ASSOCI

ATECOMPANI
ES(
IAS28)

Anassoci
atecompanyi sacompanyinwhi
chtheinv
esti
ngcompanyownsmor et
han20%but
l
essthan50%oft hevoti
ngri
ghts.Thi
smeansthatt
heinvesti
ngcompanydoesnotcont
rolor
ownt heassoci
atecompanybuthasapar t
ici
pat
inginf
luenceinthef
inanci
alandoper
ating
act
ivi
ti
esoftheassoci
atecompany.

Thepart
ici
pat
ingi
nfl
uenceari
sesbecausetheinvesti
ngcompanyv i
rtueofitssi
gni
fi
cantvot
ing
ri
ght
scanbeabl etoappointoneortwodi r
ectorsintheboardofdi rect
orsoftheassoci
ate
company.Thesedi
rect
orswil
ltakepar
tint
hedeci si
onmakingprocess.

Ast heinvest
ingcompanydoesn’
tcontr
oltheassoci
at ecompany ,associ
atecompanyare
ther
eforeNOTconsoli
dat
ed.However
,duetothepar
ti
cipati
nginf
luence,t
heycannotbet
reat
ed
asmer einv
estment
sandthusI
AS28requir
estheuseofequitymethodofaccounti
ng.

In summary,the equit
ymethod ofaccounting requir
es t
hatt he invest
mentin associ
ate
companyshouldinit
ial
l
ybecarr
iedintheaccountsatcostandt hereaf
tertheamounti
ncreased
wit
ht he i
nvesti
ng company’
s share ofpost-acquisi
ti
on r
etained profi
tsinthe associ
ate
company.

I
npr
epar
ingt
hef
inal
account
sthef
oll
owi
ngappr
oachwi
l
lbeused;

I
NCOMESTATEMENT

a)I gnoret hesales,costofsal esandt heexpensesoft heassociatecompany . However

,
premi um orgoodwi l
larisingonacqui sit
ionofassoci atecompanyshoul dbecomput edthe
normalwayast hatoft hesubsidi
ar ycompanyi ncaseofanyi mpairment,thenitshoul
dbe
i
ncl udedinthei nv estingcompany ’sexpenses..
b)Thei nvesti
ngcompanyshoul drepor tit
sshar eofpr ofitbef
oretaxinassociatecompanyas
partofot herincomesandi tsshareoft axi nassoci atecompanyaspar tofitsincometax
expense.
Alternati
vel
y,thei nvestingcompanycanshow i tsshar eofpr ofi
taftertaxi nassoci
ate
companyasot heri ncomes.
c) Justl i
keinsubsi diarycompani est heretainedprofitsb/ doftheinvesti
ngcompanywi llbe
madeupoft heinv est i
ngcompany ’
sr et
ainedprofi
tsb/ doft heassociat
ecompany .
Adjust mentsforpr evi
ousl yi
mpairedgoodwi l
lorpremi um shouldbemadeatt hi
sstage.

BALANCESHEET
I
nt hebalancesheet,t
heassetsandl i
abil
it
iesoftheassoci
atecompanywil
lbeignoredbut
i
nsteadtheinvest
mentinassociat
e companywi l
lbeshownaspar toft
henon-
cur
rentasset
s.
Theamountt oappeari
nthebalancesheetcanbecomputedasfol
lows;

£
Costofi
nvest
mentinassoci
atecompany x
Add;Inv
esti
ngcompanyshareofpost-acqui
sit
ionret
ainedpr
ofi
tsi
nassoci
ate x
company
x
Less:Pr
emium (
goodwil
l)i
nassoci
atecompanyi mpai
redtodate (
x)
x
NOTE:Thepr emi
um orgoodwi lli
nassoci at
ecompanyi susedi ncomput inginvest
menti n
associat
ecompanythatappear sinthebalancesheetandshoul
dt her
efor
enotbeshownasa
separateit
em intheinvesti
ngcompany ’
sbal ancesheet
.Thatmeanst hatift heinvest
ing
companyhasasubsi diarycompany ,itisonlyt hegoodwi
llofthesubsidiarycompanyt hat
shouldappearint
heconsoli
datedbalancesheet.

I
NTER-
COMPANYTRANSACTI
ONSANDBALANCES

Astheassociat
ecompanyi snotconsolidat
ed,car
eshoul
dbet akenwhent
her
earetr
ading
tr
ansacti
onsandi nter-
companybalancesbetweentheinvest
ingcompanyandassoci
ate
company .
Thefoll
owinggeneralappr
oachesshouldapply
;

a)I
nter
-companysal
esofi
nvent
oryandPPEshoul
dbei
gnor
edandnotadj
ust
edf
or.

b)I
ncaseofunr eal
izedprofi
tonPPE, openi
ngandcl osi
nginventor
iesandexcessdepreci
ation,
thentheinvesti
ngcompany ’sshareoft heseitemsi snotdeductedfrom t
hegroupr et
ained
profi
tsandalsofrom thei
nvestmenti nassociatecompanyappear ingint
hebalancesheet .
I
ft hesalet
ookpl aceinthecurrenty ear
,thent heUnreali
sedprofi
tonPPEand oncl osing
i
nv ent
oryandexcessdepr eciat
ionar edeductedf rom t
heinvest
ingcompanyshar eofprofit
beforetaxi
nassoci at
ecompany .

However
,ift
hesaletookplaceinpr
eviousfi
nanci
alper
iods,t
hentheUPonPPE,UPon
openi
ngi
nvent
oryandexcessdepr
eci
ati
onarededuct
edfr
om thegroupr
etai
nedpr
ofi
tsb/
d.

NOTE ;Theaccount
ingt
reat
menti
sthesame i
rr
espect
iveoft
hecompanyt
hatmadet
he
sal
e.

c) I
nthecaseofint
er-
companybalances,t
heamountduetoorf rom t
heassoci
atecompany
wi
ll
sti
l
lappeari
nthefi
nalbal
ancesheetast
heyarenotsupposedtobecancel
l
edout.

Howeveryoumaypresenttheamountsduetoorf
rom associ
atecompanyasasepar
ate
i
tem f
rom t
heot
herr
eceivabl
esorpay
ables.

Forexample.
Intheconsol
idat
edbal
ancesheet,below t
her ecei
vablesitwil
lhave;duef
rom associ
ate
companywhichismadeupothebal anceduef r
om associat
ecompanyasadebtorplusthe
i
nvesti
ngcompanyshar
eoftheproposeddividendsintheassoci
atecompany
.

I
LLUSTRATI
ON

AmuaLi mitedpurchased80%oft heordinaryshar

ecapitalofSawanaLimitedon31Januar
y
2009forSh.496mi l
li
onand20%oft heordinar
ysharecapi
talofUkwalaLi
mitedon31Jul
y2008
forSh.
56mi ll
i
on.Profit
sinal
lcompaniesaredeemedtoaccr ueevenl
yovert
hey ear
.
Thedraftaccount
sf orthet
hreecompaniesareshownbelow:

Bal
anceSheetasat30Apr
il2009 Prof
itandlossaccount
sfort
heyearended
30April
2009
Amua Sawan Ukwal Amua Sawan Ukwala
 Lt
d aLtd aLt d Lt
d aLtd Lt d
Sh Sh Sh. Sh Sh Sh.
.mil
l
io .mil
l
io Mil
l
ion .mil
l
io .mil
l
io Mil
li
on
n n n n
Fi
xedasset s(NBV) 414 280 220 Sales 2,346 2,400 1,400
I
nv est
ment s 552 - - Costofsal es (1,564) (1,620) (840)
966 280 220 Grosspr ofi
t 782 780 560
Currentassets Distr
ibutioncost s (310) (400) (200)
Stock 180 210 70 Admi nexpenses (240) (200) (180)
Debtors 240 140 56 Profi
t f
rom 232 180 180
Bank 28 12 21 operations (42) - -
448 362 147 I
nterest on 190 180 180
CurrentLi
abil
iti
es debent ur
es (72) (40) (20)
Credit
ors 189 109 45 Profi
tbef oret ax 118 140 160
Tax 7 3 2 Taxation 63 40 40
Proposeddividends 63 40 40 Profi
taf t
ert ax
259 152 87 Divi
dendspr oposed 55 100 120
Netcurrentassets 189 210 60 Retainedpr ofits 120 190 (40)
1,
155 490 280 Forthey ear 175 290 80
Broughtf orwar d
Share capi
tal Carriedfor ward
ordi
nary 700 200 200
Shares of Sh. 10 175 290 80
each 875 490 280
Retai
nedearnings 280
Sharehol
der
s’ 1,
155
Funds
15%Debentures

Addit
ional
infor
mati
on
1.AmuaLi mit
edhasnotyetaccount
edf
ordi
vi
dendsr
ecei
vabl
efr
om ei
theri
tssubsi
diar
yori
ts
associ
atedcompany.

2.Assumet hatgoodwillandpremium hasbeeni

mpairedattherat
eof20%perannum. .The
fai
rv al
ueoft heidentif
iabl
enetassetsint
hesubsi
diary
,attheti
meAmuaLt d.acqui
redit
s
shareholding,ar
eequalt obookv al
ues.AmuaLimitedcarri
esdiv
idendsduetomi nor
it
y
i
nterestsasacur rentli
abil
i
ty.

Requi
red:

Theconsol i
datedpr ofi
tandlossaccount(whichshouldbeinaccor dancewiththeInter
nati
onal
AccountingSt andardNo.1,showi ngexpensesbyf uncti
onont hefaceoft heprofi
tandl oss
account)forthey earended30April1999,andtheConsoli
datedbalancesheetasatt hatdat
e.
Donotpr oduceast atementofchangesi nequit
yf orthey ear:theretai
nedpr ofi
tbrought
forwardandcar ri
edf orwar
dshouldbei ncl
udedinsteadintheprofitandlossaccount.Account
fortheassociatedcompanyi naccordancewiththeequit
ymet hodasl ai
ddowni nIAS28.

CONSOLI
DATEDCASHFLOW STATEMENTS(
IAS7)

Thebasi
ccashfl
owstat
ementhasbeencov
eredunderFi
nanci
alAccount
ingI
I.Thef
oll
owi
ng
i
ntr
oduct
ionwi
ll
serv
easaquickr
eminder
.

ACashfl
owstat
ementi
sasi mpl
erepor
tthatexpl
ainsthevar
ioussour
cesofcashandhowt
he
busi
nessput
sthi
scashint
ouse.Theobjecti
veofI AS7istorecommendtheformati
nwhi
ch
thecashfl
ow stat
ementshouldbepr
esent
edandwher
ethev
ari
oussour
cesofcashand
paymentsshoul
dbeclassi
fi
ed.

Thecashr
ecei
vedandpay
ment
smadeshoul
dbecl
assi
fi
edi
ntomai
ncat
egor
ieswhi
char
e:-

1.Cashf
lows f
rom operati
ng act
ivi
ti
es: operati
ng acti
vi
ti
es arethe pr
inci
pler
evenue
gener
ati
ngact
ivi
ti
esofthebusi
nessandexamplesofsuchcashf
lowsi
ncl
ude:

i
) Cashrecei
vedfrom customers
i
i
) Cashpaidtosuppl
iersofgoodsandser
vices
i
i
i)Cashpaidtoemployees

2.Cashf
lowsf rom i
nvest
ingact
ivi
ti
es:invol
vi
ngacti
vi
ti
esi
nvol
vetheacquisi
ti
onanddisposal
ofnon-curr
entassetssuchas;propert
y,pl
antandequi
pment,i
ntangi
bleasset
s,andlong-
ter
minv est
ments.

Exampl
esofsuchcashf
lowsi
ncl
ude:

i
) Proceedsonsaleofnon-curr
entassetse.g.PPEand
i
i
) Cashusedonacquisit
ionofnon- cur
rentasset
se.g.PPE
i
i
i)I
nv est
mentincomerecei
v ed(notaccrued)

3.Cashfl
owsfr
om fi
nanci
ngact i
vi
ti
es;Fi
nancingact
ivi
ti
esarethoseact
ivi
ti
esthatwi
l
lleadt
o
ei
therani
ncr
easeordecreaseinshar
eholdersf
undsandlong-t
ermli
abi
li
ti
es.

Exampl
esofsuchcashf
lowsi
ncl
ude;

i
) Proceedsonissueofshar es
i
i
) Repaymentofloanse.g.loanstockordebent
ures
i
i
i)Capit
alrepay
mentonf inancelease
i
v)Divi
dendspaid

I
AS7r
ecommendst
hatt
hecashf
lowst
atementcanbepr
epar
edusi
ngt
womet
hods:
-

I
) Directmethod
Wher eby,cashfrom oper
ati
onsisdeterminedbyget t
ingthedif
ferencesbet
weencash
receivedfr
om customer
sandcashpai
dt osuppli
ersofgoodsanser
vicesandemploy
ees.

I
I)I
ndir
ectmethod
Thecashfr
om oper
ati
onsi
sdet
ermi
nedbymaki
ngadj
ust
ment
stot
hepr
ofi
tbef
oret
axf
or
thef
oll
owi
ngi t
ems.

b)Non- cashincomeandexpensese.g.depr
eci
ation,
amor
ti
zat
ion,
lossorpr
ofi
tondi
sposalof
PPE
c) I
ncorrect
lyclassif
iedit
emse.
g.i
nvest
mentincomeandi
nter
estchar
ged
d)Wor kingcapitalchanges.

Inaddi
tiontotheaboveitems,thef
oll
owi
ngpoi
ntsneedt
obenot
edaboutpr
epar
ati
onof
consol
i
datedcashf
lowst
atements.
i
) Goodwi
l
limpairedf
ort
heyeari
sanon-
cashexpenset
hatshoul
dbeaddedbackt
othe
gr
oupprof
itbef
oret
het
ax.

i
i
) Wheret hegr ouphasinvest
ment
si nassociat
ecompanythendivi
dendsrecei
vedf r
om
associ
ateshouldbereport
edasasepar
ateit
em underi
nvest
ingact
ivi
ti
es.Thedi
videndto
bereportedcanbedeter
minedasf
oll
ows.

I
nvest
menti
nassoci
ateaccount
£ £
Bal
anceb/
d x Share of tax in associ
ate
company
Shar
eofprof
itbef
oret
axi
n associ
ate Div
idendsbal
ancefi
gure x
company
Bal
ancec/
d x
x x

Thedivi
dendspai
dtomi nor
ityi
nter
estshouldal
sobediscl
osedsepar
atel
yfr
om t
hoseoft
he
hol
dingcompanyandcl
assif
iedunderf
inanci
ngacti
vi
ti
es

Di
vi
dendspai
dtomi
nor
it
yint
erestmaybedet
ermi
nedasf
oll
ows:

Mi
nor
it
yint
erestaccount
£ £
Div
idendsbal
ancef
igur
e x Bal
anceb/
d
Balancec/
d x Shar
eofprof
it
sinsubsi
diar
y x

x x

I
LLUSTRATI
ON

Thev oi
ceoftheNati
onLimit
edi
saNai robibasedmediacompany
.I tsConsol
idat
edIncome
Stat
ementforthey
earended30Apr
il2013,anditsConsol
i
dat
edBalanceSheetsasat30Apri
l
2012and2013areasfol
lows:

Consol
i
dated I
ncome Consol
i
dated 2013 2012
Stat
ement for t he Bal
anceSheet Sh.mi
ll
i Sh.
mill
i
o
yearended 30 Apri
l asat30Apri
l on n
2013
Sh.
mil
l
ion Non-
cur
rentasset
s:
Sales 3,325
Costofsal es (
1,935) Propert
y , plant and
Grosspr ofi
t 1,390 equip. 2,297 2,134
Distr
ibuti
oncost s (225) (CostorValuati
on) (931) (733)
Admi ni
strati
v eexpenses (
790) Accumul at
ed 1,366 1,401
Operatingpr ofi
t 375 Depreciat
ion 126 126
Fi
nancecost s:Intexpense (8) Int
angible asset
: (30) (17)
Share of r esults of 50 Goodwi l
l 96 109
associate 417 263 246
Profi
tbef oretax (
110) Amor
ti
sat
ion 1,725 1,756
Tax:Groupcompani es (
15) (
125)
Shar eofassoci
ate 292 Invest menti nassociate 276 178
Prof
it bef ore mi nor
it
y (28) 607 623
i
nterest 264 Currentasset s: 93 71
Minorit
yinterest Invent ories 976 872
Prof
itaftertax Recei vabl es and
prepay ment s
Cash and cash
equiv alent s
CurrentLi abili
ti
es:
Pay ables and accr ued 615 484
expenses 22 16
Addi
ti
onali
nf or
mation: Currentt ax 8 133
1. Thehol
dingcompany
,thesubsi
diar
y Borrowi ngs: bank 645 645
and the associ
ate had al
l pai
d over draf t 331 331
di
vi
dendsduri
ngtheyear
. 2,
056 1,
940
Netcur rentasset s
A classofasset sint hesubsi diary
had been revalued dur ing the year. Capitalandr eser v
es: 500 500
Depreciat
ion of Sh. 20 mi l
li
on had Sharecapi tal 260 133
beenwr it
tenbackont her eval
uation. Revaluationr eserve 839 725
Thet r
ansfertothereval uati
onsurpl us Retainedear nings 1,
599 1,
413
accountint hesubsidiarywasSh. 120 Shareholder s’funds 240 204
mill
i
on. Themi nor
ityi nterestowns Minor i
tyinterest
40% of t he shar e capi talof t he Non-cur r
entl i
abili
ti
es: 110 200
subsidi
ary. Borrowings: 107 123
commer cialpaper 217 323
Propert
y,plantandequipmentwhich Deferredt ax 2,
056 1,
940
hadcostSh. 100mil
li
onandonwhi ch
accumulated depr
eciat
ion stood at
Sh.47 mil
li
on at30 Apr i
l2012 was
soldforSh.70mil
li
onintheyear.

Thegr oupcl assifi

esi nter
estpaidas
anoper atingcashf l
ow,t herewer eno
accrualsatt hebegi nning oratt he
endoft hey earinrespectoft hisi
tem.
Itclassifi
esdi v
idendsr eceivedasan
i
nv esti
ng act ivit
yand anydi vi
dends
paid as an i nvesti
ng act i
vity
. The
bank ov erdrafti s classif
ied as a
component of each and cash
equivalent.

Requi
red;Pr
epar
etheConsol
i
dat
edCashf
low St
atementf
ort
hey
earended30Apr
il2013f
or

t
hegr
oupusi
ngt
hei
ndi
rectmet
hod. (
20mar
ks)