Institute: T.I.

A
Semister: I year 2023
Program: SOLVINGs for Final Exams
Subject: Financial Reporting (F.R)
Coverages:
Topic.1 IAS.2 – Inventory (20mins)
Topic.2 IAS.36 – Impairment of Assets(45Mins)
Topic.3 IAS.40 – Investment Property(30mins)
Topic.4 IAS.16 – Property Plant and Equipments(PPE)-1 HRs
Topic.5 IFRS.9 & IAS.32 Financial Instruments (1 HRs)
Topic.6 IFRS.15 Revenue from contact with customers (30Mins)
Topic.7 IAS.1 Presentation of Financial statements (1 HRs)

Date: Thursday at 8:15am to 4:00pm

………………………………………………………………………………………………..

Topic.1 IAS.2 – Inventory (20mins)

Question.1
IAS.2 Inventories describes measurements criteria for inventories. The reporting date of Musa
Limited is 30th September 2019 and financial statements are set for approval on 25th of
November 2019. On 30th September Musa limited’s inventories was conducted for the
manufactured goods and reviewed the following elements of cost for inventories:
Tsh “000”
Direct materials 150,000
Direct Labour 200,000
Direct Expences 70,000
Abnormal material usage 40,000
Production overheads absorbed 15,000
Actual production overheads 20,000
Sellimg overheads 17,000
Administration overheads 18,000
Storage overheads 7,000
The accountant of Musa Limited has informed you that shortly after the reporting date on 8th of
October 2019, the inventories in questions was sold for 365,000,000 and incurred marketing
cost of 15,000,000.
Required
Calculate the cost of inventories, based on the elements of cost provided above, and
recommended to Musa limited at which value inventories should be recorgnised in the
financial statements of 30th September 2019

pg. 1
 Sudgested Solutions
i. Cost of Inventory TZS
Direct Material 150,000
Direct Labour 200,000
Direct expenses 70,000
Abnormal material usage (N/A) -
Production O/ H absorbed 15,000
Actual production 0/ H (N/A) -
Selling overheads (N/A) -
Admin O/H (N/A) -
Storage O/H (N/A) -
43, 5000
ii. Inventories are measured for F.S Purpose at the lower of:
i. Cost 43,5000
ii.NRV (365000 – 15000) 350,000
Hence,
The lower is 350,000,000

Topic.2 IAS.1 Presentation of Financial

statements (1 HRs)
Question.1
Malcolm Chisholm, a sole trader provides you with the following trial balance, as at 31 May 20X3 - the
end of his financial year.
Malcolm Chisholm Trial balance as at 31 May 20X3
Debit Credit Debit Credit
Tshs’000 Tshs’000 Tshs’000 Tshs’000
Sales ………………………………………………. 241,320
Purchase…………………………………………... 150,000
Discounts allowed……………………………………… 10,800
Discounts received………………………………………
Provisions for depreciation (as at 1 June 20X2) -------- 2,880
on property……………………………………………. --------- 12,000
on equipment………………………………………….. -------- 22,800
Inventory, as at 1 June 20X2…………………………… 30,000 ------
Capital, as at 1 June 20X2…………………………….. --------- 72,780
17% long-term loan…………………………………… --------- 18,000
Irrecoverable debts…………………………………….. 2,760 -------
Returns outwards……………………………………….. ------- 9,000
Wages and salaries…………………………………….. 35,280 -------
Drawings…………………………………………….. 14,400 --------
Loan interest…………………………………………. 3,060 --------

pg. 2
Other operating expenses……………………………. 10,620 --------
Accounts payables……………………………………. -------- 21,600
Accounts receivables………………………………….. 22,800
Cash in hand……………………………………………. 180
Bank………………………………………………… 780
Property, at cost………………………………………. 72,000
Equipment, at cost…………………………………….. 48,000
Allowance for receivables…………………………….. ------------------ 300
400,680 400,680

Malcolm provides you with the following additional information as at 31 May 20X3:
(a) Inventory as at 31 May 20X3 has been valued at cost at Tshs25,200,000 million.
(b) Accruals required for wages and salaries are Tshs480,000.
(c) Other operating expenses are pre-paid by Tshs180,000.
(d) The allowance for receivables is required to be maintained at 2% of accounts receivables.
(e) Depreciation for the year ended 31 May 20X3 has still to be provided for as follows.
Property: 1.5% per annum using the straight line method; and
Equipment: 25% per annum using the reducing balance method.
Required:
Prepare Malcolm Chisholm’s Statement of profit or loss and other comprehensive income and statement
of financial position for the year ended 31 May 20X3 as at that date.

pg. 3
 Sudgested solutions
Malcolm Chisholm - Statement of financial position as at 31 May 20X3
Tshs’000 Tshs’000
Non-current assets
Property (cost)………………………………………………………. 72,000
Less: Accumulated depreciation…………………………………….. (13,080) 58,920
Equipment (cost)…………………………………………………….. 48,000
Less: Accumulated depreciation……………………………………. (29,100) 18,900
77,820
Current assets
Inventory…………………………………………………………….. 25,200
Trade receivables net of allowance for receivables
(Tshs22.8 million - Tshs0.456 million) (W1)………………………. 22,344
Prepayments…………………………………………………………. 180
Bank ………………………………………………………………. 780
Cash in hand …………………………………………………………. 180 48,684
126,504
Capital
Balance at 1 June 20X2………………………………………………….. 72,780
Profit for the year 20X2-X3……………………………………………… 28,044
Less: Drawings………………………………………………………… (14,400) 13,644
Current liabilities
Trade payables………………………………………………………… 21,600
Accruals………………………………………………………………… 480 22,080
Long-term liabilities
17% loan………………………………………………………………….. ------------------- 18,000
126,504

Workings
W1 Irrecoverable debts
Tshs’000
Previous allowance 300
New allowance required (2% x Tshs22.8 million) 456
Increase in allowance 156
Irrecoverable debts as per trial balance 2,760
Transferred to statement of profit or loss and other
comprehensive income 2,916

pg. 4
W2 Depreciation on property
Tshs’000
Opening provision 12,000
Provision for the year on SLM (1.5% x Tshs72 million) 1,080*
Closing provision 13,080

W3 Depreciation on equipment
Tshs’000
Opening provision 22,800
Provision for the year on RBM (25% x Tshs25.2 million (Tshs48
million - Tshs22.8 million)) 6,300*
Closing provision 29,100
Total depreciation charged to Statement of profit or loss
and other comprehensive income i.e. (1,080 + 6,300)* 7,380
W4
Accrued wages and salaries are expenses incurred for the current period so they will be included in the
Statement of profit or loss and other comprehensive income.
W5
Prepaid operating expenses are expenses for the next year so they will be deducted from the Statement of
profit or loss and other comprehensive income.

Question 9
The following trial balance relates to Orchid Ltd at 31 March 20X9:
Tshs'000 Tshs'000
Sales revenue 384,840
Cost of sales 258,840
Operating expenses 40,320
Closing inventories: 31 March 20X9 (Note (i)) 18,900
Finance costs (Note (ii)) 9,000
Land and building: at valuation (note (iii)) 113,400
Plant and equipment: at cost (Note (iii)) 64,800
Accumulated depreciation 1 April 20X8 – plant and equipment 30,240
Investment property: valuation 1 April 20X8 (Note (iii)) 28,800
Investment in equity instruments financial asset 20,000
Rental income from investment property 2,160
Trade receivables 38,700
Bank 21,620
Trade payables 21,240
Ordinary shares of Tshs1,000 each 36,000
10% Redeemable preference shares of Tshs1,000 each 18,000
Deferred tax at 31 March 20X8 (Note (v)) 9,360
Revaluation surplus (Note (iii)) 37,800
Retained earnings: 1 April 20X8 31,500
592,760 592,760
Note:
(i) At 31 March 20X9, an inventory list based on a physical count had a total cost of Tshs18.9 million.
Some damaged goods that had cost Tshs1.44m were included in these. The realisable value of these goods
is expected to be Tshs1.71m, provided that remedial work costing Tshs0.81m is done before they can be
sold.

pg. 5
(ii) Finance costs consist of interest on overdraft, the full year's preference dividend and an ordinary
dividend of Tshs160 per share that was paid in September 20X8.
(iii) Non-current assets:
Land and buildings: A professional valuer submitted a report on 1 April 20X8, revaluing the land at
Tshs27 million and building at Tshs86.4 million. The directors decided to incorporate these values in the
accounts. On that date, the land and building had a carrying value of Tshs75.6 million and the building
had a remaining life of 15 years.
You should charge depreciation on a straight line basis. Orchid Ltd does not make a transfer to realised
profits in respect of excess depreciation.
Plant: All plant is depreciated at 12.5% on the reducing balance basis. Depreciation is to be charged to
cost of sales. Investment property: On 31 March 20X9, the investment property was revalued at Tshs24.3
million. Orchid Ltd uses the fair value model in IAS 40 Investment Property to value its investment
property.
(iv) The provision for income tax for the year ended 31 March 20X9 is estimated at Tshs14.4 million. The
tax base of the company's net assets is Tshs21.6 million less than their carrying amounts. Deferred tax is
to be adjusted to reflect this. Carrying amounts do not include revaluation adjustments above. The rate of
income tax is 30%.
(v) The Investment in equity instruments financial asset was valued at Tshs16 million at the end of the
reporting period, 31 March 20X9.
Required:
(a) Prepare the statement of profit or loss and other comprehensive income for Orchid Ltd for the year
ended 31 March 20X9.
(b) Prepare the statement of financial position for Orchid Ltd as at 31 March 20X9.

Sudgested solutions
(a) Orchid Ltd – Statement of profit or loss and other comprehensive income for the year ended 31
March 20X9 (All figures in Tshs‘000 unless specified)
Tshs‘000
Revenue 384,840
Cost of sales (W4) (269,460)
Gross profit 115,380
Operating expenses (40,320)
Investment income 2,160
Loss on investment property (W1) (4,500)
Finance cost (W6) (3,240)
Profit before tax 69,480
Income tax expense (W5) (11,520)
Profit for the period 57,960
Other comprehensive income - not reclassified subsequently
Gain on revaluation of land and building (Tshs113,400 – Tshs75,600) 37,800
Loss on Investment in equity instruments financial assets (20,000 – 16,000) (4,000)
Income tax relating to components of other comprehensive income (10,140)
(Tshs37,800 - Tshs4,000) x 30%
Other comprehensive income for the year 23,660
Total comprehensive income for the year 81,620

pg. 6
(b) Orchid Ltd - SOFP as at 31 March 20X9
Tshs‘000 Tshs‘000
Assets
Non-current assets
Property, plant and equipment (W3) 137,880
Investment property (W1) 24,300
Financial assets 16,000
178,180
Current assets
Inventories (W2) 18,360
Trade receivables 38,700 57,060
Total assets 235,240
Equity and liabilities
Ordinary shares of 25c each 36,000
Retained income (W7) 107,360
Non-current liabilities
Deferred tax (W5) 6,480 + 10,140 16,620
Redeemable preference shares of Tshs1,000 each 18,000 34,620
Current liabilities
Trade payables 21,240
Bank overdraft 21,620
Current tax payable (W5) 14,400 57,260
Total equity and liabilities 235,240

Workings
W1 Investment property
Tshs‘000
Carrying value, per question 28,800
Valuation 31 March 20X6 (24,300)
Loss on valuation, to be transferred to profit for the period (IAS 40) 4,500

W2 Adjustment for damaged closing inventories

Tshs‘000
Cost of damaged inventories 1,440
Recoverable amount 1,710
Additional remedial costs
Fair Value Less Costs to Sell (810)
900
Value of inventories per question 18,900
Write down = Tshs1,440 – Tshs900 per above (as NRV is lower) (540)
Adjusted CV for the SOFP 18,360

pg. 7
W3 Non-current assets
Tshs‘000
(A) Land 27,000
Buildings: per IAS 16, depreciation is based on revalued amount:
Revalued amount (a) 86,400
Remaining life at the revaluation date in years (b) 15
Depreciation on straight line basis = (a)/(b) (5,760)
(B )Net carrying amount of building 80,640
Plant and equipment
Cost per question 64,800
Accumulated depreciation, per question (30,240)
Carrying value 31 March 20X9, before depreciation 34,560
Depreciation for the year on the above at 12.5% (4,320)
(C )Carrying value after depreciation at 31 March 20X9 30,240
Total depreciation charge for the year = 5,760 + 4,320 10,080
Summary
Land and building (A + B) 107,640
Plant and equipment (C) 30.240
Total (property, plant and equipment) 137,880

W4 Cost of sales
Tshs‘000
Per question 258,840
Adjustment for inventory (W2) 540
Depreciation (W3) 10,080
269,460
W5 Taxation
Tshs‘000
Deferred tax
Tax base of the company's assets is less than carrying value by 21,600
Tax effect of the above (deferred tax liability required) @ 30% 6,480
Existing deferred tax liability 9,360
Excess deferred tax liability, to be transferred to profit for the period 2,880
Current tax expense, according to question (ii) 14,400
Net tax expense according to question ((ii) – (i)) 11,520

W6 Finance cost
Tshs‘000
Per question 9,000
Less: Equity dividend (36,000 shares x Tshs160) (5,760)
3,240
Note: dividend on redeemable preference shares are correctly included in the finance costs; therefore no
adjustment is required.
W7 Retained income
Tshs‘000
Balance at 31 March 20X8 per question 31,500
Total comprehensive income for the year 81,620
Ordinary dividend (5,760)
Balance at 31 March 20X9 107,360

pg. 8
Question 10
The following is the trial balance of Mandarin Ltd as at 31 December 20X7.
Trial balance Tshs‘000 Tshs‘000
Ordinary shares each Tshs1,000 (fully paid) 1,400
Retained profit 01/01/20X7 968
General reserves 01/01/20X7 684
10 % debentures (issued in 20X4) 800
Freehold land & buildings 01/01/20X7 (cost) 1,720
Plant and machinery 01/01/20X7 (cost) 3,320
Provision for depreciation:
Freehold buildings 01/01/20X7 80
Plant and machinery 01/01/20X7 888
Inventory 01/01/20X7 760 -
Sales 10,780
Purchases 8,608
Wages and salaries 1,016
Ordinary dividend (interim) 32
Debenture interest 40
Receivables 716
Light and heat 124
Sundry expenses 452
Suspense account 540
Cash 132
Payables 780
16,920 16,920
Notes:
1. The amount of sundry expenses includes Tshs36,000 paid in respect of insurance for the year ending 1
September 20X8.
2. An invoice of Tshs12,000 for electricity for the three months ending 31 December 20X7, which was paid in
February 20X8 was omitted to be recorded in light and heat expenses.
3. The suspense account balance consists of the following:
Tshs‘000
Proceeds from the issue of 200 ordinary shares 480
Proceeds from the sale of plant 1,200
1,680
Less: Investment in the shares of companies (1,140)
540
4. The freehold property was acquired a few years ago. The building element of the cost was estimated at
Tshs400,000 and the estimated useful life of the assets was fifty years at the time of purchase. As at 31
December 20X7, the property is revalued at Tshs3,200,000.
5. The plant which was sold was initially purchased at a cost of Tshs1,400,000 and had a net book value of
Tshs1,096,000 as at 1 January 20X7.
6. The applicable tax rate is 30%.
7. Tshs144,000 depreciation is to be charged on plant and machinery for 20X7.
8. The directors decided to provide for the following:
Audit fees of Tshs16,000
Debenture interest due
A transfer to the general reserve of Tshs64,000
9. Inventory as at 31 December 20X7 was valued at Tshs880,000 (cost)
Required:
Prepare the financial statements of Mandarin Ltd in a form suitable for internal purposes

pg. 9
 Sudgested solutions
Mandarin Ltd - Statement of profit or loss and other comprehensive income for the year ended 31
December 20X7
Tshs‘000 Tshs‘000
Revenue - 10,780
Less: Cost of goods sold - -
Opening inventory 760 -
Purchases 8,608 -

9,368 -
Less: Closing inventory (880) (8,488)
Gross profit - 2,292
Other income -
Profit on disposal of plant (W7) 104
Wages, salaries and commission (1,016) -
Sundry expenses (452 – 24 Prepaid insurance) (428) -
Light and heat (124 + 12) (136) -
Depreciation (W4) - -
Freehold buildings (8) -
Plant (144) -
Audit fees (16) -
Debenture interest (80) (1,828)
Profit before tax - 568
Income tax expense (30% of 568) - (170)
Profit for the year - 398
Other comprehensive income – Not reclassified to
profit or loss - -
Gains on property revaluation (W6) 1,568 -
Income tax relating to components of other (470) (1,098)
comprehensive income (30% of 1,568)
Total comprehensive income for the year 1,496

pg. 10
Mandarin Ltd - Statement of changes in equity for the year ended 31 December 20X7
Share capital Share premium Retained Earnings Revaluation General reserve Total
Account surplus
Tshs‘000 Tshs‘000 Tshs‘000 Tshs‘000 Tshs‘000 Tshs‘000
Balance
at 01/01/20X7 1,400 968 684 3,052
Issue of
Share
capital (W10) 200 280 480
Dividends paid (32) (32)
Total comprehensive income
for the year 398 1,098 1,496
Transferred to general reserve (64) 64 -
Balance as
at 31/12/20X7 1,600 280 1,270 1,098 748 4,996

Mandarin Ltd - Statement of financial position as at 31 December 20X7

Tshs‘000 Tshs‘000
Non-current assets Tangible
assets
Freehold property 3,200
Plant and machinery (W4) 1,192
Investments 1,140 5,532
Current assets
Inventory 880
Receivables 716
Pre-paid expenses (Insurance: 36 x 9/12) 24
Cash 132 1,752
7,284
Capital and reserves
Share capital – Tshs1,000 par value of each ordinary
Shares 1,600
Reserves
Share premium 280
Revaluation surplus 1,098
General reserve 748
Retained earnings 1,270 3,396
Non-current liabilities
10% debentures (secured) 800
Current liabilities
Income tax provision (170 + 470) 640
Payables 780
Accrued expenses 68 1,488

7,284

pg. 11
Workings
W1 Accrued interest on 10% debentures Tshs‘000
Interest expense on 10% debentures (10% of 800,000) 80
Amount already paid as shown in trial balance Accrued (40)
interest payable 40
W2 Accrued expenses shown in SOFP
Tshs‘000
Debenture interest (800 x 10% -40) (W1) 40
Light & heat 12
Audit fees 16
68
W3 Plant and machinery
Tshs‘000
According to trial balance 3,320
Cost of the plant sold (1,400)
Accumulated depreciation (W9) (728)
1,192
W4 Depreciation on the building portion of freehold property
Depreciation 􀀠=Cost / Useful life of the asset
4,00,000 /8000 = 50
W5 Reduced down value of the freehold property
Tshs‘000
Freehold land & building on 01/01/20X7 1,720
Less: Accumulated depreciation (80)
Less: Depreciation for the year (W4) (8)
1,632
W6 Revaluation surplus
Tshs‘000
The property is revalued at 3,200
Less: Carrying value (1,720 – 80 - 8) (W5) Revaluation (1,632)
Surplus 1,568
W7 Profit on disposal of plants
Tshs‘000
Proceeds from the disposal of plants 1,200
Less: Reduced down value (1,096)
Profit on disposal of plants 104

W8 Cost of remaining plant

Tshs‘000
Cost of the remaining plant is (3,320, - 1,400) 1,920

W9 Accumulated depreciation on plant

Tshs‘000
According to trial balance 888
Charge for the year 20X7 144
Less: Depreciation on disposals (–1,400 – 1,096) (304)
728

pg. 12
W10 Share premium
Tshs‘000
Proceeds from ordinary shares 480
Less: Nominal value of shares issued (200 x
Tshs1,000) (200)
Excess consideration over the nominal value 280

Topic.2 IAS.36 – Impairment of

Assets(45Mins)
Question 3
UHASIBU Co acquired plant at a cost of TZS 800,000,000 on 1 April 2014 that is used to
Produce and package pharmaceutical pills . The plant had an estimated residual value of TZS
50,000,000 and an estimated life of five year, neither of which has changed. UHASIBU Co
uess straight-line depreciation on 31 March 2016, UHASIBU Co was informed by a major
custumer (who buys products produced by the plant) that it would no longer be placing
orders with UHASIBU Co Even before this information was known UHASIBU Co had been
having difficulty finding work for this plant. It now estimates that net cash inflows earned
from the pant for the next three year will be:
TZS’000’
Year ended:
31-Mar-17 220,000
31-Mar-18 180,000
31- Mar-19 170,000
On 31 March 2019 the plant is still expected to be sold for its estimated realizable value .
UHASIBU Co has confirmed that there is no market in which to sell the plant at 31 March
2016. UHASIBU Co’s cost of capital is 10% and the following values should be used value
of TZS at:

TZS
End of year 1 0.91
End of year 2 0.83
End of year 3 0.75
Required: Calculate the carrying amount of the assets at 31 March 2016 after applying any
impairment losses

pg. 13
 st
Sudgested Solutions
Carrying value at 31 March , 2016 million
Cost at 1st April, 2014 800,000
Acc. depreciation to 31st March 2016
(800-500/5yrs) 2 yrs 300,000
Cv before impairment 500,000
Impairment (W1) -
Cv after impairment 500,000

Wi, Impairment
i. Carrying value 500,000
i.
iii.recovarable Amount (W2)
:-The higher is 514,600
W3 : value in use
Year Cashflows Discounting factor Pv
1 220,000 0.91 200,200
2 180,000 0.83 149400
3 220,000 0.75 165000
514,600
Question 10
There was an explosition in a factory. The carrying amounts of its assets were as follow:-
TZS’000’
Goodwill 1,000
Patents 2,000
Machines 3,000
Computers 5,000
Buildings 15,000
26,000
The factory operates as a cash-generating unit. An impairment review reveals a net selling
price of TZS 12 Million for the factory and value in use of TZS 19 Million. Half of the
machines have been blown to pieces, but the other half can be sold for at least their book value.
The patents have been superseded and are now considered worthless. Required: calculate the
carrying amounts of the assets after applying impairment losses.

pg. 14
 Sudgested Solutions
Step 1
calculate impairment loss a CGU’s
TZS Million
I . Carrying value 26,000

ii . Recoverable Amount ( The higher of

a. FU less cost to sale 12,000
b. value in use 19,000 19500
65,000
Step 2
Allocate the impairment loss to the CGUS assetl
Asset CV be impairment Impairment loss Cv after
Goodwill 1000 (1000) -
Technology 2000 (2000) -
Brands 3,000 (1500) 1 5000
Land 5000 (5,00) 45,00
Buildings 15000 (1500) 135,00
26,000 6500 19,500

PRO – RATA
Computers = 5000 x 2000
2000 =500
Buildings =15000 x 2000
20,000 =1500

Question.12
XYZ owned a 100% subsidiary, tilde that is treated as a cash generating unit. On 31 march 2016,
there was an industrial accident (a gas explosion) that caused damage to some of tilda’s plant.
The assets of tilde immediately before the accident were:
TZS ‘000’
Goodwill 1,800,000
Patent 1,200,000
Factory building 4,000,000
Plant 3,500,000
Receivables and cash 1,500,000
12,000,000
As a result of the accident, the recoverable amount of tilde is TZS 6.7billion. The explosions
destroyed ( to the point of no further use) an item of plant had a carrying amount of TZS 500
Million. Tilde has an open offer from a competitor of TZS 1 billion for its patent. The
receivables and cash are already stated at their values less costs to sell (net realisable values).
Required:
Calculate the carrying amounts of the assets at 31 March 2016 after applying any impairment
losses.

pg. 15
 Sudgested Solutions
Step 1
Calculate impairment loss on a CGUS
TZS Million
i. Carrying value 12,000,000
ii. Recoverable 6,700,000
Impairment loss 5,300,000
Step 2
Allocated the impairment loss to the CGU’S asset
Asset CV be impairment Impairment loss Cv after
Goodwill 18,00,000 (180,000) -
Parents 120,000 (200,000) 1,000,000
factory building 4,000,000 (1600,000) 2,400,000
Plant 3,500,000 (500,000+120) 18,00,000
Receivable & cash 1,500,000 - 1,500,0000
12,000,00 5,300,000 6,700,000
PRO- RATA
Factory building = 4000,000 x 2,800,000
7,000,000 = 1,600,000
Remaining Plant =30000,000 x 2,800,00
7000,000 =1200,000

Topic.3 IAS.40 – Investment

Property(30mins)
Differences btn revaluation Model of IAS 16 and fair value Model of IAS 40

Revaluation Model if IAS 16 Fair Value Model / 40

Revaluation is not necessary annually Revaluation is required annually

Gain on revaluation is taken to revaluation is Gain or losses on revaluation are both taken
taken to revaluation reserve while loss on to profit or loss.
revaluation is taken to P/L.
Asset is depreciated subsequent to revaluation No depreciation is required subsequent to
depreciation.
RECOGNITION
An item of Investment property is recognized in the F/S if
Its probable that future economic benefit associated with the property will flow to the entity.
Its cost can be Measured reliably

pg. 16
MEASUREMENT:
:- Initial Measurement
An investment property is initially measured at cost element include.
Purchases price / constriction cost
Non refundable purchase taxes
Borrowing cost.
EXCLUDED COSTS
General overheads
Abnormal losses
Initial operating losses etc
SUBSEQUENT COSTS
After initial recognition and measurement any subsequent cost incurred for the property may
be capitalized if:-
 Its probable that future economic benefit associated with a cost will flow to the entity.
Its cost be measured reliably
Otherwise , all subsequent cost should be expensed

SUBSEQUENT MEASUREMENT:
After initial recognition and measurement an item of investment property is carried at either
i. Cost Model
ii. Fair value model.
I. COST MODEL
Under this Model an item of investment property is carried at its cost loss subsequent
accumulated depreciation and accumulated impairment loss if any.
II.FAIR VALUE MODEL.
Under this Model the accounting treatment is as follows:-
 The Property should be revalued to its fair value at each year end.
The gain or loss on revaluation should in the period they arises in the statement of profit or
loss in the period they .
No depreciation is charge subsequent to revaluation.

Question 9
(a) The accounting treatment of investment properties is prescribed by IAS 40 investment
property
Required
Define investment property under IAS 40 and explain why its accounting treatment is different
from that of owned-occupied property
Explain how the treatment of an investment property carried under the fair value model differs
from an owner-occupied property carried under the revaluation model.
(b) BCC limited owns the following properties at 1 April 2019
Property A:
An officer building used by BCC for administrative purpose with a depreciated historical cost of
TZS 2 billion. At 1 April 2019 it had a remaining life of 20 year. After a reorganization on 1
October 2019 the property was let to third party and reclassified as an investment property
applying BCC’ policy of

pg. 17
the fair value model. An independent value assessed the property to have a fair value of TZS 2.3
billion at 1 October 2019 which had risen to TZS 2 :34 billion at 31 March 2020.
Property B:
Another office building sub –let to a subsidiary of BCC, At 1 April 2019, it had a fair value of
TZS1.5 billion which had risen to TZS 1.65 billion at 31 March 2020.
Required: Prepare extract from BCC’ entity statement of profit or loss and other comprehensive
income and statement of financial position for the year ended 31 March 2020 in respect of the
above properties , In the case of property B only , state how it would be classified in BCC’
consolidated statement of financial.

Sudgested Solutions
a. i. See notice
ii. See notice
Working
Property A
Carrying value at 1st April , 2019 2,000,000,000
Depreciation for 6 Months to 30th Sep , 2019
(2000m ) x 6/12
20 (50,000,000,)
Cv at 30th Sep , 2019 1,950,000,000
Gain on revaluation to revaluation 350,000,000
Revaluation at 1st oct , 2019 2,300,000,000
Transfer to investment property 2,300,000,000
-
Investment Property
Fair value at 1st oct , 2019 2,300,000,000
Gain on revaluation to profit or loss 400,000,000
Fair value at 31st March , 2020 2,340,000,000
Property B
Fair value at 1st oct , 2019 1500,000,000
Gain on revaluation to profit or loss 150,000,000
Fair value at 31st March , 2020 1,650,000,000

Extract – Statement of profit or loss for the yr ended 31.3.2020 Depreciation

Property A (50,000,000)
Gain on revaluation
Property A 40,000,000
Property B 150,000,000

Other comprehensive income

-Gain an revaluation reserve – Property a 350,000,000

Extract – Statement of financial position as at 31.3.2020

Asset
NCA

pg. 18
Investment property
Property A 2,340,000,000
Property B 1,650,000,000

Equity
Revaluation Reserve- Property A 350,000,000

Topic.4 IAS.16 – Property Plant and

Equipments(PPE)-1 HRs
IAS 16-Proteyr, Plant & Equment
Definition :
PPE is defined as a tangible non-current asset that are held for use in the production or supply of
good /services for rental to other of for administration purposes and are expected to be used
during more than one accounting period.
RECOGNITION;
IAS 16 state that an item of PPE should be recognized as an asset in the Fls if and only it.
its probable that future economic benefit associated with item will flow to the entity
The cost of the item can be measured reliably.
MEASUREMENT
i. INITIAL MEASUREMENT:
An item of PPE is initially measured at cost cost comprises of.
a. Purchases price less trade discount ( but not cash discount).
b. Import duty and Non- refundable purchase taxes e.g. Non- refundable VAT stamp duty ,
Excise duty.
c. Directly attributable cost of bringing the asset to the location or condition intended for use
or sale e.g.
Delivery cost
Installation cost
Testing cost less proceed from sale of item of item produced.
Legal fees.
For self constructed assets
Material cost
Labour cost
Direct overheads.
d. Initial estimates (Present value) of cost of dismantling the asset and restoring the site
where the cost was located.
c. Borrowing costs that quality to be capitalized under IAS 23

pg. 19
 Excluded costs
a. Abnormal cost e.g. Material wasled or labour cost incurred during idle time.
b. administrative overhead / General overhead / indirect costs e.g. G.manager salary
c. Training cost on how to used the assets.
d. Loss incurred during initial period etc.
e. Cost of opening new facility etc

Question 1 (Initial measurement)

On 1 March 2020 Yuda acquired a machine from Pluto under the Following term:
TZS ‘million‘
List price of machine 820
Non refundable import duty 15
Delivery fees 20
Refundable purchase VAT 12
Electrical installation cost 95
Pre- production testing 49
Operating loss prior to achieving planned performance 25
Purchase of five – year maintenance contract with Pluto 70
In addition to the above information Yuda was granted a trade discount of 10% on the initial list
price of the assets and a settlement discount of 5% if payment for the machine was received
within one month of purchase. Yuda paid for the plant on 25 March 2020.
You are required to calculate the cost of the machine that will be included in tangible
noncurrent assets additions.

Sudgested Solutions
Initial cost of a machine.
TZS millions
List price of machine 820
Less: Trade discount (10% x 820) 82
Non-refundable import duty 738
Delivery fees 15
Refundable purchase VAT (N/A) 20
Electrical Installation cost -
Pre-Production testing 95
Operation losses (N/A) 49
Maintenance cost cost (N/A) -
917

pg. 20
Question 2 (Initial measurement)
An entity stated construction on a building for its own use on 1 April 2019 and incurred the
following cost.
TZS’00’
Purchase price of land 250,000
Stamp duty 5,000
Legal fees 10,000
Site preparation 18,000
Material 100,000
Labour (period 1 April 2019 to 1 Jury 2020) 150,000
Architect’s fees 20,000
General overheads 30,000
583,000
The following is also relevant
(i) Materials cost were greater than anticipated. On investment , it was found that material
costing Tshs 10 million had been spoiled and therefore waster and a further TZS 15
million was incurred as a result of faulty design work
(ii) As a result of these problem , work on the building ceased for a fortnight during October
2019 and it is estimated that approximately TZS 9 million of the labour cost relate it this
period .
(iii) The building was complicated on 1 July 2020 and occupied on 1 September 2020
Your are required to calculate the cost of the building that will be included in tangible
noncurrent
assets addition

Sudgested Solutions
Initial costs of the building
TZS ‘000’
Purchase price land 250,000
Stamp duty 5,000
Legal fees 10,000
Site preparation and clearance 18,000
Material (100,000 – 10,000 – 15000) 75,000
Labour (15,000- 9000) 141,000
Architect’s fee 20,000
General overheads (N/A) -
Total costs 519,000

pg. 21
NOTE:
Expenses that should not be capitalized.
Material wasted (10,000 + 15000) 25,000
Labour cost during idle time 9,000
General overheads 30,000
64,000
Entries
Dr PPE 519000
Dr P/L 64000
Cr Bank/ Payable (59+64) 583,000

Question 4 (Initial measurement)

Construction of city new store began on 1 April 2019
The following costs were incurred on the construction:
TZS’000’
Basic List price 240,000
Trade discount 12.5% on the list price
Ancillary cost
Shipping and handling cost 2,750
Maintenance contract for 3 year 24,000
Site preparation
 electric cable installation 14,000
 concrete reinforcement 4,500
 own labour cost 7,500
Notes
(i) Masele paid for the plant (excluding the ancillary cost) within four weeks of order,
thereby obtaining an early settlement discount of 3%
(ii) Masele had incorrectly specified the power loading of the original electrical cable to
installed by the contractor. The cost of correcting this error of TZS 6,000,000 is included
in the above figure of TZS 14,000,000.
(iii) The plant is expected to last for 10 year .At the end this period there will be compulsory
cost of TZS 15,000.000 to dismantle the plant and Tshs 3,666,667 to restore the site to its
original use time condition. An annual risk adjusted discount rate is 10%. The present
value of Tsh 1 payable in 10 year’s time at an annual discount rate of 10% is 0.39
Require: Calculate the amount at which the plant will be measured at recognition

pg. 22
 Sudgested Solutions
Qn 4
Initial cost of a plant
TZ ‘000’
Basic list price 240,000
Trade discount (12.5% x 240,000) (30,000)
210,000
Shipping and handling costs 2,750
Estimated preproduction testing costs 12,500
Maintenance contracts (N/A) -
Site preparation.
 Cable installation (14000 - 6000) 8000
 Concrete information 4500
 Own labour costs 7500
Provision for dismantling and restoration cost
(15,000,000 + 3,666,666) x 0.39 7,280
Total cost 252,530

SUBSEQUENT COSTS
Once an item of PPE has been recognized and capitalized in the F/S a company may incur
further cost on the assets in the future.
Example include
Repair or servicing costs
Replacement cost
Repainting cost
Upgrading costs e.t.c
REQUIRE THAT THESE SUBSEQUENT COST BE CAPITALIZED
Its probable that future economic benefit associated with the cost will flow to the entity
Its cost can be measured reliably.

SUBSEQUENT MEASUREMENT
Give two method of accounting to choose form for subsequent measurement these are:-
i. Cost Model
ii. Revaluation Model

i. COST MODEL
Under this method an item of PPE is carried at initial cost less accumulated depreciation
and
accumulated impairments.

pg. 23
 DEPRECIATION METHODS
These are many method however the common are:-
Straight line method
Diminishing / Reducing balance method
Machine hour rate method.
Production units methods
Sum of the year digit method.

Question 9 (Depreciation)
A lorry bought for business cost TZS 170,000,000 it is expected to last for 5 year and then sold
for scrap
for TZS 20,000,000. Usage over the 5 year is accepted to be.
Year1 : 2,000 million
Year2: 1,000 Million
Year3: 1,000 Million
Year4: 1,500Million
Year5: 500 Hours
Required: Calculate the depreciate to be charged each year under
a. Straight line method
b. Reducing balance method ( using a rate of 35% )
c. Machinery hour method
d. Sum of digit method

Sudgested Solutions
Qn 9 Pg 4
a. Straight line method.
Dep charger annum = Cost – scrap value
Economic useful life
or
= % x cost
Hence:-
=170m – 20 m = 150 = 30m
5 5

Year Depreciation
1 30m
2 30m
3 30m
4 30m
5 30m

pg. 24
b. REDUCING BALANCE METHOD
Depreciation per annum = % x carrying value
carrying value = cost - accumulated depreciation
Hence:-
Year Depreciation
1 (35%x 170m – 59,500,000) 59,500,000
2 (35%x170m – 98,175,000) 38,675,000
3 (35%x170m - 123,313,750) 25 138 750
4 (35%x 170m – 123, 313,750) 16,340,187:5
5 (35%x 170m – 139,653,937:5) 10,621,121.88
C. Machinery hour rate method.
Depreciation charge per annum = dep rate / hour x Hrs used in a year
Depreciation rate per hour =Depreciable amount
Total budgeted hours
In this case:-
Depreciable Amount = Cost – Scrap value
170,000,000 - 20,000,000
= 150,000,000.
Total budgeted hours over 5yrs
= 2000 +1000 +1000 + 1500 + 500 = 6000 hrs
:- Depreciation rate per hour + 150,000,000
6000 = 25,000
Therefore:
Year Depreciation charge
1 2000 x 25000 50,000,000
2 1000 x 25000 25,000,000
3 1000 x 25000 25,000,000
4 1500x 25000 37,500,000
5 500 x 25000 12,500,000
D. SUM OF THE YEAR DIGHT METHOD
Depreciation charge per annum
=No of the remaining at the start of the year x Depreciation
Sum of the year digit Amount
NOTE
Sum of the year digit = n x (n+1)
2
When n = useful life
= 5 x (5 + 1) = 30 = 15
2 2
Hence:

pg. 25
In this case
Year Depreciation
1 (5/15 x 150m) 50,000,000
2 (4/15 x 150m) 40,000,000
3 (3/15 x 150m) 30,000,000
4 (2/15 x 150 m) 20,000,000
5. (1/15 x 150m) 10,000,000

Question.11
An equipment of 10years life and 2.0M residual value was purchased with the following info
relevant
List Price 20.0M
Trade discount (1.0M)
Delivery cost 0.2M,
Set up cost 0.8M
Staff training cost 1.0M
Vat 2.0M
23.0M

Sudgested Solutions
Qn 11 Pg
Carrying Amount of the Equipment at 31st Dec 2018
i. Cost
List price 20,000,000
Less Trade discount 10,000,000
Delivery cost 19,000,000
Set up costs 200,000
Staff training cost (N/A) -
VAT (recoverable) (N/A) -
Total Costs 20,000,000

ii. Depreciation = Cost – Scrap value

Useful life.
= 20,000,000 - 2,000,000 = 18,000,000
10yrs 10

iii. Carrying Amount =Cost – Acc. depreciation

20,000,000 - 1,800,000
=18,200,000

pg. 26
Question 17
On 1 October 2016 Daudi acquired a machine under the following terms:
Hour TZS’000’

Manufacture’s base price 1,050,000

Trade discount (applying to base price only) 20%
Early settlement discount taken (on the payable amount of the base cost
only)5%
Freight charge 30,000
Electrical installation cost 28,000
Staff training in use of machine 40,000
Pre- Production testing 22,000
Purchase of a three- year maintenance contract 60,000
Estimated residual value 20,000
Estimated life in machine hour 6,000
Hour used:-
- year ended 30 September 2017 1,200
- year ended 30 September 2018 1,800
- year ended 30 September 2019 (see below) 850

On1 October 2018 , Daud decided to upgrade the machine by adding new component at a cost
of TZS 200 million. This upgrade led to a reduction in the production time per unit of the goods
being manufactured using the machine. The upgrade also increased the estimated remaining life
of the machine at 1 October 2018 to 4,500 machine hour and its estimated residual value was
revised to TZS 40 million
Required: Prepare extract from the income statement and statement of financial position
for the above machine for the each of the three year to 30 September 2019

Sudgested Solutions
QN 17
Cost at 1st oct, 2016
Manufacture cost 1050,000
Trade discount (1050,000 x 20%) (210,000)
840,000
Freight charges 30,000
Electrical installation cost 38,000
Staff training (N/A) -
Pre – Production testing 22,000
Maintenance (N/A) -
Total cost 920,000

pg. 27
Depreciation for the year ended 30stsep 2017
(920,000,000 n- 20,000) x 1200 (180,000)
6000 740,000)

Cv at 30 sep ,2017
Depreciation for the year ended 30 sep 2018
Revised CV at 1st oct, 2018
Depreciation for the year ended 30th Sep2019
(670,000 – 40,000) x 850 hrs 119,000
4500 551,000
Cv at 30.9.2019
Extract – Statement of profit or loss
Year 2017 2018 2019
Depreciation (180,000) (270,000) (119,000)
Staff training (40,000) - -
Maintenance (20,000) (20,000) (20,000)
Cash discount (5%x 840,000) 42,000 - -

Extract- Statement of financial position

Year 2017 2018 2019
Asset
NCA
PPE cv 740,00 470,000 551,000

REVALUATION MODEL :
Under this model an item of PPE is carried at its revalued amount which its fair value at the
date of revaluation less any subsequent accumulated depreciation and subsequent accumulated
impairment loss.
FREQUENCY OF REVALUATION
Requires that revaluation to be done when the carrying amount of an asset differ significantly
with its fair value (i.e. necessary annually).
ACCOUNTING FOR GAIN OR LOSS ON REVALUATION
This occur when an asset carrying value is increased as a result of revaluation means gain
TREATMENTS OF THE REVOLUTION GAIN
The treatment depend on whether the gain is originating or reversing
ORIGINATING GAIN
This is the gain which is occurring for the first time .
This gain should be telan to revaluation reserve / surplus
Entries
Dr PPE (fair value –cost) xx
Dr Acc, depreciation xx
Cr Revolution reserve (gain) xx

pg. 28
Question 18
A building was purchase on the 1st January 2014 at a cost of TZS 2,000 million. it si being
depreciated over 50 year . The company decided to use the revolution made for valuing building
in 2019 and at the 31 1st December 2019 the building was valued at TZS 1900 million by a
professional value.
Required
(a) Calculate the amount of Revolution surplus/loss
(b) Show the journal entry to record the revaluation

Sudgested Solutions
Qn 18
Workings: to calculate gain or loss on revaluation Million
Cost at 1st Jan 2014 2,000
Acc depreciation to 31st Dec, 2019
(2000 – 0) x 6
50 (240)
CV at 31st Doc, 2019 1760

Gain on revolution 140

Revaluation at 31st Dec, 2019 1900
:- Revolution gain = TZS 140m.

b. Entries to record revolution gain

Dr PPE (1900 - 2000) (100)
Dr Acc dep 240
Cr Revaluation gain 140
Question 28
Mauki Estates Ltd conduct its activities from two properties a head office at DSM city center
and property in the country side, Dodoma Municipal where staff training is conducted. Both
properties were acquired on April 1, 2018 and had estimated lives of 25 year with no residual
value .The company policy of carrying its land building is at current values . However on
recently, Property price had not changed for some years. On October 1 ,2020 the properties
were revalued by a firm of surveyors Ardhi University
Details of this and the original cost are:
Land Building
TZS TZS
Million Million
- Cost April 1, 2018 500 1,200
Head Office: - Revalue 1, October, 2020 700 1,350

Training Premise - Cost April 1, 2018 300 900

- Revalue 1, October, 2020 350 600

pg. 29
The fall in the value of the training premises is mainly due to damage caused by the use of heavy
equipment during training . The survey have reported that the expected life of the training
property in its current use only be for a Further 10 years from the date the valuation.
The estimated life of head office remained unaltered. Mauki estates Ltd treats its land its building
separate assets . Depreciation is based on the straight-line method from the date of purchase or
subsequent revaluation on monthly basis . Mauk make a transfer to realized profit in respect of
excess depreciation on revalued assets.
Required: prepare extracts of the financial statement of Mauki Estates Ltd in respect of the
above properties for the year to march 31,2021

Sudgested Solutions
Qn 28
Workings
Calculation of depreciation , revaluation gain or loss and costing value.
i. Head office
a . Land “000”
Cost at 1st April 2018 500,000
Gain on revaluation 200,000
Revaluation reserve 700,000

Entries to record revaluation

Dr Land 200m
Cr Revaluation reserve 200m

b. Building Millions
Cost at 1st April ,2018 1200
Acc. depreciation to 31st March , 2020
(1200) x2 (96)
25 1104
Cv at 31st March , 2020
Depreciation for 6 Months 30.9.2020
(1104) x 6/12 (24)
23 1080
Cv at 30.9.2020 270

Gain on revaluation 1,350

Depreciation for 6 month to 31th March 2021
(1350) x 6/12 (30)
22.5 1,320
Cv at 31st March 2021
Hence.
Total depreciation for the year
= 24+30 = 54m

pg. 30
Training Premises
a. Land
Cost at 1st April , 2018 300
Gain on revaluation 50
Revaluation at 1st oct ,2020 350

Entries
Dr Land 50m
Cr revaluation reserve 50m

b. Buildings
Cost at 1st April 2018 900
Acc depreciation to 31st March , 2020
(900/25) x 2 72
828
Cv at 31st March , 2020
Depreciation for 6 Months to 30.9.2020
(828/23) x 6/12 (18)
Cv at 30.9.2020 810
Loss on revaluation (210)
Revaluation at 1st oct , 2020 600
Depreciation for 6 Months to 31.3.2021
(600/10) x6/12 (30)
CV at 31.3.2021 570

Hence
Total depreciation for the year
18 + 30 = 48m
Reserve transfer
An amount equal to execs depreciation is transferred from revaluation earnings.
-This apply to depreciable asset only with revaluation gain in this case.
The head office building had a revaluation gain.

:-Excess depreciation
=Revaluation gain
Remaining useful life.
=270
225 = 12m

Alternatively:
Excess depreciation
Depreciation based on revalued amount 30m
Depreciation based on historical cost (24m)
Excess depreciation for 6 months
Hence,
P.a = 6x 2 = 12m

pg. 31
Hence
For the year ended 31.3.2021
Amount to be transferred = 6m

Entries
Dr Revaluation Reserve 6m
Cr Retained earnings 6m

Extract – Statement of profit or loss and for OCI year ended 31.3.2021
Depreciation
-Head office – building 54
-Training premises-building 48 (102)
Revaluation loss- Training premises- building

Other Comprehensive income

Gain on revaluation
-Head office – land 200
-Head office- building 270
-Training premises – Land 50 520

Extract-Statement of financial position as at 31.3.2021

Assets:
Non- Current assets
PPE
Head office
- Land 700
- Building 1320 2020

Training premises
- Land 350
- Building 570 920
Equity
Revaluation reserve (520 -6) 514

pg. 32
 Topic.5 IFRS.9 & IAS.32 Financial
Instruments (1 HRs)
Introduction
There are three reporting standards that deal with financial instrument
i. IFRS 9 : Financial instrument – recognition and Measurement
ii. IAS 32: Financial instrument – Presentation
iii. IFRS 7 : Financial instrument- Disclosures

Definitions
 Financial instrument : is any contract that gives raise to financial assets of one entity and
financial liability or equity instrument of another entity.
 The definition describe financial instrument as a contract and therefore in essence ,
financial instrument are going to be pieces of paper
Example:-
- When an entity issue invoice on sale of good on credit the entity that has sold goods , has
financial assets.
(Receivable s) while the buyer has financial liability ( payables)
- When an entity raises finance by issuing bonds / debentures loan notes the entity that
purchase the bong has financial assets , while the issuer of the bond has financial
liability(payable).
- When an entity entity raises finance by issuing bond / debentures loan notes the entity
that purchase the bond has financial liability.

Enforcement
a. A 'contract' need not be in writing, but it must comprise an agreement that has 'clear
economic consequences' and which the parties to it cannot avoid, usually because the
agreement is enforceable in law.
b. An 'entity' here could be an individual, partnership, incorporated body or government
agency.

Conclusion
- When we are taking about financial instrument we are really talking about:-
Financial assets.
 Trade receivable or loan receivable
 Investment in share
 Investment in bond
Financial liabilities
 Trade payable or loan payable and other payable
 Long term loans e.tc
Equity-instruments
 Equity share capital

pg. 33
BIG NOTE
Financial instrument do include donatives e.g. option future and swaps.

Financial assets.
Is any asset that is :-
Cash
An equity instrument in another entity
A Contractual night to receive cash or another financial assets from another entity
A Contractual right to exchange financial instrument with another entity under the condition
that are potentially favorable to the entity.
A non – derivative contracts for which the entity is obliged to receive a variable number of the
entity own equity

Financial liability
Is any liability that is
A contractual obligation to deliver cash or another financial assets to another entity
A contractual obligation to exchange financial instrument with another entity under the
condition that are potentially unfavorable to the entity.
A non derivable contract to which an entity is obliged variable number of he entity own equity
instruments.

Equity Instrument
- Is a residual interest after deducting liabilities from assets.
Equity = assets – Liability
To confirm if we have understood the definition explain whether the following are financial
instrument ( financial assets financial liability or equity instrument)

Fair value
- Is price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
i. Inventory
It is not a financial instrument since there is no contractual right to receive cash.
ii. Pre – payment
Is not a financial instrument since the economic benefit expected is good / services and cash
iii. Income tax liability
Is not a financial instrument since the obligation is statutory rather than contractual.
iv. Gold bullion in the bank
Is not or financial instrument
v . Finance lease receivable and payable
This is financial instrument as there is contractual right to receive cash or contractual obligation
to deliver cash
vi. Option to purchase share of another entity.
This a derivative hence financial instrument

pg. 34
vii. Bank balance and cash in hand
These are financial assets hence financial instrument

Examples of financial assets include:

(a) Trade receivables
(b) Options
(c) Shares (when held as an investment)

Examples of financial liabilities include:

(a) Trade payables
(b) Debenture loans payable
(c) Redeemable preference (non-equity) shares

IAS 32 makes it clear that the following items are not financial instruments.
(a) Physical assets, eg inventories, property, plant and equipment, leased assets and intangible
assets (patents, trademarks etc)
(b) Prepaid expenses, deferred revenue and most warranty obligations
(c) Liabilities or assets that are not contractual in nature

IFRS 9 Financial Instrument – Recognitions And Measurements

RECOGNITION:
- Financial instruments are recognized in the financial statement ( ie the SFP ) When and
only when the entity become part to the contractual provision of the instrument.
MEASUREMENT:
1. FINANCIAL ASSETS
- Initial and subsequent measurement of financial assets depends on the classification in
which the financial assets belong
There are three categories of financial assets
i. Financial assets at 35mortization costs
ii. Financial asset at FV through profit or loss ( Financial asset at FVTPL)
iii. Financial assets at FV through other comprehensive income ( Financial asset at FVTOCI )

i. FINANCIAL ASSETS AT AMORTISED COST

This category apply to the financial assets with the following characteristics
 The financial assets is held by the entity in order to collect contractual cons flows
( ie. Business model test) .
 The contractual cash flows are repayments of principle and interest ( i.e cash flow tests)
Example
All debt instrument such as
 Bonds and debentures purchased
 Loan receivables

pg. 35
Initial Measurement
- Financial asset at mortised cost are initially measured at fair value (purchase price or
present value ) plus transaction cost eg. Legal; fees , brokerage fees e.g.
Subsequent Measurement:
- Financial assets at mortised cost are subsequently carried at mortised ( i.e the initial
carrying is increased by Interest income and decreased by cash received)

Question 3 (Subsequent measurement-Financial assets)

A company plc purchased a three year 5% bond on 1st January 2020 with a nominal value of TZS
100,000 million. The bond is purchase at a discount of 5% and TZS 2,000 million transaction
cost was incurred.
The bond will be redeemed at the end of the third year at premium of 5.96%. The loan has a
coupon rate of 5% per annum and an annum effective interest rate of 8%. The bond is measured
at amortized cost.
Required: What amounts will be shown in the financial statement for year 1-3?

Sudgested Solutions
Initial Measurement is at:-
i. Fair value / price paid (95% x 100,000m) 95000m
Plus 2000m
ii. Transaction costs 97000m
Entries on initial recognition
Dr : Financial asset (bond) 97000m
Cr Bank 97000m

Subsequently
The financial assets would be carried at mortised cost
The Mortised for three years are calculated as following .
Year Bal b/d Interest at 8% Cash received Bal c/d
1 97000 7760 (5000m) 99,760
2 99760 7981 (5000M) 102,741
3 102,741 8219 (110,960) -
Note
Annual cash receipts = Coupon rate / nominal rate x Nominal value
1 =5% x 100,000m = 5000m
NOTE 2
Cashflows at maturity date =
 Annual cash receipt 5000m
 Nominal value 100,0000m
 Premium ( discount ) (5.96% x 100,000m) 110,960m
Extract – Statement of Profit or loss
Year 1 2 3
Finance income 7760 7981 8219

pg. 36
Extract – Statement of financial Position
Year 1 2 3
Assets
NCA
Financial asset / bond 99760 102,741 -

iii. Financial Assets at Fair value Through profit or ( financial Assets at FVTPL)
- This category apply to financial assets ( ie both debt and equity instrument) that are held
by the entity for trading ie they are held for the purpose of making short term gain from
an increase in market value .
- The category do also apply to donatives.
Measurements
Initial Measurement:
Financial assets at FVTPL are initial Measured at fair value (ie Purchase price)
NOTE
- Transaction cost incurred if any such as brolarage fee leagal fee e.t.c area taken to profit
or loss ( Expensed).
Subsequent Measurement
- Financial asset at FVTPL are subsequently carried at fair value i.e revalued at their fair
value at e each year end .
- Gain or loss on revolution is taken to profit or loss

iii. Financial asset at Fair value through other comprehensive income ( i.e
Financial asset at (FVTOCT)
This classification applies to :-
 Equity instrument that are held to maturity ( ie not held for trading)
 Debt instrument in which the entity has both objectives of collecting contractual cash
flows and selling the financial asset if price increases

i. Initial Measurement
- Financial assets at FVTOCI are initial measured at fair value Plus Transaction costs.
ii. Subsequent Measurement
- Financial assets at FVTOCI are subsequently carried at fair value ( i.e revalued at each
year end). Any gain / loss on revolution is taken to other comprehensive.

Question 1 (Classification)
MAJIMAREFU a CD manufacturing company has entered into the following transaction
involving financial instruments:
i. MAJIMAREFU gave a loan to ABC , Although ABC owes MAJIMAREFU money , this
transaction does not give rise to trade receivable . It is part of portfolio that the company
manages in order to collect the contractual cash flows.

pg. 37
 ii. During the year MAJIMAREFU made an investment in 500 equity share at TZS 12,000
per share of TBLL, quoted in an active market. However this investment was not made or
held for trading purposes.
iii. During the year, MAJIMAREFU made another investment in TBLL which was held for
trading purpose

iv. MAJIMAREFU made an investment in 200 equity share at TZS 10,000 per share of
TCCC which are not held for trading, do not have a quoted price and whose fair value
cannot be reliably measured.
v. MAJIMAREFU’s investment in debt securities which is not quoted in an active market
and is not held for trading.
vi. During the year, MAJIMAREFU purchased debt secures of NMMB. These debt
instruments were quoted in an active market interest rates significantly, MAJIMAREFU
will consider selling the debt securities in order to realize the associated gain.
Required: MAJIMAREFU needs you as an accountant to help them classify these
transactions into the appropriate category of financial assets

Sudgested Solutions
i. As a company holds the loan receivable in order to collect the contractual cashflow then it is a
financial asset at mortised cost.
ii. As the shares Purchased are not held for trading , hence they would be classified as financial
asset at FVTOCI
iii. Investment held for trading is a financial asset at FVTPL
iv As the share are not hold for trading hence are financial asset at FVTOCI
v. AS the investment is a debt instrument not held for trading it would be classified as financial
asset at mortised costs.
vi. Since the debt instrument is purchased with both objective of hold it to maturity or sell, the
debt is a financial asset at FVTOCI
vii. Equity instrument that is not held for trading is classification as financial assets at FVTOCI

Question-2 (Initial measurement- Financial assets)

ASP incurred the following financial asset during the year 2016.
i. Purchase of debt security for TZS 25 million with transaction cost of TZS 0.2 million.
The debt security is held for trading purposes.
ii. Equity share purchase for TZS 4 million. The dealer fee paid was TZS 0.75 million. ASP
elected to classify these share as financial asset at fair value through profit or loss.
iii. During the year, ASP purchase a bond of TZS 10 million at a premium of TZS 0.1
million and classified it as at amortised cost sale. Transaction cost incurred on the bond
were TZS 0.15 million.
iv. ASP purchase share for TZS 6 million and issuance costs of TZS 1.2 million. An election
was made under IFRS 9 to take gains and losses on remeasurement to other
comprehensive income.
Required

pg. 38
 As their accountant, determine the initial carrying amount of each of the above financial
instruments.

Sudgested Solutions
i. Debt instrument held for trading is a financial asset at FVTRL
Hence,
Its Initial carrying value = Fiar value / Purchase price
= 25 Million
NOTE
Transaction cost of TZS 0.25 Million is Expensed to P/l
i. As the equity instrument is at FVTPL
Initial carrying value = 4 Million
Transaction cost is expensed to P/L which is 0.25 million

ii. As the bond is classified as financial asset at Mortised costs , initial carrying value =
4 Million
Transaction cost is expensed to P/l which is 0.25 Million
iii. As the bond is classified as financial asset at Mortised cost, Initial carrying value
 Fair value ( 10m = 0.1) 10.1m
PLUS,
Transaction cost 0.15m
10.25m
vi . Carrying Value
 Purchase price 6m
 Plus : Transaction cost 1.2m
7.2m

Question 4 (Subsequent measurement-Financial assets)

Kijakazi plc purchase 10,000 share in another company during 2020 for a cost of TZS 4,500 per
share including transaction cost of TZS 1,450,000. The market value of the share at 31 December
2020 was TZS 5,040 per share.
Required:
Explain the accounting treatment of the financial asset in the financial statement of Kijakazi plc
for the year 31 December 2020 if shares were classified as following.
i. Financial asset at Fair value through profit or loss
ii. Financial asset at Fair value through OCI

pg. 39
 Sudgested Solutions
i. If share are classification as financial assets at FVTPL
Initial Measurement would be at fair value as follows
10,000 x 4500 = 45,000,000
Transaction cost of TZS 1,450,000 would be expensed to P/L-

Subsequently.
The shares are to be revalued at each year end at the is fair value
Hence,
The fair value 31st Dec , 2020
10,000 x 5040 = 50,400,000
A Revaluation gain of 5,400,000 ( 504,000,000 – 45,000,000) would be taken to profit or loss
Dr financial asset 5,400,000
Cr Profit or loss 5.400,000

Extract – Statement of profit or loss for the year ended 31st Dec 2020
Transaction cost (1,450,000)
Revaluation gain – Financial assets 5,400,000

Extract – Statement of financial position as at 31st Dec, 2020

Assets
CA
Financial assets 50,400,000

ii. If the share are classified as financial assets FVTOC

 Purchase rice 45,000,000
PLUS. Transaction cost 1,950,000
46,450,000
Entries at initial Measurement
Dr Financial asset 46,450,000
Cr Bank 46,450,000

 Subsequently Financial asset are carried at fair value at each year end ( i.e revalued at
each year end ) in this case
The fiar value at 31st Dec , 2020 50,400,000
Hence,
The revaluation gain of 3,950,000 would be taken to OCI.
Entries
Dr Financial asset 3,950,000
Cr OCI 3,950,000
Extract – Statement of P/L and OCI for the year ended 31st
OCI
Revaluation gain 3,950,000
Extract – statement of financial position as at 31 Dec, 2020
st

Assets

pg. 40
NCA
Financial assets 50,400,000

FINANCIAL LIABILITIES
There are two categories of financial liabilities under IFRS 9
i. Financial Liabilities at amortised cost.
ii. Financial Liabilities at FVTPL

I :Financial Liabilities at Mortised costs

- This category apply to all financial liabilities other than those held for trading ( ie.
Incurred for the purpose of repurchasing in a near future).
Initial Measurement
- Financial liabilities at FVTPL are initially Measured at fair value ( ie Cash receveide in
exchange for obligation or present value of future payments)
- Any transaction cost incurred is expensed to profit or loss
Subsequently Measurement.
- Financial liabilities at FVTPL are subsequently measured at fair value. If the fair value is
not given calculate it as a PV of future payment.
- The change in the fair value is taken to profit or loss

Question 8 (Subsequent measurement-Financial liabilities)

The Ministry of Finance ad planning (MoFP) issued a 3 year Treasury bond of face value of
TZS 5,000 on 30th June 2014 with a nominal interest rate of 10% at a premium of 4%. The
Ministry incurred TZS. 500 million as issue costs. MoFP pays interest annually in arrears on
30th June 2015; 30th June 2016 and 30th June 2017 . The bond will be redeemed at the third year
at a premium of 5% . The effective interest rate has been calculated for you at a rate of 14.04%.
Required:
Calculate the amount which the loan bonds will appear in the statement of financial position and
statement of financial performance relating to the bond for the year ended 30th June 2016

Sudgested Solutions
The treasury bond issue is the financial liabilities in the books of MOFP Classified at amortised
cost
(ie. Since the it will be initially measured at:- Million
 Fair value / issue price (5000 x 104%) 5,200
Less : Transaction cost (500)
4700
Entries
Dr Cash 4700
CR Financial liabilities (bond ) 4700
Subsequently
The financial liabilities would be carried at amortised cost as follows
b
Year Bal /d Interest @ 14.04% Cash paid Bal c/d
2015 4700 660 (500) 4860
pg. 41
2016 4860 682 (500) 5042
2017 5042 7808 (5750) -

Extract – Statement of profit or loss

Year 2015 2016 2017
Finance cost (660) (682) (708)
Extract – statement of financial Position as at
Year 2015 2016 2017
Liabilities
NCL
Financial liabilities 4860 5042 -
- 5042 -
Question 9 (Subsequent measurement-Financial liabilities)
An entity, issued a five – year bond on 1 January 2019 at a price of TZS 5m with annual
interest of 5% which is also the effective rate ,payable on 31 December annually . At the
reporting date of 31 December 2019 interest has been paid as expected and the market rate of
interest is now 6%.
Required: Account for the financial liability at 31 December 2019 on the basis that.
a) It is classified as FVTPL, and
b) It is Classified and measured at amortised cost.

Sudgested Solutions
If its Classified at FVTPL
Initial Measurement is at fair value of TZS 5m
Entries
DR Bank / Cash 5m
Cr Financial liability 5m
Subsequently the financial liability would be carried at fair value
Since the fair value is not given at the year end , it should be calculated as a present value of
future cashflow discounting MRK interest rate.
In this case
PV =
Year Cashflows Discounting factor 0.6% PV
2020 250,000 0.94 235,000
2021 250,000 0.89 222,500
2022 250,000 0.84 210,000
2023 5,250,000 0.79 4,147,500
4,815,000
Hence,
The fair value of the liability at 31st Dec 2019 is 4,8815,000 .
Revolution gain of 185,000 (5m – 4815,000) would be taken to profit or loss.

pg. 42
Entries
 To record the cash paid for the year ended 2019
DR PROFIT OR LOSS ( Finance cost paid ) 250,000
CR Cash 250,000
 To record revaluation gain
Dr Financial liability 185,000
Cr Profit or loss 185,000
ii. If its classified and Measured at amortised costs.
Initially the bond issued will be Measured at :-
Fair value / issue price 5,000,000
Less: Transaction cost -
5,000,000
DR Bank 5000,000
CR Financial liability 5000,000
Subsequently the bond issued would be carried at amortised costs.
The amortised cost at 31st Dec, 2019
B b al at 1st Jan , 2019 5000,000
Interest @ 5% x 5m 250,000
5,250,000
Cash paid (5m x 5%) 250,000
Bal at 31st Dec, 2019 5,000,000
Entries
i. Finance costs
Dr P/L 250,000
Cr Financial liability 250,000.
ii. To record cash paid
Dr : Financial liability 250,000
CR: Cash 250,000

EQUITY INSTRUMENT
- Equity instrument ( e.g ordinary share) are recorded in the books of issuer at fair value
price less transaction cost
- Subsequently equity instrument are not premeasured in the books of issuer

Question 10 (Subsequent Measurement-Equity)

Dravid issues 10,000 ordinary share of TZS 1,000 nominal value each for cash consideration of
TZS 2,500 each. Issue costs are TZS 1,000,000 The fair value of each ordinary share at the year
end is TZS 3,000
Required: Explain and illustrate how the issue of share is accounted for the financial statement
of Dravid.

Sudgested Solutions
pg. 43
The issue of share is initially Measured at
 Fair value (10,000 x 2500) 25,000,000
 Less: Transaction cost (1,000,000
24,000,000

Entries
Dr : Cash/ Bank 24,000,000
Cr: Share capital (10,000 x 1000) 10,000,000
CR: Share premium (10,000x 1500)-1000 14,000,000

Subsequently equity instrument are not remeasured.

Topic.7 IAS.38 Intergible Assets (40Mins)

An intangible asset is defined as Un identifiable Non-Monetary assets without Physical
substance.
Example included
 Compute software eq accounting package
Patents e.g. formulary to a certain products
Copynghts
License
Acquired goodwill
Brand name acquired
Trade mark e,t.c
Training cost Are intangible asset but to cannot be recognized
Adverrsting cost Since they lack certain criteria’s
RECOGNITION
There four recognition criteria
I. Identifiability
Intangible assets need to be identifiable in order to be recognized
Its identifiable when:-
 Its capable of being separated from other assets of the entity and sold, transferred, rented
or exchanged. or
 If anises from contractual or other legal night, even if it’s not capable of being transferred
e.g. Landing nights
NOTE:
Advertisement cost through seems to be an intangible assets, but do not quality under this
condition as there asset cannot be transferred to another person
ii. CONTROL
The entity need to control on intangible asset before it recognized that asset in the financial
statement.
Control is achieved by
 Power to obtain future economic benefit from the assets
 Power to restrict access of others to those benefits.

pg. 44
For this case training costs though seems to be intangible asset (capital costs) cannot be
recognized as such , because they relate to human resource in which an entity has little or no
control over that staff as he/she ca leave the entity and use his her expertise elsewhere.
iii. Its probable that future economic benefit will flow to the entity
iv. The cost of an intangible asset can be measured reliably

MEASUREMENT
Initial Measurement:
After initial recognition an intangible assets is initially measured depending on the model of
acquisition.
i. If an intangible asset is separated acquired
-It should be measured initially at cost cost components includes
 Purchase price
 Non-refundable purchase taxes if any
 Directly attributed cost e.g. legal fee, installation costs, testing costs e.t.c
ii. If an intangible assets is acquired as part of a business combination.
-It should be initial measured at its fair value (Market value)
iii. If an intangible is acquired by way of government grant
-If should be measured at the nominal cost of fair value
iv. if any an intangible asset is acquired by exchange of other non- monetary item.
v. It should be measured at the fair value of the asset given out.

SUBSEQUENT MEASUREMENT
There are two Method allowed
a. Cost model
b. revaluation model.
a. Cost Model:
Under this model an intangible asset is carried at its .Historical cost less subsequent acc.
amortization and ace. Impairment loss.

AMORTISATION:
Means allocating the depreciable amount of an intangible assets to its useful life
NOTE I
Depreciable amount = Cost – Scrap value
NOTE II
An intangible asset with unlimited or infinity useful life should not be amortised instead should
be tested for impairment at least annually.
AMORTIOATION METHOD:
The method to be used is that reflecting the pattern in which the assets future economic benefit
are expected to be consumed by the entity
If that pattern cannot be determined to reliably then the straight line method should be
used,

Question 3

pg. 45
Hempel foods plc acquired a licence for TZS 45 million. The lifecycle of the related product is
expected to be 5 year . Net operating cash flows are expected to be as following : year 1 TZS
15m: year2:TZS 15m Year 3: TZS 15m:Year 4:TZS 10m: Year5:TZS 5m
Required
Advise on the amortization policy that will comply with the equipment of IAS 38:

Sudgested Solutions
Qn 3 Pg 1
Hempen method P/L amortization policy that company with the requirement IAS 38 is that
reflect the pattern of expected future economic benefit
In this case net cash flows
Hence Amortisation per annum
Year 1 = 15 x 45
60 11,250,000

Year 2 = 15 x 45
60 11,250,000

Year 3 = 15 x 45
60 11,250,000

Year 4 =10 x45

60 7,500,000

Year 5 = 5 x 45
60 3,750,000

NOTE:
Had the pattern of economic benefit not measured reliably the amortization policy would be
straight line i.e. The amortization charge per annum would be
45,000,000
95 = 9,000,000

B.REVALUATION MODEL
Under this model , an intangible assets is carried at revalued amount being its fair value at the
date of revaluation less subsequent accumulated amortization and subsequent accumulated
impairment loss.
DETERMINATION OF FAIR VALUE.
The fair value is determined by referring the fair value of identical assets i.e traded in an active
market.
An active market is the market where all of the following conditions exist
 The item traded are identical
 Willing buyers and seller can be found
 Price are available to the public

NOTE:
pg. 46
Most of the intangible will not quality for the revaluation model as they are unique.
Unique item has no identical item / assets

ACCOUNTING FOR REVALUATION

1. Revaluation Gain
These should be taken to revaluation Reserve.
However, If the gain is reversing the previously recognized loss , revolution gain should be
first taken to profit or loss until the effect of loss is reversed any balance should be taken to
revaluation reserve

2. REVALUATION LOSS:
These should be taken to profit or loss
However if the loss is reversing the previously recognized gain , the loss should be taken to
revaluation reserve first until the gain / revaluation reserve is completely reversed.

Question 5
The carrying value of license A and B are TZS 140m and TZS 180m respectively. They are
revalued to TZS 120m and TZS 196m respectively. In the previous revaluation of license was
increased by TZS 14m and license B decreased by TZS 10m.
Required:
Show the accounting to record revolution for the current year

Sudgested Solutions
Qn 5 Pg 1
1.Gain or loss on revaluation
Licence A A
Revalued Amount 120m 196m
Carrying value 149m 180m
Revaluation gain / (loss) 20m 16m

2. Journal entries :
Licence A
Dr Licence reserve 14m
Dr Profit or loss 6m
Cr Licence A 20m

Licence B:
Dr Licence B 16
Cr Profit or loss 10m
Cr Revaluation 6m

Question 6

pg. 47
MNO Ltd adopts fair value for subsequent measurement of its intangible assets . An intangible
with an estimates useful life of 9 year was acquired on 1 January 2018 for TZS 90,000,000. It
was revalued to TZS 108,000,000 on 31 December 2019, the asset was revalued at TZS
64,000,000.
Required:
State the accounting treatment required in 2018 and 2019 financial statement.

Sudgested Solutions
Qn 6 Pg 2
Year ended 31 .12.2018
Cost at 1.1.2018
Amortisation for the year ended 31.12.2018 (90,000,00) x1 90,000,000
9 10,000,000)
CV at 31.12.2018 80,000,000
Gain an revaluation 28,800,000
Revaluation at 31.12.2018 108,800,000

ENTRIES TO RECORD REVALUATION

Dr Intangible asset (CV) 28,800,000
Cr Revaluation Reserve 28,800,000

OR
Dr Intangible asset (108,800,000- 90m) 18,800,000
Dr Acc Amortisation 10,000,000
Cr Revaluation reserve 28,800,000

Year ended 31.12.2019

Bal at 1.1. 2019 108,800,000
Amortisation for he year ended 13.12.2019 (108,800,000)x 1 (13,600,000)
8
CV at 31.12.2019 95,200,000
Loss on revaluation 31,200,000)
Revaluation at 31.12.2019 64,000,000

Entries
Dr Revaluation reserve 28,800,000
Dr Profit or loss 2,400,000
Dr Acc. Amortisation 13,600,000
Cr Intangible asset (108,800,6400) 44,800,000

Extract-Statement of profit or loss and OCI

Years 2018 2019
Amortisation (10,000,000) (13,600,000)
Revaluation loss - (24,000,000)
Other comprehensive Income
Revaluation gain 28,800,000 -

pg. 48
Extract – Statement of financial Position.
Year 2018 2019
Assets
NCA
-Intangible asset 108,800,000 64,000,000
Equity
Revaluation reserve 28,800,000 -

Topic.6 IFRS.15 Revenue from contact

with customers (1HRs)
B2&C1
IFRS 15-REVENUE FORM CONCTRACTS WITH CUSTOMER
Review question
Question 1 (5 step)
On 1 December 219 an entity receives an order from a customer for a computer as well as 12
months of technical support. The entity deliver the computer (and transfers its legal title ) to the
customer on the same day . The customer paid TZS 420,000
REQUIRED
Demonstrate how the 5 steps would be applied to this transaction .

Question 2 (5steps)
Kabudi Ltd, a technology equipment supply company entered into contract with a customer on 1
December 2018 to supply . Install and servicer a system of computer . The agreed price was TZS
200,000,000 to included a two-year servicer contract. Payment was made in total following
installation in January 2018 , At 31 December 2018, kabudi had supplied all the machines, but
had not yet installed any. Sold for TZS 150,000,000 if purchase separately.
Required:
Advise showing relevant journal entries , hoe the over transaction should be recognized in
Kabudi’s financial statement for year ended 31 December 2018 and 2019? use 5 steps model to
demonstrate the recogion of revenue.

Question 3 (Deferred payment ) financing

Rabi company enters in to a contract with a customer sell equipment on 31 December 2018.
Control of the equipment transfer to the customer on that date . The price stated in the contract is
100 million and is due on 31 December 2020. Market rates of interest violable to this particular
customer 10%.
Required:
Explain how this transaction should be accounted for the financial statement of Rabi company
for the year ended 31 December 2018.

Question 4 (Discounts)

pg. 49
Shella sell a machine and one year’s free technical support for TZS 100,000,000. It usually sells
the machine for TZS 95,000,000 but does not sell technical support for this machine as a
standalone product.
Other support services offered by by shella attract a markup 50% . It is expected that the
technical support will cost shella TZS 20,000,000.
Required: How much of the transction price should be allocated to the machine and to the
technical support?

Question 5 (agency sales)

Daphne is an agent who work on behalf of Celeste a , famous singer. Daphne has just collected
has just collected TZS 100million from a promoter fro ticket sale a recent show by Mondi.
Daphne earns commission of 10% in relation to Mondi’s work.
Required:
What is the correct double entity for the receipt of the TZS 100 Million.

Question 6 (sale and repurchase agreement)

O January 2015 , Kilala sold its head office to swebe ,a financial company , for Tshs 50m. Kilala
continues to use the asset and responsible for the insurance and maintenance of the building .
Kilala has the right to repurchase it for Tshs 60.05m 0n January 2017 representing a 10% growth
in value each year. At 1 January, the head officer was value at Tshs 110m, with the carrying
value amount shown at Tshs 40m. This value is expected to increase by January 2017
Required:
Explain the financial reporting treatment for the issue for the year ended 31 December 2015.

Question 7 (Bill and holed arrangement)

On 31 December 2015. malale sells a machine plus a machine plus spare to marandu for Tshs
500m, The machine on 31 December , but was asked to hold the spare part by marandu, due to
malale’s warehouse being in close proximity to Marandu’s factory . Malale expects be to hold
the spare parts 2-4 year. The part are kept separately in the warehouse can be used or sold to by
malela ,and they are ready for immediate shipment at Marandu’s requisite . Malale agreed to the
transaction as it decided that holding costs would be insufficient.
Required
Explain the financial reporting treatment for the use for the year ended 31 December 2015.

Question 8
The following transaction were into by (EFD Ltd ) during the year ended 31 July 2016.
(i) On 1 August 2015, EFD Ltd agreed to sell a plot of land to another entity for TZS 500
million cash. The land had a carrying value and a fair value at that date of TZS 400
million. On the same date EFD Ldt entered into a binding agreement with the same
counterparty to repurchase the land on 1 July 2016 for TZS 550 million.
(ii) On 1 July 2016, EFD Ltd delivered good with an invoice value of TZS 40,000,000 to a
customer. The agreement with the customer was that the goods would be paid for only I
pg. 50
 the customer sold them on. The good had cost EFD Ltd TZS 34,000,000 to manufacture
.on 31 July 2016, none of the good had been paid for the customer and m=none returned
(iii) On 10 July 2016, EFD Ltd delivered goods with an invoice value of TZS 25,000,000 to
other customer. The agreement with this customer was that the good would be paid for
retuned once the customer accepted delivery and was satisfied the goods were as ordered
and of good quality. The goods had cost EFD Ltd TZS 16,000,000 to manufacture. On 31
July 2016, none of the good had been paid for by customer
Required
In the case of (i) to (iii) above , Explain using journals how the transaction should be
accounted for under IFRS 15 justify for your answer, Assume no entries have already
been made in respecte of the above transaction.

Question 9
The following relates to the for the construction of a building for customer.

TZS’000

Total contract price 1,500,000

Cost incurred to date 400,000

Estimated cost to complete 600,000

Amounts invoiced 500,000

Amount received 450,000

Profit si recognized using the following

Cost incurred to date / Total contract costs.
Required: Prepare relevant extracts from the statement of profit or loss and Other
Comprehensive Income and statement of financial Position.

Question 10
The following relate to the Ujenzi Ltd for the construction of a building for a customer.
TZS’000’

Total contract price 500,000

Work certified to date 325,000

pg. 51
 Cost incurred to date 300,000

Estimated cost to completion 250,000

Amount invoiced 270,000

Amount received 240,000

Ujenzi Ltd account for its contracts in accordance with IFRS 15- Revenue from contracts
with customer using the value of work cerfied(as a percentage of contract value ) for
estimate the percentage completion of each contract .
Required
Prepare relevant extraction from the statement of profit or Loss and Other comprehensive
income and statement of financial Position.

Question 11
On 1 January 2018, Ujenzi Ltd entered into three year construction contract for TZS
120,000,000.00 to construct a secondary school for Uyu District Constriction was estimated at of
the first two year of construction were as follows.
 TZS 20,000,000 as at December 2018
 TZ 60,000,000 as at 31 Decembers 2019
Progress payment of TZS 2,000,000 and TZS 50 ,000,000 was received by Ujenzi Ltd on
31st December 2018 and on 31 December 2019 respectively
Ujenzi Ltd determines the stage of completion of the contract by calculating the
proportion of cost incurred to date to estimated total contract costs.
Required: Prepare extract of the financial statement of Ujenzi Ltd for the constructions contract
in both 2018 and 2019.

Question 12:
The financial controller of famous Ltd . has asked you, a trances accountant to researcher the
implications for the company arising from the implementation of the new international financial
reporting standard on revenue i.e IFRS 15 – Revenue from contracts with costumers. The core
principle of IFRS 15 is that an entity recognizes revenue to depict the transfer of promised good
or service to customer in an amount that reflects the consideration to which the entity expected
to be entitled in exchange for those goods or services. This core principle is delivered in a five –
step made framework.
REQUIRED:
Prepare a report for the financial controller in which you:
(a)
i. Identify and briefly explain each of the five steps for revenue recognition.
ii. Explain what is meant by the term ‘performance obligation’ in a contract?

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 iii. Advise how good or service can be defined as ‘distinct’

(b) Famau Ltd enters a contact with a customer to supply a licence for the standard software ,
provide update to the software and technical support for a number of year . Fanua Ltd sells
the licence and technical support separately, the software will continue to operate without the
software update and the installation of the software will be sub-contracted to number of
approved installers throughout the country,
REQUIRED
In light of your two part (a) above, Identify the good/services which are distinct in the above
contract.

(c) Famau Ltd enter a contract with a costumer to sell its product for TZS 200,000 per unit for
the 2017 calendar year. If the customer was to purchase more than 1,200 units form it due to
previous trading patterns with this customer. However on 1 October 2017. Famua Ltd.
formed the view that date. The customer had purchase 500 units threshold based on its sales
of management of famau Ltd that it would be replacing a further order of 200 units on 1
December 2017 . This customer had purchase 600 units by 30 June 201.
REQUIRED
Using journal entries show how famua Ltd account for its revenue to the customer in the
period from 1 January 2017 to June 2017 and in the period from 1 July 2017 to 31
December 2017.

Question 13
IFRS 15 – revenue from contracts with customer was issued in may 2014 and is effective for
accounting period beginning on or after 1 January 2018. However early adoption is
permitted. The IFRS requires a 5 – step approach to determining the amount of revenue to be
reconsider by an entity.
(i) delved on 1 June 2018, It was agreed that the customer would have extend credit terms of 12
month from the year ended 31 march 2018, Derive plc f cost capitals 10%.

(ii) During the year ended 31 March 2018 ,Dereva plc took payment in advance for the supply
of 2,000 hotel room-night to customers at TZS 100,000 per room per night . Only 400 of
these had been occupied by 31 March 2018. The amount paid by the customer are non-
refundable unless the company fails to provide the agreed accommodation. Assume Dereva
plc has decided to adopt IFRS 15 for year ended 31 March 2018.

REQUIRED:
a. Outline the general principle and the 5step approach to recognising revenue as set out by
IFRS 15- Revenue from contracts with customers.

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b. In each scenario above , calculate the amount of Revenue to be recogsied in the financial
statements transaction. Justify you answer in each case

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