Series: NOV 2022

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  • 15 Marks

AAA – Nov 2022 – L3 – SC – Q7 – Risk Management in Audits

Explain materiality, benchmarks, and factors affecting materiality determination in audits.

The audit plan and scope was presented to the Audit Committee of Deinde Limited for the year ended December 31, 2020. The external auditors of the company stated:

“We would estimate materiality using profit before tax for the full year. We would estimate our preliminary materiality based on expected results for the full year. We will perform a materiality re-assessment at year-end to confirm adequacy or otherwise of our preliminary materiality. We will report to the Audit Committee on all unadjusted misstatements greater than our established threshold unless they are qualitatively immaterial.”

Your uncle, who is a member of the Audit Committee, discussed this matter with you and requested that you explain the issue further.

Required:

a. Explain the concepts of materiality and performance materiality in an audit of financial statements.

(3 Marks)

b. Explain the benchmark for determining materiality. (5 Marks)

c. Discuss the factors that may affect the identification of an appropriate benchmark. (7 Marks)

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  • 15 Marks

AAA – Nov 2022 – L3 – SC – Q6 – Internal Audit and Corporate Governance

Discuss reasons for outsourcing internal audit, advantages/disadvantages, and functions that cannot be outsourced.

The Internal Audit Unit of Oluvia Bank Limited has been accused of collusion with staff in committing monumental fraud. The following types of fraud were found to be common:

  • Cheque suppression
  • Fraudulent bookkeeping to overstate income
  • Inflation of the worth of the company’s assets
  • Intercepting replaced customers’ cards
  • Fraudsters impersonating Senior Managers or Chief Executive Officer
  • Online banking fraud, such as phishing, malware attacks, and clone websites
  • Impersonating the owner of an account or using fake documents to open an account under someone else’s name (no proper Know Your Customer conducted)

The bank examiners came and were surprised at the level of fraud in the bank and requested management to address it urgently.

After the supervisory visit, the board of directors discussed the issue with the bank’s external auditors, who suggested that the bank could outsource the internal audit functions. The Board of Directors found this suggestion favorable and mandated the Managing Director to act swiftly and report back with details at the next board meeting.

Required:

a. Discuss the main reasons for outsourcing internal audit functions. (3 Marks)

b. Outline the advantages and disadvantages of outsourcing. (10 Marks)

c. Discuss which part of the internal audit function cannot be outsourced. (2 Marks)

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  • 15 Marks

AAA – Nov 2022 – L3 – SC – Q5 – Audit Planning and Strategy

Discuss professional skepticism, benefits of audit planning, audit strategy, and audit stages.

At the weekly meeting of an audit firm, it was reported that a new audit client (Salisa Limited) has just been won. An implementation team has been constituted with a manager as the head. At the meeting of the implementation team, the manager stated that there is a need for the team to work on the audit planning strategy; the contents of which will form the audit planning memorandum that will be presented to the audit committee. He stated further that a professional clearance has to be sent to the former auditor after which, a background check will be performed on the directors and other principal officers of the company. It is also believed that for proper risk assessment, there is a need to understand the business operations of the company. He stated further that the audit will be structured into both interim and final audits.

An experienced member of the team also mentioned the need for the auditor to adopt an attitude of professional skepticism. He emphasized that planning the audit will involve the whole engagement team to establish an understanding of the terms of the engagement as required by ISA 210, which will help establish an overall strategy for the audit. Developing the audit plan will include the nature, timing, and extent of planned risk assessment procedures, further audit procedures, and documentation of the overall audit strategy.

Required:

a. Explain professional skepticism. (2 Marks)

b. State how adequate planning can benefit the audit team. (3 Marks)

c. Explain and illustrate what the establishment of the overall audit strategy involves. (3 Marks)

d. Discuss the elements of interim and final audits.

(7 Marks)

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  • 20 Marks

AAA – Nov 2022 – L3 – SB – Q4 – Audit Planning and Strategy

Discuss audit sampling rationale, key decisions, advantages, sampling methods, and auditor actions in sample testing.

wo accountancy students from a University have been asked to write a term paper on “the reasons why external auditors resort to sampling when conducting the audit of a large entity.” The students are of the opinion that they do not understand why this should be the case, if auditors focus on their work.

They believe statistical sampling is not always good for auditing, especially when a population consists of a small number of large items. It may be appropriate to apply audit tests to the entire population as all the items in the population may not share common characteristics. Added to this, they do not agree that samples could be representative of the population and also reflect the characteristics of the population. There is therefore the risk that the auditors may not reach a correct decision as against when the entire population is tested.

Furthermore, they said that they were confused on how the auditors will work on samples in such a way that all items in the population will be given equal chance of being selected and the key decisions that need to be made for effective sample design.

As an ICAN Professional examination candidate who has just finished reading Audit Sampling (ISA 530), you now saw it as an opportunity to recall and explain what you have read. You are excited to explain the above to the students.

Required:

a. Highlight key decisions to be made to influence the sample size. (4 Marks)

b. Outline the advantages and disadvantages of using statistical sampling. (8 Marks)

c. Explain the sample selection methods that will give equal chance to all the items in the population. (3 Marks)

d. Illustrate what the auditors should do when performing procedures on the samples. (5 Marks)

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  • 20 Marks

AAA – Nov 2022 – L3 – SB – Q3 – Audit Reporting

Examines joint auditors' roles, options for audit disputes, acquisition processes, and reporting requirements.

During the audit of Kofo Plc in 2018, it was observed that there was an omission of liability to the tune of N2 billion. Upon investigation, it was discovered that the error was as a result of unrecorded liability relating to unremitted statutory taxes to the government in prior years. A compensating error was noticed in unsubstantiated investment and receivables balances schedule provided by the management.

The explanation provided by management for this error was that having noted this disparity, the internal audit team was commissioned to reconcile the ledger balances to establish the actual payment to be made to the government. The result of that exercise led to an initial adjustment of N500 million. However, upon further review by the Internal Audit and Risk Management team, the total disparity noted was N5 billion as opposed to the N2 billion initially noted. The reason being that the report with which the Internal Audit Team carried out the reconciliation was understated. Some liability balances were excluded from the report as a result of the approach used to set up the Information System (I.T) System. Therefore, the general command entered into the system to spool the report did not capture the entire transactions. To gain comfort, the audit team:

(i) Reviewed the reconciliation memo to have an understanding of management’s thought process;
(ii) Requested the updated spool of ledger balances from the I.T system;
(iii) Asked the Information Technology team to perform a walkthrough test of the transaction spool;
(iv) Requested the breakdown of the excluded balances and traced them to the supporting documents to which they relate; and
(v) Checked to see that there were no unusual remittances from the bank statements.

You are a member of the audit team which reviewed Kofo Plc’s compliance with International Standards on Auditing (ISA 250) on Non-Compliance with Laws and Regulations (NOCLAR).

Required:

a. Outline the audit procedures to be performed to help identify instances of non-compliance with laws and regulations. (5 Marks)

b. State what the auditor should do when they become aware of an issue of non-compliance with laws and regulations. (5 Marks)

c. State the types of policies and procedures the entity may implement to assist in the prevention and detection of non-compliance with laws and regulations. (4 Marks)

d. Discuss what the auditor should do under the following situations:

  • i. Reporting non-compliance to those charged with governance (2 Marks)
  • ii. Reporting non-compliance in the audit report (2 Marks)
  • iii. Reporting non-compliance to the authorities (2 Marks)

(Total 20 Marks)

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  • 20 Marks

AAA – Nov 2022 – L3 – SB – Q2 – Audit of Complex Entities

Evaluate auditors' responsibilities in fraud detection, financial misreporting, and appropriate audit procedures to mitigate misstatements.

The Financial Controller (FC) of Poki Limited made an observation on the draft engagement letter sent by the external auditors to the company, an extract of which is as stated below:

“The responsibility for safeguarding the assets of the company and for the prevention and detection of fraud, error, and non-compliance with laws or regulations rests with the company’s directors. In accordance with auditing standards, we shall endeavor to plan our audit so that we have a reasonable expectation of detecting material misstatements in the financial statements or accounting records (including any material misstatements resulting from fraud, error, or non-compliance with laws or regulations). However, because any internal control structure, no matter how effective, cannot eliminate the possibility that errors or irregularities may occur and remain undetected and because we use selective testing in our audit, we cannot guarantee that errors or irregularities, if present, will be detected. Accordingly, our audit should not be relied upon to disclose all such material misstatements or frauds, errors, or instances of non-compliance as may exist. The best safeguard against irregularities and fraud is a sound system of internal control.”

The FC accused the auditors of running away from their responsibilities of exposing to the owners of the company fraudulent financial reporting and misappropriation of assets. To him, what is the purpose of audit when fraud and errors could not be discovered? He has threatened to discuss with the Board of Directors and insists that the engagement letter will not be signed until those sections are removed. You are a senior member of the audit team.

Required:

a. Outline the objectives of auditors in relation to fraud. (6 Marks)

b. Explain fraudulent financial reporting and misappropriation of assets. (7 Marks)

c. State the procedures auditors should perform to identify the risks of material misstatement due to fraud. (7 Marks)

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  • 30 Marks

AAA – Nov 2022 – L3 – SB – Q1 – Group Audits

Evaluate the justification for joint auditors, present options for audit concerns, and prepare an appropriate report for disputed acquisition.

Mr. Johnson is the Senior Partner of Johnson, Odewole, Thomas & Co., Chartered Accountants. During the last audit of Mandarin Manufacturing Plc, which the firm did with Messrs Ark Professional Services (APS) for the year ended 30 September, 2020, Mr. Johnson expressed displeasure on some of the conclusions reached by APS on certain audit areas. The manager in charge of the audit at Johnson, Odewole, Thomas & Co. had drawn Mr. Johnson’s attention to matters marked “For Partner’s Attention.” Discussions with the corresponding partner of APS on these matters were considered unsatisfactory.

Mr. Johnson’s views differed significantly from those of the corresponding partner of APS. It was agreed to proceed to the board meeting where these disputed positions would be presented and discussed with the directors before a final decision was reached. Of significance is the acquisition of a property from a former staff member for the opening of a new branch warehouse. The acquisition process was hurried and exceeded the capital expenditure provisions for the period. Mr. Johnson’s team viewed the acquisition as a potential fraud on the company, while APS aligned with the director of finance, who considered it a normal transaction.

At the board meeting to discuss the financial statements, members were divided between the two audit firms’ views, leading the chairman to reschedule the meeting. He requested additional information on both parties’ positions and asked them to harmonize their views before the next meeting the following day.

Required:

a. Evaluate the justification or otherwise of an entity having joint auditors. (8 Marks)

b. Following the concerns of Johnson, Odewole, Thomas & Co., present the options available to the firm. (5 Marks)

c. Discuss the points on which the Chairman needs to base his decision, according to standard acquisition procedures. (7 Marks)

d. If the Chairman agrees with the position of Johnson, Odewole, Thomas & Co., determine the reporting requirement and draft an appropriate report for inclusion in the auditors’ report. (6 Marks)

e. Discuss the composition of items that could be marked “For Partner’s Attention” during the conclusion of an audit process. (4 Marks)

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  • 15 Marks

FM – Nov 2022 – L3 – Q7 – Corporate Governance and Financial Strategy

Analyze the Chairman's proposals to improve EPS and discuss methods to align stakeholder objectives.

The Chairman of Opeyemi plc, a company listed on the Alternative Investment Market, has circulated a memorandum to the company’s directors and senior managers which contains the following statements:

“Looking to the year ahead, there are a number of measures which I propose to increase the company’s earnings per share (EPS).

Payments to trade creditors should be made as late as possible, even if this means extending our credit beyond the terms allowed by our suppliers. The company currently runs a substantial overdraft, and this measure will cut the level of bank interest and charges.

Relatively high capital expenditure in recent years has resulted in substantial depreciation charges in the profit or loss account. All capital spending, including that on the Oloro II project – designed to reduce toxic emissions from the manufacturing plant – should be postponed except where such spending can be shown to be essential to current operations.

Staff pay should be frozen at this year’s level for the forthcoming year. The company’s sponsorship of the local charity events run by the Staff Social Club should also, regrettably, be ended.

By boosting profits and therefore EPS, these measures will help us to achieve the highest possible stock market capitalisation.”

Required:

a. Prepare a response to the Chairman’s proposals which examines the possible consequences of the proposals for the price of the company’s shares and for the company’s stakeholders. (9 Marks)

b. Discuss FOUR ways that encourage managers to achieve stakeholder objectives. (6 Marks)

(Total 15 Marks)

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  • 15 Marks

FM – Nov 2022 – L3 – Q6 – Dividend Policy

Analyze P/E ratios and calculate dividend cover for companies in the food retail sector.

Companies A, B, and C are in the food retailing sector of the stock market. The following key stock market statistics are provided.

Food Retailers: Ordinary Shares, Key Stock Market Statistics:

Company A B C
Share Price (₦) 2.10 1.80 2.30
Earnings per Share (₦) 0.30 0.25 0.35
Dividend per Share (₦) 0.18 0.15 0.25

Required:

a. Illustrating your answer by using data from the table above, define and explain the term P/E ratio, and comment on the way it may be used by an investor to appraise a possible share purchase. (8 Marks)

b. Using data in the above table, calculate the dividend cover for Companies C and B, and explain the meaning and significance of the measure from the point of view of equity investors. (7 Marks)

(Total 15 Marks)

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  • 15 Marks

FM – Nov 2022 – L3 – Q5 – Business Valuation Techniques

Calculate the equity value of APL using SVA and outline three methods for funding the MBO.

Aderupoko Plc (ADP), a large listed media group, has been the holding company of Adamu Publishers Limited (APL) since 2015. The publishing company (APL) is 100% owned by ADP since inception.

Recently, the directors of APL informed ADP’s board of their readiness to make a management buy-out (MBO) of APL. Accordingly, ADP’s board decided to value APL using the shareholder value analysis method (SVA). ADP’s board estimates that APL has a four-year competitive advantage over its competitors (to 30 September 2024) and the following data regarding APL’s value drivers and additional financial information has been collected:

Year to 30 September 2021 2022 2023 2024 2025+
Sales growth (%) 5% 4% 3% 2% 0%
Operating profit margin 8% 9% 10% 10% 10%
Incremental non-current asset investment (% of sales increase) 5% 6% 3% 2% 0%
Incremental working capital investment (% of sales increase) 6% 5% 4% 4% 0%

Financial Information:

  • Sales for the current year to 30 September 2020: ₦80 million
  • Annual depreciation (equal to annual replacement of non-current asset expenditure): ₦2.0 million
  • Par value of 6% debentures in issue (current market value ₦95.00, nominal value ₦100): ₦10.0 million
  • Short-term investments held: ₦0.8 million
  • Company tax rate: 20%
  • Current WACC: 10%

Required:

a. Calculate the value of APL’s equity using SVA.

(12 Marks)

b. Outline three methods by which APL’s directors might raise the funds necessary for the proposed MBO of the company. (3 Marks)

(Total 15 Marks)

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  • 15 Marks

CR – Nov 2022 – L3 – Q7 – Impairment of Assets (IAS 36)

: Evaluate the treatment of a property held for sale and assess impairment adjustments per IFRS 5.

Kukundawa Plc acquired a property for N8 million on which annual depreciation is charged on a straight-line basis at the rate of 7.5%. An impairment loss of N700,000 was recognized at the end of the May 31, 2018 financial year when accumulated depreciation was N2 million. Consequently, the property was valued at its estimated value in use. The company planned to move to new premises before the property was reclassified as held for sale on October 1, 2018. By this time, the fair value less costs to sell was N4.8 million. Kukundawa Plc published interim financial statements on December 1, 2018, by which time the property market value had improved, and the fair value less costs to sell was reassessed at N5.04 million. At the year end, on May 31, 2019, it had improved further, so that the fair value less costs to sell was N5.9 million. The property was disposed of eventually on June 5, 2019, for N6 million.

Required:
a. Assess the above transactions based on the requirements of IFRS 5 – Non-Current Assets Held for Sale and Discontinued Operations. (5 Marks)
b. Evaluate the impact of the events occurring on the property over time and on the financial statements up to the date of disposal. (10 Marks)
(Total 15 Marks)

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  • 15 Marks

CR – Nov 2022 – L3 – Q6 – Ethical Issues in Corporate Reporting

Evaluate ethical threats and recommend safeguards in corporate reporting practices.

Compliance with the fundamental ethical principles may potentially be threatened by a broad range of circumstances. It is expected for professional members to evaluate identified threats and put up enough safeguards as appropriate responses to such threats. Unless any threat is clearly insignificant, members must implement safeguards to eliminate the threats or reduce them to an acceptable level so that compliance with the fundamental principles is not compromised. Many threats fall into the following categories:

i. Self-interest;
ii. Self-review;
iii. Advocacy;
iv. Familiarity; and
v. Intimidation.

Required:
a. Evaluate two circumstances which may give rise to each of the categories of threats enumerated above. (10 Marks)
b. Recommend two safeguards to eliminate or reduce the threats to an acceptable level. (5 Marks)
(Total 15 Marks)

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  • 15 Marks

CR – Nov 2022 – L3 – Q5 – Emerging Trends in Corporate Reporting

Discuss the limitations of financial-only disclosures and the value of including non-financial information in annual reports.

One of the major limitations of traditional financial statements is that they reflect only the effects of transactions that could be reliably measured in monetary terms. Many corporate organisations now include management discussion analysis in their published financial statements. At present, entities reporting under IFRS do not have to publish non-financial information. However, many useful non-financial information had been identified and disclosed by some organisations voluntarily.

Required:
a. Appraise the problems associated with the disclosure of only financial information in an annual report. (5 Marks)
b. Analyse major non-financial information that is considered useful for voluntary disclosure. (5 Marks)
c. Discuss the benefits associated with the disclosure of non-financial information in corporate annual reports. (5 Marks)
(Total 15 Marks)

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  • 20 Marks

CR – Nov 2022 – L3 – Q4 – Employee Benefits (IAS 19)

Discuss pension contributions under IAS 19 and the principles and content of CSR reporting.

a. DOVE-TAIL (Nigeria) Limited is into production of Cashew Nuts for global consumption. The entity has 3,000 employees on the payroll who are qualified for an approved defined contribution plan being operated. The company makes an annual pension contribution of N28,000 per employee. In 2016, the company paid a total contribution amounting to N150 million, as well as N119 million and N54 million in 2017 and 2018, respectively.

Required:
In accordance with IAS 19, how should the pension contribution be treated and accounted for in the financial statements of the company?
(10 Marks)

b. There are no international standards on Corporate Social Responsibility (CSR) reporting. However, there is a strong trend toward the provision of more information on a statutory or voluntary basis, and this trend in corporate reporting is likely to continue in the future. Therefore, companies are encouraged to provide disclosures and report on environmental, social, and corporate governance issues. To this effect, voluntary guidelines for the content of and principles to be applied for social and environmental reports are given.

Required:
i. Explain the principles of corporate social responsibility. (5 Marks)
ii. Discuss the suggested contents of social and environmental reports. (5 Marks)

(Total 20 Marks)

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  • 20 Marks

CR – Nov 2022 – L3 – Q3 – Impairment of Assets (IAS 36)

Evaluate impairment of a CGU for Evo Plc, considering fair value, cost to sell, and cash flows.

Evo Plc acquired a cash-generating unit (CGU) several years ago. The directors of Evo Plc were concerned that the value of the CGU had declined because of a reduction in sales due to new competitors entering the market. At February 28, 2021, the carrying amounts of the assets in the CGU before any impairment testing were:

Asset Carrying Amount (N’m)
Goodwill 3
Property, Plant and Equipment 10
Other Assets 19
Total 32

The fair values of the property, plant, and equipment and the other assets at February 28, 2021, were N10 million and N17 million, respectively, and their costs to sell were N100,000 and N300,000, respectively. The CGU’s cash flow forecasts for the next five years are as follows:

Date (Year Ended) Pre-tax Cash Flow (N’m) Post-tax Cash Flow (N’m)
28 February 2022 8 5
28 February 2023 7 5
28 February 2024 5 3
28 February 2025 3 1.5
28 February 2026 13 10

The pre-tax discount rate for the CGU is 8%, and the post-tax discount rate is 6%. Evo Plc has no plan to expand the capacity of the CGU and believes that a reorganisation would bring cost savings, but as yet, no plan has been approved. The directors of Evo Plc need advice as to whether the CGU’s value is impaired.

The following extract from a table of present value factors has been provided:

Year Discount Rate 6% Discount Rate 8%
1 0.9434 0.9259
2 0.8900 0.8573
3 0.8396 0.7938
4 0.7921 0.7350
5 0.7473 0.6806

Required:
a. How is impairment loss determined and accounted for by a business entity? (6 Marks)
b. Advise the directors of Evo Plc on:
i. Whether the CGU’s value is impaired. (7 Marks)
ii. How the transactions above should be treated in its financial statements in accordance with the provisions of IAS 36 – Impairment of Assets. (7 Marks)
(Total 20 Marks)

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  • 20 Marks

CR – Nov 2022 – L3 – Q2 – Presentation of Financial Statements (IAS 1)

Calculate key financial ratios and evaluate the company's performance for shareholder and lender insight.

A-Z is considering raising external finance through offering its shares for sale or obtaining a term loan from the bank. The company’s financial statements for the year ended November 30, 2021, have been subjected to financial analysis as follows:

Statement of Comprehensive Income for Year Ended November 30:

2021 (N’000) 2020 (N’000)
Profit before interest and tax 6,600 4,710
Interest expense (510) (450)
Profit before tax 6,090 4,260
Income tax expense (2,190) (1,560)
Profit after tax 3,900 2,700
Dividends paid (750) (750)
Retained profit 3,150 1,950

Statement of Financial Position as at November 30:

2021 (N’000) 2020 (N’000)
Non-current assets 19,050 16,800
Current assets:
Trade receivables 6,300 6,210
Inventories 5,130 4,620
Total current assets 11,430 10,830
Total assets 30,480 27,630
Equity and liabilities
Equity:
Share capital (ordinary shares of N1 fully paid up) 9,000 9,000
Retained earnings 11,100 7,950
Total Equity 20,100 16,950
Non-current liabilities:
10% Loan notes 2022/2023 4,500 4,500
Current liabilities:
Trade payables 3,120 3,390
Taxation 1,650 1,350
Bank overdraft 1,110 1,440
Total Equity and Liabilities 30,480 27,630

Required:
a. Compute the following ratios for the years 2020 and 2021:

  1. Return on equity
  2. Dividend cover
  3. Dividend pay-out ratio
  4. Interest cover
    (8 Marks)

b. Based on the ratios computed above, prepare a report on the performance and state of the company, assuming potential shareholders and lenders are the recipients of your report.
(12 Marks)
(Total 20 Marks)

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  • 30 Marks

CR – Nov 2022 – L3 – Q1 – Consolidated Financial Statements (IFRS 10)

Prepare consolidated statement of financial position for RAM, DAM, and TAM as at April 30, 2021, including adjustments for goodwill, revaluation, and retained earnings.

The following draft statements of financial position of RAM, DAM, and TAM, all of which are public limited companies as at April 30, 2021, are provided:

RAM Plc (N’m) DAM Plc (N’m) TAM Plc (N’m)
Non-current assets:
Property, plant, and equipment 2,030 705 356
Investment in DAM 690 – –
Investment in TAM 180 110 –
Total non-current assets 2,900 815 356
Current assets:
Inventories 450 185 75
Trade receivables 270 115 60
Cash and cash equivalents 105 65 85
Total current assets 825 365 220
Total assets 3,725 1,180 576
Equity and liabilities
Equity:
Ordinary share capital 2,400 620 220
Share premium 300 105 56
Revaluation reserves 60 – –
Retained earnings 685 280 76
Total equity 3,385 1,005 412
Non-current liabilities 200 65 64
Current liabilities 140 110 100
Total equity and liabilities 3,725 1,180 576

Additional Information:

  1. Three years ago, on May 1, 2018, RAM Plc acquired 80% of the ordinary share capital of DAM Plc when DAM’s retained earnings were N110m. There were no new share issues since the group structure was created. The fair value of non-controlling interests at acquisition was N160m, and the fair value of DAM Plc’s net assets was N850m at that date. Any fair value adjustments related to inventory were realized by the current year-end.
  2. Two years ago, to veil the identity of the true owner of TAM Plc, RAM Plc acquired 40%, while DAM Plc acquired 25% of TAM’s ordinary share capital on the same date, when the retained earnings of TAM Plc were N65m and those of DAM Plc were N160m. The fair value of non-controlling interest in TAM Plc was N155m as at acquisition, with no revaluation reserve in TAM’s books at that time. The fair values of TAM Plc’s net assets as at acquisition were not materially different from their carrying amount.
  3. The group operates in the oil industry and incurs expenditure on research and development. These costs, previously written off to the statement of profit or loss and other comprehensive income as incurred, are reinstated when the related products are commercialized. The reinstated costs are shown as ‘Development Inventory.’ The costs do not meet IAS 38 criteria for classification as intangibles, and net cash inflows are unlikely to exceed development costs. DAM Plc included N22m of these costs in inventory this year.
  4. DAM Plc purchased significant new production equipment this year. Its cost before a trade discount was N60m, with a discount of N12m taken to the income statement. Depreciation is on a straight-line basis over six years.
  5. The group policy now states tangible non-current assets at depreciated historical cost. This year, the group changed from the revaluation model to the cost model under IAS 16, except for TAM Plc’s tangible non-current assets, which were revalued by TAM Plc’s directors on the first day of the current year, creating an N80m revaluation reserve. TAM Plc’s assets were initially purchased on May 1, two years prior, at N320m, depreciated over six years. The group does not transfer revaluation reserves to retained earnings annually for excess depreciation. There were no additions or disposals in TAM’s assets over the last two years.
  6. Goodwill from DAM Plc’s acquisition was impairment tested each year; the current year-end revealed a recoverable value of N900m for DAM Plc. TAM Plc’s goodwill has not been impaired since acquisition.
  7. The group policy is to value non-controlling interests at fair value.

Required:
Prepare a consolidated statement of financial position for the RAM Group as at April 30, 2021.
(Total: 30 Marks)

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  • 8 Marks

FR – Nov 2022 – L2 – Q4d – Amortisation Schedule for Bond

Prepare amortisation schedule for Lagos State Government Bond and record journal entries on maturity date.

On January 1, 2020, an entity bought Lagos State Government Bond in the capital market for N575,000,000. The principal amount of the bond is
N500,000,000 and it is redeemable at par on December 31, 2025. The bond has a stated interest rate of 15% payable annually and an effective interest rate of 12%. Draft an amortisation schedule to indicate the amortised cost at the end of each year and the journal entries at the end of December 31, 2025

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  • 4 Marks

FR – Nov 2022 – L2 – Q4c – IFRS 9 Financial Instrument Classes

Describe two classifications of financial instruments under IFRS 9, including criteria for measurement.

Explain TWO classes of financial instruments in accordance with IFRS 9. (4 Marks)

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  • 2 Marks

FR – Nov 2022 – L2 – Q4b – Enhancing Characteristics of Financial Information

Explain any two enhancing characteristics of financial information as per IFRS.

Explain any TWO enhancing characteristics of financial information. (2 Marks)

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