KASNEB REVISION KIT – ADVANCED FINANCIAL REPORTING REVISION KIT (PAST PAPERS WITH ANSWERS)

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SAMPLE WORK

Complete copy of CPA ADVANCED FINANCIAL REPORTING AND ANALYSIS Revision Kit is available in SOFT copy (Reading using our MASOMO MSINGI PUBLISHERS APP) and in HARD copy 

Phone: 0728 776 317

Email: info@masomomsingi.com

CPA

 

ADVANCED FINANCIAL REPORTING

 

ADVANCED LEVEL

 

REVISION KIT

 

PAST EXAMINATION PAST PAPERS WITH SUGGESTED ANSWERS

 

TOPICALLY ARRANGED

 

 Updated with April 2022 past paper with answers

 

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.

 

 

PAPER NO. 14 ADVANCED FINANCIAL REPORTING AND ANALYSIS

 

UNIT DESCRIPTION

This paper is intended to equip the candidate with knowledge, skills and attitudes that will enable him/her to account for more complex transactions, prepare advanced financial statements and reports in the private and public sectors and demonstrate awareness of trends in accounting practice.

 

LEARNING OUTCOMES

A candidate who passes this paper should be able to:

  • Prepare financial statements for subsidiaries, associates and jointly controlled entities in compliance with International Financial Reporting Standards (IFRSs) and International Public Sector Accounting Standards (IPSASs) as applicable
  • Analyse financial statements for public and private sector entities
  • Account for complex accounting transactions
  • Apply ethical standards in accountancy work and practice

 

CONTENT

 Accounting for Assets and Liabilities

1.1 (Assets and Liabilities as covered in Financial Accounting and Financial Reporting are also relevant here)

1.2 Leases Including Sale and leaseback and dealers in leased assets

1.3 Deferred Tax (With group aspects)

1.4 Employee Benefits

1.5 Share Based Payments

1.6 Financial Assets and Financial Liabilities (Impairment, Hedging, Embedded Derivatives and Disclosures)

1.7 Fair Value Measurement

1.8 Impairment of Assets

 

Preparation of Financial Statements for Interests in Other entities

2.1 Subsidiaries (Including foreign subsidiaries, piecemeal acquisitions, reduction in shareholding and disposals as well as statement of cash flows)

2.2 Accounting for Associates and Joint Ventures (Including foreign entities)

2.3 Disclosures of interests in other entities

 

Preparation of Financial Statements for other entities

3.1 Financial Statements for Banks

3.2 Financial Statements for Insurance Companies

3.3 Interim Financial Statements

3.4 Financial Statements in a hyperinflationary economy (including the preparation of financial statements)

3.5 Financial Statements complying with IFRS for SMEs.

 

Analysing Financial Statements

4.1 Earnings Per Share

4.2 Related Party Disclosures

4.3 Operating Segments

4.4 Financial Reorganisations and reconstructions

 

Public Sector Accounting Standards

5.1 Segment Reporting

5.2 Related Party Disclosures

5.3 Impairment of cash generating assets and non-cash generating assets

5.4 Disclosure of information about the general government sector

5.5 Consolidated Financial Statements

5.6 Investments in Associates and Joint Ventures

 

Other Reports and Emerging Issues in Financial Reporting

6.1 The conceptual Framework and the process of developing new accounting standards

6.2 Proposals to revise/update existing standards and recommendations to issue new ones (Discussions Papers and Exposure drafts)

(The Examinations Board shall provide guidelines on which Discussion Papers and Exposure drafts are examinable for specific years)

6.3 Management Commentary (Management Discussion and Analysis)

6.4 Capital Markets Authority Corporate Governance Reporting Requirements

6.5 Global Reporting Initiatives Guidelines on Sustainability Reporting

6.6 Integrated Reporting

6.7 Materiality Guidelines for Financial Reporting

6.8 Legal and Ethical issues in Financial Reporting.

 

 

 

SAMPLE WORK

Complete copy of CPA ADVANCED FINANCIAL REPORTING AND ANALYSIS Revision Kit is available in SOFT copy (Reading using our MASOMO MSINGI PUBLISHERS APP) and in HARD copy 

Phone: 0728 776 317

Email: info@masomomsingi.com

 

PART A

 

PAST EXAMINATION QUESTIONS

TOPIC 1

ACCOUNTING FOR ASSETS AND LIABILITIES

  

QUESTION 1

April 2022 Question Three A

With regard to International Financial Reporting Standard (IFRS) 15: “Revenue from Contracts with Customers”, explain the key factors that must be considered when determining the transaction price within a contract.                                       (4 marks)

 

QUESTION 2

April 2022 Question Three B

The following accounting information was extracted from the financial records of Kibo Limited regarding the defined retirement benefit scheme for its employees:

  Sh.”million”
Net defined benefit obligation as at 1 January 2021 1,850
Net defined benefit obligation as at 31 December 2021 2,000
Current service cost 200
Contributions to scheme 225
Benefits paid trustees 150

 

The market yield on high quality corporate bonds is at the rate of 5%. Assume there are no tax implications regarding the retirement benefit obligation.

Required:

With suitable calculations, explain the accounting treatment of the various elements of the defined benefit scheme on the financial statements of Kibo Limited for the year ended 31 December 2021, in accordance with International Accounting Standard (IAS) 19 “Employee Benefits”.                                                                                          (6 marks)

QUESTION 3

December 2021 Question Three A

Hen Limited sold a building at its fair value of Sh.112 million to a finance company on 31 October 2020 when its carrying amount was Sh. 78.4 million. The building was leased back from the finance company for a five year period. The remaining economic useful life of the building was deemed to be 25 years so it could be concluded that control of the building had transferred to the finance company. Lease rentals are Sh.9,856,000 payable annually in arrears. The interest rate implicit in the lease is 7%. The present value of the annual lease payments was Sh.40,320,000.

Heri Limited recorded the cash proceeds, derecognised the building and recorded a profit on disposal of Sh.33.6 million in the statement of profit or loss. No other accounting entries had been posted.

Required:

With reference to International Financial Reporting Standard (IFRS) 16 “Leases”, and with suitable calculations, explain the accounting treatment of the above transactions in the financial statements of Heri Limited for the year ended 31 October 2021.  (8 marks)

 

QUESTION 4

December 2021 Question Three B

On 1 July 2021, Blanket Limited purchased a debt instrument (5% bond) with a nominal value of Sh.2.5 million. The purchase consideration was Sh.2,375,000 and the company incurred Sh.50,000 transaction costs. The bond will be redeemed at a premium of Sh.149,000 above the nominal value on 1 July 2024. The effective interest rate on the bond is 8%. Blanket Limited’s business model is to hold financial assets to collect the contractual cash flows but also sell financial assets if investments with higher returns become available.

There has not been a significant increase in credit risk since inception. Expected credit losses are immaterial.

The fair value of the bond was as follows:

Sh.

30 June 2022                  2,750,000

30 June 2023                  2,600,000

The directors of Blanket Limited are unsure of how to account for this financial instrument.

Required:

Prepare extracts of the financial statements for Blanket Limited for the years ended 30 June 2022, 2023 and 2024 to show the accounting treatment of the above transactions. (8 marks)

 

QUESTION 5

December 2021 Question Five B

International Accounting Standard (IAS) 36 “Impairment of Assets”, states that impairment of an asset or a Cash Generating Unit (CGU) occurs where the carrying amount exceeds the recoverable amount. The recoverable amount is the higher of the fair value less costs of disposal and the value in use.

Required:

In the context of International Accounting Standard (IAS) 36 “Impairment of Assets”, briefly explain how the “value in use” of an asset or a Cash Generating Unit (CGU) would be determined for the purpose of an impairment review.                    (6 marks)

 

QUESTION 6

December 2021 Question Five D

International Accounting Standard (IAS) 40: “Investment Property”, prescribes the accounting treatment for investment property and related disclosure requirements.

Required:

With reference to International Accounting Standard (IAS) 40: “Investment Property”, discuss the accounting treatment of investment property both upon initial recognition and subsequent measurement.                                                                                                (4 marks)

 

QUESTION 7

September 2021 Question Three A

(i) With reference to deferred tax, differentiate between “permanent differences” and “temporary differences”. .                                                                         (4 marks)

(ii) Huruma Limited, a public limited company, has a portfolio of investments including various subsidiaries and also undertakes various projects varying from debt factoring to investing in property and commodities.

The following information was extracted from the group financial statements relating to the deferred tax provision for the year ended 31 March 2021:

  1. Huruma Limited acquired a controlling interest in a subsidiary, Sukari Limited, on 1 July 2020.

The fair values of the assets and liabilities acquired were considered to be equal to their carrying amounts, with the exception of freehold property which had a fair value of Sh.256 million and a tax base of Sh.248 million.

The directors of Huruma Limited have no intention of selling the property.

  1. During the year ended 31 March 2021, Huruma Limited sold goods at a price of Sh.48 million to another subsidiary, Wingu Limited, and made a profit of Sh.16 million on the transaction. 40% of these goods were held in inventories of Wingu Limited as at 31 March 2021.
  2. Huruma Limited has a portfolio of financial assets comprising readily marketablé government securities which are held as current assets for financial trading purposes. These investments are stated at fair value in the statement of financial position, with any gain or loss taken to profit or loss. These gains or losses are taxed when investments are sold. Currently, the investments have a market value of Sh.412 million and accumulated unrealised gains are Sh.64 million.
  3. Huruma Limited’s loan assets had carrying amounts of Sh.168 million after an allowance for credit losses of Sh.32 million based on a twelve-month expected credit loss, Tax relief is only available when the specific loan is written off.
  4. Huruma Limited has unrelieved trading losses of Sh.20 million as at 31 March 2021. These unused tax losses arose from a one-off restructuring exercise carried out during the financial year and it is highly expected that taxable profits will be available in the future.
  5. On 1 April 2020, Huruma Limited’s deferred tax account had a nil balance. Assume a corporation tax rate of 30%.

Required:

Determine the deferred tax asset or liability for Huruma Group as at31 March 2021 in conformity with IAS 12 (Income Taxes).                                                        (8 marks)

 

QUESTION 8

September 2021 Question Three B

Peponi Ltd. decided to grant its 500 employees 200 share options each from 1 July 2021 on condition that the employees still be in employment as at 30 June 2025.

The company has provided the following details regarding the share option scheme

SAMPLE WORK

Complete copy of CPA ADVANCED FINANCIAL REPORTING AND ANALYSIS Revision Kit is available in SOFT copy (Reading using our MASOMO MSINGI PUBLISHERS APP) and in HARD copy 

Phone: 0728 776 317

Email: info@masomomsingi.com

 

PART B 

 

 

SUGGESTED ANSWERS AND SOLUTIONS

 

TOPIC 1

 

ACCOUNTING FOR ASSETS AND LIABILITIES

QUESTION 1

April 2022 Question Three A

a) Factors to consider when determining transactions price

  • Consideration payable to a customer – if a consideration is payable to a customer and it not in exchange for a distinct goods or services, an entity should account for it as a reduction of the transaction price.
  • Non cash consideration – if the transaction price will be settled the customer through non cash means, the non cash consideration should be measured at fair value.
  • Existence of significant financing component. An entity must consider if the timing of payment provide the customer or the entity with a financing benefit.
  • If there is a financing component, then the consideration receivable needs to be discounted to present value using the rate which the customer borrows.
  • Variable consideration the estimated variable consideration can only be included in the transaction price it its highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainly will be resolved.

 

QUESTION 2

April 2022 Question Three B

Accounting treatment of the various elements of the defined benefit scheme on the financial statements of Kibo Limited for the year ended 31 December 2021, in accordance with International Accounting Standard (IAS) 19

Defined plan liability  
  Sh million
Present value as at 1 Jan 2021 1,850
Add: Current service cost 200
         Interest cost 5%×1850 925
Less: Benefit paid to employees (150)
         Contribution paid to scheme (225)
         Carrying amount 1,767.5
         Acturial loss 232.5
Present value as at 31 Dec 2021 2,000

Accounting treatment

  • Interest cost component which is the change in the net pension liability (or loss) due to the passage of time, is charged or credited to profit or loss as finance cost.
  • The service cost component comprising current cost, past service cost and gain / loss n curtailment and settlement is charged to profit or loss as an administrative cost (staff cost).
  • Contribution into the plan are cashflows paid into the pension plan and has no impact on profit or loss nor other comprehensive income.
  • The remeasurement component (Acturial gains/Loss) is charged to other comprehensive income for the period.

 

QUESTION 3

December 2021 Question Three A

Sale and lease back

IFRS 16 (leases) requires the selling entity to recognize right of use asset based on the proportion of rights to use retained on the carrying amount of the asset disposed off.

It should also recognize a profit or loss on disposal based on the proportions of rights of use transferred to the buyer (lessor)

 

SAMPLE WORK

Complete copy of CPA ADVANCED FINANCIAL REPORTING AND ANALYSIS Revision Kit is available in SOFT copy (Reading using our MASOMO MSINGI PUBLISHERS APP) and in HARD copy 

Phone: 0728 776 317

Email: info@masomomsingi.com

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