Question 6 (a) (D) IAS 2: Inventory was revised in December. 2003. The Standard lays down the required accounting treatment for inventories. Required: Explain the: (i) meaning of inventory excluding the production process as per IAS 2. (4 marks) (ii) objectives of IAS 2. (2 marks) (iii) scope of IAS 2. (6 marks) The difficulty in inventory valuation is in finding out the 0081 price OT inventory because it is not easy when quantities of a particular inventory item are continuously being bought at different prices and then sold. In addition. some entities have inventories in different forms. Required: Explain the: (i) components of the cost of inventory. (2 marks) (ii) costs that should be excluded as part of the cost of inventory. (2 marks) (iii) The first in first out and weighted average methods of inventory valuation. (4 marks) (Total 20 marks) Question 1 (a) (b) (C) (d) Explain the meaning of the term 'accounting policies' as applied in the generally accepted accounting principles (GAAP). (2 marks) Explain the following concepts as applied in financial reporting: (i) Consistency. (2 marks) (ii) Historical cost. (2 marks) (iii) Substance over form. (2 marks) The accountant of Toa Bus Ltd prepared the financial statements for the previous year, valuing inventory at Shs 4 million on the basis of the first in first out valuation method. In the current year. the accountant intends to use the weighted average method to value inventory. Required: Comment on the accountant's decision and advise him on the appropriate course of action. (4 marks) A machine was procured at Shs 90 million on 1 January. 2016. The company incurred Shs 35 million in non-refundable taxes and Shs 4 million in installation costs. The machine was being serviced quarterly at Shs 500.000 per quarter. Required: Explain the entries in the machinery account as at 1 January. 2016 and as at 1 January, 2017. (4 marks) Fireworks Ltd, an advertising company. acquired a mobile van from PTC Commercial Bank Shs 48 million on hire-purchase terms. The terms included among others. a down payment of 25% of the value of the van to be entitled to use it. Fireworks Ltd has paid the initial deposit and is yet to clear the remaining balance as per the terms. Required: Explain, with justification. how the mobile van should be accounted for by both entities. (4 marks) (Total 20 marks) 6. Opening and closing balances include: Inventory 1 January, 2017 31 December, 2017 Shs Shs Timber 54,000,000 3,600,000 Work in progress 1,450,000 960,000 Finished goods 9,000,000 6,000,000 Other balances: Accrued salaries 3,000,000 4,000,000 Prepaid electricity 450,000 210,000 Required: Prepare, for Tubonge Youth Carpenters Ltd for the year ended 31 December 2017, a: (i) manufacturing cost statement. (8 marks) (ii) statement of profit or loss and other comprehensive income. (10 marks) (Total 20 marks) Question 5 The objective of IAS 1: Presentation of Financial Statements is to prescribe the basis for presentation of general purpose financial statements in order to ensure comparability both with the entity's own financial statements of previous periods and with the financial statements of other entities. Required: (a) (b) (0) Explain the components of financial statements as per IAS 1. (6 marks) Explain four disclosures on the face of the each of the following financial statements as provided for under IAS 1: (i) Statement of financial position (4 marks) (ii) Statement of profit or loss and other comprehensive income. (4 marks) (iii) Statement of changes in equity (4 marks) Explain the meaning of 'faithful representation' as per the conceptual framework for financial reporting. (2 marks) (Total 20 marks) Question 2 (a) The Public Finance Management Act, 2015 establishes the office of Internal Auditor General who shall be subject to the terms and conditions governing the Public Service. Required: Briefly explain four rolesl functions of the Internal Auditor General. (8 marks) (b) International Financial Reporting Standards (IFRSs) were introduced with the major obiective of global harmonization in financial reporting. Required: Explain four benefits of and four barriers to global harmonization of financial reporting. (8 marks) (c) Explain the provisions of the Company's Act, 2012 with respect to the following: (i) Statutory meeting. (2 marks) (ii) Annual general meeting. (2 marks) (Total 20 marks) Question 3 (a) Explain: (i) any three rights acquired by a new partner on ioining a partnership business. (3 marks) (ii) the different options of treating a cash premium in respect of goodwill from an incoming partner that is available to existing partners using the premium method of accounting. (5 marks) (b) David and Julian are in partnership business sharing profits or losses equally. They decided to admit Raymond. By agreement, goodwill valued at Shs 60 million is to be introduced into the partnership books using the revaluation method. Raymond is required to bring capital equal to that of Julian after crediting Julian's account with her share of goodwill. The new profit or loss sharing ratio is to be 5:1:2 for David. Julian and Raymond respectively. The partnership's statement of financial position as at 30 June. 2017 before the admission of Raymond is as shown below: Question 4 (a) Define the term 'royalties' as applied in manufacturing accounts. (2 marks) (b) The following balances relate to Tubonge Youth Carpenters Limited (TYCL), manufacturers of quality furniture, for the year ended 31 December, 2017. Shs Electricity 1,200,000 Rent 6,500,000 Distribution van (acquired 30 September, 2017) 34,000,000 Insurance 18,000,000 Royalties 4,000,000 Manufacturing expenses 800,000 Returns of excess timber purchased 320,000 Timber purchases 25,000,000 Direct wages 2,400,000 Machinery {cost Shs 80 million) 60,000,000 General office expenses 505.000 Bank charges 109.450 Discounts allowed 150.000 Radio advertisements 480.000 Salesmen's commissions 860.000 Sales revenue 93,000,000 Salaries 6.700.000 The iOIIOWii'II information is also available: 1. 2. Insurance was paid on 1 October, 2017 in respect of the distribution van covering the period to 30 September, 2018. The company depreciates machinery at 20% on reducing balance method and motor vehicle at 25% on straight line method. Depreciation is time apportioned where applicable. 20% of manufacturing expenses can be traced to the final unit of output. The company transfers manufactured goods at a cost plus a markup of 20%. Overheads are a ortioned to three areas as follows: M Office 3. Selling 3. Overhead i administration distribution 1/5 _m_ '2