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PROGRAMME: BAF BS II
COURSE: FINANCIAL ACCOUNTING - III
COURSE CODE: ACC 221
REVIEW QUESTIONS – IAS 1 & IAS 7

QUESTION ONE

The following trial balance was extracted from the financial records of Zumbo Supermarket as at
December 31, 2016.
Dr Cr
Shs.000 Shs.000
Sales 138,078
Purchases 82,350
Carriages (note iii) 5,144
Land (note vii) 7,800
Rent, rates and insurance (note i and ii) 6,622
Postage and stationery 3,001
Advertising 1,330
Salaries and wages 26,420
Bad debts 877
Allowance for doubtful debts (note v) 130
Accounts receivable 12,120
Accounts payable 6,471
Cash at hand 177
Cash at bank 1,002
Inventory as at 1 January 2016 11,927
Equipment cost (note iv) 58,000
Equipment depreciation at 31st December 2015 19,000
Share capital (1,000 shares) 40,000
Share premium 5,000
Retained Earnings 8,091
216,770 216,770

The following additional information as at 31 December 2016 has also been provided.

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(a) Unpaid rent stood at Shs. 210,000

(b) Rates were prepaid by Shs. 880,000
(c) Shs. 2,210,000 of carriage represents carriage inwards on purchases, the balance was incurred
on carriages outwards.
(d) Equipment is to be depreciated at 15% per annum using the straight line method
(e) The allowance for doubtful debts should be increased by Shs. 40,000
(f) Inventory at the close of business was valued at Shs. 13,551,000.
(g) Land should be revalued to Shs. 8,200,000.
(h) Taxation should be ignored.
Required
Prepare the following;
i) An income statement for the year ending 31 December 2016.
ii) A statement of financial position as at December 31, 2016.

QUESTION TWO
Glam Products is a manufacturing company. The trial balance for Glam at 31 March 2019
was as follows:
Shs. Million Shs. Million
Administration costs 4,235
Investments at cost 4,813
Inventory at 1 April 2018 2,000
Purchases 11,153
Dividends paid 756
Investment income 187
Ordinary shares Shs.1 each 12,375
Share premium 3,795
Deferred tax provision 1,952
Current tax 17
Equipment at cost 9,350
Land at cost 5,500
Buildings at cost 8,773
Research and development 1,375
Accumulated depreciation 1 April 2018 4,562
- Equipment
Accumulated depreciation 1 April 2018 4,125
- Buildings
Retained earnings 1 April 2018 1,067
Bank and cash 2,251
Distribution costs 4,373
Interest paid on loan notes 124
Revaluation reserve 1,210
Revenue 22,578
Trade Receivables 4,070

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Trade Payables 2,805

6% Loan notes (Redeemable 2024) 4,134
58,790 58,790
The following additional information is provided:
i. Depreciation is charged on equipment using reducing balance basis at 20% per annum.
Depreciation of buildings is on a straight-line basis at 3% per annum. Depreciation is
charged to cost of sales.
ii. On 31 March 2019 an independent valuation for Land and buildings was done. It estimated
that the fair value of Glam's buildings was now Shs. 6 Billion but the fair value of land was
the same as the book value. The management of Glam wishes to incorporate this valuation
in the financial statements at the year-end. The depreciation will be kept at 3% per annum.
No other assets were revalued in the year.

iii. The 6% loan notes are due for repayment in March 2024. Glam incurred no other finance
costs in the year.

iv. The directors of Glam have estimated the provision for current income tax for the year
ended 31 March 2018 at Shs. 670 Million. The balance on the current tax account in the
trial balance represents the under/over provision for the previous year's tax. Temporary
differences due to capital allowances exceeding depreciation were Shs. 7.43 Billion. The
tax rate is 30%.

v. A new product, the Rum, is being developed in-house. The figure for research and
development costs in the trial balance is made up as follows:

Shs. Million
Capitalized development costs at 1 April 2018 2,384
Less: accumulated amortization at 1 April 2018 1,468
Research costs incurred in the year to 31 March 2019 327
Development costs incurred in the year to 31 March 2019 132
Total 1,375
vi. Development costs are to be amortized 20% per annum straight-line basis and charged to
cost of sales.
vii. Inventory on 31 March 2019 was valued at Shs. 3.63 Billion.

Required:
Prepare for Glam products a Statement of Profit or Loss and other Comprehensive Income for the
year to 31 March 2019 and a statement of financial position as at that date.
QUESTION THREE

(a) The statement of the cash flow is segmented into three. You are to state the three different
segments and list two items that fall under each.

(b) The following statement of financial position is taken from the books of Walumbe for the

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years ended 31 December 2015 and 2016

2015 2016
Shs.000 Shs.000 Shs.000 Shs.000
Non-current assets:
Buildings 50,000 50,000
Furniture (net book value) 1,800 2,000
Van (net book value) 3,920 7,400
55,720 59,400
Current assets
Inventory 5,600 12,400
Trade receivables 6,400 8,200
Bank 900 -
Cash 220 200
13,120 20,800
Total assets 68,840 80,200

Equity and liabilities

Capital account
Capital b/f 1st January 37,040 52,540
Add profit for the year 35,200 21,160
Cash introduced - 10,000
Less drawings (19,700) (21,600)
52,540 62,100
Noncurrent liabilities
Loan repayable (10 years) 10,000 15,000
Current liabilities
Accounts payable 6,300 3,006
Bank overdraft - 94
6,300 3,100
Total Equity and Liabilities 68,840 80,200

Additional information
During 2016 financial year, the following non-current assets were bought;
Fixtures Shs. 400,000,
Van Shs. 5,500,000

There have not been any non-current asset disposals in the year.
Required
Using IAS 7, prepare the Cash flow statement for 2016 financial year (indirect method if to be
used)

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QUESTION FOUR
From the following details you are to draft a cash flow statement for D Duncan Ltd. for the year
ended 31 December 2015: using The IAS 7 layout.
D Duncan
Profit and Loss Account for the year ending 31 December 2015
Tsh. Tsh
Gross profit 44,700
Add Discounts received 410
Profit on sale of van 620 1,030
45,730
Less Expenses
Motor expenses 1,940
Wages 17,200
General expenses 830
Bad debts 520
Increase in doubtful debt provision 200
Depreciation: Van 1,800 22,490
23,240

Statement of financial position as at 31 December

2014 2015
Tsh. Tsh. Tsh. Tsh.
Non-current assets
Vans at cost 15,400 8,200
Less Depreciation to date (5,300) (3,100)
10,100 5,100
Current assets
Stock 18,600 24,000
Debtors less provision* 8,200 6,900
Bank 410 720
27,210 31,620
Less Current liabilities
Creditors (5,900) (7,200)
21,310 24,420
31,410 29,520
Less Long-term liability
Loan from J Fry (10,000) (7,500)
21,410 22,020
Capital
Opening balance b/d 17,210 21,410
Add Net profit 21,200 23,240
38,410 44,650

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Less Drawings (17,000) (22,630)

21,410 22,020
*Debtors 2014 Tsh. 8,800 – provision Tsh.600.
Debtors 2015 Tsh. 7,700 – provision Tsh.800.
Note: A van was sold for Tsh. 3,820 during 2015. No new vans were purchased during the year.

QUESTION FIVE
(a) The Financial Accountant of Opal Ltd. has presented the following summarized financial
statements for the year ended 31st December, 2014
Opal Ltd.
Statement of Profit or Loss for the year ended 31st December, 2014
Shs.’000
Revenue 473,000
Cost of sales (229,000)
Gross profit 244,000
Distribution costs (76,000)
Administrative expenses (48,000)
Finance income 6,000
Finance costs (17,000)
Profit before tax 109,000
Income tax expenses (47,000)
Profit for the period 62,000

Opal Ltd.
Statement of Financial Position as at 31st December 2014,
2014 2013
Shs. ’000 Shs. ’000
Non-current assets
Property, plant and equipment 327,000 264,000
Current assets
Inventories 123,000 176,000
Receivables 95,000 87,000
Short term investments 65,000 30,000
Cash at bank and in hand 29,000 -
Total Assets 639,000 557,000
Equity
Share capital of Shs. 1@ share 200,000 120,000
Share premium 30,000 -
Revaluation surplus 66,000 97,000
Retained earnings 71,000 41,000
Non- current liabilities
10% debenture 100,000 150,000

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Current liabilities
Bank overdraft - 22,000
Trade payables 126,000 70,000
Interest payable 7,000 3,000
Income tax payable 39,000 54,000
Total equity and liabilities 639,000 557,000

Additional information
i. Dividends paid during the period amount to Shs. 32 million.
ii. Property, plant and equipment held by the company include items of plant and equipment
and freehold premises. During the year 2014, items of plant and equipment which
originally cost Shs. 40 million were disposed off resulting in a loss of Shs.6 million. These
items had a net book value of Shs. 28 million at the date of disposal.
iii. Short term investments meet the definition of cash equivalents per IAS7 Statement of Cash
flows.
iv. On 1st May 2014, Shs. 50 million of 10% debentures was converted into Shs. 50 million of
Shs. 1@ ordinary shares.
v. The depreciation charge for the year included in the income statement was Shs. 43 million.
Required:
Using the indirect method, prepare a Statement of cash flows for Smirk Ltd. for the year ended
31st December 2014

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