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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  • 20 Marks

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

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

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

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  • 1 Marks

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.

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

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  • 20 Marks

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

Preparation of the statement of comprehensive income for Skolom Ltd.

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

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

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

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  • 20 Marks

FR – 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.

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:

  1. 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.
  2. 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.
  3. The current accounts of the two companies were reconciled at the year-end with Wale Plc owing Chicha Plc GH¢187,500.
  4. 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.
  5. 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.
  6. 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.
  7. 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.

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  • 8 Marks

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.

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)

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  • 20 Marks

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.

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)

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  • 20 Marks

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.

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

The following notes may be relevant:

  1. 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.
  2. 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.
  3. 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.

  1. 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.
  2. 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.

  3. 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.

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  • 20 Marks

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.

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.

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  • 20 Marks

CR – Nov 2016 – L3 – Q1 – Consolidated financial statements

Prepare the consolidated statement of profit or loss and other comprehensive income for Broad Ltd. Group for the year ended June 30, 2016.

Below are the separate financial statements of Broad Ltd and two investee companies which also operate in the same industry as the investor entity.

Statements of profit or loss and other comprehensive income for the year ended 30 June 2016


The following information is relevant:

  1. On 1 March 2016, Broad Ltd acquired 80% of the equity share capital of Narrow Ltd. The consideration consisted of two elements: a share exchange of three shares in Broad Ltd for every five acquired shares in Narrow Ltd and the issue of a GH¢100 6% loan note for every 500 shares acquired in Narrow Ltd. The share issue has not yet been recorded by Broad Ltd, but the issue of the loan notes has been recorded. At the date of acquisition, shares in Broad Ltd had a market value of GH¢5 each, and the shares of Narrow Ltd had a stock market price of GH¢3.50 each.Broad Ltd had earlier acquired 2.4 million shares in Shadow Ltd on the stock market at a price of GH¢1.50 per share on 1 January 2016.
  2. At the date of acquisition, the fair values of Narrow Ltd.’s assets were equal to their carrying amounts with the exception of its property, which had a fair value of GH¢1.2 million below its carrying amount. This would lead to a reduction of the depreciation charge (in cost of sales) of GH¢50,000 in the post-acquisition period. Narrow Ltd has not incorporated this value change into its separate financial statements.
  3. Broad’s group policy is to revalue all properties to current value at each year-end. On 30 June 2016, the value of Narrow’s property was unchanged from its value at acquisition, but the land element of Broad Ltd.’s property had increased in value by GH¢500,000 as shown in other comprehensive income.
  4. Sales from Narrow Ltd to Broad Ltd throughout the year ended 30 June 2016 were GH¢12 million. Narrow made a mark-up on cost of 25% on these sales. Broad Ltd had GH¢2 million (at cost to Broad Ltd) of inventory that had been supplied in the post-acquisition period by Narrow Ltd as at 30 June 2016.
  5. In June 2016, Broad Ltd sold goods to Shadow Ltd for GH¢2,000,000, thus achieving a profit mark-up of 25%. The entire consignment remained unsold and was included in the inventory of Shadow Ltd as at 30 June 2016.
  6. Broad’s investments include some available-for-sale investments that have increased in value by GH¢300,000 during the year. The other equity reserve relates to these investments and is based on their value as at 30 June 2015. There were no acquisitions or disposals of any of these investments during the year ended 30 June 2016.
  7. Broad’s policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose, Narrow’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.
  8. It was determined at the year-end that 10% of the goodwill relating to the acquisition of Narrow was impaired.

Required:

a) Prepare the consolidated statement of profit or loss and other comprehensive income for Broad Ltd. Group for the year ended 30 June 2016. (10 marks)

b) Prepare the consolidated statement of financial position for Broad Ltd. Group as at 30 June 2016. (10 marks)

 

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