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KASNEB CS33 practice questions

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Question 1Accountancy

A business purchases office equipment for KSh 200,000 on credit. What is the effect on the accounting equation?

  1. Assets increase by KSh 200,000 and liabilities increase by KSh 200,000. Correct answer.
  2. Assets increase by KSh 200,000 and capital increases by KSh 200,000.
  3. Assets decrease by KSh 200,000 and liabilities increase by KSh 200,000.
  4. Neither assets nor liabilities change until payment is made.

Explanation

A credit purchase increases both an asset (office equipment) and a liability (payables) by the same amount, so the equation remains balanced. Equity is unaffected because no income or expense arises at the date of purchase.

Question 2Accountancy

Which double entry records a cash sale of goods?

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

Explanation

A cash sale increases the asset cash, so cash is debited, and it increases sales income, so the sales account is credited. The double entry is therefore debit cash and credit sales.

Question 3Accountancy

Which error would still allow a trial balance to agree?

  1. An addition error in the debit column.
  2. The same incorrect amount posted to both sides of the entry. Correct answer.
  3. A sale recorded only in the sales account.
  4. A debit entry posted as a credit of the same amount.

Explanation

A trial balance only tests whether total debits equal total credits. If the same wrong amount is posted to both the debit and credit sides, the equality is preserved and the trial balance still agrees.

Question 4Accountancy

A machine costs KSh 500,000 and is expected to have a residual value of KSh 50,000 after 5 years. Using the straight-line method, the annual depreciation charge is:

  1. KSh 100,000
  2. KSh 110,000
  3. KSh 80,000
  4. KSh 90,000 Correct answer.

Explanation

Straight-line depreciation is the depreciable amount divided by the useful life. The depreciable amount is KSh 500,000 minus KSh 50,000, giving KSh 450,000, which divided by 5 years equals KSh 90,000 per year.

Question 5Accountancy

Under the accrual basis of accounting, revenue is recognised when:

  1. the accounting period ends.
  2. an invoice is printed and filed.
  3. the goods or services have been supplied, whether or not cash has been received. Correct answer.
  4. cash is received from the customer.

Explanation

The accrual basis recognises revenue when the performance obligation is satisfied through the supply of goods or services, not when cash is received. Cash receipt may occur before or after recognition.

Question 6Accountancy

A cheque for KSh 40,000 issued to a supplier has not yet been presented to the bank. In the bank reconciliation statement, this item is:

  1. added to the bank statement balance.
  2. deducted from the bank statement balance. Correct answer.
  3. added to the cash book balance.
  4. ignored until the cheque is presented.

Explanation

An unpresented cheque has already been deducted in the cash book but not yet in the bank statement. The bank statement balance is therefore higher than the cash book balance and must be reduced by the amount of the unpresented cheque.

Question 7Accountancy

Which of the following forms part of prime cost?

  1. Factory rent
  2. Direct materials Correct answer.
  3. Depreciation of office equipment
  4. Sales commission

Explanation

Prime cost is the total of direct materials, direct labour and direct expenses. Direct materials are therefore included in prime cost.

Question 8Accountancy

Which item should be treated as capital expenditure?

  1. Repainting the office building
  2. Annual service of the delivery van
  3. Installing a new lift in the building Correct answer.
  4. Replacing a broken window pane

Explanation

Capital expenditure is incurred to acquire or enhance an asset and provides benefit over more than one accounting period. Installing a new lift improves the building's earning capacity and should be capitalised.

Question 9Accountancy

Receivables are KSh 800,000. The allowance for doubtful debts is to be increased from 5% to 10%. The increase charged to profit or loss is:

  1. KSh 0
  2. KSh 80,000
  3. KSh 40,000 Correct answer.
  4. KSh 120,000

Explanation

The existing allowance is 5% of KSh 800,000, which is KSh 40,000, and the required allowance is 10% of KSh 800,000, which is KSh 80,000. The charge to profit or loss is the increase of KSh 40,000.

Question 10Accountancy

A credit sale of KSh 15,000 was correctly entered in the sales account but posted to the receivables account as KSh 1,500. The correcting entry is:

  1. Debit receivables KSh 15,000; credit sales KSh 15,000.
  2. Debit suspense KSh 13,500; credit receivables KSh 13,500.
  3. Debit receivables KSh 13,500; credit suspense KSh 13,500. Correct answer.
  4. Debit sales KSh 13,500; credit receivables KSh 13,500.

Explanation

Receivables were debited with only KSh 1,500 instead of KSh 15,000, so they are understated by KSh 13,500. The correction is to debit receivables and credit the suspense account with KSh 13,500.

Question 11Accountancy

Under IAS 2 Inventories, inventory is measured at:

  1. cost only.
  2. net realisable value only.
  3. the lower of cost and net realisable value. Correct answer.
  4. the higher of cost and net realisable value.

Explanation

IAS 2 requires inventory to be measured at the lower of cost and net realisable value. This ensures that inventory is not carried above the amount expected to be realised from its sale or use.

Question 12Accountancy

Where a partnership agreement is silent, profits and losses are shared:

  1. equally among the partners. Correct answer.
  2. in proportion to drawings made.
  3. according to the partners' ages.
  4. in proportion to capital contributed.

Explanation

In the absence of an agreement, partnership law provides that profits and losses are shared equally among the partners. Capital contributions and drawings do not determine the default sharing ratio.

Question 13Accountancy

A company issues 10,000 ordinary shares of KSh 20 each at KSh 25 per share. The share premium raised is:

  1. KSh 0
  2. KSh 200,000
  3. KSh 50,000 Correct answer.
  4. KSh 250,000

Explanation

Share premium is the excess of the issue price over the nominal value. The premium per share is KSh 5, and 10,000 shares raise KSh 50,000 of share premium.

Question 14Accountancy

Under IAS 7, interest paid by a manufacturing company may be classified as:

  1. an operating activity only.
  2. a financing activity only.
  3. an investing activity only.
  4. an operating or a financing activity, applied consistently. Correct answer.

Explanation

IAS 7 permits interest paid to be classified as either an operating cash flow or a financing cash flow. The chosen classification must be applied consistently from period to period.

Question 15Accountancy

Current assets are KSh 300,000, inventory is KSh 120,000 and current liabilities are KSh 150,000. The quick ratio is:

  1. 2.0:1
  2. 0.8:1
  3. 1.2:1 Correct answer.
  4. 1.5:1

Explanation

The quick ratio is current assets less inventory, divided by current liabilities. This gives KSh 180,000 divided by KSh 150,000, which equals 1.2:1.

Question 16Accountancy

Selling price is KSh 50 per unit, variable cost is KSh 30 per unit and fixed costs are KSh 400,000. The break-even point is:

  1. 20,000 units Correct answer.
  2. 8,000 units
  3. 40,000 units
  4. 13,333 units

Explanation

Contribution per unit is KSh 50 minus KSh 30, which equals KSh 20. Fixed costs of KSh 400,000 divided by KSh 20 gives a break-even point of 20,000 units.

Question 17Accountancy

Budget: 5 kg at KSh 10 per kg per unit. Actual: 4,800 kg at KSh 11 per kg for 1,000 units. The material price variance is:

  1. KSh 4,800 adverse Correct answer.
  2. KSh 5,000 adverse
  3. KSh 4,800 favourable
  4. KSh 2,000 adverse

Explanation

Material price variance is the difference between standard price and actual price multiplied by actual quantity. This gives KSh 10 minus KSh 11, multiplied by 4,800 kg, resulting in KSh 4,800 adverse because the actual price is higher.

Question 18Accountancy

The receivables control account shows KSh 500,000, but the receivables ledger total is KSh 495,000. A credit sale of KSh 5,000 was omitted from the ledger. After correction, the ledger total should be:

  1. KSh 490,000
  2. KSh 505,000
  3. KSh 500,000 Correct answer.
  4. KSh 495,000

Explanation

The ledger total is understated by the omitted credit sale of KSh 5,000. Adding KSh 5,000 to KSh 495,000 gives KSh 500,000, which agrees with the control account.

Question 19Accountancy

Rent of KSh 120,000 was paid on 1 January 2025 for twelve months. At 31 March 2025, the prepaid rent is:

  1. KSh 120,000
  2. KSh 90,000 Correct answer.
  3. KSh 30,000
  4. KSh 10,000

Explanation

By 31 March 2025, three months of rent have expired and nine months remain prepaid. Nine-twelfths of KSh 120,000 is KSh 90,000.

Question 20Accountancy

Under IFRS 15, revenue is recognised when:

  1. the sales invoice is issued.
  2. control of the promised goods or services transfers to the customer. Correct answer.
  3. the contract is signed by both parties.
  4. cash is received from the customer.

Explanation

IFRS 15 requires revenue to be recognised when the performance obligation is satisfied, which occurs when control of the promised goods or services transfers to the customer. Cash receipt, contract signing and invoicing are not the determining events.

Question 21Accountancy

On 1 January 2025, a lessee enters a four-year lease with annual payments of KSh 100,000 payable in arrears. The implicit interest rate is 10%. The initial lease liability is closest to:

  1. KSh 317,000 Correct answer.
  2. KSh 273,000
  3. KSh 100,000
  4. KSh 400,000

Explanation

Under IFRS 16, the lease liability is initially measured at the present value of lease payments not paid at commencement. Discounting four annual payments of KSh 100,000 at 10% gives approximately KSh 317,000.

Question 22Accountancy

Parent owns 80% of Subsidiary. Subsidiary's net assets at acquisition were KSh 500,000 and at the reporting date are KSh 700,000. Goodwill at acquisition was KSh 50,000, measured using the proportionate share method. Non-controlling interest at the reporting date is:

  1. KSh 100,000
  2. KSh 40,000
  3. KSh 140,000 Correct answer.
  4. KSh 150,000

Explanation

Under the proportionate share method, non-controlling interest is measured at its share of the subsidiary's net assets at the reporting date. Twenty per cent of KSh 700,000 equals KSh 140,000, with no share of goodwill included.

Question 23Accountancy

A cash-generating unit has goodwill KSh 100,000, plant KSh 300,000 and building KSh 600,000. Recoverable amount is KSh 800,000 and carrying amount is KSh 1,000,000. The impairment loss allocated to the building is closest to:

  1. KSh 66,667 Correct answer.
  2. KSh 200,000
  3. KSh 33,333
  4. KSh 100,000

Explanation

The impairment loss is KSh 1,000,000 minus KSh 800,000, which equals KSh 200,000. Goodwill of KSh 100,000 is written off first, and the remaining KSh 100,000 is allocated pro rata to plant and building, giving the building two-thirds, or approximately KSh 66,667.

Question 24Accountancy

Units completed and transferred out are 6,000; closing work in progress is 2,000 units 60% complete; opening work in progress is 1,000 units 40% complete. Using the weighted average method, equivalent units for conversion costs are:

  1. 7,600 units
  2. 7,200 units Correct answer.
  3. 6,800 units
  4. 8,000 units

Explanation

Under the weighted average method, equivalent units equal units completed and transferred out plus closing work in progress expressed in equivalent units. This gives 6,000 plus 2,000 multiplied by 60%, which equals 7,200 units; the opening work in progress degree of completion is not added separately.

Question 25Accountancy

A company has a carrying amount of plant of KSh 800,000 and a tax base of KSh 650,000. The tax rate is 30%. The deferred tax position is:

  1. A deferred tax liability of KSh 45,000. Correct answer.
  2. No deferred tax because the difference is temporary.
  3. A deferred tax asset of KSh 45,000.
  4. A deferred tax liability of KSh 150,000.

Explanation

The carrying amount exceeds the tax base by KSh 150,000, creating a taxable temporary difference. Multiplying the temporary difference by the 30% tax rate gives a deferred tax liability of KSh 45,000.

Question 26Accountancy

A sole trader includes his personal house rent among the business expenses. Which accounting concept is being violated?

  1. Consistency
  2. Prudence
  3. Business entity Correct answer.
  4. Going concern

Explanation

The business entity concept treats the business as separate from its owner, so private transactions must be excluded from business records. Going concern concerns continuity of operations, prudence concerns caution in estimates, and consistency concerns applying the same methods over time.

Question 27Accountancy

A machine costs KSh 500,000, has a residual value of KSh 50,000 and a useful life of five years. Using straight-line depreciation, the annual depreciation charge is:

  1. KSh 110,000
  2. KSh 80,000
  3. KSh 90,000 Correct answer.
  4. KSh 100,000

Explanation

Straight-line depreciation spreads the depreciable amount, cost less residual value, evenly over the useful life. The depreciable amount is KSh 450,000, which divided by five years gives KSh 90,000 per year.

Question 28Accountancy

Which of the following errors would cause the debit and credit totals of a trial balance to differ?

  1. An arithmetic error in adding the debit column Correct answer.
  2. Omitting a transaction from the books entirely
  3. Recording a sale in the wrong customer's account
  4. Recording a purchase in the wrong expense account

Explanation

A trial balance fails to agree when only one side of the double entry is affected or when a column is added incorrectly. Errors such as wrong account classification or complete omission affect both debit and credit totals equally and therefore do not create a difference.

Question 29Accountancy

A petty cash imprest is KSh 20,000. At the end of the period, paid vouchers total KSh 13,500. How much cash is required to restore the imprest?

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

Explanation

Under the imprest system, the amount reimbursed equals the petty cash vouchers paid since the last reimbursement. Reimbursing KSh 13,500 restores the cash balance to the KSh 20,000 float.

Question 30Accountancy

A and B share profits in the ratio 3:2. C is admitted for a 1/5 share, which is acquired equally from A and B. What is A's new profit-sharing ratio?

  1. 7/10
  2. 3/5
  3. 1/2 Correct answer.
  4. 1/5

Explanation

C's 1/5 share is taken equally from A and B, so A gives up 1/10. A's old share of 3/5 less 1/10 equals 1/2.

Question 31Accountancy

A company has 100,000 ordinary shares of KSh 10 each. It declares a dividend of 20%. The total dividend payable is:

  1. KSh 100,000
  2. KSh 2,000,000
  3. KSh 200,000 Correct answer.
  4. KSh 20,000

Explanation

A dividend percentage is normally applied to the nominal value of the shares unless stated otherwise. Nominal capital is 100,000 shares multiplied by KSh 10, giving KSh 1,000,000, and 20% of that is KSh 200,000.

Question 32Accountancy

Under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, a provision is recognised when:

  1. A present obligation is probable and reliably measurable Correct answer.
  2. A future operating loss is expected by management
  3. A possible obligation depends on an uncertain future event
  4. The board has approved a voluntary charitable donation

Explanation

IAS 37 requires a present obligation arising from a past event, a probable outflow of economic benefits, and a reliable estimate before a provision is recognised. Future operating losses and mere possible obligations do not meet these criteria.

Question 33Accountancy

Land carried at cost of KSh 1,000,000 is revalued to KSh 1,400,000. Under IAS 16, the surplus is recognised in:

  1. Opening retained earnings
  2. Deferred capital grant
  3. Other comprehensive income Correct answer.
  4. Current year profit or loss

Explanation

Under the revaluation model, an increase in carrying amount is recognised in other comprehensive income and accumulated in a revaluation reserve. It is taken to profit or loss only to the extent that it reverses a previous revaluation decrease for the same asset.

Question 34Accountancy

Budgeted overheads are KSh 240,000 for 12,000 machine hours. Actual machine hours worked are 13,000. The overhead absorbed for the period is:

  1. KSh 270,000
  2. KSh 250,000
  3. KSh 240,000
  4. KSh 260,000 Correct answer.

Explanation

The predetermined absorption rate is budgeted overheads divided by budgeted machine hours, which is KSh 20 per hour. Absorbed overhead is the rate multiplied by actual hours, giving KSh 260,000.

Question 35Accountancy

A process has input of 1,000 kg costing KSh 10,000. Normal loss is 10% with no scrap value. Actual output is 850 kg. The cost per kg of output is:

  1. KSh 10.00
  2. KSh 11.11 Correct answer.
  3. KSh 12.50
  4. KSh 11.76

Explanation

Normal loss is not charged to good output, so the process cost is spread over expected good output of 900 kg. KSh 10,000 divided by 900 kg gives approximately KSh 11.11 per kg; the remaining 50 kg is an abnormal loss valued at that rate.

Question 36Accountancy

A trial balance fails to agree by KSh 9,000. Which error is most likely indicated by a difference divisible by 9?

  1. Complete omission of a transaction
  2. Recording a sale in the wrong customer account
  3. Entering a purchase in the wrong class of account
  4. Transposition of digits in a ledger entry Correct answer.

Explanation

A transposition error, such as writing KSh 54,000 as KSh 45,000, creates a difference that is divisible by 9. Errors of omission, wrong account and wrong classification usually affect both sides equally and leave the trial balance in agreement.

Question 37Accountancy

Profit before interest and tax is KSh 300,000 and capital employed is KSh 1,500,000. Return on capital employed is:

  1. 20% Correct answer.
  2. 5%
  3. 25%
  4. 15%

Explanation

Return on capital employed is operating profit divided by capital employed, expressed as a percentage. KSh 300,000 divided by KSh 1,500,000 equals 0.20, or 20%.

Question 38Accountancy

Under IFRS 16 Leases, a lessee subsequently measures the right-of-use asset at:

  1. The present value of remaining lease payments
  2. Cost less depreciation and impairment Correct answer.
  3. Fair value through profit or loss
  4. Revalued amount less residual value

Explanation

IFRS 16 requires the right-of-use asset to be measured using the cost model, unless the lessee applies the revaluation model to a class of property, plant and equipment. Under the cost model it is measured at cost less accumulated depreciation and accumulated impairment losses.

Question 39Accountancy

Accounting profit is KSh 1,000,000. Non-deductible expenses are KSh 100,000 and tax depreciation exceeds accounting depreciation by KSh 150,000. The tax rate is 30%. Current tax is:

  1. KSh 285,000 Correct answer.
  2. KSh 315,000
  3. KSh 300,000
  4. KSh 270,000

Explanation

Taxable profit starts with accounting profit, adds non-deductible expenses and deducts the excess tax depreciation. Taxable profit is KSh 950,000, and current tax at 30% is KSh 285,000.

Question 40Accountancy

Under IFRS 9, the effective interest rate of a financial asset measured at amortised cost is the rate that exactly discounts estimated future cash flows to:

  1. The asset's fair value at initial recognition
  2. The gross carrying amount of the asset Correct answer.
  3. The asset's nominal value
  4. The undiscounted cash flows over the asset's life

Explanation

The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the gross carrying amount of the asset. Interest revenue is then calculated by applying this rate to the amortised cost.

Question 41Finance

A sum of Ksh 100,000 is invested for two years at 10% per annum compounded annually. What is the future value of the investment?

  1. Ksh 121,000 Correct answer.
  2. Ksh 120,000
  3. Ksh 100,000
  4. Ksh 110,000

Explanation

Compound interest multiplies the principal by (1 + r)^n, so 100,000 x 1.10 x 1.10 = Ksh 121,000. Compounding earns interest on the interest credited in year one.

Question 42Finance

Which capital budgeting technique disregards the time value of money?

  1. Payback period Correct answer.
  2. Profitability index
  3. Net present value
  4. Internal rate of return

Explanation

The payback period simply counts how long it takes to recover the initial outlay from cumulative cash flows, without discounting them. NPV, the profitability index and IRR all apply a discount rate to future cash flows.

Question 43Finance

When computing the weighted average cost of capital, the after-tax cost of debt is used mainly because:

  1. Debt finance has no fixed maturity date
  2. Debt is generally riskier than equity to the provider
  3. Interest rates are expected to fall over the life of the project
  4. Interest attracts tax relief, lowering its effective cost Correct answer.

Explanation

Interest is an allowable deduction against taxable profit, so the effective cost of debt is kd(1 - t). The tax shield means the firm bears a lower cost than the coupon rate suggests.

Question 44Finance

The economic order quantity is the order size at which:

  1. total ordering and holding costs are at their lowest Correct answer.
  2. the total cost of placing orders is at its minimum
  3. the total cost of holding inventory is at its minimum
  4. the purchase price paid per unit is at its lowest

Explanation

EOQ balances two opposing costs: as order size rises, ordering costs fall but holding costs rise. The optimum is the quantity where the sum of the two is minimised.

Question 45Finance

Working capital is best described as:

  1. current assets less current liabilities Correct answer.
  2. total assets of the firm less its total liabilities
  3. cash and bank balances only
  4. fixed assets less long-term liabilities

Explanation

Net working capital is the excess of current assets over current liabilities and measures short-term liquidity. It shows the margin of current assets funded by long-term sources.

Question 46Finance

Which of the following is a source of long-term finance?

  1. A bank overdraft facility
  2. Commercial paper
  3. Ordinary share capital Correct answer.
  4. Trade credit from suppliers

Explanation

Ordinary share capital is permanent capital with no repayment date, so it is long-term. Trade credit, overdrafts and commercial paper are short-term sources repayable within a year.

Question 47Finance

Holders of cumulative preference shares are entitled to:

  1. voting rights at all general meetings
  2. a fixed dividend paid before ordinary dividends
  3. arrears of dividend before ordinary dividends Correct answer.
  4. a share of residual profits above the fixed rate

Explanation

The cumulative feature means that any dividend not paid in a poor year accumulates and must be settled before ordinary shareholders receive anything. This protects the preference holder's fixed return.

Question 48Finance

A bond has a nominal value of Ksh 1,000 and carries a coupon rate of 12% payable annually. How much interest does the holder receive each year?

  1. Ksh 88
  2. Ksh 12
  3. Ksh 1,120
  4. Ksh 120 Correct answer.

Explanation

Coupon interest is calculated on the nominal (par) value, so 12% x Ksh 1,000 = Ksh 120 per year. Market price movements do not change the coupon paid.

Question 49Finance

A share has a beta of 1.4. The risk-free rate is 6% and the expected return on the market is 14%. Using the capital asset pricing model, the required return on the share is:

  1. 19.6%
  2. 11.2%
  3. 17.2% Correct answer.
  4. 14.0%

Explanation

CAPM gives required return = Rf + beta x (Rm - Rf) = 6% + 1.4 x 8% = 17.2%. The beta of 1.4 means the share carries more systematic risk than the market.

Question 50Finance

A project costs Ksh 500,000 and generates a constant annual cash inflow of Ksh 150,000 for five years. The five-year annuity factor at 10% is 3.791. The net present value is:

  1. Ksh 250,000
  2. Ksh 18,650
  3. Ksh 68,650 Correct answer.
  4. Ksh 49,150

Explanation

The present value of the inflows is 150,000 x 3.791 = Ksh 568,650. Deducting the Ksh 500,000 outlay gives an NPV of Ksh 68,650, so the project is acceptable.