Question

Consolidated Statement of Financial Position For the year ended 30 September 2019
2019 2019 2018 2018
ASSETS Note ZMW’000s USD’000s ZMW’000s USD’000s
Non-current assets
Goodwill 13 166,801 12,636 166,801 13,628
Property, plant and equipment 14 2,841,824 215,290 2,902,221 237,110
Investment in associate 15(e) 12,376 938 15,412 1,259
Deferred tax asset 10(e) 56,525 4,282 47,854 3,910
3,077,526 233,146 3,132,288 255,907
Current assets
Biological assets 16 170,417 12,910 181,674 14,843
Inventories 17 941,159 71,300 639,811 52,272
Trade and other receivables 18 98,025 7,426 156,314 12,771
Assets held for disposal 34 135,357 10,254 - -
Amounts due from related companies 19 41,554 3,148 50,272 4,107
Income tax recoverable 10(c) 2,767 210 3,885 317
1,389,279 105,248 1,031,956 84,310
Total assets 4,466,805 338,394 4,164,244 340,217
EQUITY AND LIABILITIES
Capital and reserves
Share capital 21 3,006 449 3,006 449
Preference share capital 21 1,000 100 1,000 100
Share premium 22 1,125,012 185,095 1,125,012 185,095
Other reserves 2,116,691 60,243 1,986,756 68,916
3,245,709 245,887 3,115,774 254,560
Non-controlling interest (4,881) (370) (8,660) (708)
3,240,828 245,517 3,107,114 253,852
Consolidated Statement of Financial Position (continued)
For the year ended 30 September 2019
2019 2019 2018 2018
Note ZMW’000s USD’000s ZMW’000s USD’000s
Non-current liabilities
Interest bearing liabilities 23 228,099 17,280 308,312 25,189
Obligations under finance leases 24 19,297 1,462 20,163 1,647
Deferred liability 25 16,362 1,240 22,611 1,847
Deferred tax liability 10(e) 9,138 692 6,909 565
272,896 20,674 357,995 29,248
Current liabilities
Interest bearing liabilities 23 130,661 9,899 95,247 7,782
Collateral management agreement 23 212,381 16,089 107,213 8,759
Obligations under finance leases 24 21,487 1,628 18,248 1,491
Trade and other payables 26 259,585 19,665 297,390 24,294
Provisions 27 52,914 4,009 42,137 3,44 Amounts due to related companies 28 251 19 232 19
Taxation payable 10(c) 1,377 104 2,925 239
Bank overdrafts 20 274,425 20,790 135,743 11,090
953,081 72,203 699,135 57,117
Total equity and liabilities 4,466,805 338,394 4,164,244 340,217
The following information is also available
a)Zamleather limited was acquired by Zambeef group of companies 2 years ago. One of its equipment has been
reported in the above consolidated statement of financial position at cost of K50, 000,000, although its fair value
at the date of acquisition was K60, 000,000. This equipment is depreciated using straight-line method and has a
life span of 10 year with no residue value.
Required
i)Citing relevant financial reporting standards comment on the appropriateness of measurement of the assets of Zam leather by the group.
ii) Using appropriate journal entries suggest any amendments that should be made to the consolidated statement of financial for both 2018 and 2019 above.
iii) State the ledger accounts that will be affected by the above treatment stating whether the affected ledger accounts have been overstated or understated.

Answer 1

1. As per IFRS 3, para 18 provides the acquirer shall measure the identifiable assets acquired and the liabilities assumed at their acquisition-date fair values. Further, para 19 of IFRS 3 provides for each business combination, the acquirer shall measure at the acquisition date components of non-controlling interest in the acquiree that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation at either: fair value or the present ownership instruments’ proportionate share in the recognised amounts of the acquiree’s identifiable net assets.

In the given situation, the Company was acquired 2 years ago. Fair value of the asset is higher than the book value but effect of fair value has not been recorded.

2. Following Journal Entries shall be recorded-

Date	Account Name	Debit	Credit
2018	Equipment A/c---Dr	1,00,00,000
	To Goodwill/ Capital Reserve A/c		1,00,00,000
	(Being fair value of assets recorded)
2018	Depreciation A/c---Dr	10,00,000
	To Equipment A/c		10,00,000
	(Being depreciation recorded)
2019	Depreciation A/c---Dr	10,00,000
	To Equipment A/c		10,00,000
	(Being depreciation recorded)

3.

Accounts affected	Overstated	Understated
Goodwill	Yes
Equipment		Yes
Depreciation Expenses		Yes
Retained Earnings	Yes