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Acct 421: Advanced Accounting Ii Question Paper

Acct 421: Advanced Accounting Ii

Course:Bachelor Of Commerce

Institution: Kabarak University question papers

Exam Year:2010

QUESTION ONE
The balance sheets of three companies are given below. The balance sheets were prepared after the
year end. Balance sheets as at 31st December 2009
Taker ltd Taken ltd pending ltd
shs."000" shs. "000" shs. "000"
Free hold property 20,000 10,000 5,000
buildings 5,000 2,000 500
furniture and fittings 3,000 100 50
computers and related accessories 200 20 10
28,200 12,120 5,560

investments in Taken 14,120
Investments in Pending ltd 2,000 3,000
stock 1,300 650 250
debtors 500 350 200
bank balance 250 150 120
cash balances 80 60 20
46,450 16,330 6,150
capital 25,000 12,000 3,500
share premium 5,500 2,200 1,500
preference shares 4,950 1,130
debentures 5,000 160
profits b/f 4,000 470 500
profit for the year 2,000 530 490
46,450 16,330 6,150
1.Taker ltd acquired its shares on first January of the same year which amounted to 80% and
20% of the ordinary shares of Taken ltd and Pending ltd respectively
2. Taken bought Pending ltd''s shares on 1st Jan i.e. beginning of the year which was 80%
in the course of the year, Taker ltd sold land to Taken ltd at Shs 60,000 and buildings at
Shs. 250,000. The buildings were to be depreciated at a flat rate over forty years
3. Taken ltd is owed Shs. 20,000 for services it offered to Pending ltd which is included in
the debtors by taken Ltd and is cash in transit.
4. Taker ltd sold goods to Taken ltd and Pending ltd which cost Shs 100,000 and Shs. 80,000
respectively at a mark up of 20%. Half of the goods are still in stock.

5. Required
(a) Prepare a consolidated balance sheet as at 31s December 2009
Note. Show all the workings and calculations.
(25 marks)

(b) International financial reporting standard 27 provides circumstances under which a parent
company need not prepare consolidated financial reports. Clearly identify the circumstances under

which such a company may avoid preparing consolidated report. (5 marks)

QUESTION TWO.
The balance sheet of KAA, KITI AND KETI partners is as given below. The partners share profits equally.
KAA, KITI AND KETI partners
Balance sheet as at 31st Dec 2007
shs. (000) shs. (000)
Fixed assets
Buildings 330000
furniture and fittings 220000
Motor vehicles 215000
computers and related equipments 21400
786400
Current assets
Stocks 4000
Debtors 10000
investments in Nairobi stock exchange 3200
Bank 3000
cash 5000
25200
Current liabilities
Creditors -7000

Net current assets 18200
Total assets 804600
Financed by
Capital
KAA 229700
KITI 106400
KETI 220100
long term loan 241400
797600
Current accounts
KAA 2385
KITI 1230
KETI 3385 7000
804600

The partners agreed to form a limited company to take over the partnerships assets except bank.
The company is to issue 200,000 shares to the partners in the ratio 1:2:1resp and the rest pay by cash
Which it will raise by issuing
Shares worth 800
million Which will be used as
follows; shs. 200,000,000 to be used to start up the company, shs. 5,000,000 to meet issuing expenses,
and the balance used to;- retire the long term loan, pay off the creditors and the balance
to pay off the partners. The shares are worth 1,000shillings each
Required

Close off the books of the partnership and prepare an extract balance sheet for the
company immediately after take-over assuming that the take over is effected. (20 marks)

QUESTION THREE.
The following are the balance sheets of three companies ,Gikuyu ltd Mumbi ltd and Anjiru ltd
G ltd

M Ltd A ltd

Buildings 18000 1000 2000
Machinery 5000 1500 2000
Stock 1000 500 1000
Debtors 3000 1000 4000
Bank 2000 1000 3000

29000 5000 12000

Share capital (5sh shares) 20000 4000 9000

Profit and loss 5000 500 2000
Current liabilities 4000 500 1000
29000 5000
12000

l. Gikuyu ltd took over the assets of Mumbi ltd by exchanging with the shareholders of Mumbi ltd
2 shares of Gikuyu ltd for one share of Mumbi ltd at a premium of 20%.
Gikuyu ltd took over Anjiru ltd by buying all the assets of Anjiru ltd at a consideration of
15000 worth of shares at a premium of 20% and Gikuyu will pay off Anjirus creditors.
Gikuyu ltd revalued the asset of Anjiru ltd at; Buildings shs. 3000, Machinery shs. 1000,
Stock shs. , 500, Debtors shs. 3000, and bank shs. 3000.

Required

Prepare the balance sheet of Gikiyu ltd
Immediately after taking over the other companies. (20 marks)

QUESTION FOUR.
Explain the following terms as used in IFRS
a)i) materiality
ii) accrual basis of accounting
iii) going concern
iv) Neutrality
v) prudence
vi)True and fair (6marks)

b)i) Explain the concept of accounting as a social science (5 marks)
ii) What are the advantages of a company buying it''s own shares and what is the risk? (5 marks)
iii) Explain how the following issues are dealt with in accounting

a)Pre-incorporation profits (2marks)
b) Share issue underwriting expenses (2marks)

Acct 421: Advanced Accounting Ii Question Paper

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