ICAN 2021 Financial Reporting | Mixed

The following is the trial balance of Almajiri Nigeria Limited as at September 30, 2018 N‟m N‟m Revenue 60,000 Cost of sales 40,800 Distribution costs 2,900 Administrative expenses 4,440 Interest on bank borrowings 40 Research and development costs 1,720 Leasehold property (at valuation Oct. 1, 2017) 10,000 Plant and equipment (at cost) 15,320 Plant and equipment (accum. depr. at Oct. 1, 2017) 4,920 Capitalised development expenditure (Oct. 1, 2017) 4,000 Development expenditure (accum. amortiz. at Oct. 1, 2017) 1,200 Closing inventory (30 Sept. 2018) 4,000 Trade receivables 8,620 Bank 260 Trade payables & provisions 4,760 Preference dividend paid 160 Dividend paid on ordinary shares 1,200 Ordinary shares at 25k each 10,000 8% Redeemable preference shares at N1 each (year 2020) 4,000 Retained earnings brought forward 4,900 Deferred tax 1,160 Leasehold property revaluation reserve -- 2,000 93,200 93,200 The following information were extracted from the records of Almajiri Nigeria Limited.

As a result of privatisation and commercialisation exercise currently going on in the country, the Ministry of Transport sold the assets and liabilities of the newly constructed standard gauge railway to a private company known as Stalus Rail Limited (SRL) to ensure smooth operations of the railway services by freeing it from government bureaucracy. The summarised extracts of the statement of financial position at fair value of SRL on January 1, 2019 reflecting the terms and conditions of the sales agreement of the Transport Ministry are as follows: N’m Assets Goodwill 150,000 Operating licence 900,000 Property – Train stations and land 225,000 Rail tracks and coaches 225,000 Two (2) train engines 750,000 Purchase consideration 2,250,000 Liabilities Sundry liabilities Nil The operating licence is for a ten-year period which was issued on January 1, 2019 by the Transport Ministry and it is stated at cost. The carrying value of the property and rail track and coaches are based on value in use. The engines are valued at their net selling prices. On February 1, 2019 one of the train engines got damaged due to a technical fault from the manufacturer and the engine was completely destroyed. The sale of the assets to SRL was without recourse to the Transport Ministry and the manufacturer of the engines. In view of this, it was estimated that there would be reduced passenger capacity, therefore, the estimated value in use of the whole train service business of SRL was assessed at N1,500 billion. The number of passengers after one of the engines of the train got damaged was below expectation, even allowing for the reduced capacity. In the light of this, the value in use of SRL rail services was re-assessed on March 31, 2019 at N1,350 billion. On this date the SRL received an offer of N675 billion from another company called Papaya Railway Services Limited (PRSL) for the operating licence (since it is transferable). The realisable value of the other assets has not changed significantly.

International Financial Reporting Standards (IFRS 5) on Non-Current Assets held for Sale and Discontinued Operations specifies the accounting treatment for assets held for sale and disclosure of discontinued operations.

Bottle Nigeria Plc acquired 80% of Glass Limited‟s equity share since its incorporation about 10 years ago. The two companies‟ draft financial statements as at December 31, 2019 are as follows: Statements of profit or loss for the year ended December 31, 2019. Bottle Nig. Plc Glass Limited N’000 N’000 Revenue 225,000 45,000 Cost of sales (130,500) (27,000) Gross profit 94,500 18,000 Other expenses (76,500) (14,400) Profit before taxation 18,000 3,600 Income tax expense (5,850) (1,125) Profit for the year 12,150 2,475 Statement of financial position as at December 31, 2019 Bottle Nig. Plc Glass Limited Assets N‟000 N‟000 Non-Current Assets: Property, plant and equipment 86,400 9,000 Investment in Glass Limited 3,600 -- 90,000 9,000 Current Assets Inventories 22,500 5,400 Trade receivables 29,250 1,800 Cash and cash equivalents 17,550 1,575 69,300 8,775 Total assets 159,300 17,775 Equity and liabilities Equity Ordinary share capital 90,000 4,500 Retained earnings 22,500 10,800 112,500 15,300 Current liabilities Trade payables 40,950 1,350 Current tax liabilities 5,850 1,125 46,800 2,475 159,300 17,775 Additional Information: (i) On December 31, 2019 Bottle Nigeria Plc dispatched goods which cost N3,600,000 to Glass Limited at an invoice price of N4,500,000. Glass Limited received the goods on January 2, 2020 and recorded the transaction on that date. (ii) It is the group‟s policy to value non-controlling interest at acquisition at its proportionate share of the fair value of the subsidiary‟s identifiable net assets.

You are the Chief Accountant of Jolmarg Nigeria Limited, Pepeyoyo Limited is a competitor in the same industry as Jolmarg and has been operating for the past 20 years. The following is the result of Pepeyoyo Limited for the last three years ended December 31. Ratios 2016 2017 2018 Gross profit margin % 34 34.4 35.4 ROCE % 21.1 21.5 17.8 Net profit margin % 11.9 12.4 11.4 Asset turnover times 1.78 1.73 1.56 Gearing ratio % 15.6 24.3 23.6 Debt ratio % 18.5 32.0 30.9 Interest cover times 16.7 8.1 5.5 Current ratio ratio 3:1 2.8:1 2.7:1 Quick ratio ratio 1.2:1 1.1:1 1.1:1 Receivable collection period (days) 46 52 64 Inventory turnover period (days) 158 171 182 Payable payment period (days) 35 42 46 Required: Write a report to the finance director of Jolmarg Nigeria Limited analysing: a. Performance (profitability, liquidity and long term financial stability) of Pepeyoyo Limited based on the information available.

The qualitative characteristics of relevance, faithful representation and comparability identified in the IASB‟s framework for the preparation and presentation of financial statements are some of the attributes that make financial information useful to various users of financial statements.