Tag (SQ): Amortisation

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  • 15 Marks

FR – L2 – Q67 – Presentation of Financial Statements

Prepare Wenchi Exports' profit/loss statement and financial position for 20X4 using trial balance, with adjustments for inventory, patents, revaluation, bad debts, and tax.

The trial balance of Wenchi Exports Limited at 31 December 20X4 is as follows.

GH₵ in million
Dr Cr
Patent rights 60
Work-in-progress, 1 January 20X4 125
Buildings at cost 300
Ordinary share capital 600
Revenue 1,740
Staff costs 260
Accumulated depreciation on buildings, 1 January 20X4 60
Inventories of finished games, 1 January 20X4 155
Consultancy fees 44
Directors’ salaries 360
Computers at cost 50
Accumulated depreciation on computers, 1 January 20X4 20
Dividends paid 125
Cash 440
Receivables 420
Trade payables 294
Sundry expenses 94
Accumulated profits, 1 January 20X4 279
2,633 2,633

The following information is also relevant.
(1) Closing inventories of finished games are valued at GH₵180 million. Work in progress has increased to GH₵140 million.
(2) The patent rights relate to a computer program with a three-year lifespan.
(3) On 1 January 20X4 buildings were revalued to GH₵360 million. This has not yet been reflected in the accounts. Computers are depreciated over five years. Buildings are now to be depreciated over 30 years.
(4) An allowance for bad debts (irrecoverable debts) of 5% is to be created.
(5) There is an estimated bill for current tax of GH₵120 million which has not yet been recognised.

Required
Prepare a statement of profit or loss (analysing expenses by nature) for the year ended 31 December 20X4 and a statement of financial position as at that date.

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  • 15 Marks

FR – L2 – Q32 – Intangible Assets

Explain accounting treatment for intangible asset transactions of Tobi Plc for 20X4 per IFRS.

Tobi Plc entered into the following transactions during the year ended 31 December 20X4. The directors of Tobi Plc wish to capitalise all assets where possible.

(1) On 1 January Tobi Plc acquired the net assets of Gidi for GH¢105,000. The assets acquired had the following book and fair values:

Book value Fair value
Goodwill – 5,000
Patents 5,000 5,000
Non-current assets 50,000 50,000
Other sundry net assets 40,000 40,000

The recoverable amount of the goodwill at 31 December 20X4 was estimated at GH¢2,000.

(2) On 1 April Tobi Plc purchased a patent for GH¢20,000. The patent has a remaining useful life of eight years.

(3) On 1 April Tobi Plc purchased a brand for GH¢50,000. The brand has a remaining useful life of five years.

(4) During the year Tobi Plc incurred expenditure of GH¢30,000 developing a new brand.

(5) During the year Tobi Plc incurred expenditure of GH¢40,000 developing customer lists.

Required
Show how the above transactions would appear in the financial statements (including notes to the financial statements) of Tobi Plc as of 31 December 20X4.

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  • 15 Marks

FR – L2 – Q31 – Intangible Assets

Prepare extracts of financial position and intangible assets note for Cape Coast Pharmaceutical, correcting erroneous write-offs per IAS 38.

Cape Coast Pharmaceutical Limited (CCPL), a listed company, purchased a brand on January 1, 20W9 at a cost of GH¢382 million. It has incurred a substantial amount on further development of the brand in subsequent years.
It is the policy of CCPL to amortise the development expenditures which meet the recognition criteria as given in IAS-38 Intangible Assets, over a period of ten years. The amortisation commences when the development expenditures first meet the recognition criteria. However, it was discovered during the year 20X4 that the development expenditure incurred after acquisition had erroneously been written-off to the statement of profit or loss, details of which, are as follows:

Year ended GH¢m
December 31, 20X1 24
December 31, 20X2 54
December 31, 20X3 38
December 31, 20X4 43

The draft financial statements (before correction of error) show that retained earnings as at December 31, 20X4 was GH¢1,950 million (20X3: GH¢1,785 million).
Required
In accordance with the requirements of International Financial Reporting Standards, prepare relevant extracts of the Statement of Financial Position along with the note on intangible assets after incorporating the required corrections. (Ignore tax)

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  • 15 Marks

FR – L2 – Q30 – Intangible Assets

Show how R&D projects are accounted for in Henry Ltd's financial statements for 20X4, including capitalisation and amortisation.

During 20X4 Kofi Ltd has the following research and development projects in progress.

Project A was completed at the end of 20X3. Development expenditure brought forward at the beginning of 20X4 was GH₵412,500 on this project. Savings in production costs arising from this project are first expected to arise in 20X4. In 20X4 savings are expected to be GH₵100,000, followed by savings of GH₵300,000 in 20X5 and GH₵200,000 in 20X6.

Project B commenced on 1 April 20X4. Costs incurred during the year were GH₵56,000. In addition to these costs a machine was purchased on 1 April 20X4 for GH₵30,000 for use on the project. This machine has a useful life of five years. At the end of 20X4 there were still some uncertainties surrounding the completion of the project.

Project C had been started in 20X3. In 20X3 the costs relating to this project of GH₵36,700 had been written off, as at the end of 20X3 there were still some uncertainties surrounding the completion of the project. Those uncertainties have now been resolved and a further GH₵45,000 costs incurred during the year.

Required

Show how the above would appear in the financial statements (including notes to the financial statements) of Kofi Ltd as of 31 December 20X4.

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  • 20 Marks

FA – L1 – Q76 – Preparation of limited liability company financial statements

Prepare Etabila Travel Limited's statement of profit or loss for 20X9 and statement of financial position as at 31 December 20X9 per IAS 1.

The trial balance of Etabila Travel Limited as at 31 December 20X9 is as follows:

DR (GH¢000) CR (GH¢000)
Ordinary share capital (GH¢1 shares) 600
Cash at bank 23
Tax (over-provision in 20X8) 25
10% loan notes (repayable in 2020) 300
General administrative expenses 300
Administrative salaries 46
General distribution expenses 160
Distribution salaries 24
Directors’ remuneration 35
Loan notes interest paid 10
Development costs (incurred during 20X9) 30
Dividend paid 15
Dividends received 30
Investments 45
Land and buildings – at cost 2,600
– accumulated depreciation at 1 January 20X9 200
Plant and machinery – at cost 320
– accumulated depreciation at 1 January 20X9 75
Retained earnings at 1 January 20X9 64
Purchases and sales 1,250 2,250
Profit on disposal of factory 60
Trade receivables and trade payables 100 220
Inventory at 1 January 20X9 60
Irrecoverable debts 5
Total 4,824 4,824

Additional Information:
(1) Closing inventory is valued at the lower of cost or net realisable value. At 31 December 20X9 it amounted to GH¢55,000.
(2) Non-current assets are depreciated on a straight-line basis assuming no residual value. The following depreciation rates are to be applied:

  • Buildings: 5%
  • Plant and machinery: 20%
    The depreciation charge for the year is to be apportioned as follows:

Distribution costs Administrative expenses
Buildings 70% 30%
Plant and machinery 75% 25%

The cost of the land was GH¢3,200,000. There were no purchases or sales of non-current assets during the year.
(3) Development costs are an intangible asset and are to be amortised (depreciated) over a three-year period. The amortisation (depreciation) charge is to be allocated to cost of sales.
(4) The profit (after tax) on disposal of the factory is considered to be a material amount for which separate disclosure is required.
(5) Tax on the profits for the year is estimated at GH¢95,000.
(6) Directors’ remuneration is to be analysed between distribution costs and administrative expenses as follows:

  • Distribution: GH¢15,000
  • Administration: GH¢20,000

Required:
Prepare the company’s statement of profit or loss for the year ended 31 December 20X9 and statement of financial position as at 31 December 20X9.

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