UNIVERSITY OF MAURITIUS

FACULTY OF LAW AND MANAGEMENT

SECOND SEMESTER EXAMINATIONS

AUGUST / SEPTEMBER 2022

BSc (Hons) Accounting (Minor: Finance)

Year 3 & Year 4 (Part-Time) [+ Resit]

BSc (Hons) Accounting (Minor: Management)

PROGRAMME
Year 3

BSc (Hons) Accounting (Minor: Business Informatics)

Year 3 [+ Resit]

MODULE NAME ADVANCED FINANCIAL REPORTING

Tuesday
DATE 23 August 2022 MODULE CODE DFA3000Y(5)

TIME 13:30 – 15:30 Hours DURATION 2 Hours

NO. OF NO. OF QUESTIONS

4 3
QUESTIONS SET TO BE ATTEMPTED

INSTRUCTIONS TO CANDIDATES

This paper consists of FOUR (4) questions and TWO (2) Sections
(Section A and Section B).
Section A is COMPULSORY and carries 40 marks.
Answer ANY TWO (2) questions from Section B. Each question
carries 30 marks.
 Advanced Financial Reporting – DFA3000Y(5)

SECTION A (COMPULSORY)(40 MARKS)

Question 1 [40 marks]

Pranu plc, a public limited company, operates in the manufacturing sector. The
draft statements of financial position at 31 December 2021 are As follows:

Pranu plc Suraj plc Shal plc Santa Ltd

Rs'000 Rs'000 Rs'000 Rs'000
Non-current assets
Property, Plant & Equipment 890,000 200,000 75,000 72,000
Investment in Suraj plc 160,000
Investment in Shal plc 74,000
Investment in Santa Ltd 55,000
Investments in Financial Instruments 10,000

Current assets:
Inventories 200,000 35,000 28,000 10,500
Trade Receivables 180,000 10,000 17,000 22,000
Cash & Cash equivalents 36,000 5,000 3,000 500

Total assets 1,550,000 250,000 178,000 105,000

Equity:
Share capital 700,000 100,000 50,000 40,000
Retained earnings 650,000 122,000 75,000 45,000
Non-current liabilities 100,000 20,000 35,000 5,000

Current liabilities:
Trade Payables 90,000 5,000 12,000 8,500
Other payables 10,000 3,000 6,000 6,500
Total equity and liabilities 1,550,000 250,000 178,000 105,000

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 Advanced Financial Reporting – DFA3000Y(5)

Notes:

1. Pranu acquired 40% of Suraj on 31 Dec 2017 for Rs90 millions. At this time, the
retained earnings of Suraj stood at Rs76 millions. A further 20% of shares in Suraj
was acquired by Pranu three years later for Rs70 millions. On this date, the fair value
of the existing holding in Suraj was Rs105 millions. Suraj’s retained earnings were
Rs100 millions on the second acquisition date. The Non-Controlling Interests of
Suraj should be valued using the proportion of net assets method.

2. On 1 January 2021, Pranu purchased 80% of the equity share capital of Shal, a
public limited company, for cash consideration of Rs74 millions. The fair value of the
identifiable net assets acquired was Rs90 millions. The nominal value of each Shal’s
share was Rs2 each and the market price of one Shal’s share was Rs2.50 at the date of
acquisition. The retained earnings was Rs35m at that date. The excess in fair value
was due to property, plant and equipment which had a useful life of 10 years. The
policy is to value Shal’s non-controlling interest at fair value at the date of
acquisition. For this purpose, Shal’s share price at that date can be deemed to be
representative of the fair value of the shares held by the non-controlling interest.
The goodwill of Shal is to be impaired by 10% at the reporting date.

3. On 1 July 2021, Shal purchased 70% of the equity share capital of Santa, a limited
company for a cash consideration of Rs55 million when the retained earnings were
Rs20 million. The fair value of the non-controlling interest was Rs20 million at
acquisition.

4. During the year ended 31 Dec 2021 Santa sold goods to Pranu for Rs5.4 million.
Santa had marked up these goods by 50% on cost. Pranu had a third of the goods
still in its inventory at 31 Dec 2021. The intra-group payables and receivables
amounted to Rs 100,000 at the year end.

5. Following the advent of Fintech and Artificial Intelligence and understanding risk
management, Pranu plc diversified its portfolio. Pranu plc purchased a Rs100
millions 5% bond in a Fintech company for Rs93 millions on 1 Jan 2021, incurring
issue costs of Rs3 million. Interest is received in arrears. The bond will be redeemed
at a premium after three years. The effective rate of interest is 8%. The investment
was financed by an issue of shares at a price of Rs12. The nominal price of each
Pranu's share was Rs 10. The investment in bond met the criteria of amortised cost.
No entry was yet made for this transaction.

Required:

(a) Prepare a consolidated Statement of Financial Position for the Pranu Group as
at 31 December 2021. [40 marks]

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 Advanced Financial Reporting – DFA3000Y(5)

SECTION B (60 MARKS)

Answer ANY TWO (2) questions.

Question 2 [30 marks]

Part A
The directors at Confused plc, a public company, are preparing the annual report for
the year ended May 2022. The board of directors are aware that intangible assets are
becoming increasingly important. However, they have concerns in valuing
intangibles or even identifying intangible assets separately. An independent non-
executive director has proposed integrated reporting as a solution for improving
disclosures on intangible assets.

Required:

Discuss how far IAS 38 Intangible assets provide stakeholders with useful information
and advise the board of directors of Confused plc whether this information would be
improved by the entity introducing an Integrated report. [15 marks]

Part B
On March 2018, the International Accounting Standards Board (Board) published the
Conceptual Framework for Financial Reporting 2018 (the Framework), thereby
defining terms such as assets and liabilities. Furthermore, many principles are built
around those definitions. Therefore, understanding those definitions and principles
are essential for financial and corporate reporting.

Required:

(i) Discuss the criteria for recognising assets and liabilities in financial statements
as per the Conceptual Framework for Financial Reporting 2018 (the
Framework) as well as the modifications from the previous Conceptual
Framework. [7 marks]

(ii) Discuss whether the recognition of a net defined benefit liability, in

accordance with IAS 19 Employee Benefits, is consistent with the recognition
criteria in the Conceptual Framework. [8 marks]

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 Advanced Financial Reporting – DFA3000Y(5)

Question 3 [30 marks]

The following are extracts from the consolidated financial statements of the Papa
Group for the year ended 30 June 2021 are given below:

Statements of financial position as at dates:

Papa Group Papa Group Stingray

30 June 2021 30 June 2020 1 Jan 2021
Rs000 Rs000 Rs000 Rs000 Rs000 Rs000
Non-Current Assets
Property, Plant and equipment 51,000 45,000 4,100
Intangibles assets 900 1,100 -
Goodwill 5,000 3,100 -
56,900 49,200 4,100

Current assets
Inventories 33,000 28,000 1,650
Trade receivables 27,000 26,300 1,300
Cash and cash equivalents 2,100 62,100 3,300 57,600 50 3,000
Total assets 119,000 106,800 7,100

Equity
Equity shares 20,000 18,000 5000
Share premium 12,000 10,000 -
Retained earnings 24,135 23,300 -
56,135 51,300 5000

Non-controlling interest 3,875 1,920 -

Total equity 60,010 53,220 5,000

Non-current liabilities
Interest-bearing borrowings 14,000 10,200 -
Lease liabilities 4,200 4,000 -

Current liabilities
Trade payables 30,330 30,010 1,850
Lease liabilities 3,000 2,800 -
Interest payables 1,360 1,520 -
Tax 6,100 40,790 5,050 39,380 250 2,100
Total Equity and Liabilities 119,000 106,800 7,100

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 Advanced Financial Reporting – DFA3000Y(5)

Consolidated statement of profit or loss for the year ended 30 June 2021

Rs000
Revenue 90,000
Cost of sales (75,000)
–––––––
Gross profit 15,000
Operating expenses (5,600)
–––––––
Profit from operations 9,400
Finance cost (1,200)
–––––––
Profit before disposal of property 8,200
Disposal of property (Note 2) 1,100
–––––––
Profit before tax 9,300
Tax (4,200)
–––––––
Profit for the period 5,100
–––––––
Attributable to:
Non-controlling interest 500
Owners of the parent 4,600
–––––––
5100
–––––––
Notes:

(1) On 1 January 2021, Papa acquired 85% of the issued equity shares of Stingray in
exchange for a fresh issue of 2 million of its own Rs1 equity shares (issued at a
premium of Rs1 each) and Rs1.5 million in cash. The fair value of Non-Controlling
interest was Rs2.75 million at that date. The book values of the assets and liabilities
of Stingray were similar to their fair values, except for Property, Plant and
Equipment (PPE) and inventory which had fair values of 10% over their book values.

(2) During the year, Papa disposed of property, plant and equipment for proceeds of
Rs2,200,000. The carrying value of the asset at the date of disposal was Rs1,100,000.
There were no other disposals of property, plant and equipment. Depreciation of
Rs7,900,000 was charged to the consolidated statement of profit or loss in the year.

(3) During the year, Papa acquired a Property, Plant and Equipment on lease which
had a fair value of Rs 1 million. This was included in the Property, Plant and
Equipment figure.

Required:

Prepare the consolidated statement of cash flows of the Papa Group for the year
ended 30 June 2021 using the indirect method. [30 marks]

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 Advanced Financial Reporting – DFA3000Y(5)

Question 4 [30 marks]

Study each of the following two independent reporting issues, and answer the
questions which follow:

Reporting Issue A

Shalin Ltd is a company in the Electronic Vehicle [EV] industry. Following a recent
announcement in the Budget of its host country that EVs will be duty free, Shalin Ltd
decided to increase its production. To finance this project, it issues a convertible
loan on 1 Jan 2020 that attracts interest of 4%. The market rate is 10%, being the
interest rate for an equivalent debt without the conversion option. The loan of Rs 500
million is repayable in full after three years or convertible to equity.

Discount factors are as follows:

Year Discount factor at 4% Discount factor at 10%

1 0.962 0.909
2 0.925 0.826
3 0.889 0.751

Required:

(a) Explain the different classifications which IFRS 9- Financial Instruments

identifies for financial assets. [8 marks]

(b) Using the provisions of IFRS 9- Financial Instruments, explain and discuss,
with supporting calculations, how Shalin Ltd should recognise and report this
transaction in its financial statements for the year ended 31 December 2020 &
31 December 2021. [7 marks]

Reporting issue B

Ability Ltd is based in the country Awa, where the main projects in the country are
based on FinTech expansion. Ability Ltd is a company operating in the
manufacturing industry of electrical parts for radios, computers, laptops and other
devices. On 1 January 2020, Ability Ltd entered into a two year lease for a specialist
equipment. The contract contains an option to extend the lease term for a further
year. Ability Ltd believes that it is reasonably certain to exercise this option.
Specialist equipment have a useful economic life of five years. Lease payments are
Rs 900,000 per year for the initial term and Rs 1,600,000 per year for the option
period. All payments are due at the end of the year. To obtain the lease, Ability Ltd
incurs initial direct costs of Rs 450,000. The lessor reimburses Rs 120,000 of these
costs. All monetary transactions are by cheque or bank transfers.

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 Advanced Financial Reporting – DFA3000Y(5)

Ability Ltd’s current borrowing rate is 4%. However, its incremental rate of
borrowing has been found to be 5%. Ability Ltd is unsure which rate to choose.

Required:

(a) Explain the criteria for recognising a lease and any exception included in IFRS
16 Leases. [5 marks]

(b) Discuss, with supporting calculations and double entries where possible, how
Ability Ltd would account for the above issue in the financial statements for
year ended 31 December 2020 & year ended 31 December 2021 with respect to
the current reporting standard.
[10 marks]

END OF QUESTION PAPER

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