Ican 2023 Corporate Reporting Question 1

(i) Omi PLC acquired 80% of the ordinary share capital of Ruwa Limited on December 1, 2017 when the retained earnings were N400million. The fair value of the net assets of Ruwa Limited was N2,840million. Any fair value adjustment related to net current assets, and these net current assets had been realised by November 30, 2020. There had been no new issue of shares in the group since the current group structure was created.

(ii) Omi PLC and Ruwa Limited had acquired their holdings in Mmili Limited on the same date as part of an attempt to mask the true ownership on Mmili Limited. Omi PLC acquired 40% and Ruwa Limited acquired 25% of the ordinary share capital of Mmili Limited on December 1, 2018. The retained earnings of Mmili Limited on that date were N200million and those of Ruwa Limited were N600million. There was no revaluation surplus in the books of Mmili Limited on December 1, 2018. The fair value of the net assets of Mmili Limited at December 2018 were not materially different from their carrying amount.

(iii) The group operates in an information technology sector and has incurred a significant amount of expenditure on the development of various internet products. Those costs were formerly written off to statement of profit or loss as incurred but then reinstated when the related internet products were brought into commercial use. The reinstated costs are shown as development inventories. The costs do not meet the criteria in IAS 38 – Intangible Assets for classification as intangibles and it is unlikely that the net cash inflows from these products will be in excess of the development costs. In the current year, Ruwa Limited has included N80million of these costs in inventory of which N20million relates to expenditure on a product written off in periods prior to December 1, 2017. Commercial sales of these product has commenced during the current period. The Accountant now wishes to ensure that the financial statements comply with IFRS as regards this matter.

(iv) Ruwa Limited had purchased a significant amount of new internet equipment during the year. The cost before trade discount of this equipment was N200million. The trade discount of N24million was taken to the income statement. Depreciation is charged on straight line basis over six years’ period.

(v) The policy of the group is to state the property, plant and equipment at depreciated historical costs. The group changed from the revaluation model to the cost model under IAS 16 - Property, Plant and Equipment in the year ended November 30, 2020 and restated all its assets to historical cost in that year except for the property, plant and equipment of Mmili Limited which had been revalued by the directors of Mmili Limited on December 1, 2019. The value were incorporated in the financial records creating revaluation surplus of N280million. The property, plant and equipment of Mmili Limited were originally purchased on December 2018, at a cost of N1,200 million. The assets are depreciated over six years on straight line basis. The group does not make an annual transfer from revaluation reserves to retained earnings in respect of the excess depreciation charged on the revalued property, plant and equipment. There were no additions or disposals of the property, plant and equipment of Mmili Limited for the two years ended November 30, 2020.

(vi) It is the group’s policy to value non-controlling interests at acquisition at their proportionate share of subsidiary’s identifiable net assets.

(vii) During the year the directors of Omi PLC decided to establish a defined benefit pension scheme for employees of the parent company and contributed cash to it to the tune of N400million. The following details relate to the scheme as at November 30, 2020. N’M Present value of obligation 520 Fair value of plan assets 500 Current service cost 440 Interest cost - scheme liabilities 80 Expected return on pension assets 40 Actuarial gain 60 The only entry in the financial statement made to date is in respect of cash contribution which has been included in Omi’s PLC trade receivables. The directors have been uncertain as to how to deal with above pension scheme in the consolidated financial statements because of the significance of the potential increase in the charge to the statement of profit or loss relating to the pension scheme. They wish to recognise immediately any actuarial gain in statement of profit or loss.