FAST foods giant Simbisa Brands Limited suffered a net foreign exchange loss of ZW$2,7 million as it experienced technical challenges regarding compliance with the applicable accounting standards, following the currency change in the country from the United States dollar to the Zimbabwe dollar.
The group, which this week presented its financial results for the year ended June 30 2019, says while it forsees problems in complying with the accounting standards, it is now looking at various options to remove the distortions in its next reporting period.
It is considering either changing the accounting policy to revaluation model, or adopting hyperinflationary accounting.
“The group intends to resolve this distortion in the new financial year either by changing the accounting policy to revaluation model or adopting hyperinflationary accounting if the aforementioned technical challenges regarding compliance with the applicable accounting standard are overcome and/or resolved,” Simbisa chairperson Addington Chinake said.
The net ZW$2,7 million foreign exchange loss during the period includes exchange losses arising from the revaluation of foreign-denominated assets and liabilities on the Zimbabwe balance sheet, which were previously carried at an exchange rate of 1:1 up to end of February 22, and revalued using applicable interbank rates thereafter.
The group recorded an 82% growth in total assets and an 87% jump in total liabilities owing to the impact of the Zimbabwe dollar devaluation in the period under review because of the translation of assets and liabilities in foreign subsidiaries.
Chinake said the application of the prescribed exchange rates on change in the functional currency may have resulted in the value of property, plant and equipment being grossly undervalued in Zimbabwe.
“Consultations are currently underway within the accounting profession regarding whether Zimbabwe needs to adopt IAS 29: Financial Reporting in Hyperinflationary Economies.
In the absence of year-on-year Consumer Price Index data following the rebasing decision by the Ministry of Finance, the group foresees difficulties in complying with the accounting standard going forward and has therefore continued to present the financial statements on a historical cost basis at this stage pending further clarity and guidance from the PAAB, the ZSE and other regulators on the issue,” he said.
However, during the period, efforts to defend the Zimbabwe operation’s margins paid off and the gross profit margin improved versus the prior comparable period while total revenue for the period increased 79% to ZW$255,1 million (ZW$142,3 million in full-year 2018).
Operating profit margins increased from 16,6% in full-year 2018 to 20,8% in full-year 2019 as the group continued to grow market share in Zimbabwe.