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 2016 – L2 – Q4 – Business Combinations (IFRS 3)

Calculate and assess Quintet Plc's performance against industry averages using ratio analysis.

Quintet Plc sells provisions through its stores located in various retail shopping centers in the major cities in Nigeria. It has recently been experiencing declining profitability, and the board is concerned whether this issue is specific to the company or related to the sector as a whole. Additionally, concerns regarding the company’s solvency have been raised. To address these, the company has engaged a consulting firm specializing in corporate report analysis to provide average ratios across the business sector to rate performance.

Below are the ratios provided by the consulting firm for Quintet Plc’s business sector based on the year ending June 30, 2015:

  • Debt to equity: 38%
  • Gross profit margin: 35%
  • Operating profit margin: 12%
  • Return on year-end capital employed (ROCE): 16.8%
  • Net asset turnover: 1.4 times
  • Current ratio: 1.25:1
  • Average inventory turnover: 3 times
  • Trade payables’ payment period: 64 days

The financial statements of Quintet Plc for the year ending September 30, 2015, are as follows:

Income Statement

Item Amount (N’000)
Revenue 224,000
Opening Inventory 33,200
Purchases 175,600
Closing Inventory (40,800)
Gross Profit 56,000
Operating Costs (39,200)
Finance Costs (3,200)
Profit Before Tax 13,600
Income Tax Expense (4,000)
Profit for the Year 9,000

Statement of Financial Position

Item Amount (N’000)
Assets
Non-current assets
Property and shop fittings 102,400
Deferred development expenditure 20,000
Total Non-current assets 122,400
Current Assets
Inventory 40,800
Bank 4,000
Total Current Assets 44,800
Total Assets 167,200
Equity and Liabilities
Equity
Equity shares of N1 each 60,000
Property revaluation reserve 12,000
Retained earnings 34,400
Total Equity 106,400
Non-current Liabilities
10% loan notes 32,000
Current Liabilities
Trade payables 21,600
Current tax payable 7,200
Total Current Liabilities 28,800
Total Equity and Liabilities 167,200

Note:

  1. Net asset is defined by the consulting firm as total assets less current liabilities.
  2. The deferred development expenditure relates to a one-off payment for a franchise as a sole distributor of a particular product under negotiation but not concluded as of September 30, 2015, although payment has been made.

Required:

a) Compute the equivalent ratios for Quintet Plc provided by the consulting firm for the business sector.
(9 Marks)

b) Write a report to the board assessing the profitability and solvency performance of Quintet Plc compared to its business sector averages. For clarity, solvency measures both liquidity and gearing.
(11 Marks)

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  • 15 Marks

FR – May 2015 – L2 – SB – Q7 – Consolidated Financial Statements (IFRS 10)

Identify and explain events after the reporting period, discuss treatment of liquidation and dividends under IAS 10.

(a) There is usually a lead time between the end of an entity’s accounting year and when the financial statements are approved and signed off by the directors. In between this period, there are two types of events according to IAS 10-Events After The Reporting Period, which may require consideration when preparing financial statements.

Required:
Identify and explain these events and state how they are treated in the financial statements. (4 Marks)

(b) Company A is indebted to company B to the tune of N50,000,000. The financial year-end of company B is 30 June 2014. On 30 July 2014, company B received a letter from a liquidator advising it that company A has gone into insolvency. The letter revealed that company A ceased operations a month ago and that company B is only likely to receive a liquidation dividend of 20k for every naira owed by company A. It is the normal practice of company B’s board to approve the audited financial statements three months after the financial year end.

Required:

  1. Explain how the above transactions should be treated in the financial statements of company B in accordance with IAS 10-Events After The Reporting Period. (2 Marks)
  2. Prepare journal entries that are required to adjust company B’s financial statements to account for the above event. (2 Marks)
  3. State what would have been the treatment in the financial statements assuming it was fire that destroyed company B’s factory building on 30 July 2014. (3 Marks)

(c) The directors of XYZ Plc declared that a dividend of N1 per ordinary share be paid to shareholders on the company’s register as at 15 April 2014. The financial statements were approved by the company’s board on 30 May 2014. The shareholders, at the company’s annual general meeting held on 15 June 2014, approved the payment of the dividend to eligible shareholders on 1 July 2014.

Required:
Explain how the dividend proposed by the Directors should be treated in the financial statements of XYZ Plc in accordance with IAS 10. (4 Marks)

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  • 15 Marks

FR – May 2015 – L2 – SB – Q6 – Associates and Joint Ventures (IAS 28)

Explain the equity method, conditions for discontinuation, and evaluate types of audit evidence.

(a) IAS 28 – Investments in Associates and Joint Ventures permits the application of the equity method when accounting for investments in associates and joint ventures.

Required:
Explain briefly the Equity Method and state the circumstances under which an entity can discontinue the use of the equity method under IAS 28. (5 Marks)

(b) Agbantara Plc. acquired equity shares from Odinma Plc. and Dangari Limited. The following are the Statements of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2014 for the three companies:

Company Agbantara Plc. Odinma Plc. Dangari Ltd
Revenue N4,500 N1,350 N630
Cost of Sales (N2,430) (N720) (N270)
Gross Profit N2,070 N630 N360
Admin Expenses (N1,350) (N180) (N135)
Finance Income N135 N90 –
Finance Costs (N180) – (N90)
Profit Before Tax N675 N540 N135
Income Tax Expense (N225) (N135) (N45)
Profit for the Year N450 N405 N90

Other Comprehensive Income:

  • Gains on Property Revaluation (Net of Tax):
    • Agbantara Plc: N180
    • Odinma Plc: N90
    • Dangari Ltd: N45

Total Comprehensive Income for the Year:

  • Agbantara Plc: N630
  • Odinma Plc: N495
  • Dangari Ltd: N135

Additional Information:
(i) Agbantara Plc. acquired 72 million ordinary shares in Odinma Plc. out of its 120 million ordinary shares at a nominal par value of N1 each for N160 million. The shares were acquired four years ago when Odinma Plc. had a N15 million credit balance in retained earnings. During the year, Odinma Plc. sold goods costing N38 million to Agbantara Plc. for N45 million, which remain unsold at year-end.
(ii) Agbantara Plc. acquired 35,000,000 ordinary shares in Dangari Limited out of 100,000,000 ordinary shares. The shares were acquired three years ago when the company had a credit balance on its retained
earnings of N10,000,000.
(iii) Agbantara Plc’s group policy is to measure non-controlling interests (NCI) at fair value. NCI at acquisition date in Odinma Plc. at fair value was N48,000,000. Impairment test carried out on the goodwill relating to Odinma Plc. and investment in Dangari Limited at year end resulted in N10,000,000 and N15,000,000 losses respectively.

Required:
Calculate Agbantara Plc.’s share of profits from Odinma Plc., considering the unrealized profit. (5 Marks)

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  • 15 Marks

FR – May 2016 – L2 – Q2b – Consolidated Financial Statements (IFRS 10)

Preparation of consolidated financial position statement, considering goodwill and NCI.

The statement of financial position of PAPA Pie and MAMA Pie as at December 31, 2015, were as follows:

PAPA PLC N’000 MAMA PLC N’000
Property Plant & Equipment 9,000 Property Plant & Equipment 5,000
Investment in MAMA Pie 5,000 Other Assets 1,500
Other Assets 2,000
Total Assets 16,000 Total Assets 6,500
Share Capital 500 Share Capital 500
Retained Earnings 14,500 Retained Earnings 5,000
Other Liabilities 1,000 Other Liabilities 1,000
Total Equity & Liabilities 16,000 Total Equity & Liabilities 6,500

PAPA Plc acquired 80% equity interest in MAMA Plc two years ago.

At the date of acquisition, MAMA’s retained earnings stood at N3 million, and the fair value of its net assets was N5 million. This was N1.5 million above the carrying amount of the net assets at this date. The fair value adjustment related to an asset that had a remaining useful economic life of 10 years as at the date of acquisition.

The goodwill arising on consolidation has not suffered any impairment.

Required:

Prepare the consolidated statement of financial position of PAPA Pie Group as at December 31, 2015, on the assumption that non-controlling interest is valued at fair value (the full goodwill method). (15 Marks)

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  • 15 Marks

FR – May 2015 – L2 – SC – Q5 – Impairment of Assets (IAS 36)

Discuss intangible assets, characteristics and recognition of goodwill, development cost conditions, and calculate goodwill on consolidation.

IAS 38 – Intangible Assets, specifies the criteria that must be met before an intangible asset can be recognised by an entity in its Financial Statements. Intangible assets are identifiable non-monetary assets without physical substance and include goodwill, brands, copyright and research and development expenditure. They could be
purchased and/or internally generated.
Required:

(a) Identify any TWO characteristics of goodwill which distinguish it from other intangible assets. (2 Marks)

(b) Explain THREE differences between purchased goodwill and non-purchased goodwill. (3 Marks)

(c) Identify any THREE conditions that must be met under IAS 38 for development expenditure to be recognised as an intangible asset. (3 Marks)

(d) State any FOUR factors to be considered when determining the useful life of an intangible asset. (4 Marks)

(e) Calculate the goodwill on consolidation from the information below:
Parent has 80% interests in subsidiary.

Item Amount (N’000)
Parent’s cost of investment in subsidiary 299,700
Fair value of non-controlling interest at acquisition date 169,500
Net asset at acquisition date (subsidiary) 345,800
Impairment of goodwill 62,200

Required: Compute the goodwill on consolidation. (3 Marks)

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  • 5 Marks

FR – May 2016 – L2 – Q2a – Business Combinations (IFRS 3)

Calculate goodwill for a parent company's acquisition using both proportionate share and fair value methods.

A Parent Company acquired 60% equity interest in a subsidiary company for N440 million. The market value of the net assets of the subsidiary on the acquisition date was N400 million. The parent company estimates that the full 100% interest in the subsidiary company would have cost N640 million.

Required:

Calculate the goodwill at acquisition date where non-controlling interest is measured:

i. As a proportionate share of the net assets of the subsidiary company.
ii. At fair value (the full goodwill method).

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  • 20 Marks

FR – May 2015 – L2 – SB – Q4 – Earnings Per Share

Calculate Basic and Diluted Earnings Per Share for Kubua Plc, factoring in share options.

(a) The following information is extracted from the financial statements of Kubua Plc for the year ended 30 September 2014:

Item Amount (N’000)
Ordinary Share Capital (fully paid at 1.25 kobo each) 20,000
Operating Profit before Tax 4,000

Other relevant information:

  1. The company’s income tax rate is 30%.
  2. The average fair value of one ordinary share during the year was N5.00.
  3. During the year, the company issued share options for 2.5 million ordinary shares to existing shareholders at an exercise price of N4.00.

Required:
Calculate the basic and diluted Earnings Per Share for the year ended 30 September 2014. Show all workings. (5 Marks)

(b) Extract from the Statements of Profit or Loss and Other Comprehensive Income of Bajulaye Plc. for the years ended:

Date 30/09/2014 (N’000) 30/09/2013 (N’000)
Revenue 5,000 2,800
Profit Before Interest and Taxes (PBIT) 2,500 1,200

Extract from the Statements of Financial Position as at:

Date 30/9/2014 (N’000) 30/9/2013 (N’000)
Issued Share Capital (Ordinary Shares at 50k each) 3,000 3,000
12% Redeemable Preference Shares 1,500 1,500
Total Equity 4,500 4,500

Other relevant information:

  • On 1 January 2013, the entity issued convertible loan notes of N2,000,000 with an effective interest rate of 10% per annum.
  • The loan notes are convertible at nominal values of N100 each into the following number of ordinary shares:
    • 30 September 2018: 130 shares
    • 30 September 2019: 125 shares
    • 30 September 2020: 114 shares
    • 30 September 2021: 105 shares
  • Company income tax rate is 30%.

Required:

  1. Calculate the basic and diluted Earnings Per Share for the year ended 30 September 2014. (8 Marks)
  2. Write a short memo to the Board of Directors of Bajulaye Plc explaining FOUR advantages and THREE limitations of Earnings Per Share as a performance indicator to users of financial statements. (7 Marks)

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  • 30 Marks

FR – May 2016 – L2 – Q1 – Presentation of Financial Statements (IAS 1)

Prepare profit or loss statement and financial position statement for Gbenga Nig. Plc for the year ending December 31, 2015, following IFRS standards.

GBENGANIG Plc. Trial balance as at December 31, 2015 is shown below:

Account Debit (N) Credit (N)
Revenue 2,290,125
Administrative expenses 237,150
Selling and distribution expenses 175,200
Legal and professional expenses 81,150
Allowance for receivables – 31/12/15 8,625
Inventories – finished goods – 31/12/14 276,750
Work-in-progress – 31/12/14 49,125
Inventories – raw materials at cost-31/12/14 162,600
Purchases – raw materials 1,125,900
Carriage inwards – raw materials 15,750
Manufacturing wages 375,000
Manufacturing overheads 187,500
Authorized and issued 900,000 ordinary shares of N0.50 each fully paid 450,000
150,000 8.4% cumulative preference shares of N1 each fully paid 150,000
Revaluation surplus 65,000
Share premium 150,000
General reserve 85,000
Retained earnings-31/12/14 425,250
Patents and trademarks 323,250
Freehold property at cost 375,000
Leasehold property at cost 112,500
Amortization of leasehold property – 31/12/14 22,500
Plant and equipment at cost 225,000
Accumulated depreciation – plant and equipment – 31/12/14 102,750
Furniture and fittings at cost 75,000
Accumulated depreciation – furniture and fittings – 31/12/14 23,625
Motor vehicles at cost 112,500
Accumulated depreciation – motor vehicles 31/12/14 37,500
10% loan notes 150,000
Trade payables 146,250
Trade receivables 266,445
Bank overdraft 76,875
Cash 7,680
Total 4,183,500 4,183,500

Additional Information:

  1. A gain of N20,000 made on the revaluation of old freehold property during the year is yet to be accounted for.
  2. Inventories at December 31, 2015 were:
    • Raw materials: N168,900
    • Finished goods: N413,025
    • Work-in-progress: N56,700
  3. Legal and professional expenses include solicitor’s fees of N7,500 for the purchase of new freehold land.
  4. Provision is to be made for a full year’s interest on the loan notes.
  5. The leasehold land and buildings have an unexpired life of 40 years as of December 31, 2014.
  6. Depreciation for the year is charged as follows:
    • Plant and equipment at 8% on cost (production)
    • Furniture and fittings at 10% on cost (administration)
    • Motor vehicles at 20% on carrying amount (25% to administration and 75% to selling/distribution).
  7. Income tax for the year is estimated at N68,900.
  8. A dividend of N2.25 per ordinary share is recommended by the directors. No dividend was paid in the prior year.

Required:

a. Prepare the statement of profit or loss and other comprehensive income for the year ended December 31, 2015.
b. Prepare a statement of financial position as at December 31, 2015, in accordance with International Financial Reporting Standards.

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  • 20 Marks

FR – May 2015 – L2 – SB – Q3 – Statement of Cash Flows (IAS 7)

Calculate and analyze financial ratios and prepare cash flows from operating activities for Galadanci Plc.

(a) Galadanci Plc, a telecommunications company, has the following financial statements for the years ending 31 December 2013 and 2014. Using the statements below, calculate specific ratios and analyze Galadanci Plc’s performance:

Statements of Profit or Loss and Other Comprehensive Income for the year ended

2014 (N’billion) 2013 (N’billion)
Revenue 2,430 1,638
Cost of Sales (1,701) (983)
Gross Profit 729 655
Administrative Costs (311) (180)
Distribution Costs (207) (117)
Finance Costs (36) (6)
Profit before Taxation 175 352
Income Tax Expense (54) (102)
Profit for the Year 121 250

Statements of Financial Position as at 31 December

Additional Information for 2014

  1. Galadanci Plc acquired 60% of Papanga Plc’s shares to diversify into agriculture.
  2. The company increased its mobile subscriber base, raising the average revenue per user.
  3. No dividends were received from Papanga Plc, and the share value remained constant.

Required:

  1. Calculate the following ratios for the year ended 31 December 2014, analyze Galadanci Plc’s performance, and comment on qualitative factors impacting the company:
    • Gross Profit Percentage
    • Return on Capital Employed (where capital employed = Total Assets – Current Liabilities)
    • Net Profit (PBIT) Percentage
    • Asset Turnover
    • Gearing Ratio
    • Debt/Equity Ratio (16 Marks)
  2. Prepare Galadanci Plc’s Cash Flows from Operating Activities using the indirect method according to IAS 7. (4 Marks)

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  • 20 Marks

FR – May 2015 – L2 – SB – Q2 – Property Plant and Equipment

Determine disclosure requirements for separate financial statements and calculate equity, non-controlling interests, goodwill, and property valuation adjustments.

(a) When a parent company elects not to prepare consolidated financial statements and instead prepares separate financial statements, what are the disclosure requirements stipulated in IAS 27 on Separate Financial Statements? (6 Marks)

(b) Kerewanta Plc acquired 60% of the equity shares of Orijinmi Plc through a share exchange (three shares in Kerewanta Plc for four shares in Orijinmi Plc). The share value of Kerewanta Plc at the acquisition date (April 1, 2013) was N10 per share. Additionally, Kerewanta Plc would make a deferred cash payment of 70k per acquired share on April 1, 2014. Kerewanta Plc’s cost of capital is 12% per annum, with the following information extracted as of March 31, 2014:

Additional Information:

  1. An equipment in Orijinmi Plc had a fair value of N360,000,000 above its carrying amount with a four-year remaining life. The group uses straight-line depreciation.
  2. Orijinmi Plc had an unrecorded deferred tax liability of N10,000,000 as of March 31, 2014, with no goodwill impairment.
  3. Non-controlling interests are valued at fair value at acquisition. Fair value of Orijinmi Plc’s non-controlling interests at acquisition was N6 per share.

Required: Calculate the following as at March 31, 2014:

  1. Equity
  2. Non-controlling Interests
  3. Consolidated Goodwill
  4. Property, Plant, and Equipment (14 Marks)

 

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