- 20 Marks
CR – Mar 2025 – L3 – Q2 – Income Taxes
Calculate and present the financial accounting treatment for Amugi's tax items per IAS 12, including revaluation and tax losses.
Question
a) Amugi, a public listed company, is a producer of soft drinks. Recently, Amugi has been experiencing financial difficulties attributed to a recession. Extract of Statement of Financial Position and Statement of Profit or Loss for the year ended 30 June 2024 are as shown below:
Statement of Financial Position as at 30 June 2024 (Extract)
| GHC’000 | |
|---|---|
| Property, Plant and Equipment | 214,080 |
| Non-current liabilities | |
| Deferred tax liability | 13,080 |
| Current liabilities | |
| Current tax payable | – |
Statement of Profit or Loss account for the year ended 30 June 2024 (Extract)
| GHC’000 | |
|---|---|
| Gross Profit | 189,000 |
| Distribution costs | (200,520) |
| Loss before tax | (11,520) |
| Income tax expense | – |
| Loss for the year | (11,520) |
The carrying amount of land and buildings included in ‘Property, plant and equipment’ in the draft financial statements above was GH¢144 million. Depreciation for the period of GH¢14.4 million on property, plant and equipment has already been accounted for. The market value of the land and buildings as assessed by professionally qualified valuers was GH¢151.2 million as at 30 June 2024. Gains and losses on property are taxable or tax deductible on sale.
The tax base of all property, plant and equipment at 30 June 2024 was GH¢150.48 million. Losses incurred in the year ended 30 June 2024 that can be recognised for tax purposes (after taking into account disallowable expenses) amounted to GH¢23.04 million. In the industry in which Amugi operates, tax losses can be carried back for three years and then carried forward indefinitely. Amugi made a profit in the previous three years sufficient to absorb the current year tax losses. Amugi pays tax at 25% and the tax losses will be applied at that rate. The rate is not expected to change.
The deferred tax liability in the above extract statement of financial position is the figure at 1 July 2023. There were no temporary differences other than those noted above. Current tax assets and liabilities can be netted in the tax regime.
Required:
Using financial statement extracts, set out the financial accounting treatment of the above items in accordance with IAS 12: Income Taxes.
b) Paakofi is adopting IFRSs for the first time for the year ended 30 September 2024, with one year of comparative information. Information in respect of the years ending 30 September 2023 and 30 September 2022 is as follows:
| 30/9/2023 GHC’000 | 30/9/2022 GHC’000 | |
|---|---|---|
| Property, Plant and Equipment (previous GAAP) | ||
| – depreciated cost | 77,600 | 80,400 |
| – fair value | 92,000 | 88,000 |
| Capitalised staff training costs (at carrying amounts under previous GAAP) | 3,000 | 4,000 |
| Borrowing costs incurred for an asset under construction (cumulative) (expensed under previous GAAP) (asset construction began on 1 October 2021) | 360 | 240 |
| Provision for court case – previous GAAP valuation and recognition basis | 1,200 | 480 |
| – IFRS valuation and recognition basis | – | – |
Paakofi wishes to use all exemptions available to the company on transition to IFRSs.
Required:
Calculate the total adjustment required to Paakofi’s opening equity at the date of transition to IFRSs (insofar as the information provided permits).
c) The diagram below relates to Mireku LTD.
Diagram Details (summarized):
- Ayariga PLC holds significant influence over Mireku LTD.
- Ahmed LTD is jointly controlled by Ayariga PLC.
- Alex is a key management personnel of Mireku LTD.
- Adorko is Alex’s domestic partner.
- Twins are children of Alex and Adorko.
- Ayine LTD is Mireku LTD’s main customer (55% of revenue).
- Dennis, Adorko’s former spouse, pays monthly upkeep allowance to Adorko.
- Jinapor LTD is controlled by Dennis.
Additional Information:
iii) Ayine LTD is Mireku LTD’s main customer, representing approximately 55% of Mireku’s revenue stream.
iv) Dennis pays monthly upkeep allowance to Adorko.
Required:
Justify whether each of the parties in the above diagram is or is not considered a related party of Mireku LTD in accordance with IAS 24: Related Party Disclosures.
d) Identify FOUR indicators of a hyperinflationary economy in accordance with IAS 29: Financial Reporting in Hyperinflationary Economies.
Find Related Questions by Tags, levels, etc.
- Tags: Economic Conditions, Financial Reporting, Hyperinflation, IAS 29, Inflation Indicators
- Level: Level 3
