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Advanced Financial Accounting Ii Question Paper
Advanced Financial Accounting Ii
Course:Bachelor Of Commerce
Institution: Kenyatta University question papers
Exam Year:2010
KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2009/2010
OPEN, DISTANCE AND E-LEARNING EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
BAC 302: ADVANCED FINANCIAL ACCOUNTING II
DATE: Monday 19th July, 2010
TIME: 2.00 p.m – 4.00 p.m
INSTRUCTIONS:
Answer ANY FOUR Questions.
Q1.
“ To businessmen, accountants, and knowledgeable users balance sheets are worthless, in
the sense of conveying useful information.”
State what you regard to be the objectives of balance sheets and discuss the extent to which
you agree with the above statement. Examples may be introduced in the discussion where
considered appropriate.
[ 25 marks]
Q2.
The summarized balance sheets of Thika Ltd and Ruiru Ltd, as at 31st December 2005,
were as follows:-
Thika Ltd
Ruiru Ltd
Kshs
Kshs
Authorized and issued share
Capital – ordinary shares of
Kshs 1, fully paid
240,000
120,000
Share premium account
36,000
-
Capital reserves as 1st January 2005
16,000
12,000
Revenue reserves on 1st January 2005
30,000
20,000
Profit and loss account on 1/1/2005
80,000
16,000
Profit for 2005
32,000
10,000
Sundry Creditors
70,000
22,000
Current account Ruiru Ltd
5,400
-
509,400
200,000
Page 1 of 5
Goodwill at Cost
-
15,000
Plant and machinery at cost less dep.
144,000
90,000
Fixtures and Fittings at cost less depre.
26,000
11,400
Stock at cost
36,000
24,000
Sundry debtors
175,400
42,200
Investment in P limited at cost
-
5,000
Balance at bank
20,000
6,000
Current account Thika Ltd
- 6,400
Shares in Ruiru Ltd 96,000
( Shares at cost)
108,000
-
509,400
200,000
Other relevant information:
1.
Thika Ltd had allotted 72,000 shares fat a premium of 50 pence each in exchange for the
96,000 shares in Ruiru Ltd on 1st January 2005
2.
In determining, on 1st January 2005, the consideration for the shares in Ruiru Ltd, plant and
machinery was revalued at Kshs 108,000, the fixtures and fittings at Kshs 10,000 and the
investment in P Ltd was considered to be of no value. NO adjustments had been made in
the books in respect of these valuations but effect to the revaluations is to be given in the
consolidated accounts, and in the computation of depreciation for the year.
3.
There were no purchases of sales of plant and machinery or fixtures and fittings during
2005.
4.
The depreciated figures for plant and machinery and fixtures and fittings as at 31st
December 2005 are after providing depreciation for 2005 on book values at 1st January
2005 at rates of 10% and 5 % per annum respectively.
5.
A Chegue for Kshs 1,000 from Thika Ltd to Ruiru Ltd, sent before 31st December 2005
was not received by the latter company until January 2006.
You are required to prepare the consolidated balance sheet of Thika Ltd, and its subsidiary
Ruiru Ltd, as at 31st December 2005.
[ 25 marks]
Page 2 of 5
Q3.
Narok Ltd has been operating unprofitably for several years and a balance sheet produced
as of 31st May, 2009 revealed the following position;
Narok Ltd
Balance Sheet as at 31st May, 2009
Fixed Assets
Kshs
Kshs
Kshs
Goodwill
50,000
-
50,000
Freehold land and buildings
75,000
-
75,000
Plant and Machinery
98,500
15,000
83,500
Motor vehicles
35,000
12,500
22,500
258, 500 27,500
231,000
Current Assets
Stock
75,000
Debtors
68,050
Cash
1,050
144,100
Less Current Liabilities
Creditors
165,000
Bank overdraft
50,100
215,100
(71,000)
160,000
Financed by:
Kshs.
Share Capital
Authorized
500,000
Issued
200,000 ordinary shares of Kshs 1 each fully paid 200,000
100,000 8% cumulative preference shares of
Kshs 1 each, fully paid
100,000
300 000
Less: Profit and loss account (adverse balance)
140,000
160,000
Note: The dividend on the 8% cumulative preference shares is in arrear for the past
5 years.
Page 3 of 5
The Board of Directors has recently been reconstructed and the court has approved a scheme of
reconstruction, which has been agreed to by all interested parties, on the following terms:
1.
The ordinary share capital to be written down to 25 cents each, and then converted
into fully paid Kshs 1 shares.
2. The preference shareholders have agreed to accept 60,000 ordinary shares of Kshs 1 each,
fully paid at pas in place of their preference shares, and have waived their rights to the
arrears of dividend by agreeing to accept 10,000 ordinary shares of Kshs 1 each, fully paid
at pas in full settlement.
3.
The property to be revalued to Kshs 130, 000; the plant and machinery to Kshs 60,000; the
Motor vehicles to Kshs 17,500; the inventory to Kshs 65,000
4.
A provision to be created in respect of doubtful debts amounting to 6% of debtors.
5.
The creditors have agreed to take 100,000 ordinary shares of Kshs 1 each, fully paid at pas
in part settlement of their claim; and to provide Kshs 100,000 in cash against the issue to
them of Kshs 100,000, 10% debentures, secured on a floating charge.
6.
Good will to be written off.
Required
From the information given, prepare
a)
The reconstruction account ; and
b)
The balance sheet of the reconstructed company, assuming all the transactions to have been
completed on 1st June, 2009
Q4.
The draft profit and loss accounts for the year ending 30th June 2009 of Acquisition limited,
and its associated company Tenet Limited, appeal below. Acquisition Limited’s
investments in these companies were made as follows.
i)
On 1st July 2008, 40% of the ordinary share capital of Tenet Limited, to whose
board has been appointed a director of Acquisition limited to take an active part in
Tenet limited’s management.
Page 4 of 5
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