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KASNEB CIFA Foundation study materials
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KASNEB CIFA Foundation practice questions

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Question 1Financial Accounting

A business has total assets of Ksh 500,000 and total liabilities of Ksh 180,000. What is the amount of capital?

  1. Ksh 180,000
  2. Ksh 320,000 Correct answer.
  3. Ksh 500,000
  4. Ksh 680,000

Explanation

The accounting equation states that assets equal capital plus liabilities, so capital is assets less liabilities. Here Ksh 500,000 less Ksh 180,000 gives Ksh 320,000.

Question 2Financial Accounting

Which double entry records a credit sale of goods to a customer?

  1. Debit trade receivables account; credit sales account Correct answer.
  2. Debit trade receivables account; credit purchases account
  3. Debit sales account; credit trade receivables account
  4. Debit cash account; credit sales account

Explanation

A credit sale increases the amount owed by the customer, so trade receivables is debited, and it increases income, so the sales account is credited. Cash is not involved because the sale is on credit.

Question 3Financial Accounting

In which book of prime entry is a credit purchase of goods recorded?

  1. General journal
  2. Purchases day book Correct answer.
  3. Cash book
  4. Sales day book

Explanation

Credit purchases of goods are first recorded in the purchases day book, from which they are later posted to the ledger. The cash book records cash transactions and the sales day book records credit sales.

Question 4Financial Accounting

What is the main purpose of preparing a trial balance?

  1. To test the arithmetical accuracy of the double entry Correct answer.
  2. To show the financial position of the business
  3. To calculate the profit for the period
  4. To detect all errors in the accounting records

Explanation

A trial balance lists debit and credit balances to confirm that total debits equal total credits. It therefore tests arithmetical accuracy but cannot reveal errors such as omission or principle.

Question 5Financial Accounting

Depreciation is best described as which of the following?

  1. Allocation of an asset's cost over its useful life Correct answer.
  2. Writing off the whole cost of an asset in the year it is bought
  3. Recording an asset at its current market value each year
  4. Setting aside money each year so that cash is available for replacement

Explanation

Depreciation spreads the depreciable amount of a non-current asset systematically over the periods that benefit from its use. It is an allocation of cost, not a saving of cash or a revaluation.

Question 6Financial Accounting

Under the accrual basis of accounting, revenue is recognised when which event occurs?

  1. The financial statements for the year have been finalised and formally approved by the owner
  2. Goods or services are delivered, regardless of when cash is received Correct answer.
  3. Cash is received from the customer
  4. The customer's invoice is paid in full

Explanation

Accrual accounting recognises revenue when the performance obligation is satisfied, that is when goods or services are transferred. The timing of the cash receipt does not determine when revenue is recognised.

Question 7Financial Accounting

A petty cash float of Ksh 20,000 is maintained on the imprest system. Petty cash vouchers for the month total Ksh 13,500. How much cash is reimbursed to restore the float?

  1. Ksh 33,500
  2. Ksh 6,500
  3. Ksh 13,500 Correct answer.
  4. Ksh 20,000

Explanation

Under the imprest system the float is restored to its original amount by reimbursing exactly what has been spent. The vouchers total Ksh 13,500, so that is the amount reimbursed.

Question 8Financial Accounting

A business pays Ksh 40,000 to install a new machine in its factory. How should this cost be treated?

  1. Debited to the rent account
  2. Added to the cost of the machine and capitalised Correct answer.
  3. Charged to the statement of profit or loss as an expense
  4. Treated as a reduction of capital

Explanation

Costs incurred to bring an asset to the location and condition necessary for its intended use form part of its cost. Installation expenditure is therefore capitalised as part of the machine.

Question 9Financial Accounting

A machine costing Ksh 900,000 has an estimated residual value of Ksh 100,000 and a useful life of 8 years. Using the straight-line method, what is the annual depreciation charge?

  1. Ksh 125,000
  2. Ksh 80,000
  3. Ksh 112,500
  4. Ksh 100,000 Correct answer.

Explanation

Straight-line depreciation is the depreciable amount divided by the useful life. The depreciable amount is Ksh 900,000 less Ksh 100,000, giving Ksh 800,000, which divided by 8 years is Ksh 100,000.

Question 10Financial Accounting

A vehicle costs Ksh 1,000,000 and is depreciated at 20% per annum on the reducing balance. What is the depreciation charge for the second year?

  1. Ksh 320,000
  2. Ksh 160,000 Correct answer.
  3. Ksh 200,000
  4. Ksh 144,000

Explanation

Year one depreciation is 20% of Ksh 1,000,000, which is Ksh 200,000, leaving a carrying amount of Ksh 800,000. Year two depreciation is 20% of Ksh 800,000, which is Ksh 160,000.

Question 11Financial Accounting

A debt of Ksh 15,000 previously written off as bad is now recovered by cheque. What is the correct double entry?

  1. Debit bad debts account; credit cash account
  2. Debit cash account; credit trade receivables account
  3. Debit bad debts recovered account; credit cash account
  4. Debit cash account; credit bad debts recovered account Correct answer.

Explanation

Recovery increases cash, so cash is debited, and the income is credited to a bad debts recovered account. The debt was already removed from receivables when it was written off.

Question 12Financial Accounting

Trade receivables at the year end are Ksh 800,000. A provision for doubtful debts of 5% is required and the existing provision is Ksh 30,000. What is the charge to the statement of profit or loss?

  1. Ksh 40,000
  2. Ksh 10,000 Correct answer.
  3. Ksh 50,000
  4. Ksh 30,000

Explanation

The required provision is 5% of Ksh 800,000, which is Ksh 40,000. Since Ksh 30,000 already exists, only the increase of Ksh 10,000 is charged to profit or loss.

Question 13Financial Accounting

Opening inventory was 100 units at Ksh 20 each. Purchases were 200 units at Ksh 24 each, and 250 units were sold. Using FIFO, what is the value of closing inventory?

  1. Ksh 1,200 Correct answer.
  2. Ksh 1,100
  3. Ksh 1,000
  4. Ksh 2,400

Explanation

Under FIFO the 250 units sold are taken first from the 100 opening units and then from 150 of the purchased units. The 50 remaining units all come from the later purchase at Ksh 24, giving Ksh 1,200.

Question 14Financial Accounting

The cash book shows a favourable balance of Ksh 50,000. Cheques issued but not yet presented amount to Ksh 8,000. What is the favourable balance shown on the bank statement?

  1. Ksh 42,000
  2. Ksh 58,000 Correct answer.
  3. Ksh 8,000
  4. Ksh 50,000

Explanation

Cheques issued have already been deducted in the cash book but not yet in the bank's records. The bank statement balance is therefore higher than the cash book by Ksh 8,000, giving Ksh 58,000.

Question 15Financial Accounting

Which of the following errors would still allow the trial balance to balance?

  1. A payment of Ksh 5,000 entered in the cash book only
  2. A credit sale of Ksh 900 posted to the wrong side of the sales account
  3. Purchase of a motor vehicle debited to the motor expenses account Correct answer.
  4. A sales invoice of Ksh 450 recorded as Ksh 540 in both accounts

Explanation

An error of principle involves using the wrong class of account but posting equal debits and credits, so the trial balance still agrees. The other options involve one-sided entries or unequal amounts.

Question 16Financial Accounting

Partners A and B share residual profits equally. Profit before appropriations is Ksh 200,000. Interest on capital is A Ksh 10,000 and B Ksh 15,000, and B is entitled to a salary of Ksh 25,000. What is A's share of the residual profit?

  1. Ksh 85,000
  2. Ksh 75,000 Correct answer.
  3. Ksh 90,000
  4. Ksh 100,000

Explanation

Appropriations of Ksh 25,000 interest and Ksh 25,000 salary are deducted first, leaving Ksh 150,000. Sharing this equally gives A Ksh 75,000.

Question 17Financial Accounting

A company proposes a final dividend after the reporting period but before the financial statements are authorised for issue. How should this dividend be treated?

  1. Recognised as a liability at the reporting date
  2. Disclosed by note; not recognised as a liability Correct answer.
  3. Ignored completely with no disclosure
  4. Deducted from retained earnings at the reporting date

Explanation

A dividend declared after the reporting date does not represent an obligation at that date, so it is a non-adjusting event. It is disclosed in the notes so users know of the proposed appropriation.

Question 18Financial Accounting

When preparing a statement of cash flows using the indirect method, how is depreciation charged for the year treated?

  1. Deducted from profit before tax
  2. Ignored because it does not involve cash
  3. Shown as a cash outflow under investing activities
  4. Added back to profit before tax Correct answer.

Explanation

Depreciation reduces profit but does not use cash, so it is added back to profit before tax to arrive at cash generated from operations. It is not shown as a separate cash outflow.

Question 19Financial Accounting

An asset with a carrying amount of Ksh 200,000 is revalued to Ksh 260,000. How should the Ksh 60,000 surplus be treated?

  1. Credited directly to the share capital account
  2. Recognised in other comprehensive income Correct answer.
  3. Deducted from the asset's carrying amount next year
  4. Recognised as income in profit or loss

Explanation

An upward revaluation is recognised in other comprehensive income and accumulated in a revaluation reserve within equity. It is not reported as a gain in profit or loss.

Question 20Financial Accounting

Under IAS 38 Intangible Assets, how should expenditure on research be treated?

  1. Capitalised and amortised over a maximum of five years
  2. Capitalised as an intangible asset if it can be measured reliably
  3. Recognised as an asset and tested annually for impairment
  4. Expensed as incurred Correct answer.

Explanation

IAS 38 prohibits capitalising research expenditure because no intangible asset can be demonstrated at that stage. It is written off as an expense when incurred; only development costs meeting specified criteria may be capitalised.

Question 21Financial Accounting

A sale of Ksh 2,000 to customer X was credited to customer Y's account, and repairs of Ksh 3,000 were debited to the motor vehicle account. What is the combined effect of these errors on the reported profit?

  1. Overstated by Ksh 5,000
  2. No effect at all
  3. Overstated by Ksh 3,000 Correct answer.
  4. Understated by Ksh 3,000

Explanation

Mislocating a sale between two receivable accounts does not affect profit because sales were still correctly recorded. Capitalising repairs understates expenses by Ksh 3,000, so profit is overstated by that amount.

Question 22Financial Accounting

Inventory costing Ksh 50,000 has an estimated selling price of Ksh 60,000 and costs to sell of Ksh 15,000. At what amount should the inventory be carried?

  1. Ksh 60,000
  2. Ksh 50,000
  3. Ksh 45,000 Correct answer.
  4. Ksh 35,000

Explanation

IAS 2 requires inventory to be measured at the lower of cost and net realisable value. Net realisable value is Ksh 60,000 less Ksh 15,000, which is Ksh 45,000, and this is below cost.

Question 23Financial Accounting

A trader earns a mark-up of 25% on cost. Sales for the year were Ksh 500,000, opening inventory was Ksh 40,000 and purchases were Ksh 380,000. What is the closing inventory?

  1. Ksh 60,000
  2. Ksh 20,000 Correct answer.
  3. Ksh 5,000
  4. Ksh 45,000

Explanation

With a mark-up on cost, cost of sales is Ksh 500,000 divided by 1.25, giving Ksh 400,000. Closing inventory is opening inventory plus purchases less cost of sales: 40,000 + 380,000 - 400,000 = Ksh 20,000.

Question 24Financial Accounting

An asset costing Ksh 500,000 with no residual value was depreciated straight line over 10 years. At the start of year 4 the remaining useful life is revised to 4 years. What is the depreciation charge for year 4?

  1. Ksh 70,000
  2. Ksh 50,000
  3. Ksh 125,000
  4. Ksh 87,500 Correct answer.

Explanation

Three years of depreciation at Ksh 50,000 leave a carrying amount of Ksh 350,000. A change in useful life is applied prospectively, so Ksh 350,000 is spread over the revised 4 remaining years, giving Ksh 87,500.

Question 25Financial Accounting

The payables control account shows a credit balance of Ksh 98,000 while the list of supplier balances totals Ksh 94,500. It is found that a discount received of Ksh 3,500 was omitted from the control account. What is the corrected control account balance?

  1. Ksh 91,000
  2. Ksh 98,000
  3. Ksh 102,000
  4. Ksh 94,500 Correct answer.

Explanation

A discount received reduces the amount owed to suppliers, so the missing entry is a debit of Ksh 3,500 in the control account. Deducting this from Ksh 98,000 gives Ksh 94,500, which now agrees with the list.

Question 26Financial Accounting

A sole trader buys inventory on credit for Ksh 30,000. What is the effect of this transaction on the accounting equation?

  1. Assets decrease and liabilities decrease
  2. Assets increase and liabilities increase Correct answer.
  3. Liabilities increase and capital decreases
  4. Assets increase and capital increases

Explanation

A credit purchase brings in inventory, so assets increase, and it creates an obligation to the supplier, so liabilities increase by the same amount. Capital is not affected because the transaction is with an external party and no profit has arisen.

Question 27Financial Accounting

A supplier delivers goods on credit to a customer and later sends a document showing the amount due and the payment date. What is this document called?

  1. Purchase order
  2. Credit note
  3. Quotation
  4. Invoice Correct answer.

Explanation

An invoice is the document a supplier sends to a credit customer to record the sale and demand payment. It states the goods supplied, the amount due and the payment terms.

Question 28Financial Accounting

A customer returns goods that were previously sold on credit. In which book of prime entry is this return recorded?

  1. Cash book
  2. Sales day book
  3. Purchases day book
  4. Sales returns day book Correct answer.

Explanation

Goods returned by a credit customer are recorded in the sales returns day book, sometimes called the returns inwards book. This book collects the credit notes issued to customers.

Question 29Financial Accounting

Which of the following is presented as a non-current liability in a statement of financial position?

  1. Bank overdraft repayable on demand
  2. Rent accrued but unpaid
  3. Trade payables
  4. Bank loan repayable in five years Correct answer.

Explanation

A non-current liability is an obligation that is not due for settlement within twelve months of the reporting date. A loan repayable in five years meets this definition.

Question 30Financial Accounting

The owner of a business takes goods costing Ksh 5,000 from inventory for personal use. What is the correct double entry?

  1. Debit drawings Ksh 5,000; credit purchases Ksh 5,000 Correct answer.
  2. Debit purchases Ksh 5,000; credit drawings Ksh 5,000
  3. Debit drawings Ksh 5,000; credit cash Ksh 5,000
  4. Debit capital Ksh 5,000; credit purchases Ksh 5,000

Explanation

Goods withdrawn by the owner are treated as drawings, which are debited, and the goods leave the business, so purchases or inventory is credited. No cash is involved.

Question 31Financial Accounting

Which of the following is capital expenditure?

  1. Repainting the office building
  2. Wages paid to factory operators
  3. Annual insurance of motor vehicles
  4. Cost of extending a warehouse Correct answer.

Explanation

Capital expenditure is spending that increases the earning capacity or life of a non-current asset. Extending a warehouse adds to the asset and is therefore capitalised.

Question 32Financial Accounting

Which accounting concept requires that the owner's personal expenses be kept separate from the business's transactions?

  1. Consistency
  2. Materiality
  3. Prudence
  4. Business entity Correct answer.

Explanation

The business entity concept treats the business as separate from its owner for accounting purposes. Personal transactions of the owner are therefore excluded from the business records and shown as drawings instead.

Question 33Financial Accounting

A supplier allows a discount of Ksh 4,000 when a business pays its account. How is this discount recorded?

  1. Debit discount received Ksh 4,000; credit payables Ksh 4,000
  2. Debit purchases Ksh 4,000; credit discount received Ksh 4,000
  3. Debit discount allowed Ksh 4,000; credit payables Ksh 4,000
  4. Debit payables Ksh 4,000; credit discount received Ksh 4,000 Correct answer.

Explanation

A discount received reduces the amount owed to the supplier, so payables are debited. The benefit is income to the business, so discount received is credited.

Question 34Financial Accounting

A machine is bought on 1 September for Ksh 800,000. It has a residual value of Ksh 80,000 and a useful life of six years. Depreciation is charged on the straight-line basis and the year end is 31 December. What is the depreciation charge for the first year?

  1. Ksh 120,000
  2. Ksh 40,000 Correct answer.
  3. Ksh 80,000
  4. Ksh 53,333

Explanation

Annual depreciation is (800,000 minus 80,000) divided by 6 years, which is Ksh 120,000. The asset was held for only four months, so the first-year charge is 120,000 multiplied by 4/12, giving Ksh 40,000.

Question 35Financial Accounting

The cash book shows a debit balance of Ksh 30,000 and the bank statement shows a balance of Ksh 42,000. Cheques drawn but not yet presented total Ksh 18,000. What is the amount of deposits not yet credited at the bank?

  1. Ksh 30,000 Correct answer.
  2. Ksh 12,000
  3. Ksh 6,000
  4. Ksh 54,000

Explanation

The bank statement balance equals the cash book balance plus deposits not yet credited less unpresented cheques. So 42,000 equals 30,000 plus deposits not credited minus 18,000, giving deposits not credited of Ksh 30,000.

Question 36Financial Accounting

Repairs of Ksh 25,000 to a delivery van were debited to the motor vehicles account. What is the effect of this error on the financial statements?

  1. Profit is overstated and non-current assets are understated
  2. Profit is overstated and non-current assets are overstated Correct answer.
  3. Profit is understated and non-current assets are understated
  4. Profit is understated and non-current assets are overstated

Explanation

Repairs are revenue expenditure, but they were treated as capital expenditure. Expenses are therefore too low, which overstates profit, and the motor vehicles cost is too high, which overstates non-current assets.

Question 37Financial Accounting

A trial balance had a debit excess of Ksh 9,000, which was posted to a suspense account. It was later found that a payment of Ksh 4,500 to a supplier had been entered only in the cash book. What is the balance on the suspense account after this error is corrected?

  1. Ksh 13,500 debit
  2. Ksh 4,500 credit Correct answer.
  3. Ksh 13,500 credit
  4. Ksh 4,500 debit

Explanation

A debit excess of Ksh 9,000 means the suspense account carries a credit balance of Ksh 9,000. Correcting the one-sided entry requires a debit of Ksh 4,500 to the supplier's account, which is offset by a debit of Ksh 4,500 to suspense, leaving a credit balance of Ksh 4,500.

Question 38Financial Accounting

At 31 December, rent of Ksh 15,000 for December had not been paid. What adjusting entry is required at the year end?

  1. Debit rent expense; credit rent payable Correct answer.
  2. Debit prepaid rent; credit rent expense
  3. Debit rent payable; credit rent expense
  4. Debit rent expense; credit cash

Explanation

The expense belongs to the current period even though it is unpaid, so rent expense is debited. A liability is created, so rent payable is credited as an accrual.

Question 39Financial Accounting

On 1 July, a business paid Ksh 48,000 for insurance covering the twelve months to 30 June. The year end is 31 December. What amount should be shown as prepaid insurance at the year end?

  1. Ksh 48,000
  2. Ksh 12,000
  3. Ksh 36,000
  4. Ksh 24,000 Correct answer.

Explanation

At 31 December, six months of the cover have been used and six months relate to the next period. The prepayment is 48,000 multiplied by 6/12, which is Ksh 24,000.

Question 40Financial Accounting

An asset costing Ksh 400,000 is depreciated at 25% per annum on the reducing balance. What is its carrying amount after two years?

  1. Ksh 225,000 Correct answer.
  2. Ksh 200,000
  3. Ksh 300,000
  4. Ksh 250,000

Explanation

Year one depreciation is 25% of 400,000, which is Ksh 100,000, leaving Ksh 300,000. Year two depreciation is 25% of 300,000, which is Ksh 75,000, leaving a carrying amount of Ksh 225,000.

Question 41Financial Accounting

Under IAS 2 Inventories, which cost is included in the cost of inventory?

  1. Commission paid to sales staff
  2. Carriage outwards on goods sold
  3. Carriage inwards on raw materials Correct answer.
  4. Storage costs of finished goods held for sale

Explanation

The cost of inventory includes purchase price, import duties and other costs of bringing inventory to its present location and condition, such as carriage inwards. Costs of selling and storing finished goods are expensed as incurred.

Question 42Financial Accounting

Which situation is an error of principle?

  1. A purchase invoice was completely omitted from the books
  2. Figures in an entry were transposed, for example Ksh 540 written as Ksh 450
  3. A sale to customer A was posted to customer B's account
  4. Repairs to a building were debited to the buildings account Correct answer.

Explanation

An error of principle occurs when a transaction is recorded in the wrong class of account, such as treating revenue expenditure as capital expenditure. Debiting repairs to the buildings account is of this type.

Question 43Financial Accounting

A company issues 100,000 ordinary shares of Ksh 10 each at Ksh 14 per share. What amount is credited to share premium?

  1. Ksh 100,000
  2. Ksh 1,000,000
  3. Ksh 400,000 Correct answer.
  4. Ksh 1,400,000

Explanation

Share premium is the excess of the issue price over the nominal value. Each share is issued at Ksh 14 against a nominal value of Ksh 10, so the premium is Ksh 4 per share, giving Ksh 400,000 in total.

Question 44Financial Accounting

In a statement of cash flows prepared using the indirect method, how is a profit on disposal of equipment treated?

  1. Ignored because the disposal is an investing activity
  2. Included as an operating cash inflow in full
  3. Deducted from profit before tax within operating activities Correct answer.
  4. Added back to profit before tax as a non-cash item

Explanation

The profit on disposal is included in profit before tax but the cash proceeds belong to investing activities. It is therefore deducted in arriving at cash generated from operations so that it is not counted twice.

Question 45Financial Accounting

A trader's gross profit margin is 25%. Sales for the year were Ksh 280,000, opening inventory was Ksh 30,000 and purchases were Ksh 220,000. What is closing inventory?

  1. Ksh 40,000 Correct answer.
  2. Ksh 60,000
  3. Ksh 50,000
  4. Ksh 30,000

Explanation

A gross margin of 25% on sales of Ksh 280,000 gives gross profit of Ksh 70,000 and cost of sales of Ksh 210,000. Using opening inventory plus purchases less closing inventory equals cost of sales, closing inventory is 30,000 plus 220,000 minus 210,000, which is Ksh 40,000.

Question 46Financial Accounting

Partners X and Y share residual profits in the ratio 3:2. Interest on drawings is X Ksh 4,000 and Y Ksh 6,000. Y is entitled to a salary of Ksh 30,000. Profit before appropriations is Ksh 200,000. What is X's share of residual profit?

  1. Ksh 120,000
  2. Ksh 96,000
  3. Ksh 108,000 Correct answer.
  4. Ksh 100,000

Explanation

Interest on drawings is added back and the salary is deducted, giving residual profit of 200,000 plus 10,000 minus 30,000, which is Ksh 180,000. X receives three-fifths of this, which is Ksh 108,000.

Question 47Financial Accounting

A trial balance did not agree. The sales day book had been undercast by Ksh 5,000 and a discount allowed of Ksh 2,000 had been completely omitted from the discount allowed account. What was the original difference on the trial balance?

  1. Ksh 7,000 credit
  2. Ksh 7,000 debit Correct answer.
  3. Ksh 5,000 credit
  4. Ksh 3,000 debit

Explanation

An undercast sales day book understates the debit side by Ksh 5,000, and an omitted discount allowed also understates the debit side by Ksh 2,000. Total debits are therefore Ksh 7,000 short, so a debit balance of Ksh 7,000 was placed in the suspense account.

Question 48Financial Accounting

Profit before tax is Ksh 500,000. The following information is available: profit on disposal of equipment Ksh 20,000, depreciation Ksh 60,000, increase in inventory Ksh 30,000 and decrease in trade payables Ksh 10,000. What is cash generated from operations?

  1. Ksh 480,000
  2. Ksh 560,000
  3. Ksh 540,000
  4. Ksh 500,000 Correct answer.

Explanation

Start with profit before tax of Ksh 500,000, deduct the non-operating profit of Ksh 20,000, and add back depreciation of Ksh 60,000. Then deduct the inventory increase of Ksh 30,000 and the payables decrease of Ksh 10,000, giving Ksh 500,000.

Question 49Financial Accounting

Under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, a provision should be recognised when which conditions are met?

  1. A present obligation where the outflow is remote but the amount can be estimated
  2. A future obligation arising from a decision taken after the reporting date
  3. A possible obligation that may arise from a future event and can be measured reliably
  4. A present obligation from a past event, a probable outflow of resources, and a reliable estimate of the amount Correct answer.

Explanation

IAS 37 requires a present obligation arising from a past event, a probable outflow of economic benefits and a reliable estimate of the obligation before a provision is recognised. If any of these conditions is absent, a contingent liability is disclosed instead.

Question 50Financial Accounting

A business buys equipment costing Ksh 60,000 on credit. What is the effect of this transaction on the accounting equation?

  1. Assets increase by Ksh 60,000 and liabilities increase by Ksh 60,000. Correct answer.
  2. Liabilities increase by Ksh 60,000 and capital decreases by the same amount.
  3. Assets increase by Ksh 60,000 and liabilities decrease by Ksh 60,000.
  4. Assets increase by Ksh 60,000 and capital increases by Ksh 60,000.

Explanation

Equipment is an asset, so assets rise; the amount is owed to the supplier, so a liability is created for the same amount. Both sides of the equation move together, so it stays in balance and capital is untouched because no owner's funds are involved.