QUESTION 1

(a) In accordance with IAS 1 – Presentation of Financial Statements, explain:

(i) the components of a complete set of Financial Statement, and (2 marks)

(ii) the Elements of Financial Statement (4 marks)

(b) A company received two separate grants during the year from the United Kingdom
government. The first grant, an amount of GHC500,000 was given to acquire an Electricity
Plant, whilst the second grant of GHC50,000 was to support the training of electrical
engineers on the Electrical Plant.

The Plant was estimated to have an economic life of 25 years.

Required:

Detail out the treatment of the above events in accordance with IAS 20 – Accounting for
Government Grant and disclosure of Government assistance.
(4 marks)

(c) Mega Band leased a set of musical instrument from Best Equipment Limited on 1 January
2010. The cash price of the instruments was GHC10,000 and the annual rental payment is
GHC3,000 payable in advance.

The initial period of the lease is four years and the implicit interest rate in the lease is
13.7%.

The set of instruments are expected to have an economic useful life of four years, and
depreciation is to be charged on this basis on cost (with nil residual value).

Mega Band’s accounting period ends on 31 December and finance charge is accrued at 31
December.

Required:

(i) Prepare a lease schedule showing the allocation of the finance charge over the four year
period.

(ii) Show the extracts of the Income Statement and the Statement of Financial Position in
respect of the lease over all relevant years. (10 marks)

ICAGP3.11112 Page 1 of 9
(d) On 1 January 2009 Ahafo Brewery Limited (ABL) acquired a new bottling plant under the
following terms:
GHC’000
Manufacturer’s base price 4,200
Trade discount (applying to base price only) 20%
Freight charges 120
Electrical installation cost 112
Staff training in use of machine 160
Pre-production testing 88
Purchase of a three-year maintenance contract 240
Estimated residual value 80

Hectolitres (HL)
Estimated life in hectolitres of beer 24,000
Hectolitres of beer produced - year ended 31 December 2009 4,800
- year ended 31 December 2010 7,200
- year ended 31 December 2011 (see below) 3,400

On 1 January 2011, ABL decided to upgrade the plant by adding new components at a cost of
GHC800,000. This upgrade led to a reduction in the production time per unit of output and also
improved the quality of the bottling process. The upgrade also increased the estimated remaining
life of the machine at 1 January 2011 to 18,000 HL and its estimated residual value was revised to
GHC160,000.

Required:

Prepare extracts from the income statement and statement of financial position for the above
machine for each of the three years to 31 December 2009, 2010 and 2011.
(10 marks)

(Total: 30 marks)

QUESTION 2

Happy Ltd acquired 90% of the equity shares in Joy Ltd on 1st July 2011 for GHC100,000.

The draft financial statements of the parent company and its subsidiary for the year ended 30th June
2012 is as follows:

ICAGP3.11112 Page 2 of 9
Income Statement for the year ended 30th June, 2012

Happy Ltd Joy Ltd

GHC GHC
Revenue 500,000 100,000
Cost of sales (300,000) (50,000)
Gross profit 200,000 50,000
Distribution cost (52,500) (7,500)
Administration expenses (39,000) (12,500)
Operating profit 112,500 30,000
Other income - 14,500
Investment income 2,250 -
Finance charges (15,000) (3,750)
Profit before taxation 99,750 40,750
Tax (17,500) (3,250)
Profit after tax 82,250 37,500

Statement of Financial Position as at 30th June 2012

Happy Ltd Joy Ltd

ASSETS GHC GHC
Non-current Assets:
Property, Plant & Equipment 400,000 100,000
Investment in Shares 100,000 -

Current Assets:
Inventories 58,000 9,000
Trade Receivables 30,000 9,000
Bank 12,000 7,000
TOTAL ASSETS 600,000 125,000
EQUITY AND LIABILITIES:
Equity:
Stated Capital 125,000 25,000
Income Surplus 392,250 55,000
517,250 80,000
Current Liabilities:
Trade Payables 62,000 35,000
Bank Overdraft 20,750 10,000
82,750 45,000
Total Equities and Liabilities 600,000 125,000

Additional information:

i. During the year, Happy Ltd sold goods to Joy Ltd for GHC2,500. These goods were
invoiced to Joy Ltd at a margin of 20% and one quarter of the goods remained unsold to
external customers as at 30th June, 2012.

ICAGP3.11112 Page 3 of 9
ii. Joy Ltd sent goods to Happy Ltd for GHC4,500. These were invoiced at a mark-up of 50%
and half remained in stock at the reporting date.
iii. At the date of acquisition, the fair value of Joy Ltd’s net assets were equal to the carrying
amounts with the exception of an item of plant that had a fair value of GHC5,000 in excess
of its carrying value and a remaining useful life of four years. Joy Ltd has not reflected this
fair valuation adjustment in its financial statements.
iv. An impairment review of goodwill at the year revealed a loss of GHC2,000.
v. Both companies paid dividends during the year. The dividends distributed by Happy Ltd
and Joy Ltd were GHC5,000 and GHC2,500 respectively.

Required:

Prepare:

a. Consolidated Income Statements for the year ended 30th June 2012. (11 marks)

b. Consolidated Statement of Financial Position as at 30th June 2012 (9 marks)

(Total: 20 marks)

QUESTION 3

Balahu and Gazu are in partnership. The following balances were extracted from their books of
account as at 31st December 2011.
Debit Credit
GHC GHC
Capital account 1/1/2011
Balahu 10,000
Gazu 2,500
Accruals 22,500
Cars: at cost 137,500
Accumulated depreciation (1/1/11) 62,500
Cash and Bank Balance 52,500
Drawings:
Balahu (all on 30/6/11) 37,500
Gazu (all on 30/6/11) 25,000
Furniture: at cost 50,000
Accumulated depreciation (1/1/11) 20,000
Net Profit (for the year to 31/12/11) 372,500

Prepayments 7,500
Salary paid to Gazu 50,000
Stocks at cost (31/12/11) 175,000
Trade payables 295,000
Trade Receivables 250,000 _______
785,000 785,000

ICAGP3.11112 Page 4 of 9
Additional information:

a) The partnership agreement includes the following arrangements between the partners:

i. Profits and losses are to be shared in the ratio 4:2;

ii. Interest of 10% per annum is to be paid on the partners’ capital account balance;
iii. Interest at the rate of 15% per annum is to be charged on the partners’ drawings;
iv. Gazu is entitled to be paid GHC50,000 per annum salary.

b) On 1 January 2012 a company called Piotorico Ltd was formed in order to make an offer
for the purchase of the partnership. The arrangement were as follows:

i. Gazu was to purchase one of the cars at an agreed valuation of GHC12,500

ii. Other assets and liabilities (except cash and bank) were taken over by the company
at the values below:
GHC
Cars 45,000
Furniture 25,000
Stock 185,000
Trade Receivables 200,000
Trade Payables 290,000
Accruals 25,000

iii. Goodwill is to be valued at one year’s purchase of the weighted average net profit of
the proceeding three years.
Weighting Amount
GHC
Year to 31 December 2009 1 182,500
Year to 31 December 2010 2 325,000
Year to 31 December 2011 3 372,500

iv. Additional costs incurred by the partnership in arranging the conversion amounted to
GHC7,500.
v. The company agreed to issue 150,000 ordinary shares at GHC3.10 of no par value.
The shares are to be divided equally between the partners.
vi. Any remaining balance on the partners’ capital accounts was settled between them in
cash.

Required:

(a) Prepare the Partners Profit and Loss Appropriation Account for the year ended 31 December
2011.

(b) Prepare the Partners’ Capital Accounts (to close their books)

(c) Prepare Piotorico Ltd’s Statement of Financial Position as at 1 January 2012.

15 marks

ICAGP3.11112 Page 5 of 9
QUESTION 4

The Faith Rural Bank Ltd has presented the following trial balance for the 2011 financial year:

DR CR
GHC’000 GHC’000
Operating expenses 987
Donations 24
Staff costs 2,213
Directors remuneration 39
Capital work-in-progress 168
Motor vehicles/Accumulated depreciation 327 182
Equipment & Furniture/accumulated depreciation 588 163
Computers/Accumulate depreciation 390 133
Land and buildings/Accumulated depreciation 776 83
Corporate tax 180
Sundry payables 763
Interest from short term funds 243
Interest from Government securities 7,137
Interest on loans and advances 373
Other accounts 789
Staff advances 449
Loans and overdrafts granted 8,233
Income surplus, 01/01/2011 1,146
Allowance for doubtful debts, 01/01/2011 614
Statutory reserves, 01/01/2011 648
Share deals 34
Capital surplus 410
Trade investments 1,343
Government Treasury bills 19,593
Interest on customers’ deposits 3,515
Amounts due to other banks 3,871
Deposits with other banks 12,794
Cash in hand 1,629
Balance with Bank of Ghana 4,666
Stated Capital 4,823
Current accounts 22,767
Fixed/time deposits 3,582
Savings accounts 7,819
Profit on foreign exchange transaction 141
Dividends from investments 55
Miscellaneous income 2,328
Commission and fee income _____ 1,388
Total 58,703 58,703

Additional information:

i) Increase allowance for doubtful debts to GHC851,700

ICAGP3.11112 Page 6 of 9
ii) Provide for depreciation at the following rates:
Land and buildings 5% on cost
Equipment and furniture 20% on cost
Computers 33⅓% on cost
Motor vehicles 33⅓% on cost
iii) Provide for Audit fees of GHC60,000
iv) Transfer 12½% of net profit after tax to Statutory Reserve Fund.
v) The corporate tax provision made in the 2010 financial statements was GHC200,000. This
was agreed with Ghana Revenue Authority at GHC220,000 and fully settled in March 2011.
Interim tax for 2011 based on self assessment was settled at GHC160,000. Corporate tax
applicable to the bank is 25%.
vi) Directors have agreed to pay end-of-year bonus to staff estimated at GHC72,000. This is yet
to be paid.
vii) The authorised capital is 10,000 equity shares of no par value out of which 6000 shares have
been issued and fully paid.

Required:

(a) Statement of Comprehensive Income for the year ended 31st December, 2011.

(b) Statement of changes in equity for the year ended 31st December, 2011.

(c) Statement of Financial Position as at 31st December, 2011.

Notes are not required, but show all workings.

20 marks

QUESTION 5

(e) The management of Abayie Ltd is considering expanding the scale of operation of the
company. At the last Board meeting, it was decided that investing in an existing company
would be advantageous. A search team, of which your boss is the chairman, was set up to
look for potential companies.

Two companies, Tomah Ltd and Yagao Ltd have been identified by the search team. Tomah
Ltd and Yagao Ltd produce similar products but they are located in Accra Metropolitan
Area and Kumasi Metropolitan Area. In view of the bulky nature of their products and
attendant transportation cost, each company has spatial monopoly.

ICAGP3.11112 Page 7 of 9
 The financial statements of the two companies are as follows:

Statement of financial position as at 31/12/2011

Tomah Ltd Yagao Ltd
GHC GHC
Non Current Assets: 780,000
Property, Plant & Machinery 190,000

Current Assets:
Inventories 12,000 26,250
Account receivables 37,500 105,000
Bank & cash on hand 500 22,000
50,000 153,250
Current Liabilities:
Payables (22,605) (117,670)
Net current assets 27,395 35,580
Total assets less current liabilities 217,395 815,580
Non Current Liabilities:
Loan (130,000) (370,000)
Net assets 87,395 445,580
Equity:
Stated capital 10,000 100,000
Capital surplus - 50,000
Income surplus 77,395 295,580
87,395 445,580

Payables are made up as follows:

Tomah Ltd Yagao Ltd
GHC GHC
Trade Payables 10,605 67,670
Overdraft 10,000 -
Taxation 2,000 50,000
22,605 117,670

Income statement for the year ended 31st December 2011

Tomah Ltd Yagao Ltd
GHC GHC
Revenue 150,000 700,000
Cost of sales (60,000) (210,000)
Gross profit 90,000 490,000
Selling expenses 13,500 84,000
Administrative expenses 15,000 (28,500) 35,000 (119,000)
Operating profit 61,500 371,000
Interest (3,000) (32,000)
Profit before taxation 58,500 339,000
Taxation (13,605) (68,170)
Profit after taxation 44,895 270,830

Dividend paid during the year 20,000 110,000

ICAGP3.11112 Page 8 of 9
 Required:

Calculate the following ratios for each company and comment on the results.

(i) Profitability ratios – gross profit margin, net operating profit margin and the return on
capital employed

(ii) Liquidity ratios – current ratio, quick ratio, stock turnover, debtors collection period and
creditors payment period.

(iii) Leverage ratios – gearing ratio and interest cover.

(15 marks)

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