Unit: Financial Reporting
9 Questions| Sh."000" | Sh."000" | |
| Land and buildings at valuation (1 April 2018) | 468,000 | |
| Plant at cost | 460,800 | |
| Accumulated depreciation (1 April 2018) | 115,200 | |
| Available for sale investments | 95,400 | |
| Investment income | 7,920 | |
| Cost of sales | 321,120 | |
| Distribution costs | 39,600 | |
| Administrative expenses | 45,000 | |
| Debenture interest paid | 2,880 | |
| Inventory (31 March 2019) | 136,440 | |
| Income tax liability | 41,760 | |
| Trade receivables | 126,360 | |
| Revenue | 649,440 | |
| Ordinary shares of Sh.50 (at par value) | 216,000 | |
| Retained earnings (1 April 2018) | 91.800 | |
| 4% debentures | 288,000 | |
| Trade payables | 124,920 | |
| Revaluation surplus (Land and buildings) | 50,400 | |
| Suspense account | 86,400 | |
| Bank | 23,760 | |
| 1,695,600 | 1,695,600 |
| 1 | The 4% debentures were issued on 1 October 2018 under terms that provided for a large premium on redemption in year 2021. The finance officer has calculated that the effect of this is that the debenture has an effective interest rate of 6% per annum. |
| 2 | A provision of Sh.61,560,000 should be made for tax on the profit for the year ended 31 March 2019. |
| 3 | The suspense account contains the corresponding credit entry for the proceeds of a rights issue of shares made on 1 January 2019. The terms of the issue were one share for every four shares held at Sh.80 per share. Sombea Ltd.'s share price immediately before the issue was Sh.100. The issue was fully subscribed. |
| 4 | The fair value of available for sale investments as at 31 March 2019 was Sh.97,560,000. |
| 5 | Sombea Ltd. has a policy of revaluing its land and buildings at each year end. The valuation in the trial balance includes land element of Sh. 108,000,000. The estimated remaining life of the buildings as at that date (1 April 2018) was 20 years. On 31 March 2019, a professional valuer valued the buildings at Sh.331,200,000 with no change in the value of the land. Depreciation on buildings is charged 60% to cost of sales and 20% each to distribution costs and administrative expenses. |
| 6 | During the year, Sombea Ltd. manufactured an item of plant which it was using as part of its own operating capacity. The details of the plant's cost which is included in the cost of sales in the trial balance, are: |
| "Sh.000" | ||
| Material cost | 21,600 | |
| Direct labour cost | 14,400 | |
| Machine time cost | 28,800 | |
| Directly attributable overheads | 21,600 |
| Income statement | |||
| Fanaka Ltd. Sh."million" | Mali Ltd. Sh."million" | Kwetu Ltd. Sh."million" | |
| Revenue | 7,200 | 4,700 | 2,450 |
| Cost of sales | (5,400) | (3,760) | (1,715) |
| Gross profit | 1,800 | 940 | 735 |
| Investment income | 218 | 40 | - |
| 2,018 | 980 | 735 | |
| Operating expenses | (740) | (390) | (295) |
| Profit before tax | 1,278 | 590 | 440 |
| Income tax expense | (420) | (230) | (176) |
| Profit after tax | 858 | 360 | 264 |
| Dividend - Paid | (200) | (120) | (100) |
| - Proposed | (300) | (120) | (100) |
| Retained profit | 358 | 120 | 64 |
| Fanaka Ltd. Sh."million" | Mali Ltd. Sh."million" | Kwetu Ltd. Sh."million" | |
| Non-current assets: | |||
| Property, plant and equipment | 15,500 | 9,700 | 6,500 |
| Goodwill | - | - | 500 |
| Investment in - Mali Ltd. | 8,400 | - | - |
| - Kwetu Ltd. | - | 3,500 | - |
| Current assets | 4,400 | 2,800 | 1,700 |
| 28,300 | 16,000 | 8,700 | |
| Equity and liabilities: | |||
| Ordinary share capital | 10,000 | 6,000 | 4,000 |
| Share premium | 4,000 | 2,500 | 2,500 |
| Revenue reserves | 3,800 | 2,720 | 1,354 |
| 17,800 | 11,220 | 7,854 | |
| Non-current liabilities: | |||
| Bank loan | 8,000 | 3,000 | - |
| Current liabilities | 2,500 | 1,780 | 846 |
| 10,500 | 4,780 | 846 | |
| 28,300 | 16,000 | 8,700 |
| 1 | On 31 December 2017, Mali Ltd. held stock bought from Fanaka Ltd. for Sh.120 million and on which Fanaka Ltd. had made a profit of 33/,% on cost. |
| 2 | In the year ended 31 December 2018, Fanaka Ltd. made sales of Sh.400 million to Mali Ltd. at a profit of 20% on selling price. One quarter of the goods purchased by Mali Ltd. from Fanaka Ltd. in the year remained unsold as at 31 December 2018. |
| 3 | All the three companies paid the interim dividend on 15 June 2018. No company has accrued its share of proposed dividend from either its subsidiary or associate company. |
| 4 | The inter-company outstanding balances as a result of trading were as follows:
|
| 5 | Any goodwill on acquisition of the subsidiary or associate is considered impaired by 20%. |
| 6 | Fair value of tangible assets were not materially different from their book values on the date Fanaka Ltd. acquired its control in Mali Ltd. and on the date Mali Ltd. acquired its holding in Kwetu Ltd. |
| Sh. "000" | ||
| Non-current assets: | Land and building | 18,400 |
| Motor vehicles | 8,200 | |
| Furniture and fixtures | 3,100 | |
| Investment in shares | 4,600 | |
| 34,300 | ||
| Current Assets: | Inventories | 4,750 |
| Trade receivables | 3,200 | |
| Total assets | 42,250 | |
| Capital and liabilities: | ||
| Capital accounts: | Exe | 14,400 |
| Wye | 7,200 | |
| Zed | 3,600 | |
| Current accounts: | Exe | 2,700 |
| Wye | 1,900 | |
| Zed | 600 | |
| Loan from a Sacco | 4,000 | |
| Current liabilities: | Trade payables | 6,400 |
| Bank overdraft | 1,450 | |
| 42,250 |
| 1 | The partners shared profits and losses in the ratio of 2:2:1 for Exe, Wye and Zed respectively. |
| 2 | Partner Wye agreed to settle the unsecured loan from the Sacco while Zed took over some of the inventory valued at Sh.2 million. |
| 3 | The trade payables accepted Sh.5.8 million in full settlement of the amounts due to them. |
| 4 | The assets ofthe partnership were auctioned and realised in stages on piece-meal basis as follows: |
| Date | Assets realised | Amount Sh."000" | |
| 20 July 2018: | Trade receivables (part) | 2,200 | |
| Inventory (part) | 1,750 | ||
| Investment in shares | 4,400 | ||
| Motor vehicles (part) | 7,000 | ||
| 31 July 2018: | Trade receivables (balance) | 1,000 | |
| Furniture and fixtures | 2,900 | ||
| 25 August 2018: | Inventory (balance) | 700 | |
| Motor vehicles (balance) | 2,000 | ||
| 10 September 2018: | Land and building | 18,000 |
| 5 | The auctioneers fees were agreed at Sh.3.5 million and were to be paid upfront immediately there was an available bank balance. |
| 6 | The rule in Garner vs. Murray applies where necessary. |
| A01 Sh."million" | BO2 Sh."million" | CO3 Sh."million" | DO4 Sh."million" | |
| Contract price | 780 | 1,200 | 1,020 | 948 |
| Costs to date | 180 | 480 | 963.6 | 33.6 |
| Estimated total cost | 720 | 768 | 1,069.2 | 840 |
| Payment on account | 156 | 780 | 918 | 24 |
| Revenue recognised in previous periods | 78 | 180 | 504 | - |
| Cost recognised in previous periods | 60 | 72 | 480 | - |
| Administrative expenses | 1.5 | 15 | 2.5 | - |
| Date of commencement | May 2017 | 1 February 2017 | 1 March 2017 | I March 2019 |
| 1 | The company does not recognise profits until the contract is at least 5% complete. |
| 2 | The company's policy is to calculate the percentage of completion on cost basis. |
| 3 | The company prepares separate trading accounts for each contract. |
| Head office (Ksh.) | Branch (Ush.) | |||
| Sh."000" | Sh."000" | Sh."000" | Sh."000" | |
| Sales | 416,000 | 1,728,000 | ||
| Freehold building at cost | 56,000 | 252,000 | ||
| Trade receivables and trade payables | 35,600 | 38,000 | 144,000 | 6,240 |
| Share capital | 160,000 | |||
| Goods sent to branch | 140,000 | |||
| Head office/Branch account | 240.400 | 2,017,040 | ||
| Cost of sales (branch) | 1,440,000 | |||
| Provision for depreciation on machinery | 6,000 | 226.800 | ||
| Head office cost of sales(including goods sent to branch) | 236,000 | |||
| Administrative cost | 60,800 | 72,000 | ||
| Inventory - 31 March 2019 | 115,600 | 46,080 | ||
| Profit and loss account - 1 April 2018 | 8.000 | |||
| Machinery at cost | 24,000 | 504,000 | ||
| Remittances | 112,000 | 1,088,000 | ||
| Bank balance | 18,400 | 316,800 | ||
| Selling and distribution costs | 93,200 | 115.200 | ||
| 880,000 | 880,000 | 3,978,080 | 3,978,080 | |
| 1 | The branch remitted Ush.64,000,000 on 30 March 2019 which was not received by the head office until 3 April 2019. The amount realised was Ksh.7,960,000. |
| 2 | In the month of February 2019, a customer of the branch paid the head office for goods supplied by the branch. The amount due from him was Ush.1,280,000 which realised Ksh.144,000. It has been correctly dealt with by the head office but not yet entered in the branch accounts. |
| 3 | Commission which is payable to the branch manager, is to be provided at a rate of 5% of the net profits of the branch after charging such commission. |
| 4 | The cost of sales figure includes a depreciation charge of 10% par annum on the cost of machinery. |
| 5 | A provision of Ksh.1,200,000 for unrealised profit in the branch inventory is to be made. |
| 6 | The relevant exchange rates were as follows: |
| Ksh. | To | Ush. | ||
| On 1 April 2018 | 1 | 20 | ||
| On 31 March 2019 | 1 | 16 | ||
| Average rate for the year ended 31 March 2019 | 1 | 18 | ||
| On date of purchase of freehold building and machinery | 1 | 14 |
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