§ The International Financial Reporting Standards (IFRSs) Framework recognizes relevance and reliability as some of the qualitative characteristics of financial statements.

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:

1.       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