UNIVERSITY OF ZIMBABWE

2019 November/December Examinations

Faculty: Commerce

Department: Accountancy

Paper code and Title: AC208 Intermediate Financial Accounting I

Duration: 4 Hours

Examiner: T.Warinda

Authorised Materials: silent non programmable calculator

INSTRUCTIONS:

1. This paper contains 5 Questions

2. Answer All questions
3. Start each question on a new page
4. This question paper comprises 6 printed pages

NB: DO NOT TURN OVER THE QUESTION PAPER OR COMMENCE WRITING

UNTIL INSTRUCTED TO DO SO.
QUESTION 1 [30 marks)
The abridged statement of profit and loss and other comprehensive income of Zvevatsunga Ltd
for the year ending 31 December 2018. is as follows:
2018 2017
$ $
Revenue 800 000 700 000
Cost of sales (430 000) (370 000)
Gross profit 370 000 330 000
Operating costs (250 000) (220 000)
Dividends received 9 000 9 000
Profit before tax 129 000 1 19 000
Taxation (36 000) ( 44 000)
Profit for the year 93 000 75 000

Additional information

The following has not been taken into account in the statement o f profit or loss and other
comprehensive income o f Zvevatsunga Ltd:
i. The board of directors decided on 31 December 2018 to change the accounting policy
in respect of inventory valuation from the FIFO method to the weighted average cost
method. ZIMRA will apply the new policy from 2018 using normal tax practice.

Inventory according to the two methods are as follows:

FIFO AVCO
O' 4 >

31 December 2018 700 000 800 000

31 December 2017 600 000 680 000
31 December 2016 500 000 550 000
31 December 2015 400 000 440 000
31 December 2014 300 000 can not be
ascertained

ii. On 31 October 2018 the company sold land at a capital profit of $14 000. The directors
do not want to show the amount separately on the face of the statement of profit or loss.
iii. On 28 February 2018 the company suffered uninsured Hood damages of
$100 000 when its three Toyota Land Cruisers with a carrying amount of
$100 000 were destroyed. The tax base of the vehicles were $70 000. (Assume the
carrying amount and tax base amounted to respectively $120 000 and $90 000 on 31
December 2017 and $140 000 and $110 000 on 31 December 2016.)
iv. A batch of sales invoices (goods sold on credit) with a total of $24 000 was accidentally
not processed in 2017. The cost of sales on these invoices, however, was taken into
account. ZIMRA reopened the 2017 assessment in respect o f this issue.
v. Normal company taxation rate: 2018 (30%); 2017 (40%)
vi. Apart from those evident from the question, there are no other temporary differences.
vii. Capital gains tax should be ignored.
viii. Dividends paid amounted to $48 000 (2017: $41 000).
ix At the beginning of 2017 financial year, the balance of retained earnings was $66 000.

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Required
Prepare for Zvevatsunga Ltd:
a. the statement of profit or loss and other comprehensive income and (10 marks)
b. statement o f changes in equity (in respect of retained earnings) (8 marks)
c. relevant notes (excluding accounting policy notes) (12 marks)

with comparative amounts for the year ending 31 December 2018 in accordance with
international financial reporting standards (IFRS).

NOTE: Only notes to the statement of profit or loss and other comprehensive income and
statement of changes in equity are required.

QUESTION 2 120 marks]

Tunga Limited has an issued share capital of 65 000 7% Redeemable Preference Shares of $1
each and 450 000 Ordinary Shares o f $0.50 each. The Preference Shares are redeemable at a
premium of 7.5%.
Tunga Statement of financial position as at 31 December 2018
$
Issued Share Capital
Ordinary share capital 225000
7% Redeemable Preference Share Capital 65000
Revenue Reserves 46000
336 000
Trade payables 57500
393 500
Assets
Non-Current Assets
Property plant and equipment 346 000
Investments 17 500
Current assets
Cash and cash equivalents 30 000
393 500
The company decided to redeem the Redeemable Preference Shares. To facilitate the
redemption, it was decided:
i. To sell the investment for $15 000

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 ii. To finance part of the redemption from company funds, subject to leaving a balance
on the profit and loss account of $10 000
iii. To issue sufficient ordinary shares at a premium o f 12.Scents per share to raise the
balance o f funds required.
The Preference Shares were duly redeemed and the Ordinary Shares issue was fully subscribed.

Required:
a. To show the journal entries recording the transactions above (12 marks)
b. Show the company’s Statement of Financial Position after the redemption (8 marks)

QUESTION 3 |20 marks]

Dadirai and Mirirai are in partnership as bakers, sharing profits equally. They present the
following trial balance at the end of their financial year 31 December 2018:
Dr Cr
$ $
Capital: Dadirai (balance 1/1/18) 28 000
Mirirai (balance 1/1/18) 10 000
Sales 165 000
Cost of sales 45 000
Expenses 48 000
Property 72 000
Cash and cash equivalents 40 000
Trade payables 2 000

You ascertain that the partners agreed to convert the business to a company Damir Ltd. as from
1 April 2018, the company was not incorporated until June 2018. The consideration for the sale
was to be $90 000 in $1 ordinary shares. The shares are to be divided equally between the
partners and any adjustments necessary to close the accounts to be made by contributions or
withdrawals of cash. Any goodwill arising is to be introduced into the books and any pre­
incorporation profit written off against goodwill.
Assume revenue and expenses accrue evenly over time.

4
Required:
a. To produce a statement of profit or loss and other comprehensive income in columnar
form for the year; (8 marks)
b. To show the closing entries in the partnership books; (7 marks)
b. To produce a draft statement of financial position for Damir Ltd as at 31 December
2018. (5 marks)

QUESTION 4 [15marksl

During 2018 Alpha Limited discovered that certain items had been included in inventory at 31
December 2017,valued at $4million, had in fact been sold before year-end. Presented below
are 2018 draft figures and reported 2017 reported figures:
2018 2017
$'000 $'000
Sales 67 200 47 400
Cost of goods sold (55 800) (34570)
Profit before taxation 1 1 400 12 830
Corporate tax (3 420) (3 849)
Profit after tax 7 980 8 981
Retained Earnings c/f 13 000
The cost of goods sold includes $4.2million error in opening inventory. Corporate tax for both
years is 30% .

Required:
Show the statement of Profit or Loss and Other Comprehensive Income for 2018 with the 2017
comparative and retained earnings.

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QUESTION 5 |15marks]

“It has come to the attention of the Reserve Bank o f Zimbabwe that some economic agents are
engaging in illegal activities abusing the cash-in, cash-out and cash-back facilities thereby
compromising the public interest objectives of national payment systems in the economy....all
payment system providers and merchants are hereby directed to discontinue cash-in and cash­
out with immediate effect.” (National Payment Systems Directive: NFS 01/2019)

One payment system provider immediately launched a court challenge after the issuance of the
directive and further threatened to completely pull-out of the system.

Required:
Discuss the implications of the directive on the assets of an entity listed on the Zimbabwe Stock
Exchange whose year-end is 31 October 2019 paying particular attention to the provisions of
IAS 36.
(You may make meaningful assumptions in support of your discussion.)

END OF EXAMINATION