Cavendish University - Uganda
Business and Management Professional Grouping
BAC 225 Advanced Accounting
August 29, 2011
Instructions to Candidates:
Time allowed 3 hours.
This paper contains two parts: Section A and Section B.
Section A is COMPULSORY. Half the total marks may be gained on section A. Section B
contains 4 questions. Candidates must complete TWO questions only from this section. Half of
the marks may be gained from Section B.
Read the following before answering the examination questions.
1. Read each question carefully before you answer.
2. Apportion your time according to the marks allocated for the question.
3. Apportion your time equally between Section A and B.
4. Answer the questions that you feel you can obtain the most marks for, but you must ensure
that you attempt the compulsory questions.
5. Number the answers to the questions clearly before answering.
6. Please write as neatly as possible as illegible handwriting cannot be marked.
Section A
Answer both questions
Carnival Line Industry 2000
The Company had a 26% market share of the cruise line industry. It’s gross profit margin
increased by 4.69% from the previous year. Carnival is using its assets effectively. Their sales
increased by 10.62% from the previous year. The company is financially strong.
The board is comprised of fifteen members. Six of the members are directly involved in the
Carnival Corporation. The other nine members hold various jobs, such as ambassadors and
executives of financial groups. The company has a stable mix of inside and outside
Revenues have increased by 57.20% and the net income of the company has increased by 105%
since 1993.
The company’s liquidity ratios are weak and need attention. Carnival has high profitability ratios
and has decreased their current and long-term debt by using more liquidity. Carnival expands its
capacity through the merging and buying of other companies. Chairman, Edward stated in a 1997
interview, “Our strategy is to move into promising markets in a careful deliberate manner
through acquisitions of, or alliances with, established leaders that share our views on growth.”
Due to lack of health and safety policies, Cruise line industry had their offices gutted by fire
before the annual general meeting. The accountant reported the following information off the
balance sheet record in the annual general meeting. Current ratio and acid test ratio were 2.5 and
1.5 respectively before records were burnt. Fixed assets / shareholders fund were 0.75. A portion
of the balance sheet burnt showed the following:
 Working capital shs 120,000=
 Retained earnings shs 80,000=
 Bank overdraft shs 20,000=
The board recommended management to hire a person with advanced accounting skills to rewrite financial statements as it is a regulatory requirement.
Q.1. You have been employed as financial consultant, Show the various mathematical
computations you would make to calculate:
a)
b)
c)
d)
e)
Current liabilities. (5 marks)
Current assets. (5 marks)
Stock. (5 marks)
Capital. (5 marks)
Fixed assets. (5 marks)
Total 25 marks
Q.2.
a) Draft the new balance sheet for Carnival Line Industry 2000. (15 marks)
b) From the case study above, explain why the company profit margin increased by 4.69% from
the previous year. (5 marks)
c) As student of advanced accounting explain the statement, Carnival is using its assets
effectively. (5 marks)
Total 25 marks
Section B
Answer both questions
Q.3. Cavendish – Uganda Ltd is a company dealing in construction services. The following were
the balances for the period beginning 1st .01.2009 and ended 31st .12. 2009
Details
Share Capital
Retained Earnings
Accounts Receivable
Uganda Telecom
Data Fundi
Accelerated Technology
Cash and Cash Equivalents
Cash at hand
Cash at bank
Accounts payable
Invesco Uganda Ltd
Professional fees
Contract income
Uganda Telecom
Accelerated Technology
Hotel Africana Ltd
Direct Costs
Administrative expenses
Legal fees
Print and stationery
Meals and Refreshments
Salaries
Office Rent
Professional fees
Office Communication
Audit fees
Depreciation
Directors Emoluments
Bad debts written off
Finance expenses Bank
charges
Balance B/f (UGX ‘000’)
251,782
33,485
Balance C/f (UGX ‘000’)
251,782
46,463
261,495
39,388
35,000
-
8,450
13,275
14,033
162,822
6,000
50,752
7,037
-
66,230
67,797
69,357
24,610
116,447
1,991,525
1,883,603
786
985
4,200
6,256
1,222
1,500
5,134
10,978
-
7150
806
1,093
4,200
6,256
56,747
1,020
1,500
18,227
40,867
97,740
124
Additional information
The written down values (W.D.V) as at 1.01.2009 for fixed assets include;
 Furniture and fittings 212,000
 Machinery and equipment 3,324,000
 Computers 1,133,000
395
The cost of fixed assets as at 1.01.2009 include;
 Computers 1,570,000
 Furniture and fittings 2,713,000
 Machinery and equipment 59,650,000
Depreciation was calculated to write off the cost using reducing balance method. The
used were:
 Computers 40% p.a
 Furniture and fittings 12.5% p.a
 Machinery and equipment 25% p.a
rates
The accumulated depreciation of fixed assets as at 1.01.2009 includes;
 Computers 830,000
 Furniture and fittings 880,000
 Machinery and equipment 3,424,000
The accounts were based on historical cost convention and noncurrent assets are stated on
historical cost. Additional computers worth 1,858,000 and machinery & equipment worth 11,
609,000 was obtained during the period of 2009
a) Prepare the company’s notes to the accounts for the period ended 31st December 2009 and
wear & tear and tax computation for the year ended 31st December 2009 only? (10 marks)
b) Explain the importance of writing notes before preparation of financial statements. (5 marks)
c) Prepare financial statements for the period. (10 marks)
Total 25 marks
Q. 4.
a)
b)
i)
ii)
iii)
c)
d)
e)
f)
Outline the steps or procedures before implementing a capital reduction process. (4 marks)
Explain the need for the following accounts during amalgamation.
Realisation a/c. (3 marks)
Purchasing a/c. (3 marks)
Sundry Members a/c. (3 marks)
Explain the difference between minority and majority interest in business. (3 marks)
Distinguish between pre acquisition profits and post acquisition profits. (3 marks)
Distinguish between secured and unsecured creditors in business. (3 marks)
Outline the order of paying off creditors during liquidation. (3 marks)
Total 25 marks
Q.5. The information hereunder relates to Global Insurance Services Ltd for the financial period
ended 31st December 2010.
Description
Prpopety, plant and equipment
(NBV)
Investments
Trade and other receivables
Cash and Cash equivalents
Shareholders' Fund
Revaluation Reserves
Investment Reserve Fund
Bank Loan
Premium Creditors
Accrued charges
NSSF staff contribution payable
Pension Funds payable
Audit fees payable
Sundry Creditors
Dividends payable
Other Creditors
Commission Earned
Commission Paid
Other Income
Operating Expenses
Taxation
Balance b/f (Ushs ’000’)
899,778
Balance c/f (Ushs ’000’)
1,039,275
255,185
155,823
24,248
74,601
555,674
111,532
120,573
30,666
7,499
394,600
100,471
13,263
234,098
16,098
255,185
321,833
26,697
60,541
555,674
111,532
200,000
196,346
6,823
397
15,903
7,000
8,293
140
484,886
166,622
17,784
278,941
26,820
Additional Information
i) During the period, the company bought additional furniture. The Net Book Value of this
furniture as at 31st December 2010 was 380,000 Ushs
ii) The accumulated depreciation brought forward was 1,701,000 and the balance carried
forward as at 31st December 2010 was 1,261,000.
iii) The company’s share capital that is authorized, issued and fully paid up is 283,353 Ordinary
shares of Ushs 1,000 each.
iv) Profit before tax is stated after charging
2010
2009
Ushs '000
Ushs '000
Directors' Remuneration
Auditors' Remuneration
Depreciation
Interest on Investments
4,770
7,000
1,261
1,642
15,557
6,700
1,701
987
a) Prepare the company’s statement of comprehensive income and statement of financial
position as at 31st December 2010. (15 marks)
b) Prepare the company’s cash flow statement for the financial period ended 31st December
2010. (10 marks)
Total 25 marks
Q.6.
a) Explain some of the reasons why companies merge? (5 marks)
Suppose company A has the following Statement of Financial Position for the year ended 31st
December 2009.
Assets
Amount (Million Ugandan Shillings)
Net Property & Equipment (NPE)
500
Good Will (GD)
100
Furniture and Fittings (FF)
200
Current Assets
Debtors
300
Stocks
100
Cash and Bank
150
Liabilities and Capital
Non Current Liabilities
10% Bond
200
Current Liabilities
Creditors
150
Accrued Tax
50
Capital
Ordinary share capital
500
Equity
Retained Profits
250
Revaluation Reserves
200
Note;
i) 3% of debtors are doubtful
ii) Stocks at the end of 2007 included 10% absolute items due to a damage that occurred
towards the year end. Those damaged stocks can only fetch 25% of their book value.
iii) The market value for Net property and equipment is 800m whereas the replacement value is
1,000,000.
iv) The 10% bond is redeemable this year at a price of 120 Uganda shillings for every 100
shillings nominal value.
v) The accrued taxes will attract a surcharge of 10% because of the new law that has been
passed.
a) Supposing SPC Ltd was interested in acquiring company A and would like to pay a price that
is equivalent to its net value. Advise management of SPC Ltd on the possible market range if
assets and liabilities are measured at book value, market value and replacement value?
(15 marks)
b) Explain the various financial analysis tools that can be used to measure performance of a
firm or industry to aid decision making. (10 marks)
Total 25 marks