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IA – OCT 2022 – L1 – Q1 – Preparation of Financial Statements from Trial Balance

Prepare the Income Statement for the year ended 31/12/2021 and the Statement of Financial Position as at 31/12/2021 for Kolikoli Enterprise using the given trial balance and additional information.

Question

The following trial balance was extracted from the ledger of Kolikoli Enterprise as at 31/12/21.

	Dr GH¢000	Cr GH¢000
Buildings at cost	750,000
Plant at cost	350,000
Provision for depreciation as at 1/1/2021 On buildings		100,000
Provision for depreciation as at 1/1/2021 On plant		190,000
Purchases	2,250,000
Sales		3,022,000
Stocks 01-01-2021	250,000
Discounts	40,000	24,000
Returns	11,000	75,000
Wages and salaries	294,000
Bad debts written off	23,000
Other expenses	114,000
Debtors	190,000
Creditors		180,000
Bank and Cash	8,000
Drawings	20,000
Provision for doubtful debts		2,500
Capital		706,500
Total	4,300,000	4,300,000

The following additional information is also made available:
a) Stocks at 31/12/2021 were valued at GH¢210,000
b) Wages and salaries accrued amounted to GH¢4,000
c) Other expenses prepaid amounted to GH¢1,500
d) Provision for doubtful debts is to be made at 2% of debtors at 31/12/2021
e) Depreciation for the year is to be provided as follows:
• Buildings 2% on cost
• Plant 25% reducing balance method

You are required to prepare the following:
i. Income Statement for the year ended 31/12/2021; and
ii. Statement of Financial Position as at 31/12/2021
[20 marks]

Answer

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Tags: Adjustments, Depreciation, Income Statement, Provisions, Sole Trader, Statement of Financial Position, Trial Balance
Level: Level 1

Topic: Sole Trader
Series: OCT 2022

ITA – APR 2023 – L1 – Q1 – Trial Balance and Financial Statements Preparation

Prepare Income Statement and Statement of Financial Position from given trial balance with additional adjustments.

Question

The following trial balance was extracted from the ledger of Adtrack Enterprise as at 31/12/21.

Dr Cr GHe00 GHe00 Motor Vehicle at cost 350,000 700,000 Factory Building at cost 700,000 On Motor Vehicle On Factory Building Purchases and sales 5,250,000 250,000 Stocks 1/1/2022 290,000 290,000 Discounts 190,000 324,000 Returns 31,1,000 274,000 Wages and salaries 654,000 654,000 Bad debts written off 500,000 500,000 Other expenses 450,000 450,000 Debtors and creditors 1,1,900,000 1,1,900,000 Bank and Cash 900,000 900,000 Drawings 560,000 560,000 Provision for doubtful debts 75,500 75,500 Capital 10,057,000 10,057,000 The following additional information is also made available: a) Stocks at 31/12/2022 were valued at GHe $450,000,000$ b) Wages and salaries accrued amounted to GHe $9,560,000$ c) Other expenses prepaid amounted to GHe $1,800,000$ d) Provision for doubtful debts is to be made at $7 %$ of debtors at 31/12/2022 e) The factory plant and machinery was leased under an operating lease for a period of 7 years with a yearly payment of GHe $12,200,000$. This has not been paid for the year ended 31/12/2022. f) Depreciation for the year is to be provided as follows:

Factory Building $2 %$ on cost
Motor Vehicle $25 %$ reducing balance method

You are required to prepare: i. Income Statement for the year ended 31/12/2022 (10 marks) ii. Statement of Financial Position as at 31/12/2022

(Total: 20 marks)

Answer

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Tags: Adjustments, Depreciation, Income Statement, Provisions, rial Balance, Statement of Financial Position
Level: Level 1

Topic: Accounting Records
Series: APR 2023

TAI – Aug 2020 – L1 – Q3 – Audit Review and Reporting

Comment on matters and audit evidence for bad debt provisions and VAT claims of Mina Macarthy Limited for 2019.

Question

(a) You are a tax audit team leader responsible for the audit of Mina Macarthy Limited.

Mina Macarthy Limited owns a block of flats and earns its income through rentals and general dealing. On 1st January 2019, the ledger accounts of the company included the following balances.

Debtors’ account GH¢475,000

Provision for doubtful debts account GH¢ 42,235

The balance on the provision account consisted of the following: GH¢

Specific provision of 100% against the debt of Charles Sulemana, a tenant 31,500

General provision of 1% against remaining debts
12,235

During the year ended 31st December 2019, the following events occurred.

i. Charles Sulemana paid Mina Macarthy GH¢11,150 and then vanished without trace to new world, leaving no assets.

ii. Another tenant, Antonio Banderas, who owed GH¢3,900 fell into a river and was also found to have died penniless.

iii. Azuma Nickson returned from total obscurity and paid an amount of GH¢6,450 which Mina Macarthy Ltd had written off in 2017.

iv. Credit sales for the year amounted to GH¢8,167,400 and cash received from debtors (other than Sulemana and Azuma) totaled GH¢3,150,000

v. On 31st December 2019, Mina Macarthy Ltd decided to provide in full against a disputed debt of GH¢51,200 owed by Kwesi Otoo Pratt, and to maintain the 1% general provision on other debtors.

Additional notes

The company has submitted its returns for 2019 which showed a profit before tax of GH¢375,650.

Required: Comment on the matters to be considered. In addition to your comments, explain the audit evidence expected to be obtained during your review of Mina Macarthy Limited’s audit working papers prepared by the audit team member in respect of each of the issues described above. (bi)

In order to claim a VAT bad debt, a business must show proof of the bad debt.

Required:

i. Explain how a bad debt may arise for VAT.

(bii) In order to claim a VAT bad debt, a business must show proof of the bad debt.

Required:

ii. Explain the circumstances under which a bad debt relief can be claimed.

Answer

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Tags: Audit evidence, Audit Review, Bad Debts, Debtors, Financial Analysis, Provisions, Tax Audit, Tax Compliance, VAT
Level: Level 1

Topic: Audit Review and Reporting, Tax Audits and Investigations
Series: AUGUST 2020

AAA – Mar 2025 – L3 – Q3 – Audit of Complex Transactions and Provisions

Justify provisions for toxic emission fines, outline audit procedures for a new filter and provision, and identify risks in providing assurance for a disposal licence.

Question

You are partner for a firm called Konamoah & Associates, who are auditors for Aluco, an aluminium processing company. Aluco has several issues with its aluminium and steel byproducts, including toxic emissions and a poor health and safety record for employees in the workshop. Aluco has proven to be very lucrative for your firm and you are busy planning the coming year’s audit visits after agreeing to continue this engagement some weeks earlier. The by-products arising from the production process include the following:

Sharp metallic fragments that require disposal under an annually granted licence.
Toxic exhaust gases that require treatment by a specific filter.
Carcinogenic oil that require storage in underground bunkers. Aluco is in the process of installing a new filter to process toxic exhaust gases. This represents an investment of GH¢2,000,000 and is material to the financial statements. The new filter is expected to reduce the number of toxic leaks that the company has caused by over 90%, although the suppliers of the filter, Adamah Enterprises, have only just rushed this product onto the market. In the last five years, Aluco has been fined material amounts of between GH¢200,000 and GH¢400,000 by the Tema Metropolitan Assembly, so this new filter is expected to reduce their liability substantially. During an initial planning meeting held at Aluco, the Finance Director Frank Afful suggested to you that the year’s provision for toxic emission fines be removed as the new filter is likely to reduce these to negligible amounts. He has also mentioned that Aluco will need to start supplying information to assist with the metallic fragment disposal licence application and asked if your firm would be interested in providing assurance on the information required. Required: a) As the Audit Partner, justify the need for any provisions in respect of toxic emission fines. (4 marks) b) What audit procedures are you required to perform to determine the most appropriate treatment of both the new filter and the provision in the financial statements of Aluco and any possible worst case impact on your audit report? (10 marks) c) Identify SIX risks that your firm might have by agreeing to provide required assurance for Aluco’s application for a disposal licence. (6 marks)

Answer

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Tags: Assurance engagements, Audit opinion, Audit Procedures, Environmental Compliance, Financial Statements, IAS 37, Independence, Provisions, Risk Assessment, Toxic Emissions
Level: Level 3

Topic: Audit of Complex Entities
Series: MAR 2025

FR – Nov 2024 – L2 – Q2b – Events After the Reporting Period

Accounting treatment of a court ruling after the reporting period and its impact on Mulba LTD’s financial statements.

Question

As a Trainee Financial Accountant working for Mulba LTD, a technology business, you have been asked by the Financial Controller to provide guidance on how to account for a variety of transactions that took place after the company’s fiscal year ended on December 31, 2023.

Mulba LTD was sued by a customer who was dissatisfied with the quality of a product delivered in June 2023. The court case was heard in late October 2023, but the judgment was delivered on 8 January 2024, ruling in favor of Mulba LTD. The ruling awarded the company legal costs of GH¢20,000 to cover solicitor’s fees.

The legal costs were paid by the customer to Mulba LTD on 12 January 2024.

Mulba LTD was doubtful of winning the case and had previously made a provision in its financial statements for the year ended 31 December 2023 as follows:

Account	Debit (GH¢)	Credit (GH¢)
Legal Fees – Administrative Expenses	25,000	–
Cost of Sales	35,000	–
Provisions – Current Liabilities	–	60,000

Required:
In accordance with IAS 10: Events after the Reporting Period, advise the management of Mulba LTD on the proper accounting treatment of the above issue to ensure that the financial statements are prepared in compliance with IFRS.

Answer

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Tags: Adjusting Events, Contingent Liabilities, Financial Statements, IAS 10, Legal Provisions, Non-adjusting Events, Provisions
Level: Level 2

Topic: Events After the Reporting Period (IAS 10)
Series: Nov 2024

FR – Nov 2024 – L2 – Q2a – Provisions and Contingent Liabilities

Determining the correct accounting treatment for warranty obligations and legal provisions in Kamara LTD’s financial statements.

Question

Kamara LTD manufactures and sells health equipment and has a financial year-end of March 2024. It offers a one-year guarantee for equipment supplied directly to clients. One of the company’s clients is suing the business at the financial year-end for failing to fix equipment within the guarantee period. The company argues that the issue is due to the client disregarding usage instructions, and Kamara LTD believes it is not liable.

Kamara LTD’s lawyer has advised that it is more likely than not that the company will not be found liable. If found liable, the company is estimated to incur legal expenses of approximately GH¢24,000.

Kamara LTD also manufactures another line of equipment sold to wholesalers. During the financial year, it sold 3,200 items of this equipment, which come with a one-year repair guarantee. Based on past experience, 10% of items sold are returned for repairs. Of these returns:

70% require minor repairs at a cost of GH¢64 per item.
30% require significant repairs at a cost of GH¢200 per item.

Required:
Determine the correct accounting treatment to deal with the above issues in the books of Kamara LTD for the year ended 31 March 2024.

Answer

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Tags: Accounting Treatment, Contingent Liabilities, Expected Value Calculation, IAS 37, Legal Expenses, Provisions, Warranty Obligations
Level: Level 2

Topic: Financial Reporting Standards and Their Applications
Series: Nov 2024

CR – May 2016 – L3 – Q4b – Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

Discuss how the environmental liability for LALUPON Plc, arising from hazardous pollution, should be accounted for in its financial statements.

Question

LALUPON Plc owns a piece of land in a residential area. PONJEB Ltd has leased the piece of land from LALUPON Plc and is using it to store and dispense gas. The Federal government has announced its intention to enact environmental legislation requiring property owners to accept liability for environmental pollution. As a result, LALUPON Plc introduced a hazardous policy and has begun to apply the policy to its properties.

LALUPON Plc has had a report of a gas leakage and subsequent fire outbreak which damaged surrounding properties, but no life was lost. LALUPON Plc has no right of recourse against PONJEB Ltd or its insurance company for the clean-up and compensations to owners of properties destroyed. At April 30, 2014, it is virtually certain that draft legislation requiring a clean-up of the land and payment of compensations to victims will be enacted.

Required:
Discuss how the above events should be accounted for in the financial statements of LALUPON Plc.

Answer

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Tags: Contingent Liabilities, Environmental Liability, IAS 37, Land Pollution, Legislation, Provisions
Level: Level 3

Topic: Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

CR – May 2019 – L3 – Q5 – Joint Arrangements (IFRS 11)

Account for a joint arrangement and decommissioning obligations under IFRS 11 and handle the provision for a major overhaul under IAS 37.

Question

a. LPG Plc. is a publicly traded entity on the Nigerian Stock Exchange involved in the production of and trading in natural gas in Nigeria. LPG Plc. jointly owns a gas storage facility with another entity, Tan Oil Nigeria Limited. Both parties extract gas from onshore gas fields in the Niger Delta, which they own and operate independently from each other. LPG owns 55% of the gas storage facility and Tan Oil Nigeria owns 45%. Services and costs are shared between them according to their percentage holding, however, decisions regarding the storage facility require unanimous agreement of the parties. The gas storage facility is pressurised so that the gas is pushed out when extracted. When the gas pressure is reduced to a certain level, the remaining gas is irrecoverable and remains in the gas storage facility until it is decommissioned. The Nigeria law requires the decommissioning of the storage facility at the end of its useful life. LPG Plc. wishes to know how to treat the agreement with Tan Oil Nigeria Limited, including any obligation or possible obligation arising on the gas storage facility.

NB: Ignore accounting for the irrecoverable gas.

b. LPG purchased a major gas plant on 1 January, 2018 and the Directors estimated that a major overhaul is required every two years. The costs of the overhaul are approximately ₦25 million, which comprises ₦15 million for parts and equipment and ₦10 million for labour. The Directors proposed to accrue the cost of the overhaul over the two years of operations up to that date and create a provision for the expenditure.

Required:
Discuss, with reference to International Financial Reporting Standards (IFRS), how LPG Plc should account for the agreement in (a) above (11 marks) and the transactions in (b) for its year ended 31 August, 2018. (4 marks)

Answer

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Tags: Accounting for Provisions, Decommissioning, IFRS 11, Joint Arrangements, Joint Ventures, Overhaul, Provisions
Level: Level 3

Topic: Joint Arrangements (IFRS 11)

CR – May 2021 – L3 – Q5b – Provisions, Contingent Liabilities, and Discounted Cash Flows (IAS 37)

Calculate provisions and charges for emission modifications in 2015 and 2016 for Gama Plastic Limited.

Question

Gama Plastic Limited owns a number of plastic recycling plants in various parts of the country which supply most of the raw material used by Gama Plastic Limited for its production of household and corporate plastic products.

On December 1, 2015, the directors of Gama Plastic Limited announced publicly that it intends to voluntarily reduce the level of harmful emissions from its recycling plants through modifications of the plants.

The average useful economic life of these plants as of December 31, 2015, was 15 years. Gama Plastic Limited charges depreciation in relation to the recycling plants to cost of sales on a straight-line basis.

The directors believe that while the modifications will be effective from early 2016 onward, the actual cash costs of the modifications will be as follows:

Date	Amount (N’000)
December 31, 2016	100,000
December 31, 2017	80,000
December 31, 2018	140,000

No contract was signed until 2016, but Gama Plastic Limited prides itself on its excellent public image and has a well-known reputation for meeting both legal and constructive obligations.

The directors of Gama Plastic Limited believe that it is appropriate to use discounted cash flow techniques and that an appropriate rate would be 10%, with the following discount factors:

Year	PV Factor
1	0.909
2	0.826
3	0.751
4	0.683
5	0.620
6	0.564

Required:

Assuming the actual cash cost of the modification is a reliable estimate, calculate the provisions that should be included in the statement of financial position and the charges to the statement of profit or loss of Gama Plastic Limited in respect of the proposal for each of the years 2015 and 2016. (7 Marks)

Answer

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Tags: Depreciation, Discounted Cash Flow, Emission Modifications, IAS 37, Provisions
Level: Level 3

Topic: Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

CR – May 2021 – L3 – Q5a – Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)

Define provisions and discuss their misuse in creative accounting.

Question

International Accounting Standard (IAS) 37 on Provisions, Contingent Liabilities, and Contingent Assets sets out the principles of accounting for these items. The inappropriate use of provisions has been an area where companies have been accused of manipulating financial statements and engaging in creative accounting.

Required:

What is provisions, and how is it employed by management to engage in creative accounting? (7 Marks)

Answer

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Tags: Contingent Liabilities, Creative Accounting, IAS 37, Provisions
Level: Level 3

Topic: Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

IA – OCT 2022 – L1 – Q1 – Preparation of Financial Statements from Trial Balance

Prepare the Income Statement for the year ended 31/12/2021 and the Statement of Financial Position as at 31/12/2021 for Kolikoli Enterprise using the given trial balance and additional information.

Question

The following trial balance was extracted from the ledger of Kolikoli Enterprise as at 31/12/21.

	Dr GH¢000	Cr GH¢000
Buildings at cost	750,000
Plant at cost	350,000
Provision for depreciation as at 1/1/2021 On buildings		100,000
Provision for depreciation as at 1/1/2021 On plant		190,000
Purchases	2,250,000
Sales		3,022,000
Stocks 01-01-2021	250,000
Discounts	40,000	24,000
Returns	11,000	75,000
Wages and salaries	294,000
Bad debts written off	23,000
Other expenses	114,000
Debtors	190,000
Creditors		180,000
Bank and Cash	8,000
Drawings	20,000
Provision for doubtful debts		2,500
Capital		706,500
Total	4,300,000	4,300,000

You are required to prepare the following:
i. Income Statement for the year ended 31/12/2021; and
ii. Statement of Financial Position as at 31/12/2021
[20 marks]

Answer

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Tags: Adjustments, Depreciation, Income Statement, Provisions, Sole Trader, Statement of Financial Position, Trial Balance
Level: Level 1

Topic: Sole Trader
Series: OCT 2022

ITA – APR 2023 – L1 – Q1 – Trial Balance and Financial Statements Preparation

Prepare Income Statement and Statement of Financial Position from given trial balance with additional adjustments.

Question

The following trial balance was extracted from the ledger of Adtrack Enterprise as at 31/12/21.

Factory Building $2 %$ on cost
Motor Vehicle $25 %$ reducing balance method

You are required to prepare: i. Income Statement for the year ended 31/12/2022 (10 marks) ii. Statement of Financial Position as at 31/12/2022

(Total: 20 marks)

Answer

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Tags: Adjustments, Depreciation, Income Statement, Provisions, rial Balance, Statement of Financial Position
Level: Level 1

Topic: Accounting Records
Series: APR 2023

TAI – Aug 2020 – L1 – Q3 – Audit Review and Reporting

Comment on matters and audit evidence for bad debt provisions and VAT claims of Mina Macarthy Limited for 2019.

Question

(a) You are a tax audit team leader responsible for the audit of Mina Macarthy Limited.

Mina Macarthy Limited owns a block of flats and earns its income through rentals and general dealing. On 1st January 2019, the ledger accounts of the company included the following balances.

Debtors’ account GH¢475,000

Provision for doubtful debts account GH¢ 42,235

The balance on the provision account consisted of the following: GH¢

Specific provision of 100% against the debt of Charles Sulemana, a tenant 31,500

General provision of 1% against remaining debts
12,235

During the year ended 31st December 2019, the following events occurred.

i. Charles Sulemana paid Mina Macarthy GH¢11,150 and then vanished without trace to new world, leaving no assets.

ii. Another tenant, Antonio Banderas, who owed GH¢3,900 fell into a river and was also found to have died penniless.

iii. Azuma Nickson returned from total obscurity and paid an amount of GH¢6,450 which Mina Macarthy Ltd had written off in 2017.

iv. Credit sales for the year amounted to GH¢8,167,400 and cash received from debtors (other than Sulemana and Azuma) totaled GH¢3,150,000

v. On 31st December 2019, Mina Macarthy Ltd decided to provide in full against a disputed debt of GH¢51,200 owed by Kwesi Otoo Pratt, and to maintain the 1% general provision on other debtors.

Additional notes

The company has submitted its returns for 2019 which showed a profit before tax of GH¢375,650.

In order to claim a VAT bad debt, a business must show proof of the bad debt.

Required:

i. Explain how a bad debt may arise for VAT.

(bii) In order to claim a VAT bad debt, a business must show proof of the bad debt.

Required:

ii. Explain the circumstances under which a bad debt relief can be claimed.

Answer

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Tags: Audit evidence, Audit Review, Bad Debts, Debtors, Financial Analysis, Provisions, Tax Audit, Tax Compliance, VAT
Level: Level 1

Topic: Audit Review and Reporting, Tax Audits and Investigations
Series: AUGUST 2020

AAA – Mar 2025 – L3 – Q3 – Audit of Complex Transactions and Provisions

Justify provisions for toxic emission fines, outline audit procedures for a new filter and provision, and identify risks in providing assurance for a disposal licence.

Question

Sharp metallic fragments that require disposal under an annually granted licence.
Toxic exhaust gases that require treatment by a specific filter.
Carcinogenic oil that require storage in underground bunkers. Aluco is in the process of installing a new filter to process toxic exhaust gases. This represents an investment of GH¢2,000,000 and is material to the financial statements. The new filter is expected to reduce the number of toxic leaks that the company has caused by over 90%, although the suppliers of the filter, Adamah Enterprises, have only just rushed this product onto the market. In the last five years, Aluco has been fined material amounts of between GH¢200,000 and GH¢400,000 by the Tema Metropolitan Assembly, so this new filter is expected to reduce their liability substantially. During an initial planning meeting held at Aluco, the Finance Director Frank Afful suggested to you that the year’s provision for toxic emission fines be removed as the new filter is likely to reduce these to negligible amounts. He has also mentioned that Aluco will need to start supplying information to assist with the metallic fragment disposal licence application and asked if your firm would be interested in providing assurance on the information required. Required: a) As the Audit Partner, justify the need for any provisions in respect of toxic emission fines. (4 marks) b) What audit procedures are you required to perform to determine the most appropriate treatment of both the new filter and the provision in the financial statements of Aluco and any possible worst case impact on your audit report? (10 marks) c) Identify SIX risks that your firm might have by agreeing to provide required assurance for Aluco’s application for a disposal licence. (6 marks)

Answer

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Tags: Assurance engagements, Audit opinion, Audit Procedures, Environmental Compliance, Financial Statements, IAS 37, Independence, Provisions, Risk Assessment, Toxic Emissions
Level: Level 3

Topic: Audit of Complex Entities
Series: MAR 2025

FR – Nov 2024 – L2 – Q2b – Events After the Reporting Period

Accounting treatment of a court ruling after the reporting period and its impact on Mulba LTD’s financial statements.

Question

The legal costs were paid by the customer to Mulba LTD on 12 January 2024.

Mulba LTD was doubtful of winning the case and had previously made a provision in its financial statements for the year ended 31 December 2023 as follows:

Account	Debit (GH¢)	Credit (GH¢)
Legal Fees – Administrative Expenses	25,000	–
Cost of Sales	35,000	–
Provisions – Current Liabilities	–	60,000

Answer

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Tags: Adjusting Events, Contingent Liabilities, Financial Statements, IAS 10, Legal Provisions, Non-adjusting Events, Provisions
Level: Level 2

Topic: Events After the Reporting Period (IAS 10)
Series: Nov 2024

FR – Nov 2024 – L2 – Q2a – Provisions and Contingent Liabilities

Determining the correct accounting treatment for warranty obligations and legal provisions in Kamara LTD’s financial statements.

Question

70% require minor repairs at a cost of GH¢64 per item.
30% require significant repairs at a cost of GH¢200 per item.

Required:
Determine the correct accounting treatment to deal with the above issues in the books of Kamara LTD for the year ended 31 March 2024.

Answer

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Tags: Accounting Treatment, Contingent Liabilities, Expected Value Calculation, IAS 37, Legal Expenses, Provisions, Warranty Obligations
Level: Level 2

Topic: Financial Reporting Standards and Their Applications
Series: Nov 2024

CR – May 2016 – L3 – Q4b – Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

Discuss how the environmental liability for LALUPON Plc, arising from hazardous pollution, should be accounted for in its financial statements.

Question

Required:
Discuss how the above events should be accounted for in the financial statements of LALUPON Plc.

Answer

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Tags: Contingent Liabilities, Environmental Liability, IAS 37, Land Pollution, Legislation, Provisions
Level: Level 3

Topic: Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

CR – May 2019 – L3 – Q5 – Joint Arrangements (IFRS 11)

Account for a joint arrangement and decommissioning obligations under IFRS 11 and handle the provision for a major overhaul under IAS 37.

Question

NB: Ignore accounting for the irrecoverable gas.

Answer

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Tags: Accounting for Provisions, Decommissioning, IFRS 11, Joint Arrangements, Joint Ventures, Overhaul, Provisions
Level: Level 3

Topic: Joint Arrangements (IFRS 11)

CR – May 2021 – L3 – Q5b – Provisions, Contingent Liabilities, and Discounted Cash Flows (IAS 37)

Calculate provisions and charges for emission modifications in 2015 and 2016 for Gama Plastic Limited.

Question

The directors believe that while the modifications will be effective from early 2016 onward, the actual cash costs of the modifications will be as follows:

Date	Amount (N’000)
December 31, 2016	100,000
December 31, 2017	80,000
December 31, 2018	140,000

No contract was signed until 2016, but Gama Plastic Limited prides itself on its excellent public image and has a well-known reputation for meeting both legal and constructive obligations.

The directors of Gama Plastic Limited believe that it is appropriate to use discounted cash flow techniques and that an appropriate rate would be 10%, with the following discount factors:

Year	PV Factor
1	0.909
2	0.826
3	0.751
4	0.683
5	0.620
6	0.564

Required:

Answer

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Tags: Depreciation, Discounted Cash Flow, Emission Modifications, IAS 37, Provisions
Level: Level 3

Topic: Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

CR – May 2021 – L3 – Q5a – Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)

Define provisions and discuss their misuse in creative accounting.

Question

Required:

What is provisions, and how is it employed by management to engage in creative accounting? (7 Marks)

Answer

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Tags: Contingent Liabilities, Creative Accounting, IAS 37, Provisions
Level: Level 3

Topic: Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

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IA – OCT 2022 – L1 – Q1 – Preparation of Financial Statements from Trial Balance

Prepare the Income Statement for the year ended 31/12/2021 and the Statement of Financial Position as at 31/12/2021 for Kolikoli Enterprise using the given trial balance and additional information.

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ITA – APR 2023 – L1 – Q1 – Trial Balance and Financial Statements Preparation

Prepare Income Statement and Statement of Financial Position from given trial balance with additional adjustments.

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TAI – Aug 2020 – L1 – Q3 – Audit Review and Reporting

Comment on matters and audit evidence for bad debt provisions and VAT claims of Mina Macarthy Limited for 2019.

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AAA – Mar 2025 – L3 – Q3 – Audit of Complex Transactions and Provisions

Justify provisions for toxic emission fines, outline audit procedures for a new filter and provision, and identify risks in providing assurance for a disposal licence.

You're reporting an error for "AAA – Mar 2025 – L3 – Q3 – Audit of Complex Transactions and Provisions"

FR – Nov 2024 – L2 – Q2b – Events After the Reporting Period

Accounting treatment of a court ruling after the reporting period and its impact on Mulba LTD’s financial statements.

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FR – Nov 2024 – L2 – Q2a – Provisions and Contingent Liabilities

Determining the correct accounting treatment for warranty obligations and legal provisions in Kamara LTD’s financial statements.

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CR – May 2016 – L3 – Q4b – Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

Discuss how the environmental liability for LALUPON Plc, arising from hazardous pollution, should be accounted for in its financial statements.

You're reporting an error for "CR – May 2016 – L3 – Q4b – Provisions, Contingent Liabilities and Contingent Assets (IAS 37)"

CR – May 2019 – L3 – Q5 – Joint Arrangements (IFRS 11)

Account for a joint arrangement and decommissioning obligations under IFRS 11 and handle the provision for a major overhaul under IAS 37.

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CR – May 2021 – L3 – Q5b – Provisions, Contingent Liabilities, and Discounted Cash Flows (IAS 37)

Calculate provisions and charges for emission modifications in 2015 and 2016 for Gama Plastic Limited.

Required:

You're reporting an error for "CR – May 2021 – L3 – Q5b – Provisions, Contingent Liabilities, and Discounted Cash Flows (IAS 37)"

CR – May 2021 – L3 – Q5a – Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)

Define provisions and discuss their misuse in creative accounting.

Required:

You're reporting an error for "CR – May 2021 – L3 – Q5a – Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)"

IA – OCT 2022 – L1 – Q1 – Preparation of Financial Statements from Trial Balance

Prepare the Income Statement for the year ended 31/12/2021 and the Statement of Financial Position as at 31/12/2021 for Kolikoli Enterprise using the given trial balance and additional information.

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ITA – APR 2023 – L1 – Q1 – Trial Balance and Financial Statements Preparation

Prepare Income Statement and Statement of Financial Position from given trial balance with additional adjustments.

You're reporting an error for "ITA – APR 2023 – L1 – Q1 – Trial Balance and Financial Statements Preparation"

TAI – Aug 2020 – L1 – Q3 – Audit Review and Reporting

Comment on matters and audit evidence for bad debt provisions and VAT claims of Mina Macarthy Limited for 2019.

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AAA – Mar 2025 – L3 – Q3 – Audit of Complex Transactions and Provisions

Justify provisions for toxic emission fines, outline audit procedures for a new filter and provision, and identify risks in providing assurance for a disposal licence.

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FR – Nov 2024 – L2 – Q2b – Events After the Reporting Period

Accounting treatment of a court ruling after the reporting period and its impact on Mulba LTD’s financial statements.

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FR – Nov 2024 – L2 – Q2a – Provisions and Contingent Liabilities

Determining the correct accounting treatment for warranty obligations and legal provisions in Kamara LTD’s financial statements.

You're reporting an error for "FR – Nov 2024 – L2 – Q2a – Provisions and Contingent Liabilities"

CR – May 2016 – L3 – Q4b – Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

Discuss how the environmental liability for LALUPON Plc, arising from hazardous pollution, should be accounted for in its financial statements.

You're reporting an error for "CR – May 2016 – L3 – Q4b – Provisions, Contingent Liabilities and Contingent Assets (IAS 37)"

CR – May 2019 – L3 – Q5 – Joint Arrangements (IFRS 11)

Account for a joint arrangement and decommissioning obligations under IFRS 11 and handle the provision for a major overhaul under IAS 37.

You're reporting an error for "CR – May 2019 – L3 – Q5 – Joint Arrangements (IFRS 11)"

CR – May 2021 – L3 – Q5b – Provisions, Contingent Liabilities, and Discounted Cash Flows (IAS 37)

Calculate provisions and charges for emission modifications in 2015 and 2016 for Gama Plastic Limited.

Required:

You're reporting an error for "CR – May 2021 – L3 – Q5b – Provisions, Contingent Liabilities, and Discounted Cash Flows (IAS 37)"

CR – May 2021 – L3 – Q5a – Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)

Define provisions and discuss their misuse in creative accounting.

Required:

You're reporting an error for "CR – May 2021 – L3 – Q5a – Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)"

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