INSTITUTE OF CHARTERED SECRETARIES AND

ADMINISTRATORS IN ZIMBABWE

SUGGESTED SOLUTIONS: MAY 2021

FINANCIAL ACCOUNTING & REPORTING

QUESTION 1

i) C
ii) D
iii) B
iv) B
v) B
vi) D
vii) A
viii) A
ix) A
x) C

QUESTION 2

H Ltd and its Subsidiary

Consolidated Statement of Comprehensive Income for the year ended 31 December 2020
$ $
Gross profit (440 000 + 360 000 – 30 000) 770 000
Operating expenses 232 000
Auditors remuneration (15 000 + 12 000) 27 000
Staff cost (100 000 + 80 000) 180 000
Depreciation (15 000 + 10 000) 25 000
Profit before tax 538 000
Income tax expense (108 000 + 90 000) 198 000
Profit for the year 340 000

H Ltd and its Subsidiary

Statement of Changes in Equity for the year ended 31 December 2020

Share Retained Total

Capital Earnings
$ $ $
Balance at 1 January 2020 100 000 300 000 400 000
Profit for the year - 340 000 340 000
Dividends paid - (40 000) (40 000)
Balance at 31 December 2020 100 000 600 000 700 000

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H Ltd and its Subsidiary
Consolidated Statement of Financial Position as at 31 December 2020
ASSETS $
Non-current Assets
Property, plant and equipment (152 000 + 100 000) -(50 000 +
30 000) 172 000
Goodwill _20 000
192 000
Current Assets 678 000
Inventories (180 000 + 160 000) 340 000
Trade and other receivables (190 000 + 80 000 270 000
Cash and Cash Equivalents 68 000
Total Assets 870 000

EQUITY AND LIABILITIES

Equity 700 000
Share capital 100 000
Retained earnings 600 000

Current liabilities 170 000

Trade and other payables (80 000 + 60 000) 140 000
Bank overdraft 30 000
Total equity and liabilities 870 000

Analysis of shareholders equity of S Ltd

H Ltd - 100%
Total At Since
acquisition acquisition
At acquisition
Share capital 50 000 50 000
Retained earnings 80 000 80 000
130 000 130 000
Investment in S Ltd 150 000
Goodwill _20 000
Since acquisition to beginning of
current year
Retained earnings (130,000 - 80,000) 50 000 50 000
Profit for the year 168 000 168 000
Gross profit 360 000
Auditors remuneration (12 000)
Staff cost (80 000)
Depreciation (10 000)
Dividends paid (30 000) (30 000)
318 000 188 000

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QUESTION 3
(a)
Tax Calculation 2017 2018 2019 2020
$ $ $ $
Accounting profit 160 000 200 000 220 000 260 000
Depreciation 5 000 5 000 5 000 5 000
Tax allowance (8 000) (4 000) (4 000) (4 000)
Taxable income 157 000 201 000 221 000 261 000
Current tax at 28% 43 960 56 280 61 880 73 080

(b) Deferred Tax Calculation

Deferred tax Movement
balance in SFP to P/L
Carrying Temporary @ 28% @28%
Amount Tax Base Difference DR/(CR) DR/(CR)
$ $ $ $ $
2017 15 000 12 000 3 000 (840) 840
2018 10 000 8 000 2 000 (560) (280)
2019 5 000 4 000 1 000 (280) (280)
2020 - - - (280)

(c)
Statement of Profit or Loss and Other Comprehensive Income (extracts) for years ending
31 December
2017 2018 2019 2020
$ $ $ $
Profit before tax 160 000 200 000 220 000 260 000
Income tax expense (44 800) (56 000) (61 600) (72 800)
Profit for the year 115 200 144 000 158 400 187 200

QUESTION 4

Branch Inventory Account

$ $
Goods sent to branch Goods sent to branch
H/O delivery at cost 9 600 Returns at cost 160
Branch expenses Bank (Cash sales) 4 000
Gross profit for the year 2 100 Branch receivables control 6 580
_____ Balance c/d __960
11 700 11 700
Balance b/d 960

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 Goods Sent to Branch Account
$ $
Trading account (balancing figure) 9 440 Branch inventory 9 600
Branch inventory _160 ____
9 600 9 600

Branch Trade Receivables Control Account

$ $
Balance b/d - Cash from debtors 5 780
Branch inventory (Credit sales) 6 580 Irrecoverable debts written off 100
____ Balance c/d _700
6 580 6 580
Balance b/d 700

Branch Expenses Account

$ $
Bank (Sundry expenses) 1 200 Branch inventory (Gross profit) 2 100
Branch receivables control
-Irrecoverable debts 100
H/O: Profit or loss _800 ____
2 100 2 100

Bank Account (Extract)

$ $
Branch receivables control 5 780 Branch expenses 1 200
Cash received 4 000

QUESTION 5

a) Asset turnover = Sales

Total Assets less Current Liabilities

Measures the efficiency of use of assets.

b) Return on Capital Employed = PBIT

Capital Employed

Measures the overall efficiency of the company in employing the resources available to
it. (1 mark)

c) Acid Test Ratio = Current Assets – Inventory

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 Current Liabilities

Measures the ability of the firm to convert assets into cash to pay its short term
obligations when the fall due. (1 mark)

d) Receivables Collection Period = Trade Receivables x 365

Credit Sales

Measures the average time taken by the firm to collect money from credit customers.
(1 mark)

e) Interest Cover = PBIT

Interest Payable

It gives an indication of whether the company is earning enough profits to cover its
interest payments.

“End of Suggested Solutions & Marking Guide”

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