CATHOLIC UNIVERSITY OF ZIMBABWE
FACULTY OF COMMERCE,INNOVATION AND TECHNOLOGY
BACHELOR OF ACCOUNTING (HONOURS) DEGREE
YEAR TWO: FIRST SEMESTER EXAMINATION
COURSE NAME: ACCOUNTING FOR REPORTING COMPANIES-AC200
DATE: APRIL 2024 TIME: 3 HOURS
INSTRUCTIONS TO CANDIDATES
1. This paper carries 4 (fOUR) questions.
2. Answer ALL 4 (four) questions
3. Each question carries 25 Marks
4. The marks for each question are indicated in square [] brackets.
Page 1 of 7
QUESTION 1
The following trial balance has been extracted from the books of Arran as at 31 March 2017
$000 $000
Administration expenses 250
Distribution costs 295
Share capital (all ordinary shares of $1 each) 270
Share premium 80
Revaluation surplus 20
Dividend paid 27
Cash at bank and in hand 3
Receivables 233
Interest paid 25
Dividends received 15
Interest received 1
Land and buildings at cost (land 380, buildings 100) 480
Land and buildings: accumulated depreciation 30
Plant and machinery at cost 400
Plant and machinery: accumulated depreciation 170
Retained earnings account (at 1 April 2016) 235
Purchases 1,260
Sales 2,165
Inventory at 1 April 2016 140
Trade payables 27
Bank loan 100
––––– –––––
3,113 3,113
––––– –––––
Page 2 of 7
Additional Information
1. Inventory at 31 March 2017 was valued at a cost of $95,000. Included in this balance
were goods that had cost $15,000. These goods had become damaged during the year
and it is considered that following remedial work the goods could be sold for $5,000.
2. Depreciation for the year to 31 March 2017 is to be charged against cost of sales as follo
ws:
a. Building 5% on cost (Straight line)
b. Plant and Machinery 30% on carrying amount (Reducing balance)
3. Income tax of $165,000 is to be provided for the year to 31 March 2017.
4. Land is to be revalued upwards by $100,000.
Required:
a. Prepare the statement of profit or loss and other comprehensive income, [10]
b. statement of changes in equity and statement of financial [5]
c. position for year ended 31 March 2017. [10]
QUESTION 2
a. The key qualitative characteristics in the Framework are relevance and reliability.
Preparers of financial statements may face a dilemma in satisfying both criteria at once.
Discuss. [6]
b. An asset is defined in the Framework as a resource which an entity controls as a result of
past events and from which future economic benefits are expected to flow to the entity.
Discuss whether property, plant and equipment automatically qualify as assets.
[4]
c. Name the primary user groups and information needs of the user groups identified by the
Conceptual Framework for the Presentation and Preparation of Financial Statements.
[9]
d. Discuss the effect of the Framework on current financial reporting practice. [6]
Page 3 of 7
QUESTION 3
a. The following information relates to BARNS Limited, a widget manufacturer, for
the year ended 31 December 2019:
$
Direct materials cost per unit 2.00
Direct labour cost per unit 3.00
Direct expenses per unit 2.50
Administration overheads per annum 600,000
Production overheads per annum 900,000
Selling overheads per annum 200,000
Interest payments per annum 100,000
There were no finished goods at the start of the year and no work in progress. There were 250,000 units in
finished goods at the year end. The normal annual level of production is 750,000 widgets however due to
an industrial dispute only 450, 000 widgets were produced in the year to 31 December 2009. The
company uses a standard costing system to value its inventory. These widgets have an expected selling
price of $9 per unit if a further $1.20 is spent in advertising costs.
Required:
You are required to value the inventory at year end in accordance with IAS 2 ‘Inventories’. [10]
a. AC Ltd runs a business that sells building material and related products to customers.
AC Ltd uses the periodic inventory system.
On 3 April 2017, BB (Pty) Ltd electronically sent the following order to AC Ltd:
5 000 bricks (type XX) 79 800
100 bags cement 6 840
14 m³ building sand 684
Page 4 of 7
87 324
(Note: The prices at which the goods are ordered are in agreement with AC Ltd’s price list and
include VAT of 14%)
On 5 April 2017 the goods were delivered to BB (Pty) Ltd’s premises. The accompanying
invoice, issued by AC Ltd, amount to $ 87 324 (including VAT) and is payable on or before 30
April 2017. Both parties to the contract are registered VAT vendors in accordance with the VAT
Act. BB (Pty) Ltd is a customer with an excellent payment record.
Required:
a) State the core principle of IFRS 15 for the recognition of revenue (sales) from a contract with
a customer. [3]
b) Provide the requirements that a contract with a customer must satisfy in accordance with IFRS
15. [5]
c) Recognise the revenue (sales) by applying the five-step model of IFRS 15. [7]
Note: Accept that the contract between the two parties satisfies the requirements of step 1.
QUESTION 4
Provisions are par ticular kinds of liabilities. It therefore follows that provisions should be
recognised when the definition of a liability has been met. The key requirement of a liability is a
present obligation and thus this requirement is critical also in the context of the recognition of a
provision. IAS 37 Provisions, Contingent Liabilities and Contingent Assets deals with this area.
Required:
a. Explain why there was a need for detailed guidance on accounting for provisions [4]
b. Explain the circumstances under which a provision should be recognised in the financial
statements according to IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
[4]
Page 5 of 7
c. On 20 December 2016 one of Incident plc’s lorries was involved in an accident with a car.
The lorry driver was responsible for the accident and the company agreed to pay for the
repair to the car. The company put in a claim to its insurers on 17 January 2017 for the
cost of the claim. The company expected the claim to be settled by the insurance company
except for a $250 excess on the insurance policy. The insurance company may dispute the
claim and not pay out, however, the company believes that the chance of this occurring is
low. The cost of repairing the car was estimated as $5,000, all of which was incurred after
the year end.
Required:
Explain how this item should be treated in the financial statements for the year ended 31
December 2016 according to IAS 37.
[5]
d. i. Define the period covered by IAS 10, and explain when should the financial statements
be adjusted? [4]
ii. A customer made a claim for $50,000 for losses suffered by the late delivery of
goods. The main part ($40,000) of the claim referred to goods due to be delivered
before the year end. Explain how this would be dealt with under IAS 10.
[5]
iii. After the year end a substantial quantity of inventory was destroyed in a fire. The
loss was not adequately covered by insurance. This event is likely to threaten the
ability of the business to continue as a going concern. Discuss the matters you would
consider in making a decision under IAS 10.
[3]
Page 6 of 7
………………………..…END OF EXAMINATION………………………………….
Page 7 of 7
