• Although a revised accounting standard is expected to be published during 2019, it is not appropriate to implement changes in the 2018 financial statements. The revised standard has not yet been formally published by the IASB (in accordance with the
IASB’s procedures for developing and publishing accounting standards) and therefore does not yet have any standing for 2018 financial reporting purposes.
• It is not appropriate to implement financial reporting changes based on the contents of the exposure draft as comments submitted to the IASB in respect of the exposure draft may significantly affect the content of the final standard. While there may be an expectation that the revised standard will be issued in 2019, that is not a certainty and there can be significant periods of time between the exposure draft stage and finalisation of an accounting standard. Furthermore, once published, there may well
be a further period of time before the standard becomes effective.
• Early adoption of standards (prior to its stipulated effective date) is sometimes permitted and encouraged by the IASB but this does not apply to the exposure draft stage of development. On this basis, the 2019 financial year is the earliest year for which adoption of the proposed new standard is a possibility.

Ethical issues
• This issues facing Maria are not simply a matter of following rules but are a complex mix of issues concerning trust, duty of care, accountability and confidentiality.
• Classification of a lease can be quite subjective. In the case of land, this is particularly subjective as the title may not pass to the lessee at the end of the lease agreement. If the features of the lease meet conditions set down in IAS 17 Leases yet the directors want to understate liabilities in order to raise a loan, then an ethical dilemma arises.
• Maria’s year-end bonus, contingent on treatment of the lease, represents a conflict of interest.
• If Maria tells Yendi about the liquidity issues surrounding Mamprugo, is she betraying trust? However, if she does not mention the liquidity problem, then amounts owing to Yendi may not be paid. Can the information be deemed to come under insider information’ and therefore it should not be disclosed. If Mamprugo goes into liquidation, then then Maria’s reputation and career may suffer.

Appropriate steps that Peter Anokye should take
• As a Chartered Accountant (CA), you should consider the Code of Ethics in formulating a way to resolve the conflict that appears to be developing. It is essential that CAs do not succumb to pressure from management so that financial information
is prepared in a misleading manner.
• If the matter cannot be resolved with Maria, then further discussions need to be held with your immediate line manager and/or others within the business such as nonexecutive directors. Perhaps take confidential advice from ICAG (Professional
Standards and Ethics Committee).

• In cases where there are material environmental impacts, they will normally expect to see a statement of corporate commitment, policies and strategy, showing the importance attached to such issues. There could well be a competitive advantage to be gained from being seen as a leader in responsible environmental practices. The statement would usually deal with the overall control over such issues, whether through a committee of the board or a senior manager with practical experience of environmental issues in a corporate context.
• Most users, particularly investors and lenders, will also be concerned to know whether there are any material financial impacts, actual or potential, arising from environmental issues. Where this is the case, discussion of environmental risks and
  uncertainties in the annual report, together with the related action taken, may therefore be appropriate as well as information about environmental performance. Depending on the nature of the entity, there could be a call for information about
  matters such as site remediation, disposal of waste, resource recycling or supply chain performance. In identifying the environmental matters likely to be of particular concern to report users, some form of stakeholder engagement is beneficial.
• Many fund managers have a department dealing with SRI. In reviewing a company’s annual report, the environmental matters attracting attention will tend to vary according to its nature, size and geographical location but, where environmental
  matters are significant, will generally fall within the following main areas:
  ** Commitments, policies and strategies.
  ** Environmental management/EMS and ISO 14001 certification.
  ** Principal environmental impacts.
  ** Environmental performance – absolute and relative.
  ** Fines, penalties or awards.
• In appropriate cases, it is often helpful to users if reference is made to compliance with voluntary codes, such as EMAS or The Natural Step, or certification of the EMS to a particular standard, such as ISO 14001 or Project Acorn. This would normally help to demonstrate the adoption of desirable environmental policies.            (Any 3 points)
  

Analysis of the performance and cash flow of the Gandi group Performance
Revenue and expenses have all increased during the year. Some of this will be due to the acquisition of Asida Ltd in the year, but without Asida’s individual financial statements it is difficult to see how much this has contributed. Asida Ltd has been controlled since 1 October 2017 so has contributed full year’s results for the year to September 2018 which would not have been included in the year to 30th September 2017. It is also important to recognize that the new Hotel was only opened in March 2018, so a full year’s revenue has not yet been generated by this. Whereas revenue has increased significantly by 37.2%, it can be seen that higher expenses have meant that the Gandi Ltd group has made less profit than in the previous period. For example, cost of sales increased astronomically by 64.3% from the previous year.

The gross profit margin has fallen in the year from 59.1% to 51.1%. This could be attributable to the increased pressure on prices from supermarkets or difficult trading conditions, but could also be as a result of the addition of Asida Ltd into the group.
It may be that the hotel industry generates much lower margins than the farming industry, or it may be that Asida Ltd itself generates margins. It may also be that the poor reputation associated with the new hotel resulted in the need to offer lower room rates to attract new customers or to bring customers back. Following the improvement in feedback as indicated in the question, this will hopefully improve profits in future periods. The improvement in feedback should lead to increased future bookings, so it may be that the new hotel generates a significantly improved return in future years.

The operating margin has also deteriorated in the year. It is also important to note that there is a significant one-off GH¢ 2.25 million gain on disposal in relation to the sale of investments during the year. Without this exceptional item, Gandi Ltd group would have made a worrying loss from operations of GH¢1.65 million (2,250 – 600). Further analysis of this loss, the reason for this loss is due to a significant increase in the administrative expenses, which would be GH¢ 30.1 million excluding the GH¢ 2.25 million profit on disposal. Therefore, the Gandi Ltd group would have incurred costs relating to the acquisition of Asida Ltd, which will not be incurred in future periods.

There will have been significant expenses associated with the set-up of the new hotel during the year, which again are unlikely to be repeated in future periods unless Asida Ltd plans on opening another hotel in the near future. The increased marketing expenses will also have had a significant impact on the profit, though it is unclear whether this is something that may need to be repeated or maintained in future periods. There will be many costs associated with the new hotel which will be recurring, such as the increase in staff numbers, and the running costs of the hotel. The new marketing director is likely to have demanded a significant salary, as he or she was brought in specifically to address a problem with the hotel’s reputation.
The distribution costs have increased marginal by 9.8% during the year. This could suggest that there has been a decline in the underlying farming business, as fuel costs have risen significantly. It could also mean that the hotel business has extremely low
distribution costs, which is likely. Whereas the Gandi Ltd group has managed to reduce its exposure to fuel prices through
the purchase of Asida Ltd not dependent on distribution, it is questionable how wise this has been. Asida Ltd appears to have lower margins and will still incur significant costs in terms of cooling and lighting, which may rise in a similar manner to fuel costs.

The return on capital employed has also deteriorated in the year from 7.4% to 1%, which is expected due to the reduced operating profits. Removing the gain on disposal of the investments would make the Gandi group loss-making, meaning that it would make a negative return on capital employed. It thus appears that Asida Ltd is a loss-making entity, as the non-controlling share of the group’s profit is negative. As Asida Ltd is the only non-100% controlled subsidiary, the non-controlling interest will relate solely to Asida’s performance.

This may also suggest that there is goodwill impairment following the purchase of Asida Ltd. This could have arisen from the poor reputation associated with the new hotel. If the non-controlling interest is valued at fair value, 20% of the impairment would be allocated to the non-controlling interest’s share. In addition to the reduced operating profits, the capital employed by the Gandi Ltd group has increased significantly. A total of GH¢9.5 million of new shares have been issued during the year, probably to fund the purchase of Asida Ltd. There has also been a GH¢10 million long-term loan contracted, although it is possible that Asida Ltd already had this loan and this has resulted from the consolidation of Asida’s assets and liabilities.
The sale of investments and share issue and potentially the contracted loan suggest that the Gandi Ltd group paid a very high price for Asida Ltd. This may not have been wise if Asida Ltd has low margins, or is loss making. If Asida Ltd owns the hotel premises, then this may have explained the high price as the land is likely to hold its value, even if Asida performs poorly as demonstrated.

Cash flow position
The cash balance has fallen to GH¢ 0.3 million as at 30 September 2018. It is important to note that the Gandi Ltd group has raised significant funds during the year through a share issue, sale of investments and the potential receipt of a long-term loan. This means that significant amount of the cash raised is likely to have been spent on the purchase of Asida Ltd and the new hotel. However, the decrease in receivable collection period will have a positive effect on the cash flow of the Gandi Ltd group. As a hotel will largely be cash based rather than offering credit, this will aid the cash flow of the Gandi Ltd group. This means that the purchase of Asida Ltd may help offset its problems caused in the farming sector with the longer terms demanded by the supermarkets. Another positive sign on cash flow is the reduction in the inventory turnover period. This will be as a result of the fact that Asida Ltd will not carry much inventory, as this is likely to relate to food and drink served in the hotels.

Conclusion
The success of the Gandi Ltd group in the current year is difficult to judge; it has been a transitional year. There are concerns over the performance of Asida Ltd, although there are reasons to believe this may improve in the instant future periods. For a more meaningful comparison, individual financial statements of companies within the Gandi Ltd group would need to be accessed.
(NB: Students who write memo should be accepted although the requirement of the question does not specifically ask for a memo format)

i) Consideration of whether or not the assets should be professionally valued.
ii) The existence of hidden liabilities such as contingent liabilities, deferred taxes, redundancy payments, among others
iii) The realisability of receivables such as debtors and other bills receivables. Also consider the recoverable amount of inventories.
iv) Consideration of whether or not the assets can be separately disposed of in the open market.
v) Consideration of whether or not there are prior charges on any of the assets.
vi) The specific valuation basis to use whether it should be going concern basis, replacement cost basis, breakup basis.                 (Any four points)

Price of a share GH¢2,767,500/100,000,000 = GH¢0.0277                                  (10 ticks x 0.50 mark per tick = 5 marks)

                                            (A maximum of 24 ticks attracting 0.25 marks per tick = 6 marks)

The loan must be recognised initially at its fair value in accordance with IFRS 9 Financial Instruments, discounted at the market rate of interest: GH¢400,000 x 4.32948 =GH¢1,731,791.
The remainder is treated as government grant:
.                                                                                                           GH¢m                 GH¢m
DR Cash                                                                                            2,000,000
CR Loan                                                                                                                          1,731,791
CR Grant (deferred income or reduce cost of roof)                                                  268,209
Interest is applied to the loan up to the 31 December 2017 year end and recognised as a finance cost in profit or loss:
(GH¢1,731,791 x 1.05½) =GH¢1,774,557 -GH¢1,731,791 =GH¢42,767.

The grant element is compensating this interest cost and so should be amortised to profit or loss. The most sensible approach would be to recognise the credit on the same basis, ie recogniseGH¢42,767 in 2017 rather than on a straight line basis to ensure the interest cost and grant credit compensate each other correctly.

Commitment to provide a loan at less than market interest rates

• The commitment to provide a loan to the customer appears to have been entered into at less than market interest rates, given that the rate is lower than that at which the entity can borrow money on the market. A commitment to provide a loan at less than market interest rates represents a financial liability. This is because the entity has an obligation to pay more interest on financing the loan than it will receive from the customer.    (2 marks)
• The commitment was entered into during 2019 and is initially measured at its fair value. Interest income is recognised on this amount using the effective interest method.     (0.5 mark)
• At the year end, the liability is increased to its IAS 37 provision valuation (‘the best estimate of the expenditure required to settle the present obligation’) if this amount exceeds the amount of the initial fair value recognised less amounts already amortised to profit or loss using the effective interest rate.     (1 mark)
• Any difference is charged to profit or loss.    (0.5 mark)
  

• There are a number of potential values that could be used here. However not all are of equal quality.
• There is an offer for the asset of GH¢2.6 million. However Gonja has no intention of accepting this offer, so it is not an active market price.
• An orderly sale would be expected to yield GH¢6 million. This figure is arrived at after analyzing transactions in similar assets. Therefore this would seem to qualify as a level 2 input, and would seem reasonable to use as the basis of valuation.
• The valuation models which suggest a portfolio value of GH¢12 million are level 3, as they are unobservable. Therefore they are inferior to level 2 inputs. However, the fact that the models seem to be anticipating a recovery would suggest that the valuation determined by them would not be attainable in the current market. Therefore this value would not meet the IFRS 13 definition of fair value.
• Hence, the best estimate of fair value in this situation would be GH¢6 million.
  

IFRS 5
• The issue here is whether the closure of the division should be accounted for as a discontinued operation under IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. A discontinued operation is defined as ‘a component of an entity that either has been disposed of or is classified as held for sale and:
a) represents a separate major line of business or geographical area of operations, or
b) is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations, or
c) is a subsidiary acquired exclusively with a view to resale.’
• As the discontinued operation has not been disposed of at the year end, it can only be classified as discontinued in the 2018 financial statements if it meets the definition of ‘held for sale’. Disposal groups are classified as held for sale if ‘their carrying amount will be recovered principally through a sales transaction rather than through continuing use’.
• This is not the case here as most of the assets are being redeployed elsewhere in the business.
• The small assets could potentially be classified as held for sale if all the relevant criteria, but not as a discontinued operation.

IAS 37
• Provision should be made for a redundancy costs if a constructive obligation exists at the year end. This appears to be the case as, assuming a detailed formal plan for the restructuring has been made, and the entity has raised a valid expectation in those
affected that the restructuring will be carried out by notifying them of the redundancy before the year end.

IAS 10
• As the annual financial statements were not scheduled to be released until after the closure of the division, the closure should be disclosed as a non-adjusting event after the reporting period due to its significance to the business (it is a separate operating
segment).                                                                                                        (3 points for 6 marks)

The acquisition date for Takoradi Ltd is 1 April 2017 as this is when Accra Ltd gains control over Bawku Ltd and therefore indirect control over Takoradi Ltd.

Therefore, the post-acquisition profits of Bawku Ltd is GH¢152.5 million (GH¢1,127.5-GH¢975) and that of Takoradi Ltd is GH¢67.5 million (GH¢642.5 – GH¢575).

(W3) Goodwill
The cost of Takoradi Ltd has three elements: the cost of the direct holding, the cost of the indirect holding and the indirect holding adjustments.

Accra’s investment in Takoradi Ltd was held at GH¢155 million at the reporting date. Therefore, the fair value increase of GH¢15 (GH¢155 – GH¢140 million) that has arisen since the date that control was achieved must be removed from the consolidated statements. Retained earnings must also be reduced by GH¢15 million.

If no revaluation reserve exists for an item of PPE then a downwards revaluation is recognized in the statement of profit or loss.

Some of this reversal can be recognized in profit or loss, but this is capped at the amount needed to increase the asset to the value it would have been had no impairment occurred. If no impairment had occurred, the asset would have been held at GH¢42 million (GH¢45 million – (2 x GH¢1.5)). Therefore, the gain recorded in profit or loss is GH¢5.8 million (GH¢42 million – GH¢36.2 million). The remainder of the gain is recognized in other comprehensive income.

(W7) Provision for Restructuring
Only those costs that result directly from and are necessarily entailed by a restructuring may be included in a restructuring provision. This includes cost such as employee redundancy costs or lease termination costs. Expenses that relate to ongoing activities, such as relocation and retraining, are excluded. With regard to the service reduction, a provision should be recognized for the redundancy and lease termination costs of GH¢14 million. The sites and details of the redundancy costs have been identified. In contrast, Accra Ltd should not recognized a provision for the finance and IT department’s re-organisation. The re-organisation is not due to start for two years. Stakeholders outside are unlikely to have a valid expectation that management is committed to the re-organisation as the time frame allows significant opportunities for management to change the details of the plan or even to decide not to proceed with it. In addition, the degree of identification of the staff to lose their jobs is not sufficiently detailed to support the recognizing of a redundancy provision.

(W8) Pension Plan
In order to calculate the re-measurement component, reconcile the opening and closing net pension deficit. The re-measurement component is accounted for in other comprehensive income. The liability recognized in the financial statements will be GH¢3 million (that is, GH¢17.5 million- GH¢14.5 million)

The service cost component and net interest component will be charged to profit or loss (GH¢0.55 million) and the re-measurement loss to Other Comprehensive Income (GH¢2.45 million). There will be no adjustment for the contributions, which have already been taken into account.
                                                                              (80 ticks maximum for 0.25 marks per tick = 20marks)