c1 Grande Finale Solving (Nov 2020) - Set 2

GRAND FINALE PROBLEM SOLVING SESSION
C1
FOR NOVEMBER 2020 EXAMS
SET 2
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
C1-CORPORATE REPORTING GRANDE FINALE SOLVING SESSION NOV 2020 SET 2
QUESTION ONE [Topic: IAS 7 Group cashflows]

The following consolidated financial statements relate to Malate Plc
Group for the year to 31 May 2017.
Consolidated Statement of Profit or loss for the year ended 31 May 2017
Tshs'000
Revenue 1 180
Cost of sales (442)
Gross profit 738
Other income 20
Distribution cost (333)
Administrative cost (265)
Finance cost (45)
share of associate loss (60)
Profit before tax 55
Taxation (22)
Profit for the period 33
Other comprehensive income
Net actuarial gain 4
Total comprehensive Income 37
Profit for the period attributable to:
Equity holders of parent 26.40
Non-controlling interest 6.60
33.00
Total comprehensive income attributable to:
Equity holders of parent 30.40
Non-controlling interest 6.60
37.00

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
Consolidated Statement of Financial Position as at 31 May

2017 2016
Tshs'000 Tshs'000
Assets
Non-current
Property, plant and equipment 800 700
Goodwill 88 90
Investment in associate 142 150
Deferred tax - 10
1,030 950
Current
Inventory 100 86
Trade Receivables 140 146
Cash & cash equivalents - 13
240 245
Total Assets 1,270 1,195
Equity and liabilities
Equity
Equity shares of Tshs 0.50 each 330 220
Share premium 66 16
Retained earnings (9) (24)
387 212
Non- controlling interests 127 116
Total Equity 514 328
Liabilities
Non-current
Employee benefits 224 298

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Deferred Tax 17 -
20% Loan Notes 232 340
473 638
Current
Trade payables 130 134
Taxation 29 47
Finance cost payable 80 48
Bank overdraft 44 -
283 229
Total Liabilities 756 867
Total equity and liabilities 1,270 1,195
The following information is relevant:
(1) On 31 May 2017, Malate Plc acquired 80% of the equity shares of Lalana Plc for
a cash consideration of Tshs 126,000. The fair value of net assets of Lalana Plc
at acquisition was Tshs 14,000. This is summarised below:
Tshs’000
Property, plant and equipment 13.60
Trade receivables 1.70
Bank 1.20
Trade payables (2.00)
Taxation (0.50)
14.00
There was no disposal of subsidiary during the year to 31 May 2017.
(2) Malate Plc acquired 10% additional equity shares in Laba Plc for a cash
consideration of Tshs 14,000 on 31 May 2017. This increased its shareholding to

Page | 3
80%. Malate Plc acquired 70% of the equity shares in Laba Plc on 1 June 2014
for a consideration of Tshs 89,000. The fair value of the net assets of Laba Plc
was Tshs 130,000 and Tshs 110,000 on 31 May 2017 and 1 June 2014
respectively. Goodwill in Laba Plc had not been impaired since its acquisition. The
movement on equity arising from this transaction was taken to share premium.
(3) Malate Plc acquired 25% of equity shares in Nala Plc on 1 November 2016 for a
cash consideration of Tshs 72,000. Malate Plc has significant influence in Nala
Plc. Malate Plc received total dividends of Tshs 8,000 from all of its associated
companies for the year to 31
May 2017. No investments in associated companies were disposed off during the
year.
(4) On 30 March 2017, Malate Plc disposed of equipment with a carrying value of
Tshs 38,000 for Tshs 58,000 cash. On 1 April 2017, Malate Plc disposed off a
piece of plant for Tshs 6,000 cash. This had a carrying value of Tshs 7,000.
Depreciation charge for the year amounted to Tshs 68,000. This was charged to
cost of sales. Further, profit on disposal of equipment was taken to other income
while loss on disposal of plant was charged to administrative cost.
(5) Malate Plc introduced a defined benefit plan on 1 June 2014. During the year to
31 May 2017, it paid pension contributions of Tshs 100,000. No pension benefits
were paid out during the year. Net pension expenses were charged to
administrative costs. Net actuarial gains were taken to share premium.
(6) Consolidated goodwill and investment in associate were both impaired during the
year to 31 May 2017, with the exception of goodwill in Laba Plc in (2) above.
(7) The 20% loan note was issued on 1 June 2015. It was correctly classified as
‘financial liability through profit or loss’. All changes in fair value are
taken to administrative expenses. There was no acquisition nor disposal of any
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financial liability classified as ‘through profit or loss’ during the year.
(8) Malate Plc issued equity shares for cash on 31 December 2016.
(9) Malate Plc, its subsidiaries and associated companies paid dividends on 1
December 2016.
(10) It is Malate Plc’s group policy to value non – controlling interests using
proportion of net assets method.
(11) The following exchange rates are relevant:
Date Tshs to $1:

1 November 2016 2200.00
31 May 2017 2225.00
Average rate 2222.50
(12) Tshs is the functional and reporting currency of Malate Plc.
Required:
(a) Prepare a consolidated statement of cashflows of Malate Plc Group using
the indirect method, for the year ending 31 May 2017 in accordance with
the requirements of IAS 7 ’Statement of cash flows’. (Notes to the
statement of cashflows are not required).
Provide journal entries to show how the disposal on this revalued property should be treated in
the financial statements for the year-ended 31 December 2018.
QUESTION TWO [Topic: IAS 41- AGRICULTURE]

The Lucky Dairy produces milk for supply to various customers. It is responsible for producing 25% of
the country’s milk consumption. The company owns 150 farms and has a stock of 70,000 cows and 35,000
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heifers (young female cows) which are being raised to produce milk in the future. The farms produce 2•5
million kilograms of milk per annum and normally hold an inventory of 50,000 kilograms of milk.
Extracts from the draft accounts to 31 May 2014
The herds comprise at 31 May 2014:
70,000 – 3 year old cows (all purchased on or before 1 June 2013)
25,000 – heifers (average age 1½ years old; purchased 1 December 2013)
10,000 – heifers (average age 2 years; purchased 1 June 2013)
There were no animals born or sold in the year. The per unit values less estimated costs to sell were as
follows:
2 year old animal at 1 June 2013 50
1 year old animal at 1 June 2013 and 1 December 2013 40
3 year old animal at 31 May 2014 60
1½ year old animal at 31 May 2014 46
The company has had a difficult year in financial and operating terms. The cows had contracted a disease
at the beginning of the financial year which had been passed on in the food chain to a small number of
consumers. The publicity surrounding this event had caused a drop in the consumption of milk and as a
result the dairy was holding 500,000 kilograms of milk in storage.
Page | 6
On 1 April 2014 the government stated that it was prepared to compensate farmers for the drop in the
price and consumption of milk. An official government letter was received on 6 June 2014 stating that
$1•5 million will be paid to Lucky on 1 August 2014. Additionally, on 1 May 2014, Lucky received a letter
from its lawyer saying that legal proceedings had been started against the company by the persons
affected by the disease. The company’s lawyers have advised them that they feel that it is probable that
they will be found liable and that the costs involved may reach $2 million. The lawyers, however, feel that
the company may receive additional compensation from a government fund if certain quality control
procedures had been carried out by the company. However, the lawyers will only state that the
compensation payment is “possible”.
The company’s activities are controlled in three geographical locations, Dale, Shire and Ham. The only
region affected by the disease was Dale and the government has decided that it is to restrict the milk
production of that region significantly. Lucky estimates that the discounted future cash income from the
present herds of cattle in the region amounts to $1•2 million, taking into account the government
restriction order. Lucky was not sure that the fair value of the cows in the region could be measured
reliably at the date of purchase because of the problems with the diseased cattle. The cows in this region
amounted to 20,000 in number and the heifers 10,000 in number. All of the animals were purchased on 1
June 2013. Lucky has had an offer of $1 million for all of the animals in the Dale region (net of costs of
disposal) and $2 million for the sale of the farms in the region. However, there was a minority of directors
who opposed the planned sale and it was decided to defer the public announcement of sale pending the
outcome of the possible receipt of the government compensation. The Board had decided that the
potential sale plan was highly confidential but a national newspaper had published an article stating that
the sale may occur and that there would be many people who would lose their employment. The Board
approved the planned sale of Dale farms on 31 May 2014 and are actively seeking a buyer.
The directors of Lucky have approached your firm for professional advice on the above matters.
Required:

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Advise the directors on how the biological assets and produce of Lucky Dairy should be accounted for
under IAS 41 “Agriculture” and discuss the implications for the published financial statements of the
above events.
Your answer should include a table which shows the changes in value of the cattle stock for the year to 31
May 2014 due to price change and physical change excluding the Dale region, and the value of the herd
of the Dale region as at 31 May 2014. Ignore the effects of taxation..
QUESTION THREE [Topic: IFRS 2-SHARE BASED PAYMENT]

(a) IFRS 2 – Share-based Payment – defines a share-based payment transaction as one in which
an entity receivesgoods or services from a third party (including an employee) in a share-
based payment arrangement. Ashare-based payment arrangement is an agreement between
an entity and a third party which entitles the thirdparty to receive either:
 Equity instruments of the entity (equity-settled share-based payments); or
 Cash or other assets based on the price of equity instruments of the entity (cash-
settled share-basedpayments).
Share-based payment arrangements are often subject to vesting conditions which must be
satisfied over a vestingperiod.
Required:
For both cash-settled AND equity-settled share-based payment arrangements, explain:
(i) The basis on which the arrangements should be measured;

Page | 8
(ii) The criteria which are used to allocate the total value of the arrangement to
individual accounting periods;
(iii) The accounting entries (debit and credit) required during the vesting period.
(b) Kappa prepares financial statements to 31 March each year. The following share-based
payment arrangementwas in force during the year ended 31 March 2015:
On 1 April 2013, Kappa granted share appreciation rights to 50 senior employees. The
number of rights to which each employee becomes entitled depends on the cumulative
profit of Kappa for the three years ended31 March 2016:
 1,000 rights per employee are awarded if the cumulative profit for the three-year
period is below$500,000.
period is between$500,000 and $1 million.
period exceeds$1 million.
On 1 April 2013, Kappa expected that the cumulative profits for the three-year period
would be $800,000. After the disappointing financial results for the year ended 31 March
2014, this estimate was revised at thattime to $450,000. However, given the improvement in
results for the year ended 31 March 2015, theestimate was revised again at 31 March 2015 to
$1,100,000.
On 1 April 2013, the fair value of one share appreciation right was $1·10. This estimate was
revised to $0·90 at 31 March 2014 and to $1·20 at 31 March 2015. All the senior employees
are expected to remainemployed by Kappa for the relevant three-year period. The rights
are exercisable on 30 June 2016.
Required:
Show how and where transaction would be reported in the financial statements of Kappa for
the year ended 31 March 2015.
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(c) On 1 January 20X1 an entity grants 100 cash share appreciation rights (SARS) to each of
its 500 employees, on condition that the employees continue to work for the entity until
31 December 20X3.
During 20X1 35 employees leave. The entity estimates that a further 60 will leave during
20X2 and 20X3.
During 20X2 40 employees leave and the entity estimates that a further 25 will leave
during 20X3.
During 20X3 22 employees leave.
At 31 December 20X3 150 employees exercise their SARs. Another 140 employees
exercise their SARs at 31 December 20X4 and the remaining 113 employees exercise their
SARs at the end of 20X5.
The fair values of the SARs for each year in which a liability exists are shown below,
together with the intrinsic values at the dates of exercise.
Fair value Intrinsic value
$ $
20X1 14.40
20X2 15.50
20X3 18.20 15.00
20X4 21.40 20.00
20X5 25.00
Required: Calculate the amount to be recognised in the profit or loss for each of the five
years ended 31 December 20X5 and the liability to be recognised in the statement of
financial position at 31 December for each of the five years.

Page | 10
QUESTION FOUR [Topic: IAS 19- EMPLOYEE BENEFITS]
Macaljoy, a public limited company, is a leading support services company which

focuses on the building industry. The company would like advice on how to treat
certain items under IAS 19 Employee benefits. The company operates the Macaljoy
Pension Plan B which commenced on 1 November 20X6 and the Macaljoy Pension Plan
A, which was closed to new entrants from 31 October 20X6, but which was open to
future service accrual for the employees already in the scheme. The assets of the
schemes are held separately from those of the company in funds under the control of
trustees. The following information relates to the two schemes.
Macaljoy Pension Plan A
The terms of the plan are as follows.
(i) Employees contribute 6% of their salaries to the plan.
(ii) Macaljoy contributes, currently, the same amount to the plan for the benefit of the
employees.
(iii) On retirement, employees are guaranteed a pension which is based upon the
number of years service with the company and their final salary.
The following details relate to the plan in the year to 31 October 20X7:
$m
Present value of obligation at 1 November 20X6 200

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Present value of obligation at 31 October 20X7 240
Fair value of plan assets at 1 November 20X6 190
Fair value of plan assets at 31 October 20X7 225
Current service cost 20
Pension benefits paid 19
Total contributions paid to the scheme for year to 31 October 20X7 17
Remeasurement gains and losses are recognised in accordance with IAS 19 as revised in
2011.
Macaljoy Pension Plan B
Under the terms of the plan, Macaljoy does not guarantee any return on the
contributions paid into the fund. The company’s legal and constructive obligation is
limited to the amount that is contributed to the fund. The following details relate to this
scheme:
$m
Fair value of plan assets at 31 October 20X7 21
Contributions paid by company for year to 31 October 20X7 10
Contributions paid by employees for year to 31 October 20X7 10
The interest rate on high quality corporate bonds for the two plans are:
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1 November 20X6 31 October 20X7
5% 6%
The company would like advice on how to treat the two pension plans, for the year
ended 31 October 20X7, together with an explanation of the differences between a
defined contribution plan and a defined benefit plan.
Required
Draft a report suitable for presentation to the directors of Macaljoy which:
(a) (i) Discusses the nature of and differences between a defined contribution plan and a
defined benefit plan with specific reference to the company’s two schemes.
(ii) Shows the accounting treatment for the two Macaljoy pension plans for the year
ended 31 October 20X7 under IAS 19 Employee benefits (revised 2011).
QUESTION FIVE [Topic: Consolidation of statement of financial position.
(a) Iringa Ltd has made an acquisition of 100% of the shares in Ruaha Ltd. Ruaha
Ltd has a share capital of 50,000 shares with a nominal value of Tsh. 1000 each.
The consideration that Iringa Ltd gave for the investiment in the subsidiary
included a 2 for 1 share for share exchange. The market value of Iringa Ltd
shares was Tshs.3,00 and a nominal value of Tshs.1,000. The shareholders of
Ruaha Ltd were also paid each immediately of Tshs.62,962,963. In additional

Page | 13
,Iringa Ltd paid cash of Tsh.800 per share on one year’s time. Assume a relevant
discount rate of 8%.
At the date of acquisition the net assets of Ruaha Ltd were Tshs.150,000,000/=
REQUIRED:
The Finance Director of Iringa Ltd is requesting you do the following:
i. Determination the fair value of the consideration that Iringa Ltd has given in
buying its investment in Ruaha Ltd.
ii. Determine the goodwill arising on the consolidation of Ruaha Ltd in the
Iringa group accounts.
iii. show the relevant journal entries to record the investment in Ruaha Ltd.
(b) The statements of financial position of three companies are as follows:
MOJA LTD MBILI LTD TATU LTD
Tshs ‘000’ Tshs ‘000’ Tshs ‘000’
Investment in Mbili
Ltd 400
Investiment in Tatu
Ltd 50 300
Assets
220 340 460
670 640 460

MOJA MBILI LTD TATU LTD`
LTD
Tshs ‘000’ Tshs ‘000’ Tshs ‘000’
Share capital (Tshs.1) 200 200
300
Page | 14
Accumulated profits
130 250 120
Equity
430 450 320
Liabilities
240 190 140
670 640 460
Additional information:
(i) Three years ago MOJA Ltd acquired a 150,000 shares in MBILI Ltd for
consideration of tshs.400,000/=
(ii) Two years ago MBILI Ltd acquired a 160,000 shares in TATU Ltd for
consideration of Tshs.300,000/=
(iii) One year ago MOJA Ltd acquired 10,000 shares in TATU Ltd for
consideration of tshs.50,000/=
(iv) At the date of acquisition the carrying values of the assets liabilities were the
same as the fair values with the exception of MBILI’s inventory that had a fair
value in excess of its carrying value of Tshs.10,000. This inventory was sold
shortly after acquisition.
(v) Details of the fair values of the net assets and the fair value of effective Non-
Controlling Interest (NCI’s) are as follows:
MBILI Net Assets NCI

Tshs. ‘000’ Tshs. ‘000’
One year ago 400 75

Page | 15
Two years ago 330 60

Three years ago 300 50
TATU
Tshs ‘000’ Tshs ‘000’
One year ago 275 160
Two years ago 250 110
Three years ago 240 90
(i)MOJA Ltd has a policy of always calculating goodwill gross. The impairment
reviews reveal no impairment losses are to be recorded. No shares have been
issued since the date of acquisition.
(ii) At the year end MBILI Ltd has a financial assets of Tshs.20,000 that is received
from MOJA Ltd. This is recorded by MOJA Ltd as financial liability at
tshs.20,000.
REQUIRED:
Prepare the consolidated Statement of Financial Position of the MOJ Ltd.

Page | 16

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GRAND FINALE PROBLEM SOLVING SESSION

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

QUESTION ONE [Topic: IAS 7 Group cashflows]

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

Consolidated Statement of Financial Position as at 31 May

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

The following information is relevant:

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

financial liability classified as ‘through profit or loss’ during the year.

(11) The following exchange rates are relevant:

Date Tshs to $1:

QUESTION TWO [Topic: IAS 41- AGRICULTURE]

Extracts from the draft accounts to 31 May 2014

The herds comprise at 31 May 2014:

70,000 – 3 year old cows (all purchased on or before 1 June 2013)

25,000 – heifers (average age 1½ years old; purchased 1 December 2013)

10,000 – heifers (average age 2 years; purchased 1 June 2013)

2 year old animal at 1 June 2013 50

1 year old animal at 1 June 2013 and 1 December 2013 40

3 year old animal at 31 May 2014 60

1½ year old animal at 31 May 2014 46

2 year old animal at 31 May 2014 55

1 year old animal at 31 May 2014 42

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

QUESTION THREE [Topic: IFRS 2-SHARE BASED PAYMENT]

 Equity instruments of the entity (equity-settled share-based payments); or

For both cash-settled AND equity-settled share-based payment arrangements, explain:

(i) The basis on which the arrangements should be measured;

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

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

QUESTION FOUR [Topic: IAS 19- EMPLOYEE BENEFITS]

Macaljoy, a public limited company, is a leading support services company which

Macaljoy Pension Plan A

The terms of the plan are as follows.

(i) Employees contribute 6% of their salaries to the plan.

Present value of obligation at 1 November 20X6 200

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

Present value of obligation at 31 October 20X7 240

Fair value of plan assets at 1 November 20X6 190

Fair value of plan assets at 31 October 20X7 225

Current service cost 20

Pension benefits paid 19

Total contributions paid to the scheme for year to 31 October 20X7 17

Macaljoy Pension Plan B

Fair value of plan assets at 31 October 20X7 21

Contributions paid by company for year to 31 October 20X7 10

Contributions paid by employees for year to 31 October 20X7 10

1 November 20X6 31 October 20X7

Draft a report suitable for presentation to the directors of Macaljoy which:

QUESTION FIVE [Topic: Consolidation of statement of financial position.

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

The Finance Director of Iringa Ltd is requesting you do the following:

670 640 460

670 640 460

MBILI Net Assets NCI

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

Two years ago 330 60

Prepare the consolidated Statement of Financial Position of the MOJ Ltd.

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