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FAC1601 Assignment 2 – Comprehensive Solutions with
Detailed Explanations, Graded A+, 2025/2026, Guaranteed
Pass
1. Question: ABC Ltd purchased equipment for KES 500,000. The equipment has a useful life of
5 years and no residual value. Record the depreciation for the first year using the straight-line
method.
Solution and Explanation:
• Step 1: Straight-line depreciation spreads the cost evenly over the useful life.
• Depreciation = Cost ÷ Useful life = 500,000 ÷ 5 = KES 100,000 per year.
• Step 2: Record the expense in the books:
o Dr Depreciation Expense 100,000
o Cr Accumulated Depreciation 100,000
• Explanation: The debit records the expense in the income statement, reducing profit.
The credit increases the accumulated depreciation (contra-asset) on the balance sheet,
showing the reduction in asset value.
2. Question: A company received KES 200,000 from a customer in advance for services to be
provided next month. Record the journal entry.
Solution and Explanation:
• Step 1: Money received before earning revenue is a liability (Unearned Revenue).
• Step 2: Journal entry:
o Dr Cash 200,000 (increases assets)
o Cr Unearned Revenue 200,000 (increases liabilities)
• Explanation: Until the service is performed, the company owes the service or refund. This
correctly follows the accrual principle: revenue is recognized when earned.
3. Question: Calculate closing inventory using the FIFO method. Beginning inventory: 100 units
@ KES 50; Purchases: 200 units @ KES 60; Sales: 180 units.
Solution and Explanation:
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• Step 1: FIFO (First-In, First-Out) assumes oldest inventory is sold first.
• Sold 100 units @ 50 = 5,000
• Sold 80 units @ 60 = 4,800
• Total cost of goods sold = 9,800
• Step 2: Remaining inventory = 120 units @ 60 = 7,200
• Explanation: FIFO reflects realistic flow of goods; older items are sold first. Closing
inventory is valued at the most recent costs, which matches the current market value
better.
4. Question: XYZ Ltd issued shares worth KES 1,000,000 at a premium of 20%. Record the share
issue.
Solution and Explanation:
• Step 1: Share capital = nominal value = 1,000,000
• Share premium = 20% × 1,000,000 = 200,000
• Step 2: Journal entry:
o Dr Cash 1,200,000 (total received)
o Cr Share Capital 1,000,000
o Cr Share Premium 200,000
• Explanation: The premium represents extra amount paid above nominal value. Cash
inflow increases assets, share capital records legal capital, and premium is additional
paid-in capital.
5. Question: Record the accrual of salaries of KES 50,000 at year-end.
Solution and Explanation:
• Step 1: Salaries earned but not yet paid are accrued expenses.
• Step 2: Journal entry:
o Dr Salaries Expense 50,000
o Cr Salaries Payable 50,000
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• Explanation: The debit increases expense in the income statement, while the credit
shows the liability owed, matching the accrual accounting principle.
6. Question: A company paid KES 150,000 for insurance covering the next 12 months. Record
the payment.
Solution and Explanation:
• Step 1: Payment covers future periods → Prepaid Expense (asset).
• Step 2: Journal entry:
o Dr Prepaid Insurance 150,000
o Cr Cash 150,000
• Explanation: Cash decreases (asset outflow) and prepaid insurance increases (asset).
Expense will be recognized monthly as the coverage is used.
7. Question: On 1 January, a company borrowed KES 500,000 at 12% interest per annum.
Record interest expense for 6 months.
Solution and Explanation:
• Step 1: Interest = Principal × Rate × Time
• Interest = 500,000 × 12% × 6/12 = 30,000
• Step 2: Journal entry:
o Dr Interest Expense 30,000
o Cr Interest Payable 30,000
• Explanation: Accrual accounting records the expense in the period it relates to, even if
payment is in the future.
8. Question: Prepare the journal entry for the purchase of inventory on credit KES 80,000.
Solution and Explanation:
• Step 1: Inventory increases assets; liability arises for unpaid amount.
• Step 2: Journal entry:
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o Dr Inventory 80,000
o Cr Accounts Payable 80,000
• Explanation: This follows the dual aspect principle: assets increase (inventory), liabilities
increase (accounts payable).
9. Question: Record the disposal of an asset with cost KES 200,000 and accumulated
depreciation KES 120,000, sold for KES 90,000.
Solution and Explanation:
• Step 1: Calculate book value = Cost – Accumulated Depreciation = 200,000 – 120,000 =
80,000
• Step 2: Gain = Sale Price – Book Value = 90,000 – 80,000 = 10,000
• Step 3: Journal entry:
o Dr Cash 90,000
o Dr Accumulated Depreciation 120,000
o Cr Asset 200,000
o Cr Gain on Disposal 10,000
• Explanation: Accumulated depreciation is removed, cash received is recorded, asset is
eliminated, and gain is recognized in the income statement.
10. Question: Record the return of goods by a customer worth KES 5,000.
Solution and Explanation:
• Step 1: Goods returned reduce revenue and accounts receivable.
• Step 2: Journal entry:
o Dr Sales Returns 5,000
o Cr Accounts Receivable 5,000
• Explanation: The debit increases contra-revenue, reducing net sales. The credit reduces
the customer’s outstanding balance.
•
FAC1601 Assignment 2 – Comprehensive Solutions with
Detailed Explanations, Graded A+, 2025/2026, Guaranteed
Pass
1. Question: ABC Ltd purchased equipment for KES 500,000. The equipment has a useful life of
5 years and no residual value. Record the depreciation for the first year using the straight-line
method.
Solution and Explanation:
• Step 1: Straight-line depreciation spreads the cost evenly over the useful life.
• Depreciation = Cost ÷ Useful life = 500,000 ÷ 5 = KES 100,000 per year.
• Step 2: Record the expense in the books:
o Dr Depreciation Expense 100,000
o Cr Accumulated Depreciation 100,000
• Explanation: The debit records the expense in the income statement, reducing profit.
The credit increases the accumulated depreciation (contra-asset) on the balance sheet,
showing the reduction in asset value.
2. Question: A company received KES 200,000 from a customer in advance for services to be
provided next month. Record the journal entry.
Solution and Explanation:
• Step 1: Money received before earning revenue is a liability (Unearned Revenue).
• Step 2: Journal entry:
o Dr Cash 200,000 (increases assets)
o Cr Unearned Revenue 200,000 (increases liabilities)
• Explanation: Until the service is performed, the company owes the service or refund. This
correctly follows the accrual principle: revenue is recognized when earned.
3. Question: Calculate closing inventory using the FIFO method. Beginning inventory: 100 units
@ KES 50; Purchases: 200 units @ KES 60; Sales: 180 units.
Solution and Explanation:
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• Step 1: FIFO (First-In, First-Out) assumes oldest inventory is sold first.
• Sold 100 units @ 50 = 5,000
• Sold 80 units @ 60 = 4,800
• Total cost of goods sold = 9,800
• Step 2: Remaining inventory = 120 units @ 60 = 7,200
• Explanation: FIFO reflects realistic flow of goods; older items are sold first. Closing
inventory is valued at the most recent costs, which matches the current market value
better.
4. Question: XYZ Ltd issued shares worth KES 1,000,000 at a premium of 20%. Record the share
issue.
Solution and Explanation:
• Step 1: Share capital = nominal value = 1,000,000
• Share premium = 20% × 1,000,000 = 200,000
• Step 2: Journal entry:
o Dr Cash 1,200,000 (total received)
o Cr Share Capital 1,000,000
o Cr Share Premium 200,000
• Explanation: The premium represents extra amount paid above nominal value. Cash
inflow increases assets, share capital records legal capital, and premium is additional
paid-in capital.
5. Question: Record the accrual of salaries of KES 50,000 at year-end.
Solution and Explanation:
• Step 1: Salaries earned but not yet paid are accrued expenses.
• Step 2: Journal entry:
o Dr Salaries Expense 50,000
o Cr Salaries Payable 50,000
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• Explanation: The debit increases expense in the income statement, while the credit
shows the liability owed, matching the accrual accounting principle.
6. Question: A company paid KES 150,000 for insurance covering the next 12 months. Record
the payment.
Solution and Explanation:
• Step 1: Payment covers future periods → Prepaid Expense (asset).
• Step 2: Journal entry:
o Dr Prepaid Insurance 150,000
o Cr Cash 150,000
• Explanation: Cash decreases (asset outflow) and prepaid insurance increases (asset).
Expense will be recognized monthly as the coverage is used.
7. Question: On 1 January, a company borrowed KES 500,000 at 12% interest per annum.
Record interest expense for 6 months.
Solution and Explanation:
• Step 1: Interest = Principal × Rate × Time
• Interest = 500,000 × 12% × 6/12 = 30,000
• Step 2: Journal entry:
o Dr Interest Expense 30,000
o Cr Interest Payable 30,000
• Explanation: Accrual accounting records the expense in the period it relates to, even if
payment is in the future.
8. Question: Prepare the journal entry for the purchase of inventory on credit KES 80,000.
Solution and Explanation:
• Step 1: Inventory increases assets; liability arises for unpaid amount.
• Step 2: Journal entry:
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o Dr Inventory 80,000
o Cr Accounts Payable 80,000
• Explanation: This follows the dual aspect principle: assets increase (inventory), liabilities
increase (accounts payable).
9. Question: Record the disposal of an asset with cost KES 200,000 and accumulated
depreciation KES 120,000, sold for KES 90,000.
Solution and Explanation:
• Step 1: Calculate book value = Cost – Accumulated Depreciation = 200,000 – 120,000 =
80,000
• Step 2: Gain = Sale Price – Book Value = 90,000 – 80,000 = 10,000
• Step 3: Journal entry:
o Dr Cash 90,000
o Dr Accumulated Depreciation 120,000
o Cr Asset 200,000
o Cr Gain on Disposal 10,000
• Explanation: Accumulated depreciation is removed, cash received is recorded, asset is
eliminated, and gain is recognized in the income statement.
10. Question: Record the return of goods by a customer worth KES 5,000.
Solution and Explanation:
• Step 1: Goods returned reduce revenue and accounts receivable.
• Step 2: Journal entry:
o Dr Sales Returns 5,000
o Cr Accounts Receivable 5,000
• Explanation: The debit increases contra-revenue, reducing net sales. The credit reduces
the customer’s outstanding balance.
•
