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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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 2021 – L2 – Q3 – Preparation of Financial Statements

This question focuses on the preparation of a Statement of Profit or Loss and Other Comprehensive Income and a Statement of Financial Position for Neeta Ltd, incorporating revaluations, deferred tax, and lease accounting.

Question

Neeta Ltd is a manufacturing company located in the Western Region. The trial balance of Neeta Ltd as at 31 March 2020 is as follows:

Trial Balance	GH¢’000	GH¢’000
Revenue (Note i)		164,000
Production costs	90,000
Distribution costs	8,000
Administrative expenses	26,000
Inventory at 31 March 2019	19,710
Interest paid on interest-bearing borrowings	3,000
Income tax (Note iii)	100
Dividends paid on equity shares	5,000
Property, Plant and Equipment (PPE) (Note iv)	77,000
Provision for depreciation on PPE at 31 March 2019		22,610
Trade receivables	53,000
Cash and cash equivalents	33,000
Trade payables		12,000
Long term interest-bearing borrowings		50,000
Lease rentals (Note v)	20,000
Deferred tax (Note iii)		7,000
Share capital		50,000
Retained earnings at 31 March 2019		29,000
Totals	334,710	334,710

Additional information:

i) On 1 April 2019, Neeta Ltd sold goods to a customer for a price of GH¢12.1 million. The terms of the sale allowed the customer extended credit, and the price was payable by the customer in cash on 31 March 2021. Neeta Ltd included the GH¢12.1 million in revenue for the current year and the corresponding entry in trade receivables. A discount rate that is appropriate for the risks in this transaction is 10%.

ii) The carrying value of inventory at 31 March 2020 was GH¢25 million.

iii) The estimated income tax on the profits for the year to 31 March 2020 is GH¢1.5 million. During the year, GH¢1.3 million was paid in full as the final settlement of income tax on the profits for the year ended 31 March 2019. The statement of financial position as at 31 March 2019 had included GH¢1.4 million in respect of this liability.

As at 31 March 2020, the carrying amounts of the net assets of Neeta Ltd exceeded their tax base by GH¢28 million. This information is before taking account of the Property revaluation (see Note iv below). The rate of income tax is 30%.

iv) Details of Property, Plant and Equipment are as follows:

Component of PPE	Cost (GH¢’000)	Accumulated depreciation at 31 March 2019 (GH¢’000)	Carrying Amount at 31 March 2019 (GH¢’000)
Land	22,000	0	22,000
Buildings	28,000	5,600	22,400
Plant and Equipment	27,000	17,010	9,990
Total	77,000	22,610	54,390

The estimated useful economic life (at the date of purchase) of PPE components are:

Land: Infinite life
Building: 50 years
Plant and Equipment: 4 years

On 1 April 2019, the property’s open market value was GH¢60 million, including GH¢32 million relating to the building. The directors wish to reflect this revaluation in the financial statements, but no entries regarding the revaluation have been made. The directors do not want to make an annual transfer of excess depreciation to retained earnings. The original estimate of the useful economic life of the building is still considered valid. No assets were fully depreciated at 31 March 2020. All the depreciation is to be charged to the cost of sales.

v) On 1 April 2019, Neeta Ltd leased a large group of machines used in the production process. The lease was for 4 years, and the annual rental (payable in advance) was GH¢20 million. The lessee has not elected to apply the recognition exemption under IFRS 16 leases. The interest rate implicit in the lease can be taken as 9% per year.

Required:

a) Prepare the Statement of Profit or Loss and Other Comprehensive Income for Neeta Ltd for the year ended 31 March 2020.
(10 marks)

b) Prepare the Statement of Financial Position for Neeta Ltd as at 31 March 2020.
(10 marks)

(Total: 20 marks)

Answer

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Level: Level 2

Topic: Preparation of Financial Statements
Series: NOV 2021

FR – May 2016 – L2 – Q5 – Preparation of Financial Statements

Prepare the statement of profit or loss, statement of financial position, and current accounts for Dum and Sor's partnership.

Question

Dum and Sor were in partnership as retail traders, sharing profits and losses: Dum three quarters (3/4) and Sor one quarter (1/4). The partners were credited annually with interest at the rate of 6% per annum on their fixed capitals, but no interest was charged on their drawings. Sor was responsible for the buying department of the business, while Dum managed the head office. Sor was employed as the branch manager, and both Dum and Sor were each entitled to a commission of 10% of the net profits (after charging such commission) of the shop managed by him. All goods were purchased by the head office, and goods sent to the branch were invoiced at cost.

The following was the trial balance as at 31st December 2014:

Additional Information:

Inventory on 31st December 2014 amounted to:
- Head office: GH¢14,440
- Branch: GH¢6,570
Administrative expenses are to be apportioned between head office and the branch in proportion to sales.
Depreciation is to be provided on furniture and fittings at 10% of cost.
The provision for bad and doubtful debts is to be increased by GH¢50 in respect of head office receivables and decreased by GH¢20 in the case of the branch.
On 31st December 2014, cash amounting to GH¢2,400 was in transit from the branch to head office and had been recorded in the branch books but not in those of the head office. Goods invoiced at GH¢800 were in transit from head office to the branch and had been recorded in the head office books but not in the branch books. Necessary adjustments are to be made in the head office books.

Required:
a) Prepare the statement of profit or loss and the appropriation account for the year ended 31st December 2014, showing the net profit of the head office and branch respectively.
b) Prepare the statement of financial position as at 31st December 2014.
c) Prepare the current accounts for head office and the branch.

Answer

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Level: Level 2

Topic: Preparation of Financial Statements
Series: MAY 2016

FR – Nov 2016 – L2 – Q5a – Preparation of Financial Statements

Prepare the Realisation accounts and Partners' capital accounts for Santasi, Patasi, Bremang, and Asafo on amalgamation.

Question

Santasi and Patasi are in partnership sharing profits and losses in the ratio 3:2. They decided to amalgamate their firm with that of another partnership, Bremang and Asafo, as at 30 June 2015. Bremang and Asafo share profits and losses in the ratio 2:1.

The following were their statements of financial position as at that date:

Additional Information:
The terms of the amalgamation, concluded on 30 June 2015, were as follows:

Profits and losses were to be shared in the ratio of Santasi: Patasi: Bremang: Asafo = 2:2:1:1 respectively.
The values of goodwill of the two firms were agreed to be valued at two years’ purchase of the average profits of the last four accounting years to the year of amalgamation. No goodwill account is to be maintained in the books.
- Profits for the last five years (GH¢’000):

Year	Santasi & Patasi	Bremang & Asafo
2015	1,050	910
2014	910	820
2013	1,020	670
2012	950	450
2011	800	320

The new firm was to take over all the assets and liabilities of Santasi and Patasi. The following assets were revalued:
- Buildings: GH¢14,400,000
- Plant & Equipment: GH¢10,400,000
- Inventory: GH¢8,500,000
- Trade Receivables: GH¢5,000,000
The new firm was to take over all the assets and liabilities of Bremang and Asafo at the following agreed values:
- Plant & Equipment: GH¢9,500,000
- Inventory: GH¢9,900,000
- Trade Receivables: GH¢4,900,000
The capital of the new firm was to be GH¢60,000,000, contributed according to their profit and loss sharing ratio. The balance due to or from the partners will be settled through the bank account of the new firm.

Required:

Prepare the Realisation account in the books of each of the old firms as at 30 June 2015.
Prepare the partners’ capital accounts in a columnar form, for the period to 1 July 2015.

Answer

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Level: Level 2

Topic: Preparation of Financial Statements
Series: NOV 2016

FR – May 2016 – L2 – Q1 – Preparation of Financial Statements

Prepare the statement of profit or loss and statement of financial position for Zealow Ltd as at 31st December 2015, incorporating relevant adjustments.

Question

The following trial balance relates to Zealow Ltd as at 31st December 2015:

GH¢000	GH¢000
Turnover	213,800
Cost of sales	143,800
Operating expenses	22,400
Trade receivables	13,500
Bank	900
Closing inventories – 31st December 2015 (note i)	10,500
Interest expenses (note iii)	5,000
Rental income from investment property	1,200
Plant and equipment-cost (note ii)	36,000
Land and building- at valuation (note ii)	63,000
Accumulated depreciation	16,800
Investment property-valuation 1st January 2015 (note ii)	16,000
Trade payables	11,800
Joint arrangement (note v)	8,000
Deferred tax (note iv)	5,200
Ordinary shares of 25p each	20,000
10% Redeemable preference shares of GH¢1 each	10,000
Retained earnings – 1st January 2015	17,500
Revaluation surplus (note ii)	21,000

Total: GH¢318,000 | GH¢318,000

The following additional information is relevant:

An inventory count on 31st December 2015 listed goods with a cost of GH¢10.5 million. This includes some damaged goods that had cost GH¢800,000. These would require remedial work costing GH¢450,000 before they could actually be sold for an estimated GH¢950,000.
Non-current assets:
- Plant: All plant, including that of the joint operation (note v), is depreciated at 12.5% on a reducing balance basis.
- Land and Building: The land and building were revalued at GH¢15 million and GH¢48 million respectively on 1st January 2015, creating a GH¢21 million revaluation surplus. At this date, the building had a remaining life of 15 years. Depreciation is on a straight-line basis. Zealow Ltd does not make a transfer to realized profits in respect of excess depreciation.
- Investment property: On 31st December 2015, a qualified surveyor valued the investment property at GH¢13.5 million. Zealow Ltd uses the fair value model in IAS 40 Investment property to value its investment property.
Interest expenses include overdraft charges, the full year’s preference dividend, and an ordinary dividend of 4p per share that was paid in June 2015.
The directors have estimated the provision for income tax for the year ended 31st December 2015 at GH¢8 million. The deferred tax provision at 31st December 2015 is to be adjusted (through the profit or loss statement) to reflect that the tax base of the company’s net assets is GH¢12 million less than their carrying amounts. The rate of tax is 30%.

On 1st January 2015, Zealow Ltd entered into a joint arrangement with two other entities. Each venturer contributes their own assets and is responsible for their own expenses, including depreciation on assets of the joint arrangement. Zealow Ltd is entitled to 40% of the joint venture’s total turnover. The joint arrangement is not a separate entity and is regarded as a joint operation.
Details of Zealow Ltd joint venture transactions are:

GH¢000
Plant and equipment at cost
Share of joint venture turnover (40% of total turnover)
Related joint venture cost of sales excluding depreciation
Trade receivables
Trade payables
Total

Required:

(a) Prepare the statement of profit or loss for Zealow Ltd for the year ended 31st December 2015. (10 marks)
(b) Prepare the statement of financial position for Zealow Ltd as at 31st December 2015. (10 marks)

Answer

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Tags: Deferred Tax, Depreciation, Financial Position, Investment Property, Joint Arrangements, Statement of Profit or Loss, Trial Balance
Level: Level 2

Topic: Preparation of Financial Statements
Series: MAY 2016

FR – May 2018 – L2 – Q5a – Preparation of Financial Statements

Prepare statements of profit or loss and financial position for Head Office, Branch, and the combined entity using trial balances provided.

Question

The following trial balances for the year ended 31 December 2017 were obtained from the Head Office and Branch of Compassionate Grounds Ltd.

Additional information: i) The branch deposited GH¢800,000 on behalf of the head office in the bank on 31 December 2017. No record of this transaction had been made in head office books. ii) All goods sold by the branch are supplied from the head office at cost plus 25%. At 31 December 2017, goods to the value of GH¢10 million were in transit to the branch. iii) Inventories at 31 December 2017, excluding goods in transit were as follows:

Branch at markup: GH¢8,000
Head Office at cost: GH¢14,500

Required:
Prepare for the head office, branch, and combined entity of Compassionate Grounds Limited:

Statement of profit or loss for the year ended 31 December 2017
Statement of financial position as at 31 December 2017

Answer

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Level: Level 2

Topic: Preparation of Financial Statements
Series: MAY 2018

FR – Nov 2016 – L2 – Q2e – Preparation of Financial Statements

Discuss how a plant classified as held for sale should be accounted for under IFRS 5.

Question

Sofoline Ltd has a plant which cost GH¢40,000 and was purchased on 1 January 2013 with a useful life of 10 years. The plant was being used as part of its business operating capacity. On 30 June 2015, Sofoline Ltd made a decision to classify the plant as held for sale and an agent was appointed for the sale of the plant, which started being advertised at a selling price of GH¢29,000, which was considered to be its fair value. The selling expenses are estimated to be GH¢1,500. The asset has not yet been sold by the year-end of 31 December 2015, and it has a fair value less cost to sell of GH¢24,000 on this date.

Required:
Discuss how this will be accounted for in the financial statements of Sofoline Ltd for the year ended 31 December 2015 in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.

Answer

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Tags: Fair Value, Financial Statements, Held for Sale, IFRS 5, Impairment, Non-current Assets
Level: Level 2

Topic: Preparation of Financial Statements
Series: NOV 2016

FR – May 2018 – L2 – Q3 – Preparation of Financial Statements

Prepare the statement of profit or loss and other comprehensive income for Binkabi Ltd for the year ended 30 September 2017.

Question

The following trial balance relates to Binkabi Ltd as at 30 September 2017:

Additional information:

i) Binkabi Ltd’s revenue includes GH¢16 million for goods sold to Kofi on 1 October 2016. The terms of the sale are that Binkabi Ltd will incur ongoing service and support costs of GH¢1.2 million per annum for three years after the sale. Binkabi Ltd normally makes a gross profit of 40% on such servicing and support work. Ignore the time value of money.

ii) Administrative expenses include an equity dividend of GH¢12 million paid during the year.

iii) The 5% convertible loan note was issued for proceeds of GH¢20 million on 1 October 2015. It has an effective interest rate of 8% due to the value of its conversion option.

iv) During the year, Binkabi Ltd sold an equity investment for GH¢11 million. At the date of sale, it had a carrying amount of GH¢8.8 million and had originally cost GH¢7 million. Binkabi Ltd has recorded the disposal of the investment. The remaining equity investments (the GH¢26.5 million in the trial balance) have a fair value of GH¢29 million at 30 September 2017. The other reserve in the trial balance represents the net increase in the value of the equity investments as at 1 October 2016. Binkabi Ltd made an irrevocable decision at initial recognition of these instruments to recognise all changes in fair value through other comprehensive income, and makes a transfer of realised profit from the other reserve to income surplus on disposal of the investments. Ignore deferred tax on these transactions.

v) The balance on current tax represents the under/over-provision of the tax liability for the year ended 30 September 2016. The directors have estimated the provision for income tax for the year ended 30 September 2017 at GH¢16.2 million. At 30 September 2017, the carrying amounts of Binkabi Ltd’s net assets were GH¢13 million in excess of their tax base. The income tax rate of Binkabi Ltd is 30%.

vi) Non-current assets

The freehold property has a land element of GH¢13 million. The building element is being depreciated on a straight-line basis.
Plant and equipment is depreciated at 40% per annum using the reducing balance method.
Binkabi Ltd’s brand in the trial balance relates to a product line that received bad publicity during the year, which led to falling sales revenues. An impairment review was conducted on 1 April 2017, which concluded that, based on estimated future sales, the brand had a value in use of GH¢12 million and a remaining life of only three years. However, on the same date as the impairment review, Binkabi Ltd received an offer to purchase the brand for GH¢15 million.
Prior to the impairment review, it was being amortised using the straight-line method over a 10-year life. No depreciation/amortisation has yet been charged on any non-current asset for the year ended 30 September 2017. Depreciation, amortisation, and impairment charges are all charged to cost of sales.

Required:
a) Prepare the statement of profit or loss and other comprehensive income for Binkabi Ltd for the year ended 30 September 2017. (8 marks)

b) Prepare the statement of financial position of Binkabi Ltd as at 30 September 2017. (12 marks)

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Tags: Financial Statements, Other Comprehensive Income, Profit or Loss
Level: Level 2

Topic: Preparation of Financial Statements
Series: MAY 2018

FR – Nov 2018 – L2 – Q5a – Preparation of Financial Statements

Preparation of partners' capital accounts and statement of financial position after changes in a partnership.

Question

Alex, Dennis, and Francis have been in partnership business for several years, sharing profits in the ratio 6:5:3, respectively. The statement of financial position of the partnership as at 31 March 2018 showed the following position:

Statement of Financial Position as at 31 March 2018	GH¢	GH¢
Capital Accounts:
Alex	50,000
Dennis	36,000
Francis	17,400
Sundry Payables		135,200
Total		238,600
Tangible Non-current Assets	44,800
Goodwill	25,900
Sundry Receivables	147,000
Bank Balance	20,900
Total	238,600

Additional Information:
On 31 March 2018, Alex retired from the partnership, and the remaining partners agreed to admit George as a partner under the following terms:

Goodwill in the old partnership was to be revalued to two years’ purchase of the average profits over the last three years. The profits for the last three years were GH¢24,800, GH¢27,200, and GH¢28,010. Goodwill was to be written off in the new partnership.
Alex was to take his car out of the partnership assets at an agreed value of GH¢2,000. The car had been included in the accounts as of 31 March 2018 at a written-down value of GH¢1,188.
The new partnership, comprising Dennis, Francis, and George, was to share profits in the ratio 5:3:2, respectively, with an initial capital of GH¢50,000 subscribed in the profit-sharing ratio.
Dennis, Francis, and George were each to pay Alex GH¢10,000 out of their personal resources in part repayment of his share of the partnership.
Alex was to lend George any amount required to make up his capital in the firm from the monies due to him, and any further balance due to Alex was to be left in the new partnership as a loan, bearing interest at 20% per annum. Any adjustments required to the capital accounts of Dennis and Francis were to be paid into or withdrawn from the partnership bank account.

Required:
i. Prepare the partners’ capital accounts, in columnar form, reflecting the adjustments required on the change in partnership.
(5 marks)

ii. Prepare the statement of financial position on completion.
(5 marks)

iii. For registration of partnership to be effected, there shall be sent to the Registrar a copy of the partnership agreement and a statement on a prescribed form signed by all the partners. Outline the main contents of the statement on the prescribed form.
(2 marks)

iv. In accordance with the Incorporated Private Partnership Act 1962 (Act 152), state THREE (3) grounds upon which the Registrar General’s Department may refuse to register a partnership business.
(3 marks)

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Tags: Capital Accounts, Financial Position, Goodwill, Partnership
Level: Level 2

Topic: Preparation of Financial Statements
Series: NOV 2018

FR – Aug 2022 – L2 – Q3 – Preparation of Financial Statements

Prepare the Statement of Profit or Loss and Financial Position for Morontuo Plc for the year ended 31 December 2021, along with all relevant workings.

Question

Morontuo Plc deals in electrical and other household appliances. It has a fleet of vehicles used in the distribution of these goods. The company is preparing its financial statements for the year ended 31 December 2021. Below is the trial balance for the period:

Additional Information:

i) The company repairs goods returned by customers for minor or major defects. It estimates that 25% of goods sold would have minor defects and 15% would have major defects. Estimated repairs cost for minor and major defects is GH¢8 million and GH¢2 million respectively. This effect has not been incorporated in the trial balance.

ii) Morontuo rents some of its vehicles and routinely sells them after some time. Vehicles X and Y (GH¢3.5 million and GH¢2 million respectively) used for rental services were acquired on 1 January 2021. Vehicle Y was sold on 1 December 2021 for GH¢1.88 million, which remains unpaid. The effects of the decision to sell the vehicles have not been incorporated.

iii) Suspense account represents interest and principal payments on a loan from Alpha Bank contracted on 1 July 2021. The loan is repayable in monthly instalments of GH¢1 million over 3 years, with 24% annual interest.

iv) Inventory includes slow-moving finished goods costing GH¢15 million. These were sold at 98% of their carrying amounts in January 2022.

v) Current tax for the year is estimated at GH¢15.8 million.

Required:

Prepare the Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2021 and the Statement of Financial Position as at that date in accordance with IFRS. Include all relevant workings.

Answer

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Tags: Depreciation, Financial Position, Inventory, Loan Repayment, Profit or Loss Statement, Tax
Level: Level 2

Topic: Preparation of Financial Statements
Series: AUG 2022

FR – Nov 2018 – L2 – Q3a – Preparation of Financial Statements

Preparation of the statement of cash flows using the indirect method based on the financial statements of Conso Bank Ghana Ltd.

Question

The following financial statements relate to Conso Bank Ghana Limited for the year ended 31 December 2017:

Statement of Comprehensive Income for the year ended 31 December 2017

Description	Note	GH¢’000
Interest income	(iii)	364,524
Interest expense	(iv)	(107,571)
Net interest income		256,953
Fees and commission income		132,374
Fees and commission expense		(24,183)
Net fees and commission income		108,191
Other income	(v)	9,727
Operating income		374,871
Impairment charge on loans and advances		(93,492)
Operating expenses	(vi)	(169,317)
Profit before tax		112,062
Income tax expense		(33,617)
Profit for the year		78,445

Statement of Financial Position as at 31 December 2017

Description	Note	2017 (GH¢’000)	2016 (GH¢’000)
Assets
Cash and cash equivalents		577,767	752,303
Government securities		2,037,292	1,857,337
Advances to banks		214,875	107,407
Loans and advances to customers		1,190,782	1,145,133
Property and equipment	(vii)	139,889	123,936
Intangible assets	(viii)	18,131	12,162
Income tax asset		6,626	5,778
Total assets		4,185,362	4,004,056
Liabilities
Deposits from customers		3,368,406	3,078,071
Other liabilities and provisions		171,718	359,192
Total liabilities		3,540,124	3,437,263
Equity
Stated capital		100,000	100,000
Retained earnings		545,238	466,793
Total equity		645,238	566,793
Total liabilities and equity		4,185,362	4,004,056

Required:
Using the indirect method, prepare a statement of cash flows for the year ended 31 December 2017, in accordance with IAS 7: Statement of Cash Flows.
(16 marks)

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Tags: Cash Flow, Financial Reporting, Financing Activities, IAS 7, Investing Activities, Operating Activities
Level: Level 2