Question Tag: Property Plant and Equipment

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CR – May 2023 – L3 – Q1a – Consolidated Financial Statements (IFRS 10)

Prepare a consolidated statement of financial position for Omi PLC and subsidiaries.

The draft statement of financial position of Omi PLC, Ruwa Limited, and Mmili Limited as of November 30, 2020, are as follows:

Additional Information for Consolidated Financial Statements Preparation:

  1. Acquisition of Ruwa Limited:
    • Omi PLC acquired 80% of Ruwa Limited’s ordinary share capital on December 1, 2017.
    • Retained earnings of Ruwa Limited at acquisition: N400 million.
    • Fair value of Ruwa Limited’s net assets: N2,840 million.
    • Any fair value adjustment pertains to net current assets, which had been realized by November 30, 2020.
    • No new issue of shares occurred in the group since the establishment of the current structure.
  2. Acquisition of Mmili Limited:
    • On December 1, 2018, Omi PLC acquired 40% and Ruwa Limited acquired 25% of Mmili Limited’s ordinary share capital.
    • Retained earnings of Mmili Limited at acquisition: N200 million.
    • Retained earnings of Ruwa Limited at acquisition: N600 million.
    • No revaluation surplus existed in Mmili Limited’s books at acquisition, and the fair value of Mmili Limited’s net assets was consistent with their carrying amount.
  3. Development Costs:
    • Significant expenditure incurred on developing internet products. These were initially written off but later reinstated as development inventories upon commercial use.
    • Costs do not meet the recognition criteria of IAS 38 – Intangible Assets.
    • Ruwa Limited included N80 million of these costs in its inventory, of which N20 million relates to expenses from periods before December 1, 2017.
    • The group wishes to ensure compliance with IFRS for this treatment.
  4. Internet Equipment:
    • Ruwa Limited purchased new internet equipment for N200 million, excluding a trade discount of N24 million.
    • The discount was recorded in the income statement.
    • Depreciation is calculated using the straight-line method over six years.
  5. Property, Plant, and Equipment Policy:
    • The group transitioned from the revaluation model to the cost model under IAS 16 – Property, Plant, and Equipment in 2020.
    • Mmili Limited’s assets were revalued on December 1, 2019, creating a revaluation surplus of N280 million.
    • Mmili Limited’s property was originally purchased in December 2018 for N1,200 million, with depreciation over six years.
    • The group does not transfer excess depreciation from revaluation reserves to retained earnings.
  6. Valuation of Non-controlling Interests:
    • The group values non-controlling interests at acquisition using their proportionate share of the subsidiary’s identifiable net assets.
  7. Defined Benefit Pension Scheme:
    • Omi PLC established a defined benefit pension scheme, contributing N400 million to it.
    • Details as of November 30, 2020:
      • Present value of obligation: N520 million.
      • Fair value of plan assets: N500 million.
      • Current service cost: N440 million.
      • Interest cost (scheme liabilities): N80 million.
      • Expected return on pension assets: N40 million.
      • Actuarial gain: N60 million.
    • The only recorded entry was the cash contribution, included in Omi PLC’s trade receivables.
    • Directors propose recognizing actuarial gain immediately in the statement of profit or loss.

Required:
Prepare the consolidated statement of financial position of Omi Group for the year ended November 30, 2020, in accordance with relevant IFRS.

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AA – Mar 2023 – L2 – Q3 – Audit and Assurance Evidence

Explain why property, plant and equipment, trade receivables, and inventory were selected for further investigation.

Maggie Manufacturing is a long-established manufacturing company. The audit manager has been provided with the following extracts from the draft financial statements for 2021, prior to the final audit planning meeting with the financial controller.

Draft Statement of Financial Position (Extracts):

The manager has reviewed these extracts and has identified three financial statement headings that require further investigation: property, plant, and equipment, trade receivables, and inventory. He has also calculated certain accounting ratios.

Required:
a) Explain why the manager has selected these three headings for further investigation.

b) Detail and explain the further information that the manager should request from the financial controller at the final audit planning meeting to clarify the situation with regards to the three financial statement headings.

 

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AA – May 2016 – L2 – Q5c – Audit and Assurance Evidence

This question focuses on the substantive audit procedures for verifying the valuation, completeness, and rights and obligations of property, plant, and equipment.

(c) Describe TWO substantive procedures the external auditor of Okunka should adopt to verify EACH of the following assertions in relation to an entity’s property, plant and equipment:

(i) Valuation
(ii) Completeness
(iii) Rights and obligations.

(Note: Assume that the hospital adopts International Financial Reporting Standards). (6 marks)

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FR – May 2017 – L2 – Q2b – Financial Reporting Standards and Their Applications

Calculate the capitalised costs for the construction of an office building.

The following costs were incurred in 2016 in the design and construction of a new office building over a nine-month period during 2016:

Required:
In accordance with IAS 16 Property, Plant and Equipment, calculate the amount that should be capitalised as property in the financial statements for the year ending 31 December 2016.
(4 marks)

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CR – Mar 2024 – L3 – Q1 – Consolidated Financial Statements

This question requires preparing the consolidated statement of financial position for Sankom Group, including adjustments for goodwill impairment and fair value adjustments.

Sankom Ltd (Sankom) in the last three years acquired Makpa and Biiri. The statement of financial position for the three companies as at 31 December 2023 is as follows:

Additional Information:

i) The following information relates to the acquisition of Makpa and Biiri:

  • Makpa: Date of acquisition: 1 January 2021, Shareholding percentage: 80%, Goodwill arising from the acquisition: GH¢44,800,000
  • Biiri: Date of acquisition: 30 June 2022, Shareholding percentage: 60%, Goodwill arising from the acquisition: GH¢38,400,000

ii) An upward fair value adjustment of GH¢4,400,000 was required for Makpa’s production machinery with a useful life of five years.

iii) Makpa sold goods to Biiri worth GH¢2,240,000, with a margin of 20%, and 30% of the goods were unsold by Biiri as of 31 December 2023.

iv) No impairment losses were previously recognized, but impairment reviews at 31 December 2023 indicated the recoverable amounts of the net assets of Makpa and Biiri were GH¢133,244,800 and GH¢116,544,000, respectively.

v) Sankom rented a building to Makpa at an annual rental of GH¢2,000,000, which Sankom accounted for as investment property, recognizing a fair value gain of GH¢1,200,000.

Required:
Prepare the consolidated statement of financial position for Sankom Group as at 31 December 2023.

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CR – May 2023 – L3 – Q1a – Consolidated Financial Statements (IFRS 10)

Prepare a consolidated statement of financial position for Omi PLC and subsidiaries.

The draft statement of financial position of Omi PLC, Ruwa Limited, and Mmili Limited as of November 30, 2020, are as follows:

Additional Information for Consolidated Financial Statements Preparation:

  1. Acquisition of Ruwa Limited:
    • Omi PLC acquired 80% of Ruwa Limited’s ordinary share capital on December 1, 2017.
    • Retained earnings of Ruwa Limited at acquisition: N400 million.
    • Fair value of Ruwa Limited’s net assets: N2,840 million.
    • Any fair value adjustment pertains to net current assets, which had been realized by November 30, 2020.
    • No new issue of shares occurred in the group since the establishment of the current structure.
  2. Acquisition of Mmili Limited:
    • On December 1, 2018, Omi PLC acquired 40% and Ruwa Limited acquired 25% of Mmili Limited’s ordinary share capital.
    • Retained earnings of Mmili Limited at acquisition: N200 million.
    • Retained earnings of Ruwa Limited at acquisition: N600 million.
    • No revaluation surplus existed in Mmili Limited’s books at acquisition, and the fair value of Mmili Limited’s net assets was consistent with their carrying amount.
  3. Development Costs:
    • Significant expenditure incurred on developing internet products. These were initially written off but later reinstated as development inventories upon commercial use.
    • Costs do not meet the recognition criteria of IAS 38 – Intangible Assets.
    • Ruwa Limited included N80 million of these costs in its inventory, of which N20 million relates to expenses from periods before December 1, 2017.
    • The group wishes to ensure compliance with IFRS for this treatment.
  4. Internet Equipment:
    • Ruwa Limited purchased new internet equipment for N200 million, excluding a trade discount of N24 million.
    • The discount was recorded in the income statement.
    • Depreciation is calculated using the straight-line method over six years.
  5. Property, Plant, and Equipment Policy:
    • The group transitioned from the revaluation model to the cost model under IAS 16 – Property, Plant, and Equipment in 2020.
    • Mmili Limited’s assets were revalued on December 1, 2019, creating a revaluation surplus of N280 million.
    • Mmili Limited’s property was originally purchased in December 2018 for N1,200 million, with depreciation over six years.
    • The group does not transfer excess depreciation from revaluation reserves to retained earnings.
  6. Valuation of Non-controlling Interests:
    • The group values non-controlling interests at acquisition using their proportionate share of the subsidiary’s identifiable net assets.
  7. Defined Benefit Pension Scheme:
    • Omi PLC established a defined benefit pension scheme, contributing N400 million to it.
    • Details as of November 30, 2020:
      • Present value of obligation: N520 million.
      • Fair value of plan assets: N500 million.
      • Current service cost: N440 million.
      • Interest cost (scheme liabilities): N80 million.
      • Expected return on pension assets: N40 million.
      • Actuarial gain: N60 million.
    • The only recorded entry was the cash contribution, included in Omi PLC’s trade receivables.
    • Directors propose recognizing actuarial gain immediately in the statement of profit or loss.

Required:
Prepare the consolidated statement of financial position of Omi Group for the year ended November 30, 2020, in accordance with relevant IFRS.

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AA – Mar 2023 – L2 – Q3 – Audit and Assurance Evidence

Explain why property, plant and equipment, trade receivables, and inventory were selected for further investigation.

Maggie Manufacturing is a long-established manufacturing company. The audit manager has been provided with the following extracts from the draft financial statements for 2021, prior to the final audit planning meeting with the financial controller.

Draft Statement of Financial Position (Extracts):

The manager has reviewed these extracts and has identified three financial statement headings that require further investigation: property, plant, and equipment, trade receivables, and inventory. He has also calculated certain accounting ratios.

Required:
a) Explain why the manager has selected these three headings for further investigation.

b) Detail and explain the further information that the manager should request from the financial controller at the final audit planning meeting to clarify the situation with regards to the three financial statement headings.

 

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AA – May 2016 – L2 – Q5c – Audit and Assurance Evidence

This question focuses on the substantive audit procedures for verifying the valuation, completeness, and rights and obligations of property, plant, and equipment.

(c) Describe TWO substantive procedures the external auditor of Okunka should adopt to verify EACH of the following assertions in relation to an entity’s property, plant and equipment:

(i) Valuation
(ii) Completeness
(iii) Rights and obligations.

(Note: Assume that the hospital adopts International Financial Reporting Standards). (6 marks)

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FR – May 2017 – L2 – Q2b – Financial Reporting Standards and Their Applications

Calculate the capitalised costs for the construction of an office building.

The following costs were incurred in 2016 in the design and construction of a new office building over a nine-month period during 2016:

Required:
In accordance with IAS 16 Property, Plant and Equipment, calculate the amount that should be capitalised as property in the financial statements for the year ending 31 December 2016.
(4 marks)

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CR – Mar 2024 – L3 – Q1 – Consolidated Financial Statements

This question requires preparing the consolidated statement of financial position for Sankom Group, including adjustments for goodwill impairment and fair value adjustments.

Sankom Ltd (Sankom) in the last three years acquired Makpa and Biiri. The statement of financial position for the three companies as at 31 December 2023 is as follows:

Additional Information:

i) The following information relates to the acquisition of Makpa and Biiri:

  • Makpa: Date of acquisition: 1 January 2021, Shareholding percentage: 80%, Goodwill arising from the acquisition: GH¢44,800,000
  • Biiri: Date of acquisition: 30 June 2022, Shareholding percentage: 60%, Goodwill arising from the acquisition: GH¢38,400,000

ii) An upward fair value adjustment of GH¢4,400,000 was required for Makpa’s production machinery with a useful life of five years.

iii) Makpa sold goods to Biiri worth GH¢2,240,000, with a margin of 20%, and 30% of the goods were unsold by Biiri as of 31 December 2023.

iv) No impairment losses were previously recognized, but impairment reviews at 31 December 2023 indicated the recoverable amounts of the net assets of Makpa and Biiri were GH¢133,244,800 and GH¢116,544,000, respectively.

v) Sankom rented a building to Makpa at an annual rental of GH¢2,000,000, which Sankom accounted for as investment property, recognizing a fair value gain of GH¢1,200,000.

Required:
Prepare the consolidated statement of financial position for Sankom Group as at 31 December 2023.

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