CPA F1.3 FINANCIAL ACCOUNTING Revision Guide

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CPA
Certified Public Accountant Examination
Stage:
Foundation 1.3
Subject Title: Financial Accounting

Revision Guide

INSIDE COVER - BLANK

CONTENTS

Title

Page

Study Techniques

3

Examination Techniques

4

Assessment Strategy

9

Learning Resources

10

Sample Questions and Solutions

11

Page 1

BLANK

Page 2

STUDY TECHNIQUE
What is the best way to manage my time?
•

Identify all available free time between now and the examinations.

•

Prepare a revision timetable with a list of “must do” activities.

•

Remember to take a break (approx 10 minutes) after periods of
intense study.

What areas should I revise?
•

Rank your competence from Low to Medium to High for each topic.

•

Allocate the least amount of time to topics ranked as high.

•

Allocate between 25% - 50% of time for medium competence.

•

Allocate up to 50% of time for low competence.

How do I prevent myself veering off-track?
•

Introduce variety to your revision schedule.

•

Change from one subject to another during the course of the day.

•

Stick to your revision timetable to avoid spending too much time on one topic.

Are study groups a good idea?
•

Yes, great learning happens in groups.

•

Organise a study group with 4 – 6 people.

•

Invite classmates of different strengths so that you can learn from one another.

•

Share your notes to identify any gaps.

Page 3

EXAMINATION TECHNIQUES
INTRODUCTION
Solving and dealing with problems is an essential part of learning, thinking and intelligence.
A career in accounting will require you to deal with many problems.
In order to prepare you for this important task, professional accounting bodies are placing
greater emphasis on problem solving as part of their examination process.
In exams, some problems we face are relatively straightforward, and you will be able to deal
with them directly and quickly. However, some issues are more complex and you will need to
work around the problem before you can either solve it or deal with it in some other way.
The purpose of this article is to help students to deal with problems in an exam setting. To
achieve this, the remaining parts of the article contain the following sections:


Preliminary issues



An approach to dealing with and solving problems



Conclusion.

Preliminaries
The first problem that you must deal with is your reaction to exam questions.
When presented with an exam paper, most students will quickly read through the questions
and then many will … PANIC!
Assuming that you have done a reasonable amount of work beforehand, you shouldn‟t be
overly concerned about this reaction. It is both natural and essential. It is natural to panic in
stressful situations because that is how the brain is programmed.
Archaeologists have estimated that humans have inhabited earth for over 200,000 years. For
most of this time, we have been hunters, gatherers and protectors.
In order to survive on this planet we had to be good at spotting unusual items, because any
strange occurrence in our immediate vicinity probably meant the presence of danger. The
brain‟s natural reaction to sensing any extraordinary item is to prepare the body for „fight or
flight‟. Unfortunately, neither reaction is appropriate in an exam setting.
The good news is that if you have spotted something unusual in the exam question, you have
completed the first step in dealing with the problem: its identification. Students may wish to
use various relaxation techniques in order to control the effects of the brain‟s extreme
reaction to the unforeseen items that will occur in all examination questions.

Page 4

However, you should also be reassured that once you have identified the unusual item, you
can now prepare yourself for dealing with this, and other problems, contained in the exam
paper.

A Suggested Approach for Solving and Dealing with Problems in Exams.
The main stages in the suggested approach are:
1. Identify the Problem
2. Define the Problem
3. Find and Implement a Solution
4. Review

1. Identify the Problem
As discussed in the previous section, there is a natural tendency to panic when faced with
unusual items. We suggest the following approach for the preliminary stage of solving and
dealing with problems in exams:
Scan through the exam question
You should expect to find problem areas and that your body will react to these items.
PANIC!!
Remember that this is both natural and essential.
Pause
Take deep breaths or whatever it takes to help your mind and body to calm down.
Try not to exhale too loudly – you will only distract other students!
Do something practical
Look at the question requirements.
Note the items that are essential and are worth the most marks.
Start your solution by neatly putting in the question number and labelling each part of your
answer in accordance with the stated requirements.
Actively reread the question
Underline (or highlight) important items that refer to the question requirements. Tick or
otherwise indicate the issues that you are familiar with. Put a circle around unusual items that
will require further consideration.

Page 5

2. Define the Problem
Having dealt with the preliminary issues outlined above, you have already made a good start
by identifying the problem areas. Before you attempt to solve the problem, you should make
sure that the problem is properly defined. This may take only a few seconds, but will be time
well spent. In order to make sure that the problem is properly defined you should refer back
to the question requirements. This is worth repeating: Every year, Examiner Reports note that
students fail to pass exams because they do not answer the question asked. Examiners have a
marking scheme and they can only award marks for solutions that deal with the issues as
stipulated in the question requirements. Anything else is a waste of time. After you have reread the question requirements ask yourself these questions in relation to the problem areas
that you have identified:
Is this item essential in order to answer the question?
Remember that occasionally, examiners will put „red herrings‟ (irrelevant issues) into the
question in order to test your knowledge of a topic.
What’s it worth?
Figure out approximately how many marks the problem item is worth. This will help you to
allocate the appropriate amount of time to this issue.
Can I break it down into smaller parts?
In many cases, significant problems can be broken down into its component parts. Some parts
of the problem might be easy to solve.
Can I ignore this item (at least temporarily)?
Obviously, you don‟t want to do this very often, but it can be a useful strategy for problems
that cannot be solved immediately.
Note that if you leave something out, you should leave space in the solution to put in the
answer at a later stage. There are a number of possible advantages to be gained from this
approach:
1) It will allow you to make progress and complete other parts of the question that you are
familiar with. This means that you will gain marks rather than fretting over something
that your mind is not ready to deal with yet.
2) As you are working on the tasks that you are familiar with, your mind will relax and you
may remember how to deal with the problem area.
3) When you complete parts of the answer, it may become apparent how to fill in the
missing pieces of information. Many accounting questions are like jigsaw puzzles: when
Page 6

you put in some of the parts that fit together, it is easier to see where the missing pieces
should go and what they look like.

3. Find and Implement a Solution
In many cases, after identifying and defining the problem, it will be easy to deal with the
issue and to move on to the next part of the question. However, for complex problems that
are worth significant marks, you will have to spend more time working on the issue in order
to deal with the problem. When this happens, you should follow these steps:
Map out the problem
Depending on your preferred learning style, you can do this in a variety of ways including
diagrams, tables, pictures, sentences, bullet points or any combination of methods. It is best
to do this in a working on a separate page (not on the exam paper) because some of this work
will earn marks. Neat and clearly referenced workings will illustrate to the examiner that you
have a systematic approach to answering the question.
Summarise what you know about the problem
Make sure that this is brief and that it relates to the question requirements. Put this
information into the working where you have mapped out the problem. Be succinct and
relevant. The information can be based on data contained in the question and your own
knowledge and experience. Don‟t spend too long at this stage, but complete your workings as
neatly as possible because this will maximise the marks you will be awarded.
Consider alternative solutions
Review your workings and compare this information to the question requirements. Complete
as much of the solution as you can. Make sure it is in the format as stipulated in the question
requirements. Consider different ways of solving the problem and try to eliminate at least one
alternative.
Implement a solution
Go with your instinct and write in your solution. Leave extra space on the page for a change
of mind and/or supplementary information. Make sure the solution refers to your workings
that have been numbered.

4. Review
After dealing with each problem and question, you should spend a short while reviewing your
solution. The temptation is to rush onto the next question, but a few moments spent in

Page 7

reviewing your solution can help you to gain many marks. There are three questions to ask
yourself here:
Have I met the question requirements?
Yes, we have mentioned this already. Examiner Reports over the years advise that failure to
follow the instructions provided in the question requirements is a significant factor in causing
students to lose marks. For instance, easy marks can be gained by putting your answer in the
correct format. This could be in the form of a report or memo or whatever is asked in the
question. Likewise, look carefully at the time period requested. The standard accounting
period is 12 months, but occasionally examiners will specify a different accounting period.
Is my solution reasonable?
Look at the figures in your solution. How do they compare relative to the size of the figures
provided in the question?
For example, if Revenue were 750,000 and your Net Profit figure was more than 1 million,
then clearly this is worth checking.
If there were some extraordinary events it is possible for this to be correct, but more than
likely, you have misread a figure from your calculator. Likewise, the depreciation expense
should be a fraction of the value of the fixed assets.
What have I learned?
Very often in exams, different parts of the solution are interlinked. An answer from one of
your workings can frequently be used in another part of the solution. The method used to
figure out an answer may also be applicable to other parts of your solution.
Conclusion
In order to pass your exams you will have to solve many problems. The first problem to
overcome is your reaction to unusual items. You must expect problems to arise in exams and
be prepared to deal with them in a systematic manner. John Foster Dulles, a former US
Secretary of State noted that: The measure of success is not whether you have a tough
problem to deal with, but whether it is the same problem you had last year. We hope that, by
applying the principles outlined in this article, you will be successful in your examinations
and that you can move on to solve and deal with new problems.

Page 8

ASSESSMENT STRATEGY
Examination Approach
The examination seeks to test the students‟ knowledge and understanding of the application of
accounting concepts and principles. Question 1 is compulsory and usually involves the
preparation and presentation of financial statements for sole traders, limited companies, and other
organisations in accordance with current standards and guidelines. Other questions provide the
opportunity for students to demonstrate their understanding of the role, function and basic
principles, (including double entry bookkeeping), of financial accounting.
Emphasis in this examination is placed on proper layout and presentation as well as on
numerical accuracy. Students must demonstrate sound technical knowledge and presentation
skills and the ability to integrate learning from different parts of this and other syllabi, as
appropriate.

Examination Format
Examination Duration: 3.5 Hours
The examination is unseen, closed book.
Students are required to answer 4 questions out of 5 Question 1 is compulsory and carries 40
marks. Students are required to answer 3 of the remaining 4 questions.

Marks Allocation
Question

Marks

Question 1 – Compulsory question

40

Choice of 3 questions out of 4 (3 x 20)

60

Total

100

Page 9

LEARNING RESOURCES
Core Texts


Wood F and Sangster A / Business Accounting 1 and 2 11th ed / Pearson 2008 /
ISBN 0273712128 / ISBN 0273712136



Connolly / International Financial Accounting and Reporting 3rd ed. / CAI 2011 / ISBN
9781907214646

Manuals
Institute of Certified Public Accountants of Rwanda – F1.3 Financial Accounting

Useful Websites (as at date of publication)










www.icparwanda.com
www.ifac.org/ - The International Federation of Accountants.
www.ifrs.org/ - The International Financial Reporting Standards Foundation.
www.iasplus.com - Deloitte Touche Tohmatsu. Summaries of International Financial
Reporting Standards (IFRS).
www.frc.org.uk/ - The Financial Reporting Council. ASB - Accounting Standards
Board.
www.frc.org.uk/pob/ - The Professional Oversight Board.
http://ec.europa.eu/internal_market/accounting/ias/index_en.htm
www.ipsas.org
www.intosai.org

Page 10

F1.3 FINANCIAL ACCOUNTING
REVISION QUESTIONS AND SOLUTIONS

Page 11

QUESTION 1
(a) Financial statements allow users of them to satisfy some of their different needs for
information. Explain these needs for the following five users:
1) Investors
2) Employees
3) Suppliers
4) Government and their agencies
5) Public
(10 Marks)
(b)

The following trial balance was extracted from the books of CRA Limited as at 31
December 2010:
Debit
Credit
Rwf ‘000
Rwf „000
Bank
113,650
Buildings
400,000
Carriage Inwards
2,000
Proceeds from Sales of Motor Vehicles
9,000
Retained Earnings at 31.12.09
110,610
Debentures 3%
200,000
Repairs & Maintenance
4,560
Plant & Machinery
45,000
Insurance
11,500
Trade Receivables/Trade Payables
40,000
38,500
Land
200,000
Advertising
12,300
Plant & Machinery Accumulated Depreciation at
15,000
31.12.2009
Travel Expenses
3,600
Motor Vehicles
35,000
Buildings Accumulated Depreciation at 31.12.2009
150,000
Opening Inventory
35,000
Purchases
312,000
Carriage Outwards
1,350
Telephone
8,400
Rent
10,000
Provision for Bad Debts
7,000
Revaluation Surplus
10,000
Motor Vehicles Accumulated Depreciation at
12,000
31.12.2009
Revenue
415,000
Bank Loan – Long-Term
205,000
Revenue Returns/Purchases Returns
2,000
1,000
Other Reserves
15,000
Share Capital – 100,000 shares at Rwf l each
100,000
Wages & Salaries
51,750
1,288,110
1,288,110
Page 12

The following information, based on your investigations, has also come to your attention;
i)

An inventory count at year-end showed that the Closing Inventories at cost
amounted to Rwf42,650,000. There are slow moving goods at cost included in
this figure amounting to Rwf5,000,000. It is estimated that these will need to
be sold at a 50% discount on selling price in order to sell them. CRA Limited
sells at a mark-up of 20% for these goods.

ii)

During January 2010, the company realised that the Closing Inventory at 31
December 2009 was overstated by Rwf3,100,000.

iii)

Depreciation is to be charged as
follows:
Buildings
Plant & Machinery
Motor Vehicles

4% on Cost
10% on Cost
15% Reducing Balance

Depreciation is charged in full in year of purchase and none in year of sale.
Round all depreciation amounts to the nearest thousand francs.
iv)

The Land and Buildings were revalued at 31 December 2010 to
Rwf180,000,000 and Rwf200,000,000 respectively.
The residual value on buildings is expected to be Rwf50,000,000.

v)

The proceeds on the sale of Motor Vehicles, in the trial balance, relates to the
disposal on 30 June 2010 of a motor vehicle which was purchased for
Rwf20,000,000 on 1 June 2008.

vi)

The Corporation tax bill for the year 2010 is estimated at Rwf14,000,000
which has not been provided for in the trial balance on Page 1.

vii) A customer has gone into liquidation and you are advised to write off the full
balance owing of Rwfl,950,000.
viii) Included in wages is an amount of Rwf16,000,000 paid to CRA Limited‟s own
staff who built a canteen onto the building during the year.
ix)

There are closing accruals for Repairs and Maintenance and Telephone amounting
to Rwf640,000 and Rwf1,350,000 respectively.

x)

The Bad Debt Provision should be changed to 4% of Trade Receivables.

xi)

Purchases include an amount of Rwf10,000,000 which actually relates to Plant
and Machinery. This Plant & Machinery was purchased on 1 July 2010.

xii) Provide for the Debenture Interest outstanding at the year-end.

Page 13

REQUIRED:
Prepare, for internal use, a Statement of Comprehensive Income and Statement of Financial
Position for CRA Limited for the financial year-ending 31 December 2010.
(30 Marks)
[Total: 40 Marks]
QUESTION 2
(a)

State the objective of financial statements as per the IASB‟s Framework for the
Preparation and Presentation of Financial Statements.
(3 Marks)

(b)

Discuss three issues that may arise in relation to the provision of relevant and reliable
information in financial statements.
(3 Marks)

(c)

Describe and discuss the qualitative characteristics of financial statements as identified
in the Framework.
(14 Marks)
[Total: 20 Marks]

QUESTION 3
A cousin of yours, who runs a business, DLLA Limited, is looking for some advice in
relation to the recognition of revenue in financial statements. They have heard of IAS 18
Revenue but are unsure how to apply it to their business. They have asked for your
advice as they know that you are currently studying to be an accountant. Your cousin
has asked you to provide a report to him on the following queries:
(a) Describe the conditions that should be satisfied before Revenue from the rendering
of services should be recognised in the financial statements.
(6 Marks)
(b) State how Revenue should be measured in the financial statements.
(2 Marks)
(c) Discuss, under the following examples, what the accounting treatment should be and
whether Revenue should be recognised or not in the financial statements for the yearend 31 December 2010:
(i)

On 18 December 2010, DLLA had received Rwf10,000,000 in relation to
goods which are due to be shipped on 6 January 2011 to Burundi. At the yearend, the goods are still in the warehouse of DLLA Limited.

(ii)

On 15 December 2010, DLLA sold goods to a customer amounting to
Rwf3,000,000. The customer will pay for these goods on 20 January 2011. The
cost of the goods sold was Rwf2,000,000.

Page 14

(iii) On 1 December 2010, DLLA sold goods to a new customer in Zambia. DLLA are
trying to break into this market and have done a deal with the new customer
whereby the customer has the right to return any unsold goods before 31 March
2011 for a full refund. The amount of the goods sold was Rwf25,000,000.
(iv) On 20 December 2010, DLLA sold goods, amounting to Rwf8,000,000 to a
customer who normally gets 30 days credit. The goods were ready for delivery
to the customer on that date but the customer did not want delivery of the goods
until 4 January 2011 as he was going on holidays over the Christmas period. The
customer has accepted an invoice for the goods dated 20 December 2010. The
customer paid for the goods on 5 January 2011.
(12 Marks)
[Total: 20 Marks]
QUESTION 4
The treasurer of a Golf Club near Lake Kivu has produced the following receipts and
payments for the year- ended 31 December 2010.
Receipts
Rwf „000
Balance at 1 January 2010
20,000
Subscriptions
83,000
Bar Receipts
42,000
Green Fees
36,000
Event Receipts
11,000
Competition Fees
5,900

Payments
Rwf
Bar Payments
Wages & Salaries – Clubhouse
Wages & Salaries – Bar
Course Repairs
Insurance
Utilities (Electricity & Water)
Telephone
Event Expenses
Sundry Expenses
Competition Expenses
Balance at 31 December 2010

197,900

1.

The following information is available:
01/01/2010

31/12/2010

Rwf „000 Rwf „000
9,000
7,000
7,000
5,000
2,000
3,500
7,000
4,500
500
750

Bar Trade Payables
Bar Inventory
Subscriptions in Arrears
Subscriptions in Advance
Telephone Due
Competition Expenses
Due
2.

„000
27,000
36,000
10,000
19,000
9,000
6,000
2,500
6,000
1,900
1,600
78,900
197,900

400

At 1 January 2010, the following assets were identified at cost:
Rwf

Page 15

500

Clubhouse & Course

3.

400,000

Fixtures & Fittings

70,000

Course Equipment

160,000

The depreciation rates are as follows:
Fixtures & Fittings

10% of Cost

Course Equipment

20% of Cost

4.

Course equipment was disposed of during the year for a scrap value of Rwf2,500,000.
The equipment originally cost Rwf7,000,000 on 1 January 2006.

5.

There is no depreciation in the year of sale.

6.

The insurance paid for the year covers the period to 30 September 2011. The insurance
for the previous year to 30 September 2010 amounted to Rwf6,000,000.

REQUIRED:
(a)

Prepare a Bar Trading Account for the year-ended 31 December 2010.

(6 Marks)

(b)
Prepare an Income & Expenditure Account for the year-ended 31 December 2010. (14
Marks)
[Total: 20 Marks]

Page 16

QUESTION 5
R.A.H. Limited is a company which is involved in the retail trade with a number of shops in
prime city centre locations. The following are their results for the last two years.
2010
2010
2009
2009
Rwf m
Rwf m
Rwf m
Rwf m
Sales
23,200
15,960
Cost of Sales
16,492
11,452
Gross Profit
6,708
4,508
Distribution Costs
356
298
Administration Costs
872
504
Profit before Interest & Tax
5,480
3,706
Taxation
432
484
Interest
752
1,184
772
1,256
Net Profit for the Year
4,296
2,450
Dividends
200
200
Profit Retained
4,096
2,250
R.A.H. Limited Statement of Financial Position for the Year-ended 31 December
2010
2010
2010
2009
2009
Rwf m
Rwf m
Rwf m
Rwf m
Non-Current Assets
14,040
13,304
Current Assets
Inventory
2,784
1,860
Trade Receivables
2,084
1,000
Cash & Cash Equivalents
800
600
Total Current Assets
5,668
3,460
Total Assets
19,708
16,764
Equity & Liabilities
Equity
Share Capital
Retained Earnings
Total Equity
Non-Current Liabilities
Long-term Debt
Total Non-Current
Liabilities
Current Liabilities
Trade Payables
Bank Overdraft
Taxation
Dividends
Accruals
Total Current Liabilities
Total Equity & Liabilities

4,000
6,308

4,000
2,212
10,308

5,750

6,212

8,000
5,750

1,600
1,196
432
200
222

8,000

1,368
48
484
200
452
3,650
19,708
Page 17

2,552
16,764

Notes:
(i)

The opening inventory for 2009 was Rwf2,000,000,000

(ii)

The number of shares in issue is 40,000,000 for both years

(iii)

Current share price per share

2010

2009

Rwf2,500

Rwf800

REQUIRED:
(a)

(b)

Calculate, for both years, the following ratios in relation to R.A.H. Limited:
1)

Gross Profit Percentage

2)

Net Profit Percentage

3)

Quick Ratio

4)

Trade Receivable Days

5)

Trade Payable Days

6)

Interest Cover

7)

Earnings Per Share

8)

Price Earnings Ratio

(8 Marks)

Draft a report to the Board of Directors of R.A.H. Limited in which you provide a
commentary on the company‟s position and performance. Use the ratios calculated at
(a) above as the basis for your commentary.
(10 Marks)
(Format and Presentation: 2 marks)
[Total: 20 Marks]

Page 18

QUESTION 6
(a) Identify and explain both the main advantages and obstacles to the harmonisation of
international accounting.
(10 marks)
(b) The following trial balance was extracted from the books of GTM Limited as at 31st
December 2010:
Debit
Rwf
„000
Accruals
Bank
Bank Loan – Long-Term
Buildings
Buildings Accumulated Depreciation at 31.12.2009
Carriage Inwards
Corporation Tax
Debentures 4%
Debenture Interest
Fixtures & Fittings
Fixtures & Fittings Accumulated Depreciation at 31.12.2009
Insurance
Intangible Assets
Land
Utilities (Electricity & Water)
Marketing
Motor Expenses
Office Equipment
Office Equipment Accumulated Depreciation at 31.12.2009
Opening Inventory
Other Reserves
Proceeds from Sales of Office Equipment
Provision for Bad Debts
Purchases
Rates
Rent
Repairs & Maintenance
Retained Earnings
Revaluation Surplus
Revenue
Revenue Return/Purchases Returns
Share Capital – 100,000 shares at Rwf1,000 each
Share Premium
Suspense
Trade Receivable/Trade Payable
Wages & Salaries

Page 19

Credit
Rwf „000
2,000
65,000
455,000

800,000
200,000
20,000
5,000
200,000
1,500
75,000
15,000
23,000
80,000
450,000
1,000
24,000
5,600
150,000
45,000
50,000
43,000
4,000
4,000
450,000
14,000
12,000
7,900

19,000

80,000
73,500
2,336,500

150,000
20,000
950,000
10,000
100,000
5,000
15,000
48,500
2,336,500

The following information, based on your investigations, has also come to your attention:
(i) Inventory was actually counted on the 31st December 2010 and amounted to Rwf55,000,000.
Included in inventory were goods damaged pre year-end which had cost Rwf15,000,000 when
originally purchased. To be in a position to sell these goods for an amount greater than scrap
value, the inventory will require correctional work costing Rwf2,500,000 and consequently, the
damaged goods would then be in a position to be sold for Rwf12,000,000.
(ii) Depreciation is to be charged as follows:
Buildings
2% on Cost
Office
Equipment
10% on Cost
Fixtures &
20% Reducing
Fittings
Balance
Depreciation for the year is charged in full in the year of purchases and none in the year of
sale.
(iii) The proceeds on the sale of Office Equipment, in the trial balance, relates to the disposal on
the 1st October 2010 of some office equipment which was purchased for Rwf20,000,000 on
1st January 2006.
(iv) The Corporation tax bill for the 2010 year is estimated at Rwf25,000,000 which has not been
provided for in the above trial balance
(v) A payment of Rwf13,000,000 for Corporation Tax was made on the 31st December 2010 by
cheque. This transaction has not been included in the above trial balance.
(vi) It has been established that the accrual in the trial balance relates to Motor Expenses and that
the figure relates to the opening accrual at the 1st January 2010. The figure for Motor
Expenses in the trial balance relates to the Motor Expenses paid by cheque throughout the
year.
(vii) There are closing accruals for Motor Expenses and Utilities amounting to Rwf1,500,000 and
Rwf750,000 respectively.
(viii) There were Bad Debts recovered of Rwf2,000,000 lodged to the bank account which have yet
to be included in the closing financial statements.
(ix) Due to the current uncertain trading environment, the Bad Debt Provision should be increased
to 6% of Trade Receivables.
(x) Purchases include an amount of Rwf10,000,000 which actually relate to Office Equipment.
This Office Equipment was purchased on the 1st July 2010.
(xi) 5,000 new shares were issued during the year. The shares were sold at a price of Rwf3,000
each. The book keeper of GTM Limited, unsure as to how to account for this transaction,
debited the Bank with Rwf15,000,000 and credited Suspense with Rwf15,000,000.
(xii) Provide for the Debenture Interest outstanding at the year-end.

Page 20

REQUIREMENT:
Prepare, for internal use, a Statement of Comprehensive Income and Statement of Financial
Position for GTM Limited for the financial year-ending 31st December 2010. All workings should
be shown.
(30 marks)
[Total: 40 Marks]

Page 21

QUESTION 7
The Managing Director of the company you work for has recently been approached by a client,
Zacnet Limited with some specific issues in relation to IAS 38 Intangible Assets. She has asked you
to prepare a report based on the following aspects that the client company has requested advice on.
(a)

State the required accounting treatment per IAS 38 in relation to the measurement of
Intangible Assets at recognition for the following scenarios:
(8 Marks)
(i)

Zacnet is considering making a separate acquisition of an intangible asset for Rwf80
million. The fair value of the intangible asset has been independently valued at Rwf100
m.

(ii)

Zacnet has generated internal goodwill of Rwf50 m.

(iii) The government has granted to Zacnet a broadband licence for ten years for Rwf1
million due to the fact that the government wishes to promote broadband usage in
Rwanda. Zacnet will incur Rwf99 m in expenditure directly attributable to preparing the
asset for its intended use. Zacnet has received an independent valuation from an expert
in valuing broadband licences who has valued the licence as being worth Rwf350 m.
(iv) Zacnet is currently researching the possibility of developing a new product which
enhances a broadband signal in remote areas. In the last year, Zacnet has spent Rwf72m
on researching this product.
(b)

Zacnet believes that they will shortly begin the development phase in relation to the enhanced
broadband signal. They are unsure of how to account for any expenditure incurred during this
phase and have asked for guidance.
Describe the conditions which must be satisfied to allow expenditure to be capitalised in
relation to the development phase of internally generated intangibles.
(7 Marks)

(c) Zacnet has a publishing department as part of its business where they publish magazines aimed
at the „mother and baby‟ market. In the draft financial statements for the period ended 31st
December 2011, Rwf35m was spent on a brand new company logo for their flagship
magazine in this segment. The accountant in Zacnet has proposed to include this expenditure
as an Intangible Asset in the accounts of the company and to amortise it by 10% this year.
The projected net profit before this adjustment is Rwf1,452 m.
(i)

(ii)

Outline whether the accounting treatment of the expenditure on the company logo is
correct in accordance with IAS 38 and
Show the Actual Profit for the year based on your answer to (c) (i) above.
(5 Marks)
[Total: 20 Marks]

Page 22

QUESTION 8
(a) In relation to the measurement at recognition of IAS16 Property, Plant and Equipment,
outline the elements of cost which are allowed to be recognised.
(4 Marks)
(b)

Explain, in the context of IAS 16, what is meant by any three (3) of the following terms;
(i)
(ii)
(iii)
(iv)
(v)

Depreciation;
Carrying value;
Fair value of an asset;
Impairment loss;
Residual value.
(4 Marks)

(c)

Explain the accounting treatment allowed for the measurement after recognition of
Property, Plant & Equipment as per IAS 16.
(2 Marks)

(d)

In relation to IAS 16, describe the accounting treatment necessary for the financial yearending 31st December 2009 and 31st December 2010, based on the following information;
(i)

(ii)

A building costing Rwf300m which is not being depreciated was revalued at the 31st
December 2009 to Rwf400 m.
The same building was revalued on the 31st December 2010 at Rwf250 m.
(5 Marks)

(e)

Calculate the depreciation for MNL Limited for the year-ended 31st December 2010 based
on the following information:
MNL Limited purchased a building on the 1st January 2005 costing Rwf500m. The asset
was depreciated at the rate of 5% per annum straight line. On the 1st January 2010, the asset
was revalued to Rwf800m and the valuer estimated that the residual value would be Rwf200
m. The useful life has not changed as a result of the revaluation.
(5 Marks)
[Total: 20 Marks]

Page 23

QUESTION 9
Mr Michael Nolan operates a furniture shop in Kigali with the majority of his business being to
trade but he also has some cash sales to the general public. Michael does not keep a full and proper
set of accounts and has recently transferred his business to you, his personal friend, knowing that
you are currently studying accounting. After careful investigation, the following information has
been obtained covering the year-ended 31st December 2010:
(i) Assets & Liabilities at 31st December 2009 were as follows:
Premises
Cost
Accumulated Depreciation
Office Equipment
Cost
Accumulated Depreciation
Inventory
Cash
Bank
Trade Receivables
Prepayment (Insurance)
Trade Payables
Bank Loan (repayable over 5 years)
Accruals (Rent)
(ii)

Rwf '000
100,000
40,000
16,000
4,000
40,000
1,200
11,200
4,800
800
11,200
12,000
1,200

During the year, Michael has maintained that the bulk of the receipts from sales were
lodged to the bank account. The bank statement reveals that Rwf31,600,000 was lodged
to the account in relation to credit sales for the full year. The closing balance at the yearend in relation to cash amounted to Rwf1,600,000. Michael has said that he took
Rwf1,600,000 and Rwf800,000 in drawings from the cash till during the year. The
closing trade receivables balance amounted to Rwf4,000,000.

(iii) Michael makes a gross profit of 25% on the sales value of everything he sells and his
sales occur evenly throughout the year.
(iv) On the night of the 31st July, there was a burglary at the shop and inventory was stolen.
In trying to establish how much inventory was stolen, Michael was able to say that:
(a)
(b)
(c)

(v)

He knew from his bank statements that he has paid Rwf8,800,000 to trade payables
in the seven month period to 31st July 2010.
He had trade payables due at the 31st July 2010 amounting to Rwf10,400,000.
He performed an inventory count on the following day after the burglary and
calculated inventory at Rwf36,000,000.

On the 31st October, Michael had to scrap Rwf1,200,000 worth of inventory owing to
water damage. His insurance company has confirmed to him that he will be covered in
full for the furniture scrapped.

(vi) Purchases for the full year amounted to Rwf25,700,000.

Page 24

REQUIREMENTS:
For the year ended 31st December 2010:
(a) Calculate the opening capital position at the 1st January 2010 for Mr. Michael Nolan by preparing
an opening statement of financial position.
(5 Marks)
(b) Calculate the amount of inventory stolen, the cost of the closing inventory and the gross profit for
the year-ended 31st December 2010.
(15 Marks)
[Total: 20 Marks]

Page 25

QUESTION 10
BLM Limited is a manufacturer of concrete products for the roads industry and its
accounts are as follows
BLM Limited Statement of Financial Position as at 31st December 2010
2010
Rwf m
Non-Current Assets
Property, Plant & Equipment
66,300
Development Expenditure
4,360
Investment Properties
20,200
Total Non-Current Assets
90,860
Current Assets
Inventories
8,900
Trade Receivables
14,320
Cash
2,130
Total Current Assets
25,350
Total Assets
116,210
Equity & Liabilities
Equity
Share Capital
72,000
Share Premium
9,600
Retained Earnings
2,620
Revaluation Surplus
2,800
Total Equity
87,020
Non-Current Liabilities
Bank Loans
18,500
Total Non-Current Liabilities
18,500
Current Liabilities
Trade Payables
9,340
Bank Overdraft
Corporation Tax
1,350
Total Current Liabilities
10,690
Total Equity & Liabilities
116,210

Page 26

2009
Rwf m
55,600
200
20,000
75,800
9,200
12,300
21,500
97,300

60,000
8,000
590
800
69,390
12,100
12,100
10,050
4,560
1,200
15,810
97,300

BLM Limited Statement of Comprehensive Income for the year-ended 31st December
2010
Rwf m
Revenue

23,400

Cost of sales

18,910

Gross Profit

4,490

Distribution Costs

(1,129)

Administration expenses

(891)

Interests costs

(450)

Investment income

357

Profit before tax

2,377

Corporate tax – expense

(297)

Profit for year

2,080

Other comprehensive Income
Gains on property revaluation

2,000

Total Comprehensive Income

4,080

i. Property, Plant & Equipment with a book value of Rwf2,050 m was sold
for Rwf1,800 million
ii. Depreciation of Property, Plant & Equipment during the year
amounted to Rwf2,150,000,000.
iii. Dividends paid during the year amounted to Rwf50,000,000.
REQUIREMENT
Prepare a cash Flow Statement for the year ended 31st December 2010 for BLM Limited

Page 27

SUGGESTED SOLUTIONS

SOLUTION 1
(a)
Investors: These are concerned with the risk inherent in and return provided by their
investments. They need information to help them determine whether they should buy, hold
or sell as well as assessing the ability of the entity to pay dividends.
(2 Marks)
Employees: They are interested in information about the stability and profitability of their
employers. They are also interested in information which enables them to assess the ability of
the entity to provide remuneration, retirement benefits and employment opportunities.
(2 Marks)
Suppliers: These are interested in information that enables them to determine whether
amounts owing to them will be paid when due.
(2 Marks)
Government and Agencies: These are interested in the allocation of their country‟s resources
and, therefore, the activities of entities. They also require information in order to regulate the
activities of entities, determine taxation policies and as the basis for national income and
similar statistics.
(2 Marks)
Public: Financial statements may assist the public by providing information about the trends
and recent developments in the prosperity of the entity and the range of its activities.
(2 Marks)
[Total: 10 Marks]

Page 28

b)
CRA Limited Statement of Comprehensive Income for the year-ended 31st December 2010
Notes
Rwf Rwf „000 Rwf „000
Rwf‟
Marks
„000
„000
Revenue
415,000
- Revenue Returns
-2,000 413,000
0.25
Cost of Sales
Opening Inventory
W1.ii
35,000
-3,100
31,900
+ Purchases
312,000
Cost of
Sales
- Plant & Machinery
W1.xi
-10,000
1.5
- Purchases Returns
-1,000 301,000
+ Carriage Inwards
2,000
- Closing Inventory
W1.ii
-40,650
Cost of Sales Total
294,250
Gross Profit
118,750
0.25
Other Income
Repairs & Maintenance
Insurance
Advertising
Travel Expenses
Carriage Outwards
Telephone
Rent
Wages & Salaries
Loss on Sale of Motor
Vehicle
Bad Debt Write Off
Depreciation - Buildings
Depreciation - Plant &
Machinery
Depreciation - Fixtures &
Fittings
Debenture Interest
Revaluation Loss on Land &
Buildings
Profit/(Loss) before Tax
Income Tax Expense
PROFIT/(LOSS) FOR THE
YEAR

W4
W1.ix

4,560

W1.viii
W2
W1.viii
W2
W2

640

8,400

1,350

51,750

-16,000

-5,478
5,200
11,500
12,300
3,600
1,350
9,750
10,000
35,750
5,450

Expenses
2.5

1,950
16,640
5,500

W2

1,283

W1.xii
W3

6,000
59,360

W1.viii

-61,405
14,000
-75,405

Other Comprehensive
Income
Revaluation Loss on Land & W3
Buildings
Other Comprehensive
Income for the year, net of
tax

0.25
0.25

-10,000
-10,000
0.25

Page 29

TOTAL
COMPREHENSIVE
INCOME FOR THE YEAR
CRA Limited Statement of Financial
Position as at 31st December 2010
Notes
Non-Current Assets
Property, Plant & Equipment
Total Non-Current Assets
Current Assets
Inventories
Trade Receivables
Cash & Cash Equivalents
Total Current Assets
TOTAL ASSETS
Equity & Liabilities
Equity
Share Capital
Other Reserves
Retained Earnings

Revaluation Surplus

Total Equity
Non-Current Liabilities
Debentures
Bank Loan
Total Non-Current Liabilities
Current Liabilities
Trade Payables
Corporation Tax
Accruals
Total Current Liabilities
TOTAL EQUITY &
LIABILITIES

-85,405

Rwf
„000

Rwf „000

Rwf
„000

W2

0.25

40,650
36,528
113,650
190,828
612,595

0.25
0.25
0.25
0.25
0.25

100,000
15,000
32,105

0.25
0.25
0.25

-

0.25

147,105

0.25

200,000
205,000
405,000

0.25
0.25
0.25

38,500
14,000
7,990
60,490
612,595

0.25
0.25
0.25
0.25

TOTAL MARKS

10

100,000
110,61
0

W3

-3,100

10,000

Rwf „000

421,767
421,767

W1.i
W1.x

W1.ii

75,40
5
10,00
0

W1.vi
W5

Working - Journal Entries
Working - Closing
Inventory
Total Inventories at Cost
per Inventory Count
Slow Moving goods –
Cost

Rwf
„000

5,000

Page 30

0.25

Rwf
„000
42,650

NRV - 50% of Selling
Price Note 1
Inventory Write Down
Value of Closing
Inventories

-3,000

Cost
Markup - 20% of Cost
i.e. 20% *E5,000
Selling Price
50% of Selling Price 6,000 * 50%

20%

5,000
1,000

50%

6,000
3,000

2,000
40,650

Note 1

1.i

1.ii
1.vi

1.vii

Dr Inventory
Cr
Dr
Cr
Dr
Cr

Closing Inventory
Retained Earnings
Opening Inventory
Corporation Tax
Corporation Tax Due

Dr Bad Debt Write Off
Cr Trade Receivables

1.viii Cr Building

1.ix

1.x

Cr
Dr
Dr
Cr

Wages
Repairs & Maintenance
Telephone
Accruals

Dr Trade Receivables
Cr Decrease in Bad Debt
Provision

Note 2

+Current
Assets
- cost of sales
- Enquiry
Cost of Sales
+Expenses
+ Current
Liabilities
+ Expenses
- Current
Assets
+ Non-current
Assets
- Expenses
+ Expenses
+ Expenses
+ Current
Liabilities
+ Other
Income
+ Other
Income

Trade Receivables
Balance per TB
- Bad Debt Write Off
W1.vii

SOFP
IS
SOFP
IS
IS
SOFP

Rwf
'000
40,650

4,650
1.5
3,100
14,000

1.0
14,000

IS
SOFP

1,950

SOFP

16,000

IS
IS
IS
SOFP

640
1,350

IS

5,478

1.0
1,950
1.0
16,000
1.0
1,990

SOFP

2.0
5,478

-1,950
38,050
1,522
36,528

Page 31

3.0

3,100

40,000

- Bad Debt Provision
Revised Trade
Receivables

Rwf
'000

Current Bad Debt
Provision TB
New Bad Debt Provision
See Above
Decrease in Bad Debt
Provision
1.xi

Dr Plant & Machinery

Cr Purchases
1.xiii Dr Debenture Interest
Cr Debenture Interest Due

7,000
1,522
-5,478

+ Non-curerent
Assets
- Cost of Sales
+ Expenses
+Current
Liabilities

SOFP

10,000

IS
IS
SOFP

6,000

Debentures
Interest for the year at
3%

10,000

1.0

6,000

1.0

Current Marks

12.5

200,000
6,000

Working 2 - Property, Plant & Equipment Plant & Motor
Land
Buildings
Plant &
machinery
Cost
Accumulated
Depreciation b/d
Net Book Value b/d at
1st January 2010
Disposal - Cost
Note
1
Disposal Note
Accumulated
1
Depreciation at 1.1.10
Additions
W1.vi
W1.viii/(W1.xi)
ii
Carrying Value
Depreciation Buildings - 4% of Cost
Depreciation - Plant
& Machinery - 10% of
Cost
Depreciation - Motor Note
Vehicles - 15% of R.
2
Bal
Revaluation Loss
Net Book Value c/d at
31st December 2010

Rwf „000
200,000

Rwf „000
400,000
-150,000

200,000

250,000

-

-

200,000

Motor
Vehicles

Rwf „000 Rwf „000 Rwf „000
45,000
35,000 680,000
-15,000
-12,000 -177,000
30,000

16,000

10,000

266,000
16,640

40,000

23,000

503,000

.25

-20,000

-20,000

.25

-5,550

-5,550

.25

26,000

.50

514,550
16,640

.25

5,500

.25

1,283

1,283

.25

7,267

491,127
-69,360
421,767

1.0

8,550

5,500

200,000
-20,000
180,000

Note 1 - Disposal of
Page 32

249,360
-49,360
200,000

Total

34,500
34,500

7,267

Motor Vehicles
Cost
Accumulated Depreciation 15% on Reducing Balance per
annum
Depreciation 2008
Depreciation 2009

20,000

3,000
2,550
5,550

-5,550
14,450

Net Book Value of Office
Equipment disposed

Disposal Account
Cost 20,000
Accumulated Depreciation
Disposal proceeds
Loss on disposal
20,000
Note 2 - Depreciation of Motor Vehicles

Cost
Rwf „000
35,000
-20,000
15000

Balance b/d
Disposal
Carrying Value
Depreciation at 15% Reducing
Balance
Working 3 - Revaluation Loss
Total Revaluation Loss
Revaluation Surplus b/forward
Excess Revaluation Loss

Working 4 - Other Income
Decrease in Bad Debt
Provision
Closing balance
Working 5 - Accruals
Repairs & Maintenance W1.ix
640
Telephone W1.ix 1,350
Debenture Interest W1.xii
6,000

Acc.
Dep‟n
Rwf „000
-12,000
5,550
-6450

5,550
9,000
5,450
20,000
NBV
Rwf „000
23,000
-14,450
8550
1,283

1.00

1.50
69,360
10,000
59,360

W1.x

5,478
5,478

W1.ix

640

W1.ix
W1.xii

1,350
6,000

1.00

7,990
Current marks

Page 33

7.5

Bank
Buildings
Carriage inwards
Process form sale of motor
vehicles
Retained earnings

Debit
Rwf „000
113,650
400,000
2,000

Debentures 3%
Repairs & maintenance
Plant & machinery
Insurance
Trade Receivables/Trade
Payables
Land
Advertising
Plant & machinery Acc dep'n
at 31-12-2009
Travel expenses
Motor vehicles
Buildings Acc dep'n at 31-122009
Opening inventory
Purchases
Carriage outwards
Telephone
Rent
Provision for Bad debts
Revaluation surplus

Credit
Rwf „000

Adjustment
Debit
Credit
Rwf „000 Rwf „000
16,000

Income Statement
Debit
Credit
Rwf „000
Rwf „000

49,360

SOFP
Debit
Rwf „000
113,650
366,640

2,000
9,000

20,000

110,610

62,460

5,550

5,450
16,045

32,105

200,000
4,560
45,000
11,500
40,000

Credit
Rwf „000

200,000
640
10,000

5,200
55,000
11,500

38,500

1,950

200,000
12,300

38,050

20,000

38,500

180,000
12,300

15,000

5,500

3,600
35,000

20,500

3,600
20,000
150,000

35,000
312,000
1,350
8,400
10,000

16,640
3,100
10,000
1,350

7,000
10,000

15,000

5,478
10,000

5,478

Page 34

31,900
302,000
1,350
9,750
10,000

166,640
40,650

5,478

40,650

1,522

Motor vehicles Acc Dep'n at
31-12-2009
Revenue
Bank loan - long term
Revenue returns/purchase
returns
Other reserves
Share capital 100,000 shares
at Rwf 1 each
Wages & salaries
Debenture interest
Corporation tax
Bad debt write-off
Accruals

12,000

5,550

1,283

415,000
205,000
2,000

415,000
205,000

1,000

2,000

1,000

15,000

15,000

100,000

100,000

51,750

16,000
6,000
14,000
1,950

1,288,110

7,733

1,288,110

153,428

14,000
7,990
153,428

35,750
6,000
14,000
1,950
478,173

14,000

478,173

808,990

7,990
808,990

[Total marks 20.0]

Page 35

SOLUTION 2
a)
The objective of financial statements is to provide information about the financial
position, performance and changes in financial position of an entity that is useful to a wide
range of users in making economic decisions
(3 Marks)
b)
Timeliness
If there is undue delay in the reporting of information, it may become superseded by events
after the reporting period. Management need to balance the relative merits of timely
reporting and the provision of reliable information. To provide information on a timely
basis it may often be necessary to report before all aspects of a transaction or other event are
known, thus impairing reliability. Conversely, if reporting is delayed until all aspects are
known, the information may be highly reliable but of little use to those who have had to make
decisions in the interim.
Balance between Benefit and Cost
The balance between benefit and cost is an important constraint. The benefits derived from
information should exceed the cost of providing it. The evaluation of benefits and costs is,
however, substantially a judgemental process. Furthermore, the costs do not necessarily fall
on those users who enjoy the benefits. There is also the case that benefits may also be
enjoyed by users other than those for whom the information is prepared. For these reasons, it
is difficult to apply a cost-benefit test in any particular case but preparers and users of
financial statements should be aware of this constraint.
Balance between Qualitative Characteristics
In practice, a trade-off between qualitative characteristics is often necessary. Generally, the
aim is to achieve an appropriate balance among the characteristics in order to meet the
objective of financial statements. The relative importance of the characteristics in different
cases is a matter of professional judgement.
(3 Marks)
c) The four principal qualitative characteristics as per the Framework are: Understandability,
Relevance, Reliability and Comparability
Understandability
Users must be able to understand financial statements. They are assumed to have a reasonable
knowledge of business and economic activities and accounting and a willingness to study
the information properly. Complex matters, if relevant for decision-making, should not be
left out of financial statements because they are difficult to understand.
Relevance
To be useful information must be relevant to the decision-making needs of users. Information
has the quality of relevance when it influences the economic decisions of users by helping
them evaluate past, present or future events or confirming or correcting their past
evaluations. The relevance of information is affected by its nature and materiality. In some
Page 36

cases, the nature of information alone is sufficient to determine its relevance. In other cases,
both the nature and materiality are important. Information is material if its omission or
misstatement could influence the economic decisions of users taken on the basis of the
financial statements.
Reliability
To be useful, information must also be reliable. Information has the quality of reliability
when it is free from material error and bias and can be depended upon by users to represent
faithfully that which it either purports to represent or could reasonably be expected to
represent. Information may be relevant but so unreliable in nature or representation that its
recognition may be potentially misleading. Key elements of reliability include:
(i) Faithful Representation
(ii) Substance over Form
(iii)Neutrality
(iv) Prudence
(v) Completeness
Comparability
Users must be able to compare the financial statements of an entity through time in order to
identify trends in its financial position and performance. Users must also be able to compare the
financial statements of different entities in order to evaluate their relative financial position,
performance and changes in financial position. Hence, the measurement and display of the
financial effect of like transactions and other events must be carried out in a consistent way
throughout an entity and over time for that entity and in a consistent way for different
entities. The need for comparability should not be confused with mere uniformity. It is
inappropriate for an entity to leave its accounting policies unchanged when more relevant and
reliable alternatives exist. It is important that the financial statements should corresponding
information for the preceding periods.
(14 Marks)
[Total: 20 Marks]

Page 37

SOLUTION 3
REPORT
To:

Managing Director DLLA Ltd.

From: Financial Accountant
Re:

IAS 18

Date: September 2011
a)
Per paragraph 20 of IAS 18, when the outcome of a transaction involving the
rendering of services and supply of goods can be estimated reliably, revenue associated with
the transaction shall be recognised by reference to the stage of completion of the transaction at
the end of the reporting period. The outcome of a transaction can be estimated reliably when all
of the following conditions are satisfied:
i)

The amount of revenue can be measured reliably;

ii)

It is probable that the economic benefits associated with the transaction will flow to
the entity;

iii)

The stage of completion of the transaction at the end of the reporting period can be
measured reliably;

and
iv)

The costs incurred for the transaction and the costs to complete the transaction can
be measured reliably.
(6 Marks)

b)
Per paragraph 9 of IAS 18, revenue shall be measured at the fair value of consideration
received or receivable
(2 Marks)
c)
i) This should not be recognised as revenue from a sale in the 2010 financial statements
as per paragraph 14 (a) of IAS 18, the significant risks and rewards of ownership of the goods
has not been transferred to the customer in Burundi as the goods are still in DLLA‟s
warehouse at the year-end. Therefore, the Rwf10,000,000 received should be included as a
Prepayment in Current Assets at the year-end and the goods should be included in Closing
Inventory at the year-end.
(3 Marks)
ii) This is a normal sale as it fulfils all the requirements of a sale of goods as per paragraph
14 of IAS 18; i.e. risks and rewards transferred, amount of revenue can be reliably measured,
costs incurred can be reliably measured, DLLA has no longer any managerial involvement
over the goods or does not control the goods sold and DLLA received the economic benefits of
the transaction i.e. received payment on the 20th January 2011. The accounting treatment is to:
Dr.

Trade Receivables – Current Assets - SOFP Rwf3,000,000

Cr.

Revenue – Income Statement -

Dr.

Inventory - Cost of Sales – Income Statement

Cr.

Inventory – Current Assets – SOFP

Rwf3,000,000
Rwf2,000,000
Rwf2,000,000
(3 Marks)
Page 38

iii)
This transaction, like c i) above, should not be recorded as revenue in the 2010
financial statements as the significant risks and rewards of ownership of the goods have not
been transferred to the customer in Zambia in that they can return the goods before the
31st March 2011 if they are not sold. Consequently, the goods remain in DLLA‟s
inventories until confirmation has been received from the customer in Zambia that they have
been sold on and any money received pre year-end is treated as a Prepayment in Current
Assets at the year-end.
(3 Marks)
iv)
As per Section 1 of Appendix to IAS 18, this is treated as a „Bill and Hold‟ Sale in
which delivery is delayed at the buyer‟s request but the buyer takes title and accepts billing.
Revenue is recognised when the buyer takes title, provided:
1)
It is probable the delivery will be made
2)
The item is on hand, identified and ready for delivery to the buyer at the time the sale is
recognised
3)
The buyer specifically acknowledges the deferred delivery instructions and
4)
The usual payment terms apply

Seeing as the above conditions have been satisfied in this case, the goods will be treated as
revenue in the financial statements for the 2010 year i.e.
Dr.
Trade Receivables – Current Assets - SOFP Rwf8,000,000
Cr.
Revenue –
Income Statement Rwf8,000,000
(3 Marks)
I hope that the above responses clarify and answer your queries. If you have any further
queries, please do not hesitate to contact me.
Yours sincerely,
Financial Accountant
[Total: 20 Marks]

Page 39

SOLUTION 4
The Golf Club - Bar trading account for the year ended 31st December 2012
Rwf „000
Rwf „000
Rwf „000
Sales
42,000
1.00
Less Cost of Sales
Opening inventory
7,000
+ Purchases
25,000
1.00
- Closing inventory
-5,000
27,000
1.00
Gross Profit
15,000
1.00
Expenses
Bar staff wages
10,000
Total expenses
10,000
1.00
5,000
1.00
The Golf Club - Income & Expenditure Account for the year ended 31st December
2012
Income
Subscriptions
87,000
1.00
Green fees
36,000
0.50
Profit on bar
5,000
1.00
Profit on sale of course equipment
1,100
1.00
Profit on Competition
4,200
1.00
Profit on events
5,000
1.00
Total Income
138,300
0.50
Expenditure
Wages & Salaries - Clubhouse
36,000
1.00
Course repairs
19,000
1.00
Insurance
6,750
1.00
Light & heat
6,000
1.00
Telephone
2,750
1.00
Sundry expenses
1,900
0.50
Depreciation
37,600
1.00
110,000
0.50
Excess if Income over Expenditure
28,300
1.00
Total marks
20.00
Purchases calculations
Bank bar payments

Balance C/D

Rwf „000
T Payables Bar Account
27,000 Balance B/D
Purchases Balancing figure
7,000
34,000
Balance B/D

Page 40

Rwf „000
9,000
25,000

34,000
7,000

Subscriptions calculation
Balance B/D
I&E a/c - Balancing figure
Balance prepaid C/D

Subscriptions account
2,000 Balance B/D
87,000 Bank receipt
4,500 Balancing C/D
owing
93,500

7,000
83,000
3,500
93,500

Competition calculations
Bank payments

Balance C/D

Competition account
1,600 Balance B/D
I&E a/c Balancing
figure
500
2,100

Profit on competitions
Competition receipts
Competition expenses
Profit on competitions

400
1,700

2,100

5,900
-1,700
4,200

Insurance calculations
Balance B/D
Bank payment re
insurance

Insurance account
4,500
9,000 I&E balancing figure
Balance C/D
13,500

6,750
6,750
13,500

Telephone calculation
Bank payments

Balance C/D

Telephone account
2,500 Balance B/D
500
I&E A/c balancing
2,750
figure
750
3,250
3,250
Balance B/D
750

Disposals calculation
Cost
Profit on Sale

Equip't Disposal Account
7,000 Accumulated dep'n
5,600
Sale proceeds
2,500
1,100
8,100
8,100

Page 41

Depreciation Calculation
Fixtures & fittings - 10% cost
Course Equip't - 20% of cost
- Disposal

70,000
160,000
7,000
153,000

Total Dep'n for year

Page 42

x 10%

7,000

x 20%

30,600
37,600

SOLUTION 5
a)
(Values in Rwf millions except for P/E ratio)
2010
Gross Profit percentage
6,708/23,200=28.91%

2009
4,508/15,960=28.25%

Net profit percentage

4,296/23,200=18.52

2,450/15,960=15.35%

Quick ratio

(5,668-2,784)/3,650=0.79:1

(3,460-1,860)/2,552=0.63:1

Trade Receivable – days

2,084/23,200*365=33 days

1,000/15,960*365=23 Days

Trade Payable – days

1,600/16,492*365=35 days

1,368/11452*365=44 days

Interest cover

5,480/752=7.29 times

3,706/772=4.80 times

Earnings per share

Rwf4,296m/40m=107.4

Rwf2,450m/40m=61.25

Price earnings ratio

Rwf2,500/107.4=23.28

Rwf800/61.25=13.06

Re:

Commentary on Company‟s Position and Performance

Date: September 2011
Gross Profit Percentage
The Gross Profit percentage has increased from 28.25% to 28.91%, an increase of over 2.34%
on the percentages year on year which is a positive trend for the company. This is also
positive for the fact that the company revenue increased by over 45%. An increase of this
magnitude presents a challenge for a company and this company has in the main responded
positively to this challenge. The increase resulted from the fact that revenue increased faster
than Cost of Sales (44%). However, this increase in Cost of Sales (Noye 1) is masked to a
degree by the increase in Closing Inventory. If we look at Purchases, these have increased
from Rwf11.312 million to Rwf17.416 million which is an increase of 53.96%. This
increase is greater than the increase in Revenue and from the Company‟s point of view, we
must hope that this increase is due to ordering Inventory close to year-end to meet further
demand for its products rather than poor ordering or purchasing at a poor price. If it is the
latter, then this could easily affect the 2011 results unless price increases can be passed on.
Note 1
Rwf m
Opening Inventory
Purchases (Balancing Figure)
Closing Inventory
Cost of Sales

2010
1,860
17,416
2,784

2009
2,000
11,312
1,860

16,492

11,452

% Increase
-7.00%
53.96%
49.68%

Net Profit Percentage
The Net Profit % has increased from 15.35% to 18.52% which is an increase of nearly
21% year on year on the percentages. This is an extremely good performance. The main
reason for the increase is due to the increase in Revenue which has meant that the Gross Profit
has increased from Rwf4.508 million to Rwf6.708 million an increase of Rwf2.2
million. This increase has been enhanced by the decrease in taxation and interest for the year.
However, the increase has been offset to a degree by the increase in Admin Expenses of

Page 43

Rwf368m which is an increase of just over 73%. This increase is high so the company will
need to watch this cost going forward.
Quick Ratio
This ratio has increased from 0.63:1 to 0.79:1 this year which is an improvement of over 25%
year on year percentage wise. The main reason for the increase is the fact that Current Assets
minus Inventory increased by over 80% driven by mainly by the increase in Trade Receivables
over 108% year on year. Current Liabilities increased by only just over 43% driven mainly
by the huge increase in the Bank Overdraft. This was a good result overall as the company
have increased their revenue significantly which can put some strain on working capital.
Yet the quick ratio has increased this year and the company have also purchased some extra
Non-Current Assets and paid off a significant amount of Non-Current Debt (decreased by
over 28%). Some of this decrease in debt may have been funded through the Bank
Overdraft so R.A.H. Limited should ensure that their source of funding is appropriate from a
time point of view. R.A.H. Limited should reduce some of their cash and cash equivalents in
Current Assets in order to reduce the Bank Overdraft and ultimately save on bank interest
costs.
Trade Receivable Days
This has increased from 23 to 33 days, an increase of over 43% year on year which is not a
great result. Revenue has increased by over 45% but R.A.H. Limited should have tried to
ensure that there was no deterioration in Trade Receivables Days. The company need to try
and ensure that the increase in Revenue is not being fuelled by having customers who are
demanding longer credit before they would purchase goods from R.A.H.. Another possible
reason could be that the credit department were not efficient in collecting debts. However, given
the increase in Administrative Expenses, one would expect that this is a department which
was adequately staffed to cope with the increased workload in collecting debts from having
more revenue and therefore, there has to be more focus on managing their Trade Receivables
in the coming year.
Trade Payable Days
This decreased from 44 days to 35 days which is a deterioration of over 20%. This is not a
good result given the fact that the company should be aiming for closer to 45-60 days. The
increase in purchases probably ensured that some of the supplier company‟s set limits on the
amount of Inventory they would sell before getting paid and therefore, this meant that the trade
payable days decreased. If we compare to 2009, the difference between when money was
received in from Trade Receivables and paid out to Trade Payables has decreased from 21 days
to 2 days which has obviously put pressure on the cash flow of the company and probably has
contributed to the increase in the Bank Overdraft.
Earnings per Share
This has increased from Rwf 61.25 per share to Rwf107.4 per share, which is an increase of
75.3%. This is a positive trend and is driven by the increase in profit which the company has
gained in 2010. Given that the dividend has stayed the same, the company appears to be
keeping as much of the profit within the company to fuel current and future growth.
Price Earnings Ratio
This ratio has increased from 13.06 to 23.28, an increase of over 78% year on year. This
increase is primarily due to the increase in the share price which has increased by nearly
212.5% year on year. As we saw in previous section, the earnings per share increased by a
sizeable percentage this year but the share price really changed during the course of the year.
Page 44

A P/E ratio of over 23 is on the upper scale when compared to the average P/E ratio for
companies and obviously investors are seeing this company as a „buy‟ which primarily must be
due to the sales and profit growth from 2009 to 2010.
Conclusion
Overall, the results and trends for R.A.H. Limited are positive when comparing 2010 to 2009
particularly in relation to the increase in sales and profit. The share price has increased
markedly in the year as investors took note of the increased performance of the company. This
significant increase in sales has obviously put increased pressure on the working capital of the
company and this is an area where management must focus so as to ensure that the company
continues to grow in a planned and managed way and that the company has the necessary
finance in place to ensure this growth occurs.
I hope that the above responses are of benefit to your company and the management of same. If
you have any further queries, please do not hesitate to contact me.
Yours sincerely,
Financial Accountant
(10 Marks)
Format and Presentation (2 Marks)
[Total: 20 Marks]

Page 45

SOLUTION 6
a)
Advantages of International Harmonisation
(5 Marks)
i) Investors have greater comparability of financial statements which enables easier
investment decisions.
This is important in the context of global investing which has become more significant in the
last 10 years or so;
ii) Governments will have reduced funding requirements as they will not have to develop
accounting standards for their own country;
iii) Accounting firms with international practices will find it easier to deal with staff
resourcing in countries experiencing boom or recessionary times due to common accounting
standards allowing staff transferability between countries with no major impact on services
delivered;
iv) Companies
• Management control of foreign subsidiaries will be easier;
• Consolidation of financial statements will be easier as the as the different
subsidiaries operate under the same standards;
• Easier to comply with stock exchange reporting requirements;
• Investment more likely as investors will have greater knowledge and reliance on the
financial statements.
Obstacles to International Harmonisation

(5 Marks)

i) Different purposes of financial statements i.e. IFRS‟s aimed at investment decision making
whereas many countries use financial statements for tax purposes;
ii) Nationalism – possible unwillingness to accept another country‟s standards;
iii) Different legal systems whereby some countries require certain accounting practices and
policies and other countries do not;
iv) Different users of financial statements. Countries vary in the importance they place on
users groups
v) Lack of strong accountancy bodies. Many accountancy bodies in various countries are not
independent or strong enough to press for harmonisation of accounting standards in their
jurisdiction;
vi) Language and cultural differences. Both of these can cause difficulties in the adoption of
standards accounting standards.
[Total: 10 Marks]

Page 46

b) GTM Limited statement of Comprehensive Income for the year-ended 31st December
2010
Rwf
„000
Revenue
- Revenue Returns
Less Cost of Sales
Opening Inventory

Rwf
„000
931,000

0.25
0.25

50,000

+ Purchases
- Office Equipment
- Purchases Returns
+ Carriage Inwards
- Closing Inventory
Cost of Sales Total
Gross Profit
Bad Debt Recovered
Insurance
Light & Heat
Marketing
Motor Expenses
Rates
Rent
Repairs & Maintenance
Wages & Salaries
Loss on Sale of Office
Equipment
Increase in Provision for Bad
Debts
Depreciation - Buildings
Depreciation - Office
Equipment
Depreciation - Fixtures &
Fittings
Debenture Interest
Profit/(Loss) before Tax
Income Tax Expense
PROFIT/(LOSS)
FORTHEYEAR
Other Comprehensive Income
Gains on property revaluation
Total comprehensive Income

Rwf
„000
950,000
-19,000

Cost of
Sales

450,000
W2

-10,000
-10,000

W1.1

430,000
20,000
-49,500

W1.viii
W1.viii

1,000

750

W1.viii

W2

1.50

450,500
480,500
-2,000
23,000
1,750
24,000
5,100
14,000
12,000
7,900
73,500

Expenses
2.50

8,000

W1.ix

800

W2

16,000

W2

14,000

W2

12,000

W1.xii

0.25

1,500

W1.iv

6,500

8,000
262,450
-25,000
237,450
0
237,450

Page 47

0.25

Gortamwe Limited Statement of Financial Position as at 31st December 2010

Rwf
„000

Non-Current Assets
Property, Plant & Equipment
Intangible Assets
Total Non-Current Assets
Current Assets
Inventories
Trade Receivables
Cash & Cash Equivalents
Total Current Assets
TOTAL ASSETS
Equity & Liabilities
Equity
Share Capital
Share Premium
Other Reserves

W2

W1.i
W1.ix

W1.xi
W1.xi

Retained Earnings
Revaluation Surplus
Total Equity
Non-Current Liabilities
Debentures - 4%
Bank Loan
Total Non-Current Liabilities
Current Liabilities
Trade Payables
Corporation Tax
Accruals
Bank Overdraft
Total Current Liabilities
TOTAL EQUITY &
LIABILITIES

Rwf
„000

100,000
5,000

5,000
10,000

150,000

237,45
0

W4
W5
W3

Rwf
„000
1,171,000
80,000
1,251,000

0.25
0.25

49,500
75,200
0
124,700
1,375,700

0.25
0.25
0.25

105,000
15,000
43,000

0.25
0.25
0.25

387,450

0.75

20,000
570,450

0.25

200,000
455,000
655,000

0.25
0.25

48,500
17,000
8,750
76,000
150,250

0.25
0.25
0.25
0.25

1,375,700

0.25

0.25

Total Marks 10

Page 48

Note: All currency values are Rwf ‘000
Working - Journal Entries
Working - Closing Inventory
Total Inventories at Cost per inventory Count
Damaged inventories at cost
NRV Selling price less costs to sell (12m-2.5m)

55,000
15,000
-9,500
5,500
49,500

Inventory write-down
1.i

Cr. Closing Inventory

+ Current
Assets
- cost of sales

Dr. Corporation Tax

+ Expenses

Cr. Corporation trax due

= Current
liabilities

SOFP

1.v Dr. Corporation tax due

- current
liabilities
+ Current
liabilities

SOFP

1.i
v

Dr. Inventory

Cr. Bank Overdraft

1.
vi

1.viii

1.ix

49,500

IS
IS

3.00
49,500

25,000

1.00
25,000

13,000

SOFP

1.00
13,000

Motor Expense Account
Bank Payment
Balance C/d

1.vii

SOFP

5,600 Balance B/d
1,500 Expense I/S Balancing
figure
7,100

Dr. Motor
Expenses
Cr. Light & heat
Cr. Accruals

+expenses
+ expenses
+ Current liabilities

IS
SOFP

750

Dr. Bank
Cr. Bad debt
recovered

- current liabilities
= Income

SOFP
IS

2,000

Dr. Bad debt
provision
Cr. Trade
receivables

+ Expenses
- Current assets

IS

IS
SOFP

Page 49

2,000
5,100
7,100

1,500

1.00

2,250
1.00
2,000

800

2.00
800

2.00

Trade receivables
- Bad debt
provision = 6%
Revised Trade
Receivable

Balance per TTB
W1.4

75,200

Current bad debt
provision
New Bad debt
provision
Increase in Bad
debt provision
1.xi

1.xii

Dr. Suspense
Cr. Share capital
Cr. Share
premium

80,000
-4,800

TB

4,000
see above

4,800
800

15,000
+ share capital
+ share premium

SOFP
SOFP

Dr. Debenture
+ expenses
interest
Cr. Debenture
= Current liabilities
interest due
Debentures
Interest for year
@ 4%
Debenture interest paid and included in
TB
Balance due

IS

5,000 1.00
10,000

6,500

SOFP

Page 50

1.00
6,500

200,000
8,000
1,500
6,500

Working 2
Property Plant & Equipment
Land
Buildings

Cost
Accumulated
Depreciation b/d
Net book value b/d at
1st Jan 2010
Disposal
- cost

Rwf „000
450,000

Office
Fixtures &
Equipment
Fittings
Rwf „000
Rwf „000
Rwf „000
800,000
150,000
75,000
-200,000
-45,000
-15,000

450,000

600,000

Note
1
Note
1

- Accumulated
depreciation at 1.10.10
Additions
Carrying value
Depreciation
- Buildings - 2% of
cost
- Office equipment Note
10% of cost
2
- Fixtures & fittings - 20%
reducing balance
Net book value b/d at
31st Dec 2010

450,000

600,000

60,000

0.5

-20,000

-20,000

0.5

8,000

8,000

0.5

10,000
103,000

10,000
1,213,000

1

-16,000

0.5

-14,000

0.5

-12,000

-12,000

0.5

48,000

1,171,000

1.0

60,000

-14,000

450,000

584,000

Rwf „000
1,475,000
-260,000
1,215,000

-16,000

Note 1
Cost
Accumulated dep'n - 10% on cost
Dep'n 01.01.06 - 31.12.06
Dep'n 01.01.07 - 31.12.07
Dep'n 01.01.07 - 31.12.08
Dep'n 01.01.07 - 31.12.09

89,000

20,000
2,000
2,000
2,000
2,000
8,000

NBV of office equipment
disposed

Cost

105,000

Total

Disposal Account
20000 Accumulated Dep'n
Disposal proceeds
Loss on disposal
20000

Page 51

8000
4000
8000
20000

-8,000
12,000

1.0

Note 2 Depreciation Office
Equipment
Cost (150,000 - Disposal 20,000)
Addition
Depreciation for year
W3 Bank overdraft
Per TB
Corporation Tax Payment
Bad debt recovered
Closing Balance
W4 - Corporation Tax Liability
Balance TB
Corporation Tax Bill 2010
Corporation Tax Payment
Closing Balance
W5 - Accruals
Motor Expenses
Light & heat
Debenture interest

Amount
130,000
10,000

W1.v
W1.vii

65,000
13,000
-2,000
76,000

W1.iv
W1.v

5,000
25,000
-13,000
17,000

W1.vii
W1.vii
W1.xii

Dep'n rate
10%
10%

Depreciation
13,000
1,000
14,000

1,500
750
6,500
8,750
(7 Marks)

Page 52

Debit
Rwf „000
Accruals
Bank
Bank Loan – Long-Term
Buildings
Buildings Accumulated
Depreciation at 31.12.2009
Carriage Inwards
Corporation Tax
Debentures 4%
Debenture Interest
Fixtures & Fittings
Fixtures & Fittings
Accumulated Depreciation
at 31.12.2009
Insurance
Intangible Assets
Land
Light & Heat
Marketing
Motor Expenses
Office Equipment
Office Equipment
Accumulated Depreciation
at 31.12.2009
Opening Inventory
Other Reserves
Proceeds from Sales of
Office Equipment

Credit
Rwf „000
2,000
65,000
455,000

Adjustments
Debit
Credit
Rwf
Rwf
„000
„000
2,000
8,750
2,000 13,000

Income Statement
Debit
Credit
Rwf „000
Rwf „000

800,000
200,000

16,000

20,000

216,000

20,000
25,000

5,000 13,000
200,000
6,500

17,000
200,000

8,000
75,000

15,000

23,000
80,000
450,000
1,000
24,000
5,600
150,000

Credit
Rwf „000
8,750
76,000
455,000

800,000

1,500
75,000

SOFP
Debit
Rwf „000

12,000

27,000

23,000
80,000
450,000
750
1,500
10,000
45,000 8,000

2,000
20,000

1,750
24,000
5,100
140,000
14,000

50,000

50,000
43,000
4,000 20,000

51,000

49,500

49,500
43,000

8,000

Page 53

8,000

Provision for Bad Debts
Purchases
Rates
Rent
Repairs & Maintenance
Retained Earnings
Revaluation Surplus
Revenue
Revenue Return/Purchases
Returns
Share Capital – 100,000
shares at € 1 each
Share Premium
Suspense
Trade Receivable/Trade
Payable
Wages & Salaries
Bad Debts Recovered

4,000
450,000
14,000
12,000
7,900

19,000

10,000

150,000
20,000
950,000
10,000
100,000

80,000

5,000
15,000 15,000
48,500

19,000

4,800

387,450
20,000
950,000
10,000

5,000

105,000

10,000

15,000

73,500
2,336,500

800
440,000
14,000
12,000
7,900
237,450

80,000

48,500

1,674,500

1,674,500

73,500
2,336,500 78,750

2,000
78,750

Page 54

1,011,500

2,000
1,011,500

SOLUTION 7
REPORT
To: Managing Director
From: Financial Accountant
Re: IAS 38
Date: April 2011
(a)
1)
The measurement of a separately acquired intangible assets shall at Cost i.e. at
Rwf80 million as per paragraph 25 of IAS 38.
(2 Marks)
2)
Internally generated goodwill of Rwf50 million shall not be recognised as an asset
as per paragraph 48 of IAS 38 and shall be expensed instead to the Income Statement.
(2 Marks)
3)
Per paragraph 44 of IAS 38, Zacnet Limited has a choice of two methods in dealing
with the accounting treatment of the broadband licence i.e.
a)
Recognise the intangible asset at the fair value of Rwf350 m and the government
“grant” is shown as Rwf250m in deferred income or;
b)
Recognise the asset initially at the nominal amount (Rwf1 m) plus any expenditure
that is directly
(4)
attributable to preparing the asset for its intended use (Rwf99 m).
(2 Marks)
(5)
The Rwf72 m spent on researching the enhanced broadband signal product shall be
expensed to the Income Statement as per paragraph 54 of IAS 38
(2 Marks)
b) As per paragraph 57 of IAS 38, an intangible asset arising from the development phase
of an internal project shall be recognised if, and only if, Zacnet can demonstrate ALL of
the following:
1. The technical feasibility of completing the intangible asset so that it will be available
for use or sale
2. Its intention to complete the intangible asset and use or sell it
3. Its ability to use or sell the intangible asset
4. How the intangible asset will generate probable future economic benefits
5. The availability of adequate technical, financial and other resources to complete the
development and to use or sell the intangible asset
6. Its ability to measure reliably the expenditure attributable to the intangible asset during
its development
If one or more of the above conditions are not satisfied, then any amount spent should be
expensed
to
the
Income
Statement
(7 Marks)
(c)
(i) Per paragraph 64 of IAS 38, expenditure on company logo cannot be distinguished from
the cost of developing the business as a whole and therefore, is not recognised as an
intangible asset. Therefore, the Rwf35m should not be included in intangible assets and
should not be amortised and instead should be expensed in full to the Income Statement.
Page 55

(2 Marks)
(ii) The Actual Profit for the year is as follows:
Rwf m
Proposed Net Profit

1,452

Company Logo Expenditure

(35)

Actual Net Profit

1,417
(3 Marks)

Yours sincerely,
Financial Accountant.
[Total: 20 Marks]

Page 56

SOLUTION 8
(a) The cost of an item of Property, Plant & Equipment (PPE) comprises:
(i) Its purchase price, including import duties and non-refundable purchase taxes, after
deducting trade discounts and rebates;
(ii) Any costs directly attributable to bringing the asset to the location and condition necessary
for it to be capable of operating in the manner intended by management;
(iii) The initial estimate of the costs of dismantling and removing the item and restoring the
site on which it is located, the obligation for which an entity incurs either when the item is
acquired or as a consequence of having used the item during a particular period for purposes
other than to produce inventories during that period.
(4 Marks)
(b) Any three (3) of the following
(i) Depreciation is the systematic allocation of the depreciable amount of an asset over its
useful life;
(ii) Carrying Value is the amount at which an asset is recognised after deducting any
accumulated depreciation and accumulated impairment losses;
(iii) Fair Value is the amount for which an asset could be exchanged between knowledgeable,
willing parties in an arm‟s length transaction;
iv) An Impairment Loss is the amount by which the carrying amount of an asset exceeds its
recoverable amount;
(v) The Residual Value of an asset is the estimated amount that an entity would currently
obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset
were already of the age and in the condition expected at the end of its useful life.
(4 Marks)
(c) An organisation can choose either the cost model or the revaluation model for
measurement of PPE after initial recognition and this model is then applied to an entire class
of PPE
The cost model means that an item of PPE shall be carried at its cost less any accumulated
depreciation and any accumulated impairment losses.
(1 Mark)
The revaluation model means that an item of PPE whose fair value can be measured reliably
shall be carried at a revalued amount, being its fair value at the date of the revaluation less any
subsequent accumulated depreciation and subsequent accumulated impairment losses.
Revaluations shall be made with sufficient regularity to ensure that the carrying amount does
not differ materially from the fair value at the end of the reporting period.
(1 Mark)

Page 57

(d) 2009 Financial Year
Rwf m
Rwf m
Dr. PPE – SOFP
100
Cr. Revaluation Surplus – Other Comprehensive Income
100
[400-300]

(2 marks)

2010 Financial Year
Dr. Revaluation Surplus – Other Comprehensive Income
[250-400]
Dr. Profit or Loss – Statement of Comprehensive Income
Cr. PPE – SOFP

Rwf
100

Rwf

50
150
(3 marks)

e) The asset before revaluation was being depreciated at the rate of 5% per annum which
therefore indicates that the useful life of the building is 20 years i.e. 100%/5% = 20. The
asset was purchased on the 1st January 2005 so there is 5 years of the useful life completed
up to the 1st January 2010. Therefore, the remaining useful life is 15 years. The formula to
use to calculate the depreciation for the year-ended 31st December 2010 is as follows:
Revalued Amount – Residual Value / Remaining Useful Life
(Rwf800 m – Rwf200 m)/15 = Rwf600 m/15 = Rwf40 m = Annual Depreciation going
Forward
(5 Marks)
[Total: 20 Marks]

Page 58

SOLUTION 9
a) Mr Michael Nolan – Opening Statement of Financial Position as at 1st January
2010
Rwf '000
Non-Current Assets
PPE
Total Non-Current Assets
Current Assets
Inventory
Trade Receivables
Cash & Cash Equivalents
Prepayment
Total Current Assets
Total Assets
Equity & Liabilities
Capital & Reserves
Capital - Balancing Figure
Total Capital & Reserves
Non-Current Liabilities
Bank Loan
Total Non-Current
Liabilities
Current Liabilities
Trade Payable
Accrued Wages
Total Current Liabilities

(100m - 40m +
816m - 4m)

Rwf '000

Rwf '000

72,000
72,000

0.50

40,000
4,800
12,400
800
58,000
A

130,000

105,600
C

0.50
0.25
0.50
0.25
0.50
0.50

1.00
105,600

12,000
Li

0.50
12,000

11,200
1,200
Lii

0.25
0.25
12,400

Total Equity & Liabilities

130,000

A = C + Li+Lii
130,000,000 = C + 24,400,000
130,000,000 - 24,400,000= C
C = 105,600,000
(5 Marks)

Page 59

Balance B/D

Bank Receipts from Credit Sales Calculation
T. Receivables
Rwf „000
4,800 Bank Receipt

Credit Sales - Balancing Figure
Balance B/D

Balance B/D

4,000 1.00
35,600

Bank Receipts from Cash Sales Calculation
Cash Account
Rwf „000
Rwf „000
1,200 Drawings
2,400

Cash Sales - Balancing Figure

Balance B/D

30,800 Balance C/D
35,600
4,000

Rwf „000
31,600

2,800 Balance
C/D
4,000
1,600

1,600

Rwf
„000
30,800
2,800
33,600

Rwf „000

Sales

Credit Sales
Cash Sales
Total Sales
Cost of Sales Calculation
Gross Profit is 25% of Sales
Therefore,
Sales
100%
- Cost of Sales
75%
Gross Profit
25%
Cost of Sales are 75% of Sales i.e. 75% x
Rwf33,600,000
Goods Stolen Calculation
Sales occur evenly throughout the year
Total Sales
Sales for 7 Months i.e. Rwf33,600,000 x 7 / 12
Cost of Sales is 75% of Sales i.e. €19,600,000 * 75%
Opening Inventory
+ Purchases - See Trade Payable T-Account Below
- Closing Inventory
= Cost of Sales
Therefore,
Theoretical Cost of Sales
Actual Cost of Sales after burglary
Cost of Goods Stolen

Page 60

1.00

4,000

1.00

33,600

25,200

33,600
19,600
14,700
40,000
8,000
-36,000
12,000
0
14,700
12,000
2,700

1.00

1.00
1.00

1.00
1.00
1.00

Purchases Calculation in relation to Goods Stolen
T. Payables Account
Rwf „000
Bank Payments

8,800 Balance B/D
Purchases - Balancing
Figure
10,400
19,200

Balance C/D

Balance B/D

Rwf
„000
11,200
8,000

1

19,200
10,400

Double Entries for Stolen and Damaged
Inventory
Rwf „000
Goods Stolen
Expenses
2,700
Cost of Sales
Being costs of stolen inventory
Insurance
1,200
Cost of Sales
Being cost of damaged inventory
scrapped
Calculation of Closing Inventory
Cost of Sales is 75% of Sales i.e. €168,000 x 75%
Opening Inventory
+ Purchases
- Inventory Stolen in Burglary
- Inventory Damaged and Scrapped
- Closing Inventory(Balancing
Figure)
= Cost of Sales
Closing Invenotry + €309,000 = €126,000
Closing Inventory = €126,000 €309,000
Closing Inventory = €183,000
Double Check
Opening Inventory
+ Purchases
- Inventory Stolen in Burglary
- Inventory Damaged and Scrapped
- Closing Inventory
= Cost of Sales

Rwf
„000

2,700

1

1,200

1

25,200
40,000
25,700
-2,700
-1,200
x
25,200

40,000
25,700
-2,700
-1,200
-36,600
25,200

Page 61

2

Mr. Michael Nolan Statement of Comprehensive Income for the year-ended 31st December
2010
Rwf „000
Revenue
Cost of Sales
Opening Inventory
+ Purchases
- Inventory Stolen in Burglary
- Inventory Damaged and Scrapped

40,000
25,700
-2,700
-1,200

- Closing Inventory
Cost of Sales Total
Gross Profit

Rwf „000

Rwf
„000
33,600

65,700
-3,900
61,800
-36,600
25,200
8,400

1

(15 Marks)

[Total: 20 Marks]

Page 62

SOLUTION 10
BLM Limited Statement of Cash flows for the year ended 31st
December 2010
Cash flows from Operating Activities
Profit before Taxation
Adjustments for
Depreciation
Loss on Sale of PPE
Interest Expense
Investment Income

Rwf m
2,377

1.00

2,150
250
450
-357
4,870
-2,020
300
-710
2,440
-450
-147

Increase in Trade Receivables
Decrease in Inventory
Decrease in Trade Payables
Cash Generated from Operations
Interest Paid
Income Taxes Paid
Net Cash from Operating Activities
Cash flows from Investing Activities
Purchase of Property, Plant & Equipment
Sale of Property, Plant & Equipment
Development Expenditure
Investment Income Received
Net Cash used in Investing Activities

1.00
1.00
0.50
0.50
1.00
1.00
1.00

1,843

1.00
1.00
1.00

15,103

2.00
1.00
1.00
1.00
0.50

19,950

1.00
1.00
1.00
0.50

-12,900
1,800
-4,160
157

Cash flows from Financing Activities
Proceeds from Issue of Shares
Proceeds from Increase of Bank Loans
Dividends Paid
Net Increase in Cash & Cash Equivalents
Cash & Cash Equivalents at beginning of
Year
Cash & Cash Equivalents at end of Year

Rwf m

13,600
6,400
-50
6,690
Note 1
Note 1

Note 1

-4,560
2,130
2010
Rwf'000
2,130
2,130

Cash on hand and balances with bank
Bank Overdraft
Cash and Cash Equivalents

1.00

2009
Rwf'0
00
-4,560
-4,560

[Total: 20 Marks]

Page 63



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