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Topic: Conceptual Framework for Financial Reporting
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+ past questions and counting.
- 30 Marks
FR – Nov 2022 – L2 – Q1 – Financial Performance Ratios
This question asks for the computation of key financial ratios and an analysis of the viability of acquiring controlling interests in two companies.
Question
There has been agitation to stop importation of containers from China, to increase patronage of local industries. The Board of Favour PLC is planning to acquire 75% controlling interests in either Grace Limited or Blessing Limited which produce better and cheaper containers locally. As a trainee working in
Obokun Chartered Accountants, the Managing Partner has requested you to carry out performance score cards of the companies using accounting ratios to assess the viability of the acquisition.
Statement of comprehensive income for the year ended December 31, 2020:
Additional Information:
(i) Inventories as at December 31, 2019 were N60 million, N30 million and N50 Million and the current market prices, 30 kobo, 28 kobo and 10 kobo
for Favour Plc, Grace Limited and Blessing Limited respectively.
(ii) Purchases for cash within 365 days in the year 2020 were 10%, 20% and 40% of cost of sales for Favour Plc, Grace Limited and Blessing Limited
respectively.
Required:
a. Calculate the following ratios for Grace Limited and Blessing Limited.
i. Net profit margin
ii. Quick ratio
iii. Debt equity ratio
iv. Proprietary ratio
v. Earnings yield
vi. Net asset per share
b. Draft a technical report titled “Performance Scorecard‟ of Blessing Limited and Grace Limited and advise Favour Plc in which of the two companies it should acquire 75% controlling interests. (10 Marks)
c. The Chief Financial Officer (CFO) of Favour Plc noted that the records of Blessing Limited and Grace Limited are maintained using block chain technologies.
Required: Discuss the type of records that a company can maintain in blockchain and state TWO benefits of making use of this technology. (10 Marks)
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- 9 Marks
FR – Nov 2022 – L2 – Q7a – Conceptual Framework Purposes
Short Summary: Summarize the six primary purposes of IASB's Conceptual Framework in international standards development.
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- Tags: Accounting principles, Conceptual Framework, Financial Standards, IASB
- Level: Level 2
- Topic: Conceptual Framework for Financial Reporting
- Series: NOV 2022
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- 14 Marks
FR – May 2021 – L2 – Q6b – Conceptual Framework for Financial Reporting
Analysis of qualitative characteristics application in specific financial reporting scenarios.
Question
The following transactions and events took place in Jaye Investment Nigeria Limited during the year ended March 31, 2019.
(i) The company entered into a lease to rent an asset paying N150,000 a year for 5 years out of its useful economic life of 15 years. Assume a rate of interest implicit in the lease to be 10%. (6 Marks)
(ii) The company’s statement of profit or loss prepared using the historical cost method showed a loss from operating its hotels, but the company is aware that the increase in value of its properties during the year far outweigh the operating loss. (4 Marks)
(iii) A decision was made by Jaye Investment Nigeria Limited’s board of directors to change the company’s accounting policy from one of expensing the finance cost on building new retail outlets to one of capitalising such costs. (4 Marks)
Required:
Explain how you would treat the items in (i) to (iii) above in Jaye Investment Nigeria Limited’s financial statements and indicate on which of the qualitative characteristic framework your treatment is based.
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- Tags: Financial Statements, Historical Cost, Leases, Policy Change, Qualitative Characteristics
- Level: Level 2
- Topic: Conceptual Framework for Financial Reporting
- Series: MAY 2021
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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.
Question
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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- 20 Marks
FR – Nov 2014 – L2 – Q3 – Conceptual Framework for Financial Reporting
Calculate basis periods and assess tax-related obligations within the Financial Reporting framework.
Question
USMAN Plc.
Statement of Profit or Loss and Other Comprehensive Income
for the year ended 31 December 2013
USMAN Plc.
Comparative Statements of Financial Position as at:
Additional information extracted from the company’s records are:
(i) Plant which had a carrying amount of N20,000,000 was sold for N28,000,000
cash and new equipment was purchased for N100million.
(ii) Intangibles valued at N30,000,000 were acquired for cash.
(iii) Borrowings of N20,000,000 were made during the year and received in cash.
(iv) Dividends paid in cash amounted to N100,000,000.
Required:
Prepare Statement of Cash Flows for USMAN Plc for the year ended 31 December 2013
in accordance with IAS7 using direct method.
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- Tags: Basis Periods, Capital allowances, Financial Reporting
- Level: Level 2
- Topic: Conceptual Framework for Financial Reporting
- Series: NOV 2014
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- 15 Marks
FR – May 2022 – L2 – SB – Q6 – Conceptual Framework for Financial Reporting
Discuss the qualitative characteristics that make financial information useful and explain the capital maintenance concepts under the IASB framework.
Question
a. The IASB Conceptual Framework for Financial Reporting gives much detail about the qualitative characteristics of financial information that make it useful.
Required:
Discuss the qualitative characteristics that make information useful to users of financial statements. (10 Marks)
b. The Financial Reporting Council of Nigeria (FRCN) is a Federal Government parastatal under the supervision of the Federal Ministry of Industry, Trade, and Investment.
Required:
Identify FOUR main objectives of FRCN as defined in the Act establishing the Institution. (2 Marks)
c. The IASB Conceptual Framework states that there are two concepts of capital maintenance.
Required:
Explain the term financial capital maintenance and physical capital maintenance concepts. (3 Marks)
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- 11 Marks
FR – NOV 2016 – L2 – Q2c – Conceptual Framework for Financial Reporting
Question tests understanding of capital maintenance concepts and their practical application in profit measurement under different concepts.
Question
i. The conceptual framework states that there are two concepts of capital. Explain these two concepts. (4 Marks)
ii. Perfect World Limited commenced business on January 1, 2015 with a single item of inventory which costs N120,000. During the year it sold the item for N180,000 in cash. Also, during the year, general inflation was 10% but the inflation specific to the item was 12%. Calculate the profit under each concept of capital maintenance and show the effect on the Equity of the Company. (7 Marks)
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- 5 Marks
FR – NOV 2016 – L2 – Q2b – Conceptual Framework for Financial Reporting
Question tests understanding of conceptual issues in development costs and application of asset recognition criteria per the conceptual framework.
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- 5 Marks
FR – Nov 2018 – L2 – SC – Q7b – Conceptual Framework for Financial Reporting
Identify the potential users of financial statements and their likely information needs.
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- 8 Marks
FR – Nov 2018 – L2 – SC – Q7a – Conceptual Framework for Financial Reporting
Identify and discuss the limitations of financial statements.
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- Tags: Conceptual Framework, Financial Statements, Limitations
- Level: Level 2
- Topic: Conceptual Framework for Financial Reporting
- Series: NOV 2018
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- 10 Marks
FR – Mar/July 2020 – L2 – Q6a – Economic Decisions and Conceptual Framework Advantages
Outline economic decisions for financial statements and objectives of FRCON with ethical issues they may sanction.
Question
a. The conceptual framework specifies the fundamental reasons why financial statements are produced worldwide which, is to satisfy the requirement of external users.
Required:
Outline FIVE types of economic decisions for which financial statements are likely to be used for and identify TWO advantages of conceptual framework.
(10 Marks)
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- 5 Marks
FR – March 2023 – L2 – Q5b – Conceptual Framework for Financial Reporting
Explain how consistency in accounting policies enhances comparability in financial reporting.
Question
Comparability is one of the enhancing qualitative characteristics of useful financial information. Comparability improves the usefulness of financial statements and it is achieved by consistency.
Required:
Explain the role of consistency in relation to changes in accounting policy and the need for comparability.
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- Tags: Accounting Policies, Comparability, Consistency, Financial Reporting
- Level: Level 2
- Topic: Conceptual Framework for Financial Reporting
- Series: MAR 2023
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- 5 Marks
FR – March 2023 – L2 – Q5a – Conceptual Framework for Financial Reporting
This question asks for an explanation of why faithful representation is important in financial reporting.
Question
The Conceptual Framework for Financial Reporting identifies faithful representation as a fundamental qualitative characteristic of useful financial information.
Required:
Explain why faithful representation is important. (5 marks)
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- 10 Marks
FR – April 2022 – L2 – Q5a – Conceptual Framework for Financial Reporting
Justify how qualitative characteristics of financial information apply to tangible non-current assets using examples.
Question
The IASB’s Conceptual Framework identifies, among others, the qualitative characteristics of relevance, faithful representation, comparability, and understandability.
Required:
Justify with an example each how the qualitative characteristics will apply to the treatment of tangible non-current assets. (10 marks)
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- 5 Marks
FR – July 2023 – L2 – Q5a – Conceptual Framework for Financial Reporting
Discuss the importance of recording transactions based on substance over form in financial reporting.
Question
An important aspect of the International Accounting Standards Board’s Framework for the preparation and presentation of financial statements is that transactions should be recorded based on their substance over their form.
Required:
Explain why it is critical for financial statements to reflect substance over their form.
(5 marks)
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- Tags: Conceptual Framework, Financial Reporting, Substance Over Form
- Level: Level 2
- Topic: Conceptual Framework for Financial Reporting
- Series: JULY 2023
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- 4 Marks
FR – May 2017 – L2 – Q5d – Conceptual Framework for Financial Reporting
Explain the four bases of measurement used in financial statements.
Question
The conceptual framework includes the measurement bases of the elements of the financial statements together with recognition criteria for them.
Required:
Explain the FOUR bases of measurement used in the financial statements.
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- 5 Marks
FR – Nov 2021 – L2 – Q5a – Conceptual Framework for Financial Reporting
Explanation of how the fundamental qualitative characteristics of financial statements apply to intangible assets.
Question
The IASB’s Conceptual Framework identifies the fundamental qualitative characteristics of Financial Statements.
Required:
Explain how these fundamental qualitative characteristics apply to the treatment of intangible assets. (5 marks)
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- 5 Marks
FR – March 2024 – L2 – Q5b – Conceptual Framework for Financial Reporting
Discuss the reasons for the need of a conceptual framework in the standard-setting process.
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- Tags: Conceptual Framework, Financial Reporting, IASB, IFRS, Standard Setting
- Level: Level 2
- Topic: Conceptual Framework for Financial Reporting
- Series: MAR 2024
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