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- The financial data given below shows the capital structure of Akabebi Company Limited.
The structure is considered optimum and the management would wish to maintain this...(Solved)
The financial data given below shows the capital structure of Akabebi Company Limited.
The structure is considered optimum and the management would wish to maintain this level.
Akabebi Company Limited intends to invest in a new project which is estimated to cost
Sh.16,800,000 with an expected net cash flow of Sh.3,000,000 per annum for 10 years. The
management has proposed to raise the required funds through the following means:
1. Issue 100 10% debentures at the current market value of Sh.5,000 per debenture.
2. Utilize 60% of the existing retained earnings.
3. Issue 10% Sh.20 preference shares at the current market price of Sh.25 per share
4. Issue ordinary shares at the current market price of Sh.45 per share. Floatation cost per
share is estimated to be 12% of the share value.
The company's current dividend yield is 5% which is expected to continue in
the near future. Corporation tax rate is 30%.
Required:
(a) Determine the current dividend per share.
(b) Determine the number of ordinary shares to be issued.
(c) Determine the marginal cost of capital for Akabebi Company Ltd based on the above
information.
(d) Evaluate whether it is viable to invest in the proposed project (Round off your answer
for cost of capital to the nearest 1)
(e) Explain clearly the sense in which depreciation is said to be a source of funds to
business firms.
Date posted: December 14, 2021.
- Define what trend/industrial analysis is and state the critical issues to be taken note of when carrying it out(Solved)
Define what trend/industrial analysis is and state the critical issues to be taken note of when carrying it out
Date posted: December 14, 2021.
- Andreas Company Ltd. currently pays a dividend of Sh.2 per share and this dividend is expected to grow at an annual rate of 15% for...(Solved)
Andreas Company Ltd. currently pays a dividend of Sh.2 per share and this dividend is expected to grow at an annual rate of 15% for the first 3 years then at a rate of 10% for the next 3 years after which it is expected to grow at a rate of 5% thereafter.
(i) What value would you place on the stock if an 18% rate of return were required?
(ii) Would your valuation change if you expected to hold the stock for only 3 years?
Explain.
Date posted: December 14, 2021.
- Mwomboko Company Ltd currently operates with terms of net 30 days. The company has sales of Sh.12 million and its average collection period is 45...(Solved)
Mwomboko Company Ltd currently operates with terms of net 30 days. The company has sales of Sh.12 million and its average collection period is 45 days. To stimulate demand, the company is considering the possibility of offering terms of net 60 days. If
it offers these terms sales will increase by 20%. After the change the average collection period is expected to increase to 75 days with no difference in payments habits between old and new customers.
The company has variable costs of Sh.70 for every Sh.100 of sales. The required rate of return on receivables is 20%.
Required:
Should the company extend its credit period? (Assume a year has 360 days).
Date posted: December 14, 2021.
- Briefly describe what a stock market/valuation ratio is(Solved)
Briefly describe what a stock market/valuation ratio is
Date posted: December 14, 2021.
- Briefly describe what a profitability ratio is(Solved)
Briefly describe what a profitability ratio is
Date posted: December 14, 2021.
- Briefly describe what a gearing/capital structure ratio is(Solved)
Briefly describe what a gearing/capital structure ratio is
Date posted: December 14, 2021.
- Briefly describe what a turnover/asset management ratio is(Solved)
Briefly describe what a turnover/asset management ratio is
Date posted: December 14, 2021.
- Briefly describe what a liquidity ratio is(Solved)
Briefly describe what a liquidity ratio is
Date posted: December 14, 2021.
- Explain two types of a basic financial statement(Solved)
Explain two types of a basic financial statement
Date posted: December 14, 2021.
- Nyumbani group has prepared the following income statement for the year ended 30 September 2010:(Solved)
Nyumbani group has prepared the following income statement for the year ended 30 September 2010:
Date posted: December 12, 2021.
- Viwanda Industries Limited operates a defined benefit post-retirement plan for its employees. The plan is reviewed annually. The company's actuaries have provided the following information:(Solved)
Viwanda Industries Limited operates a defined benefit post-retirement plan for its employees. The plan is reviewed annually. The company's actuaries have provided the following information:
Additional information
1. The expected return on plan assets as at 1 November 2011 was 12%.
2. The discount rate for plan liabilities as at I November 2011 was 10%.
3. The average remaining working lives of Viwanda Industries Ltd's employees as at 31 October 2011 was ten years.
Required:
Extracts of Viwanda Industries Ltd’s financial statements for the year ended 31 October 2012.
Date posted: December 12, 2021.
- Wabunge Ltd. operates a defined benefits plan for its employees. Both employees and the employer contribute to the plan. Details of the defined benefits plan...(Solved)
Wabunge Ltd. operates a defined benefits plan for its employees. Both employees and the employer contribute to the plan. Details of the defined benefits plan for the year ended 30 November 2013 were as follows:
The interest rate on high quality corporate debt (constant during the year) was 4.75% per annum.
Additional information:
1. Benefits paid employer contributions and employee contributions were all spread evenly over the year.
2. The past service cost arose as a result of an improvement to benefits offered to all plan members effective from 1 November 2012. In order to receive the benefit, plan members must have remained in employment until at least 30 November 2013. The figure above is the total expected cost as calculated by the actuary.
Required:
(i) The notes to the financial statements required by IAS 19: Employee Benefits (revised 2011) in respect or changes in plan assets, changes in the defined benefits plan obligation and amounts recognized in profit or loss and other comprehensive income
(ii) Statement of changes in net assets available for benefits for the plan itself as required by IAS 26 (Accounting and Reporting by Retirement Benefit Plans).
(NB: Round off all figures to the nearest shilling).
Date posted: December 12, 2021.
- A company has granted 10,000 cash-settled awards to each of its 500 employees on condition that the employees remain in its employment for the next...(Solved)
A company has granted 10,000 cash-settled awards to each of its 500 employees on condition that the employees remain in its employment for the next three years. Cash is payable at the end of the three years based on the share price of the company's shares on such a date.
35 employees leave during year 1. The company estimates that 60 additional employees will leave during years 2 and 3. The share price at the end of year 1 is Sh.14.40.
40 employees leave during year 2. The company estimates that 25 additional employees will leave during year 3. The share price at the end of year 2 is Sh. 15.50.
22 employees leave during year 3. The share price at the end of year 3 is Sh. 18.20
Required:
Computations to show how the company would recognize the above awards.
Date posted: December 11, 2021.
- Baobab Ltd. was incorporated on 1 April 2000. In the year ended 31 March 2001, the company made a profit before taxation of Sh.10, 000,000...(Solved)
Baobab Ltd. was incorporated on 1 April 2000. In the year ended 31 March 2001, the company made a profit before taxation of Sh.10, 000,000 (depreciation charged being Sh.1, 000,000). The company had made the following capital additions:
Plant - Sh.4,800,000
Motor vehicles - Sh.1,200,000
Corporation tax is chargeable at the rate of 30%. Capital deductions are computed at the rate of 25% per annum on written-down value.
The company has prepared capital expenditure budgets as at 31 March 2001 which reveal the following patterns:
From 1 April 2007, capital allowances are expected to exceed depreciation charges each year.
Required:
(i). Compute the corporation payable for the year ended 31 March 2001
(ii). Compute the deferred tax charge for the year ended 31 March 2001 on:
- Full-provision basis
- Partial-provision basis
(Show the profit and loss account and balance sheet extracts with respect to the provisions under each method).
Date posted: December 11, 2021.
- Jahazi Group is estimating the deferred tax liability as at 31 May 2010 and has provided the following information:
1. Property, plant and equipment has a...(Solved)
Jahazi Group is estimating the deferred tax liability as at 31 May 2010 and has provided the following information:
1. Property, plant and equipment has a cost and revalued amount of sh.100 million and accumulated depreciation of Sh.18 million. Total capital allowances on property, plant and equipment amount to Sh.30 million.
2. The group has available for sale(AFS) financial assets that were purchased during the year at a cost of sh. 10 million. There was a revaluation gain of sh.2 million reported in the AFS reserve.
3. The group spent Sh.50 million to develop a new product and out of which Sh.10 million has been charged in the income statement as amortization for the year. The balance of Sh.40 million is shown as intangible assets in the statement of financial position. The full amount of Sh.50 million was allowed for tax purposes in the year.
4. Total inventory was carried at Sh. 20 million which was the net realizable value. The cost of the inventory was Sh.22 million. There was an unrealized profit of Sh.1 million that had not been deducted from the inventory on consolidation.
5. The receivables amounted to sh.30 million after making a provision of Sh.2 million for a doubtful debt. The amount also included a foreign exchange gain of Sh.1 million. Exchange gains or losses and doubtful debts are only allowed for tax purposes when they are realized.
6. The trade and other payables of Sh.40 million include an accrual of Sh. 5 million which relates to pension and other employee benefits to be paid in the year 2011. These are only allowed for tax purposes when paid.
7. The deferred tax liability as at 1 June 2009 was Sh.8.5 million.
8. Assume that the temporary differences due to the revaluation of property, plant and equipment amount to Sh.2 million and the corporation tax rate is 30%.
Required:
Compute the deferred tax balance as at 31 May 2010 and the charge to the income statement for the year ended 31 May 2010.
Date posted: December 11, 2021.
- Explain the following methods of providing for deferred tax and indicate which is the preferred method under IAS 12(Income Taxes):
i) Nil provision.
ii) Partial provision.
iii) Full...(Solved)
Explain the following methods of providing for deferred tax and indicate which is the preferred method under IAS 12(Income Taxes):
i) Nil provision.
ii) Partial provision.
iii) Full provision.
Date posted: December 11, 2021.
- Explain the meaning of the term "financial instrument" in the context of IAS 32
(Financial Instruments - Presentation) and IFRS 9 (Financial Instruments).(Solved)
Explain the meaning of the term "financial instrument" in the context of IAS 32
(Financial Instruments - Presentation) and IFRS 9 (Financial Instruments).
Date posted: December 11, 2021.
- Umma Ltd. A public company quoted on the Nairobi Stock Exchange, owns 80% of Ugeni Ltd. A public company which is situated in a foreign...(Solved)
Umma Ltd. A public company quoted on the Nairobi Stock Exchange, owns 80% of Ugeni Ltd. A public company which is situated in a foreign country, Timoa. The currency of this country is Trim(TR). Umma Ltd. acquired Ugeni Ltd. on 30 April 1999 for Ksh.220 million when the retained profits of Ugeni Ltd. were TR 610 million. Ugeni Ltd. has not issued any shares since acquisition. The following financial statements relate to the two companies.
Additional information:
1. During the year, Ugeni Ltd. sold goods to Umma for TR 104 million and made a profit of TR 26 million on the transaction. All of the goods, which were exchanged on 30 June 2000 remained unsold at the year end. At 31 December 1999 there were goods sold by Ugeni Ltd. to Umma Ltd held in the stock of Umma Ltd. These goods were valued at Ksh.6 million on which Ugeni Ltd. made a profit of Ksh.2 million.
2. Ugeni Ltd. paid the dividend for the year ended 31 December 2000 on 30 June 2000. No other dividend was proposed for the year. The tax effect has been accounted for and may be ignored.
3. The fair value of the net assets of Ugeni Ltd. at the date of acquisition was TR 1,040 million. The fair value increment all due to tangible fixed assets has not however been incorporated in the books of Ugeni Ltd.
4. Goodwill fractuates with changes in the exchange rate.
5. Tangible fixed assets are depreciated over five years on a straight-line basis with a full year’s charge provided in the year of acquisition.
6. A loan of Ksh.50 million was raised by Ugeni Ltd. from Umma Ltd on 31 May 2000. The loan is interest free and is repayable in 2009. The loan is included in the cost investment in Ugeni Ltd. An amount of TR 65 million had been paid to Umma Ltd on 31 December 2000 in part settlement on the loan. The amount had not been received by Umma Ltd. and had not been included in its financial statements as at 31 December 2000.
7. The following exchange rates are relevant for translation:
8. The functional currency of Ugeni Ltd was different from the presentation currency of the Group (Kshs).
Required:
(a). Consolidated profit and loss account for the year ended 31 December 2000
(b). Consolidated balance sheet as at 31 December 2000
(c). Statement for the movement in consolidated reserves for the year ended 31 December 2000
Date posted: December 11, 2021.
- M Ltd. started operating several years ago. As a strategy to expand its operations, its management has in the recent past purchased shares from other...(Solved)
M Ltd. started operating several years ago. As a strategy to expand its operations, its management has in the recent past purchased shares from other companies, whose trial balances are given below:
3. The balance on the profit and loss account of H. Ltd. at the acquisition date is after providing for preference dividend of Sh5.6 million and a proposed ordinary dividend of Sh.5 million, both of which were subsequently paid and credited to the profit and loss account of M. Ltd.
4. No entries have been made in the books of M Ltd. in respect of debenture interest due from, or proposed dividends from two of its investments, except that dividends due from A Ltd were credited to M Ltd.’s profit and loss account and the corresponding entry made in its debtors.
5. The debentures of H Ltd were purchased at par.
6. The stock in trade of H Ltd. on 31 December 2001 includes Sh.6 million in respect of goods purchased from M. Ltd. These goods had been sold by M. Ltd at such a price that M. Ltd earned a profit of 20% on the invoice price.
7. The group policy is to account for any associate company using the equity method. Goodwill arising on consolidation is amortized using the straight line method over a useful life of five years, (assuming a zero residual value) a proportionate charge being made for any period of control of less than a full year. All unrealized profit on closing stock is removed from the accounts of the company that realized it, giving a proportionate charge to the minority interest if appropriate.
8. Dividends to minority interest shareholders are shown as part of minority interest.
9. H Ltd. sold a fixed asset on 31 December 2001 to M Ltd. for Sh.20 million, making a 20% profit on the invoice price. H. Ltd. depreciates its assets at 20% using the straight line method. H Ltd.’s accountant erroneously used selling price for depreciation purposes, however the cost of assets reflected the correct amounts
Required:
A consolidated balance sheet of M Ltd. and its subsidiaries as at 31 December 2001
Date posted: December 11, 2021.
- Mwanga and Sons Ltd is a small manufacturing firm owned by members of the family. The
following trial balance was extracted from the books of the...(Solved)
Mwanga and Sons Ltd is a small manufacturing firm owned by members of the family. The
following trial balance was extracted from the books of the company as at 31 March 2009:
Date posted: December 10, 2021.
- Owik-Freez p.l.c. is a company which provides refrigerated storage facilities to local farmers.
Services offered include the collection of produce, the use of rapid freezing equipment,...(Solved)
Owik-Freez p.l.c. is a company which provides refrigerated storage facilities to local farmers.
Services offered include the collection of produce, the use of rapid freezing equipment, storage of the frozen produce and transport from frozen storage in refrigerated vehicles to any point within the country. Orders for these services are secured by the company’s sales staff.
The company’s revenue consists of charges for transport and freezing, and of storage rentals.
Customers may hire storage space either on a long-term contract basis at advantageous charges
(payable in advance) or on a casual basis (invoiced monthly).
A considerable amount of electricity from the public supply is used by the company in the
freezing and storage operations. In the event of a sudden failure in this supply, the company is able to generate its own emergency supplies from standby generators kept for this purpose. An insurance policy has been taken out to protect the company against the claims which would arise should any of the frozen produce deteriorate as the result of power or equipment failure.
At the end of the company’s financial year ended 30 September 2008, the assistant accountant
extracted the following balances from the ledgers.
Required:
-Prepare, for internal circulation purposes, a Profit and Loss account for Qwik-Freez p.l.c.for the year ended 30 September 2008 and a Balance Sheet at that date. All workings must be shown.
-Open the Suspense account and post the entries needed to eliminate the opening credit balance.
Date posted: December 10, 2021.
- The following is the trial balance of Transit Ltd at 31 March 20X8. (Solved)
The following is the trial balance of Transit Ltd at 31 March 20X8.
Date posted: December 10, 2021.
- Nyakuzi Ltd., a public limited company, listed at the Stock Exchange, owns 80% of the ordinary share capital of Libra Ltd., a public limited company...(Solved)
Nyakuzi Ltd., a public limited company, listed at the Stock Exchange, owns 80% of the ordinary share capital of Libra Ltd., a public limited company which is incorporated in a foreign country whose local currency is dinars.
Nyakuzi Ltd. acquired Libra Ltd. on 1 November 2001 for Sh.440 million when the retained profits of Libra Ltd. were 990 million dinars. Libra Ltd. has not issued any share capital nor revalued any of its assets since acquisition.
The directors of Nyakuzi Ltd. have now received the financial statements of their foreign subsidiary and intend to prepare the consolidated financial statements of the group for the year ended 31 October 2002.
The directors have been made aware of the fact that since the professional accountancy body in the foreign country does not require the mandatory compliance with International Accounting Standards (IAS’s) by its members, the accounting treatment of several items in the subsidiary’s financial statements may need adjustment to comply with relevant International Accounting Standards before being incorporated in the group’s consolidated financial statements.
The following financial statements relate to the two companies:
The following additional information relates to the financial statements of Libra Ltd. for the year ended 31 October 2002.
1. Under local accounting standards, Libra Ltd. had capitalized an asset “market shares” under intangible assets. This asset arose when Libra Ltd. acquired a company in the year ended 31 October 2002 and merged the companies activities with its own. This acquisition allowed Libra Ltd. to obtain a significant share of a specific market and therefore, the excess of the price paid over the fair value of assets is the “market shares” The amount capitalized was 120 million dinars and no amortization is charged by Libra Ltd. on “market shares”.
2. The amounts classified as extraordinary items in Libra Ltd’s income statement is made up as follows:
(i). Revaluation loss
A non-current assets was physically damaged during the year and an amount of 90 million dinars was written off its carrying value as an impairment loss. This asset had been revalued on 31 October 2000 and a credit of 60 million dinars still remains in the revaluation reserve in respect of this asset.
(ii). Change in accounting policy
A change in accounting policy for research expenditure was made during the period in order to comply with IAS 38. Prior to November 2001, research expenditure was capitalized. The amount included in extra-ordinary items is 130 million dinars.
3. The fair value of the net assets of Libra Ltd. at the date of its acquisition by Nyakuzi Ltd. was 2,400 million dinars after making changes to comply with the International Accounting
Standards (IAS’s). Goodwill fluctuates with changes in the exchange rate.
4. Nyakuzi Ltd. sold Ksh.150 million of components to Libra Ltd. on 31 May 2002, when the legal ownership of goods passed to Libra Ltd. Due to a problem in shipping; these goods were received by Libra Ltd. on 30 June 2002. Nyakuzi Ltd. made a profit of 20 per cent on selling price of the component. All of the goods had been utilized in the production process at 31 October 2002 but none of the finished goods had been sold at that date. Libra Ltd. had paid for the goods on 31.7.2002. This was the only inter-company transaction in the year. Foreign exchange gains/losses on such transactions are included in cost of sales by Libra Ltd.
5. A dividend of Ksh. 40 million had been paid by Nyakuzi Ltd. during the year.
6. The following exchange rates were relevant:
7. The directors have indicated that Libra Ltd. operates as a separate entity with little management interference from the holding company.
Required:
(a). A consolidated income statement for the year ended 31 October 2002
(b). A consolidated balance sheet for Nyakuzi Ltd. group as at 31 October 2002
(Show any exchange gains/losses arising in the consolidated financial statement)
Date posted: December 10, 2021.
- Discuss the expenses that are unique to a company's profit and loss account and and not found a sole trader account(Solved)
Discuss the expenses that are unique to a company's profit and loss account and and not found a sole trader account
Date posted: December 10, 2021.
- 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...(Solved)
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:
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’.
Date posted: December 10, 2021.
- Differentiate between unlimited partnerships and limited companies(Solved)
Differentiate between unlimited partnerships and limited companies
Date posted: December 10, 2021.
- ZDC Ltd. acquired 40% of the ordinary shares of BSL Ltd. on 1 January 1999 for Sh.210 million when the credit balance on the profit...(Solved)
ZDC Ltd. acquired 40% of the ordinary shares of BSL Ltd. on 1 January 1999 for Sh.210 million when the credit balance on the profit and loss account of BSL Ltd. was Sh.100 million.
On 1 July 2002, the directors of ZDC Ltd. acquired 90% of the ordinary shares of ADL Ltd. The purchase consideration was settled by the issue of 24 million ordinary shares of ZDC Ltd. which have a par value of Sh.20 but had a market value of Sh.32.50 as at 1 July 2002.
The financial statements of the three companies for the financial year ended 31 December 2002 are provided below:
Additional information:
1. On 1 January 2002, ZDC Ltd., held stock of goods purchased from ADL Ltd. during the year ended 31 December 2001 at a cost of Sh.25 million ADL Ltd. had made a profit of 20% on the selling price of the goods. None of the goods were included in the closing stock of ZDC Ltd. as at 31 December 2002.
2. During the year ended 31 December 2002, ADL Ltd made total sales of Sh.600 million to ZDC Ltd. The sales were made at a profit of 25% on cost of and one-fifth of the goods were included in the closing stock of ZDC Ltd. as at 31 December 2002. The sales were made evenly during the year.
3. The fair values of the fixed assets of ADL Ltd. as at 1 July 2002 were the same as the net book values.
4. As at 31 December 2002, ZDC Ltd. had in its closing stock, goods worth Sh.50 million which were purchased from BSL Ltd. BSL Ltd. had made a profit of Sh.10 million on this transaction.
5. ZDC Ltd. does not accrue its share of proposed dividends from group companies.
6. The trading results of ADL Ltd. accrued evenly during the year
7. ZDC Ltd. has not accounted for its cost of investment in ADL Ltd.
Required:
(a). The consolidated profit and loss account of ZDC Ltd. and its subsidiary ADL for the year ended 31 December 2002 using the:
(i). Acquisition method
(ii). Merger method
(b). The consolidated balance sheet of ZDC Ltd. and its subsidiary ADL Ltd. as at 31 December 2002 using the:
(i). Acquisition method
(ii). Merger method
Date posted: December 10, 2021.
- Define paid-up share capital(Solved)
Define paid-up share capital
Date posted: December 10, 2021.
- Rose Kenya Limited (RKL) exports roses to the flower auctions in Holland where its roses are consistently rated A1. In order to reduce over-reliance on...(Solved)
Rose Kenya Limited (RKL) exports roses to the flower auctions in Holland where its roses are consistently rated A1. In order to reduce over-reliance on single supply source, RKL purchased 80% of the ordinary share capital of Roos South Africa Limited (RSAL) on 1 January 2003. Both companies make up their accounts to 30 September each year. Neither company has any trade with the other. Both companies compete for market share in the auctions in Holland. The operations of RSAL are carried out with a significant degree of autonomy from those of RKL.
The following are the draft financial statements of the two companies prepared in Kenya Shillings (Ksh.) for RKL and South African Rand (S.A. Rand) for RSAL.
Additional information:
1. RKL financed part of the purchase price paid for the investment in RSAL by taking out a South African Rand denominated loan in South Africa at the time of purchase of the shareholding in RSAL. The amount of the loan was S.A Rand 20 million. The rate of interest on the loan is 10% fixed. Interest on the loan to 30 September 2003 has been paid in full.
2. Rates of exchanges between the Kenya Shilling (Ksh.) and the South African Rand (S.A. Rand) at different dates are as follows:
3. Trading by RSAL takes place evenly over the year. When demand is low on the auctions in Holland, domestic demand is high, and this evens out trading conditions.
4. The directors of RKL regard the S.A. Rand denominated loan as a hedge against the investment in RSAL. No capital repayments have been made nor are any foreseen in the grace period to 31 December 2005. The exchange loss on this loan should be accounted for in accordance with IAS 21 – The effects of Changes in Foreign Exchanges Rates.
5. Goodwill on the acquisition of RSAL is treated as an asset of RKL. The fair values of the identifiable assets and liabilities of RSAL on 1 January 2003 approximate book values.
6. The dividend paid by RSAL is deemed to relate to the twelve month period ended 30 September 2003. The directors of RKL state that the foreign exchange difference on the dividend paid of pre-acquisition net income should be deferred in the entirety until the foreign exchange entity is disposed of completely at some future date.
Required:
(a) The consolidated income statement of RKL and RSAL for the year ended 30 September 2003 in accordance with International Financial Reporting Standards (IFRSs).
(b) The consolidated statement of changes in equity for the year ended 30 September 2003 showing columns only for retained earnings and proposed dividends.
(c) The consolidated balance sheet as at 30 September 2003 in accordance with IFRSs, but in the same format as that of RKL.
(d) The effect on the reported profit for the year ended 30 September 2003 and the balance sheet as at 30 September 2003. if the goodwill arising on the acquisition is treated as an asset of the foreign entity.
Note: In all cases, ignore all adjustments relating to deferred tax. Goodwill amortisation should be shown as a separate line item charged in arriving at operating profit. Your answer should be correct to one decimal place.
Date posted: December 10, 2021.