ICAN 2022 Financial Reporting | Mixed

Endtime PLC is a company based in Benin with the following trial balance for the year ended December 31, 2020: N'Million N'Million Depreciation: Plant and equipment 1/1/2020 13,875 Revenue 226,625 Administrative costs 26,200 Plant held for sale 7,500 Cost of sales 140,000 Finance costs 5,500 Multi-Users S&P and SAGE accounting software 5,700 Inventory at 31/12/2020 10,000 Distribution expenses 12,300 Plant and equipment 1/1/2020 50,000 Ordinary share capital of 50 kobo each 40,000 Allowances for doubtful debts 2,000 Investment property at valuation 1/1/2020 15,000 Trade receivables/payables 10,000 3,000 Rental income from investment property 2,500 Bank balance 3,500 Land and buildings 1/1/2020 62,000 15% preference shares of N1 each 13,000 Deferred taxation 4,200 Revaluation reserves on land and buildings 20,000 Retained earnings 16,500 Discounts 3,000 2,000 347,200 347,200 Additional Information: (i) Finance costs include full year dividends on preference shares and ordinary share dividends of 2½ kobo paid at the end of the year. Allowances for doubtful debts are no longer necessary as customers paid as at when due from time to time in the past 2 years. (ii) Severely damaged inventories, which cost N790,000,000 were included in the inventories in the trial balance. This will need to be repaired at a cost of N440,000,000 before a knowledgeable buyer will be interested to pay N940,000,000 at arm’s length transaction. (iii) As at December 31, 2020, a valuer based in Victoria Island in Lagos was contacted by the company to review its land and buildings. The land and buildings was revalued upward by N13,000,000,000 and a certificate was issued to this effect. The board of directors approved the valuation but it has not yet been accounted for in the trial balance. The valuer advised that the remaining useful life of the asset is reasonably and reliably estimated to be 20 years. Depreciation is on straight-line basis. (iv) Depreciation on plant and equipment is charged at 15% on reducing balance basis. The multi-users S&P and Sage was bought on September 30, 2020. The amortisation is at the rate of 12.5% annually. The amortisation is evenly distributed over the year. Besides, software installation, customisation and handling cost of N800,000,000, training costs of N900,000,000, consultancy fee of N600,000,000 and other general overheads of N850,000,000 on the new software were included in administrative expenses. All depreciations are treated as administrative costs. (v) On December 30, 2020, a chartered surveyor valued investment property at N14,000,000,000 and the company uses fair value model in IAS 40 - Investment Property. (vi) Current income tax has been estimated for the year ended December 31, 2020 at N9,000,000,000 and deferred tax provision as at December 31, 2020 is to be adjusted in the income statement to reflect the tax base of the company’s net assets of N12,000,000,000 less than the carrying amounts. The current company income tax rate is 30%. (vii) The plant held for sale is valued in the trial balance at its carrying amount. A broker is readily available to buy the plant for N6,000,000,000 at a fee of 6% of sales proceed. The sale would take place in January, 2021. Any necessary adjustment is to be treated as cost of sales.

Daddy PLC is a first-tier entity quoted on the Nigeria Stock Exchange (NSE). The entity acquired 640 billion equity shares in Mummy PLC on January 1, 2020. The purchase consideration comprised the following: (i) Issue of one ordinary share of Daddy PLC in exchange for every two shares in Mummy PLC. (ii) Issue of N100 12% loan notes in Daddy PLC in exchange for every 400 shares in Mummy PLC; and (iii) A cash payment of 15 kobo per share for every share acquired in Mummy PLC on January 1, 2020. At the date of acquisition, the market price of Daddy PLC’s shares was 75k each. The cost incurred by banks when a fixed rate loan is paid out early, is assumed to be nil. Also, Daddy PLC has recorded the 12% loan notes in the purchase consideration in the accounts. The statements of financial position of the two (2) companies as at December 31, 2020 are presented below: Daddy PLC Mummy PLC Assets N'billion N'billion Non-current assets: Property, plant and equipment (PPE) 650 350 Investments 160 0 Intangible assets 0 40 810 390 Current assets: Inventories 100 25 Trade receivables 190 70 Bank 0 35 290 130 Total assets 1,100 520 Equity and liabilities: Ordinary shares at 25 kobo each 350 200 Retained earnings 1/1/2020 220 120 Retained earnings 31/12/2020 100 50 670 370 Non-current liabilities: 12% Loan notes 160 40 Current liabilities: Trade payables 150 60 Other accrued expenses 40 20 Current taxation 50 30 Bank 30 0 270 110 Total equity and liabilities 1,100 520 Additional information: (i) As at the date of acquisition, the carrying amount of the net assets of Mummy PLC was equal to their fair value except for an item of property, which had a fair value of N50 billion in excess of its carrying amount with additional depreciation of N5 billion in the post-acquisition period to March 31, 2020. This has not been reflected in Mummy’s PLC statement of financial position. (ii) The intangible asset was a television programme designed to promote the business activities of Mummy PLC. However, as a result of new government legislation on security matters on banditry and criminalities, such television programmes have now been pronounced illegal in the country. The appropriate government security agency advised the company to immediately stop the television programme and N12 billion compensation is to be received from the Television Authority. As a result of the new legislation, the governing board of Daddy PLC was of the opinion that goodwill on consolidation has been severely impaired by N30 billion. (iii) It is the group’s policy to value non-controlling interest at full fair value. The fair value of non-controlling interests as at the date of acquisition was N100 billion. (iv) Mummy PLC sold goods worth N20 billion to Daddy PLC during the post-acquisition period, N5 billion of these goods were included in the inventory of Daddy PLC as at December 31, 2020. Mummy PLC made a profit of N8 billion on the sales. (v) Mummy PLC trade payables of N9 billion did not agree with Daddy PLC’s trade receivables as a result of cash in transit of N5 billion.

The following financial statements were extracted from the 2021 annual report and accounts recently published by Odibeze Nigeria PLC. Statement of profit or loss and other comprehensive income for the year ended April 30, 2021 N’000 Revenue 849,940 Cost of sales (564,200) Gross profit 285,740 Investment income 18,000 Operating expenses (192,400) Finance costs (26,000) Profit before taxation 85,340 Income tax expense (28,340) Profit for the year 57,000 Other comprehensive income: Gain on revaluation of property 15,000 Total comprehensive income 72,000 Statement of financial position as at April 30, 2021 2021 2020 Non-current assets: N’000 N’000 Freehold properties 350,000 385,000 Plant and machinery 220,000 242,000 Trade investments 120,000 88,000 Goodwill - 38,500 Current assets: Inventories 325,700 265,000 Trade receivable 203,050 190,000 Cash and bank 64,000 10,200 1,282,750 1,218,700 Equity and liabilities: N’000 N’000 Ordinary shares of N1.20k each 120,000 72,000 Share premium 21,000 - Revaluation reserves 15,000 5,000 Retained earnings 679,000 654,000 Non-current liabilities: 8½% Redeemable preference shares 32,000 - Current liabilities: Trade payables 260,500 350,200 Taxation 65,200 107,400 Bank overdraft 90,050 30,100 1,282,750 1,218,700 Additional information (i) During the financial year the company made a bonus issue of one share for every six shares held and a cash issue at N1.90kobo per share to provide funds for its anticipated expansion. (ii) It is the company’s policy to revalue its freehold properties annually with any resulting surplus transferred to revaluation reserves account. There was no disposal of freehold properties during the year. (iii) A plant with a carrying amount of N20,000,000 was disposed on September 30, 2020 for N11,200,000 while the depreciation charge for the year on the remaining plant and machinery of N24,000,000 was included in the operating expenses. (iv) The investment income represents interest received on the trade investment during the year. The trade investment suffered impairment loss of N10,000,000 by the year end. (v) The company paid an interim dividend of N25,000,000 and proposed a final dividend of N45,000,000.

IFRS 15 - Revenue from Contract with Customers, defines contract as an agreement between two or more parties that create enforceable rights and obligations.

The IASB Conceptual Framework for Financial Reporting gives much detail about the qualitative characteristics of financial statements which make them useful.

The Board of Directors of Owerri PLC is planning to acquire controlling interest in Warri Health PLC, a vaccine producing company to expand the profitability of the group. Both companies were quoted on the Nigerian Stock Exchange (NSE). The Chief Accountant of Owerri PLC has been given the industrial average and the financial statements of Owerri PLC and Warri Health PLC for the year ended December 31, 2020. This was done to enable the Chief Accountant compute the relevant ratios and to evaluate the inherent potentials of the acquisition of the controlling interest in the company. As the Senior Accountant of Owerri PLC, the Chief Accountant gave you the financial statements of the two companies from which you computed the following ratios.