- 20 Marks
Question
The following trial balance relates to Adanna Nigeria Limited as at December 31, 2023:
| N’000 | N’000 | |
|---|---|---|
| Freehold properties at valuation 1/1/2023 | 480,000 | |
| Plant and machinery at cost | 520,000 | |
| Motor vehicles at cost | 108,600 | |
| Construction work-in-progress at cost | 250,000 | |
| Accumulated depreciation at 1/1/2023: | ||
| Plant and machinery | 208,000 | |
| Motor vehicles | 48,870 | |
| Financial assets | 75,600 | |
| Inventory at December 31, 2023 | 100,500 | |
| Trade receivables | 98,900 | |
| Profit for the year | 208,660 | |
| Revaluation reserves | 185,000 | |
| Retained earnings at 1/1/2023 | 489,700 | |
| Ordinary share capital of 50k each | 100,000 | |
| Share premium | 266,000 | |
| 10% Redeemable preference shares (2020-2023) | 42,800 | |
| Deferred tax | 6,600 | |
| Interim dividend | 28,000 | |
| Income tax payable | 15,900 | |
| Bank balances | 20,180 | |
| Cash in hand | 5,220 | |
| Trade payables | 86,470 | |
| Suspense account | 29,000 | |
| 1,687,000 | 1,687,000 |
The following information is relevant:
(i) The freehold properties consist of land and building which are revalued in compliance with the company‟s policy at each year end. The valuation in the trial balance includes a land element of N136 million. The estimated remaining life of the building at January 1, 2023 was 20 years. On December 31, 2023, a professional valuer values the buildings at N276.8 million with no change in the value of land.
(ii) The company during the year incurred additional N180million on the construction work-in-progress which resulted to the completion of a factory warehouse costing N320million. The warehouse was put to use in the month of July 2023. The warehouse has an expected useful life of 25 years. Also, within the year, Adanna Nigeria Limited built a plant that is used as part of its own production process. The production of the plant was completed on April 15, 2023 and was brought to use immediately. The additional cost incurred on the construction in progress and the sum of N96 million building cost of the plant are yet to be capitalised.
(iii) A delivery van with original cost N42million and carrying amount of N23.1million was disposed during the year while an item of plant costing N128million to acquire was also disposed after two years of depreciation.
(iv) Annual depreciation on the non-current assets is charged on straight-line basis at 20% and 15% for plant and machinery and motor vehicles respectively.
Depreciation is charged in full for the acquisition year while no depreciation is charged in the year of disposal. The annual depreciation have been charged to cost of sales.
(v) The 10% redeemable preference shares are due for redemption in the year.
The redemption was carried out from the existing resources at a premium of N22million.
(vi) The company paid an interim dividend of N28million and a dividend of N1.20k per share is proposed by the Directors for the year ended December 31, 2023.
(vii) The suspense account contains the corresponding credit entry for the proceeds of a right issue of shares made on September 30, 2023. The terms of the issue were one share for every four held at 58 kobo per share. Adanna Nigeria limited share price immediately before the issue was 80 kobo. The issue was fully subscribed.
Required:
i. Prepare the non-current assets schedule to be included in the notes to the financial statements as at December 31, 2023. (13 Marks)
ii. Prepare the statement of changes in equity for the year ended December 31, 2023. (5 Marks)
iii. State any FOUR uses of share premium. (2 Marks)
Answer
(i) Adanna Nigeria Limited
Non-current assets movement schedule for the year ended December 31, 2023
| Cost/valuation | Freehold properties N’000 | Plant and machinery N’000 | Motor vehicles N’000 | Construction work in progress N’000 | Total N’000 |
|---|---|---|---|---|---|
| 1/1/2023 | 480,000 | 520,000 | 108,600 | 250,000 | 1,358,600 |
| Addition | – | 96,000 | – | 180,000 | 276,000 |
| Reclassification | 320,000 | – | – | (320,000) | – |
| Disposal | – | (128,000) | (42,000) | – | (170,000) |
| Revaluation reserve | (50,000) | ________ | _______ | ________ | (50,000) |
| 31/12/2023 | 750,000 | 488,000 | 66,600 | 110,000 | 1,414,600 |
| Acc depreciation: | |||||
| 1/1/2023 | – | 208,000 | 48,870 | – | 256,870 |
| Charge for the year | 30,000 | 97,600 | 9,990 | – | 137,590 |
| Disposal | ______ | (51,200) | (18,900) | _______ | (70,100) |
| 31/12/2023 | 30,000 | 254,400 | 39,960 | – | 324,360 |
| Carrying Amount | |||||
| 31/12/2023 | 720,000 | 233,600 | 26,640 | 110,000 | 1,090,240 |
| 1/1/2023 | 480,000 | 312,000 | 59,730 | 250,000 | 1,101,730 |
Workings:
W1. Revaluation difference N’million
Building valuation – 1/1/2023(480 – 136) 344
Less Dep (344/20 x 1) (17.2)
Carrying amount 326.8
Revalued amount (276.8)
Revaluation deficit (50)
W2. Depreciation on new building 320/25 12.8
Total depreciation on building (17.2+12.8) 30.0
W3. Depreciation on plant and machinery
20% x 488,000 97,600
W4. Depreciation on motor vehicles (15% x 66,600) 9,990
W5. Accumulated depreciation on disposal of assets
Plant and machinery (20% x 128,000 x 2) 51,200
Motor vehicle (42,000 – 23,100) 18,900
(ii) Statement of changes in equity for the year ended December 31, 2023
| Share capital N’000 | Share premium N’000 | Retained earnings N’000 | Revaluation reserves N’000 | Total N’000 | |
|---|---|---|---|---|---|
| Bal b/f | 100,000 | 266,000 | 489,700 | 185,000 | 1,040,700 |
| Profit for the year | – | – | 208,660 | – | 208,660 |
| Dividend paid | – | – | (28,000) | – | (28,000) |
| Rev deficit | – | – | – | (50,000) | (50,000) |
| Proceeds from share (w1) | 25,000 | 4,000 | – | – | 29,000 |
| Redeemable pref. share redemption | – | (22,000) | – | – | (22,000) |
| Balance c/f | 125,000 | 248,000 | 670,360 | 135,000 | 1,178,360 |
Workings:
W1 Split of proceeds from right issue N’000
Share capital (1/4 x N50x100,000/N0.5) 25,000
Share premium (1/4 x 0.08 x (100,000/N0.5)) 4,000
(iii) Uses of share premium
i. It can be used to create bonus issue
ii. It can be used to take care of transaction costs on shares issue
iii. It can be used to settle underwriting costs
iv. It can be used for premium of redemption of shares and bonds
v. It can be used to create any other reserves e.g debenture redemption reserves fund etc,
- Topic: Equipment (IAS 16), Plant, Presentation of financial statements, Property
- Series: MAY 2025
- Uploader: Samuel Duah