Question Tag: Impairment

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  • 20 Marks

FRPA – APRIL 2024 – L3 – Q1B – AFEN Ltd Mine Accounting Treatment

Explain the accounting treatment for the license, development costs, reclamation provision, and earthquake damage for AFEN Ltd.

AFEN Ltd. obtained a license, free of charge from the government, to dig and operate a gold mine. AFEN Ltd. spent GH$6 million digging and preparing the mine for operation and erecting buildings on the site. The mine commenced operations on 1 September 2022. The license requires that at the end of the mine’s useful life of 20 years, the site must be reclaimed, all buildings and equipment must be removed and the site landscaped. At 31 August 2023, AFEN Ltd. estimated that the cost in 19 years’ time of the removal and landscaping will be GH$5 million and its present value is GH$3 million.

On 31 October 2023, there was a massive earthquake in the area and AFEN Ltd’s mine shaft was badly damaged.It is estimated that the mine will be closed for at least six (6) months and will cost GH$1 million to repair.

You are required to:

Explain the accounting treatment for the license, the development costs, the reclamation provision, and the earthquake damage in the financial statements for the year ended 31 August 2023.

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  • 20 Marks

FR – Mar 2025 – L2 – Q1 – Consolidated Financial Statements

Prepare consolidated financial statements for Aba LTD, including adjustments for acquisition, intra-group sales, government grants, and impairment.

Aba LTD (Aba), a technology company, acquired 60% of the share capital of Boafo LTD (Boafo) on 1 January 2024. There are two elements to the purchase consideration – a share exchange transaction of three shares in Aba for every five shares acquired in Boafo, and a cash consideration of GH¢20.4 million on the date of acquisition. The share price of Aba at the acquisition date was GH¢1.2 per share. Only the cash consideration of GH¢20.4 million has been recorded in the books by Aba. The market price of Boafo’s shares just before the acquisition was GH¢1.015.
The summarised draft Financial Statements of both companies as at 31 December, 2024 are as follows:

Statement of Profit or Loss for the year ended 31 December 2024

Aba (GH¢’000) Boafo (GH¢’000)
Sales revenue 200,500 50,500
Cost of sales (110,000) (24,000)
Gross profit 90,500 26,500
Admin expenses (50,300) (15,700)
Finance cost (1,200) –
Profit before tax 39,000 10,800
Income tax expense (5,450) (2,200)
Profit for the year 33,550 8,600

Statement of Financial Position as at 31 December 2024

Aba (GH¢’000) Boafo (GH¢’000)
Non-current assets:
Property, plant & equipment 40,500 35,000
Investment in Boafo 20,400 –
60,900 35,000
Current assets
Inventories 10,500 12,000
Trade and other receivables 20,000 2,500
Cash and cash equivalents 12,500 550
43,000 15,050
103,900 50,050
Equity
Share capital (GH¢1 per ordinary shares) 50,000 35,000
Retained earnings as at 31 December 2023 10,000 5,000
Retained earnings for year ended 31 December 2024 33,550 8,600
93,550 48,600
Non-current liabilities
Long-term borrowings 5,600 800
Current liabilities
Trade and other payables 4,750 650
10,350 1,450
103,900 50,050

The following information is relevant:
i) The fair values of Boafo’s net assets were equal to their carrying amounts at the date of acquisition with the exception of a plant which was valued at GH¢4 million below its carrying amount. The remaining useful life for this plant is four (4) years and this period has not changed as a result of the acquisition. Depreciation of plant is on a straight-line basis and charged to cost of sales. The fair value of the plant has not been incorporated in the financial statements.
ii) In the post-acquisition period, Aba sold goods to Boafo at a total value of GH¢4.6 million. These goods cost Aba GH¢3 million. During the year, Boafo had sold GH¢2.5 million out of the GH¢4.6 million goods from Aba for GH¢3.2 million.
iii) On the first of July 2024, Aba received a grant from the Government in the form of a building. The value of this building was GH¢5 million with a useful life of 20 years. The Accountant of Aba who is not a Chartered Accountant credited the value of the building to revenue. It has been advised that the recognition of this transaction should be done in line with the provisions of IAS 20: Accounting for Government Grants and Disclosure of Government Assistance. It is the group’s policy to recognise grants relating to assets as deferred income.
iv) Aba’s policy is to value non-controlling interest at fair value at the date of acquisition. For this purpose, Boafo’s share price at that date can be deemed to be representative of the fair value of the shares held by the non-controlling interest.
v) Goodwill was reviewed for impairment at the end of the reporting period and had suffered an impairment loss equivalent to 10% of goodwill at acquisition which is to be treated as an operating expense.

Required:
Prepare for Aba LTD a Consolidated Statement of Profit or Loss for the year ended 31 December 2024 and a Consolidated Statement of Financial Position as at 31 December 2024.

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  • 20 Marks

CR – Mar 2025 – L3 – Q1 – Consolidated Cash Flows

Prepare Pato Aluworks Group's consolidated cash flow statement for 2024, including reconciliation note, using indirect method.

Pato Aluworks Group (Pato) is an aluminium processing and casting entity that supplies high quality aluminum coils to both local and foreign markets. Pato has 3 subsidiaries namely Asanka, Jaritan and Topoya and one associate Dosi all of which it acquired several years ago. The Group’s Consolidated Statement of Profit or Loss Account for the year ended 31 December 2024 and Consolidated Statement of Financial Position as that date are set out below:

Consolidated Statement of Profit or Loss for the year ended 31 December (extract)

2024 2023
GH¢ GH¢
Profit from operations 651,150 640,496
Impairment reversal/(loss) 2,500 (1,250)
Finance costs (52,000) (40,825)
Share of profits of associate 127,575 108,439
Profit before tax 729,225 706,860
Income tax expense (145,800) (123,930)
Profit for the year (continuing operations) 583,425 582,930
Profit for the year (discontinued operations) 102,375
Profit for the year 685,800 582,930
Attributable to:
Owners of Pato 571,725 485,966
Non-controlling interest 114,075 96,964
685,800 582,930

Consolidated Statement of Financial Position as at 31 December

ASSETS 2024 2023
Non-current assets GH¢ GH¢
Property, plant and equipment 2,283,350 2,212,875
Intangible assets 22,000 –
Investment in associate 418,275 404,550
2,723,625 2,617,425
Current assets
Trade and other receivables 170,325 200,025
Cash and cash equivalents 46,125 32,625
216,450 232,650
Total assets 2,940,075 2,850,075
EQUITY AND LIABILITIES
Equity
Ordinary share capital (GH¢0.50 shares) 495,000 315,000
Share deals account 112,500 45,000
Retained earnings 1,491,750 1,518,975
Attributable to the equity holders of Pato 2,099,250 1,878,975
Non-controlling interest 315,450 339,300
2,414,700 2,218,275
Non-current liabilities
Lease Liabilities 239,100 300,000
Employee benefit obligations 42,150 37,500
Current liabilities
Trade and other payables 90,000 118,800
Due to related parties 1,125 –
Income tax payable 153,000 175,500
244,125 294,300
Total equity and liabilities 2,940,075 2,850,075

Additional information:
i) Pato owns 60% in Jaritan. The goodwill attributable to Pato arising on acquisition was GH¢67,500. The carrying value of Jaritan’s identifiable net assets (excluding goodwill arising on acquisition) in the group consolidation financial statements is GH¢180,000 at 31 December 2024. The recoverable amount of Jaritan is expected to be GH¢230,000 and no impairment loss had been recorded up to 31 December 2023.
ii) Pato sold all of its 75% shareholding in Asanka for cash during the year end December 31, 2024. As at December 31, 2023, all of the goodwill acquired in the business combination with Asanka had been written off. The profit from discontinued operations in the consolidated income statement above relates wholly to the sale of the shares in Asanka and can be analysed as follows:

GH¢
Profit before tax 93,150
Income tax expense (14,400)
Profit on disposal 23,625
102,375

The net assets of Asanka at the date of disposal were as follows:

GH¢
Property, plant and equipment 421,875
Trade and other receivables 31,275
Cash and cash equivalents 3,375
Trade and other payables (19,012)
437,512

iii) On 31 March 2024 Pato issued 100,000 ordinary shares for cash. This was followed by a bonus issue on 30 September 2024, utilising the share deals account. The consolidated statement of changes in equity for the year shows that all group companies paid ordinary dividends during the year.
iv) Depreciation of GH¢395,100 was recognised during the year ended 31 December 2024. In addition to the property, plant and equipment disposed of through the sale of Asanka, plant with a carrying amount of GH¢126,000 was sold for cash of GH¢135,000.
v) Trade and other payables include GH¢11,250 (2023: GH¢6,750) of unpaid interest due on the bank loan.

Required:
Prepare a consolidated statement of cash flows for Pato for the year ended 31 December 2024, including a note reconciling profit before tax to cash generated from operations, using the indirect method. (A note showing the effects of the disposal of Asanka is not required).

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  • 30 Marks

CR – May 2015 – L3 – Q1 – Consolidated Financial Statements (IFRS 10)

Prepare a consolidated statement of financial position for Barewa Group as of 31 May 2013, considering acquisitions and adjustments.

Barewa Plc has two subsidiary companies and one associate. Since the adoption of International Financial Reporting Standards (IFRS) by companies listed on the Nigeria Stock Exchange, Barewa has been preparing its consolidated financial statements in accordance with the provisions of International Financial Reporting Standards (IFRSs).

The draft Statements of Financial Position of Barewa and its two subsidiaries as at 31 May, 2013 are as follows:

Assets Barewa (N’m) Megida (N’m) Mindara (N’m)
Non-current assets
Plant 2,650 2,300 1,610
Investments – Megida 3,000
Investments – Mindara 1,280
Associate (Calamari) 200
Available for sale 510 60 50
Total Non-current assets 7,640 2,360 1,660
Current assets
Inventory 1,350 550 730
Trade receivables 910 450 320
Cash and cash equivalent 1,020 1,000 80
Total Current assets 3,280 2,000 1,130
Total Assets 10,920 4,360 2,790
Equity and Liabilities
Share capital 5,200 2,200 1,000
Retained earnings 2,400 1,500 800
Other components of equity 120 40 70
Total equity 7,720 3,740 1,870
Non-current liabilities
Long-term loans 1,200 150 50
Deferred tax 250 90 30
Total non-current liabilities 1,450 240 80
Current liabilities
Trade payables 1,150 300 600
Current tax payables 600 80 240
Total current liabilities 1,750 380 840
Total Equity and Liabilities 10,920 4,360 2,790

The following information is relevant to the preparation of the group financial statements:

  • Acquisition of Megida Plc
    • Date of Acquisition: 1 June 2012
    • Barewa acquired 80% of the equity interest in Megida Plc.
    • At the date of acquisition, Megida’s retained earnings were N1.36 billion, and other components of equity amounted to N40 million.
    • There had been no new issuance of share capital by Megida since the acquisition date.
    • The consideration for the acquisition was N3 billion in cash.
    • The fair value of Megida’s identifiable net assets at acquisition was N4 billion, with the excess attributed to an increase in the value of non-depreciable land.
    • An independent valuation determined that the fair value of the non-controlling interest (NCI) in Megida on 1 June 2012 was N860 million.
    • Barewa’s policy is to measure NCI based on their proportionate share in the identifiable net assets of the subsidiary, not at fair value (full goodwill method).
  • Acquisition of Mindara Plc
    • Date of Acquisition: 1 June 2012
    • Barewa acquired 70% of the ordinary shares of Mindara Plc.
    • The consideration for the acquisition included:
      • An upfront payment of N1.28 billion.
      • A contingent consideration requiring Barewa to pay the former shareholders 30% of Mindara’s profits on 31 May 2014 for each of the financial years ending 31 May 2013 and 31 May 2014. This arrangement was valued at N120 million as of 1 June 2012 and remains unchanged. It has not been included in the financial statements.
    • The fair value of the identifiable net assets at acquisition was N1.76 billion. This included retained earnings of N550 million and other components of equity of N70 million.
    • There had been no new issuance of share capital by Mindara since the acquisition date.
    • The excess fair value of the net assets was due to an increase in property, plant, and equipment (PPE), which is depreciated on a straight-line basis over seven years.
    • The fair value of the non-controlling interest (NCI) in Mindara was N530 million on the acquisition date.
  • Investment in Calamari Plc
    • On 1 June 2011, Barewa acquired a 10% interest in Calamari Plc for N80 million. This was classified as an available-for-sale investment.
    • As of 31 May 2012, the value of this investment had increased to N90 million.
    • On 1 June 2012, Barewa acquired an additional 15% interest in Calamari for N110 million, achieving significant influence.
    • Calamari recorded profits after dividends of N60 million and N100 million for the financial years ending 31 May 2012 and 31 May 2013, respectively.
  • Equity Instrument Purchase
    • On 1 June 2012, Barewa purchased an equity instrument valued at 100 million pesos, classified as available-for-sale.
    • Relevant exchange rates:
      • 31 May 2012: N5.1 to 1 peso.
      • 31 May 2013: N5.0 to 1 peso.
    • The fair value of the instrument as of 31 May 2013 was 90 million pesos, reflecting an impairment that Barewa has not recorded.
  • Loan to a Director
    • A loan of N10 million to a director has been included in cash and cash equivalents.
    • The loan is repayable on demand with no specific repayment date.
    • The directors believe that this treatment complies with International Financial Reporting Standards (IFRS), as no IFRS explicitly prohibits showing the loan as cash.
  • Goodwill Impairment
    • There is no impairment of goodwill arising from the acquisitions.

Required

Prepare a consolidated statement of financial position for Barewa Group as of 31 May 2013.

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  • 8 Marks

CR – May 2017 – L3 – Q3b – Impairment of Assets (IAS 36)

Identify indicators of impairment and discuss how to test for impairment of assets with dependent cash flows.

IAS 36 stipulates how a company should test for impairment of assets. A multinational oil marketing company operating in Nigeria is not sure how to test for impairment of its assets, especially those that do not generate cash flows that are independent of other assets.

Required:

(i) Identify TWO external and TWO internal indicators that an asset of the multinational oil company may have been impaired. (2 Marks)

(ii) Briefly discuss how the multinational oil company should test for impairment of assets that do not generate independent cash flows. (6 Marks)

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  • 7 Marks

CR – May 2017 – L3 – Q3a – Impairment of Assets (IAS 36)

Discuss why FRCN should focus on impairment of non-financial and deferred tax assets during economic recession.

The economic environment in the country has been very harsh, and it is now common knowledge that the economy is in a recession. This downturn impacts the income-generating capacity of companies, particularly in industries experiencing a significant decline in fortunes. Consequently, financial reporting regulators must closely examine evidence of impairment of assets in financial statements submitted by such companies.

Required:
Discuss briefly the reasons why the Financial Reporting Council of Nigeria (FRCN) should focus on the impairment of non-financial assets and deferred tax assets of listed companies in Nigeria during this period of slow economic growth. Also, outline the key areas entities should focus on when accounting for these items.

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  • 8 Marks

CR – May 2023 – L3 – Q5a – Emerging Trends in Corporate Reporting

Discuss four financial reporting issues companies should consider due to COVID-19.

Most regulatory authorities in Nigeria, such as the Securities and Exchange Commission (SEC), Central Bank of Nigeria (CBN), and Federal Inland and State Internal Revenue Services, issued conditional relief for meeting reporting deadlines for filing annual and other returns required by law during the pandemic.

However, companies still need to monitor further reporting updates and evaluate the current and potential effects that COVID-19 could have on their financial reporting.

Required:

Discuss FOUR financial reporting issues that should be considered by companies as a consequence of COVID-19. (8 Marks)

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  • 25 Marks

CR – Nov 2016 – L3 – Q1a – Consolidated Financial Statements (IFRS 10)

Prepare consolidated financial statements for Bata Plc and subsidiaries including goodwill, NCI, and intra-group adjustments.

Bata Plc, which operates in the manufacturing sector, has been surviving the challenges operating in the Nigerian economic environment. The draft Statements of Financial Position of Bata Plc and its subsidiaries as at October 31, 2016 are as follows:

The following information is relevant to the preparation of the group financial statements:

  1. Acquisition Dates: Bata Plc acquired 60% of the share capital of Jewe Plc on November 1, 2012, and 10% of Gaba Plc on November 1, 2013, at costs of N852 million and N258 million, respectively. Jewe Plc acquired 70% of Gaba’s share capital on November 1, 2013.
  2. Retained Earnings at Acquisition:

  • Fair Values at Acquisition: The fair values of Jewe and Gaba’s net assets were N930 million and N660 million, respectively, including non-depreciable land. The fair value of non-controlling interest (NCI) was N390 million for Jewe and N330 million for Gaba. Bata Plc adopts the full goodwill method under IFRS 3.
  • Impairment: Impairment testing shows Jewe suffered a loss of N60 million, but Gaba had no impairment.
  • Intra-group Sales: Bata sold inventory to Jewe and Gaba for N480 million and N360 million, respectively, invoicing with a 25% markup on cost. At year-end, half of Jewe’s inventory remains unsold, while Gaba sold its entire stock to third parties.
  • Deep Discount Bond: Bata purchased a bond for N500 million with a redemption value of N740.75 million in three years. The bond’s effective interest rate is estimated at 14%. The Accountant has not yet recorded amortized cost for this financial asset.

Required: Prepare a Consolidated Statement of Financial Position for Bata Plc and its subsidiaries as at October 31, 2016.

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  • 30 Marks

CR – Nov 2021 – L3 – Q1 – Consolidated Financial Statements (IFRS 10)

Prepare consolidated financial position of Makoko Group for the year ended Dec 31, 2021, and discuss accounting implications of significant influence.

Makoko Intercontinental Holdings Limited is a global merchant of cash crops. A policy of strategic acquisitions over the years has placed the company in a position to source for export products competitively. The lockdown arising from the recent pandemic posed a significant challenge for the export of their products throughout the year 2020. At a board meeting to review the performance of the company for that year and discuss the impact of the pandemic, the Managing Director noted the significant drop in the general performance indices. In order to get a greater market presence and higher demand locally, the board decided to acquire the following investments on January 1, 2021:

  • 60% of the equity share of Ojodu Limited;
  • 50% of 10% loan notes of Ojodu Ltd at par;
  • 40% stake in the ordinary shares of Egbeda Confectioneries Limited.

In the opinion of the board, both Ojodu Limited and Egbeda Confectioneries Limited are the biggest local customers of Makoko Intercontinental Holdings Limited and a control through shareholding would give the investing company greater stake in the operational decisions of the investee companies. Importantly, it would also boost revenue by allowing unrestricted access to local markets. It is believed that this will forestall any adverse impact of further lockdowns that may hinder export sales in the future.

The draft financial statements of the companies for the year are as follows:

Statements of financial position as at December 31, 2021

Additional Information:

  1. Makoko Limited paid N90 million for the acquisition of Ojodu Limited when the retained earnings of Ojodu Limited were N13 million.
  2. The fair value of Ojodu’s freehold property was N6.5 million higher than the carrying amount as at the date of acquisition. This valuation has not been reflected in the books of Ojodu Limited.
  3. Makoko Limited paid N41 million for the shareholding in Egbeda Limited when the retained earnings of Egbeda Limited were N12 million.
  4. An impairment test as at December 31, 2021 showed that goodwill was impaired by N3.5 million and the investment in Egbeda Limited was impaired by N0.8 million.
  5. During the year, Makoko Limited sold products to Egbeda Limited at a price of N8 million. These goods had cost Makoko Limited N5 million. Half of the goods were still in the inventory of Egbeda Limited as at December 31, 2021.
  6. The companies issued share capital has not changed since the date of acquisition.
  7. No dividends were paid during the year.
  8. Non-controlling interests in subsidiaries are to be measured at the appropriate proportion of the subsidiary’s identifiable net assets.

Required: a. Prepare the consolidated statement of financial position for the Makoko Group for the year ended December 31, 2021. (20 Marks)

b. The Directors of Makoko Intercontinental Holdings Limited are concerned about getting significant influence, if not absolute control, of all entities they intend to buy into. The five-year strategic plan of the company (2020 – 2024) focuses on having control of the cash crops segment of the agribusiness sector of the economy. This is in order to make them ready to roll out the next developmental phase of the business, which is to migrate from exporting raw products to finished products for industrial and household use.

Towards this goal, the board requires the Group Accountant to make a presentation on the accounting implications of gaining significant influence in another entity.

Required: Discuss the issues involved in the requirements of the Board as specified above. (5 Marks)

c. A friend to the Chief Accountant of Makoko Intercontinental Holdings Limited, who is a consultant to Ojodu Limited and Egbeda Confectionaries Limited, is requesting for information on the new acquisitions from his friend, the Chief Accountant.

Required: Identify the ethical issues involved in the above scenarios and their implications. (5 Marks)

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  • 15 Marks

CR – Nov 2018 – L3 – SC – Q5 – Impairment of Assets (IAS 36)

Evaluate if a manufacturing machine is impaired due to market changes and calculate the impairment charge.

Atigen Manufacturing Limited bought a new machine for its factory in Otta, Ogun State, for N140 million on January 1, 2015. At acquisition, the machine was estimated to have a life span of 7 years with no scrap value. The carrying amount at December 31, 2017, is N80 million.

The machine generates largely independent cash flows and is therefore tested for impairment as a standalone asset. Due to a downturn in the economy and the reduction and cancellation of major customer orders, the directors concluded that the machine might be impaired.

You are provided with the following information:

  • Fair value of the machine: N60 million
  • Selling costs: 5% of the fair value
  • Value-in-use based on discounted future cash flows: N63.5 million

Required:

a. Determine if the machine is impaired based on the above information. (6 Marks)

b. Calculate (if any) the impairment charge that the directors should recognize in profit or loss. (9 Marks)

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  • 20 Marks

FRPA – APRIL 2024 – L3 – Q1B – AFEN Ltd Mine Accounting Treatment

Explain the accounting treatment for the license, development costs, reclamation provision, and earthquake damage for AFEN Ltd.

AFEN Ltd. obtained a license, free of charge from the government, to dig and operate a gold mine. AFEN Ltd. spent GH$6 million digging and preparing the mine for operation and erecting buildings on the site. The mine commenced operations on 1 September 2022. The license requires that at the end of the mine’s useful life of 20 years, the site must be reclaimed, all buildings and equipment must be removed and the site landscaped. At 31 August 2023, AFEN Ltd. estimated that the cost in 19 years’ time of the removal and landscaping will be GH$5 million and its present value is GH$3 million.

On 31 October 2023, there was a massive earthquake in the area and AFEN Ltd’s mine shaft was badly damaged.It is estimated that the mine will be closed for at least six (6) months and will cost GH$1 million to repair.

You are required to:

Explain the accounting treatment for the license, the development costs, the reclamation provision, and the earthquake damage in the financial statements for the year ended 31 August 2023.

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  • 20 Marks

FR – Mar 2025 – L2 – Q1 – Consolidated Financial Statements

Prepare consolidated financial statements for Aba LTD, including adjustments for acquisition, intra-group sales, government grants, and impairment.

Aba LTD (Aba), a technology company, acquired 60% of the share capital of Boafo LTD (Boafo) on 1 January 2024. There are two elements to the purchase consideration – a share exchange transaction of three shares in Aba for every five shares acquired in Boafo, and a cash consideration of GH¢20.4 million on the date of acquisition. The share price of Aba at the acquisition date was GH¢1.2 per share. Only the cash consideration of GH¢20.4 million has been recorded in the books by Aba. The market price of Boafo’s shares just before the acquisition was GH¢1.015.
The summarised draft Financial Statements of both companies as at 31 December, 2024 are as follows:

Statement of Profit or Loss for the year ended 31 December 2024

Aba (GH¢’000) Boafo (GH¢’000)
Sales revenue 200,500 50,500
Cost of sales (110,000) (24,000)
Gross profit 90,500 26,500
Admin expenses (50,300) (15,700)
Finance cost (1,200) –
Profit before tax 39,000 10,800
Income tax expense (5,450) (2,200)
Profit for the year 33,550 8,600

Statement of Financial Position as at 31 December 2024

Aba (GH¢’000) Boafo (GH¢’000)
Non-current assets:
Property, plant & equipment 40,500 35,000
Investment in Boafo 20,400 –
60,900 35,000
Current assets
Inventories 10,500 12,000
Trade and other receivables 20,000 2,500
Cash and cash equivalents 12,500 550
43,000 15,050
103,900 50,050
Equity
Share capital (GH¢1 per ordinary shares) 50,000 35,000
Retained earnings as at 31 December 2023 10,000 5,000
Retained earnings for year ended 31 December 2024 33,550 8,600
93,550 48,600
Non-current liabilities
Long-term borrowings 5,600 800
Current liabilities
Trade and other payables 4,750 650
10,350 1,450
103,900 50,050

The following information is relevant:
i) The fair values of Boafo’s net assets were equal to their carrying amounts at the date of acquisition with the exception of a plant which was valued at GH¢4 million below its carrying amount. The remaining useful life for this plant is four (4) years and this period has not changed as a result of the acquisition. Depreciation of plant is on a straight-line basis and charged to cost of sales. The fair value of the plant has not been incorporated in the financial statements.
ii) In the post-acquisition period, Aba sold goods to Boafo at a total value of GH¢4.6 million. These goods cost Aba GH¢3 million. During the year, Boafo had sold GH¢2.5 million out of the GH¢4.6 million goods from Aba for GH¢3.2 million.
iii) On the first of July 2024, Aba received a grant from the Government in the form of a building. The value of this building was GH¢5 million with a useful life of 20 years. The Accountant of Aba who is not a Chartered Accountant credited the value of the building to revenue. It has been advised that the recognition of this transaction should be done in line with the provisions of IAS 20: Accounting for Government Grants and Disclosure of Government Assistance. It is the group’s policy to recognise grants relating to assets as deferred income.
iv) Aba’s policy is to value non-controlling interest at fair value at the date of acquisition. For this purpose, Boafo’s share price at that date can be deemed to be representative of the fair value of the shares held by the non-controlling interest.
v) Goodwill was reviewed for impairment at the end of the reporting period and had suffered an impairment loss equivalent to 10% of goodwill at acquisition which is to be treated as an operating expense.

Required:
Prepare for Aba LTD a Consolidated Statement of Profit or Loss for the year ended 31 December 2024 and a Consolidated Statement of Financial Position as at 31 December 2024.

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  • 20 Marks

CR – Mar 2025 – L3 – Q1 – Consolidated Cash Flows

Prepare Pato Aluworks Group's consolidated cash flow statement for 2024, including reconciliation note, using indirect method.

Pato Aluworks Group (Pato) is an aluminium processing and casting entity that supplies high quality aluminum coils to both local and foreign markets. Pato has 3 subsidiaries namely Asanka, Jaritan and Topoya and one associate Dosi all of which it acquired several years ago. The Group’s Consolidated Statement of Profit or Loss Account for the year ended 31 December 2024 and Consolidated Statement of Financial Position as that date are set out below:

Consolidated Statement of Profit or Loss for the year ended 31 December (extract)

2024 2023
GH¢ GH¢
Profit from operations 651,150 640,496
Impairment reversal/(loss) 2,500 (1,250)
Finance costs (52,000) (40,825)
Share of profits of associate 127,575 108,439
Profit before tax 729,225 706,860
Income tax expense (145,800) (123,930)
Profit for the year (continuing operations) 583,425 582,930
Profit for the year (discontinued operations) 102,375
Profit for the year 685,800 582,930
Attributable to:
Owners of Pato 571,725 485,966
Non-controlling interest 114,075 96,964
685,800 582,930

Consolidated Statement of Financial Position as at 31 December

ASSETS 2024 2023
Non-current assets GH¢ GH¢
Property, plant and equipment 2,283,350 2,212,875
Intangible assets 22,000 –
Investment in associate 418,275 404,550
2,723,625 2,617,425
Current assets
Trade and other receivables 170,325 200,025
Cash and cash equivalents 46,125 32,625
216,450 232,650
Total assets 2,940,075 2,850,075
EQUITY AND LIABILITIES
Equity
Ordinary share capital (GH¢0.50 shares) 495,000 315,000
Share deals account 112,500 45,000
Retained earnings 1,491,750 1,518,975
Attributable to the equity holders of Pato 2,099,250 1,878,975
Non-controlling interest 315,450 339,300
2,414,700 2,218,275
Non-current liabilities
Lease Liabilities 239,100 300,000
Employee benefit obligations 42,150 37,500
Current liabilities
Trade and other payables 90,000 118,800
Due to related parties 1,125 –
Income tax payable 153,000 175,500
244,125 294,300
Total equity and liabilities 2,940,075 2,850,075

Additional information:
i) Pato owns 60% in Jaritan. The goodwill attributable to Pato arising on acquisition was GH¢67,500. The carrying value of Jaritan’s identifiable net assets (excluding goodwill arising on acquisition) in the group consolidation financial statements is GH¢180,000 at 31 December 2024. The recoverable amount of Jaritan is expected to be GH¢230,000 and no impairment loss had been recorded up to 31 December 2023.
ii) Pato sold all of its 75% shareholding in Asanka for cash during the year end December 31, 2024. As at December 31, 2023, all of the goodwill acquired in the business combination with Asanka had been written off. The profit from discontinued operations in the consolidated income statement above relates wholly to the sale of the shares in Asanka and can be analysed as follows:

GH¢
Profit before tax 93,150
Income tax expense (14,400)
Profit on disposal 23,625
102,375

The net assets of Asanka at the date of disposal were as follows:

GH¢
Property, plant and equipment 421,875
Trade and other receivables 31,275
Cash and cash equivalents 3,375
Trade and other payables (19,012)
437,512

iii) On 31 March 2024 Pato issued 100,000 ordinary shares for cash. This was followed by a bonus issue on 30 September 2024, utilising the share deals account. The consolidated statement of changes in equity for the year shows that all group companies paid ordinary dividends during the year.
iv) Depreciation of GH¢395,100 was recognised during the year ended 31 December 2024. In addition to the property, plant and equipment disposed of through the sale of Asanka, plant with a carrying amount of GH¢126,000 was sold for cash of GH¢135,000.
v) Trade and other payables include GH¢11,250 (2023: GH¢6,750) of unpaid interest due on the bank loan.

Required:
Prepare a consolidated statement of cash flows for Pato for the year ended 31 December 2024, including a note reconciling profit before tax to cash generated from operations, using the indirect method. (A note showing the effects of the disposal of Asanka is not required).

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  • 30 Marks

CR – May 2015 – L3 – Q1 – Consolidated Financial Statements (IFRS 10)

Prepare a consolidated statement of financial position for Barewa Group as of 31 May 2013, considering acquisitions and adjustments.

Barewa Plc has two subsidiary companies and one associate. Since the adoption of International Financial Reporting Standards (IFRS) by companies listed on the Nigeria Stock Exchange, Barewa has been preparing its consolidated financial statements in accordance with the provisions of International Financial Reporting Standards (IFRSs).

The draft Statements of Financial Position of Barewa and its two subsidiaries as at 31 May, 2013 are as follows:

Assets Barewa (N’m) Megida (N’m) Mindara (N’m)
Non-current assets
Plant 2,650 2,300 1,610
Investments – Megida 3,000
Investments – Mindara 1,280
Associate (Calamari) 200
Available for sale 510 60 50
Total Non-current assets 7,640 2,360 1,660
Current assets
Inventory 1,350 550 730
Trade receivables 910 450 320
Cash and cash equivalent 1,020 1,000 80
Total Current assets 3,280 2,000 1,130
Total Assets 10,920 4,360 2,790
Equity and Liabilities
Share capital 5,200 2,200 1,000
Retained earnings 2,400 1,500 800
Other components of equity 120 40 70
Total equity 7,720 3,740 1,870
Non-current liabilities
Long-term loans 1,200 150 50
Deferred tax 250 90 30
Total non-current liabilities 1,450 240 80
Current liabilities
Trade payables 1,150 300 600
Current tax payables 600 80 240
Total current liabilities 1,750 380 840
Total Equity and Liabilities 10,920 4,360 2,790

The following information is relevant to the preparation of the group financial statements:

  • Acquisition of Megida Plc
    • Date of Acquisition: 1 June 2012
    • Barewa acquired 80% of the equity interest in Megida Plc.
    • At the date of acquisition, Megida’s retained earnings were N1.36 billion, and other components of equity amounted to N40 million.
    • There had been no new issuance of share capital by Megida since the acquisition date.
    • The consideration for the acquisition was N3 billion in cash.
    • The fair value of Megida’s identifiable net assets at acquisition was N4 billion, with the excess attributed to an increase in the value of non-depreciable land.
    • An independent valuation determined that the fair value of the non-controlling interest (NCI) in Megida on 1 June 2012 was N860 million.
    • Barewa’s policy is to measure NCI based on their proportionate share in the identifiable net assets of the subsidiary, not at fair value (full goodwill method).
  • Acquisition of Mindara Plc
    • Date of Acquisition: 1 June 2012
    • Barewa acquired 70% of the ordinary shares of Mindara Plc.
    • The consideration for the acquisition included:
      • An upfront payment of N1.28 billion.
      • A contingent consideration requiring Barewa to pay the former shareholders 30% of Mindara’s profits on 31 May 2014 for each of the financial years ending 31 May 2013 and 31 May 2014. This arrangement was valued at N120 million as of 1 June 2012 and remains unchanged. It has not been included in the financial statements.
    • The fair value of the identifiable net assets at acquisition was N1.76 billion. This included retained earnings of N550 million and other components of equity of N70 million.
    • There had been no new issuance of share capital by Mindara since the acquisition date.
    • The excess fair value of the net assets was due to an increase in property, plant, and equipment (PPE), which is depreciated on a straight-line basis over seven years.
    • The fair value of the non-controlling interest (NCI) in Mindara was N530 million on the acquisition date.
  • Investment in Calamari Plc
    • On 1 June 2011, Barewa acquired a 10% interest in Calamari Plc for N80 million. This was classified as an available-for-sale investment.
    • As of 31 May 2012, the value of this investment had increased to N90 million.
    • On 1 June 2012, Barewa acquired an additional 15% interest in Calamari for N110 million, achieving significant influence.
    • Calamari recorded profits after dividends of N60 million and N100 million for the financial years ending 31 May 2012 and 31 May 2013, respectively.
  • Equity Instrument Purchase
    • On 1 June 2012, Barewa purchased an equity instrument valued at 100 million pesos, classified as available-for-sale.
    • Relevant exchange rates:
      • 31 May 2012: N5.1 to 1 peso.
      • 31 May 2013: N5.0 to 1 peso.
    • The fair value of the instrument as of 31 May 2013 was 90 million pesos, reflecting an impairment that Barewa has not recorded.
  • Loan to a Director
    • A loan of N10 million to a director has been included in cash and cash equivalents.
    • The loan is repayable on demand with no specific repayment date.
    • The directors believe that this treatment complies with International Financial Reporting Standards (IFRS), as no IFRS explicitly prohibits showing the loan as cash.
  • Goodwill Impairment
    • There is no impairment of goodwill arising from the acquisitions.

Required

Prepare a consolidated statement of financial position for Barewa Group as of 31 May 2013.

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  • 8 Marks

CR – May 2017 – L3 – Q3b – Impairment of Assets (IAS 36)

Identify indicators of impairment and discuss how to test for impairment of assets with dependent cash flows.

IAS 36 stipulates how a company should test for impairment of assets. A multinational oil marketing company operating in Nigeria is not sure how to test for impairment of its assets, especially those that do not generate cash flows that are independent of other assets.

Required:

(i) Identify TWO external and TWO internal indicators that an asset of the multinational oil company may have been impaired. (2 Marks)

(ii) Briefly discuss how the multinational oil company should test for impairment of assets that do not generate independent cash flows. (6 Marks)

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  • 7 Marks

CR – May 2017 – L3 – Q3a – Impairment of Assets (IAS 36)

Discuss why FRCN should focus on impairment of non-financial and deferred tax assets during economic recession.

The economic environment in the country has been very harsh, and it is now common knowledge that the economy is in a recession. This downturn impacts the income-generating capacity of companies, particularly in industries experiencing a significant decline in fortunes. Consequently, financial reporting regulators must closely examine evidence of impairment of assets in financial statements submitted by such companies.

Required:
Discuss briefly the reasons why the Financial Reporting Council of Nigeria (FRCN) should focus on the impairment of non-financial assets and deferred tax assets of listed companies in Nigeria during this period of slow economic growth. Also, outline the key areas entities should focus on when accounting for these items.

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  • 8 Marks

CR – May 2023 – L3 – Q5a – Emerging Trends in Corporate Reporting

Discuss four financial reporting issues companies should consider due to COVID-19.

Most regulatory authorities in Nigeria, such as the Securities and Exchange Commission (SEC), Central Bank of Nigeria (CBN), and Federal Inland and State Internal Revenue Services, issued conditional relief for meeting reporting deadlines for filing annual and other returns required by law during the pandemic.

However, companies still need to monitor further reporting updates and evaluate the current and potential effects that COVID-19 could have on their financial reporting.

Required:

Discuss FOUR financial reporting issues that should be considered by companies as a consequence of COVID-19. (8 Marks)

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  • 25 Marks

CR – Nov 2016 – L3 – Q1a – Consolidated Financial Statements (IFRS 10)

Prepare consolidated financial statements for Bata Plc and subsidiaries including goodwill, NCI, and intra-group adjustments.

Bata Plc, which operates in the manufacturing sector, has been surviving the challenges operating in the Nigerian economic environment. The draft Statements of Financial Position of Bata Plc and its subsidiaries as at October 31, 2016 are as follows:

The following information is relevant to the preparation of the group financial statements:

  1. Acquisition Dates: Bata Plc acquired 60% of the share capital of Jewe Plc on November 1, 2012, and 10% of Gaba Plc on November 1, 2013, at costs of N852 million and N258 million, respectively. Jewe Plc acquired 70% of Gaba’s share capital on November 1, 2013.
  2. Retained Earnings at Acquisition:

  • Fair Values at Acquisition: The fair values of Jewe and Gaba’s net assets were N930 million and N660 million, respectively, including non-depreciable land. The fair value of non-controlling interest (NCI) was N390 million for Jewe and N330 million for Gaba. Bata Plc adopts the full goodwill method under IFRS 3.
  • Impairment: Impairment testing shows Jewe suffered a loss of N60 million, but Gaba had no impairment.
  • Intra-group Sales: Bata sold inventory to Jewe and Gaba for N480 million and N360 million, respectively, invoicing with a 25% markup on cost. At year-end, half of Jewe’s inventory remains unsold, while Gaba sold its entire stock to third parties.
  • Deep Discount Bond: Bata purchased a bond for N500 million with a redemption value of N740.75 million in three years. The bond’s effective interest rate is estimated at 14%. The Accountant has not yet recorded amortized cost for this financial asset.

Required: Prepare a Consolidated Statement of Financial Position for Bata Plc and its subsidiaries as at October 31, 2016.

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  • 30 Marks

CR – Nov 2021 – L3 – Q1 – Consolidated Financial Statements (IFRS 10)

Prepare consolidated financial position of Makoko Group for the year ended Dec 31, 2021, and discuss accounting implications of significant influence.

Makoko Intercontinental Holdings Limited is a global merchant of cash crops. A policy of strategic acquisitions over the years has placed the company in a position to source for export products competitively. The lockdown arising from the recent pandemic posed a significant challenge for the export of their products throughout the year 2020. At a board meeting to review the performance of the company for that year and discuss the impact of the pandemic, the Managing Director noted the significant drop in the general performance indices. In order to get a greater market presence and higher demand locally, the board decided to acquire the following investments on January 1, 2021:

  • 60% of the equity share of Ojodu Limited;
  • 50% of 10% loan notes of Ojodu Ltd at par;
  • 40% stake in the ordinary shares of Egbeda Confectioneries Limited.

In the opinion of the board, both Ojodu Limited and Egbeda Confectioneries Limited are the biggest local customers of Makoko Intercontinental Holdings Limited and a control through shareholding would give the investing company greater stake in the operational decisions of the investee companies. Importantly, it would also boost revenue by allowing unrestricted access to local markets. It is believed that this will forestall any adverse impact of further lockdowns that may hinder export sales in the future.

The draft financial statements of the companies for the year are as follows:

Statements of financial position as at December 31, 2021

Additional Information:

  1. Makoko Limited paid N90 million for the acquisition of Ojodu Limited when the retained earnings of Ojodu Limited were N13 million.
  2. The fair value of Ojodu’s freehold property was N6.5 million higher than the carrying amount as at the date of acquisition. This valuation has not been reflected in the books of Ojodu Limited.
  3. Makoko Limited paid N41 million for the shareholding in Egbeda Limited when the retained earnings of Egbeda Limited were N12 million.
  4. An impairment test as at December 31, 2021 showed that goodwill was impaired by N3.5 million and the investment in Egbeda Limited was impaired by N0.8 million.
  5. During the year, Makoko Limited sold products to Egbeda Limited at a price of N8 million. These goods had cost Makoko Limited N5 million. Half of the goods were still in the inventory of Egbeda Limited as at December 31, 2021.
  6. The companies issued share capital has not changed since the date of acquisition.
  7. No dividends were paid during the year.
  8. Non-controlling interests in subsidiaries are to be measured at the appropriate proportion of the subsidiary’s identifiable net assets.

Required: a. Prepare the consolidated statement of financial position for the Makoko Group for the year ended December 31, 2021. (20 Marks)

b. The Directors of Makoko Intercontinental Holdings Limited are concerned about getting significant influence, if not absolute control, of all entities they intend to buy into. The five-year strategic plan of the company (2020 – 2024) focuses on having control of the cash crops segment of the agribusiness sector of the economy. This is in order to make them ready to roll out the next developmental phase of the business, which is to migrate from exporting raw products to finished products for industrial and household use.

Towards this goal, the board requires the Group Accountant to make a presentation on the accounting implications of gaining significant influence in another entity.

Required: Discuss the issues involved in the requirements of the Board as specified above. (5 Marks)

c. A friend to the Chief Accountant of Makoko Intercontinental Holdings Limited, who is a consultant to Ojodu Limited and Egbeda Confectionaries Limited, is requesting for information on the new acquisitions from his friend, the Chief Accountant.

Required: Identify the ethical issues involved in the above scenarios and their implications. (5 Marks)

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  • 15 Marks

CR – Nov 2018 – L3 – SC – Q5 – Impairment of Assets (IAS 36)

Evaluate if a manufacturing machine is impaired due to market changes and calculate the impairment charge.

Atigen Manufacturing Limited bought a new machine for its factory in Otta, Ogun State, for N140 million on January 1, 2015. At acquisition, the machine was estimated to have a life span of 7 years with no scrap value. The carrying amount at December 31, 2017, is N80 million.

The machine generates largely independent cash flows and is therefore tested for impairment as a standalone asset. Due to a downturn in the economy and the reduction and cancellation of major customer orders, the directors concluded that the machine might be impaired.

You are provided with the following information:

  • Fair value of the machine: N60 million
  • Selling costs: 5% of the fair value
  • Value-in-use based on discounted future cash flows: N63.5 million

Required:

a. Determine if the machine is impaired based on the above information. (6 Marks)

b. Calculate (if any) the impairment charge that the directors should recognize in profit or loss. (9 Marks)

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