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Advanced Accounting I Question Paper

Advanced Accounting I

Course:Bachelor Of Commerce

Institution: Kca University question papers

Exam Year:2011

UNIVERSITY EXAMINATIONS: 2010/2011
SECOND YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
CAA 202-A : ADVANCED ACCOUNTING I (D+E)
DATE: AUGUST 2011 TIME: 2 HOURS
INSTRUCTIONS: Answer All the Questions
Question One
Lay Ltd. acquired 90% of the ordinary shares of Kay Ltd. on 1 April 2009 for Sh.30 million when Kay
Ltd.’s retained earnings were Sh.15 million. The following balances were extracted for the two
companies as at 31 March 2011 were as follows:
Lay Ltd. Sh.’000’ Kay Ltd. Sh.’000’
Non-current assets:
Property, plant and equipment 26,400 16,200
Investment in Kay Ltd. 30,000 -
Other investments 1,000 6,000
57,400 22,200
Current Assets:
Inventory 9,500 4,000
Accounts receivable 7,200 1,500
Bank 300 _____
17,000 5,500
2
Total assets 74,400 27,700
Equity and liabilities:
Ordinary share capital (Sh.10 each) 10,000 5,000
Retained earnings 48,600 6,300
58,600 11,300
Non-current liabilities:
12% debentures 4,000 6,000
Current liabilities:
Accounts payable 7,700 5,200
Taxation 4,100 700
Overdraft _____ 4,500
11,800 10,400
Total equity and liabilities 74,400 27,700
Additional information:
1) On the date of acquisition, the fair values of Kay Ltd.’s assets were approximately equal to their
book values except for Plant which had a net replacement value of Sh.6 million in excess of its
book value and an estimated remaining useful life of 5 years and Investments with market values of
Sh.8 million.
2) On 31 March 2011, Lay Ltd. Held goods bought from Kay Ltd. for Sh.600,000 by 31 March 2011
at a standard mark-up on cost of 20%.The agreed purchase ledger account balance of Kay Ltd. with
Lay Ltd. was Sh.1,400,000.
Required:
a) Compute the goodwill on acquisition (5 Marks)
b) Compute the group retained profit (3 Marks)
c) Group statement of financial position as at 31 March 2011. (12 Marks)
Question Two
K and S, who prepare their accounts annually to 30 June, are partners in a retail business sharing
profits and losses in the ratio of 3:2 respectively. On 31 December 2010, K retired and M was
admitted as a partner, profits and losses from that date being shared between S and M in the ratio 2:1
3
respectively. For the purpose of these changes, the value of the firm’s goodwill was agreed at
Sh.840,000. No account for goodwill is maintained in the books, adjusting entries for the transactions
between the partners being made in their current accounts. Interest on fixed capital is allowed at 6%
per annum but no interest is charged or allowed on current accounts.
The trial balance of the partnership as at 30 June 2011 was as follows:
Sh.’000’ Sh.’000’
Purchases
Motor vehicles at cost (30 June 2010)
Accumulated depreciation– vehicles (30 June 2010)
Balance at bank
Salaries and Wages
Inventories (30 June 2010)
Sales (Sh.1,393,300 for six months to 31 December 2010)
Receivables
Payable s
Professional charges
Rates and lighting
General expenses (Sh.172,000 for six months to 31 Dec 2010)
Cash introduced by M
Capital accounts: K
S
Current accounts: K
S
2,840
600
148
1020
510
330
54
168
410
______
240
3,800
360
400
500
300
220
260
6,080 6,080
Additional information:
1) It was agreed that of the Sh.400,000 introduced into the firm by M on 1 January 2011,
Sh.100,000should form his fixed capital, the balance being credited to his current account.
2) The inventories as at 30 June 2011 was valued at Sh.560,000.
4
3) Depreciation on vehicles is charged at the rates of 20% using reducing balance method
4) As at 30 June 2011, rates paid in advance amounted to Sh.22,000 and a provision for Sh.8,000 for
general expenses was required.
Required:
a) Income statement and appropriation account (12 Marks)
b) The partner’s current accounts as at 30 June 2011. (8 Marks)
Question Three
a) List the order in which liabilities are paid incase of voluntary liquidation of a company (5 Marks)
b) The following trial balance was extracted by the trustees of Age Retirement Benefits Scheme as at
31 May 2011
Sh.’000’ Sh.’000’
Investments at market value 112,040
Contributions receivable 515
Pensions due but not paid 480
Employer’s contribution 12,000
Employees’ contributions 6,000
Investment income 18,945
Pensions 4,200
Administrative expenses 1695
Profit on sale of investments 3,810
Accumulated fund as at 1 June 2006 ______ 77,215
118,450 118,450
Required:
i) Statement of changes in net assets for the year ended 31 May 2011. (6 Marks)
ii) Statement of net assets as at 31 May 2011. (4 Marks)
Question Four
a) Explain the term abatement and rule of lapse as used in accounting for executorships (4 Marks)
b) Briefly explain how a different types of trust can be created (4 Marks)
c) Ambrose, a widower, died intestate on 1 January 2011. He is survived by his two sons John and
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James and a daughter Janet. His other daughter, Juliet predeceased him. Juliet is survived by a
son, Jacob and a daughter Jeane.
During his lifetime Ambrose had advanced his two sons Sh.500,000 each to enable them
commence and run a hardware business. Ambrose had also advanced Sh.400,000 to Janet to
purchase equipment for use in her hair salon business. The net estate of Ambrose after payment of
all the expenses and liabilities on 31 May 2006 was Sh.9,000,000.
Required:
A distribution statement of the net estate of Ambrose (7 Marks)

Advanced Accounting I Question Paper

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