Tag (SQ): Depreciation

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  • 20 Marks

FR – L2 – Q73 – Statement of Cash Flows

Prepare a cash flow statement for Fellon Plc for 20X4 using IAS 7, based on provided financial data and additional information.

Fellon Plc has prepared the following rough draft accounts for the year ended 31 December 20X4.

Statement of profit or loss

GH₵’000
Revenue 11,563
Cost of sales (5,502)
Gross profit 6,061
Distribution costs (402)
Administration expenses (882)
Interest payable (152)
Operating profit before tax 4,625
Taxation (35%) including deferred tax (1,531)
Profit after tax 3,094
Dividends (700)
Retained profit 2,394

Statements of financial position

31 December 20X4 GH₵’000 31 December 20X3 GH₵’000
Non-current assets
Property, plant and equipment 10,380 9,108
Current assets
Inventories 2,208 1,314
Trade receivables 1,986 1,392
Investments 1,992 2,190
Cash at bank and in hand – 576
6,186 5,472
Total assets 16,566 14,580
Equity and liabilities
Equity
Share capital 4,392 3,600
Retained earnings 6,714 4,320
11,106 7,920
Non-current liabilities
Long-term loans 1,240 1,800
Deferred repairs provision 702 516
1,942 2,316
Current liabilities
Trade payables 2,038 1,714
Bank overdraft 222 –
Taxation 1,258 2,630
3,518 4,344
Total equity and liabilities 16,566 14,580

The following data is relevant.
(1) The 10% long-term loan was redeemed at par.
(2) Plant and equipment with a written down value of GH₵276,000 was sold for GH₵168,000. New plant was purchased for GH₵2,500,000.
(3) Buildings costing GH₵1,300,000 were acquired during the year.
(4) The investments are highly liquid securities held for the short term.

Required
Prepare the cash flow statement and supporting notes in accordance with IAS 7 for Fellon Plc for 20X4.

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  • 20 Marks

FR – L2 – Q71 – Presentation of Financial Statements

Prepare Zestful Ltd's statement of profit or loss and financial position for 20X9, incorporating inventory adjustments, depreciation, tax, and joint operation.

The following trial balance relates to Zestful Ltd as at 31st December 20X9.

Description GH₵’000 GH₵’000
Revenue 213,800
Cost of sales 143,800
Operating expenses 22,400
Trade receivables 13,500
Bank 900
Closing inventories – 31st December 20X9 (note (i)) 10,500
Interest expenses (note (iii)) 5,000
Rental income from investment property 1,200
Plant and equipment – cost (note (ii)) 36,000
Land and building – at valuation (note (ii)) 63,000
Accumulated depreciation 16,800
Investment property – valuation 1st January 20X9 (note (ii)) 16,000
Trade payables 11,800
Joint arrangement (note (v)) 8,000
Deferred tax (note (iv)) 5,200
Ordinary shares of 25p each 20,000
10% Redeemable preference shares of GH₵1 each 10,000
Retained earnings – 1st January 20X9 17,500
Revaluation surplus (note (ii)) 21,000
Total 318,000 318,000

The following additional information is relevant:
(i) An inventory count on 31st December 20X9 listed goods with a cost of GH₵10.5 million. This includes some damaged goods that had cost GH₵800,000. These would require remedial work costing GH₵450,000 before they could actually be sold for an estimated GH₵950,000.
(ii) Non-current assets:

  • Plant: All plant, including that of the joint operation (note v), is depreciated at 12.5% on reducing balance basis.
  • Land and building: The land and building were revalued at GH₵15 million and GH₵48 million respectively on 1st January 20X9 creating a GH₵21 million revaluation surplus. At this date the building had a remaining life of 15 years. Depreciation policy is on a straight-line basis. Zestful Ltd does not make a transfer to realized profits in respect of excess depreciation. Depreciation on both the building and the plant should be charged to the cost of sales.
  • Investment property: On 31st December 20X9 a qualified surveyor valued the investment property at GH₵13.5 million. Zestful Ltd uses the fair value model in IAS 40 Investment Property to measure its investment property.
    (iii) Interest expenses include interest on loan notes and an ordinary dividend of 4p per share that was paid in June 20X9.
    (iv) The directors have estimated the provision for income tax for the year ended 31st December 20X9 at GH₵8 million. The deferred tax provision ended 31st December 20X9 is to be adjusted (through the profit or loss) to reflect the tax base of the company’s net assets is GH₵12 million less than their carrying amounts. The rate of tax is 30%.
    (v) On 1 January 20X9 Zestful Ltd entered into a joint arrangement with other entities. Each venturer contributes their own assets and is responsible for their own expenses including depreciation assets of the joint arrangement. Zestful Ltd is entitled to 40% of the joint venture’s total turnover. The joint arrangement is not a separate entity and is regarded as a joint operation.
    Details of Zestful Ltd joint venture transactions are:

Description GH₵’000
Plant and equipment at cost 12,000
Share of joint venture turnover (40% of total turnover) 8,000
Related joint venture cost of sales excluding depreciation (5,000)
Trade receivables 1,500
Trade payables (2,500)

Required:
Prepare a statement of profit or loss for the year ended 31 December 20X9 and a statement of financial position as at that date.

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  • 20 Marks

FR – L2 – Q69 – Presentation of Financial Statements

Prepare Nova Bekasi Ltd's statement of profit or loss and financial position for 20X5 per IAS 1, considering inventory, depreciation, tax, and goodwill impairment.

NOVA BEKASI LIMITED
The list of balances of Nova Bekasi Limited shows the following balances at 31 December 20X5.

Dr GH₵’000 Cr GH₵’000
Share capital (600,000 shares) 320
General reserve 20
Accumulated profit 1 January 20X5 50
Inventory (goods for resale) at 1 January 20X5 60
Revenue 1,000
Purchases 540
Purchases returns 26
Sales returns 28
Carriage outwards 28
Warehouse wages 80
Sales representatives salaries 60
Administrative wages 40
Warehouse plant and equipment – cost 126
Accumulated depreciation – 1 January 20X5 50
Delivery vehicle hire 20
Goodwill 100
Distribution expenses 10
Administrative expenses 30
Directors’ salaries (charge to administrative expenses) 30
Rental income 16
Trade receivables 330
Cash at bank 60
Trade payables 60
1,542 1,542

Additional information
(1) Inventory (goods for resale) at 31 December 20X5 amounted to GH₵100,000.
(2) Annual depreciation on warehouse plant and equipment of GH₵32,000 should be provided.
(3) Income tax for 20X5 should be taken as GH₵50,000.
(4) The recoverable amount of goodwill was only GH₵90,000.

Required
Prepare the company’s statement of profit or loss for the year to 31 December 20X5 and a statement of financial position at that date in accordance with IAS 1 Presentation of Financial Statements.

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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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  • 20 Marks

FR – L2 – Q64 – Revenue from Contracts with Customers

Recalculate AX Ltd's profit for the year ended 31 March 20X9, adjusting for sale or return, depreciation, fraud, and tax.

AX LTD
Below is the summarised draft statement of financial position of AX Ltd, a company listed on the West Africa Stock Exchange, as at 31 March, 20X9:

Non-current assets
Property at valuation (land GH₵20,000; buildings GH₵165,000) (note ii) 185,000
Plant (note ii) 180,500
Financial assets at fair value through profit or loss at 1 April 20X8 (note iii) 12,500
378,000
Current assets
Inventory 84,000
Trade receivables (note iv) 52,200
Bank 3,800
140,000
Total assets 518,000

Equity and Liabilities
Equity
Stated capital 290,000
Capital surplus 12,300
Income surplus
– At 1 April 20X8 96,700
– For the year ended 31 March 20X9 12,300
109,000
411,300
Non-current liabilities
Deferred tax – at 1 April 20X8 (note v) 19,200
Current liabilities 81,800
101,000
Total equity and liabilities 518,000

The following information is relevant:
(i) AX Ltd’s statement of profit or loss includes GH₵8million of revenue for credit sales made on a “sale or return” basis. At 31 March 20X9, customers who had not paid for the goods, had the right to return GH₵2.6million of them. AX Ltd applied a mark-up on cost of 30% on all these sales. In the past, AX Ltd’s customers have sometimes returned goods under this type of agreement.
(ii) The non-current assets have not been depreciated for the year ended 31 March 20X9. AX Ltd has a policy of revaluing its land and buildings at the end of each accounting year. The values in the above statement of financial position as at 1 April 20X8 when the building had a remaining life of 15 years. A qualified surveyor has valued the land and buildings at 31 March 20X9 at GH₵180million. Plant is depreciated at 20% on the reducing balance basis.
(iii) The financial assets at fair value through profit or loss are held in a fund whose value changes directly in proportion to a specified market index. At 1 April 20X8 the relevant index was 1,200 and at 31 March 20X9 it was 1,296.
(iv) In late March 20X9 the directors of AX Ltd discovered a material fraud perpetrated by the company’s credit controller that had been continuing for some time. Investigations revealed that a total of GH₵4 million of the trade receivables as shown in the statement of financial position at 31 March 20X9 had in fact been paid and the money had been stolen by the credit controller. An analysis revealed that GH₵1.5 million had been stolen in the year to 31 March 20X8 with the rest being stolen in the current year. AX Ltd is not insured for this loss and it cannot be recovered from the credit controller, nor is it deductible for tax purpose.
(v) During the year, the company’s taxable temporary differences increased by GH₵10 million of which GH₵6 million related to the revaluation of the property. The deferred tax relating to the remainder of the increase in the income tax rate is 20%.
(vi) The above figures do not include the estimated provision for income tax on the profit for the year ended 31 March 20X9. After allowing for any adjustments required in terms (i) to (iv), the directors have estimated the provision of GH₵11.4 million (this is in addition to the deferred tax effects of item (v).
(vii) During the year, dividends of GH₵15.5 million were paid. These have been correctly accounted for in the above statement of financial position.

Required:
Taking into account any adjustments required by items (i) to (vii) above:
(a) Prepare a statement showing the recalculation of AX Ltd’s profit for the year ended 31 March 20X9; and

(b) Redraft the statement of financial position of AX Ltd as at 31 March 20X9.

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  • 10 Marks

FR – L2 – Q43 – Leases

Show extracts from Zest Pharma Plc's accounts for a 5-year lease with a 2-year extension option, including calculations for 20X4.

Zest Pharma Plc leases an asset on 1 January 20X4.
The lease is for five years at a rental of GH₵600,000 per half year in advance, with an option of two more years at nominal rental. It is reasonably certain that the option will be exercised. The present value of future lease payments is GH₵4,400,000.
The directors of Zest Pharma Plc consider that the asset has a useful life of seven years.
The rate of interest implicit in the lease is 7.68% per half year.

Required
Prepare relevant extracts from the accounts of Zest Pharma Plc at 31 December 20X4.

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  • 10 Marks

Title: FR – L2 – Q42 – Leases

Show how a 4-year machine lease is presented in Fablon Ltd’s 20X4 financial statements, including profit or loss and financial position.

Fablon Limited leased a machine on 1 January 20X4 for four years. Lease payments of GH¢40,000 are payable in arrears annually. The interest rate implicit in the lease is 10% and the present value of the minimum lease payments is GH¢126,760.

Required
Show how the lease agreement would be presented in the statement of profit or loss for 20X4 and the statement of financial position at 31 December 20X4. Notes to the financial statements are not required.

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  • 15 Marks

FR – L2 – Q41 – Financial Reporting Standards and Their Applications

Show extracts from Cypress Limited's 20X4 financial statements for leases of a threshing and baling machine.

On 1 January 20X4, Cypress Limited entered into the following lease agreements.

(a) Threshing machine
A lease of a threshing machine for 3 years from Alpha Ltd.
A deposit of GH¢2,000,000 was payable on 1 January 20X4 followed by 3 instalments of GH¢6,500,000 payable in arrears, commencing on 31 December 20X4. The present value of future lease payments is GH¢16,752,000 and the interest rate implicit in the lease is 8%.

(b) Baling machine
A lease of a baling machine for 5 years from Beta Ltd.
Cypress Limited has agreed to make 5 annual instalments of GH¢35,000 payable in advance, commencing on 1 January 20X4. The present value of future lease payments is GH¢150,000.
The interest rate implicit in the lease is 8.36%.

Required

Show the relevant extracts from the accounts of Cypress Limited for year ended 31 December 20X4.

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  • 10 Marks

FR – L2 – Q40 – Financial Reporting Standards and Their Applications

Show lease presentation for a boat lease in Finley Ltd's financial statements for 20X4, including profit or loss and financial position extracts.

On 1 January 20X4, Finley Ltd entered into an agreement to lease a boat. The initial measurement of the lease liability was GH¢36,000 and the term of the lease was four years. Annual lease payments of GH¢10,000 are payable in advance. The interest rate implicit in the lease is 7.5%.

Required
Show how this lease would be presented in the statement of profit or loss of Finley Ltd for the year ended 31 December 20X4 and the statement of financial position as at that date. Detailed disclosure notes are not required.

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  • 7 Marks

FR – L2 – Q39 – Leases

Explain accounting for a 5-year machine lease with advance payments under IFRS 16 for Bela Ltd.

The following information relates to the financial statements of Bela Limited for the year to 31 March 20X4.

On 1 October 20X3, Bela Limited entered into a 5 year lease for a machine from Narbona, agreeing to make payments every 6 months of GH¢29,500 beginning on the 1 October 20X3.

The present value of future lease payments at the commencement of the lease and before any payments are made is GH¢250,000 and the machine is believed to have a useful life of 5 years. The six-month interest rate implicit in the lease is 3.9%.

Required

Explain the correct accounting treatment for the above (with calculations where appropriate).

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