Question Tag: Profit or Loss

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  • 15 Marks

FA – Nov 2024 – L1 – Q1 – Partnership Financial Statements

Prepare the profit or loss and appropriation account and financial position statement for a partnership at retirement and admission of partners.

Atsu, Baba, and Chawe are in partnership, providing management services, sharing profits in the ratio 5:3:2 after charging annual salaries of GH¢18,000 each. Current accounts are not maintained. On 30 June 2024, Atsu retired.

Dua was admitted on 1 July 2024 to the partnership and is entitled to 30% of the profits of the current partnership, with the balance being shared equally between Baba and Chawe.

The previous partnership trial balance as of 30 June 2024 was as follows:

Description GH¢ GH¢
Capital accounts – Atsu 12,519
Capital accounts – Baba 65,844
Capital accounts – Chawe 33,618
Trade receivables 138,615
Inventories at 1 July 2023 6,000
Operating expenses 419,166
Investment 300
Bank overdraft 33,510
Trade payables 52,218
Revenue 565,296
Total 663,543 663,543

Additional Information:

  1. Inventory remains at GH¢6,000.
  2. Full provision is required for an irrecoverable debt of GH¢3,450.
  3. Adjustments agreed by partners:
    • The investment is to be included at GH¢4,500.
    • Goodwill, which remains in the books, is valued at GH¢72,000.
  4. On 1 July 2024, GH¢30,000 due to Atsu was transferred to Dua. The balance due to Atsu is to be repaid over three years, commencing on 1 July 2024.
  5. Dua introduced cash of GH¢22,500 to the partnership.

Required:
i) Prepare the statement of profit or loss and appropriation account of the previous partnership for the year ended 30 June 2024 and a statement of financial position at that date. (9 marks)
ii) Prepare the statement of financial position for the current partnership as of 1 July 2024. (6 marks)

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  • 15 Marks

CR – May 2019 – L3 – Q6 – Presentation of Financial Statements (IAS 1)

Discuss reclassification adjustments and integrated reporting objectives and challenges.

Dangogo Plc. has adopted IFRS in the preparation and presentation of its financial statements in line with Financial Reporting Council of Nigeria requirements. During deliberations on their financial statements for the year ended 31 March, 2019 the directors of Dangogo Plc. found the distinction between profit or loss and other comprehensive income confusing. This is the case with many other preparers or users of financial statements in Nigeria who seem to be unclear about the relationship between profit or loss and other comprehensive income (OCI). They blame the conceptual framework for Financial Reporting and IAS 1 regarding the confusing nature of re classification. The emergence of integrated reporting holds promises for better reporting, but preparers are equally uncertain about whether the International Integrated Reporting Councils (IIRC) or Integrated Reporting (IR) Framework constitutes suitable criteria for report preparation.

a. Discuss the nature of a re-classification adjustment and the arguments for and against allowing re-classification of items to profit or loss. (6 Marks)

bi. Discuss the objectives of integrated reporting and key components (content elements) of integrated reports. (6 Marks)

ii. Comment on any concerns which could limit the Framework’s suitability for assessing the performance and prospects of an entity. (3 Marks)

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  • 30 Marks

CR – Nov 2020 – L3 – Q1 – Consolidated Financial Statements (IFRS 10)

Prepare consolidated profit or loss, financial position, cash flow benefits explanation, and share disposal accounting for a group structure.

Statements of financial position as at December 31, 2019

Statement of profit or loss for the year ended December 31, 2019

Statement of changes in equity (extract) for the year ended December 31,
2019

Additional Information:

  1. Haba owns 80% of Suka‘s shares, purchased in 2016 for N20.5 million cash, when Suka’s retained earnings balance was N7 million.
  2. In 2014, Haba purchased 60% of Zara‘s shares by issuing shares with a nominal value of ₦6.5 million at a premium of N6.5 million. At acquisition, Zara‘s retained earnings were N3 million, and the fair value of net assets was N24 million. Any undervaluation was attributed to land still held as of December 31, 2019.
  3. Inventory at December 31, 2019, includes goods Zara and Suka purchased from Haba valued at ₦5.2 million and N3.9 million, respectively. Haba aims for a 30% profit margin on cost. Total sales from Haba to Zara and Suka were N8 million and N6 million, respectively.
  4. Haba and Suka each proposed dividends before year-end of N2 million and N2.5 million, respectively. These have not been accounted for yet.
  5. Haba conducted annual impairment tests on goodwill per IFRS 3 and IAS 36. The estimated recoverable amount of goodwill was N5 million in 2016 and N4.5 million in 2019.

Requirements:

a. Prepare the consolidated statement of profit or loss for the year ended December 31, 2019.
(10 Marks)

b. Prepare the consolidated statement of financial position as at December 31, 2019.
(10 Marks)

c. Explain the benefits to external users of including a statement of group cash flows in the annual report.
(10 Marks)

d. At December 31, 2019, Hard plc owned 90% of Spark Limited’s shares. The net assets of Spark in Hard Group’s consolidated financial statements amounted to N800 million, with no asset revaluation.

On January 1, 2020, Hard sold 80% of its Spark equity for N960 million cash, and the fair value of Hard’s remaining Spark shares is N100 million.

Required: Explain how the Spark share disposal should be accounted for in Hard Group’s consolidated financial statements.
(10 Marks)

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  • 13 Marks

FR – May 2021 – L2 – Q3b – Impairment of Assets (IAS 36)

Prepare a statement of profit or loss for Wizkid Bottling Company Plc showing continuing and discontinued operations.

Wizkid Bottling Company Plc specializes in the production of alcoholic wine known as Blue Bull and a soft drink called “Wiz-Cola,” operating two divisions: Blue Bull and Wiz-Cola. Due to high labor costs and raw material shortages for wine production, the Blue Bull division has incurred significant operating losses. Management decided to close down the Blue Bull division and drew up a plan to discontinue its operations.

On February 1, 2019, the Board of Directors of Wizkid Bottling Company Plc approved and immediately announced the formal plan.

The following figures are available for the current and prior year ending March 31:

2019 2018
Blue Bull Wiz-Cola Blue Bull Wiz-Cola
Revenue 235,000 1,570,000 250,000 1,250,000
Cost of sales 175,000 505,000 200,000 450,000
Admin. expenses 35,000 311,000 25,000 255,000
Distribution costs 20,000 186,500 10,000 157,500
Other operating 15,000 124,500 10,000 102,500
expenditure
Taxation expense (3,000) 130,500 1,500 85,000

Additional Information:

  • Severance pay of N42.5 million was incurred between February 1, 2019, and March 31, 2019.
  • An evaluation of the recoverability of assets in the Blue Bull Division in terms of IAS 36 led to recognizing an impairment loss of N9.5 million, which is included in other operating expenses above.

Required:

i. Draft the statement of profit or loss for Wizkid Bottling Company Plc for the years ended March 31, 2019, and 2018, in compliance with IFRS 5, showing continuing and discontinuing operations.
(10 Marks)

ii. List additional disclosures required by IFRS 5 for the discontinued operations in the financial statements for the year ended March 31, 2019.
(3 Marks)

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  • 20 Marks

FR – May 2024 – L2 – SA – Q3 – Consolidated Financial Statements

Preparation of consolidated financial statements, calculation of goodwill, and non-controlling interest.

Olu Nigeria PLC has a subsidiary, Oba Limited, which it acquired on January 1, 2022. The financial statements of the companies are detailed below:

Statements of Profit or Loss for the year ended September 30, 2022

Additional Information:

  1. Olu PLC acquired its 70% interest in Oba Limited through a share exchange of three shares in Olu PLC for every five shares in Oba Limited. At the acquisition date, the shares of Olu PLC were sold at ₦8.10 each on the Nigerian Exchange (NGX). The parent company has not recorded this share issue in its books.
  2. At the acquisition date, the fair value of Oba Limited’s assets equaled their carrying amounts except for an item of plant, which had a fair value of N30,000,000 above its carrying amount. This fair value increase has not been adjusted in Oba Limited’s books. The plant’s remaining life at acquisition was five years.
  3. During the year, Oba Limited transferred goods worth N40,000,000 to Olu PLC. These goods were invoiced at cost plus 25%, and only a quarter of them were sold by Olu PLC at year-end.
  4. Included in the other income was N6,550,000 received from Oba Limited as interest paid on a loan granted by Olu PLC. The loan was fully repaid before September 30, 2022.
  5. An impairment test revealed a goodwill impairment of N28,000,000 at the acquisition date.
  6. It is the group’s policy to value non-controlling interests at fair value. The prevailing market price per ordinary share of Oba Limited at January 1, 2022, was ₦5.05.
  7. The gain on the revaluation of property arose from an independent valuation of the group’s property in September 2022.
  8. Administrative expenses of Oba Limited included N10,000,000 paid as management fees to Olu PLC, and the income has been duly recorded in Olu PLC’s books.
  9. Income and expenses accrue evenly over the period.

Required:

a. Prepare the consolidated statement of profit or loss and other comprehensive income for Olu Group for the year ended September 30, 2022. (12 Marks)

b. Calculate the goodwill on acquisition and the non-controlling interest at the reporting date. (4 Marks)

c. IFRS 10 – Consolidated Financial Statements states that a parent must present consolidated financial statements for its investments in subsidiaries.

Required:
State FOUR exceptions to this pronouncement. (4 Marks)

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  • 16 Marks

FR – Nov 2019 – L2 – Q1b – Presentation of Financial Statements (IAS 1)

Prepare financial statements for Uchena Nigeria Plc, including profit or loss, changes in equity, and financial position.

The Chief Accountant of Uchena Nigeria plc has just forwarded the trial balance of the company to you for review before the preparation of draft financial statements for the year ended December 31, 2018.

The trial balance is as follows:

Description Debit (N’m) Credit (N’m)
Ordinary share capital 43,200
Revenue 125,280
Staff cost 18,720
Leasehold building 21,600
Patent rights 4,320
Work-in-progress (Jan 1, 2018) 9,000
Accum. Depreciation on building (Jan 1, 2018) 4,320
Inventories of finished goods (Jan 1, 2018) 11,160
Consultancy fee 3,168
Directors’ salaries 25,920
Computer at cost (Hardware) 3,600
Accum. Depreciation on computer (Jan 1, 2018) 1,440
Retained earnings (Jan 1, 2018) 8,712
Dividend paid 9,000
Cash and bank 31,680
Trade receivables 30,240
Trade payables 6,624
Sundry expenses 21,168
Totals 189,576 189,576

Additional information:

  1. On January 1, 2018, buildings were revalued to N25,920 million. This has not been reflected in the accounts.
  2. Computer (hardware) is depreciated over five years. Buildings are now to be depreciated over 30 years.
  3. The patent rights relate to a computer software with a 3-year life span.
  4. An allowance for bad debts of 5% is to be created.
  5. Closing inventories of finished goods are valued at N12,960 million. Work-in-progress has increased to N10,080 million.
  6. There is an estimated liability for current tax of N8,640 million, which has not been recognized.

Required:

  1. Prepare a draft statement of profit or loss (analyzing expenses by nature) for the year ended December 31, 2018. (6 Marks)
  2. Prepare a statement of changes in equity for the year ended December 31, 2018. (4 Marks)
  3. Prepare a statement of financial position as at December 31, 2018. (6 Marks)

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  • 20 Marks

FR – Nov 2020 – L2 – Q4 – Presentation of Financial Statements (IAS 1)

Prepare the Statement of Profit or Loss and Other Comprehensive Income for Gbenga Nigeria Plc based on provided trial balance.

Gbenga Nigeria Plc trial balance as at December 31, 2019 is shown below:

Item N’000 N’000
Revenue 2,290,125
Administrative expenses 237,150
Selling and distribution expenses 175,200
Legal and professional expenses 81,150
Allowance for receivables 8,625
Inventories – finished goods – 31/12/18 276,750
Work-in-progress – 31/12/18 49,125
Inventories – raw materials at cost – 31/12/18 162,600
Purchases – raw materials 1,125,900
Carriage inwards – raw materials 15,750
Manufacturing wages 375,000
Manufacturing overheads 187,500
Authorised and issued 900,000 ordinary shares of 50 kobo each fully paid 450,000
150,000 8.4% cumulative preference shares of N1 each fully paid 150,000
Revaluation surplus 65,000
Share premium 150,000
General reserve 85,000
Retained earnings – 31/12/18 425,250
Patents and trademarks 323,250
Motor vehicle at cost 112,500
Freehold property at cost 375,000
Leasehold property at cost 112,500
Plant and equipment at cost 225,000
Furniture and fittings at cost 75,000
Amortisation of leasehold property – 31/12/18 22,500
Accumulated depreciation @ 31/12/2018:
– Plant and equipment 102,750
– Furniture and fittings 23,625
– Motor vehicles 37,500
10% loan notes 150,000
Trade payables 146,250
Trade receivables 266,445
Bank overdraft 76,875
Cash 7,680
4,183,500 4,183,500

Additional information:
(i) A gain of N20,000 made on the revaluation of old freehold property during the year is yet to be accounted for.
(ii) Inventories at December 31, 2019 were:

  • Raw materials: N168,900
  • Finished goods: N413,025
  • Work-in-progress: N56,700

(iii) Legal and professional expenses include solicitor’s fees for purchase of new freehold land during the year of N7,500.
(iv) Provision is to be made for full year’s interest on the loan notes.
(v) The leasehold land and buildings are held on a 50-year lease, with 40 years unexpired life left as at the end of December 31, 2018.
(vi) Depreciation for the year is to be charged as follows:

  • Plant and equipment 8% on cost – charged to production
  • Furniture and fittings 10% on cost – charged to administration
  • Motor vehicles 20% on carrying amount – charged 25% to administration and 75% to selling and distribution.

(vii) Income tax on the profit for the year is estimated at N68,900 and is due for payment on February 28, 2020.

Required:
Prepare the statement of profit or loss and other comprehensive income for the year ended December 31, 2019.

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  • 1 Marks

FA – May 2013 – L1 – SA – Q26 – Depreciation Methods and Accounting for Disposals

This question involves calculating the profit or loss on the disposal of a non-current asset.

A non-current asset with an original cost of N500,000 and accumulated depreciation of N400,000 was disposed of for N80,000. Calculate the profit or loss on disposal.

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  • 15 Marks

FA – May 2014 – L1 – SB – Q6 – Accounting Concepts

Preparation of departmental profit or loss statement and head office statement of financial position.

The following trial balance for the year ended 30 June 2013 was extracted from the books of Dapo Trading Enterprises which operates from the head office and two departments:

Additional Information:
(i) Write off bad debts of N120,000 and increase the provision for doubtful receivables to 5% of the outstanding receivables.
(ii) Depreciate furniture and fittings at 10% per annum.
(iii) Accrue N40,000 for sundry expenses owed at 30 June 2013.
(iv) The values of inventories on hand on 30 June 2013 were: Department X – N2,960,000, Department Y – N1,700,000.
(v) Catalogue in hand was valued at N60,000.
(vi) Inter-departmental transfers were made at cost.
(vii) All expenses are to be allocated between Department X and Y in the proportion of two-thirds and one-third, respectively, except for carriage inwards which is to be apportioned on the basis of purchases.
(viii) Dividend received is to be treated as Head Office income.

You are required to prepare:
a. Departmental Statement of profit or loss showing Department X, Department Y, and Head Office separately for the year ended 30 June 2013.
b. The Head Office Statement of Financial Position as at that date.

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  • 20 Marks

CR – Nov 2020 – L3 – Q1i – Consolidated Profit or Loss and OCI

Prepare a consolidated statement of profit or loss and other comprehensive income for a parent, foreign subsidiary, and associate, accounting for goodwill impairment, disposal, and foreign currency translation.

Bolga Ltd is a limited liability company in Ghana, which has investments in a number of other companies. The draft statements of profit or loss for Bolga Ltd and its other investments for the year ended April 30, 2020, are given below:

Bolga Ltd Navrongo Ltd Serrekunda Ltd
Revenue GH¢286,000 GH¢136,000 GMD840,000
Cost of sales (GH¢122,000) (GH¢84,000) (GMD504,000)
Gross profit GH¢164,000 GH¢52,000 GMD336,000
Distribution costs (GH¢20,000) (GH¢12,000) (GMD56,000)
Administrative expenses (GH¢46,000) (GH¢20,000) (GMD116,000)
Operating profit GH¢98,000 GH¢20,000 GMD164,000
Investment income GH¢2,000 GH¢4,000 –
Finance costs (GH¢4,000) (GH¢8,000) (GMD12,000)
Profit before tax GH¢96,000 GH¢16,000 GMD152,000
Income tax expenses (GH¢22,000) (GH¢4,000) (GMD36,000)
Profit for the period GH¢74,000 GH¢12,000 GMD116,000

Additional relevant information:
i) Bolga Ltd purchased 80% of Navrongo Ltd’s three million GH¢5 ordinary shares for GH¢12 million two years ago. At the acquisition date, the carrying value of Navrongo’s net assets was GH¢10 million, and this was deemed to be the same as their fair value. The non-controlling interest was measured using the proportion of net assets method. Goodwill on acquisition of Navrongo is not impaired. On 31 October 2019, Bolga Ltd sold one million, four hundred and forty thousand of its shares in Navrongo Ltd for GH¢13 million. The fair value of the interest retained was GH¢19 million. The retained earnings of Navrongo Ltd was GH¢5 million as at April 30, 2019. The only entry posted in Bolga Ltd’s individual financial statements was the GH¢13 million cash received. This was debited to the bank account and the credit posted to the suspense account.

ii) On 1 May 2019, Bolga Ltd acquired 60% of Serrekunda Ltd’s one million GMD1 ordinary shares for GMD284 million. Serrekunda is a Gambian-based company with Gambian Dalasi (GMD) as its currency. The non-controlling interest at acquisition was valued at GMD116 million using the fair value method. At 1 May 2019, the carrying amount of Serrekunda Ltd’s net assets was GMD240 million but the fair value was GMD280 million. The excess in the fair value was due to a brand with a remaining useful economic life of 5 years at the date of acquisition.

On 30 April 2020, it was determined that goodwill arising on the purchase of Serrekunda Ltd was impaired by GMD16 million. Goodwill impairments are charged as administrative expenses.

iii) On 28 February 2020, Navrongo Ltd paid a dividend of GH¢2 million to its ordinary shareholders.

iv) On 1 June 2019, Bolga Ltd started construction of a new building project and financed this out of its general borrowings. The construction was completed on 30 April 2020 at a total cost of GH¢20 million, excluding interest on borrowings. Bolga Ltd has had the following loans outstanding for the whole financial year:

  • 10% bank loan: GH¢28,000
  • 8% loan notes: GH¢12,000

All the interest for the year has been expensed to the statement of profit or loss. None of the loan notes are held by any other companies within Bolga Ltd.

v) On 1 November 2019, Bolga Ltd granted 20,000 share options to each of its 100 managers. These options will vest on 31 October 2021 if the managers are still employed. However, five managers had left the company by 30 April 2020, and it is expected that another five will leave by 31 October 2021. The fair value of the share options was GH¢3.10 on 1 November 2019, and GH¢10 on 30 April 2020. There have not been any accounting entries posted in relation to this scheme.

vi) The following exchange rates are relevant:

  • GMD: GH¢1
    • May 1 2019: 10.0
    • April 30 2020: 8.0
    • Average for the year ended 30 April 2020: 9.2

Required:
Prepare the consolidated statement of profit or loss and other comprehensive income for the year ended 30 April 2020.

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  • 1 Marks

FA – Nov 2014 – L1 – SA – Q6 – Accounting Treatment for Bad and Doubtful Debts

Identifying where the bad debts account is closed at the year-end in financial statements.

In preparing financial statements, the bad debts account is closed by a transfer to:

A. Statement of financial position
B. Provision for bad debt account
C. Statement of profit or loss
D. Trading account
E. Statement of cash flows

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  • 1 Marks

BL – Nov 2019 – L1 – SA – Q7 – Law of Contract

Calculating the amount of allowance for trade receivables in the profit or loss statement

What is the amount of allowance recognised in the statement of profit or loss?

A. N26,000
B. N63,700
C. N89,300
D. N89,700
E. N98,700

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  • 1 Marks

FA – May 2023 – L1 – SA – Q19 – Financial Statements Preparation

Calculating the tax expense to be charged to the statement of profit or loss based on given tax information.

A company’s tax liability at the beginning of the year was N420,000. Current tax for the year was N850,000. The tax charged for the previous year was underestimated by N14,200. During the year, a tax of N428,000 was paid by the company. How much tax should be charged to the statement of profit or loss for the year?

A. N413,800

B. N422,200

C. N835,800

D. N856,200

E. N864,200

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  • 1 Marks

FA – May 2023 – L1 – SA – Q17 – Elements of Financial Statements

Identifying expenses that must be recognized on the face of the statement of profit or loss classified by function of expenses.

Which of the following must be recognised on the face of the statement of profit or loss, classified by function of expenses?

I. Depreciation
II. Tax charge
III. Dividends
IV. Finance charges

A. I and II

B. II and III

C. I and IV

D. II and IV

E. III and IV

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  • 1 Marks

FA – May 2023 – L1 – SA – Q6 – Accounting Treatment for Bad and Doubtful Debts

Calculating the adjustment for doubtful receivables allowance in the profit or loss statement.

Shade Olu Enterprise had N182,000 allowances for receivables at the beginning of the period. At the end of the year the receivables balance was N2,956,000 and an estimate of doubtful receivables allowance of 5% was made on this amount. What adjustment should be made in the statement of profit or loss?

A. Increase in profit by N34,200

B. A charge of N34,200 to profit or loss

C. A charge of N147,800 to profit or loss

D. Increase in profit by N182,000

E. A charge of N216,200 to profit or loss

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  • 14 Marks

FA – May 2017 – L1 – SB – Q3b – Accounting from Incomplete Records

Prepare the statement of profit or loss and statement of financial position from incomplete records.

Shoema is a sole proprietor who has not kept a complete set of books for his business. He has now asked you to prepare his accounts. The following information is made available to you.

Account 31 December 2015 (₦) 31 December 2014 (₦)
Plant and machinery 242,550 272,195
Inventories 116,424 132,864
Trade receivables 87,749 100,254
Trade payables 46,354 49,804
Rates paid in advance – 2,695
Rent accrued 7,007 1,348
Salary accrued 6,468 8,085

Shoema pays all cash received into the bank and makes all payments by cheque. A summary of his bank account for the year is as follows:

Bank Account Amount (₦)
Balance b/f 14,122
Cash sales 897,758
Trade receivables 439,930
Trade payables 917,162
Salaries 143,751
Rent 40,425
Insurance 87,641
Rates 13,475
New machine 53,900
Drawings 58,212
Balance c/f 37,244
Total 1,351,810

Required:

Prepare Shoema’s statement of profit or loss for the year ended December 31, 2015, and statement of financial position as at December 31, 2015.

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  • 20 Marks

FR – March 2023 – L2 – Q3 – Preparation of Financial Statements

Prepare the statement of profit or loss and financial position using the given trial balance and adjustments.

Kinbuka Ltd has been in operation for the past five years. As a Public Listed Entity, the company uses full IFRSs in preparing its financial statements. Management of the company is preparing financial statements for the year ended 31 December 2021, and has produced the following trial balance for the period.

GH¢ GH¢
Revenue 1,171,000
Inventories (31/12/2020) 80,000
Purchases 543,000
Administrative expenses 180,000
Marketing & distribution expenses 55,000
Non-current assets (cost)-31/12/2020: Note (ii)
Furniture & fittings 88,000
Motor vehicles 180,000
Office equipment 30,000
Intangible assets 50,000
Accumulated depreciation -31/12/2020: Note (ii)
Furniture & fittings 18,000
Motor vehicles 62,400
Office equipment 13,000
Intangible assets 6,000
Taxation account Note (iii) 28,000
Trade & other receivables 151,000
Trade payables 125,000
Deferred tax-31/12/2020 Note (iii) 21,000
13% GOG Bond Note (iv) 19,000
Interest income Note (iv) 2,600
Bank account Note (v) 283,000
Share Capital 200,000
Retained earnings 68,000

Additional Information:

    1. Inventories at 31 December 2021 were valued at GH¢65,000.
    2. On 1 November 2021, one of the company’s vehicles used in selling and distributing its finished goods was involved in an accident; the vehicle was badly damaged beyond repairs as a result of the accident. This vehicle was acquired by the company on 1 January 2019 for GH¢95,000. The company, however, has insured the vehicle and thus on 4 November 2021 wrote to the insurance company for the claim, to purchase a new vehicle. In response, the insurance company picked and assessed the damaged car, and on 8 January 2022 paid the company a claim of GH¢80,000. There were no other changes in non-current assets for the year ended 31 December 2021. Non-current assets are depreciated or amortised as follows:
      • Furniture & fittings: 20% of cost
      • Office equipment, motor vehicles, and intangible assets: 10% of cost
      • No depreciation is charged on non-current assets in the year of de-recognition. Depreciation or amortisation expense is charged to cost of sales.
    3. The taxation account represents the aggregate amount paid by the company as self-assessment tax on its estimated profit for the four quarters of the 2021 year of assessment. Kinbuka Ltd in the year 2021, had officers of the Ghana Revenue Authority (GRA) auditing its tax records for the 2019 and 2020 years of assessment. All the prior years before the 2019 year of assessment have already been audited by GRA. The audit report of GRA received and agreed by Kinbuka Ltd in November 2021 revealed the following:
      • Year of assessment:
        • 2019: Current tax provided: GH¢45,000; Tax liability from the audit: GH¢43,000.
        • 2020: Current tax provided: GH¢57,800; Tax liability from the audit: GH¢67,600.

      The company paid in full the current tax provided for the years 2019 and 2020 in the first half of the years 2020 and 2021, respectively. However, the differences arising from the tax audit have not been provided for in the above balances and are yet to be settled by the company. Current tax expense and an increase in deferred tax liability for the year ended 31 December 2021 have been estimated at GH¢35,300 and GH¢3,750, respectively.

    4. As part of cash flow management, the company at the beginning of the current year, purchased a 13%, GH¢20,000 5-year bond at a price of GH¢19,000, incurring a brokerage fee of 2% of the par value. The bond will be redeemed at a premium of 5% over its par value. The brokerage fee paid is included in the administrative expenses. The business model of Kinbuka Ltd in relation to this bond is to hold it till maturity while availing itself to sell when there is a good opportunity to do so. The effective interest rate of the bond is 15% and its fair value at 31 December 2021 is GH¢21,000.
    5. The bank account represents the cash book balance as at 31 December 2021. The bank statement, however, reveals a balance of GH¢353,000 as at this date. There are only two reconciling differences between the two figures:
      • Cheques recorded at the credit side of the cash book but yet to be presented to the bank for payment amount to GH¢72,000.
      • Bank charges yet to be recorded in the cash book. All bank charges are classified as administrative expenses.

Required:
Prepare the Statement of Profit or Loss and Other Comprehensive Income of Kinbuka Ltd for the year ended 31 December 2021 and the Statement of Financial Position as at that date. Show clearly all relevant workings.

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  • 7 Marks

FR – Nov 2023 – L2 – Q2c – Financial Reporting Standards and Their Applications

Determine the amounts to be recognized in profit or loss and other comprehensive income for Wenchi Ltd in respect of an office building.

Wenchi Ltd (Wenchi) is a real estate development company. On January 1, 2022, Wenchi’s office building had a net carrying value of GH¢13.5 million. The property became vacant on April 1, 2022, and was leased to a third party. On October 1, 2022, the property was added to inventory for sale after the lease expired. The property was sold in December 2022 for GH¢16 million.

Required:
In accordance with IFRS, determine the amounts to be recognized in profit or loss and other comprWenchi Ltd (Wenchi) is a real estate development company which has been operating for several years. On January 1, 2022, the office building of Wenchi had a net carrying value of GH¢13.5 million. The cost model was used to value the property. No depreciation had been incurred because the expected residual value was more than the cost due to a buoyant real estate market.

The property became vacant as a result of relocating the company’s operations, and on April 1, 2022, a third party (Dormaa Ltd) was given a six-month short lease to occupy it. The property’s fair value at the time it was leased out was GH¢16.5 million.

Wenchi made the choice to add the property to its inventories of properties for sale in the regular course of business once the lease expired. The property was valued at GH¢15.75 million at 1 October 2022. The property was sold in December 2022 for GH¢16 million.

Required:
In accordance with IFRS, determine the amounts to be recognized in profit or loss and in other comprehensive income in respect of the property for the year ended 31 December 2022.ehensive income in respect of the property for the year ended 31 December 2022.

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  • 20 Marks

FR – Nov 2023 – L2 – Q3 – . Preparation of Financial Statements

Prepare the statement of profit or loss and other comprehensive income and the statement of financial position for Sompa Plc.

The following trial balance relates to Sompa Plc (Sompa) as at 30 June 2023:
Additional information:
i) Revenue includes a GH¢15 million sale made on 1 January 2023 of maturing goods, which are not biological assets. The cost of the goods at the date of sale was GH¢10 million.
Sompa is still in possession of the goods (but they have not been included in the inventory count). Sompa has the option to repurchase the goods at any time within three years of the sale at a price of GH¢15 million plus interest of 10% per annum. On 30 June 2023, the option had not been exercised but it is likely that it will be exercised before the date it lapses.
ii) Sompa commenced a research and development project on 1 January 2023. It spent GH¢5 million per month on research until 31 March 2023. The project then passed on into the development stage with an GH¢8 million per month spending from 1 April 2023 to 30 June 2023, when the development of the project was completed. However, on 1 May 2023, the directors of Sompa were confident that the new product would be a commercial success. Expensed research and development costs should be charged to cost of sales.
ii) Non current assets:
Sompa’s property is carried at fair value which at 30 June 2023 was GH¢145 million. The remaining life of the property at the beginning of the year (1 July 2022) was 15 years. Sompa does not make an annual transfer to retained earnings in respect of excess depreciation on revaluation. The company pays tax on profits at the rate of 25%. Plant and equipment is depreciated at 15% per annum using the reducing balance method. No depreciation has yet been charged on any non current asset for the year ended 30 June 2023. All depreciation is charged to cost of sales.
iv) The 5% loan note was issued on 1 July 2022 at its nominal value of GH¢100 million incurring direct issue costs of GH¢2.5 million which have been charged to administrative expenses. The loan note will be redeemed after three years at a premium which gives the loan note an effective finance cost of 8% per annum. Annual interest was paid on 30 June 2023.
v) At 30 June 2023, the financial asset equity investments had a fair value of GH¢48 million. There were no acquisitions or disposals of these investments during the year.
vi) A provision of GH¢6 million for current tax for the year ended 30 June 2023 is required.
Additionally, GH¢4 million increase in the deferred tax provision is to be charged to profit or loss.
vii) Sompa paid a dividend of GH¢0.20 per share on 30 March 2023, which was followed by an issue of 50 million equity shares at their full market value of GH¢1.70. At 1 July 2022, Sompa had in issue 100 million shares at full market value of GH¢1 each.
Required: Prepare for Sompa Plc:
a) The Statement of Profit or Loss and other Comprehensive Income for the year ended 30 June 2023.
b) The Statement of Financial Position as at 30 June 2023.
(10 marks)

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