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Latema Ltd. was incorporated and commenced business in 1995 specializing in the import and export of a variety of goods throughout the East, Central and

Latema Ltd. was incorporated and commenced business in 1995 specializing in the import and export of a variety of goods throughout the East, Central and South Africa region.

Due to sustained inflationary conditions under which the company has operated since inception, management has always considered that the traditional financial statements based on historical cost basis are more informative and relevant if supplemented with corresponding current cost accounts.

You have been approached to prepare the current cost accounts for the year ended 31 December 2001 and have been provided with the following information in respect of the company.

Latema Ltd.

Balance Sheet as at 31 December 2000

Current Cost Accounting Basis

Sh.000

Sh.000

Assets

Non-current assets

Current assets

Stock

Trade debtors

Equity and liabilities

Capital and reserves

Ordinary shares

Share premium

Current cost reserve

Retained earnings

Non-current liability

Loan

Current liabilities

Taxation

Trade creditors

Proposed dividends

Bank overdraft

4,848

3,852

6,000

2,000

1,900

1,850

2,000

2,800

300

1,500

13,650

8,700

22,350

11,750

4,000

6,600

22,350

Profit and loss account for the year ended 31 December 2001

Historical cost accounting basis

Sh.000

Sh.000

Sales

Opening stock

Purchases

Cost of goods available for sale

Closing stock

Gross profit

Expenses:

Loan interest expense

Administration expenses

Selling and distribution expense

Depreciation

Profit before tax

Taxation

Profit after tax

Dividends

- Interim paid

- Final proposed

Retained profits for the year

4,800

73,200

78,000

6,000

350

8,600

4,250

1,800

300

600

96,000

72,000

24,000

15,000

9,000

4,000

5,000

900

4,100

Additional information:

During the year ended 31 December 2001, the company paid all the loan interest expenses, administration expenses and selling and distribution expenses.

Proposed dividends as at 31 December 2000 were paid in 2001 together with the interim dividend for the year 2001.

The company received Sh.92,604,000 from its trade debtors and paid Sh.72,500,000 to its trade creditors in the year ended 31 December 2001.

Total amount paid for taxation in the year ended 31 December 2001 was sh.4,500,000

The loan attracted an interest rate of 10% per annum and Sh.1,000,000 of the loan was repaid on 30 June 2001.

The non-current asset consists of a fixed asset purchased in January 1998 at a cost of Sh.18,000,000 and is being depreciated on a straight-line basis over a ten-year period based on cost.

The historical cost accounting accumulated depreciation on the asset as at 31 December 2000 was Sh.5,400,000

The appropriate current cost accounting price indices for the fixed assets were as follows:

Price index

1 January 1998 date of purchase

31 December 1999

31 December 2000

31 December 2001

120

125

130

135

Current cost accounting depreciation adjustment is based on year-end current cost value of the fixed asset.

The average age of stocks is one month and the suitable price indices applicable to stock and monetary working capital moved as follows:

Price index

1 November 2000

31 December 2000

Average for 2001

1 November 2001

31 December 2001

100

102

112

120

122

It is the groups policy to treat the balance at bank and bank overdraft as part of monetary working capital.

Required:

Current cost profit and loss account for the company for the year ended 31 December 2001 (10 marks)

Current cost balance sheet of the company as at 31 December 2001. (10 marks)

(Note: Round figures to the nearest thousand shillings) (Total: 20 marks)

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