ILLUSTRATIVE GENERIC IFRS FINANCIAL STATEMENTS KENYA LIMITED ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2018

Transcription

1 ILLUSTRATIVE GENERIC IFRS FINANCIAL STATEMENTS KENYA LIMITED ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2018

2 Note 1: This document provides an illustrative set of individual financial statements for a private company prepared in accordance with International Financial Reporting Standards (IFRS) and the reporting requirements of the Kenyan Companies Act, 2015 for accounting periods beginning 1st January These illustrated financial statements are intended as guidance for members of ICPAK. They are not an interpretation of IFRS and, where necessary, reference should be made to the specific standards. The presentation format is not the only acceptable form of presentation and other forms of presentation may be acceptable provided that they comply with the presentation and disclosure requirements of IFRS. The Institute acknowledges the key contribution by RSM Eastern Africa in preparing this document. Note 2: Note 3: Note 4: Note 5: The illustration does not cover the following standards: - IAS 17 Leases - lessor accounting for finance leases - IAS 20 Accounting for Government Grants and Disclosure of Government Assistance - IAS 26 Accounting and Reporting by Retirement Benefit Plans - IAS 27 Separate Financial Statements - IAS 28 Investments in Associates and Joint Ventures - IAS 29 Financial Reporting in Hyperinflationary Economies - IAS 33 Earnings Per Share - IAS 32, IFRS 7, IFRS 9 Financial Instruments - Complex Financial Instruments and hedge accounting - IAS 34 Interim Financial Reporting - IAS 41 Agriculture - IFRS 1 First-time Adoption of International Financial Reporting Standards - IFRS 2 Share-based Payment - IFRS 3 Business Combinations - IFRS 4 Insurance Contracts - IFRS 5 Non-current Assets Held for Sale and Discontinued Operations - IFRS 6 Exploration for and Evaluation of Mineral Resources - IFRS 8 Operating Segments - IFRS 10 Consolidated Financial Statements - IFRS 11 Joint Arrangements - IFRS 12 Disclosure of Interests in Other Entities - IFRS 14 Regulatory Deferral Accounts - IFRS 16 Leases (not yet effective) - IFRS 17 Insurance Contracts (not yet effective) Each item in the illustrative financial statements is referenced (on the left) to the applicable requirements of IFRS and the Kenyan Companies Act, The following reference format has been used in this document: IAS 1-120(a): refers to International Accounting Standard 1, paragraph 120(a) IFRS 7-21: refers to International Financial Reporting Standard 7, paragraph 21 CAs653: refers to the reporting requirements in section 653 of the Kenyan Companies Act, 2015 BP: refers to best reporting practice adopted in Kenya DV: disclosure is voluntary Text in bold within square brackets ([ ]) represents guidance that does not form part of the illustrative financial statements. Included as an Appendix to the illustrative financial statements, but not part of them, is a summary of new and revised Standards and Interpretations for 2018.

3 Annual report and financial statements CONTENTS PAGE BP Company information 1 CA Report of the directors 2 ICPAK Statement of directors' responsibilities 3 CA Report of the independent auditor 4-5 : CA, IAS 1-10 Profit and loss account* 6 IAS 1-10 Statement of comprehensive income 7 CA, IAS 1-10 Balance sheet* 8 IAS 1-10(c) Statement of changes in equity 9-10 IAS 1-10(d) Statement of cash flows 11 IAS 1-10(e) Notes Supplementary information: IAS 1-49 IAS 1-10 [If supplementary information, such as a detailed schedule of operating expenditure, is to be included, it should be made clear that it does not form part of the audited financial statements.] *[In these illustrative financial statements, the titles required by the Kenyan Companies Act, 2015 have been used.]

4 Company information CAs654(1) Board of directors BP Company secretary... IAS 1-138(a) Registered office L.R. No... th Floor,. Building. Street/Road P.O. Box. Nairobi, Kenya. Independent auditor.. Certified Public Accountants.... P.O. Box... Kenya. BP Principal bankers.... BP Legal advisers.... 1

5 Report of the directors CAs653 The directors submit their report together with the audited financial statements for the year ended 31st December Incorporation IAS 1-138(a) The Company is domiciled in Kenya where it is incorporated as a private company limited byshares under the Kenyan Companies Act, The address of the registered office is set out on page 1. Directorate CAs654(1) CAs654(1) IAS 1-138(b) The directors who held office during the year and to the date of this report are set out on page 1. Principal activities The principal activities of the Company are the sale and installation of electrical equipment. Recommended dividend CAs654(3) The directors recommend the approval of a final dividend of KSh... (2017: KSh...). [Or] The directors do not recommend the declaration of a dividend for the year. Business review CAs655(3) CAs655(6) [This section shall include: (a) a fair review of the company's business; and (b) a description of the principal risks and uncertainties facing the company. It should be a balanced and comprehensive analysis of the development and performance of the business of the company during the company's financial year and the financial position of the company at the end of the year, consistent with the size and complexity of the business.] [The review should include (to the extent necessary for an understanding of the development, performance or position of the company's business): (a) an analysis using financial key performance indicators; (b) if appropriate, an analysis using other key performance indicators (including information relating to environmental matters and employee matters); and (c) references to, and additional explanations of, amounts included in the company's annual financial statements.] Statement as to disclosure to the Company's auditor CAs657(2) CAs725 With respect to each director at the time this report was approved: (a) there is, so far as the director is aware, no relevant audit information of which the Company's auditor is unaware; and (b) the director has taken all the steps that the director ought to have taken as a director so as to be aware of any relevant audit information and to establish that the Company's auditor is aware of that information. Terms of appointment of the auditor [Name of audit firm] continues in office in accordance with the company's Articles of Association and Section 719 of the Companies Act, The directors monitor the effectiveness, objectivity and independence of the auditor. The directors also approve the annual audit engagement contract which sets out the terms of the auditor's appointment and the related fees. The agreed auditor's remuneration of KSh xxx has been charged to profit or loss in the year. [Regulations in respect of this disclosure are yet to be issued by the Cabinet Secretary.] By order of the board.. Director/Company Secretary Nairobi

6 Statement of directors' responsibilities CAs635 CAs628 The Kenyan Companies Act, 2015 requires the directors to prepare financial statements for each financial year that give a true and fair view of the financial position of the Company as at the end of the financial year and of its profit or loss for that year. It also requires the directors to ensure that the Company keeps proper accounting records that: (a) show and explain the transactions of the Company; (b) disclose, with reasonable accuracy, the financial position of the Company; and (c) enable the directors to ensure that every financial statement required to be prepared complies with the requirements of the Companies Act, The directors accept responsibility for the preparation and presentation of these financial statements in accordance with International Financial Reporting Standards and in the manner required by the Kenyan Companies Act, They also accept responsibility for: i) ii) iii) designing, implementing and maintaining such internal control as they determine necessary to enable the presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting suitable accounting policies and applying them consistently; and making accounting estimates and judgements that are reasonable in the circumstances. Having made an assessment of the Company s ability to continue as a going concern, the directors are not aware of any material uncertainties related to events or conditions that may cast doubt upon the Company s ability to continue as a going concern. The directors acknowledge that the independent audit of the financial statements does not relieve them of their responsibilities. Approved by the board of directors on and signed on its behalf by: Director Director 3

7 ISA 700 Report of the independent auditor to the members of Opinion We have audited the accompanying financial statements of (the Company), set out on pages _ to _, which comprise the balance sheet as at 31st December 2018, the profit and loss account and statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes, including a summary of significant accounting policies. CAs727 In our opinion the accompanying financial statements give a true and fair view of the financial position of the Company as at 31st December 2018 and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Kenyan Companies Act, Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the financial statements in Kenya, and we have fulfilled our ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other information ISA 720 The directors are responsible for the other information. Other information comprises the information included in the Annual Report, but does not include the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. CA In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Directors' responsibility for the financial statements The directors are responsible for the preparation and fair presentation of the financial statements that give a true and fair view in accordance with International Financial Reporting Standards and the requirements of the Kenyan Companies Act, 2015, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. Auditor's responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. 4

8 ISA 700 Report of the independent auditor to the members of Auditor's responsibilities for the audit of the financial statements (continued) As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal control. obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control. evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of the auditor's report. However, future events or conditions may cause the company to cease to continue as a going concern. evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Report on other matters prescribed by the Kenyan Companies Act, 2015 CAs728 CAs730(2) In our opinion the information given in the report of the directors on page 2 is consistent with the financial statements. [If, in reporting on the financial statements the auditor forms the opinion: a) That the company has not kept adequate accounting records; or b) The company s financial statements are not in agreement with the company s accounting records; the auditor shall state that opinion in this section of the report.] [Signature of the firm] CAs735(1)(b) [Name of firm] Certified Public Accountants Nairobi ICPAK CAs735 The signing partner responsible for the independent audit was [F] CPA [name of partner], Practising Certificate No.... [Note: The auditor s report should be signed in the name of the audit firm. The personal signature of the partner responsible for the report is not required.] [Note: this illustration applies only to companies that are not required to include key audit matters in the auditor's report. It is illustrative of an 'unmodified' opinion given in accordance with ISA 700.] 5

9 PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST DECEMBER 2018 IFRS (a) Revenue from contracts with customers Restated Note KSh'000 KSh'000 IAS IAS Cost of sales Gross profit IAS Other income 5 IAS Changes in fair value 6 IFRS IFRS 7-20(a)(viii) Reclassification from other comprehensive income: gain on disposal of debt instruments measured at fair value through other comprehensive income IAS 1-82(aa) IAS 1-82(ba) IAS IAS Gains and losses arising from the derecognition of financial assets measured at amortised cost Impairment losses (including reversals of impairment losses or impairment gains) Selling and distribution expenses Administrative expenses IAS 1-82(b) Finance costs 7 IAS 1-85 Profit/(loss) before tax expense/income 8 IAS 1-82(d) Tax expense/income 9 IAS IAS 1-81B(a) Profit/(loss) for the year attributable to the owners of the Company [Note: gains or losses on reclassification of financial assets should also be presented on the face of the profit and loss account. Refer to IAS 1-82(ca) and (cb)] 6

10 IAS 1-51(a) IAS 1-51(c) IAS 1-10A STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31ST DECEMBER Restated Note KSh'000 KSh'000 IAS 1-10A Profit/(loss) for the year Other comprehensive income IAS 1-82A(a) Items that will not be reclassified subsequently to profit or loss: IFRS 9-B5.7.1 Change in fair value of equity instruments designated as at fair value through other comprehensive income IAS 1-82(g) Surplus/(deficit) on revaluation of property, plant and equipment 18 Remeasurement of net defined benefit asset/liability IAS (c) 17 IAS 1-90 IAS 1-91(b) Deferred income tax relating to items that will not be reclassified 15 IAS 1-82A(b) IFRS 9- B5.7.1A Items that will be reclassified subsequently to profit or loss when specific conditions are met: Change in fair value of debt instruments measured at fair value through other comprehensive income IFRS 9- B5.7.1A IAS 1-92 Reclassification to profit or loss: gain on disposal of debt instruments measured at fair value through other comprehensive income IAS 1-90 IAS 1-91(b) Deferred income tax relating to items that may be reclassified 15 IAS 1-81A(b) Other comprehensive income for the year, net of tax IAS 1-81A(c) IAS 1-81B(b) Total comprehensive income for the year attributable to the owners of the Company IAS 1-91(a) [Alternatively, each component of other comprehensive income can be presented net of tax, with the tax relating to each component disclosed in the Notes.] 7

11 BALANCE SHEET AT 31ST DECEMBER 2018 IAS Restated Restated Note KSh'000 KSh'000 KSh'000 IAS 1-54(r) EQUITY IAS 1-55 Share capital 10 IAS 1-55 Share premium 10 IAS 1-55 Revaluation surplus 11 IAS 1-55 Fair value reserve 12 IAS 1-55 Retained earnings IAS 1-54(r) Total equity IAS 1-60 Non-current liabilities IAS 1-54(m) Borrowings 13 IAS 1-54(o) Deferred income tax 15 IAS 1-54(l) Provision for liabilities 16 IAS 1-54(l) Post-employment benefit obligations 17 REPRESENTED BY IAS 1-60 Non-current assets IAS 1-54(a) Property, plant and equipment 18 IAS 1-54(b) Investment property 19 IAS 1-55 Prepaid operating lease rentals 20 IAS 1-54(c) Intangible assets 21 IAS 1-54(o) Deferred income tax 15 IAS 1-54(h) Non-current receivables 22 IAS 1-54(d) Other financial assets 23 IAS 1-60 Current assets IAS 1-54(g) Inventories 24 IFRS (a) Trade and other receivables 25 IFRS (a) Contract assets 26 IAS 1-54(n) Current tax recoverable IAS 1-54(d) Other financial assets 23 IAS 1-54(i) Cash at bank and in hand 27 IAS 1-60 Current liabilities IAS 1-54(k) Trade and other payables 28 IFRS (a) Contract liabilities 29 IAS 1-54(n) Current tax IAS 1-54(m) Borrowings 13 IAS 1-54(l) Provision for liabilities 16 Net current assets/(liabilities) IAS CAs652 The financial statements on pages... to... were authorised for issue by the board of directors on and were signed on its behalf by: Director 8 Director

12 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31ST DECEMBER 2018 At 1st January 2018 As previously reported Prior period adjustment: Transfer from fair value reserve to retained earnings Additional loss allowance Share Share Revaluation Fair value Retained Note capital premium surplus reserve earnings Total KSh'000 KSh'000 KSh'000 KSh'000 KSh'000 KSh'000 30(a) 30(b) As restated Changes in equity in 2018 IAS 1-106(d)(i) Profit/(loss) for the year Surplus/(deficit) on revaluation of property, plant and equipment Remeasurement of net defined benefit asset/liability IAS 1-106(d)(ii) Change in fair value of equity instruments designated as at fair value through other comprehensive income IAS 1-106(d)(ii) Change in fair value of debt instruments measured at fair value through other comprehensive income IAS 1-106(d)(ii) Reclassification to profit or loss: gain on disposal of debt instruments measured at fair value through other comprehensive income Deferred income tax relating to components of other comprehensive income IAS 1-106(d)(ii) 18 IAS 1-106(d)(ii) 17 IAS 1-106(d)(ii) 15 IAS 1-106(a) Total comprehensive income for the year IAS 1-106(d)(iii)Transactions with owners: Shares issued for cash/bonus issue of shares 10 IAS Dividends: 31 - Final for Interim for 2018 IFRS 9-B5.7.1 Transfer on disposal of equity instruments designated as at fair value through other comprehensive income IAS Transfer of excess depreciation IAS 12-61A(b) Deferred income tax on depreciation transfer 15 IAS IAS 12-61A(b) Transfer on disposal of property, plant and equipment Deferred income tax on disposal 15 IAS 1-106(d) At 31st December 2018 IAS 1-106A [Note: the analysis of other comprehensive income included in the 'boxes' above can alternatively be presented in a Note.] 9

13 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31ST DECEMBER 2017 At 1st January 2017 As previously reported Prior period adjustment: Transfer from fair value reserve to retained earnings Additional loss allowance Share Share Revaluation Fair value Retained Note capital premium surplus reserve earnings Total KSh'000 KSh'000 KSh'000 KSh'000 KSh'000 KSh'000 30(a) 30(b) As restated Changes in equity in 2017 (restated) IAS 1-106(d)(i) Profit/(loss) for the year Surplus/(deficit) on revaluation of property, plant and equipment Remeasurement of net defined benefit asset/liability IAS 1-106(d)(ii) Change in fair value of equity instruments designated as at fair value through other comprehensive income IAS 1-106(d)(ii) Change in fair value of debt instruments measured at fair value through other comprehensive income IAS 1-106(d)(ii) Reclassification to profit or loss: gain on disposal of debt instruments measured at fair value through other comprehensive income Deferred income tax relating to components of other comprehensive income IAS 1-106(d)(ii) 18 IAS 1-106(d)(ii) 17 IAS 1-106(d)(ii) 15 IAS 1-106(a) Total comprehensive income for the year IAS 1-106(d)(iii)Transactions with owners: Shares issued for cash/bonus issue of shares 10 IAS Dividends: 31 - Final for Interim for 2017 IFRS 9-B5.7.1 Transfer on disposal of equity instruments designated as at fair value through other comprehensive income IAS Transfer of excess depreciation IAS 12-61A(b) Deferred income tax on depreciation transfer 15 IAS IAS 12-61A(b) Transfer on disposal of property, plant and equipment Deferred income tax on disposal 15 IAS 1-106(d) At 31st December

14 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31ST DECEMBER Restated Note KSh'000 KSh'000 IAS 7-18(b) Cash flows from operating activities* Profit for the year IAS 7-18(b) Adjustments for: Income tax expense 9 Depreciation of property, plant and equipment 18 Depreciation of investment property [cost model] 19 Amortisation of prepaid operating lease rentals 20 Amortisation of intangible assets 21 Changes in fair value 6 Increase/(decrease) in provision for liabilities and charges 16 Increase/(decrease) in post-employment benefit obligations 17 (Profit)/loss on disposal of property, plant and equipment Interest expense 7 Interest income 5 Operating profit/(loss) before working capital changes Decrease/(increase) in: Inventories Trade and other receivables Contract assets Increase/(decrease) in: Trade and other payables Contract liabilities IAS 7-10, 18 Cash generated from operations IAS 7-31 Interest paid 13 IAS 7-31 Interest received IAS 7-35 Income tax paid Net cash generated from/(used in) operating activities IAS 7-16/21 Cash flows from investing activities IAS 7-16(a) Purchase of property, plant and equipment 18 IAS 7-16(a) Purchase of investment property 19 IAS 7-16(c) Purchase of financial assets IAS 7-16(b) Proceeds from disposal of property, plant and equipment IAS 7-16(d) Proceeds from disposal of financial assets IAS 7-31 Dividends received Net cash generated from/(used in) investing activities IAS 7-17/21 Cash flows from financing activities IAS 7-17(a) Proceeds from issue of ordinary shares 10 IAS 7-17(c) Proceeds from long-term borrowings 13 IAS 7-17(d) Repayments of long-term borrowings 13 IAS 7-17(e) Payments under finance leases 13 IAS 7-31 Dividends paid 31 Net cash generated from/(used in) financing activities Net (decrease)/increase in cash and cash equivalents IAS 7-6 Cash and cash equivalents at start of year IAS 7-6 Cash and cash equivalents at end of year 27 IAS 7-18(b) *[This illustrates the indirect method of reporting cash flows from operating activities.] 11

15 IAS NOTES 1. Summary of significant accounting policies IAS 1-112(a), 117(b) The significant accounting policies adopted in the preparation of these general purpose financial statements are set out below: a) Basis of preparation IAS 1-16/51 (d)/(e), 112(a) IAS 1-10 IAS 1-7 The financial statements are prepared on a going concern basis and in compliance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board. They are presented in Kenya Shillings, which is also the functional currency (see (c) below), rounded to the nearest thousand (KSh'000). The financial statements comprise a profit and loss account (statement of profit or loss), statement of comprehensive income, balance sheet (statement of financial position), statement of changes in equity, statement of cash flows, and notes. Income and expenses, excluding the components of other comprehensive income, are recognised in the profit and loss account. Other comprehensive income is recognised in the statement of comprehensive income and comprises items of income and expense (including reclassification adjustments) that are not recognised in the profit and loss account as required or permitted by IFRS. Reclassification adjustments are amounts reclassified to the profit and loss account in the current period that were recognised in other comprehensive income in the current or previous periods. Transactions with the owners of the Company in their capacity as owners are recognised in the statement of changes in equity. Measurement basis IAS 1-117(a) Conceptual framework 4.55(a) IFRS 13-9 IFRS 13-61, 67 IFRS IFRS 13-76, 81, 86 IFRS The measurement basis used is the historical cost basis except where otherwise stated in the accounting policies summarised below. Under the historical cost basis, assets are recorded at the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire them at the time of their acquisition. Liabilities are recorded at the amount of proceeds received in exchange for the obligation or, in some cases, at the amounts of cash or cash equivalents expected to be paid to satisfy the liability in the normal course of business. For those assets and liabilities measured at fair value, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When measuring the fair value of an asset or a liability, the Company uses market observable data as far as possible. If the fair value of an asset or a liability is not directly observable, it is estimated by the Company using valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs (e.g. by use of the market comparable approach that reflects recent transaction prices for similar items or discounted cash flow analysis). Inputs used are consistent with the characteristics of the asset / liability that market participants would take into account. Fair values are categorised into three levels in a fair value hierarchy based on the degree to which the inputs to the measurement are observable and the significance of the inputs to the fair value measurement in its entirety: Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). Transfers between levels of the fair value hierarchy are recognised by the Company at the end of the reporting period during which the change occurred. 12

16 1. Summary of significant accounting policies (continued) b) New and revised standards IAS 8-28 i) Adoption of new and revised standards IAS 8-28(a) Two new standards and a number of amendments to standards became effective for the first time in the financial year beginning 1st January 2018 and have been adopted by the Company. None of the amendments has had an effect on the Company's financial statements, but the two new standards have had an impact, as follows: IFRS 9 Financial Instruments From 1st January 2018, to comply with IFRS 9, which replaced IAS 39, financial assets previously classified as available-for-sale (at fair value through other comprehensive income) have been reclassified to 'fair value through profit or loss', with the consequent transfer of the balance on the fair value reserve of KSh xxx to retained earnings. The resulting classification has been applied retrospectively. In addition, provision has been made for either 12-month or lifetime expected credit losses (ECLs) for all financial assets measured at amortised cost, lease receivables, and debt instruments measured at fair value through other comprehensive income. The directors have opted to apply the simplified approach for trade receivables and lease receivables whereby lifetime ECL are provided for from inception. As a result, additional provisions of KSh xxx have been recognised at 1st January 2018 with a corresponding decrease, net of deferred tax, in retained earnings at that date. In accordance with the transition requirements of IFRS 9, the results of prior periods have been restated. Further details of the restatement are set out in Note 30. IFRS 15 Revenue from Contracts with Customers Under IFRS 15, revenue from sale of goods is recognised when the customer obtains control of the goods. Revenue from sales of services is recognised over time provided the consumption of the service by the customer is simultaneous with the performance of the service by the Company. The application of the standard, retrospectively, in the current year has not had a material impact on the financial position or financial performance of the Company, and a prior period adjustment has, therefore, not been required. However, minor changes in presentation have been necessary, including the separate presentation of contract assets and contract liabilities, which were previously presented net as 'work-in-progress'. [This section needs only to include the Standards, Amendments and Interpretations that have had an effect on the entity. A summary of all new and amended standards and interpretations that became effective for the first time in the financial year beginning 1st January 2018 is included in the appendix to these illustrative financial statements. Preparers of financial statements should review the appendix to establish whether any of the changes have had an effect on the entity's financial statements.] IAS 8-30 IAS 8-30(b) ii) New and revised standards that have been issued but are not yet effective The Company has not applied any new or revised standards and interpretations that have been published but are not yet effective for the year beginning 1st January 2018, and the Directors do not plan to apply any of them until they become effective. Note 35 lists all such new or revised standards and interpretations, with their effective dates, and provides reasonably estimable information relevant to assessing the possible impact that application of them will have on the Company's financial statements in the period of initial application. 13

17 1. Summary of significant accounting policies (continued) c) Translation of foreign currencies IAS 21-8 IAS IAS 21-21, 28, 30 On initial recognition, all transactions are recorded in the functional currency (the currency of the primary economic environment in which the Company operates), which is Kenya Shillings. Transactions in foreign currencies during the year are converted into the functional currency using the exchange rate prevailing at the transaction date. Monetary assets and liabilities at the balance sheet date denominated in foreign currencies are translated into the functional currency using the exchange rate prevailing as at that date. The resulting foreign exchange gains and losses from the settlement of such transactions and from year-end translation are recognised on a net basis in the profit and loss account in the year in which they arise, except for differences arising on translation of non-monetary available-for-sale financial assets, which are recognised in other comprehensive income. d) Revenue recognition IFRS IFRS IFRS IFRS IFRS 15-B18 IFRS IFRS IFRS IFRS 15-B30 The Company recognises revenue from direct sales of electrical equipment and from contracts for the installation of electrical equipment in buildings. The Company recognises revenue as and when it satisfies a performance obligation by transferring control of a product or service to a customer. The amount of revenue recognised is the amount the Company expects to receive in accordance with the terms of the contract, and excludes amounts collected on behalf of third parties, such as Value Added Tax. i) Direct sales of electrical equipment Sales of electrical equipment are recognised upon delivery to, and acceptance by, the customer. Having accepted the goods, customers do not have the right to return them. There is no variable element to the contract price, and payment, less any deposit already paid, is typically due within 30 days of delivery. ii) Installation of electrical equipment The Company enters into contracts, generally as a sub-contractor, to supply and install electrical equipment in buildings. Since the customer controls each item of equipment once delivered to the construction site, the Company recognises revenue over time. Such revenue is recognised using the input method, by comparing costs incurred up to the reporting date, including labour costs, with the total estimated costs of satisfying the performance obligation, and is presented as a contract asset until invoiced. Payment schedules are agreed with customers based on performance related milestones. An invoice is raised as each milestone is reached and the amount invoiced is transferred from contract assets to trade receivables. Any amounts invoiced in excess of the revenue recognised are presented as contract liabilities. There is no significant financing component in installation contracts since the period between milestones is always less than one year. Since contracts are completed within 12 months of being awarded, the costs of obtaining contracts are expensed in the year in which they are incurred. Contracts for sale of goods and for installation include 12 month warranties providing customers with assurance that the related product will operateas intended and complies with the agreed-upon specifications. The warranty is not a distinct service, and provision is made for the estimated obligation arising in accordance with Note 1(l) below. 14

18 1. Summary of significant accounting policies (continued) e) Other income IAS IFRS A IFRS 9-App A IFRS (b) Rental income from operating leases is recognised on a straight line basis over the period of the lease. Dividend income is recognised when the right to receive the payment is established. Interest income is recognised on a time proportion basis using the effective interest method. Once a financial asset is identified as credit-impaired (see Note 3(a)(i)), the effective interest rate is applied to the amortised cost (net of impairment losses) in subsequent reporting periods. f) Borrowing costs IAS 23-10, 12, 14, 17, 22 Borrowing costs, net of any temporary investment income on those borrowings, that are attributable to acquisition, construction or production of a qualifying asset are capitalised as part of the asset. The net borrowing cost capitalised is either the actual borrowing cost incurred on the amount borrowed specifically to finance the asset; or in the case of general borrowings, the borrowing cost is determined using the overall weighted average cost of the borrowings on all outstanding borrowings during the year less any specific borrowings directly attributable to the asset and applying this rate to the borrowing attributable to the asset. Capitalisation of borrowing costs ceases when all activities necessary to prepare the qualifying asset for its intended use or sale are complete. All other borrowing costs are recognised in the profit and loss account in the year in which they are incurred. g) Income tax IAS 12-5, 61 Income tax expense is the aggregate amount charged/(credited) in respect of current tax and deferred tax in determining the profit or loss for the year. Tax is recognised in the profit and loss account except when it relates to items recognised in other comprehensive income, in which case it is also recognised in other comprehensive income, or to items recognised directly in equity, in which case it is also recognised directly in equity. Current tax IAS 12-5 Current tax is the amount of income tax payable on the taxable profit for the year, and any adjustment to tax payable in respect of prior years, determined in accordance with the Kenyan Income Tax Act. Deferred income tax IAS IAS 12-51C IAS Deferred tax is determined for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, using tax rates and laws enacted or substantively enacted at the balance sheet date and expected to apply when the asset is recovered or the liability is settled. The measurement of deferred tax assets and liabilities reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets or liabilities. However, for investment property that is measured using the fair value model, there is a rebuttable presumption that the carrying amount of the investment property will be recovered through sale. Deferred tax liabilities are recognised for all taxable temporary differences except those arising on the initial recognition of an asset or liability, other than through a business combination, that at the time of the transaction affects neither the accounting nor taxable profit or loss. IAS 12-24, 37, 56 Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which temporary differences can be utilised. Recognised and unrecognised deferred tax assets are reassessed at the end of each reporting period and, if appropriate, the recognised amount is adjusted to reflect the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. 15

19 1. Summary of significant accounting policies (continued) h) Share capital and share premium IAS Ordinary shares are recognised at par value and classified as 'share capital' in equity. Any amounts received over and above the par value of the shares issued are classified as 'share premium' in equity. i) Dividends IAS IFRS 7-21 Dividends on ordinary shares are recognised as a liability in the year in which they are declared. Proposed dividends are not recognised until they have been declared at an annual general meeting. j) Financial instruments Initial recognition IFRS IFRS Financial instruments are recognised when, and only when, the Company becomes party to the contractual provisions of the instrument. All financial assets are recognised initially using the trade date accounting which is the date the Company commits itself to the purchase or sale. Classification The Company classifies its financial instruments into the following categories: IFRS i) Financial assets that are held within a business model whose objective is to hold assets in order to collect contractual cash flows, and for which the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, are classified and measured at amortised cost; IFRS A ii) Financial assets that are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and for which the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, are classified and measured at fair value through IFRS IFRS IFRS iii) All other financial assets are classified and measured at fair value through profit or loss iv) Notwithstanding the above, the Company may: a) on initial recognition of an equity investment that is not held for trading, irrevocably elect to classify and measure it at fair value through other comprehensive income b) on initial recognition of a debt instrument, irrevocably designate it as classified and measured at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency. IFRS v) Financial liabilities that are held for trading (including derivatives), financial guarantee contracts, or commitments to provide a loan at a below-market interest rate are classified and measured at fair value through profit or loss. The Company may also, on initial recognition, irrevocably designate a financial liability as at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency. IFRS vi) All other financial liabilities are classified and measured at amortised cost. 16

20 IFRS i) IFRS IFRS Summary of significant accounting policies (continued) j) Financial instruments (continued) Classification (continued) Financial instruments held during the year were classified as follows: - Demand and term deposits with banking institutions, trade and other receivables, and investments - Investments in quoted and non-quoted shares were classified by irrevocable election on initial recognition as at fair value through other comprehensive income; - Borrowings and trade and other liabilities were classified as at amortised cost. Initial measurement On initial recognition: Financial assets or financial liabilities classified as at fair value through profit or loss are measured at fair value. ii) Trade receivables are measured at their transaction price. iii) All other categories of financial assets and financial liabilities are measured at the fair value plus or minus transaction costs that are directly attributable to the acquisition or issue of the instrument. Subsequent measurement IFRS Financial assets and financial liabilities after initial recognition are measured either at amortised cost, at fair value through other comprehensive income, or at fair value through profit or loss according to their classification. Interest income, dividend income, and exchange gains and losses on monetary items are recognised in profit or loss. IFRS 9-AppA IFRS , 5.5.3, 5.5.5, and IFRS 9-AppA IFRS IFRS 7-35B(a) IFRS 7-35F(a) Fair value is determined as set out in Note 1(a), Amortised cost is the amount at which the financial asset or liability is measured on initial recognition minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount and the maturity amount and, for financial assets, adjusted for any loss allowance. Impairment The Company recognises a loss allowance for expected credit losses on debt instruments that are measured at amortised cost or at fair value through other comprehensive income. The loss allowance is measured at an amount equal to the lifetime expected credit losses for trade receivables and for financial instruments for which: (a) the credit risk has increased significantly since initial recognition; or (b) there is observable evidence of impairment (a credit-impaired financial asset). If, at the reporting date, the credit risk on a financial asset other than a trade receivable has not increased significantly since initial recognition, the loss allowance is measured for that financial instrument at an amount equal to 12-month expected credit losses. All changes in the loss allowance are recognised in profit or loss as impairment gains or losses. Lifetime expected credit losses represent the expected credit losses that result from all possible default events over the expected life of a financial instrument. 12-month expected credit losses represent the portion of lifetime expected credit losses that result from default events on a financial asset that are possible within 12 months after the reporting date. Expected credit losses are measured in a way that reflects an unbiased and probability-weighted amount determined by evaluating a range of possible outcomes, the time value of money, and reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions. 17

21 1. Summary of significant accounting policies (continued) j) Financial instruments (continued) Presentation IAS 1-66 IAS 1-69 All financial assets are classified as non-current except those that are held for trading, those with maturities of less than 12 months from the balance sheet date, those which management has the express intention of holding for less than 12 months from the balance sheet date or those that are required to be sold to raise operating capital, in which case they are classified as current assets. All financial liabilities are classified as non-current except those held for trading, those expected to be settled in the Company's normal operating cycle, those payable or expected to be paid within 12 months of the balance sheet date and those which the Company does not have an unconditional right to defer settlement for at least 12 months after the balance sheet date. Derecognition/write off IFRS , and IFRS 7-35F(e) IFRS IFRS IFRS 9-B5.7.1 Financial assets are derecognised when the rights to receive cash flows from the financial asset have expired, when the Company has transferred substantially all risks and rewards of ownership, or when the Company has no reasonable expectations of recovering the asset. Financial liabilities are derecognised only when the obligation specified in the contract is discharged or cancelled or expires. When a financial asset measured at fair value through other comprehensive income, other than an equity instrument, is derecognised, the cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment. For equity investments for which an irrevocable election has been made to present changes in fair value in other comprehensive income, such changes are not subsequently transferred to profit or loss. Offsetting IAS Financial assets and liabilities are offset and the net amount reported in the balance sheet only when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. k) Leases Finance leases as the lessee IAS 17-8, 20, 25 Leases of property, plant and equipment including hire purchase contracts where the Company assumes substantially all the risks and rewards incidental to ownership are classified as finance leases. Finance leases are recognised as a liability at the inception of the lease at the lower of the fair value of the leased assets and the present value of the minimum lease payments. The interest rate implicit in the lease is used as the discount factor in determining the present value. Each lease payment is allocated between the liability and finance cost using the interest rate implicit in the lease. The finance cost is charged to the profit and loss account in the year in which it is incurred. Property, plant and equipment acquired under finance leases are capitalised and depreciated over the estimated useful life of the asset. Operating leases IAS 17-8,33 Leases of assets where a significant proportion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made/received under operating leases are charged/credited to the profit and loss account on a straight line basis over the lease period. Prepaid operating lease rentals are recognised as assets and are subsequently amortised over the lease period. 18