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Bcom 211:Intermediate Accounting 1 Question Paper
Bcom 211:Intermediate Accounting 1
Course:Bachelor Of Commerce
Institution: Chuka University question papers
Exam Year:2010
INSTRUCTIONS:
Answer all questions.
1. (a) ‘Although the profit and loss account is a record of past achievement, the calculations required for certain expenses involve estimates of the future’. By use of three such estimates, explain the meaning of the statement. [8 marks]
(b) ‘An asset is similar to an expense.’ Do you agree? Explain.[6 marks]
(c) Outline the major advantages and disadvantages of historical cost principles. [9? marks]
2. (a) The trial balance before adjustment for Mugendi and Company shows the following balance:
Dr Cr Account recoverable Sh.82000 Allowance for doubtful accounts 2120 Sales Sh.430,000 Sales returns and allowance 7600
2
Required:
Using the above data, give the journal entries required to record each of the following independent situations.
(i) To obtain additional cash, the company factors without recourse Sh.24000 of account receivables with liquid finance company which charges 10% of the amount charged. [4 marks]
(ii) To obtain a one year loan of Sh.54000, the company assigns Sh.65000 of specific receivable accounts to Nairobi financial. The finance charge is 8% of the loan, the cash is received and the account is turned to Nairobi financial. [4 marks]
(iii) The company wants to maintain the allowance for doubtful accounts at 4% of gross account receivables. [4 marks]
(iv) The company wishes to increase the allowance by 1½% net sales. [4 marks]
(b) State and explain two accounting concept and principles that necessitate the creation of a provision for doubtful debts at the end of an accounting period. [5? marks]
Q.3 (a) Capital Ltd. Operates four types of equipment. Because of their varied functions, company accounting policy requires the application of four different depreciation methods. The data on these equipments are summarized in the table below.
(Assume the production for equipment 4 was 2000 hours in 2005, 4200 hours in 2006 and 3200 hours in 2007).
Equipment Date purchased
Cost Installation cost
Estimated residual value
Estimated life 1 1/12/2005 Sh.171,000 Sh.9000 Sh.18000 10 yrs 2 1/7/2005 230,025 Sh.8250 22,500 6 yrs 3 7/9/2005 191,100 Sh.15900 21,000 10 yrs 4 10/2/2005 290,700 Sh.8100 33,600 20,00 hours
The depreciation method used for each machine is double declining balance for machine 1, sum of the years digit method for 2, straight line for machine 3 and production method for machine 4.
3
The year for the company ends on every 31 December each year.
Required:
(i) The depreciation charges on each type of equipment for the period 2005, 2006 and 2007 [8 marks]
(ii) Machine 3 was sold on 1 July 2006 for Sh.90,000. Prepare the disposal account to ascertain the gain or loss made. [6? marks]
(b) Make short notes on the accounting treatment of:
(i) Patent [3½ marks]
(ii) Copyright [3½ marks]
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