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cpa 3 financial reporting 1 revision 2

By Omosa


QUESTIONS NUMBER ONE HDL Ltd, which manufactures footwear, makes up its accounts to 31 March each year. The company has an authorized share capital of Sh. 600,000,000 divided into 15,000,000 6.5% preference shares of Sh. 20 each and 30,000,000 ordinary shares of Sh. 10 each. The following trial balance was extracted as at 31 March 2002. Trial balance as at March 2002 Sh000 Sh000 Cost of Sales Motor vehicle expenses Selling and distribution costs Depreciation of motor vehicles – for the year Wages and salaries Administration expenses Audit fees Sales Discounts received Investment income – trade investments - others Preference dividends paid Debenture interest Corporation tax paid – installment Compensation to director for loss of office Depreciation of fixtures for the year) 8% debentures Cash in hand Ordinary share capital issued and paid-up) Bank balance Preference share capital issued and paid-up) Inventory 31 March 2002) Debtors/creditors Deferred tax Motor vehicles net book value) Provision for doubtful debts Fixtures and fittings net book value) Profit and loss account 1 April 2001) General reserves Share premium Freehold land and building cost) Investments – trade market value Sh.35,000,000) Others market value Sh.62,000,000) 699,992 59,684 78,840 12,580 95,834 11,492 1,400 13,000 1,600 8,615 8,500 1,040 3,000 11,745 204,132 336,440 24,800 11,300 270,000 30,000 61,610 _______ 1,945,604 1,191,864 812 1,072 1,608 20,000 200,000 200,000 102,000 3,000 14,400 110,848 60,000 40,000 _______ 1,945,604 Additional information: 1. Wages and salaries include salary paid to Managing Director of Sh. 30,000,000 and salary paid to Sales Director of Sh. 25,000,000. 2. Provision is due to be made for directors’ fees Sh. 150,000,000. 3. Provision for doubtful debts is to be adjusted to Sh. 16,822,000. 4. Timing differences of Sh. 4,000,000 are expected to reverse in the near future. 5. The directors recommended an ordinary dividend of Sh.1.35 per share. 6. Corporation tax for the year is Sh.11; 820,000.The corporation tax rate is 30%on adjusted profit. 7. Land and buildings were professionally valued at Sh.300,000,000 at the year end. The directors wish to incorporate the valued amount in the financial statements. 8. Information about other fixed asset is as follows: Motor vehicles Sh Fixtures & fittings Sh Cost (including additions during the year) 51,200,000 20,800,000 Additions during the year 2,240,000 1,600,000 Cost of assets disposed of during the year (No entry made yet) 2,800,000 1,455,000 Accumulated depreciation of asset disposed of during the year 2,150,000 905,000 Proceeds of asset disposed of (including in sales in the trial balance) 715,000 500,000 Required (a) Income statement for the year ended 31 March 2002 (13 marks) (b) Balance sheet as at 31 March 2002 (12 marks) (Total: 25 marks) (The above two statement should be presented in the form suitable for publication in accordance with the requirements of International Accounting Standards .IASs) NUMBER TWO Kariuki, Mamba and Richards have carried on partnership for several years, sharing profits and losses equally after allowing for annual salaries as follows: Kariuki Sh. 1,500,000 Mamba Richards 900,000 900,000 They decided to convert the partnership into limited company; Kamari at 30 November 2001, the following terms: 1. Goodwill to be valued at Sh.13,500,000 2. Other assets to be valued as follows: Shs. Freehold property Furniture and fittings Motor Vehicles 27,000,000 2,400,000 6,000,000 3. Each partner is becoming director of the company at the same salary as that previously allowed in the partnership. 1. Mamba’s loan is to converted into share capital at par. 5. Shares are to be issued to each partner at parin respect of the amounts of their equity holdings at 30 November 2001. 6. The financial year of partnership ends on 30 May .No action has been taken to carryout the terms of conversion of partnership into the limited company in the books of accounts. On 31 May 2002, the trial balance showed the following position: Sh ‘000’ Sh ‘000’ Capital accounts at 1 June 2001 Kariuki Mamba Richards Stock -31 May 2002 Cost of sales Sales Administrative expenses Selling expenses Accounting &Audit expense Incorporation expenses Drawings: Kariuki Mamba Richards Freehold property at cost Furniture and fittings at cost Accumulated depreciation Debtors and Creditors Prepayments and Accruals Loan from Mamba(10% interest per annum) Motor Vehicles at cost Accumulated depreciation Bank balance 14,400 36,000 6,000 3,000 1,200 600 1,500 900 900 25,800 6,000 9,000 600 12,000 ______ 117,900 18,000 9,000 6,000 60,000 3,600 7,200 300 9,000 3,600 1,200 117,900 Additional information; i. The sales during the second half of the year were 60% of the total sales though the gross profit percentage remained the same throughout the year. ii. The selling expenses were proportional to the sales for each period. All the expenses were incurred evenly throughout the year. iii. Salary drawings were made evenly. Drawing made after incorporation were to be treated as director’s salaries. iv. There were no purchases or sales of fixed assets during the year .Depreciation is to be provided on cost as follows; Furniture and fittings 10% per annum Motor vehicles 20% per annum v. No dividends are paid or proposed but it is decided to write off the incorporation expenses and also Sh.3,500,000 of the goodwill. Required (a) Trading and profit and loss account for Kamari Ltd. for the six months ended 31 May 2002 (8 marks) (b) Calculation showing the value of shares to be issued to each partner. (4 marks) (c) Balance sheet as at 31 May 2002. (8 marks) (Total: 20 marks) NUMBER THREE On April 2001, Dotty Manufacturers Ltd .opened a branch in Cumala, a foreign country whose currency is the cuma (cm),to sell an assortment of dolls.The branch manager was authorized to purchase local dolls for resale, but it was expected that the major proportion of the sales would be the dolls supplied by the head office in Kenya. On 31 March 2002, the trial balance of the head office and branch were as follows; Trial balance as at 31 March 2002 Head Office Branch Ksh Ksh Ksh Ksh Share capital Reserves Profit and loss a/c Premises at cost Fixtures and fittings Provision for dep. fixtures & fittings Stock 1 April 2001 Debtors Creditors Bank balance Cash in hand Sales Purchases Goods sent to branch Goods received from head office Branch current account Head office current account Branch stock adjustment account 45,000,000 16,000,000 14,050,000 17,550,000 9,200,000 980,000 65,630,000 15,900,000 50,000,000 20,000,000 12,000,000 6,400,000 4,500,000 101,090,000 13,520,000 3,380,000 94,500,000 35,100,000 27,084,000 8,598,000 48,807,000 156,500,000 12,336,000 277,233,000 129,350,000 Administration expenses Distribution expenses 19,250,000 7,330,000 210,890,000 ________ 210,890,000 28,514,600 19,815,400 418,919,000 _________ 418,919,000 Additional information 1. Stock on hand as at 31 March 2002 was Stock on hand as at 31 March 2002 was Head office Branch; From head office From local purchases Ksh.28,500,000 Zm.12,000,000 Zm.9,775,000 2. Goods were invoiced by head office to branch at cost plus 23%. The branch sold the goods at invoiced price plus 50%. Goods sent to branch from head office were converted at affixed rate of 10 cumas to 1 Ksh. 3. On 31 March 2002,goods in transit from head office to branch were at an invoiced value of Ksh.1,250,000 4. A remittance of Cm 5,800,000 from branch to head office was in transit 0n 31 march 2002.The remittance was converted at Cm.12.5 to Ksh.1 5. The fixtures and fittings were acquired when the exchange rate was Cm 10.5 to Ksh.1 on 1 July 2001. 6. Depreciation of the head office and branch fixtures and fittings is to be provided at the rare of 10% per annum on cost. A full year’s depreciation should be provided branch fixtures and fittinds. 7. The branch manager was to be allowed a commission of 2% on the sales of dolls supplied by the head office. 8. Rates of exchange at other dates were; Cumus Ksh. 1 June 2001 31 March 2002 Average for the year Date of purchase of closing stock 10 12 11 11.5 to to to to 1 1 1 1 Required (a). Trading, profit and loss account in columar form for the head office, the branch and the combined business for the year ended 31 March 2002. (12 marks) (b). Balance sheet of the office, branch and the combined business as at 31 March 2002 (8 marks) (Total: 20 marks) (Use the temporal method to translate branch balances into Kenya shillings) NUMBER FOUR On 1 April 2001 Pega Ltd .acquired 4,500,000 ordinary shares of Ksh.20 par value in Menga Ltd at a cost of Ksh.152, 000, 000.Further, on 1 July 2001 Mega Ltd acquired 15,000,000 ordinary shares of Ksh 20 par value in Lera Ltd at a cost of Ksh.716, 600,000.Directors were appointed to the boards of both companies by Pega Ltd so as to take an active part in their management. Given below is the information extracted from the books of the companies as at 31 March 2002. Balance sheet as at 31 March 2002 Freehold property at cost Plant and machinery at cost Stock Debtors Amount due from Mega Ltd Investments Bank balances Share capital Share premium Capital reserve Retained profit (as at 31 March 2002) Creditors Amount due to Lera Ltd. Accumulated depreciation –plant and machinery Taxation Bank balance Pega Sh. ‘000’ 720,000 1,375,000 380,000 374,800, - 868000 _______- 3,717,800 1,000,000 200,000 300,000 786000 2,286,000 590,000 36,000 521,800 190,000 94,000 3,717,800 Menga Sh. ‘000’ 0 450,000 218,000 185,000 - - 9,000 862,000 300,000 24

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