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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 (30 MARKS)
Njuguna Mwandawiro, carrying on a business as a trader in Likoni, Mombasa, finds himself insolvent, and on 15 August, 2011 files his petition in bankruptcy. The following balances are extracted from the books of his business on that date:
Sh. Sh.
N. Mwandawiro Capital 1,200,000 shop-land and building 4,000,000 Mortgage on shop (land and building 3,000,000 furniture and fittings 1,000,000 Loan – I.C.D.C Ltd 1,200,000 Stock and fittings 1,000,000 Loan-Barclays bank Ltd. 600,000 Stock of goods 575,100 Loan-cooperative Bank Ltd 200,000 Debtors 641,300 Loan-Paul Nkobei 100,000 Cash on hand 2,000 Loan – Mutiso Kuria 20,000 Trade creditors 1,140,000 N.H.I.F,N.S.SF. and P.A.Y.E 36,000 Salaries and wages payable 18,000 Bank overdraft 18,000 7,532,400 7,532,400
The following information is provided: 1. The trade creditors Sh. 30,000 owing to Mombasa Municipal Council I respect of rates in for 2. The amount owing for salaries and wages and statutory payroll deductions are 2011. 3. There is 210,000 interests unpaid on the mortgage as at 15 August 2011 which has not been recorded in the books.
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4. The loan from I.C.D.C Ltd is secure by a second mortgage on the shop (land and building) the unrecorded interest owing as at 15 August 2011 was sh. 96,000. 5. The loan from the co-operative bank Ltd. Was obtained when Mwandawiro pledged his wholly owned piece of land as security. The value of the piece of land is Sh. 300,000. There is no interest outstanding o his loan. 6. The interest o loan from Paul Nkobei was to vary with profits,. But since the business has been operating at a loss, there is no interest due. 7. There is no interest outstanding on the loan fro Barclays bank Ltd. 8. Mutiso Kuria is Mwandwi-in-law 9. The value of the assets is estimated to be:
Sh. Shop- Land and buildings 4,200,000 Furniture and fittings 800,000 Stock of goods 200,000 10. Of the debtors, sh. 400,000 are thought to be good and sh. 200,000 doubtful, of which Sh. 150,000 should be collectable. 11. 12. Mwandawiro has no personal creditors outside the business, but he has other personal assets, beside the piece of land, amounting to sh. 60,000, exclusive of household and personal effect.
Required: a) A statement of affairs for Njuguna Mwandawiro as at 15 August 2011 in good form. ( 15 Marks) b) A deficiency account as at that date. (8 Marks c) A profits and loss account for the period ended 15 August 2011. ( 7Marks)
QUESTION TWO (20 MARKS)
Mark Ltd. Is a company quoted on the Nairobi Stock Exchange It distribute a wide variety of household machinery including sewing machines. On 1 October 1997 it purchased shares in Alex clothing Limited. The group purchased shares in PATEL limited, a nationwide chain of retail shops dealing in casual wear on 1 April 1998. All the companies make up their accounts to 31 March each year.
The draft final accounts for the companies for the year ended 31 March 2000 are as follows:
Income statements for the year ended 31 March 2000
Mark Ltd Alex Ltd PATEL Ltd.
Sh. M Sh. M sh. M
Revenue 1,368 774 685 Cost of sales (810) (407) (335) Gross profit 558 367 330
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Distribution costs (196) (64) (78) Administration expenses (112 (73) (72) Finance cost (50) (200 0 Profit after tax 200 210 180 Income tax expense (60) (60) (50) Profit after tax (140 150 130 Proposed dividends (150) (100) (100) Retained profits retained for the year (10) 50 30 Retained profits brought forward 713 610 420 Retained profit carried forward 703 660 450
Balances sheet as at 31 March 2000 Mark Ltd Alex Ltd PATEL Ltd Non current assets 853 415 495 Property, plant and equipment 702 Investment in Alex 405 Investment in Patel Current assets 1155 820 495 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 and other payable 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
(i) On 1 October 11997 MARK Ltd acquired 16 million sh. 10 ordinary shares in ALEX clothing Ltd. For sh. 602 million when the retained profits of Alex Ltd was sh. 490 million. Mark also acquired half of the loan stock in Alex on 1 April 1999.
(ii) On 1 April 1998 Alex Ltd acquired 7.5 million sh. 10 ordinary shares in PATEL Ltd. For sh. 405 million when the retained profits of PATEL Ltd. Amounted to sh. 300 million. On this date the leasehold property had a fair value of sh. 40 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.
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(iii) In the year ended 31 2000 PATEL Ltd sold goods at a price of sh. 80 millio0n, PATEL Ltd. Had marked up these goods by 100% on cost. Alex Ltd held 50% of these goods in stock on 31 March 2000.
(iv) In the year ended 31 March 200 Alex sold MARK ltd goods at a price of sh. 90 million stock Alex ltd had marked up these goods by 80% on cost. Mark ltd held 25% of these goodsin stock on 31 March 2000.
(v) On 1 April 1999 Mark Ltd sold sewing machines to Alex Ltd for sh. 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%. Alex Ltd included the depreciation of these machines in its cost of sales.
(vi) On 31 March 200 all the inter company balances are in agreement with Alex Ltd owing Patel Ltd. Sh. 24 million and Mark Ltd owing Alex Ltd sh. 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.
(vii) 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:
The consolidated income statement for the year ended 31 March 2000 and a consolidated balance sheet as at the same date.
QUESTION THREE (20 MARKS)
Company A is considering the acquisition by shares of Company B The following information is also available the same date.
Company A Company B
Present earnings Sh. 20,000,000 5,000,000
Shares 5,000,000 2,000,000
Earnings per share sh. 4 sh. 2.50
Price/earning ratio 16 12
Price of shares sh. 64 sh. 30
Company B has agreed to an offer of sh. 35 a share to be paid in company A shares. ( 20Marks)
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QUESTION FOUR (20 MARKS)
a) According standards improve the quality and uniform 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. ( 10Marks) 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) 1. Uchumy 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 sh. 48 million. An additional sh./ 8 million is owed in connection with various expenses but these amounts have not yet value and anticipated net realizable value as at 30 September 2011 as follows:
Book Value Expected NRV
Land 80,000 75,000 Buildings 90,000 60,000 Accumulated depreciation (38,000) - Equipment 110,000 20,000 Accumulated depreciation (61,0000 - Investments 10,000 18,000 Stocks 48,000 36,000 Debtors 31,000 9,000 Other assets 5,000 - 275,000 218,000
(i) Uchumy Ltd has three debentures payable each with a difference maturity date: (ii) Debentures one due in 5 year- land and building (iii) Debenture two due in 8 years- (iv) Debenture three due in 10 year – sh. 35 million unsecured
2. Of the creditors owed by Uchumy Ltd sh. 10 million represent salaries to employees. However, no individual is entitled to receive more than sh. 4,000. An additional sh. 3 millions is included in this liability item that is due to the Kenyan government in connection with taxes.
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3. The shareholder equity balance reported by the company at the current date is sh. 42 millions; composed of ordinary share capital of sh. 140 million and a deficit of sh. 98 million. 4. If the company is liquidate, administrative expenses of approximately sh. 20 million would be incurred.
Required: A statement of affairs and deficiency or surplus account for Uchumy Ltd. To indicate the expected availability of fund if the company is liquidated as at 30 September 2011.
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