Unit: Financial Reporting
9 Questions| Sh."000" | Sh."000" | |
| Revenue | 68,865 | |
| Inventory | 3,150 | |
| Cost of sales | 35,500 | |
| Selling and distribution expenses | 5,600 | |
| Administration expenses | 8,540 | |
| Interest on loan note | 110 | |
| Investment income | 360 | |
| Bank interest | 85 | |
| Leasehold building at valuation (1 October 2018) | 14,000 | |
| Plant and equipment cost/depreciation | 13,750 | |
| Computer equipment - cost/depreciation | 7,200 | |
| Motor vehicles cost/depreciation | 1,500 | |
| Available for sale investments | 8,700 | |
| Trade receivables | 9,200 | |
| Bank balance | 910 | |
| Trade payables | 3,400 | |
| Deferred tax (1 October 2018) | 2,300 | |
| Ordinary shares of Sh.29 each | 14,500 | |
| 8% loan note (2017-2021) | 2,500 | |
| 10% preference shares (redeemable) | 3,000 | |
| Revaluatio surplus | 800 | |
| General reserve | 1,500 | |
| Retained earnings(1 october 2018) | 3,600 | |
| 107,335 | 107,335 |
| 1 | On 31 March 2019, the company made a bonus issue from retained earnings of one new share for every four shares in issue at Sh. 10 each. This transaction is yet to be recorded in the books. The company paid ordinary dividends of Sh.2.20 per share on 31 January 2019 and Sh.2.60 per share on 30 June 2019. The dividend payments are included in administrative expenses in the trial balance |
| 2 | Interest on loan notes and dividend on preference shares have not yet been accounted for. |
| 3 | Revenue includes Sh.8 million for credit sales made on a "sale or return basis" As at 30 September 2019, customers who had not paid for the goods, had the right to return Sh.2.6 million of them. Tamutamu Industries Ltd. applied a mark up of 30% on all sales. in the past, the company's customers have sometimes returned goods under this type of agreement |
| 4 | Depreciation on property, plant and equipment is to be provided on the following basis, Plant and equipment - 10% on cost charged to cost of sales, computer equipment 25% on cost charged to administrative expenses, motor vehicles-20% on reducing balance charged to selling and distribution expenses. |
| 5 | Tamutamu Ltd revalues its building at the end of each accounting year. At 30 September 2019, the relevant value to be incorporated into the financial statements was Sh.14,100,000. The building's remaining useful life at the beginning of the current year (1 October 2018) was 25 years. Tamutamu Ltd. does not make an annual transfer from the revaluation reserve to retained earnings in respect of the realisation of the revaluation surplus. Depreciation on building is an administrative expense. Ignore deferred tax on the revaluation surplus |
| 6 | The available for sale investments held at 30 September 2019 had a fair value of Sh 8,400,000. There were no acquisitions or disposals of these investments during the year |
| 7 | In February 2019, Tamatamu Ltd's internal audit unit discovered a fraud committed by the company's credit manager who did not return from a foreign business trip. The outcome of the fraud is that Sh. 500,000 of the company's trade receivables have been stolen and are not recoverable. Of this amount, Sh.200,000 relates to the year ended 30 September 2018 and the remainder to the current year. Tumutamu Ltd is not insured against this fraud |
| 8 | Income tax payable on the profit for the year ended 30 September 2019 is esumated to be Sh 3.500.000. Алата af Sh 1,200,000 is to be transferred to the deferred tax account |
| Aby Limited | Benta Limited | |
| Assets | Sh."million | Sh."million |
| Non-current assets: | ||
| Property, plant and equipment | 25,200 | 5,420 |
| Investments | 8,120 | Nil |
| 33,410 | 5,420 | |
| Current assets | ||
| Inventory | 2,750 | 1,295 |
| Trade receivables | 2,135 | 1,010 |
| Cash and bank balances | 1,220 | 575 |
| Total assets | 39,515 | 8,300 |
| Equity and liabilities | ||
| Equity | ||
| Ordinary shares of Sh. 10 each | 12,500 | 3,800 |
| Revaluation surplus | 2,700 | 260 |
| Retained profit | 13,600 | 2,350 |
| 28,800 | 6,410 | |
| Non-current liabilities: | ||
| Deferred consideration | 1,800 | Nil |
| Deferred consideration | 2,450 | 500 |
| Deferred tax | 1,920 | 375 |
| Current liabilities: | ||
| Trade payables | 3,200 | 655 |
| Current tax | 1,345 | 360 |
| Total equity and liabilities | 39,515 | 8,300 |
| 1 | On 1 May 2019, Aby Limited acquired 80% of the share capital of Benta Limited. At this date, the retained profit of Benta Limited amounted to Sh.2,200 million and the revaluation surplus stood at Sh.260 million. Aby Limited paid an initial cash consideration of Sh.5,940 million and agreed to pay the owners of Benta Limited a further Sh.1,800 million on 1 May 2021. The accountant of Aby Limited has recorded the full amounts of both elements of the consideration in investments. Aby Limited has a cost of capital of 8% and the appropriated discount factor is 0.857. |
| 2 | On 1 May 2019, the fair values of Benta Limited's net assets were equal to their carrying amounts with the exception of some inventory which had cost Sh.193 million but had a fair value of Sh.233 million. On 30 April 2020, 10% of these goods remained in the inventory of Benta Limited. |
| 3 | During the year, Aby Limited sold goods worth Sh.515 million to Benta Limited at a profit mark up of 25% above the cost. At 30 April 2020, Benta Limited still held Sh.75 million of these goods in its inventory |
| 4 | On 1 May 2019, Aby Limited also acquired an investment of 30% of the ordinary shares in Ceda Limited which cost Sh 380 million. Ceda Limited reported a profit of Sh.850 million during the year ended 30 April 2020 |
| 5 | Aby Limited has a policy of valuing non-controlling interests at fair value. On 1 May 2019, the non-controlling interest in Benta Limited had a fair value of Sh.1,317 million. |
| 6 | Impairment tests carried out on 30 April 2020 concluded that the value of the investment in Ceda Limited was impaired by Sh.85 million while the consolidated goodwill was impaired by Sh. 100 million. |
| Sole Traders Statement of financial position as at 30 September 2018 | Minira Traders Statement of financial position as at 30 September 2019 | ||
| Mika | Nira | ||
| Assets | Sh."000" | Sh."000" | Sh."000" |
| Freehold property | 3,000 | 2,000 | 8,000 |
| Plant and equipment | 13,600 | 11,200 | 26,000 |
| Fixtures and fittings | 3,200 | 3,100 | 6,000 |
| Inventory | 3,600 | 700 | 6,700 |
| Accounts receivable | 3,800 | 2,000 | 12,840 |
| Balance at bank | 600 | 300 | 250 |
| 27,800 | 19,300 | 59,790 | |
| Liabilities: | |||
| Accounts payable | (13,600) | (8,000) | (19,840) |
| Bank overdraft | - | - | (11,250) |
| 14,200 | 11,300 | 28,700 | |
| 1 | On 1 October 2018, the partners agreed to take up the assets and liabilities of the individual traders at book value except for freehold property, plant and equipment and fixtures and fittings which were to be revalued as follows |
| Mika Sh."000" | Nira Sh."000" | ||
| Freehold property | 4,000 | 3,000 | |
| Plant and equipment | 13,000 | 11,000 | |
| Fixtures and fittings | 3,000 | 3,000 |
| 2 | During the year ended 30 September 2019, Mika made drawings of Sh.4.780,000 while Nira drew Sh. 1,220,000. |
| 3 | The partnership was converted into a limited company. MN Ltd., on the following terms: |
| (i) | The freehold property and accounts receivable were revalued to Sh.12,000,000 and Sh.11,340,000 respectively. | |
| (ii) | Mika and Nıra were to receive 15% unsecured debentures at par so as to provide each partner with income equivalent to a 6% return on capital employed based on capital balances as at 30 September 2019 (that is after accounting for the profits, drawings and revaluation in note (i) above) | |
| (iii) | MN Ltd.'s authorised share capital was made up of 150,000 ordinary shares of Sh.100 each out of which 130,000 shares were to be issued to the partners in their profit sharing ratio. | |
| (iv) | Any balances in the partners' capital accounts were to be settled in cash. |
| Sh."000" | Sh."000" | |
| Inventory (1 November 2018): Dairy cattle | 54,900 | |
| Maize (growing) | 3,600 | |
| Dairy cattle feeds | 2,520 | |
| Fertilisers (for maize) | 1,980 | |
| Land and buildings | 90,000 | |
| Tractors (net book value) | 32,400 | |
| Other cattle (bulls) | 6,000 | |
| Carts (net book value) | 3,000 | |
| Purchases: Dairy cattle | 10,440 | |
| Fertilizers (for maize) | 2,160 | |
| (for napier grass) | 4,000 | |
| Maize seeds | 1,080 | |
| Dairy cattle feeds | 6,120 | |
| Sales: Milk | 27,360 | |
| Dry maize | 36,000 | |
| Green maize | 11,340 | |
| Dairy cattle | 8,100 | |
| Manure | 3,000 | |
| Crop expenses: Labour | 6,480 | |
| Other expenses | 720 | |
| Napier grass (labour) | 1,000 | |
| General expenses | 10,800 | |
| Trade payables | 15,620 | |
| Capital (1 November 2018) | 163,080 | |
| Cash at bank | 15,300 | |
| Dairy cattle expenses: Medicine | 1,080 | |
| Labour | 9,480 | |
| Other expenses | 1,440 | |
| 264,500 | 264,500 |
| 1 | Inventories as at 31 October 2019 were valued as follows: |
| Sh."000" | ||
| Dairy cattle | 54,000 | |
| Maize (growing) | 2,700 | |
| Other cattle (bulls) | 5,400 | |
| Dairy cattle feeds | 1,620 | |
| Fertilizers for planting maize | 1,080 |
| 2 | During the financial year ended 31 October 2019, the following distributions of farm produce were made |
| Value | ||
| Product | Sh."000" | |
| Maize consumed by family members | 1,080 | |
| Milk delivered to relative's hotel | 4,320 | |
| 5,400 |
| 3 | Manure valued at Sh.600,000 was removed from the cow shed and used in the maize plantation |
| 4 | Maize stocks valued at Sh. 1,500,000 were used as dairy cattle feed. |
| 5 | Cattle bulls are used for pulling carts |
| 6 | Depreciation is to be provided on tractors and carts on the retfucing balance method at the rate of 25% and 12% per annum respectively |
| 7 | Income tax is estimated at Sh.3,600,000. |
Want to join the discussion?
Log in to post comments and interact with tutors.
Login to Comment