INSTITUTE OF CHARTERED SECRETARIES I C S A

AND ADMINISTRATORS IN ZIMBABWE INTERNATIONAL

EXAMINATION QUESTION PAPER

DATE: NOVEMBER 2013 TIME: 3 HOURS

PART: B

SUBJECT: FINANCIAL ACCOUNTING

INSTRUCTIONS TO CANDIDATES
Answer ALL FIVE (5) questions

You are required to answer all questions in terms of the Zimbabwean Companies Act (Chapter
24:03), Income Tax Act (Chapter 23:06) and the International Financial Reporting Standards.

Unless otherwise stated, calculations must be made to the nearest dollar. All workings must be
submitted.

MARK ALLOCATION
Question 1 23 marks
Question 2 27 marks
Question 3 25 marks
Question 4 19 marks
Question 5 6 marks
Total 100 marks

Your examination script is the property of CIS and is not to be removed from the examination
venue.
 QUESTION 1

The following are the condensed financial statements of Biggie Limited and
its wholly owned subsidiary Small Limited for the financial year ended 31
December 2011.

Income Statement for the year ended 31 December 2011

Biggie Ltd Small Ltd
$ $
Net operating income 90 000 11 700
Interest earned 900 -
Dividend received 2 340 -
Profit on sale of fixed assets 2 000 2 000
Net profit for the year 95 240 13 700
Un-appropriated profit brought
forward 10 800 3 600
106 040 17 300
Dividend paid (18 648) (2 340)
Un-appropriated profit carried forward 87 392 14 960

Statements of Financial Position (Balance Sheets) as at 31 December

2011,
Biggie Ltd Small Ltd
$ $
Owners Equity and Liabilities
Share capital
Authorized and fully paid $1 ordinary
shares 360 000 144 000
Un-appropriated profit 87 392 14 960
447 392 158 960
Non – Current liabilities
Debentures - 18 000
Current liabilities
Accounts payable 27 720 9 720
Bills payable 9 000 11 140
Bank overdraft - 8 100
36 720 28 960

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Financial Accounting : November 2013 Page 2 of 7
 Total Capital 484 112 205 920

ASSETS
Fixed Assets
Machinery at cost 314 820 161 820
Accumulated depreciation (42 084 ) (36 000)
272 736 125 820
Investment in Small Limited -
144 000 shares 135 000 -
407 736 125 820
Current Assets
Stock 30 476 28 260
Accounts receivable 27 000 48 240
Bills receivable - 3 600
Bank 18 900 -
76 376 80 100

TOTAL ASSETS 484 112 205 920

NOTES:
1. Biggie Limited acquired its shares in Small Limited on 1 January 2008
when the later had a debit on its un-appropriated profit amount of
$3 600.
2. Small’s profit on the sale of fixed assets is in respect of its excess
machinery which was all sold to Biggie Limited.
3. Ignore any possible depreciation on adjustments in respect of the
machinery sold.

Required:
a) Analysis of the shareholders equity of Small Limited showing the cost of
control or capital reserve on acquisition. [5 marks]

b) Consolidated Statement of Income of Biggie Limited and its subsidiary

for the year ended 31 December 2011. Clearly show the retained profit
in each company. [8 marks]

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Financial Accounting : November 2013 Page 3 of 7
 c) Consolidated Statement of Financial Position of Biggie Limited and its
subsidiary at 31st December 2011. [10 marks]
[Total:23 marks]
QUESTION 2

Norman, Shepherd and Takesure are in a scrap metal business in Harare,

sharing profits in the ratio 5:3:2 respectively. Their capital and current
account balances on 1 January 2012 were:

Capital Accounts Current Accounts

$ $
Norman 24 000 2 000
Shepherd 18 000 (1 000) Dr
Takesure 13 000 1 500

Interest at 10% per annum is given on the fixed capitals, and salaries of
$8 000 per annum are credited to Shepherd and Takesure each. Expansion of
the business was hindered by lack of working capital, so Norman made a
personal loan of $20 000 to the partnership on 1 July 2012. The loan was to
be repaid in full on 30 June 2015 and loan interest at the rate of 15% per
annum was to be credited to Norman’s current account every half year. The
partnership profit (before charging loan interest) for the year ended 31
December 2012 was $63 000 and the partners had made drawings of:
Norman $16 000; Shepherd $16 500; Takesure $19 000 during the year.

Required:
a) Prepare the profit and loss appropriation account for the year ended 31
December 2012. [8 marks]

b) The partner’s current accounts (in columnar form) at 31 December 2012. [14 marks]

c) The Long Term liabilities and Owners’ Equity section of the Statement of
Financial Position as at 31 December 2012. [5 marks]
[Total: 27 marks]

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Financial Accounting : November 2013 Page 4 of 7
QUESTION 3

Tiri Tose Limited’s 2012 Income Statement and Comparative Statements of

Financial Position at 31 December 2012 and 2011 are given below;

Tiri Tose Limited Statement of Comprehensive Income for the year ended
December 31, 2012
$ $
REVENUE
Sales 192 500
Cost of goods sold 113 500
79 000
EXPENSES
Bad debts 500
Wages 29 000
Depreciation 12 000
Goodwill and amortization 2 000
Other operating expenses 9 500
Income tax expense 5 000 58 000
Net income 21 000

Tiri Tose Limited Statements of Financial Position

December 2012 December 2011
$ $
ASSETS
Cash 9 500 6 500
Accounts receivable (Net) 20 000 19 000
Inventory 42 000 45 500
Prepaid expenses 2 500 2 000
Plant assets 127 500 110 000
Accumulated depreciation (35 000) (30 000)
Goodwill (Net) 16 000 18 000
182 500 171 000

LIABILITIES AND OWNERS EQUITY

Accounts payable 15 000 12 000
Wages payable 2 500 3 000
Income tax payable 1 000 2 000
Bonds payable - 12 500
Ordinary shares 107 500 97 500
Retained earnings 56 500 44 000
182 500 171 000

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Financial Accounting : November 2013 Page 5 of 7
NOTES:
During the year, the following transactions occurred:
1. The company sold for cash $3 000 old equipment that had cost $10 000
and had $7 000 accumulated depreciation.
2. New equipment was purchased for cash.
3. An $8 500 cash dividend was declared and paid in 2012.
4. All issuances of shares were done for cash.
5. The bonds matured on 1 January, 2012.

Required:
Prepare a Cash Flow Statement for the year ended December 31, 2012 using
the INDIRECT METHOD.

Clearly show:
(i) Cash flows from operating activities,
(ii) Cash flows from investing activities,
(iii) Cash flows from financing activities,
(iv) Movement in cash and cash equivalents. [25 marks]

QUESTION 4

Tom Gwati, an Electrical Engineer at National University of Science and

Technology (NUST), designed an electric lawn mower which has been
favourably received by the market.

Mr. Gwati has patented this machine because he cannot himself

manufacture it as he has insufficient capital. He granted Lawn Mower
Manufacturers (Private) Limited a license for five years to manufacture and
sell the machine on the following terms:

1. Lawn Mower company will pay a royalty of $1 000 for every machine sold
with a minimum of $500 000. Calculations are to be made annually as on
31 October and payment to be made on 31 December.
2. If, for any year, the royalties calculated on the machines sold amount to
less than $500 000, Lawn Mower company may set off the deficiency
against royalties payable in excess of that sum in the next two years.
3. The number of machines sold for the past four years were:

Year ended 31 October 2009 150 000

Year ended 31 October 2010 500 000
Year ended 31 October 2011 600 000
Year ended 31 October 2012 650 000

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Financial Accounting : November 2013 Page 6 of 7
Required:
Prepare the following ledger accounts recording the above transactions in
respect of royalties in the books of Lawn Mower company which are closed
annually on 31 October:

a) Royalties Account [4 marks]

b) Short Workings Account and, [2 ½ marks]

c) The Accounts of Tom Gwati for each of the years. Balance off each
account. [12 ½ marks]
NOTES: Use T Accounts. [Total: 19 marks]

QUESTION 5

From the multiple choice question given below, you are required to:
a) Give the correct answer.
b) Briefly discuss how your given answer is the correct one and how each of
the incorrect answers is incorrect.

QUESTION:
The following information pertains to the bank current account of Tisu
Takazvida Company at 31 July 2013:
$
Balance as per bank statement 40 000
Outstanding cheques 3 000
Customer’s cheques returned for insufficient funds 1 000
Deposits in transit 5 000
Interest earned for July 100

At July 31, Tisu Takazvida’s correct bank balance is;

A $41 000
B $41 100
C $42 100
D $42 000 [6 marks]

“End of Examination Paper”

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