Reference no: EM132873536

FA260US Financial Accounting

SECTION A: ANSWER ONE

Question 1

The Omaheke Manufacturers Ltd acquired Salomon Factory Lld on 1 January 2015 for N$ 1.8 million of Salomon Factory Lld ordinary 50 cents shares paying N$1.2m. At the date of acquisition the retained earnings of Salomon Factory Lld were N$110,000. The draft balance sheets of the two enterprises as at 31 December 2017 were as follows:

The additional information:

i. When Omaheke Manufacturers Ltd bought the shares in Salomon Factory Lld it also made a loan to Salomon Factory Lld of N$200,000. This loan is still outstanding.

ii. The fair value of Salomon Factory Lld property and plant and equipment at the date of acquisition was N$100,000 and N$50,000 respectively in excess of the carrying values. Salomon Factory Lld balance sheet has not taken account of these fair values. Group depreciation policy is as follows: Property 2% and Plant and equipment 10% per annum using straight-line basis. Depreciation is calculated on fair values where available.

iii. An impairment review has been carried out on the consolidated goodwill at the end of each year since the acquisition the goodwill impaired has been as follows: in 2015/12/31 N$ 5 000, 2016/12/31 N$ 2 000, 2017/12/31 N$ 3 000 respectively

Required:
Prepare the consolidated balance sheet of the Omaheke Manufacturers as at 31 December 2017.

Question 2

The following summarized statements of financial position relate to Track Limited:

Additional information:
1. During the year to 30 June 2014, some non-current assets originally costing N$25,000 had been sold for N$20,000 in cash. The accumulated depreciation on these non-current assets at 30 June 2013 amounted to N$10,000. Similarly, some of the investments originally costing N$150,000 had been sold for cash at their book value.
2. The taxation balances disclosed in the above statements of financial position represent the actual amounts agreed with the revenue and customs. All taxes were paid on their due dates. Advance corporation tax may be ignored.
3. A dividend of N$130,000 was paid during the year to 30 June 2014.
4. During the year to 30 June 2014, the company made a 1-for-2 rights issue of 250 ordinary N$ shares at 120p per share.
Required:
Prepare Track Ltd's statement of cash flows for the year to 30 June 2014.

SECTION B: ANSWER ONE (1) QUESTION

Question 3

Oshimbala Foods Ltd is a fast food company that operates many outlets across the country. The reporting period of Oshimbala Foods Ltd ends on 31 October. Oshimbala Foods Ltd is not registered as a VAT vendor.

MATTER 1
On 1 November 2014 Oshimbala Foods Ltd purchased equipment with an invoice price of N$ 273 600 under a lease agreement. The lease payments will consist of equal annual instilments over a period of 4 years, payable in arrears. The interest rate applicable on this lease agreement is 8% per year. All payments due have been paid on time each year. The equipment is depreciated on the straight line basis over 5 years with no residual value.
Required:
Disclose the long term borrowings note applicable to the lease liability in the Statement of Financial Position of Oshimbala Foods Ltd on 31 October 2016 in accordance with International Financial Reporting Standards.
Note: Round disclosed amounts to the nearest Dollar.

MATTER 2
On 1 January 2016 Oshimbala Foods Ltd signed a 3-year rental agreement on a new outlet to be opened in Maruua Mall. The business was able to negotiate a very good deal on this 3-year rental agreement. For the first year of the agreement, Oshimbala Foods Ltd will not have to pay any rent on the outlet. In the second year of the contract, the business will pay N$ 2 500 rental per month and in the third (last) year of the agreement Oshimbala Foods Ltd will pay N$ 5 000 per month. The accountant of Oshimbala Foods Ltd did not recognize any entries in the accounting records of the business for the period ended 31 October 2016 since no payments had to be made during the first year of the agreement.
Required:
a) Explain whether the accountant of Oshimbala Foods Ltd was correct in not recording any journal entries on the rental agreement for the period ended 31 October 2016 in accordance with International Financial Reporting Standards.

b) Provide the journal entry (if any) to appropriately account for the rental agreement in the accounting records of Oshimbala Foods Ltd for the reporting period ended 31 October 2016.

Question 4
Shapumba Ltd is a company that operates 3 different leisure lodges in the north and north-eastern part of Namibia. The company's reporting period ends on 30 June.
The following relevant accounting policies of Shapumba Ltd are presented to you:
- Vehicles are depreciated at 10% per year on cost price with no residual value.
- The company values its inventory according to the weighted average cost method using the historical cost model.
- The company subsequently measures investment property according to the fair value model.
The company is preparing the financial statements for the reporting period ended 30 June 2017 and has requested your assistance and advice on the following matters. The financial statements will be approved on 20 August 2017.
Ignore VAT in all the matters. MATTER 1
On 1 February 2015 Shapumba Ltd purchased equipment with an invoice price of N$ 645 800 by entering into a loan agreement with the Development Bank. The equipment is pledged as security for the loan. The loan instilments will consist of equal monthly instilments over a period of 4 years and a final residual payment of N$ 55 000. The interest rate applicable on this lease agreement is 10% per year, compounded monthly. All payments due have been paid on time each month. The equipment is depreciated on the straight line basis over 8 years with no residual value.

Required:
Disclose the long term borrowings note applicable to the lease liability in the Statement of Financial Position of Shapumba Ltd on 30 June 2017 in accordance with International
Financial Reporting Standards.
Note: Round disclosed amounts to the nearest Dollar.

MATTER 2
On 10 January 2016 Shapumba Ltd purchased vacant land at a price of N$ 800 000. The land is situated about 10 kilometers from Shapumba Ltd.'s closest operations and was purchased with the sole aim of selling it at a profit after 5 years.
Because of its ideal location and the developments that commenced in the area after Shapumba Ltd purchased the land, a sworn valued estimates the fair value on 30 June 2017 at N$ 1 660 000.
The Chief Financial Officer (CFO) is however of the opinion that the value of the land on the Statement of Financial Position on 30 June 2017 should be kept at the original cost price of N$ 800 000. He also stated that the new value would just attract unnecessary taxes.

Required:
With reference to relevant International Financial Reporting Standards, define investment property and also discuss whether you think the land should subsequently be measured at cost price or fair value.