FACULTY OF COMMERCE, HUMAN SCIENCES AND EDUCATION

DEPARTMENT ECONOMICS, ACCOUNTING AND FINANCE

BACHELOR OF ACCOUNTING
______________________________________________________________________
FINANCIAL ACCOUNTING 320 (GFA 712S)

Date: 22 October 2022

Duration: 120 Minutes
Marks: 50
TEST 3

INSTRUCTIONS
1. Answer ALL questions in blue or black ink only
2. Write clearly and neatly.
3. Start each question on a new page and number the answers clearly.
4. No programmable calculators are allowed.
5. 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.
6. Correct name of Lecturer and mode of study must be indicated on the script.

Examiners: D Kamotho & Ms D Jesaya

Moderator: Ms S Ifugula

This paper consists of 4 pages excluding this cover page

0
QUESTION 1 20 marks
Best beds, a large family-owned business, a manufacture and distributes economy wooden
beds across Namibia. Best beds measure its manufacturing plant using the revaluation
model in terms of IAS 16 Property, plant and equipment. They recently hired a new
accountant who graduated from NUST who is keen to measure the plants fair value for the
purpose of this year’s revaluation.
The accountant has obtained the following information:
 The plant could be sold in either Windhoek or Oshakati where other bed
manufacturers can be found more easily.
 If the plant is sold in Oshakati, the selling price will be N$24 600 , the transport cost
will be N$2500 and the transaction costs will be N$2500
 If the asset is sold in Windhoek, the selling price will be N$ 22000, the transport cost
will be N$2000 and the transportation cost will be N$1000

REQUIRED
Explain and determine with calculation the fair value of the plant assuming that:
a) The market in Oshakati is the principal market (5 marks)
b) The market in Windhoek is the principal market (5 marks)
c) There is no principal market for the asset (10 marks)

[Total 20 marks]

1
QUESTION 2 (30 marks)
Kilos Ltd has a number of subsidiaries, one of which, Grammes Ltd was acquired during the
year ended 31 December 2021.

The draft consolidated financial statements for the year ended 31 December 2021 are as
follows:

Consolidated Statement of Profit or Loss of Kilos Ltd for the year ended 31 December
2021

$000
Profit from operations (790)
Interest (100)
(890)
Share of profits of associates 240
Loss before taxation
(650)
Taxation (482)
(1 132)

Non-controlling interest (100)

Group profit (1 032)

2
 Statements of Financial Position are as follows:

Kilos Ltd Kilos Ltd Grammes

consolidated consolidated Ltd
at 31/12/2021 at 31/12/2020 at
acquisition
$000 $000 $000
Assets
Non-current assets
Property, plant and equipment 5,230 2,610 610
Intangibles 350 310 -
Investment in associates 520 500 -
6,100 3,420 610
Current assets
Inventories 740 792 150
Trade and other receivables 390 350 85
Cash and cash equivalents 40 85 20
Total assets 7,270 4,647 865

Equity and liabilities

$1 ordinary shares 1,400 1,000 500
Share premium 300 200 100
Retained earnings 15 1,047 80
1,715 2,247 680
Non-controlling interest 680 610 -
2,395 2,857 680
Non-current liabilities
Long term loans 1,900 1,100 -
Current liabilities
Trade payables 520 480 75
Taxation 455 210 110
Bank overdraft 2000 0 0
Total Equity and Liabilities 7,270 4,647 865

3
Additional information:

1. Kilos Ltd issued 400,000 $1 ordinary shares at a premium of 25 cent and paid a cash
consideration of $197,500 to acquire 75% of Grammes Ltd. At the date of acquisition,
Grammes Ltd’s assets and liabilities were recorded at their fair value with the
exception of some plant which had a fair value of $90,000 in excess of its carrying
value. Goodwill on acquisition was $120,000.

2. The property, plant and equipment during the year to 31 December 2021 shows plant
with a carrying value of $800,000 which was sold for $680,000. Total depreciation for
the year was $782,000.

REQUIREMENTS:

Prepare a consolidated statement of cash flows in accordance with IAS 7 Statement of Cash
Flows for the year ended 31 December 2021 using the indirect method. (30 marks)

Show all the relevant workings

[Total 30 marks]

END OF QUESTION PAPER

4
 Solution 1

Marks
Fair values must be measured in terms of the principal market if a principal market exists. 0.5
It is only if a principal market does not exist, that the fair value is measured in terms of the 0.5
most advantageous market instead.
Thus, since Oshakati is given to be the principal market, the fair value must be based on the 1
prices relevant to the Oshakati market. See IFRS 13.16
The fair value of the asset will be the selling price adjusted for the transport costs -assuming 1
the location is a characteristic of the asset that market participants would consider
Transaction costs are always ignored. See IFRS 13.24-26 1
N$ Marks
Selling price 24600 0.5
Less transport costs (2500) 0.5
Less negative if transaction costs are included -1
Fair value 22100 2
Available – 7, Max 5

b)
Marks
Fair values must be measured in terms of the principal market if a principal 0.5
market exists.
It is only if a principal market does not exist, that the fair value is measured in terms 0.5
of the most advantageous market instead.
Thus, since Windhoek is given to be the principal market, the fair value must be 1
based on the prices relevant to the Windhoek market. See IFRS 13.16
The fair value of the asset will be the selling price adjusted for the transport costs 1
(assuming the location is a characteristic of the asset that market participants would
consider).
Transaction costs are always ignored. See IFRS 13.24-26 1

Marks
Selling price 22000 0.5
Less transport costs (2000) 0.5
-1 mark if transactional costs are included
Fair value 20000 2
Available – 7, Max 5

1
c)
Marks
If neither Windhoek nor Oshakati met the definition of a principal market, the 1
fair value must be based on prices in the most advantageous market instead.
See IFRS 13.16
We would need to first decide which market (i.e., Oshakati or Windhoek) 1
represents the most advantageous market.
When determining which market is the most advantageous market, we must 1
adjust the selling prices in each of these markets for both the transport costs
and the transaction costs.

Oshakati Windhoek Marks

N$ N$

Selling price 24600 22000 0.5

Less transport costs (2500) (2000) 0.5
Less transaction costs (2500) (1000) 0.5
Net selling price 19600 19000 2.0

Marks
Since the prices are maximised in Oshakati, Oshakati is the most 1
advantageous market, and we must thus measure the fair value in terms of
the relevant price achievable in Oshakati.
However, the measurement of fair value does not take into 1
consideration the transaction costs (transaction costs are only taken
into consideration when deciding which market is the most
advantageous market). IFRS 13.25 & App A
Fair value, in terms of the most advantageous market Oshakati), is thus 1
measured as:

Marks
Selling price 24600 0.5
Less transport costs (2500) 0.5
For inclusion of transaction cost -1
Fair value 0 22100 2
Available – 12.5, Max 10

2
Solution 2

Kilos Ltd

Consolidated Statement of cash flows for the year ended 31 December 2021√

$000 $000√
Cash flows from operating activities
Cash generated from operations 404√
Interest paid (100) √
Income tax paid (w1) (347) √
Net cash from operating activities (43)√
Cash flows from investing activities
Purchase of property plant and equipment (w2) (3,502) √
Acquisition of subsidiary Muck ltd net of cash acquired (w8) (177.5) √
Dividends received from associates (w6) 220√
Proceeds from sale of property plant and equipment 680√
Net cash used in investing activities (2,779.5) √
Cash flows from financing activities
Loan 800√
Dividends paid to non-controlling interest (w7) (22.5) √
Dividends paid (w5) 0√
Net cash used in financing activities 777.5√
Net increase in cash and cash equivalents (2,045) √
Cash and cash equivalents at beginning of period 85√
Cash and cash equivalents at end of period (1 960)√

3
Note: Reconciliation of profit before tax to cash generated from
operations
Profit before tax (650)√
Finance cost 100√
Depreciation charge 782√
Amortisation charge (w3) 80√
Loss on disposal of property plant and equipment 120√
Share of profits from associates (240) √
Decrease in inventories (740-792-150) 202√
Decrease in trade and other receivables (390-350-85) 45√
Decrease in trade and other payables (520-480-75) (35) √
Cash generated from operations 404√

(√ = 1 mark each, Max 22 marks)

Workings

1 Income Tax
$000 $000
Cash β 347 Bal b/d 210
Income statement 482
Bal c/d 455√ Acquisition taxation 110
802 802

2 PPE
Bal b/d 2,610 Disposals 800
Acquisition of sub (610+90) 700 Income statement: depreciation 782
Cash β 3,502√ Bal c/f 5,230
6,812 6,812

4
3 Intangibles
Bal b/d 310 IS amortised 80
Acquisition 120√ Bal c/f 350
430 430

4 Share capital and premium

Bal b/d (1,000 +200) 1,200
Bal c/d (1,400+300) 1,700√ Acquisition of Muck Ltd 500
1,700 1,700

5 Retained earnings
Dividends paid Bal b/d 1,047
IS - Loss 1032
Bal c/d 15√ 0
1,047 1,047

6 Investments in Associates
Bal b/d 500 Cash 220√
IS 240 Bal c/f 520
740 740
7 Non-controlling interest
Cash 22.50√ Bal b/d 610
Acquisition of subsidiary (865- 192.50
185+90)*25%
IS 100
Bal c/d 680 0
802.50 802.50

5
8 Acquisition of subsidiary $000
PPE (610+90) 700
Inventories 150
Trade receivables 85
Cash and cash equivalents 20
Trade payables (75)
Taxation (110)
Non controlling interest (192.50)
577.50
Goodwill 120
697.50√
Less: cash and cash eq. (20)
Non cash consideration (400 *$1.25) (500)
Cash flow on acquisition: net of cash acquired 177.50√

500,000+197,500 = 697,500
680,000+90,000=770,000*.75 = 577,500
Goodwill 120,000√

(√ = 1 mark each, Max 8 marks)

END OF MEMORANDUM