ICAN 2023 Corporate Reporting | Mixed

(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.

(i) The N3,700 million provision for Ogoni Oil spill is an estimated cost net relevant tax.

(ii) Calculating the financial cost of the oil spill in Ogoni land had been slightly problematic for Octopus Petroleum Group in many ways. However, N530million had been expended by year end, while the future cost of clean-up and compensation have not yet been identified or determined.

(iii) However, one of such uncertain cost is fines payable to Federal Government of Nigeria in respect of the incident. The appropriate arms of the NNPCL and the Federal Government are still investigating the incident and how Octopus Petroleum responded to the problem. Fines have been levied in respect of past incidents, and some are in excess of N2,500 million.

(iv) Octopus Petroleum Group has vertically integrated in the second half of year 2020 by acquiring and re-branding a large number of petrol stations across the country.

(v) Octopus Petroleum oil reserves are at record high levels at the end of the 2020 financial year.

(vi) Also the price of oil has increased by approximately 5% during year 2020 financial year.

(vii) In common with many oil companies, Octopus Petroleum Group valued inventory on a last-in-first-out basis (LIFO). The auditors of Octopus Petroleum Group exceptionally allow this treatment, although it contravenes the accounting standard IAS 2.

(viii) Octopus Petroleum Group maintained its dividend payment at N625million for years 2020 and 2019.

(ix) It is the global practice for inventors in the oil and gas sector to evaluate investments using the following category of ratios. Profitability: - Return on capital employed (C. E = Equity + Borrowings) - Return on equity - Gross profit percentage - Operating profit percentage Liquidity: Current ratio Acid test ratio Use of resource or financial position; - Inventory turnover - Assets turnover - Interest cover - Gearing ratio

First issue: Gongon Group has three investment properties in its books. Investment properties are measured in the financial statements at fair value (as permitted under IAS 40 - Investment properties), while owner occupied properties are measured at cost less accumulated depreciation and impairment losses. The properties are currently presented at 2019 year end valuations. No adjustments have been made for the current year. During the year 2020, there was a change of use of two of Gongon Group investment properties. Property ‘A’ a commercial warehouse located at Apapa that has been let on a commercial basis for a number of years, was re-assigned as office space for the company. The tenants were notified and vacated the premises on May 1, 2020. The property was valued at N8,000,000 on January 1, 2020, N7,600,000 on May 1, 2020, and N7,400,000 on Dec. 31, 2020. It is the company policy to depreciate owner-occupied property at a rate of 2% per annum on a monthly basis. Property ‘B’ was acquired in year 2014 for N10,000,000 and is valued at N9,000,000 on January 1, 2020. In late 2020, resulting from falling property prices in the country, the director agreed to dispose of this property. The property was empty since September and was put on the market in October with an asking price of N8,800,000. Although there has been some interest in the property, no firm offer had been made by the year end. Estimates of disposal costs are about N600,000. The value remained at N8,800,000 at December 31, 2020. Property ‘C’ is valued at N18,500,000 at December, 2018.

The summarised financial statement of Gongon PLC and the two other companies are as follow: Draft Statements of financial position at December 31, 2020 Gongon PLC Bandel Limited Osune Limited Assets: Non-current assets: N’000 N’000 N’000 Property, plant and equipment (PPE) 120,000 55,800 15,000 Investment: Shares in Bandel Limited 40,000 -- -- Shares in Osune Limited 30,000 -- -- Investment properties 32,000 -- -- 222,000 55,800 15,000 Current assets: 171,400 24,000 16,000 Total assets 393,400 79,800 31,000 Equity and liabilities Equity 330,000 24,600 24,000 Other non-current liabilities 21,000 -- Current liabilities 42,400 55,200 7,000 Total equity and liabilities 393,400 79,800 31,000 Extract of draft statement of profit or loss and other comprehensive income for the year ended December 31, 2020 Gongon PLC Bandel Limited Osune Limited N’000 N’000 N’000 Profit before tax 80,000 6,000 5,000 Income tax expense (6,600) (660) (400) Profit for the year 73,400 5,340 4,600

Second Issue: On January 1, 2020 Gongon commenced a defined benefit plan for a number of head office employees. Under the pension scheme. Gongon PLC has an obligation to provide these staff with agreed post-employment benefit. Gongon PLC carries out the actuarial and investment risk assessments associated with the pension scheme. The following is the draft details of the scheme: Information on Gongon’s Pension Scheme N’000 Interest income on plan assets 330 Employers contribution to plan 11,000 Current service cost 12,000 Interest on plan liability 360 Fair value of plan assets as at 31/12/2020 11,600 Present value of plan obligation at 31/12/2020 12,400 The Chief Accountant of the Gongon PLC was not sure which accounting standard to apply when accounting for pension scheme. The only adjustment made to account for the scheme was to expense the company’s contribution of N11million for the 2020 financial year in the statement of profit or loss and other comprehensive income and to credit the cash account.