ADVANCED FINANCIAL REPORTING (AFR301)

BCTA PROGRAMME – PART TIME – 2021 JULY INTAKE

FINAL EXAM

[100 Marks]

Date: Thursday 14 April 2022 Time: Afternoon Paper

Time Allowances:
MARKS MINUTES BOOKLET

Total Duration: 100 180 WHITE

INSTRUCTIONS
1) Enter your student number on the front of the answer book.
2) Your name must not appear anywhere.
3) Use of non-programmable calculators is permissible.
4) Any calculations must be shown in your answer book.
5) Working papers must be handed in with the scripts.
6) Answers Must Be Written in Ink Not Pencil
7) No corrections will be made DURING THE EXAM on perceived errors/queries on exam content, the
paper is to be written as is.
Disclaimer clause: All names of persons, places and business entities mentioned in this examination paper are
fictitious and any resemblance to real persons, living or dead, places and business entities are purely
coincidental.

This is a limited open book examination (use of SAICA and ICAZ handbooks is permissible)
BCTA PROGRAMME – PART TIME – 2021 JULY INTAKE: ADVANCED FINANCIAL REPORTING
(AFR301) 2022: FINAL EXAM

All amounts in the scenario are exclusive of VAT & are in ZWL unless expressly stated.
The paper is made up of two scenarios (Part A & Part B) that are independent of each other.

Part A 22 Marks
Background Information
You are the assistant accountant of Pamushana Transport Private Limited “Pamushana”, a
Zimbabwean transport and logistic company that specializes in providing vehicle and fleet hire to
customers such as tourists, educational institutions, and other relevant customer groups. The
company has a 31 December financial year end. The 2021 financial year “FY2021” financial
statements were due to be approved on 28 February 2022. The following transactions relate to
Pamushana for the FY2021.

1. Purchase & lease of Toyota Land Cruiser 100 Series Vehicles

On 1 January 2021, Pamushana entered into a 9-month contract with Genesis Travel and Tours
Private limited “Genesis”. Genesis had tourists from Germany who wanted 10 vehicles for use
from January 2021 to September 2021. The tourists requested for a specific model, Toyota Land
cruiser 100 Series Sport Utility Vehicles (SUV) as they were planning on visiting some of the
remotest parts of Zimbabwe such as the Zambezi Valley, they would therefore need vehicles with
a good handling under the road conditions. Pamushana was to lease these vehicles to Genesis
under the following conditions:
Model of Vehicles Toyota Land cruiser 100 Series
Duration of contract 9 months
Monthly rental ZWL 200 000 per vehicle
Payment terms All the lease payments will accrue monthly, but will all be paid on 30
September 2021

To fund the purchase of these vehicles, Pamushana took out a ZWL 60 000 000 loan on 1 January
2021 from CBZ Bank which they used to purchase the vehicles from Harris Auto Private Limited
“Harris”. The loan is going to be repaid on 31 December 2025. The Chief Finance Officer “CFO“,

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Mr. Josiah Chikura thinks this is a good business deal as they have agreed through a legally
enforceable option to sell back the vehicles to Harris Auto after the Genesis contract at prevailing
market prices for secondhand vehicles in September 2021. The CFO is adamant that the vehicles
bought are to be included as non-current asset in Statement of Financial Position. According to
him it is only logical otherwise “the whole thing will not make sense”.

In June 2021, Genesis was the subject of negative publicity because of a matter involving one of
their rented vehicles which was involved in an abduction attempt by suspected violent gangs.
Genesis has since then been facing numerous challenges in the wake of this incident. By
December 2021 it was apparent that the rental company was experiencing declining bookings
and difficulties paying employees. The company filed for bankruptcy on the 25th of January 2022.
The liquidators have noted that the company will not be able to pay all its liabilities and they will
pay ZWL 0.25 for every dollar owed. Pamushana is yet to be paid all the lease charges for the
lease of the 10 vehicles amounting to ZWL 18 000 000.

2. Fire break out at Pamushana premises

On 2 January 2022 there was a fire outbreak at the Pamushana premises destroying the right
wing of the building. This was caused by a short circuit in the electricity supply to the premise.
Pamushana did not have insurance cover on the premises. The CFO is wondering what impact
this incident will have on the financial statements for the year FY2021.

Additional information.
o Pamushana measures all items of Property, Plant and Equipment at cost in terms of IAS
16 Property, Plant and Equipment
o Investment property is measured in terms of IAS 40 Investment property initially at cost
and subsequently at fair value.
o The Income tax rate is 24.72% and Capital Gain Tax (CGT) is calculated in terms of the CGT
Act
o Assume a pre-tax discount rate of 10% where applicable

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MARKS
PART A: REQUIRED Sub-
Total
Total
(a) Write an email to the Chief Finance Officer, Mr. Josiah Chikura,
discussing the classifications in the Pamushana financial statements
of:
i. The Toyota Land cruiser 100 series vehicles 7
ii. Loan of ZWL 60 000 000 received from CBZ Bank. 7
NB: Your answer should be in terms of IAS 1 para 66 & 69 and the
conceptual framework asset & liability definitions

Communication: email format 1 15

(b) Discuss whether the below cases are adjusting or non-adjusting event
in terms IAS 10 Events after the reporting date:
i. The bankruptcy and liquidation of Genesis Travel and Tours. 4
ii. The destruction of the factory building due to a fire outbreak. 2

Communication skills – clarity of expression 1 7

Total marks 22

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Part B 78 Marks
Background Information
You are the newly appointed accountant of Hatiperi Wacho Limited “Hatiperi” a leading
Zimbabwean retailer offering high quality and competitively priced clothing and merchandise.
The company was incorporated on 1 January 2020 and has a 31 December financial year end.

Hatiperi purchased the following assets and brought them into use on the same date:
Asset Date of Purchase Cost Notes
Shop Building 1 January 2020 ZWL 12 000 000 1
Industrial sewing machine 1 January 2020 ZWL 6 000 000 2
Industrial Stand in Ardbennie, Harare. 6 July 2020 ZWL 7 200 000 3

Notes.
1. The shop building is going to be used to sell merchandise to the customers. The building
is depreciated over 20 years on a straight-line basis with no residual value. The Zimbabwe
Revenue Authority “ZIMRA” allows capital allowances of 2.5% per year for the building in
terms of the Income Tax Act.
2. The industrial sewing machine is going to be depreciated over 15 years with no residual
value. The machine qualifies for Special Initial Allowance in terms of the Income Tax Act.
3. The industrial stand in Ardbennie is not depreciated, neither are capital allowances
granted for it.

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1. Extracts of Financial statements of Hatiperi for the year 2021

Statement of profit or loss and other comprehensive income FY2021 Notes

ZWL
Revenue 25,000,000.00 1
Cost of sales (8,000,000.00) 2
Gross Profit 17,000,000.00
Operating expenses (6,000,000.00) 3
Other income 4,500,000.00 4
Net Profit before tax 15,500,000.00

Statement of financial position as at 31 December 2021

Non- Current Assets ZWL
Shop Building ?
Industrial Sewing Machine ?
Ardbennie Stand ?
Current Assets
Trade Receivables 200,000.00 1
Current Liabilities
Trade Payables 300,000.00 2
Provision 180,000.00 3

Notes
1. Revenue includes credit sales of ZWL 200 000. ZIMRA has included them in gross income
in the 2021 tax year in terms of the Income Tax Act.
2. Cost of sales includes credit purchases of ZWL 300 000. ZIMRA allows a deduction in
respect of these purchases in 2021 as per Income Tax Act.
3. The provision relates to a copyright infringement lawsuit against Hatiperi by a rival
company Faith Wear Limited “FW”. FW is alleging Hatiperi used its logo without
permission. The lawyers are of the opinion that Hatiperi is going to lose the case. Hatiperi
has therefore raised a provision of ZWL 180 000 in terms of IAS 37 which was included in
operating expenses. ZIMRA will not allow a deduction for this expense.
4. Other income includes:

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• A dividend of ZWL 3 000 000 from Edgars Zimbabwe Limited a listed company. The
dividend is exempt for tax in terms of the Income Tax Act.
• Interest from deposit in CBZ Bank of ZWL 1 500 000. The interest is exempt for tax
purposes in terms of the Income Tax Act.

2. Purchase of Jan Jam Fashions

On 1 March 2020, Hatiperi acquired 60% of the issued share capital of Jan Jam Ltd “Jan Jam”, a
company that is into high end market clothing for men. One voting right is attached to each share.
The remaining 40% of the issued share capital is owned by Cynthia Bhaureni, the managing
director of Jan Jam. Cynthia is an expert in the fashion industry. According to a contractual
agreement, Cynthia has rights to ensure that Jan Jam always makes merchandise that will not
damage their reputation. The relevant decisions of Jan Jam are sourcing of finance, entering into
franchise agreements, marketing, manufacturing decisions and other operating decisions.
Hatiperi has rights to make all these decisions.

The purchase consideration was to be settled as follows:

1. Hatiperi paid in cash ZWL 20 000 000 to the shareholder of Jan Jam on the acquisition date.
2. A further ZWL 6 050 000 was to be paid to the shareholders of Jan Jam on the 31st of
December 2022.
3. Hatiperi transferred a motor vehicle to Cynthia with a carrying amount of ZWL 5 000 000.
The fair value of the motor vehicle was ZWL 6 000 000.
4. ZWL 2 000 000 was going to be paid to the shareholders if Jan Jam manages to maintain a
profit above ZWL 5 000 000 over the next two years. The fair value of the contingent
consideration was estimated to be ZWL 1 500 000 on the acquisition date.
The share capital and retained earnings of Jan Jam on 1 March 2020 were ZWL 30 000 000 and
ZWL 25 000 000 respectively.

All assets and liabilities of Jan Jam were fairly valued on acquisition except:

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o Jan Jam had disclosed a contingent liability in its books of ZWL 5 000 000, which is the
amount they expect to pay should they lose the court case. The contingent liability is in
respect of an employee who was injured at work and the issue was the courts. The legal
advisors are of the opinion that the probability of being found guilty is 10% as it will be
difficult to prove negligence on the part of Jan Jam. Jan Jam’s remoteness is set at 5%.
ZIMRA will not allow a deduction should Jan Jam be found guilty.

Additional information
o Hatiperi measures non-controlling interest at proportionate share of net assets.
o The group measures all items of Property, Plant and Equipment at cost in terms of IAS 16
Property, Plant and Equipment.
o The Income tax rate and Capital Gains is in terms of the tax laws of Zimbabwe.
o Assume a pre-tax discount rate of 10% where applicable

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PART B: REQUIRED
Marks
Sub-
total Total
(c) In the separate books of Hatiperi, do the following for the year ended
31 December 2021:
1. Calculate taxable income 6
2. Calculate movement in temporary differences 28
3. Prepare income tax expense note and tax reconciliation note 10
• Include trade payables & trade receivables in your deferred
tax calculations

Communication: Presentation 2 46
(d) Using “2. Purchase of Jan Jam Fashions”, explain in detail the term
“Control” in terms of IFRS 10 Consolidated Financial Statements.
10 10
(e) For this required assume that Hatiperi controls Jan Jam Pvt Limited in
terms of IFRS 10 Consolidated Financial Statements.
i. Calculate the consideration transferred in the acquisition of Jan 11
Jam Private Limited as at 1 March 2020.
ii. Determine the goodwill or bargain purchase gain on the 10
acquisition of Jan Jam.

Presentation 1 22

TOTAL MARKS 78

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