Unit: Advanced Financial Reporting and Analysis
10 Questions| Assets: | Sh."000" | Sh."000" |
| Non-current assets: | ||
| Land and buildings | 3,160 | |
| Plant and machinery | 4,040 | |
| Intangible assets: | ||
| Goodwilm | 1,300 | |
| Development expenditure | 750 | |
| Current assets: | ||
| Inventories | 1,900 | |
| Receivables | 1,700 | 3,600 |
| Total assets | 12,850 | |
| Equity and liabilities: | ||
| Equity: | ||
| Ordinary share capital (Sh.10 par value) | 6,000 | |
| Share premium | 2,000 | |
| Accumulated losses | (2,070) | |
| Shareholders' funds | 5,930 | |
| Current liabilities: | ||
| Trade payables | 1,820 | |
| Bank overdraft | 1,100 | |
| Bank loan (secured on land and buildings) | 4,000 | 6,920 |
| Total equity and liabilities | 12,850 |
| 1 | The existing ordinary shares are to be written down to Sh.4 per share and then consolidated into shares of Sh.10 par. |
| 2 | Existing shareholders are to subscribe to a rights issue of three new shares for every one share held after making the changes in (1) above. The shares are to be issued at Sh.11 each. |
| 3 | The company's major supplier has agreed to convert an amount of Sh.1,000,000 owed to him into fully paid ordinary shares issued at par. |
| 4 | The bank requires immediate payment of the overdraft but has agreed to convert the loan currently payable on demand, into a debenture carrying an interest of 10% per annum payable in full in the next 5 years. |
| 5 | The balances in the accumulated losses and goodwill accounts are to be written off. |
| 6 | Development expenditure is to be written off. |
| 7 | The remaining assets are to be restated to their fair values as follows: Sh. "000" Land and buildings 3,320 Plant and machinery 1,000 Inventories 1,500 Receivables 1,700 |
| 8 | The amount in the share premium account is to be utilised in the capital reduction scheme. |
| 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 |
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 |
| 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. |
| Sh."million" | |
| Plan assets as at 1 December 2016 | 30,540 |
| Plan assets as at 30 November 2017 | 33,384 |
| Current service cost | 420 |
| Post service cost | 270 |
| Employees' contributions | 1,260 |
| Employer's contributions | 360 |
| Benefits paid | 1,080 |
| Foreign exchange losses on plan assets | 600 |
| Dividend income on plan assets invested in shares | 414 |
| Interest income on plan assets invested in bonds | 240 |
| Rental income from benefit plan properties | 166.5 |
| Foreign tax on income from foreign investments | 90 |
| Net profit on disposal of plan investments | 300 |
| Administrative expenses of benefit plan management | 210 |
| General expenses of benefit plan management | 60 |
| Sh."000" | Sh."000" | |
| Revenue | 18,960 | |
| 6% convertible bonds | 3,000 | |
| Cost of sales | 5,670 | |
| Property, plant and equipment | 19,420 | |
| Intangible assets | 1,750 | |
| Administrative expenses | 2,830 | |
| Selling and distribution cost | 1,890 | |
| Provision for damages | 1,200 | |
| Finance cost | 1,560 | |
| Inventories | 4,730 | |
| Trade and other receivables | 1,270 | |
| Ordinary share capital | 5,800 | |
| Trade and other payables | 920 | |
| Retained earnings | 5,410 | |
| Instalment tax paid | 740 | |
| Deferred tax | 270 | |
| Share premium | 1,400 | |
| Revaluation reserve (property, plant and equipment) | 1,500 | |
| Cash in hand | 380 | |
| Financial assets at fair value | 1,250 | |
| Investment income | 120 | |
| Accumulated depreciation (property, plant and equipment) | 2,910 | |
| 41,490 | 41,490 |
| 1 | G Ltd. is also a sales agent for another company, P Ltd. and is entitled to a sales commission of 10% on the sales made on behalf of P Ltd. The net proceeds obtained from the sale (after deducting the commission) are remitted to P Ltd. During the financial year ended 31 March 2018, G Ltd. sold goods worth Sh.2,400,000 on behalf of P Ltd. This amount was included in the sales revenue disclosed in the trial balance. G Ltd. had not remitted the net sales proceeds to P Ltd. as at 31 March 2018. |
| 2 | During the year ended 31 March 2018, G Ltd. incurred Sh.1,750,000 relating to research and development expenditure on a new product. All of this expenditure was capitalised as an intangible asset. The Sh.1,750,000 expenditure was composed of the following costs: |
| Sh."000" | ||
| Background investigation work (1 April 2017-31 May 2017) | 250 | |
| Initial development work (1 June 2017-15 July 2017) | 428 | |
| Second phase development work (16 July 2017-30 November 2017) | 600 | |
| Product launch cost (December 2017) | 316 | |
| Staff training (February 2018) | 156 | |
| 1,750 |
| The product was assessed as being commercially viable on 16 July 2017 and product development was completed on 30 November 2017. The product was launched in December 2017 although the first products were not delivered until April 2018. | |
| 3 | On 1 April 2017, G Ltd. issued Sh.3,000,000, 6% convertible bonds at par. Each bond could be redeemed for cash at par or converted into three ordinary shares on 31 March 2020. The interest due on the bonds was paid on 1 April 2018. The equivalent effective interest rate on similar bonds without the conversion right is 9% per annum. The only accounting entries which had been made as at 31 March 2018 were to recognise the Sh.3,000,000 cash proceeds as a non-current liability. |
| 4 | On 1 January 2018, G Ltd. made a one-off purchase from a supplier in Zebuland. The goods were invoiced in the local currency of Zebuland which is the Zebu (Zb). The purchase was for Sh.2,200,000 and a 120-day credit period was given by the supplier. The purchase was recognised in purchases and payables using the 1 January 2018 spot exchange rate. No other accounting entries have been made. The cash was paid to the supplier on 1 May 2018. The relevant spot exchange rates were as follows:
|
| 5 | Depreciation on property, plant and equipment for the year ended 31 March 2018 has not yet been charged. All depreciation is provided on a straight line basis. Buildings were assessed as having a 40-year useful life and plant and machinery a 15-year useful life with a scrap value of Sh.150,000. The cost of property, plant and equipment as at I April 2017 included: Sh. Land 13,420,000 Building 3,600,000 Plant and machinery 2,400,000 Depreciation on plant and machinery is classified as cost of sales while depreciation on building is classified as administrative expenses. |
| 6 | Selling and distribution expenses included a provision for damages payable to a customer whose order had not been delivered on time. A provision for damages amounting to Sh.1,200,000 had been made. This provision is to be reversed. |
| 7 | The current year's tax is estimated at Sh.980,000. The net taxable temporary differences amount to Sh.840,000. |
| 8 | The applicable tax rate is 30%. |
Required: The following statements in a form suitable for publication: | |
| (a) | Statement of comprehensive income for the year ended 31 March 2018. |
| (b) | Statement of changes in equity for the year ended 31 March 2018. |
| (c) | Statement of financial position as at 31 March 2018. |
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