investments are correctly measured in line with IFRS 9: Financial Instruments. 5. Inventories of Zambezi and Luangwa at 30 September 2016 included components purchased from Kafue in the last quarter of the financial year at a cost of K16 million to Zambezi and K12.8 million to Luangwa. Kafue supplied these goods to both Zambezi and Luangwa at a mark-up of 25% on the cost to Kafue. 6. The group policy is to clear intra-group balances on a given date prior to each year end. All group companies had complied with this policy at 30 September 2016. 7. On 30 September 2016, Zambezi finalised construction of an energy generating facility with an expected useful economic life of 25 years. Zambezi has a legal requirement to decommission the facility at the end of its estimated useful life and the directors estimated costs of this decommissioning to be K27.2 million: based on prices prevailing at 30 September 2041. At an appropriate discount rate, the present value of the cost of decommissioning the facility is K8 million. The directors of Zambezi made the appropriate provision and charged this amount as an operating cost in the financial statements of Zambezi for the year ended 30 September 2016. 8. On 1 October 2015, Zambezi issued 32 million K1 Bonds at par. The cost of issuing the Bonds was K0.8 million which was charged as a finance cost for the year ended 30 September 2016. No interest is payable on the Bonds but they are redeemable at a large premium which makes their effective finance cost 8% per annum. The Bonds are included at a carrying amount of K32 million in the statement of financial position of Zambezi at 30 September 2016. 9. The rate of deferred tax applicable on all temporary differences is 20%. Required: (a) Prepare a consolidated statement of financial position for Zambezi as at 30 September 2016 in accordance with applicable IFRSs and IASs. (36 marks) (b) On 15 November 2016, Zambezi purchased shares in Chambeshi which gave Zambezi a 45% shareholding. On the same date, Zambezi purchased an option which gave Zambezi the right to acquire an additional 10% of the shares in chambeshi from the existing shareholders. This option is exercisable at any time between 15 November 2017 and 30 September 2018 at a price which makes it Additional information 1. On 1 October 2013, Zambezi acquired 300 million shares in Kafue by means of a share exchange of one share in Zambezi for every two shares acquired in Kafue, when, the 2 market value of a Zambezi share was K1.92. Zambezi incurred the following directly attributable costs on acquisition of Kafue: - K0.64 million cost of issuing own shares which was debited to Zambezi's share premium account within other components of equity; - K0.96 million due diligence costs which were included in the carrying amount of the investment in Kafue in Zambezi's own statement of financial position There had been no change to the carrying amount of this investment in Zambezi's own statement of financial position since 1 October 2013. At acquisition, Kafue's Retained earnings were K100 million, while other components of equity were K8 million. A fair value exercise to measure identifiable assets and liabilities of Kafue carried-out by Zambezi's directors at 1 October 2013 revealed that: - K0.64 million cost of issuing own shares which was debited to Zambezi's share premium account within other components of equity; - K0.96 million due diligence costs which were included in the carrying amount of the investment in Kafue in Zambezi's own statement of financial position There had been no change to the carrying amount of this investment in Zambezi's own statement of financial position since 1 October 2013. At acquisition, Kafue's Retained earnings were K100 million, while other components of equity were K8 million. A fair value exercise to measure identifiable assets and liabilities of Kafue carried-out by Zambezi's directors at 1 October 2013 revealed that: - Plant and equipment having a carrying amount of K236 million had an estimated market value of K272 million. The estimated remaining useful economic life of this plant at 1 October 2013 was five years. None of this plant and equipment had been disposed of by 30 September 2016. - An in-house research and development project with a fair value of K16 million existed at 1 October 2013 but did not meet the recognition criteria of IAS 38: Intangible Assets. The project started generating economic benefits on 1 October 2014 over an estimated period of four years. The above two fair value adjustments have not been refected in the individual financial statements of Kafue. Treat these fair value adjustments as temporary differences for the purposes of computing deferred tax in the consolidated financial statements. Zambezi uses the proportion of net assets method to calculate non-controlling interests in Kafue. 2. Impairment reviews for goodwill on acquisition of Kafue carried out on 30 September 2014 and 2015 showed no evidence of impairment. On 30 September 2016, directors of Zambezi concluded that the recoverable amount of the net assets (including the goodwill) of Kafue at that date was K360 million. Kafue is regarded as single cash generating unit for the purpose of measuring goodwill impairment. 3. On 1 October 2015 , Zambezi paid K100 million in cash to acquire 144 million shares in Luangwa and incurred costs of K0.8 million associated with this purchase. These costs were debited to administrative expenses in the draft statement of profit or loss for the year ended 30 September 2016. There has been no change in the carrying amount of thic investment in the financial statements of Zambezi since 1 October 2015 when QUESTION ONE (a) The draft statements of financial position for Zambezi, Kafue and L:uangwa at 30 this investment in the tinancal statements of Zambezi since 10 october 2015 when individual financial statements of Luangwa showed the following reserves balances: Retained earnings K36 million and other components of equity K1.6 million. At acquisition of Luangwa, fair values of all net assets were the same as their carrying amounts with the exception of land which had a carrying amount of K80 million and a fair value of K104 million. The fair value adjustment has not been reflected in the individual financial statements of Luangwa. In the consolidated financial statements, this fair value adjustment will be regarded as a temporary difference for the purposes of computing deferred tax. There was no impairment of the goodwill arising on acquisition of Luangwa in the consolidated financial statements at 30 September 2016 and Zambezi 3 uses the proportion of net assets method to calculate non-controlling interests in Luangwa. 4. Apart from its investments in Kafue and Luangwa, the investments of Zambezi included in the statement of financial position at 30 September 2016 are all financial assets which Zambezi measures at fair value through other comprehensive income. These investments are correctly measured in line with IFRS 9: Financial Instruments. 5. Inventories of Zambezi and Luangwa at 30 September 2016 included components purchased from Kafue in the last quarter of the financial year at a cost of K16 million to Zambezi and K12.8 million to Luangwa. Kafue supplied these goods to both Zambezi and Luangwa at a mark-up of 25% on the cost to Kafue. 6. The group policy is to clear intra-group balances on a given date prior to each year end. All group companies had complied with this policy at 30 September 2016. (b) On 15 November 2016, Zambezi purchased shares in Chambeshi which gave Zambezi a 45% shareholding. On the same date, Zambezi purchased an option which gave Zambezi the right to acquire an additional 10% of the shares in chambeshi from the existing shareholders. This option is exercisable at any time between 15 November 2017 and 30 September 2018 at a price which makes it highly likely the option will be exercised during that period. Directors of Zambezi are uncertain how to treat Chambeshi in the consolidated financial statements for the year ended 30 September 2017. 4 Required: Advise Directors of Zambezi on the appropriate treatment of Chambeshi in the consolidated financial statements for the year ended 30 September 2017 PRIOR to any exercising of the option. (4 marks) [Total: 40 marks]