Question 1

Tanga Ltd operates in the telecommunication sector and has been in operation for the last five years. The company has investments in Maga Ltd and Dango Ltd and prepares financial statements to 30 June each year. The following draft statements of financial position relate to the three companies as at 30 June, 2018:

Assets:

Non-current assets: Property, plant & equipment Investment properties Intangible assets Investment in Maga Ltd Investment in Dango Ltd Other financial assets

Current assets:

Inventory

Trade & other receivables Cash & short term-deposits

Total assets

Equity & liabilities:

Equity:

Share capital (Shs 50,000 each) Share premium

Retained earnings

Revaluation reserve

Non-current liabilities:

Loan & borrowings

Employee benefit liabilities Provisions greater than 1 year

Current liabilities:

Trade & other payables Provisions less than 1 year

Total equity & liabilities

Tanga Ltd

Shs '000' 50,400,000 20,056,200 14,172,560

9,100,000 17,920,000 2,045,000 113,693,760

17,470,000 15,940,000 22,530,000 55,940,000

169,633,760

16,000,000 9,400,000 77,240,000 1,325,000 103,965,000

20,640,000 19,645,000 1,400,760 41,685,760

16,240,000 7,743,000 23,983,000 169,633,760

Maga Ltd

Shs '000' 11,728,000 10,405,000

9,235,000

- 31,368,000

4,480,000 20,400,000 1,400,000 26,280,000 57,648,000

8,400,000

1,800,000 15,292,000 - 25,492,000

10,640,000 15,206,000 2,002,000 27,848,000

1,780,000 2,528,000 4,308,000

57,648,000

Dango Ltd

Shs '000' 7,000,000

1,620,000 8,620,000

6,420,000

3,380,000 10,440,000 20,240,000 28,860,000

5,800,000

1,400,000 12,060,000 - 19,260,000

820,000 623,000 514,000

1,957,000

1,400,000 6,243,000 7,643,000

28,860,000

Additional information:

1. Tanga Ltd purchased all of the ordinary share capital in Maga Ltd on 1 July, 2015 for a cash consideration of Shs 9,100 million and agreed to pay a further Shs 10,500 million on 1 July, 2016. Tanga Ltd's cost of capital stands at 5%. On that date, Maga Ltd had retained earnings Shs 1,109 million and the fair value of Maga Ltd's identifiable net assets was Shs 14,309 million. The difference between the fair value of the identifiable assets and liabilities and their book value relates to a copyright included in Maga Ltd's property, plant & equipment. It had a remaining useful life of 10 years at that date. This has not been adjusted in the carrying amount of the property, plant & equipment by 30 June, 2018.
2. Tanga Ltd acquired 30% of the ordinary share capital of Dango Ltd on 1 July, 2015 for a cash consideration of Shs 1,080 million and exercised significant influence over the financial and operating policy decisions of Dango Ltd. At this time, Dango Ltd had retained earnings Shs 700 million and the fair value of Dango Ltd's identifiable net assets at that date was Shs 10,900 million. The difference between the fair value of the identifiable assets and liabilities of Dango Ltd and their book value relates to Dango Ltd's brands. The brands were estimated to have an average remaining useful life of 5 years.
3. On 1 October, 2017 Tanga Ltd acquired a further 45% of the ordinary shares of Dango Ltd for a cash consideration of Shs 16,840 million and gained control of the company. The fair value of its identifiable assets and liabilities were the same as their book value. Dango Ltd's profits for the year ended 30 June, 2018 were Shs 3,650 million and profits accrue evenly throughout the year. It is the group's policy to value the non-controlling interest at fair value. The market price of a share of Shs 45,000 represents the fair value of the shares held by the non-controlling interest.
4. All goodwill arising on acquisitions has been tested for impairment. An impairment review was carried out on 30 June, 2018 and it was agreed that the goodwill on acquisition of Maga Ltd and Dango Ltd be impaired by 15% and 20% respectively.
5. During the year ended 30 June, 2018 Maga Ltd sold goods to Tanga Ltd for Shs 60 million at a mark-up of 25%. All these goods were unsold to third parties at the reporting date. Maga Ltd also sold goods to Dango Ltd during the year at a profit of Shs 6 million. One third of these goods were still in the inventory of Dango Ltd as at 30 June, 2018.
6. Tanga Ltd secured a license to operate 4G services. Under the terms of the agreement, the company was to operate 4G mobile phone services for a period of 10 years from the commencement of the license on 1 July, 2017. During the period, Tanga Ltd can sell to another operator who

meets the criteria put in place by the Government and agrees to equal sharing of profits with it. Tanga Ltd paid Shs 687.2 million for the license on 1 July, 2017. However, due to lower than expected uptake of 4G mobile phone services, the market value of the license at the yearend on 30 June, 2018 according to Crane Professional Services was Shs 760 million though there was no active market for the 4G services.

1. On 30 June, 2018 Tanga Ltd's building that was acquired 1 July, 2008 at a cost of Shs 350 million, had a recoverable amount of 185 million. Depreciation is chargeable on a straight-line basis over a 35 year period. The tax base and carrying amounts of the non-current assets before the impairment write down were identical. The impairment of the non-current assets is not allowable for tax purposes. Tanga Ltd has not made any impairment or deferred tax adjustment for the above and expects to make profits for the foreseeable future and the tax rate is 30%.
2. Dango Ltd had purchased goods on credit from Weshire Ltd, a foreign supplier for United States dollars (USD) 80,000 on 28 April, 2017. On the same date, Dango Ltd sold the goods to a foreign customer for USD 100,000. On 30 June, 2018 payment for the goods was received in USD but the amount owing to Weshire Ltd was still outstanding.
3. Exchange rates were as follows:

Date

28 April, 2017

1 June, 2017

30 June, 2018 Average for the year

Required:

USD 1 = Shs 3,650 3,640 3,620 3,625

1. (a)Demonstrate, with suitable computations, how the additional acquisition of 45% of the ordinary shares in Dango Ltd by Tanga Ltd should be dealt with in the group statement of financial position as at 30 June, 2018.
2. (5 marks)
3. (b)Prepare memo to the directors of Tanga Ltd, advising them on the required accounting treatment in regard to issues identified in notes 5, 6, 7 and 8 above and their impact on the consolidated financial statements of Tanga Ltd for the year ended 30 June, 2018.
4. (10 marks)
5. (c)Prepare consolidated statement of financial position of the Tanga Ltd group as at 30 June, 2018. Show all the workings.

Question 2

Makooge Financial Services Limited (MAFSL) is a micro deposit-taking institution in the financial services sector of Uganda, licensed and supervised by the central bank. MAFSL has been in operation for the last 5 years, and provides many products to its customers, including but not limited to loans, savings and money transfers.

1. (a)The Chief Finance Officer (CFO) is organising a sensitisation workshop for all staff in the Accounting and Finance section, on developments in the area of accounting and finance. The CFO is aware that you recently completed your CPA (U). During your first meeting with him, he indicated the need to document major influences of International Financial Reporting Standards to show pointers of developments to the staff.
2. Required:
3. Prepare discussion paper on the major influences in the development of International Financial Reporting Standards.
4. (7 marks)
5. (b)During the financial year ended 30 June, 2018 the central bank carried out a supervisory review, which involved an onsite examination of all micro deposit-taking institutions to ensure the safety and soundness of the individual institutions and the financial system as a whole, complemented with a robust offsite surveillance and analysis framework. Results showed a decline in performance of MAFSL and non-compliance with the capital adequacy ratio. With immediate effect, the central bank suspended MAFSL's expansion into new banking and financial activities, acquisition of fixed assets, issuance of guarantees and access to new credit facilities. The following are the financial statement extracts for MAFSL for the year ended 30 June, 2018.

Statement of profit or loss:

Profit before interest & taxation Interest paid

Profit before taxation

Taxation on profit

Profit for the period

2018 Shs '000'

750,000 (300,000) 450,000 (45,000) 405,000

2017 Shs '000' 600,000

-

600,000 (60,000) 540,000

Supplementary capital for the year was Shs 200 million. On 1 July, 2016 100,000 ordinary shares were issued for cash to existing shareholders. The issue price was Shs 6,500 per share, which represented a discount of 20% on the traded price immediately before the issue. The central bank's Supervisory Review Board has called for a meeting with the Board of Directors of MAFSL and in which the external auditors shall be in attendance.

Required:

1. (i)Advise the Board of Directors of MAFSL on the accounting and reporting requirements as laid out under the Micro Deposit-taking Institutions Act, 2003 and other relevant laws & regulations before the meeting.
2. (ii)In light of (i) above, ascertain MAFSL's core capital; the total qualifying capital; return on capital employed and the interest cover for the year ended 30 June, 2018.
3. (iii)Determine the basic EPS to be reported in the financial statements of MAFSL for the year ended 30 June, 2018 in accordance with relevant financial reporting standard(s).