1. (a) Explain how the following persons use accounting information in decision
making:

(i) Government [3 marks]
(ii) Investors [3 marks]
(iii) Creditors [3 marks]

(b) Describe the various fundamentals of accounting concepts and how they are applied in financial reporting. [9 marks]

(c) Company Ltd purchased 2 tractors for use in their farms at a cost of Sh.1,200,000 each. The policy of the company is to charge 10% p.a depreciation on straight line method. The machines are being used to date. The company has never provided the information for the two farm machinery to date.

Required: Prepare the following accounts upto to 31st December 2011.

(i) Tractor account [2 marks]
(ii) Extract of profit and loss account [2 marks]
(iii) Provision for depreciation [5 marks]
(iv) Extract of balance sheet. [3 marks]

2. (a) The bookkeeper  extracted a trial balance on 30th
November 2012 which failed to agree by Sh.330,000 shortage on credit side. The suspense account was opened for that purpose.

In December 2012 the following errors were found:

(i) Sales book has been undercast by Sh.100,000.
(ii) Sales of Sh.250,000had been wrongly debited to  account.
(iii) Rent account has been understated by Sh.70,000.
(iv) Discounts received account has been undercast by Sh.300,000.
(v) Sales of motor vehicle at book value has been credited in error to sales account Sh.360,000.

Required:

(i) Show the journal entries necessary to correct the errors. [6 marks]
(ii) Draw up the suspense account after the errors described above
have been corrected. [3 marks]

(b) The following information was provided from the books of Nkubu Farmers
Cooperative Society for the year ended 30th September 2012.

Shs.
Sales for the year 600,000
Stock on 30th September 2012 200,000
Stock on 1st October 2012 100,000
Annual purchases 550,000
Operational expenses 50,000
Debtors for the year 140,000
Pre-paid expenses 40,000
Bank balance 235,000
Cash at hand 25,000
Trade creditors 160,000
Bills payable 40,000

Required to compute the following:

(i) Net profit ratio [3 marks]
(ii) Current ratio [2 marks]
(iii) Quick ratio [2 marks]

(c) Using the ratios computed in (b) above comment on the liquidity status of
the farmers society. [4 marks]

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