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(Code: A24/ 14 May 2020) Which subject: Advanced Financial AccountingIf there is any program to use : two documents attachedCalculations or thury: calculation and thuryHow many words: for each thury quotation need around 250 and 300 words***********************‎ take_home_exams_paper____spring_2020_copy.docx part_e_tutorial___key2_copy.docx part_d_online_copy.docx Unformatted Attachment Preview College of Banking and Financial Studies DEGREE: B.Sc. ACCOUNTING, AUDITING AND FINANCE SEMESTER: 8 Student Name Student Number Semester Spring 2020 MARKS 100 Weightage 50\% Unit title Advanced Financial Accounting (UG004) Exam Paper Issue Date 14th May, 2020 Type of Assessment TAKE-HOME EXAM – Spring 2020 (I N D I V I D U A L) Submission Deadline 30th May, 2020 Assessor: Dr.Labeeb Mohammed Zeeshan Internal Verifier: Dr.Roslin Lazarus Advanced Financial Accounting TAKE-HOME EXAMS – Spring 2020 Page 1 Instructions to candidates: 1. This assessment is Take home exam which is a substitute of your Final exam. It is to be completed Individually. 2. Kindly include your Name and Student Number in the heading page above. 3. This Assessment accounts for 50\% of the total marks available for this Module. 4. Answer All the Questions. 5. You are expected to Show all your workings clearly wherever needed. 6. Please start each answer on Fresh page. 2. Plagiarism is a form of cheating in which students use the work of others and present it as their own. Do not Allow another student to copy your work and then submit it under their own name. The college considers this form of cheating as a serious offence. 7. Please limit your discussions around the theoretical question to around 250 - 300 words. This assessment is mostly based on calculations, computations, and the correct application of management accounting concepts. All of your calculations should be shown in full into the main body of your answer. 8. Please be aware that your work will be submitted through Turnitin. You must only submit your own work including correct citations and references for any external materials used in your work. Turnitin ID 248000898 Password : finance Advanced Financial Accounting TAKE-HOME EXAMS – Spring 2020 Page 2 There are TWO Sections Section A – TWO (compulsory) questions to be attempted Task 1 (60 marks weightage) (Task 1 = Total 30 weightage) a. Differentiate between dissolution of a partnership and withdrawal of a partner? With examples? (15 Marks) b. The Muneer, Majid, and Mahmood partnership had two assets: (1) cash of RO 120,000 and (2) an investment with a book value of RO 330,000. The ratio for sharing profits and losses is 6:3:3. The balances in the capital accounts were: Muneer, capital: RO 45,000 Majid, capital: RO 75,000 Mahmood, capital: RO 30,000 Required: If the investment was sold for RO 240,000, how much cash would each partner have received? (15 Marks) Advanced Financial Accounting TAKE-HOME EXAMS – Spring 2020 Page 3 Task 2 (Task 2 Total 30\% weightage) a. Identify the various types of creditors as they are labeled during a bankruptcy. (15 Marks) b. Link and Pen Partnership company that was to be liquidated had the following liabilities: Particulars Salaries to the employees Long term loans Bills payable Taxes payable Expenses for administering liquidation process Amount (RO) 8,900 40,500 78,000 5,200 13,000 The company had the following assets (Fair value) Inventory RO 21,450 Property RO 59,500 Investments RO 71,500 What is total liabilities with Priority are calculated to be? (15 Marks) Advanced Financial Accounting TAKE-HOME EXAMS – Spring 2020 Page 4 Section B- One question (compulsory) 40 marks weightage Task 1 a. Khalid and Waleed form a business to be operated as a partnership. Khalid contributes RO 25,000 in cash and Waleed invest RO 10,000. i. Pass the journal entry to record the creation of the partnership? (5 marks) b. Khalid and Waleed started an engineering consultancy and created a partnership firm and have decided to share the profits and losses equally to capital balances. Khalid contributes RO 105,000 in cash and Waleed invested RO 15,000. Waleed as an experienced engineer is considered valuable to the business to give inputs with his technical skills i. ii. Pass the journal entry as per the BONUS method? Pass the journal entry as per the GOODWILL method? (6 Marks) (8 Marks) c. Explain with the support of an illustration the process of termination and liquidation of a partnership? (With supportive example) (10 Marks) d. Discuss the role of trustee at the time of liquidation of the company and liquidation of company assets? (With supportive example) (11 Marks) Advanced Financial Accounting TAKE-HOME EXAMS – Spring 2020 Page 5 Part E Predicting and preventing corporate failure Q1. What are the four categories of debts in a Statement of Financial Affairs? (1) Liabilities with priority, (2) fully secured creditors, (3) partially secured creditors, and (4) unsecured creditors. Q2. What term is used for a bankruptcy forced upon a debtor by its creditors? The appropriate term is involuntary bankruptcy. Q3. What is the role of the trustee in the liquidation of a company? The trustee must recover all properties belonging to the insolvent company and preserve the estate from further deterioration. The trustee liquidates noncash assets and makes distributions to proper claimants. The trustee may continue operating the company to complete all business activities that were in progress when the order for relief was entered. The trustee is required to make proper recording of all activities and report them to the court and interested parties. Q4. What information is included on the statement of realization and liquidation? The statement of realization and liquidation reports the account balances of the company at the date the order of relief was filed. The report will specify the cash receipts generated by the sale of the debtors property, cash disbursements by the trustee to wind up the affairs of the business and to pay secured creditors, and other items that need book adjustments such as asset write-offs and recognition of unrecorded liabilities. Any cash that remains is paid to unsecured creditors. 1 Q5. A company that was to be liquidated had the following liabilities: The company had the following assets: Maximum employees payment not excess $12,475. Total assets available to pay liabilities with priority and unsecured creditors are calculated to be what amount? terms and conditions for payment of liablities = that is the reason we are not calculating Notes payable 156,000 is secured against the value of land (fair value) 117,000 2 Q6. A company that was to be liquidated had the following liabilities: The company had the following assets: What is total liabilities with priority are calculated to be? Total assets available = 185,900 – liabities with priority 15,675 total assets available after paying of liabilities with priority = 134,225 3 Q7. Lucky Co. had cash of $65,000, inventory worth $117,000, and a building worth $169,000. Unfortunately, the company also had accounts payable of $234,000, a note payable of $104,000 (secured by the inventory), liabilities with priority of $26,000, and a bond payable of $195,000 (secured by the building). what is assets available for unsecured creditors after payment of liabilities with priority are calculated to be what amount? Note 1: Building are secured against bond payable (that is the reason we are not adding building value) = Building value (169,000)is less whereas the bond payable (195,000) value is more ( asset value is less liability value is more) shortage 169,000 – 195,000 = 26,000 Note 2: inventory value 117,000 secured against note payable ( 104,000) = Asset value is more whereas the liabilities value is less - surplus 13,000 Current assest: free cash = inventory = 117, 000 Less - (secured invent pay) (104000) = 13000 + Add cash 65000 = 78000 Lib with pri 26000= Total = 52000 4 Part D Partnership Businesses Q1. What events cause the dissolution of a partnership? The dissolution of a partnership occurs whenever there is a change in the members that make up the partnership. • Dissolution does not mean going out of business, although, on occasion, dissolution would be accompanied by liquidation of assets and termination of the business. • Dissolution would occur whenever a new partner is admitted to the partnership, dissolving one partnership and forming a new one. • Dissolution also occurs when a partner leaves the partnership or when a partner dies or retires. • The Articles of Partnership may allow the partners to force dissolution under some circumstances. Q2. How is accounting for a partnership different from accounting for a corporation? Financial accounting for a partnership differs from corporate accounting only in accounting for owners equity. A partnership does not sell capital stock and does not have a retained earnings account. Each partner will have a capital account and a drawing account. On the balance sheet, the balance in each of the partners capital accounts should be reported. The accountant for a partnership must divide income or loss among partners, following the provisions of the Articles of Partnership. Income tax accounting differs between corporations and partnerships. A corporation is a taxable entity and must file an income tax return. A partnership is not a taxable entity but is required to file an informational return that reports the various amounts of revenues and expenses attributed to each partner. 1 Q3. What is the role of the accountant during the liquidation process? The accountant works to ensure the equitable treatment of all parties involved in the liquidation. The accountant is responsible for recording and reporting the conversion of partnership assets into cash, the allocation of gains and losses, the payment of liabilities and expenses, and any remaining unpaid debts and distributions to the partners. 2 Q4. Reed, Sharp, and Tucker were partners with capital account balances of $80,000, $100,000, and $70,000, respectively. They agreed to admit Upton to the partnership. Upton purchased 30\% of each partners interest, with payments directly to Reed, Sharp, and Tucker of $32,000, $40,000, and $28,000, respectively. Before the admission of Upton, the profit and loss sharing ratio was 2:3:2. The partners agreed to use the book value method to account for the admission of Upton to the partnership. Required: Prepare the journal entry to record the admission of Upton to the partnership. 30\% * 80,000 = $ 24,000 30\% * 100,000 = $ 30,000 30 * 70,000 = $ 21,000 Total = $ 75,000 Dr Reed capital 24,000 Dr Sharp capital 30,000 Dr Tucker capital 21,000 Cr Upton capital 75,000 (Being Upton added as a new partner ) 3 Q5. Norr and Caylor established a partnership on January 1, 2012. Norr invested cash of $100,000 and Caylor invested $30,000 in cash and equipment with a book value of $40,000 and fair value of $50,000. For both partners, the beginning capital balance was to equal the initial investment. Norr and Caylor agreed to the following procedure for sharing profits and losses: - 12\% interest on the yearly beginning capital balance Interest on capital - $10 per hour of work that can be billed to the partnerships clients - the remainder divided in a 3:2 ratio The Articles of Partnership specified that each partner should withdraw no more than $1,000 per month. (per year 1,000 x 12 months = $12,000) For 2012, the partnerships income was $70,000. Norr had 1,000 billable hours, and Caylor worked 1,400 billable hours. In 2013, the partnerships income was $24,000, and Norr and Caylor worked 800 and 1,200 billable hours respectively. Each partner withdrew $1,000 per month throughout 2012 and 2013. (per year 1,000 x 12 months = $12,000) Determine the amount of net income allocated to each partner for 2012. Distribution of income for 2012: Norr (capital = 100,000) = interest on capital 100,000 x 12/100 = $ 12,000 Caylor cash = 30,000 + equipment fair value $ 50,000 = total invested = $ 80,000 total invested = total capital Interest on capital - Caylor = $ 80,000 x 12 / 100 = 9,600 COMPENSATION = Norr = $ 10 x 1,000 hours = $ 10,000 Caylor $ 10 x 1,400 hours = $ 14,000 4 Total profits in 2012 = $ 70,000 Less Interest on capital (12,000 + 9,600) ($21,600) Less Compensation (10,000 + 14,000) (24,000) ------------------- Balance(remainder) Norr share in remainder 24,400 x 3/ 5 = 14,640 Caylor share in remainder 24,400 x 2/5 = 9,760 Capital account balances at the end of 2012: Closing balances Closing balance of the partners as on 31st December, 2012 5 24,400 Q6. established a partnership on January 1, 2012. Norr invested cash of $100,000 and Caylor invested $30,000 in cash and equipment with a book value of $40,000 and fair value of $50,000. For both partners, the beginning capital balance was to equal the initial investment. Norr and Caylor agreed to the following procedure for sharing profits and losses: - 12\% interest on the yearly beginning capital balance - $10 per hour of work that can be billed to the partnerships clients - the remainder divided in a 3:2 ratio The Articles of Partnership specified that each partner should withdraw no more than $1,000 per month. For 2012, the partnerships income was $70,000. Norr had 1,000 billable hours, and Caylor worked 1,400 billable hours. In 2013, the partnerships income was $24,000, and Norr and Caylor worked 800 and 1,200 billable hours respectively. Each partner withdrew $1,000 per month throughout 2012 and 2013. Determine the amount of net income allocated to each partner for 2013. (Round all calculations to the nearest whole dollar). Capital account balances at the end of 2012: Distribution of income for 2013: Interest on capital to be calculated on the closing balance of capital as on 31st December, 2012 Interest on capital to Norr = 124, 640 x 12 / 100 = 14,957 Interest on capital to Caylor = 101,360 x 12 /100 = 12,163 6 compensation = Norr = 800 hours x $ 10 = $ 8,000 Caylor 1,200 hours x $ 10 = $ 12,000 Total expenses = 47,120 LessProfit 2013 = (24,000) given in the question remainder = 23,120 Norr share in remainder 23,120 x 3 /5 = 13,872 Caylor share in remainder 23,120 x 2 /5 = 9,248 7 Q7. The ABCD Partnership has the following balance sheet at January 1, 2012, prior to the admission of new partner, Eden. Eden contributes $49,000 into the partnership for a 25\% interest. The four original partners share profits and losses equally. Using the bonus method, determine the balances for each of the five partners after Eden joins the partnership. Edens contribution of $49,000 into the partnership raises the total partnership net assets to $400,000. Edens capital account is credited, by agreement, for 25\% of the partnerships total tangible assets, or $100,000. Net assets = total assets – liabilities + new equity capital Net assets = 403,000 – 52,000 + 49,000 = 400,000 (net assets) Net assets 400,000 = eden 25\% = eden capital = 400,000 x 25 / 100 = 100,000 The journal entry to record the admission of Eden is: existing partners profit sharing ratio =equally = sacrifice the capital also equally 8 total capital of eden = 100,000 cash = 49,000 Balance is = 100,000 – 49,000 = 51,000 (this balance has to sacrificed by the existing partners equally (25\% each) 51, 000 x 25 / 100 = 12,750 each capital account has to be debited The capital balances of each of the five partners after Edens entry into the partnership are as follows: New capital amount = old capital amount – amount of capital sacrificed adams new capital amount = 26,000 – 12,750 = 13,250 Barnes new capital amount = 52,000 – 12,750 = 39,250 cordas new capital amount = 117,000 - 12,750 = 104,250 Davis new capital amount = 156,000 – 12,750 = 143,250 Eden new capital only = 100,000 9 Q8. The Amos, Billings, and Cleaver partnership had two assets: (1) cash of $40,000 and (2) an investment with a book value of $110,000. The ratio for sharing profits and losses is 2:1:1. The balances in the capital accounts were: Amos, capital: $45,000 Billings, capital: $75,000 Cleaver, capital: $30,000 Required: If the investment was sold for $80,000, how much cash would each partner have received? SOLUTION Book value = 110,000 Realizable value 80,000 Loss 110,000 – 80,000 = 30,000 profit sharing ratio 2: 1 : 1 or Amos 2/4 = 0.5 Billing 1/ 4 = 0/25 and Cleaver 1 / 4 = 0.25 Revised capital of partner after sharing of loss on sale of Investment new capital = old capital – share in losses Amos 45,000 - (30,000 x .5) = 45,000 – 15,000 = 30,000 Billing 75,000 – 30,000 x 0.25 75,000 – 7,500 = 67,500 Clearver 30,000 – 30,000 x 0.25 30,000 – 7,500 = 22,500 10 11 Q9. Hardin, Sutton, and Williams have operated a local business as a partnership for several years. All profits and losses have been allocated in a 3:2:1 ratio, respectively. Recently, Williams has undergone personal financial problems, and is insolvent. To satisfy Williams creditors, the partnership has decided to liquidate. The following balance sheet has been produced: During the liquidation process, the following transactions take place: - Noncash assets are sold for $116,000.Book value 227,000 – sale value 116,000 = difference is loss on sale of non cash assets - Liquidation expenses of $12,000 are paid. No further expenses are expected. - Safe capital distributions are made to the partners. - Payment is made of all business liabilities. 80,000 = liabilities - Any deficit capital balances are deemed to be uncollectible. 12 Hardin 3/ 6 Suttons 2/6 Williams 1 / 6 Prepare journal entries to record the actual liquidation transactions. Journal Entry 1 non cash assets (book value ) = 227,000 sale value (disposable value ) = 116,000 loss in sale of non cash asset = book value –disposable value 227,000 – 116,000 = 111,000 Loss should be shared among the partners in the ratio 3/6; 2/6 and 1/ 6 Hadrins 111,000 x 3/ 6 = 55,500 Suttons 111,000 x 2/6 = 37,000 Williams 111,000 x 1 /6 = 18,750 DR. Cash 116,000 Dr Hardin capital (loss) 55,500 Dr Sutton capital (loss) 37,000 Dr 18,500 Cr Williams capital (loss) Non cash assets 227,000 13 (Being non cash asset disposed off at the time of liquidation) Journal entry 2 (sharing of expenses 12,000 ) Dr Harding capital (12,000 x 3/6) 6,000 Dr Suttons capital (12,000x 2/6) 4,000 Dr Williams capital (12,000 x 1/6) 2,000 Cr Cash 12,000 (Being liquidation expenses paid off) Journal entry 3 – Safe cash distribution they are paying it off to the other two partners Dr. Harding capital 31,800 Dr Suttons capital 2,200 Cr Cash 34,000 (Being the safe (remaining) capital distribution to the partners) Insolvent partner will not be in picture Journal entry 4 - Liabilities paid off Dr Liabilities Cr 80,000 Cash 80,000 (Being liabilities paid off) 14 Journal entry 5 – Absorption of deficit (Williams – 4,500) in the ratio 3 : 2 (Hardins 3/5 x 4,500 – 2,700 and Suttons 2/5 x 4,500 = 1,800) Dr Hardin capital 2,700 Dr Suttons capital 1,800 Cr Williams capital 4,500 (Being deficit of Williams capital is shared among the other partners) 15 Particulars Hardins Suttons Williams Beginning balances 96,000 45,000 16,000 Liquidation (6,000) (4,000) (2,000) (55,500) (37,000) (18,500) Subtotal 34,500 4,000 4,500 Less Absorption of (2,700) (1,800) (4,500) 31,800 2,200 0 expenses Less : Loss on sale of non cash assets DEFICIT Safe capital cash distribution the share of William should be shared among the Hardins and Sutton in the ration 3: 2 : 1 revised ratio 3: 2 - ABSORPTION OF DEFICIT share of 4,500 – Hardins = 4,500 x 3/5 = 2,700 share of 4,500 – Suttons = 4,500 x 2/5 = 1,800 16 17 ... 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