PartA

1. (a) Describe the basic assumptions that underlie the financial accounting structure? (b)
What are the primary objectives of financial accounting?
2. Describe the basic principles of accounting?
3. Differentiate beteen interest bearing and !ero interest bearing note ith an e"ample?
#. What is depreciation? $ention the factors to be considered in calculating the depletion base.
%. What are the to methods of recording accounts receivable transaction hen a cash discount
situation is involved?
&. What are the to main characteristics of intangible assets? What is the goodill?
'. What are the major characteristics of (roperty plant ) e*uipment?

PartB
(+nser any Three *uestions) 15 X 3=45

8. ,he cost of e*uipment purchased by impy -ast .td. on /une 10 211# is ,2. &'0111. 3t is
estimated that the machine ill have a ,2. #0111 salvage value at the end of its service life. 3ts
service life is estimated at ' years4 its total or2ing hours are estimated at #20111 and its total
production is estimated at %2%0111 units. During 211# the machine as operated &0111 hours and
produced %%0111 units. During 211% the machine as operated %0%11 hours and produced #50111
units.
6ou are re*uired to compute depreciation expense on the machine for the year ending December
310 211% using the folloing methods.
(i) 7traight line (ii) Wor2ing hours
(iii) 8nits of output (iv) 7um of the years digits
9. 6 9o started construction of a arehouse building for its on use on /anuary 10 211#.
9ompany e"pected to complete the building by December 310 211#. 3t has the folloing debt
outstanding during the construction period:;
a) 9onstruction .oan 11< interest payable annually issued December 310 2113;
2110111.
b) =ond 12< interest payable yearly 2110111.
c) .ong term loan 12< interest payable yearly 1110111.
9ompany made the folloing e"penditure during the period of construction.
/an 1;1%10111
/uly 1; 1210111
7ept 1; 2#10111
9ompany finished the construction ithin 31 Dec. 211# compute the depreciation e"pense0
accumulated depreciation and carrying amount of the arehouse building for 211% 0 211& and
211' if the e"pected life of the building is 11 years and e"pected disposal value is ,a2a #20#11.
9ompany uses sum of the year>s digit method for its depreciation.
10. 7pi2e 9orporation operates in an industry that has a high rate of bad debts. =efore any
yearend adjustments0 the balance in 7pi2es +ccounts ?eceivables +ccount as ,2. %0%%0111 and
the +lloance for Doubtful +ccounts had a credit balance of ,2. 3%0111. ,he year end balance
reported in the +lloance for Doubtful +ccounts ill be based on the aging schedule shon
belo:;
Days Accont !tstandin" A#ont Pro$a$i%ity o& 'o%%ectin"
.ess than 1& days 3110111 1.@5
=eteen 1& and 31 days 1110111 1.@1
=eteen 31 and #% days 510111 1.53
=eteen #& and &1 days #10111 1.'%
=eteen &1 and '% days 210111 1.#1
Aver '% days 1%0111 1.11
(e)ired*
(i) What is the appropriate balance for the +lloance for Doubtful +ccounts at year Bend?
(ii) 7ho ho accounts receivable ould be presented on the balance sheet.
(iii) What is the dollar effect of the year end bad debt adjustment on the before ta" income?

11. 3n 211#0 /ustin 9onstruction 9ompany agreed to construct an apartment building at a price of
,2. 110110111. ,he information relating to the costs and billing for this contract is shon belo:;
+004 +005 +00,
9ost incurred to date 20510111 &0110111 '05%0111
Cstimated cost yet to be incurred %0210111 20110111 ---------
9ustomer billings to date 10%10111 #011.111 110110111
9ollections of billings to date 10210111 30210111 @0#10111
.nstrctions*
/i0 +ssuming that the percentage of completion method is used0 (1) 9ompute the
amount of gross profit to recogni!ed in 211# and 211%0 and (2) prepare journal
entries for 211%.
/ii0 -or 211%0 sho ho the details related to this construction contract ould be
disclosed on the balance sheet and on the income statement.
1+. Write short notes on any &i1e of the folloings:;
a. +ctivity $ethod b. 9urrent liability c. 3nterest bearing note
d. Aperating lease e. Depreciation f. Direct;rite off method.