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CPA
Intermediate Leval
Financial Reporting September Pilot 2015
ANSWERS

Financial reporting & analysis
Revision Kit

QUESTION 1

Q Required:
(i) Consolidated statement of comprehensive income for the year ended 31 March 2015.

(ii) Consolidated statement of financial position as at 31 March 2015.
A

Solution


(i) Consolidated statement of comprehensive income for the year ended 31 March 2015.


60
P → S
6 months


8,000 x 60% = 4,800 then 2/3 x 4,800 = 3,200 x 8 = 25,600

Dr: purchase consideration
Cr: ordinary share capital 3,200 ×1
Cr: share premium 3,200 × 7		 25,600
3,200
22,400


Revaluation = 2,000

Depreciation = 2,000 + 5 = 400 x 6 / 12 = 200

Inter - group sales
S to P(8,000) = URP = 40 / 140 x 2,800 = 800

Dr: Cost of sales (Add)
Cr: Closing stock (Less)

Inter-group balances 800

Goodwill
Purchase consideration
Net Assets
Ordinary share capital
Revaluation
Retained earnings (13,000 - 3,000)


NCI goodwill
Full goodwill

8,000
2,000
10,000
60% x 20,000



25,600




(12,000)
13,600
2,400
16,000



NCI
Ordinary share
Revaluation
Retained earnings (13,000 - 800 - 200)

Add: NCI goodwill

8,000
2,000
12,000
40% x 22,000


8,800
2,400
11,200


Retained earnings
Parent R.E
Add: investee share of post acquisition R.E
Subsidiary 60% (3,000 - 800 - 200)

 70,800

1,200
72,000




P group
Consolidated statement of comprehensive income for the year ended 31 March 2015

Revenue 170,000 + (84,000 x 6 / 12) - 8,000
Cost of sales 126,000 + (64,000 x 6 / 12) + 800 + 200 – 8,000
Gross profit
Distribution expenses (4,000 + 4,000 x 6 / 12)
Administration expense (12,000 + 6,400 x 6 / 12)
Finance cost 600 + (800 x 6 / 12)
Profit before tax
Tax expense 9,400 + (6 / 12 x 2,800)
Profit after tax
Attributable to NCI 40%
Attributable to parent		 Sh. "000"
204,000
(151,000)
53,000
(6,000)
(15,200)
(1,000)
30,800
(10,800)
20,000
800
19,200


(ii) Consolidated statement of financial position as at 31 March 2015.


P Group
Consolidated statement of financial position as at 31 March 2015
Assets
Non-current asset
PPE 60,900 + 18,900 + 2,000 - 200
Investment property
Goodwill
Current assets
Inventory 12,080 + 5,000 - 800
Receivables 11,920 + 4,900 - 800
Bank 8,000 + 3,300
Cash at transit
Total Assets
Equity and liabilities
Ordinary share capital (20,000 + 3,200)
Share premium
Retained earnings
NCI
Non-Current liabilities
10% loan note (6,000 + 8,000)
Current liabilities
Payables 12,300 + 7050
Accruals 4,100 + 2,350
Total Equity and liabilities
 Sh. "000"

81,600
26,600
16,000

16,280
16,020
11,300
800
168,600

23,200
22,400
72,000
11,200

14,000

19,350
6,450
168,600


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QUESTION 2(a)

Q Required:
Prepare in a format suitable for publication:

(a) Statement of comprehensive income for the year ended 30 June 2015.

(b) Statement of financial position as at 30 June 2015.
A

Solution


Workings


W1


Valuation of leasehold property
Revalued amount as at 30 June 2015
Net book value:
Less: depreciation 75,000 / 30
Revaluation loss
75,000
(2,500)

 64,500

(72,500)
8,000


W2


Disposal of plant
Disposal proceed
NBV = 12,000 - 6,000
Disposal loss		 3,750
(6,000)
2,250


Depreciation on plant
Cost net of disposed plant 114,900 - 12,000
Accumulated depreciation 36,900 - 6,000


102,900
(30,900)
72,000

72,000 x 20% = 14,400



W3


Development expenditure
Balance b/d
Research cost for the year

Amortization. 9,000 + (20% x 32,100)

30,000
2,100
32,100
(15,420)
16,680


W4


PPE
Leasehold property
Plant and equipment (72,000 - 14,400)

64,500
57,600
122,100


W5


Cost of sales
As per trial balance
Add: depreciation expense - Plant
Leasehold
Amortization (20% × 32,100)
Disposal loss
Research and development expense (1,200 × 9)

306,000
14,400
2,500
6,420
2,250
10,800
342,370


(a) Statement of comprehensive income for the year ended 30 June 2015.


B Ltd
Statement of comprehensive income for the year ended 30 June 2015

Revenue (450,000 - 3,750)
Cost of sales
Gross profit
Expenses
Distribution cost
Administration cost (33,300 + 150 - 600)
Finance cost (1,200 + 300)
Profit before tax
Tax expense:
- Current tax 17,100
- Deferred tax (9,000 - 8,700) = 300
Profit after tax
Other comprehensive income
Revaluation loss
Total comprehensive income 		Sh."000"
446,250
(342,370)
103,880

(21,750)
(32,850)
(1,500)
47,780


(17,400)
30,380

(8,000)
22,380


(b) Statement of financial position as at 30 June 2015.


B Ltd
Statement of financial position as at 30 June 2015
Non-current assets
PPE
Research and development expenditure
Current assets
Inventory
Receivable
Total Assets
Equity and liabilities
Ordinary share capital
Revaluation reserve (15,000 - 8,000)
Retained profit
Non-current liabilities
8% redeemable preference share
Deferred tax
Current liabilities
Trade payables 35,700 + 150 - 600
Bank overdraft
Current tax
Total Equity and liabilities
Sh. "000"
122,100
16,680

30,000
64,650
233,430

75,000
7,000
58,130

30,000
9,000

35,250
1,950
17,100
233,430




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QUESTION 3(a)

Q Enumerate four enhancing qualitative characteristics of good financial information
A

Solution


Enhancing Qualitative Characteristics of Good Financial Information


  1. Relevance:
    • Predictive Value
    • Confirmatory Value
  2. Reliability:
    • Faithful Representation
    • Neutrality
    • Verifiability
  3. Comparability:
    • Consistency
  4. Understandability:
    • Clarity
    • Conciseness


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QUESTION 3(b)

Q Required:
(i) Eastlands branch inventory account for year ended 31 December 2014

(ii) Eastlands branch markup account for year ended 31 December 2014.

(iii) Goods sent to Eastlands branch account for the year ended 31 December 2014.
A

Solution


(i) Eastlands branch inventory account for year ended 31 December 2014


Eastlands branch
Inventory account for the year ended 31 Dec 2014

Balance b/d
Goods from head office
Goods from Southlands
Return inwards




 Sh"000"
31,680
700,368
3,360
5,280



740,688
Goods sent to Northlands
Returns to head office
Goods stolen
Cash sales
Credit sales
Marked down goods (20% x3,000)
Balance c/d

 Sh. “000"
4,320
8,160
5,760
316,800
370,116
600
34,932
740,688


(ii) Eastlands branch markup account for year ended 31 December 2014.


Mark-up = 3/5
Markup → margin = 3 / (5 + 3) = 3 / 8

Eastlands branch
Markup account for the year ended 31 Dec 2014

Goods sold to Northland (3 / 8 x 4,320)
Returns to head office (3 / 8 x 8,160)
Goods returned by Eastlands customer to Northlands (3 / 8 × 1,932)
Goods stolen (3 / 8 x 5,760)
Marked down in selling price
Gross profit (bal. figure)
Balance c/d (3 / 8 x 34,932)

Sh"000"
1,620.0
3,060.0
724.5
2,160.0
600.0
254,514.0
13,099.5
275,778.0
Bal b / d (3 / 8 x 31,680)
Goods from head office (3 / 8 x 700,368)
Goods from Southlands (3 / 8 x 3,360)





Sh"000"
11.880
262,638
1,260




275,778


(iii) Goods sent to Eastlands branch account for the year ended 31 December 2014.


Goods sent to Eastlands branch account
For the year ended 31 Dec 2014

Goods to Northland (5 / 8 x 4,320)
Returns to Northland (5 / 8 × 1,932)
Returned to head office (5 / 8 × 8,160)
Head office Purchase bal fig

Sh"000"
2,700.0
1,207.5
5,100.0
430,822.5
439,830.0
Goods from head office (5 / 8 x 700,368)
Goods from Southlands (5 / 8 x 3,360)



Sh"000"
437,730.0
2,100.0


439,830.0



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QUESTION 4(a)

Q Required: In line with provisions of IAS 23 (borrowing costs):

(i) Compute the borrowing costs to be capitalised.

(ii) Determine the cost of the assets constructed in the year.
A

Solution


(i) Compute the borrowing costs to be capitalised.


Finance cost
10% bank loan
24% bank loan
8% debenture
Borrowing cost to be capitalised		 10% x 120 = 12.0
24% x 80 = 19.2
8% × 60 × 6 / 12 = 2.4
33.6

(ii) Determine the cost of the assets constructed in the year.


1 April 2014
1 Nov 2014
Borrowing cost

40.0
30.0
33.6
103.6



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QUESTION 4(b)

Q Required:
Using the actuarial method, show in the books of Madwang Ltd:

(i) Income statement extracts over the lease term.

(ii) Statement of financial position extracts suitably classified.
A

Solution


(i) Income statement extracts over the lease term.


Amortization schedule
Period

Bal b/d
A		 Interest
B = 10% x A		 Payment
C
 Principal
D = C - B
 Bal c/d
E = A - D
2010
2011
2012
2013
2014
2015		 870.00
757.00
632.70
495.97
346.00
180.60		 87.00
75.70
63.27
49.60
34.60
18.00		 200
200
200
200
200
200 		113.00
124.30
136.73
150.40
165.40
181.00		 757.00
632.70
495.97
346.00
180.60



Madwang Ltd
Income statement extract for the year ended 31 December

Interest income		 2010
87.00		 2011
75.70		 2012
63.27		 2013
49.60		 2014
34.60		 2015
18.00


(ii) Statement of financial position extracts suitably classified.


Madwang Ltd
statement of financial position extract as at 31 December

Non-current assets
Current assets 		2010
632.7
124.3		 2011
496
136.73		 2012
346
150.4		 2013
180.6
165.4		 2014
-
181		 2015
-
-



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QUESTION 5(a)

Q Explain the fair value model of accounting for investment property as per IAS 40 (Investment Property).
A

Solution


Fair Value Model for Investment Property - IAS 40


According to International Accounting Standard 40 (IAS 40) - Investment Property, the fair value model is one of the two models for accounting for investment property. The fair value model is applied when an entity chooses to measure its investment property at fair value.

The key points of the fair value model include:


  1. Recognition: Investment property is initially recognized at cost. After initial recognition, the entity may choose the fair value model.
  2. Measurement: Subsequent to initial recognition, investment property is measured at fair value. Fair value represents the amount for which an asset could be exchanged between knowledgeable and willing parties in an arm's length transaction.
  3. Changes in Fair Value: Changes in the fair value of investment property are recognized in profit or loss for the period in which they occur. This includes both increases and decreases in fair value.
  4. Disclosure: Entities using the fair value model must disclose information that enables users of the financial statements to assess the extent to which the fair value of investment property is based on an appraisal by an independent valuer and the extent to which it is based on an unobservable input if fair value is determined using significant unobservable inputs.

The fair value model provides users of financial statements with relevant information about the current market value of the investment property, allowing for better decision-making and analysis.




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QUESTION 5(b)

Q Required:
(i) Statement of financial performance for the year ended 30 June 2015.

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

Solution


(i) Statement of financial performance for the year ended 30 June 2015.


Ministry of tourism
Statement of financial performance for the year ended 30 June 2015
Receipts
Transfer from exchequer
Fees, fines and licenses
Revenue from exchange transaction
Transfer from other ministries
Other revenue

Expenditure
Finance cost
Surplus and consumables used
Wages and salaries
Other expenses
Transfer to other ministries
Surplus		 Sh"000"







75,000
300,000
750,000
900,000
375,000

 Sh. "000"
1,875,000
375,000
37,500
75,000
450,000
2,812,500





(2,400,000)
412,500


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


Ministry of tourism
Statement of financial position as at 30 June 2015
Assets
Non-current assets
Land and building
Computer equipment
Vehicles
Current assets
Cash and cash equivalent
Receivables
Inventory of consumables
Total Assets
Accumulated fund and liabilities
Accumulated fund
Surplus
Reserves
Non-current liabilities
Liability for long term benefit
Long term borrowings
Current liabilities
Payables
Total Accumulated fund and liabilities
 Sh."000"

2,625,000
200,000
175,000

375,000
150,000
75,000
3,600,000

562,500
412,500
1,350,000

150,000
750,000

375,000
3,600,000



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