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Accounting For Assets Question Paper

Accounting For Assets

Course:Bachelor Of Commerce In Business Studies

Institution: Kenyatta University question papers

Exam Year:2008

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2008/2009
INSTITUTE OF OPEN LEARNING (IOL)
EXAMINATION FOR THE DEGREE OF BACHELOR OF COMMERCE
BAC 200: ACCOUNTING FOR ASSETS

DATE: THURSDAY 13
AUGUST 2009 TIME: 11.00 A.M – 1.00 P.M
TH

INSTRUCTIONS:
Answer all Questions
Question One:

(a) What is meant by the going concern principle of accounting? How does it affect the
valuation of assets and when is this principle not applicable? (6 marks)
(b) Explain what is meant by: The benefits of accounting information must exceed costs.
(4 marks)

Question Two
The following data pertaining to the cash transactions and bank account for Karmin Ltd for
December, year 4 are available to you.
i) Cash balance per accounting records Dec 31, Yr 4 Sh 938,713 Credit
ii) Cash balance per bank statement Dec 31, Yr 4 361, 362 Overdraft.
iii) Bank charges for December 3,500
iv) Outstanding cheques 188,200
v) Proceeds of bank loan on Dec 31not recorded in accounting records 500,000
vi) Direct deposit by a debtor, Rollo Ltd
15,000
vii) Deposit of Dec 31 not recorded by bank until Jan 1 58,050
viii) Deposit on Dec 29 recorded by banks Sh 8,000; correctly in the cash book in the correct
amount of 80,000
ix) Cheque no. 1040 to a supplier recorded by bank as 4,000; recorded correctly in the cash
book in correct amount of 40,000

x) Customers cheque returned by of bank market “ Refer to Drawer” 28,300.
Required
a) Prepare a bank reconciliation statement as 31 December year 4.
b) Prepare journal entries to adjust the accounting records on 31 December year 4.
(15 marks)

3. The following information relates to Ray tech Ltd.
July 1 Ray tech Ltd sold to Logistics Ltd Merchandize having a sales price of
Sh. 70,000 with terms 2/10, net 60. Ray tech records its sales and receivables
net.
July 3 Logistics Ltd returned Merchandize (which was defective) having a sales price
of sh. 7,000.
July 5 Accounts receivable of sh. 90,000 are factored with Kelly credit Ltd without
recourse at a financing charge of 10%. Cash is received for the proceeds;
collection are handled by the finance company.
July 9 Specific accounts receive able of sh. 90,000 are assigned Totex Ltd as security
for a loan of sh. 60,000 at a finance charge of 60% of the amount of the loan.
The finance company will make the collections.
Dec 29 Logistics Ltd notifies Ray tech Ltd that fit is bankrupt and will pay only 10% of
its account outstanding relating to the July 1 which remains unpaid in full. The
dept is to be written off using the allowance method.
Required.
Prepare journal entries to record the above for Ray tech Ltd. ( 16 marks)
4. Given below are three different sets of assumptions (cases) relating to an item in
inventory.
Page 2 of 3

Case 1 Case 2 Case 3
Cost Sh. 12,400 Sh . 20,000 Sh. 28,000
Selling price 30,000 30,000 30,000
Cost complete and
4,000 4,000 4,000
ship to customers
Normal gross profit
25% 25% 10%
on selling price
Replacement cost Sh. 14,000 Sh. 18,000 Sh. 26,500

Required

Compute the inventory at lower of cost or market for each case. (15 marks)

5. a) What is good will (4 marks)
b) During 2006 Ripley Ltd spent sh. 900,000 in research and development costs.
As a result, a new product was patented at additional legal and other costs of
sh. 150,000. The patent was obtained in July 1,2006 and had a legal life of 17
years. On February 1 2007, the company spent sh.115,000 to successfully
prosecute a patent infringement.
Required
Prepare journal entries to record the transactions above. (10 marks)
Page 3 of 3

Accounting For Assets Question Paper

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