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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
JANUARY 2018 EXAMINATION

Course Code: ACC 419                                                             

Credit Unit: 3

Course Title:  Advanced Financial Accounting

Time Allowed: 3 Hours

 

Instructions:

1. Attempt question number one (1) and any other three (3).

2. Question number 1 is compulsory and carries 25 marks while the other 3 carry 15 marks each.

3. Present all your points in coherent and orderly manner.

1.

The following balances remained in the books of Lagview Plc at December 31, 2016 after determining the gross profit:

 

Share capital, authorised and issued:

N‟000

200,000,000 ordinary shares of N1 each

200,000

Cash at bank and in hand 

500

Inventory at December 31, 2016

61,200

Trade receivables

18,005

Trade payables

15,009

Gross profit at December 31, 2016

128,942

Retained earnings

25,000

Salaries & Wages

28,430

Prepayments

600

Bad debts

500

Accrued expenses

526

Director’s account (credit)

2,500

Finance cost on loan note (½ year to June 30, 2016)

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 N25million)

15,000

Office fittings and equipment (cost N65.5million)

42,350

Profit at January 1, 2016

22,300

Land and buildings 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 2016 to cover the company against fire for the period September 1, 2016 to August 31, 2017.

 

  1. A bill for N548,000 in respect of electricity consumed up to December 31, 2016 has not been posted to the ledger.

 

Required:

  1. Prepare the Statement of profit or loss for the year ended December 31, 2016; (15 marks)

and                                                                                                                        

  1. The Statement of financial position as at December 31, 2016.

(10 marks)

 

 

 

2.

Shita Plc purchased 960 million shares in Karama Plc a year ago when Karama had a credit balance of N190 million in retained earnings.  The fair value of the non-controlling interest at the date of acquisition was N330 million.  At the date of acquisition, the freehold land of Karama Plc was valued at N140 million in excess of its carrying value.  The revaluation has not been recorded in the accounts of Karama.

 

The financial statements comprising Statement of Financial Position of Shita Plc and Karama Plc as at 31 December 2015 are as follows:

 

Shita Plc          Karama Plc

 

Nm        Nm        Nm        Nm                                                                                              NmNmNm

                                                                                                                                         NmNm

                                 Non-Current Assets                                                                                                                                                                     

                                      Land and building                                                     630                                                                  556

                                       Machinery and equipment                                     570                                                                           440

Investment in Karama Plc.

 

1,320

_-__

 

 

2,520

 

996

Current Assets

 

 

 

 

Inventories

714

 

504

 

Trade receivables 

1,050

 

252

 

Cash/bank

316

2,080

60

816

 

 

4,600

 

1,812

 

 

 

 

 

Ordinary Shares at N1 each

 

3,000

 

1,200

Retained Earnings

 

1,160

 

424

Shareholders fund

 

4,160

 

1,624

 

 

 

 

 

Current Liabilities

 

 

 

 

Trade payables

 

440

 

188

 

 

4,600

 

1,812

 

 

Karama Plc owes Shita Plc N50million for goods purchased during theyear.  Inventory of Karama Plc includes goods bought from Shita Plc at the price that includes a profit to Shita Plc of N24million.

 

The management of Shita Plc wants the financial statements to be consolidated using the acquisition method and wishes to know whether there is goodwill on acquisition of Karama Plc and the amount involved.

You are required to:

 

Prepare the Consolidated Statement of Financial Position as at 31 December 2015.

                                                                                                                                                    

(15 marks)

 

 

 

3.

Donat Co is a manufacturer of domestic appliances. Its chairman is pleased with the results for the year ended 31 December 2015 as they show a continuing improvement over recent past performance. However, the finance director says that a better assessment of the company’s performance would be made by a comparison to other companies in the same sector. The finance director has obtained some ratios for Donat Co.’s business sector, based on a year end of 31 December 2015, which are:

 

Return on capital employed (ROCE)

18·5%

Net asset (total assets less current liabilities) turnover

1·8 times

Gross profit margin

21%

Operating profit margin

10·3%

Current ratio

1·6:1

Gearing (debt/equity)

36%

The summarised financial statements of Donat Co are:

Statement of profit or loss for the year ended 31 December 2015

 


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N’000

 

Revenue

 

62,500

 

Cost of sales

 

(51,800)

 

 

 

–––––––

 

Gross profit

 

10,700

 

Operating costs

 

(5,800)

 

Finance costs

 

(1,800)

 

 

 

–––––––

 

Profit before tax

 

3,100

 

Income tax expense

 

(1,000)

 

 

 

–––––––

 

Profit for the year

 

2,100

 

 

 

–––––––

 

Statement of financial position as at 31 December 2015

 

 

 

N’000

N’000

 

Assets

 

 

 

Non-current assets

 

 

 

Property

 

8,100

 

Owned plant

 

12,600

 

Leased plant

 

12,200

 

 

 

–––––––