Ican 2024 Corporate Reporting Question 1

Cabalar Nig. PLC, a company located in Ajao Industrial Estate, Lagos. The company specialises in the production of Adire T-Shirts. The company has a number of subsidiaries located in the South-South and South-West regions of the country and overseas. On October 1, 2022 Cabalar PLC acquired 100% of the ordinary shares of Mansa-konko Limited, an Adire T-Shirts distribution company based in the Gambia, West Africa. The official national currency of The Gambia is known as Gambia Dalasi (GMD). The draft statement of financial position of Mansa-Konko Limited prepared under Gambia GAAP as at September 30, 2023 is as follows: Non-current assets: GMD’000 Property, plant and equipment 308,000 Intangible assets 42,500 Financial investments 38,500 Current assets 118,500 507,500 Equity and liabilities: Equity: Share capital at GMD 1 per share 50,000 Retained earnings 213,000 Revaluation surplus 84,000 347,000 Non-current liabilities: Loan notes 50,000 Provisions 75,000 Current liabilities 35,500 Total equity and liabilities 507,500 Additional information: The following are the key transactions of Mansa-Konko Limited under Gambia GAAP. There is no deferred tax under the Gambia GAAP: (i) Equipment: • On January 1, 2023 Mansa-Konko Limited acquired some specialist equipment from the United States of America (USA) for $150million, payment for the equipment was made on March 31, 2023. • In accordance with the local Gambia GAAP, the cost of the equipment was recognised on January 1, 2023 at GMD 50million, using the opening rate of exchange at October 1, 2022. • Full year’s depreciation of GMD 5million was charged to cost of sales as Mansa-Konko Limited depreciates the equipment over a ten-year life and it has no residual value, hence the equipment was included in the statement of financial position of Mansa-Konko Limited at GMD 45million. • The sum of GMD 12.5million has been debited to retained earnings. This is in-respect of the difference between the amount paid to the supplier, of GMD 62.5million on March 31, 2023 and the cost recorded in non-current assets of GMD 50million. (ii) Impairments • Mansa-Konko Limited bought a warehouse on October 1, 2016 for GMD 180million. The warehouse is being depreciated over 20 years with no residual value. On October 1, 2022, due to a rise in property prices, the warehouse was revalued to GMD 210million and a revaluation surplus of GMD 84million was recognised. No transfer are made between the revaluation surplus and retained earnings under Gambia GAAP in respect of depreciation. • However, there has been a slump in the local property market in Gambia recently, so an impairment review was undertaken at September 30, 2023; and the warehouse was assessed as being worth GMD 60million. Therefore, a charge of GMD 90million was made to profit or loss to reflect the difference between the carrying amount of the warehouse of GMD 150million before September 30, 2023 and the new value of GMD 60million. (iii) Financial Instruments On April 1, 2023 Mansa-Konko Limited bought five million shares in a local quoted company for GMD 7.7 per share. This represents a 3% shareholdings. The intention of the company is to hold the shares until December 31, 2023 and then sell them for a profit. The shares have been recognised at cost in the statement of financial position in accordance with Gambia GAAP. The market value of the shares at September 30, 2023 was GMD 12.5 per share. Under the Gambia tax rules, income tax is charged at 20% on accounting profit recognised on the sales of the investment. (iv) Provisions • On October 1, 2022 Mansa-Konko Limited signed an agreement with the Gambian government for exclusive right for the next 20 years to supply Adire- T-shirts for Gambia’s national traditional festival (GNTF). • The cost of buying these rights was GMD 42.5million which had been recognised as intangible assets in Mansa-Konko Limited statement of financial position. Under the terms of the right of agreements, Mansa-Konko Limited has to replace all damaged T-shirts at the end of 20-year period. There is 40% probability that the eventual cost of replacement of the damaged T-shirts would be GMD 75million and a 60% probability of the cost of replacement being GMD 50million. However, for prudency sake, a provision of GMD 75million was made in the financial statements and debited to the operating costs of the company. • Mansa-Konko Limited has a pre-tax discount rate of 8%. The replacement cost will be allowed for tax purposes when paid. The relevant income tax rate is expected to remain at 20%. (v) Exchange rates: 1GMD October 1, 2022 $3.00 January 1, 2023 $2.50 March 31, 2023 $2.40 September 30, 2023 $2.00 Note: In Gambia the tax treatments of property, plant and equipment and exchange differences is the same as we have under IFRS treatments. • The following are the exchange rates between Gambia Dalasi (GMD) and Nigerian Naira October 1, 2022 GMD 4.2 = N1 Average for the year GMD 4.0 = N1 September 30, 2023 GMD 5.0 = N1