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Accounting For Assets Question Paper

Accounting For Assets

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2008

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2007/2008
INSTITUTE OF OPEN LEARNING
EXAMINATION FOR THE DEGREE OF BACHELOR OF COMMERCE
BAC 200: ACCOUNTING FOR ASSETS

DATE: Wednesday 9th January, 2008 TIME: 8.00 a.m. – 10.00 a.m.
________________________________________________________________________
INSTRUCTIONS
Answer All questions.

1.
Target Company’s books show a cash balance of sh 327,715 as at 30th November,
2005. The bank statement covering the month of November showed an ending
balance of sh.324,275. An examination of Target’s accounting records and
November bank statement identified the following reconciling items:
(a)
A deposit of sh.42,380 was mailed on November 30 but does not appear
on the bank statement.
(b)
Cheques written in November but not charged to the November bank
statement are:
Cheque no. 1211
Sh 14,780
1214
17,250
1218
8,420
1220
15,830

(c)
Interest of sh.5,000 on Treasure bonds held by the bank for Target was
collected by the bank on 28 November for Target, but are not yet recorded
by Target.
(d)
Bank Service charge of sh.1,500 are not yet recorded on Target’s books.

2

(e)
One of Target’s customer’s cheque for sh.26,400 was returned with the
bank statement and marked NSF.
(f)
Target discovered that cheque no. 1215 written in November for sh.13,100
in payment of an account payable, was recorded in the books incorrectly
as sh.31,100.
(g)
A cheque issued by Tangent Company in the amount of sh.12,440
accompanied the bank statement and was incorrectly charged to Target
Company.
Required:
(i)
Updated cash-book as at 30 November 2005.
(ii)
Bank reconciliation statement starting with the balance per bank
statement.
(iii)
Journal entries to update the cashbook.

[20 marks]

2.
(a)
Identify three forms by which receivables can be transferred to a third
party for cash.
(b)
The balance sheet Holly Ltd. At 31 December, 2005 includes the
following:
Accounts receivable

sh.182,100
Less: Allowance for doubtful accounts
17,300

164,800
Transactions is 2006 included the following:
(a)
Cash collected on accounts receivable totaled 138,000.
(b)
Sh.6,200 was received in payment of an account which was written
off the books as worthless in 2003. (Hint: Re-establish the
receivable account)
(c)
Customers accounts of sh.19,500 were written off during the year.
(d)
At year end the allowance for doubtful accounts was estimated to
need a balance of sh.20,000. The estimate is based on an analysis
of aged accounts receivable.

[20 marks]

3

3.
(a)
Distinguish between depreciation, depletion and amortization.

[6 marks]
(b)
Write Corporation purchased equipment for sh.212,000 on January 1,
2005. It was estimated that the equipment will have a useful life of 8
years and a salvage value of sh.12,000. Estimated production is 40,000
units and estimated working hours 20,000. During 2005 the company
used the equipment for 1,600 hours and produced 3,000 units.
Required
Compute depreciation expense under each of the following methods for 205.
(i)
Straight line
(ii)
Activity (Units of output)
(iii)
Activity (working hours)
(iv)
Double declining balance.

[14 marks]

4. The net worth of Toronto Company excluding goodwill totals sh.800,000 and
earnings for the last 5 years total sh.890,000. Included in the latter figure are
extraordinary gains of sh.60,000 and non-recurring losses of sh.40,000. In
developing a sales price for the business a 14% return on networth is considered
normal in the industry and annual excess earnings are to be capitalized at 20% in
arriving at goodwill.
Required
Compute estimated goodwill.

[10 marks]

………………….

Accounting For Assets Question Paper

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