CPA Financial Reporting Accounting for Specialized Transactions Questions & Answers (PDF)

December 2025

1 Questions

Question 1b

International Financial Reporting Standard (IFRS) 15 “Revenue from contracts with customers” establishes a comprehensive framework for revenue recognition guiding on how and when revenue is recognised.

Required:

With reference to IFRS 15, explain the following:

(i) Contract modification.

(ii) Performance obligations.

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August 2025

4 Questions

Question 3b

James Mwala set up a business on 1 April 2024 in Nairobi with a branch in Mombasa. Purchases are made exclusively by Nairobi office where packaging and weighing occur. The branch handles packaged goods and these are charged thereto at packaged cost plus 10%. All sales by both branches are sold at a uniform gross profit of 25% on the packaged cost. The following details have been extracted from the business on 31 March 2025:

	Nairobi Head Office		Mombasa Branch:
	Sh.	Sh.	Sh.	Sh.
Capital	-	2,640,000	-	-
Drawings	300,000	-	-	-
Purchases	23,920,200	-	-	-
Cost of weighting and packing	415,800	-	-	-
Sales	-	17,040,000	-	7,680,000
Goods sent to and received by branch	-	7,814,400	7,682,400	-
Selling and sundry expenses	2,688,000	-	324,000	-
Accounts receivable and accounts payable	2,760,000	7,000,200	1,104,000	28,800
Head office and branch current account	2,466,600	-	-	1,809,600
Balance at bank	1,944,000	-	408,000	-
	34,494,600	34,494,600	9,518,400	9,518,400

Additional information:

Goods delivered by Nairobi office to Mombasa branch in March 2025 at Sh.132,000 were not received or recorded by the branch until 4 April 2025. A remittance of Sh.525,000 from the branch to Nairobi in March 2025 was not received until 2 April 2025.
Inventory taking at the branch disclosed a shortage of goods of a selling value of Sh.60,000. There was no shortage or surplus in Nairobi.
The cost of the inventory of unpacked goods in Nairobi as at 31 March was Sh.2,160,000.
All inventories are valued at cost to each entity and there was no loss or wastage in weighing and packaging.

Required:

(i) The valuation of closing inventory at the head office and branch.

(ii) The trading profit or loss account in columnar form for the year ended 31 March 2025 for the head office, branch and combined.

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Question 1b

When an entity transfers its product to a dealer or distributor for sale to end customers, it must determine whether the contract is a sale or a consignment arrangement.

In relation to the above statement, explain TWO indicators of a consignment arrangement.

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Question 4b

In reference to International Financial Reporting Standard (IFRS) 6 “Exploration for and Evaluation of Mineral Resources”.

Explain FOUR conditions that must be met for exploration and evaluation expenditures to be recognised as assets.

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Question 1e

As at 31 December 2023, a plantation consisted of 100 insignis pine trees that were planted 10 years earlier. Insignis pine takes 30 years to mature and will ultimately be processed into building material for houses or furniture.

Only mature trees have established fair values by reference to a quoted price in an active market. The fair value (inclusive of current transport costs to get 100 logs to market) for a mature tree of the same grade as the plantation is:

	Sh.
As at 31 December 2023	171
As at 31 December 2024	165

The appropriate discount rate is 6% per annum.

Required:

(i) Estimate fair value of plantation as at 31 December 2023 and 31 December 2024.

(ii) Using suitable computation, explain the accounting treatment of the change in fair value in the year 2024.

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April 2025

2 Questions

Question 4c

Elite Ltd., operates a pension scheme for its employee by the name Smart Retirement Benefit Scheme. The following trial balance was extracted from the books of the scheme as at 31 December 2024:

	Sh.“000”	Sh.“000”
Normal contribution by:
Elite Ltd. (Employer)		36,480
Employees		18,240
Transfer in from other scheme		3,150
Individual transfers out to other schemes	1,860
Investment income		47,400
Property, plant and equipment	132,320
Government securities (long-term)	263,605
Member’s voluntary contribution		4,560
Pension	7,640
Equity investment: Quoted	87,835
Equity investment:.Unquoted	19,990
Unpaid benefits		320
Accumulated fund as at 1 January 2024		461,560
Accrued expenses		240
Administrative expenses	2,840
Cash and demand deposits	23,460
Change in market value of investments	22,640
Lumpsum retirement benefits	4,820
Contributions due in 30 days	4,940
	571,950	571,950

Required:

(i) Statement of changes in net assets for Smart Retirement Benefit Scheme for the year ended 31 December 2024.

(ii) Smart Retirement Benefit Scheme statement of net assets as at 31 December 2024.

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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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December 2024

4 Questions

Question 5b

Explain the TWO types of post-employment benefits plans in accordance with International Accounting Standard (IAS) 19 “Employee Benefits”.

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Question 5a

In relation to International Accounting Standard (IAS) 41 “Agriculture”, explain the following:

(i) Recognition of biological assets.

(ii) Measurement of biological assets.

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Question 1b

Potters Ltd. borrowed Sh.120 million on 1 July 2023 at the rate of 9% per annum to finance two capital projects namely; “Cometic” and “Robotic” projects. The funds were invested in the two projects as follows:

	Project
	Cometic	Robotic
	Sh.“000”	Sh.“000”
1 July 2023	20,000	40,000
1 January 2024	20,000	40,000

Unutilised funds on 1 July 2023 were invested temporarily at the rate of 7% per annum.

Required:

(i) Determine borrowing costs to be capitalised for each of the project as at 30 June 2024.

(ii) Compute the value of the investment in the books of Potters Ltd. as at 30 June 2024.

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Question 3a

Outline the accounting treatment of government grants related to income in accordance with International Accounting Standard (IAS) 20 “Accounting for Government Grants”.

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August 2024

2 Questions

Question 3a

Alfa Ltd. has an year end of 30 June. On 25 April 2024, Alfa Ltd. bought goods from a Mexican supplier for 286,000 Pesos. The goods were still in inventory at year end.

The following exchange rates are applicable:

Exchange rates	Pesos to Ksh.
25 April 2024	11.16
16 May 2024	10.87
30 June 2024	11.02

Required:

Show the accounting entries for the transaction in each of the following events:

(i) On 16 May 2024, Alfa Ltd. pays the Mexican supplier in full.

(ii) The supplier remains unpaid at the year ended 30 June 2024.

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Question 5a

Top Ltd. a Construction Company entered in a leasing agreement on 31 December 2023 for a piece of equipment costing Sh.94,920,000, with Zuk Bank Ltd. The lease requires Top Ltd. to pay an annual rent of Sh.27,220,000 payable in advance. The primary period of the lease is for 4 years. After the end of the primary period, Top Ltd. has the right to extend the lease indefinitely on a payment of a nominal annual rental. Top Ltd. believes that the equipment will last for 4 years and will have no scrap value at the end of that period. Top Ltd. depreciates assets of this type using straight line basis. Top Ltd. and Zuk Bank Ltd. have accounting periods ending 31 December. The implicit rate of interest is 10%.

Required:

(i) Show how the above transactions will be reflected in the statement of profit or loss extracts of Top Ltd. for each of the 5 years ending 31 December 2023, 31 December 2024, 31 December 2025, 31 December 2026 and 31 December 2027.

(ii) Prepare an extract statement of financial position of Top Ltd. as at 31 December 2023, 31 December 2024, 31 December 2025, 31 December 2026 and 31 December 2027.

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April 2024

3 Questions

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 1c

International Financial Reporting Standard (IFRS) 15 – Revenue from contracts with customers specifies how and when an entity will recognise revenue.

The standard provides a single principle based five-step model to be applied to all contracts with customers.

Required:

Describe the five-step model as specified under IFRS 15.

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Question 4b

Mazuri benefits scheme is a registered retirement scheme. The trustees of the scheme extracted the following trial balance as at 30 September 2023:

	Sh.“million”	Sh.“million”
Interest receivable	80
Payable to members		8
Receivable from members	635.6
Current account deposits	32.2
Fixed deposits	260
Accumulated fund balance (1 October 2022)		7,640
Employer’s contribution		630.6
Offshore investment in shares	1,200
Property, plant and equipment	800
Government securities	590
Investment in unquoted shares	2,500
Investment in quoted shares	3,000
Provision for exchange losses		160
Interest on investments		640
Members contributions		250.2
Management expenses	7
Withdrawals from scheme	15
Pensions and commutations	209
	9,328.8	9,328.8

Additional information:

1. Interest on investments amounting to Sh.24.5 million was accrued as at 30 September 2023.

2. Management expenses of Sh.450,000 was prepaid as at 30 September 2023.

Required:

(i) Statement of changes in net assets for the year ended 30 September 2023.

(ii) Statement of net assets as at 30 September 2023.

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December 2023

2 Questions

Question 1c

International Accounting Standard (IAS) 26 – Accounting and Reporting by Retirement Benefit Plans provides the financial statements to be prepared by defined benefit plans.

Explain TWO key statements required under IAS 26.

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Question 1a

With reference to International Financial Reporting Standard (IFRS) 6 – Exploration for and Evaluation of Mineral Resources:

(i) State the underlying principle for measurement of exploration and evaluation assets.

(ii) Describe THREE circumstances that indicate that an entity should test exploration and evaluation assets for impairment.

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August 2023

1 Questions

Question 2c

On 1 January 2022, a farmer had a herd of 100 cattle all of which were 2 years old. At this date, the fair value less point of sale costs of the herd was Sh.10,000,000.

On 1 July 2022, the farmer purchased 20 cattle (each two and a half years old) for Sh.60,000 each.

As at 31 December 2022, three-year-old cattle were selling at the market for Sh.90,000 each. Market auctioneers usually charge a sales levy of 2%.

Required:

(i) Valuation of cattle bought on 1 July 2022.

(ii) Valuation of cattle as at 31 December 2022.

(iii) Total charge to statement of profit and loss for the year ended 31 December 2022.

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December 2022

1 Questions

Question 3b

Sayari Limited obtained a 10% loan note amounting to Sh.24 million on 1 January 2021 to finance the construction of a new factory.

As the funds were not all required immediately, Sayari Limited invested Sh.10 million in 6% bonds until 31 May 2021. Construction of the factory began on 1 March 2021. However, due to an unexpected shortage of skilled labour, the project ceased during the months of July and August 2021.

By 31 December 2021, the project was not complete.

Required:

Explain, with suitable calculations, the accounting treatment of interest on costs on the loan note in the financial statements of Sayari Limited for the year ended 31 December 2021 in accordance with International Accounting Standard (IAS) 23 “Borrowing Costs”.

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August 2022

1 Questions

Question 1a

A number of developing countries are engaged in exploration of minerals to boost their economic empowerment. Your company, an international mineral exploration firm has been contracted by one of the developing countries on a mineral exploration and evaluation engagement.

Required:

Advise the Board of Management of the company on the following:

(i) The relevant International Financial Reporting Standard (IFRS) for accounting for exploration of mineral resources and the scope of the standard.

(ii) The key provisions of the IFRS in (a) (i) above on impairments of assets used in exploration activities.

(iii) Disclosure requirements in the financial statements under the IFRS.

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April 2022

2 Questions

Question 5a

With reference to International Accounting Standards (IAS) 41 - Agriculture:

(i) Describe the key provisions on measurement of agricultural produce.

(ii) Highlight six disclosure requirements where fair value of the farm produce cannot be measured reliably.

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Question 4a

With reference to International Accounting Standard (IAS) 21 - The Effects of Changes in Foreign Exchange Rates:

(i) Explain the accounting treatment of exchange differences arising on monetary items.

(ii) Describe the disclosures required in the financial statements of the reporting entity.

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September 2021

1 Questions

Question 3a

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

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November 2020

1 Questions

Question 1c

The objective of IFRS 15 - Revenue from Contracts with Customers, is to establish the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue from a contract with a customer.

In context of the above statement:

(i). Discuss how contracts with customers will be presented in the financial statements in line with IFRS 15 requirements.

(ii). Summarise the disclosure requirements under IFRS 15

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November 2019

2 Questions

Question 1a

International Accounting Standard (IAS) 10 defines events after the reporting date as those events which could be favourable or unfavourable, that occur between the end of the reporting period and the date that the financial statements are authorised for issue.

Required:

With reference to IAS 10:

(i) Distinguish between "adjusting" and "non-adjusting" events.

(ii) Describe the accounting treatment of events after the reporting period.

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Question 3a

International Financial Reporting Standard (IFRS) 15 - Revenue from Contracts with Customers, specifies how and when an entity will recognise revenue.

The standard provides a single principle based five step model to be applied to all contracts with customers.

Required:

Describe the five-step model as specified under IFRS 15.

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May 2019

4 Questions

Question 3a

Describe the two types of post-employment benefit plans in accordance with International Accounting Standard (IAS) 19 "Employee Benefits".

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Question 4a

Distinguish between the following terminologies as used in construction contracts:

(i) "Lumpsum contract" and "percentage rate contract".

(ii) "Indemnity clause" and "retention clause".

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Question 4b

Discuss two methods of determining the stage of completion of a construction contract.

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Question 4c

Mijengo Construction Ltd. carried out work on four construction contracts during the financial year ended 30 April 2019.

The details of the contracts are set out below:

	A01 Sh."million"	BO2 Sh."million"	CO3 Sh."million"	DO4 Sh."million"
Contract price	780	1,200	1,020	948
Costs to date	180	480	963.6	33.6
Estimated total cost	720	768	1,069.2	840
Payment on account	156	780	918	24
Revenue recognised in previous periods	78	180	504	-
Cost recognised in previous periods	60	72	480	-
Administrative expenses	1.5	15	2.5	-
Date of commencement	May 2017	1 February 2017	1 March 2017	I March 2019

Additional information:

1	The company does not recognise profits until the contract is at least 5% complete.
2	The company's policy is to calculate the percentage of completion on cost basis.
3	The company prepares separate trading accounts for each contract.

Required:

(i). Trading account for each of the contracts showing clearly the revenue to be recognised for the year ended 30 April 2019.

(ii). An income statement extract for the year ended 30 April 2019.

(iii). An extract of the statement of financial position showing the combined totals for all the contracts.

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May 2017

1 Questions

Question 5a

Distinguish between "value based" and "cost based" method in determining the stage of completion of a construction contract.

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Pilot September 2015

1 Questions

Question 4a

Bien Ltd. has provided the following schedule of its long-term loans for the year ended 31 March 2015:

	1 April 2014 Sh."million"	31 March 2015 Sh."million"
10% bank loan 2021	120	120
24% bank loan 2030	80	80
8% debentures	0	60

Additional information:

The 8% debenture was used to finance production of a mining equipment which commenced on1October 2014.
On 1 April 2014, the company had commenced construction of a power plant using existing borrowings. Expenditure for the construction was drawn with Sh.40 million being drawn on 1 April 2014 and Sh.30 million on 1 November 2014.

Required:

In line with provisions of IAS 23 (borrowing costs):

(i). Compute the borrowing costs to be capitalised.

(ii). Determine the cost of the assets constructed in the year.

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