Question Tag: Depreciation

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  • 20 Marks

IA – OCT 2022 – L1 – Q6 – Depreciation Concepts and Calculations

Explain depreciation-related concepts and compute depreciation and net book value for solar equipment using straight-line method.

a. Briefly explain the following concepts used in Accounting:

i. Depreciation

ii. Depreciable amount

iii. Net book value

iv. Straight line depreciation

v. Reducing balance depreciation

(10 marks)

b. The Managing Director of Agana Limited located at the Manya Krobo Municipality is uncomfortable with the impasse between the Municipality and the Electricity Company of Ghana. As such she decided to install solar equipment for her company. She purchased the equipment on 4th July 2021 at a cost of GH¢ 520,000. The estimated useful life of the asset is 10 years with a residual value of GH¢ 35,000. The company’s policy is to provide for a full year’s depreciation regardless of the date of purchase. You are required to:

i. Compute the rate of depreciation for the solar equipment using the straight-line method (2 marks)

ii. Compute the depreciation for the year 2021 using the straight-line method (4 marks)

iii. Compute the Net present value of the asset as at 31st December 2021 (4 marks)

(Total: 20 marks)

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  • 20 Marks

IA – OCT 2022 – L1 – Q1 – Preparation of Financial Statements from Trial Balance

Prepare the Income Statement for the year ended 31/12/2021 and the Statement of Financial Position as at 31/12/2021 for Kolikoli Enterprise using the given trial balance and additional information.

The following trial balance was extracted from the ledger of Kolikoli Enterprise as at 31/12/21.

Dr GH¢000 Cr GH¢000
Buildings at cost 750,000
Plant at cost 350,000
Provision for depreciation as at 1/1/2021 On buildings 100,000
Provision for depreciation as at 1/1/2021 On plant 190,000
Purchases 2,250,000
Sales 3,022,000
Stocks 01-01-2021 250,000
Discounts 40,000 24,000
Returns 11,000 75,000
Wages and salaries 294,000
Bad debts written off 23,000
Other expenses 114,000
Debtors 190,000
Creditors 180,000
Bank and Cash 8,000
Drawings 20,000
Provision for doubtful debts 2,500
Capital 706,500
Total 4,300,000 4,300,000

The following additional information is also made available:
a) Stocks at 31/12/2021 were valued at GH¢210,000
b) Wages and salaries accrued amounted to GH¢4,000
c) Other expenses prepaid amounted to GH¢1,500
d) Provision for doubtful debts is to be made at 2% of debtors at 31/12/2021
e) Depreciation for the year is to be provided as follows:
• Buildings 2% on cost
• Plant 25% reducing balance method

You are required to prepare the following:
i. Income Statement for the year ended 31/12/2021; and
ii. Statement of Financial Position as at 31/12/2021
[20 marks]

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  • 20 Marks

CIBG – FRPA 2022 – L3 – Q1B – Easy Way Limited Financial Statements

Prepare the statement of comprehensive income and statement of financial position for Easy Way Limited as at 31 December 2021 using the given trial balance and additional information.

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)

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  • 20 Marks

ITA – APR 2023 – L1 – Q1 – Trial Balance and Financial Statements Preparation

Prepare Income Statement and Statement of Financial Position from given trial balance with additional adjustments.

The following trial balance was extracted from the ledger of Adtrack Enterprise as at 31/12/21.

Dr Cr GHe00 GHe00 Motor Vehicle at cost 350,000 700,000 Factory Building at cost 700,000 On Motor Vehicle On Factory Building Purchases and sales 5,250,000 250,000 Stocks 1/1/2022 290,000 290,000 Discounts 190,000 324,000 Returns 31,1,000 274,000 Wages and salaries 654,000 654,000 Bad debts written off 500,000 500,000 Other expenses 450,000 450,000 Debtors and creditors 1,1,900,000 1,1,900,000 Bank and Cash 900,000 900,000 Drawings 560,000 560,000 Provision for doubtful debts 75,500 75,500 Capital 10,057,000 10,057,000 The following additional information is also made available: a) Stocks at 31/12/2022 were valued at GHe $450,000,000$ b) Wages and salaries accrued amounted to GHe $9,560,000$ c) Other expenses prepaid amounted to GHe $1,800,000$ d) Provision for doubtful debts is to be made at $7 %$ of debtors at 31/12/2022 e) The factory plant and machinery was leased under an operating lease for a period of 7 years with a yearly payment of GHe $12,200,000$. This has not been paid for the year ended 31/12/2022. f) Depreciation for the year is to be provided as follows:

  • Factory Building $2 %$ on cost
  • Motor Vehicle $25 %$ reducing balance method

You are required to prepare: i. Income Statement for the year ended 31/12/2022 (10 marks) ii. Statement of Financial Position as at 31/12/2022

(Total: 20 marks)

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  • 20 Marks

FRPA – APRIL 2023 – L3 – Q1 – Financial Statements Preparation, Conceptual Framework, and Intangible Assets

Prepare the statement of profit or loss and other comprehensive income and the statement of financial position for ANG Ltd based on the given trial balance and additional information; explain the objective of general-purpose financial reporting and the terms relevance and faithful representation; define intangible assets, explain recognition criteria, and state disclosure requirements under IAS 38.

  A
The following is the trial balance of ANG Ltd, a trading company, as of 30 September 2022:

Debit Credit
GH¢’000 GH¢’000
Sales
Inventory 3,150
Cost of sales 35,500
Selling & distribution expenses 5,600
Administration expenses 8,540
Loan Note interest paid 110
Bank interest 85
Investment income
Leasehold building at valuation – 1 Oct 2021 14,000
Plant and equipment – cost/depreciation 13,750
Computer equipment – cost/depreciation 7,200
Motor vehicles – cost/depreciation 1,500
Trade receivables 17,900
Bank
Trade payables
500,000 Ordinary shares
8% Loan notes (2019 – 2023)
Revaluation surplus
General reserve
Retained earnings – 1 Oct 2021
107,335 107,335

The following additional information is made available:
i. The company paid ordinary dividends of GH¢2.2 per share on 31 January 2022 and GH¢2.6 per share on 30 June 2022. The dividend payments are included in administrative expenses in the trial balance.
ii. Provision is to be made for a full year’s interest on the Loan notes.
iii. non-current assets:
• Depreciation of Property, plant and equipment is to be provided on the following bases:

  • Plant and equipment – 10% on cost
  • Computer equipment – 25% on cost
  • Motor vehicles – 20% on reducing balance.
    • No depreciation has yet been charged on any non-current asset for the year ended 30 September 2022.
    • ANG Ltd revalues its buildings at the end of each accounting year. On 30 September 2022, the relevant value to be incorporated into the financial statements is GH¢14,100,000.
    • The building’s remaining life at the beginning of the current year (1 October 2021) was 25 years. ANG Ltd does not make an annual transfer from the revaluation reserve to retained earnings in respect of the realization of the revaluation surplus. Ignore deferred tax on the revaluation surplus.
    iv. Estimated corporate income tax payable on the profit for the year is GH¢3,500,000.

You are required to:
Prepare the following financial statements of ANG Ltd. for publication in accordance with International Financial Reporting Standards (IFRS):
a. Statement of profit or loss and other comprehensive income for the year ended 30 September 2022 and.
b. Statement of financial position as of 30 September 2022.
c. Show clearly all relevant workings.

 B
I. What is the objective of general-purpose financial reporting?
II. The IASB’s Conceptual Framework for Financial Reporting states that “If financial information is to be useful, it must be relevant and faithfully represent what it purports to represent.” Explain the terms Relevance and Faithfully Representation.

 C
The accounting treatment of intangible assets is prescribed by IAS 38 Intangible Assets. You are required to:
i. Define intangible asset under IAS 38 Intangible Assets.
ii. Explain the recognition criteria for intangible assets.
iii. State 5 disclosure requirements of Intangible Assets under IAS 38.

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  • 20 Marks

FRPA – APRIL 2024 – L3 – Q1A – Preparation of Financial Statements for Vandee Oil Ltd

Using the provided trial balance and additional information on inventory, asset purchases, depreciation rates, utilities adjustments, and staff bonuses, prepare the Statement of Profit or Loss for 2023 and the Statement of Financial Position as at 31 December 2023.

Vandee Oil Ltd. has been in business for the past ten (10) years. The following Trial Balance was extracted from the books of Vandee Oil Ltd. for the year ended 2023.

Item GH¢’000 (Debit) GH¢’000 (Credit)
Bank 46,200
Petty Cash 4,000
Computer and Accessories 8,370
Furniture and Fittings 10,255
Land and Building 214,000
Office Equipment 12,250
Plant and Machinery 239,400
Inventory 1,900
Staff Loan 5,088
Purchases 355,000
Bank Service Charges 1,300
Business Promotion 1,500
Communication 1,900
Insurance 1,660
Licenses and Permits 6,650
Medical Expenses 155
Printing and Stationery 300
Professional Fees: Legal Fees 500
Repairs: Equipment Repairs 2,600
Salaries 23,050
Electricity 780
Water 280
Vehicle Running Expense 4,560
Trade Payable 25,000
Directors Current Account 320,000
Computer and Accessories: Accumulated Depreciation 3,348
Furniture and Fittings: Accumulated Depreciation 2,050
Land and Building: Accumulated Depreciation 8,560
Office Equipment: Accumulated Depreciation 2,450
Plant and Machinery: Accumulated Depreciation 47,880
Payroll Liabilities 550
Retained Earnings 49,282
Taxation 3,003
Share Capital 10,000
Sales 574,145
TOTALS 993,983 993,983

Additional Information: i) Closing Inventory as at December 2023 amounts to GH¢48,500,000 ii) The following assets were bought during the year 2023. However, these transactions were not recorded in the above Trial Balance:

  • Computers and Accessories GH¢8,000,000
  • Fixtures and Fittings GH¢5,000,000
  • Plant and Machinery GH¢25,000,000 The following are the rates of Depreciation being used by the company, however Depreciation for 2023 is yet to be charged:
  • Land and Building 1%
  • Computers and Accessories 20%
  • Furniture and Fittings 10%
  • Plant and Machinery 20%
  • Office Equipment 20% iii) Electricity stated in the Trial Balance include January 2024 Electricity Bill while that of Water represents six (6) months’ payment for the year 2023. iv) Staff bonuses amounting to GH¢15,000,000 was agreed on 31 December 2023 for staff. However, it was paid after the year end.

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  • 20 Marks

ATP – Feb 2017 – L3 – Q3 – Pooling System

Explain general features of the pooling system for capital allowances.

You are a Chartered Tax Practitioner and you have been consulted to produce an article for publication in The Tax Collector, the monthly journal of the Ghana Revenue Authority on the topic “The Pooling System of granting allowance as provided in the Income Tax Act, 2015 (Act 896).

Required:

a. Explain the general features of the pool system. (10 Marks)

b. What are conditions expected to be satisfied before the grant of Capital Allowances? (8 Marks)

 

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  • 20 Marks

FR – Mar 2025 – L2 – Q3 – Preparation of Financial Statements

Prepare Halidu LTD's financial statements for 2024, including comprehensive income, changes in equity, and financial position per IFRS.

The following trial balance relates to Halidu LTD (Halidu) at 30 June 2024:

GH¢’000 GH¢’000
Revenue 3,120,000
Cost of sales 1,757,400
Distribution costs 45,600
Administration expenses 118,800
Loan interest paid 28,800
Property – cost 1,200,000
Property – depreciation at 1 July 2023 225,000
Plant and equipment – cost 1,011,600
Plant and equipment – depreciation at 1 July 2023 291,600
Licence – cost 240,000
Licence – amortisation at 1 July 2023 96,000
Trade receivables 259,200
Inventory – 30 June 2024 112,800
Bank 78,000
Trade payables 211,200
Share capital (GH¢0.25 each) 420,000
Revaluation surplus 78,000
12% loan note (issued 1 July 2023) 240,000
Taxation 12,000
Retained earnings at 1 July 2023 68,700
4,774,200 4,774,200

The following notes are relevant:
i) Halidu made credit sales for GH¢196 million on a sale or return basis and this is currently included in revenue in the trial balance. At 30 June 2024 customers who had not paid for the goods, had the right to return GH¢62.4 million of them. Halidu applied a mark-up on cost of 30% on all these sales. In the past Halidu’s customers have sometimes returned goods under this type of agreement.
ii) On 1 July 2023, Halidu revalued its property to GH¢1,440 million, of which GH¢360 million relates to the land. This property was acquired 10 years ago at a cost of GH¢1,200 million which included GH¢300 million for the land. The building had an estimated life of 40 years when it was acquired and this has not changed as a result of the revaluation. Depreciation is charged on a straight line basis. The revaluation has not yet been recorded in the books. Halidu has a policy of transferring any excess depreciation to retained earnings.
iii) During the year, Halidu sold some plant that cost GH¢120 million on 1 December 2020. The proceeds of this sale were GH¢72 million and these have been credited to cost of sales. No other entries have been made relating to the disposal. Plant and equipment is to be depreciated on the reducing balance basis at a rate of 20% per annum. Halidu charges a full year’s depreciation in the year of acquisition and none in the year of disposal.
iv) The licence is being amortised on the straight line basis at a rate of 20% per annum. All depreciation and amortisation is to be charged to cost of sales.
v) The directors have estimated the provision for income tax for the year ended 30 June 2024 at GH¢76.2 million. The balance of taxation in the trial balance relates to over/under provision of tax in the previous year. The only deferred tax consequence relates to those mentioned in note (ii) above. The company pays tax on profit at the rate of 25%.
vi) Halidu intends to dispose of a major line of its business operations in the course of the year. At the date the held for sale criteria were met, the carrying amount of the assets and liabilities comprising the line of business were:

GH¢’000
Plant and equipment 138,000
Trade receivables 9,000
Trade payables 7,000

It is anticipated that Halidu will realise GH¢135 million for the business. No entries have yet been made in respect of this information.

Required:
Prepare and present a statement of comprehensive income, a statement of changes in equity and a statement of financial position at 30 June 2024 in a form suitable for presentation to the shareholders and in accordance with the requirements of International Financial Reporting Standards (IFRS).

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  • 20 Marks

PSAF – Mar 2025 – L2 – Q1- Preparation and presentation of financial statements for covered entities

Prepare the Statement of Financial Performance for Hamile Teaching Hospital for 2023 per IPSAS and related regulations.

The Trial Balance below relates to Hamile Teaching Hospital, a public hospital.

Trial Balance for the year ended 31 December 2023
Debit Credit
GHc’000 GHc’000
Government subvention 100,750
Out-patient services fees 35,000
In-patient services fees 40,000
Development Partner grants (ii) 16,000
Established position salaries 62,000
Casual Labour 5,600
Contract appointment (local and foreign) 1,400
Limited engagements 200
Rent (iii) 500 150
Insurance 340
Consultancy services 120
Conferences, workshops and training 4,500
Purchase of drugs 60,000
Purchase of medical consumables 80,000
Office expenses 20,000
Repairs and maintenance 6,000
Interest on loan 10,000
Pharmacy sales 180,000
Diagnostic 85,000
Mortuary Services 9,400
Cafeteria and Canteen 4,650
Extension services 14,500
Furniture and office equipment (iv) 200,000 40,000
Medical equipment & accessories (iv & v) 420,000 120,000
Motor vehicles (iv) 120,000 20,000
Land and buildings (iv) 300,000 70,000
Bank and Cash 30,000
Receivable from National Health Insurance Scheme (vi) 65,000
Receivable from patients 15,000
Payables 26,000
Loan from foreign Institution (2028) (vii) 350,000
Inventory of drugs 22,000
Inventory of medical consumables 12,000
Accumulated Fund 336,210
Other expenses 13,000
1,447,660 1,447,660

Additional Information:
i) The hospital prepares its financial statements in accordance with the International Public Sector Accounting Standards (IPSAS), the Public Financial Management Act 2016, (Act 921), the Public Financial Management Regulation 2019, L.I 2378, and the current Chart of Accounts of the Government of Ghana.
ii) The Development Partner grants received from the Health Care Fund, an international organization that provides free medical care to the rural poor and vulnerable individuals, are typically unconditional. However, 40% of this year’s grant is subject to certain conditions, which had not been met as of December 31, 2023.
iii) Rent received in advance during the year amounted to GH¢20,000 while rent owed by the hospital for the year amounts to GH¢300,000.
iv) The hospital charges consumption of fixed assets on straight line basis as follows

Non-current Assets Estimated Useful Life
Furniture and office equipment 5 years
Medical equipment and accessories 4 years
Motor vehicles 5 years
Buildings 10 years

Land constitutes 30% of the amount of land and building shown in the trial balance.
v) A medical equipment valued at GH¢20,000,000 which is included in the medical equipment and accessories listed on the trial balance, was completely damaged due to consistent power fluctuations. The value of this equipment should be written off.
vi) The hospital submitted a claim of GH¢11,000,000 to the National Health Insurance Scheme for services provided to patients in the last quarter of 2023, but the payment has not yet been received. This transaction has not yet been reflected in the trial balance.
vii) The hospital took a loan of $100,000,000 from Health World Bank on January 1, 2023, when the exchange rate was $1 to GH¢3.50. The exchange rate on 31 December 2023 is $1 to GH¢5.
viii) The inventories on 31 December 2023 were as follows:

Inventory type Cost Net Realizable Value Current Replacement
GHc’000 GHc’000 GHc’000
Drugs 15,000 16,000 14,000
Medical consumables 10,000 11,000 9,000

Required:
Prepare for Hamile Teaching Hospital:
a) Statement of Financial Performance for the year ended 31 December 2023.

b) Statement of Financial Position as of 31 December 2023.

c) Disclosure notes to the financial statements.

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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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  • 1 Marks

FA – Nov 2019 – L1 – SA – Q15 – Financial Statements Preparation-

Calculate the adjusted net profit after correcting an error related to motor van expenses.

Your company’s statement of profit or loss for the year ended October 31, 2019, showed a profit of N836,000. It was later discovered that N180,000 paid for the purchase of a motor van had been debited to the motor expenses account. It is the company’s policy to depreciate the motor van at 25% per annum on a straight-line basis, with full depreciation charged in the year of purchase.

What will be the net profit after adjusting for this error?

A. N656,100
B. N701,000
C. N791,000
D. N971,000
E. N1,016,100

 

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  • 1 Marks

FA – May 2017 – L1 – SA – Q4 – Depreciation Methods and Accounting for Disposals

Highlights the difference between depreciation and other expenses.

The major difference between depreciation and other types of expenses is that it

A. Does not involve any cash outlay
B. Is subject to more precise measurement
C. Can be avoided if the asset is in good condition as when purchased
D. Is not deductible if it will cause a net loss
E. Requires no provision

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  • 1 Marks

FA – Nov 2019 – L1 – SA – Q4 – Accounting Concepts

Identify which change does not affect accounting policy under IAS-8.

In accordance with the requirements of IAS-8 – Accounting Policies, Estimates, and Errors, which of the following changes in method does not give rise to changes in accounting policy?

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  • 5 Marks

FR – March 2023 – L2 – Q5c – Preparation of Financial Statements

Determining the initial cost, depreciation charge, and carrying amount of the head office construction under IFRSs.

Lana Ltd is a public listed company in Ghana, located in the Northern Region. The company operates in the manufacturing sector and prepares its accounts to 31 December each year. During the year ended 31 December 2021, Lana Ltd built a head office. The costs associated with the construction of the head office are as follows:

GH¢ million
Fees for environmental certifications and building permits 0.5
Leasehold Land acquisition 10.0
Architect and engineer fees 1.0
Construction material and labor costs (including unused materials) 6.5

At 31 October 2021, when the head office extension became available for use, the cost of unused materials on site amounted to GH¢0.5 million. The total borrowing costs incurred on a loan specifically used to finance the head office extension amounted to GH¢0.8 million. The estimated useful life of the building was 40 years.

Required:
With reference to IFRSs, determine:
i) The initial cost to be capitalized.
ii) The depreciation charge for the year ended 31 December 2021.
iii) The carrying amount as of 31 December 2021.

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  • 20 Marks

FR – March 2023 – L2 – Q3 – Preparation of Financial Statements

Prepare the statement of profit or loss and financial position using the given trial balance and adjustments.

Kinbuka Ltd has been in operation for the past five years. As a Public Listed Entity, the company uses full IFRSs in preparing its financial statements. Management of the company is preparing financial statements for the year ended 31 December 2021, and has produced the following trial balance for the period.

GH¢ GH¢
Revenue 1,171,000
Inventories (31/12/2020) 80,000
Purchases 543,000
Administrative expenses 180,000
Marketing & distribution expenses 55,000
Non-current assets (cost)-31/12/2020: Note (ii)
Furniture & fittings 88,000
Motor vehicles 180,000
Office equipment 30,000
Intangible assets 50,000
Accumulated depreciation -31/12/2020: Note (ii)
Furniture & fittings 18,000
Motor vehicles 62,400
Office equipment 13,000
Intangible assets 6,000
Taxation account Note (iii) 28,000
Trade & other receivables 151,000
Trade payables 125,000
Deferred tax-31/12/2020 Note (iii) 21,000
13% GOG Bond Note (iv) 19,000
Interest income Note (iv) 2,600
Bank account Note (v) 283,000
Share Capital 200,000
Retained earnings 68,000

Additional Information:

    1. Inventories at 31 December 2021 were valued at GH¢65,000.
    2. On 1 November 2021, one of the company’s vehicles used in selling and distributing its finished goods was involved in an accident; the vehicle was badly damaged beyond repairs as a result of the accident. This vehicle was acquired by the company on 1 January 2019 for GH¢95,000. The company, however, has insured the vehicle and thus on 4 November 2021 wrote to the insurance company for the claim, to purchase a new vehicle. In response, the insurance company picked and assessed the damaged car, and on 8 January 2022 paid the company a claim of GH¢80,000. There were no other changes in non-current assets for the year ended 31 December 2021. Non-current assets are depreciated or amortised as follows:
      • Furniture & fittings: 20% of cost
      • Office equipment, motor vehicles, and intangible assets: 10% of cost
      • No depreciation is charged on non-current assets in the year of de-recognition. Depreciation or amortisation expense is charged to cost of sales.
    3. The taxation account represents the aggregate amount paid by the company as self-assessment tax on its estimated profit for the four quarters of the 2021 year of assessment. Kinbuka Ltd in the year 2021, had officers of the Ghana Revenue Authority (GRA) auditing its tax records for the 2019 and 2020 years of assessment. All the prior years before the 2019 year of assessment have already been audited by GRA. The audit report of GRA received and agreed by Kinbuka Ltd in November 2021 revealed the following:
      • Year of assessment:
        • 2019: Current tax provided: GH¢45,000; Tax liability from the audit: GH¢43,000.
        • 2020: Current tax provided: GH¢57,800; Tax liability from the audit: GH¢67,600.

      The company paid in full the current tax provided for the years 2019 and 2020 in the first half of the years 2020 and 2021, respectively. However, the differences arising from the tax audit have not been provided for in the above balances and are yet to be settled by the company. Current tax expense and an increase in deferred tax liability for the year ended 31 December 2021 have been estimated at GH¢35,300 and GH¢3,750, respectively.

    4. As part of cash flow management, the company at the beginning of the current year, purchased a 13%, GH¢20,000 5-year bond at a price of GH¢19,000, incurring a brokerage fee of 2% of the par value. The bond will be redeemed at a premium of 5% over its par value. The brokerage fee paid is included in the administrative expenses. The business model of Kinbuka Ltd in relation to this bond is to hold it till maturity while availing itself to sell when there is a good opportunity to do so. The effective interest rate of the bond is 15% and its fair value at 31 December 2021 is GH¢21,000.
    5. The bank account represents the cash book balance as at 31 December 2021. The bank statement, however, reveals a balance of GH¢353,000 as at this date. There are only two reconciling differences between the two figures:
      • Cheques recorded at the credit side of the cash book but yet to be presented to the bank for payment amount to GH¢72,000.
      • Bank charges yet to be recorded in the cash book. All bank charges are classified as administrative expenses.

Required:
Prepare the Statement of Profit or Loss and Other Comprehensive Income of Kinbuka Ltd for the year ended 31 December 2021 and the Statement of Financial Position as at that date. Show clearly all relevant workings.

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  • 7 Marks

FR – March 2023 – L2 – Q2b – Financial Reporting Standards and Their Applications

Nkonya’s treatment of unsold premises regarding impairment and revaluation in financial statements as per IFRSs.

Nkonya is a local fruit processing company whose accounting year is December 2021 and prepares its financial statements using IFRSs. On 1 April 2021, Nkonya moved to a new head office and decided to sell its old premises. Agents were appointed to assist with the sale. As at 1 January 2021, the old premises had a carrying amount of GH¢8.4 million. The old premises had cost GH¢10 million and were being depreciated over their expected useful life of 50 years. The agents advised the directors that the market value of the old premises at 1 April 2021 was GH¢7 million, and a commission of 1% was payable on sale. No entries have yet been made in respect of the old premises for the year ended 31 December 2021. The old premises remained unsold as at 31 December 2021, but the sale was finalised on 10 January 2022 for net proceeds of GH¢6.8 million.

Required:
Show how the property should be dealt with in the financial statements of Nkonya for the year ended 31 December 2021. (7 marks)

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  • 6 Marks

FR – April 2022 – L2 – Q2b – Financial Reporting Standards and Their Applications

Prepare extracts for the Statement of Financial Position and Statement of Profit or Loss for Kundugu Ltd in 2020 and 2021, accounting for a lease agreement under IFRS 16.

b) Kundugu Ltd (Kundugu) is a manufacturing company located in the Savannah Region. The reporting date of Kundugu is 31 December, and the company reports under International Financial Reporting Standards (IFRSs). Kundugu intends to expand its production to take advantage of emerging economic activities in the new region.

On 1 January 2020, the company entered into a lease agreement for production equipment with a useful economic life of 8 years. The lease term is for four years, and Kundugu agrees to pay annual rent of GH¢50,000 commencing on 1 January 2020 and annually thereafter. The interest rate implicit in the lease is 7.5%, and the lessee’s incremental borrowing rate is 10%. The present value of lease payments not yet paid on 1 January 2020 is GH¢130,026. Kundugu paid legal fees of GH¢1,000 to set up the lease.

Required:
Prepare extracts for the Statement of Financial Position and Statement of Profit or Loss for 2020 and 2021, showing how Kundugu should account for this transaction. (6 marks)

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  • 20 Marks

FR – April 2022 – L2 – Q3 – Preparation of Financial Statements and Adjustments

Prepare the statement of comprehensive income and statement of financial position for Caput Plc for the year ended 31 December 2020, incorporating necessary adjustments.

The trial balance of Caput Plc, as at 31 December, 2020 is provided below:


Additional Information:
1. An inventory count at 31 December 2020 amounted to GH¢15,750,000. This includes damaged goods with a cost of GH¢1,200,000. These will require remedial work costing GH¢675,000 and could be sold for GH¢1,425,000.
2. Finance cost is made up of the full year’s preference and ordinary dividends paid.
3. Non-Current Assets:

  • Land and Building were revalued at GH¢22,500,000 and GH¢72,000,000 respectively on 1 January 2020, resulting in revaluation gain of GH¢11,000,000 for the current year. At that date, the remaining life of the building was 15 years. Depreciation is on a s

    • traight-line basis. Ignore deferred tax implications.

  • Depreciation on Plant and Equipment is at 12.5% on a reducing balance basis.
  • Investment Property: On 31 December 2020, a qualified surveyor valued the property at GH¢20,250,000. Caput Plc uses the fair value model under IAS 40: Investment Property to value its investment property.
  • It is the policy of the company to charge depreciation on a full-year basis

    • .

4. The directors have estimated the provision for income tax for the year ended 31 December 2020 at GH¢12,000,000. The deferred tax for the year ended 31 December 2020 is to be adjusted so that the tax base of the company’s net assets is GH¢18,000,000 less than the carrying amount. Assume the rate of tax is 30%.
5. On 1 October 2020, Caput Plc imported a piece of equipment from a European supplier for €1 million and agreed to settle the bill in six months’ time. The relevant exchange rates are provided below:

No entries have been made for the above transaction. Any exchange difference on translation should be debited or credited to operating expenses.
Required:
Prepare for Caput Plc:
a) Statement of Comprehensive Income for the year ended 31 December 2020. (10 marks)
b) Statement of Financial Position as at 31 December 2020. (10 marks)

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  • 20 Marks

FA – May 2016 – L1 – SB – Q5 – Accounting from Incomplete Records

Calculate profit or loss and prepare the statement of financial position for Mr. Mala's bookshop using incomplete records.

Mr. Mala, the proprietor of a small bookshop, has requested you to prepare his accounts. He did not keep complete records of account. From his passbook, notebook, bank statements, and oral information obtained during a meeting with him, you put together the following figures for the year ended December 31, 2015:

Item January 1, 2015 (N’000) December 31, 2015 (N’000)
Cash in hand 400 890
Bank overdraft 18,000 14,000
Furniture & Fittings 2,000 2,000
Delivery van 3,600 3,600
Inventories 20,400 22,400
Trade receivables 12,400 9,800
Trade payables 9,120 8,400
Bills payables 2,210 2,200
Bills receivables 3,100 3,200

During the year, Mr. Mala used part of the inventories for domestic affairs which was agreed at N1,200,000. He drew cash for private expenses at frequent intervals. He estimated his drawing in cash at N2,800,000 for the year.

He also agreed with the following suggestions:

  1. To write off irrecoverable debts of N300,000 owed by a customer who died in May 2015.
  2. To charge a notional rent of N1,000,000 per annum for the shop premises owned by him.
  3. To allow 15 percent per annum depreciation on furniture and fittings and 20 percent per annum on the delivery van.

Required:

a. Ascertain Mr. Mala’s bookshop’s profit or loss for the year ended December 31, 2015. (8 Marks)

b. Prepare the statement of financial position of the bookshop at December 31, 2015. (12 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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