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Financial Statement Analysis Question Paper
Financial Statement Analysis
Course:Bachelor Of Commerce In Accounting
Institution: Kenyatta University question papers
Exam Year:2008
KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2008/2009
SECOND SEMESTER EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
BAC 407: FINANCIAL STATEMENT ANALYSIS
DATE: Thursday
27th
August
2009
TIME: 8.00am-10.00am
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INSTRUCTIONS:
Answer all questions
1.
a)
i)
Highlight two sources of long-term debts available to a
firm.
[2marks]
ii)
Lenders commit their money to the company on a long-term basis.
For this reason they will be interested in the company’s long-term
performance and its ability to meet their short-term and long-term
needs. How will they analyze their stake in the business?
[8marks]
b) The following information was extracted from the books of Koni Company
Ltd. It is financed partly by ordinary share capital of 20,000 shares at Ksh 10,
and selling at Ksh 25 currently at the stock exchange. This company reported
a profit of Ksh 1 Million before tax and intends to declare a dividend of 10%
preference dividends on its 600,000 preference shares and 30% of ordinary
dividends. The corporate tax rate is 50%.
Required: Calculate:
i) E.PS.
[2marks]
ii)
Earnings
Yield [2marks]
iii)
Price
Earnings
ratio
[2marks]
iv)
Clearing
ration [2marks]
Page 1 of 4
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v) Return on capital employed.
[2marks]
2.
a)
Briefly explain the importance of cash flow statement to a business entity.
[2marks]
b)
Mali Mali Limited, a medium sized trading company closes his books
every 31st March. Given below are the comparative balance sheets of
Mali Mali Ltd, for the year ended 2002 and 2003.
Balance Sheet as at 31 March
2003
2002
Sh’000’
Sh
‘000’
Assets:
Non-current Assets
Land and building
95,000
55,000
Motor vehicles
46,000
35,000
Furniture and Fixtures
25,000
28,000
166,000
118.000
Current Assets
Stock 28,000
20,000
Debtors 14,000
16,000
Prepayments 6,000
8,000
Bank balances & cash in hand - 3,000
48,000 47,000
Total Assets
214,000 165,000
Equity and Liabilities
Capital and Reserves
Ordinary share capital
80,000
50,000
Share premium
15,000
15,000
Revaluation Reserve
15,000
25,000
Retained profit
23,000
15,000
133,000
105,000
Non-current Liabilities
10% Debentures
30,000
20,000
Bank loan
6,000 10,000
36,000
30,000
Current Liabilities
Trade creditors
23,000
15,000
Interest payable
9,000
6,000
Page 2 of 4
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Current tax
6,000
5,000
Bank overdraft
4,000
-
Proposed dividends
3,000
4,000
45,000
30,000
Total equity & Liabilities
214,000 165,000
The following information is provided for the year ended 31 March 2003.
i)
Land and building were revalued upwards by sh. 10,000,000 during the
year. In addition an acquisition of land buildings of sh 40,000,000 was
made.
ii)
Depreciation on motor vehicle amounting to sh 4,000,000 was provided in
the profit and loss account for the year. Motor vehicle having a net book
value of sh, 8,000,000 was sold at a profit of 3,000,000 during the year.
iii)
Bonus shares of sh. 20,000,000 were issued at par during the year by
utilizing the revaluation reserve. Mali Mali Ltd’s ordinary shares have a
par value of sh. 20.
iv)
Interest expenses charged to this profit and loss account for the year
amounted to sh. 8,000,000.
v)
During the year tax amounting to sh. 6,000,000 was paid.
vi)
Total dividends for the year (both interim and proposed) amounted to sh.
5,000,000.
vii)
The profit after tax for the year amounted to sh. 8,000,000.
Required:
Prepare the cash flow statement of Mali Mali ltd in accordance with the
IAS 7 requirements for the year ended 31 March 2003.
[15marks]
3.
a)
Differentiate between ‘physical deterioration’ and ‘obsolescence’.
[5marks]
b)
Depreciation is a process of allocation and not of value. Determine the
various methods of estimating true depreciation to be charged to a
building.
[10marks]
Page 3 of 4
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4. a) On
1st January 2009, Von Company entered into two non-concellable
leases of new machines for use in its manufacturing operations. The first
lease does not contain a bargain purchase option and the lease term is
equal to 89% of the estimated economic life of the machine. The second
lease contains a bargain purchase option and the lease term is equal to
50% of the estimated economic life of the machine.
Required:
a)
Explain the justification for requiring lessees to capitalize certain long-
term leases.
[8marks]
b)
Describe how a lessee accounts for a capital lease at inception.
[5marks]
c)
Explain how Von should classify each of these two leases. [2marks]
Page 4 of 4
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