Question Tag: Revaluation

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  • 20 Marks

FR – Nov 2024 – L2 – Q3 – Financial Statements Preparation

Preparation of Fahnbulleh LTD’s Statement of Comprehensive Income and Statement of Financial Position using IFRS.

Fahnbulleh LTD (Fahnbulleh) is a well-known company manufacturing thrill rides. During the current economic climate, Fahnbulleh has experienced some difficulties and has had to close down its Merry Go Round division.

The company’s trial balance as at 31 October 2023 is as follows:

Account Description Dr (GH¢’000) Cr (GH¢’000)
Revenue 1,296,000
Cost of Sales 546,480
Distribution Costs 127,080
Administrative Expenses 142,560
Investment Income 28,080
Investment Property 270,000
Interest Paid 17,280
Income Tax 10,800
Property, Plant & Equipment (PPE) – Carrying Value at 1 Nov 2022 1,620,000
Inventories (31 October 2023) 108,000
Trade Receivables 135,000
Bank 64,800
Payables 43,200
Deferred Tax (1 Nov 2022) 75,600
8% Loan Note 432,000
Ordinary Share Capital (GH¢1 per share) 540,000
Retained Earnings (1 Nov 2022) 605,520
Totals 3,031,200 3,031,200

Additional Information:

  1. Revenue Adjustments:

    • Revenue includes VAT of GH¢72 million.

  2. Property, Plant & Equipment (PPE):

    • A building with a carrying value of GH¢54 million was revalued on 1 November 2022 to GH¢72 million.
    • The building had an estimated useful life of 25 years when purchased, and this has not changed after the revaluation.
    • All other PPE should be depreciated at 20% per annum (reducing balance method).
    • All depreciation should be charged to cost of sales.

  3. Closure of the Merry Go Round Division (Discontinued Operations):

    • Closure Date: 1 October 2023
    • Division’s Results (1 Nov 2022 – 1 Oct 2023):
    Item GH¢’000
    Revenue 58,800
    Cost of Sales 38,700
    Distribution Costs 12,240
    Administrative Expenses 11,880
    • The division’s net assets were sold at a loss of GH¢19.2 million, recorded in cost of sales.

  4. Investment Property Revaluation (IAS 40):

    • Investment property value increased by 5%, which should be incorporated into the financial statements.

  5. Income Tax and Deferred Tax (IAS 12):

    • The estimated income tax provision for the year: GH¢140.4 million.
    • Deferred tax liability should be adjusted for temporary differences (GH¢129.6 million) at a 25% tax rate.

  6. Damaged Inventory (IAS 2):

    • Inventory worth GH¢46 million was damaged.
    • It can be reconditioned at a cost of GH¢12 million and sold for GH¢52 million.
    • Appropriate adjustments should be made.

Required:

Prepare and present the Statement of Comprehensive Income for the year ended 31 October 2023 and the Statement of Financial Position as at 31 October 2023 for Fahnbulleh LTD.

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  • 20 Marks

CR – May 2019 – L3 – Q2 – Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)

Assess the accounting treatment of a policy change and analyze the profitability, liquidity, and efficiency ratios of the company based on the financial statements.

Below is the draft financial statement of Lanwani Plc., a manufacturer of fast-moving consumer goods.

Statement of financial position as at

Statement of profit or loss

Additional Information:

  1. The company changed its accounting policy from the cost model to the revaluation model for its property. The revaluation reserve represents the revaluation surplus recognized in 2017. No adjustment was made for 2016.
  2. Development costs of ₦45 billion were capitalized during 2017. The related asset is not expected to generate economic benefits until 2020.

Required:
a. Assess the accounting treatment of the change in accounting policy and state the impact on the return on capital employed (ROCE). (3 Marks)
b. Analyze the profitability, liquidity, and efficiency of Lanwani Plc. (15 Marks)
c. Briefly discuss TWO limitations of the analysis done in (b) above. (2 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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  • 30 Marks

AA – May 2016 – L2 – Q1 – The Role and Responsibilities of Auditors

Examines responsibilities in fraud prevention, asset ownership verification, depreciation rates, asset register contents, and revaluation effects.

You are an employee of Ben, Tai & Co., a firm of Chartered Accountants. One of the firm’s clients is Keke Limited, a car rental company whose shares are not traded on a stock exchange. The company has a large fleet of vehicles which it hires out on a contract basis.

The duration of a contract varies from one day to three months. Anybody wishing to hire a car must possess a valid driver’s license. In addition, they must take out insurance with Keke Limited.

You are involved in the audit of non-current assets for the year ended December 31, 2015.

The company’s main non-current assets are:

  • Freehold land and buildings
  • Office equipment (mainly computers)
  • Motor vehicles

The company was formed ten years ago, and all non-current assets (except for land and buildings) are maintained in a non-current assets register. The company depreciates non-current assets at the following rates:

  • Freehold land and buildings: 2% on cost
  • Office equipment: 20% on cost
  • Motor vehicles: 50% on cost

The company has recently revalued its buildings upwards by N200 million. The directors believe that they have fallen victim to a fraudster who has disappeared with a number of the company’s vehicles.

Required:

a. What is the difference between the responsibilities of management and the auditor for the prevention and the detection of fraud? Explain how these responsibilities are carried out. (6 marks)

b. Describe how you would verify the ownership of:
i. Freehold land and buildings
ii. Computers
iii. Motor vehicles
(6 marks)

c. Comment on the appropriateness of the depreciation rates of the non-current assets and their respective effect on the income statement. (6 marks)

d. List the contents of a non-current asset register and describe its usefulness for Keke Limited. (6 marks)

e. Explain the accounting effect of the revaluation of the buildings to the financial statements and the audit work you would perform in this matter. (6 marks)

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  • 15 Marks

FR – May 2024 – L2 – SB – Q7 – Impairment of Assets (IAS 36)

Discuss the measurement models for intangible assets and calculate the carrying amount and revaluation surplus for Olumo-Taxi Limited.

a. IAS 38 – Intangible Assets allows a business to choose one of two measurement models as its accounting policy for intangible assets after acquisition. However, the same model should be applied to all assets in the same class.

Required:
Discuss the TWO measurement models for intangible assets. (3 Marks)

b. Olumo-Taxi Limited’s financial year ends on December 31. The company adopted the revaluation model for its intangible assets and revalues them on a regular three-year cycle.

However, for intangible assets with a finite life, Olumo-Taxi Limited transfers the relevant amount from revaluation reserve to retained earnings each year.

During the year 2019, Olumo-Taxi Limited incurred N700,000 on the process of preparing an application for licenses for 15 taxis to operate in a holiday resort very close to Abeokuta. In order to prevent congestion and excessive traffic pollution, the licensing authority only allowed a small number of taxis to operate.

The outcome of the company’s application was uncertain up to November 30, 2019, when the local government authority accepted its application. In December 2019, Olumo-Taxi Limited incurred a cost of N90,000 in registering its licenses. The licenses were for a period of 9 years from January 1, 2019.

The licenses are freely transferable, and an active market in them exists. The fair value at December 31, 2019, was N94,500 per taxi, and Olumo-Taxi Limited carried them at fair value in its statement of financial position at December 31, 2019.

At December 31, 2022, Olumo-Taxi Limited undertook its regular revaluation. On that date, the licensing authority announced that it would triple the number of licenses offered to taxi operators, and there were transactions in the active market for licenses with six years to run at N45,000.

Required:
Calculate, with explanations, the carrying amount and revaluation surplus of the intangible assets of Olumo-Taxi Limited according to IAS 38 as at:
i. December 31, 2019
ii. December 31, 2022 (before regular revaluation)
iii. December 31, 2022 (after regular revaluation)
(12 Marks)

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  • 16 Marks

FR – Nov 2019 – L2 – Q1b – Presentation of Financial Statements (IAS 1)

Prepare financial statements for Uchena Nigeria Plc, including profit or loss, changes in equity, and financial position.

The Chief Accountant of Uchena Nigeria plc has just forwarded the trial balance of the company to you for review before the preparation of draft financial statements for the year ended December 31, 2018.

The trial balance is as follows:

Description Debit (N’m) Credit (N’m)
Ordinary share capital 43,200
Revenue 125,280
Staff cost 18,720
Leasehold building 21,600
Patent rights 4,320
Work-in-progress (Jan 1, 2018) 9,000
Accum. Depreciation on building (Jan 1, 2018) 4,320
Inventories of finished goods (Jan 1, 2018) 11,160
Consultancy fee 3,168
Directors’ salaries 25,920
Computer at cost (Hardware) 3,600
Accum. Depreciation on computer (Jan 1, 2018) 1,440
Retained earnings (Jan 1, 2018) 8,712
Dividend paid 9,000
Cash and bank 31,680
Trade receivables 30,240
Trade payables 6,624
Sundry expenses 21,168
Totals 189,576 189,576

Additional information:

  1. On January 1, 2018, buildings were revalued to N25,920 million. This has not been reflected in the accounts.
  2. Computer (hardware) is depreciated over five years. Buildings are now to be depreciated over 30 years.
  3. The patent rights relate to a computer software with a 3-year life span.
  4. An allowance for bad debts of 5% is to be created.
  5. Closing inventories of finished goods are valued at N12,960 million. Work-in-progress has increased to N10,080 million.
  6. There is an estimated liability for current tax of N8,640 million, which has not been recognized.

Required:

  1. Prepare a draft statement of profit or loss (analyzing expenses by nature) for the year ended December 31, 2018. (6 Marks)
  2. Prepare a statement of changes in equity for the year ended December 31, 2018. (4 Marks)
  3. Prepare a statement of financial position as at December 31, 2018. (6 Marks)

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  • 10 Marks

PSAF – Nov 2020 – L2 – Q5a – Accounting for Government Assets and Liabilities

Calculate the gain or loss on the disposal of old equipment and explain five IPSAS 17 disclosure requirements.

Odeda Agricultural Corporation, a parastatal under Waso State Ministry of Agriculture, operates its business with plant and equipment that qualifies under IPSAS 17 on property, plant, and equipment. On January 1, 2020, the cost of the corporation’s plant was N100,000,000, and the accumulated depreciation was N40,000,000. On January 2, 2020, the corporation bought new equipment at the cost of N100,000,000. The equipment supplier accepted an old piece of equipment owned by the corporation in part exchange for a value of N2,500,000. The old equipment originally cost N8,000,000 and had accumulated depreciation of N5,500,000.

Required:

i. Calculate the gain or loss on the disposal of the old equipment. (5 Marks)
ii. Explain five disclosure requirements of property, plant, and equipment stated at revalued amount in accordance with IPSAS 17. (5 Marks)

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  • 1 Marks

FA – May 2012 – L1 – SA – Q7 – Accounting for Property, Plant, and Equipment (IAS 16)

Identifying the correct accounting entry for an increase in asset value due to revaluation.

Which accounting entries should be raised to record an increase in the value of assets on revaluation by the partners?

A. Debit revaluation account and credit partners’ capital account
B. Debit partners’ capital account and credit revaluation account
C. Debit revaluation account and credit partners’ current account
D. Debit revaluation account and credit assets account
E. Debit assets account and credit revaluation account.

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  • 15 Marks

FA – Nov 2020 – L1 – SB – Q6b – Partnership Accounts

Prepare the revaluation account, partners' capital accounts, and the statement of financial position.

b. Emeka has been in business as a Japan spare part dealer. The last statement of financial position of his business as at September 30, 2019, is given below:

N’000 N’000
Equity
Capital 1,000
Retained earnings 130
1,130
Drawings (60)
1,070
Non-current assets:
PPE 1,100
Current assets:
Inventories 190
Trade payables 40
Bank 45
1,375 1,375

On October 1, 2019, he agreed with Bode to join him, and the new business will trade under the name and style EmBo Ventures.

Terms of the new business:

  1. Bode is to contribute capital of N1,250,000 for an equal share of profits.
  2. The firm will take over the assets and liabilities of Emeka at their book values, except for:
    • PPE: N1,250,000
    • Inventories: N175,000
  3. The partners will maintain equal capital, and any shortfall in Emeka’s capital should be made good by credit from revaluation or through additional funds.

Required:

Prepare for EmBo Ventures: i. Revaluation account (5 Marks)
ii. Partners’ capital accounts (5 Marks)
iii. Statement of financial position as at October 1, 2019 (5 Marks)

(Total: 15 Marks)

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  • 1 Marks

FA – Nov 2012 – L1 – SA – Q13 – Financial Statements Preparation

Determining the correct statement about limited liability company accounts.

Which of the following statements is correct about the accounts of limited liability companies?

A. Revaluation surplus on a non-current asset arising from disposal of the asset at a profit
B. Events after the reporting period require that non-adjusting events should be disclosed in the notes to the financial statements
C. The authorised share capital consists of a company’s nominal capital value of shares and loan notes raised by the company
D. Revaluation surplus on investment properties is debited to Income Statement
E. Income is not an element of financial statements

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  • 20 Marks

FR – April 2022 – L2 – Q3 – Preparation of Financial Statements and Adjustments

Prepare the statement of comprehensive income and statement of financial position for Caput Plc for the year ended 31 December 2020, incorporating necessary adjustments.

The trial balance of Caput Plc, as at 31 December, 2020 is provided below:


Additional Information:
1. An inventory count at 31 December 2020 amounted to GH¢15,750,000. This includes damaged goods with a cost of GH¢1,200,000. These will require remedial work costing GH¢675,000 and could be sold for GH¢1,425,000.
2. Finance cost is made up of the full year’s preference and ordinary dividends paid.
3. Non-Current Assets:

  • Land and Building were revalued at GH¢22,500,000 and GH¢72,000,000 respectively on 1 January 2020, resulting in revaluation gain of GH¢11,000,000 for the current year. At that date, the remaining life of the building was 15 years. Depreciation is on a s

    • traight-line basis. Ignore deferred tax implications.

  • Depreciation on Plant and Equipment is at 12.5% on a reducing balance basis.
  • Investment Property: On 31 December 2020, a qualified surveyor valued the property at GH¢20,250,000. Caput Plc uses the fair value model under IAS 40: Investment Property to value its investment property.
  • It is the policy of the company to charge depreciation on a full-year basis

    • .

4. The directors have estimated the provision for income tax for the year ended 31 December 2020 at GH¢12,000,000. The deferred tax for the year ended 31 December 2020 is to be adjusted so that the tax base of the company’s net assets is GH¢18,000,000 less than the carrying amount. Assume the rate of tax is 30%.
5. On 1 October 2020, Caput Plc imported a piece of equipment from a European supplier for €1 million and agreed to settle the bill in six months’ time. The relevant exchange rates are provided below:

No entries have been made for the above transaction. Any exchange difference on translation should be debited or credited to operating expenses.
Required:
Prepare for Caput Plc:
a) Statement of Comprehensive Income for the year ended 31 December 2020. (10 marks)
b) Statement of Financial Position as at 31 December 2020. (10 marks)

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  • 7 Marks

FR – Nov 2023 – L2 – Q2c – Financial Reporting Standards and Their Applications

Determine the amounts to be recognized in profit or loss and other comprehensive income for Wenchi Ltd in respect of an office building.

Wenchi Ltd (Wenchi) is a real estate development company. On January 1, 2022, Wenchi’s office building had a net carrying value of GH¢13.5 million. The property became vacant on April 1, 2022, and was leased to a third party. On October 1, 2022, the property was added to inventory for sale after the lease expired. The property was sold in December 2022 for GH¢16 million.

Required:
In accordance with IFRS, determine the amounts to be recognized in profit or loss and other comprWenchi Ltd (Wenchi) is a real estate development company which has been operating for several years. On January 1, 2022, the office building of Wenchi had a net carrying value of GH¢13.5 million. The cost model was used to value the property. No depreciation had been incurred because the expected residual value was more than the cost due to a buoyant real estate market.

The property became vacant as a result of relocating the company’s operations, and on April 1, 2022, a third party (Dormaa Ltd) was given a six-month short lease to occupy it. The property’s fair value at the time it was leased out was GH¢16.5 million.

Wenchi made the choice to add the property to its inventories of properties for sale in the regular course of business once the lease expired. The property was valued at GH¢15.75 million at 1 October 2022. The property was sold in December 2022 for GH¢16 million.

Required:
In accordance with IFRS, determine the amounts to be recognized in profit or loss and in other comprehensive income in respect of the property for the year ended 31 December 2022.ehensive income in respect of the property for the year ended 31 December 2022.

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  • 6 Marks

FR – Nov 2019 – L2 – Q2b – Financial Reporting Standards and Their Applications

Calculation of amounts recognized in profit or loss and other comprehensive income related to property revaluation and depreciation.

RoyCo acquired a brand new property (land and buildings) on 1 January 2016 for GH¢40 million (including GH¢15 million for the land). The asset was revalued on 31 December 2017 to GH¢43 million (including GH¢16.6 million for the land). The buildings element was depreciated over a 50-year useful life to a zero residual value. The useful life and residual value did not subsequently need revision. On 31 December 2018, the property was revalued downwards to GH¢35 million (including GH¢14 million for the land) due to a recession.
The company makes a transfer from revaluation surplus to retained earnings in respect of realised profit.

Required:
Calculate the amounts recognised in profit or loss and in other comprehensive income for the years ended 31 December 2017 and 31 December 2018. (6 marks)

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  • 20 Marks

FR – July 2023 – L2 – Q3 – Preparation of Financial Statements for Beposo Ltd

Preparation of financial statements (profit or loss, changes in equity, and financial position) for Beposo Ltd for the year ended 31 December 2021.

Beposo Ltd is an agro-processing company, whose head office is in the Greater Accra region of Ghana. The trial balance of the company for the year ended 31 December 2021 is as follows:

Additional Information:

i) Included in the revenue figure is sales made on special arrangement, payable by customers in two years’ time at an amount of GH¢16.8 million. The cash price of the sales at the date of the sales (i.e. 1 January 2021) is estimated at GH¢15 million, and the effective interest rate of the arrangement has been computed as 5.83% per annum.

ii) Non-current assets consist of the following classes of assets:

The company revalues its buildings periodically to ensure that the carrying value reflects their fair market value. On 31 December 2020, the buildings were revalued at GH¢198 million, of which GH¢80 million was attributed to land. The revaluation surplus shown in the trial balance represents the increase in value recorded during this revaluation. All buildings were completed and ready for use on 1 January 2011. The company’s buildings serve as administrative offices and production centers, and they have an estimated useful life of 50 years.

In 2021, the company relocated from one of its administrative offices and sold the building on 1 April 2021 for GH¢27.6 million. The revalued amount and revaluation surplus for this building as of 31 December 2020 were GH¢25 million (with GH¢5 million for the land) and GH¢8 million, respectively. On 31 December 2021, the remaining land and buildings were revalued at GH¢169.35 million, with GH¢85 million attributed to the land. The company’s policy is to recognize revaluation surplus only upon derecognition of the non-current asset.

The sale of the building and the 2021 revaluation of the remaining buildings have not yet been recorded in the company’s books. The payment for the sale of the building was received in the first week of January 2022. There were no other changes to the value of property, plant, and equipment during the year ended 31 December 2021.

Depreciation for 2021 has not been accounted for in the trial balance. The company charges depreciation to cost of sales. Motor vehicles, machinery, and equipment are depreciated over five years.

In lieu of a cash dividend, the company issued bonus shares on 1 January 2021 at a ratio of one new share for every ten existing shares, priced at GH¢1 per share. The issuance was subject to an 8% withholding tax, which has already been paid by the company and is included in administrative expenses. The bonus shares, which are in respect of the year ended 31 December 2020, have not yet been recorded.

After 31 December 2021, the Board of Directors proposed a dividend of GH¢0.80 per share in respect of the year ended 31 December 2021. The dividend has not yet been approved by shareholders.

The provision for tax in the trial balance reflects the under or over provision of tax for the year ended 31 December 2020, based on the difference between the tax estimated for the year and the actual liability determined after a tax audit. The current tax liability for 2021 is estimated at GH¢16.7 million. Taxable temporary differences as at 31 December 2021, arising from discrepancies between the carrying amounts of assets and liabilities and their tax bases, amount to GH¢60 million. The applicable corporation tax rate is 25%.

Required:

Prepare the following financial statements for Beposo Ltd for the year ended 31 December 2021:
i) Statement of profit or loss and other comprehensive income
ii) Statement of changes in equity
iii) Statement of financial position as at that date.
(Total: 20 marks)

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  • 5 Marks

FR – March 2024 – L2 – Q5a – Professional and Ethical Issues in Financial Reporting

Advise Esther on the appropriate actions to take in response to unethical pressure in financial reporting.

Esther is a Chartered Accountant who works in a team that reports to Ameka, the Finance Director of Novak Ltd. Ameka is also a Chartered Accountant and has a domineering personality. Novak Ltd revalues commercial properties in line with IAS 16: Property, Plant and Equipment. Valuation information received last year showed that the fair value of the property portfolio was 2% less than the carrying amount of the properties (with no single property being more than 4% difference). A downward revaluation was not recognised on the grounds that the carrying amount was not materially different from the fair value.

This year’s valuation shows a continued decline in the fair value of the property portfolio. It is now 5% less than the carrying amount of the properties with some properties now being 15% below the carrying amount. Esther submitted workings to Ameka in which she had recognised the downward revaluations in accordance with IAS 16. Ameka has sent Esther an email in response in which he wrote: “Stop bothering me with this rubbish. There is no need to write the properties down. The fair value of the portfolio is only 5% different from its carrying amount. Restate the numbers immediately.”

Required:
Advise Esther on the appropriate actions to take.
(5 marks)

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  • 4 Marks

FR – May 2018 – L2 – Q2d – Financial Reporting Standards and Their Applications

Discuss the accounting treatment for the revaluation of an intangible asset for 2016 and 2017 in accordance with IAS 38.

Delali Ltd adopts the revaluation model for subsequent measurement of its intangible assets in accordance with IAS 38: Intangible Assets. The policy of Delali is to revalue its intangible asset at the end of each year. An intangible asset with an estimated useful life of 9 years was acquired on 1 January 2016 for GH¢45,000. It was revalued to GH¢54,400 on 31 December 2016, and the revaluation surplus was correctly recognized on that date. As at 31 December 2017, the asset was revalued at GH¢32,000.

Required:
Discuss the accounting treatment required in the 2016 and 2017 financial statements. (4 marks)

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  • 20 Marks

FR – May 2019 – L2 – Q3 – Preparation of Financial Statements

Preparation of Statement of Profit or Loss and Statement of Financial Position for Frafraha Ltd as at 31 March 2018.

The following trial balance was extracted from the books of Frafraha Ltd (Frafraha) on 31 March 2018:

The following notes may be relevant:

  1. Frafraha applies the revaluation model of IAS 16 Property, Plant & Equipment to its land and buildings. A revaluation took place on 31 March 2017 and resulted in the fair value of GH¢62 million shown above. This figure included GH¢22 million in respect of land. The buildings were deemed to have a 40-year useful economic life remaining at that date. No depreciation has yet been charged for the accounting period ended on 31 March 2018. All depreciation is charged to cost of sales. On 31 March 2018, a further revaluation took place, which revealed a fair value of GH¢24 million for the land and GH¢41 million for the buildings. This is to be recorded in the books in accordance with the accounting policy of Frafraha.
  2. Plant & equipment is being depreciated at 25% per annum straight line from the date of purchase to the date of sale. On 1 October 2017, a piece of plant was purchased at a cost of GH¢12 million. This replaced another piece of plant which had cost GH¢8 million some years ago and was fully depreciated prior to 31 March 2017. A trade-in allowance of GH¢1 million was received for the old plant. The only entries made to record this transaction were to credit cash and debit suspense with the net payment of GH¢11 million. No other item of plant was more than three years old at 1 April 2017.
  3. The inventories figure in the trial balance is the opening inventories balance measured on the first-in, first-out (FIFO) basis. Due to a change in Frafraha’s business, the company decided to change its accounting policy with respect to inventories to a weighted average basis, as follows:
Date FIFO (GH¢’000) Weighted Average (GH¢’000)
31 March 2016 33,200 30,300
31 March 2017 37,300 34,100

Closing inventories at 31 March 2018, measured under the weighted average basis, amounted to GH¢41.2 million.

  1. Intangible assets consist of capitalised development costs of GH¢30 million. These relate to products in development at 1 April 2017. No revenue has yet been earned from any of these products. They are all expected to be successful once ready for market, with the exception of one project. The amount previously capitalised in respect of this project was GH¢6 million. However, adverse developments have led to the decision to abandon the project as it was unlikely to be successful in the marketplace. During the year, further expenditure was incurred on other qualifying projects and was charged to administration expenses. The amounts are as follows:
    • Prototype development costs GH¢3 million.
    • Marketing research to determine the optimal selling strategy GH¢1 million.
    • Basic research which may lead to future projects GH¢4 million.
  2. Frafraha commenced construction of a new warehouse on 1 May 2017. The building was completed and available for use on 30 November 2017. The cost of construction amounted to GH¢9 million, funded out of general borrowings, which comprise two bank loans as follows:
    • GH¢4 million of bank loan finance at 6% interest.
    • GH¢6 million of bank loan finance at 4.5% interest.

    All interest costs have been expensed in the year to 31 March 2018, but no other entries have been passed in respect of this. Ignore any depreciation in relation to the new warehouse.

  3. Corporate tax for the year is estimated at GH¢0.25 million.

Required:

Prepare, in a form suitable for publication to the shareholders of Frafraha Ltd, the Statement of Profit or Loss for the year ended 31 March 2018 and Statement of Financial Position as at 31 March 2018.

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  • 5 Marks

CR – May 2018 – L3 – Q2e – IAS 12: Income Taxes

Explain how to account for deferred tax arising from revaluation of land.

On 1 October 2016, Abudu Ltd decided to revalue its land for the first time. The land was originally purchased six years ago for GH¢65,000 and was revalued to its current market value of GH¢80,000 on 1 October 2016. The difference between Abudu Ltd’s net assets (including revaluation of land) and the lower tax base at 30 September 2017 was GH¢27,000. The opening deferred tax liability at 1 October 2016 was GH¢2,600, and Abudu Ltd’s tax rate is 25%.

Required:
Explain how to account for the above transaction in the financial statements of Abudu Ltd for the year to 30 September 2017. (5 marks)

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  • 7 Marks

AT – May 2021 – L3 – Q2a – Mergers, Amalgamation and Reorganisation

Write a memo on the tax exposure after a merger involving three companies and asset revaluation gains.

There has been a merger among three companies: Ann Ltd, Bab Ltd, and Cee Ltd. The merger was geared towards creating a monopoly in the market. After careful revaluation of the assets and liabilities of the companies, the following is the outlook:

  • Ann Ltd: GH¢4,200,000
  • Bab Ltd: GH¢5,000,000
  • Cee Ltd: GH¢5,200,000

The following is the outlook of the new company after the merger:

  • Profit: GH¢5,000,000

Required:
As an intern of IKERN and Associates, write a memo to your partner on the company’s tax exposure after the merger.

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  • 10 Marks

FA – Mar 2024 – L1 – Q1b – Non-current assets and depreciation

Prepare journal entries for the depreciation, revaluation, and disposal of non-current assets.

The draft statement of financial position of Tinkong Ltd as at December 31, 2023, depicts the following:

Description GH¢
Plant and Machinery – Cost 4,954,824
Less: Accumulated Depreciation 1,917,016
Net Book Value 3,037,808

On reviewing the accounts of the business, its auditor found that the records have been correctly recorded except for the following events:

  • On January 17, 2023, a contract was signed for the purchase of a machine for GH¢450,000 which is to be delivered on July 17, 2024. The company made an advance payment of GH¢180,000 on signing of the contract and the balance was to be paid on delivery of the machine. The advance payment was debited to the plant and machinery account.
  • The cost of a new plant amounting to GH¢1,080,000 was acquired on January 21, 2023, and debited to the plant and machinery account. However, the cost of installation amounting to GH¢120,000 was debited to the repairs account.

Depreciation is charged on a reducing balance method at 10% per annum. Depreciation on new assets commences in the month in which the asset is acquired.

Required:

Prepare the following accounts indicating the closing balances as at December 31, 2023: i) Plant and Machinery
ii) Accumulated Depreciation – Plant and Machinery

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