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GFA712S- FINANCIAL ACCOUNTING 320- 1ST OPP- NOV 2023 |
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n Am I BI A u n IVER s ITY
OF SCIEnCE Ano TECHnOLOGY
FACULTY OF COMMERCE, HUMAN SCIENCESAND EDUCATION
DEPARTMENT OF ECONOMICS, ACCOUNTING AND FINANCE
QUALIFICATION: BACHELOR OF ACCOUNTING
QUALIFICATION CODE: 07 BOAC
COURSE CODE: GFA 712S
SESSION: November 2023
DURATION: 3 hours
LEVEL: 7
COURSE NAME: FINANCIALACCOUNTING320
PAPER: THEORYAND CALCULATIONS
MARKS: 100
FINAL ASSESSMENT- QUESTION PAPER
EXAMINER(S) I D Kamotho & Ms K Keeja
I MODERATOR: M Tondota
INSTRUCTIONS
1. Answer ALL questions in blue or black ink only.
2. Capture your full name, student number and assessment number on the first
page.
3. Write clearly and neatly.
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 9 PAGES (excluding the front page)
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Question 1
Nakuru Company has the following shareholdings as at 31 December 2022.
(15 marks)
1 000 000 - 'A' ordinary shares in Eldoret Ltd.
Eldoret Ltd has a total issued share capital of 1200 000 $1 'A' ordinary shares and 500 000 $1 'B'
ordinary shares. B shares hold three votes each and A shares two votes each.
4 000 000 - 25c ordinary shares in Busia Ltd
Busia Ltd has a total of 10 000 000 - 25c ordinary shares in issue.
Nakuru Company also holds all the 3 000 000 $1 3% convertible bonds 2022 - 2025 of Busia Ltd.
Each $1 bond is convertible into two 25c ordinary shares of Busia Ltd. The bonds are convertible
at any time from 1 August 2022 to 31 January 2025 at the holder's option. Nakuru Ltd is currently
experiencing financial difficulties due to declining sales and higher costs of production and has no
motivation nor need in exercising its option. All existing and potential shares carry equal votes.
2 500 000 - soc ordinary shares in Butere Ltd.
Butere Ltd has a total of 6 000 000 - soc ordinary shares in issue. Nakuru Company holds options
to acquire 1 500 000 - SOcordinary shares of Butere Ltd. The options are exercisable when, and
if, Butere Ltd secures permission to develop oil fields in southern Angola. The permission was
granted in July 2023, but Nakuru Ltd Board will meet in January 2024 to make the decision. All
existing and potential shares carry equal votes.
Required:
Based on the above information, discuss, and determine the relationship between Nakuru
Limited and indicate whether consolidated financial statements are required for Nakuru Ltd or
not.
a) Eldoret Ltd,
b) Busia Ltd and
c) Butere Ltd.
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{15 Marks}
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Question 2
(25 marks)
The draft statements of financial position of Afric Limited and Pacik Limited as of 31
December 2022 are as follows:
ASSETS
Non-current assets:
Intangible assets
Tangible assets
Investment in Subsidiary
Current assets:
Inventory
Trade receivables
Bank
TOTAL ASSETS
EQUITY AND LIABILITIES
Equity:
Ordinary shares 25c
Ordinary shares @N$ 10 each
Retained earnings
Afric Ltd
N$ 000
Pacik Ltd
N$ 000
540
2 371
1320
4 231
752
456
101
1309
5 540
140
3 050
-
3 190
379
273
10
662
3 852
3 200
-
1500
4 700
-
1,000
2 450
3 450
Liabilities
Non-current liabilities:
8% debentures
5% debentures
Current liabilities
TOTAL EQUITY AND LIABILITIES
(Note that figures in the above table are in 000's - thousands)
60
-
780
5 540
-
100
302
3 852
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Additional Information.
i. Afric acquired the following shares in Pacik as follows.
Date
No of
Cost of
Retained
Retained
Fair value
Shares
the Shares earnings of earnings of
of PHI*
Acquired N$
Pacik (N$)
Afric (N$)
31 December 2019
40,000 620,000
1,000,000
1,000,000
None
31 December 2021
40,000 1,200,000
1,500,000
1,200,000 1,100,000
31 December 2022 (20,000) * (700,000)
2,000,000
1,500,000 2,450,000
(* this was a sale of shares - 20,000 shares were disposed (sold by Afric for N$ 700,000 hence
the negative sign). PHI means - Previously Held Investments.
ii. There has been no change in the issued share capital of both companies since incorporation
several years ago and both companies prepare accounts to 31 December each year.
iii. The reserves on 31 December for the years 2019-2022 reflect the fair value of the assets of
both companies at those dates except for a equipment bought by Pacik Ltd on 01 July 2021
with a useful life of 5 years on that date, whose fair value has was N$ 500, 000 above its
carrying amount on 31 December 2021 and an estimated useful life of 5 years on that date.
iv. Non-controlling interest is valued at their share of the net assets of the subsidiary.
v. Afric Ltd uses the equity method under IAS 28 to account for its investments in Associates.
All entries had been incorporated at the acquisition date of the subsidiary.
vi. Afric has no other subsidiary(ies) other than Pacik and has only the above reserves in its
book.
REQUIRED:
a) Calculate the goodwill arising on the acquisition of shares in Pacik Ltd.
(7 marks)
b) Prepare the Consolidated statement of changes in equity for the for the year ended 31
December 2022.
(8 marks)
c) Prepare the consolidated statement of financial position for Afric Ltd and its subsidiaries for
the year ended 31 December 2022.
(10 marks)
Note - all necessary workings are required.
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{Total: 25 Marks}
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Question 3
{30 marks}
The following financial statements relate to Baringo Ltd (Baringo) and its investee
companies, Marigat Ltd (Marigat) and Kabaratonyo Ltd (Kabaratonyo).
Statements of Profit or Lossand Other Comprehensive Income for year ended 31 March
2023
Revenue
Cost of Sales
Gross orofit
Operating expenses
Finance costs
Other income
Dividends received
Profit before taxation
Taxation
Profit for the vear
Other comprehensive income*seenotebelow
Gains (- losses) on remeasurement of
Baringo Ltd
N$ million
800
-340
460
-114
-20
15
16
357
-32
325
Marigat Ltd
N$ million
320
-178
142
-64
-12
-
-
66
-5
61
Kabaratonyo
Ltd
N$ million
140
-126
14
-6
-
-
-
8
-1
7
15
-4
Total comprehensive income for the year
340
57
7
Reserve balances total at 1 April 2022
4600
350
200
Equity share capital at 1 April 2022
2000
500
100
*(amounts that will not be reclassified to profit or loss):
The following additional information is provided:
i. Baringo bought a 60% holding in the equity of Marigat on 1 October 2022. The purchase
price of the investment was agreed at N$750 million, of which N$600 million was paid
immediately. It was agreed that the balance of N$150 million would be paid two years
following the acquisition. Marigat's net assets had a fair value of N$898.3 million onl
October 2022. This was represented by equity capital, reserves and an increase in the fair
value of non- depreciable land over the carrying value (to be calculated as a balancing
figure). The weighted average cost of capital for the group is 10%.
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ii. It was decided to apply the fair value method to calculate goodwill on acquisition. The non-
controlling interest in Marigat had a fair value of N$380 million at the acquisition date.
Impairment losses of N$30 million were deemed to have arisen by 31 March 2023 in respect
of the goodwill of Marigat.
iii. Baringo has owned 40% of the equity shares in Kabaratonyo since incorporation. Baringo
has no representatives on Kabaratonyo's board of directors. However, Kabaratonyo
manufactures a key component used by Baringo. Baringo purchases 75% of Kabaratonyo's
production. Both companies work closely together, with Baringo providing technical
information and certain managerial services to Kabaratonyo.
iv. During the year, Baringo purchased goods from Kabaratonyo for N$105 million.
Kabaratonyo earns a 10% margin on goods sold to Baringo. These goods were incorporated
by Baringo into its own products, which were sold at a profit. N$10 million of the goods
purchased from Kabaratonyo remained in the inventory of Baringo at 31 March 2023.
v. During the year, Baringo sold N$5 million worth of goods to Marigat each month. Baringo
earned a 20% mark-up on cost on the goods sold to Marigat. At 31 March 2023, Marigat had
sold all of these goods except N$4.2 million of the most recent delivery. These goods
remained in the inventory of Marigat at 31 March 2023.
vi. On 1 October 2022, immediately following the acquisition of Marigat, Baringo sold a piece
of equipment to Marigat for N$40 million. This equipment had a carrying value of N$25
million prior to the transfer. The gain on sale was shown as 'other income' in the books of
Baringo. The equipment had a five-year useful economic life remaining at the date of
transfer.
vii. On 1 March 2023, Marigat declared and paid a dividend of N$20 million out of post-
acquisition profits. On the same date, Kabaratonyo declared and paid a dividend of N$10
million. Baringo recorded its share of both dividends as 'dividends received'.
viii. All calculations may be taken to the nearest N$0.l million. Assume all expenses and income
accrue evenly throughout the year unless otherwise instructed. No new equity capital was
issued by any group company during the year.
ix. Present Value Interest Factors for a 10% per annum interest rate are as follows:
1 year 0.909
2 years 0.826
3 years 0.751
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REQUIRED:
a) Calculate the goodwill on the acquisition of the shares in Marigat as should be shown
on the consolidated statement of financial position of the Baringo Group on 31 March 2023,
in accordance with IFRS. You should identify separately the amount of the fair value
adjustment to the land.
(5 marks)
b) How is it determined whether an investor exerts significant influence over an entity,
according to IAS 28 - Investments in Associates and Joint Ventures. State, with reasons,
whether or not Kabaratonyo is an associate of Baringo?
(6 marks)
c) Prepare a consolidated Statement of Profit or Loss and Other Comprehensive Income for
the Baringo Group for year ended 31 March 2023 in accordance with IFRS.
(19 marks)
{Total: 30 Marks}
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Question 4
(30 marks)
Forest Ltd has a number of subsidiaries, one of which, Wood Ltd., was acquired during the
year ended 31 October 2023.
The draft consolidated financial statements for the year ended 31 October 2023 are as
follows:
Consolidated Statement of Comprehensive Income of Forest Ltd for the year ended 31
October 2023
$
000 000'
Operating profit
1,890
Loss on disposal of property, plant and equipment
(85)
Interest
(210)
1,595
Share of profits of associates
110
Profit on ordinary activities before taxation
1,705
Taxation
(410)
,1fil
Profit attributable to:
Owners of Forest Ltd
985
Non-controlling interest
310
Group profit
1.295
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Statements of Financial Position are as follows:
Assets
Non-current assets
Property, plant and equipment (note 2}
Intangibles
Investment in associates
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Forest Ltd
Consolidated
at 31/10/2023
N $ million
Forest Ltd
Consolidated
at
31/10/2022
N $ million
Wood Ltd.
at
acquisition
N $ million
2,440
1,400
460
460
420
-
380
330
-
3,280
2,150
460
685
600
180
310
260
85
0
60
15
4,275
3,070
740
Equity and liabilities
$1 ordinary shares
Share premium
Retained earnings
Non-controlling interest
Non-current liabilities
Long term loans
450
400
350
250
100
80
1,595
810
210
2,295
1,310
640
250
210
-
2,545
1,520
640
1,100
1,100
-
Current liabilities
Bank overdraft
Trade payables
Taxation
Total equity and liabilities
80
210
190
80
340
260
20
4,275
3,070
740
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Additional information:
i. Forest Ltd acquired 80% of the ordinary shares of Wood Ltd on 1 February 2023 for $400
million in cash and issued 25 million $1 ordinary shares with a market value of $100
million. At the date of acquisition, Wood Ltd.'s assets and liabilities were recorded at
their fair value, with the exception of some plant which had a fair value of $100 000
below its carrying value.
ii. During the year, Forest Ltd made a further issue of ordinary shares, again, at a premium
above nominal value.
iii. The property, plant and equipment sold during the year had a carrying value of $140
million. Total depreciation charges for the year were $209 million.
REQUIRED:
Prepare a consolidated statement of cash flows in accordance with IAS 7 "Statement of Cash
Flows" for the year ended 31 October 2023 using the indirect method. Show all your
workings clearly.
{30 marks)
{Total: 30 Marks}
END OF QUESTION PAPER
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