PROBLEM SOLVING SESSION

CORPORATE REPORTING C1

FOR NOV 2019 EXAMS

[SET 5]
Prepared By: Godson Leonard: MBA (Finance), Bachelor of Accounting (Hons), CPA (T) &
Mshana Ally A.: MFA- (OG), B.Com Accounting (Hons), CPA (T), ATEC (II) |Phone1: +255 717 / 769 348 616 | Phone1:
+255 714 965 564 | Email: info@covenantfinco.com |Website: www.covenantfinco.com
 COVENANT FINANCIAL CONSULTANTS PROBLEM SOLVING SESSION [SET 5]

QUESTION ONE [1]

DSM Ltd, a public limited liability company in Tanzania, operates in the
manufacturing sector. DSM Ltd has investments in two other Tanzanian companies.
The draft statement of financial position as at 31 March 2018 are as follows:

Assets: DSM Bawk Takorad

Non – current assets TZS TZS i TZS
Property plant and million million million
equipment Investments in 720.0 550.0 650.0
subsidiaries:
Bawku Ltd 625.0
Takoradi Ltd 155.0 635.0
Financial assets 160.0 10.5 70.5
1,660.0 1,195.5 720.5
Current assets 447.5 340.5 75.0
Total assets 2,107.5 1,536.0 795.5
Equity and liabilities:
Share capital 875.0 605.0 400.0
Retained earnings 620.0 465.0 175.0
Other components of equity 62.5 40.0 47.5
Total equity 1,557.5 1,110 622.5
Non-current liabilities 492.5 382.5 75.0
Current liabilities 57.5 43.5 98.0
Total liabilities 550.0 426.0 173.0
Total equity and liabilities 2,107.5 1,536.0 795.5

Additional information:
i) On 1 April 2016, DSM Ltd acquired 14% of the equity interest of Takoradi Ltd for a
cash consideration of TZS 130 million and Bawku Ltd acquired 70% of the equity
interest of Takoradi Ltd for a cash consideration of TZS 635 million. At 1 April 2016, the
identifiable net assets of Takoradi Ltd had a fair value of TZS 495 million, retained
earnings were TZS 95 million and other components of equity were TZS 26 million. At 1
April 2017, the identifiable net assets of Takoradi Ltd had a fair value of TZS 575 million,
retained earnings were TZS 120 million and other components of equity were TZS 35
million. The excess in fair value is due to non-depreciable land. The fair value of the
14% holding of DSM Ltd in Takoradi Ltd, which was classified as fair value through
profit or loss, was TZS 140 million at 31 March 2017 and TZS 155 million at 31 March
2018. However, the fair value of Bawku Ltd’s interest in Takoradi Ltd had not changed
since acquisition.

ii) On 1 April 2017, DSM Ltd acquired 60% of the equity interests of Bawku Ltd, a public
limited liability company in Tanzania. The cost of investment comprised cash of TZS
625 million. On 1 April 2017, the fair value of the identifiable net assets acquired was
TZS 975 million and retained earnings of Bawku Ltd were TZS 325 million and other
component of equity were TZS 27.5 million. The excess in fair value is due to non-
Prepared By: Godson Leonard: MBA (Finance), Bachelor of Accounting (Hons), CPA (T) &
Mshana Ally A.: MFA- (OG), B.Com Accounting (Hons), CPA (T), ATEC (II) |Phone1: +255752 643388 | Phone1:
+255 714 965 564 | Email: info@covenantfinco.com |Website: www.covenantfinco.com Page | 2
 COVENANT FINANCIAL CONSULTANTS PROBLEM SOLVING SESSION [SET 5]

depreciable land. It is the group’s policy to measure the non-controlling interest at

acquisition at its proportionate share of the fair value of the subsidiary’s net assets.
iii) Goodwill of Bawku Ltd and Takoradi Ltd were tested for impairment at 31 March 2018
and found that there was no impairment relating to Takoradi Ltd. However, the
goodwill of Bawku Ltd was fully impaired by the reporting date.

iv) On 1 April 2016, DSM Ltd acquired office accommodation at a cost of TZS 45 million
with a 30-year estimated useful life. During the year, the property market in the area
slumped and the fair value of accommodation fell to TZS 37.5 million at 31 March 2017
and this was reflected in the financial statements. However, the market unexpectedly
recovered quickly due to the announcement of major government investment in the
area’s transport infrastructure. On 31 March 2018, the valuer advised DSM Ltd that the
offices should now be valued at TZS 52.5 million. DSM Ltd has charged depreciation
for the year but has not taken account of the upward valuation of the offices. DSM Ltd
uses the revaluation model and records any valuation change when advised to do so.

v) DSM Ltd has announced two major restructuring plans during the year. The first plan
is to reduce its capacity by the closure of some of its smaller factories, which have
already been identified. This will lead to the redundancy of 500 employees, who have
all individually been selected and communicated to. The costs of this plan are TZS 4.5
million in redundancy costs, TZS 2.5 million in retraining costs and TZS 2.5 million in
lease termination costs. The second plan is to re-organize the finance and information
technology department over a one-year period but it does not commence until two
years’ time. The plan will result in 20% of finance staff losing their jobs during the
restructuring. The costs of this plan are TZS 5 million in redundancy costs, TZS 3
million in retraining costs and TZS 3.5 million in equipment lease termination costs.
There are no entries made in the financial statements for the above plans.

vi) The following information relates to the group pension plan of DSM Ltd:
1 April 2017 31 March 2018
TZS million TZS million
Fair value of plan assets 14 14.5
Actuarial value of defined benefit 15 17.5
obligation

The contributions for the period received by the fund were TZS 1 million and the
employee benefits paid in the year amounted to TZS 1.5 million. The discount rate to
be used in any calculation is 5%. The current service cost for the period based on
actuarial calculations is TZS 0.5 million. The above figures have not been taken into
account for the year ended 31 March 2018 except for the contributions paid which have
been entered in cash and the defined benefit obligation.

Required:
Prepare the group consolidated statement of financial position of DSM Ltd as at 31
March 2018.
Prepared By: Godson Leonard: MBA (Finance), Bachelor of Accounting (Hons), CPA (T) &
Mshana Ally A.: MFA- (OG), B.Com Accounting (Hons), CPA (T), ATEC (II) |Phone1: +255752 643388 | Phone1:
+255 714 965 564 | Email: info@covenantfinco.com |Website: www.covenantfinco.com Page | 3
 COVENANT FINANCIAL CONSULTANTS PROBLEM SOLVING SESSION [SET 5]

QUESTION TWO [2]

(a) IFRS 3: Business Combination and IAS 27: Consolidation and Separate financial
Statement were revised in January 2008 and it was at this time that the concept of the
fair value of non Controlling Interest (NCI) at acquisition and gross goodwill were
introduced into international Financial Reporting Standards (IFRS).
REQUIRED:

Comment on the significance of measuring NCI at fair value of acquisition and goodwill.

(b) Iringa Ltd has made an acquisition of 100% of the shares in Ruaha Ltd. Ruaha Ltd has a
share capital of 50,000 shares with a nominal value of Tsh. 1000 each. The consideration
that Iringa Ltd gave for the investiment in the subsidiary included a 2 for 1 share for
share exchange. The market value of Iringa Ltd shares was Tshs.3,000 and a nominal
value of Tshs.1,000. The shareholders of Ruaha Ltd were also paid each immediately of
Tshs.62,962,963. In additional ,Iringa Ltd paid cash of Tsh.800 per share on one year’s
time. Assume a relevant discount rate of 8%.
At the date of acquisition the net assets of Ruaha Ltd were Tshs.150,000,000/=

REQUIRED:

The Finance Director of Iringa Ltd is requesting you do the following:

i. Determination the fair value of the consideration that Iringa Ltd has given in buying
its investment in Ruaha Ltd.
ii. Determine the goodwill arising on the consolidation of Ruaha Ltd in the Iringa
group accounts.
iii. show the relevant journal entries to record the investment in Ruaha Ltd.
(c) The statements of financial position of three companies are as follows:
MOJA LTD MBILI LTD TATU LTD
Tshs ‘000’ Tshs ‘000’ Tshs ‘000’
Investment in Mbili
Ltd 400
Investiment in Tatu
Ltd 50 300
Assets
220 340 460

670 640 460

MOJA MBILI LTD TATU LTD`
Prepared By: Godson Leonard: MBA (Finance), Bachelor of Accounting (Hons), CPA (T) &
Mshana Ally A.: MFA- (OG), B.Com Accounting (Hons), CPA (T), ATEC (II) |Phone1: +255752 643388 | Phone1:
+255 714 965 564 | Email: info@covenantfinco.com |Website: www.covenantfinco.com Page | 4
 COVENANT FINANCIAL CONSULTANTS PROBLEM SOLVING SESSION [SET 5]

LTD
Tshs ‘000’ Tshs ‘000’ Tshs ‘000’
Share capital (Tshs.1) 200 200
300
Accumulated profits
130 250 120
Equity
430 450 320
Liabilities
240 190 140

670 640 460

Additional information:
(i) Three years ago MOJA Ltd acquired a 150,000 shares in MBILI Ltd for consideration
of tshs.400,000/=
(ii) Two years ago MBILI Ltd acquired a 160,000 shares in TATU Ltd for consideration
of Tshs.300,000/=
(iii) One year ago MOJA Ltd acquired 10,000 shares in TATU Ltd for consideration of
tshs.50,000/=
(iv) At the date of acquisition the carrying values of the assets liabilities were the same
as the fair values with the exception of MBILI’s inventory that had a fair value in
excess of its carrying value of Tshs.10,000. This inventory was sold shortly after
acquisition.
(v) Details of the fair values of the net assets and the fair value of effective Non-
Controlling Interest (NCI’s) are as follows:

MBILI Net Assets NCI

Tshs. ‘000’ Tshs. ‘000’
One year ago 400 75
Two years ago 330 60
Three years ago 300 50

TATU
Tshs ‘000’ Tshs ‘000’
One year ago 275 160

Prepared By: Godson Leonard: MBA (Finance), Bachelor of Accounting (Hons), CPA (T) &
Mshana Ally A.: MFA- (OG), B.Com Accounting (Hons), CPA (T), ATEC (II) |Phone1: +255752 643388 | Phone1:
+255 714 965 564 | Email: info@covenantfinco.com |Website: www.covenantfinco.com Page | 5
 COVENANT FINANCIAL CONSULTANTS PROBLEM SOLVING SESSION [SET 5]

Two years ago 250 110

Three years ago 240 90

(i) MOJA Ltd has a policy of always calculating goodwill gross. The impairment
reviews reveal no impairment losses are to be recorded. No shares have been issued
since the date of acquisition.
(ii) At the year end MBILI Ltd has a financial assets of Tshs.20,000 that is received from
MOJA Ltd. This is recorded by MOJA Ltd as financial liability at tshs.20,000.
REQUIRED:

Prepare the consolidated Statement of Financial Position of the MOJ Ltd.

Prepared By: Godson Leonard: MBA (Finance), Bachelor of Accounting (Hons), CPA (T) &
Mshana Ally A.: MFA- (OG), B.Com Accounting (Hons), CPA (T), ATEC (II) |Phone1: +255752 643388 | Phone1:
+255 714 965 564 | Email: info@covenantfinco.com |Website: www.covenantfinco.com Page | 6