Advanced Accounting Ii Question Paper
Advanced Accounting Ii
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2010
UNIVERSITY EXAMINATIONS: 2010/2011
THIRD YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
CAA 302-A: ADVANCED ACCOUNTING II (DAY AND EVENING)
DATE: DECEMBER 2010 TIME: 2 HOURS
INSTRUCTIONS: Answer ALL questions
QUESTION ONE
The following are extracts from the financial Statements of Duck Ltd. as at 31st October 2010.
Duck Ltd
Statement of financial position as at 31st October
2010 2009
Non –current assets Sh M Sh M
Property, plant and equipment 1,620 1,160
Financial assets 50 100
Current assets
Inventories 740 610
Trade receivables 1,010 940
Investment in treasury bills - 150
Cash and cash equivalents - 180
3420 3140
Equity
Share capital 500 400
2
Share premium 140 100
Revaluation reserve 550 300
Retained earnings 480 800
Non-current liabilities
Long-term loans 900 930
Current liabilities
Trade payables 660 500
Current income tax - 110
Bank overdraft 190 -
3,420 3140
Income statement for the year ended 31st October 2010
Sh. ’Million’
Sales
Cost of sales
Gross profit
Operating expenses
Operating profit
Interest income
Interest expense
Loss before tax
Income tax expense
Loss after tax
3550
(1800)
1750
(1550)
200
180
(700)
(320)
-
(320)
The following additional information is also available
i) Freehold property which was valued at Ksh. 500,000 on 31st October 2009 was revalued at Ksh.
750,000 on 31st October 2010.
ii) Plant and equipment with an original cost of Ksh. 120,000 and accumulated depreciation of Ksh.
80,000 was sold in March 2010 for Ksh. 30,000.
iii) One half of the financial assets were sold for Ksh. 70,000 in July 2010.
iv) The investments in treasury bills were sold for Ksh. 150,000 in July 2010. These investments
ranked as cash equivalents as defined by IAS 7.
3
Required:
i) Statement of cash flow for Duck Ltd. for the year to 31st October 2010 in accordance with the
requirement of IAS 7 using the direct Method (14 marks)
ii) Prepare a reconciliation between operating profit and operating cash flows (6 marks)
QUESTION TWO
a) How do the needs of employees for financial information compare with those of investors?
(5 marks)
b) Explain the limitation of financial statements presented by historical cost accounting basis.
(5 Marks)
c) Uchumi Ltd., a public limited liability company, has an authorized share capital of Sh.2,000
million composed of 300 million ordinary shares of Sh.5 par value and 25 million 10% convertible
preference share of Sh.20 par value. On 1 January 2007, the company had in issue 100 million
ordinary shares and 20 million 10% convertible preference shares. All the issued shares are fully
paid. The following transactions took place in the two years ended 31st October 2010
1. On 1st March 2010, the company made a right issue of three shares for every five
ordinary shares of Sh.5 par value held at Sh.7.5 each in full payment. The market price
per ordinary share on this day was Sh.10.
2. On 1st July 2010, the company issued 24 million ordinary shares of Sh.5 each at a fair
value of Sh.12 per share in settlement of the purchase consideration on the acquisition
of machinery.
Required
Compute the basic earning per share for the year ended 31st October 2010 (10 Marks)
QUESTION THREE
a) Corporate social reporting is becoming a key pillar to financial reporting. Identify and discuss areas
in which a business could fulfill its corporate social responsibility and indicate the disclosure
requirements. (8 Marks)
b) The following information has been extracted from the financial statements of Delight Ltd. for the
year ended 30th September 2010.
4
Sh.
‘million’
Sales revenue
Cost of sales
Distribution cost
Central administration
Amortisation and impairment of intangible assets
Finance costs
Dividends
Intangible assets
Tangible non-current assets
Current assets
Current liabilities
Non current interest bearing borrowings
9000
6340
870
370
200
220
500
600
5200
1600
900
3200
Additional information:
1. The activities of Delight Ltd. relate to three operating segments: Voice calls, Internet and
Money transfer. Information relating to each of the segments consistent to internal
reporting is as follows:
Voice calls
Sh ‘M’
Internet
Sh ‘M’
Money transfer
Sh ‘M’
Total Sales revenue
Retail mass market
Corporate services
Intersegment sales
Tangible non-current assets
Intangible assets
Current assets
Current liabilities
Non current liabilities
2800
1200
200
2400
-
700
400
55%
3000
-
400
1800
40%
600
200
45%
500
1500
-
1000
60%
300
300
-
5
2. Inter segment sales comprises of Sh 200 million and Sh 400 Million by voicecalls and
Internet segments respectively to money transfers. Unrealised profit in respect to
intersegment sales amount to Sh 25 million.
3. Cost of sales and distribution expenses are allocated to each segment in proportion to sales
to external customers while administrative cost is allocated based on proportion of tangible
non-current assets.
Required:
Segment report for Delight Ltd. for the year ended 30th September 2010 in accordance with the
requirements of IFRS 8 (Operating Segment). (7 marks)
QUESTION FOUR
Firm Ltd has been adversely affected by competition from cheap imports leading to massive trading
losses. Recently the directors realized that the company was in financial difficulties and called a
creditors meeting on 30th June 2010. The statement of financial position on that date is as shown
below:
Non-current assets Ksh. M Ksh M
Land and buildings (cost) 2,680
Plant and machinery (book value) 1,880
4,560
Current assets
Inventories 480
Accounts receivables 520
Current liabilities
Accounts payable (4,120)
Bank overdraft (680) (3,800)
760
Financed by:
Sh.20 ordinary shares 1,000
Retained profit (720)
280
10% Medium–term Loan Notes 480
760
6
The court approved a scheme of re-organization submitted by the medium-term loan notes holders and
agreed upon by other interested parties to take effect on 1 July 2010 as follows:
1. The nominal value of ordinary shares to be reduced to Ksh 2.00 each. The current shareholders
to subscribe for 2 shares for every one Ksh 2 ordinary share held at a price of Ksh 3.50 payable
in full on application.
2. The medium-term loan note holders to take over freehold property (book value Ksh 200
million) at a valuation of Ksh 240 million in part repayment of their holding and to provide
additional cash capital of Ksh 260 million secured by a floating charge on the company’s assets
at an interest rate of Sh.12% per annum.
3. Inventories to be written by Ksh 85 million, Ksh 51.7 million to be provided for bad debts,
plant and machinery to be valued at Ksh 1,600 million and the remaining freehold properties to
be revalued at Ksh 2,578 million.
4. The trade creditors to be paid Ksh 0.10 in every shilling to maintain and obtain an extension of
the credit period.
Required
a) Journal entries to record the capital reconstruction (9 Marks)
b) Capital reconstruction account (6 Marks)
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