CPA

 

FINANCIAL REPORTING

 

PART 2

 

CPA SECTION 3

 

 

REVISION KIT

 

  

INTRODUCTION

 

Following our continued effort to provide quality study and revision materials at an affordable price for the private students who study on their own, full time and part time students, we partnered with other team of professionals to make this possible.

This Revision kit book (Question and answers) contains kasneb past examination past papers and our suggested answers as provided a team of lecturers who are experts in their area of training. The book is intended to help the learner do enough practice on how to handle exam questions and this makes it easy to pass kasneb exams.

Special appreciation and recognition goes to Johnmark Mwangi (MSc Finance, CPAK, BCom Finance) and FA Kegicha William Momanyi (MBA Accounting, CPA, CISA and CCP)

 

 

  

PAPER NO.9 FINANCIAL REPORTING

 

GENERAL OBJECTIVE

This paper is intended to equip the candidate with knowledge, skills and attitudes that will enable him/her to prepare financial statements for various entities and account for specialised transactions in both the public and private sectors.

 

9.0       LEARNING OUTCOMES

A candidate who passes this paper should be able to:

• Account for various assets and liabilities
• Prepare financial statements including published financial statements for various types of organisations
• Account for specialised transactions
• Prepare group financial statements
• Analyze and interpret financial statements
• Apply International Financial Reporting Standards (IFRSs) and International Public Sector Accounting Standards (IPSASs) in preparing non-complex financial statements.

 

CONTENT

9.1       Assets of financial statements

• Assets and liabilities covered in Paper No. 1: Financial Accounting still examinable (in the context of published financial statements)
• Inventories
• Borrowing costs
• Investment property
• Financial Instruments (presentation, recognition, classes, measurement, de-recognition and disclosures) (excluding impairment, hedging and embedded derivatives)
• Leases (all aspects including dealers and sale and leaseback)

9.2       Liabilities of financial statements

• Employee benefits
• Provisions, contingent liabilities and contingent assets
• Income tax (current and deferred tax but not deferred tax in the case of groups)
• events after reporting date

9.3       Further aspects of partnerships

• Dissolutions (including piece-meal)
• Amalgamation Conversion and sale of partnership firms 9.4 Special transactions
• Revenue recognition
• Contracts with customers
• Hire purchase and installment sales transactions (split of hire purchase profit into interest and gross profit and using actuarial method and sum of digits to account for interest); sale of goods, construction contracts and real estate, provision of services
• Government grants

 9.5       Financial statements for various types of businesses

• Inventory and biological assets in agriculture
• Insurance
• Banks
• Professional firms (lawyers and accountants)
• Accounting for branches including foreign branches
• Co-operative societies

9.6       Published financial statements

• Presentation of financial statements (income statement, statement of comprehensive incomes, statement of changes in equity, statement of financial position and the notes to financial statements)
• Accounting policies, changes in accounting estimates and errors (prior period errors)
• Fair value measurement

9.7       Consolidated financial statements

• Accounting for one subsidiary (consolidated income statement, consolidated statement of financial position and a statement of cash flows – group financial statements); consolidated statement of cash flows also covers associate companies and jointly controlled entities but excludes acquisition and disposal of subsidiaries during the year
• Investments in associates and joint ventures

9.8       Financial statements under IPSASs

[Provisions of the following IPSASs (emphasis on distinctions with equivalent IASs/IFRSs)]

• Presentation of financial statements
• Accounting policies, changes in accounting estimates and errors
• Borrowing costs
• Consolidated and separate financial statements
• Investments in associates
• Interests in joint ventures
• Events after the reporting date
• Construction contracts, leases and inventories
• Provisions, contingent liabilities and contingent assets

9.9       Emerging issues and trends

 

 

 

Past papers

 

1. November 2019 ………………………..…8
2. May 2019……………………………….…..21
3. November 2018………….………………31
4. May 2018…………………………….…….43
5. November 2017……………………..……52
6. May 2017……………………………..…….61
7. November 2016……………………….…70
8. May 2016…………………………….…….78
9. November 2015……………………….…88
10. September 2015………………………….98
11. May 2015………………………………….105

 

 

Suggested Solution

 

1. November 2019 ………………………………115
2. May 2019……………………………..………..128
3. November 2018………………………………143
4. May 2018……………………………………….156
5. November 2017…………………………….…169
6. May 2017………………………………….…….182
7. November 2016…………………………….…194
8. May 2016……………………………………….207
9. November 2015………………………………218
10. September 2015………………………………233
11. May 2015……………………………………….244

 

 

 

 

CPA PART II SECTION 3

 

FINANCIAL REPORTING

 

WEDNESDAY: 27 November 2019.                                      Time Allowed: 3 hours.

Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your workings.

 

QUESTION ONE

(a) International Accounting Standard (IAS) 10 defines events after the reporting date as those events which could be favourable or unfavourable, that occur between the end of the reporting period and the date that the financial statements are authorised for issue.

Required:

With reference to IAS 10:

(i)  Distinguish between “adjusting” and “non-adjusting” events.                 (2 marks)

(ii) Describe the accounting treatment of events after the reporting period.   (4 marks)

SAMPLE WORK OF FINANCIAL REPORTING REVISION KIT

 

FINANCIAL REPORTING

 

THURSDAY: 23 May 2019.                                                         Time Allowed: 3 hours.

Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your workings.

 

QUESTION ONE

The following trial balance was extracted from the books of Sombea Ltd. as at 31 March 2019:

	Sh.”000″	Sh.”000″
Land and buildings at valuation (1 April 2018)	468,000
Plant at cost	460,800
Accumulated depreciation (1 April 2018)		115,200
Available for sale investments	95,400
Investment income		7,920
Cost of sales	321,120
Distribution costs	39,600
Administrative expenses	45,000
Debenture interest paid	2,880
Inventory (31 March 2019)	136,440
Income tax liability		41,760
Trade receivables	126,360
Revenue		649,440
Ordinary shares of Sh.50 (at par value)		216,000
Retained earnings (1 April 2018)		91,800
4% debentures		288,000
Trade payables		124,920
Revaluation surplus (Land and buildings)		50,400
Suspense account		86,400
Bank	________	23,760
	1,695,600	1,695,600

 

SAMPLE WORK OF FINANCIAL REPORTING REVISION KIT

CPA PART II SECTION 3

 

FINANCIAL REPORTING

 

THURSDAY: 29 November 2018.                                            Time Allowed: 3 hours.

Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your workings.

 

QUESTION ONE

(a) The objective of International Accounting Standard (IAS) 2 “Inventories” is to prescribe the accounting treatment for inventories. IAS 2 provides useful guidance particularly in economies which arc dependent on agriculture.

Required:

Summarise the key requirements of IAS 2 under the following headings:

(i) Scope of the term “inventories”.                                                            (2 marks)

(ii) Measurement of inventories.                                                                 (3 marks)

(iii) Disclosure requirements.                                                                     (4 marks)

SAMPLE WORK OF FINANCIAL REPORTING REVISION KIT

 

CPA PART II SECTION 3

 

FINANCIAL REPORTING

 

THURSDAY: 24 May 2018.                                                  Time Allowed: 3 hours.

Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your workings.

 

QUESTION ONE

(a) In the context of International Public Sector Accounting Standard (IPSAS) 19-Provisions, Contingent Liabilities and Contingent Assets:

(i)  Distinguish between a “provision” and a “contingent liability”.    (4 marks)

(ii) Summarise the recognition requirements for provisions, contingent liabilities and contingent assets.                                                                        (6 marks)

SAMPLE WORK OF FINANCIAL REPORTING REVISION KIT

 

CPA PART II SECTION 3

 

FINANCIAL REPORTING

 

THURSDAY: 30 November 2017.                                        Time Allowed: 3 hours.

Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your workings.

 

QUESTION ONE

(a) In the context of International Public Sector Accounting Standard (IPSAS) 3 — Accounting Policies, Changes in Accounting Estimates and Errors:

(i)  Explain the meaning of “prior period errors”, citing two examples of such errors.        (4 marks)

(ii) Summarise the accounting treatment of material prior period errors.    (6 marks)

SAMPLE WORK OF FINANCIAL REPORTING REVISION KIT

 

CPA PART II SECTION 3

 

FINANCIAL REPORTING

 

THURSDAY: 25 May 2017                                                    Time Allowed: 3 hours

Answer all questions. Marks allocated to each question are shown at the end of the question. Show ALL your workings.

 

QUESTION ONE

1. With reference to International Public Sector Accounting Standard (IPSAS) 14 – Events after the Balance sheet Date:
2. Describe the two categories of events after the balance sheet date. (4 marks)
3. Explain two disclosure requirements for each category of events identified in (a) (i) above.                                                                                      (4 marks)

 

SAMPLE WORK OF FINANCIAL REPORTING REVISION KIT

 

CPA PART II SECTION 3

 

FINANCIAL REPORTING

 

THURSDAY: 24 November 2016.                                              Time Allowed: 3 hours.

Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your workings.

 

QUESTION ONE

1. a) (i) “The determination of whether the going concern of assumption is appropriate is primarily relevant for individual entities rather than for a government as a whole”. [Extract from International Public Sector Accounting Standard (IPSAS) 1 –Presentation of Financial Statements].

 

Required

In the context of the above statement, outline four factors to be considered in determining whether a public sector entity is a going concern.                  (4 marks)

 

SAMPLE WORK OF FINANCIAL REPORTING REVISION KIT

 

CPA PART II SECTION 3

 

FINANCIAL REPORTING

 

THURSDAY: 26 May 2016.                                                Time Allowed: 3 hours.

 

Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your workings.

 

QUESTION ONE

(a) For public sector entities with limited internally generated funds, external borrowings may constitute a viable alternative source of finance. Such borrowings are usually accessed at a cost.

Required:

In the context of International Public Sector Accounting Standard (IPSAS) 5 – Borrowing Costs:

(i)  Identify three items that could be considered as borrowing costs.            (3 marks)

(ii) Describe the two alternative accounting treatments for borrowing costs. (4 marks)

SAMPLE WORK OF FINANCIAL REPORTING REVISION KIT

 

KASNEB

 

CPA PART II SECTION 3

 

FINANCIAL REPORTING

 

 

THURSDAY: 26 November 2015.                                        Time Allowed: 3 hours.

Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your workings.

 

QUESTION ONE

Dola Ltd a quoted company dealing in household goods has prepared the following trial balance as at 31 December 2014:

SAMPLE WORK OF FINANCIAL REPORTING REVISION KIT

 

CPA PART II SECTION 3

 

FINANCIAL REPORTING

 

PILOT PAPER

 

September 2015                                                                            Time allowed: 3 hours

Answer all questions, marks allowed to each question are shown at the end of the question. Show all your working.

 

QUESTION ONE

• On 1 October 2014, P Ltd. acquired 60% of the equity share capital of S Ltd. in a share exchange of two shares of P Ltd. For three shares of S Ltd. on this date, shares of P Ltd were trading at Sh. 8 each.

 

Below are the financial statements of the two companies for the year ended 31 March 2015.

Income statements for the year ended 31 March 2015:

SAMPLE WORK OF FINANCIAL REPORTING REVISION KIT

 

KASNEB

         CPA PART II SECTION 3

 

          FINANCIAL REPORTING

 

THURSDAY: 28 May 2015.                                                  Time allowed: 3 hours

Answer all questions. Marks allocated to each question are shown at the end of the question. Show your working.

 

QUESTION ONE         

The following trial balance was extracted from the books of Max limited, a company quoted on the securities exchange, as at 31 March 2015:

SAMPLE WORK OF FINANCIAL REPORTING REVISION KIT

 

 

SUGGESTED SOLUTIONS AND ANSWERS

FINANCIAL REPORTING

NOVEMBER 2019

QUESTION 1

1. a) IAS 10

 

1. i) Distinction between “adjusting” and “non-adjusting” events

 

Adjusting events – are those events after balance sheet date providing additional evidence of conditions that existed at the end of the reporting period.

SAMPLE WORK OF FINANCIAL REPORTING REVISION KIT

 

SUGGESTED ANSWERS AND SOLUTIONS

FINANCIAL REPORTING

MAY 2019

 

QUESTION ONE

 

WORKINGS

Debenture interest
Balance as per trial balance	288,000
Add: interest on effective sale 6% × 6/12	8,640
Less: Cash flow: 4% ×288,000×6/12	(5,760)
Balance c/d	2,900,880

 

SAMPLE WORK OF FINANCIAL REPORTING REVISION KIT

 

SUGGESTED ANSWERS AND SOLUTIONS

FINANCIAL REPORTING

NOVEMBER 2018

 

 

QUESTION ONE

1. a) i) Scope of the term inventories

Inventories are assets held for sale on the normal course of the business .they include raw materials work in progress or finished goods.

 ii) Measurement of inventories

Inventory should be measured or valued based on the lower of cost and net reliable value

The cost of inventory shall include:

• Purchase cost
• Cost of conversion
• Administrative cost, selling cost, shortages etc

SAMPLE WORK OF FINANCIAL REPORTING REVISION KIT

 

SUGGESTED ANSWERS AND SOLUTIONS

FINANCIAL REPORTING

MAY 2018

 

QUESTION ONE

1. a) i) Distinguishing between provision and contingent liability

A provision – This refers to a liability of uncertain timing or amount or event which has a present obligation as a result of past event.

Contingent liability – Is a possible obligation that arises from past events and whose existence will be confirmed only the occurrence or non- occurrence of uncertain future event not wholly within the control of the entity.

SAMPLE WORK OF FINANCIAL REPORTING REVISION KIT

 

SUGGESTED ANSWERS AND SOLUTIONS

FINANCIAL REPORTING

NOVEMBER 2017

 

QUESTION ONE

1. a) i) The meaning of “Prior period error” Citing two examples of such errors

A prior period error is an omission from, or a misstatement of prior period financial statement. Such errors must have been caused the failure to use , or the misuse of, information that was available when the financial statement were authorized for issuance and that could be expected to have been obtained e.g. mathematical mistakes, mistake in applying accounting policies, misinterpretation of facts and figure.

SAMPLE WORK OF FINANCIAL REPORTING REVISION KIT

 

SUGGESTED ANSWERS AND SOLUTIONS

FINANCIAL REPORTING

MAY 2017

 

QUESTION ONE

1. a) i) Categories of events after balance sheet date

Adjusting events

These are those events that provide additional evidence of conditions that existed at the end of reporting

Non adjusting events

These are events after the reporting period that is indicated of condition that arose after the end of the reporting period which needs not to be adjusted to financial statement.

SAMPLE WORK OF FINANCIAL REPORTING REVISION KIT

 

SUGGESTED SOLUTIONS AND ANSWERS

FINANCIAL REPORTING

NOVEMBER 2016

QUESTION ONE

 

Factors to be considered in determining whether a public sector entity is a going concern

1. Potential restructuring of organizational unit
2. Compliance with statutory requirement
3. Manpower difficulties and issues
4. Ability to pay loans / creditors on due dates
5. Key financial ratios
6. Operating cash flow

SAMPLE WORK OF FINANCIAL REPORTING REVISION KIT

 

SUGGESTED SOLUTIONS AND ANSWERS

FINANCIAL REPORTING

MAY 2016

QUESTION ONE

Public sector entities

Items to be considered as borrowing costs

1. Interest on loan
2. Exchange difference in case of foreign currency transaction
3. Principal amount
4. Finance charges for finance lease
5. Amortization of discount or premium relating to borrowing

SAMPLE WORK OF FINANCIAL REPORTING REVISION KIT

 

SUGGESTED SOLUTIONS AND ANSWERS

FINANCIAL REPORTING

NOVEMBER 2015

QUESTION ONE (Published)

Working 1

Inventory cost	15
Recoverable amount	(8)
Inventory loss	7   Dr. cost of sales Cr: closing stock

SAMPLE WORK OF FINANCIAL REPORTING REVISION KIT

 

SUGGESTED SOLUTIONS AND ANSWERS

FINANCIAL REPORTING

SEPTEMBER 2015

QUESTION ONE (group)

 

8,000 × 60% = 4,800 then   × 4,800 = 3,200 × 8 = 25,600

Dr: purchase consideration 25,600

Cr: ordinary share capital 3,200 ×1 = 3,200

Cr: share premium 3,200 × 7 = 22,400

SAMPLE WORK OF FINANCIAL REPORTING REVISION KIT

 

SUGGESTED SOLUTIONS AND ANSWERS

FINANCIAL REPORTING

MAY 2015

QUESTION ONE (Published)

Workings

1. Fair value gain of financial asset = 185 – 180 = 5
2. Software amortization = 50
3. Administrative expenses = 29 + 11 = 40

Salaries and wages = 298 + 42 = 340

Rent and rates  = 282 – 12 = 270

SAMPLE WORK OF FINANCIAL REPORTING REVISION KIT