ICAN 2024 Corporate Reporting | Mixed

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

Alpha PLC is an entity which has grown in recent years by acquiring established businesses. Alpha PLC is contemplating acquiring Betta Limited and Gamma Limited. Alpha PLC, Betta Limited and Gamma Limited operate in the same industry. Alpha PLC believes that their company shareholders will be receptive to the takeover. The Management of Alpha PLC has indicated a total (100%) acquisition price of N12 million for each of the companies. The financial statements for Betta Limited and Gamma Limited are as shown below: Statement of profit or loss for the year ended September 30, 2020 Betta Ltd Gamma Ltd N’000 N’000 Revenue 25,000 40,000 Cost of sales (19,000) (32,800) Gross profit 6,000 7,200 Distribution costs (800) (1,400) Administrative expenses (450) (900) Finance costs (250) (900) Profit before tax 4,500 4,000 Income tax expense (900) (1,000) Profit for the year 3,600 3,000 Statements of financial position as at September 30, 2020 Betta Ltd Gamma Ltd N’000 N’000 Non-current assets Property, plant and equipment: Property - 3,000 Owned plant and equipment 4,800 2,000 Leased plant and equipment - 5,300 4,800 10,300 Current assets: Cash at bank and in hand 1,600 200 Trade receivables 1,600 5,100 Inventories 1,600 3,400 4,800 8,700 Total assets 9,600 19,000 Equity and liabilities Ordinary shares of N1.00 each 1,000 2,000 Revaluation surplus on property - 900 Retained earnings 1,600 2,700 Total equity 2,600 5,600 Non-current liabilities Finance lease obligation - 4,200 5% loan notes (December 31, 2026) 5,000 - 10% loan notes (December 31, 2026) - 5,000 5,000 9,200 Current liabilities: Trade payables 1,250 2,100 Finance lease obligation - 1,000 Tax payable 750 1,100 Total current liabilities 2,000 4,200 Total equity and liabilities 9,600 19,000 Additional information: (i) The carrying amount of plant: Betta Gamma N’000 N’000 Owned plant – cost 8,000 10,000 Less government grant (2,000) - 6,000 10,000 Accumulated depreciation (1,200) (8,000) Carrying amount 4,800 2,000 Leased plant – original fair value nil 8,000 (i) The following ratios have been calculated: Betta Gamma Gross profit margin 24.0% 18.0% Profit margin (before interest and tax) 19.0% 12.3% *Return on capital employed (ROCE)* 62.5% 31.0% *Note: Finance lease obligations are treated as debt Current ratio 2.4:1 2.1:1 Acid test ratio 1.6:1 1.26:1 Net assets turnover 3.3 times 2.5 times *Note: Taken as same figure as capitals employed Closing inventories holding period 31 days 38 days Trade receivables collection period 31 days 47 days Trade payables payment period (using cost of sales) 24 days 23 days Gearing (debt / debt + equity) 65.8% 64.6%

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.

Lease gives lessees the right to use assets in return for the lessee accepting an obligation to make series of payments to the owner of the assets; the lessor. The previous accounting rules set out in IAS 17-Leases focused on identifying leases that were economically similar to purchasing the assets being leased. However, IFRS 16-Leases was issued subsequently and applies to accounting period beginning on or after January 1, 2019. Nonetheless, earlier application is also permitted. Therefore, IFRS 16 replaced IAS 17. The introduction of IFRS 16 brought about material changes to the requirements for recognition of rights and obligations under leasing arrangements.

IAS 34 – Interim Financial Reporting does not make preparation of interim financial report mandatory taking the view that this is a matter for government, security regulators, stock exchanges or professional accountancy bodies to decide within each country. The IASB, however, does strongly recommend to government and regulators that interim financial reporting should be a requirement for companies whose equity or debt securities are publicly traded.

You are the chief accountant of Japa PLC, that prepares consolidated financial statements. The managing director who is not an accountant, has recently attended a workshop at which key corporate reporting issues were discussed. The managing director remembers being taught the following at the workshop: i. Financial statements of an entity should reflect the substance of its transactions. ii. Revenue from the contracts with customers should only be recognised when certain conditions have been satisfied. Transfer of legal title of the goods is not necessarily sufficient for an entity to recognise revenue from their sales. The financial year end of Japa PLC is August 31, In the year to August 31, 2021 the company entered into the following transactions: Transaction 1 On March 1, 2021 Japa PLC sold a property to Kalokalo Bank LTD for N50million. The market value of the property at the date of the sale was N100million. However, Japa PLC continues to occupy the property rent-free. Japa PLC has the option to buy the property back from Kalokalo Bank LTD. at the end of every month from March 31, 2021 until February 28, 2026. Japa PLC has not yet exercised this option. The repurchase price will be N50million plus N500,000 for every complete month that has elapsed from the date of sale to the date of repurchase. Kalokalo Bank LTD did not require Japa PLC to repurchase the property and the facility will lapses after February 28, 2026. The director of Japa PLC expect property price to rise at around 5% each year for the foreseeable future. Transaction 2 On September 1, 2020 Japa PLC sold one of its branches to Andrew Tourist Nig. LTD. for N80million. The net assets of the branch in the financial statements of Japa PLC immediately before the sale were N70million. Andrew Tourist Nig. LTD is a subsidiary of KalokaloBank LTD and was specifically incorporated to carry-out the purchase, it has no other business operations. Andrew Tourist Nig. LTD received the N80million to finance this project from its parent (Kalokalo Bank LTD) in the form of a loan. Japa PLC continues to control the operations of the branch and receives an annual operating fee from Andrew Tourist Nig. LTD. The annual fee is the operating profit of the branch for the 12 months to the previous August 31 less the interest payable on the loan taken out by Andrew Tourist Nig. LTD. for the 12 months to previous August 31, if this amount is negative, then Japa PLC must pay the negative amount to Andrew Tourist Nig. LTD. Any payments to or by Japa PLC must be made by September 30 following the end of the relevant period.

Signal PLC purchased land and warehouse for N90,000,000. The warehouse is expected to last for 20 years and to have a salvage value equal to 10% of its cost. The Chief Finance Officer (CFO) and the Chief Accountant (CA) discussed the allocation of the purchase price between the land and the warehouse. The CFO believes that the largest amount possible should be assigned to the land because that will improve reported net income in the future. Depreciation expense will be lower because land is not depreciated. He suggested allocation of one third of the cost to the land. The CA argues that the smallest amount possible, about one-fifth of the purchase price, should be allocated to the land, thereby saving income taxes, since the depreciation will be greater if lesser amount is allocated to land.