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  • 10 Marks

FR – L2 – Q95 – Business Combinations

Adjust unrealised profit in inventory for consolidation of Anita Healthcare Ltd, Pamela Wellness Ltd, and Sophie Pharmaceuticals Ltd.

On 31 December Year 5, an associate, Anita Healthcare Ltd, holds inventory which is valued at GH¢32,000 purchased during the year from its investor Pamela Wellness Ltd. At the same date, Pamela Wellness Ltd holds inventory purchased from a subsidiary, Sophie Pharmaceuticals Ltd, which is valued at GH¢80,000.
Sales from Pamela Wellness Ltd to Anita Healthcare Ltd and from Sophie Pharmaceuticals Ltd to Pamela Wellness Ltd are priced at a mark-up of one-quarter on cost.
Pamela Wellness Ltd owns 30% of Anita Healthcare Ltd and 60% of Sophie Pharmaceuticals Ltd.

Required
Set out the adjustments necessary to reflect any unrealised profit in the above in the consolidated statement of financial position.

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  • 20 Marks

FR – L2 – Q92 – Consolidated Financial Statements

Prepare consolidated financial statements for Henks Plc, including profit or loss, changes in equity, and financial position for 20X4.

HENKS PLC

Statements of financial position as at 31 December 20X4

Henks Plc GH₵000 Streen Ltd GH₵000 Scote Ltd GH₵000
Non-current assets
Property, plant and equipment 32,000 25,000 20,000
Investments 33,500 – –
65,500 25,000 20,000
Current assets
Cash at bank and in hand 9,500 2,000 4,000
Trade receivables 20,000 8,000 17,000
Inventory 30,000 18,000 18,000
59,500 28,000 39,000
125,000 53,000 59,000
Share capital 46,500 10,000 15,000
Retained earnings 55,000 37,000 27,000
101,500 47,000 42,000
Current liabilities 23,500 6,000 17,000
125,000 53,000 59,000

Statement of profit or loss for the year ended 31 December 20X4

Henks Plc GH₵000 Streen Ltd GH₵000 Scote Ltd GH₵000
Revenue 125,000 117,000 82,000
Cost of sales (65,000) (64,000) (42,000)
Gross profit 60,000 53,000 40,000
Distribution and administrative costs (35,000) (22,000) (23,000)
Profit before taxation 25,000 31,000 17,000
Income tax expense (10,000) (9,000) (5,000)
Profit after tax 15,000 22,000 12,000

Statement of changes in equity (extract) for the year ending 31 December 20X4

Henks Plc GH₵000 Streen Ltd GH₵000 Scote Ltd GH₵000
Retained earnings brought forward 40,000 15,000 15,000
Retained profit for the financial year 15,000 22,000 12,000
Dividends – – –
Retained earnings carried forward 55,000 37,000 27,000

You are given the following additional information.
(1) Henks Plc owns 80% of Streen Ltd’s shares. These were purchased in 20X1 for GH₵20.5 million cash, when the balance on Streen Ltd’s retained earnings stood at GH₵7 million.
(2) Five years ago, Henks Plc purchased 60% of the shares of Scote Ltd by the issue of shares with a market value of GH₵13 million. At that date, the retained earnings of Scote Ltd stood at GH₵3 million and the fair value of the net assets of Scote Ltd was GH₵24 million. It was agreed that any undervaluation of the net assets should be attributed to land. This land was still held at 31 December 20X4.
(3) Included in the inventory of Scote Ltd and Streen Ltd at 31 December 20X4 are goods purchased from Henks Plc for GH₵5.2 million and GH₵3.9 million, respectively. Henks Plc aims to earn a profit of 30% on cost. Total sales from Henks Plc to Scote Ltd and to Streen Ltd were GH₵8 million and GH₵6 million, respectively.
(4) Henks Plc and Streen Ltd each proposed a dividend before the year end of GH₵2 million and GH₵2.5 million, respectively. No accounting entries have yet been made for these.
(5) Henks Plc has conducted annual impairment tests on goodwill in accordance with IFRS 3 and IAS 36. The estimated recoverable amount of goodwill at 31 December 20X1 was GH₵5 million and at 31 December 20X4 was GH₵4.5 million.

Required
Prepare the consolidated statement of profit or loss and consolidated statement of changes in equity for the year ended 31 December 20X4 and the consolidated statement of financial position at that date.

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  • 12 Marks

FR – L2 – Q91 – Consolidated Financial Statements

Prepare Falcon Ltd's consolidated profit or loss, financial position, and retained profit movement for 20X4.

FALCON LTD

Statement of changes in equity for the year ended 30 June 20X4 (extract)

Falcon Ltd GH¢000 Crane Ltd GH¢000
Retained earnings brought forward 8,000 10,500
Profit for the financial year 12,000 8,000
Retained earnings carried forward 20,000 18,500

Required

Prepare Falcon Ltd’s consolidated statement of profit or loss, consolidated statement of financial position and a working showing the movement on consolidated retained profit for Falcon Ltd for the year ended 30 June 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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  • 20 Marks

FR – L2 – Q68 – Events After the Reporting Period

Explain adjusting and non-adjusting events with three examples each per IAS 10.

(a) Explain the terms “adjusting events” and “non-adjusting events” and give three examples of each

(b) Yamfo Retail Limited, a chain of departmental stores has distributed its operations into four Divisions i.e. Food, Furniture, Clothing and Household Appliances. The following information has been extracted from the records:
(i) The company allows the dissatisfied customers to return the goods within 30 days. It is estimated that 5% of the sales made in June 20X4 will be refunded in July 20X4.
(ii) On June 2, 20X4, three employees were seriously injured as a result of a fire at the company’s warehouse. They have lodged claims seeking damages of GH¢2.0 million from the company. The company’s lawyers have advised that it is probable that the court may award compensation of GH¢400,000.
(iii) Under a new legislation, the company is required to fit smoke detectors at all the stores by December 31, 20X4. The company has not yet installed the smoke detectors.
(iv) On June 20, 20X4, the board of directors decided to close down the Household Appliances Division. However, the decision was made public after June 30, 20X4.
(v) The company has a large warehouse in Kumasi which was acquired under a three-year rent agreement signed on April 1, 20X3. The agreement is non-cancellable and the company cannot sub-let the warehouse. However, due to operational difficulties, the company shifted the warehouse to a new location.
(vi) A 15% cash dividend was declared on July 5, 20X4.

Required
Describe how each of the above issue should be dealt with in the financial statements for the year ended June 30, 20X4. Support your point of view in the light of relevant International Accounting Standards.

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  • 20 Marks

FR – L2 – Q66 – Presentation of Financial Statements

Prepare profit or loss and financial position statements for Kumasi Healthcare Limited using trial balance and additional info.

The following trial balance has been extracted from the books of Kumasi Healthcare Limited, at 31 March 20X5.

GH₵ 000 GH₵ 000
Administrative expenses 210
Share capital (ordinary shares of GH₵ 1 fully paid) 600
Trade receivables 470
Bank overdraft 80
Income tax (overprovision in 20X4) 25
Retirement benefit liability 180
Distribution costs 420
Non-current asset investments 560
Investment income 75
Plant and equipment
At cost 750
Accumulated depreciation (at 31 March 20X5) 220
Accumulated profit (at 1 April 20X4) 240
Purchases 960
Inventories (at 1 April 20X4) 140
Trade payables 280
Revenue 1,950
Interim dividend paid 20
3,630 3,630

Additional information
(1) Inventories at 31 March 20X5 were valued at GH₵ 150,000.
(2) The following items are already included in the balances listed in the above trial balance.

Distribution costs GH₵ 000 Administrative costs GH₵ 000
Depreciation (for year to 31 March 20X5) 27 20

(3) A final dividend of GH₵ 120,000 was proposed but not yet paid.
(4) The retirement benefit liability increased by GH₵ 16,000 during the year which has not been included in the trial balance.
(5) Income tax for the year is estimated at GH₵ 29,000.

Required
Prepare a statement of profit or loss (analysing expenses by function) for the year ended 31 March 20X5 and a statement of financial position at 31 March 20X5.

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  • 15 Marks

FR – L2 – Q65 – Presentation of Financial Statements

Prepare a statement of profit or loss and financial position for Lorry Limited using the trial balance and additional info for 20X4.

LORRY LIMITED
The trial balance of Lorry Limited at 31 December 20X4 is as follows.

GH₵ in million
Administration 86
5
918
189
175
2,830
20
400
18
1,562
3,304
6,313

The following information is also relevant.
(1) Inventories on 31 December 20X4 amounted to GH₵127 million.
(2) Current tax of GH₵75 million is to be provided.
(3) The loan is repayable by equal annual instalments over three years.

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

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  • 12 Marks

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.

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.

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  • 15 Marks

FR – L2 – Q55 – Financial Instruments

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

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.

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