UGBSMSCAFFRASSIGNMENT$2$:SUBMISSIONDATE$20$THMARCH$2024$

T$0$EMAILaddoaugustine$61$@yahoo.com

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Question $1$

Super Products Plc $[$SPP$]$ was incorporated as a private company in $2015.$ All the shares of the company are held by the Managing Director, Dr Aboagyeand his family members.. After seven years of successful operation, the Board of Directors decided to get the company listed on Ghana Stock Exchange.As a first step, the Board decided to make an initial public offer $[$IPO$]$ on the strength of the companys $2023$ financial statements. The summarised unaudited financial statements ofSPPareas follows:

Statementof comprehensiveIncometheyearended$31$December $2023$

GHS$000$

RevenuefromContract withCustomers$($notei$)$

$100,000$

Cost of sales

$(48,000)$

GrossProfit

$52,000$

OperationalExpenses

$(23,200)$

Financecosts $[$Interestondebenturestocks$]$

$(800)$

NetProfit

$28,000$

Taxation$($@$25\%)$

$(7,000)$

Profitforthe period

$21,000$

$=====$

StatementofChangesinEquityfortheyearended$31$December$2023$

Stated

Capital

Retained

Earnings

Total

As atIJanuary$2023$

GHS$000$

$8,000$

GHS$000$

$30,000$

GHS$000$

$38,000$

Profitfortheyear

$21,000$

$21,000$

Dividendpaid

$(12,360)$

$(12,360)$

Asat$31$December$2023$

$8,000$

$=====$

$38,640$

$======$

$46,640$

$=====$

Statementoffinancialpositionasat$31$December$2023$

ASSETS

GHS$000$

Non$-$currentassets

Propertyatvaluation$($LandGHS $2$m; buildingsGHS$18$m$)($ii$)$

$20,000$

Plantandequipment$($ii$)$

$16,000$

IntangibleAssetPatent Right$($ii$)$

$2,000$

Financialasset$($fairvalued throughprofitor lossat$1/1/2023)($iii$)$

$5,000$

$43,000$

CurrentAssets

Inventories

$8,000$

Tradereceivables

$9,000$

Cashandcashequivalents

$3,000$

$20,000$

Total Assets

$63,000$

$=====$

EQUITYAND LIABILIES

GHS$000$

StatedCapital$(4$million sharesissuedat GHS$2\mathrm{.}00$pershare$)$

$8,000$

RetainedEarnings

$38,640$

$46,640$

Non$-$currentliabilities

$20\%$DebentureStocks $[2023-2026]($notev$)$

$4,000$

DeferredTaxprovision $-1$ January$2023($notevi$)$

$3,000$

$7,000$

Current liabilities

TradePayables andprovisions

$2,360$

CurrentTax liability

$7,000$

$9,360$

TotalEquityand Liabilities

$63,000$

TheManagingDirector,DrAboagyehascontacted you

$=====$

toassistinreviewingthefinancial

statements for correctness. Your examination of the financial statements and the underlying records revealed the following additional information:

i$)$Therevenuefrom contract with customersincludes GHS$4$ millionof revenueforcredit sales invoicedtoa major customer in Tamale $[$Yelma Enterprise$]$on $30$thDecember $2023$ on CIF basis. On $2$ndJanuary $2024,$ the Customer sent a message that the goods had not arrived. A followuprevealed that the delivery truck was involved in an accident at Techiman and only $50\%$ of the consigned goodscould be salvaged. The salvaged goods were delivered to Yelma Enterprise at full selling priceon $3$rdJanuary $2024.$ The Insurer, Trust Insurance Plc accepted full claim ofthecost $($cost to the insured$)$of the damaged goods.SPPapplied a mark up on cost of $25\%$ on all these sales

The depreciablenon$-$current assetshave not been depreciated for the year ended $31$ December $2023.$

SPPhasapolicyofrevaluingitslandandbuildings attheendofeachaccounting year.The values in the above statement of financial position are as at $1$ January $2023$ when the buildings had a remaining life of $20$ years. A qualified surveyor has valued the land and buildings at $31$ December $2023$ at GHS$21$million.

Plantand equipment aredepreciated at $12\mathrm{.}5\%$ per annumon the reducing balance basis. As at $31$ December $2023,$ the value in use and the fair value less cost to sell were assessed at GHS$14\mathrm{.}2$ million and GHS$13\mathrm{.}7$ million respectively.

Thepatentrightwas acquiredinJanuary$2023$ at acostofGHS$2$million. Itisexpectedto be used for $5$ years after which the right of usage would have to be renewed in January $2028.$

iii$)$Thefinancialassetsatfairvaluethroughprofitorlossareheldinafundwhosevalue changes directly in proportion to a specified market index. At $1$ January $2023,$ the relevant index was $240,0$and at $31$ December$2023,$the indexwas $259\mathrm{.}2$

SPPoffersone yearwarrantyforoneofitsproducts$(75$inchTVSets$).$ Followingfrompast occurrence, it has been established that $75\%$ of TV setssold are not returned for any rectification, $20\%$ are returned for minor faults and $5\%$ are returned for major faults. On the average minor repairs cost GHS$1,000$per unitand majorrepairs cost GHS$4,000$ per unit. In the year $2023,$one hundred $75$ inch TV sets were sold.

Beside thesesales, a former employee has sued the company for GHS$400,000$ for wrongful dismissal and the legal advisors have advised that there is $80\%$ probability that the case will be determined in favour of the employee.

The $20\%$GHS$4$ millionDebenture stocks were issued on $1$ January $2023$ at par. Interests arepayable annuallyin arrearsat $31$ December. Thestocks would beredeemed at apremiumon $31$ December $2025$; thus yielding an effective interest rate of $25\%$ per annum.

As at $31$ December $2023,$ thecompany's taxable temporary differenceshad increased to GHS$16$ million. The applicable income tax rate is $25\%.$

Theabovefigures do not includetheestimated provision for current incometax on theprofit forthe year ended $31$ December $2023.$ After allowing for any adjustments required in items $($i$)$ to $($v$),$ the directors have estimated the provisionof current tax liability for $2023$ at $25\%$ of adjusted profit.

During the current year,$(2023)$dividends of GHS$12\mathrm{.}36$ million were paid. These have been correctly accounted for in the above financial statements.The correction of the errors identified above would notaffect dividend payment.

Required

Redraftthefinancialstatementsabove$($takingintoconsiderationtheadditionalinformation

$($vi$)$above$.($Total$25$marks$)$