Question Tag: Financial Statements

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  • 30 Marks

CR – May 2015 – L3 – Q1 – Consolidated Financial Statements (IFRS 10)

Prepare a consolidated statement of financial position for Barewa Group as of 31 May 2013, considering acquisitions and adjustments.

Barewa Plc has two subsidiary companies and one associate. Since the adoption of International Financial Reporting Standards (IFRS) by companies listed on the Nigeria Stock Exchange, Barewa has been preparing its consolidated financial statements in accordance with the provisions of International Financial Reporting Standards (IFRSs).

The draft Statements of Financial Position of Barewa and its two subsidiaries as at 31 May, 2013 are as follows:

Assets Barewa (N’m) Megida (N’m) Mindara (N’m)
Non-current assets
Plant 2,650 2,300 1,610
Investments – Megida 3,000
Investments – Mindara 1,280
Associate (Calamari) 200
Available for sale 510 60 50
Total Non-current assets 7,640 2,360 1,660
Current assets
Inventory 1,350 550 730
Trade receivables 910 450 320
Cash and cash equivalent 1,020 1,000 80
Total Current assets 3,280 2,000 1,130
Total Assets 10,920 4,360 2,790
Equity and Liabilities
Share capital 5,200 2,200 1,000
Retained earnings 2,400 1,500 800
Other components of equity 120 40 70
Total equity 7,720 3,740 1,870
Non-current liabilities
Long-term loans 1,200 150 50
Deferred tax 250 90 30
Total non-current liabilities 1,450 240 80
Current liabilities
Trade payables 1,150 300 600
Current tax payables 600 80 240
Total current liabilities 1,750 380 840
Total Equity and Liabilities 10,920 4,360 2,790

The following information is relevant to the preparation of the group financial statements:

  • Acquisition of Megida Plc
    • Date of Acquisition: 1 June 2012
    • Barewa acquired 80% of the equity interest in Megida Plc.
    • At the date of acquisition, Megida’s retained earnings were N1.36 billion, and other components of equity amounted to N40 million.
    • There had been no new issuance of share capital by Megida since the acquisition date.
    • The consideration for the acquisition was N3 billion in cash.
    • The fair value of Megida’s identifiable net assets at acquisition was N4 billion, with the excess attributed to an increase in the value of non-depreciable land.
    • An independent valuation determined that the fair value of the non-controlling interest (NCI) in Megida on 1 June 2012 was N860 million.
    • Barewa’s policy is to measure NCI based on their proportionate share in the identifiable net assets of the subsidiary, not at fair value (full goodwill method).
  • Acquisition of Mindara Plc
    • Date of Acquisition: 1 June 2012
    • Barewa acquired 70% of the ordinary shares of Mindara Plc.
    • The consideration for the acquisition included:
      • An upfront payment of N1.28 billion.
      • A contingent consideration requiring Barewa to pay the former shareholders 30% of Mindara’s profits on 31 May 2014 for each of the financial years ending 31 May 2013 and 31 May 2014. This arrangement was valued at N120 million as of 1 June 2012 and remains unchanged. It has not been included in the financial statements.
    • The fair value of the identifiable net assets at acquisition was N1.76 billion. This included retained earnings of N550 million and other components of equity of N70 million.
    • There had been no new issuance of share capital by Mindara since the acquisition date.
    • The excess fair value of the net assets was due to an increase in property, plant, and equipment (PPE), which is depreciated on a straight-line basis over seven years.
    • The fair value of the non-controlling interest (NCI) in Mindara was N530 million on the acquisition date.
  • Investment in Calamari Plc
    • On 1 June 2011, Barewa acquired a 10% interest in Calamari Plc for N80 million. This was classified as an available-for-sale investment.
    • As of 31 May 2012, the value of this investment had increased to N90 million.
    • On 1 June 2012, Barewa acquired an additional 15% interest in Calamari for N110 million, achieving significant influence.
    • Calamari recorded profits after dividends of N60 million and N100 million for the financial years ending 31 May 2012 and 31 May 2013, respectively.
  • Equity Instrument Purchase
    • On 1 June 2012, Barewa purchased an equity instrument valued at 100 million pesos, classified as available-for-sale.
    • Relevant exchange rates:
      • 31 May 2012: N5.1 to 1 peso.
      • 31 May 2013: N5.0 to 1 peso.
    • The fair value of the instrument as of 31 May 2013 was 90 million pesos, reflecting an impairment that Barewa has not recorded.
  • Loan to a Director
    • A loan of N10 million to a director has been included in cash and cash equivalents.
    • The loan is repayable on demand with no specific repayment date.
    • The directors believe that this treatment complies with International Financial Reporting Standards (IFRS), as no IFRS explicitly prohibits showing the loan as cash.
  • Goodwill Impairment
    • There is no impairment of goodwill arising from the acquisitions.

Required

Prepare a consolidated statement of financial position for Barewa Group as of 31 May 2013.

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  • 15 Marks

CR – Nov 2016 – L3 – SC – Q5 – Ethical Issues in Corporate Reporting

Explain the concepts of creative accounting and window dressing, provide examples, reasons, and suggest preventive measures.

Manipulation of reporting entities book’s and records have been termed in many quarters as “Creative Accounting” and “Window Dressing”. The Management of Wastage Plc requires clarification of these two concepts.

Write a report to the management of Wastage Plc that includes:
a. Definitions of Creative Accounting and Window Dressing. (2 Marks)
b. Five examples of each concept. (5 Marks)
c. Three possible reasons for Creative Accounting and Window Dressing. (3 Marks)
d. Advice to management on five possible preventive measures of Creative Accounting. (5 Marks)

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  • 15 Marks

AAA – May 2019 – L3 – Q6 – Audit Reporting

Assess the impact of lost audit journals, actions required under ISA 570, and communication duties of auditors.

During the recent audit of Ogundu Commercial Limited, a privately owned trading company, you discovered that the former chief accountant resigned immediately after the conclusion and approval of the previous audited financial statements. The new chief accountant came in during the month of May and was working at familiarizing himself with the systems and financial operations of the company; and also ensuring that the accounting records are ready for the board of directors’ quarterly meetings and finalizing the accounts for the next audit.

Due to the pressure of work, the chief accountant lost part of the journals raised by the previous auditors but proceeded to finalize the accounts. This resulted in least expected financial performance for the year. The previous auditor is a sole practitioner and is now deceased.

The directors are concerned because the financial statements would be used to seek facilities from banks. The success or otherwise of the facility will impact the operations of the company and may lead to a reduction in both operation and staff engagement.

Required:
a. Evaluate the effect of the loss of the audit journals on the financial statements and the factors you would consider, as auditors, in drafting your report. (5 Marks)
b. In accordance with ISA 570, evaluate the actions required of the auditors in relation to the observed misstatement. (5 Marks)
c. Discuss the content of the communication expected of the auditors to the client before and after the audit, other than the auditors’ report. (5 Marks)

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  • 20 Marks

AAA – May 2019 – L3 – Q4 – Review of Subsequent Events and Going Concern Assumptions

Analyze the auditor's objectives, implications of going concern assumptions, directors' responsibilities, and risk assessment for going concern status.

Itanforiti Publishers Limited has been in the printing and publishing business for many years in Ibadan. The company has been performing well with a competitive advantage over many companies in the industry as a result of the engagement of a high-profile team of personnel and in-house printing of its published books.

The board of directors comprises two brothers and their wives. The older brother is the chairman, and the younger, the managing director. The fortunes of the company started dwindling in 2013 when conflicts could no longer be resolved amicably among the members of the board of directors.

The chairman, being a majority shareholder, assumed executive powers by combining the roles hitherto played by the managing director with his own as executive chairman in 2015. Governance of the company became unsettled, and key staff of the organization started resigning in turn.

In 2016, the financial reports of the company revealed its inability to pay creditors, and the supply of raw materials became irregular. In addition, the level of receivables became too high with a significant figure of doubtful and irrecoverable debts.

Your firm acts as auditors to the company, and you have been presented with the financial statements for the year ended 31st December 2017, for audit. The financial statements were prepared on a going concern basis.

Required:
a. Identify and explain the objectives of the auditor in the area of going concern in accordance with International Standards on Auditing (ISA 570). (5 Marks)
b. Explain the going concern assumption and the implications for the financial statements if the entity is not a going concern. (5 Marks)
c. Explain the going concern duties of the directors. (3 Marks)
d. Evaluate the risk assessment procedures to be performed by the auditor on the going concern status of the entity. (ISA 570). (7 Marks)

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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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  • 30 Marks

CR – May 2019 – L3 – Q1 – Consolidated Financial Statements (IFRS 10)

Prepare the consolidated statement of financial position for a group with a foreign subsidiary and inter-company transactions as at September 30, 2017.

Oyin Plc. a Nigerian company acquired 960 million equity share capital of Kemy Plc., a foreign subsidiary based in Brazil, on 1 October, 2015 for 1.08 billion Brazilian real (BRL). The functional and presentation currency of Kemy Plc. is the BRL. Since acquisition, Kemy Plc., has operated autonomously of Oyin group.

The statements of financial position of Oyin Plc. and Kemy Plc. as at 30 September, 2017 are as follows:

Additional Information:

  1. It is the policy of Oyin Plc. group to recognize non-controlling interest at acquisition at the proportionate share of the net assets. The retained earnings of Kemy Plc., at the date of acquisition were 390 million BRL.
  2. Kemy Plc. sells goods to Oyin Plc. at cost plus a mark-up of 33 1/3%. At 30 September, 2017, Oyin Plc. held N15 million of the goods. The goods were purchased at an exchange rate of N1 to 5 BRL. On 28 September, 2017, Oyin Plc. sent Kemy Plc., a payment for N15 million to clear the intra-group payables. Kemy received and recorded the cash on 2 October, 2017.
  3. On 1 October, 2016, Kemy Plc. purchased a leasehold building for 375 million BRL, taking out a loan note payable after five years to finance the purchase. The estimated useful life of the building on 1 October, 2016 was 25 years with no estimated residual value. The building is to be depreciated on a straight-line basis. The building was professionally revalued at 450 million BRL on 30 September, 2017 and the directors have included the revalued amount in the statement of financial position.Both companies adopt a policy of revaluation for their properties. There was no difference between the carrying amount and fair value of the property of Oyin Plc. at 30 September, 2017.
  4. Exchange Rates:
Date BRL to N1
1 October, 2015 6.0
30 September, 2015 5.5
30 September, 2017 5.0
Average for the year to 30 September, 2016 5.2

Required:
Prepare the consolidated statement of financial position of Oyin group at 30 September, 2017.

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  • 7 Marks

CR – Nov 2014 – L3 – SB – Q2b – Income Taxes (IAS 12)

Discuss reasons for variances in effective tax rates and differences between tax charges and tax payments.

Mr. Ojoowuro, the director of a grocery store, has noticed that the tax charge for his company is N15million on profits before tax of N105million. This is an effective rate of 14.3%. Another company, Irin Plc, has an income tax charge of N30million on profit before tax of N90million. This is an effective rate of tax of 33.3%, yet both companies state that the rate of income tax applicable to them is 25%. Mr. Ojoowuro has also noticed that in the statements of cash flows, each company has paid the same amount of tax of N24million.

Required:
Advise Mr. Ojoowuro on the possible reasons why the income tax charge in the financial statements as a percentage of the profit before tax may not be the same as the applicable income tax rate and why the tax paid in the statement of cash flows may not be the same as the tax charge in the statement of profit or loss and other comprehensive income. (7 Marks)

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  • 1 Marks

AAA – Nov 2013 – L3 – AII – Q9 – Quality Control in Audit Firms

Identifies the type of review conducted by a partner or manager for compliance with standards.

A review by a partner or manager to ensure that the form and content of the financial statements are in accordance with accounting standards, CAMA CAPC20 LFN 2004 and Securities and Exchange Commission (SEC), where applicable is ………………….. Review.

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  • 1 Marks

AAA – Nov 2013 – L3 – AII – Q6 – Public Sector Audits

Explores the alternate terminology for balance sheets of parastatals.

 The balance sheet of parastatals is also referred to as a statement of………….and…………….

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  • 1 Marks

AAA – Nov 2013 – L3 – A – Q9 – Regulatory Framework and Professional Standards

This question tests understanding of the required components of IFRS-compliant financial statements.

Which of the following is NOT required as part of Financial Statements that are International Financial Reporting Standards (IFRS) compliant?
A. Statement of financial position
B. Statement of cash flows
C. Account receivable
D. Chairman’s statement
E. Non-current assets

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  • 1 Marks

FA – Nov 2012 – L1 – SB – Q33 – Bank Reconciliation

Identify items required for cash book adjustment during bank reconciliation.

When preparing a company’s bank reconciliation statement at 31 October 2012, it was discovered that the following items caused the difference between the cash book balance and the bank statement balance:

A. Bank charges N5,005
B. Cheque of N105,000 incorrectly debited by the bank to the account
C. Cheque paid in by the company but dishonoured amounted to N55,500
D. Uncredited lodgement N62,800

Which TWO of the items above will be required for cash book adjustment?

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  • 1 Marks

FA – Nov 2012 – L1 – SB – Q31 – Partnership Accounts

Classify the figure in the statement of financial position as current liabilities or otherwise.

The balances extracted from the accounting records of Disney Social Club in respect of its subscriptions are as follows:

  • Balance b/f 1 January 2011: N40,000
  • Balance b/f 1 January 2011: (N30,000)
  • Subscriptions received during the year: N160,000
  • Balance c/f 31 December 2011: N60,000
  • Balance c/f 31 December 2011: (N50,000)

How would the figure in brackets at 31 December 2011 be classified in the Statement of Financial Position?

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  • 1 Marks

FA – Nov 2012 – L1 – SA – Q30 – Accounts of Not-for-Profit Entities

Determining the amount of subscriptions to be included in the income and expenditure account.

The balances extracted from the accounting records of Disney Social Club in respect of its subscriptions are as follows:

  • Balance b/f 1 January 2011: N40,000
  • Balance b/f 1 January 2011: (N30,000)
  • Subscriptions received during the year: N160,000
  • Balance c/f 31 December 2011: N60,000
  • Balance c/f 31 December 2011: (N50,000)

What is the amount of subscriptions to be included in the income and expenditure account for the year ended 31 December 2011?

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  • 1 Marks

FA – Nov 2012 – L1 – SA – Q15 – Financial Statements Preparation

Determining the outcome when opening capital is higher than closing capital.

If the opening capital is higher than the closing capital, the business has made:

A. Profit during the year
B. Profit during the year before changes in equity
C. Loss during the year after adjustment for non-current assets
D. Loss during the year before adjustment for drawings
E. Profit during the year without adjustment for drawings

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  • 1 Marks

FA – Nov 2012 – L1 – SA – Q1 – Elements of Financial Statements

Determining which of the listed options is not part of retained earnings.

Which of the following is NOT part of retained earnings?

A. Revenue reserve
B. Accumulated profits
C. Profits on exceptional activities
D. Undistributed profits
E. Unappropriated profits

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  • 1 Marks

FA – May 2013 – L1 – SA – Q23 – Accounting for Inventories (IAS 2)

This question tests the effect of overstating closing inventory on net income.

What is the effect of overstating closing inventory on net income?

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  • 1 Marks

FA – May 2014 – L1 – SA – Q14 – Accounts of Not-for-Profit Entities

This question tests knowledge of terminology used in non-profit accounting when expenditure exceeds income.

In a not-for-profit organisation, the excess of expenditure over income is known as ………………………

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  • 1 Marks

FA – May 2014 – L1 – SA – Q10 – Accounting Concepts

This question tests knowledge of the account used to record business acquisition from the buyer's perspective.

Realisation Account is to the vendor of a business, as………………..is to the business buyer or acquirer.

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  • 20 Marks

PSAF – MAY 2019 – L2 – Q3 – Accounting for Government Assets and Liabilities

Record transactions and prepare financial statements for a college loan fund, including ledger accounts, trial balance, and statement of changes.

The following balances were extracted from the ledger of YOHAFI College of Technology in respect of Senator Momeed Memorial Loan Fund (MMLF) as at31 December 2017

The following transactions took place in 2018:

(i.) Investment costing N30,800,000 were sold for N31,900,000; (ii.) N30,700,000 cash was received as the repayment of loans; (iii.) N2,500,000 was received from the family of a former student in full payment of a loan which had earlier been written off; (iv) N41,800,000 was given out as loan during the year; (v.) A loan of N750,000 was written-off as uncollectible; and (vi.) A sum of N3,000,000 cash was received as a gift from a former borrower.

You are required to:

a. Open necessary ledger accounts to record above transactions. (13 Marks)

b. Extract a trial balance as at the end of the period. (4 Marks)

c. Prepare a statement of changes in the fund balance. (3 Marks)

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  • 1 Marks

FA – May 2014 – L1 – SA – Q7 – Bank reconciliations

This question tests knowledge of items requiring cash book adjustment in bank reconciliation.

During the preparation of your company’s bank reconciliation statement as at 31 October, 2013, you discovered that the following items caused the difference between the cash book balance and bank statement balance:

i. Bank charges N3,502 ii. Uncredited lodgement N75,000 iii. Cheque of N85,500 paid in by the Company but dishonoured iv. Amount of N225,000 incorrectly debited by the bank to the account

Which of the items above will be required for cash book adjustment?

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