QUESTION 1(a)

Q With reference to International Public Sector Accounting Standard (IPSAS) 14-Events After the Balance Sheet Date:

(i) Describe the two categories of events after the balance sheet date.

(ii) Explain two disclosure requirements for each category of events identified in (a) (i) above.

Solution

Two Categories of Events After the Balance Sheet Date:

a. Adjusting Events:

These are events that provide further evidence of conditions that existed at the end of the reporting period.

Adjusting events require adjustments to the financial statements to reflect the new information.

Examples include the resolution of a lawsuit or the determination of the fair value of an asset at the reporting date.

b. Non-adjusting Events:

These are events that are indicative of conditions that arose after the reporting period.

Non-adjusting events do not require adjustments to the financial statements but may require disclosure.

Examples include a business combination, major restructuring, or a natural disaster occurring after the reporting date.

Disclosure Requirements:

a. Adjusting Events (i):

For adjusting events, the financial statements should be adjusted to reflect the new information.

There is no specific disclosure requirement for adjusting events because they are reflected in the financial statements.

b. Non-adjusting Events (i):

For non-adjusting events, the entity is required to disclose the nature of the event and an estimate of its financial effect, or a statement that such an estimate cannot be made.

If it is not practicable to estimate the financial effect, that fact should be disclosed.

If an entity concludes that a non-adjusting event is not material, it does not need to be disclosed.

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QUESTION 1b

Q In the context of International Accounting Standard (IAS) 40-Investment Property:

(i) Define an "investment property", citing two examples.

(ii) Identify two types of property that are specifically not considered as investment property.

(iii) Discuss the fair value model as applied in the valuation of investment property.

Solution

IAS 40 - Investment Property

(i) Definition of "Investment Property" with Examples:

According to IAS 40, an "investment property" is defined as property (land or a building, or part of a building, or both) held to earn rentals or for capital appreciation or both, rather than for:

Use in the production or supply of goods or services or for administrative purposes; or
Sale in the ordinary course of business.

Examples of investment property include commercial buildings, residential properties held for rental income, and vacant land held for capital appreciation.

(ii) Types of Property Not Considered as Investment Property:

Properties that are specifically not considered as investment property under IAS 40 include:

Properties held for use in the production or supply of goods or services or for administrative purposes.
Properties held for sale in the ordinary course of business.
Properties that are being constructed or developed for future use as investment property.

(iii) Fair Value Model in the Valuation of Investment Property:

The fair value model, as applied in the valuation of investment property, requires that the property be measured at fair value at each reporting date. The key points regarding the fair value model include:

Changes in fair value are recognized in the profit or loss for the period.
Fair value is determined based on active market prices, if available. If there is no active market, the entity uses valuation techniques to determine fair value.
Gains or losses arising from changes in fair value are not considered as changes in accounting estimates and are recognized as income or expenses in the period in which they arise.

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QUESTION 2(a)

Q Realisation account.

Solution

W1

Purchase consideration

Ordinary shares Sh.10 x 15,000
Premium Shares(24% x 150,000)

"Sh.000"
150,000
36,000
186,000

Realization accounts
Equipment (20 - 8) Motor vehicle (55 - 25) Cash and bank Prepayments Inventory Receivable Premises Conversion cost Realization gain(bal): 34,000 :- Diva - :-Vunia	12,000 30,000 21,000 3,000 70,000 45,000 100,000 3,000 25,500 8,500 318,000	Accruals Payables Asset taken over Purchase consideration:	9,000 118,000 5,000 186,000 318,000

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QUESTION 2(b)

Q Partners' capital accounts.

Solution

Trade payables and Accruals balance(To be paid by partners)
Trade payables(118,000 - 80,000) Accrualse balance (9,000 - 10,000)	38,000 (1,000) 37,000

To be shared using Garner v Murray rule.

In the case of a partner's insolvency, any losses should be distributed based on the proportions of their most recently agreed-upon capital balances before the dissolution occurred. This principle is commonly referred to as the Garner v Murray rule.

D → 28,025

V → 8,975

W2

Interest on capital

D → 15% x 20,000 = 3,000

V → 15% x 30,000 = 4,500

W3

Interest on drawings

D → 10% x 15,000 x 6 / 12 = 750

V → 10% x 10,000 x 3 / 12 = 250

W4

Appropriation account for net profit
Net profit Add: interest on drawing (750 + 250) Less: Interest on capital (3,000 + 4500) Adjusted profit	149,000 1,000 (7,500) 142,500

Share:
Dida = 3 / 4 x 142,500 = 106,875
Vuma = 1 / 4 x 142,500 = 35,625

Partners capital account
	Dida	Vuma		Dida	Vuma
Drawings Motor vehicle Interest on drawing. Payables & Accruals Purchase consideration (shares)	15,000 750 28,025 111,600	10,000 5,000 250 8,975 74,400	Bal b/d Salary Interest on capital Net profit share Realisation gain	20,000 3,000 106,875 25,500	30,000 20,000 4,500 35,625 8,500
	155,375	98,625		155,375	98,625

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QUESTION 2(c)

Q Statement of financial position of Fariji Ltd. as at 2 May 2017

Solution

W1

Goodwill = 186,000 - (50,000 + 18,000 + 10,000 + 95,000 + 63,000 - 80,000 - 10,000)

186,000 - 146,000 = 40,000

Fariji Itd Statement of financial position as at 2 May 2017
Assets Non current asset Premises Motor vehicle Equipment Goodwill (W2) Current assets Receivable 100,000×95% Inventory 70,000×90% Equity & liabilities Ordinary share capital 15,000×10 Share premium 15,000×2.4 Liabilities Trade payables Accruals	Sh 000 50,000 18,000 10,000 40,000 95000 63,000 276,000 150,000 36,000 80,000 10.000 276,000

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QUESTION 3(a)

Q Statement of comprehensive income for the year ended 31 March 2017.

Solution

workings

Note1

Revaluation
Land Building	40,000 80,000 - 40,000 = 40,000	→ 24,000 → 70,000 Net gain	(16,000) 30,000 14,000

Depreciation of building = 70,000 / 14 = 5,000

Note2

Depreciation on plant = 20%(189,000 - 49,000) = 28,000

Note3


Provision for Directors remuniration Expenses Current tax Deferred tax(18,800 - 12,400)	11,000 54,400 6,400 60,800

Note 4:

Rights issue
10,000 / 4 = 2,500

Dr: Cash 2,500 × 24 = 60,000
Cr. Ordinary share 2,500 x 10 = 25,000
Cr: Share premium 2,500 × 14 = 35,000

Adjustment for administration expenses
Balance b/d Deprecation (5,000 + 28,000) Provision for directors remuneration PPE Land Building 70 - 5,000 Plant and equipment (189,000 - 49,000 - 28,000)	61,800 33,000 11,000 105,800 24,000 65,000 112,000 201,000

Apple Ltd Statement of comprehensive income for the year ended 31 march 2017
Revenue Cost of sales Gross profit Expenses Administrative expenses Distribution expenses Finance cost Profit before tax Tax expense Profit after tax Other comprehensive income Revaluation Total comprehensive income	Sh 000 1,100,000 (823,000) 277,000 (105,800) (43,000) (1,400) 126,800 (60,800) 66,000 14,000 80,000

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QUESTION 3(b)

Q Statement of changes in equity as at 31 March 2017.

Solution

Apple Ltd Statements of changes in Equity for the year ended 31 March 2017
	Ordinary Share	Share premium	Retained earnings	Revaluation	Total
Balance b/d Issue of share Total income Dividend paid Balance c/d	100,000 25,000 125,000	40,000 35,000 75,000	22,400 66,000 (40,000) 48,400	14,000 14,000	80,000

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QUESTION 3(c)

Q Statement of financial position as at 31 March 2017.

Solution

Apple Ltd Statement of financial position as at 31st March 2017
Non-current asset PPE Current asset Cash Inventory Receivables Total Equity & Liabilities Ordinary share capital Share premium Retained Earnings Revaluation reserve Deferred tax Current liabilities Current tax 54,400 + 2,400 Trade payables Bank balance Directors remuneration payable	Sh"000" 201,000 60,000 87,400 84,400 432,800 125,000 75,000 48,400 14,000 18,800 56,800 70,200 13,600 11,000 432,800

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QUESTION 4(a)

Q Consolidated income statement for the year ended 30 April 2017

Solution

Workings

Note1

Note 2:

Loan investment 200 x 1 / 5 = 100
Dr: 10% loan stock -100
Cr: Investment -100

Interest on loan 10% x 100 = 10
Dr: Investment income -10
Cr: Finance cost -10

Note 3:

Inter group sales:

100 → Hema to shuka URP = 25 / 100 x 100 × 50% = 10

Dr: cost of sales +10
Cr: inventory -10

50 → Hema to Ajabu URP = 25 / 125 x 50 x 0 = 0

Inter group sale of fixed asset:
200 →Hema to Shuka :Profit 25 / 125 x 200 = 40

:Overcharged depreciation 20% x 40 = 8

Note 6:

Inter group balances 50

W1

Goodwill
	Shuka		Ajabu
Purchase consideration Fair value of NCI Less: net asset acquired Ordinary share capital Share premium Revelation reserve Retained earning	200 50 20 80	300 75 (350)	200 25 150 425x40%	200 (170)
Goodwill		25		30

Impairment loss = 60%(25 + 30) = 33 × 20% = 6.6 to P&L

NCL goodwill = 75 - (20% x 350) = 5

Loss for NCI = 60% x 5 = 3 × 20% = 0.6

Investment income = 70 - (50 × 80% + 30 x 40%) - 10 = 8

W2

Investment in Associate
Cost of investment Add: Post acquisition changes in net asset Retained earnings 40%(200 - 150) Revaluation 40% x (50 - 25)	200 20 10 230

W3

Revaluation reserve
200 + 80%(50 - 20) + 40%(50 - 25) = 234

W4

Retained earnings
Parent retained earnings 710 - 10 - 40 Add:investee share of post acquisition RE Shuka: 80% (375 - 80 + 8) Ajabu: 40%(200 - 150)	660.0 242.4 20.0 922.4

NCI
Shuka = 20%(200 + 50 + 50 + 375 + 8) Goodwill = 5 - 3	136.6 2.0 138.6

Hema group Consolidated income statement for the year ended 30 April 2017
Revenue 1200 + 600 - 100 Cost of sales 650 + 250 + 10 + 40 - 8 - 100 Gross profit Investment Income Distribution cost (100 + 40) Administrative expense 130 + 90 Finance cost 40 + 20 - 10 Impairment of goodwill Profit before tax Income tax expense (70 + 50) P.A.T Add: Share of associate PAT = 40% × 70 Total income Attributable to :- NCI: 20%(150 + 8) - 0.6 :- Parent	Sh millions 1,700.0 (842.0) 858.0 8.0 (140.0) (220.0) (50.0) (6.6) 449.4 (120.0) 329.4 28.0 357.4 31.0 326.4 357.4

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QUESTION 4(b)

Q Statement of changes in equity for the year ended 30 April 2017.

Solution

Hema Group Statement of changes in equity for the year ended 30 April 2017.
	Share capital	Share premium	Reatained earnings	reserves	NCI
Balance b/d Profit for the year Dividend paid Inter group transactions post-acquisition RE post-acquisition Reserves NCI share Goodwill	1,000	300	480 280 (50) (50) 262.4	200 34	136.6 2
	1,000	300	922.4	234	138.6

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QUESTION 4(c)

Q Consolidated statement of financial position as at 30 April 2017

Solution

Hema Group
Consolidated statement of financial position as at 30th April 2017.

Asset
Non current Assets
PPE 1,250 + 800 + 8 - 40
Intangible assets = 200 + 70
Goodwill 25 + 30 - 33
Investment in Associate (W2)
Investment 850 + 50 - 100 - 300 - 200
Current Assets
Inventory 200 + 75 - 10
Trade receivables 300 + 90 - 50
Financial asset at fair value 30 + 20
Cash and cash equivalent 150 + 40

Equity and liabilities
Ordinary share capital
Share premium
Revaluation reserve W3
Retained profit W4
NCI
Non-current liabilities
10% loan stock = 500 + 200 - 100
Current liabilities
trade and other payable 250 + 250 - 50
Current tax (20 + 20)

shs million

2,018.0
270.0
22.0
230.0
300.0

265.0
340.0
50.0
190.0
3,685.0

1,000.0
300.0
234.0
922.4
138.6

600.0

450.0
40.0
3,685.0

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QUESTION 5(a)

Q Distinguish between "value based" and "cost based" method in determining the stage of completion of a construction contract.

Solution

Distinguishing Between Value-Based and Cost-Based Methods

In the context of construction contracts, determining the stage of completion is crucial for recognizing revenue and reporting financial information accurately. Two common methods used for this purpose are the "value-based" method and the "cost-based" method. Let's distinguish between these two approaches:

1. Value-Based Method:

Focus on Output/Progress: The value-based method assesses the stage of completion based on the value of work performed or the output achieved.
Consideration of Deliverables: The emphasis is on the actual outcomes or deliverables of the construction project.
Applicability: This method is often used in situations where the achievement of milestones is a more accurate reflection of the progress of the project.
Example: If a construction project involves building several floors of a building, the value-based method might consider the percentage of total building height completed or the completion of specific architectural features.

2. Cost-Based Method:

Focus on Input/Costs Incurred: The cost-based method determines the stage of completion by assessing the costs incurred on the project.
Emphasis on Effort and Resources: This method focuses on the resources, effort, and costs invested in the project.
Applicability: The cost-based method is often applied when the relationship between costs incurred and the progress of the project is more straightforward.
Example: If a construction project involves a series of tasks with predictable costs, such as laying a foundation, framing, and roofing, the cost-based method might assess progress based on the cumulative costs incurred for each task.

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QUESTION 5(b)

Q (i). Revenue account for both marine insurance and fire insurance for the year ended 31 March 2017.

(ii). Statement of comprehensive income for the year ended 31 March 2017.

(iii). Statement of financial position as at 31 March 2017.

Solution

(i). Revenue account for both marine insurance and fire insurance for the year ended 31 March 2017.

Malipo insurance ltd Revenue account for the year ended 31 March 2017
	Marine	Fire		Marine	Fire
Claims paid Add: claims payable bal c/d Less: claims balance b/d Add: claims expenses Net claims Commission accepted (5% x 1440) (5% × 960) Management expenses Bad debt written off Legal cost Unearned premium bal c/d Gain (Balancing figure)	2,964 900 (960) 384 3,288 72 780 204 216 6,600 1,248 12,408	2160 576 (648) 2,088 48 696 144 156 2,280 2,178 7,590	Premium received Premium bal c/d Less: premium bal b/d Add: Reinsurance received Less: Reinsurance premium paid Net premium Unearned premium bal b/d Commission earned (5% x 960) (5% x 600)	5,400 1,800 (1,080) 1,440 (960) 6,600 5,760 48 12,408	4,200 840 (840) 960 (600) 4,560 3,000 30 7,590

(ii) Statement of comprehensive income for the year ended 31 March 2017.

Malipo insurance ltd Statement of comprehensive income for year ended 31 month of 2017
Revenue - marine Fire Investment income Expenses Audit fee Directors fee Depreciation Profit before tax Tax expense = 30% × 1,794 Less: Dividend 5% × 3,600 Returned earnings	288 594 1,086	Sh.Million 1,248 2,178 336 (1,968) 1,794 (538.2) (180) 1075.8

(iii) Statement of financial position as at 31 March 2017.

Malipo insurance ltd.
Statement of financial position as 31 march 2017

Non-current asset
Free hold property
Motor vehicle
Machinery & equipment
Furniture
Investment in shares
Current assets
Bank balance and cash
Account receivable
Premiums receivable bal c/d 1,800 + 840
Commission Ceded (48 + 30)

Equity and liabilities
Ordinary share capital
Share premium
Retained profit 540 + 1,075.8
Unearned premium reserve 2,280 + 6,600
Liabilities
Claims payables bal c/d 900 + 576
Commission accepted 72 + 48
Trade payables
Current tax.
Proposed dividend

Sh "million".
5,040
4,200
1,800
1,560
1,680

132
876
2,640
78
18,006

3,600
1,200
1,615.8
8,880

1,476
120
396
538.2
180
18,006

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CPA past papers with answers

CPA Intermediate Leval Financial Reporting May 2017 ANSWERS

Solution

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Solution

IAS 40 - Investment Property

(i) Definition of "Investment Property" with Examples:

(ii) Types of Property Not Considered as Investment Property:

(iii) Fair Value Model in the Valuation of Investment Property:

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Solution

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Distinguishing Between Value-Based and Cost-Based Methods

1. Value-Based Method:

2. Cost-Based Method:

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Company Law

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Comments on:

CPA
Intermediate Leval
Financial Reporting May 2017
ANSWERS