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Course Code: ACC 419
Credit Unit: 3
Course Title: Advanced Financial Accounting
Time Allowed: 3 Hours
Instructions:
1. Attempt question number one (1) and any other three (3).
2. Question number 1 is compulsory and carries 25 marks while the other 3 carry 15 marks each.
3. Present all your points in coherent and orderly manner.
The following balances remained in the books of Lagview Plc at December 31, 2016 after determining the gross profit:
Share capital, authorised and issued: |
|
200,000,000 ordinary shares of |
200,000 |
Cash at bank and in hand |
500 |
Inventory at December 31, 2016 |
61,200 |
Trade receivables |
18,005 |
Trade payables |
15,009 |
Gross profit at December 31, 2016 |
128,942 |
Retained earnings |
25,000 |
Salaries & Wages |
28,430 |
Prepayments |
600 |
Bad debts |
500 |
Accrued expenses |
526 |
Director’s account (credit) |
2,500 |
Finance cost on loan note (½ year to June 30, 2016) |
600 |
Sundry expenses |
4,100 |
Rates & insurance |
1,520 |
6% Loan notes |
20,000 |
Lighting & cooling |
1,310 |
Postage, telephone and telegrams |
800 |
Motor vehicle (cost |
15,000 |
Office fittings and equipment (cost |
42,350 |
Profit at January 1, 2016 |
22,300 |
Land and buildings at Cost |
239,362 |
The following additional information is relevant:
Directors‟ Fees N6,000,000
Audit Fees N2,500,000
Required:
and
(10 marks)
2.
Shita Plc purchased 960 million shares in Karama Plc a year ago when Karama had a credit balance of N190 million in retained earnings. The fair value of the non-controlling interest at the date of acquisition was N330 million. At the date of acquisition, the freehold land of Karama Plc was valued at N140 million in excess of its carrying value. The revaluation has not been recorded in the accounts of Karama.
The financial statements comprising Statement of Financial Position of Shita Plc and Karama Plc as at 31 December 2015 are as follows:
Shita Plc Karama Plc
|
NmNm
Land and building 630 556
Machinery and equipment 570 440
Investment in Karama Plc. |
|
1,320 |
_-__ |
|
|
|
2,520 |
|
996 |
Current Assets |
|
|
|
|
Inventories |
714 |
|
504 |
|
Trade receivables |
1,050 |
|
252 |
|
Cash/bank |
316 |
2,080 |
60 |
816 |
|
|
4,600 |
|
1,812 |
|
|
|
|
|
Ordinary Shares at |
|
3,000 |
|
1,200 |
Retained Earnings |
|
1,160 |
|
424 |
Shareholders fund |
|
4,160 |
|
1,624 |
|
|
|
|
|
Current Liabilities |
|
|
|
|
Trade payables |
|
440 |
|
188 |
|
|
4,600 |
|
1,812 |
Karama Plc owes Shita Plc N50million for goods purchased during theyear. Inventory of Karama Plc includes goods bought from Shita Plc at the price that includes a profit to Shita Plc of N24million.
The management of Shita Plc wants the financial statements to be consolidated using the acquisition method and wishes to know whether there is goodwill on acquisition of Karama Plc and the amount involved.
You are required to:
Prepare the Consolidated Statement of Financial Position as at 31 December 2015.
(15 marks)
3.
Donat Co is a manufacturer of domestic appliances. Its chairman is pleased with the results for the year ended 31 December 2015 as they show a continuing improvement over recent past performance. However, the finance director says that a better assessment of the company’s performance would be made by a comparison to other companies in the same sector. The finance director has obtained some ratios for Donat Co.’s business sector, based on a year end of 31 December 2015, which are:
Return on capital employed (ROCE) |
18·5% |
Net asset (total assets less current liabilities) turnover |
1·8 times |
Gross profit margin |
21% |
Operating profit margin |
10·3% |
Current ratio |
1·6:1 |
Gearing (debt/equity) |
36% |
The summarised financial statements of Donat Co are:
Statement of profit or loss for the year ended 31 December 2015
|
|
|
|
Revenue |
|
62,500 |
|
Cost of sales |
|
(51,800) |
|
|
|
––––––– |
|
Gross profit |
|
10,700 |
|
Operating costs |
|
(5,800) |
|
Finance costs |
|
(1,800) |
|
|
|
––––––– |
|
Profit before tax |
|
3,100 |
|
Income tax expense |
|
(1,000) |
|
|
|
––––––– |
|
Profit for the year |
|
2,100 |
|
|
|
––––––– |
|
Statement of financial position as at 31 December 2015 |
|
|
|
|
|
|
|
Assets |
|
|
|
Non-current assets |
|
|
|
Property |
|
8,100 |
|
Owned plant |
|
12,600 |
|
Leased plant |
|
12,200 |
|
|
|
––––––– |
|