Ican 2025 Corporate Reporting Question 2

(i) Uzor Limited revalued its property, plant and equipment (PPE) for the first time on January 1, 2021. The property, plant and equipment of Gombe Ltd are very similar in age and type to that of Uzor Limited. Gombe Limited has a policy of maintaining all its property, plant and equipment at depreciated historical costs, using 20% rate on straight line basis. Both Gombe Limited and Uzor Limited charge depreciation on PPE to cost of sales. Uzor Limited has transferred the excess depreciation on the re-valued assets from revaluation reserve to retained earnings.

(ii) On December 31, 2021 Gombe Limited supplied goods at the normal selling price of N9,600,000 to another Company Mamagold Limited. Gombe Limited’s normal selling price is at a mark up of 60% on costs. Mamagold Limited paid for the goods in cash on the same day. The terms of the selling agreement were that Gombe Limited repurchase these goods on June 30, 2022 for N10,000,000. Gombe Limited accounted for this transaction as sales for the year ended December 31, 2021.

(iii) It is the practice of Kakanfo Group Plc to appraise potential investment opportunities by making use of the following ratios: - Gearing; - Turnover to capital employed; - Gross profit margin; and - Return on capital employed.

(iv) After the computation in (iii) above, the Senior Accountant concluded that performance of Gombe Limited is better than that of Uzor Limited. Therefore, Kankanfo Group Plc should carry out due diligence on Gombe Limited with a view to making a bid to acquire it.