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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:2008
KABARAK UNIVERSITY EXAMINATIONS
2008/2009 ACADEMIC YEAR
FOR THE DEGREE OF BACHELOR OF COMMERCE
COURSE CODE: ACCT 421
COURSE TITLE: ADVANCED ACCOUNTING II
STREAM: Y4S2
DAY: MONDAY
TIME: 11.00 – 1.00 P.M.
DATE: 8/12/2008
INSTRUCTIONS:
1. Answer ANY THREE questions
2. All questions carry equal marks
3. Working notes will be awarded
1. a) Write short notes
(i) Bonus Shares (5 marks)
(ii) Modes of Liquidation (5 marks)
(b) “Reserves are not liabilities” critically analyze this statement (10 marks)
2. Presented below is the balance sheet of Moshi Ltd as on 31st March 2003.
9% redeemable preference shares @ 100 fully Sundry Assets 950,000
Paid 650,000 Investments 275,000
Equity shares @ 5 fully paid 225,000 Cash at Bank 67,500
General reserve 100,000
Profit and Loss a/c 260,000
Sundry Creditors 57,500
1,292,500 1,292,500
The preference shares are to be redeemed on 1-4-2003 at a premium of 71/2%. In order to
facilitate redemption the capacity had decided:
(i) To sell the investments for Kshs. 260,000.
(ii) To finance part of the redemption from company’s fund (General reserves)
(iii) To issue sufficient equity shares at a premium of Kshs. 1 per share to raise the
balance of funds required.
(iv) Minimum bank balance to be retained at Kshs. 10,500. The investments were
sold, the equity shares were fully subscribed and the shares were duly
redeemed.
Required:
Show the formal entries and prepare the balance sheet after redemption. Hint: Use of
equation method not required. (25 marks)
3. Mea Ltd was incorporated on 1st July 2002 with an authorized capital consisting of
5000 equity shares of Kshs. 10 each to take over the running business of Subukia
suppliers as from 1st April 2002. The following is the maximized profit and loss
account for the year ended 31st March 2003.
Cost of Sales 16,000 Sales 25,000
Administrative Exps. 1,768
Selling Commission 875
Goodwill written off 200
Interest paid to vendors
(Loan repaid on 1st Feb) 373
Distribution Exps. (60%)
Variable 1,250
Preliminary Exps w/o 330
Debenture interest 320
Depreciation 444
Directors Fees 100
Net Profit 3,340
25,000 25,000
The company deals in one type of product. The sales for the first four months (w.e.f 1.4. 2002)
of the financial year are for each month half of what they are for each of the subsequent
months.
Required:
Redraft the profit and loss account for the year ended 31st March 2003 apportioning between
pre and post incorporation periods (25 marks).
4. The following are the balance sheet of Big Ltd and its subsidiary Small Ltd as at 31st March
2002.
Big Ltd Small Ltd Big Ltd Small Ltd
Equity Shares @ 10
General Reserve
P & L
Creditors
Unclaimed Dividend
600,000
340,000
100,000
70,000
-
1,110,000
200,000
80,000
60,000
30,000
5,000
375,000
Machinery
Furniture
80% shares in Small Ltd
At cost
Stock
Debtors
Cash at Bank
Preliminary Expenses
310,000
80,000
340,000
180,000
50,000
70,000
-
1,110,000
130,000
40,000
-
120,000
30,000
50,000
5,000
375,000
The following additional information is provided to you:
(i) Profit and loss account of Small Ltd showed the following.
Balance brought forward as at 1st April 2001 Shs.30,000
Net profit for the year ended 31st March 2002 60,000
90,000
Less: Dividend paid
Final dividend, year ended 31.3. 2001 (20,000)
Interim dividend, half year ended 31.3.01 (10,000)
60,000
(ii) The general reserve remained unchanged since 1st April 2001 and no part of
preliminary expenses was written off during the year.
(iii) Big Ltd acquired 80% shares in Small Ltd on 1st October 2001 for 340,000 as
mentioned.
(iv) Included in debtors of Small Ltd is a sum of Kshs. 10,000 due from Big Ltd for goods
sold at a profit of 25% on cost price. Till 31st March 2002 only one half of the goods
had been sold while the remaining goods were lying in the godowns of Big Ltd as on
that date.
Required
Prepare consolidated Balance Sheet as at 21st March 2002. Show all calculations clearly.
(25 marks)
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