Faculty Business and Accounting

Internal
Paper Code AFR2/G20/IA-03
Assessment Name: Assessment 3

Financial
Module Name Module Code A7-FR2-17
Reporting 2

Month May Year 2020

27th May 2020 @

Total Marks 50 Marks Due
noon

Instructions

1. Answer all questions on a Microsoft word sheet and email answers to

limpho.phate@bothouniversity.ac.bw
QP-ASM-001|Rev 004

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 SECTION A

Question 1

On 1st January 2019, MOSAASE Ltd purchased 60% of NKETSI Ltd by a exchanging 4 shares of MOSAASE with 6 shares of
NKETSI. At that date the retained earnings of NKETSI were M20 000 000. The issue of shares has not yet been recorded
by MOSAASE. At the date of acquisition shares in MOSAASE had a market value of P6 each. Below are the summarised
draft statements of financial position of both companies.

STATEMENT OF FINANCIAL POSITION AS AT 31ST December 2019

MOSAASE Ltd NKETSI Ltd
Assets M 000 M 000
Non-current assets
PPE 162 400 50 400
Current assets 64 000 26 400
Total assets 226 400 76 800
Equity
Equity shares of P1 each 40 000 24 000
Retained earnings 141 600 26 000

181 600 50 000

Non-current liabilities
10% loan notes 12 000 16 000
Current liabilities 32 800 10 800
Total equity & liabilities 226 400 76 800

The following information is relevant.

(i) On 1ST January 2019 when the acquisition took place, the NKETSI assets were all equal to their book values
exception only of an item of plant, which had a fair value of M8 000 000 above its carrying amount. The plant
had a remaining life of 5 years at this date (straight-line depreciation is used). No adjustment on NKETSI plant’s
carrying amount has been done to cater for the changes due to fair value exercise.

(ii) Sales made by NKETSI to MOSAASE after the acquisition amounted to M32 000 000. NKETSI’s mark-up on
cost is 40%.MOSAASE sold M20 800 000 (at cost to MOSAASE) by 31ST December 2019.

(iii) NKETSI’s trade receivables at 31ST December 2019 included M2 400 000 due from MOSAASE which disagreed
with MOSAASE’s trade payable for the same. The cause for the disagreement was an amount of M400,000 send
QP-ASM-001|Rev 004

from MOSAASE to NKETSI but not yet received by NKETSI. The bank balances for the two companies are
favorable.

(iv) MOSAASE values its NCI using the fair value method. The fair value of NCI in NKETSI at the date of acquisition
was M23 600 000. There was no impairment of goodwill witnessed at 31 ST December 2019.

Required
(a) Prepare the consolidated statement of financial position for MOSAASE for the financial period ending on 31 ST
DECEMBER 2019. (25 marks)

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 Question 2

Below are the statements of financial position of Mositsi Ltd as at 31 December 2017 and 31 December 2016, together
with the statement of profit or loss and other comprehensive income for the year ended 31 December 2017.
2017 2016
M 000 M 000
Non-current assets
PPE 462 500 368 500
Development expenditure 145 000 80 000
607 500 448 500
Current assets
Inventories 180 000 113 500
Trade receivables 78 500 116 000
Investments 71 500 23 000
Cash 14 500 58 500
344 500 311 000
Total assets 952 000 759 500
Equity
Share capital – M1 each share 250 000 200 000
Share premium 175 000 50 000
Revaluation surplus 80 000 30 000
Retained earnings 114 500 127 500
619 500 407 500
Non-current liabilities
6% debentures 75 000 50 000
Deferred tax 24 000 22 500
99 000 72 500
Current liabilities
Trade payables 137 000 176 000
Current tax 23 000 76 500
Debenture interest 2 500 –
Bank overdraft 66 000 27 000
__ 233 500 279 500
Total equity and liabilities 952 000 759 500
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STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

M'000
Revenue 637 500
Cost of sales (435 000)
Gross profit 202 500
Other expenses (88 000)
Finance costs ( 7 500)
Profit before tax 107 000
Income tax expense ( 72 500)
Profit for the year 34 500
Other comprehensive income:
Gain on revaluation of property, plant and equipment 75 000
Total comprehensive income for the year 109 500

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 Notes
(i) In 2019 M37 50000 was charged to development project as amortization cost.
(ii) In 2019, items of PPE with a book value of M57 500 000 were sold for M52 500 000. Other expenses were netted of
against the profit on disposal of PPE. Depreciation for the year on PPE was M27 500 000.
(iii) The investments represent an investment in government bonds, and it has been decided by management to
recognize them as cash and cash equivalents.
(iv) The finance cost has only included debenture interest. New debentures were issued on 1 April 2017.
(v) In the course of the year, Mositsi made a bonus issue of 1 for every 8 shares held, capitalized its retained earnings
and then followed by a rights issue.
Required
(a) Prepare a statement of cash flows for Mositsi in accordance with IAS 7 using the indirect method. (25 marks)
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