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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:2014
QUESITON ONE – (30 MARKS)
(a) Mewa Ltd prepares its financial statements according to IFRS. At the beginning of its 2013 fiscal year, the company purchased equipment for Shs.1000,000. The equipment is expected to have a five-year useful useful life with no residual values, so depreciation for 2013 is Shs.200,000. At the end of year, Mewa chooses to revalue the equipment as permitted by IAS No.16. Assuming that the fair value of the equipment at year-end is Shs.840,000 (i) Shows entries to record depreciation and the revaluation for Mewa Ltd. (5 Marks) (ii) Describe the provision of IAS 16 with regard to revaluation of Assets. (5 Marks) (b) Distinguish the following terms: (i) Depreciation and amortization (ii) Tangible assets and intangible asset (iii) Long-term investment and investment property (iv) Value in use and fair market value (v) Real assets and financial assets (10 Marks) (c) Discuss five accounting concepts and conventions underlying the preparation of accounts and financial statements. (10 Marks)
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QUESTION TWO – (20 MARKS)
On July 1, 2013, Mavuko Industries issued Shs.7000,000 of 12% bonds, dated July 1. Interest of Shs.420,000 is payable semi-annually on June 30 and December 31. The bonds mature in three years. The market yield for bonds of similar risk and maturity is 14%. The entire bond issue was purchased by Ngano group ltd.
Required
(i) Calculate the price of the bond. (6 Marks) (ii) Show journal entries to record the investment in the books of Ngano group Ltd and receipt of interest income in each of the six periods using the effective interest. (10 Marks) (iii)Explain why investments in shares and bonds is very low among Kenyans especially with university graduates. (4 Marks)
QUESTION THREE – (20 MARKS)
On January 1, 2013, Kapa Ltd. leased a copier from Dene Ltd. Dene Ltd purchased the equipment from Compuera Ltd at a cost of Shs.958,158. The lease agreement specifies rental payments to be made December 31 of each lease year. The six-year lease term is equal to the estimated useful life of the copier. The interest rate is 12%.
Required:
(i) Show accounting/ journal entries to record the above transaction in the books of Kappa Ltd (Lessor) and Dene Ltd lessee limit the entries to the first two initial payments by lessee and receipts by the lessor including the initial entry to recognize the transaction in both the lessor and lessees books. (9 Marks) (ii) Prepare a lease amortization schedule for the transactions. (5 Marks) (iii) Describe the essential conditions for a finance lease. (6 Marks)
QUESTION FOUR – (20 MARKS)
Banda Ltd began 2013 with Sh.220,000 of inventory. The cost of beginning inventory is composed of 4,000 units purchased for Shs.55.00 each. Merchandise transactions during 2013 were as follows:
Purchases Date of Purchase Units Unit Cost* Total Cost (Sh)
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Jan 17 1,000 60.00 60,000 Mar. 22 3,000 70.00 210,000 Oct. 15 3,000 75.00 225,000 Totals 7,000 495,000
*Includes purchase price and cost of freight
Sales Date of Sale Units Selling price per unit shs Jan.10 2,000 100 Apri.15 1,500 115 Nov.20 3,000 120 Totals 6,500
a) Using both LIFO and FIFO calculate the cost of goods sold and value of the closing stock as at 31st Dec, 2013. Also determine the Gross profit. (12 Marks)
(a) What inventories are excluded under the scope of IAS 2. (4 Marks) (b) Explain why net realisable value may under certain circumstances be lower than cost of the same stocks. (4 Marks)
QUESTION FIVE – (20 MARKS)
(a) Explain the following terms as described under the IAS (i) Impairment review (ii) Financial instrument (iii) Investment property (iv) Qualifying asset (8 Marks) (b) On 31st December 2012, the bank column of Hano showed a debit balance of Shs.90,000. The monthly bank statement written up to 31st December 2012 showed a credit balance of Shs.177,000. On checking the cashbook with the bank statement it was discovered that the following transactions had not been entered in the cash book. (i) Dividends of Shs.14,400 had been paid directly to the bank (ii) A credit transfer for VAT refund of Shs15,600 had been collected by the bank (iii) Bank charges Shs.1,800 (iv) A direct debit of Shs.4,200 for the club subscription had been paid by the bank (v) A standing order of Shs.12,000 for Hano loan repayment had been paid by the bank (vi) Hano deposit account of Shs.42,000 was transferred into his bank’s current account.
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A further check revealed the following items:
1. Two cheques drawn in favour of FED Shs.30,000 and FAKI Shs.17,400 had been entered in the cashbook but had not been presented for payment. 2. Cash and cheques amounting to Shs.41,400 had been paid into the bank on 31st December 2012 but were not credited by the bank until 2nd January 2013.
Required: (i) Corrected cash book. (6 Marks) (ii) Bank reconciliation statement as on 31st December 2005. (5 Marks)
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