Question Tag: Equity

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FM – Nov 2022 – L3 – Q5 – Business Valuation Techniques

Calculate the equity value of APL using SVA and outline three methods for funding the MBO.

Question

Aderupoko Plc (ADP), a large listed media group, has been the holding company of Adamu Publishers Limited (APL) since 2015. The publishing company (APL) is 100% owned by ADP since inception.

Recently, the directors of APL informed ADP’s board of their readiness to make a management buy-out (MBO) of APL. Accordingly, ADP’s board decided to value APL using the shareholder value analysis method (SVA). ADP’s board estimates that APL has a four-year competitive advantage over its competitors (to 30 September 2024) and the following data regarding APL’s value drivers and additional financial information has been collected:

Year to 30 September	2021	2022	2023	2024	2025+
Sales growth (%)	5%	4%	3%	2%	0%
Operating profit margin	8%	9%	10%	10%	10%
Incremental non-current asset investment (% of sales increase)	5%	6%	3%	2%	0%
Incremental working capital investment (% of sales increase)	6%	5%	4%	4%	0%

Financial Information:

Sales for the current year to 30 September 2020: ₦80 million
Annual depreciation (equal to annual replacement of non-current asset expenditure): ₦2.0 million
Par value of 6% debentures in issue (current market value ₦95.00, nominal value ₦100): ₦10.0 million
Short-term investments held: ₦0.8 million
Company tax rate: 20%
Current WACC: 10%

Required:

a. Calculate the value of APL’s equity using SVA.

(12 Marks)

b. Outline three methods by which APL’s directors might raise the funds necessary for the proposed MBO of the company. (3 Marks)

(Total 15 Marks)

Answer

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Tags: Competitive Advantage, Equity, Funding Methods, MBO, SVA, Valuation
Level: Level 3

Topic: Business Valuation Techniques
Series: NOV 2022

BL – Nov 2020 – L1 – SA – Q3 – Partnership Law

Objective questions testing knowledge on Nigerian government functions, customary law, and partnership structures.

Question

A partnership in which all members are involved in the management of the firm’s business is
A. General partnership
B. Government partnership
C. Limited partnership
D. Active partnership
E. Supreme partnership

Answer

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Tags: Equity, Natural Justice, Partnership Types
Level: Level 1

Topic: Partnership Law
Series: NOV 2020

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 2024 – L2 – SB – Q6 – Financial Instruments (IAS 32)

Discuss how to treat transactions of debt and equity instruments in Akwa Nig. Limited under IAS 32.

Question

Akwa Nig. Limited is a private limited company planning to be registered with the Nigeria Exchange Limited (NGX). The company is engaged in the conversion of petrol engines into compressed gas engines.

The following are the transactions of the company in respect of its debts and equity instruments.

Transaction 1:
Akwa Nig. Limited issued 40 million non-redeemable N1 preference shares at par value. Under the terms relating to the preference shares, a dividend is payable on the preference shares only if Akwa Nig. Limited also pays a dividend on its ordinary shares for the same period. (5 Marks)

Transaction 2:
Akwa Nig. Limited entered into a contract with a supplier to buy a significant item of equipment. Under the terms of the agreement, the supplier will receive ordinary shares with an equivalent value of N5 million one year after the equipment is delivered. (5 Marks)

Transaction 3:
The directors of Akwa Nig. Limited, on becoming directors, are required to invest a fixed agreed sum of money in a special class of N1 ordinary shares that only directors hold. Dividend payments on the shares are discretionary and are ratified at the Annual General Meeting (AGM) of the company. When a director’s service contract expires, Akwa Nig. Limited is required to repurchase the shares at their nominal value. (5 Marks)

A senior accountant in your company (Akwa Nig. Limited) has asked for your advice on how the above transactions should be treated in the financial statements of your company in accordance with IAS 32 – Financial Instruments: Presentation.

Required:
Write a memo on the above request, discussing and justifying how each of the transactions should be treated in the financial statements, in accordance with IAS 32 – Financial Instruments: Presentation.

Answer

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Tags: Debt, Equity, Financial instruments, Financial Statements, IAS 32, Preference shares
Level: Level 2

Topic: Financial Instruments (IAS 32, IFRS 9)
Series: MAY 2024

FR – Nov 2015 – L2 – Q5 – Consolidated Financial Statements (IFRS 10)

Prepare the consolidated statement of financial position and calculate goodwill and non-controlling interest for UDO Group Plc.

Question

The trial balance of UDO Plc and its subsidiary, ALOMA Plc, as at December 31, 2014, is given below:

UDO Plc acquired 75% of ALOMA Plc on January 1, 2014, for N1,300,000,000, when the retained earnings of ALOMA Plc were N600 million and the share premium was N170 million. Neither the acquisition nor the loan notes obtained to finance the purchase were recorded in the trial balance. There has been no impairment of goodwill, and no change in share capital since acquisition. It is the group policy to value the non-controlling interest at fair value, which was estimated to be N160 million.

Required:
Prepare the consolidated statement of financial position of UDO Group Plc as at December 31, 2014.

Answer

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Tags: consolidated financial statements, Equity, Goodwill, Group Accounts, IFRS 10, Non-Controlling Interest
Level: Level 2

Topic: Consolidated Financial Statements (IFRS 10)
Series: NOV 2015

BL – May 2012 – L1 – SA – Q1 – Sources of Nigerian Law

Identifying the problem equity sought to address in common law.

Question

Which problem of common law was equity developed to solve?

A. Age
B. Weight
C. Power
D. Harshness
E. Hegemony

Answer

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Tags: Business Law, Common Law, Equity, Nigerian Legal System
Level: Level 1

Topic: Sources of Nigerian Law
Series: MAY 2012

BL – Nov 2012 – L1 – SB – Q1A – Introduction to Law

List the seven key maxims of equity.

Question

State SEVEN maxims of equity.

Answer

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Tags: Equity, Legal Concepts, Maxims
Level: Level 1

Topic: Introduction to Law
Series: NOV 2012

TAX – May 2021 – L1 – SA – Q1 – Introduction to Taxation

Multiple-choice question assessing knowledge of the principles of taxation.

Question

Which of the following is NOT a principle of taxation?
A. Equity
B. Certainty
C. Convenience
D. Simplicity
E. Residency

Answer

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Tags: Certainty, Convenience, Equity, Residency, Simplicity, Tax Principles
Level: Level 1

Topic: Introduction to Taxation
Series: MAY 2021

BL – Nov 2012 – L1 – SA – Q1 – Sources of Nigerian Law

Identify which of the options is not a Nigerian statute.

Question

Which of the following is NOT a Nigerian statute?

A. Equity
B. Decree
C. Act of Parliament
D. Edict
E. Bye-law

Answer

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Tags: Acts of Parliament, Equity, Legal Systems, Nigerian Statutes
Level: Level 1

Topic: Sources of Nigerian Law
Series: NOV 2012

FA – Nov 2012 – L1 – SB – Q40 – Elements of Financial Statements

Calculate the dividend payable to ordinary shareholders.

Question

If a 10% dividend is approved, what is the dividend payable to ordinary shareholders?

Answer

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Tags: Dividends, Equity, Shareholders
Level: Level 1

Topic: Elements of Financial Statements
Series: NOV 2012

FA – Nov 2012 – L1 – SB – Q39 – Elements of Financial Statements

Calculate equity shareholder fund from given financial data.

Question

Calculate the company’s equity?

Answer

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Tags: Equity, Financial Statements, Shareholder Fund
Level: Level 1

Topic: Elements of Financial Statements
Series: NOV 2012

FA – Nov 2012 – L1 – SB – Q37 – Regulatory Environment of Accounting

Define the offer of company shares to a select group of individuals.

Question

The offer of shares of a company to a group of selected persons is called?

Answer

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Tags: Equity, Private placement, Shares
Level: Level 1

Topic: Regulatory Environment of Accounting
Series: NOV 2012

FA – Nov 2012 – L1 – SA – Q14 – Elements of Financial Statements

Identifying the definition of a company's net worth.

Question

Which of the following defines the net worth of a company?

A. Equity interest
B. Non-current assets less current assets
C. Non-current assets and current liabilities
D. Changes in the loan notes
E. Non-current assets and intangible assets

Answer

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Tags: Company, Equity, Net Worth
Level: Level 1

Topic: Elements of Financial Statements
Series: NOV 2012

FA – Nov 2012 – L1 – SA – Q12 – Financial Statements Preparation

Identifying what is not found in the statement of changes in equity.

Question

Which of the following is NOT found in the Statement of Changes in Equity of a company?

A. Dividend paid to equity shareholders
B. Proceeds from an issue of ordinary shares
C. Proposed dividend
D. Profit for the year
E. Share premium on fresh issue of shares

Answer

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Tags: Dividend, Equity, Shares
Level: Level 1

Topic: Financial Statements Preparation
Series: NOV 2012

CR – May 2020 – Q4a – Capital Reduction Account

This question requires the preparation of a Capital Reduction Account for Sasasila Ltd following a reorganization.

Question

Sasasila Ltd has been operating profitably for a number of years. However, in recent times, the company has been making losses. Below is the statement of financial position as at 30 June 2019:

Assets	GH¢000
Non-Current Assets
Patents and copyrights	75,000
Land and buildings (net)	200,000
Plant and machinery (net)	150,000
Current Assets
Inventories	125,000
Trade receivables	125,000
Bank	37,500
Investments (cost)	100,000
Total Assets	812,500

Equity and liabilities:
Equity
Ordinary share capital (issued at GH¢10 each)	375,000
20% cumulative preference shares (issued at GH¢10 each)	175,000
Retained earnings	(75,000)
Non-current Liabilities
15% Debentures	125,000
Current Liabilities
Interest on debentures	18,750
Trade payables	93,750
Provision for business restructuring	50,000
Provision for legal damages & claims	12,500
Provision for warranties	37,500
Total Equity and Liabilities	812,500

Additional relevant information: The following scheme of reconstruction was approved by all parties as well as the High Court with the exception of only one ordinary shareholder:

The ordinary shares were to be reduced to GH¢5 per share.
The preference shares were to be reduced to GH¢7.5 per share and arrears in dividends for three years were to be canceled from the company’s books.
The fair values of the assets were agreed at the following values:
- Patents and copyrights: Nil
- Land and buildings: GH¢225,000
- Plant and machinery: GH¢75,000
- Investments: GH¢75,000
- Inventories: GH¢105,000
- Trade receivables: GH¢70,000
The balance on retained earnings is to be eliminated in full.
The liability for legal damages and claims was to be settled for GH¢10 million, and the provision for warranties reduced to GH¢27.5 million.
The accrued debenture interest was to be paid in cash.
Investments with a carrying amount of GH¢52.5 million were to be sold for cash at that value to strengthen the working capital position.
The amount set aside for business restructuring was to be eliminated as well.
The High Court directed a payment of GH¢0.2 million to a member who opposed the scheme for 50 ordinary shares held by him.

Prepare the Capital Reduction Account as at 30 June 2019.

Answer

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Tags: Capital Reduction, Corporate reorganization, Equity, Liabilities
Level: Level 3

Topic: Corporate reconstruction and reorganisation
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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Tags: Adjustments, Equity, Financial Statements, Reporting
Level: Level 2

Topic: Preparation of Financial Statements
Series: MAY 2020

BL – Nov 2013 – L1 – SA – Q2 – Agency Law

Identifies what equity imputes an intention to fulfill.

Question

Equity imputes an intention to fulfill an _____________________.

Answer

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Tags: Equity, Intention, Legal Principles, Short Answer
Level: Level 1

Topic: Agency Law
Series: NOV 2013

FA – Nov 2015 – L1 – SA – Q15 – Financial Statements Preparation

This question identifies the method for determining equity when proper books of account are not maintained.

Question

Where there are no proper books of account, the equity at the commencement of a period is ascertained by preparing:
A. Statement of profit or loss
B. Statement of financial position
C. Statement of affairs
D. Bank reconciliation statement
E. Receivables and payables accounts

Answer

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Tags: Accounting principles, Equity, Financial Statements
Level: Level 1

Topic: Financial Statements Preparation
Series: NOV 2015

FA – Nov 2015 – L1 – SA – Q1 – Elements of Financial Statements

Defines the residual interest in the assets of an entity after deducting liabilities.

Question

In accordance with Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS), the residual interest in the assets of the entity after deducting all its liabilities is termed:
A. Liability
B. Provision
C. Equity
D. Assets
E. Reserves

Answer

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Tags: Assets, Equity, Liabilities
Level: Level 1

Topic: Elements of Financial Statements
Series: NOV 2015

SCS – July 2023 – L3 – Q5b – Sources of Finance

Explain two benefits of increasing long-term capital using retained profits.

Question

When companies retain profits in the business, the increase in the retained profits adds to equity reserves. This view was suggested by SavvyTech plc management team to the board. The Board is not convinced and seek further explanation.

Required:
Explain TWO (2) benefits to the board of directors on what it means to increase long-term capital using retained profits in SavvyTech plc.

Answer

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Tags: Equity, Financial strategy, Long-term Capital, Retained Profits
Level: Level 3

Topic: Sources of Finance
Series: JULY 2023

Question Tag: Equity

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FM – Nov 2022 – L3 – Q5 – Business Valuation Techniques

Calculate the equity value of APL using SVA and outline three methods for funding the MBO.

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BL – Nov 2020 – L1 – SA – Q3 – Partnership Law

Objective questions testing knowledge on Nigerian government functions, customary law, and partnership structures.

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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.

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FR – May 2024 – L2 – SB – Q6 – Financial Instruments (IAS 32)

Discuss how to treat transactions of debt and equity instruments in Akwa Nig. Limited under IAS 32.

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FR – Nov 2015 – L2 – Q5 – Consolidated Financial Statements (IFRS 10)

Prepare the consolidated statement of financial position and calculate goodwill and non-controlling interest for UDO Group Plc.

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BL – May 2012 – L1 – SA – Q1 – Sources of Nigerian Law

Identifying the problem equity sought to address in common law.

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BL – Nov 2012 – L1 – SB – Q1A – Introduction to Law

List the seven key maxims of equity.

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TAX – May 2021 – L1 – SA – Q1 – Introduction to Taxation

Multiple-choice question assessing knowledge of the principles of taxation.

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BL – Nov 2012 – L1 – SA – Q1 – Sources of Nigerian Law

Identify which of the options is not a Nigerian statute.

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FA – Nov 2012 – L1 – SB – Q40 – Elements of Financial Statements

Calculate the dividend payable to ordinary shareholders.

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FA – Nov 2012 – L1 – SB – Q39 – Elements of Financial Statements

Calculate equity shareholder fund from given financial data.

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FA – Nov 2012 – L1 – SB – Q37 – Regulatory Environment of Accounting

Define the offer of company shares to a select group of individuals.

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FA – Nov 2012 – L1 – SA – Q14 – Elements of Financial Statements

Identifying the definition of a company's net worth.

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FA – Nov 2012 – L1 – SA – Q12 – Financial Statements Preparation

Identifying what is not found in the statement of changes in equity.

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CR – May 2020 – Q4a – Capital Reduction Account

This question requires the preparation of a Capital Reduction Account for Sasasila Ltd following a reorganization.

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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.

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BL – Nov 2013 – L1 – SA – Q2 – Agency Law

Identifies what equity imputes an intention to fulfill.

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FA – Nov 2015 – L1 – SA – Q15 – Financial Statements Preparation

This question identifies the method for determining equity when proper books of account are not maintained.

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FA – Nov 2015 – L1 – SA – Q1 – Elements of Financial Statements

Defines the residual interest in the assets of an entity after deducting liabilities.

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SCS – July 2023 – L3 – Q5b – Sources of Finance

Explain two benefits of increasing long-term capital using retained profits.

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