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Buss 117: Principles Of Accounting 2 Question Paper
Buss 117: Principles Of Accounting 2
Course:Principles Of Accounting
Institution: Kenya Methodist University question papers
Exam Year:2008
KENYA METHODIST UNIVERSITY
END OF SECOND TRIMESTER 2008 EXAMINATIONS
FACULTY : BUSINESS AND MANAGEMENT STUDIES
DEPARTEMENT : BUSINESS ADMINISTRATION
COURSE CODE : BUSS 117
COURSE TITLE : PRINCIPLES OF ACCOUNTING 2
TIME : 2 HOURS
INSTRUCTIONS:
• Answer Question ONE (Compulsory) and any other TWO Questions
Question 1
The following balances remained in the books of Mwenda Pole Ltd. At 30 June 2008 after the preparation of the Trading Account.
Share Capital, Authorized and Issued Shs.
60,000 Kshs. 10 Ordinary Shares 600,000
20,000 8% shs.10 Preference Shares 200,000
Stocks at 30 June, 2008 419,260
Debtors and Prepayments 136,000
Creditors and accruals 68,610
Bank balance 38,980
Goodwill 100,000
10% Debentures 80,000
General Reserve 262,240
Gross profit for the period 407,540
Wages and salaries 141,000
Postage and telephone 3,100
Light and heat 6,080
Debenture interest (year to 31 December, 2007) 4,000
Director''s fees 12,500
Vehicles 122,030
Provision for Depreciation 45,000
Office fittings and equipment 223, 200
Provision for Depreciation 82,500
Land and building at cost 661,000
Profit and Loss Account at 1 July, 2007 121,260
The following information is also available:
(a) Office fittings and equipment are to be depreciated at 15% of cost, and vehicles at 20% of cost
(b) Provisions are to be made for:
(i) Director''s fees Kshs.25, 000
(ii) Audit fee Kshs. 6,000
(iii) The outstanding debenture interest.
(c) The Director''s have recommended that:
(i) Kshs.60, 000 be transferred to General Reserve
(ii) The Preference Dividend be paid
(iii) A 5% Ordinary Dividend be paid on the Old and New shares
(d) During the year a company declared rights issue of one for five at Kshs 15 per share and the amount is received in full. No entry related to this has yet been made in the books
(e) Corporation tax is estimated to be Kshs.100, 000
(d) The directors on the advice of an independent valuer wish to revalue Land and building thus bringing the value into line with current price of Kshs. 700,000.
Required:
Prepare the following to comply with the requirements of the Company Acts and statement of Generally Accepted Accounting Practice
(a) Income statements Mwenda Pole Ltd for the year ended 30 June 2008
(15 marks)
(b) Balance sheet as at 30th June 2008 (15 marks)
Question 2
The following balances as at 31 December 2008 have been extracted from the books of Williams Speed, a small manufacturer:
Kshs
Stocks at 1 January 2008: Raw materials 7,000
Work in progress 5,000
Finished goods 6,900
Purchases of raw materials 38,000
Direct labor 28,000
Factory overheads: Variable 16,000
Fixed 9,000
Administrative expenses: Rent and rates 19,000
Heat and light 6,000
Stationery and postage''s 2,000
Staff salaries 19,380
Sales 192,000
Plant and machinery: At cost 46,000
Provision for depreciation 12,000
Motor vehicles: At cost 16,000
Provision for depreciation 4,000
Creditors 5,500
Debtors 28,000
Drawings 11,500
Balance at Bank 16, 600
Capital at 1 January 2008 48,000
Provision for unrealized profit at 1 January 2008 1,380
Motor vehicle running costs 4,500
Additional information:
1. Stocks at 31 December 2008 were as follows:
Sh
Raw materials 9,000
Work in progress 8,000
Finished goods 10,350
2. The factory output is transferred tooth trading account, at the factory cost plus 25% for factory profit. The finished goods stock is valued on the basis of amounts transferred to the debit of the trading account.
3. Depreciation is provided annually at the following percentages of the original cost of fixed assets held at the end of each financial year: Plant and machinery 10% Motor vehicles 25%.
4. Amounts accrued due at 31 December 2008 for direct labor amounted to Ksh. 3,000, and rent and rates prepaid at 31 December 2008 to Ksh. 2,000.
Required:
Prepare a manufacturing; trading and profit and loss account for the year ended 31 December 2008 and a balance sheet as at that date.
Note: The prime cost and total factory cost should be clearly shown. (20 marks)
Question 3
Kamau and Kimani are partners sharing profits and losses in the ratio 3:2 respectively. The partnership agreement provides for Kimani to receive a salary of Sh.4, 000,000 per annum, and interest on capitals for both partners at 5% per annum. The partnership balance sheet as at 31 December 2007 was as follows:
Sh. ‘000’ Sh.’000’ Sh. ‘000’ Sh.’000’
Capital accounts Premises
Kamau 16,000 Less depreciation 20,800
Kimani 10,000 26,000 Equipment at cost 8,000
Depreciation (4,800) 2,300
24,000
Current accounts
Kamau 3,200
Kimani (300) 2,900 Stock 5,600
Debtors 2,200
Creditors accruals 3,300 Cash 400 8,200
32,200 32,200
On 1 April 2007 Kimata was admitted to the partnership. He has been a salaried employee, earning Sh.8,000,000 per annum. The terms of his admission to the partnership were as follows:
1. Kimata should introduce Sh.12,000,000 in cash as capital into the business.
2. Goodwill should be valued at Sh.14,000,000 for the purpose of his admission. It was agreed that goodwill should not be included in the balance sheet of the new partnership.
3. Kimata should receive a salary as a partner of Sh.6,000,000 per annum. Kimani’s salary should be raised to Sh.6,000,000.
4. Interest on capital should be raised from 5% to 6% per annum and calculated on the capital accounts after the elimination of goodwill.
5. The new profit sharing ratio for Kamau, Kimani and Kimata should be 4:2:1 respectively.
In preparing the draft financial statements for the year ended 31 December 2007, the partnership accountant, Otieno, calculated that the partnerships profit for the year was Sh.55,155,000,
Profit is assumed to accrue evenly throughout the year.
Partners cash drawings for the year were Kamau Sh.23,705,000, Kimani Sh.19,525,000 and Kimata Sh.8,250,000.
Required:
(a) Income Statement for the year ended 31 December 2007. (12 marks)
(b) What are the Main matters to be contained in the partnership agreement (8 marks)
Question 4
The final account of K. Bishop Limited for years ended 31 march 2007 and 2008 were as follows.
Summarized balance sheets at 31 March
2007 2008
sh sh
Assets:
Fixed (Net) 420,000 585,000
Stocks 70,500 64,650
Debtors and pre-payments 44,175 55,350
Cash 1,500 1,500
548,625 715,275
Liabilities
Trade creditors and accruals (58,650) (79,350)
Provision for tax (37,500) (45,000)
Proposed final dividends (18,000) (19,500)
10% debenture stock (105,000) (150,000)
(219,150) (293,850)
329,475 421,425
Capital and reserves:
Ksh 1 Ordinary shares 225,000 225,000
Ksh 2 Preference shares (8%) 45,000 75,000
Profit and Loss account 59,475 121,425
329,475 421,425
Note: there were no disposals of fixed assets during the year.
Summarized profit and loss account for the year ending 31 March 2008
Ksh Ksh
Operating profit
(After provision for depreciation
of Ksh 24,000) 147,450
Interest payable (15,000)
Profit for year before tax 132,450
Provision for tax (45,000)
87,450
Preference dividend paid (6,000)
Proposed ordinary dividend (19,500) (25,200)
Retained Profit 61,950
Required:
1. Prepare a cash flow statement for the year ending 31 March 2008. (15 Marks)
2. Comment on the changes which a have taken place during the year to 31 March 2008. (5 Marks)
QUESTION FIVE
In preparing the Accounts of your Company, you are faced with a number of problems;
These are summarized below:-
1. The Managing Director wishes the company’s good industrial relations to be reflected in the Accounts.
2. The long-term future success of the company is extremely uncertain.
3. Although the sales are not actually taken place, some reliable customers of the company have secured several large orders that are likely to be extremely profitable.
4. One of the owners of the company has invested his drawings in some stocks and shares.
5. At the year-end, an amount is outstanding for electricity that has been consumed during the Accounting period.
6. All the fixed Assets of the Company would now cost a great deal more than they did when they were originally purchased.
7. During the year, the company purchased Shs.2000 worth of pencils. These had all been issued from stock and were still in use at the end of the year.
8. The Company has had a poor trading year, and the owners believe that a more Balanced Result could be presented Fifo (first-in-first-out).
9. A debtor who owes a large amount to the company is rumoured to be going into liquidation.
10. The company owns some shares in a quoted company which the Accountant thinks are worthless.
Required:
(a) State which Accounting Rule the Accountant should follow in dealing with each of the above problems and (10 Marks)
(b) Explain briefly what each Rule means. (10 Marks)
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