Subject: FINANCIAL REPORTING

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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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  • 5 Marks

FR – Nov 2023 – L2 – Q7a – Regulatory Framework for Financial Reporting

Discusses main sources of financial reporting regulations and reasons for regulatory practices.

Within the context of financial reporting and regulatory frameworks:

i. Discuss the main sources of regulations. (3 Marks)
ii. Discuss TWO reasons why financial reporting practice should be regulated. (2 Marks)

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  • 5 Marks

FR – Nov 2023 – L2 – Q6c – Conceptual Framework for Financial Reporting

Discusses areas of financial reporting enhanced by technology, such as data collection, recording, and report distribution.

Discuss TWO areas of financial reporting that could be enhanced by the use of technology. (4 Marks)

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  • 3 Marks

FR – Nov 2023 – L2 – Q6b – Ethical Issues in Financial Reporting

List three types of non-financial information useful to stakeholders for decision-making.

Businesses are increasingly accepting that they are not only accountable to investors and lenders, but also accountable to a much wider group of people or stakeholders to which non-financial information is useful in understanding and taking informed decisions on financial statements of the entities.

Required:
State THREE of such useful non-financial information. (3 Marks)

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  • 8 Marks

FR – Nov 2023 – L2 – Q6a – Ethical Issues in Financial Reporting

Identify and discuss techniques for manipulating financial statements under ethical compliance.

The management of an entity experiencing a decline in profits or poor cash flows may use various forms of creative accounting techniques to manipulate the views shown by the financial statements while complying with all applicable accounting standards and regulations.

Required:
Identify and discuss FOUR techniques of creative accounting. (8 Marks)

 

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  • 12 Marks

FR – Nov 2023 – L2 – Q5b – Accounting for Income Taxes (IAS 12)

Calculate Shakara Limited's income tax liability, deferred tax balance, and movement of deferred tax.

Shakara Limited was incorporated on January 1, 2022. During the year ended December 31, 2022, the company made a profit before taxation of N18,150,000.

The following capital expenditure were made during the year:

Expenditure N’000
Plant and machinery 7,200
Motor vehicles 1,800

The depreciation charged for the year amounted to N1,650,000, and capital allowance granted by the Federal Inland Revenue Services (FIRS) for the same period amounted to N2,250,000.

Company income tax rate is 30%, and deferred tax liability brought forward was N1,200,000.

Required:
i. Calculate the company income tax liability for the year ended December 31, 2022. (3 Marks)

ii. Calculate the deferred tax balance that should be disclosed in the statement of financial position of Shakara Limited as at December 31, 2022. (3 Marks)

iii. Prepare notes showing the movement of deferred tax charged to profit or loss for the year ended December 31, 2022. (3 Marks)

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  • 3 Marks

FR – Nov 2023 – L2 – Q5a – Accounting for Income Taxes (IAS 12)

Define deferred tax, permanent differences, and temporary differences per IAS 12.

Explain the following terms in accordance with IAS 12 – Income tax.
i. Deferred tax
ii. Permanent differences
iii. Temporary differences

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  • 20 Marks

FR – Nov 2023 – L2 – Q4a & b – Earnings Per Share (IAS 33)

Discuss diluted EPS and calculate EPS measures for Ebonyi Limited.

IAS 33 requires publicly-traded companies to calculate a diluted Earning Per Share (EPS) in addition to their basic EPS for the current year (with a comparative diluted EPS for the previous year), allowing for the effect of all dilutive potential ordinary shares.

Required: a. Explain the purpose of the dilutive measures and discuss THREE types of dilution. (8 Marks)

b. The statement of financial position (extracts) for Ebonyi Limited for the year ended December 31, 2022 is as follows:

Equity and Liabilities N’000
Ordinary shares (N1 each) 12,000
Retained earnings 36,000
Equity 48,000
Non-current liabilities:
5% convertible loan notes 4,000

Additional information: i. As at December 31, 2022, there has been no new issue of shares or loan notes for several years.
ii. The loan notes are convertible into ordinary shares in year 2023 or year 2024 at the following rates.
iii. At 30 shares for every N100 of loan notes if converted at December 31, 2023.
iv. At 25 shares for every N100 of loan notes if converted at December 31, 2024.
v. Company income tax rate is 30% on profit.

Required: Calculate the basic EPS and diluted EPS for year 2022. (8 Marks)

c. IAS 33 allows an entity to disclose an alternative measure of EPS in addition to the EPS calculated.

Required: Identify and explain TWO conditions that are required in accordance with IAS 33 to be complied with where an alternative measure of EPS is shown in the financial statements of an entity. (4 Marks)

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  • 12 Marks

FR – Nov 2023 – L2 – Q3b – Property, Plant, and Equipment (IAS 16)

Discuss financial implications of reclassifying investment property under cost and fair value models.

Young Shall Grow Limited with year-end December 31 purchased an office building, with a useful life of 50 years, for N55 million on January 1, 2013. The amount attributable to land was negligible. The company used the building as its head office until December 31, 2017, when the entity moved to a larger premises.

The building was reclassified as an investment property and leased out under a five-year lease. However, owing to a change in circumstances, Young Shall Grow Limited took possession of the building five years later, on December 31, 2022, to use it as its head office once more. At that date, the remaining useful life of the building was confirmed as 40 years.

The fair value of the building was as follows:

  • At December 31, 2017: N60 million
  • At December 31, 2022: N75 million

Required:

Discuss how the changes of use should be reflected in the financial statements of Young Shall Grow Limited:

  1. If the company uses the cost model for its investment properties.
  2. If the company uses the fair value model for its investment properties.

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  • 8 Marks

FR – Nov 2023 – L2 – Q3a – Property, Plant, and Equipment (IAS 16)

Explain reclassification criteria for transferring investment property to PPE.

a. If a property is transferred into or out of the category of property, plant and equipment (PPE), it might be reclassified as investment property or as no longer an investment property.

A transfer of investment property can only be made where there is a change of use of such property.

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  • 15 Marks

FR – May 2017 – L2 – SB – Q7 – Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

Explain criteria for recognizing provisions, differentiate between provisions and contingent liabilities, and apply IAS 37 to specific company scenarios.

a. IAS – 37 applies to all provisions and contingencies apart from those covered by the specific requirement of other standards.

Therefore, provisions differ from other liabilities because there is uncertainty about timing or amount of the future cashflow required to settle the liability.

Required:

  1. Explain the criteria for recognition of provisions in the financial statements and distinguish between provisions and contingent liabilities.
    (6 Marks)

b. The following activities took place in THREE different companies:

  1. Otapiapia Plc: A Rat Trap Company based in Nigeria has just secured exportation of rat killers to South Africa. The advertising slogan of the rat killers is “KILL the BLACKS.” A South African anti-racist movement with a representative in Nigeria is claiming N15,000,000 from the company as damages because the advertising slogan allegedly compromises the dignity of black people. The company’s legal representative believes that the success of the claim will depend on the judge who presides over the case. They estimate, however, that there is a 70 percent probability that the claim will be thrown out and a 30 percent probability that it will succeed.
  2. Ire-Akari Motors Plc: A Nigerian company that specialises in the manufacture of “made-in-Nigeria cars.” During the current financial year, 100 cars have been completed and sold. During testing, a defect was found in their steering mechanism. All 100 customers that bought the cars were duly informed of the defect and were told to bring their cars back to have the defects repaired at no cost. All the customers have indicated that this is the only remedy they require. The estimated cost of the recall is N10.5m. The manufacturer of the steering mechanism, a quoted company with sufficient funds, has accepted responsibility for the defect and has undertaken to reimburse Ire-Akari Motors Plc for all costs that it might incur.
  3. Abeokuta Electricity Company Plc: This company sold a number of electricity transformers with a warranty in the year ended December 31, 2015. At the beginning of the year, the provisions for warranty stood at N5,625,000. A number of claims have been settled during the period for N3,000,000. At the year-end, there were unsettled claims for 300 customers. Experience is that 40% of the claims submitted do not fulfil warranty conditions and can be defended at no cost. The average cost of settling other claims will be N52,500 each.

Required: Explain how the matters in (b)(i) to (b)(iii) above should be accounted for in the financial statements of the three companies using figures to illustrate your points where appropriate.
(9 Marks)

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  • 15 Marks

FR – May 2017 – L2 – SB – Q6 – Non-Current Assets Held for Sale

Explain conditions for assets held for sale, identify impairment, and allocate impairment loss for a disposal group.

a. IFRS 5 – Non-Current Assets Held for Sale and Discontinued Operations set out requirements that specify the accounting treatment for assets held for sale and the presentation and disclosure of discontinued operations.

Required:

  1. Explain the conditions that must apply at the reporting date for an asset (or disposal group) to be classified as held for sale and how the assets can be measured.
    (5 Marks)

b.

  1. Explain how impairment of asset should be identified and accounted for at the end of a reporting period.
    (4 Marks)
  2. A company has decided to dispose of a group of its assets. The carrying amounts of the assets immediately before the classification as held for sale were as follows:
    Asset Amount (₦)
    Goodwill 800,000
    Property, plant and equipment (revalued amounts) 3,050,000
    Property, plant and equipment (at cost) 3,200,000
    Inventory 840,000
    Other current assets 700,000
    Total 8,590,000

    The company estimates that the “fair value less cost to sell” of the disposal group is ₦6,400,000.

    Required:
    Calculate the impairment loss and its allocation to the non-current assets in the disposal group.
    (6 Marks)

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  • 15 Marks

FR – May 2017 – L2 – SB – Q5 – Preparation of Financial Statements

Discuss distinguishing features of debt and equity presentation under IFRS and explain the impact of classification on financial statements.

The difference between debt and equity in an entity’s statement of financial position is not easily distinguishable for preparers of financial statements. Debts and equity financial instruments may have similar characteristics, which may lead to inconsistency of reporting.

Required:

  1. Discuss the main distinguishing features in the presentation of debt and equity under International Financial Reporting Standards (IFRS) with clear examples.
    (10 Marks)
  2. Explain why it is important for entities to understand the impact of the classification of a financial instrument as debt or equity in the financial statement.
    (5 Marks)

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  • 20 Marks

FR – May 2017 – L2 – SB – Q4 – Earnings Per Share (IAS 33)

Explain EPS and PE ratio, and calculate EPS and DPS for Almond Nigeria Limited, also discussing EPS limitations.

a. Explain the following, stating their importance to investors in evaluating financial performance:
i. Earnings per share (EPS)
ii. Price earnings ratio (PE ratio)
(6 Marks)

b. The issued and fully paid share capital of Almond Nigeria Limited, which has remained unchanged since the date of incorporation until the financial year ended March 31, 2015, includes the following:

  • 2,400,000,000 ordinary shares
  • 600,000,000 6% participating preference shares of N1 each

The company has been operating at a profit for a number of years. As a result of a very conservative dividend policy in previous years, there is a large accumulated profit balance on the statement of financial position.

On July 1, 2015, the directors decided to issue two bonus shares to all ordinary shareholders for every one previously held.

The following is an extract of the group statement of profit or loss and other comprehensive income for the year ended March 31, 2016:

Almond Nigeria Limited
Extract of Group Statement of Profit or Loss and Other Comprehensive Income for the Year Ended March 31, 2016

2016 2015
Profit for the year N740,000 N540,000
Other comprehensive income – (20,000)
Total comprehensive income N740,000 N520,000
Total comprehensive income attributable to:
Owners of parent N680,000 N480,000
Non-controlling interest N60,000 N40,000
Total comprehensive income N740,000 N520,000

The following dividends have been paid or declared at the end of the period:

Dividend Type 2016 2015
Ordinary N330,000 N240,000
Preference N69,000 N60,000

Note: The participating preference shareholders are entitled to share profits in the same ratio in which they share dividends after payment of fixed preference dividends. They will also share the same benefit as ordinary shareholders if the company is liquidated.

Required:

  1. Calculate the earnings per share (EPS) in accordance with IAS 33 and the dividend per share (DPS) for the years ended March 31, 2015, and 2016. (10 Marks)
  2. Discuss the limitations of earnings per share (EPS) as a measure of a company’s performance. (4 Marks)

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  • 20 Marks

FR – May 2017 – L2 – SB – Q3 – Partnership Account

Advise Bode Limited on accounting treatment for impairment, borrowing costs, and reclassification to investment property in accordance with IAS 36, IAS 23, and IAS 40.

You are a financial reporting consultant. The management of Bode Limited, a well-diversified company with branches in all states of the federation, has some transactions for which it requires advice. Bode Limited has a financial accountant who is not yet a qualified accountant. These transactions are as follows:

  1. Impairment of Assets: Bode Limited recognized a cash-generating unit during the year ended December 31, 2015, comprising:
    • Property, plant, and equipment: N4,050 million
    • Goodwill: N450 million
    • Other assets: N2,700 million
      Total carrying amount: N7,200 million

    The management estimated the recoverable amount of the cash-generating unit at N6,300 million as of December 31, 2015. The financial accountant understands some provisions of IAS 36 on asset impairment but is uncertain about how to allocate impairment across these assets within the unit.

  2. Borrowing Costs: On January 1, 2015, Bode Limited borrowed N300 million to fund the construction of two assets, expected to take a year to complete. The funds were drawn on January 1 and were allocated as follows, with the remaining funds invested temporarily:
    • Asset X: N50 million on January 1, N50 million on July 1
    • Asset Y: N100 million on January 1, N100 million on July 1
      The loan interest rate is 9% per annum, and surplus funds can be invested at a rate of 7% per annum.
  3. Investment Property Reclassification: The company’s head office in Abuja, previously owner-occupied, was vacated and let out on June 30, 2015, due to a cost-saving decision to move operations to a nearby branch office. The property, initially recognized under IAS 16 at a cost of N37.5 million with a 50-year useful life, was revalued to N52.5 million by an independent valuer as of December 31, 2015. Bode Limited’s accounting policy for investment properties is to use the fair value model.

Required:
Write a memo advising Bode Limited on the accounting treatments for each transaction in their financial statements. Provide relevant calculations where necessary.

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  • 20 Marks

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

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

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

Additional Information:

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

Required:

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

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

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  • 30 Marks

FR – May 2017 – L2 – SA – Q1 – Statement of Cash Flows

Prepare a cash flow statement for Bello Professional Nigeria Limited using the indirect method, discuss the direct method, and explain classification options for interest and dividends in cash flow statements.

The following information relates to financial statements included in the annual report of Bello Professional Nigeria Limited.

Required

a. Prepare a statement of cash flow for Bello Professional Nigeria Limited for the year ended March 31, 2015, in accordance with IAS 7 using the indirect method. (18 Marks)

b. One of the directors at the annual general meeting suggested that the direct method of preparing cash flows is more useful. Comment on this view, providing your opinion. (7 Marks)

c. IAS 7 allows different classifications in cash flow statements. Explain the classification options for the following items:

  • i. Interest paid
  • ii. Dividends received
    (5 Marks)

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  • 10 Marks

FR – Nov 2014 – L2 – Q7b – Property, Plant and Equipment (IAS 16)

Prepare a statement of changes in Property, Plant and Equipment for Kwali Nigeria Plc.

b. The following details are extracted from the non-current assets register of Kwali
Nigeria Plc at the year ended 30 September 2013:

Additional information:

(i) During the year ended 30 September 2013, the company incurred the
sum of N106,000,000 on the construction work in progress and this
resulted in the completion of a warehouse costing N325,000,000. The
warehouse was put to use on 1 June, 2013. The freehold property is
depreciated at a flat rate of 15% per annum on a straight-line basis.

(ii) The leasehold property was acquired on 1 October 2011 on 15 years
lease at a cost of N300,000,000. The company’s policy is to revalue the
property at market value at each year end. At 30 September 2013, the
property was valued at N204,600,000.

(iii) Plant acquired is depreciated at 25% per annum using the reducing
balance method while the leased plant is also depreciated at 25% using
the straight-line method.

(iv) One item of plant acquired for N48,000,000 on 1 October 2010 was
disposed on 30 September, 2013 for N36,000,000 while a new plant with
a higher capacity was acquired as a replacement for N65,000,000 on the
same date.

(v) All the additional pieces of information above are yet to be adjusted for
in the books of Kwali Nigeria Plc.

Required:

Prepare a statement of changes in Property, Plant and Equipment for inclusion in the
Financial Statements for the year ended 30 September 2013. (10 Marks)

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  • 5 Marks

FR – Nov 2014 – L2 – Q7a – Property, Plant and Equipment (IAS 16)

Identify the elements of cost for PPE and provide examples of directly attributable costs.

a. IAS 16 covers all aspects of accounting for Property, Plant and Equipment (PPE), including its measurement and qualification for recognition as an asset. The standard also describes the elements of cost, stating that some costs are directly attributable to the costs of PPE while some other costs fail to qualify as costs of an item of PPE.

Required:

In the context of IAS 16, identify the elements of cost of an item of Property, Plant, and Equipment, giving SIX examples of directly attributable costs. (5 Marks)

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  • 15 Marks

FR – Nov 2014 – L2 – Q6 – Property, Plant and Equipment (IAS 16)

Analyze the Property, Plant, and Equipment of Skelewu Nigeria Limited and compute the deferred tax implications.

Skelewu Nigeria Limited owns the following Property, Plant and Equipment as at 31 December 2011.

 

Additional pieces of information are:

(i) Plant and Machinery are depreciated on a straight-line basis over 5 years. The plant & machinery was acquired on 1 January 2011.
(ii) Land is not depreciated.
(iii) Buildings are depreciated on a straight-line basis over 25 years.
(iv) Depreciation on office buildings is not deductible for tax purposes, but for the plant and machinery; tax deductible is granted over a period of 3 years in the ratio 50:30:20 percent of cost consecutively.
(v) The accounting profit before tax amounted to N15,000,000 for the 2012 financial year and N20,000,000 for the year 2013. These figures include non-taxable revenue of N4,000,000 in year 2012 and N5,000,000 in year 2013.
(vi) Skelewu Nigeria Limited had a tax loss on 31 December 2011 of N12,500,000. The tax rate for year 2011 was 35% and 30% for each of the years 2012 and 2013.

Required:

a. In accordance with IAS 12 on Income Taxes, differentiate between Current Tax and Deferred Tax. (2 Marks)

b. Prepare the Deferred Tax Account for the year ended 31 December 2013. (10 Marks)

c. Advise the Directors of Skelewu Nigeria Limited on the reasons why it is necessary to recognize or make provision for Deferred Tax in the company’s Financial Statements. (3 Marks)

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