KASNEB Financial Reporting - Question 2

The following trial balance was extracted from the books of Bakers Components Limited as at 31 December 2025: Sh.“000”Sh.“000”Property, plant and equipment - ... [Click to view full question and step-by-step solution]

KASNEB Financial Reporting - Question 4b

The following information relates to Tumaini Manufacturing Limited for the year ended 30 June 2026: ParticularsSh.“000”Revenue 84,000Gross profit 21,000Curren... [Click to view full question and step-by-step solution]

KASNEB Financial Reporting - Question 5

The following financial statements relate to Boresha Packaging Limited: Statement of profit or loss for the year ended 30 June 2026: Sh.“000”Revenue960,000Cos... [Click to view full question and step-by-step solution]

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

Q: KASNEB Financial Reporting - Question 1

(a) With reference to IFRS 6 'Exploration for and Evaluation of Mineral Resources', give FOUR examples of expenditure that may be included in the initial meas... [Click to view full question and step-by-step solution]

1

Accounting for Assets and Liabilities Public Sector Accounting Standards

(a) With reference to IFRS 6 "Exploration for and Evaluation of Mineral Resources", give FOUR examples of expenditure that may be included in the initial measurement of exploration and evaluation assets.

(b) IAS 40 “Investment Property” permits entities to use either the fair value model or the cost model after initial recognition.

Required:

(i) Explain the accounting treatment of gains and losses arising under the fair value model.

(ii) Explain TWO disclosures required where an entity applies the cost model for investment property.

(c) In the context of IFRS 9 “Financial Instruments”, distinguish between financial assets measured at amortised cost and those measured at fair value through other comprehensive income.

(d) IPSAS 23 “Revenue from Non-exchange Transactions" provides guidance on taxes and transfers.

Required:

(i) Explain the meaning of a non-exchange transaction.

(ii) Describe TWO circumstances in which a liability is recognised in respect of a transfer received.

(e) Kito County Referral Hospital is preparing its financial statements for the year ended 30 June 2026. The hospital has a legal claim from a former supplier. The hospital lawyers advise that it is probable that the hospital will lose the case and the amount can be estimated reliably at Sh.18 million. A separate claim against the hospital from

another contractor is possible but not probable and the amount cannot be estimated reliably.

Required:

Advise the hospital on the accounting treatment of the two claims in accordance with IPSAS 19 “Provisions, Contingent Liabilities and Contingent Assets”.

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2

Preparation of Published Financial Statements

The following trial balance was extracted from the books of Bakers Components Limited as at 31 December 2025:

	Sh.“000”	Sh.“000”
Property, plant and equipment - cost	280,000	-
Accumulated depreciation - 1 January 2025	-	80,000
Right-of-use asset - cost	45,000	-
Lease liability - 1 January 2025	-	38,000
Investment property	90,000	-
Inventories - 1 January 2025	52,000	-
Trade receivables	86,000	-
Expected Credit Loss - 1 January 2025	-	3,400
Bank	30,600	-
Purchases	350,000	-
Distribution expenses	42,000	-
Administrative expenses	88,000	-
Finance costs	4,800	-
Dividend paid	12,000	-
Income tax paid	20,000	-
Ordinary share capital	-	100,000
Share premium	-	20,000
Retained earnings - 1 January 2025	-	74,000
Revaluation surplus - 1 January 2025	-	10,000
8% loan notes	-	60,000
Deferred tax - 1 January 2025	-	12,000
Trade payables	-	65,000
Deferred government grant	-	18,000
Revenue	-	620,000
Total	1,100,400	1,100,400

Additional information:

1. Closing inventory at cost amounted to Sh.58,000,000. This included obsolete components which cost Sh.6,000,000 but had a net realisable value of Sh.4,200,000.

2. Property, plant and equipment includes land carried at Sh.80,000,000. On 31 December 2025, the land was revalued to Sh.95,000,000. The remaining property, plant and equipment is depreciated at 10% per annum on cost.

Depreciation is charged to administrative expenses.

3. The right-of-use asset relates to equipment leased on 1 January 2025 for five years. The annual lease payment of Sh.10,000,000 was debited to administrative expenses. The interest rate implicit in the lease is 10% per annum.

4. The deferred government grant relates to plant acquired on 1 January 2024 and is released to profit or loss over five years on a straight-line basis.

5. The investment property had a fair value of Sh.96,000,000 on 31 December 2025.

6. Trade receivables include a credit-impaired receivable of Sh.4,000,000 which should be written off. The expected credit losses should be adjusted to 5% of the remaining trade receivables.

7. The current tax charge for the year is estimated at Sh.18,000,000. The deferred tax liability at 31 December 2025 is estimated at Sh.15,000,000.

8. Revenue includes Sh.5,000,000 received from a customer for goods that had not been delivered by 31 December 2025. The amount has not yet been adjusted.

9. On 20 December 2025, the directors declared a final ordinary dividend of Sh.8,000,000 payable on 31 January 2026.

The dividend had not been recorded.

Required:

(a) Statement of profit or loss and other comprehensive income for the year ended 31 December 2025.

(b) Statement of changes in equity for the year ended 31 December 2025.

(c) Statement of financial position as at 31 December 2025.

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3

Accounting and Financial Statements for Interests in Other Entities

On 1 July 2025, Lenana Limited acquired 80% of the ordinary share capital of Meru Limited. The consideration was paid in cash. The non-controlling interest in Meru Limited at acquisition was measured at fair value of Sh.28 million.

The draft statements of financial position of the two companies as at 30 June 2026 were as follows:

	Lenana Limited	Meru Limited
	Sh.“000”	Sh.“000”
Assets:
Property, plant and equipment	300,000	160,000
Investment in Meru Limited	150,000	-
Inventory	90,000	55,000
Trade receivables	70,000	40,000
Bank	10,000	20,000
Total assets	620,000	275,000
Equity and liabilities:
Ordinary share capital	250,000	100,000
Retained earnings	160,000	70,000
10% long-term loan	100,000	50,000
Trade payables	110,000	55,000
Total equity and liabilities	620,000	275,000

Additional information:

1. At the date of acquisition, the retained earnings of Meru Limited were Sh.40 million.

2. At acquisition, the fair value of Meru Limited plant exceeded its carrying amount by Sh.20 million. The plant had a remaining useful life of five years from the date of acquisition.

3. Goodwill arising on acquisition had been impaired by Sh.5 million at 30 June 2026. Impairment is allocated between the parent and the non-controlling interest in the ratio of ownership.

4. During the year, Lenana Limited sold goods to Meru Limited at a selling price of Sh.12 million. These goods were invoiced at cost plus 25%. All the goods remained in Meru Limited inventory at 30 June 2026.

5. At 30 June 2026, Lenana Limited receivables included Sh.18 million due from Meru Limited and Meru Limited payables included the corresponding amount.

6. At acquisition, Meru Limited had an internally generated brand which met the recognition criteria for a separate identifiable intangible asset. The fair value of the brand was Sh.12 million and its remaining useful life was six years from acquisition. Meru Limited had not recognised the brand in its separate financial statements.

7. Included in Meru Limited inventory at 30 June 2026 were damaged goods which cost Sh.5 million and a net realisable value of Sh.3 million. No adjustment had been made in Meru Limited records.

Required:

(a) Goodwill arising on acquisition of Meru Limited.

(b) Consolidated statement of financial position of Lenana Limited and its subsidiary as at 30 June 2026.

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4a

Preparation of Financial Statements for different entities/Transaction

Amani, Baraka and Chebet have operated a wholesale household-products business under the name Homeware Enterprises for several years. They share profits and losses in the ratio of 3:2:1 respectively.

On 30 June 2026, the following statement of financial position was extracted from the books of the partnership:

Homeware Enterprises Statement of financial position as at 30 June 2026:
	Sh.“000”
Non-current assets:
Freehold premises	48,000
Plant and equipment	24,000
Motor vehicles	15,000
Current assets:
Inventory	18,000
Trade receivables	13,000
Bank balance	6,000
Total assets	124,000
Capital and liabilities:
Capital accounts:
Amani	45,000
Baraka	30,000
Chebet	24,000
Loan from Amani	8,000
Trade payables	17,000
Total capital and liabilities	124,000

The partners decided to convert the partnership into a limited liability company under the name Harbourside Merchants Ltd. with effect from 1 July 2026.

Additional information:

1.

Harbourside Merchants Ltd. took over the following assets at the stated values:

Asset	Sh.“000”
Freehold premises	54,000
Plant and equipment	22,000
Inventory	16,000
Trade receivables	12,000
Bank balance	6,000

2.

Harbourside Merchants Ltd. took over the trade payables and the loan from Amani at their carrying amounts.

3.

Chebet took over the motor vehicles at an agreed value of Sh.13,000,000.

4.

The purchase consideration payable by Harbourside Merchants Ltd. was agreed at Sh.92,000,000. The excess of the purchase consideration over the fair value of the identifiable net assets acquired was to be recognised as goodwill.

5.

The purchase consideration was settled as follows:

Amani received 3,600,000 ordinary shares of Sh.10 each and 12% loan notes amounting to Sh.12,000,000.
Baraka received 3,200,000 ordinary shares of Sh.10 each.
Chebet received 1,200,000 ordinary shares of Sh.10 each.

6.

The partnership was dissolved immediately after completion of the conversion. Ignore conversion expenses.

Required:

Prepare the following accounts and statement:

(i) Realisation account, including the computation of goodwill arising on the conversion.

(ii) Partners’ capital accounts in columnar form.

(iii) Opening statement of financial position of Harbourside Merchants Ltd. as at 1 July 2026.

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4b

Analysing Financial Statements

The following information relates to Tumaini Manufacturing Limited for the year ended 30 June 2026:

Particulars	Sh.“000”
Revenue	84,000
Gross profit	21,000
Current assets	46,000
Current liabilities	28,750
Total debt	36,000
Total equity	60,000

Required:

(i) Calculate the following ratios for Tumaini Manufacturing Limited: gross profit margin, current ratio and gearing ratio.

(ii) Evaluate the performance and financial position of Tumaini Manufacturing Limited based on the ratios computed in (c) (i) above.

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5

Preparation of Published Financial Statements

The following financial statements relate to Boresha Packaging Limited:

Statement of profit or loss for the year ended 30 June 2026:
	Sh.“000”
Revenue	960,000
Cost of sales	(620,000)
Gross profit	340,000
Distribution costs	(82,000)
Administrative expenses	(118,000)
Profit from operations	140,000
Finance costs	(16,000)
Profit before tax	124,000
Income tax expense	(52,000)
Profit for the year	72,000

Statement of financial position as at 30 June:
	2026	2025
	Sh.“000”	Sh.“000”
Non-current assets:
Property, plant and equipment	540,000	470,000
Development costs	65,000	40,000
Current assets
Inventory	150,000	120,000
Trade receivables	134,000	110,000
Bank	90,000	35,000
Total assets	979,000	775,000
Equity and liabilities:
Ordinary share capital	300,000	250,000
Share premium	60,000	20,000
Revaluation surplus	40,000	-
Retained earnings	235,000	187,000
12% loan notes	140,000	160,000
Deferred tax	26,000	18,000
Trade payables	112,000	90,000
Current tax payable	66,000	50,000
Total equity and liabilities	979,000	775,000

Additional information:

1. During the year, property, plant and equipment costing Sh.90,000,000 with accumulated depreciation of Sh.38,000,000 was sold for Sh.48,000,000. The resulting loss is included in administrative expenses.

2. Depreciation charged for the year amounted to Sh.72,000,000.

3. Development costs of Sh.35,000,000 were incurred and capitalised during the year. Amortisation of development costs amounting to Sh.10,000,000 is included in administrative expenses.

4. Property, plant and equipment was revalued upwards by Sh.40,000,000 during the year. The revaluation gain was credited to the revaluation surplus.

5. The company made a cash rights issue of 5,000,000 ordinary shares at Sh.18 per share. The par value of each ordinary share is Sh.10.

6. Loan notes with a carrying amount of Sh.20,000,000 were redeemed at par during the year. Finance costs were paid in cash.

7. Dividends paid during the year amounted to Sh.24,000,000.

Required:

(a) Prepare the statement of cash flows for Boresha Packaging Limited for the year ended 30 June 2026 in accordance with IAS 7 “Statement of Cash Flows” using the indirect method.

(b) State TWO limitations of a statement of cash flows.

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CPA Financial Reporting – August 2026 Past Paper & Answers

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CPA Financial Reporting – August 2026 Past Paper & Answers

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