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KASNEB CA24 practice questions

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Question 1Accountancy

Which accounting concept requires that a business's financial statements report only transactions that can be expressed in monetary terms?

  1. Business entity
  2. Monetary unit Correct answer.
  3. Accrual
  4. Going concern

Explanation

The monetary unit assumption holds that accounting records only items capable of being measured in money, which excludes qualitative factors. The other concepts address continuity, separation of the owner from the business, and timing of recognition.

Question 2Accountancy

A trader starts the year with inventory of Ksh 40,000 and ends with Ksh 55,000. Purchases for the year were Ksh 300,000. What is the cost of goods sold?

  1. Ksh 395,000
  2. Ksh 300,000
  3. Ksh 285,000 Correct answer.
  4. Ksh 315,000

Explanation

Cost of goods sold equals opening inventory plus purchases minus closing inventory: 40,000 + 300,000 - 55,000 = 285,000. The rise in inventory reduces the cost charged to the period.

Question 3Accountancy

Under the double entry system, the owner withdraws cash for personal use. Which entry records this?

  1. Debit drawings, credit capital
  2. Debit drawings, credit cash Correct answer.
  3. Debit capital, credit drawings
  4. Debit cash, credit drawings

Explanation

Drawings increase as an equity reduction, so drawings is debited, and the asset cash decreases, so cash is credited. The transaction reduces both cash and owner's equity.

Question 4Accountancy

Which document is sent by a supplier to inform a customer that the customer's account has been debited for returned goods?

  1. Statement of account
  2. Remittance advice
  3. Credit note
  4. Debit note Correct answer.

Explanation

A supplier issues a debit note to the customer when the customer's account is to be debited, for example on goods returned to the customer. A credit note reduces the amount owed by the customer.

Question 5Accountancy

A company issues goods to a customer on sale or return terms. When should revenue normally be recognised?

  1. When the customer formally adopts the goods or the return period lapses Correct answer.
  2. When goods are dispatched to the customer
  3. When the invoice is printed
  4. When the cash is eventually received

Explanation

Revenue is recognised when control of the goods passes to the customer. Under sale or return, this generally occurs on adoption or expiry of the return period, not on dispatch or receipt of cash.

Question 6Accountancy

A machine costing Ksh 800,000 has an estimated residual value of Ksh 80,000 and a useful life of 6 years. Using the straight-line method, what is the annual depreciation charge?

  1. Ksh 120,000 Correct answer.
  2. Ksh 133,333
  3. Ksh 146,667
  4. Ksh 100,000

Explanation

Straight-line depreciation is (cost minus residual value) divided by useful life: (800,000 - 80,000) / 6 = 120,000. Residual value is excluded from the depreciable amount.

Question 7Accountancy

Which of the following best describes the purpose of a trial balance?

  1. To prove that no errors have been made
  2. To check the arithmetical equality of debits and credits Correct answer.
  3. To determine the profit for the period
  4. To value closing inventory

Explanation

A trial balance confirms that total debits equal total credits, which detects certain arithmetical errors but cannot prove the absence of all errors. Profit determination and inventory valuation come from other procedures.

Question 8Accountancy

A bank statement shows a credit balance of Ksh 25,000 while the cash book shows a debit balance of Ksh 31,000. Unpresented cheques total Ksh 9,000 and there are no other differences. What is the balance on the bank statement before any adjustments?

  1. Ksh 34,000 credit
  2. Ksh 16,000 credit
  3. Ksh 22,000 credit Correct answer.
  4. Ksh 25,000 credit

Explanation

Starting from the cash book debit balance of 31,000, deduct unpresented cheques of 9,000 to arrive at 22,000, which represents the bank statement balance in this simplified case. Unpresented cheques have not yet reduced the bank's records.

Question 9Accountancy

Goods costing Ksh 50,000 are sold on credit at a mark-up of 25% on cost. Which entry records the sale?

  1. Debit receivables 50,000; credit sales 50,000
  2. Debit sales 62,500; credit receivables 62,500
  3. Debit receivables 62,500; credit inventory 62,500
  4. Debit receivables 62,500; credit sales 62,500 Correct answer.

Explanation

Mark-up on cost of 25% gives a selling price of 50,000 x 1.25 = 62,500. The sale increases receivables (debit) and sales revenue (credit).

Question 10Accountancy

Which of the following is a current liability?

  1. Accrued electricity expense Correct answer.
  2. Long-term loan repayable in five years
  3. Prepaid insurance
  4. Motor vehicle at cost

Explanation

An accrued expense is an amount owed at the reporting date and settles within the normal operating cycle, so it is a current liability. Prepayments are current assets and long-term loans are non-current.

Question 11Accountancy

At year end, rent paid in advance is Ksh 12,000 and rent accrued is Ksh 5,000. The rent expense in the trial balance was Ksh 90,000. What is the rent charge for the year?

  1. Ksh 90,000
  2. Ksh 107,000
  3. Ksh 97,000
  4. Ksh 83,000 Correct answer.

Explanation

The expense for the year is the amount paid adjusted for accruals and prepayments: 90,000 - 12,000 + 5,000 = 83,000. Prepayments are removed and accruals are added.

Question 12Accountancy

Which of the following errors would be disclosed by a trial balance?

  1. Recording a sale to the wrong customer
  2. Posting only the debit side of a transaction Correct answer.
  3. Omitting a transaction from the books entirely
  4. Recording a purchase of machinery as a purchase of goods

Explanation

A one-sided entry leaves the ledger out of balance and therefore causes the trial balance to disagree. Errors of principle, omission, and misposting to the wrong personal account keep debits and credits equal.

Question 13Accountancy

A trader's gross profit is Ksh 120,000 and net profit is Ksh 45,000. What do the expenses for the period amount to?

  1. Ksh 75,000 Correct answer.
  2. Ksh 45,000
  3. Ksh 120,000
  4. Ksh 165,000

Explanation

Net profit equals gross profit less expenses, so expenses are 120,000 - 45,000 = 75,000. The gap between gross and net profit represents operating expenses.

Question 14Accountancy

Which inventory valuation rule requires that inventory be measured at the lower of cost and net realisable value?

  1. Consistency
  2. Prudence Correct answer.
  3. Substance over form
  4. Materiality

Explanation

Prudence requires that assets not be overstated, so inventory is written down when net realisable value falls below cost. Consistency and materiality address comparability and significance rather than the write-down.

Question 15Accountancy

Under the reducing balance method, an asset costing Ksh 200,000 is depreciated at 20% per annum. What is the depreciation charge for the second year?

  1. Ksh 40,000
  2. Ksh 32,000 Correct answer.
  3. Ksh 36,000
  4. Ksh 28,800

Explanation

First-year depreciation is 20% of 200,000 = 40,000, leaving a carrying amount of 160,000. Second-year depreciation is 20% of 160,000 = 32,000.

Question 16Accountancy

A business has current assets of Ksh 180,000 and current liabilities of Ksh 120,000. Inventory of Ksh 60,000 is included in current assets. What is the quick ratio?

  1. 1.00 Correct answer.
  2. 1.50
  3. 0.50
  4. 1.20

Explanation

The quick ratio excludes inventory: (180,000 - 60,000) / 120,000 = 1.00. Inventory is removed because it may not be readily convertible to cash.

Question 17Accountancy

Which of the following costs is classified as a product cost in a manufacturing entity?

  1. Office rent
  2. Factory supervisor's salary Correct answer.
  3. Delivery to customers
  4. Sales commission

Explanation

Product costs are those incurred in bringing inventory to its present location and condition, which includes factory labour such as a supervisor's salary. Selling and administrative costs are period costs.

Question 18Accountancy

A company's sales are Ksh 500,000, variable costs are Ksh 300,000, and fixed costs are Ksh 150,000. What is the margin of safety in sales value?

  1. Ksh 125,000 Correct answer.
  2. Ksh 50,000
  3. Ksh 200,000
  4. Ksh 375,000

Explanation

Contribution is 500,000 - 300,000 = 200,000, giving a contribution margin ratio of 40%. Break-even sales are 150,000 / 0.40 = 375,000, so the margin of safety is 500,000 - 375,000 = 125,000.

Question 19Accountancy

A company issues 10,000 ordinary shares of Ksh 20 par value at Ksh 30 each. How should the excess be recorded?

  1. As revenue in the statement of profit or loss
  2. As share premium within equity Correct answer.
  3. As a liability to shareholders
  4. As a reduction of retained earnings

Explanation

Amounts received above par value on share issue are recorded as share premium, a component of equity. They are not income and are not repayable to shareholders.

Question 20Accountancy

Which of the following would be treated as a capital expenditure?

  1. Repainting the office building
  2. Replacing a broken window
  3. Paying annual insurance on the building
  4. Installing a new lift that extends the building's capacity Correct answer.

Explanation

Capital expenditure acquires or improves an asset and provides benefit beyond the current period, such as a new lift that enhances capacity. Repairs and insurance are revenue expenditure.

Question 21Accountancy

A provision is recognised when a present obligation exists, an outflow is probable, and the amount can be reliably estimated. Which situation meets these criteria?

  1. A warranty expected to require repairs based on past experience Correct answer.
  2. A guarantee of a loan where the borrower is financially sound
  3. A court judgment against the entity that is being appealed
  4. A pending lawsuit where the outcome is possible but not probable

Explanation

A warranty obligation arises from past sales, the outflow is probable, and it can be estimated from historical claims data, so a provision is recognised. Contingent liabilities that are only possible are disclosed rather than provided.

Question 22Accountancy

Which statement about the statement of cash flows is correct?

  1. Repayment of a bank loan is shown under investing activities
  2. Purchase of a non-current asset is shown under operating activities
  3. An increase in receivables is added to profit in the operating section
  4. Depreciation is added back to profit because it is a non-cash expense Correct answer.

Explanation

Depreciation reduces profit but does not involve cash, so it is added back when deriving cash generated from operations. Asset purchases are investing and loan repayments are financing activities.

Question 23Accountancy

A company's profit before tax is Ksh 400,000 and the tax rate is 30%. The company paid tax of Ksh 100,000 during the year. What is the closing tax liability?

  1. Ksh 100,000
  2. Ksh 20,000 Correct answer.
  3. Ksh 30,000
  4. Ksh 120,000

Explanation

The tax charge is 30% of 400,000 = 120,000. Since 100,000 was paid, the closing liability is 120,000 - 100,000 = 20,000.

Question 24Accountancy

Which of the following is the correct treatment of a bonus issue of shares?

  1. It reduces the number of shares in issue
  2. It converts retained earnings or reserves into share capital Correct answer.
  3. It creates a liability to the shareholders
  4. It raises new cash for the company

Explanation

A bonus issue capitalises reserves by issuing free shares to existing shareholders, increasing share capital and reducing reserves. No cash is received and the total equity is unchanged.

Question 25Accountancy

A partnership agreement is silent on how profits are shared. Under the default rule, profits and losses are shared:

  1. According to the seniority of the partners
  2. Equally among the partners Correct answer.
  3. In proportion to capital contributed
  4. In proportion to time devoted to the business

Explanation

Where the partnership agreement is silent, profits and losses are shared equally among partners regardless of capital or effort. This default applies only in the absence of an agreed ratio.

Question 26Accountancy

Which accounting concept requires that a business's financial statements report only transactions that can be measured in monetary terms?

  1. Going concern concept
  2. Money measurement concept Correct answer.
  3. Matching concept
  4. Business entity concept

Explanation

The money measurement concept states that only items capable of being expressed in monetary units are recorded in the accounts. Non-monetary factors such as employee morale are excluded.

Question 27Accountancy

A debit note is issued by a buyer to a supplier. What is its purpose?

  1. To confirm receipt of goods ordered
  2. To request payment of an overdue invoice
  3. To record a cash discount allowed
  4. To reduce the amount owed for returned or faulty goods Correct answer.

Explanation

A debit note informs the supplier that the buyer is debiting their account, typically for goods returned or an overcharge. It reduces the balance payable.

Question 28Accountancy

A trader records purchases at Ksh 90,000 but the correct figure is Ksh 99,000. Which type of error is this?

  1. Error of principle
  2. Error of commission Correct answer.
  3. Compensating error
  4. Error of omission

Explanation

An error of commission is a mistake in the amount or in the entry of a transaction that is otherwise correctly classified, such as a transposition or understatement of a valid purchase. The transaction was recorded but at the wrong value.

Question 29Accountancy

Which accounting standard deals with the presentation of financial statements?

  1. IAS 1 Correct answer.
  2. IAS 16
  3. IAS 2
  4. IAS 7

Explanation

IAS 1 sets out the overall requirements for the presentation of general purpose financial statements, including their structure and minimum content.

Question 30Accountancy

A firm's opening inventory was Ksh 40,000 and closing inventory is Ksh 55,000. Purchases for the year were Ksh 210,000. What is the cost of goods sold?

  1. Ksh 305,000
  2. Ksh 195,000 Correct answer.
  3. Ksh 210,000
  4. Ksh 225,000

Explanation

Cost of goods sold equals opening inventory plus purchases minus closing inventory: 40,000 + 210,000 - 55,000 = 195,000.

Question 31Accountancy

Which of the following best describes the accrual basis of accounting?

  1. Revenue and expenses are recorded when they are earned or incurred, regardless of cash flow Correct answer.
  2. Revenue is recognised only when the customer settles the invoice
  3. Only cash transactions are recorded in the ledger
  4. Revenue is recorded when cash is received and expenses when cash is paid

Explanation

Under accrual accounting, transactions are recognised in the period in which their economic effects occur, not when cash changes hands. This requires adjusting entries for accruals and prepayments.

Question 32Accountancy

A sole trader's capital at the start of the year was Ksh 300,000. During the year he introduced Ksh 50,000 and withdrew Ksh 80,000. Profit for the year was Ksh 120,000. What is closing capital?

  1. Ksh 470,000
  2. Ksh 310,000
  3. Ksh 550,000
  4. Ksh 390,000 Correct answer.

Explanation

Closing capital equals opening capital plus additional capital plus profit less drawings: 300,000 + 50,000 + 120,000 - 80,000 = 390,000.

Question 33Accountancy

A company has net profit after tax of Ksh 600,000 and 200,000 ordinary shares in issue. What is the earnings per share?

  1. Ksh 1.20
  2. Ksh 0.33
  3. Ksh 3.00 Correct answer.
  4. Ksh 30.00

Explanation

Earnings per share is profit attributable to ordinary shareholders divided by the weighted average number of ordinary shares: 600,000 ÷ 200,000 = Ksh 3.00.

Question 34Accountancy

Which of the following is the correct double entry to record a contra settlement between a customer's account in the sales ledger and the same party's account in the purchases ledger?

  1. Debit sales ledger control, credit purchases ledger control
  2. Debit sales ledger control, credit cash book
  3. Debit purchases ledger control, credit sales ledger control Correct answer.
  4. Debit cash book, credit sales ledger control

Explanation

A contra reduces both the receivable and the payable for the same party. The purchases ledger control (payable) is debited and the sales ledger control (receivable) is credited.

Question 35Accountancy

A bank reconciliation reveals unpresented cheques of Ksh 18,000 and deposits not yet credited of Ksh 24,000. The cash book shows a debit balance of Ksh 50,000. What is the balance per the bank statement?

  1. Ksh 56,000 credit
  2. Ksh 44,000 credit Correct answer.
  3. Ksh 44,000 debit
  4. Ksh 56,000 debit

Explanation

Starting from the cash book debit balance, deduct unpresented cheques and add uncredited deposits to reach the statement balance: 50,000 - 18,000 + 24,000 = 56,000. Since the statement is written from the bank's perspective, a favourable cash book balance appears as a credit balance: Ksh 56,000 credit. Rechecking: statement balance = 50,000 - 18,000 + 24,000 = 56,000 credit.

Question 36Accountancy

Which basis of apportionment is most appropriate for distributing factory rent among production departments?

  1. Floor area occupied Correct answer.
  2. Machine hours used
  3. Value of plant and machinery
  4. Number of employees

Explanation

Rent relates to the space used, so floor area is the most appropriate basis for apportioning it among departments.

Question 37Accountancy

A product has a selling price of Ksh 80, variable cost of Ksh 48 and fixed costs of Ksh 160,000. How many units must be sold to break even?

  1. 5,000 units Correct answer.
  2. 1,667 units
  3. 3,334 units
  4. 2,000 units

Explanation

Break-even units equal fixed costs divided by contribution per unit: 160,000 ÷ (80 - 48) = 160,000 ÷ 32 = 5,000 units.

Question 38Accountancy

In process costing, normal loss is valued at which amount in the process account?

  1. The full production cost per unit
  2. The selling price of good units
  3. Its scrap value Correct answer.
  4. Nil, because it is written off

Explanation

Normal loss is credited to the process account at its estimated scrap or realisable value, and the cost of normal loss is absorbed by the good output.

Question 39Accountancy

A company's gearing ratio is calculated as long-term debt divided by which of the following?

  1. Total current liabilities
  2. Capital employed Correct answer.
  3. Total assets
  4. Net profit before interest and tax

Explanation

Gearing measures the proportion of capital employed that is financed by long-term debt. Capital employed comprises debt plus equity.

Question 40Accountancy

Which of the following ratios best measures a firm's ability to meet short-term obligations without relying on inventory sales?

  1. Return on capital employed
  2. Quick ratio Correct answer.
  3. Current ratio
  4. Inventory turnover

Explanation

The quick ratio excludes inventory from current assets, measuring the ability to settle current liabilities with the most liquid assets.

Question 41Accountancy

An asset is purchased for Ksh 500,000 with an estimated residual value of Ksh 50,000 and a useful life of 5 years. Using the sum-of-the-years'-digits method, what is the depreciation charge for the second year?

  1. Ksh 120,000
  2. Ksh 100,000
  3. Ksh 150,000 Correct answer.
  4. Ksh 90,000

Explanation

The depreciable amount is 450,000 and the sum of the digits is 1+2+3+4+5 = 15. The second-year fraction is 4/15: 450,000 × 4/15 = 120,000. Rechecking: year 1 = 5/15 × 450,000 = 150,000; year 2 = 4/15 × 450,000 = 120,000.

Question 42Accountancy

Which of the following events occurring after the reporting period would normally require adjustment of the financial statements?

  1. Announcement of a plan to discontinue an operation
  2. A major fire destroying the factory after the year end
  3. A decline in market value of investments after the year end
  4. A court judgement confirming a liability that existed at the year end Correct answer.

Explanation

Adjusting events provide evidence of conditions that existed at the end of the reporting period, such as a court ruling confirming a present obligation. Non-adjusting events reflect conditions arising after the period.

Question 43Accountancy

A company revalues its building upwards by Ksh 200,000. Where should the surplus be recognised?

  1. In other comprehensive income and a revaluation reserve Correct answer.
  2. In profit or loss for the year
  3. As an increase in share capital
  4. As a deduction from the cost of the building

Explanation

Under the revaluation model, an upward revaluation surplus is recognised in other comprehensive income and accumulated in a revaluation reserve within equity.

Question 44Accountancy

Which of the following is the correct treatment of an issue of shares at a premium?

  1. Record the premium as a liability
  2. Record the premium as revenue in profit or loss
  3. Record the entire proceeds as share capital
  4. Record the par value as share capital and the premium as share premium Correct answer.

Explanation

The nominal value of shares issued is credited to share capital, and any amount received above nominal value is credited to share premium within equity.

Question 45Accountancy

A limited liability company is being wound up. In which order are the following paid?

  1. Ordinary shareholders, creditors, preference shareholders
  2. Preference shareholders, creditors, ordinary shareholders
  3. Creditors, preference shareholders, ordinary shareholders Correct answer.
  4. Ordinary shareholders, preference shareholders, creditors

Explanation

On winding up, external creditors are settled first, then preference shareholders up to their entitlement, and ordinary shareholders receive any residue.

Question 46Accountancy

In a partnership, which of the following would normally be recorded in the partners' current accounts rather than the capital accounts?

  1. Interest on drawings Correct answer.
  2. Permanent reduction of capital
  3. Initial capital introduced at formation
  4. A partner's fixed capital contribution on admission

Explanation

Where fixed capital accounts are maintained, items such as drawings, interest on drawings, interest on capital and share of profits are posted to the current accounts.

Question 47Accountancy

A company has profit before interest and tax of Ksh 900,000, interest payable of Ksh 150,000 and tax of Ksh 225,000. What is the interest cover?

  1. 4.0 times
  2. 6.0 times Correct answer.
  3. 4.8 times
  4. 5.0 times

Explanation

Interest cover equals profit before interest and tax divided by interest payable: 900,000 ÷ 150,000 = 6.0 times.

Question 48Accountancy

Which of the following best explains the purpose of a suspense account?

  1. To record the profit for the year before appropriation
  2. To hold cash received pending banking
  3. To record transactions where the account is temporarily unknown Correct answer.
  4. To accumulate costs for a specific contract

Explanation

A suspense account is opened temporarily when a trial balance does not agree or when the correct account for a transaction is not yet determined, and is cleared once the matter is resolved.

Question 49Accountancy

A company uses the straight-line method for accounting depreciation but the tax authority allows accelerated capital allowances. This creates which type of difference?

  1. A change in accounting policy
  2. A permanent difference
  3. A timing difference giving rise to deferred tax Correct answer.
  4. An error requiring correction

Explanation

Accelerated capital allowances cause the tax base of the asset to differ from its carrying amount, creating a temporary (timing) difference that gives rise to deferred tax.

Question 50Accountancy

Which of the following is the primary objective of financial reporting according to the conceptual framework?

  1. To guarantee that the entity will remain profitable
  2. To provide financial information useful to existing and potential investors, lenders and other creditors Correct answer.
  3. To compute the tax payable by an entity
  4. To satisfy the information needs of government regulators only

Explanation

The conceptual framework states that the objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to primary users in making decisions about providing resources to the entity.