Question 1

(a)

Donzo Ltd has been a subsidiary of Bakira Ltd since its incorporation on 1 January, 2015. The two companies' draft financial statements as at 30 June, 2017 are shown below.

Statement of profit or loss: Bakira Ltd

Shs '000' Revenue 28,350,000

Donzo Ltd Shs '000' 5,670,000 (3,402,000) 2,268,000 (1,814,400) 453,600 (141,750) 311,850

Cost of sales

Gross profit

Other expenses Profit before tax Income tax expense Profit for the year

(16,443,000) 11,907,000 (9,639,000) 2,268,000 (737,100) 1,530,900

Statement of financial position:

Bakira Ltd

Donzo Ltd Shs '000' 1,134,000 -

680,400 226,800 765,450

1,672,650 2,806,650

567,000 1,360,800 1,927,800

737,100 141,750 878,850

2,806,650

Assets:

Non-current assets: Investment in Donzo Ltd Current assets: Inventories

Trade receivables

Bank and cash

Total assets

Equity and liabilities: Equity:

Share capital Retained earnings

Current liabilities: Trade payables Tax

Total equity and liabilities

Shs '000' 10,943,100 396,900

2,835,000 3,685,500 2,211,300 8,731,800

20,071,800

11,340,000 2,835,000 14,175,000

5,159,700 737,100 5,896,800 20,071,800

1. On 31 June, 2017 Bakira Ltd dispatched goods which cost Shs 453.6 million to Donzo Ltd at an invoiced cost of Shs 567 million. Donzo Ltd received the goods on 15 July, 2017 and recorded the transaction on the same date.
2. The retained earnings of Donzo Ltd are after a dividend paid of Shs 39.2 million for the year ending 30 June, 2017. However, these have not yet been recorded in the books of Bakira Ltd.
3. It is the group policy to value the non-controlling interest at acquisition at its proportionate share of the fair value of the subsidiary's identifiable net assets.
4. Required:
5. Prepare consolidated statement of financial position and statement of profit or loss for the year ended 30 June, 2017.

(b) Bakira Ltd is planning to open a sugar processing plant and in preparation for the sugar plant it purchased and paid for machinery Shs 978 million on 2 June, 2016. Due to the scarcity of sugar and youth employment in the area, on 1 November, 2016 Bakira Ltd was offered a Government grant Shs 8.5 billion to defray the following costs:

Item

Machinery (5 years useful life) Plant (8 years useful life)

Land (offered - fair value) Expenses for ecological measures

Shs '000' 978,000 1,230,000 5,240,000 1,052,000 8,500,000

It is the company's policy to account for government grants using the deferred income approach. The expenses for ecological measures were incurred from 1 January, 2016 to 31 March, 2016.

Required:

Show how the grants will be treated in the financial statements showing the relevant entries for the period ending 30 June, 2017.

Question 2

1. (a)The management of NABS Ltd is contemplating adoption of any of the measurement bases of the International Accounting Standards Board's (IASB) conceptual framework which relate explicitly to valuation of assets and liabilities. During the month of March, 2017 the following transactions took place in NABS Ltd.
2. A machine with a five year useful life was purchased on deferred payment basis for Shs 72 million. The payments are to be made in five equal annual installments. The current market value of similar machine is Shs 89 million. The machine can be disposed of at Shs 48 million or used to earn Shs 12 million per annum. The company earns at 12% per annum
3. The company secured a loan USD 10,000 to purchase inventory payable at USD 2,200 per annum for 5 years at a rate of 10%. The exchange rate prevailing was Shs 3,453/USD 1. The prevailing rate as at 30 June, 2017 Shs was 3,560/USD 1.
4. Required:
5. (i)Explain any four measurement bases of the IASB's conceptual
6. framework and their suitability.

1. (ii)Show how the above transaction will be initially recorded with the necessary entries and narrations under each of the measurement bases identified in (a) (i) above.
2. (9 marks)
3. (b)Ratios are tools used for financial statement analysis as they provide a detailed overall picture of the company's performance and position. The ratios are categorised into profitability, liquidity and investment.
4. Required:
5. For any two categories explain three ratios that may be used and give
6. their interpretation.

Question 3

Reporting cash flows is an important aspect of business management. The management of Lumba Ltd, a company that was incorporated three years ago has been complying with the requirements of IAS 7: Statement of Cash flows.

The following are the company's financial statements for the year ended 31 March, 2017.

Statement of profit or loss and other comprehensive income 2017

2016

Shs '000' Shs '000' Revenue 1,074,765

Shs '000'

Shs '000' 820,500 (335,000) 485,500

Cost of sales

Gross profit

Operating expenses:

Administrative expenses

Selling and distribution expenses

Other costs

Earnings before interest and tax

Interest - Earnings before tax 144,450 Taxation (37,185) Total comprehensive income 107,265

(425,300) 649,465

285,765 125,850 93,400

(505,015) 144,450

242,000

95,600

65,750 (403,350)

82,150 (12,550) 69,600 (27,480) 42,120

Statement financial position

Shs '000'

Non-current assets

Depreciation

Carrying amount

Current assets:

Inventory 135,000 Trade receivables 245,000 Bank 170,910 Total assets

Shs '000' 1,589,050 (252,000) 1,337,050

Shs '000'

Shs '000' 1,394,000 (157,500) 1,236,500

350,295 1,586,795

1,343,460 64,580

178,755 1,586,795

Equity and liabilities: Ordinary share capital Share premium Retained earnings Non-current liabilities: 12% loan

Current liabilities:

Trade payables

Tax obligation

Insurance 16,800 Utility bills 10,235 Total equity & liabilities

Additional information:

89,500 126,430 550,910 134,365

1,887,960

1,000,000 120,000 1,562,725 223,460

-

114,240 27,480 16,800

325,235 20,235 1,887,960

1,100,000 132,000 330,725

247,275 50,925

1. Depreciation is charged in the year of disposal but
2. purchase. Motor vehicles with a net book value of Shs 250 million were disposed of at a profit of 20%.
3. Insurance per annum is charged at Shs 10 million and is included in administrative expenses.
4. Required:

(a) Prepare statement of cash flows for the period ended 31 March, 2017 using the indirect method.

(14 marks)

(b) Discuss how a statement of cash flows contributes to one's understanding of a company's performance.