SECTION A: (20 marks)

1. Which one of the following accounts is a real account?

a) Capital account

b) Supplier's account

c) Bank account

d) Customer's account

2. What entries are made to record interest on drawing?

a) Dr. Drawings Account, Cr. Appropriation Account.

b) Dr. Current Account, Cr. Appropriation Account.

c) Dr. Appropriation Account, Cr. Current Account.

d) Dr. Appropriation Account, Cr. Drawings Account.

3. Okot and Ouma are partners sharing profits and losses equally. If the next loss for the period was shs1, 500,000 and interest on drawings was shs200, 000, calculate their share of loss.

a) Okot shs650,000, Ouma shs650,000

b) Okot shs850,000, Ouma shs850,000

c) Okot shs1,300,000, Ouma shs1,300,000

d) Okot shs1,500,000, Ouma shs1,500,000

4. The accounting concept which emphasizes that business transactions are supported by documentation evidence is

a) Matching concept

b) Consistency concept

c) Accrual concept

d) Objectivity concept

5. Which one of the following items are presented according to order of permanency?

a) Debtors, cash, bank, stock.

b) Stock, bank, cash, debtors.

c) Cash, bank, debtors, stock.

d) Stock, debtors, bank, cash.

6. Calculate the adjusted net profit when give the following:

Original profit shs1, 660,000

Purchases journal under cast shs450, 000

Sales was overcast by shs159, 000

a) Shs1,051,000

b) Shs1,501,000

c) Shs1,369,000

d) Shs1,210,000

7. Which of the following entries are correct if a partnership business maintains a fluctuating capital account?

i. Partners' drawings are debited to capital account.

ii. Partners' interests on drawings are credited to capital account.

iii. Partners' salary is debited to capital account.

iv. Interest on capital is credited to capital account.

a) (i) and (iv)

b) (i) and (ii)

c) (ii) and (iv)

d) (i), (ii) and (iv).

8. The following statements are correct about accumulated fund account except

a) Deficit reduces accumulated fun account.

b) Deficit increases accumulated fund account.

c) Drawings reduce accumulated fund account.

d) Surplus increases accumulated fund account.

9. If credit sales of shs21,000 are journalized as shs12,000 and posted to ledger accounts, the error made is that of

a) Transposition.

b) Original entry.

c) Principle.

d) Arithmetic.

10. Which one of the following items will be shown in the purchases journal?

a) Cash discounts.

b) Purchases returns.

c) Payments to suppliers.

d) Purchases.

11. Determine the amount of capital from the following items:


Building 600,000

Stock 112,000

Bank 15,000

Creditors 44,000

Loan from peter 140,000

a) Shs543,000

b) Shs727,000

c) Shs784,000

d) Shs184, 000.

12. Book-keeping is defined as the

a) Process of identifying, measuring and communicating economic information for decision making.

b) Analyzing and interpreting business transactions.

c) Recording, classifying and analyzing financial transactions.

d) Recording, classifying, analyzing and interpreting financial transactions.

13. Which one of the following items is listed in the credit column of a trial balance?

a) Bills payable.

b) Paid on loan.

c) Rent paid.

d) Bills receivable.

14. What is the amount of annual depreciation for a machine costing shs10, 000,000 expected to last 4 years after which it will be off at shs265, 000?

a) Shs2,500,000

b) Shs2,436,000

c) Shs2,564,000

d) Shs2, 756,000.

15. Which one of the following items is an asset of a Social Club?

a) Bar creditors.

b) Subscriptions due.

c) Ground rent income in advance.

d) Donations received in advance.

16. Which of the following entries are correct for recording shares and losses of a partner?

i. Dr. Drawings A/C, Cr. Profit & Loss Appropriation A/C.

ii. Dr. Drawings A/C, Cr. Profit & Loss Appropriation A/C.

iii. Dr. Profit & Loss Appropriation A/C, Cr. Current A/C.

iv. Dr. Profit & Loss Appropriation A/C, Cr. Capital A/C.

a) (i) and (iv)

b) (ii) Only.

c) (iii) and (iv)

d) (i) Only.

17. The following accounts are maintained by non-trading organizations except

a) Receipts and payments account.

b) Income and expenditure account.

c) Profit and loss account.

d) Accumulated fund account.

18. Transfer of stock account balance to trading account is done through the

a) Sales journal.

b) Returns inwards journal.

c) Bought journal.

d) Journal proper.

19. Calculate the amount payable by a retailer for goods worth shs600, 000 when he allowed cash discount of 8% and trade discount of 2% and pays within the specified period.

a) Shs540,960

b) Shs540,000

c) Shs552,000

d) Shs588,000

20. Which one of the following gives the summary of the transactions between the buyer and the seller of goods?

a) Bank statement.

b) Bank reconciliation statement.

c) Statement of accounts.

d) Statement of affairs.

SECTION B: (80 marks)

21. a) Distinguish between a balance sheet and a trial balance.

b) On 1st January, 2005, the assets and liabilities of Walone & sons enterprises Ltd, whose financial year ends 31st December each year, were as follows:


Creditors 17,352,000

Debtors 12,798,000

Motors van 27,000,000

Stock 18,540,000

Bank overdraft 8,244,000.

The following transactions took place during the year:

  • Purchased goods worth shs12, 240,000 out of which goods worth shs8, 100,000 were bought on credit and the rest was paid for bys cheque.
  • Sold the motor van.
  • Purchased a new motor-van for shs79, 950,000. A deposit of shs21, 600,000 was paid by cheque and the rest was paid by use of a bank loan.
  • Sold goods for shs5, 580,000 on credit.
  • Received cheques totaling to shs18, 378,000 from debtors.

Note: The business maintains only stock accounts to record trading transactions. (Trading Account is not required.)

Required to:

i. Draw Walone and sons' enterprises ltd's balance sheet as at 31st December, 2005.

ii. Enter the above transactions in the ledger and balance the accounts.

22. a) Give two reasons why source documents are important to business.

b) Given below are the details of transactions undertaken by Andrew Mpaata during the month of September, 2005:

September, shs

1 Balance b/f: cash 625,000

Bank 1,850,000

2 Bought goods by cheque 500,000

3 Cash sales 450,000

5 Banked cash 500,000

6 Paid the following creditors by cheque less 5%

Cash discount in each case:

Ageno 375,000

Angwella 750,000

Ogenga 350,000

7 Received cheques from the following debtors less 10%

Cash discount in each case:

Wandwasi 1,000,000

Makwasi 750,000

Wanyoto 800,000

10 Bought office furniture by cheque 750,000

15 Cash drawings for personal use 125,000

20 Paid cash to Ogeni

Less 5% cash discount 200,000

22 Received cash from kajette

Less 4% cash discount 375,000

30 Banked cash 250,000

Required to:

i. prepare a cash book duly balanced,

ii. discount accounts in the General ledger.

23. a) Explain any four causes of difference between the cash book balance and the balance as per the bank statement.

b) Omoro combined stores asked you as an accounts student to help them reconcile their books and presented the following information:

  • The bank has charged shs6, 400 as commission; this was not passed through the cash book.
  • A standing order of shs96, 000 paid on the bank was not recorded in the cash book.
  • The cash book was overstated by shs16, 000 on the debit side.
  • A cheque of shs272, 000 issued to a creditor had not presented.
  • The cash book at the close of business had a debit balance of shs227, 600.
  • A cheque of shs236, 000 which had been banked was returned unpaid.
  • Shs43, 200 banked had not been recorded by the bank.
  • The banking of shs320, 000 had been recorded as shs32, 000 in the cash book.
  • Over-banking and short-banking amounted to shs14, 000 and shs8, 000 respectively.

Required to prepare:

i. An amended cash book,

ii. A bank reconciliation statement.

24. On January 1st 2001, Warukuba social club had the following assets and liabilities:


Uniform stock for sale 1,050,000

Subscription due (2001) 100,000

Insurance prepaid 15,000

Furniture & equipment 2,150,000

Creditors for uniform suppliers 750,000.

The receipts & payments account for the year ending 31st December, 2002 is given below:


Balance b/d 1,340,000

Subscription 4,225,000

Uniform sales 9,200,000

Sales of old furniture 75,000

Fete takings 1,735,000



Creditors (uniforms) 7,075,000

New furniture 300,000

Rent and rates 3,225,000

Fete expenses 1,345,000

Salaries 2,600,000

Light, heating 530,000

Postage, stationery 90,000

Insurance 40,000

Bal c/d 1,370,000


Additional information:

  • Subscription received included shs75, 000 of 2001 the balance should be written off as bad debts.
  • Subscriptions amounting to shs225, 000 were in arrears as at 31 December, 2002.
  • The book value for the furniture sold during the year shs45, 000.
  • Insurance has been fully paid for the period.
  • Depreciation of shs125, 000 is being written off on furniture and equipment.
  • The following were due as at 31 December,2002:


Uniform creditors 875,000

Light/heat 135,000

  • Stock of uniform on 31 December, 2002 was valued at shs900, 000.
  • The profit from uniform sales is shs1,850,000,

Required to:

a) Determine the accumulated fund as at January 1st 2001,

b) Prepare;

i. Income & expenditure account to date for the period ending December, 31st 2002,

ii. Balance sheet as at 31 December, 2002.

25. Show the necessary journal entries to record the following items:

a) Bought a motor vehicle from spear motors ltd. At shs 20,000,000 paying shs8, 000,000 by cheque and the balance to be paid within the following two months.

b) We are owed shs1, 500,000 by kaka. Kaka is declared bankrupt and we only received shs390, 000 in settlement of the debt from his trustees.

c) We take shs45, 000 goods out of the business stock for personal use without paying for them.

d) Sometime ago, we paid rates bill thinking that it was all in respect of the business. We now discover that shs760, 000 of the amount paid, was in fact rates for our private house.

e) Bought machinery at shs5, 000,000 cash and shs10, 000,000 on credit from Matata motors ltd.

26. Gabriel, Amina and Sam entered into a partnership on 1st January, 1998. At the end of the year, they were faced with the following problems:

  • Gabriel wants that interest should be allowed on partner capital contributions.
  • Amina wants that the partners should be given salaries.
  • Sam wants tha the loan advanced by him to the firms should earn 12% interest.
  • Gabriel and amina having contributed bigger amounts of capital, desire that profits should be shared in the ratio of capital contribution.

a) How would you advise the partners on each of the above problems?

b) Guma, Amongin and Salim were in a partnership under the following agreed terms that:

- Capital earns interest of 10%,

- 16% interest be charged on drawings,

- Guma gets 5% commission on turnover,

- Amongin gets shs181,680 as salary,

- Balance of profit to be shared at 2:2:1 respectively.

The following information was also available:

Net profit for the year amounted to shs87, 840.


Capitals were: Guma 360,000

Amongin 360,000

Salim 300,000

Drawings: Guma 60,000

Amongin 42,000

Salim 56,000

Required to prepare the:

i. Partnership appropriation account for the year ended 31st December, 2002.

ii. Partners' capital accounts maintained using fluctuating capital mehod.