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Advanced Financial Accounting I Question Paper
Advanced Financial Accounting I
Course:Bachelor Of Business Administration
Institution: Kenyatta University question papers
Exam Year:2010
KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2010/2011
FIRST SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR OF BUSINESS
BAC 301: ADVANCED FINANCIAL ACCOUNTING I
DATE: MONDAY 29TH NOVEMBER 2010
TIME: 2.00 P.M – 4.00 P.M
INSTRUCTIONS:
Answer ALL questions
1. Muthumi, Njeri and Wangeci are in partnership sharing profit and losses in the ratio 2:1:1. The
statement of financial portion of the firm as at 30th April 2010 was as follows:
Fixed assets
Land and Building (cost)
540,000
Furniture and fittings
90,000
Less depreciation
30,960
59,040
781,200
Capital Accounts
Muthoni
360,000
Njeri
180,000
Wangeci
180,000
720,000
Current liabilities
Bank overdraft
11,700
Page 1of 5
Creditors
49,500
61,200
781,200
On 30th April 2010, it was agreed to dissolve the partnership and as Njeri continuing a business on
her own account, she agrees to take over the furniture and furniture/fittings, stock and debtors at
valuations of sh. 54,000, sh. 180,000 and sh. 36,900 respectively. She also agreed to acquire the
land and building at a cost of sh. 965,000 and obtains a bank loan of sh. 700,000 which was paid to
the partnership.
The balance owing by Njeri is charged against Muthoni’s Capital Account as the two parties have
agreed that Njeri will repay to Muthoni over a period of twenty four months at an interest rate of
15% p.a.
Realization expenses amounting to sh. 10,700 are paid in cash and the creditors are paid in full.
Required:
Prepare the ledger account of the partnership in order to close off the books as at 30th April 2010.
(20 marks)
2. Kariuki died on 1st January 2009 and by his will, he left his house t his wife and on her death, to
his other son. He left the resident of his estate to be held on trust for the benefit of his family. He
gave no directions to the investments of trust funds. Karuki died on 1st January 2009, his
property was valued at sh. 3,000,000. He held 10,000 shares in Equity Bank valued at sh.24-26
and sh. 100,000 nominal 12% Kenya Government stock value at sh. 100-103 and sh. 700,000 in
the bank. His debts. And funeral expenses amounted to sh. 200,000. On 1st July 2009 Equity
Bank shares were quoted at sh. 25-sh. 28 and the 12% Kenya Government stock was quoted at sh.
98-100.
Required:
Show the Estate Capital Account, Investment Account and the Balance Sheet on 1st July 2009.
(10 marks)
3. ABC LTD historical financial statements are as follows:
Balance sheet at 31st December.
2008
2009
Fixed assets
1,000,000
950,000
Stock
500,000
550,000
Debtors
600,000
800,000
Bank and Cash
400,000
500,000
Page 2of 5
Creditors
(500,000)
(400,000)
Tax
(100,000)
(200,000)
Dividends
(200,000)
(250,000)
Net Assets
1,700,000
1,950,000
Financed by:
Ordinary shares
800,000
800,000
Loan
100,000
80,000
Revenue reserves
800,000
1,070,000
1,700,000
1,950,000
Profit and loss account for the year ending 31st December 2009.
Sales
2,120,000
Opening stock
500,000
Purchases
1,000,000
Closing stock
550,000
Gross profit
1,170,000
Expenses
400,000
Interest
50,000
Profit before tax
720,000
Tax
(200,000)
Profit after tax
520,000
Dividends
(250,000)
Retained earnings
270,000
Retained earnings b/d 80,000
Retained earnings c/d 1,070,000
Additional information:
a) Prices indices were as follows:
At purchase of fixed assets
110
At the issue of shares
110
Page 3of 5
At 31st December 2008
160
At 31st October 2008
155
At 31st December 2009
180
At 31st October 2009
175
Average 2009
170
At 30th June 2009
165
b) Stocks are acquired on average 2 months before year end.
c) Half of the interest was paid on 30th June 2009; at the same time, part of the loan was paid.
d) The balance of the interest rate was paid at he year end .
Required:
Restate the accounts to the current purchasing power sharing:
(i) Translated statement of financial portion as at 31st December 2008 to price index at the
end of 2008.
(ii) Translated statement of financial portion as at 31st December 2008 to price index at the
end of 2009
(iii) CPP Profit and loss Account for year to 31 December 2009.
(iv) CPP statement of financial portion as at 31st December 2009.
4. a)
Define deferred tax asset as per IAS 12.
(2 marks)
b)
Differentiate temporary from permanent differences. Give an example of each.
(6 marks)
c)
Metro Limited purchased a new truck at sh. 1.0 million to improve its distribution on 1st
January 2006. The company intends to provide depreciation over four years using
straight line method. Residual value is estimated at sh. 200,000. For tax purposes,
capital allowance are allowed on reducing balance basis at 35% profit before depreciation
and capital allowance is given below.
Year
Profit before depreciation and capital allowance
2006
sh. 1.0m
2007
sh. 0.8m
2008
sh. 0.9m
2009
sh.0.8m
Page 4of 5
The company prepares income statement and balance sheet extracts for the four years.
Required:
Prepare income statements and balance sheet extracts for the four (4) years showing deferred
taxes using:
(i)
Full provision method.
(ii)
Nil provision method.
(iii)
Partial provision method.
(12 marks)
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