Additional information:

1. The market interest rates were as follows:

Date Rate
31 December 2019 9%
[

CPA ADVANCED LEVEL

31 December 2020 10%
ADVANCED FINANCIAL REPORTING & ANALYSIS 2. Discount factors
ASSIGNMENT ONE Year 8% 9% 10%
FEBRUARY 2023 1 0.9259 0.9174 0.9091
2 0.8573 0.8417 0.8264
QUESTION ONE 3 0.7938 0.7722 0.7513
(a) On 1 January 2017, B ltd leased a machine for 4 years from C ltd. Under the terms of the agreement, Required:
B ltd is to pay lease rental of Sh.12 million immediately on commencement of the lease followed by As per IFRS 9, calculate the amount:
three payments of Sh.12 million payable at the start of each subsequent year. The estimated useful (i.) initially measured in the statement of financial position (2 marks)
life of the machine is 5 years. (ii.) to be presented in the statement of financial position and statement of profit or loss for the year
B ltd incurred received a lease incentive of Sh.1,842,800 on 1 January 2017. The implicit rate of interest ended 31 December 2019 and 2020. (8 marks)
on the lease is 10%, with the value of Sh.1 having a cumulative present value in four years’ time is [Total: 20 MARKS]
Sh.3.3.1699. The value of Sh.1 has a cumulative present value in three years’ time of Sh.2.4869.
Required: QUESTION THREE
Prepare B ltd’s statement of financial position extracts at 31 December 2017, 2018, 2019, 2020 and (a) Mavoko City Council constructed a 25 storey office building for use by the council at a cost of Sh.600
2021 (8 marks) million. This building came into use on 1 January 2008 and it was expected to have a useful life of 40
years. During the year 2022, National Safety Regulations required that owing to security concerns,
(b) A ltd sold an equipment to S ltd on 1 January 2020 for Sh.22,000,000. The fair value of the equipment the top 5 storeys of highrise buildings should be left unoccupied for the foreseeable future. These
at the time of sale is Sh.24,000,000 and the carrying amount is Sh.12,000,000. A ltd leased back the regulations were to come into force on 31 December 2022. As at 31 December 2022, the building had
asset for 10 years and is to pay annual lease rentals of Sh.1,600,000 payable at the end of each year. a fair value less costs to sell of Sh. 395 million. As at the same date, the replacement cost of a similar
The rate of interest implicit in the lease is 6%. The cumulative present value of Sh.1 in ten years’ time 25 storey building was Sh.637.5 million. The building had a fair value less costs to sell of Sh.340 million
is Sh.7.3601 and the cumulative present value of Sh.1 in nine years’ time is Sh.6.8017. The transaction at 31 December 2022.
constitutes a sale in accordance with IFRS 15. Required:
Required: Using the service units approach, evaluate whether there is any impairment loss as at 31 December
(i) Show the relevant journal entry in the books of A ltd as at 1 January 2020. (2 marks) 2022 in accordance with the requirement of International Public Sector Accounting Standard Number
(ii) Financial statement extracts of A ltd for the year ended 31 December 2020, 2021, 2022 and 21 (Impairment of Non-Cash-Generating Assets). (6 marks)
2023. (10 marks) (b) In assessing whether there is any indication that an impairment loss recognized in prior periods for an
[TOTAL: 20 MARKS] asset other than goodwill may no longer exist or may have decreased, an entity considers various
factors.
QUESTION TWO Required:
(a.) IFRS 7 – Financial Instruments: Disclosures provides the disclosure requirements. One of which is the In relation to IAS 36 – Impairment of Assets, explain various factors that may indicate that an
information about the nature and extent of risks arising from financial instruments. impairment loss previously recognised by have reversed (7 mark)
Required: (c) A cash generating unit of A ltd comprised of the following items as at 31 December 2020:
Explain the various types of financial risks arising from financial instruments. (7 marks) Sh. ‘million’
(b.) IFRS 9 - Financial instruments: Classification, recognition and measurement provides the criteria that Goodwill 40
should be met in a hedging relationship for hedge accounting rules to be applied. Plant and equipment 60
Required: Property 180
Outline the criteria that hedging relationship should meet for hedge accounting rules to be applied. Additional information:
(3 marks) 1. At 31 December 2020, the recoverable amount of the cash generating unit was Sh.120 million.
(c.) On 1 January 2019, Asego ltd issued Sh.50 million 8% loan notes at a discount of 4%. issue costs of The net realisable value of the plant and equipment on this date was Sh.36 million.
Sh.500,000 was incurred. At the date of issue of the loan notes the effective interest rate was 8%. The 2. During 2022, A ltd made a technological breakthrough of its own and the recoverable amount of
loan notes are redeemable at par on 31 December 2021. The liability is held for trading purposes and the cash generating unit increased to Sh.150 million at 31 December 2022. Had the impairment
classified at fair value through profit and loss. loss not occurred, the carrying amount of the property and plant and equipment would have
been Sh.100 million and Sh.40 million respectively.
1
 Required: of Lower ltd at 30 September 2022 and state where in the statement the relevant amount will
(i) Compute the impairment loss on the cash generating unit as at 31 December 2020 and appear. (4 marks)
allocate it to the individual assets in the cash generating unit. (4 marks) [TOTAL: 20 Marks]
(ii) Calculate the reversal of the impairment loss to the credited to statement of profit or loss QUESTION FIVE
as at 31 December 2022 (3 marks) (a.) Briefly explain the limitations of IAS 19 – Employee Benefits. (5 marks)
[TOTAL: 20 Marks] (b.) The following information relates to the post-employment defined benefit compensation scheme of
Uzeeni ltd.
QUESTION FOUR
(a) In recent years it has become increasingly common for entities to enter into transactions with third
parties that are settled by means of a share-based payment. IFRS 2 Share-based Payment, was issued
in order to provide a basis of accounting for such transactions. Share-based payments can be equity- Year ended 31 December 2020 2021
settled or cash settled. Sh. ‘000’ Sh. ‘000’
Required: Current service cost 25,000 28,600
Explain the accounting treatment of both equity-settled and cash-settled share-based payments Benefits paid out 19,740 22,000
transactions with employees (6 marks) Contributions paid by entity 20,000 23,000
(b) Lower ltd prepares financial statements to 30 September each year. Lower ltd has a number of highly Present value of obligation at end of the year 460,000 522,000
skilled employees that it wishes to retain and has put two schemes in place to discourage employees Market value of plan assets at end of the year 430,000 464,800
from leaving: Yield on corporate bonds at start of the year 9% 10%
Scheme A Additional information:
On 1 October 2020, Lower ltd granted share options to 200 employees. Each employee was entitled to 1. The present value of the plan obligation and the market value of the plan assets were both Sh.400
500 options to purchase equity shares at Sh.10 per share. The options vest on 30 September 2023 if the million at 1 January 2020.
employees continue to work for Lower ltd throughout the vesting period. Relevant data is as follows: 2. Contributions were paid into the plan and benefits were paid out of the plan on the first day of
Expected number of each accounting period.
employees for whom 3. During 2020, there was an improvement in employee benefits under the plan. This resulted in an
Share price Fair value of option 500 options will vest increase in the present value of the defined benefit obligation by an additional Sh.4 million as at
Sh. Sh. 31 December 2020.
1 October 2020 10 2.40 190 4. On 31 December 2021, a division of the company was sold. Consequently, a large number of
30 September 2021 11 2.60 185 employees of that division opted to transfer their accumulated pension entitlement to their new
30 September 2022 12 2.80 188 employer’s plan. The present value of the defined benefit obligation transferred was Sh.114
Scheme B million and the fair value of the plan assets transferred was Sh.108 million. Uzeeni ltd also made
On 1 October 2019, Lower ltd granted two share appreciation rights to 250 employees. Each right gave a cash payment of Sh.4 million to the buyer in respect of the plan. The year-end valuations in the
the holder a cash payment of Sh.100 for every 50 cent increase in the share price from 1 October 2019 table above were carried out before this transfer was recorded.
value to the date the rights vest. The rights vest on 30 September 2022 for those employees who Required:
continue to work for Lower ltd throughout the three-year period. Payment is due on 31 January 2023. (i.) Compute the remeasurement gain/(loss) on the plan assets and pension obligations for each of
Relevant data is as follows: the year ended 31 December 2020 and 2021 (8 marks)
Expected number of (ii.) Compute the amount to be recognised in the statement of profit or loss for each of the two years
employees for whom ended 31 December 2020 and 2021. (4 marks)
Share price Fair value of option two rights will vest (iii.) Show the amounts to be recognised in the financial of financial position in each of the year ended
Sh. Sh. 31 December 2020 and 2021. (3 marks)
1 October 2019 9 500 240 [TOTAL: 20 Marks]
30 September 2020 10 520 235
30 September 2021 11 540 240
30 September 2022 12 600 238*
*actual number of employees for whom rights vested
Required:
(i) For both schemes, compute the charge to the statement of profit or loss for the year ended 30
September 2022. (8 marks)
(ii) For both schemes, compute the amount that will appear in the statement of financial position
2