1) Faithful representation
The information must represent faithfully the transaction and other events it either purports to represent or could reasonably be expected to represent
2) Substance over form
It is necessary that transactions and other events are accounted for and presented in accordance with their substance and economic reality and not merely their legal form.
3) Neutrality
The information contained in financial statements must be neutral, that is, free from bias.
4) Prudence
Uncertainties should be recognized by disclosure of their nature and extent and by the exercise of prudence in the preparation of financial statements. Prudence is the degree of caution required in making estimates such that gains or assets are not overstated and losses and liabilities are not understated
5) Completeness
Information in financial statement must be complete within the bounds of materiality and cost
Wilfykil answered the question on February 8, 2019 at 11:19
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Ali, Baba and Cheche were in partnership sharing profits and losses in the ratio 2:2:1 respectively. Following serious disagreement, the partners decided to dissolve the...
(Solved)
Ali, Baba and Cheche were in partnership sharing profits and losses in the ratio 2:2:1 respectively. Following serious disagreement, the partners decided to dissolve the partnership. The proceeds from sale of assets were to be paid to the individual partners after all expenses and liabilities had been paid.
The balance sheet as at 30 September 2007 when the partners made the decision to dissolve the partnership was as follows:
Required:
a) Briefly explain the rule in Garner Vs Murray.
b) A statement showing how cash realized would be distributed to the partners.
c) Realization account, cash at bank account and capital accounts to close off the books of the
partnership.
Date posted:
February 8, 2019
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Answers (1)
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Meme, Noni and Zenah are partners sharing profits and losses in the ratio 3:2:1 respectively, after allowing for interest on fixed capitals t the rate...
(Solved)
Meme, Noni and Zenah are partners sharing profits and losses in the ratio 3:2:1 respectively, after allowing for interest on fixed capitals t the rate of 5% per annum. The partners prepare their partnership accounts annually to 30 September.
The balance sheet of the partnership as at 31 March 2008 was as follows:
Date posted:
February 8, 2019
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Answers (1)
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X and Y are partners with equal capital contributions in a wholesale business and sharing profits and losses among X,Y and Z in the ratio...
(Solved)
X and Y are partners with equal capital contributions in a wholesale business and sharing profits and losses among X,Y and Z in the ratio of 2:2:1respectively. The partners however disagreed after six months of operation and dissolved the partnership on 30th November 2009. No adjustment has been made to record the amalgamation. The following statements of financial position as at 31st May 2009 and 30th November 2009 are provided.
Date posted:
February 8, 2019
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Answers (1)
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Michael and Stella were in partnership sharing profits and losses equally until 30 April 2011 when they decided to convert the partnership into a limited...
(Solved)
Michael and Stella were in partnership sharing profits and losses equally until 30 April 2011 when they decided to convert the partnership into a limited company, Michelle Ltd. The company was registered immediately
The following trial balance was extracted on 30 April 2012; one year after the conversion
Date posted:
February 8, 2019
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Answers (1)
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Able, Patient and Hastine were in partnership sharing profits and losses in the ratio of 5:3:2 respectively. Due to irreconcilable differences they agreed to dissolve...
(Solved)
Able, Patient and Hastine were in partnership sharing profits and losses in the ratio of 5:3:2 respectively. Due to irreconcilable differences they agreed to dissolve the partnership. Any realisation of assets was distributed to the partners on realization after all expenses and liabilities were paid.
The following is the statement of financial position as at 31 August 2012 when the resolution to dissolve the partnership was effected
Required;-
(i) Statement of cash distribution to the partners.
(ii) Realization account,
(iii) Bank account.
(iv) Partners' capital accounts.
Date posted:
February 8, 2019
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Answers (1)
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Alice and Benard Advocates and Maneno and Neno Advocates were practicing firms of Advocates. On 1 July 2012, they agreed to amalgamate their partnership businesses...
(Solved)
Alice and Benard Advocates and Maneno and Neno Advocates were practicing firms of Advocates. On 1 July 2012, they agreed to amalgamate their partnership businesses into one firm and called it Abliman advocates. The accounts of the separate partnerships have been prepared annually to 30 June 2012.
The agreed profit and loss sharing ratios in the old and new firms are as follows:
Date posted:
February 8, 2019
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Answers (1)
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Capps Ltd.., a manufacturing company, leased production equipment from Deux Ltd On 1st January 2008. The lease provided for an immediate rental payment of sh....
(Solved)
Capps Ltd.., a manufacturing company, leased production equipment from Deux Ltd On 1st January 2008. The lease provided for an immediate rental payment of sh. 10 million and three other annual rentals of shs. 10 million commencing 1 January 2009. The equipment has an estimated useful life of four years with a nil residual value. The cash selling price of equipment is shs.32.1 million. Interest rate implicit in the lease is 17 per cent per annum.
Required:-
For the years ended 31 December 2008, 2009, 2010 and 2011, show in the books of Capps Ltd:-
i) Extracts of the profit and loss account.
ii) Extracts of the balance sheet.
Date posted:
February 8, 2019
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Answers (1)
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A lessor leases out an asset on terms which constitute a finance lease. The primary period is five years commencing 1 July 2010 and the...
(Solved)
A lessor leases out an asset on terms which constitute a finance lease. The primary period is five years commencing 1 July 2010 and the rental payable is Sh.3, 000,000 per annum (in arrears). The lessee has the right to continue the lease after the five-year period referred to an indefinite period at a nominal rent. The cash price of the asset in question as at 1 July 2010 can be assumed to be Sh.11, 372,000. The rate of interest implicit in the lease is 10%.
Required:
Show the accounting entries in the leaser’s books (Apply the requirements of IAS 17- Leases).
Date posted:
February 8, 2019
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Answers (1)
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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,...
(Solved)
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 price of the machine on 1 January 2012 is expected to be Sh. 16,320,000. The estimated useful life of this type of machine is 4 years. The implicit rate of interest in the transaction is 6.94% payable annually. The corporate tax rate is 30%. Madini Ltd.'s policy is to depreciate machines of this type over 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 capitalised: Use the actuarial method to allocate the interest
charge)
Date posted:
February 8, 2019
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Answers (1)
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Discuss the reasons why IAS 12 (revised) requires enterprises to provide for deferred taxation on revaluations of assets and fair value adjustments on business combination.
(Solved)
IAS 12 (revised) “Income Taxes” requires an enterprise to provide for deferred tax in full for all deferred tax liabilities with only limited expectations. The original IAS 12, and the equivalent Kenyan Accounting Standard, allowed an enterprise not to recognize deferred tax assets and liabilities where there was reasonable evidence that timing differences would not reverse for some considerable period ahead; this was known as the partial provision method.
The original IAS 12 did not refer explicitly to fair value adjustments made on a business combination and did not require an enterprise to recognize a deferred tax liability in respect of asset revaluations. The revised IAS 12 now requires deferred tax adjustments for these items and classifies them as temporary differences.
Discuss the reasons why IAS 12 (revised) requires enterprises to provide for deferred taxation on revaluations of assets and fair value adjustments on business combination.
Date posted:
February 8, 2019
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Answers (1)
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Calculate The current tax account, deferred tax account and revaluation account for the years 1999 and 2000
(Solved)
Jallam Co. Ltd. had been preparing its financial statements using actual taxes payable method for computing tax expense. In the year ended 30 June 2000, the company changed to deferred tax method and the new policy was to be applied retroactively to the accounts of the years ended 30 June 1999 and 2000.
The following are the balance sheets of the company for the two years ended 30 June 199 and 2000 before incorporating tax expense for the year 2000.
Calculate The current tax account, deferred tax account and revaluation account for the years 1999 and 2000
Date posted:
February 8, 2019
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Answers (1)
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Using the method recommended by the revised IAS 12, calculate deferred tax expense or income for the years 1999 and 2000
(Solved)
Jallam Co. Ltd. had been preparing its financial statements using actual taxes payable method for computing tax expense. In the year ended 30 June 2000, the company changed to deferred tax method and the new policy was to be applied retroactively to the accounts of the years ended 30 June 1999 and 2000.
The following are the balance sheets of the company for the two years ended 30 June 199 and 2000 before incorporating tax expense for the year 2000.
Using the method recommended by the revised IAS 12, calculate deferred tax expense or income for the years 1999 and 2000
Date posted:
February 8, 2019
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Answers (1)
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Silversands Manufacturing Company Ltd. has entered into an agreement with a finance company, to lease a machine for a four year period. Under the terms...
(Solved)
Silversands Manufacturing Company 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 Silversands Manufacturing Company Ltd. on 1 January 2005, when an immediate payment of Sh. 2,550,000 will be made, followed by seven semi-annual payments of an equivalent amount.
The fair market price of the machine on 1 January 2005 is expected to be Sh. 16,320,000. The estimated life of this type of machine is four years. The implicit rate of interest in the transaction is 6.94% payable semi-annually and the corporate tax rate is 30%. Silversands Manufacturing Company Ltd. has a policy of depreciating machines of this type over a four year period on the straight line basis.
Assume the lease is to be capitalized.
Show Balance sheet extracts of Silversands Manufacturing Company Ltd. as at 31 December 2005 and 2006.
(use the acturial method to allocate the interest charge)
Date posted:
February 8, 2019
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Answers (1)
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Silversands Manufacturing Company Ltd. has entered into an agreement with a finance company, to lease a machine for a four year period. Under the terms...
(Solved)
Silversands Manufacturing Company 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 Silversands Manufacturing Company Ltd. on 1 January 2005, when an immediate payment of Sh. 2,550,000 will be made, followed by seven semi-annual payments of an equivalent amount.
The fair market price of the machine on 1 January 2005 is expected to be Sh. 16,320,000. The estimated life of this type of machine is four years. The implicit rate of interest in the transaction is 6.94% payable semi-annually and the corporate tax rate is 30%. Silversands Manufacturing Company Ltd. has a policy of depreciating machines of this type over a four year period on the straight line basis.
Assume the lease is to be capitalized.
Show how the above transactions will be reflected in the profit and loss account of Silversands Manufacturing Company Ltd. for each of the four years ending 31 December 2005, 2006, 2007 and 2008
Date posted:
February 8, 2019
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Answers (1)
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In the context of the International Accounting Standards Board’s Framework for the Preparation and Presentation of financial statements, identify and briefly explain any four qualitative...
(Solved)
In the context of the International Accounting Standards Board’s Framework for the Preparation and Presentation of financial statements, identify and briefly explain any four qualitative characteristics of financial statements
Date posted:
February 8, 2019
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Answers (1)
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With reference to IAS 36 (Impairment of Assets), identify any four circumstances that may indicate that an asset has been impaired
(Solved)
With reference to IAS 36 (Impairment of Assets), identify any four circumstances that may indicate that an asset has been impaired
Date posted:
February 8, 2019
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Answers (1)
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Determine Balance sheet extracts using two methods: Muniu Ltd received a 20 % grant towards the cost of new item of machinery that cost ksh. 100,000 kshs.The machinery her on expected life...
(Solved)
Muniu Ltd received a 20 % grant towards the cost of new item of machinery that cost ksh. 100,000 kshs.The machinery her on expected life of 4yrs and nil residual value. The expected profits of the co. before accounting for deprecation of the new machinery amounts to 50,000 p. a in each year of the machinery life
Determine Balance sheet extracts using two methods
Date posted:
February 8, 2019
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Answers (1)
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Jenga Ltd. had a deferred tax liability balance brought forward of Sh.2 million. As at 31 December 2008, the firm hand the following assets
(Solved)
Jenga Ltd. had a deferred tax liability balance brought forward of Sh.2 million. As at 31 December 2008, the firm hand the following assets
Temporary difference due to revaluation of buildings in the year was Sh. 1,000,000.
Compute the deferred tax liability as at 31 December 2008 and show the relevant journal
entry.
Date posted:
February 8, 2019
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Answers (1)
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In the context of IAS 16 property, plant and equipment,Outline any two disclosure requirement for items of property, plant and equipment which are stated at...
(Solved)
In the context of IAS 16 property, plant and equipment,Outline any two disclosure requirement for items of property, plant and equipment which are stated at revalued amounts
Date posted:
February 8, 2019
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Answers (1)
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In the context of IAS 16 property, plant and equipment, Briefly describe the accounting treatment with respect to the increase in the carrying amount of...
(Solved)
In the context of IAS 16 property, plant and equipment,Briefly describe the accounting treatment with respect to the increase in the carrying amount of an asset as a result of revaluation
Date posted:
February 8, 2019
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Answers (1)