SECTION A: (20 marks)

1. Which asset increases when goods are sold on credit?

a) Cash

b) Bank

c) Debtors

d) Stock

2. A lorry costing shs.54, 000,000 with an estimated working life of 10 years and a scrap value of shs.4,000,000 is depreciated using the straight line method. Calculate the value of the motor lorry after 3 years.

a) Shs.49,500,000

b) Shs44,000,000

c) Shs35,000,000

d) Shs39,000,000

3. A businessman withdrew some cash from the bank for office use. The entries are

a) Dr. bank column, Cr. Cash column.

b) Dr. Cash column, Cr. Bank column.

c) Dr. bank column, Cr. Discount received column.

d) Dr. Discount allowed column, Cr. Bank column.

4. Which one of the following statements is true about the partnership Act 1890?

a) Interest must plus working capital.

b) Profits and loss must be shared.

c) Any loan or advance must earn interest.

d) Interest is allowed on partner's capital.

5. The correct formula for obtaining net capital employed is

a) Fixed assets plus working capital

b) Current assets minus current liabilities.

c) Fixed assets plus current assets.

d) Fixed assets minus working capital.

6. The main purpose of preparing a trading account is to ascertain the

a) Cost of goods sold

b) Sales

c) Closing stock

d) The gross profit or loss

7. A motor van bought for shs1,200,000 on 1st January 1993 was estimated to depreciate at the rate 20% p. a using the reducing balance method. It was sold off at the fourth year at a give away price of shs.630, 000. It was therefore sold at

a) Loss of shs15,600

b) Profit of shs138,480

c) Loss of shs491,520

d) Loss of shs630,000

8. Casements ltd received a cheque from one of its debtors of shs50,000. When it was deposited in the bank, it was returned marked effects not cleared.

a) Debit the debtors A/C with shs50,000

b) Credit the debtors A/C with shs50,000

c) Debit the cash book with shs.50,000

d) Debit casement ltd A/C with shs50, 000.

9. If it is required to maintain fluctuating capitals account, then partner's salary must be

a) Debited to capital account

b) Credited to capital account

c) Debited to partner' current account

d) Credited to partner's current account

10. Which one of the following is true about the income and expenditure account?

a) It shows only revenue expenditure.

b) It shows only capital expenditure.

c) Its balance represents either cash in hand or an overdraft.

d) It shows only income and expenditure for the current period.

11. Receipts and payment account is the one in which

a) Excess of expenditure over income is calculated

b) Excess of income over expenditure is calculated

c) Cash of any year is recorded

d) Cash of the current of creditors.

12. The purpose of preparing a sales book is to

a) Record goods sold on credit

b) Keep the accounts of debtors

c) Record fixed assets sold on credit

d) Keep the accounts of creditors.

13. When the current liabilities of a firm is more than its current assets, the firm's position is described as

a) Over trading

b) Insolvent

c) Bankrupt

d) Solvent

14. Which of the following errors is committed if machinery sold is erroneously entered in the sales A/C?

a) Original entry

b) Commission

c) Omission

d) Principle

15. When a separate provision for depreciation account is used, the book-keeping entries made are

a) Debit assets account: credit provision for depreciation account.

b) Debit profit and loss account; credit provision for depreciation account.

c) Debit asset account; credit depreciation account.

d) Debit depreciation; credit profit and loss.

16. The private ledger records all the accounts mentioned below except

a) Drawing account

b) Trading account

c) Wages account

d) Capital account.

17. Which one of the following statements is correct about the petty cash book?

a) The total amount in each column is posted to the appropriate nominal account in the ledger.

b) The imprest is recorded on the credit side of the petty cash book

c) It forms part of the double entry system

d) The petty cashier is re-imbursed with the amount remaining ot spent.

18. How will the difference in books appear as when the debit totals of a trial balance exceed the credit totals in the suspense account?

a) A debit entry

b) A credit entry

c) An asset

d) A liability

19. Which of the following is not correct about provision for bad debts?

a) They are the same as bad debts written off.

b) They match expenses with revenues

c) They fluctuate with the level of debtors.

d) Provision for debts account always has a credit balance

20. Returns inwards increase

a) Debtors

b) Sales

c) Profit

d) Stock

SECTION B: (80 marks)

21. The following balances appeared in the books of B.Brown on 1st Jan. 1990.

- Provision for bad debts shs60,000

- Provision for discount allowed shs24,800

- Provision for discount received shs65,000

- Trading debtors shs1,400,000

- Trade creditors shs2,200,000

- B.Brown's policy is to keep the provision for Bad Debts at 5% provision for discount allowed at 21/2% and provision for discount received at 3% p. a.


Show the entries in the ledger accounts, profit and loss account and balance sheet (extract) at 31st Dec. 1990.

22. a) State the difference between he following;-

i. purchases journal and purchases ledger

ii. sales journal and sale ledger

iii. general journal and general ledger

b) The trial balance of MOBIL AUTOMOBILE LTD. Drawn up on 31st Dec. 1997 failed to agree, the debit side exceeding the credit side by shs.63, 000. A suspense account was opened for the difference, a thorough investigation revealed the following errors:

i. purchases day book was overcast by shs.150,000

ii. sales returns journal was under cast by shs.15,000

iii. a credit sale of assorted merchandise worth shs.49,500 to olinga Ramathan was posted in error to the credit side of the credit side of his account.

iv. Goods worth shs.205, 500 returned to walusimbi garage were entered as shs.259, 500 in their personal account.

v. A receipt of shs123,000 from Umoja Garage was not posted from the cash book to their personal account

vi. There was a mistake in balancing the cash book which changed the balance from shs765, 000 to shs615, 000.


a) Journal entries to rectify the above errors.

b) The suspense account to eliminate the difference.

23. a) What reasons would lead a large firm to keep a separate cash book from a petty cash book?

b) DAYTON COSMETICS are dealers in cosmetics and hair-styling for both women and men. The petty cashier currently has a balance from last month of shs28, 000. A cheque of shs222, 000 is being prepared to restore the imprest. A summary of her petty cash vouchers for the month of June 1997 is as follows;-


June 1 received the imprest amount

1 postage stamps and envelopes 6,000

3 glue and cellotape 2,500

8 newspaper vendor 12,800

11 manager's fuel bill 25,000

14 shop cleaning for the two weeks 4,700

17 fax to London 1,800

19 taxi hire for outdoor service 10,000

20 creams and lotions 50,000

21 barbers wages 15,000

23 telephone cards 27,500

25 receipt books, invoice & writing pads 21,000

26 cleaning materials 18,000

29 detergents (Omo, jik etc) 27,300

30 telegrams 3,400


Prepare a petty cash book with analysis columns using the following headings:

Postal services: stationery, shop expenses, travelling and ledger.

24. LITERARY HIGH SCHOOL prepares its accounts termly. At the beginning of third term which started on 1st November 1997, the following balances were on record:

Cash at hand shs250, 000

Cash at bank "2,250,000

Fees due from last term "1,500,000

Food suppliers not paid (creditors) 4,500,000


Foods shs7, 000,000

Chemicals "1,200,000

Stationery " 800,000

Medicine "1,600,000

Salary advance to teachers "3,400,000

Fixed assets "170,000,000

During the term following transactions took place:

a) Fees paid into the bank amounted to shs60,000,000

b) All fees defaulters paid in cash previous terms but another shs2,300,000 was not collected for the term.

c) Bought firewood for cash shs1,700,000

d) Paid alls school expenses shs2,850,000

e) Bought food paying by cheque shs15, 000,0000.

f) Paid food suppliers for last term in full.

g) Bought chemicals on credit from NIA chemical industries shs1, 130,000.

h) Paid teacher s salaried for the term shs 12,000,000

i) All salary advances were recovered in cash


a) General journal to record opening entries and to ascertain accumulated fund.

b) Appropriate ledger accounts including fees account and individual accounts for stocks. Do not balance the accounts.

25. a) Outline the major differences between the accounts of a partnership and those of a sole proprietorship.

b) WALIMBWA AND WOPUWA entered into a partnership with the following partnership deed.

i. That walimbwa brings in a capital of shs350, 000 and Wapuwa shs.250, 000. Any further contributions shall be in the form of loans attracting an interest of 15% per annum.

ii. That profits or losses are to be shared in the ratio 3:2 respectively.

iii. Interest on capital to be allowed at 5% per annum.

iv. Interest on drawings to be 10% per annum.

v. Wopuwa is to be allowed a partnership salary of shs17, 500 per annum.

At the end of 1997, the following balances were extracted from their partnership books as at 31st Dec.


Shs shs

Gross profit 180,000

Debtors/ creditors 60,000 38,250


Walimbwa 373,000

Wopuwa 248,000

Current accounts:

Walimbwa 61,000

Wopuwa 66,000

Drawings: walimbwa 25,000

Wopuwa 40,000

Provision for bad debts 4,250

Bank 40,000

Discounts 12,200 4,250

Stock 124,000

Buildings 355,000

Insurance 12,500

Motor van 175,000

Van running expenses 12,500

Furniture & fittings 50,000

Salaries (including partners)67,500

973,750 973,750


a) Prepare a profit and loss account and the appropriation account.

b) Prepare the current accounts of the partners.

26. a) Tabulate the differences between the receipts and payments account and income and expenditure account.

b) State whether each of the transactions listed below result into capital expenditure or revenue expenditure.

i. Bought motor vehicles for sale.

ii. Built houses for renting

iii. Painted a coffee factory that had been in use for 5 years.

iv. Extended a building to accommodate stock for sale.

v. Bought raw materials for the factory.

vi. Paid for an air ticket to London to attend a trade show.

vii. Entertained visiting businessmen from USA who want form a partnership.

viii. Replaced a TATA lorry which got involved in an accident.