Accounting for Assets and Liabilities

December 2025

3 Questions

Question 1c

With reference to International Accounting Standard (IAS) 40 “Investment Property”, explain the accounting treatment of investment properties.

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Question 1d

International Financial Reporting Standard (IFRS) 5 “Non-current Assets Held for Sale and Discontinued Operations”, provides that when an operation qualifies as a discontinued operation, the standard requires specific disclosures to help users understand the financial impact.

Required:

Explain THREE disclosure requirements for a discontinued operation segment.

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Question 5b

Belta Ltd. purchased an equipment for Sh.12 million on 1 July 2021. Depreciation on equipment is provided on a straight-line basis at the rate of 25% per annum. During the four years from 1 July 2021 to 30 June 2025, the profit after tax and allowed wear and tear charges for tax purposes were as follows:

	Profit after tax	Allowable wear and tear charges for tax purpose
	Sh.“000”
1 July 2021 – 30 June 2022	2,400	40% on cost
1 July 2022 – 30 June 2023	2,700	30% on cost
1 July 2023 – 30 June 2024	2,850	20% on cost
1 July 2024 – 30 June 2025	2,550	10% on cost

Corporation tax rate is 30%.

Required:

(i) Taxable profits.

(ii) Temporary differences.

(iii) Deferred tax account.

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August 2025

2 Questions

Question 1d

International Accounting Standard (IAS) 2 – “Inventory”, provides guidance on the determination of cost and its subsequent recognition as an expense including any write down to net realisable value.

In relation to the above statement, highlight THREE situations in which net realisable value is likely to be less than cost.

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Question 1c

Zee Energy has entered into a contract with GasB Limited to purchase 100,000 units of gas at Sh.50 per unit. The contract allows Zee Energy to pay a penalty of Sh.15 per unit of gas that it does not purchase.

The market price of gas has fallen to Sh.30 per unit and Zee Energy has decided to invoke the penalty clause rather than pay the Sh.50 per unit. It is still contracted to buy 74,000 units of gas.

Required:

Determine the amount of provision that Zee Energy should make in its books of account.

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April 2025

5 Questions

Question 4b

On 1 January 2021, Trends Limited issued Sh.20,000,000 8% loan notes at a discount of 5%. The issue costs amounted to Sh.1,000,000.

The loan notes were redeemable on 31 December 2024 at a premium of Sh.1,130,000. The effective rate of interest was therefore 12.5% per annum.

Required:

With suitable calculations, illustrate the accounting treatment of the above transactions from 1 January 2021 to 31 December 2024 in the financial statements of Trends Limited in accordance with International Financial Reporting Standard (IFRS) 9 “Financial Instruments: Recognition and Measurement”.

(Round your answers to the nearest one thousand).

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Question 1b

In the context of International Accounting Standard (IAS) 16 “Property, Plant and Equipment” discuss the accounting treatment of revaluation gains and revaluation losses on property, plant and equipment at revalued amount.

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Question 1d

International Financial Reporting Standard (IFRS) 5 “Non-current asset held for sale and discontinued operations” provides guidance on the accounting treatment of discontinued operations and non-current assets held for sale.

Required:

(i) With reference to IFRS 5, explain the meaning of discontinued operations.

(ii) Discuss the IFRS 5 criteria which must be satisfied in order for a non-current asset to be classified as held for sale.

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Question 5a

With reference to International Accounting Standard (IAS) 12 “Income Taxes”, describe the bases of measurement for current tax liabilities and deferred tax liabilities.

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Question 1c

In view of International Public Sector Accounting Standard (IPSAS) 19 “Provisions, Contingent Liabilities and Contingent Assets” describe THREE conditions that must be met before a provision can be recognised.

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December 2024

1 Questions

Question 1a

With reference to International Financial Reporting Standard (IFRS) 9 “Financial Instruments: Recognition and Measurement”, explain the following ways of measuring financial assets that are investments in debt securities:

(i) At amortised cost.

(ii) At fair value through other comprehensive income (OCI).

(iii) At fair value through profit or loss.

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August 2024

1 Questions

Question 1a

Distinguish between “taxable temporary differences” and “deductible temporary differences” as per the requirements of International Accounting Standard (IAS) – 12 “Income Taxes”.

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April 2024

5 Questions

Question 1a

The objective of International Accounting Standard (IAS) 2 – Inventories, is to prescribe the accounting treatment for inventories for various types of business organisations.

Required:

Summarise the key requirements of IAS 2 for manufacturing entity under the following headings:

(i) Scope of the term “inventories”.

(ii) Measurement of inventories.

(iii) Disclosure requirements.

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Question 1b

Highlight FOUR categories of expenses that should be recognised in the statement of profit or loss in accordance with International Accounting Standard (IAS) 19 – Employee benefits.

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Question 1d

With reference to International Financial Reporting Standard (IFRS) 9 – Financial instruments, explain the requirement for derecognition of financial instruments.

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Question 5b

On 1 December 2020, Zalendo Ltd. issued a 9% convertible loan stock at par value of Sh.120,000,000. There were no issue costs. Interest on loan stock is payable in arrears on 30 November each year.

The loan stock will be redeemable at par on 1 December 2024 or may be converted into 180 ordinary shares for every Sh.100 of the loan stock.

An equivalent loan stock without the conversion option would have carried an interest rate of 11% per annum.

Required:

With suitable calculations, demonstrate the accounting treatment of the above transactions in the financial statements of Zalendo Ltd. for the years ended 30 November: 2021, 2022, 2023 and 2024 (Round your answers to the nearest thousand).

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Question 2b

On 30 June 2022, Fora Ltd. had a credit balance on its deferred tax account of Sh.1,340,600 all in respect of differences between depreciation and capital allowances. During the year ended 30 June 2023, the following transactions took place:

Sh.45 million was charged against profit in respect of depreciation. The tax computation showed capital allowances of Sh.50 million.
Interest receivable of Sh.50,000 was reflected in profits for the period. However, only Sh.45,000 of interest was actually received during the year. Interest is not taxed until received.
Interest payable of Sh.32,000 was treated as an expense for the period. However, only Sh.28,000 of interest was actually paid during the year. Interest is not an allowable expense for tax purposes until it is paid.
During the year, Fora Ltd. incurred development costs of Sh.500,600 which it has capitalised. Development costs are an allowable expense for tax purposes in the period in which they are paid.
Land and buildings with a net book value of Sh.4,900,500 were revalued to Sh.6 million.
The tax rate is 30%.
Fora Ltd. has a right to offset deferred tax asset and deferred tax liabilities.

Required:

Determine the deferred tax liability on 30 June 2023.

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December 2023

1 Questions

Question 1b

International Financial Reporting Standard (IFRS) 15 – Revenue from Contracts with Customers establishes the principles that an entity shall apply to report information about the nature, amount, timing and uncertainty of revenue from a contract with a customer.

Required:

Summarise FIVE ways through which the benefits of an asset can be obtained in the context of IFRS 15.

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August 2023

3 Questions

Question 2b

Roy Ltd. has provided the following information to be used in inventory valuation:

Product	Cost	Realisable value	Selling expenses
	Sh.“million”	Sh.“million”	Sh.“million”
A	100	120	25
B	50	60	5
C	75	85	15

Required:

Determine the value of closing inventory for Roy Ltd. in compliance with International Accounting Standard (IAS) 2 - Inventories

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Question 4b

An item of plant and equipment in the books of Lima Ltd. had a carrying amount of Sh.6,000,000. It was classified as held for sale on 30 September 2022. At that date, its fair value less costs to sell was estimated at Sh.5,500,000.

The asset was sold for Sh.5,550,000 on 30 November 2022. Lima Ltd.’s year end was 31 December 2022.

Required:

(i) Describe how the classification as held for sale and subsequent disposal should be treated in the financial statements of Lima Ltd.

(ii) State how your response in (b) (i) above would change if the carrying amount of the asset at 30 September 2022 was Sh.5,000,000 and the rest of the amounts remained unchanged.

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Question 4c

A company received legal advice that the most likely outcome of a court case brought by an employee is that it will lose the case and have to pay Sh.10 million. The legal team estimates that there is an 80% chance of this, but that there is also a 10% chance of having to pay Sh.12 million and a 10% chance of paying nothing.

Required:

Determine if a provision is necessary and the best estimate of provision, if any.

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April 2023

2 Questions

Question 1d

With reference to International Financial Reporting Standard (IFRS) – 5, Non-Current Assets Held for Sale and Discontinued Operations, describe the conditions that must be met for an asset to be classified as held for sale.

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Question 5a

In the context of International Accounting Standard (IAS) 12, Income Taxes:

(i) Explain the difference between “taxable temporary differences” and “deductible temporary differences”.

(ii) Suggest how the tax base for “assets”, “revenue received in advance” and “other liabilities” can be determined.

(iii) A deferred tax liability is generally recognised for all taxable differences. There are however exceptions to this rule.

Summarise TWO exceptions to the above rule.

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December 2022

2 Questions

Question 1c

With reference to International Public Sector Accounting Standard (IPSAS) 19 – Provisions, Contingent Liabilities and Contingent Assets:

(i) Distinguish between “provisions” and “contingent liabilities”.

(ii) Summarise the circumstances for recognition of a provision.

(iii) Indicate the accounting treatment for “contingent liabilities” and “contingent assets”

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Question 1a

In the context of financial assets and financial liabilities:

(i) Provide an overview of what comprises a “financial asset” and a “financial liability”.

(ii) With reference to the measurement and recognition of financial assets, recommend guidance to preparers of financial statements who reclassify financial assets under the following categories:

Reclassification of a financial asset out of the amortised cost measurement category and into the face value through profit or loss measurement category.
Reclassification of a financial asset out of the amortised cost measurement category and into the fair value through other comprehensive income measurement category.

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August 2022

1 Questions

Question 4a

On 1 January 2019, Brakewood Limited entered into a contract to lease an item of plant and equipment from a supplier for a three-year period. The terms of the lease were that Brakewood Limited was to pay Sh.500,000 each year with the payments commencing on 31 December 2019.

Initial direct costs incurred on the lease amounted to Sh.30,000 and were paid for by Brakewood Limited. The plant and equipment had a remaining economic useful life of five years at the inception of the lease. The lease contract did not contain any purchase option for the lessee.

Brakewood Limited can borrow at a rate of 10% a year.

Required:

Analyse the accounting treatment of the above lease transactions from the inception and for the three-year period of the lease contract.

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April 2022

1 Questions

Question 5b

Zeon Limited, a public limited entity is in the process of finalising its financial statements for the year ended 31 October 2021.

The following information the has been extracted from its accounting records for the purpose of estimating deferred tax balance:

Inventory is stated in the financial statements at the lower of cost and net realisable value. The company wrote down its inventory by Sh.120 million to a net realisable value of Sh.1,130 million. The reduction in value is ignored for tax purposes until the inventory is sold.
Trade receivables had a carrying amount of Sh.450 million after making a general provision for doubtful debts of Sh.30 million. The provision is not allowed for tax purposes.
Property, plant and equipment has a carrying amount of Sh.3,050 million and a tax base of Sh.2,750 miflion. During the year ended 31 October 2021, property was revalued upwards by Sh. 150 million.
During the year to 31 October 2021, development expenditure amounting to Sh.480 million was capitalised. Amortisation of Sh.20 million was charged to profit or loss for the year. This development expenditure was allowed for tax purposes in full during the year.
Trade and other payables are carried at Sh.600 million. Included in the other payables are acrued expenses of Sh. 100 million whose related expenses are deductible for tax purposes on cash paid basis.
Deferred tax liability as at 1 November 2020 amounted to Sh.272 million.
The income tax rate of 30% is applicable

Required:

(i) Compute the relevant temporary differences.

(ii) Deferred tax account as at 31 October 2021.

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December 2021

1 Questions

Question 1c

Describe two methods for translating foreign currencies into the local currency.

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September 2021

3 Questions

Question 5b

With reference to International Public Sector Accounting Standard (IPSAS) I - Presentation of Financial Statements, explain the criteria for classifying an item as either:

(i) Current asset.

(ii) Current liability.

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Question 5a

The International Financial Reporting Standard (IFRS) 9 - Financial Instruments, specifies how an entity should classify and measure financial assets, financial liabilities and some contracts to buy or sell non-financial items.

Required:

Describe the requirements of IFRS - 9 as they relate to:

(i) Initial measurement of financial assets.

(ii) Subsequent measurement of financial assets.

(iii) Debt instruments.

(iv) Equity instruments.

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Question 3a

Discuss three main differences between hire-purchase and instalment sales.

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May 2021

1 Questions

Question 2a

In the context of International Financial Reporting Standard (IFRS) 9 "Financial Instruments: Recognition and Measurement", explain the accounting treatment of financial instruments that are equity instruments, both on initial recognition and subsequent measurement.

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November 2020

2 Questions

Question 1b

With reference to International Accounting Standard (IAS) - 16: Property, Plant and Equipment:

(i) Describe two conditions under which property, plant and equipment should be recognised.

(ii) Outline the provisions with regard to derecognition of property, plant and equipment.

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Question 1a

Citing two examples, explain the accounting treatment of contingent assets.

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November 2019

1 Questions

Question 5a

With reference to International Accounting Standard (IAS) 41 - Agriculture, discuss the accounting treatment of a biological asset.

(Note: Do not discuss the disclosure requirements).

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May 2019

1 Questions

Question 5a

In the context of International Accounting Standard (IAS) 16 "Property, Plant and Equipment", explain four disclosure requirements for items of property, plant and equipment which are stated at revalued amounts.

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November 2018

3 Questions

Question 5a

Citing relevant examples, summarise the accounting treatment of government grants received by an entity.

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Question 3a

International Financial Reporting Standard (IFRS) 9 "Financial Instruments" establishes principles of derecognising financial assets and financial liabilities. Derecognition is the removal of a previously recognised financial instrument from an entity's statement of financial position.

Required:

With reference to the principles of IFRS 9, describe the criteria for derecognition of financial assets and financial liabilities of an entity.

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Question 1a

The objective of International Accounting Standard (IAS) 2 "Inventories" is to prescribe the accounting treatment for inventories. IAS 2 provides useful guidance particularly in economies which are dependent on agriculture.

Summarise the key requirements of IAS 2 under the fòllowing headings:

( i). Scope of the term 'inventories

(ii). Measurement of inventories.

(iii). Disclosure requirements,

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May 2018

3 Questions

Question 1a

In the context of International Public Sector Accounting Standard (IPSAS) 19 - Provisions, Contingent Liabilities and Contingent Assets:

(i) Distinguish between a "provision" and a "contingent liability".

(ii) Summarise the recognition requirements for provisions, contingent liabilities and contingent assets.

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Question 1b

With reference to International Accounting Standard (IAS) 12 — Income Taxes:

(i) Differentiate between a "deferred tax liability" and a "deferred tax asset".
(ii) Explain the two types of temporary differences,.
(iii) Describe the basis of measurement for current tax liabilities and deferred tax liabilities.

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Question 4b

Royal Contractors Ltd. owns an item of plant used for construction with a carrying value of Sh.14 million as at 31 December 2015. The firm won a construction contract and decided to sell and lease back the machine on that date under the following conditions.

Selling price Sh.40 million. This was also the fair value ofthe plant.
Lease rentals payable annually in arrears amounted to Sh. 15,521,200.
Lease duration for the machine was to be 3 years. The economic life of the machine was also 3 years.
The implicit interest rate was 8% per annum.

Required:

The journal entries to record the necessary transactions in the books of Royal Contractors Ltd. for the three years. including the expected entries at the end of year 2018.

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November 2017

2 Questions

Question 5a

Explain two key features of a sale and leaseback transaction, citing two advantages of' such transactions.

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Question 2a

The new International Financial Reporting Standard (IFRS) 9-Financial Instruments which was issued on 24 July 2014 and which will take effect from 1 January 2018, has generated significant discussions in your country. particularly within the banking sector.

Required:

Explain how IFRS 9 is likely to impact on the provisions for bad and doubtful debts by banks and by extension , the case of accessing bank loans

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May 2017

1 Questions

Question 1b

In the context of International Accounting Standard (IAS) 40-Investment Property:

(i) Define an "investment property", citing two examples.
(ii) Identify two types of property that are specifically not considered as investment property.
(iii) Discuss the fair value model as applied in the valuation of investment property.

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November 2016

1 Questions

Question 3a

With reference to International Financial Reporting Standard (IFRS) 9 - Financial Instruments:

(i) Describe the provisions governing the initial measurement and subsequent measurement of financial instruments.

(ii) Explain the requirements for derecognition of financial instruments.

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May 2016

2 Questions

Question 1c

Evaluate four criteria for consideration of a lease as a capital lease.

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Question 1b

Government grants are a common source of finance in developing economies.

Required:
(i) Explain the term "government grants" in the context of International Financial Reporting Standards (IFRSs).

(ii) Government grants may be accounted for using either the "income" approach or the "capital" approach.
Discuss the arguments for each of the two approaches above.

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November 2015

3 Questions

Question 4d

Outline the main benefit of a sale and leaseback transaction to the vendor.

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Question 4c

Europa Ltd., a manufacturing company, leased a plant from Smart Equipments Ltd. on a finance lease.

The details of the lease agreement are as follows:

Date of commencement of the lease	1 January 2015
Fair value of the plant on 1 January 2015	Sh.120 million
Expected useful life of plant	3 years
Annual lease payment (paid in advance)	Sh. 50 million
Interest rate implicit in lease	12% per annum
Lease period	3 years
Residual value of plant	Sh.6 million

Required:

Show by way of extracts, how the above transaction would be reflected by Europa Ltd. in the following:

(i) Income statements for the years ending 31 December 2015 and 31 December 2016.

(ii) Statements of financial position as at 31 December 2015 and 31 December 2016.

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Question 2a

With reference to International Financial Reporting Standards (IFRSs), discuss the accounting treatment of government grants, including the disclosure requirements.

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Pilot September 2015

2 Questions

Question 4b

Madwang Ltd. leased out its plant to Kasheshe Hauliers Ltd. under a finance lease on 1 January 2010. The fair value of the plant on 1 January 2010 was Sh.870,000. The lease provided for 6 annual rentals of Sh.200,000 each receivable at the end of each year.

The interest rate implicit in the lease is 10%.

Required:

Using the actuarial method, show in the books of Madwang Ltd:

(i) Income statement extracts over the lease term.

(ii) Statement of financial position extracts suitably classified.

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Question 5a

Explain the fair value model of accounting for investment property as per IAS 40 (Investment Property).

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Accounting for Assets and Liabilities

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