KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2008/2009
SECOND SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR
OF COMMERCE
BAC 200:
ACCOUNTING FOR ASSETS
DATE: Monday, 7th September, 2009
TIME: 8.00 a.m. – 10.00 a.m.
INSTRUCTIONS:
Answer ALL questions.
1.
Describe briefly what is meant by the following characteristics of accounting
information.
a)
Understandability
b)
Relevance
c)
Reliability
d)
Comparability
e)
Consistency
(10 marks)
2.
The bank statement of Avery Ltd showed a balance of Sh.1,002,130 as at 30th
June 2009 while the cashbook showed a balance of Sh.765,300. An examination
of the cashbook and the bank statement and other records revealed the following:-
i)
There were bank service charges of Sh.3,500 for the month of June.
ii)
A deposit of Sh.45,500 through the ATM on 30th June did not appear in
the bank statement.
iii)
A debtor, Mr. Kamau, had deposited Sh.146,000 in the company’s account
but had not informed the company.
iv)
Cheques outstanding on 30th June 2009 totalled Sh.245,230.
v)
A deposit of Sh.238,400 by Avenue Ltd had erroneously been credited to
Avery’s account.
vi)
A cheques of Sh.322,000 issued by the company had been recorded as
Sh.32,200 in the cashbook. The bank had recorded it in the correct
amount of Sh.322,000.
vii)
A cheques of Sh.54,000 from a debtor accompanied the bank statement
and was marked “Refer to Drawer”
Required:
a)
Prepare a bank reconciliation statement as at 30th June 2009.
b)
Prepare journal entries to update the cashbook
(15 marks)
3.
On March 1 2008 Kopa Ltd assigned a group of its accounts receivable totaling
Sh.1,400,000 to Premier Bank as collateral for a Sh.1,000,000
Note.
Kopa
continued to make collections of the accounts receivable and the debtors were not
notified of the assignment.
Premier Bank assessed a finance charge of 1% of the
accounts receivable assigned and interest on the note of 12% p.a. Settlement is
made monthly for all cash collected on the assigned receivables.
In March
Sh.880,000 of assigned accounts receivable less cash discounts of Sh.12,000 were
collected. In addition sales returns of Sh.28,000 were received.
In April the
balance of assigned accounts was collected less Sh.4,000 written off as
uncollectible.
Required:
Prepare journal entries to record the assignment, collections, remittances and
write off.
(18 marks)
4.
Determine the ending inventory of Lumber Ltd from the following data using the
conventional retail approach (approximation of cover of average cost and market)
Cost
Retail
Inventory
Jan
1 Sh
447,000
Sh
850,500
Purchases
4,200,000 6,480,000
Freight – in
210,000
Mark up, net 276,000
Mark downs, net
144,000
Sales
6,732,000
(12 marks)
5. a)
On August 6 Randall Company acquired the plant assets of stone company
which had discontinued operations.
The appraised value of the property
is:
Land
Sh 400,000
Building 1,200,000
Machinery and equipment 800,000
2,400,000
Randal Company gave 12,500 of its Sh.50 par value common shares in
exchange. The shares had a market value of Sh.144 each on the date of
the purchase of the property.
Required:
Prepare the journal entry to record the transactions. (5 marks)
b)
On April 10, 200, Conway Company sells equipment that it purchased for
Sh.192,000 on August 20, 1993. It was originally estimated that the
equipment would have a life of 12 years and a scrap value of Sh.16,800 at
the end of that time, and depreciation has been computed on that basis.
The company uses the straight-line method of depreciation.
Required:
Compute the depreciation charge on this equipment for 1993 and 2000
under each of the following assumptions with respect to partial periods.
i)
Depreciation is computed for the exact period of time during which
the asset is owned (use 365 days for base)
ii)
Depreciation is computed for the full year on the January 1 balance
in the asset account
iii)
Depreciation is computed for the full year on the December 31
balance in the asset account
iv)
Depreciation for the one-half year is charged on plant assets
acquired or disposed of during the year
v)
Depreciation is computed on additions from the beginning of the
month following acquisition and on disposals to the beginning of
the month following disposal
(10 marks)
