CPA
Intermediate Leval
Financial Reporting May 2019
ANSWERS

Workings

W1

Debenture interest
Balance as per trial balance Add interest on effective sale 6%x6/12 Less: Cash flow, 4%x288,000x6/12 Balance c/d	288,000 8,640 (5,760) 290,880

W2

4 isto 1
4,320 isto x ∴ 4,320/4 = 1,080
1,080 x 80 = 86,400

Dr cash/bank Cr Ordinary share capital(1,080x50) Cr Share premium(1,080x30)

86,400 54,000 32,400

W3

Fair value gain for Available for sale
97,560 - 95,400 = 2,160

W4

Land & building revaluation

Land = 108,000
Building = 360,000 - 18,000 = 342,000
342,000 - 331,200 = 10,800 loss
Total = 460,800

W5

Depreciation of building
360,000/20 = 18,000

Cost of sale = 60% x 18,000 = 10,800
Distribution expense = 20% x 18,000 = 3,600
Admin exp =20% x 18,000 = 3,600

W6

Plant cost to be capitalised

Material cost Direct labour cost Machine time cost Direct overhead

21,600 14,400 28,800 21,600 86,400

Depreciation = 12.5% x 86,400 x 6/12 = 5,400
Old plant = 12.5%(460,800 - 115,200) = 43,200
Total= 48,600

Expenses
Bal b/d Depreciation-Building -Plant Less Plant manufactured	Cost of sales 321,120 10,800 48,600 (86,400) 294,120	Distribution 39,600 3,600 - - 43,200	Administrative 45,000 3,600 - - 48,600	Finance 8,640 8,640

PPE
Removal/cost New plant Depreciation-accumulated -for the year Bal c/d	Land 108,000 - 108,000	Building 331,200 - - 331,200	Plant 460,800 86,400 (115,200) (48,600) 383,400	Total 822,600

Sombea Ltd Statement of comprehensive income for the year ended 31 March 2019.
Revenue Cost of sales Gross profit Investment income Expenses Distribution expenses Administration expenses Finance cost Profit before tax Tax expense Profit after tax Other comprehensive income Fair value gain for AFS Revaluation loss on building Total comprehensive income	Sh 000 649,440 294,120 355,320 7,920 (43,200) (48,600) (8,640) 262,800 (61,560) 201,240 2,160 (10,800) 192,600

Sombea Ltd Statement of financial position as at 31 March 2019.

Asset Non-current assets PPE Available for sale Current assets Inventory Trade receivable Equity & liabilities Ordinary share capital (216,000 + 54,000) Share premium Revaluation reserve 50,400 - 10,800 Returned earning 91,800 + 201,240 Revaluation for reserve for AFS Non-current liabilities 4% debentures Current liabilities Current tax 61,560 + 41,760 Trade payable Bank overdraft Debenture interest payable (5,760 - 2,880)

Sh 000 822,600 97,560 136,440 126,360 1,182,960 270,000 32,400 39,600 293,040 2,160 290,880 103,320 124,920 23,760 2,880 1,182,960

Note 1:


160/400 = 0.4

Note 2:

Intergroup sales URP bal b/d 31/12/17 URP bal c/d 31/12.17

Fanaka to Mali(400) 1/4x120= 20%x400x1/4=

30 20 Dr Inventory 10 Cr Cost of sale

Note 3:
Inter group balance=45

W1

Goodwill
Purchase consideration Net asset Acquired Ordinary share capital Share premium Revenue reserve (pre)	Mali 8,400 6,000 2,500 1,500 10,000 - 90% = (9,000)	Kwetu 90% × 3,500 = 3,150 4,000 2,500 500 7,000 × 90% × 40% = (2,520)
	(600)	(630)

Impairment = 20% x 630 = 126

W2

Investment in associate
Cost of Investment Add:Post acquisition changes RE 90 x 40%(1,345-500)	3,150 307 3,457	Impairment Goodwill Bal c/d	126 3,331 3,457

W3

NCI
Ordinary share capital Share premium Retained earnings	6,000 2,500 2,720 11,220 x 10% = 1,122

Fanaka group Consolidated income statement for the year ended 31 Dec. 2018
Revenue 7,200 + 4,700 - 400 Cost of sales 5,400 + 3,760 - 400 - 10 Gross profit Expenses Operating expenses 740 + 390 Impairment of goodwill Profit before tax Tax expense 420 + 230 Profit after tax Associate share of PAT=36% x 264 Accountable to: NCI 360% - 10% :Pannell	Sh.million 11,500 (8,750) 2,750 (1,130) (126) 1,494 (650) 844 95 939 (36) 903

	Ordinary Shares	Share Premium	NCI	Reserves	RE
Bal b/f	10,000	4,000
	10,000	4,000	1,122	600	5243

Fanaka group Consolidated statement of financial position as at 31 December 2018
Non-current assets PPE 15,500 + 9,700 Goodwill 630 - 126 Investment in associate Current asset 4,400 + 2,800 + 10 - 45 Equity & liabilities Ordinary share capital Share premium Non controlling interest Capital reserve (negative goodwill) Retained earnings Non-current liabilities Bank loan 8,000 + 3,000 Current liabilities	Sh million 25,200 504 3,331 7,165 36,200 10,000 4,000 1,122 600 5,243 11,000 4,235 36,200

W1

Capital balance
Capital bal b/d Current a/c Drawings Loan from sacco	Exe 14,400 2,700 - - 17,100	Wye 7,200 1,900 - 4,000 13,100	Zed 3,600 600 (2,000) - 2,200

Rule of Garner Vs Murray
Exe fixed capital Wye fixed capital	14,400 7,200 21,600	Ratio 0.67 0.33	Zed Capital 0.67 x 3,360 = 2,251 0.33 x 3,360 = 1,109

Cash distribution schedule
Date	Details	Amount	Exe	Wye	Zed
20/07/18 31/07/18 25/08/18 10/09/18	Bank overdraft Realization 1 Trade payable Auctioneer fee Cash balance Capital bal b/d Maximum loss Zed capital (W1) Distribution 1 Capital balance Realization 2 Maximum loss Zed capital Distribution 2 Capital balance Realization3 Maximum Loss Zed capital Distribution 3 Capital balance Realization 4 Maximum loss Distribution 4	(1,450) 15,350 (5,800) (3,500) 4,600 (32,400) 27,800 4,600 27,800 (3,900) 23,900 23,900 (2,700) 21,200 21,200 (18,000) 3,200	17,100 (11,120) 5,980 (2,251) 3,729 13,371 (9,560) 3,811 (1,729) 2,082 11,289 (8,480) 2,809 (1,367) 1,442 9,847 (1,280) 8,567	13,100 (11,120) 1,980 (1,109) 871 12,229 (9,560) 2,669 (851) 1,818 10,411 8,480 1,931 (673) 1,258 9,153 (1,280) 7,873	2,200 (5,560) (3,360) 3,360 0 2,200 (4,780) (2,580) 2,580 0 2,200 (4,240) 2,040 (2,040) 0 2,200 (640) 1,560

Realization account
Land & building Motor vehicle Furniture and fixtures Investment in shares Inventories Trade receivable Auctioneer fee	18,400 8,200 3,100 4,600 4,750 3,200 3,500 45,750	Drawing - inventory zed Discount received (6400-5500) Cash a/c 20/7/18 31/7/18 25/8/18 10/9/18 Realization loss 3,200 Exe 2/5×3,200 Wye 2/5 ×3,200 Zed 1/5×3,200	2,000 600 15,350 3,900 2,700 18,000 1,280 1,280 640 45,750

Partners capital account
Realization loss Inventory Distribution 1 Distribution 2 Distribution 3 Distribution 4	Exe 1,280 - 3,729 2,082 1,442 8,567	Wye 1,280 - 871 1,818 1,258 7,873	Zed 640 2,000 - - - 1,560	Capital bal b/d Current account Loan sacco	Exe 14,400 2,700	Wye 7,200 1,900 4,000	Zed 3,600 600
	17,100	13,100	4,200		17,100	13,100	4,200

Method of determining the stage of completion of a construction contract

Stage of completion/percentage of completion - is a measurement of how much of the work under a contract has been finished, and it is typically stated in percentage terms.

According to IAS 11 Construction contracts the following are the two method of determining the stage of completion:

1. Value Based Methods

Value of work completed in proportion to total contract price. The value of work may be determined by conduction surveys of work performed




Physical units of work completed in comparison with total number of units to be completed under the contract:



When value based methods are used in accounting for profit making contracts and loss making contracts, revenue is recognized on the basis of work certified as complete whereas contract cost is measured as the balancing figure

2. Cost Based Method

Comparison of current costs with total anticipated contract costs. Only those costs incurred that accurately reflect the current state of the work completed must be taken into account when estimating the stage of completion under this method. Hence, any costs that are related to future contract activity, such as the cost of purchasing materials that have not yet been employed in the construction work, shall be disregarded.



When using the cost-based method to account for both profitable and unprofitable contracts, costs are recognized based on the stage of completion, while contract revenue is calculated as the balancing figure.

Where outcome in respect of a contract is not certain, stage of completion method is not used to account for the construction contract.

(i) Trading account for each of the contracts showing clearly the revenue to be recognised for the year ended 30 April 2019.

Construction contract
Cost to date(A) Total cost(B) % of completion(C) = A/B x 100 Revenue recognised( C x Contract price)	A01 180 720 25% 195	B02 480 768 62.5% 750	C03 963.6 1,069.9 90% 918	D04 33.6 840 4%

(ii) An income statement extract for the year ended 30 April 2019.

Mjengo constraction Ltd. Income statement for the year ended 30 April 2019
Revenue Recognized Less: revenue recognized in previous period Revenue for the period (A) Cost to date Less: cost recognized in previous period Cost for the year (B) Gross profit for the year(A-B) Less:Admin expenses Net profit	A01 195 (78) 117 180 (60) 120 (3) (1.5) (4.5)	B02 750 (180) 570 480 (72) 408 162 (15) 147	C03 918 (504) 414 963.6 (480) 483.6 (69.6) (2.5) (72.1)

(iii) An extract of the statement of financial position showing the combined totals for all the contracts.

Mjengo constraction Ltd. Income statement for the year ended 30 April 2019
Cost to date(A) Add gross profit Add cash received to date Work in progress	A01 180 (3) (156) 21	B02 480 162 (780) (138)	C03 963.6 (69.6) (918 ) (24)	Total 1,623.6 89.4 (1854) (141)

Workings

W1

H.O Current account(Ksh)
Balance b/d	240,400 240,400	Remittance Cash intransit bal c/d	112,000 7,960 120,440 240,400

W2

Branch Current account(Ksh)
Remittance Debtors bal c/d	1,088,000 1,280 927,720 2,017,000	Balance b/d	2,017,000 2,017,000

W3

Branch Debtors
Balance as per trial balance Direct payment to H.O	144,000 (1,280) 142,720

W4

Combined cost of sale
H.O cost of sale Branch cost of sales Unrealised profit(URP) Goods sold to branch	236,000 77,200 1,200 (140,000) 174,400

W5

Branch profit & commission
Sales Cost of sales Gross profit Admin exp Selling & distribution Profit b4 commission Commission 5/105 x 100,800 Net profit	1,728,000 1,440,000 288,000 (72,000) (115,200) 100,800 (4,800) 96,000

Depreciation for Machinery
10% x 504,000 = 50,400

W6

Combined inventory
H.O inventory Branch inventory Unrealised profit(URP)	115,600 2,880 (1,200) 117,280

Branch translated trial balance(Ksh)
	Amount	Rate	Dr	Cr
Sales Free hold building Trade receivable Trade payable Branch current A/c (WI) Cost of sales 1440-50-11 Provision for depreciation Depreciation for the year Administration cost Inventory Machinery Bank balance Selling & Distribution Commission (W4) Accrued commission Exchange loss (bal fig)	1,728,000 252,000 142,720 6,240 120,440 1,389,600 226,800 50,400 7,200 46,080 50,400 316,800 115,200 4,800 4,800	18 14 16 16 Actual 18 14 14 18 16 14 16 18 18 16	18,000 8,920 77,200 3,600 4,000 2,880 36,000 19,800 6,400 267 56,263	96,000 120,440 16,200 300
			233,330	233,330

Baraka ltd income statement for the year ended 31st March 2019
	Head	Branch	Combined
Sales Goods sent to branch Total Cost of sale (236,000+1,200) Gross profit Expenses Exchange loss Depreciation Administration cost Selling & distribution Commission Net profit Transfer of loss	416,000 140,000 556,000 (237,200) 318,800 - - 60,800 93,200 - 164,800 (51,730)	96,000 - 96,000 (77,200) 18,800 56,263 3,600 4,000 6,400 267 (51,730) 51,730	512,000 - 512,000 174,400 337,600 56,263 3,600 64,800 99,600 267 - -
	113,070	0	113,070

Baraka ltd Statement of financial position as at 31 March 2019
	Head office	Branch	Combined
Non-current Assets Free hold building Machinery (24 - 6) Branch current Account(120,440 - 51,730 - 1,200) Current Asset Inventory Debtors Bank balance Cash in transit Total asset Equity and iabilities Ordinary share capital Actualized earning(8,000 + 11,3070) H.O current account(120,440 - 51,730) Liabilities Creditors Commission payable	56,000 18,000 67,510 115,600 35,600 18,400 7,960 319,070 160,000 121,070 - 38,000 - 319,070	18,000 19,800 - 2,880 8,920 19,800 - 69,400 - - 68,710 390 300 69,400	74,000 37,800 - 117,280 44,520 38,200 7,960 319,760 160,000 121,070 - 38,390 300 319,760