Bead ‘agiéoll yall otal! ‘rab Open University Faculty of Business Studies B291 Financial Accounting Make up MTA 2016-2017 / Second Semester 9" May 2017 | Number of Exam Pages: 3 | Time Allowed: 2 Hours | Gnetuding this cover sheet) | Instruction: 1- Read each question carefully and make sure that you understand it before you begin to answer it. Take about 10 minutes to look through all the questions on the exam and do the ones you are most comfortable with first 2- This exam consists of TWO Compulsory Questions: each question carries 50% of the marks 3- Programmable and financial calculators are not permitted or to share, or pass them between each other in an examination. Also, you are not permitted to use calculators with word processing capabilities. 4- In questions that require calculations, credit will be given for showing your workings. 8291 - Financial Accounting-Makeup Page |1 2016-2017/Second SemesterQuestion Part A, i. The main purpose of accounting is to provide financial information to managers and owners of businesses and a variety if interested parties. Explain the different objective that financial information fulfills ii, Whatis the capital maintenance concept for? Discuss the different approaches of the determination of profit iii. Efficient market hypothesis (EMH) has received a lot of attention since its inception. What is meant by EMH? Briefly discuss the forms of market efficiency and identify which market efficiency assumed to exist? [Marks: (12 + 12 + 12) = 36] Part B During March 2017, the following changes in Orange company inventory took place: Date Explanation Units Unit Cost March 5 | Balance 400 $20 8 [Purchased 900 2 15 | Purchased 100 24 18 Sold 800 40 19 Purchased 400 26 Perpetual inventories are maintained. Required: ‘What is the cost of sales and ending inventory for item under the following methods? Also calculate gross profit under both methods. 1- FIFO. 2- LIFO. 3+ Gross profit, 8291 ~ Financial Accounting-Makeup [Marks: (5+5+4) 2016-2017/Second Semester‘Question 2 PartA Yannick has started business as a trader on 1 January, 2017. The following transactions and events of trading for his first month are as follows: Date Transaction 1 Started the business by introducing $600,000 into the business bank account, 2 Rentis paid by cheque $5000 for the month. 8 ‘Yannick paid $70,000 in cash for a van. 10 Yannick purchased goods costing $80,000 on credit from Ali (invoice no Ali123), 12 Yannick sold goods for $6000 in cash. 15 Yannick sold goods for $20,000 on credit to Ahmed (invoice no Ahmed001) 24 Yannick paid the amount, taking advantage of a 10% settlement discount with respect U oice no. Ali123. 25. Ahmed paid to Yannick, taking advantage of a 5% settlement discount with respect to invoice no. Ahmed0O1. Required: 1- Enter the above transactions into an appropriate cash book. 2- Post the transactions directly to the appropriate nominal ledger accounts. 3- Prepare the trial balance as at June 30, 2017. [Marks: (10 + 10 + 6) = 26] Part B Green Ocean Company acquired land and building for $400,000 on 1* January 2012. The land at that date comprised 20% of the total cost. At that date the estimated useful life of the building was 45 years with a residual value of $40,000. Required: 1. Assume that Green Ocean has decided to recognize land and building under the cost model approach, prepare a three-year depreciation schedule for the buildings under the reducing balance method. 2. Assume that Green Ocean has decided to recognize land and building under the revaluation model approach with revaluations taking place every three years. On 1° January 2015 three years later, a surveyor valued the land and building at $500,000 of which $120,000 was attributable to land. The estimated usefill life and residual value of the buildings remained the same. 2.1 Prepare the journal entties required to record these transactions on 1 January 2015 under the reducing balance method. 2.2 Compute and record the depreciation for the year ended 31* December 2015 under the straight line method. [Marks: (10 + 8 + 6) = 24] End of Questions 8291 - Financial Accounting-Makeup Page |3 2016-2017/Second Semester