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:

Tanga Ltd Maga Ltd Dango Ltd

Assets:

Non-current assets: Shs '000' Shs '000' Shs '000'

Property, plant & equipment 50,400,000 11,728,000 7,000,000

Investment properties 20,056,200 10,405,000

Intangible assets 14,172,560 9,235,000

Investment in Maga Ltd 9,100,000

Investment in Dango Ltd 17,920,000

Other financial assets 2,045,000 - 1,620,000

113,693,760 31,368,000 8,620,000

Current assets:

Inventory 17,470,000 4,480,000 6,420,000

Trade & other receivables 15,940,000 20,400,000 3,380,000

Cash & short term-deposits 22,530,000 1,400,000 10,440,000

55,940,000 26,280,000 20,240,000

Total assets 169,633,760 57,648,000 28,860,000

Equity & liabilities:

Equity:

Share capital (Shs 50,000 each) 16,000,000 8,400,000 5,800,000

Share premium 9,400,000 1,800,000 1,400,000

Retained earnings 77,240,000 15,292,000 12,060,000

Revaluation reserve 1,325,000 - -

103,965,000 25,492,000 19,260,000

Non-current liabilities:

Loan & borrowings 20,640,000 10,640,000 820,000

Employee benefit liabilities 19,645,000 15,206,000 623,000

Provisions greater than 1 year 1,400,760 2,002,000 514,000

41,685,760 27,848,000 1,957,000

Current liabilities:

Trade & other payables 16,240,000 1,780,000 1,400,000

Provisions less than 1 year 7,743,000 2,528,000 6,243,000

23,983,000 4,308,000 7,643,000

Total equity & liabilities 169,633,760 57,648,000 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.

shares of Dango Ltd for a cash consideration of Shs 16,840 million and

gained control of the company.

(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.

Required:

Prepare ldiscussion paper on the major influences in the development of

International Financial Reporting Standards.

(7 marks)

(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:

2018 2017

Shs '000' Shs '000'

Profit before interest & taxation 750,000 600,000

Interest paid (300,000) -

Profit before taxation 450,000 600,000

Taxation on profit (45,000) (60,000)

Profit for the period 405,000 540,000

2018 2017

Profit for the year attributable to:

Owners of the parent 348,000 480,000

Non-controlling interests 57,000 60,000

Profit for the year 405,000 540,000

The earnings per share (EPS) figure reported in 2017 was Shs 0.53.

Statement of financial position:

2018 2017

Shs '000' Shs '000'

Equity share capital Shs 5,000 per share 480,000 250,000

4% non-cumulative, non-redeemable

preference shares 120,000 120,000

Share premium 214,500 54,200

Retained earnings 685,000 540,000

Other equity reserves 75,000 55,000

Non-controlling interests 90,000 50,000

Long-term debt 600,000 -

Total equity & debt 2,264,500 1,069,200

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:

(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.

(4 marks)

(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.

(8 marks)

(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).

Question 3

Wakanda Enterprises Uganda Limited (WEUL) is a building materials

manufacturer in Uganda, incorporated several years ago. WEUL's financial

statements for the year ended 30 April, 2018 are yet to be authorised for issue.

The management of WEUL has contracted your firm, Risen & Co, to address the

following issues:

1. On 1 May 2014, WEUL purchased an item of property for use as an office

building Shs 1.2 billion (land Shs 600 million) with an economic useful life

of 20 years and zero residual value.

On 30 April, 2016, land and building were revalued to Shs 1.3 billion but

on 30 April, 2017 the value had fallen to Shs 700 million. WEUL uses the

revaluation model to value its non-current assets. There were no disposals

of property, plant and equipment during the year.

On 1 May, 2017 WEUL ceased using the property as an office building and

decided to lease it out under an operating lease. It is the company's policy

to restate all land and buildings to fair value at each reporting date. At the

year end, the fair value of the land and building was Shs 1 billion. This

valuation was based upon other similar properties owned by WEUL.

(6 marks)

2. On 31 August, 2017, one of WEUL's branches in Masindi was flooded by a

nearby river following heavy rains. This damaged inventory that cost Shs

4 billion. The net realisable value of the inventory prior to the damage

was estimated at Shs 6.4 billion. The inventory was later sold on 15 April,

2018 for Shs 6 billion.

(3 marks)

3. During the year, the directors of WEUL approved and paid interim

dividends Shs 500 million. On 2 May, 2018 a further dividend of Shs 300

million was proposed to be paid to the shareholders. On the same date,

the directors received a confirmation from their Lawyers that, Duomo

Limited, a long outstanding receivable of the company owing Shs 400

million, was declared bankrupt.

(3 marks)

4. WEUL wishes to diversify into financial instruments, given the advantages

associated with investing in them. When an entity issues a financial

instrument, it has to determine its classification either as debt or as equity.

The result of the classification can have a significant effect on the entity's

reported results and financial position plus its disclosures. The extent of

disclosures required depends on the extent of the entity's use of financial

instruments and on its exposure to risk.

5. By the year end, WEUL had a debt instrument with a nominal value of Shs

2 billion. The fair value of the instrument on 30 April, 2018 was Shs 1.8

billion. WEUL has determined that there is a deductible temporary

difference of Shs 200 million and intends to hold the instrument until

maturity on 30 April, 2019 and that the Shs 2 billion will be paid in full.

This means that the deductible temporary difference will reverse in full. In

addition, WEUL has Shs 600 million of taxable temporary differences that

will also reverse in full in 2019. WEUL expects the bottom line of its tax

return to show a tax loss of Shs 400 million. The corporation tax rate is

30%.

(6 marks)

Required:

(a) Advise the management of WEUL on the qualitative and quantitative

disclosures about exposure to risks arising from financial instruments

referred to in note 4 above.

(b) Advise WEUL on the accounting treatment in each of the cases 1, 2,

3 and 5 above in accordance with relevant financial reporting

standards.

(Total 25 marks)

Question 4

Yanda Limited (YL) is a flower growing company that has been in existence for

the last 20 years. It specialises in the growing of good quality sweet heart roses

with state-of-the-art infrastructure, with a stable share price in comparison with

its competitors in the flower industry.

You are the newly appointed financial controller at YL, a listed company that

prepares its financial statements in accordance with international financial

reporting standards (IFRSs). During your first meeting with the Chief Executive

Officer, he brought the following to your attention:

By the year end, YL received significant adverse publicity due to its poor disposal

of waste from its flower gardens. According to the investigations carried out by

the National Environmental Management Unit (NEMU), it was confirmed that YL

had not been complying with the environmental policies and procedures as

stipulated in the NEMU guidelines.

During the meeting with the NEMU officials, the directors of YL were reminded of

the need to make explicit assessment of YL's environmental and social impact in

view of re-positioning YL in accordance with the terms of the social contract

between business and society. The directors were also advised to explicitly

disclose YL's contributions towards this cause in the financial reports of the

company.

Required:

Write memo to the Board of Directors of YL that:

(a) discusses the effects of good corporate governance on capital markets in

Uganda.

(15 marks)

(b) advises them on the importance of preparing environmental and social

reports.

(10 marks)

(Total 25 marks)

Question 5

Kapuyo Uganda Limited (KUL) is a mobile phone operator, licensed and

supervised by Uganda Communications Authority. KUL has been in operation for

the last 8 years, with affordable communication products and services. KUL's

financial year ends on 31 December.

(a) The management of KUL decided that the planned expansion programme

would be approved after review of the performance against the budget.

To that effect, the Accounts Assistant was asked to produce the mid-year

financial statements to be used as a basis for the approval of the

implementation of the expansion programme. The following is an extract

from the statement of profit or loss and other comprehensive income for

KUL for the six months ended 30 June:

Continuing operations 2018 2017

Shs '000' Shs '000'

Revenue 73,830,000 67,891,500

Gross profit 40,650,200 35,032,500

Operating profit 11,953,100 10,226,250

Profit from continuing operations 8,443,300 7,548,750

Discontinued operations:

Profit from discontinued operations 138,000 191,250

Profit for the period 8,581,300 7,740,000

Attributable to:

Equity Shareholders 7,546,300 6,603,750

Minority Interest 1,035,000 1,136,250

8,581,300 7,740,000

Additional information:

(i) Included in the administrative expenses for the six months period to

30 June, 2018 is the employer insurance contribution on behalf of

the employees paid on annual basis of Shs 152 million.

(ii) KUL planned for major maintenance and overhaul of their

communications equipment. The expense of Shs 800 million is

expected to be incurred in September 2018. The Accounts Assistant

had apportioned 50% under distribution costs.

(iii) KUL paid a bonus of Shs 280 million to the employees. This bonus

is based on the operating results and is purely discretionary and a

reliable estimate of the bonus for the year ending 31 December,

2018 could not be made as at 30 June, 2018. The bonus is included

in the administrative expenses as at 30 June, 2018.

(iv) KUL's budget for the year included training costs of Shs 186 million.

The training is scheduled for November 2018. 50% of this amount

was included in the administrative expenses as at 30 June, 2018.

(v) KUL paid Shs 236 million for formulation and design of a new device

for their business. The payment was deferred hoping it would meet

the recognition criteria of intangible asset later in the financial year.

KUL accrues incomes and expenditure evenly throughout the year

unless provided otherwise by accounting standards.

Required:

2018 based on notes (i) - (v) above according to the relevant

accounting standards. (Include the justification for any adjustments

and workings)

(17 marks)

(b) KUL has carried a network integration asset in its statement of financial

position since 1 January, 2015 at a cost of Shs 400 million in accordance

with IAS 16: Property, Plant and Equipment. It has an economic useful life

of 10 years. In April 2018, KUL's management decided to sell the asset

after completion of the network integration. By 30 April, 2018 the sale

was considered to be highly probable. On this date, the asset's fair value

was Shs 254 million and its value in use was Shs 258 million. Costs to sell

the asset were estimated at Shs 2.5 million. On 31 July, 2018 the asset

was sold for Shs 256 million.

On 1 January, 2018 KUL made a decision to issue 240,000 5% convertible

bonds at their face value of Shs 100,000 each. The bonds will be

redeemed on 1 January, 2023. Each bond is convertible at the option of

the holder at any time during the five-year period. Interest on the bond

will be paid annually in arrears. The prevailing market interest rate for

similar debt without conversion options at the date of issue was 6%.

Required:

a) Discuss how the above transactions would be reported in the financial

statements of KUL in accordance with relevant financial reporting

standards.