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Advanced Financial Accounting I Question Paper
Advanced Financial Accounting I
Course:Bachelor Of Commerce
Institution: Kenyatta University question papers
Exam Year:2008
KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2007/2008
SECOND SEMESTER EXAMINATION FOR THE DEGREE OF
BACHELOR COMMERCE
BAC 301: ADVANCED FINANCIAL ACCOUNTING I
DATE: Monday 9th June 2008 TIME: 2.00pm – 4.00pm
INSTRUCTIONS:
Answer ALL questions. Show all your workings
Q1.
Sasumua Limited prepares its financial statements on historical basis. The
company’s profit and loss account for the year ended 31 December 2007 and
comparative balance sheets as at 31 December 2006 and 2007 were as follows:
Profit and Loss Account
For the Year Ended 31 December 2007
Sh’000
Sh’000
Sales
80,000
Opening stock
5,200
Purchases
64,000
Cost of goods available for sale
69,000
Closing stock
7,200
62,000
Gross profit
18,000
Expenses
Distribution expenses
600
Debenture interest (paid on 31 December)
1,000
Administrative expenses
5,780
7,380
Profit before tax
10,620
Taxation
5,100
Profit after tax
5,520
Ordinary dividends: Interim (30 June)
1,000
Final proposed
2,000
3,000
Retained profit for the year
2,520
P & L A/C 1/1/2007
8,050
P & L A/C 31/12/2007
10,570
1
Sasumua Limited
Balance sheets as at December 31
2007
2006
Sh’000
Sh’000
Sh’000
Sh’000
Fixed Assets (net)
35,800
32,000
Current Assets
Stock
7,200
5,200
Debtors
21,800
17,000
Bank
150
800
29,150
23,000
Current Liabilities
Trade Creditors
12,280
6,350
Dividends
2,000
1,600
Taxation
5,100
4,000
19,380
9,770
11,950
11,050
Total Net Assets
45,570
43,050
Financed By:
Ordinary share capital
15,000
15,000
P & L Account
10,570
8,050
5% Debenture stock
20,000
20,000
Total
45,570
43,050
Additional Information:
(i)
Administrative expenses include depreciation amounting Sh.4,200,000.
(ii)
Fixed assets were acquired as below
Date
Cost (Sh’000)
Accd Depn (Sh’000)
01/01/2005
40,000
12,000
30/09/2007
8,000
200
There were no disposals during the year. The company depreciates fixed assets
on a straight-line basis at 10% per year.
(iii)
Sales, purchases, distribution expenses and administrative expenses were
earned/accrued evenly during the year.
(iv)
Stocks held at the end of each year were acquired in the last quarter of year.
(v)
The indices for specific periods were as follows:
2
Date
Index
31
Dec. 2003
100
31
Dec. 2004
105
31
Dec. 2005
110
30
Sept. 2006
114
01
Jan.
2007
115
31
Mar. 2007
118
30
Jun.
2007
120
30
Sept. 2007
122
31
Dec. 2007
125
Required:
(a)
Prepare the Profit and Loss Account restated in current purchasing power (CPP)
terms.
[14 marks]
(b)
CPP Balance Sheet as at 31 December 2007.
[6 marks]
[Total = 20 marks]
Q2.
(a)
Explain the advantages of converting a partnership form to a limited
liability company.
[4 marks]
(b)
Amro and Bank were in partnership sharing profits equally. The balance
sheet of their partnership firm as at 31 December 2007 was as follows:
3
Balance Sheet
As At 31 December 2007
Sh’000
Sh’000
Fixed Assets:
Land & Buildings
12,000
Plant & Machinery
4,000
Fixtures
1,500
17,500
Current Assets:
Stocks
1,500
Debtors
2,500
Bank
1,000
5,000
Current Liabilities
Creditors
(2,500)
2,500
20,000
Financed By:
Partners Capital A/Cs:
Amro
10,000
Bank
8,000 18,000
Partners Current A/Cs
Amro
2,500
Bank
(500) 2,000
20,000
On 1st January 2008 the partners agreed to form a company Ambank Limited to acquire
all the assets of the partnership except cash in bank at an agreed price of Sh.20 million.
The purchase consideration was to be satisfied by the issue of 15 million. Ordinary
shares of Sh.1 each fully paid and Sh.5 million cheque by Ambank Limited.
Ambank Limited was formed with an authorized share capital of Sh.50 million. The
company issued 35 million ordinary shares at par as a t1st January 2008 and the shares
were fully paid. Ambank revalued the assets taken over as follows:
Sh’000
Plant and Machinery
3,500
Land & Buildings
15,000
Fixtures
1,000
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