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Shb2105:Advanced Accounting Question Paper
Shb2105:Advanced Accounting
Course:Bachelor Of Commerce
Institution: Meru University Of Science And Technology question papers
Exam Year:2011
QUESTION ONE – (30 MARKS) a) New Steel Limited obtained a lease from Old Coal Limited for a coal mine on 1st January 2009 on the following terms and conditions: Royalty at Shs.1 per tone raised Minimum rent Shs.24,000 per annum Recoupment of shortworkings of each year during three following subject to a maximum of Shs.5,000 per annum In the event of strike, the minimum rent would be taken pro rata on the basis of actual working days but in the event of lock out, the lessee would enjoy a concession in respect of minimum rent for 50% of the period of lockout.
Besides the above, New Steel Limited have been granted a cash subsidy equal to 25% of the unrecoupable shortworkings by the Central Government up to the first five years of the lease.
Workings up to the first six years are as follows:
Shs.
2009 Actual Royalty 14,000
2010 Actual Royalty 20,400
2011 Actual Royalty 32,200
2
2012 Actual Royalty 27,200
2013 Actual Royalty 21,600 (Strike 2 months)
2014 Actual Royalty 19,400 (Lockout for 4 months)
Required;
Show the ledger accounts in the books of New Steel Limited and Old Coal Ltd (20 Marks)
QUESTION TWO (20 MARKS)
A of Nairobi sends a consignment of sewing machines to B of Nakuru and charges pro-forma invoice price so as to show a profit of 25% on cost. The agent receives commission at 5% on all sales plus 3% del credere on all credit sales. The stock of goods with the agent at the beginning of year was 40 machines at an invoice price of Shs.10,000. During the year ended 31st December 2008, A had the following transactions with B:
Pro-forma invoice price of 200 machines consigned to B was Shs.50,000 Freight and Insurance paid by A was Shs.1,400 Advance received from B Shs.15,000 Sales made by B: - 80 machines for cash = Shs.21,500 Discounts allowed = Shs.1,000 30 machines were damaged on railway for which B was compensated Shs.2,700. B later sold the machines for Shs.2,300 Out of the machines sold, Shs.2,000 was considered as a bad debt by the agent The agent remitted the balance due from him by bank draft a) Required: Show the entries in the books of A and B (20 Marks)
QUESTION THREE (20 MARKS)
a) What is the basic principle involved in accounting for Hire Purchase Transactions? Describe how that principle is accommodated by two of the accounting methods commonly used to account for Hire Purchase Transactions. (5 marks) b) Neilson Electronics commenced business on 1st April 2003, selling television sets both on a cash basis and by installments. Installment sales required a deposit of one third of the cash selling price with the balance payable in 18 equal monthly instalments. No additional charge is made for this service. At the end of each financial year, the firm takes credit for the profit on instalments actually received. The following transactions took place during the two years ended 31st March 2005:
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2004 2005
Shs. Shs.
Cash sales 32,022 43,770
Instalments Sales 282,978 397,980
New TV sets purchased 231,000 250,379
Cash collections on instalment contracts:
Initial deposit 94,326 132,660
Monthly instalments-2004 sales 64,413 92,079
-2005 sales 83,940 Stocks at 31st March:
New sets at cost 54,600 72,015
Required: i) Prepare trading accounts in respect of cash sales for each of the years ended 31st March 2004 and 31st March 2005 (8 Marks) ii) Show the gross profit on installment sales for each of the years ending 31st March 204 and 31st March 2005 (7 Marks)
QUESTION FOUR (20 MARKS) During the year ended 31st December 2008, Nyumba Investments Limited purchased and sold investments as follows:
31st March – purchased 10,000 5% debentures of Shs.100 each of Asbestors Limited at 97, brokerage and stamp duty amounting to Shs.25,600. Interest is payable on the debentures on 1st July and 1st January. 1st May – purchased 10,000 6% cumulative preference shares of Shs.100 each of Bricks Limited at 95, brokerage and stamp duty being Shs.24,200. Dividends are payable on 30th June and 31st December. 1st July – sold Shs.600,000 debentures of Asbestors Limited at 99 less brokerage and stamp duty, which came to Shs.3,600
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1st October – purchased a further 4,000 6% cumulative preference shares of Shs.100 each of Bricks Limited at 90, brokerage and stamp duty being Shs.8,600.
Required: Write up the ledger accounts of the two investments for the year 2008. (20 Marks)
QUESTION FIVE (20 MARKS) Kijiko and Sahani, who prepare their accounts annually to 30th September are partners in retail business sharing profits and losses in the ratio of 3:2 respectively. On 31st March 2003, Kijiko retired and Mwiko was admitted as a partner, profits and losses from that date being shared between Sahani and Mwiko in the ratio 2:1 respectively. For the purpose goodwill is maintained in the books, adjusting entries for the transactions between the partners being made in their current accounts.
Interest on fixed capitals is allowed at 6% per annum but no interest is charged or allowed on current accounts. The amount due to a retiring partner is payable as to Shs.250,000 on retirement, the balance being payable in five equal annual instalments commencing on the first anniversary of his retirement. The amount due to retiring partner attracts interest at the rate of 8% per annum. The trial balance of the partnership as at 30th September 2003 was as follows:
Leasehold premises (bought on 1st October 2002) 800
Purchases 2,040 Motor vehicles at cost (30th September 2002) 420 Provision for depreciations-motor vehicles(30th September 2002) 180
Balance at bank 148
Salaries 640 Stock (30th September 2002) 510 Sales (Shs.1,393,300 for six months to 31st March 2003) 3,800
Cash paid to Kijiko 250
Debtors 80
5
Creditors 360
Professional charges 54
Wages 380
Rates and lighting 168
General expenses(Shs.172,000 for six months to 31 March 2003) 410
Cash introduced by Mwiko 400
Capital accounts - Kijiko 500
-Sahani 300
Current accounts -Kijiko 220
-Sahani _____ 260
6,080 6,080
Additional information: 1. It was agreed that of the Shs.400,000 introduced into the firm by Mwiko on 1st April 2003, Shs.100,000 should form his fixed capital, the balance being credited to his current account. 2. The stock as at 30th September 2003 was valued at Shs.560,000 3. Provision is to be made for depreciation on motor vehicles and shop fittings at the rates of 20% per annum and 10% per annum respectively on cost at the end of the year. 4. A motor vehicle which had cost Shs.120,000 and on which depreciation of Shs.48,000 had been provided, was taken over by Kijiko on his retirement at its down value. 5. The following drawings by partners are included in salaries:
Kijiko 60
Sahani 40
Mwiko 20
6. As at 30th September 2003, rates paid in advance amounted to Shs.22,000 and provision of Shs.8,000 for general expenses was required.
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7. A difference in the books of accounts of Shs.10,000 had been written off at 30th September 2003 to general expenses but had later been found to be due to an undercast of similar amount in the purchases journal. 8. Professional charges include Shs.20,000 paid in respect of the acquisition of the leasehold premises. The total cost of the lease is to be written off over a period of 50 years.
Required; a) The trading and profit and loss account for the year ended 30th September 2003, (Gross profit is to be apportioned on the basis of turnover. Unless otherwise indicated, expenses are to be apportioned on a time basis). (10 Marks) b) The partnth September 2003. (10 Marks)
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