Unit: Financial Reporting
12 Questions| Xcel Ltd. | Yep Ltd. | Zed Ltd. | |
| Non-current assets: | Sh.“million” | Sh.“million” | Sh.“million” |
| Property, plant and equipment | 2,100 | 1,500 | 900 |
| Intangible assets (including patents) | 400 | 300 | 200 |
| Intangible assets (including patents) | 1,400 | - | - |
| Current assets: | |||
| Inventories | 700 | 600 | 240 |
| Trade receivables | 640 | 340 | 160 |
| Financial assets at fair value | 360 | 260 | 240 |
| Bank and cash balance | 200 | 100 | 160 |
| Total assets | 5,800 | 3,100 | 1,900 |
| Equity and liabilities: | |||
| Equity and reserves: | |||
| Ordinary share capital (Sh.20 per share) | 1,600 | 400 | 200 |
| Share premium | 400 | 200 | 100 |
| Retained earnings | 800 | 700 | 500 |
| Shareholders funds | 2,800 | 1,300 | 800 |
| Non-current liabilities: | |||
| 10% debentures | 1,200 | 400 | 400 |
| Deferred tax | 500 | 200 | 100 |
| Current liabilities: | |||
| Trade payables | 600 | 700 | 300 |
| Current tax | 500 | 300 | 200 |
| Proposed dividends | 200 | 200 | 100 |
| Total equity and liabilities | 5,800 | 3,100 | 1,900 |
| 1. | Xcel Ltd. acquired its investments as follows: | ||||
| Company | Number of shares acquired | Cost of investment | Retained earnings | Date of acquisition | |
| Sh.“million” | Sh.“million” | ||||
| Yep Ltd. | 16 million | 960 | 300 | 1 July 2022 | |
| Zed Ltd. | 3 million | 240 | 200 | 1 July 2023 | |
| Xcel Ltd. also invested in half of the 10% debentures of Yep Ltd. The fair value of the non-controlling interest in Yep Ltd. amounted to Sh.240 million. | |||||
| 2. | The group use the full goodwill method. However it does not armotise goodwill, instead goodwill is assessed for impairment annually. Impairment tests for the year ended 30 June 2024 revealed that none of the goodwill is impaired. |
| 3. | Immediately prior to the date of its acquisition, Yep Ltd. revalued its non-current assets in readiness for acquisition as shown below: | |||
| Carrying amount | Fair value | Remaining useful life in years | ||
| Sh.“million” | Sh.“million” | |||
| Equipment | 500 | 580 | 10 | |
| Patents | 300 | 320 | 10 | |
| Equipment and patents are depreciated or amortised on a straight-line basis over their remaining useful life respectively by Xcel Ltd. | |
| 4. | During the year ended 30 June 2024, Xcel Ltd. sold non-current assets to Yep Ltd. for Sh.360 million. Xcel Ltd. marked-up the equipment at the rate of 20% per annum on cost. Yep Ltd. included the equipment in its non-current asset and charged depreciation at the rate of 20% per annum on cost. |
| 5. | During the year ended 30 June 2024, Yep Ltd. sold inventories to Xcel Ltd. for Sh.300 million. Yep Ltd. marked-up these goods at 25% on cost. Half of these goods were still held by Xcel Ltd. at the year end. |
| 6. | Xcel Ltd. owed Yep Ltd. Sh.200 million as at the year end with regards to the transaction in note 5 above. The books of Xcel Ltd. however showed that it owed Yep Ltd. Sh.160 million. Xcel Ltd. had sent a cheque to Yep Ltd. on 24 June 2024 which was not received by Yep Ltd. until 2 July 2024. |
Required: | |
| (a) | Calculate the value of the goodwill arising on acquisition of the investments in Yep Ltd. and Zed Ltd. |
| (b) | Prepare the group statement of financial position as at 30 June 2024. |
| Exchange rates | Pesos to Ksh. |
| 25 April 2024 | 11.16 |
| 16 May 2024 | 10.87 |
| 30 June 2024 | 11.02 |
| 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. |
| Sh.“000” | Sh.“000” | |
| Net profit for the year | 42,800 | |
| Inventory as at 30 June 2024 | 28,400 | |
| Accounts receivable | 23,800 | |
| Accounts payable | 32,700 | |
| Bank overdraft | 6,800 | |
| Property at carrying amount | 72,950 | |
| Plant and machinery at carrying amount | 37,730 | |
| Motor vehicles at carrying amount | 10,580 | |
| Office equipment at carrying amount | 25,240 | |
| Equity investments at fair value | 10,000 | |
| Capital accounts: John | 43,700 | |
| Capital accounts: Kelvin | 28,500 | |
| Capital accounts: Linet | 18,800 | |
| Current accounts: John | 14,790 | |
| Current accounts: Kelvin | 12,960 | |
| Current accounts: Linet | 9,850 | |
| Drawings: John | 4,370 | |
| Drawings: Kelvin | 4,020 | |
| Drawings: Linet | 2,910 | |
| Loan from Kelvin | 9,100 | |
| 220,000 | 220,000 |
| 1. | The purchase consideration on business purchase was agreed at Sh.150 million and the new company issued 15 million ordinary shares of Sh.10 par value each in full satisfaction of the purchase consideration. |
| 2. | Equity investments were taken over by the partners at the new fair value of Sh.18 million and allocated to the partners in their profit and loss sharing ratios. |
| 3. | Loan from partner Kelvin was transferred to the new company at its carrying amount. |
| 4. | Other assets and liabilities of the partnership were taken over by the new company at the following values: |
| 4. | Sh.“000” | |
| Property | 74,560 | |
| Plant and machinery | 35,200 | |
| Motor vehicles | 9,520 | |
| Office equipment | 23,660 | |
| Inventory at book value less 15% | ||
| Accounts receivable at book value less 10% | ||
| Current liabilities at book value |
| 5. | The new company issued two million ordinary shares of Sh.10 each at par value. The proceeds from the issue were utilised to settle the bank overdraft and the loan taken over, with the balance used as working capital. |
Required: The following ledger entries to close off the books of the partnership: | |
| (i) | Realisation account. |
| (ii) | Partners current accounts. |
| (iii) | Partners capital accounts. |
| (iv) | Opening statement of financial position for JKL Limited as at 1 July 2024. |
| Sh.“000” | Sh.“000” | |
| Cash at bank: Client account | 3,720 | |
| Cash at bank: Office account | 8,355 | |
| Furniture, fitting and library books | 6,750 | |
| Insurance expenses | 1,275 | |
| Disbursement on behalf of clients | 13,500 | |
| Accounts payables | 4,080 | |
| Work-in-progress (1 August 2023) | 5,520 | |
| Clients for the money held on their behalf | 3,720 | |
| Cost charged to clients | 37,500 | |
| Communication expenses | 2,730 | |
| Printing and stationery | 5,250 | |
| Rent and rates | 9,000 | |
| Salaries | 10,800 | |
| Drawings | 9,000 | |
| Capital account | 30,600 | |
| 75,900 | 75,900 |
Want to join the discussion?
Log in to post comments and interact with tutors.
Login to Comment