Hbc2212:Advanced Accounting Ii Question Paper
Hbc2212:Advanced Accounting Ii
Course:Bachelor Of Commerce
Institution: Meru University Of Science And Technology question papers
Exam Year:2014
QUESITON ONE – (30 MARKS)
(a) In accordance with IAS 27, explain circumstances in which a company can achieve control with a share holding of less than 50% in the subsidiary company. (5 Marks) (b) The following is a summary of the balances in the records of Maputor Limited and its subsidiary Jitu Limited as at 31 March 2012. Maputo Ltd Jitu Ltd Sh.
Property, plant and equipment cost 250,000 220,000
7,500,000 ordinary shares in Jitu Ltd. at cost 165,000
6,000,000 preference shares in Jitu Ltd. at cost 60,000
Shs.5,000,000 6% debentures of Jitu Ltd. 5,000
Current Assets 145,500 143,400
625,500 363,400
Authorized and issued capital, fully paid 300,000 100,000
80,000
Ordinary shares of Sh.10 each 50,000 40,000
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7% non-cumulative preference shares of Sh.10 each 98,500 44,400
General reserves 60,000 30,000
Profit and loss account 20,000
Provision for depreciation 30,000 10,000
6% debentures 5,600
Proposed dividends 1,200
On ordinary shares 87,000 32,200
On preference shares 625,500 363,400
Debenture interest accrued Trade payables
You ascertain the following: 1. Maputo Limited acquired the shares of Jitu Limited, cum dividend on 31 March 1999. 2. The general reserve of Jitu Limited was the same on 31 March 1999 as on 31 March 2012. The balance on the profit and loss account of Jitu Limited is made up as follows: h. ’ Balance on 31 March 2011 28,000 Net profit for period ended 31 March 2012 32,000 60,000 (15,600) Less proposed dividends 44,400
3. The stock in trade of Jitu Limited on 31 March 2012 included Sh.6million in respect of goods purchased from Maputo Limited. These goods had been sold by Maputo Limited to Jitu Limited at such a price as to give Maputo Limited a profit of 20% on the invoice price. 4. The balance on the profit and loss account of Jitu Limited on 31 March 2011, is after providing for preference dividend of sh.5,600,000 and a proposed ordinary dividend of Sh.5,000,000 both of which were subsequently paid and credited to the profit and loss account of Maputo Limited. 5. No entries have been made in the books of Maputo Limited in respect of the debentures interest due from, or the proposed dividends of Jitu Limited for the year ended 31 March 2012.
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6. On 31 March 2012, the authorized and issued ordinary share capital of Jitu Limited had been increased by Sh.20 million by capitalizing part of the general reserve and issuing 2 million Sh.10 shares to the existing shareholders in proportion to their existing holdings. The transaction has not yet been reflected in the books of Maputo Limited or Jitu Limited. 7. Group policy to impaire goodwill on consolidation over 5 years using the straight line method.
Required: A consolidated balance sheet of Maputo and its subsidiary company Jitu Limited as at 31 March 2012. (25 Marks)
QUESTION TWO – (20 MARKS)
A creditor of Polepay Traders, a partnership owned by Peter Ole Lemsio and Patrick Ayimba, presented a petition in bankruptcy against the partnership on 1 April 2001. On 30 April 2001, the High Court made out a receiving order against the partnership and two partners.
The balance sheets of the partnership and the individual partners as at 30 April were as follows:
Assets Polepay Sh.
Lemasio
Ayimba
Liabilities Polepay
Lemasio
Ayimba
Land and building 12,450 Bank Overdraft
4,600
Houses 5,500 4,800 Creditors 27,270 670 450
Plant and equipment
14,600 Long-term loans
11,200 3,300 3,840
Furniture, etc, 650 400 Car loans 380 600
Inventory 19,600 Excess if assets over liabilities
24,000 15,900 15,500
Trade receivables 20,240
Cash 180 90 140
Investments 13,600 14,200
Motor cars 500 900
67,070 20,340 20,440 67,070 20,340 20,440
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Additional information:
1. Lemasio and Ayimba have contributed equal amounts of capital to the partnership; always draw the same amount from the partnership and share profits and losses equally. he partners’ capital included in their personal assets under the title inestments. 2. The estimated realizable values of the assets stated above are as follows: Assets Polepay Lemasio Ayimba Sh.
Land and building 8,000
Houses 4,000 3,500
Plant and Equipment 7,500
Furniture 180 100
Inventory 13,500
Trade receivables 13,100
Other investments 700 1,000
Motor cars 250 300
3. The long term loan in the books of the partnership is secured on the partnership land and buildings. The long-term loan to the individual partners are secured on the individual partner’s houses. he partnership oerdrat was secured y a second mortgage on the partnership land and building and by the personal guarantee of Ayimba and the deposit of his investments. The car loans are secured on the partners’ car indiidually. 4. Of the sectors of Polepay, Lemasio and Ayimb, preferential creditors amounted to Sh.22,000, Sh.590,000 and Sh.380,000, respectively, and represent amounts due for taxation.
Required: Prepare statements of Affairs and Deficiency or surplus accounts for the partnership anf for the individual partners, using the format laid down in the Bankruptcy Act and showing he legal position. (20 Marks)
QUESTION THREE – (20 MARKS)
(a) Define the following accounting concepts and conventions. For each explain their implication in the preparation of financial statements (i) The going concern concept (4 Marks)
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(ii) Business entity concept (4 Marks) (iii) Materiality (3 Marks) (iv) Realization (2 Marks) (b) Two accounting concepts or conventions could clash or there could be inconsistency between them. Give two examples of such situations and explain how the inconsistency should be resolved. (7 Marks)
QUESTION FOUR – (20 MARKS)
Explain the following terms as used in accounting
(a) Internal reconstruction (b) External reconstruction (c) Corporate reorganization (d) Liquidation (20 Marks)
QUESTION FIVE – MARKS)
Fukara Ltd. is insolvent and is in process of filing for relief under the provisions of Bankruptcy Act. The company has no cash and its balance sheet currently shows creditors of Sh.48 million. An additional Sh.8million is owed in connection with various expenses but these amounts have not yet been recorded. he company’s assets with an indication o oth oo alue and anticipated net realizable value as at 30 September 2011 as follows:
Expected NPV Sh. Land 80,000 75,000 Buildings 90,000 60,000 Accumulated Depreciation (38,000) - Equipment 110,000 20,000 Accumulated Depreciation (61,000) - Investments 10,000 18,000 Stocks 31,000 9,000 Debtors 5,000 - Other Assets 275,000 218,000 Other assets
Additional information:
1. Fukara Ltd. has three debentures payable, each with a difference maturity date: - Debentures on due in 5 years Sh.120 million, secured by a mortgage lien on uara’s land and uildings
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- Debenture two due in 8 years h. million secured y uara’s inestments - Debenture three due in 10 years Sh.35 million, unsecured. 2. Of the creditors owed by Fukara Ltd. Shs.10 million represents salaries to employees. However, no individual is entitled to receive more than Sh.4,000. An additional Sh.3 million is included in this liability item that is due t the Kenya Government in connection with taxes. 3. The shareholders equity balance reported by the company at the current date is Sh.42 million composed of ordinary share capital of Sh.140million and a deficit of Sh.98. million. 4. If the company is liquidated, administrative expenses of approximately Sh.20 million would be incurred. Required: A statement of affairs and deficiency or surplus account for Fukara Ltd. to indicate the expected availability of funds if the company is liquidated as at 30 September 2011. (20 Marks)
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