Preparation of Financial Statements

Zeddy Limited is a company quoted at the securities exchange. The following trial balance was extracted from the books of the company as at 31 October 2014: Sh. ‘million’ Sh. ‘million’ Ordinary share capital (Sh. 10 each) 8% Preference share capital (Sh. 10 each) Revaluation reserve - property, plant and equipment Share premium Retained profits as at 31 October 2013 Intangible assets Property, plant and equipment Accumulated depreciation as at 1 November 2013 Trade receivables and trade payables Bank overdraft Inventory as at 1 November 2013 Purchases Cash in hand Sales Administrative expenses Selling and distribution expenses Legal and professional expenses Allowance for doubtful debts (l November 2013) Financial assets at fair value Deferred tax Instalment tax paid Suspense account 215.5 600 178 326 760 5 158 117 54 125 30 140 2,708.5 300 100 50 100 333.5 124.5 97.5 51 1,526 6 20 _____ 2,708.5 Additional information; 1. The intangible assets are being amortised over 5 years with the expense to be shown under cost of sales. 2. Property, plant and equipment is made up of the following: Asset Cost/valuation Sh. “million” Accumulated depreciation Sh. “million” Land at cost Buildings Plant and equipment Furniture and fixtures Motor vehicles 250 75 150 50 75 600 - 15 68.5 16 25 124.5 REVISION PARTNER 59 CPA Section 6 A.F.R Depreciation is charged as follows: Buildings Plant and equipment Furniture and fixtures Motor vehicles 2% on cost (included with administrative expenses). 8% on cost (included with cost of sales) 10% on cost (included with administrative expenses). 20% on the reducing balance charged as follows: 25% administrative expenses and 75% selling and distribution expenses. 3. Sh. 10 million should be transferred from the revaluation reserve to retained profits. 4. Allowance for doubtful debts is to be increased to Sh. 18 million. 5. The financial assets at fair value are held for the long-term. Their market value as at 31 October 2014 is Sh. 130 million. 6. Current year tax is estimated at Sh.40 million and the net taxable temporary differences amount to Sh.100 million considering all possible adjustments including valuations. Increase due to revaluation of financial assets amounts to Sh.2 million. 7. The suspense account consists of the acquisition of a business on a going concern basis. The assets acquired were as follows as at 30 September 2014 (date of acquisition). Sh. “million” Financial assets - short term Receivables Inventory Bank balance Payables 40 30 20 40 (20) The adjustment for this acquisition has not been reflected in the books of Zeddy Limited. A quick review of these assets shows that an impairment loss of Sh.20 million should be reported being the recoverable amount less the carrying amounts. 8. Inventory as at 31 October 2014 (including the Sh.20 million in note 7 above) is valued at Sh.426 million. Required The following statements for Zeddy Limited in a format suitable for publication: a) Income statement for the year ended 31 October 2014. b) Statement of changes in equity for the year ended 31 October 2014. c) Statement of financial position as at 31 October 2014.

The following are the group income statement and group statement or financial position of Soma group of companies, for the financial year ended 31 October 2013: Soma group Income statement for the year ended 31 October 2013 Revenue Cost or sales Gross profit Other incomes: Share of profit from associate Investment income Sh. ‘million’ 100 125 Sh. ‘million’ 12,765 (9,070) 3,695 225 3,920 REVISION PARTNER 60 CPA Section 6 A.F.R Expenses: Distribution costs Administration expenses Finance costs Profit before tax Tax expenses Profit for the year Profit attributable to: The holding company The non-controlling interest (NCI) 625 1,320 375 2,320 1,600 (700) 900 825 75 900 Soma group Statement of financial position as at 31 October 2013 and 2012 2013 Sh. ‘million’ 2012 Sh. ‘million’ Non-current assets: Property, plant and equipment Intangible assets (including goodwill) Investments: Others In associate company Current assets: Inventories Receivables Short-term investments Cash in hand Total assets Equity and liabilities: Share capital (Sh.1 par value) Revaluation reserve Retained profits Share premium Minority interest Non-current liabilities: Long-term loan Current liabilities: Trade payables Bank overdraft Taxation 1,900 1,250 - 325 3,475 750 1,950 250 10 6,435 1,000 505 870 800 3,175 250 850 1,135 425 600 6,435 1,525 1,000 125 250 2,900 510 1,575 - 5 4,990 750 455 600 750 2,555 150 250 995 490 550 4,990 Additional information: 1. During the year ended 31 October 2013, Soma Ltd. acquired 80% of the share capital of Kitabu Ltd. The assets of Kitabu Ltd. were as follows as at the date of acquisition: Property, plant and equipment Inventories Receivables Long-term loan Payables Bank balance Sh. ‘million’ 300 200 650 (125) (200) (50) REVISION PARTNER 61 CPA Section 6 A.F.R Taxation (25) 250 2. Some items of plant with an original cost of Sh.425 million and a net book value of Sh.225 million were sold for Sh.160 million during the year ended 31 October 2013. The long-term investments were sold for Sh.150 million during the same period. The following information relates to property, plant and equipment: 31 October 2013 Sh. ‘million’ 31 October 2012 Sh. ‘Million’ Cost Accumulated depreciation 3,600 (1,700) 1,900 2,975 (1,450) 1,525 The cost of plant of Kitabu Ltd. (the acquired subsidiary) on the date of acquisition was Sh.500 million and accumulated depreciation was Sh.200 million. During the year ended 31 October 2013, there was a revaluation gain of Sh.50 million attributable to the holding company's plant. 3. The total purchase price of Kitabu Ltd. was Sh.225 million paid by issuing Sh.50 million worth of ordinary shares at par value. The balance was paid in cash. Required: Group statement of cash flows, in conformity with IAS 7 (Statement of Cash Flows), for the year ended 31 October 2013 using the indirect method.

The following financial statements relate to the Crest group for the year ended 31 March 2013: Group income statement for the year ended 31 March 2013 Sh."million" Sh." million" Revenue Cost of sales Gross profit Other incomes: Operating Gain on disposal of subsidiary 596 (417) 179 12 19 210 Expenses Distribution costs Administrative expenses Finance costs Loss before tax Income tax expense (credit) Loss for the period Attributable to: Parent Non-controlling interest 48 173 35 (256) (46) 11 (35) (31) (4) (35) REVISION PARTNER 62 CPA Section 6 A.F.R Statement of financial position as at 31 March: 2013 2012 Non-current assets Sh. "million" Sh. "million" Sh. "million" Sh. “million" Property, plant and equipment Goodwill Deferred tax assets 544 16 16 634 25 2 576 661 Current assets Inventory Trade and other receivable Tax recoverable Cash and cash equivalents 158 103 11 3 275 225 134 9 5 373 Total assets 851 1,034 Financed by Ordinary share capital Share premium Retained earnings Shareholders' funds attributable to parent Shareholders' funds attributable to non-controlling interest 400 112 64 576 13 589 300 84 95 479 21 500 Non-current liabilities Bank loans Deferred tax liabilities Provision for pension benefits Obligations under finance lease 29 18 18 - 65 52 17 19 2 90 Current liabilities Trade and other payables. Current tax Obligations under finance lease Balance at bank 112 - 2 83 197 188 2 8 246 444 Total equity and liabilities 851 1,034 Additional information: 1. Dex Ltd., a 90% held subsidiary of Crest Ltd., was sold during the year. The following were the net assets on the day of disposal: Sh. "million" Property, plant and equipment: Cost Depreciation Inventory Trade and other receivables Cash and bank Bank overdraft Trade and other payables Bank loans Current tax 118 (31) 87 27 41 3 (61) (38) (18) (1) 40 REVISION PARTNER 63 CPA Section 6 A.F.R Crest Ltd. had purchased its investment in Dex Ltd. for Sh.25 million several years ago. The fair value of the net assets in Dex Ltd. was Sh.20 million. The group uses the partial goodwill method. 2. Property, plant and equipment is made up as follows: Year ended 31 March 2013 Sh."million" 2012 Sh."million" Cost Depreciation 705 (161) 544 769 (135) 634 The group sold an item of plant which had cost Sh.11 million for Sh.9 million. There were no additional acquisitions by way of finance leases. . 3. The loss before tax is arrived at after charging the following: Sh. "million" Depreciation of property, plant and equipment Impairment of goodwill 65 4 4. The finance cost is made up of Sh.2 million on finance leases and Sh.33 million in bank loans and overdrafts. As at 31 March 2013, included in trade and other payables was accrued interest of Sh. l million and on 31 March 2012, the figure had been Sh.5 million. 5. There was an issue of ordinary shares during the year at a premium of 30% with some issue costs offset against the share premium. Required: The group statement of cash flows in accordance with IAS 7 (Statement of Cash Flows) for the year ended 31 March 2013.