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Accounting For Assets Question Paper
Accounting For Assets
Course:Bachelor Of Commerce
Institution: Kenyatta University question papers
Exam Year:2007
KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2008/2009
INSTITUTE OF OPEN LEARNING (IOL)
EXAMINATION FOR THE DEGREE OF BACHELOR OF COMMERCE
BAC 200:
ACCOUNTING FOR ASSETS
DATE: THURSDAY 13TH AUGUST 2009
TIME: 11.00 A.M – 1.00 P.M
INSTRUCTIONS:
Answer all Questions
Question One:
(a)
What is meant by the going concern principle of accounting? How does it affect the
valuation of assets and when is this principle not applicable?
(6 marks)
(b)
Explain what is meant by: The benefits of accounting information must exceed costs.
(4 marks)
Question Two
The following data pertaining to the cash transactions and bank account for Karmin Ltd for
December, year 4 are available to you.
i)
Cash balance per accounting records Dec 31, Yr 4 Sh 938,713 Credit
ii)
Cash balance per bank statement Dec 31, Yr 4 361, 362 Overdraft.
iii)
Bank
charges
for
December
3,500
iv)
Outstanding
cheques
188,200
v)
Proceeds of bank loan on Dec 31not recorded in accounting records
500,000
vi)
Direct deposit by a debtor, Rollo Ltd
15,000
vii)
Deposit of Dec 31 not recorded by bank until Jan 1
58,050
viii) Deposit on Dec 29 recorded by banks Sh 8,000; correctly in the cash book in the correct
amount
of
80,000
ix)
Cheque no. 1040 to a supplier recorded by bank as 4,000; recorded correctly in the cash
book in correct amount of
40,000
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x)
Customers cheque returned by of bank market “ Refer to Drawer” 28,300.
Required
a)
Prepare a bank reconciliation statement as 31 December year 4.
b)
Prepare journal entries to adjust the accounting records on 31 December year 4.
(15 marks)
3.
The following information relates to Ray tech Ltd.
July 1 Ray tech Ltd sold to Logistics Ltd Merchandize having a sales price of
Sh. 70,000 with terms 2/10, net 60. Ray tech records its sales and receivables
net.
July 3 Logistics Ltd returned Merchandize (which was defective) having a sales price
of sh. 7,000.
July 5 Accounts receivable of sh. 90,000 are factored with Kelly credit Ltd without
recourse at a financing charge of 10%. Cash is received for the proceeds;
collection are handled by the finance company.
July 9 Specific accounts receive able of sh. 90,000 are assigned Totex Ltd as security
for a loan of sh. 60,000 at a finance charge of 60% of the amount of the loan.
The finance company will make the collections.
Dec 29 Logistics Ltd notifies Ray tech Ltd that fit is bankrupt and will pay only 10% of
its account outstanding relating to the July 1which remains unpaid in full. The
dept is to be written off using the allowance method.
Required.
Prepare journal entries to record the above for Ray tech Ltd.
( 16 marks)
4.
Given below are three different sets of assumptions (cases0 relating to an item in
inventory.
Page 2 of 3
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Case 1
Case 2
Case 3
Cost
Sh. 12,400
Sh . 20,000
Sh. 28,000
Selling price
30,000
30,000
30,000
Cost complete and 4,000 4,000 4,000
ship to customers
Normal gross profit 25% 25% 10%
on selling price
Replacement cost
Sh. 14,000
Sh. 18,000
Sh. 26,500
Required
Compute the inventory at lower of cost or market for each case.
(15 marks)
5.
a)
What is good will
(4 marks)
b)
During 2006 Ripley Ltd spent sh. 900,000 in research and development costs.
As a result, a new product was patented at additional legal and other costs of
sh. 150,000. The patent was obtained in July 1,2006 and had a legal life of 17
years. On February 1 2007, the company spent sh.115,000 to successfully
prosecute a patent infringement.
Required
Prepare journal entries to record the transactions above.
(10 marks)
Page 3 of 3
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