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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)
a) The following information was extracted from the books of Mutego Ltd as at 1.1.010
Non- current Assets Cost Accumulated Depreciation Net Book Value Shs Shs Shs Plant and machinery 12,000,000 6,000,000 6,000,000 Motor vehicles 10,000,000 3,600,000 6,400,000 Furniture and fittings 2,000,000 750,000 1,250,000 Equipment 6,000,000 3,600,000 2,400,000 Computers 1,500,000 750,000 750,000 Buildings 20,000,000 4,000,000 16,000,000 Land 10,000,000 10,000,000
The company depreciation policy is as follows
Plant and machinery 10% straightline Buildings 4% straightline Motor vehicles 20% reducing balance basis Furniture and fittings 121 2 % straightline Equipment 20% straightline Computers sum of digits 3 years economic life.
2
Other transactions in the year 2010
On 1st July 2010, a building roof constructed at a cost of Shs 1000,000 on 2.1.06 was blown by wind to complete wreckage and was a write off. The insurance company gave to Mutego Ltd a cheque of Shs 850, 000 in compensation. On 30th September 2010, a motor vehicle bought on 2/1/2008 for Shs 3,000,000 was traded in for a new vehicle costing Shs 4,500,000 on 1/09/2007 was traded in at a value of Shs, 1,800,000. The company paid the difference by cheque. On 1st October 2010, equipment originally bought at a cost of Shs 2,000,000 on 4.1.07 were sold for Shs 1,000,000 in cash. Computers bought on 3.1.09 for Shs 600,000 were disposed off on 1.5.010, for Shs 270,000 in cash. Furniture bought on 2.1.07 at cost of Shs 300,000 was on 31st December 2010, donated to Tharaka School for the physically disabled, free of charge in line with the company policy of social responsibility. On 30th December 2010, land was valued by a firm of valuers, to a new value of Shs 12,500,000. On 1.11.2010, company bought new plant items at a cost of Shs 3,000,000
Required
a) i. Plant, property and equipment movements and balances schedule as at 31.12.2010 (10 Marks) ii. Mutego Ltd disposal account as at 31.12.10 (10 Marks) b) Highlight the differences between i. Tangible and intangible assets. (2 Marks) ii. Longterm assets and current assets (2 Marks) c) Explain six accounting concepts underlying the preparation of financial statement and accounts. (6 Marks)
QUESTION TWO (10 MARKS)
Two sisters, Makena and Kendi formed a business named Mrembo entreprises, for purposes of importing and selling beauty cosmetics locally. The following is a summary of their transactions for the first three months of trading May, June and July 2011.
3
May 2011
Bought 1200 sets of shs 3,000 per set Sold 1000 sets at shs 5,000 per set
June 2011
Bought 1800 sets of shs 4000 per set Sold 1600 sets of shs 6000 per set
July 2011
Bought 1380 sets of shs 3,850 per set Sold 1700 sets of shs 5,600 per set
Each sister calculated her gross profit made in the first three months and their figures could not agree. On investigation by Kinoti, a Meru University B.Com graduate it was discovered that Makena used FIFO (first in first out) method while Kendi used LIFO (last in first out) method .
Required
i. Trading accounts prepared by Makena and Kendi. (6 Marks) ii. In your judgement, which method is the most appropriate for the purpose of stock valuation and why? (4 Marks)
QUESTION THREE (20 MARKS)
On 1.9.2010, Nene Ltd paid Shs 20,000,000 to Nkoro brokers for a purchase of 200, shs 100,000, bonds in Kakuzi Ltd. Kakuzi bonds are couponated at 10%, 5 years, interest payable semi annually on 31st august and on 28th February. Nene Ltd closes its books of accounts on 31st December. Brokerage fees amounted to Shs 20,000.
Other transactions
On 1st May 2011, Nene Ltd sold 120, shs 100,000 Kakuzi bonds at 104% plus the accrued interest and paid Shs 40,000 and brokerage fees. On 1st August 2011, Nene Ltd sold the remaining 80, Shs 100,000 Kakuzi bonds at 102%, plus the accrued interest, paying Shs 30,000 brokerage fees.
4
Required
i. Journal entries to record Nene Ltd short term investment in Kakuzi bonds on 1.9.2010. (3 Marks) ii. Journal entries to record Nene Ltd closing of books at 31.12.2010. (3 Marks) iii. Journal entries to record Nene Ltd receipt of interest on 28.12.2011. (3 Marks) iv. Journal entries to record partial sale of short term investments in Kakuzi bonds on 1.5.2011 and on 1.8.2011 showing the gains or losses realized. (6 Marks) v. Compute the gains made upon sale of short term investments in Kakuzi bonds. (5 Marks)
QUESTION FOUR (10 MARKS)
The following information was extracted from the records of a business conglomerate in Meru Town.
Asset Cost Main activity Estimated useful Estimated of use economic life/output residue life
Shs
Nissan matatu Public transport 5 years 300,000
(motor vehicle) 1,500,000 Meru to Nairobi
Commercial building 30,000,000 Guest house 100 years 1,000,000
Mercedes Benz
(Motor vehicle) 3,000,000 office car for 5 years 100,000
C.E.O
Computers 400,000 cyber cafe 3 years 80,000
Furniture 500,000 lecture hall chairs 15 years 100,000
Posho mill 400,000 grinding maize 5 years 40,000
Flour and can generate 100,000 bags of flour
5
Required
i. Giving reasons, highlight the appropriate method of depreciation that you would recommend to Njuni Ltd, for purposes of depreciation of the asset(s) (7 Marks) ii. Highlight the reasons as to why depreciation is not provided on the asset of land as a property, and especially on the freehold land property. (3 Marks)
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