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1 ACCRA BUSINESS SCHOOL MSC ACCOUNTING AND FINANCE MFA 562: CORPORATE REPORTING INDIVIDUAL ASSIGNMENT Answer ALL questions QUESTION 1 a. Kpogo Ltd has the following products in inventory at the end of 2019: Units Cost per unit GH¢ XYZ (completed) 540 22 ABC (part complete) 280 26 Each product normally sells at GH¢34 per unit. Due to the difficult trading conditions, Kpogo Ltd intends to offer a discount of 15% per unit and expects to incur GH¢4 per unit in selling costs. GH¢10 per unit is expected to be incurred to complete each unit of ABC. Required: In accordance with IAS 2 Inventories, at what amount should inventory be stated in the financial statements of Kpogo Ltd as at 31 December 2019? (3 marks) b. According to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, an entity must select and apply its accounting policies consistently from one period to the next and among various items in the financial statements. However, an entity may change its accounting policies under certain conditions. Required: Identify the circumstances under which it may be appropriate to change accounting policy in accordance with the guidance given in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. (2 marks) c. In accordance with IAS: 12 Income Taxes, deferred tax liabilities are the amounts of income taxes payable in future periods in respect of taxable temporary differences. Required: Explain temporary differences. (2 marks) 2 d. Yompab Ltd is a listed manufacturing company which prepares its financial statements for the year ended 31 October, 2018 in accordance with IFRS. The financial statements are due to be authorized for issue on 15 January 2019. i. Yompab Ltd holds an investment in the shares of a listed company, Nanoni Ltd. During November 2018 there was a material fall in the value of Nanoni Ltd’s shares. Analysts attribute the fall in value principally to a fraud dating back to December 2017 that was discovered by Nanoni Ltd's management and announced publicly in November 2018. ii. In December 2018, the directors of Yompab Ltd publicly announced a plan to reduce the workforce by 10% as a result of worsening economic conditions. Required: Discuss the effects of each of the above items on the financial statements of Ypmpab Ltd for the year ended 31 October 2018 in accordance with IAS 10 Events after the Reporting Period. (4 marks) e. After a wedding in 2018, ten people died, possibly as a result of food poisoning from products sold by Lambon Catering Services. Legal proceedings have commenced, seeking damages from Lambon Catering Services but it disputes liability. Up to the date of approval of the financial statements for the year to 31 December 2018, Lambon Catering Services’ lawyers advised that it is probable that it will not be found liable. However, when Lambon Catering Services prepares the financial statements for the year to 31 December 2019, its lawyers advice that, owing to developments in the case, it is probable that it will be found liable. Required: In accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, what is the required accounting treatment? i. At 31 December 2018? ii. At 31 December 2019? 4 marks QUESTION 2 a. The following costs were incurred by Barak Klever Ltd in 2020 in the design and construction of a new office building over a nine-month period during 2020: GH¢000 Feasibility study 8 Architects' fees 100 3 Site clearance (by external demolition professionals) 80 Construction materials 600 Cost of own inventories used in the construction (net realisable value if sold outside the company GH¢24,000) 30 Internal construction staff salaries during period of construction 360 External contractor costs 2,400 Income from renting out part of site as storage depot during early phase of construction (12) 3,566 Required: In accordance with IAS 16 Property, plant and equipment, calculate the amount that Barak Klever Ltd should capitalise as property in the financial statements for the year ending 31 December 2020. 3 marks b. Courage Hodey Inc. owns the following properties as at 31 December 2019: Property: Fair value (GH¢million) Land with future use undetermined 3.2 Factory rented to Courage Hodey's subsidiary under an operating lease 2.4 10 floor office building (fair value is equal per floor) with 3 floors used as the subsidiary's head office and seven floors rented to third parties under an operating lease. 15.0 Empty building held for capital appreciation, but not leased out. 4.1 Courage Hodey's accounting policy is to hold its investment properties under the fair value model and its land and buildings under the revaluation model. Required: In accordance with IAS 40 Investment Property calculate the carrying amount to be recognised as investment property in Courage Hodey's consolidated financial statements as at 31 December 2019. 3 marks c. IAS 23 Borrowing Costs requires that borrowing costs directly attributable to the acquisition, construction or production of a 'qualifying asset' (one that necessarily takes a 4 substantial period of time to get ready for its intended use or sale) are to be capitalised or included in the cost of the asset once they meet certain conditions. Required: Identify THREE conditions that must be met before an entity can commence to capitalise borrowing cost. 3 marks d. Polycarp Ltd adopts revaluation model for subsequent measurement of its intangible assets in accordance with IAS 38: Intangible assets. The policy of Polycarp is to revalue its intangible asset at the end of each year. An intangible asset with an estimated useful life of 9 years was acquired on 1 January 2018 for GH¢45,000. It was revalued to GH¢54,400 on 31 December 2018 and the revaluation surplus was correctly recognized on that date. As at 31 December 2019, the asset was revalued at GH¢32,000. Required: Discuss the accounting treatment required in 2018 and 2019 financial statements. 3 marks e. E. Adentwi Enterprises Ltd bought a machine for GH₵ 150,000 on 1st January 2019. It depreciates the machine on cost over four years assuming a nil residual value. The company received a grant of GH₵30,000 from the municipal assembly to support the acquisition of the machines. Account for this grant under the netting off method. 3 marks QUESTION 3 Pleasant Place Plc is planning to obtain a stock market listing by offering 30% of its existing shares to the public. No new shares will be issued. Its most recent summarized results are as follows; Turnover GHC 120 m Earnings GHC 1,500m Number of shares in issue 6 million The company is highly geared and has a dividend policy of 50% pay-out rate. And the retention policy is expected to achieve 10% dividend growth each year. 5 Summarized details of two listed companies in the same industry as Pleasant Place are as follows; ICGC Ltd PCI ltd Gearing (Total debt/ Equity) 45% 10% Equity Beta 1.60 1.10 The current Treasury bill yield is 22% per annum. The average market return is estimated to be 27%. The shares will be offered to the public at a price 20% lower than the estimated market valuation in order to increase the prospects of success for the public issue. a. What will be the issue price? 7 marks b. Describe any three (3) suitable situations that may lead to the valuation of shares 3 marks Important assignment instructions • In terms of structure, presentation and style you are normally required to use: • ABS preferred Microsoft Word settings o Author-date style APA referencing (which includes in-text citations plus a reference list). • All references must be from credible sources such as books, industry related journals, magazines, company documents and recent academic articles. • Your grade will be adversely affected if your assignment contains no/poor citations and/or reference list and if your assignment word length is beyond the allowed tolerance level. Also, ensure to send only a Microsoft Word format of the assignment. Assignment submission • Assignment 1 must be submitted by 10.00pm on 21st April 2021 • All assignments must be submitted online via
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