Unit: Financial Reporting
9 Questions| Sh."000" | Sh."000" | |
| Property at cost (Building: Sh.50 million) | 60,000 | |
| Plant and equipment at cost | 25,000 | |
| Motor vehicles at cost | 12,000 | |
| Furniture and fixtures at cost | 4,000 | |
| Provision for depreciation (1 July 2018): | ||
| Building | 5,000 | |
| Plant and equipment | 13,000 | |
| Motor vehicles | 4,800 | |
| Furniture and fixtures | 1,600 | |
| Net profit for the year to 30 June 2019 | 28,800 | |
| Trade receivables and trade payables | 14,700 | |
| Inventory (30 June 2019) | 18,200 | |
| Cash at bank balances | 25,300 | |
| Fixed capital accounts: | 8,120 | |
| Chanda | 30,000 | |
| Pete | 20,000 | |
| Tenda | 10,000 | |
| Bank loan | 18,000 | |
| Current accounts: | ||
| Chanda | 4,280 | |
| Pete | 3,560 | |
| Tenda | 2,340 | |
| Drawings: | ||
| Chanda | 1,580 | |
| Pete | 1,170 | |
| Tenda | 710 | |
| 156,080 | 156,080 |
| 1 | The property, plant and equipment in the partnership were being depreciated as follows: |
| Asset | Rate per annum | Basis | |
| Building | 2% | Straight line | |
| Plant and equipment | 12.5% | Reducing balance | |
| Motor vehicles | 20% | Straight line | |
| Furniture and fixtures | 10% | Straight line | |
| Depreciation for the year ended 30 June 2019 had not been provided for. | |||
| 2 | The partners were entitled to an interest on their fixed capital balances at the rate of 10% per annum. No salaries were paid to the partners. |
| 3 | The tangible non-current assets were to be transferred to the new company at their fair values as follows: |
| Sh. "000" | ||
| Property | 57,000 | |
| Plant and equipment | 16,000 | |
| Motor vehicles | 9,500 | |
| Furniture and fixtures | 3,500 |
| 4 | The current assets and the liabilities were taken over by the new company at their book values. |
| 5 | The purchase consideration amounted to Sh.110 million and was settled by the new company through the issue of ordinary shares of Sh.10 each to the partners in satisfaction of the amounts due to them upon conversion. |
| Sh."000" | Sh."000" | |
| 6% convertible loan notes | 25,000 | |
| Ordinary shares (Sh.10 each) | 61,000 | |
| Retained earnings (1 October 2018) | 177,000 | |
| Revenue | 216,000 | |
| Cost of sales | 108,500 | |
| Distribution costs | 23,600 | |
| Administrative expenses | 44,000 | |
| Inventory (30 September 2019) | 18,750 | |
| Trade and other receivables | 27,300 | |
| Trade and other payables | 23,800 | |
| Finance costs | 6,200 | |
| Investment income | 600 | |
| Current tax | 650 | |
| Deferred tax | 13,900 | |
| Property at cost (Land: Sh.60 million) | 170,000 | |
| Accumulated depreciation (1 October 2018) | 22,000 | |
| Plant and equipment at cost | 56,000 | |
| Accumulated depreciation (1 October 2018) | 18,000 | |
| Bank balance | 76,000 | |
| Investment property | 120,000 | |
| Suspense account | 24,000 | |
| 581,950 | 581,950 |
| 1 | Skytex Limited entered into a contract with a customer where performance obligation is satisfied over time. The total contract price is Sh.45 million, with total expected contract costs of Sh.25 million. Progress towards completion was measured at 50% on 30 September 2018 and at 80% on 30 September 2019. The correct entries were made in the year ended 30 September 2018, but no entries have been made for the year ended 30 September 2019. |
| 2 | On 1 April 2019, Skytex Limited was notified that an ex-employee had initiated court proceedings against them for unfair termination. Legal advice was that there was an 80% chance that Skytex Limited would lose the case and would be required to pay an estimated amount of Sh.5.06 million in damages on 1 April 2020. Based on this advice, Skytex Limited recorded a provision of Sh.4 million on 1 April 2019 and has made no further adjustments. The provision was recorded in administrative expenses and in trade and other payables. Skytex Limited's cost of capital is 10% per annum and the discount factor at 10% for one year is 0.9091. |
| 3 | The company's policy on depreciation is to charge depreciation on building on straight line basis to a nil residual value at the rate of 2% per annum. The plant and equipment should be depreciated on reducing balance basis at the rate of 12.5% per annum. All depreciation should be charged to cost of sales. |
| 4 | The company issued Sh.25 million 6% convertible loan notes on 1 October 2018. Interest is payable annually in arrears. The loan notes can be converted into one share for every Sh.2 of the loan note on 30 September 2020. Similar loan notes, without conversion rights, incur interest at the rate of 8%. Skytex Limited recorded the full amount in liabilities and has recorded the annual interest payment made on 30 September 2019 of Sh.1.5 million in finance costs. Relevant discount factors are as follows: |
| Present value of Sh.1 in: | 6% | 8% | |
| 1 year | 0.943 | 0.926 | |
| 2 years | 0.890 | 0.857 |
| 5 | The balance of current tax in the trial balance relates to an under/overprovision from the prior period. The tax estimate for the year ended 30 September 2019 is Sh.10.5 million. In addition, there has been a decrease in taxable temporary differences of Sh.10 million during the year. Skytex Limited pays tax at the rate of 30% and movements in deferred tax are to be taken to the statement of profit or loss. |
| 6 | On 1 February 2019, Skytex Limited issued 1.5 million ordinary shares at their full market price of Sh.16 per share. The proceeds were credited to a suspense account. |
| 7 | The investment property in the trial balance is stated at fair value as at 30 September 2018. The fair value as at 30 September 2019 amounted to Sh.121.5 million. |
| Sh."000" | Sh."000" | ||
| Property, plant and equipment | 10,500 | ||
| Depreciation of non-current assets | 905 | ||
| Investment in government bonds and other securities | 1,400 | ||
| Gross premiums received from agents | - Marine | 3,000 | |
| - Fire | 2,500 | ||
| Gross premiums received from brokers | - Marine | 1,500 | |
| - Fire | 600 | ||
| Gross premiums received from direct clients | - Marine | 500 | |
| - Fire | 1,000 | ||
| Reinsurance premiums accepted | - Marine | 600 | |
| Reinsurance premiums ceded | - Marine | 700 | |
| - Fire | 300 | ||
| Sundry receivables | 750 | ||
| Bank | 90 | ||
| Directors fees | 495 | ||
| Audit fee | 240 | ||
| Unearned premiums as at 1 October 2018 | - Marine | 4,800 | |
| - Fire | 2,500 | ||
| Claims outstanding as at 1 October 2018 | - Marine | 1,100 | |
| - Fire | 840 | ||
| Claims paid | - Marine | 2,770 | |
| - Fire | 2,100 | ||
| Legal cost on claims | - Marine | 280 | |
| - Fire | 130 | ||
| Survey expenses on marine claims | 220 | ||
| Bad debts | - Marine | 370 | |
| - Fire | 320 | ||
| Management expenses | - Marine | 450 | |
| - Fire | 380 | ||
| Trade payables | 230 | ||
| Investment income | 280 | ||
| Ordinary shares of Sh.1,000 each | 4,000 | ||
| Retained profits (1 October 2018) | 450 | ||
| Premiums outstanding (1 October 2018) | - Marine | 800 | |
| - Fire | 700 | ||
| 23,900 | 23,900 | ||
| 1 | Premiums outstanding as at 30 September 2019 amounted to Sh.1,970,000 and Sh.1,200,000 for Marine Insurance and Fire Insurance respectively. |
| 2 | Claims intimated and outstanding as at 30 September 2019 amounted to Sh.750,000 for Marine Insurance and Sh.480,000 for Fire Insurance. |
| 3 | Unearned premium is maintained at 100% and 50% of the premiums received for marine insurance and fire insurance respectively. |
| 4 | The tax rate applicable is 30%. |
| Assets | Beyond Ltd. | Horizon Ltd. |
| Non-current assets: | Sh."000" | Sh."000" |
| Property, plant and equipment | 1,162,800 | 321,390 |
| Investments | 774,500 | - |
| 1,937,300 | 321,390 | |
| Current assets: | ||
| Inventories | 523,600 | 398,500 |
| Trade and other receivables | 401,860 | 203,650 |
| Cash and cash equivalents | 52,600 | 1,100 |
| 978,060 | 603,250 | |
| Total assets | 2,915,360 | 924,640 |
| Equity and liabilities: | ||
| Equity: | ||
| Ordinary share capital(Sh.10 each) | 600,000 | 200,000 |
| Share premium | 100,000 | 50,000 |
| Retained earnings | 1,776,260 | 502,540 |
| 2,476,260 | 752,540 | |
| Current liabilities: | ||
| Trade and other payables | 385,200 | 148,500 |
| Income tax | 53,900 | 23,600 |
| 439,100 | 172,100 | |
| Total equity and liabilities | 2,915,360 | 924,640 |
| 1 | Beyond Ltd. acquired 80% of the ordinary shares of Horizon Ltd. on 1 January 2019. The purchase consideration was made up of cash of Sh.650 million paid on 1 January 2019 and a further cash payment of Sh.147 million deferred until 1 January 2020. No accounting entries have been made in respect of the deferred cash payment. An appropriate discount rate is 5% per annum. Beyond Ltd. recognises goodwill on non controlling interest using the fair value method. |
| 2 | The fair value of the assets, liabilities and contingent liabilities as at 1 January 2019 were equal to their carrying value with the exception of a machine which had a fair value of Sh.60 million in excess of its carrying amount. This machine had a 6 years remaining useful life on 1 January 2019. |
| 3 | The fair value of the non contrólling interest in Horizon Ltd. on 1 January 2019 was estimated at Sh.150 million. |
| 4 | In June 2019, Horizon Ltd. sold goods to Beyond Ltd. for Sh.16 million. Half of these goods were still held in the stock of Beyond Ltd. on 30 June 2019. Horizon Ltd. marks up all goods by 20%. |
| 5 | On 30 June 2019, Horizon Ltd.'s trade receivables still included the Sh.16 million due from Beyond Ltd. However, Beyond Ltd.'s trade payables only included Sh.11 million in respect of this transaction as it had made a payment of Sh. 5 million to Horizon Ltd. on 30 June 2019. |
| 6 | On 1 July 2018, Beyond Ltd. acquired 30% of the ordinary shares in Sky Ltd. for cash payment of Sh.120.5 million which gave Beyond Ltd. significant influence over Sky Ltd. At that date, a property owned by Sky Ltd. had a fair value of Sh.50 million in excess of its carrying amount. This property had a remaining useful life of 20 years-on 1 July 2018. |
| 7 | In the year ended 30 June 2019, Horizon Ltd. made a profit of Sh.56.8 million out of which it paid a dividend of Sh.20 million on 30 April 2019. Beyond Ltd. debited the dividend received to cash and credited it to investments. |
| Sh."000" | |
| Interest income | 364,524 |
| Interest expense | (107,571) |
| Net interest income | 256,953 |
| Fees and commission income | 132,374 |
| Fees and commission expense | (24,183) |
| 108,191 | |
| Other income | 9,727 |
| Operating income | 374,871 |
| Impairment charge on loans and advances | (93,492) |
| Operating expenses | (169,317) |
| Profit before tax | 112,062 |
| Income tax expense | (33,617) |
| Profit for the year | 78,445 |
| 2019 Sh."000" | 2018 Sh."000" | |
| Assets: | ||
| Cash and cash equivalents | 577,767 | 752,303 |
| Government securities | 2,037,292 | 1,851,337 |
| Advances to banks | 214,875 | 107,407 |
| Loans and advances to customers | 1,190,782 | 1,145,133 |
| Property and equipment | 139,889 | 123,936 |
| Intangible assets | 18,131 | 12,162 |
| Income tax assets | 6,626 | 5,778 |
| 4,185,362 | 4,004,056 | |
| Equity and liabilities: | ||
| Share capital | 100,000 | 100,000 |
| Retained earnings | 545,238 | 466,793 |
| 645,238 | 566,793 | |
| Labilities: | ||
| Deposits from customers | 3,368,406 | 3,078,071 |
| Other liabilities and provisions | 171,718 | 359,192 |
| 3,540,124 | 3,437,263 | |
| Total equity and liabilities | 4,185,362 | 4,004,056. |
| 1 | Interest income comprised: | Sh."000" |
| Cash and short term funds | 37,652 | |
| Loans and advances | 326,872 | |
| 364,524 |
| During the year, interest received amounted to Sh.131,292,000 while interest paid amounted to Sh.94,578,000. |
| 2 | Interest expense comprised: | Sh."000" | |
| Current and savings account | 57,253 | ||
| Time and other deposits | 38,828 | ||
| Borrowings | 11,490 | ||
| 107,571 | |||
| 3 | Other income comprised: | Sh."000". | |
| Dividends | 9,685 | ||
| Profit on sale of property and equipment | 42 | ||
| 9,727 | |||
| Dividends paid during the year amounted to Sh.4,800,000. | |||
| 4 | Operating expense comprised: | Sh."000" | |
| Staff salaries | 125,160 | ||
| Advertising and marketing expenses | 498 | ||
| Training cost | 4,241 | ||
| Audit fees | 696 | ||
| Directors fees | 1,957 | ||
| Depreciation of property and equipment | 30,688 | ||
| Amortisation of software | 6,077 | ||
| 169,317 | |||
| 5 | Property, plant and equipment movement schedule: | ||
Cost: | 2019 Sh."000" | 2018 Sh."000" | |
| Balance brought forward | 228,657 | 165,128 | |
| Additions | 46,641 | 63,672 | |
| Disposal | 275,178 | 228,657 | |
| Balance carried down | (120) | (143) | |
| Depreciation: | |||
| Balance brought forward | 104,721 | 83,729 | |
| Charge for the year | 30,688 | 21,135 | |
| Released on disposal | (120) | (143) | |
| Balance carried down | 135,289 | 104,721 | |
| Net book value | 139,889 | 123,936 | |
| 6 | Intangible assets: | 2019 | 2018 |
| Cost | Sh."000" | Sh."000" | |
| Balance bought forward | 24,241 | 13,077 | |
| Additions | 12,046 | 11,164 | |
| Balance carried down | 36,287 | 24,241 | |
| Amortisation: | |||
| Balance brought forward | 12,079 | 9,123 | |
| Charge for the year | 6,077 | 2,956 | |
| Balance carried down | 18,156 | 12,079 | |
| Net book value | 18.131 | 12,162 | |
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