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Intermediate Accounting Ii Year 2009 Question Paper
Intermediate Accounting Ii Year 2009
Course:Bachelor Of Commerce
Institution: Kabarak University question papers
Exam Year:2009
Instructions
Attempt question ONE and any other TWO questionsSECTION A
QUESTION ONE
a) List four ways by which liabilities can be settled in accordance with 1AS 1
(4mks)
Better Enterprises Ltd. was formed with a legal right to issue one million shares of shs.
100 each. The company has actually issued 750,000 shares none of which has yet been
fully paid up. The company has so far made calls for 75% of the value of issued shares.
All the calls have been paid by the share holders except for shs. 3 million owing from one
shareholder.
Required:
Show the workings for each class of shares. (4mks)
b) A company bought shs. 100,000, 16% government bond on 1 September 2007 at Shs.
92,000 cum interest. Interest is payable a half yearly on 30 June and 31 December.
Required:
Show the entries in the investing company’s books of account for its financial year ended
June 30 2008. Ignore taxation. (7mks)
c) Explain five features of a finance lease. (5mks)
d) Rates received during the year 2007 was shs. 8.5 million, monthly rent is shs. 700,000
and rent owing at the beginning of the year was shs. 85,000.
Required:
Rent receivable account for the year ended 31 December 2007. (2mks)
Bonus plc made a bonus issue of 1 for every 15 shares on issue on 31.3.2008, and a right
issue three months later on 1 for every 4 shares held at shs. 12 each. The market price on
that date was shs. 15. The year end trial balance extract was as shown below without
accounting for the bonus issue and after posting the amount received on right issue from
cash book to suspense A/c.
Trial Balance (extra) Shs.
OSC @Shs. 10 450,000
Share premium 105,000
Suspense 144,000Required:
Show how the transactions will be recorded in the company’s year end balance sheet
assuming that the directors wish to write off the cost of bonus issue to the share premium
account. (8mks)
Total 30 marks
SECTION B
QUESTION TWO
Maua Ltd. has 500,000 shs. 1 ordinary shares and 200,000 5% non cumulative preference
shares of shs. 1 each. The following information is available
Year 1 2 3 4 5
Revenue from sales (Shs, millions) 250 15 37 22 75
Admin. Expenses (Shs, millions) 50 3 5 7 10
Selling and distribution (Shs, millions) 20 1 2 4 8
Taxation (Shs, millions) 22 2 3 2 5
Retained earnings (Shs, millions) 8 3 2 3 2
Required:
a) Calculate distributable profits (5mks)
b) Calculate dividends distributable to both shareholders assuming preference share
dividends are cumulative. (10mks)
c) How will the dividends payable be disclosed in the balance sheet. (5mks)
QUESTION THREE
a) Distinguish between timing differences and permanent differences in deferred tax
accounting. (2mks)
b) A company’s annual profits for the last 5 years have averaged Kshs. 40 million.
Assume that the company bought a non current asset of Kshs. 20 million that has a
useful life of 5 years and is to be depreciated on a straight line basis. For tax
purposes, 50% capital deducting is allowable in the first years and the remainder is
spread equally over the remaining 4 years and the relevant tax rate is 30%.Required:
For each of the 5 years, compute:
i) Profit after tax (4mks)
ii) Timing differences (4mks)
c) Assume for the last 5 years, tax rate has been varying as follows:
Year 1 40%
Year 2 30%
Year 3 25%
Year 4 20%
Year 5 10%
Required
i) Differed tax account income statement liability method. (8mks)
ii) Balance sheet extract for each of the 5 years. (2mks)
QUESTION FOUR
A lessee acquired an asset under a 5 year non-cancellable finance lease from 1 january
2003, at a rental of Kshs. 26,000 payable annually in advance. The fair value of the asset
at the outset was Kshs. 100,000 but residual value of the asset was assumed to be nil. The
constant periodic rate on the outstanding obligation has been ascertained as 15.15% per
annum.
Required
a) Show the breakdown of each of the installment between interest and capital using:
(i) Sum-of-the digit method (4mks)
(ii) Actuarial method (4mks)
b) Balance sheet extract in the books of the lessee showing clearly the asset account,
capital repayments and finance charge for each of the five years using actuarial
method.
c) Distinguish between operation lease and finance lease. (2mks)QUESTION FIVE
Write short notes on the following:
a. Provisions and contingent liabilities (4mks)
b. Redeemable debentures (1mk)
c. Participating preference shares (1mk)
d. Share premium and what it can be used for (4mks)
e. Deferred tax (1mk)
f. Permanent and temporary differences (2mks)
g. Classes or ordinary shares (5mks)
h. Distinguishing between rights issues and bonus issues of shares (2mks)
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