NATIONAL OPEN UNIVERSITY OF NIGERIA

UNIVERSITY VILLAGE, PLOT 91, CASDASTRAL ZONE, NNAMDI AZIKIWE EXPRESS WAY, JABI, ABUJA.
FACULTY OF MANAGEMENT SCIENCES
JANUARY 2021 EXAMINATION

COURSE CODE: ACC 419

CREDIT UNIT: 3
COURSE TITLE: ADVANCED FINANCIAL ACCOUNTING
TIME ALLOWED: 21/2 HOURS
NOTE: 1. To attempt question number one (1) and any other three
2. Question number 1 is compulsory and carries 25 marks, while the other questions carry 15 marks each
3. Present all your points in coherent and orderly manner

QUESTION 1 (COMPULSORY)

The following additional information is relevant: (i) Office fittings and equipment are to be depreciated at 15% of cost, and Motor vehicle at 20% of cost. (ii) Provisions are to be made for: Directors’ Fees N24,000,000 Audit Fees N10,000,000 (iii) The amount of insurance includes a premium of N2, 400,000 paid in September 2018 to cover the company against fire for the period September 1, 2018 to August 31, 2019. (iv) A bill for N2, 192,000 in respect of electricity consumed up to December 31, 2018 has not been posted to the ledger. Required: a. Prepare the Statement of profit or loss for the year ended December 31, 2018. (15 Marks) b. The Statement of financial position as at December 31, 2018. (10 Marks) (Total = 25 Marks)

Authorized capital is 3,000,000 ordinary shares of 1.00 each and 1,500,000 5% cumulative preference shares of 1.00 each. During the meeting of the shareholders and directors, it was decided to carry out a scheme of internal reconstruction.

The following scheme was agreed:

a. Each ordinary share is to be reduced to a share of 25k.

b. The existing 5% cumulative preference shares are to be exchanged for new issue of 525,000 8% cum preference shares of 1.00 each and 2,100,000 ordinary shares of 25k each.

c. Ordinary shareholders accepted a reduction in the nominal value of the shares of 1.00 for 25k, with subscription to a new issue on the basis of 1 to 1 at a price of 30k per share.

d. 90,000 of Directors loan is to be cancelled. The balance is to be settled by issue of 150,000 ordinary shares of 25k each.

e. Goodwill and loss in the profit and loss account are to be written off.

f. Investments in shares are to be sold at market price of #900,000.

g. Bank overdraft to be repaid, #300,000 is to be paid to trade creditors and the balance payable by installment. 20% of debtors are to be written off.

h. Assets are revalued as follows: Land 4,350,000 Building 1,200,000 Equipment 150,000 Inventory and Work-in-Progress 750,000

Required: Show the necessary journal entries to affect the reconstruction scheme. (15 marks)

QUESTION THREE

MESSI and LUKAKU entered into a joint venture to buy and sell second-hand cars. Profits and losses were to be shared: MESSI three-fifths, LUKAKU two-fifths. It was agreed that each party would record his own transactions only. On 23 September 2017, MESSI purchased two cars for N9,660,000 and N12,600,000. He incurred expenditure of N2, 940,000 on repairs and on 4 September 2017, sold one of the cars for N14,070,000. On 10 September 2017, the other car was sold for N15,750,000, paying the proceeds in each case into his own bank account. On 14 September 2017, he purchased another car for N16,800,000 and sold it on 30 September 2017 for N16,380,000 the amount he paid over to LUKAKU who paid it into his bank account. On 25 September 2017, LUKAKU purchased a car for N7,350,000 on which he incurred expenditure of N1,680,000 and which he sold on 10 October 2017 for N10,050,000; the amount he paid into his bank account. This car was returned by the purchaser on 20 October 2017 and LUKAKU paid him N9,660,000 for it. As this car was still unsold, on 30 November 2017, it was agreed that it should be taken over by LUKAKU at a valuation of N9,450,000. Other expenditure was incurred by the parties as follows:

MESSI LUKAKU N N Insurance 525,000 105,500 Garage 420,000 210,000

On 30 November 2017, the sum required in full settlement as between MESSI and LUKAKU was paid by the party accountable. You are required to prepare:

(A) The Joint Venture account as it would appear in the books of LUKAKU recording his transactions for the joint venture. (10 marks)

(B) The memorandum account for the joint venture showing the net profit (5 marks)

QUESTION FOUR

(A) Explain the following terminologies as they relate to forms of business combination (i) Acquisition (3 marks) (ii) Takeover (3 marks) (iii) External Reconstruction (3 marks)

(B) Briefly explain the following qualitative characteristics of financial statements

(i) Comparability (2 marks)

(ii) Understandability (2 marks)

(iii) Materiality (2 Marks)

QUESTION FIVE

Your veritable uncle has incorporated a lot of companies some of which are currently not doing very well. He is thinking of carrying out a reorganization of the companies, with one of them as a holding company. Though, he wants to bring in other shareholders, he want to retain a significant control. To be able to do this successfully, he has wants to carry out a reduction of the share capital of some of the companies. Having learnt that you are studying accounting at NOUN, he has approached you for explanation and advice on some issues involved. Explain to him the following:

(i) Four conditions a company must fulfill before it can reduce its capital. (4 Marks)

(ii) The conditions under which a parent is generally presumed to have control over other entities within a group? (4 marks)

(iii) The reasons/benefits of business combination. (Total=15 Marks)