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30 September, 201830 September, 201930 September, 202030 September, 2021-130 shares125 shares114 shares105 sharesCompanies Income tax rate is 30%.Required:i.Calculate the basic and diluted Earnings Per Share for the year ended 30September, 2014.(8 Marks)ii.SECTION C:Write a short memo to the Board of Directors of Bajulaiye Plc. explainingFOUR advantages and THREE limitations of Earnings Per Share as aperformance indicator to users of financial statements.(7 Marks)(Total 20 Marks)ATTEMPT TWO QUESTIONS IN THIS SECTION(30 Marks)QUESTION 5IAS 38 - Intangible Assets, specifies the criteria that must be met before an intangibleasset can be recognised by an entity in its Financial Statements. Intangible assets areidentifiable non-monetary assets without physical substance and include goodwill,brands, copyright and research and development expenditure. They could bepurchased and/or internally generated.Required:a.Identify any TWO characteristics of goodwill which distinguish it from otherintangible assets?(2 Marks)b.Explain THREE differences between purchased goodwill and non-purchasedgoodwill.(3 Marks)c.Identify any THREE conditions that must be met under IAS 38 for developmentexpenditure to be recognised as an intangible asset.(3 Marks)State any FOUR factors to be considered when determining the useful life of anintangible asset.(4 Marks)d.e.Calculate the goodwill on consolidation from the information below:SKILLS LEVEL EXAMINATIONS – MAY 20158

Parent’s cost of investment in subsidiaryNet asset at acquisition date (parent)Net asset at acquisition date (subsidiary)Fair value of non-controlling interest at acquisition dateNet asset at reporting date (subsidiary)Impairment of goodwillParent has 80% interests in 0062,200(3 Marks)(Total 15 Marks)QUESTION 6a.IAS 28 - Investments in Associates and Joint Ventures permits, the application ofequity method when accounting for investments in associates and jointventures.Required:Explain briefly the Equity Method and state the circumstances under which anentity can discontinue the use of equity method under IAS 28.(5 Marks)b.Agbantara Plc. acquired equity shares from Odinma Plc. and Dangari Limited.The following are the Statements of Profit or Loss and Other ComprehensiveIncome for the year ended 31 December, 2014 for the three companies:RevenueCost of salesGross profitAdmin expensesFinance incomeFinance costsProfit before taxIncome tax expensesProfit for the yearAgbantara 50Odinma Plc.N’m1,350(720)630(180)90540(135)405Dangari LtdN’m630(270)360(135)(90)135(45)90SKILLS LEVEL EXAMINATIONS – MAY 20159

Other comprehensive income:Gains on property revaluation,net of taxTotal comprehensive income forthe year1809045630495135The following information is also relevant:(i)Agbantara Plc. acquired 72 million ordinary shares in Odinma Plc. out ofits 120,000,000 ordinary shares of N1 each par value for N160,000,000.The shares were acquired four years ago when it had N15,000,000 creditbalance on its retained earnings. During the year, Odinma Plc. soldgoods costing N38,000,000 to Agbantara Plc. for N45,000,000. Thesegoods were yet to be sold as at 31 December, 2014.(ii)Agbantara Plc. acquired 35,000,000 ordinary shares in Dangari Limitedout of 100,000,000 ordinary shares. The shares were acquired threeyears ago when the company had a credit balance on its retainedearnings of N10,000,000.(iii)Agbantara Plc’s group policy is to measure non-controlling interests (NCI)at fair value. NCI at acquisition date in Odinma Plc. at fair value wasN48,000,000. Impairment test carried out on the goodwill relating toOdinma Plc. and investment in Dangari Limited at year end resulted inN10,000,000 and N15,000,000 losses respectively.You are required to:Prepare Agbantara Plc. Consolidated Statement of Profit or Loss and OtherComprehensive Income for the year ended 31 December, 2014.(10 Marks)(Total 15 Marks)SKILLS LEVEL EXAMINATIONS – MAY 201510

QUESTION 7a.There is usually a lead time between the end of an entity’s accounting year andwhen the financial statements are approved and signed off by the directors. Inbetween this period, there are two types of events according to IAS 10-EventsAfter The Reporting Period, which may require consideration when preparingfinancial statements.You are required to:Identify and explain these events and state how they are treated in the financialstatements.(4 Marks)b.Company A is indebted to company B to the tune of N50,000,000. The financialyear-end of company B is 30 June, 2014. On 30 July 2014, company B receiveda letter from a liquidator advising it that company A has gone into insolvency.The letter revealed that company A ceased operations a month ago and thatcompany B is only likely to receive a liquidation dividend of 20k for every nairaowed by company A. It is the normal practice of company B’s board to approvethe audited financial statements three months after the financial year end.Required:i.Explain how the above transactions should be treated in the financialstatements of company B in accordance with IAS 10-Events After TheReporting Period.(2 Marks)ii.Prepare journal entries that are required to adjust company B’s financialstatements to account for the above event.(2 Marks)State what would have been the treatment in the financial statementsassuming it was fire that destroyed company B’s factory building on 30July, 2014.(3 Marks)iii.c.The directors of XYZ Plc declared that a dividend of N1 per ordinary share bepaid to shareholders on the company’s register as at 15 April, 2014. Thefinancial statements were approved by the company’s board on 30 May, 2014.The shareholders, at the company’s annual general meeting held on 15 June,2014, approved the payment of the dividend to eligible shareholders on 1 July,2014.Required:Explain how the dividend proposed by the Directors should be treated in thefinancial statements of XYZ Plc in accordance with IAS 10.(4 Marks)(Total 15 Marks)SKILLS LEVEL EXAMINATIONS – MAY 201511

SECTION ASOLUTION 1(a)UNITARISATION PLC.CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVEINCOME FOR THE YEAR ENDED 31 OCTOBER, 2014Revenue (51,000 (25,200 xCost of sales (Wk 2)Gross profit6) – 4,800 (Wk 3)12Distribution costs (1,200 (1,200 xAdmin. Costs (3,600 (1,920 xFinance costs (180 (240 xProfit before ,560)6)12(300)8,9406Income tax (2,820 (840 x)12(3,240)Profit for the yearOther comprehensive incomeTotal comprehensive income5,700Nil5,700Profit attributable to:Owners of the parentNon-controlling interest (wk 1)5,5801205,700Workings:N’mWk 1 Non-controlling interests:Statement of profit or lossPost acquisition profit (Famous) (1,800 xUnrealised profitFair value adjustment movementNCI post acquisition share (40% x 300)6)12900(480)(120)300120SKILLS LEVEL EXAMINATIONS – MAY 201512

Wk 2 Cost of salesN’mUnitarisation Plc37,8006Famous Plc (19,200 x)129,600Movement of fair value adjustment (Wk 1)Intragroup purchases (Wk 3)Unrealised profit (Wk 3)120(4,800)48043,200Wk 3 Intragroup Trading:RevenuePurchasesBeing removal of intragroup sales and purchasesRetained earnings/cost of sales (4,800 – 3,120) x 40/140InventoriesBeing elimination of unrealised ON PLC.CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 OCTOBER, 2014ASSETSNon-current assetsProperty, plant & equipment (24,360 7,560 1,080) (Wk 5)Goodwill (Wk 3)Current assets (Wk 8)EQUITY AND LIABILITIESEquity attributable to owners of parent company:Share capital (6,000 960) (wk 6)Share premium (Wk 6)Retained earnings (Wk 2)Shareholders fundNon-controlling interest (Wk 2033,1803,66036,840Non-current liabilitiesSKILLS LEVEL EXAMINATIONS – MAY 201513

12% loan notes (1,800 2,400)Current liabilities(4,920 2,820 – 240) (Wk 7)WorkingsWk 14,2007,50048,540Group structureUnitarisation Plc.60% (1/5/2015)Famous PlcThe subsidiary was acquired during the year (middle of the accounting Year)Wk 2 Retained earnings:As in the questionFair value adjustment movement (Wk 5)Unrealised profit (Wk 3)Pre-acquisition profitRetained earnings of subsidiaryGroup share of subsidiary (60% x 300)Consolidated retained sPlc.N’m3,900)(120)(480)(3,000)300Wk 3 Goodwill:N’mConsideration transferredFair value of non-controlling interestLess: Net asset fair value at acquisition:Share capitalRetained earningsFair value ,600)2,700Wk 4 Statement of Financial Position:SKILLS LEVEL EXAMINATIONS – MAY 201514

N’m3,5401203,660NCI at acquisitionShare of post acquisition retained earnings (40% x 300)Wk 5 Fair Value Adjustments:Movement in equipmentæ 1,200 6 öx ç12 øè 5Acquisition1/5/14N’mMovement(6/12)N’mYear end31/10/14N’m1,200(120)1,080Wk 6 Share exchange:No of share issued (2,400 x 60% x 2/3) 960Consideration transferred (960 x N6)Unitarisation share capital (960 x N1)Unitarisation share premium (960 x N5)DRN’m5,760CRN’m9604,800Wk 7 Cash in transit:ReceivablesPayablesGroup cashWk 8 Current asset:Unitarisation Plc.Famous Plc.Unrealised profitIntercompany receivables (State in the question)Cash in transit (WK 1202,840c)SKILLS LEVEL EXAMINATIONS – MAY 201515

UNITARISATION PLC.CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 OCTOBER, 2014As at 1 November, 2013Profit for the yearOther comprehensive income:Transactions with owner’sequity:Addition paid-in capitalAddition on acquisition ofFamous Plc.As at 31 October, 3,54036,840Gain on Bargain purchase arises when the aggregate of the considerationtransferred (which is usually measured at fair value), the non-controllinginterest and the fair value of the previously held equity interest is less than theacquisition date amount of the identifiable assets acquired and the liabilitiesassumed.EXAMINER’S REPORTThe question tests candidates’ knowledge of Preparation of Consolidated Statement ofProfit or Loss and other Comprehensive Income Statement of Financial Position,Statement of Changes in Equity and explanation of Gain on Bargain Purchase.About 98% of the candidates attempted the question and performance was belowaverage.Most of the candidates could not correctly explain the Gain on Bargain Purchase inaccordance with IFRS 3 on Business Combination, while candidates who were unableto correctly prepare the consolidated final accounts properly lost some marks, becauseN’m symbol in their solutions. (For example recording N5m as N51,000). Also majorityof the candidates could not correctly prepare Statement of Changes in Equity.Candidates are advised to note that future Chartered Accountants should pay specialattention to denominations and should correctly reflect this in their solution toquestions.SKILLS LEVEL EXAMINATIONS – MAY 201516

Similarly, they should pay attention to relevant International Financial ReportingStandards (IFRS) that affect preparation of consolidated and separate financialstatement for better performance in future examinations of the Institute.SOLUTION 2a)DISCLOSURE REQUIREMENTS STIPULATED IN IAS 27 WHERE A COMPANY ELECTSNOT TO PREPARE CONSOLIDATED FINANCIAL STATEMENTSWhen a parent company elects not to prepare consolidated financial statementsand instead prepares separate financial statements, IAS 27 on Consolidated andSeparate Financial Statements states that it shall disclose in those separatefinancials.(i)The fact that financial statements are separate financial statements.(ii)A list of significant investment in subsidiaries, joint venture andassociates including:§The name of those investees§The principal place of business (and country of incorporation, ifdifferent) of those investees§Its proportion of ownership interest (and its proportion of the votingrights, if different) held in those investees.(iii)A description of the method used to account for the investment listed under (ii).(i)Equity as at 31 March, 2014b)Share capital of Kerewanta Plc.Share premiumRetained earnings (Wk 1)N’m69,00096,00033,360198,360SKILLS LEVEL EXAMINATIONS – MAY 201517

(ii)Non-controlling interests as at 31 March, 2014N’m48,0002,680(4)(36)50,640Added on acquisition at 1 April, 201340% post acquisition on profit (40% x N6,700)Deferred tax expenses (N10million x 40%)Additional depreciation (1/4 year x N360 x 40%)(iii)Consolidated Goodwill as at 31 March, 2014Purchase consideration of Kerewanta Plc.Share considerationDeferred n- controlling interestCost of business combinationFair value of identifiable net asset at 1 April, 2013Share capitalPre-acquisition reservesFair value adjustmentsFull perty, plant and equipment as at 31 March, 2014Kerewanta Plc.Orijinmi Plc.Fair value AdjustmentLess: Additional depreciation (1/4 years x :Wk 1Retained earnings as at 31 March, 2014Kerewanta Plc. retained earnings (N20,500 N9,800)60% post-acquisition profit (60% x N6,700)Finance cost (12% x N7,500million)Deferred tax expense (N10million x 60%)Additional depreciation (1/4 years x N360million x 60%)N’m30,3004,020(900)(6)(54)33,360SKILLS LEVEL EXAMINATIONS – MAY 201518

EXAMINER’S REPORTThe question tests the disclosure requirement necessary for the computation of itemsin the Consolidated Statement of Financial Position, such as equity, property, plantand equipment.About 50% of the candidates attempted the question and performance was poor.The commonest pitfalls observed include the following:·····Inadequate knowledge of the disclosure requirement required for calculating some of thebasic Consolidated Statement of Financial Position (CSFP) items highlighted above.Failure to show necessary workings as to how the figures were arrived at.Omission of N’m configuration in their solution thus, reducing the figures that areexpected in million naira to thousand naira.Failure to recognize deferred tax liability in their solution as required by the examiner.It is apparent that most candidates lack the requisite knowledge of IFRS, hence they couldnot correctly calculate the relevant items of SFP as required by the examiner.They are therefore advised to pay more attention to this section of the syllabus as itcould feature regularly at this level of the Institute’s examinations.SOLUTION 3(a)(i)Ratio AnalysisGross profit %Grossprofitx100%Re venue / sales(ii)Return on capital employed (ROCE)()100%20142013729x100%2,430655x100%1,638 30% 39.98% (40%)175 36x100%1,359 - 289352 6x100%829 - 254 211x100%1,070 19.72% 20% 358x100%575 62.26% 62%SKILLS LEVEL EXAMINATIONS – MAY 201519

(iii) Net profit (PBIT) percentagePBITx100%Re veue / sales(iv)(v)Asset Turnover(Gearing RatioDebtx100% Debt Equity) 211x100%2,430Debit/Equity RatioDebitx100%Equityii.358x100%1,638 8.68% 9% 21.86% 222,4301,3591,638829 1.79 times 1.98 times80 260x100%730 340340x100%1,07080x100%495 8080x100%575 31.78% 32%(vi) 389x100%730 53.29% 13.91% 14%90x100%495 18.18%ANALYSIS OF OPERATING PERFORMANCE OF GALADANCI·There is increase in revenue from N1,638bn to N2,430bn (2014) with arising cost of sales from N983bn (2013) to N1,701bn (2014) which leadsto decrease in gross profit % from 40% to 30%.·Profit before interest and tax dropped from N358bn to N211bn, whilecapital employed increased from N575bn to N1,070bn as a result of theincrease in the level of production and non-current asset to meet thelevel of increase in demand.·The capital expended on non-current asset is long-term in nature andcan only be recouped on a spread over a number of years, hence thereduction in Net Profit percentage of 22% (2013) to 9% (2014). Therefore,it will take some time for the profit to rise synergistically.·The immediate effect of the increase in non-current asset also led to thedecrease in asset turnover of 1.98 times (2013) to 1.79 times (2014).·The financing effect is reflected in increase in the gearing ratio from 14%(2013) to 32% (2014) as a result of the increase in the long-term debtSKILLS LEVEL EXAMINATIONS – MAY 201520

from N80bn (2013) to N340bn (2014) and capital employed fromN575bn to N1,070bn. This is also reflected in increase in the Debt/Equityratio from 18.18% (2013) to 53.29% (2014) which is a very high level ofdifference/increase.·The company, in a bid to increase revenue, might have incurredexcessive cost which is higher in proportion to the increase in therevenue generated through increase in customers’ base.·The company’s investment in the subsidiary (Papanga Plc.) might havebeen financed by debt which has equally contributed to significantincrease in finance cost and high gearing ratio, without anycommensurate return from the same investment.·Other inefficiencies that may be attributed to the company’s businessmodel and strategy.Comment on Qualitative Analysis(i)The measure in non-current asset and capital employed may lead to synergisticeffect in the next few years because it works like the cyclical movement in thecompany’s performance at the peak and if the level of activities are not increasedby injecting more capital funds, it may lead to serious problem that may lead thecompany exiting the market if it gets to saturated point, becausetelecommunication is a dynamic and complex industry.(ii)Investment in shares of Papanga Plc. is futuristic in terms of yielding profit becausethe industry is at the infant stage which will yield high level of profit in the verynear future.It could be a very good product in the investment portfolio of the company.SKILLS LEVEL EXAMINATIONS – MAY 201521

b)GALADANCI PLC.STATEMENT OF CASHFLOWS FORTHE YEAR ENDED 31 DECEMBER, 2014 (INDIRECT METHOD)OPERATING ACTIVITIES:Profit before taxesAdjustment for non-cash and non-operating itemsDepreciation of property, plant & equipmentAmortisation of intangible assetsFinance costMovement in working capital:Increase in inventory N (120 – 100)Increase in trade receivables N(150 – 70)Decrease in other receivables N(110 – 0)Increase in trade payables N(190 – 140)Cash flows from operating activitiesInterest paidTax paid (Wk 1)(Wk 7Wo

skills level examinations may 2015 1 the institute of chartered accountants of nigeria skills level examinations - may 2015 financial reporting time allowed: 3 hours attempt five questions in all section a: compulsory question (30 marks) question 1 unitarisaton plc