Q3

After preparing a draft statement of profit or loss (before interest and tax) for the year ended 31 March 20X6 (before any adjustments which may be required by notes (i) to (iv) below), the summarised trial balance of Issah Co as at 31 March 20X6 is:

GHC000 GHC000

Equity shares of GHC1 each 50,000

Retained earnings as at 1 April 20X5 3,500

Draft profit before interest and tax for year ended 31 March 20X6 30,000

6% convertible loan notes (note (i)) 40,000

Leased property (original life 25 years) at cost (note (ii)) 75,000

Plant and equipment at cost (note (ii)) 72,100

Accumulated amortisation/depreciation at 1 April 20X5: leased property 15,000

plant and equipment 28,100

Trade receivables (note (iii)) 28,000

Other current assets 9,300

Current liabilities 17,700

Deferred tax (note (iv)) 3,200

Interest payment (note (i)) 2,400

Current tax (note (iv) 700

187,500 187,500

The following notes are relevant:

(i) Issah Co issued 400,000 GHC100 6% convertible loan notes on 1 April 20X5. Interest is payable annually in arrears on 31 March each year. The loans can be converted to equity shares on the basis of 20 shares for each GHC100 loan note on 31 March 20X8 or redeemed at par for cash on the same date. An equivalent loan without the conversion rights would have required an interest rate of 8%.

The present value of GHC1 receivable at the end of each year, based on discount rates of 6% and 8%, are:

6% 8%

End of year 1 094 093

2 089 086

3 084 079

(ii) Non-current assets:

The directors decided to revalue the leased property at GHC663m on 1 October 20X5. Issah Co does not make an annual transfer from the revaluation surplus to retained earnings to reflect the realisation of the revaluation gain; however, the revaluation will give rise to a deferred tax liability at the companys tax rate of 20%.

The leased property is depreciated on a straight-line basis and plant and equipment at 15% per annum using the reducing balance method.

No depreciation has yet been charged on any non-current assets for the year ended 31 March 20X6.

(iii) In September 20X5, the directors of Issah Co discovered a fraud. In total, GHC700,000 which had been included as receivables in the above trial balance had been stolen by an employee. GHC450,000 of this related to the year ended 31 March 20X5, the rest to the current year. The directors are hopeful that 50% of the losses can be recovered from the companys insurers.

(iv) A provision of GHC27m is required for current income tax on the profit of the year to 31 March 20X6. The balance on current tax in the trial balance is the under/over provision of tax for the previous year. In addition to the temporary differences relating to the information in note (ii), at 31 March 20X6, the carrying amounts of Issah Cos net assets are GHC12m more than their tax base.

Required:

(a) Prepare a schedule of adjustments required to the draft profit before interest and tax (in the above trial balance) to give the profit or loss of Issah Co for the year ended 31 March 20X6 as a result of the information in notes (i) to (iv) above.

(b) Prepare the statement of financial position of Issah Co as at 31 March 20X6.