UNIVERSITY OF ZIMBABWE DEPARTMENT OF ACCOUNTANCY INTERMEDIATE FINANCIAL ACCOUNTING | AC 208 FIRST SEMESTER EXAMINATIONS DATE: DECEMBER 2013 TIME ALLOWED: 4 HOURS INSTRUCTIONS TO CANDIDATES Candidates should attempt all questions and should begin each answer on a new page. In marking papers, examiners take into account clarity of exposition, effective arrangement, and presentation. tion | Topic _ Marks | Presentation of financial | ____|statements __ | 2 Takeover of a company by 30 another company | 3 Elements of taxation 15 [4 | Provisions and contingent 10 ___|liabilities He | 5 Borrowing costs 10 ~__ [TOTAL MARKS eu 100 ***THIS QUESTION PAPER HAS 6 PAGES INCLUDING THIS PAGE***QUESTION 1 (35 marks) The following balances were extracted from the records of Tinto Ltd., a mining company on 30 June 2013, after some of the closing entries had been effected: Ordinary share capital ($10 shares) Share premium Property revaluation reserve Retained profits 1/07/2012 20% Mortgage debentures Freehold property at valuation Freehold property: accumulated depreciation Plant & equipment at cost Plant & equipment: accumulated depreciation Motor vehicles at cost Motor vehicles: accumulated depreciation Gross trading profit Rental income Administrative expenses Selling & distribution expenses Financial charges (including debenture interest) Depreciation for the year: Freehold property Plant & equipment Motor vehicles Loss on closure of transport depot Inventory 30/06/2013 Accounts receivable Cash at bank Accounts payable Trade investments Dividends received Additional information as at 30 June 2013: () Included in administrative expenses are the following: Administrative salaries Directors’ remuneration (inc. fees $16 000) Auditors’ remuneration Accounting fees $ 1650 000 198 000 259 000 252 890 500 000 1380770 420 000 555 760 184 920 487 500 232 400 1528 650 126 800 363 688 373 060 150 000 65175 74 168 97 500 202 425 696 120 457 280 355 700 386 760 315 000 24750 $s 147 500 40 475 12 500 6270 (i) Included in selling and distribution expenses are the following Sales staff salaries Hire of equipment Hire of motor vehicles $ 160 000 62 650 67 400Gi) Advertising 60 000 During the year, the company's directors closed the transport depot for non- personal issue vehicles and adopted a policy of hiring motor vehicles or using public carriers. The net costs of closure were as follows: $ Loss on disposal of motor vehicles 46 500 Redundancy and other costs 155 925 (iv) A proposed final dividend of 10% is to be included in the accounts. (v) The rate of company tax is 30% p.a. (vi) Net sales of mining ore to customers amounted to $4 250 000. (vii) The investment held at 30 June 2012 (cost $175 000) includes a 10% interest in Makwiro (Pvt) Ltd. During the year, Tinto Ltd. acquired a 15% interest in Kamativi (Pvt) Ltd. at a cost of $140 000 (vill) The directors value the investments in total at $207 150. REQUIRED (a) Atrial balance based on the original balances shown above. (5 marks) (b) _ Asstaternent of comprehensive income (for internal use) for the year-ended 30 June 2013 (10 marks) (©) A statement of changes in equity (retained profits only) for the year-ended 30 June 2013 (5 marks) (4) Astatement of comprehensive income (for publication) for the year-ended 30 June 2013, including relevant notes. (5 marks) (©) Astatement of financial position as at 30 June 2013, including relevant notes. (10 marks) QUESTION 2 (30 marks) L Ltd, agreed to take over the assets and liabilities of M Ltd. on 30 September 2013. Payment was to be made as follows: $ The issue of 87 000 ordinary shares of $1 each at a Premium of 40 cents per share to M Ltd.'s shareholders 121 800 The issue of $50 000 15% debentures at par to M Ltd.'s shareholders 50 000 The payment of cash to M Ltd.’ shareholders 44 200 216.000The last statements of financial position of the two companies were as follows’ LLTD STATEMENT OF FINANCIAL POSITION AS AT 30/09/2013 ASSETS $ Non-current Assets Freehold buildings 72.500 Plant & machinery 36 250 Furniture & fittings 17 400 126 150 Current Assets Inventory 10.440 Accounts receivable 9860 Cash at bank 4350 24 650 150.800 EQUITY & LIABILITIES Ordinary share capital ($1 shares) 116 000 Retained profits 29 000 Total equity 145 000 Current Liabilities Accounts payable 5 800 150.800 MLTD STATEMENT OF FINANCIAL POSITION AS AT 30/09/2013 ASSETS $ Non-current Assets Machinery 45 500 Motor vehicles 36 750 Fittings 23 625 105 875 Current Assets Inventory 12 250 Accounts receivable 11.375 Cash at bank 3.500 EQUITY & LAIBILITIES Ordinary share capital ($1 shares) 105 000 Retained profits 17500 Total equity 122 500 Current Liabilities Accounts payable 10 500Additional information L Ltd. valued M Ltd.'s machinery and fittings at book value, and the other assets as follows: $ Motor vehicles 27 000 Inventory 10 850 Accounts receivable 10 325 L Ltd. was going to take over M Ltd.'s bank balance, and also pay off M Ltd.'s liabilities. In case of an overdraft, L Ltd. made the necessary arrangements with Its bank, REQUIRED (a) Journal entries in L Ltd.'s books. Narrations are required (5 marks) (b) Accounts relating to the realisation in M Ltd.'s ledger. (10 marks) (c) Accounts relating to the acquisition in L Ltd.’s ledger. (10 marks) (d) The first statement of financial position of L Lid. after the takeover of M Ltd.'s assets and liabilities. ( 5 marks) QUESTION 3 (15 marks) Nyeke (Pvt) Ltd.'s operating profit before tax for the year-ended 31 December 2012 amounted to $2 640 000. Additional information has been provided as follows: (i) The companies owns $480 000 20% debentures in Kambasha (Pvt) Ltd Interest for the period 1 January to 31 December is receivable less withholding tax on 25 December each year. (i) The company has issued $600 000 mortgage debentures with a coupon rate of 30%. Interest on these debentures is paid net of tax on 31 March, 30 June, 30 September and 31 December each year. (i) The company made a payment of $350 000 to ZIMRA on 1 July 2012. There was an outstanding balance of $520 000 on the Company Tax Account on 1 January 2012 (iv) On 1 January 2012, the company purchased 50 000 ordinary shares of $1 each in Makwindi Oils (Pvt) Ltd., representing a 10% investment. On 31 October 2012, Makwindi Oils paid a dividend of 15% to its ordinary shareholders, deducting the necessary tax. (v) The company has an authorised share capital of 2 500 000 ordinary shares of $1 each and 500 000 25% preference shares of $1 each. The issued capital consists of 2 000 000 ordinary shares and 500 000 preference shares. On 31 December, 2012, the company proposed a 10% ordinary dividend and made a commitment to pay ordinary and preference shareholders on 10 January 2013, (vi) An amount of $250 000 is to be transferred to a capital replacement reserve (vii) Retained profits on 1 January 2012 stood at $185 600. (vill) Assume that the current rates for company tax and income tax are 37.5% and 35% respectively. Ignore deferred tax.REQUIRED Draw up the following in the books of Nyeke (Pvt) Ltd. for the year-ended 31 December 2012: (a) Debenture interest income (b) Debenture interest expense (0) Ordinary dividends receivable (d) Ordinary dividends payable (e) Preference dividends payable (f) Company tax (g) Income tax (h) Statement of comprehensive income for the year-ended 31/12/2012 (extracts) (i) Statement of changes in equity (retained profits only) for the year-ended 31/12/2012 QUESTION 4( 10 marks) Outline the disclosure requirements for provisions and contingent liabilities. Base your answer on IAS 37. QUESTION 5 (10 marks) Discuss borrowing costs under the followings headings: (a) Identification of costs that are eligible for capitalization (b) Suspension of capitalisation (1.5 marks) (1.5 marks) (1.5 marks) (1.5 marks) (1.5 marks) (1.5 marks) (2.5 marks) (2 marks) (1.5 marks) (7 marks) (3 marks)