Unit: Financial Reporting
Sign in to download the full Topic PDF and enable offline revision mode.
Login to Access| Sh.“000” | Sh.“000” | |
| Equity shares of 50 cents each | 45,000 | |
| Share premium | 5,000 | |
| Retained earnings (1 April 2024) | 5,100 | |
| Property at cost | 48,000 | |
| Plant and equipment at cost | 47,500 | |
| Accumulated depreciation: Property (1 April 2024) | 16,000 | |
| Accumulated depreciation: Plant and equipment (1 April 2024) | 33,500 | |
| Inventories (31 March 2025) | 25,200 | |
| Trade receivables | 28,500 | |
| Bank | 1,400 | |
| Deferred tax | 3,200 | |
| Trade payables | 27,300 | |
| Revenue | 350,000 | |
| Cost of sales | 298,700 | |
| Lease payments | 8,000 | |
| Selling expenses | 16,100 | |
| General and administrative expenses | 26,900 | |
| Bank interest | 300 | |
| Current tax | 800 | |
| Suspense account | 13,500 | |
| 500,000 | 500,000 |
| 1. | Suspense account represents the corresponding credit for cash received for a fully subscribed rights issue of equity shares made on 1 January 2025. The terms of the share issue were one new share for every five held and at a price of Sh.0.75 each. The market price of the company’s equity shares immediately before the issue was Sh.1.20 each. |
| 2. | Non-current assets: Property had 12-year useful life on acquisition. To reflect a marked increase in property prices, Flex Ltd. decided to revalue it on 1 April 2024. The fair value of the property at that date was Sh.36 million. Flex Ltd. has not yet recorded the revaluation. The remaining useful life of the property is eight years at the date of revaluation. Flex Ltd. makes an annual transfer to retained earnings to reflect the realisation of the revaluation surplus. In Flex Ltd.’s tax jurisdiction, the revaluation does not give rise to a deferred tax liability. |
| 3. | On 1 April 2024, Flex Ltd. acquired an item of plant under a lease agreement that had an implicit interest rate of 10% per annum. The lease payments in the trial balance represents an initial deposit of Sh.2 million paid on 1 April 2024 and the first annual rental of Sh.6 million paid on 31 March 2025. The lease agreement requires further annual payments of Sh.6 million on 31 March each year for the next four years. The plant was initially measured at Sh.25 million on 1 April 2024. Plant and equipment (other than leased plant) is depreciated at a rate of 20% per annum using reducing balance method. No depreciation has yet been charged on non-current assets for year ended 31 March 2025. Depreciation is charged to cost of sales. |
| 4. | In the month of March 2025, internal audit in Flex Ltd. discovered a fraud committed by the company’s credit controller who did not return from a sabbatical leave. The fraud revealed that Sh.4 million of the company’s receivables had been stolen by the credit controller and are not recoverable. Of this amount, Sh.1 million relates to the year ended 31 March 2024 and the remainder to the current year. This fraud was not insured. |
| 5. | Flex Ltd. income tax calculation for the year ended 31 March 2025 shows a tax refund of Sh.2.4 million. The balance on current tax in the trial balance represents the under/over provision of the tax liability for the year ended 31 March 2024. As at 31 March 2025, Flex Ltd. had taxable temporary differences of Sh.12 million (requiring a deferred tax liability). The income tax rate of Flex Ltd. is 25%. |
| Sh.“000” | Sh.“000” | |
| Revenue | 1,153,800 | |
| Cost of sales | 678,900 | |
| Distribution costs | 95,700 | |
| Administrative expenses | 118,400 | |
| Inventory as at 30 June 2024 | 117,500 | |
| Trade receivables and trade payables | 155,600 | 87,200 |
| Bank balance | 29,800 | |
| Ordinary share capital (Sh.10 par value) | 60,000 | |
| Share premium | 5,000 | |
| Retained earnings as at 1 July 2023 | 44,300 | |
| Property at cost (Buildings: Sh.150 million) | 220,000 | |
| Plant and equipment at cost | 102,000 | |
| Motor vehicles at cost | 28,000 | |
| Furniture and fixtures at cost | 12,000 | |
| Accumulated depreciation as at 1 July 2023: | ||
| Buildings | 75,000 | |
| 29,600 | |
| 11,200 | |
| 4,800 | |
| Deferred tax | 16,600 | |
| Current tax | 2,800 | |
| Investment property at fair value | 7,800 | |
| 12% bank loan | 87,500 | |
| Interest paid | 5,250 | |
| Interim dividend paid | 1,250 | |
| 1,575,000 | 1,575,000 |
| 1. | On 1 July 2023, the property of Lakers Limited was revalued for the first time to a market value of Sh.190 million of which Sh.100 million related to the buildings. The buildings were being depreciated on a straight line basis over their economic useful life, originally of 50 years and annual depreciation charged to administrative expenses. The remaining useful life of buildings remained unchanged. Lakers Limited will make annual transfer to retained earnings in respect of excess depreciation upon revaluation of its assets. However, the company does not intend to account for deferred tax on the revaluation surplus. |
| 2. | Depreciation on other non-current assets is to be provided and allocated as follows: | |||
| Assets | Rate per annum | Basis | Allocation | |
| Plant and equipment | 12.5% | Reducing balance | Cost of sales | |
| Motor vehicles | 20% | Straight line | Distribution | |
| Furniture and fixtures | 10% | Straight line | Administrative | |
| 3. | The 12% bank loan was issued on 1 October 2023 with the same effective interest rate as the coupon rate. Interest is payable semi-annually on 31 March and 30 September. |
| 4. | Investment property has been recorded at its fair value on 1 July 2023. The fair value gain on the investment property for the year ended 30 June 2024 amounted to Sh.1,100,000. |
| 5. | The balance on the current tax in the above trial balance represents the withholding tax paid on the company’s behalf. The current income tax for the year ended 30 June 2024 is estimated at Sh.69 million. In addition, the carrying amounts of Lakers Limited’s net assets exceeded their tax bases by Sh.73 million at 30 June 2024. The corporation tax rate applicable to Lakers Limited is 30%. |
| 6. | During the year ended 30 June 2024, the company made a rights issue of ordinary shares at a concessionary price of Sh.12 per share, on the basis of one new share for every five held. The rights issue had already been posted in the financial records of Lakers Limited. |
Required: | |
| (i) | Statement of profit or loss and other comprehensive income for the year ended 30 June 2024. |
| (ii) | Statement of changes in equity for the year ended 30 June 2024. |
| (iii) | Statement of financial position as at 30 June 2024. |
| Statement of financial position as at 31 March: | ||||
| 2023 | 2022 | |||
| Sh.“million” | Sh.“million” | Sh.“million” | Sh.“million” | |
| Non-current assets: | ||||
| Property, plant and equipment | 880 | 760 | ||
| Intangible assets | 400 | 510 | ||
| 1,280 | 1,270 | |||
| Current assets: | ||||
| Inventory | 350 | 420 | ||
| Trade receivables | 808 | 372 | ||
| Interest receivable | 5 | 3 | ||
| Short term deposits | 32 | 120 | ||
| Bank | 15 | 1,210 | 75 | 990 |
| Total assets | 2,490 | 2,260 | ||
| Share capital and reserves: | ||||
| Ordinary shares of Sh.1 each | 300 | 200 | ||
| Reserves: | ||||
| Share premium | 60 | - | ||
| Revaluation reserves | 112 | 45 | ||
| Retained earnings | 1,098 | 1,270 | 1,165 | 1,210 |
| Total equity | 1,570 | 1,410 | ||
| Non-current liabilities: | ||||
| Non-current liabilities: | ||||
| 12% loan note | - | 150 | ||
| 8% variable rate loan note | 160 | - | ||
| Deferred tax | 90 | 250 | 75 | 225 |
| Current liabilities: | ||||
| Trade payables | 530 | 515 | ||
| Bank overdraft | 125 | - | ||
| Taxation | 15 | 670 | 110 | 625 |
| 2,490 | 2,260 | |||
| 1. | Details of property, plant and equipment as at: | ||||||
| 31 March 2023 | 31 March 2022 | ||||||
| Cost/ valuation | Depreciation | Carrying amount | Cost/ valuation | Depreciation | Carrying amount | ||
| Sh.“million” | Sh.“million” | Sh.“million” | Sh.“million” | Sh.“million” | Sh.“million” | ||
| Land and building | 600 | 12 | 588 | 500 | 80 | 420 | |
| Plant | 440 | 148 | 292 | 445 | 105 | 340 | |
| 880 | 760 | ||||||
| 2. | The company revalued the carrying value of land and building by an increase of Sh.70 million on 1 April 2022. On 31 March 2023, it transferred Sh.3 million from revaluation reserves to retained earnings relating to depreciation on revaluation of buildings. |
| 3. | During the year, the company acquired new plant at a cost of Sh.60 million and sold some old plant for Sh.15 million, incurring a loss of Sh.12 million. |
| 4. | The following is the statement of profit or loss (extract) for the year ended 31 March 2023: |
| Sh.“million” | Sh.“million” | ||
| Operating loss | (32) | ||
| Interest receivable | 12 | ||
| Finance costs | (24) | ||
| Loss before tax | (44) | ||
| Income tax repayment claim | 14 | ||
| Deferred tax charge | (15) | (1) | |
| Loss for the period | (45) | ||
| Finance costs are made of: | |||
| Interest expenses | (18) | ||
| Penalty for early loan redemption | (6) | ||
| 24) | |||
| 5. | Short term deposits are deemed as cash equivalents. | ||
| 6. | Dividends of Sh.25 million were paid during the year. | ||
| Sh.“000” | Sh.“000” | |
| Property at cost (Building Sh.400 million) | 600,000 | |
| Plant at cost | 280,000 | |
| Motor vehicles at cost | 70,000 | |
| Office equipment at cost | 40,000 | |
| Accumulated depreciation (1 January 2022): | ||
| Building | 80,000 | |
| Plant | 111,160 | |
| Motor vehicles | 42,000 | |
| Office equipment | 15,000 | |
| Inventory (1 January 2022) | 138,000 | |
| Purchases at cost | 667,000 | |
| Distribution costs | 44,000 | |
| Administrative expenses | 93,500 | |
| Revenue | 1,123,500 | |
| Trade receivables and trade payables | 74,500 | 68,800 |
| Bank balance | 15,500 | |
| Deferred tax | 32,400 | |
| Current tax | 2,600 | |
| Bank interest | 2,400 | |
| Ordinary share capital (Sh.10 par value) | 200,000 | |
| Share premium | 50,000 | |
| Retained profit (1 January 2022) | 223,640 | |
| Interim dividend paid | 10,000 | |
| Suspense account | 60,000 | |
| 2,022,000 | 2,022,000 |
| 1. | During the year ended 31 December 2022, Bidii Limited disposed of an item of plant for cash proceeds of Sh.20,000,000 which were credited to the revenue account. No other accounting entry was made. The plant had cost Sh.39,700,000 and had an accumulated depreciation of Sh.15,860,000. Any gain/loss on disposal of plant should be included within the cost of sales. It is the company’s policy to provide for full year’s depreciation in the year of asset purchase and none in the year of disposal. |
| 2. | Depreciation on property, plant and equipment is to be provided and allocated as follows: | |||
| Asset | Rate per annum | Basis | Allocation | |
| Building | 2.5% | Straight-line | Administrative | |
| Plant | 10% | Reducing balance | Cost of sales | |
| Motor vehicles | 20% | Straight-line | Distribution | |
| Office equipment | 12.5% | Straight-line | Administrative | |
| 3. | It has been discovered that the former financial controller of Bidii Limited engaged in fraudulent financial reporting. Sh.12,000,000 of trade receivables are non-existent and need to be written off. Of this amount, Sh.7,000,000 relates to the year ended 31 December 2022, with the balance relating to prior periods. |
| 4. | The existing debit balance on the current tax in the trial balance represents the under/over provision for previous year’s tax. A provision for current tax for the year ended 31 December 2022 of Sh.52,000,000 is required, together with a decrease to the deferred tax provision of Sh.3,000,000. |
| 5. | Inventory count on 31 December 2022 revealed the value of inventory at a cost of Sh.85,000,000. |
| 6. | On 30 December 2022, the company directors invited the current shareholders to subscribe for a rights issue on the basis of one new share for every five shares held at an exercise price of Sh.15 each. The cum rights price on the last day of trading was Sh.20 per share. The proceeds from the fully subscribed rights issue were credited to the suspense account. |
Required: The following financial statements presented in a suitable format for publication: | |
| (a) | Statement of profit or loss for the year ended 31 December 2022. |
| (b) | Statement of changes in equity for the year ended 31 December 2022. |
| (c) | Statement of financial position as at 31 December 2022. |
| Sh.“000” | Sh.“000” | |
| Ordinary share capital (Sh.10 each) | 20,000 | |
| 8% redeemable preference shares | 12,000 | |
| 6% debentures | 10,000 | |
| Revaluation reserve | 3,400 | |
| Retained earnings (1 January 2022) | 14,160 | |
| Revenue | 283,460 | |
| Inventory (1 January 2022) | 12,400 | |
| Purchases | 147,200 | |
| Distribution costs | 22,300 | |
| Administrative expenses | 34,440 | |
| Interest paid on debentures | 300 | |
| Interim dividends paid: - Ordinary | 2,000 | |
| Interim dividends paid: - Preference | 480 | |
| Investment income | 1,500 | |
| Leasehold building | 56,250 | |
| Plant and equipment at cost | 55,000 | |
| Furniture and fittings at cost | 35,000 | |
| Investment | 34,500 | |
| Accumulated depreciation: | ||
| Leasehold building | 18,000 | |
| Plant and equipment | 12,800 | |
| Furniture and fittings | 9,600 | |
| Accounts receivable | 35,700 | |
| Bank overdraft | 1,680 | |
| Accounts payable | 17,770 | |
| Deferred tax | 5,200 | |
| Suspense account | 26,000 | |
| 435,570 | 435,570 |
| 1. | The inventory as at 31 December 2022 was valued at Sh.16 million. However, there were some goods which were considered obsolete with a net realisable value of Sh.400,000 and a cost of Sh.450,000 with a net replacement value of Sh.350,000. |
| 2. | The 6% debentures were issued on 1 July 2022. Interest on debentures is payable semi-annually. |
| 3. | The policy of the company in relation to the depreciation of its assets is as follows: | ||
| Asset | Rate per annum | Method | |
| • Leasehold building | 4% | On straight line basis | |
| • Plant and equipment | 20% | On straight line basis | |
| • Furniture and fittings | 4% | On reducing balance basis | |
| The plant and equipment had a residual value of Sh.5 million. Depreciation is classified as cost of sales expense except for the depreciation on furniture and fittings which is classified as administrative expense. | |
| 4. | The taxable timing differences were Sh.24 million while the deductible timing differences were Sh.10.5 million during the year. |
| 5. | The corporation tax of Sh.21.4 million is to be provided for the year. |
| 6. | The suspense account represents two components: • Proceeds from sale of plant of Sh.16 million whose cost was Sh.20 million and an accumulated depreciation of Sh.2.5 million. • Sh.10 million being a bonus issue of shares. |
| 7. | The directors propose to pay a final dividend of Sh.1.50 per share on the outstanding shares at the year end. |
| 8. | The tax rate was 30%. |
Required: | |
| (a) | Statement of profit or loss for the year ended 31 December 2022. |
| (b) | Statement of changes in equity for the year ended 31 December 2022. |
| (c) | Statement of financial position as at 31 December 2022. |
| 2022 | 2021 | |
| Assets: | Sh.“000” | Sh.“000” |
| Non-current assets: | ||
| Property, plant and equipment | 36,300 | 27,450 |
| Intangible assets | 6,750 | 6,150 |
| 43,050 | 33,600 | |
| Current assets: | ||
| Inventory | 13,300 | 11,445 |
| Trade receivables | 9,230 | 7,080 |
| Cash and cash equivalents | 900 | 410 |
| Total assets | 66,480 | 52,635 |
| Equity and liabilities: | ||
| Share capital and reserves: | ||
| Ordinary share capital (Sh.10 par value) | 7,500 | 6,000 |
| Share premium | 1,350 | 1,050 |
| Revaluation surplus | 2,550 | - |
| Retained earnings | 28,065 | 25,980 |
| Total equity | 39,465 | 33,030 |
| Non-current liabilities: | ||
| 10% loan notes (2025) | 8,250 | 5,250 |
| Government grants | 3,150 | 2,400 |
| Deferred tax | 1,920 | 810 |
| Current liabilities: | ||
| Trade payables | 10,200 | 7,770 |
| Current tax | 2,685 | 2,775 |
| Government grants | 810 | 600 |
| Total equity and liabilities | 66,480 | 52,635 |
| Sh.“000” | |
| Revenue | 54,975 |
| Cost of sales | (43,860) |
| Gross profit | 11,115 |
| Other operating income – government grant | 750 |
| 11,865 | |
| Other operating expenses | (2,970) |
| Profit from operations | 8,895 |
| Finance costs | (705) |
| Profit before tax | 8,190 |
| Income tax expense | (2,655) |
| Profit for the year | 5,535 |
| Other comprehensive income: | |
| Gain on property revaluation | 2,550 |
| Total comprehensive income for the year | 8,085 |
| Sh.“000” | Sh.“000” | |
| Revenue | 6,500 | |
| Cost of sales | (3,100) | |
| Gross profit | 3,400 | |
| Other income | 8,000 | |
| 11,400 | ||
| Expenses: | ||
| Distribution costs | 5,200 | |
| Administrative costs | 5,660 | (10,860) |
| Operating profit | 540 | |
| Interest receivable | 80 | |
| Interest payable | (520) | |
| Profit before tax | 100 | |
| Net income tax credit | 100 | |
| Profit for the year after tax | 200 |
| Assets: | 2021 | 2020 |
| Non-current assets: | Sh.“000” | Sh.“000” |
| Property, plant and equipment at cost | 42,000 | 50,400 |
| Less accumulated depreciation | (20,800) | (18,800) |
| 21,200 | 31,600 | |
| Current assets: | ||
| Inventory | 7,100 | 5,700 |
| Trade receivables | 7,200 | 6,200 |
| Insurance claim | 2,000 | 1,400 |
| Cash at bank | 1,700 | - |
| 18,000 | 13,300 | |
| Total assets | 39,200 | 44,900 |
| Equity and liabilities: | ||
| Captial and reserves: | ||
| Ordinary shares of Sh.10 each | 12,000 | 12,000 |
| Retained profit | 5,100 | 3,200 |
| Revaluation reserve | - | 1,700 |
| 17,100 | 16,900 | |
| Non-current liabilities: | ||
| Finance lease obligations | 4,000 | 3,400 |
| 10% debentures | 1,600 | - |
| 12% bank loan | - | 8,000 |
| Deferred tax | 400 | 1,000 |
| Government grants | 2,800 | 1,800 |
| 8,800 | 14,200 | |
| Current liabilities: | ||
| Trade payables | 10,100 | 7,900 |
| Government grants | 1,200 | 800 |
| Finance lease obligations | 1,800 | 1,600 |
| Current tax | 200 | 2,400 |
| Bank overdraft | - | 1,100 |
| 13,300 | 13,800 | |
| Total capital and liabilities | 39,200 | 44,900 |
| Sh."000" | Sh."000" | |
| Ordinary share capital (Sh.10 each) | 40,000 | |
| 8% Redeemable preference shares | 12,000 | |
| 6% Debentures | 10,000 | |
| Revaluation surplus | 3,400 | |
| Retained earnings (1 July 2020) | 14,100 | |
| Revenue | 283,460 | |
| Inventory (1 July 2020) | 12,400 | |
| Purchases | 147,200 | |
| Distribution costs | 22,300 | |
| Administrative expenses | 34,440 | |
| Interest on debentures | 300 | |
| Interim dividends - Preference | 480 | |
| Interim dividends - Ordinary | 2,000 | |
| Investment income | 1,500 | |
| Land and building (land Sh.16 million) | 56,000 | |
| Plant and equipment (cost) | 55,000 | |
| Furniture and fittings (cost) | 35,000 | |
| Investments at fair value | 34,500 | |
| ccumulated depreciation: | ||
| Building | 8,000 | |
| Plant and equipment | 12,800 | |
| Furniture and fittings | 9,600 | |
| Accounts receivable | 35,950 | |
| Bank | 10,740 | |
| Accounts payable | 17,770 | |
| Deferred tax | 5,200 | |
| Share premium | 7,000 | |
| 435,570 | 435,570 |
| 1. | The sales proceeds include customers' deposits of Sh.4,200,000 which Millennium Ltd. accounted for by debiting bank and crediting sales. |
| 2. | The cost of inventory as at 30 June 2021 was valued at Sh. 16,000,000. This included goods whose cost was Sh.450,000, replacement value Sh.400,000, fair value of Sh.500,000 with a selling cost of Sh.80,000. |
| 3. | The 6% debentures were issued on I October 2020 at par. Interest on debenture is payable semi-annually. |
| 4. | Land and building are carried under the revaluation model as permitted by IFRSs. The most recent valuation took place on 30 June 2019 resulting in the value included in the trial balance above. The revaluation surplus of Sh.3,400,000 resulted solely from the land and building. The building was estimated to have a useful economic life of 50 years as at that date. On 30 June 2021, land was revalued at Sh.18,500,000 and the building at Sh.34,000,000. There was no change in the useful life estimates of the building. Depreciation on building is recognised on a straight line basis. |
| 5. | Other assets are being depreciated as follows:
|
| 6. | A provision for corporation tax of Sh.24,500,000 for the year ended 30 June 2021 is required. |
| 7. | The taxable timing differences for the year amounted to Sh.45,000,000 while the deductible timing differences were Sh.24,000,000. |
| 8. | The directors proposed to pay a final ordinary dividend of 10% on 28 June 2021. |
Required: | |
| (a) | Statement of comprehensive income for the year ended 30 June 2021. |
| (b) | Statement of financial position as at 30 June 2021. |
| Sh."000“ | Sh."000“ | |
| Ordinary share capital (Sh.10 par value) | 560,000 | |
| Share premium | 160,000 | |
| Retained earnings as at 1 April 2020 | 241,560 | |
| Property at cost (land Sh.146 million) | 732,000 | |
| Plant and equipment at cost | 427,000 | |
| Accumulated depreciation as at 1 April 2020: Buildings | 122,000 | |
| Accumulated depreciation as at 1 April 2020: Plant and equipment | 85,400 | |
| Inventory as at 31 March 2021 | 324,500 | |
| Trade receivables | 469,700 | |
| Bank overdraft | 43,100 | |
| Deferred tax | 97,600 | |
| Trade payables | 259,860 | |
| Current tax | 12,800 | |
| Revenue | 2,779,160 | |
| Cost of sales | 2,006,900 | |
| Distribution costs | 164,700 | |
| Administrative expenses | 201,300 | |
| Dividends paid | 24,400 | |
| Bank interest | 10,980 | |
| 4,361,480 | 4,361,480 |
| 1. | On 1 April 2020, the directors of Bawabu Limited resolved that the financial statements would show an improved position if the property was revalued to market value. At that date, an independent valuer valued the land at Sh.160 million and the buildings at Sh. 485 million. The remaining life of the buildings as at that date was 25 years. Bawabu Limited does not make a transfer to retained earnings for excess depreciation. Ignore deferred tax on the revaluation surplus. |
| 2. | Plant and equipment is depreciated at a rate of 15% per annum using the reducing balance method. All depreciation is charged to cost of sales, but none has yet been charged on any non-current assets for the year ended 31 March 2021. |
| 3. | Bawabu Limited estimated that an income tax provisioň of Sh.113.8 million is required for the year ended 31 March 2021. The balance on the current tax in the trial balance represents the under/over provision of the tax liability for the year ended 31 March 2020. As at 31 March 2021, the tax base of Bawabu Limited's net assets was Sh.292 million less than the carrying amounts. The income tax rate of Bawabu Limited is 30%. |
| 4. | Bawabu Limited made a 1 for 5 bonus issue on 31 March 2021, which has not yet been recorded in the books of account. The company intends to utilise the share premium as far as possible in providing for the bonus issue. |
Required: | |
| (a) | Statement of profit or loss for the year ended 31 March 2021. |
| (b) | Statement of financial position as at 31 March 2021. |
| Sh."000" | Sh."000" | |
| Investment at fair value | 5,000 | |
| Land and building (cost) | 12,600 | |
| Leased plant | 10,000 | |
| Motor vehicles (cost) | 18,400 | |
| Accumulated depreciation - Building (1 October 2019) | 2,700 | |
| Accumulated depreciation - Leased plant (1 October 2019) | 2,500 | |
| Accumulated depreciation - Motor vehicles (1 October 2019) | 6,400 | |
| Revenue | 156,000 | |
| Cost of sales | 117,250 | |
| Inventory (30 September 2020) | 20,200 | |
| Distribution cost | 9,750 | |
| Administrative expenses | 13,750 | |
| Retained earnings (1 October 2019) | 2,100 | |
| Finance lease payment | 2,650 | |
| 10% loan stock | 20,600 | |
| Loan stock interest paid | 206 | |
| Receivables and payables | 16,400 | 16,700 |
| Equity dividend paid (1 October 2019) | 3,794 | |
| Obligation under finance lease | 5,500 | |
| Bank | 2,750 | |
| Ordinary share capital (Sh.50 each) | 20,200 | |
| Income tax | 8 | |
| Database costs | 308 | |
| Investment income | 350 | |
| 233,058 | 233,058 |
| 1. | The company had paid a maintenance contract of Sh. 12,000,000 for 3 months from 1 September 2020. The invoice was posted on 1 September 2020 and included in cost of sales. |
| 2. | The leased plant was acquired on 1 October 2018. The rental payments are Sh.2,650,000 per annum for four years payable in arrears on 28 September each year. The interest rate implicit in the lease is 10%. |
| 3. | On checking the inventory figure, it was discovered that an item of inventory with the following valuations was omitted from the inventory valuation that had been used in the trial balance:
|
| 4. | The database costs relate to the development of a new database for the company, which the management consider should be included as an intangible asset. |
| 5. | Included in the trial balance under land and buildings is Sh.4,000,000 for the cost of land which is not being depreciated. The land has a market value of Sh.4,800,000. |
| 6. | Depreciation is to be calculated on a yearly basis as follows: | ||
| Asset | Basis | Inclusion | |
| Building | 5% straight line | Administrative expenses | |
| Motor vehicles | 25% reducing balance | Distribution costs | |
| 7. | Current year tax was estimated at Sh.3.800,000. The Sh.8,000 in the trial balance relates to an overprovision for the previous year. |
| 8. | The loan notes were issued on 1 April 2019 under an agreement that provides for repayment in 2022 at a substantial premium. The loan notes effective interest rate is 8.5% per annum. |
| 9 | Some years back, Samoa Limited gave a guarantee securing Miradi Ltd.'s overdraft. It has recentiy been reported that Miradi Ltd. is in financial difficulties and at the company's year end, the overdraft stood at Sh.100,000. |
Required: | |
| (i) | Statement of comprehensive income for the year ended 30 September 2020. |
| (ii) | Statement of financial position as at 30 September 2020. |
| Sh."000" | Sh."000" | |
| Revenue | 380,000 | |
| Cost of sales | 246,800 | |
| Distribution cost | 17,400 | |
| Administrative expenses | 50,500 | |
| Interest on loan paid | 1,000 | |
| Investment income | 1,300 | |
| Profit on sale of investments | 2,200 | |
| Current tax | 2,100 | |
| Freehold property at cost (1 October 2019) | 63,000 | |
| Plant and equipment at cost | 42,200 | |
| Brand at cost (1 October 2016) | 30,000 | |
| Accumulated depreciation (1 October 2019): | ||
| Building | 8,000 | |
| Plant and equipment | 19,700 | |
| Accumulated amortisation (1 October 2019) | 9,000 | |
| Investment in equity instruments | 26,500 | |
| Inventory (30 September 2020) | 38,000 | |
| Trade receivables | 44,500 | |
| Bank | 8,000 | |
| Trade payables | 42,900 | |
| Ordinary share capital | 52,000 | |
| Retained earnings (1 October 2019) | 26,060 | |
| Other reserves (1 October 2019) | 5,000 | |
| 5% convertible loan notes 2022 | 18,440 | |
| Deferred tax | 5,400 | |
| 570,000 | 570,000 |
| 1. | Baraka Ltd. revenue include Sh. 16 million for goods sold to Chaka Ltd. on 1 October 2019 on sale or return basis. Baraka Ltd. normally makes aprofit margin of 40% on such sales. Chaka Ltd. is yet to confirm the sales. |
| 2. | Administrative expenses include an equity dividend of Sh.1,200,000 paid during the year. |
| 3. | The 5% convertible loan note was issued for proceeds of Sh.20 million on 1 October 2018. It has an effective interest rate of 8% due to the value of its conversion option. |
| 4. | During the year, Baraka Ltd. sold an equity investment for Sh.11 million. At the date of sale, it had a carrying value of Sh.8 million and had originally cost Sh.7 million. Baraka Ltd. has recorded the disposal of the investment. The remaining equity investment (the Sh.26.5 million in the trial balance) have a fair value of Sh.29 million as at 30 September 2020. The other reserve in the trial balance represents the net increase in the value of the equity investments as at 1 October 2019. Baraka Ltd. made an irrevocable decision at initial recognition of these instruments to recognise all changes in fair value through other comprehensive income and makes a transfer of realised profit from the other reserves to income surplus on disposal of the investments. Ignore deferred tax on these transactions. |
| 5. | The balance on the current tax represents the under/over provision of the tax liability for the year ended 30 September 2019. The income tax expense for the year ended 30 September 2020 is estimated at Sh.16.2 million. As at 30 September 2020, the carrying amount of Baraka Ltd. net assets were Sh.13 million in excess of their tax base. The income tax rate of Baraka Ltd. is 30%. |
| 6. | Non current assets: The freehold property has a land element of Sh.13 million. The building element is being depreciated on a straight line basis. Plant and equipment is depreciated at a rate of 40% per annum on reducing balance method. Baraka Ltd.'s brand in the trial balance relates to a product line that received bad publicity during the year which led to falling sales revenues. An impairment review was conducted on 1 April 2020 which concluded that based on estimated future sales, the brand had a value in use of Sh.12 million and a remaining useful life of only three years. However, on the same date as the impairment review, Baraka Ltd. received an offer to purchase the brand for Sh.15 million. Prior to the impairment review of the brand, it was being depreciated using the straight line method over a 10 year life. No depreciation/amortisation has yet been charged on any non current asset for the year ended 30 September 2020. Depreciation, amortisation and impairment charges are all charged to cost of sales. |
| Sh."000" | Sh."000" | |
| Revenue | 68,865 | |
| Inventory | 3,150 | |
| Cost of sales | 35,500 | |
| Selling and distribution expenses | 5,600 | |
| Administration expenses | 8,540 | |
| Interest on loan note | 110 | |
| Investment income | 360 | |
| Bank interest | 85 | |
| Leasehold building at valuation (1 October 2018) | 14,000 | |
| Plant and equipment cost/depreciation | 13,750 | |
| Computer equipment - cost/depreciation | 7,200 | |
| Motor vehicles cost/depreciation | 1,500 | |
| Available for sale investments | 8,700 | |
| Trade receivables | 9,200 | |
| Bank balance | 910 | |
| Trade payables | 3,400 | |
| Deferred tax (1 October 2018) | 2,300 | |
| Ordinary shares of Sh.29 each | 14,500 | |
| 8% loan note (2017-2021) | 2,500 | |
| 10% preference shares (redeemable) | 3,000 | |
| Revaluatio surplus | 800 | |
| General reserve | 1,500 | |
| Retained earnings(1 october 2018) | 3,600 | |
| 107,335 | 107,335 |
| 1 | On 31 March 2019, the company made a bonus issue from retained earnings of one new share for every four shares in issue at Sh. 10 each. This transaction is yet to be recorded in the books. The company paid ordinary dividends of Sh.2.20 per share on 31 January 2019 and Sh.2.60 per share on 30 June 2019. The dividend payments are included in administrative expenses in the trial balance |
| 2 | Interest on loan notes and dividend on preference shares have not yet been accounted for. |
| 3 | Revenue includes Sh.8 million for credit sales made on a "sale or return basis" As at 30 September 2019, customers who had not paid for the goods, had the right to return Sh.2.6 million of them. Tamutamu Industries Ltd. applied a mark up of 30% on all sales. in the past, the company's customers have sometimes returned goods under this type of agreement |
| 4 | Depreciation on property, plant and equipment is to be provided on the following basis, Plant and equipment - 10% on cost charged to cost of sales, computer equipment 25% on cost charged to administrative expenses, motor vehicles-20% on reducing balance charged to selling and distribution expenses. |
| 5 | Tamutamu Ltd revalues its building at the end of each accounting year. At 30 September 2019, the relevant value to be incorporated into the financial statements was Sh.14,100,000. The building's remaining useful life at the beginning of the current year (1 October 2018) was 25 years. Tamutamu Ltd. does not make an annual transfer from the revaluation reserve to retained earnings in respect of the realisation of the revaluation surplus. Depreciation on building is an administrative expense. Ignore deferred tax on the revaluation surplus |
| 6 | The available for sale investments held at 30 September 2019 had a fair value of Sh 8,400,000. There were no acquisitions or disposals of these investments during the year |
| 7 | In February 2019, Tamatamu Ltd's internal audit unit discovered a fraud committed by the company's credit manager who did not return from a foreign business trip. The outcome of the fraud is that Sh. 500,000 of the company's trade receivables have been stolen and are not recoverable. Of this amount, Sh.200,000 relates to the year ended 30 September 2018 and the remainder to the current year. Tumutamu Ltd is not insured against this fraud |
| 8 | Income tax payable on the profit for the year ended 30 September 2019 is esumated to be Sh 3.500.000. Алата af Sh 1,200,000 is to be transferred to the deferred tax account |
| Sh."000" | |
| Interest income | 364,524 |
| Interest expense | (107,571) |
| Net interest income | 256,953 |
| Fees and commission income | 132,374 |
| Fees and commission expense | (24,183) |
| 108,191 | |
| Other income | 9,727 |
| Operating income | 374,871 |
| Impairment charge on loans and advances | (93,492) |
| Operating expenses | (169,317) |
| Profit before tax | 112,062 |
| Income tax expense | (33,617) |
| Profit for the year | 78,445 |
| 2019 Sh."000" | 2018 Sh."000" | |
| Assets: | ||
| Cash and cash equivalents | 577,767 | 752,303 |
| Government securities | 2,037,292 | 1,851,337 |
| Advances to banks | 214,875 | 107,407 |
| Loans and advances to customers | 1,190,782 | 1,145,133 |
| Property and equipment | 139,889 | 123,936 |
| Intangible assets | 18,131 | 12,162 |
| Income tax assets | 6,626 | 5,778 |
| 4,185,362 | 4,004,056 | |
| Equity and liabilities: | ||
| Share capital | 100,000 | 100,000 |
| Retained earnings | 545,238 | 466,793 |
| 645,238 | 566,793 | |
| Labilities: | ||
| Deposits from customers | 3,368,406 | 3,078,071 |
| Other liabilities and provisions | 171,718 | 359,192 |
| 3,540,124 | 3,437,263 | |
| Total equity and liabilities | 4,185,362 | 4,004,056. |
| 1 | Interest income comprised: | Sh."000" |
| Cash and short term funds | 37,652 | |
| Loans and advances | 326,872 | |
| 364,524 |
| During the year, interest received amounted to Sh.131,292,000 while interest paid amounted to Sh.94,578,000. |
| 2 | Interest expense comprised: | Sh."000" | |
| Current and savings account | 57,253 | ||
| Time and other deposits | 38,828 | ||
| Borrowings | 11,490 | ||
| 107,571 | |||
| 3 | Other income comprised: | Sh."000". | |
| Dividends | 9,685 | ||
| Profit on sale of property and equipment | 42 | ||
| 9,727 | |||
| Dividends paid during the year amounted to Sh.4,800,000. | |||
| 4 | Operating expense comprised: | Sh."000" | |
| Staff salaries | 125,160 | ||
| Advertising and marketing expenses | 498 | ||
| Training cost | 4,241 | ||
| Audit fees | 696 | ||
| Directors fees | 1,957 | ||
| Depreciation of property and equipment | 30,688 | ||
| Amortisation of software | 6,077 | ||
| 169,317 | |||
| 5 | Property, plant and equipment movement schedule: | ||
Cost: | 2019 Sh."000" | 2018 Sh."000" | |
| Balance brought forward | 228,657 | 165,128 | |
| Additions | 46,641 | 63,672 | |
| Disposal | 275,178 | 228,657 | |
| Balance carried down | (120) | (143) | |
| Depreciation: | |||
| Balance brought forward | 104,721 | 83,729 | |
| Charge for the year | 30,688 | 21,135 | |
| Released on disposal | (120) | (143) | |
| Balance carried down | 135,289 | 104,721 | |
| Net book value | 139,889 | 123,936 | |
| 6 | Intangible assets: | 2019 | 2018 |
| Cost | Sh."000" | Sh."000" | |
| Balance bought forward | 24,241 | 13,077 | |
| Additions | 12,046 | 11,164 | |
| Balance carried down | 36,287 | 24,241 | |
| Amortisation: | |||
| Balance brought forward | 12,079 | 9,123 | |
| Charge for the year | 6,077 | 2,956 | |
| Balance carried down | 18,156 | 12,079 | |
| Net book value | 18.131 | 12,162 | |
| Sh."000" | Sh."000" | |
| 6% convertible loan notes | 25,000 | |
| Ordinary shares (Sh.10 each) | 61,000 | |
| Retained earnings (1 October 2018) | 177,000 | |
| Revenue | 216,000 | |
| Cost of sales | 108,500 | |
| Distribution costs | 23,600 | |
| Administrative expenses | 44,000 | |
| Inventory (30 September 2019) | 18,750 | |
| Trade and other receivables | 27,300 | |
| Trade and other payables | 23,800 | |
| Finance costs | 6,200 | |
| Investment income | 600 | |
| Current tax | 650 | |
| Deferred tax | 13,900 | |
| Property at cost (Land: Sh.60 million) | 170,000 | |
| Accumulated depreciation (1 October 2018) | 22,000 | |
| Plant and equipment at cost | 56,000 | |
| Accumulated depreciation (1 October 2018) | 18,000 | |
| Bank balance | 76,000 | |
| Investment property | 120,000 | |
| Suspense account | 24,000 | |
| 581,950 | 581,950 |
| 1 | Skytex Limited entered into a contract with a customer where performance obligation is satisfied over time. The total contract price is Sh.45 million, with total expected contract costs of Sh.25 million. Progress towards completion was measured at 50% on 30 September 2018 and at 80% on 30 September 2019. The correct entries were made in the year ended 30 September 2018, but no entries have been made for the year ended 30 September 2019. |
| 2 | On 1 April 2019, Skytex Limited was notified that an ex-employee had initiated court proceedings against them for unfair termination. Legal advice was that there was an 80% chance that Skytex Limited would lose the case and would be required to pay an estimated amount of Sh.5.06 million in damages on 1 April 2020. Based on this advice, Skytex Limited recorded a provision of Sh.4 million on 1 April 2019 and has made no further adjustments. The provision was recorded in administrative expenses and in trade and other payables. Skytex Limited's cost of capital is 10% per annum and the discount factor at 10% for one year is 0.9091. |
| 3 | The company's policy on depreciation is to charge depreciation on building on straight line basis to a nil residual value at the rate of 2% per annum. The plant and equipment should be depreciated on reducing balance basis at the rate of 12.5% per annum. All depreciation should be charged to cost of sales. |
| 4 | The company issued Sh.25 million 6% convertible loan notes on 1 October 2018. Interest is payable annually in arrears. The loan notes can be converted into one share for every Sh.2 of the loan note on 30 September 2020. Similar loan notes, without conversion rights, incur interest at the rate of 8%. Skytex Limited recorded the full amount in liabilities and has recorded the annual interest payment made on 30 September 2019 of Sh.1.5 million in finance costs. Relevant discount factors are as follows: |
| Present value of Sh.1 in: | 6% | 8% | |
| 1 year | 0.943 | 0.926 | |
| 2 years | 0.890 | 0.857 |
| 5 | The balance of current tax in the trial balance relates to an under/overprovision from the prior period. The tax estimate for the year ended 30 September 2019 is Sh.10.5 million. In addition, there has been a decrease in taxable temporary differences of Sh.10 million during the year. Skytex Limited pays tax at the rate of 30% and movements in deferred tax are to be taken to the statement of profit or loss. |
| 6 | On 1 February 2019, Skytex Limited issued 1.5 million ordinary shares at their full market price of Sh.16 per share. The proceeds were credited to a suspense account. |
| 7 | The investment property in the trial balance is stated at fair value as at 30 September 2018. The fair value as at 30 September 2019 amounted to Sh.121.5 million. |
| Sh."000" | Sh."000" | |
| Land and buildings at valuation (1 April 2018) | 468,000 | |
| Plant at cost | 460,800 | |
| Accumulated depreciation (1 April 2018) | 115,200 | |
| Available for sale investments | 95,400 | |
| Investment income | 7,920 | |
| Cost of sales | 321,120 | |
| Distribution costs | 39,600 | |
| Administrative expenses | 45,000 | |
| Debenture interest paid | 2,880 | |
| Inventory (31 March 2019) | 136,440 | |
| Income tax liability | 41,760 | |
| Trade receivables | 126,360 | |
| Revenue | 649,440 | |
| Ordinary shares of Sh.50 (at par value) | 216,000 | |
| Retained earnings (1 April 2018) | 91.800 | |
| 4% debentures | 288,000 | |
| Trade payables | 124,920 | |
| Revaluation surplus (Land and buildings) | 50,400 | |
| Suspense account | 86,400 | |
| Bank | 23,760 | |
| 1,695,600 | 1,695,600 |
| 1 | The 4% debentures were issued on 1 October 2018 under terms that provided for a large premium on redemption in year 2021. The finance officer has calculated that the effect of this is that the debenture has an effective interest rate of 6% per annum. |
| 2 | A provision of Sh.61,560,000 should be made for tax on the profit for the year ended 31 March 2019. |
| 3 | The suspense account contains the corresponding credit entry for the proceeds of a rights issue of shares made on 1 January 2019. The terms of the issue were one share for every four shares held at Sh.80 per share. Sombea Ltd.'s share price immediately before the issue was Sh.100. The issue was fully subscribed. |
| 4 | The fair value of available for sale investments as at 31 March 2019 was Sh.97,560,000. |
| 5 | Sombea Ltd. has a policy of revaluing its land and buildings at each year end. The valuation in the trial balance includes land element of Sh. 108,000,000. The estimated remaining life of the buildings as at that date (1 April 2018) was 20 years. On 31 March 2019, a professional valuer valued the buildings at Sh.331,200,000 with no change in the value of the land. Depreciation on buildings is charged 60% to cost of sales and 20% each to distribution costs and administrative expenses. |
| 6 | During the year, Sombea Ltd. manufactured an item of plant which it was using as part of its own operating capacity. The details of the plant's cost which is included in the cost of sales in the trial balance, are: |
| "Sh.000" | ||
| Material cost | 21,600 | |
| Direct labour cost | 14,400 | |
| Machine time cost | 28,800 | |
| Directly attributable overheads | 21,600 |
| 1 | On 11 July 2018, a fire completely destroyed the company's largest warehouse and the inventory it contained. The carrying amounts of the warehouse and the inventory were Sh.80,000,000 and Sh.50,000,000 respectively. It appears that the company has not updated the value of its insurance cover and only expects to be able to recover a maximum of Sh.70,000,000 from its insurers. Miaka Nenda Ltd's trading operations have been severely disrupted since the fire and it expects significant trading losses for some time to come. |
| 2 | A single class of inventory held at another warehouse was valued at its cost of Sh.9,200,000 as at 30 June 2018. In July 2018, 70% of this inventory was sold for Sh.5,600,000 on which the company's staff earned a commission of 15% of the selling price. |
| 3 | On 10 August 2018, the government announced tax changes which had the effect of increasing the company's deferred tax liability by Sh.7,000,000 as at 30 June 2018. |
| Sh."million" | |
| Revenue | 4,805 |
| Cost of sales | (3,844) |
| Gross profit | 961 |
| Other income | 21 |
| Selling and distribution costs | (283) |
| Administrative expenses | (304) |
| Finance costs | (85) |
| Share of profit of joint venture | 85 |
| Profit before tax | 395 |
| Income tax expense | (80) |
| Profit for the year | 315 |
| Other comprehensive income: | |
| Revaluation gain on property, plant and equipment (net of deferred tax) | 105 |
| Total comprehensive income | 420 |
| Profit for the year: | |
| Attributable to the owners of the parent | 290 |
| Attributable to the owners of the parent | 25 |
| Attributable to the non-controlling interests | 315 |
Assets: | 2018 Sh."million" | 2017 Sh."million" |
| Non-current assets: | ||
| Property, plant and equipment | 2,831 | 2,345 |
| Interest in joint venture | 427 | 380 |
| Goodwill on acquisition | 432 | 455 |
| 3,690 | 3,180 | |
| Current assets: | ||
| Inventory | 170 | 128 |
| Accounts receivable | 238 | 214 |
| Cash and cash equivalents | 78 | 63 |
| 486 | 405 | |
| Total assets | 4,176 | 3,585 |
| Equity and liabilities: | ||
| Equity | ||
| Ordinary share capital | 1,320 | 1,000 |
| Share premium | 460 | 400 |
| Revaluation surplus | 284 | 200 |
| Retained profit | 570 | 360 |
| Owner's equity | 2,634 | 1,960 |
| Non-controlling interests | 186 | 180 |
| 2,820 | 2,140 | |
| Non-current liabilities: | ||
| 10% convertible loan stock | 78 | 960 |
| Deferred tax | 150 | 185 |
| Current liabilities: | ||
| Accounts payable | 234 | 175 |
| Current tax | 92 | 94 |
| Interest payable | 100 | 31 |
| Total equity and liabilities | 4,176 | 3,585 |
| Ordinary share capital Sh."million" | Share premium Sh."million" | Revaluation surplus Sh."million" | Retained profit Sh."million" | Total Sh."million" | |
| As at I October 2017 | 1,000 | 400 | 200 | 360 | 1.960 |
| New share issue | 320 | 60 | 380 | ||
| Revaluation of property,plant and equipment | 84 | 84 | |||
| Profit for the year | 290 | 290 | |||
| Dividend paid | (80) | (80) | |||
| As at 30 September 2018 | 1,320 | 460 | 284 | 570 | 2,634 |
| 1 | The property, plant and equipment account comprised the following: | ||
| 30 September 2018 Sh."million" | 30 September 2017 Sh."million" | ||
| Cost | 3,765 | 2,970 | |
| Accumulated depreciation | (934) | (625) | |
| Carrying amount | 2,831 | 2,345 | |
| During the year ended 30 September 2018, an 80% owned subsidiary revalued its property upwards by Sh.150 million. The holding company disposed of an item of plant which had cost Sh.290 million and had accumulated depreciation of Sh.96 million. The disposal proceeds amounted to Sh.215 million. | |
| 2 | The 10% convertible loan stock was convertible at any time at the holders' option into 20 ordinary shares of Sh.10 each for every Sh.200 of the loan stock. During the year ended 30 September 2018, holders of Sh.180 million of 10% convertible loan stock exercised their conversion option. |
| 3 | Impairment loss on goodwill and depreciation for the year ended 30 September 2018 have been charged profit or loss for the year. |
| 4 | Assume a corporation tax rate of 30%. |
| Sh."000" | Sh."000" | |
| Revenue | 8,700 | |
| Purchases | 1,500 | |
| Production cost | 1,200 | |
| Administrative expenses | 980 | |
| Distribution cost | 370 | |
| Interest on loan | 50 | |
| Research and development | 470 | |
| Land and buildings at valuation (1 November 2017) | 1,700 | |
| Equipment at cost | 4,500 | |
| Investment property at valuation (1 November 2017) | 2,200 | |
| Accumulated depreciation (1 November 2017): | ||
| Buildings | 400 | |
| Equipment | 450 | |
| Intangible asset at cost | 500 | |
| Accumulated amortisation (1 November 2017) | 50 | |
| Inventory (1 November 2017) | 50 | |
| Bank balances | 400 | |
| Trade receivables | 350 | |
| 10% bank loan | 1,000 | |
| Interim dividend paid | 350 | |
| Trade payables | 400 | |
| Corporation tax | 35 | |
| Ordinary share capital | 1,250 | |
| Share premium | 250 | |
| Revaluation reserve (1 November 2017) | 300 | |
| Retained earnings (1 November 2017) | 1,785 | |
| 14,620 | 14,620 |
| 1 | Included in the revenue is a government grant of Sh.150,000 that Safina Ltd. received. The grant relates to the employment of additional staff that is expected during the next financial year. |
| 2 | Research and development expenditure comprises the following:
|
| 3 | Intangible asset at cost relates to a development that was being amortised over a useful life of 10 years. As at 1 November 2017, this was reviewed and the development was then assessed as having a remaining useful life of six years. |
| 4 | The Sh.1,700,000 relating to land and buildings is based on last year's revaluation and includes land at a valuation of Sh.1,000,000. Land has an indefinite useful life. The buildings should be depreciated on the value at the start of the year and the remaining useful life was 20 years as at 1 November 2017. |
| 5 | As at the year end, the directors obtained the following valuations:
|
| 6 | Equipment is depreciated on a straight line basis over 5 years. Safina Ltd. estimates that the equipment is used in the business on the following basis:
|
| 7 | The year end valuation of the investment property was Sh.2,500,000 and Safina Ltd.'s accounting policy is to use the fair value model for investment properties. |
| 8 | The year end inventory was valued at Sh.65,000 but it was subsequently discovered that goods included within this value with a cost of Sh.7,000 were sold for Sh.2,000. |
| 9 | Safina Ltd. took out the bank loan of Sh.1,000,000 on 1 November 2017 which is repayable in four equal annual instalments. The interest rate on the loan is 10% per annum payable semi-annually. |
| 10 | The corporation tax for the previous year was settled in July 2018 and the estimate for corporation tax for the year ended 31 October 2018 is Sh.625,000. |
| 11 | The directors have also discovered that a customer who owed Sh.125,000 as at the year end was declared bankrupt. |
| Sh."000" | Sh."000" | |
| Turnover | 213,800 | |
| Cost of sales | 143,800 | |
| Trade receivables | 13,500 | |
| Bank balance | 900 | |
| Distribution expenses | 9,800 | |
| Inventories (31 October 2017) | 10,500 | |
| Interest expenses | 5,000 | |
| Administrative expenses | 12,600 | |
| Rental income from investment property | 1,200 | |
| Plant and equipment - cost | 36,000 | |
| Land and building - at valuation | 63,000 | |
| Accumulated depreciation - plant and equipment | 16,800 | |
| Investment property - valuation (1 November 2016) | 16,000 | |
| Trade payables | 11,800 | |
| Joint arrangement | 8,000 | |
| Deferred tax | 5,200 | |
| Ordinary shares (Sh.25 each) | 20,000 | |
| 10% redeemable preference shares (Sh.1 each) | 10,000 | |
| Retained earnings - 1 November 2016 | 17,500 | |
| Revaluation surplus | 21,000 | |
| 318,200 | 318,200 |
| 1 | An inventory count on 31 October 2017 listed goods with a cost of Sh.10.5 million. These included some damaged goods that had cost Sh.800,000. These goods would require repair works costing Sh.450,000 after which they could be sold fer an estimated price of Sh.950,000. |
| 2 | Non-current assets:
|
| 3 | Interest expenses include overdraft charges, the full year's preference dividend and an ordinary dividend of Sh.4 per share that was paid in April 2017. |
| 4 | The directors have estimated the provision for income tax for the year ended 31 October 2017 at Sh.8 million. The deferred tax provision as at 31 October 2017 is to be adjusted (through the profit and loss statement) to reflect that the tax base of the company's net assets is Sh.12 million less than their carrying amounts. The tax rate is 30%. |
| 5 | On 1 November 2016, Zambezi Ltd. entered into a joint arrangement with two other entities. Each venturer contributes their own assets and is responsible for their own expenses including depreciation on assets of the joint arrangement. Zambezi Ltd. is entitled to 40% of the joint venture's total turnover. The joint arrangement is not a separate entity and is regarded as a joint operation. |
| Details of Zambezi Ltd.'s joint venture transactions are as follows: | ||
| Sh."000" | ||
| Plant and equipment (at cost) | 12,000 | |
| Share ofjoint venture turnover (40% of total turnover) | (8,000) | |
| Related joint venture cost of sales (excluding depreciation) | 5,000 | |
| Trade receivables | 1,500 | |
| Trade payables | (2,500) | |
| Balance as per trial balance | 8,000 | |
| Sh."000" | Sh."000" | |
| Share capital | 37,500 | |
| General operating expenses | 65,000 | |
| Cash balance | 3,104 | |
| Cash recovered from hire purchase customers | 157,734 | |
| Cash sales | 36,000 | |
| Hire purchase trade receivables (1 October 2016) | 1,134 | |
| Property, plant and equipment | 50,000 | |
| Accumulated depreciation (1 October 2016) | 22,500 | |
| Retained earnings (1 October 2016) | 3,500 | |
| Provision for unrealised profit (1 October 2016) | 504 | |
| Purchases | 171,000 | |
| Trade payables | 40,000 | |
| Inventory (1 October 2016) | 7,500 | |
| 297,738 | 297,738 |
| 1 | The company's policy is to take credit for gross profit including interest for hire purchase sales in proportion to the cash collected. It does this by raising a provision against the profit included in the hire purchase trade receivables not yet due. |
| 2 | The cash selling price is fixed at 50% and the hire purchase selling price at 80% respectively against the cost of goods purchased. |
| 3 | The hire purchase contract requires an initial deposit of 20% of the hire purchase selling price, the balance to be paid in four installments at quarterly intervals. The first installment is due three months after the agreement is signed. |
| 4 | Hire purchase sales for the year amounted to Sh.270,000,000 (including interest). |
| 5 | Depreciation is charged on property, plant and equipment at the rate of 15% per annum on cost. One third of the depreciation relates to cash sales. |
| 6 | Operating expenses are to be apportioned on the basis of cash and hire purchase sales. |
| Sh."000" | Sh."000" | |
| Land | 20,100 | |
| Buildings | 42,600 | |
| Plant and machinery | 216,600 | |
| Accumulated depreciation: Buildings | 6,390 | |
| Plant and machinery | 127,710 | |
| Revenue | 180,030 | |
| Cost of sales | 65,670 | |
| Inventory (30 September 2017) | 6,450 | |
| Distribution costs | 6,690 | |
| Administrative expenses | 11,340 | |
| Income tax | 8,580 | |
| Investment property at fair value (1 October 2016) | 20,340 | |
| Finance cost | 7,020 | |
| 8% redeemable preference shares | 15,000 | |
| 10% debentures | 30,000 | |
| Intangible assets | 34,200 | |
| Trade receivables and trade payables | 8,700 | 5,340 |
| Ordinary shares (each share Sh.20 par value) | 90,000 | |
| Share premium | 6,000 | |
| Retained profit (1 October 2016) | 7,620 | |
| Deferred tax | 8,490 | |
| Bank and cash balances | 1,350 | |
| Investment at fair value | 26,940 | |
| 476,580 | 476,580 |
| 1 | The fair value ofthe investment property on 30 September 2017 was Sh.20,790,000. |
| 2 | Information relating to intangible assets was as follows: |
|
| Cost Sh."000" | Accumulated amortisation Sh."000" | ||
| Development cost on software (it is to be amortised over 5 years) | 25,800 | 15,480 | |
| Patent | 15,600 | - | |
| Research costs | 8,280 | - | |
| |||
| |||
| 3 | The following details are relevant to the property, plant and equipment:
|
| 4 | Savanna Ltd. is also a sales agent for Majani Ltd. and is entitled to a sales commission of 10% on the sales made on behalf of Majani Ltd. The net proceeds obtained from the sales (after deducting the commission) are remitted to Majani Ltd. During the financial year ended 30 September 2017, Savanna Ltd. sold goods worth Sh.20,700,000 on behalf of Majani Ltd. This amount was included in the sales revenue disclosed in the above trial balance. Savanna Ltd. had not remitted the net sales proceeds to Majani Ltd. |
| 5 | Inventory as at 30 September 2017 included partially damaged and slow moving goods. The cost of these goods was Sh.450,000 and they were eventually sold in October 2017 for Sh.128.400. |
| Finance costs comprised: | ||
| Sh."000" | ||
| Interest on debentures | 3,000 | |
| Interim dividends paid on ordinary shares | 4,440 | |
| Dividends paid on redeemable preference shares | 1,200 | |
| Investment income from tax exempt companies | 1,620 | |
| 7,020 |
| 7 | The corporation tax rate is 30%. | |
| 8 | The balance on the income tax in the trial balance represents the amount paid for the year. The tax expense for the year is estimated to be Sh.7,770,000 inclusive of an increase in deferred tax liability of Sh.1,020,000. |
| Sh. "000" | Sh. "000" | |
| Ordinary shares of Sh.10 par value | 100,000 | |
| Share premium | 40,000 | |
| Retained earnings (1 April 2016) | 22,400 | |
| Land and buildings at cost (Land Sh.40 million) | 120,000 | |
| Plant and equipment at cost | 189.000 | |
| Accumulated depreciation: 1 April 2016: Buildings | 40,000 | |
| Plant and equipment | 49,000 | |
| Inventories (31 March 2017) | 87,400 | |
| Trade receivables | 84,400 | |
| Bank balance | 13,600 | |
| Deferred tax | 12,400 | |
| Trade payables | 70,200 | |
| Revenue | 1,100,000 | |
| Cost of sales | 823,000 | |
| Distribution costs | 43,000 | |
| Administrative expenses | 61,800 | |
| Dividends paid | 40,000 | |
| Bank interest | 1,400 | |
| Current tax | 2,400 | |
| 1,450,000 | 1,450,000 |
| 1 | On 1 April 2016, the company's directors decided that land and buildings should be revalued at their market values. At that date, an independent expert valued land at Sh.24 million and buildings at Sh.70 million and these valuations were accepted by the directors. The remaining useful life of buildings on that date was 14 years. The company does not make a transfer to retained earnings for excess depreciation. |
| 2 | Plant and equipment is depreciated at 20% per annum using the reducing balance method and time apportioned as appropriate. Depreciation for the year is yet to be accounted for. |
| 3 | Directors' remuneration amounting to Sh.11 million should be provided for and is classified as administrative cost. |
| 4 | Income tax provision of Sh.54.4 million is required for the year ended 31 March 2017. As at that date, deferred tax liability amounted to Sh.18.8 million. The movement in deferred tax should be taken to profit or loss. The balance on the current tax in the trial balance represents over/under provision of tax liability for the year ended 31 March 2016. |
| 5 | On 1 July 2016, the company made a rights issue of 1 share for every 4 shares at Sh.24 each. Immediately before this issue, the stock market value of the shares was Sh.40 each. |
| Sh."million" | Sh."million" | |
| Land (cost) | 400 | |
| Buildings (cost) | 1,200 | |
| Plant (cost) | 936 | |
| Purchases | 469.2 | |
| Distribution expenses | 60 | |
| Administrative expenses | 33 | |
| Loan interest paid | 12 | |
| Leased plant rental | 132 | |
| Inventory (1 November 2015) | 226.8 | |
| Account receivables | 327.2 | |
| Long-term investment | 540 | |
| Revenue | 1,670.4 | |
| Ordinary share capital (Sh.20 par value) | 900 | |
| Income from investment | 27 | |
| Retained earnings | 717 | |
| 8% debentures | 300 | |
| Dividend paid | 90 | |
| Account payables | 202.4 | |
| Cash in hand | 2 | |
| Deferred tax | 75 | |
| Bank overdraft | 20.4 | |
| Accumulated depreciation: Buildings | 360 | |
| Plant | 156 | |
| 4,428.2 | 4,428.2 |
| Additional information: | |
| 1 | The 8% debentures were issued on 1 January 2016. Interest is payable six months in arrears. |
| 2 | Inventory was valued at Sh.259.2 million as at 31 October 2016. |
| 3 | On 1 November 2015, Peak Ltd. entered into a five year lease agreement for an item of plant. This item had an estimated useful life of five years. The annual rental which was payable in advance with effect from 1 November 2015 was Sh.132 million. The fair value of the plant is Sh.552 million and the implicit interest rate is 10% per annum. |
| 4 | Plant is depreciated at a rate of 15% per annum using the reducing balance method. Depreciation expense is to be included under cost of sales in the income statement. |
| 5 | Land and buildings were revalued on 1 November 2015 at Sh.600 million and Sh.1,050 million respectively. After revaluation, the buildings were estimated to have a useful life of 35 years with nil book value at the end of their economic lives. |
| 6 | The corporate tax for the year ended 31 October 2016 was estimated at Sh.169.8 million. The deferred tax provision as at 31 October 2016 was increased to Sh.84.6 million. |
| Sh."000" | Sh."000" | |
| Ordinary share capital (Sh.10 par value) | 5,000 | |
| Share premium | 2,500 | |
| Retained profits as at I July 2015 | 500 | |
| Sales | 27,200 | |
| Opening inventory | 1,440 | |
| Purchases | 20,160 | |
| Account receivables | 5,030 | |
| Account payables | 576 | |
| Distribution costs | 800 | |
| Administrative expenses | 1,000 | |
| Dividends paid | 1,400 | |
| Furniture and fittings | 3,200 | |
| Motor vehicles | 1,800 | |
| Cash at bank | 810 | |
| Cash at hand | 136 | |
| 35,776 | 35,776 |
| Month | Units |
| June 2016 | 12 |
| July 2016 | 20 |
| August 2016 | 30 |
| Asset | Rate per annum |
| Furniture | 10% |
| Motor vehicles | 20% |
| Sh."000" | Sh."000" | |
| Revenue | 315,000 | |
| Inventory | 32,000 | |
| Raw materials purchased | 150,000 | |
| Production cost | 60,000 | |
| Distribution cost | 12,000 | |
| Administrative expenses | 22,000 | |
| Lease rentals paid | 23,000 | |
| Property, plant and equipment: | ||
| - Cost | 180,000 | |
| - Accumulated depreciation (1 May 2015) | 35,000 | |
| Income tax account | 400 | |
| Deferred tax | 7,200 | |
| Trade receivables | 50,000 | |
| Cash and cash equivalents | 24,800 | |
| Trade payables | 30,000 | |
| Ordinary share capital | 154,000 | |
| Ordinary dividend paid | 30,000 | |
| Retained earnings | 43,000 | |
| 584,200 | 584,200 |
| Cost Sh."000" | Accumulated depreciation Sh."000" | |
| Property | 90,000 | 5,000 |
| Plant and equipment | 90,000 | 30,000 |
| 180,000 | 35,000 |
| Sh. "000" | Sh. "000" | |
| Property, plant and equipment | 28,854 | |
| Interest on loans and advances | 16,790 | |
| Interest on customers deposits | 10,616 | |
| Customers deposits | 164,460 | |
| Share capital | 20,000 | |
| Revaluation reserve | 4,960 | |
| Salaries and wages | 4,368 | |
| Borrowed funds | 7,040 | |
| Directors emoluments | 1,290 | |
| Depreciation on plant and equipment | 1,630 | |
| Other interest income | 860 | |
| Specific provisions for doubtfuldebts | 5,500 | |
| Interest on government securities | 9,536 | |
| Other operating expenses | 3,260 | |
| Repairs and maintenance | 420 | |
| Printing and stationery | 556 | |
| Deposits and placements due from other banks | 17,120 | |
| Loans and advances to customers | 135,310 | |
| Deposits and placements due to other banks | 12,820 | |
| Interest received on deposits and placements with other banks | 7,600 | |
| Other interest expense | 628 | |
| Interest paid on deposits and placements from other banks | 2,560 | |
| Cash and balances with Central Bank | 7,260 | |
| Interim dividends paid | 800 | |
| Bad debts written off | 528 | |
| Share premium | 6,000 | |
| Fees and commission income | 1,528 | |
| Dividend income | 816 | |
| Investment in securities | 10,920 | |
| Miscellaneous accruals | 280 | |
| Government securities | 26,400 | |
| Retained earnings (1 April 2015) | 4,960 | |
| Other assets | 10,600 | |
| 263,150 | 263,150 |
| Sh."000" | |
| Interest on loans and advances | 1,284 |
| Interest on customers deposits | 896 |
| Sh."million" | |
| Interest income - Loans and advances to customers | 5,014 |
| - Finance leases | 4,680 |
| - Government bonds | 2,410 |
| - Deposits with other banks | 1,008 |
| Interest expenses on customer deposits | 2,500 |
| Interest paid on deposits with other banks | 56 |
| Fees and commissions received | 1,864 |
| Foreign exchange commission receivable | 110 |
| Other operating incomes | 1,500 |
| Fees and other expenses | 150 |
| Impairment of loans and advances | 840 |
| Administrative costs | 3,860 |
| General operating expenses | 3,140 |
| Income tax expenses | 2,100 |
| Retained profits (1 October 2014) | 16,640 |
| Cash and balances with Central Bank | 12,800 |
| Deposits and balances due from other banks | 19,200 |
| Government bonds and other securities | 15,410 |
| Loans and advances to customers | 132,270 |
| Other assets | 715 |
| Deferred tax assets | 60 |
| Other investments | 156 |
| Property, plant and equipment | 2,250 |
| Intangible assets | 2,150 |
| Ordinary shares (Sh.10 each) | 5,085 |
| Share premium | 90 |
| Revaluation reserves | 460 |
| Statutory reserves | 1,910 |
| Customer deposits | 150,995 |
| Deposits from other banks | 2,200 |
| Current tax liabilities | 1,145 |
| Other liabilities | 1,100 |
| Deferred tax liabilities | 1,446 |
| Sh."million" | Sh."million" | |
| Revenue | 2,648 | |
| Loan interest paid | 3 | |
| Purchases | 1,669 | |
| Distribution costs | 514 | |
| Administrative expenses | 345 | |
| Interim dividends paid | 6 | |
| Inventory as at 1 January 2014 | 444 | |
| Trade receivables and trade payables | 545 | 434 |
| Cash and cash equivalents | 28 | |
| Ordinary shares (Sh.10 each) | 100 | |
| Share premium | 244 | |
| General reserve | 570 | |
| Retained earnings as at 1 January 2014 | 349 | |
| 4% loan (payable 2024) | 150 | |
| Land and buildings: Cost (Land Sh.60 million) | 380 | |
| Accumulated depreciation | 64 | |
| Plant and equipment: Cost | 258 | |
| Accumulated depreciation | 126 | |
| Investment property as at 1 January 2014 | 548 | |
| Rental income | 48 | |
| Proceeds from sale of equipment | 7 | |
| 4,740 | 4,740 |
| Sh."000" | Sh."000" | |
| Leasehold property at valuation 1 July 2014 | 75,000 | |
| Plant and equipment at cost | 114,900 | |
| Accumulated depreciation - plant and equipment | 36,900 | |
| Capitalised development expenditure 1 July 2014 | 30,000 | |
| Inventory | 30,000 | |
| Trade receivables | 64,650 | |
| Trade payables and provisions | 35,700 | |
| Revenue | 450,000 | |
| Cost of sales | 306,600 | |
| Distribution costs | 21,750 | |
| Administrative expenses | 33,300 | |
| Preference dividend paid | 1,200 | |
| Interest on bank borrowings | 300 | |
| Ordinary dividend paid | 9,000 | |
| Research and development costs | 12,900 | |
| Ordinary shares Sh.1 each | 75.000 | |
| 8% redeemable preference shares | 30,000 | |
| Retained earnings | 36,750 | |
| Deferred tax | 8,700 | |
| Leasehold property revaluation reserve | 15,000 | |
| Accumulated amortisation 1 July 2014 | 9,000 | |
| Bank | 1,950 | |
| 699,000 | 699,000 |