Tag (SQ): Retained Earnings

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  • 8 Marks

FR – L2 – Q77 – Consolidated Financial Statements

Prepare consolidated statement of financial position for Apex Ltd and its subsidiary Nexus Ltd as at 31 Dec 20X4.

Statements of financial position at 31 December 20X4

Nexis Ltd Vion Ltd
GH¢ GH¢
Investment in Vion Ltd 60,000
Sundry assets 247,500 226,600
307,500 226,600
Share capital 120,000 50,000
Retained earnings 87,500 70,000
Liabilities 100,000 106,600
307,500 226,600

Nexis Ltd bought 80% of Vion Ltd when the balance on Vion Ltd’s retained profit was GH¢50,000.
Required
Prepare the consolidated statement of financial position at 31 December 20X4.

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  • 10 Marks

FR – L2 – Q76 – Business Combinations

Prepare Peak Ltd's consolidated statement of financial position as at 31 Dec 20X4 after acquiring 75% of Ridge Ltd.

Peak Ltd
Statements of financial position at 31 December 20X4

Peak Ltd Ridge Ltd
Assets GH₵000 GH₵000
Non-current assets
Property, plant and equipment 35,000 20,000
Investment in Ridge Ltd 12,000
Current assets 16,000 14,000
Total assets 63,000 34,000
Equity and liabilities
Capital and reserves
Share capital 10,000 4,000
Retained earnings 13,000 12,000
23,000 16,000
Non-current liabilities
8% Debenture loans 20,000 9,000
Current liabilities 20,000 9,000
Total equity and liabilities 63,000 34,000

On 1 January 20X2, Peak Ltd acquired 75% of Ridge Ltd for GH₵12,000,000. At that date, the balance on Ridge Ltd’s retained earnings was GH₵8,000,000.

Required:
Prepare the consolidated statement of financial position of Peak Ltd as at 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 – Q10 – Accounting policies and changes in estimates

Show how a change in accounting policy for borrowing costs is reflected in the statement of changes in equity for 20X4 per IAS 8.

AccraTech Company has previously written off any expenditure on borrowing costs in the period in which it was incurred.
The company has appointed new auditors this year. They have expressed the view that the previous recognition of borrowing costs in the statement of profit or loss was in error. The company has decided to correct the error retrospectively in accordance with IAS 8.
The financial statements for 20X3 and the 20X4 draft financial statements, both reflecting the old policy, show the following:

Statement of changes in equity (extract)

20X3 20X4
Retained earnings Retained earnings
GH₵000 GH₵000
22,500 23,950
3,200 4,712
(1,750) (2,500)
23,950 26,162

Opening balance
Profit after tax for the period
Dividends paid
Closing balance

Borrowing costs written off were GH₵500,000 in 20X3 and GH₵600,000 in 20X4.
The directors have calculated that borrowing costs, net of depreciation which should have been included in property, plant and equipment had the correct policy been applied, are as follows:

GH₵000
At 30 December 20X2
At 31 December 20X3
At 31 December 20X4

Had the correct policy been in force depreciation of GH₵450,000 would have been charged in 20X3 and GH₵870,000 in 20X4.

Required
Show how the change in accounting policy must be reflected in the statement of changes in equity for the year ended 31 December 20X4. Work to the nearest GH₵000.

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  • 15 Marks

MA – L2 – Q16 – Budgetary control

Prepare a budgeted profit or loss statement for Kofi Limited for Q1, focusing on sales, inventory, and expenses.

Kofi Limited retails fertilizer to farmers in Ghana. The company has approached its Bankers to provide funding for next year’s operations and a three-month master budget has been requested for review by the bankers.
You have been approached by the management as a consultant to prepare the 1st quarter budget for the banker’s consideration for its next year’s operations.
End of Accounting year December 20X9

GH¢
Debtors 23,000
Bank balance 55,000
Non-current asset at cost 698,000
Provision for depreciation balance 98,000
Creditors Balance 48,000
Operating expenses for the month December 60,000
Sales for the month of December 20X9 400,000
December Ending inventory 20,000
Retained earnings 120,000

The following additional information was also provided to assist your work:
(i) Depreciation is provided at the rate of 5% on cost of non-current assets.
(ii) Closing inventory is expected to increase by GH¢2,000 in January from December levels. This is expected to increase by the same figure in February from the projected figure in January. It is expected that in March closing inventory is desired to be GH¢26,000.
(iii) The company makes a profit of 25% on its sales.
(iv) Operating expenses are expected to increase by 10% from that of December, and this is projected to increase at the same growth rate to March.
(v) Sales are projected to grow by 15% from December until March.
(vi) The Debtors figure is desired to be proportional to the sales values.
(vii) Creditors value for the three months are expected to be as follows: January – GH¢50,000; February – GH¢46,000; and in March – GH¢52,000.

You are required as a consultant for Kofi Company Limited to prepare for their Bankers:
(a) The budgeted statement of profit or loss for the three months.

(b) The budgeted statement of financial position for the three months.

(c) The cash budget for the three months.

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