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While preparing final reports, it is important to remember that transactions associated with
           investment activities can result in accruals. Acquisition and disposal of financial assets
           can take place at any time and the payment of interest and dividends may not always
           match the date at which the books of accounts are closed. Therefore, when an investor
           is closing the books of accounts, at the end of the accounting period, it is important
           to establish accrued income (interest/dividend) for their recognition in the financial
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           statements. For instance, a company that purchased a bond just two months before the
           closing date of its books of accounts will be required to calculate accrued interest for
           income recognition even if the payment date is not yet.

            Exercise 4.4
                      LANGUAGE EDITING
            The following are the transactions of Matata Ltd for investment activities for the
            financial year ended December 2021:
            1.  On 1  March 2021, the company acquired 10,000 preference shares of Wadau Ltd
                    st
                for TZS 19,200,000 as part of its diversification strategy. The face value of each
                share is TZS 2,000 and the coupon rate 8 per cent, paid annually.
            2.  On 1  May 2021, Matata Ltd sold a 10 per cent corporate bond of TZS. 50,000,000
                    st
                to Malingumu Ltd at 90 ex-interests. Matata Ltd purchased these stocks on 31
                                                                                            st
                Dec. 2020 at TZS 42,500,000. Interest is received semi-annually every year that
                is 30  June and 31  December.
                                 st
                    th
            3.  On 1  August 2021, the company purchased TZS 20,000,000, 12 per cent treasury
                    st
                bonds at 90 cum interest. Interest is payable semi-annually on 30  June and 31
                                                                               th
                                                                                            st
                December.
            Required:
            (a) Determine accrued interest income from investment activities that should appear
                in the statement of financial position.
            (b) Prepare investment account to determine investment income and investment cost
                for reporting in the financial statements.


            Activity 4.3
            Babayo inherited some money and needs to decide how to invest it wisely. He is
            looking at two main options: buying stocks or investing in bonds. Babayo wants to
            understand how each option can earn him money, and he heard terms like nominal
            value and coupon rate when it comes to bonds, and he knows these are important in
            figuring out how much he can make. Babayo also wants to make sure his investments
            are balanced to reduce risk.
            Required: Advise Babayo on important issues he should consider to balance his
            investment in stocks and bonds




                                                                         Student’s Book Form Five
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