Financial Adjustments – NBC Institute

FR – Nov 2023 – L2 – Q2 – Business Combinations (IFRS 3)

Analyze Oyowood Limited's financials and adjust ratios based on acquisition considerations.

Question

Chisom Plc experienced rapid growth in recent years through the acquisition and integration of other companies. Chisom Plc is interested in acquiring Oyowood Limited, a retailing company, which is one of several companies owned and managed by the same family.

The summarized financial statements of Oyowood Limited for the year ended December 31, 2022, are as follows:

From the above financial statements, Chisom Plc has calculated for Oyowood Limited the ratios below for the year ended December 31, 2022. It has also obtained the equivalent ratios for the retail sector average, which can be taken to represent Oyowood‟s sector.

Additional Information:

Oyowood Limited buys all inventories from family companies at a 10% discount below market prices.
Post-acquisition, Chisom Plc would replace the board of directors with a new board at a remuneration cost of ₦2.5 million per annum.
Directors’ loan accounts will be refinanced through a 10% interest-bearing commercial loan of the same amount.
The purchase price for Oyowood Limited is expected to be ₦30 million.

Required:

a. As the financial analyst for Chisom Plc, recalculate the ratios for Oyowood Limited after adjustments based on points (i) to (iv) above. (10 Marks)

b. Draft a memo to the managing director of Chisom Plc commenting on the adjusted performance of Oyowood Limited. (10 Marks)

Answer

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Tags: Acquisition Analysis, Financial Adjustments, Performance Evaluation, Ratio Analysis
Level: Level 2

Topic: Business Combinations (IFRS 3)

FA – Nov 2015 – L1 – SB – Q1 – Financial Statements Preparation

Prepare financial statements for a company, including income and balance sheet, with adjustments for accruals and depreciation.

Question

The following balances remained in the books of Lagbaja Plc at December 31, 2014 after determining the gross profit:

Item	N’000
Share capital, authorised and issued	200,000
Cash at bank and in hand	500
Inventory at December 31, 2014	61,200
Trade receivables	18,005
Trade payables	15,009
Gross profit at December 31, 2014	128,942
Retained earnings	25,000
Salaries & Wages	28,430
Prepayments	600
Bad debts	500
Accrued expenses	526
Director’s account (credit)	2,500
Finance cost on loan note	600
Sundry expenses	4,100
Rates & insurance	1,520
6% Loan notes	20,000
Lighting & cooling	1,310
Postage, telephone and telegrams	800
Motor vehicle (cost N25 million)	15,000
Office fittings and equipment	42,350
Profit at January 1, 2014	22,300
Land and buildings at cost	239,362

The following additional information is relevant:

Office fittings and equipment are to be depreciated at 15% of cost, and Motor vehicles at 20% of cost.
Provisions are to be made for:
- Directors’ Fees N6,000,000
- Audit Fees N2,500,000
The amount of insurance includes a premium of N600,000 paid in September 2014 to cover the company against fire for the period September 1, 2014, to August 31, 2015.
A bill for N548,000 in respect of electricity consumed up to December 31, 2014, has not been posted to the ledger.

Required: a. Prepare the Statement of profit or loss for the year ended December 31, 2014; (10 Marks)
b. Prepare the Statement of financial position as at December 31, 2014. (10 Marks)

Answer

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Tags: Accruals, Depreciation, Financial Adjustments, Statement of Financial Position, Statement of Profit or Loss
Level: Level 1

Topic: Financial Statements Preparation
Series: NOV 2015

FA – Nov 2015 – L1 – SA – Q8 – Financial Statements Preparation

This question calculates the revised net profit after correcting an accounting error.

Question

Compute the revised net profit, given a net profit before the adjustment as N550,000.
A. N300,000
B. N400,000
C. N525,000
D. N700,000
E. N800,000

Answer

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Tags: Financial Adjustments, Income Statement, Net Profit
Level: Level 1

Topic: Financial Statements Preparation
Series: NOV 2015

FA – Nov 2022 – L1 – SB – Q1 – Bank Reconciliation

This question requires preparing an adjusted cash book, a bank reconciliation statement, and an explanation of why the reconciliation is necessary.

Question

On April 6, 2020, Alhaji Mogaji received his bank statements for the month ended March 31, 2020. The bank statement showed a balance of N41,740,000 (overdraft) as at March 31, while the cash book showed a balance of N52,599,000 (Credit) as at that date. On examination of the cash book and the bank statements, the following were discovered:

(i) Bank charges of N201,000 had not been recorded in the cash book;
(ii) Alhaji Mogaji exceeded his overdraft limit during the month of March. The bank had therefore charged him a default penalty of N250,000. This was not reflected in the cashbook;
(iii) A sum of N1,250,000 had been credited to Alhaji Mogaji’s bank account in error;
(iv) A cheque for N1,230,000 had been returned by the bank as dishonoured, and the bank charged Alhaji Mogaji N15,000. This was not reflected in the cash book;
(v) Cash receipts of N3,740,000 were posted as cash payments of N4,730,000 in the cash book;
(vi) On March 21, Alhaji Mogaji transferred cash of N650,000 to his personal bank account. This was credited to the business bank account in error by the bank;
(vii) Standing orders and direct debits of N1,115,000 had not been posted to the cash book;
(viii) Customers had transferred N2,170,000 directly to the bank account, and credit alert was received, but no record had been made in the cash book;
(ix) An amount of N5,120,000 lodged into the bank account on March 31, 2020, had not been credited by the bank;
(x) The following cheques, drawn on the bank account, had not been presented to the bank for payment as at March 31, 2020:
- Cheque No. 4528 dated March 11, 2020, N840,000
- Cheque No. 4535 dated March 28, 2020, N1,740,000
- Cheque No. 4537 dated March 31, 2020, N3,670,000.

You are required to:
a. Prepare the adjusted cash book for the month of March, 2020. (9 Marks)
b. Prepare a statement on March 31, 2020, reconciling the bank statement balance with the adjusted cash book balance. (7 Marks)
c. Explain two reasons for preparing a bank reconciliation statement on a regular basis. (4 Marks)

Answer

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Tags: Cash Book, Financial Adjustments, Financial Reporting, Overdraft, Reconciliation
Level: Level 1

Topic: Bank reconciliations
Series: NOV 2022

FA – Nov 2019 – L1 – Q4 – Non-current assets and depreciation | Preparation of limited liability company financial statements

Prepare the statement of profit or loss and financial position for Tudu Ltd with adjustments for depreciation, allowances, and accruals.

Question

The following balances were extracted from the books of Tudu Ltd on 31 December 2018.

Additional information:

Inventories at 31 December 2018 was valued at GH¢18,226.
Directors’ bonuses for the year ended 31 December 2018 calculated at GH¢1,160 have not been accounted for.
Distribution costs include a payment of GH¢3,750 for rent for the three months to 28 February 2019.
The company’s depreciation policies are as follows:
- Fixtures and Fittings – Straight line over 5 years.
- Motor vehicles – Reducing balance method at 20% per annum.
- All non-current asset residual values are estimated at zero.
The company reviewed the trade receivables at 31 December 2018, and the following adjustments are required:
- Irrecoverable debts of GH¢450 in addition to those already written off.
- Specific allowance for receivables of GH¢650.
- General allowance of 3% against the remaining receivables.

Required:

a) Prepare the Statement of Profit or Loss for Tudu Ltd for the year ended 31 December 2018. (10 marks)

b) Prepare the Statement of Financial Position for Tudu Ltd as at 31 December 2018. (10 marks)

Answer

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Tags: Depreciation, Financial Adjustments, Statement of Financial Position
Level: Level 1

Topic: Non-current assets and depreciation, Preparation of limited liability company financial statements
Series: NOV 2019

FR – Nov 2023 – L2 – Q2 – Business Combinations (IFRS 3)

Analyze Oyowood Limited's financials and adjust ratios based on acquisition considerations.

Question

The summarized financial statements of Oyowood Limited for the year ended December 31, 2022, are as follows:

Additional Information:

Oyowood Limited buys all inventories from family companies at a 10% discount below market prices.
Post-acquisition, Chisom Plc would replace the board of directors with a new board at a remuneration cost of ₦2.5 million per annum.
Directors’ loan accounts will be refinanced through a 10% interest-bearing commercial loan of the same amount.
The purchase price for Oyowood Limited is expected to be ₦30 million.

Required:

a. As the financial analyst for Chisom Plc, recalculate the ratios for Oyowood Limited after adjustments based on points (i) to (iv) above. (10 Marks)

b. Draft a memo to the managing director of Chisom Plc commenting on the adjusted performance of Oyowood Limited. (10 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Acquisition Analysis, Financial Adjustments, Performance Evaluation, Ratio Analysis
Level: Level 2

Topic: Business Combinations (IFRS 3)

FA – Nov 2015 – L1 – SB – Q1 – Financial Statements Preparation

Prepare financial statements for a company, including income and balance sheet, with adjustments for accruals and depreciation.

Question

The following balances remained in the books of Lagbaja Plc at December 31, 2014 after determining the gross profit:

Item	N’000
Share capital, authorised and issued	200,000
Cash at bank and in hand	500
Inventory at December 31, 2014	61,200
Trade receivables	18,005
Trade payables	15,009
Gross profit at December 31, 2014	128,942
Retained earnings	25,000
Salaries & Wages	28,430
Prepayments	600
Bad debts	500
Accrued expenses	526
Director’s account (credit)	2,500
Finance cost on loan note	600
Sundry expenses	4,100
Rates & insurance	1,520
6% Loan notes	20,000
Lighting & cooling	1,310
Postage, telephone and telegrams	800
Motor vehicle (cost N25 million)	15,000
Office fittings and equipment	42,350
Profit at January 1, 2014	22,300
Land and buildings at cost	239,362

The following additional information is relevant:

Office fittings and equipment are to be depreciated at 15% of cost, and Motor vehicles at 20% of cost.
Provisions are to be made for:
- Directors’ Fees N6,000,000
- Audit Fees N2,500,000
The amount of insurance includes a premium of N600,000 paid in September 2014 to cover the company against fire for the period September 1, 2014, to August 31, 2015.
A bill for N548,000 in respect of electricity consumed up to December 31, 2014, has not been posted to the ledger.

Required: a. Prepare the Statement of profit or loss for the year ended December 31, 2014; (10 Marks)
b. Prepare the Statement of financial position as at December 31, 2014. (10 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Accruals, Depreciation, Financial Adjustments, Statement of Financial Position, Statement of Profit or Loss
Level: Level 1

Topic: Financial Statements Preparation
Series: NOV 2015

FA – Nov 2015 – L1 – SA – Q8 – Financial Statements Preparation

This question calculates the revised net profit after correcting an accounting error.

Question

Compute the revised net profit, given a net profit before the adjustment as N550,000.
A. N300,000
B. N400,000
C. N525,000
D. N700,000
E. N800,000

Answer

Find Related Questions by Tags, levels, etc.

Tags: Financial Adjustments, Income Statement, Net Profit
Level: Level 1

Topic: Financial Statements Preparation
Series: NOV 2015

FA – Nov 2022 – L1 – SB – Q1 – Bank Reconciliation

This question requires preparing an adjusted cash book, a bank reconciliation statement, and an explanation of why the reconciliation is necessary.

Question

(i) Bank charges of N201,000 had not been recorded in the cash book;
(ii) Alhaji Mogaji exceeded his overdraft limit during the month of March. The bank had therefore charged him a default penalty of N250,000. This was not reflected in the cashbook;
(iii) A sum of N1,250,000 had been credited to Alhaji Mogaji’s bank account in error;
(iv) A cheque for N1,230,000 had been returned by the bank as dishonoured, and the bank charged Alhaji Mogaji N15,000. This was not reflected in the cash book;
(v) Cash receipts of N3,740,000 were posted as cash payments of N4,730,000 in the cash book;
(vi) On March 21, Alhaji Mogaji transferred cash of N650,000 to his personal bank account. This was credited to the business bank account in error by the bank;
(vii) Standing orders and direct debits of N1,115,000 had not been posted to the cash book;
(viii) Customers had transferred N2,170,000 directly to the bank account, and credit alert was received, but no record had been made in the cash book;
(ix) An amount of N5,120,000 lodged into the bank account on March 31, 2020, had not been credited by the bank;
(x) The following cheques, drawn on the bank account, had not been presented to the bank for payment as at March 31, 2020:
- Cheque No. 4528 dated March 11, 2020, N840,000
- Cheque No. 4535 dated March 28, 2020, N1,740,000
- Cheque No. 4537 dated March 31, 2020, N3,670,000.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cash Book, Financial Adjustments, Financial Reporting, Overdraft, Reconciliation
Level: Level 1

Topic: Bank reconciliations
Series: NOV 2022

FA – Nov 2019 – L1 – Q4 – Non-current assets and depreciation | Preparation of limited liability company financial statements

Prepare the statement of profit or loss and financial position for Tudu Ltd with adjustments for depreciation, allowances, and accruals.

Question

The following balances were extracted from the books of Tudu Ltd on 31 December 2018.

Additional information:

Inventories at 31 December 2018 was valued at GH¢18,226.
Directors’ bonuses for the year ended 31 December 2018 calculated at GH¢1,160 have not been accounted for.
Distribution costs include a payment of GH¢3,750 for rent for the three months to 28 February 2019.
The company’s depreciation policies are as follows:
- Fixtures and Fittings – Straight line over 5 years.
- Motor vehicles – Reducing balance method at 20% per annum.
- All non-current asset residual values are estimated at zero.
The company reviewed the trade receivables at 31 December 2018, and the following adjustments are required:
- Irrecoverable debts of GH¢450 in addition to those already written off.
- Specific allowance for receivables of GH¢650.
- General allowance of 3% against the remaining receivables.

Required:

a) Prepare the Statement of Profit or Loss for Tudu Ltd for the year ended 31 December 2018. (10 marks)

b) Prepare the Statement of Financial Position for Tudu Ltd as at 31 December 2018. (10 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Depreciation, Financial Adjustments, Statement of Financial Position
Level: Level 1

Topic: Non-current assets and depreciation, Preparation of limited liability company financial statements
Series: NOV 2019

Question Tag: Financial Adjustments

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FR – Nov 2023 – L2 – Q2 – Business Combinations (IFRS 3)

Analyze Oyowood Limited's financials and adjust ratios based on acquisition considerations.

FA – Nov 2015 – L1 – SB – Q1 – Financial Statements Preparation

Prepare financial statements for a company, including income and balance sheet, with adjustments for accruals and depreciation.

FA – Nov 2015 – L1 – SA – Q8 – Financial Statements Preparation

This question calculates the revised net profit after correcting an accounting error.

FA – Nov 2022 – L1 – SB – Q1 – Bank Reconciliation

This question requires preparing an adjusted cash book, a bank reconciliation statement, and an explanation of why the reconciliation is necessary.

FA – Nov 2019 – L1 – Q4 – Non-current assets and depreciation | Preparation of limited liability company financial statements

Prepare the statement of profit or loss and financial position for Tudu Ltd with adjustments for depreciation, allowances, and accruals.

FR – Nov 2023 – L2 – Q2 – Business Combinations (IFRS 3)

Analyze Oyowood Limited's financials and adjust ratios based on acquisition considerations.

FA – Nov 2015 – L1 – SB – Q1 – Financial Statements Preparation

Prepare financial statements for a company, including income and balance sheet, with adjustments for accruals and depreciation.

FA – Nov 2015 – L1 – SA – Q8 – Financial Statements Preparation

This question calculates the revised net profit after correcting an accounting error.

FA – Nov 2022 – L1 – SB – Q1 – Bank Reconciliation

This question requires preparing an adjusted cash book, a bank reconciliation statement, and an explanation of why the reconciliation is necessary.

FA – Nov 2019 – L1 – Q4 – Non-current assets and depreciation | Preparation of limited liability company financial statements

Prepare the statement of profit or loss and financial position for Tudu Ltd with adjustments for depreciation, allowances, and accruals.

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FR – Nov 2023 – L2 – Q2 – Business Combinations (IFRS 3)

Analyze Oyowood Limited's financials and adjust ratios based on acquisition considerations.

You're reporting an error for "FR – Nov 2023 – L2 – Q2 – Business Combinations (IFRS 3)"

FA – Nov 2015 – L1 – SB – Q1 – Financial Statements Preparation

Prepare financial statements for a company, including income and balance sheet, with adjustments for accruals and depreciation.

You're reporting an error for "FA – Nov 2015 – L1 – SB – Q1 – Financial Statements Preparation"

FA – Nov 2015 – L1 – SA – Q8 – Financial Statements Preparation

This question calculates the revised net profit after correcting an accounting error.

You're reporting an error for "FA – Nov 2015 – L1 – SA – Q8 – Financial Statements Preparation"

FA – Nov 2022 – L1 – SB – Q1 – Bank Reconciliation

This question requires preparing an adjusted cash book, a bank reconciliation statement, and an explanation of why the reconciliation is necessary.

You're reporting an error for "FA – Nov 2022 – L1 – SB – Q1 – Bank Reconciliation"

FA – Nov 2019 – L1 – Q4 – Non-current assets and depreciation | Preparation of limited liability company financial statements

Prepare the statement of profit or loss and financial position for Tudu Ltd with adjustments for depreciation, allowances, and accruals.

You're reporting an error for "FA – Nov 2019 – L1 – Q4 – Non-current assets and depreciation | Preparation of limited liability company financial statements"

FR – Nov 2023 – L2 – Q2 – Business Combinations (IFRS 3)

Analyze Oyowood Limited's financials and adjust ratios based on acquisition considerations.

You're reporting an error for "FR – Nov 2023 – L2 – Q2 – Business Combinations (IFRS 3)"

FA – Nov 2015 – L1 – SB – Q1 – Financial Statements Preparation

Prepare financial statements for a company, including income and balance sheet, with adjustments for accruals and depreciation.

You're reporting an error for "FA – Nov 2015 – L1 – SB – Q1 – Financial Statements Preparation"

FA – Nov 2015 – L1 – SA – Q8 – Financial Statements Preparation

This question calculates the revised net profit after correcting an accounting error.

You're reporting an error for "FA – Nov 2015 – L1 – SA – Q8 – Financial Statements Preparation"

FA – Nov 2022 – L1 – SB – Q1 – Bank Reconciliation

This question requires preparing an adjusted cash book, a bank reconciliation statement, and an explanation of why the reconciliation is necessary.

You're reporting an error for "FA – Nov 2022 – L1 – SB – Q1 – Bank Reconciliation"

FA – Nov 2019 – L1 – Q4 – Non-current assets and depreciation | Preparation of limited liability company financial statements

Prepare the statement of profit or loss and financial position for Tudu Ltd with adjustments for depreciation, allowances, and accruals.

You're reporting an error for "FA – Nov 2019 – L1 – Q4 – Non-current assets and depreciation | Preparation of limited liability company financial statements"

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