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 – May 2023 – L3 – Q3 – Employee Benefits (IAS 19)

Discuss accounting treatments for investment properties and pension plans, including calculations and financial statement impacts.

You are the Financial Controller of Gongon Group. On January 2, 2021, you are busy preparing the financial statements for the year ended December 31, 2020. You are under a lot of pressure as you have been asked to present the draft financial statements to the Board of Directors in two days’ time.

The first draft of the financial statements for each of the three companies has been prepared and is now on your table. You have also compiled a list of outstanding issues that you need to consider before presenting the financial statements to the Board.

Outstanding Issues:

Here’s the rewritten version of the First Issue:

First Issue: Investment Properties and Changes in Use

Gongon Group holds three investment properties in its financial statements. These properties are measured at fair value in line with IAS 40 – Investment Properties, while owner-occupied properties are measured at cost less accumulated depreciation and impairment losses. Currently, the properties are presented at their 2019 year-end valuations, with no adjustments for 2020.

Details of the Properties

  1. Property A (Commercial Warehouse):
    • Location: Apapa
    • Use Change: Reassigned as office space for the company during 2020. Tenants vacated on May 1, 2020.
    • Valuations:
      • January 1, 2020: ₦8,000,000
      • May 1, 2020: ₦7,600,000
      • December 31, 2020: ₦7,400,000
    • Depreciation Policy: The company applies a 2% annual depreciation rate, calculated monthly for owner-occupied properties.
  2. Property B:
    • Acquisition Year: 2014
    • Valuations:
      • January 1, 2020: ₦9,000,000
      • December 31, 2020: ₦8,800,000
    • Planned Disposal:
      • Property was vacant from September 2020 and put on the market in October 2020 with an asking price of ₦8,800,000.
      • Estimated disposal costs: ₦600,000.
      • No firm offers had been made by year-end.
  3. Property C:
    • Valuation: Last valued at ₦18,500,000 in December 2018.

Draft Statements of financial position at December 31, 2020

Extract of draft statement of profit or loss and other comprehensive income for the year ended December 31, 2020

Second Issue: Pension Scheme Accounting Treatment

On January 1, 2020, Gongon PLC commenced a defined benefit plan for several head office employees. Under the scheme, Gongon PLC is obligated to provide post-employment benefits to these staff members. The company manages the actuarial and investment risks associated with the pension scheme.

Details of the Pension Scheme

Details ₦’000
Interest Income on Plan Assets 330
Employer’s Contribution to Plan 11,000
Current Service Cost 12,000
Interest on Plan Liability 360
Fair Value of Plan Assets (31/12/2020) 11,600
Present Value of Plan Obligation (31/12/2020) 12,400

Current Accounting Treatment

The Chief Accountant was uncertain about the appropriate accounting standard to apply for the pension scheme. The only adjustment made for 2020 was:

  • Expensing the Employer’s Contribution of ₦11 million in the statement of profit or loss and other comprehensive income.
  • Crediting the corresponding cash account.

The current treatment does not comply with the requirements of IAS 19 – Employee Benefits, which mandates more comprehensive reporting for defined benefit plans.

Required:
(a) Discuss and analyze the required accounting treatment of the first issue, showing relevant calculations and the impact on Gongon PLC’s financial statements as of December 31, 2020. (12 Marks)

(b) Review the accounting treatment of the second issue (pension plan) and make necessary disclosures in accordance with the relevant accounting standard. (8 Marks)

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  • 6 Marks

CR – May 2023 – L3 – Q2b – Consolidated Financial Statements (IFRS 10)

Discuss the advantages of using consolidated financial statements and enumerate the contents of an environmental report in an annual report.

(b) The annual reports of the group also contain separate financial statements of the parent company (Octopus Petroleum Plc). Some companies also include social and environmental reports as part of their financial statements.

Required:
i. Explain why it is better to use the consolidated financial statements for financial analysis rather than the parent’s separate financial statements. (4 Marks)
ii. Enumerate the possible contents of an environmental report included in the annual report of companies. (2 Marks)

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  • 14 Marks

CR – May 2023 – L3 – Q2a – Provisions, Contingent Liabilities, and Contingent Assets (IAS 37)

Analyze Octopus Petroleum’s performance and ability to finance future oil spill costs

Octopus Petroleum PLC is a multinational oil and gas group operating in the Niger Delta areas of Nigeria. The company has been highly profitable over the years. The group explores and extracts natural resources, holds reserves, and has recently become involved in the downstream sector by opening various commercial retail outlets for the sale of petrol to motorists.

In June 2020, the company was involved in an ecological disaster in the Ogoni area of Niger Delta as a result of massive oil spillage due to some technical faults, thereby resulting in spilling oil into the surrounding ocean and damaging wildlife and local communities.

Investors are concerned about the future prospects of Octopus Petroleum PLC and whether it represents a safe investment since the company normally operates in the lucrative oil and gas sector.

Octopus Petroleum Group annual report for the year 2020 and its comparative figures are shown below:

Octopus Petroleum Group Consolidated Statement of Profit or Loss for the Year Ended December 31

Octopus Petroleum Group Consolidated Statement of Financial Position as at December 31

Additional Information:

  1. The N3,700 million provision for the Ogoni oil spill is an estimated cost net of relevant tax.
  2. Calculating the financial cost of the oil spill in Ogoni land has been slightly problematic. However, N530 million had been expended by year-end, while the future costs of clean-up and compensation are undetermined.
  3. One uncertain cost is fines payable to the Federal Government of Nigeria. Past fines have exceeded N2,500 million.
  4. Octopus Petroleum Group vertically integrated in 2020 by acquiring and rebranding petrol stations.
  5. Oil reserves were at record-high levels in 2020.
  6. Oil prices increased by approximately 5% during 2020.
  7. The company values inventory on a last-in-first-out (LIFO) basis, which contravenes IAS 2.
  8. Dividend payments remained at N625 million for both 2020 and 2019.
  9. Investors typically evaluate companies using these ratios:
    • Profitability Ratios:
      • Return on Capital Employed (ROCE)
      • Return on Equity (ROE)
      • Gross Profit Percentage
      • Operating Profit Percentage
    • Liquidity Ratios:
      • Current Ratio
      • Acid Test Ratio
    • Resource Utilization and Financial Position Ratios:
      • Inventory Turnover
      • Asset Turnover
      • Interest Cover
      • Gearing Ratio

Required:

(a) Analyze the performance of Octopus Petroleum Group over the two-year period. Your analysis should also consider the group’s ability to finance the cost of the oil spill in Ogoni land in the coming years. (14 Marks)

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  • 8 Marks

CR – May 2023 – L3 – Q1b – Financial Instruments (IFRS 9, IAS 32, IAS 39)

Discuss IFRS 9 rules on derecognition of financial assets, apply these rules to factoring, and analyze ethical implications of falsifying a land sale.

The directors of Omi PLC reviewed the group statement of financial position as of November 30, 2020. Concerned about meeting future loan agreements, they proposed the following actions to improve liquidity:

  1. Factoring of Receivables:
    • Factoring N400 million of receivables.
    • 80% cash is received immediately (N320 million), and the factoring company charges N32 million.
    • The balance will be paid 30 days later.
  2. Adjusting Financial Statements:
    • The executive director suggested falsifying financial statements to show that land located in Ikoyi was sold before year-end to improve liquidity.

Required:

  • Discuss the rules of IFRS 9 – Financial Instrument on derecognition of financial assets.
  • Apply these rules to factoring in part (1).
  • Discuss the ethical implications of falsifying the sale of land in part (2).

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  • 22 Marks

CR – May 2023 – L3 – Q1a – Consolidated Financial Statements (IFRS 10)

Prepare a consolidated statement of financial position for Omi PLC and subsidiaries.

The draft statement of financial position of Omi PLC, Ruwa Limited, and Mmili Limited as of November 30, 2020, are as follows:

Additional Information for Consolidated Financial Statements Preparation:

  1. Acquisition of Ruwa Limited:
    • Omi PLC acquired 80% of Ruwa Limited’s ordinary share capital on December 1, 2017.
    • Retained earnings of Ruwa Limited at acquisition: N400 million.
    • Fair value of Ruwa Limited’s net assets: N2,840 million.
    • Any fair value adjustment pertains to net current assets, which had been realized by November 30, 2020.
    • No new issue of shares occurred in the group since the establishment of the current structure.
  2. Acquisition of Mmili Limited:
    • On December 1, 2018, Omi PLC acquired 40% and Ruwa Limited acquired 25% of Mmili Limited’s ordinary share capital.
    • Retained earnings of Mmili Limited at acquisition: N200 million.
    • Retained earnings of Ruwa Limited at acquisition: N600 million.
    • No revaluation surplus existed in Mmili Limited’s books at acquisition, and the fair value of Mmili Limited’s net assets was consistent with their carrying amount.
  3. Development Costs:
    • Significant expenditure incurred on developing internet products. These were initially written off but later reinstated as development inventories upon commercial use.
    • Costs do not meet the recognition criteria of IAS 38 – Intangible Assets.
    • Ruwa Limited included N80 million of these costs in its inventory, of which N20 million relates to expenses from periods before December 1, 2017.
    • The group wishes to ensure compliance with IFRS for this treatment.
  4. Internet Equipment:
    • Ruwa Limited purchased new internet equipment for N200 million, excluding a trade discount of N24 million.
    • The discount was recorded in the income statement.
    • Depreciation is calculated using the straight-line method over six years.
  5. Property, Plant, and Equipment Policy:
    • The group transitioned from the revaluation model to the cost model under IAS 16 – Property, Plant, and Equipment in 2020.
    • Mmili Limited’s assets were revalued on December 1, 2019, creating a revaluation surplus of N280 million.
    • Mmili Limited’s property was originally purchased in December 2018 for N1,200 million, with depreciation over six years.
    • The group does not transfer excess depreciation from revaluation reserves to retained earnings.
  6. Valuation of Non-controlling Interests:
    • The group values non-controlling interests at acquisition using their proportionate share of the subsidiary’s identifiable net assets.
  7. Defined Benefit Pension Scheme:
    • Omi PLC established a defined benefit pension scheme, contributing N400 million to it.
    • Details as of November 30, 2020:
      • Present value of obligation: N520 million.
      • Fair value of plan assets: N500 million.
      • Current service cost: N440 million.
      • Interest cost (scheme liabilities): N80 million.
      • Expected return on pension assets: N40 million.
      • Actuarial gain: N60 million.
    • The only recorded entry was the cash contribution, included in Omi PLC’s trade receivables.
    • Directors propose recognizing actuarial gain immediately in the statement of profit or loss.

Required:
Prepare the consolidated statement of financial position of Omi Group for the year ended November 30, 2020, in accordance with relevant IFRS.

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  • 5 Marks

CR – Nov 2016 – L3 – Q7b – Regulatory Environment for Corporate Reporting

Identify SAS standards that are still applicable in Nigeria post-IFRS adoption.

Statements of Accounting Standards (SAS) in Nigeria have been replaced by International Financial Reporting Standards (IFRS); however, some local standards relating to industry-specific rules not found in IFRS are still expected to be applied by companies in relevant industries, provided they do not conflict with IFRS.

You are required to examine the above statement and identify those Statements of Accounting Standards that are still applicable after the adoption of IFRS. (5 Marks)

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  • 10 Marks

CR – Nov 2016 – L3 – Q7a – Regulatory Environment for Corporate Reporting

Provide a report on the essence, merits, and challenges of IFRS adoption in Nigeria.

ABC Plc, in accordance with Nigerian Stock Exchange regulations on transitioning to IFRS, prepared its first IFRS Financial Statement in 2012. The document, spanning 155 pages, was complex for some stakeholders to understand.

You are required to prepare a brief report, highlighting the essence and merits of the adoption of IFRS by Nigerian Companies and state some of the challenges that could be encountered. (10 Marks)

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  • 15 Marks

CR – Nov 2016 – L3 – Q6 – Events After the Reporting Period (IAS 10)

Discuss IFRS 5 requirements for non-current assets held for sale and evaluate event impacts per IAS 10.

Maranathan Plc acquired a property for N4 million with annual depreciation on a straight-line basis at 7.5%. An impairment loss of N350,000 was recognized as of May 31, 2013, with accumulated depreciation at N1 million. The property was classified as held for sale on October 1, 2013, with fair value less costs to sell of N2.4 million. In December 2013, interim financials reported an improved fair value less costs to sell of N2.52 million. By May 31, 2014, fair value increased to N2.95 million, and the property was eventually sold on June 5, 2014, for N3 million.

Required:

a. Assess these transactions per IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. (5 Marks)
b. Evaluate the impact of events on the property over time and on reported gain per IAS 10 Events After the Reporting Period. (10 Marks)

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  • 10 Marks

CR – Nov 2016 – L3 – Q5 – Ethical Issues in Corporate Reporting

Provide definitions, examples, reasons, and preventive measures for Creative Accounting and Window Dressing.

Manipulation of reporting entities’ books and records has been termed in many quarters as “Creative Accounting” and “Window Dressing.” The Management of Wastage Plc requires clarification of these two concepts.

You are required to write a report to the management of Wastage Plc. Your report should include:

a. Definitions of the TWO concepts. (2 Marks)
b. FIVE examples of each. (5 Marks)
c. THREE possible reasons for Creative Accounting and Window Dressing. (3 Marks)
d. Advise to management on FIVE possible preventive measures of Creative Accounting. (5 Marks)

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  • 10 Marks

CR – Nov 2016 – L3 – Q4c – Fair Value Measurement (IFRS 13)

Discuss IFRS 13’s principles in computing fair value for land with alternative uses in Abuja.

Megida Plc, a public limited liability company, has acquired hectares of land in Abuja designated for economic empowerment programs, intended for commercial use. The fair value of the land for commercial purposes is estimated at N100 million. Utilizing the land for commercial purposes would contribute to reducing unemployment and attract an annual tax credit, which is based on the lower of 15% of the fair market value or N10,000,000, at a 20% tax rate.

Megida Plc has also considered an alternative use of the land for residential purposes, a choice market participants may support. The fair value of the land for residential purposes is estimated to be N148 million, excluding certain associated costs such as:

  • Legal costs: N4,000,000
  • Project viability analysis: N6,000,000
  • Demolition of commercial structures: N2,000,000

Due to uncertainty in obtaining residential use permission from the Abuja Municipal Authority, market participants would discount the fair value by 20%.

Required: Discuss the way in which Megida Plc should compute the fair value of the Abuja land with reference to the principles of IFRS 13 Fair Value Measurement. (10 Marks)

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