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Acct 221: Intermediate Accounting Ii 2009/2010 Academic Year Question Paper
Acct 221: Intermediate Accounting Ii 2009/2010 Academic Year
Course:Bachelor Of Commerce
Institution: Kabarak University question papers
Exam Year:2010
INSTRUCTIONS:
1. Attempt question ONE and any other TWO Questions
SECTION A
QUESTION ONE
a) List four main qualitative characteristics of financial statements
(4 marks)
b) You have been given the following tax bases and carrying amounts for the following
items in the balance sheet
Balance sheet at 31 December 2009
Carrying amounts Tax base
Shs’000 Shs’000
Property plant and Equipment 55,000 65,000
Motor vehicle 65,000 65,000
Equipment 70,000 40,000
Inventories 40,000 45,000
Payables 9,000 6,000
Accruals 20,000 15,000
Proposed dividends 10,000 10,000
If deferred tax liability for the previous year was Shs 54 million and the corporation tax rate
changed from 40% to 30%
Required:
Deferred tax account as at 31 December 2009 (5 marks)
c) In order to promote reliability in the financial statements, IAS requires that financial
statements must emphasize the “substance of the transaction over its legal form”
Explain this term with reference to accounting for leases in line with IAS 17. (3 marks)
d) What are some of the characteristics of long-term bonds that distinguish them from
ordinary shares? (5 marks)
a) Baraka Ltd. issues 1 million ordinary shares of nominal value of shs 100 but the issue is
for shs 300 the excess value being taken to share premium account. Applications are
received exactly for 1 million shares.
Required:
a. Journalize the above transactions ( 3 marks)
b. Show balance sheet extract of how the above transaction will appear ( 3 marks)
c. How would the above transactions be disclosed if the issue was done at par?
(6 marks)
Total 30 marks
SECTION B
QUESTION TWO
a) Explain some of the reasons why enterprises should account for deferred tax
( 5 marks)
b) The following information relates to Ushuru Ltd.
Kshs
Profits Year 1 18,520,000
Year 2 14,780,000
Year 3 17,880,000
Year 4 14, 840,000
Fixed assets: Shs 20,000,000 purchased at the beginning of year 1 written off at the rate of 25%
p.a. straight line basis.
Taxation: Corporation tax rate of 35 % while wear and tear allowance on fixed assets is 50% in
year 1 and 25% in each of the next 2 years (on straight line basis) Disallowable expenses
amounted to Shs 1.5 million in each of the four years.
i) Adjusted Income Statement for each of the four years showing profits before tax,
taxation charged and profits after tax. (8 marks)
ii) Deferred tax account (5 marks)
iii) Balance sheet extract for each of the four years (2 marks)
QUESTION THREE
Premus Ltd invited applications for 10 million shares of Shs 10 each stipulating that it should
receive Shs 2 per share with applications, Shs 7 per share on allotment and a final call of Shs 2
per share was made. Applications are received for 12 million shares. Those for 2 million are
rejected and amounts received from them are refunded in full. Others are allotted shares on 14
March 2008. At the year end, 31 December 2008, Shs 395,500 due on allotment and Shs 250,000
due on final call were still to be received.
Required:
b) Journal entries to record the above transactions ( 10 marks)
c) Balance sheet extract for the year ended 31 December 2008 ( 5 marks)
d) What are some of the ways by which the share premium account can be used? (5 marks)
QUESTION FOUR
a) Explain the conditions under which a finance lease can be cancelled ( 5 marks)
b) W X Plc Entered into a five year non cancellable finance lease on plant from January 1
2004 at an annual rental of Kshs 40,000 payable in advance. The pant could be bought at
an outright price of Kshs 150,000 on the same date.
Depreciation on the plant was to be provided for at the rate of 25% per annum on a
straight line basis assuming nil residual value.
Required:
a) Show the breakdown of each of the installment between interest and capital using
Sum-of-the-digit method (5 marks)
b) Show the lessor account, the asset account and the finance charge account in the books of
the lessee (10 marks)
QUESTION FIVE
i) Explain how contingent liabilities should be reported in the financial statements in
order to promote reliability (10 marks)
ii) Enumerate similarities between Rights issue and bonus issue of shares on the
liability side of the balance sheet of an enterprise.
(8 marks)
iii) Explain at least four classes of preference shares that an enterprise can have.
(2 marks)
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