Accounting For Assets Question Paper

Accounting For Assets

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2007

KENYATT A UNIVERSITY
UNIVERSITY EXAMINATIONS 2007/2008
FIRST SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
BAC 200:
ACCOUNTING FOR ASSETS
DATE: Monday ,26th November, 2007
TIME: 2.00 p.m. - 4.00 p.m.
INSTRUCTIONS:
Answer ALL questions.
Marks allocated are shown at the end of each question.
Question One
What are the primary objectives of financial reporting?
(15 marks)
Question Two
a)
Ssemakula a sole trader received his bank statement for the month of June 2007.
At that date the bank balance was Kshs.706,500 whereas his cash book balance
was Kshs.2,366,500.
His accountant investigates the matter and discovered the
following discrepancies.
i)
Bank charges ofKshs.3,000 had not been entered in the cash book.
ii)
Cheques drawn by Ssemakula totaling Kshs.22,500 had not yet been
presented to the bank.
iii)
He had not entered receipts of Kshs.26,500 in his cash book.
iv)
The bank had not credited Mr. Ssemakula with receipts ofKshs.98,500
paid into the bank on 30/612007.

v)
Standing order payments amounting to Kshs.62,000 had not been entered
into the cash book.
vi)
In the cash book Ssemakula had entered a payment of Kshs.74,900 as
Kshs.79,400.
vii)
A cheque for Kshs.15,000 from a debtor had been returned by the bank
marked "refer to drawer" but had been written back into the cash book.
viii)
Ssemakula had brought forward the opening cash balance of Kshs.329,250
as a debit balance instead of a credit balance.
ix)
An old cheque payment amounting to Kshs.44,000 had been written back
in the cashbook but the bank had already honoured it.
x)
Some of Ssemakula's customers had agreed to settle their debts by paying
directly into his bank account. Unfortunately, the bank had credited some
deposits amounting to Kshs.832,500 to another customer's account.
However acting on information from his customers, Ssemakula had
actually entered the expected receipts from debtors in his cash book.
Required:
a)
Adjusted cash book balance as at 30/6/2007.
(9 marks)
b)
Bank Reconcilliation Statement as at 30/6/2007 starting with the
balance as per bank statement.
(4 marks)
On July 10,2007, a fire destroyed the goods in process inventory
of Lowa Company: Inventories of material and finished goods
were not damaged.
Physical inventories taken after the fire are as
follows:
2

Kshs.
'-
Materials
65,000
Finished goods
120,000
185,000
Inventories on January 1, 2007 are shown below:
Kshs.
Materials
45,000
Goods in process
80,000
Finished goods
150,000
275,000
=:::======
The accounting records disclosed the following through July 10,
2007.
Kshs.
Sales
380,000
Purchases of materials
117,500
Direct labour costs
92,000
Factory overhead costs
58,200
The gross profit in recent years has averaged 33YJ%of cost of
finished goods sold.
Required:
Compute the estimated cost of the goods in process inventory lost
in the fire
(7 marks)
(Total: 20 marks)
Question Three:
a)
Purchased goodwill usually is recorded and included in the balance sheet while
internally developed goodwill is not. Explain the basis for this apparent
inconsistency.
(5 marks)
-,
3

b)
Using suitable examples, clearly distinguish between research costs and
development costs. Specify the required treatment as per the international
Financial reporting standards.
(6 marks)
c)
State and explain the factors considered in the determination of a patent's
economic life.
(4 marks)
(Total : 15 marks)
Question Four:
a)
The Chaser Mining Company has purchased a tract of mineral land for
Sh.5,700,000.
It is estimated that this tract will yield 1,200,000 tonnes of ore
with sufficient mineral content to make mining and processing profitable.
It is
further estimated that 120,000, tones of ore will be mined each year. The land
will have a residual value of Sh.300,000.
The Company builds the necessary
structures and sheds on the site at a cost of Sh.360,000.
It is estimated that these
structures can serve 15 years but, because they must be dismantled if they are to
be moved, they have no scrap value. The Company does not intend to use the
building elsewhere. Mining machinery installed at the mine was purchased
second hand at a cost of Sh.480,000.
This machinery cost the former owner
Sh.960,000 and was 40% depreciated when purchased.
The chaser mining
Company estimates that about half of this machinery will still be useful when the
present mineral resources will have been exhausted but that dismantling and
removal costs will just about offset its value at that time. The Company does not
intend to use the machinery elsewhere.
The remaining machinery will last until
about one - half the present estimated mineral ore has been removed and will then
be worthless.
Cost is to be allocated equally between these two classes of
machinery.
Required:
i)
As the Chief Accountant for the Company, you are required to prepare a
schedule showing estimated depletion and depreciation costs for each year
of the expected life of the mine. Use straight line method. (8 marks)

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