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GFA712S - FINANCIAL ACCOUNTING 320 - 2ND OPP - JAN 2020 |
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“4
NAMIBIA UNIVERSITY
OF SCIENCE AND TECHNOLOGY
FACULTY OF MANAGEMENT SCIENCES
DEPARTMENT OF ACCOUNTING, ECONOMICS AND FINANCE
QUALIFICATION : BACHELOR OF ACCOUNTING
QUALIFICATION CODE: 23 BACC
LEVEL: 7
COURSE NAME: FINANCIAL ACCOUNTING 320 | COURSE CODE: GFA 712S
SESSION: JAN/FEB 2020
PAPER: THEORY
DURATION: 3 HOURS
MARKS: 100
2"¢ OPPORTUNITY EXAMINATION QUESTION PAPER
EXAMINER(S) | Daniel Kamotho & Andrew Simasiku
MODERATOR: Ms! Van Rensburg
INSTRUCTIONS
This examination paper is made up of four (4) questions
Answer ALL the questions and in blue or black ink
Start each question on a new page in your answer booklet& show all your workings
Questions relating to this examination 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
PERMISSIBLE MATERIALS
1. Non Programmable calculators
2. Examination question paper and script - The examination script should be handed tothe
invigilator at the end of the examination session
THIS QUESTION PAPER CONSISTS OF 8 PAGES (excluding this front page)
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Question 1
(35 marks)
The following Statements of Profit or Loss and Other Comprehensive Income relate to Kigumi
Limited (Kigumi) and its investee companies, Milly Limited (Milly) and Floria Limited (Floria).
Statements of Profit or Loss and Other Comprehensive Income for year ended 31
March 2017
Kigumi | Milly Limited
Floria
Revenue
Limited
3,500
$ ‘000
760
Limited
900
Cost of Sales
(2,000)
(320)
(300)
Gross profit
Operating expenses
1,500
(210)
440
600
(160)
(240)
Finance costs
(30)
(20)
(40)
Other income
20
-
80
Profit before taxation
Taxation
Profit for the year
Other comprehensive income (amounts
1,280
(150)
1,130
260
400
(60)
(40)
200
360
that will not be reclassified to profit or
Gains on revaluations of property
60
-
-
Total comprehensive income for the
1,190
200
360
The following additional information is provided:
(i) | Kigumi bought a 70% holding in the voting equity of Milly on 1 July 2016. The
purchase price of the investment was agreed at $2.5 million. The 30% non-controlling
interest in Milly had a fair value of $1 million at that date. Milly’s identifiable net assets
had a fair value of $3 million on 1 July 2016. It was decided to apply the fair value
method to calculate goodwill on acquisition, as permitted by IFRS 3 - Business
Combinations.
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(ii) Kigumi purchased 30% of the voting equity of Floria on 1 October 2016. Kigumi exerts
significant influence over Floria because of this investment.
(iii) Goodwill of Milly was reviewed for impairment at 31 March 2017 and was found to
have suffered an impairment loss of $30,000. The 30% investment in Floria was
reviewed for impairment at 31 March 2017 and found to have suffered an impairment of
$25,000.
(iv) Included in Milly’s net assets on the acquisition date was some machinery with a fair
value of $48,000 above its carrying amount. The useful economic life of this machinery
at the acquisition date was estimated to be six years. The fair value adjustment has
been considered in arriving at the $3 million referred to in note (i), but has not been
incorporated into the books of Milly.
During the year ended 31 March 2017 Kigumi sold goods to Milly totaling $36,000.
These goods were sold by Kigumi at a mark-up of 20% on cost price. The goods were
traded evenly throughout the year. $6,000 worth of inventory (at cost to Milly) was held
by Milly at 31 March 2017. These goods were supplied in February and March 2017.
(vi) Since acquisition, Kigumi has managed the administration of the entire group. Kigumi
invoiced Milly $10,000 for its share of these costs. Kigumi recorded this transaction
within “other income”, and Milly within “operating expenses’.
(vii) On 1 February 2017, Floria sold some land to Kigumi for $200,000, recording a profit of
$80,000. This profit is included within “other income’ in the books of Floria. Assume this
transaction had no taxation impact.
(viii) Kigumi has a policy of revaluing property to fair value as permitted under the
revaluation model of IAS 16. Neither Milly nor Floria adopts the revaluation model of
IAS 16 - Property, Plant and Equipment, instead choosing the cost model. If they had
adopted the revaluation model, Milly would have recorded revaluation gains of $15,000
at 31 March 2017. No revaluations would have been necessary prior to its acquisition.
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(ix) Assume all expenses and gains accrue evenly throughout the year unless otherwise
instructed.
Required:
(a) Calculate the goodwill arising on the acquisition of Milly in accordance with IFRS 3.
Calculate the goodwill amount that should appear in the Consolidated Statement of
Financial Position of Kigumi at 31 March 2017.
(5 marks)
(b) Prepare a consolidated Statement of Profit or Loss and Other Comprehensive
Income for the Kigumi Group for year ended 31 March 2017 in accordance with
IFRS. (30 marks)
Question 2
(20 marks)
If, in the event of a business combination, a company complies with the requirement of IFRS 3
and accounts for such business combination by applying the acquisition method, four steps
need to be executed, /.e.:
e The acquirer is identified;
e The acquisition date is determined;
e The identifiable assets acquired, liabilities assumed and non-controlling interests are
measured and recognised, and
e The goodwill or gain from a bargain purchase is recognised and measured.
Scenario
Parent (Pty) Ltd (Parent) purchases 60% of the issued Class A shares of Sub (Pty) Ltd (Sub)
through a once-off cash payment on 1 April 2014. Parent was very keen to obtain this interest
in Sub, due to its excellent customer base, as the two companies produce products in the
same market segment. After a due-diligence, the fair value of the identifiable net assets of
Sub was determined at R5 000 000 on 1 March 2014 and R4 800 000 on 1 April 2014. The
fair value of the consideration was R3 400 000 In terms of an agreement with the former
owners of Sub, Parent took control of the business of Sub on 1 March 2014 in terms of a
written agreement. From that date Parent controlled all the assets and assumed responsibility
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for all the obligations of Sub. Every Class A share entitles the holder to one voting right on the
AGM. Sub (Pty) Ltd does not have any other class of equity shares. The relevant activities of
Sub (Pty) Ltd is controlled through resolutions taken at the AGM. There are no other
arrangements that could alter decision making.
Required:
Briefly discuss the acquisition method in reference to IFRS 10 requirements if the following
scenario is considered (20 marks)
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Question 3
(20 marks)
The consolidated income statement and extracts from the consolidated statement of
changes in equity of the Mufasa Limited group for the year ended 31 December 2018 and
the consolidated statement of financial position of the group at the beginning and end of 2018
are given below
Consolidated income statement —year ended 31 December 2018
(N$ 000)
Profit from operations
Finance costs
Profit on disposal
Profit before tax
Income tax expense
Profit for the period
Attributable to
Equity holders of the parent
Non-controlling interest
20 000
(1400)
700
19 300
(6 500)
12 800
11 800
1.000
12 800
Summarised consolidated statement of changes in equity — year ended 31 December
2018(in respect of the equity holders of the parent)
Balance 1 January 2018
Profit for the period
Dividends paid
Balance at 31 December 2018
N$ 000
49 500
11 800
(3 000)
98 300
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Consolidated statement of financial position as at 31 December
ASSETS
Property plant and
equipment
Current assets
Inventories
Trade receivables
Bank
Equity and Liabilities
Share capital
Retained earnings
Non-controlling interest
Long term loans
Current liabilities
Trade payables
Tax
Bank overdraft
N$ 000
2018
N$ 000 | N$ 000
51 350
25 000
21 000
6000 | 52000
103 350
20 000
38 300
_5 050
63 350
9 500
18 500
6 000
6000 | 30500
103 350
23 000
19 000
2 000
16 250
5 000
5 000
2017
N$ 000
50 000
44 000
94 000
20 000
29 500
_5 750
52 250
12 500
26 250
94 000
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Additional information
1. On 30 June 2018, Mufasa Limited disposed of its investment in Sky Limited. It had a
shareholding of 80%. The proceeds from the disposal were N$5.5 million. Details of
the disposal were as follows
Net assets at the date of disposal
N$ 000
Property plant and equipment
4000
Inventories
2000
Receivables
2500
Trade payables
(1 500)
Tax
(300)
Bank overdraft
(200)
Long term loan
(5 000)
6 000
Mufasa Limited had acquired its investment on 30" June 2016 for N$ 1.9 million when
the assets of Sky Limited were N$ 2 million. Goodwill was found to be impaired several
years ago, and so was fully written off before the start of the current financial year.
2. Depreciation charged during the period in the consolidated income statement
amounted to N$10.1 million. There were no disposals of property, plant and equipment
by the group than those effectively made upon disposal of the investment in Sky
Limited.
Required
Prepare a consolidated statement of cash flow for the year ended 31 December 2018
under the indirect method in accordance with IAS 7 (20 marks)
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Question 4
(25 marks)
Blue Limited and Red Limited were incorporated on 30 June 2014 and no changes in their
shareholdings have occurred since their incorporation. Black Limited holds a 40% interest
in Blue Limited which in turn holds a 25% interest in Red Limited.
Summarized extracts from the statement of profit or loss for the year ended 31 December
2018 are as follows:
Profit from operations
Black Limited
N$
90 000
Blue Limited
N$
50 000
Red Limited
N$
30 000
Taxation
(30 000)
(25 000)
(10 000)
Profit for the year
60 000
25 000
20 000
Scenario
1
Black Limited
(Parent)
Consider the following scenarios:
Scenario
2
Black Limited
(Parent)
Scenario
3
Black Limited
(Parent)
“ve
Blue Limited
(Subsidiary)
ae
Blue Limited
(Subsidiary)
“ve
Blue Limited
(Associate)
a"
Red Limited
25%
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Red Limited
a"
Red Limited
(Subsidiary of Blue
Limited)
(Associate of Blue Limited) | (Associate of Blue Limited)
The Black Limited Group’s accounting policies include:
e
Associates are accounted for in the group financial statements on the equity method.
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Required:
Complete the statement of profit or loss in respect of the Black Limited Group for the year
ended 31 December 2018 for each of the scenarios as per IFRS 10 requirements.
(25 marks)
END OF EXAMINATION QUESTION PAPER