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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:2013
QUESTION ONE (30 MARKS)
a) With an aid of diagrams, explain the main forms of multi company structures (10 marks) b) G. Limited is a large manufacturing company that manufacture a wide range of products. sought to diversify its interests by purchasing shares in other companies in order to ctor to the board of any company where its investment comprises more than 20% of the equity share capital, so as to take an active in the management of the said company. The following investment have been made: On January 2001, 15% of the ordinary share capital of C Limited. On 1st July 2001, 30% of the ordinary share capital of B Limited On 1st July 2001, 75% of the ordinary share capital of T. Limited and also 5,000 of the 10,000, 9% preference shares of Shs.10 each in that company. The draft profit and loss accounts of the four companies for the year ended 30th June 2002 were as shown below:
G. Ltd C. Ltd B. Ltd T. Ltd Turnover 2,100,000 3,900,000 1,900,000 1,200,000 Trading profit 250,000 400,000 210,000 126,000 Dividends receivable: 46,500 - - - 296,500 400,000 210,000 - Corporation tax (90,000) (170,000) (85,000) (51,000) Profit after tax 206,500 230,000 125,000 75,000 Less: Proposed dividends (preference) - (6,000) - (9,000) Ordinary shares (132,000) (100,000) (60,000) (32,000) Retained profits 74,500 124,000 65,000 34,000
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Balance brought forward 450,000 306,000 235,000 200,000 Balance carried down 524,000 430,000 300,000 234,000
Additional information:
1. Included in the stock of T. Ltd, were goods purchased from G. Ltd for Shs.24,000 after acquisition. G. Ltd realized its usual 25% gross profit margin on this transaction. 2. The dividend due from C. Ltd, have not yet been incorporated in the draft profit and loss account of G. Ltd. 3. There was no goodwill arising on consolidation.
Required:
i) The consolidated profit and loss account of G. Ltd and its subsidiary for the year ended 30th June 2002. (20 marks)
QUESTION TWO (20 MARKS)
MARK Limited is a company quoted on the Nairobi Stock Exchange. It distributes a wide variety of household machinery including sewing machines. On 1st October 1997 it purchased shares in ALEX clothing Limited. The group purchased shares in PATEL limited, a nation wide chain of retail shops dealing in casual wear on 1st April 1998. All the companies make up their accounts to 31st March each year. The draft final accounts for the three companies for the year ended 31st March 2000, are as follows: Income statements for the year ended 31st March 2000
MARK Ltd (Shs.m)
ALEX Ltd (Shs.m)
PATEL Ltd (Shs.m) Revenue 1,368 774 685 Cost of sales (810) (407) (355) Gross profit 558 367 330 Distribution costs (196) (64) (78) Administration expenses (112) (73) (72) Finance cost (50) (20) 0 Profit before tax 200 210 180 Income tax expense (60) (60) (50) Profit after tax 140 150 130 Proposed dividends (150) (100) (100) Retained profits for the year (10) 50 30 Retained profits brought forward 713 610 420 Retained profits carried forward 703 660 450
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Balance sheet as at 31st March 2000:
MARK Ltd (Shs.m)
ALEX Ltd (Shs.m)
PATEL Ltd (Shs.m) Non Current assets Property, plant and equipment 853 415 495 Investment in ALEX 702 - - Investment in PATEL - 405 - 1,555 820 495 Current Assets Inventory 368 200 190 Trade Receivables 380 230 240 Cash at Bank 120 115 91 Total assets 2,423 1,365 1,016 Ordinary Share capital 900 200 100 Retained profits 703 660 450 Shareholders funds 1,603 860 550 Non Current liabilities 10% loan stock 500 200 0 Current Liabilities: Trade & Other payables 140 175 346 Current tax 30 30 20 Proposed Dividends 150 100 100 Total Equity and Liabilities 2,423 1,365 1,016
The following additional information is available: 1. On 1st October 1997, MARK Ltd, acquired 16 million Shs.10 ordinary shares in ALEX clothing Ltd. For Shs.602 million when the retained profits of ALEX Ltd was Shs.490 millioin. MARK also acquired half of the loan stock in ALEX on 1st April 1999. 2. On 1st April 1998, LEX Ltd acquired 7.5 million Shs.10 ordinary shares in PATEL Ltd for Shs.405 million when the retained profits of PATEL Ltd amounted to Shs.300 million in excess of the book value and 10 years remaining on the lease. Depreciation charge on the book value of the lease is included as part of administration expenses. 3. In the year ended 31st Mach 2000, PATEL Ltd sold goods at a price of Shs.80 million. PATEL Ltd had marked up these goods by 100% on cost. ALEX Ltd held 50% of these goods in stock on 31st March 2000. 4. On 1st April 1999, MARK Ltd sold sewing machines to ALEX Ltd for Ssh.150 million. ALEX Ltd included these machines in its PPE and charges depreciation of 20% on cost. MARK Ltd had marked up these items at 50% on cost. ALEX Ltd includes the depreciation of these machines in its cost of sales.
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5. On 31st March 20000 all the inter company balances are in agreement with ALEX Ltd owing PATEL Ltd Shs.24 million and MARK Ltd owing ALEX Ltd Shs.18 million. Meanwhile the group had not yet paid the interest due on the respective loan stocks, the balances included in the trade and other payables. 6. In the current year the management feels that half of the goodwill has been impaired. This impairment loss is to be charged as a separate item in the income statement.
Required: a) The consolidated income statement for the year ended 31st March 2000 and a consolidated balance sheet as at the same date. (20 marks)
QUESTION THREE (20 MARKS) Mutembei carrying out a business as a trader in Nairobi finds himself insolvent and on 15th March 2001, files his own petition in bankruptcy. The following balances are extracted from the books of his business on that date:
Shs. Shs. Capital 180,000 Shop, land & Buildings 600,000 Mortgage on shop-land & building 450,000 Furniture & fittings 150,000 Loan ICDC 180,000 Stock of goods 81,405 Loan- Barclays Bank 90,000 Debtors 96,195 Loan Co operative Society 30,000 Mutembei drawings 197,100 Loan A. Kariuki 15,000 Cash in hand 300 Loan W. Kuria 3,000 Trade Creditors 171,000 Salaries, wages payable 2,700 NHIF, NSSF, PAYE 540 Bank Overdraft 2,760 ________ 1,125,000 1,125,000
The following additional information is available:
1. Trade creditors include Shs.4,500 owing to Nairobi City Council in respect of rates for the current period and a small loan from his friend Macharia Shs.1,500. 2. The amount owing for salaries, wages and payroll deductions are for 2001. 3. There is Shs.31,500 interest unpaid on the mortgage as at 15th March 2001, which has not been recorded in books. 4. The loan from ICDC is secured by a second mortgage on the shop, land and building. The unrecorded interest owing as at 15th March 2001 is Shs.14,400. 5. The loan from Co-operative Society was obtained when Mutembei pledged his wholly owned farm as security. The farm is valued at Shs.45,000. There is no interest outstanding on his loan. 6. The interest on the loan from A. Kariuki was to vary with profits, but since the business has been operating at loss, there is no interest due. 7. There is no interest outstanding on the loan from Barclays Bank.
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8. W. Kuria is Mutembeiother in law. 9. The net realisable values of the assets are estimated to be:
Shs. Shop, land and building 630,000 Furniture & Fittings 120,000 Stock of goods 30,000 10. Of the debtors, Shs.60,000 are thought to be good and Shs.30,000 doubtful of which Shs.22,500 should be collectable. 11. uncle died recently and he will be receiving Shs.7,500 as an inheritance. 12. Mutembei has no personal creditors outside the business but he has other personal assets as well as the small piece of land amounting to Shs.9,000 exclusive of household and personal effects
Required: a) A statement of affairs for Mutembei as at 15th March 2001 in good form. (12 marks) b) A deficiency account. (8 marks)
QUESTION FOUR (20 MARKS)
a) Accounting standards improve the quality and uniformity of reporting and introduce a definitive approach to the concept of what is true and fair. List the main advantages and disadvantages of accounting standards. (10 marks) b) A decision was recently made by the council of the Institute of Certified Public Accountants of Kenya (ICPAK) to shift to the International Accounting Standards and to phase out Kenyan Accounting Standards. What reasons have persuaded the council to make this change and what benefits are likely to accrue to the accounting profession? (10 marks)
QUESTION FIVE (20 MARKS)
Fukara Ltd is insolvent and is in process of filing for relief under the provisions of the Bankruptcy Act. The company has no cash and its balance sheet currently shows creditors of Shs.48 million. An additional Shs.8 million is owed in connection with various expenses but these amounts have not yet been recorded. The comp assets with an indication of both book value and anticipated net realizable value as at 30th September 2011 as follows:
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Book Value hs.’000’
Expected NRV hs.’000’ 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 48,000 36,000 Debtors 31,000 9,000 Other Assets 5,000 - 275,000 218,000
Additional information:
1. Fukara Ltd has three debentures payable, each with a difference maturity date: Debentures one due in 5 years Shs.120 million, secured by a mortgage lien on Debentures two due in 8 years Shs.30 millio Debenture three due in 10 years Shs.35 million, unsecured. 2. Of the creditors owed by Fukara Limited, Shs.10 million represent salaries to employees. However, no individual is entitled to receive more than Ssh.4,000. An additional Shs.3 million is included in this liability item that is due to the Kenya Government in connection with taxes. 3. The shareholders equity balance reported by the company at the current date is Shs.42 million: composed of ordinary share capital of Shs.140 million and a deficit of Shs.98 million. 4. If the company is liquidated, administrative expenses of approximately Shs.20 million would be incurred.
Required:
a) 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 30th September 2011. (20 marks)
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