Select the appropriate component of a system of internal controls for each of the below examples.
The authorizing of inventory write-offs prior to inventory being scrapped.
The preparation of a reconciliation between the receivable’s ledger control account and the receivables ledger A Control environment B Control activity C Information system and communication D Information system and communication E Control environment F Control activity
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.
Haven Ltd
The following are the statement of profit or loss for the year ended 31 December 20X4 of Haven Ltd and its subsidiary Seren Ltd.
Haven Ltd GH¢’000
Seren Ltd GH¢’000
Revenue
1,120
390
Cost of sales
(610)
(220)
Gross profit
510
170
Distribution costs
(50)
(40)
Administration costs
(55)
(45)
Operating profit
405
85
Investment income
20
4
Finance costs
(18)
(4)
Profit before tax
407
85
Income tax expense
(140)
(25)
Profit for the year
267
60
Retained profit brought forward
100
45
Profit for year
267
60
Dividends paid and proposed
(50)
(20)
Retained profit carried forward
317
85
The following information is relevant.
(1) Haven Ltd acquired 75% of Seren Ltd six years ago when Seren Ltd’s retained earnings were GH¢9,000.
(2) Haven Ltd made sales to Seren Ltd totalling GH¢100,000 in the year. At the year end the statement of financial position of Seren Ltd included inventory purchased from Haven Ltd. Haven Ltd had taken a profit of GH¢3,000 on this inventory.
(3) Haven Ltd’s investment income includes GH¢15,000 being its share of Seren Ltd’s dividends.
Required
Prepare a consolidated statement of profit or loss and a working showing the movement on consolidated retained profit for the year ended 31 December 20X4.
You're reporting an error for "FR – L2 – Q88 – Business Combinations"
25 Marks
FR – L2 – Q86 – Business Combinations
Prepare Drobo Ltd's consolidated statement of financial position as at 31 March 20X4, incorporating fair value adjustments, intra-group transactions, and goodwill impairment.
On 1 April 20X3, Draco Limited acquired 90% of the equity shares in Aboro Limited. On the same day Draco Limited accepted a 10% loan note from Aboro Limited for GH₵200,000 which was repayable at GH₵40,000 per annum (on 31 March each year) over the next five years. Aboro Limited’s retained earnings at the date of acquisition were GH₵2,200,000.
Statements of financial position as at 31 March 20X4
Draco Limited
Aboro Limited
GH₵000
GH₵000
GH₵000
GH₵000
Non-current assets
Property, plant and equipment
2,120
1,990
Intangible – software
–
1,800
Investments – equity in Aboro Limited
4,110
–
Investments – 10% loan note Aboro Limited
200
Investments – others
65
210
6,495
4,000
Current assets
Inventories
719
560
Trade receivables
524
328
Aboro Limited current account
75
Cash
20
1,338
888
Total assets
7,833
4,888
Equity and liabilities:
Capital and reserves
Equity shares of GH₵1 each
4,000
2,000
Retained earnings
2,900
1,955
6,900
3,955
Non-current liabilities
10% Loan note from Draco Limited
160
Government grant
230
390
Current liabilities
Trade payables
475
472
Draco Limited current account
60
Income taxes payable
228
174
Operating overdraft
27
730
706
Total equity and liabilities
7,833
4,888
The following information is relevant
(i) Included in Aboro Limited’s property at the date of acquisition was a leased property recorded at its depreciated historical cost of GH₵400,000. The property had been sub-let for its remaining life of only four years at an annual rental of GH₵80,000 payable in advance on 1 April each year. The directors of Draco Limited are of the opinion that the fair value of this property is best reflected by the present value of its future cash flows. An appropriate cost of capital for the group is 10% per annum.
The present value of a GH₵1 annuity received at the end of each year where interest rates are 10% can be taken as:
3 year annuity GH₵2.50
4 year annuity GH₵3.20
(ii) The software of Aboro Limited represents the depreciated cost of the development of an integrated business accounting package. It was completed at a capitalised cost of GH₵2,400,000 and went on sale on 1 April 20X2. Aboro Limited’s directors are depreciating the software on a straight-line basis over an eight-year life (i.e. GH₵300,000 per annum). However, the directors of Draco Limited are of the opinion that a five-year life would be more appropriate as sales of business software rarely exceed this period.
(iii) The inventory of Draco Limited on 31 March 20X4 contains goods at a transfer price of GH₵25,000 that were supplied by Aboro Limited who had marked them up with a profit of 25% on cost. Unrealised profits are adjusted for against the profit of the company that made them.
(iv) On 31 March 20X4 Aboro Limited remitted to Draco Limited a cash payment of GH₵55,000. This was not received by Draco Limited until early April. It was made up of an annual repayment of the 10% loan note of GH₵40,000 (the interest had already been paid) and GH₵15,000 of the current account balance.
(v) The accounting policy of Draco Limited for non-controlling interests (NCI) in a subsidiary is to value NCI at a proportionate share of the net assets.
(vi) An impairment test at 31 March 20X4 on the consolidated goodwill concluded that it should be written down by GH₵120,000. No other assets were impaired.
Required
Prepare the consolidated statement of financial position of Draco Limited as at 31 March 20X4.
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.
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.
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.
FAMCO LTD
FAMCO LTD had the following tangible non-current assets at 31 December 20X3.
Cost
Depreciation
Carrying amount
GH¢000
GH¢000
GH¢000
Land
500
–
500
Buildings
400
80
320
Plant and machinery
1,613
458
1,155
Fixtures and fittings
390
140
250
Assets under construction
91
–
91
2,994
678
2,316
In the year ended 31 December 20X4 the following transactions occur.
(1) Further costs of GH¢53,000 are incurred on buildings being constructed by the company. A building costing GH¢100,000 is completed during the year.
(2) A deposit of GH¢20,000 is paid for a new computer system which is undelivered at the year end.
(3) Additions to plant are GH¢154,000.
(4) Additions to fixtures, excluding the deposit on the new computer system, are GH¢40,000.
(5) The following assets are sold.
Cost
Depreciation b/f
Proceeds
GH¢000
GH¢000
GH¢000
Plant
277
195
86
Fixtures
41
31
2
(6) Land and buildings were revalued at 1 January 20X4 to GH¢1,500,000, of which land is worth GH¢900,000. The revaluation was performed by Messrs Jackson & Co, Chartered Surveyors, on the basis of existing use value on the open market.
(7) The useful economic life of the buildings is unchanged. The buildings were purchased ten years before the revaluation.
(8) Depreciation is provided on all assets in use at the year end at the following rates.
Buildings 2% per annum straight line
Plant 20% per annum straight line
Fixtures 25% per annum reducing balance
Required
Show the disclosure under IAS 16 in relation to non-current assets in the notes to the published accounts for the year ended 31 December 20X4.
Kwame Ansah is a vehicle spare parts dealer in Kumawu. He pays into his bank account the amount of his cash takings after keeping an amount of GH¢2,000 per week for personal use and after payment of wages and other expenses, which for the accounting period ending 31st December 20X9, were as follows:
Expenses
GH¢
Staff wages
1,440
Goods
120,580
Cleaning
1,200
Carriage
600
Sundry
5,000
The following are his bank transactions:
Bank Transactions
GH¢
Income tax
3,000
Telephone
650
Bank lodgements
15,000
Cash sales
6,000
Bulk sales (cheques)
10,000
Treasury bill interest
5,000
Payments to suppliers
15,000
Rent
11,000
Electricity
650
Balance as at 1st January 20X9
6,000
The following additional information was also provided:
Assets and Liabilities
01/01/20X9 (GH¢)
31/12/20X9 (GH¢)
Furniture & fittings
1,200
1,200
Stocks in trade
10,500
7,650
Payables – Goods purchased
1,670
2,750
Payables – Rent
5,000
6,000
Payables – Electricity
500
650
Payables – Telephone
150
200
Payables – Accountancy fee
–
750
Treasury bills
10,000
15,000
Receivables – Bulk sales
8,000
15,000
Required:
(i) Prepare statement of profit or loss for the year ending 31st December 20X9. (10 marks)
(ii) Prepare statement of affairs as at 1st January 20X9. (2 marks)
(iii) Prepare statement of financial position as at 31st December 20X9. (8 marks)
Kofi is in business but does not keep proper books of account. In order to prepare his income and expenditure account for the year ended 31 December 20X9 you are given the following information.
| | 1 Jan 20X9 | 31 Dec 20X9 | | | GH¢000 | GH¢000 | | Inventory on hand | 1,310 | 1,623 | | Receivables | 268 | 412 | | Payables for goods | 712 | 914 | | Payables for expenses | 116 | 103 |
In addition you are able to prepare the following summary of his cash and bank transactions for the year.
In addition Kofi says that he had taken goods for personal consumption and estimates that those goods cost GH¢100,000.
In considering accounts receivable Kofi suggests that a provision is to be made of 5% of amounts due after writing off a specific irrecoverable debt of GH¢30,000.
Depreciation on the delivery van is to be recognised at 20% per annum.
Required:
Prepare the statement of profit or loss and a statement of financial position at 31 December 20X9.
