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Bust 121: Fundamentals Of Financial Accounting Question Paper
Bust 121: Fundamentals Of Financial Accounting
Course:Bachelor Of Education Arts
Institution: Chuka University question papers
Exam Year:2013
CHUKA
UNIVERSITY
UNIVERSITY EXAMINATIONS
FIRST YEAR EXAMINATION FOR THE AWARD OF DEGREE OF
BACHELOR OF EDUCATION (ARTS)
BUST 121: FUNDAMENTALS OF FINANCIAL ACCOUNTING
STREAMS: B.ED (ARTS) Y1S2 TIME: 2 HOURS
DAY/DATE: WEDNESDAY 7/8/2013 2.30 P.M. – 4.30 P.M.
INSTRUCTIONS:
• Answer Question ONE and any other TWO questions.
• Do not write on the question paper.
QUESTION ONE:
(a) Discuss five users of accounting information, clearly indicating their information needs.
[10 marks]
(b) Explain briefly the following accounting principles:
(i) Revenue Recognition principle [2 marks]
(ii) Matching principle [2 marks]
(iii) Cost principles [2 marks]
(c) Explain the need for a conceptual framework of accounting. [6 marks]
(d) Mr. Eliazer opened a business at Marima market. The following are the transactions relating to his business for the month of May 2013.
1. On 1st May, Eliazer opened a bank account with KCB for the business and deposited Ksh.400,000.
2. On 7th May, he paid rent of Ksh.100,000 for two months in advance for a small room for his business.
3. On 15th May he furnished the store by installing new furniture worth Sh.120,000 sold to him on credit by Chuka Furniture store, the amount is payable after three months.
4. On 21st May he received electricity bill for the month amounting to Sh.10,000. The bill is payable by 10th of the following month.
5. On 31st May, he withdrew Sh.90,000 from the business account for his personal use.
Required:
Show the effect of the above transactions on the accounting equation. [8 marks]
QUESTION TWO:
(a) State four uses of journal entries. [4 marks]
(b) Differentiate between Capital expenditure and Revenue expenditure giving an example in each case. [4 marks]
(c) An accounts assistant extracted a trial balance at 30 September 2002. This trial balance failed to agree by a figure of Sh.24,000 which he placed in the debit side of the suspense account. He proceeded to prepare a draft trading profit and loss account for the year ended 30 September 2002 which resulted in a net profit of KSh.640,000. Upon further investigation, he discovered the following errors in his books of account.
(i) Rent payable had been undercast by Sh.8,000.
(ii) Rates had been overcast by Sh.20,000.
(iii) Sales had been overcast by Sh. 28,000.
(iv) A cash payment to a creditor of Sh.12,000 had been entered in the cash book only.
(v) Drawings by cheque amounting to Sh.6,000 had been completely omitted.
(vi) A purchase of Sh.75,000 had been entered in the books as Sh.57,000.
(vii) Investment Income had been undercast by Sh.4,000.
Required:
(i) Suspense account showing the entries which would eliminate the difference initially entered in this account. [5 marks]
(ii) Statement of corrected net profit. [5 marks]
(d) Explain the purpose of provision for depreciation on plant assets. [2 marks]
QUESTION THREE:
(a) State the limitation of use of financial ratios in analyzing financial strength or weakness of a firm. [4 marks]
(b) The following are Balance Sheet and income statement for XYZ Ltd for the year 2012.
XYZ Ltd
Balance sheet as at 31 December 2012
Sh. Sh. Sh.
Fixed Assets 200,000
Current Assets:
Stock 40,000
Debtors 60,000
Cash at Bank 30,000
Prepaid Expenses 80,000
210,000
Current liabilities:
Creditors 100,000
Accrued Expenses 10,000 (110,000) 100,000
NET ASSETS 300,000
======
Financed by:
Ordinary share capital:
1000 issued ordinary shares @ 100/= 100,000
Retained earnings 80,000
10 year Bank loan 120,000
300,000
XYZ Ltd
Income Statement
For the year ended 31 December 2012
Sh.
Credit sales 60,000
Cash sales 400,000
Total sales 1,000,000
Less: Cost of sales (450,000)
Gross profit 550,000
Less: Expenses:
Interest Expense 50,000
Rent Expense 100,000
Telephone expenses 20,000 (170,000)
Net profit before tax 380,000
Less: Tax (80,000)
Net profit after tax 300,000
Less: Ordinary share dividend (220,000)
Retained profit 80,000
=======
Required:
(i) Net profit margin ratio [2 marks]
(ii) Return on Capital Employed [2 marks]
(iii) Return on Equity [2 marks]
(iv) Stock turnover ratio [2 marks]
(v) Debtors turnover ratio [2 marks]
(vi) Dividend yield ratio [2 marks]
(vii) Quick ratio [2 marks]
(c) Explain the liquidity position of XYZ Ltd assuming the industry average for Acid test ration is 1:1. [2 marks]
QUESTION FOUR:
The following trial balance was extracted from the books of Paul Kagame, a sole trader as at 31 October 2004:
Sh. Sh.
Capital 1,216,260
Drawings 128,880
Sales 4,904,520
Purchases 3,726,060
Debtors and creditors 476,160
Rent and Rates 52,800
Electricity 14,760
Salaries and wages 496,080
Provision for doubtful debts (1 November 2003) 19,560
Stock in trade (1 November 2003) 556,440
Insurance 10,320
General expenses 55,980
Bank balance 90,000
Cash in hand 4,920
Motor vehicles at cost 580,000
Provision for depreciation on motor vehicle 216,000
(1 November 2003)
Proceeds from sale of motor vehicle 115,000
Motor vehicle expenses 51,660
Premises (at cost) 600,000
Rent Received __________ 45,000
6,844,060
========= 6,844,060
========
Additional information:
1. Stock in trade at 31 October 2004 was valued at Sh.593,040.
2. Rates and insurance were prepaid to the extent of Sh.2,400 and Sh.2,820 respectively as at 31 October 2004.
3. Electricity due as at 31 October 2004 amounted to Sh.6000.
4. The provision for doubtful debts is to be adjusted to 5% of the debtors remaining after taking into account that Sh.20,160 of the debtors were to be regarded as bad.
5. Rent receivable as at 31 October 2004 was Sh.15,000.
6. Depreciation has been and is to be charged on motor vehicles at the rate of 20% per annum on the straight line basis. No depreciation is to be charged on premises.
7. In November 2003, a motor vehicle which had been purchased for Sh.160,000 on 1st November 2000, was sold for Sh.115,000. The only record of this disposal is the entry in the proceeds from sale of motor vehicle account.
Required:
(a) Trading, profit and loss account for the year ended 31 October 2004. [12 marks]
(b) Balance sheet as at 31 October 2004. [8 marks]
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