GROUP CASH FLOW STATEMENT

Q1. The following is the consolidated balance sheet of HIMAYA Limited and its subsidiaries as at
31st December 2004 together with comparative amounts as at the preceding balance sheet date
and the consolidated income for the year ended 31st December 2004.

HIMAYA LIMITED
CONSOLIDATED BALANCE SHEET AS AT 31st DECEMBER 2004

2004 2003
Shs ‘000 Shs. ‘000
ASSETS
Non Current Assets
Property, Plant and Equipment 15,900 13,000
Goodwill 705 600
Other Intangible Assets 1,350 1,500
Investment in Associates 1,135 1,050
Other Long Term Investments (at cost) 1,600 1,600

Current Assets
Inventory 2,500 2,900
Investments 1,700 2,000
Trade Receivables 1,600 1,200
Dividend Receivables 275 190
Interest Receivables 100 100
Prepayments 600 -
Cash & Bank Balances 3,865 1,400
TOTAL ASSETS 31,330 25,540

EQUITY & LIABILITIES

Equity Attributable to Equity Holders of the Parent
Ordinary Share Capital 8,500 7,000
Share Premium 2,620 900
Revaluation Reserve 1,950 1,200
Retained Earnings 7,530 5,500
20,600 14,600
Minority Interest 3,665 2,500
Total Equity 24,265 17,100

Non Current Liabilities

Long Term Borrowings 3,800 3,000
Differed 125 145
Total Non Current Liabilities 3,925 3,145

Current Liabilities
Trade and Other Payables 1,190 3,575
Dividend Payables 900 800
Current Tax Payables 1,050 920
Total Current Liabilities 3,140 5,295

Total Liabilities 7,065 8,440

Total Equity and Liabilities 31,330 25,540

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INCOME STATEMENT FOR THE YEAR ENDED 31st DECEMBER 2004

Shs. ‘000
Revenue 37,455
Other Income 610
Changes in Inventories of Finished Goods and WIP (400)
Raw Materials Consumed (8,000)
Employee Benefit Expense (17,100)
Depreciation & Amortisation Expense (1,550)
Impairment of Property, Plant and Equipment (250)
Other Expenses (5,500)
Finance Costs (500)
Share of Profit of Associates 215
Profit Before Tax 4,980
Income Tax Expense (1,080)
Profit for the Period 3,900

Attributable to
Equity Holders of the Parent 3,060
Minority Interest 840
3,900

The following additional information has been obtained:

1. On 1st April 2004, Himaya Ltd acquired 90% of the ordinary shares of Pembeni Ltd. The
purchase consideration given to the holders of the Pembeni Ltd shares acquired
comprised of cash and Himaya Ltd shares and was determined to be;

Shs. ‘000
Cash 1,480
Himaya Ltd Shares 2,000
Total Consideration 3,480

The fair values of Pembeni Ltd assets and liabilities on 1st April 2004 were:

Shs. ‘000
Cash and Bank Balance 300
Inventories 1,100
Trade Receivables 200
Land & Buildings 2,000
Plant & Equipment 1,500
Trade Payables (100)
Long Term Liabilities (1,250)

2. Investment classified as current assets are as follows;

2
 2004 2003
Shs. ‘000 Shs. ‘000
30 Days Treasury Bills 690 450
180 Days Treasury Bills 1,010 -
Equity Investment Held for Trading - 1,550
1,700 2,000

Interest income on Treasury Bills amounted to Shs. 185,000. No dividend income was
recognized on equity investments held for trading. The equity investments were sold
during the year.

3. Equipment having a carrying value of Shs. 700,000 at the time of disposal was sold for Shs.
790,000. The gain on disposal is included in Other Income. Land and Buildings were
valued upwards by Shs. 750,000. An impairment loss of Shs. 250,000 was recognized on
the remaining equipment.

4. Other income comprises of dividends receivable at 31 st December 2004, interest on

Treasury Bills, gain on disposal of equipment, and profit on sale of equity investments
held for trading.

5. Dividends payable include the following amounts payable to minorities:

31st December 2003 Shs. 245,000

31st December 2004 Shs. 200,000

6. Dividends receivable include the following amounts receivable from associates.

31st December 2003 Shs. 30,000

31st December 2004 Shs. 50,000

Required:

a) Enumerate the benefits of presenting information contained in cash flow statements to

users of financial statements

b) What are the circumstances under which a parent entity need not present consolidated
financial statements

c) Prepare a consolidated cash flow statement for Himaya Ltd and its subsidiaries for the
year ended 31st December 2004, in accordance with IAS 7 Cash Flow Statements

QUESTION 2 (CPA May 2001)

Published accounts for the past two years to June 30,2000. Kiwalani Ltd. Is a Manufacturing
Company with about one third of its issued share capital owned by the directors. On July
1,1999 plant costing shs.1,000,000,000 was purchased and became fully operational. A 50%
increase in sales was immediately achieved as the result of a heavy advertising campaign
undertaken during the months of June 1999 at a cost of shs.150,000,000. The company’s
policy is to amortize the advertising expenditure by three equal annual installments. The
figures below have been extracted from the company’s

Kiwalani Ltd.
Profit and Loss Account extract
3
 Year ended to June 30
(Figures ‘000’)

1999 2000
Shs. Shs.
Turnover 4,500,000 6,750,000
Operating profit 225,000 472,000
Less: Interest payable - 177,000

Net profit before Tax 225,000 295,000

Less: Corporation Tax 77,000 88,000
Net profit after Tax 148,000 207,000
Less: Dividends proposed 100,000 150,000
Retained profit for the year 48,000 57,000

Kiwalani Ltd.
Balance Sheet as at June 30
(Figures ‘000’)

1999 2000
Shs. Shs.

Fixed assets at cost 2,000,000 3,000,000

Less: Accumulated depreciation 800,000 1,100,000
1,200,000 1,900,000
Deferred expenditure: Advertising 150,000 100,000
1,350,000 2,000,000

Current Assets:

Stock and work in progress 300,000 440,000

Debtors 600,000 1,163,000
Cash at bank and in hand 35,000 -

935,000 1,603,000

Current Liabilities:
Creditors and accruals 22,000 327,000
Bank overdraft - 293,000
Taxation due March 31 77,000 88,000

4
Proposed dividend 100,000 150,000
397,000 858,000

Net current assets 538,000 745,000

Total assets less current liabilities1,888,000 2,745,000
Less: 12% loan - 800,000

1,888,000 1,945,000

Capital and Reserves

Issued share capital

(shs.1 Ordinary Shares) 1,000,000 1,000,000
Reserves and Retained Profits 888,000 945,000
1,888,000 1,945,000

Note:

(i) The loan shown in the balance sheet is repayable at the rate of shs.200,000,000 per annum. The first
payment being due in July 2001.

(ii) It is expected that turnover and operating profit for the year ending June 30 2001 will
remain at approximately the levels achieved during the year ended June 30 2000. All
fixed assets employed at present have minimum future useful life of three years,
except for a fully depreciated machine which must be replaced in March 2001 at a cost
of shs.120,000,000.

REQUIRED:
(a) A statement of cash flow for the year ended June 30,2000. (5 marks)

(b) A discussion of the company’s financial progress and position based on the
calculations in (a) above together with relevant solvency and asset turnover rations.
(10 marks)
(c) Your views on whether the company will be able to meet a requirement imposed by
the bank to eliminate the overdraft shown on the balance sheet at June 30 2001. You
should produce figures to support your conclusions
(Ignore inflation and advance corporation tax.)
(10 marks)
(Total: 25 marks)