Unit: Financial Reporting
9 Questions| Sh."000" | Sh."000" | |
| Ordinary shares of Sh.10 each | 50,000 | |
| 9% cumulative preference shares | 20,000 | |
| Statutory reserve | 4,200 | |
| Retained earnings | 15,800 | |
| Freehold land | 18,000 | |
| Building: Cost | 60,000 | |
| : Accumulated depreciation | 5,000 | |
| Equipment: Cost | 60,000 | |
| : Accumulated depreciation | 13,000 | |
| Government securities | 12,500 | |
| Investment in shares | 28,500 | |
| Claims paid | 28,400 | |
| Gross premiums earned | 86,000 | |
| Re-insurance premiums ceded | 10,700 | |
| Legal expenses | 3,800 | |
| Commissions earned | 450 | |
| Commissions payable | 700 | |
| Unearned premiums | 47,500 | |
| Operating expenses | 14,250 | |
| Accrued preference dividends payable | 5,400 | |
| Fees received | 4,400 | |
| Repairs and maintenance | 8,500 | |
| Trade receivables | 15,350 | |
| Trade payab!es | 8,500 | |
| Investment income | 1,800 | |
| Claims outstanding | 4,100 | |
| Bank balances | 3,900 | |
| Receivables arising out of re-insurance arrangements | 1,550 | |
| 266,150 | 266,150 |
| 1 | The freehold land was revalued upwards by Sh.2 million but the revaluation had not been incorporated in the accounts. |
| 2 | Dividends on preference shares were in arrears for four years. The board has decided to pay the dividends for only three years. |
| 3 | Depreciation is to be charged per annum using the straight line method as follows: Asset Rate per annum Building 2% Equipment 15% |
| 4 | Claims amounting to Sh.2,850,000 were estimated to be outstanding as at 30 June 2018. |
| 5 | Current year's estimated tax is Sh.5,000,000. |
| 6 | Out of the total legal expenses incurred in the year ended 30 June 2018, Sh.2,450,000 was on claims paid. |
| 7 | The directors have recommended a first and final dividend of 20% on ordinary shares. |
| Sh."000" | Sh."000" | |
| Revenue | 8,700 | |
| Purchases | 1,500 | |
| Production cost | 1,200 | |
| Administrative expenses | 980 | |
| Distribution cost | 370 | |
| Interest on loan | 50 | |
| Research and development | 470 | |
| Land and buildings at valuation (1 November 2017) | 1,700 | |
| Equipment at cost | 4,500 | |
| Investment property at valuation (1 November 2017) | 2,200 | |
| Accumulated depreciation (1 November 2017): | ||
| Buildings | 400 | |
| Equipment | 450 | |
| Intangible asset at cost | 500 | |
| Accumulated amortisation (1 November 2017) | 50 | |
| Inventory (1 November 2017) | 50 | |
| Bank balances | 400 | |
| Trade receivables | 350 | |
| 10% bank loan | 1,000 | |
| Interim dividend paid | 350 | |
| Trade payables | 400 | |
| Corporation tax | 35 | |
| Ordinary share capital | 1,250 | |
| Share premium | 250 | |
| Revaluation reserve (1 November 2017) | 300 | |
| Retained earnings (1 November 2017) | 1,785 | |
| 14,620 | 14,620 |
| 1 | Included in the revenue is a government grant of Sh.150,000 that Safina Ltd. received. The grant relates to the employment of additional staff that is expected during the next financial year. |
| 2 | Research and development expenditure comprises the following:
|
| 3 | Intangible asset at cost relates to a development that was being amortised over a useful life of 10 years. As at 1 November 2017, this was reviewed and the development was then assessed as having a remaining useful life of six years. |
| 4 | The Sh.1,700,000 relating to land and buildings is based on last year's revaluation and includes land at a valuation of Sh.1,000,000. Land has an indefinite useful life. The buildings should be depreciated on the value at the start of the year and the remaining useful life was 20 years as at 1 November 2017. |
| 5 | As at the year end, the directors obtained the following valuations:
|
| 6 | Equipment is depreciated on a straight line basis over 5 years. Safina Ltd. estimates that the equipment is used in the business on the following basis:
|
| 7 | The year end valuation of the investment property was Sh.2,500,000 and Safina Ltd.'s accounting policy is to use the fair value model for investment properties. |
| 8 | The year end inventory was valued at Sh.65,000 but it was subsequently discovered that goods included within this value with a cost of Sh.7,000 were sold for Sh.2,000. |
| 9 | Safina Ltd. took out the bank loan of Sh.1,000,000 on 1 November 2017 which is repayable in four equal annual instalments. The interest rate on the loan is 10% per annum payable semi-annually. |
| 10 | The corporation tax for the previous year was settled in July 2018 and the estimate for corporation tax for the year ended 31 October 2018 is Sh.625,000. |
| 11 | The directors have also discovered that a customer who owed Sh.125,000 as at the year end was declared bankrupt. |
| Sh."million" | |
| Revenue | 4,805 |
| Cost of sales | (3,844) |
| Gross profit | 961 |
| Other income | 21 |
| Selling and distribution costs | (283) |
| Administrative expenses | (304) |
| Finance costs | (85) |
| Share of profit of joint venture | 85 |
| Profit before tax | 395 |
| Income tax expense | (80) |
| Profit for the year | 315 |
| Other comprehensive income: | |
| Revaluation gain on property, plant and equipment (net of deferred tax) | 105 |
| Total comprehensive income | 420 |
| Profit for the year: | |
| Attributable to the owners of the parent | 290 |
| Attributable to the owners of the parent | 25 |
| Attributable to the non-controlling interests | 315 |
Assets: | 2018 Sh."million" | 2017 Sh."million" |
| Non-current assets: | ||
| Property, plant and equipment | 2,831 | 2,345 |
| Interest in joint venture | 427 | 380 |
| Goodwill on acquisition | 432 | 455 |
| 3,690 | 3,180 | |
| Current assets: | ||
| Inventory | 170 | 128 |
| Accounts receivable | 238 | 214 |
| Cash and cash equivalents | 78 | 63 |
| 486 | 405 | |
| Total assets | 4,176 | 3,585 |
| Equity and liabilities: | ||
| Equity | ||
| Ordinary share capital | 1,320 | 1,000 |
| Share premium | 460 | 400 |
| Revaluation surplus | 284 | 200 |
| Retained profit | 570 | 360 |
| Owner's equity | 2,634 | 1,960 |
| Non-controlling interests | 186 | 180 |
| 2,820 | 2,140 | |
| Non-current liabilities: | ||
| 10% convertible loan stock | 78 | 960 |
| Deferred tax | 150 | 185 |
| Current liabilities: | ||
| Accounts payable | 234 | 175 |
| Current tax | 92 | 94 |
| Interest payable | 100 | 31 |
| Total equity and liabilities | 4,176 | 3,585 |
| Ordinary share capital Sh."million" | Share premium Sh."million" | Revaluation surplus Sh."million" | Retained profit Sh."million" | Total Sh."million" | |
| As at I October 2017 | 1,000 | 400 | 200 | 360 | 1.960 |
| New share issue | 320 | 60 | 380 | ||
| Revaluation of property,plant and equipment | 84 | 84 | |||
| Profit for the year | 290 | 290 | |||
| Dividend paid | (80) | (80) | |||
| As at 30 September 2018 | 1,320 | 460 | 284 | 570 | 2,634 |
| 1 | The property, plant and equipment account comprised the following: | ||
| 30 September 2018 Sh."million" | 30 September 2017 Sh."million" | ||
| Cost | 3,765 | 2,970 | |
| Accumulated depreciation | (934) | (625) | |
| Carrying amount | 2,831 | 2,345 | |
| During the year ended 30 September 2018, an 80% owned subsidiary revalued its property upwards by Sh.150 million. The holding company disposed of an item of plant which had cost Sh.290 million and had accumulated depreciation of Sh.96 million. The disposal proceeds amounted to Sh.215 million. | |
| 2 | The 10% convertible loan stock was convertible at any time at the holders' option into 20 ordinary shares of Sh.10 each for every Sh.200 of the loan stock. During the year ended 30 September 2018, holders of Sh.180 million of 10% convertible loan stock exercised their conversion option. |
| 3 | Impairment loss on goodwill and depreciation for the year ended 30 September 2018 have been charged profit or loss for the year. |
| 4 | Assume a corporation tax rate of 30%. |
| 1 | On 11 July 2018, a fire completely destroyed the company's largest warehouse and the inventory it contained. The carrying amounts of the warehouse and the inventory were Sh.80,000,000 and Sh.50,000,000 respectively. It appears that the company has not updated the value of its insurance cover and only expects to be able to recover a maximum of Sh.70,000,000 from its insurers. Miaka Nenda Ltd's trading operations have been severely disrupted since the fire and it expects significant trading losses for some time to come. |
| 2 | A single class of inventory held at another warehouse was valued at its cost of Sh.9,200,000 as at 30 June 2018. In July 2018, 70% of this inventory was sold for Sh.5,600,000 on which the company's staff earned a commission of 15% of the selling price. |
| 3 | On 10 August 2018, the government announced tax changes which had the effect of increasing the company's deferred tax liability by Sh.7,000,000 as at 30 June 2018. |
| A, B and C Statement of financial position as at 10 May 2018 | ||
| Assets | Sh."000" | Sh."000" |
| Non-current assets (net book value): | ||
| Land and building | 182,000 | |
| Plant and machinery | 73,600 | |
| Fixtures and fittings | 20,800 | |
| Motor vehicle | 7,200 | |
| Intangible asset (goodwill) | 89,200 | |
| Current assets: | ||
| Inventory | 68,000 | |
| Trade receivables | 62,000 | |
| Bank balance | 9,200 | |
| Cash balance | 3,200 | 142,400 |
| 515,200 | ||
| Capital and liabilities: | ||
| Capital accounts: A | 100,000 | |
| B | 64,000 | |
| C | 40,000 | |
| 204,000 | ||
| Current accounts: A | 32,000 | |
| B | 22,000 | 54,000 |
| 258,000 | ||
| Long-term liability: | ||
| Bank loan | 160,000 | |
| Current liabilities: | 33,200 | |
| Trade payables | 64,000 | |
| Bank overdraft | 97,200 | |
| 515,200 | ||
| 1 | The partnership had an insurance policy which entitled the firm to Sh.40,000,000 immediately a partner left. |
| 2 | Dissolution expenses amounted to Sh.1,800,000 and were paid on 30 August 2018. |
| 3 | As soon as sufficient money was available, all the outstanding payables were paid after the discount received which amounted to Sh.1,000,000. |
| 4 | Assets were sold and the monies received on piecemeal basis as follows: | ||
| Date | Particulars | Amount Sh."000" | |
| 30 May 2018: | Insurance policy | 40,000 | |
| Insurance benefit received (interest) | 16,000 | ||
| Land and building | 180,000 | ||
| 25 June 2018: | Plant and machinery | 41,200 | |
| Trade receivables | 26,000 | ||
| 20 July 2018: | Motor vehicle | 6,400 | |
| Fixtures and fittings | 8,800 | ||
| 15 August 2018: | Plant and machinery | 32,400 | |
| Fixtures and fittings | 8,000 | ||
| 20 September 2018: | Inventory | 68,000 | |
| Trade receivables | 40,000 | ||
| Sh."000" | Sh."000" | |
| Costs charged to clients on: | 4,250 | |
| Civil cases | 2,450 | |
| Criminal cases | 260 | |
| Oaths | 340 | |
| Conveyance fees | 200 | |
| Preparation of wills | 1,104 | |
| Cases in progress as at 1 October 2017 | 744 | |
| Clients account (money held on behalf of clients) | 816 | |
| Accounts payable | 2,440 | |
| Accounts receivable | 255 | |
| General office expenses | 255 | |
| Furniture, fittings and library books | 1,350 | |
| Cash at bank: Clients' account | 744 | |
| Office | 1,671 | |
| Capital | 6,220 | |
| Disbursements on behalf of clients | 360 | |
| Drawings | 1,800 | |
| Salaries to office staff | 2,160 | |
| Rent and rates | 1,800 | |
| Postage and telephone | 546 | |
| Printing and stationery | 1,050 | |
| 15,280 | 15,280 |
| 1 | It is estimated that debts amounting to Sh. 165,000 might not be collected and should be written off. |
| 2 | Depreciation should be provided at the rate of 20% per annum on the book value of furniture, fittings and library books. |
| 3 | Cases in progress as at 30 September 2018 were valued at Sh.705,000. |
Want to join the discussion?
Log in to post comments and interact with tutors.
Login to Comment