FRA April 2025 Past Paper & PDF Solutions

1a

Preparation of Published Financial Statements

With reference to International Accounting Standard (IAS) 10 “Events After the Reporting Period” explain the accounting treatment of ‘Adjusting events’ and ‘Non-adjusting events’ cite two examples of these events in each case.

1b

Accounting for Assets and Liabilities

In the context of International Accounting Standard (IAS) 16 “Property, Plant and Equipment” discuss the accounting treatment of revaluation gains and revaluation losses on property, plant and equipment at revalued amount.

1c

Public Sector Accounting Standards Accounting for Assets and Liabilities

In view of International Public Sector Accounting Standard (IPSAS) 19 “Provisions, Contingent Liabilities and Contingent Assets” describe THREE conditions that must be met before a provision can be recognised.

1d

Preparation of Published Financial Statements Accounting for Assets and Liabilities Analysing Financial Statements

International Financial Reporting Standard (IFRS) 5 “Non-current asset held for sale and discontinued operations” provides guidance on the accounting treatment of discontinued operations and non-current assets held for sale.

Required:

(i) With reference to IFRS 5, explain the meaning of discontinued operations.

(ii) Discuss the IFRS 5 criteria which must be satisfied in order for a non-current asset to be classified as held for sale.

2a

Preparation of Financial Statements for different entities/Transaction

Distinguish between “government grants” and “government assistance” as per International Accounting Standard (IAS) 20 “Government grants”.

2b

Analysing Financial Statements

Venture Capital presented the following financial statements of Brook Limited for analysis:

Brook Limited

Income statement for the year ended 31 December 2024:

	Sh.“000”
Revenue	6,514,978
Cost of sales	(1,680,408)
Gross profit	4,834,570
Less expenses:
Salaries and wages	2,072,010
Rent and rates	246,934
Other administrative expenses	1,567,938
Total operating expenses	3,886,882
Profit before interest, tax, depreciation and amortisation	947,688
Less depreciation and amortisation	(312,736)
Earnings before interest and tax	634,952
Finance costs	(62,178)
Profit before tax	572,774
Less income tax	(171,284)
Profit after tax	401,490

Brook Limited

Statement of financial position for the year ended 31 December:

	2023	2024
Non-current assets:	Sh.“000”	Sh.“000”
Land and buildings	3,389,440	3,549,100
Plant and equipment	1,236,168	1,326,944
Motor vehicles	30,002	47,930
	4,655,610	4,923,974
Accumulated depreciation	(2,591,522)	(2,837,670)
Total non-current assets	2,064,088	2,086,304
Goodwill	433,210	505,580
	2,497,298	2,591,884
Current assets:
Inventory	134,046	141,118
Trade receivables	93,176	87,888
Cash	147,266	124,542
Total current assets	374,488	353,548
Total assets	2,871,786	2,945,432
Financed by:
Equity and liabilities:
Equity :
Ordinary share capital	1,015,472	1,025,470
Retained earnings	(1,172,392)	(1,451,668)
	(156,920)	(426,198)
Non-current liabilities:
Loan notes	1,941,650	2,227,898
Current liabilities:
Trade payables	824,224	854,320
Accrued expenses	262,832	289,412
	1,087,056	1,143,732
Total equity and liabilities	2,871,786	2,945,432

Required:

(i) Vertical analysis on the statement of profit or loss for the year ended 31 December 2024.

(ii) Horizontal analysis on the statement of financial position.

3

Accounting and Financial Statements for Interests in Other Entities

On 1 January 2024, Pull Limited acquired an 80% controlling interest in Shape Limited when the retained earnings of Shape Limited amounted to Sh.3,200,000. The acquisition consideration consisted of an immediate cash payment of Sh.12,000,000 on 1 January 2024 and a further cash payment of Sh.12,100,000 deferred until 1 January 2026. Pull Limited has a cost of capital of 10%.

No accounting entries have been made in respect of the deferred cash consideration.

Pull Limited also acquired 50% of the equity interest in Jolty Limited and obtained joint control over Jolty Limited on 1 January 2024. The purchase consideration comprised an immediate cash payment of Sh.10,000,000 on 1 January 2024. The retained earnings of Jolty Limited stood at Sh.2,500,000 on 1 January 2024.

The following are draft statements of financial position of the three companies as at 31 December 2024:

	Pull Limited	Shape Limited	Jolty Limited
Assets	Sh.“000”	Sh.“000”	Sh.“000”
Non-current assets:
Property, plant and equipment	36,400	18,500	14,600
Investments:
- Shape Limited	12,000	-	-
- Jolty Limited	10,000	-	-
	58,400	18,500	14,600
Current assets:
Inventory	21,400	13,000	10,200
Trade receivables	18,500	11,400	8,900
Cash and cash equivalents	12,700	8,100	6,300
	52,600	32,500	25,400
Total assets	111,000	51,000	40,000
Equity and liabilities:
Equity
Ordinary share capital (Sh.10 par value)	50,000	20,000	15,000
Share premium	5,000	2,000	1,500
Retained earnings	13,200	6,100	3,800
Total equity	68,200	28,100	20,300
Non-current liabilities:
Long-term borrowings	18,000	8,500	7,500
Current liabilities:
Trade payables	16,300	9,500	7,900
Current tax	8,500	4,900	4,300
	42,800	22,900	19,700
Total equity and liabilities	111,000	51,000	40,000

Additional information:

At the date of acquisition, the fair value of Shape Limited’s net assets approximated their carrying amounts, with the exception of some plant whose fair value was Sh.1,000,000 above its carrying amount. At this date, the plant had a remaining economic useful life of five years. No fair value adjustment was necessary in respect of Jolty Limited.
Pull Limited measures goodwill and the non-controlling interest using the fair value method. The fair value of the non-controlling interest of Shape Limited was Sh.5,700,000 at the date of acquisition.
During the year ended 31 December 2024, Shape Limited sold goods to Pull Limited for Sh.4,500,000 at a mark-up on cost of 25%. One third (⅓) of these goods were still held by Pull Limited at 31 December 2024 and the balance payable was still outstanding.
Impairment review performed on 31 December 2024 revealed that goodwill arising from the acquisition of Shape Limited had been impaired to the extent of 10%. The interest in Jolty Limited was unimpaired.

Required:

(a) Calculate the value of goodwill arising on acquisition of Shape Limited as at 31 December 2024.

(b) Determine the value of interest in Jolty Limited as at 31 December 2024.

(c) Prepare the consolidated statement of financial position for Pull Group as at 31 December 2024.

4a

Public Sector Accounting Standards

With reference to International Public Sector Accounting Standard (IPSAS) 4 “The effects of changes in foreign Exchange Rates”, explain the term “functional currency”.

4b

Accounting for Specialized Transactions Accounting for Assets and Liabilities Preparation of Published Financial Statements

On 1 January 2021, Trends Limited issued Sh.20,000,000 8% loan notes at a discount of 5%. The issue costs amounted to Sh.1,000,000.

The loan notes were redeemable on 31 December 2024 at a premium of Sh.1,130,000. The effective rate of interest was therefore 12.5% per annum.

Required:

With suitable calculations, illustrate the accounting treatment of the above transactions from 1 January 2021 to 31 December 2024 in the financial statements of Trends Limited in accordance with International Financial Reporting Standard (IFRS) 9 “Financial Instruments: Recognition and Measurement”.

(Round your answers to the nearest one thousand).

4c

Accounting for Specialized Transactions

Elite Ltd., operates a pension scheme for its employee by the name Smart Retirement Benefit Scheme. The following trial balance was extracted from the books of the scheme as at 31 December 2024:

	Sh.“000”	Sh.“000”
Normal contribution by:
Elite Ltd. (Employer)		36,480
Employees		18,240
Transfer in from other scheme		3,150
Individual transfers out to other schemes	1,860
Investment income		47,400
Property, plant and equipment	132,320
Government securities (long-term)	263,605
Member’s voluntary contribution		4,560
Pension	7,640
Equity investment: Quoted	87,835
Equity investment:.Unquoted	19,990
Unpaid benefits		320
Accumulated fund as at 1 January 2024		461,560
Accrued expenses		240
Administrative expenses	2,840
Cash and demand deposits	23,460
Change in market value of investments	22,640
Lumpsum retirement benefits	4,820
Contributions due in 30 days	4,940
	571,950	571,950

Required:

(i) Statement of changes in net assets for Smart Retirement Benefit Scheme for the year ended 31 December 2024.

(ii) Smart Retirement Benefit Scheme statement of net assets as at 31 December 2024.

5a

Accounting for Assets and Liabilities

With reference to International Accounting Standard (IAS) 12 “Income Taxes”, describe the bases of measurement for current tax liabilities and deferred tax liabilities.

5b

Preparation of Financial Statements for different entities/Transaction

The following draft financial statements were extracted from the financial records of Bestway Limited as at 31 December 2024 with comparatives for the year ended 31 December 2023:

Statement of financial position as at 31 December:

Assets:	2024	2023
Non-current assets:	Sh.“000”	Sh.“000”
Property, plant and equipment	92,600	74,900
Intangible assets	13,500	12,300
	106,100	87,200
Current assets:
Inventory	28,600	24,890
Trade receivable	18,460	14,160
Cash and cash equivalent	2,200	1,020
	49,260	40,070
Total assets	155,360	127,270
Equity and liabilities:
Ordinary share capital (Sh.10 per share)	15,000	12,000
Share premium	2,700	2,100
Revaluation surplus	5,100	-
Retained earnings	76,530	71,960
	99,330	86,060
Non-current liabilities:
10% loan notes (2028)	16,500	10,500
Government grants	6,300	4,800
Deferred tax	3,840	1,620
Current liabilities:
Trade payables	22,400	17,540
Current tax	5,370	5,550
Government bonds	1,620	1,200
	155,360	127,270

Statement of profit or loss and other comprehensive income for the year ended 31 December 2024:

	Sh.“000”
Revenue	113,100
Cost of sales	(89,720)
	23,380
Other operating income – government grant	1,500
	24,880
Other operating expenses	(6,690)
	18,190
Finance cost	(1,410)
Profit before tax	16,780
Income tax expenses	(5,310)
Profit after tax	11,470
Other comprehensive income
Gain on property revaluation	5,100
Total comprehensive income for the year	16,570

Additional information:

During the year ended 31 December 2024, motor vehicle with a cost of Sh.5.26 million with accumulated depreciation of Sh.2.33 million was disposed for a cash proceeds of Sh.4.020 million. The gain on disposal has been included in the other operating income.
Bestway Limited acquired new plants during the year ended 31 December 2024 at a cost of Sh.3.6 million from a financing company. An arrangement was made at the date of acquisition for the liability for the plant to be settled by Bestway Limited issuing at par a 10% loan note dated 2028 to the finance company. The value by which the loan note exceeded the liability for the plant was received from the finance company in cash.
Depreciation charged on property, plant and equipment during the year was Sh.10.98 million and was included in the cost of sales.
Intangible assets were amortised during the year and amortisation charged to the profit and loss amounted to Sh.1,080,000.
During the year ended 31 December 2024, Bestway Limited made a bonus issue of ordinary shares of one new share for every ten shares held utilising the share premium account.

Required:

Statement of cash flows for Bestway Limited for the year ended 31 December 2024 using indirect method in accordance with International Accounting Standard (IAS) 7 “Statement of Cash Flows”.

April 2025

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