Question Tag: Financial Statements

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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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  • 5 Marks

AAA – Nov 2024 – L3 – Q2b – Audit Procedures for Long-term Loan in Ecowud Co. LTD

Audit procedures to obtain sufficient appropriate evidence for a long-term loan.

Ecowud Co. LTD (Ecowud) is a sustainable goal-oriented company that develops, manufactures, and sells plywood made from rice husk and plastic waste. The company operates across Ghana and West Africa and has secured a GH¢3.5 million long-term loan as part of its financial restructuring. The loan agreement has bank-imposed financial conditions, including maintaining a minimum total asset level. If these conditions are breached, the loan becomes immediately repayable.

As part of the audit procedures, you are required to obtain sufficient and appropriate audit evidence regarding the GH¢3.5 million long-term loan.

Required:
Describe FIVE audit procedures you would perform to obtain sufficient appropriate evidence in relation to the long-term loan of GH¢3.5 million.

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  • 3 Marks

PSA – Nov 2024 – L2 – Q4c – Events After the Reporting Date

Explanation of events occurring after the reporting date and their impact on financial statements.

Explain THREE limitations of ratio analysis

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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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  • 9 Marks

PSAF – Nov 2024 – L2 – Q1b – Statement of Financial Position for Paja Teaching Hospital

Prepare a Statement of Financial Position for Paja Teaching Hospital as at 31 December 2023 in compliance with IPSAS and government regulations.

Prepare a Statement of Financial Position of Paja Teaching Hospital as at 31 December 2023 in compliance with IPSAS, the PFM Act, and the Chart of Accounts of the Government of Ghana.

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  • 8 Marks

PSAF – Nov 2024 – L2 – Q1a – Financial Statements Preparation

Prepare the Statement of Financial Performance for Paja Teaching Hospital following IPSAS guidelines.

Below is a Trial Balance of Paja Teaching Hospital (PTH) under the Ministry of Health for the year ended 31 December 2023.

Debit (GH¢000) Credit (GH¢000)
Cash and Bank – GoG 3,400
Cash and Bank – IGF 72,200
Cash and Bank – Donor Funds 210,400
Undeposited Cash – IGF 4,000
Petty Cash 100
Investments 2,000
Debtors 661,400
Other Receivables 17,700
Withholding Tax
Trust Funds
Trade Payables
GoG Subsidy – Employee Compensation
GoG Subsidy – Goods & Services
Development Partners Programmes Receipt
Other Non-Operating Income
Medicines & Pharmaceuticals 433,900
Surgical 50,800
Medical 111,400
Investigation 140,900
OPD 238,400
Obstetrics and Gynaecology 135,300
Dental 8,300
Pediatrics 40,300
Ear, Nose & Throat 5,300
Eye Care 7,300
Mortuary 30,000
Ambulance Fees 300
Ophthalmology 3,000
Physiotherapy 3,300
Examination Fees 200
Dialysis 400
Feeding 30,400
Employee Compensation – GoG 3,912,500
Goods & Services – GoG 20,800
Employee Compensation – IGF 148,000
Goods & Services – IGF 978,500
Capital Expenditure – IGF 27,500
Goods & Services – Partners Fund 472,400
Accumulated Fund
Total 6,530,900

Additional Information:

  1. The hospital previously used modified accrual accounting but switched to IPSAS accrual basis in 2023.
  2. The hospital revalued legacy assets as follows:
    • Motor Vehicles: GH¢50,250,000
    • Buildings: GH¢120,540,000
    • Medical Equipment & Other Equipment: GH¢31,500,000
    • Land: GH¢15,000,000
  3. Gavi supported the hospital with GH¢200,000,000 in 2023, but 20% was allocated for Q1 of 2024. The Global Fund committed GH¢250,000,000, but only GH¢200,000,000 was received.
  4. NHIA rejected 10% of the hospital’s total claims of GH¢100,300,000.
  5. Parliament approved a write-off of GH¢20,225,000 for unpaid hospital services.
  6. The capital expenditure consists of:
    • Medical Equipment: GH¢19,236,000
    • Furniture & Fittings: GH¢8,264,000
  7. Depreciation Policy (Straight-Line Basis):
    • Building: 5%
    • Motor Vehicle: 20%
    • Medical Equipment: 10%
    • Furniture & Fitting: 25%
  8. Year-end inventory values:
Inventory Type Cost (GH¢000) Replacement Cost (GH¢000) Net Realisable Value (GH¢000)
Medicines (for resale) 146,800 176,100 132,100
Medical Consumables (For use on clients) 29,400 33,800 30,800
Office Consumables 19,600 29,400 18,600

Required:

In compliance with IPSAS, the PFM Act, and the Government of Ghana Chart of Accounts, prepare:
a) A Statement of Financial Performance for Paja Teaching Hospital for the year ended 31 December 2023.

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  • 10 Marks

PT – Nov 2024 – L2 – Q4a – Chargeable Income Computation

Compute the chargeable income and tax payable for Amasa Architecture and Building LTD for the 2022 and 2023 years of assessment.

Amasa Architecture and Building LTD has been in business for the past seven years. The following information relates to the company’s operations for the years ending 31 December 2022 and 2023.

DETAILS 2022 (GH¢) 2023 (GH¢)
Profit before tax 795,000 2,110,000
Provision for Depreciation 230,000 115,000
Donation to Manhyia Children Home (Approved by Social Welfare Department) 350,000 210,000
Donation towards 2023 Adae Kese Festival 105,000 150,000
Capital allowance agreed with the Ghana Revenue Authority 1,500,000 1,700,000
Withholding tax paid as contained in certificates received 10,000 25,000

Required:
Using the information provided above, compute the chargeable income and tax payable by Amasa Architecture and Building LTD for the years of assessment 2022 and 2023.

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  • 30 Marks

CR – May 2019 – L3 – Q1 – Consolidated Financial Statements (IFRS 10)

Prepare the consolidated statement of financial position for a group with a foreign subsidiary and inter-company transactions as at September 30, 2017.

Oyin Plc. a Nigerian company acquired 960 million equity share capital of Kemy Plc., a foreign subsidiary based in Brazil, on 1 October, 2015 for 1.08 billion Brazilian real (BRL). The functional and presentation currency of Kemy Plc. is the BRL. Since acquisition, Kemy Plc., has operated autonomously of Oyin group.

The statements of financial position of Oyin Plc. and Kemy Plc. as at 30 September, 2017 are as follows:

Additional Information:

  1. It is the policy of Oyin Plc. group to recognize non-controlling interest at acquisition at the proportionate share of the net assets. The retained earnings of Kemy Plc., at the date of acquisition were 390 million BRL.
  2. Kemy Plc. sells goods to Oyin Plc. at cost plus a mark-up of 33 1/3%. At 30 September, 2017, Oyin Plc. held N15 million of the goods. The goods were purchased at an exchange rate of N1 to 5 BRL. On 28 September, 2017, Oyin Plc. sent Kemy Plc., a payment for N15 million to clear the intra-group payables. Kemy received and recorded the cash on 2 October, 2017.
  3. On 1 October, 2016, Kemy Plc. purchased a leasehold building for 375 million BRL, taking out a loan note payable after five years to finance the purchase. The estimated useful life of the building on 1 October, 2016 was 25 years with no estimated residual value. The building is to be depreciated on a straight-line basis. The building was professionally revalued at 450 million BRL on 30 September, 2017 and the directors have included the revalued amount in the statement of financial position.Both companies adopt a policy of revaluation for their properties. There was no difference between the carrying amount and fair value of the property of Oyin Plc. at 30 September, 2017.
  4. Exchange Rates:
Date BRL to N1
1 October, 2015 6.0
30 September, 2015 5.5
30 September, 2017 5.0
Average for the year to 30 September, 2016 5.2

Required:
Prepare the consolidated statement of financial position of Oyin group at 30 September, 2017.

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  • 7 Marks

CR – Nov 2014 – L3 – SB – Q2b – Income Taxes (IAS 12)

Discuss reasons for variances in effective tax rates and differences between tax charges and tax payments.

Mr. Ojoowuro, the director of a grocery store, has noticed that the tax charge for his company is N15million on profits before tax of N105million. This is an effective rate of 14.3%. Another company, Irin Plc, has an income tax charge of N30million on profit before tax of N90million. This is an effective rate of tax of 33.3%, yet both companies state that the rate of income tax applicable to them is 25%. Mr. Ojoowuro has also noticed that in the statements of cash flows, each company has paid the same amount of tax of N24million.

Required:
Advise Mr. Ojoowuro on the possible reasons why the income tax charge in the financial statements as a percentage of the profit before tax may not be the same as the applicable income tax rate and why the tax paid in the statement of cash flows may not be the same as the tax charge in the statement of profit or loss and other comprehensive income. (7 Marks)

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  • 1 Marks

AAA – Nov 2013 – L3 – AII – Q9 – Quality Control in Audit Firms

Identifies the type of review conducted by a partner or manager for compliance with standards.

A review by a partner or manager to ensure that the form and content of the financial statements are in accordance with accounting standards, CAMA CAPC20 LFN 2004 and Securities and Exchange Commission (SEC), where applicable is ………………….. Review.

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  • 1 Marks

AAA – Nov 2013 – L3 – AII – Q6 – Public Sector Audits

Explores the alternate terminology for balance sheets of parastatals.

 The balance sheet of parastatals is also referred to as a statement of………….and…………….

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  • 1 Marks

AAA – Nov 2013 – L3 – A – Q9 – Regulatory Framework and Professional Standards

This question tests understanding of the required components of IFRS-compliant financial statements.

Which of the following is NOT required as part of Financial Statements that are International Financial Reporting Standards (IFRS) compliant?
A. Statement of financial position
B. Statement of cash flows
C. Account receivable
D. Chairman’s statement
E. Non-current assets

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  • 1 Marks

AAA – Nov 2012 – L3 – AII – Q16 – Assurance Engagements

Identifies the linkage of responsible parties in assurance engagements to financial statement examination.

To examine financial statements, in Assurance Engagements, “Responsible Parties” are linked to ………………

 

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  • 1 Marks

AAA – Nov 2012 – L3 – AII – Q4 – Regulatory Framework and Professional Standards

Identifies the regulatory authority with which companies must file audited financial statements.

The audited financial statements of every company must be filed with the ……………………

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  • 10 Marks

CR – Nov 2016 – L3 – Q5 – Ethical Issues in Corporate Reporting

Provide definitions, examples, reasons, and preventive measures for Creative Accounting and Window Dressing.

Manipulation of reporting entities’ books and records has been termed in many quarters as “Creative Accounting” and “Window Dressing.” The Management of Wastage Plc requires clarification of these two concepts.

You are required to write a report to the management of Wastage Plc. Your report should include:

a. Definitions of the TWO concepts. (2 Marks)
b. FIVE examples of each. (5 Marks)
c. THREE possible reasons for Creative Accounting and Window Dressing. (3 Marks)
d. Advise to management on FIVE possible preventive measures of Creative Accounting. (5 Marks)

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  • 1 Marks

AAA – Nov 2012 – L3 – SA – Q14 – Regulatory Framework and Professional Standards

Determining criteria for immaterial information based on ISA 320.

According to ISA 320, the auditor is expected to treat information as IMMATERIAL if:

A. Its omission could influence the economic decision of users based on the financial statement
B. Its misstatement could alter the decision of stakeholders based on the financial statements
C. Its omission is within the audit objective
D. Its misstatement will make an audit objective to be defeated
E. Its omission threatens the going concern of the organisation

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  • 1 Marks

AAA – Nov 2012 – L3 – SA – Q4 – Regulatory Framework and Professional Standards

Identifying non-deficiencies of historical cost accounting in inflation periods.

The deficiencies of historical cost accounting during inflation EXCLUDE which of the following?
A. The Net Book Value of Fixed Assets is often substantially below their current value
B. The statement of financial position figure of stock reflects prices ruling at the date of purchase or manufacture rather than those current at the year end
C. Charges made in arriving at the profit do not reflect the current value of assets, which result in overstated profit in real terms
D. If the historical cost accounting profit were distributed in full, the level of operations would have to be curtailed
E. The understatement of profit and the overstatement of assets prevent meaningful calculations of profitability

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