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QUESTIONS  
NUMBER ONE  
The following trial balance has been extracted from the books of Lina Insurance Company Ltd as at 31  
December 2025:  
Sh.  
Sh.  
„000‟  
„000‟  
Net premium written: Fire  
Motor  
Unearned premiums as at 1 January 2025: Fire  
Motor  
53,816  
107,691  
36,018  
72,037  
Net commissions paid: Fire  
Motor  
1,733  
3,469  
Net claims paid: Fire  
Motor  
Net claims outstanding as at 1 January 2025: Fire  
Motor  
27,892  
55,781  
36,018  
72,037  
Management expenses to be charged to revenue account  
Management expenses not to be charged to revenue account  
Bad and doubtful debts  
77,554  
10,000  
2,500  
Treasury bills  
99,550  
Treasury bonds  
5,693  
Motor vehicle (Net book value)  
Deposits in banks  
Equipment (Net book value)  
Bank overdraft  
500  
237,050  
7,207  
8,000  
2,000  
Amounts due to other insurance companies  
Amounts due from other insurance companies  
Share capital  
Investment income  
Other income  
3,470  
60,000  
36,000  
8,782  
Revaluation reserve  
Retained earnings as at 1 January 2025  
25,000  
15,000  
532,399  
______  
532,399  
Additional information:  
1. Management expenses to be charged to revenue account are to be apportioned on the basis of net  
premiums written:  
2. The management made the following estimates as at 31 December 2025  
Sh.000  
i)  
Unearned Premiums:  
Fire  
Motor  
20,000  
30,000  
45,000  
79,000  
ii)  
Net claims outstanding: Fire  
Motor  
Required:  
a) Revenue accounts, showing results of the fire and motor departments and combined business, for the  
year ended 31 December 2025.  
b) Profit and loss account for the year ended 31 December 2025  
c) Balance sheet as at 31 December 2025  
(8 marks)  
(6 marks)  
(6 marks)  
(Total: 20 marks)  
NUMBER TWO  
(a) Briefly explain the following terms as used in accounting for returnable containers:  
(i) charge-out price  
(ii) Credit-back price  
(2 marks)  
(2 marks)  
(b) Jiko Ltd. supplies cooking gas in 10 kilogramme cylinders which are returnable after use. The cylinders  
are purchased at Sh. 500 each and are valued at Sh. 400 for stocktaking purposes.  
On issue of the cylinders to customers, a deposit of Sh.600 is paid per cylinder of which Sh.520 is  
refunded to customers on return of a cylinder within a period of three months.  
On 1 January 2025, there were 2,000 cylinders in the company’s warehouse and 8,000 cylinders in the  
hands of customers in respect of which the return period had not expired.  
During the year ended 31 December 2025, the company purchased 6,000 new cylinders at the normal  
purchase price but returned 200 cylinders to the supplier due to defects detected on inspection. A credit  
of Sh. 100,000 was given by the supplier for the returned cylinders. For the year ended 31 December  
2025, customers were issued with 72,000 cylinders and they returned 68,000 cylinders. As at 31  
December 2025, the customers held 10,000 cylinders which had been issued within the previous three  
months.  
For safety purposes the cylinder returned by customers were thoroughly inspected and repaired for any  
damages or defects. On average, Sh. 40 was spent as inspection and repair costs per cylinder returned by  
a customer.  
Due to wear and tear: 250 cylinders were confirmed to be unsafe for use. These were sold to a crap  
metal dealer at Sh. 180 each.  
On 31 December 2025, stocktaking revealed that there were only 3,500 cylinders in the warehouse. The  
deficit was treated as a loss.  
Required:  
i)  
(ii)  
(iii)  
Containers stock account as at 31 December 2025.  
Containers suspense account as at 31 December 2025.  
Containers profit and loss account for the year ended 31 December 2025  
(5 marks)  
(6 marks)  
(5 marks)  
(Total: 20 marks)  
NUMBER THREE  
On 1 January 2026; Hassan and Kamau entered into a joint venture to buy and sell goods. It was agreed that  
Hassan should receive a commission of 2% on all sales in consideration for which he was to bear all losses  
from bad debts. Profits and losses were to be shared equally.  
The following transactions took place:  
2 January 2026: Hassan purchased goods for Sh. 680,000 paying Sh. 480,000 in cash and accepted two bills  
of exchange, one for Sh. 80,000 and the other for Sh. 120,000.  
3 January 2026: Hassan sent to Kamau goods which had cost Sh. 275,000 and Kamau transferred Sh.  
350,000 to Hassan in cash.  
9 January 2026: Hassan sold goods to Otieno for Sh. 42,000 and to Wafula for Sh. 25,000 and they accepted  
bills of exchange for the amounts respectively due from them. Hassan endorsed both bills  
to Kamau who discounted them incurring discounting charges of Sh. 2,000.  
3 February 2026:Hassan sold goods for Sh. 180,000. On delivery, the customer rejected goods invoiced at Sh.  
9,000 and these goods were collected by Kamau who sold them to another customer for Sh.  
11,000.  
11 Feb 2026:  
Otieno met his bill but Wafula’s bill was dishonoured. Wafula could not meet his debt and it  
was written off as a bad debt.  
5 March 2026: Kamau paid the bill for Sh.80,000 which had been accepted by Hassan and Hassan paid the  
second bill for Sh. 120,000.  
20 March 2026: Hassan sold the remainder of the goods in his possession for Sh. 291,000 and Kamau’s sales  
on the same date amounted to Sh. 340,000. Bad debts (apart from the amount due from  
Wafula) were Sh. 4,200 of which Sh. 3,000 was in respect of sales by Hassan.  
On 30 April 2026, the venture was closed. Kamau took over the stock in his possession at a valuation of Sh.  
50,000 and the sum required to settle accounts between the venturers was paid by the relevant venturer.  
Required:  
(a)  
Joint venture accounts which would appear in the books of Hassan and Kamau for the period ended  
30 April 2026. (14 marks)  
Memorandum joint venture account showing the distribution of profit for the period ended 30 April  
2026. (6 marks)  
(Total: 20 marks)  
(b)  
NUMBER FOUR  
(a)  
(b)  
Briefly explain the importance of a cashflow statement to a business entity. (5 marks)  
Bongo Ltd., a medium sized trading company, closes its books every 31 December. Given below are  
the comparative balance sheets of Bongo Ltd. for the years ended 31 March 2025 and 2026.  
Balance sheet as at 31 March  
2026  
Sh. „000‟  
2025  
Sh. „000‟  
Assets:  
Non-current assets:  
Land and buildings  
Motor vehicles  
95,000  
46,000  
25,000  
166,000  
55,000  
35,000  
28,000  
Furniture and fixtures  
118,000  
Current assets:  
Stocks  
Debtors  
Prepayments  
Bank balance and cash in hand  
28,000  
14,000  
6,000  
-
20,000  
16,000  
8,000  
3,000  
48,000  
214,000  
47,000  
165,000  
Total assets  
Equity and liabilities:  
Capital and reserves:  
Ordinary share capital  
Share premium  
Revaluation reserve  
Retained profit  
80,000  
20,000  
15,000  
18,000  
133,000  
50,000  
15,000  
25,000  
15,000  
105,000  
Non-current liabilities:  
10% debentures  
Bank loan  
30,000  
6,000  
36,000  
20,000  
10,000  
30,000  
Current liabilities:  
Trade creditors  
Interest payable  
Current tax  
23,000  
9,000  
6,000  
15,000  
6,000  
5,000  
-
Bank overdraft  
4,000  
Proposed dividends  
3,000  
45,000  
214,000  
4,000  
30,000  
165,000  
Total equity and liabilities  
The following additional information is provided for the year ended 31 March 2026  
1. Land and buildings were revalued upwards by Sh. 10,000,000 during the year. In addition, an acquisition  
of land and building of Sh. 40,000,000 was made.  
2. Depreciation on motor vehicles amounting to Sh. 4,000,000 was provided in the profit and loss account  
for the year. Motor vehicles having a net book value of sh. 8,000,000 were sold at a profit of Sh.  
3,000,000 during the year.  
3. Bonus shares of Sh. 20,000,000 were issued as par during the year by utilizing the revaluation reserve  
Bongo Ltd’s ordinary shares have a par value of Sh. 20.  
4. Interest expense charged to the profit and loss account for the year amounted to Sh. 8,000,000.  
5. During the year, tax amounting to Sh. 6,000,000 was paid.  
6. Total dividends for the year (both interim and proposed) amounted to Sh. 5,000,000.  
7. The profit after tax for the year amounted to Sh. 8,000,000.  
Required:  
Cash flow statement (in accordance with the requirements of IAS 7) for the year ended 31 March 2026.  
(15 marks)  
(Total: 20 marks)  
NUMBER FIVE  
(a)  
One of the key difference between non-profit making and commercial organizations is that they have  
different reasons for their existence. Consequently, non-profit making organizations follow some  
accounting principles which differ from those followed by commercial organizations.  
Required:  
Briefly discuss the role of accountants in both types of organizations.  
(12 marks)  
(b)  
The estimates and expenditure details relating to the Ministry of Social Services as at 30 June 2025  
were as follows:  
Original  
estimates  
Sh. „000‟  
Actual  
expenditure  
Sh. „000‟  
000 – Personal emoluments  
050 – House allowances  
080 – Passages and leave  
110 – Travelling expenses  
140 – Electricity and water  
220 – Purchase of plant and equipment  
650 – Appropriation in Aid  
160,000  
180,000  
26,000  
9,000  
46,000  
13,000  
80,000  
24,000  
30,000  
10,000  
44,000  
12,000  
100,000  
30,000  
Supplementary estimates authorized during the year were as follows:  
000 – Personal emoluments  
110 – Travelling expenses (reduced)  
Sh. 16,000,000  
Sh. 4,000,000  
Required:  
Appropriation account for the year ended 30 June 2025. Showing the net surplus to be surrendered to the  
Exchequer. (8 marks)  
(Total: 20 marks)  
ANSWERS  
NUMBER ONE  
Revenue Account  
FIRE  
27,892  
45,000  
(36,018)  
-
MOTOR COMBINED  
FIRE  
MOTOR COMBINED  
Net claim paid  
Claims outstanding c/d  
Claims outstanding b/d  
Incidental cost  
Net claims  
55,781  
79,000  
(72,037)  
-
83,673 Unearned  
124,000 premium b/d  
(198,055) Net premium  
-
36,018  
53,816  
72,037  
108,055  
161,507  
107,691  
36,874  
62,744  
99,618  
Less: Expenses  
Management  
Net commission ceded  
paid  
25,842  
1,733  
5,385  
20,000  
89,834  
51,712  
3,469  
11,803  
50,000  
179,729  
77,554  
5,202  
17,188  
70,000  
269,562  
Profit  
____  
_____  
_____  
Unearned premium c/d  
89,834  
179,728  
269,562  
Profit and loss Account  
“Shs. „000”  
17,188  
Revenue  
Investment  
36,000  
Other incomes  
8,782  
61,970  
Less Expenses  
Management Expenses  
Bad debts  
10,000  
2,500  
(12,500)  
49,470  
15,000  
64,470  
Add: retained profit b/d  
Retained profit c/d  
Balance Sheet  
„Shs 000”  
500  
Fixed Assets:- motor vehicle  
Equipments  
7,207  
Investments - treasury bills  
- treasury bonds  
99,550  
5,693  
Current assets – deposit in bank  
Amount due from other insurances  
237,050  
3,470  
240,520  
353,470  
Capital and liabilities  
Share capital  
Revaluation reserves  
Retained earning  
60,000  
25,000  
64,470  
149,470  
Underwriting provision  
Unearned premium c/d (20+50)  
Outstanding claims c/d (45+79)  
70,000  
124,000  
Other liabilities  
Bank overdrafts  
amount due to other insurances  
8,000  
2,000  
353,470  
NUMBER TWO  
b) Retained Containers  
Balance b/d  
Sent to customers  
8,000  
72,000  
80,000  
68,000  
10,000  
2,000  
Less returned  
returnable  
Containers in store  
Bal b/d  
-store  
-customer  
2,000  
8,000  
Purchased (6,000-200)  
5,800  
15,800  
(250)  
(2000)  
(10,000)  
3,550  
Scrapped  
Returned  
Returnable  
Abnormal loss = 3,550 – 3,500 = 50  
Suspense A/C  
qty  
68,000  
2,000  
-
10,000  
80,000  
Continer  
520  
amt  
qty  
Price/unit  
amount  
Returned  
Retained  
Hire profit  
Balance c/d  
35,360,000 Balance b/d  
1,040,000 sent  
5,760,000  
520  
8,000  
72,000  
_____  
80,000  
520  
600  
4,160,000  
43,320,000  
________  
47,360,000  
520  
5,200,000  
47,360,000  
Stock Account  
Qty  
Price/  
unit  
400  
400  
500  
Amt  
Qty  
Price/  
Amt  
unit  
180  
520  
-
Bal b/d store  
customer  
Purchases  
2000  
8000  
5800  
800,000 Scrapped  
3,200,000 Returned  
2,900,000 Loss  
250  
2000  
50  
45,000  
10,040,000  
-
Repairs (68,000x10)  
Profit  
2,720,000 Hire charges  
2,625,000 Bal c/d store  
________ customer  
12,245,000  
5,760,000  
1,400,000  
4,000,000  
12,245,000  
3500  
10000  
15,800  
400  
400  
____  
15,800  
Computation to determine profit or loss  
Profit on hire 72,000 x (600-520)  
Profit on retained 2000 x (520-400)  
Loss on scrapped 250 x (400-180)  
5,760,000  
240,000  
(55,000)  
Loss on cost  
50 x (400-0)  
(20,000)  
Repairs  
2,720,000  
(580,000)  
21,625,000  
Depreciation 5800 x (500 – 400)  
NUMBER THREE  
Hassan Books  
Joint venture with Kamau A/C  
3.1.2003 Bank A/C (purchases  
5.3.2003 Bank A/C (purchases)  
20.3.2003 Commission income A/C  
Share of profit  
480,000  
120,000  
3.1.2003 bank A/c Cash from Kamau  
3.2.2003 Bank (sales)  
350,000  
171,000  
291,000  
275,000  
9,000  
__80,000  
1,176,000  
17,600 20.3.2003 Bank (sales)  
155,200 20.3.2003 Stock A/c (stock to Kamau)  
403,250 20.3.2003 Stock to Kamau  
_______ 20.3.2003 Bill to Kamau  
1,176,000  
20.3.2003 Bank A/c (cash from Kamau)  
Kamau’s Books  
Joint Venture with Hassan A/C  
3.1.2003 Bank A/C (Cash to House) 350,000 9.1.2003 bank A/c (sales)  
67,000  
11,000  
340,000  
50,000  
403,2000  
871,200  
9.1 2003 Bank A/C (Discharges)  
5.3.2003 Bank (purchases)  
3.1.2003 stock A/C (stock)  
3.1.2003 share of profit  
2,000 3.2.2003 bank (sales)  
80,000 20.3.2003 bank (sales)  
284,000 20.3.2003 bal. C/d (closing stock)  
155,200 20.3.2003 bank A/C (Cash from Hassan)  
871,200  
b)  
Memorandum Joint Venture A/C  
Purchases  
600,000 Sales  
2,000 Closing stock  
17,600  
155,200  
135,200  
880,000  
50,000  
Discounting charges  
Commission to Hassan  
Share of profit: Hassan  
:Kamau  
_____  
930,000  
930,000  
NUMBER FOUR  
a)  
Importance of preparing cash flow statements  
It gives information on the major sources of cash to an enterprise.  
It assists in control procedures i.e. it will disclose major cash expenditure items to an enterprise.  
Its relevant during comparison of performance over 2 financial periods.  
It assists investors by improving their understanding and financial statements.  
A firm’s debt repayment ability is most clearly reflected by a cash flow statement.  
b)  
Bongo LTD  
Cash flow statement for the year ended 31.03.2026  
“000”  
“000”  
15,000  
Reported net profit before tax  
Adjustments  
Depreciation on motor vehicles  
Profit on disposal of motor vehicles  
Interest expense  
4,000  
(3,000)  
8,000  
Depreciation on furniture and fittings  
Depreciation on buildings  
3,000  
10,000  
22,000  
37,000  
Working capital changes  
Increase in stocks  
Decrease in debtors  
Prepayments decreased  
Increase in trade creditors  
Cash generated from operating activities  
Tax paid  
(8,000)  
2,000  
2,000  
8,000  
4,000  
41,000  
(6,000)  
Return on investment & servicing of finance  
Interest payable paid  
Dividends paid  
Cash generated from return on investment & servicing of finance  
Investing activities  
(5,000)  
(6,000)  
(11,000)  
24,000  
Purchases of motor vehicles  
Purchase of land  
Proceeds of disposed motor vehicles  
Cash generated from investing activities  
Financing activities  
(23,000)  
(40,000)  
11,000  
(52,000)  
(28,000)  
Issue of debentures  
Repayment of loan  
Issue of shares  
Cash generated from financing activities  
Cash and cash equivalent as at 1.04.2025  
Cash and cash equivalent as at 31.03.2026  
10,000  
(4,000)  
15,000  
21,000  
(7,000)  
3,000  
(4,000)  
Workings  
Land & building A/C  
Bal b/f  
Revaluation  
Additions  
55,000  
10,000  
40,000  
105,000  
Depreciation  
Bal c/d  
10,000  
95,000  
______  
105,000  
Motor vehicles  
Bal b/f  
Addition  
35,000  
23,000  
____  
Disposal  
Depreciation  
Bal c/c  
8,000  
4,000  
46,000  
58,000  
58,000  
Revaluation A/C  
Shares 20,000  
Bal c/d  
20,000  
15,000  
35,000  
Bal b/f  
Land A/C  
25,000  
10,000  
35,000  
Interest A/C  
5,000 Bal b/f  
9,000 P & L  
14,000  
Cash  
Bal c/d  
6,000  
8,000  
14,000  
Corporation tax  
Cash  
Bal c/d  
6,000  
6,000  
12,000  
Bal  
b/f  
P &  
L
5,000  
7,000  
12,000  
Dividends  
6,000 Bal b/f  
P & L  
Cash  
Bal C/d  
4,000  
5,000  
9,000  
3,000  
9,000  
Share A/C  
Bal b/f  
50,000  
Bonus  
Appl &  
Allot.  
20,000  
10,000  
80,000  
Bal C/d  
80,000  
80,000  
NUMBER FIVE  
Roles of accountant  
Determination of assets and liabilities – to determine financial position of a business.  
Maintaining records or books for reference & preparation of final accounts e.g. income & expenditure.  
Reconciliation of various accounts  
Planning and budgeting  
For auditing purposes.  
Appropriation Account  
Expenditure needs  
Personal emolument  
Supplementary  
House allowance  
Passage & leave  
Estimate  
160,000  
16,000  
30,000  
10,000  
Actual  
Over  
4,000  
Under  
180,000  
26,000  
9,000  
176,000  
4,000  
1,000  
Travelling expenses-(44000)  
Supplementary (4,000)  
Electricity + water  
Plant + equipment  
40,000  
12,000  
100,000  
368,000  
30,000  
338,000  
-
46,000  
13,000  
80,000  
354,000  
24,000  
330,000  
8,000  
6,000  
1,000  
20,000  
25,000  
11,000  
A/A  
Exchequer  
338,000  
338,000