INSTITUTE OF CHARTERED SECRETARIES

I C S A

AND ADMINISTRATORS IN ZIMBABWE

INTERNATIONAL

EXAMINATION QUESTION PAPER

DATE:

NOVEMBER 2015

TIME:

4 HOURS

PART:

C (PROFESSIONAL PROGRAMME I)

SUBJECT:

ADVANCED ACCOUNTING & FINANCIAL REPORTING

INSTRUCTIONS TO CANDIDATES
Answer question one (1) in Section A and ANY OTHER three (3) in Section B.
MARK ALLOCATION
SECTION A: ANSWER ALL
Question 1

40 marks

SECTION B: ANSWER ANY THREE QUESTIONS

Questions 2- 5 carry 20 marks each.
Total

100 marks

Answer in terms of International Financial Reporting Standards, revised International

Accounting Standards and the Zimbabwe Companies Act (Chapter 24:03). Tax rates quoted are
not necessarily those in the current Finance Act.
Your examination script is the property of ICSAZ and is not to be removed from the examination venue.

SECTION A
This section is compulsory
QUESTION 1
The following are the trial balances of Chimombe Limited, Tauya Limited and
Murozvi Limited for the year ended 31 December 2014.

Property Plant and equipment

Investment in Tauya Limited at fair
value : 80 000 ordinary shares
Investment in Murozvi Limited at fair
value : 30 000 ordinary shares
Dividends paid 30 April 2014
Dividends paid 30 December 2014
Income tax expense
Trade receivables
Cash and cash equivalents
Share capital 300 000 ordinary
shares
Share capital 150 000 ordinary
shares
Share capital 100 000 ordinary
shares
Retained earnings 1 January 2014
Profit before dividend income
Dividends received
Long term liability
Trade and other payables

Retained Earnings
Chimombe Tauya
Murozvi
Limited
Limited
Limited
$
$
$
593 000
302 500
223 600
209 250
60 000
20 000
83 491
53 159
12 500
(300 000)

27 840
35 610
22 890

10 000
40 600
46 700
76 200

(175 000)
(100 000)
(293 900)
(287 900)
(16 000)
(53 600)
0

(151 500)
(96 000)
(3 000)
(43 340)
0

(22 000)
(140 000)
(91 000)
(44 100)
0

Additional information
1. Chimombe Limited acquired 80 000 ordinary shares in Tauya Limited on 1
January 2013. On this date Tauya Ltd `s share capital was $100 000
(100 000 shares) and the retained earnings were $55 000.
2. Tauya Ltd acquired 30 000 ordinary shares in Murozvi Limited on
1 October 2014. Tauya Ltd exercises significant influence over the
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financial and operating policies of Murozvi Ltd. The profit for the current
year was earned evenly throughout the year.
3. At both the acquisition dates there were no unidentified assets, liabilities
or contingent liabilities and the fair values of all assets, liabilities and
contingent liabilities were confirmed to be equal to the carrying amounts
thereof.
4. On 1 May 2014 Tauya Ltd had a rights issue of 1 ordinary share for every 2
shares held at $1.50 per share. The parent took up 47 500 of the shares
and the non-controlling shareholders took up the balance.
5. The fair value of the available-for-sale assets is equal to the cost price
thereof unless otherwise stated.
6. The normal tax rate is 25% and for all the entities. Each share carries one
vote.
7. It is the accounting policy of the group to measure non-controlling
interest using the partial goodwill method.
8. At the end of the current year, goodwill was assessed for impairment and
it was not considered to be impaired.
REQUIRED:
Prepare the consolidated annual financial statements of Chimombe Limited
Group for the year ended 31 December 2014.
Your answer must comply with the requirements of Generally Accepted
Accounting Practice.
Notes to the consolidated annual financial statements and comparative
figures are not required.
Calculations are to be done to the nearest $1.
[Total: 40 marks]

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SECTION B
(ANSWER ANY THREE QUESTIONS FROM THIS SECTION)
QUESTION 2
The abridged trial balance of Sapphire Limited and its subsidiary, Alpha Limited,
for the year ended 31 December 2014 are as follows:
Sapphire
Limited
$
Credits
Share capital (60 000 ordinary shares);
(40 000 ordinary shares)
Retained earnings : 1 January 2014
Profit before tax
Long term borrowings
Trade and other payables
Debits
Property, Plant and equipment
Investment in Alpha Limited at fair value
Trade receivables
Income tax expense
Dividends paid : 31 December 2014

Alpha
Limited
$

300 000
500 000
190 000
270 000
13 900
1 273 900

200 000
150 000
240 000
175 000
20 000
785 000

823 000
268 900
76 900
55 100
50 000
1 273 900

651 000
0
34 400
69 600
30 000
785 000

Additional Information
1. On 1 January 2012 Sapphire Limited acquired 60% of the equity of Alpha Ltd
and paid $190 000 for the investment. The share capital has remained
unchanged since that date and there were no other reserves other than
retained earnings of $75 000 on the date of acquisition. At this acquisition
date no unidentified assets, liabilities or contingent liabilities existed and the
fair value of all assets, liabilities and contingent liabilities was confirmed to
be equal to the carrying amounts thereof, except for a vacant piece of land
that was revalued by $60 000 (cost $40 000) for the purposes of this
acquisition. Alpha Limited did not process any revaluation in their records.
Capital gains tax is charged on 50% of profit at 25%.

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2. On 30 June 2013 Alpha Limited sold the piece of land for $110 000.
3. On 1 October 2014 Sapphire Limited acquired an additional 6 000 ordinary
shares in Alpha Ltd. On this date there was no change in the fair value of
assets, liabilities or contingent liabilities as was determined on 1 January
2012. The profit of Alpha Limited other than the effect of the inter-company
transaction (refer to point 5.) has been earned evenly throughout the year.
4. The cost price of the investment in the subsidiary is considered to be
equivalent to the fair value thereof.
5. On 2 October 2014 Alpha Limited sold machinery with a carrying amount of
$80 000 to Sapphire Limited for $120 000. The depreciation policy of the
group is to depreciate machinery over the expected useful life of 5 years on
straight-line method. Machinery is depreciated at the same rate as is allowed
for tax purposes.
6. Assume that each share carries one vote.
7. The normal tax rate is 25%. You may assume the tax rate has been 25% since
1 January 2012.
8. The company uses the partial goodwill method to account for noncontrolling interest. The value of goodwill was tested for impairment at the
end of 2014 and it was found to be unimpaired.

REQUIRED:
(a) Explain what is meant by the "several acquisition dates" method of
accounting for the acquisition of an interest in a subsidiary.

(2 marks)

(b) Prepare the following for the Sapphire Limited Group for the year ended 31
December 2014;
(i)
(ii)
(iii)

Consolidated Statement of Financial Position.

Consolidated Statement of Comprehensive Income and ;
Consolidated Statement of Changes in Equity.

(6 marks)
(6 marks)
(6 marks)

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Your answer must comply with the requirements of Generally Accepted

Accounting Practice.
The notes to the consolidated annual financial statements and comparative
figures are not required.
All calculations are to be done to the nearest $1.
[Total:20 marks]
QUESTION 3
Below are the final accounts for the year to 31 March 2015 of Marian Ltd a wholly
owned subsidiary of Destiny Ltd of Zimbabwe.
The relevant exchange rates of the two currencies were as follows:
Rands to
$
1 January 2011

16

1 April 2011

16.2

1 January 2011

16.5

1 September 2013
31 March 2014

18
19.8

Average for January-March 2014

31 March 2015
Average for January-March 2015
Average for year to 31 March
2015

19.7
20.1
20.05

(when ordinary shares were

issued)
(when land and buildings
were bought)
(when debentures were
issued)
(when fixtures, etc. are
bought)
(when opening stock was
bought)
(when closing stock was
bought)

20.1

Notes:
1. Retained profits from the previous year were $9 950 (under closing) rate
methods.
2. Paid dividend was $7 394 as received in Zimbabwe.

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Profit and Loss account for year to 31 March 2015

ZAR"000"
Sales
Less cost of sales
Opening stock
Purchases
Less closing stock
Gross profit
Less wages and salaries
Sundry expenses
Building depreciation
Fixtures depreciation
Debenture interest
Net profit
Less overseas tax
Undistributed profits in previous
years
Less dividends (remitted to
Zimbabwe)
Paid
Proposed

1 800
7 700
9 500
2 000
600
380
100
100
120

ZAR"000"
10 000

(7 500)
2 500

(1 300)
1 200
(600)
600
200
800

150
300

(450)
350

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Statement of Financial Position as at 31 March 2015

ZAR"000"
Ordinary shares
Retained profits

ZAR"000"
3 000
350
3 350
1 500

8% debenture
Current liabilities:
Trade payables
overseas tax
proposed dividend

2 000
600
300

Land and buildings:

Cost
less depreciation

2 500
(500)

2 000

Fixtures etc. :
Cost
less depreciation

500
(250)

250

Current assets:
Stock
Trade receivables
cash at bank

2 000
2 000
1 500

2 900
7750

5 500
7 750

REQUIRED :
Translate the accounts of Marian Limited using the closing rate, identifying any
exchange gains or losses and the accounting treatment according to IAS 21.
[Total: 20 marks]

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QUESTION 4
The following provisions have been included in the financial statements of
Gwaringa Ltd as at 31 December 2014.
$
(a) Provision for repair costs for sales under warranty
250 000
(b) Provision for repairs and maintenance of plant and machinery
75 000
(c) Provision for expected operating losses to be incurred in
a trade show scheduled for March 2015
35 000
(d) Provision for the dismantling and selling of non-current assets
classified as held for sale
15 000
(e) Provision for severance pay to employees in a discontinued
operation
50 000
(f) Provision for relocating and retraining staff affected by the
restructuring program
60 000
REQUIRED:
Discuss with brief reasons, in each of the above cases, whether a provision must
be recognised at 31 December 2014 so as to comply with the requirements of
Statements of Generally Accepted Accounting Practice. Assume all amounts to
be material.
[20 marks]

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QUESTION 5

The following represents the abridged financial statements of Charlton Limited and its
subsidiaries:
Charlton Limited and its subsidiaries
Consolidated Statement of Financial Position at 31 December 2014
2014
2013
$
$
ASSETS
Non - current assets
Property
89 700
75 200
Plant and equipment cost
59 520
51 900
Accumulated depreciation
(15 400) (10 100)
133 820 117 000
Current assets
Inventories
29 060
22 040
Trade
receivables
36 080
37 060
Cash and cash equivalents
10 400
6 000
209 360 182 100
EQUITY AND LIABILITIES
Equity and reserves
Share Capital
20 000
20 000
Retained Earnings
118 740
95 000
Shareholders equity and reserves
138 740 115 000
Minority Interest
17 080
12 780
Total Equity
155 820 127 780
Non- current liabilities
Deferred tax
Long-term borrowings
Current
liabilities
Trade and other payables
Tax payable
Shareholders for dividend

9 220
10 500

9 000
15 720

16 820
7 000
10 000
209 360

15 900
5 700
8 000
182 100

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Charlton Limited and its subsidiaries

Consolidated Statement of Comprehensive Income for the year ended 31
December 2014
$
Revenue
168 000
Cost of sales
(80 000)
Gross profit
88 000
Other expenses
(24 000)
Finance costs
(1 300)
Profit before tax
62 700
Income tax expense
(27 000)
Profit for the period
35 700
Attributable to:
Shareholders of the parent
Minority interest

33 740
1 960
35 700

Charlton Limited and its subsidiaries

Consolidated Statement of changes in Equity for the year ended
31 December 2014
Minorit
Share
Retained Total
y
Total
Interes
capital Earnings
t
Equity
$
$
$
$
$
Balance at 31 Dec
2010
20 000
95 000
115 000 12 780
127 780
Profit for the
period
33 740
33 740
1 960
35 700
Dividend declared
(10 000) (10 000)
(660)
(10 660)
Additional shares
acquired
3 000
3 000
Balance at 31 Dec
2014
20 000 118 740
138 740 17 080
155 820

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Additional information:
1. The following items were included in the calculation of profit before tax
$
Depreciation
5 900
Loss on sale of plant
200
2. Details of plant sold by the companies in the group during the year were as
follows:
$
Proceeds
200
Cost price
1 000
Accumulated Depreciation
600
3. On 1 January 2014 Charlton obtained 75% of the share capital of Harvey Ltd
for $9 000. On that date the Statement of Financial Position of Harvey Ltd
was as follows:
$
ASSETS
Plant and equipment
Current assets
Inventories
Trade receivables
Cash and cash equivalents

8 300

4 860
1 840
1 000
16 000

EQUITY AND LIABILITIES

Share capital
Retained earnings
Total equity

2 000
10 000
12 000

Current liabilities
Trade and other payables
Total equity and liabilities

4 000
16 000

4. The purchase of fixed property was to expand operations.

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5. Plant and equipment was purchased to replace the plant that was sold
(note 2).
REQUIRED:
Determine the liquidity position of Charlton Limited and its subsidiaries for the
year ended 31 December 2014 by preparing the consolidated cash flow
statement.
[20 marks]
End of Examination Question Paper

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