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Microsoft Word - BAC 200 - 2nd Group DETACH NO HIGHLIGHTING

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. Page 1 of 4

iii) A debtor, Mr. Kamau, had deposited Sh.146,000 in the companys 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 Averys 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) Page 2 of 4

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




(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


======= 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. Page 3 of 4

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


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) Page 4 of 4