The grant was recognised in the financial statements on 1 February 2015 as deferred income on that date. It is credited to the asset’s value on 1 April 2015, the date of the asset’s initial recognition.

The carrying amount of the asset is calculated as follows:

• Investors invest in a business on the assumption that it aims to maximize its own profits for the benefit of its own shareholders. This means that all transactions have been negotiated at arm’s length between willing and informed parties. The existence of related parties may encourage directors to make decisions for the benefit of another entity at the expense of their own shareholders. This can be done actively by selling goods and services cheaply to related parties, or by buying in goods and services at an above market price. It can also happen when directors chose not to compete with a related party, or offer guarantees or collateral for other party’s loans.
• Disclosure is particularly important when a business is being sold. It may receive a lot of custom, supplies, services or general help and advice from family or group companies. When the company is sold these benefits may be withdrawn.
• Related party transactions are not illegal, nor are they necessarily a bad thing. However shareholders and potential investors need to be informed of material related party transactions in order to make informed investment and stewardship decisions.
  

IAS 38 Intangible assets states that start-up, training and promotional costs should all be written off as an expense as incurred as no intangible asset is created that can be recognised (the benefits cannot be sufficiently distinguished from internally generated goodwill, which is not recognised. Abokobi Ltd’s retained earnings will be reduced by GH¢9 million (with result that NCI share of profits are reduced) and the Intangible assets of Abokobi will also be reduced by GH¢9 million.  

The customer list would appear to satisfy the requirements of IAS 38, as it is identifiable, non-monetary asset without physical substance. The list is identifiable as it was purchased from a third party. The probability of future economic benefits is always assumed for such a separate acquisition. Oyarefa Ltd has therefore adopted the correct accounting treatment by capitalising the list at its cost of GH¢4 million. However, the list should be amortised over its original useful life of two years. Therefore an amortisation charge of 4/2 x 6/12 = GH¢1.
Revaluation was done at the end of the year so no effect on the current year end.

A journal entry should be put through the books of Oyarefa Ltd
.                                                                                                      GH¢              GH¢
DR distribution and administration costs (SPLOCI)                     1m
CR intangible assets (SFP)                                                                                  1m

• The information about the debt is an event after the reporting period concerning recoverability of a debt in the financial statements as at 31 December 2016.
• It appears that the conditions discovered after the year end relate to conditions that existed at the year end, and, as such, provide additional evidence regarding the recoverability of the debt at 31 December 2016, which is an adjusting event after the reporting period.
• It is not clear whether the debt is recoverable or not, however the best information available is that the debt will be paid in full, but much later. The delayed payment is therefore an impairment indicator.
• As the cash flows will be received later, the debt should be discounted for the expected time period until payment.
• The difference between the carrying amount of the debt and its discounted value is an impairment loss that should be recognised in profit or loss.                                                                   (5 points for 5 marks)
  

• As the bond is not to be held to maturity it fails the “Business Model” test set out by IFRS 9 Financial Instruments.
• This means the amortised cost method cannot be used, and the fair value method must be used instead.
• This results in a fair value loss of GH¢2 million, and a carrying value of GH¢43 million.
• The interest received of GH¢5 million is recognised as a gain in profit or loss. This results in a net gain of GH¢3 million to profit or loss.                                                                                            (4 points for 4 marks)
  

WORKINGS:

Note: The trade name is an internally generated intangible asset. While these are not normally recognised under IAS 38 Intangible assets, IFRS 3 Business combinations allows recognition if the fair value can be measured reliably. Thus, Makola should recognize this as an intangible asset on acquisition (at 1 June 2015). This will reduce the value of goodwill.
The trade name is amortised over ten years, of which two have elapsed: GH¢5m × 2/10 = GH¢1m.
So the value is GH¢ (5 – 1)m = GH¢4m in the consolidated statement of financial position.

3. Provision for Unrealised Profit
Parent sells to subsidiary
Profit on sale = GH¢28million – GH¢23million= GH¢5 million
DR Retained earnings  GH¢5million
CR Inventory                                          GH¢5million

The sale of goods of GH¢35million on 15 July 2017 will have no effect on the financial statements at the year-end May 2017.

4. Convertible bond
Under IAS 39, the bond must be split into a liability and an equity component:

5. Exchange of assets
The cost of the plant should be measured at the fair value of the asset given up, rather than the carrying value. An adjustment must be made to the value of the plant, and to retained earnings.

                                                                                                              (20 marks evenly spread using ticks)

Post-acquisition profit = GH₵14,000 + GH₵1,000 (Post-acquisition movement in other reserves)

Accrued interest: GH₵2,280 – GH₵1,800 = GH₵480 or GH₵28,930.05 – GH₵28,453.75 = GH₵476.3 (rounded to GH₵480)

Equity will be credited with GH₵1,550m and this will not be remeasured. The liability will be accounted for at amortised cost as the company does not wish to measure it at fair value through P/L.
Accounting entries:
Dr.     Non-current liabilities            GH₵1,550
Cr.     Equity                                                                GH₵1,550
Dr.     Retained earnings                   GH₵480
Cr.     Non-current liabilities                                       GH₵480

W8  Plant exchange
The exchange has commercial substance since the land generated no immediate economic benefits as it was not being used but the plant will. The cost of the plant will be measured at fair value of the asset given up. Therefore, the plant will be valued at GH₵7m. The gain will be recognised in profit or loss at GH₵3m. (GH₵7 – GH₵4)
Dr.   Plant                          GH₵3m
Cr.   Retained earnings                           GH₵3m

• Informing the financial controller audit committee or board of directors and formerly asking the financial controller to address it.
• Informing the financial controller that you are going to bring the matter to the attention of the financial director or the audit committee.
• It would not be advisable to report externally until legal advise has been taken, hopefully this situation can be resolved with one of the above actions.
  

• The Code of ethics relate to fairness, honesty and responsibility.
• Ethics are a set of moral principles to guide behaviour.
• They guide accountants to perform their work properly.
• Ethics describe how an accountant does his work and not what he does. If an accountant carries out his work with bad faith, it can affect the accountant who may be disciplined by ICAG. Improper conduct can also have an effect on the business as a whole e.g. Financial viability and if in the public sector, the tax payer’s money could be wasted.
• The main ethical issue is integrity. It would not be appropriate for an accountant to assist someone with the potentially fraudulent act or to allow misleading information to be presented to others.
• There is also the potential issue of objectivity. if you are placed under pressure by the financial controller as this will mean you have a conflict of interest between a conflict of interest on the requirement to behave with integrity.         (Any 3 points)
  

International Financial Reporting Standards (IFRS Standards) are developed through an international consultation process, the “due process”, which involves interested individuals and organisations from around the world.

The due process comprises six stages, with the Trustees of the IFRS Foundation having the opportunity to ensure compliance at various points throughout:

• Setting the agenda:
  The IASB evaluates the merits of adding a potential item to its agenda, also know as the work plan, mainly by reference to the needs of investors.
  The IASB considers: the relevance to users of the information and the reliability of information that could be provided; whether existing guidance is available; the possibility of increasing convergence; the quality of the standard to be developed; and resource constraints.
• Planning the project:
  When adding an item to its active agenda, the IASB also decides whether to: conduct the project alone; or jointly with another standard-setter. due process is followed under both approaches. After considering the nature of the issues and the level of interest among constituents, the IASB may establish a Consultative group at this stage. A team is selected for the project by the two most senior members of the technical staff: The Director of Technical Activities; and
  The Director of Research.
• Developing and publishing the Discussion Paper, including public consultation:
  Although a Discussion Paper is not mandatory, the IASB normally publishes it as its first publication on any major new topic to explain the issue and solicit early comment from constituents. If the IASB decides to omit this step, it will state why. Typically, a Discussion Paper includes a comprehensive overview of the issue; possible approaches in addressing the issue; the preliminary views of its authors or the IASB; and an invitation to comment.
• Developing and publishing the Exposure Draft, including public consultation:
  Publication of an Exposure Draft is a mandatory step in due process. Irrespective of whether the IASB has published a Discussion Paper, an Exposure Draft is the IASB’s main vehicle for consulting the public. Unlike a Discussion Paper, an Exposure Draft sets out a specific proposal in the form of a proposed Standard (or amendment to an existing Standard). The development of an Exposure Draft begins with the IASB considering: issues on the basis of staff research and recommendations; comments received on any Discussion Paper; and suggestions made by the IFRS Advisory Council, Consultative groups and accounting standard-setters, and arising from public education sessions.
• Developing and publishing the Standard:
  The development of an IFRS Standard is carried out during IASB meetings, when the IASB considers the comments received on the Exposure Draft. After resolving issues arising from the Exposure Draft, the IASB considers whether it should expose its revised proposals for public comment, for example by publishing a second Exposure Draft.
• Procedures after a Standard is issued:
  The development of an IFRS Standard is carried out during IASB meetings, when the IASB considers the comments received on the Exposure Draft. After resolving issues arising from the Exposure Draft, the IASB considers whether it should expose its revised proposals for public comment, for example by publishing a second Exposure Draft.

(i) Historical cost. Assets are recorded at the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire them at the time of their acquisition. Liabilities are recorded at the amount of proceeds received in exchange for the obligation, or in some circumstances (for example, income taxes), at the amounts of cash or cash equivalents expected to be paid to satisfy the liability in the normal course of business.

(ii) Current cost. Assets are carried at the amount of cash or cash equivalents that would have to be paid if the same or an equivalent asset was acquired currently. Liabilities are carried at the undiscounted amount of cash or cash equivalents that would be required to settle the obligation currently.

(iii) Realisable (settlement) value. Assets are carried at the amount of cash or cash equivalents that could currently be obtained by selling the asset in an orderly disposal. Liabilities are carried at their settlement values; that is, the undiscounted amounts of cash or cash equivalents expected to be paid to satisfy the liabilities in the normal course of business.

(iv) Present value. Assets are carried at the present discounted value of the future net cash inflows that the item is expected to generate in the normal course of business. Liabilities are carried at the present discounted value of the future net cash outflows that are expected to be required to settle the liabilities in the normal course of business.

It first emerged as social and environmental reporting whereby companies disclose the impact of their operations, both positive and negative, on the community and environment in which they operate. Typical social disclosures might include details of community support programmes, charitable fundraising activities and educational and social programmes for employees. Typical environmental disclosures might include activities to reduce levels of emissions, recycling programmes and pollution controls.

More recently, these types of basic social and environmental disclosures have developed into sustainability reporting. This form of reporting particularly focuses on the issue of sustainable development and whether the operations of an organisation are sustainable into the future. The ability of an organization’s performance to be sustainable into the future is said to be based on its economic, environmental, social and governance performance. For example in order to be sustainable, a company must limit its use of non-renewable energy sources (an environmental issue); it must also treat its staff well and reward them adequately to ensure their continued support (economic and social issues). Therefore sustainability reporting discloses environmental and social issues but also expands disclosure to integrate the economic impact of a company, for example through wages, taxes and purchasing policy, and governance i.e. how the company is run.

Integrated reporting develops the concept of sustainability reporting further by linking sustainability issues to financial strategy and results, sometimes referred to as ‘triple bottom line’ or PPP reporting (‘Profit, Planet and People’). This form of reporting is based on the idea that companies that achieve success in the future will be those that have an integrated strategy that achieves financial results whilst also creating lasting value for the company itself, its stakeholders and the wider society.

To                 : CEO, Sawaleh Limited
From            : Accountant
Subject         : Evaluation of the performance of Sawaleh Limited
Date             : November 11, 2016

Introduction
The assessment of the performance of Sawaleh Limited is based on the areas of profitability, liquidity, and financial security of the company.
Profitability
Sawaleh’s returns on capital employed, return on equity and operating profit margin are all significantly above the industry averages. Although the first two measures could be inflated due to assets being shown at the low book values, the profit margin indicates that Sawaleh Ltd is managing to make good profits, which could be due to successful marketing, a low cost base or to its occupation of a particularly profitable niche in the market.
Liquidity
Both the current and the quick (acid test) ratios are well below the industry averages (see appendix A attached). This suggests that Sawaleh Ltd is either short of liquid resources or is managing its working capital poorly.
However, the three key working capital ratios modify this impression (appendix A refers). Although the industry averages are not known, these ratios appear to be very good by general standards. It therefore appears that Sawaleh Ltd has become under-capitalized, perhaps through the use of working capital to finance growth.
Financial security
Gearing is high in comparison with the rest of the industry, and 48% of the debt is in the form of overdraft which is generally repayable on demand. This is therefore a risky form of debt to use in large amounts. The debenture is repayable in two years and will need to be refinanced since Sawaleh Ltd cannot redeem it out of existing resources. Interest cover is also poor, and this together with the poor liquidity probably account for the low payout ratio (the inverse of the dividend cover). Appendix A attached for calculations.
Conclusion
In summary, profit performance is strong, but there are significant weaknesses in both the liquidity and the financial structure. These problems need to be addressed if Sawaleh Ltd is to be able to maintain its record of strong and consistent growth in order to compete favourably in the industry. The whole capital needs to be restructured possibly eliminating the non-voting shares as the Ghana Stock Exchange will not permit such shares to be listed. Also, surplus assets must be disposed of among others this will improve performance and possibly increase the dividend payout ratio.
Signature
Name of Accountant