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NATIONAL OPEN UNIVERSITY OF NIGERIA

UNIVERSITY VILLAGE, PLOT 91, CASDASTRAL ZONE, NNAMDI AZIKIWE EXPRESS WAY, JABI, ABUJA.
FACULTY OF MANAGEMENT SCIENCES
APRIL/MAY 2019 EXAMINATION

COURSE CODE: ACC419                                                 

CREDIT UNIT: 3                     

COURSE TITLE: ADVANCED FINANCIAL ACCOUNTING

TIME ALLOWED: 21/2 HOURS

INSTRUCTIONS:

1. Attempt Question One (1) and any other three (3) questions

2. Question 1 carries 25 marks, while the other questions carry 15 marks each.

3. Present all points in coherent and orderly manner

 

 

QUESTION 1

The following balances remained in the books of Lacuna Plc. at December 31st, 2017 after determining the gross profit:

                                                                                                                        N’000

Share capital, authorized and issued:

200,000,000 ordinary shares of N1 each                                                        200,000

Cash at bank and in hand                                                                                      500

Inventory at December 31, 2014                                                                      61,200

Trade receivables                                                                                             18,005

Trade payables                                                                                                 15,009            

Gross profit at December 31, 20x7                                                                128,942

Retained earnings                                                                                             25,000

Salaries & wages                                                                                             28,430  

Prepayments                                                                                                          600

Bad debts                                                                                                            500

Accrued expenses                                                                                               526

Director’s account (credit)                                                                               2500

Finance cost on loan note (1/2 year to June 30, 2014)                                      600

Sundry expenses                                                                                             4,100

Rates & insurance                                                                                          1,520

6 % loan notes                                                                                               20,000

Lighting & cooling                                                                                         1,310

Postage, telephone and telegrams                                                                      800

Motor vehicle (cost N25 million)                                                                  15,000

Office fittings and equipment (cost N65.5million)                                       42,350

Profit at January 1, 2014                                                                               22,300

Land and building at cost                                                                            239,362

The following additional information is relevant:

  1. Office fittings and equipment are to be depreciated at 15% of cost, and motor vehicle at 20% of cost
  2. Provisions are to be made for:

Directors’ fees                                    N6,000,000

Audit fees                                           N2,500,000

  1. The amount of insurance includes a premium of N600,000 paid in September 2017 to cover the company against fire for the period September 1st , 2017 to August 31, 2018.
  2. A bill for N548,000 in respect of electricity consumed up to December 31st, 2017 has not been posted to the ledger.

Required:

  1. Prepare the Statement of Profit or Loss for the year ended December 31st, 2017 (10 marks)
  2. The Statement of financial position as at December 31st , 2017            (10 marks)
  3. Statement of changes in equity  (5 marks)

 

QUESTION 2

  1. In accordance with Section 338 of CAMA, discuss the conditions under which a company (A) is deemed to be the subsidiary of another company (B). (5 marks)
  2. Snax Co. owns the following investments in other companies:

 

Equity shares held

Non-equity shares held

Beverage Co

80%

Nil

Pastries Co

25%

80%

Beefie Co

45%

25%

 

Snax Co also appointed five (5) of the seven (7) directors of Beefie Co

Required: Consider each investment by Snax Co in turn and determine where control exists in each.  (10 marks)

 

QUESTION 3

  1. The new revised IFRS 3 method of calculating goodwill now gives the parent company a choice between 2 methods of calculating goodwill and dealing with Non-Controlling Interest (NCI). Briefly explain these two methods   (5 marks)
  2. Extracts from the Statement of Financial Position of Pyramid Plc. and Hexagon Plc. as at 31/12/20X5 are as follow:

Pyramid Plc                Hexagon Plc

N’000                          N’000

Share capital

Ordinary share at N1.00 each                                     180,000                       60,000

Accumulated reserves                                                48,000                         24,000

                                                                                    228,000                       84,000

The entire share capital of Hexagon Plc was acquired when the accumulated reserves was N18 million. Cost of acquisition was N88 million.

Required: Calculate the goodwill    (10 marks)     

 

QUESTION 4

The Statement of Financial position of Cradle & Saddle Ltd as at 31st Dec. 20X5 were as follows:

                                                                                    Cradle Ltd N’000            Saddle Ltd N’000

Non-Current assets                                                     40,000                         32,000

Investment at cost                                                       76,000                         -

Current assets                                                             60,000                         48,000

                                                                                    176,000                       80,000

Share capital

Ordinary shares of N1.00 each                                   120,000                       40,000

Accumulated reserves                                                32,000                         16,000

                                                                                    152,000                       56,000

Current Liability                                                         24,000                         24,000

                                                                                    176,000                       80,000

The entire share capital of Saddle Ltd was acquired when the accumulated reserves was N12 million.

Required: Show the consolidated reserve of the group as at 31 Dec 20X5.                  (15 marks)

 

QUESTION FIVE

  1. Explain two (2) external and three (3) internal factors to be considered when carrying out firm comparison using ratio analysis.  (5 marks)
  2. You are considering an investment in Lounge & Cushion Ltd. During the past year, the firm’s Income statement had retained earnings of N4.8 million and common stock dividends of N2.2 million. The year-end Statement of Financial Position shows common stockholders’ equity of N35 million with 10 million shares of common stock outstanding. The common stock’s market price per share is N9.00. What is Lounge & Cushion’s Earnings Per Share and PE ratio. (5 marks)
  3. Pepperoni Ltd. reported sales for 2015 of N23 million. Pepperoni Ltd listed N5.6 million of inventory on its Statement of Financial position. Calculate, using a 365 day year, how many days did inventory stay on the premises? How many times per year did inventory turnover?  (5  marks)

 

QUESTION 6

  1. Explain

i) Bankruptcy     (2.5 marks)

ii) Insolvency (explaining the two forms of insolvency)    (5 marks)

  1. Discuss the Statement of affairs under bankruptcy.   (2.5 marks)
  2. Distinguish between a Statement of affairs under bankruptcy and a Statement of financial position of a going concern. (5 marks)

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