EXAMINATION : INTERMEDIATE LEVEL

SUBJECT : FINANCIAL REPORTING00000

CODE : B2

EXAMINATION DATE : WEDNESDAY, 11TH MAY, 2022

TIME ALLOWED : THREE HOURS (2:00 P.M. – 5:00 P.M.)

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GENERAL INSTRUCTIONS

3. There are TWO sections in this paper. Sections A and B which comprise a total
of SIX questions.

2. Answer question ONE in Section A.

3. Answer ANY FOUR questions in Section B.

4. In total answer FIVE questions.

5. Marks are shown at the end of each question.

6. Calculate your answers to the nearest two decimal points where necessary.

7. Show clearly all your workings in respective answers where applicable.

8. This question paper comprises 10 printed pages.

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SECTION A
Compulsory Question
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QUESTION 1

The following Trial Balance relates to INAK business which operates as a sole trader for the
year ended 31st December 2021.

DEBIT CREDIT
TZS. TZS.
Sales 3,298,500,000
Purchases 825,000,000
Trade Receivables 353,125,000
Trade Payables 401,750,000
Opening Inventory 172,500,000
Sales Returns 6,500,000
Purchase Returns 7,875,000
Discount Allowed 18,875,000
Discount Received 13,975,000
Salaries and Wages 515,000,000
Motor Vehicle 125,000,000
Electricity 25,000,000
Equipment 87,500,000
Premises 1,750,000,000
General Expenses 58,500,000
Bank 342,750,000
Suspense 7,650,000
Capital 625,000,000
Drawings 75,000,000
4,354,750,000 4,354,750,000

INAK has provided the following additional information regarding the business operations for
the financial year ended 31st December 2021.

(i) INAK closing stock at 31st December 2021 was valued at TZS.226,725,000.

(ii) INAK has a 6% fixed deposit account of TZS.200,000,000 with her Banker. The Bank
has credited interest for the year to INAK’s Bank account. This transaction is not
reflected in INAK’s books.

(iii) During data analysis, it was found that electricity bills amounting to TZS.2,250,000,
which was accrued at 31st December 2020 was forgotten in the electricity account
balances.

(iv) James is both a INAK’s customer and supplier. He has agreed to set off his amount
owed of TZS.15,750,000.

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(v) The bank balance includes a cheque amounting to TZS.10,000,000 received from one
of the INAK’ customers. The cheque was dishonoured by the Bank due to insufficient
funds, however, the customer has assured INAK that the debt will be settled soon.
(vi) Discount allowed of TZS.1,375,000 were doubled, but posted correctly to the ledger
accounts.
(vii) A purchase returns amounting to TZS.2,700,000 was posted to the debit of sales
returns.

REQUIRED:
(a) Prepare the suspense account showing the correction of the errors above. (4 marks)
(b) Prepare INAK’s Statement of Profit or Loss for the year ended 31st December 2021.
(8 marks)
(c) Prepare INAK’s Statement of Financial Position as at 31st December 2021. (8 marks)
(Total: 20 marks)

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SECTION B
There are FIVE questions. Answer ANY FOUR questions
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QUESTION 2
The Statement of Financial Position of Uberi plc as at 31st July 2021 (with comparatives for
the previous year) is shown below:
2021 2020
TZS. (000,000) TZS. (000,000)
Assets
Non-current assets
Property, plant and equipment at cost 490 450
Less: Accumulated depreciation 370 330
120 120
Investments at cost 19 44
Total Non-current Assets 139 164
Current assets
Trade receivables 231 106
Less: Allowance for doubtful debts 26 4
205 102
Inventories 289 176
Prepayments 13 12
Cash on 7-day deposit - 50
Cash at bank and in hand - 59
Total Current Assets 507 399
Total Assets 646 563
Equity
Ordinary share capital 230 180
Preference share capital 20 20
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 Share premium account 30 -
Retained earnings 158 213
438 413
Liabilities
Non-current liabilities
14% Debenture stock - 40
12% Debenture stock 30 -
Current liabilities
14% Debenture stock 40 -
Trade payables 60 55
Accruals 9 8
Amount owing on non-current assets 20 -
Taxation 9 47
Bank overdraft 40 -
178 110
646 563
The following additional information is also available:
(i) Equipment which had cost TZS.30,000,000 during the year to 31st July 2018 was sold
in February 2021 for TZS.10,000,000. The company depreciates equipment at 20%
per annum on cost with a full charge in the year of acquisition and none in the year of
disposal (some of the equipment were over five years old on 31st July 2021).

(ii) Non-current asset investments which had cost TZS.25,000,000 some years previously
were sold during the year for TZS.21,000,000.

(iii) Dividends received during the year were TZS.5,000,000. Dividends totaling
TZS.100,000,000 were paid during the year.

(iv) The 14% debentures were issued many years ago and are due to be redeemed on 1st
January 2022. A fresh issue of 12% debentures was made on 31st July 2021.

(v) Interest paid during the year (including debenture interest) was TZS.8,000,000. All
interest was paid on the due date and no interest was accrued at either the start or the
end of the year. No interest was received during the year.

(vi) Taxation shown as a liability on 31st July 2020 was paid during the year to 31st July
2021 at the amount stated.

(vii) In January 2021, the company issued 50,000 TZS.1,000 ordinary shares at a premium
of TZS.600 per share.

(viii) The cash on 7-day deposit ranks as a cash equivalent.

REQUIRED:
(a) Calculate the company’s profit before tax for the year to 31st July, 2021. (2 marks)
(b) Prepare a Statement of Cash Flows for the year ended 31st July 2021 in accordance with
the requirements of IAS 7 (using the indirect method). (10 marks)

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(c) Reconcile the total cash and cash equivalents shown by the statement of cash flows to
the equivalent figures shown in the opening and closing Statements of Financial
Position.(3 marks)
(d)Comment briefly on the significance of the information provided by the company’s
Statement of Cash Flows. (5 marks)
(Total: 20 marks)
QUESTION 3

The following are separate annual reports for Farm and Plot. All amounts are in Thousands of
Tanzanian Shillings.

STATEMENT OF FINANCIAL POSITION AS AT 30TH SEPTEMBER, 2021

ASSETS FARM PLOT
Land and buildings 937,000 523,000
Other Tangible Assets 244,350 214,525
Bonds 130,000 -
Investment in Plot 450,000 -
Trade receivables 192,000 115,000
Interest and dividend receivable 58,000 5,000
Inventory 208,400 68,300
Cash 33,235 102,250
Total Assets 2,252,985 1,028,075

EQUITY AND LIABILITIES

TZS.400 Ordinary shares 1,360,000 520,000
Retained Earnings 341,000 101,000
General Reserve 8,635 3,550
TZS.5,500 15% preference shares 40,000 66,000
10% Loan 100,000 60,000
5% Bond - 84,000
Tax payable 34,350 13,125
Trade payables 239,000 107,000
Interest and Dividend payable 130,000 73,400
TOTAL EQUITY AND LIABILITIES 2,252,985 1,028,075

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR YEAR ENDED 30TH SEPTEMBER 2021
FARM PLOT
Sales 1,856,300 1,003,200
Cost of sales 835,335 418,760
Gross Profit 1,020,965 584,440
Operating Expenses 467,260 398,778
Interest 10,000 8,500
Profit before tax 543,705 177,162
Tax 113,518 82,338
Profit for the year 430,187 94,824
Other Comprehensive Income 6,475.1 3,345.2
Total Comprehensive Income 436,662.1 98,169.2

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Notes for Consolidation Adjustments

(i) Farm acquired 70% and 40% of ordinary and of preference shares respectively in Plot
when undistributed profits reserve was TZS.30 million. There were no any balance in
any other reserve on the date of acquisition. Farm paid cash in respect of the deal. Fair
value of land and buildings in Plot was TZS.20 million above their book value while
that of non-controlling interest stood at TZS.215 million.

(ii) A fifth of goodwill was impaired on September 30th 2021.

(iii) All intercompany sales during the year had a margin of 20%. Table below has
additional details of intercompany sales/purchases:

Details Farm Plot

Purchases from within the group (TZS. Million) 25 60
Stock purchase within group on hand by 30th September 2021 20 40
– (%)

All goods transacted between group members were for resale. Farm had settled all
amounts due to Plot by year end while Plot had not paid any amount in respect of its
purchases from Farm.

(iv) Farm depreciates its tangible non-current assets at 10% on book value while Plot applies
a 20% charge on carrying value for similar assets.

(v) By 30th September 2021, Plot had paid all ordinary and preference dividends outstanding
on 1st October 2020.

(vi) Plot issued a 5% bond to Farm. Plot pays interest on long-term debts annually on 30th
November and that the previous one was paid successfully.

REQUIRED:
(a) Prepare Consolidated Statement of Profit or Loss and Other Comprehensive Income
for Farm Group for year ended 30th September 2021. (10 marks)

(b) Prepare Consolidated Statement of Financial Position for Farm Group as at 30th
September 2021. (10 marks)
(Total: 20 marks)
QUESTION 4
(a) Mivinjeni Plc Ltd has hired you to review its accounting records prior to the closing of
the revenue and expense accounts as of December 31st, the end of the current fiscal
year. The following information comes to your attention:
1. During the current year, Mivinjeni Plc changed its policy in regard to expensing
purchases of small tools. In the past, it had expensed these purchases because
they amounted to less than 2% of net income. Now, the CEO has decided that the
company should follow a policy of capitalization and subsequent depreciation. It

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 is expected that purchases of small tools will not fluctuate greatly from year to
year.

2. The company constructed a warehouse at a cost of TZS.1,500,000,000. It had

been depreciating the asset on a straight-line basis over 10 years. In the current
year, the Financial Controller doubled depreciation expense because the
replacement cost of the warehouse had increased significantly.

3. When the statement of financial position was prepared, the preparer omitted
detailed information as to the amount of cash on deposit in each of several banks.
Only the total amount of cash under a caption “Cash in banks” was presented.

4. On July 15th of the current year, Mivinjeni Plc purchased an undeveloped tract of
land at a cost of TZS.480,000,000. The company spent TZS.120,000,000 in
subdividing the land and getting it ready for sale. An appraisal of the property at
the end of the year indicated that the land was now worth TZS.750,000,000.
Although none of the plots were sold, the company recognized revenue of
TZS.270,000,000, less related expenses of TZS.80,000,000, for a net income on
the project of TZS.150,000,000.

5. For a number of years, the company used the FIFO method for inventory
valuation purposes. During the current year, the CEO noted that all the other
companies in the industry had switched to the average cost method. The company
decided not to switch to average-cost because net income would decrease by
TZS.1,245,000,000.

REQUIRED:
State whether or not you agree with the decisions made by Mivinjeni Plc Limited.
(Support your answers with reference, whenever possible, to the generally accepted
principles, assumptions, and cost constraint applicable in the circumstances).
(10 marks)

(b) At the completion of the Makoko Trader’s audit, the CEO, Judy asks about the meaning
of the phrase “in conformity with IFRS” that appears in your audit report on the
management’s financial statements. Judy observes that the meaning of the phrase must
include something more and different than what she thinks of as “standards”. Judy is
curious about the pronouncements that are encompassed in IFRS and wonders, if there
are different types of pronouncements, which are more authoritative than others?

REQUIRED:

(i) Describe any three (3) major types of pronouncements that comprise IFRSs.
(4 marks)

(ii) Explain to Judy how a company determines which type of pronouncement takes
precedence when deciding the recognition, valuation, and disclosure related to a
particular transaction. (6 marks)
(Total: 20 Marks)

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QUESTION 5

(a) Financial ratios are the tools of financial analysis, and they are applied by owners of
the firms, financial managers, production, marketing, creditors, investors and other
stakeholders when taking various decisions.

REQUIRED:

Explain any six (6) usefulness of ratio analysis in business valuation. (6 marks)

(b) Yetu Limited, is a trading company which makes all of its sales and purchases on credit
terms. The company’s financial statements for the year ended 31st December 2021
(with comparative figures for 2020) are shown below:

Yetu Limited
Statements of Financial Position as at 31st December

2021 2020
TZS.̎ TZS.
“000” “000”
Assets
Non-current assets
Property, plant and equipment 1,730 1,820
Current assets
Inventories (2019 740 690
TZS.670,000)
Trade receivables 820 760
Cash at bank and in hand 560 2,120 340 1,790
Total Assets 3,850 3,610
Equity
Ordinary shares of TZS.1 1,000 1,000
Retained earnings 930 630
1,930 1,630
Liabilities
Non-current liabilities
Long-term loans 800 1,000
Current liabilities
Trade payables 940 840
Taxation 180 1,120 140 980
Total Equity and Liabilities 3,850 3,610

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 Yetu Limited
Statements of Profit or Loss Liabilities Comprehensive Income for the year to
31st December
2021 2020
TZS. “000” TZS. “000”
Sales revenue 7,000 6,350
Cost of sales 5,660 5,130
Gross profit 1,340 1,220
Operating expenses 380 400
Profit before interest and tax 960 820
Interest payable 80 100
Profit before taxation 880 720
Taxation 180 140
Profit after tax 700 580

Notes:
(i) Ordinary dividends of TZS.400,000,000 were paid during the year ended 31st
December 2021. The equivalent figure for 2020 was TZS.350,000,000.

(ii) The market price of the company’s ordinary shares was TZS.3,900 per share on
31st December 2021 and TZS.3,100 per share on 31st December 2020.

REQUIRED:

Calculate a set of accounting ratios (for each of the two years) and comment on the
company’s profitability, liquidity, efficiency and investment potential. (14 marks)
(Total 20 marks)

QUESTION 6
(a) Mawazo Textile Limited (MTL) located in the capital city, Dodoma is an entity
engaging in manufacturing. MTL has several subsidiaries and presents consolidated
financial statements as per International Financial Accounting Standards (IFRSs). The
extract from the income statement for the group for the year ended 30th September 2021
and its comparative figures are given below:

2021 ‘TZS’ 2020 ‘TZS’

Operating profit before tax 327,812,000 318,339,000
Income tax expenses (98,831,000) (92,376,000)
Profit for the year 228,981,000 216,555,000
Attributable to:
Non-controlling interest 6,073,000 9,119,000
Equity holders of the company 222,908,000 207,436,000
Other Comprehensive Income
Items that may be classified to
profit/loss
Cash flow heldges:
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 Gains/losses on cash flow hedges 1,403,000 (5,033,000)
Deferred tax on fair value gain/loss (431,000) 1,075,000
Total comprehensive income 229,953,000 212,597,000
Attributable to:
Non-controlling interest 6,062,000 8,953,000
Equity Holder of the company 223,891,000 203,644,000

MTL has only one class of shares which carries no right to fixed income. The summary
of Authorised issued and fully paid shares as at 30th September 2020 were as follows:

Authorised equity shares ‘TZS’

3,000,000 equity shares of TZS.100 per share 300,000,000
Issued and fully paid equity shares
1,500,000 Equity shares of TZS.100 per share 150,000,000

On 1st January 2021, MTL made a right issue of one share for every three at TZS.120 per
share, while the market value of the MTL share immediately before the right issue was
TZS.140 per share. Then, on 31st March, MTL bought 1,000,000 of its own equity shares for
TZS.155 per share.

REQUIRED:
(i) Briefly discuss the purpose of standardizing the calculation and presentation of
Earning Per Share (EPS).
(2 marks)
(ii) Calculate the basic Earnings Per Share (EPS) and Diluted Earning Per Share as
per IAS 33: Earning Per Share for the year ended 30th September 2021.
(7 marks)

(b) Kize Plc is a construction contractor which prepares financial statements to 31st May
each year. The following information relates to a contract with a customer which began
during the year to 31st May 2020 and which was still in progress on that date:

TZS.
Contract price 600,000,000
Costs incurred to date:
• For work performed up to 31st May 2020 190,000,000
• To acquire materials for use in future work 30,000,000
Estimated further costs to completion 280,000,000
Invoiced to customer up to 31st May 2020 175,000,000
Amounts received from customer 130,000,000

The contract is to be treated as a single performance obligation which is satisfied over

time. The company measures the progress made on a contract by comparing the costs
incurred for the work performed to date with the estimated total contract costs.
.
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 REQUIRED:
Show how this contract would be reflected in the Kize’s Plc financial statements for
the year ended 31st May 2020. (5 marks)
(c) On 1st May 2019, Maso company which prepares financial statements to 30th April each
year issued TZS.750,000 of 3% loan stock at a discount of 5%. Issue costs are
TZS.13,175. Interest is payable on 30th April each year and the stock is redeemable on
30th April 2023 at a premium of 10%. The effective rate of interest is 7.25% per annum.

REQUIRED:
(i) State the amount at which the loan stock should be measured as at 1st May 2019.
(2 marks)
(ii) Calculate the amount at which the loan stock should be shown in the company’s
Statement of Financial Position as at 30th April 2020, 2021, 2022 and 2023.
(4 marks)
(Total: 20 marks)

______________________

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