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Hbc2204:Bankruptcy Accounts Question Paper
Hbc2204:Bankruptcy Accounts
Course:Bachelor Of Commerce
Institution: Meru University Of Science And Technology question papers
Exam Year:2014
QUESTION ONE (30MARKS)
(a) Distinguish between statement of affairs and deficiency account. (4 Marks) (b) On 31st December 2013, the balance sheet of Rehema and Suleiman firm was as follows:
Liabilities Shs. Assets Sh
Trade Creditors 20900 Machinery 24000
Bills payable 30000 Building 12000
Bank 18000 Stock 37200
Twelve months rent 1200 Book debts 24000
One month’s Salome Cash 1200
Capital Shs.
Rehema 15100
Suleiman 12000 27100
98400 98 400
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Rehema owed personally Ksh.10000 and he had in addition to the interest in the firm, a house which cost Ksh6000, furniture Ksh2400 and life policies on which he had paid premiums amounting to Ksh1200.
Suleiman owed Ksh1880 privately. He had furniture costing Ksh1200 and a life policy on which Ksh3600 has been paid as premium. The bank held deeds of Rehema’s property and his life policies. It became necessary to call the creditors together. The partnership assets were valued as follows:
Machinery, Ksh13080, buildings Ksh6000, (bank debts, good) Ksh12000, Doubtful Ksh6000 (estimated to realise 60%) and bad, Ksh6000, stock Sh.20000.
The firm had in its premises goods belonging to another firm and which were lying for a fairly long time. The book value of such goods was Ksh7000, the official revenues estimated those at Ksh4000.
Rehema’s property was considered to be worth Ksh6000, his life policies Ksh600 and his furniture Ksh1800. Suleiman’s life policies were worth Ksh1800 and his furniture Ksh600.
Required:
Prepare various statement of affairs and deficiency accounts. (20 Marks)
(c) Analyse the points that you should consider before preparing a statement of affairs. (6 Marks)
QUESTION TWO (20 MARKS)
(a) Discuss the concept of company’s winding up. (3 Marks) (b) Analyze the grounds that make company management to make a decision of winding up. (9 Marks) (c) The following information is given to you Balance sheet of Kamau Ltd as at 31 December, 2013
Liabilities Shs. Assets Sh
Share capital Land and buildings 100000
- 2000 14% preference share of Ksh.100, fully paid up
200000 Machinery and plant 250000
- 1000 equity shares of Ksh100 each, Ksh75 paid
75000 Patents 40000
- 3000 equity shares of Ksh100 each Ksh60 paid
180000 Stock at cost 55000
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14% debentures having a floating charge on all assets
100000 Sundry debtors 110000
Interest outstanding 14000 Cash at bank 75500
Creditors 145000 Profit and loss account 83500
714,000 714,000
The company went into liquidation on the above date. The preference dividends were in arrear for two years. The arrears are payable automatically on liquidation. Creditors include a loan for Ksh50,000 on the mortgage of land and building. The assets were realized on follows Ksh Land and building 120000 Machinery and plant 200000 Patents 30000 Stock 60000 Sundry debtors 80000
The expenses of liquidation amounted to Ksh10900. The liquidation is entitled to a commission of 3% on al assets realized except cash and a commission of 2% on amount distributed among unsecured creditors. Preferential creditors amount to Ksh15000. Assume the payment was made on 30th June 2013.
Required: Prepare the liquidator’ statement of account. (8 Marks)
QUESTION THREE (20 MARKS)
(a) Explain the concept of goodwill. (2 Marks) (b) Some business may enjoy better profits or even profitability than other firms in the industry. Discuss five functions that may contribute to this. (10 Marks) (c) The following information relates to Nchiru Company for the year ended 31st December 2013. (i) Company reported a profit of Ksh117,600,000 after paying income tax at 30%. (ii) It was found that the year’s income included Ksh9,000,000 for a claim lodged in 2011 – 2010 for which no entry had been passed then.
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(iii) As far as trading conditions are concerned 2012 – 2013 was a normal year. The company expects to launch as new product and estimates in this respect are as follows; Sh Sole 100,000,000 Expenditure on raw materials, wages etc 45,000,000 Shares of fixed expenses (including on expected increase of…) 35,000,000
Required: Give an estimate of furniture maintainable profit (8 Marks)
QUESTION FOUR (20 MARKS) The following is a balance sheet of Maua Ltd a at 31st December 2013
Liabilities Assets 20,000 equity shares of Shs.100 2000000 Goodwill 50000 Profit prior to incorporation 25000 Land and buildings 150000 12% debentures 500000 Plant and machinery 300000 Outstanding debentures interest 120000 Furniture 80000 Bank loans 55000 Stock 350000 Trade creditors 300000 Debtors 60000 Cash at bank 10000 Preliminary expenses 20000 _______ Profit and loss account 1980000 3000000 3000000
The following schemes of reconstruction is expected:
(i) Equity shares are reduced to K5 per share. They are, then, consolidated into 10,000, equity shares of Ksh10 each. (ii) Debentures holders agree to forego outstanding debenture interest. As a compensation 12% Debentures are converted up to 14% debentures, the amount remaining Ksh500,000 (iii) The trade creditors are given the options to either accept 50% of their claim in cash in full settlement or to convert their claims into equity of Ksh10 each. Creditors for Ksh200,000 opt for shares in satisfaction of their claims. (iv) To make payment to trade creditors opting for cash payment, to repay back loan and to aligment working capital, the company issues ksh. 50,000 equity shares of ksh. 10 each at par, the entire amount being payable along with applications. The issue was fully subscribed.
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(v) Land and buildings are revalued at Ksh225000 whereas plant and machinery is to be written down to Ksh185,000. A provision amounting to Ksh5000 is to be made for doubtful debt.
Required: (a) Pass journal entries (6 Marks) (b) Prepare reconstruction account (5 Marks) (c) Redraft this company’s balance sheet immediately after the reconstruction. (9 Marks)
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