UNIVERSITY OF DAR ES SALAAM

Registration No.

UNIVERSITY OF DAR ES SALAAM BUSINESS SCHOOL

DEPARTMENT OF ACCOUNTING
COURSE CODE & TITLE: AC 304 ADVANCED ACCOUNTING
FIRST SEMESTER FINAL EXAMINATIONS FOR THE ACADEMIC YEAR 2014/14
YEAR OF STUDY: III
DATE:

February 2nd, 2015

TIME:

3 HOURS

INSTRUCTIONS
1. This examination paper consists of six printed pages with questions divided into two
sections Section A (30 marks), and section B (30 marks), in TOTAL 60 MARKS.
2. Answer all questions in Section A and TWO questions from Section B where
QUESTION 1 is also a mandatory one. Show all your workings where relevant.
3. Do not use this examination paper for rough work. All rough work must be done in the
answer book (at the back) and crossed through.
4. This examination paper must be handed in together with your answer book.
5. Unauthorized materials and gadgets such as all types of mobile phones and accessories as
well as other relevant unauthorized materials are not allowed in the examination venues.

SECTION A
This section contains two questions, which carry a total of 30 marks ANSWER ALL two
questions.
QUESTION 1
Below are 10 Multiple Choice Questions (MCQs); choose the most correct answer among the
four given alternatives then indicate your answer by writing the appropriate letter, A, B, C or D
in your answer booklet.
(i)
(a)
(b)
(c)
(d)
(ii)
(a)
(b)
(c)
(d)
(iii)

(a)
(b)
(c)
(d)
(iv)

According to Garner vs. Murray rule, the insolvency loss should be borne by
solvent partners according to:
Their capital ratios,
Profit sharing ratios,
Final claims ratios,
Maximum loss ratios.
At the time of dissolution of partnership firm:
All the assets are usually transferred to realization account,
Only current assets are transferred to realization account,
Non-cash assets are transferred to realization account,
Only liquid and current assets are transferred to realization account.
When a partnership is dissolved, piece-meal, and the following claims need to be
met out of the cash realized, which is the correct sequence in which these claims
have to be met?
1.
In paying to each partner rateably what is due to him from the firm
for advances as distinguished from capital (Any partners loan),
2.
In paying to each partner rateably what is due to him on account of
capital (Return capital & current account balance),
3.
In paying the expenses incurred on dissolution exercise,
4.
In paying the debts of the firm to third parties or outsiders claims
(payables and accruals).
1, 2, 4 & 3
2, 3, 1 & 4,
3, 4, 1 & 2.
None of the above, my suggestion is ..
A companys profit after tax for the year to 31 st December, 2013 was TZS
150,000,000. The comparative figure for 2012 was TZS 135,000,000. The
companys issued share capital at 1st January, 2012 consisted of 240,000 ordinary
shares. A 1 for 4 bonus issue was made on 1 st July, 2013; there were no other
share issues in either year. Basic EPS for 2013 and restated EPS for 2012 are:
(a) TZS 556 and TZS 500,
(b) TZS 500 and TZS 450,
(c) TZS 500 and TZS 562.50,
(d) TZS 556 and TZS 562.50.
2

(v)

In March, 2013, a company made a 1 for 10 rights issue at 70% of price per share
market value, which just before the rights issue was TZS 1,250/=. The theoretical
market value per share after the rights issue has been made should be:
(a) TZS 875,
(b) TZS 2,125,
(c) TZS 1,216,
(d) TZS 1,200.

(vi)

The Branch Current account in the accounting records of the TK Branch had a
debit balance of TZS 12,000 at the end of April, and the Head office Current
account in the accounting records of the head office had a credit balance of TZS
15,000/=. The most likely reason for the discrepancy in the two ledger account
balances is:
(a) Merchandise shipped by the head office to the branch had not been
recorded by the branch.
(b) The home office had not recorded the branch net income for April.
(c) The branch had just collected home office trade accounts receivable
in the amount of TZS 3,000.
(d) The branch had not yet recorded the home office net income for
April.

(vii)

Which of the following items are credited in capital reduction account?

(a) Money received from calling uncalled part of issued share capital, gain
on revaluation and preference dividend forgone
(b) The value of cancelled shares, goodwill write-off and discount
received
(c) Bad debts written off, loss on realization, stock write-offs
(d) Debenture interest foregone, Discount received, gain on revaluation
(e) None of the above
(viii) Pam Ltd acquired 60% of ordinary shares in Sema Ltd on 1 January 2010.On that
date property of Sema Ltd was estimated by directors of Pam Ltd to be
undervalued by TZS 5000.000.What is the effect of this on goodwill?
(a) Goodwill increases by 5,000,000
(b) Goodwill decreases by 5,000,000
(c) Goodwill increases by 3,000,000
(d) Goodwill decreases by 3,000,000
(e) My answer is
(ix)
Which of the following statement is true about redemption of shares?
i. If it is financed by new issue, proceeds from new issue must equal the nominal
value of preference shares to be redeemed.
ii. If the balance in retained earnings is not enough to write off the premium on
redemption, then only a proportionate number of preference shares should be
redeemed just enough to cover the premium on redemption.
iii.
Normally premium on redemption is financed out of new issue of shares
3

iv.

(x)

There must be authority in articles of association

(a) All of the above
(b) None of the above
(c) i and ii only
(d) i, ii and iv only
Neither the Palmer Branch nor the home office of Rupert Company had
completed any intracompany transactions during the last half of May, yet the
credit balance of the branch's Home Office ledger account on May 31 was larger
than the debit balance of the home office's Investment in Palmer Branch account.
The most likely reason for this discrepancy is:
(a) The home office reported a net loss for the month of May.
(b) The branch reported a net loss for the month of May
(c) The branch returned merchandise to the home office.
(d) The branch reported a net income for the month of May.
(10 Marks)

QUESTION 2
(a)Differentiate the following concepts as used in financial reporting practices:
i. Dissolution of partnership vs. dissolution of a firm,
ii. Realization account vs. revaluation account,
iii. Proportionate capital method vs. maximum loss method as applied in the
dissolution of partnership,
iv. Basic Earnings Per Share (EPS) vs. Diluted Earnings Per Share as per IAS 33
Earnings Per Share,
v. Market value vs. theoretical ex-rights value of shares.
(10 arks)
(b) Write a short memo to the Director General of MGM Company the reasons for doing
capital reduction and the conditions to be fulfilled before implementing capital reduction
scheme
.
(6
marks)
(c) PAZI Ltd has a controlling interest in SEMI Ltd. The Finance Manager of PAZI LTD is
wandering whether to prepare consolidated financial statement or not. You are required to
explain to him the situation that may allow PAZI Ltd not to prepare consolidated
financial statements.
(4 marks)

(20 Marks)
SECTION B
This section contains three questions. You must answer QUESTION 1 plus any other question
from the remaining two questions as per your choice in total you should answer only two
questions from this section.

QUESTION 1
Pomoni Ltd acquired 90% ordinary share capital, 40% of preference share capital and 30% of
5% debentures in Simbeya Ltd at 1st January 2009 for TZS 24,000,000, TZS 5,000,000 and TZS
5,600,000 respectively. Simbeya Ltds balance sheet at 31st December 2008 showed retained
earnings of TZS 12,000,000. The Balance sheets of the two companies at 31st December 2009
are given below.

The following matters are to be taken into consideration:

(i) During 2009, Simbeya declared and paid 10% ordinary dividends out of the profits made
in 2008.
(ii)
Included in the receivables of Pomoni Ltd is an amount of TZS 3,000,000 due
from Simbeya Ltd. TZS 1,000,000 of this amount is in transit from Simbeya Ltd.
(iii)
Simbeya Bought goods from Pomoni at TZS 3,000,000 towards the end of 2009.
These goods had originally cost Pomoni TZS 2,500,000. Half of these goods are still in the
stocks of Simbeya Ltd.
(iv)
Although Simbeye Ltd declared annual preference dividends, Pomoni Ltd is yet to
receive its share; Pomoni Ltd has not made appropriate entries in its books.
5

Required:
Prepare a Consolidated Balance Sheet of Pomoni Group as at 31st December 2009
(15 marks)
QUESTION 2
(a) Sweet Mia Plc (SMP) had a Basic EPS of TZS 1,050/= based on earnings of TZS
105,000,000/= and 100,000 ordinary shares. The company also had in issue TZS
40,000,000 15% Convertible Debentures which is convertible in two years time at the rate
of 4 ordinary shares for every TZS 5,000/= of debenture. The rate of tax is 30%; in 2013
the companys gross profit of TZS 200,000,000/= and expenses of TZS 50,000,000/= were
recorded plus an interest payable of TZS 6,000,000/=.
The income statement of SMC for 2013 before the conversion of debenture into ordinary
shares appeared as follows:
TZS
200,000,000
(44,000,000)
156,000,000
(6,000,000)
150,000,000
45,000,000
105,000,000

Gross profit
Operating expenses
Profit from operations
Financial expenses
Profit before tax
Income tax (30%)
Profit after tax
Required:
(i)
(ii)

Calculate the diluted EPS figure, to be disclosed in the statutory accounts of SMP
in respect of the year which ended in 31st December, 2013.
Briefly comment on the need to disclose a diluted EPS figure you have computed
and the relevance of this figure to the shareholders.
(6 Marks)

(b) X, Y and Z were partnership sharing profits and losses in the ratio of 4:3:1; their
statement of financial position as on 31st March, 2013 appeared as follows:
Liabilities
TZS 000
Assets
TZS 000
Xs Capital A/C
52,500 Building
45,000
Ys Capital A/C
22,500 Machinery
15,000
Zs Capital A/C
37,500 Stock
41,250
Secured Bank Loan
6,750 Debtors
45,000
Creditors
19,500
Xs Loan
7,500
_____
6

146,250

146,250

Upon some disagreement on certain issue, they decided to dissolve their business. The
assets were realized gradually and the net amounts distributed immediately as follows:
2013
TZS 000
TZS 000
May 30
16,500
Expenses paid
1,500
July 30
12,600
Expenses paid
1,100
Sept. 30
28,500
Expenses paid
2,250
Nov. 30
34,000
Expenses paid
4,000
December, 31
54,000
Expenses paid
5,000
Required
Show the distribution of cash among partners using the maximum possible loss method.
(9 Marks)
(15 Marks)
QUESTION 3
Reality Ltd Company has been experiencing losses for a number of years. Its summarized
balance sheet at 31.12 2014 was as follows:
TZS 000
Fixed assets:
Land and Buildings
Plant and Machinery
Intangibles
Goodwill
Patents and trade marks
Deferred advertising expenditure
Investments in Wazo Ltd

TZS 000
220,000
215,000

62,500
25,000
62,500

Current assets
Stocks
Debtors
TOTAL ASSETS

182,500
246,250

Ord. share capital (@ 1,000/=)

6% Pref share capital (@ 1,000/=)
Profit and Loss account
5% debenture stock
Directors Loan
Current liabilities
Creditors
Bank Overdraft
Debenture Interest

150,000
75,000

428,750
1,088,750
500,000
250,000
(212,500)
125,500
57,000

212,500
150,000
6,250
7

368,750

TOTAL EQUITY& LIABILITIES

1,088,750

A capital reduction scheme was agreed under the following terms:

1)
The preference shares to be reduced to 800/= and the ordinary shares to 250/= each.
2)
The preference share dividends are three years in arrears. The preference shareholders
are to waive two-thirds of the dividend arrears and receive ordinary shares for the balance.
3)
All intangible assets are to be eliminated and bad debts of TZS 18,750,000 and obsolete
stock of TZS 25,000,000 to be written off.
4)
The Investments in Wazo Ltd are to be sold for TZS 150,000,000.
5)
The debenture holders agreed to take one of the companys Machinery (book value TZS
45,000,000) at a price of TZS 62,500,000 in part satisfaction of the debenture. They also
agreed to provide further cash of TZS 40,000,000 in exchange of ordinary share capital.
6)
The arrears in debenture interest are paid.
7)
A contingent liability of TZS 125,000,000 that was not booked materialized and it was
paid.
8)
The directors agreed to take ordinary shares in satisfaction of their loans.
9)
Eliminate the negative balance in the P&L account.
Required:
(a) Journal entries to record the above, including the cash transactions.
(b) Capital Reduction Account.
(c) The revised statement of financial position after the reorganization.

(7.5 marks)
(3.5 marks)
(4 marks)
(15 Marks)

End of Question Paper