FACULTY OF COMMERCE

DEPARTMENT OF ACCOUNTING & AUDITING

BACC 237: FINANCIAL REPORTING FOR COMPANIES
ASSIGNMENT 2
SEMESTER 1 OF 2024

Instructions
• Select the correct answer and write on a separate answer sheet.

• It is the responsibility of the student to answer their quiz assignments in time to avoid
inconveniences due to internet failure, system failure, power outages or any other
unforeseen circumstances. NO extensions will be granted by the Department after the
deadline.

• All queries for this assignment must be directed to the Course Leader whose contact
details are on the List of Course Leaders available on My Vista.

• Plagiarism is a serious academic offence. Please refer to the Tutorial Letter and
other resources for more information on academic writing.
Assignment two: Online Aug-Dec 2023
1. Which one of the following will be classified as a liability with regard to definitions
provided in the conceptual framework for financial reporting?
A. Omega Ltd (Omega) manufacturers a product under licence. In 12 months’,
time the licence expires and Omega will have to pay $40 000 for it to be
renewed
B. Dawns Finance Solutions Ltd (Dawns) purchased an investment 6 months ago
for $80 000. The market for this investment has now fallen and Dawn`s
investment is valued at $60 000.
C. Marowa Minerals Ltd (Marowa) has estimated the tax charge on its profits for
the year just ended as $1 450 000.
D. Beauty Ltd (Beauty) is planning to invest in new equipment and has been
quoted a price of $850 000.
Case for questions 2 to 4
The Finance Director is drafting the year end financial statements of Hwange Colliery
Ltd for the year to 31 December 2021. He has approached you as a graduate intern for
advice on the treatment of the following transactions.

i. Hwange Colliery Ltd owns an administration block which is currently not in

use. The building cost $660 000 on 1 January 2012 and had a useful life of 50
years. At a senior management meeting on 1 July 2021 Hwange Colliery
agreed to lease the block out by means of an operating lease. It is the policy of
the company to depreciate all its PPE using a straight-line method in line with
IAS 16 and to account for investment property using the fair value model in
accordance with IAS 40. On I July 2021 a professional valuator measured the
fair value of the administration block to the tune of $880 000, after which it
had not changed on 31 December 2021.

ii. In addition, Hwange Colliery owns a fully equipped Engineering workshop in

Victoria Falls which it treats as a cash generating unit with the following
assets:

$000
Building 990
Plant and equipment 330
Inventory 77
Other current assets 143
Goodwill 44
An impairment review was carried out on 31 December 2021 and the
recoverable amount of the workshop was estimated at $ $1 430 000.
2. Calculate the revaluation surplus to be recognised in the financial statements for the
year to 31december 2021 in respect of the administration block in (i) above.
A. $352 000
B. $330 000
C. $345 400
D. Nil

3. When an impairment review is carried out, which amount is used to measure a

potentially impaired asset?
A. Value in use
B. Recoverable amount
C. Fair value
D. Carrying amount

4. Calculate the carrying amount of inventory after impairment loss for the cash
generating unit in (ii) has been accounted for.
A. $64 000
B. $71 500
C. Nill
D. $65 000

Case for questions 5 to 7

The following is an extract from the Statements of Comprehensive income for Beauty
Ltd for year to 31 December 2021
$
Revenue 1 750 666
Cost of sales (1 383 958)
Gross profit 366 708
Other income (interest received) 850
Other expenses
Interest paid 44 000
Depreciation 115 860
Loss on sale of PPE 3 800
(163 660)
Profit before tax 203 898

The following is an extract from the Statement of Financial Position of Beauty Ltd as
at 31 December 2021
2021 2020
$ $
Current Assets
Cash and cash equivalents 2 000 3 000
Trade receivables 45 000 104 000
Inventories 100 000 215 000
 Current liabilities
Trade and other payables 78 000 82 000
Shareholders for dividends 25 000 34 000

5. Suppose you are preparing the statement of cashflows at year end, using the
information from Beauty Ltd case, what is the amount to recognised for cash received
from customers?
A. $1750 666
B. $1 809 666
C. $1 854 666
D. $59 000

6. Calculate cash paid to suppliers

A. $1 272 958
B. $1 383 958
C. $1 350 958
D. $1 268 958

7. What amount is attributable to cash generated from operations?

A. $323 558
B. $59 000
C. $115 000
D. $536 708

8. Zwide Holdings
Statement of Cash flows for the year ended 31 July

Cash flows from operating activities $ $

Profit before tax 54 000
Depreciation 58 000
Loss on disposal of equipment 2 000
Loss on disposal of investment 4 000
Increase in allowance for bad debts 22 000
Interest payable 8 000
Dividends received (5 000)
Increase in inventories (113 000)
Increase in trade receivables (231-106) (125 000)
Increase in prepayments (1 000)
Increase in trade payables 5 000
Increase in accruals 1 000
Cash generated from operations (90 000)
Interest paid (8 000)
Taxation paid (47 000)
Net cash out flow from operating activities (145 000)
 Cash flows from investing activities
Net cash out flow from investing activities (14 000)
Cash flows from Financing activities
Net cash Inflows from financing activities 10 000
Net decrease in cash and cash equivalents (149 000)
Cash and cash equivalents at the beginning 109 000
Cash and cash equivalents at the end (40 000)

Given an opportunity to analyse Zwide Holdings Statement of Cashflows, which of

the following could be true?

i. There is a problem with operating activities resulting in cash outflows rather

than inflows
ii. There are indications of overtrading
iii. There is a possibility of falling profits
iv. The company did not perform well during the year both in terms of profit and
cashflow

A. i & ii only
B. i, ii and iv
C. i, ii and iii
D. All of the above

9. Which of the following statements are correct with regard to the IASB Conceptual
Framework for Financial reporting?
i. Faithfull representation and relevance are fundamental characteristics of
financial statements
ii. Assets, liabilities, equity, income, and expenses are elements of financial
statements
iii. An economic resource is a right with potential to produce economic benefits
iv. An obligation arises where an entity has a duty or responsibility where it has
no practical ability to avoid.
v. Where the Conceptual framework conflicts with the applicable IFRS, the IFRS
position must be followed

A. i, ii and iii
B. i, iii and iv
C. ii, iii and iv
D. All of the above

10. Which of the following comprise other comprehensive items which may be
reclassified to profit or loss?
i. Exchange differences when translating foreign operations
ii. Cash flow hedges
iii. Gains on property revaluation
 iv. Investments in equity items
v. Re-measurement of defined benefit pension plans

A. I and ii
B. I, ii and iv
C. I, ii, iv and v
D. All of the above

11. Which of the following best describe the components of financial statements?
A. Statement of comprehensive Income, Statement of financial position and
statement of changes in equity
B. Assets, liabilities, equity, income, and expenses
C. Statement of financial Position, statement of comprehensive income, statement
of Changes in equity, statement of cash flows
D. Statement of financial position, statement of comprehensive income, statement
of changes in equity, statement of cash flows and accompanying notes

12. Which of the following items are disclosed as financing activities in the preparation of
a statement of cash flows?
i. Proceeds from issue of shares
ii. Cash repayments for borrowed amounts
iii. Cash proceeds from issue of debentures
iv. Dividends paid
v. Interest paid

A. I, ii and iii
B. i, iii and iv
C. i , ii, iii and v
D. All of the above

13. Suppose you are preparing year end financial statements and you are presented with
the following information regarding a subsidiary
All shares were acquired for $590 000 and the fair values of subsidiary`s assets and
assumed liabilities were as follows:
Inventories 100 000
Trade receivables 100 000
Cash and cash equivalents 40 000
Property, plant, and equipment 650 000
Trade and other payables (100 000)
Long term borrowings (200 000)

There were no unidentified assets, liabilities at acquisition date.

 What is the net cash price for the purchase of the subsidiary to be disclosed under
cash flows from investing activities?

A. $550 000
B. $590 000
C. $500 000
D. $400 000
Case for question 23 and 24
Fairdeal Ltd sold a wholly owned subsidiary, on 1 January 2021. The net assets of the
subsidiary consisted of the following, at the date of sale:
$
Plant and machinery at carrying amount 100 000
Trade receivables 15 000
Cash and cash equivalents 20 000
Trade and other payables (3 500)
Long term borrowings (100 000)
31 500

The profit before tax for Fairdeal Ltd group for the year to 31 December 2021 was
$120 000 determined after considering depreciation of $87 000, interest paid of $24
000 and profit on disposal of subsidiary of $20 000.
From the extract of the statement of financial position, the carrying amount balance of
Property, Plant and Equipment was $580 000 and $650 000 for 2020 and 2021
respectively.

14. What are the proceeds from disposal of subsidiary that must be disclosed in the
statements of cash flows under investing activities?
A. $51 500
B. $115 000
C. $31 500
D. $100 000

15. What is the amount to be recognised under investing activities for replacement of
assets?
A. $257 000
B. $837 000
C. $650 000
D. $600 000
16. Which of the following is correct with regard to IAS 16 (Property Plant and
equipment)?
i. PPE are assets held for use in production, for rental to others and for
administration.
ii. Bearer plants are classified as PPE while their produce are biological assets
iii. All PPE is within the scope of IAS 16 except where another standard requires
or permits different treatment
iv. Useful life is the period over which the asset is expected to be available for
use by the entity or number of production or similar units expected to be
obtained from the asset.

A. i, ii and iii
B. i and iii
C. i, ii, and iv
D. All of the above

17. Which of the following is included in cost of PPE in accordance with IAS 16?
i. Delivery and handling costs
ii. Site preparation costs
iii. Installation costs
iv. Professional fees (engineers and architects)
v. Initial testing costs
vi. Estimated dismantling costs

A. i, ii, iii, and iv

B. i, ii, iii, iv, and iv
C. i, ii, iii, v and iv
D. All of the above

18. The following subsequent expenditure will be capitalised in accordance with IAS16
except
A. Modification of PPE to extend its useful life
B. Upgrade of machine parts to achieve a substantial improvement in product
quality
C. Adopting new production process enabling a substantial reduction in
previously assessed operating costs
D. Expenditure on components that restore the production capacity of PPE.

Case for questions 19 to 21

Outspan Ltd purchased a machine with an estimated life of 6 years at a cost of $14
400 on 1 January 2015. On 1 January 2017 the economic conditions in the country
improved and Outspan Ltd decided to carry the machine in their books at revalued
amount. The replacement cost of the machine at 1 January 2017 was $25 200. It is the
company policy to depreciate all its machines using a straight-line method. During the
 year 2018 Outspan Engineering was faced with difficulties in securing spare parts for
its machine, thereby being forced to consider disposing it. The machine was
subsequently sold to a competitor at $6 000 on 1 January 2019.

19. What is the carrying amount of the machine on 31 December 2017.

A. $12 600
B. $16 800
C. $7 200
D. $13 200

20. Show how Outspan Ltd accounts for revaluation in the financial statements for the
year ended 31 December 2017.
A. Dr Asset and Cr Revaluation Surplus with $7 200
B. Dr Asset and Cr Retained Earnings with $7 200
C. Cr Asset and Dr Revaluation Surplus with $7 200
D. Cr Asset and Dr Retained earnings with $7 200

21. Calculate the loss on disposal to be recognised in the statement of comprehensive

Income for the year ended 31 December 2019.
A. $4 200
B. $3 600
C. $2 400
D. Nil

22. Which of the following is not an advantage of which could be expected to follow
from global harmonisation of accounting standards?
a) Elimination of exchange differences
b) Easier transfer of accounting staff across national borders
c) Ability to comply with the requirements of overseas stock exchanges
d) Better access to foreign investor funds

23. At 1 January 2022 Art-Fects Ltd had 5 million $1 equity shares in issue. On 1 June
2022 it made a 1 for 5 rights issue at a price of $1.50 each. The market price of the
shares on the last day of quotation with rights was $1.80. The total Earnings for year
to 31 December 2022 were $7.6 million. What was the earnings per share?
a) $1.35
b) $1.36
c) $1.27
d) $1.06

24. Vehicles Ltd had 10 million ordinary shares in issue throughout the year ended 30
June 2023. On 1 July 2022 it had issued $2$2 million of loan stock, each $5 of loan
stock convertible into 4 ordinary shares on 1 July 2026 at the option of the holder.
 Vehicles Ltd had a profit after tax for the year to 31 June 2023 of $1 850 000. It pays
tax on profits at 30%. What was the diluted EPS for the year?
a) $0.167
b) $0.185
c) $0.161
d) $0.17

25. Which of the following is not classified as a financial instrument under IAS 32?
a) Share options
b) Intangible assets
c) Trade receivables
d) Redeemable preference shares