BOTSWANA ACCOUNTANCY COLLEGE

EXAMINATION PAPER

PROGRAMME: ACCOUNTING AND FINANCE

Module: FINANCIAL ACCOUNTING AND REPORTING

DATE: MAY 2022

TIME ALLOWED: 3 HOURS

Instructions to Candidates:
You are allowed 15 minutes reading time before the examination begins during
which you should read the question paper and, if you wish, highlight and/or make
notes on the question paper. However, you will not be allowed, under any
circumstances, to open the answer book and start writing or use your calculator
during the reading time.

You are strongly advised to carefully read ALL the question requirements before
attempting the question concerned (that is all parts and/or sub-questions).

Do NOT open this paper until instructed by the supervisor

This question paper must not be removed from the examination hall.

BAC.ACAD.PM.01. F01.V1.0
Section A: Answer all THREE questions in this section_______________

Question 1
Amogelang’s Farming business makes up its accounts to 31 December each year. It
enters into a lease agreement with Haskins Holdings, as a lessee, to lease a hammer
machine with the following terms:
Inception of lease: 1 January 2021
Term: P20,000 paid annually in advance for five years.
Purchase price: P80,000
Present value of
Future lease payments: P60,750
Useful life: Eight years
Interest rate implicit in
the lease: 12%

Required:
From the above information, calculate for the year ended 31 December 2021
a) Right-of-use asset (5 marks)
b) Non-current Lease liability (5 marks)
c) Current Lease Liability (2marks)
d) Interest expense (2 marks)
e) Describe three (3) disclosures required under IFRS 16 for lessees. (6 marks)

Total marks: 20 marks

BAC.ACAD.PM.01. F01.V1.0
Question 2
The summarised statement of comprehensive income of Katlego Property Limited for
the year ended 31 May 2021 is shown below, together the company’s statement of
financial position at that date (with comparatives from the previous year).

Statement of comprehensive income

For the year ended 31 May 2021 Pula
Profit before taxation 205,600
Taxation 46,980
Profit for the year 158,620

Statement of financial position

As at 31 May: 2021 2020
Pula Pula Pula Pula
ASSETS
Non-current assets
Property at cost 285,000 183,000
Less: Acc’d depreciation 151,650 133,350 95,160 87,840

Investment at cost 12,000 10,000

145,350 97,840
Current assets
Inventories 171,220 133,330
Trade receivables 121,630 86,500
Cash at bank 710 -
Treasury bills 5,000 298,560 - 219,830
443,910 317,670
EQUITY
Ordinary shares 100,000 100,000
Preference shares 50,000 50,000
Retained earnings 128,610 39,990
278,610 189,990
LIABILITIES
Non-current liabilities
11% loan stock 30,000 -

Current Liabilities
Trade payables 89,370 61,530
Tax payable 45,930 42,660
Bank overdraft - 135,300 23,490 127,680
443,910 317,670

BAC.ACAD.PM.01. F01.V1.0
Notes:

i. There is an 11% loan stock issued on 1 December 2020.The first half year
interest was paid on 31 May 2021. Bank interest paid during the year was
P1,320.
ii. Dividend received during the year was P930. Dividends paid during the
year totaled P70,000.
iii. Plant which had cost P22,000 was sold in March 2021 for P7,000. The
accumulated depreciation was on this plant at the time of selling was
P16,230. No investments were sold in the year.
iv. The treasury bills are classified as cash equivalents.

Required:

Prepare a statement of cashflows for the year ended 31 May 2021 in accordance
with requirements of IAS 7, using the indirect method (the format is provided in the
appendix). (25 marks)

Total marks: 25

BAC.ACAD.PM.01. F01.V1.0
Question 3
Kesa Ltd acquired 75% of ordinary shares of Obaka Ltd on 1 April 2021. There are no
preference shares. Both companies prepare accounts to 30 September each year.
The statements of comprehensive income and the movement in retained earnings for
Kesa Ltd and Obaka Ltd for the year ended 30 September 2021 are as follows:

Kesa Ltd Obaka Ltd

Statement of comprehensive income

For the year ended 30 September 2021
Pula Pula
Sales revenue 317,500 96,000
Cost of sales 149,500 31,200
Gross profit 168,000 64,800
Distribution costs 36,300 4,800
Administrative expenses 59,400 20,400
Operating profit 72,300 39,600
Taxation 21,000 8,000
Profit for the year 51,300 31,600

Movement in retained earnings

For the year ended 30 September 2021
Pula Pula
Balance as at 30 September 2020 112,600 77,700
Profit for the year 51,300 31,600
Balance as at 30 September 2021 163,900 109,300

The following information is also available:

a) One third of the sales, cost of sales and distribution costs of Obaka Ltd occur
in the second half of the accounting period.
b) Administrative expenses are spread evenly over the accounting period.
c) P3,000 of Obaka Ltd.’s tax liability was incurred in the second half of the year.
d) Other comprehensive income was nil.
e) Goodwill arising on consolidation has suffered no impairment.

Required:
a) Prepare a consolidated statement of comprehensive income for the year
ended 30 September 2021. (15 marks)
b) Restate the group’s retained earnings as at that date. (5 marks)
c) Explain how goods purchased by Obaka Ltd from Kesa Ltd between 1 April
2021 and 30 September 2021 should be treated in the group’s consolidated
financial statement. (5 marks)
Total marks: 25

BAC.ACAD.PM.01. F01.V1.0
Section B: Answer any TWO out of THREE questions

Question 4

You are employed as the financial accountant and you are reporting directly to the
managing director. You have asked to write a memo to the managing director that
outlines the following:
a) Explain the term “Generally Accepted Accounting Practice” (GAAP). (4 marks)
b) Is there is a single GAAP which is accepted worldwide? If not, why not?
(6 marks)
c) What are the functions of the International Accounting Standard Board (IASB)?
(5 marks)

[Total: 15 marks]

Question 5

A company prepares financial statements to 31 December each year. The following

events event took place after 31 December 2021 but before the financial statements
for the period ending 31 December 2021 were authorised for issue.

a) Inventory held at 31 December 2021 was sold to a customer.

b) The company made a large investment in property.
c) The company made a take-over bid for another company.
d) A customer who was owing the company is declared bankrupt.
e) The company announced a major restructuring plan.

Required:

Classify each of these events as either adjusting or non-adjusting events and explain
how each should be dealt with in financial statements for the year ended 31 December
2021.
Total marks: 15 marks

BAC.ACAD.PM.01. F01.V1.0
Question 6

(a) Barloworld enters into a contract with Debswana to construct a crushing plant at
Jwaneng Mine. The agreed price is P1,000,000 and the specified delivery date is
30 October 2022. However, if the asset is delivered after this date, the company
will suffer a late delivery penalty of P40,000 for each week between 30 October
and the date of delivery.
The company estimates that the probability that the asset will be delivered on time
is 50%. But there is a 30% probability that the asset will be delivered one week
later and a further 20% probability that the asset will be delivered two weeks late.

(b) Khumo Holdings, a building company, enters into a contract with Gaborone City
Council to build a school ablution block at one of the primary schools within the city
at a price of P1,000,000. In addition, Khumo Holdings will receive incentive bonus
of P100,000 if the school is completed on or before 31 December 2022. However,
the bonus will not be paid if the completion date is later than Khumo Holdings
estimates the probability of completion by due date to be 95%

Required:
Calculate the transaction price for each of the above contracts. (7 marks)

(c) Marble Tile Company produces and sells four distinct products; Silver, Diamond,
Pearl and Gold. It enters into a contract to these products to a customer. The
promise to transfer each of these products is a separate performance obligation
and the agreed contract price is P144,000. Stand-alone selling prices are as
follows:
Silver P48,000
Diamond P75,000
Pearl P27,000
Gold P30,000

Required:
Allocate the transaction price to each product. (8 marks)

[Total: 15 marks]

(Total: 100 marks)

END OF PAPER

BAC.ACAD.PM.01. F01.V1.0
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