Cta 2&Ft Applied Financial Accounting Reporting 2022 Test 1 - Scenario - TD
Cta 2&Ft Applied Financial Accounting Reporting 2022 Test 1 - Scenario - TD
Cta 2&Ft Applied Financial Accounting Reporting 2022 Test 1 - Scenario - TD
READING PAPER
CTA PROGRAMME – PART TIME LEVEL 2 AND FULL TIME JANUARY INTAKE
TEST 1
[100 Marks]
Reading time 30
INSTRUCTIONS
7) No corrections will be made DURING THE EXAM on perceived errors/queries on exam content,
the paper is to be written as is.
Disclaimer clause: All names of persons, places and business entities mentioned in this examination paper
are fictitious and any resemblance to real persons, living or dead, places and business entities are purely
coincidental.
CTA PART TIME LEVEL 2 & FULL TIME JANUARY INTAKE - APPLIED FINANCIAL ACCOUNTING
AND REPORTING - 2022 TEST 1: SCENARIO
• Aveco would get 10,000 shares in Kata and this would not result in any significant
ownership in the company. The shares had a market value of QR240.00 per share and
book value of QR110.00.
• Kata would also transfer the deeds to a property on 15 Aruba Close, Doha, which Aveco
leased back to Kata for a period of 5 years. This was regarded as a low value lease. The
property had the following market values as at:
1 September 2020 31 December 2020 30 November 2021 31 December 2021
QR QR QR QR
1,600,000 1,900,000 2,300,000 2,500,000
The property was acquired on 1 January 2012 for QR1,300,000 with a useful life of 25
years. Kata agreed, at acquisition date, to lease the building for QR26,000 per month.
Notes:
1. Aveco had a building in Doha that had a book value of QR1,520,000. The building is being
currently used as their Head Office and was acquired in 2013. The market value for the
building in its current use is QR1,800,000 however, if Aveco is to use the building as a
hotel, they would sell it for QR1,950,000. The area in which the building is located has the
largest population of hotels in Doha. At acquisition date, the building had a remaining
useful life of 20 years.
(Zimbabwe & Qatar) where this patent can be sold, that have a similar volume of
transactions. Both Aveco and Kata are able to transact in either market. The details of
these markets as at 1 September 2020 are as follows:
Zimbabwe ($) Qatar (QR)
Selling Price 300,000 2,900,000
Transport cost (carrier charges for 500 2,000
documents)
Cost to sell the patent 30,000 200,000
3. On 1 August 2020, consumables which had cost QR250,000 was damaged beyond repair.
Aveco realized that the procurement manager had omitted to insure the specific
consumables with their insurance company which resulted in Aveco not being able to
make any claim from their insurance company. The consumables write down was
accounted for on 26 December 2020.
• Kata used Aveco’s warehouse to store some excess fuel that they could not use
due to the imposed lockdown. Aveco charged Kata QR55,500 per month for
storage fees throughout the 2021 financial year.
• Aveco made a profit of QR9,200,890, and Kata $1,600,000 during the 2021
financial year.
• On 1 January 2021, Aveco gave Kata a QR5,000,000 loan facility to fund its working
capital. Kata had been facing liquidity challenges throughout the lockdown period
and was in desperate need of funds to stay afloat. The loan was granted on an
interest free basis to enable Kata to reduce its operating costs. The loan is
repayable at par after five years.
• Aveco paid Kata Airways to fly its management for a global summit on climate
change, COP261, in July 2021. The management flew business class and the total
cost to Aveco was QR8,820. Kata charges a 25% markup on economy and 35% on
business class.
• On 1 November 2021, Kata needed to ensure that all its resources were directed
towards the recovery of the main business model of the entity. As a result, the
board decided to dispose 40% of its investment in Aveco in order to fund their
working capital needs. The disposal was approved and finalized on 30 November
2021. Kata received QR85,000,000 for the shares. The fair value of the remaining
interest in Aveco was correctly determined as QR25,600,000 and correctly
classified as an investment in a financial asset.
6. Since their inception, Kata has been receiving numerous awards in the aviation industry
and was consequently voted the most preferred air travel from 2016 to 2020. As such,
Kata decided to rebrand their logo in January 2020. They hired an image consultancy who
1
COP26 is the 26th meeting of the Conference of Parties, aka the 26th year that governments, NGOs, trade
unions, businesses, and everyone else with any interest in climate change meets to review and negotiate
global action.
charged $86,900 for the whole procedure. After the re-branding process had been
completed, Kata embarked on a marketing awareness campaign to increase brand
visibility of the new image at a total cost of $15,000. On 1 February 2020, Kata hired an
expert brand valuer who placed a $1,520,000 value on the Kata brand which included the
costs incurred in brand marketing and rebranding. Kata was in agreement with this value
and immediately capitalized it in their financial statements. They estimated a useful life
of 30 years from date of capitalizing.
7. Kata has a fleet of private jets that carter to its most high-class clientele. These types of
customers demand the highest level of secrecy and Kata has provided them with
designated staff who have signed confidentiality agreements. Kata has been servicing this
market for quite a long time and on 1 March 2019, they decided to come up with an
approved customer list of the clients that used the private jet services. Five year contracts
between Kata and the clients were drawn and signed on 31 March 2020. The parties
agreed the following:
• Kata would be their first choice of air travel every time the customers needed to
fly private
• In the event that Kata was unable to provide the service, they would contract
another airline to do so at no extra charges to the customer.
• Customers were required to make an annual non-refundable subscription fee of
$2,000 to remain on the approved customer list.
As of 31 March 2020, in respect of the client list, Kata capitalized $500,000 through a fair value
adjustment, no other entry had been made.
contract with BP Petroleum (hereafter “BP”), on 1 January 2018 where BP would supply Kata with
a minimum of 100,000 liters of jet fuel each month at a 10% discount on prevailing market prices.
The contract was not easy to come by and having such a contract meant Kata could significantly
decrease their operating costs as fuel was a major cost of the operations.
Due to the suspension of the flights on 1 January 2021 and the ongoing lockdowns worldwide,
Kata could not utilize all of the jet fuel it was purchasing from BP which left them with excess fuel
at their disposal which they could neither use nor sell. In April 2021, Kata’s storage facilities could
not take any more fuel deliveries as they were at optimum use. BP agreed that they would store
some of the fuel on Kata’s behalf and Kata had to pay $10,000 monthly storage costs to BP. As of
1 April 2021, jet fuel prices were $0.644 a litre and was expected to remain unchanged under the
years remaining in the contract. Revenue to be generated utilizing the fuel from the BP contract
for the year 2021 was expected to be $800,000 and revenue for 2022 financial year is expected
to be $500,000 and Kata expects to maintain it at that level. Other overheads related to the
contract are expected to be $180,000 in 2021 and $210,000 in 2022.
The board also approved a dividend to shareholders of 17 cents per share. While they
acknowledged that this is the lowest, they have ever declared in the past 10 years, they felt it
was necessary to maintain a dividend position so that the market value of the business would
not decline. The Finance Manager, Mrs. Ketiwe, managed to furnish the board with a positive
solvency and liquidity test as soon as the distribution was done on 15 January 2022.
Additional information:
• Kata Group applies the cost model to all its Property, Plant and Equipment as per IAS 16
and fair value model to all its investment property as per IAS 40.
• All intangible assets are accounted for using the cost model as per IAS 38.
• All investments in subsidiaries, associates and joint ventures are carried at cost model
under IAS 27 in the separate financial statements.
• The tax rate 24.72% for Kata Pvt Ltd and 28% for Aveco Pvt Ltd and assume CGT for both
entities shall apply as per the CGT Act of Zimbabwe.
• An after-tax discount rate of 7.528% shall apply were necessary.
• NCI is measured using the proportionate share of net identifiable assets.