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Intermediate Accounting I 2010/2011 Academic Year Question Paper
Intermediate Accounting I 2010/2011 Academic Year
Course:Bachelor Of Commerce
Institution: Kabarak University question papers
Exam Year:2010
COURSE CODE: ACCT 211
COURSE TITLE: INTERMEDIATE ACCOUNTING I
STREAM: Y2S1
DAY: TUESDAY
TIME: 2.00 – 4.00 P.M
DATE: 14/12/2010
INSTRUCTIONS
1) This paper contains four questions
2) Answer question ONE and any other TWO questions
3) Show all the necessary workings.
4) Do not write on the question paper. You can use the last page of the
answer booklet for your rough work. Cancel the rough work.
Question one. (30 marks)
a) When preparing the financial statements the accountants are expected to use the
generally accepted accounting principles. In each of the following principles stated
below briefly explain the effect of lack of the principles on the financial reporting.
i. Money measurement principle
ii. The accounting entity principle
iii. The going concern. (6 marks)
b) While auditing the financial statements of Kamenya Ltd, you came across the following
in the financial statements.
i. The accountant did not charge amortization of an acquired long term
intangible fixed asset.
ii. The office rent totaled shs 10 million. This includes rent for space sublet to
two directors to carry out own consultancy services.
iii. There was a revaluation gain on buildings amounting to shs 5 million. This
was disclosed in the income statement.
iv. The closing stock was recognized at the cost incurred to acquire them of shs
21 million. The net realizable value at the same date was shs 19 million.
(8 marks)
c) When preparing the financial reports the accountant needs to take into consideration the
qualitative characteristics of good accounting information to make them useful.
However there are situations where conflict arises. Explain three areas where such
conflicts arise. (6 marks)
d) Explain the difference between a subsequent expenditure and initial cost of a property
plant and equipment and highlighting the three types of subsequent expenditures to be
capitalized. (6 marks)
e) Intangible fixed assets with limited economic life should be amortized. State four
factors to consider when estimating the economic life of intangible assets. (4 marks)
Question three.
a) The broad principles of accounting for tangible fixed assets involves distinguishing
between capital and revenue expenditure, measuring the cost of assets determining how Page 3 of 5
they should be depreciated and dealing with problems of subsequent measurement and
subsequent expenditure
Required.
Explain three circumstances in which finance charge on may be capitalized. (6 marks)
b) Broadoak plc has purchased an item of plant from Plantco plc in December 31st 2004. The
details of this are
shs
Basic list price of plant 240000
Trade discount given to broadoak 12.5% on the list price.
Ancillary costs:
Shipping and handling costs 2750
Pre production testing cost 12500
Maintenance contract for three years 24000
Electrical cable installation 14000
Concrete reinforcement 4500
Own labor costs 7500
Broadoak plc paid for three plant excluding ancillary costs within four weeks of order
thereby obtaining an early settlement discount of 3% .
Broadoak had incorrectly specified the power loading of the original electrical cable to be
installed by the contractor. The cost of correcting this error of 6000 is included in the above
figure of shs 14000.
Required
Calculate the initial cost of the plant should. (8 marks)
c) On January 1st 2008 ABC ltd acquired a loan of shs 10 million to construct a building. Due
to shortage of cash the company decided to use shs three million to purchase stock of goods
for resale. The balance was used in the construction. Due to shortage of raw materials
work stopped for two months. Calculate the finance charge of property plant and
equipment to be capitalized in the year. (6 marks)
Question four.
a) The following relates to Fig Tree Trading Company in the year 2007
i. Sold shs 1,000,000 worth of goods on terms 2/10 n/30 Page 4 of 5
ii. Goods worth shs 10,000 were returned by customers due to defects. The company accepted
the goods and immediately issued the customers with a credit note.
iii. Received payment for invoices for sales of shs 700,000 within discount period and
$200,000 after discount period.
iv It is estimated that at the end of the year 2007, 20% of the outstanding accounts receivable
will not be paid within the discount period.
Required
Pass journal entries to Record the transactions and draw ledger accounts dully balanced at the
end of the year using the net sales method. (8 marks)
b) The following information was extracted from the books fig tree investments for the
month of april 2008.
Receipts of goods. Quantity unit cost
1st April 20,000 15
3rd 50000 16
8th 25,000 14
15th 20,000 17
20th 35,000 18
25th 30,000 19
29th 26,000 20
Issues of goods to customers.
Quantity unit price
2nd april 15,000 25
7th 35,000 25
9th 30,000 30
16th 10,000 30
20th 25,000 25
30th 25000 25
The opening balance of stock as at 1st April 2008 was 20,000 valued at shs 15 per unit. On 30th
April the selling price of the stock was shs 25 per unit. Since the stock movement was slow,
the company decided to give a discount of shs 6 per unit to all future customers as long as the
stock last.
Required
i. Determine the value of closing stock as at 30th April 2008. (10 marks) Page 5 of 5
ii. Draw the trading account for the month of April 2008. (2 marks)
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