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Financial Accounting I Cpa Part 1 Question Paper

Financial Accounting I Cpa Part 1

Course:Cpa

Exam Year:2005

PAPER NAME: FINANCIAL ACCOUNTING
SITTING: June 2005

QUESTION ONE

a) In light of IAS 30 – Disclosure in the Financial Statements list for each of the following four items or details required for disclosure in the published financial statements:
i) Loans and advances (4 marks)
ii) Customer deposits (4 marks)
b) The following balances were extracted from the books of Kenya Bank Limited as at 31 December 2004:

Sh. ‘million’
Cash and balances with the Central Bank
7,439
Interest on loans and advances
3,197
Government securities
21,570
Interest on customer deposits
194
Loans and advances to customers
58,894
Interest on deposits and placements paid to banking institutions
33
Property and equipment
1,487
Other assets
16,200
Interest on placements received from banking institutions
66
Customer deposits
81,947
Borrowed funds
2,641
Other liabilities
4,211
Interest on government securities
430
Share capital
2,000
Reserves
8,347
Specific provision for bad and doubtful debts brought forward
2,635
General provision for bad and doubtful debts brought forward
150
Non interest income
3,079
Staff costs
1,461
Other expenses
1,425
Liability for acceptances on behalf of customers
14,776

Additional Information:

1. An additional provision for non-performing loans and advances of Sh.1,259 million is to be made.
2. The general provision for bad and doubtful debts is to be maintained at 1% of net loans and advances to comply with guidelines issued by the Central Bank.
3. Provide for corporation tax at the rate of 30% on profits.
4. Provide for a final dividend of 30%.
Required:
i) Income statement for the year ended 31 December 2004. (5 marks)
ii) Balance sheet as at 31 December 2004. (5 marks)
[Both the income statement and the balance sheet should be in conformity with IAS 30 (Disclosure in the Financial Statements of Banks and Similar Financial Institutions)]
Explain your treatment of the item “liability for acceptances on behalf of customers”
(2 marks)
(Total: 20 marks)

QUESTION TWO

a) Briefly explain the meaning of the following terms in relation to bills of exchange:
i) Accommodation bill. (2 marks)
ii) Noting charges. (2 marks)
b) On 1 April 2005, Limo, Tergat, Wambani and Gachara entered into a joint venture for the purposes of importing second had cars from Dubai and selling them in Eldoret town. The profit or loss from the venture was to be shared as follows: Limo 10%. Tergat 20%. Wambani 30% and Gachara 40%.
Limo was assigned the responsibility of going to Dubai to buy the cars. Tergat was to clear the cars at the port of Mombasa. Wambani was to transport the cars from Mombasa to Eldoret and Gachara was to sell the cars once they were received in Eldoret.
The following is a summary of the transactions undertaken:
1. Gachara remitted sh.4 million to Limo and Wambani remitted Sh.500,000 to Tergat towards the joint venture.
2. Limo incurred the following expenses on behalf of the joint venture:

Sh.
Travelling expenses
45,000
Entertainment
45,000
Purchase of cars
3,600,000
Shopping expenses
1,710,000

3. Tergat received the purchase and consignment documents from Limo and incurred the following expenses to clear the cars:

Sh.
Customs duty
1,860,000
Clearing agents’ fees
200,000

4. While transporting the cars from Mombasa, Wambani incurred the following expenses:

Sh.
General expenses
162,000
Haulage
135,000
Insurance
235,800

5. In order to sell the cars, Gachara incurred the following expenses:

Sh.
Security
126,000
Storage charges
81,000
Sales commissions
264,600

6. Gachara sold some cars for Sh.7,900 and the remaining ones were taken over by Tergat for his own use at a value of Sh.1,350,000
7. All the transactions were completed by 31 May 2005.
Required:
i) Memorandum joint venture profit and loss account for the two months ended 31 May 2005. (4 marks)
ii) The joint venture accounts in the books of Limo, Tergat, Wambani and Gachara for the two months ended 31 May 2005. (12 marks)

QUESTION THREE

In the context of Section 60 of the Companies Act (Cap 486 of the Laws of Kenya). Identify any four conditions that must be met before a company’s performance shares can be redeemed.
(4 marks)
The balance sheet of Biashara Ltd., as at 28 February 2005 was as follows:

Sh. Sh.
Capital and liabilities: Assets:
500,000 equity shares of Sh.10 each Fixed assets 6,000,000
Sh.8 per share called up and paid up 4,000,000 Investments 2,000,000
Stock 2,000,000
Sundry debtors 2,000,000
500,000 13% redeemable preferences shares of Sh.100 each 500,000 Cash at bank 3,000,000
Share premium 980,000
General reserve 900,000
Profit and loss account balance 1,120,000
Sundry creditors 3,000,000
15,000,000 15,000,000

Additional information:

1. The company resolved:
? To convert the partly paid up equity shares into fully paid up shares on 1 March 2005 without requiring the shareholders to pay for the same.
? To redeem the preference shares on 31 March 2005 at a premium of 7.5% and for his purpose to issue 30,000 12% preference shares of Sh.100 each at a premium of 10% payable in full application.
2. For the purpose of redemption, the company sold fixed assets valued at Sh.3,000,000 for Sh.3,825,000 on 31 March 2005. On the same date the company sold all the investments for Sh.2,600,000.
3. On 30 April 2005 all payments were made on redemption except to holders of 2,000 shares who could not be traced.
4. On 31 May 2005, the directors issued fully paid bonus shares to he shareholders existing as at that date at the rate of 3 shares for every 5 held at a premium of 5%.
Required:
The necessary journal entries in the books of Biashara Ltd. To record the above transactions.
(16 marks)
(Total: 20 marks)

QUESTION FOUR

a) A business entity may report profits in its financial statements and yet experience declining balances of the cash at had and at bank. Explain how this is possible. (4 marks)
b) Set out below are the summarised balance sheets of Jasho Ltd. For the years ended 31 December 2003 and 2004. And the profit and loss account for the year ended 31 December 2004:

Balance sheets as at 31 December

2003

2004

Sh. ‘000’

Sh. ‘000’

Sh. ‘000’

Sh. ‘000’
Ordinary share capital

14,800

18,800
Revaluation reserve

2,500

6,500
Revenue reserves

21,120

27,780
Share premium

3,000

4,800
Loans

8,400

5,200

49,820

63,080
Current liabilities:

Trade creditors
3,040

2,820

Proposed dividends
2,800

3,400

Taxation
9,400

12,040

Bank overdraft
-

15,320

15,240

33,580

65,060

96,660

2003

2004

Sh. ‘000’

Sh. ‘000’

Sh. ‘000’

Sh. ‘000’
Fixed assets

Freehold land

18,000

22,000
Plant and machinery:

Cost
54,000

76,620

Accumulated depreciation
(14,960)

39,040

(22,500)

54,120
Current assets:

Stock
4,060

16,860

Debtors
2,940

3,680

Cash at bank
1,020

8,020

-

20,540

65,060

96,660

Profit and loss account for the year ended 31 December 2004:

Sh. ‘000’

Sh. ‘000’
Profit before tax

23,900
Corporation tax

(12,040)
Profit after tax

11,860
Ordinary dividend:

Paid
1,800

Proposed
3,400

(5,200)

6,660

Additional information:

1. During the year ended 31 December 2004, Jasho Ltd. obtained a five-year bank loan amounting to sh.1,300,000.
2. Depreciation charged on plant and machinery during the year ended 31 December 2004 amounted to Sh.8,020,000.
3. During the year ended 31 December 2004, plant which originally cost Sh.1,380,000 was disposed of for Sh.820,000.
Required:
Cash flow statement in compliance with IAS 7 (Cash Flow Statements). For the year ended 31 December 2004. (16 marks)
(Total: 20 marks)

QUESTION FIVE

a) Briefly explain any four characteristics that distinguish governmental organisations from business organisations. (8 marks)
b) With reference to public sector accounting, briefly explain the following terms:
i) General fund. (2 marks)
ii) Annual estimates (2 marks)
iii) Excess vote (2 marks)
iv) Encumbrance (2 marks)
v) Vote on account (2 marks)
vi) Exchequer over issues (2 marks)
(Total: 20 marks)

Financial Accounting I Cpa Part 1 Question Paper

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