FACULTY OF COMMERCE AND LAW

DEPARTMENT OF ACCOUNTING, BANKING AND FINANCE

BACC204: FINANCIAL ACCOUNTING III

AUGUST 2018 ASSIGNMENT 1: INTAKE 30

Question 1

The draft financial statements of P Ltd and its subsidiaries Q Ltd and R Ltd were as follows.

Statement of Comprehensive Income for Year Ended 31/12/15

P Ltd Q Ltd R Ltd
$ $ $
Revenue 936 360 518 976 491 980
Cost of Sales (428 400) (189 720) (173 570)
Gross Profit 507 960 329 256 318 410
Dividends received from Sales
Q Ltd 25 000 - -
R Ltd 16 000 - -
548 960 329 256 318 410
Administration expenses (191 080) (99 790) (104 040)
Selling and Distribution expenses (162 520) (71 910) (54 230)
Net Profit Before tax 195 360 157 556 160 140
Company tax (35%) 68 376 55 144 56 050
Net Profit After Tax 126 984 102 412 104 090
Other Comprehensive Income -
Total Comprehensive Income 126 984 102 412 104 090

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Statement of Changes in Equity for Year – Ended 31/12/2015(Retained Earnings)
P Ltd Q Ltd R Ltd
$ $ $
Balance B/f 226 016 279 588 255 910
Total Comprehensive Income for the year 126 984 102 412 104 090
353 000 382 000 360 000
Ordinary Dividends Paid - (25 000) (20 000)
Ordinary Dividends Proposed (68 000) (25 000) (20 000)
Transfer to General Reserve (60 000) (32 000) (50 000)
Balance C/fwd 225 000 300 000 270 000

Statement of Financial Positions at 31/12/2015

P Ltd Q Ltd R Ltd
$ $ $
EQUITY AND LIABILITIES
Ordinary Share Capital ($10 Shares) 680 000 629 000 425 000
Share Premium Account 268 600 214 200 -
Capital Redemption Reserve 187 000 - 136 000
General Reserve 302 600 250 750 196 000
Retained Earnings c/f 225 000 300 000 270 000
Long – term Liabilities 368 900 340 000 -
Current Liabilities 111 620 66 050 81 000
Total Equity and Liabilities 2 143 720 1 800 000 1 108 000

ASSETS

Tangible Non – Current Assets 453 200 1 344 000 788 000
Investments in Subsidiaries at cost :
Q Ltd 788 800 - -
R Ltd 690 000 - -
Current Assets 211 720 456 000 320 000
Total Assets 2 143 720 1 800 000 1 108 000

Additional Information

(i) P Ltd acquired all the shares in Q Ltd on 1 January 2013 and 80% of the shares in R
Ltd on 1 January 2014.
- On these dates , the balances on the Subsidiaries’ general reserves and Retained
earnings were as follows:
Q Ltd R Ltd
$ $
General Reserve 204 000 127 500
Retained Earnings 150 000 120 000

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 (ii) During the year –ended 31 December 2015, P Ltd sold to Q Ltd goods worth $51 000,
including a mark – up of 25%.
-At year end ,20% of these goods remained in Q Ltd’s inventory.

Required

(a) A Consolidated Statement of Comprehensive Income for P Ltd and its Subsidiaries for
the year ended 31 December 2015.
(b) An Analysis of Changes in Equity as at 31 December 2015
(c) A Consolidated Statement of Financial Position as at 31 December 2015. [25 Marks]

Question 2

(a) The information that follows relates to a firm , Orta Ltd

Issued Share Capital $
Up to 31 March 2015
150 000 Ordinary shares of $1 each fully paid 150 000
100 000 20% Preference Shares of $1, fully paid 100 000

On 1 April 2015 the firm made a bonus issue to ordinary shareholders on the bases of 1
Share for every 5 shares held.

Trading Results Year Ended 31 December

2015 2014
$ $
Profit after – Tax 700 550 000

Required

(i) Calculate EPS for the year ended 31 December 2014 and 2015.
(ii) Disclose the calculated EPS for the year ended 31 December 2014 and 2015 in the
Statement of Comprehensive Income. [10 Marks]

(b) Korta Ltd had the following information:

Issued Share Capital to 30 September 2006 $

250 000 Ordinary shares of $1 each fully paid 250 000
110 000 20% Preferences shares of $1 each, fully paid 110 000

On 1 October 2010, Korta Ltd issued 500 000 10% convertible debentures of $1 each at
par. Each $100 nominated stock of the debentures will be convertible into ordinary shares
as follows:

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 31/12/2010 150shares
31/12/2011 140shares
31/12/2012 130shares
31/12/2013 120shares

Trading Results Year – Ended 31 December

2007 2006
$ $
Profit before Interest and tax 1 900 000 1 750 000
Debenture Interest (2006:¼ of year) (50 000) (12 000)
Profit Before tax 1 850 000 1 737 500
Company tax at 40% (740 000) (695 000)
Profit After tax 1 110 000 1 042 500

Required

(i) Calculate the diluted EPS for the year ended 31 December 2007, together with
Comparative figures for the year – ended 31 December 2006.
(ii) Show the presentation in the Income Statement. [15 Marks]

[TOTAL:25 MARKS]

Question 3

The objectives of any set of financial statements is to provide information about the financial
position, performance and changes in the financial position of an enterprise that is useful to a
wide range of users.

Required

a) Outline the users of financial statements. [10]

b) Briefly explain the qualitative nature of financial statements that enable the users to make
informed economic decisions. [15]

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