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Intermediate Accounting 1 Question Paper
Intermediate Accounting 1
Course:Accf 330
Institution: Kenya Methodist University question papers
Exam Year:2008
KENYA METHODIST UNIVERSITY
END OF FIRST TRIMESTER 2008 EXAMINATION
FACULTY : BUSINESS AND MANAGEMENT STUDIES
DEPARTMENT : BUSINESS ADMINISTRATION
COURSE CODE : ACCF 330
COURSE TITLE : INTERMEDIATE ACCOUNTING 1
TIME : 3 HOURS
INSTRUCTIONS:
• Answer ANY four questions
• All questions carry equal marks.
Question 1
a) The credibility of conceptual framework underlying financial accounting rest upon its general recognition and acceptance by prepares, auditors and users of financial statements
Explain five uses or benefits of such a conceptual framework. (10 marks)
b) For each situation described below indicate the accepted accounting rule(s) that is being violated, explain the nature of the violation and how it can be remedied.
(i) The book-keeper for a large auto dealership depreciates metal waste baskets over a period of five years.
(ii) Upon completion of the construction of a housing project, which will soon be offered for sale, Townhome Developers increased the balanced sheet valuation of the houses to their sales value and recognized the expected profits on the project.
(iii) Plans to dispose of a major segment of the business are not communicated to readers of the financial statements.
(iv) A small commuter airline recognizes no depreciation on its planes because the planes are maintained in “as good as new” condition. (10marks)
c) Explain three qualitative characteristics of financial statements. (5marks)
Question 2
a) A shs 150,000, 3-year non-interest bearing note was received on January 1 ,2001 when the market rate of interest was 8%. The note is to be repaid in 3 instalments of shs 60,000 on December 31,2001,shs 50,000 on December of 2002 and shs 40,000 om December 31, 2003.
Required:
i) calculate the present value of the note
ii) draw an amortization schedule to show how interest will be allocated over the three year. (15 marks)
b)Mapesa Mingi Limited, a dealer in marketing and publicity services uses the percentage –of-sales method to estimate the uncollectible accounts expense. From 2002, the company made the following sales and collections:
Year Sales Collections
2001 200,000 150,000
2002 300,000 46,800 from credit sales of 2001
225,000 from sales of 2002
wrote off 4,200 from sales of year 1
The allowance for uncollectible amounts was estimated to be 6% of uncollected accounts receivable each year.
Required:
Show the necessary journal entries for the two years. (10 marks)
Question 3
a) The cost of acquiring an asset can be defined as the cash or cash equivalents price of obtaining the asset and bringing it to the location and condition necessary for its intended use. From the above , explain the costs of acquiring land. ( 10 marks)
b) An airline company purchased and put into operation a jet aircraft on 1st February 2001 for shs 7,000,000. The expectation then was that the aircraft would be flown for a total of 10,000 hours over a period of 4 years and then traded in for a new model. The trade-in value was expected to be shs1, 500,000 at the end of January 2005. The number of flying hours logged for the aircraft was as follows:
1st February 2001 – 31st January 2002 3000
1st February 2001- 31st January 2003 2800
1st February 2003 – 31st January 2004 2300
1st February 2004 – 31st January 2005 500
The aircraft had a serious accident in June 2004 and was a total write- off although an insurance company agreed to pay shs 1,200,000 in settlement.
Required:
(i) Calculate the depreciation charges for each of the four financial years to 31st January 2005 using straight-line method (applied on a full-year basis) and on basis of flying hours logged.
(ii) Show the appropriate ledger accounts for the year ended 31st January 2005 for the straight-line method only. (15 marks) ( Total 30 marks)
Question 4
a) Explain the requirements of IAS 2: Valuation of Inventory, regarding the values at which inventory should be recognized in the financial statements. (4 marks)
b) The following are details regarding the receipts ad issues of Material X in respect of a firm.
Receipts: Jan. 1 Balance 50 units @4 per unit
Jan 5 Purchase order no 10, 40 units @ Kshs 3 per unit
Jan 8 Purchase order no 12 30 units @ Kshs 4 per unit
Jan 15 Purchase order no 11, 20 units @ Kshs 5 per unit
Jan 26 Purchase order no 13, 40 units @ Kshs 3 per unit
Issues
Jan 10 Material requisition No. 4 70 units
Jan 12 Material requisition No. 5 10 units
Jan 20 Material requisition No. 6 20 units
Jan 31 Material requisition No. 7 10 units
Jan 31 Shortage 5 units
The firm uses the perpetual inventory system for maintaining its stores
records.
Required:
Calculate the value of the inventory on Jan 31st according to:
FIFO
Weighted Average price method (21 marks)
Question 5
(a) Explain two types of leases giving the characteristics of each and the differences between the two. (10 marks)
b) Explain all the cost that should be included in the recording of acquisition of a piece of equipment (5 marks)
c) Steel Structures Metal company purchased a six-acre tract of land and an existing building for shs. 5,000,000. The company plans to raze down the old building and construct a new office building on the site. In addition to the purchase price, the company made the following expenditures at the closing of the purchase;
Title insurance shs 40,000
Commissions shs 80,000
Property taxes shs 20,000
Shortly after closing, the company paid a contractor shs 200,000 to tear down the old building and remove from the site. An additional shs. 50,000 was paid to grade the land. The shs.20,000 in property taxes included shs.10,000 of delinquent taxes paid by the company on behalf of the seller and shs.10,000 attributable to the portion of the current fiscal year made after the purchase date.
Required;
What should be the capitalized cost of land? (10 marks)
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