QUESTION 3

(14marks)

(Total 20marks)

A. Undeniably, profitability is the ultimate goal of companies and readers of a companys financial statements are very much interested in the reported profit figure. The profit figure is achieved by the preparationofthestatementofprofitorlossandthestatementoffinancialposition.Iftheforegoingisthe

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case, why then bother about the statement of cash flows?

(5 marks)

B. Globally, accounting standards are developed based on different methods. It is generally agreed that the nature of accounting standards depends on the systems of regulation. It has been argued that there are two main systems ofregulation.

Required:

Identify and explain the difference between the two systems of regulation, stating clearly which system you believe describes the International Financial Reporting Standards (IFRS)

(5 marks)

C. On 1stJanuary 2018, Global Drilling Ltd entered into a GHS22million contract for the construction of an office complex at Tema. The building was completed at the end of December 2018. During the period, the following payments were made to thecontractor:

Payment date	Amount
	GHSm
1 January 2018	2.00
31 March 2018	6.00
30 September 2018	12.00
31 December 2018	2.00
	22.00

Global Drillings borrowings as at its year end of 31stDecember 2018 were as follows:

10% 4-year Loan Note with simple interest payable annually, which relates specifically to the building project, loans outstanding at 31stDecember 2018 amounted to GHS7,000,000. Interest of GHS700,000 was incurred on these borrowings during the year, and interest income of GHS200,000 was earned on these funds while they were held in anticipation ofpayments.

12.5% Five-year Loan Note with simple interest payable annually; debt outstanding at 1stJanuary 2018 amounted to GHS10,000,000 and remained unchanged during theyear.

10% Five-year Loan Note with simple interest payable annually; debt outstanding at 1stJanuary 2018 amounted to GHS15,000,000 and remained unchanged during theyear

Required:

Calculate the borrowing costs tobecapitalised.(5marks)

D. Miss Nsiah is a qualified chartered accountant who prepares financial statements for a firm located at Tesano. Miss Nsiah does not qualify for a practicing certificate and so she does not provide audit service to theclient.

This is her first year of preparing financial statements for the firm. When compiling the most recent accounts, she detected some material errors in the previous financial statements. It seemed that the accounts were based on incomplete records as certain costs were excluded, either deliberately or because records were not maintained.

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The Chief Executive Officer of the firm has also requested some additional work to be completed on a complex tax issue. However, she has no prior experience and does not feel competent to the work. The CEO would also like her to provide an audit opinion as they are planning to apply for funding from a bank and the bank would like some further assurance.

Required:

With reference to Code of Ethics for accountants, discuss the ethical principles applicable to the above scenario.(5 marks)