EXAMINATION : INTERMEDIATE LEVEL

SUBJECT : FINANCIAL REPORTING00000

CODE : B2

EXAMINATION DATE : WEDNESDAY, 7TH MAY 2025

TIME ALLOWED : THREE HOURS (2:00 P.M.-5:00P.M.)

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GENERAL INSTRUCTIONS

1. There are TWO sections in this paper. Sections A and B which comprises total
of SIX questions.

2. Answer question ONE in Section A.

3. Answer ANY FOUR questions in Section B.

4. In total answer FIVE questions.

5. Marks are shown at the end of each question.

6. Show clearly all your workings in respective answers where applicable.

7. State clearly any assumptions made in your answers where applicable.

8. Calculate your answers to the nearest one decimal points where necessary.

9. Graph papers and mathematical tables will be provided where applicable.

10. This question paper comprises 10 printed pages.

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SECTION A
Compulsory Question
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QUESTION 1

The Trial Balance of Wema Plc as at 31st December 2024 is provided below:

Particulars (TZS. ‘000’) (TZS. ‘000’)

Revenue 320,700
Cost of sales 215,700
Closing inventories (31st December 2024) 15,750
Operating expenses 33,600
Income from investment property 1,800
Finance costs 6,300
Land and building at valuation 94,500
Plant and equipment (at cost) 54,000
Investment property 24,000
Accumulated depreciation on plant and equipment
(1st January 2024) 25,200
Trade receivables 20,250
Bank 11,850
Trade payables 17,700
Ordinary shares (TZS.0.25 per share) 30,000
10% Redeemable preference shares (TZS.1.00 per share) 15,000
Deferred tax 7,800
Revaluation surplus 31,500
Retained earnings (1st January 2024) 26,250
475,950 475,950

The following information is provided:

1. An inventory count at 31st December 2024 amounted to TZS.15,750,000. This includes damaged
goods with a cost of TZS.1,200,000. These will require remedial work costing TZS.675,000 and
could be sold for TZS.1,425,000.

2. Finance cost is made up of the full year’s preference and ordinary dividends paid.

3. Non-Current Assets
• Land and Building were revalued at TZS.22,500,000 and TZS.72,000,000 respectively on
1st January 2024, resulting in revaluation gain of TZS.11,000,000 for the current year. At
that date, the remaining life of the building was 15 years. Depreciation is on straight-line
basis. Ignore deferred tax implications.
• Depreciation on plant and equipment is at 12.5% on reducing balance basis.

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 • Investment property: on 31st December 2024, an independent qualified professional valuer
valued the property at TZS.20,250,000. Wema Plc uses fair value model under IAS 40:
Investment Property to value its investment property.
• It is the policy of the company to charge depreciation on full year basis.

4. The directors have estimated the provision for income tax for the year ended 31st December 2024
at TZS.12,000,000. The deferred tax for the year ended 31st December 2024 is to be adjusted so
that the tax base of the company’s net assets is TZS.18,000,000 less than the carrying amount.
Assume the rate of tax is 30%.

5. On 1st October 2024, Wema Plc imported a piece of equipment from a supplier in Kenya for
KSH.1,000,000 and agreed to settle the bill, in six months’ time. The relevant exchange rates are
provided below:

Date Exchange Rate

1st October 2024 KSH 1: TZS.6.20
31st December 2024 KSH 1: TZS.6.50
1st April 2025 KSH 1: TZS.6.40

No entries have been made for the above transactions. Any exchange difference on translation
should be debited or credited to operating expenses.

REQUIRED:

Prepare for WEMA Plc:

(a) Statement of Profit or Loss and Other Comprehensive Income for the year ended 31st
December 2024. (10 marks)

(b) Statement of Financial Position as at 31st December 2024. (10 marks)

(Total: 20 marks)

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SECTION B
There are FIVE questions. Answer ANY FOUR questions
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QUESTION 2

On 1st October 2022, Mkwama Company Ltd. acquired 75% of Kiwango Ltd. equity shares by means
of a share exchange of two new shares in Mkwama Company Ltd. for every five acquired shares in
Kiwango Ltd. In addition, Mkwama issued to the shareholders of Kiwango a TZS.100,000 10% loan
note for every 1,000 shares it acquired in Kiwango Ltd. Mkwama Company Ltd. has not recorded any
of the purchase consideration, although it does have other 10% loan notes already in issue.

The market value of Mkwama Company Ltd.’s shares at 1st October 2022 was TZS.2,000 per share.
The summarized statement of financial position of the two companies as at 31st March 2023 are:

Mkwama Kiwango Ltd.

Company Ltd.
Details (TZS.“000”) (TZS.“000”)
Non-current assets: Property, Plant and Equipment 47,400,000 25,500,000
Financial assets: Equity investments 7,500,000 3,200,000
Inventories 20,400,000 8,400,000
Trade receivables 14,800,000 9,000,000
Bank 2,100,000 Nil
Equity shares TZS.1,000 per share 40,000,000 20,000,000
Retained earnings as at 1st April 2022 19,200,000 (4,000,000)
Retained earnings for the year ended 31st March 2023 7,400,000 8,000,000
10% loan notes 8,000,000 Nil
Trade payables 17,600,000 13,000,000
Bank overdraft Nil 9,100,000

The following information is relevant:

1. At the date of acquisition, Kiwango Ltd. produced a draft statement of profit or loss and other
comprehensive income which showed it had made a net loss after tax of TZS.2,000,000,000 for
the year ending 30th September 2022. Mkwama Company Ltd. accepted this figure as the basis
for calculating the pre-and post-acquisition split of Kiwango’s profit for the year ended 31st
March 2023.

2. Also, at the date of acquisition, Mkwama conducted a fair valuation exercise on Kiwango’s net
assets which the resulting value were equal to their carrying amounts (including Kiwango’s
financial assets equity investments) with the exception of an item of plant which had a fair value
of TZS.3,000,000,000 below its carrying amount. The plant had a remaining economic life of
three years at 1st October 2022.

3. Mkwama’s policy is to value the non-controlling interest at fair value at the date of acquisition.
For this purpose, a share price for Kiwango of TZS.1,200 per share is representative of the fair
value of the shares held by the non-controlling interest.

Questions & Answers – May 2025 Page 24 of 120

4. Each month since acquisition, Mkwama’s sales to Kiwango were consistently
TZS.4,600,000,000. Mkwama had marked up these sales by 15% on cost. Kiwango had one
month’s supply TZS.4,600,000,000 of these goods in inventory as at 31st March 2023.
Mkwama’s normal mark-up (to third party customers) is 40%.

5. The financial assets: Equity investments of Mkwama and Kiwango are carried at their fair
values as at 1st April 2022. As at 31st March 2023, these had fair values of TZS.7,100,000,000
and TZS.3,900,000,000 for Mkwama and Kiwango respectively.

6. There were no impairment losses within the group during the year ended 31st March 2023.

REQUIRED:

(a) Prepare the Mkwama Group Consolidated Statement of Financial Position as at 31st
March 2023. (15 marks)

(b)
Explain two (2) reasons for adjusting the net asset of the subsidiary and not of the parent
company to fair value at the date of acquisition for the purpose of consolidated accounts.
(5 marks)
(Total: 20 marks)
QUESTION 3

Makweta Kwetu (MK) Ltd. has provided the following financial information for the year ended 31st
December 2024.

The Statement of Financial Position of MK Ltd as at 31st December

2024 2023
TZS. “000,000” TZS. “000,000”
Non-Current Assets
Fixed assets – tangible 5,000 3,000

Current Assets:
Inventories 1,000 900
Receivables 700 600
Cash and cash equivalents 800 500
2,500 2,000
Total Assets 7,500 5,000

Current Liabilities
Overdraft 750 400
Short-term loans 200 100
Other creditors 450 500
1,400 1,000
Non-current Liabilities
Debenture 1,200 1,000
Loans 2,000 1,600
Finance lease payables 80 -
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 3,280 2,600
Total Liabilities 4,680 3,600
Equity
Share capital – ordinary 1,000 800
preference 200 200
Share premium 400 250
Revaluation reserve 120 -
Retained earnings 1,100 150
Total Equity 2,820 1,400
Total Equity and Liabilities 7,500 5,000

The following notes are provided to you:

1. Tangible fixed assets
Depreciation for 2024 was TZS.300,000,000. A revaluation surplus of TZS.120,000,000 was
recognized during 2024.
2. Receivables
Includes short-term investments. The balances at 31st December 2024 and 31st December 2023
were TZS.150,000,000 and TZS.60,000,000, respectively. The difference represents additional
cash investment made during the year. These investments are not highly liquid.
3. Debentures
The debentures pay 10% interest. The increase represents the issue for cash of an additional
220,000 TZS.1,000 10% debentures at par on 1st January 2024. Issue costs were
TZS.20,000,000. There is a total of 1,250,000 TZS.1,000 10% debentures in issue. All interest
was paid in the year.
4. Loans and Finance Leases
The movement in loans is made up of new loans taken out of TZS.450,000,000 and a TZS.
150,000,000 unrealized exchange loss on foreign currency loans. During the year
TZS.100,000,000 of loans were repaid. Interest on loans paid in the year were TZS.150,000,000.
The finance leases were entered into on 31st December 2024. The bank overdraft is used as part
of the company’s cash management.
5. Share capital – ordinary
An additional 2,000,000 TZS.100 ordinary shares were issued during the year at TZS.200 per
share. Expenses were TZS.50,000,000. Dividends paid during 2024 were TZS.47,500,000
(TZS.20,000,000 preference and TZS.27,500,000 ordinary).
6. Taxation
Due to losses available no tax was paid in 2024.
7. Net profit before tax
Net profit before tax for the year to 31st December 2024 was TZS.997,500,000.

REQUIRED:

Prepare the statement of cash flows of MK Ltd for the year ended 31st December 2024 using the
Indirect method. (Notes are not required).
(Total: 20 marks)

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QUESTION 4

(a) MGHENI Ltd. is preparing its financial statements for the year ended 31st December 2024. The
company is required to apply International Financial Reporting Standards (IFRS) in the
preparation of its financial statements.

During the year, MGHENI Ltd. reported an accounting profit before tax of TZS.200,000,000.
The company identified the following differences between accounting and taxable income:
1. Depreciation expense of TZS.20,000,000 is not deductible for tax purposes, but tax
depreciation allowable is TZS.15,000,000.
2. Entertainment expenses of TZS.5,000,000 are disallowed for tax purpose.
3. The applicable corporate tax rate is 30%.

Moreover, in the year 2024 the MGHENI Ltd. revalued one of its land assets which had a
carrying amount of TZS.50,000,000. An independent valuation determined the fair value to be
TZS.70,000,000.

MGHENI Ltd. invested in corporate bonds during the year, purchasing them for
TZS.100,000,000. The bonds pay an annual interest of 5% and matures in five years. The
company intends to hold them to collect contractual cash flows.
REQUIRED:
(i) Compute the taxable profit and current tax expenses for MGHENI Ltd. for the year 2024
(2 marks)
(ii) Show how the tax expense will be presented in the financial statements in accordance
with IAS 12: Income Taxes. (2 marks)
(iii) Determine the fair value adjustment and explain how it should be accounted for under
IFRS 13: Fair Value Measurement. (2 marks)
(iv) Discuss the three-level hierarchy of fair value measurement as per IFRS 13. (3 marks)
(v) Explain how the bonds should be classified under IFRS 9. Financial Instruments.
(2 marks)
(vi) Compute and present the journal entries for the purchase and interest income recognition
for the year. (2 marks)

(b) The Makusanyo Company values inventory at Cost or Net Realizable Value (NRV), whichever
is lower. At the year-end, the company had 500 units of a product with the following details
relating to one unit of the product:
For one unit TZS.
Cost 50,000
Selling price 55,000
Selling cost 8,000

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 REQUIRED:
(i) Determine the value at which the inventory should be recorded. (2 marks)

(ii) Explain the accounting treatment of inventories under IAS 2: Inventories. (2 marks)

(c) Discuss the significance of the going concern assumption in financial reporting. (3 marks)
(Total: 20 marks)

QUESTION 5

Wendo is a businesswoman who wishes to invest in financial assets at the Dar es Salaam Stock
Exchange market. On her initial assessment, two companies attracted her and she wishes to invest in
one of them. The financial statements for the two companies for the year ended 31st December 2024
are provided below:
Statement of Financial Position as at 31st December 2024
MAGUTU PLC MAZINGE PLC
Assets (TZS. “000”) (TZS. “000”)
Non-Current Assets
Land and buildings 1,250,000 750,000
Motor vehicle 200,000 87,500
Plant and machinery 812,500 462,500
Total Non-Current Asset 2,262,500 1,300,000
Current Assets
Inventories 262,500 250,000
Trade receivables 1,112,500 937,500
Cash and cash equivalent 575,000 425,000
Total Current Assets 1,950,000 1,612,500
Total Assets 4,212,500 2,912,500
Equity and Liabilities
Equity
Ordinary shares (TZS.2.5 per share) 1,250,000 750,000
Revaluation reserve 600,000 375,000
Retained earnings 762,500 325,000
Total equity 2,612,500 1,450,000
Liabilities
Non-Current Liabilities
12% Loan notes 700,000 500,000
Deferred tax 75,000 25,000
Total Non-Current Liabilities 775,000 525,000
Current Liabilities
Trade payables 600,000 725,000
Current tax 225,000 212,500
Total Current Liabilities 825,000 937,500
Total Liabilities 1,600,000 1,462,500
Total Equity and Liabilities 4,212,500 2,912,500
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 Statement of Profit or Loss and Other Comprehensive Income
for the Year Ended 31st December 2024

MAGUTU PLC MAZINGE PLC

TZS. TZS.
Revenue 7,075,000 4,012,500
Cost of sales (1,350,000) (1,200,000)
Gross profit 5,725,000 2,812,500
Expenses
Administrative expenses (1,050,000) (337,500)
Distribution costs (675,000) (255,000)
Other operating expenses (412,500) (295,000)
Operating profit 3,587,500 1,925,000
Finance costs (300,000) (100,000)
Investment income 100,000 (25,000)
Profit before tax 3,387,500 1,850,000
Income tax expense (362,500) (262,500)
Profit after tax 3,025,000 1,587,500
Other Comprehensive Income
Revaluation surplus (deficit) 262,500 (75,000)
Total Comprehensive Income 3,287,500 1,512,500

Wendo has consulted you as a financial analyst to help her in analysing the performance of the two
companies.

REQUIRED:
(a) Calculate for following ratios for the companies:

(i) Gross profit margin (2 marks)

(ii) Operating profit margin (2 marks)
(iii) Quick ratio (2 marks)
(iv) Inventory days (2 marks)
(v) Receivables collection period (2 marks)
(vi) Payables and payment period (2 marks)

(b) Analyse the performance of the two companies in terms of profitability, liquidity and efficiency
of operations and advise Wendo accordingly.
(8 marks)
(Total: 20 marks)

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QUESTION 6

(a) For financial information to be useful to users, they need to have fundamental and enhancing
characteristics. The conceptual framework states that qualitative characteristics are the attributes
that make financial information most useful to users.

REQUIRED:

(i) Clearly differentiate what the Conceptual Framework for Financial Reporting means by
the concepts of fundamental qualitative characteristics and enhancing qualitative
characteristics. (2 marks)

(ii) Explain each fundamental qualitative and enhancing qualitative characteristic for
Financial reporting. (4 marks)

(b) Singo company prepares financial statements as at 31st December each year. The following
events occurred after 31st December 2024 but before the financial statements for the year to
31st December 2024 were authorized for issue:

1. Inventory held at 31st December 2024 was sold to a customer.

2. The company made a take-over bid for another company.

3. A customer who owned an amount of money to the company on 31st December 2024
was declared bankrupt.

4. It was discovered that cash shown as an asset in the statement of financial position at 31st
December 2024 had been stolen on 28th December 2024.

5. It was discovered that an item of equipment shown as an asset in the statement of

financial position at 31st December 2024 had been stolen on 12th January 2024.

6. The Government announced a change in tax rates that will have a significant effect on
the company’s tax liability at 31st December 2024.

REQUIRED:

Classify each of these events as either an adjusting event or a non-adjusting event and explain
how each event should be dealt with in the company’s financial statements for the year to 31 st
December 2024. (Assume that all of the events are material). (6 marks)

(c) Dodo Wine Ltd started constructing a modern tower building where they wish to relocate group
head offices. The building is estimated to cost TZS.48,000,000,000 to complete. On 1st January
2024, the regional bank approved a 10% loan to finance 80% of the building estimated costs of
TZS.48,000,000,000 for a 5-year term. The remaining 20% finance will be funded by a green
building fund, which is a government institution that provides grants. The construction process

Questions & Answers – May 2025 Page 30 of 120

 of the building started immediately after obtaining approval of the loan. However, 40% of the
capital funds borrowed from the bank for the construction costs was reinvested in a commercial
bank to attract a return of 4% per annum. Until 31st March 2024, 40% of the loan was still held
as short-term investment. Dodo’s financial year ends 31st March each year.

REQUIRED:

In accordance with IAS 23: Borrowing Costs, explain when the capitalization of borrowing
costs must commence. (2 marks)

(c) Comment on any three (3) reasons for disclosing related party transactions as per the
requirements of IPSAS 20: Related Party Disclosures. (6 marks)
(Total: 20 marks)

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