Code of the Name of the Module Date of Test Time of Set

Module Test
BAC 322 Advanced Accounting 25/11/2022 14:00Hrs 1

You are advised to read the following before answering the examination questions.
1. Read each of the questions carefully before you answer.
2. Number the answers to the questions clearly before answering.
3. Answer all parts of a question at one place in continuous manner.
4. Please write as clearly as possible as illegible handwriting cannot be marked

This paper contains two parts; Section A and Section B. Section A is compulsory and with
a total of 40 marks. Section B contains five questions having two sub questions of 20
marks. Answer any three questions from section B.
 Section A
Answer the compulsory question
QUESTION ONE
On 1 October 20X0 Pompwe purchased 75% of the equity shares in Sazi. The acquisition was
through a share exchange of two shares in Pompwe for every three shares in Sazi. The stock
market price of Pompwe's shares at 1 October 20X0 was K4 per share.
1
The summarised statements of profit or loss and other comprehensive income for the two
companies for the year ended 31 March 20X1 are:

Pompwe Sazi
K'000 K'000
Revenue 450,000 240,000
Cost of sales (260,000) (110,000)
Gross profit 190,000 130,000
Distribution costs (23,600) (12,000)
Administrative expenses (27,000) (23,000)
Finance costs (1,500) (1,200)
Profit before tax 137,900 93,800
Income tax expense (48,000) (27,800)
Profit for the year 89,900 66,000
Other comprehensive income
Gain on revaluation of land (Note1) 2,500 1,000
Loss on fair value of equity financial asset investment (700) (400)
1,800 600

Total comprehensive income for the year 91,700 66,600

The following information for the equity of the companies at 1 April 20X0 (ie before the
share exchange took place) is available:
K'000 K'000
Equity shares of K1 each 250,000 160,000
Share premium 100,000 nil
Revaluation reserve (land) 8,400 nil
Other equity reserve (re equity financial asset investment) 3,200 2,200
Retained earnings 90,000 125,000

The following information is relevant:

i. Pompwe's policy is to revalue the group's land to market value at the end of each
accounting period. Prior to its acquisition Sazi's land had been valued at historical
cost. During the post-acquisition period Sazi's land had increased in value over its
value at the date of acquisition by K1 million. Sazi has recognised the revaluation
within its own financial statements.
ii. Immediately after the acquisition of Sazi on 1 October 20X0, Pompwe transferred an
item of plant with a carrying amount of K4 million to Sazi at an agreed value of K5
million. At this date the plant had a remaining life of two and half years. Pompwe had
included the profit on this transfer as a reduction in its depreciation costs. All
depreciation is charged to cost of sales.
 iii. After the acquisition Sazi sold goods to Pompwe for K40 million. These goods had
cost Sazi K30 million. K12 million of the goods sold remained in Pompwe's closing
inventory.
iv. Pompwe's policy is to value the non-controlling interest of Sazi at the date of
acquisition at its fair value which the directors determined to be K100 million.
v. The goodwill of Sazi has not suffered any impairment.
vi. All items in the above statements of profit or loss and other comprehensive income
are deemed to accrue evenly over the year unless otherwise indicated.

Required
a) Calculate the goodwill on acquisition of Sazi. (6 marks)
b)
i. Prepare the consolidated statement of profit or loss and other comprehensive
income of Pompwe for the year ended 31 March 20X1. (20 marks)
ii. Prepare the equity section (including the non-controlling interest) of the
consolidated statement of financial position of Pompwe as at 31 March 20X1.
(10 marks)
42
c) IFRS 3 Business combinations permits a non-controlling interest at the date of acquisition
to be valued by one of two methods:
i. At its proportionate share of the subsidiary's identifiable net assets; or
ii. At its fair value (usually determined by the directors of the parent company).

Required
Explain the difference that the accounting treatment of these alternative methods could have
on the consolidated financial statements, including where consolidated goodwill may be
impaired. (4 marks)

[Total:40 Marks]
 Section B
Answer any three

QUESTION TWO
a) Maambo and Dambo Partnership had K300,000 of profits for the year ended, 31
December 2022, the first year of operations. The partnership contract provided that the
partners may withdraw 5,000 on the last day of each month.
Maambo invested 400,000 on 1 January 2022 and an additional 100,000 on 1 April 2022.
Dambo invested 800,000 on 1 January and withdrew 50,000 on July 1.
Interest on capital was agreed at 15%.
Required
Share the partnership residue profit between Maambo and Dambo using the following:
i. The profit sharing ratio of 60:40 (1 mark)
ii. End of year capital balances (2 marks)
iii. Average capital balances (3 marks)
iv. Original capital investment (2 marks)

b) Explain the following types of partnerships

i. Limited partnership
ii. General partnership
iii. Limited liability partnership (6 marks)
c) Explain the following advantages of a partnership
i. Combination of different skills
ii. Risk sharing
iii. Large resources (6 marks)
[Total: 20 Marks]

QUESTION THREE
The Statement of Financial Position of the Chawama Dancing Club as at 31 December 2017
was as follows:
Non-Current Assets K K
Land at cost 150,000
Equipment & Furniture (Cost - K40,000) 23,000
Total Non-Current Assets 173,000

Current Assets
Bar inventories 9,200
Subscriptions Owing 2,500
Bank Current Account 2,250
Bank Deposit Account 12,000
Total Current Assets 25,950
TOTAL ASSETS 198,950
Equity & Liabilities

Equity
Accumulated Fund 139,450
Total Equity 139,450

Non-Current Liabilities
Long-term Loan 48,000
Total Non-Current Liabilities 48,000

Current Liabilities
Bar Trade Payables 8,400
Subscriptions in Advance 800
Bar Wages Due 2,300
Total Current Liabilities 11,500
TOTAL EQUITY & LIABILITIES 198,950

The club’s summarised bank account for 2018 was as follows:

Bank Account
K K
Balance b/f 2,250 Bar purchases 74,700
Bar sales 166,000 Bar expenses 29,200
Subscriptions 68,000 Bar wages 75,600
Competition entries 14,800 Rates 10,000
Loan repayment 19,600
Competition entries 10,400
Equipment 7,000
Sundry expenses 2,540
Transfer to deposit Account 10,000
Balance c/d 12,010
251,050 251,050

The following information is also provided:

i. Balances at 31 December 2018

K
Bar inventories 9,900
Subscriptions owing 2,000
Bar trade payables 8,000
Subscriptions in advance 1,200
Bar wages due 1,600

ii. The long term loan is repaid in annual instalments of K15,000 excluding interest. The
interest in 2018 is K4,600.

iii. Interest receivable on the deposit account is K500.

 iv. Depreciation is provided on equipment and furniture at 10% per annum on cost.

Required:
Prepare for the year ended 31 December 2018:

a) A Bar Trading account for Chawama Dancing Club. (6 Marks)

b) An Income & Expenditure account for Chawama Dancing Club. (7 Marks)
c) A Statement of Financial Position for Chawama Dancing Club. (7 Marks)

[Total: 20 Marks]

QUESTION FOUR

Robby, Selina and Tengo are in partnership sharing profits and losses in the ratio of 2:2:1
respectively. At the 1 January their capital and current account balances were:

Capital Account Current Account

K K
Robby 32,000 2,400 Credit
Selina 40,000 1,100 Debit
Tengo 48,000 1,900 Credit

The partners are entitled to interest on capital at the rate of 5% per annum.

On 1 July, Robby increased her capital by paying a further K6,000 into the partnership bank
account, while Selina reduced her capital to K26,000 and left the value of her withdrawn
capital in the partnership as a loan bearing interest at 5% per annum.

Partners are allowed to withdraw from current accounts at any time during the financial year
but are charged interest on the amounts involved.

Details of drawings made and interest chargeable in respect of each partner for the financial
year ended 31 December are:

Drawings Interest on Drawings

K K
Robby 6,900 270
Selina 5,700 220
Tengo 8,100 330

Selina is paid an annual salary of K18,000. The trading profit (before interest) for the year
ended 31 December was K56,420.
Required:
a) Prepare the profit and loss appropriation account for the partnership. (10 Marks)

b) From the above information, post the appropriate entries to each of the partner’s
capital and current accounts and balance each account for each partner as at 31
December. (10 Marks)
[Total: 20 Marks]

QUESTION FIVE

On 1 October 20x3, Penso acquired 80% of Senzo’s equity shares by means of a share
exchange of two shares in Penso for every three acquired shares in Senzo. In addition, Penso
would make a deferred cash payment of 88 ngwee per acquired share on 1 October 20x4.
Penso has not recorded any of the consideration. Penso’s cost of capital is 10% per annum.
The market value of Penso’s shares at 1 October 20x3 was K6.

The following information is available for the two companies as at 30 September 20x4:
Penso Senzo
Assets K’000 K’000
Non-current assets
Property, plant and equipment 38,100 28,500

Equity and liabilities

Equity
Equity shares of K1 each 50,000 9,000
Other components of equity 8,000 nil
Retained earnings – at 1 October 20x3 16,200 19,000
– for the year ended 30 September 20x4 14,000 8,000

The following information is relevant:

i. At the date of acquisition, Senzo’s net assets were equal to their carrying amounts
with the following exceptions: an item of plant which had a fair value of K3 million
above its carrying amount. At the date of acquisition, it had a remaining life of five
years (straight-line depreciation).
Senzo had an unrecorded deferred tax liability of K1million, which was unchanged as
at 30 September 20x4.

ii. Penso’s policy is to value the non-controlling interest at fair value at the date of
acquisition. For this purpose, a share price of K3·50 each is representative of the fair
value of the shares in Senzo held by the non-controlling interest at the acquisition
date.

iii. Consolidated goodwill has not been impaired.

Required:
Prepare extracts from Penso’s consolidated statement of financial position as at 30 September
20x4 for:
a) Consolidated goodwill; (6 marks)
b) Property, plant and equipment; (4 marks)
c) Equity (share capital and reserves); (6 marks)
d) Non-controlling interests. (4 marks)

[Total: 20 Marks]

QUESTION SIX

X, Y and Z have been in partnership for several years, sharing profits and losses in the ratio
3:2:1. Their last statement of financial position which was prepared on 31 October 20x6 is as
follows:

Statement of Financial Position of X, Y and Z as at 31 October 20x6

K K
Non-current assets
At cost 20,000
Less Depreciation (6,000)
14,000
Current assets
Inventory 5,000
Accounts receivable 21,000
26,000
Total assets 40,000

Current liabilities
Bank 13,000
Accounts payable 17,000
Total liabilities (30,000)
Net assets 10,000

Capital
X 4,000
Y 4,000
Z 2,000
Total capital 10,000

Despite making good profits during recent years they had become increasingly dependent on
one credit customer, Sancho, and in order to retain his custom they had gradually increased
his credit limit until he owed the partnership K18,000. It has now been discovered that
Sancho is insolvent and that he is unlikely to repay any of the money owed by him to the
partnership. Reluctantly X, Y and Z have agreed to liquidate the partnership on the following
terms:
 i. The inventory is to be sold to Nelson Ltd for K4,000.
ii. The non-current assets will be sold for K8,000 except for certain items with a book
value of K5,000 which will be taken over by X at an agreed valuation of K7,000.
iii. The debtors, except for Sancho, are expected to pay their accounts in full.
iv. The costs of liquidation will be K800 and discounts received from creditors will be
K500. Z is unable to meet his liability to the partnership out of his personal funds.

Required:
Compile the following accounts:
i. the partnership realisation account; (10 marks)
ii. the partners' bank account (5 marks)
iii. the partners' capital accounts (5 marks)

[Total: 20 Marks]

End of Question paper!