Additional information:

i) The carrying value of inventories on 31 December 2020 was GH¢23 million.

ii) Administrative expenses include a provision of GH¢10 million for the possible costs of a legal claim lodged against Koli Ltd by one of its customers before 31 December 2020. The directors of Koli Ltd consider that it is probable that Koli Ltd can successfully defend the case, but they are providing for the worst possible outcome on the grounds of prudence. The provision of GH¢10 million is for the amount sought by the customer (GH¢9.6 million) plus the directors’ best estimate of the legal costs incurred in defending the case. If Koli Ltd successfully defends the case, then based on the outcomes of similar cases in the past, it is likely (but not sure) that the customer will be required to reimburse Koli Ltd for its legal costs.

iii) On 1 January, 2020, Koli Ltd paid GH¢5 million for a ten-year export license.

iv) The estimated income tax on the profits for the year to 31 December 2020 is GH¢2.5 million. During the year, GH¢2.2 million was paid in full and in the final settlement of income tax on the profits for the year ended 31 December 2019. The statement of financial position on 31 December 2019 had included GH¢2.4 million in respect of this tax liability.
A transfer of GH¢1.4 million is required to increase the deferred tax liability in the statement of financial position; GH¢900,000 of this amount was necessary due to the taxable temporary difference caused by the property revaluation (see note v below).

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

Estimate of useful economic life (at the date of purchase) of PPE components:
Land                                  –       nil (infinite life)
Building                            –       50 years
Plant and Equipment         –       4 years

Depreciation of property, plant and Equipment is allocated as follows:
80% to cost of sales
10% to distribution expenses
10% to administrative expenses

The above allocation relates to only owned tangible assets. All other depreciation or amortisation charges should be fully charged to the cost of sales.

On 1 January, 2020 the directors of Koli Ltd decided to revalue its property (Land and Building) to its market value of GH¢40 million, including GH¢19.5 million for the Land. The original estimate of the useful economic life of the property was still considered valid. The directors wish to make an annual transfer of excess depreciation from the revaluation reserve to realised profits following the revaluation.

Required:
Prepare for Koli Ltd,
a) The Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2020. (8 marks)

b) The Statement of Changes in Equity for the year ended 31 December 2020. (4 marks)

c) The Statement of Financial Position as at 31 December 2020. (8 marks)

Makoo Ltd’s financial statements for the year ended 31 December 2019 are being prepared and you are provided with the following trial balance at that date:

Additional Information:
i) On 20 December 2019, Makoo Ltd signed a contract to supply a customer with goods in February 2020. The customer paid a deposit of GH¢5 million when the contract was signed and Makoo Ltd credited this amount to revenue. Makoo Ltd did not make any adjustment to inventory on 20 December 2019 as a result of receiving the deposit.

ii) On 31 December 2019, the value of the inventories at cost at Makoo Ltd’s premises was GH¢40 million. This included 200,000 units of partly completed inventory that had cost GH¢20 per unit to manufacture. The estimated cost to complete this inventory is GH¢6 per unit and the selling cost is estimated at GH¢1 per unit. Until recently the selling price of this product was GH¢30 per unit. However, a competitor has developed a new product which has affected the ability of Makoo Ltd to sell the product at the normal price and it is estimated that they will need to reduce the price to GH¢22.50 per unit (selling costs unaffected) in order to be able to sell these items.

iii) On 1 January 2019 Makoo Ltd entered into an agreement to lease a number of machines. The lease was for a four-year period, which was the estimated useful economic life of the machines. Makoo Ltd is required to repair and insure the plant, which has no estimated residual value at the end of the lease. The lease rentals were set at GH¢10 million every six months, payable in advance. The lease rentals figure included GH¢20 million in respect of this lease. The rate of interest implicit in this lease was 5% per six-monthly period and the present value of the future lease payments was estimated at GH¢60 million at 1 January 2019.

• Depreciation of all property, plant and equipment should be charged to cost of sales. Depreciation has not yet been charged for the year ended 31 December 2019.
• The plant and equipment is being depreciated on a straight-line basis at 25% per annum. No disposals of property, plant and equipment occurred in the period.
• The depreciable element of the property has an allocated carrying value of GH¢50 million and is being depreciated on a straight-line basis over 50 years from the date of original purchase. On 1 January 2019 the directors of Makoo Ltd revalued this property for the first time. The property had an estimated market value at 1 January 2019 of GH¢100 million. It is further estimated that GH¢54 million of this value relates to the depreciable element. The original estimate of the useful economic life is still considered valid.
• The directors have decided not to make an annual transfer of excess depreciation on revalued assets to retained earnings.

v) On 31 March 2019 Makoo Ltd made full and final payment to discharge the income tax liability for the year ended 31 December 2018. The balance on the income tax account in the trial balance is the residue after making that payment. The estimated income tax liability for the year ended 31 December 2019 is GH¢5 million. A transfer of GH¢600,000 needs to be made to the deferred tax account for the period. This includes the impact of all the adjustments necessary to prepare the financial statements apart from the initial revaluation of the property (Note iv). The rate of income tax is 25%.

vi) The closing trade receivables include an amount of GH¢10 million owed by a customer who experienced cash flow problems prior to the year end. Makoo Ltd agreed to accept a payment of GH¢8 million in full and final settlement of the debt and to defer the payment until 31 December 2020. Makoo Ltd would expect a return of 10% on sums invested for one year.

Required:
Prepare for Makoo Ltd;
a) The Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2019.  (10 marks)

b) The Statement of Financial Position as at 31 December 2019.  (10 marks)

Badu Trading Ltd has prepared the following draft financial statements for your review.

Additional information:
i) Income tax of GH¢2.1 million is yet to be provided for on profit for the current year. An unpaid under-provision for the previous year’s liability of GH¢400,000 has been identified on 5 June 2020 and has not been reflected in the draft accounts.

ii) There have been no additions to, or disposals of, non-current assets in the year but the assets under construction have been completed in the year at an additional cost of GH¢50,000. These relate to plant and machinery.
The cost and accumulated depreciation of non-current assets as at 1 June 2019 were as follows:

iii) There was a revaluation of land and buildings during the year, creating the revaluation reserve of GH¢5 million (land element GH¢1 million). The effect on depreciation has been to increase the buildings charge by GH¢300,000. Badu Trading Ltd adopts a policy of transferring the revaluation surplus included in equity to retained earnings as it is realised.
iv) Staff costs comprise 70% factory staff, 20% general office staff and 10% goods delivery staff.
v) An analysis of depreciation charge shows the following:
.                                                                                                                                         GH¢000
Buildings (50% production, 50% administration)                                                           1,000
Plant and machinery                                                                                                          2,550
Fixtures and fittings (30% production, 70% administration)                                          700

Required:
Prepare the following information in a form suitable for publication for Badu Trading Ltd’s financial statements for the year ended 31 May 2020.
a) Statement of profit or loss                  (7 marks)

b) Statement of financial position           (7 marks)

c) Statement of changes in equity           (6 marks)

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

Additional information:
i) The carrying value of inventories at cost at 31 December 2018 was GH¢39.5 million.
ii) On 1 January 2018 Biggs Ltd sold some of its plant and equipment to a finance company. Biggs Ltd credited the sales proceeds of GH¢25.6 million to revenue. The plant and equipment was purchased by Biggs Ltd on 1 January 2017 at a total cost of GH¢32 million and was being depreciated over its estimated useful life of five years. The cost and accumulated depreciation of the disposed asset is still included in the PPE cost and accumulated depreciation accounts.

On 1 January 2018 Biggs Ltd began to lease the plant and equipment from the finance company on a four-year lease. Lease rentals were GH¢7.2 million, payable annually in advance. If Biggs Ltd had borrowed funds from the finance company on 1 January 2018, the annual interest rate would have been 8.5%.
iii) On 1 January 2018 Biggs Ltd issued 200 million preference shares at 32.50 pesewas each. Costs of issue were GH¢1 million so the net proceeds of the issue were GH¢64 million. The preference shareholders will receive an annual dividend on 31 December each year of GH¢3.9 million. The shares will be redeemed at par on 31 December 2022. The effective annual finance cost attaching to these shares is approximately 6.4%. The first annual dividend was paid on 31 December 2018 and is included in dividends paid. The equity shareholders were paid a dividend of GH¢4 million in the year.
iv) The estimated income tax on the profits for the year to 31 December 2018 is GH¢4.5 million. During the year GH¢4.2 million was paid in full and final settlement of income tax on the profits for the year ended 31 December 2017. The statement of financial position at 31 December 2017 had included GH¢4.4 million in respect of this liability. At 31 December 2018 the carrying amounts of the net assets of Biggs Ltd exceeded their tax base by GH¢35.8 million. Assume an income tax rate of 25%.
v) The details of property, plant and equipment are as follows:

Estimate of useful economic life (at date of purchase) of PPE components:
Land                                    – nil (infinite life)
Building                              – 50 years
Plant and Equipment          – 5 years

On 30 June 2018 the directors decided to sell the property because more suitable leasehold property had become available at a very competitive cost. They advertised the property for sale at that date at what was considered to be a realistic asking price of GH¢68 million. They estimated that costs of GH¢3 million would be necessary in order to sell the property. On 1 December 2018 they reduced the asking price to GH¢64.5 million and they sold the property at this price shortly after the year end. Costs to sell totaled GH¢2.5 million.
Required:
Prepare for Biggs Ltd,
a) The Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2018.              (10 marks)

b) The Statement of Financial Position as at 31 December 2018.                                                                                     (10 marks)

The following trial balance was extracted from the books of Frafraha Ltd (Frafraha) on 31 March 2018.

The following notes may be relevant:
i) Frafraha applies the revaluation model of IAS 16 Property, Plant & Equipment to its land and buildings. A revaluation took place on 31 March 2017 and resulted in the fair value of GH¢62 million shown above. This figure included GH¢22 million in respect of land. The buildings were deemed to have a 40-year useful economic life remaining at that date. No depreciation has yet been charged for the accounting period ended on 31 March 2018. All depreciation is charged to cost of sales. On 31 March 2018, a further revaluation took place which revealed a fair value of GH¢24 million for the land, and GH¢41 million for the buildings. This is to be recorded in the books in accordance with the accounting policy of Frafraha.

Plant & equipment is being depreciated at 25% per annum straight line from the date of purchase to the date of sale. On 1 October 2017, a piece of plant was purchased at a cost of GH¢12 million. This replaced another piece of plant which had cost GH¢8 million some years ago and was fully depreciated prior to 31 March 2017. A trade-in allowance of GH¢1 million was received for the old plant. The only entries made to record this transaction were to credit cash and debit suspense with the net payment of GH¢11 million. No other item of plant was more than three years old at 1 April 2017.

ii) The inventories figure in the trial balance is the opening inventories balance measured on the first-in first-out (FIFO) basis. Due to a change in Frafraha’s business, the company decided to change its accounting policy with respect to inventories to a weighted average basis, as follows:
.                                            31 March 2016              31 March 2017
                                                 GH¢’000                         GH¢’000
FIFO                                          33,200                             37,300
Weighted average                    30,300                             34,100
Closing inventories at 31 March 2018, measured under the weighted average basis, amounted to GH¢41.2 million.

iii) Intangible assets consist of capitalised development costs of GH¢30 million. These relate to products in development at 1 April 2017. No revenue has yet been earned from any of these products. They are all expected to be successful once ready for market, with the exception of one project. The amount previously capitalised in respect of this project was GH¢6 million. However, adverse developments have led to the decision to abandon the project as it was unlikely to be successful in the marketplace. During the year further expenditure was incurred on other qualifying projects and was charged to administration expenses. The amounts are as follows:

• Prototype development costs GH¢3 million.
• Marketing research to determine the optimal selling strategy GH¢1 million.
• Basic research which may lead to future projects GH¢4 million.

iv) Frafraha commenced construction of a new warehouse on 1 May 2017.The building was completed and available for use on 30 November 2017. The cost of construction amounted to GH¢9 million, funded out of general borrowings, which comprise two bank loans as follows:

• GH¢4 million of bank loan finance at 6% interest.
• GH¢6 million of bank loan finance at 4.5% interest.
  All interest costs have been expensed in the year to 31 March 2018 but no other entries has been passed in respect of this. Ignore any depreciation in relation to the new warehouse.

v) Corporate tax for the year is estimated at GH¢0.25 million.
Required:
Prepare, in a form suitable for publication to the shareholders of Frafraha Ltd the Statement of Profit or Loss for the year ended 31 March 2018 and Statement of Financial Position as at 31 March 2018.                                                                     (20 marks)

The following trial balance relates to Binkabi Ltd as at 30 September 2017:

Additional Information:
i) Binkabi Ltd’s revenue includes GH¢16 million for goods sold to Kofi on 1 October 2016. The terms of the sale are that Binkabi Ltd will incur ongoing service and support costs of GH¢1.2 million per annum for three years after the sale. Binkabi Ltd normally makes a gross profit of 40% on such servicing and support work. Ignore the time value of money.
ii) Administrative expenses include an equity dividend of ¢12 million paid during the year.
iii) The 5% convertible loan note was issued for proceeds of ¢20 million on 1 October 2015. It has an effective interest rate of 8% due to the value of its conversion option.
iv) During the year Binkabi Ltd sold an equity investment for GH¢11 million. At the date of sale it had a carrying amount of GH¢8.8 million and had originally cost GH¢7 million. Binkabi Ltd has recorded the disposal of the investment. The remaining equity investments (the GH¢26.5 million in the trial balance) have a fair value of GH¢29 million at 30 September 2017. The other reserve in the trial balance represents the net increase in the value of the equity investments as at 1 October 2016. Binkabi Ltd made an irrevocable decision at initial recognition of these instruments to recognise all changes in fair value through other comprehensive income, and makes a transfer of realised profit from the other reserve to income surplus on disposal of the investments. Ignore deferred tax on these transactions.
v) The balance on current tax represents the under/over provision of the tax liability for the year ended 30 September 2016. The directors have estimated the provision for income tax for the year ended 30 September 2017 at GH¢16.2 million. At 30 September 2017 the carrying amounts of Binkabi Ltd’s net assets were GH¢13 million in excess of their tax base. The income tax rate of Binkabi Ltd is 30%.
vi) Non-current assets
The freehold property has a land element of GH¢13 million. The building element is being depreciated on a straight-line basis. Plant and equipment is depreciated at 40% per annum using the reducing balance method. Binkabi Ltd’s brand in the trial balance relates to a product line that received bad publicity during the year which led to falling sales revenues. An impairment review was conducted on 1 April 2017 which concluded that, based on estimated future sales, the brand had a value in use of GH¢12 million and a remaining life of only three years. However, on the same date as the impairment review, Binkabi Ltd received an offer to purchase the brand for GH¢15 million.
Prior to the impairment review, it was being depreciated using the straight-line method over a 10 year life. No depreciation/amortisation has yet been charged on any non-current asset for the year ended 30 September 2017. Depreciation, amortisation and impairment charges are all charged to cost of sales.
Required:
a) Prepare the statement of profit or loss and other comprehensive income for Binkabi Ltd for the year ended 30 September 2017.                                                                                                                                                                                   (8 marks)

b) Prepare the statement of financial position of Binkabi Ltd as at 30 September 2017.                                                 (12 marks)

The following is the trial balance of Kwadaso Ltd, a trading company, as at 30 September 2015:

Additional information:
i) On 31 March 2015 the company made a bonus issue from retained earnings of one new share for every four shares in issue at GH¢ 10.00 each. This transaction is yet to be recorded in the books.
The company paid ordinary dividends of GH¢2.2 per share on 31 January 2015 and GH¢2.6 per share on 30 June 2015. The dividend payments are included in administrative expenses in the trial balance.
ii) Provision is to be made for a full year’s interest on the Loan notes.
iii) The finance charge relating to the preference shares is equal to the dividend payable.
iv) Non-current assets:

• Depreciation of Property, plant and equipment is to be provided on the following bases:

Plant and equipment 10% on cost

Computer equipment 25% on cost

Motor vehicles 20% on reducing balance

• No depreciation has yet been charged on any non-current asset for the year ended 30 September 2015.
• Kwadaso revalues its buildings at the end of each accounting year. At 30 September 2015 the relevant value to be incorporated into the financial statements is GH¢14,100,000.
• The building’s remaining life at the beginning of the current year (1 October 2014) was 25 years. Kwadaso does not make an annual transfer from the revaluation reserve to retained earnings in respect of the realisation of the revaluation surplus. Ignore deferred tax on the revaluation surplus.

v) The available-for-sale investments held at 30 September 2015 had a fair value of GH¢ 8,400,000. There were no acquisitions or disposals of these investments during the year.
vi) In February 2015, Kwadaso’s internal audit unit discovered a fraud committed by the company’s credit manager who did not return from a foreign business trip. The outcome of the fraud is that GH¢500,000 of the company’s trade receivables have been stolen by the credit manager and are not recoverable. Of this amount, GH¢200,000 relates to the year ended 30 September 2014 and the remainder to the current year. Kwadaso is not insured against this fraud.
vii) Corporate income tax payable estimated on the profit for the year is GH¢3,500,000. An amount of GH¢1,200,000 is to be transferred to the deferred taxation account.
Required:                                                                                (20 marks)
Prepare the following financial statements of Kwadaso Ltd for publication in accordance with International Financial Reporting Standards (IFRS):    (Note: Accounting policy notes are not required)
a) Statement of profit or loss and other comprehensive income for the year ended 30 September 2015;

b) Statement of changes in equity for the year ended 30 September 2015; and

c) Statement of financial position as at 30 September 2015.

d) Show clearly all relevant workings.

The following trial balance relates to Zealow Ltd as at 31st December 2015.

The following additional information is relevant:
i) An inventory count on 31st December 2015 listed goods with a cost of GH¢10.5 million. This includes some damaged goods that had cost GH¢800,000. These would require remedial work costing GH¢450,000 before they could actually be sold for an estimated GH¢950,000.
ii) Non-current assets:
Plant:
All plant, including that of the joint operation (note v), is depreciated at 12.5% on reducing balance basis.
Land and building:
The land and building were revalued at GH¢15 million and GH¢48 million respectively on 1st January 2015 creating a GH¢21 million revaluation surplus. At this date the building had a remaining life of 15 years. Depreciation policy is on a straight-line basis. Zealow Ltd does not make a transfer to realized profits in respect of excess depreciation.

Depreciation on both the building and the plant should be charged to the cost of sales.
Investment property:
On 31st December 2015 a qualified surveyor valued the investment property at GH¢13.5 million. Zealow Ltd uses the fair value model in IAS 40 Investment property to value its investment property.
iii) Interest expenses include overdraft charges, the full year’s preference dividend and an ordinary dividend of 4p per share that was paid in June 2015.
iv) The directors have estimated the provision for income tax for the year ended 31st December 2015 at GH¢8 million. The deferred tax provision at 31st December 2015 is to be adjusted (through the profit or loss statement) to reflect that the tax base of the company’s net assets is GH¢12 million less than their carrying amounts. The rate of tax is 30%.
v) On 1st January 2015 Zealow Ltd entered into a joint arrangement with two other entities. Each venturer contributes their own assets and is responsible for their own expenses including depreciation on assets of the joint arrangement. Zealow Ltd is entitled to 40% of the joint venture’s total turnover. The joint arrangement is not a separate entity and is regarded as a joint operation.
Details of Zealow Ltd joint venture transactions are:

Required:
a) Prepare the statement of profit or loss for Zealow Ltd for the year ended 31st December 2015.                                 (10 marks)

b) Prepare the statement of financial position for Zealow Ltd as at 31st December 2015.                                               (10 marks)

Below is the summarised draft statement of financial position of DX Ltd, a company listed on the Ghana Stock Exchange, as at 31 March, 2015:

The following information is relevant:
(i) DX Ltd’s statement of profit or loss includes GHS8million of revenue for credit sales made on a ‘sale or return’ basis. At 31 March 2015, customers who had not paid for the goods, had the right to return GHS2.6million of them. DX Ltd applied a mark-up on cost of 30% on all these sales. In the past, DX Ltd’s customers have sometimes returned goods under this type of agreement.
(ii) The non-current assets have not been depreciated for the year ended 31 March 2015.
DX Ltd has a policy of revaluing its land and buildings at the end of each accounting year. The values in the above statement of financial position as at 1 April 2014 when the building had a remaining life of 15 years. A qualified surveyor has valued the land and buildings at 31 March 2015 at GHS180million.
Plant is depreciated at 20% on the reducing balance basis.
(iii) The financial assets at fair value through profit or loss are held in a fund whose value changes directly in proportion to a specified market index. At 1 April 2014 the relevant index was 1,200 and at 31 March 2015 it was 1,296.

(iv) In late March 2015 the directors of DX Ltd discovered a material fraud perpetrated by the company’s credit controller that had been continuing for some time. Investigations revealed that a total of GHS4million of the trade receivables as shown in the statement of financial position at 31 March 2015 had in fact been paid and the money had been stolen by the credit controller. An analysis revealed that GHS1.5million had been stolen in the year to 31 March 2014 with the rest being stolen in the current year. DX Ltd is not insured for this loss and it cannot be recovered from the credit controller, nor is it deductible for tax purpose.
(v) During the year, the company’s taxable temporary differences increased by GHS10miiion of which GHS6million related to the revaluation of the property. The deferred tax relating to the remainder of the increase in the temporary differences should be taken to profit and loss. The applicable income tax rate is 20%.

(vi) The above figures do not include the estimated provision for income tax on the profit for the year ended 31 March 2015. After allowing for any adjustments required in terms (i) to (iv), the directors have estimated the provision of GHS11.4million (this is in addition to the deferred tax effects of item (v).
(vii) During the year, dividends of GHS15.5million were paid. These have been correctly accounted for in the above statement of financial position.
Required:
Taking into account any adjustments required by items (i) to (vii) above:

(Notes to the financial statements are not required).
(a) Prepare a statement showing the recalculation of DX Ltd’s profit for the year ended 31 March 2015; and                 (7 marks)

(b) Redraft the statement of financial position of DX Ltd as at 31 March 2015.                                                              (13 marks)