B 15,000 X 15,000 Y 10,000 40,000 25,000 Current liabilities: Client account 5,000 Accounts payable 5,000 3,500 Bank overdraft 1,500 10,000 5,000 Total capital and liabilities 50,000 30,000 Additional information: 1 2 Provision or bad and doubtful debts was to be made at 5% of the accounts receivable. Able and Mine Advocates was to take over the assets of the partnership at the following agreed values: Motor vehicles A and B Advocates X and Y Advocates Sh. '000' Sh. '000' 9,000 8,000 Office equipment Goodwill 3,500 7,500 3,000 5,000 3 4 5 The investments of A and B Advocates were sold on 1 January 2006 for sh.8,000,000. The capital for Able and Mine Advocates amounted to sh.75,000,000 which was contributed by the partners in their profit sharing ratios, any adjustments being made in cash. The client account and the accounts payable were settled immediately on amalgamation. Required: Prepare the following accounts to record the above transactions: (ii) Realisation accounts 4 marks) Capital accounts (3 marks) (iii) Cash accounts (3 marks) (iv) Able and Mine Advocates account 2 marks) (Total: 20 marks) NUMBER THREE (a) The International Financial Reporting Standards (IFRSS) Framework recognizes relevance and reliability as some of the qualitative characteristics of financial statements. Required: (1) the IFRSS Distinguish between relevance and reliability in the context of IFRSS Framework. (3 marks) List and briefly explain attributes of reliable financial statements as promulgated in Framework (5 marks) A and B Advocates and X and Y Advocates were practicing firms of advocates. On 1 January 2006, they agreed to amalgamate the partnerships into one firm, Able and Mine Advocates. The accounts of the separate partnerships have been prepared annually to 31 December. The agreed profit and loss sharing ratios in the old and the new firms were as follows: Old firms New firms ABX Y 3 2 2 1 4 3 2 1 The balance sheets extracts of the partnerships as at 31 December 2005 were as follows: Sh. '000' A and B Advocates X and Y Advocates Sh. '000' Non-current assets: Motor vehicles 10,000 9,000 Office equipment 4,000 4,000 3,000 12,000 Goodwill 6,000 5,000 Current assets: Investments 7,500 Accounts receivable 20,000 13,000 Cash 2,500 30,000 13,000 Total assets 50,000 30,000 Capital and liabilities: Capital accounts: A 25,000 Plant at cost 156,000 Purchases 78,200 Distribution 10,000 Administrative expenses 5,500 Loan interest paid 2,000 Leased plant rental 22,000 Dividend paid 15,000 Inventories (1'November 2005) 37,800 Accounts receivable 53,200 Investments (long-term) 90,000 Revenue 278,400 Income from investment 4,500 Ordinary shares of sh.10 each 150,000 Retained earnings 119,500 8% debentures Accumulated depreciation: Buildings Plant Accounts payable Differed payable Balance at bank 739,700 50,000 60,000 26,000 33,400 12,500 5,400 739,700 Additional information: 1 2 3 4 5 The land and buildings were purchased on 1 November 1990. The cost of land was sh.70 million or buildings have been purchased by Kara Ltd. since then. However, on 1 November 2005, the land and buildings were professionally valued at sh.80 million respectively. The estimated useful life buildings before the revaluation was 50 years. However, the revaluation did not change the useful life of the buildings. Plant is depreciated at 15% per annum using the reducing balance method. Depreciation expense is to be included under cost of sales in the income statement. On 1 November 2005, Bara Ltd. entered into a five year lease agreement for an item of plant. This item had an estimated useful life of five years. The annual rental which was payable in advance with effect from 1 November 2005 was sh.22 million. The fair value of the plant is sh.92 million and the implicit interest rate is 10% per annum. The 8% debentures were issued on 1 January 2006 and interest is payable six months in arrears. The income tax for the yaer to 31 October 2006 estimated at sh.28.3 million. The differed tax provision as at 31 October 2006 was increased to sh.14.1 million. Inventories were valued at sh.43.2 million as at 31 October 2006. Required: Prepare in accordance with International Financial Reporting Standards (IFRS) (a) Income statement for the year ended 31 October 2006 (8 marks) (b) Statement of changes in equity for the year ended 31 October 2006 (4 marks) (c) Balance sheet as at 31 October 2006 (8 marks) Equity and liabilities: Capital and reserves: Ordinary shares of sh.10 each 10,000 2,000 Retained earnings 25,600 8,400 35,600 10,400 Non-current liability: 10% debentures Current liabilities: Accounts payable 7,500 3,200 Current assets 2,500 400 10,000 3.600 Total equity and liabilities 45,600 16,000 2000 Additional information: 1 2 3 4 5 6 PO Ltd.acquired 80% of the ordinary share capital of TIP Ltd for sh.10,280,000 and also acquired half of the 10% debentures in the company. The fair value of the assets of TIP Ltd. at the date of acquisition were the same as their book values except for plant whose fair value more by sh.3.2 million. As at 1 January 2006, the plant had a remaining useful life of four years. TIP Ltd. depreciates plant on straight line basis on cost. During the post acquisition period, PO Ltd. sold goods to TIP Ltd .for sh.12million. These goods had cost PO Ltd. sh.9 million. Subsequently, TIP Ltd sold some of the goods purchased from PO Ltd. at sh.10 million for sh.15 million. On 30 June 2006,PO Ltd. and TIP Ltd. paid dividends of sh.1,000,000 and sh.500,000 respectively. Included in the accounts receivable and payable is sh.750,000 being the amount TIP Ltd. owed PO Ltd. Goodwill is considered to be impaired by 25% as at September 2006. Goodwill is classified as an administrative expense by the group companies. Required: (a) marks) Group income statement for the year ended 30 September 2006. (10 (b) Group balance sheet as at 30 September 2006. (10 marks) Total 20 marks) NUMBER TWO Kara Ltd, a company quoted on the stock exchange,extracted the following trial balance as at 31 October 2006. Sh. '000' Land and buildings at cost 270,000 Sh. '000' NUMBER ONE PO ltd has been experiencing dwindling sales in its business operations due to competition from other agents dealing in telecommunication equipment. On 1 January 2006, PO Ltd. Decided to diversify its operations to the information technology (IT) industry by acquiring TIP Ltd, a company dealing in the manufacture of IT equipment and software design. The summarised finacial statements of PO Ltd. And 'TIP Ltd. Were as follows: Income statements for the year ended 30 September 2006: PO Ltd. TIP Ltd Sh. '000' Sh. '000' Revenue 60,000 24,000 Cost of sales (42,000) (20,000) Gross profit 18,000 4,000 Other income: Interest received 75 Dividend received 400 18,475 4,000 Expenses: Distribution costs (3,500) (100) Administrative expenses (2,500) (100) Finance costs (200) Profit before tax 12,475 3,600 Income tax expense (3,000) (600) Profit after tax 9.475 3,000 Balance sheets as at 30th September 2006: PO Ltd. TIP Ltd Sh. '000' Sh. '000' Non-current assets: Property, plant and equipment 19,320 8,000 Investments 11.280 33,800 8,000 Current assets: Inventories 5,000 3,000 Accounts receivable 4,200 3,400 Cash at bank 5,800 1,600 15,000 8,000 Total assets 45,600 16,000