Topic: Preparation of Financial Statements

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FR – Nov 2024 – L2 – Q3 – Financial Statements Preparation

Preparation of Fahnbulleh LTD’s Statement of Comprehensive Income and Statement of Financial Position using IFRS.

Question

Fahnbulleh LTD (Fahnbulleh) is a well-known company manufacturing thrill rides. During the current economic climate, Fahnbulleh has experienced some difficulties and has had to close down its Merry Go Round division.

The company’s trial balance as at 31 October 2023 is as follows:

Account Description	Dr (GH¢’000)	Cr (GH¢’000)
Revenue		1,296,000
Cost of Sales	546,480
Distribution Costs	127,080
Administrative Expenses	142,560
Investment Income		28,080
Investment Property	270,000
Interest Paid	17,280
Income Tax	10,800
Property, Plant & Equipment (PPE) – Carrying Value at 1 Nov 2022	1,620,000
Inventories (31 October 2023)	108,000
Trade Receivables	135,000
Bank	64,800
Payables		43,200
Deferred Tax (1 Nov 2022)		75,600
8% Loan Note		432,000
Ordinary Share Capital (GH¢1 per share)		540,000
Retained Earnings (1 Nov 2022)		605,520
Totals	3,031,200	3,031,200

Additional Information:

Revenue Adjustments:
- Revenue includes VAT of GH¢72 million.
Property, Plant & Equipment (PPE):
- A building with a carrying value of GH¢54 million was revalued on 1 November 2022 to GH¢72 million.
- The building had an estimated useful life of 25 years when purchased, and this has not changed after the revaluation.
- All other PPE should be depreciated at 20% per annum (reducing balance method).
- All depreciation should be charged to cost of sales.
Closure of the Merry Go Round Division (Discontinued Operations):
- Closure Date: 1 October 2023
- Division’s Results (1 Nov 2022 – 1 Oct 2023):
Item GH¢’000

Revenue 58,800

Cost of Sales 38,700

Distribution Costs 12,240

Administrative Expenses 11,880
- The division’s net assets were sold at a loss of GH¢19.2 million, recorded in cost of sales.
Investment Property Revaluation (IAS 40):
- Investment property value increased by 5%, which should be incorporated into the financial statements.
Income Tax and Deferred Tax (IAS 12):
- The estimated income tax provision for the year: GH¢140.4 million.
- Deferred tax liability should be adjusted for temporary differences (GH¢129.6 million) at a 25% tax rate.
Damaged Inventory (IAS 2):
- Inventory worth GH¢46 million was damaged.
- It can be reconditioned at a cost of GH¢12 million and sold for GH¢52 million.
- Appropriate adjustments should be made.

Item	GH¢’000
Revenue	58,800
Cost of Sales	38,700
Distribution Costs	12,240
Administrative Expenses	11,880

Required:

Prepare and present the Statement of Comprehensive Income for the year ended 31 October 2023 and the Statement of Financial Position as at 31 October 2023 for Fahnbulleh LTD.

Answer

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Tags: Depreciation, Financial Statements, IFRS, Revaluation, Statement of Comprehensive Income, Statement of Financial Position, Trial Balance
Level: Level 2

Topic: Preparation of Financial Statements
Series: Nov 2024

FR – May 2017 – L2 – SB – Q5 – Preparation of Financial Statements

Discuss distinguishing features of debt and equity presentation under IFRS and explain the impact of classification on financial statements.

Question

The difference between debt and equity in an entity’s statement of financial position is not easily distinguishable for preparers of financial statements. Debts and equity financial instruments may have similar characteristics, which may lead to inconsistency of reporting.

Required:

Discuss the main distinguishing features in the presentation of debt and equity under International Financial Reporting Standards (IFRS) with clear examples.
(10 Marks)
Explain why it is important for entities to understand the impact of the classification of a financial instrument as debt or equity in the financial statement.
(5 Marks)

Answer

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Tags: Classification, Consistency, Debt, Equity, Financial instruments, IFRS, Presentation
Level: Level 2

Topic: Preparation of Financial Statements
Series: MAY 2017

FR – May 2022 – L2 – SA – Q1 – Preparation of Financial Statements

Prepare a statement of profit or loss, comprehensive income, changes in equity, and financial position for Endtime PLC.

Question

Endtime PLC is a company based in Benin with the following trial balance for the year ended December 31, 2020:

Additional Information:
(i) Finance costs include full year dividends on preference shares and ordinary share dividends of 2½ kobo paid at the end of the year. Allowances for 4 doubtful debts are no longer necessary as customers paid as at when due from time to time in the past 2 years.

(ii) Severely damaged inventories, which cost N790,000,000 were included in the inventories in the trial balance. This will need to be repaired at a cost of N440,000,000 before a knowledgeable buyer will be interested to pay N940,000,000 at arm’s length transaction.

(iii) As at December 31, 2020, a valuer based in Victoria Island in Lagos was contacted by the company to review its land and buildings. The land and buildings was revalued upward by N13,000,000,000 and a certificate was issued to this effect. The board of directors approved the valuation but it has
not yet been accounted for in the trial balance. The valuer advised that the remaining useful life of the asset is reasonably and reliably estimated to be 20 years. Depreciation is on straight-line basis.

(iv) Depreciation on plant and equipment is charged at 15% on reducing balance basis. The multi-users S&P and Sage was bought on September 30, 2020. The amortisation is at the rate of 12.5% annually. The amortisation is evenly distributed over the year. Besides, software installation, customisation and
handling cost of N800,000,000, training costs of N900,000,000, consultancy fee of N600,000,000 and other general overheads of N850,000,000 on the new software were included in administrative expenses. All depreciations are treated as administrative costs.

(v) On December 30, 2020, a chartered surveyor valued investment property at N14,000,000,000 and the company uses fair value model in IAS 40 – Investment Property.

(vi) Current income tax has been estimated for the year ended December 31, 2020 at N9,000,000,000 and deferred tax provision as at December 31, 2020 is to be adjusted in the income statement to reflect the tax base of the company’s net assets of N12,000,000,000 less than the carrying amounts. The current
company income tax rate is 30%.

vii) The plant held for sale is valued in the trial balance at its carrying amount. A broker is readily available to buy the plant for N6,000,000,000 at a fee of 6% of sales proceed. The sale would take place in January, 2021. Any necessary adjustment is to be treated as cost of sales.

You are required to prepare:
a. Statement of profit or loss and other comprehensive income for the year ended December 31, 2020. (13 Marks)
b. Statement of changes in equity for the year ended December 31, 2020. (4 Marks)
c. Statement of financial position as at December 31, 2020. (13 Marks)

Answer

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Level: Level 2

Topic: Preparation of Financial Statements
Series: MAY 2022

FA – May 2014 – L1 – SB – Q5 – Preparation of Financial Statements

Preparation of profit and loss statement and statement of financial position for Gowell Limited.

Question

The following balances were extracted from the books of Gowell Limited as at 31 December 2012 after the preparation of the Trading account:

Item	N’000
Share capital: Authorised, issued, and fully paid: 300 million ordinary shares of N1 each	300,000
Cash at bank and in hand	750
Inventories as at 31 December 2012	91,800
Trade receivables	28,657
Trade payables	22,513
Gross profit from trading account	193,413
Revenue reserve as at 1/1/2012	50,000
Salaries and wages	42,645
Prepayments	900
Bad debts	750
Accrued expenses	789
Directors’ current account	3,750
Finance cost	900
Rents and insurance	2,280
Sundry expenses	6,150
6% Loan notes	30,000
Electricity	1,965
Postages and telephones	1,200
Motor vehicle (cost N37.5 million)	22,500
Office fittings and equipment (cost N98.25 million)	63,525
Retained earnings as at 1 January 2012	33,450
Land and buildings	369,893

Additional Information:
(i) Office fittings and equipment to be depreciated at 15% per annum on cost and motor vehicles at 20% on cost.
(ii) Provisions are to be made for:

Directors’ fees N12,000,000
Audit fees N5,000,000
(iii) N822,000 in respect of electricity consumed up to 31 December 2012 has not been posted to the ledger.
(iv) The Directors have recommended that N30,000,000 be transferred to revenue reserves.

You are required to prepare:
a. The Statements of Profit and Loss of Gowell Limited for the year ended 31 December 2012.
b. The statement of financial position as at 31 December 2012.

Answer

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Level: Level 1

Topic: Preparation of Financial Statements
Series: MAY 2014

FR – May 2020 – L2 – Q1a – Consolidated statement of profit or loss and OCI

Prepare a consolidated statement of profit or loss and other comprehensive income for Naa Ltd and its subsidiary, Shormeh Ltd, for the year ended 30 September 2019.

Question

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Level: Level 2

FR – May 2020 – L2 – Q3a – Preparation of Statement of Profit or Loss

Prepare the statement of profit or loss for Badu Trading Ltd for the year ended 31 May 2020.

Question

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Level: Level 2

Topic: Preparation of Financial Statements
Series: MAY 2020

FR – May 2020 – L2 – Q3b – Statement of Financial Position

Prepare the statement of financial position for Badu Trading Ltd for the year ended 31 May 2020.

Question

Prepare the statement of financial position for Badu Trading Ltd for the year ended 31 May 2020.

Answer

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Level: Level 2

Topic: Preparation of Financial Statements
Series: MAY 2020

FR – May 2020 – L2 – Q3c – Statement of Changes in Equity

Prepare a statement of changes in equity for Badu Trading Ltd, including dividends, revaluation reserves, and retained profits adjustments for the year ending May 31, 2020.

Question

Prepare the following information in a form suitable for publication for Badu Trading Ltd’s financial statements for the year ended 31 May 2020.

c) Statement of changes in equity. (6 marks)

Answer

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Level: Level 2

Topic: Preparation of Financial Statements
Series: MAY 2020

FR – Nov 2020 – L2 – Q1a – Consolidated Statement of Profit or Loss

Prepare the consolidated statement of profit or loss and other comprehensive income for Kingdom Ltd Group for the year ending 31 December 2019.

Question

Statement of profit or loss and other comprehensive income for the year ended 31 December 2019 of Kingdom Ltd and Paradise Ltd.

Description	Kingdom Ltd (GH¢000)	Paradise Ltd (GH¢000)
Revenue	125,200	60,000
Cost of sales	(91,600)	(48,000)
Gross profit	33,600	12,000
Distribution costs	(4,000)	(2,400)
Administrative expenses	(7,000)	(3,600)
Finance costs	(400)	0
Profit before tax	22,200	6,000
Income tax expenses	(6,200)	(2,000)
Profit for the year	16,000	4,000
Other comprehensive income: Gain on revaluation of property	3,000	0
Total comprehensive income	19,000	4,000

Statement of financial position as at 31 December 2019

Description	Kingdom Ltd (GH¢000)	Paradise Ltd (GH¢000)
Assets
Non-current assets:
Property, plant, and equipment (PPE)	37,400	27,800
10% loan note	2,000	0
Total non-current assets	39,400	27,800
Current assets:
Inventory	8,600	2,400
Trade receivables	9,400	5,000
Bank	0	600
Total current assets	18,000	8,000
Total assets	57,400	35,800

Additional relevant information:
i) Kingdom Ltd acquired 60% of the share capital of Paradise Ltd on 1 April 2019. The purchase consideration was settled by a share exchange transaction of two shares in Kingdom Ltd for every three acquired shares in Paradise Ltd. The share price of Kingdom Ltd at the acquisition date was GH¢3 per share. In addition, Kingdom Ltd will also pay cash consideration of GH¢0.275 on 1 April 2020 for each acquired share in Paradise Ltd. Kingdom Ltd’s cost of capital is 10% per annum. None of the consideration has been recorded by Kingdom Ltd.

ii) The fair values of Paradise Ltd’s net assets and liabilities were equal to their carrying amounts at the date of acquisition with the exception of Paradise’s property, which had a fair value of GH¢8 million above its carrying amount. For the purpose of consolidation, this led to an increase in depreciation charges (in cost of sales) of GH¢200,000 in the post-acquisition period to 31 December 2019. Paradise Ltd has not incorporated the fair value of property increase into its entity’s financial statements.

iii) The policy of Kingdom Ltd group is to value all properties to fair value at each year end. On 31 December 2019, the increase in Kingdom Ltd’s property has already been recorded. However, a further increase of GH¢1.2 million in the value of Paradise Ltd’s property since its value at acquisition to 31 December 2019 has not yet been recorded.

iv) Kingdom Ltd made sales to Paradise Ltd throughout the year 2019 and it had consistently been GH¢600,000 per month. Kingdom Ltd made a mark-up of 25% on all of these sales. A total of GH¢1.2 million (at cost to Paradise) of Paradise Ltd’s inventory at 31 December 2019 had been supplied by Kingdom Ltd during the post-acquisition period.

v) At 31 December 2019, Kingdom Ltd had a trade receivable balance owing from Paradise Ltd of GH¢2.4 million. However, this did not agree to the equivalent trade payable of Paradise Ltd as a result of a payment by Paradise Ltd of GH¢800,000 made in December 2019, which did not reflect in Kingdom Ltd’s bank account until 4 January 2020. Kingdom Ltd’s policy for cash timing differences is to adjust the parent’s financial statements.

vi) Kingdom Ltd on December 2019, accepted a GH¢1 million 10% loan note from Paradise Ltd.

vii) At 31 December 2019, the goodwill that arose on acquisition was impaired by GH¢1 million. Kingdom Ltd has a policy of treating goodwill impairment as part of administrative expense.

viii) It is the policy of Kingdom Ltd group to value the non-controlling interest at fair value. For this purpose, Paradise Ltd’s share price was trading at GH¢2.50 each at the acquisition date.

ix) Assume that all items of income and expenditure accrue evenly throughout the year except where indicated otherwise.

Required:
a) Prepare the consolidated statement of profit or loss and other comprehensive income for Kingdom Ltd group for the year ended 31 December 2019. (10 marks)

Answer

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Level: Level 2

Topic: Preparation of Financial Statements
Series: NOV 2020

FR – May 2021 – L2 – Q2d – Lease Accounting

Show the accounting treatment for lease transactions.

Question

Odwira Ltd operates in the mining industry with a financial year end 31 December 2020. On 1 January 2020, Odwira Ltd began to lease a group of machines that were used in the production process. The lease was for five years, and the total annual rental (payable in arrears) was GH¢8 million. The lessor paid GH¢30 million for the machines on 31 December 2019. The lessor has advised Odwira Ltd that the interest rate implicit in the lease can be taken as 10%. The estimated useful economic life of the machines was five years.

Required:
In accordance with IFRS 16: Leases, show the accounting treatment of the above transaction.

Answer

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Level: Level 2

Topic: Preparation of Financial Statements
Series: MAY 2021

FR – Nov 2024 – L2 – Q3 – Financial Statements Preparation

Preparation of Fahnbulleh LTD’s Statement of Comprehensive Income and Statement of Financial Position using IFRS.

Question

The company’s trial balance as at 31 October 2023 is as follows:

Account Description	Dr (GH¢’000)	Cr (GH¢’000)
Revenue		1,296,000
Cost of Sales	546,480
Distribution Costs	127,080
Administrative Expenses	142,560
Investment Income		28,080
Investment Property	270,000
Interest Paid	17,280
Income Tax	10,800
Property, Plant & Equipment (PPE) – Carrying Value at 1 Nov 2022	1,620,000
Inventories (31 October 2023)	108,000
Trade Receivables	135,000
Bank	64,800
Payables		43,200
Deferred Tax (1 Nov 2022)		75,600
8% Loan Note		432,000
Ordinary Share Capital (GH¢1 per share)		540,000
Retained Earnings (1 Nov 2022)		605,520
Totals	3,031,200	3,031,200

Additional Information:

Revenue Adjustments:
- Revenue includes VAT of GH¢72 million.
Property, Plant & Equipment (PPE):
- A building with a carrying value of GH¢54 million was revalued on 1 November 2022 to GH¢72 million.
- The building had an estimated useful life of 25 years when purchased, and this has not changed after the revaluation.
- All other PPE should be depreciated at 20% per annum (reducing balance method).
- All depreciation should be charged to cost of sales.
Closure of the Merry Go Round Division (Discontinued Operations):
- Closure Date: 1 October 2023
- Division’s Results (1 Nov 2022 – 1 Oct 2023):
Item GH¢’000

Revenue 58,800

Cost of Sales 38,700

Distribution Costs 12,240

Administrative Expenses 11,880
- The division’s net assets were sold at a loss of GH¢19.2 million, recorded in cost of sales.
Investment Property Revaluation (IAS 40):
- Investment property value increased by 5%, which should be incorporated into the financial statements.
Income Tax and Deferred Tax (IAS 12):
- The estimated income tax provision for the year: GH¢140.4 million.
- Deferred tax liability should be adjusted for temporary differences (GH¢129.6 million) at a 25% tax rate.
Damaged Inventory (IAS 2):
- Inventory worth GH¢46 million was damaged.
- It can be reconditioned at a cost of GH¢12 million and sold for GH¢52 million.
- Appropriate adjustments should be made.

Item	GH¢’000
Revenue	58,800
Cost of Sales	38,700
Distribution Costs	12,240
Administrative Expenses	11,880

Required:

Prepare and present the Statement of Comprehensive Income for the year ended 31 October 2023 and the Statement of Financial Position as at 31 October 2023 for Fahnbulleh LTD.

Answer

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Level: Level 2

Topic: Preparation of Financial Statements
Series: Nov 2024

FR – May 2017 – L2 – SB – Q5 – Preparation of Financial Statements

Discuss distinguishing features of debt and equity presentation under IFRS and explain the impact of classification on financial statements.

Question

Required:

Discuss the main distinguishing features in the presentation of debt and equity under International Financial Reporting Standards (IFRS) with clear examples.
(10 Marks)
Explain why it is important for entities to understand the impact of the classification of a financial instrument as debt or equity in the financial statement.
(5 Marks)

Answer

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Tags: Classification, Consistency, Debt, Equity, Financial instruments, IFRS, Presentation
Level: Level 2

Topic: Preparation of Financial Statements
Series: MAY 2017

FR – May 2022 – L2 – SA – Q1 – Preparation of Financial Statements

Prepare a statement of profit or loss, comprehensive income, changes in equity, and financial position for Endtime PLC.

Question

Endtime PLC is a company based in Benin with the following trial balance for the year ended December 31, 2020:

(v) On December 30, 2020, a chartered surveyor valued investment property at N14,000,000,000 and the company uses fair value model in IAS 40 – Investment Property.

Answer

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Level: Level 2

Topic: Preparation of Financial Statements
Series: MAY 2022

FA – May 2014 – L1 – SB – Q5 – Preparation of Financial Statements

Preparation of profit and loss statement and statement of financial position for Gowell Limited.

Question

The following balances were extracted from the books of Gowell Limited as at 31 December 2012 after the preparation of the Trading account:

Item	N’000
Share capital: Authorised, issued, and fully paid: 300 million ordinary shares of N1 each	300,000
Cash at bank and in hand	750
Inventories as at 31 December 2012	91,800
Trade receivables	28,657
Trade payables	22,513
Gross profit from trading account	193,413
Revenue reserve as at 1/1/2012	50,000
Salaries and wages	42,645
Prepayments	900
Bad debts	750
Accrued expenses	789
Directors’ current account	3,750
Finance cost	900
Rents and insurance	2,280
Sundry expenses	6,150
6% Loan notes	30,000
Electricity	1,965
Postages and telephones	1,200
Motor vehicle (cost N37.5 million)	22,500
Office fittings and equipment (cost N98.25 million)	63,525
Retained earnings as at 1 January 2012	33,450
Land and buildings	369,893

Additional Information:
(i) Office fittings and equipment to be depreciated at 15% per annum on cost and motor vehicles at 20% on cost.
(ii) Provisions are to be made for:

Directors’ fees N12,000,000
Audit fees N5,000,000
(iii) N822,000 in respect of electricity consumed up to 31 December 2012 has not been posted to the ledger.
(iv) The Directors have recommended that N30,000,000 be transferred to revenue reserves.

You are required to prepare:
a. The Statements of Profit and Loss of Gowell Limited for the year ended 31 December 2012.
b. The statement of financial position as at 31 December 2012.

Answer

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Level: Level 1

Topic: Preparation of Financial Statements
Series: MAY 2014

FR – May 2020 – L2 – Q1a – Consolidated statement of profit or loss and OCI

Prepare a consolidated statement of profit or loss and other comprehensive income for Naa Ltd and its subsidiary, Shormeh Ltd, for the year ended 30 September 2019.

Question

Answer

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Level: Level 2

FR – May 2020 – L2 – Q3a – Preparation of Statement of Profit or Loss

Prepare the statement of profit or loss for Badu Trading Ltd for the year ended 31 May 2020.

Question

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Level: Level 2

Topic: Preparation of Financial Statements
Series: MAY 2020

FR – May 2020 – L2 – Q3b – Statement of Financial Position

Prepare the statement of financial position for Badu Trading Ltd for the year ended 31 May 2020.

Question

Prepare the statement of financial position for Badu Trading Ltd for the year ended 31 May 2020.

Answer

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Level: Level 2

Topic: Preparation of Financial Statements
Series: MAY 2020

FR – May 2020 – L2 – Q3c – Statement of Changes in Equity

Prepare a statement of changes in equity for Badu Trading Ltd, including dividends, revaluation reserves, and retained profits adjustments for the year ending May 31, 2020.

Question

Prepare the following information in a form suitable for publication for Badu Trading Ltd’s financial statements for the year ended 31 May 2020.

c) Statement of changes in equity. (6 marks)

Answer

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Level: Level 2

Topic: Preparation of Financial Statements
Series: MAY 2020

FR – Nov 2020 – L2 – Q1a – Consolidated Statement of Profit or Loss

Prepare the consolidated statement of profit or loss and other comprehensive income for Kingdom Ltd Group for the year ending 31 December 2019.

Question

Statement of profit or loss and other comprehensive income for the year ended 31 December 2019 of Kingdom Ltd and Paradise Ltd.

Description	Kingdom Ltd (GH¢000)	Paradise Ltd (GH¢000)
Revenue	125,200	60,000
Cost of sales	(91,600)	(48,000)
Gross profit	33,600	12,000
Distribution costs	(4,000)	(2,400)
Administrative expenses	(7,000)	(3,600)
Finance costs	(400)	0
Profit before tax	22,200	6,000
Income tax expenses	(6,200)	(2,000)
Profit for the year	16,000	4,000
Other comprehensive income: Gain on revaluation of property	3,000	0
Total comprehensive income	19,000	4,000

Statement of financial position as at 31 December 2019

Description	Kingdom Ltd (GH¢000)	Paradise Ltd (GH¢000)
Assets
Non-current assets:
Property, plant, and equipment (PPE)	37,400	27,800
10% loan note	2,000	0
Total non-current assets	39,400	27,800
Current assets:
Inventory	8,600	2,400
Trade receivables	9,400	5,000
Bank	0	600
Total current assets	18,000	8,000
Total assets	57,400	35,800

vi) Kingdom Ltd on December 2019, accepted a GH¢1 million 10% loan note from Paradise Ltd.

vii) At 31 December 2019, the goodwill that arose on acquisition was impaired by GH¢1 million. Kingdom Ltd has a policy of treating goodwill impairment as part of administrative expense.

viii) It is the policy of Kingdom Ltd group to value the non-controlling interest at fair value. For this purpose, Paradise Ltd’s share price was trading at GH¢2.50 each at the acquisition date.

ix) Assume that all items of income and expenditure accrue evenly throughout the year except where indicated otherwise.

Required:
a) Prepare the consolidated statement of profit or loss and other comprehensive income for Kingdom Ltd group for the year ended 31 December 2019. (10 marks)

Answer

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Level: Level 2

Topic: Preparation of Financial Statements
Series: NOV 2020

FR – May 2021 – L2 – Q2d – Lease Accounting

Show the accounting treatment for lease transactions.

Question

Required:
In accordance with IFRS 16: Leases, show the accounting treatment of the above transaction.

Answer

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Level: Level 2