Guaranteed

95.5% Pass Rate

CPA
Advanced Leval
Advanvced Financial Reporting May 2019
Suggested solutions

Advanvced Financial Reporting & Analysis
Revision Kit

QUESTION 1a

Q ➢ Implementation challenges that are faced by the International Accounting Standards Board (IASB) in its push towards a successful move to IFRSs
A

Solution


(i). Legal framework may present difficulties in adopting IFRSs

(ii). Due to the volume and complexity of IFRS, their application requires expertise.

(iii). Cost and time implications

(iv). Problems in enforcements

(v). Interpretation of IFRS could cause difficulty where it gives rise to ambiguity.

(vi). IFRSs have become increasing complex and prescriptive for SMEs

More info

QUESTION 1b(i)

Q ➢ Reasons why there is a need to develop IFRSs specifically for SMEs
A

Solution


(i) Full IFRSs have become more detailed and harder to follow

(ii) Since that IFRSs demand complete compliance, the implementation cost can outweigh the benefit.

(iii) SMEs may have different needs from those of public companies

(iv) Detailed presentation will prevent users from getting necessary information.

More info

QUESTION 1c

Q ➢ Objectives of Sustainability Reporting
A

Solution


(i) Due to the way it combines economic, social, and environmental aspects, it aids in measuring corporate performance.

(ii) Economic efficiency, environmental reporting, and social accounting, which are the core values of sustainable business, make the business excel and distinguish it from others.

(iii) It serves as a vital forum for discussion between the organization and its stakeholders.

More info

QUESTION 1d

Q ➢ With reference to IPSAS 20 “related Party Disclosures”, briefly explain the related party relationships and how related party disclosures under IPSAS 20 differ from those of commercial sector entities under IAS 24 “Related Party Disclosures”.
A

Solution


Related party is a person or entity that is related to the entity that is preparing its financial statements

(i) Disclosures should always be made of related party transactions where control exists

(ii) Occurs when one of the parties has the ability to control another person or use significant power over the others to make financial and operational decisions.

(iii) IPSAS 20 does not require disclosure of information about business transactions between related parties which occur at arm’s length

More info

QUESTION 2a

Q ➢ Amount of goodwill arising on acquisition of S ltd and A ltd after the imparement review
A

Solution


S Ltd
Sh."million"		 A Ltd
Sh."million"
Purchase considaration 3,285 (500 + 250)= 750
NCI 200 250
3,485 1,000
Less:Net assets acquired
OSC 1,000
Share premium 160
Retained profit 1,650
Revaluation 175
Total (2,985) (980)
Full goodwill 500 20


More info

QUESTION 2b

Q ➢ Consolidated statement of financial position of G ltd and A ltd after imparement review
A

Solution


Workings

1. Urealised loss 50% x 9m = 4.5m
2. Revaluation depreciation 175/5 = 35 x 3 = 105
3. Retained earnings
G ltd 4,028 + 4.5 4,032.5
S ltd 80%(1,900 - 1,650 - 105) 116.0
A ltd 75%(625 - 525) 75.0
Intangible expenses(32 + 18 + 14 + 9) (73.0)
4,150.5


G Group
Consolidated statement of financial position as at
30 September 2018
Sh."million"
Assets
Non-Current assets
PPE(4,140 + 1,350 + 1,395 + 175 - 105) 6,955
Intangible assets(891 + 540 + 158 - 9 - 32 - 18 -14) 1,516
Goodwill(500 + 20) 520
Current assets
Inventories(1,102 + 819 + 414 + 4.5) 2,339.5
Trade receivables(2,016 + 891 + 486) 3,393
Cash and cash equivalent(909 + 450 + 190) 1,549
16,272.5
Equity and Liabilities
OSC 4,140
Share premium 329
Retained profit 4,150.5
NCI 889
Non-Current liabilities
8% debentures(1,640 + 288 + 333) 2,261
Deferred tax(1,187 + 265 + 243) 1,695
Current liabilities
Trade payables(1,674 + 319 + 299) 2,292
Current tax(245 + 118 + 153) 516
16,272.5


More info

QUESTION 3a(i)

Q ➢ With reference to IAS 19 “Employee Benefits”, briefly explain the accounting treatment of the defined benefit pension surplus (plan asset) in the financial statement of an employer.
A

Solution


(i). Losses attributed to impairment should be charged to other comprehensive income if there is a decrease in the value of a net pension asset.

(ii). The amount recognized in the statement of financial position as a net pension asset should not exceed the recoverable amount.

(iii). The net pension asset should be measured at the lower of: (Asset Ceiling)

➢ Net reported pension asset

➢ Present value of any future refunds or reductions of future contributions to the pension plan.

More info

QUESTION 3a(ii)

Q ➢ The required notes to the statement of comprehensive income and the statement of financial position to reflect the financial effects of the defined benefit pension plan in the year ended 31 December 2018
A

Solution


Defined plan asset Sh."million"
Fair value of plan asset openning balance 2,860
Add:Contribution to the plan 259
Return on plan asset(5% x 2,860) 143
Less:benefits paid (242)
3,020
Acturial gain (bal fig) 93
Fair value balance 3,113
Defined plan liability
Present value of obligation openning balance 3,080
Add:Current service cost 209
-Past service cost 110
Interest cost(5% x 3,080) 154
Less:Benefits paid (242)
3,311
Acturial loss (bal fig) 49
Present value balance c/d 3,360
Net acturial changes (gain) 93 - 49 = 44


More info

QUESTION 3b

Q ➢ A capital reduction account for Matatizo Limited after completion of the internal reconstruction.
A

Solution




W1

Rights issue = 1/3 x 3,000 = 1,000

Dr:Cash 6,000
Cr:Ordinary Share(1,000 x 4.5) 4,500
Cr:Share Premium 1,500


Capital reduction account

Accumulated loss
Goodwill
Patent and trade mark
Revaluation loss on
plant and machinery
Equipment
Receivables
Inventory
Capital reserve

 Sh."000"
2,000
5,000
500

6,100
3,250
1,160
460
7,590
26,060
Ordinary shares (3,000 x 5.5)
Preference shares 10,000 - (55 x 100 + 500 x 4.5)
Directors loan(50% x 5,000)
Creditors 10% x 2,200 x 50%
Loan balance 2,500 - (400 x 4.5)
Share premium




 Sh."000"
16,500
2,250
2,500
110
700
4,000



26,060


More info

QUESTION 4a

Q ➢ Classifications of Financial Instruments a per IFRS 9 “Financial Instruments”
A

Solution


A financial instrument is any contract that gives rise to a financial asset for one entity and a financial liability or equity component for another entity.

Financial assets

When an entity first recognizes a financial asset, it classifies it based on the entity’s business model for managing the asset and the asset’s contractual cash flow characteristics, as follows:

(i) Financial Assets at Amortized Cost

A financial asset is measured at amortized cost if both of the following conditions are met:

Business Model Test - The asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows.

Contractual Characteristics Tests - The cash flows are solely payments of principal and interest on the principal amount outstanding.

(ii) Fair value through Other Comprehensive Income

Financial assets are classified and measured at fair value through other comprehensive income if they are held in a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets. Any Change in market value is taken to the statement of Comprehensive Income and shown as a reserve in the Statement of Financial Position.

(iii) Fair value through profit or loss

Any financial assets that are not held in one of the two business models mentioned above are measured at fair value through profit or loss. Any Change in market value is taken to the income statement as either a gain or deficit.

More info

QUESTION 4b(i)

Q ➢ The basic EPS for the year 2017 and 2018
A

Solution


Basic EPS
=
PATOSH
WANOS


PATOSH
2017 2018
PAT 450 650
Preference dividends 8% x 1,000 (80) (80)
10% x 500 (50) (50)
320 520


WANOS
Date Share transaction No. of shares Weight Shares
1/1/2018 bal b/d 20 1 20
1/1/2018 Conversion of loan stock
Sh.300/Sh.1,000 x 25 7.5 1 7.5
27.5 27.5
1/4/2018 Rights issue - At full price
27.5/5
5.5 x 120/125 5.28 9/12 3.96
32.78 31.46
Bonus shares(5.5 - 5.28) 0.22 (0.22 x 31.46)/32.78 0.21
33 31.67


Basic EPS 2017
=
320
20
=
16


Basic EPS 2018
=
520
31.67
=
16.42




More info

QUESTION 4b(ii)

Q ➢ The diluted EPS for the year 2017 and 2018
A

Solution


Year 2017

Loan stock
Interest = 10% x 1,500 x 0.7 x 6/12 = 52.5

Shares = (25 x 1,500)/1,000 = 37.5 x 6/12 = 18.75

Increamental EPS
=
Increamental profit
Increamental shares
= 52.5/18.75 = 2.8


Preference convertible shares

Dividends = 10% x 500 = 50

Shares = (1 x 5)/1 = 5

Increamental EPS = 50/5 = 10


Year 2018

Loan stock

Interest = 10% x 1,200 x 0.7 = 84

Shares = (25 x 1,200)/1,000 = 30

Increamental EPS = 84/30 = 2.8

Bonus element in share option

shares = 4 x 5/125 = 0.16


Diluted EPS

2017
=
320 + 52.5 + 50
20 + 18.75 + 5
= 9.66
2018
=
520 + 84 + 50 + 0
31.67 + 30 + 5 + 0.16
= 9.79


More info

QUESTION 5

Q ➢ Tembea Group Consolidated Statements of cashflow For the year ended 31 March 2019
A

Solution


Tembea Group
Consolidated Statements of cashflow
For the year ended 31 March 2019
Operating Activities Cash Flow "000"
Profit before tax 9,335
Adjustments
Imparement of Intangible assets(540 - 324) 216
Depreciation 3,052
Finance cost 447
Investment income (616)
Gain on disposal of PPE (388)
Working Capital changes
Inventory(1,771 + 456) - 1939 288
Receivables(9,085 + 1,170) - 9,792 463
Payables(9,396 + 705) - 10,608 507
Gross operating cashflows 13,304
Less tax paid (1,653)
Less interest paid(11 + 447 - 54) (404)
Net operating cash flows 11,247
Investing Activities Cash Flows
Proceed on disposal of PPE 700
Investment Income 616
Acquisition on assets - PPE (5,611)
Subsidury(4,400 + 73 - 42) (4,431)
Net investing cash flows (8,726)
Financing Activities Cash flows
Issue of share(160 + 440) - 120 480
Loan borrowed(3,453 - 967) 2,486
Lease rental paid (300)
Dividend paid - Holding (592 + 4,400 - 764) (4,228)
Shares alloted (600)
NCI (219)
Net financing cash flows (2,381)
Cash and cash equivalents 140
Add:Cash balance b/d 3,679
Cash balance c/d(3,923 - 104) 3,819


W1
Tax expense
Tax paid 1,653
Balance b/d: deferred 5,479
current 2,515
-
9,647
Balance b/d: -deferred 3,301
-current 2,357
Subsidury 908
P&L 3,081
9,647


W2
Lease Obligation
Lease rental paid 300
Balance c/d: (141 + 476) 617
917
Balance b/d(202 + 715) -deferred 917
_
917


W3
NCI
Dividend paid 219
Balance c/d: 483
702
Balance b/d: -deferred 619
P & L 83
702




W4
Accrued interest
Interest paid 404
Balance c/d: 54
458
Balance b/d(202 + 715): 11
P & L 447
458




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