KATHMANDU UNIVERSITY Marks Obtained:

BBA and BBIS

End - Semester Examination
February – June 2016 Session
July 2016

SUBJECT : ACC 202 – Financial Accounting II TIME : 10 min.

YEAR :I SEMESTER : II
FULL MARKS : 10

Examination Roll No.:___________________ Registration No.___________________

SECTION “A”
[10 Q. × 1 = 10 Marks]

Encircle the most appropriate answers from the given choices.

1. Which of the following cannot be included in the inventory cost for a manufacturer?
a. Manufacturing overheads
b. Direct Material
c. Office Supplies
d. Direct Labor

2. Which is the following item do not fall under cash equivalent?

a. Commercial paper
b. 182 days T-bills
c. Money market funds
d. Certified checks

3. Which of the following classification of investment is mostly used for reporting?

a. Trading Securities, Available for Sale and Held to maturities
b. Short term and long term investments
c. Stocks, Bonds and Preferred stocks
d. Fixed investment and current investment

4. Which one of the following assets is not subject to depreciation but their improvement cost
would be subject to depreciation?
a. Building
b. Patent
c. Land
d. Furniture

5. Which of the following methods of depreciation is most appropriate for the assets which has a
high probability of replacement with new technology?
a. Straight line Method
b. Double Declining Method
c. Units of Production Method
d. Fixed Installment Method
6. Which of the following cannot be a condition for “Contingent Liability”?
a. Obligation involving existing condition
b. Outcome known with certainty
c. Dependent upon some future event
d. Actual amount is estimated

7. As per the U.S. GAAP, which of the following criteria do not qualify a lease agreement as a
Capital lease?
a. Transfers ownership of property
b. Contains a bargain-purchase option
c. Term is >70% of property’s life
d. Present value of payments is >90% of property’s fair market value

8. Which of the following preferred stocks can generate highest dividend given the same rate?
a. Non-cumulative and non-participating
b. Noncumulative and participating
c. Cumulative and Participating
d. Cumulative and non-participating

9. Which of the following is not an effect of stock split?

a. Increase in the number of shares
b. Decrease in the par value
c. Decrease in the market price
d. Decrease in the Shareholders’ equity

10. Which of the following ratios do not explain the solvency position of a business?
a. Debt to Equity ratio
b. Time Interest Earned Ratio
c. Debt Service Coverage Ratio
d. Cash flow from operations to current liabilities ratio
 KATHMANDU UNIVERSITY
BBA and BBIS
End - Semester Examination
February – June 2016 Session
July 2016
SUBJECT : ACC 202 – Financial Accounting II TIME : 2 Hrs. 50 min.
YEAR :I SEMESTER : II
FULL MARKS : 40
SECTION “B”
[6 Q. × 4 = 24 marks]
Attempt any SIX questions.
1. “The deferred tax is just a reflection of temporary differences, not the permanent differences.
Hence, it can be simply ignored while reporting”. Show your agreement and disagreement with
some prudent reasons.
2. On December 31st, 2015 Anmol showed a balance of account receivable Rs.100, 000 and
allowance for doubtful debts Rs. 20,000.During the year 2016, Anmol sold for Rs.600, 000; all
sales were made on credit. The manager has identified its previous bad debts to be 5% of net
credit sales. Anmol collected total Rs.300,000 from its receivable and wrote off Rs.40, 000
during the year 2016. You are now required to:
a. Pass all necessary journal entries [ [1]
st,
b. Compute the net realizable value of account receivable on December 31 2016 [2]
c. Compute the average receivable collection period in days [1]
3. A Rs. 500, 000 machine was purchased on January 1, 2014 having an estimated life of 4 years
and Rs. 60,000 salvage value. After 2 years, an overhaul of the machine is made at a cost of Rs.
80,000 which increased its life by 1 year. You are now required to construct a table to show the
book value of machine and depreciation over the years under straight line methods. [4]
4. You opened an account with Sanima bankLtd. The bank pays interest at 7 percent per annum
and compounds on a monthly basis.
a. If you deposit Rs. 100,000 today, how much shall it grow at the end of 5 years? [1]
b. What rate will you earn if the money deposited in the bank account doubles in 9 years? [1]
c. How long will it take to grow Rs. 100,000 to Rs. 500,000 if the bank pays interest at 7
percent per annum compounded daily? [2]
5. As a business student, you have learnt that higher balance in receivables gives rise to
uncollectible. At the same time, to generate higher revenue and earnings credit sales can be a
good strategy. Looking at the positive aspect of credit sales, many businesses face a huge bad
debts. You are now required to suggest as how can businesses avoid the bad debt losses without
compromising on their sales revenue. [4]
6. On June30th 2016, you received a bank statement for Elite Grand School and reviewed them
carefully.Your review reveals: balance in bank is onlyRs. 16,800.Cheques under collection and
Outstanding Cheques on June 30th are Rs.20, 000 and Rs.17, 000 respectively. A cheque for
Rs.2194.90 issued to a supplier was recorded by the bank as Rs. 2914.90. A bill receivable of
Rs. 10, 000 and interest of Rs.1, 000 collected have not been credited in Elite’s account. NSF
Cheque for Rs.7, 300 received from a customer was returned by the bank. Bank charges
chargedRs. 900 for its services provided to the Elite Grand. In accordance with the school’s
standing instructions on June 28, the bank paid insurance premium of Rs. 1,300 for the school’s
van.
You are now required to prepare bank reconciliation statement for Elite Grand Schoolfor the
month of June. Show the reconciled balance to be shown into its book and pass the necessary
adjusting journal entries on 30thJune, 2016. [3+1=4]
7. The Stockholders’ Equity category of ABC Company’s balance sheet as of December 31, 2015,
appeared as follows:
Preferred stock, Rs. 50 par, 8%, 2,000 shares issued and outstanding Rs.100, 000
Common stock, Rs. 5 par, 40,000 shares issued and outstanding 200,000
Additional paid-in capital 250,000
Total contributed capital Rs. 550,000
Retained earnings 450,000
Total stockholders’ equity Rs. 1,000,000

The footnotes to the financial statement indicate that dividends were not declared or paid for
2013 or 2014.ABCwants to declare a dividend of Rs.70, 000 for 2015.

Required:
Determine the total and the per-share amounts that should be declared to the preferred and
common stockholders under the following assumptions:
a.The preferred stock is noncumulative, nonparticipating. [1]
b. The preferred stock is cumulative, nonparticipating. [1]
c.The preferred stock is cumulative and participating on the basis of the proportion of the total
par value of the preferred and common stock. [2]

SECTION “C”
[2 Q. × 8 = 16 marks]
Attempt any TWO questions.

8. On 1st January, 2016, Kathmandu Leasing Company signed an agreement with Huwai
Construction Company for financing a Car on lease. The lease term provides that Huwai
Construction will pay four annual installments of Rs. 1,000, 000 at the end of December every
year and the car will be transferred after paying fourth installments. Note that market rate of
interest is 10%.
a. Using the effective rate of interest method, construct a table amortize the lease. [4]
b. Passthe necessary journal entries to record the Lease Transactions at the time of
commencement of lease agreement and amortization. [2]
c. Show the lease reporting in the balance sheets for first two years. [2]

9. Consider the following balance sheets for Amresh Enterprises for the year ended 31stDecember
Balance sheets as of 31st December of each year for the corporation are as follows:
Year 2014 2015
Cash and equivalent 30,000 78,000
Account receivable 48,000 40,000
Inventory 50,000 80,000
Plant and Equipment 325,000 278,000
Accumulated depreciation (50,000) (62,000)
Total assets 403,000 414,000
Account payable 37,000 49,000
Tax payable 11,000 23,000
Bonds payable 86,000 48,000
Common stock 150,000 167,000
Retained earnings 119,000 127,000
Total liabilities and equity 403,000 414,000
Compute the relevant ratios to explain its liquidity and solvency position and pass necessary
comments about the company. Also explain as why cash increased by 48,000 is not consistent
with the increase in retained earnings of Rs. 9,000. [2+2+2+2=8]
10. The following is an inventory acquisition schedule for Jenish Corporation for the month of
June 2016.

Units Unit Cost

Beginning inventory, June
5,000 Rs. 40 During the
1
Purchases: month, Jenish
June 05 8,000 42 Corporation sold
June 10 7,000 44 30,000 units at
June 20 9,000 46 Rs.70 each. All
June 28 6,000 48 expenses except
cost of goods sold and
taxed amounted to Rs. 200, 000. The tax rate is 30%.

Required:
a. Compute cost of goods sold and ending inventory under each of the following two methods:
FIFO and LIFO. [3]
b. Prepare an income statement under both methods. [2]
c. Which method do you recommend so that Jenish Corporation pays the least amount of taxes
during June? Explain your reasoning. [3]
 ANSWER KEY
ACC 202 – Financial Accounting II

1 C
2 B
3 A
4 C
5 B
6 B
7 C
8 C
9 D
10 D

Question Learning unit

1 6. Long term Liabilities
2 2. Investments and Receivables
3 4. Operating Assets
4 5. Current Liabilities, Contingencies and Time Value of Money
5 2. Investments and Receivables
6 1. Cash and Internal Control
7 7. Shareholders’ Equity
8 6. Long term Liabilities
9 8. Financial Statement Analysis
10 3. Inventories and Cost of Goods Sold