VERITAS UNIVERSITY, ABUJA

Bwari Area Council, FCT

Website: http//www.veritas.edu.ng

ONLINE ESSAY EXAMINATION

Semester: Second Session: 2019/2020

Faculty: MANAGEMENT SCIENCES Course Code: ACC 102

Department: ACCOUNTING Course Title: Introduction to Financial
Accounting and Reporting II
Lecturer’s Name: Ngurumun DM Iorchir ( Ph. D.) Course Units: 3

Instruction: Total mark for this question is 30

Question 1:

KUMASHE and DOOKWASE are sole shareholders of a company registered as KUMADOO Ltd. Kumashe, the
major shareholder holds 75% while Dookwase holds the remaining 25% of the 2,000,000 shares. The owners of
the company decided to cease operating as a limited liability company but proceed trading as a Partnership
instead, after the end of the December 2016 accounting period. In the new business concept, the traders
agreed to take over the assets and liabilities of the company at book value. They also agreed to use the same
books of accounts and share profits and losses in the ratio of their previous shareholding. The following
Statement of financial position relates to the relevant accounting period.
 KUMADOO LTD
STATEMENT OF FINANCIAL POSITION AS AT 31 ST DECEMBER 2016
NON-CURRENT ASSETS COST (N) DEPRECIATION (N) NET BOOK VALUE ( N)
Freehold Land and Buildings 1, 000, 000 - 1,000,000
Plant and Equipment 1,300,000 500,000 800,000
Motor Vehicles 300,000 100,000 200,000
1,600,000 600,000 2,000,000
CURRENT ASSETS
Inventory 900,000
Sundry debtors 700,000
Bank 100,000
1,700,000
LESS: CURRENT LIABILITIES
Sundry creditor 500,000 1,200,000
3,200,000

FINANCED BY:
SHARE CAPITAL:
Authorised, issued and fully paid:
2,000,000 Ordinary Shares of N1 each 2,000,000

RESERVES:
Share premium account account 200,000
Profit and loss account 600,000 800,000
2,800,000
LONG-TERM LIABILITIES:
10% Debentures ( secured) 400,000
3,200,000

NNEKA was admitted as a partner on 1st July 2017 paying cash of N 600,000 for a 1/5 ( one fifth) interest in the
Partnership while Kumashe and Dookwase continued to participate in the Partnership with their previously
agreed ratio. The admission of Nneka created Goodwill valued at N400, 000 and Freehold Land and Building
value at N 1,600,000 but these transactions were not recorded in the books yet.

Trial Balance prepared as at 31 December 2017 was as follows:

N N
Freehold Land and Building at cost 1,000,000
Plant and Equipment at cost 1,900,000
Accumulated Depreciation @ 1st January 2017 500,000
Motor Vehicles at cost 500,000
Inventory @ 1st January 2017 900,000
Creditors/ Debtors 1,000,000 600,000
Share Capital 2,000,000
Share Premium account 200,000
Profit and loss account @ 1st January 2017 600,000
Purchases/ Sales 8,000,000 12,000,000
Administrative Expenses 1,300,000
Selling Expenses 1,000,000
Capital - Nneka 600,000
Distribution Expenses 400,000
Financial Expenses 20,000
Life Assurance premium for Partners 200,000
Cash 280,000
16,500,000 16,500,000
Other relevant information are as follows:
 Inventory at 31 December 2017 was valued at N1,000,000
 Depreciation is charged at the following rates on cost: Plant and Equipment 10%; Motor Vehicles 20%.
 Annual salaries allotted to the Partners were as follows: Kumashe N200, 000; Dookwase N100, 000 and
Nneka N100, 000.
 The life assurance Policies at 31st December 2017 had a surrender value of N11, 000.
 The name of the Partnership was KumaDoo.
 Revenue and expenses accrued evenly throughout the year.

You are required to prepare: the Trading, Profit and Loss appropriation account for the partnership for
the year ended 31st December 2017; the partners’ Current and Capital accounts and; the Statement of
financial position as at that date.