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Accf 330:Intermediate Accounting I Question Paper
Accf 330:Intermediate Accounting I
Course:Business Administration
Institution: Kenya Methodist University question papers
Exam Year:2013
KENYA METHODIST UNIVERSITY
END OF 3''RD ''TRIMESTER 2013 (PT) EXAMINATION
SCHOOL : BUSINESS AND ECONOMICS
DEPARTMENT : ACCOUNTING FINANCE & INVESTMENTS
UNIT CODE : ACCF 330
UNIT TITLE : INTERMEDIATE ACCOUNTING I
TIME: 2 HOURS
Instructions:
Answer question one and any other two
Question One
Discuss briefly four disclosure requirements for inventory in financial statements.
(8 marks)
List the common factors that may explain why cash balance in the company’s books normally differ with the balances on the bank statements.
(5 marks)
Highlight the two types of contracts as guided by IASII.
(4 marks)
Briefly mention two external sources and two internal sources that indicate impairment as per IAS36.
(4 marks)
Alvon Supply Co. sells for Sh. 43,600,000 manufacturing equipment on April 1st that is recorded on the books at cost of Sh.83,600,000 and accumulated depreciation at the beginning of year, January 2012 of 50,600,000. The company depreciates its manufacturing equipment on the books using straight line, 10% rate.
Required: Prepare
The Asset (equipment) account
(3 marks)
The equipment disposal account.
(6 marks)
Question Two
Meta Construction Company overhauled two cranes in January 2012 resulting in a slight increase in the life of the cranes. Such overhauls occur regularly at two-year intervals and have been treated as maintenance expense in the past. Management is considering whether to capitalize this year’s Shs.850, 000 cash cost in the cranes asset account or to expense it as a maintenance expense. Assume that the cranes have a remaining useful life of two years and no salvage value, and that the company uses straight – line depreciation method.
Determine the amount of additional depreciation expense that Meta would recognize in year 2012 and 2013 if the costs were capitalized in the cranes account.
(4 marks)
Determine the amount of expense Meta would recognize in 2012 and 2013 if the costs were recognized as maintenance expense. (4 marks)
Determine the effect of the overhaul on cash flow from operating activities for 2012 & 2013 of costs were capitalized and expensed through depreciation charges.
(4 marks)
Determine the effect on cash flow if the costs were recognized as maintenance expense.
(4 marks)
Discuss the two types of contracts of constructions as guided by IASII.
(4 marks)
Question Three
Sweet Wines Ltd has been approached for possible acquisition by a rival company. The owner of Sweet Wines need tot establish the goodwill so as to price their enterprise fairly. The following information is available.
Cumulative earnings for the past five years are 50 million Shs.
Cumulative earnings includes extra ordinary gains of Sh. 3.2 million
The annual earnings based on an average rate of return on investment for this industry would have been 6 million.
Excess earnings are to be capitalized at 20%
Required:
Calculate the impaired goodwill. (15 marks)
If the fair value cannot be measured reliably for biological assets. State five additional disclosure requirements included under IAS41.
(5 marks)
Question Four
Briefly define the following valuation terms as used under accounting for impairment: IAS 36.
Impairment loss
Carrying amount
Recoverable amount
Fair value
Value in use
(10 marks)
Retex Tyres Ltd has their financial year ending 31st December, 2012. The sales for the year totaled 120,000,000 Shillings. The beginning inventory in January 2012 was Sh.5,600,000. During the year, the company purchased tyres costing 45,800,000 Sh. Tyres that had cost Sh. 900,000 intended for lower end market were still held in inventory at 31st December 2012 and the management believes that these tyres can now be sold at a sale price of
Sh. 650,000 following a negative publicity.
Required:
Determine the Gross profit of Ratex tyres ltd at the year end. (10 marks)
Question Five
Explain the primary and secondary qualities of financial accounting required as guided by FASB.
(10 marks)
Discuss the major arguments for and against the following methods of inventory valuation.
FIFO
LIFO
Specific identification
Weighted average
Lower of cost and market value.
(10 marks)
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