• Integrity: In the light of the information Nana Yaw Kawula have, he must ensure that he act honestly, and that he is open and straightforward towards those with whom he comes into contact with. The CEO proposes misrepresenting information about the company in the financial statements, which would be contrary to the fundamental principle of integrity as defined for all ICAG members.
  Nana Yaw Kawula cannot simply do what has been asked of by the CEO because the principle of integrity requires a professional accountant not to be associated with information that they believe to be false or misleading. Relying on the potential buyer’s due diligence to identify the overvaluation is not appropriate. You are responsible for the honest presentation of the accounts, and you should not transfer that responsibility to either the buyer or the auditors.
• Objectivity: Can Nana Yaw Kawula act without bias, despite the significant threats in the form of self-interest and intimidation from others like in this case. In this case, there is self-interest threat to the finance director’s objectivity, which arises from the financial benefit that Nana Yaw Kawula is likely to receive if the company is sold under the proposed deal. Nana Yaw is also feeling intimidated by the CEO. The CEO appears to be suggesting that the future employment of other employees depends upon the proposed deal being successful and, therefore, upon the results shown by the financial statements. The CEO is also putting the finance director under pressure to account for inventory at a higher value than that with which he feels comfortable.
• Professional competence and due care: The finance director must act diligently. Does Nana Yaw Kawula have sufficient information to be able to determine the appropriate value of the inventory to be included in the financial statements in order not to misstate it? In this case, the first step is to ensure that the finance director have sufficient information. This would include the establishment of the basis of valuation of the company’s inventory, investigating the system for counting and evaluating inventory, and discussing with the warehouse manager the reason why the inventory is slow moving. The finance director may also need to discuss the realisable value with someone else, such as the sales director.
• Professional behaviour: All members of ICAG including Nana Yaw Kawula are required to account for the inventory in accordance with relevant accounting standards. In this case IAS 2 inventory. Inventory is valued at the lower of cost and net realizable value under IAS 2, which the finance director should be comfortable with. The finance director must ensure that any of the actions he considers taking should not discredit the profession in the opinion of an informed third party.
• Confidentiality: The finance director has to be mindful that actions he takes both internal and external including consulting others does not amount to given information of the company without obtaining proper permission.                                                                        (1 mark for each brief discussion up to a maximum of 5 marks)

• The first step is to ensure that the finance director has sufficient information. This would include establishing the basis of valuation of the company’s inventory, investigating the system for counting and evaluating inventory, and discussing with the warehouse manager the reason why the inventory is slow moving. You may also need to discuss the realisable value with someone else, such as the sales director.
• The finance director should discuss the matter with the CEO. If, in his opinion, the CEO continues to insist on an inflated inventory valuation being incorporated into the financial statements.
• The finance director should consider how best to raise the issue with the other board members. Initially, he could suggest that both Nana Yaw Kawula and the CEO raise the matter with the other board members. If he feels it appropriate to discuss the matter with anyone else within the company, however, the finance director must bear in mind the need for appropriate confidentiality and be clear about his reasons for raising the matter.
• Discussions with the CEO may be made easier by reference to the company’s own code of ethics, if it has one. If it does not, the finance director should make the CEO aware of the ethical requirements of ICAG as a professional body of which Nana Yaw Kawula is member.
• The finance director could possibly suggest that the company engages an independent expert to value the inventory.
• At each stage, the finance director should consider the need to follow meetings with email or other written correspondence to record his points of view. This would be particularly appropriate if you are of the opinion that the CEO or the board has not been sympathetic to the finance director’s concerns.
• The finance director might have to consider raising the issue externally, for example alerting the auditors to the existence of the slow-moving inventory, or seeking advice from ICAG as professional body, which the finance director belongs.
• If the situation remains unresolved, Nana Yaw Kawula may have to remove himself from the conflict. The clearest way is to disassociate himself from misleading financial statements would be to resign. However, this would only be an option to be exercised, as a last resort, in the most extreme circumstances. Resignation alone would not help to resolve this kind of situation. It would be advisable to take legal advice before considering resignation.
• The finance director should document, in detail, the steps that he has taken in resolving the issue, in case his ethical judgement is challenged in future periods.                  (1 mark for each action taken up to a maximum of 5 marks)
  

• The debt issue must be accounted for under IFRS 9 Financial Instruments. Initial recognition is at fair value. However this would ordinarily be the amount of cash received.
• As the debt is Duakwanta’s own debt and is not held for trading purposes, it should ordinarily be held at amortised cost.
• The change in fair value of the debt on the market due to change in credit risk is not therefore adjusted in Duakwanta’s financial statements. However, it will be disclosed under IFRS 7 Financial Instruments: Disclosures.

Tutorial note: If the debt were held at fair value through profit or loss (which is unlikely in this case), the change in fair value relating to changes in the entity’s own credit risk would be recognised in other comprehensive income rather than profit or loss.

Initial recognition of financial instrument is at fair value under IFRS 9  : 1 mark
Duakwanta’s own debt held at amortised cost                                          : 1 mark
Disclosure of fall in fair value                                                                   : 2 marks

The contract to supply is not sufficient to recognise revenue. It is necessary that control of the goods have actually transferred to the customer. This is the case for 30,000 units.

The deferred payment does not prevent revenue from being recognised, but the consideration needs to be measured at the fair value, on the transaction date, of the amount receivable. The fair value needs to reflect a discount allowing for the time value of money, as a result of the extended credit period. The discount rate will be 10%, Mankranso’s cost of capital. Hence revenue will be recognised as follows: 30,000 units * GH¢10 * 1/1.10 = GH¢272,727.

The discount will be recognised as finance income as time passes, on a time-apportioned basis. As the sale took place on 31 March 2019, no time has yet passed to trigger the recognition of finance income.

Journal:                               GH¢                  GH¢
Dr trade receivables          272,727
Cr Revenue                                                 272,727
(recognition of revenue and trade receivables at fair value of consideration receivable)

Initial revenue recognition           : 2 marks
Treatment of initial recognition   : 1 mark

Again, the same principles apply. Revenue is recognised when control of the goods or services are transferred to the customer.

Here, cash was received in advance. Nevertheless, revenue is only recognised when the service is delivered to the customer. Any excess cash retained is recognised as deferred income, a liability. If the cash is non-refundable, this does not change the timing of recognition of revenue. However, if the customer’s right to the service expires, and the customer has no right to a refund, the revenue should then be recognised.

Total cash received in year ended 31 March 2019: 2000 * GH¢100 = GH¢200,000
Total room nights provided 400
Revenue recognised = 400 * GH¢100 = GH¢40,000
Deferred revenue = 200,000 – 40,000 = 160,000

Journal:                                       GH¢ 000                GH¢ 000
Dr Cash                                            200
Cr Revenue                                                                    40
Cr Deferred revenue                                                  160
(recognition of revenue, deferred revenue and cash received)

Initial revenue recognition    : 1 mark
Deferred revenue                  : 1 mark
Journal entries                     : 1 mark

The shares allotted are included from the date the cash is receivable (1 October), IAS 33 para 21(a).
Basic earnings per share = (GH¢478,000)/4,150,000 = 11.5 pesewas loss per share.

As the preference shares are redeemable, they are accounted for as a financial liability under IAS 32 Financial Instruments: Presentation and therefore the dividend payment is treated as a finance cost, so no further adjustment to earnings is required as the dividend is included in finance costs.

Determination of weighted average number of shares   : 2 marks
Profit attributable to ordinary shareholders                   : 1 mark
Basic earnings per share                                                 : 2 marks

Under IFRS 9’s – amortised cost model, the financial liabilities should initially be recognised at the fair value of the cash received. Any directly attributable costs to the bond issue should be offset against the carrying amount of the liability.

The initial recognition and measurement of the financial liabilities has been carried out correctly in Kaduna’s financial statements.
The journal entires are:
Dr Cash                                                                   950,0000
Cr Financial Liability                                                                          932,000
Cr Broker Fees Payable (Transaction costs)                                    18,000
However, IFRS 9’s amortised cost method requires the bonds to be amortised over the bond term using the effective interest rate.

Kaduna has failed to amortise the bond using the effective interest rate, instead expensing the coupon payment in the profit or loss. Therefore, the following correcting journal entry is required:
Dr Interest expense (P&L)                  GH¢21,018
Cr Non-current liability (SOFP)                                 GH¢21,018

Initial recognition of bond                       : 1 mark
Justification for the correct treatment     : 0.5 mark
Bond schedule                                          : 3 marks
Reversal of wrong entry of finance cost   : 0.5 mark

• A discontinued operation is a component of an entity that either has been disposed of, or is classified as held for sale, and
• represents a separate major line of business or geographical area of operations,
• is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations or
• is a subsidiary acquired exclusively with a view to resale.      (Any 2 points @ 1 mark each)

Accounting Treatment

• Discontinued operations are presented separately at the end of profit or loss by including the profit after tax generated by discontinued operations. This figure should include the post-tax gain or loss on disposal of the assets of the operation or the gain or loss on remeasurement following transfer to “held for sale”.
• A component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. In other words, a component of an entity will have been a cash-generating unit or a group of cash-generating units while being held for use.
• An entity shall not classify as held for sale a non-current asset (or disposal group) that is to be abandoned. This is because its carrying amount will be recovered principally through continuing use.       (Any 2 points)
  

• IAS 21: The Effects of Changes in Foreign Exchange Rates governs the treatment of transactions in foreign currency. The invoice should be recorded as a sale and a receivable on 1 December 2018 at the spot exchange rate at the date, i.e. at GH¢9,814,602 (100m/10.1889).
• The amount paid in advance is initially recorded as deferred income at GH¢5,010,874 (50m/9.9783). On 1 December 2018 an exchange gain of GH¢103,573 (GH¢5,010,874 – GH¢4,907,301 (50m/10.1889)) is recognised in profit or loss when 50 million rand of the translated 100 million rand receivable is derecognised.
• The remaining 50 million rand receivable is retranslated at 31 December 2018 as GH¢4,760,227 (50m/10.5037) generating an exchange loss of GH¢147,074 (GH¢4,907,301 (50m/10.1889) – GH¢4,760,227).
• The two forward rate agreements are recognised at their fair value of GH¢148,000 (an asset as the rand has depreciated in value) in the statement of financial position.
• Given that they are fair value hedges the change in value of GH¢148,000 is a credit to profit or loss, eliminating the exchange loss recognised on the receivables.

Sale value on 1 December 2018                                   : 2 marks
Deferred income (amount received in advance)          : 1 mark
Exchange gain on deferred income to profit or loss    : 1 mark
Retranslation of receivable                                          : 1 mark
Fair value hedge credited to P& L                              : 1 mark

(W6) Pension
The amount paid to set the pension must be removed from receivables, and the net pension liability must be recognised in the statement of financial position.
The double entry to achieve this is as follows:

Tutorial note: The amount recognised in retained earnings is made up of the return on plan assets, interest, current service cost and actuarial gain or loss. If the answer required the preparation of a consolidated statement of profit or loss and other comprehensive income, these amounts would have to be identified separately. This would not be needed when preparing a statement of financial position (and in any case, the necessary information was not provided in the question).

(20 marks evenly spread using ticks)

• To update the Framework for changes in markets, business practices and economic environment since the original Framework was published in 1989.
• To develop a common conceptual framework between US GAAP and IFRSs so that decisions are based on the same framework in the interests of harmonisation of future standards issued by both bodies.
• To provide a better foundation for developing principles-based and converged standards, including filling in some gaps (e.g. a lack of detail in the definition of the reporting entity).
• In addition, the IASB is interested in ensuring the conceptual framework is suitable for application to not-for-profit and other entities.                                       (4 points @ 1.5 marks each)