CHARTERED GOVERNANCE AND ACCOUNTANCY INSTITUTE IN ZIMBABWE

EXAMINATION QUESTION PAPER

SUBJECT: FINANCIAL ACCOUNTING AND REPORTING

PART: B
DATE: NOVEMBER 2021 TIME: 09:00 to 12:00 HOURS
DURATION: 3 hours; plus 15 minutes reading time

INSTRUCTIONS TO CANDIDATES

1. Answer ALL FIVE questions.

2. You are required to answer all questions in terms of the Zimbabwean Companies Act
(Chapter 24:03), Income Tax Act (Chapter 23:06) and International Financial Reporting
Standards.
3. Unless otherwise stated, calculations must be made to the nearest dollar. All workings must
be submitted. Credit will be given for NEAT and ORDERLY presentation.

Students may use silent non-programmable calculators.

MARK ALLOCATION
Question 1 - 20 marks
Question 2 - 20 marks
Question 3 - 24 marks
Question 4 - 20 marks
Question 5 - 16 marks
Total marks: 100 marks
Your examination script is the property of CGI Zimbabwe and is not to be removed from the
examination venue.
QUESTION 1

Choose the letter that represents the most correct answer.

i) Why do we prepare a Trial Balance?

A) To test the accuracy of the double entry records.
B) To prepare management accounts.
C) To prepare financial accounts.
D) To clear the suspense account.

ii) Who issues International Financial Reporting Standards?

1) The IFRS Advisory Committee.
2) The Stock Exchange.
3) The International Accounting Standards Board.
4) The Government.

A) 1 and 2 only
B) 2 and 3 only
C) 3 only
D) 1, 2 and 3 only

iii) Which groups of people are most likely to be interested in the Financial Statements of a
sole trader?
1) Shareholders
2) Bank Manager
3) Tax Authorities
4) Financial Analysts

A) 1 and 2 only
B) 2 and 3 only
C) 2,3 and 4
D) 1, 2 and 3 only

iv) Which of the following are the advantages of trading as a limited liability company?
1) It makes it easier for the company to issue additional shares and raise additional
cash.
2) Operating as a limited liability company is more risky than operating as a sole trader
because the shareholders of a business are liable for all the debts of the business
whereas the sole trader is only liable for the debts up to the amount he has
invested.

A) 1 only
B) 2 only
C) Both 1 and 2
D) Neither 1 nor 2
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v) Which of the following best describes Corporate Governance?
A) Corporate Governance is the system of rules and regulations surrounding financial
reporting.
B) B Corporate Governance is the system by which companies and other entities are
directed and controlled.
C) Corporate Governance is carried out by the finance department in preparing the
financial accounts.
D) Corporate Governance is the system by which an entity monitors its impact on the
natural environment

vi) Which ONE of the following statements correctly describes the contents of the
Statement of Financial Position?
A) A list of ledger balances shown in debit and credit columns
B) A list of all the assets and all liabilities owed by a business.
C) A record of income generated and expenditure incurred over a given period.
D) A record of the amount of cash generated and used by a company in a given period.

vii) Which of the following are TRUE of partnerships?

1) The partners’ individual exposure to debt is limited.
2) Financial Statements for the partnership by law must be produced and made public.
3) A partnership is not a separate legal entity from the partners themselves.

A) 1 and 2 only
B) 2 only
C) 3 only
D) 1 and 3 only

viii) Which of the following accounting concepts means that similar items should receive a
similar accounting treatment?
A) Going concern
B) Accruals
C) Matching
D) Consistency

ix) What is the purpose of charging depreciation in accounts?

A) To allocate the cost of a non-current asset over the accounting periods expected to
benefit from its use.
B) B To ensure that funds are available for the eventual replacement of the asset
C) To reduce the cost of the asset in the statement of financial position to its
estimated market value.
D) To account for the ‘wearing-out’ of the asset over its life.

x) Which of the following statements describes current assets?

A) Assets which are currently located on the business premises.
B) Assets which are used to conduct the organisation’s current business.
C) Assets which are expected to be converted into cash in the short-term.
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Financial Accounting and Reporting: November 2021 Page 3 of 9
 D) Assets which are not expected to be converted into cash in the short-term.
(20 marks)

QUESTION 2

Makombe Ltd: Statement of Financial Position as at 31 December 2018 and 2019 were as
follows:
31 December 2018 31 December 2019
Cost Dep NBV Cost Dep NBV
$000 $000 $000 $000 $000 $000
Assets
Non-Current Assets
Premises 1 600 - 1 600 1 456 - 1 456
Equipment 320 140 180 600 156 444
Motor Vehicles 480 360 120 640 380 260
2 400 500 1 900 2 696 536 2 160

Inventory 400 340

Trade Receivables 160 208
Bank 220 274
780 822
Total Assets 2 680 2 982

Equity and Liabilities

Ordinary Shares of $1 each 800 1 000
12% Preference Shares of $1 each 200 200
Share Premium 80 100
General Reserves 400 480
Retained Earnings 404 538
1 884 2 318

Non-Current Liabilities
8% Debentures 400 280

Current Liabilities
Trade Payables 120 152
Tax Payable 156 172
Other Payables 120 140
396 384
2 680 2 982

Makombe Ltd: Income Statement extract for the year ended 31 December 2019:
$000
Operating Profit 376
Debenture Interest (32)
Profit Before Taxation 344
Tax Expense (160)
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 Profit for the year 184
Preference Dividend paid (24)
Ordinary Dividend paid (26)
134
Additional information
During the year ended 31 December 2018 the following transactions took place:
a) Premises which had cost $144 000 were sold for $200 000.
b) Equipment which had cost $80 000, with an accumulated depreciation of $64 000 was
sold for $4 000.
c) Motor vehicles which had cost $120 000, with a net book value of $20 000 were sold for
$16 000.
d) New Equipment and Motor Vehicles were bought during the year.
e) 200 000 Ordinary Shares of $1 each were issued at a premium of 10c per share.
f) $120 000 8% debentures were redeemed at par.

REQUIRED:
Prepare a Statement of Cash Flows for the year ended 31 December 2019 in
accordance with IAS 7. (20 marks)

QUESTION 3

The following information relates to Guta Pvt Ltd.

Statement of Comprehensive Income for the year ended 30 June (extract):

2020 2019
$ $
Revenue 300 000 284 000
Cost of Sales (233 000) (225 000)
Inventory (1 July) 60 000 50 000
Purchases 240 000 235 000
300 000 285 000
Inventory (30 June) (67 000) (60 000)
Gross Profit 67 000 59 000
Expenses (34 700) (33 800)
Depreciation 8 700 7 800
Other Expenses 20 000 20 000
Finance Costs (interest) 6 000 6 000
Profit Before Tax 32 300 25 200
Income Tax Expense 1 500 1 000
Profit for the year 30 800 24 200
Other Comprehensive Income - -
Total Comprehensive Income for the year 30 800 24 200

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Financial Accounting and Reporting: November 2021 Page 6 of 9
 Abridged Statements of Financial Position as at 30 June
2020 2019
$ $
ASSETS
Non-Current Assets 173 000 180 000
Property, Plant & Equipment 158 000 165 000
Financial Assets 15 000 15 000
Current Assets 139 400 117 600
Inventory 67 000 60 000
Trade Receivables 71 900 56 800
Cash & Cash Equivalents 500 800
Total Assets 312 400 297 600

EQUITY & LIABILITIES

Equity 192 400 196 600
Capital 192 400 196 600

Non-Current Liabilities
Interest Bearing Borrowing 40 000 40 000
Long Term Loan (15% pa) 40 000 40 000

Current Liabilities 80 000 61 000

Trade and Other Payables 50 000 61 000
Short Term Loan 30 000
Total Equity and Liabilities 312 400 297 600

REQUIRED:
i) Calculate the Liquidity Ratios:
a) Current Ratio (2 marks)
b) Acid Test Ratio (2 marks)

ii) Calculate the Profitability Ratios:

a) Gross Profit Percentage (2 marks)
b) Profit for the year percentage (2 marks)
c) Return of Assets (2 marks)
d) Interest Cover (2 marks)

iii) Calculate the Activity Ratios:

a) Inventory Turnover Rate (2 marks)
b) Trade Receivables collection period (assume all sales are on credit) (2 marks)
c) Trade Payables payment period (assume cost of sales on credit) (2 marks)
d) Inventory holding period (2 marks)

iv) Calculate the Solvency Ratio:

a) Assets: Liabilities (2 marks)
b) Comment on the solvency of Guta Pvt Ltd (2 marks)
[Total: 24 marks]
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 QUESTION 4

Gwai Ltd
The Trial Balance Extract of Gwai Ltd as at 31 December 2020 was as follows:
$000 $000
Revenue 1 920
Purchases 1 152
Advertising expenses 73
Audit fee 9
Credit losses 21
Inventory 1 January 2020 25
Administration salaries 76
Sales persons' salaries 44
Manufacturing wages 87
Hire of plant 15
Interim Dividend declared and paid 14
Premises - Depreciation charge 33
Plant - Depreciation charge 66
Motor Vehicles - Depreciation charge 22
10% Loan Notes 200
Loan Note Interest paid 10

Additional information
i) Inventory as at 31 December 2020 was valued at $29 000.
ii) The Income Tax expense for the year was estimated to be $57 000.
iii) A final dividend of $28 000 has been proposed but not yet recorded in the accounts.

REQUIRED:
Prepare a Statement of Profit or Loss and other Comprehensive Income for
the year ended 31 December 2020 classifying expenses by function which
meets the requirements of IAS1. Show any additional information that must
be disclosed. (20 marks)

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 QUESTION 5

Sadza purchased 100% of Muriwo equity on 1 January 2020 for $120 000 when Muriwo’s
Retained Earnings were $10 000. The two companies' draft Financial Statements as at 31
December 2020 are shown below.

Statements of Profit or Loss for the year ended 31 December 2020

Sadza Muriwo
$'000 $'000
Revenue 5 000 1 000
Cost of sales 2 900 600
Gross profit 2 100 400
Other expenses 1 700 320
Net Profit 400 80
Income Tax 130 25
Profit for the year 270 55

Statements of Financial Position at 31 December 2020

Sadza Muriwo
$'000 $'000
Non-Current Assets
Investment in Muriwo 120 –
Tangible Non-Current Assets 1 880 200
2 000 200
Current Assets
Inventory 500 120
Trade Receivables 650 40
Bank and Cash 390 35
1 540 195
3 540 395
Equity and Liabilities
Equity Share Capital 2 000 100
Retained Earnings 400 200
2 400 300
Current Liabilities
Trade Payables 910 30
Tax 230 65
1 140 95
3 540 395
REQUIRED:
Prepare the draft Consolidated Statement of Profit or Loss and draft
Consolidated Statement of Financial Position for the Sadza group at 31
December 2020. (16 marks)

“End of Examination Question Paper”

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