CAVENDISH UNIVERSITY – ZAMBIA

ASSIGNMENT BRIEF AND FEEDBACK FORM

LECTURER NAME: ERNEST KAPUMPE

STUDENT NUMBER: 106-746

MODULE: Financial Accounting 2

MODULE CODE: BBA212

ASSIGNMENT NUMBER: 1

DATE HANDED OUT: 22th/08/2023

DATE DUE IN: 17/09/2023

ASSIGNMENT BRIEF

REFER TO THE QUESTION

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QUESTION ONE (A)
The basic methods of preparing a consolidated statement of financial position include
- Acquisition Method: Which combines the financial statements of the parent and
subsidiary after eliminating intercompany transactions. Any excess of the fair value of
the investment over the fair value of the subsidiary's identifiable net assets is recorded
as goodwill. The subsidiary's net assets are included in the consolidated statement at
their fair values.
- Equity method, which records the parent's proportionate share of the subsidiary's
assets, liabilities, and equity as an equity investment. These methods ensure that the
consolidated statement provides a comprehensive view of the group's financial
position by reflecting the combined assets, liabilities, equity, revenues, and expenses
of the parent and subsidiary.
- The Cost Method: In this method, the investment in the subsidiary is recorded at its
original cost and no adjustment is made to the carrying value. The subsidiary's net
assets are not included in the consolidated statement. Instead, the investment in the
subsidiary is shown as a single line item under investments on the consolidated
statement of financial position.

QUESTION ONE (B)

Calculation of Non-controlling interest (NCI) at acquisition date:
Number of shares of PILO PLC = 50000
NCI shares = 50000 * 20% = 10000
The fair value of NCI = 10000*2.5 =K25,000
Calculation of Goodwill or Capital Reserve at acquisition date:
Investment = 58000
NCI = 25000
Net Assets at acquisition date = 50000+16000 = 66000
Goodwill = 58000 + 25000 - 66000 = K17,000

Allocation of profit:
Change in retained earnings since acquisition = 25000 - 16000 = 9000
Palo share = 9000 * 80% = 7200
NCI share = 9000 * 20% = 1800

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Value at year-end:
NCI = 25000 + 1800 = 26800
Palo retained earning = 70000 + 7200 = 77200
Value at year-end:
NCI = 25000 + 1800 = 26800
Palo retained earning = 70000 + 7200 = 77200
Balance Sheet
Particulars PALO PILO Consolidated
Property, Plant, and Equipment 70000 50000 120000
Shares in Mix 58000
Goodwill 17000
128000 50000 137000
Current Assets 52000 35000 87000
Total Assets 180000 85000 224000

Share capital K1 100000 50000 100000

Retained earnings 70000 25000 77200
NCI 26800
170000 75000 204000
Current Liabilities 10000 10000 20000
Total Equity and Liabilities 180000 85000 224000

Solution
Balance Sheet
Particulars PALO PILO Consolidated
Property, Plant, and Equipment 70000 50000 120000
Shares in Mix 58000
Goodwill 17000
128000 50000 137000
Current Assets 52000 35000 87000
Total Assets 180000 85000 224000

Share capital K1 100000 50000 100000

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 Retained earnings 70000 25000 77200
NCI 26800
170000 75000 204000
Current Liabilities 10000 10000 20000
Total Equity and Liabilities 180000 85000 224000

QUESTION TWO
(a)
Step 1: Cash flow statement as per IAS 7 : Statement of cash flow (CFS) as per IAS 7 is a
format used to reconcile the changes made in the financial statement with respect to cash and
cash equivalents of items disclosed in the balance sheet.The net amount of cash that an entity
receives and expends over the course of a given period. For a business to continue operating,
positive cash flows are required, and they are also necessary to produce value for investors.
Investors in particular prefer to see growing cash flows even after capital expenditures have
been paid for (which is known as free cash flow).
Step 2: Calculation of non current assets purchased during the year :
Working notes:
Non current assets
Bal b/d K2,700,000 By depreciation K700,000

To cash K2,800,000 By asset sold K200,000

(balancing
figure)

Bal c/d K4,600,000

K5,500,000 K5,500,000

SOLUTION
Moba Limited
Statement of Cash Flows
Amount (K) Amount (K)

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Cash Flows from Operating
Activities
Net Profit 1,032,000

Depreciation 7,00,000
Interest payable 10,000
Loss on sale of non current 20,000
assets
Operating profit before 1,762,000
Working capital changes
Increase in trade receivables -130,000
Increase in Inventory -80,000
Increase in Trade payable 85,000
Net cash flow after adjustment 1,637,000
and before tax
Tax paid in cash -145,000
Net cash flow from operating 1,492,000
activities
Cash Flow from Investing
Activities
Purchase of non current assets -2,800,000
Sale of non current assets 180,000
Net cash flows from investing -2,620,000
activities
Cash Flow From Financing
activities
Issue of common stock 1,130,000
Increase in capital surplus 150,000
Payment of note -100,000
Increase of bank overdraft 58,000
Interest paid -10,000
Dividend paid -270,000
Net Cash Flows from Financing 958,000

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 activities

Net increase in cash and cash -170,000

equivalents
Cash and cash equivalent at the 170,000
beginning of the year
Cash and cash equivalent at the 0
end of the year

QUESTION THREE

Step 1: What is lease: Lease is an agreement between lessor and lessee to use the assets of
the lessee. There are two types of lease i.e., operating lease and finance lease. There are some
criteria defined under IFRS 16 to classify a lease as either a finance or operating lease.
Step 2: calculation of Present Value of lease payments and journal entry for recording the
same. Under a finance lease right-of-use assets and lease liability are recorded in the books of
the lessee at the present value of lease payments. The present value of lease payments is
calculated as follows:
General calculation a,b, and c
Year Lease PV factor Present
payments (@12%) value
1 44,000 0.893 39285.71
2 44,000 0.797 35076.53
3 44,000 0.712 31318.33
4 44,000 0.636 27962.80
5 44,000 0.567 24966.78
6 44,000 0.507 22291.77
7 44,000 0.452 19903.37
8 44,000 0.404 17770.86
9 44,000 0.361 15866.84
10 44,000 0.322 14166.82
Total 248609.81

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Therefore, the PV of lease payments is $248,610.
The journal entry to to record the right of use assets in the books of lessee (Michanga
Contractors) is as follows:
Right-of-use-assets------------Dr----------248,610 (Assets)
Lease liability---------------Cr--------------248,610 (Liability)
Now calculate the depreciation expense for the year 2002-2003:
Depreciation expense = (Cost - Salvage value) / Estimated useful life
= (248,610 - 0) / 10 years
= 24,861
Now calculate the interest expense and reduction in lease liability:
Interest expense = Lease liability * Rate of interest
= 248,610 * 12%
= 29,833
Reduction in lease liability = Annual rental - Interest expense
= 44,000 - 29,833
= 14,167

Lease liability as at 31st march 2003 = 248,610 - 14,167

= 234,443

SOLUTION
Reporting the same in income statement, financial position, and cash flow statement:
Q.3 (a) The amount reported in the statement of comprehensive income for the year ended 31
march 2003 is as follows:
Depreciation expense: 24,861
Interest expense: 29,833

Q.3 (b) The amount reported in the statement of financial position as at 31st March 2003 is as
follows:

Right of use assets: 248,610

Accumulated depreciation: 24,861
lease liability: 234,443

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Q.3 © The amount reported in the statement of cash flow for the year ended March 2003 is as
follows:

Lease Payment: $44,000