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. Draft consolidated statement of financial position as at December 31, 2023 N'000 2022 N'000 Assets: Non-current assets: Property, plant and equipment 2,630,000 2,010,000 Goodwill 60,000 50,000 Investment in an associate 540,000 580,000 Total non-current assets 3,230,000 2,640,000 Current assets: Inventories 1,300,000 1,160,000 Trade receivables 1,220,000 1,060,000 Cash and cash equivalents 100,000 280,000 Total current assets 2,620,000 2,500,000 Total assets 5,850,000 5,140,000 Equity and liabilities: Equity Share capital 200,000 170,000 Share premium account 60,000 30,000 Revaluation reserves 100,000 290,000 Retained earnings 508,000 500,000 868,000 990,000 Non-controlling interests 120,000 90,000 Total equity 988,000 1,080,000 Non-current liabilities 1,700,000 1,200,000 Current liabilities 3,162,000 2,860,000 Total liabilities 4,862,000 4,060,000 Total equity and liabilities 5,850,000 5,140,000 Draft consolidated statement of profit or loss and other comprehensive income for the year ended December 31, 2023 N’000 Revenue 9,400,000 Cost of sales (6,800,000) Gross profit 2,600,000 Distribution and administrative expenses (1,200,000) Interest expense (80,000) Share of profit in associate 60,000 Profit before tax 1,380,000 Income tax expense (including tax on income from associate N20 million) (420,000) Profit for the period 960,000 Attributable to: Equity holders of the parent 910,000 Non-controlling interests 50,000 960,000 Draft group statement of recognised income and expense for the year ended December 31, 2023 N’000 Foreign exchange difference of associate (10,000) Impairment losses on property, plant and equipment offset against revaluation surplus (190,000) Net expense recognised in equity (200,000) Profit for the period 910,000 710,000 Draft group statement of changes in equity for the year ended December 31, 2023 N’000 Recognised income and expense for the period 710,000 Dividends paid (892,000) New shares issued 60,000 Total movement during the year (122,000) Equity at the beginning of the year 990,000 Equity at the end of the year 868,000
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: N’000 Property, plant and equipment 140,000 Inventories and work in progress 180,000 320,000 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: Current liabilities: 2023 N'000 2022 N'000 Trade payables 2,682,000 2,400,000 Interest payable 100,000 90,000 Taxation Non-current liabilities: 2023 N'000 2022 N'000 Deferred consideration – purchase of Dandy Plc 58,000 - Liability for the purchase of property, plant and equipment 288,000 - Loans repayable 1,242,000 1,110,000 Provisions for deferred tax 60,000 50,000 Retirement benefit liability 2023 Movements in retirement benefit: N’000 Liability as at January 1, 2023 40,000 Current and past service costs charged to income statement 26,000 Contributions paid to retirement benefit scheme (14,000) Liability as at December 31, 2023 52,000
Requirements
(
a
)
Prepare Breakthrough Group consolidated statement of cashflows for the year ended December 31, 2023 using the indirect method.
(
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.