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:2011
QUESTION ONE (30 MARKS)
a. Mwenda Pole has been hired as an accountant for Bidii Enterprises. His boss has told International Accounting Standards. Mwenda Pole thinks this is a waste of his time since he has to revisit the standards which he has since forgotten. Explain to Mwenda Pole the advantages and disadvantages that he is likely to encounter by applying the standards. (10 Marks) b. Differentiate between the purchase method and the pooling of interest method of accounting for business combinations. (4 Marks) c. st January 2011 by assuming responsibility for all its liabilities and paying KSH.90, 000 CASH. The current values two companies immediately before the combination are as follows:
2
Sh. Sh.
Assets
Cash 110,000 20,000
Account Receivable 70,000 23,000
Inventory 100,000 32,000
Land 200,000 30,000
Buildings and Equipment 500,000 1990,000
Accumulated depreciation (280,000) (45,000)
700,000 250,000
Liabilities and Equity:
Liabilities 300,000 190,000
Common stock 300,000 40,000
Retained Earnings 100,000 20,000
700,000 250,000
The following assets held by Smith Co had higher current values than the book values:
Book Value Current Value
Inventory 32,000 34,000
Land 30,000 42,000
Building & Equipment 145,000 151,000 Show the entries for the acquisition and the combined balance sheets as at 1st January 2011 using the purchase method. (16 Marks)
QUESTION TWO (20 MARKS)
Rain Ltd, Storm Ltd. And Thunder Ltd are in the business of manufacturing tents. Their balance sheets as at 30 September 2011 were as below:
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Rain Ltd Storm Ltd Thunder Ltd
Non-current asset:
(Net of depreciation) 14,000 6,300 1,700
Shares in subsidiaries 5,000 1,900 -
19,000 8,200 1,700
Current assets
Inventory 2,000 1, 200 1,600
Trade payables 4,800 2,000 800
Cash 2,700 1,400 1,100
9,500 4,600 3,500
Current liabilities:
Trade payable -5,000 -2,600 -1,800
Net current assets 4,500 2,000 1,700
23,500 10,200 3,400
Financed by:
Authorized and issued
Share capital
Ordinary shares of sh.100
Each fully paid 15,000 5,000 2,000
10% preference shares of
Sh.100 each fully paid - 3,000 -
General reserve 6,000 3,000 1,000
Retained profits 2,5000 -800 400
23,500 10,200 3,400
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Additional information:
a. Rain Ltd. Purchased 30,000 ordinary shares in Storm Ldt. On October 2009 for sh.l 3,400,000 and 5,000 preference shares on 1 October 2010 for sh.600, 000. On 1 October 2010, Rain Ltd. Purchased 5,000 ordinary shares in Thunder Ltd for sh.1,000,000 Storm Ltd .purchased 11,000 ordinary shares in Thunder Ltd. For sh.1, 900,000 on the same date. b. Balances are as given below:
Profit and loss account
Storm Ltd 1-Oct-09 sh.500, 000 (debit)
1-Oct-10 sh. 600.000(debit)
Thunder Ltd 1-Oct-10 sh.300, 000(debit)
General reserve
Storm Ltd 1-Oct-09 sh.1, 000,000
1-Oct-10 sh. 2,000,000
Thunder Ltd 10-Oct-10 0
c. The following inter-company balances are included in the balances of trade debtors and trade creditors:
Receivables Rain Ltd sh. 600,000 due from Thunder Ltd
Thunder Ltd sh.300, 000 due from Rain Ltd
Storm Ltd sh. 200,000 due from Thunder Ltd
d. On 30 September 2011, thunder Ltd. Remitted sh.200,000 to Rain Ltd. Which was not received until 3 October .There were no other inter-company balances. e. Rain Ltd. Sold goods to Storm Ltd. For sh.800.000. The goods had originally cost Rain Ltd. sh.600, 000 Storm Ltd. Still has sh.200, 000 worthy of these goods (at invoiced price) in stock as at 30 September, 2011.
REQUIRED:
Prepare the consolidated balance sheets of Rain Ltd. And its subsidiaries as at 30 September 2011. (20 Marks)
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QUESTION THREE (20 MARKS) a. The following is the Balance sheet of Unfortunate Ltd as at 31st December 2010
Sh.
Assets:
Land & Buildings 200,000
Plant & Machinery 500,000
Patents 80,000
Stock 110,000
Debtors 220,000
Bank 60,000
1,170,00
Liabilities & Equity
5% Debentures (floating) 200,000
Interest payable on
Debentures 10,000
Creditors 290,000
Share Capital@100 each 510,000
6% Preference Shares@100 each 400,000
Profit & Loss a/c (240,000)
1,170,000
On the date the company went into liquidation, the dividends on preference shares were in arrears for two years. The arrears ar articles. Creditors include a mortgage loan on land and buildings of sh. 100,000. The assets are realized as follows:
Land & Building 240,000
Plant & Machinery 400,000
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Patents 60,000
Stock 120,000
Debtors 160,000
The expenses of liquidation amounted to sh.21, 800. The liquidator is entitled to a commission of 3% on all assets realized except bank balance and a commission of 2% on amounts distributed to unsecured creditors. Preferential creditors amount to sh. 30,000. All payments were made on 30th June 2011.
Required:
(10 Marks)
QUESTION FOUR (20 MARKS)
The balance sheet of PKL as at 32st March 2011
Fixed Assets at cost 2,000,000
Less: Accumulated depreciation 1,500,000
Net Book Value 500,000
Stock 600,000
Receivables 1,450,000
Other current assets 200,000
2,750,000
Liabilities & Equity
Secured Loans
11% debentures 500,000
Interest accrued and due on debentures 110,000
Bank overdraft 630,000
Unsecured Loans 500,000
Interest accrued and due 150,000 650,000
Current Liabilities 500,000
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Equity shares @10 each 1,500,000
11% Preference shares@100 each 500,000
Profit & Loss a/c (1,640,000)
2,750,000
A scheme of reconstruction has been agreed amongst the shareholders and creditors with the following features:
a. Interest due on unsecured loans is waived b. 50% of the interest due on debenture s is waived c. converted into 15% debentures of sh.100 each d. Current liabilities would be reduced by sh.50,000 on account of provision no longer required e. The banks agree to the arrangement and to increase the overdraft limits by sh.100,000 upon the shareholders agreeing to bring in a similar amount by new equity f. In addition to (e) above, the equity shareholders agree to convert the existing equity shares into new sh.10 of total value of sh.500,000 g. The debit balance in the P&L a/c is to be wiped out, sh.260, 000 provided for doubtful debts and the value of fixed assets increased by sh.400, 000.
Required:
Redraft the Balance Sheet of the company based on this reconstruction (10 Marks)
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