QUESTION 2

Abuja Properties and Construction Plc (APC Plc) is a company quoted on the Nigerian Exchange Group (NGX). The company's draft financial statements for the year ended 30 September 2023 have been prepared by the accounts department and submitted to you, the Financial Controller, for review. The following issues have been identified:

(i) PROPERTY REVALUATION: The company owns a commercial building that was originally purchased on 1 October 2019 for N80,000,000. The building has a useful life of 40 years with no residual value and is depreciated on a straight-line basis. The company adopted the revaluation model under IAS 16. On 1 October 2021, the building was revalued to N90,000,000 and the revaluation surplus was correctly recorded. On 30 September 2023, an independent valuer assessed the fair value of the building at N62,000,000. No entries have been made for the 2023 revaluation.

(ii) BONUS ISSUE: On 1 April 2023, the company made a bonus (capitalisation) issue of 1 ordinary share for every 5 shares held. Before the bonus issue, the company had 50,000,000 ordinary shares of N1 each in issue. The bonus issue was funded from the share premium account. No entries have been made in the books.

(iii) RIGHTS ISSUE: On 1 July 2023, the company made a rights issue of 1 new share for every 4 shares held at N2.50 per share. All shareholders took up their rights. No entries have been made in the books.

(iv) CONTINGENT LIABILITY: APC Plc is defending a lawsuit filed by a former employee claiming N15,000,000 in wrongful dismissal damages. The company's legal counsel has advised that there is a 30% probability that the company will lose the case. No provision has been made.

Required:
(a) For each of the issues (i) to (iv) above, state the correct accounting treatment in accordance with the applicable International Financial Reporting Standard (IFRS) or IAS, and prepare the necessary journal entries where applicable. (20 marks)
(b) Explain the difference between a BONUS ISSUE and a RIGHTS ISSUE and state the effect of each on the total equity of the company. (5 marks)

Total: 25 marks

Question

QUESTION 2

Abuja Properties and Construction Plc (APC Plc) is a company quoted on the Nigerian Exchange Group (NGX). The company's draft financial statements for the year ended 30 September 2023 have been prepared by the accounts department and submitted to you, the Financial Controller, for review. The following issues have been identified:

(i) PROPERTY REVALUATION: The company owns a commercial building that was originally purchased on 1 October 2019 for N80,000,000. The building has a useful life of 40 years with no residual value and is depreciated on a straight-line basis. The company adopted the revaluation model under IAS 16. On 1 October 2021, the building was revalued to N90,000,000 and the revaluation surplus was correctly recorded. On 30 September 2023, an independent valuer assessed the fair value of the building at N62,000,000. No entries have been made for the 2023 revaluation.

(ii) BONUS ISSUE: On 1 April 2023, the company made a bonus (capitalisation) issue of 1 ordinary share for every 5 shares held. Before the bonus issue, the company had 50,000,000 ordinary shares of N1 each in issue. The bonus issue was funded from the share premium account. No entries have been made in the books.

(iii) RIGHTS ISSUE: On 1 July 2023, the company made a rights issue of 1 new share for every 4 shares held at N2.50 per share. All shareholders took up their rights. No entries have been made in the books.

(iv) CONTINGENT LIABILITY: APC Plc is defending a lawsuit filed by a former employee claiming N15,000,000 in wrongful dismissal damages. The company's legal counsel has advised that there is a 30% probability that the company will lose the case. No provision has been made.

Required:
(a) For each of the issues (i) to (iv) above, state the correct accounting treatment in accordance with the applicable International Financial Reporting Standard (IFRS) or IAS, and prepare the necessary journal entries where applicable. (20 marks)
(b) Explain the difference between a BONUS ISSUE and a RIGHTS ISSUE and state the effect of each on the total equity of the company. (5 marks)

Total: 25 marks

Accepted Answer

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Answer

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Answer

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