Guaranteed

95.5% Pass Rate

CPA
Intermediate Leval
Financial Reporting November 2015
ANSWERS

Financial reporting & analysis
Revision Kit

QUESTION 1

Q (a) Income statement.

(b) Statement of changes in equity.

A

Solution


(a) Income statement.


Workings

W1

Inventory cost
Recoverable amount
Inventory loss
15
(8)
7


Dr Cost of sale (Add)
Cr Clossing stock (Less)

W2

Revaluation
Land 60 → 100
Building(320 - 64) = 256 → 700
Total gain		 40
444
484


Depreciation on building
700 / 40 = 17.5

W3

Current tax
Deferred tax

20
7
27


W4

Disposal of equipment
Net book valu 15 - 3
Disposal proceeds
Loss on Disposal		 12
(7)
5


W5

Depreciation of asset
Plant and equipment
20% x ((258 - 15) - (126 - 3)) = 24

W6

Property investment
Balance b/d
Fair value bal c/d
Fair value gain		 548
586
38


W7

Bonus issue of share
3 → 1
10 → x

10/3 = 3.33 x 10 = 33

Dr General reserve (Less)
Cr Ordinary share capital (Add)

W8

Cost of sales
Opening stock.
Purchases
Less: cost of sales

444
1,669
(388)
1,725


PPE

Balance b/d
Disposal
Depreciation
Impairment
Balance c/d		 Land & Building
800

(17.5)

782.5		 Plant & equipment
258 - 126 = 132
(12)
(24)
(4)
92		 Total




874.5


Expenses

Balance b/d
Inventory loss
Depreciation
Impairment
Disposal loss
Balance c/d		 Cost of sale
1,725
7
24
4
5
1,765		 Admin exp
345.0

17.5


362.5		 Distribution
514




514		 Finance cost
4% x 150 = 6




6




Dola Ltd
"Statement of comprehensive income for the year ended 31 Dec 2014"

Revenue
Cost of sales
Gross profit
Other income
Fair value gain in investment property
Rental income
Expenses
Administration expenses
Distribution expenses
Finance cost
Profit before tax
Tax expense
Profit after tax
Other comprehensive income
Revaluation gain
Total comprehensive income		 Sh."million"







362.5
514.0
6.0






 Sh. "million"
2,648.0
(1,765.0)
883.0

38.0
48.0



(882.5)
86.5
(27.0)
59.5

484.0
543.5


(b) Statement of changes in equity.


Dola Ltd
Statement of changes in equity for the year ended 31 December 2014
Ordinary
Shares		 Share
premium		 Retained
profit		 General
reserve		 Revaluation
reserve
Balance b/d
Bonus issue of share
Profit after tax
Revaluation
Dividend paid
Balance c/d		 100
33



133		 244




244		 349.0

59.5

(6.0)
402.5		 570
(33)



537


484

484


(c) Statement of financial position.


Dola Ltd
Statement of financial position for the year ended 31 December 2014
Assets
Non current assets
PPE
Investment property
Current assets
Inventory (388 - 7)
Cash and cash equivalent
Receivables

Equity and liabilities
Ordinary share capital
Share premium
Retained profit
General reserve
Revaluation gain
Non-current liabilities
Deferred tax
4% loan
Current liabilities
Current tax
Payables
Interest payable (6 - 3)

 Sh"million"




381.0
28.0
545.0


133.0
244.0
402.5
537.0
484.0

7.0
150.0

20.0
434.0
3.0

 Sh."million"

874.5
586.0



954.0
2,414.5





1,800.5


157.0



457.0
2,414.5




More info

QUESTION 2(a)

Q With reference to International Financial Reporting Standards (IFRSs), discuss the accounting treatment of government grants, including the disclosure requirements.
A

Solution


Accounting Treatment of Government Grants under IFRSs


Government grants are assistance provided by government entities to businesses or individuals for various purposes. In the context of International Financial Reporting Standards (IFRSs), the accounting treatment of government grants is primarily governed by:

  • IAS 20 - Accounting for Government Grants and Disclosure of Government Assistance
  • IAS 41 - Agriculture (in certain cases related to agricultural activities)

Capital Approach Treatment


The Capital Approach to accounting for government grants focuses on treating grants as capital contributions, impacting the entity's equity. Government grants are recognized as a separate component of equity.


Grants are initially recognized in the financial statements when there is reasonable assurance that the entity will comply with the conditions attached to the grant and that the grant will be received. Subsequently, the grant is recognized as deferred income and gradually released to the income statement over the periods necessary to match them with the related costs.


➫ Disclosures under the Capital Approach should include information about the accounting policy adopted for government grants, the nature and extent of government grants recognized, and any unfulfilled conditions and other contingencies. The impact on equity and changes in deferred income should also be disclosed.


Income Approach Treatment


The Income Approach to accounting for government grants focuses on recognizing the grants in the income statement over the periods necessary to match them with the related costs. This approach directly impacts the determination of net income.


Government grants are recognized in the income statement over the periods in which the entity recognizes the related costs. This could involve immediate recognition or systematic recognition over time, depending on the nature of the grant and its conditions.


➫ Disclosures under the Income Approach should include information about the accounting policy adopted for government grants, the nature and extent of government grants recognized during the period, and any unfulfilled conditions and other contingencies. Entities should also disclose the methods used to present government grants in the financial statements.




More info

QUESTION 2b

Q (i) Income statement for the year ended 30 September 2015.

(ii) Statement of financial position as at 30 September 2015.
A

Solution


(i) Income statement for the year ended 30 September 2015.


Bondeni Commercial Bank Ltd
Income statement for the year ended 30 September 2015
Interest income
Loans and advances to customer
Finance lease
Government bonds
Deposit with other banks
Interest expenses
On customer deposit
Interest paid on deposit with other bank
Net interest
Other incomes
Fees and commission received
Foreign exchange commission received
Other operating income
Other expenses
Fees and other expenses
Impairment of loans and advances
Administrative cost
Generating operating expense
Allowance for unsecured loan 2% × 132,270
Impairment of intangible asset 20% × 2,150
Profit before tax
Income tax expense
Profit after tax		 Sh million





2,500
56


1,864
110
1,500

150
840
3,860
3,140
2,645.4
430



 Sh.million
5,014.0
4,680.0
2,410.0
1,008.0


(2,556.0)
10,556.0



3,474.0






(11,065.4)
2,964.6
(2,100.0)
864.6


(ii) Statement of financial position as at 30 September 2015.


Statement of financial position as at 30 September 2015
Assets
Cash and balance with central bank
Deposit and balance due from other banks
Government bonds and other securities
Loan and advances (132,270 - 2,645.4).
Other assets
Deferred tax asset
Other investment
PPE
Intangible asset (2,150 - 430)
Total assets
Equity and liabilities
Ordinary share capital
Share premium
Revaluation reserve (460 + 2,000)
Statutory reserve
Retained profit (16,640 + 864.6)
Non-current liabilities
Customer deposit
Deferred tax
Current liabilities
Other liabilities
Current tax liability
Deposit from other banks
Total Equity and liabilities
 Sh. "million"
12,800.0
19,200.0
15,410.0
129,624.6
715.0
60.0
156.0
4,250.0
1,720.0
183,935.6

5,085.0
90.0
2,460.0
1,910.0
17,504.6

150,995.0
1,446.0

1,100.0
1,145.0
2,200.0
183,935.6



More info

QUESTION 3(a)

Q (a) Income statement in columnar format for the partnership and company for the year ended 31 December 2014.

(b) Statement of financial position for the company as at 31 December 2014.
A

Solution


(a) Income statement in columnar format for the partnership and company for the year ended 31 December 2014.


Goodwill
Purchase consideration (share) 200 × 150
Net assets acquired
Capital balance 18,000 + 13,000
Profit
Less: less drawings 600 + 1,300
Goodwill

31,000.0
497.5
(1900.0)

30,000.0



(29,597.5)
402.5


Drawing receivables
Salary for the period
Less: drawings for the period (9 months)
2,700 + 2,300 - 600 - 1,300

 2,700

(3,100)
(400)


Amu & Bala income statement
Partnership 3 months Company 9 months
Sales (77,025 × 20%) (77,025 x 80%)
Cost of sales
Gross profit
Expenses
Discount allowed
Bad debts
Rent
Distribution expenses
Formation expenses
Salaries (5,400 × 3 / 12) (5,400 × 9 / 12)
Sundry expenses
Director's salary 1,800 x 2 x 9 / 12
Depreciation:
1. Fixtures
2. Motor vehicle



320.0

450.0
150.0

1,350.0
237.5


60.0
105.0		 15,405.0
(12,235.0)
3,170.0











(2,672.5)



1,280.0
800.0
1,350.0
450.0
240.0
4,050.0
712.5
2,700.0

210.0
367.5		 61,620
(48,940)
12,680











(12,160)
Profit 497.5 520


(b) Statement of financial position for the company as at 31 December 2014.


Ambala Ltd
Statement of financial position as at 31st Dec 2014
Asset
Non-current asset
Fixtures and fittings 2,400 - 60 - 210
Motor vehicle 2,800 - 105 - 367.5
Goodwill
Current assets
Inventory
Bank
Receivables
Amount receivable (drawing)
Total assets
Equity and liabilities
Ordinary share capital 200 × 150
Retained profit
Current liabilities
Trade payables
Total Equity and liabilities
 Sh."000"

2,130.0
2,327.5
402.5

20,825.0
5,635.0
8,100.0
400.0
39,820.0

30,000.0
520.0

9,300.0
39,820.0



More info

QUESTION 4(a)

Q In the context of International Public Sector Accounting Standard (IPSAS) 19 - Provisions, Contingent Liabilities and Contingent Assets:

(i) Distinguish between an "executory contract" and an "onerous contract".

(ii) Summarise four disclosure requirements in relation to provisions.
A

Solution


IPSAS 19 - Provisions, Contingent Liabilities and Contingent Assets


Distinguishing Between "Executory Contract" and "Onerous Contract"


Executory Contract: An executory contract is a contract where both parties are yet to fulfill their contractual obligations. In the context of IPSAS 19, an executory contract does not give rise to a present obligation for the entity until one or both parties perform their respective obligations under the contract.


Onerous Contract: An onerous contract, on the other hand, arises when the unavoidable costs of meeting the entity's obligations under the contract exceed the economic benefits expected to be received from that contract. The entity recognizes a provision for the expected loss on an onerous contract.


Disclosure Requirements for Provisions


Disclosure requirements in relation to provisions under IPSAS 19 include:


  • Nature and Timing: Disclose the nature and timing of the expected future expenditure or outflow of resources for which the provision has been recognized.
  • Assumptions and Risks: Disclose the key assumptions about the future, and other key sources of estimation uncertainty at the reporting date that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
  • Changes in Provisions: Disclose a reconciliation of changes in the carrying amount of provisions during the period.
  • Contingencies: Disclose any contingent liabilities and contingent assets unless the possibility of an outflow of resources embodying economic benefits is remote.
  • Probability of Occurrence: Provision should only be disclosed if the probability of occurrence is more than 50%.
  • Present Obligation: An entity has a present obligation as a result of past events.
  • Probable Outflow of Resources: It is probable that an outflow of resources will be required to settle the obligation.
  • Reliable Estimate: A reliable estimate can be made by the amount of obligation.
More info

QUESTION 4(b)

Q Statement of financial position for the Ministry of Commerce and Industrialisation as at 30 June 2015 in accordance with IPSAS I - Presentation of Financial Statements.
A

Solution


Ministry of commerce and industrialization
Statement of financial position as at 30 June 2015
Assets
Non-current assets
PPE
Investment property
Current assets
Cash and cash equivalent
Receivable from exchange transaction
Inventory

Liabilities and accumulated funds
Accumulated surplus (9,375 + 6,875)
Reserves
Non-current liabilities
Long term borrowings
Employee benefit obligation
Current liabilities
Payment received in advance
Trade and other payables
Total Liabilities and accumulated funds
Sh. "million"

43,750
6,250

6,250.
2,500
1,250
60,000

16,250
22,500

7,500
5,000

2,500
6,250
60,000

More info

QUESTION 4(c)

Q Required:
Show by way of extracts, how the above transaction would be reflected by Europa Ltd. in the following:

Income statements for the years ending 31 December 2015 and 31 December 2016.

Statements of financial position as at 31 December 2015 and 31 December 2016.
A

Solution


(i) Income statements for the years ending 31 December 2015 and 31 December 2016.


Amortization schedule

Period
2015
2016
2017		 A
Bal b/d
12,000
84,400
44,528		 B
Interest(12%)
14,400
10,128
5,343		 C
Payment
50,000
50,000
50,000		 C - B = D
Principal
35,600
39,872
44,657		 A - D
Bal c/d
84,400
44,528


Income statement (Extract)
Period

Expenses
Depreciation (120 - 6) / 3
Interest

 2015
Sh.

38,000
14,400
52,400		 2016
Sh.

38,000
10,128
48,128


(ii) Statements of financial position as at 31 December 2015 and 31 December 2016.


Statement of financial position (Extract)

Assets
Cost
Depreciation
Net book value NBV.
Lease obligation
Non-current
Current
Total		 2015
Sh.
120,000
(38,000)
82,000

44,528
39,872
84,400		 2016
Sh.
120,000
(76,000)
44,000


44,528
44,528


More info

QUESTION 4(d)

Q Outline the main benefit of a sale and leaseback transaction to the vendor.
A

Solution


Main Benefit of Sale and Leaseback Transaction to the Vendor


Unlocking Capital and Financial Flexibility


One of the main benefits of a sale and leaseback transaction to the vendor is the ability to unlock capital tied up in owned assets, providing immediate financial flexibility. By selling an asset, such as real estate or equipment, and simultaneously entering into a lease agreement to continue using the asset, the vendor receives a cash infusion.

This influx of capital can be strategically utilized by the vendor for various purposes, including debt reduction, funding business expansion, undertaking new projects, or improving overall liquidity. The vendor retains operational use of the asset through the leaseback arrangement while gaining the advantage of deploying released capital for strategic business objectives.




More info

QUESTION 5

Q (a) Consolidated statement of comprehensive income,

(b) Statement of changes in equity.

(c) Statement of financial position.
A

Solution


Workings

W1


Fair value gain 210

Depreciation = (210 / 5) x (9 / 12) = 31.5

Inter-group sales

B →(140)A

URP = 16.67 / 116.67 x 140 x 1 / 2 = 10

Inter-group balance 80

W2

Goodwill
B C
Purchase consideration
Fair value of NCI
Less: net asset acquired
Ordinary share capital
Share premium
Revaluation
Pre-retained earnings 1,452 + (2,152 × 3 / 12)

Goodwill
Impairment
Net goodwill

1,600
300
210
1,990


(25% x 130)		 3,430.0
800.0




(4,100.0)

130.0
(32.5)
97.5


400


1,250
40% x 1,650

10% x 40

 700






(660)
40
(4)
36


NCI goodwill → 800 - (4,100 × 20%) = -20

Impairment loss → 25% × 20 = 5

Net NCI goodwill → -20 - 5 = -25

W3

Retained earnings
Parent R.E (A Ltd)
Add: investee post acquisition R.E
B Ltd = 80% (2,152 x 9 / 12 - 31.5 - 10)
C Ltd = 40% x 1,888
Impairment of goodwill (32.5 + 4)

 8,237.0

1,258.0
755.2
(36.5)
10,213.7


W4

NCI
Ordinary share capital
Share premium
Revaluation
Retained earnings (3,604 - 10 - 31.5)

NCI goodwill

 1,600.0
300.0
210.0
3,562.5
5,672.5 × 20% = 1,134.5
(20.0)
1,114.5


W5

Investment in associate
Purchase consideration
Add: changes in net asset
R.E 40% x 1,888
Less: impairment of goodwill

700.0

755.2
(4.0)
1,451.2




(a) Consolidated statement of comprehensive income,


A group
Consolidated statement of comprehensive income for the year ended
30 / 09 / 2015

Revenue 9,120 + (4,940 x 9 / 12) - 140
Cost of sales 3,610 + (1,092 x 9 / 12) + 10 + 31.5 - 140
Gross profit
Distribution cost 665 + (428 x 9 / 12)
Administration expense 695 + (170 x 9 / 12)
Finance cost 65 + (20 x 9 / 12)
Impairment of goodwill 32.5 + 4
Profit before tax
Tax expense 1,660 + (1,078 x 9 / 12)
Profit after tax
Add: associate share of PAT 40% × 1,888

Attributable to:-
- Parent
- NCI :- 20% x (2,152 x 9 / 12 - 31.5 - 10) + 5

 Sh. "million"
12,685.0
(4,330.5)
8,354.5
(986.0)
(822.5)
(80.0)
(36.5)
6,429.5
(2,468.5)
3,961.0
755.2
4,716.2

4,396.7
319.5
4,716.2


(b) Statement of changes in equity.


A Group
Consolidated statement of changes in equity for the vear ended 30 September 2015
Ordinary share
capital		 Share
premium		 Retained
profit		 NCI
Balance b/d
Profit for the year
Dividend (2,425 + 7,612 - 8,237)		 2,600


1,500


7,612.0
4,396.7
(1,800.0) 		800.0
319.5

2,600 1,500 10,208.7 1,119.5


(c) Statement of financial position.


A Group
Consolidated statement of financial position as at 30 September 2015
Asset
Non-current assets
PPE 6,096 + 4,855 + 210 - 31.5
Investment 4,350 + 50 - 700 - 3,430
Goodwill
Investment in associate
Current assets
Inventory 1,460 + 853 - 10
Receivables 1,880 + 765 - 80
Cash and bank balance 1,224 + 187

Equity and liabilities
Ordinary share capital
Share premium
Retained profit
Non - controlling interest (NCI)
Non-current liabilities
Loan from bank (650 + 200)
Current liabilities
Trade payables (1,463 + 646 - 80)
Current tax (560 + 360)

 Sh."million"

11,129.5
270.0
97.5
1,451.2

2,303.0
2,565.0
1,411.0
19,227.2

2,600.0
1,500.0
10,208.7
1,119.5

850.0

2,029.0
920.0
19,227.2



More info

Comments on CPA past papers with answers:

New Unlock your potential with focused revision and soar towards success
Pass Kasneb Certification Exams Easily

Comments on:

CPA past papers with answers