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Bcom211: Intermediate Accounting 1 Question Paper
Bcom211: Intermediate Accounting 1
Course:Bachelor Of Commerce
Institution: Chuka University question papers
Exam Year:2011
INSTRUCTIONS:
Answer all Questions.
Q.1 (a) Discuss the primary and secondary qualitative characteristics of accounting information in the light of statement of financial accounting concepts (SFAC) No.2 of FASB. [8 marks]
(b) Explain the need for a conceptual framework for financial accounting. [5 marks]
(c) When a company has a policy of making sales for which credit is extended, it is reasonable to expect a portion of those sales to be uncollectible. As a result of this, a company must recognize bad debt expense. There are basically two methods of recognizing bad debt expense:
(1) Direct write-off method, and (2) Allowance method
(i) Describe fully both the direct write-off method and the allowance method of recognizing bad debt expense. [4 marks]
(ii) Discuss the reasons why one of the above methods is preferable to the other and the reasons why the other method is usually not in accordance with generally accepted accounting principles. [2 marks]
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(d) The following transactions relate to Tenth Avenue Traders.
(i) Sold goods for Shs. 15,000 2/10, net 60
(ii) 60% of the receivable was collected within the 10 days discount period.
(iii) 30% was collected within the discount period.
(iv) 10% past due.
Required:
Using the Gross approach and Net approach methods, pass the necessary journal entries to record the transactions. [7 marks]
(e) Using examples, discuss the Accrual basis of accounting as an accounting concept. [4 marks]
Q.2 (a) Briefly explain the nature and purpose of accounting for depreciation. [3 marks]
(b) Identify and explain 5 indicators which show that an impairment loss to a fixed asset may have occurred as per IAS 36. [5 marks]
(c) As per IAS 16, the value attached to Property, Plant and Equipment is influenced by the mode of acquisition. On some occasion companies acquire operational assets through donation. Explain at what value and entries are made to record the transaction by the receiving company. [2 marks]
(d) Global Link Limited prepares its accounts on 30th June every year. On 1 July 2009, the company statement of financial position included the following figures for non-current assets:
Cost Accumulated depreciation Sh. ‘000’ Sh. ‘000’ Land 40,000 Nil Buildings 22,000 8,000 Plant and machinery 16,000 6,000 Motor vehicles 6,000 2,000
3
The company’s policy is to charge depreciation at the following rate:
Rate Land Nil Buildings 2% on cost Plant and machinery 15% on cost Motor vehicles 20% on cost
A proportionate charge is made in the year of purchase, sale or revaluation of an asset.
During the year ended 30 June 2010, the following transactions took place:
(i) On 1 Jan 2010 the company decided to adopt a policy of revaluing its Buildings. A professional valuer engaged for this purpose revalued the buildings at Sh. 34 million.
(ii) On 1 January a Plant that had cost Sh. 3 million was sold for Sh. 500,000. Accumulated depreciation on this Plant on 30 June 2009 amounted to Sh. 2.3 million. A new plant was then purchased at a cost of Sh.4 million.
(iii) On 1 April 2010, a new motor vehicle was purchased for Sh.300,000. Part of purchase price was settled by exchanging another motor vehicle at an agreed value of Sh.120,000. The balance of sh. 180,000 was paid in cash.
The vehicle which was given in part exchange had cost Sh. 200,000 and had a net book value of Sh.100,000 as at 30 June 2009.
Required:
Property, Plant and Equipment Movement schedule for the year ended 30 June 2010. [7 marks]
(e) On 1 March 2008 Yucca acquired a machine from Plant under the following terms:
KSh. List price of machine 820,000 Import duty 15,000 Delivery fees 20,500 Electrical installation costs 95,000 Pre-production testing 49,000 Purchase of a five year maintenance contract with plant 70,000
4
In addition to the above information Yucca was granted a trade discount of 10% on the initial list price of the asset and a settlement discount of 5% if payment for the machine was received within one months of purchase. Yucca paid for the plant on 25 March 2008.
Calculate the value at which the purchased machine will be recorded in the financial statements. [3 marks]
Q.3 (a) The following transactions relate to material XY for the month of October 2010.
Date Quantity Purchases Cost per unit Quantity Sales Price per unit
Oct 2
4500
24
3 5000 26 9 4000 30 11 6000 25 12 3000 29 16 4500 31 19 8000 26 24 5000 32 25 4000 23 30 3500 30 31 3500 31
Required:
(i) Stores ledger card for the month of October 2010 using the following methods (a) FIFO (b) LIFO (c) Weighted average
(ii) Trading account when the closing stock is valued using the FIFO method. [10 marks]
(b) Discuss when the ownership of goods in transit changes hands and what circumstances require shipped inventory to be recognized in the books of accounts. [2 marks]
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(c) IAS 38 highlights the treatment of intangible assets in the book of accounts. Giving examples discuss the recognition criteria and measurement of intangible assets. [4 marks]
(d) Explain the term financial assets and discuss its classification as per IAS 39. [4 marks]
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