000
Cash received from customers 2,190,000
Cheques received from customers 960,000
Dishonoured cheques from customers 70,000
Return inwards 110,000
Returns outwards 95,000
Contra entry from sales ledger to purchases ledger 160,000

Required:-
i) Prepare sales ledger control account. (10 marks)
ii) Purchases ledger control account. (10 marks)

4. a) Explain four methods of depreciating non-current assets. (8 marks)

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 b) Bazaa limited acquired a plant at a cost of sh. 10,000,000. The company charges
depreciation using the reducing balance method and the rate is 20% p.a. Calculate the
annual depreciation for the 1st to the 3rd year. (6 marks)

c) Distinguish between capital and revenue expenditure giving two examples for each.
(6 marks)

5. Mr. Amos started a new business on 1/10/2018 with sh. 980,000 cash. During the month
of October he carried out the following transactions:-

Oct: 1 Deposited sh. 220,000 in a bank account

Oct: 3 Bought goods worth sh. 150,000 cash
Oct: 5 Paid rent sh. 45,000 by cheque
Oct: 9 Sold goods for sh. 190,000 cash.
Oct: 11 Bought goods on credit worth sh. 300,000 from Moses
Oct: 14 Paid salaries sh. 55,000 cash.
Oct: 20 Paid Moses by cheque sh. 80,000
Oct: 25 Sold goods on credit worth sh. 420,000 to Amina.

Required:-
a) Record the transaction in the relevant ledger accounts (16 marks)
b) Extract a trial balance. (4 marks)

6. a) Explain five books of original entry. (10 marks)

b) Briefly explain five users of accounting information. (10 marks)