UNIVERSITY OF CAPE COAST

COLLEGE OF HUMANITIES AND LEGAL STUDIES

DEPARTMENT OF ACCOUNTING
ACC304-FINANCIAL REPORTING III

Revision of Some Relevant Standards

Question 1
XYZ Company revalues its buildings and decides to incorporate the revaluation into the financial statements.
The following information is relevant:
a) Extracts from the statement of financial position at 31 December, 2016:
GH¢ M
Building at Cost 30,000
Accumulated Depreciation 9,000
Net Book Value 21,000
b) Depreciation has been provided at 2% p.a. on straight line
c) The building is revalued at 30th June, 2017 at GH¢27,600 Million. The original estimated life of
the building is fifty years and this has not changed.
Required: Show the relevant extracts from the financial statements for the year ended 31 December,
2017.

Question 2
On 1 January 20015, ABC purchased a freehold land and building for GH¢800, 000(land GH¢240, 000;
building GH¢ 560, 000). The building was expected to have economic useful life of forty years and depreciation
of the land is ignored. On 1 October 20018, the land was revalued at GH¢300, 000 and the building at
GH¢580, 000.
Required: show the relevant entries in income statement and statement of financial position at the
year-end 31 December, 2018, together with relevant extracts from the PPE schedule.

Question 3
A company revalued its land and buildings at the start of the year to GH¢10 million (GH¢4 million for the land)
the property cost GH¢5 million (GH¢1 million for the land) ten years prior to the revaluation. The total expected
useful life of fifty years is unchanged. The company’s policy is to make an annual transfer of realized amounts
to retained earnings.
Require: Show the effect of the above on the financial statements for the year.

Question 4
Aregon Ltd acquired an administrative block with an estimated useful life of 50 years at the cost of GH¢22
million on 01/01/06. The entity used the building for 5 years until 31/12/2010, when it moved its offices into a
new building at the factory site. The building was reclassified as an investment property and leased out
under a forty year lease. The fair value of the block as at 31/12/10 was GH¢24 million.
Required: Explain the treatment of the building on the assumption that Aregon Ltd uses:
a) The cost model for investment properties
b) The fair value model for investment properties

Question 5
Adom Ltd acquired a property on 01/01/06 at a cost of GH¢400, 000 and immediately occupied it as office
premise. The property was estimated to have a useful life of 50 years. Subsequently the cost model was

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used in measurement until 01/10/11 when management decided to convert the building into an investment
property. Following this decision the property was fair valued to GH¢380, 000. The entity adopted fair value
model for subsequent measurement of its investment properties. At 31/12/11, the property was fair valued at
GH¢ 390, 000.
Required: prepare extracts from the financial statements for the year ended 31/12/11.
Question 6
An entity owns a property which was originally purchased for GH¢300, 000 and revalued to GH¢500, 000.
The revalued amount is recorded in other comprehensive income and revaluation reserve. The property has
a current carrying value of GH¢460, 000 and estimated recoverable amount of GH¢200, 000.

What is the amount of impairment and how should this be treated in the financial statement?

Question 7
A company runs a unit that suffers a massive drop in income due to the failure of its technology on 01/01/08.
The following carrying values were recorded in the books immediately prior to the impairment:
GH¢’M
Goodwill 20
Technology 5
Brands 10
Land 50
Buildings 30
Other net assets 40

The recoverable value of the unit is estimated at GH¢85m. The technology is worthless following its complete
failure. The other net assets include inventory, receivables and payables. It is considered that the book value
of other net assets is a reasonable representation of its net realizable value.
Show the impact of the impairment on 1 January.

Question 8
An entity opens a new factory and receives a government grant of GH¢15,000 in respect of a capital
equipment costing GH¢100,000. It depreciates all plants and machinery at 20% p.a. straight line. Show the
statement of financial position extracts in respect of the grant in the first year under the deferral and net-of-
cost methods.

Question 9
ELA Ltd bought plant costing GH¢102, 000 and received grant of GH¢18, 000 on it. The plant is to be
depreciated using straight line basis over three years. Open the relevant accounts and extracts from the
statements of income and financial positions for the three years under the deferral and net-of-cost methods.

Question 10
Dramani Ltd was granted 5000 acres of land in a village located near the slums outside the city limits by local
government authority. The condition attached to this grant was that Dramani ltd should clean up this land and
lay roads by employing labourers from the village in which the land is located. The government has fixed the
minimum wage payable to the workers. The entire operation will take three years and is estimated to cost
GH¢100 million to be spent as follows:
GH¢20 million each, in the first and second years, and GH¢60 million in the third year. The fair value of the
land is currently GH¢120 million.
How should this grant be treated in the books of Dramani Ltd?

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 Question 11
A&C Ltd began to construct a supermarket which had an estimated useful life of 40 years on 01/01/15. It
purchased a leasehold interest in the site for GH¢25million. The construction of the building cost GH¢9 million
and fixtures and fittings cost GH¢6 million. The construction of the super market was completed on 30/09/15
and was brought into use on 01/01/16. A&C Ltd borrowed GH¢40million on 01/01/15 to finance the project.
The loan carried an interest rate of 10% per annum and was repaid on 30/06/16.
Required: Determine the interest to be capitalized as per IAS 23; and the carrying value of the building
to be included in the financial statements for the year to 31 December, 2015.

Question 12
Demiwat Ltd oil and gas exploring company decided to construct a tunnel to link two communities as part of
its CSR activities. The construction is expected to take two years and the total capital outlay needed would
not be less than GH¢20million. To allow itself a margin of safety the entity borrowed GH¢22million from three
sources and used the extra GH¢2million for working capital purposes. Financing was arranged as follows:
 Bank Term Loans GH¢5million at 7% per annum
 Institutional Borrowings GH¢7million at 8% per annum
 Corporate Bonds GH¢10million at 9% per annum
Income from a six month temporary investment was GH¢500, 000.
Required: Determine the borrowing cost to be capitalised at the end of the project

Question 13
The following trial balance relates to Blue Bay Limited as at 31st December, 2010.

GH¢'000 GH¢'000

Equity Shares of 20pesewas each (note(i)) 100,000

8% loan (note note (ii)) 60,000

Income Surplus-31/12/09 25,400
Revaluation Surplus 20,000

Share deals 22,000

Land and Building at valuation-31/12/09(Land

GH¢14M and Building GH¢72M) (note (iii)) 86,000

Plant and Equipment at cost (note (iii)) 134,800

Accumulated Depreciation P&E-31/12/09 26,800

FVTPL Investment (note (iv)) 31,600

Inventory-31/12/10 39,600
Trade Receivables 58,000

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 Bank 7,400

Trade Payables 51,400

Revenue 365,000

Cost of sales 257,000

Administrative Expenses (note (i)) 50,000

Distribution Costs 17,000

Loan note interest paid 4,800

Bank Interest 600

Investment Income 1,400

679,400 679,400

The following notes are relevant:

i. Blue Ray Ltd has accounted for a fully subscribed rights issue of equity shares made on 1 July, 2010 of
one new share for every four in issue at 20pesewas each. The company paid ordinary dividends of
3pesewas per share on 29 February 2010 and 5pesewas on 31 August, 2010. The dividend payments
are included in administrative expenses in the trial balance.

ii. The 8% loan note was issued on 1 January 2010 at its nominal value of GH¢60 million. The loan note
will be redeemed on 31/12/2013 at GH¢65, 570,000 which gives the loan an effective interest of 10% per
annum.

iii. Blue Ray Ltd revalues its land and buildings at the end of each accounting year. At 31st December 2010,
the relevant value to be incorporated into the financial statements is GH¢83.6 million. The building’s
remaining life at the beginning of the current year is 18 years. Ignore deferred tax on revaluation surplus.
Plant and equipment is depreciated at 12.5% per annum using reducing balance method. No depreciation
has yet been charged on any non-current asset for the year31 December 2010. All depreciation is
charged to cost of sales.

iv. The equity investment had a fair value of GH¢33 million as at 31 December 2010.

v. A provision for current income tax for the year ended 31 December, 2010 of GH¢11.2 million is required.
Required:
a) Prepare the statement of comprehensive income for Blue Rays for the year ended 31 December 2010.
b) Prepare the statement of changes in equity for the year ended 31 December, 2010.
c) Prepare the statement of financial position as at 31 December 2010.

Notes to the accounts are not required, but show all workings.

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