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QUESTION 7 The following trial balance was extracted from the books of Frafraha Ltd (Frafraha) on 31 Dr. Cr. Note GH000 GH000 March 2018. 372,000
QUESTION 7 The following trial balance was extracted from the books of Frafraha Ltd (Frafraha) on 31 Dr. Cr. Note GH000 GH000 March 2018. 372,000 (i) (i) 221,000 120,000 62,000 60,000 Revenue Purchases Administration expenses Land and buildings at valuation 1/04/2017 Plant and machinery at cost Accumulated depreciation 01/04/2017 (Plant and equipment) Intangible assets at cost Inventories at 01/04/2017 Cash and cash equivalents Equity shares of GH1 each Suspense account Retained earnings 01/04/2017 20,000 (iii) (ii) 30,000 37,300 75,700 110,000 (i) 11,000 115,000 The following notes may be relevant: 617,000 617,000 i) Frafraha applies the revaluation model of IAS 16 Property, Plant & Equipment to its land and buildings. A revaluation took place on 31 March 2017 and resulted in the fair value of GH62 million shown above. This figure included GH22 million in respect of land. The buildings were deemed to have a 40-year useful economic life remaining at that date. No depreciation has yet been charged for the accounting period ended on 31 March 2018. All depreciation is charged to cost of sales. On 31 March 2018, a further revaluation took place which revealed a fair value of GH24 million for the land, and GH41 million for the buildings. This is to be recorded in the books in accordance with the accounting policy of Frafraha. Plant & equipment is being depreciated at 25% per annum straight line from the date of purchase to the date of sale. On 1 October 2017, a piece of plant was purchased at a cost of GH12 million. This replaced another piece of plant which had cost GH8 million some years ago and was fully depreciated prior to 31 March 2017. A trade-in allowance of GH1 million was received for the old plant. The only entries made to record this transaction were to credit cash and debit suspense with the net payment of GH11 million. No other item of plant was more than three years old at 1 April 2017. ii) The inventories figure in the trial balance is the opening inventories balance measured on the first-in first-out (FIFO) basis. Due to a change in Frafraha's business, the company decided to change its accounting policy with respect to inventories to a weighted average basis, as follows: 31 March 2017 31 March 2016 GH'000 GH'000 FIFO 33,200 37,300 Weighted average 30,300 34,100 Closing inventories at 31 March 2018, measured under the weighted average basis, amounted to GH41.2 million. 111 Intangible assets consist of capitalised development costs of GH30 million. These relate to products in development at 1 April 2017. No revenue has yet been earned from any of these products. They are all expected to be successful once ready for market, with the exception of one project. The amount previously capitalised in respect of this project was GH6 million. However, adverse developments have led to the decision to abandon the project as it was unlikely to be successful in the marketplace. During the year further expenditure was incurred on other qualifying projects and was charged to administration expenses. The amounts are as follows: Prototype development costs GH3 million. Marketing research to determine the optimal selling strategy GH1 million. Basic research which may lead to future projects GH4 million. iv) Frafraha commenced construction of a new warehouse on 1 May 2017. The building was completed and available for use on 30 November 2017. The cost of construction amounted to GH9 million, funded out of general borrowings, which comprise two bank loans as follows: GH4 million of bank loan finance at 6% interest. GH6 million of bank loan finance at 4.5% interest. All interest costs have been expensed in the year to 31 March 2018 but no other entries has been passed in respect of this. Ignore any depreciation in relation to the new warehouse. v) Corporate tax for the year is estimated at GH0.25 million. Required: Prepare, in a form suitable for publication to the shareholders of Frafraha Ltd the Statement of Profit or Loss for the year ended 31 March 2018 and Statement of Financial Position as at 31 March 2018
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