Topic: Presentation of Financial Statements (IAS 1)

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  • 30 Marks

CR – May 2016 – L3 – Q1 – Presentation of Financial Statements (IAS 1)

Explain earnings management, calculate goodwill, and prepare a consolidated statement of cash flows for Joy-land Group.

Given that accrual accounting tends to mask actual cash flow performance, stock analyst and rating agencies are generally more interest in cash flow. The directors of Joy-land Plc have called for the cash flow statement of the group so as to have a view of earnings performance devoid of accruals. The following draft group financial statements relate to Joy-land Plc.
Joy-land Plc Group: Statement of financial position as of November 30

Joy-land Group: Statement of comprehensive income for the year ended November 30, 2015.

Joy-land Group: Statement of comprehensive income for the year ended November 30, 2015.

Joy-land Group: Statement of changes in equity for the year ended November 30, 2015

The following additional information relates to the financial statements of Joy-land
(i) On December 1 2013, Joy-land acquired 8% of the ordinary shares of Talk peace. Joy-land had treated this investment as available for sale in the financial statement to November 30, 2014. On December 1, 2014. Joyland acquired a further 52% of the ordinary shares of Talk-peace and gained control of the company, the consideration for the acquisitions was as follows:

At December 1, 2014 the fair value of the 8% holding in talk peace held by Joy-land at the time of the business combination was N20 million and the fair value of the noncontrolling interest in Talk-peace was N80million. no gain or loss on the 8% holding in Talk-peace had been reported in the financial statement at December 1, 2014, the
purchase consideration at December 1, 2014 comprised cash of N60 million and share of N60million.
The fair value of identifiable net assets of Talk-peace at the date of acquisition comprised the following:

(ii) Goodwill Impairment

  • Goodwill for all subsidiaries has undergone impairment testing for the financial year ending November 30, 2015.
  • Impairment losses identified were specific to subsidiaries 100% owned by Joy-land.

(iii) Purchase of Research Project (IAS 38)

  • On December 1, 2014, Joy-land purchased a research project from a third party for ₦32 million, which was recognized as an intangible asset under IAS 38.
  • Additional costs incurred during the year include:
    • ₦8 million to complete the research phase.
    • ₦16 million for product development (capitalizable).
    • ₦4 million for initial marketing costs (not capitalizable; already accounted for correctly).
  • No other additions to intangible assets were recorded, except those from the acquisition of Talk-peace.

(iv) Rights Issue by Talk-peace

  • On November 30, 2015, Talk-peace issued new shares on a 1 for 4 basis.
  • The issue was fully subscribed and raised ₦20 million in cash.

(v) Investment Property (IAS 40)

  • Joy-land uses the fair value model to measure its investment properties.
  • During the year:
    • Part of the air-conditioning system (carrying value: ₦2 million) was replaced with a new system costing ₦4 million.
    • The replacement aligns with the treatment under IAS 40.

(vi) Sale of Surplus Land

  • Joy-land sold surplus land with a carrying value of ₦40 million for:
    • ₦60 million in cash, and
    • Plant valued at ₦16 million (part of the consideration).
  • The resulting gain on disposal has already been included in the income statement.
  • Depreciation for property, plant, and equipment (PPE) for the year totaled ₦108 million.

(vii) Defined Benefit Scheme

  • Joy-land operates a defined benefit pension scheme for select top executives and expatriates (in addition to its contributory pension scheme).
  • Current-year figures for the defined benefit scheme:
    Description ₦’m
    Opening Balance (Dec 1, 2014) 88
    Current Year Charge to P&L 16
    Contributions Paid (28)
    Actuarial Loss to OCI 24
    Closing Balance (Nov 30, 2015) 100

(viii) The associate company did not pay any dividends in the year.
(ix) Deferred tax of N40illion arose on the gains on available for sale investments in the year

Required
(a) As the CFO of the group, briefly explain to the legal and engineer directors what is meant by earnings management giving TWO examples of how accruals could   be employed in the earning management. (3 marks)
N’m
Balance at the beginning, December 1, 2014 88
Charge to profit or loss for the year 16
Pension contributions paid during the year (28)
Actuarial loss to other comprehensive income 24
Balance at the end, November 30 2015 100
(b) Determine the goodwill arising on the acquisition of the subsidiary on December 1, 2014 and total goodwill impairments of the group as at November 30, 2015 statement of cash flow on the assumption that it is the policy of Joyland Plc to value Non-controlling interest at full fair value. (3 marks)
(c) Prepare a consolidated statement of cash flows for the Joy-land Group for the year ended November 30, 2015 using the indirect method under IAS 7 ‘statement of Cash flow.
Note; Ignore deferred taxation other than where is mention in the question.

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  • 15 Marks

CR – May 2019 – L3 – Q6 – Presentation of Financial Statements (IAS 1)

Discuss reclassification adjustments and integrated reporting objectives and challenges.

Dangogo Plc. has adopted IFRS in the preparation and presentation of its financial statements in line with Financial Reporting Council of Nigeria requirements. During deliberations on their financial statements for the year ended 31 March, 2019 the directors of Dangogo Plc. found the distinction between profit or loss and other comprehensive income confusing. This is the case with many other preparers or users of financial statements in Nigeria who seem to be unclear about the relationship between profit or loss and other comprehensive income (OCI). They blame the conceptual framework for Financial Reporting and IAS 1 regarding the confusing nature of re classification. The emergence of integrated reporting holds promises for better reporting, but preparers are equally uncertain about whether the International Integrated Reporting Councils (IIRC) or Integrated Reporting (IR) Framework constitutes suitable criteria for report preparation.

a. Discuss the nature of a re-classification adjustment and the arguments for and against allowing re-classification of items to profit or loss. (6 Marks)

bi. Discuss the objectives of integrated reporting and key components (content elements) of integrated reports. (6 Marks)

ii. Comment on any concerns which could limit the Framework’s suitability for assessing the performance and prospects of an entity. (3 Marks)

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  • 20 Marks

CR – Nov 2014 – L3 – SB – Q3 – Presentation of Financial Statements (IAS 1)

Analyze Prochain Plc’s financial performance and calculate key ratios for loan covenants.

Prochain Plc

The Directors of Prochain Plc have pursued an aggressive policy of expansion in the last two years. They have developed several new products and market share has increased.

The financial statements for the year ended 31 December 2013, which will be presented to the Board of Directors at its next meeting, are being finalised. The financial statements at the year-end are presented below:

Statement of profit or loss and other comprehensive income for the year ended 31 December

The results of the company as well as certain key ratios that will form part of the covenants in respect of the loan facilities will be discussed at the Board of Directors meeting.

Notes:

  1. The movement on the revaluation reserve relates to property, plant, and equipment revalued in the year.
  2. The movement on other reserves relates to the gains on the investments available for sale.
  3. The bonds are repayable on 1 July 2015.

Required:

(a) Based on the results of Prochain Plc for the year ended 31 December 2013, calculate the key ratios for the loan.
(8 Marks)

(b) Prepare a report commenting on the financial performance for the year in relation to the key ratios for the loan.
(12 Marks)

(Total 20 Marks)

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  • 14 Marks

CR – May 2021 – L3 – Q3a – Presentation of Financial Statements (IAS 1)

Analyze Somolu Limited's financial performance and recommend whether Agege Plc should invest; discuss reporting quality improvements.

The Chief Executive Officer (CEO) of Agege Plc. has forwarded the draft financial statements of Somolu Limited through an e-mail to you as the company’s financial consultants.

In the e-mail, the CEO informed you that Agege Plc. is planning to acquire Somolu Limited. Somolu Limited is a private limited company that has recently applied for additional funds which was rejected from its current bankers on the basis that the company has insufficient assets to offer as security.

The draft financial statements of Somolu Limited as at December 31, 2019, are as follows:

Somolu Limited
Statement of profit or loss and other comprehensive income for the year ended December 31, 2019

Somolu Limited
Statement of financial position as at December 31, 2019

Required:

a. Carry out a critical analysis of the financial performance and position of Somolu
Limited together with recommendations as to whether Agege Limited should
consider the investment in Somolu Limited. (14 Marks)

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  • 20 Marks

CR – Dec 2020 – L3 – Q2 – Presentation of Financial Statements (IAS 1)

Assess the performance of two companies using financial ratios and draft a report for investment decisions.

Heritage Limited and Legacy Limited are two competitors in the merchandising and retailing sector of the economy. At a time when the sector is faced with escalating fuel prices and economic recession, both companies have shown resilience and adaptability. The financial statements of the companies for the year ended December 31, 2020, are as follows:

Statements of Profit or Loss for the Year Ended December 31, 2020:

Item Heritage Limited (N’000) Legacy Limited (N’000)
Revenue 150,000 700,000
Cost of Sales (60,000) (210,000)
Gross Profit 90,000 490,000
Interest 500 12,000
Distribution Costs 13,000 72,000
Administrative Expenses 15,000 35,000
Total Expenses 28,500 119,000
Profit Before Tax 61,500 371,000
Income Tax Expense (16,605) (100,170)
Profit for the Year 44,895 270,830

Statements of Financial Position as at December 31, 2020:

Item Heritage Limited (N’000) Legacy Limited (N’000)
Assets:
Non-Current Assets:
Property – 500,000
Plant and Equipment 190,000 280,000
Total Non-Current Assets 190,000 780,000
Current Assets:
Inventories 12,000 26,250
Trade Receivables 37,500 105,000
Bank 500 22,000
Total Current Assets 50,000 153,250
Total Assets 240,000 933,250
Equity & Liabilities:
Equity:
Share Capital 156,000 174,750
Retained Earnings 51,395 390,830
Total Equity 207,395 565,580
Non-Current Liabilities:
Long-Term Debt 10,000 250,000
Current Liabilities:
Trade Payables 22,605 117,670
Total Liabilities 32,605 367,670
Total Equity & Liabilities 240,000 933,250

The Board of Directors of Patrimony Investments PLC is considering a proposal to buy into one of the companies to enhance the reported profit and stability of the company after the investment.

Required:

a. Assess the relative performance of the two companies for the year ended December 31, 2020, with three suitable ratios each for:

  • Profitability and efficiency
  • Liquidity and solvency
    (8 Marks)

b. Draft a report on the computed ratios for the consideration of the Board of Directors of Patrimony Investments PLC to appropriately guide the Board in deciding on the proposal to buy into any one of the companies.
(12 Marks)

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  • 7 Marks

CR – May 2023 – L3 – Q5b – Presentation of Financial Statements (IAS 1)

Discuss the importance of optimal disclosure and barriers to reducing excessive disclosures in annual reports.

There have been various arguments globally about the extent of disclosures in the annual reports of companies. Some argue that annual reports should include more extensive disclosures, while others believe that efforts should focus on reducing the quantity of information to avoid overwhelming users of financial statements.

The latter perspective suggests that excessive disclosure is burdensome and may obscure key information. Conversely, some argue that there is no such thing as providing too much useful information to users of financial statements.

Required:

Discuss why it is important to ensure that an optimal level of disclosure is made in annual reports. Also, identify and explain the barriers that may exist when trying to reduce excessive disclosure of information in an annual report. (7 Marks)

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  • 15 Marks

CR – May 2024 – L3 – SC – Q7 – Presentation of Financial Statements (IAS 1)

Discuss allocation impacts of purchase price for land and warehouse on earnings and identify ethical issues in CFO’s approach.

Signal PLC purchased land and warehouse for N90,000,000. The warehouse is expected to last for 20 years and to have a salvage value equal to 10% of its cost. The Chief Finance Officer (CFO) and the Chief Accountant (CA) discussed the allocation of the purchase price between the land and the warehouse. The CFO believes that the largest amount possible should be assigned to the land because that will improve reported net income in the future. Depreciation expense will be lower because land is not depreciated. He suggested allocation of one third of the cost to the land. The CA argues that the smallest amount possible, about one-fifth of the purchase price, should be allocated to the land, thereby saving income taxes, since the depreciation will be greater if lesser amount is allocated to land.

Required:

(a) Evaluate how the different allocations of one-third and one-fifth to land will affect reported earnings and determine how the purchase cost should be allocated. (8 Marks)

(b) Identify and discuss inherent ethical issues in the CFO’s submission in the above scenario. (7 Marks)

Total Marks: 15

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  • 14 Marks

CR – May 2018 – L3 – SB – Q4b – Presentation of Financial Statements (IAS 1)

Discuss accounting issues and treatments for factoring and sale-leaseback transactions, applying the substance over form principle.

Waasimi entered into the following transactions during the year ended March 31, 2018:

In March 2018, Waasimi factored some of its trade receivables to Asejere, a finance house. Based on selected account balances, Asejere paid Waasimi 80% of its book value. The agreement was that Asejere would administer the collection of the receivables and remit a residual amount to Waasimi depending upon how quickly individual customers paid. Any balance not collected by Asejere after six months will be refunded to Asejere by Waasimi.

On April 1, 2017, Waasimi’s freehold building had a carrying amount of N15 million and an estimated remaining useful life of 20 years. On this date, Waasimi sold the building to Gbajumose for a price of N24 million and entered into an agreement with Gbajumose to lease back the building for an annual rental of N2.6 million for a period of five years.

The auditors of Waasimi have commented that in their opinion the building had a market value of N20 million at the date of its sale and to rent an equivalent building under similar terms to the agreement between Waasimi and Gbajumose would cost N1,600,000 per annum. Assume finance cost of 10% per annum.

Required:

i. Briefly explain the major accounting issues involved in the above transactions using the principles of substance over form. (5 Marks)

ii. State the appropriate accounting treatments of the various elements identified. (6 Marks)

iii. State the classes of charges to be incurred and their appropriate accounting treatments. (3 Marks)

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  • 6 Marks

CR – May 2018 – L3 – SB – Q4a – Presentation of Financial Statements (IAS 1)

Explain how off-statement financing can mislead financial statement users, with examples for three user groups.

a. Recording the substance of transactions, rather than their legal form, is an important principle in financial reporting. The use of off-statement of financial position financing arrangement enables companies to obtain financing without showing debts in their books.

Required:

Describe how the use of off-statement of financial position financing can mislead users of financial statements, making specific reference to THREE user groups and giving examples where recording the legal form of transactions may mislead them. (6 Marks)

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  • 20 Marks

CR – Nov 2022 – L3 – Q2 – Presentation of Financial Statements (IAS 1)

Calculate key financial ratios and evaluate the company's performance for shareholder and lender insight.

A-Z is considering raising external finance through offering its shares for sale or obtaining a term loan from the bank. The company’s financial statements for the year ended November 30, 2021, have been subjected to financial analysis as follows:

Statement of Comprehensive Income for Year Ended November 30:

2021 (N’000) 2020 (N’000)
Profit before interest and tax 6,600 4,710
Interest expense (510) (450)
Profit before tax 6,090 4,260
Income tax expense (2,190) (1,560)
Profit after tax 3,900 2,700
Dividends paid (750) (750)
Retained profit 3,150 1,950

Statement of Financial Position as at November 30:

2021 (N’000) 2020 (N’000)
Non-current assets 19,050 16,800
Current assets:
Trade receivables 6,300 6,210
Inventories 5,130 4,620
Total current assets 11,430 10,830
Total assets 30,480 27,630
Equity and liabilities
Equity:
Share capital (ordinary shares of N1 fully paid up) 9,000 9,000
Retained earnings 11,100 7,950
Total Equity 20,100 16,950
Non-current liabilities:
10% Loan notes 2022/2023 4,500 4,500
Current liabilities:
Trade payables 3,120 3,390
Taxation 1,650 1,350
Bank overdraft 1,110 1,440
Total Equity and Liabilities 30,480 27,630

Required:
a. Compute the following ratios for the years 2020 and 2021:

  1. Return on equity
  2. Dividend cover
  3. Dividend pay-out ratio
  4. Interest cover
    (8 Marks)

b. Based on the ratios computed above, prepare a report on the performance and state of the company, assuming potential shareholders and lenders are the recipients of your report.
(12 Marks)
(Total 20 Marks)

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  • 16 Marks

FR – Nov 2019 – L2 – Q1b – Presentation of Financial Statements (IAS 1)

Prepare financial statements for Uchena Nigeria Plc, including profit or loss, changes in equity, and financial position.

The Chief Accountant of Uchena Nigeria plc has just forwarded the trial balance of the company to you for review before the preparation of draft financial statements for the year ended December 31, 2018.

The trial balance is as follows:

Description Debit (N’m) Credit (N’m)
Ordinary share capital 43,200
Revenue 125,280
Staff cost 18,720
Leasehold building 21,600
Patent rights 4,320
Work-in-progress (Jan 1, 2018) 9,000
Accum. Depreciation on building (Jan 1, 2018) 4,320
Inventories of finished goods (Jan 1, 2018) 11,160
Consultancy fee 3,168
Directors’ salaries 25,920
Computer at cost (Hardware) 3,600
Accum. Depreciation on computer (Jan 1, 2018) 1,440
Retained earnings (Jan 1, 2018) 8,712
Dividend paid 9,000
Cash and bank 31,680
Trade receivables 30,240
Trade payables 6,624
Sundry expenses 21,168
Totals 189,576 189,576

Additional information:

  1. On January 1, 2018, buildings were revalued to N25,920 million. This has not been reflected in the accounts.
  2. Computer (hardware) is depreciated over five years. Buildings are now to be depreciated over 30 years.
  3. The patent rights relate to a computer software with a 3-year life span.
  4. An allowance for bad debts of 5% is to be created.
  5. Closing inventories of finished goods are valued at N12,960 million. Work-in-progress has increased to N10,080 million.
  6. There is an estimated liability for current tax of N8,640 million, which has not been recognized.

Required:

  1. Prepare a draft statement of profit or loss (analyzing expenses by nature) for the year ended December 31, 2018. (6 Marks)
  2. Prepare a statement of changes in equity for the year ended December 31, 2018. (4 Marks)
  3. Prepare a statement of financial position as at December 31, 2018. (6 Marks)

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  • 20 Marks

FR – Nov 2020 – L2 – Q4 – Presentation of Financial Statements (IAS 1)

Prepare the Statement of Profit or Loss and Other Comprehensive Income for Gbenga Nigeria Plc based on provided trial balance.

Gbenga Nigeria Plc trial balance as at December 31, 2019 is shown below:

Item N’000 N’000
Revenue 2,290,125
Administrative expenses 237,150
Selling and distribution expenses 175,200
Legal and professional expenses 81,150
Allowance for receivables 8,625
Inventories – finished goods – 31/12/18 276,750
Work-in-progress – 31/12/18 49,125
Inventories – raw materials at cost – 31/12/18 162,600
Purchases – raw materials 1,125,900
Carriage inwards – raw materials 15,750
Manufacturing wages 375,000
Manufacturing overheads 187,500
Authorised and issued 900,000 ordinary shares of 50 kobo each fully paid 450,000
150,000 8.4% cumulative preference shares of N1 each fully paid 150,000
Revaluation surplus 65,000
Share premium 150,000
General reserve 85,000
Retained earnings – 31/12/18 425,250
Patents and trademarks 323,250
Motor vehicle at cost 112,500
Freehold property at cost 375,000
Leasehold property at cost 112,500
Plant and equipment at cost 225,000
Furniture and fittings at cost 75,000
Amortisation of leasehold property – 31/12/18 22,500
Accumulated depreciation @ 31/12/2018:
– Plant and equipment 102,750
– Furniture and fittings 23,625
– Motor vehicles 37,500
10% loan notes 150,000
Trade payables 146,250
Trade receivables 266,445
Bank overdraft 76,875
Cash 7,680
4,183,500 4,183,500

Additional information:
(i) A gain of N20,000 made on the revaluation of old freehold property during the year is yet to be accounted for.
(ii) Inventories at December 31, 2019 were:

  • Raw materials: N168,900
  • Finished goods: N413,025
  • Work-in-progress: N56,700

(iii) Legal and professional expenses include solicitor’s fees for purchase of new freehold land during the year of N7,500.
(iv) Provision is to be made for full year’s interest on the loan notes.
(v) The leasehold land and buildings are held on a 50-year lease, with 40 years unexpired life left as at the end of December 31, 2018.
(vi) Depreciation for the year is to be charged as follows:

  • Plant and equipment 8% on cost – charged to production
  • Furniture and fittings 10% on cost – charged to administration
  • Motor vehicles 20% on carrying amount – charged 25% to administration and 75% to selling and distribution.

(vii) Income tax on the profit for the year is estimated at N68,900 and is due for payment on February 28, 2020.

Required:
Prepare the statement of profit or loss and other comprehensive income for the year ended December 31, 2019.

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  • 20 Marks

FR – Nov 2021 – L2 – Q4 – Presentation of Financial Statements (IAS 1)

Calculate and analyze financial ratios for Onye Nigeria Plc for the years 2019 and 2020.

Below are the statements of financial position of Onye Nigeria Plc as at October 31, 2020, and an extract from the statement of profit or loss for the year ended on that date.

Onye Nigeria Plc
Statement of Financial Position as at October 31, 2020

Item 2020 (N’000) 2019 (N’000)
Non-current assets
Property, plant and equipment 8,325 6,435
Current assets
Inventories 2,880 2,205
Trade receivables 5,535 4,860
Cash and bank 360 540
Total Assets 17,100 14,040
Equity and Liabilities
Equity
Ordinary share capital 3,600 3,600
Retained earnings 5,603 3,938
Non-current liabilities
10% loan notes 3,600 2,700
Current liabilities
Trade payables 3,375 3,105
Bank overdraft 495 360
Taxation 135 90
Accrued expenses 292 247
Total Equity and Liabilities 17,100 14,040

Onye Nigeria Plc
Extracts from Statement of Profit or Loss for the Year Ended October 31

Item 2020 (N’000) 2019 (N’000)
Revenue 50,400 43,875
Cost of sales (38,070) (30,713)
Profit before taxation 2,093 1,440

Additional information:

  1. The profit before tax is after charging:
    Item 2020 (N’000) 2019 (N’000)
    Depreciation 1,620 1,620
    Interest on loan note 360 270
    Interest on bank overdraft 68 41
    Audit fees 54 45
  2. The latest industry average ratios are as follows:
    Ratio Industry Average
    ROCE 18.50%
    Net profit margin 4.73%
    Gross profit margin 35.23%
    Assets turnover 3.91 times
    Current ratio 1.90:1
    Quick ratio 1.27:1
    Trade receivables period 52 days
    Trade payables period 49 days
    Inventory turnover 18.30 times
    Gearing ratio 32.71%

Required:
a. Calculate the above ratios of Onye Nigeria Plc for the years 2019 and 2020. (10 Marks)
b. Analyze the performance and liquidity of Onye Nigeria Plc for the year 2020. (5 Marks)
c. Comment on the limitations of using accounting ratios in financial statement analysis. (5 Marks)

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  • 25 Marks

FR – Nov 2021 – L2 – Q1a – Presentation of Financial Statements (IAS 1)

Prepare the financial statements of United Nigeria PLC including comprehensive income, changes in equity, and financial position as of December 31, 2020.

The trial balance for United Nigeria Plc as at December 31, 2020 is given below:

Additional information:

  1. Inventories at the end of the year were N120,000,000. Included in the closing inventories was a damaged item with a cost of N30,000,000, which has a net realizable value of N18,000,000.
  2. Additional ordinary shares of 50,000,000 were issued and fully paid for at 80 kobo per share, which is yet to be recorded.
  3. Interest on 10% loan notes is outstanding and dividend on 12% preference shares were paid on December 31, 2020. Ordinary shareholders were also paid a dividend of 5 kobo per share.
  4. Allowances for trade receivables are to be increased to 15% per annum. Depreciation is charged on plant and equipment at 15% on reducing balance.
  5. N5,000,000 administrative expenses were outstanding, and N25,000,000 company income tax is estimated for the year. Depreciation is charged to administrative expenses.

You are required to prepare the following:

a. (i) Statement of Comprehensive Income for United Nigeria Plc for the year ended December 31, 2020. (10 Marks)
(ii) Statement of Changes in Equity for the year ended December 31, 2020. (5 Marks)
(iii) Statement of Financial Position as at December 31, 2020. (10 Marks)

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  • 16 Marks

FR – May 2019 – L2 – Q2a and Q2b – Presentation of Financial Statements (IAS 1)

Prepare the statement of cash flows for Babafrayo Nig. Ltd. using the indirect method and calculate the net cash flow from operating activities using the direct method.

Babafrayo Nig. Ltd. is a company located in Lagos and is engaged in the hotel and tourism business. The financial statements of the company are as follows:

Statement of Profit or Loss and Other Comprehensive Income for the Year Ended 31 December 2018:

Description ₦’000
Revenue 994,500
Cost of sales (884,000)
Gross profit 110,500
Admin expenses (21,250)
Distribution cost (44,200)
Finance costs (4,250)
Profit before taxation 40,800
Income tax expense (5,100)
Profit for the year 35,700
Other comprehensive income
Gains on property revaluation 17,000
Total comprehensive income 52,700

Statement of Financial Position as at 31 December 2018:

Description 2018 N’000 2017 N’000
Non-current assets:
Property, plant & equipment 242,250 174,250
Total non-current assets 242,250 174,250
Current assets:
Inventories 49,300 51,000
Trade receivables 35,700 25,500
Cash and cash equivalent 2,550 4,250
Total current assets 87,550 80,750
Total assets 329,800 255,000

Additional information:

(i) Property, plant, and equipment with a carrying value of ₦23,800,000 was sold during the year ended 31 December 2018 for ₦24,650,000. The asset had originally cost ₦38,250,000.
(ii) Depreciation on property, plant, and equipment for the year 2018 amounted to ₦34,000,000.
(iii) Dividend paid during the year 2018 amounted to ₦4,250,000 and is reported in the statement of changes in equity for the year.

(a) Prepare the statement of cash flows for the year ended 31 December 2018 in accordance with IAS 7 using the indirect method.
(12 Marks)

(b) Prepare net cash flows from operating activities only using the direct method.
(6 Marks)

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  • 4 Marks

FR – Nov 2018 – L2 – SC – Q6c – Presentation of Financial Statements (IAS 1)

Identify four internally generated intangible assets that are prohibited under IAS 38.

Identify four internally generated intangible assets that are prohibited from being recognized as assets under IAS 38.

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  • 16 Marks

FR – Nov 2018 – L2 – SB – Q4a and Q4b – Presentation of Financial Statements (IAS 1)

Calculate the financial ratios for Adebayo Trading Company Plc for the years 2018 and 2017 and comment on the profitability and short-term liquidity of Adebayo Trading Company Plc based on calculated ratios.

The following financial statements were extracted from the books of Adebayo Trading Company Plc for the relevant years:

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

Item 2018 (N’000) 2017 (N’000)
Revenue 250,000 400,000
Cost of sales (137,500) (225,000)
Gross profit 112,500 175,000
Administrative expenses (36,050) (44,500)
Distribution expenses (20,200) (24,250)
Finance cost (3,125) (3,125)
Profit before tax 53,125 103,125
Taxation expense (20,000) (40,000)
Profit for the year 33,125 63,125

Statement of Financial Position as at March 31:

Item 2018 (N’000) 2017 (N’000)
Non-current assets:
At cost 136,500 196,000
Accumulated depreciation (36,500) (52,250)
Net non-current assets 100,000 143,750
Current assets:
Inventory 79,250 20,750
Trade receivables 50,000 12,500
Bank balance 12,000 91,750
Total current assets 141,250 125,000
Equity and Liabilities:
Equity
Ordinary shares of 50 kobo each 57,500 57,500
Retained earnings 43,000 25,000
Total equity 100,500 82,500
Non-current liabilities:
10% Loan notes 31,250 31,250
12% Redeemable preference shares – 5,000
Total non-current liabilities 31,250 36,250
Current liabilities:
Trade payables 18,750 26,875
Taxation 60,000 40,000
Bank overdraft 30,750 83,125
Total current liabilities 109,500 150,000
Total equity and liabilities 241,250 268,750

Additional Information:
(i) Dividend paid to Equity holders: N15,125,000 (2018) and N21,375,000 (2017).
(ii) Drop in market price per share: 36 kobo (2017) to 24 kobo (2018).
(iii) Finance cost relates to interest paid on 10% loan notes.

Required:
(a) Calculate in columnar form, for the two relevant years the following financial ratios:

  • Return on capital employed (ROCE)
  • Net profit margin (use profit after tax)
  • Current ratio
  • Quick ratio
  • Debt ratio
  • Fixed interest cover
  • Dividend cover
  • Dividend yield
    (12 Marks)

(b) Comment on the profitability and short-term liquidity of the company based on the ratios calculated.
(4 Marks)

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  • 40 Marks

FR – Mar/Jul 2020 – L2 – Q1 – Financial Statement Analysis of Dangoyaro Plc

Preparation and analysis of financial statements, cash flow, and equity statements of Dangoyaro Plc for the year ended September 30, 2019, using IAS standards.

Dangoyaro Plc is a manufacturing company, and the summarized financial statements for the year ended September 30, 2019, and the comparative figures for 2018 are as follows:

Statement of Financial Position as at September 30

Equity and liabilities
Equity

The following information was obtained from the chairman’s statement in the annual report presented at the Annual General Meeting (AGM) held on December 22, 2019, and in the notes to the financial statements.

(i) Market condition during the year ended September 30, 2019, proved very challenging due largely to difficulties in the global economy as a result of the recession, which led to a decline in the share price and property values.

(ii) Dangoyaro Plc has not been immune from these effects and our properties have suffered impairment losses of ₦125 million in the year. The excess of these losses over previous surpluses has led to a charge to cost of sales of ₦37.5 million in addition to the normal depreciation charge.

(iii) There is no addition to or disposal of non-current assets during the year.

(iv) In response to the downturn, the company has made a number of employees redundant, incurring severance costs of ₦32.5 million (included in cost of sales), undertaken cost savings in advertising and other administrative expenses.

(v) The difficulty in the credit market has meant that the finance cost of our fixed interest bank loan has increased from ₦12.5 million to ₦15 million. In order to improve cash flows, the company made a rights issue during the year and reduced the dividend per share by 50%.

(vi) Despite the above events and the associated costs, the board of directors of Dangoyaro Plc believes the company’s performance has been quite resilient in these difficult times.

You are required to prepare:

a. An adjusted statement of profit or loss for the year ended September 30, 2019 (without taking into consideration information in the chairman’s statement and notes to the financial statements). (5 Marks)

b. Statement of changes in equity for the year ended September 30, 2019. (8 Marks)

c. Statement of cash flows for the year ended September 30, 2019, using the indirect method in accordance with provisions of IAS 7. (12 Marks)

d. Analyse and discuss the financial performance and position of Dangoyaro Plc as shown by the above financial statements as at September 30, 2019, using the following financial ratios:

i. Gross profit margin
ii. Net profit margin
iii. Return on capital employed (CE = ordinary shares plus reserves)
iv. Asset turnover
v. Current ratio
vi. Quick ratio
vii. Gearing ratio
viii. Receivables period
ix. Inventory period
x. Payables period

(15 Marks)
(Total 40 Marks)

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