Ican 2024 Corporate Reporting Question 3

Below is the statement of financial position (extracts) of Bamboo PLC which has a number of subsidiaries in all the geopolitical zones of the country and one foreign subsidiary (Pako Limited) located in the United States of America (USA). Draft statement of financial position as at October 31, 2023 N’m Deferred tax 77 Other non-current assets 2,329 Inventories and other current assets 1,150 Cash and cash equivalents 422 Total assets 3,978 Other non-current liabilities 1,671 Deferred tax liabilities 186 Payables and accruals 1,131 Total liabilities 2,988 Share capital 250 Share premium 120 Retained earnings Total equity 620 990 Total liabilities and equities 3,978 Mr. Agbaje, the Finance Director of the Bamboo PLC is in the process of preparing the final draft of the financial statements, and the following issues relating to the treatments of deferred tax implication arose: (i) Property, plant and equipment On November 1, 2022 Bamboo PLC purchased an item of property, plant and equipment for N120million which qualified for a government capital grant of N20million. The asset has a useful life of 5 years and is depreciated on straight-line basis. Capital allowances are restricted by the amount of grant by Federal Inland Revenue Services (FIRS). The company income tax laws specify a capital allowance rate of 25% per annum. (ii) Fair value adjustments On November 1, 2022 Bamboo Plc acquired a wholly owned subsidiary, Iroko Limited for N100million. On that date, the fair value of Iroko Limited’s net assets was N80million and carrying amount was N70million, which is also the tax base under income tax law. The difference between the fair value and book value of the net assets relates to an item of property, plant and equipment which Iroko Limited currently has no plan to sell. (iii) Profit from foreign subsidiary Pako Limited, a wholly owned foreign subsidiary of Bamboo PLC, has undistributed post acquisition profit of 5,000 U.S dollars which would give rise to additional tax payable of N4million if remitted to Bamboo PLC in Nigeria. As Pako Limited is relatively new and a rapidly expanding company. Bambo PLCintends to leave the earnings with Pako Limited for re-investment.