Illustration for preparing final accounts, Financial Accounting

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Illustration for preparing final accounts

K Ltd established a branch in Arusha Tanzania on 1.1.X2, when Kshs 1 = TShs 15. PPE costing Kshs 800,000 were purchased on that day. In addition, cash of Shs 500,000 was sent to Arusha on 1.1.X2, together with goods which had cost K Ltd Shs 1m. The Arusha branch sells HO goods and also goods purchased in Tanzania.

Additional information:
1)    Inventory at 31 December 20X2 was valued at Tsh 6 million, being goods from HO.
2)    Depreciation is to be charged at 10% on the cost of fixed assets.
3)    Accrued expenses amounted to Tsh 1.5 million.
4)    Prepaid expenses amounted to Tsh 1.8 million.
5)    There was no closing inventory of goods purchased in Tanzania.
6)    The remittance was made on 1 Oct 2002 and translated into Ksh 1,650,000.
7)    Exchange rates during the year were:

Required:
Income statements for the year to 31 December X2 and balance sheets as at that date in

a) Tanzanian shillings
b) Kenya shillings:

Using the functional currency method of translation;
Using the presentation method of translation.

Translation of Arusha branch trial balance (functional currency method)

	Original trial balance		Rate	Translated trial balance
	Tsh’000	Tsh’000		Ksh’000	Ksh’000
PPE	12,000		1/15	800
Sales		48,000	1/12		4,000
Goods from head office	15,000		1/15	1,000
Purchases in Tanzania	15,000		1/12	1,250
Expenses	17,700		1/12	1,475
Receivables & Payables	2,000	1,000	1/10	200	100
Cash at bank	2,000		1/10	200
Remittances to Kenya	19,500		ACT	1,650
Head office current a/c		34,500	ACT		2,300
Closing inventory (for balance sheet)	6,000		1/15	400
Closing inventory (for trading a/c)		6,000	1/15		400
Depreciation expense (P&L )	1,200		1/15	80
Provision for depreciation (balance sheet)		1,200	1/15		80
Accrued expenses (balance sheet)		1,500	1/10		150
Prepaid expenses (balance sheet)	1,800		1/10	180
	92,200	92,200		8,105	7,030
Exchange gain					205
				7,235	7,235

Translation of Arusha branch trial balance ((Presentation method)

	Original trial balance		Rate	Translated trial balance
	Tsh’000	Tsh’000		Ksh’000	Ksh’000
PPE	12,000		1/10	1,200
Sales		48,000	1/12		4,000
Goods from head office	15,000		1/12	1,250
Purchases in Tanzania	15,000		1/12	1,250
Expenses	17,700		1/12	1,475
Receivables and Payables	2,000	1,000	1/10	200	100
Cash at bank	2,000		1/10	200
Remittances to Kenya	19,500		ACT	1,650
Head office current a/c		34,500	ACT		2,300
Closing inventory (for balance sheet0	6,000		1/10	600
Closing inventory (for trading a/c)		6,000	1/12		500
Depreciation expense (P&L )	1,200		1/12	100
Provision for depreciation (balance sheet)		1,200	1/10		120
Accrued expenses (balance sheet)		1,500	1/10		150
Prepaid expenses (balance sheet)	1,800	_____	1/10	180	_____
	92,200	92,200		8,105	7,170
Exchange gain				____	_935
				8,105	8,105

Arusha Branch

Income statement for the year to 31 December X2 (functional currency method)

	Tsh’000	Tsh’000	Ksh’000	Ksh’000
Sales		48,000		4,000
Cost of sales:
- Goods from head office	15,000		1,000
- Purchases	15,000		1,250
	30,000		2,250
Less closing inventory	(6,000)		(400)
		(24,000)		(1,850)
Gross profit		24,000		2,150
Exchange gain		-		205
		24,000		2,355
Expenses
General expenses	17,700		1,475
Depreciation	1,200		80
		(18,900)		(1,555)
Net profit		5,100		800

Arusha Branch

Income statement for the year to 31 December X2 (Presentation method)

	Tsh’000	Tsh’000	Ksh’000	Ksh’000
Sales		48,000		4,000
Cost of sales:
- Goods from head office	15,000		1,250
- Purchases	15,000		1,250
	30,000		2,500
Less closing inventory	(6,000)		(500)
		(24,000)		(2,000)
Gross profit		24,000		2,000
Expenses
General expenses	17,700		1,475
Depreciation	1,200		100
		(18,900)		(1,575)
Net profit		5,100		425

Arusha Branch

Balance sheet as at 31 December X2 (Functional method)

	Tsh’000	Tsh’000	Ksh’000	Ksh’000
ASSETS
Non-current assets
Property plant and equipment		10,800		720
Current Assets
Inventory s	6,000		400
Receivables	2,000		200
Prepayments	1,800		180
Bank	2,000		200
		11,800		980
		22,600		1,700
CAPITAL AND LIABILITIES
Head office current a/c		20,100		1,450
Current liabilities
Payables	1,000		100
Accruals	1,500		150
		2,500		250
		22,600		1,700

Head Office Current A/C (In Branch Books): Functional currency method

	Tsh’000	Ksh’000		Tsh’000	Ksh’000
			GFHO	15,000	1,000
			Fixed Assets	12,000	800
Bal c/d	34,500	2,300	Cash	7,500	500
	34,500	2,300		34,500	2,300
Remittance	19,500	1,650	Bal b/d	34,500	2,300
Bal c/d	20,100	1,450	Branch profit	5,100	800
	39,600	3,100		39,600	3,100

Arusha Branch

Balance Sheet as at 31 December X2 (Presentation method)

	Tsh’000	Tsh’000	Ksh’000	Ksh’000
ASSETS
Non-current assets
Property plant and equipment		10,800		1,080
Current Assets
Inventory	6,000		600
Receivables	2,000		200
Prepayments	1,800		180
Bank	2,000		200
		11,800		1,180
		22,600		2,260
EQUITY AND LIABILITIES
Head office current a/c		20,100		2,010
Current liabilities
Payables	1,000		100
Accruals	1,500		150
		2,500		250
		22,600		2,260

Head Office Current A/C (in branch books):

	Tsh’000	Ksh’000		Tsh’000	Ksh’000
			GFHO	15,000	1,000
			PPE	12,000	800
Bal c/d	34,500	2,300	Cash	7,500	500
	34,500	2,300		34,500	2,300
Remittance	19,500	1,650	Bal b/d	34,500	2,300
			Branch profit	5,100	425
Bal c/d	20,100	2,010	Exchange gain	-	935
	39,600	3,660		39,600	3,660

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