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  • 20 Marks

STP – Aug 2013 – L2 – Q4 – Taxation of Specialized Business Sectors

Advise on tax liabilities for TecAxxes Bank Ltd for 2011 and 2012.

You have been recently employed as the Tax Accountant for TecAxxes Bank Ltd. You have agreed with management to consult the Bank’s Tax Advisers on the 2012 financial statements with a view to submitting the tax returns by end of August 2013. The Bank’s auditors have put together TecAxxes draft financial statement from which you have made extracts as below: TecAxxes Bank Ltd Income Statement for the year ended December 2012 and 2011

Notes 2012 GH $\phi$ 2011 GH $\phi$
Interest Income 1 1,522,000 1,834,000
Interest expense (866,000) (1,204,000)
Net Interest Income 656,000 630,000
Fee and Commission Income 342,000 282,000
Other Operating Income 2 69,520 59,630
Operating Income 1,067,520 971,630
Operating expenses 3 (514,200) (482,420)
Charge for bad and doubtful debts 4 (29,000) (41,000)
Operating Profit 524,320 448,210
Other Income 5 54,800 42,300
Profit before tax 579,120 490,510
Tax Paid 6 (202,420) (280,520)
Transfer to Income Surplus 376,700 209,990

Notes

  1. Interest Income includes income earned from: Loans granted fishermen Loans granted to pineapple growers
  2. Other Operating Income Dividend income (Net) Govt. Bond Int. income (net) Bad Debts recovered
  3. Operating Expenses includes Depreciation
  4. Charge for Bad and doubtful debts Specific credit risk provision General Provision for credit risk
  5. Other Income Disposal of used tires and depreciated Vehicles Profit on sale of shares
  6. Tax paid is made up as follows: Deferred tax liability Corporate tax paid for year Total

GH $\phi$ GH $\phi$
Loans granted fishermen 28,000 24,050
Loans granted to pineapple growers 32,000 15,000
Dividend income (Net) 20,120 17,000
Govt. Bond Int. income (net) 17,000 28,500
Bad Debts recovered 32,400 14,130
69,520 59,630
Depreciation 80,200 65,600
Specific credit risk provision 9,010 20,600
General Provision for credit risk 19,990 20,400
29,000 41,000
Disposal of used tires and depreciated Vehicles 39,000 17,100
Profit on sale of shares 15,800 25,200
54,800 42,300
Deferred tax liability 102,200 121,000
Corporate tax paid for year 100,220 159,520
202,420 280,520
  1. Agreed capital allowance for the year is GH $62,500 (2010: GH $75,000).

Required Please, as the newly appointed Tax Accountant for TecAxxes Bank Ltd, advice the Managing Director on the tax liabilities arising from this position statement presented to you for the two years.

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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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  • 20 Marks

AA – Mar 2025 – L2 – Q4 – Letter of Representation

Explain letter of representation, its contents, and actions if management refuses to provide it.

a) During the audit of Abako Manufacturing LTD, the audit team from Henne Frema & Associates is awaiting written representations from management. One of the key areas of concern is the completeness of the financial records provided due to high turnover of staff especially at the finance department.

Required:

i) Explain letter of representation. (2 marks)

ii) Identify EIGHT statements/issues that may form part of a letter of representation. (4 marks)

iii) Discuss TWO actions that the auditor would take if management refuse to provide the letter of representation.

b) You are part of the team auditing a client who is part of a large multinational group. During the audit, your team noted that the company is reporting adverse liquidity and solvency ratios. Also, the company was in breach of its loan covenants and recently lost a major customer.

Your team has requested that management provide forecast of financial results showing that the company will be liquid and solvent in the foreseeable future, at least 12 months from the date of reporting to support management use of the going concern assumption in the preparation of the financial statements. Your team has also requested a letter of financial support from the company’s parent company.

The team has assessed that a material uncertainty exists and the use of the going concern assumption is inappropriate in the absence of the requested mitigation information.

Required:

i) State the type of audit report to be issued should management fail to provide the requested mitigation information. (4 marks)

ii) Assess the impact of the evidence provided on the audit report. Assume a material uncertainty still exists even after providing the needed evidence but the use of the going concern is appropriate. (6 marks)

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  • 20 Marks

AAA – Mar 2025 – L3 – Q3 – Audit of Complex Transactions and Provisions

Justify provisions for toxic emission fines, outline audit procedures for a new filter and provision, and identify risks in providing assurance for a disposal licence.

You are partner for a firm called Konamoah & Associates, who are auditors for Aluco, an aluminium processing company. Aluco has several issues with its aluminium and steel byproducts, including toxic emissions and a poor health and safety record for employees in the workshop. Aluco has proven to be very lucrative for your firm and you are busy planning the coming year’s audit visits after agreeing to continue this engagement some weeks earlier. The by-products arising from the production process include the following:

  • Sharp metallic fragments that require disposal under an annually granted licence.
  • Toxic exhaust gases that require treatment by a specific filter.
  • Carcinogenic oil that require storage in underground bunkers. Aluco is in the process of installing a new filter to process toxic exhaust gases. This represents an investment of GH¢2,000,000 and is material to the financial statements. The new filter is expected to reduce the number of toxic leaks that the company has caused by over 90%, although the suppliers of the filter, Adamah Enterprises, have only just rushed this product onto the market. In the last five years, Aluco has been fined material amounts of between GH¢200,000 and GH¢400,000 by the Tema Metropolitan Assembly, so this new filter is expected to reduce their liability substantially. During an initial planning meeting held at Aluco, the Finance Director Frank Afful suggested to you that the year’s provision for toxic emission fines be removed as the new filter is likely to reduce these to negligible amounts. He has also mentioned that Aluco will need to start supplying information to assist with the metallic fragment disposal licence application and asked if your firm would be interested in providing assurance on the information required. Required: a) As the Audit Partner, justify the need for any provisions in respect of toxic emission fines. (4 marks) b) What audit procedures are you required to perform to determine the most appropriate treatment of both the new filter and the provision in the financial statements of Aluco and any possible worst case impact on your audit report? (10 marks) c) Identify SIX risks that your firm might have by agreeing to provide required assurance for Aluco’s application for a disposal licence. (6 marks)

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  • 20 Marks

AAA – Mar 2025 – L3 – Q2 – Audit of Complex Transactions

Analyze financial statement extracts for audit risks in property, plant & equipment, trade receivables, and inventory, and outline audit evidence needed.

Fadila Associates has been the auditors of Aduaba LTD for the past 3 years. Aduaba LTD is into the production of cashew drinks. You have been assigned to lead the audit of Aduaba LTD and have been provided with the following extracts from the draft financial statements for 2023 before the final audit planning meeting with the Chief Accountant.

Draft statement of financial position (extracts)

Draft 2023 Actual 2022
GHc’000 GHc’000 GHc’000 GHc’000
Property, Plant and Equipment 42,860 41,620
Receivables
Trade 4,800 3,150
Other 380 5,180 280 3,430
Inventory
Raw materials 2,460 1,870
Work-in-progress 380 450
Finished goods 2,270 5,110 2,030 4,350
Total Assets 53,150 49,400
Current liabilities
Trade 4,116 3,470
Other 870 4,986 650 4,120

Draft income statement (extracts)

Draft 2023 Actual 2022
GHc’000 GHc’000
Revenue 53,250 50,750
Cost of sales 39,360 39,220
Gross profit 13,890 11,530
Depreciation of Property, Plant and Equipment 4,450 2,810
Other expenses 3,540 3,480
Profit before tax 5,900 5,240

Your Audit Manager has reviewed these extracts and has identified three financial statement headings which he believes require further investigation. These are property, plant & equipment, trade receivables and inventory. He has also calculated the following accounting ratios:

Draft 2023 Actual 2022
Trade receivables collection period 28 days 17 days
Inventory turnover 7.6 times 8.9 times
Gross profit percentage 26% 23%

Required: a) Explain why the Audit Manager has selected these three headings for further investigation from the given financial statement extract. (9 marks) b) Outline the audit evidence the Audit Manager should request for to clarify the situation regarding these financial statement headings. (11 marks)

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  • 5 Marks

CR – Nov 2024 – L3 – Q4b – Consolidation and Financial Reporting

Discuss the appropriate reporting figures a parent company should include in its consolidated financial statements when its subsidiaries have different reporting dates.

A parent company has a year-end of 31 December 2023. One of its subsidiaries has a year-end of 30 June 2023, and another has a year-end of 30 September 2023.

Required:
What figures should the parent include in its consolidated financial statements in respect of these subsidiaries?

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  • 15 Marks

CR – Nov 2024 – L3 – Q4a – Corporate Reconstruction

Prepare the capital reduction account and the statement of financial position for Mensimah Ltd after reconstruction.

Mensimah LTD (Mensimah) has been experiencing poor trading conditions over the last three years. As a result, it has been difficult to generate revenues and profits in the current year leading to very high inventory levels. Also, Mensimah has defaulted in paying interest due to the loan note holders for two years. Even though the debentures are secured against the land & buildings, the loan note holders have demanded either a scheme of reconstruction or the liquidation of Mensimah.

As the above trading difficulties have significantly threatened the going concern status of Mensimah, the directors as well as representatives of the shareholders and loan holders in a meeting decided to design the following scheme of reconstruction:

  1. The assets were independently valued and should now be recognised at the following amounts:

    Asset Category Amount (GH¢)
    Land 64,000
    Building 64,000
    Plant & Equipment 24,000
    Inventory 40,000

    The value of Mensimah’s investment in Adams LTD has increased to GH¢48,000 and was to be sold as part of the reconstruction scheme. As for the trade receivables, it was determined that 10% of the stated value is non-recoverable and therefore would be written off.

  2. Each GH¢1 equity share is to be redesignated as an equity share of GH¢0.25. After this, the equity shareholders would be persuaded to accept a reduction in the nominal value of their shares from GH¢1 to GH¢0.25 per share and subscribe for a new issue based on one-for-one at a price of GH¢0.30 per share.

  3. The existing 5% loan notes are to be exchanged for a new issue of GH¢28,000 9.5% loan notes, repayable in 2028, plus 112,000 equity shares of GH¢0.25 each. In addition, they will subscribe for GH¢7,200 loan notes, repayable in 2028, at par value at the rate of 9.5%.

    The 8% loan notes holders who have not received any interest for the past two years, are to receive 16,000 equity shares of GH¢0.25 each in lieu of the interest payable. It is agreed that the value of the interest liability is equivalent to the fair value of the shares to be issued. Moreover, the 8% loan notes holders have agreed to defer repayment of their loan until 2028, on condition that they are paid a higher interest rate of 9.5%.

  4. The deficit on retained earnings is to be written off and the bank overdraft is to be repaid immediately.

Mensimah’s statement of financial position as at 31 December 2023 is as follows:

Assets GH¢’000
Non-current assets
Land & buildings 154,597
Plant & equipment 48,603
Investment in Adams LTD 21,600
Total Non-Current Assets 224,800
Current assets
Inventory 96,198
Receivables 56,554
Total Current Assets 152,752
Total Assets 377,552
Equity & Liabilities GH¢’000
Equity
Equity shares (GH¢1) 160,000
Retained earnings (31,857)
Total Equity 128,143
Non-current liabilities
8% loan notes 64,000
5% loan notes 56,000
Total Non-Current Liabilities 120,000
Current liabilities
Trade payables 89,798
Interest payable 10,240
Overdraft 29,371
Total Current Liabilities 129,409
Total Equity & Liabilities 377,552

Required:

i) Prepare the capital reduction account for Mensimah LTD. 
ii) Prepare the statement of Financial Position of Mensimah LTD immediately after the reconstruction.
iii) Determine the position of each stakeholder group if the reconstruction scheme is not implemented.

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  • 8 Marks

AAA – Nov 2024 – L3 – Q3b – Implications of Inaccurate Other Information on the Audit

Describe the implications if the Chairman’s statement remains inaccurate and its impact on the audit report.

b) Assuming that no changes are made to the Chairman’s statement, describe the implications for the completion of the audit and the auditor’s report.

(Note: detailed knowledge in IFRS S1 is not a requirement to answer this question).

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  • 12 Marks

AAA – Nov 2024 – L3 – Q3a – Auditor’s Responsibilities Relating to Other Information

Explain the auditor’s responsibilities regarding other information in an entity’s annual report and identify issues in the Chairman’s statement.

a) In line with ISA 720: (Revised) The Auditor’s Responsibilities Relating to Other Information, explain the auditor’s responsibilities in relation to the other information presented with the audited financial statements and comment on the matters arising from the extract from the Chairman’s statement.

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  • 20 Marks

STP – Aug 2013 – L2 – Q4 – Taxation of Specialized Business Sectors

Advise on tax liabilities for TecAxxes Bank Ltd for 2011 and 2012.

You have been recently employed as the Tax Accountant for TecAxxes Bank Ltd. You have agreed with management to consult the Bank’s Tax Advisers on the 2012 financial statements with a view to submitting the tax returns by end of August 2013. The Bank’s auditors have put together TecAxxes draft financial statement from which you have made extracts as below: TecAxxes Bank Ltd Income Statement for the year ended December 2012 and 2011

Notes 2012 GH $\phi$ 2011 GH $\phi$
Interest Income 1 1,522,000 1,834,000
Interest expense (866,000) (1,204,000)
Net Interest Income 656,000 630,000
Fee and Commission Income 342,000 282,000
Other Operating Income 2 69,520 59,630
Operating Income 1,067,520 971,630
Operating expenses 3 (514,200) (482,420)
Charge for bad and doubtful debts 4 (29,000) (41,000)
Operating Profit 524,320 448,210
Other Income 5 54,800 42,300
Profit before tax 579,120 490,510
Tax Paid 6 (202,420) (280,520)
Transfer to Income Surplus 376,700 209,990

Notes

  1. Interest Income includes income earned from: Loans granted fishermen Loans granted to pineapple growers
  2. Other Operating Income Dividend income (Net) Govt. Bond Int. income (net) Bad Debts recovered
  3. Operating Expenses includes Depreciation
  4. Charge for Bad and doubtful debts Specific credit risk provision General Provision for credit risk
  5. Other Income Disposal of used tires and depreciated Vehicles Profit on sale of shares
  6. Tax paid is made up as follows: Deferred tax liability Corporate tax paid for year Total

GH $\phi$ GH $\phi$
Loans granted fishermen 28,000 24,050
Loans granted to pineapple growers 32,000 15,000
Dividend income (Net) 20,120 17,000
Govt. Bond Int. income (net) 17,000 28,500
Bad Debts recovered 32,400 14,130
69,520 59,630
Depreciation 80,200 65,600
Specific credit risk provision 9,010 20,600
General Provision for credit risk 19,990 20,400
29,000 41,000
Disposal of used tires and depreciated Vehicles 39,000 17,100
Profit on sale of shares 15,800 25,200
54,800 42,300
Deferred tax liability 102,200 121,000
Corporate tax paid for year 100,220 159,520
202,420 280,520
  1. Agreed capital allowance for the year is GH $62,500 (2010: GH $75,000).

Required Please, as the newly appointed Tax Accountant for TecAxxes Bank Ltd, advice the Managing Director on the tax liabilities arising from this position statement presented to you for the two years.

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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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  • 20 Marks

AA – Mar 2025 – L2 – Q4 – Letter of Representation

Explain letter of representation, its contents, and actions if management refuses to provide it.

a) During the audit of Abako Manufacturing LTD, the audit team from Henne Frema & Associates is awaiting written representations from management. One of the key areas of concern is the completeness of the financial records provided due to high turnover of staff especially at the finance department.

Required:

i) Explain letter of representation. (2 marks)

ii) Identify EIGHT statements/issues that may form part of a letter of representation. (4 marks)

iii) Discuss TWO actions that the auditor would take if management refuse to provide the letter of representation.

b) You are part of the team auditing a client who is part of a large multinational group. During the audit, your team noted that the company is reporting adverse liquidity and solvency ratios. Also, the company was in breach of its loan covenants and recently lost a major customer.

Your team has requested that management provide forecast of financial results showing that the company will be liquid and solvent in the foreseeable future, at least 12 months from the date of reporting to support management use of the going concern assumption in the preparation of the financial statements. Your team has also requested a letter of financial support from the company’s parent company.

The team has assessed that a material uncertainty exists and the use of the going concern assumption is inappropriate in the absence of the requested mitigation information.

Required:

i) State the type of audit report to be issued should management fail to provide the requested mitigation information. (4 marks)

ii) Assess the impact of the evidence provided on the audit report. Assume a material uncertainty still exists even after providing the needed evidence but the use of the going concern is appropriate. (6 marks)

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  • 20 Marks

AAA – Mar 2025 – L3 – Q3 – Audit of Complex Transactions and Provisions

Justify provisions for toxic emission fines, outline audit procedures for a new filter and provision, and identify risks in providing assurance for a disposal licence.

You are partner for a firm called Konamoah & Associates, who are auditors for Aluco, an aluminium processing company. Aluco has several issues with its aluminium and steel byproducts, including toxic emissions and a poor health and safety record for employees in the workshop. Aluco has proven to be very lucrative for your firm and you are busy planning the coming year’s audit visits after agreeing to continue this engagement some weeks earlier. The by-products arising from the production process include the following:

  • Sharp metallic fragments that require disposal under an annually granted licence.
  • Toxic exhaust gases that require treatment by a specific filter.
  • Carcinogenic oil that require storage in underground bunkers. Aluco is in the process of installing a new filter to process toxic exhaust gases. This represents an investment of GH¢2,000,000 and is material to the financial statements. The new filter is expected to reduce the number of toxic leaks that the company has caused by over 90%, although the suppliers of the filter, Adamah Enterprises, have only just rushed this product onto the market. In the last five years, Aluco has been fined material amounts of between GH¢200,000 and GH¢400,000 by the Tema Metropolitan Assembly, so this new filter is expected to reduce their liability substantially. During an initial planning meeting held at Aluco, the Finance Director Frank Afful suggested to you that the year’s provision for toxic emission fines be removed as the new filter is likely to reduce these to negligible amounts. He has also mentioned that Aluco will need to start supplying information to assist with the metallic fragment disposal licence application and asked if your firm would be interested in providing assurance on the information required. Required: a) As the Audit Partner, justify the need for any provisions in respect of toxic emission fines. (4 marks) b) What audit procedures are you required to perform to determine the most appropriate treatment of both the new filter and the provision in the financial statements of Aluco and any possible worst case impact on your audit report? (10 marks) c) Identify SIX risks that your firm might have by agreeing to provide required assurance for Aluco’s application for a disposal licence. (6 marks)

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  • 20 Marks

AAA – Mar 2025 – L3 – Q2 – Audit of Complex Transactions

Analyze financial statement extracts for audit risks in property, plant & equipment, trade receivables, and inventory, and outline audit evidence needed.

Fadila Associates has been the auditors of Aduaba LTD for the past 3 years. Aduaba LTD is into the production of cashew drinks. You have been assigned to lead the audit of Aduaba LTD and have been provided with the following extracts from the draft financial statements for 2023 before the final audit planning meeting with the Chief Accountant.

Draft statement of financial position (extracts)

Draft 2023 Actual 2022
GHc’000 GHc’000 GHc’000 GHc’000
Property, Plant and Equipment 42,860 41,620
Receivables
Trade 4,800 3,150
Other 380 5,180 280 3,430
Inventory
Raw materials 2,460 1,870
Work-in-progress 380 450
Finished goods 2,270 5,110 2,030 4,350
Total Assets 53,150 49,400
Current liabilities
Trade 4,116 3,470
Other 870 4,986 650 4,120

Draft income statement (extracts)

Draft 2023 Actual 2022
GHc’000 GHc’000
Revenue 53,250 50,750
Cost of sales 39,360 39,220
Gross profit 13,890 11,530
Depreciation of Property, Plant and Equipment 4,450 2,810
Other expenses 3,540 3,480
Profit before tax 5,900 5,240

Your Audit Manager has reviewed these extracts and has identified three financial statement headings which he believes require further investigation. These are property, plant & equipment, trade receivables and inventory. He has also calculated the following accounting ratios:

Draft 2023 Actual 2022
Trade receivables collection period 28 days 17 days
Inventory turnover 7.6 times 8.9 times
Gross profit percentage 26% 23%

Required: a) Explain why the Audit Manager has selected these three headings for further investigation from the given financial statement extract. (9 marks) b) Outline the audit evidence the Audit Manager should request for to clarify the situation regarding these financial statement headings. (11 marks)

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  • 5 Marks

CR – Nov 2024 – L3 – Q4b – Consolidation and Financial Reporting

Discuss the appropriate reporting figures a parent company should include in its consolidated financial statements when its subsidiaries have different reporting dates.

A parent company has a year-end of 31 December 2023. One of its subsidiaries has a year-end of 30 June 2023, and another has a year-end of 30 September 2023.

Required:
What figures should the parent include in its consolidated financial statements in respect of these subsidiaries?

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  • 15 Marks

CR – Nov 2024 – L3 – Q4a – Corporate Reconstruction

Prepare the capital reduction account and the statement of financial position for Mensimah Ltd after reconstruction.

Mensimah LTD (Mensimah) has been experiencing poor trading conditions over the last three years. As a result, it has been difficult to generate revenues and profits in the current year leading to very high inventory levels. Also, Mensimah has defaulted in paying interest due to the loan note holders for two years. Even though the debentures are secured against the land & buildings, the loan note holders have demanded either a scheme of reconstruction or the liquidation of Mensimah.

As the above trading difficulties have significantly threatened the going concern status of Mensimah, the directors as well as representatives of the shareholders and loan holders in a meeting decided to design the following scheme of reconstruction:

  1. The assets were independently valued and should now be recognised at the following amounts:

    Asset Category Amount (GH¢)
    Land 64,000
    Building 64,000
    Plant & Equipment 24,000
    Inventory 40,000

    The value of Mensimah’s investment in Adams LTD has increased to GH¢48,000 and was to be sold as part of the reconstruction scheme. As for the trade receivables, it was determined that 10% of the stated value is non-recoverable and therefore would be written off.

  2. Each GH¢1 equity share is to be redesignated as an equity share of GH¢0.25. After this, the equity shareholders would be persuaded to accept a reduction in the nominal value of their shares from GH¢1 to GH¢0.25 per share and subscribe for a new issue based on one-for-one at a price of GH¢0.30 per share.

  3. The existing 5% loan notes are to be exchanged for a new issue of GH¢28,000 9.5% loan notes, repayable in 2028, plus 112,000 equity shares of GH¢0.25 each. In addition, they will subscribe for GH¢7,200 loan notes, repayable in 2028, at par value at the rate of 9.5%.

    The 8% loan notes holders who have not received any interest for the past two years, are to receive 16,000 equity shares of GH¢0.25 each in lieu of the interest payable. It is agreed that the value of the interest liability is equivalent to the fair value of the shares to be issued. Moreover, the 8% loan notes holders have agreed to defer repayment of their loan until 2028, on condition that they are paid a higher interest rate of 9.5%.

  4. The deficit on retained earnings is to be written off and the bank overdraft is to be repaid immediately.

Mensimah’s statement of financial position as at 31 December 2023 is as follows:

Assets GH¢’000
Non-current assets
Land & buildings 154,597
Plant & equipment 48,603
Investment in Adams LTD 21,600
Total Non-Current Assets 224,800
Current assets
Inventory 96,198
Receivables 56,554
Total Current Assets 152,752
Total Assets 377,552
Equity & Liabilities GH¢’000
Equity
Equity shares (GH¢1) 160,000
Retained earnings (31,857)
Total Equity 128,143
Non-current liabilities
8% loan notes 64,000
5% loan notes 56,000
Total Non-Current Liabilities 120,000
Current liabilities
Trade payables 89,798
Interest payable 10,240
Overdraft 29,371
Total Current Liabilities 129,409
Total Equity & Liabilities 377,552

Required:

i) Prepare the capital reduction account for Mensimah LTD. 
ii) Prepare the statement of Financial Position of Mensimah LTD immediately after the reconstruction.
iii) Determine the position of each stakeholder group if the reconstruction scheme is not implemented.

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  • 8 Marks

AAA – Nov 2024 – L3 – Q3b – Implications of Inaccurate Other Information on the Audit

Describe the implications if the Chairman’s statement remains inaccurate and its impact on the audit report.

b) Assuming that no changes are made to the Chairman’s statement, describe the implications for the completion of the audit and the auditor’s report.

(Note: detailed knowledge in IFRS S1 is not a requirement to answer this question).

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  • 12 Marks

AAA – Nov 2024 – L3 – Q3a – Auditor’s Responsibilities Relating to Other Information

Explain the auditor’s responsibilities regarding other information in an entity’s annual report and identify issues in the Chairman’s statement.

a) In line with ISA 720: (Revised) The Auditor’s Responsibilities Relating to Other Information, explain the auditor’s responsibilities in relation to the other information presented with the audited financial statements and comment on the matters arising from the extract from the Chairman’s statement.

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