6 marks total 20 marks financial accounting 1 304

(6 marks)
(Total: 20 marks)
FINANCIAL ACCOUNTING
1

304
Comprehensive Mock Examinations
QUESTION FOUR
Mutiso Mwema started his business in Gikomba as a carpenter on 1
January1990 and he has not kept proper books of account. He engages
you to examine his records and prepare appropriate accounts. From your
examination of the records and from interviews with Mr. Mwema you
ascertain the following information:
i)
On starting the business on 1 January 1990, he put Sh.120,000 into a
business bank account. On the same day, Mr. Mwema brought into
the firm his pickup and reckoned that it was worth Sh. 66,000 then.
He estimated that it will have another useful life of three years.
ii) To increase his working capital he borrowed Sh.40,000 at 15%
interest per annum on 1 April 1990 from his sister but no interest has
yet been paid.
iii) On 1 January 1990 Miss Wambua was employed as a typist/clerk at a
salary of Sh.72,000 per annum.
iv) Drawings were Sh.1,800 per week from the business account for
private use during the year.
v) He purchased timber worth Sh.196,000 out of which Sh.15,800 left in
the workshop on 31 December 1990. He had also spent Sh.96,000 on
some equipment at the commencement of the business which he
estimates will last him five years.
vi) Electricity bills received up to 31 October 1990 came to Sh.24,000.
Motor vehicle expenses were Sh.18, 200 while general expenses
amounted to Sh.27,000 for the year. The insurance premium for the
year 31 March 1991 was Sh.16,000. All these expenses have been
paid by cheque.
vii) Rates for the year to 31 March 1991 came to Sh.3,600 but they had
not yet been paid.
viii)
Miss Wambua sent out invoices to customers for Sh. 617,800 but only
Sh.508,000 had been received by 31 December 1990. Debts totaling
Sh.1,700 were abandoned during the year as bad. Other customers
for jobs too small to invoice have paid Sh.72,600 in cash for work
done of which Sh.56,000 was banked. Mr. Mwema used Sh. 7,500 of
the difference to pay for his family's food stuff, bought Kenya Charity
Sweepstake tickets worth Sh.2,400 and Miss Wambua used the rest of
general expenses, except for Sh.3,010 which was left over in the
drawer in the office on 31 December 1990.
ix) You agree with Mr. Mwema that he will pay you Sh. 5,500 for
accountancy fee.
STRATHMORE UNIVERSITY
●
REVISION KIT

Questions – Mocks
305
Required:
Prepare Profit and Loss Account for the year ended 31 December 1990
and a Balance Sheet as at that date.
(Total: 20 marks)
QUESTION FIVE
Comparability is a characteristic which adds to the usefulness of financial
statements.
I.) Required:
(a)
Explain what is meant by the term ‘comparability’ in financial
statements, referring to two types of comparison that users of
financial statements may make.
(5 marks)
(b)
Explain two ways in which the IAS (International Accounting
Standards) aids the comparability of financial information.
(5 marks)
II.) Explain four ways in which the use of historical cost accounting
may cause users of financial statements to be misled when prices
are rising. (10 marks)
(Total: 20 marks)
FINANCIAL ACCOUNTING
1

306
Comprehensive Mock Examinations
MOCK PAPER 4
QUESTION ONE
a)
Define the term bank reconciliation statement and indicate its three