ACCT 433 Advanced Accounting II

  

QUESTION ONE

Auto Transmissions manufactures electrical equipments. The following trial balance as at 31 March 2005 has been extracted from the books of the company:

  

£

£

 

Ordinary shares of 50 p each

400,000

 

10% Redeemable Preference shares of £1 each

200,000

 

Retained profits as at 1 April 2004

42,475

 

Office block (Land £40,000)

170,000

 

Plant and machinery

730,000

 

Office equipment

110,000

 

Motor vehicles

200,000

 

Provision for depreciation – Plant and Machinery

224,500

 

-   Office equipment

24,500

 

-   Motor vehicles

80,000

 

Accounts receivables/Payables 

500,000

356,226

 

Provision for doubtful debts

1,000

 

Manufacturing wages

501,400

 

Inventory as at 1 April 2004 – raw materials 

70,000

 

- Work in progress

126,000

 

 - Finished goods 

250,000

 

Transport expenses 

85,013

 

Returns inwards

15,106

 

Purchases of raw materials

518,600

 

Sales

2,600,147

 

Bank balance 

60,020

 

Directors salaries

60,114

 

Maintenance of plan t

30,102

 

Rent

40,063

 

Advertising

190,048

 

Rates

50,171

 

Insurance

20,116

 

Office salaries

166,013

 

Light and heat

46,027

 

Factory power

30,014

 

Bank interest

7,070

 

Interim dividends on preference shares

10,000

 

General administration expenses

63,011

_________

 

3,988,868

3,988,868

Further information is as follows:

(1) Depreciation is to be provided as follows:

 Plant and machinery 15% on cost. (Production expense)

Office equipment 10% on cost (administration expense)

Motor vehicles 25% on WDV (distribution cost)

New office blocks 2% on cost (Administration expense).

(2) Prepayment of rates at 31 March 2005 was £3,140.

(3) An insurance premium for public liability cover amounting to £3,360 was paid for the year to 30 June 2005.

(4) The amount owing for light and heat is £1,214 and rent is £2,321 as at 31 March 2005.

(5) Rent, rates, light and heat and insurance are to be apportioned in the ratio of 5:1 in relation to factory and office expenses.

(6) The provision for doubtful debts is to be maintained at 1% of the accounts receivables.

(7) The production director acts as a factory manager, his salary is £20,000.Office salaries include amounts paid to salesmen of £64,237.

(8) The corporation tax of £100,000 is to be provided,

(9) During the year 1,500 electrical equipments were transferred from the factory to the warehouse. Only 100 equipments were in hand at the end of the year.

(10) Inventory at cost as at 31 March 2005 was as follows:

  

Raw materials 

£56,200.

 

Work in progress 

£47,190.

 

Finished goods 

?

Required:

Prepare the published income statement for the year ended 31 March 2005 and a balance sheet as at the same date. (20 marks)

   

QUESTION TWO

Nagala supermarket Ltd. deals in imported goods which are paid for in foreign exchange. Following the recent depreciation of the Kenyan shilling the company has incurred exchange losses on trade debtors and its business has become generally uncompetitive and consequently forcing the company into a voluntary liquidation on 1 November 1997

As at 1 November 1997:

1. The company had a bank loan of Sh.625,000 which was secured on furniture and fittings. The furniture and fittings realised Sh.1,000,000.

2. Assets not specifically pledged realised Sh.4,250,000.

3. Liquidation expenses amounted to Sh.187,500.

4. Salaries payable to messengers for the last three months amounted to Sh.22,500, Sh.60,000 was four months salary payable to clerks.

5. Unsecured trade creditors were Sh.1,092,500.

6. The share capital comprised of 10,000 8% preference shares of Sh.100 each and 25,000 ordinary shares of Sh.100 each.

7. Calls in arrears were : Sh.25 on 10,000 ordinary shares

   : Sh.40 on 8,000 ordinary shares

   : Sh.50 on 7,000 ordinary shares

Required:

The liquidator’s statement of receipts and payments with the appropriate support schedule (15 marks)

     

QUESTION 3

  

H Ltd acquired 60% of the ordinary share capital   of S Ltd on 1.4.20X2.The income 

 

statements of the two companies for the year   ended 31.12.20X2 are as follows:

 

 

H   Ltd

S Ltd

 

£

£

 

Turnover

170,000.00 

80,000.00 

 

Cost of Sales

(65,000.00)

(36,000.00)

 

Gross profit

105,000.00 

44,000.00 

 

Operating expenses

(43,000.00)

(12,000.00)

 

Profit before tax

62,000.00 

32,000.00 

 

Taxation

(23,000.00)

(8,000.00)

 

Profit after tax

39,000.00 

24,000.00 

 

Dividends proposed

(12,000.00)

(6,000.00)

 

Retained profits for the year

27,000.00 

18,000.00 

 

Retained profits b/f

81,000.00 

40,000.00 

 

Retained profits c/f

108,000.00 

58,000.00 

 

H Ltd has not accounted for its share of proposed   dividends in S Ltd. The profits of S Ltd accrued evenly throughout the period

 

Required

Prepare the   consolidated income statement for the year ended 31.12.20X2.

  

QUESTION FOUR
 

Jembe and Panga were sole traders manufacturing farm implements. On 31 March 2004, they amalgamated and traded as partners sharing profits and losses in the ratio of 3:2. One year later on 31 March 2005, they converted the partnership into a limited liability company called Shamba Ltd.

No. adjustments have been made to record the amalgamation and conversion but the balance sheets for the  sole traders as at 31 March 2004 and the partnership as at 31 March 2005 were as follows:

  

Sole Traders balance sheet as at 31 March 2004

Partnership balance sheet as at 31 March2005

 

Jembe

Panga

 

Sh. ‘000’

Sh. ‘000’

Sh. ‘000’

 

Assets

 

Freehold   property

1,500

1,000

4,000

 

Plant and   equipment

6,800

5,600

13,000

 

Fixtures and   fittings

1,600

1,550

3,000

 

Inventory

1,800

350

3,350

 

Accounts   receivable

1,900

1,000

6,420

 

Balance at   bank

300

150

125

 

13,900

9,560

29,895

 

Liabilities

 

Accounts   payable

(6,800)

(4,000)

(9,920)

 

Bank overdraft

-

-

(5,625)

 

7,1000

5,650

14,350

Additional Information:

1. On 1 April 2004, the partners agreed to take up the assets and liabilities of the individual traders at book values except for freehold property, plant and equipment and fixtures and fittings which were to be revalued as follows:

  

Jembe

Panga

 

Sh. ‘000’

Sh. ‘000’

 

Freehold   property

2,000

1,500

 

Plant and   equipment

6,500

5,500

 

Fixtures and   fittings

1,500

1,500

2. During the year ended 31 March 2005, Jembe made drawings of Sh2,390,000 while Panga drew sh.610,000.

3. The partnership was converted into a limited company on the following terms:

i) The freehold property and accounts receivable were revalued to Sh.6,00,000 and Sh.5,670,000 respectively.

ii) Jembe and Panga were to receive 15% unsecured debentures at par so as to provide each partner with income equivalent to a 6% return on capital employed based on capital balances as at 31 March 2005 (that is after accounting for the profit, drawings and revaluation in note (i) above).

iii) Shamba Ltd. Authorized share capital was made up of 150,000 ordinary shares of Sh.50 each. Out of which 130,000 shares were to be issued to the partners in their profit sharing ratio.

iv) Any balances in the partners’ capital accounts were to be settled in cash.

Required:

a) A computation showing the value of debentures and ordinary shares to be issued to the partners.  (12 marks)

b) Partners capital accounts as at 31 March 2005. (3 marks)

c) Balance sheet of Shamba Ltd. As at 31 March 2005 after completing the above transactions.   (5 marks)

(Total: 20 marks)