Unit: Financial Reporting
7 Questions| Debit Sh."000" | Credit Sh."000" | |
| Accruals | 9,000 | |
| Capital account: Dida | 20,000 | |
| Vuma | 30,000 | |
| Equipment | 20,000 | |
| Motor vehicles at cost | 55,000 | |
| Accumulated depreciation: Equipment | 8,000 | |
| Motor vehicles | 25,000 | |
| Cash and bank balances | 21,000 | |
| Drawings: Dida | 15,000 | |
| Vuma | 10,000 | |
| Net profit for the year to 30 April 2017 | 149.000 | |
| Prepayments | 3,000 | |
| Salary paid to Vuma | 20,000 | |
| Inventory at cost (30 April 2017) | 70,000 | |
| Trade payables | 118,000 | |
| Trade receivables | 100,000 | |
| Premises | 45,000 | |
| 359,000 | 359,000 |
| 1 | The partnership agreement includes the following arrangements between the partners:
|
| 2 | On 1 May 2017, a company known as Fariji Ltd. was incorporated in order to make an offer for the purchase of the partnership business. The arrangements were as follows: Vuma to take over one of the motor vehicles at an agreed valuation of Sh.5 million. Other assets and liabilities (except cash) were taken over by the company at the following values: |
| Sh. "000" | ||
| Premises | 50,000 | |
| Motor vehicles | 18,000 | |
| Equipment | 10,000 | |
| Trade payables | 80,000 | |
| Accruals | 10,000 | |
| Inventory net of 10% for obsolete stock Receivables net of provision for doubtful debts of 5% Prepayments were valueless | ||
| 3 | Additional costs incurred by the partnership in arranging the sale of the business amounted to Sh.3 million. |
| 4 | The company agreed to issue 15 million shares of Sh.10 each at a premium of 24%. The shares were to be divided between Dida and Vuma in the ratio of 3:2 respectively. |
| 5 | The partners' drawings were made in the following months: Dida: November 2016 Vuma: February 2017 |
| 6 | The rule of Garner Vs Murray is to apply. |
| Sh. "000" | Sh. "000" | |
| Ordinary shares of Sh.10 par value | 100,000 | |
| Share premium | 40,000 | |
| Retained earnings (1 April 2016) | 22,400 | |
| Land and buildings at cost (Land Sh.40 million) | 120,000 | |
| Plant and equipment at cost | 189.000 | |
| Accumulated depreciation: 1 April 2016: Buildings | 40,000 | |
| Plant and equipment | 49,000 | |
| Inventories (31 March 2017) | 87,400 | |
| Trade receivables | 84,400 | |
| Bank balance | 13,600 | |
| Deferred tax | 12,400 | |
| Trade payables | 70,200 | |
| Revenue | 1,100,000 | |
| Cost of sales | 823,000 | |
| Distribution costs | 43,000 | |
| Administrative expenses | 61,800 | |
| Dividends paid | 40,000 | |
| Bank interest | 1,400 | |
| Current tax | 2,400 | |
| 1,450,000 | 1,450,000 |
| 1 | On 1 April 2016, the company's directors decided that land and buildings should be revalued at their market values. At that date, an independent expert valued land at Sh.24 million and buildings at Sh.70 million and these valuations were accepted by the directors. The remaining useful life of buildings on that date was 14 years. The company does not make a transfer to retained earnings for excess depreciation. |
| 2 | Plant and equipment is depreciated at 20% per annum using the reducing balance method and time apportioned as appropriate. Depreciation for the year is yet to be accounted for. |
| 3 | Directors' remuneration amounting to Sh.11 million should be provided for and is classified as administrative cost. |
| 4 | Income tax provision of Sh.54.4 million is required for the year ended 31 March 2017. As at that date, deferred tax liability amounted to Sh.18.8 million. The movement in deferred tax should be taken to profit or loss. The balance on the current tax in the trial balance represents over/under provision of tax liability for the year ended 31 March 2016. |
| 5 | On 1 July 2016, the company made a rights issue of 1 share for every 4 shares at Sh.24 each. Immediately before this issue, the stock market value of the shares was Sh.40 each. |
| Hema Ltd. Sh "million" | Shuka Ltd. Sh "million" | Ajabu Ltd. Sh "million" | |
| Revenue | 1,200 | 600 | 300 |
| Cost of sales | (650) | (250) | (100) |
| Gross profit | 550 | 350 | 200 |
| Investment income | 70 | - | 1 |
| Distribution cost | (100) | (40) | (30) |
| Administrative expense | (130) | (90) | (50) |
| Finance cost | (40) | (20) | (20) |
| Profit before tax | 350 | 200 | 101 |
| Income tax expense | (70) | (50) | (31) |
| Profit for the year | 280 | 150 | 70 |
| Dividends paid | (50) | (50) | (30) |
| Retained profit for the year | 230 | 100 | 40 |
| Retained profit brought forward | 480 | 275 | 160 |
| Retained profit carried forward | 710 | 375 | 200 |
| Hema Ltd. Sh. "million" | Shuka Ltd. Sh. "million" | Ajabu Ltd. Sh. "million" | |
| Assets | |||
| Non-current assets: | |||
| Property, plant and equipment | 1,250 | 800 | 650 |
| Intangible assets | 200 | 70 | 80 |
| Investments | 850 | 50 | 20 |
| 2,300 | 920 | 750 | |
| Current assets: | |||
| Inventory | 200 | 75 | 60 |
| Trade and other receivables | 300 | 90 | 80 |
| Financial assets at fair value | 30 | 20 | 10 |
| Cash and cash equivalents | 150 | 40 | 40 |
| 680 | 225 | 190 | |
| Total assets | 2,980 | 1,145 | 940 |
| Equity and liabilities: | |||
| Equity: | |||
| Ordinary share capital | 1000 | 200 | 200 |
| Share premium | 300 | 50 | 50 |
| Revaluation reserve | 200 | 50 | 50 |
| Retained profits | 710 | 375 | 200 |
| 2,210 | 675 | 500 | |
| Non-current liabilities: | |||
| 10% loan stock | 500 | 200 | 200 |
| Current liabilities: | |||
| Trade and other payables | 250 | 250 | 220 |
| Current tax | 20 | 20 | 20 |
| 270 | 270 | 240 | |
| Total equity and liabilities | 2,980 | 1,145 | 940 |
| 1 | Hema Ltd. acquired the investments in other companies as follows: |
| Company | Date | Shareholding | Cost of purchase Sh. "million" | Revaluation reserve Sh. "million" | Retained profits Sh. "million" | |
| Shuka Ltd. | 1 May 2014 | 80% | 300 | 20 | 80 | |
| Ajabu Ltd. | 1 May 2015 | 40% | 200 | 25 | 150 | |
| Hema Ltd. also invested in half of the 10% loan stock in Shuka Ltd. | ||||||
| 2 | The fair value of the non-controlling interest in Shuka Ltd. was Sh.75 million on 1 May 2014. |
| 3 | During the year ended 30 April 2017, Hema Ltd. sold goods to Shuka Ltd. and Ajabu Ltd. as follows: |
| Selling price Sh. "million" | Mark up % | % of goods held in stock | ||
| Shuka Ltd. | 100 | 25 | 50 | |
| Ajabu Ltd. | 50 | 25 | Nil |
| 4 | On 1 May 2016, Hema Ltd. sold Shuka Ltd. an item of plant for Sh.200 million reporting a 25% profit on cost of the plant. The group charges depreciation at 20% per annum on cost of plant. |
| 5 | All the goodwill of the two companies in which Hema Ltd. has invested are estimated to be impaired by 60% to the year ended 30 April 2017. 20% ofthe impairment relates to the current year. |
| 6 | Trade receivables and trade payables included Sh.50 million due from Shuka Ltd. to Hema Ltd. and Sh.10 million due from Ajabu Ltd. to Hema Ltd. |
| 7 | All dividends and interest had been paid by the end of the year. |
| Sh. "million" | Sh. "million" | |
| Freehold property | 5,040 | |
| Motor vehicle (net book value) | 4,200 | |
| Machinery and equipment (net book value) | 1,800 | |
| Furniture (net book value) | 1,560 | |
| Audit fees paid | 288 | |
| Directors fees | 594 | |
| Depreciation on non-current assets | 1,086 | |
| Management expenses: Marine | 780 | |
| Fire | 696 | |
| Accounts receivable and accounts payable | 876 | 396 |
| Investment income | 336 | |
| Ordinary share capital | 3,600 | |
| Share premium | 1,200 | |
| Retained profit as at 1 April 2016 | 540 | |
| Premiums outstanding as at 1 April 2016: Marine | 1,080 | |
| Fire | 840 | |
| Unearned premiums as at I April 2016: Marine | 5,760 | |
| Fire | 3,000 | |
| Claims outstanding as at 1 April 2016: Marine | 960 | |
| Fire | 648 | |
| Claims paid: Marine | 2,964 | |
| Fire | 2,160 | |
| Legal costs: Marine | 216 | |
| Fire | 156 | |
| Expenses relating to claims (Marine) | 384 | |
| Bad debts written off: Marine | 204 | |
| Fire | 114 | |
| Investment in shares | 1,680 | |
| Direct premiums received: Marine | 5,400 | |
| Fire | 4,200 | |
| Re-insurance premiums received: Marine | 1,440 | |
| Fire | 960 | |
| Re-insurance premiums paid: Marine | 960 | |
| Fire | 600 | |
| Bank balance and cash in hand | 132 | |
| 28,440 | 28,440 |
| 1 | Unearned premiums reserve for unexpired risk is to be maintained at 100% and 50% of the premiums for marine insurance and fire insurance ance respectively. |
| 2 | Commission on both insurance ceded and re-insurance accepted is at a rate of 5% of the premiums. |
| 3 | The directors have proposed a dividend of 5% on the outstanding share capital as at 31 March 2017. |
| 4 | The tax rate applicable is 30%. |
| 5 | Premiums outstanding as at 31 March 2017 amounted to Sh.1,800 million and Sh.840 million for marine insurance and fire insurance respectively. |
| 6 | Claims intimated and outstanding as at 31 March 2017 amounted to Sh.900 million for marine insurance and Sh.576 million for fire insurance. |
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