Question Tag: Statement of Financial Position

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  • 20 Marks

AAA – Nov 2018 – L3 – Q2 – Regulatory Investigations and Disciplinary Actions

Assessment of joint audit advantages, agenda setup, and addressing regulatory issues in audit planning

Yusuf Olatunji & Co., (Chartered Accountants) have been auditors to XBC Bank Limited. There has been some regulatory and compliance issues for which the bank was sanctioned and paid penalties to both the Central Bank of Nigeria and the Financial Reporting Council of Nigeria. At the board of directors meeting to consider the last annual report audited by the firm, some of the problems caused by the auditors were raised. Following the reoccurrence of such issues, it was proposed that another audit firm be engaged in addition to the present firm. To achieve their objective, a bigger firm that has international affiliation was considered to take a leading position in a joint audit arrangement and to ensure appropriate compliance.

Your firm has been approached for the appointment. A meeting was scheduled between your firm, Yusuf Olatunji & Co., and the executive management of the bank. In preparation for the meeting, you are informed that you will address the meeting on the advantages and disadvantages of joint audit, being an area some members of the management team have expressed concerns.

After the meeting, your firm was subsequently appointed, and the necessary formalities were properly followed. Your partner has directed that you liaise with Yusuf Olatunji & Co. to obtain the necessary materials for the preparation of the audit and that you review your firm’s audit manual with respect to the concerns of management on joint audit.

Your assessment of the documents obtained from the other auditor revealed the following, amongst others:

  1. Part of the penalty was on improper disclosure relating to a material property, plant, and equipment (PPE) acquired during the previous year and a substantial loan above the limit authorised for a sector of the economy;
  2. The classification of unresolved transactions as debit balances in the statement of financial position, resulting in an increase in operating profit and the payment of higher taxes than projected;
  3. The IT operations of the bank had weak controls such that it was possible for some staff to over-ride some of them;
  4. The net current assets have continued to fall and, in the preceding year, have fallen below industry average despite an increase in gross earnings.

Required:

a. Evaluate the advantages and disadvantages of joint audit. (8 Marks)

b. Prepare an agenda for the scheduled meeting between the two audit firms. (4 Marks)

c. Develop the appropriate audit approach to address each of the issues identified from the review of the documents obtained from Yusuf Olatunji & Co. (8 Marks)

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  • 10 Marks

FR – Nov 2023 – L2 – Q7b – Presentation of Financial Statements (IAS 1)

Lists minimum line items for the statement of financial position and changes in equity as per IAS 1

IAS 1- Presentation of Financial Statements provides a list of line items that, as a minimum, must be shown on the face of the statement of financial position.

Required:

i. Give FIVE examples of minimum line items to be shown on the face of the statement of financial position. (5 Marks)
ii. State FIVE items that should be accounted for in the statement of changes in equity. (5 Marks)

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  • 30 Marks

FM – Nov 2017 – L3 – Q1 – Financial Planning and Forecasting

Prepare forecast financials for Lekki Plc and suggest divestment options for a poorly performing subsidiary.

Despite the global recession, demand for the company’s products has recently increased and is expected to grow over the next two years.

As part of a recent strategic review, the directors made the following projections for the years ending March 31, 2018, and March 31, 2019:

  1. An anticipated annual revenue increase of 8% for each year.
  2. Operating costs (excluding depreciation) expected to rise by 4% per year.
  3. Tax rate to remain at 21%, payable in the year liability arises.
  4. The trade receivables/revenue and trade payables/operating costs ratios will stay the same.
  5. Inventory levels to increase by 10% in the year ending March 31, 2018, and then remain stable.
  6. Non-current assets, including Lekki Plc.’s headquarters and factory, are not depreciated, and capital allowances are negligible.
  7. Dividend growth rate to remain at 6% annually, with dividends declared at the year-end and paid the following year.
  8. Purchase of new machinery at N8 million, financed through existing overdraft facilities. Machinery to be depreciated straight-line over 8 years with a N1 million residual value; capital allowances will apply at 18% reducing balance.
  9. Finance costs are projected to increase by 50% in the year ending March 31, 2018, and remain stable thereafter.

Financial Statement Extracts (March 31, 2017):

  • Income Statement:
    • Revenue: N60,240,000
    • Operating Costs: N49,500,000
    • Operating Profit: N10,740,000
    • Finance Costs: N800,000
    • Profit before Tax: N9,940,000
    • Tax: N2,286,000
    • Profit after Tax: N7,654,000
  • Statement of Financial Position:
    • Assets:
      • Non-current Assets: N28,850,000
      • Current Assets:
        • Inventories: N9,020,000
        • Trade Receivables: N9,036,000
        • Cash and Equivalents: N396,000
    • Equity and Liabilities:
      • Ordinary Share Capital: N16,700,000
      • Retained Earnings: N12,482,000
      • Non-current Liabilities: N8,000,000 (6% Debentures)
      • Current Liabilities: N10,120,000 (Trade Payables, Dividends)

Assume today is April 1, 2017.

a. Prepare a Forecast Financial Statement (Income Statement, Statement of Financial Position, and Cash Flow Statement) for each of the years ending March 31, 2018, and March 31, 2019.
(24 Marks)

Note: All calculations should be rounded up to the nearest N’000.

b. Beyond March 31, 2019, the directors are considering the disposal of a smaller subsidiary due to poor performance. The Finance Director suggests avoiding liquidation to minimize industrial relations issues.

Required: Discuss three non-liquidation methods to divest the subsidiary.
(6 Marks)

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  • 20 Marks

PSAF – Nov 2015 – L2 – Q4 – Public Sector Financial Statements

Prepare the financial statements of Egbin Electricity Board for 2014, including statement of financial performance and position.

The following information has been extracted from the books of Egbin Electricity Board, a public sector-owned electricity generating company, for the year ended December 31, 2014:

Item N’000
Accumulated Depreciation, January 1, 2014 45,224
Sale of Electricity 114,392
Purchase of Electricity 95,784
Meter reading, billing, and collection 1,624
Non-Current Assets Expenditure 84,102
Debtors for electricity consumption 12,006
Training and welfare 692
Stock and work-in-progress 1,234
Rents, Rates, and Insurance 2,126
Electricity Estimated unread consumption 7,222
Administration and General Expenses 1,476
Electricity Council Grant 21,556
Preparation of Electricity Council’s Expenses 362
Bank Balance and Cash 1,284
Depreciation for the year 3,634
Hire purchase and deferred payment 2,672
Interest and Financing Expenses 2,434
Creditors and accrued liabilities 13,926
Profit on contracting and sale of appliance poles 534
Reserves 23,116
Rental of Meters Application 556
Distribution cost 4,476
Customer Service 1,810

Required:

Prepare in vertical form the Statement of Financial Performance and Statement of Financial Position for Egbin Electricity Board for the year ended December 31, 2014.

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  • 20 Marks

FR – May 2024 – L2 – SA – Q2 – Conceptual Framework for Financial Reporting

Discusses the information needs of financial statement users, CAMA director report requirements, and deferred tax calculations.

a. The Conceptual Framework for Financial Reporting sets out the concepts that underlie the preparation and presentation of financial statements and considers the various users of these financial statements.

Required:
Identify and discuss the information needs of the different users of financial statements. (10 Marks)

b. The Companies and Allied Matters Act (CAMA) 2020 is the primary source of company law that establishes the requirements for financial reporting by all companies in Nigeria.

Required:
Briefly explain FIVE issues that must be contained in a directors’ report in accordance with CAMA 2020. (5 Marks)

c. Babanriga Nigeria Limited acquired a factory machine for N10 million on January 1, 2019. The machine had an estimated life and residual value of 10 years and N2 million, respectively, and is depreciated on a straight-line basis. In lieu of depreciation, the tax authority allows a tax expense of 40% of the cost of this type of machine to be claimed against income tax in the year of purchase, with 25% per annum of its tax base subsequently on a reducing balance basis. The prevailing company income tax rate is 30%.

Required:
Calculate the deferred tax charge or credit which will be recorded in Babanriga Nigeria Limited’s Statement of Profit or Loss and Other Comprehensive Income for the year ended December 31, 2021, and the deferred tax balance in the Statement of Financial Position at that date. (5 Marks)

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  • 30 Marks

FR – May 2022 – L2 – SA – Q1 – Preparation of Financial Statements

Prepare a statement of profit or loss, comprehensive income, changes in equity, and financial position for Endtime PLC.

Endtime PLC is a company based in Benin with the following trial balance for the year ended December 31, 2020:

Additional Information:
(i) Finance costs include full year dividends on preference shares and ordinary share dividends of 2½ kobo paid at the end of the year. Allowances for 4 doubtful debts are no longer necessary as customers paid as at when due from time to time in the past 2 years.

(ii) Severely damaged inventories, which cost N790,000,000 were included in the inventories in the trial balance. This will need to be repaired at a cost of N440,000,000 before a knowledgeable buyer will be interested to pay N940,000,000 at arm’s length transaction.

(iii) As at December 31, 2020, a valuer based in Victoria Island in Lagos was contacted by the company to review its land and buildings. The land and buildings was revalued upward by N13,000,000,000 and a certificate was issued to this effect. The board of directors approved the valuation but it has
not yet been accounted for in the trial balance. The valuer advised that the remaining useful life of the asset is reasonably and reliably estimated to be 20 years. Depreciation is on straight-line basis.

(iv) Depreciation on plant and equipment is charged at 15% on reducing balance basis. The multi-users S&P and Sage was bought on September 30, 2020. The amortisation is at the rate of 12.5% annually. The amortisation is evenly distributed over the year. Besides, software installation, customisation and
handling cost of N800,000,000, training costs of N900,000,000, consultancy fee of N600,000,000 and other general overheads of N850,000,000 on the new software were included in administrative expenses. All depreciations are treated as administrative costs.

(v) On December 30, 2020, a chartered surveyor valued investment property at N14,000,000,000 and the company uses fair value model in IAS 40 – Investment Property.

(vi) Current income tax has been estimated for the year ended December 31, 2020 at N9,000,000,000 and deferred tax provision as at December 31, 2020 is to be adjusted in the income statement to reflect the tax base of the company’s net assets of N12,000,000,000 less than the carrying amounts. The current
company income tax rate is 30%.

vii) The plant held for sale is valued in the trial balance at its carrying amount. A broker is readily available to buy the plant for N6,000,000,000 at a fee of 6% of sales proceed. The sale would take place in January, 2021. Any necessary adjustment is to be treated as cost of sales.

You are required to prepare:
a. Statement of profit or loss and other comprehensive income for the year ended December 31, 2020. (13 Marks)
b. Statement of changes in equity for the year ended December 31, 2020. (4 Marks)
c. Statement of financial position as at December 31, 2020. (13 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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  • 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 2020 – L1 – SA – Q13 – Elements of Financial Statements

Identifies a component that is not part of the financial statements as defined by IAS 1.

Which of the following is NOT a component of financial statements under IAS 1?
A. Statement of financial position
B. Statement of profit or loss and other comprehensive income
C. Statement of equity
D. Statement of changes in equity
E. Statement of cash flows

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  • 25 Marks

FR – Nov 2021 – L2 – Q1a – Presentation of Financial Statements (IAS 1)

Prepare the financial statements of United Nigeria PLC including comprehensive income, changes in equity, and financial position as of December 31, 2020.

The trial balance for United Nigeria Plc as at December 31, 2020 is given below:

Additional information:

  1. Inventories at the end of the year were N120,000,000. Included in the closing inventories was a damaged item with a cost of N30,000,000, which has a net realizable value of N18,000,000.
  2. Additional ordinary shares of 50,000,000 were issued and fully paid for at 80 kobo per share, which is yet to be recorded.
  3. Interest on 10% loan notes is outstanding and dividend on 12% preference shares were paid on December 31, 2020. Ordinary shareholders were also paid a dividend of 5 kobo per share.
  4. Allowances for trade receivables are to be increased to 15% per annum. Depreciation is charged on plant and equipment at 15% on reducing balance.
  5. N5,000,000 administrative expenses were outstanding, and N25,000,000 company income tax is estimated for the year. Depreciation is charged to administrative expenses.

You are required to prepare the following:

a. (i) Statement of Comprehensive Income for United Nigeria Plc for the year ended December 31, 2020. (10 Marks)
(ii) Statement of Changes in Equity for the year ended December 31, 2020. (5 Marks)
(iii) Statement of Financial Position as at December 31, 2020. (10 Marks)

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  • 20 Marks

FA – Nov 2022 – L1 – SB – Q3 – Financial Statements Preparation

This question requires preparing a trial balance, profit and loss statement, and statement of financial position for Chukwu Limited.

The following balances remained in the books of Chukwu Limited as at December 31, 2020.

Debit Credit
Cash at bank and in hand ₦500
Inventory at December 31, 2020 ₦61,200
Receivables ₦18,005
Payables ₦15,009
Gross profit for the period ending ₦120,942
Salaries and wages ₦28,430
Prepayments ₦600
Bad debt written off ₦500
Accrued expenses ₦526
General reserves ₦25,000
6% Loan Notes ₦20,000
Land and buildings ₦223,362
Motor vehicles (cost) ₦15,000
Office fittings and equipment (cost) ₦42,350
Director’s account (credit) ₦2,500
Interest on loan notes (for half year) ₦600
Sundry expenses ₦4,100
Rates and insurance ₦1,520
Lighting and cooling ₦1,310
Postage and telephones ₦8,800
Profit or loss at January 1, 2020 ₦22,300
200,000,000 ordinary shares of ₦1 each ₦200,000

Additional Information:
(i) Office fittings and equipment are to be depreciated at 15% on cost, and motor vehicles at 20% on cost.
(ii) Provisions are to be made for directors’ fees of ₦6,000,000 and audit fees of ₦2,500,000.
(iii) The amount for insurance includes a premium of ₦600,000 paid on September 1, 2020, to cover the company against fire loss for the period September 1, 2020, to August 31, 2021.
(iv) A bill for ₦548,000 in respect of electricity consumed up to December 31, 2020, has not been accounted for.
(v) The directors have recommended that ₦15,000,000 be transferred to general reserves and a 5% dividend be paid on ordinary share capital.

You are required to prepare:
a. Trial balance of Chukwu Limited at December 31, 2020. (6 Marks)
b. Statement of profit or loss for the year ended December 31, 2020. (8 Marks)
c. Statement of financial position as at December 31, 2020. (6 Marks)

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  • 20 Marks

FR – Nov 2017 – L2 – Q3 – Financial Statements Correction

Adjust the draft statement of financial position and profit figures for Okushe Ltd considering the necessary corrections and revaluations.

Okushe Ltd is a listed textile manufacturing company that prepared the following draft statement of financial position as at 31 October 2017. On subsequent examination of the books and records, the Finance Director prepared a list of issues that may require amendments to the draft statement presented.

Okushe Ltd Statement of Financial Position as at 31 October 2017

GH¢000
Non-current assets
Property, Plant & Equipment 1,020,000
Intangible assets 100,000
Equity investments 360,000
Total non-current assets 1,480,000
Current assets
Inventory 65,000
Trade receivables 130,000
Cash & bank 30,000
Total current assets 225,000
Total assets 1,705,000
Equity
Equity share capital 580,000
Retained Earnings:
– Balance 1 November 2016 375,000
– Profit for year 95,000
– Dividend declared (30,000)
Total Retained Earnings 440,000
Other components of equity:
– Balance 1 November 2016 128,000
– Other comprehensive income for the year 35,000
Total other components of equity 163,000
Total equity 1,183,000
Non-current liabilities
Finance lease obligations 175,000
5% debenture 2021 150,000
Total non-current liabilities 325,000
Current liabilities
Trade payables 95,000
Finance lease obligations 35,000
Provision for warranty claim 12,000
Corporation tax due 25,000
Final dividend due 30,000
Total current liabilities 197,000
Total equity & liabilities 1,705,000

The following notes are relevant:

  1. Property, Plant and Equipment (PPE):
    • The property carried at GH¢130 million was revalued to GH¢110 million on 31 October 2017. This revaluation has not been accounted for. The revaluation reserve (included in other components of equity) had a balance of GH¢12 million due to previous revaluations of this property.
    • A sale agreement was entered during October 2017 to sell some plant with a carrying value of GH¢45 million for an agreed price of GH¢39 million. No cash has been received, as a 30-day credit period was agreed with the purchaser. No entry has been made for this transaction.
  2. Equity Investments:
    • The fair value of equity investments as at 31 October 2017 was GH¢380 million, which has not yet been incorporated into the financial statements. Okushe has decided to take all fair value gains and losses on equity investments to “other comprehensive income” as permitted by IFRS 9 – Financial Instruments.
  3. 5% Debenture:
    • The 5% debenture was issued on 1 November 2016 for cash proceeds of GH¢150 million and was correctly recorded. The effective rate of interest to maturity was 6.5%. The only other entry made in respect of the debenture was the payment of GH¢7.5 million interest on 31 October 2017.
  4. Warranty Provision:
    • The company offers a 12-month warranty on all goods sold. A provision is maintained for the expected cost of honoring this warranty, which has not been updated as at 31 October 2017. 40,000 units of its product were sold during the year, all qualifying for warranty. It expects 10% will need minor repairs at an average cost of GH¢500 each, and 3% will need major repairs at a cost of GH¢10,000 each.

Required:

a) Prepare a schedule showing any corrections required to the profit and other comprehensive income for the year. (8 marks)

b) Redraft the Statement of Financial Position at 31 October 2017, considering the above adjustments. (12 marks)

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  • 14 Marks

FA – May 2017 – L1 – SB – Q3b – Accounting from Incomplete Records

Prepare the statement of profit or loss and statement of financial position from incomplete records.

Shoema is a sole proprietor who has not kept a complete set of books for his business. He has now asked you to prepare his accounts. The following information is made available to you.

Account 31 December 2015 (₦) 31 December 2014 (₦)
Plant and machinery 242,550 272,195
Inventories 116,424 132,864
Trade receivables 87,749 100,254
Trade payables 46,354 49,804
Rates paid in advance – 2,695
Rent accrued 7,007 1,348
Salary accrued 6,468 8,085

Shoema pays all cash received into the bank and makes all payments by cheque. A summary of his bank account for the year is as follows:

Bank Account Amount (₦)
Balance b/f 14,122
Cash sales 897,758
Trade receivables 439,930
Trade payables 917,162
Salaries 143,751
Rent 40,425
Insurance 87,641
Rates 13,475
New machine 53,900
Drawings 58,212
Balance c/f 37,244
Total 1,351,810

Required:

Prepare Shoema’s statement of profit or loss for the year ended December 31, 2015, and statement of financial position as at December 31, 2015.

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  • 1 Marks

FA – May 2017 – L1 – SA – Q6 – Accounting for Inventories in Accordance with IAS 2

Deals with IAS 2 on inventories and the financial statements that pertain to it.

IAS 2 deals with
A. Statement of Financial Position
B. Statement of Comprehensive Income
C. Statement of Cash Flow
D. Inventories
E. Depreciation

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  • 1 Marks

FA – Nov 2019 – L1 – SA – Q9 – Financial Statements Preparation

Calculate the current assets of the business.

Determine the amount of the current assets.

The extract from the financial statements of Benchmark Ventures for the year ended September 30, 2019, is as follows:

  • Capital: N84,000
  • Net profit: N15,000
  • Drawings: N9,000
  • Cash and cash equivalent: N3,000
  • Accounts payables: N50,000
  • Inventory: N29,000
  • Accounts receivables: N35,000

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  • 1 Marks

FA – Nov 2019 – L1 – SA – Q6 Financial Statements Preparation-

Identify which is not a component of financial statements under IAS 1

In accordance with IAS1-Presentation of Financial Statements, which of the following is not a component of financial statements?

 

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  • 6 Marks

FR – April 2022 – L2 – Q2b – Financial Reporting Standards and Their Applications

Prepare extracts for the Statement of Financial Position and Statement of Profit or Loss for Kundugu Ltd in 2020 and 2021, accounting for a lease agreement under IFRS 16.

b) Kundugu Ltd (Kundugu) is a manufacturing company located in the Savannah Region. The reporting date of Kundugu is 31 December, and the company reports under International Financial Reporting Standards (IFRSs). Kundugu intends to expand its production to take advantage of emerging economic activities in the new region.

On 1 January 2020, the company entered into a lease agreement for production equipment with a useful economic life of 8 years. The lease term is for four years, and Kundugu agrees to pay annual rent of GH¢50,000 commencing on 1 January 2020 and annually thereafter. The interest rate implicit in the lease is 7.5%, and the lessee’s incremental borrowing rate is 10%. The present value of lease payments not yet paid on 1 January 2020 is GH¢130,026. Kundugu paid legal fees of GH¢1,000 to set up the lease.

Required:
Prepare extracts for the Statement of Financial Position and Statement of Profit or Loss for 2020 and 2021, showing how Kundugu should account for this transaction. (6 marks)

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  • 20 Marks

FR – Nov 2023 – L2 – Q3 – . Preparation of Financial Statements

Prepare the statement of profit or loss and other comprehensive income and the statement of financial position for Sompa Plc.

The following trial balance relates to Sompa Plc (Sompa) as at 30 June 2023:
Additional information:
i) Revenue includes a GH¢15 million sale made on 1 January 2023 of maturing goods, which are not biological assets. The cost of the goods at the date of sale was GH¢10 million.
Sompa is still in possession of the goods (but they have not been included in the inventory count). Sompa has the option to repurchase the goods at any time within three years of the sale at a price of GH¢15 million plus interest of 10% per annum. On 30 June 2023, the option had not been exercised but it is likely that it will be exercised before the date it lapses.
ii) Sompa commenced a research and development project on 1 January 2023. It spent GH¢5 million per month on research until 31 March 2023. The project then passed on into the development stage with an GH¢8 million per month spending from 1 April 2023 to 30 June 2023, when the development of the project was completed. However, on 1 May 2023, the directors of Sompa were confident that the new product would be a commercial success. Expensed research and development costs should be charged to cost of sales.
ii) Non current assets:
Sompa’s property is carried at fair value which at 30 June 2023 was GH¢145 million. The remaining life of the property at the beginning of the year (1 July 2022) was 15 years. Sompa does not make an annual transfer to retained earnings in respect of excess depreciation on revaluation. The company pays tax on profits at the rate of 25%. Plant and equipment is depreciated at 15% per annum using the reducing balance method. No depreciation has yet been charged on any non current asset for the year ended 30 June 2023. All depreciation is charged to cost of sales.
iv) The 5% loan note was issued on 1 July 2022 at its nominal value of GH¢100 million incurring direct issue costs of GH¢2.5 million which have been charged to administrative expenses. The loan note will be redeemed after three years at a premium which gives the loan note an effective finance cost of 8% per annum. Annual interest was paid on 30 June 2023.
v) At 30 June 2023, the financial asset equity investments had a fair value of GH¢48 million. There were no acquisitions or disposals of these investments during the year.
vi) A provision of GH¢6 million for current tax for the year ended 30 June 2023 is required.
Additionally, GH¢4 million increase in the deferred tax provision is to be charged to profit or loss.
vii) Sompa paid a dividend of GH¢0.20 per share on 30 March 2023, which was followed by an issue of 50 million equity shares at their full market value of GH¢1.70. At 1 July 2022, Sompa had in issue 100 million shares at full market value of GH¢1 each.
Required: Prepare for Sompa Plc:
a) The Statement of Profit or Loss and other Comprehensive Income for the year ended 30 June 2023.
b) The Statement of Financial Position as at 30 June 2023.
(10 marks)

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  • 20 Marks

FA – May 2016 – L1 – SB – Q5 – Accounting from Incomplete Records

Calculate profit or loss and prepare the statement of financial position for Mr. Mala's bookshop using incomplete records.

Mr. Mala, the proprietor of a small bookshop, has requested you to prepare his accounts. He did not keep complete records of account. From his passbook, notebook, bank statements, and oral information obtained during a meeting with him, you put together the following figures for the year ended December 31, 2015:

Item January 1, 2015 (N’000) December 31, 2015 (N’000)
Cash in hand 400 890
Bank overdraft 18,000 14,000
Furniture & Fittings 2,000 2,000
Delivery van 3,600 3,600
Inventories 20,400 22,400
Trade receivables 12,400 9,800
Trade payables 9,120 8,400
Bills payables 2,210 2,200
Bills receivables 3,100 3,200

During the year, Mr. Mala used part of the inventories for domestic affairs which was agreed at N1,200,000. He drew cash for private expenses at frequent intervals. He estimated his drawing in cash at N2,800,000 for the year.

He also agreed with the following suggestions:

  1. To write off irrecoverable debts of N300,000 owed by a customer who died in May 2015.
  2. To charge a notional rent of N1,000,000 per annum for the shop premises owned by him.
  3. To allow 15 percent per annum depreciation on furniture and fittings and 20 percent per annum on the delivery van.

Required:

a. Ascertain Mr. Mala’s bookshop’s profit or loss for the year ended December 31, 2015. (8 Marks)

b. Prepare the statement of financial position of the bookshop at December 31, 2015. (12 Marks)

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  • 20 Marks

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

Preparation of statement of profit or loss and statement of financial position for Biggs Ltd as at 31 December 2018.

Biggs Ltd has a financial year ending 31 December. Its trial balance extracted as at 31 December 2018 is as follows:


Additional Information:
i) The carrying value of inventories at cost at 31 December 2018 was GH¢39.5 million.
The estimated useful life (at the date of purchase) of the PPE components is:

  • Land: infinite life
  • Buildings: 50 years
  • Plant and equipment: 5 years

On 30 June 2018, the directors decided to sell the property because more suitable leasehold property had become available at a very competitive cost. They advertised the property for sale at that date at what was considered to be a realistic asking price of GH¢68 million. They estimated that costs of GH¢3 million would be necessary in order to sell the property. On 1 December 2018, they reduced the asking price to GH¢64.5 million and sold the property at this price shortly after the year-end. Costs to sell totaled GH¢2.5 million.

Required:
Prepare for Biggs Ltd:
a) The Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2018. (10 marks)
b) The Statement of Financial Position as at 31 December 2018. (10 marks)

ii) On 1 January 2018, Biggs Ltd sold some of its plant and equipment to a finance company. Biggs Ltd credited the sales proceeds of GH¢25.6 million to revenue. The plant and equipment were purchased by Biggs Ltd on 1 January 2017 at a total cost of GH¢32 million and were being depreciated over five years. The cost and accumulated depreciation of the disposed asset are still included in the PPE cost and accumulated depreciation accounts.

iii) On 1 January 2018, Biggs Ltd issued 200 million preference shares at 32.50 pesewas each. Costs of issue were GH¢1 million so the net proceeds of the issue were GH¢64 million. The preference shareholders will receive an annual dividend on 31 December each year of GH¢3.9 million. The shares will be redeemed at par on 31 December 2022. The effective annual finance cost attached to these shares is approximately 6.4%. The first annual dividend was paid on 31 December 2018 and is included in dividends paid.

iv) The estimated income tax on the profits for the year to 31 December 2018 is GH¢4.5 million. During the year GH¢4.2 million was paid in full and final settlement of income tax on the profits for the year ended 31 December 2017. The statement of financial position at 31 December 2017 had included GH¢4.4 million in respect of this liability. At 31 December 2018, the carrying amounts of the net assets of Biggs Ltd exceeded their tax base by GH¢35.8 million. Assume an income tax rate of 25%.

v) The details of property, plant, and equipment are as follows:

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