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Caa 102 Intermediate Accounting Ii Question Paper
Caa 102 Intermediate Accounting Ii
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2011
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UNIVERSITY EXAMINATIONS: 2010/2011
EXAMINATION FOR THE BACHELOR OF COMMERCE
CAA 102 INTERMEDIATE ACCOUNTING II
DATE: DECEMBER 2011 TIME: 2 HOURS
INSTRUCTIONS: Answer ALL Questions
Question One (20 marks)
a) Explain factors that would indicate that an asset is impaired (4 marks)
b) The Property, Plant and Equipment balances extract of Aviation Ltd as at 1/11/2010 is
given below
Original Cost sh 000 Depreciation sh 000
Land & Building 1480 -
Machinery 1970 1190
Vehicles 940 392
Furniture 240 80
The following transaction took place in the year to 31st October 2011:
i) An item of machine bought in Dec 2008 for Ksh 120,000 is estimated to have a net
replacement cost of Ksh 96,000 and the management would wish to incorporate the
value in the books
ii) It has been decided to charge depreciation on the building at 4% p.a The buildings
comprise Ksh 800000 out of the total cost of Ksh 1480000 and were all completed
in Sep 2005. This should be accounted for as a change in accounting policy and
adjusted retrospectively
iii) A vehicle purchased in May 2008 was traded in during the year at a value of shs
42000 in part exchange for new vehicle costing sh 120000
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iv) Included with furniture is an item which originally cost shs 16000 and which is
already fully depreciated but is not expected to last for much longer
v) Included with machinery is equipment bought in June 2007 for Ksh 180000. Due to
rapid technological development the machine has become obsolete and had to be
replaced in May 2010 with another new machine at a cost of Ksh 250000. The
obsolete Machine was sold as scrap for shs 20000.
vi) The depreciation policy;
Machine 15% on NBV
Vehicles 20% on NBV
Furniture 10% on cost
Required
Prepare the Property, Plant and Equipment schedule (show all the working) (16 marks)
Question Two (20 marks)
a) Explain the initial inventory recognition criteria and the valuation requirement at the end of
each year (4 marks)
b) ABC LTD is a trader in several commodities which it buys in bulk. The company reported
a gross profit of Ksh1,457,800 for the year ended 31st October 2011 after taking into
consideration the value of inventory as determined by an incompetent account at Ksh 4.5
million.
The following information is relevant to valuation of inventories
Date of purchase Quantity Purchase price per unit
1/Sep/2011 45700 180
30th Sep 2011 67900 210
The company sell its product through agents at a price of Ksh 220 each, and each agent earns a
commission of 5% on selling price. As at the end of the year on 31st October 2011 the company
had 23600 units in inventories. Included in the closing inventories are 5000 units which is a slow
moving line of product this require a clean-up and minor repairs at a cost of Ksh 15 per unit so as
to sell them at Ksh 190 (the normal commission apply). The company policy is to value
inventories using weighted average cost method.
Required
a) Compute the value of closing inventories in accordance with the requirement of IAS 2
(12 marks)
b) Compute the adjusted gross profit and prepare the adjusting journal entry (4 marks)
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Question Three (15 marks)
a) State the criteria of revenue recognition (6 marks)
b) Briefly explain whether revenue should be recognized under the following circumstances:
(i) Advertising Ltd received subscription fees of Ksh 240 000 for its bimonthly
magazine for the period from 1st November 2011 to 30th June 2012 (3 marks)
(ii) IT Ltd. sold goods worth Sh.540,000 to Quickerr Ltd. on a cash on delivery (COD)
basis. The goods were delivered on 28 October 2011and accepted by Quickerr Ltd.
on the same date. The Chief Accountant of Quickerr Ltd assured the Finance
Manager of IT Ltd. that the cheque was being processed and would be dispatched in
due course. All the time of finalizing the preparation of the accounts for the year
ended 31 October 2011 the cheque had not been received. (3 marks)
(iii) ABC Ltd. whose year end is 30 November received a firm sales order forsupply of
goods from XYZ Ltd. on 28th November 2011. The company dispatched the goods
on 30 November 2011 but XYZ Ltd. had closed business for stock taking. The
goods were however delivered and received on 2 December 2011. (3 marks)
Question Four (15 marks)
a) Explain why internally generated goodwill should not be recognised (3 marks)
b) Outline the objectives of the conceptual framework (3 marks)
c) Define the following qualitative characteristics of financial statements, clearly explaining
how each attribute may be achieved.
i. Relevance. (3 marks)
ii. Reliability. (3 marks)
iii. Comparability. (3 marks)
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