BAC 322 Advanced Accounting
BAC 322 Advanced Accounting
BAC 322 Advanced Accounting
Module Test
BAC 322 Advanced Accounting 25/11/2022 14:00Hrs 1
You are advised to read the following before answering the examination questions.
1. Read each of the questions carefully before you answer.
2. Number the answers to the questions clearly before answering.
3. Answer all parts of a question at one place in continuous manner.
4. Please write as clearly as possible as illegible handwriting cannot be marked
This paper contains two parts; Section A and Section B. Section A is compulsory and with
a total of 40 marks. Section B contains five questions having two sub questions of 20
marks. Answer any three questions from section B.
Section A
Answer the compulsory question
QUESTION ONE
On 1 October 20X0 Pompwe purchased 75% of the equity shares in Sazi. The acquisition was
through a share exchange of two shares in Pompwe for every three shares in Sazi. The stock
market price of Pompwe's shares at 1 October 20X0 was K4 per share.
1
The summarised statements of profit or loss and other comprehensive income for the two
companies for the year ended 31 March 20X1 are:
Pompwe Sazi
K'000 K'000
Revenue 450,000 240,000
Cost of sales (260,000) (110,000)
Gross profit 190,000 130,000
Distribution costs (23,600) (12,000)
Administrative expenses (27,000) (23,000)
Finance costs (1,500) (1,200)
Profit before tax 137,900 93,800
Income tax expense (48,000) (27,800)
Profit for the year 89,900 66,000
Other comprehensive income
Gain on revaluation of land (Note1) 2,500 1,000
Loss on fair value of equity financial asset investment (700) (400)
1,800 600
The following information for the equity of the companies at 1 April 20X0 (ie before the
share exchange took place) is available:
K'000 K'000
Equity shares of K1 each 250,000 160,000
Share premium 100,000 nil
Revaluation reserve (land) 8,400 nil
Other equity reserve (re equity financial asset investment) 3,200 2,200
Retained earnings 90,000 125,000
Required
a) Calculate the goodwill on acquisition of Sazi. (6 marks)
b)
i. Prepare the consolidated statement of profit or loss and other comprehensive
income of Pompwe for the year ended 31 March 20X1. (20 marks)
ii. Prepare the equity section (including the non-controlling interest) of the
consolidated statement of financial position of Pompwe as at 31 March 20X1.
(10 marks)
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c) IFRS 3 Business combinations permits a non-controlling interest at the date of acquisition
to be valued by one of two methods:
i. At its proportionate share of the subsidiary's identifiable net assets; or
ii. At its fair value (usually determined by the directors of the parent company).
Required
Explain the difference that the accounting treatment of these alternative methods could have
on the consolidated financial statements, including where consolidated goodwill may be
impaired. (4 marks)
[Total:40 Marks]
Section B
Answer any three
QUESTION TWO
a) Maambo and Dambo Partnership had K300,000 of profits for the year ended, 31
December 2022, the first year of operations. The partnership contract provided that the
partners may withdraw 5,000 on the last day of each month.
Maambo invested 400,000 on 1 January 2022 and an additional 100,000 on 1 April 2022.
Dambo invested 800,000 on 1 January and withdrew 50,000 on July 1.
Interest on capital was agreed at 15%.
Required
Share the partnership residue profit between Maambo and Dambo using the following:
i. The profit sharing ratio of 60:40 (1 mark)
ii. End of year capital balances (2 marks)
iii. Average capital balances (3 marks)
iv. Original capital investment (2 marks)
QUESTION THREE
The Statement of Financial Position of the Chawama Dancing Club as at 31 December 2017
was as follows:
Non-Current Assets K K
Land at cost 150,000
Equipment & Furniture (Cost - K40,000) 23,000
Total Non-Current Assets 173,000
Current Assets
Bar inventories 9,200
Subscriptions Owing 2,500
Bank Current Account 2,250
Bank Deposit Account 12,000
Total Current Assets 25,950
TOTAL ASSETS 198,950
Equity & Liabilities
Equity
Accumulated Fund 139,450
Total Equity 139,450
Non-Current Liabilities
Long-term Loan 48,000
Total Non-Current Liabilities 48,000
Current Liabilities
Bar Trade Payables 8,400
Subscriptions in Advance 800
Bar Wages Due 2,300
Total Current Liabilities 11,500
TOTAL EQUITY & LIABILITIES 198,950
Bank Account
K K
Balance b/f 2,250 Bar purchases 74,700
Bar sales 166,000 Bar expenses 29,200
Subscriptions 68,000 Bar wages 75,600
Competition entries 14,800 Rates 10,000
Loan repayment 19,600
Competition entries 10,400
Equipment 7,000
Sundry expenses 2,540
Transfer to deposit Account 10,000
Balance c/d 12,010
251,050 251,050
ii. The long term loan is repaid in annual instalments of K15,000 excluding interest. The
interest in 2018 is K4,600.
Required:
Prepare for the year ended 31 December 2018:
[Total: 20 Marks]
QUESTION FOUR
Robby, Selina and Tengo are in partnership sharing profits and losses in the ratio of 2:2:1
respectively. At the 1 January their capital and current account balances were:
The partners are entitled to interest on capital at the rate of 5% per annum.
On 1 July, Robby increased her capital by paying a further K6,000 into the partnership bank
account, while Selina reduced her capital to K26,000 and left the value of her withdrawn
capital in the partnership as a loan bearing interest at 5% per annum.
Partners are allowed to withdraw from current accounts at any time during the financial year
but are charged interest on the amounts involved.
Details of drawings made and interest chargeable in respect of each partner for the financial
year ended 31 December are:
Selina is paid an annual salary of K18,000. The trading profit (before interest) for the year
ended 31 December was K56,420.
Required:
a) Prepare the profit and loss appropriation account for the partnership. (10 Marks)
b) From the above information, post the appropriate entries to each of the partner’s
capital and current accounts and balance each account for each partner as at 31
December. (10 Marks)
[Total: 20 Marks]
QUESTION FIVE
On 1 October 20x3, Penso acquired 80% of Senzo’s equity shares by means of a share
exchange of two shares in Penso for every three acquired shares in Senzo. In addition, Penso
would make a deferred cash payment of 88 ngwee per acquired share on 1 October 20x4.
Penso has not recorded any of the consideration. Penso’s cost of capital is 10% per annum.
The market value of Penso’s shares at 1 October 20x3 was K6.
The following information is available for the two companies as at 30 September 20x4:
Penso Senzo
Assets K’000 K’000
Non-current assets
Property, plant and equipment 38,100 28,500
ii. Penso’s policy is to value the non-controlling interest at fair value at the date of
acquisition. For this purpose, a share price of K3·50 each is representative of the fair
value of the shares in Senzo held by the non-controlling interest at the acquisition
date.
[Total: 20 Marks]
QUESTION SIX
X, Y and Z have been in partnership for several years, sharing profits and losses in the ratio
3:2:1. Their last statement of financial position which was prepared on 31 October 20x6 is as
follows:
Current liabilities
Bank 13,000
Accounts payable 17,000
Total liabilities (30,000)
Net assets 10,000
Capital
X 4,000
Y 4,000
Z 2,000
Total capital 10,000
Despite making good profits during recent years they had become increasingly dependent on
one credit customer, Sancho, and in order to retain his custom they had gradually increased
his credit limit until he owed the partnership K18,000. It has now been discovered that
Sancho is insolvent and that he is unlikely to repay any of the money owed by him to the
partnership. Reluctantly X, Y and Z have agreed to liquidate the partnership on the following
terms:
i. The inventory is to be sold to Nelson Ltd for K4,000.
ii. The non-current assets will be sold for K8,000 except for certain items with a book
value of K5,000 which will be taken over by X at an agreed valuation of K7,000.
iii. The debtors, except for Sancho, are expected to pay their accounts in full.
iv. The costs of liquidation will be K800 and discounts received from creditors will be
K500. Z is unable to meet his liability to the partnership out of his personal funds.
Required:
Compile the following accounts:
i. the partnership realisation account; (10 marks)
ii. the partners' bank account (5 marks)
iii. the partners' capital accounts (5 marks)
[Total: 20 Marks]