Accountancy November 2018 – KNEC Diploma

Accountancy November 2018 Past Examination Question Paper – KNEC

This Past Paper examination was examined by the Kenya National Examination Council (KNEC) and it applies to the following courses:

  • Diploma in Banking and Finance

Note: To easily navigate through the KNEC Past Examination Paper Pdf below, Mobile phone users are advised to use Mozilla or Chrome browsers

SECTION A (60 marks)

Answer question 1 and any other ONE question in this section.

  1. (a) Firms A, B and C operate in the same industry. The following are the financial

statements of the firms as at 31 December, 2017:

  A B C
  Ksh. ‘000 Ksh. ‘000 Ksh. ‘000
Non-current assets: 8,392 10.938 6,400
Current assets:
Inventory 200 400 500
Accounts receivable 649 725 520
Prepayments 90 130 310
Bank 320 30
Cash 149 207 740
  1,408 1,462 2,100
  10.000 12.400 8.500
Ordinary share capital 5,000 4,000 3,500
Reserves (1 January, 2017) 1,420 1,680 2,300
Net income for the year 1,200 1,800 900
Non-current liabilities: 7,620 7,480 6,700
Bank loan 1,500 3,200 800
Current liabilities:
Accounts payable 776 940 310
Accrued expenses 104 370 690
Bank overdraft 410
  880 1,720 1,000
  10.000 12.400 8.500



  • For each firm, calculate the:
  • current ratio;
  • quick ratio;
  • return on total assets;
  • debt to equity ratio;
  • return on capital employed.


(ii) Based on results in (i) above, advise:

  • a creditor on the best firm to supply goods to;
  • an investor on the best firm to purchase shares in.

(18 marks)

(b) Zurix Limited manufactures a single product which is sold at Ksh. 5 per unit. The company had budgeted to produce and sell 300,000 units in the year ended 31 December, 2017. The following are the budgeted costs:


Cost per unit                                                 Ksh.

Direct materials (2 kg per unit)                       1.80

Direct labour (0.5 hours per unit)                   1.20

Variable production overheads                       0.30


The annual fixed overheads are Ksh. 160,000. During the year ended 31 December, 2017,270,000 units were produced and sold at Ksh. 5.50 per unit.


Production Costs were as follows:                     Ksh.

Direct materials (640,000 kg)                         544,000

Direct labour (121,500 hours)                         243,000

Variable production overheads                          54,000

Fixed production overheads                            160,000


  • Prepare budgeted income statement for the year ending 31 December, 2017.
  • Calculate each of the following variances:


  • Sales price variance;
  • Sales volume variance;
  • Direct materials price variance;
  • Direct materials usage variance;
  • Direct labour rate variance;
  • Direct labour efficiency


(a) Klepax Manufacturers uses component BC 23 in the manufacture of its products. The component is purchased at Ksh. 100 per unit. The ordering cost is Ksh. 1,500 per order and holding cost is 10% of the purchase price. The consumption of the component is 2,500 units per month.

  • Determine the:
  • Economic Order Quantity (EOQ);
  • annual holding costs;
  • annual ordering costs;
  • total annual relevant costs.
  • The firm intends to reduce the ordering costs to Ksh. 1,215 per order by processing the order documents online.

Determine the:

(I) new Economic Order Quantity (EOQ);  
(II) annual holding costs;  
(III) annual ordering costs;  
(IV) total annual relevant costs;  
(V) cost savings that will result from the reduction in the ordering costs.

(18 marks)

Namba Limited manufactures two products, P and Q. The following information relates <-0




to the products for the year ended 31 December, 2017:

Product: P Q
Units produced 7,000 5,000
Units sold 5,000 3,500
  Ksh. Ksh.
Selling price per unit Cost per unit: 60 80
Direct materials 5 7
Direct labour 4 2
Variable production overheads Additional information: 2 1



A sales commission of 10% per unit is paid to the sales personnel. Fixed costs were as follows:


Production                                                  100,000

Administration                           140,000

Fixed costs are apportioned equally between the products.

  • Prepare income statement for each product, under marginal costing.
  • Comment on the performance of the products.

(12 marks)

  1. (a) Tana Limited manufactures a single product. The product is sold at Ksh. 20 per unit.

The estimated production and sales for the year ending 31 December 2019 is 150,000 units.

The following information relates to the product.

Sales Ksh.


Direct materials 375,000
Direct labour 420,000
Direct expenses 45,000
Variable production overheads 210,000
Fixed production overheads 480,000
Fixed administration and selling expenses 950,000



Prepare income statement for the year ending 31 December 2019.

Calculate the:

  • variable cost per unit;
  • break even point, in units;
  • break even point, in shillings;
  • margin of safety, in units.
  • The manager has proposed a reduction of the selling price by Ksh. 3 per unit and undertake a sales promotion campaign at a cost of Ksh. 250,000. This is expected to increase the sales volume by 40%.
  • Prepare profit and loss statement;
  • Determine the break even point, in units;

Comment on the viability of the proposal.

(b) Petal Enterprises intends to invest in either Project T, or Project Tr The following information relates to the projects.

Project Tj                              Project T2

Ksh.                                      Ksh.

Cash outflow                10,000,000                             15,000,000

Net cash inflows:

1 3,000,000 5,000,000
2 8,000,000 6,000,000
3 5,000,000 7,000,000
4 1,000,000 2,000,000
4 (Scrap value)
5 1,000,000



The cost of capital is 12%.

  • For each project, determine the:
  • present value;
  • profitability index.

Advise the management on the project to invest in.



SECTION B (40 marks)

Answer any TWO questions in this section


Explain five indicators of a good internal control system in an organization.

(10 marks)

On 1 January 2018, Amani sold goods for Ksh. 180,000 to Baraza on credit. On the same date, Baraza accepted a three month bill of exchange drawn on him by Amani.

On 2 February 2018, Amani discounted the bill with his bank and was charged Ksh. 1,500.

On 6th April, 2018, the bill was dishonoured and the bank charged Ksh. 900 as noting charges. On 10 April 2018, Baraza paid Ksh. 80,000 and the noting charges in cash. He accepted another bill of Ksh. 100,000 drawn on him by Amani.

On 30 June 2018, Baraza was declared bankrupt. On 31 July 2018, Baraza’s creditors were paid Ksh. 0.60 per shilling.

Prepare journal entries to record the transactions above.                                        (10 marks)

Explain four limitations of accounting for price level changes.                                (8 marks)

On 1 January 2018, a winding up order was made against Kassa Limited. The following


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2 Replies to “Accountancy November 2018 – KNEC Diploma”

  1. Could you please send me knec past papers for Diploma in Banking and finance in my email

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