Question 1
ICAN
•
2023
•
FINANCIAL REPORTING
•
mixed
Case Stimulus
The following trial balance was extracted from the books of Adama Plc as at June 30, 2022:
Freehold land and building at valuation 1/7/21 1,065,600
Office equipment 865,800
Delivery van 301,400
Accumulated depreciation at 1/7/21:
Office equipment 199,800
Delivery van 120,560
Ordinary share capital of 50k each fully paid 790,000
Bank balances 142,310 49,950
Investment income 65,246
Financial assets 244,200
Dividend paid 119,880
Cost of sales 995,003
Distribution costs 161,128
Gain on translation of foreign operations 47,108
Trade receivables/payables 579,065 353,846
Revenue 2,142,819
Intangibles 50,600
Administrative expenses 173,727
Interest on loan notes 14,763
General reserve 109,809
Deferred tax at 1/7/21 100,078
Inventories at 30/06/2022 622,812
Retained earnings 231,572
3% redeemable loan notes 843,000
Revaluation reserve-freehold land and buildings 80,500
Share premium 142,000
Suspense account 60,000
5,336,288 5,336,288
Additional Information
(i) The value of the freehold land and buildings includes a land element of N266,800,000 and the estimated remaining life of the buildings at July 1, 2021 was 25 years. Depreciation on buildings is charged 65% to cost of sales and 35% to administrative expenses.
(ii) The revenue includes N69,250,000 for an item of office equipment disposed on November 30, 2021. The equipment had a carrying value of N46,060,000 at the date of sale. The equipment cost N75,000,000 when it was acquired three years ago.
(iii) Included in the cost of sales is N82,600,000 incurred in the manufacture of a new office equipment which was put to use by Adama PLC on February 1, 2022.
(iv) All office equipment is depreciated at 15% per annum using reducing balance method and charged to cost of sales while depreciation of all motor vehicles is at 20% per annum on straight line basis and charged to distribution costs. Depreciation is to be charged in full in the year of acquisition and no charge in the year of disposal.
(v) Following the conclusion of a winding-up proceedings on one of Adama PLC's customer, it was resolved to write-off the sum of N26,450,000 due from the customer and to make allowance for doubtful receivables of 2½% on the continuing trade receivables.
(vi) The financial assets are equity instruments held at fair value through profit or loss and have suffered impairment loss of N12,700,000 at the year end.
(vii) The 3% redeemable loan notes was issued on October 1, 2021 under terms that provided for a large premium on redemption in 2025. These terms were interpreted by the finance director to mean that the loan notes have effective interest rate of 6½% per annum.
(viii) The income tax expense for the year ended June 30, 2022 is estimated at N143,552,000 while the deferred tax payable for same period amounted to N12,520,000. There was an over provision of N25,664,000 in respect of income tax for the previous trading year.
(ix) The suspense account balance represents the corresponding credit entry for shares issued at premium of 15 kobo per share arising on issue of 400,000 ordinary shares made during the year.
(x) The directors recommended a 20 kobo final dividend per ordinary share for the year and to transfers N38,900,000 to the general reserve.
Requirements
(
i
)
Prepare for Adama PLC the following financial statements: Statement of profit or loss and other comprehensive income for the year ended June 30, 2022.
(
ii
)
Statement of changes in equity for the same period.
(
iii
)
Statement of financial position as at June 30, 2022.
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About This Question
This is
Ican
2023
Financial Reporting
Question 1.
It is one of the
mixed
questions from the
2023
Ican
Financial Reporting
examination.