QUESTION ONE (a)

Peace Group Consolidated statement of financial position as at 31 December 2024

Assets: K’million
Non-current assets:
Tangible assets (358.0 + 169.5 + 120.0 – 1.0(W2) – 0.4(W2) + 3(W2)) 649.1
Investments (170.0 + 6.5 – 60.0(W3) – 45.0(W3) – 6.5(W7)) 65.0
Goodwill (11.7 + 2.0) W3 13.7
Brand (2.0 – 1.2 (W2)) 0.8
728.6
Current assets (264.0 + 172.0 + 116.0) 552.0
Total assets 1,280.6

Equity and liabilities

Ordinary shares 180.0
Retained earnings (W5) 400.2
Other reserves (W6) 61.2
Total equity attributable to shareholders of parent 642.9
Non-controlling interest (76.7 + 30.5) W4 107.2
750.6
Current liabilities (232 + 169 + 129 + 2 exchange loss) 532.0
Total equity and liabilities 1,280.6

Workings
1. Group structure
Peace

10.5m x100 = 70%

20m x100 = 80% 15m
25m Joy (1 yr)

1.5m x 100 = 10%

15m
Love (3yrs sub)
 Summary of percentages

Love Joy
Before change After change

Parent% - Direct 80% 70% 70%

Indirect - - 8%
(80%x10%)
78%
NCI% 20% 30% 22%
100% 100% 100%

2. Net assets schedule

Acq. Date Rep. date Post-acq
Love Kmillion Kmillion KMillion
Ordinary shares 50.0 50.0 -
Retained earnings 12.0 66.0 54.0
Other reserves 8.0 23.0 15.0
Brand 2.0 2.0 -
Amortisation (2 x 3/5) - (1.2) (1.2)
PUP on equipment (20% x 5) - (1.0) (1.0)
Additional dep on equipment
[(7/7) – (10% x (5 + 1))] - (0.4) (0.4)
72.0 138.4 66.4

Joy
Ordinary shares 30.0 30.0 -
Retained earnings 11.0 56.0 45.0
Other reserves 10.0 8.0 (2.0)
Land 3.0 3.0 -
54.0 97.0 43.0

Further analysis of net assets and post-acquisition movements

Kmillion
Net assets at reporting 97.0
Movements after step-acquisition (25.0)
Net assets at step-acquisition date 72.0
Movements before step-acquisition (18.0)
Net assets at acquisition 54.0
3. Goodwill
Love Kmillion
Cost of investment (7.5 x 8) 60.0
Fair value of NCI at acquisition 25.0
Fair value of identifiable net assets acquired (W2) (72.0)
Goodwill at acquisition 13.0
Impairment (10% x 13) (1.3)
Goodwill at reporting 11.7

Joy Kmillion
Cost of investment 45.0
Fair value of NCI at acquisition 11.0
Fair value of identifiable net assets acquired (W2) (54.0)
Goodwill at acquisition and reporting 2.0

4. Non-controlling interest
Kmillion
Love
Fair value of NCI at acquisition 25.0
Add: NCI % of post –acquisition (20% x 66.4) 13.3
Less: Indirect holding adjustment (20% x 6.5) (1.3)
Impairment (20% x 1.3) (0.3)
Add: Preference shares 40.0
76.7

Joy
Fair value of NCI at acquisition 11.0
Add: NCI % of post-acq before step-acquisition (30% x 18 (W2)) 5.4
NCI at step acquisition 16.4
Less: Transfer to group (8/30 * 16.4) (4.4)
Add: NCI% of post-acq. from step-acquisition to reporting 5.5
(22% x 25 (W2))
Add: Preference share capital 13.0
30.5
5. Retained earnings
Kmillion
Peace
Balance b/d 330.0
Exchange loss (2.0)
328.0

Love
Parent’s share of post-acq earnings (80% x (66.4 – 15 other res.)) 41.1
Impairment charge (80% x 1.3 (W3)) (1.0)

Joy
Parent’s share of post-acquisition earnings (W2):
From acquisition to step-acquisition (70% x 18) 12.6
From step-acquisition to reporting (78% x 25) 19.5
At reporting 400.2

6. Other reserves
Kmillion
Peace
Balance b/d 50.0
Control-to-control adjustment (see W7) (0.8)

Love
Parent’s share of post-acquisition (80% x 15) 12.0
At reporting 61.2

7. Control-to-control adjustment
Kmillion
Cost of additional shares acquired (6.5)
Less: Indirect holding adjustment (W4) 1.3
Transfer from NCI (W4) 4.4
Excess payment to other reserves (0.8)

a) (b) Whenever impairment indicators are present, IAS 36 requires the relevant asset
to be assessed for impairment loss which is the amount by which the asset’s or the
group’s carrying amount exceeds its recoverable amount. The recoverable amount
is given by the higher of fair value less cost of disposal and value-in-use of the asset
or the unit.
The carrying amount of the machine at 30 June 2024 would be K59.2 million
[K65 million less depreciation charge of K5.8 million, i.e. ((K65 million - K7 million)
x 1/5 x 6/12)].

The fair value is estimated in line with IFRS 13: Fair value measurement and hence,
the amount should reflect the perspective of market participants. The K4 million
would therefore not be deducted before arriving at the fair value as market players
would consider such required reworking before agreeing on the price to pay for
asset. Hence, the fair value less cost of disposal would be K52.25 million (i.e. K55
million less agent fees of K2.75 million).

Whereas the machine’s value in use would be computed by discounting the

projected real cash flows using pre-tax real discount rate. The value-in-use based
on annual cash flows of K20 million over the next three years using 8.3% would be
K51.26 million (i.e. K20 million x 3-year annuity of 2.563), plus present value of
residual value of K6 million x 3-year discount factor of 0.787, amounting to K4.72
million. The total value in use will be K55.98 million.

The recoverable amount is therefore K55.98 million, and the impairment required
is K3.22 million (i.e. K59.2 million less K55.98 million) which is a charge against
profit.
QUESTION TWO

a) Computation of relevant ratios

i) Operating profit margin = PBIT x100
Revenue

PBIT is given by:

Ndola Ltd Kitwe Ltd
K000 K000
Profit after tax 1,500 1,260
Finance cost 1,050 880
Provision for current tax 1,004 925
Decrease in deferred tax (116) (55)
Under provision of 2024 tax 32
3,438 3,042

Ndola Ltd Kitwe Ltd

Operating profit margin = 3,438 x 100 3,042 x 100
25,600 21,900
=13.43% = 13.89%

ii) Return on capital employed

Ndola Ltd Kitwe Ltd
= PBIT x 100 3,438 x 100 3,042 x 100
Capital employed 13,400+10,510+5,600 14,700+10,317
=11.65% = 12.24%

Subsequent depreciation charge for the current period would be K8.33 million
((K55.98 million - K6 million) x 1/3 x 6/12), reducing the revised carrying amount
further to K47.65 million (K55.98 million less K8.33 million) at current yearend.
Total current depreciation charge would be K14.13 million (K5.8 million plus K8.33
million)
iii) Inventory turnover period
= Inventory x 365
Cost of sales
Cost of sales is given by:
Ndola Ltd Kitwe Ltd
Cost of sales 19,968 16,425
Ndola (25,600 × (100%-22%))
Kitwe (21,900 × (100%-25%))
 Inventory period = 4,600 x 4,200 × 365
365 16,425
19,968 = 93days
= 84 days
(1.5 marks)

iv) Current ratio

=Current assets Ndola Ltd Kitwe Ltd
Current liabilities 12,900 10,700
9,790 = 5,653
1.32:1 = 1.89:1

v) Capital (long-term) gearing

Ndola Ltd Kitwe Ltd
Long-term debts x100 10,510 x100 10,137 x100)
Long-term debts + Equity (10,510+13,400) (10,137+14,700)
= 43.96% = 40.81 %

vi) Dividend yield

Ndola Ltd Kitwe Ltd
Dividend per share x 100 Share 0.125 x 100 0.06 x 100
price 2.10 1.55
=5.95% =3.87%

Dividend per share was found using the coverage ratio. Dividend coverage
indicates how many times earnings cover dividends or how many times dividends
go into earnings. So if earnings per share is available, we can easily determine
dividend per share. Earnings per share is calculated as follows:

Earnings per share

Ndola Ltd Kitwe Ltd
PAT – Pref. Div 1,500 1,260

No. of ordinary shares 1500/0.5 2,100/0.5

= 0.50 = 0.30

Dividend per share 0.50 0.30

4 5
=0.125 =0.06
 Summary
Ndola Ltd Kitwe
Ltd
Gross profit margin 22% 25%
Operating profit margin 13.43% 13.89%
Return on long-term capital employed 11.65% 12.24%
Inventory turnover period 84 days 93 days
Current ratio 1.32:1 1.89:1
Capital gearing 43.96% 40.81%
Dividend yield 5.95% 3.87%
Dividend coverage 4.0 5.0

b) Report to the Board To: Board From: Accountant Date: 30 June 2024 Subject:
Analysis of financial performance and position of Ndola Ltd

This report provides an assessment of the financial performance and position of

Ndola Ltd, relative to its competitor, Kitwe Ltd, for the year ended 30 June 2024.
Four ratios: operating margin, ROCE, capital gearing and dividend yield have
been used for this analysis, and hence the report should be read with reference to
the ratios computed.

Operating profit margin

Operating margin is a key profitability measure and provides an indication of how
well cost of operations has been controlled. It shows how much an entity earns as
profit after covering all of its operational expenses. Ndola reports an operating
margin of 13.43% which is slightly lower than that of Kitwe (13.89%). This signifies
that Ndola is operating a bit less efficiently in managing overall operational costs
incurred to earn revenue.

Return on capital employed

ROCE is a popular indicator of management efficiency and for strategic planning.
A comparison of the operating profit generated by an entity with the book value
of the non-current and working capital indicates how many Kwachas of profit are
obtained from every cedi of resource under management’s control. It throws light
on how profitable the entity appears to providers of long-term capital. On ROCE
of 11.65% compared Kitwe’s 12.24%, Ndola looks not as good in terms of how
much profit is generated for long-term financiers. A critical look is required to find
out whether this picture is as a result of only the lower margins Ndola earns as
poor asset utilisation could play part role.
Gearing
Capital gearing ratio is measure of financial risk and expresses the amount of a
company’s debt relative to its equity. The capital gearing of Ndola Ltd and Kitwe
Ltd are 43.96% and 40.81% respectively. Since both companies’ capital gearing is
below 50%, it means that the companies are lowly geared. This indicates that they
use less debt in financing the businesses. Therefore, it would not be difficult for
the entities to borrow more when there is the need to raise new capital. There is
also low risk that the entity will be unable to meet its payment obligations to
lenders when these obligations are due for payment.

Dividend Yield
Dividend yield measures how much income has been received relative to share
price. A higher dividend yield is more attractive while a lower yield can make a
stock less competitive relative to its industry. The dividend yield for Ndola Ltd
and Kitwe Ltd are 5.95% and 3.87%. This indicates that the stock of Ndola Ltd is
more attractive and competitive as compared to Kitwe Ltd.

Conclusion
The overall performance and position of both companies are very similar. Per the
ratios calculated, there is only a slight difference in the companies’ performance.
Even though the financial performance and position of both companies are okay,
Kitwe Ltd is performing a bit better than Ndola Ltd.
QUESTION THREE
The accounting treatment of Bonimuzo's transaction according to IFRSs/IASs for the
year ended 31st March 2023 involves the following steps:
1. Initial Recognition:
Bonimuzo initially recognizes the investment in equity shares at fair value through
other comprehensive income (OCI), as an irrevocable election was made.
2. Measurement:
The initial investment cost comprises the purchase price of K50 per share multiplied
by 500,000 shares, which amounts to K25,000,000.
Transaction costs of K850,000 are added to the initial investment cost, resulting in a
total cost of K25,850,000.
3. Subsequent Measurement:
At the end of the reporting period (31st March 2023), Bonimuzo revalues the
investment to its fair value.
The fair value of the investment is determined based on the trading price of K70 per
share, resulting in a fair value of K35,000,000 for the entire investment.
4. Recognition of Fair Value Gain:
The increase in fair value of the investment from K25,850,000 to K35,000,000 results in
a fair value gain of K9,150,000.
This fair value gain is recognized in other comprehensive income (OCI) as it is
attributable to changes in market conditions.
5. Dividend Income:
The dividend income of K25 per share received during the year is recognized in profit
or loss as income.
Total dividend income received amounts to K12,500,000 (K25 * 500,000 shares).
6. Comprehensive Income:
Comprehensive income for the year includes both the fair value gain recognized in
OCI and the dividend income recognized in profit or loss.
In summary, Bonimuzo records the initial investment at cost, subsequently revalues
it to fair value, recognizes fair value gains in OCI, and records dividend income in
profit or loss.

b). The accounting treatment of Bonimuzo's contract according to IFRSs/IASs for the
year ended 31st March 2023 involves recognizing revenue and expenses based on the
percentage of completion method. Here's the explanation:
1. Measurement of Performance:
Independent certified experts have determined that 45% of the performance
obligation has been satisfied by 31st March 2023.
2. Calculation of Revenue Recognized:
The total contract price is K8,000,000.
Since 45% of the performance obligation has been satisfied, revenue recognized to date
is K8,000,000 * 45% = K3,600,000.
3. Calculation of Costs Incurred:
Total costs incurred to date amount to K2,475,000.
4. Calculation of Estimated Completion Costs:
Estimated completion costs for the entire project are K3,025,000.
5. Calculation of Profit or Loss:
The profit or loss recognized is the difference between the revenue recognized and the
total costs incurred:
Profit/Loss = Revenue Recognized - Total Costs Incurred
= K3,600,000 - K2,475,000
= K1,125,000
6. Invoicing and Payment:
Bonimuzo has invoiced K3,000,000 to date, which has been paid.
7. Recognition of Revenue and Receivables:
Bonimuzo recognizes revenue of K3,000,000 for the amount invoiced and received.
Receivables are recognized for the remaining revenue to be billed and collected, which
is K600,000 (K8,000,000 - K3,000,000 invoiced).
In summary, Bonimuzo recognizes revenue and expenses based on the percentage of
completion method, calculates profit or loss accordingly, and recognizes revenue and
receivables for amounts invoiced and received.

C). According to IFRSs/IASs:

(i) Accounting for Discontinued Operation:
Bonimuzo will account for the discontinued operation by recognizing the results of
the discontinued operation separately from continuing operations in the income
statement.
The results of the discontinued operation, including the loss on disposal of non-
current assets, will be reported as a single line item "Profit or Loss from Discontinued
Operations" in the income statement.
Any income tax expense related to the discontinued operation will also be separately
disclosed.

(ii) Required Disclosures for Discontinued Operation:

Presentation in the Financial Statements:
Bonimuzo is required to disclose the nature and financial effects of the discontinued
operation in its financial statements.This includes providing a detailed explanation of
the discontinued operation's activities, the reasons for its discontinuation, and the
financial impact on the company.

Additional Information:
Bonimuzo must disclose the post-tax profit or loss attributable to the discontinued
operation.
If relevant, Bonimuzo should disclose the post-tax gain or loss recognized on the
disposal of the assets of the discontinued operation.
Additionally, any gain or loss recognized on the remeasurement of the assets and
liabilities held for sale should be disclosed separately.
These disclosures provide users of the financial statements with transparency
regarding the discontinued operation's impact on the company's financial
performance and help them understand the reasons behind the decision to
discontinue the operation.
d).The term "Qualifying Asset" refers to an asset that takes a substantial period of time
to get ready for its intended use or sale. In this scenario, Bonimuzo's factory
construction qualifies as a qualifying asset because it requires a significant period to
complete construction before it can be used for its intended purpose, which is likely
production.

According to IFRSs/IASs, borrowing costs directly attributable to the acquisition,

construction, or production of a qualifying asset should be capitalized as part of the
cost of that asset. Borrowing costs that are eligible for capitalization include interest
on specific borrowings incurred specifically to finance the construction of the
qualifying asset.

Borrowing cost to be capitalized by Bonimuzo for the year ended 31 March 2023:

Borrowing Costs on K5,000,000 6% loan:

The borrowing cost on this loan is 6%.
As the construction began on 1 July 2022 and was completed on 31 December 2022,
the period during which borrowing costs can be capitalized is from 1 July 2022 to 31
December 2022 (6 months).

Calculation: K5,000,000 * 6% * (6/12) = K150,000

Borrowing Costs on K2,000,000 5% loan and K3,000,000 8% loan:

Bonimuzo drew K2,500,000 on 1 July 2022 from these loans to complete the factory
construction.
The weighted average borrowing cost for these loans can be calculated as follows
[(K2,000,000 * 5%) + (K3,000,000 * 8%)] / (K2,000,000 + K3,000,000) = (K100,000 +
K240,000) / K5,000,000 = 0.068 or 6.8%

As the construction began on 1 July 2022 and was completed on 31 December 2022,
the period during which borrowing costs can be capitalized is from 1 July 2022 to 31
December 2022 (6 months).

Calculation: K2,500,000 * 6.8% * (6/12) = K85,000

Therefore, the total borrowing cost to be capitalized by Bonimuzo for the year ended
31 March 2023 is K150,000 + K85,000 = K235,000.
QUESTION 4

A)

Note 1-Sale and leaseback

Because the sale of the building by HAKUNAMATATA satisfies the requirements in IFRS
15 –Revenue from Contracts with Customers – HAKUNAMATATA will de-recognise the
building on 1 April 2022. HAKUNAMATATA will recognise a ‘right of use asset’ on 1 April
2022. The right of use asset will be measured as a percentage of the previous carrying
amount of K1 million which relates to the right of use retained by HAKUNAMATATA.
This percentage is 25·27% (K379,100/K1·5 million). This means that the carrying amount of
the right of use asset will be K252,700 (K1 million x 25·27%).

The gain on sale of property to be recognised in HAKUNAMATATA’s statement of profit

or loss is restricted to the rights transferred. The total gain is K500,000 (K1·5m – K1m). The
percentage of this gain to be recognised is 74·73% (100% – 25·27%). This means that the gain
which will be recognised will be K373,650 (K500,000 x 74·73%). The right of use asset will
be depreciated over the lease term, which is five years. Therefore depreciation of K50,540
(K252,700 x 1/5) will be charged in the statement of profit or loss. The statement of financial
position at 31 March 2023 will show a right of use asset of K202,160 (K252,700 – K50,540)
under non-current assets. HAKUNAMATATA will show a finance cost of K37,910
(K379,100 x 10%) in the statement of profit or loss for the year ended 31 March 2023.The
closing lease liability will be K317,010 (K379,100 + K37,910 – K100,000).

The amount of the overall liability which is current will be K68,299 (K100,000 – {K317,010 x
10%}). The balance of the liability of K248,711 (K317,010 – K68,299) will be non-current.

The amount of the gain on sale which is recognised by HAKUNAMATATA could

alternatively be computed as follows: The total gain x (The fair value of the asset – the lease
liability)/The fair value of the asset In this case this would give: K500,000 x ((K1,500,000 –
K379,100)/K1,500,000) = K373,633 (difference to above K373,650 due solely to rounding)
Candidates who adopt an approach of this nature will receive full marks.
Note 2 – New machine.

The machine would originally be recognised in the financial statements on 1 April 2022
using the rate of exchange in force at that date (3 Zimbabwean Dollar to K1).Therefore the
initial carrying amount of the machine would be K300,000 (900,000/3). This will also be the
initially recognised amount of the associated liability.When the liability is settled on 30 June
2022, HAKUNAMATATA will have to pay K360,000 (900,000/2·5). The difference of
K60,000 (K360,000 – K300,000) between the original liability and the settlement amount will
be an exchange loss which will be recognised in the statement of profit or loss as an
operating expense. Because the machine is a non-monetary item which is measured under
the cost model, its carrying amount will not be affected by future currency fluctuations.
Because part of the machine will need to be replaced after four years, depreciation needs to
be accounted for by splitting the asset into two depreciable components. The amount of the
initial carrying amount which relates to the component which needs replacing after four
years is K90,000 ((K300,000 x 30%). Depreciation on this component in the year ended 31
March 2023 will be K22,500 (K90,000 x ¼). Depreciation on the remainder of the asset for
the year ended 31 March 2023 will be K26,250 (K{300,000 – K90,000} x 1/8). The closing
carrying amount of the asset which will be included as a non-current asset within property,
plant and equipment will be K251,250 (K300,000 – K22,500 – K26,250)

4B)

Note 1 – Granting of options to sales staff

The expected total cost of the scheme at 31 March 2022 was K58,800 (100 – 10 – 20) x 200 x
K4·20.Therefore cumulative cost accrued at 31 March 2022 would have been K19,600
(K58,800 x 1/3). The expected total cost of the scheme at 31 March 2023 is K79,800 (100 – 10
– 5 – 9) x 250 x K4·20. The cumulative cost accrued at 31 March 2023 is K53,200 (K79,800 x
2/3). Therefore the amount charged as a remuneration expense to profit or loss for the year
ended 31 March 2023 will be K33,600 (K53,200 – K19,600).

Note 2 – Granting of share appreciation rights to senior executives.

The expected fair value of the total liability at 31 March 2023 will be K60,800 (500 x 19 x
K6·40). The amount which will be shown as a liability in the statement of financial position
at 31 March 2023 will be the proportion based on the period elapsed since the rights were
granted compared with the total vesting period. In this case that proportion is 18/48.
Therefore the closing liability will be K22,800 (K60,800 x 18/48). This will be shown as a
non-current liability. The liability which would have been recognised in the statement of
financial position at 31 March 2022 would have been K6,975 (500 x 18 x K6·20 x 6/48).
Zamshare would show a remuneration expense in profit or loss of K15,825 (K22,800 –
K6,975) in respect of the share appreciation rights for the year ended 31 March 2023.

4c) The defined benefit scheme for the year should have been recorded as follows:

K’million

Net obligation as 31 December 2019 120

Cash contribution into the plan (100)

Net finance cost for the year (K120 million x 5%) 6

Current service cost 55

Loss on Curtailment 11

Gain on remeasurement (9)

Net liability at 31.12.20 83

The benefits paid do not affect the net liability for the year.since only the cash contributions
have been recorded for the year, the net obligation should be increased by k63
million(k83million-20million(120-100).K72 million should be expensed to profit or loss
being service cost component(current and curtailment) plus the interest charge. K9 million
should be credited to other components of equity being the gain on remeasurement

Statement of profit or loss extract for the year ended (Extract)

K’million

Defined benefit plan (K55+K6+K11) (72)

Statement of Financial position Extract

Equity and liability

OCI- Remeasurement component 9

Non-Current Liabilities

Increase in defined benefit obligation 63