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W1-2-60-1-6

JOMO KENYATTA UNIVERSITY


OF
AGRICULTURE AND TECHNOLOGY
UNIVERSITY EXAMINATIONS 2016/2017

YEAR 3 SEMESTER I EXAMINATION FOR THE DEGREE OF BACHELOR OF


COMMERCE

HBA 2301: FINANCIAL REPORTING

DATE: December 2016 TIME: 2 HOURS

INSTRUCTION: Answer Question ONE And Any Other Two Questions.

QUESTION ONE (30 marks)

Elijah, Elisha and Emmanuel sharing profits and losses in the ratio 2:3:2 respectively, statement
of financial position as at 31st December 2015 stood as follows

Non-Current Assets Shs Shs


Land and buildings 100,000
Plant and machinery 170,000
Current Assets
Stock 50,000
Debtors 60,000
Bank 20,000 400,000

Creditors 50,000
Capital accounts
Elijah 100,000
Elisha 150,000

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Emmanuel 50,000 400,000
Additional information

On 31st December 2015, Elisha desired to retire from the firm and the remaining partners decided
to carry on the same business on the following conditions

i) Land and buildings to be appreciated by 30%


ii) Machinery to be depreciated by 20%
iii) Closing stock to be valued at 45,000
iv) Provision for doubtful debts to be made at 5% of debtors
v) Goodwill was revalued at 63,000 and should be written off immediately
vi) Elijah and Emmanuel share profits and losses in the ratio 3:2 respectively.
vii) The total capital of the firm is to be same as before retirement and individual capital be in
their profit sharing ratio
viii) The amount due to Elisha is to be settled 50% on retirement and 50% balance
within one year.
Required
i) Revaluation Account (5marks)
ii) Bank account (3marks)
iii) Partners capital accounts (5marks)
iv) Good will account (2marks)
v) Statement of financial position after Elishas retirement (15marks)

QUESTION TWO (20 marks)

A company leased a colliery on 1/1/2012 at a minimum rent of shs20,000 per year, merging into
royalty of shs1.50 per tonne, with a power to recoup shortworkings over the first three years of
the lease. The output for the first four years was as follows

Year Tonnes

2012 9,000

2013 12,000

2014 16,000

2015 20,000

Required
(a) Royalty payable account (8marks)
(b) Landlords Account (10marks)
(c) Short workings account (2marks)

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QUESTION THREE (20 marks)

T.G ltd acquired a car under Hire purchase agreements, details of which are as follows

Registration number KBY 405C


Date of purchase 20-7-2015
Cash price 120,800
Deposit 20,000
Interest (deemed to accrue
evenly over the period of
agreement 19,800
Monthly instalments 18
Additional information
1) On 1-2-2016 the vehicle was involved in an accident and became a total loss
2) The insurance company paid shs96,000 under comprehensive policy
3) The hire purchase company accepted sh68,000 for termination of the agreement
4) T.G prepares Accounts annually to 31/12 and provides depreciation on straight line basis
at a rate of 25% per annum
Required
i) Motor vehicle account (4marks)
ii) Depreciation for motor vehicle A/c (4marks)
iii) Hire purchase company account (4marks)
iv) Hire purchase interest suspense A/c (4marks)
v) Asset Disposal Account (4marks)
QUESTION FOUR (20 marks)

a) XY ltd bought 10,000 ordinary shares of shs1 each in Excell ltd on 1-1-2014 at a cost of
shs15,000. On 1-7-2014 Excell ltd announced a rights issue of two ordinary shares for
every five held on that date at shs1.25 per share. XY ltd took up 50% of the entitlement
and sold the remaining 50% at shs0.60 per share.
XY ltd received a Dividend of 20% on ordinary shares in Excell Ltd on 31/12/2014
Required
Record these transactions in the books of XY ltd for the year ended 31/12/2014
(10marks)
b) During the year ended 31/12/2014, an asset was acquired at a cost of shs40,000. By
31/12/2014, its replacement cost had risen to shs60,000. It was sold during the year ended
31/12/2015 for shs 100,000 and at the time of sale, its replacement cost was shs65,000
Required
Calculate
i) Accounting profits (5marks)
ii) Holding gains for the year ended 31/12/2014 (5marks)
iii) Holding gains for the year ended 31/12/2015 (5marks)
iv) Operating gains (5marks)

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