[5:29 PM, 7/5/2021] Comrade: A)On 1 January 2020, Tabasamu Ltd pays Kshs.100 million to acquire 50% of shares in Furaha Ltd. The fair value of Furaha Ltd's net assets is Kshs.160 million. Tabasamu Ltd incurred transaction costs of Kshs.4 million.

Required: Present the journal entries to represent these transactions in Tabasamu's books of accounts.(5 marks)

B)Mwisho Ltd uses Mwazo Ltd to obtain cheap financing from the Democratic Republic of Congo (DRC). Mwazo Ltd is incorporated in DRC and is fully owned by citizens of DRC. Companies owned by citizens of DRC enjoy cheap loans. Mwisho is not a shareholder of Mwazo. However, Mwisho has agreed to send KShs 10,000 to Mwazo in order to cover all expenses related to negotiating of the loan. Mwisho will guarantee all Mwazo's debts and Mwisho's managers will take over the decision making in Mwazo including the voting rights.

Mwisho's and Mwazo's's Statement of the Financial Position as at the reporting date is as follows:

MWISHO

MWANANCHI

ASSETS

Non-Current Assets

160,000

50,000

Investment in Mwananchi

10,000

-

Current Assets

130,000

150,000

TOTAL ASSETS

300,000

200,000

EQUITY AND LIABILITIES

Equity

Share Capital

100,000

20,000

Retained Earnings

32,000

2,000

Liabilities

Long Term Liabilities

Long term debt

150,000

175,000

Current liabilities

18,000

3,000

TOTAL EQUITY AND LIABILITIES

300,000

200,000

Notes:

Mwazo's retained earnings at the date of the agreement were Kshs. 1,000.At the reporting date, Mwisho's financing via Mwazo was Kshs. 150,000.

Required: Prepare the consolidated statement of financial position. (20 Marks)

[5:29 PM, 7/5/2021] Comrade: a)Sports Kenya owns a chain of health clubs and has entered into binding contracts with sports organizations, which earn income over given periods. The services rendered in return for such income include access to their database of members, and admission to health clubs, including the provision of coaching and other benefits. These contracts are for periods of between 9 and 18 months. Sports Kenya feels that because it only assumes limited obligations under the contract mainly relating to the provision of coaching, this could not be seen as the rendering of services for accounting purposes. As a result, Sports Kenya's accounting policy for revenue recognition is to recognize the contract income in full at the date when the contract was signed.

Required:

Advise Sports Kenya on how the above transaction should be dealt with in its financial statements with reference to International Financial Reporting Standards where appropriate. (7 marks)

b)In May 2018, Sports Kenya decided to sell one of its local business divisions through a mixed asset and share deal. The decision to sell the division at a price of KShs 40 million was made public in November 2018 and gained shareholder approval in December 2018. It was decided that the payment of any agreed sale price could be deferred until 30 November 2018. The business division was presented as a disposal group in the statement of financial position as at 30 November 2018. At the initial classification of the division as held for sale, its net carrying amount was KShs 90 million. In writing down the disposal group's carrying amount, Sports Kenya accounted for an impairment loss of KShs 30 million which represented the difference between the carrying amount and value of the assets measured in accordance with applicable International Financial Reporting Standards (IFRS). In the financial statements at 30 November 2018, Sports Kenya showed the following costs as provisions relating to the continuing operations. These costs were related to the business division being sold and were as follows:

(i)A loss relating to a potential write-off of a trade receivable which had gone into liquidation. The trade receivable had sold the goods to a third party and the division had guaranteed the receipt of the sale proceeds;

(ii)An expense relating to the discounting of the long-term receivable on the fixed amount of the sale price of the disposal group; and

(iii)A provision was charged which related to the expected transaction costs of the sale including legal advice and lawyer fees.

Required:

The directors wish to know how to treat the above transactions with reference to International Financial Reporting Standards where appropriate.(9 marks)

c)Sports Kenya has decided to sell its main office building to a third party and lease it back on a 10-year lease. The lease has been classified as an operating lease. The current fair value of the property is KShs 5 million and the carrying value of the asset is KShs 4.2 million. The market for property is very difficult in the jurisdiction and Sports Kenya therefore requires guidance on the consequences of selling the office building at a range of prices. The following prices have been achieved in the market during the last few months for similar office buildings:

(i)KShs 5 million

(ii)KShs 6 million

(iii)KShs 4.8 million

(iv)KShs 4 million

Required:

Sports Kenya would like advice on how to account for the sale and leaseback, with an explanation of the effect which the different selling prices would have on the financial statements, assuming that the fair value of the property is KShs 5 million. Refer to International Financial Reporting Standards where appropriate. (8 marks)