C1 GRANDE FINALE SOLVING (NOV 2020) - SET 1

GRAND FINALE PROBLEM SOLVING SESSION
CORPORATE REPORTING (C1)

FOR NOVEMBER 2020 EXAMS
SET 1
Godson Leonard: MBA(Finance), Bc. Acc,CPA (T) &

Mshana Ally A.: MFA- (OG), B.Com Accounting (Hons), CPA (T), ATEC (II|Phone1: +255 752 643388 | Phone2:
+255 713 762 452 | Email us to: info@covenantfinco.com |Visit our Website at: www.covenantfinco.com
CORPORATE REPORTING (C1) GRANDE FINALE SOLVING SESSION NOV 2020 SET 1
QUESTION ONE [Topic: Consolidation of statement of financial position]
The following draft statements of financial position relate to Robby, Hail and Zinc, all public
limited companies, as at 31 May 2012:
Robby Hail Zinc
$m $m $m
Assets
Non-current assets:
Property, plant and equipment 112 60 26
Investment in Hail 55
Investment in Zinc 19
Financial assets 9 6 14
Jointly controlled operation 6
Current assets 5 7 12
–––– ––– –––
Total assets 206 73 52
–––– ––– –––
Equity and Liabilities
Ordinary shares 25 20 10
Other components of equity 11 – –
Retained earnings 70 27 19
–––– ––– –––
Total equity 106 47 29
Non-current liabilities 53 20 21
Current liabilities 47 6 2
–––– ––– –––
Total equity and liabilities 206 73 52
––– ––– –––

The following information needs to be taken into account in the preparation of the group
financial statements of Robby:
(i) On 1 June 2010, Robby acquired 80% of the equity interests of Hail. The purchase
consideration comprised cash of $50 million. Robby has treated the investment in
Hail at fair value through other comprehensive income (OCI).
A dividend received from Hail on 1 January 2012 of $2 million has similarly been
credited to OCI.
It is Robby’s policy to measure the non-controlling interest at fair value and this
was $15 million on 1 June 2010.
On 1 June 2010, the fair value of the identifiable net assets of Hail were $60 million
and the retained earnings of Hail were $16 million. The excess of the fair value of
the net assets is due to an increase in the value of non-depreciable land.
(ii) On 1 June 2009, Robby acquired 5% of the ordinary shares of Zinc. Robby had
Mshana Ally A.: MFA- (OG), B.Com Accounting (Hons), CPA (T), ATEC (II|Phone1: +255 752 643388 |
Phone2: +255 713 762 452 | Email us to: info@covenantfinco.com |Visit our Website at: www.covenantfinco.com
Page | 1
treated this investment at fair value through profit or loss in the financial
statements to 31 May 2011.
On 1 2011, Robby acquired a further 55% of the ordinary shares of Zinc and gained
control of the company.
The consideration for the acquisitions was as follows:
Shareholding Consideration
1 June 2009 5% 2
1 December 2011 55% 16

–––– –––
60% 18
–––– –––
At 1 December 2011, the fair value of the equity interest in Zinc held by Robby before the
business combination was $5 million.
It is Robby’s policy to measure the non-controlling interest at fair value and this was $9
million on 1 December 2011. The fair value of the identifiable net assets at 1 December
2011 of Zinc was $26 million, and the retained earnings were $15 million. The excess of
the fair value of the net assets is due to an increase in the value of property, plant and
equipment (PPE), which was provisional pending receipt of the final valuations. These
valuations were received on 1 March 2012 and resulted in an additional increase of $3
million in the fair value of PPE at the date of acquisition. This increase does not affect the
fair value of the non-controlling interest at acquisition. PPE is to be depreciated on the
straight-line basis over a remaining period of five years.
(iii) Robby has a 40% share of a joint operation, a natural gas station. Assets,
liabilities, revenue and costs are apportioned on the basis of shareholding.
The following information relates to the joint arrangement activities:
 The natural gas station cost $15 million to construct and was completed on 1
June 2011 and is to be dismantled at the end of its life of 10 years. The present
value of this dismantling cost to the joint arrangement at 1 June 2011, using a
discount rate of 5%, was $2 million.
 In the year, gas with a direct cost of $16 million was sold for $20 million.
Additionally, the joint arrangement incurred operating costs of $0·5 million
during the year.
Robby has only contributed and accounted for its share of the construction cost,
paying $6 million. The revenue and costs are receivable and payable by the other
joint operator who settles amounts outstanding with Robby after the year end.
(iv) Robby purchased PPE for $10 million on 1 June 2009. It has an expected useful
life of 20 years and is depreciated on the straight-line method. On 31 May 2011, the

Page | 2
PPE was revalued to $11 million. At 31 May 2012, impairment indicators triggered
an impairment review of the PPE. The recoverable amount of the PPE was $7·8
million. The only accounting entry posted for the year to 31 May 2012 was to
account for the depreciation based on the revalued amount as at 31 May 2011.
Robby’s accounting policy is to make a transfer of the excess depreciation arising
on the revaluation of PPE.
(v) Robby held a portfolio of trade receivables with a carrying amount of $4 million at
31 May 2012. At that date, the entity entered into a factoring agreement with a
bank, whereby it transfers the receivables in exchange for $3·6 million in cash.
Robby has agreed to reimburse the factor for any shortfall between the amount
collected and $3·6 million. Once the receivables have been collected, any amounts
above $3·6 million, less interest on this amount, will be repaid to Robby. Robby has
derecognised the receivables and charged $0·4 million as a loss to profit or loss.
(vi) Immediately prior to the year end, Robby sold land to a third party at a price of
$16 million with an option to purchase the land back on 1 July 2012 for $16 million
plus a premium of 3%. The market value of the land is $25 million on 31 May 2012
and the carrying amount was $12 million. Robby accounted for the sale,
consequently eliminating the bank overdraft at 31 May 2012.
Required:
Prepare a consolidated statement of financial position of the Robby Group at 31

May 2012 in accordance with International Financial Reporting Standards.
QUESTION TWO [Topic: Joint arrangement]
IFRS 11 - Joint Arrangements was issued in May 2011. It establishes the principles for accounting for
business arrangements that are controlled jointly by two or more parties. The standard classifies joint
arrangements into two types: Joint Operations and Joint Ventures.
(i) On 1 August 2017, Lacey Plc, a company that owns a shipyard, is asked to construct a passenger liner
for a customer.The customer requires special capabilities that require a specially designed
propulsion system. The shipyard enters into a contract with an engine manufacturer whereby
the total price of the ship will be TZS 100 million to be split 80% to the shipyard and 20% to the
engine manufacturer. Under the agreement, Lacey Plc will complete the structure of the ship,
and the engine manufacturer will design and supply the engine. During the year ended 31 July
2018 the ship was completed on schedule and the agreed consideration was paid. Costs incurred
by Lacey Plc were TZS 62 million.
(ii) On 1 August 2017, Lacey Plc entered into an arrangement with another company to develop a more
modern shipyard. The two companies set up a new entity to build the shipyard, and invested
TZS 130 million each into the new entity.They agreed to manage the resulting asset jointly.

Page | 3
During year ended 31 July 2018 the shipyard was completed and generated a profit for the year
of TZS 4 million.
(iii) Lacey Plc has a 50% equity interest in another entity, Haddock Ltd. Haddock Ltd runs a
shipping line, and had assets of TZS 50 million and liabilities of TZS 48 million at 1 August
2017.The trading loss for the year ended 31 July 2018 was TZS 4.8 million. The other 50% equity
interest is held by another entity, but day-to-day management decisions are made by Lacey Plc.
Lacey Plc has appointed 4 directors to the 5-person board of Haddock Ltd.
REQUIREMENT:
(a) Distinguish between the two types of joint arrangement described by IFRS 11 - Joint
Arrangements.
(b) In the case of (i), (ii) and (iii) above, discuss the accounting treatment required by IFRS.
Give reasons for your answer and show any necessary journal entries in the books of Lacey
Plc.
QUESTION THREE [Topic: Reconstruction]

Bank of Covenant (BoC) earlier last year announced an increase in the minimum capital
requirement for Micro Finance Institutions in the country from the current TZS 500,000
to TZS 2 million by June 2018. Capital Link, a Micro Finance Company has been
affected by the increase in players in the Micro Finance Industry which has seen a
reduction of its loan portfolio and an increase in loan default rate.
A statement of Financial Position recently prepared by Capital Link is as follows:

Statement of Financial Position as at 30th April, 2017
TZS TZS
Non-current assets
Goodwill 450,000
Leasehold building (Carrying Amount) 750,000
1,200,000
Current assets
Loan Portfolio 825,000
Investment in Treasury bills 570,000
1,395,000
Current liabilities
Interest to depositors 885,000
Bank overdraft (secured on
Leasehold property) 975,000
1,860,000
Net current liabilities (465,000)

735,000

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Financed by:
Share capital 600,000
General reserves 120,000
Retained Earnings 15,000
735,000
Additional information:
Depositors have the information that Capital Link is considering funding options to
ensure the survival of the business. They are however not convinced that Management
of Capital Link would be able to raise the required capital to meet the minimum
requirement.
In a Stakeholders meeting, Management of Capital Link proposed two possible options
for the company’s future.
Scheme 1- Close Down Mission

Unity Capital Ltd has made a firm offer of TZS 600,000 for the company’s leasehold
property. Total loan portfolio is conservatively valued at TZS 592,500 in a forced sale.
Investments in Treasury bills amounts to TZS 465,000. Liquidation expenses are
estimated at TZS 30,000 and interest to depositors is TZS 330,000.
Scheme 2- Rescue Mission

Management of Capital Link proposes to implement a scheme which includes a cheap
loan of TZS 600,000 from a distress fund set up by an NGO, Business Rescuers. The
following terms have been arranged:
TZS 375,000 would be reserved to pay for the loan from the NGO when the first
installment falls due. The NGO has been asked to accept 20% debenture in exchange for
the balance remaining due. The debenture would be repayable in four annual
installments of TZS 150,000, commencing 28 February 2017, with the interest due for the
preceeding year, paid on the same date.
Assume that:
 The current rate of interest on all borrowing is 14%
 The calculations are being made on 30th April, 2017 and either scheme could be put
onto effect immediately.
 The present value of TZS 1 recoverable at the end of each year is:
Year 1 Year 2 Year 3 Year 4
14% 0.88 0.77 0.67 0.59
20% 0.83 0.69 0.58 0.48
Required:
a) By means of numerical analysis of the two schemes, evaluate how much the bank
would recover from each scheme.

Page | 5
b) Discuss TWO advantages of each scheme.

ANSWER
Scheme 1
i. The advantage of immediate liquidation is that the cash flows can be estimated with
a reasonable amount of accuracy, particularly as a firm offer has been received for
the leasehold buildings.
ii. On the face of it the valuations of the loan portfolio do not appear excessive, though
the possibility of them realizing as much as forecast needs to be considered.
iii. The bank suffers a material loss on its investment, but yet manages to recover 90%
of the amount owing.
Scheme 2
i. The advantage of this option is that the bank retains a customer, and avoids bad
publicity possibly associated with the closure of a local firm.
ii. The computed financial advantage of this option is also a significant factor.
However, there must be considerable doubt concerning the achievement of these
estimates. Is there any evidence that the recent trading pattern has been reversed?
iii. Can the company really expect to generate the cash flows necessary to service and
finance repayment of amounts due to both financial institutions?
iv. Finally, what is the financial commitment of the directors in terms of further cash
investment or offering assets as security?
QUESTION FOUR [Topic: Borrowing costs]

a) Nanniama Ltd is constructing a warehouse that will take about 18
months to complete. It began construction on 1st January 2014. The
following payments were made during 2014:
TZS’000
31st January 200
31st March 450
30th June 100
31st October 200
30th November 250
The first payment on 31st January was funded from the entity’s pool of
debt. However, the entity succeeded in raising a medium-term loan for
an amount of TZS 800,000 on 31st March, 2014, with simple interest of 9
percent per annum, calculated and payable monthly in arrears. These
funds were specifically used for this construction. Excess funds were
temporarily invested at 6 percent per annum monthly in arrears and
payable in cash. The pool of debt was again used to an amount of TZS

Page | 6
200,000 for the payment on 30th November, which could not be funded
from the medium-term loan. The construction project was temporarily
halted for 3 weeks in May when substantial technical and administrative
work was carried out.
Nanniama Ltd adopted the accounting policy of capitalizing borrowing
costs. The following amounts of debt were outstanding at the balance
sheet date, 31st December 2014:
TZS ’000
Medium-term loan (see description above) 800
Bank overdraft 1,200
(The weighted average amount outstanding during the year was TZS 750,000 and
total interest charged by the bank amounted to TZS 33,800 for the year)
A 10%, 7-year note dated 31st October 2018 with simple interest payable annually
at 31st December 9,000
Required:
Calculate the borrowing costs to be capitalized
QUESTION FIVE [Topic: PPE)

Cost Depreciation Carrying
$000 $000 $000
Land 500 – 500
Buildings 400 80 320
Plant and machinery 1,613 458 1,155
Fixtures and fittings 390 140 250
Assets under construction 91 – 91
–––––– –––––– ––––––
2,994 678 2,316
–––––– –––––– ––––––
In the year ended 31 December 2012 the following transactions occur:
(1) Further costs of $53,000 are incurred on buildings being

constructed by the company. A building costing $100,000 is
completed during the year.
(2) A deposit of $20,000 is paid for a new computer system which is undelivered at the
year end.
(3) Additions to plant are $154,000.

Page | 7
(4) Additions to fixtures, excluding the deposit on the new computer system, are
$40,000.
(5) The following assets are sold:
Cost Depreciation, b/f Proceeds

$000 $000 $000
Plant 277 195 86

Fixtures 41 31 2
(6) Land and buildings were revalued at 1 January 2012 to $1,500,000, of
which land is worth $900,000. The revaluation was performed by
Messrs Jackson & Co, Chartered Surveyors, on the basis of existing
use value on the open market.
(7) The useful economic life of the buildings is unchanged. The
buildings were purchased ten years before the revaluation.
(8) Depreciation is provided on all assets in use at the year
end at the following rates: Buildings 2% per annum
straight line
Plant 20% per annum straight line

Fixtures 25% per annum reducing balance
Required:
Show the disclosure under IAS 16 “Property, Plant and Equipment” that is
required in the notes to the published accounts for the year ended 31
December 2012.
QUESTION SIX [Topic: IFRS3 Business combination]

(a) Outline how intra-group dividends should be accounted for in the
Consolidated Statement of Profit or Loss and Other Comprehensive Income,
and in the Consolidated Statement of Financial Position.
Suggested solution
Intra-group dividends are not considered to be group income in the SPLOCI. If the parent
has recognised its share of dividends received or receivable from group companies, this
must be eliminated on consolidation. If the parent has not recognised the dividends
receivable, no further action is necessary. Any dividends paid or payable to the NCI
Page | 8
shareholders must be shown in the Statement of Changes in Equity, as a deduction from

NCI.
In the SOFP, the opposite is the case. Here, if the parent has recognised its share of
dividends received from subsidiaries, no further action is necessary. If the dividends are
receivable, there is a cancellation between the intra-group asset (representing dividends
receivable by the parent) and the liability (representing dividends payable by the
subsidiary). If the parent has not recognised its share, the retained earnings of the parent
must be credited with its share of intra-group dividends.
The reason for the difference is that the retained earnings figures shown in the SOFP will be
post SOCIE, and will therefore be net of any dividends declared. Hence the amount of
intragroup dividends will be missing from the figures shown, if not yet recorded by the
parent. In the SPLOCI, the profit for the year is before any dividends have been deducted.
Hence if the parent shows its share of intra-group dividends, these are double counted.
(b) Discuss the concepts and accounting treatment of ‘deferred consideration’ and
‘contingent consideration’ in the context of the acquisition of a subsidiary by a
parent entity.
Suggested solution
Explain deferred consideration:
Deferred consideration arises when an acquisition agreement provides that some of the
payment due for the acquired entity will be paid to the seller at a later date. The amount
is agreed in advance. This may be to assist with the cash flow management of the
purchaser, or as a way for the purchaser to ensure any misrepresentations by the seller
can be compensated for in the future more easily.
Accounting treatment of deferred consideration:
Deferred consideration must be recognised by the purchaser at the acquisition date at its
fair value. This is normally the agreed cash amount discounted to the acquisition date at
the purchaser’s cost of capital. The discount is unwound over time by the purchaser, by
recognising it as a finance cost in the post-acquisition period as time passes. The liability
at any reporting date will be the initial fair value plus the amount of the discount that
has unwound to date.
Explain contingent consideration:

Page | 9
Contingent consideration is when the seller and purchaser agree that a portion of the
consideration be measured and paid in the future, but at the acquisition date the amount
is subject to uncertainty. The amount is often dependant on the future performance of
the acquired entity. For example, a further TZS 100 million may be paid to the seller 2
years after acquisition provided profits exceed a stated figure in each of the two years.
Accounting treatment of contingent consideration:
Any contingent consideration must also be recognised at acquisition at its fair value.
This will normally include a discount to reflect the time delay before payment, plus a
discount to reflect the probability that the amount will be paid in part or in full.
Goodwill is calculated based on this estimate. At each reporting date after acquisition,
the fair value is re-estimated, with any change being taken to profit or loss (of the
purchaser) in the year of re-estimation. Any change due to the unwinding of the time
value of money discount is recognised as a finance cost. The revised amount is carried as
a liability until further re-estimated, or paid.
QUESTION SEVEN [Topic: Conceptual Framework]

(a) Your assistant has been reading the IASB’s Conceptual Framework for Financial
Reporting and as part of the qualitative characteristics of financial statements under the heading
of ‘relevance’ he notes that the predictive value of information is considered important. He is
aware that financial statements are prepared historically (i.e. after transactions have occurred)
and offers the view that the predictive value of financial statements would be enhanced if
forward-looking information (e.g. forecasts) were published rather than backward-looking
historical statements.
Required:
By the use of specific examples, provide an explanation to your assistant of how IFRS
presentation and disclosure requirements can assist the predictive role of historically prepared
financial statements.
Suggested solution for question four (a)
(a) Two important and interrelated aspects of relevance are its confirmatory and predictive
roles. The Framework specifically states that to have predictive value, information need not be
in the form of an explicit forecast. The serious drawback of forecast information is that it does
not have (strong) confirmatory value; essentially it will be an educated guess.
IFRS examples of enhancing the predictive value of historical financial statements are:
(i) The disclosure of continuing and discontinued operations. This allows users to focus
on those areas of an entity’s operations that will generate its future results.

Page | 10
Alternatively it could be thought of as identifying those operations which will not

yield profits or, perhaps more importantly, losses in the future.
(ii) The separate disclosure of non-current assets held for sale. This informs users that
these assets do not form part of an entity’s long-term operating assets.
(iii) The separate disclosure of material items of income or expense (e.g. a gain on the
disposal of a property). These are often ‘one off’ items that may not be repeated in
future periods. They are sometimes called ‘exceptional’ items or described in the
Framework as ‘unusual, abnormal and infrequent’ items.
(iv) The presentation of comparative information (and the requirement for the
consistency of its presentation such as retrospective application of changes in
accounting policies) allows for a degree of trend analysis. Recent trends may help
predict future performance.
(v) The requirement to disclose diluted EPS is often described as a ‘warning’ to
shareholders of what EPS would have been if any potential (future) equity shares
such as convertibles and options had already been exercised.
(vi) The Framework’s definitions of assets (resources from which future economic
benefits should flow) and liabilities (obligations which will result in a future outflow
of economic benefits) are based on an entity’s future prospects rather than its past
costs.
QUESTION EIGHT [Topic: IFRS FOR SMEs]
International Financial Reporting Standards (IFRSs) are primarily designed for use by
publicly listed companies and in many countries the majority of companies using IFRSs
are listed companies. In other countries IFRSs are used as national Generally Accepted
Accounting Practices (GAAP) for all companies including unlisted entities. It has been
argued that the same IFRSs should be used by all entities or alternatively a different
body of standards should apply to small and medium entities (SMEs) and recently the
IASB published an IFRS for SMEs.
Required
(a) Discuss whether it was necessary to develop a set of IFRSs specifically for SMEs.
(b) Discuss the nature of the following issues in developing IFRSs for SMEs.
(i) The purpose of the standards and the type of entity to which they should apply.
(ii) How existing standards could be modified to meet the needs of SMEs.
(iii) How items not dealt with by an IFRS for SMEs should be treated.
SOLUTION FOR QUESTION THREE

(a) ANSWER
 SME financial statements are normally used by a relatively small number of
people. Often, the investors are also involved in day to day management. The
main external users of SME financial statements tend to be lenders and the tax
authorities, rather than institutional investors and their advisers. In recent years,
Page | 11
IASs and IFRSs have become increasingly complex and prescriptive. They are
now designed primarily to meet the information needs of institutional investors
in large listed entities and their advisers. In many countries, IFRSs are used
mainly by listed companies.
 There were also many arguments for developing a separate set of standards for
SMEs, and these have been taken into account. Full IFRSs have become very
detailed and onerous to follow. The cost of complying may exceed the benefits to
the entity specifically SME and the users of its financial statements
 The IFRS for Small and Medium-Sized Entities (IFRS for SMEs) was published in
July 2009 and has simplifications that reflect the needs of users of SMEs' financial
statements and cost-benefit considerations. It is designed to facilitate financial
reporting by small and medium-sized entities in a number of ways:
(i) It provides significantly less guidance than full IFRS.
(ii) Many of the principles for recognizing and measuring assets, liabilities,
income and expenses in full IFRSs are simplified.
(iii) Where full IFRSs allow accounting policy choices, the IFRS for SMEs
allows only the easier option.
(iv) Topics not relevant to SMEs are omitted.
(v) Significantly fewer disclosures are required.
(vi) The standard has been written in clear language that can easily be
translated.
(b) Issues in developing IFRSs for SMEs.

(i) The purpose of the standards and type of entity to which they should apply.
 The main objective of accounting standards for SMEs is that they should
provide the users of SME financial statements with relevant, reliable and
understandable information.
 The standards should be suitable for SMEs globally and should reduce
the financial reporting burden on SMEs. It is generally accepted that SME
standards should be built on the same conceptual framework as full
IFRSs.
 It could also be argued that SME standards should allow for easy
transition to full IFRS as some SMEs will become listed entities or need to
change for other reasons. This would mean that SME standards could not
be separately developed from first principles (as many would prefer) but
instead would be a modified version of full IFRS.
 The definition of an SME could be based on size or on public
accountability or on a combination of the two. There are several
disadvantages of basing the definition on size limits alone. Size limits are
arbitrary and different limits are likely to be appropriate in different
countries. Most people believe that SMEs are not simply smaller versions
of listed entities, but differ from them in more fundamental ways. The
most important way in which SMEs differ from other entities is that they
Page | 12
are not usually publicly accountable. There is a case for allowing national
standard setters to impose size limits or otherwise restrict the types of
entities that could use SME standards. There is also a case for allowing
national standard setters to define 'publicly accountable' in a way that is
appropriate for their particular jurisdiction.
 The IFRS for SMEs published in July 2009 does not use size or
quantitative thresholds, but qualification is determined by public
accountability. It is up to legislative and regulatory authorities and
standard-setters in individual jurisdictions to decide who may or must
use the IFRS for SMEs.
(ii) How existing standards could be modified to meet the needs of SMEs.
 The starting point for modifying existing standards should be the most
likely users of SME financial statements and their information needs.
SME financial statements are mainly used by lenders and potential
lenders, the tax authorities and suppliers. In addition, the owners and
management (who are often the same people) may be dependent on the
information in the financial statements.
 SME financial statements must meet the needs of their users, but the
costs of providing the information should not outweigh the benefits.
There is considerable scope for simplifying disclosure and presentation
requirements. Many of the existing requirements, for example those
related to financial instruments, discontinued operations and earnings
per share, are not really relevant to the users of SME financial statements.
In any case, lenders and potential lenders are normally able to ask for
additional information (including forecasts) if they need it. The SME
standards are a simplified version of existing standards, using only those
principles that are likely to be relevant to SMEs.
 The IASB has proposed that the recognition and measurement principles
in full IFRSs should remain unchanged unless there is a good argument
for modifying them. Clearly the SME standards will have to be
sufficiently hard to produce information that is relevant and reliable.
However, many believe that there is a case for simplifying at least some
of the more complicated measurement requirements and that it will be
difficult to reduce the financial reporting burden placed on SMEs
otherwise.
(iii) How items not dealt with by SME standards should be treated.
Because SME standards do not cover all possible transactions and events, there
will be occasions where an SME has to account for an item that the standards do
not deal with. There are several alternatives.
(1) The entity is required to apply the relevant full IFRS, while still following
SME standards otherwise.
Page | 13
(2) Management can use its judgement to develop an accounting policy based on
the relevant full IFRS, or the Framework, or other IFRSs for SMEs and the
other sources of potential guidance cited in IAS 8.
(3) The entity could continue to follow its existing practice.
In theory, the first alternative is the most appropriate as this is the most likely to
result in relevant, reliable and comparable information. The argument against it
is that SMEs may then effectively have to comply with two sets of standards.
Another issue is whether an SME should be able to opt to comply with a specific
full IFRS or IFRSs while still following SME standards otherwise. There is an
argument that SMEs should be able to, for example, make the additional
disclosures required by a full IFRS if there is a good reason to do so. The
argument against optional reversion to full IFRSs is that it would lead to lack of
comparability. There would also need to be safeguards against entities
attempting to 'pick and mix' accounting standards.

Page | 14

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GRAND FINALE PROBLEM SOLVING SESSION

CORPORATE REPORTING (C1)

Godson Leonard: MBA(Finance), Bc. Acc,CPA (T) &

QUESTION ONE [Topic: Consolidation of statement of financial position]

Robby Hail Zinc

––– ––– –––

The consideration for the acquisitions was as follows:

1 December 2011 55% 16

The following information relates to the joint arrangement activities:

Godson Leonard: MBA(Finance), Bc. Acc,CPA (T) &

Prepare a consolidated statement of financial position of the Robby Group at 31

QUESTION TWO [Topic: Joint arrangement]

Godson Leonard: MBA(Finance), Bc. Acc,CPA (T) &

QUESTION THREE [Topic: Reconstruction]

A statement of Financial Position recently prepared by Capital Link is as follows:

Net current liabilities (465,000)

Godson Leonard: MBA(Finance), Bc. Acc,CPA (T) &

Scheme 1- Close Down Mission

Scheme 2- Rescue Mission

Godson Leonard: MBA(Finance), Bc. Acc,CPA (T) &

b) Discuss TWO advantages of each scheme.

QUESTION FOUR [Topic: Borrowing costs]

Godson Leonard: MBA(Finance), Bc. Acc,CPA (T) &

QUESTION FIVE [Topic: PPE)

(1) Further costs of $53,000 are incurred on buildings being

(3) Additions to plant are $154,000.

Godson Leonard: MBA(Finance), Bc. Acc,CPA (T) &

(5) The following assets are sold:

Cost Depreciation, b/f Proceeds

Plant 277 195 86

(8) Depreciation is provided on all assets in use at the year

end at the following rates: Buildings 2% per annum

Plant 20% per annum straight line

QUESTION SIX [Topic: IFRS3 Business combination]

shareholders must be shown in the Statement of Changes in Equity, as a deduction from

Explain deferred consideration:

Accounting treatment of deferred consideration:

Explain contingent consideration:

Godson Leonard: MBA(Finance), Bc. Acc,CPA (T) &

Accounting treatment of contingent consideration:

QUESTION SEVEN [Topic: Conceptual Framework]

Suggested solution for question four (a)

Godson Leonard: MBA(Finance), Bc. Acc,CPA (T) &

Alternatively it could be thought of as identifying those operations which will not

QUESTION EIGHT [Topic: IFRS FOR SMEs]

SOLUTION FOR QUESTION THREE

(b) Issues in developing IFRSs for SMEs.

Godson Leonard: MBA(Finance), Bc. Acc,CPA (T) &

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