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 – May 2016 – L1 – SB – Q3 – Financial Statements Preparation

Preparing profit or loss and financial position for Uche & Sons as of September 30, 2015.

The following balances were extracted from the books of Uche and Sons as at September 30, 2015.

Additional Information:
(i) Inventories at September 30, 2015, was valued at N198,712,000
(ii) Rent prepaid at September 30, 2015, amounted to N3,200,000
(iii) Depreciation is to be provided on the motorcycle at the rate of 20% of cost per annum
(iv) Salaries and wages outstanding at September 30, 2015, amounted to N6,024,000
(v) Commission not yet due but already received at the trial balance date was N800,000
(vi) Additional irrecoverable debts of N2,840,000 are to be written off
(vii) Bank interest of N100,000 has fallen due but is yet to be received
(viii) Allowances for receivables are to be adjusted to 5% of receivables
(ix) Drawings by the owner of goods costing N1,600,000 and cheques of N2,400,000 are yet to be recorded

Using the extended trial balance, you are required to prepare:
a. Statement of profit or loss of Uche & Sons for the year ended September 30, 2015
b. Statement of financial position of Uche & Sons as at September 30, 2015

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  • 20 Marks

FA – May 2016 – L1 – SB – Q2 – Accounts of Not-for-Profit Entities

Preparing bar trading account, income and expenditure account, and financial position for ABUBA Social Club for March 31, 2016.

The following is a summary of the receipts and payments for the year to March 31, 2016 of ABUBA Social Club:

Receipts:

Description N’000
Club subscriptions 255,000
Donation 22,500
Christmas dance 12,750
Bar takings 405,000

Payments:

Description N’000
Rates 13,500
General expenses 393,000
Bar purchases 277,500
Christmas dance expenses 2,250

Other relevant information at the beginning and end of the year is as follows:

Details April 1, 2015 (N’000) March 31, 2016 (N’000)
Subscriptions due 13,500 9,000
Subscriptions paid in advance 750 1,500
Rates owing 6,750 7,500
Bar inventory 30,000 37,500
Club premises (cost N750,000,000) 300,000 270,000
Furniture (cost N150,000,000) 45,000 30,000
Bank balance 24,000 33,000

You are required to prepare:
a. Club’s Bar Trading Account for the year ended March 31, 2016. (3 Marks)
b. The Income and Expenditure Account for the year ended March 31, 2016. (8 Marks)
c. The Statement of Financial Position as at March 31, 2016. (9 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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  • 1 Marks

FA – May 2024 – L1 – SA – Q13 – Financial Statements Preparation

Identifies an item classified differently from others on the statement of financial position.

Which of the following items is classified differently from others on the statement of financial position?

A. Inventories
B. Intangible assets
C. Prepayments
D. Cash and cash equivalents
E. Trade receivables

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  • 1 Marks

FA – May 2024 – L1 – SA – Q10 – Financial Statements Preparation

Describes the link between the statement of financial position and the statement of profit or loss.

Which of the following correctly explains the links between the statement of financial position and the statement of profit or loss?

A. The statement of profit or loss shows the financial position of a business at a given point in time, while the statement of financial position shows the profit or loss for a period of time.
B. The statement of financial position affects the statement of profit or loss, by adding to the owner’s capital.
C. The statement of profit or loss affects the statement of financial position, by either adding to or reducing the owner’s capital.
D. The statement of profit or loss affects the statement of financial position, by adding to and reducing the owner’s capital.
E. The statement of financial position affects the statement of profit or loss, by reducing the owner’s capital.

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  • 20 Marks

FA – Mar/July 2020 – L1 – SB – Q1a – Financial Statements (Preparation of Statement of Profit or Loss, Statement of Financial Position, Cash Flow Statement, and Statement of Changes in Equity)

Preparing the statement of profit or loss and financial position based on extracted balances.

The following balances were extracted from the books of Walling Enterprises as at October 31, 2019:

Item N’000
Capital at November 1, 2018 90,428
Purchases 776,400
Revenue 1,045,800
Salaries and wages 66,880
Rent and rates 28,004
Receivables 144,600
Bad debts 3,768
Drawings 19,004
Allowances for receivables 7,404
Bank 5,632
Payables 68,616
Cash 668
Inventories at November 1, 2018 164,218
Motorcycle at cost 14,400
Accumulated depreciation on motorcycle 4,200
Bank interest received 1,756
Commission received 5,370

Additional Information:

(i) Inventory at October 31, 2019 was valued at N198,712,000
(ii) Rent prepaid at October 31, 2019 amounted to N3,200,000
(iii) Depreciation is to be provided on the motorcycle at the rate of 20% on cost per annum
(iv) Accrued salary at October 31, 2019 amounted to N6,024,000
(v) Commission received in advance is N800,000
(vi) Additional amount of irrecoverable debts of N2,840,000 is to be written off
(vii) Bank interest of N100,000 has fallen due but is yet to be received
(viii) Allowances for receivables are to be adjusted to 5% of accounts receivables
(ix) Goods taken by the owner for own use and cheque withdrawals amounting to N1,600,000 and N2,400,000 respectively are yet to be recorded.

Required:

Using the extended trial balance, prepare:
a. Statement of profit or loss of Walling Enterprises for the year ended October 31, 2019.
b. Statement of financial position of Walling Enterprises as at October 31, 2019.

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  • 20 Marks

FR – May 2017 – L2 – Q1 – Group Financial Statements and Consolidation

Prepare consolidated financial statements for a parent and subsidiary, including profit or loss, statement of changes in equity, and statement of financial position.

Ghanbetter is a 90% subsidiary of Asonbata, acquired one year ago for GH¢4 billion, when the retained earnings of Ghanbetter were GH¢800 million. Below are the financial statements of the companies:

Statement of Profit or Loss for the year ended 31 December, 2016

Additional Information:
i) During the year Asonbata sold goods to Ghanbetter for GH¢100 million. These goods were sold at a margin of 20%, and one quarter remained in inventory at the year-end.

ii) During the year Ghanbetter sold goods to Asonbata for GH¢180 million. These goods were sold at a mark-up of 50%, and one half remained in inventory at the year-end.

iii) At the year-end, there were no outstanding inter-company current account balances.

iv) At the date of acquisition, the fair value of Ghanbetter’s net assets was equal to their carrying value, except for an item of plant that had a fair value of GH¢200 million in excess of its carrying value and a remaining useful life of four years.

v) Goodwill is to be calculated using the proportionate basis. An impairment review at the year-end reveals that no impairment loss arose.

vi) Both companies have paid a dividend during the year. The dividend distributed by Asonbata was GH¢200 million, and that of Ghanbetter GH¢100 million. The investment income that Asonbata has recognised is the dividend received from Ghanbetter shortly before the year-end.

Required:
Prepare the Consolidated Statement of Financial Position, Statement of Changes in Equity, and Consolidated Statement of Profit or Loss for Asonbata for the year ended 31 December, 2016.

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  • 20 Marks

FR – Nov 2021 – L2 – Q3 – Preparation of Financial Statements

This question focuses on the preparation of a Statement of Profit or Loss and Other Comprehensive Income and a Statement of Financial Position for Neeta Ltd, incorporating revaluations, deferred tax, and lease accounting.

Neeta Ltd is a manufacturing company located in the Western Region. The trial balance of Neeta Ltd as at 31 March 2020 is as follows:

Trial Balance GH¢’000 GH¢’000
Revenue (Note i) 164,000
Production costs 90,000
Distribution costs 8,000
Administrative expenses 26,000
Inventory at 31 March 2019 19,710
Interest paid on interest-bearing borrowings 3,000
Income tax (Note iii) 100
Dividends paid on equity shares 5,000
Property, Plant and Equipment (PPE) (Note iv) 77,000
Provision for depreciation on PPE at 31 March 2019 22,610
Trade receivables 53,000
Cash and cash equivalents 33,000
Trade payables 12,000
Long term interest-bearing borrowings 50,000
Lease rentals (Note v) 20,000
Deferred tax (Note iii) 7,000
Share capital 50,000
Retained earnings at 31 March 2019 29,000
Totals 334,710 334,710

Additional information:

i) On 1 April 2019, Neeta Ltd sold goods to a customer for a price of GH¢12.1 million. The terms of the sale allowed the customer extended credit, and the price was payable by the customer in cash on 31 March 2021. Neeta Ltd included the GH¢12.1 million in revenue for the current year and the corresponding entry in trade receivables. A discount rate that is appropriate for the risks in this transaction is 10%.

ii) The carrying value of inventory at 31 March 2020 was GH¢25 million.

iii) The estimated income tax on the profits for the year to 31 March 2020 is GH¢1.5 million. During the year, GH¢1.3 million was paid in full as the final settlement of income tax on the profits for the year ended 31 March 2019. The statement of financial position as at 31 March 2019 had included GH¢1.4 million in respect of this liability.

As at 31 March 2020, the carrying amounts of the net assets of Neeta Ltd exceeded their tax base by GH¢28 million. This information is before taking account of the Property revaluation (see Note iv below). The rate of income tax is 30%.

iv) Details of Property, Plant and Equipment are as follows:

Component of PPE Cost (GH¢’000) Accumulated depreciation at 31 March 2019 (GH¢’000) Carrying Amount at 31 March 2019 (GH¢’000)
Land 22,000 0 22,000
Buildings 28,000 5,600 22,400
Plant and Equipment 27,000 17,010 9,990
Total 77,000 22,610 54,390

The estimated useful economic life (at the date of purchase) of PPE components are:

  • Land: Infinite life
  • Building: 50 years
  • Plant and Equipment: 4 years

On 1 April 2019, the property’s open market value was GH¢60 million, including GH¢32 million relating to the building. The directors wish to reflect this revaluation in the financial statements, but no entries regarding the revaluation have been made. The directors do not want to make an annual transfer of excess depreciation to retained earnings. The original estimate of the useful economic life of the building is still considered valid. No assets were fully depreciated at 31 March 2020. All the depreciation is to be charged to the cost of sales.

v) On 1 April 2019, Neeta Ltd leased a large group of machines used in the production process. The lease was for 4 years, and the annual rental (payable in advance) was GH¢20 million. The lessee has not elected to apply the recognition exemption under IFRS 16 leases. The interest rate implicit in the lease can be taken as 9% per year.

Required:

a) Prepare the Statement of Profit or Loss and Other Comprehensive Income for Neeta Ltd for the year ended 31 March 2020.
(10 marks)

b) Prepare the Statement of Financial Position for Neeta Ltd as at 31 March 2020.
(10 marks)

(Total: 20 marks)

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  • 20 Marks

FR – Nov 2021 – L2 – Q1 – Group Financial Statements and Consolidation

Prepare the Consolidated Statement of Financial Position for Sankofa Group considering investments, goodwill, and intra-group transactions.

The following statement of financial position relates to Sankofa and Kaakyire as at 31 October 2020.

Statement of Financial Position Sankofa (GH¢’000) Kaakyire (GH¢’000)
Non-current assets
Property, Plant and Equipment 37,000 30,000
Investment Property 5,000 –
Investments 24,000 –
Total Non-current assets 66,000 30,000
Current assets
Inventory 9,000 8,000
Other current assets 21,000 14,000
Total Current assets 30,000 22,000
Total assets 96,000 52,000
Equity and liabilities
Ordinary shares (issued @ GH¢2.50) 20,000 8,000
Retained earnings 26,000 16,000
Total Equity 46,000 24,000
Non-current liabilities
10% debentures 11,900 12,000
Current liabilities
Payables 38,100 16,000
Total Equity and liabilities 96,000 52,000

Additional information:
i) On 1 November 2018, Sankofa purchased 2.4 million of the ordinary shares of Kaakyire when Kaakyire’s retained earnings balance stood at GH¢11 million. There have been no movements in share capital since the acquisition. As part of the consideration given for the shares acquired, the shareholders of Kaakyire accepted 1 million shares worth GH¢7 million in Sankofa at acquisition. The remaining consideration was agreed to be paid on 31 October 2020 for GH¢12.1 million. The present values of GH¢1 receivable based on 10% (considered to be an appropriate discount rate for Sankofa) are as follows:

Present Value of GH¢1 receivable
In one year’s time:
In two years’ time:

Entries have been correctly passed for the effects of all of the above, including any unwound discounts, except for the final payment made on 31 October 2020.

ii) At acquisition, the fair values of Kaakyire’s assets, liabilities, and contingencies were equal to their carrying amounts, with the exception of the following assets:

Carrying amount (GH¢’000) Fair value (GH¢’000)
Trade receivables 1,250
Inventory 1,500
Properties 14,000

The properties had a remaining useful life of 10 years. No items of property were sold during the two years to 31 October 2020. The inventory and the receivable were realised during the post-acquisition period.

iii) On 1 November 2019, Kaakyire sold an item of plant to Sankofa for GH¢5 million. Kaakyire originally bought the plant from Gyidie for GH¢6 million, and Kaakyire had provided accumulated depreciation of GH¢2.2 million up to the date of sale. Kaakyire considered the plant to have a remaining useful life of 5 years at the date of transfer.

iv) The Investment Property in the books of Sankofa represents an office facility that was completed on 1 November 2018 at the cost of GH¢3.5 million. The useful economic life of the facility was estimated at 20 years. Immediately after the acquisition of Kaakyire, Sankofa began to rent this property out to Kaakyire under a lease agreement. Sankofa Group values its investment properties using the fair value model under IAS 40 Investment Properties and its owner-occupied properties using the cost model under IAS 16 Property, Plant and Equipment.

v) On 1 November 2019, Sankofa acquired 30% of the ordinary shares of Kaboom at the cost of GH¢6 million. During the year ended 31 October 2020, Kaboom reported a profit after tax of GH¢2 million. No dividends were paid or declared by Kaboom during the period. At year-end, Kaboom’s inventory included GH¢1.2 million worth of goods bought from Sankofa during the year to October 2020. Sankofa charges a 25% margin on all sales.

On 31 October 2019, Goodwill acquired in Kaakyire was attributed with an impairment loss of GH¢0.5 million. The group’s policy is to measure non-controlling interest at the proportion of the fair value of the subsidiary’s net assets.

Required:
Prepare the Consolidated Statement of Financial Position for the Sankofa Group as at 31 October 2020.

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  • 15 Marks

FR – May 2016 – L2 – Q4 – Financial Statement Analysis

Prepare a report for the managing director of ANN Co. on IB Co's financial position, focusing on gearing and liquidity ratios.

ANN Co is considering acquiring an interest in its competitor IB Co Ltd. The managing director of ANN Co has obtained the three most recent statements of financial position of IB Co Ltd as shown below:

IB Co Ltd – Statement of Financial Position as at 31st December:

2013 2014 2015
Non-current assets
Land and buildings 11,460 12,121 11,081
Plant and equipment 8,896 9,020 9,130
Total non-current assets 20,356 21,141 20,211
Current assets
Inventories 1,775 2,663 3,995
Trade receivables 1,440 2,260 3,164
Cash 50 53 55
Total current assets 3,265 4,976 7,214
Total assets 23,621 26,117 27,425
Equity
Share capital 8,000 8,000 8,000
Retained earnings 6,434 7,313 7,584
Total equity 14,434 15,313 15,584
Non-current liabilities
12% debentures (2015-2018) 5,000 5,000 5,000
Current liabilities
Trade payables 390 388 446
Bank 1,300 2,300 3,400
Income taxes payable 897 1,420 1,195
Dividend payable 1,600 1,696 1,800
Total current liabilities 4,187 5,804 6,841
Total equity and liabilities 23,621 26,117 27,425

Required:
Prepare a report for the managing director of ANN Co, commenting on the financial position of IB Co Ltd and highlighting any areas that require further investigation (using gearing and liquidity ratios only).

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