SOLUTION FINANCIAL REPORTING MAY 2013 SOLUTION 1 (A) (i) The purpose of this framework is to (ii) Assist the

st the IASB in the development of future accounting standards and in its review of existing accounting standards Assist the IASB b providing a basis for reducing the number of alternative accounting treatments Assist national standard!setting bodies in developing national standards Assist accountants to appl relevant accounting standards in preparing financial statements and in dealing with topics that do not form the sub"ect of International accounting standards# Assist auditors in forming an opinion as to whether financial statements conform with relevant accounting standards# Assist users of financial statements in interpreting the information contained in financial statements prepared in conformit with International Accounting Standards

The specific topics discussed under the framework are as follows$ The ob"ectives of financial Statements# %ser groups Assumptions underl ing financial statement preparation# &ualitative 'haracteristics of financial statements# The elements of financial statements# their recognition and their measurement The concepts of capital maintenance

(B) (i) Income Statement for the ear en!e! 31 "ecem#er 2012$ (xpenses +epreciation charge (,..-.../0. ears x 1/23) 4ther income 5air valuation surplus!Investment Propert 67.-...!686-7.. )*' ,-... 1-3..

Statement of F$nanc$a% Po&$t$on a& at 31 "ecem#er 2012 9on!'urrent Assets )*' Investment Propert 67.-... (:uit ;evaluation Surplus (686-7.. < 601-...) 28-7..

Page 1 of 10

SOLUTION FINANCIAL REPORTING MAY 2013 )*' 21-3.. 8-3.. 1-80. 6.-20. .=1 .=, 23=0> 20> 8=0> 1> 26=0>

(ii) 26=0> ? 23.-... 26=0> ? 7.-... ? 7/23 26=0> x 3..-... x 6/23 @eighted Average rate 2 ,7.-... 3A 63.-...

SOLUTION 2 Saana Btd st Statement of 5inancial Position as at 62 Carch 3.23 )*' (16.-... < 23-1..) (00.-... < 22.-...) (01-... < 2,-...) )*' 128-,.. ,,.-... ,3-... 13-... 2-212-,.. 3F.-... 201-... 1F-... 020-... 2-181-,.. 7..-... 28-... 682-... 2-278-0.. 37-... 82-,.. 223-0.. 322-F.. 'urrent Biabilities Trade pa ables (368-... E 3-0..) Accrued $ Bease finance interest 5inance lease obligation Taxation Total (:uit and liabilities 36F-0.. ,-... 23-... 32-... 381-0.. 2-181-,..

9on!current Assets 5reehold propert Plant (4wned) Beased plant Investment propert 'urrent Assets$ Stocks Trade receivables Bank pa ments Total assets (:uit $ Stated capital 'apital surplus Income surplus

(6.3-... < 23-...)

Bong Term Biabilities D Provisions$ 5inance lease obligation 0> Boan 9otes +eferred tax

Page 2 of 10

@4;GI9)S$ @2 Treat the lease as finance lease )*' 'ash price 01-... st 21-... 2 instalment 'apital outstanding ,.-... Interest at 2.> per annum ,-... 'apital outstanding ,.-... Split into current liabilit and long term liabilities nd 21-... 3 instalment pa able '( 'apital element H 21-... < ,.-... x 2.> H 23-... '( Bong term liabilit H ,.-... < 23-... H 37-... @3 +epreciation on fixed assets$ 5reehold propert (16.-... x 3>) 4wned plant (00.-... x 3.>) Beased plant (01-... x 30>) H H H 23-1.. 22.-... 2,-... 261-1..

@6

+amaged and slow moving stock to be written down to estimated realiIable value$ Saleable value Bess 2.> commission 9;J '( @rite down H 3.-... 3-... 27-... 6.-... < (6-1.. x 0) 23-...

@,

Provision for future repairs does not meet the definition of a liabilit under IAS 68 and must be reversed= This will increase current ear profit and the previous ear b )*'1.-... IAS 6F 5inancial Instruments re:uires this t pe of loan to be valued at amortised cost as follows$ Amortised cost 2/2/3.23 Interest expenses at (/; of 23> Interest paid at 2.> Amortised cost at 62/23/3.23 8.-... 7-,.. (8-...) 82-,..

@0

Income Surplus Ad"ustments$ Balance b/fwd Add back provision for plant overhaul Bease rented reserved Bess lease interest (@2) +epreciation$ (@3) Buildings 4wned plant Beased plant 5air valuation deficit < Investment propert Stock write down %nrecorded credit Increase in deferred tax (223-0.. < F,-...) Amortisation of loan note (7-,.. < 8-...) ;evised income surplus balance

)*' ,76-... 1.-... 21-... (,-...) (23-1..) (22.-...) (2,-...) (26-...) (23-...) (3-0..) (27-0..) (2-,..) 862-...

SOLUTION 3 (a) Income Statement for the six!month period ended$ 6. Kune 3.23 )*' )*' 1.-... (2F-...) ,2-... 8-0.. 0-7.. 28. ,-3.. (28-18.) 36-66.
th

Sales 'ost of sales )ross profit 4perating expenses @ages and salaries (@2) +oubtful debts provision +epreciation (@3) 9et profit c/d (b) Income Appropriation Account 9et profit b/d Interest on current account Interest on capitals$ Talim Gum Calita

62 +ecember 3.23 )*' )*' 1.-... (2F-...) ,2-... 8-0.. 3-3.. 28. 6-3.. (26-.8.) 38-F6.

)*' 36-66. ! (2-30.) (80.) ! 32-66.

)*' 38-F6. 63. (2-30.) (80.) (80.) 30-0..

Share of profit$ Talim Gum Calita (c)

)oodwill Balance c/d Talim )*' 67-7F1 30-21F 1,-.10

2.-110 2.-110 ! 32-66. 'apital Accounts

Gum )*' 2F-,,7 6,-128 0,-.10 Calita )*' 2,-071 6-,2, 27-... Balance b/f ;evaluation surplus )oodwill 'apital retention Talim )*' 30-... 3-1.. 61-,10 ! 1,-.10 Gum )*' 20-... 3-1.. 61-,10 ! 0,-.10

26-... 1-0.. 1-... 30-0..

Malita
)*' 20-... ! ! 6-... 27-...

'urrent Accounts
Balance b/f Int= on current a/c 'apital retention Balance c/f Talim )*' ! 30-21F ! 3F-21, 1,-.10 Gum )*' 1-... 63. ! 23-6,0 27-110 Calita )*' ! ! 6-... 6-80. 1-80. Balance b/f Int= on capitals Share of profit Talim )*' 6-... 3-0.. 36-110 3F-210 Gum )*' ! 2-0.. 28-210 27-110 Calita )*' ! 80. 1-... 1-80.

(d)

Talim- Gum and Calita Statement of 5inancial Position st As at 62 +ecember 3.23 )*' 9on!current assets$ Band and buildings (61-... < 23-... E 20-3..) Cotor vehicles (33-... < 3-... < 2.-... < 6-,..) 4ffice e:uipment (3.-... < 3-... < ,-...) 'urrent assets$ Inventories Trade receivables (1-7.. < 6,.) Bank 27-,.. 1-,1. 3F-... 06-71. 226-11. 5inanced B # 'apital Accounts$ Talim Gum Calita 30-21F 6,-182 6-,2, 16-3.. )*' 6F-3.. 1-1.. 2,-... 0F-7..

'urrent Accounts$ Talim Gum Calita Trade pa ables

3F-210 23-6,0 6-80. ,0-31. 0-3.. 226-1..

SOLUTION ) a) i) ;4'( P(A'( BT+ 5ormula (BIT x 2.. 'apital (mplo ed Sales 'apital (mplo ed 'urrent Assets 'urrent Biabilit 3.23 03-... x 2.. 6.1-... H 28> ,01-0.. 6.1-... H 2=,F times 306-... 16-... H ,=.3$2 3.22 0.-... x 2.. 312-0.. H 2F=2> ,3.-... 3-120-... H 2=21 times 282-... ,1-0.. H 6=17$2 282-... < 227-0.. ,1-0.. H 2=26$2 13-... x 2.. 2FF-0.. H 62> 0.-... 6-... H 21=18 times

ii) iii) iv) v) vi)

Assets Turnover 'urrent ;atio &uick ;atio +ebt/(:uit ;atio Interest 'over

'urrent Assets < Inventories 306-... ! 2,8-... 'urrent Biabilities 16-... H 2=17$2 +ebt x 2.. (:uit ( B IT Interest F70-... x 2.. 3.8-0.. H ,8=,8> 03-... 2,-0.. H 6=0F times

b)

;(P4;T To$ 5rom$ +ate$ Sub"ect$ 5inancial +irector Accountant Ana% &$& of the Performance of Peace Lt!

5ollowing the discussions on the above sub"ect- I wish to submit this report for our stud and consideration= Prof$ta#$%$t $ 4ver the two ears- the profit level has declined from return of 2F=2> (3.22) on the compan Ls investment to 28> (3.23)= L$*+$!$t There has been an improvement in the compan Ls abilit to settle its current liabilities fro its current assets from 6=17$2 (3.22) to ,=.3$2 (3.23) So%,enc 4ver the period the compan has more e:uit than prior charged capital= But the proportion of capital to prior charged capital has increased from 62> (3.22) to ,8=,8> (3.23)= )enerall the compan has experienced declining trends in its performance with the exception of li:uidit = I shall be glad to deal with further :uestions ou ma tend to ask in future= Thank ou= Mours faithfull -

Acco+ntant Alternative to ,b= If a student takes net investment in finance lease to be fair value of the leased asset plus the initial direct cost that is )*'73-F11 E 8.. H )*'76-111 he/she be marked correct=

The net investment in the lease is as follows$ +ate 2/2/3.23 2/2/3.26 2/2/3.2, 2/2/3.20 62/23/3.20 62/23/3.20 +escription
st

2 Instalment nd 3 Instalment rd 6 Instalment th , Instalment )uaranteed residual value %nguaranteed residual value

)ross Investment )*' 33-... 33-... 33-... 33-... 2.-... F7-... 3-... 2..-...

+5 N 22> 2 .=F.2 .=723 .=863 .=10F .=10F

9et Investment )*' 33-... 2F-73. 28-71, 21-2., 1-0F. 73-67. 2-627 76-1F7

5inancial Statement (xtracts$ i= ii= Income statement extract 5inance Income Statement of financial Position (extract) 9on!current Assets$ 5inance lease receivable 'urrent Assets$ 5inance lease receivable )*' 1-878/1-876

,1-,70/,1-,,F 33-...

@orkings 2/2/3.23 2/2/3.23 2/2/3.23 < 62/23/3.23 Balance at 62/23/3.22 9et investment Instalment in advance Interest Income N (22>) 76-1F7/ 76-111 (33-...)/33-...) 12-1F7/ 12-... 1-878/ 1-876 17-,70/ 17,,F

SOLUTION Peace Btd st 'onsolidated Statement of 5inancial Position as at 62 +ecember 3.22 )*'... Assets$ 9on!'urrent Assets$ PP( 1-83. E 73. E (3.. < 7.) < 23 Intangible < )oodwill Investment

)*'... 8-1,7 ,2, 2-3.. F-313

'urrent Assets$ Inventories (61. E 28. < 0 E 30) Trade receivables (68. E 36. < 3.) 'ash D cash e:uivalence (20 E 2.) Total Assets (:uit D Biabilities$ (:uit attributable to owners of Peace Btd 4rdinar shares 'apital surplus ;etained earnings 9on!controlling interest Total e:uit 9on!'urrent liabilities$ Cortgage loan (6-3.. E 0.) 'urrent Biabilities$ Trade pa ables (18. E 38.) Total e:uit and Biabilities

00. 07. 30 2-200 2.-,28

0-... 3.F 887 0-F78 3,. 1-338 6-30. F,. 2.-,28

@orkings (i)

All workings in )*'L... 'ontrol structure$ Peace 9'I )oodwill < *app Btd 'ost of Investment 9et worth ac:uired$ Share 'apital 'apital surplus ;etained earnings 80> Interest )oodwill Impairment loss Balance c/d Intra!)roup ad"ustments a) Peace receivables Inventor in transit *app pa ables 80> 30> 2..> 2-0,. 1.. 37 2,. F17

(ii)

831 72, (,..) ,2, 80 (30) 0.

(iii)

b) P%;P < PP( 'arr ing amount after transfer F1 ! (F1 x 30>) 'arr ing amount if not transferred 7. < (3.> of 2..) (iv)

83 1. 23

9on!'ontrolling Interest 9et @orth of *app per +raft S54P Ad"ustments$ 5air Jalue Ad"ustment Additional depreciation 3.> x 3.. x 3 ears Bad debts 30> Interest 71. 3.. (7.) (3.) F1. 3,.

(v)

;etained (arnings$ Peace$ Balance b/f P%;P$ Plant Inventor *app 80> of (33. < 3. < 7.) < 2,. )oodwill impairment Balance c/d

2-32. (23) (0) 2-2F6 (20) (,..) 887

(vi) 'apital Surplus Peace Btd *app 80> of (,. < 37) 3.. F 3.F