Subject: FINANCIAL REPORTING

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  • 5 Marks

FR – Nov 2024 – L2 – Q5d – Revenue Recognition under IFRS 15

Analyzing distinct performance obligations in a software contract under IFRS 15.

Togbah LTD (Togbah), a software developer, enters into a contract with a customer to transfer the following:

  • Software licence
  • Installation service (includes changing the web screen for each user)
  • Software updates
  • Technical support for two years

Togbah sells the above separately. The installation service is routinely performed by other entities and does not significantly modify the software. The software remains functional without the updates and the technical support.

Required:
Explain whether the goods or services promised to the customer are distinct in terms of IFRS 15: Revenue from Contracts with Customers

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  • 5 Marks

FR – Nov 2024 – L2 – Q5c – Revenue Recognition under IFRS 15

Assessing whether goods and services in a contract are distinct under IFRS 15.

Togbah LTD (Togbah), a software developer, enters into a contract with a customer to transfer the following:

  • Software licence,
  • Installation service (includes changing the web screen for each user),
  • Software updates, and
  • Technical support for two years.

Togbah sells the above separately. The installation service is routinely performed by other entities and does not significantly modify the software. The software remains functional without the updates and the technical support.

Required:
Explain whether the goods or services promised to the customer are distinct in terms of IFRS 15: Revenue from Contracts with Customers.

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  • 5 Marks

FR – Nov 2024 – L2 – Q5b – Ethical Issues in Government Grants

Identification of ethical issues in recording a government grant and recommended corrective actions.

Dahn is a Chartered Accountant who works for a large Pharmaceutical Company, Nimely Company Ltd (Nimely), as an Assistant Financial Controller. The Financial Controller of Nimely is also a Chartered Accountant with more than ten years of experience.

During the year, Nimely received a vehicle worth GH¢800,000 from the government to support its operations. According to the Government Official who presented the vehicle to the management of Nimely, the company has been compliant in filing and paying its taxes.

At the year-end, the Financial Controller passed the following entry in the Tally Software of Nimely Company Ltd:

Dr Vehicle GH¢800,000
Cr Income GH¢800,000

Dahn explained to the Financial Controller that the grant should be treated in line with the provisions of IAS 20: Accounting for Government Grants and Disclosure of Government Assistance. It is the company’s policy that such grants should be treated as deferred income.

The Financial Controller agreed that the treatment should have been in line with IAS 20, but mentioned that the entries should not be changed since the current treatment may help them meet their profit targets.

It is Nimely’s policy to depreciate its vehicles at a rate of 25% per annum on a straight-line basis.

Required:

i) Identify the ethical issues involved.
ii) Recommend the appropriate actions to be taken by Dahn.

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  • 5 Marks

FR – Nov 2024 – L2 – Q5a – Barriers to Harmonisation of Accounting Standards

Identifying five barriers to the harmonisation of accounting standards across different countries.

Harmonisation of accounting standards is a topical issue and is needed due to the increasing globalisation and competitiveness of governments and services. Harmonisation ensures reliable and high-quality financial reporting. However, not all countries have been able to harmonise their accounting standards in line with the International Financial Reporting Standards.

Required:
State FIVE barriers to the harmonisation of accounting standards faced by these countries.

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  • 10 Marks

FR – Nov 2024 – L2 – Q4b – Financial Performance Assessment of Acquisition Targets

Assessment of financial performance and position of Suah LTD and Nagbe LTD to assist Dukuly LTD in an acquisition decision.

Dukuly LTD, a public entity, has been expanding through acquisitions. It is assessing two potential acquisition targets, Suah LTD and Nagbe LTD, both operating in the same industry.

The financial statements of Suah LTD and Nagbe LTD for the year ended 30 September 2024 have been provided, along with a set of financial ratios calculated for Suah LTD.

Required:
Using the calculated ratios for Nagbe LTD from Question 4a, assess the relative financial performance and financial position of Suah LTD and Nagbe LTD, to assist the directors of Dukuly LTD in making an acquisition decision.

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  • 10 Marks

FR – Nov 2024 – L2 – Q4a – Financial Ratios and Performance Evaluation

Calculation of key financial ratios for Nagbe LTD to compare with Suah LTD and evaluate financial performance.

Dukuly LTD, a public entity, has been expanding through acquisitions. It is assessing two potential acquisition targets, Suah LTD and Nagbe LTD, which operate in the same industry. The indicative price for acquiring either entity is GH¢12 million.

The financial statements for Suah LTD and Nagbe LTD are provided as follows:

Statement of Profit or Loss for the year ended 30 September 2024

Item Suah LTD (GH¢’000) Nagbe LTD (GH¢’000)
Revenue 25,000 40,000
Cost of Sales (19,000) (32,800)
Gross Profit 6,000 7,200
Distribution & Admin Expenses (1,250) (2,300)
Finance Costs (250) (900)
Profit Before Tax 4,500 4,000
Income Tax Expense (900) (1,000)
Profit for the Year 3,600 3,000

Statement of Financial Position as at 30 September 2024

Item Suah LTD (GH¢’000) Nagbe LTD (GH¢’000)
Non-Current Assets 4,800 10,300
Current Assets 4,800 8,700
Total Assets 9,600 19,000
Equity 2,600 5,600
Non-Current Liabilities 5,000 9,200
Current Liabilities 2,000 4,200
Total Equity & Liabilities 9,600 19,000

Additional Information:

  1. Carrying Amount of Plant Assets:

    • Suah LTD: GH¢4,800,000
    • Nagbe LTD: GH¢2,000,000

  2. The following ratios for Suah LTD are provided:

    Ratio Suah LTD
    Return on Capital Employed (ROCE) 62.5%
    Net Asset Turnover 3.3 times
    Gross Profit Margin 24.0%
    Profit Margin (Before Interest & Tax) 19.0%
    Current Ratio 2.4:1
    Inventory Holding Period 31 days
    Trade Receivables Collection Period 31 days
    Trade Payables Payment Period 24 days
    Gearing Ratio 65.80%
    Acid Test Ratio 1.6:1

Required:
Using the financial statements provided, calculate the corresponding ratios for Nagbe LTD to compare with Suah LTD.

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  • 20 Marks

FR – Nov 2024 – L2 – Q3 – Financial Statements Preparation

Preparation of Fahnbulleh LTD’s Statement of Comprehensive Income and Statement of Financial Position using IFRS.

Fahnbulleh LTD (Fahnbulleh) is a well-known company manufacturing thrill rides. During the current economic climate, Fahnbulleh has experienced some difficulties and has had to close down its Merry Go Round division.

The company’s trial balance as at 31 October 2023 is as follows:

Account Description Dr (GH¢’000) Cr (GH¢’000)
Revenue 1,296,000
Cost of Sales 546,480
Distribution Costs 127,080
Administrative Expenses 142,560
Investment Income 28,080
Investment Property 270,000
Interest Paid 17,280
Income Tax 10,800
Property, Plant & Equipment (PPE) – Carrying Value at 1 Nov 2022 1,620,000
Inventories (31 October 2023) 108,000
Trade Receivables 135,000
Bank 64,800
Payables 43,200
Deferred Tax (1 Nov 2022) 75,600
8% Loan Note 432,000
Ordinary Share Capital (GH¢1 per share) 540,000
Retained Earnings (1 Nov 2022) 605,520
Totals 3,031,200 3,031,200

Additional Information:

  1. Revenue Adjustments:

    • Revenue includes VAT of GH¢72 million.

  2. Property, Plant & Equipment (PPE):

    • A building with a carrying value of GH¢54 million was revalued on 1 November 2022 to GH¢72 million.
    • The building had an estimated useful life of 25 years when purchased, and this has not changed after the revaluation.
    • All other PPE should be depreciated at 20% per annum (reducing balance method).
    • All depreciation should be charged to cost of sales.

  3. Closure of the Merry Go Round Division (Discontinued Operations):

    • Closure Date: 1 October 2023
    • Division’s Results (1 Nov 2022 – 1 Oct 2023):
    Item GH¢’000
    Revenue 58,800
    Cost of Sales 38,700
    Distribution Costs 12,240
    Administrative Expenses 11,880
    • The division’s net assets were sold at a loss of GH¢19.2 million, recorded in cost of sales.

  4. Investment Property Revaluation (IAS 40):

    • Investment property value increased by 5%, which should be incorporated into the financial statements.

  5. Income Tax and Deferred Tax (IAS 12):

    • The estimated income tax provision for the year: GH¢140.4 million.
    • Deferred tax liability should be adjusted for temporary differences (GH¢129.6 million) at a 25% tax rate.

  6. Damaged Inventory (IAS 2):

    • Inventory worth GH¢46 million was damaged.
    • It can be reconditioned at a cost of GH¢12 million and sold for GH¢52 million.
    • Appropriate adjustments should be made.

Required:

Prepare and present the Statement of Comprehensive Income for the year ended 31 October 2023 and the Statement of Financial Position as at 31 October 2023 for Fahnbulleh LTD.

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  • 3 Marks

FR – Dec 2022 – L2 – Q2d – Structured Entities

Justify whether Wesseh LTD qualifies as a structured entity under IFRS 12.

Under IFRS 12: Disclosure of Interests in Other Entities, a structured entity is defined as one designed so that voting or similar rights are not the dominant factor in deciding who controls the entity.

Wesseh LTD is an entity set up by a sponsoring bank to hold specific mortgages, securitised by that bank. The operation of Wesseh LTD is governed by an operating agreement that sets out the managerial structure and rules of operation.

Required:
Justify whether the above would meet the definition of a structured entity.

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  • 7 Marks

FR – Nov 2024 – L2 – Q2c – Intangible Assets and Their Measurement

Determining the correct accounting treatment for various intangible assets in Dolo LTD's financial statements, including licensing, software, and book rights.

Question:

Dolo LTD, a market leader in the pharmaceutical industry, incurred the following expenditures during the financial year ended 31 December 2023:

Expenditure Item Amount (GH¢’000) Additional Information
Licence to operate in the pharmaceutical industry (10-year validity from January 2023) 200 Intangible asset
Costs incurred in setting up a website for a new product 20 The website will be developed in 2024
Purchase of 295 personal computers on 1 July 2023 (three-year useful life) 840 Excludes software costs
Windows operating system (for 295 PCs) 530 Perpetual software license
Microsoft Office software (for 295 PCs) 24 Three-year software license
Induction training for new staff 430 Staff training for new hires
Book rights purchased from another entity a few years ago 90 The rights have an indefinite useful life
Independent valuation of book rights as of 31 Dec 2023 240 Valued by an independent expert

Dolo LTD’s policy is to use the revaluation model for intangible assets where a market valuation is available.

Required:
Determine the carrying amount of intangible assets at 31 December 2023, in accordance with IAS 38 – Intangible Assets and IFRS.

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  • 5 Marks

FR – Nov 2024 – L2 – Q2b – Events After the Reporting Period

Accounting treatment of a court ruling after the reporting period and its impact on Mulba LTD’s financial statements.

As a Trainee Financial Accountant working for Mulba LTD, a technology business, you have been asked by the Financial Controller to provide guidance on how to account for a variety of transactions that took place after the company’s fiscal year ended on December 31, 2023.

Mulba LTD was sued by a customer who was dissatisfied with the quality of a product delivered in June 2023. The court case was heard in late October 2023, but the judgment was delivered on 8 January 2024, ruling in favor of Mulba LTD. The ruling awarded the company legal costs of GH¢20,000 to cover solicitor’s fees.

The legal costs were paid by the customer to Mulba LTD on 12 January 2024.

Mulba LTD was doubtful of winning the case and had previously made a provision in its financial statements for the year ended 31 December 2023 as follows:

Account Debit (GH¢) Credit (GH¢)
Legal Fees – Administrative Expenses 25,000 –
Cost of Sales 35,000 –
Provisions – Current Liabilities – 60,000

Required:
In accordance with IAS 10: Events after the Reporting Period, advise the management of Mulba LTD on the proper accounting treatment of the above issue to ensure that the financial statements are prepared in compliance with IFRS.

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  • 20 Marks

FR – Nov 2015 – L2 – Q3 – Presentation of Financial Statements (IAS 1)

Calculation of accounting ratios for creditors, management, and shareholders with comparisons between 2013 and 2014.

The summarized final accounts of Omosigho Ltd, manufacturer of Aluminum roofing sheets and its accessories, for two years ended December 31, 2013, and 2014 were as follows:

Required:
a. Calculate TWO accounting ratios each that will be of interest to the following stakeholders:
i. Creditors
ii. Management
iii. Shareholders
(15 Marks)

b. Comment briefly on the changes between the ratios arrived at in 2013 and 2014.
(5 Marks)

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  • 20 Marks

FR – Nov 2015 – L2 – Q2 – Presentation of Financial Statements (IAS 1)

Prepare a statement of profit or loss and other comprehensive income for Well-Being Plc.

The following trial balance has been extracted from the books of Well-Being Plc as at March 31, 2014:

N’000 N’000
Land at cost 360
Building at cost 750
Equipment at cost 588
Vehicles at cost 852
Goodwill 900
Accumulated depreciation:
– Buildings 270
– Equipment 228
– Vehicles 396
Inventory at April 1, 2013 321
Trade receivables and payables 549 351
Allowance for receivables 24
Bank balances 171
Current taxation 18
Ordinary shares of N1 each 600
Retained earnings at April 1, 2013 1,509
Revenue 4,296
Purchases 1,464
Directors’ fees 450
Wages and salaries 828
General distribution costs 303
General administrative expenses 558
Dividend paid 60
Rent received 90
Disposal of vehicle 30
Total 7,983 7,983

Additional information:

  1. The company’s non-depreciable land was valued at ₦900,000 on March 31, 2014, and this valuation is to be incorporated into the accounts.
  2. Depreciation policy:
    • Building: 4% p.a. (straight line)
    • Equipment: 40% p.a. (reducing balance)
    • Vehicles: 25% p.a. (straight line) In all cases, a full year’s depreciation is charged in the year of disposal.
  3. On February 1, 2014, a vehicle used entirely for administrative purposes was sold for ₦30,000 (cost ₦132,000). No other entries were made.
  4. Depreciation is apportioned as follows:
    • Buildings: 50% distribution, 50% administrative
    • Equipment: 25% distribution, 75% administrative
    • Vehicles: 70% distribution, 30% administrative
  5. Inventory at March 31, 2014, is valued at ₦357,000.
  6. Trade receivables include a debt of ₦24,000 to be written off. The allowance for receivables is to be adjusted to 4% of receivables after the write-off.
  7. Current tax for the year ended March 31, 2013, was over-estimated by ₦18,000. Current tax for 2014 is estimated at ₦90,000.
  8. One-quarter of wages and salaries was paid to distribution staff and the remaining three-quarters to administrative staff.
  9. General administrative expenses include bank overdraft interest of ₦27,000.

Required:
Prepare a statement of profit or loss and other comprehensive income for the year ended March 31, 2014.

 

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  • 30 Marks

FR – Nov 2015 – L2 – Q1 – Consolidated Financial Statements (IFRS 10)

Prepare consolidated financial statements for Hapu Plc and Sege Plc for the year ended December 31, 2014.

Statement of financial position as at December 31, 2014

Hapu Plc (₦’000) Sege Plc (₦’000)
Assets
Non-current assets:
Property, plant, and equipment 32,000 25,000
Investments 33,500 –
Total non-current assets 65,500 25,000
Current assets
Cash at bank and in hand 9,500 2,000
Trade receivables 20,000 8,000
Inventory 30,000 18,000
Total current assets 125,000 53,000
Equity and liabilities
Share capital 40,000 10,000
Share premium 6,500 –
Retained earnings 55,000 37,000
Total equity 101,500 47,000
Current liabilities 23,500 6,000
Total equity and liabilities 125,000 53,000

Statement of profit or loss for the year ended December 31, 2014

Hapu Plc (₦’000) Sege Plc (₦’000)
Revenue 125,000 117,000
Cost of sales (65,000) (64,000)
Gross profit 60,000 53,000
Distribution costs (21,000) (14,000)
Administrative expenses (14,000) (8,000)
Profit before taxation 25,000 31,000
Income tax expense (10,000) (9,000)
Profit for the year 15,000 22,000

Statement of changes in equity (extract) for the year ended December 31, 2014

Hapu Plc (₦’000) Sege Plc (₦’000)
Retained earnings brought forward 40,000 15,000
Retained profit for the year 15,000 22,000
Retained earnings carried forward 55,000 37,000

Additional Information:

  1. Hapu Plc owns 80% of Sege’s shares, purchased in 2011 for ₦20.5 million when Sege’s retained earnings stood at ₦7 million.
  2. Included in Sege’s inventory as of December 31, 2014, were goods purchased from Hapu for ₦3.9 million, with a 30% profit margin on cost. Total sales from Hapu to Sege amounted to ₦6 million.
  3. Hapu Plc and Sege Plc proposed dividends of ₦2 million and ₦2.5 million respectively, not yet accounted for.
  4. Goodwill impairment tests indicate no impairment in accordance with IFRS 3 and IAS 36.

Required:
Prepare the consolidated statement of profit or loss and the consolidated statement of financial position for Hapu Plc and Sege Plc as at December 31, 2014.

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  • 15 Marks

FR – May 2022 – L2 – SB – Q7 – Consolidated Financial Statements (IFRS 10)

Evaluate the acquisition of Warri Health PLC by computing financial ratios and drafting a technical report to the Chief Accountant of Owerri PLC.

The Board of Directors of Owerri PLC is planning to acquire a controlling interest in Warri Health PLC, a vaccine-producing company, to expand the profitability of the group. Both companies are quoted on the Nigerian Stock Exchange (NSE). The Chief Accountant of Owerri PLC has been given the industrial average and the financial statements of Owerri PLC and Warri Health PLC for the year ended December 31, 2020. This was done to enable the Chief Accountant compute the relevant ratios and evaluate the inherent potentials of the acquisition.

The following comparative ratios of Warri Health PLC and Owerri PLC with the industrial average are provided:

You are required to:
a. Compute the cost of sales ratio and earnings yield (EY) for both companies for the year ended December 31, 2020. (2 Marks)

b. Draft a technical report to the Chief Accountant of Owerri PLC, evaluating and advising on the desirability of acquiring a controlling interest in Warri Health PLC. (13 Marks)

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  • 15 Marks

FR – May 2022 – L2 – SB – Q6 – Conceptual Framework for Financial Reporting

Discuss the qualitative characteristics that make financial information useful and explain the capital maintenance concepts under the IASB framework.

a. The IASB Conceptual Framework for Financial Reporting gives much detail about the qualitative characteristics of financial information that make it useful.

Required:
Discuss the qualitative characteristics that make information useful to users of financial statements. (10 Marks)

b. The Financial Reporting Council of Nigeria (FRCN) is a Federal Government parastatal under the supervision of the Federal Ministry of Industry, Trade, and Investment.

Required:
Identify FOUR main objectives of FRCN as defined in the Act establishing the Institution. (2 Marks)

c. The IASB Conceptual Framework states that there are two concepts of capital maintenance.

Required:
Explain the term financial capital maintenance and physical capital maintenance concepts. (3 Marks)

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  • 15 Marks

FR – May 2022 – L2 – SB – Q5 – Revenue from Contracts with Customers (IFRS 15)

Compare contract liabilities and assets, stand-alone selling price vs. transaction price, and assess contract modification criteria.

IFRS 15 – Revenue from Contracts with Customers defines a contract as an agreement between two or more parties that creates enforceable rights and obligations.

Required:
a. Compare with an example, where necessary:
i. Contract liabilities versus contract assets (2½ Marks)
ii. Stand-alone selling price versus transaction price (2½ Marks)

b. Under IFRS 15, highlight SIX criteria to assess a contract. (6 Marks)

c. Explain what is meant by contract modification and state TWO ways in which it can be accounted for. (4 Marks)

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  • 20 Marks

FR – May 2022 – L2 – SB – Q4 – Statement of Cash Flows

Prepare the statement of cash flows for Odibeze Nigeria PLC for the year ended April 30, 2021, using the indirect method, and explain the term cash and cash equivalents.

The following financial statements were extracted from the 2021 annual report and accounts recently published by Odibeze Nigeria PLC.

Additional Information:

  1. During the financial year, the company made a bonus issue of one share for every six shares held and a cash issue at N1.90kobo per share to provide funds for its anticipated expansion.
  2. The company revalues its freehold properties annually, transferring any resulting surplus to the revaluation reserve.
  3. A plant with a carrying amount of N20,000,000 was disposed of on September 30, 2020, for N11,200,000. The depreciation charge for the remaining plant and machinery was N24,000,000.
  4. The investment income represents interest received on trade investments. Trade investments suffered an impairment loss of N10,000,000 by the year-end.
  5. The company paid an interim dividend of N25,000,000 and proposed a final dividend of N45,000,000.

Required:
a. Prepare the statement of cash flows of Odibeze Nigeria PLC for the year ended April 30, 2021, in accordance with IAS 7, using the indirect method. (17 Marks)
b. In the context of IAS 7 – Statement of Cash Flows, explain the term “cash and cash equivalents” and list THREE examples. (3 Marks)

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  • 3 Marks

FR – NOV 2016 – L2 – Q7b – Revenue from Contracts with Customers (IFRS 15)

Question tests understanding of IAS 11's methods for determining stage of completion in construction contracts.

Briefly explain TWO methods recognized by IAS 11 which can be used to determine the stage of completion of any contract.

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  • 12 Marks

FR – NOV 2016 – L2 – Q7a – Revenue from Contracts with Customers (IFRS 15)

Question tests understanding of how to account for long-term construction contracts, focusing on stage of completion and profit recognition.

Alpha Plc started a 4-year contract to build a dam. Activities commenced on February 1, 2015. The total contract price amounted to N30billion, and it was estimated that work would be completed at a total cost of N23.75billion. In the construction agreement, the customer agreed to accept increase in wages tariffs in addition to the contract price.

The following information relates to contract activities for the financial year ended December 31, 2015.

(1) Cost for the year:

N’million
Material 3,500
Labour 2,000
Operating Overheads 375
Subcontractors 450

(2) Current estimate of total contract costs indicates the following:

i. Material will be N450million higher than expected.

ii. Total labour cost will be N750million higher than expected. Of this amount only N600million will be the result of increase in wage tariffs. The remainder will be caused by inefficiencies.

iii. A savings of N75million is expected on operating overheads.

(3) During the year ended December 31 2015 the customer requested a variation to the original contract and it was agreed that the contract price would be increased by N2.250billion. The total estimated cost of this extra work is N1.875billion.

(4) By the end of year 2015, certificate issued by the quantity surveyors indicated a 25% stage of completion.

Required:

Calculate the profit to date based on:

i. Option A – Contract cost in proportion to estimated contract costs. (6 Marks)

ii. Option B – Percentage of work certified. (6 Marks)

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  • 20 Marks

FR – May 2022 – L2 – SB – Q3 – Consolidated Financial Statements

Prepare a consolidated statement of financial position for Daddy PLC as of December 31, 2020, incorporating the acquisition of Mummy PLC.

Daddy PLC is a first-tier entity quoted on the Nigerian Stock Exchange (NSE). The entity acquired 640 billion equity shares in Mummy PLC on January 1, 2020. The purchase consideration comprised the following:

  • Issue of one ordinary share of Daddy PLC in exchange for every two shares in Mummy PLC.
  • Issue of N100 12% loan notes in Daddy PLC in exchange for every 400 shares in Mummy PLC.
  • A cash payment of 15 kobo per share for every share acquired in Mummy PLC on January 1, 2020.

At the date of acquisition, the market price of Daddy PLC’s shares was 75 kobo each. The cost incurred by banks when a fixed-rate loan is paid out early is assumed to be nil. Also, Daddy PLC has recorded the 12% loan notes in the purchase consideration in the accounts.

Below are the statements of financial position for Daddy PLC and Mummy PLC as of December 31, 2020:

Additional Information:

  1. Mummy PLC’s net assets were at fair value except for an item of property, which had a fair value N50 billion higher than its carrying amount.
  2. The fair value of non-controlling interests at the date of acquisition was N100 billion.
  3. Mummy PLC sold goods worth N20 billion to Daddy PLC. N5 billion of these were included in Daddy PLC’s inventory as of December 31, 2020.
  4. Goodwill impairment of N30 billion.

You are required to prepare the consolidated statement of financial position as at December 31, 2020.

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