TANZANIA INSTITUTE OF ACCOUNTANCY (TIA)

FIRST SEMESTER, 2022/2023

FINAL EXAM

SUBJECT: ADVANCED FINANCIAL ACCOUNTING

COURSE: MSC Finance and Accounting
CODE: AFG 09101
DATE:
TIME ALLOWED: 3 Hours

SUGGESTED SOLUTIONS AND MARKING GUIDE

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Question One – Conceptual framework of financial reporting

a) Conceptual framework of financial reporting and its relationship with individual IFRS.
A conceptual framework in general is a statement of theoretical principles forming a frame of
reference for a particular field of study. In the field of accounting it is a body of agreed
principles designed to provide more detailed principles, rules and application guidance to
issues contained in accounting standards.

The purpose of the conceptual framework:

(i) It assists the IASB in developing accounting standards that are based on consistent
concepts.
(ii) It assists preparers of financial statements in developing accounting policies when no
standards applies to a particular transaction or event or when a standards allows for a
choice of alternative policies.
(iii) It assists all parties understand and interpret accounting standards.

b) Issues discussed in the IASB’s conceptual framework for financial reporting (2018).
(i) and the reporting entity
(ii) The elements of financial statements The objective of financial reporting
(iii) Qualitative characteristics of useful financial information
(iv) Financial statements
(v) Recognition and de-recognition
(vi) Measurements
(vii) Presentation and disclosure
(viii) Capital and capital maintenance

c) Qualitative characteristics of financial information.

a) Fundamental Qualitative Characteristics

Relevance
Relevant information is capable of making a difference in the decisions made by users.
Relevance requires financial information to be related to an economic decision.
Otherwise, the information is useless.
Financial information is useful if it has predictive value and confirmatory value.
Predictive value helps users in predicting or anticipating future outcomes. Confirmatory
value enables users to check and confirm earlier predictions or evaluations.
Materiality is an aspect of relevance which is entity-specific. It means that what is
material to one entity may not be material to another. It is relative. Information is
material if it is significant enough to influence the decision of users. Materiality is
affected by the nature and magnitude (or size) of the item.

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 Faithful Representation
The financial information in the financial reports should represent what it purports to
represent. Meaning, it should show what really are present and what really happened,
as the case may be. There are three characteristics of faithful representation: 1.
Completeness (adequate or full disclosure of all necessary information), 2. Neutrality
(fairness and freedom from bias), and 3. Free from error (no inaccuracies and
omissions).
b) Enhancing Qualitative Characteristics
Comparability
Comparable information enables comparisons within the entity and across entities.
When comparisons are made within the entity, information is compared from one
accounting period to another. For example: income is compared for the years 2017,
2018, and 2019. Comparability of information across entities enables analysis of
similarities and differences between different companies.

Verifiability
Verifiability helps to assure users that information represents faithfully what it
purports to represent. Financial information is supported by evidence and
independent individuals can check them to see whether such information is faithfully
represented. In other words, information is verifiable if it can be audited.
Timeliness
Timeliness means providing information to decision-makers in time to be capable of
influencing their decisions. It shouldn't be significantly delayed or else it will be of
little or no value.
Understandability
Understandability requires financial information to be understandable or
comprehensible to users with reasonable knowledge of business and economic
activities. To be understandable, information should be presented clearly and
concisely. However, it is improper to exclude complex items just to make the reports
simple and understandable.
d) Financial capital maintenance and physical capital maintenance
Financial capital refers to the net assets of the business entity whereas physical capital
concept regards capital as the production capacity of the business entity.

In financial capital maintenance concept, the capital in maintained where the net assets of the
company at the closing of the financial period equals or exceeds the net assets of the
company at the beginning of the financial period. In physical capital maintanance concept,
capital is maintained where the productive capacity at the closing of the financial period
equals or exceeds the production capacity of the entity at the beginning of financial period.

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 Marking guide %
Definition of conceptual framework 1
Purpose of IASB framework 2
Issues in IASBs framework @0.375 3
Qualitative characteristics:
Relevance 2
Faithfull representation 2
Comparability 2
Understandability 2
Timeliness 2
Definition of financial capital and physical capital 2
Financial capital and physical capital maintanance 2
Total 20

Question Two – Revenue from contracts with customers.

a) IFRS 15 (“Revenue contracts with customers”) five steps model for revenue recognition
IFRS 15 Revenue from contracts with customers, introduces a revenue recognition model in
which the core principle is that an entity should recognize revenue to depict the transfer of
promised goods and services to the customer in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods and services.

To recognize revenue the following five steps should be applied:

(i) Step 1 – Identify the contract with customer
• A contract can be written orally, or implied by entity’s business practice.
• Each party rights in relation to the goods and services to be transferred can be
identified.
• Payment terms and condition can be identified.
• Contract had commercial substance.
• The collection of the consideration to which the entity is entitled to in exchange
for the goods and services is probable.

(ii) Step 2 – Identify the Separate performance obligations

At contract inception an entity shall assess the goods and services that have been
promised to the customer and shall identify as performance obigations:
• Goods and services that are distinct
• A series of goods and services that are substantially the same and that have
the same pattern of transfer to the customer.

(iii) Step 3 – Determination of transaction price

The transaction price would be the amount of consideration that the entity expects to
be entitled to in exchange for transferring goods and services to the customer.

(iv) Step 4 – Allocate the transaction price.

An entity shall allocate the transaction price to each performance obligation in an
amount that depicts the amount of consideration to which the entity expects to be
entitled to in exchange for transferring the promised goods and services to the
customer.

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 Where a contract has many performance obligations, an entity shall allocate the
transaction price to the performance obligations in the contract by reference to the
stand alone selling prices.

(v) Step 5 – Recognize revenue when the performance obligation is satisfied.

An entity shall recognize revenue (or as) it satisfies a performance obligation by
transferring promised goods and services to a customer, which is when the control is
passed either over time or at a point in time.

b) Livertech issues concerning revenue recognition

(i) Identify the contract

• Contract signed for the supply of computer and provision of technical support.

(ii) Identify the Separate performance obligations

• Supply of computer and installation of software.
• Provision of technical support for a period of two years.

(iii) Determination of transaction price

• Combined contract price of TZS.3,680,000

(iv) Allocate the transaction price.

• Stand-alone price hardware and software installation – TZS.3,450,000
• Stand-alone price provision of technical support – TZS.1,150,000
• Allocated price - hardware and software installation TZS.2,760,000
• Allocated price – Provision of technical support TZS.920,000

(v) Recognize revenue when the performance obligation is satisfied.

• Supply of hardware and software installation – 1 st July, 2020
• Provision of technical support - 1st July, 2020 to 30th June, 2020

b) Financial statements extracts for the year ended 31 st December, 2020; 31st
Decemeber, 2021 and 31st December, 2022.

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 Statement of Profit or Loss (2020)
TZS'000'
Revenue 2,940

Statement of Financial Position

Non-current liabilities:
Deffered income 540

Statement of Profit or Loss (2021)

TZS'000'
Revenue 360

Statement of Financial Position

Current liabilities
Deffered income 180

Statement of Profit or Loss (2022)

TZS'000'
Revenue 180

Statement of Financial Position

Current liabilities
Deffered income -

Marking guide %
5 steps clearly mentioned @1 5
5 steps clearly discussed using livertech scenario @1 5
SPL & SFP 2020 4
SPL & SFP 2021 4
SPL & SFP 2022 2
Total 20

Question Three – TIA Ltd. Property, Plant and Equipment (IAS 16).

Accounting policies

a) Property, Plant and Equipment is stated at historical cost less depreciation or at valuation.

b) Depreciation is provided on all assets, except land and is calculated to write down the cost
or valuation over the estimated useful life of the assets and the rates are as follows:

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 Buildings 2% per year straightline
Plant and machinery 20% per year straightline
Fixtures and fittings 25% per year reducing balance

c) Non-current assets movements

Fixture
Land and Plant and and Assets under
buildings machinery fittings construction Total
TZS'000' TZS'000' TZS'000' TZS'000' TZS'000'
Cost/Valuation
Cost 1 January 2021 900 1,613 390 91 2,994
Revaluation adjustments 600 - - - 600
Additions - 154 40 73 267
Reclassifications 100 (100) -
Disposals - (277) (41) - (318)
Balance c/f 31 Dec. 2021 1,600 1,490 389 64 3,543
Acc. Depreciation
Balance b/f 1 January 2021 80 458 140 - 678
Revaluation adjustments (80) - - - (80)
Depreciation for the year 17 298 70 - 385
Disposals - (195) (31) - (226)
Balance c/f 31 Dec. 2021 17 561 179 - 757
Carrying amounts
Balance b/f 1 January 2021 820 1,155 250 91 2,316
Balance c/f 31 Dec. 2021 1,583 929 210 64 2,786

Marking guide %
Valuation of property, plant and equipment 2
Depreciation policy 2
PPE movement (schedule) 64 transactions@0.25 16
Total 20

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Question Four – SH Limited : Financial instruments.

Workings:
1) Valuation of 6% Loan notes

6% Loan Notes
Balance as per T/balance TZS.74,389,000
TZS.'000'
Financial Liability Financial
Year end b/f Finance cost (9%)Cash paid Liability
(6%) c/f
Sept. 2015 70,000 6,300 (4,200) 72,100
Sept. 2016 72,100 6,488 (4,200) 74,389
Sept. 2017 74,389 6,695 (4,200) 76,884

2) Valuation of 5% convertible Loan notes

5% Convertible loan notes

Splitting financial liability and equity
Financial liability:
TZS.'000'
Year C/flow DF (8%) Present value
1 5,000 0.93 4,650
2 5,000 0.86 4,300
3 5,000 0.79 3,950
4 5,000 0.73 76,650
Total 89,950
Financial liability TZS. 89,950,000
Equity component TZS.10,450,000
Financial liability Balance:
TZS.'000'
Financial Financial
Year end Liability b/f Finance cost (8%) Cash paid (5%) Liability c/f
Sept.2017 89,550 7,164 (5,000) 91,714
3) Miscelleneous adjustments

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Cost of sales: TZS.'000'
T/balance 339,000
Inventory adjustments 3,000
342,000

Administrative expenses:
T/balance 44,810
Depreciation - L&B 10,000
Depreciation - P&E 40,437
95,247

Inventory:
T/balance 64,320
Damaged item (3,000)
61,320

Non-current assets:
TZS'000'
Land and Plant and
buildings equipment
Balance b/f (Trial balance) 450,000 265,585
Acc. Depreciation - 63,400
Depreciation charge (10,000) (40,437)
Net book value 440,000 161,748

SH Limited
Statement of Profit or Loss and Other Comprehensive
Income for the period ending 31 December, 2021
TZS.'000'
Revenue 565,000
Cost of sales (w3) (342,000)
Gross profit 223,000
Distribution costs (53,730)
Administrative expenses (95,247)
Profit from operations 74,023
Finance costs (w1 & w2) (13,859)
Investment income 20,000
Profit before tax 80,164
Tax (21,850)
Profit for the year 58,314
Other Comprehensive Income:
Revaluation surplus 75,000
Total profit and other comprehensive income 133,314

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 SH Limited
Statement of Financial Position as at 30th September, 2017
TZS.'000' TZS.'000'
Assets
Non-current assets:
Land and buildings (w3) 440,000
Plant and equipment (w3) 161,748
601,748
Current assets:
Inventory (w3) 61,320
Receivables 48,670
Financial asset 150,000
Cash 29,885
289,875
Total assets 891,623
Equity and Liabilities:
Equity:
Ordinary share capital 100,000
Share premium 30,000
Other equity component (convertible loan note) 10,450
Revaluation reserve 145,000
Retained earnings 343,925
629,375
Non-current liabilities
6% loan note (w1) 76,884
5% Convertible loan notes (w2) 91,714 168,598
Current liabilities:
Payables 69,650
Income tax 24,000
93,650
Total equity and liabilities 891,623

Marking guide %
Valuation of 6% loan notes 2
Valuation of 5% convertible loan notes 2
Miscelleneous adjustments:
Cost of sales 1
Administrative expenses 1
Inventory 1
Non-current assets 1
Statement of profit or loss & OCI 12 entries @0.5 6
Statement of Financial position 20 entries @ 0.3 6
Total 20

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Question Five – Consolidated statement of financial position – Mango Group of Companies

Consolidation workings:
1) Group structure

Mango Ltd.

60% 30%

Jan 2016 Jan 2020

Apple Ltd. Guava Ltd.

2) Analysis of Apple ltd net assets

DOA DOR
TZS.'000' TZS.'000'
Ordinary share capital 25,000 25,000
Retained earnings 5,000 22,125
Fair value adjustments:
Freehold property 10,000 10,000
Depreciation adjustment - (750)
Provision for u/profits - (500)
40,000 55,875

Post-acquisition profits 55,875,000 - 40,000,000 = 15,875,000

3) Analysis of Guava ltd net assets

DOA DOR
TZS.'000' TZS.'000'
Ordinary share capital 18,750 18,750
Retained earnings 3,750 9,750
22,500 28,500

Post-acquisition profits 28,500,000 – 22,500,000 = 6,000,000

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4) Goodwill
TZS.'000' TZS.'000'
Purchase consideration (Apple) 25,000
60% of Apple net assets - DOA (w2) (24,000)
Mango share of goodwill 1,000
NCI fair value @ acquisition 24,000
40% of Apple net assets - DOA (w2) (24,000)
NCI share of Goodwill -
Goodwill at acquisition 1,000
Impairment (50%) (500)
Carrying value of goodwill 500

5) Non-controlling interests (NCI)

TZS.'000'
NCI value at acquisition 16,000
40% of Apple post acquisition profits (w2) 6,350
22,350
NCI share of goodwill impairment (200)
22,150

6) Group retained earnings

TZS.'000'
Mango retained earnings (100%) 36,500
60% of Apple Ltd. post acquisition profits 9,525
30% of Guava Ltd. post acquisition profits 1,800
Prov. For Unrealized profit (Mango/Guava) (120)
Impairment of goodwill and associate (2,600)
45,105

7) Investment in associate (Guava Ltd.)

TZS.'000'
Cost of investment in associate 12,500
30% of Guava Ltd. post acquisition profits 1,800
Impairment of associate (2,300)
Prov. for unrealized profit (inventory) (120)
11,880

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 Mango Group of Companies
Consolidated Statement of Financial Position as at
31st December, 2021
TZS.'000' TZS.'000'
Assets:
Non-current assets:
Goodwill (w4) 500
Freehold property 89,250
Plant and equipment 29,250
Investment in associate (w7) 11,880
130,880
Current assets:
Inventory 21,375
Trade receivables 15,500
Cash and Bank 4,250 41,125
Total assets 172,005

Liabilities and Equity:

Equity:
Ordinary share capital @ TZS.1 50,000
Retained earnings (w6) 45,105
Non-controlling interests (w5) 22,150 117,255
Non-current liabilities:
12% Loan notes 15,000
Current Liabilities:
Trade payables 25,750
Bank overdraft 14,000
Total Liabilities 54,750
Total Equity and Liabilities 172,005

Marking guide %
Group structure 1
Analysis of Apple Ltd. net assets 1
Analysis of Guava Ltd. net assets 1
Goodwill 1
Non-controlling interests 1
Group retained earnings 1
Investment in associate 1
Heading of SFP 0.6
Consolidated statement of financial position 19 entries @ 0.6 11.4
Total 20

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