Accounting Standards

FR – L2 – Q60 – Financial Reporting Standards and Their Applications

Prepare a note for Bawku Limited’s financial statements disclosing related party transactions per IAS 24 for 20X4.

Question

Bawku Limited is engaged in the manufacturing of specialized spare parts for automobile assemblers. During the year 20X4, the company has undertaken the following transactions with its related parties:
(i) Sales of GH₵500 million were made to its only subsidiary Akyem Auto Limited (AAL). Being the subsidiary, a special discount of GH₵25 million was allowed to AAL.
(ii) AAL returned spare parts worth GH₵5.5 million.
(iii) Raw materials of GH₵5 million were purchased from Asante Enterprises, which is owned by the wife of the CFO of Bawku Limited.
(iv) Equipment worth GH₵3 million was purchased from Kofi Limited (KL). The wife of the Production Director of the company is a director in KL.
(v) The company awarded a contract for supply of two machines amounting to GH₵7 million per machine to an associated company.
(vi) In 20X2, an advance of GH₵2 million was given to the Chief Executive of the company. During the year 20X4, he repaid GH₵0.3 million. The balance outstanding as on December 31, 20X4 was GH₵1,100,000.

Required
Prepare a note for inclusion in the company’s financial statements in accordance with the requirement of IAS 24 Related Party Disclosures.

Answer

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Tags: Accounting Standards, Associates, Disclosures, Financial Reporting, Financial Statements, IAS 24, Key Management, Related Party Disclosures, Subsidiaries, Transactions
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

FR – L2 – Q55 – Financial Instruments

Calculate capital, reserves, and liabilities for Jordana PLC after share issues and preference share transactions in Year 1.

Question

On 1 January Year 1 Jordana PLC has the following capital and reserves.

Equity	GH₵
Share capital (1 million ordinary shares)	1,200,000
Retained earnings	5,670,300
	6,870,300

During Year 1 the following transactions took place.

1 January: An issue of GH₵100,000 8% GH₵1 redeemable preference shares at a premium of 60%. Issue costs are GH₵2,237. Redemption is at 100% premium on 31 December Year 5. The effective rate of interest is 9.5%.
31 March: An issue of 300,000 ordinary shares at a price of GH₵1.30 per share. Issue costs, net of tax benefit, were GH₵20,000.
30 June: A 1 for 4 bonus issue of ordinary shares.
Profit for the year, before accounting for the above, was GH₵508,500. The dividends on the redeemable preference shares have been charged to retained earnings.

Required
Set out capital and reserves and liabilities resulting from the above on 31 December Year 1.

Answer

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Tags: Accounting Standards, Convertible Loan Notes, Corporate Governance, Deferred Tax, Equity, Financial instruments, Financial Statements, Liabilities, Preference Shares, Share Capital
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

FR – L2 – Q26 – Property, Plant and Equipment

Calculate depreciation for a machine after revising useful life and residual value on June 30, 20X4.

Question

(a) On July 1, 20X2, Accra Logistics Limited acquired a machine at a cost of GH¢10 million. The useful life of the machine and its salvage value was estimated at 5 years and GH¢3.0 million, respectively. The cost of machine is being depreciated under the straight line method.

Based on the practice followed by similar types of companies, the company has determined that the remaining useful economic life of the machine is six years. It has also been established that the residual value at the end of the useful life will be equal to 10% of the cost of machine.

Required

Compute the depreciation expenses and other adjustments (if any) required to be made in the financial statements of the company for the year ended June 30, 20X4 under the following assumption:

(i) the review of useful life and residual value was carried out on June 30, 20X4.

(ii) the review of useful life and residual value was carried out on June 30, 20X3 but in the financial statements for the year then ended the depreciation expense was erroneously recorded on the previous basis.

(b) Discuss the requirements of International Accounting Standard(s) in respect of estimation and revision of useful life of an item of property, plant and equipment.

Answer

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Tags: Accounting Standards, IAS 16, Property Plant and Equipment, Residual Value, Useful Life
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

FR – L2 – Q13 – Revenue Recognition

Explain how performance obligations are identified under IFRS 15 for a contract to supply goods and services.

Question

13 Davies Ltd

Davies Ltd manufactures and sells machines and has a 31 December year-end.

Customers are required to pay a deposit of 10% on order. The remaining 90% is paid on delivery.

Machines are delivered to customers by a third party. Within one week after delivery, Davies Ltd’s employees install the machines on customers’ premises. The installation required is not complex and is capable of being performed by several alternative service providers. Installation costs 1% of the transaction price.

A fee for a three year servicing contract amounting to 6% of the transaction price, are included in the final invoice.

Required

(a) Explain how performance obligations are identified when deciding how to account for a contract to supply goods and services in accordance with IFRS 15.

(b) Identify and explain the performance obligations that should be identified in the above contract.

Construct journals for the year end to 31 December to account for a sale of a single machine with a selling price of GH¢1,000,000 in each of the following circumstances.

(d) Circumstance 2: A customer orders the machine on 30 November. It is delivered on 20 December and installed on 10 January.

(e) Circumstance 3: A customer orders the machine on 30 November. It is delivered on 20 December and installed on 30 December.

Answer

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Tags: Accounting Standards, Financial Reporting, IFRS 15, Performance Obligations, Revenue Recognition
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

FR – L2 – Q12 – Revenue Recognition

State IFRS 15's core principle for revenue recognition and list the five steps to apply it.

Question

12 SALE OF GOODS AND LEISURE FACILITIES
“Revenue is income arising in the course of an entity’s ordinary activities.”
IFRS 15 sets out principles to be applied in order to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer.

Required
(a) State the core principle described by IFRS 15 in the recognition of revenue and list the five steps to be followed in applying this core principle.

(b) Zest Ltd runs a health club which provides sports and leisure facilities. It charges a fixed annual subscription, payable in advance, which entitles members to use most of the facilities (e.g. gym, swimming pool). Additional fees are payable for specific activities (e.g. sauna, squash courts) as used.
Explain in detail how Zest Ltd should recognise revenue from membership subscriptions and additional activities.

Answer

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Tags: Accounting Standards, Financial Reporting, Health Club, IFRS 15, Performance Obligations, Revenue Recognition
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

PSAF- L2 – Q10.4 – International Public Sector Accounting Standards

Determine recoverable amount of three intangible assets for Nandom Technical University.

Question

The following information relates to three intangible assets in respect of Nandom Technical University.

	Brands (GHC)	Software (GHC)	Trade Marks (GHC)
Carrying amount	200,000	300,000	240,000
Net realisable value	220,000	250,000	200,000
Value in use	240,000	260,000	180,000

Required:
(a) What is the recoverable amount of each asset?

(b) Calculate the impairment provision for each of the assets.

Answer

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Tags: Accounting Standards, Asset Valuation, Financial Reporting, Impairment, Impairment Loss, Intangible assets, IPSAS, Non-current Assets, Public Sector Accounting, Recoverable Amount
Level: Level 2

Topic: International Public Sector Accounting Standards

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FR – L2 – Q60 – Financial Reporting Standards and Their Applications

Prepare a note for Bawku Limited’s financial statements disclosing related party transactions per IAS 24 for 20X4.

FR – L2 – Q55 – Financial Instruments

Calculate capital, reserves, and liabilities for Jordana PLC after share issues and preference share transactions in Year 1.

FR – L2 – Q26 – Property, Plant and Equipment

Calculate depreciation for a machine after revising useful life and residual value on June 30, 20X4.

FR – L2 – Q13 – Revenue Recognition

Explain how performance obligations are identified under IFRS 15 for a contract to supply goods and services.

FR – L2 – Q12 – Revenue Recognition

State IFRS 15's core principle for revenue recognition and list the five steps to apply it.

PSAF- L2 – Q10.4 – International Public Sector Accounting Standards

Determine recoverable amount of three intangible assets for Nandom Technical University.

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FR – L2 – Q60 – Financial Reporting Standards and Their Applications

Prepare a note for Bawku Limited’s financial statements disclosing related party transactions per IAS 24 for 20X4.

You're reporting an error for "FR – L2 – Q60 – Financial Reporting Standards and Their Applications"

FR – L2 – Q55 – Financial Instruments

Calculate capital, reserves, and liabilities for Jordana PLC after share issues and preference share transactions in Year 1.

You're reporting an error for "FR – L2 – Q55 – Financial Instruments"

FR – L2 – Q26 – Property, Plant and Equipment

Calculate depreciation for a machine after revising useful life and residual value on June 30, 20X4.

You're reporting an error for "FR – L2 – Q26 – Property, Plant and Equipment"

FR – L2 – Q13 – Revenue Recognition

Explain how performance obligations are identified under IFRS 15 for a contract to supply goods and services.

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FR – L2 – Q12 – Revenue Recognition

State IFRS 15's core principle for revenue recognition and list the five steps to apply it.

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PSAF- L2 – Q10.4 – International Public Sector Accounting Standards

Determine recoverable amount of three intangible assets for Nandom Technical University.

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