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FAR811S-ADVANCED FINANCIAL ACCOUNTING AND REPORTING-2ND OPP-JULY 2025 |
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nAmlBIA unlVERSITY
OF SCIEn CE Ano TECHn OLOGY
FACULTY OF COMMERCE, HUMAN SCIENCESAND EDUCATION
DEPARTMENT OF ECONOMICS, ACCOUNTING AND FINANCE
QUALIFICATION : BACHELOR OF ACCOUNTING HONOURS
QUALIFICATION CODE: 08 BOAH
COURSE CODE: FAR811S
SESSION: July 2025
LEVEL: 8
COURSE NAME: ADVANCEDFINANCIALACCOUNTING
AND REPORTING
PAPER: THEORYAND CALCULATIONS
DURATION: 3 hours
MARKS: 100
EXAMINER(S)
SUPPLEMENTARY ASSESSMENT- 2nd Opportunity
D W Kamotho
MODERATOR: Dr E Wealth
INSTRUCTIONS
1. Answer ALL questions in blue or black ink only.
2. Write clearly and neatly.
3. Start each question on a new page and number the answers clearly.
4. No programmable calculators are allowed.
5. 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.
6. Any resemblance to any people, places, organisations or anything is purely
coincidental.
THIS QUESTION PAPER CONSISTS OF 5 PAGES (excluding the front page)
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Question 1
40 marks
This question consists of four independent parts. For each scenario, advise the lessor on
the accounting treatment in accordance with IFRS 16. Support your responses with
detailed journal entries where appropriate.
(a) Finance Lease
Alpha Limited, a lessor of industrial machinery, entered into a lease agreement on 1 January
2021 with Beta Corp. The lease has a term of 5 years and transfers substantially all the risks
and rewards of ownership. The present value of the lease payments is $800,000, while the
fair value of the machine is N$850,000. Alpha's carrying amount of the machine is
N$750,000. In addition, at the end of the lease, Beta Corp has a bargain purchase option
with an exercise price of N$50,000. Annual lease payments of N$180,000 are payable at the
beginning of each year.
Advise Alpha on:
- The classification of the lease under IFRS 16.
- The initial measurement of the lease receivable and derecognition of the underlying asset;
and
- The subsequent accounting treatment, including recognition of interest income.
Illustrate your responses with appropriate journal entries.
(10 marks)
(b) Operating Lease Modification
Gamma Ltd is a lessor that originally entered into an operating lease on 1 July 2021 for
office equipment with Delta Inc. The lease was for 4 years with fixed annual payments of
N$100,000. In 2022, due to changed market conditions, Gamma and Delta agree to modify
the contract so that Delta will pay N$120,000 per year for the remaining 3 years, and the
lease term is extended by one additional year.
Explain how Gamma should account for this modification under IFRS 16. In your answer,
address:
- The impact on the measurement of the lease receivable and any reclassification; and
- The journal entries necessary to reflect the modification.
(10 marks)
(c) Sale and Leaseback Transaction
On 31 December 2021, Omega Ltd sold a piece of land for N$1,200,000. Simultaneously,
Omega entered into a leaseback arrangement to lease the land for 10 years. At the date of
the transaction, the fair value of the land was N$1,300,000, and Omega carried the land at
N$1,000,000. The leaseback is classified as an operating lease.
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Advise Omega on:
- The accounting treatment for the sale and leaseback under IFRS 16;
- How to measure any gain or loss on the sale; and
- The subsequent recognition of lease payments, including any adjustments.
Include the relevant journal entries.
(12 marks)
(d) Variable Lease Payments and Initial Direct Costs
On 1 October 2021, Zeta Leasing entered into an operating lease for a fleet of vehicles for
a period of 3 years. The contract includes variable lease payments based on the
customer's usage levels. Although the estimated annual lease payment is N$50,000 on
average, actual usage in the first year resulted in a payment of N$60,000. Zeta also
incurred initial direct costs of N$20,000 to secure the contract.
Explain how Zeta should:
- Account for the variable lease payments; and
- Treat the initial direct costs in accordance with IFRS 16.
Illustrate your answer with the necessary journal entries.
(8 marks)
Note. Mark a/locations are indicated against each part (Total = 40 marks).
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Question 2
30 marks
This questions contains four independent parts. For each part, provide clear explanations
and, where applicable, illustrative examples or journal entries to support your discussion.
Your answers should reflect a deep understanding of the Conceptual Framework 2018 and
its practical implications in financial reporting.
(a) Objective of Financial Reporting
Explain the primary objective of financial reporting as set out in the Conceptual Framework
2018. In your answer, discuss how this objective supports the decision-making needs of
users and the role that financial reports play in providing information about an entity's
performance, position, and cash flows.
(5 marks)
(b) Qualitative Characteristics of Financial Information
XYZ Ltd is considering redesigning its financial reporting presentation to improve its
comparability with its peers. Using the Conceptual Framework 2018, discuss the
fundamental and enhancing qualitative characteristics of financial information. Explain how
each characteristic is relevant to achieving comparability and overall usefulness of financial
reports.
(10 marks)
(c) Materiality, Faithful Representation, and Recognition Decisions
ABC Ltd is evaluating whether to capitalize a significant cost related to the development of a
new product line.
(i) Explain how the concepts of materiality and faithful representation, as described in the
Conceptual Framework 2018, influence recognition and measurement decisions.
(ii) Discuss the factors ABC Ltd should consider when deciding whether to expense or
capitalize the cost, supporting your answer with reference to the qualitative characteristics
and the overall objective of financial reporting.
(10 marks)
(d) Definitions of Assets, Liabilities, and Related Challenges
The Conceptual Framework 2018 provides definitions for assets and liabilities. Critically
evaluate these definitions by:
(i) Summarising the key elements that constitute an asset and a liability;
(ii) Using a hypothetical sale and leaseback transaction, explain one potential challenge
that may arise when applying these definitions in practice; and
(iii) Suggest any improvements or clarifications that might be needed in the definitions to
enhance their application.
(5 marks)
Note. Mark a/locations are indicated against each part (Total = 30 marks).
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Question 3
30 marks
The statements of financial position of Parent Ltd and its investee companies, Subs Ltd and
Assot Ltd, at 31 December 2021 are shown below.
STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 2021
Assets
Non-current assets
Freehold property
Plant and equipment
Investments
Current assets
Inventories
Trade receivables
Cash
Equity and liabilities
Equity
Share capital (N$1 ordinary shares)
Retained earninas
Non-current liabilities
12% debentures
Current liabilities
Bank overdraft
Trade pavables
Parent Ltd
N$'000
Subs Ltd
N$'000
1,950
795
1,500
4,245
575
330
50
955
5 200
1,250
375
-
1,625
300
290
120
710
2,335
2,000
1 460
3,460
500
560
680
1,240
5,200
1,000
885
1,885
100
350
350
2,335
Assot Ltd
N$'000
500
285
-
785
265
370
20
655
1,440
750
390
1,140
-
300
300
1,440
Additional information
(a) Parent Ltd acquired 600,000 ordinary shares in Subs Ltd on 1 January 2016 for
N$1,000,000 when the accumulated retained earnings of Subs Ltd were N$200,000.
(b) At the date of acquisition of Subs Ltd, the fair value of its freehold property was considered
to be N$400,000 greater than its value in Subs Ltd statement of financial position. Subs Ltd
had acquired the property ten years earlier and the buildings element (comprising 50% of the
total value) is depreciated on cost over 50 years.
(c) Parent Ltd acquired 225,000 ordinary shares in Assot Ltd on 1 January 2020 for N$500,000
when the retained profits of Assot Ltd were N$150,000.
(d) Subs Ltd manufactures a component used by Parent Ltd only. Transfers are made by Subs
Ltd at cost plus 25%. Parent Ltd held N$100,000 of these components in inventories at 31
December 2021.
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(e) It is the policy of Parent Ltd to review goodwill for impairment annually. The goodwill in
Subs Ltd was written off in full some years ago. An impairment test conducted at the year-end
revealed impairment losses on the investment in Asset Ltd of N$92,000.
(f) It is the group's policy to value the non-controlling interest at acquisition at fair value. The
market price of the shares of the non-controlling shareholders just before the acquisition was
N$1.65.
REQUIRED
MARKS
a
Prepare, in a format suitable for inclusion in the annual report of the Parent
Group, the consolidated statement of financial position at 31 December 2021.
20
Show your workings
b
Under IFRS 10, a parent must consolidate all subsidiaries into a single set of
financial statements. Discuss the key consolidation issues and required
treatments when a subsidiary has:
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• A non-contiguous year-end (e.g., three months earlier than the parent),
• Different accounting policies (e.g., depreciation methods, inventory
valuation), and
• Fair-value uplifts on acquisition that create temporary differences.
In your answer, cover:
• Year-end alignment and disclosures
• Policy harmonisation and consolidation adjustments
• Recognition of deferred tax on consolidation fair-value
adjustments
Total
30
END OF QUESTION PAPER
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