KASNEB Financial Reporting - Question 1c

Describe two methods for translating foreign currencies into the local currency. ... [Click to view full question and step-by-step solution]

KASNEB Financial Reporting - Question 3a

Various analytical tools are today utilised in financial statements analysis. Some of these tools include: Ratio analysis. Trend analysis. Common size financ... [Click to view full question and step-by-step solution]

KASNEB Financial Reporting - Question 3b

Summarise four attributes of good financial statement analysis. ... [Click to view full question and step-by-step solution]

KASNEB Financial Reporting - Question 5

The following trial balance relates to Bawabu Limited as at 31 March 2021: Sh.'000“Sh.'000“Ordinary share capital (Sh.10 par value)560,000Share premium16... [Click to view full question and step-by-step solution]

FRA December 2021 Past Paper & PDF Solutions

1a

Preparation of Published Financial Statements

Accounting in general and financial reporting in particular are undergoing a dynamic transformation both in function and practice. Global forces are continuously reshaping accountancy as a profession.

Required:

In the context of the above statement, describe how the following forces are transforming the future of accounting:

(i) Cloud based accounting solutions.

(ii) Automation of the accounting function.

(iii) Outsourcing of accounting services.

(iv) Data analytics.

1b

Public Sector Accounting Standards

In the context of International Public Sector Accounting Standard (IPSAS) 24 - Presentation of Budget Information in Financial Statements:

(i) Explain the salient feature that differentiates an "original budget" from a "final budget".

(ii) Summarise the key provisions of the IPSAS with regard to presentation of a comparison of budget and actual amounts.

1c

Accounting and Financial Statements for Interests in Other Entities Accounting for Assets and Liabilities Preparation of Published Financial Statements

Describe two methods for translating foreign currencies into the local currency.

2

Preparation of Financial Statements for different entities/Transaction

K and L were sole traders manufacturing solar equipment. On 31 October 2020, they amalgamated and traded as partners sharing profits and losses in the ratio of 3:2 respectively. One year later, on 31 October 2021, they converted the partnership into a limited liability company called Kilo Ltd.

No adjustments have been made to record the amalgamation and conversion but the summarised statements of financial position for the sole traders as at 31 October 2020 and the partnership as at 31 October 2021 were as follows:

	Sole traders statements of financial position as at 31 October 2020		Partnership statement of financial position as at 31 October 2021
	K	L
	Sh."000"	Sh."000"	Sh."000"
Assets:
Freehold property	6,000	4,000	14,000
Plant and equipment	27,200	22,400	52,000
Fixtures and fittings	6,400	6,200	12,000
Inventory	7,200	1,400	13,400
Accounts receivable	7,600	4,000	25,680
Balance at bank	1,200	600	500
	55,600	38,600	119.580
Liabilities:
Accounts payable	(27,200)	(16,000)	(39,680)
Bank overdraft	-	-	(22,500)
	28,400	22,600	57,400

Additional Information:

1.	On 1 April 2020, the partners agreed to take up the assets and liabilities of the individual traders at book values except for freehold property, plant and equipment and fixtures and fittings which were to be revalued as follows:

1.		K	L
		Sh."000"	Sh."000"
	Freehold property	8,000	6,000
	Plant and equipment	26,000	22,000
	Fixtures and fittings	6,000	6,000

2.	During the year ended 31 October 2021, K made drawings of Sh.9,560,000 while L withdrew Sh.2,440,000.
3.	The partnership was converted into a limited company on the following terms: The freehold property and accounts receivable were revalued to Sh.24,000,000 and Sh.22,680,000 respectively. K and L were to receive 15% unsecured debentures at par so as to provide each partner with income equivalent to a 6% return on capital employed based on capital balances as at 31 October 2021 (that is after accounting for the profit, drawings and revaluation in bullet (i) above). Kilo Ltd's. authorised share capital was made up of 600,000 ordinary shares of Sh.50 each, out of which 520,000 shares were to be issued to the partners in their profit sharing ratio. Any balances in the partners' capital accounts were to be settled in cash.
Required:
(a)	A computation showing the value of debentures and ordinary shares to be issued to the partners.
(b)	Partners capital accounts as at 31 October 2021.
(c)	Statement of financial position of Kilo Ltd. as at 31 October 2021 after completing the above transactions on conversion.

3a

Analysing Financial Statements

Various analytical tools are today utilised in financial statements analysis. Some of these tools include:

Ratio analysis.
Trend analysis.
Common size financial statements.

Required:

In the context of the statement above, describe how each of the above tools is utilised in practice.

3b

Analysing Financial Statements

Summarise four attributes of good financial statement analysis.

3c

Analysing Financial Statements

The following are extracts of financial statements from the books of Zawadi Ltd.:

Extracts of the income statement for the year ended 30 April:

	2020	2021
	Sh."000"	Sh."000"
Sales revenue	476,200	701,800
Cost of sales (approximates purchases)	(372,388)	(583,898)
Gross profit	103,812	117,902
Administrative expenses	(21,962)	(30,692)
Distribution costs	(23,800)	(33,450)
Finance costs	(7,200)	(10,800)
Profit before tax	50,850	42,960

Extracts of the statement of financial position as at 30 April:

	2020	2021
	Sh."000"	Sh."000"
Non-current assets:
Property, plant and equipment	888,140	1,777,500
Intangible assets	130,000	104,000
	1,018,140	1,881,500
Current assets:
Inventories	81,000	81,400
Trade receivables	95,240	175,450
Cash and cash equivalents	60,455	78,650
	236,695	335,500
Current liabilities:
Trade payables	111,715	204,365
Current tax payable	68,120	92,635
	179,835	297,000

Assume a 365-day financial year.

Required:

Analyse and interpret the performance and efficiency of the company for the two years ended 30 April 2020 and 2021 using:

(i) Gross profit margin.

(ii) Return on capital employed.

(iii) Inventory turnover period.

(iv) Trade receivables collection period.

(v) Trade payables payment period.

4

Accounting and Financial Statements for Interests in Other Entities

On 1 January 2021, Rangi Ltd. acquired the following in Nzuri Ltd.:

80% of the ordinary share capital of Nzuri Ltd. for Sh.20,560,000

Half of the 10% debentures in Nzuri Ltd.

The summarised financial statements of Rangi Ltd. and Nzuri Ltd. for the year ended 30 September 2021 were as follows:

Income statements for the year ended 30 September 2021:

	Rangi Ltd.	Nzuri Ltd.
	Sh."000"	Sh."000"
Revenue	130,000	48,000
Cost of sales	(90,000)	(40,000)
Gross profit	40,000	8,000
Other income: Interest received	150	-
Other income: Dividend received	800	-
	40,950	8,000
Expenses:
Distribution costs	(9,000)	(200)
Administrative expenses	(7,000)	(200)
Finance costs	-	(400)
Profit before tax	24,950	7,200
Income tax expense	(6,000)	(1,200)
	18,950	6,000

Statement of financial position as at 30 September 2021:

	Rangi Ltd.	Nzuri Ltd.
	Sh."000"	Sh."000"
Non-current assets:
Property, plant and equipment	38,640	16,000
Investments	22,560	-
	61,200	16,000
Current assets:
Inventories	12,000	6,000
Accounts receivable	8,400	6,800
Cash at bank	13,600	3,200
	34,000	16,000
Total assets	95,200	32,000
Equity and liabilities:
Capital and reserves:
Ordinary shares of Sh.10 each	24,000	4,000
Retained earnings	51,200	16,800
	75,200	20,800
Non-current liability:
10% debentures	-	4,000
Current liabilities:
Accounts payable	15,000	6,400
Current tax	5,000	800
	20,000	7,200
Total equity and liabilities	95,200	32,000

Additional information:

1.	The fair value of the assets of Nzuri Ltd. at the date of acquisition were the same as their book values except for an item of plant whose fair value was more by Sh.6.4 million. As at 1 January 2021, the plant had a remaining useful life of four years. Nzuri Ltd. depreciates plant on straight line basis on cost.
2.	During the post acquisition period, inter-company trading that occurred included: Rangi Ltd. sold goods to Nzuri Ltd. for Sh.12 million. These goods had cost Rangi Ltd. Sh.18 million. Nzuri Ltd. sold some of the goods purchased from Rangi Ltd. at Sh.20 million for Sh.30 million.
3.	On 30 June 2021, Rangi Ltd. and Nzuri Ltd. paid dividends of Sh.2 million and Sh.1 million respectively.
4.	Included in the accounts receivable and account payable is Sh.1.5 million being the amount Nzuri Ltd. owed Rangi Ltd.
5.	Goodwill is considered to be impaired by 25% as at 30 September 2021. Goodwill impaired is classified as an administrative expense by the group companies.

Required:

(a) Group income statement for the year ended 30 September 2021.

(b) Group statement of financial position as at 30 September 2021.

5

Preparation of Published Financial Statements

The following trial balance relates to Bawabu Limited as at 31 March 2021:

	Sh."000“	Sh."000“
Ordinary share capital (Sh.10 par value)		560,000
Share premium		160,000
Retained earnings as at 1 April 2020		241,560
Property at cost (land Sh.146 million)	732,000
Plant and equipment at cost	427,000
Accumulated depreciation as at 1 April 2020: Buildings		122,000
Accumulated depreciation as at 1 April 2020: Plant and equipment		85,400
Inventory as at 31 March 2021	324,500
Trade receivables	469,700
Bank overdraft		43,100
Deferred tax		97,600
Trade payables		259,860
Current tax		12,800
Revenue		2,779,160
Cost of sales	2,006,900
Distribution costs	164,700
Administrative expenses	201,300
Dividends paid	24,400
Bank interest	10,980
	4,361,480	4,361,480

Additional information:

1.	On 1 April 2020, the directors of Bawabu Limited resolved that the financial statements would show an improved position if the property was revalued to market value. At that date, an independent valuer valued the land at Sh.160 million and the buildings at Sh. 485 million. The remaining life of the buildings as at that date was 25 years. Bawabu Limited does not make a transfer to retained earnings for excess depreciation. Ignore deferred tax on the revaluation surplus.
2.	Plant and equipment is depreciated at a rate of 15% per annum using the reducing balance method. All depreciation is charged to cost of sales, but none has yet been charged on any non-current assets for the year ended 31 March 2021.
3.	Bawabu Limited estimated that an income tax provisioň of Sh.113.8 million is required for the year ended 31 March 2021. The balance on the current tax in the trial balance represents the under/over provision of the tax liability for the year ended 31 March 2020. As at 31 March 2021, the tax base of Bawabu Limited's net assets was Sh.292 million less than the carrying amounts. The income tax rate of Bawabu Limited is 30%.
4.	Bawabu Limited made a 1 for 5 bonus issue on 31 March 2021, which has not yet been recorded in the books of account. The company intends to utilise the share premium as far as possible in providing for the bonus issue.
Required:
(a)	Statement of profit or loss for the year ended 31 March 2021.
(b)	Statement of financial position as at 31 March 2021.

December 2021

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