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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Tags: Comprehensive Income, Financial Statements, Profit and Loss Statement, Statement of Financial Position
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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Tags: Depreciation, Financial Position, Profit and Loss Statement
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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Tags: Consolidation, Group Financial Statements, Other Comprehensive Income, Profit and Loss
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

Answer

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Tags: Final Accounts, Financial Reporting, Statement of Profit or Loss
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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Tags: Final Accounts, Financial Reporting, Statement of Financial Position
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 – May 2021 – L2 – Q3 – Statement of Profit or Loss

Prepare financial statements based on the provided trial balance.

Question

The following trial balance relates to Koli Ltd for the year ended 31 December, 2020.

Description	Debit (GH¢’000)	Credit (GH¢’000)
Sales	128,000
Purchases	75,000
Distribution expenses	8,000
Administrative expenses (Note ii)	22,000
License (Note iii)	5,000
Inventories at 31 December 2019	26,200
Finance costs on a long-term loan	3,000
Income tax (Note iv)		200
Deferred tax (Note iv)		6,000
Dividend paid on equity shares		2,000
Property, Plant and Equipment (PPE)	57,000
Provision for depreciation on PPE		10,790
Trade receivables	52,000
Bank balances	33,790
Trade payables		12,000
Provision for legal costs (Note ii)	10,000
Long-term loan		40,000
Stated capital		50,000
Retained earnings as at 31 December 2019		27,000
Total	283,990	283,990

Additional information:

i) The carrying value of inventories on 31 December 2020 was GH¢23 million.

ii) Administrative expenses include a provision of GH¢10 million for the possible costs of a legal claim lodged against Koli Ltd by one of its customers before 31 December 2020. The directors of Koli Ltd consider that it is probable that Koli Ltd can successfully defend the case, but they are providing for the worst possible outcome on the grounds of prudence. The provision of GH¢10 million is for the amount sought by the customer (GH¢9.6 million) plus the directors’ best estimate of the legal costs incurred in defending the case.

iii) On 1 January, 2020, Koli Ltd paid GH¢5 million for a ten-year export license.

iv) The estimated income tax on the profits for the year to 31 December 2020 is GH¢2.5 million. During the year, GH¢2.2 million was paid in full and in the final settlement of income tax on the profits for the year ended 31 December 2019. The statement of financial position on 31 December 2019 had included GH¢2.4 million in respect of this tax liability. A transfer of GH¢1.4 million is required to increase the deferred tax liability in the statement of financial position; GH¢900,000 of this amount was necessary due to the taxable temporary difference caused by the property revaluation (see note v below).

v) The details of property, plant and equipment are as follows:

Component of PPE	Cost (GH¢’000)	Accumulated Depreciation (GH¢’000)	Carrying Amount (GH¢’000)
Land	12,000	0	12,000
Buildings	18,000	3,240	14,760
Plant and Equipment	27,000	7,550	19,450
Total	57,000	10,790	46,210

Estimate of useful economic life (at the date of purchase) of PPE components:

Land: nil (infinite life)
Building: 50 years
Plant and Equipment: 4 years

Depreciation of property, plant and equipment is allocated as follows:

80% to cost of sales
10% to distribution expenses
10% to administrative expenses

On 1 January, 2020, the directors of Koli Ltd decided to revalue its property (Land and Building) to its market value of GH¢40 million, including GH¢19.5 million for the Land. The original estimate of the useful economic life of the property was still considered valid. The directors wish to make an annual transfer of excess depreciation from the revaluation reserve to realized profits following the revaluation.

Required:
Prepare for Koli Ltd,
a) The Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2020. (8 marks)
b) The Statement of Changes in Equity for the year ended 31 December 2020. (4 marks)
c) The Statement of Financial Position as at 31 December 2020. (8 marks)

(Total: 20 marks)

Answer

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Level: Level 2

Topic: Preparation of Financial Statements
Series: MAY 2021

FR – Nov 2017 – L2 – Q3 – Financial Statements Correction

Adjust the draft statement of financial position and profit figures for Okushe Ltd considering the necessary corrections and revaluations.

Question

Okushe Ltd is a listed textile manufacturing company that prepared the following draft statement of financial position as at 31 October 2017. On subsequent examination of the books and records, the Finance Director prepared a list of issues that may require amendments to the draft statement presented.

Okushe Ltd Statement of Financial Position as at 31 October 2017

GH¢000
Non-current assets
Property, Plant & Equipment	1,020,000
Intangible assets	100,000
Equity investments	360,000
Total non-current assets	1,480,000
Current assets
Inventory	65,000
Trade receivables	130,000
Cash & bank	30,000
Total current assets	225,000
Total assets	1,705,000
Equity
Equity share capital	580,000
Retained Earnings:
– Balance 1 November 2016	375,000
– Profit for year	95,000
– Dividend declared	(30,000)
Total Retained Earnings	440,000
Other components of equity:
– Balance 1 November 2016	128,000
– Other comprehensive income for the year	35,000
Total other components of equity	163,000
Total equity	1,183,000
Non-current liabilities
Finance lease obligations	175,000
5% debenture 2021	150,000
Total non-current liabilities	325,000
Current liabilities
Trade payables	95,000
Finance lease obligations	35,000
Provision for warranty claim	12,000
Corporation tax due	25,000
Final dividend due	30,000
Total current liabilities	197,000
Total equity & liabilities	1,705,000

The following notes are relevant:

Property, Plant and Equipment (PPE):
- The property carried at GH¢130 million was revalued to GH¢110 million on 31 October 2017. This revaluation has not been accounted for. The revaluation reserve (included in other components of equity) had a balance of GH¢12 million due to previous revaluations of this property.
- A sale agreement was entered during October 2017 to sell some plant with a carrying value of GH¢45 million for an agreed price of GH¢39 million. No cash has been received, as a 30-day credit period was agreed with the purchaser. No entry has been made for this transaction.
Equity Investments:
- The fair value of equity investments as at 31 October 2017 was GH¢380 million, which has not yet been incorporated into the financial statements. Okushe has decided to take all fair value gains and losses on equity investments to “other comprehensive income” as permitted by IFRS 9 – Financial Instruments.
5% Debenture:
- The 5% debenture was issued on 1 November 2016 for cash proceeds of GH¢150 million and was correctly recorded. The effective rate of interest to maturity was 6.5%. The only other entry made in respect of the debenture was the payment of GH¢7.5 million interest on 31 October 2017.
Warranty Provision:
- The company offers a 12-month warranty on all goods sold. A provision is maintained for the expected cost of honoring this warranty, which has not been updated as at 31 October 2017. 40,000 units of its product were sold during the year, all qualifying for warranty. It expects 10% will need minor repairs at an average cost of GH¢500 each, and 3% will need major repairs at a cost of GH¢10,000 each.

Required:

a) Prepare a schedule showing any corrections required to the profit and other comprehensive income for the year. (8 marks)

b) Redraft the Statement of Financial Position at 31 October 2017, considering the above adjustments. (12 marks)

Answer

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Tags: Debentures, Equity Investments, Plant & Equipment, Property, Statement of Financial Position, Warranty provision
Level: Level 2

Topic: Preparation of Financial Statements
Series: NOV 2017

FR – March 2023 – L2 – Q5c – Preparation of Financial Statements

Determining the initial cost, depreciation charge, and carrying amount of the head office construction under IFRSs.

Question

Lana Ltd is a public listed company in Ghana, located in the Northern Region. The company operates in the manufacturing sector and prepares its accounts to 31 December each year. During the year ended 31 December 2021, Lana Ltd built a head office. The costs associated with the construction of the head office are as follows:

GH¢ million
Fees for environmental certifications and building permits	0.5
Leasehold Land acquisition	10.0
Architect and engineer fees	1.0
Construction material and labor costs (including unused materials)	6.5

At 31 October 2021, when the head office extension became available for use, the cost of unused materials on site amounted to GH¢0.5 million. The total borrowing costs incurred on a loan specifically used to finance the head office extension amounted to GH¢0.8 million. The estimated useful life of the building was 40 years.

Required:
With reference to IFRSs, determine:
i) The initial cost to be capitalized.
ii) The depreciation charge for the year ended 31 December 2021.
iii) The carrying amount as of 31 December 2021.

Answer

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Level: Level 2

Topic: Preparation of Financial Statements
Series: MAR 2023

FR – March 2023 – L2 – Q3 – Preparation of Financial Statements

Prepare the statement of profit or loss and financial position using the given trial balance and adjustments.

Question

Kinbuka Ltd has been in operation for the past five years. As a Public Listed Entity, the company uses full IFRSs in preparing its financial statements. Management of the company is preparing financial statements for the year ended 31 December 2021, and has produced the following trial balance for the period.

GH¢	GH¢
Revenue	1,171,000
Inventories (31/12/2020)	80,000
Purchases	543,000
Administrative expenses	180,000
Marketing & distribution expenses	55,000
Non-current assets (cost)-31/12/2020: Note (ii)
Furniture & fittings	88,000
Motor vehicles	180,000
Office equipment	30,000
Intangible assets	50,000
Accumulated depreciation -31/12/2020: Note (ii)
Furniture & fittings	18,000
Motor vehicles	62,400
Office equipment	13,000
Intangible assets	6,000
Taxation account Note (iii)	28,000
Trade & other receivables	151,000
Trade payables	125,000
Deferred tax-31/12/2020 Note (iii)	21,000
13% GOG Bond Note (iv)	19,000
Interest income Note (iv)	2,600
Bank account Note (v)	283,000
Share Capital	200,000
Retained earnings	68,000

Additional Information:

1. Inventories at 31 December 2021 were valued at GH¢65,000.
2. On 1 November 2021, one of the company’s vehicles used in selling and distributing its finished goods was involved in an accident; the vehicle was badly damaged beyond repairs as a result of the accident. This vehicle was acquired by the company on 1 January 2019 for GH¢95,000. The company, however, has insured the vehicle and thus on 4 November 2021 wrote to the insurance company for the claim, to purchase a new vehicle. In response, the insurance company picked and assessed the damaged car, and on 8 January 2022 paid the company a claim of GH¢80,000. There were no other changes in non-current assets for the year ended 31 December 2021. Non-current assets are depreciated or amortised as follows:
  - Furniture & fittings: 20% of cost
  - Office equipment, motor vehicles, and intangible assets: 10% of cost
  - No depreciation is charged on non-current assets in the year of de-recognition. Depreciation or amortisation expense is charged to cost of sales.
3. The taxation account represents the aggregate amount paid by the company as self-assessment tax on its estimated profit for the four quarters of the 2021 year of assessment. Kinbuka Ltd in the year 2021, had officers of the Ghana Revenue Authority (GRA) auditing its tax records for the 2019 and 2020 years of assessment. All the prior years before the 2019 year of assessment have already been audited by GRA. The audit report of GRA received and agreed by Kinbuka Ltd in November 2021 revealed the following:
  - Year of assessment:
    - 2019: Current tax provided: GH¢45,000; Tax liability from the audit: GH¢43,000.
    - 2020: Current tax provided: GH¢57,800; Tax liability from the audit: GH¢67,600.
  The company paid in full the current tax provided for the years 2019 and 2020 in the first half of the years 2020 and 2021, respectively. However, the differences arising from the tax audit have not been provided for in the above balances and are yet to be settled by the company. Current tax expense and an increase in deferred tax liability for the year ended 31 December 2021 have been estimated at GH¢35,300 and GH¢3,750, respectively.
4. As part of cash flow management, the company at the beginning of the current year, purchased a 13%, GH¢20,000 5-year bond at a price of GH¢19,000, incurring a brokerage fee of 2% of the par value. The bond will be redeemed at a premium of 5% over its par value. The brokerage fee paid is included in the administrative expenses. The business model of Kinbuka Ltd in relation to this bond is to hold it till maturity while availing itself to sell when there is a good opportunity to do so. The effective interest rate of the bond is 15% and its fair value at 31 December 2021 is GH¢21,000.
5. The bank account represents the cash book balance as at 31 December 2021. The bank statement, however, reveals a balance of GH¢353,000 as at this date. There are only two reconciling differences between the two figures:
  - Cheques recorded at the credit side of the cash book but yet to be presented to the bank for payment amount to GH¢72,000.
  - Bank charges yet to be recorded in the cash book. All bank charges are classified as administrative expenses.

Required:
Prepare the Statement of Profit or Loss and Other Comprehensive Income of Kinbuka Ltd for the year ended 31 December 2021 and the Statement of Financial Position as at that date. Show clearly all relevant workings.

Answer

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Level: Level 2

Topic: Preparation of Financial Statements
Series: MAR 2023

FR – April 2022 – L2 – Q3 – Preparation of Financial Statements and Adjustments

Prepare the statement of comprehensive income and statement of financial position for Caput Plc for the year ended 31 December 2020, incorporating necessary adjustments.

Question

The trial balance of Caput Plc, as at 31 December, 2020 is provided below:

Additional Information:
1. An inventory count at 31 December 2020 amounted to GH¢15,750,000. This includes damaged goods with a cost of GH¢1,200,000. These will require remedial work costing GH¢675,000 and could be sold for GH¢1,425,000.
2. Finance cost is made up of the full year’s preference and ordinary dividends paid.
3. Non-Current Assets:

Land and Building were revalued at GH¢22,500,000 and GH¢72,000,000 respectively on 1 January 2020, resulting in revaluation gain of GH¢11,000,000 for the current year. At that date, the remaining life of the building was 15 years. Depreciation is on a s

traight-line basis. Ignore deferred tax implications.

Depreciation on Plant and Equipment is at 12.5% on a reducing balance basis.
Investment Property: On 31 December 2020, a qualified surveyor valued the property at GH¢20,250,000. Caput Plc uses the fair value model under IAS 40: Investment Property to value its investment property.
It is the policy of the company to charge depreciation on a full-year basis

4. The directors have estimated the provision for income tax for the year ended 31 December 2020 at GH¢12,000,000. The deferred tax for the year ended 31 December 2020 is to be adjusted so that the tax base of the company’s net assets is GH¢18,000,000 less than the carrying amount. Assume the rate of tax is 30%.
5. On 1 October 2020, Caput Plc imported a piece of equipment from a European supplier for €1 million and agreed to settle the bill in six months’ time. The relevant exchange rates are provided below:

No entries have been made for the above transaction. Any exchange difference on translation should be debited or credited to operating expenses.
Required:
Prepare for Caput Plc:
a) Statement of Comprehensive Income for the year ended 31 December 2020. (10 marks)
b) Statement of Financial Position as at 31 December 2020. (10 marks)

Answer

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Tags: Adjustments, Deferred Tax, Depreciation, Exchange Rates, Financial Statements, Inventory Valuation, Revaluation, Trial Balance
Level: Level 2

Topic: Preparation of Financial Statements
Series: APR 2022

FR – Nov 2023 – L2 – Q3 – . Preparation of Financial Statements

Prepare the statement of profit or loss and other comprehensive income and the statement of financial position for Sompa Plc.

Question

The following trial balance relates to Sompa Plc (Sompa) as at 30 June 2023:
Additional information:
i) Revenue includes a GH¢15 million sale made on 1 January 2023 of maturing goods, which are not biological assets. The cost of the goods at the date of sale was GH¢10 million.
Sompa is still in possession of the goods (but they have not been included in the inventory count). Sompa has the option to repurchase the goods at any time within three years of the sale at a price of GH¢15 million plus interest of 10% per annum. On 30 June 2023, the option had not been exercised but it is likely that it will be exercised before the date it lapses.
ii) Sompa commenced a research and development project on 1 January 2023. It spent GH¢5 million per month on research until 31 March 2023. The project then passed on into the development stage with an GH¢8 million per month spending from 1 April 2023 to 30 June 2023, when the development of the project was completed. However, on 1 May 2023, the directors of Sompa were confident that the new product would be a commercial success. Expensed research and development costs should be charged to cost of sales.
ii) Non current assets:
Sompa’s property is carried at fair value which at 30 June 2023 was GH¢145 million. The remaining life of the property at the beginning of the year (1 July 2022) was 15 years. Sompa does not make an annual transfer to retained earnings in respect of excess depreciation on revaluation. The company pays tax on profits at the rate of 25%. Plant and equipment is depreciated at 15% per annum using the reducing balance method. No depreciation has yet been charged on any non current asset for the year ended 30 June 2023. All depreciation is charged to cost of sales.
iv) The 5% loan note was issued on 1 July 2022 at its nominal value of GH¢100 million incurring direct issue costs of GH¢2.5 million which have been charged to administrative expenses. The loan note will be redeemed after three years at a premium which gives the loan note an effective finance cost of 8% per annum. Annual interest was paid on 30 June 2023.
v) At 30 June 2023, the financial asset equity investments had a fair value of GH¢48 million. There were no acquisitions or disposals of these investments during the year.
vi) A provision of GH¢6 million for current tax for the year ended 30 June 2023 is required.
Additionally, GH¢4 million increase in the deferred tax provision is to be charged to profit or loss.
vii) Sompa paid a dividend of GH¢0.20 per share on 30 March 2023, which was followed by an issue of 50 million equity shares at their full market value of GH¢1.70. At 1 July 2022, Sompa had in issue 100 million shares at full market value of GH¢1 each.
Required: Prepare for Sompa Plc:
a) The Statement of Profit or Loss and other Comprehensive Income for the year ended 30 June 2023.
b) The Statement of Financial Position as at 30 June 2023.
(10 marks)

Answer

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Tags: Financial Statements, IFRS, Profit or Loss, Statement of Financial Position, Trial Balance

Topic: Preparation of Financial Statements, Statement of Financial Position, Statement of Profit or Loss
Series: NOV 2023

FR – Nov 2019 – L2 – Q3 – Preparation of Financial Statements

Preparation of statement of profit or loss and statement of financial position for Biggs Ltd as at 31 December 2018.

Question

Biggs Ltd has a financial year ending 31 December. Its trial balance extracted as at 31 December 2018 is as follows:

Additional Information:
i) The carrying value of inventories at cost at 31 December 2018 was GH¢39.5 million.
The estimated useful life (at the date of purchase) of the PPE components is:

Land: infinite life
Buildings: 50 years
Plant and equipment: 5 years

On 30 June 2018, the directors decided to sell the property because more suitable leasehold property had become available at a very competitive cost. They advertised the property for sale at that date at what was considered to be a realistic asking price of GH¢68 million. They estimated that costs of GH¢3 million would be necessary in order to sell the property. On 1 December 2018, they reduced the asking price to GH¢64.5 million and sold the property at this price shortly after the year-end. Costs to sell totaled GH¢2.5 million.

Required:
Prepare for Biggs Ltd:
a) The Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2018. (10 marks)
b) The Statement of Financial Position as at 31 December 2018. (10 marks)

ii) On 1 January 2018, Biggs Ltd sold some of its plant and equipment to a finance company. Biggs Ltd credited the sales proceeds of GH¢25.6 million to revenue. The plant and equipment were purchased by Biggs Ltd on 1 January 2017 at a total cost of GH¢32 million and were being depreciated over five years. The cost and accumulated depreciation of the disposed asset are still included in the PPE cost and accumulated depreciation accounts.

iii) On 1 January 2018, Biggs Ltd issued 200 million preference shares at 32.50 pesewas each. Costs of issue were GH¢1 million so the net proceeds of the issue were GH¢64 million. The preference shareholders will receive an annual dividend on 31 December each year of GH¢3.9 million. The shares will be redeemed at par on 31 December 2022. The effective annual finance cost attached to these shares is approximately 6.4%. The first annual dividend was paid on 31 December 2018 and is included in dividends paid.

iv) The estimated income tax on the profits for the year to 31 December 2018 is GH¢4.5 million. During the year GH¢4.2 million was paid in full and final settlement of income tax on the profits for the year ended 31 December 2017. The statement of financial position at 31 December 2017 had included GH¢4.4 million in respect of this liability. At 31 December 2018, the carrying amounts of the net assets of Biggs Ltd exceeded their tax base by GH¢35.8 million. Assume an income tax rate of 25%.

v) The details of property, plant, and equipment are as follows:

Answer

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Tags: Depreciation, Financial Statements, Revenue, Statement of Financial Position, Statement of Profit or Loss, Trial Balance
Level: Level 2

Topic: Preparation of Financial Statements
Series: NOV 2019

FR – July 2023 – L2 – Q3 – Preparation of Financial Statements for Beposo Ltd

Preparation of financial statements (profit or loss, changes in equity, and financial position) for Beposo Ltd for the year ended 31 December 2021.

Question

Beposo Ltd is an agro-processing company, whose head office is in the Greater Accra region of Ghana. The trial balance of the company for the year ended 31 December 2021 is as follows:

Additional Information:

i) Included in the revenue figure is sales made on special arrangement, payable by customers in two years’ time at an amount of GH¢16.8 million. The cash price of the sales at the date of the sales (i.e. 1 January 2021) is estimated at GH¢15 million, and the effective interest rate of the arrangement has been computed as 5.83% per annum.

ii) Non-current assets consist of the following classes of assets:

The company revalues its buildings periodically to ensure that the carrying value reflects their fair market value. On 31 December 2020, the buildings were revalued at GH¢198 million, of which GH¢80 million was attributed to land. The revaluation surplus shown in the trial balance represents the increase in value recorded during this revaluation. All buildings were completed and ready for use on 1 January 2011. The company’s buildings serve as administrative offices and production centers, and they have an estimated useful life of 50 years.

In 2021, the company relocated from one of its administrative offices and sold the building on 1 April 2021 for GH¢27.6 million. The revalued amount and revaluation surplus for this building as of 31 December 2020 were GH¢25 million (with GH¢5 million for the land) and GH¢8 million, respectively. On 31 December 2021, the remaining land and buildings were revalued at GH¢169.35 million, with GH¢85 million attributed to the land. The company’s policy is to recognize revaluation surplus only upon derecognition of the non-current asset.

The sale of the building and the 2021 revaluation of the remaining buildings have not yet been recorded in the company’s books. The payment for the sale of the building was received in the first week of January 2022. There were no other changes to the value of property, plant, and equipment during the year ended 31 December 2021.

Depreciation for 2021 has not been accounted for in the trial balance. The company charges depreciation to cost of sales. Motor vehicles, machinery, and equipment are depreciated over five years.

In lieu of a cash dividend, the company issued bonus shares on 1 January 2021 at a ratio of one new share for every ten existing shares, priced at GH¢1 per share. The issuance was subject to an 8% withholding tax, which has already been paid by the company and is included in administrative expenses. The bonus shares, which are in respect of the year ended 31 December 2020, have not yet been recorded.

After 31 December 2021, the Board of Directors proposed a dividend of GH¢0.80 per share in respect of the year ended 31 December 2021. The dividend has not yet been approved by shareholders.

The provision for tax in the trial balance reflects the under or over provision of tax for the year ended 31 December 2020, based on the difference between the tax estimated for the year and the actual liability determined after a tax audit. The current tax liability for 2021 is estimated at GH¢16.7 million. Taxable temporary differences as at 31 December 2021, arising from discrepancies between the carrying amounts of assets and liabilities and their tax bases, amount to GH¢60 million. The applicable corporation tax rate is 25%.

Required:

Prepare the following financial statements for Beposo Ltd for the year ended 31 December 2021:
i) Statement of profit or loss and other comprehensive income
ii) Statement of changes in equity
iii) Statement of financial position as at that date.
(Total: 20 marks)

Answer

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Tags: Bonus Shares, Depreciation, Financial Statements, Revaluation, Statement of Changes in Equity, Statement of Financial Position, Statement of Profit or Loss, Taxation
Level: Level 2

Topic: Preparation of Financial Statements
Series: JULY 2023

FA – MAY 2015 – L1 – SA – Q20 – Financial Statements Preparation

Identify the asset that is classified as non-current in financial statements.

Question

Which of the following assets can be classified as non-current in the financial statements of an entity?
A. A tax refund due next year
B. A motor vehicle held for resale
C. A computer acquired for office use
D. Cleaning products used to clean the office
E. Closing inventories

Answer

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Tags: Financial Statements, Non-current Assets
Level: Level 1

Topic: Financial Statements Preparation, Preparation of Financial Statements
Series: MAY 2015

FR – May 2017 – L2 – Q3 – Preparation of Financial Statements

Prepare a statement of cash flows for Haruna Ltd for the year ended 31 March 2017.

Question

The following information has been taken from the financial statements of Haruna Ltd, a listed company for the year ended 31 March 2017:

Statement of Profit or Loss and Other Comprehensive Income (extracts) for the year ended 31 March 2017:

Additional information:

i) During the year, Haruna Ltd issued both ordinary shares and redeemable preference shares for cash.

ii) Investments classified as current assets are held for the short term and are readily convertible into the stated amounts of cash on demand.

iii) During the year, Haruna Ltd sold plant and equipment with a carrying amount of GH¢840,500 for GH¢900,000. Total depreciation charges for the year amounted to GH¢1,100,000. Plant costing GH¢50,000 was purchased on credit, and the amount is included within trade and other payables.

iv) Trade and other payables include accrued interest of GH¢5,000 as at 31 March 2017 (2016: GH¢10,000).

v) Intangibles relate to development costs capitalised in accordance with IAS 38 Intangible Assets. Costs amounting to GH¢70,000 were capitalised during the year.

Required:
Prepare a Statement of Cash Flows for Haruna Ltd for the year to 31 March 2017 in accordance with IAS 7 Statement of Cash Flows.

Answer

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Tags: Cash Flows, Financing Activities, IAS 7, Investing Activities, Operating Activities, Statement of Cash Flows
Level: Level 2