NOTES TO THE FINANCIAL STATEMENTS
FOR THE SIXTEEN MONTHS MONTHS ENDED 30 JUNE 2023
1 GENERAL INFORMATION
InnBucks MicroBank Limited (“InnBucks” ) is a registered Deposit Taking Microfinance in Zimbabwe and is regulated by the Reserve Bank of Zimbabwe, under the Microfinance Act (Chapter 24:29).
InnBucks is a limited liability Company incorporated and domiciled in Zimbabwe on 6 February 2019.
Its registered office address is 2 Northridge Close, Northridge Park, Borrowdale, Harare, Zimbabwe.
Company Secretary Tafadzwa Madya
2 BASIS OF PREPARATION
2.1 Statement of compliance
The Microbank’s financial statements are prepared with the aim of complying fully with International Financial Reporting Standards (IFRSs) as well as the requirements of the Companies and Other Business Entities Act (Chapter 24:31) and the Microfinance Act (Chapter 24.20). Only partial compliance has been achieved for 2023. The IFRS Conceptual Framework, provides that in applying fair presentation to the Microbank financial statements, entities should go beyond consideration of the legal form of transactions and other factors impacting on the financial statements to also consider the
underlying economic substance therein. The Microbank has prepared its financial statements in terms of IAS 29 in non-compliance with IAS 29 paragraph 1 which states that IAS 29 shall be applied to the financial statements of any entity whose functional currency is the currency of a hyperinflationary economy.
The Microbank determined its functional currency as the USD and to comply with regulatory requirements, International Accounting Standard 29: “Financial Reporting in Hyperinflationary Economies” has been applied to the financial statements whose United States of American Dollar US$ functional currency is not a subject of hyperinflation in Zimbabwe.
The Microbank has an investment of US$5 million with the Reserve Bank of Zimbabwe relating to twenty-year zero-coupon bonds. These investment securities have been carried at their face value (ZWL28 698 980 500) in the statement of financial position in noncompliance with IFRS 9, Financial Instruments, paragraphs 5.1 and 5.2.1 which require that such financial instruments be measured at their fair value at initial and subsequent measurement. The estimated fair value of the investment securities is ZWL11 772 918 740.
Had the investment securities been carried at fair value, the profit or loss for the period and retained earnings would have been reduced by ZWL16,926,061,760, thereby reducing the regulatory capital of the Microbank to ZWL14,840,934,250. Accordingly, the investment securities, profit or loss for the period, retained earnings and the capital of the Microbank are overstated. This is due to lack of observable market information for the investment securities. This has resulted in the capital position of the MicroBank being overstated.
The following All items CPI indices were used to prepare the financial results.
The procedures applied for the above restatement are as follows:
Financial statements prepared in the currency of hyper-inflationary economy are stated in terms of the closing Consumer Price Index (“CPI”) at the end of the reporting period. The historical cost financial information is re-stated for the changes in purchasing power (inflation).
Monetary assets and liabilities are not restated non-monetary assets and liabilities that are not carried at amounts current at balance sheet date and components of shareholders’ equity are restated by the relevant monthly conversion factors.
All items in the income statement are restated by the relevant monthly, yearly average or year-end conversion factors with the exception of depreciation, amortisation and fair value gains and losses which applies the balance sheet approach.
2.2 Presentation currency
For the purposes of the financial statements, the results and financial position of the Company are expressed in Zimbabwe dollars which is the presentation currency. To comply with regulator requirements, International Accounting Standard 29: “Financial Reporting in Hyperinflationary Economies” has been applied to the United States of American Dollar US$ functional currency of the Company which is not a subject of hyperinflation in Zimbabwe.
2.3 Functional currency
The functional currency of the Company is the United States of American Dollar (US$).
2.4 Comparative financial information
The Company started operations on 12 March 2022 after obtaining the relevant deposit taking licence from the Reserve Bank of Zimbabwe. The accounting period of sixteen months to 30 June 2023 represent the initial accounting period for the entity. Therefore, no comparative financial statements presented.
2.5 Foreign currency transactions
Transactions in foreign currencies are translated into US$, which is the functional currency of the Company at the spot exchange rates at the date of the transactions.
Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the spot exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between the amortised cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortised cost in the foreign currency translated at the spot exchange rate at the end of the year.
Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the spot exchange rate at the date on which the fair value is determined. Non-monetary items that are measured based on historical cost in a foreign currency are translated using the spot exchange rate at the date of the transaction.
Foreign currency differences arising on translation are generally recognised in profit or loss.