ADVANCED FINANCIAL REPORTING & ANALYSIS MAY 2019 - CPA SOLUTION|REVISION KITS|KASNEB

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

CPA
Advanced Leval
Advanvced Financial Reporting May 2019
Suggested solutions

Solution

Solution

Solution

Solution

Solution

Solution

Solution

Solution

Solution

Solution

Solution

Solution

Solution

Comments on CPA past papers with answers:

Advanced Public Finance

Advanced Financial Management

Advanced Auditing & Assurance

Advanced Management Accounting

Advanced taxation

Comments on:

CPA Advanced Leval Advanvced Financial Reporting May 2019 Suggested solutions

Solution

Revision Made Easy. 🚀

Solution

Revision Made Easy. 🚀

Solution

Revision Made Easy. 🚀

Solution

Revision Made Easy. 🚀

Solution

Revision Made Easy. 🚀

Solution

Revision Made Easy. 🚀

Solution

Revision Made Easy. 🚀

Solution

Revision Made Easy. 🚀

Solution

Revision Made Easy. 🚀

Solution

Revision Made Easy. 🚀

Solution

Revision Made Easy. 🚀

Solution

Revision Made Easy. 🚀

Solution

Revision Made Easy. 🚀

Comments on CPA past papers with answers:

Advanced Public Finance

Advanced Financial Management

Advanced Auditing & Assurance

Advanced Management Accounting

Advanced taxation

Comments on:

CPA
Advanced Leval
Advanvced Financial Reporting May 2019
Suggested solutions