CPA INTERMEDIATE LEVEL

FINANCIAL REPORTING AND ANALYSIS

THURSDAY: 24 April 2025. Morning Paper. Time Allowed: 3 hours.

Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your
workings. Do NOT write anything on this paper.

QUESTION ONE
(a) With reference to International Accounting Standard (IAS) 10 “Events After the Reporting Period” explain the
accounting treatment of ‘Adjusting events’ and ‘Non-adjusting events’ cite two examples of these events in each
case. (6 marks)

(b) In the context of International Accounting Standard (IAS) 16 “Property, Plant and Equipment” discuss the
accounting treatment of revaluation gains and revaluation losses on property, plant and equipment at revalued
amount. (4 marks)

(c) In view of International Public Sector Accounting Standard (IPSAS) 19 “Provisions, Contingent Liabilities and
Contingent Assets” describe THREE conditions that must be met before a provision can be recognised. (6 marks)

(d) International Financial Reporting Standard (IFRS) 5 “Non-current asset held for sale and discontinued operations”
provides guidance on the accounting treatment of discontinued operations and non-current assets held for sale.

Required:
(i) With reference to IFRS 5, explain the meaning of discontinued operations. (2 marks)

(ii) Discuss the IFRS 5 criteria which must be satisfied in order for a non-current asset to be classified as held
for sale. (2 marks)
(Total: 20 marks)

QUESTION TWO
(a) Distinguish between “government grants” and “government assistance” as per International Accounting Standard
(IAS) 20 “Government grants”. (4 marks)

(b) Venture Capital presented the following financial statements of Brook Limited for analysis:

Brook Limited
Income statement for the year ended 31 December 2024:
Sh.“000”
Revenue 6,514,978
Cost of sales (1,680,408)
Gross profit 4,834,570
Less expenses:
Salaries and wages 2,072,010
Rent and rates 246,934
Other administrative expenses 1,567,938
Total operating expenses 3,886,882
Profit before interest, tax, depreciation and amortisation 947,688
Less depreciation and amortisation (312,736)
Earnings before interest and tax 634,952
Finance costs (62,178)
Profit before tax 572,774
Less income tax (171,284)
Profit after tax 401,490

CA23 Page 1
Out of 5
 Brook Limited
Statement of financial position for the year ended 31 December:

2023 2024
Non-current assets: Sh.“000” Sh.“000”
Land and buildings 3,389,440 3,549,100
Plant and equipment 1,236,168 1,326,944
Motor vehicles 30,002 47,930
4,655,610 4,923,974
Accumulated depreciation (2,591,522) (2,837,670)
Total non-current assets 2,064,088 2,086,304
Goodwill 433,210 505,580
2,497,298 2,591,884
Current assets:
Inventory 134,046 141,118
Trade receivables 93,176 87,888
Cash 147,266 124,542
Total current assets 374,488 353,548
Total assets 2,871,786 2,945,432
Financed by:
Equity and liabilities:
Equity:
Ordinary share capital 1,015,472 1,025,470
Retained earnings (1,172,392) (1,451,668)
(156,920) (426,198)
Non-current liabilities:
Loan notes 1,941,650 2,227,898
Current liabilities:
Trade payables 824,224 854,320
Accrued expenses 262,832 289,412
1,087,056 1,143,732
Total equity and liabilities 2,871,786 2,945,432

Required:
(i) Vertical analysis on the statement of profit or loss for the year ended 31 December 2024. (8 marks)

(ii) Horizontal analysis on the statement of financial position. (8 marks)

(Total: 20 marks)

QUESTION THREE
On 1 January 2024, Pull Limited acquired an 80% controlling interest in Shape Limited when the retained earnings of Shape
Limited amounted to Sh.3,200,000. The acquisition consideration consisted of an immediate cash payment of Sh.12,000,000
on 1 January 2024 and a further cash payment of Sh.12,100,000 deferred until 1 January 2026. Pull Limited has a cost of
capital of 10%.

No accounting entries have been made in respect of the deferred cash consideration.

Pull Limited also acquired 50% of the equity interest in Jolty Limited and obtained joint control over Jolty Limited on
1 January 2024. The purchase consideration comprised an immediate cash payment of Sh.10,000,000 on 1 January 2024. The
retained earnings of Jolty Limited stood at Sh.2,500,000 on 1 January 2024.

The following are draft statements of financial position of the three companies as at 31 December 2024:

Pull Limited Shape Limited Jolty Limited

Assets: Sh.“000” Sh.“000” Sh.“000”
Non-current assets:
Property, plant and equipment 36,400 18,500 14,600
Investments:
Shape Limited 12,000 - -
Jolty Limited 10,000 - -
58,400 18,500 14,600

CA23 Page 2
Out of 5
 Sh.“000” Sh.“000” Sh.“000”
Current assets:
Inventory 21,400 13,000 10,200
Trade receivables 18,500 11,400 8,900
Cash and cash equivalents 12,700 8,100 6,300
52,600 32,500 25,400
Total assets 111,000 51,000 40,000
Equity and liabilities:
Equity:
Ordinary share capital (Sh.10 par value) 50,000 20,000 15,000
Share premium 5,000 2,000 1,500
Retained earnings 13,200 6,100 3,800
Total equity 68,200 28,100 20,300
Non-current liabilities:
Long-term borrowings 18,000 8,500 7,500
Current liabilities:
Trade payables 16,300 9,500 7,900
Current tax 8,500 4,900 4,300
42,800 22,900 19,700
Total equity and liabilities 111,000 51,000 40,000

Additional information:
1. At the date of acquisition, the fair value of Shape Limited’s net assets approximated their carrying amounts, with the
exception of some plant whose fair value was Sh.1,000,000 above its carrying amount. At this date, the plant had a
remaining economic useful life of five years. No fair value adjustment was necessary in respect of Jolty Limited.
2. Pull Limited measures goodwill and the non-controlling interest using the fair value method. The fair value of the
non-controlling interest of Shape Limited was Sh.5,700,000 at the date of acquisition.
3. During the year ended 31 December 2024, Shape Limited sold goods to Pull Limited for Sh.4,500,000 at a mark-up
on cost of 25%. One third (⅓) of these goods were still held by Pull Limited at 31 December 2024 and the balance
payable was still outstanding.
4. Impairment review performed on 31 December 2024 revealed that goodwill arising from the acquisition of Shape
Limited had been impaired to the extent of 10%. The interest in Jolty Limited was unimpaired.

Required:
(a) Calculate the value of goodwill arising on acquisition of Shape Limited as at 31 December 2024. (6 marks)

(b) Determine the value of interest in Jolty Limited as at 31 December 2024. (2 marks)

(c) Prepare the consolidated statement of financial position for Pull Group as at 31 December 2024. (12 marks)
(Total: 20 marks)

QUESTION FOUR
(a) With reference to International Public Sector Accounting Standard (IPSAS) 4 “The effects of changes in foreign
Exchange Rates”, explain the term “functional currency”. (2 marks)

(b) On 1 January 2021, Trends Limited issued Sh.20,000,000 8% loan notes at a discount of 5%. The issue costs
amounted to Sh.1,000,000.

The loan notes were redeemable on 31 December 2024 at a premium of Sh.1,130,000. The effective rate of interest
was therefore 12.5% per annum.

Required:
With suitable calculations, illustrate the accounting treatment of the above transactions from 1 January 2021 to
31 December 2024 in the financial statements of Trends Limited in accordance with International Financial
Reporting Standard (IFRS) 9 “Financial Instruments: Recognition and Measurement”.

(Round your answers to the nearest one thousand). (8 marks)

CA23 Page 3
Out of 5
(c) Elite Ltd., operates a pension scheme for its employee by the name Smart Retirement Benefit Scheme. The
following trial balance was extracted from the books of the scheme as at 31 December 2024:

Sh.“000” Sh.“000”
Normal contribution by:
Elite Ltd. (Employer) 36,480
Employees 18,240
Transfer in from other scheme 3,150
Individual transfers out to other schemes 1,860
Investment income 47,400
Property, plant and equipment 132,320
Government securities (long-term) 263,605
Member’s voluntary contribution 4,560
Pension 7,640
Equity investment: Quoted 87,835
Unquoted 19,990
Unpaid benefits 320
Accumulated fund as at 1 January 2024 461,560
Accrued expenses 240
Administrative expenses 2,840
Cash and demand deposits 23,460
Change in market value of investments 22,640
Lumpsum retirement benefits 4,820
Contributions due in 30 days 4,940 ______
571,950 571,950

Required:
(i) Statement of changes in net assets for Smart Retirement Benefit Scheme for the year ended 31 December
2024. (5 marks)

(ii) Smart Retirement Benefit Scheme statement of net assets as at 31 December 2024. (5 marks)
(Total: 20 marks)

QUESTION FIVE
(a) With reference to International Accounting Standard (IAS) 12 “Income Taxes”, describe the bases of measurement
for current tax liabilities and deferred tax liabilities. (4 marks)

(b) The following draft financial statements were extracted from the financial records of Bestway Limited as at
31 December 2024 with comparatives for the year ended 31 December 2023:

Statement of financial position as at 31 December:

Assets: 2024 2023

Non-current assets: Sh.“000” Sh.“000”
Property, plant and equipment 92,600 74,900
Intangible assets 13,500 12,300
106,100 87,200
Current assets:
Inventory 28,600 24,890
Trade receivable 18,460 14,160
Cash and cash equivalent 2,200 1,020
49,260 40,070
Total assets 155,360 127,270
Equity and liabilities:
Ordinary share capital (Sh.10 per share) 15,000 12,000
Share premium 2,700 2,100
Revaluation surplus 5,100 -
Retained earnings 76,530 71,960
99,330 86,060

CA23 Page 4
Out of 5
 Sh.“000” Sh.“000”
Non-current liabilities:
10% loan notes (2028) 16,500 10,500
Government grants 6,300 4,800
Deferred tax 3,840 1,620
Current liabilities:
Trade payables 22,400 17,540
Current tax 5,370 5,550
Government bonds 1,620 1,200
155,360 127,270

Statement of profit or loss and other comprehensive income for the year ended 31 December 2024:

Sh.“000”
Revenue 113,100
Cost of sales (89,720)
23,380
Other operating income – government grant 1,500
24,880
Other operating expenses (6,690)
18,190
Finance cost (1,410)
Profit before tax 16,780
Income tax expenses (5,310)
Profit after tax 11,470
Other comprehensive income
Gain on property revaluation 5,100
Total comprehensive income for the year 16,570

Additional information:
1. During the year ended 31 December 2024, motor vehicle with a cost of Sh.5.26 million with accumulated
depreciation of Sh.2.33 million was disposed for a cash proceeds of Sh.4.020 million. The gain on disposal
has been included in the other operating income.
2. Bestway Limited acquired new plants during the year ended 31 December 2024 at a cost of Sh.3.6 million
from a financing company. An arrangement was made at the date of acquisition for the liability for the plant
to be settled by Bestway Limited issuing at par a 10% loan note dated 2028 to the finance company. The
value by which the loan note exceeded the liability for the plant was received from the finance company in
cash.
3. Depreciation charged on property, plant and equipment during the year was Sh.10.98 million and was
included in the cost of sales.
4. Intangible assets were amortised during the year and amortisation charged to the profit and loss amounted
to Sh.1,080,000.
5. During the year ended 31 December 2024, Bestway Limited made a bonus issue of ordinary shares of one
new share for every ten shares held utilising the share premium account.

Required:
Statement of cash flows for Bestway Limited for the year ended 31 December 2024 using indirect method in
accordance with International Accounting Standard (IAS) 7 “Statement of Cash Flows”. (16 marks)
(Total: 20 marks)
……………………………………………………………………….

CA23 Page 5
Out of 5