Property Revaluation – NBC Institute

FR – Mar/Jul 2020 – L2 – Q5b – Gbebody Nigeria Limited Adjusted Retained Earnings and Statement of Financial Position

Preparation of adjusted retained earnings and statement of financial position considering property revaluation and deferred tax impact.

Question

b. The assistant accountant of Gbebody Nigeria Limited after preparing the company‟s draft statement of profit or loss for the year ended September 30, 2019 and adding the current year‟s profit to retained earnings extracted a summarised trial balance of the company as at that date are as follows:

The chief accountant of Gbebody Nigeria Limited on reviewing the draft trial balance discovered that the following information were not taken into consideration by the assistant accountant of the company.

The price of property has increased significantly in recent years and on October 1, 2018, the directors decided to revalue the land and building.

The directors accepted the report of an independent valuer who valued the land at N12m and the building at N58.5million on that date. The remaining life of the building at October 1, 2018 was 15 years. Gbebody Nigeria Limited does not make an annual transfer to retained earnings to reflect the realisation of the revaluation gain, however, the revaluation will give rise to a deferred tax liability. The company income tax rate is 30%.

Plant and equipment is depreciated at 12½% per annum using reducing balance method. No depreciation has been charged on any non-current assets for the year ended September 30, 2019.

Provision of N3.6million is required for current income tax on the profit for the year to September 30, 2019. The balance on current tax in the trial balance is the under/over provision of tax for the previous year. In addition to the temporary difference relating to the information in the note above. Gbebody Nigeria Limited has further taxable temporary difference of N15m as at September 30, 2019.

You are required to prepare:
(i) Adjusted retained earnings after taking into consideration the additional information in the notes above.
(5 Marks)
(ii) The statement of financial position of Gbebody Nigeria Limited as at
September 30, 2019.

Answer

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Tags: Deferred Tax, Depreciation, Financial Statement Preparation, Property Revaluation
Level: Level 2

Series: MAR/JULY 2020

FR – Nov 2019 – L2 – Q5c – Financial Reporting Standards and Their Applications

Calculate amounts recognized in Profit or Loss and Other Comprehensive Income for foreign property purchased and revalued.

Question

On 1 August 2018, Charlie Ltd, whose functional currency is the cedi, bought a property in Morocco for DH40 million. The property had a 20-year useful economic life with no residual value estimated. On 31 July 2019, the property was revalued to DH45 million.

Exchange rates were:

1 January 2018: GH¢1 = DH 1.32
1 August 2018: GH¢1 = DH 1.25
31 July 2019: GH¢1 = DH 1.125
Required:
In accordance with IAS 21: The Effects of Changes in Foreign Exchange Rates and IAS 16: Property, Plant & Equipment, how much should be recognized in the Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 July 2019?

Answer

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Tags: Financial Reporting, Foreign Exchange, IAS 16, IAS 21, Property Revaluation

Topic: Financial Reporting Standards and Their Applications
Series: NOV 2019

AA – Nov 2020 – L2 – Q3a – Audit and Assurance Evidence

Name two auditor’s experts for pension funds and property valuation.

Question

Future Prospects Company Ltd is a multinational company operating in Ghana. Its core operations include management of pension funds and real estate development. In preparing the financial statements, they carry out an appraisal of the pension funds to assess its ability to pay benefits to contributors. Periodic revaluation of lands and buildings was also carried out.

Required:
In respect of valuation of pension funds, future payments to beneficiaries, and revaluation of properties, name two auditor’s experts on whom possible reliance will be placed during your audit of the company and the work each may perform.
(4 marks)

Answer

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Tags: Auditor's Experts, Expert Reliance, Pension Funds, Property Revaluation, Valuation
Level: Level 2

Topic: Audit and Assurance Evidence
Series: NOV 2020

AAA – March 2023 – L3 – Q3b – Reporting, Audit-related services

Recommend matters to include in the report to those charged with governance for Adorko Plc.

Question

Your firm, Lardi & Associates, has asked you to perform an independent review of the working papers of Adorko Plc which is a listed entity and has been an audit client of your firm for the last ten years. The audit fieldwork is almost complete and as part of your review, you have been asked to advise the audit team on the drafting of their report to those charged with governance. Adorko Plc is a discount food retailer which operates 85 stores nationwide.

Below is an extract of the financial statements for the period:

	2022	2021
Revenue	GH¢247m	GH¢242m
Profit before tax	GH¢14.6m	GH¢14.1m
Total Assets	GH¢535m	GH¢321m

After a period of rapid expansion, 2022 has been a year in which Adorko Plc has strengthened its existing position within the market and has not acquired any additional stores or businesses. The company’s draft statement of financial position for 2022 includes a property portfolio of GH¢315 million all of which are legally owned by the entity. In the current year, the company has chosen to adopt a policy of revaluing its property portfolio for the first time and this is reflected in the draft figures for 2022. The audit work on property, plant and equipment included testing a sample of the revaluations. Lardi & Associates requested at the planning stage that independent, external valuation reports should be made available to the audit team at the start of the final audit visit. A number of these documents were not available when requested and it took three weeks for them to be received by the audit team. The audit working papers also identified that on review of the non-current asset register, there were four properties with a total carrying amount of GH¢11.1 million which had not yet been revalued and were still recorded at depreciated historic cost.

The audit supervisor’s review of Adorko Plc’s board minutes identified that the company has renovated seventeen car parking facilities at of its stores which has resulted in a significant increase in customer numbers and revenue at each of these locations. The total cost of the renovation work was GH¢13.2 million and has been included in operating expenses for the current year. The audit file includes a working paper recording discussions with management which confirms that capital expenditure authorization forms had not been completed for this expenditure.

You are aware that your firm had intended to replace the current engagement partner, Mr. Kunta, with Mr. Barima who is Lardi & Associates’s other specialist in food retail. Unfortunately, Mr. Barima was taken ill earlier in the year and will not now be available until next year’s audit engagement. As a result, 2022 is the eighth consecutive year in which Mr. Kunta has acted as engagement partner.

Required:
From the information provided above, recommend the matters which should be included in Lardi & Associates’s report to those charged with governance, and explain the reason for their inclusion. (10 marks)

Answer

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Tags: Audit Issues, Governance Reporting, ICAG, Property Revaluation
Level: Level 3

Topic: Audit-related services, Reporting
Series: MAR 2023

FR – Mar/Jul 2020 – L2 – Q5b – Gbebody Nigeria Limited Adjusted Retained Earnings and Statement of Financial Position

Preparation of adjusted retained earnings and statement of financial position considering property revaluation and deferred tax impact.

Question

The price of property has increased significantly in recent years and on October 1, 2018, the directors decided to revalue the land and building.

The directors accepted the report of an independent valuer who valued the land at N12m and the building at N58.5million on that date. The remaining life of the building at October 1, 2018 was 15 years. Gbebody Nigeria Limited does not make an annual transfer to retained earnings to reflect the realisation of the revaluation gain, however, the revaluation will give rise to a deferred tax liability. The company income tax rate is 30%.

Plant and equipment is depreciated at 12½% per annum using reducing balance method. No depreciation has been charged on any non-current assets for the year ended September 30, 2019.

Provision of N3.6million is required for current income tax on the profit for the year to September 30, 2019. The balance on current tax in the trial balance is the under/over provision of tax for the previous year. In addition to the temporary difference relating to the information in the note above. Gbebody Nigeria Limited has further taxable temporary difference of N15m as at September 30, 2019.

Answer

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Tags: Deferred Tax, Depreciation, Financial Statement Preparation, Property Revaluation
Level: Level 2

Series: MAR/JULY 2020

FR – Nov 2019 – L2 – Q5c – Financial Reporting Standards and Their Applications

Calculate amounts recognized in Profit or Loss and Other Comprehensive Income for foreign property purchased and revalued.

Question

Exchange rates were:

Answer

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Tags: Financial Reporting, Foreign Exchange, IAS 16, IAS 21, Property Revaluation

Topic: Financial Reporting Standards and Their Applications
Series: NOV 2019

AA – Nov 2020 – L2 – Q3a – Audit and Assurance Evidence

Name two auditor’s experts for pension funds and property valuation.

Question

Answer

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Tags: Auditor's Experts, Expert Reliance, Pension Funds, Property Revaluation, Valuation
Level: Level 2

Topic: Audit and Assurance Evidence
Series: NOV 2020

AAA – March 2023 – L3 – Q3b – Reporting, Audit-related services

Recommend matters to include in the report to those charged with governance for Adorko Plc.

Question

Below is an extract of the financial statements for the period:

	2022	2021
Revenue	GH¢247m	GH¢242m
Profit before tax	GH¢14.6m	GH¢14.1m
Total Assets	GH¢535m	GH¢321m

Answer

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Tags: Audit Issues, Governance Reporting, ICAG, Property Revaluation
Level: Level 3

Topic: Audit-related services, Reporting
Series: MAR 2023

Question Tag: Property Revaluation

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FR – Mar/Jul 2020 – L2 – Q5b – Gbebody Nigeria Limited Adjusted Retained Earnings and Statement of Financial Position

Preparation of adjusted retained earnings and statement of financial position considering property revaluation and deferred tax impact.

FR – Nov 2019 – L2 – Q5c – Financial Reporting Standards and Their Applications

Calculate amounts recognized in Profit or Loss and Other Comprehensive Income for foreign property purchased and revalued.

AA – Nov 2020 – L2 – Q3a – Audit and Assurance Evidence

Name two auditor’s experts for pension funds and property valuation.

AAA – March 2023 – L3 – Q3b – Reporting, Audit-related services

Recommend matters to include in the report to those charged with governance for Adorko Plc.

FR – Mar/Jul 2020 – L2 – Q5b – Gbebody Nigeria Limited Adjusted Retained Earnings and Statement of Financial Position

Preparation of adjusted retained earnings and statement of financial position considering property revaluation and deferred tax impact.

FR – Nov 2019 – L2 – Q5c – Financial Reporting Standards and Their Applications

Calculate amounts recognized in Profit or Loss and Other Comprehensive Income for foreign property purchased and revalued.

AA – Nov 2020 – L2 – Q3a – Audit and Assurance Evidence

Name two auditor’s experts for pension funds and property valuation.

AAA – March 2023 – L3 – Q3b – Reporting, Audit-related services

Recommend matters to include in the report to those charged with governance for Adorko Plc.

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FR – Mar/Jul 2020 – L2 – Q5b – Gbebody Nigeria Limited Adjusted Retained Earnings and Statement of Financial Position

Preparation of adjusted retained earnings and statement of financial position considering property revaluation and deferred tax impact.

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FR – Nov 2019 – L2 – Q5c – Financial Reporting Standards and Their Applications

Calculate amounts recognized in Profit or Loss and Other Comprehensive Income for foreign property purchased and revalued.

You're reporting an error for "FR – Nov 2019 – L2 – Q5c – Financial Reporting Standards and Their Applications"

AA – Nov 2020 – L2 – Q3a – Audit and Assurance Evidence

Name two auditor’s experts for pension funds and property valuation.

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AAA – March 2023 – L3 – Q3b – Reporting, Audit-related services

Recommend matters to include in the report to those charged with governance for Adorko Plc.

You're reporting an error for "AAA – March 2023 – L3 – Q3b – Reporting, Audit-related services"

FR – Mar/Jul 2020 – L2 – Q5b – Gbebody Nigeria Limited Adjusted Retained Earnings and Statement of Financial Position

Preparation of adjusted retained earnings and statement of financial position considering property revaluation and deferred tax impact.

You're reporting an error for "FR – Mar/Jul 2020 – L2 – Q5b – Gbebody Nigeria Limited Adjusted Retained Earnings and Statement of Financial Position"

FR – Nov 2019 – L2 – Q5c – Financial Reporting Standards and Their Applications

Calculate amounts recognized in Profit or Loss and Other Comprehensive Income for foreign property purchased and revalued.

You're reporting an error for "FR – Nov 2019 – L2 – Q5c – Financial Reporting Standards and Their Applications"

AA – Nov 2020 – L2 – Q3a – Audit and Assurance Evidence

Name two auditor’s experts for pension funds and property valuation.

You're reporting an error for "AA – Nov 2020 – L2 – Q3a – Audit and Assurance Evidence"

AAA – March 2023 – L3 – Q3b – Reporting, Audit-related services

Recommend matters to include in the report to those charged with governance for Adorko Plc.

You're reporting an error for "AAA – March 2023 – L3 – Q3b – Reporting, Audit-related services"

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