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Accounting For Assets Question Paper
Accounting For Assets
Course:Bachelor Of Commerce
Institution: Kenyatta University question papers
Exam Year:2009
KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2008/2009
SECOND SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
BAC 200:
ACCOUNTING FOR ASSETS
DATE:
MONDAY 17TH AUGUST 2009
TIME: 8.00 A.M. – 10.00 A.M.
INSTRUCTIONS
Answer ALL Questions.
1.
a)
What is the function and primary focus of financial accounting?
(4 marks)
b)
Discuss the terms relevance and reliability as they relate to financial
accounting
information.
(6
marks)
2.
The bank statement of Pebbles company Ltd showed a balance of sh. 1,226,902 as at
31st December 2008 while the cashbook showed a balance of Sh.817,882. An
examination of the cashbook and bank statement revealed the following.
i)
There were bank service charges of sh. 6,000 for the month of December.
ii)
Interest of sh. 2,000 on treasury bonds held by the bank in December for
Pebbles Company was collected by the bank in December for Pebbles but is
not yet recorded by Pebbles.
iii)
A deposit of Sh. 36,800 was mailed on 31st December but does not appear on
the bank statement.
iv)
Cheques outstanding on 31st December 2008 totalled sh. 452,320.
v)
A cheque issued by Bebbles Company Ltd in the amount of Sh. 17,500
accompanied the bank statement and was incorrectly charged to Pebbles
Company.
vi)
A cheque of sh. 44,000 issued by the company had been erroneously recorded
by the bank as sh. 4,000.
Page 1 of 4
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vii)
A receipt of sh. 10,000 from a debtor was entered as sh.1,000 in the cashbook.
viii) A cheque of sh. 210,000 to a creditor was recorded as sh. 200,000 in the cash
book.
ix)
A cheque of sh. 24,000 from Mr. Kanini, a debtor, accompanied the bank
statement and was marked “Refer to Drawer”.
Required:
a)
Prepare a bank reconciliation as at 31st December 2008.
b)
Prepare journal entries to update the cashbook.
(15 marks)
3.
The balance sheet of united merchants Ltd at December 2007 includes the
following:
Notes
receivable
sh.
104,000
Less: Notes receivable discounted
32,000
72,000
Accounts
receivable
364,200
Less: Allowance for doubtful accounts
36,000 328,200
Transactions in 2008 include the following
i)
Notes receivable discounted at 31st December 2007 matured and were
paid with the exception of a sh. 5,000 note for which the company had
to pay sh. 5,100 which included sh. 100 of interest and protest fees.
Recovery is expected in 2008. (Use Notes Receivable past due
account).
ii)
Cash collected on accounts receivable totaled sh. 250,000 including
accounts of Sh. 40,000 on which 2% sales discount were allowed.
iii)
Sh. 14,800 was received in payment of an account which was written
off the books as worthless in 2006.
iv)
Customer accounts of sh. 29,500 were written off during the year.
v)
At year end the allowance for Doubtful Accounts was estimated to
need a balance of Sh. 45,000. This is based on an analysis of aged
accounts receivable.
Required:
Prepare
all
journal
entries necessary to reflect the transactions above.
Page 2 of 4
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(15 marks)
4.
a)
Carson Ltd lost most of its inventory in a fire in December just before the
physical inventory was taken. Company records disclosed the following:
Inventory
(beginning)
sh.
80,000
Purchases
280,000
Purchase
returns
28,000
Sales
415,000
Sales
returns
21,000
Gross profit % based on selling price
30%
Merchandise with a selling price of Sh. 30,000 remained undamaged after the
fire, and damaged merchandise had a salvage value of sh. 7,150.
Required:
Compute the estimated loss of inventory.
(10 marks)
b)
The following information relates to Tramp Company ltd.
Date
Purchases
Sales
(Issues)
Balance
1.1.08
Bal b/d 2,000 @ sh. 20
2,000
5.1.08
10,000 @
sh.
22
12,000
9.1.08
6,000
6,000
15.1.08
8,000
@
24
14,000
20.1.08 2,000
12,000
24.1.08 4,000
8,000
26.1.08 6,000
2,000
31.1.08 10,000
@
23
12,000
Page 3 of 4
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Required:
Compute the cost of goods sold during the month of January and the ending
inventory as at 31st January using
i)
Periodic LIFO inventory system
ii)
Perpetual FIFO inventory system
iii)
Perpetual LIFO inventory system
(12 marks)
5.
Best Travel Ltd purchased a motorcycle on 1st January 2008 whose details are shown
below.
Price
sh.
214,500
Credit
terms
2/10,
n/30
Freight in costs
sh. 3,390
Testing
costs
Sh.
11,400
Fuel cost during the year
sh.
21,000
The motorcycle has a useful life of 8 years after which it can be sold for sh. 7,200.
The invoice for the motorcycle was paid on 7th January 2008.
Required:
Compute depreciation expense for the year 2008 using the following methods.
i)
Straightline method
ii)
Sum of years digits
iii)
Double
declining
balance.
(8
marks)
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