REVIEW QUESTIONS
CORPORATE REPORT
QUESTION ONE:
Adams plc (Adams) is a public limited company based in Tanzania . It has shareholdings
in two other companies, Truman plc (Truman) and Carter plc (Carter). Statements of
Financial Position are shown below for all three companies as at 31 July 2015.
Statements of Financial Position as at 31 July 2015
Adams plc Truman plc Carter plc
TZS million TZS million TZS
million
Non-current assets:
Property, plant & equipment 500 145 100
Investments 300 48 5
800 193 105
Current assets:
Inventories 180 51
23
Trade receivables 64 24
13
Cash & bank 24 13
8
268 88
44
Total assets 1,068 281
149
-==== =====
=====
Equity:
Equity share capital of TZS 0.25 each 250 100 40
Share premium 200 80 20
Retained earnings 358 65 61
808 245 121
Non-current liabilities:
6% loan notes 100 nil
nil
Current liabilities:
Trade payables 143 36
18
Dividends proposed 17 nil
10
Total liabilities 260 36
28
Total equity & liabilities 1,068 281
149
====== =====
=====
The following additional information may be relevant:
i. Adams bought 300 million ordinary shares in Truman on 1 August 2013, when
the retained earnings of Truman were TZS 44 million. The consideration was
agreed at TZS 220 million for these shares. TZS 120 million of this was settled in
cash on the date of purchase, the balance being paid by means of a 6% loan note.
This investment has been correctly recorded at cost in the books of Adams,
included under the heading “Investments”. The loan note interest was paid
during the year ended 31 July 2014, but no entry has been made to reflect the
interest payable in the current accounting period.
ii. Adams bought a 40% holding in the ordinary shares of Carter on 1 August 2014,
when the retained earnings balance in Carter’s books stood at TZS 52 million.
The consideration consisted of an immediate cash payment of TZS 50 million.
The directors of Adams negotiated the right to appoint 4 directors to Carter’s 12-
person board as a result of its investment.
iii. The group accounting policy is to value any Non-Controlling Interests (NCI) at
their proportionate share of identifiable net assets at the acquisition date.
iv. On 1 August 2013, certain property held by Truman had a fair value TZS 20
million in excess of its carrying value.The buildings component of this property,
comprising 75% of the total value, had a useful economic life remaining of 10
years at the date of acquisition.
v. During the financial year ended 31 July 2015, Truman had sold goods to Adams
amounting to TZS 60 million. The purchase price included a mark-up of 20% on
cost. Truman’s normal mark-up on goods sold is 60%. Of these goods, one-
quarter remained in the closing inventory of Adams at the reporting date.
vi. Recorded in the books of Adams was an intra-group trade payable of TZS 20
million owed to Truman at year-end. However, the books of Truman showed a
balance of TZS 22 million owed by Adams. It transpired that Truman’s computer
system had automatically charged to Adams’ account interest of TZS 2 million
due to late payments. It was subsequently agreed that Truman would waive this
interest.
vii. Adams has not accounted for any dividend receivable from its group companies.
Both Adams and Carter have proposed dividends as shown in current liabilities.
Carter’s proposed dividend relates entirely to the postacquisition period. No
other dividends were paid or proposed in the year.
viii. Goodwill was reviewed for impairment at the reporting date, and a TZS 3 million
impairment loss was considered necessary to the goodwill of Truman. A TZS 1
million impairment loss should be provided for on the investment in Carter.
REQUIRED:
Prepare the Consolidated Statement of Financial Position for the Adams group
as at 31 July 2015 in accordance with International Financial Reporting
Standards.
QUESTION TWO:
During a break-out session I heard someone talking about accounting policies
and accounting estimates. He said that when there’s a change of these items
sometimes the change is made retrospectively and sometimes it’s made
prospectively. Please explain the difference between an accounting policy and an
accounting estimate and give me an example of each.
QUESTION THREE:
In 1989 the forerunner to the current IASB, the IASC, issued its Framework for
Preparation and Presentation of Financial Statements. This document is part of
the overall conceptual framework within which the current IASB works.
REQUIRED:
a) Describe what is meant by a conceptual framework.
b) Explain the main reasons for having a conceptual framework.
c) Explain the purpose of the Framework for the preparation and
presentation of financial statement.
QUESTION FOUR.
DAR-ES- SALAAM acquired 60% of IRINGA’s ordinary share capital on 30 June 20X2 at a
price TZS 1.06 per share. The balance on IRINGA's retained earnings at that date was
TZS 104m and the general reserve stood at TZS 11m.
Their respective statements of financial position as at 30 September 20X6 are as
follows:
DAR-ES-SALAAM IRINGA
TZS m TZS m
Non-current assets:
Property, plant & equipment 2,848 354
Patents 45 nil
Investment in Madrid 159 nil
---------- -------
3,052 354
Current assets
Inventories 895 225
Trade and other receivables 1,348 251
Cash and cash equivalents 212 34
----------- -------
2,455 510
------------ -------
5,507 864
======== =====
Equity
Share capital (TZS 0.2 ordinary shares) 920 50
General reserve 775 46
Retained earnings 2,086 394
----------- --------
3,781 490
Non-current liabilities
Long-term borrowings 558 168
Current liabilities
Trade and other payables 1,168 183
Current portion of long-term borrowings – 23
---------- ------
1,168 206
---------- ------
5,507 864
====== ====
Annual impairment tests have revealed cumulative impairment losses relating to
recognized goodwill of TZS 17m to date.
REQUIRED
Produce the consolidated statement of financial position for the Barcelona Group as at
30 September 20X6. It is the group policy to value the non-controlling interest at its
proportionate share of the fair value of the subsidiary's identifiable net assets.
QUESTION FIVE:
A statement showing the retained profit of Pilum Co for the year ended 31 December
20X4 is set out below:
TZS TZS
Profit before tax 2,530,000
Less: income tax expense (1,127,000)
---------------
1,403,000
Transfer to reserves (230,000)
Dividends:
Paid preference interim dividend 138,000
Paid ordinary interim divided 184,000
Declared preference final dividend 138,000
Declared ordinary final dividend 230,000
(690,000)
--------------
Retained 483,000
=========
On 1 January 20X4 the issued share capital of Pilum Co was 4,600,000 6% preference
shares of TZS 1 each and 4,120,000 ordinary shares of TZS 1 each.
REQUIRED.
Calculate the earnings per share (on basic and diluted basis) in respect of the year
ended 31 December 20X4 for each of the following circumstances. (Each of the three
circumstances (a) to (c) is to be dealt with separately):
(a) On the basis that there was no change in the issued share capital of the company
during the year ended 31 December 20X4.
(b) On the basis that the company made a rights issue of TZS 1 ordinary shares on 1
October 20X4 in the proportion of 1 for every 5 shares held, at a price of TZS
1.20. The market price for the shares at close of trade on the last day of
quotation cum rights was TZS 1.78 per share.
(c) On the basis that the company made no new issue of shares during the year
ended 31 December 20X4 but on that date it had in issue $1,500,000 10%
convertible loan stock 20X8 – 20Y1. This loan stock will be convertible into
ordinary $1 shares as follows:
20X8 90 $1 shares for $100 nominal value loan stock
20X9 85 $1 shares for $100 nominal value loan stock
20Y0 80 $1 shares for $100 nominal value loan stock
20Y1 75 $1 shares for $100 nominal value loan stock
Assume where appropriate that the income tax rate is 30%.
QUESTION SIX:
MOJA has held shares in two companies, MBILI and TATU, for a number of years. As at
31 December 20X4 they have the following statements of financial position:
MOJA MBILI TATU
TZS '000 TZS '000 TZS '000
Non-current assets
Property, plant & equipment 370 190 260
Investments 218 nil nil
-------- ------ ------
588 190 260
Current assets:
Inventories 160 100 180
Trade receivables 170 90 100
Cash 50 40 10
------- ------ ------
380 230 290
------ ------ ------
968 420 550
===== ===== ====
Equity
Share capital (TZS 1 ordinary share) 200 80 50
Share premium 100 80 30
Retained earnings 568 200 400
------- ------- ------
868 360 480
Current liabilities
Trade payables 100 60 70
------- ------ ------
968 420 550
===== ===== ====
You ascertain the following additional information:
(a) The 'investments' in the statement of financial position comprise solely MOJA's
investment in MBILI (TZS 128,000) and in TATU (TZS 90,000).
(b) The 48,000 shares in MBILI were acquired when MBILI's retained earnings
balance stood at TZS 20,000.
(c) The 15,000 shares in TATU were acquired when that company had a retained
earnings balance of TZS 150,000.
(d) When MOJA acquired its shares in MBILI the fair value of MBIL 's net assets
equalled their book values with the following exceptions:
TZS'000
Property, plant and equipment 50 higher
Inventories 20 lower (sold during 20X4)
(e) Depreciation arising on the fair value adjustment to non-current assets since this
date is TZS 5,000.
(f) During the year, MOJA sold inventories to MBILI for TZS 16,000, which originally
cost MOJA TZS 10,000. Three-quarters of these inventories have subsequently
been sold by MBILI.
(g) No impairment losses on goodwill had been necessary by 31 December 20X4.
REQUIRED
Produce the consolidated statement of financial position for the MOJA group
(incorporating the associate). It is the group policy to value the non-controlling interest
at full (or fair) value. The fair value of the non- controlling interest at acquisition was
TZS 90,000.
QUESTION SEVEN:
MOJA is a public limited company based in Dar-es- Salaam. It has shareholdings in two
other companies, MBILI and TATU Statements of financial position are shown below for all
three companies as at 31 July 2020.
Statements of Financial Position as at 31 July 2020
MOJA MBILI TATU
TZS million TZS million TZS million
Non-current assets
PPE 1,170 55 155
In tangible assets 268 120 47
Investment in group at cost 167
Financial assets 190 32 7
Total Non- current assets 1,795 207 209
Current assets
Inventories 220 142 31
Trade receivable 330 79 37
Cash & bank 140 49 9
Total current assets 690 270 77
Total Assets 2,485 477 286
Equity
Equity share capital TZS 2 @ 1,190 200 100
Capital reserve 350 80 20
Retained earnings 358 65 61
Total equity 1,898 345 181
Non- current liabilities
6% loan notes 100
Contingent consideration 12
Obligation under finance lease 243
Non – current liabilities 355
Current liabilities
Trade and other payables 186 94 75
Current taxation 46 38 30
Total liabilities 232 132 105
Total equity & liabilities 2,485 477 286
The following additional information may be relevant:
i. MOJA bought 60 million ordinary shares in MBILI on 1 August 2018, when the
capital reserves of MBILI were TZS 60 million and the retained earnings of MBILI
were TZS 40 million. The consideration was agreed at TZS 155 million in cash on the
date of purchase, plus a contingent payment of TZS 25 million to be paid on 1 August
2020, provided profits after tax were at least TZS 25 million per year on average. The
fair value of the contingent consideration was estimated at TZS 12 million at the
acquisition date, and this amount was capitalised as part of the cost of investment in
accordance with IFRS 3 - Business Combinations. This estimate was unchanged at 31
July 2019. However, significant losses were incurred by MBILI in the year to 31 July
2020. Consequently nothing will be payable on 1 August 2020 under this part of the
deal.
ii. The group accounting policy is to value any Non-Controlling Interests (NCI) at their
fair value at the acquisition date. On the date MOJA acquired its interest in MBILI ,
the fair value of the NCI in MBILIT was TZS 120 million.
iii. On 1 August 2018, the intangible assets held by MBILI had a fair value TZS 25
million in excess of their carrying value. These assets had a useful remaining
economic life of 5 years at the date of acquisition.
iv. MOJA bought a 40% holding in the ordinary shares of TATU on 1 August 2019,
when the capital reserves of TATU were TZS 20 million and the retained earnings
balance in TATU’s books stood at TZS 65 million. The consideration consisted of
equity shares issued by MOJA on a 2 for 5 basis. The fair value of MOJA ’s equity
shares on 1 August 2019 was TZS 6.50 each. The share issue has not yet been
recorded by MOJA . MOJA exerts significant influence over TATU as a result of this
holding.
v. During the financial year ended 31 July 2020, MBILI had sold goods to MOJA
amounting to TZS 18 million. The purchase price included a margin of 20%. Of these
goods, one-third remained in the closing inventory of MOJA at the reporting date.
vi. The amount carried under the heading “Obligations under finance leases” in the books
of MOJA consists of the total obligation under finance leases correctly calculated
under IAS 17 - Leases. However, on review, it has become clear that TZS 66 million
in finance lease payments will be payable on 31 July 2021. The interest rate implicit
in the finance leases averages 10%.
vii. No dividends were paid or proposed in the year to 31 July 2020 by any group
company.
viii. No impairment losses were deemed necessary at 31 July 2019 or 2020.
REQUIRED:
Calculate the value of:
(a) Goodwill at acquisition date.
(b) Investment of Associate.
(c) Grouped Earning
(d) Non- Controlling Intrest.
