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Price risk. There are three types of price risk. Namely:- currency risk, interest risk and market risk.
- Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates.
- Interest risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates.
- Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices whether those changes are caused by factors specific to the individual security or its issuer or factors affecting all securities traded in the market.
Credit risk: The risk that is partly to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss.
Liquidity risk (or funding risk): The risk that an enterprise will encounter difficulty in raising funds to meet commitments associated with financial instruments.
Cash flow risk: The risk that future cash flows associated with a monetary financial instrument will fluctuate in amount.
marto answered the question on February 14, 2019 at 06:16
- With reference to IAS 39(Financial Instruments: Recognition and Measurement), explain how financial instruments are initially recognized and subsequently measured in the books of a reporting...(Solved)
With reference to IAS 39(Financial Instruments: Recognition and Measurement), explain how financial instruments are initially recognized and subsequently measured in the books of a reporting entity.
Date posted: February 14, 2019. Answers (1)
- Redline Limited invested in 10% loan stock on 1 November 2007 given a par value of Sh. 20 million. The issuer of the loan stock...(Solved)
Red line Limited invested in 10% loan stock on 1 November 2007 given a par value of Sh. 20 million. The issuer of the loan stock was Borrow Limited. The loan stock was for five years and is to be settled on 31 October 2012. The loan stock was quoted but Red line Limited was to hold it to maturity. The effective interest rate on 1 November 2007 was 12% and this had not changed over the three years to 31 October 2010.
On 31 October 2010, Borrow Limited, after paying the annual interest, went into financial difficulties and Red line Limited estimated that interest would be received over the remaining two years but only half of the loan stock would be received on maturity. The loan stock was therefore impaired.
Required:
Explain how the loan stock in Borrow Limited will be reported in the financial statements for the year ended 31 October 2010.
Date posted: February 14, 2019. Answers (1)
- Biz Ltd. invested in the shares of ABC Ltd. and XYZ Ltd. where the two were designated as a hedge based on cash.
The investments were...(Solved)
Biz Ltd. invested in the shares of ABC Ltd. and XYZ Ltd. where the two were designated as a hedge based on cash.
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Date posted: February 14, 2019. Answers (1)
- Explain the three main types of hedge as provided in IAS 39 (Financial Instruments: Recognition and Measurement) and their accounting treatment.(Solved)
Explain the three main types of hedge as provided in IAS 39 (Financial Instruments: Recognition and Measurement) and their accounting treatment.
Date posted: February 14, 2019. Answers (1)
- With reference to IAS 37 (Provisions, Contingent Liabilities and Contingent Assets), differentiate between a 'constructive obligation' and a 'contingent liability'.
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Date posted: February 14, 2019. Answers (1)
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The distinction between a provision and a contingent liability is irrelevant. Discuss.
Date posted: February 14, 2019. Answers (1)
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Discuss the approach taken by International Financial Reporting Standard (IFRS) 9 in measuring and classifying financial assets and the main effect that IFRS 9 will have on accounting for financial assets.
Date posted: February 14, 2019. Answers (1)
- (a) IAS 16: property, plant and equipment gives certain criteria to be satisfied before an item of property, plant and equipment should be recognized as...(Solved)
(a) IAS 16: property, plant and equipment gives certain criteria to be satisfied before an item of property, plant and equipment should be recognized as an asset. State these criteria and state the value at which the asset should be measured initially. Give six examples of directly attributable costs that could be included in the value and four examples of cost that should not be included in the value.
(b) Chumuki Supermarket Limited is a quoted company which runs 22 Supermarket stores throughout Kenya. 12 of these stores are situated in and around Nairobi and all 12 are supplied by Chumuki’s central go down situated in the industrial area of Nairobi. Pricing, marketing and human resources policies are decided centrally by Chumuki. All stores are managed in the same way and management run the business on a store-by-store profit basis.
Recently, the Githurai store has seriously under performed against its budget for the year ending 31 December 2000. Rising insecurity in the area together with difficulties in obtaining access to the store have seriously adversely affected its financial performance. The Githurai store together with the Kahawa store were purchased from Ruiru Superstores on 1 January 1998 for Sh.25 million and Sh.25 million and Sh.15 million respectively plus goodwill of Sh.8 million for both stores. The stores are being depreciated on the straightline method to nil residual value over 20 years the goodwill is being amortized to nil on the straight line basis over the same period. The Githurai store could be sold for Sh.15 million net. Its value in use is Sh.20 million. Management have performed a “bottom-up” test in relation to the goodwill and the purchase prices of the stores and are satisfied that a 'top-down' test is not needed.
Required:
State in detail how the impairment loss should be recognized for the Githurai cash-generating unit in the financial Statements for the year ending 31 December 2000: neither depreciation nor amortization has yet been charged for this period. State also the carrying value of the Githurai cash-generating unit after the impairment loss has been recognized. Ignore deferred tax.
Date posted: February 14, 2019. Answers (1)
- Identify and explain five indicators which show that an impairment loss to a fixed asset may have occurred.(Solved)
Identify and explain five indicators which show that an impairment loss to a fixed asset may have occurred.
Date posted: February 14, 2019. Answers (1)
- The following information is provided relating to the carrying amount of the assets comprising the cash generating units of Alexo Ltd as at 30 September...(Solved)
The following information is provided relating to the carrying amount of the assets comprising the cash generating units of Alexo Ltd as at 30 September 2009:
Date posted: February 14, 2019. Answers (1)
- Briefly explain any three factors that may indicate that a financial asset is impaired.(Solved)
Briefly explain any three factors that may indicate that a financial asset is impaired.
Date posted: February 14, 2019. Answers (1)
- International Financial Reporting Standard (IFRS) 6 (Exploration for and Evaluation of Mineral Resources) provides guidance on how tangible and intangible assets used to explore the...(Solved)
International Financial Reporting Standard (IFRS) 6 (Exploration for and Evaluation of Mineral Resources) provides guidance on how tangible and intangible assets used to explore the existence of mineral resources can be accounted for and presented.
Required
Briefly explain four factors that indicate that such assets have been impaired.
Date posted: February 14, 2019. Answers (1)
- Explain how an impairment loss is measured according to IAS 36 (Impairment of Assets).(Solved)
Explain how an impairment loss is measured according to IAS 36 (Impairment of Assets).
Date posted: February 14, 2019. Answers (1)
- On 1 January 2006, Matopeni Primary School acquired a bus at a cost of Sh.6.000.000 to enable students from a nearby village commute to school...(Solved)
On 1 January 2006, Matopeni Primary School acquired a bus at a cost of Sh.6.000.000 to enable students from a nearby village commute to school free of charge. The school estimated that the bus had a useful life of 10 years. Or 31 December 2010, the bus sustained damage in a road accident requiring Sh. 1,200.000 to be restored to a usable condition. The restoration did not affect the useful life of the asset. The cost of a new bus to deliver a similar service was Sh.7, 500,000 as at 31 December 2010.
Required:
Evaluate the impairment loss attributable to the bus using the requirements of IPSAS 21 (Impairment of Non-Cash Generating Assets). Use the restoration cost approach.
Date posted: February 14, 2019. Answers (1)
- With reference to IPSAS 21 (Impairment of Non-Cash Generating Assets), explain the following terms:
i) Government business enterprise
ii) Carrying amount
iii) Recoverable service amount(Solved)
With reference to IPSAS 21 (Impairment of Non-Cash Generating Assets), explain the following terms:
i) Government business enterprise
ii) Carrying amount
iii) Recoverable service amount
Date posted: February 14, 2019. Answers (1)
- a) In the context of International Accounting Standard (IAS) 21 (The Effects of Changes in Foreign Exchange Rates), explain two factors that should be considered...(Solved)
a) In the context of International Accounting Standard (IAS) 21 (The Effects of Changes in Foreign Exchange Rates), explain two factors that should be considered in determining an entity's functional currency.
b) Ufanisi Ltd. is a Kenyan-based company that uses the Kenya Shilling (Ksh) as its presentation currency. On 1 January 2010, the company established a wholly owned
subsidiary, Ng'ambo Ltd., in a foreign country known as Ugenini, In addition to Ufanisi Ltd. making an equity investment in the subsidiary, a long term note payable to an Ugenini bank was negotiated to purchase property and equipment. The currency used in Ugenini is known as the Falanga (Fn). The subsidiary began operations with the following statement of financial position as at 1 January 2010:
Required:
Translate the following financial statements of Ng'ambo Ltd. using the temporal method:
i) Income statement for the year ended 31 December 2010.
ii) Statement of financial position as at 31 December 2010.
Date posted: February 13, 2019. Answers (1)
- 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 functional...(Solved)
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 functional currency is the Rupia (Ra).
The following financial statements relate to the two companies for the year ended 30 April 2011:
Additional information:
1. Halua Ltd. acquired the shares in 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 the 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 financial statements in the post-acquisition period as at 30 April 2010 amounted to Sh. 1,372,000.
5. The group uses the partial goodwill method and no impairment loss has been reported so far.
6. The following exchange rates are relevant.
Required:
a) Consolidated income statement for the year ended 30 April 2011.
b) Consolidated statement of changes in equity for the year ended 30 April 2011.
c) Consolidated statement of financial position as at 30 April 2011.
Date posted: February 13, 2019. Answers (1)
- The following financial statements relate to H Ltd. and its investment companies S Ltd., A Ltd. and J Ltd. for the year ended 30 April...(Solved)
The following financial statements relate to H Ltd. and its investment companies S Ltd., A Ltd. and J Ltd. for the year ended 30 April 2012:
Additional information:
1. H Ltd, acquired the investments in the other companies as follows:
2. The fair value of the non-controlling interest in S Ltd. was Sh.75 million on 1 May 2008.
3. During the year ended 30 April 2012, II Ltd. sold goods lo S Ltd. and A Ltd. as follows:
4. On 1 May 2010, H Ltd. sold S Ltd. an item of plant for Sli.200 million reporting a 25% profit on the initial cost plant. The group charges depreciation at 20% per annum on cost on plant.
5. All the goodwills of the three companies in which H Ltd. has invested are estimated to be impaired by 25% in the year ended 30 April 2012. No impairment losses have been reported in the past.
6. Included in trade and other receivables and trade and other payables arc the following outstanding balances:
- Due from S Ltd. to II Ltd. - Sh.50 million
- Due from A Ltd. to II Ltd. - Sh.10 million
- Due from H Ltd. to J Ltd. - Sh.40 million
In the books of S Ltd. the amount due to H Ltd. was shown at Sh.40 million because S Ltd. had sent a cheque Sh.10 million but H Ltd. had not recorded the cheque. All the other balances were in agreement.
7. The group uses the full goodwill method and proportionate consolidation as per IAS 31 (Joint Ventures).
8. All dividends and interest had been paid by the end of the year.
Required:
a) Consolidated income statement for the year ended 30 April 2012.
b) Consolidated statement of financial position as at 30 April 2012.
Date posted: February 13, 2019. Answers (1)
- Explain the following terms as used in IAS 21 (The Effects of Changes in Foreign Exchange Rates):
i) Functional currency.
ii) Presentation currency.(Solved)
Explain the following terms as used in IAS 21 (The Effects of Changes in Foreign Exchange Rates):
i) Functional currency.
ii) Presentation currency.
Date posted: February 13, 2019. Answers (1)
- a) In the context of IAS 21 (The Effects of Changes in Foreign Exchange Rates), critically appraise the concepts on which the closing rate and...(Solved)
a) In the context of IAS 21 (The Effects of Changes in Foreign Exchange Rates), critically appraise the concepts on which the closing rate and the temporal methods are based indicating which factors should be taken into account when choosing between the two methods.
b) H Ltd., a publicly listed company, acquired the following investments:
- On 1 April 2012, the company purchased 24 million shares in S Ltd. This acquisition was made by way of an immediate share exchange of two shares in H Ltd. for every three shares in S Ltd. plus a cash payment of Sh. l per one share of S Ltd. This cash payment will be payable on 1 April 2015. The market price of H Ltd.'s shares on 1 April 2012 was Sh.2 each.
- On 1 October 2012, the company purchased 6 million shares in A Ltd. by paying an immediate Sh.2.50 in cash for each share.
The statements of financial position of H Ltd., S Ltd. and A Ltd. as at 31 March 2013 were as follows:
Additional information:
1. Below is a summary of the results of a fair value exercise S Ltd. carried out as at the date of acquisition:
The book values of the net assets of A Ltd as at the date of acquisition were considered to be a reasonable approximation to their fair values.
2. The profits of S Ltd. and A Ltd. for the year to 3 1 March 2013 were Sh.4.5 million and Sh.6 million respectively. No dividends have been paid by any of the companies during the year. Profits are deemed to accrue evenly throughout the year.
3. In January 2013, A Ltd. sold goods to H Ltd. at a selling price of Sh.4 million. These goods had cost A Ltd. Sh.2.4 million. H Ltd. had Sh.2.5 million (at cost to H Ltd.) of these goods still in inventory as at 31 March 2013.
4. Depreciation is charged on a straight-line basis. A full year's depreciation is charged in the year of acquisition.
5. Based on H Ltd.'s cost of capital which is 10% per annum. Sh. l receivable in three years' time can be taken to have a present value of Sh.0.75.
6. H Ltd. has not yet accounted for the acquisition of S Ltd. but has recorded the investment in A Ltd.
Required:
Consolidated statement of financial position as at 31 March 2013 in accordance with international financial reporting standards (IFRSs)
Date posted: February 13, 2019. Answers (1)