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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  • 15 Marks

FR – Nov 2014 – L2 – Q6 – Property, Plant and Equipment (IAS 16)

Analyze the Property, Plant, and Equipment of Skelewu Nigeria Limited and compute the deferred tax implications.

Skelewu Nigeria Limited owns the following Property, Plant and Equipment as at 31 December 2011.

 

Additional pieces of information are:

(i) Plant and Machinery are depreciated on a straight-line basis over 5 years. The plant & machinery was acquired on 1 January 2011.
(ii) Land is not depreciated.
(iii) Buildings are depreciated on a straight-line basis over 25 years.
(iv) Depreciation on office buildings is not deductible for tax purposes, but for the plant and machinery; tax deductible is granted over a period of 3 years in the ratio 50:30:20 percent of cost consecutively.
(v) The accounting profit before tax amounted to N15,000,000 for the 2012 financial year and N20,000,000 for the year 2013. These figures include non-taxable revenue of N4,000,000 in year 2012 and N5,000,000 in year 2013.
(vi) Skelewu Nigeria Limited had a tax loss on 31 December 2011 of N12,500,000. The tax rate for year 2011 was 35% and 30% for each of the years 2012 and 2013.

Required:

a. In accordance with IAS 12 on Income Taxes, differentiate between Current Tax and Deferred Tax. (2 Marks)

b. Prepare the Deferred Tax Account for the year ended 31 December 2013. (10 Marks)

c. Advise the Directors of Skelewu Nigeria Limited on the reasons why it is necessary to recognize or make provision for Deferred Tax in the company’s Financial Statements. (3 Marks)

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  • 30 Marks

FR – Nov 2014 – L2 – Q1 – Presentation of Financial Statements (IAS 1)

Analyze a trial balance to prepare financial statements, compute impairment, and adjust inventories for a corporate entity.

The Trial Balance of Excellent Plc. as at 30 June 2014 is as follows:

 

The following notes are relevant:
i. Inventories as at 30/6/2013:

The net realisable values of these commodities per unit are as follows:

ii. Inventories on 30 June 2014 amounted to N9,000,000

iii. Prepaid salaries and wages were N10,000,000

iv. Included in the plant and machinery maintenance cost was depreciation of
N14,800,000.

v. The allowances for receivables are no longer required. The outstanding 10%
loan notes interest was paid on 30 June 2014 and this has not been accounted
for. The fair value of goods is N40,000,000 at the end of the year.

vi. The value in use of delivery van for the year 30 June 2014 is N31,000,000. The
prevailing market interest rate is 21% per annum and the Discounting Factor for
this year is 0.8264.

vii. The fair value of delivery van at an arm’s length transaction as at 30 June 2014
was N28,000,000 and the cost to sell was N2,000,000. All non-current assets
were depreciated at 10% per annum on reducing balance basis.

viii. Current tax provision for the year is N165,000,000.

Required:

a. Identify any FOUR of the cost items that are EXCLUDED in the valuation of inventories under IAS 2. (4 Marks)

b. Calculate the following:

  • (i) Value of opening inventories to be included in the Statement of Profit or Loss and Other Comprehensive Income. (2 Marks)
  • (ii) The present value in the use of delivery van (1 Mark)
  • (iii) The fair value and recoverable amount of delivery van (2 Marks)
  • (iv) The carrying amount and impairment if any on delivery van (2 Marks)

c. Prepare the Statement of Profit or Loss and Other Comprehensive Income (OCI) and Statement of Changes in Equity for the year ended 30 June 2014. (11 Marks)

d. Prepare the Statement of Financial Position as at 30 June 2014. (8 Marks)

Show all relevant workings

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  • 20 Marks

FR – May 2024 – L2 – SB – Q4 – Impairment of Assets (IAS 36)

Differentiate between impairment and depreciation, and discuss the indicators and accounting treatment of impairment as per IAS 36.

a. Differentiate between impairment and depreciation. (5 Marks)

b. Discuss the following as contained in IAS 36 – Impairment of Assets: i. Indicators of impairment.
ii. How to identify and account for impairment of assets. (6 Marks)

c. A non-current asset in the statement of financial position of Zamfara Ltd, an SME, at the beginning of the financial year had a carrying amount of ₦800,000. The asset had previously been revalued, and there was a revaluation surplus of ₦50,000 relating to it in the revaluation reserve. At the end of the financial year, Zamfara Ltd suspected that the asset had been impaired. It, therefore, estimated the recoverable amount of the asset and found this to be ₦600,000. The depreciation charge on the asset for the year would be ₦80,000.

Required:
As the finance manager of Zamfara Ltd, explain with relevant computation the accounting treatments required in line with the provisions of IAS 36. (9 Marks)

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  • 20 Marks

FR – Nov 2015 – L2 – Q2 – Presentation of Financial Statements (IAS 1)

Prepare a statement of profit or loss and other comprehensive income for Well-Being Plc.

The following trial balance has been extracted from the books of Well-Being Plc as at March 31, 2014:

N’000 N’000
Land at cost 360
Building at cost 750
Equipment at cost 588
Vehicles at cost 852
Goodwill 900
Accumulated depreciation:
– Buildings 270
– Equipment 228
– Vehicles 396
Inventory at April 1, 2013 321
Trade receivables and payables 549 351
Allowance for receivables 24
Bank balances 171
Current taxation 18
Ordinary shares of N1 each 600
Retained earnings at April 1, 2013 1,509
Revenue 4,296
Purchases 1,464
Directors’ fees 450
Wages and salaries 828
General distribution costs 303
General administrative expenses 558
Dividend paid 60
Rent received 90
Disposal of vehicle 30
Total 7,983 7,983

Additional information:

  1. The company’s non-depreciable land was valued at ₦900,000 on March 31, 2014, and this valuation is to be incorporated into the accounts.
  2. Depreciation policy:
    • Building: 4% p.a. (straight line)
    • Equipment: 40% p.a. (reducing balance)
    • Vehicles: 25% p.a. (straight line) In all cases, a full year’s depreciation is charged in the year of disposal.
  3. On February 1, 2014, a vehicle used entirely for administrative purposes was sold for ₦30,000 (cost ₦132,000). No other entries were made.
  4. Depreciation is apportioned as follows:
    • Buildings: 50% distribution, 50% administrative
    • Equipment: 25% distribution, 75% administrative
    • Vehicles: 70% distribution, 30% administrative
  5. Inventory at March 31, 2014, is valued at ₦357,000.
  6. Trade receivables include a debt of ₦24,000 to be written off. The allowance for receivables is to be adjusted to 4% of receivables after the write-off.
  7. Current tax for the year ended March 31, 2013, was over-estimated by ₦18,000. Current tax for 2014 is estimated at ₦90,000.
  8. One-quarter of wages and salaries was paid to distribution staff and the remaining three-quarters to administrative staff.
  9. General administrative expenses include bank overdraft interest of ₦27,000.

Required:
Prepare a statement of profit or loss and other comprehensive income for the year ended March 31, 2014.

 

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  • 12 Marks

FR – Nov 2019 – L2 – Q1c – Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)

Explain the factors required for selecting and applying accounting policies per IAS 8, and identify alternative policies for inventory and depreciation.

c. State the main factors that IAS 8 requires management of a company to consider in selecting and applying accounting policies in the absence of any IFRS and identify the alternative accounting policies on the following items in the financial statements:

i. Inventories
ii. Depreciation

(12 Marks)

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  • 12 Marks

FR – Nov 2019 – L2 – Q1a – Property, Plant, and Equipment (IAS 16)

Explain the classification and measurement differences between investment properties and property, plant, and equipment.

You are the Financial Controller of Uchena Nigeria plc. The company was established about 15 years ago. At the last annual general meeting of the company, a new Managing Director was appointed.

The new Managing Director is a non-finance executive with very little knowledge of accounting. He has requested for the past five years financial statements of the company for review.

He has prepared a list of issues based on his review as follows:

  1. When I look at the statement of financial position of one of the past financial statements, one of the categories of non-current asset is investment properties and another category is property, plant, and equipment, in which all other properties are included. It is certain that the company invested in properties, so why do you have two categories for them in the statement of financial position? How did you decide what goes where?
  2. A note to the financial statements states that investment properties are measured at their fair values and not depreciated. Don’t all non-current assets have to be depreciated over their estimated useful lives?
  3. Another note to the financial statements states that property included in the property, plant, and equipment is measured at cost less accumulated depreciation rather than at fair value. Shouldn’t all properties be measured in financial statements on a consistent basis?
  4. Finally, I can’t see from the financial statements where gains or losses relating to the measurement of investment properties are included; the profit statement includes two main components: profit or loss and other comprehensive income; where would the gains or losses go? Presumably, the treatment of gains or losses is the same for any non-current assets, which one is measured at fair value?

Required:

Provide answers to the issues raised by the Managing Director. You should justify your answers with reference to the relevant IFRS. (12 Marks)

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  • 10 Marks

PSAF – Nov 2020 – L2 – Q5a – Accounting for Government Assets and Liabilities

Calculate the gain or loss on the disposal of old equipment and explain five IPSAS 17 disclosure requirements.

Odeda Agricultural Corporation, a parastatal under Waso State Ministry of Agriculture, operates its business with plant and equipment that qualifies under IPSAS 17 on property, plant, and equipment. On January 1, 2020, the cost of the corporation’s plant was N100,000,000, and the accumulated depreciation was N40,000,000. On January 2, 2020, the corporation bought new equipment at the cost of N100,000,000. The equipment supplier accepted an old piece of equipment owned by the corporation in part exchange for a value of N2,500,000. The old equipment originally cost N8,000,000 and had accumulated depreciation of N5,500,000.

Required:

i. Calculate the gain or loss on the disposal of the old equipment. (5 Marks)
ii. Explain five disclosure requirements of property, plant, and equipment stated at revalued amount in accordance with IPSAS 17. (5 Marks)

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  • 15 Marks

FA – May 2012 – L1 – SB – Q5 – Accounting for Property, Plant, and Equipment (PPE) in Accordance with IAS 16

Recording journal entries for three trade-in options for machinery and selecting the most viable option.

Fancy Enterprises has machinery that cost N750,000 with an accumulated depreciation of N510,000. The firm is contemplating acquiring new machinery to replace the old one. The new machinery has a catalog price of N1,290,000 and attracts a 12% trade discount. The following options are available:

(i) Trade in the old machinery and add cash of N895,200.
(ii) Trade in the old machinery and add cash of N600,000.
(iii) Trade in the old machinery and add cash of N1,080,000.

You are required to:

(a) Record journal entries for each of the options, considering the information provided above.
(b) Which of the options is economically viable for the firm to acquire the new machinery?
(14 Marks)

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  • 15 Marks

FA – May 2012 – L1 – SB – Q1 – Accounts of Not-for-Profit Entities

Prepare income statement, income and expenditure account, and statement of financial position for a not-for-profit society.

The following details are available from the books of Tops Darts Society:

(iii)
The person handling Dart sales, “all in cash,” disappeared with the money received from this source. It is unknown how much was stolen, but all darts were sold at a profit of 33⅓% on cost price.

(iv)
Three people paid life membership fees of N4,000 each. One-tenth of this amount is to be credited to the income and expenditure account each year, while the remaining is treated as prepaid.

(v)
Depreciation on equipment is to be calculated at 20%.

You are required to:

(a) Draw up a Darts Income Statement for the year 2011 to calculate the gross profit on Darts sold. The cash stolen should be credited to this account, with a debit shown in the Income and Expenditure Account.
(b) Prepare an Income and Expenditure Account for the year ended 31 December 2011, and a Statement of Financial Position as at that date.

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  • 1 Marks

FA – May 2012 – L1 – SA – Q35 – Depreciation Methods and Accounting for Disposals

Calculating the net book value of office equipment using the reducing balance method.

Chinko Limited bought office equipment on 1 January 2008 at a cost of N900,000. If depreciation is calculated at 20% on a reducing balance basis, the net book value of the asset at the end of year 2010 will be ……………………….

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