QUESTION 14
- The International Financial Reporting Standards (IFRSs) Framework recognizes relevance and reliability as some of the qualitative characteristics of financial statements.
Required:
- Distinguish between relevance and reliability in the context of IFRSs Framework. (3marks)
- List and briefly explain attributes of reliable financial statements as promulgated in the IFRSs Framework (5 marks)
- A and B Advocates and X and Y Advocates were practicing firms of advocates. On 1 January 2016, they agreed to amalgamate the partnerships into one firm, Able and Mine Advocates. The accounts of the separate partnerships have been prepared annually to 31 December.
The agreed profit and loss sharing ratios in the old and the new firms were as follows:
| A | B | X | Y | |
| Old firms | 3 | 2 | 2 | 1 |
| New firms | 4 | 3 | 2 | 1 |
The balance sheets extracts of
the partnerships as at 31 December 2015 were as follows:
Non-current assets: Motor vehicles
A and B Advocates
‘000’
10,000
X and Y Advocates
‘000’
9,000
| Office equipment | 4,000 | 3,000 |
| 4,000 | 12,000 | |
| Goodwill | 6,000 | 5,000 |
| Current assets: Investments | 7,500 | – |
| Accounts receivable | 20,000 | 13,000 |
| Cash | 2,500 | – |
| 30,000 | 13,000 | |
| Total assets | 50,000 | 30,000 |
| Capital and | ||
| liabilities: Capital accounts: | 25,000 | – |
| B | 15,000 | – | |
| X | – | 15,000 | |
| Y | – | 10,000 | |
| Current liabilities: | 40,000 | 25,000 | |
| Client account | 5,000 | – | |
| Accounts payable | 5,000 | 3,500 | |
| Bank overdraft | – | 1,500 | |
| 10,000 | 5,000 | ||
| Total capital and liabilities | 50,000 | 30,000 |
Additional information:
- Provision or bad and doubtful debts was to be made at 5% of the accounts receivable.
- Able and Mine Advocates was to take over the assets of the partnership at the following agreed values:
A and B Advocates X and Y Advocates
| Motor vehicles | ‘000’ 9,000 | ‘000’ 8,000 |
| Office equipment | 3,500 | 3,000 |
| Goodwill | 7,500 | 5,000 |
- The investments of A and B Advocates were sold on 1 January 2016 for 8,000,000.
- The capital for Able and Mine Advocates amounted to 75,000,000 which was contributed by the partners in their profit sharing ratios, any adjustments being made in cash.
- The client account and the accounts payable were settled immediately on amalgamation.
Required:
Prepare the following accounts to record the above transactions:
- Realisation accounts 4 marks)
- Capital accounts (3 marks)
- Cash accounts (3 marks)
- Able and Mine Advocates account 2 marks) (Total: 20 marks)
