COLLEGE OF BUSINESS EDUCATION

DAR ES SALAAM CAMPUS

TNC/TFC OCTOBER 2020 BACC III

TEST 1
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SUBJECT: ADVANCED FINANCIAL REPORTING

PAPER CODE: ACU 08101

DATE: 18.12.2022

Time Allowed: 3 HOURS

Instructions:

a) This paper consists of SIX questions, attempt FIVE, question 1 is

compulsory.
b) Do not write or draw on the question paper
c) Cellular phones are not allowed in the examination room
d) All questions carry equal mark

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Question One
You are the financial controller of Omega, a listed entity with a number of subsidiaries. Your
managing director has recently returned from a seminar which discussed a wide range of
business issues. Some of these issues related to the preparation of the financial statements.

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The managing director has prepared a list of questions for you which have arisen as a result
of her attendance at the seminar.
Required:
a) Explain to your managing director the meaning of conceptual framework of financial
reporting and how does it relate to individual IFRS.

b) Identify and list the issues discussed in the IASB conceptual framework for financial
reporting (2018).

c) Briefly discuss five qualitative characteristics of financial information distinguishing

between fundamental and enhancing characteristics.

Question Two

a) Write brief notes on the rules of translating foreign currency operations as per IAS 21 –
The Effect of Changes in Foreign Exchange Rates.

b) On 1 March 2021 the Super Bears limited resolved to open a branch in Durban to sell its
new range of bi-lingual dolls. The manager was authorized to purchase local toys for
resale, but it was expected that the major proportion of the sales would be of bi-lingual
dolls supplied by the Head Office in Mbeya. The manager was to be allowed a
commission of 1% on the sales of the dolls supplied by the head office. No commission
was to be allowed on locally purchased products.

On 28 February 2022, the trial balances were as follows:

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 Mbeya Head Office Durban Branch
TZS TZS Rand Rand
Ordinary Share Capital 400,000
Reserves 50,000
Profit or Loss Account 35,800
Debtors / Creditors 125,941 44,250 351,024 123,312
Premises at Cost 225,000
Fixtures & Fittings at Cost 147,000 840,000
Acc. Depreciation - Fixtures 58,800
Inventory 143,786
Bank Balance 101,938 270,792
Cash in Hand 9,821 86,004
Purchases / Sales 586,535 1,010,786 500,005 2,661,345
Goods Sent to Branch 169,000
Goods Received from H/office 1,565,000
Branch / Head Office Current Account 169,000 1,565,000
Remittances from Branch 110,000 1,293,500
Advance to Branch 100,000 1,040,000
Administrative Expenses 187,128 285,173
Distribution Expenses 82,487 198,159
1,878,636 1,878,636 5,389,657 5,389,657

You have the following additional information:

1. Inventory on hand on 28th February 2022 was:

Mbeya TZS. 141,600
Durban - ex Mbeya Rand 263,000
- Local purchases Rand 82,000

2. Goods were invoiced by Mbeya to Durban at cost plus 25%. Durban sold the goods at
cost plus 50%. The value of goods sent to Durban was based on fixed conversion rate
of 10 Rand to the Tanzanian Shilling (TZS)

3. There were goods in transit that had been recorded in the Mbeya books at TZS. 12,500
but had not been received or recorded by Durban at 28 February 2022.

4. Durban had sent remittance of 58,000 Rand on 28 February 2022. It was received in
Mbeya on 5 March 2022 and converted to TZS. 4,375

5. The advance of TZS. 100,000 was remitted to Durban when the exchange rate was 10.4
Rand to the TZS. The fixtures and fittings were acquired when the exchange rate was
10.5 Rand to the TZS. on 1 June 2021.

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6. Depreciation of the Mbeya and Durban fixtures and fittings is to be provided at the rate
of 10% per annum of cost.

7. The rates of exchange at other dates were:

1 March 2021 10 Rand to the shilling
29 February 2022 12 Rand to the shilling
Average for the year 11 Rand to the shilling
Required:
a. Prepare the statement of profit or loss in columnar form for the head office, the Durban
branch and the whole business for the year ended 28 February 2022.

b. Prepare the statement of financial position in columnar form for Head Office, Durban
Branch and the whole business.

Question Three
The statement of Financial Position of Rosee ltd as at March 31, 2016 was as follows:
Capital & Liabilities: Tshs.'000'
Ordinary Shares @ Tshs.100 2,000,000
12% Debentures 500,000
Accrued Debenture Interests 120,000
Creditors 300,000
2,920,000
Assets:
Goodwill 25,000
Land & Buildings 150,000
Plant & Machinery 300,000
Furniture 80,000
Stock 270,000
60,000
Debtors
Preliminary Expenses 20,000
Cash & Bank 35,000
Profit & Loss Account 1,980,000
2,920,000

The following scheme of reconstruction was executed:

1) Ordinary shares were reduced by Tshs. 95 per share and they are then consolidated into
1,000,000 ordinary shares of Tshs. 100 each.
2) Debenture holders agree to forego outstanding debenture interests. As a compensation
the 12% Debentures are converted into 14% Debentures the amount remaining at Tshs.
500,000,000.
3) Creditors are given the option to either accept 50% of their claim in cash in full
settlement or to convert their claims into ordinary shares of Tshs. 100 each. Creditors
for Tshs. 200,000,000 opt for shares in satisfaction of their claims.
4) The company further issued 5,000,000 shares of Tshs. 100 each at par.

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 5) Land and buildings are revalued at Tshs. 200,000,000, whereas plant and machinery are
to be written down to Tshs. 210,000,000. A provision amounting to Tshs. 5,000,000 is
to be made on doubtful debts.
6) All intangible and factitious assets are to be written off.

Required:
a) Open, post and balance the capital reduction and share capital accounts to
record reorganization arrangements. (10
marks)
b) Prepare the statement of financial position of Rosee ltd immediately after
reorganization exercise. (10 marks)

Question Four
The board of directors of Sumve ltd, a listed company, is considering making an offer to
purchase Goba ltd, a private limited company in the same industry. If Goba ltd is purchased it is
proposed to continue operating the company as a going concern in the same line of business.

Summarized details from the most recent set of financial statements for Sumve ltd and Goba
ltd. are shown below:

Sumve Statement of Financial Goba Statement of Financial Position

Position as at 31 March as at 31 March
Tshs. Tshs. Tshs. Tshs.
Freehold Property 33,000,000 460,000
Plant & Equipment 58,000,000 1,310,000
Inventory 29,000,000 330,000
Receivables 24,000,000 290,000
Cash 3,000,000 20,000
56,000,000 640,000
Less:
Current Liabilities (31,000,000) 25,000,000 518,000 122,000
116,000,000 1,892,000

Sumve ltd. 50 cents ordinary shares, Goba ltd 25 cents ordinary shares

Sumve ltd Goba ltd.

Year PAT Dividends PAT Dividends
Tshs. Tshs. Tshs. Tshs.
T5 14,300,000 9,010,000 143,000 85,000
T4 15,560,000 9,800,000 162,000 93,500
T3 16,930,000 10,670,000 151,000 93,500
T2 18,420,000 11,600,000 175,000 102,800
T1 20,040,000 12,620,000 183,000 113,100

T5 is five years ago and T1 is the most recent year

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Goba’s shares are owned by a small number of private individuals. Its managing director who
receives an annual salary of Tshs. 120,000 dominates the company. This is Tshs. 40,000 more
than the average salary received by managing directors of similar companies. The managing
director would be replaced, if Sumve ltd. purchases Goba.

The freehold property of Goba ltd has not been revalued for several years and is believed to
have a market value of Tshs. 800,000.

The balance sheet value of plant and equipment of Goba ltd is thought to reflect its
replacement cost fairly, but its value if sold is not likely to exceed Tshs. 800,000. Approximately
Tshs. 55,000 of inventory is obsolete and could only be sold as scrap for Tshs. 5,000.

The ordinary shares of Sumve ltd. are currently trading at 430 cents ex-div. A suitable cost of
equity for Goba ltd. has been estimated at 15%.

Both companies are subject to corporation tax at 33%.

You are required to:

Estimate the value of Goba Co ltd. using:
(i) Net asset valuation method (7 marks)
(ii) Dividend valuation method (6 marks)
(iii) Price/Earnings ratio valuation method. (7 marks)

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Question Five
Sun Plc (Sun) is a public limited company based in Dar es salaam Tanzania with shareholdings
in two other companies, Moon Plc (Moon) and Star Plc (Star). Statements of Financial Position
are shown below for all three companies as at 31 July 2019.

Statements of Financial Position as at 31 July 2019

Sun Plc Moon Plc Star Plc
Tshs. Million Tshs. Million Tshs. Million
Non-current assets:
Property, plant & equipment 758 326 159
Investments 1200 40 25
1958 366 184
Current assets:
Inventories 235 153 65
Trade receivables 188 134 42
Cash & bank 100 36 20
523 323 127

Total assets 2481 689 311

Equity:
Equity share capital of Tshs. 1 each 1000 400 100
Other equity reserves 200 30 80
Retained earnings 977 112 70
2177 542 250
Current Liabilities:
Trade payables 199 127 46
Taxation 25 20 15
Dividends proposed 80 0 0
304 147 61

Total equity & liabilities 2481 689 311

The following additional information should be taken into account in so far as it is

relevant:

(i) Sun Plc bought 320 million shares in Moon on 1 August 2018, when the other equity
reserves of Moon were Tshs. 20 million and the retaining earnings of Moon were Tshs.
132 million. The consideration was agreed at Tshs. 800 million which was to be
satisfied by Tshs. 750 million cash plus deferred consideration of Tshs. 50 million
payable on 31st July 2020.

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 (ii) The group accounting policy is to value any Non-Controlling Interests (NCI) at their
fair value at the acquisition date. On the date Sun acquired its interests in Moon, the
fair value of the NCI in Moon was Tshs. 130 million.

(iii) At 1 August 2018 some equipment held by Moon had a fair value of Tshs. 25 million in
excess of its carrying value. This equipment had a remaining useful economic life of 5
years at that date.

(iv) Sun bought a 30% holding in the ordinary shares of Star on 1 august 2018, when the
other equity reserves of Star were Tshs. 75 million and the retained earnings balance
in Star stood at Tshs. 60 million. The consideration for that acquisition was Tshs. 112
million cash payable immediately.

(v) During the financial year ended 31 July 2019, Moon sold goods to Sun for Tshs. 30
million. These goods were sold at a mark-up of 100% on cost. 40% of these goods
remained in the inventory of Sun at 31 July 2019.

(vi) As a result of intra-group trading, Sun owed Moon Tshs. 2.5 million.

(vii) No dividends were paid or proposed in the year by any of the companies.

(viii) Impairment review carried out on 31 July 2019 revealed that goodwill was impaired by
60% of its acquisition value.

(ix) The weighted average cost of capital for the group is 10% and present value interest
factor for a 10% per annum interest rate are as follows:

1 year 0.909
2 years 0.826
3 years 0.751

Required:
a) Prepare a Consolidated Statement of Financial Position for the Sun Group for the
year ended 31 July 2019 in accordance with IFRS. (50 Marks)

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Question Six
IAS 33 – Earnings per share sets out the requirements for calculating and disclosing the basic
earnings per share figure for quoted entities.

The following figures were extracted from the financial statements of Cobeso Plc:

Statement of Profit or Loss and Other Comprehensive

Income for the year ended 31 March 2019 (Extract) Tshs. Million
Profit before taxation 275
Taxation -35
Profit for the year 240
Other comprehensive income for the year 25
Total comprehensive income for the year 265

Non-controlling interests' share of profits for the year 32

Other Information:
Equity dividends paid 67
Preference dividends paid out of equity 12
Issued equity share capital at 1 April 2018 (par value Tshs. 1@) 125
Issued 6% preference shares at 1 April 2018 200

During the year ended 31 March 2019, the following transactions took place to the issued share
capital of Cobeso Plc:

(i) 10 million equity shares were issued in conjunction with the acquisition of another
business. These were issued at full market price at the date of issue, 1 July 2018.

(ii) There was a rights issue involving 20 million ordinary shares on 1 October 2018. The
issue price was Tshs. 14, which represented a discount of 30% on the traded price
immediately before the issue (Tshs. 20 per share).

(iii) On 1 March 2019, Cobeso Plc re-purchased 5 million shares at full market value.

You are required to:

a) Outline how IAS 33 requires the earnings figure to be determined for the purpose of
calculating earnings per share. (6 marks)

b) Using the information provided, calculate the basic EPS for the year ended 31 March
2019 and the comparative figure for 2018 to be reported in the 2019 financial
statements. The EPS figure originally reported in 2018 was Tshs.1.60.
(14 marks)

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