Question Tag: IFRS

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  • 5 Marks

FR – Nov 2024 – L2 – Q5a – Barriers to Harmonisation of Accounting Standards

Identifying five barriers to the harmonisation of accounting standards across different countries.

Harmonisation of accounting standards is a topical issue and is needed due to the increasing globalisation and competitiveness of governments and services. Harmonisation ensures reliable and high-quality financial reporting. However, not all countries have been able to harmonise their accounting standards in line with the International Financial Reporting Standards.

Required:
State FIVE barriers to the harmonisation of accounting standards faced by these countries.

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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

FR – Nov 2024 – L2 – Q1- Group Financial Statements

Preparation of the consolidated statement of profit or loss and statement of financial position for Yarkpawolo Group, including goodwill calculation and intra-group adjustments.

Yarkpawolo LTD, a company in the healthcare industry, purchased 80% of the ordinary shares of Weah LTD on 1 January 2023. There are three elements to the purchase consideration: an immediate payment of GH¢1,400,000 and two further payments of GH¢100,000 on 31 December 2023 and GH¢120,000 on 31 December 2024 if the return on capital employed (ROCE) exceeds 15% in each of the financial years. All indicators have suggested that the ROCE for the company will be 17% and 16% for the financial years ending 31 December 2023 and 31 December 2024 respectively.

Yarkpawolo uses a discount rate of 10% in any present value calculations. The present value of GH¢ 1 receivable based on 10% are as follows:

Year Present Value
1 0.909
2 0.826

The draft financial statements of both companies as at 31 December 2023 are as follows:

Statement of Profit or Loss for the year ended 31 December 2023

Yarkpawolo (GH¢’000) Weah (GH¢’000)
Sales revenue 14,000
Cost of sales (10,000)
Gross profit 4,000
Operating expenses (2,050)
Profit before tax 1,950
Income tax expense (450)
Profit for the year 1,500
Retained earnings brought forward 3,500
Retained earnings to statement of financial position 5,000

Statement of Financial Position as at 31 December 2023

Yarkpawolo (GH¢’000) Weah (GH¢’000)
Non-current assets:
Property, Plant & Equipment 4,500
Patents 500
Investment in Weah 1,400
Total Non-current assets 6,400
Current assets:
Inventories 5,500
Trade and other receivables 2,000
Cash and cash equivalents 1,200
Total Current assets 8,700
Total Assets 15,100
Equity:
Share capital (GH¢0.20 per ordinary share) 1,500
General reserve 3,000
Retained earnings as at 31 December 2023 5,000
Total Equity 9,500
Non-current liabilities:
Long-term borrowings 1,600
Current liabilities:
Trade and other payables 4,000
Current portion of long-term borrowings –
Total Liabilities 5,600
Total Equity and Liabilities 15,100

Additional Information:

  1. Fair Value Adjustments on PPE:

    • Property: Increase from GH¢200,000 to GH¢250,000 (Depreciation rate 10%)
    • Plant: Increase from GH¢80,000 to GH¢100,000 (Depreciation rate 20%)
    • Equipment: Decrease from GH¢120,000 to GH¢80,000 (Depreciation rate 20%)
    • Weah has not adjusted its PPE values for the fair value assessment.

  2. Intra-Group Trading:

    • Since acquisition, Weah purchased GH¢50,000 worth of goods from Yarkpawolo. Half of these goods remained in inventory at year-end. Yarkpawolo makes a mark-up on cost of 25%.
    • Yarkpawolo also purchased GH¢50,000 of goods from Weah, with one-third remaining in inventory. Weah sells at a margin of 20%.

  3. Intercompany Balances:

    • Yarkpawolo’s trade receivables include GH¢5,000 owed by Weah. The current accounts do not balance due to GH¢2,000 in transit from Weah.

  4. Impairment:

    • A goodwill impairment review identified a loss of GH¢100,000. No adjustment has been made yet.

  5. Non-controlling Interest Valuation:

    • Yarkpawolo values non-controlling interest at fair value at the acquisition date. The share price for Weah was GH¢0.75 per share.

Required:
Prepare for Yarkpawolo LTD:
(a) Consolidated Statement of Profit or Loss for the year ended 31 December 2023
(b) Consolidated Statement of Financial Position as at 31 December 2023

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  • 15 Marks

CR – Nov 2016 – L3 – SC – Q7 – Regulatory Environment for Corporate Reporting

Discuss the merits and challenges of adopting IFRS in Nigeria and identify local standards still applicable post-IFRS adoption.

a. ABC Plc, in accordance with the regulations of the Nigerian Stock Exchange on transition to IFRS, prepared its first IFRS Financial Statement in 2012. The Financial Statement was contained in a voluminous document of 155 pages. Some of the stakeholders found it difficult to understand the essence of the voluminous document.

You are required to prepare a brief report, highlighting the essence and merits of the adoption of IFRS by Nigerian Companies and state some of the challenges that could be encountered. (10 Marks)

b. Statements of Accounting Standards (SAS) in Nigeria have been replaced by International Financial Reporting Standards (IFRS); however, some of these local standards relating to industry-specific rules which are not found in IFRS are expected to be applied by companies in the industries as far as they do not conflict with IFRS.

You are required to examine the above statement and identify those statements of Accounting Standards that are still applicable after the adoption of IFRS. (5 Marks)

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  • 15 Marks

CR – May 2016 – L3 – Q5 – Integrated Reporting

Discuss the purpose of Management Commentary, why it is not mandatory, and the most relevant elements for Umu Amaeshi Plc to focus on in its management commentary.

Umu Amaeshi Plc is a conglomerate that has diverse businesses cutting across some social and environmental sensitive sectors listed on the Nigeria Stock Exchange. In compliance with financial reporting regulatory directives of Nigeria, it has adopted IFRS in preparing its financial statements. The board is aware that this step will enhance the transparency of its reporting and assist in attracting foreign institutional investors who may be desirous of investing in Nigeria. However, in one of the company’s board meetings, the CFO briefed members that given the social and environmental sensitive nature of its operation, the adoption of IFRS may not be good enough to bring that transparency relating to its policies and practices relating to social and environmental disclosures. He makes reference to Para 14 of IAS 1 – Presentation of Financial Statements, which clearly stated that:

“Many entities also present, outside the financial statements, reports and statements such as environmental reports and value-added statements, particularly in industries in which environmental factors are significant and when employees are regarded as an important user group. Reports and statements presented outside financial statements are outside the scope of IFRS.”

The board does not want to engage in social and environmental reporting disclosures since many who do engage in what the business community see as marketing and reports filled with rhetoric. The CFO has therefore suggested the use of Management Commentary.

Required:

a) Briefly explain the purpose of Management Commentary and why it was not made a mandatory requirement for all companies by the IASB. (6 Marks)

b) Identify the three most relevant elements of Management Commentary that Umu Amaeshi Plc should focus on in its management commentary and explain how they will assist the company to achieve the above objectives, given that it does not want to engage in social and environmental disclosure. (9 Marks)

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  • 6 Marks

CR – May 2021 – L3 – Q3b – Emerging Trends in Corporate Reporting

Discuss limitations of IFRS-based financial reporting and how integrated reporting enhances annual report usefulness.

The Chief Executive Officer (CEO) of Agege Plc also informed you that as a member of the Institute of Chartered Accountants of Nigeria (ICAN), he recently attended the Mandatory Continuous Professional Education (MCPE) of the Institute. One of the papers presented was in the area of how to improve the quality of information that companies report at year-end.

Required:

As the financial consultant to Agege Plc., identify and discuss three limitations of financial reporting (prepared in accordance with IFRS) and the extent to which integrated reporting might improve the usefulness of the annual reports. (6 Marks)

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  • 14 Marks

CR – May 2021 – L3 – Q3a – Presentation of Financial Statements (IAS 1)

Analyze Somolu Limited's financial performance and recommend whether Agege Plc should invest; discuss reporting quality improvements.

The Chief Executive Officer (CEO) of Agege Plc. has forwarded the draft financial statements of Somolu Limited through an e-mail to you as the company’s financial consultants.

In the e-mail, the CEO informed you that Agege Plc. is planning to acquire Somolu Limited. Somolu Limited is a private limited company that has recently applied for additional funds which was rejected from its current bankers on the basis that the company has insufficient assets to offer as security.

The draft financial statements of Somolu Limited as at December 31, 2019, are as follows:

Somolu Limited
Statement of profit or loss and other comprehensive income for the year ended December 31, 2019

Somolu Limited
Statement of financial position as at December 31, 2019

Required:

a. Carry out a critical analysis of the financial performance and position of Somolu
Limited together with recommendations as to whether Agege Limited should
consider the investment in Somolu Limited. (14 Marks)

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  • 15 Marks

CR – May 2021 – L3 – Q6 – Regulatory Environment for Corporate Reporting

Discuss the rationale for different regulatory frameworks and analyze sources of corporate financial reporting regulations in Nigeria.

International Financial Reporting Standards (IFRS) are sets of accounting standards, and it is unrealistic to assume that these standards could not replace those based around rules. However, where a rule-based system has been in operation, there is likely to be an expansion of ethical challenges for both accountants and auditors involved with financial statements if a principles-based approach is adopted. Therefore, regulatory authorities need to ensure ethical practices to achieve high-quality financial statements. This is drawing attention to the need for closer or greater monitoring. Apart from this fact, corporate financial reporting regulations have been in operation before the advent of IFRS.

Required:

a. Appraise the rationale behind different regulatory frameworks for corporate financial reporting. (8 Marks)

b. Analyze in detail the various sources of regulations for corporate financial reporting in Nigeria. (7 Marks)

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  • 1 Marks

AAA – Nov 2012 – L3 – AII – Q15 – Regulatory Framework and Professional Standards

Identifies a major deficiency of local standards compared to IFRS in the presentation of non-current assets.

One of the major deficiencies of our Local Standards over IFRS’s presentation of Non-current Assets is that our Local Standards do not recognise ……………. process.

 

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  • 1 Marks

AAA – Nov 2012 – L3 – SA – Q9 – Regulatory Framework and Professional Standards

Identifying an invalid statement about the benefits and use of IFRS.

Which of the statements listed below about IFRS is invalid?

A. Multinational should benefit from a number of cost savings when using IFRS
B. Companies that wish to reach a wider group of investors will find financial statements based on IFRS acceptable in all major markets
C. Using IFRS will make it easier, though more expensive, to have secondary listing in other countries of the world
D. Using the same accounting basis provides greater comparability between companies which will lead to more efficient investment
E. The original standard setter between (1973-2000) was International Accounting Standard Committee (IASC)

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  • 6 Marks

FR – Nov 2019 – L2 – Q2b – Financial Reporting Standards and Their Applications

Calculation of amounts recognized in profit or loss and other comprehensive income related to property revaluation and depreciation.

RoyCo acquired a brand new property (land and buildings) on 1 January 2016 for GH¢40 million (including GH¢15 million for the land). The asset was revalued on 31 December 2017 to GH¢43 million (including GH¢16.6 million for the land). The buildings element was depreciated over a 50-year useful life to a zero residual value. The useful life and residual value did not subsequently need revision. On 31 December 2018, the property was revalued downwards to GH¢35 million (including GH¢14 million for the land) due to a recession.
The company makes a transfer from revaluation surplus to retained earnings in respect of realised profit.

Required:
Calculate the amounts recognised in profit or loss and in other comprehensive income for the years ended 31 December 2017 and 31 December 2018. (6 marks)

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  • 10 Marks

AA – Nov 2021 – L2 – Q4a – Completion Procedures and Reporting

Discusses audit procedures for non-depreciation of buildings and the impact on the audit report if unresolved.

ou are an audit intern in Transparency & Associates, a firm of Chartered Accountants. This year, one of your new clients is Obuse Ltd, a company having net assets of GH¢20,000,000. The audit work has been completed, but there is one outstanding matter you are currently investigating; the directors have decided not to provide depreciation on buildings in the financial statements, although International Financial Reporting Standards suggest that depreciation should be provided. The estimated depreciation is GH¢500,000.

Required:
i) State FOUR (4) additional audit procedures and actions you should take in respect of the above matter.
(6 marks)

ii) What should be the impact on the audit report if the issue remains unresolved at the reporting stage of the audit?

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  • 6 Marks

FR – May 2017 – L2 – Q5c – Corporate Reporting and Compliance

Identify the advantages and disadvantages of international harmonisation of accounting standards for multinational companies.

Generally, there are advantages of global harmonisation of financial reporting standards to countries around the world, including Ghana.

Required:
Identify THREE advantages and THREE disadvantages of international harmonisation of accounting standards to multinational companies operating in Ghana.

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  • 3 Marks

FR – May 2016 – L2 – Q3e – Financial Reporting Standards and Their Applications

Identify three factors in determining functional currency under IAS 21.

The functional currency, according to IAS 21 The Effects of Changes in Foreign Exchange Rates, is the currency of the primary economic environment where the entity operates.

Required:
Identify THREE factors in accordance with IAS 21 that an entity will consider in determining its functional currency.

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  • 5 Marks

FR – May 2016 – L2 – Q3d – Role of the IASB and Standard-Setting Process

Discuss the standard-setting process adopted by the IASB.

As a newly qualified accountant with The Institute of Chartered Accountants (Ghana) (ICAG), you are asked to make a short presentation to the rest of the staff in the accounting and finance department of your employer who are themselves yet to join ICAG as students about the standard-setting process adopted by the International Accounting Standards Board (IASB).

Required:
Discuss the standard-setting process as adopted by the IASB to these junior staff.

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  • 5 Marks

FR – May 2016 – L2 – Q3c – Financial Reporting Standards and Their Applications

Describe the accounting treatment of goodwill for ABC's financial statements, including directors' views on recognizing goodwill.

You are the finance director of ABC Company. ABC is preparing its financial statements for the year ended 31st December 2015. The following item has been brought to your attention:

ABC acquired the entire share capital of XYZ Ltd during the year. The acquisition was achieved through a share exchange. The terms of the exchange were based on the relative values of the two companies obtained by capitalizing the companies’ estimated cash flows. When the fair value of XYZ’s Ltd identifiable net assets was deducted from the value of the company as a whole, its goodwill was calculated at GH¢2.5 million. A similar exercise valued the goodwill of ABC at GH¢4 million. The directors wish to incorporate both goodwill values in the companies’ consolidated financial statements.

Required:
Describe how ABC should treat the item in its financial statements for the year ended 31st December 2015, commenting on the directors’ views where appropriate.

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  • 5 Marks

FR – May 2016 – L2 – Q3b – Financial Reporting Standards and Their Applications

Show the initial accounting treatment of the bond in accordance with IFRS for Naniama Ltd's convertible bonds.

Naniama Ltd issued 3,000 convertible bonds at par. The bonds are redeemable in 4 years’ time at their par value of GH¢100 per bond. The bonds pay interest annually in arrears at an interest rate (based on nominal value) of 5%. Each bond can be converted at the maturity date into 5 GH¢1.00 shares. The prevailing market interest rate for four-year bonds that have no right of conversion is 8%. The present value at 8% of GH¢1 receivable at the end of:

  • Year 1: 0.926
  • Year 2: 0.857
  • Year 3: 0.794
  • Year 4: 0.735

Required:
Show the initial accounting treatment of the bond in accordance with International Financial Reporting Standards (IFRS).

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  • 5 Marks

FR – March 2024 – L2 – Q5b – Conceptual Framework for Financial Reporting

Discuss the reasons for the need of a conceptual framework in the standard-setting process.

Discuss FIVE (5) reasons for the need of a conceptual framework in the standard-setting process.
(5 marks)

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  • 20 Marks

FR – March 2024 – L2 – Q3 – Preparation of Financial Statements

Preparation of the statement of comprehensive income for Skolom Ltd.

The following figures have been extracted from the accounting records of Skolom Ltd on 31 December 2022:

Additional information provided includes notes on Skolom Ltd’s agency arrangements with Keke Ltd, joint venture details, and depreciation policies.

Required:
Prepare for Skolom Ltd in accordance with International Financial Reporting Standards (IFRSs):
a) Statement of Comprehensive Income for the year ended 31 December 2022
b) Statement of Financial Position as at 31 December 2022

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  • 20 Marks

FR – Nov 2016 – L2 – Q3 – Preparation of Financial Statements

Prepare the financial statements of Kwadaso Ltd, including profit or loss, changes in equity, and financial position for the year ended 30 September 2015.

The following is the trial balance of Kwadaso Ltd, a trading company, as at 30 September 2015:

Additional Information:

  1. On 31 March 2015, the company made a bonus issue from retained earnings of one new share for every four shares in issue at GH¢10.00 each. This transaction is yet to be recorded in the books. The company paid ordinary dividends of GH¢2.2 per share on 31 January 2015 and GH¢2.6 per share on 30 June 2015. The dividend payments are included in administrative expenses in the trial balance.
  2. Provision is to be made for a full year’s interest on the Loan notes.
  3. The finance charge relating to the preference shares is equal to the dividend payable.
  4. Non-current assets:
    • Depreciation of Property, Plant, and Equipment is to be provided on the following bases:
      • Plant and equipment – 10% on cost
      • Computer equipment – 25% on cost
      • Motor vehicles – 20% on reducing balance
    • No depreciation has yet been charged on any non-current asset for the year ended 30 September 2015.
    • Kwadaso revalues its buildings at the end of each accounting year. At 30 September 2015, the relevant value to be incorporated into the financial statements is GH¢14,100,000. The building’s remaining life at the beginning of the current year (1 October 2014) was 25 years. Kwadaso does not make an annual transfer from the revaluation reserve to retained earnings in respect of the realisation of the revaluation surplus. Ignore deferred tax on the revaluation surplus.
  5. The available-for-sale investments held at 30 September 2015 had a fair value of GH¢8,400,000. There were no acquisitions or disposals of these investments during the year.
  6. In February 2015, Kwadaso’s internal audit unit discovered a fraud committed by the company’s credit manager who did not return from a foreign business trip. The outcome of the fraud is that GH¢500,000 of the company’s trade receivables have been stolen by the credit manager and are not recoverable. Of this amount, GH¢200,000 relates to the year ended 30 September 2014 and the remainder to the current year. Kwadaso is not insured against this fraud.
  7. Corporate income tax payable estimated on the profit for the year is GH¢3,500,000. An amount of GH¢1,200,000 is to be transferred to the deferred taxation account.

Required:
Prepare the following financial statements of Kwadaso Ltd for publication in accordance with International Financial Reporting Standards (IFRS):

a) Statement of profit or loss and other comprehensive income for the year ended 30 September 2015.

b) Statement of changes in equity for the year ended 30 September 2015.

c) Statement of financial position as at 30 September 2015.

d) Show clearly all relevant workings.

(Note: Accounting policy notes are not required)

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