QUESTIONS NUMBER ONE

QUESTIONS

NUMBER ONE

KAPA Ltd. manufactures and sells a wide range of food products for both wholesale and retail outlets. Its authorized ordinary share capital is 5 million shares of Sh 100 par value. The company has extracted the following trail balance as at 31 October 2004. Sh “000” Sh “000” Ordinary share capital: issued and fully paid 300,000 Retained earnings 131,000 10% debentures (secured on buildings) 50,000 8% debentures (secured on a floating charge) freehold buildings: Cost Accumulated depreciation Plant and machinery: Cost Depreciation Additions-plant and machinery Motor vehicles: Cost Accumulated depreciation Land Profit for the year Trade and other payables Trade and other receivables Inventories Balance at Faida Bank Directors remuneration Balance at Faulu Bank Investment ( market value: Sh. 35 million) Interest received Interim dividends paid Tax paid Dividend received

150,000

220,000

40,000 25,000

100,000

101,600 163,000

52,000 3,800

49,620 32,000

21,000 5,700

_______

50,000

15,000

40,000

10,000

285,820 31,400

47,000

2,100

1,400

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FINANCIAL REPORTING - BLOCK REVISION MOCK 13

963,720 963,720

Additional information 1. Trading profit has been

derived as follows:

Sales Cost of sales Distribution costs Administrative expenses

Sh. „000‟

927,420 82,670

136,090

Sh. „000‟ 1,432,000

(1,146,180) 285,820

2. 3. 4. 5.

The 10% debentures are redeemable at par in ten equal annual instalments commencing 1 November 2004, while the 8% debentures are due on 31 July 2005. The corporation tax at 30% on the adjusted profit for the year has been computed at Sh. 53 million. During the year, an item of plant which cost Sh. 20 million on 20 September 2000 was disposed of for Sh. 5 million. The disposal proceeds have netted off against the amount incurred in acquiring new plant and machinery.


Depreciation on property, plant and equipment is to be provided on cost and allocated as follows:

Freehold buildings Plant and machinery Motor vehicles

Rate 21/2% per annum 15% per annum 20% per annum

Basis of allocation Administrative expenses Cost of sales Distribution costs

6.

A full year’s depreciation is charged in the year of acquisition but none in the year of disposal. Inventories comprise:

Raw materials Work-in-progress Finished goods

Sh. „000‟

50,900 24,875 87,225

7. Employees costs included in relevant functional expenses are:

Salaries and wages Social security costs Pension costs

Sh. „000‟

478,770 67,500 42,000

Directors’ fees amounting to Sh. 3 million have not been provided for.

8. The directors propose to pay a final dividend of Sh. 8 per share.

Required:

(a) (b)

Income statement for the year ended 31 October 2004 Balance sheet as at 31 October 2004. include relevant notes, using only the information provided, to ensure that


the financial statements are in conformity with International Financial Reporting Standards Note: Do not prepare a statement of changes in equity.


NUMBER TWO

Nguyo Fashion Ltd. has been operating a large retail shop in Nairobi. On 1 July 2003, the directors opened new shops in Nakuru and Kisumu. All purchases were done in Nairobi branch and goods sent to other branches at a uniform mark-up of 331/3% on their cost. After deducting petty cash expenses, the branches banked all the collections dairy. The head office paid for other expenses but allowed each branch to keep a cash float of Sh. 100,000. The records maintained by the office (Nairobi branch), did not contain all transactions relating to the other branches. The accountant at head office was however able to obtain the following details for the year ended 30 June 2004: Head office books Fixtures and fittings (cost) Cash float with branches Goods sent to branches (cost) Goods returned from branches (cost) Cash received from branches

Nakuru branch

Sh. „000‟ 3,500

100 6,200

27,000 300

31,450

Kisumu branch Sh. „000‟

4,200 100

7,300 36,000

150 43,000

Branches books Sales Cash floats at June 2004 Sundry expenses Banking – head office account Goods returned to head office ( selling price) Goods sent to Kisumu branch

Nakuru branch

Sh „000‟ 32,350

100 400

31,450 400 700

Kisumu branch

Sh „000‟ 43,340

100 340

43,000 200


Goods sent to Nakuru branch Inventory at 30 June 2004 ( selling price) Damaged inventory – scrapped ( selling price)

3,300

20

200 4,740

15

Additional information: 1. 2. 3. 4.

Nakuru branch purchased goods locally for Sh. 500,00 and sold the at a margin of 331/3%. At 30 June 2004 the closing inventory, at selling price, included Sh. 60, 000 in respect of these goods. During the year, the branches organized a “sales week” when all prices were reduced by 10%. Sales realized during the week were; Nakuru Sh. 900,000 and Kisumu Sh. 1,080,000. The head office charged each branch Sh. 500,000 in respect of the services rendered. Depreciation is to be provided at 10% per annum on fixtures and fittings in each branch.

Required: (a) (b) (c) (d)

Branches stock accounts as at 30 June 2004. Branches mark – up account as at 30 June 2004. Goods sent to branches accounts as at 30 June 2004. Branches profit and loss accounts for the year ended 30 June 2004.

NUMBER THREE

(a) List the circumstances under which a subsidiary should be excluded from the consolidated financial statement

(b)

The following balances were extracted from the books of P Ltd., C Ltd., and O Ltd. as at 31 March 2004.

P Ltd. C Ltd. O


Equity and liabilities: Authorized and issued share capital: Ordinary shares of Sh. 20 par value fully paid 6% cumulative preference shares of Sh. 20 par value fully paid Profit and loss accounts 5% debentures Provision for depreciation of fixed assets Debentures interest accrued Proposed dividends Creditors

Sh. „000‟

28,000

10,460

9,600

3,360 9,140 60,560

Sh. „000‟

12,000

3,000 6,300 1,600 5,400

80 1,300

3,960 33,740

Ltd. Sh.

„000‟

4,000

1,050

1,600

2,550 9,200

Additional information:

1. 2.

P Ltd. acquired the shares of C Ltd., cum dividend on 31 March 2003 and C Ltd. acquired the shares in O Ltd. on 31 march 2002. The balances on the income statements of C Ltd. and O Ltd. comprises:

Balances on 31 march 2002 Net profits to 31 March 2003 Less: Provision for proposed dividends (2003) Balances on Mach 2003 Net profit to 31 Mach 2004 Less: Provision for proposed dividends (2004)

C Ltd. Sh. „000‟

4,520 1,920 6440 1,140 5,300 2,400 7,700 1,380 6,320

O Ltd. Sh.

„000‟ 490

400 890

- 890

160 1,050 - 1,050

3.

The proposed dividends for the year ended 31 March 2003


4. 5.

were subsequently paid by C Ltd. P Ltd.’s shares of the dividends is included in its income statement. No entries have been made in the books of P Ltd. in respect of the debenture interest due from C Ltd. or for the holding company’s share of the proposed dividends in C Ltd. for the year ended 31 Mach 2004. Proposed dividends are inclusive of preference dividends.

Required: P Ltd. group balance sheet as at 2004.

NUMBER FOUR

Nasty, Kim, Lams and Mutai, who have been partners in a tile manufacturing business sharing profits and losses in the ratio 4:3:2:1, had a serious disagreement on 15 January 2004 which necessitated a dissolution of the partnership. For the purpose of dissolution, their accountant extracted a balance sheet as at 1 February 2004 as follows: Sh. „000‟ Sh. „000‟ Non – current assets: Land and buildings Plant and machinery Furniture and fittings Investments Current assets: Inventory Debtors Balance at bank Total assets Capital and liabilities: Capital account: Nasty Kim

15,870.0 9,602.5

782.5

21,250.0 19,802.5 7,500.0

5,000.0 53,552.5

26,255.0 79,807.5

10,000.0 17,500.0


Lams Mutai General reserves Current liabilities: Creditors

10,000.0 7,500.0 45,000.0 17,500.0

17307.5 79,807.5

Additional information: 1. The assets, which were sold on piecemeal basis, realized cash as

follows: 10 February

2004 16 February 2004 27 February 2004 03 March 2004 20 March 2004: 15 April 2004:

Inventory (partial) Debtors (partial) Investments Furniture and fittings Land and buildings Debtors (partial) Inventory (balance) Plant and machinery debtors (balance)

Sh. „000‟

8,750.0 7,330.0 6,050.0 5,000.0

17,500.0 1,250.0 6,875.0

16,400.0 877.5

2. 3.

The partners agreed to set aside Sh. 1.25 million to meet realization expenses. Any cash available for distribution thereafter was to be shared immediately the creditors were paid in full. The realization expenses which amounted to Sh. 1 million were paid on 15 April 2004.

Required: Using the maximum possible loss method, prepare: (a) (b)

Statement showing how the proceeds should be shared. Realization account and capital account to close off the book f


the partners. NUMBER FIVE

(a) Briefly explain the meaning of the following terms as used in the law of succession.

(i) (ii)

Donatio mortis causa. Partial intestacy.

(b) Kito died on 12 March 2003, and by his will made in 2001, bequeathed the following

1. 2. 3.

To Lin, my daughter, Sh. 100,000. To Easter , my son, my house in Tasia. To Lima, my wife, Sh. 500,000 on condition that she does not marry again.

The executor has established that: •

• •

Kito gave Linda Sh. 60,000 in 2002 to enable her open a salon. The contract for the purchase of the house in Tasia was completed in June 2004. Lima is engaged to Kisongo and their wedding is scheduled for 31 December 2004.

(c)

Required: Explain how the executor should deal with each bequest. Obaji died intestate, leaving his two wives Asiem and Atete whom he married under a system of law which permits polygamy. Alis, his second wife had predeceased him leaving two children, Suswa and Supra who are still alive. Asiem has three surviving children: Pamela and Obama while Atete has no children.


Obaji’s estate consists of:

1. 2. 3. 4.

Personal effects Sh. 400,000. Household effects Sh. 1,000,000. Motor vehicle Sh. 500,000. Residue Sh. 3,000,000.

Required: A statement showing how Obaji’s estate will be distributed.


ANSWERS

NUMBER ONE

(a) Kapa Ltd Income statement for year ended 31/10/2004

Turnover Cost of sales Gross profit Other incomes Expenses Distribution costs Administration costs Finance costs Profit before tax Income tax expense Profit after tax Dividends paid Retained profit for the year

Sh. „000‟

87,670 198,640

9,000

Sh. „000’ 1432,000 (967,170)

464,830 31,500

468,330

(295,310) 173,020 (53,000) 120,020 (21,000) 99,020

(b) Kapa Ltd Balance sheet as at 31/0ctober 2004 Non current assets Property /plant equipment Investments Current assets Inventories Trade & other * Bank balance Total assets Ordinary share capital

Sh.(000)

163,000 101,600 49,620

Sh.(000) 421,500 35,000

456,500

314,220 770,720 300,000

3000


Revaluation Reserve Retained profits Shareholders funds Non-current liabilities 10% Debentures Current liabilities Trade payables & accounts Bank overdraft 8% Debentures 10% Debentures Tax payable Total equity & liabilities

43,400 47,000 50,000 5,000

47,300

230,020 533,020

45,000

192,700 770,720

Notes to the accounts Note 1: Accounting policies

(a) These financial statements have been prepared under the historical cost basis of accounting and in accordance with the applicable IFRSs. (b)Inventory is valued at the lower of cost and net realizable value. (c) Depreciation is based on the estimated useful life of the assets at the following rates; Asset Rates Buildings Plants and machinery Motor vehicles

2 ½% 15% 20%

Note 2 Profit for the year is arrived at after changing the following expenses. Sh.‟000‟ Sh. „000‟ Directors emoluments: fees

Others Depreciation Addition remuneration

3,000 52,000

52,000 48,500 3,800


Staff costs 588,270 Note 3 property, plant and equipment Cost/valuation

Free hold and

buildings Sh.‟000‟

Plant and machinery Sh.‟000‟

Motor vehicles Sh.‟000‟

Total Sh.‟000‟

Balance as at 1.11.03 Additions Disposals Balance as at 31.12.04

250,000 -

- 250,000

220,000 45,000

(20,000) 245,000

25,000 -

- 25,000

495,000 45,000

(20,000) 520,000

Depreciation Balance as at 1.11.03 Change for year Eliminated disposal Balance as at 31.10.04 NBV as at 31.10.04 NBV as at 1.11.03

15,000 3,750 -

18,750 231,250 235,000

40,000 36,750

(12,000) 64,750 18,250

180,000

10,000 5,000

- 15,000 10,000 15,000

65,000 45,000

(12,000) 98,500

421,500 430,000

Note 4 inventory Inventory is made up as follows Row materials Work in progress Finished goods

Sh.‟000‟ 50,900 24,875 87,225

163,000


Workings

Expenses Cost of

sales

Sh.‟000‟

Distribution costs

Sh.‟000‟

Administration expenses Sh.‟000‟

As per question Depreciation: plant

Vehicles Buildings

Loss on sale of plant Directors salaries

- fees Audit fees and expenses

927,420 36,750

3,000

________ 967,170

82,670

5,000

_______ 87,670

136,090

3,750

52,000 3,000 3,800

198,640 Depreciation of plant for the year

(15% x (220 – 45 – 20)

loss on disposal (20 - 12 - 5)

Sh. „000‟ 36,750 3,000

NUMBER TWO

(a). Branch Stock Account

Nakuru From H/O Sh.000

Nakuru local Sh.000‟

Kisumu

Nakuru From H/o Sh.000

Nakuru local Sh.000

Kisumu

Goods sent to branch To other

36,00

0 200

750

48,

000

Returned to H/O To other branches

400 700 20

200 200 15


branches 700 Scrapped goods Sales of reduced prices Sales at normal prices Marked down Abnual loss (buying) Bal. c/d

900 30,76

0 100 80

3,240

690

60

1,080 42,

260 120 85 4,740

36,200

750 48,700

36,200

750 48,700

(b). Branch Markup

Nakuru From H/O Sh.000

Nakuru local Sh.000

Kisumu


Nakuru local Sh.000

Kisumu

Returns Transfer to other branches Scrapped Mark down Mark up c/d

100

175 20

100 810 20

7,825

20

230

50

50 15

120 1,185 21 10,

Branch stock account Goods purchased Transfer to other branches

9,000

50

250

12,000

175


Annual loss Gross pay

734

9,050 250 12,175

9,050 250 12,175

(c) Goods sent to branch

Nakuru From H/O Sh. 000

Kisumu Sh.000


Kisumu

Returns Goods sent to other branches Purchases bought

300 525

26,325

150 150

36,225

Goods sent at cost Goods received from other branches

27,000

150

36,000 525

27,150

36,525

27,150

36,525

(d). Ngoo Traders Branch profit and loss account for year ended 30.6.04 Nakuru Kisumu Sh.‟000‟ Sh.‟000‟ Sh.‟000‟ Sh.‟000‟ Gross profit Expenses Wages & overheads Sundries Abnual loss Service/non office

6,200 400 60

500

7,300 340 64

500

10,734


Receipts of taxation Net profit

350 (7,510) 545

420

(8,624) 2,110

NUMBER THREE

(a). Under IAS 27 a parent need not present consolidation financial statements if and only if

(i). The present itself is of wholly owned subsidiary (ii). The present debts of equity instruments not traded in a stock

exchange. (iii). The parent is in a group in which it is a subsidiary and the

ultimate parent in that group prepare consolidated financial statements that supply with IFRSs.

(iv) The parent has not filed nor is not in the process of filing its financial statements with of regulatory organization in the purpose of issuing any class of instruments.

(b). P Ltd Balance sheet as at 31 March 2004 Non-current assets

Shs. ‟000‟ Shs. ‟000‟

Property, plant & equipment Goodwill Current assets Total assets Financed by: Ordinary share capital Retained Profits Proposed dividends Minority Interest Shareholders funds Non current liabilities 5% Debenture Current

15,650

35,760 3,044.25

38,804.25 28,820

67,624.25

28,000 11,563 3,360 42,923

7,941.25 50,864.25

600


Liabilities Trade credit Dividends due to Minority Interest Debenture Interest due Total equity and liability

480 30

15,160

67,624.25


Workings

(i). Coc

Investment in C Investment in O

Sh. „000‟ 16,200

3,840

_______ 20,040

P OSC P & L Pre-acquisition dividends O: OSC P & L Balance c/d (Goodwill)

Sh. „000‟ 9,000 3,975

720

2,700 600.75

3,044.25 20,040

(ii). Minority Interest

Investment in O Balance c/d

Sh. „000‟ 1,280

7,941.25 9,221.25

C: OSC P & L PSC O: OSC PSL

Sh. „000‟ 3,000 1,580 3,000 1,300

341.25 9,221.25

(iii) P & L

Pre-acquisition dividends Balance c/d

Sh. „000‟ 720

11,563 12,283

P & L: pine P & L cedan (Post acquisition) P & L Oak ((Post acquisition) Dividends Receivable Debenture Interest

Sh. „000‟

10,460

765

108 900

50 12,283


NUMBER FOUR

(a). Note: The examiner has not indicated whether we should apply the rule in Garner Vs Murrey, therefore will assume it is applied

Sh.

„000‟

Total Sh.

„000‟

N Sh.

„000‟

K Sh.

„000‟

L Sh.

„000‟

M Sh.

„000‟

Capital a/c General Revenue Cash available Feb. 10 Bal b/d Feb. 10 Inventory Feb. 16 Debtors Feb. 27 Investment Less: Creditors Realization Maximum possible loss Reallocation of loss based on capital balances 1 Mar. Distrib’on of cash

782.5 8,750 7,330

6,050 22,91

2.5 (17,307.5)

(1,25

0)

5,000 17,50

45,000 17,500 62,500

(4,335) 58,145

58,145

(30,62

10,000

7,000 17,00

0

(23,258)

(6,258)

(6,25

8) ____ 17,00

0

17,500

5,250 22,75

0

(17,443.5)

5306.

5

(3,129)

2,177.5

20,572.5

10,000 3,500 13,500

(11,620)

1,871

(1,856.8)

14.2

13,485.8

7,500 1,750 9,250

(5,814.5)

3,435

.5 (1,272.2)

2,163.3

7,086.7


1 March Balance b/f Cash available 3 Mar. Furniture/Fitting 20 Mar. Land & Build.

Debtors Inventory

Maximum possible loss 2 Distribution of cash 1 April Bal b/d Cash available 15 April: Plant & Machinery Debtors Savings on realization Maximum possible loss 3rd & final distribution

0 1,250

6,875

16,400

877.5

250

5) 27,520

27,520

(17,527.5)

9,992.

5

(11,008)

5,992 11,00

8

(3,997)

7,011

(8,256)

12,316.5

8,256

(3,997)

5,258

.25

(5,504) 7,981.

5 5,504

(1,998.5)

3,505.5

(2,725)

4,334.7

2,752

(999.25)

1,752.75

(b). Realization

Sh.‟000‟ Sh. „000‟


Land & buildings Plant and Machinery Furniture & fittings Investments Inventory Debtors Realization expenses

21,250 19,802.5

7,500 5,000

15,870 9,602.5

1,000

_______ 80,025

Cash book: Inventory Debtors Investments Furniture & Fittings Land & Building Debtors Inventory Plant & machinery Debtors

Loss on Realization N 3997 K 2997.75 L 1998.5 M. 999.25

8750 7330 6050 5000

17500 1250 6875

16400 877.5

______ 80,025


Capital Account

N Sh.‟000‟

K Sh.‟000‟

L Sh.‟000‟

M Sh.‟000‟

N Sh.‟000‟

K Sh.‟000‟

L Sh.‟000‟

M Sh.‟000‟

Loss realization Cash book 1st Dist 2nd Dist 3rd Dist.

3997

-

5972

7011 1700

0

2997.

5

2177.5

12316.5

5258.25

2275

0

1998.

5

14.2 7981.

5 3505.

5

13500

999.2

5

2163.3

4334.7

1752.75

9250

Bal b/d General Reserve

1000

0

7000 ____

_ 2225

0

1750

0

5250 -

_____

13500

1000

0

3500 ____

_ 1350

0

7500 1750

_____

9250

NUMBER FIVE (a) (i) Donatio matis causa

These are gifts in Contemplation of death.

(ii) Partial Intestacy This is where the will does not dispose of all the properties of the testator.

(b)

1. 2.

The gift to Lin – Kito being Lin’s father, he is under moral obligation to provide for her. The lifetime gift of Sh. 60,000 will deemed as if Kito had made the payment during his lifetime. The balance of Sh. 40,000 may pass to Linda. Equitable doctrine of conversion will apply a


3.

though kifo died before completion of the contract his estate at death is deemed to include the really (house in Thome) which will go to Easter under the terms of the will. The condition in the gift of Lima is contrary to public policy. Lima will take the gift without the condition and will remain free to remarry.

(c)

House 1 Alis

House 2 Asiem

House 3 Atete

Total

Spouse Children Personal effects Household effects Motor Vehicle Residue

1 3 4

_______ 800,000

2,000,000 2,800,000

0 2 2

_______ 400,000

1,000,000 1,400,000

1 0 1

_______ 200,000

500,000 700,000

2 5 7

400,000

1,000,000 1,400,000

500,000

3,000,000 3,500,000 4,900,000

House 1: Alis will get the Personal & Household effects of Sh.

800,000 absolutely. She also has a life interest of Sh. 2m in the remaining estate which will pass to the 3 children equally if she die or remarries.

House 2: The two children will each get a share of Sh. 700,000. This will be held in trust for any child who is yet to reach the age of maturity.

House 3: Atete will get personal and household effects of Sh. 200m absolutely, she is also entitled to 10% of 500m = est. Sh. 50,000 absolutely (he higher of Sh. 10,000 & 10% 500m) and life interest in the remainder of Sh. 450m.


QUESTIONS NUMBER ONE

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