3.

S ltd controls a famous brand estimated to have a useful economic life of 20 years from 1 August
2021. The fair value of the brand on 1 August 2021 was Sh.40 million. This has not been recognised
in the books of account of S ltd.
4. P ltd wishes to use the fair value method to measure the non-controlling interest in R ltd at acquisition
[

CPA ADVANCED LEVEL

date. The market price of the ordinary shares of R ltd at acquisition date was Sh.2.50 each. This is
ADVANCED FINANCIAL REPORTING & ANALYSIS considered as a fair measure of the non-controlling interest.
ASSIGNMENT TWO 5. Both R ltd and S ltd were impairment tested on 31 July 2022. The recoverable amounts of both cash
FEBRUARY 2023 generating units on 31 July 2022 were R ltd Sh.3,824 million and S ltd Sh.2,409.93 million respectively.
QUESTION ONE 6. During the year ended 31 July 2022, R ltd bought goods from S ltd for Sh.16 million. These goods had
The following statements of financial position were extracted from the books of P ltd, R ltd and S ltd at 31 cost S ltd Sh.12 million. At 31 July 2022, 60% of these goods remained unsold by R ltd.
July 2022: Required:
P ltd R ltd S ltd Prepare the consolidated statement of financial position for P ltd group as at 31 July 2022 in accordance
Sh. ‘million’ Sh. ‘million’ Sh. ‘million’ with International Financial Reporting Standards. (20 marks)
Assets: [TOTAL: 20 Marks]
Non-current assets:
Property, plant and equipment 3,888 1,680 1,224 QUESTION TWO
Investments 3,560 2,600 200 (a) An entity may alter the terms and conditions of share option schemes during the vesting period. In
7,448 4,280 1,424 case of a modification, the general rule is that the entity must recognise as a minimum, the services
Current assets: already received measured at the grant date fair value of the equity instruments granted.
Inventories 1,080 368 300 Required:
Trade and other receivables 1,376 416 100 Explain the accounting treatment for modification of share-based payment transaction from cash-
Cash and bank balances 368 104 _64 settled to equity-settled. (4 marks)
2,824 888 464
Total assets 10,272 5,168 1,888 (b) IFRS 2 – Share Based Payments, recognises two types of vesting conditions.
Equity and liabilities: Required:
Capital and reserves: (i) Explain the meaning of the term ‘vesting condition’. (2 marks)
Ordinary share capital of sh.1 each 4,000 1,200 640 (ii) Briefly explain the two types of vesting conditions identified in IFRS 2 and give two examples of
Revaluation surplus 2,400 960 760 each. (6 marks)
Retained earnings 1,432 _800 _400
Total equity 7,832 2,960 1,800 (c) On 1 January 2021, Sori ltd granted 1,200 share options each to its 250 employees on the condition
Current liabilities: that they remain in the entity’s employment during the vesting period. The fair value of the share
Trade and other payables 1,144 1,080 56 options is Sh.30 each on 1 January 2021.
Current tax liability 1,296 1,128 __32 Additional information
2,440 2,208 __88 1. The share options will vest at the end of 2021 if the entity’s earnings increase by more than 18%;
Total equity and liabilities 10,272 5,168 1,888 at the end of 2022 if the entity’s earnings increase by more than an average of 13% per year over
Additional information: the two-year period; and at the end of 2023 if the entity’s earnings increase by more than an
1. P ltd acquired 720 million ordinary shares in R ltd on 1 August 2020 at a cost of Sh.2.50 per share paid
average of 10% per year over the three-year period.
in cash. On 1 August 2020, the retained earnings of R ltd amounted to Sh.480 million. At acquisition,
the fair value of the identifiable net assets in R ltd were equal to their carrying values except for a 2. During the year ended 31 December 2021, Sori Ltd’s earnings increased by 14%, and 15 employees
property whose carrying value was Sh.320 million below its fair value. left. The entity expects that earnings will continue to increase at a similar rate in 2022, and
2. On 1 August 2021, R ltd acquired 512 million ordinary shares in S ltd at a cost of Sh.3 per share in therefore expects that the shares will vest at the end of 2022. The entity estimated that a further
cash. Additionally, it was agreed that R ltd would make a further payment of Sh.1 per share on 31 July 15 employees will leave in 2022.
2023. The fair value of this component of the consideration was Sh.320 million on 1 August 2021, and 3. In 2022, 14 employees left and the entity’s earnings increased by 10% and therefore the shares
Sh.416 million on 31 July 2022. R ltd has already recorded the immediate cash payment but is yet to
do not vest at the end of 2022. At 31 December 2022, the entity expects that a further 12
account for the deferred consideration element of the purchase price. At acquisition date, the
retained earnings and revaluation surplus of S ltd amounted to Sh.664 million and Sh.360 million employees will leave during 2023, and that the entity’s earnings will increase by at least 6%.
respectively. The fair value of the net assets of S ltd were equal to their carrying values on 1 August 4. 13 employees left in 2023 and the entity’s earnings increased by 8% during the year.
2021.
1
 Required: Required:
Compute the employment cost to be charged to profit or loss and addition to equity in each of the Explain, with calculations, how any impairment loss will be accounted for. (4 marks)
three years ended 31 December 2021, 2022, and 2023. (8 marks)
(c). On 1 March 2018, Fashions Textiles ltd imported an automatic plant for Sh.27 million. The
[TOTAL: 20 MARKS]
commissioning of the plant was completed in December 2018 at a cost of Sh.3 million. The commercial
production commenced on 1 January 2019 and at the time, the economic life of the plant was
QUESTION THREE
estimated as 8 years.
(a). A ltd acquired all the equity shares of P ltd for a cash payment of Sh.260 million on 1 January 2019.
Additional information
The carrying amount of the net assets of P ltd on 1 January 2019 was Sh.180 million and no fair value
1. During the exercise carried out to determine the impairment in the value of the plant on 31
adjustments were necessary upon consolidation of P ltd.
December 2020, the following estimates were made:
On 30 June 2019, A ltd carried out a review of the goodwill on consolidation of P ltd for impairment.
The review involved allocating the net assets of P ltd into three cash generating units A, B and C and • Due to lack of demand the estimated plant utilization is reduced from 80% to 70%.
computing the value in use of each unit. • It is estimated that due to underutilization of the plant, the life of the plant will be increased
The carrying values of the individual units before any impairment adjustments were as follows: by 2 years but an overhauling of the plant would have to be carried out at the end of the year
Unit A Unit B Unit C 2026 at a cost of Sh.1 million.
Sh. ‘million’ Sh. ‘million’ Sh. ‘million’ • The applicable discount rate is 10%
Property, plant and equipment 60 30 40 • The net annual cash flows (excluding overhauling cost) have been estimated as follows:
Patents 5 - - Year 2021 2022 2023 2024 2025 2026 2027 2028
Net current assets 20 25 20 Net cash flows (Sh. ‘m’) 5 4 3.5 3.2 3 2.5 2.3 2
Carrying values 85 55 60 2. The current selling price of a similar plant in the local market is Sh.15 million. The present
Value in use 72 60 65 decommissioning cost of the plant is estimated at Sh.200,000.
Additional information: Required:
1. It is not possible to meaningfully allocate the goodwill on consolidation to the individual cash- Compute the impairment loss (if any) in the value of the plant as at 31 December 2020. (8 marks)
generating units. [TOTAL: 20 Marks]
2. The patents of P ltd have no ascertainable market value but all the current assets have a market
value that is above carrying value. QUESTION FOUR
3. The value in use of P ltd as a single cash-generating unit at 30 June 2020 is Sh.205 million. (a.) Distinguish between the following terms as used in pension accounts
Required: (i) ‘Funded schemes’ and ‘unfunded schemes’ (3 marks)
(i.) Compute the impairment losses (if any) for each cash-generating unit of P ltd and allocate the (ii) ‘Current service cost’ and ‘past service cost’ (3 marks)
impairment losses to the individual assets within the cash-generating units. (4 marks) (b.) Explain three reasons why there may be variations in the regular pension costs to the employer
(ii.) Explain and calculate the effect of the impairment review on the carrying value of the goodwill (6 marks)
on consolidation of P ltd at 30 June 2020. (4 marks) (c.) Bima ltd operates a defined benefit plan. The following information was extracted from its record on
31 December 2022.
(b). An explosion occurred in the factory of ABC ltd on 30 June 2022. On this date, the carrying amounts Sh. ‘000’
of its assets were as follows: Fair value of plan asset as on 1 January 2022 163,200
Sh. ‘000’ Present value of pension obligation as on 1 January 2022 156,000
Goodwill 500 Current service cost 18,000
Patents 1,000 Benefit paid 12,000
Machines 1,500 Contribution paid to the plan 19,200
Computers 2,500 Re-measurement component in obligation (loss) 2,400
Buildings 7,500 Re-measurement component in plan assets (gain) 10,080
13,000 Discount rate 10%
Additional information: Required:
1. The factory operates as a cash generating unit. An impairment review revealed a fair value less costs (i.) Compute the pension cost to be recognised in the statement of profit or loss for the year ended
to sell of Sh.6 million for the factory and value in use of Sh.9.75 million. 31 December 2022 (2 marks)
2. Half of the machines have been blown to pieces but the other half can be sold at least their carrying (ii.) Compute the net pension asset/liability to be presented in the statement of financial position as
amount. The patents have been superseded and are now considered worthless. at 31 December 2022. (6 marks)
[TOTAL: 20 Marks]

2
 QUESTION FIVE
(a) The County Council of Bomet bought an office building on 1 January 2005 at a cost of Sh.400 million.
The building was estimated to have a useful life of 50 years. In 2022, a fire broke out in the building and
caused severe structural damages. Due to safety reasons, the office building was closed and structural
repairs costing Sh.280 million were to be undertaken to restore the office building to an occupiable
condition. The fair value less costs to sell and the replacement cost of the building as at 31 December
2022 was Sh.120 million and Sh.800 million respectively.
Required:
Using the restoration cost approach, evaluate whether there is any impairment loss as at 31 December
2022 in accordance with the requirements of International Public Sector Accounting Standard (IPSAS)
21 – Impairment of Non-cash generating assets. (5 marks)

(b) Budalangi Primary School constructed a school building at a cost of Sh.80 million in 2016. The school
started its operations on 1 January 2017 and was estimated to have a useful life of 40 years. On 31
December 2022, the school was closed because enrolment in the school declined unexpectedly due to
a population shift caused by the bankruptcy of a major employer in the area. The school was converted
to use as a storage warehouse because there was no expectation that enrolments would increase in the
future such that the building would be reopened for use as a school. The current replacement cost for
a warehouse with the same storage capacity as a school is Sh.50 million.
Required:
Evaluate the impairment loss attributable to the school building as at 31 December 2022 using the
requirements of IPSAS 21 – Impairment of Non-cash generating assets. Use the depreciated
replacement cost approach. (5 marks)

(c) Hodari ltd issued 60,000 5% convertible bonds at par on 1 January 2020. The bonds are redeemable
on 31 December 2023 at their par value of Sh.100 per bond. The interest on the bonds are paid in
arrears at the year end. Each bond can be converted at the maturity date into 50 Sh.1.40 ordinary
shares. The prevailing market interest rate for similar bonds that have no rights of conversion is 8%.
The discount factors at 5% and 8% of Sh.1 receivable at end of:
Year 5% 8%
1 0.9524 0.9259
2 0.9070 0.8573
3 0.8638 0.7938
4 0.8227 0.7350
Required:
(i.) Split the proceeds of the bond into the debt and equity components immediately after the issue.
(2 marks)
(ii.) Financial statement extracts for each of the four years ended 31 December 2020, 2021, 2022 and
2023. (6 marks)
(iii.) Show the relevant journal entry assuming that all the bondholders elected for conversion on 1
January 2024. (2 marks)
[TOTAL: 20 Marks]