BS 320 TEST ONE TUTORIAL

21ST APRIL, 2024

PRINCE DANIELS, ACADEMY

PRINCE DANIELS – 2024

QUESTION ONE
The summarised statement of profit or loss for the year to 30 April 2020 and the
statement of financial position as at that date, with comparative figures for 2019, for
Hellen plc are shown below:

Statement of profit or losss (summarised) for the year to 30 April:

2020 2019
K’000 K’000
Gross profit 3,046 2,364
less: Operating costs 2,578 2,044

Profit before interest & taxation 468 320

less: Interest payable 65 54

Profit before taxation 403 266

less: Taxation 97 62
306 204
Profit for the year

Statements of financial position as at 30 April:

2020 2019
K’000 K’000
Non-current assets:
Plant and equipment at cost 5,679 4,777

less: depreciation to date 2,416 2,018

3,263 2,759

Current assets:
Inventory 387 321
Trade receivables 754 607
Bank 53 0

1,194 928

4,457 3,687

PRINCE DANIELS – 2024

 Equity:
Ordinary share capital (50n) 750 650
Share premium account 1,250 1,050
Retained earnings 702 441
2,702 2,141

Non-current liabilities:
6% Debentures 1,200 1,000
Current liabilities:
Trade payables 438 387
Current tax payable 102 66
Bank overdraft - 84
Accrued interest owing 15 9
555 546

4,457 3,687

The following information is also available:

1. New shares were issued and fully paid in October 2019.

2. Equipment that had cost the company K240,000 was sold in February 2020 for
a loss of K12, 000. The net book value of the equipment when sold was K96, 000.

3. A dividend of 3n per share was paid in April 2020.

Required:

Prepare a statement of cash flows for Hellen Plc for the year to 30 April 2020 using
the indirect method

QUESTION TWO
AMS, a limited liability company, made a gross profit of $239,000 in the year
to 31 August 20X8. Expenses amounted to $159,000 which included interest
of $30,000 payable on a long term loan, depreciation on plant of $50,000,
and depreciation on premises of $25,000. Income tax in profit or loss was
$10,000 and dividends paid in the year were $45,000.

PRINCE DANIELS – 2024

The statements of financial position of AMS at 31 August 20X8 and 20X7
were as follows:
20X8 20X7
$000 $000 $000 $000
Non-current assets
Premises 1,200 1,170
Plant and machinery 800 700
––––– –––––
2,000 1,870
Current assets
Inventory 450 550
Receivables 700 680
Bank and cash 300 1,450 – 1,230
––––– ––––– ––––– –––––
3,450 3,100
––––– –––––
Capital and reserves
Ordinary shares of $1 each 1,800 1,300
Share premium 400 300
Retained earnings 392 367
––––– –––––
2,592 1,967
Non-current liabilities
Loan notes 200 400
Current liabilities
Payables 648 681
Income tax 10 12
Bank overdraft – 658 40 733
––––– ––––– ––––– –––––
3,450 3,100
––––– –––––
During the year ended 31 August 20X8, plant which had cost $85,000 was
sold at a loss of $10,000. The sale proceeds were $50,000. The loss was
recognised in profit or loss as part of expenses $159,000.

Required:

Prepare a statement of cash flows for the year ended 31 August 20X8, using the
indirect method of presentation.

QUESTION THREE
The following trial balance has been extracted from the accounting records of Comrade plc
at 31 March 2022, before the preparation of financial statements.

PRINCE DANIELS – 2024

 K’ 000 K’ 000
Sales Revenue 221,500
Cost of sales 14,556
Freehold land at 2010 revaluation 90,500
Buildings at cost 75,600
Buildings-Accumulated depreciation 45,360
Administrative expenses 15,400
Distribution expenses 11,200
Research and development 42,500
Inventories as at 31 March 2014 7,865
Interest 1,310
Retained earnings 23,457
Trade Receivables and payables 59,045 8,720
Bank 58,100
Treasury Bills 116,812
8% bank loan repayable 2021 26,200
Corporation tax 2,300
Provision for liabilities as at 1 April 2021 62,500
Revaluation Reserve 25,000
Share capital (K 1 each) 70,370
Share premium 7,481
______ ______
402,888 402,888

The following information is also available

i. Research and development expenditure for the year to 31 March 2022 comprises the
following:

• K 15,000,000 spent on a joint project with a university investigating the potential use of a
certain chemical to reduce pollution levels in mine areas

• K 22,500,000 spent on developing a new high speed hard drive which, in the opinion of
Comrade Ltd, has an assured and profitable market. Work has been suspended pending the
development of a new glue suitable for the construction of the disk drives

PRINCE DANIELS – 2024

 • K 5,000,000 on the development of new computer software that will enable the company to
operate an Inventory control system that will greatly reduce the costs associated with holding
excessive amounts of inventory. Comrade Ltd expects the system to come into operation on
1 June 2022.

ii. The inventories at the close of business on 31 March 2022 include inventory items that cost
K 4,480,000 but according to new information that has just been received, Comrade Ltd will
only be able to sell these inventory items for K 2,380,000 after incurring selling costs of
K280, 000.
iii. Buildings are depreciated at 25% on a reducing balance basis. The company uses the
revaluation model for its property, plant and equipment. After a review of the value of the
buildings at the year end, it was determined that they had a value of K30, 000, 000. The
buildings were used solely for rental purposes and capital appreciation for 8 months of the
year, after which they were used as offices for the company.

iv. Freehold land is considered to have an infinite useful life. Land is re-valued regularly in
accordance with the requirements of IAS 16 Property, Plant and Equipment. Comrade Ltd
acquired land for K 65,500,000 10 years ago. This land was revalued at K 90,500,000 on
31March 2010 and during 2022 land was re-valued at K 52,500,000 and.

v. Interest on the bank loan for the last six months of the year has not been included in the trail
balance
vi. Since April 2012 Comrade Ltd has been involved in a legal dispute with one of its customers,
Kimmi Ltd for failure to supply goods on agreed time. Although the outcome of the dispute
is unknown, Comrade’s lawyer’s advice suggests that Comrade Ltd will have to pay
compensation to Kimmi Ltd. At 31 March 2021 legal advice estimated that compensation
would amount to K 62,500,000. The case is due to be heard in June 2022 and at 31 March
2022 the most up to date legal advice suggested that Comrade Ltd will instead have to pay
compensation of around K 55,000,000.

vii. The corporation tax balance in the trial balance relates to an unpaid balance for 2021.
Corporation tax for the year ended 31 March 2022 is estimated to be 35% of taxable profit.
Required
Prepare the statement of profit or loss and other comprehensive income, statement of financial
position and statement of changes in equity for Comrade Plc for the year ended 31st March
2022.
QUESTION FOUR
The following trial balance has been extracted from the accounting records of Stephen plc at
31 March 2014, before the preparation of financial statements.
K K

Sales revenue 3,720,535

Cost of sales 1,681,165
Administrative expenses 563,548

PRINCE DANIELS – 2024

Distribution costs 262,989
Research and development 249,000
Directors remuneration 300,000
Interest paid 13,500
Goodwill 150,000
Freehold land - at 2009 valuation 250,000
Buildings - at 2009 valuation 480,000
Plant and machinery – at cost 375,000
Accumulated depreciation at 1 April 2013:

- Buildings 80,000
- Plant and machinery 135,000
Inventory at 31 March 2014 143,365
Bank 47,674
Short-term investments 35,000
Trade receivables and payables 93,925 105,665
Bank loans 250,000
Investment properties (fair value at 1st April 2013) 435,000

Provision for liabilities at 1st April 2013 165,000

Suspense account 98,000

Allowance for receivables 2,980

Interim dividends paid (Ordinary shares) 5,000
Corporation tax 1,559
Ordinary share capital (K1 shares) 100,000
Share premium account 175,000
Revaluation reserve 140,000
Retained earnings at 31 March 2013 _________ 310,545
5,184,725 5,184,725

In addition to the trial balance you are provided with the following
information all of which is considered to be material:
1. Research and development expenditure comprises:

PRINCE DANIELS – 2024

K99 000 – Applied research with a local university into the possible use of
hydraulic fracturing as an alternative and cost efficient source of energy.
Tests proved inconclusive.
K150 000 – Developing a new product that Stephen plc expects to
generate economic benefits for a seven year period commencing in
October 2014.
2. On 16 April 2014 a customer went into liquidation owing Stephen
plc K 38 000. The money owed is included in trade receivables at 31
March 2014; however the company does not now expect to recover any
of this debt. In addition an allowance for receivables of 3% of remaining
trade receivables is required.
3. Stephen plc has an industry-wide reputation for providing an
excellent after-sales service, which helps generate a huge amount of
repeat business with key customer groups. To ensure that this continues,
during the year ended 31 March 2014 Charlton spent K150, 000 on a
customer service training course for all staff. This amount has been
capitalised and is included in the trial balance as goodwill. The managing
director would like to amortise goodwill in equal amounts over ten years.

4. Land and buildings are re-valued regularly in accordance with the

requirements of IAS 16 Property, Plant and Equipment. During the year
to 31 March 2014 land was re-valued at K265, 000 and buildings at K425,
000. This re-valuation is not reflected in the trial balance.
5. Freehold land is considered to have an infinite useful life. Buildings
are depreciated on a straight line basis (using their year-end value) over
their estimated useful economic lives. At 1 April 2013 the remaining useful
economic life of buildings was estimated to be 25 years. No depreciation
has been charged on buildings for the year ended 31 March 2014.
6. Plant and machinery is depreciated using the reducing balance
method at 20% per annum. The company charges a full year of
depreciation in the year of acquisition and none in the year of disposal.
No depreciation has been charged on plant and machinery for the year
ended 31 March 2014.

PRINCE DANIELS – 2024

 7. The investment properties were purchased eight years ago and
have a remaining useful economic life of 32 years. At 31 March 2014 the
properties were valued at K420, 000 by a local firm of chartered surveyors.

8. Since October 2012 Stephen plc has been involved in a legal

dispute with a former employee. Based on legal advice available in
October 2012, a provision was made for K165, 000. This claim has now
been settled and during the year ended 31 March 2014 Stephen plc paid
K98, 000 to the former employee. This amount has been credited to the
bank account and debited to a suspense account pending the correct
accounting treatment.
9. At a board meeting on 15 April 2013, it was proposed that the final
dividend for ordinary shareholders would be 15 ngwee per share.
Required:

In a format that is required for publication and in accordance with the

provisions of IAS 1
Presentation of Financial Statements, prepare

a) A statement of comprehensive income for Stephen plc for the year ended
31 March 2014.

b) A statement of financial position for Stephen plc at 31 March 2014.

QUESTION FIVE
The following trial balance has been extracted from the accounting records of Marceline Plc at
31 March 2014.
K’000 K’000
Draft profit for the year before tax 951
Inventory at 31 March 2014 600
Trade receivables 338
Allowance for receivables 14
Research and development expenditure 249
Property-valuation 6,500
Fixtures and Fittings-cost 1,260
Office Equipment-cost 750

PRINCE DANIELS – 2024

 Accumulated depreciation at 1 April 2013
Property 520
Fixtures and fittings 420
Office Equipment 270
Patents 200
Accumulated amortization at 1 April 2013
Patents 80
Revaluation reserve 150
Bank 18
Cash in hand 19
Suspense account 13
Trade payables 280
Bank loans (repayable in 2028) 2,600
Finance lease liability 50
Government Grant 62
Ordinary Share Capital 500
4% Debentures (repayable in 2025) 750
Share Premium account 1,250
Retained earnings at 1 April 2013 2,014
9,929 9,929

In addition to the trial balance, you are provided with the following information all of which is
considered to be material. Unless stated otherwise the information below has not been taken
into consideration in arriving at the draft profit for the year before tax shown in the trial balance
above
1. The inventory held at 31 March 2014 included K 65,000 that related to items that were sold on
5 April 2014 for K 30,000
2. Research and development expenditure comprises:
K 99,000 Applied research with a local University into the possible use of hydraulic fracturing as an
alternative and cost efficient source of energy. Tests proved inconclusive.

K 150,000 Developing a new product that Marceline Plc expects to generate economic benefits for a
seven year period commencing in October 2014
3. The company’s policy is to charge a full 12 months depreciation on all assets held at the year
end. The rates to be used are as follows
Property – Straight line over 50 years
Fixtures and fittings – straight line over 6 years

PRINCE DANIELS – 2024

Office equipment – 20% reducing balance
4. The patent was acquired in April 2009, at which time its economic life was estimated as ten
years. At 1 April 2013 the remaining life of the patent was estimated as 3 years
5. During the year ended 31 March 2014, Marceline plc disposed of property that previously been
re-valued. The property has been correctly removed from the valuation and accumulated depreciation
amounts shown in the trial balance, and the profit on disposal has been correctly recorded in arriving
at the draft profit for the year before tax. However the property had previously been revalued by K
45,000 and this amount is included in the revaluation reserve shown in the trial balance
6. On 1 April 2013 the company acquired office equipment with a fair value of K 50,000 through
a finance lease. The lease period is five years with annual payments of K 13,000 per annum in arrears.
The fair value of the leased asset is correctly included in office equipment in the trial balance and the
credit side of this transaction is shown as a finance lease liability. Marceline Plc made the first lease
payment of K 13,000 on 31 March 2014 and this has been credited to bank and temporarily debited
to a suspense account. No other accounting entries have been made in respect of the lease. Marceline
plc uses the actuarial method to apportion interest relating to a finance lease.
7. The estimated corporation tax liability for the year ended 31 March 2014 is K 28,000
8. In May 2013, Marceline received a government grant of K 62,000 for use on a two year project
investigating the potential for a carbon-neutral workplace. During the year ended 31 March 2014,
Marceline plc incurred qualifying expenditure of K 27,000 in respect of this project. These expenses
have been taken into consideration in arriving at the draft profit for the year before tax of K 951,000.
9. No interest on debentures has been paid during the year or provided for in the trial balance.
Required
a) Prepare a calculation of the profit for the year ended 31 March 2014 starting with the draft
profit for the year before tax of K 951 000 given in the trial balance and using the additional
information in notes 1-9 above.
Prepare a statement of financial position for Marceline plc at 31 March 2014 in accordance with IAS
1 Presentation of financial statements.

QUESTION SIX

a) The carrying amounts of the assets of a cash generating unit are as follows:
K’000
Goodwill 25,000
Patents and Copyrights 50,000
Property, Plant and equipment 200,000
275,000
There are indications that this CGU is impaired and therefore its recoverable amount is
K 195,000,000. Value in use cannot be ascertained for any of the assets, but fair value
less costs to sell is K 20,000,000 for the patents and copyrights and K 160,000,000 for
the property, plant and equipment.
Calculate the amount of the impairment loss and show how this should be allocated
between the assets of the CGU according to the requirements of IAS 36 Impairment
of Assets

PRINCE DANIELS – 2024

b) Kafue Airlines is a companythat’s owns a fleet of small passenger airplanes. The Company has
decided to expand its operations by increasing the number of routes and by acquiring bigger
airplanes. The company prepares its accounts to 31 December each year. On 1st January 2012, Kafue
Airlines acquired an airplane under a finance lease from Boeing plc. The fair value of the airplane
was $3,500,000. The minimum lease term was four years and the annual rental was $1,100,000
payable in advance on 1 January each year. The rate of interest implicit in the lease is 17.78%.

i. Calculate the annual finance cost in the lease for each year of the lease using the actuarial
method.
ii. Show how the lease would be reported in the income statement of Kafue Airlines for the first
year of the lease.
iii. Show the extract of the statement of financial position of Kafue Airlines as at the end of the
second year of the lease.

PRINCE DANIELS – 2024