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THE PUBLIC ACCOUNTANTS EXAMINATIONS BOARD

A Committee of the Council of ICPAU

CPA(U) EXAMINATIONS
LEVEL TWO
ADVANCED FINANCIAL ACCOUNTING PAPER 8
TUESDAY 25 AUGUST, 2015
INSTRUCTIONS TO CANDIDATES:

1.

Time allowed: 3 hours 15 minutes.


The first 15 minutes of this examination have been designated for reading
time. You may not start to write your answer during this time.

2.

Section A has one compulsory question carrying 30 marks.

3.

Section B has four questions and only three are to be attempted. Each
question carries 20 marks.

4.

Section C has two questions and only one is to be attempted. Each


question carries 10 marks.

5.

Write your answer to each question on a fresh page in your answer


booklet.

6.

Please, read further instructions on the answer booklet, before attempting


any question.

2015 Public Accountants Examinations Board

Advanced Financial Accounting Paper 8

SECTION A
This section has one compulsory question to be attempted
Question 1
Baliwo Africa Transporters Ltd (BATL) has been in the transport business for over
10 years providing transport services to all regions in Uganda. However, the
companys revenue has been declining over the last four years mainly as a result
of a significant increase in the number of new entrants into the transport
industry on all major routes in Uganda. In an effort to revitalize the company,
management resolved to acquire new buses. According to the appraisal made
by the finance and marketing managers, the new buses were expected to be
more efficient and economical.
The company has also diversified into the garments industry in order to
maximize revenue and minimize risks.
You have been appointed as a financial accountant of BATL and you have been
provided with the following general ledger balances for the year ended 31 May
2015 extracted from the records of the company.
Revenue:
Transport
Garments
Other revenues
Overheads:
Administrative expenses
Selling and distribution expenses
Equity:
Share capital
Accumulated profits
Revaluation surplus
Current assets:
Receivables
Cash at bank
Prepaid expenses
Assets held for sale
Non-current assets:
Property plant and equipment
Accumulated depreciation
Investments

25 August 2015

(Shs 000)

(Shs 000)

2,000,000
1,000,000
6,000

3,006,000

344,200
162,000

506,200

1,400,000
644,200
143,200

2,187,400

838,650
584,300
206,000
420,600

2,049,550

2,947,300
(801,881)
624,000

2,769,419

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Advanced Financial Accounting Paper 8

Direct costs incurred:


To provide the transport services
Purchases of garments
Inventory 1 June 2014
Current liabilities:
Trade payables
Accrued expenses
Current tax
Non-current liabilities
Long-term debt

(Shs 000)

(Shs 000)

1,124,000
668,581
129,500

1,922,081

298,500
45,030
76,300

419,830

1,634,020

1,634,020

Additional notes:
1
BATLs capacity to operate all the routes is not stable. It has signed an
agreement with Manga Ltd, to operate the southern route. BATL is to
receive Shs 3 million from Manga Ltd every year under the agreement.
The Transport Licensing Board (TLB) charges BATL Shs 1.5 million every
year for the southern route. Manga Ltd is to pay Shs 1.5 million directly to
the TLB on behalf of BATL and Shs 1.5 million to BATL. Manga Ltd has
prepaid all the money due to BATL for the next four years and this is what
makes up other revenue.
2
Inventory at 31 May 2015 was valued at Shs 242.8 million.
3
The receivables figure includes Shs 10 million owed by Talkers Party but
which they refused to pay. They had hired 4 buses at Shs 2.5 million each
to deliver supporters to their party day but the buses were hired out to
another group after the Talkers Party supporters arrived late. Talkers
Party had deposited Shs 3 million which had not yet been recognized in
BATLs books. On 28 May 2015, the commercial court ruled in favour of
Talkers Party, arguing that the buses were hired by another party and the
company did not make any losses. BATL was also instructed to pay
damages of Shs 3 million. No adjustment has so far been made in the
books of BATL.
4
The companys workshop and head office are located in Namanve
industrial park. BATLs noise and pollution control equipment in the
workshop broke down and the company is still in the process of reinstalling the required equipment. PAN Ltd, a neighbouring company has
sued BATL for noise pollution and is demanding Shs 145 million in
compensation for clients turned away because of excessive noise from
BATLs workshop. A BATL staff lost his arm in the workshop and was
awarded damages by the court worth Shs 46 million on 23 May 2015.
There is no provision made for these looming expenses.
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Advanced Financial Accounting Paper 8

Property plant and equipment

Cost
Accumulated depreciation
(i)

(ii)

Land
Buildings Machinery Vehicles
Shs 000 Shs 000 Shs 000 Shs 000
249,000
400,800
697,500 1,600,000
(100,200) (141,681) (560,000)

Vehicles
Following a resolution by BATLs management on 23 Jan 2013 to
purchase at least 2 new buses after every two years, the first 2
buses were bought on 28 January 2013. 2 other buses were bought
on 28 January 2015. During 2013, each new bus cost Shs 200
million. All these costs have been captured in the total cost of the
vehicles.
Machinery
Included in the property, plant and equipment is a fuel pump under
construction at an estimated value of Shs 500 million to completion.
The construction started on 1 June 2014 and the project is being
funded by the companys general borrowings. The interest rate on
the general borrowing is 7%. On 1 December 2014, the fuel pump
broke down after construction had just gone quarter way.
Management has now indefinitely suspended construction. By the
time of suspension, construction costs of Shs 200 million had been
incurred.
For all its non-current assets, BATL charges full depreciation in the
year of disposal but prorates for the year of purchase. Depreciation
rates are as given below:
Asset
Buildings
Machinery
Vehicles

Rate (%)
5
12
20

Method
Straight line
Reducing balance
Straight line

The depreciation charge for the year ended 31 May 2015 has not yet
been taken into account.
6

BATL complies with the requirements of IAS 34: Interim Financial


Reporting. Included in BATLs interim financial statements for half year is
a tax expense of Shs 76.3 million, which has not yet been adjusted.
However, the closing balances provide a new basis for income tax
estimation. The tax rate is 30%.

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Advanced Financial Accounting Paper 8

Required:
Prepare for Baliwo Africa Transporters Ltd for the year ended 31 May
2015, a statement of:
(a)
(b)
(c)

profit or loss and other comprehensive income.


changes in equity.
financial position.

(8 marks)
(5 marks)
17 marks)
(Total 30 marks)

SECTION B
Attempt three of the four questions in this section.
Question 2
(a)

IFRS 5: Noncurrent Assets Held for Sale and Discontinued Operations


provides for conditions that must be met for a non-current assetto be
classified as held for sale.
Required:

(b)

Set out the conditions that must be satisfied in order for an asset to be
classified as held for sale in accordance with the provisions of the
standard.
(5 marks)
Pombo Ltd deals in the provision of consultancy services relating to civil
works and construction. The following is Pombo Ltds statement of
financial position as at 31 December 2014.
Non-current assets:
Property, plant & equipment
Accumulated depreciation
Intangible non-current assets
Investments
Current assets
Total assets
Equity and liabilities:
Share capital
Reserves
Retained earnings
Liabilities:
Long-term liabilities
Current liabilities
Total equity and liabilities

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Shs 000
532,000
(37,500)
30,000
40,000

120,000
213,102
87,654

Shs 000

564,500
120,000
684,500

420,756
168,600
95,144
684,500
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Advanced Financial Accounting Paper 8

Additional information:
Included in property, plant and equipment, are three motor vehicles with a
value of Shs 75 million which management had agreed to classify as held
for sale on 1 January 2014. The three motor vehicles were actively
marketed and, as management were committed to the plan; all efforts to
locate a buyer were made. On 1 November 2014, a buyer was found and
deposited Shs 20 million on the three vehicles. On 31 December 2014, it
was discovered that the buyer was unable to pay up the balance.
Management has continued to hold the motor vehicles as held for sale.
The depreciation on the three motor vehicles for the year 2014 had been
charged to the statement of profit or loss at a rate at 10% per annum as
they had stayed for more than 12 months.
Required:
(i)

(ii)

Explain any two conditions under which the period required to


complete a sale of assets classified as assets held for sale may be
extended.
(5 marks)
Redraft the statement of financial position as at 31 December 2014
taking into consideration the above adjustments.
(10 marks)
(Total 20 marks)

Question 3
Kameme Health Centre (KHC) IV located in Mpigi district is a privately owned
facility. The government of Uganda allocates a grant of Shs 250 million per
annum to this health centre.
The management of KHC IV prepared budget estimates for the year ending 31
December 2015 in accordance with the Ministry of Health guidelines and it was
duly approved. It was assumed that the estimates would accrue evenly
throughout the year.
KHC IV prepares quarterly financial statements and submits them to the
Permanent Secretary, Ministry of Health and Ministry of Local Government. The
Medical Superintendent of KHC IV always requests for quarterly statements of
income and expenditure from the accounts office.
The following information is also available:

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Advanced Financial Accounting Paper 8

(i)

Budget estimates for the year ending 31 December 2015:


Code
201
202
203
204

(ii)

Code
304
500
661
662
663
710
720
730
740
741
750
760
780
230
103
105
302

Expenses:
Shs 000
Office supplies
6,900
Capital expenditure
18,900
Staff Training
13,800
Rent & Rates
30,000
Bank Charges
3,960
Medical drugs
429,000
Medical tools
130,000
Medical equipment
148,000
Beds
50,000
Beddings
12,000
Foodstuffs
320,000
Firewood
19,500
Consultancy charges
14,300
Salaries
376,500
Electricity & Power
121,500
Water & Sanitation
24,600
Repairs & maintenance
60,040

The actual incomes and expenses for the first quarter of the year 2015 are
given hereunder:
Code
201
202
203
204

(iii)

Income:
Shs 000
Hospitalisation fees
790,000
User fees collection
250,000
Student training fees 489,000
Government grant
250,000

Income:
Shs 000
Hospitalisation fees
200,000
User fees collection
50,000
Student training fees 150,000
Other income
18,000

Code
304
500
661
662
663
710
720
730
740
741
750
760
780
230
103
105
302

Expenses:
Shs 000
Office supplies
1,725
Capital expenditure
4,725
Staff training
2,750
Rent & rates
7,500
Bank charges
575
Medical drugs
112,600
Medical tools
25,600
Medical equipment
30,400
Beds
8,540
Beddings
2,800
Foodstuffs
72,150
Firewood
5,320
Consultancy charges
4,565
Salaries
76,401
Electricity
25,790
Water & Sanitation
3,773
Repairs & maintenance
13,586

You are to assume that all incomes and all expenses of the first quarter
were received and paid respectively.

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Advanced Financial Accounting Paper 8

Required:
(a)

(b)

Prepare the financial statements of KHC IV for the first quarter of


the year 2015 using the format that shows the annual budget, the
actual income and expenditure for the quarter and the projected
income and expenditure for the following quarter.
(10 marks)
Prepare the monthly receipts and payments return for January 2015
assuming that the balance brought forward from the previous month
was Shs 32.25 million.
(10 marks)
(Total 20 marks)

Question 4
ZAM Ltd deals in the provision of construction services. Recently it was offered a
contract to construct a hospital located in one of the major towns in Uganda.
The fixed contract price was Shs 400 million. In the contract, it was stated that
the land was already cleared and did not require any grading.
When ZAM Ltd delivered its machines to the site to start construction, it found
that there were semi-permanent buildings on the site that needed to be
demolished. The estimated cost of demolition was Shs 20 million. The
management of ZAM Ltd signed a new contract such that for every Shs 5 million
spent on demolition, the hospital management would pay an extra 20%. After
the demolition, the actual cost incurred was Shs 23 million.
ZAM Ltd has assets which are revalued at every year end to determine their fair
value. On 30 June 2013 extracts from the statement of financial statement were
as follows:
Non-current assets:
Plant and equipment at cost
Depreciation
Net book value
Capital and reserves:
Revaluation reserve (Plant & Equipment)

Shs 000

860,000
(172,000)
688,000
34,000

The useful life of plant and equipment is 50 years and ZAM Ltd is to depreciate
the plant and equipment over their entire useful life on a straight line method
assuming no residual value. The plant and equipment was revalued on 31
December 2013 at Shs 650 million. There was no change in the remaining
estimated future life.

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Advanced Financial Accounting Paper 8

Required:
(a)

Differentiate between the terms fixed price and cost plus contracts as
used in IAS 11: Construction Contracts.
(4 marks)
(b) Determine the revenue ZAM Ltd will realise from the whole construction
process of the building.
(6 marks)
(c) Show the relevant extracts from the financial statements as at 30 June
2014.
(10 marks)
(Total 20 marks)
Question 5
(a)

(b)

Explain the following concepts in line with IFRS 4: Insurance Contracts:


(i) Guaranteed benefits.
(ii) Cedant.
(iii) Policy holder.
(iv) Financial guaranteed contract.
(v) Insured event.
(10marks)
Atlas (U) Ltd is involved in the exploration of oil resources in Bukiki district.
Atlas (U) Ltd started the exploration of the oil resources in July 2013.
Atlas (U) Ltd has incurred costs after the acquisition of the legal rights to
explore Bukiki district, Kaloke oil well. The costs include topological costs
Shs 50 million, geological costs Shs 30 million, geochemical and
geophysical studies Shs 100 million, exploration drilling Shs 180 million,
trenching costs Shs 120 million, sampling costs Shs 340 million, and
evaluating the technical feasibility costs Shs 230 million, as well as
development of minerals resources Shs 300 million.
Atlas (U) Ltd has purchased drilling machines and rigs and also leased
excavation machines amounting to Shs 120 million and Shs 270 million
respectively.
Atlas (U) Ltd acquired drilling rights estimated at Shs 300 million.
However, after the first year of exploration, the drilling rights were valued
to Shs 235 million.
Before the Atlas (U) Ltd obtained the legal rights to explore Bukiki district,
Kaloke oil well, they incurred technical feasibility costs Shs 250 million,
geological studies costs Shs 360 million, hire of machines Shs 150 million,
and workers costs Shs 300 million.

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Advanced Financial Accounting Paper 8

The proprietors of Atlas (U) Ltd are in the process of preparing their first
set of financial statements and have contracted you for advice on the
treatment of the above costs.
Required:
In accordance with IFRS 6: Exploration for and Evaluation of Minerals
Resources, advise the proprietors of Atlas (U) Ltd on the treatment of any
five of the costs incurred by the company and the appropriate standards
to apply.
(10 marks)
(Total 20 marks)
SECTION C
Attempt one of the two questions in this section
Question 6
The accounting officer of Mwadu district has approached you for information
regarding the implementation of Financial and Information Management System
(FMIS).
Required:
(a)

State any six steps for the implementation of the FMIS.

(6 marks)
Explain the importance of the following in public sector accounting:
(i)
Vote book
(2marks)
(ii)
Abstracts
(2marks)
(Total 10 marks)
Question 7
(b)

IAS 7: Statement of Cash Flows; provides for information that should be


considered when preparing statements of cash flows.
Required:
(i)

(ii)

Explain how the statement of cash flows facilitates decision making for
external users.
(6marks)
Explain why the direct method of ascertaining cash flows from operating
activities is preferred to the indirect method.
(4 marks)
(Total 10 marks)

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