- 30 Marks
FR – Nov 2023 – L2 – Q1 – Presentation of Financial Statements (IAS 1)
Prepare financial statements for Akamata Nigeria Limited, analyze revaluation adjustments, and assess ethical challenges posed by management.
Question
Akamata Nigeria Limited is a manufacturing company. Its finished products are stored in a nearby warehouse until ordered by the customers. Akamata Nigeria Limited has performed very well in the past, but has been in financial difficulties in recent months due to the removal of petroleum subsidies and floating of exchange rate by the Federal Government of Nigeria. The company has been reorganizing its business to improve performance.
The trial balance of Akamata Nigeria Limited as at March 31, 2023, was as follows:
| Description | Debit (N’000) | Credit (N’000) |
|---|---|---|
| Revenue | 624,500 | |
| Cost of goods manufactured (excluding depreciation) | 470,000 | |
| Distribution costs | 45,300 | |
| Administrative expenses | 80,100 | |
| Restructuring costs | 605 | |
| Interest received | 6,000 | |
| Loan notes interest paid | 3,195 | |
| Land and building (including land N100,000,000) | 251,500 | |
| Plant and equipment | 18,600 | |
| Accumulated depreciation at March 31, 2022: | ||
| – Buildings | 30,300 | |
| – Plant and equipment | 8,350 | |
| Investment properties (at market value) | 120,000 | |
| Inventories at March 31, 2022 | 24,260 | |
| Trade receivables | 46,650 | |
| Cash and bank | 5,950 | |
| Ordinary share capital of N1 each (fully paid) | 100,000 | |
| Share premium | 2,150 | |
| Revaluation surplus | 15,625 | |
| Retained earnings at March 31, 2022 | 140,385 | |
| Ordinary dividend paid | 5,000 | |
| 7% loan notes (2027) | 91,250 | |
| Trade payables | 40,600 | |
| Proceeds of shares issued | 12,000 |
Total Debit = 1,071,160
Total Credit = 1,071,160
Additional Information:
- Property, plant, and equipment depreciation policies:
- Building: 5% p.a. on straight-line basis (administrative cost).
- Plant and equipment: 25% p.a. on reducing balance basis (cost of sales).
- Land revaluation on March 31, 2023: N120,000,000.
- Estimated income tax for the year ended March 31, 2023: N4,880,000.
- Closing inventories as at March 31, 2023, amount to N25,900,000. Inspection shows that a production machine had incorrect setup resulting in mispackaged products costing N250,000 to produce. Additional repackaging cost of N100,000 would enable a sale at N275,000. The mispackaged goods are currently included in inventory at N250,000.
- Loan notes are due for repayment by March 31, 2027, with interest accrued for six months to March 31, 2023.
- Restructuring costs represent major efforts to improve competitiveness and profitability.
- Investment properties required no fair value adjustments during the period.
- Issued 10 million new ordinary shares at N1.20 each during the year, recorded under “proceeds of share issue.”
Required:
a. Prepare the statement of profit or loss and other comprehensive income, and the statement of changes in equity for the year ended March 31, 2023. (15 Marks)
b. Prepare the statement of financial position as at March 31, 2023. (10 Marks)
c. As the chief accountant of Akamata Nigeria Limited, you have been instructed by the new managing director (MD) to revise the last financial statement and prepare an attractive six-month forecast for listing on the Nigerian Exchange Limited (NGX), potentially bypassing relevant accounting standards and NGX regulations.
Required:
Identify the motivations of the managing director and outline actions you should consider under this ethical pressure. (5 Marks)
Find Related Questions by Tags, levels, etc.