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  • 8 Marks

CR – Nov 2014 – L3 – SC – Q4b – Income Taxes (IAS 12)

Evaluate the impact of deferred tax on fair value adjustments for property, plant, and equipment in an acquisition.

On 1 June 2013, Bam Plc acquired Mango Limited for N3,150 million.
The fair value of the identifiable net assets of Mango Limited at this date was N825 million, and N2,550 million and retained earnings and other components of equity were N105 million, respectively. Mango Limited’s share capital was N1,500 million.

The excess of the fair value of the net assets is due to an increase in the value of property, plant, and equipment.

Required:
Evaluate the impact of full deferred tax on the excess of the fair value of the net assets attributable to the increase in the value of property, plant, and equipment of Bam Plc.

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  • 12 Marks

CR – Nov 2014 – L3 – SB – Q4a – Income Taxes (IAS 12)

Compute the impact of deferred tax on retained earnings and advise Lagos Plc on IAS 12 compliance.

The following is the statement of financial position of Lagos Plc as at 31 December, 2013, with its immediate two comparative years.

The management of Lagos Plc is not sure of the impact of IAS 12 (Income Taxes) on its retained earnings as at 31 December, 2013, as well as what the new deferred tax balance will be on migrating to IFRS.

The following information was also available as at the year-end:

Details Value (N’000)
Tax written down value of PPE 40,300
Tax written down value of goodwill 4,300
Tax base of trade receivables 29,800
Tax base of trade payables 13,000

Assume that current tax has been correctly computed in line with the applicable tax laws at 30%.

Required:
Using relevant computations, advise the management of Lagos Plc on the impact of deferred tax calculated on retained earnings in accordance with IAS 12.

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  • 20 Marks

AAA – May 2024 – L3 – SB – Q2 – Overview of Advanced Audit and Assurance

Discuss audit review types, include necessary IAS 16 and IAS 36 information in the audit checklist, and advise on misclassified asset treatment.

The statement below is an extract of property, plant and equipment from the “notes to the financial statements” of ABC Plc:

Land and buildings Plant, equipment, fixtures and fittings, and motor vehicles Total
Costs (₦)
At January 1, 2020 75,230,481 120,454,850 195,685,331
Additions 12,540,000 16,000,500 28,540,500
Acquisitions through business combinations 24,400,000 35,750,430 60,150,430
Classified as held for sale (10,200,450) (15,450,600) (25,651,050)
Disposals (5,000,465) (10,700,250) (15,700,715)
At December 31, 2020 96,969,566 146,054,930 243,024,496
Accumulated depreciation and impairment losses
At January 1, 2020 46,660,254 66,675,860 113,336,114
Depreciation charge for the year 5,594,523 17,220,518 22,815,041
Classified as held for sale (7,650,338) (9,270,000) (16,920,338)
Disposals (3,762,523) (9,034,069) (12,796,592)
Impairment losses 5,267,533 6,022,713 11,290,246
Reversal of Impairment losses (4,515,028) (4,818,170) (9,333,198)
At December 31, 2020 41,594,421 66,796,852 108,391,273

Net carrying amount
At December 31, 2020: ₦55,375,145 (Land and buildings), ₦79,258,078 (Plant, equipment, fixtures, and fittings, and motor vehicles), Total: ₦134,633,223
At December 31, 2019: ₦28,590,212 (Land and buildings), ₦53,778,390 (Plant, equipment, fixtures, and fittings, and motor vehicles), Total: ₦82,368,602

The above was the situation of the statement of financial position of the company when it was signed at the board of directors meeting. During further review to sign off the audit file, it was discovered that the classification of some of the assets as impaired was due to wrong classification and the value had actually increased due to a new road network in the location. This affected the impairment losses for the year. The new value of the buildings affected and shown in the note above as available from market survey had actually grown to ₦8.5 million within the period under review.

Required:

  1. Evaluate the different types of audit review, the purposes, and the scope of the reviews. (10 Marks)
  2. Discuss the necessary information to be included in the audit checklist based on the information above in relation to IAS 16 – Property, Plant, and Equipment and IAS 36 – Impairment of Assets. (7 Marks)
  3. Advise on the treatment of the issue raised with regard to the wrongly classified assets. (3 Marks)

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  • 20 Marks

CR – May 2024 – L3 – SB – Q3 – Income Taxes (IAS 12)

Deferred tax impact analysis for asset purchase, fair value adjustments, and subsidiary profit

Below is the statement of financial position (extract) of Bamboo PLC, a company with several subsidiaries across various regions, including one foreign subsidiary, Pako Limited, based in the USA:

Draft Statement of Financial Position
As at October 31, 2023

Assets N’m
Deferred tax 77
Other non-current assets 2,329
Inventories and other current assets 1,150
Cash and cash equivalents 422
Total assets 3,978
Liabilities and Equity
Other non-current liabilities 1,671
Deferred tax liabilities 186
Payables and accruals 1,131
Total liabilities 2,988
Equity
Share capital 250
Share premium 120
Retained earnings 620
Total equity 990
Total liabilities and equity 3,978

During the preparation of the final draft of the financial statements, the following issues regarding deferred tax implications were raised:

  1. Property, Plant, and Equipment
    • On November 1, 2022, Bamboo PLC acquired an asset for N120 million, which qualified for a government capital grant of N20 million. The asset has a five-year useful life with straight-line depreciation. Capital allowances are restricted by the grant amount, and tax laws allow a 25% annual capital allowance rate.
  2. Fair Value Adjustments
    • Bamboo PLC acquired Iroko Limited for N100 million, with net assets fair valued at N80 million against a tax base of N70 million. The difference relates to property, plant, and equipment that Iroko Limited intends to hold long-term.
  3. Profit from Foreign Subsidiary
    • Bamboo PLC’s foreign subsidiary, Pako Limited, has $5,000 in undistributed post-acquisition profit, which would incur a N4 million tax if remitted to Nigeria. Bamboo PLC plans to retain these earnings for Pako Limited’s reinvestment.

Required:

a. Briefly explain and calculate, where applicable, the deferred tax implications for each transaction. (15 Marks)

b. Show the deferred tax effects on the draft statement of financial position for Bamboo PLC. (5 Marks)

Note: Use a 30% tax rate for calculations.

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  • 8 Marks

FR – Nov 2023 – L2 – Q3a – Property, Plant, and Equipment (IAS 16)

Explain reclassification criteria for transferring investment property to PPE.

a. If a property is transferred into or out of the category of property, plant and equipment (PPE), it might be reclassified as investment property or as no longer an investment property.

A transfer of investment property can only be made where there is a change of use of such property.

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  • 5 Marks

FR – Nov 2014 – L2 – Q7a – Property, Plant and Equipment (IAS 16)

Identify the elements of cost for PPE and provide examples of directly attributable costs.

a. IAS 16 covers all aspects of accounting for Property, Plant and Equipment (PPE), including its measurement and qualification for recognition as an asset. The standard also describes the elements of cost, stating that some costs are directly attributable to the costs of PPE while some other costs fail to qualify as costs of an item of PPE.

Required:

In the context of IAS 16, identify the elements of cost of an item of Property, Plant, and Equipment, giving SIX examples of directly attributable costs. (5 Marks)

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  • 15 Marks

FR – Nov 2014 – L2 – Q6 – Property, Plant and Equipment (IAS 16)

Analyze the Property, Plant, and Equipment of Skelewu Nigeria Limited and compute the deferred tax implications.

Skelewu Nigeria Limited owns the following Property, Plant and Equipment as at 31 December 2011.

 

Additional pieces of information are:

(i) Plant and Machinery are depreciated on a straight-line basis over 5 years. The plant & machinery was acquired on 1 January 2011.
(ii) Land is not depreciated.
(iii) Buildings are depreciated on a straight-line basis over 25 years.
(iv) Depreciation on office buildings is not deductible for tax purposes, but for the plant and machinery; tax deductible is granted over a period of 3 years in the ratio 50:30:20 percent of cost consecutively.
(v) The accounting profit before tax amounted to N15,000,000 for the 2012 financial year and N20,000,000 for the year 2013. These figures include non-taxable revenue of N4,000,000 in year 2012 and N5,000,000 in year 2013.
(vi) Skelewu Nigeria Limited had a tax loss on 31 December 2011 of N12,500,000. The tax rate for year 2011 was 35% and 30% for each of the years 2012 and 2013.

Required:

a. In accordance with IAS 12 on Income Taxes, differentiate between Current Tax and Deferred Tax. (2 Marks)

b. Prepare the Deferred Tax Account for the year ended 31 December 2013. (10 Marks)

c. Advise the Directors of Skelewu Nigeria Limited on the reasons why it is necessary to recognize or make provision for Deferred Tax in the company’s Financial Statements. (3 Marks)

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  • 12 Marks

FR – Nov 2019 – L2 – Q1a – Property, Plant, and Equipment (IAS 16)

Explain the classification and measurement differences between investment properties and property, plant, and equipment.

You are the Financial Controller of Uchena Nigeria plc. The company was established about 15 years ago. At the last annual general meeting of the company, a new Managing Director was appointed.

The new Managing Director is a non-finance executive with very little knowledge of accounting. He has requested for the past five years financial statements of the company for review.

He has prepared a list of issues based on his review as follows:

  1. When I look at the statement of financial position of one of the past financial statements, one of the categories of non-current asset is investment properties and another category is property, plant, and equipment, in which all other properties are included. It is certain that the company invested in properties, so why do you have two categories for them in the statement of financial position? How did you decide what goes where?
  2. A note to the financial statements states that investment properties are measured at their fair values and not depreciated. Don’t all non-current assets have to be depreciated over their estimated useful lives?
  3. Another note to the financial statements states that property included in the property, plant, and equipment is measured at cost less accumulated depreciation rather than at fair value. Shouldn’t all properties be measured in financial statements on a consistent basis?
  4. Finally, I can’t see from the financial statements where gains or losses relating to the measurement of investment properties are included; the profit statement includes two main components: profit or loss and other comprehensive income; where would the gains or losses go? Presumably, the treatment of gains or losses is the same for any non-current assets, which one is measured at fair value?

Required:

Provide answers to the issues raised by the Managing Director. You should justify your answers with reference to the relevant IFRS. (12 Marks)

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  • 5 Marks

FR – Nov 2021 – L2 – Q7b – Property, Plant, and Equipment (IAS 16)

Explain the two methods of valuation for property, plant, and equipment as per IAS 16.

AS 16 prescribes the principles and models of the valuation in recognizing items of property, plant, and equipment in the financial statements of an entity.

Required:
Briefly explain the TWO methods of valuation recognized in IAS 16 – property, plant, and equipment.

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  • 1 Marks

FA – Nov 2012 – L1 – SA – Q9 – Accounting for Property, Plant, and Equipment (PPE) in Accordance with IAS 16

Identifying what does not lead to improvement of property, plant, and equipment.

Which of these may NOT lead to improvement in respect of Property, Plant and Equipment?

A. Extension of economic life of the asset
B. Repairs and maintenance of asset
C. Increased quality of output
D. Faster production
E. Reduced operating costs

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  • 1 Marks

FA – Nov 2013 – L1 – SA – Q25 – Accounting for Property, Plant, and Equipment (IAS 16)

Understanding the term for a new value resulting from revaluation under IAS 16.

According to IAS 16 (Property, Plant, and Equipment), the new value as a result of a revaluation exercise carried out on property, plant, and equipment, within the context of the historical cost system is called ____________.

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  • 3 Marks

FR – May 2018 – L2 – Q7c – Property, Plant, and Equipment (IAS 16)

Calculate the gain or loss on the disposal of an old equipment traded in for a new one, in accordance with IAS 16.

Odeda Limited operates its business with plant and equipment that qualified under IAS 16 as property, plant, and equipment. On January 1, 2016, the cost of the company’s plant was N4,000,000, and the accumulated depreciation was N1,600,000. On January 2, 2016, the company bought a new equipment at the cost of N1,000,000, and the equipment supplier accepted an old equipment owned by Odeda Limited in part exchange for a value of N80,000. The equipment originally cost N600,000, and its accumulated depreciation is N500,000.

You are required to calculate the gain or loss on the disposal of the old equipment.

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  • 7 Marks

FR – May 2018 – L2 – Q7b – Impairment of Assets (IAS 36)

Explain the process of identifying and accounting for impairment of property, plant, and equipment under IAS 36.

As the accounting officer in charge of your company’s property, plant, and equipment (PPE), draft a memo to the chief accountant explaining how impairment of PPE should be identified and accounted for by your company in accordance with IAS 36.

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  • 5 Marks

FR – May 2018 – L2 – Q7a – Property, Plant, and Equipment (IAS 16)

Outline the disclosure requirements for property, plant, and equipment in financial statements according to IAS 16.

Explain the disclosure requirements in published financial statements with respect to property, plant, and equipment in accordance with IAS 16.

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  • 1 Marks

FA – Nov 2015 – L1 – SA – Q19 – Accounting for Property, Plant, and Equipment (IAS 16)

This question identifies which cost should not be included in the initial measurement of property, plant, and equipment.

Which of the following costs should NOT be included in the initial measurement of property, plant and equipment?
A. Purchase price
B. Site preparation cost
C. Professional fees
D. Installation cost
E. Site administration and general overhead costs

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  • 10 Marks

FA – Nov 2021 – L1 – SB – Q6a – Accounting for Property, Plant, and Equipment (PPE) in Accordance with IAS 16

This question requires the disclosure requirements under IAS 16 for Property, Plant, and Equipment

IAS 16 – Property, Plant, and Equipment requires an entity to make certain disclosures in the financial statements for each major class of property, plant, and equipment.

Required:
State FIVE of the disclosures required under IAS 16. (10 Marks)

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  • 4 Marks

FA – May 2022 – L1 – SB – Q2a – Accounting for Property, Plant, and Equipment (IAS 16)

List general requirements of IAS 16 related to the depreciation of Property, Plant, and Equipment.

List FOUR general requirements of IAS 16 – Property, Plant, and Equipment, as regards depreciation.

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  • 5 Marks

FA – Nov 2022 – L1 – SB – Q6c – Accounting for Property, Plant, and Equipment (PPE) in Accordance with IAS 16

This question asks for the calculation of depreciation on revalued property and adjustments to account for revaluation gains and losses.

Explain how revaluation of property, plant and equipment affects the calculation of depreciation and the adjustments to revaluation surplus or deficit.
(5 Marks)

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  • 5 Marks

FA – Nov 2022 – L1 – SB – Q6a – Accounting for Property, Plant, and Equipment (PPE) in Accordance with IAS 16

This question asks for five disclosures required under IAS 16 for property, plant, and equipment.

IAS 16 – Property, Plant and Equipment requires an entity to make certain disclosures in the financial statements for each major class of property, plant and equipment.

Required:
State FIVE of the disclosures under IAS 16. (5 Marks)

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  • 5 Marks

BL – Nov 2023 – L1 – SB – Q3b – Sale of Goods

Discusses property and possession in a sale of goods contract and outlines the buyer’s rights.

Sale of goods contract involves the seller transferring ownership of goods to the buyer for a price.
Required:
i. Explain property and possession in sale of goods contract.
(2 Marks)
ii. State THREE rights of a buyer in sale of goods contract. (3 Marks)

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