SUGGESTED SOLUTION

B2 – FINANCIAL REPORTING
MAY 2022

ANSWER 1
a) Suspense account
DR CR
TZS TZS
Sales Return 2,700,000 Trial Balance 7,650,000
Purchases Return 2,700,000
Electricity bill accrued 2,250,000
7,650,000 7,650,000

b) INAK Statement of Profit or Loss for the Year Ended 31st December 2021

Statement of Profit or Loss

INAK INCOME STATEMENT FOR YEAR ENDED 31ST DECEMBER, 2021

TZS TZS
Sales 3,298,500,000
Less Sales Returns (6,500,000 – 2,700,000) 3,800,000
Net sales 3,294,700,000
Less cost of goods sold
Opening Stock 172,500,000
Add Purchases 825,000,000
Less Purchases return (7,875,000 + 2,700,000) (10,575,000)
Less closing stock (226,725,000)
Cost of sales 760,200,000
Gross Profit 2,534,500,000
Other Income
Interest received 12,000,000
Discount received 13,975,000 25,975,000
2,560,475,000
Less Expenses
Discount allowed (18,875,000 – 1,375,000) 17,500,000
Salaries and Wages 515,000,000
Electricity (25,000,000 – 2,250,000) 22,750,000
General expenses 58,500,000
Total operating expenses 613,750,000
Net Profit for the year 1,946,725,000

Questions and Answers May 2022 Page 209 of 400

c) INAK Statement of Financial Position as at 31st December 2021

INAK STATEMENT OF FINANCIAL POSITION AS AT 31ST DECEMBER

2021
TZS TZS
Non – Current Assets
Equipment 87,500,000
Premises 1,750,000,000
Motor Vehicle 125,000,000
Total Non-current Asset 1,962,500,000
Current Assets
Inventory 226,725,000
Trade Receivables (353,125,000 + 1,375,000 + 348,750,000
10,000,000 – 15,750,000)
Bank (342,750,000+12,000,000-10,000,000) 344,750,000
Total current Asset 920,225,000
Total assets 2,882,725,000
Equity and Liabilities
Equity
Capital 625,000,000
Add Net Profit 1,946,725,000
Less Drawings 75,000,000
Total Equity 2,496,725,000
Liabilities
Trade Payable (401,750,000 – 15,750,000) 386,000,000
Total Equity and Liabilities 2,882,725,000

Questions and Answers May 2022 Page 210 of 400

ANSWER 2
(a) Retained earnings have decreased by TZS 55,000,000 but a dividend of TZS
100,000,000 has been paid, so profit after tax must have been TZS 45,000,000. The tax
charge for the year is TZS 9,000,000, so profit before tax must have been TZS
54,000,000.

(b) Uberi Ltd statement of Cash flows per the year ended 31st December, 2021
TZS TZS
Mil. Mil.
Cash flows from operating activities
Profit before Interest & Tax (54+8) 62
Depreciation 58
Loss on disposal of equipment 2
Loss on disposal of investments 4
Increase in allowance for doubtful debts 22
Dividends received (5)
Increase in inventories (TZS 289,000 – TZS 176,000) (113)
Increase in trade receivables (TZS 231,000 – TZS 106,000) (125)
Increase in prepayments (TZS 13,000 – TZS 12,00) (1)
Increase in trade payables (TZS 60,000 – 55,000) 5
Increase in accruals (TZS 9,000 – TZS 8,000) 1
Cash generated from operations 90
Interest paid (8)
Taxation paid (47) (55)
Net cash outflow from operating activities (145)
Cash flows from investing activities
Acquisition of property, plant and equipment (50)
Disposal of property, plant and equipment 10
Disposal of long – term investments 21
Dividends received 5
Net cash outflow from investing activities (14)

Cash flow from financing activities

Proceeds of share issue 80
Proceeds of debenture issue 30
Dividends paid (100)
Net cash inflow from financing activities 10
Net decrease in cash and cash equivalents (149)
Cash and cash equvalents at 1 August 2019 109
Cash and cash equivalents at 31 July 2020 (40)

Workings
The cost of PPE has increased by TZS 40,000,000, but PPE with a cost of TZS
30,000,000 has been disposed of during the year. Therefore, PPE must have been
acquired at a cost of TZS 70,000,000. Of this, TZS 20,000,000 is still owing at the end
of the year, so only TZS 50,000,000 has been spent during the year. Accumulated
depreciation has increased by TZS 40,000,000, but accumulated depreciation on
equipment sold during the year was TZS 18,000,000 (60% of TZS 30,000,000) so the
Questions and Answers May 2022 Page 211 of 400
 depreciation charge for the year must have been TZS 58,000,000. The loss on disposal
of equipment was TZS 2,000,000 (TZS 30,000,000 – TZS 18,000,000 – TZS
10,000,000).

(c)
1 August Charge 31 July
2019 in year 2020
TZS Mil. TZS. Mil. TZS. Mil.
Cash at bank and in hand 59 (59) -
Cash equivalent 50 (50) -
Bank overdraft - (40) (40)
109 (149) (40)

(d) The company’s cash position has deteriorated during the year, despite selling investments
and raising TZS 110,000,000 of new finance. The main problem seems to be that
operating activities generated a cash outflow rather than a cash inflow, and this made it
difficult for the company to find the cash required to pay dividends and to replace non-
current assets.

The cash outflow from operating activities was caused principally by large increases in
inventories and trade receivables. It may be that the company has been trying to make
itself more attractive to customers by holding greater inventories and offering longer
credit, but this policy has had the inevitable effect on the company’s cash position. The
large proportionate increase in the allowance for doubtful debts suggests that less
rigorous credit control might not be entirely advisable. Without access to recent financial
statement, it is difficult to be sure whether the company has become more or less
profitable in the year to 31st July 2020, but the massive reduction in the taxation liability
may indicate that profits have fallen. In summary, the company seems to have had a bad
year, from both the cash and profits point of view. However, further information would
be required before a full analysis of the situation could be carried out.

ANSWER 3

Farm and Plot Ltd (FAP Ltd)

(a) Consolidated So PL and OCI (TZS 000)
Farm Group
Sales (w12) 2,714,500,000
Cost of Sales (w13) 1,174,895,000
Gross Profit 1,539,605,000
Operating Expenses (w14) 773,847,375
Impairment of goodwill (w2) 5,800,000
Interest (w16) 15,000,000
Profit before tax 744,957,625
Tax 195,856,000
Profit for the year 549,101,625
Attributable to:
Owners of the parent (bal) 517,684,425
Questions and Answers May 2022 Page 212 of 400
 None controlling interest (w17) 31,417,200
Other comprehensive Income 9,820,300
Attributable to:
Owner of the parent (bal) 6,847,210
Non-controlling interest (.3*9,820.3) 2,946,090

(b) FAP Ltd

Consolidated statement of financial position (TZS 000)

Noncurrent assets Farm Group

land and Buildings (W10) 1,480,000
Other Tangible Assets 458,875
Bonds (W6C) 46,000
Investment in Plot -
Goodwill (w2) 23,200
Currents assets
Trade receivables (w11a) 247,000
Interest and dividend receivable (w11b) 17,040
Inventory (w11c) 270,900
Cash 135,485
TOTAL ASSETS 2,678,500
EQUITY AND LIABILITIES
TZS 400 Ordinary shares 1,360,000
Retained Earnings (w8) 381,140
General Reserve (w18) 11,120
TZS 5,500 15% Preference shares 40,000
1,792,260
Non-controlling Interest (w9) 235,325
2,027,585
Non-current liabilities
10% Loan (w6a) 160,000
5% Bond -
Current liabilities
Tax payable 47,475
Trade payables (w3a) 286,000
Interest and Dividend payable (w3b) 157,440
2,678,500

W1: Goodwill computation

Cost of Investment 450,000,000
Less:
70% Ordinary share 364,000,000
70% R/E at acquisition 21,000,000
40% preference shares 26,400,000
70% share of FV change 14,000,000

Questions and Answers May 2022 Page 213 of 400

 Goodwill attributable to CI 24,600,000
FV of NCI at acquisition 215,000,000
Less:
30% Ordinary share 156,000,000
30% R/E at acquisition 9,000,000
60% preference shares 39,600,000
30% share of FV charge 6,000,000
Goodwill attributable to NCI 4,400,000
Total Goodwill 29,000,000

W2: Impairment of goodwill

Balance in book (w1) 29,000,000
Impaired portion of goodwill to write 5,800,000
off
Unimpaired portion of the goodwill 23,200,000
Impaired portion to be shared in this
way:
Shareholders of Farm (.7*5800) 4,060,000
NCI in Plot (.3*5800) 1,740,000

W3: Intragroup payables

W3a: Trade payable

Balance in Farm 239,000,000
Add Balance in Plot 107,000,000
Less amount owing to Farm to Plot 60,000,000
Group trade payables 286,000,000

W3b: Interest and dividend payable

Balance in Plot 73,400,000
Balance in Farm 130,000,000
Unadjusted group balance 203,400,000
Less intragroup int & dividend (w5) 45,960,000
Group interest and div payable 157,440,000

W4: Dividends payable in Plot

Balance in Interest and dividend 73,400,000

Less:

Interest on 10% Loan (.1*60*10/12) 5,000,000

Interest on 5% Loan (.05*84*10/12) 3,500,000
Total Dividend payable in Plot 64,900,000
Preference dividends (. 15*66) 9,900,000
Ordinary dividends (balance) 55,000,000

Questions and Answers May 2022 Page 214 of 400

W5: Intragroup int & div payable Total Intragroup
Preference dividend payable (w4) 9,900,000
Pref dividend to Farm (.4*9.0) 3,960,000
Ordinary dividend (w4) 55,000,000
Ordinary dividend to Farm (.7*49) 38,500,000
5% Bond interest (w4) 3,500,000
5% Bond interest to Farm (1*3.5) 3,500,000
10% Loan interest (w4) 5,000,000
10% Loan interest to Farm (0*5) -
Total 73,400,000 45,960,000

W6: Group Loans & Bond

w6a: 10% group loan
Balance in Farm 100,000,000
Balance in Plot 60,000,000
10% group loan 160,000,000

W6B: 5% Bond Payable

Balance in Farm -
Balance in Plot 84,000,000
Total 84,000,000
Less amount owing to the group (note vi) 84,000,000
Group 5% Bond payable -

W6c: 5% Bonds receivable

Balance in Farm 130,000,000
Balance in Plot -
Total 130,000,000
Less amount owing to the group (note vi) 84,00,000
Group 5% Bond payable 46,000,000

W7: Unrealized Profit Farm Plot

Own sale within the group 60,000,000 25,00,000
Profit margin included in sales (20%) 12,000,000 5,000,000
Unrealized profit in Farm sale 4,800,000
(12%*40%)

W8: Group retained earnings

Balance of Retained earnings in Farm 341,000,000
Less: unrealized profit in Farm (w7) 4,800,000
Unrealized profit in Plot (Parent 700,000 5,500,000
share)
Post – acquisition profit 335,500,000
Share of Post-acquistion profit (.7*101) 70,700,000
Less share of pre-acquisition profit (w1) 21,000,000 49,700,000
Less share of impaired goodwill (w2) 4,060,000
Retained earnings 381,140,000

Questions and Answers May 2022 Page 215 of 400

W9: None controlling Interest
30% of Subsidiary share capital 156,000,000
30% Retained earnings 30,300,000
30% of general reserve 1,065,000
FV adjustment of Land and Buildings 6,000,000
Preference shares 39,600,000
Non-controlling interest goodwill (w1) 4,400,00
Less Unresized profit for NCI (.3*1M) 300,000.0
Goodwill write off (w2) 1,740,000.0
NC1 235,325,000

W10: Land and buildings

Balance in Farm 937,000,000
Add Balance in Plot 523,000,000
FV adjustment (note) 20,000,000
Group Land and buildings 1,480,000,000

W11: Current assets

W11A: Trade receivable
Total balances 307,000,000
Less amount owing to Farm (note iii) 60,000,000
Group trade receivables 247,000,000
W11B: Interest and dividend
Total balances 63,000,000
Less amount owing to Farm from Plot 45,000,000
(w5)
Group interest & dividend receivable 17,040,000

W11c: Group Inventory

Details Farm Plot Total
Balance in books 208,400,000 68,300,000 276,700,000
Less Unrealized 1,000,000 4,800,000 5,800,000
profit
Ending inventory 207,400,000 63,500,000 270,900,000

W12: Group Sales Farm Plot Total

Individual company sales 1,856,300,000 943,200,000 2,799,500,000
Less Intercompany sales 60,000,000 25,000,000 85,000,000
Adjusted Sales for 1,796,300,000 918,200,000 2,714,500,000
consolidation

W13: Group cost of Sales

Details Farm Plot Total
Sales 835,335,000 418,760,000 1,254,095,000
Add unrealized profit (w7) 4,800,000 1,000,000 5,800,000
Less Intergroup sales (w7) 60,000,000 25,000,000 85,000,000
Adjusted amount for 780,135,000 394,760,000 1,174,895,000
consolidation
Questions and Answers May 2022 Page 216 of 400
W14: Operating Expenses
Unadjusted balance (467,260 + 866,038,000
398,778)
Less excess depreciation in Plot (w15) 92,190,625
Adjusted expense for consolidation 773,847,375

W15: Excess Depreciation in Plot

Ending NCA in Plot (523+214,525) 737,525,000
Opening balance (737.525/.8) 921,906,250
Annual depreciation at 20% (.2*921.906) 184,381,250
Annual depreciation at 10% (.1*921.906) 92,190,625
Excess depreciation for group 92,190,625
adjustment

W16: Interest
Unadjusted total individual interest 18,500,000
Less Intragroup interest (w5) 3,500,000
Adjusted interest for consolidation 15,00,000

W17: NCI in post-tax profit

Preference share dividend (.6*.15*66) 5,940,000
Profit after Pref Div (.3*94,824-9,900) 25,477,200
Total Interest 31,417,200

W18: Consolidated General Reserve

Balance in Farm 8,635,000
Add 70% of post-acquisition reserve 2,485,000
General reserve 11,120,000

ANSWER 4

(a) Mivinjeni PLC Ltd,

1. From the facts, it is difficult to determine whether to agree or disagree.
Consistency, of course, is violated in this situation although its violation may not be
material. Furthermore, the change of accounting policies regarding the treatment of
small tools cannot be judged good or bad but would depend on the circumstances. In
this case, it seems that the result will be approximately the same whether the company
capitalizes and expenses or simply expenses each period, since the purchases are fairly
uniform. Perhaps from a cost standpoint (expediency), it might be best to continue the
present policy rather than become involved in detailed depreciation schedules,
assuming that purchases remain fairly uniform. On the other hand, the CEO may
believe there is a significant unrecorded asset that should be shown on the statement of
financial position. If such is the case, capitalization and subsequent depreciation would
be more appropriate.

Questions and Answers May 2022 Page 217 of 400

 2. Disagree. At the present time, accountants do not recognize price level or current value
adjustments in the accounts. Hence, unless the controller is proposing use of
revaluation accounting for all warehouses, it is misleading to deviate from the historical
cost principle because conjecture or opinion can take place. Also, depreciation is not
so much a matter of valuation as it is a means of cost allocation. Assets are not
depreciated on the basis of a decline in their fair value. Rather, they are depreciated on
the basis of a systematic charge of expired cost against revenues.

3. Agree. The full disclosure principle recognizes that reasonable condensation and
summarization of the details of a company’s operations and financial position are
essential to readability and comprehension. Thus, in determining what is full
disclosure, the accountant must decide whether omission will mislead readers of the
financial statements. Generally, companies present only the total amount of cash on a
statement of financial position unless some special circumstance is involved (such as a
possible restriction on the use of the cash). In most cases, however, the company’s
presentation would be considered appropriate and in accordance with the full disclosure
principle.

4. Disagree. The historical cost principle that companies account for assets and liabilities
on the basis of cost. If sales value were selected, for example, it would be extremely
difficult to establish an appraisal value for the given item without selling it. Note, too,
that the revenue recognition principle provides guidance on when revenue should be
recognized. Revenue should be recognized when the performance obligation is
satisfied. In this case, the revenue was not recognized because the critical event for
satisfying the performance obligation, “sale of the land with transfer to the buyer”, had
not occurred.

5. i. From the facts, it is difficult to determine whether to agree or disagree with the
CEO. The CEO’s approach is not a violation of any principle. Consistency requires
that accounting entities give accountable events the same accounting treatment form
period to period for a given business enterprises. It says nothing concerning consistency
of accounting principles among business enterprises. From a comparability viewpoint,
it might be useful to report the information on an average-cost basis. But, as indicated
above, there is no requirement to do so.

a. (i) The IASB issues three major types of pronouncements:

1. International Financial Reporting Standards: IASB standards are financial
accounting standards issued by the IASB and are referred to as International
Financial Reporting Standards (IFRS)

2. Conceptual Framework for Financial Reporting: The Conceptual Framework for

Financial Reporting sets forth the fundamental objective and concepts that the
Board uses in developing accounting standards that will serve as tools for solving
existing and emerging problems in a consistent manner.

3. International Financial Reporting Standards Interpretations.

Questions and Answers May 2022 Page 218 of 400
 (ii) The hierarchy of IFRS to determine what recognition, valuation and disclosure
requirements should be used is:
1. International Financial Reporting Standards, including International Accounting
Standards
2. Interpretation from the International Financial Reporting Standards.

3. If not addressed in 1 and 2 use a similar conceptual framework (e.g., U. S.

GAAP). (Every company that use IFRS must comply with the standards and
interpretations.)

ANSWER 5

(a) The usefulness of ratio analysis

i) Liquidity position- The liquidity of a firm is of crucial importance by the credit
analysis of a bank and other providers of short-term loans. Both the deficit and surplus
liquidity are harmful for a firm. Shortage of liquidity hampers the ability of the firm
to meet its short-term financial obligations while the surplus liquidity adversely
affects the profitability of the firm in the sense that it creates idle liquidity, leading to
blockage of the funds into the various current assets. Therefor, to examine whether a
firm has a deficit or surplus liquidity, an analysis of liquidity ratios is very much
helpful.

ii) Long term solvency – Long term solvency of a firm is of great importance to the
long-term creditors, security analysts and the existing and potential owners of the
firm. These parties ae interested in it for examining whether the firm is able to meet
its long leverage ratios and profitability ratios which focus on earning power of the
firm. Analysis of these ratios reveals the strength and weaknesses of a firm in this
respect.

iii) Operating Efficiency – Ratio analysis is also used to assess the operating efficiency
of the firm. Operating efficiency is very important for any firm survival. It depends
on the efficient and effective utilization of its assets, both non-current and current
assets. The analysis of such ratios give light on the degree of efficiency in the
management and utilization of its assets.
iv) Overall financial performance – Management of the firm use ratio analysis to assess
the overall performance of the firm. Therefore, managers will always use different
ratios such as liquidity ratios, efficiency ratios and others to determine how the firm
is performing.

v) Inter – firm comparison – Ratio analysis is used for performance comparisons

between two or more firms.

vi. Trend analysis – Trend analysis or time series analysis of the ratios is of crucial
importance to a firm since analysis takes into consideration the time dimension.
Trend analysis of the ratios enables to know whether the financial position of a firm
is improving or not over years.

Questions and Answers May 2022 Page 219 of 400

 vii. Performa analysis- This is the analysis of future ratios of a firm. The future ratios
are sometimes used as the standard for comparison. The future ratios can be
developed from the projected or proforma financial statements.

(b)

Profitability 2021
2020
Return on capital employed =Operating Profit 960 x 100% = 35.2% 820 x 100%
= 31.2%
CE 2,730 2,630
Return on equity =Profit after Tax 700 x 100% = 36.3% 580 x 100
= 35.6%
Equity 1,930 1,630
Gross profit margin =Gross Profit 1,340 x 100% = 19.1% 1,220 x 100%
= 19.2%
Sales 7,000 6,350
Net profit margin =Profit Before Tax 880 x 100% = 12.6% 720 x 100%
= 11.3%
Sales 7,000 6,350
These ratios indicate that the business was more profitable in 2021 than it was in 2019. ROCE
and ROE both show an improvement and although the gross profit margin was much the same
in both years, the net profit margin in 2021 (based on profit before tax) was better than in 2020.
This is mainly due to the fact that the company managed to reduce its operating expenses in
2021 despite increasing its turnover.

Liquidity 2021 2020

Current ratio = Current Assets 2,120 = 1.9 to 1 1,790 = 1.8 to 1
Current Liabilities 1,120 980
Quick ratio= Current Assets-Inventories 2,120 – 740 = 1.2 to 1 1,790 – 690 =
1.1 to 1
Current liabilities 1,120 980
Both of these ratios show an improvement in 2021 and the company does not seem to have
any liquidity problems, despite having repaid TZS 200,000 of loans in 2021.
Efficiency 2021 2020
Asset turnover = Sales 7,000 = 1.82 6,350 = 1.76
Total Assets 2,730 3,610

Inventory holding period = 715 x 365 = 46 days 680 x 365 =

48 days
Average inventories X 365day 5,660 5,130
Cost of sales

Receivables collection period=Receivables X 365days 820 x 365 = 43 days 760 x 365

= 44 days
Sales 7,000 6,350

Payable payment period =Payables x 365days 940 x 365 = 60 days 840 x 365 =
60 days
Questions and Answers May 2022 Page 220 of 400
 Purchases 5,710 5,150

The asset turnover ratio indicates that the company has made more efficient use of its net assets
in 2021 than in 2020. The inventory holding period (based on average inventory in each year)
shows a slight reduction in 2021 which may indicate period and the trade payables payment
period in 2021 are both broadly similar to their 2020 equivalents.
Notes:
i. Purchases in 2020 were TZS 5,130,000 – TZS 670,000 + TZS 690,000 = TZS
5,150,000.
ii. Purchases in 2021 were TZS 5,660,000 – TZS 690,000 + TZS 740,000 = TZS
5,710,000.

Investment 2021 2020

Earning per share= Earnings 700 = 0.70 580 = 0.58
No of ord shares 1,000 1,000

Price earning ratio= Price 3,900 = 5,571 3,100 = 5,345

EPS 0.7 0.58

Dividend cover = PAT 700 = 0.00175 580 = 0.00166

Dividends 400,000 350,000

Capital gearing ratio 800 x 100% = 29% 1,000 x

100 = 38%
2,730 2,630

Interest cover 960 = 12 820 = 8.2

80 100

Virtually all of these ratios indicate that the company is a good investment. Earnings per share
increased in 2021 and the stock market’s regard for the shares (as indicated by the P/E ratio)
also increased. The dividend yield went down but the dividend itself increased by more than
14% and dividend cover was adequate. The company is becoming more low-geared as the
loans are repaid and the interest cover gives no cause for concern.

ANSWER 6

(a) Earning per shares

i. Purpose of standardizing
The purpose of standardising the calculation and presentation of EPS is to make it easier
for the users of financial statements to compare the performance of:
o Different entities in the same reporting period; and
o The same entity for different reporting periods over time.

ii. Calculation of basic earning per share and diluted earnings per share
Calculation of Basic earnings per share

Questions and Answers May 2022 Page 221 of 400

 Basic Earnings per share = Earnings attributable to ordinary shares
Weighted average number of shares

Earning attributable to ordinary shares is TZS 222,908,000

Weighted average number of shares will be calculated as follows: -

Duration Working Average number of
Shares
1.10.2015 – 1.1.2016 1,500,000*3/12*140/135 388,889
1.1.2016 – 31.3.2016 2,000,000*3/12 500,000
1.4.2016 – 30.09.2016 1,000,000*6/12 500,000
1,388,889 shares
Basic Earnings per share = TZS. 222,908,000
1,420,000 Shares
Basic Earnings per share = 160.49
Workings
TERP = ((cum right price * existing shares) + (right price * No. of right issues))
Total number of shares after right issue
TERP = ((TZS. 140*3) + (TZS. 120*1))
4
TERP = TZS. 135
Calculate bonus fraction
Bonus Fraction = TZS.140
TZS. 135
Diluted Earnings per share = New earning attributable to ordinary shares
New weighted average number of shares
Treasury shares purchased by the company can be issued at any period of time.
Therefore, treasury shares are the potential ordinary shares and they are going to diluted
the Earnings per share.
The weighted number of shared will be increased by the number of shares in the
treasury (Ordinary shares purchased during the year).
Diluted Earnings per share = TZS. 222,908,000
2,388,889 Shares
Diluted Earnings per share = TZS. 93.31

b). Estimated total contract costs are TZS. 500,000 (TZS 190,000+ TZS 30,000 + TZS
280,000). Costs incurred for the work performed to date (TZS 190,000) are 38% of this
total, so the company measures its progress on the contract to be 38%. The statement of
comprehensive income for the year to 31 May 2020 should include revenue of TZS
228,000 (38% of TZS 600,000) in relation to the contract and expenses (cost of sales) of
TZS. 190,000. This mean that contract profit recognised in the year is TZS. 38,000.

Extract
The statement of financial position at 31 May 2020 should show inventory of TZS 30,000
and a contract asset of TZS 53,000 (TZS 228,000 – TZS 175,000) for the amount not yet
invoiced to the customer for the work done to date. The TZS. 45,000 which has been
invoiced to the customer but has not yet been received (TZS 175,000 – TZS 130,000)
should be shown as a trade receivable.

Questions and Answers May 2022 Page 222 of 400

(c) MASO Company
i. The amount received is TZS 712,500 (95% of TZS. 750,000). Issue costs of TZS.
13,175 reduce this to TZS 699,325. This is the amount at which the loan stock.

ii. Year Interest

30- April b/f at 7.25% Paid c/f
TZS ZS T TZS TZS
2020 699,325 50,701 22,500 727,526
2021 727,526 52,746 22,500 757,772
2022 757,772 54,938 22,500 790,210
2023 790,210 57,290 847,500 0
215,675

The figures that will appear in the statement of financial position are shown in the rightmost
column of this table. The amount paid on 30 April 2023 consists of interest of TZS 22,500,
repayment of the original TZS 750,000 and a premium of TZS 75,000.

The total cost of the loan is TZS 215,675. This consists of interest of TZS 90,000, the discount
on issue of TZS 37,175. The effective interest method spreads all these costs fairly over the
duration of the loan.

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Questions and Answers May 2022 Page 223 of 400