- 20 Marks
Question
The following trial balance relates to Halidu LTD (Halidu) at 30 June 2024:
| GH¢’000 | GH¢’000 | |
|---|---|---|
| Revenue | 3,120,000 | |
| Cost of sales | 1,757,400 | |
| Distribution costs | 45,600 | |
| Administration expenses | 118,800 | |
| Loan interest paid | 28,800 | |
| Property – cost | 1,200,000 | |
| Property – depreciation at 1 July 2023 | 225,000 | |
| Plant and equipment – cost | 1,011,600 | |
| Plant and equipment – depreciation at 1 July 2023 | 291,600 | |
| Licence – cost | 240,000 | |
| Licence – amortisation at 1 July 2023 | 96,000 | |
| Trade receivables | 259,200 | |
| Inventory – 30 June 2024 | 112,800 | |
| Bank | 78,000 | |
| Trade payables | 211,200 | |
| Share capital (GH¢0.25 each) | 420,000 | |
| Revaluation surplus | 78,000 | |
| 12% loan note (issued 1 July 2023) | 240,000 | |
| Taxation | 12,000 | |
| Retained earnings at 1 July 2023 | 68,700 | |
| 4,774,200 | 4,774,200 |
The following notes are relevant:
i) Halidu made credit sales for GH¢196 million on a sale or return basis and this is currently included in revenue in the trial balance. At 30 June 2024 customers who had not paid for the goods, had the right to return GH¢62.4 million of them. Halidu applied a mark-up on cost of 30% on all these sales. In the past Halidu’s customers have sometimes returned goods under this type of agreement.
ii) On 1 July 2023, Halidu revalued its property to GH¢1,440 million, of which GH¢360 million relates to the land. This property was acquired 10 years ago at a cost of GH¢1,200 million which included GH¢300 million for the land. The building had an estimated life of 40 years when it was acquired and this has not changed as a result of the revaluation. Depreciation is charged on a straight line basis. The revaluation has not yet been recorded in the books. Halidu has a policy of transferring any excess depreciation to retained earnings.
iii) During the year, Halidu sold some plant that cost GH¢120 million on 1 December 2020. The proceeds of this sale were GH¢72 million and these have been credited to cost of sales. No other entries have been made relating to the disposal. Plant and equipment is to be depreciated on the reducing balance basis at a rate of 20% per annum. Halidu charges a full year’s depreciation in the year of acquisition and none in the year of disposal.
iv) The licence is being amortised on the straight line basis at a rate of 20% per annum. All depreciation and amortisation is to be charged to cost of sales.
v) The directors have estimated the provision for income tax for the year ended 30 June 2024 at GH¢76.2 million. The balance of taxation in the trial balance relates to over/under provision of tax in the previous year. The only deferred tax consequence relates to those mentioned in note (ii) above. The company pays tax on profit at the rate of 25%.
vi) Halidu intends to dispose of a major line of its business operations in the course of the year. At the date the held for sale criteria were met, the carrying amount of the assets and liabilities comprising the line of business were:
| GH¢’000 | |
|---|---|
| Plant and equipment | 138,000 |
| Trade receivables | 9,000 |
| Trade payables | 7,000 |
It is anticipated that Halidu will realise GH¢135 million for the business. No entries have yet been made in respect of this information.
Required:
Prepare and present a statement of comprehensive income, a statement of changes in equity and a statement of financial position at 30 June 2024 in a form suitable for presentation to the shareholders and in accordance with the requirements of International Financial Reporting Standards (IFRS).
Answer
HALIDU LTD.
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2024
| GH¢’000 | |
|---|---|
| Revenue (W1) | 3,057,600 |
| Cost of sales (W2) | (1,969,512) |
| Gross profit | 1,088,088 |
| Other income: Profit on disposal (W3) | 10,560 |
| Distribution costs | (45,600) |
| Administration expenses (W10) | (123,800) |
| Operating profit | 929,248 |
| Finance costs | (28,800) |
| Profit before tax | 900,448 |
| Income tax expense (W6) | (64,200) |
| Profit for the year | 836,248 |
| Other comprehensive income: | |
| Gain on property revaluation (net of tax) | 348,750 |
| Total comprehensive income for the year | 1,184,998 |
HALIDU LTD.
STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2024
| GH¢’000 | |
|---|---|
| ASSETS | |
| Non-current assets: | |
| Property, plant and equipment (W7) | 1,820,448 |
| Licence (W8) | 96,000 |
| 1,916,448 | |
| Current assets: | |
| Inventory (W11) | 160,800 |
| Operation held for sale (W9) | 135,000 |
| Trade receivables (W12) | 250,200 |
| 546,000 | |
| Total Assets | 2,462,448 |
| EQUITY AND LIABILITIES | |
| Equity: | |
| Share capital | 420,000 |
| Revaluation surplus | 413,250 |
| Retained earnings | 918,448 |
| 1,751,698 | |
| Non-current liabilities: | |
| 12% Loan note | 240,000 |
| Deferred tax (W4) | 116,250 |
| 356,250 | |
| Current liabilities: | |
| Trade Payables (W13) | 266,600 |
| Income tax payable | 76,200 |
| Bank overdraft | 11,700 |
| 354,500 | |
| Total Equity and Liabilities | 2,462,448 |
HALIDU LTD.
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2024
| Share capital GH¢’000 | Revaluation surplus GH¢’000 | Retained earnings GH¢’000 | Total GH¢’000 | |
|---|---|---|---|---|
| Balance at 1 July 2023 | 420,000 | 78,000 | 68,700 | 566,700 |
| Total comprehensive income | 348,750 | 836,248 | 1,184,998 | |
| Transfer to retained earnings | (13,500) | 13,500 | – | |
| Balance at 30 June 2024 | 420,000 | 413,250 | 918,448 | 1,751,698 |
WORKINGS (in GH¢’000)
1 Revenue
Per trial balance 3,120,000
Less “Sale or return basis” sales (62,400)
3,057,600
2 Cost of sales
Per trial balance 1,757,400
Less “Sale or return basis” sales (62,400 × 100/130) (48,000)
Reversal of Proceeds of sale of Plant 72,000
Depreciation & Amortisation:
Building (1,440,000 – 360,000) / (40 – 10) 36,000
Plant and equipment ((1,011,600 – 120,000 – 138,000) – (291,600 – 58,560) × 20%) 104,112
Licence (240,000 × 20%) 48,000
1,969,512
3 Plant disposal
Year-end 30 June 2021
Cost 120,000
Depreciation (120,000 × 20%) (24,000)
Carrying amount 96,000
Year-end 30 June 2022
Depreciation (96,000 × 20%) (19,200)
Carrying amount 76,800
Year-end 30 June 2023
Depreciation (76,800 × 20%) (15,360)
Carrying amount/Accumulated depreciation 61,440/58,560
Proceeds of sale 72,000
Profit on disposal 10,560
4 Revaluation of Property
Revalued amount 1,440,000
Carrying amount (1,200,000 – 225,000) 975,000
Gain on revaluation 465,000
Deferred tax@25% (116,250)
Gain on property revaluation (net of tax) 348,750
5 Transfer to Realised Reserve
Depreciation on original cost (1,200,000 – 300,000) / 40 22,500
Depreciation on revalued amount (1,440,000 – 360,000) / 30 36,000
Excess depreciation transferred 13,500
Alternatively,
Valuation of building element (1,440,000 – 360,000) 1,080,000
Cost of building (1,200,000 – 300,000) 900,000
Accum. Depreciation (225,000)
Carrying amount of building element 675,000
Gain on revaluation of building element 405,000
Transfer to realised reserve (405,000 / 30) 13,500
6 Income tax expense
Estimated income tax for the year 76,200
Over provision of tax in previous year (12,000)
64,200
7 PPE Schedule
| Property GH¢’000 | Plant & Equipment GH¢’000 | Total GH¢’000 | |
|---|---|---|---|
| COST/VALUATION: | |||
| At 1 July 2023 | 1,200,000 | 1,011,600 | 2,211,600 |
| Valuation gain | 465,000 | 465,000 | |
| Reclassified as Held for sale | (138,000) | (138,000) | |
| Disposal | (120,000) | (120,000) | |
| At 30 June 2024 | 1,665,000 | 753,600 | 2,418,600 |
| ACCUM. DEPRECIATION: | |||
| At 1 July 2023 | 225,000 | 291,600 | 516,600 |
| Charge for the year | 36,000 | 104,112 | 140,112 |
| Disposal | (58,560) | (58,560) | |
| At 30 June 2024 | 261,000 | 337,152 | 598,152 |
| CARRYING AMOUNT: | |||
| At 30 June 2023 | 975,000 | 720,000 | 1,695,000 |
| At 30 June 2024 | 1,404,000 | 416,448 | 1,820,448 |
8 Licence
Cost 240,000
Accumulated amortisation (96,000 + 48,000) (144,000)
Carrying amount 96,000
9 Operation held for sale
Carrying amount of assets and liabilities:
Plant and equipment 138,000
Trade receivables 9,000
147,000
Less Trade payables (7,000)
140,000
Net realisable value/ Fair value less disposal cost 135,000
Impairment loss recognised 5,000
The ‘Operation held for sale’ is carried in the statement of financial position at the lower of carrying amount and net realisable value (fair value less disposal cost) of GH¢135 million.
10 Administration expenses
Per trial balance 118,800
Impairment loss recognised (W9) 5,000
123,800
11 Inventory
Per trial balance 112,800
Cost of goods sold on ‘Sale or return basis’ 48,000
160,800
12 Trade receivables
Per trial balance 259,200
Reclassified as held for sale (9,000)
250,200
13 Trade payables
Per trial balance 211,200
Reclassified as held for sale (7,000)
Advances from customers/Sales on ‘sale or return basis’ 62,400
266,600
(20 marks)
EXAMINER’S COMMENTS
The question was straightforward, unfortunately, only a few candidates were able to score more than 10 marks out of 20.
The key challenges identified were:
✓ Lack of proper workings: Many candidates did not show clear and structured calculations, leading to incorrect final figures.
✓ Poor knowledge of IFRS principles: Some candidates failed to apply relevant standards correctly, particularly regarding sale or return transactions, IFRS 5, and tax accounting.
✓ Errors in classification and presentation: Mistakes in the statement formats and misplacement of items resulted in lost marks.
Guidance for future questions in this area
To perform better in similar financial reporting questions, candidates should:
- Understand IFRS principles thoroughly – Focus on key standards such as IFRS 15 (Revenue), IFRS 5 (Discontinued Operations), IAS 16 (PPE), and IAS 12 (Taxation).
- Show detailed workings – Break down calculations clearly, labeling figures appropriately to demonstrate logical steps.
- Follow correct statement formats – Ensure proper headings, sub-totals, and classifications in line with IFRS presentation requirements.
- Apply correct accounting treatments – Pay attention to adjustments for revaluations, disposals, depreciation, deferred tax, and inventory valuation.
- Manage time effectively – Allocate time wisely to cover all required statements and supporting calculations.
- Practice past exam questions – Regularly working on similar structured questions improves familiarity and accuracy.
- Topic: Preparation of Financial Statements
- Series: MAR 2025
- Uploader: Samuel Duah