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GFA712S-FINANCIAL ACCOUNTING 320-2ND OPP-DEC 2025 |
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nAmlBIA unlVERSITY
OF SCIEnCE Ano TECHnOLOGY
FACULTY OF COMMERCE, HUMAN SCIENCES AND EDUCATION
DEPARTMENT OF ECONOMICS, ACCOUNTING AND FINANCE
QUALIFICATION: BACHELOR OF ACCOUNTING
QUALIFICATION CODE: 07 BOAC
LEVEL: 7
COURSE CODE: GFA 712S
COURSE NAME: FINANCIAL ACCOUNTING 320
SESSION: Nov/Dec 2025
PAPER: THEORY AND CALCULATIONS
DURATION: 3 hours
MARKS: 100
2nd OPPORTUNITY/ SUPPLEMENTARY EXAMINATION - QUESTION PAPER
EXAMINER(S) D Kamotho & S Dzomira
MODERATOR: M Tondota
INSTRUCTIONS
1. Answer ALL questions in blue or black ink only.
2. Read all the·questions carefully before answering.
3. Please ensure that your writing is legible, neat and presentable.
4. Start each question on a new page and number the answers clearly.
5. No programmable calculators are allowed.
6. The names of people and businesses used throughout this assessment do not reflect the
reality and may be purely coincidental.
7. Questions relating to the paper may be raised in the initial 30 minutes after the start of
the paper. Thereafter, candidates must use their initiative to deal with any perceived
error or ambiguities & any assumption made by the candidate should be clearly stated.
8. Do not write in pencil and do not use tip-ex, as this will not be marked.
9. SHOW ALL WORKINGS!
THIS QUESTION PAPER CONSISTS OF 11 PAGES (excluding the front page)
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QUESTION 1
(25 marks)
Baobab Foods Ltd (Baobab) acquires 80% of Marula Processing (Pty) Ltd (Marula) on 1 July 2025.
Marula operates a processing facility for marula-based beverages and concentrates. Baobab must
determine whether the set is a business and, if so, measure the consideration transferred and
allocate the purchase price.
Identifiable assets at the acquisition date (fair values):
Asset
Land & buildings (plant site)
Plant & equipment (lines, pasteurisers, chillers)
Inventories (raw fruit, concentrates, packaging)
Customer relationships (3 supermarket contracts)
Supply contracts (exclusive seasonal sourcing)
Trademark/brand ('Marula Pure')
Cash and cash equivalents
Fair value
N$ 36,000,000.00
N$ 12,000,000.00
N$ 3,000,000.00
N$ 8,000,000.00
N$ 4,000,000.00
N$ 2,000,000.00
N$ 1,000,000.00
Workforce & processes (transfer to Baobab):
• Skilled workforce (plant manager, QA, maintenance techs, 18 operators).
• Documented SOPs and proprietary recipes; HACCP quality control; ERP for
procurement/production/logistics.
• Operations paused for a 6-week refurbishment at the acquisition date (no outputs during
the pause); restart plan approved.
Other terms:
• Cash consideration of N$54,000,000. Transaction costs (legal/valuation) of N$1,200,000
(incurred by Baobab).
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• Contingent consideration (earn-out) payable at end of Year 2 if EBITDA target is met:
undiscounted N$6,000,000; fair value at acquisition N$4,500,000 (classified as a financial
liability).
• Normal trade payables of N$5,000,000. Tax rate 30%.
Added Scenario 1 - Pre-existing relationship {IFRS 3.852-855)
Before the acquisition, Baobab had a fixed-price supply contract with Marula for concentrate. At
acquisition date, the contract is unfavourable to Baobab by N$1,200,000 (present value) compared
with current market terms. The contract contains a termination clause with a settlement penalty of
N$800,000. The contract is effectively settled as part of obtaining control.
Added Scenario 2 - Indemnification asset {IFRS 3.841-843)
Marula faces an environmental fine relating to past discharges; Baobab recognises a contingent
liability at fair value of N$3,000,000. As part of the deal, the seller contractually indemnifies Baobab
for 80% of this exposure, up to the recognised amount. Assume collectability is virtually certain.
Required:
a) Apply IFRS 3's optional concentration test and conclude whether it is met.
(4)
b) If the screen is not met, assess whether Marula meets the definition of a business at the
acquisition date, considering the 2018 amendments for sets without outputs at the date.
(6)
c) Measure the acquisition-date fair value of the consideration transferred. Clearly indicate the
treatment of transaction costs and the pre-existing relationship settlement.
(6)
d) Perform the acquisition-date purchase price allocation (PPA}: recognise identifiable assets and
liabilities, including the environmental contingent liability, related indemnification asset, and any
deferred tax effects; then compute goodwill.
(7)
e) Briefly explain how the contingent consideration is subsequently measured if classified (i) as a
financial liability or (ii) as equity.
(2)
{Total: 25 Marks}
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QUESTION 2
(20 marks)
Petros Co acquired 75% of the ordinary shares of Solomon Co on that company's incorporation in
2021. The summarised income statements and movement on retained earnings of the two
companies for the year ending 31 December 2024 are set out below.
Sales revenue
Cost of sales
Gross profit
Administrative expenses
Profit before tax
Income tax expense
Profit for the year
Petros
Co
N$
75,000
30,000
45,000
14,000
31,000
10,000
21,000
Solomon
Co
N$
38,000
20,000
18,000
8,000
10,000
2,000
8,000
Note: Movement in earnings retained
Retained earnings brought forward
Profits for the year
Retained earnings carried forward
87,000
21,000
108,000
17,000
8,000
25,000
Required:
Prepare the consolidated income statement and extract from the statement of changes in equity
showing retained earnings and non-controlling interest.
(20)
{Total: 20 Marks}
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QUESTION 3
(25 marks)
Aurora Ltd acquired 80% of the equity of Nebula Ltd on 1 July 2025. The reporting date for both
entities is 31 December 2025 . Aurora measures the non-controlling interest (NCI) at fair value at the
acquisition date (full goodwill method). The tax rate is 30%. Amounts are in N$ million.
Extracts from the separate statements of financial position at 31 December 2025:
Aurora Ltd - extracts
Amount
Share capital
N$ 3,000.0 m
Share premium
N$ 500.0 m
Retained earnings (includes dividend income from Nebula of N$60.0 m)
N$ 1,950.0 m
Property, plant and equipment (PPE)
N$ 2,800.0 m
Investment in Nebula Ltd (cost: cash N$1,400.0 m + contingent
N$1,700.0 m
consideration at FV on acquisition N$300.0 m)
Inventories
N$ 700.0 m
Trade receivables (includes N$30.0 m due from Nebula)
N$ 420.0 m
Dividends receivable from Nebula (declared 30 Nov 2025)
N$ 60.0 m
Cash and cash equivalents
N$ 200.0 m
Trade payables
N$ 260.0 m
Contingent consideration liability (remeasured FV at 31 Dec 2025)
N$ 330.0 m
Nebula Ltd - extracts
Share capital
Retained earnings at 1 Jan 2025
Profit for the year ended 31 Dec 2025 (assume earned evenly through the
year)
Dividend declared 30 Nov 2025 (payable at year-end)
PPE (carrying amount at 31 Dec 2025 - before any FV step-up effects)
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Amount
N$ 1,000.0 m
N$ 600 .0 m
N$ 300.0 m
N$ 75.0 m
N$1,400.0 m
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Inventories
Trade receivables
Cash and cash equivalents
Trade payables (includes N$30.0 m due to Aurora)
Dividend payable (declared 30 Nov 2025)
N$ 480.0 m
N$ 180.0 m
N$ 90.0 m
N$ 150.0 m
N$ 75.0 m
Acquisition-date fair value adjustments and other information
• On acquisition (1 July 2025), the fair value of Nebula's PPE exceeded carrying amount by
N$200.0 m. Remaining useful life at that date: 10 years (straight-line).
• Recognise a deferred tax liability (DTL) for the fair value step-up differences. (Tax rate: 30%).
• NCI fair value at acquisition: N$480.0 m (for the 20% holding).
• During the post-acquisition period, Aurora sold goods to Nebula for N$80.0 m at a profit margin·
of 25% on selling price. At year-end, 40% of these goods remained in Nebula's inventory.
• Nebula's dividend of N$75.0 m was declared on 30 Nov 2025. Aurora recognised its share
(N$60.0 m) as dividend income in retained earnings and as a receivable at year-end.
• Goodwill was tested for impairment at year-end; an impairment loss of N$10.0 m is recognised
in the consolidated financial statements.
Required:
Prepare the Consolidated Statement of Financial Position of the Aurora Group at 31 December 2025.
Show all workings, including goodwill; NCI at reporting date; group retained earnings; consolidated
PPE; consolidated inventory; elimination of intra-group balances and dividends; and relevant
deferred tax.
(25)
{Total: 25 Marks}
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QUESTION 4
(30 marks)
The following draft group financial statements relate to the Water Group Ltd.
Consolidated Statement of financial position as at 31 December 2024
ASSETS
Non-Current Assets
Property plant and equipment
2024
N$m
327
2023
N$m
254
Investment property
8
6
Goodwill
48
68
Other intangible assets
85
72
Investment in associate
54
-
Investments in equity instruments
94
90
616
490
Current assets
Inventories
105
128
Trade receivables
62
113
Cash and cash equivalents
232
143
399
384
Total Assets
1015
874
Equity and liabilities
Equity attributable to owners of the parent:
Share capital
290
275
Retained earnings
351
324
Other components of equity
15
20
656
619
Non-controlling interest
55
36
Total equity
711
655
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Non-Current Liabilities
Long term liabilities
Long term provisions: pensions and obligation
Deferred tax
Current liabilities
Trade payables
Current tax payable
Total Equity and Liabilities
67
71
25
22
35
41
127
134
144
55
33
30
177
85
1015
874
Water Group
Consolidated Statement of Profit or Loss and other comprehensive income for year ended 31
December 2024
N$m
Revenue
432
Cost of sales
(317)
Gross profit
115
Other income
25
Distribution costs
{55}
Administrative costs
{36)
Finance costs
(6)
Gains on property
10,5
Share of profit of associate
.§
Profit before tax
59
Income tax expense
il1l
Profit for the year
48
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Other comprehensive income after tax (items that will
not be reclassified through profit or loss)
Gain on investment in equity instruments
2
Losses on property revaluation
(7)
Remeasurement losses on defined benefit pensions plans
(6)
Other comprehensive income
llil
Total comprehensive income
37
Profit attributable to :
Owners of the parent
38
Non-controlling interest
10
Water Group Ltd
48
Statement of changes in equity for the year ended 31 December 2024
Share Retained Investment Revaluation Total NCI Total
Capital Earnings in Equity Surplus PPE
equity
instruments
Balance
275
324
4
16
619 36 655
01/01/2023
Share Capital
15
15
15
Dividends
(5)
(5)
(5)
Rights issue
2
2
Acquisitions
20 20
Total comprehensive
income
Income for the year
32
2
(7)
27
10 37
Balance 31/12/24
290
351
6
9
656 55 711
The following information relates to the financial statements of the Water group
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Note 1:
On 1 January 2022, Water acquired 8% of the ordinary shares of Tiger Ltd. Water Ltd had treated this
as an investment in equity instruments in the financial statements to 31 December 2018 with changes
in fair value taken to profit or loss for the year. There were no changes in fair value in the year to 31
December 2023. On 1 February 2024, Water Ltd acquired a further 52% of the ordinary shares of
Tigers and gained control of the company. The consideration for the acquisition was as follows
1 January 2022
1 February 2024
Holding
%
8
52
60
Consideration
N$m
4
30
34
At 1 February 2024, the fair value of the 8% holding in Tiger held by Water Ltd at the time of the
business combination was N$5 million and the fair value of the non- controlling interest in Tiger Ltd
was N$20 million. The purchase consideration at 1 February 2024 comprised cash of N$15 million
and shares of N$15 million.
The fair value of the identifiable net assets of Tigers, excluding deferred tax assets and liabilities,
at the date of acquisition comprised the following.
Property plant and equipment
N$1Sm
Intangible assets
N$18m
Trade receivables
N$5 m
Cash and cash equivalence
N$7
The tax base of the identifiable net assets of Tigers was N$40 million at 1 February 2024. The tax rate
of Tigers is 30%
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2.1 Page 11 |
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Note 2:
On 30 October 2024, Tigers made a rights issue on a 1 for 4 basis. The issue was fully
subscribed and raised N$5 million in cash.
Note 3:
Water Ltd purchased a research project from a 3rd party including certain patents on 1 January 2023
for N$8 million and recognized it as an intangible asset. During the year, Water Ltd incurred
further costs which included N$2m on completing the research phase N$14m in developing
the product for sale and N$1 m for the initial marketing costs . There were no other additions to
intangible assets in the period other than those on the acquisition of Tigers Ltd.
Note 4:
Water Ltd operates a defined benefit pension scheme. The current service costs for the year ended
31 December 2024 are N$10 million. Water Ltd enhanced the benefits on 1 January 2023. The tota l
cost of the enhancement is N$2 million. the net interest on net plan assets was N$8 million for the
year and Water Ltd recognizes remeasurement gains and losses in accordance with IAS 19.
Note 5:
Water owns an investment property. During the year, part of the heating system of the property,
which had a carrying amount of N$0,5 million, was replaced by a system which cost N$1m. Water
uses the fair value model for measuring investment property.
Note 6:
Water had exchanged surplus land with a carrying amount of N$10 m for cash N$1Sm and a plant
valued at N$4m . The transaction has commercial substance. Depreciation for the period for property
plant and equipment was N$27m .
Note 7:
Goodwill relating to all subsidiaries had been impairment tested in the year to 31 December 2024
and any impairment accounted for . the goodwill impa irment related to those related to those
subsidiaries which were 100% owned
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Note 8:
Deferred tax of N$1 million arose in the year on the gains on investments in equity instruments
where the irrevocable election was made to take changes in fair value through other
comprehensive income.
Note 9:
The associate did not pay any dividends in the year. Ignore deferred taxation other than where it is
mentioned in the question
Required
Prepare a consolidated statement of cash flows for the Water group using the indirect method
under IAS 7 Statements of Cash flows
(30}
{Total: 30 Marks}
END OF QUESTION PAPER
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