ADVANCED FINANCIAL ACCOUNTING (8553)

ASSIGNMENT No. 1
Q.1 From the following given particulars, you are required to determine the (i) annual rental payments (ii) lease
classification (iii) prepare the Amortization Schedule (iv) also pass the journal entries throughout the lease term in
the books of lessee. Annual rentals are payable at the beginning of each year.
Lease Signed on
Lease Term
Fair Value of the Assets at Inception
Economic Life
Implicit Interest Rate
Bargain Purchase Option
Depreciation Method

January 1, 2014
3 years
Rs. 24,000
5 years
15%
Rs. 6,000
Straight Line

Q.2 The following data is obtained from the books of Blue Insurance Company related to Premium. All amounts are
given in rupees.
Class
Fire and property
damage
Marine, aviation
and transport
Motor
Accident and
health
Miscellaneous

Reinsurance
ceded

Premiums
written

Prepaid reinsurance
premium ceded
Opening
Closing

Unearned premium
reserve
Opening
Closing

38,407,579

49,132,652

23,831,702

18,474,924

28,918,784

23,091,158

22,684,549

32,881,187

2,663,085

3,502,943

3,171,563

4,389,644

3,184,309

144,749,425

1,131,356

1,514,851

54,060,186

62,584,901

43,208,903

71,879,782

22,679,234

21,238,115

31,388,267

34,664,017

18,921,380

33,318,657

27,577,551

9,652,523

29,993,506

14,872,970

You are required to prepare the statement of Premium for the year ended on December 31, 2014.

Q.3 Context Corporation reports the following components of stockholders equity on December 31, 2013.
Common Sock-Rs. 10 par value, 50,000 shares authorized, 20,000 shares issued and outstanding
Rs.
200,000
Paid-in capital in excess of par value, common stock
30,000
Retained earnings
135,000
Total stockholders equity
Rs. 365,000
In year 2014, the following transactions affected its stockholders equity accounts.
Jan 1:
Purchased 2,000 shares of its own stock at Rs. 20 cash per share.
Jan 5:
Directors declared a Rs.2 per share cash dividend payable on Feb 28 to Feb 5 stockholders of record.
Feb 28:
Paid the dividend declared on January 5.
July 6:
Sold 750 of its treasury shares at Rs. 24 cash per share.
Aug 22:
Sold 1,250 of its treasury shares at Rs. 17 cash per share.
Sept 5:
directors declared a Rs. 2 per share cash dividend payable on October 28 to the September 25
stockholders of record.
Oct 28:
Paid the dividend declared on September 5.
Dec 31:
Closed the Rs. 194,000 credit balance (from net income) in the Income Summary account to Retained
Earnings.
Required:
i.
Prepare journal entries to record each of these transactions for 2014.
ii.
Prepare a statement of retained earnings for the year ended December 31, 2014.
iii. Prepare the stockholders equity section of the companys balance sheet as of December 31, 2014.

Q.4 The income statements for P and S for the year ended 31st December 2012 are shown below. P acquired 80% of the
ordinary share capital of S several years ago. You are required to prepare the consolidated comprehensive income
for the year 2012.

Sales
Cost of sales and expenses
Gross profit
Investment income:
Dividend received from S
Profit before tax
Tax
Profit after tax

P
Rs 000
2,400
(2,160)
240
2
242
(115)
127

S
Rs 000
8000
(720)
80

80
(38)
42

Q.5 Morrison Company had credit sales of Rs. 2,500,000 during the year, its first year of business. Morrison has
estimated that Rs. 50,000 of these sales on account will ultimately be uncollectible. In addition, year-end review of
accounts identified that of the Rs.200,000 in accounts outstanding as of the end of the year.
Rs.43,000 were worthless because the business customers associated with those accounts had gone bankrupt. Using
the allowance method of accounting for bad debt expense, make the journal entries necessary to record (i) bad debt
expense for the year and (ii) the write-off of uncollectible accounts at the end of the year.

Q.6 Identify the accounting principle(s)/Concept(s) applicable to each of the following situations:
(10)
a.
Tim Roberts owns a bar and a rental apartment and operates a consulting service. He has separate financial
statements for each.
b.
An advance collection for magazine subscriptions is reported as a liability titled Unearned subscriptions.
c.
Purchases for office or store equipment for less than Rs. 25 are entered in Miscellaneous Expense.
d.
A company uses the lower of cost or market for valuation of its inventory.
e.
Partially completed television sets are carried at the sum of the cost incurred to date.
f.
Land purchased 15 years ago for Rs. 40,500 is now worth Rs. 346,000. It is still carried on the books at Rs.
40.500.
g.
Zero Corporation is being sued for Rs. 1,000,000 for breach of contract. Its lawyers believe that the damages
will be minimal. Zero reports the possible loss in a note.

Q.7 Complete the Cost of Goods sold section for the income statements of the following five companies.

Beginning inventory
Purchases
Purchase returns
Cost of goods available for sale
Ending inventory
Cost of goods sold

Able
Company

Baker
Company

Carter
Company

Delmont
Company

Eureka
Company

Rs.16,000
26,500
_______
42,100
_______
33,400

Rs. 24,800
_______
Rs. 1,000
_______
22,200
67,200

_______
Rs. 43,000
Rs. 1,800
58,300
15,200
_______

_______
Rs. 89,500
Rs. 200
_______
28,800
93,400

Rs. 19,200
_______
Rs. 2,200
81,500
_______
68,400

(10)