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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:2012
QUESTION ONE
(a) Differentiate between regulated and unregulated accounting information market.(6Marks) (b) Using suitable examples briefly explain the doctrin (4Marks) (c) The Balance sheet of Latex Ltd as at 31st 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 Equity shares @ 10 each 1,500,000 11% Preference shares @ 100 each 500,000 Profit & Loss a/c (1,640,000) 2,750,000
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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 debentures is waived. (c) 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 reconstruction. (15Marks)
QUESTION TWO (a) Differentiate between the purchase and the pooling of interest method of accounting for business combinations. (b) A compulsory winding up order was made on 30th November, 2003 against Kbca Ltd. lance sheet as at that date was as follows:
Non-current assets: Sh. ‘000’ Sh. ‘000’ Sh. ‘000’ Goodwill Freehold property 2,689 Plant and machinery 4,940 Shares in subsidiaries 14,620 22,249
Current assets: Stocks 19,180 Debtors 9,040 Cash in hand 20 28,240 Current liabilities Bank overdraft 22,790 Creditors 20,900 Customs and excise tax 200 Accruals 399 Debenture interest due 100 (44,389) (16,149) 6,100
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Financed by: Share capital 5,000,000 Ordinary shares of Sh. 20 10,000 Each fully paid 400,000 Ordinary shares of 5,000 Sh. 20 each Sh. 12.50 paid 15,000
Revenue reserves: Retained profits (losses) (12,900) 2,100
Non-current liability: 10% debentures 4,000 6,100
Additional information: 1. The 10% debentures are secured by a first charge on freehold property and the bank overdraft is secured by a floating charge on the assets. 2. The accruals consisted of:
Sh. ‘000’
Directors fee, 6 months to 30 November 2003. 75 Managers salary, 2 months to 30 November 2003 80 Wages of 3 workmen, 4 weeks to 30 November 2003 18 Rates half year to 30 November 2003 20 Taxes for the year to 30 November 2001 120 Miscellaneous expenses 86 399
3. A holder of 20,000 of the partly paid shares was bankrupt and it was anticipated that his trustees would be in a position to pay a dividend of 25% to his unsecured creditors.
4. -
Sh. ‘000’ Freehold property 4,480 Plant and machinery 14,000 Stocks 18,760
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5. The debtors were considered to be good except as to Sh. 520,000 of which Sh. 400,000 were doubtful and were expected to realize Sh. 110,000. The remaining Sh. 120,000 was considered bad. Goodwill was regarded as valueless.
6. Legal proceedings for breach of contract were pending against the company as at 30th November 2003. The company was considered to have a poor defence and attempts were being made to settle the claim out of court for Sh. 100,000 plus costs estimated at Sh. 80,000. No provision for this claim is included in the blance sheet.
7. The company had incurred losses of Sh. 3,040,000, Sh. 3,840,000 and 6,020,000 respectively in each of the three years ended 30th November 2003. The aggregate of the sums charged to the profit and loss accounts during the three years in respect of 600,000 and Sh. 1,800,000 respectively.
Required: (a) Statement of affairs as at 30th November 2003 (10Marks) (b) Deficiency as at 30th November 2003 (10Marks) (Total: 25Marks)
QUESTION THREE (a) Many cooperate boards have now agreed on the need to take responsibility for any done through a social responsibility report.
Required: (a) Write short notes on five issues/stakeholders that may be addressed by a (5Marks)
(b) Explain five benefits that would accrue to a company from the reporting of the (10Marks)
(c) Comparing conventional financial accounting reporting with social responsibility reporting list and explain five challenges peculiar to social responsibility accounting. (10Marks) (Total: 25Marks)
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QUESTION FOUR
(a) State briefly the arguments in favour of unregulated accounting information market. (10Marks)
(b) The following balance sheet relate to HELEX Ltd and SULEZ Ltd as at 31st December, 2012.
HELEX Ltd SULEZ Ltd Non-Current Assets Shs. Shs. Shs. Shs. Tangible Land 100,000.00 50,000.00 Buildings 150,000.00 80,000.00 Plant 80,000.00 50,000.00 330,000.00 180,000.00 Investment in SULEZ Ltd 100,000.00
Current Assets Inventory 60,000.00 40,000.00 Accounts receivables 80,000.00 50,000.00 Cash at bank 25,000.00 265,000.00 90,000.00 TOTAL ASSETS 595,000.00 270,000.00
Ordinary Shares of Shs. 1 each 200,000.00 100,000.00 Capital Reserves 100,000.00 40,000.00 Retained profits 90,000.00 50,000.00 390,000.00 190,000.00 Non-Current Liabilities 10% Loan Stock 100,000.00 20,000.00
Current Liabilities Bank Overdraft - 10,000.00 Accounts payables 80,000.00 30,000.00 Proposed dividends 25,000.00 105,000.00 20,000.00 60,000.00 595,000.00 270,000.00
Additional information (i) H Ltd acquired the investment in SULEZ on 1st January as follows: Shs. 60% Ordinary Shares 90,000.00 Loan Stock 10,000.00 100,000.00
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(ii) On the date acquisition the capital reserves of SULEZ Ltd amounted to Shs. 10,000 and retained profits amounted to Shs. 5,000. On the same date the fair values of land and buildings were Shs. 10,000 and Shs. 20,000 respectively above the carrying amounts. Although no depreciation is provided on land, buildings are depreciated at 5% p.a on cost.
(iii) Included in the inventory of HELEX Ltd are good purchased from SULEX Ltd at a selling price of cost.
(iv) Included in the plant of SULEZ Ltd is plant bought from HELEX Ltd on 01.01.2011 at a price of Shs. 20,000. HELEX Ltd reported a profit of a third on cost. The group provides depreciation on 30% on reducing balance.
(v) HELEX Ltd has not yet accounted for its share of proposed dividends in SULEZ Ltd.
(vi) Included in the accounts payable of HELEX Ltd is an amount of Shs. 25,000 due to SULEZ Ltd. This amount stood at Shs. 28,000 in the books of SULEZ Ltd. This difference was due to the following items: - Cash sent by HELEX Ltd to S Ltd of Shs. 1,000. - Goods sent to HELEX Ltd by SULEZ Ltd but Not yet received by HELEX Ltd was Shs. 1,200 - Administration fees of Shs. 800 charged by HELEX Ltd to Sulex Ltd but not yet recorded by SULEZ Ltd.
(vii) Assume that goodwill on consolidation has been impaired by 40%
Required: Prepare the consolidated balance sheet of HELEX Ltd and its subsidiary as at 31/12/2012. (15Marks)
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