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HBA 2301 Financial Reporting
Bachelor of Commerce (Jomo Kenyatta University of Agriculture and Technology)
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JOMO KENYATTA UNIVERSITY
OF
AGRICULTURE AND TECHNOLOGY
UNIVERSITY EXAMINATIONS 2015/2016
THIRD YEAR FIRST SEMESTER EXAMINATION FOR THE
DEGREE OF BACHELOR OF COMMERCE (ACCOUNTING OPTION)
HBA 2301: FINANCIAL REPORTING
DATE: DECEMBER 2015
INSTRUCTIONS:
TIME: 2 HOURS
ANSWER QUESTION ONE AND ANY OTHER
TWO QUESTIONS
QUESTION ONE
Kamau and Kimani are partners showing profits and losses in the
Ratio 3:2 respectively. The partnership agreement provides for Kamau
A salary of Shs.400,000 per annum and interest on capitals for both
partners at 5% per annum. The partnership balance sheet as at 31st
December 2008 was as follows:
Capital Account
Premises
Kamau
Kimani
16,000
10,000
Current Account
Kamau
3,200
Kimani
(300)
CREITORS ACCRUAL
20,800
26,000
Equipment at cost 8,000
Depreciation (4,800)
2,900
3,300
32,200
Stock
Debtors
Cash
5,600
2,200
400
3,200
2,400
8,200
32,200
On 1st April, 2009 Kimata was admitted to the partnership. He had been
a salaried employee, earning Sh.8,000,000 per annum. Terms of his
admission to the partnership were as follows:
1.
Kimata would introduce Sh.12,000,000 in cash as capital into the business.
2. Goods will, should be valued at Sh.14,000,000 in for the purpose of
admission. It was agreed that goodwill should not be included in the
balance sheet of the new partnership.
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3. Kimata should receive a salary as a partner of Sh.6,000,000 per annum,
Kimani salary should be raised from 5% to 5% per annum and calculated
on the capital accounts after elimination of good will.
The new profit sharing ratio for Kamau, Kimani and Kimata should be 4:2:1
respectively.
In preparing the draft financial statements for the year ended 31 st December,
2009, the partnership accountant Otieno, calculated the partnership profit for
the year was Sh.55,155,000 and the working capital for the business as at 31 st
December, 2009 was:
Sh.000
Stock
12,555
Debtors
3,500
Cash
8,800
Creditors and Accruals
3,480
Profit is assumed to accrued evenly during the year. Partners cash drawing
for the year where Kamau Sh.23,705,000; Kimani Sh.19,525,000 and Kimata
Sh.8,250,000.
Required:
a) The profit and loss approximation account for the year ended
31st December, 2009.
[10 marks]
b) The current and capital accounts of the partners for the year ended
31st December, 2009.
[10 marks]
c) The balance sheet as at 31st December, 2009.
[10 marks]
QUESTION TWO (20 MARKS)
a) Royalty agreement can contain the clause that lessee can recover
the short working of one year from the excess of royalty as compared
to minimum rent in the coming years, state and explain the right or
recoupment.
[4 marks]
b) Outline the main distinctions between rent and royalty.
[4 marks]
c) X Ltd took a mine on lease from Y at a given rate of royalty with
a minimum rent of Ksh.10,000 a year. Each year’s excess of minimum
rent over royalties is recoverable out of the next year only. In the event
of a strike and the minimum rent not being reached, it was provided that
the actual royalties earned for the ear would be the full royalty obligation
for the year.
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The results of the working were as follows:
Year
1st
2nd
3rd
4th
Actual Royalties
Nil
8,000
8,000
90,000
Required:
Prepare the following for all the years in the books of x.
i) Short workings Account
ii) Landlord A/C
iii) Royalties Account
[6 marks]
[5 marks]
[5 marks]
d) Discuss the qualitative characteristics of accounting information.[6 marks]
QUESTION THREE (20 MARKS)
a) Outline the commonly used types of depreciation methods.
[4 marks]
b) JJ traders bought a van in January 2003 for Sh.200,000. The policy
of the company is to depreciate motor vehicles at the rate of 25%
using straight line method. The motor van was sold in March 2006
at a cash price of Sh.60,000.
Additional Information
Full depreciation is charged on the year of acquisition and non on the
year of disposal.
Required:
Show the entries of depreciation expenses; accumulate depreciation
since 2003 as well as the entries at the time of disposal in 2003.
[16 marks]
QUESTION FOUR (20 MARKS)
a) The 10 elements of financial statements defined in IAS 1 describe
financial position and periodic performance. They are the building
blocks with which financial statements are constructed; state and
explain any FOUR elements.
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[4 marks]
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b) ABC Ltd purchased a vehicle from Grace Ltd on 1 Jan.1996 on hire purchase
agreement. The details were as follows:
Cash Price
$ 9,000
Down payment
$1,000
Hire purchase price $ 11,096
Nominal rate of interest 10% on outstanding balance
Four equal annual instalments
First due
31st December, 1996
Depreciation
10% on cost
Required:
Using the progress interest charge system (Accrual system) prepare:
i)
ii)
Hire purchase creditors (vendor account)
Hire purchase interest account
[10 marks]
[6 marks]
QUESTION FIVE (20 MARKS)
Distinguish the following:
a)
b)
c)
d)
Prudence and Accrual Concept
Historical cost and money measurement convention
Going concern and consistency concept
Separate Entity and Materiality convention
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[5 marks]
[5 marks]
[5 marks]
[5 marks]