Questions for Management and Cost Accounting BUS 08514
REVIEW QUESTION (Activity Based Costing)
1. Dodo Ltd manufactures three products A,B and C. Data for the period
just ended is as follows:
Product
Output in units
Direct material cost
A
B
C
20,000
25,000
Tsh.5,000 Tsh.10,000 per
per unit
unit
Total overheads production Tsh.190, 000.000.
2,000
Tsh.10,000 per
unit
Information for overhead absorption on a labor hour’s basis
Product
A
B
Labor hours/unit
2
Labor is paid at the rate of Tsh.5,000 per hour
C
1
1
Information for activity based costing:
Tsh.’000’
55,000
90,000
30,000
15,000
190,000
Particulars
Machining
Quality control and set-up costs
Receiving
Packing
Totals
Cost Driver data are as follows:
Particulars
Machine hour/unit
No. of production runs
No. of component receipts
No. of customer orders
REQUIRED:
A
B
2
10
10
20
Calculate the total cost per unit for each product using:
C
2
13
10
20
2
2
2
20
a. Traditional absorption costing assuming production overheads are
absorbed on the basis of labor hours: (10 marks).
b. Activity based costing (10 marks).
2. A to Z provides accountancy services and three different categories
of client; limited companies, self-employed individuals and employed
individuals requiring taxation advice.
A to Z currently charges its clients fees by adding 20% mark-up to
total costs. Currently the costs are attributed to each client based on
the hours spent on preparing accounts and providing advices.
A to Z is considering changing to activity based costing system. The
annual costs and the causes of these costs have been analyzed as
follows:
Details
Amount in Tsh
Accounting preparation and advice
580,000,000
Requesting missing information
30,000,000
Issuing fee payment reminders
15,000,000
Holding client meetings
60,000,000
Travelling to meet clients
40,000,000
The following details related to three of A to Z’s clients and to A to Z
as a whole.
Details
Client
Client Client A to Z
A
B
C
Accounting preparation and advice
1,000
250
340 18,000
Requesting missing information
4
10
6
250
Issuing fee payment reminder
2
8
10
400
Holding client meetings
4
1
2
250
Travelling to meet clients
150
600
0 10,000
REQUIRED:
Make calculations to show the effect of changing to the new system
on fees charged to each of these three clients. (20 marks).
3. Having attended the CPE programme conducted by NBAA on Activity
based Costing (ABC) you decided to experiment by applying the
principles of ABC tot the four products currently produced and sold by
your company. Details of the four products and relevant information
are given below for one period.
Product
A
B
C
D
Output in units
120
100
80
120
Cost per unit in Tsh
‘000’
‘000’
‘000’
‘000’
Direct material
40
50
30
60
Direct labour
28
21
14
21
Machine hours (per unit)
04
03
02
03
The four products are similar and are usually produced in production runs
of 20 units and sold in batches of 10 units.
The production overhead is currently absorbed by using machine hour rate
and the total of the production overhead for the period has been analyzed
as follows:
Details
Tsh
Machine department (rent, business rates, depreciation and 10,430,000
supervision
Setup costs
5,250,000
Stores receiving
3,600,000
Inspection/quality control
2,100,000
Material handling and dispatch
4,620,000
You have ascertained that the ‘cost drivers’ to be used are listed below for
the overhead costs shown:
Overhead cost
Cost Driver
Set up costs
Number of production runs
Stores receiving
Requisitions raised
Inspection/quality control
Number of production runs
Material handling and dispatch
Orders excuted
The number of requisitions raised on the stores was 20 for each product
and the number of orders 42, each order being for a batch of 10 of a
product
REQUIRED
a. Calculate the total cost for each product if all overhead costs are
absorbed on machine hour basis (10 marks).
b. Calculate the total costs for each product, using activity based costing
(ABC) (10 marks).
Cost concepts, estimation and the learning curve topic questions
1. The BQ Company Ltd had recorded the following cost structure for its
first unit for newly special product known as WEYE as follows:
Particulars
Details of notes
Amount in Tsh
Direct material cost
Per unit
45,000
Direct labour
40 hours @Tsh.900 per hour
36,000
Variable overhead
40 hours @Tsh.800 per hour
32,000
costs
Fixed overhead costs 40 hour @ Tsh.750 per hour
30,000
Total costs
143,000
Product WEYE were goods and were produced and sold as per demand
level.
Customer ABC Ltd placed an order amounting to 100 units in June 2021
and goods were delivered in July 2021. Customer CDE Ltd placed an
order for 150 units in July and delivery was effected in August 2021. The
production for customer CDE commenced after completion of an order
for ABC Ltd. Production process occurred under the following
conditions: material waste in production is estimated at 10%, all
overhead costs are based on direct labour hours and learning curve of
85% in assumed. It is the company policy that goods are sold to
customers a profit margin of 20% of selling price.
REQUIRED:
a. Determine the price quotation to customers ABC Ltd and CDE Ltd (5
marks)
b. Clearly identify the basic areas where learning curve theory is likely to
have impact and use (5 marks)
c. State conditions under which learning curve model may apply and
mention possible costs that may be affected by learning effect (5
marks)
d. Compare and contrast the ‘learning curve’ and ‘experience curve, and
establish conditions under which each may be most relevant (5
marks).
2. PQ Limited manufactures toasters. It is investigating whether or not to
accept a one year contract to make a new model toaster for sale
through supermarkets. If the contract is accepted, a new machinery
costing Tsh.7,000,000 would have to be bought at the start of the
contract. The contract uses skilled labour which cannot be increased
above the currently available. PQ will receive a fixed price of
Tsh.45,000 per toaster for all the toasters it can produce under this
contract in a year. The following estimates have been made:
Details
Amount in Tsh.
Materials
Tsh.30,000 per toaster
Labour
Tsh.6,000 per hour
Cost of capital
15%
The Factory Manager knows from experience of similar machines that
there will be a learning effect for labor. He estimates that the learning
rate will be 90%. He also estimates that the first 500 toasters will take
800 hours to produce and that the fixed amount of labor available will
enable 4,000 toasters to be produced in the first year. Fixed overhead of
Tsh.25,000,000 will payable each year.
REQUIRED:
Advice the Factory Manager whether the contract should be accepted or
not (20 marks).
3. Mr. Pepe has recently developed a new improved music CD and
shown below is a summary of a report by a firm management
consultants on the sales potential and production costs of the new
CD.
Sales potential. The sales volume is difficult to predict and will vary
with the price, but it is a reasonable to assume that a selling price of
Tsh.10,000 per CD, Sales would be between 7,500 and 10,000 units
per month. Alternatively, if the selling price was reduced to Tsh.9,000
per CD, sales would: be between 12,000 and 18,000 units per month.
Production Costs. If production is maintained at or below 10,000
units per month, then variable manufacturing costs would be
approximately Tsh.8,250 per CD and fixed costs Tsh.12,125,000 per
month. However, if production is planned to exceed 10,000 units per
month, then variable costs would be reduced to Tsh.7,750 per CD,
but fixed costs would increase to Tsh.16,125,000 per month.
Mr. Pepe has been charged Tsh.2,000,000 for the report by the
management consultants and, in addition, he has incurred
Tsh.3,000,000 development costs of anew CD.
If Mr. Pepe decides to produce and sell the new CD, it would be
necessary for him to use factory premises, which he owns, but are
leased to a colleague for a rental of Tsh.400,000 per month. Also, he
will have to resign from his current post in Ngoma cultural group
where he is earning a salary of Tsh.1,000,000 per month.
REQUIRED:
Analyse the report from the consultants and advice Mr. Pepe on
potential profitability of the alternatives shown in the report.
Note: Any assumptions considered necessary or matters which may
require further investigation or comment, should be clearly stated (20
marks).
Marginal and absorption costing topic
Question 1
Tumbi Motors Limited assembles and sells motor vehicles. It uses an
actual costing system, in which unit costs are calculated on a monthly
basis. Data relating to the month of March 2021 is as given below:
Particulars
Units
Tsh.
Opening inventory
150
Production
400
Sales
520
Variable cost data:
Manufacturing cost per unit produced
10,000
Distribution costs per unit sold
3,000
Fixed Cost Data:
Manufacturing costs
2,000,000
Marketing costs
600,000
Selling price per motor vehicle
24,000
REQUIRED:
A. Prepare an income statement for Tumbi Motors Limited under:
1. Variable costing; and (7.5 marks)
2. Absorption costing (7.5 marks)
B. Clearly explain the differences between (A) (1) and (2) above for
the month of March 2021 (5 marks).
Question 2
A newly employed Management Accountant scribbled the following
income statement and presented it to the management of Dudumizi
Company:
Details
Amount in Tsh. Amount in Tsh.
Sales
240,000,000
Less:Cost of goods sold (Note 1)
Opening stock
18,000,000
Add: Production costs
124,000,000
Costs of goods available for sale
142,000,000
Less: Closing stock
(22,000,000)
Cost of goods sold
(120,000,000)
Gross profit
120,000,000
Operating expenses
Administrative expenses
40,000,000
Sales & distribution expenses
42,000,000
(Note 2)
Total operating expenses
(82,000,000)
Operating Income
38,000,000
Notes:
1. Prices for factory inputs have remained stable as we anticipated.
Unit costs were as follows:
Details
Amount in Tsh.
Unit variable costs
220
Unit fixed overheads (at 300,000 units)
180
Total unit production costs
400
2. A greater part of distribution costs were fixed with exception of a
sales commission equal to 4% of the sales value, and this part of
total distribution costs.
The report was to be used by management in order to assess the
operating outcome for the period just ended. All members of
management with exception of the Finance Manager accepted the
financial statement without any reservation. The Finance Manager
was dismayed by an omission in the report, which rendered it to be
inaccurate. This was besides the fact that it was not based on
variable costing.
In the course of planning, production budget for the period ended,
the company did not anticipate changes in inventory levels.
REQUIRED:
a. Point out the omission in the report and indicate its implication
(4 marks).
b. Prepare a similar income statement which is free from the error
that the Finance Manager had in mind. (10 marks).
c. Reconcile the difference between the income statement you
have just prepared in requirement in (b) above and the income
that business targeted to earn (6 marks).
Question 3
A company sells a single product at a price of Tsh1,400 per unit. Variable
manufacturing costs per unit of the product are Tsh.640. Fixed
manufacturing overheads are absorbed into the cost of production at a unit
rate based on normal activity of 20,000 units per period. Any over or under
absorbed fixed manufacturing overhead balances are transferred to the
profit or loss account at the end of each period, in order to establish the
manufacturing profit.
Sales and production (in units) for the months of March and April 2021
were as follows:
Details
Month
Month
Sales
15,000
22,000
Production
18,000
21,000
The manufacturing profit in March 2021 was reported at Tsh.3,580,000.
REQUIRED:
a. Prepare absorption costing profit statement for April 2021 (6 marks)
b. Prepare marginal costing profit statement for April 2021(6 marks)
c. Explain, with supporting calculations:
i.
The reasons for the change in profits between March and April
where absorption costing is used in each period (4 marks).
ii.
Why profits in (a) and (b) above differs (4 marks).
Target costing questions
Question 1
4. Big Cheese Chairs (BCC) manufactures and sells executive leather
chairs. They are considering a new design of massaging chair to
launch into the competitive market in which they operate.
They have carried out an investigation in the market and using a
target costing system have targeted a competitive selling price of TZS
120,000 for the chair. BCC wants a margin on selling price of 20%
(ignoring any overheads).
Leather costs TZS 10,000 per metre and two meters are needed for
the complete chair although 20% of all leather is wasted in the
upholstery process.
The frame and massage mechanism will be bought in for TZS 51,000
per chair and BCC will upholster it in leather and assemble it ready
for dispatch.
Leather costs TZS 10,000 per meter and two meters are needed for a
complete chair although 20% of all leather is wasted in upholstery
process.
The upholstery and assembly process will be subject to a learning
effect as the workers get used to the new design. BCC estimates that
the first chair will take two hours to prepare but this will be subject to
a learning rate (LR) of 95%. The learning improvement will stop once
128 chairs have been made and the time for the 128th chair will be
the time for all subsequent chairs. The cost of labor is TZS 15,000
per hour.
The learning formula is shown on the formula sheet and at the 95%
learning rate the value of b is -0.0074000581.
REQUIRED:
a. Calculate the average cost for the 128 chairs made and identify any
cost gap that may be present at that stage.
b. Assuming that the cost gap for the chair exists suggest four ways in
which it could be closed. The production manager denies any claims
that a cost gap exists and has stated that the cost of the 128th chair
will be low enough to yield the required margin.
c. Calculate the cost of the 128th chair made and state whether the
target cost is being achieved on the 128th chair.
Question two
Ronald Pneumatics Inc uses a manufacturing costing system with one
direct cost category (direct materials) and three indirect cost categories:
(i)
(ii)
(iii)
Setup, production order, and material-handling costs that vary with
the number of batches.
Manufacturing operation costs that vary with machine-hours.
Cost of engineering changes that vary with the number of
engineering changes made.
In response to competitive pressures at the end of 2018, Ronald
Pneumatics Inc employed value engineering techniques to reduce
manufacturing costs.
Below is the actual information for 2018 and 2019.
Details
2018 TSh 2019 Tsh
Setup, production-order, and materials-handling
4,000
3,750
cost per batch
Total manufacturing operating cost per machine
27.50
25.00
hour
Cost per engineering change
6,000
5,000
The management of Ronald Pneumatics Inc wants to evaluate whether
value engineering has succeeded in reducing the target manufacturing cost
per unit of its product, RP4, by 11%. Actual results for 20X8 and 20X9 for
RP4 are:
Details
Units of RP4 produced
Direct materials cost per unit of RP4
(TZS‘000)
Total number of batches required to produce
RP4
Total machine-hours required to produce
RP4
Number of engineering changes made
Actual 2018 Actual 2019
1,750
2,000
600
550
35
40
10,500
11,000
7
5
Required: (20 marks)
a. Calculate the manufacturing cost per unit of RP4 in 2018.
b. Calculate the manufacturing cost per unit of RP4 in 2019
c. Did Ronald Pneumatics Inc achieve the target manufacturing cost per
unit for RP4 in 2019? Explain.
d. Explain how Ronald Pneumatics Inc reduced the manufacturing cost
per unit of RP4 in 2019 .
BUS 08515: AUDITING AND ASSURANCES 11 REVIEW QUESTIONS
ALL TOPICS
QUESTION 1
Dibal Associate, an audit and assurance firm, has been engaged as auditors for the M & B
Bank Ltd, a public limited liability Company for some time now. M & B Bank has sixty
branches throughout the country including branches in Dodoma, Mwanza, Tanga and
Zanzibar. The Bank is one of the banks in the country which can boast of large landed
properties. Dibal Associate receives about 20% of its income from this particular client.
Before last year’s audit, the bank engaged the audit firm to value its land and buildings in all
its branches and headquarters. This work was executed by the audit firm and a report has
been issued to management. The report has been incorporated in this year’s financial
statements to be audited in the near future. Dibal Associate. see M & B Bank Ltd. as a very
important client whose works are always executed with dispatch.
REQUIRED:
Identify and evaluate any two significant threats as per the Code of Ethics for Professional
Accountants raised in the case and recommend the safeguards to either eliminate or reduce
the threats to an acceptable level. (4 marks)
QUESTION 2
During your firm’s external audit of Hanyegwa Company Ltd (Hanyegwa) the audit manager
in charge has informed the firm that Hanyegwa has offered him a role as its new finance
director. The audit manager first discussed the role with Hanyegwa at the planning meeting
for this year’s audit and that he intends to accept the offer.
REQUIRED:
Outline the ethical issues arising and the safeguards that your firm should adopt. (4 marks)
QUESTION 3
Fimbo and Co. Certified Accountants, recently held a staff training session on quality
control. The session concluded with staff being invited to raise matters from their experience
relating to the ethical rules of independence. Some of these matters are given below:
i.
Shortly before commencing the final audit of a larger listed company, a junior
staff member on the audit team inherited a substantial number of shares in that
company. No action was taken because, although representing a large
investment for the staff member concerned, the number of shares was totally
ii.
iii.
iv.
immaterial with respect to the company. Moreover the partner knew that, when
the company’s results were announced, the share price would rise and he did not
think it was fair to require the staff member to sell them now.
The management accountant of another listed company client had an accident
and was away from work for three months. At the time of accident the auditor
was winding up the prior year’s audit and because of his familiarity with the
company’s management system, it was agreed that he would take over as
management accountant for the three months.
In its management letter to another audit client, Fimbo and Co. warned the
company that their computer system lacked essential controls. The company
decided to install a totally new computer system and Fimbo and Co.’s
management consultancy department was appointed to design the new system.
Fimbo and Co. was recently approached, by a large company that was not, then
an audit client, for a second opinion the company was in dispute with its existing
auditors who were proposing to issue a modified auditor’s report because of
disagreement over inventory valuation. Fimbo and Co.’s technical partner
reviewed the evidence provided by the company and advised the company that
its accounting treatment was in order. Shortly afterwards, Fimbo and Co. was
invited to accept nomination as new auditors. The reply to the letter of enquiry to
the existing auditors made it clear that the company inventory valuation dispute
was not as straight forward as the company had made it out to be.
REQUIRED:
Discuss the possibility that Fimbo and Co. had impaired their independence or
otherwise acted unprofessional; in each situations (i) to (iv) described above (20
marks)
QUESTION 4
Ms. Masumbuko is an engagement partner in the audit of Sanawari, a publicly
quoted incorporated company. She is reviewing the audit files of Sanawari for the
year ended 31st December, 2020. At the front of the files, there is a memo from
the Audit Manager recommending to issue a qualified audit opinion. Sanawari’s
major customer is known to be in financial difficulties yet no provision has been
made against debt owed to Sanawari.
Sanawari’s Chief Financial Officer is arguing that their customer has nearly
completed development of a new product, sales of which will enable them to
repay all their debts. He claimed to have consulted another firm of accountants
who have indicated that a provision might not be necessary.
Ms. Masumbuko is unhappy with the situation for the following reasons:
1. She is reasonably certain that, if she issues a qualified opinion the
management of Sanawari will recommend appointment of another auditors.
2. Her firm supplies many other non-audit services to Sanawari such as tax
consultancy which bring in twice as much revenue as an audit and are more
profitable. It is unlikely that the firm would continue to be asked to provide
these services if the audit is lost. In total, fee paid by Sanawari for the audit
and these other services amount to 9% of the audit firm’s revenues,
3. She has been the engagement partner for ten years and has no reason to
doubt the integrity of the Chief Financial Officer with whom she has worked
closely over that period of time. She is prepared to believe his assertion that
the debt will be paid. However, she also accepts that evidence in the audit file
is equally persuasive that the customer is currently in financial difficulty.
She calls the Chief Financial Officer to advise him that she will have no option but
to issue a qualified opinion if the financial statements do not contain a provision
against the debt.
REQUIRED:
In connection with the threat of removal from the office;
I.
II.
III.
IV.
Discuss problems that can arise for accepting audit engagements where
appointment and removal from office depend on management
recommendations and suggest ways of overcoming them (8 marks)
Explain how an Audit Committee can provide additional safeguards to
audit independence in such a situation (2 marks)
In connection with the issue of providing non audit services to audit
clients.
Explain why provision of non-audit services to audit clients might be seen
as a problem (4 marks)
State why it is sometimes suggested that the auditor should not provide
such services. (6 marks)
QUESTION 5
You are a senior Manager in Combo associates, a renowned audit firm with offices in 30
countries across the world. Your primary work is the monitoring of audit quality and ethical
matters when they arise in relation to audit clients. Bingwa Ltd is one of your clients dealing
with logistics business. The company’s audit report for the financial statements for the year
ended 31st December 2020 was issued last two weeks. Your review of the quality of that
audit, and any ethical issues obtained from a discussion with Mr. Kibano, the audit
engagement partner, is as provided below:
i.
ii.
iii.
Bingwa Ltd.’s operations have expanded to different regions over the last year,
however, the company’s audit committee rejected to increase audit fees. Due to
this, the engagement partner opted to uplift the materiality level during the audit,
and some review procedures were not performed. It was also decided that the
sample sizes used in test of details should be reduced and the sample selection
should be done based on judgement rather than statistical methods. In addition,
certain locations were excluded in the sample for all major balances such as the
sample of non-current assets selected for physical verification.
Combo associates decided to use its overseas to audit some components in an
‘off-shoring’ engagement. The audit firm encourages the use of its off shore
offices arguing that it is a way of improving audit efficiency. These overseas
offices perform the work at a lower cost, and it was largely low-risk, nonjudgmental work included in this arrangement for the audit of Bingwa Ltd, for
example, numerical checks on documentation. In addition, the overseas office
read the minutes of board meetings to identify issues relevant to the audit.
In July 2020, Nyoka Kengeza, Bingwa Ltd’s former finance director was admitted
in Combo associates as an auditor partner, working in the same office with Mr.
Kibano. Nyoka Kengeza was not a member of the current audit team but, he
used to update Kibano on some business developments which had taken place
at Bingwa Ltd during the period before he left. Nyoka Kengeza was one of the
company’s shareholders a held number of ordinary shares in Bingwa Ltd. He
however, sold the shares in January 2021. Nyoka Kengeza has been key in
developing new income generation initiatives so as to increase the firm’s income.
Audit team members were therefore encouraged to cross-sell non audit services
and references to targets for the cross-selling of non-audit services to audit
clients is now included in partner and employee appraisal documentation.
REQUIRED:
Comment on the quality control, ethical and professional issues raised in respect
of the audit of Bingwa Ltd and the firm wide policies of Combo associates,
recommend any actions to be taken by the audit firm. (20 marks).
Question 6
a. You are the auditors of Tulizo Insurance Ltd which deals with insurance
services and hence, regulated by Tanzania Insurance Regulatory Authority
(TIRA).
Tulizo Ltd prepares financial statements for the year ending on 31st December
each year in compliance with the international Financial Reporting Standards.
The company holds it’s Annual General Meeting every year, two months after
the period end. Auditors are appointed for a term of three years and your firm
was appointed to be Tulizo Ltd’s auditor’s at the Annual General Meeting.
Required:
Describe the elements of an assurance engagement such as one, your firm
has got into with Tulizo Ltd (10 marks).
b. Distinguish between an “emphasis of matter paragraph” and “any other
matters paragraph” in an auditor’s report. (4 marks)
c. Internal control is a key part of good corporate governance. Directors are
responsible for maintaining a system of control that will safeguard the
company’s assets.
Required:
Explain briefly the process of designing and operating the internal controls (6
marks)
Question 7
There are various ways which the auditors employ in the process of gathering
audit evidence that lead them in arriving at appropriate conclusions and
opinions. Most of the evidence are obtained directly by the auditor through
various audit procedures that are conducted. They may also decide to obtain
management representations in certain situations and hence become part of
the evidence in arriving at an audit opinion.
Since auditors carry out audits of the financial statements of many different
companies in different industries they sometimes use the service of experts to
gather sufficient appropriate audit evidence.
REQUIRED:
1. Discuss the meaning of “management representations” giving six items
that could be included in a management representation letter. (12 marks)
2. Distinguish between ‘Management experts’ and auditor expert’s’ stating
clearly the extent of the auditor expert’s responsibility over the audit
opinion. (8 marks).
Question 8
a. Your firm ITANGA and Associates has been auditing Lyimo Ltd, you are
the audit supervisor for this assignment. You have assessed the risk of
material misstatement at the financial statements level and you find it to
be high.
REQUIRED:
With examples describe five methods you will employ in order to address the
assessed risk above (12 marks).
b. In performing audit function, External Auditor may rely on the work of
internal auditor.
REQUIRED
Indicate four circumstances which cause External auditor not to rely on
the work of Internal Auditor (8 marks).
Question 9
a. Analytical procedures are frequently used in audit engagements.
Guidance on the use of analytical procedures along with various
requirements are given in ISA 520-analytical review procedure.
REQUIRED:
State the main techniques used to perform substantive analytical
review, giving an example for each technique (10 marks).
b. ISA 265 Communicating Deficiencies in internal control to those
charged with governance and management, places the responsibility
to the auditors to communicate in writing deficiencies in internal
controls, particularly significant deficiencies, to those charged with
governance.
REQUIRED:
With examples explain any five matters that the auditor should
consider in determining whether a deficiency in internal controls is
significant (10 marks).
Question 10
You are the audit manager in your firm of Certified Public Accountants
in Public Practice. You have been appointed auditor of Kafui PLC a
company in the manufacture of high tech audio equipment. This will be
the first client in this industry for your firm.
Kafui has been incurring losses in the past three years. The losses are
attributed to high research and development expenditure incurred and
charged to income. The company requires large investments in
equipment and has borrowed heavily recently to achieve this. The
bankers are reluctant to give additional financing as they are
concerned about the going concern aspects of the company.
As audit Manager of this client you are now planning for the audit of
financial statements for Kafui PLC for the year ended 30th June 2021.
As part of your risk assessment you have established the following:
1. There is an increase in completion in this industry. This has come
about because of relaxation in import regulations resulting in an
increase in cheap audio equipment from the Far East.
2. The company has been experiencing labour disputes in the past
few months resulting in the company not being able to pay salaries
on due dates.
3. You have also read in the newspaper that the CEO of Kafui PLC is
being prosecuted for money laundering offences committed by a
company in which he is a chairman which is connected with Kafui
PLC.
REQUIRED:
a. Discuss any going concern issues you may have, clearly stating the responsibility of
management and auditors. (5 marks).
b. Describe the meaning of money laundering (3 marks).
c. Comment on adherence of professional ethics on reporting money laundering
activities to competent authorities. (7 marks).
d. Describe how your firm may use analytical review assessing the risk in Kafui PLC
and suggest the information you may require to enable you to use analytical reviews.
(5 marks).
REVIEW QUESTION ON ADVANCED FINANCIAL ACCOUNTING 1 BUS 08513.
QUESTION 1
The following is the statement of financial position of Mpigeni Ltd as of December
PARTICULARS/DETAILS
ASSETS
NON -CURRENT ASSETS
PLANT, PROPERTY AND MACHINERY
TOTAL NON-CURRENT ASSETS
CURRENT ASSETS
INVENTORY
ACCOUTS RECEIVABLE
BANK
TOTAL CURRENT ASSETS
TOTAL ASSETS
EQUITY AND LIABILITIES
EQUITY
ORDINARY SHARE @ TZS 10,000
10% REDEMEBLE PREFERENCE @ TZS
20,000
OTHER COMPONENT OF EQUITY
SHARE PREMIUM
RETAINED EARNINGS
TOTAL EQUITY
LONG TERM LIABILITIES
DEBENTURES
CURRENT LIABILITIES
TRADE CREDITORS
CORPORATION TAX
DIVIDEND PAYABLE
ACCRUALS
TOTAL CURRENT LIABILITIES
TOTAL EQUITY AND LIABILITIES
31 DECEMBER
2020
31 DECEMBER
2019
245,000,000/=
245,000,000/=
190,500,000/=
190,000,000/=
80,000,000/=
60,000,000/=
20,000,000/=
160,000,000,=
405,000,000/=
50,000,000/=
75,000,000/=
10,000,000/=
135,000,000/=
325,500,000/=
100,000,000/=
60,000,000/=
80,000,000/=
75,000,000/=
20,000,000/=
30,000,000/=
40,000,000/=
250,000,000/=
3,500,000/=
25,000,000/=
10,000,000/=
193,500,000/=
30,000,000/=
25,000,000/=
50,000,000/=
30,000,000/=
40,000,000/=
5,000,000/=
125,000,000/=
405,000,000/=
60,000,000/=
20,000,000/=
25,000,000/=
2,000,000/=
107,000,000/=
325,500,000
Additional information were as follows:
1. Non-current assets with a net book value of TZS 15 million were sold for TZS 20
million.
2.
3.
4.
5.
Depreciation for non-current assets was TZS 26 million.
Sales were TZS 200 million and grass profit margin was TZS 50 million.
Ordinary shares were issued at a premium of 25%
Redeemable preference shares were redeemed at a premium 10% the premium was
written to statement of income.
6. Tax provided during was TZS 20 million and dividend provided during the year was
TZS 20 million.
REQUIRED
Prepare the cash flows statements for the Mpigeni Company Ltd for the period Ended 31
December 2020 as per IAS 7 using Indirect method (15 marks ).
QUESTION 2
Kikombo Ltd is an iron manufacturer with an authorised share capital of TZS
2,400,000,000.00 comprised of 8,000,000 ordinary shares of TZS 250.00 each and TZS
400,000,000.00 of 8% preference shares of 1,000 TZS each.
The following Trial Balance was extracted as at 31st December 2017
DETAILS
DEBIT
CREDIT
Ordinary share capital
1,200,000,000
8% preference share capital
200,000,000
st
Retained profits as at 1 January 2017
90,000,000
10% debenture stock
120,000,000
Land at cost
200,000,000
Land Accumulated depreciation
60,000,000
Premises at cost
980,000,000
Premises accumulated depreciation
80,000,000
Plant and Machinery at cost
420,000,000
Plant and Machinery accumulated depreciation
180,000,000
Motor vehicles at cost
120,000,000
Motor vehicles accumulated depreciation
40,000,000
st
Inventory at 31 December 2017
290,000,000
Goodwill
160,000,000
Investments (not for re-sale)
160,000,000
Short term investments
40,000,000
Bank deposit account
80,000,000
Bank balance
260,000,000
Trade Receivables
372,000,000
st
Provision for doubtful debts at 31 December 2017
16,000,000
Trade payables
Corporation tax owing
Valued tax owing
Accrued expenses
Deferred government grant as at 1st January 2017
Loan from director (repayable in 2021)
Retained profit for the year ended 31st January 2017
TOTAL
2,822,000,000
88,000,000
88,000,000
28,000,000
56,000,000
48,000,000
128,000,000
140,000,000
2,822,000,000
Additional information
1. The above trial balance has been arrived at after charging depreciation for the year.
2. A final ordinary dividend of TZS 25 per share has been approved by the
shareholders. The dividend should be provided for in the year end accounts.
3. Prepaid expenses valued at TZS 24,000,000 were incorrectly included in operating
expenses
4. Full year debenture interest to be provided for.
5. Government grants received of TZS 40,000,000 have not been included in the trial
balance. These grants and the grants already provided for in the trial balance should
be released to the profit and loss account over a four-year period starting with the
current year.
REQUIRED
Prepare a statement of financial position for Kikombo Ltd as at 31st December, 2017.
QUESTION 3
Holmes PLC
Statement of profit and loss for the year ended 31st December 2021.
Details
Revenue
Cost of sales
Gross profit
Administrative expenses
Profit from operations
Finance costs
Investment income received
Profit before tax
Tax
Profit for the year
Holmes PLC
Statement of Financial position as at
Details
Assets
Non-current assets
Property, plant and equipment
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Capital and reserves
Share capital
Retained earnings
Total capital and reserves
Non-current liabilities
Loan notes
31.12.2021 in
TZS million
TZS million
173
(96)
77
(43)
34
(4)
2
32
(12)
20
31.12.2020 in TZS
million
155
153
24
29
27
80
235
25
16
8
49
202
100
42
142
100
36
136
40
20
Current liabilities
Trade and other receivables
Total equity and liabilities
53
235
46
202
Notes:
1. During 2021 plant costing Tsh.15 million with accumulated depreciation of Tsh.10
million was sold for Tsh.4 million. Plant and machinery costing Tsh.25 million was
purchased during 2021.
2. An analysis of trade and other payables shows the following:
Details
2021 in Tsh.million
2020 in Tsh.million
Trade payables
41
31
Taxation
12
15
Totals
53
46
Tax paid during the year amounted to Tsh.15 million.
3. Administrative expenses include depreciation of Tsh.18 million and loss on the sale
of a fixed asset of Tsh.1 million.
4. Retained earnings at 31st December 2020 was Tsh.36 million
Profit for the year
Tsh.20 million
Total
Tsh.56 million
Dividend Paid
Tsh.14 million
st
Retained earnings at 31 December 2021
Tsh.42 million
REQUIRED:
Prepare a statement of Cash flows of Holmes PLC for the year ended 31st December
2020 using indirect method.
QUESTION 4
Unai Ltd
Profit and loss Account for the year ended 31st December 2015
Details
Sales
Cost of sales
Gross Profit
Investment income
Less: Selling and administrative
Expenses including depreciation
Interest expense
Sub-total
Add: Exceptional items-insurance
Proceeds from fire disaster settlement
Net profit before tax
Tax on income
Net profit for the year
Unai Ltd
Amount in Tsh.
34,218,000
(16,955,000)
17,263,000
1,430,000
(3,843,000)
(620,000)
14,230,000
1,076,200
15,306,200
(1,500,000)
13,806,200
Statement of Financial position as at :
Details
Assets
Cash and cash equivalent
Debtors
Stock
Investments
Plant and machinery cost
Less: Accumulated depreciation
Net Plant and machinery
Total assets
Liabilities and shareholders’ equity
Trade creditors
Interest payable
Taxes payable
Long term loans
Total liabilities
Ordinary share capital
31.12.2015 Tsh
31.12.2014 Tsh
2,2346,200
1,117,000
8,080,000
7,000,000
10,670,000
(2,815,000)
7,855,000
26,398,200
4,080,000
1,817,000
6,010,000
4,000,000
9,100,000
(2,215,000)
6,885,000
22,792,000
2,710,000
120,000
1,080,000
2,000,000
5,910,000
1,262,000
3,850,000
50,000
1,630,000
10,000,000
15,530,000
1,262,000
Profit and loss account
Total liabilities and equity
19,226,200
26,398,200
6,000,000
22,792,000
During the year the following took place:
1. Unai Ltd repaid a five year debt of Tsh.10,000,000 plus interest of Tsh.500,000.
2. Unai Ltd issued 5% Debentures of Tsh.2,000,000 at par, to be redeemed in year
2020.
3. Some equipment’s which had cost of Tsh.1,230,000 and accumulated depreciation
of Tsh.230,000 were sold for Tsh.1,000,000. A new equipment was bought for
replacement
4. An amount of Tsh.580,000 was paid to shareholders of Unai Ltd as dividends for
2015.
5. Unai Ltd acquired 40% of ordinary share of Songombingo Ltd at a cost of
Tsh.3,000,000.
Required:
Prepare cash flow statement for Unai Ltd for the year ended 31st December 2015, using
direct method. (20 marks).
Question 5.
The accountant of Fabian Company, a limited company, has begun preparing final accounts
but the work is not yet complete. At this stage the items included in the list of account
balances are as follows:
Details
Land
Buildings
Plant and Machinery
Depreciation provision
Ordinary share
Retained earnings brought forward
Trade accounts receivable
Trades accounts payable
Inventory
Profit before tax
Allowance for receivables
Bank balance
Suspense
Amount in Tsh.
100,000
120,000
170,000
120,000
100,000
380,000
200,000
110,000
190,000
80,000
3,000
12,000
1,000
Notes (i) to (v) are taken into account
i.
ii.
iii.
iv.
v.
The accounts receivable control account figure, which is used in the list of
account balances, does not agree with the total of the sales ledger. A contra of
Tsh.5,000 has been entered correctly in the individual ledger accounts but has
been entered on the wrong side of both control accounts.
A batch of sales Tsh.12,345 has been entered in the double entry system as
Tsh.13,345, although the individual ledger accounts entries for these sales were
correct. The balance of Tsh.4,000 on the sales returns account has inadvertently
been omitted from the trial balance though correctly entered in the ledger
records.
A standing order of receipt from a regular customer for Tsh.2,000 and bank
charges of Tsh.1,000 has been completely omitted from the records.
A receivable for Tsh.1,000 is to be written off. The allowance for receivables
balance is to be adjusted to 1% of receivables.
The opening inventory figure has been overstated by Tsh.1,000 and the closing
inventory had been undercasted by Tsh.2,000.
Any remaining balance on the suspense account should be treated as purchases
if a debit balance and as sales if credit balance.
Required:
a. Prepare journal entries to cover items (i) to (v) above. You are not to open any new
accounts and may use only those accounts included in the list of account balances
as given. (10 marks).
b. Prepare statement of Financial position for internal use within the limits of available
information. For presentation purposes all the items arising from note (i) to (v) above
should be regarded as material.10 marks).
QUESTION 6
Read the example from The accountant of Wilson I gave you in the class.
EndSS