ST.

PAUL’S UNIVERSITY
Private Bag - 00217 Limuru, Kenya
Tel. Office: 020-2020505/10; Mobile: 0728-669000
Website: www.spu.ac.ke
GO D

SCHOOL OF BUSINESS AND LEADERSHIP STUDIES

BACHELOR OF BUSINESS ADMINSTRATION AND MANAGEMENT
SEPTEMBER - DECEMBER 2023
BAC 204 – FINANCIAL ACCOUNTING 2

DATE: DECEMBER, 2023 TIME: 9.00am – 9.00pm (12 hours)

INSTRUCTIONS:
1. Answers ALL Questions.
2. Submit your answers in word format unless otherwise instructed. Type your answers in a
word document. Do not PDF your document.
3. Submit your answers via the Exam Portal.
4. For images (photographs, graphs and calculations etc), use legible writing. Take an image (Photo) of
all the answer sheets and submit via the Exam Portal. Remember to number the answer sheet pages.

NOTE: No submissions will be accepted in any other mode e.g. emails, WhatsApp etc.

5. The examinations start at 9.00am and all the answer scripts MUST be posted on the portal by 9.00pm
the following day (within 12 hours).
6. Submit your answer sheets as one document. Click the “SUBMIT” button to ensure that your answer
sheet is uploaded in the portal.
7. Allow yourself enough time to confirm that your submission has gone through. You will receive an
automated email receipt on successful submission.

NOTE: Submission deadlines must be observed.

8. On the front page of each answer script you are required to observe the following instructions:
 Write your student number in full
 Write the unit code and title
 Write the date of examination
 Write the name of the lecturer
 Write “SUPPLEMENTARY” or “DEFFERED EXAM” as the case may be, (if you are taking
a supplementary or deferred examination).
QUESTION ONE
a. Use the following information for questions i and ii. Clearly show
your workings
On January 1, Year 2, Jeanette, Barry, and Len decided to form a
partnership to produce and market Jeanette ’s newest invention. The
partners agreed to the follow- ing terms:

Contributio Salaries Profit sharing

ns ratio
Jeanette 250,000 35,000 40%
Barry 150,000 25,000 30%
Len 200,000 30,000 30%

Interest was to be accrued at 7% on opening capital balances each

year. During the year, each partner drew $20,000 from the firm.
At the end of Year 5, the partnership balances are as follows:

Jeanette 650,000
Barry 450,000
Len 500,000

i. Assume that at the end of the Year 2, the partnership reported net income of
$156,000. What is the amount that would be reported for
Jeanette’s capital account at December 31, Year 2?
(3 mks)
ii. Assume that at the end of the Year 2, the partnership reported net income of
$105,000. Which of the following is the amount that would be
reported for Barry’s capital account at December 31, Year 2?
(3 mks)

b. On January 1, Year 6, Yvonne purchases one-half of Jeanette’s interest in the partnership for
$400,000. The partners feel that the assets cannot be individually reassessed, but they want to
revalue the partnership and record goodwill based on Yvonne’s payment. What will be
reported as Len’s capital account immediately after the admission of Yvonne into the
partnership? (3 mks)
 c. On January 1, Year 6, Yvonne contributes $400,000 cash to the partnership for a
25% interest. The partners wish to use the bonus method to record Yvonne’s
interest. What will be the balance in Jeanette’s capital account immediately after
the admission of Yvonne into the partnership? (3 mks)

d. On December 31, Year 5, Len retires. The partners agree that he should be paid
$575,000, and the remaining partners wish to use the asset revaluation method and
record goodwill upon Len ’s retirement. What will be the balance in Barry’s capital
account immediately after the retirement? (3 mks)

QUESTION 2

Mike (the plumber) had been hard to find, but when he was finally found and the faucet fixed,
he had a story to tell. It seems that he had declared bankruptcy and lost his house in the
process.

A year before, Mike had had enthusiastic reports of having entered a partnership with Joe
to take on residential and commercial plumbing contracts on a larger scale. The partnership
terms were agreed upon, and the business was registered with the Nova Scotia Registrar
of Joint Stock Companies. Operations had started small: a few contracts were completed
evenings and weekends over the next few months with satisfactory prof- its, while both
Mike and Joe kept their day jobs. Then Joe took ill. Without both partners able to devote
sufficient effort to the business, they casually agreed to each take their own tools and go their
separate ways. Each would complete any jobs they had entered into as if they were
individuals. Mike had thought no more of the relationship and proceeded to take on a
few jobs in his own name to supplement his income.

Joe recovered from his illness and returned to work; but then severe illness left him unable to
complete new fixed price contracts he had entered into after the oral agreement to end his
partnership with Mike. Unable to meet the terms of his contracts, Joe was taken to court
and Mike found himself also named on court documents. When a judg- ment was reached,
Joe — divorced, with limited assets, and in poor health — was unable to make good on the
losses. Accordingly, Mike was held liable for losses associated with these contracts, as well as
court costs. Facing a judgment large enough that his salary would have been garnished by
court order for up to ten years, Mike took his lawyer ’s advice and voluntarily declared
bankruptcy.

Required:
In your role as Mike’s friend and occasional advisor, explain to Mike “what happened’ in
terms of how the characteristics of the partnership form of organization may have led to
the difficulties he faced.
What advice can you give Mike with respect to future business ventures?

3
 (5 mks)
QUESTION 3
A company started business on 1 January 2019, the financial year end being 31 December. On
1st January 2019, 1st July 2020, 1st October 2020 and 1st April 2022 the company bought 1 plant
costing Ksh. 800,000, 2 plants costing Ksh. 500,000 each, 1 plant costing Ksh. 600,000 each and
1 plant costing ksh. 200,000 respectively. Depreciation is at the rate of 5 per cent per annum,
using the straight-line method, plant being depreciated for each proportion of a year.

Required;

a. The plant account.

b. The provision for depreciation account.
c. The balance sheet extracts for each of the years 2019, 2020, 2021 and 2022
(10 mks)

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