Acct 421: Advanced Accounting Ii Question Paper
Acct 421: Advanced Accounting Ii
Course:Bachelor Of Commerce
Institution: Kabarak University question papers
Exam Year:2010
COURSE CODE: ACCT: 421
COURSE TITLE: ADVANCED ACCOUNTING II
STREAM: Y4S2
DAY: WEDNESDAY
TIME: 2:00 – 4:00 P.M.
DATE: 17/03/2010
INSTRUCTIONS
1. This paper comprise of FIVE questions
2. Marks of each question are indicated at the end of the question.
3. Question ONE IS COMPULSORY
4. You are required to answer ANY THREE questions
QUESTION 1
KIPI,KAPA and KEPU are partners who have been in business for a long time dealing in the
business of manufacturing. In a partner’s meeting they held recently, they resolved to turn their
business to a public limited company. They have been trading as equal partners. They have been
trading the name KIKAPU partners.
The following trial balance was extracted from the book of Kikapu partners.
Shs. “000” Shs. “000”
Land 235,420
Factory buildings 155,320
Machineries 240,130
Motor Vehicles 35,540
Furniture and fittings 246,120
Intangible assets 15,535
Stocks:
Raw materials 82,340
Work in progress 65,000
Finished goods 72,300
Debtors 235
Creditors 40,345
Bank 2,550
Cash 370
Current Account:
Kipi 12,350
Kapa 11,230
Kepu 10,130
Long term loan
capital account 119,665
Kipi 300,000
Kapa 300,000
Kepu 300,000
Provision for:
Depreciation
Factory building 5,320
Motor vehicles 40,130
Furniture and fittings 6,120
Intangible assets amortization 5,535
Bad debts 35
1,150,860 1,150,860
Notes
The partners agreed to settle the creditors and the long term loans by injecting the required money from
their private resource but Kep who could not raise the required amount requested the other two partners
to contribute half of his share. The partners also agreed that for every shilling contributed the partners
capital account would be credited with ten cent more. The partners agreed to issue to themselves and each
of their spouses one million shares par value Shs1,000 and to issue to the public 100,000 shares at a
premium of 500 Shs.
The money raised from the public issue would be used to refund the partners contributions towards the
settlement of long term loan.
Required:
Assuming that all the plans were realized, close off the books of kikapu partners and open the book of the
new company. (20 marks)
Prepare balance sheet of the new company immediately after it was formed. (10 marks)
QUESTION 2
P, S AND A are a group of companies whose accounting years end on 31 December. Their trial balance
were extracted from their books on 31 Dec 2009 and were as given below
P Ltd S Ltd A Ltd
Dr. Cr. Dr. Cr. Dr. Cr.
Tangible assets Shs. “000” Shs. “000” Shs. “000” Shs. “000” Shs. “000” Shs. “000”
PPE net of depreciation 3,450 230 120
Investment:
In S 500
In A 150
Non-tangible assets
Patents 500 450 230
Current assets
Stock as at 1 Jan 2009 120 98 85
Trade debtors 65 45 23
Bank 145 75 55
Cash 128 28 16
Current Liabilities
Bank overdraft 55 12 8
Trade creditors 85 8 6
Purchase 158 50 45
Sales 600 380 250
Return inwards 10 2 3
Return outwards 3 2 1
Operational expenses 55 7 8
Distribution expenses 25 12 6
Administrative expenses 46 13 8
Ordinary share capital 3,500 500 300
Preference share capital 224 20
Loan stock 85 20 15
Capital reserves 200 28
Profit b/f 200 40 19
Share premium 400
5,352 5,352 1010 1010 599 599
P acquired 80% of the sores of S Ltd and 40% of the shares of A ltd on 30th June 2009 and profit accrued
evenly throughout the year. The stocks as at 31st Dec 2009 were P 120, S Shs 98 and A shs 85. P sold
PPE to S Ltd whose book value was Shs 10,000 at 15,000 which was depreciated at 10% by S Ltd.
S Ltd sold goods to P Ltd worth 40,000 shillings at margin of 20% and half of the goods are still in stock.
P Ltd provide management services to S Ltd worth 2,000 shillings which is included in the debtors and
creditors of the two companies.
Required:
1. Prepare a consolidated profit and loss account for the group using equity method to account for the
associated company. (8 marks)
2. Prepare a consolidated balance sheet for the group using the equity method of accounting for
associated company. (8 marks)
3. Explain the meaning of:
(a) Control as used in ISA 27. Accounting for investments in associated. ( 2 marks)
(b) Significant influence as used in IAS 28 accounting for investments in associates. (2 marks)
QUESTION 3
a) Under what circumstance may an accounting entity be justified to department from the concept of
going concern. (2 marks)
b) What do you understand by the term acts of bankruptcy? Give four examples. ( 3 marks)
c) Mla chake has presented a petition for bankruptcy. He has presented the following. Statement
Balance sheet as at 31st December 2007
Shs Shs
Fixed assets
Land 240,000
Buildings 1,700,000
Machinery 1,300,000
Current assets
Stocks 800,000
Investments 100,000
Deptors 500,000
Cash 140,000
1,540,000
Current liabilities
Creditors 1,300,000
Accrued wages 300,000
Other paybles 1,560,000 3,160,000
Net current assets -1,620,000
Capital employed -320,000
Financed by 1,000,000
Share capital 1,000,000
Mortgage payable 1,560,000
Profit and loss -2,880,000
-320,000
Additional information has also been made available which include:
i. Cash includes a theft of 60,000shs through a brake in that has not been captured.
ii. Debtors have been used as security for creditors to an extent of 70% of relealizable value.
iii. A credit of 60,000 was netted against the debtors.
iv. Value of investment is 170,000
v. The realization of of stocks is 920,000
vi. The market value of the fixed assets is as follows:
Land 320,000
Building 2,100,000
Machinery 75,000
Vii creditors include
PAYE 160,000
VAT 300,000
The other creditors were assured by Mla Cheka that they would be paid.
Viii . A debtors of 50,000 is bad and uncollectible
Required:
a) Prepared a statement of affairs for mla Chake as at 31st December 2007. (10 marks)
b) Explain to the creditors why it is important to prepare a statement of affairs. (2.5 marks)
c) Comment on the statement of affairs prepared above. (2.5 marks)
QUESTION 4
a) Explain the following terms as used in IAS 22 accounting for business combinations.
(i) A business combination. (2 marks)
(ii) An acquisition. (2 marks)
(iii) Fair value. (2 marks)
(iv) Reverse acquitions. (2 marks)
b) As a certified public accountant, you’ve been invited to address a group of professional lawyers
doctors and architects who are up in arms against the accounting fraternity for making accounting
incomprehensible. Their concern is that they unable to relate accounting profits to cash
availability. You have identified the main culprit to be the accrual basis of accounting. Explain to
them how accrual basis of accounting affects the reported profits and how this can be reconciled
with cash. Mention the other assumptions that underline the preparation of accounting reports and
their effects on the reported profits. (4 marks)
c) Explain the following terms as used in the framework to the International Financial Reporting
Standards:
(i) Understandability. (2 marks)
(ii) Relevance. (2 marks)
(iii) Reliability. (2 marks)
(iv) Comparability. (2 marks)
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