Question

Question 7

Abu Ltd had 100,000 shares in issue, but then makes a 1 for 5 rights issue on 1 October 2017 at a price of GH¢1. The market value on the last day of quotation with rights was GH¢1.60. Total earnings are GH¢50,000 in 2017 and GH¢40,000 in 2016.

Required:

Calculate the Earnings per share for the year ended 31 December 2017 and the corresponding figure for 2016 in accordance with IAS 33: Earnings per share

Question 5

Adom Ltd is a company with capital of 100,000 ordinary shares each and 20,000 10% redeemable preference shares of GH¢1 each. The gross profit was GH¢200,000 and trading expenses were GH¢50,000. Adom paid the required preference share dividend and an ordinary dividend of GH¢0.42 per share. The tax charge for the year was estimated at GH¢40,000.

Required:

Calculate the Basic EPS for the year.       

Question 8

A company has 12,000,000 ordinary shares in issue and GH¢ 4 million of 5% convertible bonds. As at 31/12/2016, there have been no new issues of shares or bonds for several years. The bonds are convertible into ordinary shares in year 2017 and 2018 at the following rate:

At 31/12/2017: 30 shares for every GH¢ 100 of bonds

At 31/12/2018: 25 shares for every GH¢ 100 of bonds.

Total earnings for the year to 31/12/2016 were GH¢ 3,600,000. Total earnings for the previous year 2015 were GH¢ 3,300,000. Tax is payable at a rate of 30% on profits.

Required

Calculate the basic EPS and diluted EPS for year 2016, and the comparative figures for year 2015 (for reporting in the year 2016 financial statements).

Question 9

Suame Ltd is a listed telecommunication company which prepares its financial statements for the year ended 31 October, 2018 in accordance with IFRS. The financial statements are due to be authorised for issue on 15 January 2019.

1. Suame Ltd holds an investment in the shares of a listed company, Asafo Ltd. During November 2018 there was a material fall in the value of Asafo Ltd’s shares. Analysts attribute the fall in value principally to a fraud dating back to December 2017 that was discovered by Asafo Ltd's management and announced publicly in November 2019.

2. In December 2018, the directors of Suame Ltd publicly announced a plan to reduce the workforce by 10% as a result of worsening economic conditions.

Required:

Discuss the effects of each of the above items on the financial statements of Suame Ltd for the year ended 31 October 2018 in accordance with IAS 10 Events after the Reporting Period.    

Question 10

Determine whether the following are adjusting or non-adjusting events and explain your answer:

1. An entity gives warranties at the time of sale to purchasers of its products. On 31 December 2018 an entity assessed its warranty obligation to be GH¢100,000. Immediately before the 31 December 2018 annual financial statements were authorised for issue, the entity discovered a latent defect in one of its lines of products (ie a defect that was not discoverable by reasonable or customary inspection). As a result of the discovery, the entity reassessed its estimate of its warranty obligation at 31 December 2018 at GH¢150,000.                                                                                             

2. On 1 March 2017 an entity’s financial statements for the year ended 31 December 2016 were authorised for issue. At 31 December 2016 the entity had significant unhedged foreign currency exposures. By 1 March 2017 a significant loss had been incurred on these exposures because of a material weakening of the entity’s functional currency against the foreign currencies to which it is exposed.                                           

3. On 28 February 2017 an entity’s financial statements for the year ended 31 December 2016 were authorised for issue. On 20 February 2017 a fire destroyed one of the entity’s paper manufacturing plants which had a carrying amount of GH¢2,000,000 at 31 December 2016. The entity does not have insurance against fire damage. The entity remains a going concern.                                                                                               

Question 11

IFRS 17-Insurance Contracts is an International Financial Reporting Standard that was issued by the International Accounting Standards Board in May 2017 and has an effective date of 1^st January, 2023. This standard will replace IFRS 4 which was designed earlier to make limited improvements to accounting policies and to provide users with an insight into the key areas that relate to accounting for insurance contracts.

Required: Identify and briefly explain any five limitations in IFRS 4 that IFRS 17 purports to improve upon

Answer 1

Answer 7:	Calculation of theoretical ex-rights price:
		GH₵
	Before issue 5 shares, value × GH₵1.60	8
	Rights issue 1 share, value × GH₵1.00	1
	Theoretical value of 6 shares	9
	Theoretical ex-rights price = GHS 9 / 6 = GHS 1.5
	EPS for 2016
	EPS as calculated before taking into account the rights issue =
	40p (GH₵40,000 divided by 100,000 shares).
	EPS = (1.5/1.6)*40p = 37.5 p

This is the corresponding value for 2016 which will be shown in the financial statements for B Co at the end of 2017

EPS for 2017 :

Number of shares before the rights issue was 100,000, 20,000 shares were issued

Stage 1: 100000 * (9/12) *(1.6/1.5) = 80000

Stage 2 : 100000 * 9 / 12 = 30000

Total = 80000 + 30000 = 110000

EPS = GHS 50000 / 110000 = 45.5 p

The figure for total earnings is the actual earnings for the year.