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Accounting For Equities And Liabilities Question Paper

Accounting For Equities And Liabilities

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2009

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2008/2009
SECOND SEMESTER EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
BAC 201: ACCOUNTING FOR LIABILITIES
DATE:
Tuesday 7th April 2009
TIME:
2.00pm-4.00pm
INSTRUCTIONS:
I.
Attempt all Questions
2.
Time allowed is 2 hours
,.,-'.
Marks allocated to each Question are shown at the end of each question.
.Ii
.
QUESTION ONE
a)
State and briefly explain he major classification
of leases.
[4marks]
b)
On January 1st 2009 XYZ Ltd issued 10 years shs 1 Million face value 10% per
bond at par.
The market interest rate is 9% per annum.
Required:
i)
Determine the journal entries to the record the issue of the bond.
[6marks]
ii)
Using effective interest method prepares the bond amortization
schedule
over the ten year period.
[6marks]
c)
Briefly explain the disclosure requirements
of contingent liabilities according to
IAS 37.
[4marks]
Total
20marks
QUESTION TWO
a)
What is lease?
[1mark]
b)
What are the advantages of leasing?
[5marks]
c)
Countrywide
Development
Ltd signed a lease dated 1, July 2007 with
Renovations
Ltd, the lessor with the following terms.
Page 1 of3

Lease term to be 5 years and lease agreement being non-conceallable,
providing equal rental payments ofKshs 350,000 at the beginning of each
year (annually due basis).
2
At lease commencement
the Equipment had a market value ofKshs.
1
million.
'>
.J.
The lease bears responsibility
for all executory costs save for the insurance
cost of Kshs 20,000.
4.
Renewal option exists for the lease.
5.
The discount rate for Countrywide
Development
Ltd is 11% but the
Discount Rate for renovations Ltd is 10% and is known to the lessee.
6.
Equipment by lessee is depreciated on Straight Line basis.
Required:
i)
Journal entries to recognize the lease in the books of lessee.
[3marks]
ii)
Journal entry to record the first lease payment.
[3marks]
iii)
Show the Lease Amortization
Schedule for Countrywide
developers over the 5 years Period.
[8marks]
Total
20marks]
."
QUESTION THREE
a)
Countrywide
Tourism Ltd. issued Kshs. 25,000,000 (shillings 25, Million), 10
year 6% Bonds with interest payable semiannually
on April 1 and October I
each year.
The bonds were sold on June 1,2007 at Kshs. 26,700,000 plus accrued
interest for 2 months, but the bonds were dated April 1,2007.
Bond issues
costs were Kshs. 2,360,000.
Required:
I. To compute the average interest expense per month.
[2marks]
2. Prepare Journal Entries to recognize the following:-
a)
Bond Issue Costs.
[2marks]
b)
Issuance of the Bonds.
[4marks]
c)
First interest Payment.
[2marks]
d)
Entries as at 31 st December 2007 the financial year end of the
Company.
[5marks]
.
Page 2 of3
J

QUESTION FOUR
a)
A Company issued the following debentures during the year.
I)
1,000, 12% Debentures of sh 1000 each at par but redeemable at 105 after
10 years.
2) 500, 10% Debentures of sh 100 redeemable at 105 after five years.
3)
500, 10% Debentures of sh 100 each at 90 but redeemable at 105 after 10
years.
4) 300 debentures of sh 100 each were used as collateral ti creditors who
advanced a loan of sh 25,000 to the company.
Required:
Journal entries to record the above transactions.
[8marks]
b)
James Nganga buys goods on credit and sells excessively for immediate cash.
He carries his business from a market stall rented from the City Council of
Nairobi.
He does not keep any formal accounts but the following has been
collected from records which he made available.
Ist January 2008
315t December 2008
Ksh 500'
Ksh 000'
Stock
300
450
·..
Creditors
180
70
Cash at Bank
450
370
Payment of supplies during the year
3,000
Payment to local authority for stall
550
December rent due but unpaid
50
Private drawing during the year
2,000
Cost of stock stolen and not recovered from insurance
300
Payment of wrapping papers etc
40
Cash takings during the year
5,510
It is known that al cash takings have been paid into bank and that all payments and
withdrawals have been made by cheque. There have been no transactions
other that those
indicated above.
Required: Prepare;
i)
Trading profit and loss account for the year ended 31 st December 2008.
[3marks]
ii)
Balance sheet as at 31st December 2008.
[7marks]
Total
IS Marks
Page 3 of3

Accounting For Equities And Liabilities Question Paper

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