CPA Advanced Financial Reporting and Analysis August 2026 Past Paper with Answers (PDF)

1

Preparation of Financial Statements for Interests in Other entities

Silverbridge Ltd. is a Public Limited Company incorporated and listed in Kenya. On 1 January 2025, Silverbridge Ltd. acquired an 80% equity interest in Copperleaf Ltd., a company incorporated in Botswana. Copperleaf Ltd. has the Botswana Pula (BWP) as its functional currency while Silverbridge Ltd. presents its consolidated financial statements in Kenya Shillings (Sh.).

Both companies prepare their financial statements in accordance with International Financial Reporting Standards. The draft financial statements for the year ended 31 December 2025 are set out below:

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

	Silverbridge Ltd.	Copperleaf Ltd.
	Sh.“million”	Sh.“million”
Revenue	3,600	1,720
Cost of sales	(1,620)	(1,030)
Gross profit	1,980	690
Distribution costs	(260)	(150)
Administrative expenses	(520)	(210)
Operating profit	1,200	330
Investment income	40	-
Finance costs	(120)	(40)
Profit before tax	1,120	290
Income tax expense	(280)	(50)
Profit for the period	840	240

Statements of financial position as at 31 December 2025:

	Silverbridge Ltd.	Copperleaf Ltd.
	Sh.“million”	BWP “million”
Assets:
Non-current assets:
Property, plant and equipment	7,200	1,820
Investment in Copperleaf Ltd.	11,232	-
	18,432	1,820
Current assets:
Inventory	2,000	560
Trade receivables	1,500	430
Cash and cash equivalents	568	160
	4,068	1,150
Total assets	22,500	2,970
Equity and liabilities:
Equity:
Ordinary share capital	5,000	700
Share premium	1,000	-
Retained earnings	8,200	660
Total equity	14,200	1,360
Non-current liabilities:
Long-term borrowings	4,000	720
Deferred tax	1,800	280
	5,800	1,000
Current liabilities:
Trade payables	1,700	410
Current tax	800	200
	2,500	610
Total equity and liabilities	22,500	2,970

Additional information:

1.

On 1 January 2025, Silverbridge Ltd. acquired 80% of Copperleaf Ltd. for a cash consideration of BWP 1,248 million. The investment was recorded in the books of Silverbridge Ltd. at the exchange rate ruling on the acquisition date.

2.

At the acquisition date, the retained earnings of Copperleaf Ltd. amounted to BWP 420 million. The ordinary share capital of Copperleaf Ltd. has not changed since the acquisition date.

3.

At the acquisition date, the carrying amounts of Copperleaf Ltd.'s identifiable net assets approximated their fair values, except for an item of specialised plant whose fair value exceeded its carrying amount by BWP 240 million. The plant had a remaining useful life of eight (8) years at the acquisition date. The fair value adjustment has not been recorded in the individual financial statements of Copperleaf Ltd.

4.

Silverbridge Ltd. measures non-controlling interest at fair value. The fair value of the non-controlling interest in Copperleaf Ltd. at 1 January 2025 was BWP 312 million.

5.

Goodwill arising on the acquisition of Copperleaf Ltd. was impaired by BWP 25 million during the year ended 31 December 2025. The impairment loss should be translated at the average exchange rate for the year.

6.

Copperleaf Ltd. did not pay any dividend during the year ended 31 December 2025.

7.

The relevant exchange rates were as follows:

Date	Exchange rate
1 January 2025	BWP 1 = Sh.9
Average for the year ended 31 December 2025	BWP 1 = Sh.10
31 December 2025	BWP 1 = Sh.11

Required:

(a)

Determine the exchange differences arising on the retranslation of the net assets and goodwill of the foreign subsidiary.

(b)

Prepare the consolidated statement of profit or loss and other comprehensive income for the year ended 31 December 2025.

(c)

Prepare the consolidated statement of financial position as at 31 December 2025.

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2

Analysing Financial Statements

Sweetfield Consumer Products Ltd. manufactures and distributes consumer goods in East Africa. The chief finance officer reviews operating results by division. Management has identified seven operating segments. The following information was extracted from the internal reports submitted to the chief finance officer for the year ended 31 December 2025:

Operating segment	External revenue	Intersegment revenue	Segment profit/(loss)
	Sh.“million”	Sh.“million”	Sh.“million”
Milling	4,800	600	780
Bakery	3,900	200	420
Dairy	2,200	100	(180)
Beverages	1,800	50	220
Frozen foods	980	20	(260)
Online retail	620	-	40
Animal feeds	700	80	95
Total	15,000	1,050	1,115

Operating segment	Segment assets	Segment liabilities	Additions to non-current assets	Depreciation
	Sh.“million”	Sh.“million”	Sh.“million”	Sh.“million”
Milling	4,200	1,650	530	260
Bakery	2,850	1,100	350	190
Dairy	1,500	760	180	110
Beverages	1,220	510	140	75
Frozen foods	940	430	85	60
Online retail	520	180	65	35
Animal feeds	650	240	75	42
Total	11,880	4,870	1,425	772

Additional information:

1. Intersegment sales are made at normal market prices.

2. Segment profit or loss is measured before unallocated corporate expenses, finance costs and income tax.

3. Unallocated corporate expenses for the year amounted to Sh. 310 million.

4. Finance costs for the year amounted to Sh.180 million.

5. Income tax expense for the year amounted to Sh.360 million.

6. Unallocated corporate assets amounted to Sh.1,420 million.

7. Unallocated corporate liabilities amounted to Sh.1,250 million.

8. Intersegment receivables and payables amounting to Sh.430 million are included in segment assets and segment liabilities respectively and are eliminated in the financial statements.

9. There are no differences between the measurement bases used in the internal segment reports and those used in the financial statements, except for the eliminations and unallocated items stated above.

Required:

(a) Determine the reportable operating segments of Sweetfield Consumer Products Ltd. in accordance with IFRS 8 “Operating Segments”, applying the revenue, profit or loss and asset tests.

(b) Prepare the quantitative segment information to be disclosed for the reportable segments for the year ended 31 December 2025. Non-reportable segments should be aggregated as “Other segments”.

(c) Prepare reconciliations of the following segment amounts to the corresponding amounts in the financial statements of Sweetfield Consumer Products Ltd.:

(i) Revenue.

(ii) Profit before tax.

(iii) Total assets.

(iv) Total liabilities.

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3a

Accounting for Assets and Liabilities

Clearview Properties Ltd. owns an office building with a carrying amount of Sh.96 million. On 1 January 2025, Clearview Properties Ltd. sold the building to Meadow Bank Ltd. for Sh.150 million, which was equal to its fair value, and immediately leased it back for eight (8) years. Lease rentals of Sh.22 million are payable annually in arrears. The present value of the lease payments at Clearview Properties Ltd.'s incremental borrowing rate of 10% was Sh.110 million. Clearview Properties Ltd. depreciates right-of-use assets on a straight-line basis over the lease term.

Required:

Explain the accounting treatment of the sale and leaseback transaction for the year ended 31 December 2025 as per IFRS 16 -Leases.

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3b

Accounting for Assets and Liabilities

Hodi Ltd. is preparing its financial statements for the Year of Income 2025. The directors have provided the following information for deferred tax purposes. The corporate tax rate applicable to Hodi Ltd. is 30%.

	Carrying amount	Tax base
	Sh. “million”	Sh. “million”
Property, plant and equipment	480	360
Development costs capitalised	60	Nil
Warranty provision	24	Nil
Fair Value Through Other Comprehensive Income (FVOCI) equity investment	52	40
Revalued land	100	70

Additional information:

1. Tax depreciation differs from accounting depreciation.

2. The full amount was allowed for tax purposes in 2025.

3. The expenditure is deductible when paid.

4. The gain is recognised in other comprehensive income.

5. The revaluation gain is recognised in other comprehensive income.

At 1 January 2025, Hodi Ltd. had a deferred tax liability of Sh. 38 million, of which Sh.8 million related to items recognised in other comprehensive income.

Required:

Calculate the deferred tax liability as at 31 December 2025 and analyse the deferred tax charge or credit to be recognised in profit or loss and in other comprehensive income for the year ended 31 December 2025 in accordance with IAS 12 - Income Taxes.

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4

Preparation of Financial Statements for other entities

Maple Bank Ltd. is a licensed commercial bank. The bank prepares its financial statements in accordance with International Financial Reporting Standards.

The following trial balance was obtained from the books of Maple Bank Ltd. for the year ended 31 December 2025, before making the final year-end adjustments:

	Debit Sh.“million”	Credit Sh.“million”
Cash and balances with the Central Bank	1,200	-
Loans and advances to customers (gross)	8,400	-
Treasury bills measured at amortised cost	1,600	-
Trading securities measured at fair value through profit or loss	900	-
Property and equipment (net book value)	1,100	-
Customer deposits	-	8,900
Borrowings from other financial institutions	-	1,200
Ordinary share capital	-	1,000
Retained earnings as at 1 January 2025	-	1,670
Loss allowance on loans and advances before final adjustment	-	180
Interest income on loans and advances	-	1,260
Interest income on Treasury bills	-	180
Interest expense on customer deposits and borrowings	560	-
Fee and commission income	-	420
Net trading income before year-end fair value adjustment	-	90
Staff costs	420	-
Other operating expenses	310	-
Depreciation expense	90	-
Dividends paid during the year	180	-
Income tax paid during the year	150	-
Current tax payable as at 1 January 2025	-	80
Other assets	320	-
Other liabilities	-	250
Total	15,230	15,230

Additional information:

1. As at 31 December 2025, the expected credit loss allowance required on loans and advances to customers was estimated at Sh.360 million. The loss allowance on loans and advances as at 1 January 2025 was Sh.240 million.During the year, loans amounting to Sh.60 million were written off against the allowance. The write-off has already been reflected in the trial balance, but no final impairment charge has yet been recorded for the year ended 31 December 2025.

2. The Treasury bills measured at amortised cost were assessed as low credit risk at 31 December 2025. The expected credit loss allowance required on these Treasury bills was Sh.12 million. No loss allowance had previously been recognised on the Treasury bills.

3. The trading securities measured at fair value through profit or loss had a fair value of Sh.960 million at 31 December 2025. The year-end fair value adjustment has not yet been recorded.

4. Income tax expense for the year ended 31 December 2025 is estimated at Sh.300 million. The income tax paid during the year should be offset against the final tax liability.

5. Ignore deferred tax. All amounts should be shown to the nearest Sh.1 million.

Required:

(a) Calculate the impairment charge to be recognised in profit or loss for the year ended 31 December 2025.

(b) Prepare the statement of profit or loss for Maple Bank Ltd. for the year ended 31 December 2025.

(c) Prepare the statement of financial position of Maple Bank Ltd. as at 31 December 2025.

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5

Other Reports and Emerging Issues in Financial Reporting Preparation of Financial Statements for Interests in Other entities Public Sector Accounting Standards

(a) The International Sustainability Standards Board (ISSB) develops sustainability disclosure standards intended to meet the information needs of capital providers.

Required:

Explain FOUR functions of the ISSB in enhancing sustainability-related financial disclosures by reporting entities.

(b) Greenfield Retail Ltd. prepares interim financial reports in accordance with IAS 34 (Interim Financial Reporting).

The company is preparing its half-year interim financial report for the six months ended 30 June 2026. The following matters have arisen:

Inventory with a cost of Sh.80 million had a net realisable value of Sh.68 million at 30 June 2026.Management expects the net realisable value to recover before 31 December 2026.
The company normally earns 65% of its annual revenue in the last quarter of each financial year due to seasonal trading patterns.
On 20 June 2026, the board approved a restructuring plan and publicly announced the closure of two branches. The estimated restructuring cost is Sh.24 million.

Required:

Explain how each of the above matters should be treated in the interim financial report for the six months ended 30 June 2026.

(c) Sterling Manufacturing Ltd. is preparing its management commentary and sustainability-related disclosures for the year ended 30 June 2026. The directors intend to emphasise non-financial indicators showing improvement in emissions intensity, but to omit discussion of litigation by a county government relating to alleged waste discharge

from one of its factories.

Required:

Evaluate THREE financial reporting risks arising from the directors' proposed approach.

(d) A state corporation operates a toll bridge on commercial terms and prepares accrual-based financial statements in accordance with IPSAS. The toll bridge is treated as a cash-generating asset. During the year ended 30 June 2026,the traffic volumes and tariff collections fell below budget.

Required:

With reference to IPSAS 26 - Impairment of Cash-Generating Assets, evaluate TWO indicators that could be considered when testing the toll bridge for impairment.

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CPA Advanced Financial Reporting and Analysis – August 2026 Past Paper & Answers

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CPA Advanced Financial Reporting and Analysis – August 2026 Past Paper & Answers

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