QUESTION ONE

(A) The following draft consolidated financial statements relates to the Baa Koomi Group plc

Consolidated statement of profit or loss for the year ended 31 July 2016
GH¢000 GH¢000
Revenue 5,845
Cost of sales (2,160)
Gross profit 3,685
Distribution costs 510
Administrative expenses 230 (740)
2945
Income from interests in associated undertakings 990
Operating profit 3,935
Profit on disposal of tangible non-current assets 300
Income from investments 80
Interest payable (300)
Profit before taxation 4,015
Taxation (1,345)
Profit after tax
Non-controlling interests –equity (200)
Profit attributable to members of parent company 2,470
Dividends paid (800)
1,670

1
 Consolidated statement of financial positions as at 31 July 2016 2015
GH¢000 GH¢000
Non-current assets
Intangible assets 200 -
Tangible assets 7,750 5,000
Investment in associated undertaking 2,200 2,000
Other investments 820 820
10,970 7,820
Currents assets
Inventories 3,930 2,000
Trade receivables 3700 2,550
Cash at bank and in hand 9,030 3,640
16,660 8,190
Current liabilities (3,084) (1,854)
Net current assets 13,576 6,336

Total assets less current liabilities 24,546 14,156

Non-current liabilities 4,340 1,340
Provisions for liabilities: Deferred taxation 60 26
20,146 12,790

Equity
Share capital 7,880 4,000
Capital Surplus 5,766 4,190
Retained earnings 6,270 4,600
19,916 12,790
Non-controlling interests -equity 230 -
20,146 12,790

The following information is relevant to Baa Koomi Group plc.

i) The Baa Koomi Group plc has two wholly owned subsidiaries. In addition, it acquired a 75%
interest in Nyamema Ltd on 1 August 2015. It also holds a 40% interest in Babaa Ltd which it
acquired several years ago. Goodwill has not become impaired.

ii) The following, recorded at fair values, refers to Nyamema Ltd at the date of acquisition.

2
 Statement of financial position as at 1 August 2015
GH¢000 GH¢000
Plant and machinery 330
Current assets
Inventories 64
Trade receivables 56
Cash at bank and in hand 224
344
Current liabilities
(including Corporation tax GH¢34,000) (170) 174
504
Share capital 100
Retained earnings 404
504

iii) The consideration for the purchase of the shares of Nyamema Ltd comprised 44,000 ordinary
shares of GH¢1 of Baa Koomi Group plc at a value of GH¢550,000 and a balance of GH¢28,000
was paid in cash.

iv) The taxation charge in the consolidated statement of profit or loss is made up of the following
items:

GH¢000
Corporation tax 782
Deferred taxation 208
Tax attributable to associated undertakings 355
1,345

3
v) The tangible non-current assets of the Baa Koomi Group plc comprise the following:
Buildings Plant and Total
Machinery
GH¢000 GH¢000 GH¢000
Cost at valuation
At 1 August 2015 5,100 2,800 7,900
Additions - 4,200 4,200
Disposals - 1,000 1,000
At 31 July 2016 5,100 6,000 11,100

Depreciation
At 1 August 2015 700 2,200 2,900
Provided during year 250 400 650
Disposal - 200 200
At 31 July 2016 950 2,400 3,350

Carrying Amount
At 31 July 2016 4,150 3,600 7,750
At 1 August 2015 4,400 600 5,000

vi) Included in the additions to plant and machinery are items totaling GH¢1,700,000 acquired under
finance leases. The plant and machinery disposal resulted in a profit of GH¢300,000. All lease
rentals were paid on their due dates.
vii) Non-current liabilities include the following items:
2016 2015
GH¢000 GH¢000

Obligations under finance leases 6% 1,417 1,340

debentures 2,923
4,340 - 1 ,3 40

There had been an issue of debentures on 1 August 2015. Their par value was GH¢3,000,000 but
they were issued at a discount of GH¢100,000. The effective rate of interest was 7%.

Current liabilities comprise the following items

2016 2015
GH¢000 GH¢000

Trade payables 1600 960

Obligations under finance leases 480 400
Corporation tax 924 434
Accrued interest 80 60
3,084 1,854

4
Required
Prepare a consolidated statement of cash flow for the Baa Koomi Group plc for the year ended 31
July 2016, in accordance with the requirements of IAS 7 Statements of Cash flow. (15 marks)
(Note: use the indirect method to present cash flows from operating activities.)
(B)
Accra Ltd, a public limited liability company in Ghana, operates in the manufacturing sector.
Accra Ltd has investments in two other Ghanaian companies. The draft statement of financial
position as at 31 March 2018 are as follows:

Assets: Accra Bawku Takoradi

Non – current assets GH¢million GH¢million GH¢million
Property plant and equipment 720.0 550.0 650.0
Investments in subsidiaries:
Bawku Ltd 625.0
Takoradi Ltd 155.0 635.0
Financial assets 160.0 10.5 70.5
1,660.0 1,195.5 720.
Current assets 447.5 340.5 75.0
Total assets 2,107.5 1,536.0 795.5
Equity and liabilities:
Share capital 875.0 605.0 400.0
Retained earnings 620.0 465.0 175.0
Other components of equity 62.5 40.0 47.5
Total equity 1,557.5 1,110 622.5
Non-current liabilities 492.5 382.5 75.0
Current liabilities 57.5 43.5 98.0
Total liabilities 550.0 426.0 173.0
Total equity and liabilities 2,107.5 1,536.0 795.5
Additional information:
i) On 1 April 2016, Accra Ltd acquired 14% of the equity interest of Takoradi Ltd for a cash
consideration of GH¢130 million and Bawku Ltd acquired 70% of the equity interest of Takoradi
Ltd for a cash consideration of GH¢635 million. At 1 April 2016, the identifiable net assets of
Takoradi Ltd had a fair value of GH¢495 million, retained earnings were GH¢95 million and
other components of equity were GH¢26 million. At 1 April 2017, the identifiable net assets of
Takoradi Ltd had a fair value of GH¢575 million, retained earnings were GH¢120 million and
other components of equity were GH¢35 million. The excess in fair value is due to non-
depreciable land. The fair value of the 14% holding of Accra Ltd in Takoradi Ltd, which was
classified as fair value through profit or loss, was GH¢140 million at 31 March 2017 and
GH¢155 million at 31 March 2018. However, the fair value of Bawku Ltd‟s interest in Takoradi
Ltd had not changed since acquisition.

ii) On 1 April 2017, Accra Ltd acquired 60% of the equity interests of Bawku Ltd, a public
limited liability company in Ghana. The cost of investment comprised cash of GH¢625 million.
On 1 April 2017, the fair value of the identifiable net assets acquired was GH¢975 million and
retained earnings of Bawku Ltd were GH¢325 million and other component of equity were
GH¢27.5 million. The excess in fair value is due to non-depreciable land. It is the group‟s

5
policy to measure the non-controlling interest at acquisition at its proportionate share of the fair
value of the subsidiary‟s net assets.
iii) Goodwill of Bawku Ltd and Takoradi Ltd were tested for impairment at 31 March 2018 and
found that there was no impairment relating to Takoradi Ltd. However, the goodwill of Bawku
Ltd was fully impaired by the reporting date.

iv) On 1 April 2016, Accra Ltd acquired office accommodation at a cost of GH¢45 million with
a 30-year estimated useful life. During the year, the property market in the area slumped and the
fair value of accommodation fell to GH¢37.5 million at 31 March 2017 and this was reflected in
the financial statements. However, the market unexpectedly recovered quickly due to the
announcement of major government investment in the area‟s transport infrastructure. On 31
March 2018, the valuer advised Accra Ltd that the offices should now be valued at GH¢52.5
million. Accra Ltd has charged depreciation for the year but has not taken account of the upward
valuation of the offices. Accra Ltd uses the revaluation model and records any valuation change
when advised to do so.

v) Accra Ltd has announced two major restructuring plans during the year. The first plan is to
reduce its capacity by the closure of some of its smaller factories, which have already been
identified. This will lead to the redundancy of 500 employees, who have all individually been
selected and communicated to. The costs of this plan are GH¢4.5 million in redundancy costs,
GH¢2.5 million in retraining costs and GH¢2.5 million in lease termination costs. The second
plan is to re-organize the finance and information technology department over a one-year period
but it does not commence until two years‟ time. The plan will result in 20% of finance staff
losing their jobs during the restructuring. The costs of this plan are GH¢5 million in redundancy
costs, GH¢3 million in retraining costs and GH¢3.5 million in equipment lease termination costs.
There are no entries made in the financial statements for the above plans.

vi) The following information relates to the group pension plan of Accra Ltd:
1 April 2017 31 March 2018
GH¢ million GH¢ million
Fair value of plan assets 14 14.5
Actuarial value of defined benefit obligation 15 17.5

The contributions for the period received by the fund were GH¢1 million and the employee
benefits paid in the year amounted to GH¢1.5 million. The discount rate to be used in any
calculation is 5%. The current service cost for the period based on actuarial calculations is
GH¢0.5 million. The above figures have not been taken into account for the year ended 31
March 2018 except for the contributions paid which have been entered in cash and the defined
benefit obligation.

Required: Prepare the group consolidated statement of financial position of Accra Ltd as at 31
March 2018.

6
C)
On 1 October 2016, HO acquired 60% of the equity interest of Sunyani, a public limited
company in Ghana. The purchase consideration is made up of cash of GH¢40 million and the fair
value of the identifiable net assets acquired was GH¢55 million at that date. The fair value of the
non-controlling interest (NCI) in Sunyani was GH¢22.5 million on 1 October 2016.

HO wishes to use the „full goodwill‟ method for all acquisitions. The share capital and retained
earnings of Sunyani were GH¢12.5 million and GH¢32.5 million respectively and other
components of equity were GH¢3 million at the date of acquisition. The excess of the fair value
of the identifiable net assets at acquisition is due to non- depreciable land. Goodwill has been
tested for impairment annually and as at 30 September 2017 had reduced in value by 20%.
However, at 30 September 2018, the impairment of goodwill had reversed and goodwill was
valued at GH¢1 million above its original value. This upward change in value has already been
included in the draft financial statements of HO below prior to the preparation of the group
accounts.
HO group:
Draft statements of profit or loss and other comprehensive income for the year ended 30
September 2018
HO Sunyani Kumasi
GH¢000 GH¢000 GH¢000
Revenue 200,000 57,500 35,000
Cost of sales (156,000) (32,500) (18,000)
Gross profit 44,000 25,000 17,000
Other income 10,500 3,500 1,000
Administrative costs (7,500) (4,500) (6,000)
Other expenses (17,500) (9,500) (4,000)
Operating profit 29,500 14,500 8,000
Finance costs (2,500) (1,500) (2,000)
Finance income 3,000 2,500 4,000
Profit before tax 30,000 15,500 10,000
Income tax expense (9,500) (4,500) (2,500)
Profit for the year 20,500 11,000 7,500
Other comprehensive income
- revaluation surplus 5,000 - -
Total comprehensive income for year 25,500 11,000 7,500

The following information is relevant: i) HO disposed of an 8% equity interest in Sunyani on 30

September, 2018 for a cash consideration of GH¢9 million and had accounted for the gain or loss
in other income. The carrying value of the net assets of Sunyani Ltd at 30 September, 2018 was
GH¢60 million before any adjustments on consolidation. HO accounts for investments in
subsidiaries using IFRS 9 financial instruments and has made an election to show gains and
losses in other comprehensive income. The carrying value of the investment in Sunyani was
GH¢45 million at 30 September 2017 and GH¢47.5 million at 30 September, 2018 before the
disposal of the equity interest.

7
ii) HO acquired 60% of the equity interest of Kumasi Ltd, a limited liability company also in
Ghana on 30 September, 2016. The purchase consideration was cash of GH¢35 million.
Kumasi‟s identifiable net assets were fair valued at GH¢43 million and the non-controlling
interest had a fair value of GH¢14 million at that date. On 1 April 2018, HO disposed off a 40%
equity interest in Kumasi for a consideration of GH¢25 million. Kumasi‟s identifiable net assets
were GH¢45 million and the value of the non-controlling interest was GH¢17 million at the date
of disposal. The remaining equity interest was fair valued at GH¢20 million. After the disposal,
HO exerts significant influence. Any increase in net assets since acquisition has been reported in
profit or loss and the carrying value of the investment in Kumasi had not changed since
acquisition. Goodwill had been tested for impairment and found that no impairment was
required. No entries had been made in the financial statements of HO for this transaction other
than for cash received.

iii) HO sold inventory to Sunyani for GH¢6 million at fair value. HO made a loss on the
transaction of GH¢1 million and Sunyani still holds GH¢4 million in inventory at the year end.

iv) On 1 October 2016, HO purchased an item of property, plant and equipment for GH¢6
million and this is being depreciated using the straight line basis over 10 years with a nil residual
value. At 30 September 2017, the asset was revalued to GH¢6.5 million but at 30 September
2018, the value of the asset had fallen to GH¢3.5 million. HO uses the revaluation model to
value its non-current assets. The effect of the revaluation at 30 September 2018 had not been
taken into account in total comprehensive income but depreciation for the year had been charged.

v) On 1 October 2016, HO made an award of 4,000 share options to each of its seven directors.
The condition attached to the award was that the directors must remain employed by HO for
three years. The fair value of each option at the grant date was GH¢100 and the fair value of each
option at 30 September 2018 was GH¢110. At 30 September 2017, it was estimated that three
directors would leave before the end of three years. Due to an economic downturn, the estimate
of directors who were going to leave was revised to one director at 30 September 2018. The
expense for the year as regards the share options had not been included in profit or loss for the
current year and no director had left by 30 September 2018.

Required: Prepare a consolidated statement of profit or loss and other comprehensive income
for the year ended 30 September 2018 for the HO group.

(Total: 20 marks)
QUESTION TWO
a) Dodowa Ltd is a large textile manufacturing company. Wherever possible, it structures its
operations to take advantage of any financial assistance available from national and regional
authorities.
During the year, a heavy duty equipment was purchased for Dodowa Ltd's main
manufacturing operation for GH¢12 million on 1 April 2015. The equipment was expected to be
used for 10 years, with a zero residual value. Dodowa Ltd pre-applied for a government grant
on 1 January 2015, meeting all necessary criteria for awarding of the grant. On 1 February 2015,
the grant was awarded for 40% of the equipment's cost and the cash was received on 1 July
2015.

8
 Conditions relating to maintaining employment are attached to the grant and if they are not
satisfied, then the grant becomes repayable, or partly repayable.
Dodowa Ltd expected to meet these conditions when the grant was applied for. However, due
to worsening economic conditions, redundancies for some staff on 31 December 2016 resulted in
a repayment of 10% of the original grant becoming due. The repayment was made on 1
February 2017. Dodowa Ltd accounted for the grant as a reduction in the carrying amount of
the asset.

Required:
Explain, with suitable calculations, the financial reporting treatment of the above in the financial
statements of Dodowa Ltd for the year ended 31 December 2016 in accordance with
IAS 20: Accounting for Government Grants and Disclosure of Government Assistance.

b)
On 1 October 2016, Abudu Ltd decided to revalue its land for the first time. The land was
originally purchased six years ago for GH¢65,000 and was revalued to its current market value
of GH¢80,000 on 1 October 2016. The difference between Abudu Ltd‟s Net assets (including
revaluation of land) and the lower tax base at 30 September 2017 was GH¢27, 000. The opening
deferred tax liability at 1 October 2016 was GH¢2,600 and Abudu Ltd‟s tax rate is 25%

Required: Explain how to account for the above transaction in the financial statements of Abudu
Ltd for the year to 30 September 2017. (5 marks)
. (5 marks) 


c). On 1 October 2016, HO made an award of 4,000 share options to each of its seven directors.
The condition attached to the award was that the directors must remain employed by HO for
three years. The fair value of each option at the grant date was GH¢100 and the fair value of each
option at 30 September 2018 was GH¢110. At 30 September 2017, it was estimated that three
directors would leave before the end of three years. Due to an economic downturn, the estimate
of directors who were going to leave was revised to one director at 30 September 2018. The
expense for the year as regards the share options had not been included in profit or loss for the
current year and no director had left by 30 September 2018.
Required
Calculate the amount to be recognised as an expense for 30 September 2018 and amount to be
recognised in the statement of financial position at 30 September 2018.

d) Kantanka Ltd is constructing a warehouse that will take about 18 months to complete. It
began construction on 1st January 2014. The following payments were made during 2014:
GH¢’000
31st January 200
31st March 450
30th June 100
31st October 200
30th November 250
The first payment on 31st January was funded from the entity’s pool of debt. However, the
entity succeeded in raising a medium-term loan for an amount of GH¢800,000 on 31st March,

9
2014, with simple interest of 9 percent per annum, calculated and payable monthly in arrears.
These funds were specifically used for this construction. Excess funds were temporarily
invested at 6 percent per annum monthly in arrears and payable in cash. The pool of debt was
again used to an amount of GH¢200,000 for the payment on 30th November, which could not be
funded from the medium-term loan. The construction project was temporarily halted for 3
weeks in May when substantial technical and administrative work was carried out.
Kantanka Ltd adopted the accounting policy of capitalizing borrowing costs. The following
amounts of debt were outstanding at the balance sheet date, 31st December 2014:

GH¢’000
Medium-term loan (see description above) 800
Bank overdraft 1,200
(The weighted average amount outstanding during the year was GH¢750,000 and total interest
charged by the bank amounted to GH¢33,800 for the year)
A 10%, 7-year note dated 31st October 2018
with simple interest payable annually at 31st December 9,000
Required: Calculate the borrowing costs to be capitalized
(3 Marks)

(e) Nyame Ltd incurred the following expenditure during the year:
GH¢'000 GH¢'000
Licence to operate in business sector for 10 years

from 1 January 2017
 400
Costs incurred in planning a website for a new product 40
(The website will be set up in 2018)

Purchase of 300 personal computers (PCs) on 1 July 2017


(Three-year useful life). Total cost:

300 PCs (excluding operating system) 480
Windows operating system for each unit (licence for 300 PCs) 60
Microsoft Office software for each unit (licence for 300 PCs) 48 588

Induction training for new staff 30

Nyame Ltd owns the rights to a popular range of books, which it purchased from another entity
for GH¢180,000 few years ago. The rights were not amortised as they have been attributed an
indefinite useful life. The books are still very popular so no impairment losses have been
necessary and it was valued by an independent valuer at GH¢280,000 at the year-ended 31
December 2017.
The company's policy is to use the revaluation model for its intangible assets where a market
valuation is available and permitted.
Required: Recommend with suitable calculations the carrying amount of intangible assets at the
end of the year 31 December 2017 according to the guidance given in IAS 38: Intangible assets.

f)
i) The portfolio cost GH¢13 million 2 years ago.

10
ii) Real-estate prices in Ghana are generally accepted to have dropped by 20-30% in the past 2
years.
iii) The portfolio of securities held by Gonja is difficult to value, as there is no active market.
However, the company has received an offer of GH¢2.6 million for this portfolio from an
investor. It has no intention of accepting this offer although similar companies have accepted
offers from this investor due to financial difficulties.
iv) A normal sale in the present climate could be reasonably expected to yield GH¢6 million,
based on an analysis of transactions in similar assets.
v) Gonja‟s valuation models suggest that the real estate market in Ghana will recover, and it
expects that the portfolio will generate GH¢12 million (at present value) over the next three
years.
Required: In accordance with IFRS 13: Fair Value Measurement, advise Gonja Ltd on the
amount it should state its investment portfolio in its financial statements to 31 July 2018,
assuming it wishes to use fair value as measured. (5 marks)

g)
Dome Ltd has 5,000,000 ordinary shares in issue and also had in issue in 2020:

shares for every GH¢10 of stock.

ock, convertible in a year‟s time at the rate of 3
shares for every GH¢5 of stock.

Required: In accordance with IAS 33: Earnings per Share, Calculate the basic and diluted
earnings per share. (4 marks)

h)
Zumah Ltd operates a defined benefit pension plan for its employees. At 1 April 2015 the fair
value of the pension plan assets was GH¢8,200,000 and the present value of the pension plan
liabilities was GH¢8,500,000. The Actuary estimated that, the service cost for the year to 31
March 2016 was GH¢2,100,000. The pension plan paid GH¢500,000 to retired members and
Zumah Ltd paid GH¢1,900,000 in contributions to the pension plan in the year to 31 March
2016. The Actuary estimated that, the relevant discount rate for the year to 31 March 2016 was
6%.
On 31 March 2016, Zumah Ltd announced improvements to the benefits offered by the pension
plan to all of its members. The Actuary estimated that, the past service cost associated with these
improvements was GH¢2 million. At 31 March 2016 the fair value of the pension plan assets
was GH¢10,200,000 and the present value of the pension plan liabilities (including the past
service costs) was GH¢12,500,000.
Required:
In accordance with IAS 19 Employee Benefits:
i) Calculate the net actuarial gain or loss that will be included in Zumah Ltd‟s other
comprehensive income for the year ended 31 March 2016. (3 marks)

11
ii) Calculate the net pension asset or liability that will be included in Zumah Ltd‟s statement of
financial position as at 31 March 2016. (2 marks)

i)
Alfa Limited issued a GH¢5,000,000 18% convertible loan note at par on 1 July 2015 with
interest payable annually in arrears. Three years later, on 30 June 2018, the loan note becomes
convertible into equity shares on the basis of GH¢100 of loan note for 50 equity shares or it may
be redeemed at par in cash at the option of the loan note holder. The Financial Accountant of
Alfa Limited has observed that the use of a convertible loan note was preferable to a non-
convertible loan note as the latter would have required an interest rate of 24% in order to make it
attractive to investors. The present value of GH¢1 receivable at the end of the year, based on
discount rates of 18% and 24% can be taken as:
Year 18% 24%
1 0.847 0.806
2 0.718 0.650
3 0.609 0.524
Required: Show the accounting treatments for the convertible loan note in Alfa Limited‟s:
i) income statement for the years ended 30 June 2016, 2017 and 2018; and (3 marks)
ii) the statement of financial position as at 30 June 2016, 2017 and 2018. (4 marks)
(Note: Assume that the share option is taken at the end of June 30, 2018.)

j)
Chereponi Ltd (Chereponi) is a listed manufacturing company. Chereponi granted a loan of
GH¢25 million to a homeless charity for the building of a community centre. The loan was
granted on 1 January 2018 and is repayable on maturity in four years‟ time. Interest, which is
subsidised, is to be charged one year in arrears at 4%, but Chereponi assesses that a normal rate
for such a loan would have been 8%. Chereponi recorded a financial asset at GH¢25 million and
reduced this by the interest received each year.
Required:
In accordance with IFRS 9: Financial Instruments, recommend with justification the required
accounting treatment for the issue of the loan to the homeless charity in the financial statements
of Chereponi for the year ended 31 December 2018. (5 marks)

k)
IFRS 15: Revenue from Contracts with Customers specifies how and when an IFRS reporter will
recognise revenue as well as requiring such entities to provide users of financial statements with
more informative, relevant disclosures. The standard provides a single, principles based five-step
model to be applied to all contracts with customers. Mankranso Ltd, a hotel had the following
transactions during the year:

i) On 31 March 2019, Mankranso Ltd signed a contract to supply 50,000 units of food packs at
an agreed price of GH¢10 per unit. On the same day, 30,000 units were delivered at that date,

12
with the remainder delivered on 1 June 2019. It was agreed that the customer would have
extended credit terms of 12 months from the date of delivery.
Mankranso Ltd‟s cost of capital is 10%. (3 marks)

ii) During the year ended 31 March 2019, Mankranso Ltd received payment in advance for the
supply of 2,000 hotel room-nights to customers at GH¢100 per room per night. Only 400 of these
had been occupied by 31 March 2019. The amounts paid by the customers are non-refundable
unless the company fails to provide the agreed accommodation. (3 marks)
Assume Mankranso Ltd has decided to adopt IFRS 15 for year ended 31 March 2019.

Required:
In each scenario above, calculate the amount of revenue to be recognised in the financial
statements of Mankranso Ltd for year ended 31 March 2019. Justify the correct accounting
treatment for each transaction.

QUESTION THREE
A
The Board of Pogas Furniture Ltd (PFC) after few years of incorporation has decided to get the
company listed on the Ghana Stock Exchange. The Board has contacted you to assist in
determining the true value of the business as at 31 December 2018 and to provide a range of
possible issue price based on Net Assets and Earnings Yield. Oliso Ltd, a listed company and a
competitor of PFC, current results show price-earnings ratio of 5 and earnings yield of 20%. The
summarised unaudited financial statements of PFC are as follows:
Statement of profit or Loss for the year ended 31 December 2018
GH¢’000
Sales Revenue (note i) 150,000
Cost of Sales (72,000)
Gross Profit 78,000
Operational Expenses (34,800)
Finance Costs (Interest on debenture stocks) (1,200)
Net Profit 42,000
Taxation (@ 25%) (10,500)
Profit for the period 31,500
Statement of financial position as at 31 December 2018
Assets GH¢’000
Non-current assets (note ii)
Property at Valuation (Land GH¢3 million; buildings GH¢ 27 million) (ii) 30,000
Plant and Equipment (ii) 24,000
Intangible Asset – Patent Right (ii) 3,000
Financial Asset (fair valued through profit or loss at 1/1/2018) (iii) 7,500
64,500
Current Assets (note iv) 30,000
Total Assets 94,500

13
Equity and Liabilities
Stated Capital (4 million shares issued at GH¢3.00 per share) 12,000
Retained Earnings 57,960
69,960
Non-current liabilities
20% Debenture Stocks (2018-2020) 6,000
Deferred Tax provision -1 January 2018 (note v) 4,500
Current liabilities
Trade Payables 3,540
Current Tax liability 10,500
Total Equity and Liabilities 94,500
Your examination of the financial statements and the underlying records revealed the following
additional information:
i) The sales revenue includes GH¢24 million of revenue for credit sales made on a 'sale or return'
basis. At 31 December 2018, customers who had not paid for the goods, had the right to return
GH¢7.8 million of them. PFC applied a markup on cost of 30% on all these sales. In the past,
PFC‟s customers have sometimes returned goods under this type of agreement.

ii) The depreciable non-current assets have not been depreciated for the year ended 31 December
2018.

values in the above statement of financial position are as at 1 January 2018 when the buildings
had a remaining life of 18 years. A qualified surveyor has valued the land and buildings at 31
December 2018 at GH¢33 million.

31 December 2018, the value in use and the fair value less cost to sell were assessed at GH¢21.3
million and GH¢20.25 million respectively.

used for 5 years after which the right of usage would have to be renewed in January 2023.

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 January 2018 the relevant index was
240.0 and at 31 December 2018 the index was 259.2

iv) In late December 2018, the directors of PFC discovered a material fraud perpetrated by the
company's credit controller. Investigations revealed that a total of GH¢9 million of the trade
receivables (included in current assets) as shown in the statement of financial position at 31
December 2018 had in fact been paid and the money had been stolen by the credit controller. An
analysis revealed that GH¢3 million had been stolen in the year to 31 December 2017 with the
rest being stolen in the current year. PFC is not insured for this loss and it cannot be recovered
from the credit controller since his where about is unknown.

v) As at 31 December 2018, the company‟s taxable temporary differences had increased to

GH¢24 million. The deferred tax relating to the increase in the temporary differences should be
taken to profit or loss. The applicable corporate tax rate is 25%.The above figures do not include
the estimated provision for current income tax on the profit for the year ended 31 December
2018. After allowing for any adjustments required in items (i) to (iv), the directors have

14
 estimated the provision of current tax liability for 2018 at 25% of adjusted profit. (This is in
addition to the deferred tax effects of item (v)).

(Note: Assume that it is about 20% riskier in investing in a non-listed entity (as compared
with a listed entity.)
Required
a) Redraft the financial statements above (taking into consideration the additional information (i) –
(v) above. (11 marks)
b) Based on the revised financial statements, provide a range of possible issue prices per share using
Net Assets Method and Earnings Yield/Price Earnings Ratio Method. (4 marks)

B.
The shareholders of Wunam Bank (Ghana) Limited, have decided to sell the company to GCC
Bank (Ghana) Limited following their inability to recapitalize the company as being demanded
by the Bank of Ghana. The statement of financial positions of the two banks as at 31st March
2018 are given below.
GCC Bank Ltd Wunam Bank
GH¢000 GH¢000

Cash and balances with other banks (Note (vi)) 43,000 6,250
Investments (Note (ii))
 64,250 13000
Loan & advances (Note (i))
 115,100 16,700
Other assets (Note (iii)) 3,150 4,250
Property, Plant & Equipment (Note (v)) 14,300 8,650
239,800 48,850
Deposits and Current Accounts (Note (iv)) 191,100 37,750
Other liabilities (Note (vii)) 4,050 11,000
195,150 48,750
Stated Capital (Note (x)) 22,500 2,500
Statutory Reserve Fund 5,100 900
Retained Earnings 17,050 (3,300)
44,650 100
239,800 48,850

The following additional information relate to Wunam Bank Ltd;

. i) Wunam Bank Ltd. carries a huge non-performing loan portfolio. It is estimated that only 40%
of the outstanding loans are recoverable. 

. ii) Investments represent91-DayTreasuryBills held as secondary reserves. An audit has shown
that the investments were overstated in 2017 as interest on investments for that year amounts to
GH¢4.15 million. 

. iii) Other assets include long outstanding debits amounting to GH¢3.6 million. These are not
represented by tangible assets. 

. iv) Deposits amounting to GH¢3.75 million could not be accounted for. This phenomenon has
prevailed since 2014 but has not been provided for in the accounts. 


15
. v) Property, plant and equipment include an old banking software amounting to GH¢1.25
million. This is considered worthless. The remaining tangible fixed assets have been revalued at
GH¢15.3 million. 

. vi) Cash and balances with other banks include an amount of GH¢2.4 million due from Sakara
Rural Bank Ltd which was liquidated in 2016. 

. vii) Other liabilities include interest earned on investments amounting to GH¢3.15 million. 

viii) Goodwill was assessed at 2.5% of adjusted deposits and current accounts.
. ix) Wunam Bank Ltd. has been investing each year in Government bonds to provide funds in
order 
to install Automatic Teller Machines and to open two ultra-modern branches in Takoradi
and Kumasi respectfully. This practice is only known to the Managing Director and the Finance
Manager, and the investments are worth GH¢12.6 million as at 31 March, 2018. 

. x) The stated capital of Wunam Bank Ltd. is made up of 100 million ordinary shares of no par
value. 

Required: 

a) Determine the value to be placed on the shares of Wunam Bank Limited using the net assets

approach to valuation. (5 marks) 

. b) Prepare the statement of financial position of GCC Bank (Ghana) Limited after the takeover
using your answer in (a) above. Assume the following: The purchase consideration was duly
settled; GCC Bank Ltd. took over all assets and liabilities; and Goodwill was written off. 

(6 marks) (Total: 15 marks) 

C.
Mahadi Ltd has operated profitably in Ghana for several years but now facing financial
difficulties after recording losses in its operations recently. The company‟s Statement of
Financial Position as at 30 September, 2019 is given below:
GH¢
Non-current Assets
Freehold property 68,000
Equipment 468,000
536,000
Current Assets
Inventories 120,000
656,000
Equity and Liabilities
Stated Capital (400,000 ordinary shares issued at 25 pesewas per share) 100,000
Capital surplus 68,000
Retained earnings (40,000)
128,000

10% debenture stocks 48,000

Sundry payables 412,000
Bank overdraft (from Northern Rock Bank) 68,000
656,000

16
 Additional Information:
i. Mahadi Ltd operates a number of retail outlets for snack bar; most of these outlets are rented
out. The company‟s largest supplier is Banda Ltd which holds all of the debenture stocks
and is also a trade creditor for GH¢240,000 included in sundry payables above. Included in
the sundry payables are preferential payables of GH¢44,000; an amount due to the Ghana
Revenue Authority.
ii. The bank overdraft from Northern Rock Bank is secured by a fixed charge over the freehold
property of Mahadi Ltd, and the debenture stock is secured by a floating charge over the
company‟s assets.
iii. On October 1, 2019, Mahadi Ltd has scheduled a meeting of all the stakeholders of the
company in order to consider the following alternative proposals:
Proposal Alternative 1
The management of Mahadi Ltd proposes for the immediate liquidation of the company, which
would result in the following estimated amounts for realized assets:
GH¢
Freehold property 56,000
Equipment 204,000
Inventories 40,000

Proposal Alternative 2:
Banda Ltd has made an offer of support which would allow the reconstruction of Mahadi Ltd to
continue to operate as a going concern. Under this reconstruction arrangement, the debentures
held by Banda Ltd would be converted into 48,000 ordinary shares (issued at GH¢1.00 per share)
and for every GH¢200.00 of GH¢240,000 trade debt owed to Banda Ltd, there would be issued
110 ordinary shares (issued at GH¢1.00 each) in the reconstructed company. The balance of the
trade debt owed to Banda Ltd would be written off against the equipment of Mahadi Ltd.
Mahadi Ltd existing shareholders would receive one ordinary share in the reconstructed
company (credited as to GH¢1.00 per share) in exchange for every five presently held. The
balance on the retained earnings is not absorbed by the existing shareholders (in the share
exchange above), and is to be written off against the capital surplus. The fair value costs of the
freehold property and the inventories approximate their carrying value.
An additional 140,000 ordinary shares in Mahadi Ltd (issued at GH¢1.00) would be issued to
Banda Ltd for cash consideration of GH¢140,000 in order to improve the liquidity position of the
reconstructed entity. It has been estimated by the Management of Banda Ltd that after
reconstruction, Mahadi Ltd would earn regular net profit of GH¢54,000 per annum.
Other relevant information:

new investments involving

similar risks to those which would be incurred by investing in Mahadi Ltd.

Required:
a) Show the total amount Banda Ltd would receive in case of liquidation of Mahadi Ltd per
proposal 1. (10 marks)

17
b) Prepare the statement of financial position of Mahadi Ltd after the reconstruction (on
assumption that proposal 2 is adopted and implemented). (10 marks)
(Total: 20 marks)

QUESTION FOUR
a). Gamashie Ltd is considering purchasing an interest in its competitor Bossman Ltd. The
Managing Director of Gamashie Ltd has obtained the three most recent statements of profit or
loss and statements of financial position of Bossman Ltd as shown below.

Bossman Ltd
Statements of Profit or Loss for years ended 31 December
2016 2017 2018
GH¢'000 GH¢'000 GH¢'000
Revenue 18,000 18,900 19,845
Cost of sales (10,440) (10,340) (11,890)
Gross profit 7,560 8,560 7,955
Distribution costs (1,565) (1,670) (1,405)
Administrative expenses (1,409) (1,503) (1,591)
Profit before interest & tax 4,586 5,387 4,959
Finance cost (704) (815) (1,050)
Profit before tax 3,882 4,572 3,909
Income tax (1,380) (2,000) (1,838)
Profit after tax 2,502 2,572 2,071

Bossman Ltd
Statements of Financial Position as at 31 December
2016 2017 2018
Assets GH¢'000 GH¢'000 GH¢'000
Non-current assets
Land and buildings 11,460 12,121 11,081
Plant and machinery 8,896 9,020 9,130
20,356 21,141 20,211
Current assets
Inventory 1,775 2,663 3,995
Trade receivables 1,440 2,260 3,164
Cash 50 53 55
3,265 4,976 7,214
23,621 26,117 27,425
Equity and liabilities
Equity and reserves
Share capital 8,000 8,000 8,000
Retained earnings 6,434 7,313 7,584
14,434 15,313 15,584
Non-current liabilities

18
12% loan stock 5,000 5,000 5,000
Current liabilities
Trade payables 390 388 446
Bank 1,300 2,300 3,400
Taxation 897 1,420 1,195
Dividend payable 1,600 1,696 1,800
4,187 5,804 6,841
23,621 26,117 27,425
Required:
Prepare a report for the Managing Director of Gamashie Ltd commenting on the financial
performance and position of Bossman Ltd and highlighting any areas that require further
investigation.
ii) State the benefits and Limitations of the use of accounting ratios in appraising financial
performance (5 marks)
(Total: 20 marks)
b)
The following are the accounts of Bounce Back Ltd, a company that manufactures playground
equipment, for the year ended 30 November, 2019.
Statement of comprehensive income for year ended 30 November
2019 2018
GH¢’000 GH¢’000
Profit before interest and tax 2,200 1,570
Interest expense (170) (150)
Profit before tax 2,030 1,420
Taxation (730) (520)
Profit after tax 1,300 900
Dividends paid (250) (250)
Retained profit 1,050 650

Statement of financial position as at 30 November 2019

2019 2018
GH¢’000 GH¢’000
Non-current assets (written-down value) 6,350 5,600

Current assets
Trade receivables 2,100 2,070
Inventories 1,710 1,540
Total current assets 3,810 3,610

Creditors: amounts due within one year

Trade payables 1,040 1,130
Taxation 550 450
Bank overdraft 370 480
Total current liabilities 1,960 2,060

Net current assets 1,850 1,550

19
Total net assets 8,200 7,150

Creditors: amounts due after more than one year

10% debentures 2020/ 2021 1,500 1,500
Equity:
Share Capital (ordinary shares of 50p fully paid up) 3,000 3,000
Retained earnings 3,700 2,650
6,700 5,650

Long term liabilities and Equity 8,200 7,150

Required:
a) Calculate, for both years, the return on equity and the return on capital employed.
b) Calculate, for both years, TWO (2) investment ratios of interest to a potential investor.
c) Calculate, for both years, TWO (2) ratios of interest to a potential long-term lender.
d) Report on the performance and state of the business from the view point of a potential
shareholder and lender using the ratios calculated above and explain any weaknesses in these
ratios. (20 marks)

QUESTION FIVE
a). Fiagja Ltd is a retail trading company in Ghana. Nana Yaw Kawula (member of ICAG) is the
finance director and has been in this role for many years. Fiagja Ltd has a year-end of 30 June
each year. Nana Yaw Kawula is finalizing the financial statements for the year ended June 30
2019.
On one hand, the warehouse manager of Fiagja Ltd has recently advised Nana Yaw Kawula of a
significant level of slow moving inventory, and that the inventory in question is now more than
seven months old and per the company policy would usually have been written down some
months previously.
On the other hand, the shareholders of Fiagja Ltd are trying to sell the company, and the Chief
Executive Officer (CEO) who happens to be the majority shareholder of Fiagja Ltd has told
Nana Yaw Kawula that it is not necessary to write down the inventory values in the yearend
financial statements.
Nana Yaw Kawula is sure that the CEO wants the financial statements to carry an inflated
inventory valuation because he has found a prospective buyer for the company. The CEO has
indicated to Nana Yaw Kawula that, if the proposed deal is indeed successful, all employees will
keep their jobs (including Nana Yaw Kawula) and the finance director (Nana Yaw Kawula) will
receive a pay rise.
Required:
i) Explain how the finance director could potentially act in order not to breach the fundamental
principles of the IFAC‟s code of ethics. (5 marks)
ii) Recommend the possible actions that the finance director should take as a member of the
Institute of Chartered Accountant (Ghana) in dealing with this ethical dilemma. (5 marks)

b).

20
Bolgatanga Ltd (Bolgatanga), currently operating in the biotechnology research and healthcare
sector, is a Ghanaian listed company which prepares financial statements in accordance with
International Financial Reporting Standards (IFRS) up to 31 December each year. On 1 January
2015, Bolgatanga acquired 80% interest in Wa Ltd (Wa). You are a newly qualified accountant
at Bolgatanga and report directly to Mr. Dominic Atubiga, the Financial Controller (FC). Early
2017, Bolgatanga acquired Sissala Ltd (Sissala), a private company and has recently had an
application for additional funds rejected from its current bankers on the basis that there are
insufficient assets to offer security.

You have been reviewing the minutes of Bolgatanga‟s last board meeting, dated 28 December
2017.The minutes indicate that the sales director resigned on 1 December 2017. In her
resignation letter to the board, the sales director states that she can no longer work with Dominic
Atubiga who is dominating the board and allowing a close friendship with, and advice from,
Salifu Adams (Managing Director of Sissala) to compromise his judgement.

The Human Resources department is currently in the process of recruiting a new sales director.
Dominic Atubiga tells the board that, in the interim, the marketing department will just have to
cope until a replacement sales director is appointed. Speaking to other staff in Bolgatanga, you
have become aware that the wife of the Managing Director of Bolgatanga is a partner in Brother
and Co., a firm of solicitors which the company uses to provide legal advice in relation to the
market development activities of Wa. However, Brother and Co. has confirmed that the FC‟s
wife works in a different division and that she has no involvement in the services provided. It is
your understanding that legal fees of GH¢500,000 (included in administration expenses) were
paid by Bolgatanga to Brother and Co. during the year ended 31 December 2017.
Required:
Discuss the ethical issues arising from the information provided, and the appropriate steps to
address them. (10 marks)

c).
You are Peter Anokye, a newly qualified accountant and have recently been appointed as the
deputy financial controller in Nanton Ltd (Nanton). You report directly to the finance director,
Maria Wakasu. Just last week, you received the following email from Maria.

“As you are aware, I have to present some financial information at the board meeting scheduled
in two days‟ time and I need your help. I should be grateful if you could give me some advice on
this issue. I don‟t know whether you heard the news that Mamprugo Ltd (Mamprugo), an
important customer of ours, is having some liquidity challenges. I think it is a case of not being
able to manage their working capital cycle effectively. I know the financial controller of
Mamprugo well, and he has mentioned that they have approached Yendi Ltd (Yendi) for credit.
Of course, if they are successful, we should have no problems in getting paid. Today, I have
received a request from Yendi asking for a credit reference for Mamprugo. I think if you check
their credit history you will find they were good payers. Do you think I should mention anything
about the liquidity issue to Yendi?

As I mentioned to you yesterday, over coffee, the Chief Executive Officer (CEO) regards leasing
as an important method of financing the company. However, you are probably more up to date

21
with the existing accounting requirements than me. The current accounting standard has some
significant deficiencies and no longer meets the needs of users of financial statements. On 1
January 2016, we entered into a sale and finance leaseback transaction with our bank. The
arrangement involved the sale, at fair value, of a building for GH¢8 million. The book value of
the building in the financial statements at that date was GH¢6 million. I know that the CEO is
particularly concerned that showing the lease as a finance lease could be detrimental to any loan
applications that we might make over the next twelve months. Between you and I, we need to
keep him happy: my year-end bonus could be in jeopardy if we get this area wrong. In the
medium term, I am worried about the implications of the introduction of IFRS 16: Leases,
particularly the effects on the statement of financial position, statement of profit and loss and
other comprehensive income, and our key financial ratios. Surely our gearing ratio will be
higher. Maybe we can get round the problem of including leases on the statement of financial
position by classifying some of them as short-term (i.e. less than twelve months).

Peter, I should be grateful if you could give me some advice on this issue.”
Required:
Appraise the ethical issues arising from the information provided in the mail sent by Maria, and
propose and justify appropriate steps that Peter Anokye should take to address them.
(10 marks)

C) On 1 August 2018 Charlie Ltd, whose functional currency is the cedi, bought a property in
Morocco for DH40 million. The property had a 20-year useful economic life with no residual
value estimated. On 31 July 2019, the property was revalued to DH45 million.

Exchange rates were: 1 January 2018 GH¢1 = DH 1.32

1 August 2018 GH¢1 = DH 1.25
31 July 2019 GH¢1 = DH 1.125

Required: In accordance with IAS 21: The Effects of Changes in Foreign Exchange Rates and
IAS 16: Property, Plant & Equipment how much should be recognised in Statement of Profit or
Loss and Other Comprehensive Income for year ended 31 July 2019? (5 marks)
D)
IFRS10: Consolidated Financial Statements outlines the requirements for the preparation and
presentation of consolidated financial statements, requiring entities to consolidate other entities it
controls.

Required:
i) Define control (1 mark)
ii) Indicate FOUR (4) circumstances that an entity may not have gained control in another entity
but may be allowed to prepare consolidated financial statements. (4 marks)
iii) Identify FIVE (5) factors that are indicative of significant influence.

22