CPP IS CURRENT PURCHASING POWER

Question 6 (Assignment) The following is the comparative balance sheet of XYZ Ltd. as at 31.12.2007 and 2008 2007 2008 Assets Cash and receinablks Inventories (FIFO method) Land Equipment 200,000 260,000 150,000 130,000 0,000 40,000 210.000 270,000 600,000 676,000 Liabilities and Capital Currem liabiliities Long-lem liabilities Equity share capital (Sh.10) Share premum Reserves and surplus 80,000 90,000 100,000 116,000 140,000 140,000 280,000 280,000 50,000 600,000 676,000 Nil The income statement of the company for the year 2008 disclosed the following information: Income Statement For the year ending 31 Dec 2008 Net Sales Less: Cost of goods: Opening Inventories (FIFO urchases (Net) Cost of goods availabke for sale Less closing invetory (FIFO) Gross profit Less: Operating expenses (excluding depreciation) Depreciation Protit before tax Less: Icome tax Profit alter tax Less : Dividend paid Retained earnings 800.000 150,000 650,000 130,000 520.000 280,000 24.000 120,000 160,000 0,000 90,000 40,000 50,000 Equipment costing Ksh. 60,000 was acquired on July 1.2008 when the general price index was 157.5. The amount of depreciation has been calculated as follows Kshs 21.000 590( Rate being 10% pa) 24,000 Sales, purchases, operating expenses (excluding depreciation) took place evenly throughout the year. Inventories are priced according to first in, first out method. Goods in closing inventories were acquired evenly throughout the year. The dividend of Ksh.40,000 was declared and paid at the end of 2008. Income tax accrued throughout the year You are required to recast the above statement taking into account the price level adjustments under CPP method. The general price indices are as follows: At the end of year 2007(and beginning of the year 2008 Average for the year 2008 At the end of the year 150 157.5 163.8