CHINHOYI UNIVERSITY OF TECHNOLOGY

SCHOOL OF ENTREPRENEURSHIP AND BUSINESS SCIENCES

DEPARTMENT OF ACCOUNTING SCIENCES AND FINANCE

BSc (HONS) IN ACCOUNTANCY

AUGUST - DECEMBER 2022

LEVEL 2.2

FINANCIAL REPORTING (CUAC208) TESTS AND ASSIGNMENT

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QUESTION 1
The following trial balance was extracted from the books of Jembajemba Ltd on 31
December 2021.
Note Dr Cr
$000 $000
Revenue 460 000
Cost of sales 195 000
Distribution costs 65 000
Administration expenses 42 000
Investment property 1 300 000
Equity investment at cost 2 42 000
Interim dividends 66 000
Land and buildings at cost 3 400 000
Plant and equipment at cost 3 650 000
Accumulated depreciation (1 January 2021): 3 120 000
Land and buildings
Accumulated depreciation (1 January 2021): 3 310 000
Plant and equipment
Development expenditure 4 80 000
Suspense account 5 13 000
Trade receivables 70 000
Inventory at 31 December 2021 66 000
Cash and bank 99 000
Trade payables 46 000
Share premium account 150 000
Ordinary shares of $0.10 each 7 500 000
8% Debenture (issued on 1 February 2021) 8 120 000
Retained earnings at 1 January 2021 382 000
2 088 000 2 088 000

The following notes are also relevant:

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1. Investment properties are accounted for under the fair value model of
International Accounting Standard (IAS) 40. The figure included in the trial balance
represents the fair value of these properties at 1 January 2021. The fair value of
these properties at 31 December 2021 was $265 000 000.
2. The figure for investments represents the cost of equities purchased during
the year. As permitted by International Financial Reporting Standard (IFRS) 9, an
election was made at the date of purchase to account for any fair value gains and
losses on these equity instruments through “other comprehensive income”. The
fair value at 31 December 2021 was $47 500 000.
3. Land and buildings are carried under the cost model as permitted by IAS 16.
The land cost included in the trial balance figure for land and buildings is $100 000
000. The buildings were originally deemed to have had a useful economic life of 30
years, of which 12 had passed by 1 January 2021. During the year, a decision was
taken to change the accounting policy to apply the revaluation model from 31
December 2021. The revalued amounts at that date were certified by a qualified
valuer to be $65 000 000 for the land and $200 000 000 for the buildings.
Plant and equipment is being depreciated at 25% per annum reducing balance.
All depreciation is charged to cost of sales.
4. The development expenditure relates to amounts incurred on various
projects undertaken by the company during the year. It is estimated that the
composition of this is as follows:
$000
Research costs 15 000
Development costs (relating to projects meeting the IAS 38 criteria 37 500
for capitalisation)
Development costs (relating to projects not meeting the IAS 38 27 500
criteria for capitalisation)

5. The suspense account relates to a contingent asset recognised during the

year ended 31 December 2021, as it was considered virtually certain to be
recovered. However, developments during 2021 led to the conclusion that the

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likelihood of recovering this amount had fallen somewhat. It is now considered 65%
is likely to be recovered. The bookkeeper was unsure what to do about this item.
6. Corporation tax for the year was estimated at $1 300 000.
7. The directors proposed a final ordinary dividend of 1.20 cents per share.
The proposal was approved prior to the reporting date. No account has been taken
of this proposal.
8. The debentures were issued during the year. Interest is payable annually in
arrears. No interest has been provided for or paid as at 31 December 2021.
Required:
a) As far as the given information permits, prepare the financial statements of
Jembajemba Ltd. Notes to the financial statements are required. (18 Marks)
b) Discuss the view that historical financial statements are outdated by the
time they are produced and therefore should not be used for decision making
purposes. (7 Marks)
[TOTAL: 25 MARKS]

QUESTION 2
a) You are employed by Rwembuya Ltd (Rwembuya). Rwembuya provides
accounting and tax consulting services to various clients. The International
Accounting Standards Board (IASB) issued the revised Conceptual Framework for
Financial Reporting (Conceptual Framework), a comprehensive set of concepts
for financial reporting in March 2018. Your portfolio includes the following two
allocated clients who have approached you regarding the recognition of assets
and liabilities in terms of the revised Conceptual Framework.

Client 1: Chembudzi Ltd

On 13 June 2019, Chembudzi Ltd (Chembudzi) purchased a holographic touch
screen patent from Technology Ltd (Technology) at a cost of $250 million. This
patent will give Chembudzi access to all the patents internationally and locally for
the design and manufacture of holographic touch screens. Only Chembudzi can
utilise the patent to design and manufacture the holographic touch screens. This
will result in Chembudzi selling the first holographic touch screen smartphones and

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it will ensure that Chembudzi is the only designer and manufacturer of such
smartphones.
Chembudzi will manufacture all the other components of the smartphones and it
will assemble the holographic touch screen smartphones and it is estimated that 90
million holographic touch screen smartphones will sell within the next financial
year at a satisfactory profit margin.

Client 2: Pedyonemvura Ltd

Pedyonemvura Ltd (Pedyonemvura) is a new real estate agency that specialise in
selling beach front holiday homes for the upper middle class market.
Pedyonemvura is operating in the Zambezi Valley Coast region of Zimbabwe. As
part of its expansion strategy, a decision has been taken by the directors of the
company to open a new office in the North Coast of Zambezi Valley region.
Pedyonemvura paid $40 000 to Achimwene News to advertise holiday homes for
sale in the newspaper to appear during January 2022. This amount was paid on 15
December 2021.
Required:
Discuss, in terms of The Conceptual Framework for Financial Reporting 2018,
whether the patent (refer to client 1) and payment to Achimwene News (refer to
client 2) may be recognised as an asset in the financial statements of Chembudzi
Ltd and Pedyonemvura Ltd for the year ended 31 December 2021. Ignore any
normal income tax implications and Value Added Tax (VAT) implications.
(15 Marks)
b) The International Accounting Standards Board has issued the Conceptual
Framework for Financial Reporting which, amongst other things, sets out the
purpose of the Conceptual Framework and the “fundamental and enhancing
qualitative characteristics of useful financial accounting information” for
external users.
Required:
Explain three purposes of the Conceptual Framework for Financial Reporting and
explain the two fundamental and enhancing qualitative characteristics. (10 marks)
[TOTAL: 25 MARKS]

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QUESTION 3

a) Cultural, institutional and national differences might lead countries to

develop their own accounting systems and regulatory frameworks.
Required:
Giving examples, critically discuss the reasons why financial reporting
regulations and practices vary between countries. (12 Marks)
a) The following is a summary of the consolidated statement of comprehensive
income
b) for Sinclair plc:
c) Extract from Consolidated Statement of Comprehensive
d) Income for the year ended 31st December 2015
e) £ million's
f) Turnover 1,800
g) Operating costs 1,260
h) Operating profit 540
i) Interest payable 135
j) Profit before tax 405
k) Taxation 81
l) Profit after tax 324
m) The following additional information is available:
n) August 2015 for the market price of £5.75 per share.
o) Required:
p) a) Calculate the basic earnings per share for 2015 and explain whether the
basic
q) earnings per share should be re-stated for 2014 and why. Your workings
r) should clearly show the impact of the rights issue in terms of the theoretical ex
s) rights price.
t) (12 marks)
u) b) Calculate the diluted earnings per share for 2015, to take account of the
v) potential dilution relating to the convertible preference shares and the
w) convertible loan, clearly showing whether the change in EPS is dilutive or anti-
x) dilutive.
y) (8 marks)
z) c) Explain the key requirements of IAS 33 Earnings Per Share and critically
aa)evaluate the usefulness of this information to shareholders and the wider
bb)stakeholder community. Explain why EPS needs to be disclosed in relation to
cc) both potential dilution in future years and also dilution for prior years.
dd)(10 marks)
ee)(Total 30 marks
ff) Cultural, institutional and national differences might have lead different
countries to
gg) develop their own accounting systems.
hh)Critically discuss the reasons why financial reporting regulation and practices
might
ii) vary between countries.
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 b) Jerepigo, a public limited company, is reviewing the valuation of certain
assets and liabilities. It carries an asset that is traded in different markets and
is uncertain as to which valuation to use. The asset has to be valued at fair
value under IFRSs. Jerepigo currently buys and sells the asset in the African
market. The data relating to the asset for the financial year ending 30
November 2021 are set out below:
Asian European African
market market market
Volume (units) 4 million 2 million 1 million
Price $19 $16 $22
Cost of entering the market $2 $2 $3
Transaction costs $1 $2 $2
Additionally, Jerepigo had acquired an entity on 30 November 2021 and is required
to fair value a decommissioning liability. The entity has to decommission a mine at
the end of its useful life, which is 3 years’ time. Jerepigo has determined that it
will use a valuation technique to measure fair value of the liability. If Jerepigo
were allowed to transfer the liability to another market participant, the following
data would be used:
Input Amount
Labour and material cost $2 million
Overhead 30% of labour and material
Third party mark-up (industry average) 20%
Annual inflation rate 5%
Risk adjustment (cash flows uncertainty) 6%
Risk free government bonds rate 4%
Entity’s non-performance risk 2%
Jerepigo needs advice on how to value the liability.
Required:
Discuss, with relevant computations, how Jerepigo Ltd should fair value the asset
and liability. (13 Marks)
[TOTAL: 25 MARKS]
QUESTION 4

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a) Dandemutande Ltd (Dandemutande) purchased an energy saving plant for $100
000 on 1 January 2021, having a useful life of five years with a residual value of
$10 000. The entity received a government grant equal to 20% of the cost of the
asset, on the condition that the plant must be used at least for a period of four
years, otherwise a repayment will arise on a sliding scale basis, that is, 75% of
the grant will be payable if the asset is sold in the first year and it will diminish
by 25% for subsequent years upto year 4. Dandemutande has no intention to sell
the plant in the first four years.
Required
Show how the plant and the related government grant will be accounted for in the
financial statements of Dandemutande Ltd for the year ended 31 December 2021
using the gross up method and the net method, separately. (8 Marks)
b) In the Zimbabwean context and with reference to IAS 29, describe the
characteristics of an economic environment operating in hyperinflation.
(5 Marks)
c) i. Explain the benefits (or improvements) arising from the introduction of IFRS
17. (8 Marks)
ii. Giving examples, clearly distinguish between insurance risk and financial
risk. (4 Marks)
[TOTAL: 25 MARKS]