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Caa 302: Advanced Accounting Ii Question Paper
Caa 302: Advanced Accounting Ii
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2009
1
UNIVERSITY EXAMINATIONS: 2008/2009
THIRD YEAR STAGE 1 EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CAA 302: ADVANCED ACCOUNTING II
DATE: APRIL 2009 TIME: 2 HOURS
INSTRUCTIONS: Answer ALL questions
QUESTION ONE
Mashinda Mingi Ltd has been experiencing serious financial problem for the last few years. The
following is a summarized balance sheet of the company as at September 30, 2008.
Mashinda Mingi Limited
Balance sheet, September 30, 2008
Ksh Ksh Ksh
‘000’ ‘000’ ‘000’
Non-current assets
Freehold property 85,000
Plant 10,000
95,000
Patents 10,500
Goodwill 28,000 38,500
133,500
Current Assets
Stock 85,000
Debtors 97,000
Investment (Market value Ksh. 25 million) 11,000
Deferred advertising 20,000
213,000
Current liabilities
Bank overdraft 39,000
Creditors 50,000
Debenture interest 4,500
Accruals 10,000
2
Directors loan 20,000 123,500
Net current assets 89,500
Total assets 223,000
Financed by:
15 million, ordinary shares of Ksh. 10 each 150,000
Less: Accumulated loss (82,000)
6% 8,000,000 cumulative preference shares of Ksh. 10 each 80,000
6% Debentures 75,000
223,000
The court approved a scheme of reorganization submitted by the debenture holders and agreed upon
by other interested parties to take effect on October 2008 as follows:
i) The preference shares are to be written down to Ksh. 7.50 each and the ordinary shares
to Ksh. 2 each. Each class of shares is then to be consolidated into shares of Ksh. 10
each. The rate of dividends on preference shares is to be increased to 10%
ii) Preference dividends are four years in arrears of which three quarters (3/4) are to be
waived and ordinary shares are to be allocated at par for the balance
iii) The debenture holders to have their interest paid in cash, and take over freehold
property (book value 20 million) at a valuation of Ksh. 24 million in part payment of
their holding, and to provide additional cash of Ksh. 26 million secured by a floating
charge on the companies assets at an interest rate of 12%
iv) Patents, goodwill and deferred advertising to be written off. Also, Ksh. 15,000,000 of
the stock is thought to be obsolete and is to be written off too
v) Investments are to be realized
vi) The directors have agreed to accept settlement of their claims as to 90% thereof by
allotment of ordinary shares at par, 5% in cash and the balance of 5% is to be waived
vii) Trade creditors are to be maintained at 10 cent for every shilling (10%) and obtain an
extension of credit period
viii) The bank has sanctioned an overdraft limit of Ksh. 10 million to provide working
capital. The excess outstanding is to be paid in cash immediately
ix) There are capital commitments amounting to Ksh. 75 million, which are to be
cancelled on payment of one third (1/3) on the contract price as penalty
x) The authorized capital was restored to its original amount
3
Required:
i) Journal entries to record the above events/activities (14 Marks)
ii) A capital reduction account (6 Marks)
iii) Balance sheet immediately after reconstruction (November 1, 2008) (5 Marks)
QUESTION TWO
Doha Ltd is a Kenyan Company which has the Kenya Shilling (KES) as its functional currency. The
company had the following transactions in Euros (€) during the year to March 31, 2009.
January 1, 2009: Bought equipment costing € 143,750 on credit from Dale Ltd
February 1, 2009: Bought inventory costing € 48,000 on credit from Diani Ltd
February 28, 2009: Paid Dale in full for the equipment bought on January 1, 2009
March 15, 2009: Paid Diani Ltd € 13,200 on account for the inventory bought on
February 1, 2009
March 15, 2009: Sold inventory to Daniela Traders Ltd on credit for € 77,000
Exchange rates may be assumed as follows:
January 1, 2009: KES 1 = € 1.25
February 1, 2009: KES 1 = € 1.20
February 28, 2009: KES 1 = € 1.15
March 15, 2009: KES 1 = € 1.10
March 31, 2009: KES 1 = € 1.00
The equipment bought on January 1, 2009 is carried at historical cost in the company’s balance sheet
as at March 31, 2009. The cost of the company’s inventory at that date exceeds its net realizable
value.
Required:
a) Explain the accounting treatment of each of the above transaction (Hind: can use journal and
ledger accounts to help you explain)
(15 Marks)
4
b) Calculate the exchange difference for the year to March 31, 2009 and explain how this
difference should be dealt with in the company’s financial statements
(10 Marks)
QUESTION THREE
Maua ltd has four business segments and has determined that its primary format for reporting segment
information should be business segments. The following information relates to the year to September
30, 2008:
Segments A B C D
Shilling in millions Ksh Ksh Ksh Ksh
External sales 652 764 389 1,220
Sales to other segments 127 234 87 333
Interest income 17 12 - 56
Segment revenues 796 1,010 476 1,609
Cost of sales 267 350 124 632
Distributions 98 129 67 196
Administrative expenses 120 171 130 179
Interest expense 34 51 20 87
Depreciation 101 132 65 253
Other non-cash expense 17 12 7 29
637 845 413 1,376
Segment profits 159 165 63 233
Segment assets 530 653 310 982
Segment liabilities 245 276 119 398
Segment capital expenditure 99 68 - 122
General administrative expenses for the year (not allocated between segments) were Ksh. 120 million.
The company tax expense for the year was Ksh. 150 million. Unallocated assets and liabilities were
Ksh. 457 million and 658 million respectively.
5
Required:
a) Insofar as this information permits, prepare the companies primary format segment report for
the year to September 30, 2008 (20 Marks)
b) Briefly, discuss the importance of segments reports (5 Marks)
QUESTION FOUR
Write brief notes on the following assets, liabilities or items, clearly explaining the challenges facing
accountants in relation to their valuation and measurement (if any), and the reporting required as
provided by the relevant standards
i) Goodwill (4 Marks)
ii) Research and development costs (6 Marks)
iii) Leases (5 Marks)
iv) Accounting for corporate social giving (10 Marks)
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