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Bcom 311: Advanced Financial Accounting Ii Question Paper
Bcom 311: Advanced Financial Accounting Ii
Course:Bachelor Of Commerce
Institution: Chuka University question papers
Exam Year:2013
CHUKA
UNIVERSITY
UNIVERSITY EXAMINATIONS
THIRD YEAR EXAMINATIONS FOR THE AWARD OF DEGREE OF BACHELOR OF COMMERCE
BCOM 311: ADVANCED FINANCIAL ACCOUNTING II
STREAMS: BCOM Y3S2 TIME: 2 HOURS
DAY/DATE: MONDAY 22/4/2013 2.30 PM – 4.30 PM
INSTRUCTIONS:
ANSWER QUESTION ONE AND ANY OTHER TWO QUESTIONS
QUESTION ONE
(a) Distinguish between the partial and the full method of determining good will arising on
the acquisition of a subsidiary company. [2 Marks]
(b) List the circumstances under which a subsidiary should be excluded from the
consolidated financial statements. [4 Marks]
(c) As per IAS 21, summarize the steps followed in translating foreign currency transactions. [4 Marks]
(d) The following balances have been extracted from the books of Bright Ltd, Beam Ltd and
Light Ltd as at 31st Dec 2012
Bright Ltd Beam Ltd Light Ltd
Shs.’000’ Shs. ‘000’ Shs. ‘000’
Retained earnings 1/1/12 30, 000 40, 000 50, 000
Stock 1/1/12 90, 000 150 ,000 80 ,000
Sales 1 ,250, 000 875, 000 650, 000
Purchases 780 ,000 555, 000 475,000
Distribution expenses 125,000 85, 000 50,000
Ordinary shares of Shs.10 each 450, 000 350, 000 200, 000
8% preference shares of Shs. 10 each 100 ,000
Inventory 31/12/12 110 ,000 135, 000 85, 000
Administrative expenses 28 ,000 40, 000 52, 000
Additional information:
1. Bright Ltd, acquired 28 million ordinary shares of Beam Ltd on 1st January 2010 for Sh. 180 million and Shs. 50 million preference shares of Beam Ltd for Sh. 165 million on the same date, when the retained profit of Beam Ltd was Sh. 15 million.
2. Bright Ltd: acquired 16 Million ordinary shares of Light Ltd on 1st January
2011 for Sh. 180 million when retained profits of Light Ltd was Sh. 20 million.
3. Beam Ltd sells goods for resale to both Bright Ltd and Light Ltd. As at 31st
December 2012 inventory of goods purchases from Beam Ltd are:
Shs.’000’
In Bright Ltd 40, 000
In Light Ltd 28 ,000
Beam Ltd, has a margin of 25%
Total sales in the year by Beam Ltd to Bright Ltd were Shs.150 million and to Light Ltd were Shs.120 million. All these sales were made in the post acquisition period.
4. Bright ltd deals in office equipment and furniture. On 1st September 2012 Bright ltd sold furniture worth Shs.20 million to Light Ltd. Light Ltd depreciates fixed assets on straight line basis at 30% p.a proportionate charge being made for a period less than one year. Bright Ltd has a mark-up of 33 1/3%
Depreciation expense is include in administration expenses.
5. Corporate tax to be provided for as follows:
Shs.’000’
Bright Ltd 125, 000
Beam Ltd 75, 000
Light Ltd 20, 000
6. Final dividends proposed are:
Bright Ltd Shs. 0.30 per share
Beam Ltd Shs.0.50 per share on ordinary shares and Sh.8 per preference share
Light Ltd Shs. 0.25 per share
7. As at 31st Dec 2012, half of the goodwill in both Beam Ltd and Light Ltd was considered impaired.
Required:
Consolidated income statement for the year ended 31st December 2012, and a reconciliation statement of retained profits.
[20 Marks]
QUESTION TWO
(a) Differentiate between monetary and non-monetary items as used in applied in current
purchasing power financial statement. [4 Marks]
(b) Bahati limited was established on 1 January 2012, its opening statement of financial position as at this date was as follows:
Sh ‘000’
Land 6, 000
Equipment 4, 000
Inventory 2, 000
Equity 12 ,000
=====
During the year ended 31 December 2012, the company completed the following transactions.
Purchased inventory at Sh. 10 million
Sold inventory for Sh.11 million in cash. This inventory had a historical cost value of Sh. 9 million.
Additional information:
1. Closing inventory on 31 December 2012 had a historical cost of Sh. 3 million and was bought when the retail price index (RPI) was 115 (average)
2. The equipment has an expected useful life of four years and a nil residue value. The straight line method of depreciation is used.
3. The general price index during the year was as follows:
1 –Jan-12 100
30-Jun-12 110
31-Dec-12 120
4. Assume that purchases and receipts occurred evenly throughout the year.
5. There were no debtors and creditors.
Required:
(a) The current purchasing power (CPP) income statement for the year 31 December
2012. [6 Marks]
(b) CPP statement of financial position as at 31 December 2012. [6 Marks]
QUESTION THREE
(a) Explain the following as applied in IAS 21
(i) Presentation currency [2 Marks]
(ii) Functional currency. [2 Marks]
(b) A compulsory winding up order was made on 31st December 2012 against African
Limited. A summary of the company’s Statement of Financial Statement at that date was as follows:
Non-current assets: Sh ‘000’ Sh ‘000’
Plant and machinery 30, 000
Leasehold property 40 ,000
70, 000
Current assets:
Inventory 1 ,000
Debtors 60, 000
Less Debtor allowance (10, 000) 50, 000
Investments 6, 000
Calls in arrears 5 ,000
Cash in Bank 1, 000
Total Current assets 63 ,000
133, 000
======
Financed by:
Share Capital
16 ,000 ordinary shares of Sh.each 80 ,000
Revenue reserves:
Retained earnings (35, 000)
Shareholder’s funds 45 ,000
Non-current liabilities:
10% debentures 50, 000
Current liabilities:
Bank overdraft 18 ,000
Creditors 20, 000
133,000
=======
Additional information:
1. The company’s assets were estimated to be realized as follows:
Sh. ‘000’
Lease property 73 000
Plant and machinery 60 000
Inventory 2 000
Investment 4 000
2. The debtors were considered to be good except Sh. 2 million were bad and Sh
4. Million were considered doubtful and were expected to realize Sh.2 million.
3. The bank overdraft is secured by deposit of title deed of leasehold properties.
4. Preferential creditors for taxes and wages amounted to Sh. 1 million.
5. There was unrecorded expenses for electricity and telephone charge amounting to
Sh. 80 000.
Required:
(a) Statement of affairs as at 31st December 2012. [10 Marks]
(b) Deficiency account as at 31st December 2012 [6 Marks]
QUESTION FOUR
Kasuku Limited was a company with some of its shares held by the Government prior to the
divestiture of the shares. The business was to be translated to a new company, prosperous
limited and was approved by all shareholders. Prosperous Limited was to take over all the assets
of Kasuku Limited. A new board of directors was appointed to head the new company.
Kasuku Limited
Statement of financial position at at 31st December 2012
Sh ‘000’ Sh ‘000’
Assets
Non-current assets 33, 000
Good will 6, 600
Preliminary expenses 330
Current assets
Inventories 9, 075
Account Receivables 11 ,220
Cash 5 ,775
26 ,070
Current liabilities
Creditors (6 ,600) 19, 470
59 ,400
=====
Equity and liabilities
Capital and reserves
Share capital: Issued and fully paid
4 Million Ordinary shares of Sh.10 40 ,000
1.65 Million 6% cumulative pref shares 16, 500
56, 500
Retained earnings (13, 600)
Shareholder’s funds 42 ,900
Debentures 16 ,500
59 ,400
=====
Additional information is provided as follows:
1. Prosperous limited has an authorized share capital of 5 million ordinary shares of Sh.10 each.
2. The creditors of the old company received Sh. 70 and 3 fully paid ordinary shares in the new company for Sh. 100 payable to them.
3. The preference shareholders in Kasuku limited received 6 fully paid ordinary shares in prosperous Ltd, for every 8 preference shares in Kasuku Ltd and 6 fully paid ordinary shares in the new company for every Sh. 100 of the Sh 2.97 million preference dividends in arrears.
4. The ordinary shareholders in Kasuku limited received Sh. 40 in cash and Sh. 60 18% debenture at par for each Sh. 100 debenture in the old company.
6. The balance of the authorized capital of the new company was issued at par for cash and was fully paid.
7. Goodwill was eliminated; the stock was valued at Sh. 6.5 Million and the other assets were brought into prosperous limited’s books at which they appeared in the old company’s statement of Financial Position. The balance of the purchase consideration represented the agreed value of the Non-current assets.
Required:
(a) Journal entries to deal with the scheme of reconstruction in the books of Kasuku
limited. [8 Marks]
(b) The following accounts in the books Kasuku Limited:
(i) Realisation Account [4 Marks]
(ii) Prosperous Limited Account [2 Marks]
(iii) Preference shareholders sundry member’s account. [2 Marks]
(iv) Ordinary shareholders sundry member’s account. [4 Marks]
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