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Acct 411: Advanced Financial Accounting I Question Paper
Acct 411: Advanced Financial Accounting I
Course:Bachelor Of Commerce
Institution: Kabarak University question papers
Exam Year:2008
INSTRUCTIONS:
Answer questions ONE and ANY OTHER TWO questions.
Be neat and orderly.
QUESTION ONE (COMPULSORY)
NTC ltd is a company involved in banking services. To expand its operations the directors decided to
issue ordinary shares. The following information was extracted from its records:
a) The issued and fully paid ordinary share capital for the year ended 31st march 2007 was ksh.
500,000. (Nominal value Ksh. 1.00 per share).
b) On the beginning of the year as on 1st April 2007, the directors decided to increase the share capital
by inviting application for 150,000 ordinary shares of Sh.1.00 par each at a price of sh.1.15 per
share, payable as follows:
Per share:
· On application, (1st April 2007). Ksh.0.75.
· On allotment on 30th April 2007 (including a premium of Sh.0.15 per share Ksh. 0.20
· On first and final call (0n 31st may 2007). Ksh.0.20.
c) Applications were received for 180,000 shares and it was decided to deal with these as follows:
· To refuse allotment to all applicants for 8,000 shares.
· To give full allotment to applicants for 22,000 shares.
· To allot the reminder of the available shares pro rata among the other applicants.
· To utilise the surplus received on applications in part payment of amounts due on
allotment.
An applicant, to whom 400 shares had been allotted, failed to pay the amount due on the first and final
call and his shares were declared forfeited on 31st July 2007. These shares were reissued on 3rd
September 2007 as fully paid at sh.0.90 per share.
Required:
i ). Provide journal entries to record the above transaction. (14mks)
ii ). Write the ledger accounts for the above journals. (14mks)
iii ). State the contents of a memorandum of association. (6mks)
QUESTION TWO
(a) Differentiate between CUM interest and Ex-interest price quotation of financial securities. (6 mks)
(b) Lake Nakuru Ltd purchased Ksh. 1,200,000, 10% NCC bonds on 1st September 2005, at 90% CUM
interest. Interest is payable Semi-annually on every 30th June and 31st December. Assume Lake
Nakuru Ltd financial years end on every 30 September.
Required:
i. Prepare Journal entries and a three columnar ledger in the investor''s books of account (L.
Nakuru Ltd) for the period ending 30th September 2006. (22 Marks)
ii. Assuming that the price was quoted as ex-interest" provide journal entries to record the disposal
of the above bonds by NSE (seller) as at 15t September 2005. (5 Marks)
QUESTION THREE
Rose, Sheila and Tina have been in partnership sharing profits and losses equally. Their last
balance sheet on 31st March 2008 was as follows:
Balance sheet of Rose, Sheila and Tina partners 31st March 2008
Sh sh sh
Fixed Assets (at cost) 200,000
Less provision for depreciation ( 60,000)
NBV 140,000
Current Assets
Stock 50,000
Debtors 210,000
260,000
Current liabilities
Bank overdraft 130,000
Creditors 170,000 300,000
Working capital (40,000)
100,000
Capital accounts
Rose 40,000
Sheila 40,000
Tina 20,000
100,000
Additional information
(i) Samuel, a credit customer who owes the partnership sh 200,000 is declared bankrupt
and thus insolvent meaning that he is unlikely to repay any of the money owed by
him to the partnership. Reluctantly the partners decide to dissolve the partnership on
the following terms.
(ii) Stock is to be sold to Nelson ltd for sh 140,000
(iii) The fixed assets were sold for sh 180,000 except for certain items with a book value of
Sh 50,000, that were taken over by Rose at an agreed value of sh 70,000.
(iv) The debtors except for Samuel are expected to pay their accounts in full.
(v) The cost of dissolution will be sh 48,000.
(vi) Discounts received from discharge of creditors was sh 5,000.
(vii) Tina is unable to meet her liability to the partnership.
Required
(a) Provide appropriate journal entries and ledger accounts for the dissolution of the
partnership (28mks)
(b) Briefly explain "Gamer and Murray" rule with reference to partnership dissolution. (5
mks)
QUESTION FOUR
The following balances are in the books of Rambo ltd for the year 2008
Turnover Sh.2300 Cash at bank Sh.98
Plant & machinery 1080 Printing & stationery 22
Loss on sale of machine 75 Auditor’ fees
Depreciation-plant & machinery 200 Retained profits (opening) 994
Dividends to ordinary shareholders 146 Retained profits for the year 288
Debtors 200 Rent, rates & taxes 165
Creditors 127 Other expenses 85
Total stock of all materials
Ordinary share capital issued 1500
WIP & finished goods-opening stock 160 Interest on borrowings 40
-Closing stock 200 Income tax for the year 276
Raw material purchased 625 Wages & salaries 327
Employees state insurance 35
Pension fund contribution 28
Required:
(a) Draft a value added statement for the period ended 31st march 2008 (22mks)
(b) State the uses of a value added statement. (5mks)
(c) Explain three obligations of the consignor. (6mks)
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