Get premium membership and access revision papers, questions with answers as well as video lessons.

Got a question or eager to learn? Discover limitless learning on WhatsApp now - Start Now!

Cpa Section 6 December Question Paper

Cpa Section 6 December

Course:Cpa

Exam Year:2011

QUESTION ONE
Halua Ltd a local company acquired 75% of the ordinary share capital of Sukari Ltd, a foreign company on 1 May 2008. Sukari Ltd's fuctional currency is the Rupia (Ra).
The following financial statements relate to the two companies for the year ended 30 April 2011.
Income statement:
Halua Ltd Sukari Ltd.
sh. '000' Ra '000'
Revenue 40,425 97,,125
Cost of sales (35,500) (77,550)
Gross Profit 4,925 19,575
Investment income 718 -
5,643 19,575
Distribution costs (800) (1,462.5)
Administrative expenses (3,440) (4387.50)
Finance cost (200) -
Profit before tax 1,243 13,725
Income tax expense (300) (4,725)
profit after tax 943 9,000
Dividends paid (700) (3,752)
Retained profit for the year 243 5,248
Statement of financial position as at 30 April 2011:
Halua ltd Sukari Ltd.
Sh"000" Ra"000"
Non-current assets:
Property, plant and equipment 2,870 4,860
Investment in Sukari Ltd 840 -
3,710 4,860
Current assets:
Inventories 1,990 8,316
trade receivables 1,630 4,572
cash 240 2,016
3,860 14,904
Total assets 7,570 19,764

Equity and liabities:
Ordinary share capital 118 1,348
Retained earnings 502 14,060
Shareholder's funds 620 15,408

Non-current liabilibties:
10% loan stock 2,000 -

current liabilities:
Trade payables 4,800 3,600
Current tax 150 756
Total equity and liabilities 7,570 19,764
Additional information:
1. Halua ltd acquired the shares of Sukari Ltd when the retained earnings in Sukari Ltd were Ra 2,876,000.
2. During the year,Halua Ltd sold goods worth Sh. 5 million to Sukari Ltd and reported a gross profit margin of 20% on selling price. Half of these goods were still in inventory of Sukari Ltd as at the year end.
3. Included in the receivables of Halua Ltd is Sh. 500,000 due from Sukari Ltd.
4. The translation differences in the consolidated financial statements at 30 april 2010 relating to the translation of Sukari Ltd (excluding goodwill) were Sh. 208,000. Retained earnings on the same date in Sukari Ltd's fianncial statements in the post acquisition period as at 30 April 201 amounted to Sh.1,372,000.
5. The group uses thepartial goodwill method method and no imapirment has been reported so far.
6. The following exchange rates are relevant:
Date Ra to 1 Sh.
30 April 2008 4.4
30April 2009 4.16
30 April 2010 4.00
30 April 2011 3.60
Average for thr financial year 3..75
When dividends were paid 3.92
Required:
(a) Consolidated income statement for the year ended 30 April 2011. (8 marks)
(b) Consolidated statement of changes in equity for the year ended 30 April 2011. (4 marks)
(c) Consolidated statement of fiancila position as at 30 April 2011. (8 marks)
(Your answer should be in conformity with IAS21 ( The effect of changes in foreign rates)
QUESTION TWO
a) Expalin how impairment loss is measured according to IAS 36 (Impairment of Assets) (4 marks)
b) Expain the three main types of hedge as provided in IAS 39 (Financial Instruments: Recognition and Measurement) and their accounting treatment. (6 marks)
c) Biz Ltd. invested in the shares of of ABC Ltd. and XYZ Ltd. where the two were designated as a hedge based on cash.
The investments were made up as follows:
Company Number of Shares Share price on purchase
Sh.
ABC ltd (fair value) 10,000 90
XYZ ltd( hedging instrument) 10,000 80
The shares were all classified as fair value through profit and loss
All the shares were bought on 1st January 2010. On 31 December 2010, the share prices were as follows:
Company Sh.
ABC ltd (fair value through profit and loss) 85
XYZ ltd( hedging instrument) 86
Required:
The journal entries to record the changes in the share prices (6 marks)
d) The international accounting standards board (IASB) framework for the preparation and presentation of finacial statements has seven main sections. Analyse any four sections and indicate how they contribute to the quality of fianncial statements. (4 marks)
QUESTION THREE
a) Explain the term 'accounting theory' and indicate why it is important in the practice of accounting. (2 marks)
b) Explain any four criteria that are used to determine related party relationships as per IAS 24 (Related Party Disclosures) (4 marks)
c) (i) In the context of IFRS 2 (Share Based Payments), explain the three types of share based payments. (3marks)
(ii) Zawadi Ltd grants to each of its 400 employees 10,000 options to purchase shares in the company on condition that they remain in zawadi Ltd's employment for the next four years. Each option has been valued at Sh. 15. Zawadi Ltd. predicts that 5% of its employees will leave the company in each of the next four years and will thus lose their option rights.
Required:
show how Zawadi Ltd should reflect this arrangement for each of next four yearsin the statement of comprehensive income and in the statement of financial position. (3marks)
(d) (i) a certain government agency has a widely published environmental policy in which it undertakes to clean up all contamination arising from its operations. The government agency has a record of honoring this published policy. There is no environmental legislation in place in the jurisdiction in which the government agency operates. During the course of a naval exercise, a vessel was damaged and a substantial amount of oil was leaked. The government agency agreed to pay for the costs of the immediate clean-up and the costs of monitoring and assisting marine animals and birds.
Required:
In the context of International Public Sector Accounting Standard number 19 (provisions, contingent liabilities and contingent assets), evaluate how the costs o in the above scenario would be accounted for. (4 marks)
(ii) Mashinani City Council constructed a 20 storey office building for use by the city council at accost of Sh.800 million. This building came into use on 1 January 1996 and it is expected to have a useful life of 40 years. During thee year 2010, National Safety Regulations required owing to security concerns, the top four storey of the highest building should be left unoccupied for the foreseeable future. These regulations were to come into force on 31 December 2010. as at 31 December 2010, the building had a fair value less cost to sell of Sh.450 million. As at the same date, the replacement cost of a similar 20 storey building was Sh.850 million.
Required:
Using the service cost approach, evaluate whether there is any impairment loss as at 31 December 2010 in accordance with the requirements of International Public sector Accounting Standard 21 (Impairment of Non-cash-Generating Assets). (4 marks)
QUESTION FOUR
Pamoja group has the following draft statements of financial position as at 30 June:
2011 2012
Sh' million Sh' million Sh' million Sh' million
Non-current assets:
Property, plant and equipment 9,731 8,357
Investment in associates 525 510
10,256 8,867
Current assets:
Inventories 3,432 2,705
Receivables 4,149 7,581 3,056 5,761
Total assets 17,837 14,628

Equity and liabities:
Ordinary share capital 3,680 3,191
Revaluation reserve 186 186
Translation reserve 116 69
Retained earnings 3,153 2,459
7,135 5,905
Non-controlling intrest 302 266
Shareholder's funds 7,437 6,171

Non-current liabilibties:
loan stock 3,097 2,903
Deffered tax 216 3,313 147 3,050

Current liabilities:
Bank overdraft 1,922 1,620
Trade payables 4,224 3,434
Current tax 941 7,087 353 5,407
Total equity and liabilities 17,837 14,628
Additional information:
1. the movement of property, plant and equipment account during the year ended 30 June 2011 included Sh.236 million increase on translation of the opening Property, plant and equipment of an overseas subsidiary, sh.2,202 million of additions and Sh.950 million of disposals. the additions include the acquisition of a subsidiary whose details are given in note 3 below. The proceeds on disposal were Sh.250 million. There was an increase in depreciation of sh.120 million on translation of the opening depreciation of the overseas subsidiary, depreciation charge of Sh.684 million and a depreciation eliminated on disposal of property, plant and equipment.
2. the group reported profit before tax of Sh.2, 225 million and a share of profit after tax in the associates of Sh.46 million. Income tax expense for the year was Sh.967 million (current SH. 900 million, under provision of previous years Sh.30 million and deferred tax of Sh.37 million).
3. The net assets of the subsidiary acquired during the year ended 30 June 2011 on the date of acquisition were as follows:
Sh'million
Property, plant and equipment 255
Inventories 120
Receivables 225
Payables (135)
Taxation (30)
Bank overdraft (22)
413
The consideration for the 100% purchase of the shares of the subsidiary was settled by the issue of ordinary shares to the value of Sh.466 million.
4. The movement on the exchange reserve represents the groups share (100%) of exchange differences arising at the consolidation stage on the retranslation of the net assets and results of the overseas subsidiary and relates to the following items in the consolidated statement of financial position as at 30 June 2011:
Sh'million
Property,plant and equipment 116
Inventories 41
Receivables 34
Payables (54)
Bank overdraft (3)
Loan stock (87)
47
5. The group paid dividends of Sh.504 million and the non-controlling share of profits was Sh.60 million.
6. Any goodwill arising on acquisition of the subsidiary was fully impaired.
Required:
Consolidated statement of cashflows for the year ended 30 June 2011 in conformity with IAS 7 (statement of cashflows). (20 marks)
QUESTION FIVE
a) Madini Ltd. Has entered into an agreement with a finance company to lease a machine for a four-year period. Under the terms of the agreement, the machine is to be made available to Madini Ltd on 1 January 2012, when an immediate payment of Sh.2,550,000 will be made, followed by seven semi-annual payments of an equal amount. The fair market value of the machine on 1 January 2012 is expected to be Sh.16,320,000. the estimated useful life of the machine is 4 years. The implicit interest rate in the transaction is 6.94% payable semi-annually. The corporate tax rate is 30%. Madini Ltd's policy is to depreciate machines of this type over a four year period using the straight line basis.
Required:
Show how the above transaction would be reflected in the income statement of Madini Ltd. For each of the four years ending 31 December 2012, 2013, 2014 and 2015.
(assume that the lease is to be capilised. Use the actuarial method to allocate the interest charge). (10 marks
b) In relation to the International Public Sector Accounting Standards (IPSASs):
(i) Explain any three benefits that would accrue to a government as a result of adoption of IPSASs. (6 marks)
(ii) Analyze any two limitations that state (or county) governments in your country are likely to face in implementing IPSASs. (4marks)

Cpa Section 6 December Question Paper

More Question Papers

Popular Exams