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COLLEGE OF BUSINESS EDUCATION

DAR ES SALAAM CAMPUS


TNC/TFC OCTOBER 2015 BACC III

SUPPLEMENTARY EXAMINATIONS

SUBJECT: ADVANCED FINANCIAL REPORTING

PAPER CODE: ACB 080101

DATE: 19.09.2018

Time Allowed: 3 HOURS

Instructions:

a) This paper consists of five questions, attempt all questions


b) Do not write or draw on the question paper
c) Cellular phones are not allowed in the examination room
d) All questions carry equal mark

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Question One
The Following list of balances was extracted from the ledger of KDA limited at 31st December,
2017.

Dr Cr
Tshs. Tshs.
Issued Ordinary share capital @ 1Tshs. 600,000
Share premium 80,000
Retained earnings at 31/12/2015 170,000
10% Loan notes 200,000
Bank 144,000
Loan notes interest paid 15,000
Bank overdraft interest 2,000
Sales 4,700,000
Purchases 3,180,000
Wages and Salaries 644,000
Directors remuneration 90,000
Interim dividends paid 38,000
Distribution costs 106,000
Administrative expenses 101,000
Inventory at 1/1/2016 450,000
Trade receivables/payables 384,000 102,000
Land at cost 110,000
Building at cost 400,000
Accumulated depreciation of buildings at 01/01/2016 40,000
Plant & equipment at cost 600,000
Accumulated depreciation of plant & equipment at 01/01/2016 180,000
Vehicles at cost 128,000
Accumulated depreciation of vehicles at 01/01/2016 32,000

6,248,000 6,248,000

The following notes should be taken into account at 31st December 2016:
(i) The authorized share capital consisted of 800,000 Tshs. 1 ordinary shares
(ii) Closing inventory at 31st December 2016, was valued at Tshs. 1,500,000. This excluded
an item of inventory that was not fully complete at year end. This item had incurred costs
to date of Tshs. 20,000. The costs to complete were Tshs. 10,000 and it was estimated
that this item would then sell for Tshs. 29,000.
(iii) Depreciation is to be calculated as follows:
Building 5%
Plant & equipment 10% reducing balance method
Motor vehicles 25% reducing balance method

The depreciation is to be allocated as follows:

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Cost of sales Distribution costs Administration costs
Building 50% 50%
Vehicles 100%
Plant & equipment 100%

(iv) The loan notes were issued in July 2015. Provide for any loan note interest outstanding
at year end.
(v) Wages due were Tshs.38,000 and wages is split equally between cost of sales and
administration costs.
(vi) KDA Ltd. estimated that their tax liability for the year ended 31st December 2016 was
Tshs.175,000
(vii) Having reviewed their trade receivables at year end KDA Ltd. have decided to write off a
bad debt of Tshs. 4,000 and create a receivable allowance against the remaining
receivables of 5%.

Required;
Prepare the following financial statements for KDA Ltd. in accordance with the requirements of
IAS 1:
a) Statement of Comprehensive Income for the year ended 31st December 2016.
(10 marks)
b) A Statement of Changes in Equity for the year ended 31st December 2016.
(5 marks)
c) A statement of Financial Position as at 31 December 2016.
st
(5 marks)

Question Two
Goba Ltd is involved in the manufacture of agricultural products and its financial statements are
as follows:

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2016 2015
Tshs.'000' Tshs.'000'
Non-Current Assets:
Property, Plant & Equipment (PPE) 5120 3940
Total Non-Current Assets 5120 3940

Current Assets:
Inventories 1380 1220
Trade Receivables 780 680
Cash & Cash Equivalents 50 112
Total Current Assets 2210 2012

Total Assets 7330 5952

Equity & Liabilities


Equity
Share capital 240 200
Share Premium 60 50
Retained Earnings 3798 2402
Revaluation Surplus 120 80
Total Equity 4218 2732

Non-Current Liabilities
Long Term loan 1500 1600
Total Non-Current Libilities 1500 1600

Current Liabilities
Trade Payables 1470 1500
Bank Overdraft 32 60
Tax Payable 110 60
Total Current Liabilities 1612 1620

Total Equity & Liabilities 7330 5952

Notes:
(i) The company’s profit for the year before tax amounted to Tshs. 1,476,000.
(ii) The company’s income tax expense for the year was Tshs. 80,000
(iii) The cost of Property, Plant & Equipment (PPE) at January I 2016 amounted to Tshs.
4,860,000. The company’s depreciation policy is to depreciate all assets at 20% straight
line on cost from the date of purchase to the date of sale. The additions to PPE occurred
on 31 December 2016. On 1st July 2016 the company sold PPE which originally had cost
Tshs. 1,000,000. On the date this PPE was sold, its carrying value was Tshs. 600,000 and
the firm made a loss on the sale of the PPE of Tshs. 40,000. The revaluation was perfomed
on 31st December 2016.
(iv) The company’s finance cost for the year equals its cash payment of Tshs. 92,000

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Required;
a) Discuss the benefits of Goba ltd. preparing the statement of cash flows to the users of
financial statements. (5 marks)
b) Prepare the Statement of Cash Flows for the year ended 31 December 2016 for Goba
st

Ltd in accordance with IAS 7 statement of Cash Flows. (15 marks)

Question Three
The Managing Director of COBESO Ltd has engaged a consultant to restructure the capital
structure of the company. The consultant has collected the following information relating to the
company as at 30th June 2017:
a) The statement of financial position of COBESO Ltd.

Authorized share capital 14,000,000


Issued Share capital:
640,000 8% cumulative preference shares of 10/= each 6,400,000
640,000 Ordinary shares of Tshs. 10 each, shs.7.50 paid. 4,800,000
11,200,000
Loan from NBC 600,000
Bank Overdraft 2,080,000
Sundry Creditors 4,400,000
18,280,000
Represented By:
Non- Current Assets:
Freehold Properties 1,400,000
Plant and Machinery 2,400,000
Patents and Trade Marks 680,000
Investments 3,240,000
Profit and Loss account 4,400,000
Current Assets:
Stock 2,480,000
Debtors 3,200,000
Preliminary Expenses 480,000
18,280,000

b) The Directors agreed to restore the authorized share capital to Tshs.14,000,000


c) The consultant proposed the following scheme for the company restructuring:
(i) The unpaid capital on the ordinary shares to be called up.
(ii) The arrears of preference dividends be cancelled and each preference
shareholder accept a reduction of 25% per share. The dividend rate on the new
preference shares to be increased to 10%.
(iii) The ordinary shareholders to accept a reduction of 75% of par value on each
share held.

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(iv) Patents and Trademarks are to be reduced to Tshs.480,000/=, provision for
doubtful debts of 600,000 is to be credited; Tshs.1,000,000 is to be written off
plant and machinery and tshs. 400,000 off investments
(v) Freehold properties are professionally valued and are to be written up to
Tshs.2,800,000
(vi) Preliminary expenses are to be eliminated.
(vii) NBC accepted 240,000 ordinary shares of Tshs. 2.50 each in settlement of loan
outstanding.
(viii) The debit balance on profit and loss account is to be eliminated.
(ix) New ordinary shares were issued and fully paid as follows:
a) Each ordinary share holder (including NBC) to take up two shares for
every one held.
b) Each preference shareholder to take up one new ordinary share for every
four preference shares held.
c) NBC accepted 240,000 ordinary shares of Tshs. 2.50 each in settlement
of loan outstanding.

Required:
Assuming all transactions were completed on 1st July 2017 show:

a) Capital reduction and reconstruction account (5 marks)


b) The statement of financial position of COBESO ltd after reconstruction scheme.
(15 marks)
Question Four
The directors of Carmen, a large conglomerate, are considering the acquisition of the entire
share capital of Manon, which manufactures a range of engineering machinery. Neither
company has any long-term debt capital. The directors of Carmen believe that if Manon is taken
over, the business risk of Carment will not be affected.

The accounting reference date of Manon is 31 July. Its balance sheet as on 31 July 2017 is
expected to be as follows.
Tshs. Tshs.
Non-current assets (net of depreciation) 651,600
Current assets
Inventory and WIP 515,900
Receivables 745,000
Bank balances 158,100 1,419,000
2,070,600

Capital and reserves


Issued ordinary shares of Tshs. 1 each 50,000
Distributable reserves 404,100
454,100
Current liabilities
Payables 753,600
Bank overdraft 862,900 1,616,500
2,070,600

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Manon’s summarized financial record for the five years to 31 July 2004 is as follows.

Year ended 31 July 2013 2014 2015 2016 2017


(estimated)
Tshs. Tshs. Tshs. Tshs Tshs.
Profit before non-recurring
items 30,400 69,000 49,400 48,200 53,200
Non-recurring items 2,900 (2,200) (6,100) (9,800) (1,000)
Profit after non-recurring 33,300 66,800 43,300 38,400 52,200
items
Less dividends 20,500 22,600 25,000 25,000 25,000
Added to reserves 12,800 44,200 18,300 13,400 27,200

The following additional information is available.


1. There have been no changes in the issued share capital of Manon during the past five
years.
2. The estimated values of Manon’s non-current assets and inventory and work in progress as
on 31 July 2017 are as follows.
Replacement cost Realizable value
Tshs. Tshs
Non-current assets 725,000 450,000
Inventory and work in progress 550,000 570,000

3. It is expected that 2% of Manon’s receivables at 31 July 2017 will be uncollectible.


4. The cost of capital of Carment plc is 9%. The directors of Manon estimate that the
shareholders of Manon require a minimum return of 12% per annum from their investment
in the company.
5. The current P/E ratio of Carmen is 12. Quoted companies with business activities and
profitability similar to those of Manon have P/E ratios of approximately 10.

Required:

(a) Estimate the value of the total equity of Manon as on 31 July 2017 using each of the
following bases:
(i) Balance sheet value; (4 marks)
(ii) Replacement cost of the assets; (4 marks)
(iii) Realizable value of the assets; (4 marks)
(iv) The dividend valuation model; (4 marks)
(v) The P/E ratio model. (4 marks)

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Question Five
COBESO ltd is a listed company. On 1st November 2013, its issued share capital was 10,000,000
ordinary shares of Tshs.600 each and 4,000,000, 4% preference shares of Tshs.1000 each.

During the year ended 31st October, 2014 COBESO ltd has the following transactions on the
respective dates:
1. 1st January, 2014: A bonus issue of 2 shares for every 5 shares of COBESO ltd was made.
2. 1st February, 2014: 3 Million ordinary shares were issued at full market price of Tshs.3000
per share.
3. The company made a Rights offer to its shareholders of three new shares of Tshs.600
each for every 10 existing. The offer was fully taken up by shareholders who purchased
the new shares for Tshs.4000 each on 1st May, 2014. The fair value of each ordinary share
on 30th April, 2014 was Tshs.5000.
4. At 31st October, 2014 the ordinary shareholders of COBESO ltd also held options
exercisable between 1st November, 2017 and 1st May, 2018 to purchase 1,200,000
ordinary shares at Tshs.2800 per share. The average fair value of ordinary shares during
the year was Tshs.4200 each.
5. The company paid ordinary dividend of Tshs.1,040,000,000 and preference dividends of
Tshs.160,000,000 during the year to 31st October, 2014.

COBESO ltd Profit and Loss account extract for the year ended 31st October, 2014 was as
hereunder:

Tshs."000,000"
Operating Profit 4,525
Interest Payable (329)
Profit before Tax 4,196
Taxation (1,279)
Profit After Tax 2,917
Minority Interests (132)
Profit for the Year 2,785

Required:
a) Calculate Basic Earnings Per Share of COBESO ltd for the year ended 31st October,
2014. (15 marks)
b) Calculate Diluted Earnings Per Share of COBESO ltd for the year ended 31st
October, 2014 (5 marks)

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