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FRPA – APRIL 2023 – L3 – Q1 – Financial Statements Preparation, Conceptual Framework, and Intangible Assets

Prepare the statement of profit or loss and other comprehensive income and the statement of financial position for ANG Ltd based on the given trial balance and additional information; explain the objective of general-purpose financial reporting and the terms relevance and faithful representation; define intangible assets, explain recognition criteria, and state disclosure requirements under IAS 38.

Question

A
The following is the trial balance of ANG Ltd, a trading company, as of 30 September 2022:

Debit	Credit
GH¢’000	GH¢’000
Sales
Inventory	3,150
Cost of sales	35,500
Selling & distribution expenses	5,600
Administration expenses	8,540
Loan Note interest paid	110
Bank interest	85
Investment income
Leasehold building at valuation – 1 Oct 2021	14,000
Plant and equipment – cost/depreciation	13,750
Computer equipment – cost/depreciation	7,200
Motor vehicles – cost/depreciation	1,500
Trade receivables	17,900
Bank
Trade payables
500,000 Ordinary shares
8% Loan notes (2019 – 2023)
Revaluation surplus
General reserve
Retained earnings – 1 Oct 2021
107,335	107,335

The following additional information is made available:
i. The company paid ordinary dividends of GH¢2.2 per share on 31 January 2022 and GH¢2.6 per share on 30 June 2022. The dividend payments are included in administrative expenses in the trial balance.
ii. Provision is to be made for a full year’s interest on the Loan notes.
iii. 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 2022.
• ANG Ltd revalues its buildings at the end of each accounting year. On 30 September 2022, 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 2021) was 25 years. ANG Ltd does not make an annual transfer from the revaluation reserve to retained earnings in respect of the realization of the revaluation surplus. Ignore deferred tax on the revaluation surplus.
iv. Estimated corporate income tax payable on the profit for the year is GH¢3,500,000.

You are required to:
Prepare the following financial statements of ANG 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 2022 and.
b. Statement of financial position as of 30 September 2022.
c. Show clearly all relevant workings.

B
I. What is the objective of general-purpose financial reporting?
II. The IASB’s Conceptual Framework for Financial Reporting states that “If financial information is to be useful, it must be relevant and faithfully represent what it purports to represent.” Explain the terms Relevance and Faithfully Representation.

C
The accounting treatment of intangible assets is prescribed by IAS 38 Intangible Assets. You are required to:
i. Define intangible asset under IAS 38 Intangible Assets.
ii. Explain the recognition criteria for intangible assets.
iii. State 5 disclosure requirements of Intangible Assets under IAS 38.

Answer

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Tags: Comprehensive Income, Conceptual Framework, Depreciation, Disclosure, Faithful Representation, Financial Position, FRS, IAS 38, Intangible Assets, Profit or Loss, Recognition, Relevance, Revaluation Surplus
Level: Level 3

Topic: PLANNING AND ANALYSIS
Series: APR 2023

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.

Question

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.

Answer

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Tags: consolidated financial statements, Financial Position, Goodwill, IAS 20, IFRS 10, IFRS 3, Impairment, Intra-group Transactions, Non-Controlling Interest, Profit or Loss
Level: Level 2

Topic: Group Financial Statements and Consolidation
Series: MAR 2025

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.

Question

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:

Inventory remains at GH¢6,000.
Full provision is required for an irrecoverable debt of GH¢3,450.
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.
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.
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)

Answer

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Tags: Appropriation, Capital Accounts, Financial Position, Goodwill, Partnership, Profit or Loss
Level: Level 1

Topic: Partnership Accounts (Including Profit Sharing, Capital and Current Accounts)
Series: Nov 2024

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

Discuss reclassification adjustments and integrated reporting objectives and challenges.

Question

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)

Answer

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Tags: Conceptual Framework, Financial Statements, Integrated Reporting, OCI, Profit or Loss, Reclassification
Level: Level 3

Topic: Presentation of Financial Statements (IAS 1)

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.

Question

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:

Haba owns 80% of Suka‘s shares, purchased in 2016 for N20.5 million cash, when Suka’s retained earnings balance was N7 million.
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.
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.
Haba and Suka each proposed dividends before year-end of N2 million and N2.5 million, respectively. These have not been accounted for yet.
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)

Answer

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Tags: Cash Flow, Consolidation, Financial Position, Group Statements, Profit or Loss, Share Disposa
Level: Level 3

Topic: Consolidated Financial Statements (IFRS 10)

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.

Question

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)

Answer

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Tags: Additional Disclosures, Discontinued Operations, IFRS 5, Profit or Loss
Level: Level 2

Topic: Impairment of Assets (IAS 36)
Series: MAY 2021

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

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

Question

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:

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.
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.
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.
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.
An impairment test revealed a goodwill impairment of N28,000,000 at the acquisition date.
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.
The gain on the revaluation of property arose from an independent valuation of the group’s property in September 2022.
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.
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)

Answer

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Tags: consolidated financial statements, Elimination of Intragroup Transactions, Fair Value, Goodwill, IFRS 10, Non-Controlling Interest, Profit or Loss
Level: Level 2

Topic: Consolidated Financial Statements (IFRS 10)
Series: MAY 2023

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.

Question

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:

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

Required:

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

Answer

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Tags: Financial Statements, IAS 1, Profit or Loss, Revaluation, Statement of Changes in Equity, Statement of Financial Position
Level: Level 2

Topic: Presentation of Financial Statements (IAS 1)
Series: NOV 2019

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.

Question

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.

Answer

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Tags: Depreciation, Expenses, IAS 1, OCI, Profit or Loss, Revenue
Level: Level 2

Topic: Presentation of Financial Statements (IAS 1)
Series: NOV 2020

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.

Question

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.

Answer

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Tags: Asset Disposal, Profit or Loss
Level: Level 1

Topic: Depreciation Methods and Accounting for Disposals
Series: MAY 2013

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.

Question

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.

Answer

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Tags: Fair Value Model, IAS 40, nt Property, Profit or Loss, Revaluation
Level: Level 2

Topic: Financial Reporting Standards and Their Applications, Investment Property
Series: NOV 2023

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.

Question

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)

Answer

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Tags: Financial Statements, IFRS, Profit or Loss, Statement of Financial Position, Trial Balance

Topic: Preparation of Financial Statements, Statement of Financial Position, Statement of Profit or Loss
Series: NOV 2023

FA – May 2016 – L1 – SB – Q3 – Financial Statements Preparation

Preparing profit or loss and financial position for Uche & Sons as of September 30, 2015.

Question

The following balances were extracted from the books of Uche and Sons as at September 30, 2015.

Additional Information:
(i) Inventories at September 30, 2015, was valued at N198,712,000
(ii) Rent prepaid at September 30, 2015, amounted to N3,200,000
(iii) Depreciation is to be provided on the motorcycle at the rate of 20% of cost per annum
(iv) Salaries and wages outstanding at September 30, 2015, amounted to N6,024,000
(v) Commission not yet due but already received at the trial balance date was N800,000
(vi) Additional irrecoverable debts of N2,840,000 are to be written off
(vii) Bank interest of N100,000 has fallen due but is yet to be received
(viii) Allowances for receivables are to be adjusted to 5% of receivables
(ix) Drawings by the owner of goods costing N1,600,000 and cheques of N2,400,000 are yet to be recorded

Using the extended trial balance, you are required to prepare:
a. Statement of profit or loss of Uche & Sons for the year ended September 30, 2015
b. Statement of financial position of Uche & Sons as at September 30, 2015

Answer

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Tags: Adjustments, Financial Statements, Profit or Loss, Statement of Financial Position
Level: Level 1

Series: MAY 2016

FA – MAY 2015 – L1 – SA – Q5 – Depreciation Methods and Accounting for Disposals

Determine the profit or loss on disposal of a motor vehicle after depreciation.

Question

A vehicle was purchased on 1 January 2011 at a cost of N2,000,000 and was depreciated at 25% on cost. It was sold on 31 December 2013 for N1,400,000. Full-year depreciation was charged in the years of purchase and disposal.
Determine the profit or loss on the disposal.
A. N500,000 profit
B. N500,000 loss
C. N900,000 profit
D. N900,000 loss
E. N1,150,000 profit

Answer

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Tags: Depreciation, Disposal of assets, Profit or Loss
Level: Level 1

Topic: Depreciation Methods and Accounting for Disposals
Series: MAY 2015

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

Preparation of the statement of comprehensive income for Skolom Ltd.

Question

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

Answer

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Tags: Financial Reporting, IFRS, Investment Property, Leasehold, Profit or Loss, Statement of Comprehensive Income
Level: Level 2

Topic: Presentation of financial statements
Series: MAR 2024

FR – March 2024 – L2 – Q1 – Group Financial Statements and Consolidation

Consolidation of Chicha Plc and Wale Plc financial statements, involving adjustments for intra-group transactions, non-controlling interest, and goodwill.

Question

On 1 July 2022, Chicha Plc acquired 80% of the ordinary shares of Wale Plc at a cost of GH¢2,570,000. On the same date, it also acquired 50% of Wale Plc’s 10% loan notes at par. The summarised draft financial statements of both companies are:

Statements of Profit or Loss for the year ended 31 March 2023
	Chicha Plc	Wale Plc
Sales revenue	15,000	6,000
Cost of sales	(10,500)	(5,000)
Gross profit	4,500	1,000
Operating expenses	(1,500)	(50)
Loan interest received/(paid)	18.75	(50)
Profit before tax	3,018.75	900
Income tax expense	(750)	(150)
Profit for the year	2,268.75	750

Statements of Financial Position as at 31 March 2023
	Chicha Plc	Wale Plc
Non-current assets
Property, plant and equipment	4,830	2,000
Investments	2,820	–
Total Non-current assets	7,650	2,000
Current assets	3,750	2,000
Total assets	11,400	4,000
Equity and liabilities
Equity
Stated capital	2,500	500
Retained earnings	6,400	2,100
Total equity	8,900	2,600
Non-current liabilities
10% loan notes	–	500
Current liabilities	2,500	900
Total equity and liabilities	11,400	4,000

The following information is relevant:

The fair values of Wale Plc’s assets were equal to their book values except for its plant, which had a fair value of GH¢800,000 more than its book value at the date of acquisition. The remaining life of all of Wale Plc’s plant at the acquisition date was four years. Depreciation is on a straight-line basis and charged to cost of sales. Wale Plc has not adjusted the value of its plant as a result of the fair valuation of the assets.
In the post-acquisition period, Chicha Plc sold goods to Wale Plc for GH¢3,000,000. These goods had cost Chicha Plc GH¢2,250,000. During the year, Wale Plc had sold GH¢2,500,000 of these goods for GH¢3,750,000.
The current accounts of the two companies were reconciled at the year-end with Wale Plc owing Chicha Plc GH¢187,500.
The goodwill was reviewed for impairment at the end of the reporting period and had suffered an impairment loss of GH¢75,000, which is to be treated as an operating expense.
Chicha Plc’s and Wale Plc’s retained earnings as at 1 April 2022 were GH¢4,131,250 and GH¢1,350,000, respectively. No dividends were paid or declared by either entity during the year.
It is the group policy to value the non-controlling interest at acquisition at fair value. The directors valued the non-controlling interest at GH¢625,000 at the date of acquisition.
Revenues and profits should be deemed to accrue evenly throughout the year.

Required:
Prepare for Chicha Plc a Consolidated Statement of Profit or Loss for the year ended 31 March 2023 and Statement of Financial Position as at 31 March 2023.

Answer

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Tags: Consolidation, Financial Position, Goodwill, Group Financial Statements, Intragroup Transactions, Non-Controlling Interest, Profit or Loss
Level: Level 2

Topic: Group Financial Statements and Consolidation
Series: MAR 2024

FR – May 2018 – L2 – Q3 – Preparation of Financial Statements

Prepare the statement of profit or loss and other comprehensive income for Binkabi Ltd for the year ended 30 September 2017.

Question

The following trial balance relates to Binkabi Ltd as at 30 September 2017:

Additional information:

i) Binkabi Ltd’s revenue includes GH¢16 million for goods sold to Kofi on 1 October 2016. The terms of the sale are that Binkabi Ltd will incur ongoing service and support costs of GH¢1.2 million per annum for three years after the sale. Binkabi Ltd normally makes a gross profit of 40% on such servicing and support work. Ignore the time value of money.

ii) Administrative expenses include an equity dividend of GH¢12 million paid during the year.

iii) The 5% convertible loan note was issued for proceeds of GH¢20 million on 1 October 2015. It has an effective interest rate of 8% due to the value of its conversion option.

iv) During the year, Binkabi Ltd sold an equity investment for GH¢11 million. At the date of sale, it had a carrying amount of GH¢8.8 million and had originally cost GH¢7 million. Binkabi Ltd has recorded the disposal of the investment. The remaining equity investments (the GH¢26.5 million in the trial balance) have a fair value of GH¢29 million at 30 September 2017. The other reserve in the trial balance represents the net increase in the value of the equity investments as at 1 October 2016. Binkabi Ltd made an irrevocable decision at initial recognition of these instruments to recognise all changes in fair value through other comprehensive income, and makes a transfer of realised profit from the other reserve to income surplus on disposal of the investments. Ignore deferred tax on these transactions.

v) The balance on current tax represents the under/over-provision of the tax liability for the year ended 30 September 2016. The directors have estimated the provision for income tax for the year ended 30 September 2017 at GH¢16.2 million. At 30 September 2017, the carrying amounts of Binkabi Ltd’s net assets were GH¢13 million in excess of their tax base. The income tax rate of Binkabi Ltd is 30%.

vi) Non-current assets

The freehold property has a land element of GH¢13 million. The building element is being depreciated on a straight-line basis.
Plant and equipment is depreciated at 40% per annum using the reducing balance method.
Binkabi Ltd’s brand in the trial balance relates to a product line that received bad publicity during the year, which led to falling sales revenues. An impairment review was conducted on 1 April 2017, which concluded that, based on estimated future sales, the brand had a value in use of GH¢12 million and a remaining life of only three years. However, on the same date as the impairment review, Binkabi Ltd received an offer to purchase the brand for GH¢15 million.
Prior to the impairment review, it was being amortised using the straight-line method over a 10-year life. No depreciation/amortisation has yet been charged on any non-current asset for the year ended 30 September 2017. Depreciation, amortisation, and impairment charges are all charged to cost of sales.

Required:
a) Prepare the statement of profit or loss and other comprehensive income for Binkabi Ltd for the year ended 30 September 2017. (8 marks)

b) Prepare the statement of financial position of Binkabi Ltd as at 30 September 2017. (12 marks)

Answer

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Tags: Financial Statements, Other Comprehensive Income, Profit or Loss
Level: Level 2

Topic: Preparation of Financial Statements
Series: MAY 2018

FR – May 2018 – L2 – Q1 – Group Financial Statements and Consolidation

Prepare the consolidated statement of profit or loss for Tamale Ltd for the year ended 30 September 2017 after acquisition of Navrongo Ltd.

Question

On 1 April 2017, Tamale Ltd acquired 60% of the 4 million ordinary shares of Navrongo Ltd in a share exchange of two shares in Tamale Ltd for three shares in Navrongo Ltd. The issue of shares has not yet been recorded by Tamale Ltd. At the date of acquisition, shares in Tamale Ltd had a market value of GH¢6 each. Below are the summarised draft financial statements of both companies.

Statements of Profit or Loss for the year ended 30 September 2017

	Tamale Ltd (GH¢’000)	Navrongo Ltd (GH¢’000)
Revenue	85,000	42,000
Cost of Sales	(63,000)	(32,000)
Gross Profit	22,000	10,000
Distribution Cost	(2,000)	(2,000)
Administrative Expenses	(6,000)	(3,200)
Finance Cost	(300)	(400)
Profit Before Tax	13,700	4,400
Income Tax Expense	(4,700)	(1,400)
Profit for the Year	9,000	3,000

Statements of Financial Position as at 30 September 2017

	Tamale Ltd (GH¢’000)	Navrongo Ltd (GH¢’000)
Assets
Non-Current Assets
Property, Plant and Equipment	40,600	12,600
Current Assets	16,000	6,600
Total Assets	56,600	19,200
Equity and Liabilities
Ordinary Shares	10,000	4,000
Retained Earnings	35,400	6,500
Equity	45,400	10,500
Non-Current Liabilities
10% Loan Notes	3,000	4,000
Current Liabilities	8,200	4,700
Total Equity and Liabilities	56,600	19,200

The following information is relevant:

i) At the date of acquisition, the fair values of Navrongo Ltd’s assets were equal to their carrying amounts with the exception of an item of plant, which had a fair value of GH¢2 million in excess of its carrying amount. It had a remaining life of five years at that date (straight-line depreciation is used). Navrongo Ltd has not adjusted the carrying amount of its plant as a result of the fair value exercise.

ii) Sales from Navrongo Ltd to Tamale Ltd in the post-acquisition period were GH¢8 million. Navrongo Ltd made a markup on cost of 40% on these sales. Tamale Ltd had sold GH¢5.2 million (at cost) as at 30 September 2017.

iii) Other than where indicated, profit or loss items are deemed to accrue evenly on a time basis.

iv) Navrongo Ltd’s trade receivables at 30 September 2017 include GH¢600,000 due from Tamale Ltd which did not agree with Tamale Ltd’s corresponding trade payable. This was due to cash in transit of GH¢200,000 from Tamale Ltd to Navrongo Ltd. Both companies have positive bank balances.

v) Tamale Ltd has a policy of accounting for any non-controlling interest at fair value. The fair value of the non-controlling interest in Navrongo Ltd at the date of acquisition was estimated to be GH¢5.9 million. Consolidated goodwill was not impaired at 30 September 2017.

Required:
a) Prepare the consolidated statement of profit or loss for Tamale Ltd for the year ended 30 September 2017.

(8 marks)

b) Prepare the consolidated statement of financial position for Tamale Ltd as at 30 September 2017.

(12 marks)

Answer

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Tags: Consolidation, Intercompany transactions, Non-Controlling Interest, Profit or Loss, Subsidiary
Level: Level 2

Topic: Group Financial Statements and Consolidation
Series: MAY 2018

FR – May 2019 – L2 – Q3 – Preparation of Financial Statements

Preparation of Statement of Profit or Loss and Statement of Financial Position for Frafraha Ltd as at 31 March 2018.

Question

The following trial balance was extracted from the books of Frafraha Ltd (Frafraha) on 31 March 2018:

The following notes may be relevant:

Frafraha applies the revaluation model of IAS 16 Property, Plant & Equipment to its land and buildings. A revaluation took place on 31 March 2017 and resulted in the fair value of GH¢62 million shown above. This figure included GH¢22 million in respect of land. The buildings were deemed to have a 40-year useful economic life remaining at that date. No depreciation has yet been charged for the accounting period ended on 31 March 2018. All depreciation is charged to cost of sales. On 31 March 2018, a further revaluation took place, which revealed a fair value of GH¢24 million for the land and GH¢41 million for the buildings. This is to be recorded in the books in accordance with the accounting policy of Frafraha.
Plant & equipment is being depreciated at 25% per annum straight line from the date of purchase to the date of sale. On 1 October 2017, a piece of plant was purchased at a cost of GH¢12 million. This replaced another piece of plant which had cost GH¢8 million some years ago and was fully depreciated prior to 31 March 2017. A trade-in allowance of GH¢1 million was received for the old plant. The only entries made to record this transaction were to credit cash and debit suspense with the net payment of GH¢11 million. No other item of plant was more than three years old at 1 April 2017.
The inventories figure in the trial balance is the opening inventories balance measured on the first-in, first-out (FIFO) basis. Due to a change in Frafraha’s business, the company decided to change its accounting policy with respect to inventories to a weighted average basis, as follows:

Date	FIFO (GH¢’000)	Weighted Average (GH¢’000)
31 March 2016	33,200	30,300
31 March 2017	37,300	34,100

Closing inventories at 31 March 2018, measured under the weighted average basis, amounted to GH¢41.2 million.

Intangible assets consist of capitalised development costs of GH¢30 million. These relate to products in development at 1 April 2017. No revenue has yet been earned from any of these products. They are all expected to be successful once ready for market, with the exception of one project. The amount previously capitalised in respect of this project was GH¢6 million. However, adverse developments have led to the decision to abandon the project as it was unlikely to be successful in the marketplace. During the year, further expenditure was incurred on other qualifying projects and was charged to administration expenses. The amounts are as follows:
- Prototype development costs GH¢3 million.
- Marketing research to determine the optimal selling strategy GH¢1 million.
- Basic research which may lead to future projects GH¢4 million.
Frafraha commenced construction of a new warehouse on 1 May 2017. The building was completed and available for use on 30 November 2017. The cost of construction amounted to GH¢9 million, funded out of general borrowings, which comprise two bank loans as follows:
- GH¢4 million of bank loan finance at 6% interest.
- GH¢6 million of bank loan finance at 4.5% interest.
All interest costs have been expensed in the year to 31 March 2018, but no other entries have been passed in respect of this. Ignore any depreciation in relation to the new warehouse.
Corporate tax for the year is estimated at GH¢0.25 million.

Required:

Prepare, in a form suitable for publication to the shareholders of Frafraha Ltd, the Statement of Profit or Loss for the year ended 31 March 2018 and Statement of Financial Position as at 31 March 2018.

Answer

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Level: Level 2

Topic: Preparation of Financial Statements
Series: MAY 2019

CR – May 2019 – L3 – Q1 – Consolidated financial statements | Business combinations and consolidation

The question requires the preparation of a consolidated statement of profit or loss and other comprehensive income for HO group for the year ended 30 September 2018, including adjustments for intra-group sales, goodwill impairment, and partial disposal of a subsidiary.

Question

On 1 October 2016, HO acquired 60% of the equity interest of Sunyani, a public limited company in Ghana. The purchase consideration is made up of cash of GH¢40 million and the fair value of the identifiable net assets acquired was GH¢55 million at that date. The fair value of the non-controlling interest (NCI) in Sunyani was GH¢22.5 million on 1 October 2016.

HO wishes to use the ‘full goodwill’ method for all acquisitions. The share capital and retained earnings of Sunyani were GH¢12.5 million and GH¢32.5 million respectively, and other components of equity were GH¢3 million at the date of acquisition. The excess of the fair value of the identifiable net assets at acquisition is due to non-depreciable land. Goodwill has been tested for impairment annually and as at 30 September 2017 had reduced in value by 20%. However, at 30 September 2018, the impairment of goodwill had reversed and goodwill was valued at GH¢1 million above its original value. This upward change in value has already been included in the draft financial statements of HO below prior to the preparation of the group accounts.

HO group:

Draft statements of profit or loss and other comprehensive income for the year ended 30 September 2018

	HO (GH¢’000)	Sunyani (GH¢’000)	Kumasi (GH¢’000)
Revenue	200,000	57,500	35,000
Cost of sales	(156,000)	(32,500)	(18,000)
Gross profit	44,000	25,000	17,000
Other income	10,500	3,500	1,000
Administrative costs	(7,500)	(4,500)	(6,000)
Other expenses	(17,500)	(9,500)	(4,000)
Operating profit	29,500	14,500	8,000
Finance costs	(2,500)	(1,500)	(2,000)
Finance income	3,000	2,500	4,000
Profit before tax	30,000	15,500	10,000
Income tax expense	(9,500)	(4,500)	(2,500)
Profit for the year	20,500	11,000	7,500
Other comprehensive income – revaluation surplus	5,000	–	–
Total comprehensive income for year	25,500	11,000	7,500

The following information is relevant:

i) HO disposed of an 8% equity interest in Sunyani on 30 September, 2018 for a cash consideration of GH¢9 million and had accounted for the gain or loss in other income. The carrying value of the net assets of Sunyani Ltd at 30 September, 2018 was GH¢60 million before any adjustments on consolidation. HO accounts for investments in subsidiaries using IFRS 9 financial instruments and has made an election to show gains and losses in other comprehensive income. The carrying value of the investment in Sunyani was GH¢45 million at 30 September 2017 and GH¢47.5 million at 30 September, 2018 before the disposal of the equity interest.

ii) HO acquired 60% of the equity interest of Kumasi Ltd, a limited liability company also in Ghana on 30 September, 2016. The purchase consideration was cash of GH¢35 million. Kumasi’s identifiable net assets were fair valued at GH¢43 million and the non-controlling interest had a fair value of GH¢14 million at that date. On 1 April 2018, HO disposed off a 40% equity interest in Kumasi for a consideration of GH¢25 million. Kumasi’s identifiable net assets were GH¢45 million and the value of the non-controlling interest was GH¢17 million at the date of disposal. The remaining equity interest was fair valued at GH¢20 million. After the disposal, HO exerts significant influence. Any increase in net assets since acquisition has been reported in profit or loss and the carrying value of the investment in Kumasi had not changed since acquisition. Goodwill had been tested for impairment and found that no impairment was required. No entries had been made in the financial statements of HO for this transaction other than for cash received.

iii) HO sold inventory to Sunyani for GH¢6 million at fair value. HO made a loss on the transaction of GH¢1 million and Sunyani still holds GH¢4 million in inventory at the year end.

iv) On 1 October 2016, HO purchased an item of property, plant and equipment for GH¢6 million and this is being depreciated using the straight line basis over 10 years with a nil residual value. At 30 September 2017, the asset was revalued to GH¢6.5 million but at 30 September 2018, the value of the asset had fallen to GH¢3.5 million. HO uses the revaluation model to value its non-current assets. The effect of the revaluation at 30 September 2018 had not been taken into account in total comprehensive income but depreciation for the year had been charged.

v) On 1 October 2016, HO made an award of 4,000 share options to each of its seven directors. The condition attached to the award was that the directors must remain employed by HO for three years. The fair value of each option at the grant date was GH¢100 and the fair value of each option at 30 September 2018 was GH¢110. At 30 September 2017, it was estimated that three directors would leave before the end of three years. Due to an economic downturn, the estimate of directors who were going to leave was revised to one director at 30 September 2018. The expense for the year as regards the share options had not been included in profit or loss for the current year and no director had left by 30 September 2018.

Required:
Prepare a consolidated statement of profit or loss and other comprehensive income for the year ended 30 September 2018 for the HO group.

Answer

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Tags: Consolidated Income Statement, Goodwill, Group Structure, Profit or Loss, Subsidiaries
Level: Level 3

Topic: Business combinations and consolidation, Consolidated Financial Statements
Series: MAY 2019

Question Tag: Profit or Loss

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Prepare the statement of profit or loss and other comprehensive income for Binkabi Ltd for the year ended 30 September 2017.

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Prepare the consolidated statement of profit or loss for Tamale Ltd for the year ended 30 September 2017 after acquisition of Navrongo Ltd.

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CR – May 2019 – L3 – Q1 – Consolidated financial statements | Business combinations and consolidation

The question requires the preparation of a consolidated statement of profit or loss and other comprehensive income for HO group for the year ended 30 September 2018, including adjustments for intra-group sales, goodwill impairment, and partial disposal of a subsidiary.

HO group:

Draft statements of profit or loss and other comprehensive income for the year ended 30 September 2018

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