ZAMBIAN OPEN UNIVERSITY

SCHOOL OF BUSINESS STUDIES

ACCOUNTING THEORY/ADVANCED ACCOUNTING 

BBAC 431

INSTRUCTIONS: 

1. There are TWO Sections, A & B. Section A is compulsory and answer any THREE (3) QUESTIONS from Section B
2. The answer paper should be typed using Microsoft Word 
3. PDF, Picture, scanned and handwritten answer paper will not be marked
4. The answer paper should be uploaded into Moodle LMS only. 
5. The answer paper will automatically be tested for plagiarism when uploaded. Answer papers with a high plagiarism score will not be marked. 
6. Answer papers submitted using email or in person will not be marked

YOU ARE REQUIRED TO UPLOAD THE ANSWER PAPER BY MIDNIGHT (00.00HRS) FRIDAY 11^TH DECEMBER 2020. 

THE MOODLE LMS WILL AUTOMATICLALY CLOSE AFTER NIGHT AND STUDENTS WILL NOT BE ABLE TO UPLOAD ANSWER PAPERS AFTER THE INDICATED CUT OFF TIME 

SECTION A: COMPULSORY

QUESTION 1

Nselelo Airways Company is an international airline which flies to destinations all over Africa. Nselelo Airways experienced strong initial growth but in recent periods the company has been criticized for under-investing in its non-current assets.Extracts from Nselelo Airways Company’s financial statements are provided below.

Other extracts from Nselelo Airways company’s financial statements for the year ended 30 June:

Additional information:

1. Nselelo Airways Company had exactly the same flight schedule in 2018 as in 2017, with the overall number of flights and destinations being the same in both years.
2. In April 2018, Nselelo Airways Company had to renegotiate its licenses with five major airports, which led to an increase in the prices Nselelo Airway Company had to pay for the rights to operate there. The licenses with major airports are due to expire in December 2019, and Nselelo Airways Company is currently in negotiation with these airports.

Required:

(a) Calculate the following ratios for the years ended June 2018 and 2019:

1. Operating profit margin
2. Return on capital employed
3. Net assets turnover
4. Current ratio
5. Interest cover
6. Gearing (Debt equity)                                              

Note: For calculations purposes, all loan notes should be treated as debt

                                                                                 (12 Marks)

(b) Comment on the performance and position of Nselelo Airways Company for the year ended 30 June 2019.

Note: Your answer should highlight issues which Nselelo Airways Company should be considering in the future.     (28 Marks)

SECTION B

ANSWER ANY OTHER THREE (3) QUESTIONS

QUESTION 2

1. Define and explain in detail the difference between the following:
   1. Functional currency and presentational currency       (4 marks)
   2. Exchange gains and exchange losses                      (4 marks)
2. Apex Ltd, is a computer software manufacturing company based in the United States of America (USA). On 1^st January 2019, it sold goods worth K10,000.00 to Electro Computers, a company based in Zambia. Electro computers Ltd paid for the software in June 2019. The prevailing exchange rates  were:

          January 2019:           K12:00 : US $ 1.00

          June 2019:     K12:30 : US $ 1.00

Required:

Show how the necessary accounting entries for the transaction will be reflected in the books of each company.

(12 marks)

QUESTION 3

1. Financial Statements are a very important means of financial communication. Identify the relevant components of the primary financial statements through which financial objectives are communicated.   (6 Marks)
2. Explain why consolidated financial statements are useful to the users of financial statements (as opposed to just the parent company’s separate (entity) financial

statements.                                                                  (14 marks) QUESTION 4

(a) Set out here below are the balance sheet for Apolo Plc and Adego Plc.

                  Balance sheet as at 31 December 2018

Current liabilities

         Trade creditors                         2,825                        634

         Owed to Apolo                             -                            40

         Taxation                                     315                         60

                                                      3,140                        734

         Total equity and liabilities           10,392                   2,180 

                                                       =====                ====          

 Additional information:

i.        Apolo Plc bought its holding of 400,000 ordinary shares in Adego

Plc when the latter’s reserves stood at K 312,000 ii. During the year 31 December 2018, Apolo Plc regulary sold products to Adego Plc at a selling of cost plus 33 and one third percent. At 31 December 2018, Adego Plc’s closing stock included K208,000 purchased  from Apolo Plc. 

iii. The difference between the Apolo Plc’s current account of K57,000 shown under debtors on Apolo Plc’s balance sheet and Apolo Plc’s current account of K40,000 shown under creditors on Adego Plc’s balance sheet is due to the fact that a cheque of K17,000  mailed by Adego Plc on 31 December 2018 was not received by Apolo Plc until January 2019.

Required:

(a) Prepare a consolidated balance sheet for the Apolo Group at 31

December 2018.                                                  (20 Marks)

QUESTION 5

The accounts of a medium-sized public company have been prepared but before they can be published certain notes must be drafted to explain the calculations of some of the figures in the accounts, and to show that the accounts conform to best accounting practice. As an accountant you are a member of the team engaged in writing these notes, with special responsibility for the note on accounting policies.

You are required:

1. Identify and explain arguments for and against conceptual framework (accounting standards).                (6 Marks)

2. Name the four fundamental accounting concepts which under IAS1 are presumed to be observed when accounts are prepared, and indicate briefly what is meant by the terms ‘accounting bases’ and ‘accounting policies’. Explain how the fundamental concepts are related to accounting bases and accounting policies.

                                                                                           (14 Marks)