COLLEGE OF BUSINESS EDUCATION

DAR ES SALAAM

BACC III 2014/2016

END OF SEMESTER I EXAMINATION

ADVANCED FINANCIAL REPORTING - ACU08101

INSTRUCTIONS:
(i) There are Five questions in this paper attempt all
(ii) Do not write/ draw anything on the question paper
(iii) Please use legible handwriting
(iv) Cellular phones are not allowed in the examination room
(v) CBE examination rules and regulations apply
(vi) All questions carry equal marks.

1
Question one
The objective of financial statements is to provide information about financial
position, performance and changes in financial position of an entity that is
useful to a wide range of users in making economic decisions.

Required:
a) State five potential users of company published financial
statements briefly explaining for each one their likely information
needs from those statements.
b) Briefly discuss whether you think that the company published
financial statements prepared in accordance with IFRS achieve the
objective stated above giving reasons.

Question two
The following financial statements was part of the final accounts of Rosee Co
Ltd. for the year ended 31st December, 2015:

Rosee Co. Ltd

Balance sheet as on 31.12.2015
2015 2014
"000" TZS "000" TZS
Assets
Cash & Bank 200 25
Short term Investments 670 135
Sundry Debtors 1,700 1,200
Interest receivable 100 -
Inventories 900 1,950
Fixed Assets (cost) 2,180 1,910
Accumulated Depreciation (1,450) (1,060)
Fixed assets (net) 730 850
Total Assets 6,800 6,660

Liabilities & Equity

Sundry creditors 150 1,890
Interest payable 230 100
Income taxes payable 400 1,000
Long term debt 1,110 1,040
Total Liabilities 1,890 4,030
Shareholders funds:
Share capital 1,500 1,250
Reserves 3,410 1,380
Total shareholders funds 4,910 2,630
Total liabilities & Shareholders funds 6,800 6,660

2
 Rosee Co. Ltd
Income Statement for the period ending 31 December 2015
"000" TZS
Sales 30,650
Cost of sales (26,000)
Gross Profit 4,650
Administrative and selling expenses (1,220)
Interest expense (400)
Interest income 300
Dividend Income 200
Net Profit before Taxation 3,530
Income Tax (300)
Net Profit 3,230

Additional Information:
1. An amount of TZS. 250,000 was raised from the issue of share capital
and a further TZS. 250,000 was raised from long term borrowings.
2. Interest expense was 400,000 for the period of which 170,000 was paid
along with 100,000 relating to prior years.
3. Dividends paid were TZS. 1,200,000.
4. During the period fixed assets worth TZS. 350,000 were acquired.
5. Plant with original cost of TZS. 80,000 and accumulated depreciation of
TZS. 60,000 was sold for TZS. 20,000
6. Sundry debtors and sundry creditors relate to credit sales and credit
purchases only.

Required:
Prepare cash flow statement of Rosee Co. ltd for the period ending 31st
December 2015 in accordance with IAS 7 (use indirect method) - (20 marks)

Question Three

The statement of Financial Position of Sumve ltd. As at 31st October 2015

was as follows:

Tshs. Tshs.
Fixed Assets (at written down values)
Freehold property 90,600
Equipment 89,800
Vehicles 55,100 235,500

3
Current Assets
Stock 79,100
Debtors 50,200
Bank and Cash 14,600
Less:
Current Liabilities
Creditors 40,300
Net Current Assets 103,600
Net Assets Employed 339,100

Financed by:
Called
up and
Fully
Share capital Authorized Paid
8% preference shares of Tzs 1/= per share 200,000 50,000
Ordinary shares of TZS 1/= per share 500,000 500,000
550,000
Reserves:
Profit and Loss a/c (debit balance) (210,900)
339,100

The preference dividends were two years in arrears.

As a direct result of the succession of trading losses, a reorganization scheme

was drawn up and approved to become effective from 1st November 2015, the
main terms of which are listed below.

1. The ordinary shares are to be written down to Tzs.0.40 per share, and
then to be converted into new ordinary shares of TZS.1 per share, fully
paid.
2. The preference shareholders are to receive 30,000 new ordinary shares of
1/= each fully paid at par in exchange for the preference shares.
3. The preference shareholders have also agreed to waive the rights to the
dividend arrears and to accept in lieu 5000 new ordinary shares of TZS
1/= per share fully paid, in full settlement
4. In part satisfaction of sums due to them the creditors have agreed to
accept 30,000 new ordinary shares of 1/= per share fully paid at par.
5. The debit balance on profit and loss account has to be written off.
6. Assets to be revalued as follows:

4
 Tshs.
Freehold property 101,800
Equipment 62,300
Vehicles 40,700
Stock 52,100
Debtors 45,500

Required:
a) Open, post and balance the capital reduction and share capital
accounts to record reorganization arrangements.
b) Prepare the statement of financial position of Sumve ltd as at 1st
November, 2015, immediately after reorganization exercise.
(20 marks)

Question Four
Roselyne ltd is planning to go public in April 2016 and wants to estimate the
value of its share for IPO. Provided here below are statements of financial
position and income statement extract of the company for the year 2015.
ROSELYNE LTD.
STATEMENT OF FINANCIAL POSITION AS AT 31.12.2015
Tshs
ASSETS "000000"
Non-current Assets
Freehold Properties 80
Machinery 60
Inventory 50
Receivables 70
Bank & Cash 80
340
Financed by;
OSC Tshs. 1 20
Retained Earnings & Reserves 180
Secured Bonds 8% 50
Current Liabilities 90
340

Income Statement Extract.

Net profit for the year 20.6
Dividends 6.2
Retained profit 14.4

5
Additional Information:
1. Cost of equity 12.5%
2. Forecasted annual growth 11%
3. The freehold property is estimated to be currently worth Tshs.
100,000,000.
4. The machinery and inventory is expected to sell for Tshs.40,000,000 and
Tshs. 45,000.000 in a forced sale.
5. Receivables are expected to be realized at Tshs. 65,000,000
6. The cost of replacing machinery is expected to beTshs. 150,000,000 and
the cost of replacing inventory is estimated at Tshs. 75,000,000.
7. Shares in a quoted company operating in the same line of business as
Roselyne ltd have an average Price/Earnings ratio of 10 and dividend
yield of 6%

Required:
Calculate the value of one share of Roselyne Ltd using:
a) Net asset Approaches - (12 Marks)
b) Dividend yield basis - (4 Marks)
c) Price/ earnings basis - (4 Marks)

Question Five
The accounts office of COBESO ltd was gutted by fire on the night of 2nd
January 2016. All accounting records were destroyed except a piece of paper
showing accounting ratios worked out from financial statements for the
financial year which ended December 31st, 2015. The information contained
therein is as shown here below:

Current ratio 2.5

Quick ratio 1.5
Net working capital TZS. 300,000
Stock turnover ratio (using cost of sales) 6
Gross profit ratio 20%
Fixed assets turnover ratio (using cost of sales) 2
Average Collection period (Debtors) 2 Months
Fixed assets to shareholders networth 0.8
Reserves to capital 0.5

Required:
Using the above information construct the statement of financial position of
COBESO ltd as at 31st December 2015. (20 marks)

6
7