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  • 5 Marks

FR – July 2023 – L2 – Q5b – Professional and Ethical Issues in Financial Reporting

Discussion on the responsibilities of accountants in business and challenges they face under pressure from management.

b)

i) Identify two responsibilities of accountants in business. (2 marks)

ii) Discuss two difficult circumstances accountants in business may face. (3 marks)

i) Responsibilities of accountants in business:

  • Accountants must ensure that financial information is not misleading and provides a true and fair view of the entity’s operations.
  • Accountants are responsible for ensuring that the financial information prepared is technically accurate, reflects the substance of the transaction, and is adequately disclosed.

ii) Difficult circumstances faced by accountants in business:

  • Accountants may face pressure from senior management to present figures that inflate profits or assets or understate liabilities.
  • There is a possibility that accountants could lose their jobs if they do not comply with management’s directives.
  • 5 Marks

FR – July 2023 – L2 – Q5a – Conceptual Framework for Financial Reporting

Discuss the importance of recording transactions based on substance over form in financial reporting.

An important aspect of the International Accounting Standards Board’s Framework for the preparation and presentation of financial statements is that transactions should be recorded based on their substance over their form.

Required:
Explain why it is critical for financial statements to reflect substance over their form.
(5 marks)

The principle of “substance over form” requires that financial statements present the true economic reality of transactions rather than just their legal form. This is essential for ensuring that financial reports provide a reliable representation of the company’s financial position and performance. Here are the key reasons why reflecting substance over form is critical:

  1. Economic Reality vs. Legal Structure: The economic reality of a transaction might differ from its legal structure. Financial statements need to show the real financial effect of transactions, which may not be evident from just the legal documentation. For example, if a company sells an asset but retains control over its use and benefits, the transaction should be treated as a financing arrangement, not a sale.
  2. True and Fair View: The objective of financial reporting is to give a true and fair view of the financial performance and position of the entity. If only the legal form of transactions is considered, it may lead to misleading information. By focusing on substance, the financial statements more accurately depict the entity’s actual financial situation.
  3. Improved Decision Making: Financial statements prepared on the basis of substance over form allow users—such as investors, creditors, and regulators—to make more informed decisions. This is because the statements reflect the actual risks, rewards, and obligations the entity faces, rather than just formal legal arrangements.
  4. Avoidance of Manipulation: If financial statements were based purely on legal form, it would be easier for entities to structure transactions to manipulate the presentation of their financial position. Adopting the principle of substance over form helps prevent this, ensuring more transparent and honest financial reporting.
  5. Compliance with International Standards: International Financial Reporting Standards (IFRS) emphasize the need for substance over form. This aligns with the goal of providing relevant and reliable information to users of financial statements, as set out by the International Accounting Standards Board (IASB).

Examples:

  • In a finance lease, even though legal ownership of the asset remains with the lessor, the lessee controls the economic benefits of the asset and bears the risks. Hence, the lessee should record the leased asset and corresponding liability in their balance sheet.
  • In a sale and leaseback transaction, if the seller retains substantial risks and rewards of ownership, the transaction should be recorded as a financing arrangement, not a sale.

By following the principle of substance over form, companies ensure that their financial statements faithfully represent the economic transactions and conditions, providing a clearer picture of their financial health and performance.

  • 20 Marks

FR – July 2023 – L2 – Q4 – Performance Analysis

Assess the financial performance of Besease Ltd using financial ratios and prepare a report for the board of directors.

Besease Ltd won two prestigious awards in 2020 despite the negative impact of the COVID-19 pandemic. The Board of Directors seeks to assess the company’s performance for the year ended 31 December 2021 in comparison to 2020.

Below are the financial statements for the year ended 31 December 2021:

Statement of comprehensive income for the year ended 31 December

2021 (GH¢) 2020 (GH¢)
Revenue 7,315,927 6,184,754
Cost of sales (4,322,986) (3,441,339)
Gross profit 2,992,941 2,743,415
Other income 330,812 280,832
Administrative expenses (2,511,179) (2,648,987)
Operating profit 812,574 375,260
Finance cost (496,913) (174,872)
Profit before tax 315,661 200,388
Taxation (188,621) (30,700)
Profit for the year 127,040 169,688

Statement of financial position as at 31 December

2021 (GH¢) 2020 (GH¢)
Non-current assets
Property, Plant & Equipment 9,224,988 5,102,799
Intangible assets 35,824 33,350
Investments 36,629 36,629
Total non-current assets 9,297,441 5,172,778
Current assets
Inventories 2,878,337 1,329,279
Trade receivables 1,875,594 2,246,747
Cash and bank balances 527,412 372,081
Total current assets 5,281,343 3,948,107
Total assets 14,578,784 9,120,885
Equity & Liabilities
Equity
Share capital 217,467 217,467
Retained earnings 1,289,140 1,162,100
Credit reserve 826,528 1,102,037
Total equity 2,333,135 2,481,604
Non-current liabilities
Interest-bearing loans 6,708,598 2,800,223
Deferred taxation 187,624 186,304
Total non-current liabilities 6,896,222 2,986,527
Current liabilities
Trade payables 1,257,693 1,550,466
Taxation 118,337 101,391
Other payables 2,993,667 1,021,167
Accrued expenses 979,730 979,730
Total current liabilities 5,349,427 3,652,754
Total equity & liabilities 14,578,784 9,120,885

The Finance Manager has selected the following performance ratios:
i) Return on capital employed (capital employed = interest-bearing debt + shareholders’ equity) (%)
ii) Return on equity (%)
iii) Acid test ratio (times)
iv) Debt-to-equity ratio
v) Interest cover ratio (times)

Required:
Write a report to the Board of Directors assessing the comparative performance of Besease Ltd for the year ended 31 December 2021 using the given ratios.

Besease Ltd

Memorandum
To: The Board of Directors
From: The Finance Manager
Date: 1/4/2022
Subject: Analysis of the performance of Besease Ltd for the year 2021

This report assesses the performance of Besease Ltd for the year ended 31 December 2021 as compared to the performance of the comparative financial year ended 31 December 2020. The company’s performance is assessed on the basis of profitability, liquidity, efficiency, and its gearing.

Profitability

The company experienced revenue growth of 18.29% in 2021 compared to 2020. This growth led to an increase in the return on capital employed (ROCE), which rose from 7.10% in 2020 to 8.99% in 2021. This indicates that the company generated GH¢0.09 for every cedi of long-term capital employed, compared to GH¢0.07 in 2020, reflecting an improvement in profitability from the perspective of capital providers.

However, the return on equity (ROE), which focuses on returns to shareholders, declined from 6.84% in 2020 to 5.45% in 2021. This reduction is primarily due to the increased finance costs from loans acquired during the year. The finance cost increased by 184.16% as the company’s debt increased by 139.57%.

The company’s trading profit per cedi of revenue generated also declined in 2021 compared to 2020. In 2020, the trading profit per GH¢1 of revenue was GH¢0.44, while in 2021, it dropped to GH¢0.40. This decline suggests the company faced higher costs in 2021, with the cost of sales increasing by 25.62%, outpacing revenue growth.

Liquidity

The company’s liquidity position worsened in 2021 compared to 2020, as indicated by the reduction in the acid test ratio from 0.72:1 in 2020 to 0.44:1 in 2021. This shows that the company had fewer liquid assets to cover its current liabilities, meaning its ability to settle obligations with liquid assets deteriorated. Excluding inventory from current assets, the company could only cover 44% of its short-term obligations in 2021 compared to 72% in 2020.

Efficiency

There was a decline in inventory turnover efficiency, with the average days inventory remained unsold increasing from 141 days in 2020 to 243 days in 2021. This indicates that the company took longer to sell its inventory, which is not favorable for working capital management.

On the other hand, the company improved in collecting receivables. The average collection period for trade receivables reduced from 133 days in 2020 to 94 days in 2021. This improvement suggests the company was more effective in converting receivables into cash in 2021.

However, the company had a shorter credit period from its suppliers in 2021 compared to 2020. The trade payable days fell from 164 days in 2020 to 106 days in 2021, indicating that suppliers were being paid earlier in 2021 than in the previous year. While this may suggest better supplier relations, it could also imply less favorable credit terms and potentially more strain on cash flows.

Gearing

The company’s debt-to-equity ratio increased significantly from 1.13:1 in 2020 to 2.88:1 in 2021, indicating a substantial rise in financial leverage. The company is now more reliant on debt financing, increasing its financial risk.

Additionally, the interest cover ratio, which measures the company’s ability to cover interest payments, decreased from 2.15 times in 2020 to 1.64 times in 2021. This suggests that the company had less profit available to cover its interest obligations in 2021, further increasing financial risk.

Conclusion

The company’s overall profitability improved in 2021, but returns for shareholders declined. Liquidity and financial risk worsened, and inventory management efficiency decreased.

  • 20 Marks

FR – July 2023 – L2 – Q3 – Preparation of Financial Statements for Beposo Ltd

Preparation of financial statements (profit or loss, changes in equity, and financial position) for Beposo Ltd for the year ended 31 December 2021.

Beposo Ltd is an agro-processing company, whose head office is in the Greater Accra region of Ghana. The trial balance of the company for the year ended 31 December 2021 is as follows:

Additional Information:

i) Included in the revenue figure is sales made on special arrangement, payable by customers in two years’ time at an amount of GH¢16.8 million. The cash price of the sales at the date of the sales (i.e. 1 January 2021) is estimated at GH¢15 million, and the effective interest rate of the arrangement has been computed as 5.83% per annum.

ii) Non-current assets consist of the following classes of assets:

The company revalues its buildings periodically to ensure that the carrying value reflects their fair market value. On 31 December 2020, the buildings were revalued at GH¢198 million, of which GH¢80 million was attributed to land. The revaluation surplus shown in the trial balance represents the increase in value recorded during this revaluation. All buildings were completed and ready for use on 1 January 2011. The company’s buildings serve as administrative offices and production centers, and they have an estimated useful life of 50 years.

In 2021, the company relocated from one of its administrative offices and sold the building on 1 April 2021 for GH¢27.6 million. The revalued amount and revaluation surplus for this building as of 31 December 2020 were GH¢25 million (with GH¢5 million for the land) and GH¢8 million, respectively. On 31 December 2021, the remaining land and buildings were revalued at GH¢169.35 million, with GH¢85 million attributed to the land. The company’s policy is to recognize revaluation surplus only upon derecognition of the non-current asset.

The sale of the building and the 2021 revaluation of the remaining buildings have not yet been recorded in the company’s books. The payment for the sale of the building was received in the first week of January 2022. There were no other changes to the value of property, plant, and equipment during the year ended 31 December 2021.

Depreciation for 2021 has not been accounted for in the trial balance. The company charges depreciation to cost of sales. Motor vehicles, machinery, and equipment are depreciated over five years.

In lieu of a cash dividend, the company issued bonus shares on 1 January 2021 at a ratio of one new share for every ten existing shares, priced at GH¢1 per share. The issuance was subject to an 8% withholding tax, which has already been paid by the company and is included in administrative expenses. The bonus shares, which are in respect of the year ended 31 December 2020, have not yet been recorded.

After 31 December 2021, the Board of Directors proposed a dividend of GH¢0.80 per share in respect of the year ended 31 December 2021. The dividend has not yet been approved by shareholders.

The provision for tax in the trial balance reflects the under or over provision of tax for the year ended 31 December 2020, based on the difference between the tax estimated for the year and the actual liability determined after a tax audit. The current tax liability for 2021 is estimated at GH¢16.7 million. Taxable temporary differences as at 31 December 2021, arising from discrepancies between the carrying amounts of assets and liabilities and their tax bases, amount to GH¢60 million. The applicable corporation tax rate is 25%.

Required:

Prepare the following financial statements for Beposo Ltd for the year ended 31 December 2021:
i) Statement of profit or loss and other comprehensive income
ii) Statement of changes in equity
iii) Statement of financial position as at that date.
(Total: 20 marks)

i) Beposo Ltd – Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2021

ii) Beposo Ltd – Statement of Changes in Equity for the year ended 31 December 2021

iii) Beposo Ltd – Statement of Financial Position as at 31 December 2021

Workings:

1. Revenue with Significant Financing Component
Sales have been made on credit-terms beyond one year. Therefore, the time value of money becomes important, and a financing component is included in the revenue in accordance with IFRS 15, Revenue from Contracts with Customers. The financing component is separated from the revenue itself. The revenue is recorded at the cash price, and the interest or finance cost recognized using the effective interest rate implicit in the arrangement of 5.83%.

Debit GH¢000
Revenue 1,800,000
Trade receivables 1,800,000
Credit
Trade receivables 874.50
Finance income 874.50

The financing component (interest) is reversed in revenue.

At the end of the year, interest unwound is GH¢874,500 (5.83% of GH¢15,000,000).

2. Gain/Loss on Disposal and Revaluation Loss on Building
The date of acquisition of the buildings is 1 January 2011.
The useful life of the asset = 50 years
Expired/used life as of 31st December 2020 = 10 years
Remaining useful life as of 31st December 2020 = 50 – 10 = 40 years

Disposal of building on 1 April 2021
Depreciation on disposed building = (GH¢25m – GH¢5m)/40 x 3/12 = GH¢125,000
Carrying value = GH¢25,000,000 – GH¢125,000 = GH¢24,875,000
Gain on disposed asset = GH¢27,600,000 – GH¢24,875,000 = GH¢2,725,000

The revaluation surplus of GH¢8,000,000 is held in respect of the disposed asset. This is realized by the entity as follows:

Debit GH¢000
Revaluation surplus a/c 8,000
Retained earnings 8,000

Depreciation on remaining buildings:
(GH¢198m – GH¢80m – GH¢20m)/40 = GH¢2,450,000
Carrying value of remaining buildings at 31st December 2021:
Cost (198m – 25m) = 173,000,000
Depreciation = (2,450,000)
Carrying value: 170,550,000

Revaluation amount at 31st December 2021 is GH¢169,350,000.
Revaluation loss = GH¢169,350,000 – GH¢170,550,000 = GH¢1,200,000

Depreciation on other assets:

  • Motor vehicle = GH¢41,700,000/5 = GH¢8,340,000
  • Machinery & equipment = GH¢20,400,000/5 = GH¢4,080,000

3. Depreciation Calculation

Description GH¢000
Building – disposed 125
Building – existing 2,450
Motor vehicle 8,340
Machinery & equipment 4,080
Total depreciation 14,995

4. Carrying Value of PPE as at 31 December 2021

Description GH¢000
Building 169,350
Motor vehicle (25,020 – 8,340) 16,680
Machinery & equipment (18,600 – 4,080) 14,520
Total 200,550

5. Cost of Sales

Description GH¢000
Balance per Trial balance 1,856,830
Depreciation (W3) 14,995
Total cost of sales 1,871,825

6. Bonus Share Issue

  • Bonus shares = 1/10 x 900,000,000 x GH¢1 = GH¢90,000,000
  • Withholding tax = 8% of GH¢90,000,000 = GH¢7,200,000
  • Net amount issued to shareholders = GH¢90,000,000 – GH¢7,200,000 = GH¢82,800,000

Note: Proposed dividends are disclosed in the financial statements but not recognized since shareholders’ approval is required. This follows IAS 10, Events After the Reporting Period.

7. Administrative Expenses

Description GH¢000
Balance per trial balance 405,000
Grant repayment (1,500)
8% WHT (7,200)
Total administrative expenses 396,300

8. Other Income

Description GH¢000
Gain on disposal (W2) 2,725
Total other income 2,725

9. Tax Expense

Description GH¢000
Current tax 16,700
Under-provision 588
Deferred tax:
– Balance at end 15,000
– Balance at start (17,150)
Total tax expense 15,138

Deferred tax liability = 25% of GH¢60,000,000 = GH¢15,000,000

10. Revenue

Description GH¢000
Balance per trial balance 2,634,750
Interest-financing portion (1,800)
Total revenue 2,632,950

11. Trade and Other Receivables

Description GH¢000
Balance brought forward 177,750
Financing component-interest (1,800)
Unwound interest 874.50
Proceeds receivable from disposed asset 27,600
Total trade & other receivables 204,424.50

(80 ticks @ 0.25 marks per tick = 20 marks)

 

  • 3 Marks

FR – July 2023 – L2 – Q2d – Contingent Liabilities and Assets (IAS 37)

Explanation of contingent liabilities and contingent assets according to IAS 37.

The objective of IAS 37: Provisions, Contingent Liabilities, and Contingent Assets is to ensure that appropriate recognition criteria and measurement bases are applied to provisions, contingent liabilities, and contingent assets, and that sufficient information is disclosed in the notes to the financial statements to enable users to understand their nature, timing, and amount.

Required:
Explain Contingent Liability and Contingent Asset as used in the statement above.
(Total: 3 marks)

Contingent Liability:

  • A possible obligation depending on whether some uncertain future event occurs, or
  • A present obligation, but payment is not probable, or the amount cannot be measured reliably.
    (1.5 marks)

Contingent Asset:

  • A possible asset that arises from past events, and
  • Whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.
    (1.5 marks)
  • 7 Marks

FR – July 2023 – L2 – Q2c – Government Grants (IAS 20)

Accounting treatment of a government grant in Pampaso Ltd after partial repayment due to non-compliance.

Pampaso Ltd is a fruit processing company listed on the Ghana Stock Exchange with a financial year-end of 31 December. The trial balance for the year ended 31 December 2021 showed a credit balance for government grant of GH¢1,800.

As part of the Local government’s initiative to stimulate employment of fresh graduates from Tertiary institutions in the locality, Pampaso Ltd received a grant of GH¢3 million towards the purchase of additional production machinery on 1 January 2019. The company, accordingly, acquired additional production machinery costing GH¢3 million on that date. The condition attached to the grant was for Pampaso Ltd to employ at least three fresh graduates every year over the estimated five-year useful life of the production machinery. Since January 2019, the company has only recruited one fresh graduate annually.

The non-compliance of the company with the conditions attached to the grant has come to the attention of the Local government, and as a result, the company was instructed on 1 January 2021 to repay 50% of the grant received within eighteen months. Pampaso Ltd uses the deferred income method in accounting for government grants.

Required:
Advise Management of Pampaso Ltd on the accounting treatment of the grant in accordance with IAS 20: Accounting for Government Grants and Disclosure of Government Assistance for the year ended 31 December 2021.
(Total: 7 marks)

Repayment of government grant of 50% was required due to non-compliance. The company received GH¢3 million on 1 January 2019 and adopted the deferred income method for accounting. Under the deferred income method, the grant is spread over the useful life of the machinery (5 years), so amortization per year = GH¢3,000,000 / 5 = GH¢600,000 annually.

At the start of the repayment period (1 January 2021), the deferred income balance would have been GH¢1,800,000 (3 years x GH¢600,000). Pampaso Ltd was instructed to repay 50% of the grant, equating to GH¢1,500,000.

The accounting treatment should be as follows:

  1. Repayment Entry (as of 1 January 2021):
    Debit: Government grant (deferred income) GH¢1,500,000
    Credit: Bank GH¢1,500,000
  2. The remaining deferred income after the repayment would be GH¢300,000 (GH¢1,800,000 – GH¢1,500,000).

Since Pampaso Ltd had already incorrectly debited administrative expenses with the repayment amount, the wrong entry should be reversed:
Debit: Government grant (deferred income) GH¢1,500,000
Credit: Administrative expenses GH¢1,500,000

The final balance of the government grant at year-end is GH¢300,000, and the company will continue to amortize the remaining grant over the remaining useful life of the machinery.

  • 5 Marks

FR – July 2023 – L2 – Q2b – Leases (IFRS 16)

Namba Ltd’s treatment of leasehold alteration and restoration costs according to IFRS 16 for the year ended 30 June 2022.

Namba Ltd is a multinational with financial reporting year end 30 June. On 1 July 2021, Namba Ltd acquired a manufacturing unit under an eight-year lease. The lease rentals have been recorded correctly in the financial statements of Namba Ltd. However, Namba Ltd could not operate effectively from the unit until alterations to its structure costing GH¢13.2 million were completed. The manufacturing unit was ready for use on 30 June 2022. The alteration costs of GH¢13.2 million were charged to administration expenses. The lease requires Namba Ltd to restore the unit to its original condition at the end of the lease term. Namba Ltd estimates that this will cost a further GH¢10 million. Market interest rates are currently 6%.

The following discount factors may be relevant:

Periods 6% Discount Factor
7 0.665
8 0.627

Required:
Recommend to the directors of Namba Ltd how to account for the above transactions as at 30 June 2022 in accordance with International Financial Reporting Standards.
(Total: 5 marks)

The alteration costs of GH¢13.2 million should be capitalized and not charged as an expense. This amount should be added to the carrying value of the leased asset as per IFRS 16.

A provision for the restoration costs of GH¢6.65 million (GH¢10 million x 0.665) should also be recognized and capitalized as part of the carrying amount of the asset. Therefore, the required adjustments are as follows:

Transaction GH¢ million
DR Property, plant, and equipment 19.85
CR Retained earnings 13.2
CR Non-current liabilities (restoration provision) 6.65

Marks Allocation:

  • Capitalization of alteration cost: 1 mark
  • Making provision for restoration cost: 2 marks
  • Increase of Property, plant, and equipment: 2 marks
  • 5 Marks

July 2023 – L2 – Q2a – Impairment of Assets (IAS 36)

Treatment of brand name in Bondito Ltd’s financials following impairment of its subsidiary Manyabe Ltd.

Bondito Ltd acquired 100% of a subsidiary, Manyabe Ltd, on 1 January 2021. The carrying amount of the assets of Manyabe Ltd in the consolidated financial statements of the Bondito group at 31 December 2021, immediately before an impairment review, were as follows:

Assets GH¢ million
Goodwill 1.4
Brand name 2
Property, plant, and equipment 6
Current assets (at recoverable amount) 2.4
Total 11.8

The recoverable amount of Manyabe Ltd was estimated at GH¢9.6 million at 31 December 2021, and the impairment of the investment in Manyabe Ltd was deemed to be GH¢2.2 million. Bondito Ltd applies IAS 16: Property, Plant, and Equipment, and IAS 36: Impairment of Assets in preparing its financial statements.

Required:
Assuming Manyabe Ltd represents a cash-generating unit, show the financial reporting treatment of the brand name at 31 December 2021 in the books of Bondito Ltd following the impairment review.
(Total: 5 marks)

The impairment loss for the cash-generating unit (CGU) is GH¢2.2 million (GH¢11.8 million – GH¢9.6 million). The impairment loss is initially allocated to the goodwill balance of GH¢1.4 million. The unallocated impairment loss is GH¢0.8 million. This is allocated to the brand and property, plant, and equipment based on their carrying amounts:

Asset GH¢ million
Brand name 2
Property, plant, and equipment 6
Total 8

For the brand name, 2/8 x GH¢0.8 million = GH¢0.2 million. The new carrying amount of the brand name will be GH¢1.8 million (GH¢2 million – GH¢0.2 million).

  • 20 Marks

FR – July 2023 – L2 – Q1 – Group Financial Statements and Consolidation

Prepare the Consolidated Statement of Financial Position for a parent company Tarkwa Ltd and its subsidiary Awaso Ltd, incorporating the acquisition of 80% shares and related adjustments.

Tarkwa Ltd (Tarkwa) has been operating in the clothing and textiles industry in the past decade. On 1 July 2021, it acquired Awaso Ltd (Awaso) which operates in the same industry. The statements of Financial Position of the two companies as at 31 December 2021 are as follows:

Tarkwa GH¢000 Awaso GH¢000
Assets
Non-current assets 185,400 93,000
Current Assets
Inventory 76,200 31,800
Other current assets 58,200 24,000
Total current assets 134,400 55,800
Total assets 319,800 148,800
Equity and Liabilities
Equity
Share capital (issued at GH¢1 each) 120,000 50,000
Retained earnings:
Balance at January 1, 2021 73,200 51,600
Profit/(loss) for the year ended December 31, 2021 30,000 (18,000)
Total equity 223,200 83,600
Non-current liabilities
Deferred tax 30,000 4,000
Current liabilities
Trade payables and accruals 66,600 61,200
Total Equity and Liabilities 319,800 148,800

Additional information:

i) Tarkwa acquired 80% of Awaso’s equity shares by means of immediate cash payment of GH¢1.80 per each acquired share. However, the former shareholders agreed to return some of the consideration by 30 June 2022 if Awaso’s sales growth falls below a defined threshold over the next year. The value of this contingent consideration at the date of acquisition was estimated to be GH¢4 million. At 31 December 2021, in the light of Awaso’s falling sales, the value was revised to GH¢4.5 million. Tarkwa has only recorded the immediate cash payment.

ii) Tarkwa conducted a fair value exercise on Awaso’s net assets, which were equal to their carrying values including Awaso’s investment property with the exception of an item of owner-occupied property which had a fair value of GH¢5 million below its carrying amount. The property had a remaining useful life of 20 years as at 1 July 2021. Awaso has already incorporated the fair value change (together with the depreciation adjustment) in its own financial statements.

iii) At 31 December 2021, Awaso held goods in inventory, which had been supplied by Tarkwa at a mark-up on cost of 35%. The goods had cost Awaso GH¢6.75 million. 50% of the inventory remained unsold.

iv) The investment properties of Tarkwa and Awaso are carried at their fair values at January 1, 2021. However, at 31 December 2021, an item of properties had fair values of GH¢36.6 million and GH¢10.8 million respectively, with the change in Awaso’s investment properties all occurring since acquisition. These properties had carrying amounts at GH¢33,000 and GH¢12,000 respectively at the same date.

v) It is Tarkwa’s group policy to value the non-controlling interest using the fair value method at the acquisition date. For this purpose, a share price for Awaso of GH¢1.50 each is representative of the fair value of the shares held by the non-controlling interest.

Required:
Prepare the Consolidated Statement of Financial Position for Tarkwa as at December 31, 2021.

(Total: 20 marks)

Tarkwa Group
Consolidated statement of financial position as at 31 December 2021Workings:

Note:

  1. The post-acquisition loss is calculated as follows: 612×18,000=9,000\frac{6}{12} \times 18,000 = 9,000.
  2. The fair value that is already included in Awaso’s retained earnings needs to be adjusted from post-acquisition to pre-acquisition. However, no adjustment is necessary for the related depreciation, as depreciation is considered a post-acquisition adjustment.

  • 5 Marks

PT – Nov 2023 – L2 – Q1a – Tax Administration

Outline the procedures for obtaining an extension for filing corporate tax returns.

The Managing Director of Atadeka Ltd has been informed that you are undertaking a course in taxation at the Institute of Chartered Accountants, Ghana and has sought your advice on the procedures for extension of time to file the company’s Corporate Tax Returns.

Required:
Outline the procedures for extension of time to file tax returns to the Managing Director.

A person who is required to file a tax return may apply to the Commissioner-General for an extension of time to file the return.

The application shall:
1) Be in writing.
2) State the reasons for the request for extension.
3) Be made before the due date for filing the return.

The Commissioner-General may, by written notice, extend the date by which the return is to be filed if the Commissioner-General is of the opinion that the applicant has shown reasonable cause for the extension.

An extension granted may be subject to terms and conditions that the Commissioner-General considers appropriate, including the payment of security.

The Commissioner-General may grant multiple extensions, but the total extensions shall not exceed sixty days from the date the return was originally due.

The grant of an extension of time does not alter the date for payment of tax as specified in the tax law under which the return is to be filed.

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