W1-2-60-1-6

JOMO KENYATTA UNIVERSITY OF AGRICULTURE AND TECHNOLOGY

University Examinations 2016/2017
YEAR IV SEMESTER I EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE

HBA 2401: ADVANCED FINANCIAL REPORTING

DATE: DECEMBER, 2016 TIME: 2 HOURS

INSTRUCTIONS: Answer Question ONE and Any Other TWO Questions.

Question One 30 Marks

a) According to IAS 36: Impairment of assets, when should a business conduct an

impairment review. [4 marks]

b) As per IAS 23: Borrowing costs, how are the borrowing cost to be treated and what are
some of the borrowing costs to be considered? [6 marks]

c) Explain the following terms as used in business combinations? [2 marks each]

i. Control
ii. Good will
iii. Parent
iv. Subsidiary
v. Non-controlling interest

d) Explain the advantages of segment reporting. [10 marks]

Question Two 20 Marks

a) Explain four type of potential ordinary shares. [8 marks]

b) Describe three ways which can lead to dilution of earnings per share. [6 marks]

c) Explain the usefulness of the earnings per share (EPS) figure in the financial statements.
[6 marks]

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Question Three 20 Marks

a) In the context of IFRS 2: Share based payments explain three types of share based
payments. [6 marks]

b) Explain the circumstances under which the parent company may own a minority of the
voting power in the subsidiary and still has control. [4 marks]

c) On 1 January 2014 Naivasha ltd borrowed sh. 1.5 million to finance the production of
two assets both of which were expected to take a year to build. Work started during
2014. The loan facility was drawn down and incurred on 1 January 2014 and was utilized
as follows, with the remaining funds invested temporarily.

Asset X Asset Y
Shs. 000 Shs. 000
1 January 2014 250 500
1 July 2014 250 500

The loan rate was 9% and Naivasha ltd can invest surplus founds at 7%.

Required;

Ignoring compound interest, calculate the borrowing cost which may be capitalized for
each of the assets and consequently the cost of each asset as at 31st December 2014.
[10 marks]

Question Four 20 Marks

a) Black ltd acquired 60% of the ordinary share capital of white ltd on 1 january 2010 when
the retained profits amounted to sh. 1,000,000, 40% of the preference share capital and
part of the 10% loan stock. Set out below are the statements of financial position of the
two companies as at 31 December 2015.

Black ltd. White ltd.

Non-current assets: Sh. 000 Sh. 000
Property, plant, equipment 50000 40000
Investment in white ltd:
Ordinary share capital 12000
Preference share capital 10000
10% loan stock 5000
77000 40000
Current assets:
Inventory 12000 10000
Accounts receivable 8000 4000
Cash at bank 3000 2000

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 23000 16000
100000 56000
Financed by:
Ordinary share capital 50000 30000
Preference share capital 10000 12000
Retained profits 20000 4000
10% loan stock 10000 6000
Accounts payable 10000 4000
100000 56000

Required:

A consolidated statement of financial position. [10 marks]

b) Outline the elements of cost of exploration and evaluation assets as per IFRS 6:
Exploration for and evaluation of mineral resources. [5 marks]

c) Explain the advantages of a value added statement. [5 marks]