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 – May 2022 – L2 – SB – Q2 – Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)

Explain accounting policies and estimates, and distinguish between changes in accounting policies and accounting estimates.

The aim of IAS 8 – Accounting Policies, Changes in Accounting Estimates, and Errors is to enhance the comparability of an entity’s financial statements with previous periods and with the financial statements of other entities.

Required:
Explain the terms, “accounting policies” and “accounting estimates.” (3 Marks)

b. In an in-house training for newly recruited trainee accountants in your organization, a disagreement arose on the distinction between change in accounting policies and change in accounting estimates. Consequent upon the above, the finance director requested you as the head of the accounting department to make a presentation on the subject matter.

Required:
Write a memo addressed to the finance director distinguishing changes in accounting policies and changes in accounting estimates, highlighting also the accounting treatment of the changes in accounting estimates. (8 Marks)

c. An extract from the non-current assets register of Eze Nigeria Limited at July 1, 2019, shows the following details:

Additional information includes details of impairment, revaluation, depreciation, and amortization.

Required:
Prepare, with comparative figures, statement of financial position extracts of Eze Nigeria Limited as at June 30, 2020. Show relevant notes for PPE and intangible assets. (9 Marks)

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  • 11 Marks

FR – NOV 2016 – L2 – Q6b – Leases (IFRS 16)

Calculation of present value of lease payments and determination of lease type for equipment leasing arrangement.

Ijaw Oil Plc has entered into agreement to lease a plant and equipment from Ogoni Leasing Company Limited. The lease period of the plant and equipment is six (6) years. The agreement provides that Ogoni Leasing Company Limited will incur upkeep expenses. The cost of the plant and equipment is N900,000,000,000. The economic useful life is 20 years. Ijaw Oil Plc is to pay annual lease rentals of N150,000,000 in advance over 6 years after which the plant and equipment revert to the lessor. The implicit interest rate is 22% per annum which is stated below:

Year 0 1 2 3 4 5 6
PV(N1) 1.0000 0.8197 0.6719 0.5507 0.4514 0.3700 0.3033

You are required to:

i. Calculate the present value of the lease rental of the equipment. (4 Marks)

ii. Identify with justification the kind of lease involved (3 Marks)

iii. Advise on how to treat the lease rentals paid by Ijaw Oil Plc. in the financial statements (1 Mark)

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  • 30 Marks

FR – May 2022 – L2 – SA – Q1 – Preparation of Financial Statements

Prepare a statement of profit or loss, comprehensive income, changes in equity, and financial position for Endtime PLC.

Endtime PLC is a company based in Benin with the following trial balance for the year ended December 31, 2020:

Additional Information:
(i) Finance costs include full year dividends on preference shares and ordinary share dividends of 2½ kobo paid at the end of the year. Allowances for 4 doubtful debts are no longer necessary as customers paid as at when due from time to time in the past 2 years.

(ii) Severely damaged inventories, which cost N790,000,000 were included in the inventories in the trial balance. This will need to be repaired at a cost of N440,000,000 before a knowledgeable buyer will be interested to pay N940,000,000 at arm’s length transaction.

(iii) As at December 31, 2020, a valuer based in Victoria Island in Lagos was contacted by the company to review its land and buildings. The land and buildings was revalued upward by N13,000,000,000 and a certificate was issued to this effect. The board of directors approved the valuation but it has
not yet been accounted for in the trial balance. The valuer advised that the remaining useful life of the asset is reasonably and reliably estimated to be 20 years. Depreciation is on straight-line basis.

(iv) Depreciation on plant and equipment is charged at 15% on reducing balance basis. The multi-users S&P and Sage was bought on September 30, 2020. The amortisation is at the rate of 12.5% annually. The amortisation is evenly distributed over the year. Besides, software installation, customisation and
handling cost of N800,000,000, training costs of N900,000,000, consultancy fee of N600,000,000 and other general overheads of N850,000,000 on the new software were included in administrative expenses. All depreciations are treated as administrative costs.

(v) On December 30, 2020, a chartered surveyor valued investment property at N14,000,000,000 and the company uses fair value model in IAS 40 – Investment Property.

(vi) Current income tax has been estimated for the year ended December 31, 2020 at N9,000,000,000 and deferred tax provision as at December 31, 2020 is to be adjusted in the income statement to reflect the tax base of the company’s net assets of N12,000,000,000 less than the carrying amounts. The current
company income tax rate is 30%.

vii) The plant held for sale is valued in the trial balance at its carrying amount. A broker is readily available to buy the plant for N6,000,000,000 at a fee of 6% of sales proceed. The sale would take place in January, 2021. Any necessary adjustment is to be treated as cost of sales.

You are required to prepare:
a. Statement of profit or loss and other comprehensive income for the year ended December 31, 2020. (13 Marks)
b. Statement of changes in equity for the year ended December 31, 2020. (4 Marks)
c. Statement of financial position as at December 31, 2020. (13 Marks)

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  • 7 Marks

FR – NOV 2016 – L2 – Q6a – Leases (IFRS 16)

Question tests understanding of the two types of leases under IAS 17 and their key differences.

Identify the TWO kinds of leases stipulated in IAS 17 and compare in tabular form with at least FIVE differences.

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  • 11 Marks

FR – NOV 2016 – L2 – Q5b – Accounting for Government Grants (IAS 20)

Practical application of IAS 20 requirements for government grants including type identification and accounting treatment in financial statements.

Prospect Nigeria Plc obtained a grant of N100million from the Federal Government of Nigeria (FGN) for an investment project to construct a plant costing N880million.

The principal terms of the grant are as follows:

  • Grant payment will be made subject to attaining the minimum level of the plant expenditure.
  • The secondary intention of the grant is to safeguard 500 jobs.
  • The grant will have to be repaid pro-rata if there is an under spending on capital.
  • Twenty percent (20%) of the grant will have to be paid if the jobs are not safeguarded until 18 months after the date of the cost of capital expenditure.

Prospect Nigeria Plc completed the construction of plant on January 1, 2013 at a total cost of N900million. The plant has an expected useful life of 20 years and is depreciated on a straight line basis with no residual value.

Required:

i. State the type of grant that Prospect Nigeria Plc has obtained giving reasons for your answer. (3 Marks)

ii. Show how the Asset and the grant would be reflected in the Statement of Financial Position and Statement of Profit or Loss for years ended December 31, 2013; 2014 and 2015 under both methods of Accounting for Grants allowed by IAS 20. (8 Marks)

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  • 4 Marks

FR – NOV 2016 – L2 – Q5a – Accounting for Government Grants (IAS 20)

Question tests understanding of different types of government grants as defined in IAS 20, specifically grants related to assets and income.

In many Countries of the world, Government provides financial assistance to industry in the form of grants. In accordance with IAS 20 – Accounting for Government Grants and Disclosure of Government Assistance. Explain the term:
i. Grant related to Assets (2 Marks)
ii. Grant related to Income (2 Marks)

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  • 20 Marks

FR – NOV 2016 – L2 – Q4 – Statement of Cash Flows (IAS 7)

Preparation of statement of cash flows using indirect method and explanation of benefits of published cash flow statements to users.

The summarised Financial Statements for the year ended March 31, 2016 of Perfect World Plc are as follows:

STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED MARCH 31, 2016

N’m
Revenue 19,350
Cost of Sales (9,000)
Gross Profit 10,350
Operating Expenses (4,500)
Finance Costs (1,125)
Profit Before Tax 4,725
Income Tax Expense (2,025)
Profit for the year 2,700

STATEMENT OF FINANCIAL POSITION AS AT MARCH 31

2016 2015
N’m N’m
Non-Current Assets:
Property, Plant & Equipment 18,900 16,650
Current Assets
Inventories 6,750 7,200
Trade Receivables 9,900 8,100
16,650 15,300
Total Assets 35,550 31,950
Equity
Share Capital 5,400 5,400
Retained Earnings 9,900 8,550
15,300 13,950
Non-Current Liabilities
Deferred Tax 4,815 3,825
Financial Lease Liabilities 5,850 5,400
10,665 9,225
Current Liabilities
Trade Payables 5,625 4,905
Current Tax 1,013 923
Finance Lease Obligation 2,250 2,025
Bank Overdraft 697 922
9,585 8,775
Total Equity & Liabilities 35,550 31,950

Additional Information include:

(i) Dividend paid during the year amounted to N1,350million.

(ii) Perfect World Plc finances a number (but not all) of its property plant and equipment purchased using finance lease. During the period, property, plant and equipment which would have cost N2,700million to purchase outright was acquired under finance lease.

(iii) There was no accrual of interest at the beginning or at the end of the year.

(iv) Depreciation charged for the year totalled N4,365million. There were no disposals of property, plant and equipment during the year.

Required:

a. Prepare the statement of cashflows of Perfect World Plc for the year ended March 31, 2016 using indirect method. (14 Marks)

b. Draft a Memo to the Director of Perfect World Plc summarising the major benefits that users receive from a published statement of cashflows. (6 Marks)

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  • 20 Marks

FR – NOV 2016 – L2 – Q3 – Presentation of Financial Statements (IAS 1)

Analysis of company's financial performance through ratio analysis and preparation of technical report evaluating liquidity, stability and performance.

Magifera Plc had been trading in merchandise for several years in Garden City. The information below relates to extracts from the Financial Statements for the past two (2) years.

Statement of Profit or Loss and Other Comprehensive Income for the year ended September 30:

2016 2015
N’ Million N’ Million
Revenue 100,000 160,000
Gross Profit 45,000 70,000
Administrative Expenses 22,500 27,500
Finance Cost:
10% Loan Note Interest 1,250 1,250
23,750 28,750
Operating Profit Before Tax 21,250 41,250
Less: Taxation Expense 8,000 16,000
Operating Profit for the year 13,250 25,250
Dividends Paid to Equity holders 6,050 8,550

Extract of Statement of Financial Position as at September 30

2016 2015
N’Million N’Million
Assets:
Non – Current Assets at Cost 50,000 70,000
Less: Accumulated Depreciation 10,000 12,500
Carrying Amount 40,000 57,500
Current Assets:
Inventory 32,500 7,500
Trade Receivables 20,000 5,000
Bank Balance 4,000 37,500
56,500 50,000
Total Assets 96,500 107,500
Equity and Liabilities:
Ordinary Share Capital @ 50k each 23,000 23,000
Retained Earnings 17,200 10,000
10% Loan notes 12,500 12,500
10% Redeemable Preference Shares _______ 2,000
52,700 47,500
Current Liabilities:
Trade Payables 7,500 10,750
Taxation 24,000 16,000
Bank Overdrafts 12,300 33,250
43,800 60,000
Total Equity and Liabilities 96,500 107,500

The Board of Directors were worried over the dwindling financial performance and precarious financial position of the company. The products are ageing; the economic depression is biting as a result of the worsening exchange rate of $1 to N400. The company imports 60% of the goods sold in Garden City. The worsening exchange rate had affected the company’s importation, consequently the revenue of the company dropped significantly. The unsafe financial performance has also affected the market price of the company’s share which dropped from 12kobo/share in the year ended September 30, 2015 to 8kobo/share in 2016.

You are required to:

a. Calculate the following ratios for the year ended September 30, 2015 and 2016 in columnar form:

i. Return on Capital Employed

ii. Total Assets Turnover

iii. Quick Ratio

iv. Debt- Equity Ratio

v. Fixed Interest Cover

vi. Earnings Yield

vii. Price Earnings Ratio

viii. Dividend Yield (12 Marks)

b. Write a brief and formal technical report to the Board of Directors to assess the performance, liquidity and stability of the Company using only: i. Return on Capital Employed

ii. Total Assets Turnover

iii. Quick Ratio

iv. Fixed Interest Cover

v. Debt Equity Ratio (8 Marks)

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  • 11 Marks

FR – NOV 2016 – L2 – Q2c – Conceptual Framework for Financial Reporting

Question tests understanding of capital maintenance concepts and their practical application in profit measurement under different concepts.

i. The conceptual framework states that there are two concepts of capital. Explain these two concepts. (4 Marks)

ii. Perfect World Limited commenced business on January 1, 2015 with a single item of inventory which costs N120,000. During the year it sold the item for N180,000 in cash. Also, during the year, general inflation was 10% but the inflation specific to the item was 12%. Calculate the profit under each concept of capital maintenance and show the effect on the Equity of the Company. (7 Marks)

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  • 5 Marks

FR – NOV 2016 – L2 – Q2b – Conceptual Framework for Financial Reporting

Question tests understanding of conceptual issues in development costs and application of asset recognition criteria per the conceptual framework.

Evaluate the conceptual issues involved in product development costs and the definition of an asset that may be applied in determining whether development expenditure should be treated as an expense or an asset.

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