Question Tag: Retained Earnings

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  • 12 Marks

CR – Nov 2014 – L3 – SB – Q4a – Income Taxes (IAS 12)

Compute the impact of deferred tax on retained earnings and advise Lagos Plc on IAS 12 compliance.

The following is the statement of financial position of Lagos Plc as at 31 December, 2013, with its immediate two comparative years.

The management of Lagos Plc is not sure of the impact of IAS 12 (Income Taxes) on its retained earnings as at 31 December, 2013, as well as what the new deferred tax balance will be on migrating to IFRS.

The following information was also available as at the year-end:

Details Value (N’000)
Tax written down value of PPE 40,300
Tax written down value of goodwill 4,300
Tax base of trade receivables 29,800
Tax base of trade payables 13,000

Assume that current tax has been correctly computed in line with the applicable tax laws at 30%.

Required:
Using relevant computations, advise the management of Lagos Plc on the impact of deferred tax calculated on retained earnings in accordance with IAS 12.

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  • 20 Marks

FR – May 2017 – L2 – SB – Q2 – Consolidated Financial Statements

Calculate non-controlling interest, goodwill, and consolidated reserves for Abuja Limited’s acquisition of Abaji Limited.

Abuja Limited acquired 80% of Abaji Limited’s ordinary shares on January 1, 2015. The company paid an immediate N5.00 per share and a further payment of N19,440,000 in cash. The company only recorded the cash consideration of N5 per share. The two statements of financial position as of December 31, 2015, are as follows:

Additional Information:

  1. Non-Controlling Interests (NCI): Abuja Limited values NCI using the fair value at the acquisition date, set at N14,940,000. Due to impairment, the NCI value reduced to N14,220,000 by December 31, 2015.
  2. Revaluation: Abaji Limited revalued its land and buildings at the acquisition date, increasing the value by N3,600,000, with an additional increase of N720,000 on December 31, 2015.
  3. Brand Valuation: Abaji Limited’s product line brand was valued at N7,200,000, with a 10-year useful life as of January 1, 2015. This brand is not included in Abaji’s statement of financial position.
  4. Intercompany Loan: Abuja Limited provided a loan of N10,800,000 to Abaji Limited at acquisition. Interest, payable annually, was not recorded by Abuja Limited by the end of the year.
  5. Development Costs: Abaji Limited completed a development project on June 30, 2015, costing N9,000,000, of which N1,800,000 was amortized by year-end. Only N3,240,000 of development costs were capitalized by the acquisition date, but Abuja Limited’s directors deem these costs unrecognized assets under IAS 38.
  6. Inventory Profits: Abaji Limited sold goods to Abuja Limited, with one-third remaining in Abuja’s inventory at December 31, 2015. The sale profit was N1,080,000.

Required:

Provide the figures to be included in the consolidated statement of financial position as of December 31, 2015, for:

  • a. Non-Controlling Interest (7 Marks)
  • b. Goodwill (7 Marks)
  • c. Consolidated Reserves:
    i. Share premium
    ii. Retained earnings
    iii. Revaluation reserve
    (Show workings for all calculations)

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  • 15 Marks

FA – Nov 2012 – L1 – SB – Q4 – Financial Statements Preparation

Prepare a bank cash book, retained earnings, and statement of financial position for Fehintola Enterprises.

On 1 January 2011, Mrs. Fehintola decided to invest her retirement benefit of N1,000,000 in the wholesale business of Fehintola Enterprises. She lodged the amount into the business bank account and paid for the following by cheque:

  • Motor Van: N600,000
  • Warehouse fittings: N340,000
  • Rent: N12,500

Proper accounting records were not kept, but the financial position as at 31 December 2011 revealed the following:

  • Inventories of goods in the warehouse: N150,000
  • Trade receivables: N125,000
  • Cash at Bank: N751,750
  • Trade payables for supplies: N100,000
  • Accrued rent: N15,000

The following were paid for by cheque:

  • Electricity bill at N2,500 per quarter up to 31 March 2012
  • Suppliers: N1,500,000
  • Personal expenses: N150,000

On 31 December 2011, it was agreed that the Motor Van and Warehouse fittings should be valued at N560,000 and N320,000, respectively.

Required:

a. Prepare the Bank Cash Book (5 Marks)
b. Prepare a statement showing the retained earnings for the year ended 31 December 2011 (5 Marks)
c. Prepare the Statement of Financial Position as at 31 December 2011 (5 Marks)

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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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  • 6 Marks

FR – Nov 2018 – L2 – Q2c- Financial Reporting Standards and Their Applications

This question requires calculating the adjustments to opening retained earnings and profit or loss due to changes in accounting policies and estimates.

Talensi, a company reporting under IFRS, is considering making the following changes to its financial statements for the year ended 31 December 2017. Talensi presents one year of comparative information.

  1. Changing the method of depreciation of its plant from straight-line depreciation over five years (with a nil residual value) to reducing balance at 20% per annum with effect from 1 January 2017. The plant originally cost GH¢100 million on 1 January 2015.
  2. Changing the basis of valuation of certain non-seasonal inventories from first-in, first-out (FIFO) to weighted average cost (WAC). Inventories were valued as follows under the two different methods:
    31 December 2015 31 December 2016 31 December 2017
    FIFO: GH¢64 million FIFO: GH¢66 million FIFO: GH¢71 million
    WAC: GH¢62 million WAC: GH¢63 million WAC: GH¢67 million
  3. Changing the revenue recognition basis for certain seasonal goods that were first sold in 2015 such that revenue is recognised on delivery to the customer rather than on shipment. This has arisen as a result of a change in delivery arrangements such that, with effect from 1 January 2017, risks are now borne by Talensi until delivery has been made to the customer.
    2015 2016 2017
    Revenue based on shipment date: GH¢50 million GH¢86 million GH¢90 million
    Revenue based on delivery date: GH¢46 million GH¢84 million GH¢88 million

The cost of the seasonal goods is consistently 80% of sales price.

Profit (calculated using existing policies and accounting estimates) was GH¢240 million for the year ended 31 December 2017.

Required:
Calculate the adjustment to opening retained earnings in the statement of changes in equity (including 2016 comparative figures) in the financial statements for the year ended 31 December 2017 and profit or loss for the year ended 31 December 2017.

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  • 8 Marks

PT – Dec 2023 – L2 – Q4a – Corporate Tax Liabilities

Explanation of the tax implications of transferring retained earnings to share capital, including deemed dividend tax and stamp duty.

A Nigerian investor (Niger Ltd) in Ghana has the following information relating to its business:

Year Revaluation Reserves (GH¢) Share Capital (GH¢) Retained Earnings (GH¢)
2021 250,000 1,000,000 1,200,000
2020 100,000 600,000 1,350,000

Required:
With relevant computations, comment on the tax implication of the transfer from Retained Earnings to Share Capital. (8 marks)

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  • 5 Marks

PT – Nov 2021 – L2 – Q1a – Income Tax Liabilities

Assess the tax payable on a capital transfer from retained earnings to stated capital based on the details provided.

Kawukudi Ltd intends to increase its capital requirement. Therefore, it applied to the Registrar General with the following:

Retained Earnings Account (GHȼ)

  • Balance b/fwd: 100,000
  • Transfer from income statement: 1,200,000
  • Transfer to stated capital: (600,000)
  • Balance c/fwd: 700,000

Required:
Assess with explanation the tax payable under this circumstance.

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  • 3 Marks

AT – Nov 2015 – L3 – Q4d – Business income – Corporate income tax

Discussing the tax implications of a bonus issue in the retained earnings of a company.

The following is a statement of retained earnings:

Required:
What is the tax implication, if any, on the above income statement?

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  • 4 Marks

BCL – Dec2022 – Q3c – Accounts and audit

Define and explain the terms "retained earnings" and "unclaimed dividend" in a corporate context.

Explain the following:
i) Retained earnings (2 marks)
ii) Unclaimed dividend (2 marks)

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  • 12 Marks

CR – Nov 2014 – L3 – SB – Q4a – Income Taxes (IAS 12)

Compute the impact of deferred tax on retained earnings and advise Lagos Plc on IAS 12 compliance.

The following is the statement of financial position of Lagos Plc as at 31 December, 2013, with its immediate two comparative years.

The management of Lagos Plc is not sure of the impact of IAS 12 (Income Taxes) on its retained earnings as at 31 December, 2013, as well as what the new deferred tax balance will be on migrating to IFRS.

The following information was also available as at the year-end:

Details Value (N’000)
Tax written down value of PPE 40,300
Tax written down value of goodwill 4,300
Tax base of trade receivables 29,800
Tax base of trade payables 13,000

Assume that current tax has been correctly computed in line with the applicable tax laws at 30%.

Required:
Using relevant computations, advise the management of Lagos Plc on the impact of deferred tax calculated on retained earnings in accordance with IAS 12.

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  • 20 Marks

FR – May 2017 – L2 – SB – Q2 – Consolidated Financial Statements

Calculate non-controlling interest, goodwill, and consolidated reserves for Abuja Limited’s acquisition of Abaji Limited.

Abuja Limited acquired 80% of Abaji Limited’s ordinary shares on January 1, 2015. The company paid an immediate N5.00 per share and a further payment of N19,440,000 in cash. The company only recorded the cash consideration of N5 per share. The two statements of financial position as of December 31, 2015, are as follows:

Additional Information:

  1. Non-Controlling Interests (NCI): Abuja Limited values NCI using the fair value at the acquisition date, set at N14,940,000. Due to impairment, the NCI value reduced to N14,220,000 by December 31, 2015.
  2. Revaluation: Abaji Limited revalued its land and buildings at the acquisition date, increasing the value by N3,600,000, with an additional increase of N720,000 on December 31, 2015.
  3. Brand Valuation: Abaji Limited’s product line brand was valued at N7,200,000, with a 10-year useful life as of January 1, 2015. This brand is not included in Abaji’s statement of financial position.
  4. Intercompany Loan: Abuja Limited provided a loan of N10,800,000 to Abaji Limited at acquisition. Interest, payable annually, was not recorded by Abuja Limited by the end of the year.
  5. Development Costs: Abaji Limited completed a development project on June 30, 2015, costing N9,000,000, of which N1,800,000 was amortized by year-end. Only N3,240,000 of development costs were capitalized by the acquisition date, but Abuja Limited’s directors deem these costs unrecognized assets under IAS 38.
  6. Inventory Profits: Abaji Limited sold goods to Abuja Limited, with one-third remaining in Abuja’s inventory at December 31, 2015. The sale profit was N1,080,000.

Required:

Provide the figures to be included in the consolidated statement of financial position as of December 31, 2015, for:

  • a. Non-Controlling Interest (7 Marks)
  • b. Goodwill (7 Marks)
  • c. Consolidated Reserves:
    i. Share premium
    ii. Retained earnings
    iii. Revaluation reserve
    (Show workings for all calculations)

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  • 15 Marks

FA – Nov 2012 – L1 – SB – Q4 – Financial Statements Preparation

Prepare a bank cash book, retained earnings, and statement of financial position for Fehintola Enterprises.

On 1 January 2011, Mrs. Fehintola decided to invest her retirement benefit of N1,000,000 in the wholesale business of Fehintola Enterprises. She lodged the amount into the business bank account and paid for the following by cheque:

  • Motor Van: N600,000
  • Warehouse fittings: N340,000
  • Rent: N12,500

Proper accounting records were not kept, but the financial position as at 31 December 2011 revealed the following:

  • Inventories of goods in the warehouse: N150,000
  • Trade receivables: N125,000
  • Cash at Bank: N751,750
  • Trade payables for supplies: N100,000
  • Accrued rent: N15,000

The following were paid for by cheque:

  • Electricity bill at N2,500 per quarter up to 31 March 2012
  • Suppliers: N1,500,000
  • Personal expenses: N150,000

On 31 December 2011, it was agreed that the Motor Van and Warehouse fittings should be valued at N560,000 and N320,000, respectively.

Required:

a. Prepare the Bank Cash Book (5 Marks)
b. Prepare a statement showing the retained earnings for the year ended 31 December 2011 (5 Marks)
c. Prepare the Statement of Financial Position as at 31 December 2011 (5 Marks)

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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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  • 6 Marks

FR – Nov 2018 – L2 – Q2c- Financial Reporting Standards and Their Applications

This question requires calculating the adjustments to opening retained earnings and profit or loss due to changes in accounting policies and estimates.

Talensi, a company reporting under IFRS, is considering making the following changes to its financial statements for the year ended 31 December 2017. Talensi presents one year of comparative information.

  1. Changing the method of depreciation of its plant from straight-line depreciation over five years (with a nil residual value) to reducing balance at 20% per annum with effect from 1 January 2017. The plant originally cost GH¢100 million on 1 January 2015.
  2. Changing the basis of valuation of certain non-seasonal inventories from first-in, first-out (FIFO) to weighted average cost (WAC). Inventories were valued as follows under the two different methods:
    31 December 2015 31 December 2016 31 December 2017
    FIFO: GH¢64 million FIFO: GH¢66 million FIFO: GH¢71 million
    WAC: GH¢62 million WAC: GH¢63 million WAC: GH¢67 million
  3. Changing the revenue recognition basis for certain seasonal goods that were first sold in 2015 such that revenue is recognised on delivery to the customer rather than on shipment. This has arisen as a result of a change in delivery arrangements such that, with effect from 1 January 2017, risks are now borne by Talensi until delivery has been made to the customer.
    2015 2016 2017
    Revenue based on shipment date: GH¢50 million GH¢86 million GH¢90 million
    Revenue based on delivery date: GH¢46 million GH¢84 million GH¢88 million

The cost of the seasonal goods is consistently 80% of sales price.

Profit (calculated using existing policies and accounting estimates) was GH¢240 million for the year ended 31 December 2017.

Required:
Calculate the adjustment to opening retained earnings in the statement of changes in equity (including 2016 comparative figures) in the financial statements for the year ended 31 December 2017 and profit or loss for the year ended 31 December 2017.

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  • 8 Marks

PT – Dec 2023 – L2 – Q4a – Corporate Tax Liabilities

Explanation of the tax implications of transferring retained earnings to share capital, including deemed dividend tax and stamp duty.

A Nigerian investor (Niger Ltd) in Ghana has the following information relating to its business:

Year Revaluation Reserves (GH¢) Share Capital (GH¢) Retained Earnings (GH¢)
2021 250,000 1,000,000 1,200,000
2020 100,000 600,000 1,350,000

Required:
With relevant computations, comment on the tax implication of the transfer from Retained Earnings to Share Capital. (8 marks)

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  • 5 Marks

PT – Nov 2021 – L2 – Q1a – Income Tax Liabilities

Assess the tax payable on a capital transfer from retained earnings to stated capital based on the details provided.

Kawukudi Ltd intends to increase its capital requirement. Therefore, it applied to the Registrar General with the following:

Retained Earnings Account (GHȼ)

  • Balance b/fwd: 100,000
  • Transfer from income statement: 1,200,000
  • Transfer to stated capital: (600,000)
  • Balance c/fwd: 700,000

Required:
Assess with explanation the tax payable under this circumstance.

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  • 3 Marks

AT – Nov 2015 – L3 – Q4d – Business income – Corporate income tax

Discussing the tax implications of a bonus issue in the retained earnings of a company.

The following is a statement of retained earnings:

Required:
What is the tax implication, if any, on the above income statement?

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  • 4 Marks

BCL – Dec2022 – Q3c – Accounts and audit

Define and explain the terms "retained earnings" and "unclaimed dividend" in a corporate context.

Explain the following:
i) Retained earnings (2 marks)
ii) Unclaimed dividend (2 marks)

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