Subject (SQ): FINANCIAL REPORTING

Search 500 + past questions and counting.
Sort & Filter

Reset filters

Search

Filter by Professional Bodies

Filter by Subject

Filter by Topics

Filter by Levels

  • 5 Marks

FR – L2 – Q58 – Financial Instruments

Calculate finance cost and SFP extracts for Bolgania Ltd’s 6% convertible loan stock for 20X4; comment on Accra Advisors’ advice.

On 1 October 20X3 Bolgania Ltd issued GH¢10 million 6% convertible loan stock on the following terms:
The issue price was at par.
The loan stock is convertible into the company’s equity shares at the option of the stockholders four years after the date of its issue (30 September 20X7) on the basis of 20 shares for each GH¢100 of loan stock. Alternatively it will be redeemed at par.
Accra Advisors had advised that if Bolgania Ltd had issued similar loan stock without the conversion rights, then it would have had to pay an interest (coupon) rate of 10% on the loan stock. This is because the terms of conversion to equity shares are favourable.
Accra Advisors further advised that because it is almost certain that the loan stock holders will exercise their right to convert to equity shares, the loan stock has the substance of equity and can be included as such on the statement of financial position. This has the added advantage of improving/reducing the company’s gearing (debt/equity) in comparison to what would be the case with the issue of ‘straight’ loan stock.

The present value of GH¢1 receivable at the end of each year, based on discount rates of 6% and 10% can be taken as:

Required
In relation to the 6% convertible loan stock, calculate the finance cost to be shown in the statement of profit or loss and the extracts from the statement of financial position for the year to 30 September 20X4; and comment on Accra Advisors’ advice.

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FR – L2 – Q58 – Financial Instruments"

  • 15 Marks

FR – L2 – Q57 – Financial Instruments

Calculate face value and proceeds of debentures issued by Unity Cooperative Ltd.

UNION COOPERATIVE LTD

On 1 July 20X4, Union Cooperative Ltd., issued 20,000 8% debentures at GH¢97.50. The security is redeemable in five years’ time. The interest on the debentures is payable bi-annually on 30 June and 31 December.

On 31 December 20X4, the company’s year-end date, the debentures were quoted on the Ghanaian Stock Exchange for GH¢96.00. The company accountant has suggested each of the following as possible valuation basis for reporting the debentures liability on the statement of financial position as at 31 December 20X4: (i) Face value of the debentures. (ii) Face value of the debenture plus interest payment for five years. (iii) Market value on the statement of financial position as at the year end.

Required

(a) Determine the face value of the debentures and the proceeds accruing to the company.

(b) Determine the amount and explain the nature of the differences between the face value and the market value of the debentures on 1 July, 20X4.

(c) Distinguish between nominal and effective rate of interest.

(d) Determine the nominal interest payable on the debentures for the year ended 31 December 20X4.

(e) State arguments for or against each of the suggested alternatives for reporting the debentures liability on the statement of financial position as at 31 December 20X4.

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FR – L2 – Q57 – Financial Instruments"

  • 10 Marks

FR – L2 – Q56 – Financial Instruments

Account for convertible loan notes in Tafu Ltd's financial statements for the year to 30 September 20X4.

Tafu Ltd issued GH¢10 million of 4% convertible loan notes on 1 October 20X3, on which interest is paid annually in arrears on 30 September. The loan notes are convertible into equity shares of Tafu Ltd on 30 September 20X6 at the rate of 20 shares in Tafu Ltd for every GH¢100 of notes. Alternatively, the notes can be redeemed on that date for cash at par, at the option of the note holder.
If Tafu Ltd had issued straight loan notes, redeemable at par after 3 years, it would have had to pay interest at the rate of 7% in order to persuade investors to subscribe for them.

Required:
(a) Show how the convertible loan notes would be accounted for in the financial statements of Tafu Ltd for the year to 30 September 20X4.

(b) Comment on the validity of the reasons of the directors for choosing to issue convertible loan notes.

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FR – L2 – Q56 – Financial Instruments"

  • 15 Marks

FR – L2 – Q55 – Financial Instruments

Calculate capital, reserves, and liabilities for Jordana PLC after share issues and preference share transactions in Year 1.

On 1 January Year 1 Jordana PLC has the following capital and reserves.

Equity GH₵
Share capital (1 million ordinary shares) 1,200,000
Retained earnings 5,670,300
6,870,300

During Year 1 the following transactions took place.

  • 1 January: An issue of GH₵100,000 8% GH₵1 redeemable preference shares at a premium of 60%. Issue costs are GH₵2,237. Redemption is at 100% premium on 31 December Year 5. The effective rate of interest is 9.5%.
  • 31 March: An issue of 300,000 ordinary shares at a price of GH₵1.30 per share. Issue costs, net of tax benefit, were GH₵20,000.
  • 30 June: A 1 for 4 bonus issue of ordinary shares.
    Profit for the year, before accounting for the above, was GH₵508,500. The dividends on the redeemable preference shares have been charged to retained earnings.

Required
Set out capital and reserves and liabilities resulting from the above on 31 December Year 1.

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FR – L2 – Q55 – Financial Instruments"

  • 12 Marks

FR – L2 – Q54 – Fair Value Measurement

Calculate fair value of 150 vehicles based on market data and IFRS 13 principles.

Zest Plc is a conglomerate with interests in a wide range of businesses including construction services, property management, and farming. Zest Plc owns a division which sells construction vehicles. At 31 December 20X6, Zest Plc holds an inventory of 150 new and identical vehicles. There are three markets in which the vehicles can be sold. Information about the sale price and costs in GH¢ of selling in each market are as follows.

Market Sales price per vehicle (GH¢) Transaction costs per vehicle (GH¢) Transport cost to the market per vehicle (GH¢)
A 40,000 200 400
B 39,800 400 100
C 40,000 350 350

Required:
(a) Explain and calculate the fair value of the 150 vehicles at 31 December 20X6?

(b) Explain the impact of this new information on the fair value of the 150 vehicles at 31 December 20X6 (if any) and recalculate the fair value if needed

(c) Explain and estimate the fair value of the park land? (6 marks)

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FR – L2 – Q54 – Fair Value Measurement"

  • 12 Marks

FR – L2 – Q53 – Financial Reporting Standards

Differentiate between current tax and deferred tax per IAS 12 for Talu Ghana Limited.

Talu Ghana Limited owns the following property, plant and equipment as at 31 December 20X6.

Cost Accumulated Depreciation Carrying Amount
GHe’000 GHe’000 GHe’000
Plant & machinery 45,000 9,000 36,000
Land 25,000 – 25,000
Office buildings 75,000 15,000 60,000

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 20X6.
(ii) Land is not depreciated
(iii) Buildings are depreciated on a straight-line basis over 25 years.
(iv) Depreciation on office building 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 GH₵15,000,000 for the 20X7 financial year and GH₵20,000,000 for year 20X8. These figures include non-taxable revenue of GH₵4,000,000 in year 20X7 and GH₵5,000,000 in year 20X8.
(vi) Talu Nig. Ltd had a tax loss on 31 December 20X6 of GH₵12,500,000. The tax rate for year 20X6 was 35% and 30% for each of years 20X7 and 20X8.

Required:

(a) In accordance with IAS 12 on Income Taxes, differentiate between current tax and deferred tax.

(b). Prepare the deferred tax account for the year ended 31 December 20X8.

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FR – L2 – Q53 – Financial Reporting Standards"

  • 15 Marks

FR – L2 – Q52 – Financial Reporting Standards and Their Applications

Calculate deferred tax liability for Francisca Ltd for 20X4, considering depreciation, interest, development costs, and revaluation, and show where changes are charged/credited.

On 30 June 20X3 Francisca Ltd had a credit balance on its deferred tax account of GH¢1,340,600 all in respect of the difference between depreciation and capital allowances.

During the year ended 30 June 20X4 the following transactions took place.

(1) GH¢45 million was charged against profit in respect of depreciation. The tax computation showed capital allowances of GH¢50 million.

(2) Interest receivable of GH¢50,000 was reflected in profit for the period. However, only GH¢45,000 of interest was actually received during the year. Interest is not taxed until it is received.

(3) Interest payable of GH¢32,000 was treated as an expense for the period. However, only GH¢28,000 of interest was actually paid during the year. Interest is not an allowable expense for tax purposes until it is paid.

(4) During the year Francisca Ltd incurred development costs of GH¢500,600, which it has capitalised. Development costs are an allowable expense for tax purposes in the period in which they are paid.

(5) Land and buildings with a carrying amount of GH¢4,900,500 were revalued to GH¢6 million.

The tax rate is 30%. Francisca Ltd has a right of offset between its deferred tax liabilities and its deferred tax assets.

Required

Calculate the deferred tax liability on 30 June 20X4. Show where the increase or decrease in the liability in the year would be charged or credited.

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FR – L2 – Q52 – Financial Reporting Standards and Their Applications"

  • 20 Marks

FR – L2 – Q51 – Corporate Reporting and Compliance

Calculate Sharp Ltd's corporate income tax liability for 20X6 at a 34% tax rate.

SHARP LTD (IV)
Using the information provided in “Sharp Ltd III” and assume that Sharp Ltd is subject to a higher tax rate of 34% in 20X6.

Required
(a) Calculate the corporate income tax liability for the year ended 31st December 20X6.

(b) Calculate the deferred tax balance that is required in the statement of financial position as at 31st December 20X6.

(c) Prepare a note showing the movement on the deferred tax account and thus calculate the deferred tax charge for the year ended 31st December 20X6.

(d) Prepare the statement of profit or loss note which shows the compilation of the tax expense for the year ended 31st December 20X6.

(e) Prepare a note to reconcile the product of the accounting profit and the tax rate to the tax expense for year ended 31st December 20X6.

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FR – L2 – Q51 – Corporate Reporting and Compliance"

  • 20 Marks

FR – L2 – Q50 – Corporate Reporting and Compliance

Calculate Sheen Ltd's corporate income tax liability for the year ended 31 December 20X6.

Continuing from the previous year. The following information is relevant for the year ended 31st December 20X6.
(a) Interest payable/Interest receivable
Sheen Ltd still has GH₵25,000 of 8% convertible loan stock in issue and still retains its holding in the debentures purchased in 20X5.
(b) Provision for warranty
During the year Sheen Ltd had paid out GH₵500 in warranty claims and provided for a further GH₵2,000.
(d) Development costs
During 20X6 Sheen Ltd has capitalised development expenditure of GH₵17,800 in accordance with the provisions of IAS 38. Assume that tax relief on this expenditure is taken in full in the period in which it is incurred.
(e) Further information
Profit before taxation
Depreciation charged
Tax allowable depreciation
175,000
18,500
24,700
(f) Entertainment
Sheen Ltd paid for a large office party during 20X6 to celebrate a successful first two years of the business. This cost GH₵20,000. Assume that this expenditure is not tax deductible.
Tax is chargeable at a rate of 30%.

Required
(a) Calculate the corporate income tax liability for the year ended 31st December 20X6.

(b) Calculate the deferred tax balance that is required in the statement of financial position as at 31st December 20X6.

(c) Prepare a note showing the movement on the deferred tax account and thus calculate the deferred tax charge for the year ended 31st December 20X6.

(d) Prepare the statement of profit or loss note which shows the compilation of the tax expense for the year ended 31st December 20X6.

(e) Prepare a note to reconcile the product of the accounting profit and the tax rate to the tax expense for year ended 31st December 20X6.

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FR – L2 – Q50 – Corporate Reporting and Compliance"

  • 20 Marks

FR – L2 – Q49 – Financial Reporting Standards and Their Applications

Calculate Shey Ltd's corporate income tax liability for 20X5, considering adjustments for interest, provisions, and fines.

Continuing from the previous year. The following information is relevant for the year ended 31st December 20X5.

(a) Capital transactions

GHe
Depreciation charged 14,000
Tax allowances 16,000

(b) Interest payable
On 1st April 20X5 the company issued GH₵25,000 of 8% convertible loan stock. Interest is paid in arrears on 30th September and 30th March. Assume that tax relief on interest expense is only given when the interest is paid.

(c) Interest receivable
On 1st April Shey Ltd purchased debentures having a nominal value of GH₵4,000. Interest at 15% pa is receivable on 30th September and 30th March. Assume that interest income is not taxed until the cash is actually received.

(d) Provision for warranty
In preparing the financial statements for the year to 31st December 20X5, Shey Ltd has recognised a provision for warranty payments in the amount of GH₵1,200. This has been correctly recognised in accordance with IAS 37 and the amount has been expensed. Assume that tax relief on the warranty cost is only given when the expense is paid.

(e) Fine
During the period Shey Ltd has paid a fine of GH₵6,000. The fine is not tax deductible.

(f) Further information
The accounting profit before tax for the year was GH₵125,000.

Tax is chargeable at a rate of 30%.

Required
(a) Calculate the corporate income tax liability for the year ended 31st December 20X5.

(b) Calculate the deferred tax balance that is required in the statement of financial position as at 31st December 20X5.

(c) Prepare a note showing the movement on the deferred tax account and thus calculate the deferred tax charge for the year ended 31st December 20X5.

(d) Prepare the statement of profit or loss note which shows the compilation of the tax expense for the year ended 31st December 20X5.

(e) Prepare a note to reconcile the product of the accounting profit and the tax rate to the tax expense for year ended 31st December 20X5.

Login or create a free account to see answers

Login | Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FR – L2 – Q49 – Financial Reporting Standards and Their Applications"

Oops!

This feature is only available in selected plans.

Click here to view all plans

Click on the login button below to login if you’re already subscribed to a plan or click on the upgrade button below to upgrade your current plan.

Login
Upgrade Plan

If you’re not subscribed to a plan, click on the button below to choose a plan

Subscribe to a plan

Pick a Form

Professional Tutor Application Form
Academic Tutor Application Form
Student Tutor Application Form