Financial Reporting · 2025

(a) Chukwuka Nigeria Limited Statement of cash flows for the year ended April 30, 2025 Operating activities: N’Million N’Million Profit before taxation 18,315 Adjustments: Finance cost 5,220 Interest (1,670) Profit on investment disposal (385) Loss on disposal 1230 Depreciation (w4) 6,690 Insurance Premium (58) 11,027 Changes in working capital/operating assets and liabilities Increase in inventories (11,550 - 7,875) (3,675) Increase in receivables (31,440 – 25,335) (6,105) Increase in payables (12,810 – 9,150) 3,660 (6,120) Cashflow from operating activities 23,222 Less tax paid (w5) (10,320) Net cash flow from operating activities 12,902 Investing activities Interest received 1,670 Proceeds from investment disposal (w7) 1,885 Proceeds from van disposal (w8) 2,520 Acquisition of PPE (w6) (14,115) Acquisition of intangible assets (w10) (2,475) Acquisition of investment (w9) (475) Net cash flow from investing activities (10,990) Financing activities Finance cost (5,220) Proceeds from share issue- share capital (w11) 3,750 Share premium (w12) 1,200 Dividend paid (w1) (5,400) Proceeds from loan note issued (w2) 6,280 Net cashflow from financing activities 610 Net cashflow for the year 2,522 Net cashflow at the beginning of the year (4,380) Net cashflow at the end of the year (w3) 1,858 14

Workings: W1 Retained earnings N’M N’M Cash dividend 5,400 Bal b/f 13,860 Bal c/d 17,925 SOPL 9,465 23,325 23,325 W2 10% Loan notes N’M N’M Bal c/d 12,780 Bal b/f 6,500 ______ 6,280 12,780 12,780 W3 Cash and cash equivalents as at April 30, 2025 N’M Short term investments 3,810 Cash in hand 930 Bank overdraft (6,540) Insurance premium (58) 1,858 W4 Accm. depreciation account N’M N’M Disposal 2,850 Bal b/f 22,320 Bal c/d 26,160 SOPL 6,690 29,010 29,010 W5 Tax payables N’M N’M Cash 10,320 Bal b/f (IT) 8,460 Bal c/d (IT) 9,240 (DT) 3,750 (DT) 1,500 SOPL 8,850 21,060 21,060 W6a PPE accounts N’M N’M Bal b/f 23,475 Disposal 3,750 Rev. Res. (w6b) 2,085 Depreciation 6,690 Cash 14,115 Bal c/d 29,235 39,675 39,675 15 W6b Revaluation reserve N’M N’M Bal c/d 11,280 Bal b/f 9,195 ______ PPE (w6a) 2,085 11,280 11,280 W7 Investment disposal N’M N’M Investment 1,500 Cash 1,885 SOPL 385 _____ 1,885 1,885 W8 Van disposal account N’M N’M Cost 6,600 Van acc. Dep 2,850 Cash 2,520 _____ SOPL 1,230 6,600 6,600 W9 Trade investment N’M N’M Bal b/f 2,860 Disposal 1,500 Cash 475 Bal c/d 1,835 3,335 3,335 W10 Intangible assets N’M N’M Bal b/f 16,300 Bal c/d 18775 Cash 2,475 ______ 18,775 18,775 W11 Ordinary share capital N’M N’M Bal c/d 15,000 Bal b/f 11,250 ______ Cash 3,750 15,000 15,000 16 W12 Share premium N’M N’M Bal c/d 10,500 Bal b/f 9,300 ______ Cash 1,200 10,500 10,500

(b) In the context of IAS 7, cash and cash equivalents can be explained as follows: Cash is cash in hand and deposit at bank while cash equivalent is defined as short term highly liquid investment that can be converted to a known amount of cash and is subject to an insignificant risk of changes in value. Examples are:

i. Cash in hand; ii. Cash at Bank; iii. Bank overdraft; and iv. Short term investment with a maturity day of not more than 90 days.

(c) Exceptions to the rule regarding off setting provided by IAS 1 are stated below: According to the provision of IAS 7, the following cash flows can be off setting or reported on a net basis:

i. Cash receipts and payments on behalf of customers when the cash flows reflect the activities of the customer rather than those of the entity;

ii. Cash receipts and payments for items in which the turnover is quick, the amounts are large and the maturities are short. An example of cash receipts and payments that may be off-set would be the purchase and sale of short- term investments by an entity who trades in them frequently, such as a bond trading fund that turns over its portfolio every 1 to 2 weeks;

iii. For a financial institution, transactions to be off set or presented on a net basis is, cash receipts and payments for deposits and cash receipts and payments for loans and advances;

iv. In IAS 12, deferred tax assets and liabilities are offset if, and only if, the entity has a legally enforceable right to offset current tax assets and current tax liabilities; and

v. In IAS 32, Offsetting assets and liabilities occurs when financial instruments have legally enforceable rights to be netted, resulting in a single net amount being presented in the statement of financial position. This is permitted or required when the net amount fairly represents the entity's position. 17

Examiner’s report The question tests candidates’ knowledge of the preparation of cash flows using indirect method and in accordance with the provisions of IAS 7- Statement of Cash flows, candidates were also required to explain the term cash and cash equivalents and to also state the exceptions to rules of off-setting as stipulated by IAS 1- Presentation of Financial Statements. Majority of the candidates attempted the question but performance was below average The common pitfalls include the following: Inability to correctly treat the cash payments in respect of insurance premium; Wrong classifications of transaction into the three major classes of investing, financing and operating activities; and Failure to be able to state exception to the rules of off-setting assets and liabilities in accordance with the provisions of IAS 1. Candidates are advised to pay attention to all aspects of the preparation of final accounts of limited liability companies as the examiner will always examine this area of the syllabus as a compulsory question at the skills level of the Institute’s examination.

Marking guide Marks Marks 1a. Preparation of cash flow statement: Stating title of the statement ¼ Stating profit before taxation and adjustments 3½ Calculating changes in working capital 3 Statement of the net cash flow from operating activities ½ Stating cash flows from investing activities 3½ Determining the net cash flow from investing Activities ½ Stating cash flows from financing activities 2½ Determining the net cash flow from financing Activities ½ Determining the cash and cash equivalents 2 Sundry workings for cash flow items 3¾ 20

b. Explanation of cash and cash equivalents: Correct explanation of cash and cash equivalents 2 Two correct examples of cash and cash equivalents 2 4 18

c. Exception to the rule of off setting assets and liabilities as provided in IAS 1 Any four exceptions to the rule 6 Total 30

Odot Ventures Nigeria Ltd

(a) Ratio analysis Ratios 2024 2023 Gross profit margin Gross profit × 100 Revenue ₦17,920 × 100 ₦44,800 = 40.00% ₦8,640 × 100 ₦14,400 = 60.00% Net profit margin Net profit before tax × 100 Revenue ₦4,960 × 100 ₦44,800 = 11.07% ₦4,832 × 100 ₦14,400 = 33.56% Return on capital employed PBIT Capital employed ₦8,032 × 100 ₦45,872 = 17.51% ₦5,024 × 100 ₦16,464 = 30.51% Current ratio Current assets Current liabilities x 100 ₦13,136 ₦2,976 = 4.41:1 ₦2,000 ₦576 = 3.47:1 Acid test ratio Current assets less closing Inventory Current liabilities ₦2,000 - ₦480 576 = 2.64 :1 Receivables collection period Receivables × 365 days Revenue ₦13.134 -3,808 ₦2,976 = 3.13 :1 ₦9,328 × 365 ₦44,800 = 76 days ₦1,328 × 365 ₦14,400 = 34 days 19

(b) Evaluation of financial performance and position of Odot Ventures Nigeria Limited for the year ended December 31, 2024

i. In 2024, Odot Ventures Nigeria Limited implemented significant strategic changes under a new sales manager, including a low-price, high-volume approach and extended credit terms to customers. These changes led to a remarkable increase in revenue from ₦14.4 billion in 2023 to ₦44.8 billion in 2024. However, the company’s profitability weakened. The gross profit margin dropped from 60% in 2023 to 40% in 2024, indicating reduced pricing power due to lower selling prices. Similarly, the net profit margin fell from 33.56% to 11.07%, suggesting higher operating and financing costs.

ii. Return on capital employed (ROCE) also declined significantly from 30.51% to 17.51%, showing that the company became less efficient in generating profit from the capital it employed. This was largely due to a major increase in borrowings from ₦1.6 billion to ₦25.6 billion, used to finance asset expansion. Consequently, interest expense surged from ₦192 million to ₦3.072 billion, further impacting net profitability.

iii. Despite this, the company's liquidity position improved. The current ratio increased from 3.47:1 to 4.41:1, and the acid test ratio rose from 2.64:1 to 3.13:1, indicating strong short-term solvency. However, the receivables collection period lengthened to 76 days, which could delay cash inflows and strain working capital, especially given the high levels of trade receivables.

iv. In conclusion, while the new policies increased sales and improved liquidity, they compromised profitability and introduced financial risk through increased debt and slow receivables turnover. Management must focus on improving margins, reducing debt, and tightening credit control.

c) Amount of cash to be realised if the company imposed 45 days credit period. Method 1, Receivable collection period in year 2024 is 76 days with total receivable of N9,328million If the collection period is reduced to 45 days. The new receivable figure would be: 45/76 x N9,328million = N5,523million The amount of cash that would be realised = (N9,328m – N5,523m)= N3,805m 20 Method 2 With imposition of 45 days 45days = y/(44,800) x 365days 45days= 365y/ 44,800 y = 45 x 44,800/365 hence y = 2,016,000/365 = N5,523million amount of cash to be realised is (N9,928m – N5,523m) = N3,805m where y is the amount of receivable collection period in 45days.

Examiner’s report The question tests candidates’ knowledge of computation of ratios and its interpretation as well as the application of working capital management. Most of the candidates attempted the question and their performance was above average. Many of the candidates were able to correctly calculate the relevant ratios, however some of them were unable to interpret correctly the ratios calculated. Almost all the candidates that attempted the question could not correctly determine the amount of cash that would be realised if the company reduced its debt collection period from 76days to 45days Candidates are advised to cover all sections of the syllabus and make use of the institute study texts for better performance in future examinations.

Marking guide Marks Marks a. Calculation of financial ratios Stating correct formula of gross profit margin ¼ Correct calculation of gross profit margin ¾ Stating correct formula of net profit margin ¼ Correct calculation of net profit margin ¾ Stating correct formula of ROCE ¼ Correct calculation of ROCE ¾ Stating correct formula of current ratio ¼ Correct calculation of current ratio ¾ Stating correct formula of acid test ratio ¼ Correct calculation of acid test ratio ¾ Stating correct formula of receivable collection period ¼ Correct calculation of receivable collection period ¾ 6 21

b. Evaluation of financial performance and position: Analysis using revenue, gross profit margin and net profit margin data/ information. 2 Analysis using return on capital employed and long term borrowings data/information. 2 Analysis using current ratio, acid test ratios and receivables collection period data/information. 2 Conclusion on financial performance and position. 1 7

c. Calculation of the amount of cash realisable if debt collection period is imposed at 45 days Correct step by step calculations of cash realisable 7 Total 20

(a) Non-controlling Interest (NCI) ₦’M NCI value at acquisition 332 NCI share of post-acquisition reserves (25% x (1,392 – 1,184) 52 Impairment – NCI share (80 ÷ 0.25) x 25%) (80) 304

(b) Goodwill ₦’M Parent holding at fair value: Cash (75% x 320m x N3.50) 840 Deferred consideration (432 x 1/1.08) 400 1,240 NCI value at acquisition 332 1,572 Less fair value of net assets at acquisition (w3) (1,184) Goodwill 388 Impairment (N80 ÷ 0.25) (320) Goodwill after impairment 68

(c) Consolidated reserves:

(i) Consolidated retained earnings ₦’M Parent 1,400 Add: Interest receivable (240 x 10%) 24 22 Less: Unwinding of discount on deferred consideration (400 x 8%) or (N432 – 400) (32) Workings (w3) 1,392 Subsidiary – group share of post acquisition (Land and building in revaluation reserves) (1,392 -1,184-16) x 75%) 144 Less impairment of goodwill (320 x 75%) (240) 1,296

(ii) Consolidated share premium Mana Plc 320

(iii) Consolidated revaluation reserve Mana Plc 180 Subsidiary – post-acquisition (75% x 16m) 12 192

Workings:

1. Group structure Mana Plc 75% 1/1/2023 Bakus Plc

2. Unrealised profit in inventory (1/3 x N24m Profit) = N8 million

3. Net assets At acquisition At reporting period end N’M N’M Share capital 320 320 Share premium 160 160 Retaind earnings 536 840 1,016 1,320 Fair value adjustments: Land and buildings 80 80 Branding (Agric-equip) 160 160 Revaluation - 16 23 Brand amortisation - (16) Research and development (72) (160) Unrealised profit - ___(8) 1,184 1,392

Examiner’s report The question test candidates’ knowledge of group financial statements, however the examiner decided not to test full preparation of consolidated financial statements, rather candidates were required to calculate the following components of the consolidated financial statements: Non-controlling interests, goodwill and consolidated reserves (share premium, revaluation reserves and retained earnings). Few candidates attempted the question and their performance was below average. The commonest pitfall was their inability to calculate the components of the consolidated financial statements. Although, most candidates are quite familiar with the preparation of group financial statements, however candidates are advised to pay more attention to the applications of consolidation principles for better performance in future examinations.

Marking guide Marks Marks 3a. Calculation of non-controlling Interest (NCI) Determination of group structure ¾ Calculation of unrealised profit in inventory ½ Stating, non controlling interest at acquisition date ¼ Determination of NCI share of post acquisition reserve 1¾ Determination of NCI share of goodwill payment ¾ 4

b. Calculation of Goodwill on acquisition Determining the cash consideration ½ Determining the deferred consideration ½ Stating Non-controlling interest at acquisition ¼ Determining of subsidiary’s net asset at acquisition 2 Determination of total impairment of goodwill ½ Stating the value of goodwill after impairment ¼ 4

c. Calculation of consolidated reserves Stating the consolidated share premium ½ Determining the consolidated revaluation reserve 1½ Stating the parents retained earnings ¼ Determining the interest receivable ¾ Determining/unwinding of discount on deferred Consideration ¾ 24 Determining group share of post acquisition reserves 4 Determining group share of goodwill impairment 2 Stating consolidated retained earnings ¼ Sundry relevant workings for retained earnings 2 12 Total 20

(i) Adanna Nigeria Limited Non-current assets movement schedule for the year ended December 31, 2023 Cost/valuation Freehold properties Plant and machinery Motor vehicles Construction work in progress Total N’000 N’000 N’000 N’000 N’000 1/1/2023 480,000 520,000 108,600 250,000 1,358,600 Addition - 96,000 - 180,000 276,000 Reclassification 320,000 - - (320,000) - Disposal - (128,000) (42,000) - (170,000) Revaluation reserve (50,000) ________ _______ ________ (50,000) 31/12/2023 750,000 488,000 66,600 110,000 1,414,600 Acc depreciation: 1/1/2023 - 208,000 48,870 - 256,870 Charge for the year 30,000 97,600 9,990 - 137,590 Disposal ______ (51,200) (18,900) _______ (70,100) 31/12/2023 30,000 254,400 39,960 - 324,360 Carrying Amount 31/12/2023 720,000 233,600 26,640 110,000 1,090,240 1/1/2023 480,000 312,000 59,730 250,000 1,101,730

Workings: W1. Revaluation difference N’million Building valuation – 1/1/2023(480 – 136) 344 Less Dep (344/20 x 1) (17.2) Carrying amount 326.8 Revalued amount (276.8) Revaluation deficit (50) W2. Depreciation on new building 320/25 12.8 Total depreciation on building (17.2+12.8) 30.0 25 W3. Depreciation on plant and machinery 20% x 488,000 97,600 W4. Depreciation on motor vehicles (15% x 66,600) 9,990 W5. Accumulated depreciation on disposal of assets Plant and machinery (20% x 128,000 x 2) 51,200 Motor vehicle (42,000 – 23,100) 18,900

(ii) Statement of changes in equity for the year ended December 31, 2023 Share capital Share premium Retained earnings Revaluation reserves Total N’000 N’000 N’000 N’000 N’000 Bal b/f 100,000 266,000 489,700 185,000 1,040,700 Profit for the year - - 208,660 - 208,660 Dividend paid - - (28,000) - (28,000) Rev deficit - - - (50,000) (50,000) Proceeds from share (w1) 25000 4,000 - - 29,000 Redeemable pref. share redemption - 22,000 - - (22,000) _______ _______ ________ ________ _________ Balance c/f 125,000 248,000 670,360 135,000 1,178,360 Workings: N’000 W1 Split of proceeds from right issue Share capital (1/4 x N50x100,000/N0.5) 25,000 Share premium (1/4 x 40.08 x (109,000/N.5) 4,000

(iii) Uses of share premium

i. It can be used to create bonus issue ii. It can be used to take care of transaction costs on shares issue iii. It can be used to settle underwriting costs iv. It can be used for premium of redemption of shares and bonds v. It can be used to create any other reserves e.g debenture redemption reserves fund etc,

Examiner’s report The question test candidates’ knowledge of preparation of non- current assets schedule normally included in notes to financial statement in annual reports of companies as well as preparation and presentation of statement of changes in equity and use of share premium. Most candidates attempted the question and their performance was average 26 Majority of the candidates were able to prepare the statement of changes in equity and they also correctly highlighted the uses of share premium. However, most of them could not correctly calculate the costs, revaluation amount, accumulated depreciation and carrying amount for the preparation of the non- current assets schedule. Candidates are advised to pay more attention to all sections of the syllabus, they should also make use of the Institute’s pathfinder and study texts for better performance in future examination.

Marking guide Marks Marks i. Preparation of non-current assets schedule: Stating the title of the schedule ¼ Stating the cost/valuation of the non-current assets 1 Determining the additions in the year ¾ Stating the reclassification of asset ½ Calculating the disposal in the year ¾ Determining the revaluation reserve 2 Stating the total cost/valuation of non-current assets 1 Determining the accumulated depreciation on non- current assets ¾ Determining depreciation charged for the year 2½ Calculating accumulated depreciation on disposal 1½ Determining the total accumulated depreciation at year end 1 Stating carrying amount at year end 1 13

ii. Presentation of statement of changes in equity: Stating the title of the statement ¼ Stating the balance brought down 1¼ Recording the profit for the year ½ Determining the dividend paid ½ Calculating the revaluation deficit or loss ½ Determining the proceed from issue of shares at premium ¾ Calculating the premium used on redemption preference share ½ Stating the balance carried forward ¾ 5

iii. Uses of share premium Any four uses 2 Total 20 27

(a) The following are the criteria to be met before assets can be classified as held for sale or discontinued operations in accordance with IFRS 5:

(i) The asset must be available for immediate sales in its present condition;

(ii) Management must be committed to a plan to sell it;

(iii) There must be active programme in locating a buyer;

(iv) The assets must be marketable at a price reasonable to its current fair value;

(v) The sale of the assets is expected to take place within one year from the date of the classification;

(vi) It is unlikely that a significant change will be made to such plan or that such plan will be withdrawn by the entity; and

(vii) The sale of the assets must be probable.

(b) Abia Ltd Statement of profit or loss for the year ended October 31, 2024 2024 2023 N’000 N’000 Continuing operations: Revenue 150,000 132,000 Cost of sales (117,000) (102,000) Gross profit 33,000 30,000 Operating expenses (6,600) (3,000) Profit/(loss) from continuing operations 26,400 27,000 Profit/(loss) from discontinued operations (24,000) 9,000 Profit for the year (w1) 2,400 36,000 Notes: W1) Analysis of discontinued operations 2024 2023 N’000 N’000 Revenue 84,000 108,000 Cost of sales (99,000) (90,000) Gross profit/(loss) (15,000) 18,000 Operating expenses (9,000) (9,000) Profit/(loss) (24,000) 9,000 28

Examiner’s report The question tests candidates’ knowledge of the provisions and application of IFRS 5- Assets Held for Sale and Discontinued Operations. Majority of the candidates attempted the question and performance was below average The commonest pitfall was the inability of the candidates to prepare summarised statement of profit or loss showing continuing and dis-continuing operations as required by IFRS 5. Candidates are advised to pay more attention to all statement of accounting standards that are examinable at this level of the institute’s examination, for better performance in future.

Marking guide Marks Marks a. Explanation of criteria to be met before assets can be classified as held for sale: Stating any five criteria 5

b. Preparation of summarised statement of profit or loss for the year ended October 31, 2024. Stating the title of the statement ½ Stating the revenue for the year 1 Determining the gross profit 2 Stating the operating expenses 1 Calculating the profit from continuing operations 1 Determining the profit from discontinued operations 1 Stating the profit for the year 1 Analysis of discontinued operations 2½ 10 Total 15

(a) Core Principle IFRS 15 is based on a core principle that requires an entity to recognise revenue: In a manner that enables the transfer of goods or services to customers at an amount that reflects the consideration of the entity expects to be entitled to in exchange for the goods or services. 29

(b) Combination of contracts Two or more contracts entered into at or near the same time with the same customer (or related parties) must be combined and treated as a single contract if one or more of the following conditions are present:

(i) the contracts are negotiated as a package with a single commercial objective; (ii) the amount of consideration to be paid in one contract depends on the price or performance of the other contract; or (iii) the goods or services promised in the contracts (or some goods or services promised in the contracts) are a single performance obligation.

(c) Application Criteria The general IFRS 15 model applies only when or if:

(i) the parties have approved the contract and are committed to perform their respective obligations; (ii) the entity can identify each party’s rights; (iii) the entity can identify the payment terms for the goods and services to be transferred; (iv) the contract has commercial substance (i. e it is expected to change the risk, timing or amount of an entity’s future cash flows); and (v) it is probable that the entity will collect the consideration.

(d) Performance obligation in relation to distinct goods and services At the inception of a contract, the entity must assess the goods and services promised in a contract and identify as a performance obligation each promise to transfer to the customer either:

(i) a good or service (or a bundle of goods or services) that is distinct or

(ii) a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer (described by reference to promises satisfied over time, and progress to completion assessment). A good or service is distinct if both of the following criteria are met:

(i) the customer can benefit from the goods or service either on its own or together with other resources that are readily available to the customer; and

(ii) the entity’s promise to transfer the goods or service is separately identifiable from other promises in the contract. If a promised good or service is not distinct, it must be combined with other promised goods or services until a bundle of goods or services that is 30 distinct can be identified. This could mean that all of the goods or services promised in a contract might be accounted for as a single performance obligation. This sounds quite complicated but simply means that at the inception of a contract an entity must determine whether the contract is for sale of a single deliverable or several deliverables. This is important as revenue is recognised as these separate goods and services are delivered to the customer.

(e) Step 3 to 5 of the IFRS 15, 5 step Model Step 3: Determine the transaction price

i. The transaction price is the amount of consideration an entity expects to be entitled to in exchange for the goods or services promised under a contract, excluding any amounts collected on behalf of third parties (for example, sales taxes).

ii. The nature, timing and amount of consideration promised by a customer affect the estimate of the transaction price. An entity must consider the effects of other factors when determining the transaction price including:

• Variable consideration (including the constraining estimates of variable consideration); and

• Time value of money; Step 4: Allocate the transaction price to the performance obligations

i. The objective is to allocate the transaction price to each performance obligation (or distinct good or service) in an amount that depicts the amount of consideration to which the entity expects to be entitled in exchange for transferring the promised goods or services to the customer.

ii. The transaction price is allocated to each performance obligation in proportion to those stand-alone selling prices determined at the inception of the contract.

iii. A stand-alone selling price is the price at which an entity would sell a promised good or service separately to a customer.

iv. When the sum of the stand-alone selling prices of goods or services promised in a contract exceeds the promised consideration the customer is receiving a discount. The discount should be allocated entirely to one or more (but not all) performance obligations in the contract if all of the following criteria are met:

• each distinct good or service (or each bundle of distinct goods or services) in the contract is sold regularly on a stand-alone basis; 31

• a bundle (or bundles) of some of those distinct goods or services are sold regularly at a discount to the stand-alone selling prices of the goods or services in each bundle; and

• such discounts are substantially the same as the discount in the contract. Step 5: Recognise revenue when or as an entity satisfies performance obligation

i. Revenue is recognised when (or as) a company satisfies a performance obligation by transferring a promised good or service to a customer. The amount of revenue recognised is the amount of the transaction price allocated to the performance obligation.

ii. Goods and services are assets, even if only momentarily, when they are received and used (as in the case of many services). An asset is transferred when (or as) the customer obtains control of that asset. Control of an asset refers to the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset.

iii. A performance obligation might be satisfied (i.e., goods and services might be transferred):

• over time (in which case revenue would be recognised over time); or

• at a point in time (in which case revenue is recognised at that point in time).

Examiner’s report The question tests candidates’ knowledge of the principles and provisions of IFRS 15 - Revenue from Contracts with Customers. Most of the candidates attempted the question and performance was above average Although some candidates were able to explain, lists the conditions and criteria highlighted in the accounting standards, most of them were however, unable to highlight the element of the core principle of IFRS 15. Candidates should pay attention to all sections of the syllabus and also ensure that they understand the provisions and applications of all relevant accounting standards at the skills level of the institute’s examination.

Marking guide Marks Marks a. Core principles of IFRS 15 Stating one correct element of IFRS 15 core principles 1 b. Conditions for combination of contracts 32 Stating any two correct conditions 2 c. Conditions for Application Criteria of IFRS 15 Stating any three conditions for application of IFRS 15 3 d. Explanation of the criteria for goods or services to be considered distinct Explaining any four criteria 4

e. Explanation of steps 3 to 5 of IFRS 15, Steps model Correct explanation of step 3 1 Correct explanation of step 4 2 Correct explanation of Step 5 2 5 Total 15

(a) Provisions

i. According to IAS 37, provisions are liabilities of uncertain timing or amount. A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.

ii. Provisions differ from other liabilities because there is uncertainty about the timing or amount of the future cash flows required to settle the liability.

iii. A provision should be recognised when:

• a company has a present obligation (legal or constructive) as a result of a past event;

• it is probable that an outflow of economic benefits will be required to settle the obligation; and

• a reliable estimate can be made of the amount of the obligation. If one of these conditions is not met, then a provision cannot be recognised.

iv. The amount recognised as a provision must be the best estimate, as at the end of the reporting period, of future expenditure required to settle the obligation.

v. The estimates of the outcome and financial effect of an obligation are made, by management, based on judgement and experience of similar transactions and perhaps report from independent experts. 33

vi. Uncertainties about the amount to be recognised as a provision are dealt with by various means according to the circumstance. For instance, in measuring of single obligation, the best estimate of the liability may be the most likely outcome. Contingent liabilities

i. A contingent liability is a possible obligation 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.

ii. A contingent liability is one that does not exist at the reporting date but may do so in the future, or it is a liability that exists at the reporting date but cannot be recognised because it fails one of the IAS 37 recognition criteria.

iii. Contingent liabilities are not recognised as liabilities because they are either possible or present obligations but a sufficiently reliable estimate of the amount of the obligation cannot be made.

iv. Contingent liabilities are not recognised in the financial statements. In some circumstances, information about the existence of a contingent liability should be disclosed in the notes to the financial statements.

v. The standard provides that contingent liabilities should be disclosed unless the possibility of any outflow in settlement is remote. Contingent assets

i. A Contingent asset is a possible asset that arises from past events whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events. A contingent asset might be a possible gain arising from an outstanding legal action against a third party. The existence of the gain (the money receivable) will only be confirmed by the outcome of the legal dispute.

ii. Contingent assets are not recognised in the financial statements. In some circumstances, information about the existence of a contingent asset should be disclosed in the notes to the financial statements.

iii. The standard provides that contingent assets should be disclosed only if an inflow in settlement is probable. IAS 37 defined “probable” as more likely than not.

iv. Where disclosure of a contingent asset is appropriate, the following disclosures are required:

• A brief description of the nature of the contingent asset. 34

• Where applicable, an estimate of its financial effect and an indication of the uncertainties.

(b) Sources of regulation The main sources of regulation are:

• Accounting standards;

• Company law;

• Sectoral regulations; and

• The listing rules of the relevant stock exchange, for listed companies, Accounting standards are authoritative statements of how particular types of transactions and events are reflected in the financial statements. International Financial Reporting Standards are used in Nigeria. Company law varies from country to country, but typically, it also sets out rules for determining profits available for distribution, issuing and redeeming share capital, the reserves that a company must have and the uses to which they can be put. These matters are not covered in accounting standards. The main company law statute in Nigeria is the Companies and Allied Matters Act 2020. Sectoral regulation may apply to certain industries, for example, the banking sector is regulated by the Central Bank of Nigeria, insurance sector by the National Insurance Commission and pension by the Pension Commission. Such regulations may specify peculiar financial reporting requirements of the sectors. For example, in Nigeria, the Central Bank prudential guidelines override impairment provision of IFRS 9. Listing rules set out the information which entities must supply when their shares are traded on a major stock market. They must comply with these rules in order to maintain their listing. These rules include requirements relating to information, including financial reports that entities must prepare and provide to the stock market while they are listed.

Examiner’s report The question is in two parts, part (a) requires the candidates to explain the basic terms, recognition and measurement criteria of provisions, contingent liabilities and contingent assets in accordance with IAS 37. Part (b) is on explanation of sources of accounting regulations in Nigeria. Few candidates attempted the question and performance was poor. 35 Some candidates were able to explain the sources of accounting regulations in Nigeria. However, majority of them could not answer the part (a) of the question very well and this led to loss of marks. Candidates are advised to cover all sections of the syllabus for better performance in future examinations of the institutes.

Marking guide Marks Marks a. Explanation of terms – Provisions, contingent liabilities and contingent assets stating recognition and measurement criteria (i) Provisions Correct explanation of provision 1 Any three points on recognition and measurement of provisions 3

(ii) Contingent liabilities Correct explanation of contingent liabilities 1 Any three points on recognition and measurement of contingent liabilities 3

(iii) Contingent assets Correct explanation of contingent assets 1 Any three points on recognition and measurement of contingent assets 3 12

b. Sources of Accounting regulation in Nigeria Explaining any three sources 3 Total 15 36 ICAN/252/Q/B1 Examination No..................... INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

a) IAS 8-Accounting policies, changes in accounting estimates and errors require that, where there is a change in accounting policy, the change should be applied retrospectively. Retrospective application is applying the new policy to transactions, events, or conditions as if it had always been applied. The main limitations of retrospective application of accounting policy are its impracticability. When it is difficult to apply retrospective application having made necessary effort to do so. This can occur for number of reasons among which are stated below:

i) Period-specific effect: It is impracticable to determine the period specific effect of applying retrospective application to all periods. ii) Cummulative effect: It is impracticable to determine the cumulative effect of applying retrospective application at the beginning of the current period to all prior periods iii) Data unavailability: A company may lack the original historical data required for the restatement because records were not kept in a way that would allow for the adjustment. iv) Unreasonable assumptions: It may be impossible to apply the new policy without making significant and potentially unreliable, assumptions about management's intent or about the objective information that existed in the prior period. v) Excessive cost or effort: The cost of collecting the necessary information can be prohibitively high or the effort required to recreate the data may be unreasonable. 15 1b(i) Ayoka Foods Plc Statement of comprehensive income for the year ended March 31, 2024 N’000 N’000 Revenue 509,470 Cost of sales (w1) (325,420) Gross profit 184,050 Distribution cost (41,250) Administrative expenses (46,050-1,950+900 allowance) (45,000) Finance costs (4,271) Profit before tax 93,529 Income tax expense (w2) (28,500) Profit for the year 65,029 Other comprehensive income:

- Gain on valuation of property (w3) 22,500 - Deferred tax on revaluation (w3) (5,625) 16,875 Total comprehensive income 81,904 b(ii) Ayoka Foods Plc Statement of changes in equity for the year ended March 31, 2024 Share capital Equity option Revaluation reserve Retained earnings Total equity N’000 N’000 N’000 N’000 N’000 Balance at April 1, 2023: (w4a) 84,000 nil nil 10,500 94,500 8% loan note issued (note 5) 2,286 2,286 Dividend paid (w4b) (8,400) (8,400) Comprehensive Income ______ _____ 16,875 65,029 81,904 Balance at March 31, 2024 84,000 2,286 16,875 67,129 170,290 16 b(iii) Ayoka Food Plc Statement of financial position as at March 31, 2024 Non-current asset Property plant and equipment Notes N'000 N'000 Freehold property w6 116,250 Plant and equipment w6 60,000 176,250 Current asset Closing inventories w7 58,950 Trade receivables w8 84,750 143,700 Total assets 319,950 Equity and liabilities Equity Ordinary share capital 84,000 Other components of equity w3 2,286 86,286 Reserves: Retained earnings 67,129 Revaluation reserve 16,875 84,004 Total equity 170,290 Non-current liabilities 8% convertible loan w5 43,385 Deferred tax w2 10,125 53,510 Current liabilities: Trade payable 36,750 Liabilities to Anike Ltd (Factoring company) 13,050 Bank overdraft 17,250 Income tax w2 29,100 96,150 Total equity and liabilities 319,950 17

Workings w1. Cost of sales N'000 Amount per trial balance 311,620 Depreciation on building 3,750 Depreciation on plant and equipment 15,000 Adjustment to inventory N(4050- 9000) (4,950) Total 325,420 w2. N'000 Income tax expense a Income tax 29,100 Over provision (1,200) Increase in movement in def. tax N(6,225-5625) 600 Total income tax 28,500 b Deferred tax N'000 Opening def tax April 1, 2023 3,900 Closing def tax March 31, 2024 (25% x N40,500) 10,125 Increase in movement in deferred tax 6,225 Deferred tax arising on revaluation recognised in OCI(25% x 22,500 revaluation surplus) (5,625) Increase in deferred tax recognised in profit or loss 600 w3. Gain on revaluation – Freehold Property N'000 Revalued amount April 1, 2023 120,000 Carrying amount April 1, 2023 97,500 Revelation surplus 22,500 Less deferred tax arising on revaluation (5,625) Net revaluation surplus 16,875 w4a The retained earnings of N2.1million in the trial balance is after deducting the dividend paid of N8.4million. Therefore, the retained earnings at April 1, 2023 were N10.5million (N2.1million + N8.4million). 18 w4b The dividend paid in November 2023 was N8.4 million. This is based on 168 million shares in issue (84 million x 2): the shares are 50k each times 5k (i.e 168million x 5k). w5a 8% Convertible loan note N’000 Separate into debt and equity components Initial principal value 45,000 Less debt component Year Cashflow DF@10% PV_ 2024 3,600 0.91 3,276 2025 3,600 0.83 2,988 2026 3,600 0.75 2,700 2026 45,000 0.75 33,750 Debt component 42,714 Equity component 2,286 w5b Valuation of debt component at March 31, 2024 N'000 Debt component 42,714 Add an effective interest rate at 10% 4,271 Less Coupon rate at 8% (3,600) Closing balance of debt March 31, 2024 43,385 w6 Property, plant and equipment schedule Freehold property Plant and equipment Total N'000 N'000 N'000 Cost/revaluation April 1, 2023 112,500 111,750 224,250 Revaluation surplus 22,500 ________ 22,500 Cost/revaluation April 1, 2023 135,000 111,750 246,750 Accumulated depreciation Balance April 1, 2023 15,000 36,750 51,750 Deprecation for the year 3,750 15,000 18,750 Accm. Dep. March 3, 2024 18,750 51,750 70,500 Carrying amount April 1, 2023 97,500 75,000 172,500 Carrying amount March 31, 2024 116,250 60,000 176,250 19 N’000 w7 Inventory Balance as per trial balance 54,000 Less: good received after year-end (4,050) Add: Cost of goods sold after year end, but part of inventory on March 31, N(11,700 x 100/130) 9,000 Closing Inventory 58,950 w8 Trade receivables Amount per trial balance 70,650 Add factored receivables 15,000 Less allowance (900) 84,750

Note: Factored receivables: Ayoka Foods Plc still bears the risk of the non-payment of the receivables, hence the substance of this transaction is a loan. Thus the receivables must remain on Ayoka Foods Plc statement of financial position and the proceeds of the ’sale’ treated as a current liability. The difference between the factored receivables (N15,000) and the loan received (N13,050) of N1.95million which has been charged to administrative expenses, should be reversed except for N900,000 which should be treated as an allowance for uncollectible receivables.

Examiner’s report The question tests candidates’ knowledge of the principle and provisions of IAS 8- Accounting policies, changes in accounting estimates and errors. Candidates are also required to prepare the final accounts of a limited liability company which makes it possible to test the application of various provisions of relevant accounting standards such as IFRS 7, IAS 16, IAS 12 etc. Most of the candidates attempted the question and performance was poor. The common pitfall of candidates were as follows:

a. In ability to correctly calculate and properly present the dividend paid in the statement of changes in equity;

b. Failure to carry out backward reconciliation of inventory in other to determine the actual inventory balance as at the reporting date; 20

c. Wrong treatment of factoring of the receivables, which should have been accounted as short term loan in view of the fact that it was ’factoring with recourse ’it was however wrongly treated as ’factoring without recourse; and

d. Inability of candidate to correctly calculate revaluation reserve and other component of equity. Candidates are advised to pay special attention to the preparation of final accounts of a single entity in accordance with relevant International Financial Reporting Standards (IFRS) accounting standards, as this is an area that the examiner might pay attention to at this level of the Institute’s examination.

Marking guide Marks Marks a) Discussion of limitations of retrospective application of accounting policy by an entity stating two limitations at 1 mark each 2 discussion of two limitations at 1½ mark each 3 5 b)i Preparation of statement of profit or loss and other comprehensive income stating the title of the financial statement ½ determination of cost of sales 3 determination of profit before tax 3 determination of taxation and profit for the year 3 determination of gain on valuation of property 2 stating total comprehensive income ½ 12 Ii Preparation of statement of changes in equity stating the title of the financial statement ¼ stating the opening balance of components of equity ¾ determining the equity component of 8% loan note issued 1½ stating dividend paid in the year ½ stating transfers to revaluation reserve and retained earnings ¾ stating closing balance of components of equity 1¼ 5 21 iii Preparation of statement of financial position stating the title of the financial statement ¼ determination of the non-current assets 3 determination of the current assets 1¼ stating the total assets ¼ stating the equity and reserves 1¼ stating the non-current liabilities ¾ stating the current liabilities 1 stating total equity and liabilities ¼ 8 Total 30

(a) Features for computing EPS under IAS 33 The following features must be considered when determining earnings per share in accordance with IAS 33:

(i) Profit attributable to ordinary shareholders: The numerator of EPS must be profit after tax less any preference dividends; (ii) Weighted average number of ordinary shares (WANOS): Shares must be time-apportioned based on when they were in issue during the period; (iii) Effect of bonus and rights issues: Bonus issues and share splits require retrospective adjustment of all prior-period EPS; (iv) Potential ordinary shares for diluted EPS: Options, convertibles and warrants must be assessed to determine whether they are dilutive; (v) Contingently issuable shares: Shares that may be issued if certain conditions are met must be included when they become virtually certain; and (vi) In calculating EPS, an entity should not include non-recurring items in the denominator (b)

i. Effect of scrip dividend on market price of share The effect of the scrip dividend on the market price of EDO Plc’s share will be: Current market price per share is N5.00 Total market value of the shares is 3,000,000 x N5.00 = N15,000,000 25% scrip dividend =25% of N15,000,000 = N3,750,000 new shares at N2.00 per share = N3,750,000 ÷ 2 = 1,875,000 shares 22 With scrip dividends the total number of shares becomes 3,000,000 + 1,875,000 = 4,875,000 shares Since the total market value is N15,000,000, The market price per share will be: N15,000,000 ÷ 4,875,000 shares = N3.08 per share ii. Effect of scrip dividend on EPS Market price per share is expected to reduce to N3.08 per share EPS prior to scrip dividend is N15,000,000/3,000,000 shares = N5.00 per share EPS after scrip dividend will be N11,250,000/4,875,000 shares = N2.31 per share That is EPS has fallen from N5.00 to N2.31 (c) Categorisation of properties 1, 2 and 3 in accordance with IAS 16 and IAS 40 IAS 40 defines investment property as property (building, land or both) that is acquired and held by entity for the purpose of income generation or capital appreciation or both. On the other hand IAS 16 defines property, plant and equipment as asset acquired and held for use in production or supply of good or service, for rental or administrative purpose, and are held during more than one accounting period. Categorisation: Property 1

• This is rented out by Dideolu to one of its subsidiary. According to IAS 40, it would be categorised as IAS 16-Property plant and equipment under consolidated financial statement, since it is sold to a related company.

• If shown as PPE, deprecation of 6,000 (300,000/50years) is recognised in profit or loss for the year ended December 31, 2024 Carrying amount of property is shown at 288,000 (300,000-12,000) Property 2

• This was let to unrelated parties on commercial terms to earn rentals. It should be categorised as investment property under IAS 40

• Fair value loss of 45,000 (315,000-360,000) is recognised in profit or loss at December 31, 2024

• Fair value of investment property at N315,000 is recognised in statement of financial position as at December 31, 2024 23 Property 3

• This was let to unrelated parties on commercial terms to earn rentals. It should be categorised as investment property under IAS 40

• Fair value gain of N7,000 (N270,000 - N263,000) is recognised in profit or loss for the year ended December 31, 2024.

• Fair value of investment property of N270,000 is recognised in statement of financial position as at December 31, 2024

(d) Treatment of income tax (i) An amount of N6million (N37.5million - N 31.5million) was over provided for in the previous year 2023. (ii) Thus, the provision for the current year 2024 should be reduced by that amount of over provision. Hence, an expected liability of N36.8miilion would require a provision of N30.8million (iii) The liability would still be N36.8million, as this is the amount expected to be paid. (iv) Basically, the provision moves from the existing figure of N6million credit to the required level of N36.8million (v) As explained in the calculation below: N’m N’m Taxation b/f – year 2023 37.5 Add: Tax provision for the year 2024 36.8 Less: Over provision for tax 2023 (6)_ 30.8 Tax paid during year 2024 (31.5) Tax liability as at year 2024 36.8_

(e) Translation of monetary and non-monetary items Under IAS 21, foreign currency items at the reporting date are treated differently depending on whether they are monetary or non-monetary.

i. Monetary items

• These are items receivable or payable in fixed units of currency (e.g., cash, receivables, payables, foreign loans) 24

• Monetary items are translated at the closing exchange rate at year-end. Exchange differences arising are recognised in profit or loss, except those relating to a net investment in a foreign operation which are taken to OCI.

ii. Non-monetary items measured at historical cost

• Examples include inventory and PPE under the cost model.

• These items are translated using the exchange rate at the date of the transaction (historical rate). No further re-translation is made at year-end because their values are not affected by future cash flows, but re-translation will be made when there is change in the fair value.

iii. Non-monetary items measured at fair value

• Examples include revalued PPE, investment property FV model, and FV financial assets.

• They are translated using the rate at the date the fair value was determined. The resulting exchange differences follow the same treatment as the fair value changes (i.e. to P&L or OCI) depending on the underlying standard. Conclusion:

• IAS 21 ensures that monetary items reflect current exchange rates at reporting date,

• While non-monetary items are translated according to their measurement basis, ensuring consistency and faithful representation.

Examiner’s report The question tests the application of the provisions of various accounting standards such as IAS 33- Earnings per Share, IAS 12 – Income Taxation, IAS 40- Investment Properties, IAS 16 – Property Plant and Equipment and IAS 21- The Effect of Changes in Foreign Exchange Rates Most of the candidate did not attempt the question and the few that attempted it performed below average. Majority of the candidates that attempted the questions could not correctly apply the accounting standards, most especially IAS 33 in part 2(bi), IAS 12 and IAS 21. Candidates are advised to pay more attention to this section of the syllabus for better performance in future examinations of the institute. 25

Marking guide Marks Marks a) Identification of five features for computing EPS under IAS-33 - any five correct features at ½ mark each 2½

b) Effect of scrip dividend payment decision

i) on the market price of the company’s share:

- calculation of the amount of dividend ½ - calculation of new shares arising from dividend ½ - determination of total shares in issue ½ - calculation of market price per share after dividend 1 ii) on the earnings per share:

- calculation of EPS before dividend payment decision 1 - calculation of EPS after dividend payment decision 1 - determination of decrease in EPS ½ 5

c) Categorisation of properties 1, 2 and 3 in accordance to IAS 16 and IAS 40 - any five points on categorisation with reasons and examples at 1 mark each 5

d) Explanation of treatment of income tax

- any five correct points at ¼ mark each 1¼ - any five correct calculations presented at ¼ each 1¼ 2½

e) Discussions on the translation of foreign currency monetary and non-monetary items in financial statements - any five correct points at 1 mark each 5 Total 20 26

a) Chike Oils Ltd Computation of relevant ratios 2023 2022 i) Gross profit percentage Gross profit x 100 Revenue 1 b. Comments on relevant qualitative factors that may impact on the company's performance Qualitative factors that are likely to affect the company performance are discussed below:

(i) Diversification strategy risk The company acquired 60% of Ducal Agro Ltd. Agriculture is weather-dependent and volatile, thus short-term performance may decline due to initial integration costs.

(ii) Regulatory and economic environment Oil and gas companies face forex volatility, insecurity, pipeline vandalism and subsidy restructuring, all of which may depress margins.

(iii) Rising operating costs Administrative and distribution costs rose significantly (Administrative: ₦270m to ₦467m). This suggests cost inefficiency or inflationary pressures affecting profitability.

(iv) Financing structure and solvency risk New 12% loan notes increased gearing from 13.9% to 32.38%, exposing the company to higher financial risk and interest burden. 1,093 x 100 3,645 1 982 x 100 2,457 1 =29.99% =39.97% ii) NPBIT percentage Net profit before interest and tax x 100 Revenue 1 261+54 x 100 3,645 1 527+9 x 100 2,457 1 =8.64% =21.82% iii) Gearing ratio Fixed interest-bearing capital x 100 510 x 100 Fixed interest-bearing capital + equity 1 510+1,095 1 120__ x 100 120+743 1 =32.38% =13.90% 27

(v) Investment with no immediate return No dividend or value uplift from Ducal Agro Ltd indicates that the investment is not yet contributing to profit, affecting return on investment.

(vi) Working capital pressure Trade receivables doubled (N105m to N225m), possibly indicating weaker credit control.

(vii) Management team and leadership The effectiveness, experience and decision-making abilities of the management team are crucial. Strong leadership can navigate challenges and inspire employees, while poor management can lead to inefficiency and financial losses.

(viii) Employee engagement and morale Engaged and satisfied employees are more productive, innovative and less likely to leave the company. A positive workplace culture and good talent retention can lead to better overall performance.

(ix) Company culture and values A strong positive company culture influences employee behavior, job satisfaction and the company's ability to attract and retain top talent.

(x) Competitive advantage or business model Unique strengths that set a company apart (e.g., superior technology, innovative products, efficient operations) can lead to increased market share and higher profit margins.

(xi) Product or service quality How well a product or service satisfies customer needs and wants directly impacts customer satisfaction and loyalty, which are key drivers of revenue growth.

(xii) Industry trends and market growth: The overall dynamics of the industry, including whether it is a high-growth or slow-growth market, will impact the company's potential for success.

(xiii) Economic conditions General economic conditions, such as inflation rates, interest rates and overall market stability, can affect consumer spending, financing costs and business performance regardless of internal management. 28

(xiv) Regulatory and legal environment Changes in government regulations, legal issues (such as pending litigation), or compliance costs can have a major financial impact.

(xv) Supplier and partner relationships: Strong relationships with key vendors and partners can ensure a stable supply chain and better navigation of problems or disagreements when they arise.

(xvi) Social responsibility and Environmental, Social and Governance (ESG) factors A company's commitment to ethical practices, community engagement and environmental stewardship can influence investor perception and customer trust, thereby impacting financial outcomes. (c) Chike Oils Ltd. Statement of cash flows for the year ended December 31, 2023 (operating activities only) N’million N’million Operating activities: Profit before tax 261 Adjustment for non-cash and non-operating items: Finance cost 54 Movement in working capital: Increase in inventory N(180-150) (30) Increase in trade receivables N(225-105) (120) Decrease in other receivables N(165-0) 165 Increase in trade payables N(285-210) 75 90 Cash flow from operating activities 405 Interest paid (54) Tax paid (wk1) (162) Net cash flows from operating activities 189 29

Workings: Determination of tax paid N’million Balance b/fwd 156 Income tax expenses (P or L) 81 Less balance c/d (75) Tax paid 162

Examiner’s report The question tests candidates’ knowledge of ratio analysis and interpretation of financial statements as well as preparation of the statement of cash flow extract. Most candidates attempted the question and performance was above average. The main pitfall noted was that some candidates commented on the quantitative factors that affect the company’s performance rather than discussing the qualitative factors. Candidates are advised to read the question properly and ensure that they provide only relevant answers. Also, candidates should make use of the Institute’s Pathfinders and relevant financial journals to aid their ability to interpret relevant financial statements.

Marking guide Marks Marks a) Computation of relevant ratios for the two years 2023 and 2022 - correct calculation of gross profit percentage 3 - correct calculation of net profit margin 3 - correct calculation of gearing ratio 3 9

b) Comment on relevant qualitative factors that may impact on the company’s performance - any six points at 1 mark each 6

c) Preparation of statement of cash flows for the year

- stating the title ½ - stating the profit before tax ½ - adjusting for interest paid (finance cost) ½ - determining movement in working capital 2 - calculating tax paid 1 - determining cash flow from operating activity ½ 5 Total 20 30

Dimeji Ltd Consolidated statement of profit or loss for the year ended September 30, 2024 N’000 Revenue N(165,000+(99,000 x 6/12)-(6,000+13,500) intra group sales 195,000 Cost of sales (w1) (163,950) Gross profit 31,050 Distribution costs N(4,500+(3,000x 6/12) 6,000 Administrative expenses N(7,875+(3,600x 6/12) – 5,100 negative goodwill (w2) (4,575) Loss on equity investment (300) Decrease in contingent consideration N(2,700 – 2,250) 450 Finance costs 375 Profit before tax 20,250 Income tax expense N(5,250 – (1,500 x 6/12) 4,500 Profit for the year 15,750 Profit attributable to: Equity holders of the parent 16,875 Non-controlling interests (1,125) 15,750 Dimeji ltd Consolidated statement of financial position as at September 30, 2024 N’000 Assets Non-current assets Property, plant and equipment (w3) 95,850 Financial asset: equity investments N(24,000 – 20,250 cash consideration) – 300 loss 3,450 99,300 Current asset N(24,750 + 7,200 -900 URP) 31,050 Total assets 130,350 Equity and liabilities: Equity attributable to owners of the parent: Equity shares of N0.50 each 45,000 Retained earnings (w4) 44,625 31 89,625 Non-controlling interest (w5) 4,275 Total equity 93,900 Current liabilities: Contingent consideration 2,250 Other current liabilities N(22,500 +11,700) 34,200 Total equity and liabilities 130,350

Workings: w1 Cost of sales N’000 Dimeji Ltd 132,000 Dekunle Ltd N(100,800 x 6/12) 50,400 Intra-group purchases N(6,000 + 13,500) 19,500 Unrealised profit in inventory (see below) 900 Additional depreciation on leased property N(3,000 ÷ 10 years x 6/12) 150 163,950 The profit on the sale of the goods back to Dimeji Ltd is N5.4million N(13,500 – (6,000 + 2,100). Therefore, the unrealised profit in the inventory of N2.25million at September 30, 2024 is N900,000 N(5,400 x 2,250 ÷ 13,500) w2 Goodwill in Dekunle Ltd N’000 N’000 Investment at cost: immediate cash consideration (9,000 x 2 (shares of N0.50) x 75% x 1.50) 20,250 Contingent consideration 2,700 Non-controlling interest N(18,000 x 25% x N1.20) 5,400 28,350 Net assets (equity of Dekunle at September 30, 2024 27,000 Add back post-acquisition losses N(6,900 x 6/12) 3,450 Fair value adjustment for property 3,000 32 Net asset at date of acquisition (33,450) Bargain purchase/negative goodwill: credited to profit or loss 5,100 Dekunle’s adjusted post-acquisition losses for the year ended September 30, 2024 are N4.5million (N6,900 x 6/12 + 150 additional depreciation + 900 URP) Therefore, the non-controlling interest share of the losses is N1,125,000 (4.5million x 25%)

Note: IFRS 3 on business combinations’ says gain on bargain purchase (negative goodwill) should be credited to the acquirer, thus none of it relates to the non-controlling interests Also IFRS 3 states that gain on bargain purchase should be recognised in the statements of profit or loss but not as a line item, which will eventually flow into retained earnings reserve. w3. Property, plant and equipment: N’000 Dimeji Ltd 61,500 Dekunle Ltd 31,500 Fair value adjustment 3,000 Additional depreciation (150) 95,850 w4. Retained earnings: N’000 Dimeji Ltd 42,750 Dekunle’s post-acquisition adjusted losses (4,500 x 75%) 3,375 Gain on bargain purchase 5,100 Loss on equity investment (300) Decrease in contingent consideration 450 44,625 33 w5. Non- controlling interests: N’000 At date of acquisition 5,400 Post-acquisition loss from statement of profit or loss (1,125) 4,275

Examiner’s report The question is on group accounts and it tests candidates’ ability to prepare consolidated statement of profit or loss and other comprehensive income and consolidated statement of financial position. Majority of the candidates attempted the question but performance was below average The common pitfalls were as follows:

a. inability of candidates to properly account for the contingent considerations in the process of the acquisition of the subsidiary;

b. Most of candidates could not properly account for the gain on bargain purchase (Negative goodwill) in accordance with the provisions of IFRS 3 – Business combination;

c. Some candidates allocated part of the gain on bargain purchase (negative goodwill) to non- controlling interest which is against the provisions of IFRS 3, which specify that negative goodwill should only be credited to the acquirer; and

d. Other candidates could not correctly calculate the consolidated retained earnings and non-controlling interest. Candidates are advised to pay attention to this section of the syllabus, practice past questions and answers on group accounts, and make use of the Institute of Chartered Accountants of Nigeria’s study texts for better performance at this level of the Institute’s examinations. 34

Marking guide Marks Marks a) Preparation of consolidated statement of profit or loss for the year - stating the title ¼ - determination of consolidated revenue 1 - calculation of consolidated cost of sales 3 - stating consolidated distribution costs ½ - calculating administrative expenses 1 - determining gain on bargain purchase 1¾ - stating decrease in contingent consideration ½ - calculation of profit before tax ½ - adjusting for income tax expense ½ - stating profit for the year attributable to parent and non- controlling interests 1 10

b) Preparation of consolidated statement of financial position as at year end - stating the title ¼ - calculation of consolidated property, plant and equipment 2¼ - stating the financial asset 1 - determining current assets 1 - stating total assets ¼ - stating the equity share capital ¼ - calculation of consolidated retained earnings 2 - calculation of non-controlling interest 1¼ - stating total equity ¼ - stating current liabilities and contingent consideration 1¼ - stating total equity and liabilities ¼ 10 Total 20 35

a) Rule-based and Principle-based system

(i) A rule-based accounting system is likely to be very descriptive. (ii) It is generally considered to be a system which relies on a series of detailed rules of accounting requirements that prescribe how financial statements should be prepared. (iii) It is considered less flexible, but often more comparable and consistent than a principle-based system. (iv) It could also be argued that rule-based system can lead to identifying loopholes. (v) By contrast, a principle-based system relies on generally accepted accounting principles that are conceptually based and are normally supported or shored-up by a set of key objectives. (vi) Principle-based system are more flexible than rule-based systems. however, they require judgement and interpretation, which could lead to inconsistences between two or more reporting entities and sometimes to the manipulation of financial statements. (vii) IFRS are based on Conceptual Framework for Financial Reporting. They are therefore often regarded as being a principle-based system. Though, IFRS(s) do contain many rules and requirements that are often lengthy and complex, their critical feature is that IFRS rules are based on underlying concepts. Conclusion In reality, most accounting systems have an element of both rules and principles. Their designation as rule-based or principle-based depends on the relative importance and robustness of the principles compared to the volume and manner in which the rules are derived.

(b) Advantages of adopting IFRS by Immanuel Limited

(i) Facilitate international acquisitions and mergers IFRS is instrumental in making international acquisition and mergers easier.

(ii) Global understanding: IFRS provides a common language for reporting financial results across borders. This makes it easier for firms operating in different jurisdiction to apply the same accounting standards so that potential buyers or merger partners can easily understand and assess the financial condition of the target company. 36

(iii) Comparable financial statements: With IFRS, comparative financial statements of companies from other countries can be compared easily. This comparability will enable investors and acquirers to assess with accuracy, the performance and the financial position of a company located anywhere in the world.

(iv) Transparency and disclosure: IFRS promotes transparency and extensive disclosure of financial information. Companies are required to provide information to the investors, regarding their overall financial performance, risks involved and key metrics about their companies. This reduces the uncertainty and risk for investors before planning acquisitions or mergers.

(v) Alignment with global standards: Most of the multinational companies are already following IFRS as the reporting framework. If an organisation acquires or merges with such a company, it will reduce integration issues and the complexity involved in getting the different accounting practices of the various entities to align with one another.

(vi) Regulatory compliance: Complying with IFRS becomes compulsory for numerous companies for listings or their entry to cross-border access capital. A company, henceforth, through IFRS, stays within the regulatory compliance, which in the future may aid in crossing border deals and acquisitions. In a nutshell, IFRS fosters transparency, comparability and reliability in financial reporting. That is why IFRS becomes a key facilitator for international acquisitions and mergers.

(vii) Reduce the time, effort and cost of creating many reports Amongst many significant benefits of the IFRS, of the main reasons is the creation of a worldwide standardised accountancy language. For this, a company can state their performance, regardless of the company being from a particular nation using the same language. 37

(viii) Offer greater flexibility in accounting practices IFRS facilitates better decision-making since it ensures investors and analysts receive standardised and comparable financial information. A standard framework allows investment decisions to be made regardless of the location of the company concerned. Information asymmetry is also reduced, which will result in much more accurate assessments of a company’s financial performance and risk profiles. Better decision-making promotes better resource allocation, increases the confidence of investors, and generally leads to better overall functioning of capital markets.

(ix) Make it easy for companies to establish a business in other countries Companies that apply IFRS are able to gain a competitive advantage by accessing international capital markets. Most stock exchanges worldwide require listed companies to prepare their financial statements under IFRS. Applying this requirement allows companies to attract a wider base of global investors and even achieve a higher valuation. Access to international markets also allows companies to raise funds more easily, expand investor bases and increase the visibility of the company on the international stage.

(x) More information transparency and improved communication IFRS ensures that transparent and consistent financial reporting is presented to stakeholders in such a manner that the company enjoys high credibility among investors, lenders and other stakeholders

(xi) Comparison of company ratings Investor confidence is anchored on transparent financial reporting. IFRS’s emphasis on clear and accurate financial disclosures enhances investor trust in the accuracy of reported financial information. This increased confidence can lead to positive effects on share prices and market capitalisation. Investor confidence drives higher market participation, lowers the cost of equity and has a positive impact on a company’s overall valuation.

(xii) Prudent management in IFRS IFRS requires companies to assess and disclose various types of risks in their financial statements, which include financial, operational and market risks. Through this, management can determine and assess the risks and implement appropriate mitigating strategies while making prudent decisions to safeguard the assets and interests of the organisation. 38

Examiner’s report The question tests rule-based and principle-based system of accounting standards as well as the advantages of adopting International Financial Reporting Standards. Most candidates attempted the question and their performance was average. Majority of the candidates were able to clearly state the advantages of adopting IFRS while some could not differentiate between rule-based and principle-based system of accounting standards Accounting standards are the bedrock of financial reporting, hence candidates are advised to familiarise themselves with the basic principles and provisions of accounting standards.

Marking guide Marks Marks a) Differentiate between rule-based and principle-based accounting system - stating any five differences 5

b) Advantages of adopting IFRS for financial reporting

- stating any five advantages of IFRS 2½ - Discussion of the five advantages of IFRS 7½ 10 Total 15

a) Key features of sustainability reporting

(i) Forward-looking: Includes scenario analysis, forecasts and strategy alignment. (ii) Materiality-driven: Focuses on ESG (Environmental, Social and Governance) issues that could affect enterprise value. (iii) Quantitative and qualitative factors: Combines KPIs– Key Performance Indicators (e.g., emissions, water use) with narratives (e.g., governance practices). (iv) Integrated with financial information: Increasingly aligned with financial reporting standards (e.g., IFRS S1 and S2). (v) Standardised by global framework (GRI and IFRS) (vi) Value chain oriented that is, it looks beyond the companies’ immediate operations. 39

b) The objectives and benefits of sustainability reporting The primary objective of sustainability reporting is to provide transparency and accountability on an organisation's impacts on the economy, environment and society, to assist internal and external stakeholders' decision-making.

(i) Transparency and accountability: Publicly disclosing performance related to environmental, social, and governance (ESG) issues demonstrates a commitment to responsible practices and builds trust with stakeholders and the public.

(ii) Informed decision-making: Providing clear, consistent and reliable data enables investors to assess long-term risks and opportunities, also allows customers and communities to align their values and make informed choices.

(iii) Regulatory compliance: Meeting mandatory national and international legal requirements helps avoid penalties and ensures the company operates within legal boundaries.

(iv) Enhancing reputation and brand image: Highlighting sustainability efforts can improve brand reputation and attract employees and customers who prefer sustainable and ethical brands.

(v) Attracting capital: Growing investor interest in ESG factors means transparent reporting is crucial for attracting investment and accessing financial markets.

(vi) Identifying risks and opportunities: The process helps businesses identify potential ESG risks (e.g., climate change, supply chain issues) and opportunities (e.g., cost savings from waste reduction, new markets for sustainable products) that may impact long-term performance.

(vii) Strategic decision-making: Sustainability data provides management with insights to make more effective strategic decisions, align business models with sustainable practices, and set clear, forward-looking goals and targets.

(viii) Performance measurement and improvement: Reporting allows an organisation to measure and monitor its performance against key metrics and industry peers, identifying areas for improvement and driving efficiency. 40

(ix) Improving employee morale and retention: Engaging employees in sustainability initiatives can boost morale and help retain talent, particularly among younger generations who prioritise working for responsible organisations. Ultimately, sustainability reporting serves as a catalyst for positive change, promoting responsible business practices and contributing to the global goal of sustainable development, which balances economic growth, social inclusion, and environmental protection.

(c) Importance of ISSB to Global Sustainability Reporting

(i) Provides a single authoritative source of sustainability disclosure standards for capital markets. (ii) Reduces the reporting burden on multinational companies by aligning standards. (iii) Promotes trust, accountability and efficiency in ESG data used by investors, lenders and regulators. (iv) Enables effective integration of sustainability performance into financial decision- making. (v) The emergence of the ISSB marks a transformative milestone in the evolution of corporate reporting. (vi) It addresses long-standing challenges of fragmentation and lack of comparability in sustainability disclosures. (vii) Through IFRS S1 and S2, the ISSB aims at elevating the sustainability reporting to the same rigour, relevance and consistency as traditional financial reporting, ushering in a new era of integrated, global and investor-focused corporate transparency.

Examiner’s report The question is on sustainability reporting and it tests candidates’ knowledge of the features and benefits of sustainability reporting as well as importance of International Sustainability Standards Board (ISSB) to global reporting. Few candidates attempted the question and their performance was below average. Most of the candidates could not correctly states the features of sustainability reporting as well as the importance of the activities of ISSB to global reporting Although this question relates to a new section of the financial reporting syllabus, candidates are, therefore, advised to make use of the study text of Financial Reporting in other to acquire the necessary skills on sustainability reporting for better performance in future examinations. 41

Marking guide Marks a) Discussion of any five key features of sustainability reporting 5 b) Stating any six objectives and benefits of sustainability reporting 6 c) Identifying and explaining four important activities of International Sustainability Standards Board (ISSB) to global sustainability reporting 4 Total 15

(a) ICAN’s Professional code expresses its guidance in terms of five fundamental principles. These are: Integrity Members should be straightforward and honest in all professional and business relationships. Integrity implies not just honesty but also fair dealing and truthfulness. A chartered accountant should not be associated with reports, returns, communications or other information where they believe that the information:

• Contains a materially false or misleading statement;

• Contains statements or information furnished recklessly; or

• Omits or obscures information required to be included where such omission or obscurity would be misleading. Objectivity Members should not allow bias, conflicts of interest or undue influence of others to override their professional or business judgements. A chartered accountant may be exposed to situations that may impair objectivity. It is impracticable to define and prescribe all such situations. Relationships that bias or unduly influence the professional judgment of the chartered accountant should be avoided. Professional competence and due care Practicing as a chartered accountant involves a commitment to learning over one’s entire working life. Members have a duty to maintain their professional knowledge and skill at such a level that a client or employer receives a competent service, based on current developments in practice, legislation and techniques. Members should act diligently and in accordance with applicable technical and professional standards. 42 Continuing professional development develops and maintains the capabilities that enable a chartered accountant to perform competently within the professional environments. Confidentiality Members must respect the confidentiality of information acquired as a result of professional and business relationships and should not disclose such information to third parties without authority or unless there is a legal or professional right or duty to disclose. Confidential information acquired as a result of professional and business relationships should not be used for the personal advantage of members or third parties. Professional behaviour Members must comply with relevant laws and regulations and should avoid any action which discredits the profession. They should behave with courtesy and consideration towards all with whom they come into contact in a professional capacity

(ii) Threats to the fundamental principles The following five threats are identified by the International Federation of Accountants (IFAC). Self-interest threat or conflict of interest: These occur when the financial and other interests of the professional accountant, or a close family member, in appropriately affect the accountant’s decisions or actions. Self-review threat: This is the threat that a professional may not review appropriately some work done previously by him or by another individual within the same firm. A typical example is a situation where a professional accountant prepares the annual financial statements for a client and then is appointed to do the audit. Advocacy threat: This type of threat can occur when an accountant promotes the point of view of a client, for example by acting as a professional witness in a legal dispute. This may impair the objectivity of the accountant. Familiarity threat: This is the threat that results from long or close relationship with the client such that an accountant might become too sympathetic to client and more willing to accept the client’s point of view. Intimidation threat: A professional accountant might find that his objectivity and independence is threatened either real or perceived pressure. 43

(b) Benefits of Artificial Intelligence (AI) and robotics

(i) Increased efficiency and productivity: AI simplifies repetitive accounting tasks, freeing up time for professionals to focus on more strategic and value-added activities. This shift enhances productivity and efficiency, allowing accountants to concentrate on areas where their expertise is most impactful.

(ii) Improved customers experience: Using chat GPT to draft email, can save time. AI can be used for customers’ support.

(iii) Enhanced data analysis and predictions: AI algorithms are capable of rapidly analysing financial data, making them powerful tools for identifying patterns and predicting trends. By examining transactions, cash flows and budgets, AI helps individuals and businesses manage their financial data more efficiently and make informed decisions.

(iv) Costs savings: AI-driven process automation enables accounting firms to save time and reduce costs by handling routine tasks efficiently. This allows professionals to focus on strategic initiatives, boosting productivity and profitability while minimising operational expenses.

(v) Creation of new job opportunities: One of the most significant ways that AI is creating job opportunities is through the development and deployment of AI systems, cloud-based system or AI -powered tools.

(vi) Robotic Process Automation (RPA) software: This has been demonstrated to be effective in handling routine and monotonous aspects of the accountant’s job

(vii) Automating repetitive and mundane tasks: AI enables accountants track changes in business financial information from various sources.

Examiner’s report The part (a) of the question tests candidates’ knowledge of professional ethics while part (b) is on information technology (Artificial Intelligence and Robotics) Majority of the candidates attempted the questions and their performance was above average. Some of the candidate could not correctly identify and discuss the threats to the fundamental principles of professional code of conduct. Candidates are advised to pay more attention to all sections of the syllabus for better performance in future examinations of the Institute. 44

Marking guide Marks Marks a) Identifying and explaining four fundamental principle of ICAN professional code of conduct 8 Explaining four categories of threats to the fundamental principles 4 12

b) Discussing three merits of Artificial Intelligence (AI) and Robotics in business operations and professional duties 3 Total 15 45 INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA