Financial Reporting · May 2026

a) Fete Renovations Plc Statement of profit or loss and other comprehensive income for the year ended July 31, 2025 N’000 Revenue (4816- 440) 4,376 Cost of sales ( 1536+160+544)(w2) (2,240) Gross profit 2,136 Distribution cost (488) Admin expenses ( 240+ 110) (W3) (350) Finance costs (W7) (40) Loss on disposal of plant (W2) (72) Loss on revaluation of land and building (W1) (200) Gain on revaluation of investment properties (W4) 240 Profit before tax 1,226 Income tax (440 + 32) (W6) (472) Profit for the year 754 Other comprehensive income (OCI): Loss on revaluation of land and building (480) Loss on revaluation of financial assets (W5) (172) Other comprehensive income for the year (652) Total comprehensive income for the year 102

b) Fete Renovations Plc Statements of changes in equity for the year ended July 31, 2025 Share capital Share premium Revaluatio n surplus Fair value reserve Retained earnings Total N’000 N’000 N’000 N’000 N’000 N’000 Bal. Aug 1, 2024 1280 2320 480 112 1212 5404 Profit for the year - - - - 754 754 OCI - - (480) (172) - (652) Issue of shares 320 480 - - - 800 Dividend paid - - - - (188) (188) Bal July 31, 2025 1600 2800 _______- (60) 1778 6118 10

c) Fete Renovations Plc Statement of financial position as at July 31, 2025 N’000 Non-current assets : Land and building (3,200-1,000)-(160+160-320) 2,200 Plant and equipt.( 5,200-800) –(2,480 + 544-288) 1,664 Investment properties ( 2560+ 240) 2,800 Financial assets ( 672- 172) W5 500 Total non-current assets 7,164 Current assets: Inventory 496 Trade receivables 552 Cash and bank 704 Total current assets 1,752 Total assets 8,916 Equity and liabilities: Ordinary share capital 1,600 Share premium 2,800 Fair value reserve (60) Retained earnings 1,778 Total equity 6,118 Non-current liabilities: 6% loan notes 1,600 Current liabilities : Trade payables 368 Provisions for warranty claims (240+110) (W3) 350 Income tax payable (472-32) (W6) 440 Accrued 6% loan notes interest (W7) 40 Total current liabilities 1,198 Total equity and liabilities 8,916

d) Basic earnings per share (EPS) Profit for the year is N754,000 Number of shares attributable to calculation of EPS is total number of shares less shares issued at the end of year =(1,600,000 x 2) - (320,000 x 2 ) = 2,560,000 Basic EPS = N754,000/ 2,560,000 X100 = 29.45K Working notes: W1(a) Land and buildings Depreciation for the year ended July 31, 2025 must be charged. As the revaluation occurs on the last day of the year, depreciation for the year is based on the carrying amount pre-valuation. 11 Building amount = N3,200,000 - N480,000 = N2,720,000 at the last date of revaluation Useful economic life = 17 years Annual depreciation is N2,720,000/17 = N160,000 (This should be charged to cost of sales and added to accm. depreciation.) W1(b) Revaluation as at July 31, 2025: Land Building N’000 N’000 Carrying value July 31, 2025 480 2,400 Revalued amount July 31, 2025 400 1,800 Revaluation loss 80 600 The total revaluation loss of N680,000 exceeds the balance in the revaluation reserve (N480,000). Hence, the reserve is written off through OCI and the additional loss of N200,000 is charged to profit or loss. Accumulated depreciation will be zero. W2 (a) Plant and equipment N’000 Cost 5,200 Accumulated dep August1,2024 (2,480) Carrying amount 2,720 Therefore, deprecation at 20% (2720 x 0.2) 544 N 544,000 should be charged to cost of sales

Note: Depreciation for the year include depreciation on plant disposed of as it was use for the full year. W2(b) Gain or loss on disposal: N’000 N’000 Proceeds 440 Carrying amount 800 Deprn year 1 (to Aug 31, 2024) (160) Less: depr yr2 (current year 20% x (800-160) (128) (512) Loss on disposal (72) W3 Provision for warranty claims Increase in provision is (N350,000 - N240,000) = N110,000 12 W4 Investment properties N’000 Value as at July 31, 2025 2,800 Balance per trial balance (T/B) 2,560) Gain on revaluation of investment properties 240 W5 Financial assets N’000 Value as at July 31, 2025 N500 Balance per trial balance (672) Loss on revaluation of financial assets (172) W6 Income tax N’000 Current year estimate 440 Under provision in 2024 per T/B 32 Charged to profit or loss 472 W7 -Interest on loan notes The loan notes were issued on March 1, 2025. Therefore, 5 months interest should be provided for, N1,600,000 x 6% x 5/12 = N40,000

Examiner’s report The question tests candidates’ knowledge of the preparation of final accounts of a limited liability company in the following areas: - Preparation of statement of profit or loss and other comprehensive income; - Statement of changes in equity; - Statement of financial position; and - Computation of basic earnings per shares (EPS) Most of the candidates attempted the question and performance was below average The common pitfalls are:

• In ability to recognise the amount of income tax underprovisions which was provided in the trial balance;

• Some candidates could not correctly treat the excess deficit arising from revaluation of land and buildings; and

• Others could not determine the total number of shares required to calculate the basic EPS of the company. Candidates are advised to pay more attention to this area of the syllabus as it is a recurring area that the examiner will always test candidates’ knowledge at thethis level of the institute’s examination. They should therefore practice past questions and make use of the institute’s study text and pathfinder. 13

Marking guide Marks Marks

(a) Preparation of statement of profit or loss Determination of revenue ¾ Calculation of cost of sales 1 Stating the gross profit ¼ Stating distribution costs ¼ Determination of admin expenses ½ Calculation of finance costs ¾ Calculation and stating loss on disposal of plant 1¾ Calculation and stating loss on revaluation of land and building 1¾ Calculation and stating gain on revaluation of investment property 1 Stating the profit before tax ¼ Adjusting and stating income tax ¾ Stating components of other comprehensive income ¾ Stating total comprehensive income ¼ 10 (b) Preparation of statement of changes in equity Stating headings of the components of equity 1½ Stating the opening balances of components of equity 1 Stating profit for the year ½ Stating other comprehensive income ¾ Stating proceeds from issue of shares at a premium ¾ Stating the dividend paid ½ Stating closing balances of components of equity 1 6 (c) Preparation of statement of financial position Non-current assets Determination and stating the value of land and buildings 3 Determination and stating the value of plant and equipment 2¾ Adjusting and stating the value of an investment property ¾ Adjusting and stating the value of financial assets ¾ Stating the total non-current assets ¼ Current assets Stating the inventory ¼ Stating the trade receivables ¼ Stating the cash and bank ¼ Stating total current assets ¼ Stating total assets ¼ Equity: Stating the ordinary share capital ¼ Stating the share premium ¼ Stating the fair value reserve ¼ Stating the retained earnings ¼ Stating total equity ¼ Liabilities: Stating the 6% loan notes ¼ 14 Stating the trade payables ¼ Adjusting and stating the provisions for warranty claims ¾ Stating accrued 6% loan note interest ¼ Stating total current liabilities ¼ Stating total equity and liabilities ¼ 12 d Calculation of basic earnings per share Stating profit for the year ½ Determination of total number of shares in issue ½ Calculation of basic EPS 1 2 Total 30

(a) Explanation of contract under IFRS 15 on revenue.

• A contract is an agreement between two or more parties which create enforceable rights and obligations.

• It may be agreed in writing, orally, or through other customary business practices (b) Conditions under IFRS (15) when entities can recognise contract revenues.

• The parties to the contract have approved the contract and are committed to perform their respective obligations.

• The entity can determine each party’s rights regarding the goods or services transferred.

• The entity can identify the payment terms for the goods or services to be transferred.

• The contract has commercial substance.

• It is likely that entity will collect consideration to which it is entitled in exchange for the goods or services to be transferred to the customer.

(c) i) Repurchase agreement A repurchase agreement occurs where an entity sells an asset and promises or has the right to repurchase the asset. ▪ It is not recognised as a sale, but either as a lease or secured loan against the asset. ▪ It comes as obligation to purchase, right to purchase or obligation to repurchase. ▪ If an entity has obligation or a right to repurchase asset, the customer does not have control of the asset. ▪ An obligation to repurchase is accounted for either as a lease where the purchase price is smaller than original selling price. ▪ In financing arrangement, if the repurchase price is more than the original selling price. 15

ii) Bill-and-hold arrangement

• A bill-and-hold arrangement is a contract under which an entity bills a customer for a product but the entity retains physical posession of the product until it is transferred to the customer at a future time.

• To be treated as a revenue, the customer must have control of the asset despite the fact that it is physically remaining with the entity.

• There may be a custodial service fee where the entity recognises a fee for holding the goods on behalf of the customer.

• The performance obligation would be satisfied over time and revenue recognised on this basis.

• The customer must have requested the arrangement.

• The product must be seen as belonging to the customer.

• The product must be ready for physical transfer to the customer.

• The entity cannot have the ability to use the product or sell it to someone else.

(d) Difference between Cost and Revaluation model Cost model Revaluation model

• PPE is carried at cost less accumulated depreciation and impairment losses. PPE is carried at fair value less subsequent depreciation and impairment losses.

• Asset value remains based on historical cost. Asset value is updated periodically to reflect current market value.

• Simpler and more objective May result in revaluation surplus or deficit. (e)

i) Determination of cost of PPE in accordance with provisions of IAS 16 Items N’000 Clearance of site prior to construction 21,000 Professional surveyors to manage construction 50,000 Administration cost based on time spent 60,000 Staff wages on construction 30,000 Import duties on materials 20,000 Handling cost on materials 18,000 Cost of PPE (capitalised) 199,000

ii) Amount written off to statement of profit or loss N’000 Pre-operative expenses 12,000 Initial operating losses 4,000 16 Expense charged to profit or loss 16,000

Examiner’s report The question tests candidates’ knowledge of the provisions of IFRS 15-Revenue from contract with customers and IAS 16- Property plant and equipment (PPE). The question requests them to explain the criteria for recognition of contract revenue and discuss the concept of repurchase agreement and bill-and–hold arrangement (under IFRS 15). While they should differentiate between cost and revaluation model of valuation of PPE. Most candidate attempted the question and performance was below average. The common pitfalls include: -inability of the candidates to correctly explain repurchase agreement and bills- and-hold arrangement in accordance with the provisions of IFRS 15. While others could not identify the criteria for recognition of revenue as stipulated by the standard. Candidates are advised to pay attention to all relevant accounting standards at this level of the institute’s examination for better performance in future examinations.

Marking guide Marks Marks

(a) Description of the term “Contract” under IFRS 15 Correct description of the term contract 1 (b) Criteria for recognition of contract under IFRS 15 Any three correct criteria 3 (c) (i) Explanation of repurchase agreement Any three correct points on explanation of repurchase arrangements 3 (ii) Explanation of bill-and-hold arrangements Any three correct points on explanation of bill-and-hold arrangements 3 (d) Explanation of cost and revaluation model under IAS 16 Any three correct points on explanation of cost model 1½ Any three correct points on explanation of revaluation model 1½ 3 (e) i. Determination of the cost of a PPE under IAS 16 Correct listing of relevant cost items 3 Stating of title of calculation ½ Stating correct total of PPE cost capitalised ½ 4 ii. Calculation of amount to be written off to statement 17 of profit or loss Stating of pre-operative expenses 1 Stating initial operating losses 1 Stating total amount to be expensed to profit or loss 1 _3_ Total 20

a) Calculation of relevant ratios

i) ROCE 2024 2023 2022 2021 PBT × 100 CE 1 455,000 × 100 652,500 1 338,000 × 100 500,100 1 283,250 × 100 366,900 1 237,250 × 100 297,350 × 1 =69.7% 67.6% 77.2% 79.8% ii) Earning per share profit for the year numbers of shares issued N308,750 390,000 N 263,250 192,000 N 185,750 192,000 N 143,000 126,000 =79.2 kobo 137.1 kobo 96.7 kobo 113.5 kobo iii) Dividend per share Dividend Number of shares issued N 126,000 390,000 N 117,000 192,000 N 87,000 192,000 N 78,000 126,000 =32.3 kobo 60.9 kobo 45.3 kobo 61.9 kobo iv) Dividend cover Earnings per share Dividend per share 79.2 kobo 32.3 kobo 137.1 kobo 60.9 Kobo 96.7 kobo 45.3 kobo 113.5 kobo 61.9 kobo OR Earnings Dividend 308,750 126,000 263,250 117,000 185,750 87,000 143,000 78,000 =2.45 times 2.25 times 2.14 times 1.82 times v) Asset turnover Revenue Net assets capital employed 1,595,750 652,500 1,280,500 500,100 991,250 366,900 705,250 297, 350 =2.45 times 2.56 times 2.7 times 2.37 times

b) Report to a potential investor on the financial viability of Mandela Nigeria Plc Introduction This report evaluates the financial performance and investment viability of Mandela Nigeria Plc based on the ratio analysis for the years 2021 to 2024. The analysis focuses on profitability, shareholders’ returns, dividend policy and operational efficiency with the objective of advising a potential investor on whether to subscribe to the company’s ordinary shares. 18 Financial performance analysis

• Profitability The company recorded reasonable profitability over the four-year period. However, the ROCE declined from 79.8% in 2021 to 69.9% in 2024. The ratios are still reasonable, but there is a reduction of about 10% in ROCE in the last three years.

• Earnings performance The Earnings Per Share (EPS) declined from 113.5 kobo in 2021 to 79.2 kobo in 2024. The proposed issue of new ordinary shares will further dilute the EPS as the profits for the year appears not to be growing at a commensurate rate.

• Dividend policy and shareholder returns The company has consistently paid dividends over the period. However, the dividend per share declined by about 50% from 62.9 kobo in 2021 to 32.3 kobo in year 2024. Although, there is a slight increase in dividend cover, this indicates that the company is a low dividend paying entity. The slight increase in dividend cover indicates that profits are available to sustain dividend payments and future business expansion.

• Operational efficiency The asset turnover ratio assesses how effectively the company uses its assets to generate returns. However, there was only a slight increase in asset turnover of the company over the period. Recommendations

• Based on the above analysis, it is recommended that a potential investor should consider not subscribing to the ordinary shares of Mandela Nigeria Plc, due to poor expected returns in terms of profitability, earnings and dividend payments. However, if the investor reviewed other qualitative factors and considers them as favourable for future growth and expansion of the company, he might decide to invest in the company.

c) Limitations of the use of EPS and ROCE as tool for financial analysis. Earnings per share (EPS): Earnings per share can have serious limitations which include:

i) Accounting policies Not all entities use the same accounting policies. It may not always be possible to make meaningful comparisons between the EPS of different entities.

ii) Ignores inflation Earnings per share does not take account of inflation, so that growth in EPS over time might be misleading. 19

iii) Ignores cash flows Earnings per share measures an entity’s profitability, but this is only part of an entity’s overall performance. An entity’s cash flow can be just as important as its profit (and more essential to its immediate survival).

iv) Prediction of future earnings Diluted EPS is often described as an early warning to investors that the return on their investment may fall sometime in the future. However, diluted EPS is based on current earnings, not forecast earnings. This means that it may not be a reliable predictor of future EPS.

v) Encourage creative accounting The use of EPS as the main measure of entity’s performance encourages management to make decisions which increase EPS in the short run but damage the entity in the longer term. That is, encouraging creative accounting.

vi) No consideration for capital employed EPS does not show efficiency of the company’s use of its resources. Return on Capital Employed (ROCE) Limitations of Return on Capital Employed (ROCE) include the following: i) Problem of definition Definitions of capital employed vary, and confusion may arise when return on capital employed is discussed unless terms are rationalised.

ii) Based on historical cost The return on capital employed is a misleading guide to efficiency unless assets are valued at current prices. Profits are accounted in terms of current prices, so it will be misleading if they are compared with capital computed on a historic basis.

iii) Accounting policies Comparison of efficiency between firms by means of return on capital employed will be difficult if they are not truly comparable businesses, for example, one business may lease its plant, and another may have new plant while another may work with old-fashioned plant. Any device to reduce these differences to a common figure will introduce an element of unreality into the comparison.

iv) Ignores risk factors The ROCE does not take risk into account. Thus a business may appear to be making a high return, but the fact that a high return is necessary to compensate for risks is not taken into account.

v) Encourage short term decisions 20 Capital investment is a long-term phenomenon and often a low return is experienced in the early years of a long-term project. It is therefore necessary that the returns on the project over its full life, is considered, not just part of its life, if a correct decision about its profitability is to be reached.

c) Techniques of creative accounting

i. Window dressing ii. Off balance sheet finance iii. Changes to accounting policies or accounting estimates iv. Profit smoothing v. Aggressive earnings management vi. Capitalising expenses vii. Early revenue recognition viii. Overvaluation of inventory ix. Big bath accounting x. Overstating of assets xi. Understating of liabilities

Examiner’s report The question tests candidates’ knowledge of the computation and interpretation of ratios. Candidates are also required to highlight the limitations of ratios as a tool for financial analysis and to state techniques of creative accounting. Most of the candidates attempted the questions and performance was above average. Although candidates performance was above average, it was however noted that most of them could not correctly apply and interprete the ratios computed as required by the examiner. Computation and interpretation of ratios is a regular feature at the skills level of the institute’s examinations. Candidates are therefore advised to pay more attention to this area of the syllabus and also practice past questions and answers in the pathfinder for better performance in future.

Marking guide Marks Marks

(a) Calculation of relevant ratios Correct calculation of return on capital employed (ROCE) 1 Correct calculation of earnings per share (EPS) 1 Correct calculation of dividend per share 1 Correct calculation of dividend cover 1 Correct calculation of assets turnover 1 5 21

(b) Financial viability, analysis report and advise to potential investor Comment on profitability position 1 Comment on earnings performance 1 Comment on dividend policy and shareholders returns 1 Recommendation/advise on investment decisions 1 4 (c) Limitations of the use of EPS and ROCE as tool for financial analysis Four limitations of earnings per share (EPS) 4 Four limitations of return on capital employed (ROCE) 4 8 (d) Techniques of creative accounting Any six (6) correct techniques 3 Total 20

Blessing group Consolidated statement of financial position as at March 31, 2025 Non-current assets: N’000 Properties (56,000 + 21,000) 77,000 Plant (400,000 + 20,000 + 12,000 1,200) 430,800 Equipment (900 + 3,800) 4,700 Investments (60,000 - 45,000) 15,000 Goodwill 18,000 545,500 Current assets: Inventory (24,000 + 18,000 - 967) 41,033 Trade receivables (38,000 + 12,000- 4,600 – 3,800) 41,600 Bank (5,100 + 4,200 + 4,600) 13,900 642,033 Equity and liabilities: Ordinary share capital 240,000 Consolidated retained earnings 288,666 528,666 Non-controlling interests 16, 167 Current liabilities: Trade payables (45,000 +17,000-3,800) 58,200 Other payables (13,000 + 4,000) 17,000 Deferred consideration (20,000 + 2,000) 22,000 642,033 22 Working Notes: W1 Blessings Plc 80% Date of acquisition 4/1/2024 Jigawa Ltd NCI = 20% Date of consolidation 3/31/2025 W2 Purchase consideration N’000 Cash 45,000 Deferred consideration (N22M ×0.909) 20,000 65,000__ W3i Fair value adjustment (Surplus) N’000 Plant 12,000 Ii Under depreciation (N12m/10 Years ×1) 1,200 W4 Unrealised profit (Jigawa – Blessings) N’000 (20/120 × N5.8m) 967 W5 Discount Unwound N’000 10% ×N20m 2,000 W6 Net asset summary –Jigawa Ltd Date of acquisition (DOA) N’000 W7 Goodwill N’000 Purchase consideration 65,000 NCI at fair value 15,000 Less FV of net assets (62,000) 18,000 Date of consolidation (DOC) N’000 Post acquisition earnings (PAE) N’000 Ord. share capital 30,000 30,000 - Retained earnings 20,000 28,000 8,000 Fair value gain 12,000 12,000 - Under depreciation - (1,200) (1,200) Unrealised profit (URP)

- ______ (967) (967) 62,000 67,833 5,833 23 W8 Non controlling interest (NCI) N’000 Value at acquisition 15,000 Share of PAE (20% × N5,833) 1,167 16,167 W9 N’000 Consolidated retained earnings 286,000 Blessing’s retained earnings 4,666 Share of PAE (80% × N5,833) (2,000) Discount unwound 288,666

(b) Exemptions from preparing consolidated financial statements Under IFRS 10 'consolidated financial statements', a parent is exempted from preparing consolidated financial statements if all of the following conditions are met: i. The parent is itself a wholly-owned subsidiary, or is a partially-owned subsidiary of another entity and its other owners, including those not otherwise entitled to vote, have been informed about it, and do not object to, the parent not presenting consolidated financial statements; ii. The parent's debt or equity instruments are not traded in a public market; iii. The parent did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market; and iv. The ultimate or any intermediate parent of the parent produces consolidated financial statements available for public use that comply with International Financial Reporting Standards (IFRS).

Examiner’s report The question tests candidates’ knowledge of preparation of consolidated statement of financialposition in accordance with the provisions IFRS 10 – Consolidated Financial Statements. Candidates are also required to state the conditions in which a parent is exempted from preparing consolidated financial statements. Most of the candidates attempted the question and their performance was above average. Some of the candidates could not correctly compute the following: - Non- controlling interests; - Consolidated retained earnings; - Deferred consideration; and - Net assets of the subsidiary at the date of consolidation 24 Candidates are advised to pay more attention to group accounts, particularly the areas that requires necessary adjustments of the parent and subsidiary accounts before the final consolidation.

Marking guide Marks Marks

a) Preparation of consolidated statement of financial position Stating the title of the financial statement ¼ Stating the consolidated properties ¾ Stating the consolidated plant 1 Stating the consolidated equipments ½ Stating the consolidated investments ½ Calculation and stating goodwill on acquisition 2 Stating consolidated total non-current assets ¼ Adjusting and stating the consolidated inventory 1¼ Stating consolidated trade receivables 1 Stating consolidated bank balance 1 Stating total consolidated current assets ¼ Stating consolidated total assets ¼ Stating the share capital ¼ Calculation and stating consolidated retained earnings 3 Calculation and stating non-controlling interest 1 Stating the consolidated trade payables 1 Stating the consolidated other payables ½ Calculating and stating the deferred consideration 1 Stating consolidated total equity and liabilities ¼ 16 b) Exemptions from preparing consolidated financial statements under IFRS 10 Four exceptions stated 4 Total 20

(a) Responsibilities of the directorate of accounting standards of FRC Nigeria The directorate of accounting standards of the Financial Reporting Council of Nigeria (FRC) is responsible for ensuring high-quality financial reporting in Nigeria. Its responsibilities include:

i. Development and issuance of accounting standards The directorate develops, adopts and issues accounting and financial reporting standards to be complied with by entities in Nigeria; 25

ii. Promotion of compliance with standards It ensures that public and private entities comply with approved accounting standards such as IFRS and other reporting regulations;

iii. Monitoring and enforcement The directorate monitors financial statements of entities and enforces compliance with accounting standards and reporting requirements;

iv. Review and update of standards It reviews existing accounting standards periodically and updates them in line with international best practices and economic realities; and

v. Provision of guidance and interpretation The directorate provides technical guidance, clarification and interpretation on accounting standards to preparers and users of financial statements.

(b) Contents of accounting records under CAMA 2020 Under the Companies and Allied Matters Act (CAMA) 2020, accounting records must contain sufficient information to show and explain the transactions of the company. The records must include: i. Daily records of cash received and paid Records showing all money received and expended by the company and the matters to which they relate;

ii. Record of assets and liabilities Proper details of the assets owned and liabilities incured by the company;

iii. Statement of goods bought and sold Where the business involves trading in goods, records of all purchases and sales must be maintained; and

iv. Inventory records Statements of inventory held at the end of each financial year and inventory-taking records from which such statements are prepared.

(c) Alternative to conceptual framework. Yes, there are alternatives to conceptual framework. Alternatives

i. Rules-based system Rather than principles derived from a framework, a rule-based system provides detailed, specific rules for each transaction. This reduces professional judgement but can create loopholes. The US GAAP system historically was more of rule-based system. 26

ii. Industry-specific standards Some argue that instead of a general conceptual framework, industry- specific standards provide more relevant guidance (for example, banks, insurance companies, or extractive industries). BOFIA, Insurance Act, CBN Prudential Guidelines, Stock Exchange Acts and industry-specific rules are alternative to the framework.

iii. Government/tax-based accounting Some jurisdictions base financial reporting on tax regulations rather than on a neutral conceptual framework, though this often results in poor decision-making and useful information for investors. Conclusion: The prevailing view is that while no alternative fully replaces the Conceptual Framework, it is not perfect. The framework itself acknowledges that it is not a standard and cannot override any specific IFRS. Its greatest value lies in providing consistency and direction for standard-setters.

Examiner’s report The question tests candidates’ knowledge of financial and regulatory frameworks in the following areas: - Responsibilities of the directorate of accounting standards of Financial Reporting Council of Nigeria (FRC); - Accounting records that must be maintained by every company in accordance with the provisions of CAMA 2020 as amended; and - Conceptual Framework. Most of the candidates attempted the question and performance was good Despite the good performance, some candidates could not ascertain that there arealternatives to conceptual framework, while others find it difficult to explain its purpose. Candidates are advised to cover all sections of the syllabus when preparing for examinations. As failure to have good knowledge of conceptual frame work implies that basic requirements of financial and corporate reporting are being ignored, hence candidate should ensure that this section of the skills level syllabus should be given adequate attention.

Marking guide Marks Marks

(a) Responsibilities of the directorate of accounting standards of financial reporting council (FRC) Nigeria Correctly stating five (5) responsibilities 5 (b) Contents of accounting records under CAMA 2020 27 Daily records of cash received and paid 1 Records of assets and liabilities 1 Statement of goods bought and sold 1 Inventory records 1 Correct explanation of the above four (4) records 4 (c) Alternative to conceptual framework Recognition of existence of alternative to framework ½ Identifying three alternatives 1½ Explanation of three identified alternatives 3 Conclusion 1 6 Total 15

International Sustainability Standards Board (ISSB) – IFRS S1 and IFRS S2 IFRS S1 and IFRS S2 provide guidance on sustainability-related financial disclosures to ensure that entities provide relevant, reliable and decision-useful information to investors and stakeholders.

a) Value created, eroded or preserved for others This concept explains how an entity’s activities affect stakeholders, society and the environment either positively or negatively.

• Value created occurs when the activities of an entity improve economic, social or environmental conditions. Examples are job creation, innovation and environmental protection.

• Value preserved occurs when an entity maintains existing economic or environmental benefits over time through sustainable practices.

• Value eroded occurs when business activities damage the environment, society or stakeholder interests. Examples are pollution, poor labour practices or environmental degradation.

• Under IFRS Sustainability Standards, entities are expected to disclose how their activities create, preserve or erode value over the short, medium and long-term.

b) Reasonable and supportable information Reasonable and supportable information refers to sustainability information that is reliable, verifiable and based on sound assumptions and evidence available at the reporting date. Such information should:

• Be obtainable without undue cost or effort;

• Be based on credible data and assumptions; and

• Support users in making economic decisions. 28 For example, climate risk disclosures should be supported with measurable data, forecasts and documented assumptions rather than speculation.

c) Connected information Means that sustainability-related disclosures should be linked and consistent with other financial and non-financial information presented by the entity. The information should show the relationship between:

• sustainability risks and opportunities;

• governance;

• strategy;

• risk management; and

• financial performance.

• For example, climate risks disclosed under IFRS S2 should align with the figures and assumptions used in the financial statements.

• This enhances transparency and helps users understand how sustainability issues affect the entity’s overall financial position and performance.

d) Fair presentation

• Fair presentation means that sustainability disclosures must faithfully represent the sustainability-related risks and opportunities affecting the entity.

• To achieve fair presentation, information should be: complete, neutral, and free from material error.

• The disclosures should not be misleading or biased and must reflect the true sustainability position of the entity.

• Fair presentation also requires adequate disclosure of significant assumptions, estimates and uncertainties.

e) Reporting entity A reporting entity is the organisation that prepares and presents sustainability- related financial disclosures. Under IFRS S1 and S2:

• The reporting entity for sustainability disclosures should generally be the same as that used in the financial statements; this ensures consistency and comparability between sustainability reports and financial reports. The reporting entity may be a single company, a group of companies, or another economic entity required to prepare reports.

f) Risk management

• Risk management refers to the processes and procedures used by an entity to 29 identify, assess, monitor and manage sustainability-related risks and opportunities. Under IFRS S1 and IFRS S2, entities should disclose:

• how sustainability risks are identified;

• how such risks are assessed and prioritised;

• the controls and policies used to manage the risks; and

• how the risk management process is integrated into the entity’s overall risk Examples of sustainability-related risks include:

• climate change risks;

• environmental risks;

• social risks; and

• governance risks.

• Effective risk management helps entities achieve long-term sustainability and business continuity

Examiner’s report The question tests candidates’ knowledge of basic sustainability concepts under the provisions of International Sustainability ReportingStandards IFRS S1 and S2. Most candidates did not attempt the question and the few that did performed poorly. Candidates could not correctly define and explain the basic sustainability concepts and they also find it difficult to relate it to financial reporting. Sustainability reporting is a new area of financial reporting syllabus and candidates are advised to pay special attention to its basic concepts and its applications for better performance in future examinations.

Marking guide Marks Marks Discussion on sustainability concepts

(a) Value created, eroded or preserved for others Any three correct points raised in the discussion 3 (b) Reasonable and supportable information Any three correct points raised in the discussion 3 (c) Connected information Any three correct points highlighted 3 (d) Fair presentation Any three correct points raised in the discussion 3 (e) Reporting entity Any three correct points highlighted 3 (f) Risk management 30 Any three correct points stated 3 15 Any five (5) concepts correctly discussed Total 15

Jamolaya Nigeria Ltd

(a) Valuation of inventory in accordance with IAS 2 – Inventories Under IAS 2, inventories are valued at the lower of cost and net realisable value (NRV). NRV = Estimated selling price less costs to complete less costs to sell

(i) Wardrobe Calculation of NRV Since inventory is measured at the lower of cost and NRV, the wardrobe will be included in inventory at =N945,000

(ii) Dressing table Calculation of NRV Comparison with cost: N Cost 2,748,000 NRV 2,980,500 Since the cost is lower than NRV, the dressing table will be included in inventory at N2,748,000 N Estimated selling price after repair 1,125,000 Less: Repair cost (180,000) Net realisable value (NRV) 945,000 Comparison with Cost Cost 1,080,00 NRV 945,000 N Selling price 3,375,000 Less: Commission on sale (157,500) Less: Delivery cost (237,000) Net realisable value (NRV) 2,980,500 31

(b) (i) Ethical considerations

• Integrity As finance director, you have a fundamental duty to be straightforward and honest in professional relationships. Knowingly allowing inventory to be overstated in the financial statements is a breach of integrity. The inventory must be written down in accordance with provision of IAS 2 regardless of management's preference.

• Objectivity/self-interest threat Dr. Jamolaya's offer of higher remuneration if the deal succeeds creates a self-interest threat. You are being indirectly incentivised to produce favourable financial statements, which compromises your objectivity. A reasonable observer would conclude that your judgement may be compromised.

• Professional competence and due care You are professionally obligated to apply IAS 2 correctly, which requires write-down of slow-moving inventories. Failing to do so would be a dereliction of professional duty and could expose you to disciplinary action by ICAN.

• Confidentiality/whistleblowing You are aware of a deliberate attempt to mislead a prospective buyer through inflated financial statements. There is a potential conflict between the duty of confidentiality to your employer and the wider duty not to be associated with false or misleading information.

• Professional behaviour Any misconduct ranging from subjecting to pressure of the superior, allowing self-interest to becloud our judgement, failure to write down inventory in line with the provision of IFRS, could bring the institute to a disrepute and spoil the image of the profession. Exhibiting excellent professional behaviour involves refraining from those act that could disgrace the profession

(b) ii. Course of Action

• Step 1 - Documentation Document your professional assessment that the slow-moving inventories must be written down in accordance with IAS 2. Prepare written technical memoranda explaining the basis for the write-down.

• Step 2 - Report internally 32 Bring the matter formally to the attention of the Board of Directors or Audit Committee (if one exists), separate from the Managing Director. This escalation should be done in writing.

• Step 3 - Refuse to comply Formally decline to approve financial statements that do not include the required inventory write-downs. Explain in writing that this would be a departure from IAS 2 and would mislead the prospective buyer. Also, encourage the MD to seek expert opinion in investing.

• Step 4 - Seek advice Consult your professional body (ICAN) ethics helpline or legal counsel for guidance on your obligations. The Institute's Code of Professional Conduct provides clear guidance on situations where pressure is applied to produce misleading statements.

• Step 5 - Disclosure obligation If the board refuses to correct the financial statements, you may have an obligation under applicable law or your professional code to make disclosures to the relevant regulatory authority (For example, FRC Nigeria or ICAN) – consistent with whistleblowing provisions. You may also inform the company external auditors.

• Step 6 -Resignation As a last resort, if the situation is unresolved and you are being pressured to sign off on fraudulent financial statements, you should consider resignation to avoid being associated with deliberate misrepresentation, protecting your professional reputation and avoiding legal liability.

Note: The promise of higher remuneration must not influence your professional judgement. The prospective buyer is entitled to financial statements that accurately reflect the company's financial position.

Examiner’s report The question tests candidates’ knowledge of valuation of inventories under IAS 2 - Inventories and application of professional ethics Most candidates attempted the question and their performance was below average. Candidates were able to provide correct answer to part (a) of the question on valuation of inventories however, they could not correctly state the possible course of action to mitigate the ethical considerations in the part (b) of the question. Professional ethics is an important part of financial reporting syllabus at the skills level of the institute’s examination, candidates are therefore advised to pay more attention to it, for better performance in future examinations. 33

Marking guide Marks Marks

(a) Calculation of value of inventory

i. Wardrobe Calculation of net realisable value (NRV) 2½

i) ii. Dressing table Calculation of net realisable value (NRV) 2½ 5

(b) i. Ethical considerations for the Finance Director Stating Four (4) correct ethical issues 2 Explanation of ethical Issues 2

ii. Possible course of actions/steps against ethical issues Stating Six (6) correct steps 3 Explanation of the steps 3 10 Total 15 34