June /June 2015
Time : 3 hours

3 hours

Write your name and index number in the space provided above.
Sign and write the date of examination in the space provided above.
This question paper consists of TWO sections; A and B.
Answer Question ONE and any other TWO questions from section A.
Answer Question FIVE and any other FOUR questions from section B.

Answer question 1 and any other TWO questions from this section in the space provided.

1. (a) State two exceptional circumstances where case law has no application.(4 marks)

(b) James Keya was released from Kaki Mental Hospital on 24th January 2013 after being certified as normal by a psychiatrist. On 6th May 2013 Keya sold his 2 acres of land in Kilifi inherited from an uncle to Johnstone Kavu for Ksh.50,000. On 7th July 2013 Keya’s mother and brother moved to court seeking to invalidate the sale on the basis of Keya being of unsound mind.
(i) State the circumstances under which contract with lunatics are not voidable;(4 marks)
(ii) What circumstances can make the above sale be voided? (4 marks)
(c) (i) Describe four circumstances necessary for customary law to be enforceable.(4 marks)
(ii) State four categories of contracts that are termed as utmost good faith.(4 marks)
2. (a) State three instances where a hotel or inn- keeper may not be liable to loss incurred by a guest in his /her hotel as per the Hotel and Restaurants Act. (6 marks)

(b) State four premises under the Hotel and Restaurant Act which are not eligible to pay the training and Tourism Development Levy (4 marks)
3. (a) Describe three types of liquor licences issued in Kenya.(6 marks)
(b) With the aid of a diagram, describe the structure of the Kenyan Judicial System. (4 marks)

4. (a) Case law is one of the sources of law. State three advantages of case law. (6 marks)
(b) State four essential elements of a valid contract. (4 marks)

Answer question 5(COMPULSORY) and any other FOUR questions
From section in the spaces provided.

5. (a) For each of the following accounts, identify the type / class for each account. 4 marks)

Account Type/Class
Kali Ltd (Debtor)
Rent expense
Motor vehicle (asset)
Interest income

(b) Accounting transactions are recorded using double entry system. Indicate the type of effect each of the transactions has on the three items of the accounting equation
(4 marks)
(i) purchase of motor vehicle by cash;
(ii) payment of goods by cash;
(iii) owner injects more cash into a business;
(iv) Borrow a loan from a bank.

(c) (i) Differentiate between a cash and a credit transaction; (2 marks)

(ii) Indicate the type of transaction for each of the following: (2 marks)

Transaction Type
Purchase of bsiness premises by mortgage
Drawing of cash by the owner
Deposit of cash into business bank accoount
Purchase of equipment by Mpesa

(d) The purchase ledger balance of Ramisu Sea View Restaurant for January 2014 was as follows:

Purchase ledge balances 1.1.2013————Ksh.20, 000 debit
—————————-Ksh.680, 000 credit
Transactions for the month
Purchase on credit————–Ksh.2, 380, 000
Purchase by cheque———-Ksh.740, 000
Returns outwards———–Ksh.460, 000
Cash paid to suppliers——-Ksh. 1,240, 000
Bills payable————Ksh.564, 000
Set – offs————Ksh. 74, 300
Purchase ledger balance 31.1.2014—–Ksh.32, 000 debit

Prepare the purchases ledger control account for the month of January 2014.(4 marks)

(e) The Equity of Kalimu Bay Hotel on 31th December 2013 was Ksh.2, 460, 800. During the year, the hotel made net profits of Ksh.748, 000 while the owner made drawings of Ksh.302, 100.Determine the opening capital for the hotel on 1st January 2013.
(4 marks)

6. The following transactions relate to Hannah Mwikali, the proprietor of Mwinnah Pastries for the month of January 2014.

Jan 2 acquired a new oven from Kipa Kitchens Ksh.120, 000 on credit

Jan 3 borrowed a loan from WEP bank Ksh.250, 000 and deposited it in an
Account with the same bank
Jan 15 sold pastries worth Ksh.64, 000 cash
Jan 17 bought food supplies for making pasties Ksh.30, 000 cash

Record the above transactions in the books of original entry for Mwinnah Pastries for the month of January 2013.

(10 marks)
7. (a) Explain the meaning of a trial balance.
(2 marks)

(b) The following trial balance has been drawn by an inexperienced book keeper of Whistling Birds Hotel Ltd for the year ended 31.12.2013. —————————Dr. ———–Cr.
————————–Ksh. ‘000—–Ksh.’000
Returns Inwards——————————10
Returns outwards———-12
Fuel cost—————-18
Insurance————— 22
Rent paid———————————–14
Food stock 1.1.2013————————-36
Carriage inwards———8
Carriage outwards—————————11
Discounts received——–10
Discount allowed—————————-9
Kitchen equipment———–160
Kitchen equipment depreciation–20
Wages and salaries————-86
—————————- 336—–728
Re-draft the trial balance correctly.
(8 marks)

8. Cosy Apartments Ltd is a hotel offering furnished apartment to customers. During the month of July, the company had Ksh.12, 000 cash in hand Ksh.16, 000 overdraft in the bank. The following transactions occurred during the month.

July 2 settled Karu Ltd. Debt of Ksh.80, 000 by cheque receiving cash discount of
July 3 received Ksh.18, 000 from Rose by cash
July 7 deposited Ksh.10, 000 cash into bank
July 10 received cheque of Ksh.11, 400 from Chabi Carriers in full
Settlement of debt allowing 5% cash discount
July 18 leased 2 apartments to Jeta Airlines for Ksh.30, 000 on credit
July 22 paid Kabil Ltd by cheque Ksh.25, 000 in full settlement of a
Debt of Ksh.26, 500
July 24 cash sales paid directly into bank Ksh.32, 500
July 26 withdrew Ksh.16, 200 from bank for business use
July 28 purchased hotel supplies from Karita Ltd Ksh.42, 000
On credit
July 30 banked all the cash except Ksh.5, 000

Prepare the three – column cash book for cosy Apartments for the month of July and balance it.
(10 marks)

9. (a) Differentiate between a partnership and a sole trader.
(2 marks)
(b) Kaurit and Parit are partners owning Kampar Restaurant. The following balances were extracted from their books on 31st December 2013.

Capital:–Kaurit————600, 000
———-Parit———— 480, 000
———-Parit————-60, 000
Drawings:–Kaurit———–120, 000

The net profit for the partnership was Ksh. 384, 000. Interest on capital is allowed 10% p.a while interest on drawings is charged at 15% P.a. Profits are shared in the ratio of 7: 3 respectively. Prepare the partnership Appropriation Account and the partners current accounts.
(8 marks)
10. Kaunti Hotel prepared the following trial balances as at 31st December 2013.

Sales and purchases—–638,000——–1,420,000
Debtors and creditors—128,400——–302,000
Discounts—————41,200———38, 600
Motor vehicles———-344,200
Equipment————–503, 000
Rent——————-120, 000
Salaries and wages——304, 000
Energy cost————-107,000
Bad debts written off —54,000
Depreciation: Motor vehicles————56,200
————–Equipment—————–38, 400
Provision for doubtful debts————7,000

Additional Information:

(i) Rent accrued was Ksh.20, 000 while energy pre- paid was Ksh.12, 000.
(ii) Closing stock was Ksh.33, 400.
(iii) Depreciation is provided on a reducing balance basic at 10%P.a for equipment and 15%p.a for motor vehicles.
(iv) Provision for doubtful debts is to be maintained at 5% of debtors.
Prepare the Trading and Profit and Loss Account for Kaunti Hotel Ltd for the year ended 31.12.2013.
(10 marks)

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