EXAMINATION : INTERMEDIATE LEVEL SUBJECT FINANCIAL ACCOUNTING CODE Bz EXAMINATION DATE WEDNESDAY, 3” MAY, 2017 TIME ALLOWED THREE HOURS (2:00 P.M. — 5:00 P.M.) GENERAL INSTRUCTIONS 1. There are TWO sections in this paper. Sections A and B which comprise a total of SIX questions. 2. Answer question ONE in Section A. 3. Answer ANY FOUR questions in Section B. 4. In total answer FIVE questions. 5. Marks are shown at the end of each question. 6. Calculate your answers to the nearest two decimal points where necessary. 7. Show clearly all your workings in respective answers where applicable. 8. This question paper comprises 9 printed pages. B2, May 2017 Page 1 of 9SECTION A mpulsory Question QUESTION 1 (a) (b) International Financial Reporting Standard [IFRS 10] requires an entity that is a Parent to prepare consolidated financial statements, (i) Define control in the context of IFRS 10, (4 marks) Gi) State the justification of full consolidation where the parent owns less than 100% of the ordinary shares of a subsidiary. (4 marks) On 1 July 2013, Halahala Company acquired 128,000 of Sosomola company’s 160,000 shares. ‘The following Statements of Financial Position have been Prepared as at 315 December 2016. ire ar Halahala[Sosomola | __| 12s ‘000 |"rzs “000 Property, plant and equipment 152,000 129,600 Investment in Sos | 203,000 = Inventory at cost Soe aa EeeeTI7000) 74,400 Receivables ____ [104,000 84,000 Bank balance ____41.000 |" .000 | [sais es |_—_ 612.000 | 296,000 Ordinary share capital (TZS 1,000 each) 100,000 160,000 Retained eamings 460,000 112,000 Payables : 52,000 24,000 ‘The following information is available: (i) At 1 July 2013 Sosomola had a debit balance of TZS.11,000,000 on retained earnings. Gi) Property, plant and equipment of Sosomola included land at a cost of ‘TZS.72,000,000. ‘This land had a fair value of ‘TZS.100,000,000 at the date of acquisition. An impairment review at 31% December 2016 shows that goodwill is impaired by 40%. (iv) The inventory of Sosomola includes goods purchased from Halahala for ‘TZS,16,000,000. Halahala invoiced those goods at cost plus 25%, (%) The receivables at 31% December 2016 in Ialahala include a receivable of ‘TZS.7,800,000 from Sosomola, and the payables in Sosomola include an amount of TZS.6,000,000 payable to Halahala, ‘The difference reflects a remittance made at 30 December 2016, not yet received and recorded in Halahala’s books, 82, May 2017 Page 2 ofREQUIRED: Prepare the Consolidated State December 2016. ‘ment of Financial Position of Halahala as at 31" (12 marks) (Total: 20 marks) SECTION B ‘There are FIVE questions, Answer ANY FOUR questions QUESTION 2 The Statements of Profit or Loss and either Comprehensive Income and Statements of Financial Position of two manufacturing companies in the same sector are set out below: Statement of Profit or Loss for the year ended 31° December 2016 Mona TZS “000° 150,000 | 700,000 Te z (60,000) (210,000) matey 90,000 | 490,000 Interest payable Distribution costs ‘Administrative expenses _ 371,000 Income tax expense al (100,170) | Profit for the eran 270,830 Position for the year ended 31” December 2016 5 ie Mona TZS ‘000 ‘Non-current assets Property sa eae yi Plant and equipment ___ [190,000 ae 190, Current Assets ana 12,000 37,500 50,000; > 240,000 156,000 | 51,395 B2, May 2017 Page 3 of 9Non-current liabilities Long-term debt Current liabilities Trade payables 117,670 Total equity and liabilities 933,250 REQUIRED: (a) Compare the performance of the two companies in terms of profitability, liquidity and efficiency, supporting your arguments with at least two ratios in each case, (14 marks) (b) State any FOUR additional pieces of information that would have made your analysis above more usefull, clearly indicating the possible added value of such information. (6 marks) (Total: 20 marks) QUESTION 3 (a) Briefly discuss how do investors commonly use (analyse) free cash flow to value a m and how best should cash flow statements be disclosed to enable the analysi (5 marks) (b) ‘The comparative Statements of Financial Position for Clay Company show the following information: 31-12-2016 31-12-2015 TZS ‘000° —TZS+000" TZS‘000" TZS ‘000" Non-Current assets Building 0 29,750 Accumulated depreciation on building 0 0 6,000 23,750 Equipment 45,000 20,000 ‘Accumulated depreciation on equipment 43,000 4,500 15,500 Patent 5,000 6.250 Total non-current assets 48,000 45,500 Current Assets Cash 33,500 13,000 ‘Accounts receivable 12,250 10,000 ‘Allowance for doubtful accounts 3,000 9,250 4,500 5,500 Inventory 12,000 9,000 Investments eae 3,000 ‘Total current assets 54750 30.500 ‘Total Assets 102,750 76-000 Non-eurrent liabil Long-term notes payz 31,000 25,000 ‘Total non-current lial 31.000 25,000 Current liabilities Accounts payable 5,000 3,000 Dividends payable 0 5,000 Notes payable, short-term (nontrade) 3,000 4,000 ‘Total current liabilities $,000 12,000 ‘Total Lia 19,000 37,000 Page 4 of 9 82, May 2017Squity Common stock 43,000 33,000 Retained eamings 20,750 6,000 Total Equity 63,750 39,000 Total Equity & liabilities 102,750 76,000 Additional data related to 2016 are as follows: (i) Equipment that had cost 'ZS.11,000,000 and was 40% depreciated at time of disposal was sold for’ ; (ii) TZS.10,000,000 of the long-term note payable was paid by issuing common stock. (iii) Cash dividends paid were 'T7S.5,000,000. (iv) On January 1°! 2016, the building was completely destroyed by floods. Insurance proceeds on the building were TZS.30,000,000 (net of ‘TZS.2,000,000 taxes). le) were sold at TZS.1,700,000 above their (v) Investments (available-for- sales and investments in the past. cost. The company has made 16,000,000 was issued for the acquisition of was acquired in cash. (vi) A long-term note for ‘ equipment, and the remaining balan 000,000 and income taxes of TZS.6,500,000 were paid in (vii) Interest of 1 ch. REQUIRED: Prepare a Statement of Cash Flows using indirect method. Flood damage is unusual and infrequent in that part of the country. (15 marks) (Total: 20 marks) QUESTION 4 (a) (b) that inventories are valued at the lower of cost or net IAS 2: Inventories req realizable value. REQUIRE State the rationale for such a requirement. (2 marks) Malyimu retailers had the following figures of reported profit before tax: Year Profit (ZS) 2014 27,200,000 2015 28,400,000 2016 24,000,000 Page $ of 9 82, May 2017Analysis of inventories shows that certain errors were made with the following Incorrect inventory figure December 31, 2014 | ~~ 4,800,000 December 31,2015 | 5,600,000 REQUIRE! Calculate the corrected profit before tax figures (where applicable) for the years 2014, 2015 and 2016 (6 marks) (c) Wakali Limited (WL) is engaged in the manufacturing and sale of textile machinery ‘The following draft extracts of th latement of Financial Position tement of Profit or Loss for the year ended 31* December 2016 have been provided: Statement of Financial Position ‘TZS ‘000° 189, 166,000 | tatement of Profit or Loss _ ie ae 2016 _ | 1zs ‘000° 7 | 90,000 120,000 __ 27,000 | 36,000 | Profit after taxation 63,000 84,000 The following additional information has not been taken into account in the preparation of the above financial statements: © Cost of repairs amounting to ‘TZS.20 million was erroneously debited to the machinery account on I* April 2015. ‘The estimated useful life of the machine is 10 years. © On I* January 2016, WL reviewed the estimated useful life of its plant and revised it from 5 years to 7 years. ‘The plant was purchased on I" January 2014 at a cost of TZS.70 million. Depreciation is provided under the straight line method. Applicable tax rate is 30%, REQUIRED: Prepare relevant extracts (including 2015 comparatives) for the year ended 31% December 2016 related to the following: (i) Statement of Financial Position. (6 marks) (ii) Statement of Profit or Loss, (6 marks) 42, May 2017 Page 6 of 9QUESTION 5 (a) (b) Damari Limited is a company involved in building wind farms in Singida. ‘The financial controller has asked you, a newly qualified CPA for some help in correctly accounting for Property, Plant and for the financial year ended 31° December 2016. ‘The following costs have occurred on a wind farm site: ipment (PPE) within the company Preparation of site _ z Annual maintenance once operational mea \I'on materials (recoverable) See ee Staff training o correctly operating the wind farm once ‘operational = ie Import duty on materials purchased 4 mus 28,000 Initial surveying of site me 40,000 | | Project manager’s salary to build and manage the wind farm 140,000 | Wages of employees to build the wind farm 300,000 | Annual wages of employees once the wind farm is operating | 100,000 ‘Testing costs 60,000 Materials purchased for wind farr om 250,000 iscount received on materials purch aan 33,000 REQUIRED: (i) Calculate the amount that should be capitalized as Property, Plant and Equipment for the above wind farm. (G3 marks) (ii) In accordance with IAS 16 — Property, Plant & Equipment explain the accounting treatment allowed for the measurement of PPI a. At recognition: b. After recognition. (1.5 marks) (iii) Inthe context of IAS 16 ~ Property, Plant & Equipment: a, Discuss what is meant by the term “fair value’. (1.5 marks) b. How can the fair value of a building be determined? (1.5 marks) Damari Limited’s head office building is the only building it owns. Using professional valuers, it revalued this building on I January 2016, at ‘TZ$.2,100,000,000. Damari Limited has adopted a revaluation pol 1g from this valuation date and has decided that the original useful life of ings has not changed as a result of the revaluation. ‘The building was don I January 2006. ‘The cost of the building on acquisition was 2,500,000,000 and the accumulated depreciation to 31" December 2015 amounted to ‘TZS. 500,000,000. ‘The depreciation up to 1 January 2016 was depreciated evenly since acquisition, ‘The professional valuer believes that the residual value on the building would be 'I'7S.600,000,000 at the end of its useful Ii Xe 182, May 2017 Page 7 of 9 (1.5 marks) gue ™ BenREQUIRED: In accordance with IAS 16 ~ Property, Plant & Equipment: (i) (ii) (iii) State how should the depreciable amount of an asset be allocated, (i mark) State how often shoutd the@esidual value dnd the useful fife of an asset be reviewed, (2 marks) Calculate the depreciation amount of the building for the year ended 31% December 2016 based on the information provided in the above scenario. (8 marks) (Total: 20 marks) QUESTION 6 (a) Consider the following list of events that occurred between 31* December 2016 (reporting date) and 315 March 2017 (date of authorization of financial statement for issue) and decide which one you would classify as adjusting events and which are non-adjusting events. You should also state clearly the treatment that you are proposing in each case, @ (i) (ii) (iv) ™) B2, May 2017 The receipt of net proceeds of sales TZS.12,600,000 for inventory items whose net realizable value was estimated (31% December 2016) at TZS.12,000,000 and cost was T'ZS. 12,500,000. Proposed dividend made by the director’s board meeting on 31* January 2017, for a total of TZS.160,000,000. Enactment in February 2017 of a new customer Protection law that requires the company to enhance disclosures in labels on its products (including translating them to Kiswahili language). This, apart. from increasing labelling costs, makes labels costing the company TZS.14,000,000 useless, The declaration of bankruptcy for a debtor. An allowance of TZS.15,000,000 was set against his doubtful debt at 315! December 2016. The total amount receivable before the allowance was TZS 42,000,000 and as a result of the bankruptcy declaration directors estimate that only TZS.12,000,000 can be recovered. The chairman of the board of directors got appointed on 1* January 2017 asa member of parliament (by the president). ‘The appointment automatically requires him to relinquish her position as board member and chair. Processes to fill her position in the board are estimated to. coxt TZS.15,000,000. Your answer should be in the following format: Item Classification Treatment (10 marks) Page 8 of 9(b) Gambini Company is preparing its Financial Statements for the year ended 31* December 2016. ‘The following matters are all outstanding at the year end. 0) Gi) (iii) (iv) Gambini is facing litigation for damages from a customer for the supply of faulty goods on 1% December 2016. The claim which is for TZS. 500,000,000, was received on 15 January 2017. Gambini’s legal advisors consider that Gambini is liable and it is likely that this claim will succeed. On 25" January 2017, Gambini sent a counter-claim to its suppliers for TZS.400,000,000. Gambini’s legal advisors are unsure whether or not this claim will succeed. Gambi sales director, who was dismissed on 15" December 2016, has lodged a claim for TZS.100,000,000 for unfair dismissal. Gambini’s legal advisors believe that there is no case to answer and therefore think it is unlikely that this claim will succeed. Although Gambini has no legal obligation to do so, it has habitually operated a policy of allowing customers to return goods within 28 days, even where those goods are not faulty. Gambini estimates that such returns usually amount to 1% of sales. Sales in December 2016 were TZS.400,000,000. By the end of January 2017, prior to the drafting of the financial statements, goods sold in December for TZS.3,500,000 had been returned. On 15“ December 2016 Gambini announced in the press that it is to close one of its divisions in April 2017. A detailed closure plan is in place and the costs of closure are reliably estimated at TZS.300,000,000, including TZS.50,000,000 for staff relocation. REQUIRED: State, with reasons, how the above matters should be treated in Gambini’s financial statements for the year ended 31** December 2016. (10 marks) 2, May 2017 (Total: 20 marks) Page 9 of 9