QUESTION 4
In the context of International Accounting Standard (1AS) 21, distinguish between the accounting treatment for foreign currency transactions “on initial recognition” and “at the end of subsequent reporting periods”.
On initial recognition, a foreign currency transaction is recorded in the functional currency by applying to the foreign currency amount, the spot exchange rate between the functional currency and the foreign currency at the date of the transaction.
Non monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of transaction. Non-monetary items that are measured at fair value in foreign currency are translated using the exchange rate when the fair value was determined.
Explain two requirements that should be met for government grants to be recognized in the financial statements in the context of International Accounting Standard (I AS) 20.
For government grants to be recognized in the financial statements the two requirements to be met are:-
There should be reasonable assurance that an entity will comply with the conditions attaching to the government grants.
There is reasonable assurance that the government grant shall be received by the entity.
QUESTION 5
Outline the powers of the Auditor General in the exercise of his duties.
- Functions independently of executive council
- He controls issues of funds from the exchequer that is funds voted for use by parliament and intended for spending units to be withdrawn from the exchequer must be sanctioned for by the controller who satisfies himself that there are adequate funds and will be used for the purpose intended by parliament.
- He carries out both statutory and non-statutory audit.
- His office has the power to manage public funds. He plays the role of the watchdog and the fact that he reports to parliament ensure that spending units are not lax in handling public funds.
QUESTION 6
Briefly explain the following Committees.
Public Accounts Committee.
- It is a select committee of parliament established for the purposes of examination of the accounts showing the appropriation of the sum voted by the house to meet the public expenditure and of such other accounts laid before the house as the committee may deem necessary
- It consists of the chairman and not more than ten members who are nominated at the commencement of every session
- The Committee elects its own chairman and with two other members constitutes a quorum
- The report of the committee is laid on the table of the house
- The committee summons accounting officers or such other officers as it considers desirable to answer any question arising from the report on the appropriation Accounts, other public accounts and the accounts of the funds submitted to it under the exchequer and audit act (cap 412 ) by the Controller and Auditor –general
- Representation from Treasury and the office of the controller and auditor general attend all the sittings of the public accounts committee to assist in the deliberations
Public Investments Committee.
It is a select committee of parliament which has been established for the purpose of the examination of the working of the public investment its functions are ;
- To examine the reports and accounts of the public investment
- To examine the reports ,if any of the controller and auditor –general on the public investments.
- To Examine whether the affairs of the public investment are being managed in accordance with sound business principles and prudent commercial practices
The committee is empowered to summon the chief executive of sate corporations to answer on behalf of their boards any question arising from the report submitted to it by the controller and
Auditor –General
The committee consists of the chairman and not more than ten members who are nominated at the commencement of every session
The committee elects its own chairman and with two other members constitute a quorum
The report of the committee is laid on the table of the house
Wepesi Ltd. has been making losses for the last four years. The management the company has developed an exit loss making activity will be discontinued. The management intends to implement the measures from
The management expects to reverse the losses over the next two years following the implementation of the exit plan.
The management proposes that a deferred tax asset is recognized in respect of the losses incurred using the exit plan to justify the recognition of the deferred tax asset.
The management is preparing the financial statements for the year ended 31st May 2010. The current date is 7th June 2010 and the plan has not yet been made public.
Required:
With respect to the International Accounting Standard IAS 12, Income Taxes, argue the case for or against recognition of the deferred tax asset n the financial statements of Wepesi Ltd. For the year ended 31st May 2010. ii. Explain the factors you would take into consideration in assessing the likelihood of the projected profits being realized by Wepesi Ltd.
The deferred tax asset should not be recognized
- IAS 12 requires timing differences to be recognized when there is reasonable expectation of realization
- Deferred tax arising from tax losses should be recognized as an asset only where there is assurance beyond any reasonable doubt that future taxable income would be sufficient to allow the benefit of the loss to be realized
- In the case of Wepesi ltd there is high degree that recent losses raises significant concerns whether the management plan is achievable or not
ii)The Factors To Consider Are
- The probability that management will implement the plan
- Management ability to implement the plan by the example obtaining concessions from labour unions
- The level of detailed analysis and sensitivity analysis prepared by management
- The extent to which the plan of Wepesi ltd could be verified objectively
QUESTION 7
The directors of Kumba Ltd. are reviewing the draft financial statements of the company for the year ended 30 June 2009. Various matters relating to the financial statements require to be concluded before the financial statements are approved by the directors.
Required:
Explain how the following matters relating to the financial statements of Kumba Ltd. should be dealt with, stating in each case the relevant accounting standard:
The destruction of the factory after the balance sheet date is a non-adjusting event according to IAS 10 events after the reporting period. Since the going concern of the company is not affected then, the management should make the appropriate disclosures in the financial statements since non-disclosure would affect the ability of users to make proper evaluations and decisions.
The guarantee made by Kumba does satisfy the conditions as laid out in IAS 37 provisions, contingent assets, contingent liabilities for it to be recognised as a provision. It has been shown that there is a high chance that the liability will fall on Kumba. Therefore, in compliance with IAS 37, the management of Kumba should make a provision in the financial statements.
QUESTION 10
Briefly explain the following terms in relation to government accounting:
Exchequer over issues.
This is any amount remaining unspent by the ministries at the financial year end. This amount should be surrendered as over issue to the consolidated fund.
Paymaster General
This is an office established in accordance with PMG Act (Cap. 413) Section 2 & 3. Its work is to control the issue of money to government ministries in conformity with votes, heads subvotes and items as approved by parliament for expenditure in respect of the consolidated fund services.
Vote on account.
This is the authority granted by the National Assembly for withdrawals not exceeding half of the total allocation for a financial year before the Appropriation Act comes into operation.
Commitment accounting.
This system of accounting recognises transactions when the organisations committed to them not when cash is paid or received.
