Unit: Financial Reporting
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Login to Access| Sh.“000” | Sh.“000” | |
| Land and building (land Sh.150 million) | 250,000 | - |
| Farm machinery (cost Sh.135 million) | 97,500 | |
| Sales of crops | 43,750 | |
| Sale of cattle | 60,000 | |
| Sale of carcases | 18,750 | |
| Balance at bank | 3,000 | |
| Payables | 18,750 | |
| Insurance premium - crops | 6,000 | |
| Inventory as at 1 July 2024: | ||
| 25,000 | |
| 30,000 | |
| 7,500 | |
| Administrative expenses | 5,000 | |
| Expenses: Crops | 12,500 | |
| Expenses: Livestock | 15,370 | |
| Purchase of: Livestock | 16,250 | |
| Purchase of: Seeds | 5,000 | |
| Purchase of: Livestock feeds | 875 | |
| Farm house expenses | 1,500 | |
| Repairs of farm machinery | 1,875 | |
| Farm tools | 3,100 | |
| Receivables | 37,500 | |
| Cash in hand | 32,500 | |
| Farm manager salary | 7,500 | |
| Farm workers’ wages | 6,250 | |
| Ordinary share capital | 300,000 | |
| Retained profit 1 July 2024 | 41,970 | |
| Loan from co-operative society | 75,000 | |
| 561,220 | 561,220 |
| 1. | Inventory as at 30 June 2025 was valued as follows: | |
| Sh.“000” | ||
| Growing crops | 5,000 | |
| Seeds, fertilisers and pesticides | 7,500 | |
| Livestock | 50,000 | |
| Livestock feeds | 1,250 | |
| 2. | Farm managers salary is charged to livestock and crop accounts in the ratio of 4:1 respectively. |
| 3. | The valuation of farm tools as at 30 June 2025 was Sh.2,500,000. Any depreciation on farm tools is to be apportioned equally for crop and livestock respectively. |
| 4. | Depreciation on farm machinery is to be provided at 20% per annum on cost. This depreciation and the repairs on farm machinery are to be charged to the general statement of profit or loss. |
| 5. | Buildings are depreciated at 2.5% per annum on cost. |
| 6. | Growing crops valued at Sh.6,500,000 were destroyed by floods. The insurance company accepted 90% of the loss suffered by the company. |
| 7. | Crops consumed by the farm workers were valued at Sh.1,500,000. This amount was recovered from their wages. |
| 8. | The loan from co-operative society had an accrued interest of Sh.3,000,000. |
| 9. | The company gave a donation of harvested crops to the disaster management committee valued at Sh.2,500,000. |
| Assets: | 2024 | 2023 |
| Non-current assets: | Sh.“000” | Sh.“000” |
| Property, plant and equipment | 92,600 | 74,900 |
| Intangible assets | 13,500 | 12,300 |
| 106,100 | 87,200 | |
| Current assets: | ||
| Inventory | 28,600 | 24,890 |
| Trade receivable | 18,460 | 14,160 |
| Cash and cash equivalent | 2,200 | 1,020 |
| 49,260 | 40,070 | |
| Total assets | 155,360 | 127,270 |
| Equity and liabilities: | ||
| Ordinary share capital (Sh.10 per share) | 15,000 | 12,000 |
| Share premium | 2,700 | 2,100 |
| Revaluation surplus | 5,100 | - |
| Retained earnings | 76,530 | 71,960 |
| 99,330 | 86,060 | |
| Non-current liabilities: | ||
| 10% loan notes (2028) | 16,500 | 10,500 |
| Government grants | 6,300 | 4,800 |
| Deferred tax | 3,840 | 1,620 |
| Current liabilities: | ||
| Trade payables | 22,400 | 17,540 |
| Current tax | 5,370 | 5,550 |
| Government bonds | 1,620 | 1,200 |
| 155,360 | 127,270 |
| Sh.“000” | |
| Revenue | 113,100 |
| Cost of sales | (89,720) |
| 23,380 | |
| Other operating income – government grant | 1,500 |
| 24,880 | |
| Other operating expenses | (6,690) |
| 18,190 | |
| Finance cost | (1,410) |
| Profit before tax | 16,780 |
| Income tax expenses | (5,310) |
| Profit after tax | 11,470 |
| Other comprehensive income | |
| Gain on property revaluation | 5,100 |
| Total comprehensive income for the year | 16,570 |
| Sh.“000” | Sh.“000” | |
| Revenue | 278,400 | |
| Income from investment | 4,500 | |
| Ordinary shares of Sh.20 each | 150,000 | |
| Retained earnings | 119,500 | |
| 8% loan stock | 50,000 | |
| Accounts payable | 33,400 | |
| Deferred tax | 12,500 | |
| Bank balance | 15,400 | |
| Land and building at cost | 270,000 | |
| Plant at cost | 156,000 | |
| Accumulated depreciation : Building | 60,000 | |
| Accumulated depreciation : Plant | 26,000 | |
| Purchases | 78,200 | |
| Distribution cost | 10,000 | |
| Administrative expenses | 5,500 | |
| Loan interest paid | 2,000 | |
| Leased plant rental | 22,000 | |
| Dividends paid | 15,000 | |
| Inventory (1 November 2023) | 37,800 | |
| Accounts receivable | 63,200 | |
| Investments (Long-term) | 90,000 | |
| 749,700 | 749,700 |
| Assets: | 2024 | 2023 |
| Non-current assets: | Sh.“000” | Sh.“000” |
| Property, plant and equipment | 72,475 | 54,160 |
| Intangible assets | 15,700 | 12,240 |
| Investments at fair value | 5,825 | 5,500 |
| 94,000 | 71,900 | |
| Current assets: | ||
| Inventory | 7,485 | 7,040 |
| Accounts receivable | 6,030 | 5,830 |
| Cash and cash equivalents | 2,485 | 2,230 |
| Total assets | 110,000 | 87,000 |
| Equity and liabilities: | ||
| Equity | ||
| Ordinary share capital (Sh.10 par value) | 50,000 | 40,000 |
| Share premium | 12,500 | 10,000 |
| Revaluation reserve | 9,500 | 5,000 |
| Retained profit | 17,505 | 14,755 |
| Total equity | 89,505 | 69,755 |
| Non-current liabilities: | ||
| Long-term borrowings | 11,600 | 10,300 |
| Deferred tax | 2,370 | 1,955 |
| Current liabilities: | ||
| Accounts payable | 4,645 | 3,505 |
| Current tax | 1,880 | 1,485 |
| Total equity and liabilities | 110,000 | 87,000 |
| Sh.“000” | |
| Operating profit | 5,540 |
| Finance costs | (1,200) |
| Fair value gain on investments | 325 |
| Profit before tax | 4,665 |
| Income tax expense | (1,330) |
| Profit for the year | 3,335 |
| Other comprehensive income: | |
| Gain on property revaluation | 4,500 |
| Total comprehensive income for the year | 7,835 |
| Sh.“000” | Sh.“000” | |
| Cash at bank: Client account | 3,720 | |
| Cash at bank: Office account | 8,355 | |
| Furniture, fitting and library books | 6,750 | |
| Insurance expenses | 1,275 | |
| Disbursement on behalf of clients | 13,500 | |
| Accounts payables | 4,080 | |
| Work-in-progress (1 August 2023) | 5,520 | |
| Clients for the money held on their behalf | 3,720 | |
| Cost charged to clients | 37,500 | |
| Communication expenses | 2,730 | |
| Printing and stationery | 5,250 | |
| Rent and rates | 9,000 | |
| Salaries | 10,800 | |
| Drawings | 9,000 | |
| Capital account | 30,600 | |
| 75,900 | 75,900 |
| Sh.“000” | Sh.“000” | |
| Net profit for the year | 42,800 | |
| Inventory as at 30 June 2024 | 28,400 | |
| Accounts receivable | 23,800 | |
| Accounts payable | 32,700 | |
| Bank overdraft | 6,800 | |
| Property at carrying amount | 72,950 | |
| Plant and machinery at carrying amount | 37,730 | |
| Motor vehicles at carrying amount | 10,580 | |
| Office equipment at carrying amount | 25,240 | |
| Equity investments at fair value | 10,000 | |
| Capital accounts: John | 43,700 | |
| Capital accounts: Kelvin | 28,500 | |
| Capital accounts: Linet | 18,800 | |
| Current accounts: John | 14,790 | |
| Current accounts: Kelvin | 12,960 | |
| Current accounts: Linet | 9,850 | |
| Drawings: John | 4,370 | |
| Drawings: Kelvin | 4,020 | |
| Drawings: Linet | 2,910 | |
| Loan from Kelvin | 9,100 | |
| 220,000 | 220,000 |
| 1. | The purchase consideration on business purchase was agreed at Sh.150 million and the new company issued 15 million ordinary shares of Sh.10 par value each in full satisfaction of the purchase consideration. |
| 2. | Equity investments were taken over by the partners at the new fair value of Sh.18 million and allocated to the partners in their profit and loss sharing ratios. |
| 3. | Loan from partner Kelvin was transferred to the new company at its carrying amount. |
| 4. | Other assets and liabilities of the partnership were taken over by the new company at the following values: |
| 4. | Sh.“000” | |
| Property | 74,560 | |
| Plant and machinery | 35,200 | |
| Motor vehicles | 9,520 | |
| Office equipment | 23,660 | |
| Inventory at book value less 15% | ||
| Accounts receivable at book value less 10% | ||
| Current liabilities at book value |
| 5. | The new company issued two million ordinary shares of Sh.10 each at par value. The proceeds from the issue were utilised to settle the bank overdraft and the loan taken over, with the balance used as working capital. |
Required: The following ledger entries to close off the books of the partnership: | |
| (i) | Realisation account. |
| (ii) | Partners current accounts. |
| (iii) | Partners capital accounts. |
| (iv) | Opening statement of financial position for JKL Limited as at 1 July 2024. |
| Sh.“000” | Sh.“000” | |
| Ordinary share capital | 475,000 | |
| Share premium | 95,000 | |
| Retained profit (1 April 2023) | 184,600 | |
| 8% loan note | 120,000 | |
| Revenue | 1,783,800 | |
| Cost of sales | 1,300,500 | |
| Distribution costs | 209,900 | |
| Administrative costs | 258,600 | |
| Inventory (31 March 2024) | 308,000 | |
| Trade receivables | 382,400 | |
| Trade payables | 388,300 | |
| Bank balance | 27,500 | |
| Deferred tax | 33,000 | |
| Property at cost (Land Sh.87 million) | 457,000 | |
| Plant and equipment at cost | 360,000 | |
| Motor vehicles at cost | 82,000 | |
| Fixtures and fittings at cost | 64,000 | |
| Accumulated depreciation (1 April 2023): | ||
| Building | 162,800 | |
| Plant and equipment | 119,400 | |
| Motor vehicles | 41,000 | |
| Fixtures and fittings | 25,600 | |
| Interest paid | 9,600 | |
| Suspense account | 42,000 | |
| 3,465,000 | 3,465,000 |
| 1. | During the year ended 31 March 2024, the company sold of an item of plant with a carrying amount of Sh.46,200,000 for cash proceeds of Sh.42,000,000. The disposal proceeds were credited to the suspense account. Plant and equipment is depreciated at the rate of 12.5% per annum on reducing balance basis. Full year depreciation is provided in the year of asset purchase and none in the year of disposal. Depreciation and any gain or loss on disposal of plant and equipment should be classified under the cost of sales. |
| 2. | Depreciation on other non-current assets is provided and allocated as follows: | |||
| Asset | Rate per annum (%) | Basis | Allocation | |
| Building | 2 | Straight line | Administration | |
| Motor vehicles | 25 | Straight line | Distribution | |
| Fixtures and fittings | 10 | Straight line | Administration | |
| 3. | The 8% loan note was issued on 1 April 2023 and will be redeemable in three years’ time at a substantial premium which gives an effective interest rate of 10% per annum. |
| 4. | Tax provision for the year to 31 March 2024 was determined to be a tax credit estimated at Sh.15,700,000. In addition, at 31 March 2024, the tax bases of assets and liabilities exceeded their carrying amounts by Sh.121,000,000. The income tax rate applicable to Kaleb Ltd. is 30%. |
Required: | |
| (i) | Property, plant and equipment movement schedule for the year ended 31 March 2024. |
| (ii) | Statement of profit or loss for the year ended 31 March 2024. |
| Sh.“000” | Sh.“000” | |
| Ordinary share capital | 2,500,000 | |
| Share premium | 500,000 | |
| Revaluation reserve (1 November 2022) | 600,000 | |
| Retained earnings (1 November 2022) | 3,570,000 | |
| Purchases and revenue | 3,000,000 | 17,400,000 |
| Production cost | 2,400,000 | |
| Administrative expenses | 1,960,000 | |
| Distribution cost | 740,000 | |
| Interest on loan | 100,000 | |
| Research and development | 940,000 | |
| Land and building at valuation (1 November 2022) | 3,400,000 | |
| Equipment at cost | 9,000,000 | |
| Investment property at valuation (1 November 2022) | 4,400,000 | |
| Accumulated depreciation (1 November 2022): | ||
| - Building | 800,000 | |
| - Equipment | 900,000 | |
| Intangible assets at cost | 1,000,000 | |
| Accumulated amortisation (1 November 2022) | 100,000 | |
| Inventory (1 November 2022) | 100,000 | |
| Bank balance | 800,000 | |
| Trade receivables and trade payables | 700,000 | 800,000 |
| 10% bank loan | 2,000,000 | |
| Interim dividends paid | 700,000 | |
| Corporate tax | 70,000 | |
| 29,240,000 | 29,240,000 |
| 1. | Inventory as at 31 October 2023 was valued at Sh.130,000,000, but it was subsequently discovered that goods included in this value with a cost of Sh.14,000,000 were sold for Sh.4,000,000. |
| 2. | Kima Ltd. took out the bank loan of Sh.2,000,000,000 on 1 November 2022 which is repayable in four equal annual installments. The interest rate on the loan is 10% per annum payable semi-annually. |
| 3. | The corporation tax for the previous year was paid during the current year. The corporation tax for the year ended 31 October 2023 was Sh.1,250,000,000. |
| 4. | The directors have discovered that a customer who owed Sh.250,000,000 as at year end was declared bankrupt. |
| 5. | Included in the revenue is a grant from the government of Sh.300,000,000 that Kima Ltd. received for accepting to employ additional youth in the next financial year. |
| 6. | Research and development expenditure comprised of:
|
| 7. | Intangible assets at cost relate to a development that was being amortised over a useful life of 10 years. As at 1 November 2022, this was reviewed and was then assessed as having a remaining useful life of 6 years. |
| 8. | The Sh.3,400,000,000 relating to land and building is based on last year’s valuation and includes land at a valuation of Sh.2,000,000,000 and has an indefinite useful life. The building should be depreciated on the value at the start of the year. The remaining useful life was 20 years as at 1 November 2022. |
| 9. | As at 31 October 2023, the values were as follows:
|
| 10. | Equipment is depreciated on straight line basis over 5 years. Kima Ltd. estimated that the equipment is used in the business on the following basis:
|
| 11. | As at 31 October 2023, investment property was valued at Sh. 5,000,000,000 and the company policy is to use fair value on investment valuation. |
Required: | |
| (a) | A statement of comprehensive income for the year ended 31 October 2023. |
| (b) | Statement of financial position as at 30 October 2023. |
| 2023 | 2022 | |
| Sh.“000” | Sh.“000” | |
| Assets: | ||
| Non-current assets: | ||
| Property, plant and equipment | 118,400 | 113,600 |
| Intangible assets | 24,290 | 23,680 |
| 142,690 | 137,280 | |
| Current assets: | ||
| Inventory | 5,880 | 5,760 |
| Trade receivables | 4,070 | 4,290 |
| Cash and cash equivalents | 6,360 | 4,670 |
| Total assets | 159,000 | 152,000 |
| Equity and liabilities: | ||
| Equity: | ||
| Ordinary share capital | 40,000 | 32,000 |
| Share premium | 3,000 | 2,600 |
| Revaluation surplus | 3,400 | 2,560 |
| Retained profit | 52,770 | 42,400 |
| Total equity | 99,170 | 79,560 |
| Non-current liabilities: | ||
| Long term borrowings | 37,550 | 46,800 |
| Deferred tax | 6,750 | 7,070 |
| Current liabilities: | ||
| Trade payables | 7,800 | 8,200 |
| Current tax | 4,230 | 5,570 |
| Interest payable | 3,500 | 4,800 |
| Total equity and liabilities | 159,000 | 152,000 |
| Sh.“000” | |
| Revenue | 312,300 |
| Cost of sales | (211,400) |
| Gross profit | 100,900 |
| Distribution costs | (35,280) |
| Administrative expenses | (43,120) |
| Profit from operations | 22,500 |
| Finance costs | (3,800) |
| Profit before tax | 18,700 |
| Income tax expense | (4,830) |
| Profit for the year | 13,870 |
| Other comprehensive income: | |
| Revaluation gain on property (net of deferred tax) | 840 |
| Total comprehensive income for the year | 14,710 |
| 1. | The property, plant and equipment was made up as follows: | ||
| 31 October 2023 | 31 October 2022 | ||
| Sh.“000” | Sh.“000” | ||
| Cost of valuation | 138,200 | 126,200 | |
| Accumulated depreciation | (19,800) | (12,600) | |
| Carrying amount | 118,400 | 113,600 | |
| During the year ended 31 October 2023, the property was revalued upwards for a gain amounting to Sh.1,200,000. The company does not make any transfers for excess depreciation upon revaluation. However, it accounts for deferred tax on revaluation gain. The income tax rate applicable to Bundo Limited is 30%. Depreciation on property, plant and equipment has been charged to profit or loss. | |
| 2. | During the year ended 31 October 2023, Bundo limited acquired some patent rights at a cost of Sh.5,000,000. Any amortisation of intangible assets has been included in administrative expenses. |
| 3. | The company repaid some borrowings which had matured during the year and issued new loans amounting to Sh.3,000,000. |
| Sh.“000” | Sh.“000” | |
| Non-current assets: | ||
| Land and building (cost) | 750,000 | |
| Motor vehicles (cost) | 300,000 | |
| Equipment (net book value) | 90,000 | |
| Investment property | 9,000 | |
| 1,149,000 | ||
| Current assets: | ||
| Cash in hand | 3,000 | |
| Trade receivables: Export | 384,000 | |
| Trade receivables: Oil | 648,000 | |
| Inventory: Export | 1,380,000 | |
| Inventory: Oil | 675,000 | 3,090,000 |
| Total assets | 4,239,000 | |
| Capital and liabilities: | ||
| Capital: R | 1,500,000 | |
| Capital: M | 900,000 | 2,400,000 |
| Current account: R | 78,000 | |
| Current account: M | 72,000 | 150,000 |
| Non-current liabilities: | ||
| Bank loan | 72,000 | |
| Current liabilities: | ||
| Bank overdraft | 537,000 | |
| Trade payables: Export | 924,000 | |
| Trade payables: Oil | 56,000 | 1,617,000 |
| Total capital and liabilities | 4,239,000 |
| 1. | P Ltd. took over all the non-current assets, cash, bank overdraft and its share of trade receivables, inventory and trade payables. Q Ltd. took its share of trade receivables, inventory and trade payables. The assets and liabilities were transferred at book values and the partners were paid Sh.300 million being goodwill for the oil business and Sh.240 million being goodwill for export business. |
| 2. | The bank that had provided the loan agreed to accept Sh.43.2 million 10% debentures in P Ltd. and Sh.28.8 million 10% debentures in Q Ltd. |
| 3. | On 1 October 2023, the purchase consideration was settled by the allotment of fully paid ordinary shares of Sh.20 each in the respective companies as follows: R: 71,250,000 shares in P Ltd. and the balance in shares in Q Ltd. M: 47,760,000 shares in Q Ltd. and the balance in shares in P Ltd. |
| 4. | P Ltd. also raised a 12% debenture of Sh.600 million on 1 October 2023 and paid-off the bank overdraft. The expenses incurred in raising the 12% debentures amounted to Sh.21 million. |
| 5. | P Ltd. and Q Ltd. also issued 3,000,000 and 4,500,000 fully paid ordinary shares of Sh.20 each respectively to two companies, E Ltd., and F Ltd. on 1 October 2023. |
| 6. | None of the companies has amortised the goodwill. |
| 7. | The formation expenses were paid by the respective companies as follows: Sh.“million” P Ltd. 39 Q Ltd. 24 |
Required: | |
| (a) | Business purchases accounts. |
| (b) | Partners’ capital accounts. |
| (c) | Bank account. |
| (d) | Vendor’s account. |
| (e) | Statements of financial position for P Ltd. and Q Ltd. as at 31 October 2023 (assuming no other transactions took place). |
| Head Office | Branch | |||
| Sh.“000” | Sh.“000” | Sh.“000” | Sh.“000” | |
| Bank balance | 316,000 | 124,000 | ||
| Branch office current account | 720,000 | |||
| Head office current account | 562,080 | |||
| Trade payables | 800,000 | 80,000 | ||
| Trade receivables | 560,000 | 300,000 | ||
| Other general expenses | 800,000 | 80,000 | ||
| Goods sent to branch | 3,196,000 | 3,138,080 | ||
| Sales | 5,600,000 | 3,000,000 | ||
| Purchase of material | 8,000,000 | |||
| Packaging material | 880,000 | |||
| Fixtures | 320,000 | |||
| Capital | 2,000,000 | |||
| 11,596,000 | 11,596,000 | 3,642,080 | 3,642,080 | |
| Sh.“000” | Sh.“000” | |
| Revenue | 780,000 | |
| Production costs | 450,000 | |
| Distribution costs | 42,000 | |
| Administrative expenses | 156,000 | |
| Inventory – 30 September 2021 | 109,200 | |
| Interest paid on loan stock | 18,000 | |
| Income tax | 1,200 | |
| Dividends paid | 12,000 | |
| Property, plant and equipment | 342,000 | |
| Accumulated depreciation – 30 September 2021 | 93,540 | |
| Suspense account | 7,200 | |
| Trade receivables | 296,000 | |
| Cash and cash equivalents | 80,740 | |
| Trade payables | 72,000 | |
| Provisions (Legal claim) | 24,000 | |
| Loan stock | 240,000 | |
| Lease rentals | 48,000 | |
| Deferred tax | 36,000 | |
| Net profit to 30 September 2021 | 40,000 | |
| Current account - Baraka | 16,000 | |
| Current account - Faulu | 4,000 | |
| Drawings to 30 September 2021 - Baraka | 28,000 | |
| Drawings to 30 September 2021 - Faulu | 12,000 | |
| Capital accounts - Baraka | 160,000 | |
| Capital accounts - Faulu | 120,000 | |
| 1,593,940 | 1,593,940 |
| 1. | Closing inventory as at 30 September 2022 was valued at Sh.132 million. |
| 2. | On 1 October 2021, the company leased some equipment to boost production. The lease was for five years. The lease rental payments were Sh.24 million payable semi-annually in arrears. The fair value of the equipment was Sh.186 million. Depreciation is to be charged on straight line basis and allocated to cost of sales. The interest rate implicit in the lease is at 5% per half year. |
| 3. | The suspense account represents sales proceeds from some items of plant and equipment which had cost Sh.36 million and which were disposed of during the year. The accumulated depreciation for the disposed items as at 30 September 2021 was Sh.27 million. Any gain or loss on disposal was to be adjusted in the depreciation expense account. |
| 4. | The income tax amount of Sh.1.2 million included in the trial balance was the estimated tax as at 30 September 2021. The current year’s tax is estimated at Sh.9 million. In addition, a deferred tax liability of Sh.36 million was provided for as at 1 October 2021. As at 30 September 2022, temporary differences were Sh.168 million. The tax rate is 30%. |
| 5. | A legal claim of Sh.60 million was lodged against the company during the year by a customer. The directors estimated that there was a 40% possibility of the claim being successful and had made a provision of Sh.24 million which was included in the administrative expenses. |
| 6. | Property, plant and equipment as at 30 September 2022 comprised: | |||
| Land | Building | Plant, equipment and furniture | ||
| Sh.“000” | Sh.“000” | Sh.“000” | ||
| Cost | 72,000 | 108,000 | 162,000 | |
| Accumulated depreciation | - | 27,000 | 66,540 | |
| Useful life (in years) | - | 50 | 4 | |
| 7. | Depreciation is to be provided on a straight-line basis and apportioned as follows: | |||
| Cost | Percentage (%) | |||
| Cost of sales | 80 | |||
| Distribution cost | 10 | |||
| Administrative expenses | 10 | |||
| 8. | No entries were made to record the conversion of the partnership into a limited company. The assets were taken over by the company on 1 October 2021 at their book values except land which was revalued to Sh.80 million. The company issued to the partners 32 million shares of Sh.10 each in settlement of their outstanding capital account balances. |
| Sh.“000” | Sh.“000” | |
| Safi - Marketing expenses | 640 | |
| Safi - Processing materials | 860 | |
| Safi - Processing wages | 900 | |
| Mzuri - Marketing expenses | 150 | |
| Mzuri - Processing materials | 320 | |
| Mzuri - Processing wages | 30 | |
| Loans to members | 972,340 | |
| Dividends from investments | 470 | |
| Accrued rent | 4,950 | |
| Sundry provision | 8,930 | |
| Appropriation account | 6,050 | |
| Revaluation reserve | 750 | |
| Statutory reserve fund | 13,740 | |
| Entrance fee | 300 | |
| Share capital | 900,000 | |
| Members’ deposits | 64,650 | |
| Sundry creditors | 3,410 | |
| Bank overdraft | 6,150 | |
| Interest on loans to members | 35,890 | |
| Travelling expenses - Staff | 80 | |
| Travelling expenses - Committee members | 100 | |
| Bank charges | 200 | |
| Bank interest | 810 | |
| Salaries and wages | 2,290 | |
| Committee education | 1,000 | |
| Committee sitting allowance | 1,110 | |
| Printing and stationery | 2,050 | |
| General meeting expenses | 500 | |
| Members’ education | 1,500 | |
| Entertainment | 50 | |
| Legal fees | 400 | |
| Cash in hand | 540 | |
| Wakulima Bank Ltd. savings | 6,780 | |
| Investment in Wakulima Bank Ltd. | 26,550 | |
| Receivables - Members | 2,690 | |
| Receivables - Non-members | 22,500 | |
| Office equipment | 900 | |
| 1,045,290 | 1,045,290 |
| 1. | Bora Limited markets Safi and Mzuri brands for Marula Society. On 31 December 2021, Bora Limited sold Safi and Mzuri brands for 175,000 United States (US) dollars and 115,300 US dollars respectively. Bora Limited remitted the above amounts to Marula Farmers’ Wakulima Bank account on 15 January 2022. Marula Farmers Cooperative Society does not maintain a US dollar account in Wakulima Bank. |
| 2. | The exchange rates for the two currencies were as shown below on the respective dates: |
| Sh./1 US dollar | ||
| 31 December 2021 | 105 | |
| 15 January 2022 | 100 | |
| 3. | Audit fee of Sh.6,000,000 is to be provided for. | |
| 4. | Staff salaries and wages amounting to Sh.3,200,000 had not been paid as at 31 December 2021. |
| 5. | Interest on members deposits is to be provided at Sh.6,086,000. |
| 6. | As per the relevant Ministry regulations, cooperative societies are required to transfer 20% of their net earnings to a statutory reserve. |
Required: Prepare the following financial statements for Marula Cooperative Society Ltd. for the year ended 31 December 2021: | |
| (a) | Safi brand marketing account, showing the profit or loss. |
| (b) | Mzuri brand marketing account, showing the profit or loss. |
| (c) | Statement of profit or loss for the year ended 31 December 2021. |
| (d) | Statement of financial position as at 31 December 2021. |
| Sh.“000” | Sh.“000” | |
| Costs charged to clients | 750,000 | |
| Work-in-progress (1 July 2021) | 110,400 | |
| Clients: for moneys held on their behalf | 74,400 | |
| Creditors | 81,600 | |
| Receivables | 234,000 | |
| Office expenses | 25,500 | |
| Furniture, fittings and library books | 135,000 | |
| Cash at bank: Client account | 74,400 | |
| Cash at bank: Office account | 167,100 | |
| Postage, telephone and internet bills | 54,600 | |
| Printing and stationery | 105,000 | |
| Rent and rates | 180,000 | |
| Salaries to staff | 216,000 | |
| Drawings | 180,000 | |
| Disbursement on behalf of clients | 36,000 | |
| Capital account | 612,000 | |
| 1,518,000 | 1,518,000 |
| Sh."000" | Sh."000" | |
| Non-current assets: | ||
| Premises | 57,450 | |
| Plant and machinery | 25,130 | |
| Motor vehicles | 16,400 | |
| Office equipment | 22,900 | |
| 121,880 | ||
| Current assets: | ||
| Investments | 10,270 | |
| Trade receivables | 12,800 | 23,070 |
| Total assets | 144,950 | |
| Capital and liabilities: | ||
| Capital accounts: Lipa | 40,000 | |
| Capital accounts: Maisha | 30,000 | |
| Capital accounts: Bora | 20,000 | |
| Current accounts: Lipa | 4,000 | |
| Current accounts: Lipa | 3,000 | |
| Current accounts: Lipa | 2,000 | 9,000 |
| Non-current liabilities: | ||
| Loan from Maisha | 9,400 | |
| Current liabilities: | ||
| Trade payables | 31,040 | |
| Bank overdraft | 5,510 | 36,550 |
| Total capital and liabilities | 144,950 |
| 1. | Partner Maisha took over the loan he had advanced to the partnership while Lipa took over one of the motor vehicles at a valuation of Sh.5 million. |
| 2. | The rest of the assets were realised in three stages of piecemeal realisation as follows: |
| 2. | Sh."000" | |
| First realisation | 42,310 | |
| Second realisation | 24,890 | |
| Third realisation | 71,000 |
| 3. | Realisation expenses amounting to Sh.1,140,000 were settled in cash. |
| 4. | The trade payables accepted Sh.28 million in full settlement of their claims. |
| 5. | The rule in Garner Vs. Murray applies where applicable. |
Required: | |
| (i) | A schedule of cash distribution to the partners. |
| (ii) | Realisation account. |
| (iii) | Partners' capital accounts. |
| Sole traders statements of financial position as at 31 October 2020 | Partnership statement of financial position as at 31 October 2021 | ||
| K | L | ||
| Sh."000" | Sh."000" | Sh."000" | |
| Assets: | |||
| Freehold property | 6,000 | 4,000 | 14,000 |
| Plant and equipment | 27,200 | 22,400 | 52,000 |
| Fixtures and fittings | 6,400 | 6,200 | 12,000 |
| Inventory | 7,200 | 1,400 | 13,400 |
| Accounts receivable | 7,600 | 4,000 | 25,680 |
| Balance at bank | 1,200 | 600 | 500 |
| 55,600 | 38,600 | 119.580 | |
| Liabilities: | |||
| Accounts payable | (27,200) | (16,000) | (39,680) |
| Bank overdraft | - | - | (22,500) |
| 28,400 | 22,600 | 57,400 | |
| 1. | On 1 April 2020, the partners agreed to take up the assets and liabilities of the individual traders at book values except for freehold property, plant and equipment and fixtures and fittings which were to be revalued as follows: |
| 1. | K | L | |
| Sh."000" | Sh."000" | ||
| Freehold property | 8,000 | 6,000 | |
| Plant and equipment | 26,000 | 22,000 | |
| Fixtures and fittings | 6,000 | 6,000 |
| 2. | During the year ended 31 October 2021, K made drawings of Sh.9,560,000 while L withdrew Sh.2,440,000. |
| 3. | The partnership was converted into a limited company on the following terms:
|
Required: | |
| (a) | A computation showing the value of debentures and ordinary shares to be issued to the partners. |
| (b) | Partners capital accounts as at 31 October 2021. |
| (c) | Statement of financial position of Kilo Ltd. as at 31 October 2021 after completing the above transactions on conversion. |
| Sh."000" | Sh."000" | |
| Premiums outstanding (1 August 2020) - Marine | 8,640 | |
| Premiums outstanding (1 August 2020) - Fire | 6,720 | |
| Retained profits (1 August 2020) | 4,320 | |
| Share premium | 9,600 | |
| Ordinary share capital | 28,800 | |
| Investment income | 2,688 | |
| Accounts payable | 3,168 | |
| Management expenses:- Marine | 6,240 | |
| Management expenses:- Fire | 5,568 | |
| Depreciation on non-current assets | 8,688 | |
| Directors remuneration | 4,752 | |
| Audit fees | 2,304 | |
| Freehold property | 40,320 | |
| Motor vehicles (net book value) | 33,600 | |
| Equipment and computers (net book value) | 14,400 | |
| Furniture and fittings (net book value) | 12,480 | |
| Financial assets | 13,440 | |
| Bad debts written off:- Marine | 1,632 | |
| Bad debts written off:- Fire | 1,152 | |
| Survey expenses on claims: - Marine | 1,845 | |
| Survey expenses on claims: - Fire | 1,227 | |
| Legal cost: Marine | 1,728 | |
| Legal cost: Fire | 1,248 | |
| Claims paid: Marine | 23,712 | |
| Claims paid: Fire | 17,280 | |
| Claims outstanding (1 August 2020) - Marine | 7,680 | |
| Claims outstanding (1 August 2020) - Fire | 5,184 | |
| Unexpired premiums (1 August 2020) - Marine | 46,080 | |
| Unexpired premiums (1 August 2020) - Fire | 24,000 | |
| Cash and bank balances | 1,056 | |
| Accounts receivable | 7,008 | |
| Direct premiums received: - Marine | 43,200 | |
| Direct premiums received: - Fire | 33,600 | |
| Re-insurance premiums received: - Marine | 11,520 | |
| Re-insurance premiums received: - Fire | 7,680 | |
| Re-insurance premiums paid: - Marine | 7,680 | |
| Re-insurance premiums paid: - Fire | 4,800 | |
| 227,520 | 227,520 |
| 1. | Premium outstanding as at 31 July 2021 amounted to Sh. 14,400,000 and Sh.6,400,000 for marine and fire insurance respectively. |
| 2. | Reserve for unexpected premiums should be maintained at 100% and 50% of the net premium for marine and fire insurance respectively. |
| 3. | Claims intimated and outstanding as at 31 July 2021 amounted to Sh.7,200.000 for marine and Sh.4,608,000 for fire insurance. |
| 4. | Commission on both re-insurance ceded and re-insurance accepted is at the rate of 5% of the premiums. |
| 5. | Provisions are to be made for the following:
|
| 6. | Depreciation comprise of:
|
| Assets: | Sh."000" | Sh."000" |
| Non-current assets: | ||
| Land and building (land Sh.4,500,000) | 6,000 | |
| Plant and machinery: Cost | 4,500 | |
| Plant and machinery: Accumulated depreciation | (1,200) | 3,300 |
| Motor vehicles: Cost | 4,800 | |
| Motor vehicles: Accumulated depreciated | (1,800) | 3,000 |
| Joint life policy | 600 | |
| 12,900 | ||
| Current assets: | ||
| Inventory | 3,000 | |
| Accounts receivable | 825 | |
| Cash at bank | 920 | 4,745 |
| Total assets | 17,645 | |
| Capital and liabilities: | ||
| Capital accounts: Ali | 4,500 | |
| Capital accounts: Baba | 3,000 | |
| Capital accounts:Chali | 3,000 | |
| Current accounts: Ali | 1,950 | |
| Current accounts: Baba | (375) | |
| Current accounts:Chali | 2,175 | 3,750 |
| Bank loan | 2,270 | |
| Accounts payable | 1,125 | |
| 17,645 |
| 1. | On 30 June 2021, the partners decided to dissolve the partnership following persistent disagreement. No drawings have been done by the partners to 30 June 2021, however, in arriving at the profit for the period ended 30 June 2021, depreciation was to be charged ona prorata basis on costs as follows: Asset Rate per annum Building 2% Plant and machinery 20% Motor vehicles 25% The book values of other assets and liabilities as at 30 June 2021 were as shown below: Sh."000" Land 4,800 Joint life policy 600 Inventory 3,600 Accounts receivable 3,000 Cash at bank 920 Accounts payable 2,700 |
| 2. | Dissolution expenses amounted to Sh.360,000 and the accounts payable were settled net of a discount of 10%. |
| 3. | Ali was to take over the only vehicle at an agreed valuation of Sh.1,520,000. |
| 4. | Other assets were realised on instalments basis as follows: Sh."000" First instalment 850 Second instalment 5,000 Third instalment 6,130 Fourth instalment 4,900 |
Required: | |
| (i) | Statement of cash distribution. |
| (ii) | Realisation account. |
| (iii) | Bank account. |
| (iv) | Partners' capital accounts. |
| Sh."000" | |
| Intangible assets | 857,140 |
| Property, plant and equipment | 1,494,190 |
| Interest on loans and advances | 1,329,750 |
| Interest on customers' deposits | 750,135 |
| Loan loss reserve | 578,345 |
| Customers' deposits | 3,444,990 |
| Deposits and placements due from other banks | 389,190 |
| Interest received on deposits and placements with other banks | 19,780 |
| Interest paid on deposits and placements from other banks | 26,320 |
| Income tax credit | 28,720 |
| Ordinary share capital | 1,900,000 |
| Revaluation surplus | 300,000 |
| Depreciation on property, plant and equipment | 62,355 |
| Other interest income | 7,760 |
| Equity investments | 225,000 |
| Loans and advances | 3,675,230 |
| Retained earnings (1 January 2020) | 193,200 |
| Deposits and placements due to other banks | 484,490 |
| Long-term borrowings | 1,720,000 |
| Other interest expenses | 33,700 |
| Fees and commission income | 13,150 |
| Dividend income | 2,250 |
| Share premium | 270,000 |
| Staff remuneration expenses | 478,710 |
| Pension costs | 85,930 |
| Directors' salaries | 38,260 |
| Printing and stationery | 52,500 |
| Deferred tax asset | 37,500 |
| Tax refundable | 27,750 |
| Cash in hand and with central bank | 2,055,125 |
| Miscellaneous expenses | 3,400 |
| Sh."000" | Sh."000" | |
| Inventory (1 November 2018): Dairy cattle | 54,900 | |
| Maize (growing) | 3,600 | |
| Dairy cattle feeds | 2,520 | |
| Fertilisers (for maize) | 1,980 | |
| Land and buildings | 90,000 | |
| Tractors (net book value) | 32,400 | |
| Other cattle (bulls) | 6,000 | |
| Carts (net book value) | 3,000 | |
| Purchases: Dairy cattle | 10,440 | |
| Fertilizers (for maize) | 2,160 | |
| (for napier grass) | 4,000 | |
| Maize seeds | 1,080 | |
| Dairy cattle feeds | 6,120 | |
| Sales: Milk | 27,360 | |
| Dry maize | 36,000 | |
| Green maize | 11,340 | |
| Dairy cattle | 8,100 | |
| Manure | 3,000 | |
| Crop expenses: Labour | 6,480 | |
| Other expenses | 720 | |
| Napier grass (labour) | 1,000 | |
| General expenses | 10,800 | |
| Trade payables | 15,620 | |
| Capital (1 November 2018) | 163,080 | |
| Cash at bank | 15,300 | |
| Dairy cattle expenses: Medicine | 1,080 | |
| Labour | 9,480 | |
| Other expenses | 1,440 | |
| 264,500 | 264,500 |
| 1 | Inventories as at 31 October 2019 were valued as follows: |
| Sh."000" | ||
| Dairy cattle | 54,000 | |
| Maize (growing) | 2,700 | |
| Other cattle (bulls) | 5,400 | |
| Dairy cattle feeds | 1,620 | |
| Fertilizers for planting maize | 1,080 |
| 2 | During the financial year ended 31 October 2019, the following distributions of farm produce were made |
| Value | ||
| Product | Sh."000" | |
| Maize consumed by family members | 1,080 | |
| Milk delivered to relative's hotel | 4,320 | |
| 5,400 |
| 3 | Manure valued at Sh.600,000 was removed from the cow shed and used in the maize plantation |
| 4 | Maize stocks valued at Sh. 1,500,000 were used as dairy cattle feed. |
| 5 | Cattle bulls are used for pulling carts |
| 6 | Depreciation is to be provided on tractors and carts on the retfucing balance method at the rate of 25% and 12% per annum respectively |
| 7 | Income tax is estimated at Sh.3,600,000. |
| Sole Traders Statement of financial position as at 30 September 2018 | Minira Traders Statement of financial position as at 30 September 2019 | ||
| Mika | Nira | ||
| Assets | Sh."000" | Sh."000" | Sh."000" |
| Freehold property | 3,000 | 2,000 | 8,000 |
| Plant and equipment | 13,600 | 11,200 | 26,000 |
| Fixtures and fittings | 3,200 | 3,100 | 6,000 |
| Inventory | 3,600 | 700 | 6,700 |
| Accounts receivable | 3,800 | 2,000 | 12,840 |
| Balance at bank | 600 | 300 | 250 |
| 27,800 | 19,300 | 59,790 | |
| Liabilities: | |||
| Accounts payable | (13,600) | (8,000) | (19,840) |
| Bank overdraft | - | - | (11,250) |
| 14,200 | 11,300 | 28,700 | |
| 1 | On 1 October 2018, the partners agreed to take up the assets and liabilities of the individual traders at book value except for freehold property, plant and equipment and fixtures and fittings which were to be revalued as follows |
| Mika Sh."000" | Nira Sh."000" | ||
| Freehold property | 4,000 | 3,000 | |
| Plant and equipment | 13,000 | 11,000 | |
| Fixtures and fittings | 3,000 | 3,000 |
| 2 | During the year ended 30 September 2019, Mika made drawings of Sh.4.780,000 while Nira drew Sh. 1,220,000. |
| 3 | The partnership was converted into a limited company. MN Ltd., on the following terms: |
| (i) | The freehold property and accounts receivable were revalued to Sh.12,000,000 and Sh.11,340,000 respectively. | |
| (ii) | Mika and Nıra were to receive 15% unsecured debentures at par so as to provide each partner with income equivalent to a 6% return on capital employed based on capital balances as at 30 September 2019 (that is after accounting for the profits, drawings and revaluation in note (i) above) | |
| (iii) | MN Ltd.'s authorised share capital was made up of 150,000 ordinary shares of Sh.100 each out of which 130,000 shares were to be issued to the partners in their profit sharing ratio. | |
| (iv) | Any balances in the partners' capital accounts were to be settled in cash. |
| Sh."000" | Sh."000" | ||
| Property, plant and equipment | 10,500 | ||
| Depreciation of non-current assets | 905 | ||
| Investment in government bonds and other securities | 1,400 | ||
| Gross premiums received from agents | - Marine | 3,000 | |
| - Fire | 2,500 | ||
| Gross premiums received from brokers | - Marine | 1,500 | |
| - Fire | 600 | ||
| Gross premiums received from direct clients | - Marine | 500 | |
| - Fire | 1,000 | ||
| Reinsurance premiums accepted | - Marine | 600 | |
| Reinsurance premiums ceded | - Marine | 700 | |
| - Fire | 300 | ||
| Sundry receivables | 750 | ||
| Bank | 90 | ||
| Directors fees | 495 | ||
| Audit fee | 240 | ||
| Unearned premiums as at 1 October 2018 | - Marine | 4,800 | |
| - Fire | 2,500 | ||
| Claims outstanding as at 1 October 2018 | - Marine | 1,100 | |
| - Fire | 840 | ||
| Claims paid | - Marine | 2,770 | |
| - Fire | 2,100 | ||
| Legal cost on claims | - Marine | 280 | |
| - Fire | 130 | ||
| Survey expenses on marine claims | 220 | ||
| Bad debts | - Marine | 370 | |
| - Fire | 320 | ||
| Management expenses | - Marine | 450 | |
| - Fire | 380 | ||
| Trade payables | 230 | ||
| Investment income | 280 | ||
| Ordinary shares of Sh.1,000 each | 4,000 | ||
| Retained profits (1 October 2018) | 450 | ||
| Premiums outstanding (1 October 2018) | - Marine | 800 | |
| - Fire | 700 | ||
| 23,900 | 23,900 | ||
| 1 | Premiums outstanding as at 30 September 2019 amounted to Sh.1,970,000 and Sh.1,200,000 for Marine Insurance and Fire Insurance respectively. |
| 2 | Claims intimated and outstanding as at 30 September 2019 amounted to Sh.750,000 for Marine Insurance and Sh.480,000 for Fire Insurance. |
| 3 | Unearned premium is maintained at 100% and 50% of the premiums received for marine insurance and fire insurance respectively. |
| 4 | The tax rate applicable is 30%. |
| Sh."000" | Sh."000" | |
| Property at cost (Building: Sh.50 million) | 60,000 | |
| Plant and equipment at cost | 25,000 | |
| Motor vehicles at cost | 12,000 | |
| Furniture and fixtures at cost | 4,000 | |
| Provision for depreciation (1 July 2018): | ||
| Building | 5,000 | |
| Plant and equipment | 13,000 | |
| Motor vehicles | 4,800 | |
| Furniture and fixtures | 1,600 | |
| Net profit for the year to 30 June 2019 | 28,800 | |
| Trade receivables and trade payables | 14,700 | |
| Inventory (30 June 2019) | 18,200 | |
| Cash at bank balances | 25,300 | |
| Fixed capital accounts: | 8,120 | |
| Chanda | 30,000 | |
| Pete | 20,000 | |
| Tenda | 10,000 | |
| Bank loan | 18,000 | |
| Current accounts: | ||
| Chanda | 4,280 | |
| Pete | 3,560 | |
| Tenda | 2,340 | |
| Drawings: | ||
| Chanda | 1,580 | |
| Pete | 1,170 | |
| Tenda | 710 | |
| 156,080 | 156,080 |
| 1 | The property, plant and equipment in the partnership were being depreciated as follows: |
| Asset | Rate per annum | Basis | |
| Building | 2% | Straight line | |
| Plant and equipment | 12.5% | Reducing balance | |
| Motor vehicles | 20% | Straight line | |
| Furniture and fixtures | 10% | Straight line | |
| Depreciation for the year ended 30 June 2019 had not been provided for. | |||
| 2 | The partners were entitled to an interest on their fixed capital balances at the rate of 10% per annum. No salaries were paid to the partners. |
| 3 | The tangible non-current assets were to be transferred to the new company at their fair values as follows: |
| Sh. "000" | ||
| Property | 57,000 | |
| Plant and equipment | 16,000 | |
| Motor vehicles | 9,500 | |
| Furniture and fixtures | 3,500 |
| 4 | The current assets and the liabilities were taken over by the new company at their book values. |
| 5 | The purchase consideration amounted to Sh.110 million and was settled by the new company through the issue of ordinary shares of Sh.10 each to the partners in satisfaction of the amounts due to them upon conversion. |
| Sh. "000" | ||
| Non-current assets: | Land and building | 18,400 |
| Motor vehicles | 8,200 | |
| Furniture and fixtures | 3,100 | |
| Investment in shares | 4,600 | |
| 34,300 | ||
| Current Assets: | Inventories | 4,750 |
| Trade receivables | 3,200 | |
| Total assets | 42,250 | |
| Capital and liabilities: | ||
| Capital accounts: | Exe | 14,400 |
| Wye | 7,200 | |
| Zed | 3,600 | |
| Current accounts: | Exe | 2,700 |
| Wye | 1,900 | |
| Zed | 600 | |
| Loan from a Sacco | 4,000 | |
| Current liabilities: | Trade payables | 6,400 |
| Bank overdraft | 1,450 | |
| 42,250 |
| 1 | The partners shared profits and losses in the ratio of 2:2:1 for Exe, Wye and Zed respectively. |
| 2 | Partner Wye agreed to settle the unsecured loan from the Sacco while Zed took over some of the inventory valued at Sh.2 million. |
| 3 | The trade payables accepted Sh.5.8 million in full settlement of the amounts due to them. |
| 4 | The assets ofthe partnership were auctioned and realised in stages on piece-meal basis as follows: |
| Date | Assets realised | Amount Sh."000" | |
| 20 July 2018: | Trade receivables (part) | 2,200 | |
| Inventory (part) | 1,750 | ||
| Investment in shares | 4,400 | ||
| Motor vehicles (part) | 7,000 | ||
| 31 July 2018: | Trade receivables (balance) | 1,000 | |
| Furniture and fixtures | 2,900 | ||
| 25 August 2018: | Inventory (balance) | 700 | |
| Motor vehicles (balance) | 2,000 | ||
| 10 September 2018: | Land and building | 18,000 |
| 5 | The auctioneers fees were agreed at Sh.3.5 million and were to be paid upfront immediately there was an available bank balance. |
| 6 | The rule in Garner vs. Murray applies where necessary. |
| Head office (Ksh.) | Branch (Ush.) | |||
| Sh."000" | Sh."000" | Sh."000" | Sh."000" | |
| Sales | 416,000 | 1,728,000 | ||
| Freehold building at cost | 56,000 | 252,000 | ||
| Trade receivables and trade payables | 35,600 | 38,000 | 144,000 | 6,240 |
| Share capital | 160,000 | |||
| Goods sent to branch | 140,000 | |||
| Head office/Branch account | 240.400 | 2,017,040 | ||
| Cost of sales (branch) | 1,440,000 | |||
| Provision for depreciation on machinery | 6,000 | 226.800 | ||
| Head office cost of sales(including goods sent to branch) | 236,000 | |||
| Administrative cost | 60,800 | 72,000 | ||
| Inventory - 31 March 2019 | 115,600 | 46,080 | ||
| Profit and loss account - 1 April 2018 | 8.000 | |||
| Machinery at cost | 24,000 | 504,000 | ||
| Remittances | 112,000 | 1,088,000 | ||
| Bank balance | 18,400 | 316,800 | ||
| Selling and distribution costs | 93,200 | 115.200 | ||
| 880,000 | 880,000 | 3,978,080 | 3,978,080 | |
| 1 | The branch remitted Ush.64,000,000 on 30 March 2019 which was not received by the head office until 3 April 2019. The amount realised was Ksh.7,960,000. |
| 2 | In the month of February 2019, a customer of the branch paid the head office for goods supplied by the branch. The amount due from him was Ush.1,280,000 which realised Ksh.144,000. It has been correctly dealt with by the head office but not yet entered in the branch accounts. |
| 3 | Commission which is payable to the branch manager, is to be provided at a rate of 5% of the net profits of the branch after charging such commission. |
| 4 | The cost of sales figure includes a depreciation charge of 10% par annum on the cost of machinery. |
| 5 | A provision of Ksh.1,200,000 for unrealised profit in the branch inventory is to be made. |
| 6 | The relevant exchange rates were as follows: |
| Ksh. | To | Ush. | ||
| On 1 April 2018 | 1 | 20 | ||
| On 31 March 2019 | 1 | 16 | ||
| Average rate for the year ended 31 March 2019 | 1 | 18 | ||
| On date of purchase of freehold building and machinery | 1 | 14 |
| Sh."000" | Sh."000" | |
| Costs charged to clients on: | 4,250 | |
| Civil cases | 2,450 | |
| Criminal cases | 260 | |
| Oaths | 340 | |
| Conveyance fees | 200 | |
| Preparation of wills | 1,104 | |
| Cases in progress as at 1 October 2017 | 744 | |
| Clients account (money held on behalf of clients) | 816 | |
| Accounts payable | 2,440 | |
| Accounts receivable | 255 | |
| General office expenses | 255 | |
| Furniture, fittings and library books | 1,350 | |
| Cash at bank: Clients' account | 744 | |
| Office | 1,671 | |
| Capital | 6,220 | |
| Disbursements on behalf of clients | 360 | |
| Drawings | 1,800 | |
| Salaries to office staff | 2,160 | |
| Rent and rates | 1,800 | |
| Postage and telephone | 546 | |
| Printing and stationery | 1,050 | |
| 15,280 | 15,280 |
| 1 | It is estimated that debts amounting to Sh. 165,000 might not be collected and should be written off. |
| 2 | Depreciation should be provided at the rate of 20% per annum on the book value of furniture, fittings and library books. |
| 3 | Cases in progress as at 30 September 2018 were valued at Sh.705,000. |
| A, B and C Statement of financial position as at 10 May 2018 | ||
| Assets | Sh."000" | Sh."000" |
| Non-current assets (net book value): | ||
| Land and building | 182,000 | |
| Plant and machinery | 73,600 | |
| Fixtures and fittings | 20,800 | |
| Motor vehicle | 7,200 | |
| Intangible asset (goodwill) | 89,200 | |
| Current assets: | ||
| Inventory | 68,000 | |
| Trade receivables | 62,000 | |
| Bank balance | 9,200 | |
| Cash balance | 3,200 | 142,400 |
| 515,200 | ||
| Capital and liabilities: | ||
| Capital accounts: A | 100,000 | |
| B | 64,000 | |
| C | 40,000 | |
| 204,000 | ||
| Current accounts: A | 32,000 | |
| B | 22,000 | 54,000 |
| 258,000 | ||
| Long-term liability: | ||
| Bank loan | 160,000 | |
| Current liabilities: | 33,200 | |
| Trade payables | 64,000 | |
| Bank overdraft | 97,200 | |
| 515,200 | ||
| 1 | The partnership had an insurance policy which entitled the firm to Sh.40,000,000 immediately a partner left. |
| 2 | Dissolution expenses amounted to Sh.1,800,000 and were paid on 30 August 2018. |
| 3 | As soon as sufficient money was available, all the outstanding payables were paid after the discount received which amounted to Sh.1,000,000. |
| 4 | Assets were sold and the monies received on piecemeal basis as follows: | ||
| Date | Particulars | Amount Sh."000" | |
| 30 May 2018: | Insurance policy | 40,000 | |
| Insurance benefit received (interest) | 16,000 | ||
| Land and building | 180,000 | ||
| 25 June 2018: | Plant and machinery | 41,200 | |
| Trade receivables | 26,000 | ||
| 20 July 2018: | Motor vehicle | 6,400 | |
| Fixtures and fittings | 8,800 | ||
| 15 August 2018: | Plant and machinery | 32,400 | |
| Fixtures and fittings | 8,000 | ||
| 20 September 2018: | Inventory | 68,000 | |
| Trade receivables | 40,000 | ||
| Sh."000" | Sh."000" | |
| Ordinary shares of Sh.10 each | 50,000 | |
| 9% cumulative preference shares | 20,000 | |
| Statutory reserve | 4,200 | |
| Retained earnings | 15,800 | |
| Freehold land | 18,000 | |
| Building: Cost | 60,000 | |
| : Accumulated depreciation | 5,000 | |
| Equipment: Cost | 60,000 | |
| : Accumulated depreciation | 13,000 | |
| Government securities | 12,500 | |
| Investment in shares | 28,500 | |
| Claims paid | 28,400 | |
| Gross premiums earned | 86,000 | |
| Re-insurance premiums ceded | 10,700 | |
| Legal expenses | 3,800 | |
| Commissions earned | 450 | |
| Commissions payable | 700 | |
| Unearned premiums | 47,500 | |
| Operating expenses | 14,250 | |
| Accrued preference dividends payable | 5,400 | |
| Fees received | 4,400 | |
| Repairs and maintenance | 8,500 | |
| Trade receivables | 15,350 | |
| Trade payab!es | 8,500 | |
| Investment income | 1,800 | |
| Claims outstanding | 4,100 | |
| Bank balances | 3,900 | |
| Receivables arising out of re-insurance arrangements | 1,550 | |
| 266,150 | 266,150 |
| 1 | The freehold land was revalued upwards by Sh.2 million but the revaluation had not been incorporated in the accounts. |
| 2 | Dividends on preference shares were in arrears for four years. The board has decided to pay the dividends for only three years. |
| 3 | Depreciation is to be charged per annum using the straight line method as follows: Asset Rate per annum Building 2% Equipment 15% |
| 4 | Claims amounting to Sh.2,850,000 were estimated to be outstanding as at 30 June 2018. |
| 5 | Current year's estimated tax is Sh.5,000,000. |
| 6 | Out of the total legal expenses incurred in the year ended 30 June 2018, Sh.2,450,000 was on claims paid. |
| 7 | The directors have recommended a first and final dividend of 20% on ordinary shares. |
| Sh."million" | |
| Property, plant and equipment | 6,750 |
| Intangible assets | 6,450 |
| Ordinary shares (Sh.20 each) | 15,255 |
| Share premium | 270 |
| Revaluation reserves | 1,380 |
| Statutory reserves | 5,730 |
| Interest income: Loan advances to customers | 15,042 |
| Finance lease | 14,040 |
| Deposits with other banks | 3,024 |
| Government bonds | 7,230 |
| Interest expenses: On customer deposits | 7,500 |
| On deposits with other banks | 168 |
| Fees and commissions received | 5,592 |
| Forex commission receivable | 330 |
| Other operating incomes | 4,500 |
| Fees and other expenses | 450 |
| Impairment of loans and advances | 2,520 |
| Administrative costs | 11,580 |
| General operating expenses | 9,420 |
| Income tax expenses | 6,300 |
| Retained revenue (1 January 2017) | 49,920 |
| Deposits with Central Bank | 38,400 |
| Deposits due from other banks | 57,600 |
| Government bonds and other securities | 46,230 |
| Loans and advances to customers | 396,810 |
| Other assets | 2,145 |
| Deferred tax assets | 180 |
| Other investments | 468 |
| Deferred tax liabilities | 4,338 |
| Other liabilities | 3,300 |
| Current tax liability | 3,435 |
| Deposits from other banks | 6,600 |
| Customer deposits | 452,985 |
| 1 | Intangible assets were impaired by 20% as at the end of the year. |
| 2 | Property, plant and equipment is to be revalued to Sh. 12,750 million. |
| 3 | An allowance for unserviced loans is to be created at 2% of the outstanding loans and advances to customers. |
| (i) | Income statement for the year ended 31 December 2017. |
| (ii) | Statement of financial position as at 31 December 2017. |
| Sh."000" | Sh."000" | |
| Land and buildings at cost | 123,500 | |
| Motor vehicles at cost | 80,600 | |
| Office equipment at cost | 70,200 | |
| Furniture and fixtures at cost | 52,000 | |
| Provision for depreciation: Buildings | 20,150 | |
| Motor vehicles | 54,600 | |
| Office equipment | 24,400 | |
| Furniture and fixtures | 18,500 | |
| Investments | 44,800 | |
| Goodwill | 26,000 | |
| Inventories (30 September 2017) | 31,200 | |
| Accounts receivable | 25,400 | |
| Accounts payable | 62,400 | |
| Bank overdraft | 17,550 | |
| Accrued expenses | 4,000 | |
| Capital accounts: Chanda | 58,500 | |
| Pete | 37,000 | |
| Kidole | 31,500 | |
| Net profit for the year to 30 September 2017 | 91,000 | |
| Drawings: Chanda | 7,800 | |
| Pete | 6,500 | |
| Kidole | 3,900 | |
| Current accounts: Chanda | 20,800 | |
| Pete | 18,200 | |
| Kidole | 13,300 | |
| 471,900 | 471,900 |
| 1 | Kidole was the only active partner and was entitled to a commission of 15% based on the annual sales revenue which averaged Sh.20 million. |
| 2 | The partners resolved to convert their business into that of a company to be named Chapeki Limited with effect from 1 October 2017 under the following terms:
|
| Sh."000" | ||
| Land and buildings | 115,000 | |
| Motor vehicles | 25,500 | |
| Office equipment | 43,500 | |
| Furniture and fixtures | 29,550 | |
| Inventories at book value less 5% | ||
| Accounts receivable at book value less 21½% | ||
| Current liabilities at book values | ||
| Goodwill was considered valueless and therefore was written off. | ||
| |
| 3 | Upon incorporation, the new company issued new debentures at par, carrying interest at 14% per annum. The cash proceeds from the issue amounting to Sh.50 million were used to purchase additional stock of raw materials worth Sh.15 million. Accrued expenses were settled in full. |
| TMN Enterprises Statement of financial position as at 31 August 2017 | ||
| Sh."000" | Sh."000" | |
| Non-current assets: | ||
| Premises | 10,500 | |
| Motor vehicles | 4,580 | |
| Furniture and fittings | 1,880 | |
| Equipment | 2,340 | 19,300 |
| Current assets: | ||
| Inventories | 3,000 | |
| Trade receivables | 2,000 | |
| Cash and bank | 200 | 7,200 |
| 26,500 | ||
| Capital account : Tenda | 12,000 | |
| : Mema | 8,000 | |
| : Nenda | 4,000 | 24,000 |
| Current account : Tenda | (2,000) | |
| : Mema | (3,000) | |
| : Nenda | (6,000) | (11,000) |
| Non-current liabilities: | ||
| Loan account - Mema | 2,000 | |
| Loan from microfinance bank | 4,000 | 6,000 |
| Current liabilities: | ||
| Trade payables and accruals | 7,500 | |
| 26,500 | ||
| 1 | The partners to take over the following assets: Equipment to be taken over by Tenda at an agreed valuation of Sh.2,000,000. Furniture to be taken over by Mema at a valuation of Sh.920,000. |
| 2 | The remaining assets were realised on installment basis as follows: 1s¹ installment Sh.12,000,000 2nd installment Sh.3,600.000 3rd installment Sh.2,610,000 |
| 3 | Nenda was adjudicated bankrupt before the dissolution and liquidation ofthe partnership was completed. |
| 4 | Liquidation expenses amounted to Sh.450,000. |
| 5 | Trade payables were settled net of a discount of Sh.700,000. |
| Debit Sh."000" | Credit Sh."000" | |
| Accruals | 9,000 | |
| Capital account: Dida | 20,000 | |
| Vuma | 30,000 | |
| Equipment | 20,000 | |
| Motor vehicles at cost | 55,000 | |
| Accumulated depreciation: Equipment | 8,000 | |
| Motor vehicles | 25,000 | |
| Cash and bank balances | 21,000 | |
| Drawings: Dida | 15,000 | |
| Vuma | 10,000 | |
| Net profit for the year to 30 April 2017 | 149.000 | |
| Prepayments | 3,000 | |
| Salary paid to Vuma | 20,000 | |
| Inventory at cost (30 April 2017) | 70,000 | |
| Trade payables | 118,000 | |
| Trade receivables | 100,000 | |
| Premises | 45,000 | |
| 359,000 | 359,000 |
| 1 | The partnership agreement includes the following arrangements between the partners:
|
| 2 | On 1 May 2017, a company known as Fariji Ltd. was incorporated in order to make an offer for the purchase of the partnership business. The arrangements were as follows: Vuma to take over one of the motor vehicles at an agreed valuation of Sh.5 million. Other assets and liabilities (except cash) were taken over by the company at the following values: |
| Sh. "000" | ||
| Premises | 50,000 | |
| Motor vehicles | 18,000 | |
| Equipment | 10,000 | |
| Trade payables | 80,000 | |
| Accruals | 10,000 | |
| Inventory net of 10% for obsolete stock Receivables net of provision for doubtful debts of 5% Prepayments were valueless | ||
| 3 | Additional costs incurred by the partnership in arranging the sale of the business amounted to Sh.3 million. |
| 4 | The company agreed to issue 15 million shares of Sh.10 each at a premium of 24%. The shares were to be divided between Dida and Vuma in the ratio of 3:2 respectively. |
| 5 | The partners' drawings were made in the following months: Dida: November 2016 Vuma: February 2017 |
| 6 | The rule of Garner Vs Murray is to apply. |
| Sh. "million" | Sh. "million" | |
| Freehold property | 5,040 | |
| Motor vehicle (net book value) | 4,200 | |
| Machinery and equipment (net book value) | 1,800 | |
| Furniture (net book value) | 1,560 | |
| Audit fees paid | 288 | |
| Directors fees | 594 | |
| Depreciation on non-current assets | 1,086 | |
| Management expenses: Marine | 780 | |
| Fire | 696 | |
| Accounts receivable and accounts payable | 876 | 396 |
| Investment income | 336 | |
| Ordinary share capital | 3,600 | |
| Share premium | 1,200 | |
| Retained profit as at 1 April 2016 | 540 | |
| Premiums outstanding as at 1 April 2016: Marine | 1,080 | |
| Fire | 840 | |
| Unearned premiums as at I April 2016: Marine | 5,760 | |
| Fire | 3,000 | |
| Claims outstanding as at 1 April 2016: Marine | 960 | |
| Fire | 648 | |
| Claims paid: Marine | 2,964 | |
| Fire | 2,160 | |
| Legal costs: Marine | 216 | |
| Fire | 156 | |
| Expenses relating to claims (Marine) | 384 | |
| Bad debts written off: Marine | 204 | |
| Fire | 114 | |
| Investment in shares | 1,680 | |
| Direct premiums received: Marine | 5,400 | |
| Fire | 4,200 | |
| Re-insurance premiums received: Marine | 1,440 | |
| Fire | 960 | |
| Re-insurance premiums paid: Marine | 960 | |
| Fire | 600 | |
| Bank balance and cash in hand | 132 | |
| 28,440 | 28,440 |
| 1 | Unearned premiums reserve for unexpired risk is to be maintained at 100% and 50% of the premiums for marine insurance and fire insurance ance respectively. |
| 2 | Commission on both insurance ceded and re-insurance accepted is at a rate of 5% of the premiums. |
| 3 | The directors have proposed a dividend of 5% on the outstanding share capital as at 31 March 2017. |
| 4 | The tax rate applicable is 30%. |
| 5 | Premiums outstanding as at 31 March 2017 amounted to Sh.1,800 million and Sh.840 million for marine insurance and fire insurance respectively. |
| 6 | Claims intimated and outstanding as at 31 March 2017 amounted to Sh.900 million for marine insurance and Sh.576 million for fire insurance. |
| Non-current assets: | "Sh.000" | "Sh.000" | "Sh.000" |
| Freehold land and buildings | 75,000 | ||
| Plant and machinery | 38,600 | ||
| Fixtures and fittings | 8,500 | ||
| Motor vehicles | 4,000 | ||
| Intangible assets (goodwill) | 50,000 | ||
| 176,100 | |||
| Current assets: | |||
| Inventory | 32,000 | ||
| Trade receivables | 32,500 | ||
| Less: Allowance for doubtful debts | (3,000) | 29,500 | |
| Cash | 80 | 61,580 | |
| 237,680 | |||
| Capital and liabilities: | |||
| Capital accounts: | |||
| Ali | 50,000 | ||
| Baba | 30,000 | ||
| Chake | 20,000 | 100,000 | |
| Current accounts: | |||
| Ali | 20,000 | ||
| Baba | 15,000 | 35,000 | |
| Long-term liabilities: | |||
| Loan - Ali | 10,000 | ||
| Current liabilities: | |||
| Trade payables | 28,500 | ||
| Bank overdraft | 64,180 | 92,680 | |
| 237,680 |
| 1 | Provision was to be made for dissolution expenses of Sh.1,200,000. | ||||
| 2 | Premiums have been paid on life assurance policies for each partner to provide the firm with cash on death. The premiums have been charged to insurance expenses and the cash payable on death of any partner is Sh.20,000,000. | ||||
| 3 | The assets were duly sold or settled and the monies received as follows: | ||||
| "Sh.000" | |||||
| 20 June 2016: | Life policy on Ali's life | 20,000 | |||
| Life policy on the lives of Baba and Chake surrendered | 10,000 | ||||
| 21 July 2016: | Frechold land and buildings | 100,000 | |||
| Trade receivables (part) | 15,000 | ||||
| Inventory (part) | 10,000 | ||||
| 18 August 2016: | Plant and machinery | 25,500 | |||
| Fixtures and fittings | 6,000 | ||||
| Motor vehicles | 2,500 | ||||
| 25 October 2016: | Inventory (remainder) | 18,000 | |||
| Trades receivables (remainder) | 21,000 | ||||
| 4 | Dissolution expenses amounted to Sh.1,000,000 and these were paid on 31 October 2016. | ||||
| 5 | As soon as sufficient money was available to pay all outstanding creditors, this was done, discounts being received amounting to Sh.500,000. | ||||
| Sh. "000" | Sh. "000" | |
| Ordinary share capital (Sh.100 par value) | 200,000 | |
| Retained earnings | 65,000 | |
| Investment income | 89,564 | |
| Receivables arising out of direct insurance business | 8,940 | |
| Payables arising from reinsurance arrangements | 6,000 | |
| Bank balances | 6,000 | |
| Investment | 79,846 | |
| Property, plant and equipment (net book value) | 495,600 | |
| Premium acquisition costs | 12,000 | |
| Other operating expenses | 101,424 | |
| Depreciation expenses for the year | 40,000 | |
| Legal fees on claim settlements | 81,690 | |
| Reinsurance share of claims outstanding as at 1 November 2015 | 16,000 | |
| Gross claims outstanding as at 1 November 2015 | 240,000 | |
| Reinsurance share of sale of salvaged motor vehicles | 4,000 | |
| Sale of salvaged motor vehicles | 26,000 | |
| Gross claims paid | 381,784 | |
| Reinsurance share of claims paid | 200,000 | |
| Unearned premium reserves as at I November 2015 | 40,000 | |
| Gross premiums: From brokers | 139,124 | |
| From direct clients | 400,000 | |
| Reinsurance premiums ceded to: Reinsurance companies | 92,000 | |
| Reinsurance brokers | 88,000 | |
| Commissions payable | 30,404 | |
| Reinsurance commissions receivable from: Reinsurance companies | 4,000 | |
| Reinsurance brokers | 16,000 | |
| 1,431,688 | 1,431,688 |
| Sh."000" | |
| - Claims outstanding | 90,000 |
| - Claims incurred but not reported | 158,000 |
| Non-current assets | Sh."000" | Sh."000" | |
| Land and building (at cost) | 200,000 | ||
| Motor vehicles (net book value) | 150,000 | ||
| Equipment (net book value) | 33,000 | ||
| 383,000 | |||
| Current assets | |||
| Cash in hand | 1,000 | ||
| Account receivables: | Manufacturing | 128,000 | |
| Distribution | 216,000 | ||
| Inventory: | Manufacturing | 460,000 | |
| Distribution | 225,000 | 1,030,000 | |
| 1,413,000 | |||
| Capital and liabilities | |||
| Capital: | Faith | 526,000 | |
| Hope | 324,000 | 850,000 | |
| Non-current liability | |||
| Bank loan | 24,000 | ||
| Current liabilities | |||
| Bank overdraft | 179,000 | ||
| Account payables: | Manufacturing | 308,000 | |
| Distribution | 52,000 | 539,000 | |
| 1,413,000 | |||
| Additional information: | |
| 1 | Mabati Ltd. took over all the non-current assets, cash, bank overdraft and its share of account receivables, inventory and account payables. Nyumba Ltd. took its share of account receivables, inventory and account payables. The assets and liabilities were transferred at book values and the partners were paid Sh.100 million being goodwill for the distribution business and Sh.80 million being goodwill for the manufacturing business. |
| 2 | The bank that had provided the loan agreed to accept Sh.14.4 million 10% debentures in Mabati Ltd. and Sh.9.6 million 10% debentures in Nyumba Ltd. |
| 3 | On 1 January 2016, the purchase consideration was settled by the allotment of fully paid ordinary shares of Sh.20 each in the respective companies as follows: Faith: 23,750,000 shares in Mabati Ltd. and the balance in shares in Nyumba Ltd. Hope: 15,920,000 shares in Nyumba Ltd. and the balance in shares in Mabati Ltd. |
| 4 | Mabati Ltd. also raised a 12% debenture of Sh.200 million on 1 January 2016 and paid-off the bank overdraft. The expenses incurred in raising the 12% debenture amounted to Sh.7 million. |
| 5 | Mabati Ltd. and Nyumba Ltd. also issued 1,000,000 and 1,500,000 fully paid ordinary shares of Sh.20 each respectively to two corporate investors, A Ltd. and B Ltd. on 1 January 2016. |
| 6 | None of the companiess has amortised the goodwill. |
| 7 | The formation expenses were paid by the respective companies as follows: |
| Sh. "million" Mabati Ltd. 13 Nyumba Ltd. 8 | |
| Sh."000" | Sh."000" | |
| Sales | 77,025 | |
| Purchases | 57,000 | |
| Discounts allowed | 1,600 | |
| Bad debts | 800 | |
| Rent | 1,800 | |
| Salaries | 5,400 | |
| Distribution expenses | 600 | |
| Formation expenses (company) | 240 | |
| Sundry expenses | 950 | |
| Capital: Amu | 18,000 | |
| Bala | 13,000 | |
| Trade payables | 9,300 | |
| Furniture and fittings | 2.400 | |
| Motor vehicles | 2,800 | |
| Inventory as at 1 January 2014 | 25,000 | |
| Trade receivables | 8,100 | |
| Cash at bank | 5,635 | |
| Drawings: Amu | 2,700 | |
| Bala | 2,300 | |
| 117,325 | 117,325 |
| Partnership | Company | |
| Furniture and fittings | 10% | 12% |
| Motor vehicles | 20% | 18% |
| Sh. "000" | |
| Opening inventory | 31,680 |
| Goods received from head office | 700,368 |
| Goods received from Southlands branch | 3,360 |
| Goods sent to Northlands branch from Eastlands branch | 4,320 |
| Goods returned to Eastlands branch by credit customers | 5,280 |
| Goods returned to Northlands branch by an Eastlands branch customer | 1,932 |
| Goods returned to head office | 8,160 |
| Goods stolen from Eastlands branch | 5,760 |
| Cash sales | 316,800 |
| Credit sales | 370,116 |