FINANCIAL STATEMENTS OF TRADING COMPANIES QUESTION ONE The trial balance of Beta Limited as at 31 st December, 2016 is as follows: Dr Cr GH GH Sales and Purchases 20,000 50,000 Inventory 8,000 Distribution costs 8,000 Administration expenses 15,550 Receivables and Payables 12,400 20,000 Cash and bank 8,100 Ordinary shares (GH 0.50) 58,000 10% Irredeemable preference shares at GH 1 9,000 10% Loan Notes 8,000 Property, Plant and Equipment at net book value 75,000 Investment property 10,000 Rental income from investment property 1,000 Capital Surplus 2,000 Retained profits at 1 st January, 2016 3,000 Loan note interest 400 Preference dividend 450 Interim ordinary dividend 1,600 Corporate Tax 500 Suspense 8,000 159,500 159,500 The following is to be taken into account: 1. The Property, Plant and Equipment include a building whose net book value is currently GH 5,000 is to be revalued to GH 9,000. 2. The balance on the corporation tax account represents an overprovision of tax for the previous year. Tax for the current year is estimated at GH 3,000. 3. The directors have decided to make an allowance for doubtful debts of 2% of trade receivables. 4. The investment property was acquired in January, 2016. The rental income from the investment property GH 1,000 relates to the two-year period ending 31 st December, 2017. The company adopts fair value model in subsequent measurement of the 1
investment property and fair value assessment at 31 st December, 2016 puts the valuation at GH 15,000. 5. The suspense account represents the corresponding credit for cash received for a fully subscribed issue of ordinary shares made on 30 th December, 2016. The terms of the share issue was 4,000 new ordinary shares were issued at GH 2.00 each. Required: Prepare the following financial statements of Beta Ltd for publication in accordance with International Financial Reporting Standards (IFRS): (i) Prepare the statement of comprehensive income for the year ended 31 st December, 2016. (ii) Prepare the statement of changes in equity for the year ended 31 st December, 2016. (iii) Prepare the statement of financial position as at 31 st December, 2016. QUESTION TWO The following is the trial balance of Kwei Limited, a dealer in Oracle Software, as at 31 st December, 2015. GH GH Ordinary shares (GHC1.00 per share) 209,000 Share premium 12,500 Retained earnings 30,000 Revaluation Reserve 10,000 Receivables and payables 159,000 51,000 Inventory 99,000 Motor vehicles: (cost) 72,500 Accumulated depreciation (31 December, 2014) 32,500 Office equipment: (cost) 90,000 Accumulated depreciation (31 December, 2014) 30,000 Administrative expenses 26,000 Purchases and sales 243,750 490500 Employee benefits 33,000 Selling and Distribution expenses 27,500 Plant and Equipment: (cost) 125,000 Accumulated depreciation (31 December 2014) 37,500 Investment income 35,000 Cash and cash equivalents 128,750 2
Provision for doubtful debts 14,000 Bad debts 17,500 Suspense 70,000 1,022,000 1,022,000 Additional information available is given below: 1) The inventory as at 31st December, 2015 was value at GH 129,500. 2) Allowance for doubtful debt is to be increased to GH 19,080 as at 31 December 2015. 3) An amount of GH 6,000 in respect of rent and rates is included in administrative expenses. This amount relates to 2016 financial year. 4) All items of property, plant and equipment are depreciated at the rate of 10% per annum on the straight line basis. 5) The audit fee of GH 1,000 is to be accrued. 6) The suspense account represents the corresponding credit for cash received for a fully subscribed issue of equity shares made on 30th December 2015. The terms of the share issue was 35,000 new ordinary shares were issued at GH 2 each. 7) The directors have estimated the provision for income tax for the year ended 31st December 2015 at GH 15,000. Required: Prepare the following financial statements of Kwei Limited for publication in accordance with International Financial Reporting Standards (IFRS): (a) Statement of Comprehensive Income for the year ended 31st December, 2015. (b) Statement of Changes in Equity for the year ended 31st December, 2015. (c) Statement of Financial Position as at 31st December, 2015. 3
QUESTION THREE The trial balance of Crossover Limited as at 31 st December, 2016 is as follows: Debit Credit GH GH Purchases and Sales 10,000 25,000 Inventory 4,000 Distribution costs 4,000 Administration expenses 7,775 Receivables and Payables 5,000 10,000 Fundamental reorganization cost 1,200 Cash and bank 4,050 Ordinary shares GH 0.50 4,000 10% irredeemable preference shares at GH 1 4,500 10% loan notes 4,000 Non-current assets at net book value 17,500 Share premium 1,500 Accumulated profits at 1 st January, 2016 1,500 Loan note interest 200 Preference dividend 225 Interim ordinary dividend 800 Tax 250 Suspense 4,000 54,750 54,750 The following is to be taken into account: 1. A building whose net book value is currently GH 2,500 is to be revalued to GH 5,500. 2. The balance on the corporation tax account represents an overprovision of tax for the previous year. Tax for the current year is estimated at GH 1,500. 3. Closing inventory is valued at GH 6,000. 4. The directors have decided to make an allowance for doubtful debts of 2% of trade receivables. 5. The balance on the suspense account represents the proceeds from the issue of 2,000 ordinary shares issued at GH 1 each. 4
Required: Prepare the following financial statements of Crossover Limited for publication in accordance with International Financial Reporting Standards (IFRS): i) Statement of Comprehensive Income for the year ended 31 st December, 2016. ii) Statement of Changes in Equity for the year ended 31 st December, 2016. iii) Statement of Financial Position as at 31 st December, 2016. FINANCIAL STATEMENTS OF BANKS QUESTION FOUR The trial balance below was extracted from the records of Tilapia Commercial Bank year ended 31 st December, 2016. Dr Cr GH 000 GH 000 Interest income 4,950 Interest on customers deposits 850 Net commission and fees income 900 Gains on foreign currency transactions 40 Dividend income 30 Operating expenses 2,400 Directors emolument 20 Auditors fees 40 Dividend paid (note vi) 20 Loan impairment provision (1 st Jan 2016. Note iv) 410 Rental income from investment property (note iii) 90 Corporate current income tax 100 Income surplus (1 Jan 2016) 1,700 Capital surplus (1 Jan 2016) 20 Statutory reserve (1 Jan 2016) 640 Stated capital (50,000 equity shares) 1 Jan 2016 100 5
Cash on hand 340 Balance with central bank 3,050 Investment in government securities 10,900 Investment in listed financial institutions 160 Receivables from other banks 1,610 Payables to other banks 50 Overdraft, loans and advances 15,700 Sundry receivables and prepayments 500 Property plant and equipment 1,240 Accumulated depreciation of PPE (1 Jan 2016) note 1 410 Investment property (note iii) 240 Customers deposits 24,530 Expense trade payables and accruals 3,300 37,170 37,170 The following additional notes are relevant: i) Property, plant and equipment is analysed as follows: Cost Acc dep rate of depreciation GH 000 GH 000 Land and building 450 90 20% p.a straight line Computers and equipment 750 300 25% p.a straight line Motor vehicles 40 20 25% p.a straight line The land and buildings were acquired on commencement of business in Jan 2006, have neither been further acquisitions nor disposal since then. The directors caused the property (land) to be revalued in Jan 2016. The valuers assigned value of GH 400,000 but advised that the estimated remaining useful life should be maintained. The directors wish to incorporate this valuation in 2015 financial statement. ii) There was neither current tax liability nor current tax asset as at 1 Jan 2016. During 2016, the company paid GH 100,000 for corporate tax on interim assessment. The bank is subject to 20% corporate tax. The company adopts nil provision for deferred tax. 6
iii) The investment property was acquired in Jan 2016. The rental income from the investment property GH 90,000 relates to the three-year period ending 31 st December, 2018. The bank adopts fair value model in subsequent measurement of the investment property and fair value assessment at 31 st December, 2016 puts the valuation at GH 250,000. iv) Loan impairment provision at the end of the year ie as at 31 December 2016 is to be increased to GH 510,000 v) In compliance with the Banking Act 12.5% of profit after tax is to be transferred to statutory reserve. vi) On 15 th November 2016, the directors paid an interim dividend of GH 0.40 per share. No further dividend is recommended for the year. vii) In order to satisfy the central Bank minimum stated capital requirement, the shareholders, at an emergency meeting on 24 December 2016, approved a bonus issue of one share for each one held (out of income surplus) to be credited at the current market price of GH 5 per share. This decision is to be reflected in the 2016 financial statements. Required: Prepare the following financial statements of Crossover Limited for publication in accordance with relevant legislations and International Financial Reporting Standards (IFRS): a) Prepare the Statement of Comprehensive Income for the year ended 31 st December, 2016. b) Prepare The Statement of Changes in Equity for the year ended 31 st December, 2016. c) Prepare the Statement of Financial Position as at 31 st December, 2016. d) Draft any four accounting policies that have been applied in preparing the financial statements. 7