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Bcom 310 :Advanced Finacial Accounting 1 Question Paper
Bcom 310 :Advanced Finacial Accounting 1
Course:Bachelor Of Commerce
Institution: Chuka University question papers
Exam Year:2012
CHUKA UNIVERSITY
COLLEGE
UNIVERSITY EXAMINATIONS
THIRD YEAR EXAMINATION FOR THE AWARD OF DEGREE OF
BACHELOR OF COMMERCE
BCOM 310: ADVANCED FINANCIAL ACCOUNTING 1
STREAM: BCOM Y3S1 TIME: 2 HOURS
DAY/DATE: WEDNESDAY 19/12/2012 2.30 P.M. – 4.30 P.M
INSTRUCTIONS:
Answer all questions
Do not write on question paper.
QUESTION ONE
(a) Discuss briefly the meaning of the following terminologies as used in accounting for royalties and investments.
(i) Minimum rent and Short workings [3 Marks]
(ii) Fixed and floating recoupment of short working clause [3 Marks]
(iii) Cum div and ex-div in the purchase of shares. [3 Marks]
(b) Marima Construction Company Ltd, entered into a contract to build administration block for CUC Ltd. On 15 October, 2008. The construction was to start on 1 January 2009 and was to be completed in three years. The contract price was Sh.1, 275,000,000.
The following information pertaining to the contract was extracted form the books of Marima Construction Company Ltd.
Year ended 31 December
2009
2010
2011
Sh.’000’ Sh.’000’ Sh.’000’
Costs incurred in the year 450,000 495,000 180,000
Estimated costs to completion 450,000 405,000 -
Progress billings made in the year 405,000 720,000 150,000
Cash collections in the year 360,000 540,000 300,000
General administration expenses 22,500 30,000 27,000
Required:
Using the completed contract and percentage of completion methods:
(i) Compute the realized gross profit for each of the three years ended 31st December.
[5 Marks]
(ii) Prepare the profit and loss accounts for each of the three years ended 31st December. [4 Marks]
(iii) Prepare the balance sheet extracts for each of the three years ended 31st December. [2 Marks]
QUESTION TWO
(a) Ngata Ltd. Insured under a loss of profits policy Sh. 16,000,000. The company’s premises were partly destroyed by fire which took place on 1 may 2010 and the business resumed normal operations on 1 September 2010.
Given below is the information extracted from the books of the company relating to the policy:
- Period of indemnity is six months
- Net profit for proceeding financial year – Sh.4,800,000
- Insured standing charges – Sh. 9,600,000
- Un insured standing charges – Sh. 1,600,000
- Increased cost of working – Sh. 3,000,000
- Savings in insured standing charges – Sh.600,000
- Reduction in turnover avoided through increase in cost of working – Sh.8,000,000
- Financial year ends on 31 December.
- The following are turnovers for four months ended 30 April, 31 August and 31 December respectively.
Year Sh. Sh. Sh.
2009 12,000,00 40,000,000 28,000,000
2010 20,000,000 16,000,000 34,000,000
Owing to reasons acceptable to insurers, the special circumstances clause recommended the following:
• Increased of annual and standard turnover by 10%
• Increase of rate of gross profit of 2%.
Required:
(a) A statement showing the calculation of the amount of the consequential loss claim. [16 Marks]
(b) State the nature and purpose of the following in an insurance contract covering consequential loss:
(i) Special circumstances clause [2 Marks]
(ii) Average provision clause. [2 Marks]
QUESTION THREE
N, G, T and W, who have been partners in a tile manufacturing business sharing profits and losses in the ratio 4:3:2:1, had a serious disagreement on 15 January 2004 which necessitate dissolution of the partnership.
For the purpose of dissolution, their accountant extracted a balance sheet as at 1 February 2004 as follows:
Sh.’000’ Sh.’000’
Non – current assets: 63,750
Land and buildings 59,408
Plant and machinery 22,500
Furniture and fittings 15,000
Investments 160,658
Current assets
Inventory 47,610
Debtors 28,808
Balance at bank 2,348 78,765
Total assets 239,423
======
Capital and liabilities
Capital account: N 30,000
G 52,500,
T 30,000
W 22,500
135,000
General reserves 52,500
Current liabilities
Creditors 51,923,
239,423
======
Additional information:
1. The assets, which were sold on piecemeal basis, realized cash as follows:
Sh. ‘000’
10- Feb-04 Inventory (partial) 26,250
16- Feb-04 Debtors (partial) 21,990
27- Feb-04 Investments 18,150
03- Feb-04 Furniture and fittings 15,000
20- Feb-04 Land and building 52,500
Debtors (partial) 3,750
Inventory (balance) 20,625
15- Feb-04 Plant and machinery debtors (balance) 49,200
207,465
======
2. The realization expenses which amounted to Sh.1 million were paid on 15 April 2004.
Required:
Using the maximum possible loss method, prepare:
(a) Statement showing how the proceeds should be shared.
(b) Realization account and capital account to close off the book of the partners.
[20 Marks]
QUESTION FOUR
Morgan commenced business on 1st April 2003 with capital Ksh 330,000. He drew on average Ksh 30,000 per year. His profits for three years were Ksh 70,000. He did not prepare proper accounts for the next two years. On 31st March 2008, an adjudication order was issued against him. He submits the following information from which his statement of affairs and deficiency account could be prepared.
Ksh
Sundry creditors 200,000
Mortgage on freehold property 40,000
Creditors secured by life policy estimated to be worth 40,000 120,000
Landlord – 2 months’ rent 20,000
Clerks salary for two months 20,000
Municipal taxes owing 18,000
Mrs. Morgan’s loan 30,000
Bills receivable discounted and expected to rank 32,000
Freehold property (estimated to realize 20,000) 400,000
Plant and machinery, cost 200,000 less depreciation written off 60,000, estimated to realize 20,000
Books debts: good 60,000, doubtful 20,000 estimated to realize 6,000 Bad 5000
Furniture and fittings cost 8,000 estimated to realize 3,500
Stock in trade; cost 80,000 and estimated to realize 55,500
The loan by Mrs. Morgan is out of moneys given to her by Morgan 5 years ago.
Required:
Prepare a balance sheet, statement of affairs and deficiency account. [10 Marks]
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