Hbc2115:Intermediate Accounting I Question Paper
Hbc2115:Intermediate Accounting I
Course:Bachelor Of Commerce
Institution: Meru University Of Science And Technology question papers
Exam Year:2011
QUESTION ONE – (30 MARKS)
On 1.1.10, the assets of Mariara Ltd were as follows:
Assets Original Accumulated Net book Value Cost Depreciation Shs000 Shs000 Shs000
Freehold land 20,000 - 20,000 Buildings 35,000 14,000 21,000 Plant and Machinery 87,540 33,820 53,720 Vehicles 64,700 21,100 43,600 Furniture and fittings 12,500 3,200 9,300 Bank 10,000
Straightline rates of depreciation on cost, used to date were 10 % p.a, for plant and machinery, 20% for vehicles, 12½ for furniture and 2% for buildings.
Other transactions as at 31.12.10
(i) Freehold land and buildings were revalued during the year at Sh42.5m and 57million respectively. (ii) An item of machinery bought on 1.1.2006 for Sh10.5million is now recognized to have a useful life of 20 years. (iii)A vehicle bought on 1.6.08 for Sh8.5m was traded is at a value of 6.4m on 1.10.10 in part exchange for a new vehicle costing Sh14million. Difference paid by cheque.
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(iv) Included with the furniture and fittings is an item which originally cost1.5million and which is already depreciated fully and is not expected to realize anything upon dismissal. (v) A vehicle which was bought on 1.3.2008 for Sh2,200,000 was involved in an accident on 1.11.2010 and became a complete write-off. The insurance company paid Shs1,200,000 in compensation by cheque. Another vehicle bought on 1.5.08 for 4m was disposed for Shs2.5m in cash on1.4.10 (vi) On 31st July 2010, Mariara Ltd bought an item of plant for Shs5,000,000 by cheque. (vii) Furniture bought on 1.5.07 for Sh3m was donated to Kaaga School for mentally disabled on 1.9.10
REQUIRED (a) (i) Schedule of plant assets movements and balances suitable for inclusion in the oman’s ublished accounts. (10 Marks) (ii)Disposal account for the year 2010. (5 Marks) (b) Explain why (i) Enterprises do not provided depreciation to freehold land. (2 Marks) (ii) Straightline method of determining depreciation is the most commonly used method worldwide. (4 Marks) (iii)Critically, highlight four accounting concepts or factors fundamental to preparation of accounts and financial statements. (4 Marks)
QUESTION TWO – (10 MARKS)
(a) Product development costs are material costs and usually capitalized as intangible assets. (i) Highlight the conceptual issues involved in defining and classifying product development costs as assets. (2 Marks) (ii) Explain the meaning of good will and why the accountants are very reluctant to retain organization generated goodwill in the books of accounts. (2 Marks) (b) The following transactions relate to Tenko Ltd for the month of June 2011.
Date Item Units and Cost (Shs) 2.6.11 Opening stock 100 units @50 4.6.11 Sales 80 units @80 11.6.11 Purchases 150 units @60 13.6.11 Sales 120 units @90 20.6.11 Purchases 160 units @70 27.6.11 Sales 100 units @95
Operating cost amounted to Shs12,000 during the month of June 2011. Tenko Ltd used FIFO to value stocks.
REQUIRED (i) Determine the value of closing stock. (3 Marks) (ii) Net profit for the month. (3 Marks)
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QUESTION THREE – (20 MARKS)
(a) Nyaga Ltd acquired a motor vehicle on 2.1.11, at an agreed price of Sh1,500,000 to be paid on 2nd January 2012. The market rate of interest is 12%.
Required: Journal entries to record the above transaction in the books of Nyaga Ltd on 2.1.11. (5 Marks) (b) On 1.9.2010, Nyaga Ltd placed an order with Mugi brokers to purchase 100, shares Shs1,000,000 bonds in Timau Orchards. Timau Orchards bonds have face amount of 100million, 12% interest payable half yearly on 30.6 and 30.12 and are dated 1.7.2010
Mugi brokers purchased the bonds on 1.9.2010 at 102% plus accrued interest, and paid brokerage fees of Sh0.2 million. On 2.1.11, Nyaga Ltd sold 60, Shs1,000,000 bonds at 103.5 plus accrued interest and paid 0.06million as brokerage fees.
On 1st July 2011, Nyaga Ltd sold the remaining bonds at 104% plus accrued interest paying a brokerage fees of Shs0.04m. The company financial year ends on 31st August.
REQUIRED (i) Journal entries to record investment in Timau Orchards bonds in the books of Nyaga Ltd. (5 Marks) (ii) Journal entries to record receipt of interest on 30.12.10 and on 30.6.11. (3 Marks) (iii)Journal entries to record sale of the above short term investments in Timau Orchards bonds, showing gains or losses realized. (7 Marks)
QUESTION FOUR – (10 MARKS)
On 2.1.2006, Nene Ltd acquired a machine for Shs770,000. The Machine had an estimated salvage value of Sh50,000 and an economic useful life of 5 years, and can operate for 100,000 runs before replacement, machine operations for the 5 years were as follows
Year Runs
2006 20,000
2007 25,000
2008 15,000
2009 30,000
2010 10,000 Nene Ltd closes its books on 31st December for each trading period.
(a) Compute the annual depreciation charge, using: (i) Rate of usage (activity) method
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(ii) Sum of the years digits method (4 Marks) (iii)Which is the most suitable method of depreciating the machine under these circumstances and why (2 Marks)
(b) Critically, differentiate between amortization and depreciation. (2 Marks) (c) Highlight two conceptual merits for providing depreciation on non-current assets. (2 Marks)
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