FACULTY OF COMMERCE, HUMAN SCIENCES AND EDUCATION

DEPARTMENT ECONOMICS, ACCOUNTING AND FINANCE

BACHELOR OF ACCOUNTING
______________________________________________________________________
FINANCIAL ACCOUNTING 320 (GFA 712S)

Date: 03 September 2022

Duration: 120 Minutes
Marks: 60
TEST 1

INSTRUCTIONS
1. Answer ALL questions in blue or black ink only
2. Write clearly and neatly.
3. Start each question on a new page and number the answers clearly.
4. No programmable calculators are allowed.
5. Questions relating to the paper may be raised in the initial 30 minutes after
the start of the paper. Thereafter, candidates must use their initiative to deal
with any perceived error or ambiguities & any assumption made by the
candidate should be clearly stated.
6. Correct name of Lecturer and mode of study must be indicated on the script

Examiners: D Kamotho, Ms D Jesanya & Ms I Iipinge

Moderator: Ms G Kafula

This paper consists of 4 pages excluding this cover page

Question 1 (15 marks)
Kamdan Limited (Kamdan), a public limited company, acquired 30% of the voting rights of
Vishwal Limited (Vishwal). The remaining voting rights are held by four other investors
holding 25%,25%, 10% and 10% respectively. A shareholder agreement grants Kamdan the
right to appoint, remove and set the remuneration of management responsible for key
business decisions of Vishwal. To change this agreement, a vote (50% +1) of the
shareholders’ is required. Kamdan have never exercised their rights to appoint, remove and
set the remuneration of management and have no intention of doing so in the foreseeable
future.

Required
Discuss, using the IFRS 10 definition of control, whether Kamdan controls Vishwal and
whether Kamdan should consolidate Vishwal as a subsidiary in its group financial
statements

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Question 2 (15 marks)
On 1 January 2021, A Limited acquired 80% of B Limited for N$3,6 million. At acquisition
date, the following information was relevant for B limited

B Limited was a lessee under an operating lease agreement in terms of which it was
required to pay an annual rental of N$150 000 on 31 December each year for the remaining
three years of the lease agreement. The market rentals for a similar property were N$200
000 per annum. An appropriate discount rate is 15%.
(8 marks)

2. B had a radio license for southern Namibia which had a fair value of N$ 115,000 at the
acquisition date. However, since A is completely in a different sector, they intend to
discontinue that line of B business immediately after the acquisition. The license had been
acquired for free from the government in an effort to promote local languages in the region.
(3 marks)

3. At the date of acquisition, B had a present obligation of N$ 2.5 million arising from a claim
by a competitor in connection with the alleged infringement of its trademark. The fair value
of this present obligation was determined at N$1,2 million at date of acquisition as the claim
was subject to court appeal by B Limited and the related outflow of economic benefits was
not considered probable. During August 2021 however, B Limited settled this matter out of
court for a total amount of N$700 000. None of the transactions relating to this event has
been recorded by B limited. (4 marks)

Required:
Show the relevant consolidation journal entries for A limited for the year ended 31 December
2021 in respect of the above transactions. Marks allocations are shown under each section
and workings are required where necessary. (15 marks)

2
Question 3 (30 marks)

On 1st January 2021, Parent Enterprise acquired a 70% share in Subsidiary Enterprise. The
draft statements of financial position of Subsidiary and Parent as of 31 December 2021 are
as follows:

Parent Subsidiary
N$ 000 N$ 000
ASSETS
Non-current assets:
Intangible assets 50 140
Tangible assets 3 900 1 110
Investment in Subsidiary 281 -
4 231 1 250
Current assets:
Inventory 752 379
Trade receivables 456 273
Bank 101 10
1 309 662
TOTAL ASSETS 5 540 1 912
EQUITY AND LIABILITIES
Equity:
Ordinary shares 25c 3 200 -
Ordinary shares 50c - 960
Share premium account 1 200 350
Retained earnings 300 200
4 700 1 510

Liabilities
Non-current liabilities:
8% debentures 60 -
5% debentures - 100
Current liabilities 780 302
TOTAL EQUITY AND LIABILITIES 5 540 1 912
(Note that figures in the above table are in 000’s - thousands)

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The following information is also available:
i. On 1st January 2021, the acquisition date, the fair value of the tangible non-current
assets of Subsidiary was $100 000 more than their book value and which had a
remaining useful life of 10 years. This revaluation has not been included in
Subsidiary’s financial statements.
ii. The fair value of all other assets and liabilities at the acquisition date was equal to
book value. The retained earnings of Subsidiary at that date were $60 000.
iii. The group policy is to depreciate tangible assets to Nil using straight line method.
iv. The consideration for the acquisition was agreed and paid as follows: N$ 280 843
payables on 01 January 2021 and another N$ 200 000 payable for the next five
years starting 01 January 2022. Only the initial payment has been recorded in the
books of Parent.
v. No further share or debenture issues have been made by Subsidiary since the
acquisition date.
vi. The share prices of Subsidiary were trading at 80c and 85c as of 01 January 2021
and 31 December 2021 respectively.
vii. Goodwill has not been impaired during the year ended 31 December 2021.
viii. The pretax rate (cost of capital) is 10%.
ix. Ignore the effects of deferred tax

Required
a) Calculate the amount of goodwill arising on the acquisition of Subsidiary. It is the
Parent group policy to use the fair value method in calculating goodwill (10 marks)

b) Prepare the Consolidated statement of financial position as at 31st December 2021

for Parent and its subsidiaries as per IFRS 10. (16
marks)

c) IFRS 10 outlines circumstances that a holding company (parent) may be exempted

to prepare consolidated financial statements. Describe in sufficient detail the
exceptions to the requirement to present consolidated financial statements.
(4 marks)

END OF QUESTION PAPER

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Solution 1
Power over the investee to direct relevant activities 1
The size of Kamdan' shareholding in Vishwal (30%) and the relative size of 1
the other shareholdings alone are not conclusive in determining whether
Kamdan has rights sufficient to give it power.
However, the shareholder agreement which grants Kamdan the right to 1
appoint, remove and set the remuneration of key management who direct
the relevant activities
The management is responsible for the key business decisions of Vishwal 1
gives Kamdan power to direct the relevant activities of Vishwal.
This is supported by the fact that a majority is required to change the 1
shareholder agreement
Kamdan does not own more than 50% of the voting rights, the other 1
shareholders can change (with relative ease) the agreement since two of
them controls 50%.
Therefore, in terms of power over the investee, Kamdan has 1
nopower/control over Vishwal
Exposure or rights to variable returns of the investee 1
As Kamdan owns a 30% shareholding in Vishwal, it will be entitled to 1
receive variable returns in a form of dividends.
The amount of this dividend will vary according to Vishwal's performance 1
and Vishwal's dividend policy.
Therefore, Kamdan has exposure to the variable returns of Vishwal. 1
Ability to use power over the investee 1
The fact that Kamdan has never exercised the right to appoint, remove 1
and set the remuneration of Vishwal's management should not be
considered when determining whether Kamdan has power over Vishwal.
It is just the ability to use the power, which is required, and this ability 1
comes from the shareholder agreement
Conclusion
The IFRS 10 definition of control has NOT been met. Kamdan does not 1
control Vishwal
and therefore, Kamdan should NOT consolidate Vishwal as a subsidiary in 1
its group financial statements.

5
 Available 16
Maximum 15
Solution 2
Description Debits credits Marks
1 Operating lease intangible asset 114 161.25 1.0
Equity at Acquisition of B 114 161.25 1.0
Recognition of a favourable LEASE as B Limited is required to pay 4.5
N$50 000 less than market rentals for the next three years. From a
group point of view, A Limited therefore recognises at acquisition, an
operating lease intangible asset of N$114 161.25 (PMT = 50 000; n = 3;
i = 15; COMP PV). Marks include workings – 4 marks, narration 0.5
marks)
Amortisation of Lease 38 054 0.5
Operating lease intangible asset 38054 0.5
Amortisation of the used lease for 2021 0.5

2 Radio License 115 000 0.5

Equity at Acquisition of B 115 000 0.5
Recognition of identified intangible asset at acquisition date 0.5
Retained Earnings 115 000 0.5
Radio License 115 000 0.5
Write off license to be discontinued 0.5

3 Equity at Acquisition of B 1 200 000 0.5

Contingent liability 1 200 000 0.5
Recognition of Contingent liability at acquisition date 0.5

Contingent liability 1 200 000 0.5

Retained Earning 500 000 1
Bank 700 000 1
Settlement of contingent liability 0.5
Available 15
Maximum 15

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Solution 3 (30 marks)
Goodwill calculation

Consideration
Immediate cash 280843 0.5
Deferred payment @ 200000 next five years 758157 1039000 5.0
@10 discount rate
NCI (9600000/0.5 X 30% x 0.8 460800 3.0
1499800

Net Assets at Acquisition

OSC 960000 0.5
Share premium 350000 0.5
Retained Earnings 60000 0.5
Revaluation surplus 100000 1.0
1470000
Goodwill 29800 1

Available marks 12.0

Maximum marks 10.0

Parent Enterprises Group

Consolidated statement of financial position
As at 31 December 2021√
$000 $000
ASSETS
Non-current assets
Goodwill on consolidation 30√
Intangibles (50 + 140) 190√
Tangibles (3,900 + 1,110 + 100 -10) 5,100√ 5,320
–––––
Current assets
Inventory (752 + 379) 1,131√
Trade receivables (456 + 273) 729√
Bank (101+10) 111√ 1,971
–––– –––––
7,291√
–––––

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 EQUITY AND LIABILITIES
Equity
Ordinary 25p shares 3,200√
Share premium 1,200√
Retained earnings (300 + (0.7(200-60-10))-(0.1x758) 315√ 4,715

Non-controlling Interest (461+ 0.3(200-60-10) 500√

Non-current liabilities 8% debentures + 5% debentures 160√
Deferred payment (758 +0.1(758)) 834√

Current liabilities (780 + 302) 1 082√

–––––
TOTAL EQUITY AND LIABILITIES 7,291√
–––––
(√= 1mark each,
Available
Maximum 16

c)
There are exceptions to the requirement to present consolidated financial statements;
these cover the following circumstances which must exists at the same time i.e. all the
four conditions must be met:
 the parent is itself a wholly owned subsidiary, or is a partly-owned subsidiary of
another entity and its owners, including those not otherwise entitled to vote, have
been informed about, and do not object to, the parent not presenting consolidated
financial statements; √
 the parent’s debt or equity instruments are not traded in a public market ( a
domestic or foreign stock exchange or on an over-the-counter market), including
local and regional markets; √
 the parent did not file, nor is it in the process of filing, its financial statements with
a securities commission or other regulatory organization for the purpose of
issuing any class of instruments in a public market; and√
 the ultimate or any intermediary parent of the parent produces consolidated
financial statements available for public use that comply with International
Financial Reporting Standards. √

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(√ (well explained) = 1 mark each, max 4 marks) – ½ may be awarded for mention only.

(Total for Question 3 = 30 marks)