- 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.
Question
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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