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P. Limited is a company quoted on the Nairobi Stock Exchange. Its area of operations is capital equipment. It purchased 80% of the ordinary share...

      

P. Limited is a company quoted on the Nairobi Stock Exchange. Its area of operations is capital equipment. It purchased 80% of the ordinary share capital of Q Limited on 1 January 1998. Q Limited is a leading producer of cement and lime in the area. P. Limited purchased 75% of the ordinary share of the capital of R Limited on 1 January 1999. R. Ltd. is a leading producer of decorative coatings. This market has suffered a major decline since the investment was made. A suitable purchaser bought the complete shareholding on 31 August 2002. The proceeds of the sale were used to repay debt on 31 August 2002. The financial statements of the companies for the year ended 31 December 2002 are as follows:
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Additional information:
1. P. Ltd. had purchased its shareholdings in Q Ltd and R Ltd. when the balances of retained earnings were Sh.100 million and Sh.200 million respectively. Neither Q Ltd nor R. Ltd has issued any ordinary shares since they were acquired by P Ltd. The fair values of the identifiable net assets of both Q Ltd. and R Ltd were equal to their carrying values at the dates of acquisition. The investment in R. Ltd had cost P. Ltd. Sh.570 million.
2. No impairment losses have occurred in respect of their investment.
3. P Ltd., Q Ltd. and R Ltd. had paid dividends of Sh.500 million, Sh.300 million and Sh.200 million respectively on 31 July 2002.
4. There is no tax charge on the sale of the investment in R. Ltd.
5. P. Ltd, Q Ltd and R Ltd. are managed as three separate business segments. The group ‘s primary segment reporting format is business segments. The board of directors of P Ltd decided to sell the shares in R Ltd when they met on 14 February 2002 to review the performance of the three companies for year ended 31 December 2001. There were no impairment losses in any of the assets of R Ltd prior to its sale. The directors did not announce the plan to sell R Ltd because they thought this would adversely affect the price at which they could sell the subsidiary. A public announcement was made on 31 August 2002.
6. The directors want the amount of the revenue, expenses, pre-tax profit and the tax expense of the discontinuing operation to be shown in separate column of the income statement and the amount of the cash flow attributable to the operating, investing, financing activities of the discontinuing operation shown in a separate column of the cash flow statement.

Required:
(a). Describe in the context of International Financial Reporting Standard (IFRS) 5 when a disposal group can be classified as a Held-For-Sale.
(b). In the context of P Ltd, state the day when the classification criteria for Held-For-Sale was met.
(c). State four items of information (other than those included in note 6 above.) which should be included in the financial statements in relation to the discontinued operation.
(d). The financial statements of all the group companies for the year ended 31 December 2001 were authorized for issue on 11 March 2002. Should the financial statement for the year ended 31 December 2001 disclose any information about the plan sale of R Ltd.
(e). Prepare the income statement of the group for the year ended 31 December 2002, with separate columns for “continuing Operation” “Discontinued operation” and “Enterprise as a whole” Sales, cost of sales and expenses in R Ltd accrue evenly over the year. The accounting policy note in the financial statements include the following clause: Operating results of subsidiaries sold during the financial year are included up to the date effective control ceased. There were no inter-company transactions.
(f). Prepare the group balance sheet as at 31 December 2002.
(g). A statement of changes in equity as at 31 December 2002 showing only one column for ‘retained earnings’.

  

Answers


Kavungya
(a) Under IFRS 5 a disposal group or a Non-current Asset should be classified as a ‘held-for-sale’ when all of the following conditions are met:
- The asset is available for immediate sale.
- The sale is highly probable within 12 months of its classification.
- The asset is being actively marketed.
- Management is committed to the sale.
- It is unlikely that the plan to sell the asset will be significantly changed or withdrawn.

(b) The information provided on R Ltd is not enough to establish exactly when the classification as a ‘Held for sale’ was met. However, the disclosure requirement of IFRS 5 will apply since the Subsidiary R Ltd was fully disposed.

(c) (i) A description of the discontinued operation.
(ii) The business segment in which it is reported in accordance with IAS 14 ‘Segment Reporting’
(iii) A description of the facts and circumstances of the sale, or leading to the expected disposal and the expected manner and timing of that disposal.
(iv) The gain or loss on the disposal.
(v) The revenue, expenses and pre-tax profit or loss of discontinued operation presented as a single amount or on a separate column labeled ‘Discontinued operation’ on the face of Income Statement.

(d) If the recognition criteria as a ‘Held for Sale’ had been met before the approval of the financial statements then the disclosure requirements under IFRS 5 should be applied as a prior year adjustment to ensure that the financial statements to be produced are not misleading.
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Kavungya answered the question on December 10, 2021 at 13:35


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    ii. Explain four guiding principles that underpin the preparation of an integrated report.

    Date posted: February 15, 2019.  Answers (1)

  • Explain the benefits that would accrue from the adoption of international public sector accounting standards (IPSASs) by governments and public entities.(Solved)

    Explain the benefits that would accrue from the adoption of international public sector accounting standards (IPSASs) by governments and public entities.

    Date posted: February 15, 2019.  Answers (1)

  • The following information has been compiled by the Ministry of Finance for the fiscal year ended 30 June 2009:(Solved)

    The following information has been compiled by the Ministry of Finance for the fiscal year ended 30 June 2009:
    Q17.png

    Date posted: February 15, 2019.  Answers (1)

  • The International Public Sector Accounting Standards (IPSASs) are developed by the International Public Sector Accounting Standards Board (IPSASB) to enhance uniformity in the way...(Solved)

    The International Public Sector Accounting Standards (IPSASs) are developed by the International Public Sector Accounting Standards Board (IPSASB) to enhance uniformity in the way public sector organizations prepare their financial statements. The Board (IPSASB) is promoting the international adoption and application of these standards.

    Required:
    Highlight four challenges that the Board is facing in promoting the use of IPSASs.

    Date posted: February 15, 2019.  Answers (1)

  • The following data has been collected from the Ministry of Trade and Commerce for the fiscal year ended 30 June 2010:(Solved)

    The following data has been collected from the Ministry of Trade and Commerce for the fiscal year ended 30 June 2010:
    Q11.png
    Required:
    The following statements in accordance with IPSAS 1 (Presentation of Financial Statements):
    i) Statement of financial performance for the year ended 30 June 2010.
    ii) Statement of financial position as at 30 June 2010.

    Date posted: February 15, 2019.  Answers (1)

  • The following summary of receipts and payments was extracted from the records of the Ministry of Finance for the fiscal year ended 30 June 2010.(Solved)

    The following summary of receipts and payments was extracted from the records of the Ministry of Finance for the fiscal year ended 30 June 2010.

    Q10.png

    Required:

    The statement of comparison of budget and actual amounts for the fiscal year ended 30 June 2010 in accordance with International Public Sector Accounting Standard (IPSAS) 24 (Presentation of Budget Information in Financial Statements

    Date posted: February 15, 2019.  Answers (1)