Acct 421: Advanced Accounting Ii Question Paper
Acct 421: Advanced Accounting Ii
Course:Bachelor Of Commerce
Institution: Kabarak University question papers
Exam Year:2009
KABARAK UNIVERSITY EXAMINATIONS
2008/2009 ACADEMIC YEAR
FOR THE DEGREE OF BACHELOR OF COMMERCE
COURSE CODE: ACCT 421
COURSE TITLE: ADVANCED ACCOUNTING 11
STREAM: Y4S2
DAY: MONDAY
TIME: 9.00 – 11.00 A.M.
DATE: 23/03/2009
INSTRUCTIONS:
- Answer Question ONE (COMPULSORY) and any other TWO questions.
QUESTION ONE (Compulsory)
a) Define the following terms as used in preparation of consolidated financial
statements.
i) Pre acquisition profits
ii) Post acquisition profits
iii) Minority interest
iv) Vertical group structures
v) Parent (10mks)
b) G. Limited is a large manufacturing company that manufacture a wide range of
products. Due to the fluctuating nature of economic environment, the company’s
management has sought to diversify its interests by purchasing shares in other
companies in order to improve its reported performance. It has been G. Ltd’s
policy to appoint a director to the board of any company where its investment
comprises more than 20% of the equity share capital, so as to take an active role
in the management of the said company.
The following investments have been made:
§ On January 2001, 15% of the ordinary share capital of C Limited
§ On 1 July 2001, 30% of the ordinary share capital of B. Limited
§ On 1 July 2001, 75% of the ordinary share capital of T. Limited and also
5,000 of the 10,000, 9% preference shares of Sh.10 each in that company.
§ The draft profit and loss accounts of the four companies for the year ended
30 June 2002 were as shown below
G. Ltd. C. Ltd. B. Ltd. T. Ltd.
Turnover 2,100,000 3,900,000 1,900,000 1,200,000
Trading profit 250,000 400,000 210,000 126,000
Dividends receivable: 46,500 - -
296,500 400,000 210,000 -
Corporation tax: (90,000) (170,000) (85,000) (51,000)
Profit after tax: 206,500 230,000 125,000 75,000
Less: Proposed
Dividends (Preference): - (6,000) -
Ordinary shares (132,000) (100,000) (60,000) (9,000)
Retained profits: 74,500 124,000 65,000 (32,000)
Balance brought 450,000 306,000 235,000 34,000
Forward
Balance carried forward. 524,000 430,000 300,000 234,000
Additional information:
1. Included in the stock of T. Ltd were goods purchased from G. Ltd for Sh.24,000
after acquisition G. Ltd realized its usual 25% gross profit margin on this
transaction.
2. The dividend due from C. Ltd have not yet been incorporated in the draft profit
and loss account of G. Ltd.
3. There was no goodwill arising on consolidation.
Required:
The consolidated profit and loss account of G. Limited and its subsidiary for the
year ended 30 June 2002. (20mks)
QUESTION TWO
A trading company, Madeni Ltd, has experienced severe financial difficulties in recent
times and is currently insolvent. A voluntary winding up petition will soon be filed and
management is considering either liquidation or reorganization. The chief accountant has
produced the following balance sheet as if the company were a going concern.
Balance sheet as at 31 March 1999
Sh.’000’ Sh.’000’
Ordinary share capital
Retained earnings
(deficit)
Long term liabilities:
Notes payable (secured by
lien on land and buildings)
Current liabilities:
Creditors
Accrued expenses
Notes payable (secured by
stock)
100,000
(64,000)
36,000
200,000
60,000
18,000
75,000
389,000
Fixed assets:
Land
Buildings (NBV)
Equipment (NBV)
Intangible Assets
Investments in securities
Current assets:
Stocks
Debtors
Prepaid expenses
Cash and bank
100,000
110,000
80,000
15,000
15,000
41,000
23,000
3,000
2,000
389,000
Additional information:
1. The land and buildings are in a prime location and can be sold for 10% more than
their book value. But the equipment may not get a buyer unless the price is
reduced. It is expected to fetch only 40% of its current book value.
2. Administrative costs of sh.21.5 million are projected if liquidation of the company
does occur.
3. By spending sh.5 million for repairs and marketing costs, stocks currently held
can be sold for sh.50 million.
4. Accrued expenses include salaries of shs.13 million. Of this figure one executive
is owed shs.3 million but is the only employee who is owed in excess of statutory
limit. Taxes amount to shs.3 million but the company records show a liability of
shs.1 million.
5. Investments will realize shs.20 million. Accrued dividends not recorded amounts
to shs.500,000.
6. Accrued interest on loan amounts shs.5 million.
7. Debtors are estimated to be collectible for shs.12 million.
8. A refund of shs.1 million will be received from prepaid expenses but the
company’s intangible assets have no value.
Required:
Prepare a statement of affairs and a deficiency account for the company
(20mks)
QUESTION THREE
Achievers Ltd. Was incorporated on 4th May 2000 with a nominal capital of Sh.1,000,000
dividend in to 50,000 ordinary shares of Sh.20 each. On 5th May 2000, the
directors invited interested members of the public to apply for purchase of the shares at
par. The closing date for application was 15th May 2000.
Applications were received for 60,000 shares and paid in full. The allotment was made
on 20th May 2000 and the excess application monies refunded. On 26th May
2000, the directors bought furniture Shs.150,000 equipment Shs.250,000 and goods
Shs.500,000. All these were paid for the same date.
Required:
a) Ledger accounts to record the above transactions.
b) Balance sheet as at 30th May 2000. (20mks)
QUESTION FOUR
a) List and briefly explain five main acts of Bankruptcy
b) Differentiate between Merger and Acquisition modes of business combinations
c) Explain the main advantages and disadvantages of group accounts. (20mks)
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