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Accounting For Assets Question Paper
Accounting For Assets
Course:Bachelor Of Commerce
Institution: Kenyatta University question papers
Exam Year:2009
KENY ATT A UNIVERSITY
UNIVERSITY EXAMINATIONS 2008/2009
SECOND SEMESTER EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
BAC 200: ACCOUNTING FOR ASSETS
DATE:
Monday so" March 2009
TIME: 8.00am-10.00am
INSTRUCTIONS:
Answer all questions
Question 1
a) The lASB's Framework for the Preparation of Financial Statements requires
financial statements to be prepared on the basis that they comply with certain
accounting concepts, underlying assumptions and (qualitative)
characteristics.
Five of these are:
Matching/accruals
Substance over form
Comparability
Materiality
Required:
Briefly explain the meaning of each of the above concepts/assumptions.
[4marks]
b)
For most entities, applying the appropriate concepts/assumptions
in accounting
for inventories is an important element in preparing their financial statements.
Required:
Illustrate with examples how each of the concepts/assumptions
irua) may be
applied to accounting for inventory.
[8marks]
-.
Page 1 of 5
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c)
The following data related to a business enterprise as at 31 st March 2004
March I stock in hand
400 units
@Sh. 7.50 each
•.
Purchases:
"
March 5
600 units
@Sh. 8.00 each
March 15
500 units
@Sh. 9.50 each
March 25
400 units
@Sh. 8.50 each
March 30
200 units
@Sh. 9.50 each
Issues
March 3
300 units
March 10
500 units
March 17
400 units
March 26
500 units
March 31
200 units
Required:
Calculate the value of closing inventory under the perpetual inventory using
a)
First in first out
[8marks]
b)
Weighted average prices method
[20marks]
Question 2
a)
Asset measurements
involves the valuation or pricing of the future services of an
asset.
i)
Discuss the guidelines for the valuation and classification
of cash on the
balance sheet?
ii)
Discuss how assets measurement applies to short term and long tern
receivables.
[4marks]
b)
The following information pertains to magic carpet enterprises:
June I Assigned Sh 40,000 of accounts receivables to country bank on a
nonnontification
basis. The bank advances 32,000 less a services charge of Sh.
800. Magic carpets signed a 1% per month on the unpaid load balances.
Page 2 of 5
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•
June 28 Collected assigned accounts of Sh 25,000, less sales returns and
allowance of Sh 750
June 29 sold goods on account for Sh. 45,000
June 30 Remitted the June 28 collection to the bank.
June 30. Factored Sh. 40,000 of accounts receivable with Sun bank on a
notification basis.
Sun bank charged a factoring fee of3% of the amount factored fee 3% of
the amount factored and interest 1.5% per month on all amounts
withdrawn before the end of the 30-day average collection period of the
receivables.
Sun Bank withheld 10% of the amount receivables factored
to cover sales return and allowances.
Magic carpet withdrew the
maximum amount of cash available on June 30.
Required:
i)
Journalize the above events on magic carpet's books
ii)
Illustrate how magic carpet should report receivables that pertain
to the assignments and factoring arrangements
on a balance sheet
date June 30 .
•.d
iii)
Why are the financial reporting requirements for an assignment
considered somewhat unusual?
[12marks]
Question 3
a)
The invoice price of a machine is Sh 300,000.
Various other costs relating to
acquisition and installation of the machine amount to Sh 50,000. The machine
has an estimated life of 10 years, with no residual value at the end of that
period. The owner of the business suggests that the incidental costs of Sh
50,000 be charged to expense immediately for the following reasons.
i)
[fthe machine should be sold, these costs cannot be recovered in the
sales price.
ii)
The inclusion of Sh 50,000 in the machinery account on the books will
not necessarily result in a closer approximation
of the market price of
this asset over the years because of the possibility of changing demand
and supply levels.
iii)
Charging the Sh 50,000 to expenses immediately will reduce income
taxes.
Page 3 of5
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I
Required:
Discuss each of the points raised by the owner of the business.
[6marks]
b)
On November
I, 1999 Senn Company contracted Super Contractors to have a
building constructed for Sh 1,750,000.
Senn made payments for the
construction
as follows:
January 1, sh 310,000, March 1, Sh 420,000, May 1, Sh 540,000, December
31, Sh 480,000.
The construction
was completed and the building was ready for occupation on
December 31, 200. Senn had the following outstanding debt as 31 december
2000.
i)
15% three year note to finance construction of the building, dated
December 31, 1999 with interest payable annually on December 31.
Sh 800,00
ii)
10% six year note payable, dated December 31, 1996 with interest payable
annually on December 31
Sh 600,000
iii)
12% ten year bonds issued December 31, 1995, with interest payable
annually on December 3]
Sh 400,000
Required:
i)
Determine the amount of interest to be capitalized in 2000 in relation to
the construction
of the building.
ii)
Prepare journal entries for Senn Company during 2000.
[14marks]
Question 4
a)
Outline the five steps usually followed to estimate the amount of goodwill of an
existing business enterprise.
[5marks]
b)
The following information was obtained from the accounting records of Alpine
Company on 2nd January 2008.
Assets other than goodwill
Sh 5,250,000
Liabilities
1,950,000
A verage income 2003-2007
816,000
Page 4 of 5
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•
The current fair values of assets, including goodwill, are to be determined as
follows:
i)
20% is considered a reasonable net income return on net assets, including
goodwill.
i i)
Average net income for years 2003-2007 in excess of 20% on such net
assets on 2nd January 2008 is to be capitalized at 25% determining
goodwill.
The following adjustment to average net income is required before determining
goodwill of the company.
i)
Equipment of Alpine Company has a current fair value which is Sh
300,000 in excess of its carrying amount. The equipment has a remaining
economic life of 10 years.
Required:
Compute the valuation of goodwill. Show your workings.
[5marks]
Page 5 of5
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