TOPIC 1

 ACCOUNTING FOR ASSETS AND LIABILITIES

  

QUESTION 1

August 2024 Question One A

Distinguish between “taxable temporary differences” and “deductible temporary differences” as per the requirements of International Accounting Standard (IAS) – 12 “Income Taxes”.          (4 marks)

QUESTION 2

August 2024 Question Five A

Top Ltd. a Construction Company entered in a leasing agreement on 31 December 2023 for a piece of equipment costing Sh.94,920,000, with Zuk Bank Ltd. The lease requires Top Ltd. to pay an annual rent of Sh.27,220,000 payable in advance. The primary period of the lease is for 4 years. After the end of the primary period, Top Ltd. has the right to extend the lease indefinitely on a payment of a nominal annual rental. Top Ltd. believes that the equipment will last for 4 years and will have no scrap value at the end of that period. Top Ltd. depreciates assets of this type using straight line basis. Top Ltd. and Zuk Bank Ltd. have accounting periods ending 31 December. The implicit rate of interest is 10%.

 

Required:

(i) Show how the above transactions will be reflected in the statement of profit or loss extracts of Top Ltd. for each of the 5 years ending 31 December 2023, 31 December 2024, 31 December 2025, 31 December 2026 and 31 December 2027.     (3 marks)

 

(ii) Prepare an extract statement of financial position of Top Ltd. as at 31 December 2023, 31 December 2024, 31 December 2025, 31 December 2026 and 31 December 2027.         (6 marks)

 

QUESTION 3

April 2024 Question One A and D

a) The objective of International Accounting Standard (IAS) 2 – Inventories, is to prescribe the accounting treatment for inventories for various types of business organisations.

 

Required:

Summarise the key requirements of IAS 2 for manufacturing entity under the following headings:

• Scope of the term “inventories”.           (2 marks)
• Measurement of inventories.          (3 marks)
• Disclosure requirements.          (3 marks)

 

(d) With reference to International Financial Reporting Standard (IFRS) 9 – Financial instruments, explain the requirement for derecognition of financial instruments. (3 marks)