Question 1
ICAN
•
2025
•
CORPORATE REPORTING
•
mixed
Case Stimulus
Breakthrough Plc is in the process of releasing its financial statements through one of the daily newspapers on or before May 31, 2024. The following drafts were prepared by the company’s Chief Accountant.
Additional Information
(i) Any impairment on goodwill has been included in the draft financial statements for the year ended December 31, 2023.
(ii) There was no disposal of property, plant and equipment during the year. Depreciation charged for the period was N120 million.
(iii) It was established that there was no actuarial gain or loss in the year.
(iv) Included in dividends paid during the year was N800 million paid to Waterside Plc, a subsidiary company through which Breakthrough Plc conducts its investment activities. The transfer was made on January 1, 2023 for specified portfolio of investments but no transfer of profit or loss occurred. Ninety-five percent of the profits and one hundred per cent of the losses in the specified portfolio of investments are to be transferred to Breakthrough Plc at the end of the year annually and the capital is expected to be returned in four years’ time.
(v) Breakthrough Plc is yet to make provision for its seventy per cent acquisition and holding in Dandy Plc on January 1, 2022. However, the company wants to set up a provision for reconstruction costs of N20 million retrospectively on the acquisition. The fair values of the net assets acquired were as follows: Property, plant and equipment N140,000; Inventories and work in progress N180,000; Total N320,000. The purchase consideration was N200 million in cash and N50 million (discounted value) deferred consideration payable on January 1, 2023. The difference between the discounted value of the deferred consideration (N50 million) and the amount payable (N58 million) is included in interest expense.
(vi) The composition of current liabilities, non-current liabilities and retirement benefit liability are as presented below.
Requirements
(
a
)
Prepare Breakthrough Group consolidated statement of cashflows for the year ended December 31, 2023 using the indirect method.
(
b
)
The Chief Accountant understands the guidelines for the preparation of financial statements - one of which is provisions or contingencies. In the course of the preparation of the financial statements, a sum of N200 million was captured under this heading. On further investigation, it was discovered that the N200 million was made up of the following: N20 million for court case involving a supplier, N70 million paid for advertisement rights, N50 million provision for future losses in business operations and N60 million for judgement debt on appeal.
(
i
)
Advise on the appropriateness of the amount of N200 million captured in the financial statements.
(
ii
)
Compute the correct amount of provisions or contingencies, if the N200 million recognised in the financial statements is wrong.
(
iii
)
Discuss the treatment of the previous entries made in the books to the extent to which the financial statements is wrong.
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About This Question
This is
Ican
2025
Corporate Reporting
Question 1.
It is one of the
mixed
questions from the
2025
Ican
Corporate Reporting
examination.