CPA
Intermediate Leval
Financial Reporting November 2018
ANSWERS

Workings:

Preference divided = 9% x 20,000 = 1,800 × 3 = 5,400

Depreciation: Building = 2% x 60,000 = 1,200

Equipment = 15% x 60,000 = 9,000

Revenue account
Claims paid Reinsurance premium ceded Legal expenses Claims outstanding bal c/d Outstanding claim bal b/d Profit	28,400 10,700 2,450 2,850 (4,100) 93,650 133,950	Gross premium earned Commission earned Unearned premiums	86,000 450 47,500 133,950

Marine insurance company Statement of comprehensive income for the year ended 30 Sep 2018
Revenue Fees received Investment income Expenses: Commission payable Depreciation - Building - Equipment Legal expenses 3,800-2,450 Operating expenses Repairs & maintenance Preference divided Profit before tax Less tax Paid Profit after tax Other comprehensive income: Revaluation gain Total comprehensive income	700 1,200 9,000 1,350 14,250 8,500 5,400	Sh."000" 93,650 4,400 1,800 (40,400) 59,450 (5,000) 54,450 2,000 56,450

Marine insurance company Statement of financial position as at 30 September 2018

Asset Non-current assets Free hold = 18,000 + 2,000 Builders 60,000 - 5,000 - 1,200 Equipment 60,000 - 13,000 - 9,000 Government securities Investment in shares Current Asset Trade receivables Receivables arising out of reassurance Equity & liabilities: Ordinary share Capital 9% cumulative preference share Statutory reserves Retained earnings Revaluation Liabilities Bank balance Trade payable Preference dividend payable Current tax Ordinary dividend paid Claims payable

Sh. 000 20,000 53,800 38,000 28,500 12,500 15,350 1,550 169,700 50,000 20,000 4,200 57,850 2,000 3,900 8,500 5,400 5,000 10,000 2,850 169,700

Workings

Research and development to be capitalised

General research Development of new technology

80 323 403

Intangible assets
500 - 50 = 450

Amortization
450 / 6 = 75

Land and building
Depreciation 700 / 20 = 35

Land 1,250 - 1,000 Building 570 - (700 - 35 - 400) Total revaluation gain

250 305 555

Depreciation equipments:
4,500 / 5 = 900

Production 50% x 900 = 450
Administration 25% x 900 = 225
Distribution 25% × 900 = 225

Valuation of investment property

Revaluation amount Balance as per trial balance Fair value gain

2,500 (2,200) 300

Clossing inventory valuation
65,000 + 2,000 - 7,000 = 60,000

Cost of sale
Opening inventory Purchases Production cost Less:Clossing stock	50 1,500 1,200 (60) 2,690

Bank loan interest 10% x 1,000 = 100

Expenses
	Cost of sales	Administrative	Distribution	Finance cost
Balance b/d Depreciation on equipment Research expenses Intangible assets amortization Depreciation on building Bad debt	2,690 450	980 225 67 75 35	370 225 125	100
	3140	1,382	720	100

PPE
Land Building Equipment 4,500 - 450 - 900	1,250 570 3,150 4,970

Safina ltd Statement of comprehensive income for year ended 31st Oct 2018
Revenue 8,700 - 150 Cost of sales / production cost, Gross profit, Other income Government grant Fair value gain Expenses Administrative expenses Distribution expenses Finance cost Profit before tax Tax expense Profit after tax Other comprehensive income Revaluation gain on land & Buildin Total comprehensive income	Sh."000" 8,550 (3,140) 5,410 150 300 (1,382) (720) (100) 3,658 (625) 3,033 555 3,588

Safina ltd Statement of financial position as at 31st Oct 2018

Asset Non-current asset PPE Investment property Intangible asset 500 - 50 - 75 Reserve and development Current assets Government grant Inventory Trade receivable 350 - 125 Bank balance Equity and liabilities Ordinary share capital Share premium Revaluation reserve 300+ 555 Retained earnings (1,785 + 3,033 + 350) - 550 Non-current liabilities 10% bank loan Current liabilities Trade payables Current tax 625 + 35 Bank loan interest payable (100 - 50)

Sh."000" 4,970 2,500 375 403 150 60 225 400 9,083 1,250 250 855 4,618 1,000 400 660 50 9,083

Workings(W)

W1

PPE Cost
Balance b/d Revaluation Acquisition Cash	2,970 150 935 4,055	Disposal Balance c/d	290 3,765 4,055

W2

Accumulated depreciation
Disposal Balance c/d	96 934 1,030	Balance b/d Depreciation	625 405 1,030

Conversion of loan

Sh 200 →20 shares
180m →x = 180x20/200 = 18 x 10 = 180

Cash issue of shares = 320 + 60 - 180 = 200

W3

Joint venture
Balance c/d Share of profit	380 85 465	Dividend received(bal fig) Balance b/d	38 427 465

W4

Goodwill
Balance c/d	455 455	Impairement Balance b/d	23 432 455

W6

NCI
Dividend paid Balance c/d	49 186 235	Balance b/d Revaluation 150 x 20% Profit	180 30 25 235

W7

Tax expenses
Tax paid Balance c/d - Deferred tax Current tax	153 150 92 395	Balance b/d - Deferred Current P&L revaluation Deferred tax	185 94 80 36 395

W8

Interest payable
Interest paid Balance c/d	16 100 116	Balance b/d t P&L	31 85 116

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Sasumua ltd Statement of cash flows for the year ended 30 Sep 2018

OPERATING ACTIVITIES CASH FLOWS Profit before tax Adjustments Depreciation Impairment of goodwill Finance cost Gain on disposal 215-(290-96) Joint venture profit Working capital changes Increase Inventory 170-128 Increase receivable 238-214 Increase payables 234-175 Gross operating cash flows Less: Tax paid Interest paid Net operating cash flows INVESTING ACTIVITIES CASH FLOWS Acquisition of asset - PPE Dividend received from joint venture Disposal precedes Net investing cash flow FINANCING ACTIVITIES CASH FLOWS Issue of share Dividend paid to ordinary shareholder Dividend paid NCI Net financing cash flows Cash and cash equivalents (A+B+C) Add: cash bal b/d Cash bal c/d

SH.MILLION 395 405 23 85 (21) (85) (42) (24) 59 795 (153) (16) 626 (A) (935) 38 215 (682) (B) 200 (80) (49) 71 (C) 15 63 78

Events after reporting period refers to those events that take place after the balance sheet but before the financial statements are authorized for issue. These events are classified into two:

1. Adjusting events: These are those that take place after the balance sheet date providing additional evidence that existed at the end of the reporting. These events need to be adjusted in the financial statements.

2. Non-adjusting events: They are events after the reporting period that is indicative of a condition that arose after the end of the reporting period which need not to be adjusted to the financial statements

Note 1:

Destruction of a warehouse - This is a non-adjusting event and therefore no adjustment is needed in the financial statement for the year ended 30 June 2018

Destruction of Inventory - This is an adjusting event and the necessary adjustment need to be made to the financial statements for the year ended 30 June 2018. The adjustments will be to record the loss of Inventory i.e.

Value of the inventory destroyed = 50,000,000

Amount of compensation = 50 / 130 x 70 = (26.923077)

Loss of Inventory = 23.076.923

Dr. Loss of sales 23,076,923
Cr: Inventory 23,076,923

Note 2:

Inventory Realised - This is an adjusting event. The adjustments will be done as follows:

Cost of Inventory Net Realisable value 5,600,000 × 85% Loss of Inventory

9,200,000 (4,760,000) 4,440,000

Dr: Cost of sales 4,440,000
Cr: Clesing Inventory 4,440,000

Note 3:

Tax changes - This is a non-adjusting event and therefore no amendment is required to the financial statements for the year ended 30 June 2018

Tax distribution schedule
Date 30 may 2018 25 June 2018 20 July 2018 15 Aug 2018 20 sep 2018	Details Bank balance Cash balance Realization 1 Bank loan Bank overdraft Realization 2 Trade payable (33,200-1,000) Dissolution expenses Capital balance Maximum loss C's capital Distribution 1 Capital bal b/d Realization Maximum loss Distribution 2 Capital bal b/d Realization 4 Maximum loss Distribution 3 Capital bal b/d Realization 5 Maximum loss Distribution 4	Amount 9,200 3,200 236,000 (160,000) (64,000) 67,200 (32,200) (1,800) 57,600 258,000 200,400 200,400 (15,200) 185,200 185,200 (40,400) 144,800 144,800 (108,000) 36,800	A 132,000 80,160 51,840 (48) 51,792 80,208 (74,080) 6,128 74,080 (57,920) 16,160 57,920 (14,720) 43,200	B 86,000 80,160 5,840 (32) 5,808 80,192 (74,080) 6112 74,080 (57,920) 16,160 57,920 (14,720) 43,200	C 40,000 40,080 (80) 80 0 40,000 (37,040) 2,960 37,040 (28,960) 8,080 28,960 (7,360) 21,600

(ii) Realisation account.

Realization account
Land & Building Plant & machinery Fixtures & fittings Motor vehicle Intangible assets Inventory Trade receivables Dissolution expenses	182,000 73,600 20,800 7,200 89,200 68,000 62,000 1,800 504,600	Discount received Bank account /Realization 20 may 2018 25June 2018 20 July 15 August 2018 20th Sep 2018 Realization loss: 36,800 A 2/5 x 36,800 B 2/5 x 36,800 C 1/6 x 36,800	1,000 236,000 67,200 15,200 40,400 108,000 36,800 504,600

(iii) Partners' capital accounts.

Realization Loss

36,800 + 40,000(to be compensated by insurance)

76,800

Partners Capital account
	A	B	C		A	B	C
Realization loss Distribution 1 Distribution 2 Distribution 3 Distribution 4	30,720 51,792 6,128 16,160 43,200	30,720 5,808 6,112 16,160 43,200	15,360 2,960 8,080 21,600	Balance b/d Current account Insurance policy	100,000 32,000 16,000	64,000 22,000 16,000	40,000 8,000
	148,000	102,000	48,000		148,000	102,000	48,000

DD Associate Statement of comprehensive income for the Income year ended 30th Sept 2018
Income Cost charged to clients on Civil cases Criminal cases Oaths Conveyance fee Preparation of will Add: work in progress bal c/d Less: work in progress bal b/d Expenses General office expense Salaries to office staff Rent & sales Postage & telephone Printing & stationery Bad debt Depreciation = 20% × 1,350 Profit	Sh."000" 4,250 2,450 260 340 200 705 (1,104) 255 2160 1,800 546 1,050 165 270	Sh."000" 7,101 (6,246) 855

DD Associate Statement of financial position as at 30 September 2018
Asset Non-current Assets Furnitures, fittings books (1,350-270) Current Assets Cases in progress Cash at bank - Client - Office Disbursement on behalf of clients Account realization (2,440 - 165) Total assets Capital Equity & liabilities Capital Profit Less: drawings Current liabilities Account payables Client account	6,220 855 (1,800)	Shs."000" 1,080 705 744 1,671 360 2,275 6,835 5,275 816 744 6,835

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