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cpa 3 financial reporting 1 revision 7


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By Omosa


Description/Abstract

QUESTIONS NUMBER ONE KAPA Ltd. manufactures and sells a wide range of food products for both wholesale and retail outlets. Its authorized ordinary share capital is 5 million shares of Sh 100 par value. The company has extracted the following trail balance as at 31 October 2004. Sh “000” Sh “000” Ordinary share capital: issued and fully paid 300,000 Retained earnings 131,000 10% debentures (secured on buildings) 50,000 8% debentures (secured on a floating charge) freehold buildings: Cost Accumulated depreciation Plant and machinery: Cost Depreciation Additions-plant and machinery Motor vehicles: Cost Accumulated depreciation Land Profit for the year Trade and other payables Trade and other receivables Inventories Balance at Faida Bank Directors remuneration Balance at Faulu Bank Investment ( market value: Sh. 35 million) Interest received Interim dividends paid Tax paid Dividend received 150,000 220,000 40,000 25,000 100,000 101,600 163,000 52,000 3,800 49,620 32,000 21,000 5,700 _______ 50,000 15,000 40,000 10,000 285,820 31,400 47,000 2,100 1,400 963,720 963,720 Additional information 1. Trading profit has been derived as follows: Sales Cost of sales Distribution costs Administrative expenses Sh. „000‟ 927,420 82,670 136,090 Sh. „000‟ 1,432,000 (1,146,180) 285,820 2. 3. 4. 5. The 10% debentures are redeemable at par in ten equal annual instalments commencing 1 November 2004, while the 8% debentures are due on 31 July 2005. The corporation tax at 30% on the adjusted profit for the year has been computed at Sh. 53 million. During the year, an item of plant which cost Sh. 20 million on 20 September 2000 was disposed of for Sh. 5 million. The disposal proceeds have netted off against the amount incurred in acquiring new plant and machinery. Depreciation on property, plant and equipment is to be provided on cost and allocated as follows: Freehold buildings Plant and machinery Motor vehicles Rate 21/2% per annum 15% per annum 20% per annum Basis of allocation Administrative expenses Cost of sales Distribution costs 6. A full year’s depreciation is charged in the year of acquisition but none in the year of disposal. Inventories comprise: Raw materials Work-in-progress Finished goods Sh. „000‟ 50,900 24,875 87,225 7. Employees costs included in relevant functional expenses are: Salaries and wages Social security costs Pension costs Sh. „000‟ 478,770 67,500 42,000 Directors’ fees amounting to Sh. 3 million have not been provided for. 8. The directors propose to pay a final dividend of Sh. 8 per share. Required: (a) (b) Income statement for the year ended 31 October 2004 Balance sheet as at 31 October 2004. include relevant notes, using only the information provided, to ensure that the financial statements are in conformity with International Financial Reporting Standards Note: Do not prepare a statement of changes in equity. NUMBER TWO Nguyo Fashion Ltd. has been operating a large retail shop in Nairobi. On 1 July 2003, the directors opened new shops in Nakuru and Kisumu. All purchases were done in Nairobi branch and goods sent to other branches at a uniform mark-up of 331/3% on their cost. After deducting petty cash expenses, the branches banked all the collections dairy. The head office paid for other expenses but allowed each branch to keep a cash float of Sh. 100,000. The records maintained by the office (Nairobi branch), did not contain all transactions relating to the other branches. The accountant at head office was however able to obtain the following details for the year ended 30 June 2004: Head office books Fixtures and fittings (cost) Cash float with branches Goods sent to branches (cost) Goods returned from branches (cost) Cash received from branches Nakuru branch Sh. „000‟ 3,500 100 6,200 27,000 300 31,450 Kisumu branch Sh. „000‟ 4,200 100 7,300 36,000 150 43,000 Branches books Sales Cash floats at June 2004 Sundry expenses Banking – head office account Goods returned to head office ( selling price) Goods sent to Kisumu branch Nakuru branch Sh „000‟ 32,350 100 400 31,450 400 700 Kisumu branch Sh „000‟ 43,340 100 340 43,000 200 Goods sent to Nakuru branch Inventory at 30 June 2004 ( selling price) Damaged inventory – scrapped ( selling price) 3,300 20 200 4,740 15 Additional information: 1. 2. 3. 4. Nakuru branch purchased goods locally for Sh. 500,00 and sold the at a margin of 331/3%. At 30 June 2004 the closing inventory, at selling price, included Sh. 60, 000 in respect of these goods. During the year, the branches organized a “sales week” when all prices were reduced by 10%. Sales realized during the week were; Nakuru Sh. 900,000 and Kisumu Sh. 1,080,000. The head office charged each branch Sh. 500,000 in respect of the services rendered. Depreciation is to be provided at 10% per annum on fixtures and fittings in each branch. Required: (a) (b) (c) (d) Branches stock accounts as at 30 June 2004. Branches mark – up account as at 30 June 2004. Goods sent to branches accounts as at 30 June 2004. Branches profit and loss accounts for the year ended 30 June 2004. NUMBER THREE (a) List the circumstances under which a subsidiary should be excluded from the consolidated financial statement (b) The following balances were extracted from the books of P Ltd., C Ltd., and O Ltd. as at 31 March 2004. P Ltd. C Ltd. O Equity and liabilities: Authorized and issued share capital: Ordinary shares of Sh. 20 par value fully paid 6% cumulative preference shares of Sh. 20 par value fully paid Profit and loss accounts 5% debentures Provision for depreciation of fixed assets Debentures interest accrued Proposed dividends Creditors Sh. „000‟ 28,000 10,460 9,600 3,360 9,140 60,560 Sh. „000‟ 12,000 3,000 6,300 1,600 5,400 80 1,300 3,960 33,740 Ltd. Sh. „000‟ 4,000 1,050 1,600 2,550 9,200 Additional information: 1. 2. P Ltd. acquired the shares of C Ltd., cum dividend on 31 March 2003 and C Ltd. acquired the shares in O Ltd. on 31 march 2002. The balances on the income statements of C Ltd. and O Ltd. comprises: Balances on 31 march 2002 Net profits to 31 March 2003 Less: Provision for proposed dividends (2003) Balances on Mach 2003 Net profit to 31 Mach 2004 Less: Provision for proposed dividends (2004) C Ltd. Sh. „000‟ 4,520 1,920 6440 1,140 5,300 2,400 7,700 1,380 6,320 O Ltd. Sh. „000‟ 490 400 890 - 890 160 1,050 - 1,050 3. The proposed dividends for the year ended 31 March 2003 4. 5. were subsequently paid by C Ltd. P Ltd.’s shares of the dividends is included in its income statement. No entries have been made in the books of P Ltd. in respect of the debenture interest due from C Ltd. or for the holding company’s share of the proposed dividends in C Ltd. for the year ended 31 Mach 2004. Proposed dividends are inclusive of preference dividends. Required: P Ltd. group balance sheet as at 2004. NUMBER FOUR Nasty, Kim, Lams and Mutai, who have been partners in a tile manufacturing business sharing profits and losses in the ratio 4:3:2:1, had a serious disagreement on 15 January 2004 which necessitated a dissolution of the partnership. For the purpose of dissolution, their accountant extracted a balance sheet as at 1 February 2004 as follows: Sh. „000‟ Sh. „000‟ Non – current assets: Land and buildings Plant and machinery Furniture and fittings Investments Current assets: Inventory Debtors Balance at bank Total assets Capital and liabilities: Capital account: Nasty Kim 15,870.0 9,602.5 782.5 21,250.0 19,802.5 7,500.0 5,000.0 53,552.5 26,255.0 79,807.5 10,000.0 17,500.0 Lams Mutai General reserves Current liabilities: Creditors 10,000.0 7,500.0 45,000.0 17,500.0 17307.5 79,807.5 Additional information: 1. The assets, which were sold on piecemeal basis, realized cash as follows: 10 February 2004 16 February 2004 27 February 2004 03 March 2004 20 March 2004: 15 April 2004: Inventory (partial) Debtors (partial) Investments Furniture and fittings Land and buildings Debtors (partial) Inventory (balance) Plant and machinery debtors (balance) Sh. „000‟ 8,750.0 7,330.0 6,050.0 5,000.0 17,500.0 1,250.0 6,875.0 16,400.0 877.5 2. 3. The partners agreed to set aside Sh. 1.25 million to meet realization expenses. Any cash available for distribution thereafter was to be shared immediately the creditors were paid in full. The realization expenses which amounted to Sh. 1 million were paid on 15 April 2004. Required: Using the maximum possible loss method, prepare: (a) (b) Statement showing how the proceeds should be shared. Realization account and capital account to close off the book f the partners. NUMBER FIVE (a) Briefly explain the meaning of the following terms as used in the law of succession. (i) (ii) Donatio mortis causa. Partial intestacy. (b) Kito died on 12 March 2003, and by his will made in 2001, bequeathed the following 1. 2. 3. To Lin, my daughter, Sh. 100,000. To Easter , my son, my house in Tasia. To Lima, my wife, Sh. 500,000 on condition that she does not marry again. The executor has established that: • • • Kito gave Linda Sh. 60,000 in 2002 to enable her open a salon. The contract for the purchase of the house in Tasia was completed in June 2004. Lima is engaged to Kisongo and their wedding is scheduled for 31 December 2004. (c) Required: Explain how the executor should deal with each bequest. Obaji died intestate, leaving his two wives Asiem and Atete whom he married under a system of law which permits polygamy. Alis, his second wife had predeceased him leaving two children, Suswa and Supra who are still alive. Asiem has three surviving children: Pamela
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