Subject: CORPORATE REPORTING

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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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  • 10 Marks

CR – Nov 2024 – L3 – Q3a – Share-Based Payment and Contingent Liabilities

Accounting for share-based payments and contingent liabilities in financial statements.

(i) Share-Based Payment

Pee Manka PLC (PM), a hyper-growing firm in Ghana, prepares its financial statements on 31 December.

The following information is relevant:

  • The financial statements are authorised for issue on 31 March. On 31 December 2021, PM issued share options to seven (7) of its senior executives, giving each executive the option to purchase 2 million shares at GH¢6.50 per share. The fair value of each option at that date was GH¢4.00. The exercise of the share options was conditional on the completion of two-years’ service from 31 December 2021.

The company’s share price on subsequent dates was as follows:

Date Share Price (GH¢)
31 December 2022 13.50
31 December 2023 17.50
  • On 31 March 2023, after the 2022 financial statements were authorised for issue, PM’s Chief Finance Officer, one of the seven executives, unexpectedly resigned from her position in the company.
  • On 30 April 2023 another executive, Mrs. Torsah, was dismissed.
  • The five remaining executives exercised their options on 31 December 2023.

Required:

In line with IFRS 2: Share-Based Payment, recommend how the above scenario would have been dealt with in the financial statements of PM for the year ended 31 December 2023. (6 marks)

(ii) Contingent Liabilities and Share-Based Payment

  • Mrs. Torsah, who was dismissed, immediately instigated legal proceedings against PM, and it was probable, on the 28 February 2024, that she would be deemed to have completed the two-year qualifying period of her share option agreement.
  • Legal advice at that time was that she was also likely to be awarded GH¢3.5 million in compensation, and that it was possible that this could rise to GH¢5.8 million.

Required:

In line with IFRS 2: Share-Based Payment and IAS 37: Provisions, Contingent Liabilities and Contingent Assets, explain how the above scenario would impact your results in (i) above.

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  • 5 Marks

CR – Nov 2024 – L3 – Q2c – Accounting for Defined Benefit Pension Plans

Compute the pension amounts for Oboisah PLC under IAS 19.

Oboisah PLC (Oboisah) operates a defined benefit pension plan for employees who commenced employment with the company prior to 1 April 2021. The pension scheme is non-contributory.

At 31 March 2023, the Group recorded a net defined liability of GH¢157 million. The following information relates to the year ended 31 March 2024:

Description Amount (GH¢ million)
Employer contributions paid on 31 March 2024 43
Benefits paid 16
Current service cost 42
Curtailment gain 3
Present value of defined benefit obligation at 31 March 2024 498
Value of plan assets at 31 March 2024 315

The average yield on relevant corporate bonds was 20% on 1 April 2023. Entries so far made in respect of the employer contributions have been incorrectly debited to accounts receivable and credited to cash. Benefits paid have been correctly recorded.

Required:

In line with IAS 19: Employee Benefits, determine how much pension amounts should be included in the financial statements of Oboisah PLC for the year ended 31 March 2024. Show the appropriate extracts for the above and any correction entries, if necessary.

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  • 5 Marks

CR – Nov 2024 – L3 – Q2b – Accounting for Legal Claims

Assess and account for a legal claim against Agropah PLC under IAS 37.

ropah PLC (Agropah) prepares its financial statements to 30 June and usually authorizes them for issue on 25 August.

On 15 July 2024, Agropah received notice of a legal claim made by Odametey, a customer, for loss of profits allegedly due to the supply of faulty goods by Agropah on 30 April 2024. The amount claimed was GH¢5 million.

The directors of Agropah have estimated the following possible outcomes in respect of this legal claim:

  • 28% chance that the claim will not succeed.
  • 45% chance that the claim will succeed, and Odametey will be awarded GH¢3.2 million.
  • 27% chance that the claim will succeed, and Odametey will be awarded GH¢5 million.

Required:

In line with IAS 37: Provisions, Contingent Liabilities & Contingent Assets, explain how this legal claim should be accounted for and reported in the financial statements of Agropah for the year ended 30 June 2024.

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  • 10 Marks

CR – Nov 2024 – L3 – Q2a – Lease Accounting and Foreign Exchange

Discuss lease accounting treatment and foreign exchange effects on lease payments.

On 1 January 2023, Fabin Ghana Airlines PLC (FGA) leased a new fuel-efficient aircraft from German Jets Builders PLC (GJB) for ten (10) years, with an option to extend the lease period for five (5) additional years. However, at lease inception, FGA determined that the renewal option was not economically beneficial and would not be exercised.

The lease formed part of FGA’s sustainability strategy to green its air operations. Lease payments were structured as follows:

  • Fixed annual lease payments of €6 million, payable at each year-end starting 31 December 2023.
  • An additional 5% annual payment, conditional on FGA’s aircraft noise footprints and nitrogen oxide emissions declining by at least 15% and 10%, respectively.
  • At 31 December 2023, the Sustainability Committee determined that these environmental targets were met.

Additional lease details:

  • Estimated residual value of €15 million at 31 December 2032 and €10 million at 31 December 2037.
  • Residual Value Guarantee: FGA guaranteed that the relevant residual value will not drop below 30%.
  • Initial Direct Costs: GH¢500,000 was incurred in setting up the lease.
  • Discount Rate: 12%
  • Exchange Rates:
    • 1 January 2023: €1 = GH¢10
    • 31 December 2023: €1 = GH¢12
    • Average rate: €1 = GH¢11

Discount Factors at 12%:

Year Single-Period Factor Annuity Factor
10 0.32 5.65
14 0.20 6.63
15 0.18 6.81

Required:

In line with IFRS 16: Leases and IAS 21: Effects of Changes in Foreign Exchange Rates, discuss how this lease should be accounted for in the financial statements of FGA for the year ended 31 December 2023.

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  • 20 Marks

CR – Nov 2024 – L3 – Q1 – Consolidated Financial Statements

Prepare the consolidated statement of financial position for Okaekwei PLC, considering acquisitions and fair value adjustments.

The following financial statements relate to Okaekwei PLC (Okaekwei), Ablekuma PLC (Ablekuma), and Katamanso PLC (Katamanso), three companies operating in the manufacturing industry.

Statement of Financial Position as at 31 October 2024

Description Okaekwei (GH¢’000) Ablekuma (GH¢’000) Katamanso (GH¢’000)
Non-current assets:
Property, plant and equipment 88,307 53,657 82,875
Investments 102,500 78,095 –
Total Non-current Assets 190,807 131,752 82,875
Current assets:
Inventory 9,492 4,618 14,642
Trade receivables 4,573 8,101 18,085
Cash and Bank 11,625 4,599 30,056
Total Current Assets 25,690 17,318 62,783
Total Assets 216,497 149,070 145,658
Equity & Liabilities:
Share capital (GH¢1) 106,250 63,750 61,625
Retained earnings 38,607 42,361 27,025
Other component of equity 3,825 3,060 2,678
Total Equity 148,682 109,171 91,328
Liabilities:
Non-current liabilities 40,851 20,327 31,582
Current liabilities 26,964 19,572 22,748
Total Liabilities 67,815 39,899 54,330
Total Equity & Liabilities 216,497 149,070 145,658

Additional Information:

  1. Acquisition of Katamanso:

    • On 1 November 2023, Ablekuma acquired 60% of the ordinary shares of Katamanso at a cost of GH¢55 million.
    • Due diligence costing GH¢0.25 million was undertaken and included in the investment cost.
    • Retained earnings and other components of equity of Katamanso at acquisition were GH¢21.6 million and GH¢1.65 million, respectively.

  2. Fair Value Adjustments:

    • A fair value exercise was conducted, with a building’s fair value exceeding its carrying value by GH¢1.2 million (remaining useful life: 20 years).
    • The financial statements of Katamanso do not yet reflect this adjustment.
    • Non-controlling interest is measured using the proportionate share of identifiable net assets.

  3. Acquisition of Ablekuma by Okaekwei:

    • On 1 November 2022, Okaekwei purchased 80% of the ordinary shares of Ablekuma for GH¢92 million.
    • The investment value reflects the fair value of the subsidiary at 31 October 2024.
    • Retained earnings and other equity components at acquisition: GH¢29.6 million and GH¢2.32 million.

  4. Deferred Tax on Fair Value Adjustments:

    • Deferred tax is to be provided at 25% on temporary differences arising from fair value adjustments.

  5. Intragroup Transactions:

    • On 1 June 2024, Ablekuma sold inventory (cost: GH¢2 million) to Katamanso for GH¢1.8 million.
    • As of 31 October 2024, these goods were still in Katamanso’s inventory, valued at the purchase cost. The fair value of the inventory at year-end was GH¢1.78 million.

  6. Intragroup Transfer of PPE:

    • On 1 August 2024, Okaekwei transferred a production machine to Ablekuma at GH¢2 million (carrying value: GH¢2.4 million).
    • The remaining useful life was five years, but Ablekuma depreciates it over four years.
    • Okaekwei harmonizes accounting policies upon consolidation.

Required:

Prepare the Consolidated Statement of Financial Position of Okaekwei PLC as at 31 October 2024.

(All workings are to be rounded to the nearest thousand).

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  • 30 Marks

CR – May 2017 – L3 – Q1 – Foreign Currency Transactions and Translation (IAS 21)

Assess functional currency and prepare a consolidated statement of financial position under IFRS.

Rapuya Plc. is a Nigerian public limited company operating in the mining industry. The draft Statements of Financial Position of Rapuya Plc., and its two subsidiaries, Puta Limited and Soma Limited as at April 30, 2017, are as follows:

The following information is relevant to the preparation of the group financial statements:

(i) On May 1, 2016, Rapuya acquired 52% of the ordinary shares of Soma Limited, a foreign subsidiary. The retained earnings of Soma Limited on this date were 220 million defas. The fair value of the identifiable net assets of Soma Limited on May 1, 2016, was 990 million defas. The excess of the fair value over the net assets of Soma Limited is due to an increase in the value of non-depreciable land.

Rapuya Plc. wishes to use the ‘full goodwill’ method to consolidate the financial statements of Soma. The fair value of the non-controlling interest in Soma Limited at May 1, 2016, was 500 million defas.

Soma Limited is located in Tome, a small country in West Africa, and operates a mine. The income of Soma Limited is denominated and settled in defas. The output of the mine is routinely traded in defas, and its price is determined initially by local supply and demand. Soma Limited pays 30% of its costs and expenses in naira, with the remainder being incurred locally and settled in defas. Soma’s management has a considerable degree of authority and autonomy in carrying out the operations of Soma Limited and is not dependent upon group companies for financial support. The Finance Controller is not certain from the above whether the defas or naira should be taken as the functional currency of Soma Limited.

There have been no issues of ordinary shares and no impairment of goodwill since acquisition.

(ii) Also on May 1, 2016, Rapuya Plc. had acquired 70% of the equity interests of Puta Limited. The purchase consideration amounted to N226 million, which Rapuya Plc. paid through bank transfer in compliance with the cashless policy of the Federal Government of Nigeria. The fair value of the identifiable net assets recognized by Puta Limited was N240 million, excluding the patent below. The identifiable net assets of Puta Limited at May 1, 2016, included a brand with a fair value of N8 million. This had not been recognized in the financial statements of Puta Limited. The brand is estimated to have a useful life of four years. The retained earnings of Puta Limited were N98 million, and other components of equity were N6 million at the date of acquisition. The remaining excess of the fair value of the net assets is due to an increase in the value of non-depreciable land.

Rapuya Plc. wishes to use the ‘full goodwill’ method in consolidating the financial statements of this subsidiary. The fair value of the non-controlling interest in Puta Limited was N92 million on May 1, 2016. There have been no issues of ordinary shares since acquisition, and goodwill on acquisition is not impaired.

(iii) The following exchange rates are relevant for the preparation of the group financial statements:

Defas to Naira Exchange Rate
May 1, 2016 3:1
April 30, 2017 2.5:1
Average for year to April 30, 2017 2.9:1

Required:

(a) Advise the Finance Controller on what currency should be taken as the functional currency of Soma Limited, applying the principles set out in IAS 21 – The Effects of Changes in Foreign Exchange Rates. (5 Marks)

(b) Prepare a consolidated statement of financial position of the Rapuya Group as at April 30, 2017, in accordance with International Financial Reporting Standards (IFRS). (Show all workings) (25 Marks)

(Total: 30 Marks)

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  • 20 Marks

CR – Nov 2016 – L1 – SB – Q4 – Fair Value Measurement (IFRS 13)

Discuss fair value principles, principal market, and valuation adjustments under IFRS 13.

a. Prior to the advent of IFRS 13, many standards such as IAS 16, IAS 38, IAS 40, and IAS 39 among others required the use of fair value. These various requirements have been harmonized with the introduction of IFRS 13 Fair Value Measurement.

Required:
Define fair value in accordance with IFRS 13. (2 Marks)

b. One of the companies formerly operating in Nigeria that had recently relocated its operation to Ghana as a result of the challenging business environment in Nigeria has access to both Lagos and Accra markets for its product. The product sells at slightly different prices (in naira) in the two active markets. An entity enters into transactions in both markets and can access the price in those markets for the product at the measurement date as follows:

Market Lagos (N’000) Accra (N’000)
Sale Price 260 250
Transaction Cost (30) (10)
Transport Cost (20) (20)
Net Price 210 220

Required:
i. Briefly explain the principal market of an asset in accordance with IFRS 13 and determine what fair value would be used to measure the sale of the above product if the Lagos market were the principal market. (4 Marks)

ii. How is fair value determined in the absence of a principal market and what fair value would be used to measure the sale of the above product if no principal market could be identified? (4 Marks)

c. Megida Plc, a public limited liability company, has just acquired some hectares of land in Abuja earmarked by the government for economic empowerment programs. The land is expected to be used for commercial purposes. The fair value of the land if used for commercial purposes is N100 million, which includes tax credits.

Market participants consider alternative use for residential purposes, with an estimated fair value of N148 million, adjusted for:

  • Legal Costs: N4 million
  • Viability Analysis Costs: N6 million
  • Demolition Costs: N2 million
  • Planning Permission Uncertainty: 20% risk discount.

Required:
Discuss how Megida Plc should compute the fair value of the Abuja land with reference to IFRS 13 principles. (10 Marks)

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  • 20 Marks

CR – Nov 2016 – L1 – SB – Q3 – Segment Reporting (IFRS 8)

Perform a vertical analysis of segment contributions to the group's financial performance.

Nationwide Plc is a conglomerate with subsidiaries in two geographical locations. Each of the subsidiaries has stamped its foot in relevant subsectors and contributes to the group’s gross earnings. Segment information is prepared on the basis of geographical areas as well as business lines.

Segment Information By Geographical Areas as at December 31, 2012:

Subsidiary I Nigeria (N’m) Europe (N’m) Total (N’m)
Derived From External Customers 110,419 2,375 112,794
Total Revenue 110,419 2,375 112,794
Interest And Similar Expenses (25,398) (271) (25,669)
Operating Income 85,021 2,104 87,125
Share Of Profit Of Equity Accounted Investee 1,850 0 1,850
Operating Expenses (75,507) (1,530) (77,037)
Net Impairment Loss On Financial Assets (2,772) (106) (2,878)
Profit Before Taxation 8,592 468 9,060
Income Tax Credit/(Expense) (1,572) (113) (1,685)
Profit After Taxation 7,020 355 7,375

Assets And Liabilities:

Subsidiary I Nigeria (N’m) Europe (N’m) Total (N’m)
Total Assets 954,165 78,882 1,033,047
Total Liabilities (781,019) (57,630) (838,649)
Net Assets 173,146 21,252 194,398
Subsidiary II Nigeria (N’m) Europe (N’m) Total (N’m)
Derived From External Customers 82,566 2,535 85,101
Total Revenue 82,566 2,535 85,101
Interest And Similar Expenses (34,049) (263) (34,312)
Operating Income 48,517 2,272 50,789
Share Of Profit Of Equity Accounted Investee 952 0 952
Operating Expenses (88,429) (1,468) (89,897)
Net Impairment Loss On Financial Assets (69,525) (3) (69,528)
Profit/(Loss) Before Taxation (108,485) 801 (107,684)
Income Tax Credit/(Expense) 25,346 (213) 25,133
Profit/(Loss) After Taxation (83,139) 588 (82,551)

Assets And Liabilities:

Subsidiary II Nigeria (N’m) Europe (N’m) Total (N’m)
Total Assets 899,434 155,300 1,054,734
Total Liabilities (711,678) (143,684) (855,362)
Net Assets 187,756 11,616 199,372

Required:
You are required to appraise the contributions of each of the geographical locations to the group’s performance through a vertical analysis from the segment information.

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  • 20 Marks

CR – Nov 2016 – L1 – SB – Q2 – Earnings Per Share (IAS 33)

Evaluate the significance, shortcomings, and calculations of EPS for Soar Plc.

The objective of IAS 33 – Earnings Per Share is to improve the comparability of the performance of different entities in the same period and of the same entity in different accounting periods. This is done by prescribing the methods for determining the numbers of shares to be included in the calculation of earnings per share. The management of Soar Plc had sought your professional advice on the application of IAS 33.

a. You are required to advise the management of Soar Plc on the:
i. Significance of earnings per share. (5 marks)
ii. Shortcomings of earnings per share. (5 marks)

b. The directors of Soar Plc have decided to replace most of the existing plant and machinery which are now obsolete during the year ended September 30, 2015, to enhance earnings. The costs of removing existing plant and acquiring and installing new plant have been estimated at N750,000.

In order to improve liquidity, the directors decided to make a new issue of 800,000 ordinary shares at N2 per share fully paid on January 1, 2015, and a further N600,000 4% convertible loan notes on June 1, 2015. The terms of issue would provide for conversion into ordinary shares as stated below:

On September 30 Number of shares per N100 of loan stock
2015 120
2016 125
2017 118
2018 122

The ordinary shares issued would rank for dividend in the current year. The following relates to the company for the period ended September 30, 2015:

  • Profit before interest and tax is N850,000.
  • Effective rate of company tax on profit is 30% and the basic EPS for the year ended September 30, 2014, was 48 kobo.
  • The company had issued as at September 30, 2014, the following:
    • 2,000,000 ordinary shares of 50 kobo each fully paid.
    • 400,000 12% irredeemable preference shares of N1 each fully paid.
    • 300,000 10% redeemable preference shares of N1 each fully paid.
    • N700,000 8% redeemable debenture (non-convertible).

Required:
Calculate for Soar Plc for the year ended September 30, 2015:
i. Basic earnings per share (5 marks).
ii. Fully diluted earnings per share (5 marks).

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  • 30 Marks

CR – Nov 2016 – L3 – SA – Q1 – Consolidated Financial Statements (IFRS 10)

Prepare a Consolidated Statement of Financial Position for Bata Plc and subsidiaries; explain IAS 21 principles for translating foreign subsidiaries.

a. Bata Plc, which operates in the manufacturing sector, has been surviving the challenges operating in the Nigerian economic environment. The draft Statements of Financial Position of Bata Plc and its subsidiaries as at October 31, 2016, are as follows:

Bata N’million Jewe N’million Gaba N’million
Non-current assets Property, plant, and equipment 4,320 360 420
Investments in subsidiaries 1,110 600 –
Financial assets 500 – –
Total Non-current assets 5,930 960 420
Current assets 1,050 570 540
Total assets 6,980 1,530 960
Equity Share capital – N1 ordinary shares 2,400 600 300
Retained earnings 3,410 540 390
Other components of equity 450 – –
Total equity 6,260 1,140 690
Current liabilities 720 390 270
Total liabilities and equity 6,980 1,530 960

Additional Information:

  1. Acquisition of Subsidiaries:
    • Bata Plc acquired 60% of the share capital of Jewe Plc on November 1, 2012, and 10% of Gaba Plc on November 1, 2013. The costs of the combinations were N852 million and N258 million, respectively.
    • Jewe Plc acquired 70% of the share capital of Gaba Plc on November 1, 2013.
  2. Retained Earnings Balances:
Date Jewe Plc (N’million) Gaba Plc (N’million)
November 1, 2012 270 –
November 1, 2013 360 240
  1. Fair Value Adjustments:
    • At acquisition dates, the fair value of the net assets was N930 million for Jewe Plc and N660 million for Gaba Plc. The difference in the fair value and book value relates to non-depreciable land.
    • The fair value of non-controlling interest (NCI) was N390 million for Jewe Plc and N330 million for Gaba Plc. Bata Plc adopts the full goodwill method under IFRS 3 to account for NCI.
  2. Impairment Testing:
    • Jewe Plc suffered an impairment loss of N60 million.
    • Gaba Plc did not suffer any impairment loss.
  3. Intra-group Inventory Sales:
    • During the year ended October 31, 2016, Bata Plc sold inventory to Jewe Plc and Gaba Plc.
    • The invoiced prices of the inventories were N480 million and N360 million, respectively.
    • Bata Plc invoices goods to achieve a markup of 25% on cost to all third parties, including group companies.
    • At the year-end, half of the inventory sold to Jewe Plc remained unsold, but the entire inventory sold to Gaba Plc had been sold to third parties.
  4. Financial Asset:
    • Bata Plc purchased a deep discount bond for N500 million on November 1, 2015.
    • The bonds will be redeemed in 3 years for N740.75 million and are carried at amortized cost in line with IAS 39.
    • The Accountant has not passed the correct entries to reflect amortized cost valuation at year-end, and the financial asset is shown at N500 million.

Compound sum of N1: (1 + r)^n

Year 12% 14%
1 1.1200 1.1400
2 1.2544 1.2996
3 1.4049 1.4815
4 1.5735 1.6890

Required:

  1. Prepare a Consolidated Statement of Financial Position for Bata Plc and its subsidiaries as at October 31, 2016.       (25 Marks)
  2. Explain to the directors of Bata Plc how the assets, liabilities, income, and expenses of a foreign subsidiary, including the resulting goodwill, are translated for consolidation purposes under IAS 21. (5 Marks)

(Total: 30 Marks)

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  • 2 Marks

ATAX – May 2019 – L3 – Q1a – Petroleum Profits Tax (PPT)

Assess and compute the assessable profit, chargeable profit, chargeable tax, and total tax payable for a petroleum company, based on financial data.

In line with provisions of the Petroleum Profits Tax Act Cap P13 LFN 2004 (as amended), explain “accounting period” of a petroleum exploration company. (2 Marks)

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  • 5 Marks

CR – May 2019 – L3 – Q7b – Fair Value Measurement (IFRS 13)

Advise on how to measure cattle in financial statements under IAS 41.

Megida Plc. has ranches across the North where its cattle are reared. The company is quoted on the Nigerian Stock Exchange under the Agricultural Sector. The Financial Controller is unclear on how to measure its cattle in the financial statement according to IAS 41.

Required:
Advise the Financial Controller on how to measure the cattle in the financial statement of Megida Plc.

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  • 10 Marks

CR – May 2019 – L3 – Q7a – Fair Value Measurement (IFRS 13)

Explain the accounting treatment for land, plantation, and harvested produce for Agbinye Farms as at March 31, 2018.

Agbinye Farms operates many plantations across Nigeria. The Company recently acquired a freehold land in Benue for a total of N12 million. The trees were planted with the company incurring an operating cost of N4 million up to 31 March 2018, which is the company’s year-end.

The fair value of the plantation (excluding the land) was determined to be N16.4 million as at 31 March 2018. Based on management assessment, the company is expected to get produce from the plantation for a period of 20 years.

The first harvest was done during the year ended 31 March 2018, and the fair value of the produce was estimated as N2.5 million. The Company incurred a total cost of N600,000 to complete the harvest.

The company uses the cost model when possible.

Required:
Discuss the accounting treatment of the above transactions, showing clearly the amount to be recognised in the statement of profit or loss and the statement of financial position as at 31 March 2018.

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  • 15 Marks

CR – May 2019 – L3 – Q6 – Presentation of Financial Statements (IAS 1)

Discuss reclassification adjustments and integrated reporting objectives and challenges.

Dangogo Plc. has adopted IFRS in the preparation and presentation of its financial statements in line with Financial Reporting Council of Nigeria requirements. During deliberations on their financial statements for the year ended 31 March, 2019 the directors of Dangogo Plc. found the distinction between profit or loss and other comprehensive income confusing. This is the case with many other preparers or users of financial statements in Nigeria who seem to be unclear about the relationship between profit or loss and other comprehensive income (OCI). They blame the conceptual framework for Financial Reporting and IAS 1 regarding the confusing nature of re classification. The emergence of integrated reporting holds promises for better reporting, but preparers are equally uncertain about whether the International Integrated Reporting Councils (IIRC) or Integrated Reporting (IR) Framework constitutes suitable criteria for report preparation.

a. Discuss the nature of a re-classification adjustment and the arguments for and against allowing re-classification of items to profit or loss. (6 Marks)

bi. Discuss the objectives of integrated reporting and key components (content elements) of integrated reports. (6 Marks)

ii. Comment on any concerns which could limit the Framework’s suitability for assessing the performance and prospects of an entity. (3 Marks)

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  • 15 Marks

CR – May 2019 – L3 – Q5 – Joint Arrangements (IFRS 11)

Account for a joint arrangement and decommissioning obligations under IFRS 11 and handle the provision for a major overhaul under IAS 37.

a. LPG Plc. is a publicly traded entity on the Nigerian Stock Exchange involved in the production of and trading in natural gas in Nigeria. LPG Plc. jointly owns a gas storage facility with another entity, Tan Oil Nigeria Limited. Both parties extract gas from onshore gas fields in the Niger Delta, which they own and operate independently from each other. LPG owns 55% of the gas storage facility and Tan Oil Nigeria owns 45%. Services and costs are shared between them according to their percentage holding, however, decisions regarding the storage facility require unanimous agreement of the parties. The gas storage facility is pressurised so that the gas is pushed out when extracted. When the gas pressure is reduced to a certain level, the remaining gas is irrecoverable and remains in the gas storage facility until it is decommissioned. The Nigeria law requires the decommissioning of the storage facility at the end of its useful life. LPG Plc. wishes to know how to treat the agreement with Tan Oil Nigeria Limited, including any obligation or possible obligation arising on the gas storage facility.

NB: Ignore accounting for the irrecoverable gas.

b. LPG purchased a major gas plant on 1 January, 2018 and the Directors estimated that a major overhaul is required every two years. The costs of the overhaul are approximately ₦25 million, which comprises ₦15 million for parts and equipment and ₦10 million for labour. The Directors proposed to accrue the cost of the overhaul over the two years of operations up to that date and create a provision for the expenditure.

Required:
Discuss, with reference to International Financial Reporting Standards (IFRS), how LPG Plc should account for the agreement in (a) above (11 marks) and the transactions in (b) for its year ended 31 August, 2018. (4 marks)

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