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Acct 411: Advanced Financial Accounting 1 Question Paper
Acct 411: Advanced Financial Accounting 1
Course:Advanced Financial Accounting 1
Institution: Kabarak University question papers
Exam Year:2011
INSTRUCTIONS
1. There are four questions
2. Answer questions ONE and any other TWO questions.
3. Show all your workings. Be neat and orderly
QUESTION ONE[ COMPULSORY]
Dan consigned five (5) crates of soda, each containing 25 bottles valued at sh. 30, 000 per crate
to Queen on 1st July 2009. Other information was as follows:
i. Insurance and transport costs paid by Dan amounted to ksh 3,000 and ksh 5,000
respectively
ii. Queen paid insurance of ksh. 4,000, storage charges of ksh 6,000 and delivery charges
(marketing) Ksh 1,000.
iii. One crate of soda was destroyed while on transit to the agent and an insurance company
agreed to pay Sh.2, 000.
iv. By the end of the period Queen had sold 100 bottles for ksh 200,000. He sent a cheque
for the amount due after deducting his agreed sales commission of 20% on sales
(a) Provide journal entries and ledger accounts in the books of:
i. Consignor (Dan) (15 marks)
ii. Consignee (Queen) (10 marks)
(b) Explain the rights and obligations of the consignee (9 marks)
QUESTION TWO:
Motors ltd was acquiring two cars under hire purchase agreement, details of which are as
follows:
Registration number kbb1 kbb2
Dates of purchase 31st march 2006 31st October 2006
Cash price $18,000 $24,000
Deposit $3,120 $4,800
Interest (accrue evenly over hire purchase period) $1,920 $2,400
i. Both agreements provided for payment to be made in 24 monthly installments
commencing on the last day of the month following the purchase.
ii. On 1st September 2007, vehicle kbb1 became a total loss. In full settlement on 20th
September 2007:
iii. An insurance company paid $12,500 under a comprehensive policy; and
iv. The hire purchase company accepted $6,000 for the termination of the agreement.
v. The firm prepared accounts annually to 31st December and provided depreciation on a
straight line basis at a rate of 20% per annum for motor vehicles, apportioned as from the
date of purchase up to the date of disposal.
vi. All installments were paid on due dates.
vii. The balance on the hire purchase company account in respect of vehicle kbb1 is to be
written off.
Required;
(a) Provide journal entries for the above information for the financial years ending 31st
December 2006 and 31st December 2007 for the hirer [13marks]
(b) For the financial years ending 31st December 2006 and 31st December 2007 for the hirer
provide the following ledger accounts
i. Motor vehicles [5 marks]
ii. Depreciation [5 marks]
iii. Hire purchase Company [5 marks]
iv. Assets disposal [5 marks]
QUESTION THREE
a) Differentiate between Cum-interest and Ex-interest price quotation of financial securities.
(6 marks)
b) Lake Baringo Ltd purchased Ksh. 6,000,000, 12% NSE bonds on 1st September 2009, at 90%
Cum-interest. Interest is payable Semi-annually on every 30th June and 31st December.
Assume Lake Baringo Ltd financial years end on every 30 September.
Required:
i. Prepare Journal entries and a three columnar ledger account in the investor''s books of
account (L. Baringo Ltd) for the period ending 30th September 2010. (22 marks)
ii. Assuming that the price was quoted as ex-interest" provide journal entries to record the
disposal of the above bonds by NSE (seller) as at 15t September 2006. (5 marks)
QUESTION FOUR:
On January 1st, 2007, Londian ltd opened a branch operation in the nearby community of Molo.
During the year that followed, the home office incurred the following transactions in connection
with this newly formed branch:
Year 2008:
Jan. 1st 2008: Transferred several items to the Molo branch:
· Cash- $30,000
· Inventory- $36,000 (cost)
· Equipment- $122,000 (cost).
June. 2nd, 2008: Transferred inventory costing $18,000 to the Molo branch.
July.1st, 2008: Paid 2008 property taxes of $5,000 assed on assets held by the Molo
branch.
Sept. 1st, 2008: Transferred inventory costing $26,000 to the Molo branch.
Dec.31st, 2008: Allocated a $6,000 portion of general corporate expenses to the Molo
branch.
Dec.31st, 2008: Received cash transfer from Molo branch.
During this same period, the Molo branch recorded the following events:
Year 2008:
Jan. 10, 2008: Received initial transfer from the home office.
Jan. 20th, 2008: Paid $4,000 rent expense for the year.
Feb. 1st, 2008: Sold half of inventory on hand for $27,000 cash.
April. 1st, 2008: Sold remaining inventory for $33,000 cash.
May. 1st, 2008: Paid miscellaneous expenses of $7,000.
June 5, 2008: Received shipment of inventory.
July. 6th, 2008: Received communication concerning property tax payment.
Sept. 9th, 2008: Received shipment of inventory.
Oct. 1st, 2008: Sold the June inventory for $26,000 in cash (a FIFO costing system is
used).
Nov.1st, 2008: Paid miscellaneous expenses of $4,000.
Dec.22nd, 2008: Transferred $63,000 cash to the home office.
Dec.31st, 2008: Calculated and recorded depreciation expense of $4,000.
Dec, 31st, 2008: Received communication from home office concerning expenses
allocation.
Required:
a) Prepare all the necessary journal entries and ledger accounts for both the branch and the
home office. [20 marks]
b) Prepared an income statement for the Molo branch for the period ended 31st, December
2008. [13 marks]
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