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Hba2301:Financial Reporting Question Paper
Hba2301:Financial Reporting
Course:Bachelor Of Commerce
Institution: Meru University Of Science And Technology question papers
Exam Year:2012
QUESTION ONE (30MARKS)
Five years ago, Sumsang Ltd. leased a patent for the manufacture of a gadget used in mobile phones form Zeky Ltd.
The lease agreement provided for payment of royalty at the rate of Sh.50 per gadget sold with a minimum royalty of Sh.250,000 per annum. Royalties were payable on 15 March, following the end of the financial year on 31 December. Short working arising in any year were recoverable within the following two years of operations.
Sumsang Ltd. sub-leased the patent to Apple com Ltd. A royalty of Sh.60 per gadget produced with a minimum rent of payment of royalties at the end of each financial year on 31 December.
Given below is information about the number of gadgets produced by both companies in the first five years of operations.
Year Ended 31 December
Sumsang Ltd. Apple com Lt.
Production (units) Sales (units) Production (units) Sales (units)
2008 1,800 1,600 800 500
2009 2,500 2,600 1,100 1,200
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2010 3,500 3,600 3,000 2,500
2011 4,200 4,000 3,900 4,200
2012 6,000 5,000 4,200 4,000
Required
The accounts listed below in the books of Sumsang Ltd.
(a) Royalty expenses (payable) account for the five years ended 31 December 2012. (6 Marks) (b) Zeky (landlord) account for the five years ended 31 December 2012. (5 Marks) (c) Short workings recoverable account for the five years ended 31 December 2012. (4 Marks) (d) Royalty income (receivable) account for the five years ended 31 December 2012. (5 Marks) (e) Short workings allowable account for the five years ended 31 December 2012. (6 Marks)
QUESTION TWO (20 MARKS)
ABC Ltd purchases gas cookers at Sh.3,500 each and sells them through consigners at Sh.5,000 each. Each consignee is entitled to a commission of 5% on sales from consigned goods and full recovery from sales made of any expenses incurred on the consigned goods.
The following transactions took place between ABC Ltd and XYZ Ltd, a consignee, during the three month period ended 30th June 2011:
1. ABC Ltd sent 200 gas cookers to XYZ Ltd and incurred the following costs: Packing – Sh.16,000 Insurance – Sh.30,000 Transport – Sh.42,000 2. On receipt of the cookers, XYZ Ltd, incurred Sh12,00 on unpacking and preparing the cookers for sale. 3. XYZ Ltd, sold 160 cookers and incurred carriage out costs of Sh.18,000. Other incurred by XYZ in the period included casual wages Sh.15,000 advertising expenses Sh.5,000 and storage cost Sh.12,000. 4. Some customers returned gas cookers to XYZ Ltd, after experiencing gas leakage, XYZ Ltd spent Sh10,000 to repair the cookers.
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5. In order to sell 40 cookers, they were all fitted with additional safety gadgets at a total cost of Sh12,000 which was paid by XYZ Ltd. 6. XYZ Ltd sold 30 of the cookers fiited with the additional safety gadgets at Sh.6,000 each. 7. XYZ Ltd sent ABC Ltd and account sales on 30 June 2011 enclosing a cheque for sh.800,000.
Required; The accounts listed below in the books of ABC Ltd, for the three month period ended 30 June 2011 (a) Goods sent on consignment account. (6 Marks) (b) XYZ Ltd account (6 Marks) (c) Profit and loss account for the three month period ended 30 June 2011. (4 Marks)
QUESTION THREE (20 MARKS)
Moo purchases on 1 January 2010, two vehicles from Nee on hire purchase system. The cash price was payable as Sh240,000 down for each vehicle, and the balance in three equal installments together with interest at 10% per annum. The amount of the last installment was Sh.704,000. Depreciation was to be provided at 20% per annum on reducing balances. Moo paid the two installments on 31 December 2010 and 31 December 2011 but could not pay the installment due on 31 Dec 2012.
Nee repossessed one vehicle, adjusting its value against the amount due. The repossession was done on the basis of 25% depreciation on original cost method. Nee spent Sh100,000 to recondition the vehicle for resale. Proceeds upon resale were Sh620,000
Required:
Show the necessary entries in the books of both parties. (20 Marks)
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QUESTION FOUR (20 MARKS)
Muthoni, Njeri and Wangeci are in partnership sharing profits and losses in ratio the 2:1:1. The balance sheet of the firm as at 30 April 1989 was a follows:
Shs Shs Shs Shs
Capital Accounts Fixed assets
Muthoni 360,000 Land and building at cost
540,000
Njeri 180,000 Furniture and fitting 90,000
Wangeci 180,000 720,000 Les: Depreciation 30,960 59,040
599,040
Current liabilities Current assets
Bank overdraft 11,700 Stock 144,000
Creditors 49,500 61,200 Debtors 38,160 182,160
781,200 781,200
ON 30th April 1989, it was agreed to dissolve the partnership and as Njeri is continuing in business on her own account she agrees to take over the furniture and fittings, stocks and debtors at valuations of Shs.54,000, Shs.180,000 and Sh.36,900 respectively. She also agrees to acquire the land and building at a cost of Sh.965,000 and obtains a bank loan of Sh.700,000 which is paid to the partnership. The balance owing by Njeri is charged against Muthoni’s capital account as the two parties have agreed that Njeri will repay the loan to Muthoni over a period of twenty four months at an interest rate if 15% p.a. Realization expenses amounting to Sh.10,700 are paid in cash and the creditors of the firm are paid in full.
Required:
Prepare the ledger accounts of the partnership in order to close off the books as at 30 April 1989. (20 Marks)
QUESTION FIVE (20 MARKS)
During the year ended 31 December 1998, Nyumba Investments Ltd purchased and sold investments as follows:
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(i) 31st March – purchased 10,000 5% debentures of £100 each of Absbestors Ltd as 97, brokerage and stamp duty amounting to £25,600. Interest is payable on the debentures on 1st July and 1st January. (ii) 1st May – purchased 10,000 6% cumulative preference shares of £100 each of Bricks Ltd at 95, brokerage and stamp duty being £24,200. Dividends are payable on 30th June and 31st December. (iii) 1st July – sold £600,000 debentures of Asbestors Ltd at 99 less brokerage and stamp duty, which came to £3,600. (iv) 1st October – purchased a further 4,000 6% cumulative preference shares of £100 each of Bricks Ltd at 90, brokerage and stamp duty being £8,600.
Required Write up the ledger accounts of the two investments for the year 1998. (20 Marks)
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