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NATIONAL INSTITUTE OF TRANSPORT

BUSINESS AND ENTREPRENEURSHIP STUDIES DEPARTMENT

Bachelor’s Degree of Accounting and Transport Finance

Class Presentation preparation BAU 08102: Introduction to Financial Reporting

Instructions
Work on this assignment in your respective groups and prepare yourselves for presentation on
Monday 14th December, 2020 during class sessions.

Pease note: Marks will be awarded for well-illustrated answers and examples

QUESTION ONE

According to the International Accounting Standard Board (IASB), there has to be some
mechanisms to ensure that accounting work is performed according to set principles and
standards. As such various professional accounting bodies have attempted to develop standards
to guide accountants in preparing sound financial reports for different users of financial
information.

Required:
a) Discuss briefly the six (6) main steps which are usually followed by the IASB when
developing accounting standard (12 Marks)

b) Mention and briefly explain [giving examples] four (4) areas that are covered by a typical
accounting standard dealing with reporting any particular item of financial statements
(8 Marks)

QUESTION TWO

TONY Ltd. is involved in the manufacture of building products and its financial statements are
as follows:

TONY Ltd. Statement of Financial Position as at 31 December 2017

Non-Current Assets 2017 2016

TZS "000" TZS "000"
PPE 7,680 5,910
Total Non-Current Assets 7,680 5,910

Current Assets
Inventories 2,070 1,830
Trade Receivables 1,170 1,020
Cash & Cash Equivalents 75 168
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Total Current Assets 3,315 3,018

Total Assets 10,995 8,928

Equity & Liabilities

Equity
Share Capital 360 300
Share premium 90 75
Retained Earnings 5,697 3,603
Revaluation Surplus 180 120
Total Equity 6,327 4,098

Non-Current Liabilities
Long Term Loan 2,250 2,400
Total Non-Current Liabilities 2,250 2,400

Current Liabilities
Trade Payables 2,208 2,250
Bank Overdraft 60 90
Current Tax Payables 150 90
Total Current Liabilities 2,418 2,430
Total Equity & Liabilities 10,995 8,928
Notes:
i. TONY Ltd.’s 2017 profit for the year before tax amounted to TZS 2,243,000.

ii. TONY Ltd.’s income tax expense for 2017 was TZS 63,000

iii. The cost of PPE at 1 January 2017 amounted to TZS 7,290,000. The company’s
depreciation policy is to depreciate all assets at 10% straight line on cost from the date of
purchase to the date of sale. On 1 October 2017, TONY Ltd. sold PPE which had a
carrying value of TZS 520,000. This PPE had originally cost TONY Ltd. TZS 800,000
and the company made a loss of TZS 20,000 on the sale of this PPE. The additions to
PPE for TONY Ltd. occurred on 31 December 2017.

iv. TONY Ltd.’s finance cost for the year amounted to TZS 48,000. This was paid in full.

v. TONY Ltd. paid a dividend of TZS 86,000 in 2017.

Requirement:
a) Prepare a statement of Cash Flows for the year ended 31 December, 2017 for TONY Ltd.
in accordance with IAS 7- Statement of Cash Flows.
(14 Marks)
b) Analyze the cash flow statement in terms of ability of each section of the statement to
generate or use cash and sustainability of future profits and cash generation. (6 Marks)
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QUESTION THREE
Mr. Peter Paul has just retired from public service and has been paid a substantial amount of
money by his former employers in respect of his end of service benefits. He intends to apply
part of this money in buying shares from a well performing company for his future benefit. A
friend has recommended to him two companies operating in the oil and gas industry but the
only information available is their Statements of Cash Flows.

Statements of Cash Flows for Diesel Limited & Premix Limited for the year ended 3st
December, 2017
Diesel Limited Premix Limited
TZS 000 TZS 000
Cash flows from operations:
Operating profit 3,450,615 4,000,350
Depreciation charges 460,275 280,500
Decrease in inventories 470,205 250,815
Decrease/(increase) in receivables 27,840 (307,480)
Increase in payables 360,260 444,404
Cash generated from operations: 4,769,195 4,668,589
Interest paid (9,580) -
Income tax paid (2,587,961) (1,000,088)
Net cash from operating activities 2,171,654 3,668,501

Cash Flows from Investing Activities:

Dividends received from Associate 40,500 -
Interest received 9,950 -
Purchase of property, plant & equipment (3,287,500) (120,920)
Proceeds from sale of equipment 980,000 2,440,406
Purchase of Gas Limited (Net of cash acquired) (189,860) -
Net cash used investing activities (2,446,910) 2,319,486

Cash flows from financing activities:

Issue of ordinary shares 625,000 1,800,000
Issue of bond 180,000 -
Dividends paid to ordinary shareholders (24,500) -
Net cash realised from financing activities 780,500 1,800,000

Net Increase in Cash & Cash Equivalents 505,244 7,787,987

Cash & Cash Equivalents b/f 122,465 (6,875,420)
Cash & Cash Equivalent c/f 627,709 912,567

Additional information:

i. Both Diesel Limited and Premix Limited are private companies. Diesel Limited is
registered with 1,000,000 shares while Premix Limited is registered with 4,200,000
shares. All authorised shares are of par value, and all shares issued are at TZS1, 000.
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ii. Diesel Limited has been summoned to appear before the National Labour Commission
for failure to implement pay rise agreed with a Local Union.

iii. The Domestic Tax Division of the Tanzania Revenue Authority has cited Premix
Limited for persistently defaulting in payment of their quarterly advance tax without
any justifiable cause.

Required:

(a) Using both quantitative and qualitative factors, advise Mr. Peter Paul whether to place
his investment in either Diesel Limited or Premix Limited. (12 Marks)

(b) Explain why operating profit differs from cash flows from operating activities.
(5 Marks)

(c) Identify any three (3) issues that a Cash flow Statement will assist investors, creditors
and other stakeholders to resolve. (3 Marks)