An extract from Bvumbwe Ltd's nominal ledger at 30 June 2015.
K'000
Administrative expenses 230,000
Distribution Costs 145,000
Other Operating Costs 30,400
Interest paid 19,300
Manufacturing Costs 291,300
Ordinary Share Capital (K1) at 30 June 2014 51,000
Share premium account at 20 June 2014 25,000
Freehold land - cost 729,000
Plant and equipment - cost 287,000
Accumulated depreciation at 30 June 2014 85,800
Patent rights 45,000
Retained earnings at 30 June 2014 22,500
Other operating income 6,700
Revenue 1,925,000
Purchases 367,000
Inventory at 30 June 2014 17,000
The following additional information is available:
During the year the Finance Director reviewed Bvumbwe Ltd's accounting policies. As a result of this review He decided to change the accounting policy for freehold land from historic cost as He felt that by showing the land at valuation it would provide more relevant information to users. At 30 June, 2015 the land was valued at K900, 000,000.
Inventory on hand at 30 June, 2015 has been counted and valued at K19, 500,000.
The depreciation charge for the year for plant and equipment has been calculated as K28, 700,000 and should be presented in cost of sales.
Plant and equipment with a carrying amount of K45, 000,000 was classified as held for sale on 1 January, 2015. The plant and equipment had originally cost K75, 000,000 three years ago and has a useful life of five years. On 1January, 2015 the fairvalue of the plant and equipment was estimated as K42, 000,000 and costs to sell were estimated at K1, 500,000. Depreciation was charged at the standard rate of 10% per annum on cost for the asset held for sale as it remained unsold at the year end and is included in the depreciation charge calculated above. The fairvalue of the plant and equipment fell to K39, 000,000 at 30 June, 2015; costs to sell remained the same.
Equivalent plant and equipment could be purchased for K80, 000,000. If the plant and equipment were to be retained in the business the Finance Director has estimated that it would cost future cash flows with a present value of K16, 000,000.
The patent rights were acquired on 1 October 2014 and have a five year life. They can be transferred to a third party before the end of the five years.
Bvumbwe Ltd issued new shares in February, 2015 to raise finance for its planned rationalization. 75,000,000 K1 ordinary shares were issued for cash at K2.30 each.
During the year an error had been identified in the opening balance of receivables whereby a customer account had been counted in the receivables total at that date. The correct opening balance on customers' account at 1 July 2014 was K7, 350,000.
On 1 September 2014, Bvumbwe Ltd entered into a two year contract to provide advertising services to one of its customers for K30, 000,000, payable in advance. Bvumbwe Ltd agreed to display billboards for the customer on all its main sites over the two years. The K30, 000,000 has been included in revenue for the current year.
An ordinary dividend of 7t per Share was declared on 6 May, 2015 and was paid before the end of the year.
The income tax liability for the year ended 30 June, 2015 has been estimated at K5, 000,000. An additional payment in respect of prior years of K2, 000,000 was made in September, 2015 following an investigation by MRA. Neither of these amounts had been recorded as a liability in the nominal ledger as at 30 June 2015.
The Finance Director has recently been on a course entitled ‘Measurement in Financial Statements'. On his return He said "I was told that the IASB'S Conceptual Framework for Financial Reporting' refers to four measurement bases but I am unclear as to what these are and what each of them means."
Required:
Prepare a Statement of Profit or Loss and other Comprehensive Income, and a Statement of Changes in Equity for the year ended 30 June 2015 in a form suitable for publication.(21 Marks)
Explain what the four measurement bases are, illustrating their application with reference to the figures in (3) above.