QUESTION 1

Martin is an accountant at Zabiri Ltd. During the year ended 30 June 2014 he prepared a trial
balance which did not balance. He posted the difference to the suspense account. He then
prepared the financial statement for the year ended 30 June 2014. The net profit for the company
was sh. 483,840. Upon investigating the following errors were later discovered:
1. The total of purchases day book had been under cast by sh. 11,200,000
2. The total of the discount column on the debit side of the cash book amounting to sh.2,240,000
had been posted to the credit of discount received amount.
3. Motor vehicles repairs amounting to sh. 8,512,000 had been posted to the motor vehicle
account.
4. A cheque for sh. 4,368,000 received form Barnabas Bundi a debtor had been debited in the
cash book but no other entry had been made.
5. The returns outwards had been overcast by sh. 5,600,000.
Required:
(i) Journal entries to correct the errors
(ii) Suspense account
(iii) Statement of corrected net profit

QUESTION 2

Ali Osman is a sole trader who operates a retail business. His balance sheet as at 30 April 2014
was as follows:

Although the trial balance did not agree, the above balance sheet was prepared and a suspense
account opened to which the difference was posted. At a later date, an inspection of the books
revealed the following:

1. The salaries day book had been overcast by Sh.3,000,000.

2. A payment of Sh. 1,560,000 received from a debtor had been recorded in the cashbook but
had not been posted to the personal account.

3. A discount received Sh.150,000 had been posted to the wrong side of the personal account.

4. The stock book had been undercast by Sh.10,000,000 as at 30 April 2014.

5. Bank charges of Sh.850,000 had not been entered into the books.

6. A cash balance of Sh.500,000 had not been included in the trial balance.

7. An invoice for Sh.850,000 for private work commissioned by Ali Osman had been paid by the
business and posted to sundry expenses account.

Required:

a) Suspense account to clear the difference.

b) Statement showing the correct net profit or the year ended 30 April 2014

QUESTION 3

Give the journal entries needed to record the corrections of the following. Narratives are
required.

a) Extra capital of £ 10,000 paid into the bank had been credited to Sales account.

b) Goods taken for own use £ 700 had been debited to General Expenses.

c) Private insurance £ 89 had been debited to Insurance account.

d) A purchase of goods from C Kelly £ 857 had been entered in the books as £ 587.

e) Cash banked £ 390 had been credited to the bank column and debited to the cash column in
the cashbook.

f) Cash drawings of £ 400 had been credited to the bank column of the cashbook.

g) Returns inwards £ 168 from M McCarthy had been entered in error in J Charlton‟s account.

h) A sale of a motor van £ 1,000 had been credited to Motor Expenses.

QUESTION 4

The balance sheet of N Patel, a sole trader, as at 31 March 2000 was as follows:

Sh’000 Sh’000 Sh’000 Sh’000

Capital 1 April 1999 1,890 Land and buildings (at

valuation)
1,650

Profit for the year ended 31 Machinery (at cost) 1,200

March 2000
450

Deduct: drawings 150 300 Deduct: depreciation 750 450

Creditors 630 Stock at cost 570

Bank overdraft 270 Debtors 420 990

3,090 3,090

Further investigation reveals the following information:

1. The closing stock includes damaged goods which, although they had cost Sh. 10,000
have an estimated sale value of Sh.7, 500.

2. Debtors include Sh. 20,000 in respect of a customer who has gone bankrupt. A provision
for doubtful debts of 2 ½% is also required on the balance of the debtors.

3. The machinery was acquired five years ago and is being depreciated to its scrap value
on a straight-line basis over eight years. A more realistic estimate indicates that the life
span will be 10 years.

4. Wages owing at 31 March 2000 amounted to Sh. 9,500 but this has not been reflected in
the accounts.

5. Charges for the bank overdraft, amounting Sh 8,000 have not been reflected in the
accounts.
 6. In arriving at the profit for the period, a drawing of Sh 100,000 paid to Mr. Patel had
been deducted as an expense.

7. Sh 20,000 rent owing to Mr. Patel for the letting of part of his business premises to
external party had not been received and no entry had been made in the books in respect
of this item.

Required:

a) Journal entries to correct errors and omissions.

b) A statement of revised profit for the year ended 31 March 2000.

c) A revised balance sheet as at 31 March 2000.

QUESTION 5

On 31 December 2001, an inexperienced bookkeeper working for Wanji, a sole trader extracted a
trial balance. Due to errors committed by the bookkeeper, the trial balance failed to balance by
Sh 369,400. He placed the difference in a suspense account as shown below:
Investigations carried out after preparing the above trial balance detected the following errors:

1. The total of the sales daybook for December 2001 was overcast by Sh 25,700.

2. On July 2001, the business purchased office equipment for Sh 40,000. These were debited to
purchases account. Depreciation on the equipment is at the rate of 10% per annum on cost and
based on the period (months) of usage in the year.

3. A payment to a creditor by cheque of Sh. 8,500 was erroneously credited to the creditor‟s
account.

4. A payment of Sh. 4,500 for telephone expenses was debited to telephone account as Sh 5,400.

5. An amount of Sh 15,000 received from a debtor was not posted to the debtor‟s account from
the cashbook.

6. Purchases daybook for October 2001 was under cast by Sh 28,000.

Assume the business had reported a net profit of Sh 85,800 before adjusting for the above errors.

Required:

(a) The adjusted trial balance and the correct balance of the suspense account.

(b) Journal entries to correct the errors (Narrations not required)

(c) Suspense account starting with the balance determined in the adjusted trial balance in (a)
above.

(d) The adjusted net profit for the year.

QUESTION 6

ABC Ltd. maintains control accounts in its business records. The balances and transactions
relating to the company's control accounts for the month of December 2014 are listed below:
Required:

Post the trade receivables ledger control accounts for the month of December 2010 and derive
the respective debit and credit closing balances on 31 December 2014.