Preparation of Financial Statements for Interests in Other entities

August 2025

1 Questions

Question 1

S Ltd. acquired equity shares in M Ltd. and B Ltd. in the last three years. The statements of financial position for the three companies as at 31 December 2024 are given below:

	S Ltd. Sh.“000”	M Ltd. Sh.“000”	B Ltd. Sh.“000”
Assets:
Non-current assets:
Property, plant and equipment	102,800	101,120	88,480
Investment property	23,600	-	-
Investment in:
M Ltd.	112,000	-	-
B Ltd.	88,000	-	-
Current assets	25,280	20,224	17,696
Total assets	351,680	121,344	106,176
Equity and liabilities:
Equity:
Share capital (Sh.1.00 par value)	160,000	64,000	56,000
Retained earnings	101,480	22,784	19,936
Other components of equity	9,400	1,920	1,680
	270,880	88,704	77,616
Non-current liabilities	15,168	12,134.40	10,617.60
Current liabilities	65,632	20,505.60	17,942.40
Total equity and liabilities	351,680	121,344	106,176

Additional information:

1.	The following information relates to the acquisition of the equity shares in M Ltd. and B Ltd.:
	Company	Date of acquisition of equity shares in company	Percentage of shareholding acquired	Purchased full goodwill arising from the acquisitions
				Sh.“000”
	M Ltd.	1 January 2022	80%	44,800
	B Ltd.	30 June 2023	60%	38,400

	At the date of acquisition, the assets and liabilities of B Ltd. were already at fair value. However, an upward fair value adjustment of Sh.4,400,000 was required with respect to production machinery of M Ltd. The remaining useful life of this production machinery as at the date of acquisition was five years. It is the policy of the group to measure non-controlling interest at fair value.
2.	The consolidated retained earnings and other components of equity recognised in the consolidated financial statements of S Group as at 31 December 2023 were Sh.63,519,200 and Sh.3,360,000 respectively. Non-controlling interest recognised under equity of the consolidated statement of financial position as at 31 December 2023 was Sh.20,000,000. All consolidation adjustments, unless otherwise stated, were correctly stated in the opening consolidated financial statements.
3.	There were no intercompany transactions between S Ltd. and any of the subsidiaries acquired before the current accounting year. However, in the year ended 31 December 2024, M Ltd. sold goods worth Sh.2,240,000 to B Ltd. at a margin of 20%. Of these goods, 30% were yet to be sold as at 31 December 2024.
4.	The purchased goodwill arising from the acquisitions as presented in note (1) are the original goodwill amounts and are thus before any impairment loss. As at 31 December 2024, an impairment review was carried out on the two subsidiaries using the impairment testing procedure recommended under IAS 36 (Impairment of Assets) for cash generating units. Each subsidiary was a cash generating unit. The recoverable amounts of the net assets of M Ltd. and B Ltd. as at 31 December 2024 were Sh.133,244,800 and Sh.116,544,000 respectively. No impairment loss has been recognised in respect of the goodwill in both subsidiaries in the previous years.
6.	S Ltd. owns a building which was formerly used as an administration office. At the beginning of the year 2024, S Ltd. rented the building to M. Ltd. at an annual rental of Sh.2,000,000 and has as a result accounted for the building as an investment property. The carrying value of the building at the date of transfer to M. Ltd. (which approximated the fair value) was Sh.22,400,000. It is the policy of S Ltd. to measure investment properties at fair value. A fair value gain of Sh.1,200,000 has been recognised by S Ltd. at 31 December 2024. The estimated remaining useful life of the building as at the date of transfer was 20 years. M Ltd. uses the building for administrative purposes. M Ltd. has paid the rental for the current year and charged it as an expense. S Ltd. has included the rental income for the year as other income in the current year’s statement of profit or loss.
7.	The summarised financial performance of the three companies for the year ended 31 December 2024 from their individual statements of profit or loss and other comprehensive income (before any consolidation adjustment) is presented below:

7.		S Ltd.	M Ltd.	B Ltd.
		Sh.“000”	Sh.“000”	Sh.“000”
	Profit for the year	16,598.40	28,499.20	28,800
	Other comprehensive income	815.20	712	736

Required:

Consolidated statement of financial position for S Group as at 31 December 2024.

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April 2025

1 Questions

Question 2

Rock Limited, a public limited entity acquired 80% equity shareholding in Paper Limited, another public limited entity on 1 April 2024.

The acquisition consideration comprised of an immediate cash payment of Sh.2,400 million made on 1 April 2024 and a further cash payment of Sh.1,331 million deferred until 1 April 2026. No accounting entries have been made in respect of the deferred cash consideration. Rock Limited has a cost of capital of 10%.

On 1 October 2024, Rock Limited together with another entity entered into a joint arrangement to jointly control Scissors Limited, a public limited entity. Effectively, Rock Limited purchased 50% of the equity shares of Scissors Limited for an immediate cash consideration of Sh.1,500 million. The following financial statements relate to the group of companies:

Statements of profit or loss for the year ended 31 March 2025:

	Rock Limited	Paper Limited	Scissors Limited
	Sh.“million”	Sh.“million”	Sh.“million”
Revenue	8,520	5,180	6,240
Cost of sales	(5,510)	(3,440)	(4,220)
Gross profit	3,010	1,740	2,020
Distribution costs	(830)	(470)	(520)
Administrative expenses	(860)	(520)	(580)
Profit before tax	1,320	750	920
Income tax expense	(450)	(230)	(280)
Profit for the year	870	520	640

Statement of financial position as at 31 March 2025:

	Rock Limited	Paper Limited	Scissors Limited
	Sh.“million”	Sh.“million”	Sh.“million”
Assets:
Non-current assets:
Property, plant and equipment	4,260	3,630	3,190
Investments: Paper Limited	2,400	-	-
Investments: Scissors Limited	1,500	-	-
	8,160	3,630	3,190
Current assets	3,720	2,270	1,610
Total assets	11,880	5,900	4,800
Equity and liabilities:
Equity:
Ordinary Sh.10 share capital	5,000	2,000	2,000
Share premium	500	200	-
Retained earnings	3,380	1,800	1,200
	8,880	4,000	3,200
Current liabilities	3,600	1,900	1,600
Total equity and liabilities	11,880	5,900	4,800

Additional information:

At the date of acquisition, the fair value of Paper Limited’s net assets approximated their carrying amount, with the exception of some office equipment whose carrying amount was Sh.560 million below its fair value. At this date, the office equipment had a remaining economic useful life of eight (8) years. Depreciation on office equipment is an administrative cost. No fair value adjustments were necessary with respect to acquisition of Scissors Limited.
Rock Limited measures the non-controlling interests in subsidiaries at fair value. The fair value of the non controlling interest of Paper Limited at the date of acquisition was Sh.860 million.
During the year ended 31 March 2025, Paper Limited sold goods to Rock Limited for Sh.500 million at a mark-up on cost of 25%. Half (½) of these goods were still held by Rock Limited at 31 March 2025 and the balance payable was still outstanding.
Impairment review performed on 31 March 2025 revealed that both goodwill on acquisition of Paper Limited and interest in Scissors Limited were unimpaired.
Incomes and expenses of the group of companies are deemed to have accrued evenly throughout the year.

Required:

(a) Consolidated statement of profit or loss for the year ended 31 March 2025.

(b) Consolidated statement of financial position as at 31 March 2025.

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December 2024

2 Questions

Question 4

The following are the consolidated financial statements of Ndovu Group for the year ended 30 September:

Consolidated statements of financial position as at:

	30 September 2024	30 September 2023
Assets:	Sh.“million”	Sh.“million”
Non-current assets:
Property, plant and equipment	15,900	10,150
Goodwill	12,060	11,560
Investment in associate	3,875	3,375
	31,835	25,085
Current assets:
Inventory	2,970	2,780
Accounts receivable	2,440	2,060
Cash and cash equivalents	1,310	875
Total assets	38,555	30,800
Equity and liabilities:
Equity:
Ordinary share capital (Sh.10 par value)	10,000	8,000
Share premium	1,500	1,200
Revaluation surplus	4,680	3,280
Retained earnings	10,090	6,780
Equity attributable to group owners	26,270	19,260
Non-controlling interests	1,940	2,000
Total equity	28,210	21,260
Non-current liabilities:
Bank loans	2,500	1,875
Deferred tax	940	650
Current liabilities:
Accounts payable	4,375	4,530
Current tax	2,530	2,485
Total equity and liabilities	38,555	30,800

Consolidated statement of profit or loss and other comprehensive incomes for the year ended 30 September 2024:

	Sh.“million”
Revenue	13,060
Cost of sales	(3,970)
Gross profit	9,090
Operating expenses	(3,250)
Profit from operations	5,840
Gain on disposal of subsidiary	350
Finance costs	(220)
Share of profit of associate	720
Profit before tax	6,690
Income tax expense	(1,400)
Profit for the year	5,290
Other comprehensive income:
Gain on property revaluation	1,400
Total comprehensive income for the year	6,690
Profit for the year:
Attributable to the group owners	4,690
Attributable to the non-controlling interests	600
	5,290
Total comprehensive income for the year:
Attributable to the group owners	6,090
Attributable to the non-controlling interests	600
	6,690

Additional information:

1.	Depreciation of Sh.2,400 million was charged during the year ended 30 September 2024. Plant with a carrying amount of Sh.1,560 million was sold for Sh.1,720 million. The gain on disposal was recognised in operating costs. Property was revalued during the year resulting in a revaluation gain of Sh.1,400 million being recognised.
2.	During the year ended 30 September 2024, Ndovu Limited acquired 75% of the ordinary share capital of Simba Limited paying cash consideration of Sh.9,400 million. The non-controlling interest (NCI) was measured at its fair value of Sh.2,125 million at the date of acquisition. The fair value of Simba Limited’s net assets at acquisition was made up as follows:

2.		Sh. “million”
	Property, plant and equipment	8,000
	Inventory	940
	Accounts receivable	1,500
	Cash and cash equivalents	500
	Accounts payable	(1,375)
	Current tax	(250)
	Net assets at acquisition	9,315

3.

During the year ended 30 September 2024, Ndovu Limited also disposed of its entire 80% ordinary shareholding in Kifaru Limited for cash proceeds of Sh.5,300 million. This subsidiary was not considered as a separate unit of operation. Kifaru Limited had been acquired several years ago for cash consideration of Sh.3,750 million.

The NCI of 20% was measured at its fair value of Sh.2,000 million at acquisition and the fair values of Kifaru Limited’s net assets were Sh.4,600 million at that date. Goodwill had not suffered any impairment.

At the date of disposal, the net assets of Kifaru Limited were carried in the consolidated statement of financial position as follows:

3.		Sh. “million”
	Property, plant and equipment	4,530
	Inventory	1,030
	Accounts receivable	750
	Cash and cash equivalents	300
	Accounts payable	(510)
	Net assets at disposal	6,100

Required:

A consolidated statement of cash flows for Ndovu Group for the year ended 30 September 2024 using the indirect method in accordance with International Accounting Standard (IAS) 7 “Statement of Cash Flows”.

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Question 2

H Limited, a public limited company which operates in the manufacturing sector has made investments in other companies. The following draft statements of profit or loss and other comprehensive income for the year ended 30 September 2024 relate to H Limited and its investment companies:

	H Limited	S Limited	R Limited
	Sh. “million”	Sh. “million”	Sh. “million”
Revenue	6,200	2,840	2,120
Cost of sales	(4,680)	(1,640)	(1,180)
Gross profit	1,520	1,200	940
Other income	315	105	60
	1,835	1,305	1,000
Distribution costs	(330)	(165)	(180)
Administrative expenses	(240)	(140)	(80)
Other expenses	(195)	(120)	(60)
Operating profit	1,070	880	680
Finance costs	(80)	(65)	(50)
Finance income	90	70	110
Profit before tax	1,080	885	740
Income tax expense	(285)	(145)	(140)
Profit for the year	795	740	600
Other comprehensive income:
Gain on property revaluation	160	50	80
Total comprehensive income for the year	955	790	680

Additional information:

1.	H Limited had acquired a 25% equity interest in R Limited several years ago for a cash consideration of Sh.1,800 million when the retained earnings of R Limited stood at Sh.2,040 million and had no other reserves. On 1 April 2024, H Limited acquired a further 50% equity holding in R Limited for a cash consideration of Sh.3,500 million. The retained earnings of R Limited as at 1 October 2023 amounted to Sh.3,940 million. The original 25% interest in R Limited was considered to be fairly valued at the equity-accounted value as at 1 April 2024. The fair values of net assets of R Limited which approximated their carrying amounts were Sh.4,900 million as at 1 April 2024.
2.	H Limited had also acquired 80% of 500 million equity shares in S Limited on 1 October 2022. This acquisition involved a cash consideration of Sh.2,300 million and a share exchange on the basis of 2 shares in H Limited for every 3 shares acquired in S Limited. The market price of one H Limited’s share at 1 October 2022 was Sh.15 per share. The carrying amount of net assets of S Limited at acquisition was Sh.5,100 million, but the fair value of net assets at 1 October 2022 was Sh.5,300 million. The fair value increase was due to an unrecognised customer list which had a remaining economic useful life of five (5) years at the date of acquisition.
3.	The group policy is to measure the non-controlling interests at their fair values at the date of acquisition. The fair value of non-controlling interests in S Limited was Sh.800 million and in R Limited was Sh.540 million at the respective dates of acquisition.
4.	Assume that all incomes, expenses, gains and losses accrued evenly throughout the year.
5.	No impairment on goodwill was reported during the year ended 30 September 2024.
Required:
(i)	Goodwill arising on acquisition of S Limited and R Limited.
(ii)	Consolidated statement of profit or loss and other comprehensive incomes for the year ended 30 September 2024.

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August 2024

3 Questions

Question 2

Pata Limited, a quoted company, which operates in the agricultural sector, has investments in a number of companies.

The following financial information relates to Pata Limited and its investment companies:

Statements of profit or loss and other comprehensive income for the year ended 30 June 2024:

	Pata Limited	Soma Limited	Jana Limited
	Sh.“million”	Sh.“million”	Sh.“million”
Revenue	7,750	4,260	2,860
Cost of sales	(5,380)	(2,050)	(1,480)
Gross profit	2,370	2,210	1,380
Distribution costs	(495)	(290)	(200)
Administrative expenses	(760)	(650)	(400)
Profit from operations	1,115	1,270	780
Finance costs	(90)	(80)	(60)
Profit before tax	1,025	1,190	720
Income tax expense	(340)	(370)	(220)
Profit for the year	685	820	500
Other Comprehensive income:
Items that will not be recycled:
Gain on property revaluation	265	80	-
Total Comprehensive income	950	900	500

Extract of equity as at 30 June 2024:

Equity as at 30 June 2024:	Pata Limited	Soma Limited	Jana Limited
	Sh.“million”	Sh.“million”	Sh.“million”
Ordinary share capital	1,000	500	300
Revaluation reserve	265	80	-
Retained profit brought forward	5,480	3,730	1,450
Profit for the year	685	820	500
	7,430	5,130	2,250

Additional information:

On 1 July 2021, Pata Limited acquired 75% of the ordinary shares of Soma Limited for a cash consideration of Sh.4,500 million, when the retained earnings of Soma Limited stood at Sh.2,100 million. At the date of acquisition, the fair values of the identifiable net assets approximated their carrying values with the exception of an item of plant whose fair value exceeded its carrying amount by Sh.600 million. The plant had a remaining economic useful life of six years at acquisition date.
On 1 January 2022, Pata Limited entered into a joint arrangement with another entity to establish joint control over net assets and operations of Jana Limited. Pata Limited acquired 50% of the ordinary shares of Jana Limited for a cash consideration of Sh.700 million when the retained earnings of Jana Limited amounted to Sh.1,300 million. Pata Limited equity-accounted for its share of interest in Jana Limited in line with International Accounting Standard (IAS) 28, “Investment in Associates and Joint Ventures”.
On 1 January 2024, Pata Limited acquired an additional 30% shareholding in Jana Limited for a cash consideration of Sh.500 million. The fair value of the original investment in Jana Limited as at 1 January 2024 was Sh.950 million. No fair value adjustments were necessary in respect of the identifiable net assets of Jana Limited.
The group policy is to measure the non-controlling interests in subsidiaries at their proportionate share of net assets at the date of acquisition.
During the year ended 30 June 2024, Pata Limited sold goods to Soma Limited for Sh.340 million at fair value. Pata Limited reported a loss of Sh.55 million on this transaction. Soma Limited still had one half (1/2) of these goods in its inventory at 30 June 2024.
Impairment review at 30 June 2024 revealed that goodwill on acquisition had not suffered any impairment.
All incomes and expenses of the group companies are deemed to have accrued evenly throughout the year.

Required:

(a) Calculate the value of goodwill arising on acquisition of:

(i) Soma Limited.

(ii) Jana Limited.

(b) Prepare the consolidated statement of profit or loss and other comprehensive income for the year ended 30 June 2024.

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Question 3

Ziwa Limited has been experiencing trading difficulties for the past five years. A formal reconstruction of the company was agreed by the board of directors. On 30 June 2024, Ziwa Ltd. was taken over by Baraka Ltd.

The following is Ziwa Ltd.’s statement of financial position as at 30 June 2024:

Statement of financial position as at 30 June 2024:

Assets:	Sh.“million”	Sh.“million”
Non-Current assets:
Land and buildings	820
Motor vehicles	680
Goodwill	350
Furniture and equipment	435
Patents	185	2,470
Current assets:
Inventory	380
Accounts receivable	280	660
Total assets		3,130
Equity and liabilities:
Equity:
Ordinary share capital (Sh.10 each)		2,000
10% Preference shares (Sh.10 each)		1,000
Share premium		400
Retained earnings		(850)
Total equity		2,550
Non-current liabilities:
8% debentures		400
Current liabilities:
Accounts payable	150
Bank overdraft	30	180
Total equity and liabilities		3,130

Additional information:

1.	Baraka Ltd. was formed with an authorised share capital of 300 million ordinary shares of Sh.10 each.
2.	The 10% preference shareholders received four ordinary shares in Baraka Ltd. for every five preference shares held in Ziwa Ltd. Each ordinary shares from Baraka Ltd. was credited at Sh.8 per share. Shareholders were to pay the difference in cash to Baraka Ltd. to make their shares fully paid immediately upon receipt of the shares.
3.	The ordinary shareholders of Ziwa Ltd. received three ordinary shares for every five shares held in Ziwa Ltd. The shares from Baraka Ltd. were credited at Sh.6 per share. The shareholders were to pay the difference in cash to make the shares fully paid immediately after receiving the shares.
4.	The debenture holders of Ziwa Ltd. accepted 25 ordinary shares for every Sh.200 of the debenture, the shares being credited at Sh.8 each. The debenture holders would introduce cash to make the shares fully paid on receipt of the shares.
5.	Dividends of the preference shares were four years in arrears as at 30 June 2024. Baraka Ltd. accepted to pay the amount by issuing two fully paid ordinary shares and Sh.100, 6% debenture for every Sh.800 of the dividend in arrears.
6.	Baraka Ltd. paid Sh.30 million to Ziwa Ltd. for dissolution. This amount was treated as preliminary expenses and was to be written off against profit in the next three years.
7.	Immediately after acquisition, Baraka Ltd. purchased inventory worth Sh.60 million in cash and settled Sh.50 million of the accounts payable.

8.	Assets were transferred to Baraka Ltd. at the following values:
	Assets	Sh.“million”
	Land and buildings	620
	Motor vehicles	550
	Furniture and equipment	430
	Patents	140
	Inventory	280
	Accounts receivable	250
Goodwill was presumed to have no value and was to be written off.

Required:

Prepare:

(a) The necessary accounts to close Ziwa Ltd.

(b) Journal entries in the books of Baraka Ltd. to record the acquisition of Ziwa Ltd.

(c) Opening statement of financial position for Baraka Ltd.

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Question 4

The following financial statements were extracted from the books of Rahisi Group:

Consolidated statement of financial position as at 31 December:

	2022	2023
Assets:	Sh. “million”	Sh. “million”
Non-current assets:
Property, plant and equipment	3,400	4,570
Goodwill	650	1,010
Other intangible assets	1,630	1,440
Investment in associate	-	770
	5,680	7,790
Current assets:
Inventories	1,830	1,490
Accounts receivable	1,750	1,220
Cash and cash equivalents	340	450
	3,920	3,160
Total assets	9,600	10,950
Equity and liabilities:
Equity:
Ordinary share capital (Sh.10 par value)	1,000	3,000
Revaluation surplus	210	270
Retained earnings	2,370	2,390
	3,580	5,660
Non-controlling interest	720	860
Total equity	4,300	6,520
Non-current liabilities:
Long-term loans	1,530	1,990
Deferred tax	820	600
	2,350	2,590
Current liabilities:
Accounts payable	2,170	1,420
Current tax	780	420
	2,950	1,840
Total equity and liabilities	9,600	10,950

Statement of profit or loss and other comprehensive income for the year ended 31 December 2023:

	Sh. “million”
Revenue	4,530
Cost of sales	(3,380)
Gross profit	1,150
Distribution costs	(380)
Administrative expenses	(430)
Operating profit	340
Finance costs	(140)
Share of profit of associate	180
Profit before tax	380
Income tax expense	(150)
Profit for the year	230
Other comprehensive income:
Gain on property revaluation	70
Total comprehensive income for the year	300
Profit for the year:
Attributable to owners of the parent	140
Attributable to the non-controlling interests	90
	230
Attributable to owners of the parent	210
Attributable to the non-controlling interests	90
	300

Additional information:

1.	During the year ended 31 December 2023, Rahisi Group acquired 60% of the ordinary share capital of Kibo Ltd. for a cash consideration of Sh.720 million. The fair values of the identifiable net assets of Kibo Ltd. at the date of acquisition were as follows:

		Sh. “million”
1.	Property, plant and equipment	280
	Inventories	160
	Trade receivables	110
	Cash and cash equivalents	80
	Trade payables	(120)
	Current tax	(30)
	Net assets at acquisition	480

1.	Rahisi Group measures the non-controlling interests at their fair values at acquisition date. The fair value of the non-controlling interest in Kibo Ltd. at the date of acquisition amounted to Sh.220 million.

2.	The group’s property, plant and equipment comprised the following:
		Sh. “million”
	Carrying amount at 1 January 2023	3,400
	Additions at cost including assets acquired in Kibo Ltd.	1,640
	Gain on property revaluation	70
	Disposals	(330)
	Depreciation	(210)
	Carrying amount at 31 December 2023	4,570

	The disposal proceeds of property, plant and equipment amounted to Sh.540 million and the gain on disposal has been netted off against the administrative expenses. It is also the group policy to make inter-reserve transfer of excess depreciation upon revaluation of property, plant and equipment.
3.	During the year ended 31 December 2023, Rahisi Group acquired a 30% interest in an associate for a cash consideration. The associate reported a profit of Sh.600 million and paid dividend of Sh.200 million out of the profit during the year.
4.	An impairment review carried out on 31 December 2023 revealed that goodwill and other intangible assets were impaired.
5.	Ignore deferred tax effects on the acquisition of new subsidiary and on the revaluation of property, plant and equipment.

Required:

A consolidated statement of cash flows for Rahisi Group for the year ended 31 December 2023 using the indirect method in accordance with the International Accounting Standards (IAS) 7 “Statement of Cash Flows”.

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April 2024

2 Questions

Question 2b

P Limited, a public limited entity, is a holding company of a group of companies. During the year ended 31 March 2024, P Limited acquired a controlling interest in S Limited and disposed of part of its shareholding in A Limited.

The following draft financial statements relate to P Limited and its investment companies:

Statements of financial position as at 31 March 2024:

	P Limited	S Limited	A Limited
	Sh.“million”	Sh.“million”	Sh.“million”
Assets:
Non-current assets:
Property, plant and equipment	4,400	4,050	1,980
Investments: S Limited	1,300	-	-
Investments: A Limited	900	-	-
	6,600	4,050	1,980
Current assets	1,500	1,250	680
Total assets	8,100	5,300	2,660
Equity and liabilities:
Equity:
Ordinary share capital (Sh.10 each)	2,000	1,000	400
Share premium	800	200	100
Retained earnings	3,280	2,670	1,440
Total equity	6,080	3,870	1,940
Non-current liabilities	1,300	800	200
Current liabilities	720	630	520
Total equity and liabilities	8,100	5,300	2,660

Statements of profit or loss for the year ended 31 March 2024:

	P Limited	S Limited	A Limited
	Sh.“million”	Sh.“million”	Sh.“million”
Revenue	4,660	3,080	1,680
Cost of sales	(2,520)	(1,260)	(620)
Gross profit	2,140	1,820	1,060
Distribution costs	(510)	(400)	(260)
Administrative expenses	(760)	(680)	(360)
Profit from operations	870	740	440
Finance costs	(130)	(80)	(20)
Profit before tax	740	660	420
Income tax expense	(150)	(120)	(100)
Profit for the year	590	540	320

Additional information:

On 1 October 2023, P Limited acquired an 80% equity interest in S Limited for a cash consideration of Sh.1,300 million. Additionally, P Limited issued its ordinary shares to the owners of S Limited on the basis of three (3) shares of P Limited for every four (4) shares acquired in S Limited. The market value of the ordinary shares of P Limited as at 1 October 2023 was Sh.40 per share. This share issue has not yet been recorded in the financial statements of P Limited.
The fair values of the identifiable net assets of S Limited approximated their carrying values as at the acquisition date, with the exception of an item of plant whose fair value exceeded its carrying value by Sh.700 million. The plant had a remaining economic useful life of five (5) years as at 1 October 2023.
P Limited had acquired 75% of the ordinary shares of A Limited on 1 October 2019 when the retained earnings of A Limited stood at Sh.240 million. The purchase consideration comprised cash of Sh.30 per acquired share. No fair value adjustments were necessary with respect to the acquisition of A Limited.
On 1 October 2023, P Limited disposed of 45% of the ordinary shares of A Limited for cash proceeds of Sh.720 million. The remaining equity interest in A Limited held by P Limited was fair valued at Sh.680 million on 1 October 2023. The disposal of shares in A Limited is yet to be accounted for in the financial statements of P Limited.
The group policy is to measure the non-controlling interest in subsidiaries at their fair values at the acquisition date. The fair value of the non-controlling interest was Sh.750 million for S Limited and Sh.200 million for A Limited as at the respective dates of acquisition.
During the post-acquisition period, P Limited sold goods worth Sh.1,000 million on cash terms to S Limited. P Limited reported a gross profit margin of 20% on this sale. One quarter (¼) of these goods remained in the inventory of S Limited as at 31 March 2024.
Neither goodwill on acquisition nor investment in associate had suffered any impairment.
Profits and losses of all the group companies are deemed to accrue evenly throughout the financial year.
Neither S Limited nor A Limited had issued any ordinary shares since P Limited acquired shares in the two companies.

Required:

(i). Calculate the gain or loss on the disposal of shares in A Limited to be presented in the consolidated statement of profit or loss.

(ii). Prepare the consolidated statement of financial position as at 31 March 2024.

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Question 5

The following draft financial statements relate to Bustani Group:

Consolidated statements of financial position as at 31 December:

	2023	2022
Assets:	Sh.“million”	Sh.“million”
Non-current assets:
Property, plant and equipment	7,510	5,180
Goodwill	1,540	1,160
Interest in joint venture	400	290
Total non-current assets	9,450	6,630
Current assets:
Inventory	1,360	1,290
Trade receivables	1,430	1,250
Cash and cash equivalents	1,060	880
Total current assets	3,850	3,420
Total assets	13,300	10,050
Equity and liabilities:
Equity:
Ordinary share capital (Sh.10 par value)	4,000	2,000
Share premium	400	200
Revaluation surplus	800	440
Exchange reserve (losses)	(570)	(330)
Retained earnings	1,240	1,170
Equity attributable to group owners	5,870	3,480
Non-controlling interests	2,160	1,800
Total equity	8,030	5,280
Non-current liabilities:
Long term loan	2,070	1,590
Deferred tax	990	1,020
Total non-current liabilities	3,060	2,610
Current liabilities:
Trade payables	1,600	1,690
Current tax	610	470
Total current liabilities	2,210	2,160
Total equity and liabilities	13,300	10,050

Consolidated statement of profit or loss and other comprehensive income for the year ended 31 December 2023:

	Sh.“million”
Revenue	5,640
Cost of sales	(4,160)
Gross profit	1,480
Distribution costs	(340)
Administrative expenses	(480)
Profit from operations	660
Finance costs	(160)
Share of profit of joint venture	240
Profit before tax	740
Income tax expense	(220)
Profit for the year	520
Other comprehensive income/losses:
Items that will not be reclassified to profit or loss:
Gain on revaluation of property	360
Items that may be reclassified to profit or loss:
Loss on retranslation of foreign subsidiary	(300)
Total comprehensive income for the year	580
Profit for the year:
Attributable to the owners of the parent	440
Attributable to the non-controlling interest	80
	520
Total comprehensive income for the year:
Attributable to the owners of the parent	560
Attributable to the non-controlling interest	20
	580

Additional information:

1.

During the year ended 31 December 2023, Bustani Limited acquired 75% of the 100 million ordinary shares of Sh.10 par value each of Kesho Limited, a local subsidiary. The acquisition consideration comprised cash of Sh.880 million and a share exchange of two (2) ordinary shares in Bustani Limited for every three (3) shares acquired in Kesho Limited. The market value of Bustani Limited’s ordinary shares as at the date of acquisition was Sh.12 per share.

The fair values of the identifiable net assets of Kesho Limited as at the date of acquisition were determined as follows:

1.		Sh.“million”
	Property, plant and equipment	820
	Inventory	350
	Trade receivables	320
	Cash and cash equivalents	70
	Trade payables	(210)
	Current tax	(40)
		1,310

	The fair value of the non-controlling interest in Kesho Limited as at the acquisition date was Sh.340 million.
2.	Depreciation on property, plant and equipment for the year ended 31 December 2023 charged to profit or loss amounted to Sh.310 million.
3.	During the year ended 31 December 2023, Bustani Limited revalued its property for a gain of Sh.360 million. Bustani Limited does not make an inter-reserve transfer for the excess depreciation upon revaluation.
4.	The group policy is to measure the non-controlling interest in all subsidiaries, including the foreign subsidiary, at their fair values at acquisition dates.
5.	The movement in the exchange reserve (losses) relates to the retranslation of net assets and goodwill of an 80% owned foreign subsidiary and comprises the following elements:

5.		Sh.“million”
	Property, plant and equipment	(210)
	Goodwill	(45)
	Inventory	(60)
	Trade receivables	(80)
	Trade payables	70
	Current tax	25
		(300)

6.	Ignore deferred tax consequences on the acquisition of the subsidiary and on the revaluation of property.

Required:

Consolidated statement of cash flows for Bustani Group for the year ended 31 December 2023 using the indirect method in accordance with International Accounting Standard (IAS) 7 “Statement of Cash Flows”.

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December 2023

1 Questions

Question 2

H Limited, a public limited company whose functional currency is the Kenya Shilling (KSh.) operates in the digital economy sector. The company has recently diversified its operations by acquiring shares in a foreign entity, S Limited. The functional currency of S Limited is the Krona (Kr.).

The following statements of financial position were extracted from the financial records of the two companies as at 30 September 2023:

	H Limited	S Limited
	Ksh.“million”	Ksh.“million”
Assets:
Non-current assets:
Property, plant and equipment	8,500	3,000
Investment in S Limited	3,000	-
Other intangible assets	1,600	510
	13,100	3,510
Current assets:
Inventory	2,500	1,960
Trade receivables	2,300	1,320
Cash and cash equivalents	1,650	640
	6,450	3,920
Total assets	19,550	7,430
Equity and liabilities:
Equity:
Ordinary share capital (Ksh.1/Kr.1 par value)	5,000	1,560
Share premium	2,000	200
Retained earnings	5,900	1,442
Total equity	12,900	3,202
Non-current liabilities:
10% loan stock	1,300	1,360
Deferred tax	650	1,268
	1,950	2,628
Current liabilities:
Trade payables	3,800	1,160
Current tax	900	440
	4,700	1,600
Total equity and liabilities	19,550	7,430

Additional information:

1.	On 1 October 2022, H Limited acquired an 80% controlling interest in S Limited for a cash consideration of Ksh.3,000 million when the retained earnings of S Limited stood at Kr.540 million. The fair values of the identifiable net assets of S Limited were Kr.2,700 million. The excess of the fair value over the carrying value was due to an increase in value of plant whose remaining economic useful life approximated five (5) years at acquisition.
2.	H Limited uses the fair value method to measure the non-controlling interests in subsidiaries. The fair value of the non-controlling interest in S Limited on 1 October 2022 amounted to Kr.900 million.
3.	On 1 October 2022, H Limited exported goods worth Ksh.180 million on account to S Limited. This transaction has been recorded by both entities. However, the account payable is still recorded at the rate of exchange that prevailed at the date of the transaction, in the financial statements of S Limited. All these goods had been sold to third parties by S Limited as at 30 September 2023.
4.	Goodwill arising on acquisition of S Limited had not been impaired since acquisition.

5.	The following foreign exchange rates are relevant:
		Kr. to Ksh.1
	1 October 2022	0.90
	30 September 2023	0.80
	Average for the year to 30 September 2023	0.75

6.	S Limited has not issued any ordinary shares since the date of acquisition.

Required:

(a) The value of goodwill arising on acquisition of S Limited in Kenya Shillings (KSh.).

(b) Consolidated statement of financial position for H Group as at 30 September 2023.

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August 2023

2 Questions

Question 5

The following financial statements relate to Ukulima Group:

Consolidated statement of financial position as at 30 September:

	2022	2021
	Sh.“million”	Sh.“million”
Assets:
Non-current assets:
Property, plant and equipment	221	263
Goodwill	75	142
Investment in associates	204	103
Investment properties	82	60
	582	568
Current assets:
Inventories	256	201
Trade and other receivables	219	263
Cash and cash equivalents	103	42
	578	506
Total assets	1,160	1,074
Equity and liabilities:
Equity:
Share capital	122	102
Retained earnings	64	24
Other components of equity	59	30
	245	156
Non-controlling interest	104	87
Total equity	349	243
Non-current liabilities:
Loan	163	152
Deferred tax	44	33
	207	185
Current liabilities:
Trade and other payables	524	486
Income tax payable	23	12
Overdraft	57	148
	604	646
Total equity and liabilities	1,160	1,074

Consolidated statement of profit or loss and other comprehensive income for the year ended 30 September 2022:

	Sh.“million”
Revenue	1,423
Cost of sales	(1,197)
Gross profit	226
Operating expenses	(150)
Profit from operations	76
Share of profit in associate	21
Profit on disposal of shares in subsidiary	3
Finance costs	(12)
Profit before tax	88
Income tax expense	(19)
Profit for the period	69
Other comprehensive incomes - Items that will not be reclassified to profit or loss:
Gain on revaluation of plant and equipment	50
Income tax on items that will not be reclassified	(10)
Total comprehensive income	109
Profit attributable to:
Equity holders of the parent	43
Non-controlling interest	26
Profit for the period	69
Total comprehensive income attributable to:
Equity holders of the parent	73
Non-controlling interest	36
Total comprehensive income for the period	109

The following information is relevant to the Ukulima Group:

1.	Machinery with a carrying amount of Sh.12 million was disposed of for cash proceeds of Sh.10 million. Depreciation of Sh.52 million had been charged to operating expenses in the statement of profit or loss. As a result of a revaluation of Ukulima Group’s factories during the year, a transfer was made within equity for excess depreciation of Sh.1 million. Included in trade and other payables at the reporting date is Sh.2 million (2021: Sh. NIL) that related to property, plant and equipment purchased during the period.
2.	Ukulima Group received a government grant of Sh.3 million in cash during the reporting period to help fund the acquisition of machinery needed for its production process. Ukulima Group accounts for grants as a reduction to the cost of assets.
3.	Ukulima Group accounted for investment properties at fair value. Some new investment properties were acquired at a cash price of Sh.14 million during the year.
4.	Ukulima Group disposed of some of its shares held in Shamba Ltd. Ukulima held 90% of the shares in Shamba Ltd. before disposal and 40% of the shares after disposal leaving it with significant influence. The Ukulima Group received cash proceeds from the sale. The profit on disposal of Sh.3 million was correctly calculated and credited to the statement of profit or loss. The fair value of the interest retained in Shamba Ltd. was Sh.32 million. Goodwill and non-controlling interest at the disposal date were Sh.40 million and Sh.4 million respectively. A breakdown of Shamba Ltd.’s net assets as at the date of the share disposal is provided below:

		Sh.“million”
	Property, plant and equipment	81
	Trade and other receivables	32
	Cash and cash equivalents	6
	Loans	(30)
	Trade and other payables	(55)
	Net assets at disposal date	34
5.	During the period, Sh.65 million in cash was spent on investments in associates.

6.	Finance costs included a Sh.2 million loss on the retranslation of a loan that was denominated in a foreign currency. All other finance costs were paid in cash.

Required:

A consolidated statement of cash flows using the indirect method for the Ukulima Group for the year ended 30 September 2022 in accordance with International Accounting Standard (IAS) 7 “Statement of Cash Flows”.

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Question 1

H Limited, a public limited entity, had exercised significant influence over S Limited, another public limited entity, for many years before obtaining control. H Limited acquired a 40% ordinary shareholding in S Limited on 1 April 2013 for a cash consideration of Sh.2,500 million, when the retained earnings of S Limited stood at Sh.360 million.

The draft statements of financial position for the two companies as at 31 March 2023 are presented below:

	H Limited	S Limited
Assets:	Sh.“million”	Sh.“million”
Non-current assets:
Property, plant and equipment	5,550	4,200
Investment in S Limited	4,700	-
	10,250	4,200
Current assets:
Inventory	2,700	1,800
Trade receivables	3,120	2,180
Cash and cash equivalents	1,130	770
	6,950	4,750
Total assets	17,200	8,950
Equity and liabilities:
Equity:
Ordinary share capital (Sh.10 par value)	10,000	5,000
Retained earnings	3,490	1,660
Total equity	13,490	6,660
Non-current liabilities:
10% loan notes	1,800	1,200
Current liabilities:
Trade payables	1,560	840
Current tax	350	250
	1,910	1,090
Total equity and liabilities	17,200	8,950

Additional information:

1.	H Limited acquired a further 30% interest in S Limited on 1 April 2019 for a cash amount of Sh.2,200 million. At this date, the retained earnings of S Limited amounted to Sh.860 million and the fair value of the previously held 40% interest in S Limited was Sh.3,000 million.
2.	At the time of achieving the controlling interest in S Limited, the fair values of its identifiable net assets approximated their carrying amounts, with the exception of the following items: An item of plant whose fair value exceeded its carrying amount by Sh.150 million. On 1 April 2019, this item of plant had a remaining economic useful life of six (6) years. On 1 April 2019, the directors of H Limited identified that S Limited had an internally generated database of customers who had the potential of purchasing their products for an indefinite period of time. Although there were no contractual or legal rights associated with this database, a professional expert estimated that competitors of S Limited would be prepared to pay Sh.90 million for this database. S Limited had not yet recognised the database as an asset in its individual financial statements.
3	The group policy is to measure the non-controlling interests at their proportionate share of net assets in the subsidiary at the date of acquisition.
4.	On 28 March 2023, H Limited sold goods worth Sh.100 million to S Limited. H Limited reported a gross profit margin of 20% on this sale. S Limited had neither received nor recorded these goods in its books of account as at 31 March 2023.
5.	The current accounts between H Limited and S Limited did not agree due to the goods that remained in transit as per note 4 above. As at 31 March 2023, the trade receivables of H Limited included Sh.600 million due from S Limited.
6.	An impairment review carried out on 31 March 2023, revealed that neither goodwill arising on acquisition, nor the intangible asset with infinite useful life had been impaired.
7.	Ignore all deferred tax consequences on acquisition and fair value measurements of S Limited.
8.	S Limited has not issued any ordinary shares since the date of acquisition.

Required:
(a)	Determine the equity-accounted value of the investment in S Limited as at 31 March 2019.
(b)	Calculate the value of goodwill arising on the acquisition of S Limited as at 1 April 2019.
(c)	Consolidated statement of financial position for H Group as at 31 March 2023.

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April 2023

2 Questions

Question 5

The following draft consolidated financial statements were extracted from the financial records of G Group for the year ended 30 September 2022:

G Group

Consolidated statement of profit or loss for the year ended 30 September 2022:

	Sh.“million”
Revenue	18,590
Cost of sales	(11,250)
Gross profit	7,340
Distribution costs	(1,330)
Administration expenses	(2,460)
Profit from operations	3,550
Fair value gain on short term investments	170
Finance costs	(280)
Profit before tax	3,440
Income tax expense	(880)
Profit for the year	2,560
Attributable to the group owners	2,040
Attributable to the non-controlling interests	520
	2,560

G Group

Consolidated statements of financial position as at 30 September:

	2022	2021
	Sh.“million”	Sh.“million”
Assets:
Non-current assets:
Property, plant and equipment	23,500	14,750
Goodwill	4,200	4,140
	27,700	18,890
Current assets:
Inventory	8,900	7,660
Trade receivables	7,420	7,010
Investments at fair value through profit or loss	2,570	2,400
Cash at bank	310	240
	19,200	17,310
Total assets	46,900	36,200
Equity and liabilities:
Equity:
Ordinary share capital (Sh.10 par value)	20,000	15,000
Share premium	4,500	3,000
Retained earnings	6,010	4,340
Equity attributable to group owners	30,520	22,340
Non-controlling interests	1,840	1,080
Total equity	32,350	23,420
Non-current liabilities:
Deferred consideration	795	-
Bank loans	2,600	3,000
Deferred tax	620	450
	4,015	3,450
Current liabilities:
Trade payables	9,790	8,750
Current tax	745	580
	10,535	9,330
Total equity and liabilities	46,900	36,200

Additional information:

1.	The property, plant and equipment comprised the following:
		30 September 2022	30 September 2021
		Sh.“million”	Sh.“million”
	Cost	43,000	30,000
	Provision for depreciation	(19,500)	(15,250)
	Carrying amount	23,500	14,750

During the year ended 30 September 2022, G Limited disposed of an item of equipment for cash proceeds of Sh.260 million. The equipment had cost Sh.750 million and had an accumulated depreciation of Sh.370 million. Any gain/loss on disposal and depreciation on property, plant and equipment is included in cost of sales.

2.

On 1 January 2022, G Limited acquired 75% of the 100 million ordinary shares of Sh.10 each in S Limited. The acquisition consideration comprised a share exchange on the basis of two (2) shares in G Limited for every three (3) acquired shares in S Limited. G Limited was also to pay Sh.810 million to the owners of S Limited on 1 January 2023. G Limited’s cost of capital is 8% per annum.

The market values of ordinary shares at 1 January 2022 were Sh.30 and Sh.20 for G Limited and S Limited respectively. The fair values of assets and liabilities of S Limited at the date of acquisition were as follows:

2.		Sh.“million”
	Property, plant and equipment: - Cost	5,000
	Property, plant and equipment: - Provision for depreciation	(2,900)
	Inventory	820
	Trade receivables	650
	Current tax (refundable)	20
	Deferred tax asset	110
	Trade payables	1,200
		2,500

3.	The group policy is to measure the non-controlling interest in subsidiaries at fair value at acquisition dates. The market values of the subsidiaries’ ordinary shares are considered to be representative of the fair values of shares held by the non-controlling interests.
4.	Investments at fair value through profit or loss consist of highly marketable and risk-free securities held by G Limited.
5.	Any impairment loss on goodwill is included in administration expenses.

Required:

Consolidated statement of cash flows for G Group for the year ended 30 September 2022 using the indirect method in line with International Accounting Standard (IAS) 7 “Statements of Cash Flows”.

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Question 2

The following are the summarised financial statements of P Limited and S Limited for the year ended 31 December 2022:

Statement of financial position as at 31 December 2022:

	P Limited	S Limited
	Sh.“000”	Sh.“000”
Assets:
Non-current assets:
Property, plant and equipment	46,380	9,120
Investment in S Limited (cost)	7,464	-
	53,844	9,120
Current assets	15,240	2,640
Total assets	69,084	11,760
Equity and liabilities:
Share capital (Sh.1 par value)	12,240	960
Revenue reserves	47,904	9,480
	60,144	10,440
Current liabilities	8,940	1,320
Total equity and liabilities	69,084	11,760

Statement of profit or loss and other comprehensive income for the year ended 31 December 2022:

	Sh.“000”	Sh.“000”
Revenue	12,240	4,800
Cost of sales and expenses	(10,800)	(4,320)
Profit before tax	1,440	480
Income tax expense	(432)	(96)
Profit for the year	1,008	384
Other comprehensive income:
Items that will not be reclassified to profit or loss:
Gain on property revaluation net of tax	288	96
Total comprehensive income	1,296	480

Additional information:

P Limited acquired 25% of S Limited on 1 January 2021 for Sh.2,424,000 and exercised significant influence over the financial and operating policy decisions of S Limited.
The fair value of S Limited’s identifiable assets and liabilities as at 1 January 2021 was equivalent to their book value. S Limited’s reserves stood at Sh.6,960,000.
A further 35% stake was acquired by P Limited in S Limited on 30 September 2022 for Sh.5,040,000. The fair value of S Limited’s identifiable assets and liabilities as at that date was Sh.11,040,000 and S Limited’s revenue reserves stood at Sh.9,360,000. As at 30 September 2022, S Limited’s share price was Sh.14.50.
The difference between the fair value of the identifiable assets and liabilities of S Limited and their book value was due to brands. The brands were estimated to have an average remaining useful life of 5 years from 30 September 2022.
Incomes and expenses are assumed to accrue evenly over the year. Neither company paid dividends during the year and neither issued any shares.
P Limited elected to measure non-controlling interests as at the date of acquisition at fair value.
There is no impairment loss on goodwill as at 31 December 2022 while amortisation of brands is classified in cost of sales.

Required:

(a) Consolidated statement of profit or loss and other comprehensive income for the year ended 31 December 2022.

(b) Consolidated statement of financial position as at 31 December 2022.

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December 2022

1 Questions

Question 3

H Limited, a public limited entity, operates in the information technology sector. It has made several investments in other companies within the industry, which has earned it market leadership in the sector.

The following draft financial statements for the year ended 31 October 2022 relate to H Limited and its investment companies:

Statement of profit or loss and other comprehensive income for the year ended 31 October 2022:

	H Limited	S Limited	L Limited
	Sh.“million”	Sh.“million”	Sh.“million”
Revenue	8,460	3,880	3,200
Cost of sales	(4,040)	(2,910)	(1,020)
Gross profit	4,420	970	2,180
Distribution costs	(725)	(200)	(220)
Administrative expenses	(1,150)	(350)	(340)
Profit from operations	2,545	420	1,610
Investment income	600	-	-
Finance costs	(450)	(175)	(320)
Profit before tax	2,695	245	1,300
Income tax expense	(680)	(80)	(440)
Profit for the year	2,015	165	860
Other comprehensive income:
Gain on property revaluation	70	-	-
Total comprehensive income	2,085	165	860

Statement of financial position as at 31 October 2022:

	H Limited	S Limited	L Limited
	Sh.“ million”	Sh.“ million”	Sh.“ million”
Assets:
Non-current assets:
Property, plant and equipment	4,600	4,940	3,820
Investments:
S Limited	1,830	-	-
L Limited	2,500	-	-
Equity investments	4,000	-	-
	12,930	4,940	3,820
Current assets:
Inventory	2,250	2,450	1,875
Trade receivables	1,980	1,710	2,700
Cash and cash equivalents	870	600	705
	5,100	4,760	5,280
Total assets	18,030	9,700	9,100
Equity and liabilities:
Equity:
Ordinary share capital (Sh.10 par value)	3,000	1,500	2,000
Share premium	2,000	500	-
Revaluation surplus	480	-	-
Retained earnings	3,420	2,070	2,090
Total equity	8,900	4,070	4,090
Non-current liabilities:
Long-term borrowings	4,400	2,500	-
Deferred tax	1,240	920	1,720
	5,640	3,420	1,750
Current liabilities:
Trade payables	2,240	1,570	2,300
Current tax	1,250	640	960
	3,490	2,210	3,260
Total equity and liabilities	18,030	9,700	9,100

Additional information:

1.	H Limited acquired an 80% ordinary shareholding in S Limited on 1 November 2019 when the retained earnings of S Limited stood at Sh.340 million. The acquisition consideration comprised cash of Sh.1,830 million. The fair values of the identifiable net assets of S Limited at acquisition date were Sh.2,440 million. The excess of the fair values over the carrying values was due to an unrecognised brand whose remaining economic useful life at the date of acquisition was five (5) years.
2.	M Limited is the main competitor of H Limited and on 1 May 2022, M Limited and H Limited each acquired 50% of the 200 million ordinary shares of Sh.10 each in L Limited. The consideration paid by H Limited consisted of cash of Sh.15 per share and also a 1 for 2 share exchange when the market price of H Limited’s share was Sh.20 each. M Limited also paid Sh.15 per share for their interest but did not issue any shares to the owners of L Limited. The ordinary shares of L Limited have one voting right each. Upon the acquisition, H Limited had a contractual right to appoint 60% of the board of L Limited, with the remaining 40% appointed by M Limited. M Limited and H Limited each appointed one member to L Limited’s senior management team. It is the senior manager appointed by H Limited who makes the key decisions regarding the development of L Limited’s new technologies, its principal revenue stream, the market it will operate in and how it is financed. The fair values of L Limited’s net assets approximated their carrying values at the date of acquisition.
3.	H Limited has a policy of measuring the non-controlling interests at fair value. The non-controlling interest in S Limited had a fair value of Sh.970 million at 1 November 2019.
4.	During the year ended 31 October 2022, S Limited sold goods worth Sh.400 million to H Limited. S Limited reports a gross profit margin of 25% on all its sales. 20% of these goods remained in the closing inventory of H Limited as at 31 October 2022.
5.	As at 31 October 2022, no impairment had arisen in respect of the goodwill arising on the acquisition of S Limited and L Limited.
6.	None of the group companies paid dividends during the year ended 31 October 2022.
7.	S Limited had not issued any ordinary shares since its shares were acquired by H Limited.
Required:
(a).	Consolidated statement of profit or loss and other comprehensive income for H Group for the year ended 31 October 2022.
(b)	Consolidated statement of financial position for H Group as at 31 October 2022.

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August 2022

2 Questions

Question 1

P Limited, a public limited company, has held a controlling interest in S Limited, another public limited company, for one decade.

P Limited also has a significant influence over A Limited, a public limited company. All the companies operate in the manufacturing sector. The draft statements of financial position of P Limited and S Limited as at 30 June 2022 were as shown below:

	P Limited	S Limited
	Sh.“million”	Sh.“million”
Assets:
Non-current assets:
Property, plant and equipment	16,875	10,230
Investments - S Limited	13,000	-
Investments - A Limited	3,650	-
Financial assets at fair value	6,190	-
	39,715	10,230
Current assets:
Inventory	9,980	6,930
Trade receivables	9,480	6,580
Cash and cash equivalents	5,490	3,815
	24,950	17,325
Total assets	64,665	27,555
Equity and liabilities:
Equity:
Ordinary share capital (Sh.10 par value)	20,000	10,000
Share premium	4,000	2,400
Retained earnings	16,670	5,950
Total equity	40,670	18,350
Non-current liabilities:
10% loan notes	10,500	3,500
Deferred tax	6,150	1,870
	16,650	5,370
Current liabilities:
Trade payables	5,700	3,100
Current tax	1,645	735
	7,345	3,835
Total equity and liabilities	64,665	27,555

Additional information:

On 1 July 2012, P Limited acquired 60% of the ordinary shares of S Limited for a cash consideration of Sh.10,000 million. At acquisition, the fair value of the non-controlling interest in S Limited was Sh.6,500 million. P Limited wishes to use the fair value method of accounting for goodwill. On 1 July 2012, the fair value of the identifiable net assets in S Limited was Sh.14,000 million and the retained earnings of S Limited were Sh.1,200 million. The excess in fair value was due to non-depreciable land.
On 1 January 2022, P Limited acquired a further 20% interest in S Limited for a cash consideration of Sh.3,000 million. S Limited reported a profit for the year ended 30 June 2022 of Sh.500 million which accrued evenly throughout the year.
During the year ended 30 June 2022, P Limited sold goods worth Sh.2,000 million to S Limited. P Limited reports a gross profit margin of 25% on all its sales. Half of these goods were still in the inventory of S Limited as at 30 June 2022.
Goodwill was tested for impairment immediately after the additional acquisition of interest in S Limited and was considered impaired by 10%. No impairment had been reported in the previous years.
On 1 July 2015, P Limited acquired 30% of 1,000 million ordinary shares of Sh.10 each in A Limited when the retained earnings of A Limited stood at Sh.1,000 million. A Limited had no other reserves as at 1 July 2015. As at 30 June 2022, the retained earnings of A Limited were Sh.3,500 million. No impairment was deemed necessary in respect of the investment in A Limited.
None of the group companies declared or paid dividend during the year.
None of the group companies issued additional shares.

Required:

(a) Determine the non-controlling interest in S Limited as at 30 June 2022.

(b) Consolidated statement of financial position as at 30 June 2022.

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Question 5b

W Group has owned a number of subsidiaries for several years. The following information relates to the financial statements of the group:

Statement of financial position as at 31 March:

Assets:	2022	2021
Non-current assets:	Sh.“million”	Sh.“million”
Property, plant and equipment	2,816	3,088
Goodwill	32	152
Other intangible assets	296	216
Investment in associate	816	-
	3,960	3,456
Current assets:
Inventories	944	1,320
Trade receivables	920	832
Cash and cash equivalents	160	344
	2,024	2,496
Total assets	5,984	5,952
Equity and liabilities:
Equity:
Ordinary share capital	800	800
Revaluation reserve	192	164
Retained profit	3,016	2,160
	4,008	3,124
Non-controlling interest	512	680
Total equity	4,520	3,804
Non-current liabilities:
Long-term loans	688	960
Deferred tax	112	120
	800	1,080
Current liabilities:
Trade payables	288	328
Current tax payable	376	740
	664	1,068
Total equity and liabilities	5,984	5,952

Statement of profit or loss and other comprehensive income for the year ended 31 March 2022:

Continuing operations:	Sh.“million”
Revenue	8,903
Cost of sales	(6,544)
Gross profit	2,359
Other income	25
Distribution costs	(360)
Administrative expenses	(504)
Operating profit	1,520
Finance costs	(184)
Share of profit of associate	128
Profit before tax	1,464
Income tax expense	(320)
Profit for the year: Continuing operations	1,144
Discontinued operations:
Loss for the year from discontinued operations	200
Profit for the year	944
Other comprehensive income:
Gain on property revaluation (net of deferred tax)	28
Total comprehensive income for the year	972
Profit for the year attributable to:
Owners of the parent	856
Non-controlling interest	88
	944
Total comprehensive income attributable to:
Owners of the parent	884
Non-controlling interest	88
	972

Additional information:

1.	During the year ended 31 March 2022, W Group disposed of its entire 80% shareholding in C Limited for cash. The shares had been acquired on 1 October 2017 for a cash consideration of Sh.1,056 million when the fair value of the net assets of C Limited was Sh.980 million. The fair value of the non-controlling interest at acquisition was Sh.224 million.
2.	Goodwill calculated under the full fair value method, was tested annually for impairment. At 31 March 2021, goodwill relating to C Limited had been impaired by 75%. A goodwill impairment charge has been included within administrative expenses for the current year, but does not relate to C Limited.
3.	The carrying values in the individual accounts of C Limited as at the date of disposal are listed below:

3.		Sh.“million”
	Property, plant and equipment	840
	Inventory	304
	Trade receivables	220
	Trade payables	(80)
	Deferred tax liability	(48)
	Bank overdraft	(16)
		1,220

4.	The loss for the period from discontinued operations in the consolidated statement of profit or loss and other comprehensive income relates to C Limited and is analysed as follows:

4.		Sh.“million”
	Profit before tax	48
	Income tax expense	(16)
	Loss on disposal	(232)
		(200)

5.	W Limited purchased a 40% interest in an associate for cash on 1 April 2021. The associate paid a dividend of Sh.80 million in the year ended 31 March 2022.
6.	On 1 April 2021, W Limited commenced development expenditure on Product “Que”. The product is expected to be launched in the year 2023. Sh.56 million amortisation on other intangible assets is included within cost of sales.
7.	There were no disposals of property, plant and equipment during the year except on the sale of C Limited. Depreciation for the year was Sh.160 million and is included within the cost of sales. W Limited revalued its property during the year. The applicable corporation tax rate is 30%.
8.	Part of the additions to property, plant and equipment during the year were imports made by W Limited from a Tanzanian supplier on 31 December 2021 for Tsh.5,400 million. This amount was paid in full on 28 February 2022. Exchange gains and losses are included in other operating incomes or expenses. Relevant exchange rates were as follows:

8.		Tsh. to Ksh.1
	31 December 2021	Tsh.24 = Ksh.1
	28 February 2022	Tsh.27 = Ksh.1

Required:

Consolidated statement of cash flows using the indirect method for the W Group for the year ended 31 March 2022 in accordance with the requirements of International Accounting Standard (IAS) 7 “Statement of Cash Flows”.

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April 2022

2 Questions

Question 2

The following draft group financial statements relate to H Limited, a public limited company, and its investment companies:

Group statement of financial position as at 31 October:

Assets	2021	2020
Non-current assets:	Sh."million"	Sh."million"
Property, plant and equipment (PPE)	4,275	4,185
Goodwill	945	1,080
Other intangible assets	1,350	1,800
Investment in associate	720	810
Financial assets	1,935	1,620
	9,225	9,495
Current assets:
Inventories	1,395	1,710
Trade receivables	1,125	1,620
Cash and cash equivalents	4,185	2,745
Total assets	15,930	15,570
Equity and liabilities:
Equity:
Ordinary share capital	8,000	6,000
Revaluation surpluses (PPE and financial assets)	300	200
Retained earnings	3,715	3,135
Equity attributable to group owners	12,015	9,335
Equity attributable to non-controlling interest	810	585
Total equity	12,825	9,920
Non-current liabilities:
Long-term borrowings	235	610
Deferred tax	315	880
Current liabilities:
Trade payables	2,115	2,920
Current tax	440	1,240
Total equity and liabilities	15,930	15,570

Group statement of profit or loss and other comprehensive income for the year ended 31 October 2021:

	Sh."million"
Revenue	11,140
Cost of sales	(8,870)
Gross profit	2,270
Distribution costs	(405)
Administrative expenses	(450)
Operating profit	1,415
Share of profit of associate	90
Operating profit and income from associate	1,505
Investment income (including dividend income)	270
Finance costs	(100)
Profit before tax	1,675
Income tax expense	(415)
Profit for the year	1,260
Other comprehensive income:
Fair value gain on financial assets	35
Gain on revaluation of property	65
Total comprehensive income for the year	1,360

Additional information:

1.	During the year ended 31 October 2021, H Limited disposed of its entire 80% equity holding in S Limited for Sh.310 million in cash. The carrying amounts of the identifiable net assets of S Limited at the disposal date comprised:

1.		Sh. "million"
	Property, plant and equipment	210
	Inventories	90
	Trade receivables	50
	Cash and cash equivalents	30
	Trade payables	(60)
	Deferred tax liability	(29)
		300

1.	The gain/loss on disposal of the subsidiary is included in administrative expenses. The disposal of S Limited is not classified as a separate major line of business or geographical operation. The investment in S Limited had been acquired several years ago at a consideration of Sh.230 million when the fair values of the identifiable net assets stood at Sh.250 million.
2.	The group policy is to measure the non-controlling interest in all subsidiaries at their proportionate share of net assets at the acquisition date.
3.	An impairment test carried out at 31 October 2021 showed that goodwill other than that arising on the acquisition of S Limited was impaired. Other intangible assets were also impaired.
4.	H Limited disposed of plant with a carrying amount of Sh.440 million for cash proceeds of Sh.560 million. The gain on disposal is included in administrative expenses. Depreciation charged to profit or loss during the year ended 31 October 2021 was Sh.260 million.
5.	The following schedule relates to the financial assets at fair value through other comprehensive income held by H Limited:

5.		Sh."million"
	Balance as at 1 November 2020	1,620
	Less carrying amount of financial assets disposed of	(235)
	Add purchases of financial assets	515
	Add fair value gain on financial assets	35
	Balance as at 31 October 2021	1,935

	The sale proceeds of financial assets were Sh.360 million. Profit on the sale of the financial assets is included in investment income in the financial statements.
6.	The profit for the year attributable to the non-controlling interests amounted to Sh.390 million.

Required:

A consolidated statement of cash flows for H Group for the year ended 31 October 2021 using the indirect method in accordance with International Accounting Standard (IAS) 7 "Statement of Cash Flows".

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Question 1

P Limited is a public limited company listed in the securities exchange. It has diversified its activities by acquiring S Limited, a company domiciled in a foreign country.

Both companies prepare their financial statements in accordance with International Financial Reporting Standards. The presentation currency of the group is the Kenya Shilling (Ksh.) while S Limited's functional currency is the Franc (Fr.)

The draft financial statements for the year ended 31 December 2021 are as set out below:

Statements of profit or loss for the year ended 31 December 2021:

	P Limited	S Limited
	Ksh."million"	Fr."million"
Revenue	2,145	10,500
Cost of sales	(915)	(6,300)
Gross profit	1,230	4,200
Distribution costs	(150)	(750)
Administrative expenses	(345)	(1,350)
Operating profit	735	2,100
Investment income	15	-
Finance costs	(30)	(150)
Profit before tax	720	1,950
Income tax expense	(165)	(450)
Profit for the period	555	1,500

Statements of financial position as at 31 December 2021:

	P Limited	S Limited
Assets:	Ksh."million"	Fr."million"
Non-current assets:
Property, plant and equipment	4,850	7,000
Investment in S Limited	710	-
	5,560	7,000
Current assets:
Inventory	1,030	2,400
Trade receivables	970	1,960
Cash and cash equivalents	410	540
	2,410	4,900
Total assets	7,970	11,900
Equity and liabilities:
Equity:
Ordinary share capital	1,500	1,000
Share premium	500	-
Retained earnings	2,560	3,100
Total equity	4,560	4,100
Non-current liabilities:
10% bond	820	2,640
Deferred tax	740	2,160
	1,560	4,800
Current liabilities:
Trade payables	1,330	2,240
Current tax	520	760
	1,850	3,000
Total equity and liabilities	7,970	11,900

Additional information:

1.	On 1 January 2021, P Limited acquired 80% of S Limited's 1,000 million Fr 1 ordinary shares for a cash consideration of Fr. 3,550 million.
2.	As at the acquisition date, the carrying value of S Limited's net assets was Fr. 2,600 million, but the fair value was Fr.3,200 million. The excess in fair value over the carrying value was due to an unrecognised brand with a remaining useful economic life of five years as at the acquisition date.
3.	The non-controlling interest in S Limited as at the acquisition date was valued at Fr. 1,450 million using the fair value method.
4.	As at 31 December 2021, it was determined that goodwill arising on the acquisition of S Limited was impaired by 10%.

5.	The following foreign exchange rates are relevant:
		Fr. to Ksh.1
	1 January 2021	5
	31 December 2021	4
	Average for the year ended 31 December 2021	6

Required:
(a)	Determine the exchange differences (gains/losses) arising on the retranslation of net assets and goodwill on acquisition of the foreign subsidiary.
(b)	Consolidated statement of profit or loss and other comprehensive income for the year ended 31 December 2021.
(c)	Consolidated statement of financial position as at 31 December 2021.

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December 2021

2 Questions

Question 2

The following extracts are from the consolidated financial statements of Euro Group for the years ended 30 September 2020 and 2021:

Group statement of profit or loss and other comprehensive income for the year ended 30 September 2021:

	Sh. "million"
Revenue	7,650
Cost of sales	4,335
Gross profit	3,315
Operating expenses	(1,540)
Share of profit of associate	835
Finance costs	260
Profit before tax	2,350
Income tax expense	(320)
Profit for the year	2,030
Other comprehensive income:
Impairment loss	(250)
Re-measurement component	40
Total comprehensive income	1,820
Profit for the year attributable to non-controlling interests (NCIs)	400

Group statements of financial position as at 30 September:

	2021	2020
Non-Current Assets:	Sh. "million"	Sh. "million"
Property, plant and equipment	13,400	8,800
Goodwill	2,175	1,800
Investment in associate	3,925	3,250
	19,500	13,850
Current Assets:
Inventories	1,575	2,060
Trade receivables	1,950	1,860
Cash and cash equivalents	2,710	1,085
	6,235	5,005
Total Assets	25,735	18,855
Equity and Liabilities:
Ordinary share capital (Sh.10 par value)	6,000	4,000
Share premium	2,250	1,250
Retained earnings	4,510	2,880
Revaluation surplus	375	625
Equity attributable to group owners	13,135	8,755
Equity attributable to non-controlling interest	2,000	1,350
Total equity	15,135	10,105
Non-Current Liabilities:
10% bonds	5,500	4,000
Deferred tax	415	390
Defined benefit obligation	910	800
	6,825	5,190
Current Liabilities:
Trade payables	2,685	2,460
Current tax payable	1,090	1,100
	3,775	3,560
Total Equity and Liabilities	25,735	18,855

Additional information:

1.

During the year ended 30 September 2021, Euro Group acquired an 80% equity interest in Sporty Limited, a local subsidiary quoted in the securities exchange. The purchase consideration on acquisition comprised a share exchange of Sh.2,000 million and cash consideration of Sh.500 million. The market value of the parent entity's share was Sh.16 at the time of acquisition. Sporty Limited's net assets at acquisition had the following fair values:

	Sh. "million"
Property, plant and equipment	1,800
Inventories	640
Trade receivables	580
Trade payables	(350)
Cash and cash equivalents	(120)
Current tax	(50)
	2,500

It is the group policy to measure the non-controlling interests in subsidiaries at their proportionate share of the net assets at acquisition.

2.

Depreciation charged during the year ended 30 September 2021 amounted to Sh.1,240 million and an impairment loss of Sh.535 million was recognised on property. Prior to the impairment review, the group had a balance on the revaluation surplus of Sh.625 million of which Sh.250 million related to property impaired in the current year.

3.

Goodwill was reviewed for impairment at the reporting date and the impairment loss reported in profit or loss.

4.

Euro Group operates a defined benefit scheme. A service cost component of Sh.300 million has been included within the operating expenses while a net interest cost of Sh.40 million has not been accounted for. The remeasurement component for the year ended 30 September 2021 was a gain of Sh.40 million. Benefits paid out of the scheme were Sh.380 million.

Required:

A consolidated statement of cash flows for Euro Group for the year ended 30 September 2021 using the indirect method in accordance with International Accounting Standard (IAS) 7: "Statement of Cash Flows".

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Question 1

Pareto Limited is the holding company of a listed group of companies with its year ended 30 June 2021.

Pareto Limited has made a number of acquisitions and a disposal of an investment.

The following summarised draft statements of financial position relate to the group companies for the year ended 30 June 2021:

	Pareto Limited	Pamba Limited	Dafu Limited
Assets:	Sh. "million"	Sh. "million"	Sh. "million"
Non-current assets:
Property, plant and equipment	14,900	9,250	7,000
Investment - Pamba Limited	8,500	-	-
Investment - Dafu Limited	5,750	-	-
Financial sssets	3,100	2,800	2,400
	32,250	12,050	9,400
Current assets	3,850	4,425	3,800
Total assets	36,100	16,475	13,200
Equity and liabilities:
Equity:
Ordinary share capital	10,000	2,500	2,000
Share premium	5,000	1,000	500
Retained earnings	7,825	5,250	5,750
Total equity	22,825	8,750	8,250
Non-current liabilities:	8,500	6,000	3,500
Current liabilities	4,775	1,725	1,450
Total equity and liabilities	36,100	16,475	13,200

Additional information:

1.	On 1 October 2020, Pareto Limited acquired an 80% equity interest in Pamba Limited when its retained earnings stood at Sh.3,500 million. The purchase consideration comprised 1,250 million of Pareto Limited's shares with a nominal value of Sh.1 each and a market price of Sh.6.80 each. At acquisition of Pamba Limited, the only adjustment required to the identifiable net assets of Pamba Limited was for land which had a carrying amount of Sh.625 million less than its fair value.
2.	The group policy is to measure the non-controlling interest at fair value. At the date of acquisition of Pamba Limited, the non-controlling interest had a fair value of Sh.2,125 million.
3.	Pareto Limited had acquired a 100% equity interest in Dafu Limited a number of years ago when its retained earnings amounted to Sh.1,750 million. At acquisition, the fair values of the identifiable net assets of Dafu Limited approximated their carrying values. The purchase consideration comprised cash amounting to Sh.5,750 million.
4.	Pareto Limited disposed of 60% of its investment in Dafu Limited on 1 April 2021 for Sh. 4,700 million when the fair values of the identifiable net assets of Dafu Limited were Sh. 6,250 million. The fair value of the remaining 40% equity interest was Sh.4,300 million at disposal. Pareto Limited has not accounted for the disposal.
5.	None of the companies had issued any shares since Pareto Limited acquired its shareholding in them.
6.	Neither the goodwill on acquisition of subsidiaries nor the investment in the associate had been impaired.

Required:

(a)

Goodwill arising on acquisition of the investments in subsidiaries.

(b)

Gain or loss arising on disposal of the investment in Dafu Limited as reported in:

(i)	The individual financial statements of Pareto Limited.
(ii)	The consolidated statement of profit or loss.

(c)

Consolidated statement of financial position as at 30 June 2021.

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September 2021

1 Questions

Question 1

On 1 October 2019, H Limited acquired 80% of the ordinary shares in S Limited when the retained earnings of S Limited were Sh.5,335 million. On the same date, H Limited acquired 40% of the ordinary shares in A Limited paying Sh.16 per share.

The acquisition of the ordinary shares in S Limited was through a share exchange of one ordinary share in H Limited for every two shares in S Limited. The market prices of H Limited's and S Limited's shares as at the date of acquisition were Sh.30 and Sh.18 per share respectively.

In addition, H Limited agreed to pay a further amount of Sh.25 per acquired share in S Limited on 1 October 2021. H Limited's cost of capital is 10% per annum and one shilling receivable in two years' time has a present value of 83 cents. H Limited has not yet recorded the consideration on acquisition of the ordinary shares in S Limited.

The draft financial statements of thè group companies are as follows:

Statement of profit or loss for the year ended 31 March 2020:

	H Limited	S Limited	A Limited
	Sh. "million"	Sh. "million"	Sh. "million"
Revenuе	25,200	18,000	6,000
Cost of sales	(15,120)	(12,000)	(4,800)
Gross profit	10,080	6,000	1,200
Distribution costs	(1,344)	(840)	(600)
Administrative expenses	(2,196)	(1,080	(1,320)
Investment income (interest and dividend)	330	-	-
Finance costs	(220)	(150)	-
Profit/loss before tax	6,650	3,930	(720)
Income tax expense/relief	(1,800)	(1,200)	120
Profit/loss for the year	4,850	2.730	(600)

Statement of financial position as at 31 March 2020:

	H Limited	S Limited	A Limited
Assets	Sh."million"	Sh."million"	Sh."million"
Non-current assets:
Property, plant and equipment	25,000	16,300	6,000
Investment in A Ltd.	1,920	-	-
Financial asset	250	-	-
	27,170	16,300	6,000
Current assets:
Inventory	6,700	6,000	3,300
Trade receivables	4,150	1,000	2,000
Cash and cash equivalents	1,980	400	100
	12,830	7,400	5,400
Total assets	40,000	43,700	11,400
Equity and liabilities:
Equity:
Ordinary shares of Sh.10 each	8,000	5,000	3,000
Share premium	4,000	2,500	-
Retained earnings	12,100	6,700	3,600
	24,100	14,200	6,600
Non-current liabilities:
8% loan notes	7,600	2,000	-
Current liabilities:
Trade payables	5,500	5,200	3,100
Current tax payable	2,800	2,300	1,700
	8,300	7,500	4,800
Total equity and liabilities	40,000	40,000	11,400

Additional information:

1.	At the date of acquisition, the fair values of S Limited's identifiable net assets approximated their book values with the exception of an item of plant which had a fair value of Sh.200 million above its carrying value. The plant had a remaining useful life of 10 years (straight-line depreciation) at the date of acquisition. Depreciation on plant is classified as part of cost of sales. The fair value of the plant has not been reflected in S Limited's financial statements. No fair value adjustments were required on the acquisition of A Limited. In addition, at the date of acquisition, S Limited had an internally generated brand which the directors of H Limited believed to have a fair value of Sh.300 million. The brand had an estimated useful life of 6 years. Amortisation charge is classified as an administrative expense.
2.	Immediately after acquisition of S Limited, H Limited invested Sh.250 million in an 8% loan note of S Limited. All interest accruing to 31 March 2020 had been accounted for by both entities. S Limited also had other loans in issue as at 31 March 2020.
3.	After the acquisition, S Limited sold goods to H Limited for Sh.500 million. S Limited had marked up these goods at 25% above their cost. H Limited had 30% of these goods in its inventory as at 31 March 2020.
4.	H Limited's policy is to value the non-controlling interest of S Limited at its fair value at the date of acquisition. For this purpose, the market price of S Limited's shares at the date of acquisition is considered to be representative of the fair value.
5.	Impairment tests were carried out on 31 March 2020 which concluded that due to poor trading performance, the investment in A Limited had been impaired to the extent of Sh.80 million.
6.	SLimited paid dividends amounting to Sh.400 million before the year-end.
7.	All incomes and expenses of the three companies are deemed to accrue evenly over the year unless as otherwise specified.
8.	Other than the share exchange in the acquisition of the ordinary shares in S Limited, there was no other issue of ordinary shares by the group companies.

Required:

(a) Consolidated statement of profit or loss for the year ended 31 March 2020.

(b) Consolidated statement of financial position as at 31 March 2020.

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May 2021

2 Questions

Question 3

The following draft group financial statements relate to L Limited, a public limited company:

L Group
Consolidated statement of financial position as at 31 October:

	2020	2019
Assets:	Sh."million"	Sh."million"
Non current assets:
Property, plant and equipment	10,450	10,230
Goodwill	2,310	2,640
Other intangible assets	3,300	5,280
Investment in associate company	1,760	-
	17,820	18,150
Current assets:
Inventories	3,410	4,180
Trade receivables	2,750	3,960
Cash and cash equivalents	10,230	7,810
	16,390	15,950
Total assets	34,210	34,100
Equity and liabilities:
Equity:
Ordinary shares of Sh.10 each	18,150	13,750
Revaluation surplus	600	440
Retained earnings	7,832	5,698
	26,582	19,888
Non-controlling interest	1,980	1,430
Total equity	28,562	21,318
Non-current liabilities:
Long-term borrowings	291	1,056
Deferred tax	770	682
	1,061	1,738
Current liabilities:
Trade payables	3,410	7,942
Current tax	1,078	3,036
Accrued interest	99	66
	4,587	11,044
Total equity and liabilities	34,210	34,100

L Group
Consolidated statement of comprehensive income for the year ended
31 October 2020

	Sh."million"
Sales revenue	27,236
Cost of sales	(21,692)
Gross profit	5,544
Other income	652
Distribution costs	(1,100)
Administrative expenses	(990)
Operating profit	4,106
Finance costs	(242)
Share of profit of associate company	352
Profit before tax	4,216
Income tax expense	(1,012)
Profit for the year	3,204
Other comprehensive income:
Revaluation of property, plant and equipment	176
Total comprehensive income for the year	3,380
Profit for the year:
Attributable to the owners of the parent	2,522
Attributable to the non-controlling interests	682
	3,204
Total comprehensive income for the year:
Attributable to the owners of the parent	2,698
Attributable to the non-controlling interests	682
	3,380

Additional information:

1.

On 1 January 2020, L Limited acquired 75% of the ordinary share capital of G Limited for Sh.660 million. The fair values of the identifiable assets and liabilities of G Limited at the date of acquisition were as set out below:

	Sh."million"
Property, plant and equipment	308
Inventories	132
Trade receivables	66
Cash and cash equivalents	44
Trade payables	(88)
Current tax	(22)
Net assets at acquisition	440

L group measures the non-controlling interests at their proportionate share of net assets at the date of acquisition.

2.

The property, plant and equipment (PPE) comprises the following:

	Sh."million"
Carrying amount as at 1 November 2019	10,230
Additions at cost including assets acquired in G Limited	1,760
Gains on property revaluation	176
Disposals	(1,078)
Depreciation	(638)
Carrying amount as at 31 October 2020	10,450

The disposal proceeds of PPE were Sh.1,730 million.
The gain on disposal is shown as other income.
It is the group's policy to make inter-reserve transfer of excess depreciation upon revaluation of PPE to reflect realisation of revaluation surplus.

3.

L Limited purchased a 40% interest in an associate company for cash on 1 November 2019. The net assets of the associate company at the date of acquisition were Sh.6,160 million. The associate company made a profit after tax of Sh.880 million and paid a dividend of Sh.220 million out of these profits in the year ended 31 October 2020.

4.

An impairment test carried out on 31 October 2020 revealed that goodwill and other intangible assets were impaired.

5.

All group companies declared and paid dividends to the shareholders during the year ended 31 October 2020.

6.

Ignore deferred tax consequences on the acquisition of the investment in the subsidiary and on the revaluation of PPE.

Required:

Consolidated statement of cash flows for L Group for the year ended 31 October 2020 using the indirect method in accordance with International Accounting Standard (IAS) 7 "Statement of Cash Flows".

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Question 1

The following draft statements of financial position relate to P Limited, S Limited and R Limited, all public limited companies, as at 30 June 2020:

	P Limited	S Limited	R Limited
Assets:	Sh. "million"	Sh. "million"	Sh. "million"
Non-current assets:
Property, plant and equipment (PPE)	3,920	2,100	910
Investment in S Limited	1,925	-	-
Investment in R Limited	665	-	-
Financial assets	315	210	490
	6,825	2,310	1,400
Current assets:
Inventories	315	127	218
Trade receivables	170	69	118
Cash and cash equivalents	120	49	84
	605	245	420
Total assets	7,430	2,555	1,820
Equity and liabilities:
Equity:
Ordinary shares of Sh. 10 each	1,000	700	350
Share premium	400	100	-
Revaluation surplus	95	40	-
Retained earnings	2,435	805	665
	3,930	1,645	1,015
Non-current liabilities:
8% loan note	1,700	500	475
Deferred tax	655	200	260
	2,355	700	735
Current liabilities:
Trade payables	570	135	45
Current tax	575	75	25
	1,145	210	70
Total equity and liabilities	7,430	2.555	1,820

The following information is relevant in the preparation ofthe group financial statements of P Limited:

1.

On 1 July 2018, P Limited acquired 80% of the ordinary shares in S Limited. On this date, the fair value of the identifiable net assets of S Limited was Sh.2,100 million. At acquisition, the retained earnings and the revaluation surplus of S Limited were Sh.560 million and Sh.20 million respectively. No new shares have been issued.
The excess of the fair value of the net assets is due to an increase in the value of non-depreciable land.

2.

On 1 July 2017, P Limited hád acquired 5% of the ordinary shares of R Limited and treated this investment at fair value through profit or loss in the financial statements to 30 June 2019. On 1 January 2020, P Limited acquired a further 55% of the ordinary shares of R Limited and gained control of the company.
The consideration for the acquisition of the shares in R Limited was as follows:

	Shareholding (%)	Consideration Sh."million"
1 July 2017	5	70
1 January 2020	55	560
	60	630

As at 1 January 2020, the fair value of the 5% equity interest in R Limited was Sh.175 million. The fair value of the identifiable net assets of R Limited as at 1 January 2020 was Sh.910 million and the retained earnings stood at Sh.520 million. The excess of the fair value of the net assets is due to an increase in value of plant with a remaining economic useful life of four years (straight-line depreciation).

3

It is P group's policy to measure the non-controlling interests at fair value. The fair value of noncontrolling interests in S Limited was Sh.525 million and the fair value of non-controlling interests in R Limited was Sh.315 million at the respective dates of acquisition.

4.

P Limited purchased an item of property, plant and equipment on 1 July 2018 for Sh.300 million. It had an expected useful life of 20 years and is depreciated on the straight-line basis. On 30 June 2019, the item was revalued to Sh.380 million.
As at 30 June 2020, impairment indicators triggered an impairment review of the PPE whose recoverable amount was Sh.270 million. The only accounting entry posted for the year ended 30 June 2020 was to account for the depreciation based on the revalued amount as at 30 June 2019. P Limited does not make an inter-reserve transfer of excess depreciation arising from the revaluation of the PPE.

5.

All goodwill arising from acquisitions has been tested for impairment with no impairment being necessary.

6.

Neither S Limited nor R Limited had issued any new shares since P Limited acquired its shares in these two companies.

Required:

(a) Goodwill arising on the acquisition of S Limited and R Limited.

(b) Consolidated statement of financial position for P Group as at 30 June 2020 in accordance with International Financial Reporting Standards (IFRSs).

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November 2020

2 Questions

Question 4a

Distinguish between the two types of joint arrangement described by IFRS 11 (Joint Arrangements).

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Question 2b

H Limited is the parent entity of a group of companies with two subsidiaries, S Limited and R Limited. Both subsidiaries have been owned for a number of years.

The following statements of profit or loss and other comprehensive incomes relate to the group of companies:

Statement of profit or loss and other comprehensive incomes for the year ended 30 April 2020:

	H Limited Sh. "million"	S Limited Sh. "million"	R Limited Sh. "million"
Revenue	4,275	2,515	1,730
Cost of sales	(2,735)	(1,445)	(1,010)
Gross profit	1,540	1,070	720
Distribution costs	(305)	(195)	(90)
Administrative expenses	(370)	(235)	(120)
Profit from operations	865	640	510
Finance costs	(45)	(40)	(30)
Profit before tax	820	600	480
Income tax expense	(160)	(120)	(100)
Profit after tax for the year	660	480	380
Other comprehensive income:
Gain on property revaluation	150	80	-
Total comprehensive income	810	560	380

1	On 1 May 2017, H Limited acquired 75% of the ordinary shares of S Limited, a public limited entity. The purchase consideration was cash of Sh.560 million and the fair value of the identifiable net assets of S Limited was Sh.400 million as at that date. The fair value of non-controlling interest in S Limited as at the date of acquisition was Sh.240 million. H Limited wishes to use the "full goodwill" method for all acquisitions. The ordinary share capital and retained profit of S Limited as at the acquisition date were Sh.100 million and Sh.200 million respectively and there were no other reserves. The excess of the fair value of the identifiable net assets at acquisition is due to an increase in fair value of plant, which is depreciated on a straight-line basis and had a five-year remaining life as at the date of acquisition.
2	H Limited had acquired 80% of the ordinary shares of R Limited, on 1 May 2016. The purchase consideration was cash of Sh.600 million. R. Limited's identifiable net assets had a fair value of Sh.550 million which was equal to their carrying amounts. The non-controlling interest in R Limited had a fair value of Sh. 150 million at the date of acquisition.
3	On 1 November 2019, H Limited disposed of 30% of the ordinary shares of R. Limited for a consideration of Sh.375 million. R Limited's identifiable net assets were Sh.675 million and the non-controlling interest of R Limited had a carrying value of Sh.175 million at the date of disposal. The remaining equity interest in R Limited held by H Limited had a fair value of Sh. 575 million on 1 November 2019. After disposal, H Limited would exercise joint control over R Limited. The profits and losses of R Limited are deemed to accrue evenly over the year.
4	H Limited sold inventory to both S Limited and R Limited at a price of Sh.150 million and Sh.45 million respectively, in the month of October 2019. H Limited sells goods at a gross profit margin of 20% to group companies and third parties. At the year end, half of the inventory sold to S Limited remained unsold but the entire inventory sold to R. Limited had been transferred to third parties.
5	Goodwill arising on acquisitions has been tested for impairment annually and as at 30 April 2019, goodwill on acquisition of S Limited had reduced in value by i15% and as at 30 April 2020, had lost a further 5% of its original value No impairment had occurred in respect of goodwill on acquisition of R. Limited and the interest in R. Limited

Required:

(i). Gain or loss arising on disposal of R Limited to be presented on the consolidated statement of profit or loss and other comprehensive incomes.

(ii). Consolidated statement of profit or loss and other comprehensive incomes for H Group for the year ended 30 April 2020

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November 2019

3 Questions

Question 4

The following financial statements relate to Makongeni Group for the year ended 31 October 2019:

Makongeni Group: Consolidated statement of financial position as at 31 October:
Assets:	2019 Sh."million"	2018 Sh."million"
Non-current assets:
Property, plant and equipment	10,180	6,500
Goodwill	7,720	7,400
Investment in associate	2,480	2,160
	20,380	16,060
Current assets:
Inventories	1,880	1,740
Trade receivables	1,560	1,320
Short-term investments	300	200
Cash and bank balances	540	360
	4,280	3,620
Total assets	24,660	19,680
Equity and liabilities:
Equity:
Ordinary share capital (Sh.10 par value)	6,000	6,000
Revaluation surplus	3,000	2,100
Retained earnings	7,020	4,340
	16,020	12,440
Non-controlling interest	1,240	1,280
Total equity	17,260	13,720
Non-current liabilities:
Bank loans	2,000	1,200
Deferred tax	600	420
	2,600	1,620
Current liabilities:
Trade payables	3,200	2,900
Current tax	1,600	1,440
	4,800	4,340
Total equity and liabilities	24,660	19,680

Makongeni Group: Consolidated statement of comprehensive income for the year ended 31 October 2019
	Sh."million"
Revenue	8,360
Operating expense	(4,620)
Profit from operations	3,740
Gain on disposal of subsidiary	400
Finance costs	(140)
Share of profit of associate	460
Profit before tax	4,460
Income tax expense	(900)
Profit after tax for the year	3,560
Other comprehensive income:
Revaluation gain on property	800
Other comprehensive income of associate	200
Total comprehensive income	4,560
Profit for the year attributable to:
Owners of the parent	3,180
Non-controlling interests	380
	3,560
Total comprehensive income for the year attributable to:
Owners of the parent	4,080
Non-controlling interests	480
	4,560

Additional information:

1	During the year, Makongeni Limited acquired 80% of the ordinary share capital of Razak Limited, paying a cash consideration of Sh.6,000 million. The non-controlling interest holding was measured at its fair value of Sh.1,360 million at the date of acquisition. The fair values of the net assets of Razak Limited as at the date of acquisition comprised the following: Sh."million" Property, plant and equipment 5,120 Inventories 600 Trade receivables 960 Cash and cash equivalents 320 Trade payables (880) Tax payables (160) 5,960
2	During the year, Makongeni Limited also disposed of its entire 60% ordinary shareholding in Salama Limited. The subsidiary had been acquired several years ago for a cash consideration of Sh.2,400 million. The non-controlling interest holding was measured at its fair value of Sh.1,280 million as at the date of acquisition and the fair value of Salama Limited's net assets was Sh.2,920 million. Goodwill on acquisition of Salama Limited had not suffered any impairment. At the date of disposal, the net assets of Salama Limited had carrying values in the consolidated statement of financial position as set out below: Sh."million" Property, plant and equipment 2,900 Inventories 660 Trade receivables 480 Cash and cash equivalents 200 Trade payables (320) 3,920
3	The short term investments are readily convertible into known amounts of cash and there is an insignificant risk of their fair value changing.
4	Depreciation of Sh.1,540 million was charged during the year. Plant with a carrying amount of Sh.1,000 million was sold for Sh.1,100 million. The gain on disposal was recognised in operating profit. Some properties were revalued during the year resulting in revaluation gain of Sh.800 million being reported. Ignore deferred tax on revaluation of property, plant and equipment.

Required:

Consolidated statement of cash flows for the Makongeni Group for the year ended 31 October 2019 using the indirect method in accordance with International Accounting Standard (IAS) 7 "Statement of Cash Flows".

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Question 2a

International Accounting Standard (IAS) 21: "The Effects of Changes in Foreign Exchange Rates" requires the transactions carried out by an entity in foreign currencies and the financial statements of a foreign operation (foreign subsidiary) to be translated into the presentation currency ofthe reporting entity.

Required:

In the context of the International Accounting Standard (IAS) 21, explain the treatment of exchange differences (gains/losses) arising on translation, clearly distinguishing the treatment in the individual entity's financial statements and in the consolidated financial statements.

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Question 2b

H Limited, a public limited company whose functional currency is the Kenya Shilling (Ksh.), operates in the mining sector and has recently acquired a foreign subsidiary, B Limited. The functional currency of B Limited is the Krone (Kr.).

The following draft statements of financial position relate to the two entities as at 30-September 2019:

Assets:	H Limited Kr."million"	B Limited Ksh."million"
Non-current assets:
Property, plant and equipment	7,007	7,826
Investment in B Limited	838
	7,845	7,826
Current assets:
Inventories	1,566	2,605
Trade receivables	1,401	2,000
Cash and cash equivalents	1,238	1,399
	4,205	6,004
Total assets	12,050	13,830
Equity and liabilities:
Equity:
Ordinary share capital	2,875	3,640
Share premium	1,437	1,820
Retained earnings	3,350	3,640
Total equity	7,662	9,100
Non-current liabilities:
10% loan note	450	1,310
Deferred tax	569	1,600
	1,019	2,910
Current liabilities:
Trade payables	2,498	1,238
Current tax	871	582
	3,369	1,820
Total equity and liabilities	12,050	13,830

Additional information:

1	On 1 October 2018, H Limited acquired 80% of the ordinary shares of B Limited when B Limited's retained earnings were 3,100 million Krones. The fair value of the identifiable net assets of B Limited on 1 October 2018 was 9,008 million Krones. The excess of the fair value over the carrying amount of net assets is due to an increase in the value of land.
2	H Limited wishes to use the "full goodwill" method and the fair value of the non-controlling interest in B Limited as at 1 October 2018 was 4,550 million Krones. There has been no impairment of goodwill since acquisition.
3	On 1 October 2018, H Limited issued a 10% loan note amounting to Ksh. 40 million to B Limited repayable in ten years' time. Interest on the loan note has been correctly accounted for by both entities. However, the loan note is still recorded in the financial statements of B Limited at the amount obtained by applying the rate of exchange at the date of the issue.
4	H Limited expanded its overseas operations and on 1 April 2019, acquired an overseas building with a fair value of 715 million Krones. In exchange for the building, H Limited paid the seller with land which it had held for long term capital appreciation. The carrying amount of the land was Ksh.100 million but it had an open market value of Ksh.140 million. H Limited has only recorded the transfer of Ksh.100 million from investment properties to property, plant and equipment. The transaction has commercial substance. H Limited has a policy of depreciating buildings over a period of 35 years and follows the revaluation model. As a result of a surge in the market, it is estimated that the fair value of the overseas building was 800 million Krones as at 30 September 2019.
5	The following foreign exchange rates are relevant to the preparation of consolidated financial statements:

		Krones to Ksh.1
	1 October 2018	6.0
	1 April 2019	5.5
	30 September 2019	5.0
	Average for the year to 30 September 2019	5.8

Required:

Consolidated statement of financial position for the H group as at 30 September 2019 in accordance with International Financial Reporting Standards. Round your figures to the nearest Ksh."million".

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May 2019

2 Questions

Question 2

G Limited, a quoted company, operates in the manufacturing sector. It has investments in a number of companies.

The following draft statements of financial position relate to G Limited and its investee companies as at 30 September 2018:

Assets:	G Ltd. Sh."million"	S Ltd. Sh."million"	A Ltd. Sh."million"
Non-current assets:
Property, plant and equipment	4,140	1,350	1,395
Intangible assets	891	540	158
Investments: S Ltd.	3,285
A Ltd	900
	9,216	1,890	1,553
Current assets:
Inventories	1,102	819	414
Trade receivables	2,016	891	486
Cash and cash equivalents	909	450	190
	4,027	2,160	1,090
Total assets	13,243	4,050	2,643
Equity and liabilities:
Ordinary share capital	4,140	1,000	900
Share premium	329	160	90
Retained profits	4,028	1,900	625
	8,497	3,060	1,615
Non-current liabilities:
8% debentures	1,640	288	333
Deferred tax	1,187	265	243
Current liabilities:
Trade payables	1,674	319	299
Current tax	245	118	153
Total liabilities	4,746	990	1,028
Total equity and liabilities	13,243	4,050	2,643

Additional information:

1	On 1 October 2015, G Ltd. acquired 80% of the ordinary shares of S Ltd. for a cash consideration of Sh.3,285 million. At the date of acquisition, the retained earnings of S Ltd. stood at Sh.1,650 million and the fair values of the identifiable net assets of S Ltd. approximated their book values except for an item of plant which had a fair value of Sh.175 million in excess of its carrying amount. The plant had a remaining economic useful life of 5 years as at that date.
2	On 1 April 2014, G Ltd. gained joint control over A Ltd. having acquired 50% of its ordinary shares for a cash consideration of Sh.500 million. At that date, the retained earnings of A Ltd. amounted to Sh.225 million. G Ltd. accounted for its share of interest in A Ltd. using the equity method in accordance with IAS 28 (Investments in Associates and Joint Ventures). On 1 April 2018, G Ltd. acquired a further 25% shareholding in A Ltd. for an additional cash consideration of Sh.250 million when the retained earnings of A Ltd. amounted to Sh.525 million. The fair value of the original investment in A Ltd. as at 1 April 2018 was Sh.980 million. No fair value adjustments were necessary in respect of the business combination relating to A Ltd.
3	The group policy is to measure non-controlling interests at fair value. At the respective dates of acquisition, the noncontrolling interests in S Ltd. and A Ltd. had fair values of Sh.200 million and Sh.250 million respectively.
4	Goodwill of S Ltd. and A Ltd. was tested for impairment as at 30 September 2018. There was no impairment relating to A Ltd. The recoverable amount of the net assets of S Ltd. was Sh.3,480 million.
5	G Ltd. sold inventory to S Ltd. for Sh.54 million at fair value. G Ltd. reported a loss on the transaction of Sh.9 million and S Ltd. still held half of these goods in inventory at 30 September 2018.
6	On 1 October 2017, G Ltd. acquired patent rights for Sh.45 million to use in a project to develop new products. G Ltd. completed the investigative phase of the project, incurring an additional cost of Sh.32 million and determined that the project was feasible. An effective and working prototype was created at a cost of Sh.18 million and in order to put the products into a saleable condition, a further Sh.14 million was spent. Finally, marketing costs of Sh.9 million were incurred. All of the above costs are included in the intangible assets of G Ltd.

Required:
(a)	Determine the amount of goodwillarising on acquisition of S Ltd. and A Ltd. after the impairment review.
(b)	Consolidated statement of financial position of G Ltd. group as at 30 September 2018 in accordance with International Financial Reporting Standards (IFRSs).

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Question 5

The consolidated income statement for the year ended 31 March 2019 and the consolidated statements of financial position as at 31 March 2018 and 31 March 2019 of Tembea group were as follows:

Tembea Group Consolidated income statement for the year ended 31 March 2019
		Sh."000"	Sh."000"
Revenue			74,364
Cost of sales			(56,680)
Gross profit			17,684
Other incomes:	Investment income	616
	Gain on disposal of property, plant and equipment	388	1,004
			18.688
Expenses:
Distributions costs		3,500
Administrative expenses		5,406
Finance costs		447	(9,353)
Profit before tax			9,335
Income tax expense			(3,081)
Profit for the year			6,254
Attributable to:	Holding company		6,171
	Non-controlling interest		83
			6,254

Tembea Group Consolidated statement of financial position as at 31 March:
Assets:	2019 Sh."000"	2018 Sh."000"
Non-current assets:
Property, plant and equipment	24,062	19,940
Intangible assets	324	540
	24,386	20.480
Current assets:
Inventory	1,936	1,771
Trade receivables	9,792	9,085
Cash in hand and bank	3,923	3,679
	15,654	14,535
Total assets	40,040	35,015
Capital and liabilities:
Ordinary share capital	2,479	2,319
Share premium	5,889	5,569
Other reserves	555	555
Retained earnings	7,040	9,379
	15,963	17,822
Non-controlling interest	483	619
Total equity	16,446	18,441
Non-current liabilities:
Medium term bank loans	3,453
Finance lease obligations	476	715
Deferred tax	5,479	3,301
	9,408	4,016
Current liabilities:
Trade payables	10,608	9,396
Finance lease obligations	141	202
Current tax	2,515	2,357
Bank overdraft	104
Interest accrued	54	11
Dividends proposed	764	592
	14,186	12,558
Total equity and liabilities	40,040	35,015

Additional information:

1	Intangible assets represent patents held by the company being amortised over their useful life. No new patents were registered in the year.
2	Property, plant and equipment is made up as follows:

Cost/valuation	Land and buildings Sh."000"	Plant and machinery Sh."000"	Total Sh."000"
Balance as at 1 April 2018	6,483	22,446	28,929
Subsidiary acquired	1,800	3,378	5,178
Additions		5,611	5,611
Disposals		(1,092)	(1,092)
Balance as at 31 March 2019	8,283	30,343	38,626
Depreciation:
Balance as at 1 April 2018	2,582	6,407	8,989
Charge for year	820	2,232	3,052
Subsidiary acquired	1,280	2,023	3,303
Disposals		(780)	(780)
Balance as at 31 March 2019	4,682	9,882	14,564

3	Share capital is made up as follows:
		Ordinary share capital Sh."000"	Share premium Sh."000"
	As at 1 April 2018	2,319	5,569
	Shares issued on acquisition	160	440
	Expenses on issue	-	(120)
	As at 31 March 2019	2,479	5,889

4	During the year, Tembea group acquired 100% of the shares of Kesi Ltd. The net assets of Kesi Ltd. as at the time of acquisition were as follows:

		Sh."000"
	Property, plant and equipment	1,875
	Inventory	456
	Trade receivables	1,170
	Cash at bank and in hand	42
	Bank overdraft	(73)
	Trade payables	(705)
	Medium term bank loans	(967)
	Deferred tax	(908)
		890
	Consideration:
	Shares allotted	600
	Cash	4,400
		5,000

5	During the year, a provision for ordinary dividend amounting to Sh.4.4 million was made from the retained profits.

Required:

Consolidated statement of cash flows in conformity with IAS 7 (Statement of Cash Flows) for the year ended 31 March 2019.

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November 2018

3 Questions

Question 2

B Limited and H Limited are private liability limited companies operating in the service sector. They have been reporting successive trading losses for several years, principally due to severe competition which has put downward pressure on their revenues.

The directors of the two entities, who are also the main shareholders, have unanimously agreed to wind up the companies' respective businesses and amalgamate them into a new company to be named S Limited with effect from 1 October 2018.

The statements of financial position of the two companies as at 30 September 2018 are as set out below:

	B Limited	H Limited
Assets:	Sh. "000"	Sh. "000"
Non-current assets:
Property, plant and equipment	16,500	12,000
Intangible assets (copyrights)	8,400
	24,900	12,000
Current assets	52,500	30,000
Total assets	77,400	42,000
Equity and liabilities:
Equity:
Ordinary share capital (Sh.10 par value)	30,000	16,000
7.5% cumulative preference share capital (Sh.10 par value)	10,000	24,000
Share premium	1,600	1,400
Retained profits (losses)	(23,400)	(34,300)
	18,200	7,100
Non-current liabilities:
10% bonds	20,000	15,000
Current liabilities:
Trade payables	37,200	18,400
Bank overdraft	2,000	1,500
Total equity and liabilities	77,400	42,000

Additional information:

1	The authorised share capital of the new company was Sh.120 million comprising 12 million ordinary shares of Sh.10 par value.
2	Preference dividends in B Limited were three years in arrears while in H Limited, preference dividends had not been paid for two years including the current year to 30 September 2018. Only 20% of the arrears of preference dividends were settled by issue of ordinary shares of Sh.10 each in S Limited.
3	S Limited issued 3.4 million ordinary shares of Sh.10 each credited at Sh.5 each in favour of the preference shareholders in both companies. The ordinary shares were allotted on the basis of the preference shares held in the old companies. The preference shareholders committed to immediately pay the balance on the shares issued.
4	The bondholders in both companies were settled immediately by the new company issuing ordinary shares of Sh.10 each to satisfy the nominal value of the bonds.
5	The new company also issued 4.6 million ordinary shares of Sh.10 each credited at Sh.2.50 each in favour of the ordinary shareholders in the old companies. The ordinary shares were allotted on the basis of the ordinary shares held in the old companies. The ordinary shareholders were to pay the balance on their shares immediately.
6	The current liabilities of the old companies were transferred to the new company at their book values.
7	The copyrights in B Limited expired upon amalgamation of the old companies and were therefore to be written 8 off.
8	The tangible assets were taken over by S Limited at their fair values as follows:

	B Limited Sh. "000"	H Limited Sh. "000"
Property, plant and equipment	12,500	9,500
Current assets	58,000	38,600

9	Liquidation expenses of B Limited and H Limited amounting to Sh.8 million and Sh.5 million respectively paid for by S Limited and treated as preliminary expenses.
10	Assume that all the above transactions were completed by the close of business on 30 September 2018.
Required:
(a)	The following ledger accounts, in columnar form, to close off the books of B Limited and H Limited: (i). Realisation account. (ii). Preference shareholders sundry members account. (iii). Ordinary shareholders sundry members account.
(b)	Journal entries in the books of S Limited to record the transfer of assets and liabilities (Ignore narrations).
(c)	Opening statement of financial position of S Limited as at 1 October 2018.

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Question 3b

Below are the statements of financial position of Acacia Ltd., Baobab Ltd. and Cider Ltd. as at 30 June 2018.

Assets:	Acacia Ltd. Sh."million"	Baobab Ltd. Sh."million"	Cider Ltd. Sh."million"
Nan-current assets:
Property, plant and equipment	6,000	5,150	2,775
Investments	3,050	200	-
	9,050	5,350	2,775
Current assets:
Inventories	1,520	645	600
Accounts receivable	735	300	315
Current account - Cider Ltd.	-	105	-
Cash and bank balance	178	450	375
	2,433	1,500	1,290
Total assets	11,483	6,850	4,065
Equity and liabilities:
Equity:
Ordinary shares of Sh.1 each	7,550	3,000	1,500
Share premium	67	200	168
Retained profit	1,200	1,650	987
	8,817	4,850	2,655
Non-current liabilities:
8% debentures	975	1,020	900
Current liabilities:
Accounts payable	1,050	690	420
Current tax	500	200
Dividend payable	141	90
Current account - Baobab Ltd.			90
	1,691	980	510
	11,483	6,850	4,065

Additional information:

1	Acacia Ltd. acquired 40% of the ordinary shares of Baobab Ltd. on 1 July 2016 at a cost of Sh.1,500 million when the retained profit and share premium of Baobab Ltd. were Sh.810 million and Sh.200 million respectively. On 1 January 2018, Acacia Ltd. acquired another 20% of the ordinary shares of Baobab Ltd. for a cash consideration of Sh.1,050 million. On that date, the fair value of the initial 40% ordinary shares of Baobab Ltd. was Sh.1.800 million.
2	On 1 January 2018, the carrying amount of the net assets of Baobab Ltd. reflected their fair value with the exception of an item of plant. The market value of the item of plant had decreased and the valuation report indicated a reduction of Sh.150 million. The plant had a remaining useful life of three years as at that date. Baobab Ltd. had not adjusted its books to reflect the new value.
3	Acacia Ltd. acquired 60% of the ordinary shares of Cider Ltd. on 1 July 2017 when the retained profit and share premium of Cider Ltd. were Sh.432 million and Sh.168 million respectively. The cost of this transaction was to be discharged by an issue of 600 million ordinary shares of Acacia Ltd. The fair valuе of the ordinary shares of Acacia Ltd. on 1 July 2017 was Sh.2.5 per share while that of Cider Ltd. was Sh.3.5 per share. This share exchange has not yet been recorded by Acacia Ltd. On 1 July 2017, the carrying amount of the identifiable net assets of Cider Ltd. reflected their fair values.
4	A quarter of the inventory of Cider Ltd. was purchased from Baobab Ltd. on 1 June 2018. The inventory had been invoiced at a mark-up of 25%.
5	On 1 June 2018, Acacia Ltd. disposed of a property to Baobab Ltd. at Sh.200 million above its carrying amount. The remaining useful life of this property was 10 years.
6	At the end of June 2018, Cider Ltd. had declared a final dividend of 3%. These dividends had not been provided for.
7	Acacia Ltd. has not yet recorded its share of the ordinary dividend from Baobab Ltd.
8	The difference in the current accounts is due to cash in transit.
9	Profits and losses of Baobab Ltd. were deemed to accrue evenly from 1 July 2016 until 30 June 2018.
10	Acacia Ltd. retained all its investments at cost.
11	The depreciation policy of the group is to depreciate all its property, plant and equipment on a straight line basis making a full year's charge in the year of purchase.
12	The group values the non-controlling interest at their proportionate share of the fair value of the net assets of the subsidiaries as at the acquisition date.

Required:

Consolidated statement of financial position of the Acacia group as at 30 June 2018.

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Question 4

The following draft consolidated financial statements relate to the Bakoki Ltd. group:

Consolidated statement of income for the year ended 31 July 2018:

	Sh."million"	Sh."million"
Revenue		5,845
Cost of sales		(2,160)
Gross profit		3,685
Distribution costs	510
Administrative expenses	230	740
		2,945
Income from interests in associated company		990
Operating profit		3,935
Profit on disposal of tangible assets		300
Income from investments		80
Interest payable		(300)
Profit before tax		4,015
Income tax		(1,345)
Profit after tax		2,670
Non-controlling interest (equity)		(200)
Profit attributable to members of group		2,470
Dividend paid		(800)
Retained profit for the year		1,670

Consolidated statement of financial position as at 31 July:

Assets:	2018 Sh.million"	2017 Sh.million"
Non-current assets:
Tangible assets	7,750	5,000
Intangible assets	200	-
Investment in associated company	2,200	2,000
Other investments	820	820
	10,970	7,820
Current assets:
Inventories	3,930	2,000
Trade receivables	3,700	2,550
Cash and bank balances	9,030	3,640
	16,660	8,190
Total assets	27,630	16,010
Equity and liabilities:
Equity:
Share capital	7,880	4,000
Share premium	5,766	4,190
Retained earnings	6,270	4,600
	19,916	12,790
Non-controlling interest	230
	20,146	12,790
Non-current liabilities	4,400	1,366
Current liabilities	3,084	1,854
Total equity and liabilities	27,630	16,010

Additional information:

1	Bakoki Ltd. has two wholly owned subsidiaries. In addition, it acquired a 75% interest in Nyange Ltd. on 1 August 2017. It also holds a 40% interest in Birika Ltd. which it acquired several years ago. Goodwill has not become impaired.
2	The following are the fair values of Nyange Ltd. at the date of acquisition of its shares:

Nyange Ltd.
Statement of financial position as at 1 August 2017

	Sh."million"	Sh."million"
Plant and machinery		330
Current assets:
Inventories	64
Trade receivables	56
Cash and bank balance	224	344
Current liabilities (including corporation tax of Sh.34 million)		(170)
		504
Share capital		100
Retained earnings		404
		504

3	The consideration for the purchase of the shares of Nyange Ltd. comprised 44 million ordinary shares of Sh.10 of Bakoki Ltd. at a value of Sh.550 million and a further payment of Sh.28 million being made in cash.
4	The tax charge in the consolidated income statement is made up of the following items:

		Sh."million"
	Corporation tax	782
	Deferred tax	208
	Tax attributable to associated company	355
		1,345

5	The tangible non-current assets of Bakoki Ltd. group comprised the following:

Cost or valuation:	Building Sh."million"	Plant and Machinery Sh."million"	Total Sh."million"
As at I August 2017	5,100	2,800	7,900
Additions		4,200	4,200
Disposals		(1,000)	(1,000)
	5,100	6,000	11,100
Depreciation:
As at August 2017	700	2,200	2,900
Charge for the year	250	400	650
Disposal		(200)	(200)
	950	2,400	3,350
Carrying amount as at 31 July 2018	4,150	3,600	7,750

6	Included in the additions to plant and machinery are items totalling Sh.1,700 million acquired under finance leases. The plant and machinery disposed of during the year resulted in aprofit of Sh.300 million. All lease rentals were paid on their due dates.
7	Non-current liabilities comprise the following:

	2018 Sh."million"	2017 Sh."million"
Obligations under finance leases	1,417	1,340
6% debentures	2,923
Deferred tax	60	26
	4,400	1,366

8	There had been an issue of debentures on 1 August 2017. The par value was Sh.3,000 million but they were issued at a discount of Sh.100 million. The effective rate of interest was 7%.
9	Current liabilities comprised the following items:

	2018 Sh."million"	2017 Sh."million"
Trade payables	1,600	960
Obligations under finance leases	480	400
Corporation tax	924	434
Accrued interest	80	60
	3,084	1,854

Required:

Consolidated statement of cash flows for the Bakoki Ltd. group for the year ended 31 July 2018, in accordance with the requirements of International Accounting Standard (IAS) 7 "Statement of Cash Flows".

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May 2018

1 Questions

Question 3

The following financial statements relate to Radi L.td. (the investor entity) and two investee companies which also operate in the same industry as the investor entity:

Statement of comprehensive income for the year ended 30 April 2018

	Radi Ltd. Sh."000"	Mvua Ltd. Sh."000"	Upepo Ltd. Sh."000"
Revenue	92,500	48,000	30,000
Cost of sales	(70,500)	(36,000)	(18,000)
Gross profit	22,000	12,000	12,000
Distribution expenses	(2,500)	(1,200)	(1,000)
Administrative expenses	(5,500)	(2,400)	(2,000)
Finance cost	(100)	-	-
Profit before tax	13,900	8,400	9,000
Income tax	(3,900)	(1,600)	(2,200)
Profit for the year	10,000	6,800	6,800
Other comprehensive income:
Gain on revaluation of land	500
Total comprehensive income	10,500	6,800	6,800

Statement of financial position as at 30 April 2018

Assets:	Radi Ltd. Sh."000"	Mvua Ltd. Sh."000"	Upepo Ltd. Sh."000"
Non-current assets:
Property, plant and equipment	18,300	18,900	15,000
Investments	12,600	1,200	350
	30,900	20,100	15,350
Current assets:
Inventory	5,200	1,000	1,400
Trade and other receivables	4,580	800	900
Financial assets at fair value	1,200	350	1,500
Cash and bank	1,520	250	200
	12,500	2,400	3,000
Total assets	43,400	22,500	18,350
Equity and liabilities:
Equity:
Ordinary share capital (Sh.1 par value)	15,000	5,000	6,000
Revaluation reserve (property, plant and equipment)	2,000	-	-
Other equity reserve	500	-	-
Retained earnings	12,900	9,500	5,000
	30,400	14,500	11,000
Non-current liabilities:
6% loan notes	3,000
Deferred tax	1,600	1,200	350
	4,600	1,200	350
Current liabilities:
Trade and other payables	5,600	5,600	5,000
Current tax	2,800	1,200	2,000
	8,400	6,800	7,000
Total equity and liabilities	43,400	22,500	18,350

Additional information:

1	On 1 January 2018, Radi Ltd. acquired 80% of the equity shares of Mvua Ltd. The consideration consisted of two elements; a share exchange of three shares in Radi Ltd. for every five shares acquired in Mvua Ltd. and the issue of a Sh. 100, 6%, loan note for every 500 shares acquired in Mvua Itd. The share issue has not yet been recorded by Radi Ltd., but the issue of the loan note has been recorded. At the date of acquisition, shares in Radi Ltd. had a market value of Sh.5 each and the shares of Mvua Ltd. had a stock market price of Sh.3.50 cach. Radi Ltd. had earlier acquired 2.4 million shares of Upepo Ltd. on the securities exchange at a price of Sh.1.5 per share on I November 2017.
2	As at the date of acquisition of the shares in Mvua Ltd., the fair value of Mvua Ltd.'s assets was equal to their carrying amount with the exception of its property which had a fair value of Sh.1.2 million below its carrying amount. This property had a remaining useful life of 8 years.
3	The group połicy is to revalue all properties to current value at each year end. On 30 April 2018, the value of Mvua Ltd.'s property was unchanged from its value at acquisition, but the land element of Radi Ltd.'s property had increased in value by Sh.500,000 as shown in other comprehensive income.
4	Sales from Mvua Ltd. to Radi Ltd. in the post-acquisition period were Sh.4,000,000. Mvua Ltd. made a mark-up of 25% on these sales. As at 30 Apri! 2018, Radi Ltd. had Sh.2,000,000 (at cost to Radi Itd.) of inventory that had been supplied in the post-acquisition period by Mvua Ltd.
5	In April 2018, Radi Ltd. sold goods to Upepo Ltd. for Sh.2.000.000, realising a profit mark-up of 25%. The entire consignment remained unsold as at 30 April 2018 and was included in the inventory of Upepo L.td.
6	Radi Ltd.'s investments include some available for sale investments that had increased in value by Sh.300,000 during the year. The other equity reserve relates to these investments and is based on their value as at 30 April 2017. There were no acquisitions or disposals of any of these investments during the year ended 30 April 2018.
7	The group policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose, the price of Mvua Ltd.'s share as at that date can be determined to be representative of the fair value of the shares held by the noncontrolling interest.
8	It was determined at the year end that 10% of the goodwill relating to the acquisition of Mvua Ltd. was impaired.
9	Radi Ltd. owed Mvua Ltd. Sh.100,000 as at the year end with regard to the transaction in Note (4) above. The books of Radi Ltd. however showed that it owed Mvua Ltd. only Sh.80,000. Radi Ltd. had sent a cheque to Mvua Ltd. on 27 April 2018 which had not been received by Mvua Ltd. until 4 May 2018.

Required:
(a)	Consolidated statement of comprehensive income for the year ended 30 April 2018.
(b)	Consolidated statement of financial position as at 30 April 2018.

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December 2017

2 Questions

Question 1b

The following statements of commprehensive income relate to W Lid. and its investee companies S Lid. and F Lid. for the year ended 31 March 2017:

Statements of comprehensive income:

	W Ltd. Sh."million"	S Ltd. Sh."million"	F Ltd. Sh."million"
Revenue	976	420	63
Cost of sales	(687)	(228)	(26.2)
Gross proit	289	192	36.8
Other income	6.1
Dividend received	8.1
Operating expenses	(68)	(54)	(13.4)
Finance cost	(12)	(18)	(6.2)
Profit before tax	223.2	120	17.2
Income tax expense	(45)	(30)	(3.2)
Protit after tax for the year	178.2	90	14
Other comprehensive income:
Gain on revaluation of property	15	12	2
Total comprehensive income for the year	193.2	102	16
Retained earnings (1 April 2016)	2,350	625	145
Equity share capital (1 April 2016)	1,000	775	10

Additional information:

1. W Ltd. bought 60% holding in the equity shares of S Ltd. on 1 April 2016. The purchase consideration was agreed at Sh.900 million of which Sh.600 million was paid in cash. The balance was satisfied by immediate issue of a 5% bond at par. S Ltd.'s net assets had a fair value of Sh.1,400 million as at 1 April 2016 represented by equity share capital of Sh.775 million and retained earnings of Sh.625 million. It was decided to apply the proportion of net assets method to calculate goodwill on acquisition. No impairment loss on goodwill arose during the year ended 31 March 2017.

2. W Ltd. sold its entire 60% equity hotding in S Ltd. on 31 March 2017 for Sh.1,150 million in cash. No entry had been made to reflect this transaction.

3. W Ltd. owned 90% of the equity shares of F Ltd. since incorporation. No goodwill arose on this acquisition. There were no retained earnings in existence as at the acquisition date.

4. During the year ended 31 March 2017, W Ltd. sold goods to F Ltd. for Sh.15 million. These goods were sold by W Ltd. at a mark-up of 50°% on cost. Three fifth (3/5) of these goods remained in the inventory of F Ltd. as at 31 March 2017. An amount of Sh.4.3 million remained outstanding to W Ltd. in respect of these goods as at 31 March 2017.

5. On 1 March 2017, F L.td. declared an interim dividend of Sh.9 million. W Ltd. has recorded its share of this dividend as income. No other dividends were declared by the group companies during the year ended 31 March 2017.

6. All expenses and gains are assumed to accrue evenly throughout the year. No new equity capital was issued any group company during the year ended 31 March 2017. by

7. Interest on the 5% bond was payable in arrears. No payment had been made or provided for.

Required:

(i) The gain (or loss) on disposal of the shares in S Ltd. on 31 March 2017.

(ii) Consolidated statement of comprehensive income for the year ended 31 March 2017.

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Question 3b

The following are the group statement of comprehensive income and the group statement of financial position of Maneno Group of Companies for the financial years ended 31 October 2016 and 31 October 2017:

Maneno Group Statement of comprehensive income for the year ended 31 October 2017
	Sh. "million"	Sh. "million"
Revenue		3,075
Cost of sales		(1,470)
		1,605
Gain on sale of subsidiary		120
Share of profit after tax in associate		144
		1,869
Expenses:
Distribution costs	240
Administrative expenses	480
Finance cost	450	1,170
Protit before tax		699
Income tax expense		(144)
Profit after tax for the vear		555
Gain on revaluation of land		60
Total comprehensive income for the year		615
Attributable to: Parent	540
Non-controlling interest	75	615

Maneno Group Statement of financial position as at 31 October:
	2017		2016
Assets:	Sh. "million"	Sh. "million"	Sh. "million"	Sh. "million"
Non-current assets:
Property, plant and equipment		18,000		13,500
Goodwil		255		390
Investment in associate		510		420
		18,765		14,310
Current assets:
Inventory	3,900		3,090
Trade receivables	3,120		3,120
Financial assets at fair value	135		30
Cash and bank balances	510	7,665	390	6,630
Total assets		26,430		20,940
Equity and liabilities:
Ordinary share capital		6,000		4,500
Share premium		900
Revaluation reserve		150
Retained profit		10,200		9,960
Shareholders' funds attribumable to parent		17,250		14,460
Shareholders' funds attributabie to non-controiling interest		225		525
		17,475		14,985
Non-current liabilities:
Bank loans	4,200		3,000
Obligations under finance lease	630		135
Deferred tax	1,020	5,850	915	4,050
Current liabilities:
Trade payables	2,955		1,785
Accrued interest	21		27
Current tax	84		63
Obligations under finance lease	45	3,105	30	1,905
Total equity and liabilities		26,430		20,940

Additional information:

1	During the year ended 31 October 2017, depreciation of Sh.240 million was charged in relation to property, plant and equipment.
2	An item of property with a carrying value of Sh.885 million was disposed of during the year ended 31 October 2017 for Sh.750 million in cash. The loss on disposal is part ofthe cost of sales.
3	On 1 August 2017, the group disposed of an 80% owned subsidiary for Sh.1,170 million in cash. The subsidiary had the following net assets as at the date of disposal

		Sh. "million"
	Property, plant and equipment	2,025
	Inventory	90
	Trade receivables	135
	Cash and bank balances	105
	Trade payables	(540)
	Current tax	(15)
	Bank loans	(600)
		1,200

	The subsidiary had been acquired on 1 November 2012 for a cash payment of Sh.660 million when its net assets had a fair value of Sh.675 million and the non-controlling interest had a fair value of Sh.150 million.
4	Additional property, plant and equipment was acquired by way of lease amounting to Sh.900 million during the year ended 31 October 2017.
5	Dividends paid by the holding company during the year ended 31 October 2017 amounted to Sh.120 million.
6	Land was revalued upwards by the holding company by Sh.60 million during the year ended 31 October 2017.

Required:

The group statement of cash flows in accordance with International Accounting Standard (IAS) 7 "Statement of Cash Flows" for the vear ended 31 October 2017.

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May 2017

1 Questions

Question 1

The following is the summary of financial statements relating to A Ltd., B Ltd., C Ltd. and D Ltd. for the financial year ended 31 March 2017:

Income statements for the year ended 31 March 2017:

	A Ltd. Sh."million"	B Ltd. Sh."million"	C Ltd. Sh."million"	D Ltd. Sh."million"
Revenue.........................	1,200	850	600	800
Cost of sales	(650)	(450)	(320)	(410)
Gross profit	550	400	280	390
Other incomes	50	29.5	-	-
	600	429.5	280	390
Distribution costs	(120)	(70)	(90)	(100)
Administrative expenses	(180)	(80)	(120)	(120)
Finance cost	(20)	(10)	(30)	(20)
Profit before tax	280	269.5	40	150
Income tax expense	(60)	(80)	(12)	(50)
Profit for the period	220	189.5	28	100
Dividends paid	(80)	(60)	(10)	(50)
Retained profit for the year	140	129.5	18	50
Retained profit brought forward	450	300	218	260
Retained profit carried forward	590	429.5	236	310

Statement of financial position as at 31 March 2017:

Assets:	A Ltd. Sh."million"	B Ltd. Sh."million"	C Ltd. Sh."million"	D Ltd. Sh."million"
Non-current assets:
Property, plant and equipment	1,400	800	1,200	1,100
Intangible assets	250	180	200	120
Investment in B Ltd.	800
Investment in C Ltd.		600
Investment in D Ltd.		400
Available for sale financial assets	50	30
	2,500	2,010	1,400	1,220
Current assets:
Inventory	100	80	90	70
Trade and other receivables	160	140	150	120
Bank and cash balances	40	60	30	50
	300	280	270	240
Total assets	2,800	2,290	1,670	1,460
Capital and liabilities:
Ordinary share capital (Sh.10 par value)	1,000	500	400	500
Share premium	400	300	250	300
Available for sale reserve	10	5
Retained profits	590	429.5	236	310
	2,000	1,234.5	886	1,110
Non-current liabilities:
10% loan stock	200	100	300	200
Deferred tax	40	30	20	30
	240	130	320	230
Current liabilities:
Trade and other payables	280	425.5	260	100
Bank loans	200	400	150	-
Current tax	80	100	54	20
	560	925.5	464	120
Total capital and liabilities	2,800	2,290	1,670	1,460

Additional information:

1	A Ltd. acquired 80% of the share capital in B Ltd. on 1 April 2014 when the retained profits of B Ltd. were Sh.100 million. An item of plant in B Ltd. had a fair value of Sh.20 million above its carrying amount and depreciation is at 20% per annum. There were no other reserves other than the share premium.
2	B Ltd. acquired 75% of the share capital in C Ltd. on 1 April 2015 when the retained profits of C Ltd. were Sh.100 million. Land belonging to C Ltd. had a fair value of Sh.50 million above its carrying amount.
3	B Ltd. also acquired 40% shares of D Ltd. on 1 April 2015 when the retained profits of D Ltd. were Sh.150 million.
4	The group uses the partial goodwill method and even though no impairment was reported in previous years, half ofthe goodwill has been reported impaired in the current year for B Ltd. and C Ltd. The goodwill of D Ltd. was not impaired.
5	Intercompany sales were as follows during the year:

	Seller	Buyer	Selling price Sh."million"	Margin %	Balance in stock
	C Ltd. B Ltd. B Ltd.	B Ltd. A Ltd. B Ltd.	200 250 100	50 40 40	50% 25% -

6	Inter-company balances were as follows:

		Sh."million"
	Due from B Ltd. to C Ltd.	40
	Due from A Ltd. to B Ltd.	50
	Due from D Ltd. to B Ltd.	20

Required:

(a) Consolidated income statement for the year ended 31 March 2017.

(b) Consolidated statement of financial position as at 31 March 2017.

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November 2016

2 Questions

Question 2

The following are the group income statement and group statement of financial position of Kijiko group of companies for the financial year ended 31 October 2016:

Kijiko Group

Income statement for the year ended 31 October 2016.

		Sh."million"	Sh."million"
Revenue (from credit sales)			25,530
Cost of sales			(18,140)
Gross profit			7,390
Other incomes:	Investment income	250
	Share of associate company's profit	200	450
			780
Expenses:
Distribution costs		1,250
Administrative expenses		2,640
Finance costs		750	4,640
Profit before tax			3,200
Income tax expense			1,400
Profit for the year			1,800
Profit attributable to:	Holding company		1,650
	Non-controlling interest		150
			1,800

Kijiko Group

Statement of financial position as at 31 October:

	2016 Sh."million"	2015 Sh."million"
Non-current assets:
Property, plant and equipment	3,800	3,050
Intangible assets (including goodwill)	2,500	2,000
Investments: In associate company	650	500
Others		250
	6,950	5,800
Current assets:
Inventories	1,500	1,020
Trade receivables	3,900	3,150
Short-term investments	500	-
Cash balance	20	10
Total assets	12,870	9,980
Equity and liabilities:
Ordinary share capital	2,000	1,200
Revaluation reserve	1,010	910
Retained profits	1,740	1,200
Share premium	1,600	1,500
	6,350	5,110
Non-controlling interest	500	300
Non-current liabilities:
Loan notes	1,700	500
Current liabilities:
Trade payables	2,270	1,990
Bank overdraft	850	980
Current tax	1,200	1,100
Total equity and liabilities	12,870	9,980

Additional information:

1	An item of plant with an original cost of Sh.850 million and with a net book value of Sh.450 million was sold for Sh.320 million during the year ended 31 October 2016.
2	Other investments were sold for Sh.300 million during the year ended 31 October 2016.
3	During the year ended 31 October 2016, Kijiko Ltd. acquired 80% of the share capital of Sahani Ltd. The assets of Sahani Ltd. were as follows as at the date of acquisition.

		Sh."million"
	Property, plant and equipment	600
	Inventories	400
	Trade receivables	300
	Loan notes	(250)
	Trade payables	(400)
	Bank balance	(100)
	Tax	(50)
	Net assets	500

4	The following information relates to property, plant and equipment as at:

	31 October 2016 Sh."million"	31 October 2015 Sh."million"
Cost	7,200	5,950
Accumulated depreciation	(3,400)	(2,900)
Net book value	3,800	3,050

	The cost of property, plant and equipment of Sahani Ltd. on the date of acquisition was Sh.1,000 million and the accumulated depreciation on the property, plant and equipment was Sh.400 million. During the year ended 31 October 2016, there was a revaluation gain of Sh.100 million attributable to the holding company's property, plant and equipment.
5	The total purchase consideration of S Ltd. was Sh.450 million paid by issuing Sh.100 million worth of ordinary shares at par. The balance was paid in cash.
6	Depreciation and loss on sale of plant are included in the cost of sales.

Required:

Group statement of cash flows in conformity with IAS 7 (Statement of Cash Flows) for the year ended 31 October 2016 using the direct method of presentation.

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Question 1

H Ltd., a public limited company based in Kenya, owns 75% of the ordinary share capital of S Ltd., a public limited company based in Rwanda. H Ltd. acquired S Ltd. on 1 May 2015 for 1,200 million Rwandan Francs (RWF) when the retained profits of S Ltd. were 800 million RWF. The functional currency of H Ltd. is the Kenya shilling (KSh). The functional currency of S Ltd. is the Rwandan Franc (RWF). S Ltd. has not revalued its assets or issued any share capital since its acquisition by H Ltd. The following financial statements relate to H Ltd. and S Ltd.

Statement of financial position as at 30 April 2016:

	H Ltd. KSh. "million"	S Ltd. RWF "million"
Assets:
Property, plant and equipment	2,970	1,460
Investment in S Ltd.	480
Loan to S Ltd.	50
Current assets	3,550	1,020
Total assets	7,050	2,480
Equity and liabilities:
Ordinary shares of KSh.10/RWF 10	600	320
Share premium	500	200
Retained earnings	3,600	950
Total equity	4,700	1,470
Non-current liabilities	300	410
Current liabilities	2,050	600
Total equity and liabilities	7,050	2,480

Income statement and other comprehensive income

	H Ltd. KSh. "million"	S Ltd. RWF "million"
Revenue	2,000	1,420
Cost of sales	(1,200)	(960)
Gross profit	800	460
Distribution and administration expenses	(300)	(200)
Profit from operations	500	260
Interest receivable	40	-
Interest payable	-	(20)
Profit before tax	540	240
Income tax expense	(200)	(90)
Profit for the year	340	150

Additional information:

1	Goodwill is reviewed for impairment annually. As at 30 April 2016, the impairment loss on recognised goodwill was RWF 42 million.
2	During the year ended 30 April 2016, S Ltd. purchased raw materials from H Ltd. and denominated the purchase in RWF in its financial records. The details of the transaction are as shown below:

	Nature of goods	Date of transaction	Selling price KSh. "million"	Profit percentage on selling price
	Raw materials	1 February 2016	60	20%

	As at 30 April 2016, half of the raw materials purchased were still in the inventory of S Ltd.
3	H Ltd. issued an interest-free loan to S Ltd. of KSh.50 million on 1 May 2015. The loan was repaid on 31 May 2016. S Ltd. included the loan in its non-current liabilities.
4	The fair value of the net assets of S Ltd. as at the date of acquisition is assumed to be the same as the carrying value.
5	H Ltd. paid a dividend of KSh.80 million during the year ended 30 April 2016. This dividend had not been included in the company's income statement.
6	The corporation tax rate is 30%.
7	It is the group's policy to value the non-controlling interest at acquisition at its proportionate share of the fair value of the subsidiary's identifiable net assets.
8	The following exchange rates are relevant to the financial statements:

		RWF to KSh.
	30 April 2015/1 May 2015	2.5
	I November 2015	2,6
	I February 2016	2.0
	30 April 2016	2.1
	Average rate for the year ended 30 April 2016	2.0

Required:

Prepare the following statements in accordance with the applicable International Financial Reporting Standards (IFRSs):

(a) Consolidated income statement for the year ended 30 April 2016.

(b) Consolidated statement of financial position as at 30 April 2016.

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May 2016

2 Questions

Question 1

On 1 April 2011, D Ltd. acquired 80% of the ordinary shares of S Ltd. S Ltd. had acquired 60% of the ordinary shares of E Ltd. on 1 July 2010.

D Ltd. had also invested in the ordinary shares of A Ltd. to the extent of 75% on 1 April 2012. On 30 June 2015, D Ltd. disposed of 1/3 of its investment in A Ltd.

The following financial statements relate to the above companies for the year ended 31 March 2016.

	Statement of comprehensive income for the year ended 31 March 2016:
	D Ltd. Sh."million"	S Ltd. Sh."million"	E Ltd. Sh."million"	A Ltd. Sh."million"
Revenue	26,400	24,000	20,000	15,000
Cost of sales	(12,000)	(12,000)	(16,000)	(12,000)
Gross profit	14,4000	12,000	4,000	3,000
Investment income	3,520	540	-	-
	17,920	12,540	4,000	3,000
Distribution cost	(3,320)	(2,360)	(1,360)	(800)
Administrative expenses	(3,880)	(2,440)	(1,140)	(900)
Finance cost	(420)	-
Profit before tax	10,300	7,740	1,500	1,300
Income tax expenses	(2,440)	(2,400)	(580)	(500)
Profit for the year	7,860	5,340	920	800
Other comprehensive income:
Adjustment of available for sale
financial assets	500	-	-	-
Total comprehensive income	8,360	5,340	920	800

Statement of financial position as at 31 March 2016:
	D Ltd.	S Ltd.	E Ltd.	A Ltd.
Non-current assets:	Sh."million"	Sh."million"	Sh."million"	Sh."million"
Property, plant and equipment	8,760	2,200	4,500	3,500
Investment in: S Ltd.	6,720	-
E Ltd.	-	4,600
A Ltd.	4,480
Available for sale tinancial assets	3,000
	22,960	6,800	4,500	3,500
Current assets:
Inventories	2,100	2,200	1,650	1,270
Trade receivables	2,640	6,600	500	800
Financial assets at fair value through profit and loss	1,000
Cash and cash equivalents	400	2,200	300	430
	6,140	11,000	2,450	2,500
Total assets	29,100	17,800	6,950	6,000
Equity and liabilities:
Equity:
Ordinary share capital (Sh.100 par value)	6,000	3,200	2,000	2,500
Share premium	3,000	1,600	1,000	1,250
Revenue reserves	9,580	5,600	2,120	1,650
	18,580	10,400	5,120	5,400
Non-current liabilities:
12% loan stock	3,500
Deferred tax liabilitv	2,660	2,200	370
Current liabilities:
Trade and other payables	2,020	3,000	790	460
Current income tax	2,340	2,200	670	140
	10,520	7,400	1,830	600
Total equity and liabilities	29,100	17,800	6,950	6,000

1	D Ltd. acquired its investments in S Ltd. and A Ltd. when the revenue reserve balances of S Ltd. and A Ltd. were Sh.2,600 million and Sh.650 million respectively.
2	The revenue reserves of E Ltd. amounted to Sh.2,400 million as at 1 July 2010 and Sh.2,750 million as at 1 April 2011.
3	During the year ended 31 March 2016, S Ltd. sold goods atanormal mark up of 33/,% at a price of Sh.2,400 million to D Ltd. 20% of the goods remained unsold by D Ltd. as at 31 March 2016.
4	The financial assets held at fair value through profit and loss in the books of D Ltd. have not been adjusted to their fair value of Sh.1,200 million. Revenue reserves of D Ltd. include the fair value adjustment of available for sale financial assets.
5	Investment income includes dividends received from subsidiaries. D Ltd. received Sh.3,200 million from S Ltd. while S Ltd. received Sh.360 million from E Ltd. Total dividends paid by D Ltd. amounted to Sh.2.000 million.
6	The disposal proceeds from the sale of shares in A Ltd. on 30 June 2015 amounted to Sh.1,500 million received in cash. D Ltd. will account for the remaining interest in A Ltd. using the equity method in accordance with IAS 28.
7	Included in trade receivables and trade payables are the following balances: Due from D Ltd. to S Ltd. Sh.250 million. Due from A Ltd. to D Ltd. Sh.140 million. Due from E Ltd. to S Ltd. Sh.240 million.
8	Inventories sold by S Ltd. to D Ltd. worth Sh.60 million at normal mark up had neither been received nor recorded by D Ltd. as at 31 March 2016.
9	All goodwill of the investee companies had been impaired by 25% during the year ended 31 March 2015. No impairment occurred in the year ended 31 March 2016. The group uses the partial goodwill method in preparing the group financial statements.

Required:

(a) Group statement of comprehensive income for the year ended 31 March 2016.

(b) Group statement of financial position as at 31 March 2016.

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Question 2

The Samaki group has prepared the following financial statements for the year ended 31 December 2014 and 31 December 2015

Samaki Group Statement of comprehensive income for the year ended 31 December 2015
		Sh."million"	Sh."million"
Revenue			24,600
Cost of sales			(19,230)
			5,370
Other incomes:	Share of profit after tax from associate		249
	Gain on disposal of property, plant and equipment		45
	Interest income		141
			5,805
Distribution costs		2,406
Administrative expenses		1,110
Finance costs		111	(3,627)
Profit before tax			2,178
Income tax expense			(594)
Profit after tax for the year			1,584
Attributable to:
Parent			1,254
Non-controlling interest			330
			1,584

Samaki Group Statement of financial position as at 31 December:
Assets:	2015 Sh."million"	2014 Sh."million"
Non-current assets:
Property, plant and equipment	3,957	3,270
Goodwill	270	246
Investments	2,310	810
	6,567	4,326
Current assets:
Inventories	2,400	1,914
Trade receivables	1,830	1,440
Cash and cash equivalents	135	420
	4,365	3,774
Total assets	10,932	8,100
Capital and liabilities:
Capital and reserves:
Ordinary share capital (Sh.10 par value)	540	450
Share premium account	255	45
Revaluation reserve	90	30
Retained earnings	597	306
Non-controlling interest	753	450
Long-term liabilities:
Interest bearing borrowings	4,194	3,180
Current liabilities	4,503	3,639
	10,932	8,100

Statement of changes in equity for the year ended 31 December 2015:
	Share capital Sh."million"	Share premium Sh."million"	Revaluation reserve Sh."million"	Retained earnings Sh."million"	Total Sh."million"
Balance brought down (1 January 2015)	450	45	30	306	831
Gain on revaluation of property			60	-	60
Net profit for the period				1,254	1,254
Dividend paid				(378)	-
Exchange difference: On retranslation of foreign investment				(615)	-
Exchange difference: On loan to finance equity investment				30	30
Issue of share capital	90	210	-	-	300
Balance carried down (31 December 2015)	540	255	90	597	1,482

Additional information:

1	Samaki Ltd. acquired 80% of the ordinary shares in Zebra Ltd. on 1 January 2015. The fair value of the assets of Zebra Ltd. as at 1 January 2015 were as follows:

		Sh."million"
	Property, plant and equipment	180
	Inventories	120
	Trade receivables	45
	Cash and cash equivalents	105
	Trade payables	(48)
	Accruals	(12)
	Current tax	(90)
	Net assets	300

	The purchase consideration was Sh.291 million and comprised 6 million ordinary shares of Sh.10 par value in Samaki Ltd. (issued at Sh.40 each) and Sh.51 million in cash.
2	The summary of property, plant and equipment was as follows:

		Sh."million"
	Balance as at 1 January 2015	3,270
	Additions (including Zebra Ltd.)	834
	Revaluation of property, plant and equipment	60
	Disposal	(90)
	Depreciation	(117)
	Balance as at 31 December 2015	3,957

There have been no sales of investments. The investments included under non-current assets were made up of the following items as at 31 December:

	2015 Sh."million"	2014 Sh."million"
Investment in associate company	900	660
Trade investments (including purchases of foreign equity investment)	1,440	150

	Interest receivable included in trade receivables was Sh.45 million as at 1 January 2015 and Sh.51 million as at 31 December 2015.
3	Current liabilities comprised the following items as at 31 December:

	2015 Sh."million"	2014 Sh."million"
Trade payables (including interest payable of Sh.27 million as at 31 December 2015)	3,579	2,739
Current tax	609	600
Accruals	315	300
	4,503	3,639

4	The exchange differences included in the statement of changes in equity relate to a transaction involving a foreign equity investment. An interest bearing loan of Sh.900 million was obtained during the year to finance the foreign equity investment. Both amounts are after retranslation as at 31 December 2015.
5	During the year ended 31 December 2015, an interest bearing loan amounting to Sh.300 million was obtained to acquire additional property, plant and equipment. The assets were acquired in the course of the year.

Required:

The group statement of cash flow in accordance with IAS 7 (Statement of Cash Flows) for the year ended 31 December 2015.

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