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Caa 304: Specialized Accounting Techniques Question Paper
Caa 304: Specialized Accounting Techniques
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2009
1
UNIVERSITY EXAMINATIONS: 2008/2009
THIRD YEAR STAGE II EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CAA 304: SPECIALIZED ACCOUNTING TECHNIQUES
DATE: APRIL 2009 TIME: 2 HOURS
INSTRUCTIONS: Answer question ONE and any other TWO questions
QUESTION ONE
a) Explain the various methods of writing off hire purchase interest. (6Marks)
b) Write brief notes on
i) Hire purchase
ii) Credit sale
iii) Effects of goods repossessed on hire purchase transactions (6 Marks)
c) John commences trading on January 1 2008 selling television sets and washing machines both
for cash and on hire purchase. Hire purchase sales are made on the basis of a 20% deposit with
the balance to be paid in four quarterly installments. The first installment is payable at the
beginning of the next calendar quarter following the sale. The hire purchase agreements
provide that any person wishing to do so may complete the purchase by paying off the balance
due when the second installment is made, thereby obtaining 5% refund of the initial hire
purchase price.
2
The following information is extracted from John’s books for the year ended December 31,
2008.
(Sh.000)
Cash sales 6274
Purchases 8700
Hire purchase Installment received
Including complete payments 638
Hire purchase deposits received 648
Cash from the sale of goods returned 100
Sale under hire purchase agreement for the year were:
At cost (Sh.000) At hire Purchase (Sh. 000)
February 160 250
April 300 430
June 175 280
July 460 700
September 240 370
November 380 560
December 420 650
Included in these were:
1. April sales of Sh. 150,000 (cost Sh. 110,000) were returned from hire in
September after only one installment had been paid in July, and were sold
finally in October for Sh. 200,000 cash.
2. June sales of Sh. 200,000 (cost Sh. 130,000) were paid for completely in
October.
3. July sales of Shs. 250,000 (cost Sh. 180,000) were returned in November,
no installments having been paid and having valued for stock shs. 140,000.
At December 31 2008, stock excluding goods returned from hire was valued at Shs.
1,760,000.
Required
a) Hire purchase trading account
b) General trading account
c) Hire purchase sales ledger control account
(18 Marks)
(Total 30 Marks)
3
QUESTION TWO
The following extract was obtained from the accounting records of Kamau Ltd at 30 June 2008.
Shs.
Share capital
Authorized:
440 000 ordinary no par value shares
240 000 15% redeemable preference shares of
Sh1.00 each 240 000
Issued:
360 000 ordinary no par value shares at Sh.2.00 each 720 000
Preference share premium 48 000
240 000 15% redeemable preference shares of
Sh. 1.00 each 240 000
Accumulated profits 192 000
Non-current assets (Property, plant and equipment) 800 000
Cash and cash equivalents 400 500
The 15% redeemable preference shares are redeemable on 20 July 2008 at a premium of Sh. 0.20 per
share.
Additional information:
On 1 July 2002 the directors resolved to redeem the preference shares on 20 July 2008 by issuing 80
000 ordinary shares at Sh. 3.00 each.
Required
a) Show the necessary journal entries to record the redemption of the preference shares
(10 Marks)
b) Prepare the balance sheet of Kamau Ltd at 31 July 2008 after recording the redemption. (Only
use the information provided). (10 Marks)
(Total 20 Marks)
QUESTION THREE
a) Discuss the main purposes of the following accounts
i) Container Stock Account
ii) Container Suspense Account (4 Marks)
b) On 31 St January 2007, the premises of ABC Ltd were destroyed by a fire as a result of which
stock was also burnt and the business of the company was disorganized until May 31, 2007.
4
The company’s insurance policy covers the following:-
Sh.
Stock 450 000
Building 600 000
Loss of profit (including standing charges) 200 000
Period of indemnity: six months
The summarized Profit and Loss Account for the year ended 31st December 2006 is as follows:
Sh. Sh.
Turnover 1 500 000
Less: Cost of sales
Opening stock 309 375
Purchases 1 359 375
1 668 750
Less: closing stock 393 750 1 275 000
Gross profit 225 000
Less:
Standing charges (insured) 125 625
Variable expenses 60 000 185 625
Net profit 39 375
The transactions for the month of January 2007 were as under:-
Sh.
Turnover 75 000
Payments to creditors 80 010
Trade creditors:
Balance as on January 1, 2007 113 000
Balance as on January 31, 2007 115 490
Stock salvaged 5940
The reduction in turnover during the period of dislocation amounted to Sh. 135 000 as compared with
the turnover of period corresponding to the previous period.
Building was worth Sh. 750 000 on the date of fire and three quarters of its value was lost by fire.
Required:
Compute the insurance claim for loss of stock, loss of building and loss of profit. (16 Marks)
(Total 20 Marks)
5
QUESTION FOUR
a) Define contract in the context of IAS II and discuss the main problems of contract accounting
(6 Marks)
b) Eagle Construction Company Ltd. won the contract for building Mbaraka Industrial College
at a cost of Shs. 120 million. For the company’s financial year ended 31st March 2008, the
data relating to the contract were as follows:
Shs. (000)
Material issued to the site 21 500
Cost of Labour engaged on contract 3 600
Plant purchased and installed 18 000
Direct expenditure 4 800
General Management Charges 1 750
Material returned to the store 2 500
Work Certified 25 000
Cost of Work not Certified 7 000
Stock of materials on site 21.3.2008 2 000
Wages accrued 31.3.2008 300
Valued of plant on 31.3.2008 12 000
The company has received from the College, payments amounting to Sh. 20 million.
Required:
a) Prepare the Contract Account
b) Prepare the Contractee’s Account.
c) Compute the contract profit to be taken to the company’s profit and Loss
Account. Explain with reasons why you have used the computation method you
have adopted. (4 Marks)
(Total 20 Marks)
6
QUESTION FIVE
a) Define royalty and discuss the important terms used in royalty account. (8 Marks)
b) ABC Ltd. Of Mombasa sent 1,000 cases of medicines to XYZ Ltd. Of Dar-es-Salaam at Sh.
1,000 per case. Expenses on the consignment incurred by the consignor amounted to Sh.
30,000. XYZ Ltd were working as del credere agents. Their ordinary commission was 5% and
del credere commission 7.5% XYZ Ltd. Paid by cheque Sh. 200, 000 as an advance to ABC
Ltd immediately on receipt of the consignment.
After six months, an “account sales” was received by ABC Ltd. Giving the following
information:-
i) Sale proceeds of 750 cases Sh. 1,200,000.
ii) Stock of unsold goods in hand 250 cases.
iii) Commission charged at agreed rates of 5% and 7.5% del credere.
iv) Consignee’s expenses amount to Sh. 50, 000
v) A bill of exchange was sent by XYZ Ltd, for the amount due to ABC Ltd. Along with
the account sales. This bill was discounted immediately by ABC Ltd. For Sh. 780, 000
Assuming that ABC Ltd. Have to close their books on the receipt of above account sales, show the
following entries:-
a) Ledger accounts in the books of ABC Ltd. (6 Marks)
b) Consignor’s account in the books of XYZ Ltd. (6 Marks)
(Total 20 Marks)
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