FRA December 2024 Past Paper & PDF Solutions

1a

Accounting for Assets and Liabilities

With reference to International Financial Reporting Standard (IFRS) 9 “Financial Instruments: Recognition and Measurement”, explain the following ways of measuring financial assets that are investments in debt securities:

(i) At amortised cost.

(ii) At fair value through other comprehensive income (OCI).

(iii) At fair value through profit or loss.

1b

Accounting for Specialized Transactions

Potters Ltd. borrowed Sh.120 million on 1 July 2023 at the rate of 9% per annum to finance two capital projects namely; “Cometic” and “Robotic” projects. The funds were invested in the two projects as follows:

	Project
	Cometic	Robotic
	Sh.“000”	Sh.“000”
1 July 2023	20,000	40,000
1 January 2024	20,000	40,000

Unutilised funds on 1 July 2023 were invested temporarily at the rate of 7% per annum.

Required:

(i) Determine borrowing costs to be capitalised for each of the project as at 30 June 2024.

(ii) Compute the value of the investment in the books of Potters Ltd. as at 30 June 2024.

1c

Public Sector Accounting Standards

The following information was obtained from the Ministry of Finance of a developing country with a view of presentation of budget information for the fiscal year ended 30 June 2024:

	Budgeted amounts	Actual amounts
	Sh.“billion”	Sh.“billion”
Receipts:
Taxes	1,175	968
Local borrowings	558	495
Overseas borrowings	630	716
Donations from foreign agencies	378	486
Trading activities	754	1,066
Sale of fixed assets	792	1,012
Other receipts	261	220
Payments:
Internal security	806	738
Education	797	810
Agriculture	263	291
Health	423	486
Affordable housing	450	410
Social welfare	218	216
Transport	535	540
Defence	389	512
Other payments	475	627

Additional information:

During the year ended 30 June 2024, the National Assembly approved a supplementary budget for the following votes:

	Sh.“billion”
Overseas borrowings	54	Addition
Sale of fixed assets	140	Addition
Education	63	Addition
Health	37	Addition
Affordable housing	(32)	Reduction

Required:

Prepare a statement of comparison of budget and actual amounts for the fiscal year ended 30 June 2024 as per the requirements of International Public Sector Accounting Standard (IPSAS) 24 “Presentation of Budget Information in Financial Statements”.

2a

Public Sector Accounting Standards

International Public Sector Accounting Standard (IPSAS) 4 “The effect of changes in foreign exchange rates” provides clear guidance on how entities should translate monetary items and non-monetary items as well as the treatment of the resultant exchange differences.

With reference to the above statement, explain how monetary items and non-monetary items should be translated and the treatment of their respective exchange differences.

2b

Accounting and Financial Statements for Interests in Other Entities

On 1 November 2023, Kip Ltd. acquired a 75% of interest in Limah’s equity shares. The acquisition was completed through a share for share transaction, where Kip Ltd. exchanged two of its own shares for every three Limah’s Ltd. shares acquired. On the acquisition date, Kip Ltd.’s share price was Sh.40 per share.

Summarised below are the statements of profit or loss and other comprehensive income for Kip Ltd. and Limah Ltd. for the financial year ended 30 April 2024:

	Kip Ltd.	Limah Ltd.
	Sh.“000”	Sh.“000”
Revenue	1,800,000	960,000
Cost of sales	(1,040,000)	(440,000)
Gross profit	760,000	520,000
Distribution costs	(94,400)	(48,000)
Administrative expenses	(108,000)	(92,000)
Finance cost	(6,000)	(4,800)
Profit before tax	551,600	375,200
Income tax expense	(192,000)	(111,200)
Profit for the year	359,600	264,000
Other comprehensive income:
Gain on revaluation of land	10,000	4,000
Loss on fair value of equity financial assets	(2,800)	(1,600)
	7,200	2,400
	366,800	266,400

Additional information:

1.	Details of equity as at 1 November 2023 before acquisition:
		Kip Ltd.	Limah Ltd.
		Sh.“000”	Sh.“000”
	Ordinary shares of Sh.10 each	1,000,000	640,000
	Share premium	400,000	-
	Revaluation reserve	33,600	-
	Equity reserve (financial asset)	12,800	8,800
	Retained earnings	360,000	500,000

2.	Kip Ltd, follows a policy of revaluing land to market value at the end of each reporting period. Limah Ltd. had previously measured its land at historical cost before being acquired. Since the acquisition, Limah Ltd.’s land increased by Sh.4 million in value, which it has recorded in its financial statements.
3.	After the acquisition on 1 November 2023, Kip Ltd. transferred plant equipment to Limah Ltd. at an agreed value of Sh.20 million. This equipment had a carrying amount of Sh.16 million at the transfer date and a remaining useful life of 2.5 years. Kip Ltd. accounted for the gain from this transaction by reducing its depreciation expenses. Depreciation is charged to cost of sales.
4.	Following the acquisition, Limah Ltd. sold goods to Kip Ltd. worth Sh.160 million, which had originally cost Limah Ltd. Sh.120 million. Of these, goods worth Sh.48 million remained in Kip Ltd.’s inventory at the year end.
5.	There has been no impairment in the goodwill arising from Kip Ltd.’s acquisition of Limah Ltd.
6.	All items within the profit or loss and other comprehensive income statements are considered to accrue evenly throughout the year.
7.	Non-Controlling Interest (NCI) in Limah Ltd. was valued at Sh.400 million during acquisition.
Required:
(i)	Calculate the value of goodwill arising on acquisition of Limah Ltd.
(ii)	Prepare a consolidated statement of profit or loss and other comprehensive income for the year ended 30 April 2024.

3a

Accounting for Specialized Transactions

Outline the accounting treatment of government grants related to income in accordance with International Accounting Standard (IAS) 20 “Accounting for Government Grants”.

3b

Preparation of Financial Statements for different entities/Transaction

The draft financial statements set out below relate to Betlite Limited, a public limited entity:

Statement of financial position as at 31 October:

Assets:	2024	2023
Non-current assets:	Sh.“000”	Sh.“000”
Property, plant and equipment	72,475	54,160
Intangible assets	15,700	12,240
Investments at fair value	5,825	5,500
	94,000	71,900
Current assets:
Inventory	7,485	7,040
Accounts receivable	6,030	5,830
Cash and cash equivalents	2,485	2,230
Total assets	110,000	87,000
Equity and liabilities:
Equity
Ordinary share capital (Sh.10 par value)	50,000	40,000
Share premium	12,500	10,000
Revaluation reserve	9,500	5,000
Retained profit	17,505	14,755
Total equity	89,505	69,755
Non-current liabilities:
Long-term borrowings	11,600	10,300
Deferred tax	2,370	1,955
Current liabilities:
Accounts payable	4,645	3,505
Current tax	1,880	1,485
Total equity and liabilities	110,000	87,000

Extract of statement of profit or loss and other comprehensive income for the year ended 31 October 2024:

	Sh.“000”
Operating profit	5,540
Finance costs	(1,200)
Fair value gain on investments	325
Profit before tax	4,665
Income tax expense	(1,330)
Profit for the year	3,335
Other comprehensive income:
Gain on property revaluation	4,500
Total comprehensive income for the year	7,835

Additional information:

During the year ended 31 October 2024, the directors of the company accepted a property revaluation report at a gain of Sh.4,500,000. The company does not make inter-reserve transfer for excess depreciation upon revaluation.
Depreciation on non-current tangible assets charged to profit or loss for the year amounted to Sh.2,780,000.
During the year to 31 October 2024 new patent rights were acquired at a cost of Sh.4,000,000.
The investments held by Betlite Limited are measured at fair value through profit or loss. Neither purchase nor sale of the investments occurred during the year.

Required:

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

4

Preparation of Financial Statements for different entities/Transaction

Farmland Ltd. has been in operation for the past 15 years dealing in agricultural produce processing business. The following trial balance was extracted from the books of the company as at 31 October 2024:

	Sh.“000”	Sh.“000”
Revenue		278,400
Income from investment		4,500
Ordinary shares of Sh.20 each		150,000
Retained earnings		119,500
8% loan stock		50,000
Accounts payable		33,400
Deferred tax		12,500
Bank balance		15,400
Land and building at cost	270,000
Plant at cost	156,000
Accumulated depreciation : Building		60,000
Accumulated depreciation : Plant		26,000
Purchases	78,200
Distribution cost	10,000
Administrative expenses	5,500
Loan interest paid	2,000
Leased plant rental	22,000
Dividends paid	15,000
Inventory (1 November 2023)	37,800
Accounts receivable	63,200
Investments (Long-term)	90,000
	749,700	749,700

Additional information:

As at 31 October 2024, the inventories were valued at Sh.43.2 million.
The land and buildings were purchased on 1 November 2008. The cost of land at the date of purchase was Sh.70 million. However, on 1 November 2023, the land and buildings were professionally valued at Sh.175 million and Sh.80 million respectively. The estimated useful life of the buildings before revaluation was 50 years. However, the revaluation did not change the useful life of the buildings. Plant is depreciated at 15% per annum using the reducing balance method. Depreciation expenses are to be included under cost of sales in the income statement.
On 1 November 2023, Farmland Ltd. entered into a five year lease agreement for an item of plant. This item had an estimated useful life of five years. The annual rental which was payable in advance with effect from 1 November 2023 was Sh.22 million. The fair value of the plant is Sh.92 million and the implicit interest rate is 10% per annum.
The 8% loan stock was issued on 1 January 2024 and interest is payable six months in arrears.
The income tax for the year ended 31 October 2024 is estimated at Sh.28.3 million. The deferred tax provision as at 31 October 2024 was to be increased to Sh.14.1 million.

Required:

(a) Statement of profit or loss for the year ended 31 October 2024.

(b) Statement of changes in equity for the year ended 31 October 2024.

(c) Statement of financial position as at 31 October 2024.

5a

Accounting for Specialized Transactions

In relation to International Accounting Standard (IAS) 41 “Agriculture”, explain the following:

(i) Recognition of biological assets.

(ii) Measurement of biological assets.

5b

Accounting for Specialized Transactions

Explain the TWO types of post-employment benefits plans in accordance with International Accounting Standard (IAS) 19 “Employee Benefits”.

5c

Analysing Financial Statements

Baraka Ltd. is a private limited company that operates in the hospitality industry.

The following statements of financial position have been extracted from accounting records of the company for analysis purposes:

Statement of financial position as at 31 August:

	2024	2025
	Sh.“000”	Sh.“000”
Assets:
Non-current assets:
Property, plant and equipment	23,760	13,440
Intangible assets	16,720	11,760
	40,480	25,200
Current assets:
Inventories	20,240	14,560
Trade receivables	17,600	10,640
Cash and cash equivalents	9,680	5,600
Total assets	88,000	56,000
Equity and liabilities:
Equity:
Ordinary share capital	17,600	14,000
Share premium	1,760	1,400
Retained profit	15,840	9,240
Total equity	35,200	24,640
Non-current liabilities:
Long term loans	14,080	7,840
Deferred tax	7,040	3,360
Current liabilities:
Trade payables	18,480	12,880
Current tax	13,200	7,280
Total equity and liabilities	88,000	56,000

Required:

Prepare common-size vertical statements of financial position as at 31 August 2023 and 31 August 2024.

December 2024

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