Get premium membership and access revision papers, questions with answers as well as video lessons.
Caa 200 Intermediate Accounting Ii (Day And Evening) Question Paper
Caa 200 Intermediate Accounting Ii (Day And Evening)
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2011
1
UNIVERSITY EXAMINATIONS: 2010/2011
EXAMINATION FOR THE BACHELOR OF COMMERCE
CAA 200 INTERMEDIATE ACCOUNTING II (Day and Evening)
DATE: DECEMBER 2011 TIME: 2 HOURS
INSTRUCTIONS: Answer ALL Questions
Question One (20 marks)
a) Explain the criteria that must be met before applying hedge accounting (3 marks)
b) Using convertible bonds as an example explain the differences between accounting
treatment of liabilities and equity (4 marks)
c) Blacet Ltd issued Ksh 800 million 5% convertible bond through a private offer on 1st
November 2010 at 4% discount. Legal and professional charges to register the bond
amount to Ksh 12.8 million. The bond is convertible into equity shares on 31st October
2018 at the option of the bond holders, outstanding bonds after that date will be redeemed
at 102.5%. Interest is payable annually in arrears. A fair interest rate on similar bonds
without conversion option is 12%.
Required
a) Compute the liability and equity elements on initial recognition, the interest cost and the
amortised cost of the liability component as at 31st October 2011. (5 marks)
b) Prepare journal entries for the year to 31st October 2011 (8 marks)
Question Two (20 marks)
Crown Ltdentered into an agreement with FinafLtd, to lease a machine for a five year period.
Under the terms of the agreement, the machine is to be made available to Silver Ltd. on 1 January
2011, and the company will pay four equal instalments in arrears. The fair market price of the
machine on 1 January 2011 is Sh.18.4 million. The estimated life of this type of machine is six
2
years. The implicit rate of interest in the transaction is 12% per year. Silver Ltd has the option to
purchase the machine at the end of the five year lease term and will be responsible for
maintenance. Crown Ltd. has a policy of depreciating machines of this type on the straight line
basis.
Required:
i) Explain how the above lease agreement will be classified by Crown Ltd (4 marks)
ii) Compute the annual instalments payable in arrears by Crown Ltd (4 marks)
iii) Prepare the finance lease obligation amortization schedule (8 marks)
iv) Prepare journal entries to record the transaction for the year to 31st Dec 2011
(4 marks)
Question Three (15 marks)
a) Explain the criteria that must be met before a liability is recognised (5 marks)
b) Denzel ltd sell specialised power stabilisation unit for electronic equipments for cash Ksh
860 000. The sale agreement provides for 4 year service and support for no extra charge.
It cost an estimated Ksh 75, 000 to service the machine annually and the time value of
money may be ignored. The company also operate a customer royalty award scheme under
which the customers earn 10royalty award points for every Ksh 100 spent. The points are
redeemable at any time for other goods for Ksh 3.5 per point. During the year to 30th
November 2011 the company sold 15 units. Assume none of the customer redeemed their
royalty award point and only nine of the machines have been serviced for the first annual
service.
Required
Compute the unearned revenue and pass journal entries to record all the transactions.
(10 marks)
Question Four (15 marks)
a) Explain by use of examples the differences between unearned revenue, unclaimed dividend
and contingent liabilities (6 marks)
b) Star Ltd pay for water bills in arrears. As at 1st October 2010 a bill of Ksh 34,690 was
outstanding. Analysis of cash book indicates that total amount paid for water during the
year amount to Ksh 532,700. As at 30th Sep 2011 the bill for the months of September had
not be received estimated at Ksh 48,600.
3
Required
Compute the water expenses incurred in the year and prepare the ledger account (4 marks)
c) A company purchased goods worth Ksh 960,000 from a supplier under the terms 4/10 net
30 (4% discount if payment is done within 10 days otherwise the amount is due in 30 days.
The company can take an overdraft at an interest of 12% per annum to pay the supplier.
Using relevant working advise whether the company can take the overdraft and pay
suppliers within 10 days (5 marks)
More Question Papers
Popular Exams
Return to Question Papers