EXAMINATION NO.

______________________

2022 EXAMINATIONS

CA LEVEL 1 (KNOWLEDGE)

PAPER 1 : ACCOUNTING FRAMEWORK

TUESDAY, 6 DECEMBER 2022 TIME ALLOWED: 3 HOURS

9.00 AM - 12.00 NOON

INSTRUCTIONS:

1. You are allowed 15 minutes reading time before the examination begins during which you
should read the question paper and, if you wish, make annotations on the question paper.
However, you will not be allowed, under any circumstances, to open the answer book and
start writing or use your calculator during this reading time.

2. Number of questions on paper - 5.

3. The paper is divided into TWO sections A and B. Section A contains one compulsory
question. All the candidates are required to answer it. Section B has FOUR questions and
candidates are required to answer any THREE.

4. Question one carries 40 marks while all the questions in Section B carry 20 marks each.

5. All workings must be shown.

6. DO NOT OPEN THIS PAPER UNTIL YOU ARE INSTRUCTED BY

THE INVIGILATOR

This question paper contains 9 pages

This question paper must not be removed from the examination hall.
 SECTION A (40 Marks)

This question is compulsory and must be attempted.

1 (a) Financial information is considered useful in assisting users in making decisions

relating to financial performance and position of a business.

The following are some of the users of financial information:

- Employees
- Shareholders
- Financial institutions
- Customers
- Governments

Required

For each of the above users of financial information.

(i) Outline the kind of information they will be interested in. 2½ Marks

(ii) State why the user will be interested in such kind of financial
information. 2½ Marks

(iii) Name the type of financial statements where they will find such
information. 2½ Marks

(b) (i) Define a control account. ½ Mark

(ii) Explain why control accounts are important. 3 Marks

(iii) Purchases ledger control account is one of the common control accounts.
Identify six possible reconciling items for a purchases ledger control
account reconciliation. 6 Marks

(c) Chikanda plc acquired 75% of the equity capital of Michongwe plc for a
consideration of K130,000,000 on 1 January 2020. At the date of acquisition,
the net assets of Michongwe plc comprised of the following:

K’000
Share capital 80,000
Retained earnings 30,000
Revaluation reserve 20,000
Net assets 130,000

At the date of acquisition, the carrying value of all the assets and liabilities were
reflected at fair value except for buildings which had a fair value of
K30,000,000 in excess of its carrying amount. At that date, the remaining useful
life of buildings was determined to be 15 years. The goodwill at the date of
acquisition was measured at full goodwill method where the fair value of the
non-controlling interest was measured at K50,000,000.

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The statement of income and other comprehensive income for the year ended
31 December 2020 are as follows:

Chikanda Michongwe
K’000 K’000
Revenue 100,000 78,000
Cost of sales (44,400) (36,000)
Gross profit 55,600 42,000
Other income 7,400 -
Administrative expenses (3,500) (4,000)
Sales and distribution costs (3,000) (2,000)
Finance costs (1,500) (1,000)
Other expenses (400) (1,200)
Profit before tax 54,600 33,800
Income tax expense (12,000) (8,000)
Profit after tax 42,600 25,800

Additional information

1 Chikanda plc provide management consultancy services to Michongwe

plc at a fee of K5,000,000 annually from date of acquisition.

2 During the year ended 31 December 2020, Michongwe purchased

K20,000,000 worth of goods from Chikanda plc. Out of these goods,
half (½) of goods remained unsold in the premises of Michongwe. The
sales policy of Chikanda is to add 25% mark up to its cost.

3 During the year ended 31 December 2020, Chikanda plc purchased

K30,000,000 worth of goods from Michongwe plc. One third (⅓) of the
goods bought from Michongwe remained unsold in the premises of
Chikanda plc. The sales policy of Michongwe is to keep 25% margin
from sales price.

4 On the acquisition date, Michongwe sold a motor vehicle to Chikanda

at a selling price of K15,000,000 which had a carrying amount of
K11,000,000. The remaining useful life of vehicles is estimated to be
10 years.

5 During the year, Chikanda plc and Michongwe plc paid a dividend of
K6,000,000 and K4,000,000 respectively.

Required

(i) Calculate the goodwill at the date of acquisition. 3 Marks

(ii) Prepare the consolidated statement of comprehensive income for the

year ended 31 December 2020 20 Marks
(TOTAL: 40 MARKS)

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 SECTION B (60 Marks)

Answer any three questions from this section.

2 Mr Namasani is a sole proprietor and operates his trading business in the commercial
city of Blantyre, Malawi, as Namasani Traders.

The following statement of financial position was drawn from the books of Namasani
Traders as at 31 March 2021.

Non-current assets K’000 K’000

Land and buildings 35,400
Motor vehicles 5,000
Computers 2,600
Total non-current assets 43,000

Current assets
Inventories 10,100
Trade receivables 7,400
Prepayments 40
Bank 2,500 20,040
Total assets 63,040

Equity and Liabilities

Ordinary share capital 47,000
Share premium 4,000
Retained earnings 3,600
Total equity 54,600

Current liabilities
Trade payables 8,040
Accrued expenses 400 8,440
Total equity and liabilities 63,040

During the year, Mr Namasani withdrew K21,600,000 from the business to pay for
school fees of his two children who are pursuing undergraduate degrees at the university
of Cape Town in South Africa.

The following was Namasani Traders’ list of its assets and liabilities as at 31 March
2022.

K’000
Inventories 13,000
Trade receivables 9,700
Prepayments 100
Bank overdraft 4,980
Trade payables 8,480
Accrued expenses 340
Land and buildings 26,560
Motor vehicles 3,500
Computers 1,800
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 Required

(a) Calculate Namasani’s Traders capital as at 31 March 2022. 5 Marks

(b) Calculate the profit/loss on the basis of change in capital. 3 Marks

(c) Describe four ways in which Namasani Traders can increase its capital.
4 Marks

(d) Mr Namasani, an entrepreneurer, was invited to present a motivation speech on

how to become a successful entrepreneurer at a recent lake conference
organized by the Institute of Chartered Accountants in Malawi, (ICAM).

During the conference he overheard accountants discussing issues pertaining to

partnership and also the need to follow local Generally Acceptable Accounting
Practices (GAAP)

Required

(i) Mention four benefits of converting a partnership into a limited liability

Company. 4 Marks

(ii) Identify any two roles or responsibilities of the following bodies to be

shared with Mr Namasani

- Institute of Chartered Accountants in Malawi (ICAM) 2 Marks

- Malawi Accountants Board (MAB) 2 Marks
(TOTAL: 20 MARKS)

3 You have been hired by one of the big companies in Lilongwe on internship. The
Finance Director of the company has requested you to write brief notes on each of the
following accounting topics/issues which he wants to include in his presentation to the
Board of Directors of the company.

Required

Write brief notes on each of the following topics/issues.

(a) Bespoke software. 3 Marks

(b) How COVID-19 has contributed to the need for organizations to assess assets
for impairment. 4 Marks

(c) Block codes. 2 Marks

(d) Types of accounts. 4 Marks

(e) Price/earnings ratio. 3 Marks

(f) Negative goodwill. 4 Marks

(TOTAL: 20 MARKS)

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4 The following information was extracted from the records of Magalasi Limited at 31
December 2021.

K’000
Share capital 12,583
Sales 39,980
Trade payables 2,976
Return outwards 2,011
Provision for doubtful debts 76
Discount allowed 345
Discount received 262
Carriage outwards 684
Dividend paid 2,766
Carriage inwards 1,774
Stationery 361
Accumulated depreciation on furniture 9,453
Purchases 20,352
Returns inwards 843
Rent and rates 3,895
Electricity 1,651
Advertising 897
Salaries 5,328
Bad debts 301
Cash in hand 533
Cash at bank 666
Inventory as at 1 January 2021 2,348
Trade receivables 3,675
Furniture 18,111
Depreciation charge on furniture 1,811

Additional information as at 31 December 2021

1. Inventory as at close of business on 31 December 2021 was K2,663,000.

2. Rent has been prepaid by K168,000.
3. Electricity accrual as at year end was K204,000.
4. Rates have been prepaid by K815,000.
5. Provision for doubtful debts to be adjusted to 3% of trade receivables.
6. Preference shares value were stated as K120,000.
7. Share premium was K35,000.
8. Debenture loan at year end was K381,000.
9. The company bought a motor cycle for K837,000. The company plans to use
the motor cycle for 5 years when it is estimated to have a scrap value of
K57,000. Full depreciation should be provided for the year.

10. Income tax rate is 30%.

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Required

(a) Explain two similarities and two differences between a rights issue of shares
and a bonus issue of shares. 6 Marks

(b) Prepare Magalasi Limited’s statement of comprehensive income for the year
ended 31 December 2021. 8 Marks

(c) Prepare Magalasi Limited’s statement of financial position as at 31 December

2021. 6 Marks
(TOTAL: 20 MARKS)

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5 Gonthi plc operates a beer manufacturing business. Its factory is situated in Nsanje
district in Malawi.

Below is its statement of financial position as at 30 April 2021.

Cost/ Accumulated Carrying
Revaluation Depreciation Amount
K’000 K’000 K’000
Non-Current assets
Land and buildings 200 20 180
Motor vehicles 50 30 20
Furniture 10 2 8
Computer equipment 15 5 10
Equipment 5 1 4
Work in progress 30 - 30
Total non-current assets 310 58 252

Current assets
Inventories 80
Trade receivables 20
Prepayments 5
Cash in hand
10 115
Total assets
367

Equity and liabilities

Ordinary share capital 90
Share premium 18
General reserve 12
Retained earnings 16
Revaluation surplus 26
Total equity 162
Non-Current liabilities
Bank loan 100
Current liabilities
Trade payables 40
Accrued expenses 19
Income tax payable 25
Bank over draft 21 105
Total equity and liabilities
367

Additional information

The following transactions were carried out during the year ended 30 April 2022.

1. Land which cost Gonthi K50,000 in April 2020 was revalued on 30 April 2022.
The revalued amount was K65,000.

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2. The value of the buildings was also assessed and it was concluded that the fair
value approximates the carrying amount.

3. Work in progress related to a warehouse which the company was constructing.

The warehouse was completed in December 2021. The company forgot to
capitalize the warehouse immediately it was available for use in December
2021. The impact of the delay in capitalization was an understatement of
depreciation charge by K2,000,000.

4. Computers which costed Gonthi K4,000,000 in 2020 were written off during
the year to April 2022.

5. The company acquired new equipment in January 2022 to increase its

production volumes to meet the increased demand for its products. The cost of
equipment was K25,000,00.

6. Gonthi’s depreciation policy is straight line method as follows:

Asset category Depreciation rate (%)
Buildings 5
Motor vehicles 20
Furniture 10
Computer equipment 25
Equipment 10

The company provides for full depreciation charge in the year of acquisition or
capitalization for work in progress.

7. The company issued 2,000,000 new ordinary shares on 1 March 2022 at a price
of K5 per share. The nominal price of each share is K1.

8. Gonthi plc paid dividends at 25 tambala per share. The payment was based on
the shareholding that existed on 30 April 2022.

9. Due to pressures to invest in new equipment to keep pace with the ever changing
technological advancements, Directors of Gonthi plc agreed to set aside
K6,000,000 from the retained profits into general reserves to cater for such
needs.

10. Gonthi made a profit after tax of K21,000,000 during the year. This was before
the depreciation charge of the warehouse as documented under number (3)
above.

Required

(a) Prepare Gonthi plc property, plant and equipment note to be disclosed
in its annual financial statements as at 30 April 2022. 10 Marks

(b) Prepare Gonthi’s statement of changes in equity as at 30 April 2022.

10 Marks
(TOTAL: 20 MARKS)
END
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