NATIONAL UNIVERSITY OF SCIENCE AND TECHNOLOGY
FACULTY OF COMMERCE
DEPARTMENT OF ACCOUNTING
FINANCIAL REPORTING
CAC 4101
Examination Paper
DECEMBER 2016
This examination paper consists of 6 pages
Time Allowed: 3 hours
Total Marks: 100
INSTRUCTIONS
Answer all questions
Each question carries 25 marks
Use of calculators is permissible
MARK ALLOCATION
QUESTION MARKS
1. 25
2. 25
3. 25
4. 25
TOTAL 100
Page 1 of 6
Copyright: National University of Science and Technology, 2016
Question one (25 Marks)
(a)State the functions of the International Financial Reporting Standards Interpretations
Committee. (5 marks)
(b) The following is information on two companies in Zimbabwe that are distributors of three
dimension printers.
3D Printers Ltd NewTech Printers Ltd
Profit before tax $ 350 000 $ 275 000
Tax expenses $ 37 000 $ 120 000
Effect-% 10.5% 44%
Tax rate-companies 30% 30%
Statement of Cash flow –tax paid $ 80 000 $ 80 000
Required
Explain why there are (i) differences between effective tax rates and actual tax
rates and
(ii) differences between tax paid in the Statement of Cash flow and the
Statement of Profit or Loss. (10 marks)
Question two (25 Marks)
Eastlands (Pvt) Ltd specialises in selling export beef, tilapia fish and goat milk. The following
information relates to the reporting period ending 30 September 2016.
Revenue $ 4 678 000
Cost of sales $3 000 000
Other expenses $ 400 000
Tax 30%
Ordinary shares-of .05 cents at 1 October 2015:10 000 000.
Ordinary shares issued on 1 April 2016 :250 000
Goat milk is produced at its asset in Chipinge and constitutes 22% of turnover and 32% of
cost of sales and other expenses. $215 000 is the tax in relation to the Chipinge operations.
On 1 May 2016 the board approved the disposition of the goat milk business in Chipinge
Shortage of special breed goats has been the main reason for this decision. Announcement
of the disposition was made on the same day. The carrying amount of the asset in Chipinge
at that date was $ 1 050 00 and it had liabilities of $150 000.The estimated recoverable
amount was $850 000.There has been no impairment in the expenses of $3 400 000. At 30
September the carrying amount of the asset at the goat milk plant was $850 000 and the
liabilities were still $150 000.
Required
Show how the above information will be presented in the financial statements of Eastlands
(Pvt) Ltd for the reporting period ending 30 September 2016 and the earnings per share.
(25 marks)
Question three (25 Marks)
Diamond City sold a one -year old diamond polishing machine for $240 000 at the beginning of the
reporting period and leased it back in accordance with an operating lease at $90 000 per annum for
four years. The following information is applicable on the 1 May 2015 the date of sale:
Carrying amount Tax Base
$’000 $’000
Cost and tax base 200 200
Accumulated depreciation/wear and tear 40 100
160 100
The estimated useful life of the machine is five years of which one has elapsed. Assume a taxation
rate 30%. 50% of capital gains are included in the taxable income.
REQUIRED
Record the journal entries for the first year of the lease in the books of Diamond City
if the fair value was:
$200 000
$240 000
$260 000 (Assume that the loss under fair value is being compensated for in future
lease payments.) (20 marks)
Identify non -financial items that must be disclosed in the financial statements of
Diamond City in compliance with IAS 1.
(5 marks)
Question four(25 Marks)
You have been given the following circumstances of XZY Ltd for the financial statements for the
report ending 31 March 2016:
(1) A board decision was made on 15 March 2016 to close down the gas division. Potential cost
are $200 000. At 31 March 2016 the decision had not been communicated to managers,
employees or customers.
(2) There are anticipated costs from returns of defective valves in the next few months of $600
000. In the past all returns of defective products have always been refunded to customers.
(3) It is anticipated that a major refurbishment of the company’s head office will take place from
June 2016 onwards costing $250 000.
(4) (i) A legal action claiming compensation of $500 000 filed against XYZ in April 2015.
(ii) A legal action taken by XYZ against third party, claiming charges of $200 000 was started in
January 2015 and is nearing completion.
In both cases, it is more likely that the amount claimed will have to be paid.
The government introduced new laws on environmental protection effective 1 April
2016. XYZ directors have agreed that this will require a large number of staff to be
retrained. At 31 March 2016, the directors were waiting on a Human Resources
report they had commissioned that would identify the actual training requirements.
At the end of the reporting period, XYZ was negotiating with its insurance provider
about the amount of an insurance claim that it had filed. On May 2016, the
insurance provider agreed to pay $250 000.
Although it has no legal obligation to do so, XYZ makes refunds to customers for any
goods returned within 30 days of sale, and has done for many years.
A customer is suing XYZ for damages alleged to have been caused by a product sold
to it by agents of XYZ. XYZ is contesting the claim and, at 31 March 2016, the
directors have been advised by the company’s lawyers that the company is very
unlikely to lose the case.
Required
For each case above determine whether a provision be recognized under IAS 37 Provisions,
Contingent Liabilities and Contingent Assets in the financial statements for the reporting period
ending 31 March 2016. (25 marks)
NATIONAL UNIVERSITY OF SCIENCE AND TECHNOLOGY
FACULTY OF COMMERCE
DEPARTMENT OF ACCOUNTING
FINANCIAL REPORTING
CAC 4101
Supplementary Examination Paper
JULY/AUGUST 2019
This examination paper consists of 4 pages
Time Allowed: 3 hours
Total Marks: 100
INSTRUCTIONS
1. Answer all questions
2. Each question carries 25 marks
3. Use of calculators is permissible
MARK ALLOCATION
QUESTION MARKS
1. 25
2. 25
3. 25
4. 25
TOTAL 100
Copyright: National University of Science and Technology, 2018
QUESTION 1 (25 Marks)
The following information relates to Mucheke Ltd for the year ended 31 October 2018.
1. On 31 March 2018 Mucheke Ltd issued 100 000 ordinary shares with a par value of
$1 000 each at a premium of $100 per share.
2. On 1 January 2018 Mucheke Ltd’s plant was revalued with $50 000 000. On this date
the remaining useful life of the plant was five years. The revaluation surplus is
realised as the plant is used.
3. On 1 January 2018 the total preference share capital of Mucheke Ltd was redeemed at
par. Shares were not issued to fund this redemption.
4. On 15 July 2018 it was discovered that cash sales of Mucheke Ltd amounting to $50
000 000 were erroneously credited to the debtors account during 2004. This error was
corrected during 2018 and is regarded as material.
5. Net profit for the year amounted to $92 696 000, while ordinary dividends amounting
to $35 000 000 were declared and paid by Mucheke Ltd on 31 October 2018.
6. Preliminary expenses amounting to $2 000 000 were written-off against the share
premium account during the year.
7. On 31 October 2018, $20 000 000 was transferred by Mucheke Ltd to the general
reserve.
8. The balances of the capital accounts and reserves on 31 October 2004 were as
follows:
$’000
Ordinary share capital ($1 000 shares) 1 550 000
10% Redeemable preference share capital (1000 shares) 200 000
Share premium 800 000
Revaluation reserve -
General reserve 20 000
Accumulated profit 1 212 314
Assume a tax rate of 30%
REQUIRED
Prepare the statement of changes in equity of Mucheke Ltd for the year ended 31 October
2018. Notes are not required. Your answer should comply with International Financial
Reporting Standards. (25 marks)
Question 2 (25 MARKS)
Describe the following;
1. Financial capital maintenance and physical capital maintenance. (5 marks)
2. Temporary differences (5marks)
3. Statement of Value Added (5marks)
4. Price Earnings ratio (5marks)
5. Difference between leverage and gearing (5marks)
QUESTION 3 (25 Marks)
(a) Sakubva Ltd acquired machinery on 1 January 2017 for $1 100 000, and in so doing
qualified for a cash subsidy of $400 000. Sakubva Ltd accepted an accounting policy
to depreciate machinery over five years in fixed instalments and to account for
government grants as deferred income. The residual value of machinery was
estimated at $nil at 31 December 2017. Ignore taxation.
REQUIRED
I. Show the journal entries for the year ended 31 December 2017. (3 marks)
II. Disclose the information in the following notes to the financial statement of Sakubva
Ltd for the year ended 31 December 2017 to comply with the relevant accounting
standards.
1. Accounting policy (3 marks)
2. Deferred income (3 marks)
3. Property, plant and equipment (3 marks)
4. Profit before taxation. (3 marks)
(b) Illustrate accounting treatment of investment property. (10 marks)
Question 4 (25 Marks)
Jay Jay Ltd is a major manufacturing company based in Bulawayo and is expanding its
warehouse operations to five provinces in Zimbabwe. The expansion starting on 1 January
2017 is expected to take 20 months and to cost $600 million to be financed 50% by new
issues and 25% by a 5% specific loan and 25% by two equal general loans of 8% and 10%.
Expenditure is evenly spread throughout the 20 months starting with the cheapest source of
funds.
You are the Project Accountant and a member of the project team. The other team members
who are not accountants but are aware that IAS 23 (Capitalisation of borrowed cost) and IAS
12 (Income Tax) may apply to this expansion.
Required
(a) Discuss fully to the team the major contents of IAS 23 as it relates to the project
above. (18 marks)
(b) IAS 12 Disclosure notes format. (You may use your own figures) (7 marks)
END OF EXAMINATION
NATIONAL UNIVERSITY OF SCIENCE AND TECHNOLOGY
FACULTY OF COMMERCE
DEPARTMENT OF ACCOUNTING
FINANCIAL REPORTING
CAC 4101
Examination Paper
NOVEMBER/DECEMBER 2019
This examination paper consists of 5 pages
Time Allowed: 3 hours
Total Marks: 100
INSTRUCTIONS
4. Answer all questions
5. Each question carries 25 marks
6. Use of calculators is permissible
MARK ALLOCATION
QUESTION MARKS
1. 25
2. 25
3. 25
4. 25
TOTAL 100
Copyright: National University of Science and Technology, 2019
QUESTION 1 (25 marks)
Explain plainly to a new trainee the following:
(Choose any five)
a) Definition of an asset under the Framework 2018 and Framework 2010. [5 marks]
b) Recognition and de-recognition of intangibles under IAS 36. [5 marks]
c) Constraints on relevant and reliable information. [5 marks]
d) Benefits of a statement of cashflows. [5 marks]
e) Examples of deferred tax being recognised outside profit or loss (IAS 12 and IAS 1)
[5 marks]
f) The functions of IFRIC. [5 marks]
QUESTION 2 (25 marks)
QED Ltd a manufacturer of earth lifting equipment promoted its product 5 years ago. The terms of the
sales promotion were:
Price $10 million
Installation costs $450 000
Training $50 000
Life of equipment 10 years
Sales credit is 2 years if purchaser buys 5 or more lifting equipment.
QED sold 6 machines to FRC Ltd on 1 January 2013. On 1 March 2018, EMA issued a new law requiring
all owners of earth lifting equipment to provide for dismantling costs after the life of each equipment
based on 10% of purchase price.
On 1 July 2018, the old earth lifting equipment with a carrying amount of $ 2 million was considered
impaired by $500 000.
Lindiwe, the trainee accountant of FRC Ltd computed a deferred tax asset of one of the fork lifts at 31
December 2017. She recognised the asset after discounting it. She is not sure if the treatment is
correct.
Other information
The discount rate for FRC Ltd is 10% and all equipment have a life of 10 years each. Depreciation is on
a straight line basis.
Tax is 25%.
Required
a) Prepare journal entries at 1 January 2013 and 31 December 2018 in the books of FRC Ltd.
[18 marks]
b) Discuss Lindiwe’s accounting treatment of forklifts and do correction journals if required.
[2 marks]
c) State what internal sources that could have indicated impairment of the old earth lifting
equipment. [5 marks]
QUESTION 3 (25 marks)3
The accounting profit for NMN Ltd for the year ended 31 December 2018 is $950 000. Included in the
accounting profit are dividends received of $12 000 that are not taxable and a penalty of $16 000 that
is not deductible for tax purposes. Prepaid expenses on 31 December 2017 amounted to $40 000 and
$30 000 on 31 December 2018.
NMN Ltd acquired land in Esigodini for $1 000 000 on 1 January 2017 and plans to construct a factory
thereon. For the financial year ended 31 December 2017, the land was measured using the cost model
of IAS 16. In 2015 NMN Ltd changed its accounting policy to the revaluation model in IAS 16. The land
was revalued to $1 200 000 on 31 December 2018.
NMN Ltd acquired machinery on 1 January 2018 for $300 000 which is depreciated over five years on
the straight line basis. The depreciation is included in the accounting profit. ZIMRA allows a SIA
deduction of 25% in the first year and 25% per year for the subsequent 3 years.
The company sells stoves with a 2 year warranty. The company provides for warranty costs in its
annual financial statements. The provision is not deductible for tax purposes, but the actual warranty
costs paid are deductible. The balance of the provision for warranty costs in the statement of financial
position of NMN Ltd on 31 December 2017 amounted to $32 000 and $40 000 respectively.
Actual warranties paid during the current year amounted to $36 000 and was debited against the
provision for warranty costs.
On 1 January 2018, the equipment was destroyed by fire as a result of lightning. The profit realised on
this equipment is included in the profit before tax. Information regarding this equipment is as follows:
Insurance claim received 125 000
Cost of equipment 160 000
Carrying amount at 1 January 2018 96 000
Tax base on 1 January 2018 80 000
There were no other temporary differences on 31 December 2017. The effective income tax rate
(inclusive of the Aids Levy) is 25.75% and the capital gains are taxed as per Capital Gains Tax Act 23.01.
No tax rate changed in 2017 and 2018.
Required
Disclose the following notes in NMN Ltd for the year ended 31 December 2018:
a) Income tax expense [20 marks]
b) Deferred tax liability or asset. [5 marks]
QUESTION 4 (25 marks)
Glen Louis Ltd (GL), supplies bespoke software and also sells off- the -shelf- accounting packages to
companies in the agricultural industry. It analyses expenses by nature in its profit and loss and other
comprehensive income.
On 30 September 2018 GL’S nominal ledger showed the following balances
$:
Allowance for bad debt at 1 October 2017 132 170
Bank overdraft-AgriBank 2 500
Bank interest paid 1 500
Cash on hand 570
Inventory at 1 October 2017 25 000
Other expenses 567 500
Ordinary share capital (50 cents shares) 100 000
Plant and Equipment: Cost 676 000
Accumulated depreciation 357 500
Property: Cost (Including land of $500 000) 1 500 000
Accumulated depreciation at 1 October 2017 120 000
Raw materials and consumables 1 140 500
Retained earnings at 1 October 2017 132 170
Sales (including $1 300 000 in respect of off- the- shelf –packages
–see Note (6) 5 650 700
Trade and other receivables 265 500
Trade and other payables 1 467 000
Wages and salaries 2 570 000
Warranty provisions at 1 October 2017 22 000
5% Preference share capital ($1 redeemable 2022) 200 000
The following additional information is available:
(1) Prepayments in respect of other expenses have been estimated at $15 000. Accruals in respect of
raw materials have been estimated at $17 400. These have not yet been adjusted for in the above
figures.
(2) Allowance for bad debts is expected to increase by $21 500 and is to be included in the other
expenses. In 2017 there was an increase of $43 000.
(3) Inventory on hand at 30 September 2018 was valued at cost of $32 000, including 20 ALPHA –1
packages valued at a cost of $120 each. On 10 October 2018 the sales director became aware of that
a competitor had been selling the same package at a low price of $100 each for the last four weeks.GL
sales the same package for $200.
(4) On 30 June 2018 the company supplied be-spoke software to Butterfly in accordance with the
terms of contract for $500 000 for supply of software and for the two years of after-sale support
estimated at $100 000 for the two years.GL charges a mark –up of 20 % on similar after-sales only
contracts. The $500 000 has been included in revenue. In accordance with the terms of the contract
Butterfly had paid the whole $500 000 in September 2018.
(5) Depreciation on property, plant and equipment has yet to be charged.GL charges depreciation as
follows:
Property-on a straight- line basis over 50 yrs.
Plant and Equipment-at a rate of 20% per annum on reducing balance method.
All property plant and equipment has previously been held at cost but on 1 October 2017 the directors
decided to revalue the company’s property. On that date, an independent valuer, valued the property
at $2 million-(land being $944 000). The total estimated useful life of buildings was unchanged at 50
years, giving a remaining useful life at 1 October 2017 of 44 years. The company directors intend to
make an annual transfer between the revaluation surplus and retained earnings.
(6) GH offers a 12 month warranty on sale of all it’s off-the shelf accounting packages. Provision is
made at each year based on the anticipated level of returns, which has habitually been 2% of sales.
(7) A dividend of 20 cents per ordinary share was paid on 15 September 2018 and the preference
dividend for the year was paid on 30 September 2018. Both have been included in other expenses.
(8) The income tax expense for the period 30 September 2018 has been estimated at $400 000 .An
error of $50 000 on tax calculation was discovered on 31 October 2018 before approval of the financial
statements.
Required
Prepare a statement of profit or loss and other comprehensive income for Glen Louis Ltd for the
reporting date 30 September 2018 and a statement of financial position as at that date in a form
suitable for publication. Expenses should be analysed by nature.
Notes to the financial statements are not required. Ignore deferred tax implications.
END OF PAPER
