- 20 Marks
Question
EASY WAY LIMITED
The list of balances of Easy Way Limited shows the following balances at 31st December 2021.
| Dr GH¢000 | Cr GH¢000 |
|---|---|
| Share capital (600,000 shares) | 320 |
| General reserve | 20 |
| Accumulated profit 1 January 2021 | 50 |
| Inventory (goods for resale) at 1 January 2021 | 60 |
| Revenue | 1,000 |
| Purchases | 540 |
| Purchases returns | 26 |
| Sales returns | 28 |
| Carriage outwards | 28 |
| Warehouse wages | 80 |
| Sales representatives salaries | 60 |
| Administrative wages | 40 |
| Warehouse plant and equipment cost | 126 |
| Accumulated depreciation — 1 January 2021 | 50 |
| Delivery vehicle hire | 20 |
| Goodwill | 100 |
| Distribution expenses | 10 |
| Administrative expenses | 30 |
| Directors’ salaries (charge to administrative expenses) | 30 |
| Rental income | 16 |
| Trade receivables | 330 |
| Cash at bank | 60 |
| Trade payables | 60 |
| 1,542 | 1,542 |
The following additional information has been provided: (1) Inventory of goods for resale at 31 December 2021 amounted to GH¢100,000. (2) Annual depreciation on warehouse plant and equipment of GH¢32,000 should be provided. (3) Income tax expense for 2021 amounts to GH¢50,000. (4) The recoverable amount of goodwill was GH¢90,000.
You are required to prepare: a) the company’s statement of comprehensive income for the year to 31 December 2021; and b) a statement of financial position at that date in accordance with IAS 1: Presentation of Financial Statements. (20 marks)
Answer
a) Easy Way Limited – Statement of Comprehensive Income for the year ended 31 December 2021 (GH¢’000)
Revenue: 1,000
Less: Sales returns: (28)
Net revenue: 972
Cost of sales:
Opening inventory: 60
Purchases: 540
Less: Purchases returns: (26)
Net purchases: 514
Closing inventory: (100)
Cost of sales: (474)
Gross profit: 498
Other income: Rental income: 16
Total income: 514
Expenses:
Warehouse wages: 80
Sales representatives salaries: 60
Carriage outwards: 28
Delivery vehicle hire: 20
Distribution expenses: 10
Administrative wages: 40
Administrative expenses: 30
Directors’ salaries: 30
Depreciation: 32
Goodwill impairment (100 – 90): 10
Total expenses: (340)
Profit before tax: 174
Income tax expense: (50)
Profit for the year: 124
Other comprehensive income: Nil
Total comprehensive income: 124
Explanation: Cost of sales calculated using opening inventory + net purchases – closing inventory. Expenses grouped by function (distribution and administrative), with depreciation and goodwill impairment added per additional info. Goodwill impairment is expensed as per IAS 36, since recoverable amount < carrying amount.
b) Easy Way Limited – Statement of Financial Position as at 31 December 2021 (GH¢’000)
Non-current assets:
Warehouse plant and equipment (cost 126 – accum dep 50 – 32 = 44): 44
Goodwill (100 – 10 impairment): 90
Total non-current assets: 134
Current assets:
Inventory: 100
Trade receivables: 330
Cash at bank: 60
Total current assets: 490
Total assets: 624
Equity:
Share capital: 320
General reserve: 20
Retained earnings (accum profit 50 + profit 124): 174
Total equity: 514
Current liabilities:
Trade payables: 60
Income tax payable: 50
Total current liabilities: 110
Total equity and liabilities: 624
Explanation: Non-current assets depreciated (accum dep now 82), goodwill impaired. Retained earnings updated with current year profit (no dividends assumed). Tax is current liability as expense, assuming no prior payable. Format per IAS 1, classified presentation, common in Ghanaian banking for BoG compliance in borrower assessments, ensuring liquidity and solvency visibility post-DDEP impacts.
- Topic: Financial Statements - Form and Content
- Series: OCT 2022
- Uploader: Samuel Duah