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Acct 422: International Accounting Question Paper

Acct 422: International Accounting

Course:Bachelor Of Commerce

Institution: Kabarak University question papers

Exam Year:2010

KABARAK UNIVERSITY
UNIVERSITY EXAMINATIONS
2009/2010 ACADEMIC YEAR
FOR THE DEGREE OF BACHELOR OF COMMERCE
COURSE CODE: ACCT: 422
COURSE TITLE: INTERNATIONAL ACCOUNTING

INSTRUCTIONS
1. Answer all questions in Section A and two questions in Section B.
2. Show all your workings
3. Answers should be very precise and concise
4. Marks are shown at the end of the question.

PLEASE TURNOVER

SECTION A

QUESTION 1

Mining Inc. Based in Washington DC has two divisions.

1. Kisumu Mining Division-Operates a mine containing a rich body of raw diamonds.
2. Washington Processing Division-processes the raw diamonds into polished diamonds
used in industrial applications.

The costs of the Kisumu Mining Division are: -
• Variables costs - Ksh. 2,000 per 1b of raw industrial diamonds.
• Fixed costs - Ksh. 4,000 per 1b raw industrial diamonds.

Mining Inc. has a corporate policy of further processing in Washington all raw diamonds
mined in Kisumu, Kenya. Several diamond-polishing companies in the Kenya buy raw
diamonds from other local mining companies at Ksh 8,000 per pound. Assume that the
current foreign exchange rate is Ksh 80 = US$1 (1 US dollar).
The costs of the Washington (U.S.) Processing Division are:
• Variable costs - US$100 per 1b of polished industrial diamonds.
• Fixed costs -US$600 per 1b of polished industrial diamonds.

Assume that it takes two pounds of raw industrial diamonds to yield one pound of
polished industrial diamonds. Polished diamonds sell for $4,000 per pound.

Required:
i. Compute the transfer price (in $U.S) for one pound of raw industrial diamonds
transferred from the Kisumu Mining Division to the U.S. Processing Division under
two methods:
a) 300% of full cost
b) Market price (8 marks)

ii. Assume a world of no income taxes. One thousand ponds of raw industrial diamonds
are mined by the Kisumu Division and then processed and sold by the Washington.
processing Division. Compute the operating income (in $U.S.) for each division of
Mining Inc. under each transfer-pricing method in requirement
(i) above. (8 marks)
iii. Assume the corporate income tax rate is 20% in Kenya and 35% in the United States.
Compute the after-tax operating income (in $U.S.) for each division under each
transfer-pricing method in requirement (i) above. (4 marks)
(Total 20 marks)

QUESTION 2

a) Explain the meaning of the following terms as used in foreign transaction.
i. Foreign Exchange (2 marks)
ii. Monetary Items (2 marks)
iii. Non monetary items (2 marks)
b) b) The Trial Balance of the Kenyan Branch of Home PLC, a United States (US) co. as
at 31-12-2009 was as follows:

Dr Ksh Cr.Ksh

Tangible Fixed Assists (at cost) 600,000
Provision for depreciation 90,000
Debtors 330,000
Stock at 1/1/2009 280,000
Creditors 260,000
Goods from head office (HO)\ 940,000
Sales 1,440,000
Expenses 130,000
Bank and Cash 180,000
Head Office Current Account 670,000

Totals 2,460,000 2,460,000

Closing stock at 31/12/2009 was Ksh 200,000
Fixed assets are presented as per exchange rates ruling on date of acquisition:
Cost Accumulated exchange
Kshs. Depreciation rate

750,000 75,000 US$ 1= Ksh 70
150.000 15,000 US$ 1= Ksh.80
Total per Trial Balance 600,000 90,000
Exchange rates during the year were as follows:

Kshs. = US$ 1
01-01-2009 70
31-12-2009 80
Average for 2009 75

In the head of office ledger, balances at 31/12/2009 included:
Goods to branch US$ 6,000
Kenyan Branch account US$ 3,000

Required:
Translate the Kenyan Branch trial Balance at 31-12-2009 into US$ using the temporal
method and prepare the final accounts in US $. (14 marks)

(Total 20 marks)

SECTION B
QUESTION 3

a) State the problems hindering harmonization of accounting standards.
(5 marks)
b) Briefly explain the benefits of using international accounting standards in Kenya.
(10 marks)

(Total 15 marks)

QUESTION 4

a) Describe any four approaches that multinational corporations take to accommodate
their foreign readers and indicate the suitability of each.
10 marks)
b) Discuss three problems experienced by multinational corporations in reporting.
(5 marks)
(Total 15 marks)

QUESTION 5

Discuss any five methods of performance evaluation followed by multinational
corporations. (15 marks)

Acct 422: International Accounting Question Paper

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