Question One 25 Marks

TY is a listed entity operating in a service-based industry.

Required:

(a) Discuss how the recognition criteria for assets prevent employees from being
recorded as an asset in the statement of financial position. [5]

(b) Discuss the potential advantages for TY of including additional voluntary information
about its human capital in its financial statements. [5]

Question two 25 Marks

Wayaa Ltd is company that is listed on the Zimbabwe Stock exchange, their accountant
Mr. Briggs has fallen sick just before the year end of 31 December 2018. The following
transactions still have to be accounted for

Transaction one

Wayaa acquired 1 million $1 equity shares in XY on 14 June 2018 for $1.85 per share
and classified this investment as available for sale. Wayaa paid a 1% transaction fee to
its broker on this transaction. XY’s shares were trading at $1.98 on 31 December 2018.

On 2 October 2018 Wayaa acquired 200,000 $0.50 equity shares in LM for $0.70 per
share and classified this investment as held for trading. Wayaa paid a 0.5% transaction
fee to its broker on this transaction. LM’s shares were trading at $1.15 on 31 December
2018.

ABC prepares its financial statements in accordance with the provisions of IAS 32
Financial instruments: presentation and IFRS 9 Financial instruments: Recognition and
Measurement.

Required:

Prepare the journal entries to record the initial measurement AND the subsequent
measurement of the investments in XY and LM in the financial statements of Wayaa for
the year to 31 December 2018. [6]
Transaction Two

Wayaa issued $5 million 6% convertible bonds on 1 July 2018 at their par value. The
bonds are redeemable at par on 30 June 2023 or can be converted at that date on the
basis of two $1 equity shares for every $20 nominal value of bonds held.

The prevailing market rate for similar bonds without conversion rights is 8%.

Required:

(a) (i) Prepare the journal entry to initially record the issue of the bonds, in accordance
with IAS 32 Financial Instruments: Presentation.

(ii) Calculate the value of the liability that Wayaa will include in its statement of financial
position as at 31 December 2018, in accordance with IFRS9 Financial Instruments:
Recognition and Measurement. [7]

Transaction three

Wayaa made an investment in a financial instrument on 1 January 2018 at its nominal

value of $2,000,000. The instrument carries a fixed coupon interest rate of 7%, which is
receivable annually in arrears. The instrument will be redeemed for $2,265,000 on 31
December 2021. Transaction costs of $100,000 were paid on acquisition. The effective
interest rate applicable to this instrument has been calculated at approximately 8.4%.
Wayaa intends to hold this investment until its redemption date.

Required

In accordance with IAS 32 Financial Instruments: Presentation and IFRS 9 Financial

Instruments: Recognition and Measurement:

(i) Explain how this investment should be classified; and [5]

(ii) Calculate the carrying value of the investment to be included in the statement of
financial position of Wayaa as at 31 December 2019. [5]
Question three 25 Marks

Isley is preparing its consolidated financial statements for the year ended 31 December
2018. Isley is a company that is listed on the ZSE and has a number of investments in
other entities. Details of some of these investments are provided below:

Investment in Sparkly

Isley acquired 90% of the issued ordinary share capital of Sparkly on 1 July 2018 for $6
million, when the book value of the net assets was $5.8 million. The fair value of these
net assets was estimated at $6.8 million at the date of acquisition. The difference
between the fair value and book value of the net assets related to depreciable property
with a remaining useful life at the date of acquisition of 40 years.

Investment in Kelly

Isley acquired 40% of the issued ordinary share capital of GH on 1 January 2018 for $2
million, when the book value of the net assets was $5.5 million. The fair value of these
net assets was estimated at $6 million at the date of acquisition.

Investment in Usher

At the date of acquisition of Sparkly, Sparkly held 65% of the issued ordinary share
capital of Usher. The operations of Usher do not fit within the strategic plans of Isley and
so the directors plan to sell this investment. The investment is currently being actively
marketed with a view to selling it within the next 4 months.

Investment in Tank

Isley acquired 15% of the issued ordinary share capital of Tank on 1 January 2018 for
$1 million. On 1 October 2018, DF acquired a further 40% of issued ordinary share
capital for $4.5 million. The fair value of the net assets at 1 October 2018 was $12
million and on 1 January 2004 was $8 million. The previously held interest had a fair
value on 1 October 2018 of $1.7 million.
Explain the basis on which each of the investments should be accounted for in the
consolidated financial statements of the Isley Group for the year ended 31 December
2018. Show all the calculations to be done at the date of acquisition [20]

Briefly explain the impact of the investments in the Consolidated Statement of Financial
Position of Isley for the year ended 31 December 2018