C1 Grande Finale Solving (May 2021) - Set 2

PROBLEM SOLVING SESSION
C1: CORPORATE REPORTING
FOR MAY 2021 EXAMS
[SET 02]
Prepared By: Mshana Ally A.: MFA- (OG), B.Com Accounting (Hons), CPA (T), ATEC (II) |Phone1: +255 717 / 769 348
616 | Phone1: +255 714 965 564 | Email: info@covenantfinco.com |Website: www.covenantfinco.com
C1: CORPORATE REPORTING PROBLEM SOLVING SESSION [SET 02]
QUESTION ONE []
Galilaya prepares financial statements to 30 September each year. It applies IAS 19 Employee
Benefits in accounting for its short and long term employee benefits
Note 1 - Defined benefits plan
Galilaya makes contributions to a defined benefit post-employment benefit plan for its employees.
Relevant data is as follows:
i. At 1 October 2020 the plan obligation was TZS 35m and the fair value of the plan assets
was TZS 30m.
ii. The actuary advised that the current service cost for the year ended 30 September 2021
was TZS 4m. Galilaya paid contributions of TZS 3.2m to the plan on 30 September
2021. These were the only contributions paid in the year.
iii. The appropriate annual rate at which to discount the plan liabilities was 6% on 1 October
2020 and 5.5% on 30 September 2021
iv. The plan paid out benefits totaling TZS 2m to retired members on 30 September 2021.
v. At 30 September 2021 the plan obligation was TZS 41.5m and the fair value of the plan
assets was TZS 32.5m.
Note 2 - Defined contributions plan

Under the terms of the defined contributions plan, Galilaya 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: TZS m

Fair value of plan assets at 30 September 2021 21
Contributions paid by company for year to 30 September 2021 10
Contributions paid by employees for year to 30 September 2021 10
Amounts owed to the pension plan at 30 September 2021 2
Required: You are required to provide an explanation of;
(a)
(i) The difference between a defined contribution and a defined benefit plan. Your
explanation should include an analysis of which party bears the risks attaching to the level
of benefits
Prepared By :Mshana Ally A.: MFA- (OG), B.Com Accounting (Hons), CPA (T), ATEC (II) |Phone1: +255 717 / 769 348
616 | Phone1: +255 714 965 564 | Email: info@covenantfinco.com |Website: www.covenantfinco.com Page | 1
(ii) The difference, in the financial statements of contributing employers, between the
method of accounting for contributions to defined contribution plans and
contributions to defined benefit plans.
(iii) How actuarial gains and losses are reported.
(b) Compute the amounts that will appear In the statement of profit loss and other comprehensive
Income of Galilaya for the year ended 30 September 2021 and the statement of financial
position at 30 September 2021 in respect of Its defined benefit and defined contribution
pension plans.
Note. You should indicate where in each statement the relevant amounts will be presented
QUESTION TWO []
Employee benefits are all forms of consideration given by an entity in exchange for services rendered
by employees or on the termination of employment. The objective of IAS 19 (revised) Employee
Benefits, is to prescribe the accounting and disclosure for employee benefits. The Standard requires
an entity to recognise:
 A liability when an employee has provided service in exchange for employee benefits to be
paid in the future; and
 An expense when the entity consumes the economic benefit arising from service provided by
an employee in exchange for employee benefits.
YERUSALEMU, a public listed company incorporated in Tanzania, prepares its financial statements
using International Financial Reporting Standards (IFRS). It operates a defined benefit pension plan
for its employees. At 1 April 2017 the fair value of the pension plan assets was TZS. 2,700,000 and
the present value of the pension plan obligations was TZS. 3,000,000.
The service cost for the year ended 31 March 2018 was TZS. 650, 000. On 1 April 2017 the pension
plan was amended to offer additional benefits to members resulting in past service costs of TZS. 200,
000. The relevant discount rate for the year ended 31 March 2018 was estimated at 5% and
YERUSALEMU paid TZS. 950, 000 in contributions to the plan. The pension plan paid TZS. 320,
000 to retired members in the year to 31 March 2018.
At 31 March 2018 the fair value of the pension plan assets was TZS. 3, 600,000 and the present value
of the pension plan obligations was TZS. 3, 800,000.
Required:
(a) Distinguish between a defined contribution plan and a defined benefit plan.
(b) Calculate, in accordance with IAS 19 (revised) Employee Benefits, the following in respect of
YERUSALEMU’s pension plan:
(i) The expense in the income statement for the year ended 31 March 2018.
(ii) The amounts that will be included in other comprehensive income for the year ended 31
March 2018.
(iii) The net pension asset or obligation (stating which) that will be included in the statement of
financial position as at 31 March 2018.
QUESTION THREE []
When Sayuni Acquired 75% of the Gethsemane’s 50c equity shares of 31 March, 2016, the value of
the Sayuni Tshs.1 equity shares was Tshs.4.30 and the Gethsemane shares had a market value of
Tshs. 2.20. The terms of the acquisition were a combination of elements. For every 3 shares acquired
Sayuni issued 1 new share, a payment of Tshs.1.21 for each 2 shares acquired payable on 1 April 2018
and a payment of Tshs.0.60 per share acquired immediately. Only the cash payment on 31 March 2016
has so far been recorded. The Sayuni cost of capital is 10% per annum. On 31 October 2016, the
respective Statements of Financial Position were:
Sayuni Gethsemane
Tshs. Tshs.
Investment in Gethsemane 36, 000 -
Total Non- current Assets 260, 000 200, 000
Inventory 100, 000 50, 000

Receivables 90, 000 80, 000
Cash 5, 000 195,000 36,000 166,000
Total Assets 491, 000 366, 000
Tshs. 1 Equity shares (50c 100, 000 40, 000

Gethsemane)
Share premium 30, 000 20, 000
Retained Earning 215, 000 124, 000
345, 000 184, 000
Long term liabilities
3% Debenture 30, 000 80, 000
375, 000 264, 000
Current Liabilities 116, 000 102, 000

491, 000 366, 000
1. At the date of acquisition, some of Gethsemane’s inventory had a fair value Tshs. 12,000 in
excess of its carrying value. All of this inventory had been sold before the year end.
2. On 31 July 2016, Gethsemane had sold an item of property, plant and equipment to Sayuni
realizing a profit on sale of Tshs. 36,000. Sayuni was depreciating this item over its remaining
useful life of 4 years. It is group policy to charge a full year’s depreciation in the year of
purchase, and none in the year of sale.
3. On 1 October, 2016 Sayuni had dispatched goods to Gethsemane at a transfer value of Tshs.
26,000. Sayuni sells goods at a margin of 30%. Gethsemane had sold a quarter of these goods
by the Statement of Financial Position date.
4. The current accounts did not reconcile at the year-end because Gethsemane had sent a
payment of Tshs.6, 500 to Sayuni, but Sayuni only received it on 2 November 2016. Before
any necessary adjustment, the intra group balance in Gethsemane’s records showed an
amount owing to Sayuni of Tshs.11, 500.
5. Goodwill is impaired by 25%.
6. Profits for the two companies for the year to 31 October, 2016 (before any adjustments
necessary to be made) were respectively Tshs.70,000 and Tshs.60,000
7. Both entities have declared but not yet accounted for a dividend per share of 10c (Sayuni)
and 3c (Gethsemane).
8. The directors valued the NCI investment on a fair value basis using the market value of the
Gethsemane shares as a fair measure.
Required: Prepare a Consolidated Statement of Financial Position for the Sayuni Group as at 31
October 2016.
QUESTION FOUR []
IAS 19 Employee Benefits is applied to all employee benefits other than those to which IFRS 2 Share-
based Payment applies. Accounting for short-term employee benefits is relatively straightforward.
However, accounting for post-employment benefits can be rather more complex. This particularly
applies where post-employment benefits are provided via defined benefit plans.
Required: Explain:
a) The meaning, of post-employment benefits and the manner In which such benefits that are
provided via defined contribution plans should be measured and recognized in the financial
statements of employers
b) The amounts that should be Included In the financial statements of employers regarding post-
employment benefits provided via defined benefit plans (Ignore the effect of re-measurements at
this stage).
Bethlehemu provides post-employment benefits to its employees through a defined benefit

plan. The following data relates to the plan:
Year ended 31 March
2019 2018
‘000’ ‘000’
Present value of obligation at year end 36,000 33,000
Fair value of plan assets at year end 31,000 30,000
Current service cost 6,000 5,700
Benefits paid by plan 8,000 7,500
Contributions paid into plan 5,800 5,600
Yield on high quality corporate bonds at the start of the year
10% 9%
Yield on high quality corporate bonds at the start of the year

Required
c) Prepare extracts from Bethlehemu's statement of financial position at 31 March 20X9 and
from its statement of profit or loss and other comprehensive income for the year ended 31
March 20X9 relating to the defined benefits plan
QUESTION FIVE []
You recently attended a workshop on various International Accounting Standards (IASs) and
International Financial Reporting Standards (IFRSs). The Chief Executive Officer of your
company wants you to explain the accounting treatment of several transactions in accordance
with applicable accounting standards relating to one of your clients, Petro Limited. One of those
transactions is as follows:-
Petro Limited introduced two pension schemes, ‘Mathayo’ and ‘Stable’ on 1 April 2014 for the
benefit of its employees. The following information relates to the two schemes as at 1 April 2015:
Mathayo Scheme
Under this scheme the company’s obligation is limited to its fixed annual contribution of TAS
600,000. The membership of this pension scheme is senior management staff of the company. In
the year ending 31 March 2015, the company made a total contribution of TAS 520,000. During
the year to 31 March 2016, total contributions of TAS 700,000 were made.
The only entry made in the books of Petro Limited in the year ended 31 March 2016 was to record
cash payment of TAS 700,000 in its cash book. All other entries prior to 2016 were correctly made.
Stable Scheme
Under this scheme, the company guarantees benefits to the employees when they reach 55 years
or after working for the company for 25 years whichever comes earlier. The membership of this
pension scheme is employees other than senior management staff.
The following relates to the pension scheme:

TAS ’000’
Net plan assets at 1 April 2015 100
Current service cost 400
Contributions paid 160
Pension benefits paid 80
Net plan liability at 31 March 2016 40
Appropriate annual discount rate 12%
During the year to 31 March 2016, Petro Limited adjusted the formula used to calculate the
benefits payable to employees. This resulted in a decrease of TAS 102,000 in pension benefits
payable to employees. Contributions and pension benefits were all paid at 31 March 2016.
The company has only recorded contributions paid in its financial statements for the year to 31
March 2016.
Required: Explain how the two schemes, Mathayo and Stable should be treated in the financial
statements of Petro Limited for the year to 31 March 2016. (Include relevant calculations in your
explanation).
QUESTION SIX []
Mitume Limited introduced two pension plans, ‘YUDA’ plan and ‘YOHANA’ plan on 1st January
2013 for Management staff and for the rest of the employees respectively.
Details of each plan are as follows:
YUDA Plan
Under this plan, Mitume Limited is required to make a fixed annual contribution to the fund. In
addition, its legal or constructive obligation is limited to the fixed contribution it has to make to the
fund. Moreover, employees are required to contribute 10% of the total pension contribution to the
scheme.
On 1st January 2013, total contributions of TAS 100 million were paid into the fund. This represents
pension contributions for three (3) years. The company expensed the all amount to the statement of
profit or loss for the year ending 30th September 2013. Conversely, no amount has been expensed in
the year to 30th September 2014.
The scheme had fair value of plan assets of TAS 100 million and present value of plan obligation of
TAS 120 million at 1st January 2013. The balances for the fair value of plan assets and present value
of plan obligations increased to TAS 110 million and TAS 140 million respectively as at 30th September
2014. These have not been recorded anywhere in the books of Mitume Limited.
YOHANA Plan
The terms of this plan require Mitume Limited to guarantee post-employment benefits to its
employees.
The fair value of plan assets and the present value of plan obligations amounted to TAS 140million
and TAS 190 million respectively at 30th September 2013. The balances at 30th September 2014 were
TAS 195 million for the fair value of plan assets and TAS 210 million for the present value of plan
obligations. On 1st January 2013, fair value of plan assets was equal to the contribution paid by
Mitume Limited into the fund amounting to TAS 100million. The present value of plan obligation
was valued at TAS 120 million at the same date.
During the year to 30th September 2014 the company reduced the benefits which employees are
entitled to under this plan by TAS 20 million. This amounted to TAS 12 million in the previous year.
The present value of plan obligation increased by TAS 18 million and TAS 19 million in the years
ended 30th September 2013 and 30th September 2014 respectively. Further, the company contributed
a total sum of TAS 40 million at 1st October 2013.
No pension benefits have been paid out by the company in both years.
The company recorded in its financial statements for the years to 30th September 2013 and 30th
September 2014 fair value of plan assets under non-current assets and present value of plan obligation
under non-current liabilities. The differences between present value of plan obligations and fair value
of plan assets were taken to statement of profit or loss as either income or expense items. The
contributions paid were correctly accounted for in the financial statements. However, the other items
relating to the pension plan were not recorded in the financial statements.
The annual discount rate for the year to 30th September 2013 was 10% and 12% for the year to 30th
September 2014.
Required:
(a) Distinguish between a defined contribution plan and a defined benefit plan.
(b) Explain the accounting treatment of the two plans in the financial statements of Mitume
Limited and the accounting entries required to correctly account for them in both 2013 and
2014 financial statements.

C1 Grande Finale Solving (May 2021) - Set 2

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C1 Grande Finale Solving (May 2021) - Set 2

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PROBLEM SOLVING SESSION

C1: CORPORATE REPORTING

FOR MAY 2021 EXAMS

Note 2 - Defined contributions plan

The following details relate to this scheme: TZS m

Inventory 100, 000 50, 000

Tshs. 1 Equity shares (50c 100, 000 40, 000

Current Liabilities 116, 000 102, 000

Bethlehemu provides post-employment benefits to its employees through a defined benefit

Yield on high quality corporate bonds at the start of the year

The following relates to the pension scheme:

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