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Acc 322: Accounting For Liabilities Question Paper
Acc 322: Accounting For Liabilities
Course:Bachelor Of Business Management
Institution: Mount Kenya University question papers
Exam Year:2011
MOUNT KENYA UNIVERSITY
UNIVERSITY EXAMINATION 2010/2011
SCHOOL OF BUSINESS AND PUBLIC MANAGEMENT
DEPARTMENT OF ACCOUNTING AND FINANCE
BACHELOR OF BUSINESS MANAGEMENT
UNIT CODE: ACC 322 TITLE: ACCOUNTING FOR LIABILITIES
DATE: APRIL 2011 MAIN EXAM TIME: 2HRS
Instructions
1. This paper has two parts: Section ‘A’ AND Section ‘B’
2. Section ‘A’ has ONE question which is COMPULSORY and carries 30 marks.
3. Section ‘B’ has four questions of which you are required to attempt TWO questions.
4. The Two questions in Section ‘B’ Carries a Total of 40 marks.
SECTION A (30 MARKS)
1. a. Write short notes on the following
(i) Forfeiture of shares
(ii) Over and under subscription
(iii) Bonus issue
(iv) Rights issues
(v) Share premium (10mks)
b. Distinguish between operating and finance lease (4mks)
c. Identify and describe any five types of bonds (10mks)
d. outline the accounting treatment of the following items
(i) Accounts payable
(ii) Short time notes payable
(iii) Dividend payable
(iv) Accrued liabilities
(v) Unearned income
(vi) Contingencies and estimated liabilities (6mks)
SECTION B :( 40 MARKS)
2. A company has a nominal capital of Sh 100,000 divided into 2,500 ordinary shares of
Sh,40 each. The whole of the capital is to be issued at par on the following term:
Payable on application sh. 5.00 per share
Payable on allotment sh.15.00 per share
First call sh.10.00 per share
Second call sh.10.00 per share
The applications were received for 2,500 shares and these were allotted to the applicant.
The calls have been made and paid in full by the members with the exception of Glady
Ivy,Who has failed to pay the first and second calls on the 1,00 alloted to her.The
directors resolved to forfeit the shares.
Mount Kenya University
Required:
(i) Show the journal entries (including cash) recording issue up to the forfeiture.
(ii) Show the appropriate balance sheet entries relating to the share issue and
forfeiture of same (20mks)
3. A lease enters a leasing agreement on 31st December, 2006 for a plant and machinery
costing Sh; 949,200.The lease requires the payment of an annual rent of shs.272, 200
payable in advance. The period of the lease is 4 years.
It is assumed that the useful life of this plant and machinery is 4 years and there will be
no scrap valve at the end of that period. This asset is depreciated on the basis of straight
line method.
The accounting period of the lesser and lessee ends on 31st December each year.
Required:
a. Journal entries at the inception of the lease.
b. The charges to the profit and loss account of the lessee for the years 2006 to
2009 on the basis of actuarial and sum-of-digits methods.
c. Lessor’s account in the lessee’ books for the years 2006 to 2009 on the basis of
actuarial. (20mks)
4. On July 1 power generating company issues shs.10, 000 ten-year bonds, with a coupon
rate of interest of 12% and semiannual interest payments payable on June 30 and
December 31st, when the market interest rate is 10%.
Required
a. Show the journal entries to record issuance of the bond
b. Using straight –line method amortize the premium for the period of ten years(use a
well formatted table) (20mks)
5.The following summarized balance sheet of Omosh Ltd as on 30th April,2009 was as
follows:-
BALANCE SHEET
Issued share capital:
80,000 sh 1 ordinary shares 80,000
25,000 6%,sh 1 redeemable
preference
Shares 25,000
Profit and loss account 32,000
Current liabilities 61,400
198,400
Fixed assets 75,000
Investments 16,500
Stock in trade 48,600
Debtor 56,500
Balance a Bank 1,800
198,400
On the day following the date of the balance sheet i.e. on 1st May 2009
a. The investments were sold for sh.14, 300;
b. The company issued 1, 500, 5% debentures of Sh.10 each, at a discount of 2% and the
whole amount due was received;
c. The preference shares were redeemed at a premium of Sh.0.10 per share.
Required:
(i) Prepare ledger accounts to effect the above transactions.
(ii) Balance sheet summary after the transactions above. (20mks)
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