Intermediate PDF

©The National Board of Accountants and Auditors, November 2018
Contents
Questions Page
B1 – Financial Management ………….….…............................... 1
B2 – Financial Accounting …….......……................................ 8
B3 – Auditing Principles and Practice ……………………….. 18
B4 – Public Finance and Taxation I ………………………….. 24
B5 – Performance Management …………………………………. 31
B6 – Management, Governance and Ethics …………………. 39
Suggested Answers Page

B1 – Financial Management ………….….…............................... 45
B2 – Financial Accounting …….......……................................ 57
B3 – Auditing Principles and Practice ……………………….. 67
B4 – Public Finance and Taxation I ………………………….. 80
B5 – Performance Management …………………………………. 87
B6 – Management, Governance and Ethics …………………. 99

EXAMINATION : INTERMEDIATE LEVEL
SUBJECT : FINANCIAL MANAGEMENT
CODE : B1
EXAMINATION DATE : TUESDAY, 30TH OCTOBER 2018
TIME ALLOWED : THREE HOURS (2:00 P.M. – 5:00 P.M.)
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GENERAL INSTRUCTIONS
1. There are TWO Sections in this paper. Sections A and B which comprise a total
of SIX questions.
2. Answer question ONE in section A.
3. Answer any FOUR questions in Section B.
4. In total answer FIVE questions.
5. Marks are shown at the end of each question.
6. Calculate your answers to the nearest two decimal points.
7. Show clearly all your workings in respective answers where applicable.
8. This question paper comprises 7 printed pages.
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Intermediate Level, November 2018 1

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SECTION A
Compulsory Question
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QUESTION 1
(a) Explain the agency theory in relation to a public limited liability company and state
how the agency problem can be resolved. (6 marks)
(b) The following is the current capital structure of Mwana Ltd, a company famous for
manufacturing of milky biscuits:
Source of finance Amount TZS. Weight

Equity shares 100,000,000 50%
Preference shares 40,000,000 20%
10% Debentures 20,000,000 10%
Bank loan 40,000,000 20%
Total 200,000,000 100%
The company has enjoyed increasing market share due to its entrance into foreign
markets in the nearby countries. In order to maintain the company’s status to its
customers, Mwana Ltd wants to purchase new machines to take advantage of new
technologies which will increase production efficiency, lower operating costs and
improve quality of the milky biscuits produced. The investment manager has
informed the management that the new machines can be purchased at
TZS.100,000,000 and the company is considering the sources of funds to finance
the machines. The finance manager has gathered information regarding the
possible financing sources and the associated costs of finance as follows:
Source of finance Cost of capital

Equity shares 18%
Preference shares 12%
Debentures 10%
Bank loan 8%
Corporate bond 5%
The following information was also gathered:

(1) The shareholders are worried about dilution of their powers when more of other
sources of finance are used hence they have limited the managers to ensure that
share financing is not less than 60% of the total capital structure and the
preference shares should not be more than 40% of the total share financing.
(2) The company wishes to maintain the current ratio of debentures in the resulting
capital structure.
(3) The company prefers to use bank loan over corporate bonds and has planned
that 60% of the loan financing, after taking care of debentures, should be from a
bank loan and 40% from a corporate bond.
(4) The company pays tax at the rate of 30%.
2 Intermediate Level, November 2018

REQUIRED:
(i) Basing on the above information, estimate the feasible capital structure and
the resulting Weighted Average Cost of Capital that suits the company
requirements. (7 marks)
(ii) What will the feasible capital structure and the resulting Weighted Average
Cost of Capital be if the company only seeks to minimize financing costs for
the new investment? (4 marks)
(iii) Basing on (i) and (ii) above, show and comment on how the
TZS.100,000,000 needed will be raised to suit the company requirements.
(3 marks)
(Total : 20 marks)
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SECTION B
There are FIVE questions. Answer ANY FOUR questions
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QUESTION 2
(a) Briefly explain any three functions of financial intermediaries. (6 marks)
(b) XYZ Ltd has projected sales of TZS.80,000,000 in the next financial year, and the
Chief Executive Officer of the company has asked you to examine how such sales
projection will be financed. You have gathered the following information relating
to the ending year (2017) and forecasted year (2018) as follows:
Sales in 2017 TZS.60,000,000

Projected sales in 2018 TZS.80,000,000
Net profit margin 5%
Dividend payout ratio 40%
Closing balance in retained earnings TZS.20,000,000
Ratio of cash to sales 4%
Ratio of account receivable to sales 10%
Ratio of inventory to sales 30%
Projected non-current assets TZS.30,000,000
Ratio of account payable to sales 7%
Ratio of accrued liability to sales 15%
Common stock TZS.22,000,000
The director of the company wishes to finance all the required funds without
affecting the common stock level. Hence, all the financing should come from
retained earnings and external financing.

REQUIRED:
(i) Prepare the proforma Statement of Financial Position for the year 2018 to be
presented to the Board of Directors. (8 marks)
(ii) Recast the proforma Statement of Financial Position prepared in (i) above
assuming XYZ Ltd wishes to finance the additional funds needed with both
new issue of shares and bank debt while maintaining a total debt-to-asset
ratio of 45%. (6 marks)
(Total : 20 marks)
QUESTION 3
(a) Dividend growth model can be used in determining the cost of equity capital.
This model, however, has some weaknesses.
REQUIRED:
Outline weaknesses of the model. (6 marks)

(b) The following information is available regarding a mutual fund:
Return = 13%
Risk (σ) = 16%
Beta (β) = 0.9
Risk free rate = 10%
REQUIRED:
(i) Calculate Sharpe ratio (1 mark)
(ii) Calculate Treynor’s ratio (1 mark)
(iii) Briefly explain what each ratio measures (2 marks)
(c) KIBONDO Company requires an immediate advice on its debt collection policy.
The table below summarizes the collection information under the current policy and
two options being considered:
Current Option 1 Option 2

Policy
Expenditures on debt collection procedures 3,450,000 6,330,000 9,553,000
Bad debt losses (% of sales) 6% 5.5% 2.5%
Average collection period 2 months 1.5 Months 1 Month

KIBONDO Company’s current sales are TZS.134,400,000 annually and the
company requires a 20% return on its investments.
REQUIRED:
Which option, if any, would be preferable to the current policy? (10 marks)
(Total : 20 marks)
QUESTION 4
(a) NEM company has free cash flow of TZS.50 million and a total of 10 million
outstanding shares. Based on growth in revenue and reduction in costs, NEM
expects the cash flow to grow by 10% in the first two years, then 5% in the
following three years. NEM further expects a constant growth of 3% after five
years. The weighted average cost of capital is 8%. Currently, the shares are traded
at TZS.100 per share.
REQUIRED:
(i) Using the Gordon Growth Model, what will be the current value of NEM?
(3 marks)
(ii) Is this a good investment opportunity? Why? (2 marks)
(b) MI Company is a technology company based in South Africa and is intending to

expand its operations in Tanzania. In order to do so, they are planning to acquire
MA company which is based in Tanzania. The information for both companies is
detailed below:
MI Company MA Company Merged Company

Price Per share TZS.100,000 TZS.10,000
Total Earnings TZS.500,000,000 TZS.300,000,000
Shares 100,000 40,000
Outstanding
Total Value TZS.10,000,000,000 TZS.400,000,000 TZS.11,000,000,000
MI Company has proposed to acquire MA Company at a price of TZS.20,000 per

share.
REQUIRED:
(i) What will be the Net Present Value (NPV) of the acquisition? (5 marks)
(ii) What will be the post- acquisition price per share for MI’s stock if MI pays
in cash? (3 marks)
(iii) Calculate the post- acquisition P/E ratio for MI assuming cash is used in the
acquisition. (2 marks)

(c) Eisenhower Communications is trying to estimate the first-year operating cash flow
(at t = 1) for a proposed project. The finance staff has collected the following
information:
Projected sales TZS.10 million

Operating costs (excluding depreciation) TZS.7 million
Depreciation TZS.2 million
Interest expenses TZS.2 million
The company faces a 40 percent tax rate.
REQUIRED:
Compute the project’s operating cash flow for the first year. (5 marks)
(Total : 20 marks)
QUESTION 5
(a) Explain the meaning of “capital market efficiency” and discuss its significance to
financial managers. (5 marks)
(b) First Data Co. has 20 million shares of common stock outstanding that are currently
being sold for TZS.25 per share. The firm’s debt is publicly traded at 95 percent of
its face value of TZS.180 million. The cost of debt is 10 percent and the cost of
equity is 20 percent.
REQUIRED:
Compute the Weighted Average Cost of Capital (WACC) for the firm if the
corporate tax rate is 40 percent. (5 marks)
(c) MATESO Co. is considering the purchase of a new machine to replace an old one.
The purchase price of the new machine is TZS.74 million and it will require an
additional TZS.6,000,000 to install, bringing the total cost to TZS.80 million. The
old machine which has a remaining useful life of four years can be sold at its
depreciated (tax) book value of TZS.8,000,000. The old machine would have no
salvage value if held to the end of its useful life. The new machine should cut
labour and maintenance cost and produce other cash totaling to TZS.28,400,000 a
year before taxes for each of the next four years, after which it will probably neither
provide any saving nor have a salvage value. The corporate tax rate is 40%.
Annual depreciation charges for the old and new machine over the four years are
depicted in the table below:
Machine END OF YEAR (figures in millions)

1 2 3 4
New Machine TZS.8 TZS.8 TZS.8 TZS.8
Old Machine TZS.4 TZS.4 0 0
The current Weighted Average Cost of Capital for the firm is 10%.

REQUIRED:
Assess the economic viability of the new machine. (10 marks)

(Total : 20 marks)
QUESTION 6
(a) Briefly explain the Markowitz Portfolio Theory (MPT) and outline any three factors
that constrain the underlying investment strategy. (6 marks)
(b) Explain why many small firms that are making profit and are not in financial
difficulties may still pay small dividends or no dividends at all. (4 marks)
(c) Assume your father is now 50 years old. He plans to retire in 10 years’ time and he
expects to live for 25 years after retirement. He wants his first retirement payment
to have the same purchasing power at the time he retires as TZS.400,000 has today.
He wants all of his subsequent retirement payments to be equal to his first
retirement payment.
His retirement income will begin the day he retires and he will then receive 24
additional annual payments. Currently he has TZS.1,000,000 saved up; and he
expects to earn a return of 8% per year on his savings compounding annually.
Assume the rate of return remains constant over the period of 35 years.
REQUIRED:
(i) How much will he receive as retirement income each year? (3 marks)
(ii) How much must he save during each of the next 10 years (with equal
deposits being made at the end of each year, beginning a year from today) to
meet his retirement goal? (7 marks)
(Total : 20 marks)
________________  _____________

SUBJECT : FINANCIAL ACCOUNTING000000
CODE : B2
EXAMINATION DATE : WEDNESDAY, 31ST OCTOBER, 2018
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2. There are TWO sections in this paper. Sections A and B which comprise a total
of SIX questions.
2. Answer question ONE in Section A.
3. Answer ANY FOUR questions in Section B.
6. Calculate your answers to the nearest two decimal points where necessary.
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SECTION A
Compulsory Question
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QUESTION 1
(a) On 1st January 2017 Babake Co. Ltd acquired 60,000 of the 100,000 equity shares
in Mwanae Co. Ltd, it’s only subsidiary. The draft statements of profit or loss and
other comprehensive income of both companies as at 31st December 2017 are
shown below:
Babake Mwanae
Co. Ltd Co. Ltd
TZS.‘000’ TZS.‘000’
Revenue 43,000 26,000
Cost of sales (28,000) (18,000)
Gross profit 15,000 8,000
Other income – dividend received from Mwanae 2,000 -
Distribution costs (2,000) (800)
Administrative expenses (4,000) (2,200)
Finance costs (500) (300)
Profit before tax 10,500 4,700
Income tax expense (1,400) (900)
Profit for the year 9,100 3,800
Other comprehensive income:
Gain on property revaluation (Note 1) - 2,000
Investment in equity instrument 200 -
Total comprehensive income for the year 9,300 5,800
The following additional information is relevant:
1. At the date of acquisition, the fair values of Mwanae’s assets were equal to their
carrying amounts with the exception of a building which had a fair value TZS.1
million in excess of its carrying amount. At the date of acquisition the building
had a remaining useful life of 20 years. Building depreciation is charged to
administrative expenses. The building was revalued again at 31 st December
2017 and its fair value had increased by an additional TZS.1,000,000.
2. Sales from Babake to Mwanae were TZS.6 million during the post-acquisition
period. All of these goods are still held in inventory by Mwanae. Babake
marks up all sales by 20%.
3. Despite the property revaluation, Babake has concluded that goodwill in
Mwanae has been impaired by TZS.500,000.
4. It is Babake’s policy to value the non-controlling interest at full (fair) value.
5. Income and expenses can be assumed to have arisen evenly throughout the year.

REQUIRED:
Prepare the consolidated Statement of Profit or Loss and Other Comprehensive

Income for the year ended 31st December 2017. (17 marks)
(b) One shareholder of Babake Co. Ltd in part (a) above was concerned that following
the acquisition, the profit from operations of the parent and subsidiary were less
than the aggregate of the individual profit from operation figures. She was
concerned that the acquisition, which the directors had supported as means of
improving earnings per share, appeared to have reduced the combined profits. She
wanted to know where the profits had gone.
REQUIRED:
Give explanation to the concerned shareholder. (3 marks)

(Total : 20 marks)
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SECTION B
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QUESTION 2
Simba Mnyama Sports Ltd ("Simba") is a small private limited company that sells
specialist sports equipment. The company has been trading for a few years.
A draft trial balance has been prepared for the year ended 30 April 2017
Dr Cr
TZS.‘000’ TZS.‘000’
Land and building cost 293,420

Land and buildings accumulated depreciation 29,328
Fixtures and Fittings cost 72,300
Fixtures and fittings accumulated 36,150
depreciation
Motor vehicles cost 47,120
Motor vehicles accumulated depreciation 19,325
Sales Ledger ControlAccount 27,101
Provision for bad debts 1 May 2016 1,780
Bank 45,697
Stock at 1 May 2016 24,102
Purchase Ledger Control Account 12,260
VAT liability 6,123
Accruals 3,210
Long term loan 150,000
Share capital – 500 per share 20,000
Profit and loss reserve 93,429
Sales 255,300
Purchases 120,820
Administration expenses 29,000
Salaries and wages 74,333
Interest 16,090
Suspense 31,684
Total 704,286 704,286
Simba have the following accounting policies:

(1) A full year's depreciation on fixed assets is charged in the year of acquisition and
none in the
year of disposal.
Buildings : Straight line 2%

Fixtures and Fittings : Straight line 20%
Motor vehicles : Reducing balance 25%
(2) Additional information has come to light after the trial balance was prepared which
requires to be accounted for:
(i) The total cost of land included in land and buildings is TZS.49,000,000. This
land was purchased in 2012. A valuation was carried out on 1st May 2016
which revealed that the land had a market value of TZS.122,000,000. This
has not yet been adjusted for.
(ii) No depreciation has been calculated for the year ended 30th April 2017.
(iii) 10,000 new shares were issued during the year for TZS.3,000 each. The
book-keeper was unsure how to treat the entry so just recorded the cash
proceeds.
(iv) A debt due from Billy Bowls & Partners is to be written off for
TZS.1,010,000. His debt has been outstanding since 1st March 2015.
(v) The Sales Ledger Control Account balance comprises debtors with the
following ageing:
< 30 days TZS.6,884,000

31 - 60 days TZS.9,102,000
61 - 90 days TZS.6,990,000
> 90 days TZS.4,125,000
TZS.27,101,000
The directors of Simba Mnyama Sports Ltd have decided to make a general
provision of 10% for all debts over 90 days old. In addition, the following
debts require a 100% provision made against them:
Ms V. Tyson TZS.1,325,000 outstanding since 15.12.2016

Second Sport TZS.897,000 outstanding since 14.3.2017
(vi) The value of closing stock at 30th April 2017 is TZS.24,080,000.

(vii) A purchase of TZS.1,433,000 (excluding 17.5% VAT) made by Speedy Ltd
has been correctly entered in the purchase ledger and the purchases account,
but has been omitted from the purchase ledger control account.
(viii) Credit sales of TZS.4,300,000 including 17.5% VAT made on 30th April 2017
have been included in May 2017’s credit sales in error.
REQUIRED:
(a) Pass journal entries to record the above adjustments. (8 marks)
(b) Prepare a Statement of Profit or Loss and Comprehensive Income for the year
ended 30th April 2017. (12 marks)
(Total : 20 marks)

QUESTION 3
Mapambano is a publicly listed company which has experienced rapid growth in recent
years through the acquisition and integration of other companies. Mapambano is interested
in acquiring Jakisa, a retailing company, which is one of several companies owned and
managed by the same family.
The summarised financial statements of Jakisa Co. for the year ended 30th September 2018
are:
Statement of Profit or Loss and Other Comprehensive Income for the year ended 30th
September 2018
TZS.‘000,000’
Revenue 70,000
Cost of sales (45,000)
Gross profit 25,000
Operating costs (7,000)
Directors’ salaries (1,000)
Profit before tax 17,000
Income tax expenses (3,000)
Profit for the year 14,000
Statement of Financial Position as at 30th September 2018
TZS.‘000,000’ TZS.‘000,000’
Assets
Non-current assets
Property, plant and equipment 32,400
Current assets
Inventory 7,500
Bank 100 7,600
Total assets 40,000
Equity and liabilities
Equity
Equity shares of TZS. 1,000 each 1,000
Retained earnings 18,700
19,700
Non-current liabilities
Directors’ loan accounts (interest free) 10,000
Current liabilities
Trade payables 7,500
Current tax payable 2,800 10,300
Total equity and liabilities 40,000

From the above financial statements, Mapambano Plc has calculated for Jakisa Co. the
ratios below for the year ended 30th September 2018. It has also obtained the equivalent
ratios for the retail sector average which can be taken to represent Jakisa’s sector.
Jakisa Co. Sector average

Return on Equity (ROE)
(including directors’ loan accounts) 47.1% 22.0%
Net asset turnover 2.36 times 1.67 times
Gross profit margin 35.7% 30.0%
Net profit margin 20.0% 12.0%
From inquiries made, Mapambano Plc has learned the following information:
(i) Jakisa Co. buys all of its trading inventory from one of the family companies at a price
which is 10% less than the market price for such goods.
(ii) After the acquisition, Mapambano Plc would replace the existing board of directors
and need to pay remuneration of TZS.2.5 billion per annum.
(iii) The directors’ loan accounts would be repaid by obtaining a loan of the same amount
with interest at 10% per annum.
(iv) Mapambano expects the purchase price of Jakisa to be TZS.30 billion.
REQUIRED:
(a) Recalculate the ratios for Mapambano Plc after making appropriate adjustments to
the financial statements for notes (i) to (iv) above. For this purpose, the expected
purchase price of TZS.30 billion should be taken as Jakisa’s equity and net assets
are equal to this equity plus the loan. (Assume the changes will have no effect on
taxation). (12 marks)
(b) In relation to the ratios calculated in (a) above, and the ratios for Jakisa Co. given in
the question, comment on the performance of Jakisa Co. compared to its retail
sector average. (8 marks)
(Total : 20 marks)
QUESTION 4
(a) Identify the main users of the financial statements and describe the adequacy of the
general purpose financial statements to cater for the reasonable needs of its major
users. (6 marks)
(b) The International Accounting Standards Board (IASB) issued Conceptual

Framework which among other purposes assist the Board in the development of
future IFRSs and in its review of existing IFRSs. It is therefore expected that IFRSs
would not conflict with the Conceptual Framework.

REQUIRED:
(i) Comment on the above statement. (2 marks)
(ii) Explain, if it happens, how the conflict between the treatment or provisions
of any particular IFRSs and the Conceptual Framework would be dealt with.
(2 marks)
(c) The accountancy profession in Tanzania is solely regulated by the National Board
of Accountants and Auditors (NBAA). The NBAA adopted IFRS and IFRS for
Small and Medium-sized Entities (SMEs) for application in Tanzania without
modifications and including effective dates in 2004 and 2010, respectively.
REQUIRED
(i) Identify nature of entities that must apply full version of IFRS as per NBAA
requirements. (8 marks)
(ii) Explain possible reasons for the requirement in (i) above. (2 marks)
(Total : 20 marks)
QUESTION 5
You are provided with the following financial statements of Ugweno Ltd:
Statement of Profit or Loss and Other Comprehensive Income for the year ended 31st
December 2017
TZS.‘000,000’
Revenue 6,690
Gross profit 2,866
Administrative expenses (860)
Distribution expenses (260)
Profit from operating expenses 1,746
Finance cost (266)
Income tax expenses (184)
Profit for the period 1,296
Other income-Revaluation gain on property 900
Total profit 2,196

Ugweno Ltd Statement of Financial Position as at 31st December Figures in
TZS.‘000,000’
2017 2016
Non-Current Assets
Property 7,140 6,400
Plant and equipment 5,298 4,446
Investments 246 274
Current Assets
Inventories 530 450
Trade receivables 356 580
Investments - 40
Cash and cash equivalents - 886 80 1,150
Total Assets 13,570 12,270
2017 2016
Equity and Liabilities

Equity
Equity share 3,500 2,200
Share premium 610 220
Revaluation reserve 900 -
Retained earnings 3,936 3,740
Total Equity 8,946 6,160
Non-Current Liabilities
Bank loans 3,800 5,400
Deferred tax 144 3,944 102 5,502
Current Liabilities
Trade payable 140 202
Interest payable 138 220
Tax payable 174 186
Bank overdraft 228 680 - 608
Total Equity and Liabilities 13,570 12,270
Additional Notes:
(i) Plant and equipment sold during the year for TZS.40,000,000 had originally cost
TZS.154,000,000 in January 2011. The plant and equipment were being
depreciated on straight line basis over 7 years.
(ii) Properties were revalued on 31st December 2017.
(iii) The non-current asset investments are measured at fair value. During the year, they
suffered a loss and were reduced in value by TZS.42,000,000. This amount is
included in the cost of sales. The current assets investments disposed during the
year was a 30 days government bond.
(iv) Ugweno Ltd issued equity shares at premium on 31st December 2017.

(v) Depreciation charged during the year was TZS.300,000,000 for property and
TZS.580,000,000 for plant and equipment.
(vi) A final dividend for the year ended 31st December 2016 was paid during the year
ended 31st December 2017.
REQUIRED:
Prepare Statement of Cash Flow for Ugweno Ltd for the year ended 31st December 2017
using the indirect method in accordance with IAS 7: Statement of Cash Flows. (20 marks)
QUESTION 6
Nkadima is a publicly listed pharmaceutical company. During the year ended 31st
December 2017 the following transactions took place.
1. TZS.600 million was spent on developing a new obesity drug which received
clinical approval on 1st July 2017 and is proving to be commercially successful.
The directors expect the project to be in profit within 12 months of the approval
date. The patent was registered on 1st July 2017. It cost TZS.150 million and
remains in force for three years.
2. During the year, Nkadima was involved in extracting minerals in a number of

different countries. The process typically involves some contamination of the site
from which the minerals are extracted. Nkadima makes good (restore) this
contaminated site only where they are legally required to do so by legislation
passed in the relevant country. The company has been extracting minerals in
Copperland since January 2014 and expects its site to produce output until 31st
December 2021. On 23rd December 2016, it came to the attention of the directors
of Nkadima that the government of Copperland was virtually certain to pass
legislation requiring the making good of mineral extraction sites. The legislation
was duly passed on 15th March 2017. The directors of Nkadima estimate that the
cost of making good the site in Copperland will be TZS.2 billion. This estimate is
of the actual cash expenditure that will be incurred on 31st December 2021. The
annual discount rate to be used in any relevant calculations is 10%.
3. On 1st January 2017, Nkadima issued 10,000, 5% convertible bonds at their per
value of TZS.50,000 each. The bonds will be redeemed on 1st January 2022. Each
bond is convertible to equity shares at the option of the holder at any time during
the five year period. Interest on the bond will be paid annually in arrears. The
prevailing market interest rate for similar debt without conversion options at the
date of issue was 6%. The discount factor for 6% at year 5 is 0.747. The
cumulative discount factor for years 1-5 at 6% is 4.212.
REQUIRED:
Prepare extracts of the effects of the above matters to the financial statements of Nkadima
for the year ended 31st December 2017. (20 marks)
______________________

SUBJECT : AUDITING PRINCIPLES AND PRACTICE
CODE : B3
EXAMINATION DATE : THURSDAY, 1ST NOVEMBER, 2018
TIME ALLOWED : THREE HOURS (9:00 A.M. – 12:00 NOON)
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1. There are TWO sections in this paper. Sections A and B which comprise a total of
SIX questions.
2. Answer question ONE in section A.
3. Answer ANY FOUR questions in section B.
6. In marking candidates’ scripts, examiners will take into account clarity of

exposition, logic of arguments, proper arrangement and presentation of answers
together with the use of relevant examples.
________________________

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SECTION A
Compulsory Question
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QUESTION 1
(a) You are a Manager in the audit firm called Ali & Son Associates and this is your
first time you have worked on one of the firm’s established clients, Maharibiko Co.
The main activity of Maharibiko Co. is providing investment advice to individuals
regarding savings for retirement, purchase of shares and securities and investing in
tax efficient savings schemes. Maharibiko is regulated by the relevant financial
services authority.
You have been asked to start the audit planning for Maharibiko Co. by Mr. Salim, a
partner in Ali & Son Associates: Mr. Salim has been the engagement partner for
Maharibiko Co. for the previous nine years and therefore has excellent knowledge
of the client. Mr. Salim has informed you that he would like his daughter Zaidu to
be part of this year’s audit team. Zaidu is currently studying for her first sitting of
the foundation papers for her CPA (T) qualification. Mr. Salim also informs you
that Mr. Fahd, the audit senior, received investment advice from Maharibiko Co.
during the year and intends to do the same next year.
In an initial meeting with the finance director of Maharibiko Co, you learned that
this year, the audit team will not be entertained on Maharibiko Co’s yatch as used to
be in previous years as this could appear to be an attempt to influence the opinion of
the audit. Instead, he has arranged a balloon flight costing less than one-tenth of the
expense of using the yatch and hopes this will be acceptable. The director also
states that the fee for taxation services this year should base on a percentage of tax
saved and trusts that your firm will accept a fixed fee for representing Maharibiko
Co. in a dispute regarding the amount of sales tax payable to the taxation
authorities.
REQUIRED:
(i) Explain the ethical threats which may affect the auditor of Maharibiko Co.
and for each ethical threat, discuss how the effect of the threat can be
mitigated. (10 marks)
(ii) Discuss the benefits that Maharibiko Co. will achieve by establishing an
Internal Audit Department. (6 marks)
(b) Imani & Co. (Imani) are the auditors of Swala Oil and Gas Co. Ltd (Swala). Swala
has approached the bank to extend their overdraft facility limit in order to finance a
short term project they intend to undertake. The bank has required the cash flow
projections to be provided by Swala and assurance over those projections be
provided by Imani & Co.

REQUIRED:
Explain the type of assurance engagement that will be undertaken by Imani, the
form of assurance that will be provided and why this type of assurance is
appropriate for cash flow projections. (4 marks)
(Total: 20 marks)
------------------------------------------------------------------------------------------------------------
SECTION B
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QUESTION 2
(a) In accordance with ISA 501: Audit Evidence – Specific Considerations for Selected
Items, outline what an auditor should do:
(i) To obtain sufficient appropriate audit evidence regarding the existence and
condition of inventory where inventory is material to the financial statements.
(4 marks)
(ii) Where physical inventory counting is conducted at a date other than the date
of the financial statements. (2 marks)
(iii) If she/he is unable to attend physical inventory counting due to unforeseen

circumstances. (2 marks)
(iv) If inventory under the custody and control of a third party is material to the
financial statements. (2 marks)
(b) Explain each of the five fundamental principles of Code of Ethics and Conduct.
(5 marks)
(c) Direct confirmations from third parties provide independent audit evidence that
certain account balances and items in the financial statements are properly recorded
and disclosed.
REQUIRED:
Distinguish between positive and negative confirmations. (5 marks)

(Total : 20 marks)

QUESTION 3
(a) Define a ‘test of control’ and a ‘substantive procedure’. (2 marks)
(b) Kibosho Happy Kitchens Co (KHK) is a kitchen cleaning company. Customers’

kitchens are always cleaned monthly. After cleaning the kitchen, cleaner leaves an
envelope containing invoice for payment which is posted through the customer’s
front door. KHK has a large number of receivable balances and these customers
may pay by cheque or cash, which is received in the stamped and addressed
envelopes through the post. The following procedures are applicable to the cash
receiving cycle:
1. A junior clerk in the Accounts Department opens the posted envelopes and she
records the cash and cheques received in the log book. She then places all the
monies and cheques received into the locked small cash box.
2. The contents of the cash box are counted each day and after every few days
these sums are banked by any staff of the Accounts Department who will be
available.
3. The cashier records the details of the cash and cheque from the log book into
the cash receipts day book and also updates the sales ledger.
4. Usually on a monthly basis the cashier performs a bank reconciliation. In case

he misses a month, then he catches this up in the following month’s
reconciliation.
REQUIRED:
(i) Identify and explain any four deficiencies of the cash receiving cycle
procedures of KHK. (4 marks)
(ii) Suggest controls to address each of the deficiencies identified in (i) above.
(4 marks)
(iii) Explain tests of controls the auditors of KHK would perform to assess if the
controls are operating effectively. (4 marks)
(c) Describe substantive procedures an auditor would perform in verifying a company’s

bank balance. (6 marks)
(Total : 20 marks)

QUESTION 4
(a) Although both, Controller and Auditor General (CAG) and Internal Auditor
General (IAG) are public officers and their offices have been established to save
public interests, they have got different roles.
REQUIRED:
Differentiate the roles of the CAG from those of IAG. (12 marks)
(b) The Controller and Auditor General (CAG) may be required to conduct Value for
Money Audit of any public entity.
REQUIRED:
(a) Explain the objectives of conducting Value for Money audit (2 marks)
(b) Explain the deficiencies of Value for Money Audit (6 marks)

(Total : 20 marks)
QUESTION 5
(a) The growing recognition of the benefits of good internal control by management,
and the complexities of an adequate system of internal controls have led to the
development of internal auditing as a form of control over all other internal
controls. The emergence of the internal auditor as specialist in internal controls is
the result of an evolutionary process similar in many ways to the evolution of
independent external auditing.
REQUIRED:
(i) Briefly explain the matters which external auditors should address before
placing reliance on the work of internal auditor. (4 marks)
(ii) Describe factors that have contributed to the development and growth of
internal audit profession. (4 marks)
(b) After every audit of client’s financial statements, auditors are required to prepare an
audit report in which they have to issue audit opinion. The audit opinion may be in
one of the four main forms namely unqualified opinion, qualified opinion, adverse
opinion and disclaimer of opinion.
REQUIRED:
For each of the four forms of audit opinion indicated above, explain the
circumstance that could lead the auditors into issuing such form of opinion.
(12 marks)
(Total 20 marks)

QUESTION 6
(a) Explain why is it important that an auditor should send a letter of engagement prior
to undertaking an audit work. (5 marks)
(b) Briefly describe the main contents of a letter of engagement. (5 marks)
(c) Publicity by individual professional accountants in public practice in non-

advertising environment is acceptable under certain conditions as provided for
under the IFAC’s International Ethics Standards Board for Accountants (IESBA)
Code of Ethics.
REQUIRED:
Briefly illustrate any four conditions in which publicity is acceptable. (4 marks)
(d) The use of negative confirmation requests, ordinarily provides less reliable audit
evidence than the use of positive confirmation requests. The auditor should consider
performing other substantive procedures to supplement the use of negative
confirmations.
REQUIRED:
Describe the situations where auditor may use negative confirmations when
collecting audit evidence. (6 marks)
(Total: 20 marks)
_______________  _____________

SUBJECT : PUBLIC FINANCE AND TAXATION I
CODE : B4
EXAMINATION DATE : THURSDAY, 1ST NOVEMBER, 2018
------------------------------------------------------------------------------------------------------------
3. There are TWO Sections in this paper. Sections A and B which comprise
SIX questions.
6. Calculate your answers to the nearest two decimal points where necessary.
_________________

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SECTION A
Compulsory Question
----------------------------------------------------------------------------------------------------------
QUESTION 1
Amina and Hamisi are in partnership since 2002 and have registered their business using
Tanzania laws and commenced its business on 1st February 2002 as a retailer of mixed
products in Morogoro Tanzania. The firm has prepared the following draft accounts for the
year ended 31st December 2017.
Note TZS. “000” TZS. “000”
Sales 1 770,000
Dividends 2 5,000
Interest income 3 12,000
Bad debt recovery 4 5,000 792,000
Expenses:
Salaries 5 320,000
Interest expenses 6 70,000
Rent for the business office 120,000
Legal and professional fees 7 20,000
Contributions to retirements fund 8 15,000
Commission 9 19,000
Insurance 10 18,000
Depreciation 11 25,125
Mixed expenses 12 10,000 617,125
Profit for the Year 174,875
Addition notes:
1. All sales are on credit
2. Dividends are the result of the shares held by the partners bought from the Dar es
Salaam Stock Exchange. These were shares of TWCA Cement Company which
distributed dividends during the period.
3. Amina earned TZS.8,000,000 as interest from its bank deposits and Hamisi earned
TZS.4,000,000 from the amount deposited in ABC bank.
4. The amount received as a result of a business effort to collect debts from its
receivables.
5. Salaries were paid to the following persons:

Amina TZS.200,000,000
Hamisi TZS. 50,000,000
Firm driver TZS. 70,000,000
TZS.320,000,000

6. Interest paid to NSSF Pension Fund for late submission TZS. 20,000,000
Finance charge on loan facility not yet obtained TZS. 50,000,000
TZS. 70.000,000
7. Audit fees TZS. 10,000,000

Fee for filling an appeal at Tax Revenue Appeals Tribunal TZS. 10,000,000
TZS. 20,000,000
8. Employers’ contributions TZS. 15,000,000
9. Commission includes the following payments to partners:

Amina TZS. 11,000,000
Hamisi TZS. 8,000,000
TZS. 19,000,000
10. Insurance costs are in respect of cars owned by partners equally for the year.
11. The depreciation amount was calculated from the two saloon cars used by partners in
business where at December 2016 the written down value was TZS.12,000,000 and
also include a brand new Prado VX which has been imported in January 2017 for
TZS.55,000,000.
12. Mixed expenses included payment of TZS.2,500,000 and TZS.3,000,000 which have
been used by Amina and Hamisi for their medical expenses, respectively, for the year.
The balance was for general consumables used by the business.
REQUIRED:
Based on the information available, determine the taxable income for each partner for the
year 2017. (20 marks)
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SECTION B
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QUESTION 2
Public debt is a major financial problem currently affecting developing countries. In fact,
the public debt is the major source of non-tax revenue to governments. Therefore,
governments need to pay close attention to the public debt and its impact to the economy.
REQUIRED:
(a) Explain the main objectives of a public debt. (5 marks)
(b) Explain how a public debt can be classified. (5 marks)
(c) Explain methods that can be used to redeem a public debt. (5 marks)
(d) Explain the sources of public debt. (5 marks)
(Total : 20 marks)

QUESTION 3
Tax planning may sometimes realize significant tax savings. However, it requires a
thorough knowledge of the tax legislation in both theory and practice.
REQUIRED:
(a) Discuss the morality of tax planning. (6 marks)

(b) Discuss several ways that tax planning can be used to reduce income tax from
employment income. (7 marks)
(c) Explain methods that can be used to quantify the level of tax avoidance and tax
evasion. (7 marks)
(Total : 20 marks)
QUESTION 4
BABAKUKI Tanzania Ltd (BTL) is a subsidiary of HAWAII Group Ltd engaging in

pharmaceutical operations since 1972. BABAKUKI Tanzania Ltd started its operation in
Tanzania Mainland since early 2014 and since then the company has been suffering losses
to date.
The following information relates to business year of income ended December, 2016
during which the company was resident person in the United Republic of Tanzania. The
following are financial information for BABAKUKI:
STATEMENT OF INCOME FOR THE YEAR ENDED 31ST DECEMBER, 2016
PARTICULARS NOTE AMOUNTS

(TZS.‘000’)
Revenue 1 239,000,000
Net income from equity accounted investments (5,200,000)
Other income 2 81,300,000
Total revenues and other income 315,100,000
Purchases (net of inventory variation) 3 (95,100,000)
Operating expenses 4 (63,400,000)
Selling, general and administrative expenses 5 (10,500,000)
Depreciation, amortization and net impairment losses 6 (102,000,000)
Other expenses 7 (65,000,000)
Net operating income (20,900,000)
Net financial items (5,000,000)
Income before tax (25,900,000)
Income tax ______-_
Net income (25,900,000)
=========
Additional information (notes):
(1) Included in the sales figure is an amount of TZS.7,700,000,000 representing
pharmaceutical products supplied to MWANZO MGUMU Investment which were
returned due to failure to meet standards, the sales revenue figure was recorded at
prices inclusive of VAT.

(2) Other income figure is made up of the following items:
 Exchange losses in exporting of pharmaceutical products abroad for
TZS.4,500,000,000
 Disposal profits of TZS.15,000,000,000 earned while selling company’s
distribution heavy trucks. The sold trucks had TWDV of
TZS.105,000,000,000 at the date of sale.
 Market value of 1st winner prize from Tanzania Chamber of Commerce
(TCC) amounting to TZS.800,000,000
 Translation gain amounting to TZS.1,000,000,000
(3) The net of inventory variation above was based on cost of trading stock. At the
year end the market value of the closing stock was declined by TZS.3,800,000,000
below the reported cost. This decline resulted from global decline of
pharmaceutical products prices.
(4) Operating expenses:
These include mainly the cost incurred with respect to the following:
 Payments of fines to TFDA amounting to TZS.100,000,000 for producing
pharmaceutical products below acceptable standards.
 Insurance premium on company assets for 15 months up to May 2017
TZS.1,800,000,000.
 Inducements payments for winning a tender to supply pharmaceutical
products to National Hospital amounting to TZS.500,000,000.
 Construction of a new factory building expected to be completed in April
2017, though up to 31st December, 2016 the company had already incurred
TZS.3,700,000,000.
 Loss suffered on sub-standardized pharmaceutical products amounting to
TZS.4,100,000,000.
(5) Selling, general and administrative expenses includes the following expenditure:
 Salaries to administrative staff, expatriates and casual labourers wages
amounted to TZS.2,500,000,000, TZS.900,000,000 and TZS.1,060,000,000
respectively.
 Charitable contribution made to nearby hospitals amounted to
TZS.4,200,000,000, and TZS.600,000,000 was incurred in conducting staff
annual party.
(6) The reported amount of depreciation, amortization and net impairment losses was
establishment based on BABAKUKI accounting policy. During the year, the
Commissioner for Domestic Revenue has established that depreciation allowance
computed as per the third Schedule of Income Tax Act, CAP 332 was three times
short of the mentioned amount.
(7) Other expenses include the following:
 Site clearing, field preparation and extension of access roads for
TZS.2,470,000,000.
 Cost incurred in acquiring computer software to be used solely by medical
specialists amounting to TZS.9,200,000,000.
 Penalty for failure to file return of income on due date and other income tax
charges amounting to TZS.225,000,000.
(8) The company has unrelieved losses for 2014 and 2015 amounting to
TZS.50,400,000,000 and TZS.21,300,000,000 respectively.

REQUIRED:
Guided with specific provisions of Income Tax Act, CAP 332; compute the taxable income
of BABAKUKI Tanzania Ltd for the year of income ended 31st December 2016.
(20 marks)
QUESTION 5
Mr. Valentine Njaambaya has been in business for a number of years now, he is based in
Mtwara Region. He has been a regular trader paying VAT return each month. He is
currently getting problems on how to calculate VAT due to the Commissioner each month
using the VAT Act, 2014.
He has contracted you to assist him to prepare the VAT to be paid to Tanzania Revenue
Authority. The following are his transactions (VAT inclusive where applicable) for the
month of April, 2018.
(a) Imported furniture for resale from Brazil for USD 2,540.
(b) Purchased irrigation equipment for TZS.2,000,000.
(c) Purchased ten crates of Coca cola for TZS.262,000 each.
(d) Purchased five bags of rice for TZS.356,000 each for supply to a Military barrack
(e) Imported examination question papers for TZS.1,700,000 from Canada in order to
supply to different secondary schools in Mtwara region.
(f) Purchased electrical appliances for TZS.2,185,000.
(g) Paid for electricity which was used for the office TZS.3,000,000.
(h) The exchange rate at the day of import was TZS.2,240/USD.
Also, he had made the following supplies:

(i) Supplied examination papers to a Secondary School for TZS.2,100,000.
(ii) Sold building equipment to customers for TZS.2,000,000.
(iii) Supplied electrical cables to a Secondary School for TZS.1,950,000.
(iv) Sold rice to different customers for TZS.3,000,000.
(v) Sold coca cola to his customers for TZS.3,000,000.
(vi) Supplied furniture for TZS.3,200,000.
(vii) Made other sales of taxable supplies for TZS.1,200,000.
REQUIRED:
(a) Calculate the amount of VAT due to TRA for the month of April 2018.
(18 marks)
(b) When is the amount calculated in (a) above required to be paid and submitted to
TRA? (2 marks)
(Total : 20 marks)

QUESTION 6
(a) Mama Watatu is a new business woman who has started business of importation of
soft drinks known as Tamu Sana from Croatia. Last few months she has imported
150 cartons of the said soft drink. She managed to pay all duties and levies and was
able to take 50 cartons to her store ready for resale and left the others in the
Commissioners’ warehouse. After some days, the Food and Drug Authority
inspected the goods and concluded that the goods were not fit for human
consumption. The report was sent to the manufacturer (the seller) and it was agreed
that those goods should be destroyed. All 150 cartons were destroyed under the
supervision of the Customs Officer.
Mama Watatu comes to you for assistance on how she can recover the ready paid
duties for the goods which have been destroyed.
REQUIRED:
As per the East African Community Customs Management Act, assist her to know
the conditions under which the Commissioner may refund the ready paid duties.
(5 marks)
(b) To be comfortable for her importation business, Mama Watatu decided to operate
her own bonded ware house for storage of the imported goods.
REQUIRED:
Assist her to know at least three conditions or requirements for one to be allowed to
operate a bonded warehouse and be given license from the tax authority. (5 marks)
(c) The Marine International, a Greece registered vessel, arrived in Dar es Salaam
habour on 1st November 2018. The vessel which carries sugar cargo will use 20
days of cargo disembarking starting November 2, 2018. During the disembarking
period, most of crew members will be staying at a hotel in Dar es Salaam. On
arrival at the customs, Papapolis, a crew member of Marine International had the
following items to declare, which he plans to personally use during his 20 days stay
in Dar es Salaam:
1. Cigarettes: 5 boxes of 200 cigarettes each
2. Sprits: 16 bottles of 250mls
3. Wine: 20 bottles of 1 litre each
4. Perfume: 1 bottle of 500mls
5. 2 bags containing his clothes
REQUIRED:
(i) How much of each of the above items will Papapolis be allowed duty free
entry on the date of arrival? (4 marks)
(ii) Explain in details the arrangement that may be used so that Papapolis will be
allowed duty free entry for remaining stock of the above items that have not
been allowed duty free entry in (i) above. (6 marks)
(Total: 20 marks)
___________▲____________

SUBJECT : PERFORMANCE MANAGEMENT
CODE : B5
EXAMINATION DATE : FRIDAY, 2ND NOVEMBER, 2018
TIME ALLOWED : THREE HOURS (9.00 A.M. – 12.00 NOON)
------------------------------------------------------------------------------------------------------------
4. There are TWO Sections in this paper. Sections A and B which comprise a total of
SIX questions.
5. Answer question ONE in Section A
7. State clearly any assumptions made in your answers.
8. Graph papers will be provided, where applicable.
_________________

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SECTION A
Compulsory Question
----------------------------------------------------------------------------------------------------------
QUESTION 1
(a) MARINGA Video Company sells package of blank video tapes to its customers all
over Tanzania. It purchases video tapes from MAYUNGA Tapes company at
TZS.140,000 a package. MAYUNGA Tapes Company pays all freight to
MARINGA Video Company. No incoming inspection is necessary because
MAYUNGA Tapes Company has a superb reputation for delivery of quality
merchandise. The annual demand of MARINGA Video Company is 13,000
packages. MARINGA Video Company requires 15% annual return on investment.
The purchase order lead time is two weeks. The purchase order is passed through
internet and it costs TZS.2000 per order. The relevant insurance and material
handling cost is TZS.3,100 per package per year. MARINGA Video Company has
to decide whether or not to shift to Just In Time (JIT) purchase. MAYUNGA
Tapes Company agrees to deliver 100 packages of video tapes 130 times per year
(5 times every two weeks) instead of existing delivery system of 1,000 packages 13
times a year with additional amount of TZS.20 per package. MARINGA Video
Co. will incur no stock out under its current purchasing policy. It is however
estimated that MARINGA Video Co. will incur stock out cost on 50 video tape
packages under a JIT purchasing policy. In the event of a stock out, MARINGA
Video Co. has to rush order tape packages which costs TZS.4,000 per package.
ZAMOYO Co. also supplies video tapes. It agrees to supply the tapes to
MARINGA at TZS.130,600 per package under JIT delivery system. If video tapes
are purchased from ZAMOYO Co, relevant carrying cost would be TZS.3,000 per
package against TZS.3,100 in case of purchasing from MAYUNGA Tapes Co.
However, ZAMOYO Co. does not enjoy a reputation for quality. MARINGA
Video Co. anticipates the following negative aspects of purchasing tapes from
ZAMOYO Co.:
 To incur additional inspection cost of TZS.5 per package. Average stock

out of 360 tape packages per year would occur, largely resulting from late
deliveries. ZAMOYO Co. cannot rush order at short notice. MARINGA
Video Co. anticipates lost contribution margin per package of TZS.8,000
from stock out.
 Customer would likely return 2% of all packages due to poor quality of the
tapes and to handle this return, an additional cost of TZS.25,000 per
package will be incurred.

REQUIRED:
(i) Evaluate and comment on whether MARINGA Video Company should

implement JIT purchasing system. (8 marks)
(ii) Evaluate and comment on whether MARINGA Video Co. should place
order to ZAMOYO Co. (7 marks)
(b) How does the JIT approach help in improving an organization’s profitability?
(5 Marks)
(Total : 20 marks)
----------------------------------------------------------------------------------------------------------
SECTION B
----------------------------------------------------------------------------------------------------------
QUESTION 2
(a) Briefly explain the concept of “throughput accounting”. In which sector is the
concept mostly applied? (3 marks)
(b) Assess the advantages of life cycle accounting. (5 marks)
(c) JEMEX LTD is a manufacturing company which has recently experienced an

increased competition in the industry it operates. The current selling price per unit
is TZS.2,000 and the company is considering to reduce selling price by 20% in
order to stimulate sales volume from 150,000 units to 200,000 units. The
competitors are also expected to cut prices of the product by 15% to survive in the
market. JEMEX LTD wants to earn at least 10% target profit. The following
information has been obtained:
Particulars Existing Target
Direct Material cost per unit (TZS) 400 385
Direct Manufacturing Labour per unit 55 50
(TZS)
Direct Machinery costs per unit (TZS) 70 60
Direct Manufacturing costs per unit (TZS) 525 495
Manufacturing overheads
No. of Orders (TZS.160 per order) 22,500 21,250
Testing hours (TZS.4 per hour) 4,500,000 3,000,000
Unit reworked (TZS.200 per unit) 12,000 13,000

Other operating costs per unit incurred by the company include: Research and
Design TZS.100, and Marketing and Customer Service TZS.260. Manufacturing
overheads are allocated using relevant cost drivers.
REQUIRED:
(i) Calculate target costs per unit and target costs for the proposed volume
showing break-up of different elements. (8 marks)
(ii) Prepare Target Product Profitability Statement. (4 marks)

(Total : 20 marks)
QUESTION 3
Rorya Cakes Bakery makes a single product called Delicious Cakes. The company is using
marginal costing to value its product. The company standard cost card for Delicious Cakes
comes from the parent company called Rorya Oven headquartered in Malaysia, which
contains the following:
Direct Material: TZS

Ingredient A: (2 kg @ TZS.1,500) 3,000
Ingredient B: (1.5 litres @ TZS.1,200) 1,800
Direct Labour (2 hours @ TZS.5,000) 10,000
Variable overhead (6 machine hours @ TZS.200) 1,200
Total Variable Production 16,000
Costs
The above standard costs were for annual budget production and sales of 8000 units at a
price of TZS.20,000 per cake. Management was concerned about how the company is
controlling costs and wants to control costs according to area of responsibility.
The Management Accountant have collected actual information for the year ended 30 th
June 2018.
Sales: 8600 cakes sold for TZS.172,000,000

Direct material:
Ingredient A: 18,100 kilograms at cost of TZS.21,720,000
Ingredient B: 11,800 litres at a cost of TZS.15,930,000
Direct labour: 17,000 hours at a cost of TZS.102,000,000
Variable overhead: 50,200 machine hours at a cost of TZS.10,040,000
Rorya Cakes Bakery had 400 cakes in its stores at the end of year ended 30th June 2018.

REQUIRED:
(a) Draft Rorya Cake Bakery’s Operating Statement to reconcile budgeted contribution
to actual contribution for the year ended 30th June 2018. (10 marks)
(b) State the possible reasons for direct labour variances. (6 marks)
(c) Evaluate and communicate the reasons why Rorya Cake Bakery could not calculate
material mix and yield variances. (4 marks)
(Total : 20 marks)
QUESTION 4
The MAISHA is a medium sized theatre, with a maximum capacity of 500 seats, offering a
variety of music events to its patrons. In the past, the event offered were of low budget,
featuring local and regional singers and musicians. This year, the theatre engaged the
services to music director who negotiated and booked two well known artists for event in
May. The MAISHA receives some funding to promote its activities from the Department
of Culture and this fund is sufficient to pay basic operating expenses such as insurance,
light and heat, and staff costs. When a concert or event is staged, additional costs arise and
the Board of Management of the theater must ensure that all such costs are covered by
ticket sales. While the artists that have been booked for May are nationally known, they
charge higher fees to perform and the Board of Management are particularly concerned to
ensure that the ticket price charged for the event is sufficient.
The following details have been provided by the Board of Management:
Ticket prices
Tickets for events are usually priced at TZS.15,000 each, but the Board has stated that a
higher price of TZS.25,000 would be more suitable for the well known artists if costs are to
be covered. The MAISHA employs a ticket booking facility that customers may use online
or by telephone. The company providing the service charges the theatre 10% of the ticket
price for each ticket sold.
Additional staff
For every event that is held the theater employs ten part-time staff members. One staff
member is required for box office used for ticket collection, four staff members are
required to usher customers to their appointed seats, and after the event has finished five
workers are required to clean and arrange the theatre in preparation for the next event.
Each staff member is paid TZS.80,000 for working at the event.

Well known artists
 One group, the Mondi, agreed to perform one concert for a fixed fee of
TZS.8,155,000.
 Another singer/songwriter, Kiba also agreed to perform one concert. He negotiated an
arrangement with the music director whereby he would be paid TZS.5,780,000 plus
20% of the ticket price for every ticket sold.
REQUIRED:
(a) For each of the events featuring well known artists:

(i) Calculate the number of tickets that must be sold to breakeven
(ii) Assume that the maximum number of tickets are sold. What ticket price
should be charged if the Board of Management would like to earn a profit of
TZS.5,000,000 on the event? (10 marks)
(b) Assume that a ticket price is TZS.25,000, determine the level of ticket sales at
which the profit earned from the Mondi will be equal the profit earned from Kiba.
(4 marks)
(c) Identify any six main assumptions on which the Cost-Volume-Profit model is
based. (6 marks)
(Total : 20 marks)
QUESTION 5
(a) A large business consultancy firm is organized into several divisions. One of the
divisions is the Information Technology (IT) Division which provides consultancy
services to its clients as well as to the other divisions of the firm. The consultants in
the IT Division always work in a team of three professional consultants on each day
of consulting assignment. The external clients are charged a fee at the rate of
TZS.45,000 for each consulting day. The fee represents the cost plus 150% profit
mark up. The breakup of cost involved in the consultancy fee is estimated at 80%
as being variable and the balance is fixed.
The Textiles Division of the consultancy firm which has undertaken a big
assignment requires the services of two teams of IT consultants to work five days in
a week for a period of 48 weeks. While the Director of the Textiles division intends
to negotiate the transfer price for the consultancy work, the Director of the IT
division proposes to charge the textiles division at TZS.45,000 per consulting day.
In respect of the consulting work of the textiles division, the IT division will be able
to reduce the variable costs by TZS.2,000 per consulting day. This is possible in all
cases of internal consultations because of the use of specialized equipment.

REQUIRED:
Explain the implications and set transfer prices per consulting day at which the IT
division can provide consultancy services to the Textiles division such that the
profit of the business consultancy firm as a whole is maximized in each of the
following scenarios:
(i) Every team of the IT division is fully engaged during the 48 week period in
providing consultancy services to external clients and that the IT division
has no space capacity of consultancy teams to take up the textiles division
assignment. (5 marks)
(ii) IT division will be able to spare only one team of consultants to provide
services to the Textiles division during the 48 week period and all other
teams are fully engaged in providing services to external clients. (5 marks)
(iii) A new external client has come forward to pay IT division a total fee of
TZS.15,840,000 for engaging the services of two teams of consultants
during the aforesaid period of 48 weeks. (5 marks)
(b) Discuss the potential for maximization of income by a multinational corporation

through the use of transfer pricing mechanism. (5 marks)
(Total : 20 marks)
QUESTION 6
(a) Mama Kadogoo likes baking and has decided to start her own business in Goba.
She has developed a delicious Low Calories Cake and has created two varieties:
Vanilla Cream and Chocolate Sweet. Mama Kadogoo hopes to commence
production in January 2019 and has conducted some market research to assess the
interest in, and demand for her products. She has TZS.5,000,000 of saving to use
for the business, but will require additional bank funding to get the business started.
Mama Kadogoo has prepared the following information relating to her business.
Estimated sales demand:

Cake January February March April May June
Vanilla Cream 1,000 1,500 1,600 1,800 2,000 2,000
Chocolate 1,500 1,650 1,600 2,200 2,100 2,200
Sweet
1. Mama Kadogoo has obtained orders from a hotel that specialises in arranging
conferences and events. She also has orders from local restaurants and
coffee shops. She estimates that 30% of her customers will pay cash
immediately and has agreed to give one month’s credit to the remaining
customers.

2. The Vanilla Cream Cake will have a selling price of TZS.1,800 each while
the Chocolate Sweet Cake will sell for TZS.1,950 each for the first three
months but she intends to increase these prices by 10% after that time.
3. The Cakes are made using the same basic ingredients but with a different
topping. Mama Kadogoo has calculated that for each variety of Cake, the
basic ingredient cost is 20% of the selling price while the cost of the topping
is 8% of the selling price. In line with the selling price increase of 10%
explained at (2) above, Mama Kadogoo also expects an increase in the cost
of ingredients of 10% after the first three months of operations.
4. In terms of paying for ingredients and toppings, Mama Kadogoo has
negotiated that she will get one month’s credit from the ingredient supplier
but must pay cash immediately for topping purchases.
5. Some months ago, Mama Kadogoo successfully applied for a grant from a
Local Enterprise Board. She will receive TZS.5,100,000 in total, to be paid
in two equal installments, January and May 2019.
6. To start production, Mama Kadogoo will need to purchase some kitchen
equipment in January costing TZS.4,500,000. The equipment is expected to
last for four years and have no scrap value at the end of that time.
7. Mama Kadogoo has located suitable premise, which have been approved by
the food safety authority, and which will cost TZS.1,200,000 per month to
rent. The landlord requires one month’s rent as a deposit, and this must be
paid with the first month’s rent.
8. Other operating costs including power, packaging, insurance, administration
expenses and depreciation of kitchen equipment are expected to be
TZS.4,005,000 for the year.
9. Mama Kadogoo will employ two staff in the business and will pay wages of
TZS.1,320,000 each per month.
10. Unless otherwise specified, the relevant costs are paid in the month in which
they are incurred.
REQUIRED:
Prepare a Cash Budget for Mama Kadogoo’s business, on monthly basis, for the six
months period commencing 1st January 2019, clearly showing the closing cash
balance at the end of each month. (12 marks)
(b) Evaluate “Zero Based Budgeting” over “traditional budgeting” method. (8 marks
(Total: 20 marks)
______________________

SUBJECT : MANAGEMENT, GOVERNANCE AND ETHICS
CODE : B6
EXAMINATION DATE : FRIDAY, 2ND NOVEMBER 2018
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1. There are TWO Sections in this paper. Sections A and B which comprise a total of
SIX questions.
_________________

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SECTION A
Compulsory Question
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QUESTION 1
(a) Umoja & Co is a firm of professional accountants based in Tanzania. The firm is
auditor to Bumbs Fuel and Lubricants Supply Ltd (BFLS). During the annual audit,
the auditors identified a significant loss of funds through payment to a fictitious
suppliers and more than three accountants (ex-workers of BFLS Ltd) found to be
involved and have left the company. An internal audit highlighted a relaxed culture
emanating the board regarding authorization of opening of accounts and the
approval of payments. The directors do not intend to proceed with criminal
prosecutions since this would be costly and may damage reputation of the company
(BFLS Ltd) to stakeholders. Moreover, the prosecutions will not return the money
lost.
The board has told the Umoja & Co to disclose the fraud to public and any other
regulatory authorities. However BFLS Ltd is refusing to disclose the fraud in its
financial statements. The auditors believe that the fraud should be disclosed due to
its relevance to understanding of the entity’s financial performance and meeting the
true and fair view in respect to the result of such financial period.
Following the refusal of the directors and audit committee to disclose the fraud, the
auditor has threatened to qualify his opinion by disclosing the fraud in report. On the
other hand the directors have responded by threatening to remove the firm if they
qualify their opinion.
REQUIRED:
(i) Identify any four fundamental principles which appear to be source of

conflicts in the case? (4 marks)
(ii) Why do you think it is likely for Umoja & Co not to qualify their opinion?
(3 marks)
(iii) Highlight whether or not Umoja & Co should disclose the fraud. (3 marks)
(b) Controlling and directing are useful for many aspects in organization such as
assuring strategy implementations, goal attainment, financial resources, and
protection of assets and behavior of employees.
REQUIRED:
Explain five mechanisms by which a company can be effectively directed and

controlled. (5 marks)
(c) Kibena John is a Managing Director (MD) of Wajanja Town Inc Tanzania, a men’s
leather shoes manufacturer. Kibena has been informed by the purchasing manager
that one of their product distributor from Egypt use child labour which is not ethical
in Tanzania but ethical in Egypt.
REQUIRED:
Using relativism theory of ethics, explain how should Kibena as MD decide on the
above ethical dilemma. (5 marks)
(Total : 20 marks)
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SECTION B
There are FIVE questions in this section. Answer ANY FOUR questions
-------------------------------------------------------------------------------------------------------
QUESTION 2
(a) Innovation from competitors is encouraging consumers to defect from the current
supplier, but business companies continue to make it difficult to pull away from the
integrated array of products and services.
REQUIRED:
Discuss three ways a business can use to lock-in customers. (6 marks)
(b) Control as one of the management functions is practiced in various areas in an

organization. One of these areas is in the budgeting process.
REQUIRED:
Discuss the importance of budgetary controls in a business organization. (4 marks)
(c) Give reasons why organization structure needs to tally with the implementation of a
business strategy. (5 marks)
(d) The ethical dilemma that Mr. Kisowia is facing is whether to disclose the
information relating to a decrease in current year’s holiday sales even though the
overall sales revenue has increased and profits have been maintained.
REQUIRED:
Explain how Mr. Kisowia could resolve this ethical dilemma basing on the Ethical
Relativism Theory. (5 marks)
(Total: 20 marks)

QUESTION 3
(a) Businesses performance depend on a number of both internal and external business
environments which have contributions such as political, social, economic and
technological factors.
REQUIRED:
Discuss five economic factors that affect organization performance. (5 marks)
(b) Budgeting means establishing short-term financial plans, designed to meet definite
goals by making available financial resources to match projected activities.
REQUIRED:
Explain four roles of budgetary process in any organization. (5 marks)
(c) Mrs. Crude is employed as a manager in one of the business companies owned by
shareholders. She has never gone through any training on management issues. She
has hired you as her consultant and one of the issues she needs advice from you is
about the type of information that should be disclosed to the shareholders during
general meetings.
REQUIRED:
Advise the Manager accordingly. (5 marks)
(d) According to Porter, an organization can achieve competitive advantage through

three generic strategies. Achieving a competitive advantage means gaining an edge
over competitors in an industry.
REQUIRED:
Explain the three generic strategies for gaining competitive advantages according to
Porter? (5 marks)
(Total: 20 marks)
QUESTION 4
(a) Business growth is evidenced not only by physical expansion but also by
improvement in methods of doing business such as adopting internet and e-
commerce which are trending in the current business and entrepreneurial world.
REQUIRED:
Describe any five essentialities of internet and e-commerce in business operations.

(10 marks)

(b) Procurement in business organization is one of the major area where malpractices
like fraud is likely to occur.
REQUIRED:
Explain any five types of frauds that are likely to be practised in the procurement
process. (5 marks)
(c) Organizational culture is very important for every business as it portrays unique
style for internal and external reputations through beliefs, ideology, principles and
values.
REQUIRED:
Analyze five features of a successful business organizational culture. (5 marks)

(Total: 20 marks)
QUESTION 5
(a) Any business hoping to raise funds, either with the help of loans or through venture
capital, needs a plan. If you show up at the bank to ask for a loan, all the decision-
makers will want to see a business plan. Venture capitalists also like to know that
you are organized and informed and that you have a strategy to help them realize a
return on their investment.
REQUIRED:
Write down seven important items that should be included when writing a business
plan. (10 marks)
(b) Discuss the main types of corruption in the public sector in terms of the following
categories:
(i) Money
(ii) Assets
(iii) People
(iv) Power (5 marks)
(c) Explain five questions that must be answered before taking any decision according
to Tucker’s 5-question model. (5 marks)
(Total : 20 marks)
QUESTION 6
(a) The risk manager is mainly responsible for the implementation of the risk
management policies set by the risk committee and the board of directors.
REQUIRED:
Identify five major roles played by the risk committee in mitigating the business
risk. (5 marks)

(b) Compare and contrast between competitive advantages and sustainable competitive
advantages. (5 marks)
(c) Explain how to implement Porter’s Generic Strategy in order to achieve

competitive advantages. (5 marks)
(d) Name and explain basic characteristics of an effective governing board member.
(5 marks)
(Total : 20 marks)
___________▲____________

SUGGESTED SOLUTIONS
BI – FINANCIAL MANAGEMENT
NOVEMBER 2018
ANSWER 1
(a) Agency problem occurs when managers or management take decisions that are not
consistent with the objectives of shareholder value maximization. Contributors to
this agency problem are: divergence of ownership and control, goals of managers
differing from those of shareholder because of personal interest and asymmetry of
information between managers and shareholders.
Public Ltd Company:

- Agent  Managers
- Principal  Shareholders
 Agency Theory  Relationship between & Agency & Principal
How to resolve: Agency problem can be solve & through

- Incur agency costs (e.g. auditing) and impose and transfer some
of the agency costs to the agent (management)
- Convergence of interests – e.g. share options, reward
-
(b) (i) Feasible capital structure and WACC
Shares = 60%
Preference shares = 0.4 x 60% = 24%
Equity shares = 0.6 x 60% = 36%
Debts = 40%
Debentures = 10%
Bank Loan = 0.6 x 30% = 18%
Corporate bond = 0.4 x 30% = 12%
Resulting capital structure
Source of finance Amount (TZS) Weight
Equity Shares 108,000,000 36%

Preference shares 72,000,000 24%
10% Debentures 30,000,000 10%
Bank Loan 54,000,000 18%
Corporate Bond 36,000,000 12%
Total 300,000,000 100%

Weighted Average Cost of Capital (WACC)
Source of finance Weights Cost of Cost after Weighted
Capital tax 30% cost
Equity Shares 36% 18% 18% 6.48%
Preference shares 24% 12% 12% 2.88%
Debentures 10% 10% 7% 0.7%
Bank Loan 18% 8% 5.6% 1.008%
Corporate Bond 12% 5% 3.5% 0.42%
Weighted Average Cost of Capital (WACC) 11.488%
(ii) Feasible Capital Structure

If the company seeks to minimize financing cost for the new investment, the
financing source with low cost will be selected. Hence the whole amount of
100,000,000 TZS will be raised from corporate bond at the interest of 5%.
The resulting capital structure will be

Source of finance Amount (TZS) Weight
Equity Shares 100,000,000 33.3%
Preference Shares 40,000,000 13.3%
10% Debentures 20,000,000 6.8%
Bank Loan 40,000,000 13.3%
Corporate Bond 100,000,000 33.3%
Total 300,000,000 100%
Weighted Average Cost of Capital (WACC)

Source of finance Weights Cost of Cost after Weighted
Capital tax 30% cost
Equity Shares 33.3% 18% 18% 5.994%
Preference shares 13.3% 12% 12% 1.596%
Debentures 6.8% 10% 7% 0.476%
Bank Loan 13.3% 8% 5.6% 0.744%
Corporate Bond 33.3% 5% 3.5% 1.1655%
Weighted Average Cost of Capital (WACC) 9.9755%
(iii) Comments on financing of 100,000,000 TZS

Basing on the shareholders’ requirements the 100,000,000 TZS will be financed as
follows:
Source of finance Current Structure Additional Total Capital Weighted cost
Amount (TZS) finance structure
Equity Shares 100,000,000 8,000,000 108,000,000 6.48%
Preference Shares 40,000,000 32,000,000 72,000,000 2.88%
10% Debentures 20,000,000 10,000,000 30,000,000 0.7%
Bank Loan 40,000,000 14,000,000 54,000,000 1.008%
Corporate Bond 36,000,000 36,000,000 0.42%
Total 200,000,000 100,000,000 300,000,000 11.488%

Basing on minimum financing cost for 100,000,000 TZS will be financed as follows:
Source of finance Current Structure Additional Total Capital Weighted
Amount (TZS) finance structure cost
Equity Shares 100,000,000 100,000,000 5.994%
Preference Shares 40,000,000 40,000,000 1.596%
10% Debentures 20,000,000 20,000,000 0.476%
Bank Loan 40,000,000 40,000,000 0.7448%
Corporate Bond 100,000,000 100,000,000 1.1655%
Total 200,000,000 100,000,000 300,000,000 9.9755%
Hence, if the shareholders’ requirements are fulfilled the company total weighted
average cost of capital will be 11.488% which is 1.5117% (11.488% - 9.9763%)
higher than when the company raises 100,000,000 TZS from source with lowest cost.
ANSWER 2
(a) Functions of Financial Intermediaries

(i) Aggregation
Relatively small sums of individual savings can be pooled and loaned to a
single borrower. Financial intermediation allows for the pooling of financial
resources.
(ii) Risk reduction.
(iii) Lenders themselves do not run the risk of losing their investments as bad debts
are borne by the financial intermediary. In addition, financial intermediaries
lend to a large number of individuals thus spreading their own risk.
(iv) Maturity transformation
Intermediaries benefit from a continuous supply of finance through individual
lenders. Because of this, it is possible to allow lenders instant access to
deposits and assure borrowers a fixed (but longer) repayment term.
(v) Convenience
Individuals are able to invest (or lend) without having to find an individual
borrower. The investor merely decides on the return required over a chosen
period, approaches the relevant intermediary and makes a deposit. For
borrowers, it acts as a ready source of funds even when money is in short
supply.
(vi) Regulation
There is heavy regulation in place to protect investors against negligence or
malpractice.
(vii) Information
Intermediaries will be able to provide advice to borrowers and lenders on their
options depending upon their individual circumstances.

(b) (i) Proforma statement of Financial Position for the year 2018
2018
Non-Current Asset 30,000,000
Current Assets
Cash 3,200,000
Receivable 8,000,000
Inventory 24,000,000
Total 65,200,000
Common Stock 22,000,000
Retained Earnings 22,400,000
Total Equity 44,400,000
Liabilities
Account Payable 5,600,000
Accrued Liabilities 12,000,000
Required External Financing 3,200,000
Total Equity and Liabilities 65,200,000
Workings
W1: Net Profit Margin – 5% x 80,000,000 – 4,000,000 Tshs.
W2: Dividend Pay-out – 40% x 4,000,000 – 1,600,000 Tshs.
W3: Retained Profit for the year – 4,000,000 – 1,600,000 – 2,400,000 Tshs.
W4: Cash – 4% x 80,000,000 – 3,200,000 Tshs.
W5: Account Receivables – 80,000,000 x 10% - 8,000,000 Tshs.
W6: Inventories – 80,000,000 x 30% - 24,000,000 Tshs.
W7: Account Payables – 80,000,000 x 7% - 5,600,000 Tshs.
W8: Accrued Liabilities – 80,000,000 x 15% - 12,000,000 Tshs.
W9: Total Retained Earnings – Accumulated earnings + Retained Earnings
for the year = 20,000,000 + 2,400,000 – 22,400,000 Tshs.
(ii) Re-casted Proforma statement of financial position
2018
Non-Current Asset 30,000,000
Current Assets
Cash 3,200,000
Receivable 8,000,000
Inventory 24,000,000
Total 65,200,000
Common Stock 22,565,517
Retained Earnings 22,400,000
Total Equity 44,965,517
Liabilities
Account Payable 5,600,000
Accrued Liabilities 12,000,000
Required External Financing 2,634,483
Total Equity and Liabilities 65,200,000

Working:
W9: Debt/Equity = 0.45
Debt = 0.45 Equity
Debt + Equity = 65,200,000
Equity = 65,200,000 – Debt
Equity = 65,200,000 – 0.45 Equity

Equity = 44,965,517
Debt = 20,234,483
Equity Financing = 44,965,517 – 44,400,000 – 565,517 Tshs.
Debt Financing = 20,234,483 – 5,600,000 – 12,000,000 – 2,634,483 Tshs.
ANSWER 3
(a) Weaknesses of dividend growth model

(i) The model assumes that dividends will grow at a constant rate in perpetuity.
Normally, a trend in past dividends is used to estimate future dividends,
However, there is no assurance that the companies will not skip dividends or
dividends will grow at the same rate in the future.
(ii) Other influences on the share prices are ignored e.g. inflation, political
developments, and attempt to take over the company.
(iii) Certain companies e.g. companies in start-up stage do not pay dividends as they
prefer to reinvest their profits. Hence, it is difficult to value new companies
using this model.
(iv) The growth model fails to consider capital gains.
(v) However, it is contended that, even where shares are sold, the sale price will
represent the present value as on the date of sale of expected future dividends.
Therefore, this model does not exclude capital gains.
(vi) It assumes that Investors’ expectations are predictable and they can be
modelled into a discounted cash flow.
(vii) It assumes that the company’s earnings will increase continuously to maintain
dividend growth in the future.
(b) Mutual fund
(i) Sharpe ratio
Sharpe’s ratio = (RP – RF) / σ = [13 – 10] / 16 = 0.19
(ii) Treynor’s ratio
Treynor’s ratio = (RP – RP) / β = [13 – 10] / 0.90 = 3.33

(iii) Both are standardized measures of excess return (over risk free rate, share
standardize the excess return with its own risk indicator Treynor’s standardize
the excess return with market risk indicator (beta)
(c) KIBONDO Company:Evaluating Debt Collection Policies. (Millions of TZS)
Current Policy Option No. 1 Option No.2
Average Accounts Receivable 22.4 16.8 11.2
Reduction in Receivable - 2.8 11.2
(a) Opportunity Savings - 1.12 2.24
(b) Bad Debt Losses 4.032 7.392 3.36
Reduction in Bad Losses - 0.672 4.704
Benefit of Option (a) + (b) - 1.792 6.944
Extra Costs of Debt Collection - 2.88 6.103
Net Benefit/(Loss from Option - (1.088) 0.841
Conclusion: Option 2 would be preferable to current policy.
Workings
Average Receivables = Sales/Receivable Turnover
Current Policy: Average Receivables = 134,400,000/6 = 22,400,000/=
Option No. 1: Average Receivables = 134,400,000/8 = 16,800,000/=
Option No. 2: Average Receivables = 134,400,000/12 = 11,200,000/=
Opportunity Savings = 20% x Reduction in Receivables
Option No. 1: Opportunity = (0.20) (5,600,000) = 1,120,000/=
Option No. 2: Opportunity = (0.20) (11,200,000) = 2,240,000/=
Alternatively
Current Proposed Proposed
Polity Option 1 Option 2
(1) Sales 134,400,000 134,400,000 134,400,000
Collection Period: 2 months 1.5 months 1 months
Receivables 22,400,000 16,800,000 11,200,000
Cost of finance @ 20% 4,480,000 3,360,000 2,240,000
(2) Bad Debts 6% 5.5% 2.5%
8,064,000 7,392,000 3,360,000
(3) Collection Expenditure 3,450,000 6,330,000 9,553,000

Summary of Results
Current Proposed Proposed
Polity Option 1 Option 2
Finance Cost 4,480,000 3,360,000 2,240,000
Bad Debts 8,064,000 7,392,000 3,360,000
Collection Exp. 3,450,000 6,330,000 9,553,000
Total Costs 15,994,000 17,082,000 15,153,000
Option 2 is preferable to Current Policy which will results cost saving with net
benefits of Tshs.841,000, which is Tshs.15,994,000 – Tshs.15,153,000/
ANSWER 4
(a) Company NEM has free cash flow of TZS 50 Million. It is based on growth in
revenue and reduction in costs, the NEM expect the cash flow to grow by 10% in the
first two years, then 5% in the following three years. NEM further expect a constant
growth of 3% after five years. The weighted average cost of capital is 8%. In
addition, NEM has a total of 10m outstanding shares. Currently the shares are traded
at sh.100 per share.
(i) Using the Gordon Growth Model. What will be the current value of NEM
CF Discounting In Millions
Y1 50 x 1.10 55 1.081 50.93
Y2 55 x 1.10 60.5 1.082 51.87
Y3 60.5 x 1.05 63.53 1.083 50.43
Y4 63.53 x 1.05 66.70 1.084 49.03
Y5 66.70 x 1.05 70.04 1.085 47.67
Y6 on 70.04 x 1.03 72.14 1.086 49.10
Terminal Value 72.14 / (0.08 – 1442.82 1.086 981.91
0.03)
DCF 1280.94
 NEM present Value sh. 1.28Billion

 Outstanding shares are 10Million
 Fair Equity value per share will be: 1.28Billion divide by 10Million = 128
 Value per share is sh. 128 per share
 Compare with the current market price per share of TZS 100
 Our estimation (128shs.) is higher than the market price of (100)
(ii) Is this a good investment opportunity, why?
This is a good investment since we can invest with low market price.
(b) M1 Company is a technology company based in South Africa and is intending to
expand its operations in Tanzania. In order to do so, they are planning to horizontally
merge with MA company which is based on Tanzania. Before embarking on the
merger, both companies decided to analyse their financial position. Both companies

decided to change their financial sand use USD in order to have proper comparisons.
The information for both companies is detailed below:
(i) M1 Company has proposed to acquire MA Company at a price of TZS 20,000
per share for M1’s stock. What will be the net present value of the merger?
NPV – Gain – cost: (11,000,000 – 10,400,000) – (20,000) (40) – 400,000) – 999,200
600,000 – 400,000 = 200,000
(ii) What will be the post-merger price per share for M1’s stock if M1 pays in
cash?
P = (10,000,000 + 200,000) / 100 = 102,000 or 10,200,000/100 = 102,000
(iii) Calculate the post-merger P/E ratio for M1 assuming cash is used in the
acquisition
EPS = (500,000 + 300,000) / 100 – TZS 8,000 P/E ratio = 102,000 = 12.75
8000
(c) Eisenhower Communications is trying to estimate the first-year operating cash flow
(at t = 1) for a proposed project. The financial staff has collected the following
information:
Projected sales TZS. 10 million
Operating costs (excluding depreciation) TZS. 7 million
Depreciation TZS. 2 million
Interest expense TZS. 2 million
The company faces a 40 percent tax rate. What is the project’s operating cash flow
for the first-year (t = 1)?
Sales 10,000,000
Operating Expenses 7,000,000
EBDIT 3,000,000
Less: Depreciation 2,000,000
EBIT 1,000,000
Less: Interest 2,000,000
EBT (1,000,000)
Less: Tax (40%) (400,000)
NI (600,000)
After Tax Net Operating CF = EBIT (1 – T) + Depreciation
OR = EBDIT (1 – T) + Depreciation (T)
Candidate may use any of the following alternative to arrive at CF

 CF - N1 + (1 – Tc)* Interest expense + Depreciation
CF = -600,000 + (1 – 0.4)*2,000,000 + 2,000,000
CF = Tsh. 2,600,000

 CF - EBIT*(T1 – Tc) + Tc* Depreciation
CF - 1,000,000 (1 – 0.4) + 2,000,000
- Tsh. 2,600,000
 CF - EBDIT*(1 – Tc* Depreciation
CF = 3,000,000 (1 – 0.4) + 0.4*2,000,000
= Tsh. 2,600,000
ANSWER 5
(a) Capital Market Efficiency and its significance to financial managers.
Efficient Market Hypothesis

Capital market efficiency is concerned with pricing efficiency when weak form, semi
strong form and strong form efficiency are being discussed. In relation to pricing
efficiency, the efficient markets hypothesis (EMH) suggests that share prices fully
and fairly reflect all relevant and available information. Relevant and available
information can be divided into past information public information and private
information.
Weak form efficiency: This form of pricing efficiency arises when share prices fully
and fairly reflect all past share price movements. Past share price movements cannot
therefore be used to predict future share prices in order to make an abnormal gain and
share prices appear to follow a random walk, with share prices responding to new
information as this arrives on the capital market.
Semi-strong form efficiency: This form of pricing efficiency arises whom share
prices fully and fairly reflect all relevant and available public information, which
includes all past information. Public information cannot therefore be used to make an
abnormal gain, since capital markets and share prices quickly and accurately respond
to new information. Well-developed capital markets are held to be semi-strong form
efficient.
Strong form efficiency: This form of pricing efficiency arises when share prices
fully and fairly reflect all private information as well as public information. When
capital markets are strong form efficient no-one can make abnormal returns, even
investors who possess private or insider information. This level of pricing efficiency
is not found in the real world, which is why governments legislate against insider
dealing.
Significance of EMH to financial managers
 If the EMH is correct and share prices are fair, there is no point in financial
managers seeking to mislead the capital market, because such attempts will be
unsuccessful. Window-dressing financial statements, for example, in order to
show a company’s performance and position in a favourable light, will be seen
through by financial analysts as the capital market digests the financial statement
information on pricing the company’s shares.
 Another consequence of the EMH for financial managers is that there is no
particular time which is best for issuing new shares, as share prices on the stock
market are always fair.
 Because share prices are always fair, there are no bargains to be found on the
stock market, i.e. companies whose shares are undervalued. An acquisition
strategy which seeks to identify and exploit such stock market bargains is
pointless if the EMH is correct.
It should be noted, however, that if real-world capital markets are semi-strong form
efficient rather than strong form efficient, insider information may undermine the
strength of the points made above. For example, a company which is valued fairly by
the stock market may be undervalued or overvalued if private or insider information
is taken into account.
(b) First Data Co. has 20 million shares of common stock outstanding that are currently
being sold for TZS 25 per share. The firm’s debt is publicly traded at 95 percent of its
face value of TZS 180 million. The cost of debt is 10 percent and the cost of equity is
20 percent. What is the weighted average cost of capital for the firm? Assume the
corporate tax rate is 40 percent.
Equity value = TZS 25 * 20million share = TZS 500m
Debt value = 0.95 * TZS 180m = TZS 171m
Total Value = TZS 671m
WACC = (500/671)*20% + (171/671)*10%*0.6 = 16.43%
(c) MATESO Co.: Assessing the Economic Viability of the New Machine
Initial Cash Outflow
TZS million
Cost of “new” asset 74
Add: Capitalized expenditures (shipping and installation) 6
Less: Net proceeds from sale of “old” asset (8)
Taxes (tax savings) due to sale of “old” asset 0
Initial cash outflow TZS 72
Incremental net cash flows (years 1 to 4)
The savings represent the net operating revenue savings to the firm if it replaces the
old machine with the new one.
END OF YEAR
1 2 3 4
Net change in oper. Revenue excl. 28.4 28.4 28.4 28.4
Depr. (4) (4) (8) (8)
Less: Change in Depreciation Charges
Net Change in Income before taxes 24.4 24.4 20.4 20.4
Less: Net increase in Taxes (40%) (9.76) (9.76) (8.16) (8.16)
Net Change in Income After Taxes 14.64 14.64 12.24 12.24
Add Back: Change in Depr. Charges 4 4 8 8
Net Cash Flow 18.64 18.64 20.24 20.24
Discount Factor (at 10%) 0.91 0.83 0.75 0.68
Present Value 17 15.5 15.2 13.8

NPV = PV of Net Cash Flows – Initial Cash Investment
= [17 + 15.5 + 15.2 + 13.8] – 72
= -TZS 10.5 million
The project has a negative NPV. It is therefore not economically viable. It is advised
not to replace the old machine with the proposed new one.
ANSWER 6
(a) Markowitz portfolio theory

Markowitz portfolio theory (MPT) quantifies the benefits of diversification. By
allocating the investment across a number of risky assets, an investor can
significantly lower the downside risk without lowering the expected return.
MPT emphasises on the correlation between investments. The return from a single
asset is less important than how that asset’s value moves against overall portfolio
values. By looking at the statistical relationship between all the assets in a portfolio,
on a risk and return basis, the investor can optimise returns against a chosen level of
acceptable risk.
Constraints that affect portfolio strategy:
(i) Time horizon for investments
(ii) Taxation
(iii) Regulatory framework
(iv) Specific needs / preferences
(v) Need for liquidity
(b) Many small companies are recently established, having been set up to exploit
promising new business opportunities. Companies in sectors where growth is rapid,
or where product or business process innovation is critical to competitive success,
often need to invest heavily. One of the sources of capital for investment is retained
funds, and the decision about which sources of capital to use will depend on the costs
and risks of different forms of capital. Companies of the kind described may not have
steady cash flows (which minimize the risks associated with interest and capital
payments on loans) or substantial tangible fixed assets (which can provide security
for loans). Equity tends to be more appropriate for such companies, since rapid
growth that is difficult to predict or uncertainties associated with technological and
other innovation means higher levels of business risk. A high level of investment and
a preference for equity capital means that such a company is more likely to use
retained earnings for investment and consequently pay out a smaller proportion (or
even none) of its earnings as dividends. This approach is often acceptable to
shareholders, who may be more prepared to wait for a return in the form of capital
growth rather than dividends than they would be with an investment in a larger, better
established company.

(c) (i) How much will he receive as retirement income each year?
He will receive an amount equivalent to Future Value of Tsh. 400,000 in 10
years to come
FV = PV* FVIF (8% 10)
= 400,000*2.1589
= Tsh. 863,560
(ii) How much must he save during each of the next 10 years (with equal deposits
being made at the end of each year, beginning a year from today) to meet his
retirement goal?
PV at time of retirement = Annuity * PVIFA (8%.25)*(1 + r)
= 863,560*10.675*
= Tsh. 9,955,980.3
The amount must be the same as Future value of Tsh. 1,000,000 available today
plus annual savings for the next 10 years.
Tsh. 9,955,383 = 1,000,000*FVIF (8%.10) + Annuity * FVIFA (8%.10)
Tsh. 995,598.3 = 1,000,000*2.1589 + Annuity * 14.487
Calculating the Annuity = Tsh. 538,212.4
______________  ______________

SUGGESTED SOLUTIONS
B2 - FINANCIAL ACCOUNTING
NOVEMBER 2018
ANSWER 1
(a) Balance Consolidated Statement of Profit or Loss and Other Comprehensive Income
TZS ‘000
Revenue (43,000 + (26,000 ) – 6,000 (W1)) 63,000
Cost of sales (28,000 + 18,000 ) – 6,000 + 1,000 (W1)) (41,000)
Gross Profit 22,000
Distribution costs (2,000 + 800 ) (2,800)
Administrative expenses (4,000 +2,200 + 50 (W2) + 500 (6,750)
impairment)
Finance costs (500 + 300 ) (800)
Income tax expense (1,400 + 900 ) (2,300)
Other comprehensive income:
Gain on property revaluation (post-acquisition) 1,000
Investment in equity instrument 200
Total comprehensive income for the year 10,550
Profit attributable to:
Owners of the parent 8,050
Non-controlling interest (W3) 1,300
9,350
Total comprehensive income attributable to:
Owners of the parent 8,850
Non-controlling interest (1,300 + (1,000 x 40%) 1,700
10,550
Workings
W1 Unrealized profit
 Remove intercompany trading: DR Revenue TZS 6m/CR Cost of sales TZS 6m
 Unrealized profit = 6mill x 20/120 = TZS 1 million: add to cost of sales
W2 Movement on fair value adjustment
 The fair value adjustment of TZS 1m will be depreciated over the remaining life
of the building. The amount to be charged at 31st December is: 1,000,000/20 =
50,000.
 40% of this (20,000) will be charged to the NCI.

W3 Non-controlling interest – share of profit for the year
TZS ‘000
Share of post-acquisition profit (3,800 x 40%) 1,520
Movement on fair value adjustment (50 x 40%) (20)
Share of goodwill impairment (500 x 40%) 200)
1,300
(b) The reason is attributable to the existence of the intercompany transactions (such as
sales and purchases) as well as unrealized gains arising from transfers e.g. of assets;
which are essentially removed when preparing consolidated income statement. This
is because the group, for consolidation purpose is treated as a single economic entity,
and only transactions with the outsiders should be accounted for. When the volume
of intercompany transactions is significant, the shareholder would have observed
bigger difference.
ANSWER 2
(a) Journal entries to record the above adjustment (figures in TZS)

(i) Dr Land 73,000,000
Cr Revaluation Reserve 73,000,000
Being land revaluation
(ii) Dr Depreciation 26,279,000
Cr Land &Building 4,888,000

Fixture &Fittings 14,460,000
Motor Vehicle 6,949,000
Being the recording of depreciation
(iii) Dr Suspense 30,000,000
Cr Share capital 5,000,000
Cr Share premium 25,000,000
Being the issuing of shares
 Share premium 3,000 – 500 = 2,500 x 10,000 new share = 25,000,000
(iv) Dr Provision for Bad debt 1,010,000
Cr Debtors 1,010,000
Debt being write off
(v) Bad debt provision
Debts >90 days 4,125,000
Bad debt write-off (1,010,000)
Less: 100% provision (>90 days) (1,325,000)
1,790,000

General provision1,700,00 @ 10% 199,000
Specific provision (1,325,000 + 897,000) 2,222,000
Total provision 2,401,000
Existing provision (1,780,000)
Movement in provision 621,000
Dr Bad &Doubtful debts 621,000
CR Provision for Bad debts 621,000
Being increase in bad debt provision
(vi) Dr Cost of sales 24,102,000
Cr Stock 24,102,000
Being transfer of opening stock to cost of sales
Dr Cost of sales 120,820,000
Cr Purchases 120,820,000
Being transfer of purchases to cost of sales
Dr Stock 24,080,000
Cr Cost of sales 24,080,000
Being recording of stock
(vii) Purchases 1,433,000 x 1.175% = 1,683,775 ≈ 1,684,000
Dr Suspense 1,684,000
Cr PLCA 1,684,000
Being correction of omitted item
(viii) VAT = TZS. 4,300,000 x 0.175 = 640,425.5 ≈ 640,000
1.175
Dr Debtors 4,300,000
Cr Sales 3,660,000
Cr VAT 640,000
Being correction of cut-off error

(b) Simba Mnyama Sports Ltd.
Statement of Comprehensive Income for the year ended 30th April 2017
TZS 000 TZS 000
Sales 255,300 + 3,660 258,960
Gross profit 138,118
Administration (29,000)
Salaries & wages (74,300)
Bad debts (1,631)
Depreciation (26,297) (131,261)
6,857
Interest (16,090)
Loss for Year (9,233)
Other Comprehensive Income
Revaluation reserve 73,000
63,767
ANSWER 3
(a) For comparison

Mapambano Mapambano Sector
Adjusted As reported Average
Return on equity (ROE) 21.7%  47.1% 22.0%
Net asset turnover 1.75 times 2.36 times 1.67 times
Gross profit margin 28.6% 35.7% 30.0%
Net profit margin 9.3% 20.0% 12.0%
Jakisa’s adjusted ratios

On the assumption that after the purchase of Jakisa, the favourable effects of the
transactions with other companies owned by the family would not occur, the
following adjustments to the statement of profit or loss should be made:
Shs.’000,000
Cost of sales (45,000/0.9 50,000
Directors’ remuneration 2,500
Loan interest (10% x 10,000) 1,000
These adjustments would give a revised statement of profit or loss:
Revenue 70,000
Gross profit 20,000
Operating costs (7,000)

Directors’ remuneration (2,500)
Loan interest (1,000)
Income tax expense (3,000)
In the statement of financial position:

Equity would be the purchase price of Jakisa (per question) 30,000
The commercial loan (replacing the directors’ loan) would be debt 10,000
From these figures the adjusted ratios above are calculated as:
Return on equity ((6,500 / 30,000) x 100) 21.7%

Net asset turnover (70,000/(30,000 + 10,000)) 1.75 times
Gross profit margin ((20,000)/70,000) x 100) 28.6%
Net profit margin ((6,500/70,000) x 100) 9.30%
(b) An analysis of Jakisa’s ratios based on the financial statements provided reveals a
strong position, particularly in relation to profitability when compared to other
businesses in this retail sector. Jakisa has a very high ROE which is a product of
higher-than-average profit margins (at both the gross and net profit level) and a
significantly higher net asset turnover. Thus on the face of it, Jakisa is managing to
achieve higher prices (or reduced cost of sales), has better control of overheads and is
using its net assets more efficiently in terms of generating revenue.
However, when adjustments are made for the effects of its favourable transactions
with other companies owned by the family, the position changes somewhat. The
effect of purchasing its inventory from another family owned supplier at favourable
market prices means that its reported gross profit percentage of 35.7% is flattered;
had these purchases been made at market prices, it would fall to 28.6% which is
below the sector average of 30.0%. The effects of the favourable inventory purchases
carry through to net profit. Based on Mapambano’s estimate of future directors’
remuneration, it would seem the existing directors of Jakisa are not charging
commercial rates for their remuneration.
When Mapambano replaces the board of Jakisa, it will have to increase directors’
remuneration by shs.1.5 billion. Additionally, when the interest free directors, loans
are replaced with a commercial loan, with interest at 10$ per annum, this would
reduce net profit by a further shs. 1 billion. The accumulation of these adjustments
means that the ROE which Mapambano should expect would be 21.7% (rather than
the reported 47.1%) which is almost exactly in line with the sector average of 22.0%.
In a similar vein when the asset turnover is calculated based on the equity purchase
price and the commercial loan (equating to not assets), it falls from 2.36 times to 1.75
times which is above, but much closer to, the sector average of 1.67 times.

In summary, Jakisa’s adjusted results would still be slightly ahead of the sector
averages in most areas and may well justify the anticipated purchase price of shs. 30
billion; however, Jakisa will be nowhere near the excellently performing company
suggested by the reported figures and Mapambano needs to exercise a degree of
caution in its negotiations.
ANSWER 4
(a) (1) Main financial statement users could involve:

(i) Investorswho are the providers of risk capital and might interested in
decision about buying or selling shares, dividends, performance,
liquidity, company’s future prospects, and competitive assessment.
(ii) Employeesneed information about the security of employment and
future prospects for jobs in the company, and to help with collective
pay bargaining.
(iii) Lendersneed information to help them decide whether to lend to a
company. They will also need to check that the value of any security
remains adequate, that the interest repayments are secure, that the cash
is available for redemption at the appropriate time and that any
financial restrictions (such as maximum debt/equity ratios) have not
been breached.
(iv) Suppliersneed to know whether the company will be a good customer
and pay its debts. Customers need to know whether the company will
be able to continue producing and supplying goods.
(v) Government’sinterest in a company may be one of creditor or
customer, as well as being specifically concerned with compliance
with tax and company law, ability to pay tax and the general
contribution of the company to the economy.
(vi) The public at large would wish to have information for all the
reasons mentioned above.
(2) As to the question of adequacy perhaps it all depends on what ‘reasonable’
means. The needs of different users are certainly different (as noted above),
but greater relevance from multiple reports would need to be set against the
costs of preparation and the danger of confusion and the difficulties of user
education. Therefore, it could be suggested that it would be certainly
impossible to provide general purpose accounting information which are
specifically designed for the needs of the public.
(b) It is reasonable to expect no conflict between an IFRS and the conceptual
Framework because of the underlying purpose of the latter. However, the
Conceptual Framework is not an IFRS and so principally (as per the provision of
the framework) does not overrule any individual IFRS. Therefore, in the (rare) case
of conflict between an IFRS and the Conceptual Framework, the IFRS will prevail.

(c) Requirement for Full IFRS application:
(i) Entities include
1. Listed companies
2. Banks and financial institutions
3. Insurance companies
4. Pension funds
5. Utility companies
6. Commercial government agencies
7. Mutual funds
8. SACCOS
9. Cooperative societies
10. Securities brokers
11. All entities which receive payments from the government, except those
required to use IPSAS
12. Entities with 100 or more employees or with capital investment of more
than Tanzania Shillings (TZS) 800,000,000 (approximately USD
600,000) must also apply full IFRS.
It should also be noted that, the use of IFRS is incorporated and a must to any
entity registered with the Bank of Tanzania, the Tanzania Insurance Regulatory
Authority (TIRA), the Dar es Salaam Stock Exchange (DSE), and the Capital
Market and Securities Authority (CMSA).
(ii) Underlying reason for the requirement of application of full IFRS lies with (1)
the listing and regulatory requirements, and (2) being Public Interest Entities
(PIEs), that they attract and are exposed to public resource, rewards and risks.
ANSWER 5
Ugweno Ltd.
Statement of cash flows for the year ended 31st December 2017
Indirect Method
Cash flow from operating activities Shs. Million Shs. Million
Adjustment for: Depreciation (580 + 300) 880
Finance expenses 266
Loss on revaluation of non-current assets-Investments 42
Gain on disposal of plant (W2) (18)
Operating profit before working capital adjustments 2,650
Increase in inventory (80)
Decrease in trade receivable 224
Decrease in trade payables (62)
Cash generated from operating activities 2,732
Interest paid (W4) (348)
Income tax paid (W5) (154)
Net cash from operating activities 2,230

Cash flow from investing activities
Purchase of property, plant and equipment (W1) (1,594)
Purchase of non-current investments (W3) (14)
Receipts from sale of equipment 40
Net cash used in investing activities (1,568)
Cash flow from financing activities
Receipts from issue of shares (W6) 1,690
Repayment of bank loan (1,600)
Dividend paid (W4) (1,100)
Net cash used in financing activities (1,010)
Net decrease in cash and cash equivalent (348)
Cash and cash equivalent at 1st January 2017 120
Cash and cash equivalent at 31st December 2017 (228)
WORKINGS
W1: Movements of property, plant and equipment
Property Plant and
equipment
Balance b/d 6,400 4,446
Less: Disposal-carrying value - (22)
Revaluation reserve 900 -
Depreciation during the year (300) (580)
Balance c/d (7,140) (5,298)
Amount purchased during the year 140 1,454 1,594
W2: Gain in disposal of plant and equipment
Cost 154
Accumulated depreciation (154 x 6/7) (132)
Carrying value 22
Cash received 40
Gain on disposal 18
W3: Non-current investment purchased during the year

Balance b/d 274
Revaluation loss (42)
Purchased during the year (Balancing figure 14
Balance c/d 246
W4: Interest paid
Interest payable b/d 220
Finance expenses 266
Interest paid (Balancing figure) (346)
Interest payable c/d 138
W5: Tax paid
Current Tax liability b/d 186
Tax charges for the year 184
370
Current tax liability c/d (174)
Increase in deferred tax liability 196
Deferred tax liability b/d 102
Deferred tax liability c/d (144)
Tax paid (Balancing figure) 154
W6: Receipts from issue of shares
Equity shares capital (3500-2200) 1,300
Share premium (610-220) 390
Amount received 1,690
W7: Dividend paid
Retained earnings b/d 3,740
Retained earnings c/f (3,936)
Dividends paid 1,100
ANSWER 6
1. Intangibles:
The expenditure is of development nature since it shows viability as to the success of
the project. Viability is demonstrated by clinical approval, patent registration,
commercial and technical viability, and the intention to manufacture the drug in the
next 12 months.
Full development expenditure and the patent to the tune of TZS 600 and 150
respectively million should be recognized initially at cost in the statement of the
financial position and must be depreciated for half year over its patent life at year
end:
Patent Development cost
TZS million TZS million
Cost 150 600
Amortization (6/36) (25) (100)
Net asset 125 500
2. Provisions
Nkadima should recognise a provision for the estimated costs of making good the site
because:
(i) It has a present obligation to incur the expenditure as a result of a past event. In
this case the obligating event occurred when it became virtually certain that the
legislation would be passed. Therefore, the obligation existed at 31 st December
2016.
(ii) An outflow of resources embodying economic benefits is probable.
(iii) It is possible to make a reliable estimate of the amount.

Effect on the financial statements
For the year ended 31st December 2016:
 A provision of TZS 1,242 million (2,000 mill x 0.621) is reported as a liability.
 A non-current asset of TZS 1,242 million is also recognised. The provision results
in a corresponding asset because the expenditure gives the company access to an
inflow of resources embodying future economic benefits; there is no effect on
profit or loss for the year.
For the year ended 31st December 2017
 Depreciation of TZS 248.4 million (1.242 million x 20%) is charged to profit or
loss. The non-current asset is depreciated over its remaining useful economic life
of five years from 31st December 2016 (the site will cease to produce output on
31st December 2021).
 Therefore, at 31st December 2017 the net book value of the non-current asset will
be TZS 993.6 million (1,242 – 248.4).
 At 31st December 2017 the provision will be TZS 1,366 million (2,000 million x
0.683).
 The increase in the provision of TZS 123 million (1,366 – 1,242) is recognised in
profit or loss as a finance cost. This arises due to the unwinding of the discount.
3. Financial assets and liabilities
The method to use here is to find the present value of the principal value of the bond,
TZS 500 million (10,000 x TZS 50,000) and the interest payments of TZS 25 million
annually (5% x TZS 500 million) at the market rate for non-convertible bonds of 6%,
using the discount factors. The difference between this total and the principal amount
of TZS 500 million is the equity element.
TZS million
Present value of principal TZS 500 million x 0.747 373.5
Present value of interest TZS25 million x 4.212 105.3
Liability value 478.8
Principal amount 500,0
Equity element 21.2
______________  ______________

SUGGESTED SOLUTIONS
B3 – AUDITING PRINCIPLES AND PRACTICE
NOVEMBER 2018
ANSWER 1
(a) (i) Ethical Threats

Ethical Threat Mitigation of Threat
i. Mr. Salim, the engagement partner has Mr. Salim should be rotated from
been involved with the client for the last being engagement partner. He can
none years still contact the client but should not
be in the position of signing the audit
This means he may be too familiar with report.
the client to be able to make objective
decisions due to this long association.
ii. There is no ethical rule which stops Mr. To show complete independence,
Salim recommending Zaidu for the audit, Zaidu should not be part of the audit
or letting Zaidu take part in the audit. team. However, if Mr. Salim is no
longer the engagement partner then
However, there may be the impression of this removes the ethical threat and
lack of independence as Zaidu is related Zaidu could be included in the audit
to the engagement partner. Zaidu could team.
be tempted not to identify errors in case
this prejudiced her father’s relationship
with the client
iii. As long as Mr. Fahd paid a full fee to To show independence from the
Maharibiko Co. for the investment client, Mr. Fahd could be asked not to
advice, then there is no ethical threat. use the services of Maharibiko Co.
This would be a normal commercial again unless this is first agreed with
transaction and Mr. Fahd would not gain the engagement partner.
any benefit.
However, continued use of client services
could imply a lack of independence
especially if Mr. Fahd is not paying a full
fee and therefore receiving a benefit from
the client.
iv. The audit team have been offered a The balloon flight should not be
balloon flight at the end of the audit. accepted. Investigation would also be
needed to find out why hospitality was
Acceptance of gifts from a client, unless accepted in previous years.
of an insignificant amount, is not allowed.
The fact that the flight costs less than the
yacht expense is irrelevant, independence
could still be impaired.

v. Agreeing to accept taxation work on the The audit firm must confirm that
percentage of the tax saved is essentially assistance with taxation work is
accepting a contingent fee. acceptable, although the fee must be
based on time and experience for the
There will be pressure to gain the highest job, not the contingent fee.
tax refund for the client and this could
tempt the audit firm to suggest illegal tax
avoidance schemes
vi. Representing Maharibiko Co. in court To remain independent, the audit firm
could be seen as an Advocacy threat-that should decline to represent the client
is the audit firm is promoting the position in court.
of the client.
Objectivity could be compromised
because the audit firm is seen to take the
position that the client is correct, affecting
judgement on the tax issue.
(ii) Benefits of Internal Audit
Regulation
Maharibiko Co-operates in a regulated sector and is under the supervision of a
regulatory authority. It is very likely that there are regulatory controls and reports
that Maharibiko must produce or comply with. Establishing an internal audit
department will enable Maharibiko to produce those reports more efficiently and
show compliance with the regulatory regime. Even if internal audit is not required
now, codes of governance increasingly suggest that it is good practice to have an
internal audit department.
Reports to the Board

As a financial services provider, staff in Maharibiko Co. will be producing various
financial reports for their Board. The internal audit department will be able to
monitor the accuracy of those reports, especially those not audited by the external
auditors. This functions will help enhance the accuracy and reliability of the
reports.
Monitor Effectiveness of Internal Controls

It is likely that Maharibiko has to maintain a strong internal control system as the
company is regulated and will be handling significant amounts of client cash.
Internal audits can review the effectiveness of those controls and make
recommendations to management for improvement where necessary.
Value for Money Audit

Internal audit can carry out value for money audits within Maharibiko Co., for
example, a review could be undertaken on the cost-effectiveness of the various
control systems or whether investment advice being provided is cost-effective given
the nature of products being recommended and the income/commission generated
from those produces.

Risk Assessment
Internal audit could also carry out risk assessments on the portfolios being
recommended to clients to ensure the portfolio matched the client’s risk profile and
Maharibiko Co’s risk appetite. Any weaknesses in this area would result in a
recommendation to amend investment policies as well as decreasing Maharibiko’s
exposure to unnecessary risk.
Taxation Services
Maharibiko Co require assistance with the preparation of taxation computations and
specialist assistance in court regarding a taxation dispute. Internal audit could assist
in both areas as long as appropriate specialists were available in the department.
Provision of these services would remove any conflict of interest that Maharibiko
auditors have as well as ensuring expertise was available in house when necessary.
(b)
 The engagement that Imani & Co. are undertaking is a form of review
engagement in order to provide assurance to the bank that the cash flow
projections are reasonable.
 The assurance engagement is an example of a Limited Assurance Engagement
which provides the user with moderate level of assurance rather than the high
level of assurance provided by Reasonable Assurance Engagements.
 The assurance report is provided by Imani & Co. to enable the user of that
report to determine what level of reliance they can place on the information
which is the subject of the report.
 The form of assurance provided by the report in this case will be ‘negative
assurance’ i.e. that the Auditor has found nothing to suggest that the cash flow
projections are inaccurate
 Negative assurance is appropriate for a cash flow projection because it relates
to the future and is therefore uncertain. The auditor is unable to say with
certainty whether the assumptions made are correct.
ANSWER 2
(a) In accordance with ISA 501 Audit Evidence – Specific Consideration for Selected
Items.
(i) If inventory is material to the financial statements, the auditor shall obtain
sufficient appropriate audit evidence regarding the existence and condition of
inventory by:
 Attendance at physical inventory counting, unless impracticable

 Evaluation of management’s instructions and procedures for recording and
controlling the results of the entity’s physical inventory counting
 Observation of the performance of management’s count procedures
 Inspection of the inventory
 Performance of test counts

(ii) Where physical inventory counting is conducted at a date other than the date
of the financial statements, the auditor shall, in addition to the procedures
required as per (c)(i) above, perform audit procedures to obtain audit evidence
about whether changes in inventory between the count date and the date of the
financial statements are properly recorded.
(iii) If the auditor is unable to attend physical inventory counting due to

unforeseen circumstances, the auditor shall make or observe some physical
counts on an alternative date, and perform audit procedures on intervening
transactions.
(iv) If inventory under the custody and control of a third party is material to the
financial statements, the auditor shall obtain sufficient appropriate audit
evidence regarding the existence and condition of that inventory by
performing one or both of the following:
 Request confirmation from the third party as to the quantities and

condition of inventory held on behalf of the entity.
 Perform inspection or other audit procedures appropriate in the
circumstances.
(b) Fundamental Principles

(i) Integrity. A professional accountant should be honest and straightforward in
performing professional services.
(ii) Objectivity. A professional accountant should be fair and not allow personal
bias, conflict of interest or influence of others tom override objectivity.
(iii) Professional Competence and Due Care. When performing professional

services, a professional accountant should show, competence and duty of care
by keeping up-to-date with developments in practice, legislation and
techniques.
(iv) Confidentiality. A professional accountant should respect the confidentiality

of information acquired during the course of providing professional services
and should not use or disclose such information without obtaining client
permission.
(v) Professional Behaviors. A professional accountant should act in a manner

consistent with the good reputation of the profession and refrain from any
conduct which might bring discredit to the profession.

(c) Direct Confirmations
(i) A positive external confirmation request asks the respondent to reply to the
auditor in all cases, whether he agrees with the information provided in the
confirmation request or not.
A negative external confirmation request asks the respondent to reply only in

the event of disagreement with the information provided in the request.
ANSWER 3
(a) Tests of control. Test the operating effectiveness of controls in preventing, detecting
material misstatements.
Substantive procedures are aimed at detecting material misstatements at the assertion
level. They include tests of detail of transactions, balances, disclosures and
substantive analytical procedures.
S/N. i)Deficiency Controls iii)Test Control)
i. A junior clerk opens the post A second member of the Observe the mail
unsupervised. This could result in accounts team or staff opening process to
cash being misappropriated independent of the assess if the control is
accounts team should operating effectively.
assist with the mail, one
should open the post and
the second should record
cash received in the cash
log
ii. Cash and cheques are secured in a Cash and cheques should Enquire of management
small locked box and only banked be ideally banked daily, if where the cash receipts
every few days. A small locked not then it should be not banked are stored.
box is not adequate for security of stored in a fire proof safe, Inspect the location to
considerable cash receipts, as it and access to this safe ensure cash is suitably
can easily be stolen should be restricted to secure.
supervised individuals
iii Cash and cheques are only banked Cash and cheques should Inspect the paying-in-
every few days and any member of be banked every day books to see if cash and
the finance team performs this. cheques have been
banked daily or less
frequently.
Review bank statements

against the cash
received log to confirm
all amounts were
banked promptly.

iv Cash should ideally not be held The cashier should Enquire of staff as to
over-night as it is not secure. Also prepare the paying-in- who performs the
if any member of the team banks book from the cash banking process and
cash, then this could result in very received log. Then a confirm this person is
junior clerks having access to separate responsible suitably responsible.
significant amounts of money. individual should have
responsibility for banking
this cash.
v. Bank reconciliations are not Bank reconciliations Review the file of
performed every month and they should be performed reconciliations for
do not appear to be reviewed by a monthly. A responsible evidence of regular
senior member of the finance individual should then performance and review
department. Errors in the cash review them. by senior finance team
cycle may not be promptly members.
identified if reconciliations are
performed infrequently.
vi The cashier updates both the The cashier should Observe the process for
cashbook and the sales ledger. update the cash book recording cash received
This is weak segregation of duties, from the cash received into the relevant ledgers
as the cashier could incorrectly log. cash received into the
enter a receipt and this would relevant ledgers is
impact both the cash book and the A member of the sales occurring.
sales ledger. In addition weak ledger team should
segregation of duties could update the sales ledger.
increase the risk of a ‘teeming and
lading’ fraud
(c) Substantive procedures over bank balance

(i) Obtain the company’s bank reconciliation and check the additions to ensure
arithmetical accuracy.
(ii) Obtain a bank confirmation letter from the company’s bankers.
(iii) Verify the balance per the bank statement to an original year end bank
statement and also to the bank confirmation letter.
(iv)Verify the reconciliation’s balance per the cash book to the year-end cash book.
(v) Trace all of the outstanding lodgments to the pre year end cash book, post year
end bank statement and also to paying-in-book pre year end.
(vi) Examine any old unpresented cheques to assess if they need to be written back
into the purchase ledger as they are no longer valid to be presented.
(vii) Trace all unpresented cheques through to a pre year end cash book and post
year end statement. For any unusual amounts or significant delays obtain
explanations from management.

(viii) Agree all balances listed on the bank confirmation letter to the company’s bank
reconciliations or the trial balance to ensure completeness of bank balances.
(ix) Review the cash book and bank statements for any unusual items or large
transfers around the year end, as this could be evidence of Kitchen dressing.
(x) Examine the bank confirmation letter for details of any security provided by the
company or any legal right of set-off as this may require disclosure.
ANSWER 4
(a) Functions/roles of the CAG

A: The CAG shall examine, inquire into and audit the accounts submitted to him as
required under the Public Finance Act, Local Government Finances Act and any
other written laws and perform any other functions which he is authorized to perform
by or under this Act.
B: In exercising his functions or inquiry, examination and audit of accounts, the CAG
shall satisfy himself that
a) All accounts have been kept in accordance with generally accepted accounting
principles as required by relevant laws.
b) All reasonable precautions have been taken to safeguard:
(i) The collection of revenue; and

(ii) The receipt, custody, disposal, issue and proper use of public property,
and that the laws, directions and instructions applicable thereto have been
duly observed.
c) All expenditure of public monies has been properly authorized and applied to
the purposes for which they were appropriated and that the laws, directions and
instructions applicable thereto have been duly observed and provide an effective
check of the assessment and collection of revenue; and
d) Economy, efficiency and effectiveness have been achieved in the use of public
resources.
The role and functions of the Internal Auditor General
These are provided in the Public Finance Act (As amended in 2010) as being:
(i) Developing Internal Audit Policies, rules, standards, manual, circulars and
guidelines;
(ii) Reviewing and appraising compliance to laid down laws, regulations,

standards, systems and procedures in Ministries, Departments, Government
Institutions, Local Government Authorities, Executive Agencies and Donor
Funded Project.

(iii) Scrutinize and compile audit reports from Ministries, Department, Government
Institutions, Regions, Local Government Authorities, Executive Agencies and
Donor funded projects and shall prepare a summary of major audit
observations and recommendations and submit the same to the Paymaster
General for further actions;
(iv) Undertake continuous Audit Risk Management;
(v) Develop and supervise the implementation of Internal Audit Strategy
(vi) Develop, implement and review annual audit Programme
(vii) Liaise with the Controller and Auditor General, Accountant General,
Accounting Officers and Professional Standards Settings Authorities on audit
matters;
(viii) Manage and control the quality of operations of the audit cadre and enhance
Capacity of Audit Committees;
(ix) Evaluate the effectiveness of Audit committees in Ministries, Departments,

Government Institutions, Regions, Local Government Authorities and
Executive Agencies.
(x) Facilitate the development of internal audit cadre;
(xi) Review and appraise budget planning and implementation with a view to
promoting compliance with national goals and objectives; technical reports on
development initiatives; works, goods offered and services supplied to the
Government from development and recurrent budgets and determine their
value for money;
(xii) Prepare audit reports and advice the government on intervention measures
towards ensuring values for money on public expenditure;
(xiii) Make follow up on the agreed audit recommendations and required corrective
actions;
(xiv) Undertake special and investigative audits;
(xv) Review, monitor, evaluate and recommend on systems of Government review

collections for proper accountability; and
(xvi) Participate in the hearings and render advice to the relevant Parliamentary
Oversight Committees.
(b) (i) The objectives of conducting value for money audit is to ascertain that
reasonable efforts have been made by management of the entity to ensure
the fund have been spent in provision of service in a way that maximizes the
benefit to users of the services.

The VFM audit focuses on ascertaining that in any activity conducted by the
organization, the principle of economy, efficiency and effectiveness have
been considered and adhered.
(ii) Deficiencies of Value for Money Audit
i. There exist no universal measures for outputs
E.g the output of a customer care executive in a call centre can be
measured by the number of calls attended by him or her. However,
each call can be of different difficulty and take different amounts of
time. However, the output of a machine is likely to be uniform and
will be in terms of the units manufactured.
ii. Objectives of audit and measure of efficiency vary with the type of
work being audited
E.g the objective of a customer care executive is to satisfy the queries
of a customer in the minimum time. Hence, their efficiency would be
determined on that basis. However, the objective of a machine is to
produce the maximum output with minimum resources.
iii. Quality might be sacrificed to achieve economy and efficiency

The objective of VFM audits is to achieve economy, efficiency and
effectiveness. Sometimes efficiency is sacrificed to achieve economy.
For example, the customer care executive may end the call without
giving adequate answers to the queries posed by the customer. The
servicing of the machine may be delayed to avid the machine’s
downtime.
iv. It is not easy to measure effectiveness

For example, the effectiveness of a customer care executive will
improve if they give detailed replies to the queries of the customers.
However, it would result in low call turnover and other customers
would have to wait for a long time before their phone call is attended.
Therefore, the measurement of effectiveness of this function is
subjective, and not easy.
ANSWER 5
(a) (i) Matters that external auditor should consider before placing reliance
on the work of internal auditor
 The professional qualifications of the internal auditor both on
competency and ethical grounds
 Specialist skills possessed by internal audit staff
 The adequacy of planning, control and documentation in the internal
audit department.
 The responsibility of the internal audit department, whether it will to
be the board, an audit committee, or to the Chief Accountant.
 The efficiency of the operation of the department

 The scope of the internal audit department’s work. Clearly, a
department which covers common ground with the external auditor
would be more useful than a department with a very restricted role.
 The level of audit risk inherent in the areas or items to be tested, or in
the information to be obtained.
(ii) Development and growth of internal audit profession

Many factors have contributed to such development and growth as
explained below
 Increased size of businesses by merger and takeover has brought a
need for sophisticated internal control systems which need to be
constantly reviewed for adequacy and for correct operation.
 Globalization and the consequent need to keep an eye on overseas
branches and subsidiaries.
 Use of computer for data processing tends to means that individual
scrutiny and supervision of transactions no longer occur. This means
that a department is needed to ensure the continuing proper operation
of other controls over transactions.
 Increased sophistication of management techniques required more
accurate management accounts a reports, this requires extra control
over the accounting records which the internal audit department can
ensure.
 High costs of external audit – Directors have requested that an
efficient internal audit department can help the external auditors to
cut down on their works and so reduce their fees.
 Greater competition and lower margins requiring tighter control over
all aspects of a business.
 Growth in legislation and regulation and hence the need for
compliance.
 Increase of dishonest acts and reduction of moral standard.
(b) The following are the circumstances that could the auditors to issue such form
of opinion below
(i) Unqualified opinion

When auditor satisfied in all material respect with financial statement can
say the financial statements show true and fair view
The unqualified opinion is the best possible audit outcome. And, it is also
by far the outcome that auditors report most often. By contrast, the other
three possible results appear rarely.
The auditor can issue the unqualified opinion under the following
circumstance:
a) The financial statements have been prepared and presented according
to the acceptable accounting policies and which have been applied
consistently
b) Proper accounting record have been kept
c) The financial statement show true and fair view
d) The financial statements are prepared according underlying accounting
standards such IAS, IPSAS
e) There adequate disclose of all material facts relevant to the proper
presentation of financial statements
(ii) Qualified opinion

Qualified opinion means the auditor finds that reports conform to GAAP,
except in just a few areas. For these areas, the auditor cannot assert
conformance.
The auditor shall express a qualified opinion under the following

circumstances
a. The auditor, having obtained sufficient appropriate audit evidence,
concludes that misstatements, individually or in the aggregate, are
material, but not pervasive, to the financial statements.
b. The auditor is unable to obtain sufficient appropriate audit evidence on

which to base the opinion, but the auditor concludes that the possible
effects on the financial statements of undetected misstatements, if any,
could be material but not pervasive. Entity’s accounts fairly.
In conclusion, auditors report the audit opinion as "qualified" when they

are not comfortable calling it either "unqualified" or "adverse." With
qualified opinions, auditors state specific reasons for that conclusions.
(iii) Adverse opinion

The auditor shall express an adverse opinion when the auditor, having
obtained sufficient appropriate audit evidence, concludes that
misstatements, individually or in the aggregate, are both material and
pervasive to the financial statements. Before publishing an adverse opinion,
auditors advise the firm's accountants and officers of such problems. And,
auditors then work with them to correct problems, insofar as they can. They
do this hoping to describe the outcome as "unqualified" or "qualified"
opinion, instead of "adverse," if possible.
When auditors do report an adverse opinion, they give specific reasons for
the conclusion. As a result, auditors may point out specific accounting errors
or departures from international accounting standard.
In any case, an adverse opinion has severe consequences for the reporting
entity. At a minimum, the conclusion ensures that investors, regulators,
lenders, and governments will reject the reports. Also, if the audit reveals
illegalities, corporate officers may be held personally accountable.
(iv) Disclaimer opinion

Auditors may issue a disclaimer of opinion when
a) There limitation of he/she scope to gather sufficient and appropriate
evidence to form opinion

b) The auditor is unable to obtain sufficient appropriate audit evidence on
which to base the opinion, and the auditor concludes that the possible
effects on the financial statements of undetected misstatements, if any,
could be both material and pervasive.
c) When uncertainties can be so great on the financial statements so the
auditor is unable to form an opinion on the entire financial statements
Therefore the auditor concludes that, notwithstanding having obtained

sufficient appropriate audit evidence regarding each of the individual
uncertainties, it is not possible to form an opinion on the financial statements
due to the potential interaction of the uncertainties and their possible
cumulative effect on the financial statements
Example of disclaimer opinion “We were not able observe all physical
inventories and confirm accounts receivable due limitations placed on the
scope of our work by the company management. “Therefore because of
significant of the matter discussed in the preceding paragraph, we do not
express an opinion on the financial statements.
ANSWER 6
(a) Importance of engagement letter

 It documents and confirms the auditor’s acceptance of the appointment
 The objective and scope of the audit is known
 The extent of the auditor’s responsibilities to the client is known
 To educate client
 To minimize misunderstanding between the auditor and client
(b) Principal Contents of Engagement Letter

 The objective of the audit of financial statements
 Management’s responsibilities for the financial statement as described in ISA
200 – Objective and General Principles Governing and Audit of Financial
Statements.
 The financial reporting framework adopted by management in preparing the
financial statements i.e. the applicable financial reporting framework
 The scope of the audit, including reference to applicable legislation,
regulations, or pronouncements of the professional bodies to which the
auditor adheres.
 The form of any reports or other communication of results of the
engagement.
 The fact that because of the test nature and other inherent limitations of an
audit, together with the inherent limitations of any accounting and internal
control system, there is an unavoidable risk that even some material
misstatement may remain undiscovered.
 Unrestricted access to whatever records, documentation and other
information requested in connection with the audit.
 Arrangements regarding the planning of the audit.

 Expectation of receiving from management written confirmation concerning
representations made in connection with the audit.
 Request for the client to confirm the terms of the engagement by
acknowledging receipt of the engagement letter.
 Description of any other letters or reports the auditor expects to issue to the
client.
 Basis on which fees are computed and any billing arrangements.
 Arrangements concerning the involvement of other auditors and experts in
some aspects of the audit.
 Arrangements concerning the involvement of internal auditors and other
client staff.
 Arrangements to be made with the predecessor auditor, if any, in the case of
an initial audit.
 Any restriction of the auditor’s liability when such possibility exists.
(c) When advertising is not permitted, publicity by individual professional

accountants in public practice is acceptable provided that:
 It has as its object the notification to the public or such sectors of the public as
are concerned, of matters of fact in a manner that is not false, misleading or
deceptive;
 It is in good taste;
 It is professionally dignified, and
 It avoids frequent repetition of, and any undue prominence being given to the
name of the professional accountant in public practice.
(d) Negative confirmation requests may be used to reduce the risk of material
misstatement to an acceptable level when;
 The assessed risk of material misstatement is lower;
 A large number of small balances is involved;
 A substantial number of errors is not expected, and
 The auditor has no reason to believe that respondents will disregard these
requests.
 Accountant seek employment
A combination of positive and negative external confirmations may be used. For

example, where the total accounts receivable balance comprises a small number of
large balances and a large number of small balances, the auditor may decide that it
is appropriate to confirm all or a sample of the large balances with positive
confirmation requests and a sample of the small balances using negative
confirmation requests.
______________  ______________

SUGGESTED SOLUTIONS
B4 – PUBLIC FINANCE AND TAXATION I
NOVEMBER 2018
ANSWER 1
Step 1-Adjust partnership income
TZS ‘’000’
Profit for the year as per account 174,875
Less: Non business Income included -
Dividend (5,000)
Interest from Deposit (12,000)
Sub Total 157,875
Add: Disallowed Expenses -
Partners Salaries 250,000
Interest to NSSF 20,000
Fee to filling an Appeal at Tax tribunal 10,000
Commission to partners 19,000
Insurance for Car Personally owned 18,000
Depreciation 25,125
Partners medical expenses 5,500
Sub Total 505,500
Less: Allowed Expense (w1) 15,750
Taxable income 489,750
Step 2-Appropriation of partner’s income
TZS ‘’000’
Taxable profit 489,750
Less: Partners Income
Salaries 250,000
Commission to partners 19,000
Insurance 18,000
Partner Medical Expenses 5,500
Partners Distributable income 197,250

Step 3- Determine the taxable income for each partner
Partners Taxable income

Amina Hamisi
TZS TZS ‘’000’

‘’000’
Partners Distributable income 98,625 98,625
Salaries 200,000 50,000
Commission 11,000 8,000
Medical Expenses 2,500 3,000
Insurance 9,000 9,000
Other income
Interest income 8,000 4,000
Dividend income (FWP) - -
Taxable Income 329,125 172,625
(W1) Depreciation allowances

TZS ‘’000’
Working one: Depreciation
Opening balance 12,000
Add: Prado VX 30,000
Total base for the year 42,000
Class I rate is 37.5% allowance will be 15,750
ANSWER 2
(a) The main objectives of a public debt

 To bridge the budget deficit
 To fight against depression
 To check inflation
 To finance economic development
 To carry out welfare programmes
(b) Classification of a public debt can be done as:

 Voluntary and compulsory
 Funded and unfunded
 Internal and external
 Productive and unproductive
 Short term and long term
 Concessional and non concessional debt

(c) Ways of redemption of public debt
 Repudiation
 Refunding
 Conversion of loans
 Sinking funds
 Capital levy
 Surplus budget
(d) Sources of public debt are:-

 Borrowing from individuals and fail to repay in time
 Borrowing from non banking financial institutions and fail to repay in time
 Borrowing from commercial banks and fail to repay in time
 Borrowing from the central banks and fail to repay in time
 Borrowing from external sources such as IMF and fail to repay in time
 Incurring public debt to use of natural calamities, elections ,budget deficit and
poor tax collections
ANSWER 3
(a) Tax Planning is analysis of financial situation or plan from a tax perspective. The
purpose of tax planning is to ensure tax efficiency. In simple way Tax Planning is to
implement a strategy to minimize tax burden by reducing taxable income, increase
business deductions and capitalize on tax credit credits without violating the tax
legislations. The assessment and payment of tax is governed by precise tax laws
enacted by the Parliament.
It is important to eliminate unnecessary and avoid cost in increase profit for

efficient they use tax planning. The practice of tax planning is not immoral because
there is no moral, social, or legal obligation to pay maximum tax to the state.
However, are acceptable and cross such limited are exceeded it, it become
unacceptable and immoral. Tax payer must consider the impact of schemes as other
see Tax as giving back to society under the existing. If it is not fairly determined,
then it becomes immoral.
Therefore, any taxpayer is therefore required to pay not more or not less than what
the law requires but also ensure are well taxed to economic activities.
(b) Ways of using tax planning to reduce income tax from employment Income
The amount of salary is affected by the following items which can be considered in
tax planning:
 Free medical services which are tax free
 Generous leave and leave passage
 Provision of a living house by the employer not claimed
 House allowance where a house is not provided for the occupation of the
employee a housing allowance may be paid to the employee
 Transport allowance where the employee owns a private car which he uses for
official duties, transport allowance may be paid to him
 NSSF refund contributions are tax free to a certain limit
 Meals in employer’s cafeteria is tax free benefit

(c) Methods used to quantify the level of tax avoidance and tax evasion are:
 The Taxpayer Roll
 The GDP Approach
 The Consumption Equals Income Approach
ANSWER 4
Tax Payer: BABAKUKI

Source of Income: Business Income
Year of Income: 2016
Detail Amount (000) Amount (000)
Reported profit/(loss) (25,900,000)
Add back:
Site Clearance 2,470,000
Computer software acquired 9,200,000
Penalty for failure to file returns 225,000
Depreciation, amortization and impairment 102,000,000
Staff annual party 600,000
Charitable contribution 4,200,000
Fines to TFDA 100,000
Prepaid insurance 360,000
Bribes 500,000
Construction of new factory 3,700,000 123,355,000
97,455,000
Deduct:
Depreciation allowance 34,000,000
Overstated stock value 3,800,000
Translation gain 1,000,000
Disposal profit 15,000,000
Sales return 7,700,000
Vat on sales 35,283,051
Unrelieved losses from previous years 21,300,000
118,083,051
Unrelieved losses to be carried forward (20,628,051)

ANSWER 5
(a) Computation of Input VAT

Input Tax Classify
Item Value Status A B C
Irrigation Equipment 2,000,000 Exempt
Rice 250 kg 1,825,000 Exempt
Coca cola 10 crates 2,620,000 Taxable 399,661
Examination question paper 1,700,000 Exempt
Electricity appliances 2,185,000 Taxable 333,305
Electrical for office 3,000,000 Taxable 457,627
Add: Furniture (W1) 867,905
Total 1,600,871 457,627
Working (W1)
Importation of furniture = USD = 2.540
Exchange rate = 2,240
5,689,600
Computation of output VAT
Item Value Status Vat
Question paper 2,100,000 Exempt -
Building Equipment 2,000,000 Taxable 305,084
Electrical cable 1,950,000 Taxable 297,457
Rice to customer 3,000,000 Example -
Coca cola 3,000,000 Taxable 457,627
Sold furniture 3,200,000 Taxable 488,135
Other sales 1,200,000 Taxable 183,050
Total 1,731,353
Output = 1,731,353
Computation of Input tax for the partial trader= I x T/TS + A = I x T/TS + A
Alternative Approach
Computation o output VAT
Building 2,000,000
Electrical cable 1,950,000
Coca cola 3,000,000
Furniture 3,200,000
Other sales 1,200,000
Total 11,350,000
18
11,350,000 x  1,731,355.9
118
If student managed to compute output tax from the total supplies made, then whole marks
for output ta is 5 marks

I = Input tax calculated relating to both taxable and exempt supplies
T = Taxable supplies made by trader
TS = Value of all supplies made by trader
A = Input taxes relating to taxable supplies made
Taxable supplies VAT exclusive
= 11,350,000 x
Exempt supplies = 2,100,000 + 3,000,000 = 5,100,000
Total supplies made TS = TZS 14,718,644 or
Ratio of
 Deductible input taxes is

1,600,871 + 457,627 x 65.35% = 1,899,930
VAT Due = Output VAT – Input VAT

= 1,731,353 – 1,899,930
= 168,577 = Due to refund
(b) The due date for submission VAT return is on 20th day of the month following. If
that day fall on Sunday or public holiday the return will be submitted on the first
working day after that holiday.
ANSWER 6
(a) Under section 143 of ECCMA 2015 the condition for refund of ready paid duties
are:
(i) That the goods were imported with pursuance of a contract of sale and that
the description quality, state or condition of goods was not fit in accordance
with contract.
(ii) Goods were damaged before the goods were delivered out of customs
control
(iii) The importer with the consent of the seller/manufacturer has returned the
goods unused.
(iv) The imported with the consent of the seller/manufacturer has agreed to
destroy the goods unused.
(v) The destruction if any should under the supervision of the Customs officer.

(b) The Condition being granted License to operate the bonded warehouse the applicant
should meet the following criteria (regulation 74).
(i) Must have rental contact with the duration longer than the license applied
(ii) The premises should have equipped at least with one computer
(iii) The premises should have parking yard or storage area which shall be made
rigid permanent, tarmacked or concrete finishing.
(iv) The premised shall be well secured with fence and lighting system.
(v) The premises should be equipped with a fire fighting system.
(c) The items that will be allowed to duty free entry on April 2 will be:
Items Quantity
Cigarettes 1 box (200 cigarettes
Spirits 3 bottles (750 mls)
Wine 3 bottles (3 liters)
Perfume 1 bottle (0.5 liters)
Clothes All (2 bags)
The duty free entry allowance of stores by crew members may further be issued (after the
date of arrival) during the vessels, stay in port as follows:
 Cigarettes: after every eight days
 Alcohol or liquor: after every four days
Therefore,
Item Quantity Allowed Duty Free Date of Entry

Entry
Cigarettes 1 box (200 cigarettes) On 9th and 17th April
Sprits 3 bottles (750 mls) On 6th, 10th, 14th and 18 April
Wine 3 bottles (3 liter) On 6th, 20th, 14th and 18th April
______________  ______________

SUGGESTED SOLUTIONS
B5 – PERFORMANCE MANAGEMENT
NOVEMBER 2018
ANSWER 1
(a) (i) Comparative Statement of cost for purchasing from Mayunga Co. Ltd under
current policy & JIT
Particulars Current JIT
Policy
TZS..(000) TZS..(000)
Purchasing cost(13,000 x 140,000) 1,820,000 (13,000 x140,020) =
1,820,260
Ordering cost(2,000 x 13 orders) 26 (2,000 x130 orders) = 260
Opportunity carrying cost(1/2 x 1000 x 140,000 10,500 (1/2 x 100 x 140,020 x
x 15%) 15%) = 1,050.15
Other carrying cost (4,000 x 50) = 200
(Insurance, material handling etc)
(1/2 x 1,000 x 3,100 1,550
Stock out cost
Total relevant cost 1,832,076 1,821,770.15
Comments: As may be seen from above, the relevant cost under the JIT purchasing
policy is lower than the cost incurred under the existing system. Hence,
the company should adopt a JIT purchasing policy.
(ii) Statement of cost for purchasing from ZAMOYO Co. Ltd.
Particulars TZS..(000)
Purchasing cost (13,000 x 130,600) = 1,697,800
Ordering Cost (2,000 x 130 orders) = 260
Opportunity Carrying (1/2 x 100 x 130,600 x 15%) =979.5
Other Carrying Cost (1/2 x 100 x 3,000) =150
Stock out Cost (8,000 x 360) =2,880
Inspection Cost (13,000 x 0.5) =6.5
Customer Return Cost (13,000 x 2% x 25,000) =6,500
Total Relevant Cost 1,708,576

Comments The comparatives costs are as follows:
Under current policy TZS. 1,832,076
Purchase under JIT TZS. 1,821,770.5
Under purchase from ZAMOYO Co. Ltd TZS.1,708,576
 Based on above comparison , the Maringa

video co should place order to ZAMOYO
.CO because it’s the cheapest
(b) Just In Time (JIT) approach helps in the reduction of costs/increase in prices as
follows:
- Immediate detection of defective goods being manufactured so that early
correction is ensured with least scrapping.
- Eliminate/reduces WIP between machines within working cells
- Overhead costs in the form of rentals for inventory, insurance maintenance costs
etc. are reduced
- Higher product quality ensured by JIT approach leads to higher premium in the
selling price.
- Detection of problem areas due to better production/scrap reporting/labour tracing

and inventory accuracy lead to reduction in cost by improvement
ANSWER 2
(a) Throughput accounting

Throughput Accounting (TA) is a principle-based and comprehensive management
accounting approach that provides managers with decision support information for
enterprise profitability improvement. TA is relatively new in management
accounting. Approach identifies factors that limit an organization from reaching its
goal, and then focuses on simple measures that drive behaviour in key areas towards
reaching organizational goals.
Throughput Accounting uses three measures of income and expense:
Throughput (T) is the rate at which the system produces “goal units.” When the goal
units are money (in for-profit businesses), throughput is net sales (S) less total
variable cost (TVC), generally the cost of the raw materials (T = S – TVC).
Investment (I) is the money tied up in the system. This is money associated with
inventory, machinery, buildings, and other assets and liabilities. In Theory of
Constraints (TOC) documentation, the “I” was interchanged between “inventory” and
“investment,” The preferred terms is now only “investment.” Note that TOC
recommends inventory be valued strictly on totally variable cost associated with
creating the inventory, not with additional cost allocations from overhead.

Operating expense (OE) is the money the system spends in generating “goal units.”
For physical products, OE is all expenses except the cost of the raw materials. OE
includes maintenance, utilities, rent, taxes and payroll.
Throughput = Revenue – Purchased material cost.
(b) Life Cycle Costing

It focuses on total cost (capital cost + revenue cost) over the products life including
design. Life cycle costing as the practice of obtaining over life time, the best use of
physical asset at the lowest cost of entity. The term “Life Cycle cost includes the
costs associates with acquiring, using, caring for and disposing of physical asset
including the feasibility studies, research, design, development, Production,
maintenance, replacement and disposal as well as support, training and operating
costs, generated by the acquisition use, maintenance and replacement of permanent
physical assets.”
(i) Life cycle costing – estimates and accumulates costs over a product’s entire life
cycle.
(ii) The objective is to determine whether costs incurred at different stages of
development, (planning, designing, & testing) manufacturing (conversion
activities) and marketing (advertising distribution, & designing, & testing)
manufacturing (conversion activities) and marketing (advertising distribution,
& warranty) of the product will be recovered by revenue to be generated by the
product over its life cycle.
(iii) Life cycle costing provides an insight, useful for understanding and managing
costs over the life cycle of the product.
(iv) In particular, it helps to evaluate the viability of the product, decides on pricing
of the product at different stages of product life cycle and often helps to
estimate the value of the product to its user.
(v) When used in conjunction with target costing, life cycle costing becomes an
important tool for cost management.
(vi) Life cycle costing estimates and accumulates costs over a products entire life
cycle in order to determine whether the profits earned during the manufacturing
phase will cover the costs incurred during the pre-and post-manufacturing
stages.
(vii) Identifying the costs incurred during the different stages of a product’s life
cycle provides an insight into understanding and managing the total costs
incurred throughout its life cycle. In particular, life cycle costing helps
management to understand the cost consequences of developing and making a
product and to identify areas in which cost reduction efforts are likely to be
most effective.
(viii) Most accounting system report on a period-by-period basis, and product profits
are not monitored over their life cycle. In contrast product life cycle reporting
involves tracing costs and revenue on a product-by-product basis over several
calendar periods throughout their life cycle.
(ix) A typical pattern of cost commitment and cost incurrence during the three
stages of a product’s life cycle-the planning and design stage, the
manufacturing stage and the service and abonnement stage.
(x) Committed or locked in cost are those cost that have not been incurred but that
will be incurred in the future because of decisions that have already been made.
Costs are incurred when a resource is used or sacrificed.
(xi) Costing system record costs-only when they been incurred. It is difficult to
significantly alter costs after they been committed. For example, the product
design specifications determine a product’s material and labour inputs and the
production process. At this stage costs become committed and broadly
determine the future costs that will be incurred the manufacturing stage.
(xii) That approximately 80% of a product’s costs are committed during the
planning and design stage. At this stage product designer, determine the
product’s design and the production process. In contrast, the majority of costs
are incurred at the manufacturing stage, but they have already become locked
in at the planning, design stage, and are difficult to alter.
Cost Management can be most effectively exercised during the planning and design
stage and not at the manufacturing stage when the product design and processes have
already been determined and costs have been committed.
(c) (i) Target Costing

Target Cost per Unit
TZS
Target Selling Price (2000 less 20%) 1600
Less: Target profit margin (10%) 160
Target Cost per unit 1440
(ii) Break Down of Target cost per unit
TZS
Direct Materials 385
Direct Manufacturing Labour 50
Direct Machinery Costs 60
Direct Manufacturing Costs 495
Total direct costs 990
Add: Manufacturing overheads
Ordering and receiving (21250 x 160)/200,000 17
Testing and Inspection ( 3,000,000 x 4) /200,000 60
Rework (13,000 x 200)/200,000 13
Total Manufacturing Costs 1080
Research and Design 100
Marketing and Customer Service 260
Full Product Cost 1440

(iii) Target Product Profitability
Per Unit For 200,000
Units (TZS)
Sales 1600 320,000,000
Cost of Goods sold
Direct Material 385 77,000,000
Direct Labour 50 10,000,000
Direct Machining costs 60 12,000,000
Direct manufacturing cost 495 99,000,000
Total Direct production costs 198,000,000
Manufacturing Overheads 90 18,0000,000
Total Production costs 216,000,000
Gross Margin 104,000,000
Operating Costs
Research and Design 100 20,000,000
Marketing and Customer service 260 52,000,000
Operating Profit 32,000,000
ANSWER 3
Royal Cake Bakery Answers:

(a) Operating Statement to reconcile Budgeted and Actual Contribution
Budgeted Contribution (W1) 32,000,000
Favourable Adverse
Sales price variance (W2) -
Sales volume variance (W3) 2,400,000
Direct Material
A: Price variance (W4) 5,430,000
A: Usage variance (W5) (150,000)
B: Price variance (W6) (1,770,000)
B: Usage variance (W7) 2,040,000
Direct Labour
Rate variance (W8) (17,000,000)
Efficiency variance (W9) 5,000,000
Variable Overhead
Expenditure variance (W10) -
Efficiency variance (W11) 760,000
15,630,000 (18,920,000) (3,290,000)
Actual Contribution Margin (W12) 28,710,000
WORKINGS
1. Budgeted Contribution = TZS (20,000 – 16000) x 8000 = TZS 32,000,000
2. Sales price variance = (AP-SP) AQ = (20,000) x 8600 = TZS 0
3. Sales volume variance = (AQ-BQ) x SCM = (8600 – 8000) x 4000 = TZS 2,400,000 F

4. Ingredient A: price variance = (STD price/kg – A. Price/kg) x AQ of material
= (1500 – 1200) x 18100 = TZS 5,430,000 F
5. Ingredient A: usage variance = (SAQ – AQ) x STD price/kg
= (2*9000 – 18100) x 1500 = TZS 150,000 A
6. Ingredient B: price variance = (STD price/kg – A. price/kg x AQ of material
Actual price/kg = TZS 15,930,000/11800 = TZS 1350
= (1200 – 1350) x 11800 = TZS 1,770,000 A
7. Ingredient B: usage variance = (SAQ – AQ) STD price/kg

= (1.5 x 9000 – 11800) x 1200 = TZS 2,040,000 F
8. Direct labour rate variance = (STD rate – A. rate) x Actual Hours
Actual Rate = TZS 102,000,000/17000 = TZS 6000 per hour
= (5000 – 6000) x 17000 = TZS 17,000,000 A
9. Direct labour efficiency variance = (SAH – AH) x STD rate
= (2*9000 – 17000) x 5000 = TZS 5,000/000 F
10. Variable overhead expenditure variance = (STD rate – A. Rate) x A. Machine hours
Actual rate = TZS 10,040,000/50200 = TZS 200
= (200 – 200) x 50200 = TZS 0
11. Variable overhead efficiency variance = (SA hours – A. hours) x STD rate
= (6 x 9000 – 50200) x 200 = TZS 760,000 F
12. Actual Contribution Margin
(b) Reasons for Direct Labour variance

- Direct Labour rate variance = TZS 17,000,000 A
 The employment of skilled staff
 Increase in rate due to inflation
- Direct labour efficiency variance = TZS 5,000,000 F
 The use of skilled employees whom are knowledgeable of the process
 High rates motivation of employees due to good payments.
(c) Reasons why Royal Cakes Bakery could not calculate Material Mix and Yield
variances:
- The material used are not measured by using the same S1 units. As one is in kilos
and the other is in litres.
- The standard use of material cannot be changed as the product formula comes from
the parent company. Therefore, even if the material mix were calculated would
not add value to Royal Cake as the proportion cannot be changed.

ANSWER 4
(a) (i) The number of tickets that must be sold at breakeven

At Mondi
TZS. %
“000”
Ticket selling price 25.00 100
Variable cost – 10% service charge payable (2.50) (10)
Contribution per ticket 22.50 90
Fixed costs TZS.

Artist fee 8,155
Part time wages (same for every event 10 staff x TZS..80.00) 800
Total fixed costs 8,955
Breakeven point
BEP = TFC/CPU = TZS. 8,955/TZS..22.50 398 Tickets
At Kiba
TZS. %
Ticket selling price 25.00 100
Variable cost – 10% services charge payable (2.50) (10)
- Artist’s fee 20% (5.00) (20)
Contribution per ticket 17.50 70.00
Fixed costs TZS.
Artist fee 5,780
Part time wages (same for every event: 10 staff x TZS. 800
80.00
Total fixed costs 6,580
Break – even point
BEP = TFC/CPU= 6580/17.5 376 Tickets
(ii) Assuming the maximum number of tickets are sold

Mondi
The maximum number of tickets sold is 500 tickets. Each time a ticket is sold
the theatre receives 90% of the ticket price Let TS = total sales required to
achieve target profit. Then to meet fixed costs and earn target profit 0.9Y =
TZS. 13,955
Y = TZS. 13,955/0.9
Y= TZS. 15,505.56
Maximum number of tickets available B 500
= > Price to charge per ticket =Total sales required =TZS. 15505.56/500=TZS.31.01
Maximum tickets sold
or 31,01

Kiba
Assuming the maximum number of tickets are sold i.e. 500 tickets. Each time a
ticket is sold the theatre receives 70% of the ticket price
Let Y = total sales required to achieve target profit
Then to meet fixed costs and earn target profit 0.7Y = TZS. 11,580
Y = TZS. 11,580/0.7
Total sale required to achieve target profit = TZS. 16,542.86
Total sales required to cover fixed costs &
target profit TZS.16,542.86
Maximum number of tickets sold 500
Price to charge per ticket is TZS.33.09
(b) At what level of ticket sales will the amount paid to the Mondi equal the amount
paid to Kiba?
Let X = the level of ticket sales where the amounts paid to both artists is the same
Profit earned from the Mondi = 22.5X – 8.955
Profit earned from Kiba = 17.5X – 6.589
Putting these together 22.5X – 8.955 – 17.5X – 6.580
5X = 2.375
X = 475
The level of tickets where both artists paid equal
amount is 475 Tickets
(c) Outline main assumptions of Cost-Volume-Profit mode
 Volume is the only factor influencing cost

 Costs may be accurately classified into fixed costs and variable costs
 Selling price per unit remains constant
 Variable cost per unit remains constant
 If more than one product is sold, the sales mix is assumed to be constant
 Stock is value of variable cost of production or it not all units are sold in the
period when they are produced.
 The CVP analysis applies to the relevant range and short-term horizon.

ANSWER 5
(a) Transfer Price is TZS.45,000 for each consulting day.

Profit mark-up = 150%
Let cost = Y
Profit = Y 150/100 = 1.5Y
Cost + profit = Transfer price
 Y + 1.5X = 45000
 2.5X = 45,000
 Y = 45,000/2.5 – 18,000
  Cost = TZS. 18,000
And profit = 1.5Y = 1.5 x 18,000
Profit = TZS. 27,000
Variable cost (80%) = TZS. 18,000 x 80% = TZS. 14,400
Fixed cost (20%) = TZS.18, 000 x 20%
Fixed costs = TZS. 3,600
(i) Every consultancy firm fully engaged. There is no idle time or spare capacity.
Hence, transfer price = Marginal cost plus opportunity cost Marginal cost
= TZS.. 14.400
Saving for internal work = TZS..2, 000
Net Marginal Cost = TZS.. 12,400
Opportunity cost is the lost contribution
Lost contribution = Contribution from external client
= Fee charged from external client – Variable cost
= TZS. (45,000 – 14,400) = TZS.30,600
 Transfer price = TZS. 12,400 + 30,600
Transfer price = TZS. 43,000 per consulting day per team
(ii) One team is idle. Idle time has no opportunity cost. Variable cost for internal
work is TZS.12,400 per consulting day. Second team is busy. Hence,
opportunity cost is relevant in case of second team. Hence, charge of second
team is TZS.43,000 per consulting day per team.

Average of charge of two teams = TZS. (12,400 + 43,000)/2
= TZS. 27,700 per consulting day per team.
(iii) New client offers fee of TZS. 15,840,000

Duration: 5 days of 48 weeks x 2 teams = 480 days Fee per day 15,840,000 / 480
= TZS. 33,000
Variable cost = TZS. 12,400
Contribution TZS.(33,000 – 14,400) = TZS.. 18,600
Fee for consulting day for internal work= variable costs + contribution lost
Variable cost + Contribution lost
= TZS.12,400 +TZS.18,600
Fee to be charged = TZS.. 31,000 per consulting day per team
(b) The potential for maximization of income by a multinational through the use of
transfer pricing mechanism is based on the successful implementation of the
following steps:
(i) Transfer pricing may be set relatively higher for affiliates in relatively high tax
countries that purchase inputs from affiliates located in relatively low-tax
countries.
(ii) Transfer prices to affiliates in countries, which are subject to import duties for
goods or services purchase, may be set low to avoid host country taxes.
(iii) Transfer prices to an affiliate in a country that is encountering relatively high
inflation may be set relatively high to avoid some of the adverse effects of local
currency devaluation that are related to the high inflation.
(iv) Transfer prices may be set high for goods and services purchased by an affiliate
operating in a country that has imposed restriction on the repatriation of income
to foreign companies.
(v) Transfer prices may be set low for an affiliate that is trying to establish a
competitive advantage over a local company either to break into a market or to
establish a higher share of the company’s business.

ANSWER 6
(a) Cash Budget for the six months commencing 1st September 2016 (Figures in TZS “000”
January February March April May June
Cash receipts TZS.‘000’ TZS.‘000’ TZS.‘000’ TZS.‘000’ TZS.‘000’ TZS.‘000’
Country Enterprise Board Grant 2,550 2,550
Total receipts from customers 1,417.5 5,082.75 5,942.25 6,684.9 8,337.45 8,528.85
W1
Total cash receipts 3,967.5 5082.75 5,942.25 6,684.9 10,887.45 8,528.85

Cash payments TZS.‘000’ TZS.‘000’ TZS.‘000’ TZS.‘000’ TZS.‘000’ TZS.‘000’
Total payments to suppliers (W2) 378 1,418.4 1,663.5 1,862.64 2,333.76 2,387.22
Wages costs 2,640 2,640 2,640 2,640 2,640 2,640
Rent of premises 2,400 1,200 1,200 1,200 1,200 1,200
Administration costs (W3) 240 240 240 240 240 240
Purchase of kitchen equipment 4,500
Total cash payment 10,158 5,498.4 5,743.5 5,942.64 6,413.76 6,467.22
Net cash flow (6,190.5) (415.65) 198.75 742.26 4,473.69 2,061.63

Opening cash balance 5,000 (1,190.5) (1,606.15) (1,407.4) (665.14) 3,808.55
Closing cash balance (1,190.5) (1,606.15) (1,407.4) (665.14) 3,808.55 5,870.18
Working
(W1) Receipts from customers
TZS.. TZS.. TZS.. TZS.. TZS.. TZS..
‘000’ ‘000’ ‘000’ ‘000’ ‘000’ ‘000’
Vanilla Cream 1,800 2,700 2,880 3,564 3,960 3,960
Chocolate Sweet 2,925 3,217.5 3,120 4,719 4,504.5 4,719
Total Sales 4,725 5,917.5 6,000 8,283 8,464.5 8,679
Received:
- Cash sales (30% of total) 1,417.5 1,775.25 1,800 2,484.9 2,539.35 2,603.7
- Due after 1 month (70% of 3,307.5 4,142.25 4,200 5,798.1 5,925.15
total
Total receipts from customer 1,417.5 3,072.75 5,942.25 6,684.9 8,337.45 8,528.85
(W2) Purchases required

TZS.‘000’ TZS.‘000’ TZS.‘000’ TZS.‘000’ TZS.‘000’ TZS.‘000’
Ingredients – 20% of sales 945 1,183.5 1,200 1,656.6 1,692.9 1,735.8
Payable in one month 945 1,183.5 1,200 1,656.6 1,696.9

Toppings – 8% of sales payable in cash 378 473.4 480 662.64 677.16 694.32
Purchase Payments 378 1,418.4 1,663.5 1,862.64 2,333.76 2,387.22

(W3) Administration costs
TZS. ‘000’
Total annual administration cost 4,004
Less: Depreciation (non-cash cost TZS.4, 500/4 per years) 1,125
Total cash annual administration costs 1,880
Cash administration costs per month 240
(b) Explain Zero Based Budgeting, Traditional Budgeting and outline benefits of
ZBB over traditional budgeting
Zero-based budgeting implies a different approach from traditional budgeting. It
requires activities to be re-evaluated each time a budget is produced. Each functional
budget is prepared on the basis that each cost element is justified as though the
activities were occurring for the first time. No item of expenditure is included in the
budget without full prior evaluation and justification. Zero based budgeting attempts
to eliminate unnecessary expenditure being retained in budgets from year to year.
Traditional Budgeting is a method of budgeting that depends on the traditional cost

accounting, in the sense it is based on allocation, apportionment and absorption of
overheads in product.
The budgeting employs incremental approach, in which current year’s budget is

prepared with the help of previous year’s budget i.e. by making adjustments up or
down in the previous year’s budget to show changing trend for the upcoming year.
The expenses for the new year are adjusted according the rate of inflation. Consume
demand, market condition and so fully.
Advantages of Zero Based Budgeting

Any two of the following:
- It eliminates unnecessary expenditure retained in budgets.
- It allows questions to be asked by managers before committing funds and not
afterward as in traditional budgeting.
- It focuses attention on achieving value for money.
- It leads to a greater understanding by management of the working of the
organization.
- If properly implemented, it should lead to a more efficient allocation of resources.
______________  ______________

SUGGESTED SOLUTIONS
B6 – MANAGEMENT, GOVERNANCE AND ETHICS
NOVEMBER 2018
ANSWER 1
(a) A candidate have to attempt the question by referring to conceptual conflict
emanating from the case.
(i) Integrity, objectivity, professional competence and due care, professional
behavior and technical standards
(ii) Conflict of interest, as the case portrays principle-agent relationship. The
Umoja & Co is an agent to Bambs Fuel and Lubricants Supply Ltd. Umoja
& Co is working for earning fund from their principle (BFLS Ltd.) thus its
likely not qualify its arguments to as to continue securing its work
(iii) Umoja & Co should not by any circumstances hide the fraud. This is due to
fundamental principles for professional accounts
 Integrity – require to be straightforward and honest in conducting all
accounts services
 Objectivity – Accounts are required to not biased and impartial in
the conduct of business auditing
 Professional behavior- adhering to applicable laws, regulations and
avoiding acts that may discredit accountancy professional
(b) Mechanisms by which a company can be effectively directed and controlled:
(i) Business planning
(ii) Need assessment
(iii) Budgets
(iv) Pricing
(v) Performance reviews
(vi) Employees incentive
(c) The ethical dilemma is that the Wajanja Town Inc face a dilemma of whether to or
not to maintain a business relationship with Egyptian vendor, on the other hand stop
relationship with vendor so as to not promote child labour.
(i) Under the concept of relativism Wajanja Inc would continue trading with
the vendor as child labour in Egypt is positively considered as it promote
families incomes and keeps children off the streets.
(ii) Under Absolutism Wajanja Town Inc would stop trading with the vendor as
it is against company ethical stance.

ANSWER 2
(a) Various methods of lock-customers

(i) Set focused, strategic targets: Many companies struggle to create strategic
targets with a point of view and create generic targets.
(ii) Create a portfolio of experiments: Once you have focused, strategic
targets set, create a series of experiments.
(iii) Leverage learnings to inform new experiments: business companies are
constantly experimenting and hacking together new solutions to improve
and monetize its services.
(b) The following are the main advantages of budgetary control:

(i) Helps in Coordination:
It helps in establishing coordination and interdependence among various
departments. For example, purchase budget cannot be prepared without
knowing quantity of materials required and that information comes in from
production budget. Latter in turn is based on sales budget.
(ii) Optimum Utilization of Resources:

Budgeting ensures fuller utilization of resources by allocating the resources
according to the needs of various departments.
(iii) Motivating Employees:

Budgeting helps in motivating the employees to perform better as they know
the standards against which their performance will be judged.
(iv) Helps in Attaining Targets:

Budgeting ensures attainment of organizational goals by focusing on
specific and time bound targets.
(v) Facilitates Management by Exception:

By stressing on the operations which deviate from budgeted standards, it
facilitates management by exception in the organization
(c) Reasons why organization structure need to tally wit implementing a business
strategy
It is a key enabler for effective strategy implementation is the ability to align
organizational structure with strategic goals and objectives. The structure and
strategy of the organization must be complementary” The structure of an
organization determines how an organization will go about delivering the
goods/services it has targeted in its strategy. Moe specifically organization
structures determine which parts of an organization will perform which
activities/functions and how. They also define the conditions that exist in an
organization such as the: formal reporting relationships and communication
channels, responsibilities of individuals, groups and departments, grouping of
departments/activities, type and numbers of hierarchical levels, span of control of
managers, uses of processes and systems.

(d) If Kisowia applied the theory of absolutism, the company would believe that the
truth is absolute and cannot be changed. The company is expected to announce the
information related to Idd el Fitri sales; therefore, from the point of good
governance practices of integrity and transparency, this information must be made
available to the shareholders. Therefore, the company would disclose this
information to its investors, whether positive or negative.
ANSWER 3
(a) Economic factors that affect organization performance

(i) Gross Domestic Product (GPD) – Indicates market size, low GDP means
developing country. An organization have to put in mind this factor as it
formulates strategies.
(ii) Taxes-Change in government taxation policy affect org plans as it affects
cash flow
(iii) Exchange rates-Import and export of goods are affected by fluctuation in
exchange rates
(iv) Unemployment-Closely related to purchasing power of consumers
(v) Trade factors and tariffs-Rules of import and export, change in macro
environment
(vi) Monopolistic practices-reduce the exploitation of consumers
(b) Budgetary process is a process of established short term financial plans, aimed at
meeting definite goals by making available adequate financial resources to meet
forecasted projects.
(i) Translating strategic plan into executable action-Provide quantitative
statement for defined period of time
(ii) Tracking the actual performance against the budgeted targets
(iii) Control-provide framework for performance
(iv) Motivating the team-lay down reward system
(c) Type of information to disclose to the shareholders:
(i) Business data: for example, a breakdown of market share growth and
information on new products
(ii) Analysis of business data: for example, trend analyses and comparisons
with
competitors.
(iii) Forward – looking information: for example, sales forecast breakdowns and
plans for expansion.
(iv) Information about management and shareholders: for example, information
on stockholders and creditors, and shareholding breakdowns.
(v) Company background: for example, product descriptions and longterm
objectives.
vi. Information about intangible assets: for example, research and development
and customer relations.
(d) A candidate have to define competitive advantage and describe three generic
strategies according to Porter. M
(i) Cost leadership strategy-Leader in the industry in terms of cost.
Competitive advantages is gained by reducing cost and selling at low price.
(ii) Differentiation strategy-Competitive advantage is gained by producing
unique product/services, especially is applicable when customers desire
such uniqueness. It is seen through functions, features and durability
(iii) Focus strategy-Concentration on only one market segment or niche. A
company can produce low-priced or differentiated products/service for
specified goods for customers
ANSWER 4
(a) Importance of internal and e-commerce in business operations

(i) Convenience and easiness
(ii) New customer attraction
(iii) Decrease of cost inventory
(iv) Scalability
(v) Comprise warrant information
(b) Types of frauds in procurement:

(i) Kickbacks and corrupt payment-paid by contractor after receiving payment
for winning project
(ii) Corrupt influence-paying over market rates, buying more items than needed,
narrowing specification to favor particular bidders
(iii) Collusion and manipulation by bidders-involve groups agreeing to submit
complementary bids e.g. Absence to public bids opening, deny of bid
extension with no reasons
(iv) Billing frauds-Intentional submission of false, duplicate of inflated invoices
by bidder in collaboration with buyer.
(v) Conflict of interests-Non-disclosure: Done by members of the procurement
teams who fail declare interest with the contractors.
(vi) Delivery frauds-This may be variation abuse, fraudulent contractors and
unauthorized spend.
(c) Features of successful business organizational culture

(i) Purposive-driven business culture
(ii) Effective communication patterns
(iii) Feedback guided culture
(iv) Embracing diversity
(v) Teamwork
(vi) Engagement and loyalty
(vii) Growth and development

ANSWER 5
(a) The seven components you must have in your business plan include:
(i) Executive Summary
(ii) Business Description
(iii) Market Analysis
(iv) Organization Management
(v) Sales Strategies
(vi) Funding Requirements
(vii) Financial Projections
(i) Executive Summary

The executive summary is basically the elevator pitch for your business. It
distills all the important information about your business plan into a relatively
short space.
(ii) Business Description
This is your chance to describe your company and what is does. Include a
look at when the business was formed, and your mission statement.
(iii) Market Analysis

This is your chance to look at your competition and the state of the market as
a whole. Your market analysis is an exercise in seeing where you fit in the
market – and how you are superior to the competition
(iv) Organization and Management

Use this section of your business plan to show off your team superstars. In
fact, there are plenty of indicators that your management team matters more
than your product idea or pitch, media experience, so they can highlight their
expertise.
(v) Sales Strategies

How will you raise money with your business and make profits a reality?
You answer this question with your sales strategy. This section is all about
explaining your price strategy and describing the relationship between your
price point and everything else at the company.
(vi) Funding Requirements

Here’s where you ask for the amount of money you need. Make sure you are
being as realistic as possible. You can create arrange of numbers if you don’t
want to try to pinpoint an exact number. Include information for a best-case
scenario and a worst-case scenario. You should also put together a timeline
so your potential funders have an idea of what to expect.
(vii) Financial Projections
Finally, the last section of your business plan should include financial
projection. Make sure you summarize any successes up to this point. This is
especially important if you hope to secure funds for expansion of your
existing business.

(b) Corruption practices
(i) Money: These are done through: -
- Bribery
- Gratuities
- Kickbacks
- Skimming
- Embezzlement
- Fraud
- Laundering
- Blackmail
(ii) Assets: these are done through: -
- Misappropriation
- Theft
- Buyer schemes
- Misstatement
- Expense padding
- Seller schemes
(iii) People: these are practices through:-
- Force labour
- Discrimination
- Harassment
- Nepotism
- Interest conflict
- Plagiarism
- Price fixing
(iv) Power: corrupt practices under this category are done through:-
- Impunity
- Suppression
- Bullying
- Predatory practices
- Insider trading
(c) Five questions to be answered according to Tucker’s 5-question model:-

(i) Is profitable
(ii) Is legal
(iii) If fair
(iv) Is right
(v) Is environmentally-friendly

ANSWER 6
(a) Identify the various risks facing the business (liquidity risks), establish models that
will assess the impact of these risks, Monitor the proper implementation of the risk
mitigation strategies. Prepare and present before internal management the reports
that highlight the various risk incidents then, prepare a risk management policy
statement and manual.
(b) Comparison between competitive advantages against sustainable competitive

advantages When an organization earns profit which exceeds the average for that
industry, the organization possesses a competitive advantage over other
organizations. An important issue here is sustaining the competitive advantage.
‘Sustain’ means to maintain over time. Oranizations aim to achieve sustainable
competitive advantages. Competitive advantages lead to better value for an
organization’s customers and higher profits for the organization itself and may be
generated/created using core competences, capabilities or resources.
(c) How to implement Porter generic strategy in order to achieve competitive

advantages.
According to Porter, an organization can achieve competitive advantage through
three generic strategies, cost leadership, differentiation and focus (cost focus and
differentiation focus). Achieving a competitive advantage means gaining an edge
over competitors. Competitive advantage refers to the ways and means by which an
organization can increase its sales and earn higher profits compared to its
competitors.
(d) Characteristics of Effective Board Members
Governance
(i) Approaches responsibilities in the spirit of a director on behalf of the
members and the industry at large.
(ii) Maintains loyalty to the organization with a higher loyalty to the members.
(iii) Welcomes information and best available advice, but reserves the right to
arrive at decisions based on own judgment.
(iv) Honors commitments.
(v) Supports board decisions (internally and externally) even when he or she
may disagree with the majority opinion. Promotes unity within the
organization.
(vi) Offer opinions honestly and in a constructive way.
(vii) Respects the opinions of others.
(viii) Avoids any possibility of conflict of interest.
(ix) Understands legal and fiduciary responsibilities.
(x) Gives respect and consideration to other board members and President.
Listens as an ally. Focuses on issues not personalities.
(xi) Offers constructive feedback.
(xii) Asks informed questions.
(xiii) Cleary understands her/his responsibilities.
(xiv) Willing to actively serve on at least one committee.
(xv) Comes to meetings on time, well prepared and actively participates.
Ambassador
(i) Understands and is committed to the organization’s mission.
(ii) Speaks with one voice when representing the organization.
(iii) Acts as an advocate for the organization and its members.
Consultant
(i) Has expertise in areas necessary to assist the board and the organization.
(ii) Contributes knowledge.
General
(i) Willing to give time
(ii) Recognize that her/his time and energy are limited, and takes care not to
make any commitment that cannot be fulfilled.
______________  ____________

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©The National Board of Accountants and Auditors, November 2018

B1 – Financial Management ………….….…............................... 1

B2 – Financial Accounting …….......……................................ 8

B3 – Auditing Principles and Practice ……………………….. 18

B4 – Public Finance and Taxation I ………………………….. 24

B5 – Performance Management …………………………………. 31

B6 – Management, Governance and Ethics …………………. 39

Suggested Answers Page

B2 – Financial Accounting …….......……................................ 57

B3 – Auditing Principles and Practice ……………………….. 67

B4 – Public Finance and Taxation I ………………………….. 80

B5 – Performance Management …………………………………. 87

B6 – Management, Governance and Ethics …………………. 99

SUBJECT : FINANCIAL MANAGEMENT

TIME ALLOWED : THREE HOURS (2:00 P.M. – 5:00 P.M.)

2. Answer question ONE in section A.

3. Answer any FOUR questions in Section B.

4. In total answer FIVE questions.

5. Marks are shown at the end of each question.

6. Calculate your answers to the nearest two decimal points.

7. Show clearly all your workings in respective answers where applicable.

8. This question paper comprises 7 printed pages.

Intermediate Level, November 2018 1

Source of finance Amount TZS. Weight

Source of finance Cost of capital

The following information was also gathered:

2 Intermediate Level, November 2018

Sales in 2017 TZS.60,000,000

Intermediate Level, November 2018 3

Outline weaknesses of the model. (6 marks)

(i) Calculate Sharpe ratio (1 mark)

(ii) Calculate Treynor’s ratio (1 mark)

(iii) Briefly explain what each ratio measures (2 marks)

Current Option 1 Option 2

4 Intermediate Level, November 2018

(ii) Is this a good investment opportunity? Why? (2 marks)

(b) MI Company is a technology company based in South Africa and is intending to

MI Company MA Company Merged Company

MI Company has proposed to acquire MA Company at a price of TZS.20,000 per

Intermediate Level, November 2018 5

Projected sales TZS.10 million

The company faces a 40 percent tax rate.

Machine END OF YEAR (figures in millions)

6 Intermediate Level, November 2018

Assess the economic viability of the new machine. (10 marks)

Intermediate Level, November 2018 7

SUBJECT : FINANCIAL ACCOUNTING000000

EXAMINATION DATE : WEDNESDAY, 31ST OCTOBER, 2018

TIME ALLOWED : THREE HOURS (2:00 P.M. – 5:00 P.M.)

2. Answer question ONE in Section A.

3. Answer ANY FOUR questions in Section B.

4. In total answer FIVE questions.

5. Marks are shown at the end of each question.

7. Show clearly all your workings in respective answers where applicable.

8. This question paper comprises 9 printed pages.

8 Intermediate Level, November 2018

The following additional information is relevant:

Intermediate Level, November 2018 9

Prepare the consolidated Statement of Profit or Loss and Other Comprehensive

Give explanation to the concerned shareholder. (3 marks)

Land and building cost 293,420

Total 704,286 704,286

Simba have the following accounting policies: