Financial accounting kasneb past paper
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ACCOUNTING TECHNICIANS DIPLOMA (ATD)
LEVEL II
FINANCIAL ACCOUNTING
MONDAY: 20 April 2026. Morning Paper. Time Allowed: 3 hours.
This paper consists of fifty (50) multiple Choice Questions. Answer ALL questions by indicating the letter
(A, B, C or D) that represents the correct answer. Each question is allocated two (2) marks.
1. Which one of the following Acts is a professional source of accounting regulation rather than a legal source of
regulation in financial reporting?
A. The Accountants Act
B. The Public Finance Management Act
C. International Financial Reporting Standards (IFRS)
D. The Companies Act (2 marks)
2. Within the conceptual framework, a “reporting entity” is BEST described as ___________________.
A. an economic unit that is required, or chooses, to prepare general purpose financial statements
B. only a legally incorporated public company that is expected to prepare financial statements
C. any organisation that maintains a cash book
D. any profit-making business registered for taxation and is expected to maintain a cash book (2 marks)
3. Financial information is said to faithfully represent an economic phenomenon when it is complete, neutral and
__________________.
A. timely
B. comparable
C. understandable
D. free from material error (2 marks)
4. Which one of the following statements is a common limitation of sustainability accounting?
A. It completely ignores non-financial information that is usually in monetary terms
B. Some environmental and social impacts are difficult to quantify reliably in monetary terms
C. It can only be applied by listed companies as per capital markets regulations
D. It prevents the use of disclosure notes by board of directors (2 marks)
5. Derecognition of an asset would normally take place when the asset is disposed of or when _______________.
A. its historical cost changes and the benefits diminish
B. a provision is created against it over a period of five years
C. future economic benefits are no longer expected to flow to the entity
D. it is revalued upwards as per the accounting (2 marks)
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6. Which one of the following items is correctly classified as a financial liability?
A. A bank loan repayable in two years
B. Inventory held for resale in two years
C. Prepaid insurance after three years
D. Factory building worth more than Sh.5,000,000 (2 marks)
7. At year end, rent paid relating to the next accounting period should be treated as ______________________.
A. an accrued expense added to the current period rent expense
B. a capital reserve for the next accounting period
C. a financial liability deducted from the current period rent expense
D. a current asset and deducted from the current period rent expense mark (2 marks)
8. A bonus issue of shares by a company will normally ________________________.
A. increase cash and increase share premium recorded in the financial statements
B. increase ordinary share capital and reduce capital reserves without raising new cash
C. reduce share capital and increase retained earnings without raising new cash
D. create a corporation tax liability and increase capital reserves (2 marks)
9. The primary purpose of a receipts and payments account in a not-for-profit entity is to _________________.
A. summarise cash received and cash paid during a period irrespective of accruals
B. measure surplus after charging depreciation and accruals during a financial period
C. show only income of a revenue nature after charging depreciation and accruals
D. determine the market value of club assets while showing the annual investments (2 marks)
10. In a statement of cash flows prepared using the direct method, cash paid to suppliers is classified under
________________.
A. investing activities
B. financing activities
C. operating activities
D. other comprehensive income (2 marks)
11. Where financial statements are prepared from incomplete records, the opening statement of affairs is mainly used
to determine _____________________.
A. gross profit
B. closing bank balance
C. provision for depreciation
D. opening capital (2 marks)
12. Which one of the following bodies is specifically responsible for developing International Public Sector Accounting
Standards?
A. IASB
B. IPSASB
C. ICPAK
D. Director of Accounting Services (2 marks)
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13. The main purpose of commitment accounting in the public sector is to __________________.
A. reserve budgetary funds once obligations are entered into
B. record only cash transactions on an annual basis
C. replace fund accounting completely
D. measure profits of ministries and departments (2 marks)
14. The objective of IPSAS is BEST stated as to ____________________.
A. prescribe tax rates for county governments for accountability and decision making
B. standardise private sector manufacturing statements and books of accounts
C. eliminate the need for parliamentary oversight while supporting accountability and decision making
D. improve the quality, consistency and comparability of public sector financial reporting (2 marks)
15. In the absence of a partnership deed, partners ordinarily share profits and losses ____________________.
A. in proportion to capital contributed
B. in the old profit-sharing ratio
C. equally
D. in proportion to drawings made (2 marks)
Use the following information to answer Question 16 to Question 22.
Rift Valley Agro Supplies is a sole trader in Eldoret dealing in farm inputs. The trader does not maintain complete double-
entry records. The following information was extracted from the available books and source documents for the year ended
31 December 2025:
Amount (Sh.)
Opening inventory
4,200,000
Opening trade receivables
3,600,000
Opening trade payables
2,400,000
Opening prepaid insurance
180,000
Opening accrued electricity
90,000
Cash sales during the year
6,750,000
Bankings from credit customers
18,960,000
Bad debts written off
160,000
Discount allowed to customers
240,000
Payments to credit suppliers by bank
12,480,000
Discount received from suppliers
120,000
Cash purchases
540,000
Wages paid
3,900,000
Rent paid by bank
1,440,000
Insurance paid by bank
600,000
Electricity paid by bank
1,080,000
General expenses
816,000
Motor expenses paid by bank
510,000
Equipment at cost on 1 January 2025
3,000,000
Accumulated depreciation on equipment at 1 January 2025
900,000
Additional equipment purchased on 1 April 2025
1,200,000
Closing inventory
5,100,000
Closing trade receivables
4,000,000
Closing trade payables
2,760,000
Closing prepaid insurance
120,000
Closing accrued electricity
150,000
Drawings during the year
900,000
Additional information:
Depreciation is provided on equipment at 10% per annum on cost, time-apportioned where appropriate. There was no
additional capital introduced during the year.
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