Math Problem Solver

a.) Enzo Ltd is an agro processing company, whose Head office is in Lusaka. The trial balance of the company for the year ended 31 December 2021 is as follows:

Debit Credit

K’000 K’000

Revenue Note (i) 2,634,750

Cost of sales 1,856,830

Administrative expenses Note (iii) 405,000

Other operating expenses 273,750

Non-current assets Note (ii) 241,620

Inventory (31/12/2021) 173,700

Trade & Other receivables 177,750

Trade payables 131,838

Cash & Bank balances 823,050

Share Capital@K1 Note (iii) 900,000

Retained earnings 170,550

Revaluation surplus Note (ii) 98,000

Provision for tax Note (iv) 588

Deferred tax-31/12/2020 Note (iv) - 17,150

3,952,288 3,952,288

Additional Information:

i.) Included in the revenue figure is sales made on special arrangement, payable by customers in two years’ time at an amount of K16.8 million. The cash price of the sales at the date of the sales (i.e 1 January 2021) is estimated at K15 million and the effective interest rate of the arrangement has been computed as 5.83% per annum.

ii.) Non-current assets are made up of the following classes of assets:

` Cost/value Accumulated Carrying

Depreciation at Value at 31

31 December 2020 December 2020

K’ 000 K’000 K’000

Building (Land: K80million) 198,000 - 198,000

Motor vehicles 41,700 16,680 25,020

Machinery & equipment 20,400 1,800 18,600

260,100 18,480 241,620

The company revalues its buildings at a time interval sufficient to keep the carrying value close to its fair value on the market. The buildings were revalued at 31 December 2020 at K198 million (Land component: K80 million). The revaluation surplus shown in the trial balance represents the revaluation difference arising on the revaluation of buildings at

31 December 2020. All buildings were completed for use on 1 January 2011.The company’s buildings are administrative offices and production centres. The estimated useful life of the company’s buildings is 50 years. The company relocated from one of its administrative offices, and consequently sold the building for K27.6 million, on 1 April 2021. The revaluation amount and the revaluation surplus on this building at 31 December 2020 were K25 million (Land component: K5 million) and K8 million respectively. The remaining Land and Buildings were revalued on 31 December 2021 at

K169.35 million (Land component: K85 million). It is the policy of the company to realize revaluation surplus only upon derecognition of the non-current asset.

The disposal of the building and the current year revaluation of the remaining buildings are yet to be recorded in the books of the company. The consideration for the disposal of the building was received in the first week of January 2022.

There were no other changes in the value of property, plant and equipment for the year ended 31 December 2021.

The trial balance excludes depreciation expense for the year ended 31 December 2021 on all non-current assets. Depreciation is charged to cost of sales. Motor vehicles, Machinery & equipment are all depreciated over five-years useful life.

iii.) In lieu of cash dividend payment, the company on 1 January 2021 issued bonus shares of one new share for every ten existing shares held at the agreed price of K1, subject to 8% withholding tax on capitalisation of dividend. The 8% tax withheld has been paid by the company, and it is included in administrative expenses. The bonus shares are yet to be recorded. The bonus shares are in respect of the year ended 31 December 2020.

The Board of Directors of the company has, however, immediately after 31 December 2021, proposed dividend of K0.80 per share in respect of the year ended 31 December 2021. Shareholders are yet to approve the proposed dividend.

iv. ) Provision for tax represents the under/over provision of tax by the company, arising from differences in the tax provided for the year ended 31 December 2020 and the actual tax liability arising from tax audit for the 2020 year of assessment. Current tax for the year ended 31 December 2021 is estimated at K16.7 million. Taxable temporary differences arising from differences in carrying amounts of assets and liability as against their tax bases, as at 31 December 2021 have been computed as K60 million. Corporation tax is 25%.

Required:

i. Prepare the following financial statements of Enzo Ltd for the year ended 31 December 2021:

ii. Statement of profit or loss and other comprehensive income

iii. Statement of changes in equity

iv. Statement of financial position as at that date.

(Total: 20 marks)

b.) It is understood that different users require financial information for assistance in their economic decisions. Financial statements need to have certain characteristics or adhere to certain accounting principles in order to be useful to its users.

Required:

In relation to the statement above, write brief notes about the following:

i. Consistency

ii. Completeness

iii. Materiality

iv. Going concern