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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  • 6 Marks

CR – May 2016 – L3 – Q4b – Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

Discuss how the environmental liability for LALUPON Plc, arising from hazardous pollution, should be accounted for in its financial statements.

LALUPON Plc owns a piece of land in a residential area. PONJEB Ltd has leased the piece of land from LALUPON Plc and is using it to store and dispense gas. The Federal government has announced its intention to enact environmental legislation requiring property owners to accept liability for environmental pollution. As a result, LALUPON Plc introduced a hazardous policy and has begun to apply the policy to its properties.

LALUPON Plc has had a report of a gas leakage and subsequent fire outbreak which damaged surrounding properties, but no life was lost. LALUPON Plc has no right of recourse against PONJEB Ltd or its insurance company for the clean-up and compensations to owners of properties destroyed. At April 30, 2014, it is virtually certain that draft legislation requiring a clean-up of the land and payment of compensations to victims will be enacted.

Required:
Discuss how the above events should be accounted for in the financial statements of LALUPON Plc.

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  • 6 Marks

CR – May 2016 – L3 – Q4a – Financial Instruments (IFRS 9, IAS 32, IAS 39)

Discuss how the events surrounding the waiver of bond payments by LALUPON Plc should be accounted for in its financial statements.

LALUPON Plc was incorporated on January 3, 2010 in Nigeria with ₦250m authorized and fully paid share capital. As part of its initial capital, the company issued a 10% debenture bond. It also agreed to the appointment of a trust manager who was charged with the responsibility that the bond indenture is faithfully kept. The indentures, among others, provided for:

  • Bond amount: ₦100m (2020)
  • Yearly payment of interest and principal due.
  • Crystallization of the whole loan (Principal, interest, and all incidental expenses) on default.
  • Discretionary waiver of any term of the bond only at the instance of the bond holder.

On January 4, 2013, the Trust manager informed the bond holder of a default in servicing the loan. After a meeting of all stakeholders, the bond holder agreed to a waiver postponing the payment until December 2014.

On June 3, 2014, due to a downturn in business activities, LALUPON Plc felt a further waiver was required. After another meeting, the bond holder consented to a waiver until December 2015, when LALUPON Plc was confident it could make the payment.

On December 31, 2014, LALUPON Plc classified the loan as long-term debt in its statement of financial position on the basis that the loan was not in default at the end of their reporting period, as the bond holder had issued waivers and had not sought redemption.

Required:
Discuss how the above events should be accounted for in the financial statements of LALUPON Plc.

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  • 20 Marks

CR – May 2016 – L3 – Q3 – Income Taxes (IAS 12)

Discuss and account for deferred taxation arising from temporary differences using IAS 12 for Limelight Plc.

Limelight, a public limited company, is a major player in commodity brokerage and supplies. The following transactions relate to the year ended December 31, 2014.

Profit before taxation for the year was ₦487.5m. Taxable profit for the same period was ₦131.25m.

The balances of non-current assets of the company, at December 31, 2014:

N’000 Amount
Accounting carrying amount 937,500
Tax written down value 637,500

The balances above do not include a freehold building purchased in February 2014 for ₦750m. This building was revalued to ₦985m on December 31, 2014.

Accrued rental income on investment property at December 31, 2014, amounted to ₦9.75m. This income was credited to the statement of profit or loss as at year-end but was not received until three months after. Rental income is taxed by the Federal Inland Revenue Service on an actual basis when it is received.

No other temporary differences exist at December 31, 2014. Income tax and Withholding taxes on rental income are paid at 30% and 10% respectively, six months after the year.

Required:

a) Discuss the conceptual basis for the recognition of deferred taxation by Limelight Plc using the temporary difference approach in accordance with IAS 12, arising from the above transactions.

b (i) Outline how the above transactions should be accounted for using journal entries where appropriate.

b (ii) Calculate the provision for deferred tax after any necessary adjustments to the financial statements at December 31, 2014, and use journal entries.

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  • 20 Marks

CR – May 2016 – L3 – Q2 – Introduction to Corporate Reporting

Analyze Ehis Marvel Plc's financial performance and assess clothing and food sales divisions' contributions.

Ehis Marvel, a public company, is a high street retailer that sells clothing and food. The managing director is very disappointed with the current year’s result. The company expanded its operations and commissioned a famous designer to restyle its clothing products. This has led to increased sales in both retail lines, yet overall profits are down.

Extract from the Income Statement for the two years to March 31, 2016, are shown:

Ehis Marvel Plc – Statement of cash flow for the year to March 31, 2016

(ii) The share price of Ehis Marvel Plc averaged N6.00 during the year to March 31, 2015, but was only N3.00 at March 31, 2016.

Required:
Write a report analysing the financials of Ehis Marvel Plc, utilising the above ratios and the information in the statement of cash flows for the two years ended March 31, 2016. Your report should refer to the relative performance of the clothing and food sales and be supported by any further ratios you consider appropriate.

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  • 30 Marks

CR – May 2016 – L3 – Q1 – Presentation of Financial Statements (IAS 1)

Explain earnings management, calculate goodwill, and prepare a consolidated statement of cash flows for Joy-land Group.

Given that accrual accounting tends to mask actual cash flow performance, stock analyst and rating agencies are generally more interest in cash flow. The directors of Joy-land Plc have called for the cash flow statement of the group so as to have a view of earnings performance devoid of accruals. The following draft group financial statements relate to Joy-land Plc.
Joy-land Plc Group: Statement of financial position as of November 30

Joy-land Group: Statement of comprehensive income for the year ended November 30, 2015.

Joy-land Group: Statement of comprehensive income for the year ended November 30, 2015.

Joy-land Group: Statement of changes in equity for the year ended November 30, 2015

The following additional information relates to the financial statements of Joy-land
(i) On December 1 2013, Joy-land acquired 8% of the ordinary shares of Talk peace. Joy-land had treated this investment as available for sale in the financial statement to November 30, 2014. On December 1, 2014. Joyland acquired a further 52% of the ordinary shares of Talk-peace and gained control of the company, the consideration for the acquisitions was as follows:

At December 1, 2014 the fair value of the 8% holding in talk peace held by Joy-land at the time of the business combination was N20 million and the fair value of the noncontrolling interest in Talk-peace was N80million. no gain or loss on the 8% holding in Talk-peace had been reported in the financial statement at December 1, 2014, the
purchase consideration at December 1, 2014 comprised cash of N60 million and share of N60million.
The fair value of identifiable net assets of Talk-peace at the date of acquisition comprised the following:

(ii) Goodwill Impairment

  • Goodwill for all subsidiaries has undergone impairment testing for the financial year ending November 30, 2015.
  • Impairment losses identified were specific to subsidiaries 100% owned by Joy-land.

(iii) Purchase of Research Project (IAS 38)

  • On December 1, 2014, Joy-land purchased a research project from a third party for ₦32 million, which was recognized as an intangible asset under IAS 38.
  • Additional costs incurred during the year include:
    • ₦8 million to complete the research phase.
    • ₦16 million for product development (capitalizable).
    • ₦4 million for initial marketing costs (not capitalizable; already accounted for correctly).
  • No other additions to intangible assets were recorded, except those from the acquisition of Talk-peace.

(iv) Rights Issue by Talk-peace

  • On November 30, 2015, Talk-peace issued new shares on a 1 for 4 basis.
  • The issue was fully subscribed and raised ₦20 million in cash.

(v) Investment Property (IAS 40)

  • Joy-land uses the fair value model to measure its investment properties.
  • During the year:
    • Part of the air-conditioning system (carrying value: ₦2 million) was replaced with a new system costing ₦4 million.
    • The replacement aligns with the treatment under IAS 40.

(vi) Sale of Surplus Land

  • Joy-land sold surplus land with a carrying value of ₦40 million for:
    • ₦60 million in cash, and
    • Plant valued at ₦16 million (part of the consideration).
  • The resulting gain on disposal has already been included in the income statement.
  • Depreciation for property, plant, and equipment (PPE) for the year totaled ₦108 million.

(vii) Defined Benefit Scheme

  • Joy-land operates a defined benefit pension scheme for select top executives and expatriates (in addition to its contributory pension scheme).
  • Current-year figures for the defined benefit scheme:
    Description ₦’m
    Opening Balance (Dec 1, 2014) 88
    Current Year Charge to P&L 16
    Contributions Paid (28)
    Actuarial Loss to OCI 24
    Closing Balance (Nov 30, 2015) 100

(viii) The associate company did not pay any dividends in the year.
(ix) Deferred tax of N40illion arose on the gains on available for sale investments in the year

Required
(a) As the CFO of the group, briefly explain to the legal and engineer directors what is meant by earnings management giving TWO examples of how accruals could   be employed in the earning management. (3 marks)
N’m
Balance at the beginning, December 1, 2014 88
Charge to profit or loss for the year 16
Pension contributions paid during the year (28)
Actuarial loss to other comprehensive income 24
Balance at the end, November 30 2015 100
(b) Determine the goodwill arising on the acquisition of the subsidiary on December 1, 2014 and total goodwill impairments of the group as at November 30, 2015 statement of cash flow on the assumption that it is the policy of Joyland Plc to value Non-controlling interest at full fair value. (3 marks)
(c) Prepare a consolidated statement of cash flows for the Joy-land Group for the year ended November 30, 2015 using the indirect method under IAS 7 ‘statement of Cash flow.
Note; Ignore deferred taxation other than where is mention in the question.

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  • 6 Marks

CR – May 2017 – L3 – Q7b – Integrated Reporting

Discuss the usefulness of cash flow statements and the potential benefits of integrated reporting.

The directors of Duranga Plc. have learned that corporate reporting could be improved by adopting the International Integrated Reporting Council’s Framework for Integrated Reporting. The directors believe that International Financial Reporting Standards (IFRS), which the company has recently adopted following the decision of the Federal Executive Council, are already extensive and provide stakeholders with a comprehensive understanding of its financial position and performance for the year. They believe that with over 100 countries adopting IFRS, their financial statements speak the international financial reporting language and practice. In particular, statements of cash flows, which the company prepares in accordance with IAS 7, enable stakeholders to assess the liquidity, solvency, and financial adaptability of a business. They are concerned that any additional disclosures could be excessive and obscure the most useful information within a set of financial statements. This is against the backdrop of a recent effort by the IASB on excessive disclosures in financial statements. They are therefore unsure of the rationale for the implementation of a separate or combined integrated report.

Required:
Discuss the extent to which statements of cash flow provide stakeholders with useful information about an entity and whether this information would be improved by the entity introducing an Integrated Report. (6 Marks)

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  • 9 Marks

CR – May 2017 – L3 – Q7a – Revenue Recognition (IFRS 15)

Itemize and discuss the five-step model for revenue recognition under IFRS 15.

Megida hopes to obtain contracts from both the private and public sectors following the new government economic initiatives. The company’s revenue had always been accounted for in line with IAS 18, as the company had adopted IFRS. Some directors of Megida understand that with the introduction of IFRS 15: Revenue from Contracts, the way revenue from contracts is recognized may change. In particular, one of them who attended an IFRS training organized by the Institute of Chartered Accountants of Nigeria (ICAN) heard about IFRS 15 and its five-step model for revenue recognition but did not understand.

Required:
Itemize and briefly discuss the FIVE-step model approach to revenue recognition under IFRS 15. (9 Marks)

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  • 7 Marks

CR – May 2017 – L3 – Q6b – Financial Instruments (IFRS 9, IAS 32, IAS 39)

Distinguish between liability and equity under IAS 32 with examples.

It is important for entities to understand and properly classify their financial instruments. This is because some financial instruments may have features of both debt and equity, which can lead to inconsistency in reporting. To this end, financial reporting standards provide guidance on the difference between financial instruments classified as equity and liabilities.

Required:
With relevant examples, distinguish between liability and equity under IAS 32: Financial Instruments Presentation. (7 Marks)

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  • 8 Marks

CR – May 2017 – L3 – Q6 – Fair Value Measurement (IFRS 13)

Identify the fair value hierarchies under IFRS 13 and distinguish between principal and most advantageous markets.

The International Accounting Standards Board (IASB) aims at enhancing the guidance available for assessing fair value in order to increase consistency and comparability in fair value measurements and related disclosures. To this end, fair value measurements are categorized into a three-level hierarchy, based on the type of inputs to the valuation techniques used in IFRS 13. IFRS uses the terms principal or most advantageous market.

Required:

(i) What are the fair value hierarchies under IFRS 13? (3 Marks)

(ii) Distinguish between the principal and most advantageous market and state how price is determined in the principal market taking into consideration transport and transaction costs. (5 Marks)

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  • 5 Marks

CR – May 2017 – L3 – Q5c – Ethical Issues in Corporate Reporting

Identify the contents of a corporate governance report in annual reports of quoted companies.

Institutional investors, if not all investors, need information about corporate governance in order to make rational and reasonable investment decisions. As such, the Securities and Exchange Commission (SEC) of Nigeria requires that the annual reports of all quoted companies should include a corporate governance report.

Required:
Identify the contents of such a corporate governance report. (5 Marks)

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