Subject: CORPORATE REPORTING

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  • 20 Marks

CR – Mar 2025 – L3 – Q5 – Financial and Sustainability Performance Analysis

Analyze Kyenku PLC's financial and sustainability performance over 2022-2024 using given metrics, compared to 2024 sector averages.

a) As Financial Accountant of Kyenku PLC (Kyenku), you have received an email from the Chief Financial Officer (CFO) asking you to analyse and interpret the following key financial and nonfinancial metrics to assist prepare for an upcoming board meeting.
These metrics, which were autogenerated by Kyenku’s robotic technology-based tool, are available for the last three (3) years of Kyenku, along with comparable ones for the average firm for 2024.

2022 2023 2024 Sector average 2024
Gross profit margin 11.23% 11.98% 12.26% 12.12%
Profit (before tax) margin 4.41% 4.53% 3.49% 4.38%
Return on capital employed 4.00% 3.62% 3.62% 4.07%
Accounts receivables period 32 days 35 days 36 days 36 days
Inventory turnover (in times) 7.10 7.65 7.79 8.33
Acid test ratio 1.24 1.26 1.97 1.85
Debt/debt+equity 42.10% 46.67% 41.06% 35.59%
Times interest earned 2.34 2.55 2.46 3.03
Basic and diluted earnings per share (pesewas) 106 106 108 109
Net operating cash flows to dividend payment ratio 2.55 (1.2) 1.58 1.95
Direct green-house gas emissions (in tonnes) 50,800 61,000 61,600 –
Number of manufacturing sites 20 24 25 –
Employee satisfaction score (out of total score of 5) 3.9 4.5 4.4 4.1
Female representation (all-employees) 31% 37% 45.5% 40.1%
Gender pay gap 38.2% 38.1% 40.0% 41.4%

Required:
Using the above metrics, produce a suitable response memo to offer a detailed assessment of Kyenku’s profitability, liquidity, efficiency, gearing and investment along with some comments on its sustainability performance, over the last three years and in relation to the sector average.

b) Bepong Company LTD has decided to close down a production facility as result of a significant environmental concerns.

Required:

Detail disclosures required of Bepong Company LTD as a result of managing its climate-related risk.

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  • 20 Marks

CR – Mar 2025 – L3 – Q4 – Business Valuation

Calculate share value for Gogomi LTD using net assets, price-earnings, and dividend yield methods.

a) Gogomi LTD, a privately owned joint venture, produces a range of equipment for the oil and gas industry in Ghana. One of the venturers, Oman Pension Funds (OPF), who holds one-third of Gogomi LTD’s ordinary shares, has decided to sell all of its holdings. This plan forms part of measures OPF is using to redirect focus of its investment strategy by replacing its equity assets with fixed-income holdings. OPF would therefore like to know the current value of its shareholdings to guide it during any negotiation with a potential buyer.
The following draft financial statements (together with the additional information) should be used to estimate the share value:

Draft statement of profit or loss of Gogomi LTD for the year ended 31 August 2024

GH¢000
Revenue 115,500
Cost of sales (80,300)
Gross profit 35,200
Selling and distribution (12,300)
Administrative expenses (8,550)
Profit before tax 14,350
Tax (2,030)
Profit after tax 12,320

Draft statement of financial position of Gogomi LTD as at 31 August 2024

GH¢000
Assets
Non-current assets:
Properties 52,400
Plant and equipment 53,300
Current assets 35,300
Total assets 141,000
Equity and liabilities
Capital and reserves
Ordinary shares @ GH¢2 each 24,000
10% Irredeemable preference shares @ GH¢1.50 each 6,000
Retained earnings 57,500
Non-current liabilities 38,080
Current liabilities 15,420
Total equity and liabilities 141,000

Additional information:

  1. Included in properties is an office building whose fair value has been measured by a valuation specialist at GH¢25 million. This value compares to a book value of GH¢19.5 million. Plant is not yet adjusted for a required reversal of GH¢2 million impairment charge previously written off to profit or loss account against an item of plant. On 28 August 2024, Gogomi LTD bought an item of equipment and paid GH¢15.2 million, net of 5% withholding tax, to the equipment dealer. Management have expensed the associated withholding tax (already paid to the local tax office) within the income statement.
  2. Included in receivables is an amount of GH¢4.4 million owed by a customer who has fallen into an unexpected, serious financial difficulty. As a consequence, expert assessment indicates that Gogomi LTD will have to wait until 31 August 2025 to receive the full amount in a single payment.
  3. Gogomi LTD’s current ordinary dividend cover computed, based on the above draft accounts, is 4. Preference dividends have been fully paid.
  4. A comparable quoted firm’s price-earnings ratio and dividend yield are 7.2 and 4.52% respectively. No adjustment should be made to these ratios, if they are used in any computations.
  5. Applicable cost of capital is 10%.

Required:
Determine a range of values to be placed on each ordinary share of Gogomi LTD using:
i) Net assets basis
ii) Price-earnings basis
iii) Dividend yield basis

b) For the purpose of consolidation, a parent must consolidate all controlled entities. However, there is an exemption that applies to investment entities.

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  • 20 Marks

CR – Mar 2025 – L3 – Q3 – Fair Value Measurement

Calculate fair value of 300 cars using IFRS 13, based on market data from three zones.

a) Djato Autos LTD (DA) is a major car distributor in Ghana. DA is currently preparing its financial statements for the year ended 31 August 2024. The company sells cars in three different zones across Ghana. At reporting date, DA has a fleet of 300 cars (same type, model, and age) for which DA’s directors would like to estimate their fair value.
The board chairperson believes that the fair value should be based on inputs from the market which provides the highest net benefits from car sales. Information about all three markets is as follows:

Total market volume DA’s sales volume Selling price GH¢ Transportation costs GH¢ Transaction costs GH¢
Northern zone 6,500 960 27,000 2,000 1,500
Southern zone 9,800 608 28,000 3,100 1,900
Western zone 5,000 800 25,000 2,500 2,500
Total 21,300 2,368

Required:
In line with IFRS 13: Fair Value Measurement, explain with calculations how much fair value should be placed on the total 300 cars at 31 August 2024, and comment on the correctness of the board chairperson’s opinion.

b) A pharmaceutical entity, Kwanpa Pharma (KP), is currently developing a drug that will be used in the treatment of a very specific ailment affecting a small group of patients. Management has decided to pursue this drug for reputational reasons. KP has introduced an innovative pricing mechanism for this drug, whereby a patient will only pay if the drug is proven to be effective. KP has received regulatory approval from the Food and Drugs Authority and believes that all other capitalisation criteria in IAS 38: Intangible Assets have been met, except for concerns about its market potential.
In a different situation, KP has determined that it has met the capitalisation criteria for a vaccine delivery device. It is continuing expenditure on the device to add new functionality. The development of this device will require new regulatory approval.

Required:
In line with IAS 38: Intangible Assets, explain how KP should account for the development cost for the limited market use and the development expenditure on the new functionality.

c) Tupaye Minerals LTD (TML) is making significant strides in Ghana’s mining sector with its recent discovery of lithium deposits in commercial quantities. This project is poised to be the first lithium mine in the country and industry specialists expect it to significantly contribute to the global supply of spodumene concentrate – a critical raw material for lithium-ion batteries. The company aims to produce over 300,000 tonnes of spodumene concentrate annually, making it one of the largest operations of its kind globally. As expected, the Project has garnered huge attention for its potential economic benefits, including job creation, local investment opportunities and substantial revenue generation. Recently, TML listed on the Ghana Stock Exchange (GSE), allowing local investors to participate in the project and aiming to foster greater local ownership and economic inclusion.
Despite its promising prospects, the project faces multifaceted challenges spanning environmental, social and governance concerns that need addressing to ensure long-term viability and minimal negative impact on the environment and local communities. For instance, to initiate its operations, there is the need for extensive land clearing, while during operations, a water-intensive extraction technology is expected to be deployed. Due to the expected heightened health risks from exposure to the mining-related pollutants, local communities are to be relocated. Industry experts suggest that regulatory compliance is likely to be hindered by enforcement weaknesses, while transparency and accountability issues risk undermining sustainability and community trust. The experts similarly suggest that to ensure long-term sustainability, there is the need for robust post-mining land rehabilitation, ongoing community engagement, and the adoption of sustainable mining practices like renewable energy usage and efficient waste management to mitigate environmental impacts.
You are the honourary Vice-President in charge of climate and sustainability research of a leading Think Tank in Ghana, you have been invited by a national television station as a guest speaker on its current affairs programme

Required:
Discuss the sustainability issues associated with the operations of TML with regards to environmental, social and governance issues to help the ordinary Ghanaian understand the operations of TML.

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  • 20 Marks

CR – Mar 2025 – L3 – Q2 – Income Taxes

Calculate and present the financial accounting treatment for Amugi's tax items per IAS 12, including revaluation and tax losses.

a) Amugi, a public listed company, is a producer of soft drinks. Recently, Amugi has been experiencing financial difficulties attributed to a recession. Extract of Statement of Financial Position and Statement of Profit or Loss for the year ended 30 June 2024 are as shown below:

Statement of Financial Position as at 30 June 2024 (Extract)

GHC’000
Property, Plant and Equipment 214,080
Non-current liabilities
Deferred tax liability 13,080
Current liabilities
Current tax payable –

Statement of Profit or Loss account for the year ended 30 June 2024 (Extract)

GHC’000
Gross Profit 189,000
Distribution costs (200,520)
Loss before tax (11,520)
Income tax expense –
Loss for the year (11,520)

The carrying amount of land and buildings included in ‘Property, plant and equipment’ in the draft financial statements above was GH¢144 million. Depreciation for the period of GH¢14.4 million on property, plant and equipment has already been accounted for. The market value of the land and buildings as assessed by professionally qualified valuers was GH¢151.2 million as at 30 June 2024. Gains and losses on property are taxable or tax deductible on sale.

The tax base of all property, plant and equipment at 30 June 2024 was GH¢150.48 million. Losses incurred in the year ended 30 June 2024 that can be recognised for tax purposes (after taking into account disallowable expenses) amounted to GH¢23.04 million. In the industry in which Amugi operates, tax losses can be carried back for three years and then carried forward indefinitely. Amugi made a profit in the previous three years sufficient to absorb the current year tax losses. Amugi pays tax at 25% and the tax losses will be applied at that rate. The rate is not expected to change.

The deferred tax liability in the above extract statement of financial position is the figure at 1 July 2023. There were no temporary differences other than those noted above. Current tax assets and liabilities can be netted in the tax regime.

Required:
Using financial statement extracts, set out the financial accounting treatment of the above items in accordance with IAS 12: Income Taxes.

b) Paakofi is adopting IFRSs for the first time for the year ended 30 September 2024, with one year of comparative information. Information in respect of the years ending 30 September 2023 and 30 September 2022 is as follows:

30/9/2023 GHC’000 30/9/2022 GHC’000
Property, Plant and Equipment (previous GAAP)
– depreciated cost 77,600 80,400
– fair value 92,000 88,000
Capitalised staff training costs (at carrying amounts under previous GAAP) 3,000 4,000
Borrowing costs incurred for an asset under construction (cumulative) (expensed under previous GAAP) (asset construction began on 1 October 2021) 360 240
Provision for court case – previous GAAP valuation and recognition basis 1,200 480
– IFRS valuation and recognition basis – –

Paakofi wishes to use all exemptions available to the company on transition to IFRSs.

Required:
Calculate the total adjustment required to Paakofi’s opening equity at the date of transition to IFRSs (insofar as the information provided permits).

c) The diagram below relates to Mireku LTD.

Diagram Details (summarized):

  • Ayariga PLC holds significant influence over Mireku LTD.
  • Ahmed LTD is jointly controlled by Ayariga PLC.
  • Alex is a key management personnel of Mireku LTD.
  • Adorko is Alex’s domestic partner.
  • Twins are children of Alex and Adorko.
  • Ayine LTD is Mireku LTD’s main customer (55% of revenue).
  • Dennis, Adorko’s former spouse, pays monthly upkeep allowance to Adorko.
  • Jinapor LTD is controlled by Dennis.

Additional Information:
iii) Ayine LTD is Mireku LTD’s main customer, representing approximately 55% of Mireku’s revenue stream.
iv) Dennis pays monthly upkeep allowance to Adorko.

Required:
Justify whether each of the parties in the above diagram is or is not considered a related party of Mireku LTD in accordance with IAS 24: Related Party Disclosures.

d) Identify FOUR indicators of a hyperinflationary economy in accordance with IAS 29: Financial Reporting in Hyperinflationary Economies.

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  • 20 Marks

CR – Mar 2025 – L3 – Q1 – Consolidated Cash Flows

Prepare Pato Aluworks Group's consolidated cash flow statement for 2024, including reconciliation note, using indirect method.

Pato Aluworks Group (Pato) is an aluminium processing and casting entity that supplies high quality aluminum coils to both local and foreign markets. Pato has 3 subsidiaries namely Asanka, Jaritan and Topoya and one associate Dosi all of which it acquired several years ago. The Group’s Consolidated Statement of Profit or Loss Account for the year ended 31 December 2024 and Consolidated Statement of Financial Position as that date are set out below:

Consolidated Statement of Profit or Loss for the year ended 31 December (extract)

2024 2023
GH¢ GH¢
Profit from operations 651,150 640,496
Impairment reversal/(loss) 2,500 (1,250)
Finance costs (52,000) (40,825)
Share of profits of associate 127,575 108,439
Profit before tax 729,225 706,860
Income tax expense (145,800) (123,930)
Profit for the year (continuing operations) 583,425 582,930
Profit for the year (discontinued operations) 102,375
Profit for the year 685,800 582,930
Attributable to:
Owners of Pato 571,725 485,966
Non-controlling interest 114,075 96,964
685,800 582,930

Consolidated Statement of Financial Position as at 31 December

ASSETS 2024 2023
Non-current assets GH¢ GH¢
Property, plant and equipment 2,283,350 2,212,875
Intangible assets 22,000 –
Investment in associate 418,275 404,550
2,723,625 2,617,425
Current assets
Trade and other receivables 170,325 200,025
Cash and cash equivalents 46,125 32,625
216,450 232,650
Total assets 2,940,075 2,850,075
EQUITY AND LIABILITIES
Equity
Ordinary share capital (GH¢0.50 shares) 495,000 315,000
Share deals account 112,500 45,000
Retained earnings 1,491,750 1,518,975
Attributable to the equity holders of Pato 2,099,250 1,878,975
Non-controlling interest 315,450 339,300
2,414,700 2,218,275
Non-current liabilities
Lease Liabilities 239,100 300,000
Employee benefit obligations 42,150 37,500
Current liabilities
Trade and other payables 90,000 118,800
Due to related parties 1,125 –
Income tax payable 153,000 175,500
244,125 294,300
Total equity and liabilities 2,940,075 2,850,075

Additional information:
i) Pato owns 60% in Jaritan. The goodwill attributable to Pato arising on acquisition was GH¢67,500. The carrying value of Jaritan’s identifiable net assets (excluding goodwill arising on acquisition) in the group consolidation financial statements is GH¢180,000 at 31 December 2024. The recoverable amount of Jaritan is expected to be GH¢230,000 and no impairment loss had been recorded up to 31 December 2023.
ii) Pato sold all of its 75% shareholding in Asanka for cash during the year end December 31, 2024. As at December 31, 2023, all of the goodwill acquired in the business combination with Asanka had been written off. The profit from discontinued operations in the consolidated income statement above relates wholly to the sale of the shares in Asanka and can be analysed as follows:

GH¢
Profit before tax 93,150
Income tax expense (14,400)
Profit on disposal 23,625
102,375

The net assets of Asanka at the date of disposal were as follows:

GH¢
Property, plant and equipment 421,875
Trade and other receivables 31,275
Cash and cash equivalents 3,375
Trade and other payables (19,012)
437,512

iii) On 31 March 2024 Pato issued 100,000 ordinary shares for cash. This was followed by a bonus issue on 30 September 2024, utilising the share deals account. The consolidated statement of changes in equity for the year shows that all group companies paid ordinary dividends during the year.
iv) Depreciation of GH¢395,100 was recognised during the year ended 31 December 2024. In addition to the property, plant and equipment disposed of through the sale of Asanka, plant with a carrying amount of GH¢126,000 was sold for cash of GH¢135,000.
v) Trade and other payables include GH¢11,250 (2023: GH¢6,750) of unpaid interest due on the bank loan.

Required:
Prepare a consolidated statement of cash flows for Pato for the year ended 31 December 2024, including a note reconciling profit before tax to cash generated from operations, using the indirect method. (A note showing the effects of the disposal of Asanka is not required).

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  • 14 Marks

CR – Nov 2024 – L3 – Q5b – Financial Performance & Digital Technology Integration

Evaluating the financial performance of Nsawkaw PLC and addressing challenges of digital technology integration in accounting.

(a) Compute the following ratios for the years ended 2024 & 2023:
i) Operating profit margin
ii) Return on parent’s equity
iii) Earnings per share
iv) Current ratio
v) Trade receivables days
vi) Total liabilities to total assets %

(b) Write a report to the directors of DPEF evaluating the inter-period financial performance and position of NK using the above six (6) ratios. The report should draw attention to how the non-financial metrics combine with the financial counterparts to showcase the prospects and viability of NK.                                                                      c) The concept of double materiality is relevant to sustainability impacts and dependencies. It
incorporates financial materiality and impact materiality. 

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  • 6 Marks

CR – Nov 2024 – L3 – Q5a – Financial Analysis and Investment Evaluation

Compute financial ratios for Nsawkaw PLC to evaluate its financial performance for investment recommendation.

Nsawkaw PLC (NK), a gold processing and trading company, has been identified by Djaraye Private Equity Fund (DPEF) as a target for long-term equity investment. As a financial consultant of DPEF, you have been tasked to evaluate the integrated financial condition of NK and make an investment recommendation.

Below are the summarised versions of NK’s Consolidated Financial Statements for the year ended June 30, 2024 (together with its comparative period):

Summarised Consolidated Statement of Profit or Loss for the year ended 30 June 2024

2024 (GH¢000) 2023 (GH¢000)
Revenue 2,538,000 2,125,000
Operational expenses (1,909,100) (1,592,900)
Interest costs (186,700) (157,250)
Taxation (234,000) (198,500)
Profit after tax 208,200 176,350
Other comprehensive income 17,900 10,550
Total comprehensive income 226,100 186,900

Summarised Consolidated Statement of Changes in Equity for the year ended 30 June 2024

Equity Holders of the Parent (GH¢000) Non-controlling Interests’ Equity (GH¢000) Total Equity (GH¢000)
2024
Balances b/d 457,200 65,600 522,800
Total comprehensive income 190,800 35,300 226,100
Dividends (110,000) (8,700) (118,700)
Balances c/d 538,000 92,200 630,200
2023
Balances b/d 355,000 46,650 401,650
Total comprehensive income 160,500 26,400 186,900
Dividends (58,300) (7,450) (65,750)
Balances c/d 457,200 65,600 522,800

Summarised Statement of Financial Position as at 30 June 2024

2024 (GH¢000) 2023 (GH¢000)
Non-current assets
Property, plant, and equipment 718,000 657,000
Others 156,000 99,000
Total Non-current assets 874,000 756,000
Current assets
Trade receivables 140,000 121,000
Others 236,500 123,050
Total Current assets 376,500 244,050
Total Assets 1,250,500 1,000,050
Total Equity and Liability 1,250,500 1,000,050

Additional information:

  1. The total number of equity shares outstanding was 1.2 million and 1.4 million at 30 June 2023 and 30 June 2024 respectively.
  2. Other comprehensive income attributable to non-controlling interests for the years ended 30 June 2023 and 2024 amounted to GH¢8.05 million and GH¢9.6 million respectively.
  3. Non-current liabilities at 30 June 2023 and 30 June 2024 amounted to GH¢250,800 and GH¢308,510 respectively.
  4. The following metrics have been gleaned from NK’s published sustainability reports across the two years:
Metric 2024 2023
Scope 1 & 2 carbon emissions (tonnes of CO2) 650 780
Scope 3 carbon emissions (tonnes of CO2) 2,400 2,380
Women in senior management (%) 21 16
Total recordable injury frequency rate (TRIFR) per 100 full-time workers 3.3 4.1

The scope and definitions of the above sustainability measures have remained materially unchanged across the two years.

Required:

Compute the following ratios for the years ended 2024 & 2023:

  1. Operating profit margin
  2. Return on parent’s equity
  3. Earnings per share
  4. Current ratio
  5. Trade receivables days
  6. Total liabilities to total assets %

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  • 5 Marks

CR – Nov 2024 – L3 – Q4b – Consolidation and Financial Reporting

Discuss the appropriate reporting figures a parent company should include in its consolidated financial statements when its subsidiaries have different reporting dates.

A parent company has a year-end of 31 December 2023. One of its subsidiaries has a year-end of 30 June 2023, and another has a year-end of 30 September 2023.

Required:
What figures should the parent include in its consolidated financial statements in respect of these subsidiaries?

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  • 15 Marks

CR – Nov 2024 – L3 – Q4a – Corporate Reconstruction

Prepare the capital reduction account and the statement of financial position for Mensimah Ltd after reconstruction.

Mensimah LTD (Mensimah) has been experiencing poor trading conditions over the last three years. As a result, it has been difficult to generate revenues and profits in the current year leading to very high inventory levels. Also, Mensimah has defaulted in paying interest due to the loan note holders for two years. Even though the debentures are secured against the land & buildings, the loan note holders have demanded either a scheme of reconstruction or the liquidation of Mensimah.

As the above trading difficulties have significantly threatened the going concern status of Mensimah, the directors as well as representatives of the shareholders and loan holders in a meeting decided to design the following scheme of reconstruction:

  1. The assets were independently valued and should now be recognised at the following amounts:

    Asset Category Amount (GH¢)
    Land 64,000
    Building 64,000
    Plant & Equipment 24,000
    Inventory 40,000

    The value of Mensimah’s investment in Adams LTD has increased to GH¢48,000 and was to be sold as part of the reconstruction scheme. As for the trade receivables, it was determined that 10% of the stated value is non-recoverable and therefore would be written off.

  2. Each GH¢1 equity share is to be redesignated as an equity share of GH¢0.25. After this, the equity shareholders would be persuaded to accept a reduction in the nominal value of their shares from GH¢1 to GH¢0.25 per share and subscribe for a new issue based on one-for-one at a price of GH¢0.30 per share.

  3. The existing 5% loan notes are to be exchanged for a new issue of GH¢28,000 9.5% loan notes, repayable in 2028, plus 112,000 equity shares of GH¢0.25 each. In addition, they will subscribe for GH¢7,200 loan notes, repayable in 2028, at par value at the rate of 9.5%.

    The 8% loan notes holders who have not received any interest for the past two years, are to receive 16,000 equity shares of GH¢0.25 each in lieu of the interest payable. It is agreed that the value of the interest liability is equivalent to the fair value of the shares to be issued. Moreover, the 8% loan notes holders have agreed to defer repayment of their loan until 2028, on condition that they are paid a higher interest rate of 9.5%.

  4. The deficit on retained earnings is to be written off and the bank overdraft is to be repaid immediately.

Mensimah’s statement of financial position as at 31 December 2023 is as follows:

Assets GH¢’000
Non-current assets
Land & buildings 154,597
Plant & equipment 48,603
Investment in Adams LTD 21,600
Total Non-Current Assets 224,800
Current assets
Inventory 96,198
Receivables 56,554
Total Current Assets 152,752
Total Assets 377,552
Equity & Liabilities GH¢’000
Equity
Equity shares (GH¢1) 160,000
Retained earnings (31,857)
Total Equity 128,143
Non-current liabilities
8% loan notes 64,000
5% loan notes 56,000
Total Non-Current Liabilities 120,000
Current liabilities
Trade payables 89,798
Interest payable 10,240
Overdraft 29,371
Total Current Liabilities 129,409
Total Equity & Liabilities 377,552

Required:

i) Prepare the capital reduction account for Mensimah LTD. 
ii) Prepare the statement of Financial Position of Mensimah LTD immediately after the reconstruction.
iii) Determine the position of each stakeholder group if the reconstruction scheme is not implemented.

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  • 10 Marks

CR – Nov 2024 – L3 – Q3b – Digital Transformation & Cybersecurity Risks

Address concerns regarding digital transformation, cybersecurity risks, regulatory compliance, and ethical dilemmas in accounting.

b) In the contemporary business landscape, the integration of digital technologies presents multifaceted challenges for accounting professionals, particularly in the areas of digital transformation, cybersecurity, regulatory compliance, and ethical decision-making.

You are the newly appointed Chief Finance Officer (CFO) of Fanofom Ghana Ltd (FGL), a prominent Ghanaian company that produces and exports shea butter for the cosmetics industry to several companies globally. As FGL largely deals with international customers, it is undergoing a digital transformation to enable it to operate 24/7, and thus meet the needs of its clients given the time differences around the world.

As a result, the company has recently migrated its accounting systems to a cloud-based accounting platform and implemented automation tools to streamline financial processes. However, one of the old and senior directors who described himself as a BBC, a street jargon meaning “born before computer,” has expressed serious concerns about the digital transition and associated problems such as cybersecurity risks, regulatory compliance, and ethical issues that would arise due to the ongoing digital transformation.

Required:
i) Identify and explain the challenges associated with the integration of digital technologies in accounting systems with respect to:

  • Digital transition,
  • Cybersecurity risks,
  • Regulatory compliance,
  • Ethical dilemmas. (8 marks)

ii)Recommend two remedies to address the identified challenges.

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  • 20 Marks

CR – Dec 2020 – L3 – Q2 – Presentation of Financial Statements (IAS 1)

Assess the performance of two companies using financial ratios and draft a report for investment decisions.

Heritage Limited and Legacy Limited are two competitors in the merchandising and retailing sector of the economy. At a time when the sector is faced with escalating fuel prices and economic recession, both companies have shown resilience and adaptability. The financial statements of the companies for the year ended December 31, 2020, are as follows:

Statements of Profit or Loss for the Year Ended December 31, 2020:

Item Heritage Limited (N’000) Legacy Limited (N’000)
Revenue 150,000 700,000
Cost of Sales (60,000) (210,000)
Gross Profit 90,000 490,000
Interest 500 12,000
Distribution Costs 13,000 72,000
Administrative Expenses 15,000 35,000
Total Expenses 28,500 119,000
Profit Before Tax 61,500 371,000
Income Tax Expense (16,605) (100,170)
Profit for the Year 44,895 270,830

Statements of Financial Position as at December 31, 2020:

Item Heritage Limited (N’000) Legacy Limited (N’000)
Assets:
Non-Current Assets:
Property – 500,000
Plant and Equipment 190,000 280,000
Total Non-Current Assets 190,000 780,000
Current Assets:
Inventories 12,000 26,250
Trade Receivables 37,500 105,000
Bank 500 22,000
Total Current Assets 50,000 153,250
Total Assets 240,000 933,250
Equity & Liabilities:
Equity:
Share Capital 156,000 174,750
Retained Earnings 51,395 390,830
Total Equity 207,395 565,580
Non-Current Liabilities:
Long-Term Debt 10,000 250,000
Current Liabilities:
Trade Payables 22,605 117,670
Total Liabilities 32,605 367,670
Total Equity & Liabilities 240,000 933,250

The Board of Directors of Patrimony Investments PLC is considering a proposal to buy into one of the companies to enhance the reported profit and stability of the company after the investment.

Required:

a. Assess the relative performance of the two companies for the year ended December 31, 2020, with three suitable ratios each for:

  • Profitability and efficiency
  • Liquidity and solvency
    (8 Marks)

b. Draft a report on the computed ratios for the consideration of the Board of Directors of Patrimony Investments PLC to appropriately guide the Board in deciding on the proposal to buy into any one of the companies.
(12 Marks)

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  • 30 Marks

CR – May 2022 – L3 – Q1 – Leases (IFRS 16)

Adjust lease accounting for right-of-use asset and lease liability in compliance with IFRS 16.

The draft financial statements of Gbola Limited group and its investee companies Tanko Limited and Eze Limited at December 31, 2018 are shown below:

Draft Statements of Profit or Loss for the Year Ended December 31, 2018

Item Gbola Limited (N’000) Tanko Limited (N’000) Eze Limited (N’000)
Revenue 17,070 7,320 2,235
Cost of Sales (8,640) (3,210) (885)
Gross Profit 8,430 4,110 1,350
Other Operating Expenses (2,070) (810) (600)
Profit from Operations 6,360 3,300 750
Interest Expense (570) (660) (210)
Profit Before Tax 5,790 2,640 540
Income Tax Expense (810) (360) (90)
Profit for the Year 4,980 2,280 450

Draft Statements of Financial Position as at December 31, 2018

Additional Information

  1. On January 1, 2014, Gbola Limited acquired 9,000,000 ordinary shares in Tanko Limited for N23,250,000 when the reserves of Tanko Limited were N3,000,000.
  2. A new asset with a fair value of N1,500,000 was acquired during the year under a lease agreement by Gbola Limited. A clause in the lease agreement stipulated that N300,000 payments must be paid on December 31, each year for six years, starting from December 31, 2018. The interest rate implicit in the lease is 5.47%. Gbola Limited treated this as an operating expense; because the only accounting entry that the company believes must be made in relation to this asset is the N300,000 payment it has made.
  3. Gbola Limited had an intangible asset of N750,000 for software in its statement of financial position. The directors of Gbola Limited believed that the software will have no recoverable value at the date of acquisition, and Tanko Limited wrote it off shortly after its acquisition.
  4. At the date of acquisition of Tanko Limited, the carrying amount of its property, plant, and equipment, considered to have a remaining life of 10 years, was N5,625,000 lower than its fair value.
  5. On January 1, 2017, Gbola Limited acquired 2,250,000 ordinary shares in Eze Limited for N6,000,000 when the reserves of Eze Limited were N1,350,000. The carrying amount of assets of Eze Limited was the same as their fair values at that date. Depreciation should be treated as an operating expense.
  6. A component used by both Tanko Limited and Eze Limited is produced by Gbola Limited, and it sells this component at a margin of 25%. Goods worth N780,000 were sold to Tanko Limited during the year. None of these goods had been sold by Tanko Limited at December 31, 2018. Gbola Limited also sold goods worth N1,200,000 to Eze Limited, and Eze Limited sold all of these goods as at December 31, 2018.
  7. N900,000 in respect of amounts owed by Tanko Limited and N525,000 in respect of amounts owed by Eze Limited were included in the receivables of Gbola Limited. The corresponding balances in Tanko Limited and Eze Limited payables were N600,000 and N525,000, respectively. On December 31, 2018, Tanko Limited sent a cheque of N300,000 to Gbola Limited.
  8. There has been no impairment for Eze Limited. However, the impairment test conducted on Tanko Limited’s goodwill showed that goodwill is being impaired by 10% per annum on a straight-line basis.
  9. Gbola Limited’s cash and cash equivalents included a Director’s loan of N1,500,000. The Directors are of the view that the inclusion does not contravene any International Financial Reporting Standard.
  10. The goodwill arising on the acquisition of Tanko Limited is being amortized over a 10-year period, though this practice contravenes IAS 36, which prohibits goodwill amortization and instead requires annual impairment tests.

a. Prepare the necessary adjustments to account for the lease contract based on additional information provided in (ii) above in accordance with IFRS 16. (5 Marks)
b. Prepare the consolidated statement of profit or loss and other comprehensive income for the group for the year ended December 31, 2018. (8 Marks)
c. Prepare the consolidated statement of financial position of Gbola Limited group as at December 31, 2018. (12 Marks)
d. Discuss the ethical implication of the Director’s action in note (ix) above. (5 Marks)

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  • 7 Marks

CR – May 2023 – L3 – Q7b – Segment Reporting (IFRS 8)

Advise on reportable operating segments based on IFRS 8 criteria for Jafuwara PLC

Jafuwara PLC is a public limited company trading in six business areas, each reported separately in its internal accounts provided to the Chief Operating Decision Maker (CODM). The results of these segments for the year ended December 31, 2021, are as follows:

Operating Segment Information as at Dec. 31, 2021

Required:

Draft a report addressed to the directors of Jafuwara PLC advising them on which of the operating segments constitute a ‘reportable’ operating segment for the year ended December 31, 2021, in accordance with IFRS 8. (7 Marks)

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  • 8 Marks

CR – May 2023 – L3 – Q7a – Segment Reporting (IFRS 8)

Advise on whether research and development laboratories should be reported as separate segments under IFRS 8.

Fine Face (FF) Limited produces and sells a range of body care products through three separate divisions. Additionally, the company has two laboratories responsible for research and development activities.

  1. First Laboratory:
    • Funded internally and centrally for each of the three sales divisions.
    • Does not perform research and development activities for external entities.
    • Each division is allocated a budget for purchasing research and development services from the laboratory.
    • The laboratory is directly accountable to the divisional heads for this expenditure.
  2. Second Laboratory:
    • Performs contract investigation activities for other laboratories and body care companies.
    • Earns 75% of its revenue from external customers, representing 18% of the organization’s total revenue.
    • The head of the second laboratory is directly accountable to the Chief Operating Decision Maker (CODM), and the CODM regularly reviews its performance, operating activities, resource allocation, and financial results.

Fine Face Limited is uncertain whether the two laboratories should be reported as separate segments under IFRS 8 – Operating Segments.

Required:

Advise the directors of Fine Face Limited on this issue. (8 Marks)

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  • 5 Marks

CR – May 2023 – L3 – Q6b – Ethical Issues in Corporate Reporting

Discuss the ethical implications and possible actions for alleged unethical behavior in a corporate takeover.

On your first day at Omoge Nigeria Plc as the Chief Financial Officer (CFO) of the company, you were sitting in the staff canteen where you overheard a conversation between two Admin Officers. They were gossiping about Mr. Adamu Salisu, the Finance Director.

According to their conversation, Mr. Adamu Salisu may have been involved in unethical activities related to Omoge Nigeria Plc’s takeover of Bobo Limited.

Key details include:

  • Mr. Salisu’s wife, Mrs. Salisu, was a director at Bobo Limited prior to the takeover and owned 30% of its shares.
  • It is alleged that Mr. Salisu substantially overpaid for Bobo Limited and facilitated the overpayment to benefit his wife.
  • The alleged unethical act involved colluding with his wife to falsify records submitted to the accountant conducting due diligence for the takeover.
  • Mr. Salisu is reportedly not well-liked by staff, who consider him intimidating and appear pleased at the prospect of him losing his job.

Required:

Discuss the ethical implications of the above and the possible actions that may arise from the incident. (5 Marks)

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  • 7 Marks

CR – May 2023 – L3 – Q5b – Presentation of Financial Statements (IAS 1)

Discuss the importance of optimal disclosure and barriers to reducing excessive disclosures in annual reports.

There have been various arguments globally about the extent of disclosures in the annual reports of companies. Some argue that annual reports should include more extensive disclosures, while others believe that efforts should focus on reducing the quantity of information to avoid overwhelming users of financial statements.

The latter perspective suggests that excessive disclosure is burdensome and may obscure key information. Conversely, some argue that there is no such thing as providing too much useful information to users of financial statements.

Required:

Discuss why it is important to ensure that an optimal level of disclosure is made in annual reports. Also, identify and explain the barriers that may exist when trying to reduce excessive disclosure of information in an annual report. (7 Marks)

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  • 8 Marks

CR – May 2023 – L3 – Q5a – Emerging Trends in Corporate Reporting

Discuss four financial reporting issues companies should consider due to COVID-19.

Most regulatory authorities in Nigeria, such as the Securities and Exchange Commission (SEC), Central Bank of Nigeria (CBN), and Federal Inland and State Internal Revenue Services, issued conditional relief for meeting reporting deadlines for filing annual and other returns required by law during the pandemic.

However, companies still need to monitor further reporting updates and evaluate the current and potential effects that COVID-19 could have on their financial reporting.

Required:

Discuss FOUR financial reporting issues that should be considered by companies as a consequence of COVID-19. (8 Marks)

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  • 10 Marks

CR – May 2023 – L3 – Q4b – Events After the Reporting Period (IAS 10)

Advise on the correct accounting treatment and disclosures for Resource LTD’s sale.

At August 31, 2016, Evolve LTD controlled a wholly owned subsidiary, Resource LTD, whose only assets were land and buildings, measured in accordance with International Financial Reporting Standards.

On August 1, 2016, Evolve LTD published a statement stating that a binding offer for the sale of Resource LTD had been made and accepted, and at that date, the sale was expected to be completed by August 31, 2016. The non-current assets of Resource LTD were measured at the lower of their carrying amount or fair value less costs to sell at August 31, 2016, based on the selling price in the binding offer. This measurement was in accordance with IFRS 5 – Non-Current Assets Held for Sale and Discontinued Operations.

However, Evolve LTD did not classify the non-current assets of Resource LTD as held for sale in the financial statements at August 31, 2016, because there were uncertainties regarding the negotiations with the buyer and a risk that the agreement would not be finalized. There was no disclosure of these uncertainties, and the original agreement was finalized on September 20, 2016.

Required:
Advise Evolve LTD on how the above transactions should be correctly dealt with in its financial statements with reference to relevant International Financial Reporting Standards. (10 Marks)

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  • 10 Marks

CR – May 2023 – L3 – Q4a – Revenue Recognition (IFRS 15)

Discuss the criteria for a contract to fall under IFRS 15 for revenue recognition.

There has been significant divergence in practice over the recognition of revenue, mainly because International Financial Reporting Standards (IFRSs) contain limited guidance in certain areas. The International Accounting Standards Board (IASB), as a result of its joint project with the US Financial Accounting Standards Board (FASB), has issued IFRS 15 – Revenue from Contracts with Customers.

IFRS 15 sets out a five-step model, which applies to revenue earned from a contract with a customer with limited exceptions, regardless of the type of revenue transaction or the industry. Step one in the five-step model requires the identification of the contract with the customer and is critical for the purpose of applying the standard. The remaining four steps in the standard’s revenue recognition model are irrelevant if the contract does not fall within the scope of IFRS 15.

Required:

Discuss the criteria which must be met for a contract with a customer to fall within the scope of IFRS 15. (10 Marks)

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