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Caa 200 Intermediate Accounting Two-Sunday Question Paper
Caa 200 Intermediate Accounting Two-Sunday
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 TWO-SUNDAY
DATE: DECEMBER 2011 TIME: 2 HOURS
INSTRUCTIONS: Answer ALL Questions
Question one
i. Differentiate between a determinable current liability and a contingent liability (3 marks)
ii. Under what conditions should a contingent liability should be recorded? (2 marks)
iii. Consider a company that has reported an income of sh 12,000,000 computed without
subtracting either the bonus or corporation taxes. The corporation tax rate is 30% and the
bonus payable is 10%.
Required;
i) Calculate the bonus and tax payable if ;
a) The bonus is to be based on income after taxes but before deducting bonuses
(3 marks)
b ) The bonus is to be based on income after taxes after deducting bonuses
(3 marks)
ii) Show the double entry in respect of bonus and income taxes payable. (4 marks)
iv. Differentiate between temporary and permanent differences and give 2 examples of each.
(5 marks)
v. Explain the four criteria that must be met before a lease cost can be capitalized. (5 marks)
Question two
i. State and explain the four criteria that must be met before a lease cost can be capitalized.
(6 marks)
2
ii. ABC limited was sued in the last quarter of the current year because of an accident involving
a vehicle owned by the company. The plaintiff is seeking sh 1,000,000 in damages. After a
careful investigation, the company assessed that it is probable that the reasonable estimate is
sh 800,000.
Required;
Show the double entry in respect of the pending legal suit. (4 marks)
If it turns out that the plaintiff was awarded damages worth sh 1,200,000 shoe the double entry
in respect pf the pending legal suit. (2 marks)
iii. State the circumstances in which loss contingencies should be disclosed as notes to financial
statements. (3 marks)
Question three
A company issues a 4 year bond with face value of sh 200,000 and a coupon rate of 10%. The
interest is payable semi annually. At the time of issuance the market rate was 8%.
Required;
a) Prepare an amortization schedule to show how the discount or premium will be amortized.
(10 marks)
b) Write all the journal entries related to this bond from issuance until maturity. (5 marks)
Question four
Baba limited has reported a pretax financial income of sh 15,000,000, 20,000,000 and 22,000,000
in 2008, 2009 and 2010 respectively. The company is subject to a 30% tax rate and has the
following differences between pre tax financial income and taxable income.
1. An installment sale of sh 1,440,000 in 2008 is reported for tax purposes over an 18 month
period at a constant amount per month beginning January 1st 2009. The entire sale is not
recognized for book purposes in 2008.
2. Premium paid for life insurance carried by the company on key officers is sh 500,000 in
2009 and 2010. This is not deductible for tax purposes but is expensed for book purposes.
Required;
a) Show journal entries to record income taxes for Baba limited for the years 2008, 2009
and 2010. (12 marks)
b) Calculate the effective tax rate for years 2008, 2009 and 2010 ( 3 marks)
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