(a) The accounting treatment of investment properties is prescribed by IAS 40: Investment property.

Required:

1. Define investment property under IAS 40 and explain why its accounting treatment is different from that of owner-occupied property.
2. Explain how the treatment of an investment property carried under the fair value model differs from an owner-occupied property carried under the revaluation model. (5 marks)

(b) Alavanyo Ltd owns the following properties at 1 January 2013: Property XYZ:

An office building used by Alavanyo Ltd for administrative purposes with a depreciated historical cost of GHC4million. At 1 April 2012 it had a remaining life of 20 years. After a reorganization on 1 July 2013, the property was let to a third party and reclassified as an investment property to have a fair value of GHC4.6million at 1 July 2013, which had risen to GHC4.68 million at 31 December 2013.

Property QRS:

Another office building sub-let to a subsidiary of Alavanyo Ltd. At 1 January 2013, it had a fair value of GHC3million which had risen to GHC3.30million at 31 December 2013.

Required:

Prepare extracts from Alavanyo Ltds entity statement of profit or loss and other comprehensive income and statement of financial position for the year ended 31 December 2013 in respect of the above properties. In the case of property QRS only, state how it would be classified in Alavanyo Ltds consolidated statement of financial position. (5 marks)

(c) MNO Ltd adopts fair value for subsequent measurement of its intangible assets. An intangible with an estimated useful life of 9 years was acquired on 1 January 2012 for GHC90,000. It was revalued to GHC108,800 on 31 December 2012 and the revaluation surplus was correctly recognized on that date. As at 31 December 2013, the asset was revalued at GHC64,000.

Required:

State the accounting treatment required in 2012 and 2013 financial statements. (5 marks)

(d) Generally, there are advantages of global harmonization of financial reporting standards to countries around the world including Ghana.

Required: Identify THREE advantages and THREE disadvantages of International Harmonization of accounting standards to multi-national companies operating in Ghana.

(5 marks)

(b) You have just returned from a training on International Accounting Standard 12 (IAS 12) Income Tax. The International Accounting Standard (IAS 12) prescribes the treatment income taxes. It was established that IAS 12 only prescribes the treatment of taxes in the financial books of firms but not the provision of tax rates and their respective computation. Tax rates are normally issued by various countries in consonance with their respective tax legislations. In most countries, the rate changes from year-to-year. In effect, IAS 12 only provides accounting treatment of tax in the preparation of financial statements.

The standard (IAS 10) further stresses on the need to distinguish between a companys tax expense, deferred tax and tax provisions. As a fresh trainee, you have been tasked by your company to perform the following:

a) Compute the total tax expense (4marks)

b) Distinguish between accounting profit and taxable profit; (2 marks)

c) Distinguish between permanent difference and temporary difference (2 marks)

d) The outstanding tax payment at the end of the year 2017 (2 marks)

Below is the statement of comprehensive income prepared by the senior accountant of your firm.

Statement of comprehensive income for the year ended 31/12/2017

GH

Revenue 500,000

Cost of sales 280,000

Gross profit 220,000

Administrative and selling & distribution exp. 130,000

Operating profit 90,000

Investment income 12,000

Profit before interest and tax 102,000

Tax (30% @ 102,000) 10,200

Profit after tax 91,800

Additional information shows the following:

1) The administrative, selling & distribution expenses consist of the following:

GH

General administrative cost 20,000

Staff salaries 40,000

Depreciation of PP&E 16,000

Rental charges of Board members residence 14,000

Sponsorship of CEOs Alumni Dinner 10,000

Penalty charges for late tax payments 5,000

Penalty charges for wrong parking of company cars 3,000

Directors Remuneration 12,000

Auditors fees 10,000

2) The tax authorities in Ghana allows full provision on the properties, plant and equipment.