Question Tag: Depreciation

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  • 7 Marks

PSAF – Nov 2024 – L2 – Q2a – Valuation of Legacy Fixed Assets

Valuation and accounting treatment of legacy fixed assets in compliance with IPSAS.

The Ministry of Indigenous Enterprises has been charged to collect legacy fixed assets data and value them in accordance with International Public Sector Accounting Standards (IPSAS). The Fixed Assets Coordinating Unit (FACU) of the Ministry has collected for valuation the following data for your action:

The Ministry owns a four (4) storey Office Administration block. The average cost per floor is GH¢4,741,256.25. The building was constructed on a land size of 20 plots of land owned by the Ministry. Currently, a plot of land in that area costs GH¢2,500,000. The FACU has measured the sizes of the building as follows:

  • Length: 87.5 meters
  • Width: 42.65 meters
  • Reference Price per Square Meter: GH¢4,432

However, a professional body, the Institute of Architects and Engineers, has given the reference price for the cost of such an office building at an estimated price of GH¢87,965,025. The building has not seen any further facelift ever since. However, a fence wall with a gate to enforce security and secure the land has just been completed in the current year at a cost of GH¢8,970,000 with a lifespan of 50 years.

The year of construction of the office building could not be determined, yet an old watchman who had been there for ages remembers that the building was constructed some 42 years ago, a time when his seventh child was born. It is the decision of the Government of Ghana on the adoption of IPSAS not to take advantage of the three-year exemption period but to account for legacy fixed assets by taking 60% of the reference cost of the legacy assets as the deemed cost, with a reduced lifespan of 30 years.

Required:

i) Calculate the cost of the land and buildings with structures to be brought into the books on the adoption of IPSAS and determine the depreciation chargeable in the first year in respect of these assets.                                                                                              ii) Show the extract of Statement of Financial Position of the Ministry of Indigenous
Enterprises as at that date

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  • 2 Marks

PT – Nov 2024 – L2 – Q4c – Tax Treatment of Repairs and Renovations

Explains the tax treatment of repairs and renovations for businesses.

Question:
Repairs are essential for maintaining the safety of a property, and renovation improves the overall functionality of a property.

Required:
What is the tax treatment of repairs and renovations?

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  • 20 Marks

FR – Nov 2024 – L2 – Q3 – Financial Statements Preparation

Preparation of Fahnbulleh LTD’s Statement of Comprehensive Income and Statement of Financial Position using IFRS.

Fahnbulleh LTD (Fahnbulleh) is a well-known company manufacturing thrill rides. During the current economic climate, Fahnbulleh has experienced some difficulties and has had to close down its Merry Go Round division.

The company’s trial balance as at 31 October 2023 is as follows:

Account Description Dr (GH¢’000) Cr (GH¢’000)
Revenue 1,296,000
Cost of Sales 546,480
Distribution Costs 127,080
Administrative Expenses 142,560
Investment Income 28,080
Investment Property 270,000
Interest Paid 17,280
Income Tax 10,800
Property, Plant & Equipment (PPE) – Carrying Value at 1 Nov 2022 1,620,000
Inventories (31 October 2023) 108,000
Trade Receivables 135,000
Bank 64,800
Payables 43,200
Deferred Tax (1 Nov 2022) 75,600
8% Loan Note 432,000
Ordinary Share Capital (GH¢1 per share) 540,000
Retained Earnings (1 Nov 2022) 605,520
Totals 3,031,200 3,031,200

Additional Information:

  1. Revenue Adjustments:

    • Revenue includes VAT of GH¢72 million.

  2. Property, Plant & Equipment (PPE):

    • A building with a carrying value of GH¢54 million was revalued on 1 November 2022 to GH¢72 million.
    • The building had an estimated useful life of 25 years when purchased, and this has not changed after the revaluation.
    • All other PPE should be depreciated at 20% per annum (reducing balance method).
    • All depreciation should be charged to cost of sales.

  3. Closure of the Merry Go Round Division (Discontinued Operations):

    • Closure Date: 1 October 2023
    • Division’s Results (1 Nov 2022 – 1 Oct 2023):
    Item GH¢’000
    Revenue 58,800
    Cost of Sales 38,700
    Distribution Costs 12,240
    Administrative Expenses 11,880
    • The division’s net assets were sold at a loss of GH¢19.2 million, recorded in cost of sales.

  4. Investment Property Revaluation (IAS 40):

    • Investment property value increased by 5%, which should be incorporated into the financial statements.

  5. Income Tax and Deferred Tax (IAS 12):

    • The estimated income tax provision for the year: GH¢140.4 million.
    • Deferred tax liability should be adjusted for temporary differences (GH¢129.6 million) at a 25% tax rate.

  6. Damaged Inventory (IAS 2):

    • Inventory worth GH¢46 million was damaged.
    • It can be reconditioned at a cost of GH¢12 million and sold for GH¢52 million.
    • Appropriate adjustments should be made.

Required:

Prepare and present the Statement of Comprehensive Income for the year ended 31 October 2023 and the Statement of Financial Position as at 31 October 2023 for Fahnbulleh LTD.

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  • 20 Marks

FA – Nov 2024 – L1 – Q4- Preparation of Financial Statements for a Sole Trader

Prepare the Statement of Profit or Loss and Statement of Financial Position for a sole trader from given financial data and adjustments.

The following list of assets, liabilities, and equity as at 30 June 2023 was extracted from the books of Akuorkor, a sole trader:

Trial Balance as at 30 June 2023

Item GH¢
Plant and equipment – cost 100,000
Accumulated depreciation – Plant & Equipment 36,000
Office fixtures – cost 25,000
Accumulated depreciation – Office Fixtures 2,500
Inventory 15,250
Trade receivables and prepayments 17,500
Trade payables and accrued expenses 8,800
Bank overdraft 4,425
Loan (10% interest per annum) 47,500
Capital 58,525

Summary of Receipts and Payments for the Year Ended 30 June 2024

Receipts GH¢
Capital introduced 11,000
Cash from customers 213,750
Total Receipts 224,750
Payments GH¢
Cash drawings (Note 5) 11,225
Loan repayments (Note 7) 10,000
Payment to suppliers 87,800
Rent 11,000
Wages 45,000
Office expenses 6,250
Total Payments 171,275

Additional Information:

  1. Closing inventory on 30 June 2024 was GH¢13,925.
  2. Depreciation policies:
    • Plant & Equipment: 20% per annum reducing balance.
    • Office Equipment: 10% per annum on cost.
    • Fixtures & Fittings: Straight-line method over 4 years with a full year’s charge in the year of acquisition.
  3. GH¢2,500 worth of fixtures & fittings was introduced into the business.
  4. Prepayments and accrued expenses as at 30 June 2023:
    • Rent paid in advance: GH¢1,250
    • Accrued wages: GH¢2,150
  5. Cash drawings included:
    • Wages: GH¢3,375
    • Payments to suppliers: GH¢2,100
    • Advertising leaflets: GH¢1,300 (Half not yet distributed).
  6. Bank balance per statement: GH¢53,350 after adjusting for unpresented cheques.
  7. Loan repayments include GH¢4,750 in interest payments.
  8. Assets and liabilities as at 30 June 2024:
    • Rent paid in advance: GH¢1,350
    • Accrued wages: GH¢2,625
    • Amounts due to suppliers: GH¢6,100
    • Amounts due from customers: GH¢11,150
  9. Major customer went into liquidation owing GH¢8,000; only 20% recoverable.

Required:

Prepare:
i) Statement of Profit or Loss for Akuorkor for the year ended 30 June 2024. 
ii) Statement of Financial Position as at 30 June 2024.

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  • 15 Marks

ATAX – May 2016 – L3 – Q5 – Taxation of Companies

Compute the original and revised tax liabilities of Atlas Nigeria Limited, considering tax official adjustments.

Atlas Nigeria Limited is into the sale of Mobile Phones, and the company’s year-end is December 31 of each year. The company’s Annual Tax Returns for the year ended December 31, 2012, were submitted in January 2014. Tax officials found a number of irregularities during a routine examination of the Tax Returns. They discovered that trade payables included N940,000 representing VAT for the two months to December 31, 2012. All sales attract VAT. There was no Input VAT during 2012. Tax officials were, however, of the opinion that the income of the company accrued uniformly throughout the 12 months of the year.

The accounts showed Adjusted Profits of N44,062,500, and Capital Allowances totaled N33,025,000. The tax liability arrived at was N4,406,250. The tax officials were not satisfied with the explanations received in connection with the Withholding Tax on the Director’s fee of N1,562,500, as well as Consultancy fee of N812,500. They also decided to write back 2/3 of the following expenses:

  • Printing and Stationery N168,750
  • Donations and Subscription N1,320,620
  • Losses claimed, amounting to N128,025 was disallowed. Included in the adjusted profit figure is N6,962,500 for Depreciation.

REQUIRED:

i. Show the computations resulting in the Original Tax Liability of N4,406,250 (5 marks)

ii. Compute a revised Tax liability based on the findings of the Tax Officials (10 marks)

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  • 7 Marks

CR – May 2021 – L3 – Q5b – Provisions, Contingent Liabilities, and Discounted Cash Flows (IAS 37)

Calculate provisions and charges for emission modifications in 2015 and 2016 for Gama Plastic Limited.

Gama Plastic Limited owns a number of plastic recycling plants in various parts of the country which supply most of the raw material used by Gama Plastic Limited for its production of household and corporate plastic products.

On December 1, 2015, the directors of Gama Plastic Limited announced publicly that it intends to voluntarily reduce the level of harmful emissions from its recycling plants through modifications of the plants.

The average useful economic life of these plants as of December 31, 2015, was 15 years. Gama Plastic Limited charges depreciation in relation to the recycling plants to cost of sales on a straight-line basis.

The directors believe that while the modifications will be effective from early 2016 onward, the actual cash costs of the modifications will be as follows:

Date Amount (N’000)
December 31, 2016 100,000
December 31, 2017 80,000
December 31, 2018 140,000

No contract was signed until 2016, but Gama Plastic Limited prides itself on its excellent public image and has a well-known reputation for meeting both legal and constructive obligations.

The directors of Gama Plastic Limited believe that it is appropriate to use discounted cash flow techniques and that an appropriate rate would be 10%, with the following discount factors:

Year PV Factor
1 0.909
2 0.826
3 0.751
4 0.683
5 0.620
6 0.564

Required:

Assuming the actual cash cost of the modification is a reliable estimate, calculate the provisions that should be included in the statement of financial position and the charges to the statement of profit or loss of Gama Plastic Limited in respect of the proposal for each of the years 2015 and 2016. (7 Marks)

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  • 10 Marks

CR – May 2021 – L3 – Q1c – Property, Plant and Equipment (IAS 16)

Record journal entries for PPE acquisition and related foreign exchange adjustments in the books of Ngono Plc.

c. Ngono Plc. has a financial year end of September 30. The Company buys property, plant and equipment for its office in Nigeria from foreign supplier Omaha Inc. in USA. On June 30, 2020, Ngono Plc. took delivery of PPE from Omaha Inc. with invoice value amounting to $100,000 and is due for settlement in equal instalments on August 30, 2020 and November 30, 2020. Clearing cost and import duty paid on the acquisition of the PPE amounted to N1,250,000. It is the policy of Ngono Plc to depreciate PPE at 20% on cost using the straight –line method. The depreciation is provided in full in the year of acquisition and none in the year of disposal.
Both Ngono Plc. and Omaha Inc. honoured their own part of the agreement in the transaction.
Movement recorded in the exchange rate were as follows:

Required:
Show the journal accounting entries to record the above transaction in the books of Ngono Plc. (10 Marks)

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  • 30 Marks

CR – May 2022 – L3 – Q1 – Leases (IFRS 16)

Adjust lease accounting for right-of-use asset and lease liability in compliance with IFRS 16.

The draft financial statements of Gbola Limited group and its investee companies Tanko Limited and Eze Limited at December 31, 2018 are shown below:

Draft Statements of Profit or Loss for the Year Ended December 31, 2018

Item Gbola Limited (N’000) Tanko Limited (N’000) Eze Limited (N’000)
Revenue 17,070 7,320 2,235
Cost of Sales (8,640) (3,210) (885)
Gross Profit 8,430 4,110 1,350
Other Operating Expenses (2,070) (810) (600)
Profit from Operations 6,360 3,300 750
Interest Expense (570) (660) (210)
Profit Before Tax 5,790 2,640 540
Income Tax Expense (810) (360) (90)
Profit for the Year 4,980 2,280 450

Draft Statements of Financial Position as at December 31, 2018

Additional Information

  1. On January 1, 2014, Gbola Limited acquired 9,000,000 ordinary shares in Tanko Limited for N23,250,000 when the reserves of Tanko Limited were N3,000,000.
  2. A new asset with a fair value of N1,500,000 was acquired during the year under a lease agreement by Gbola Limited. A clause in the lease agreement stipulated that N300,000 payments must be paid on December 31, each year for six years, starting from December 31, 2018. The interest rate implicit in the lease is 5.47%. Gbola Limited treated this as an operating expense; because the only accounting entry that the company believes must be made in relation to this asset is the N300,000 payment it has made.
  3. Gbola Limited had an intangible asset of N750,000 for software in its statement of financial position. The directors of Gbola Limited believed that the software will have no recoverable value at the date of acquisition, and Tanko Limited wrote it off shortly after its acquisition.
  4. At the date of acquisition of Tanko Limited, the carrying amount of its property, plant, and equipment, considered to have a remaining life of 10 years, was N5,625,000 lower than its fair value.
  5. On January 1, 2017, Gbola Limited acquired 2,250,000 ordinary shares in Eze Limited for N6,000,000 when the reserves of Eze Limited were N1,350,000. The carrying amount of assets of Eze Limited was the same as their fair values at that date. Depreciation should be treated as an operating expense.
  6. A component used by both Tanko Limited and Eze Limited is produced by Gbola Limited, and it sells this component at a margin of 25%. Goods worth N780,000 were sold to Tanko Limited during the year. None of these goods had been sold by Tanko Limited at December 31, 2018. Gbola Limited also sold goods worth N1,200,000 to Eze Limited, and Eze Limited sold all of these goods as at December 31, 2018.
  7. N900,000 in respect of amounts owed by Tanko Limited and N525,000 in respect of amounts owed by Eze Limited were included in the receivables of Gbola Limited. The corresponding balances in Tanko Limited and Eze Limited payables were N600,000 and N525,000, respectively. On December 31, 2018, Tanko Limited sent a cheque of N300,000 to Gbola Limited.
  8. There has been no impairment for Eze Limited. However, the impairment test conducted on Tanko Limited’s goodwill showed that goodwill is being impaired by 10% per annum on a straight-line basis.
  9. Gbola Limited’s cash and cash equivalents included a Director’s loan of N1,500,000. The Directors are of the view that the inclusion does not contravene any International Financial Reporting Standard.
  10. The goodwill arising on the acquisition of Tanko Limited is being amortized over a 10-year period, though this practice contravenes IAS 36, which prohibits goodwill amortization and instead requires annual impairment tests.

a. Prepare the necessary adjustments to account for the lease contract based on additional information provided in (ii) above in accordance with IFRS 16. (5 Marks)
b. Prepare the consolidated statement of profit or loss and other comprehensive income for the group for the year ended December 31, 2018. (8 Marks)
c. Prepare the consolidated statement of financial position of Gbola Limited group as at December 31, 2018. (12 Marks)
d. Discuss the ethical implication of the Director’s action in note (ix) above. (5 Marks)

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  • 15 Marks

CR – Nov 2016 – L3 – Q6 – Events After the Reporting Period (IAS 10)

Discuss IFRS 5 requirements for non-current assets held for sale and evaluate event impacts per IAS 10.

Maranathan Plc acquired a property for N4 million with annual depreciation on a straight-line basis at 7.5%. An impairment loss of N350,000 was recognized as of May 31, 2013, with accumulated depreciation at N1 million. The property was classified as held for sale on October 1, 2013, with fair value less costs to sell of N2.4 million. In December 2013, interim financials reported an improved fair value less costs to sell of N2.52 million. By May 31, 2014, fair value increased to N2.95 million, and the property was eventually sold on June 5, 2014, for N3 million.

Required:

a. Assess these transactions per IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. (5 Marks)
b. Evaluate the impact of events on the property over time and on reported gain per IAS 10 Events After the Reporting Period. (10 Marks)

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  • 30 Marks

FM – Nov 2021 – L3 – Q1 – Strategic Cost Management

Analyze costs and investment requirements for Femi Appliances Ltd's new motor vehicle vacuum cleaner product line.

Femi Appliances Limited (FAL) is a Nigerian-based manufacturer of household appliances with many distribution centers across various locations in Nigeria and along the ECOWAS sub-region. FAL is now considering the development of a new motor vehicle vacuum cleaner – VC4.

The product can be introduced quickly and has an expected life of four years, after which it may be replaced with a more efficient model. Costs associated with the product are estimated as follows:

Direct Costs (per unit):

  • Labour:
    • 3.5 skilled labour hours at ₦500 per hour
    • 4 unskilled labour hours at ₦300 per hour
  • Materials:
    • 6 kilos of material Z at ₦146 per kilo
    • Three units of component P at ₦480 per unit
    • One unit of component Q at ₦640
  • Other variable costs: ₦210 per unit

Indirect Costs:

  • Apportionment of management salaries: ₦10,500,000 per year
  • Tax allowable depreciation of machinery: ₦21,000,000 per year
  • Selling expenses (excluding salaries): ₦16,600,000 per year
  • Apportionment of head office costs: ₦5,000,000 per year
  • Rental of buildings: ₦10,000,000 per year
  • Annual interest charges: ₦10,400,000
  • Other annual overheads: ₦7,000,000 (includes building rates ₦2,000,000)

If the new product is introduced, it will be manufactured in an existing factory, having no effect on rates payable. The factory could be rented out for ₦12,000,000 per year to another company if the product is not introduced.

New machinery costing ₦86,000,000 will be required, depreciated on a straight-line basis over four years with a salvage value of ₦2,000,000. The machinery will be financed by a four-year fixed-rate bank loan at 12% interest per year. Additional working capital requirements may be ignored.

The new product will require two additional managers at an annual gross cost of ₦2,500,000 each, while one current manager (₦2,000,000) will be transferred and replaced by a deputy manager at ₦1,700,000 per year. Material Z totaling 70,000 kilos is already in inventory, valued at ₦9,900,000.

FAL will utilize the existing advertising campaigns for distribution centers to also market the new product, saving approximately ₦5,000,000 per year in advertising expenses.

The unit price of the product in the first year will be ₦11,000, with projected demand as follows:

  • Year 1: 12,000 units
  • Year 2: 17,500 units
  • Year 3: 18,000 units
  • Year 4: 18,500 units

An inflation rate of 5% per year is anticipated, with prices rising accordingly. Wage costs are expected to increase by 7% per year, and other costs (including rent) by 5% annually. No price or cost increases are expected in the first year of production.

Income tax is set at 35%, payable in the year the profit occurs. Assume all sales and costs are on a cash basis and occur at the end of the year, except for the initial purchase of machinery, which would take place immediately. No inventory will be held at the end of any year.

Required:

a. Calculate the expected internal rate of return (IRR) associated with the manufacture of VC4. Show all workings to the nearest ₦million. (19 Marks)

b. i. Explain what is meant by an asset beta and how it differs from an equity beta. (2 Marks)
ii. Given the company’s equity beta is 1.2, the market return is 15%, and the risk-free rate is 8%, discuss whether introducing the product is advisable. (4 Marks)

c. The company is concerned about a potential increase in corporate tax rates. Advise the directors by how much that the tax rate would have to change before the project is not financially viable. A discount rate of 17% per year may be assumed for part (c). (5 Marks)

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  • 6 Marks

FR – Nov 2019 – L2 – Q2b – Financial Reporting Standards and Their Applications

Calculation of amounts recognized in profit or loss and other comprehensive income related to property revaluation and depreciation.

RoyCo acquired a brand new property (land and buildings) on 1 January 2016 for GH¢40 million (including GH¢15 million for the land). The asset was revalued on 31 December 2017 to GH¢43 million (including GH¢16.6 million for the land). The buildings element was depreciated over a 50-year useful life to a zero residual value. The useful life and residual value did not subsequently need revision. On 31 December 2018, the property was revalued downwards to GH¢35 million (including GH¢14 million for the land) due to a recession.
The company makes a transfer from revaluation surplus to retained earnings in respect of realised profit.

Required:
Calculate the amounts recognised in profit or loss and in other comprehensive income for the years ended 31 December 2017 and 31 December 2018. (6 marks)

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  • 7 Marks

FR – Nov 2019 – L2 – Q2c – Financial Reporting Standards and Their Applications

Calculation and accounting entries for lease under IFRS 16 in the financial statements of Asawase Ltd.

On 1 August 2018, Asawase Ltd entered into an agreement to acquire a motor vehicle. The terms of the agreement were that the vehicle would be leased for five years from the date of inception, subject to a deposit of GH¢19,972 and five annual payments of GH¢6,500 in advance, commencing on 1 August 2018. The fair value of the vehicle and the present value of the lease payments were GH¢48,000 at inception. The interest rate implicit in the lease is 8%.

Required:
In accordance with IFRS 16: Leases, show with appropriate calculations, the accounting entries required to record the transaction in the financial statements for the year ended 31 July 2019. (7 marks)

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  • 20 Marks

FR – Nov 2019 – L2 – Q3 – Preparation of Financial Statements

Preparation of statement of profit or loss and statement of financial position for Biggs Ltd as at 31 December 2018.

Biggs Ltd has a financial year ending 31 December. Its trial balance extracted as at 31 December 2018 is as follows:


Additional Information:
i) The carrying value of inventories at cost at 31 December 2018 was GH¢39.5 million.
The estimated useful life (at the date of purchase) of the PPE components is:

  • Land: infinite life
  • Buildings: 50 years
  • Plant and equipment: 5 years

On 30 June 2018, the directors decided to sell the property because more suitable leasehold property had become available at a very competitive cost. They advertised the property for sale at that date at what was considered to be a realistic asking price of GH¢68 million. They estimated that costs of GH¢3 million would be necessary in order to sell the property. On 1 December 2018, they reduced the asking price to GH¢64.5 million and sold the property at this price shortly after the year-end. Costs to sell totaled GH¢2.5 million.

Required:
Prepare for Biggs Ltd:
a) The Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2018. (10 marks)
b) The Statement of Financial Position as at 31 December 2018. (10 marks)

ii) On 1 January 2018, Biggs Ltd sold some of its plant and equipment to a finance company. Biggs Ltd credited the sales proceeds of GH¢25.6 million to revenue. The plant and equipment were purchased by Biggs Ltd on 1 January 2017 at a total cost of GH¢32 million and were being depreciated over five years. The cost and accumulated depreciation of the disposed asset are still included in the PPE cost and accumulated depreciation accounts.

iii) On 1 January 2018, Biggs Ltd issued 200 million preference shares at 32.50 pesewas each. Costs of issue were GH¢1 million so the net proceeds of the issue were GH¢64 million. The preference shareholders will receive an annual dividend on 31 December each year of GH¢3.9 million. The shares will be redeemed at par on 31 December 2022. The effective annual finance cost attached to these shares is approximately 6.4%. The first annual dividend was paid on 31 December 2018 and is included in dividends paid.

iv) The estimated income tax on the profits for the year to 31 December 2018 is GH¢4.5 million. During the year GH¢4.2 million was paid in full and final settlement of income tax on the profits for the year ended 31 December 2017. The statement of financial position at 31 December 2017 had included GH¢4.4 million in respect of this liability. At 31 December 2018, the carrying amounts of the net assets of Biggs Ltd exceeded their tax base by GH¢35.8 million. Assume an income tax rate of 25%.

v) The details of property, plant, and equipment are as follows:

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  • 20 Marks

FR – July 2023 – L2 – Q3 – Preparation of Financial Statements for Beposo Ltd

Preparation of financial statements (profit or loss, changes in equity, and financial position) for Beposo Ltd for the year ended 31 December 2021.

Beposo Ltd is an agro-processing company, whose head office is in the Greater Accra region of Ghana. The trial balance of the company for the year ended 31 December 2021 is as follows:

Additional Information:

i) Included in the revenue figure is sales made on special arrangement, payable by customers in two years’ time at an amount of GH¢16.8 million. The cash price of the sales at the date of the sales (i.e. 1 January 2021) is estimated at GH¢15 million, and the effective interest rate of the arrangement has been computed as 5.83% per annum.

ii) Non-current assets consist of the following classes of assets:

The company revalues its buildings periodically to ensure that the carrying value reflects their fair market value. On 31 December 2020, the buildings were revalued at GH¢198 million, of which GH¢80 million was attributed to land. The revaluation surplus shown in the trial balance represents the increase in value recorded during this revaluation. All buildings were completed and ready for use on 1 January 2011. The company’s buildings serve as administrative offices and production centers, and they have an estimated useful life of 50 years.

In 2021, the company relocated from one of its administrative offices and sold the building on 1 April 2021 for GH¢27.6 million. The revalued amount and revaluation surplus for this building as of 31 December 2020 were GH¢25 million (with GH¢5 million for the land) and GH¢8 million, respectively. On 31 December 2021, the remaining land and buildings were revalued at GH¢169.35 million, with GH¢85 million attributed to the land. The company’s policy is to recognize revaluation surplus only upon derecognition of the non-current asset.

The sale of the building and the 2021 revaluation of the remaining buildings have not yet been recorded in the company’s books. The payment for the sale of the building was received in the first week of January 2022. There were no other changes to the value of property, plant, and equipment during the year ended 31 December 2021.

Depreciation for 2021 has not been accounted for in the trial balance. The company charges depreciation to cost of sales. Motor vehicles, machinery, and equipment are depreciated over five years.

In lieu of a cash dividend, the company issued bonus shares on 1 January 2021 at a ratio of one new share for every ten existing shares, priced at GH¢1 per share. The issuance was subject to an 8% withholding tax, which has already been paid by the company and is included in administrative expenses. The bonus shares, which are in respect of the year ended 31 December 2020, have not yet been recorded.

After 31 December 2021, the Board of Directors proposed a dividend of GH¢0.80 per share in respect of the year ended 31 December 2021. The dividend has not yet been approved by shareholders.

The provision for tax in the trial balance reflects the under or over provision of tax for the year ended 31 December 2020, based on the difference between the tax estimated for the year and the actual liability determined after a tax audit. The current tax liability for 2021 is estimated at GH¢16.7 million. Taxable temporary differences as at 31 December 2021, arising from discrepancies between the carrying amounts of assets and liabilities and their tax bases, amount to GH¢60 million. The applicable corporation tax rate is 25%.

Required:

Prepare the following financial statements for Beposo Ltd for the year ended 31 December 2021:
i) Statement of profit or loss and other comprehensive income
ii) Statement of changes in equity
iii) Statement of financial position as at that date.
(Total: 20 marks)

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  • 15 Marks

FA – May 2024 – L1 – SB – Q4b and c- Depreciation Methods and Accounting for Disposals

Prepares ledger accounts for the first three years using straight-line and reducing balance depreciation methods.

b. Buma Limited recently acquired a piece of equipment for ₦1,600,000. The equipment has an estimated useful life of 5 years with no residual value. The company estimates the rates of depreciation under the straight-line method to be 20% and the reducing balance method to be 30%. It is still considering which of the two depreciation methods to adopt and requires ledger records to make a final decision.

Required:

i. Present the ledger accounts to record the transaction for the first three years using the straight-line method. (6 Marks)

ii. Present the ledger accounts to record the transaction for the first three years using the reducing balance method. (6 Marks)

c. Show the extracts from the statement of financial position at the end of the third year for the two methods. (3 Marks)

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  • 20 Marks

FA – May 2015 – L1 – Q3a – Recording Financial Transactions (Including Source Documents, Books of Prime Entry, and Cash Books)

Prepare Receivables, Payables control accounts, Opening Capital, Statement of Profit or Loss, and Statement of Financial Position using given data from single entry

Mr. Ken Stevenson keeps single entry books of account. He had the following balances on 1 January, 2013:

N
Inventory
Payables
Prepaid insurance
Bank overdraft
Furniture
Motor vehicles
Receivables
Borrowings

The following information is extracted from his cash book in respect of the year ended 31 December 2013:

DR N CR N
Revenue 279,500
Receipt from trade receivables 536,400
815,900 815,900

He had the following balances on 31 December 2013:

N
Motor vehicles
Inventory
Furniture
Receivables
Payables
Borrowings

Additional information:
(i) Interest on Borrowings to be accrued for at 5% per annum.
(ii) Bad debts of N12,600 are to be written off while 5% allowance is to be made on the net receivables at 31 December, 2013.
(iii) Depreciation is to be charged on the non-current assets at the rate of 10% per annum.

You are required to prepare:

a. Receivables control account (2 Marks)
b. Payables control account (2 Marks)
c. The opening capital (2 Marks)
d. Statement of Profit or Loss for the year ended 31 December 2013 (8 Marks)
e. Statement of Financial Position as at 31 December 2013 (6 Marks)

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  • 20 Marks

FA – MAY 2015 – L1 – SB – Q2 – Financial Statements Preparation

Prepare an extended trial balance and adjustments for Salfo Enterprises based on ledger balances.

The following is a list of balances extracted from the ledger of Salfo Enterprises:

N
Inventory on 1 January 2013 30,600
Revenue 245,340
Purchases 160,200
Salaries and wages 52,110
Furniture and fittings 92,500
Office expenses 16,200
Trade receivables 50,400
Trade payables 22,400
Cash in hand and at bank 6,230
Drawings 15,500
Capital 156,000

Additional information:

  1. Inventory on 31 December 2013: N38,000
  2. Prepaid office expenses: N2,300
  3. Accrued wages: N1,500
  4. Depreciation is to be charged on furniture and fittings at 10% per annum on cost.

Required: a. Prepare the initial trial balance. (4 Marks)
b. Record the necessary adjustments. (8 Marks)
c. Prepare the adjusted trial balance. (8 Marks)

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  • 1 Marks

FA – May 2024 – L1 – SA – Q4 – Accounting for Property, Plant, and Equipment (IAS 16)

Calculates the carrying amount of motor vehicles.

A company has several motor cars that are accounted for as non-current assets. As at April 1, Year 2, the cost of the cars was ₦300,000, and the accumulated depreciation was ₦160,000. What is the carrying amount of the motor cars as at April 1, Year 2?

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  • 1 Marks

FA – MAY 2015 – L1 – SA – Q5 – Depreciation Methods and Accounting for Disposals

Determine the profit or loss on disposal of a motor vehicle after depreciation.

A vehicle was purchased on 1 January 2011 at a cost of N2,000,000 and was depreciated at 25% on cost. It was sold on 31 December 2013 for N1,400,000. Full-year depreciation was charged in the years of purchase and disposal.
Determine the profit or loss on the disposal.
A. N500,000 profit
B. N500,000 loss
C. N900,000 profit
D. N900,000 loss
E. N1,150,000 profit

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