ACCT3605

THE COUNCIL OF COMMUNITY COLLEGES OF JAMAICA

BACHELOR OF SCIENCE EXAMINATION

SEMESTER II – 2016 MAY

PROGRAMMES: BUSINESS STUDIES

COURSE NAME: ADVANCED FINANCIAL ACCOUNTING

CODE : (ACCT3605)

YEAR GROUP: THREE

DATE: MONDAY, 2016 MAY 9

TIME: 1:00 P.M. – 4:00 P.M.

DURATION: 3 HOURS

EXAMINATION TYPE: FINAL

This examination paper has 3 pages

INSTRUCTIONS:

SECTION A: ANSWER ALL QUESTIONS IN THIS SECTION.

SECTION B: ANSWER ANY THREE (3) QUESTIONS FROM THIS SECTION.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO.

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SECTION A

Instructions: Answer ALL questions from this section.

Fleet is a London merchant. During the financial year to 31 March 2008, he sent a consignment
of goods to Sing, his agent in Bali. The details of the transaction were as follows;

i. On 1 April 2007, 1000 boxes were sent to Sing. These boxes had originally cost Fleet $20
each.

ii. Fleet’s carriage, freight and insurance costs of the consignment paid on 30 April 2007
amounted to $2,000

iii. During the voyage to Bali, ten boxes were lost. On 30 September 2007, Fleet received a
cheque for $220 as compensation from his insurance company for the loss of the boxes.

iv. On 1 March 2008, Fleet received $2,000 from Sing.

v. Both Sing and Fleet’s financial year end is 31 March

vi. On 15 April 2008, Fleet received the following interim account sales from Sing:

Interim Account Sales

32 Passage Fort Drive
Kingston, Jamaica

31 March 2008
Consignment of goods sold on behalf of Fleet, London: 950 boxes of merchandise.
$ $ $
Sales:
950 boxes @ $30 each 28,500
Charges:
Distribution expenses (@ $2 per box) 1,900
Landing charges and import duty (@ $1 per box) 990
Commission (5% x $28,500) 1,425 4,315
24,185
less amount previously sent 20,000
Net proceeds per draft enclosed 4,185

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Required:

Prepare the following ledger accounts for the year to 31 March 2008:

a. In Fleet’s books of account:

i. Goods sent on consignment account (2 marks)

ii. Consignment to Sing account (8 marks)

iii. Sing (Consignee) account (4 marks)

b. In Sing’s books of account:

i. Fleet (Consignor’s) account (3 marks)

c. Explain four (4) differences between consignment and sales. (8 marks)

(Total 25 marks)

END OF SECTION A

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THE COUNCIL OF COMMUNITY COLLEGES OF JAMAICA

BACHELOR OF SCIENCE EXAMINATION

SEMESTER II – 2016 MAY

PROGRAMMES: BUSINESS STUDIES

COURSE NAME: ADVANCED FINANCIAL ACCOUNTING

CODE : (ACCT3605)

YEAR GROUP: THREE

DATE: MONDAY, 2016 MAY 9

TIME: 1:00 P.M. – 4:00 P.M.

DURATION: 3 HOURS

EXAMINATION TYPE: FINAL

This examination paper has 7 pages

INSTRUCTIONS:

SECTION B: ANSWER ANY THREE (3) QUESTIONS FROM THIS SECTION.

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SECTION B

Instructions: Answer any THREE (3) questions from this section.

Question 1

Jamaica Bauxite Limited is experiencing a severe cash flow problem. A draft agreement was
prepared for Jamaica Bauxite Limited to sell some of its equipment to Trinidad Finance Limited
for $200 million and then lease back the equipment under a 10 year operating lease for an annual
lease payment of $25 million. The operating lease payment was substantially above the market
rate. The fair value of the equipment is $100 million. The cost of the equipment is $50 million and
the accumulated depreciation to date on the equipment is $15 million. The draft agreement was
sent to the Board of Directors for approval.

Jamaica Bauxite Limited also negotiated a finance lease to purchase new equipment from St.
Bermuda Leasing Limited.

Required:

a. Assume that the draft agreement for the sale and leaseback is executed. Explain the
accounting treatment in the accounting records of Jamaica Bauxite Limited for the sale
and leaseback of the equipment in accordance with IAS 17. (11 marks)

b. Prepare the journal entries to record sale of the equipment, the excess profit to be
deferred and the annual lease expense. (8 marks)

c. Explain the accounting treatment in the accounting records of Jamaica Bauxite Limited
for the finance lease in accordance with IAS 17. (6 marks)

(Total 25 marks)

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Question 2

Herbal Ltd has a branch in Clarendon. Goods are invoiced to the branch at cost plus 33 1/3%.
The branch remits all cash received to the head office and all expenses are paid by the Head Office.
The following information relating to the branch is available:
$
Branch Debtors on January 1, 2014 60,000
Branch Stock on January 1, 2014 24,000
Sales: cash 30,000
Sales: credit 600,000
Goods from Head Office (invoice price) 720,000
Cash received from debtors 576,000
Discount Allowed to debtors 14,000
Bad debts 3,000
Branch expenses paid by Head Office 50,000
Branch Stock on December 31, 2014 120,000

Required:

a. Prepare the following accounts:

i. Branch Stock Account (6 marks)

ii. Goods Sent to Branch Account (2 marks)
iii. Branch Adjustment Account (5 marks)
iv. Branch Debtors Account (6 marks)

b. Branch Profit & Loss Account in the books of the Head Office. (6 marks)

(Total 25 marks)

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Question 3

Moringa Ltd purchased a machine from Tea Tree Ltd for $187 365, hire purchase price on 1
January 2013. Moringa Ltd agreed to make payments by three (3) instalment of $62 455 on 31
December 2013, 2014 and 2015. The cash price of the machine is $150 000. The rate of interest
is 12%. Depreciation is 15% per annum using the straight line method.

Required:

a. Show the following ledger accounts in JL Ltd books for the three years:

i. Machinery A/c (1 mark)

ii. Tea Tree Ltd A/c (6 ½ marks)
iii. Hire Purchase Interest A/c (6 marks)
iv. Provision for Depreciation: Machinery A/c (3 marks)

b. Show how the items would appear in the balance sheet at 31 December 2013, 2014 and
2015 for non-current assets, non-current liabilities and current liabilities. (8 ½ marks)

(Total 25 marks)

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Question 4

The following information relates to the Kennedy Group of Companies for the year to 31
December 2015.

Details Kennedy Ltd KS Financial Ltd KN Services Ltd

$’000 $’000 $0’000
Revenue 11,000 5,000 1,300
Cost of Sales (6,300) ( 3,000) (700)
Gross Profit 4,700 2,000 600
Administrative expenses (1,050) (1,500) (200)
Dividends received from KS Financial Ltd 240 - -
Dividends received from KN Services Ltd 60__ ______ _______
Profit before taxation 3,950 500 400
Taxation (650) (100) (200)
Profit for the year 3,300 400 200

Additional Information:

1. The issued share capital of the group was as follows:

a. Kennedy Ltd 50,000,000 ordinary shares of $1 each

b. KS Financial Ltd 10,000,000 ordinary shares of $1 each.
c. KN Services Ltd 4,000,000 ordinary shares of $1 each.

2. Kennedy Ltd purchased 70% of the issued share capital of KS Financial Ltd in 2010. At
that time, the retained profits of KS Financial Ltd amounted to $560,000.

3. Glendale Ltd purchased 80% of the issued share capital of KN Services Ltd in 2012. At
that time, the retained profits of KN Services Ltd amounted to $200,000.

Required:

a. In so far as the information permits, prepare Kennedy Group of Companies’ Consolidated

Income Statement for the year ended 31 December 2015 in accordance with IFRSs.
(19 marks)
b. Prepare a Statement to reconcile the Kennedy Group of Companies’ consolidated year-
end profit. (6 marks)

(Total 25 marks)

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Question 5

On 1 January 2015, Palistar acquired 75% of Stretcher’s equity shares by means of an immediate share
exchange of two shares in Palistar for five shares in Stretcher. The fair value of Palistar and Stretcher’s
shares on 1 January 2015 were $4·00 and $3·00 respectively. In addition to the share exchange, Palistar
will make a cash payment of $1·32 per acquired share, deferred until 1 January 2016. Palistar has not
recorded any of the consideration for Stretcher in its financial statements. Palistar’s cost of capital is 10%
per annum.

The summarised statements of financial position of the two companies as at 30 June 2015 are:

Palistar Stretcher
$’000 $’000
Assets
Non-current assets (note (ii))
Property, plant and equipment 55,000 28,600
Financial asset equity investments (note (v)) 11,500 6,000
–––––––– –––––––
66,500 34,600
–––––––– –––––––
Current assets
Inventory (note (iv)) 17,000 15,400
Trade receivables (note (iv)) 14,300 10,500
Bank 2,200 1,600
–––––––– –––––––
33,500 27,500
–––––––– –––––––
Total assets 100,000 62,100
–––––––– –––––––
Equity and liabilities
Equity
Equity shares of $1 each 20,000 20,000
Other component of equity 4,000 nil
Retained earnings – at 1 July 2014 26,200 14,000
– for year ended 30 June 2015 24,000 10,000
–––––––– –––––––
74,200 44,000
Current liabilities (note (iv)) 25,800 18,100
–––––––– –––––––
Total equity and liabilities 100,000 62,100
–––––––– –––––––

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The following information is relevant:

i. Stretcher’s business is seasonal and 60% of its annual profit is made in the period 1
January to 30 June each year.

ii. At the date of acquisition, the fair value of Stretcher’s net assets was equal to their carrying
amounts with the following exceptions: An item of plant had a fair value of $2 million
below its carrying value. At the date of acquisition it had a remaining life of two years. The
fair value of Stretcher’s investments was $7 million (see also note (v)). Stretcher owned
the rights to a popular mobile (cell) phone game. At the date of acquisition, a specialist
valuer estimated that the rights were worth $12 million and had an estimated remaining life
of five years.

iii. Following an impairment review, consolidated goodwill is to be written down by $3

million as at 30 June 2015.

iv Palistar sells goods to Stretcher at cost plus 30%. Stretcher had $1·8 million of goods in its
inventory at 30 June 2015 which had been supplied by Palistar. In addition, on 28 June
2015, Palistar processed the sale of $800,000 of goods to Stretcher, which Stretcher did not
account for until their receipt on 2 July 2015. The in-transit reconciliation should be
achieved by assuming the transaction had been recorded in the books of Stretcher before
the year end. At 30 June 2015, Palistar had a trade receivable balance of $2·4 million due
from Stretcher which differed to the equivalent balance in Stretcher’s books due to the sale
made on 28 June 2015.

v. At 30 June 2015, the fair values of the financial asset equity investments of Palistar and
Stretcher were $13·2 million and $7·9 million respectively.

vi Palistar’s policy is to value the non-controlling interest at fair value at the date of
acquisition. For this purpose Stretcher’s share price at that date is representative of the
fair value of the shares held by the non-controlling interest.

Required: Prepare the consolidated statement of financial position for Palistar as at 30

June 2015. (Total 25 marks)

END OF EXAMINATION

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