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A) Hatari Plc has decided to dispose of a major division of its business. The related assets qualify to be classified as held for sale

A)        Hatari Plc has decided to dispose of a major division of its business. The related assets qualify to be classified as “held for sale” in the statement of financial position. The following summary draft statement of profit and loss and other comprehensive income has been prepared:

 

Hatari Plc: Statement of Profit or Loss and other Comprehensive Income for the year ended 31 December 2020

                                                                                                            KShs ‘ m

Revenue                                                                                           800

Cost of sales and expenses                                                           (560)

Profit before tax                                                                                240

Tax                                                                                                      (115)

Profit after tax                                                                                   125

 

The divison being disposed of was a component of Hatari Plc and was a major line of business which is now ceasing permanently and in its entirety. The division contributed revenue of KShs 200m, costs of KShs 275m and a tax refund of KShs 15m in the year ended 31 December 2020.  These amounts are included in the above figures. The assets to be sold have a combined fair value less costs to sell of KShs 39m below their carrying value. This has not yet been recognized.

 

Required: Complete the following redrafted Statement of Profit or Loss and Other Comprehensive Income in compliance with IFRS 5.  

B)   Jana Ltd’s net profit for the year ended December 2020 was KShs 4.6 million and it has 500,000 equity-classified preference shares. Each preference share provides for a cumulative discretionary dividend each year of KShs 1.20 per preference share. On 1 January 2020, Jana Ltd has 1 million ordinary shares outstanding. On 1 July 2020 Jana Ltd issued 200,000 ordinary shares for cash. On 1 September 2020, Jana Ltd issued a further 100,000 shares for cash.

Required: Calculate the basic earnings per share of Jana Ltd as at 31 December 2020.  

 

C)   An investor purchased two KShs 0.50 par ordinary shares at a market price of Kshs 4 each in Pumwani Ltd on 1 January 2021. On 2 January 2021 Pumwani Ltd offered a 1:2 rights issue (i.e. one new share for every two shares held) at Kshs 3.25 per share. Pumwani reported a net income of KShs 4 million on 31 December 2021.

 

Required: Calculate the theoretical ex-rights price and the capital gain made by the investor for exercising his rights.      (5 MARKS)

 

D)   The following information has been extracted from the published accounts of Pesa Corporation Limited, a company quoted on the Nairobi Stock Exchange.

 

 

         Shs.

Net profit after tax and interest

   990,000

 

Less: dividends for the period

 

 740,000

 

 

Transfer to reserves

    250,000

 

Accumulated reserves brought forward

 

  810,000

 

Reserves carried forward

 

1,060,000

 

 

 

 

 

 

 

Share capital (Sh.10 par value)

 

 

    8,000,000

Market price per share now

12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Required

Calculate for Pesa Corporation Limited the following ratios and indicate the importance of each to Miss Hisa, a Shareholder:                                                             

i.        Earnings per share

ii.         Price earnings ratio

iii.         Dividend yield

iv.         Dividend cover

 

v.          Dividend per share    

E)   International harmonization of accounting standards remains a key agenda of standard setting bodies. Harmonisation efforts begin with understanding the reasons for why various countries use different accounting standards. Briefly explain at least five reasons why various countries have developed different accounting standards from each other. 

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