Exposure Draft. Illustrative Annual Report and Financial Statements for Savings and Credit Co-operative Societies (SACCOS)

Transcription

1 Eposure Draft Illustrative Annual Report and Financial Statements for Savings and Credit Co-operative Societies (SACCOS) The information contained in this publication is the property of the Institute of Certified Public Accountants of Kenya. All rights are reserved. The content of this document can be accessed, printed and downloaded in an unaltered form for personal use but not for a direct or indirect commercial use. Any content printed or downloaded may not be sold, transferred, copied or reproduced in whole or in part in any manner or in or on any media to any person without the prior written consent of ICPAK. ICPAK 2008

2 Invitation to comment The draft financial reporting template provides illustration on the financial reporting by Saving and Credit Co-operative Society (Sacco). The final document is epected to contribute significantly to the improvement of financial reporting in this sector. Comments are hereby invited from stakeholders on the effectiveness of the document including the accompanying guideline on its implementation (ED-I). Comments are particularly welcome on the following specific questions:- 1. Do you agree with the general presentation of the document? If no please provide alternative suggestions 2. Is the document complete i.e. does it cover all transactions & events that are encountered by a Sacco? If no please provide the ecluded ones. 3. Are the disclosures sufficient? If not what other proposals would you like included? Please quote the referencing authority. 4. Are there any potential transitional challenges to the adoption of the document? If yes please list them. Suggestions on how these could be handled is welcome 5. Does the accompanying implementation guideline aid in the implementation of the document? Is it sufficient? All comments should be made in writing or via to edwin.ruttoh@icpak.com. All comments received by 15 th February 2009 will be considered. We value your comments!

3 Preamble The Co-operative Act Cap 490 requires co-operatives societies to prepare accounts that conform to the International Financial Reporting Standards. This publication provides an illustrative set of financial statements, prepared in accordance with International Financial Reporting Standards (IFRSs), for a typical savings and credit co-operative society. The document also took into consideration the relevant provisions contained in the legislative framework of the sector. These financial statements illustrate the disclosures required by the IFRSs effective for accounting periods beginning on or after January The eamples given in the illustrative financial statements are not ehaustive. The team is of the view that a number of disclosures required by IFRS 7 for financial instruments such as derivatives are not likely to apply widely and hence their omission. Entities with such instruments should refer to IFRS 7 for details regarding their disclosures. The form and content of a reporting entity s financial statements is the responsibility of the entity s management, and other forms of presentation which are equally acceptable may be preferred and adopted, provided they include the specific disclosures prescribed in IFRSs. These illustrative financial statements are not a substitute for reading the Standards themselves or for professional judgement as to fairness of presentation. They do not cover all possible disclosures required by IFRSs. Depending on the circumstances, further specific information may be required in order to ensure fair presentation under the IFRSs. An implementation guideline has been issued alongside these illustrative financial statements to provide further eplanatory information. The references in the left margin of the illustrative financial statements represent the paragraph of the standards in which the disclosure requirements appear, while those in the right margin represent the note in the implementation guideline. Disclaimer: Reasonable care has been taken in the interpretation of the financial reporting standards while developing this specimen. However, the ultimate responsibility on the form of presentation rests with the preparers of financial statements. ICPAK and the members of the task force do not accept responsibility for loss caused to any person who acts or refrains from acting on reliance on the information in this document.

4 Acknowledgement The Council of ICPAK wishes to acknowledge the following members of the taskforce who worked tirelessly to ensure the success of this project. Joe Gichuki (Convenor) Owen Koimburi Julius Wokabi Daniel Nguti Aaron Omwenga George Ottoto Patrick Muriuki Peter Njuguna PKF Kenya. SCI Koimburi Tucker & Co. Wokabi & Co. Ministry of Co-operative Development and Marketing Ministry of Co-operative Development and Marketing KUSCCO WOCCU Kenya WOCCU Kenya

5 Abbreviations: BP IFRSs IAS Best Practice International Financial Reporting Standards International Accounting Standards The Act The Co-operative Societies Act, Cap 490 IG Ref ICPAK C/S Kshs VAT AGM FOSA KUSCCO SACCO WOCCU Implementation Guideline Reference Institute of Certified Public Accountants of Kenya (hereinafter referred to as the Institute) Co-Operative Society Registration Number Kenya Shillings Value Added Ta Annual General Meeting Front Office Services Activities Kenya Union of Savings & Credit Co-operative Savings and Credit Co-Operative World Council of Credit Unions

6 C/S... Financial Report and Financial Statements For the Year Ended

7 Annual Report and Financial Statements for the Year Ended Contents Page Society Information... 1 Chairman s Report... 3 Report of the Management Committee Statistical Information... 5 Statement of the Management Committee s Responsibilities... 6 Report of the Independent Auditor... 7 Financial Statements: Income Statement... 8 Balance Sheet... 9 Statement of Changes in Equity Cash Flow Statement Notes

8 Societ y Inform ation Mkopo Sacco Ltd. C/S... Financial Report and Financial Statements For the Year Ended Cop Act Management and Supervisory Committee Members: (refer to IG 1) Management Committee... Supervisory Committee: IAS1.126(a) Cop Act Sec 23 Registered Office: Mkopo SACCO Society Mkopo House P.O.Bo... Town... LR No... Telephone... Fa... E m a i l : BP Principal Bankers: (refer to IG 2) XY Bank of Kenya Limited P.O.Bo... Town... AZ Commercial Bank of Kenya Ltd P.O.Bo... Town... 8

9 Annual Report and Financial Statements for the Year Ended BP Auditor: ABC Certified Public Accountant P.0.Bo XX00X00 Nairobi BP The Manager (refer to IG 3) P.O.Bo XX00X00 Town... 9

10 Annual Report and Financial Statements for the Year Ended BP Chairman s Report (refer to IG 4) (As appropriate) 10

11 Annual Report and Financial Statements for the Year Ended Report of the Management Committee (refer to IG 5) The members of the management committee submit their annual report together with the audited financial statements for the year ended IAS 1.126(a) IAS 1.126(a) Incorporation The society is incorporated in Kenya under the Co-operative Societies Act, Cap 490 and is domiciled in Kenya. Principal Activity The principal activity of the society continued to be receiving savings from and provision of loans to its members. Results Kshs 000 Kshs 000 Surplus (deficit) before ta Income Ta epense () () Net surplus (deficit) after ta Dividends () () Retained surplus for the year Interest on members deposit Dividend / Interest on members deposits (refer to IG 6) The management committee recommends payment of first and final dividend of Kshs... per share (2006, Kshs... per share). They also recommend interest on members deposit of....% (2006,... %). Management Committee The members of the management committee who served during the year and to the date of this report is as listed on page 1. By order of the Management Committee (refer to IG 5) Signature... date... Secretary 11

12 Statisti cal Inform ation Mkopo Sacco Ltd. C/S... Financial Report and Financial Statements For the Year Ended As At (refer to IG 7) Membership - active - dormant Total Financial Kshs 000 Kshs 000 Share capital Members deposits Statutory reserve Revenue reserve Entrance fee Loans to members Investments Other non-current assets Current assets Non current liabilities Current liabilities Interest income Earnings per share Key ratios: Liquidity ratio :1 :1 Percentage of epenses to revenue % % Interest on members deposits % % Capital adequacy % % 12

13 Annual Report and Financial Statements for the Year Ended Statement of Management Committee s Responsibilities (refer to IG 8) The Co-operative Societies Act, Cap 490 requires the management committee to prepare financial statements for each year which give a true and fair view of the state of affairs of the society as at the end of the financial year and of its operating results for that year in accordance with IFRS. It also requires the management committee to ensure that the society keeps proper accounting records which disclose with reasonable accuracy at any time the financial position of the society. They are also responsible for safeguarding the assets of the society and ensuring that the business of the society has been conducted in accordance with its objectives, by-laws and any other resolutions made at society s general meeting. The management committee accepts responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgements and estimates, in conformity with International Financial Reporting Standards and in the manner required by the Co-operative Societies Act, Cap 490. The management committee is of the opinion that the financial statements give a true and fair view of the state of the financial affairs of the society and of its operating results in accordance with the IFRS. The management committee further accepts responsibility for the maintenance of accounting records which may be relied upon in the preparation of financial statements, as well as adequate systems of internal financial control. Nothing has come to the attention of the management committee to indicate that the society will not remain a going concern for at least twelve months from the date of this statement. Approved by the management committee on... and signed on its behalf by:... Chairman Signature... Treasurer Signature... Committee member Signature 13

14 Annual Report and Financial Statements for the Year Ended Report of the Independent Auditors to the members of Mkopo Sacco Limited Report on the Financial Statements (refer to IG 9) We have audited the accompanying financial statements of Mkopo Sacco Limited, set out on pages 9 to 35 which comprise the balance sheet as at , and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other eplanatory notes. The Management Committee s Responsibility for the Financial Statements The management committee is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and the requirements of the Kenyan Cooperative Societies Act. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances. The Kenyan Co-operative Societies Act also requires the management committee to ensure that the society maintains proper books of accounts which are in agreement with the balance sheet and profit and loss account. Auditor s Responsibility Our responsibility is to epress an independent opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control relevant to the society s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of epressing an opinion on the effectiveness of society s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the management committee, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements give a true and fair view of the state of the Society s financial affairs at 31 December 2006 the results of its operations and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Kenyan Co-operative Societies Act. Report on Other Legal Requirements As required by the Kenyan Co-operative Societies Act we report to you that the financial statements are in agreement with the books of account kept by the Society and that, based on our audit, nothing has come to our attention that causes us to believe that the Society's business has not been conducted: a) in accordance with the provisions of the Co-operative Societies Act b) in accordance with the Co-operative Society's objectives, by-laws and any other resolutions made by the Society at a general meeting. Certified Public Accountants Nairobi (Date) 14

15 C/S... Financial Report and Financial Statements For the Year Ended Inco me Statement for the Year Ended Reference Notes Kshs 000 IAS 1.81(a) Revenue: IG ref 10 Kshs 000 -interest on loans -interest from FOSA -other interest income 3 IFRS 7.20(b) IFRS 7.20(b) Interest epenses 4 () () 11 IAS 1.83 Net interest income IFRS 7.20(c ) Other operating income 5 12 IAS 1.83 Other gains and losses 6 IAS 1.83 Administration epenses 7 () () IAS 1.83 Other operating epenses () () IAS 1.83 Net operating surplus! (deficit) before income ta 8 IAS 1.81(d) Income ta epense 9 () () IAS 1.81(f) Net surplus! (deficit) for the year Cop.Act 20 % transfer to statutory reserve () () IAS 1.83 Surplus for the year available for distribution 15

16 Annual Report and Financial Statements for the Year Ended Balance Sheet As At (refer to IG13) Reference Notes Kshs 000 Kshs 000 IG ref Assets IAS 1.68(i) Cash and cash equivalent 10 IAS 1.69 Prepayments and sundry receivables 11 IAS 1.68(h) Trade and other receivables 12 IFRS 7.8(c) Loans to members 13 IAS 1.68(m) Ta assets recoverable IAS 68A(a) Assets classified as held for sale 14 IAS 1.68(n) Deferred income ta 15 IAS 1.68(d) Other financial assets IAS 1.68(b) Investment property 17 Prepaid operating lease rentals IAS 1.68(c ) Intangible assets 18 IAS 1.68 (a) Property plant and equipment 19 IAS 1.69 Total assets Liabilities IAS 1.69 Members deposits 20 IAS 1.68(m) Income ta payable IAS 1.69 Dividends payable IAS 1.68(j) Trade and accrued epenses 21 IAS 1.68 (j) Sundry creditors IAS 68A(b) Liabilities attributable to assets classified as held for sale IAS 1.68(n) Deferred income ta 15 IAS 1.68(l) Interest bearing liabilities 22 IAS 1.69 Total liabilities Shareholders Fund IAS 1.68(p) Share capital IAS 1.68(p) Reserves 23 IAS I.69 Total shareholders fund IAS 1.69 Total liabilities and shareholders fund IAS The financial statements on pages 8-37 were authorized for issue by the Management Committee on... Month, year. and signed on its behalf by: Chairman... Committee Member....Committee Member... (refer to IG 16) 16

17 C!S... Annual Report and Financial Statements for the Year Ended 2007 Statement of Changes in Equity for the Year Ended (refer to IG 17) Reference Kshs 000 Kshs 000 Kshs 000 Kshs 000 Kshs 000 Kshs 000 Year ended IAS 1.97(c) At start of the year: IAS 1.96(d) Adjustments resulting from changes in accounting policy 26 () () Restated balance Changes in equity in IAS Revaluation surplus! deficit 39p55b Gains (losses) on available for sale financial assets IAS (a) Deferred income ta on revaluation () IAS Transfer of ecess depreciation () IAS (a) Deferred income ta on transfer of ecess depreciation () IAS 1.96(b) Net gains!losses recognized directly in equity IFRS 7.20(a) Transfers (net of taes) to profit and loss on sale of available-for-sale investments () () IAS 1.96(a) Surplus!deficit for the year IAS 1.96(c) Total recognized income for 2006 IAS 1.97(a) Dividends for 2005 () () Issue of share capital At the end of year Year ended IAS 1.97(c) At start of the year: IAS 1.96(d) Adjustments resulting from changes in accounting policy 26 () () Restated balance Changes in equity for 2007 IAS Revaluation surplus!deficit 39p55b Gains (losses) on available for sale financial assets IAS (a) Deferred income ta effect on revaluation () IAS Transfer of ecess depreciation () IAS (a) Deferred income ta on transfer of ecess depreciation () IAS 1.96(b) Net gains!losses recognized directly in equity IFRS 7.20(a) Transfers (net of taes) to profit and loss on sale of available-for-sale investments () () IAS 1.96(a) Surplus!deficit for the year IAS 1.96(c) Total recognized income for 2007 IAS 1.97(a) Dividends for 2006 () () Issue of share capital 24 At the end of year Note: *Other reserves (including fair value reserves) are analyzed into their components if material. 17

18 ... Annual Report and Financial Statements for the Year Ended 2007 IG ref Cash Flow Statement for the year ended Reference Note 2007 Kshs Kshs 000 Cash flows from operating activities 18 IAS 7.33 Interest receipts IAS 7.33 Interest payments () () IAS 7.14 Payments to employees and suppliers () () (increase) / decrease in operating assets IAS 7.15,24 -Loans to members () () IAS trade and other receivables IAS 7.15,24 -Short term investments () () Increase / (decrease) in operating liabilities IAS 7.15,24 -deposits from members IAS trade and accrued epenses () () IAS sundry creditors () () Net cash from operating activities before income taes IAS 7.35,36 Income ta paid () () Net cash from operating activities Cash flow from investing activities IAS 7.21 Purchase of property and equipment () () IAS 7.21 Proceeds on disposal of plant and equipment IAS 7.21 Purchase of intangibles assets () () IAS 7.21 Purchase of investments securities () () IAS 7.31,33 Interest received IAS 7.31,33 Dividends received Net cash from investing activities Cash flow from financing activities IAS 7.21 Share capital contributions IAS 7.21 Proceeds from long-term borrowings IAS 7.21 Repayment of long-term borrowings () () IAS 7.31,34 Dividends paid () () Net cash from financing activities IAS 7.45 Net (decrease )/increase in cash and cash equivalent IAS 7.45 Cash and cash equivalent at the beginning of the year 10 Cash and cash equivalents at the end of the year

19 Ref Mkopo Sacco Ltd. Annual Report and Financial Statements for the Year Ended Notes: IAS (a), b 1. Summary of Significant Accounting Policies. (refer to IG 19) The principal accounting policies adopted in the preparation of these financial statements are set out below: IAS IAS 1.14 IAS 1.46(d),(e) a) Statement of compliance & basis of preparation The financial statements are prepared in accordance and comply with International Financial Reporting Standards. These financial statements are presented in the functional currency, Kenya shillings (Shs) rounded to the nearest thousand (000) and prepared under the historical cost convention, as modified by revaluation of certain assets as prescribed by IFRSs. IAS b) Revenue recognition IAS 18.35(a) Interest on loans to members is calculated on a reducing balance method at the monthly rate of %. Interest income is recognized on a time proportion basis by reference to the principal outstanding and the effective interest rate applicable. IAS c) Property, plant and equipment IAS (a) All property, plant and equipment are initially recorded at cost. Certain classes of property, plant and equipment are subsequently shown at revalued amounts, based on periodic valuations by the independent valuers. All other property plant and equipment are stated at historical cost less depreciation. IAS Increases in carrying value amounts arising on revaluations are credited to the revaluation reserve. Decreases that IAS offset previous increases of the same asset are charged against the revaluation reserve, all other decreases are charged against the profit and loss. Each year the difference between the depreciation based on revalued carrying IAS amount of the asset (the depreciation charged to profit and loss account) and depreciation based on the assets original charge is transferred to retained earnings. IAS 16.73(b), (c) Depreciation is calculated using the straight line method to write down the cost of each asset to its residual value over its estimated useful life. The annual depreciation rates in use are: Asset Rate (%) Freehold land nil Buildings Plant and machinery Motor vehicles Furniture, fittings and equipment Computers, photocopiers and other accessories IAS The assets residual values and lives are reviewed, and adjusted if appropriate at each balance sheet date. IAS Gains or losses on disposal of property, plant and equipment are determined by reference to their carrying amount and are taken into account in determining operating profit. On disposal of a revalued asset, amount in the revaluation reserve relating to that asset is transferred to retained earnings. d) Leases IAS 17.8 IAS i) Finance lease Leases of property, plant and equipment where the society assumes substantially all the benefits and risks of ownership are classified as finance leases. Assets acquired under finance leases are capitalized at the inception of 19

20 C/S... Annual Report and Financial Statements for the Year Ended the lease at the lower of their fair values and the estimated present value of the underlying lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the IAS finance balance outstanding. The corresponding rentals obligations, net of finance charges are included in noncurrent liabilities while the interest element of the finance charge is charged to the profit and loss account over the lease period. ii) Operating leases IAS 17.8 Leases of assets where a significant proportion of the risks and rewards are retained by the lessor are classified as IAS operating leases. Payments made under the operating leases are charged to the profit and loss account on a straight line basis over the lease period. Prepaid operating lease rentals are recognized as assets and are subsequently amortized over the lease period. IFRS 7.21 IAS e) Financial Assets The financial assets are recognised initially using the trade accounting date which is the date the Sacco commits itself to the purchase or sale and are recorded at the fair value of the consideration given plus the transaction costs ecept for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value. Financial assets are classified into the following categories: financial assets at fair value through profit or loss (FVTPL), held-to-maturity investments, available-for-sale (AFS) financial assets and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. i) Financial assets at FVTPL Financial assets are classified as at FVTPL where the financial asset is either held for trading or it is designated as at FVTPL. Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset. ii) Held-to-maturity investments Financial assets with fied or determinable payments and fied maturity dates that the Sacco has the positive intent and ability to hold to maturity are classified as held-to-maturity investments. Held-to-maturity investments are recorded at amortised cost using the effective interest method less any impairment, with revenue recognised on an effective yield basis. iii) AFS financial assets These are those financial assets that are designated as available for sale or are not classified as (a) loans and receivables, (b) held-to-maturity investments or (c) financial assets at fair value through profit or loss. Gains and losses arising from changes in fair value are recognised directly in equity in the revaluation reserve. Where the investment is disposed off or is determined to be impaired, the cumulative gain or loss previously recognised in the investments revaluation reserve is included in profit or loss for the period. Dividends on AFS equity instruments are recognised in profit or loss when the Sacco s right to receive the dividends is established. iv) Loans and receivables Trade receivables, loans, and other receivables that have fied or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, ecept for short-term receivables when the recognition of interest would be immaterial. 20

21 Annual Report and Financial Statements for the Year Ended Effective interest method The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that eactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the epected life of the financial asset, or, where appropriate, a shorter period. IFRS 7.B5 (f) IFRS 7.37(b) Impairment of financial assets Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. For unlisted shares classified as AFS, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment. For all other financial assets, including redeemable notes classified as AFS, objective evidence of impairment could include: significant financial difficulty of the issuer or counterparty; or default or delinquency in interest or principal payments; or it becoming probable that the borrower will enter bankruptcy or financial re-organisation. For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Sacco s past eperience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of days, as well as observable changes in national economic conditions that correlate with default on receivables. For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the financial asset s original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the eception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. With the eception of AFS equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the etent that the carrying amount of the investment at the date the impairment is reversed does not eceed what the amortised cost would have been had the impairment not been recognised. In respect of AFS equity securities, impairment losses previously recognised through profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognised directly in equity. Derecognition of financial assets The Sacco derecognises a financial asset only when the contractual rights to the cash flows from the asset epire or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. 21

22 Annual Report and Financial Statements for the Year Ended IFRS 7.21 Financial liabilities and equity instruments issued by the Sacco Classification as debt or equity Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Sacco are recorded at the proceeds received, net of direct issue costs. The capital comprise primarily of minimum share capital prescribed under the By-laws of the Sacco. Financial guarantee contract liabilities Financial guarantee contract liabilities are measured initially at their fair values and are subsequently measured at the higher of: the amount of the obligation under the contract, as determined in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets; and the amount initially recognised less, where appropriate, cumulative amortisation recognised in accordance with the revenue recognition policies. IFRS 7.B5(e) Financial liabilities Financial liabilities are classified as either financial liabilities at FVTPL or other financial liabilities. i) Financial liabilities at FVTPL Financial liabilities are classified as at FVTPL where the financial liability is either held for trading or it is designated as at FVTPL. Financial liabilities at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability. Fair value is determined in the manner described in note 15. i i ) O t h e r f i n a n c i a l l i a b i l i t i e s Some financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest epense recognised on an effective yield basis. Derecognition of financial liabilities The Sacco derecognises financial liabilities when, and only when, the Sacco s obligations are discharged, cancelled or they epire. f) Investment property IAS Investment property comprises building or part of a building (freehold or held under finance lease) and land held for long term yields and or capital appreciation and which are not occupied by the society and is measured initially at its cost, including transaction costs. Subsequent to initial recognition, investment property is carried at fair value representing market value determined annually by eternal independent valuers. Changes in fair values are recognised in the income statement. On disposal of an investment property, the difference between the net disposals proceeds and the carrying amount is charged or credited to the income statement. g) Intangible assets Software license costs are stated at historical cost less estimated accumulated amortization and accumulated impairment losses. Amortization is calculated using the straight line method to write down the cost of the software to its residual value over the estimated useful life using an annual rate of...% 22

23 C/S... Annual Report and Financial Statements for the Year Ended h) Impairment of non-financial assets (refer to IG 20) IAS 36.9 The carrying amounts of the society s tangible and intangible assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If such condition eists the recoverable amount of the asset is estimated to determine the etent of impairment loss (if any). If the recoverable amount of an asset is estimated to be less than its carrying amount an impairment loss epense is recognized immediately, unless the IAS relevant asset is carried at revalued amount in which case the impairment loss is treated as a decrease in revaluation reserve. The respective asset is reduced to its recoverable amount. IAS Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but only to the etent that the carrying amount does not eceed the carrying amount that would have been determined had no impairment loss had been recognized for the asset in prior years. A reversal of an impairment loss is recognized as income immediately, unless the relevant asset is carried at a IAS revalued amount, in which case the reversal of the impairment loss is treated as an increase in revaluation reserve. j) Employee entitlements Employee entitlement to gratuity and long service awards are recognized when they accrue to employees. Provision is made for the estimated liability of such entitlements as a result of services rendered by employees up to the balance sheet date. The estimated monetary liability for employees accrued annual leave entitlement at the balance sheet date is recognized as an epense accrual. k) Retirement benefit obligations (refer to IG 21) The Society operates a defined contribution scheme for all employees. A defined contribution plan is a pension plan under which the society pays fied contributions into a separate entity. The assets of these schemes are held in a separately administered fund that is funded by contribution from the society and employees. IAS The Society has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior period. The society s contributions to the defined contribution schemes are charged to the profit and loss account in the year to which they relate. The society also contributes to a mandatory statutory defined contribution pension scheme, the National Social Security Fund (NSSF) at varying values for its employees as legislated from time to time. IAS 12.5 IAS IAS Co-op Act l) Ta (refer to IG 22) Current ta is provided on the basis of the results for the year, as shown in the financial statements, adjusted in accordance with ta legislation. Deferred income ta is provided, using the liability method, on temporary differences arising between the ta bases of assets and liabilities and their carrying amounts in the financial statements. However, the deferred income ta is not accounted for if it arises from initial recognition of an asset or liability. Currently enacted ta rates are used to determine deferred income ta. Deferred income ta assets are recognized only to the etent that it is probable that the future taable profits will be available against which temporary differences can be utilized. m) Statutory reserves (refer to IG 23) Transfers are made to the statutory reserve fund at a rate of 20% of net operating surplus after ta in compliance with the provision of section 47 (1 & 2) of the Co-operative Societies Act,Cap

24 C/S... Annual Report and Financial Statements for the Year Ended IAS IAS n) Translation of foreign currencies Transactions in foreign currencies during the year are converted into Kenya shillings at rates ruling at the transaction dates. Assets and liabilities which are epressed in foreign currencies are translated into Kenya shillings at the echange rates ruling at the balance sheet date. The resulting differences from translation are dealt with in the income statement in the year in which they arise. o) Trade and other Payables Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method. p) Receivables Receivables are recognised initially at fair value and subsequently measured at amortized cost using the effective interest rate. A provision for impairment is recognised in the profit and loss account in the year when the recovery of the amount due as per the original terms is doubtful. The provision is based on the difference between the carrying amount and the present value of the epected cash flows, discounted at the effective interest rate. Receivables not collectible are written off against the related provision. Subsequent recoveries of amounts previously written off are credited to the profit and loss account in the year of recovery. q) Prior year adjustment (refer to IG 24) The prior year adjustments in the previous year relates to changes in the depreciation charge resulting from change in the method to straight-line from the previous reducing balance method. This method is believed to faithfully represent the pattern of consumption of assets and will effectively write down the asset to its residual value. r) Cash and cash equivalents IAS 7.45 Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. IAS IAS 8.30 s) Provisions for liabilities and other charges Provisions are recognised when the Sacco has a present obligation (legal or constructive) as a result of a past event, it is probable that the Sacco will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. t) Adoption of new and revised standards In the current year, the Society has adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board (the IASB) that are relevant to its operations and effective for annual reporting periods beginning on 1 January These are: IFRS 7 Financial Instruments: Disclosures. The impact of the new Standard has been to epand the IFRS 7.43 disclosures provided in these financial statements regarding the Society s financial instruments. IAS 1 Presentation of Financial Statements which requires the Society to present information regarding its objectives, policies and processes for managing capital. 24

25 C/S... Annual Report and Financial Statements for the Year Ended At the date of authorization of these financial statements, revised and updated IAS 1; Presentation of Financial Statements had been issued by IASB. This will be effective for the year beginning 1 st January 2009 and will affect the format presentations of financial statements. The committee anticipates that the adoption of these revisions in future periods will have no material financial impact on the financial statements of the Society. u) Non-current assets held for sale Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Non-current assets classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell. IAS ) Key source of estimation uncertainty (refer to IG 25) Fair value of derivatives and other financial instruments As described in note 28, the committee uses their judgement in selecting an appropriate valuation technique for financial instruments not quoted in an active market. Valuation techniques commonly used by market practitioners are applied. For some financial instruments, assumptions are made based on quoted market rates adjusted for specific features of the instrument. Other financial instruments are valued using a discounted cash flow analysis based on assumptions supported, where possible, by observable market prices or rates. The estimation of fair value of unlisted shares includes some assumptions not supported by observable market prices or rates. The carrying amount of the shares is Kshs. (2006: Kshs.). Details of the assumptions used and of the results of sensitivity analyses regarding these assumptions are provided in note 28. IAS ) Critical judgment in applying the entity s accounting policies (refer to IG 26) Held-to-maturity financial assets The committee has reviewed the Sacco s held-to-maturity financial assets in the light of its capital maintenance and liquidity requirements and has confirmed the Sacco s positive intention and ability to hold those assets to maturity. The carrying amount of the held-to-maturity financial assets is Kshs. (2006: Kshs.). Details of these assets are set out in note

26 Annual Report and Financial Statements for the Year Ended (a) Other interest income IG ref 2007 Kshs Kshs 000 Bank deposits Available-for-sale investments Held-to-maturity investments KUSCCO savings FOSA (3b) IFRS 7.20(b) Total IFRS 7.20(b) b) FOSA operations IG ref Kshs 000 Kshs 000 Interest income (3a) Non interest income (5) Interest epenses Non interest epenses Net 4. Interest epense IAS 1.86, IG ref Kshs 000 Kshs 000 Member s deposits Bank loans Loans from other financial institutions KUSCCO loans Other interest epense IFRS 7.20(b) Total 5. Other operating income IG ref Kshs 000 Kshs 000 Rental income Entrance fee Sundry income Insurance agency commission Non interest income from FOSA IFRS 7.20(c) Total 6. Other gains and losses Kshs 000 Kshs 000 IAS 1.87(c) Gain/(loss) on disposal of property, plant and equipment IAS 40.76(d) Change in fair value of investment property IFRS 7.20(a) Change in fair value of financial assets carried at FVTPL IFRS 7.20(a) Change in fair value of financial liabilities carried at FVTPL 21p52(a) Net foreign echange gains / (losses) 26

27 Total Mkopo Sacco Ltd. Annual Report and Financial Statements for the Year Ended IG ref IAS Administration epenses Kshs Kshs 000 FOSA epenses Traveling and subsistence Entertainment Printing &stationery Telephone & postage Repairs and maintenance on investment properties Repairs and maintenance- others Depreciation Legal fees Members education Sitting allowance Public relations and advertisements AGM epenses Committee education Ushirika day celebrations Insurance epenses Computer epenses Supervision fees to the Commissioner Cop Act Auditors remuneration Total X X 8.Net operating surplus IG ref Kshs 000 Kshs 000 The following items have been charged in arriving at net operating surplus: IFRS 7.20(e) a) Impairment loss on financial assets Impairment loss recognised on trade receivables (note...) Impairment loss on available-for-sale equity instruments Impairment loss on available-for-sale debt investments Impairment loss on loans carried at amortised cost Total XX XX b) Depreciation and amortisation Depreciation of property, plant and equipment (note 16) IAS (a) Impairment of property, plant and equipment IAS (d) Amortization of intangible assets (note 15) Total XX XX c) Employee benefits epense Salaries and wages IAS Pension costs: - Defined contribution IAS Termination benefits Total XX XX IAS 17.35(c) d) Operating lease Operating lease rentals epense

28 Annual Report and Financial Statements for the Year Ended Income ta 2007 Kshs Kshs 000 IAS Current Ta IAS Deferred ta (note 12) Ta epense / (credit) The ta of the society differs from the theoretical amount that would arise using the basic ta rate as follows: IAS 12.81(c) Reconciliation of the of the ta epense Kshs 000 Kshs 000 Profit / ( loss ) before ta Ta calculated at a ta rate of ( %2006 ) Ta effects of: Epenses not deductible for ta purposes Income not subject to ta Prior year overprovision Ta epense ( credit ) /charge 10. Cash and cash equivalents IG ref Kshs 000 Kshs 000 Cash and cash equivalents at the end of the year comprise:- Cash in hand Cash at bank Total IAS 7.45 For the purpose of cash flow statement, cash and cash equivalent comprise cash in hand, cash at bank, FOSA cash and investments in money market securities. The year-end cash and cash equivalents comprised cash in hand and deposits held at the bank. 11. Prepayments and sundry receivables IAS Kshs 000 Kshs 000 Prepayments Deductions due from employers-net of provisions Due from related companies Others Total 12. Trade and other receivables IG ref Kshs 000 Kshs 000 Trade and other receivables Allowance for doubtful debts () () Amounts due from members Total 28

29 Annual Report and Financial Statements for the Year Ended IFRS 7.36(c),37 Included in the Sacco s trade receivable balance are debtors with a carrying amount of Kshs. (2006: Kshs.) which are past due at the reporting date for which the Sacco has not provided as there has not been a significant change in credit quality and the amounts are still considered recoverable. The Sacco does not hold any collateral over these balances. The average age of these receivables is days (2006: days). IFRS 7.37(a) Ageing of past due but not impaired IG ref Kshs 000 Kshs days days Total IFRS 7.16 Movement in the allowance for doubtful debts IG ref Kshs 000 Kshs 000 Balance at beginning of the year Impairment losses recognised on receivables Amounts written off as uncollectible () () Amounts recovered during the year () () Impairment losses reversed () () IFRS 7.20(e) Balance at end of the year X X IFRS 7.37(b) IFRS7.37b Ageing of impaired trade receivables days days IG ref Kshs 000 Kshs 000 Total X X Receivables from individuals or entities that have been declared bankruptcy / insolvent are considered impaired. The Sacco holds collateral against these collaterals with an approimate fair value of Ksh. (2006; Ksh.). 13. Loan to members IG ref Kshs 000 Kshs 000 At the start of the year Granted during the year Repayment during the year Provisions () () At year end X X 14. Non-current assets held for sale. IFRS 5.41 The Sacco is seeking to dispose a number of its motor vehicles within the succeeding financial year. These were previously in the Sacco s operations. A search is underway for a buyer. No impairment loss was recognised on reclassification of the motor vehicles as held for sale as at 31 December Liabilities associated with assets classified as held for sale are as shown in the balance sheet. 29

30 .. Annual Report and Financial Statements for the Year Ended Deferred ta Deferred ta is calculated, on all temporary differences under the liability method using enacted income ta rate of %. The movement on the deferred ta account is as follows: IAS IG ref Kshs 000 Kshs 000 At the start of the year as previously stated Prior year adjustment (if any) As restated Charge/ (credit) to profit and loss account ( Note 8) At end of year IAS 12.81g IFRS 7.8(a) IFRS 7.8(b) IFRS 7.8(d) IFRS 7.8(c ) Deferred ta assets or liabilities, deferred ta charge/ (credit) in the profit and loss account, and deferred ta charge/ (credit) in equity are attributable to the following society s items:- Deferred income ta liabilities Accelerated ta allowances Property revaluations Biological assets Deferred income ta assets Provisions Ta losses Other temporary differences At the start of 2007 Kshs 000 Charged/ (credited) to p & l Kshs 000 Charged /credited to equity Kshs 000 At the end of 2007 Kshs () () () () () () () Net deferred income ta liability 16. Other financial assets () - - () () () Kshs 000 Kshs 000 Financial assets carried at fair value Financial assets designated as at FVTPL Held for trading financial assets Current Non current Held to maturity investments carried at amortised cost Current Non current Available-for-sale financial assets Current Non current Loans and receivables Current Non current 30