PATHFINDER - icanig.org

1 THE INSTITUTE OF CHARTERED. ACCOUNTANTS OF NIGERIA. PATHFINDER . MAY 2021 DIET. SKILLS LEVEL EXAMINATIONS. Question Papers Suggested Solutions Marking Guides and Examiner s Reports 0. FOREWARD. This issue of the PATHFINDER is published principally, in response to a growing demand for an aid to: (i) Candidates preparing to write future examinations of the Institute of Chartered Accountants of Nigeria (ICAN);. (ii) Unsuccessful candidates in the identification of those areas in which they lost marks and need to improve their knowledge and presentation;. (iii) Lecturers and students interested in acquisition of knowledge in the relevant subject contained herein; and (iv) The professional; in improving pre-examinations and screening processes, and thus the professional performance of candidates.

2 The answers provided in this publication do not exhaust all possible alternative approaches to solving these questions. Efforts had been made to use the methods, which will save much of the scarce examination time. Also, in order to facilitate teaching, questions may be edited so that some principles or their application may be more clearly demonstrated. It is hoped that the suggested answers will prove to be of tremendous assistance to students and those who assist them in their preparations for the Institute s Examinations. NOTES. Although these suggested solutions have been published under the Institute s name, they do not represent the views of the Council of the Institute.

3 The suggested solutions are entirely the responsibility of their authors and the Institute will not enter into any correspondence on them. 1. TABLE OF CONTENTS. FOREWARD PAGE. FINANCIAL REPORTING 3 - 32. 33 - 54. AUDIT AND ASSURANCE. 55 - 86. PERFORMANCE MANAGEMENT. PUBLIC SECTOR ACCOUNTING & FINANCE 87 - 116. CORPORATE STRATEGIC MANAGEMENT & ETHICS 117 137. 2. THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA. SKILLS LEVEL EXAMINATION MAY 2021. FINANCIAL REPORTING. Time Allowed: 31/4 hours (including 15 minutes reading time). INSTRUCTION: YOU ARE REQUIRED TO ANSWER FOUR OUT OF SIX QUESTIONS IN.

4 THIS PAPER. SECTION A: COMPULSORY QUESTION (40 MARKS). QUESTION 1. The following is the trial balance of Almajiri Nigeria Limited as at September 30, 2018. N m N m Revenue 60,000. Cost of sales 40,800. Distribution costs 2,900. Administrative expenses 4,440. Interest on bank borrowings 40. Research and development costs 1,720. Leasehold property (at valuation Oct. 1, 2017) 10,000. Plant and equipment (at cost) 15,320. Plant and equipment (accum. depr. at Oct. 1, 2017) 4,920. Capitalised development expenditure (Oct. 1, 2017) 4,000. Development expenditure (accum.)

5 Amortiz. at Oct. 1, 2017) 1,200. Closing inventory (30 Sept. 2018) 4,000. Trade receivables 8,620. Bank 260. Trade payables & provisions 4,760. Preference dividend paid 160. Dividend paid on ordinary shares 1,200. Ordinary shares at 25k each 10,000. 8% Redeemable preference shares at N1 each (year 2020) 4,000. Retained earnings brought forward 4,900. Deferred tax 1,160. Leasehold property revaluation reserve -- 2,000. 93,200 93,200. The following information were extracted from the records of Almajiri Nigeria Limited. 3. Additional information: (i) One of the reputable customers of Almajiri Nigeria Limited sued the company for N400 million for breach of contract over a cancelled order.

6 Almajiri Nigeria Limited obtained a legal opinion that there is 20% chance that Almajiri will lose the case. Accordingly, it has provided for N80 million (N400 million x 20%) included in administrative expenses in respect of the claim. The unrecoverable legal cost of defending the action was estimated at N20 million and these have not been provided for as the legal action will not go to court until next year. (ii) The directors of the Company have estimated the provision for income tax for the year ended September 30, 2018 at N2,280 million. The required deferred tax provision at September 30, is N1,200 million.

7 (iii) The redeemable preference shares were issued on April 1, 2018 at par. They are redeemable at a large premium which gives them an effective finance cost of 12%. per annum. (iv) The leasehold property had a remaining life of 20 years at October 1, 2017. The company s policy is to revalue its property at each year end and as at September 30, 2018 it was revalued at N8,600 million. (v) On October 1, 2017 an item of plant and equipment was disposed of for N500. million cash. The proceeds have been treated as revenue by the company. The plant is still included in the company s trial balance figure at the cost of N1,600.

8 Million and accumulated depreciation of N800 million (to date of disposal). All plants and equipment are depreciated at 20% per annum using reducing balance method. Depreciation and amortisation of all non-current assets are charged to cost of sales. (vi) In addition to capitalised development expenditure of N4,000 million further research and development cost were incurred on a new project which commenced on October 1, 2017. The research stage of the new project lasted until December 31, 2017 and incurred N280 million costs, from that date the project incurred development cost of N160 million per month.

9 On April 1, 2018 the directors became confident that the project would be successful and yield a profit well in excess of its costs. The project is still in development as at September 30, 2018. 4. Capitalised development expenditure is amortised at 20% per annum using straight line method. All expensed research and development expenditure is charged to cost of sales. You are required to prepare: a. Statement of profit or loss and other comprehensive income for the year ended September 30, 2018. (13 Marks). b. Statement of changes in equity for the year ended September 30, 2018.

10 (6 Marks). c. Statement of movement in property, plant and equipment to be included in published financial statements. (7 Marks). d. Statement of financial position as at September 30, 2018. (14 Marks). (Total 40 Marks). SECTION B: OPEN-ENDED QUESTIONS (60 MARKS). INSTRUCTION: YOU ARE REQUIRED TO ANSWER ANY THREE OUT OF FIVE. QUESTIONS IN THIS SECTION. QUESTION 2. As a result of privatisation and commercialisation exercise currently going on in the country, the Ministry of Transport sold the assets and liabilities of the newly constructed standard gauge railway to a private company known as Stalus Rail Limited (SRL) to ensure smooth operations of the railway services by freeing it from government bureaucracy.