QUESTION THREE a) The inventory balance of Gidimadjor Ltd are as follows for the year ended March 31, 2017 GH000 Opening Inventory 28,875 Closing Inventory 31,425 In the course of preparing the financial statements at March 31, 2017, the need for a number of adjustments emerged as stated below: i. The opening inventory was found to have been overstated by GH3,135,000 as a result of crror in the calculation of values in the inventory sheets. ii. Some items included in the closing inventory at the cost of GH120,000 were found to be defective and were sold after the end of the reporting period for GH78,000. Selling cost amounted to GH4,500 Required: Discuss the above transaction in accordance to IAS 8; Accounting policies, changes in accounting estimates and correction of errors. (3 marks) 50% b) On 1 April 2016, Gidimadjor Ltd received a government grant of GHmillion towards the purchase of new plant with a gross cost of GH64 million. The plant has an estimated life of 10 years and is depreciated on a straight-line basis. One of the terms of the grant is that the sale of the plant before 31 March 2020 would trigger a repayment on a sliding scale as follows: Sale in the year ended: Amount of repayment 31 March 2017 100% 31 March 2018 75% 31 March 2019 31 March 2020 25% Accordingly, the directors propose to credit to the statement of profit or loss GH2 million (GH8 million x 25%) being the amount of the grant they believe has been camed in the year to 31 March 2017.Gidimadjor Ltd accounts for government grants as a separate item of deferred credit in its statement of financial position. Gidimadjor Ltd has no intention of selling the plant before the end of its economic life. Required: Advise, and quantify where possible, how the above items should be treated in Gidimadjor LED's financial statements for the year ended 31 March 2017 (3 marks) c) Gidi Professional Institute is constructing a Tuition Center at Aboabo that will take about 18 months to complete. The company commenced construction on 2 January 2018 The following payments were made during the year: GH4000 31 January 40,000 31 March 90,000 30 June 20,000 31 October 40,000 30 November 50,000 The first payment on 31 January was funded from the company's pool of debts. However, the company succeeded in raising Medium-Term Loan Notes for an amount of GH160,000,000 on 31 March 2018 at a simple interest rate of 9 percent per year, calculated and payable monthly in arrears. These funds were specifically used for the construction. Excess funds were temporarily invested at 6 percent monthly in arrears and payable in cash. The pool of debts was again used for a GH40,000,000 payment on 30 November 2018 which could not be funded from the Medium-Term Loan Notes. The construction project was temporarily halted for three weeks in May 2018 when substantial technical and administrative work was carried out. The following amounts of debts were outstanding at the reporting date of 31 December 2018: GH&'000 Medium-Term Loan Notes 160,000 Bank Overdraft 240,000 10% 7-year Notes 1/10/2018 with simple interest payable annually at 31 Dec 1,800,000 For the bank overdraft, the weighted average amount outstanding during the year was GH150,000,000 and the total interest charged by the bank amounted to GH6,760,000 for the year. Required Calculate the total amount of interest to be capitalised (5 marks) d) Explain how the transactions below should be treated in the financial statements of Gidimadjor Catering Services in accordance to IAS 10; Events after the Reporting Period: i. Gidimadjor Catering Services has an investment worth GH1 million in its financial statements at 31 December 2018. Due to the continuing recession, the investment reduced in value to GH900,000 by 15, January 2019. ii. On 8 January 2019, one of the accountants left Gidimadjor Catering Services suddenly. On further investigation, the company realized that this employee had been paying himself money from the bank account in relation to false rental invoices. The amount of the overpayment was found to be GH86,000. With the help of the police, the accountant was tracked down and repaid all of the money on 18 January 2019 On 10 January 2019, Gidimadjor Catering Services sold some inventory for GH80,000. This inventory had been included in the year-end inventory count at cost of GH100,000 iv. Gidimadjor Catering Services LTD sold a truck on 31 December 2018 for GH20,000. This truck had been purchased on 1 January 2013. On 31 December, a non-refundable deposit of GH15,000 was paid towards a new truck and a cheque was posted with the balancing payment of GH50,000. This cheque was not received and cashed by the seller until 4 January 2019. (4 marks) (Total: 15 marks) QUESTION THREE a) The inventory balance of Gidimadjor Ltd are as follows for the year ended March 31, 2017 GH000 Opening Inventory 28,875 Closing Inventory 31,425 In the course of preparing the financial statements at March 31, 2017, the need for a number of adjustments emerged as stated below: i. The opening inventory was found to have been overstated by GH3,135,000 as a result of crror in the calculation of values in the inventory sheets. ii. Some items included in the closing inventory at the cost of GH120,000 were found to be defective and were sold after the end of the reporting period for GH78,000. Selling cost amounted to GH4,500 Required: Discuss the above transaction in accordance to IAS 8; Accounting policies, changes in accounting estimates and correction of errors. (3 marks) 50% b) On 1 April 2016, Gidimadjor Ltd received a government grant of GHmillion towards the purchase of new plant with a gross cost of GH64 million. The plant has an estimated life of 10 years and is depreciated on a straight-line basis. One of the terms of the grant is that the sale of the plant before 31 March 2020 would trigger a repayment on a sliding scale as follows: Sale in the year ended: Amount of repayment 31 March 2017 100% 31 March 2018 75% 31 March 2019 31 March 2020 25% Accordingly, the directors propose to credit to the statement of profit or loss GH2 million (GH8 million x 25%) being the amount of the grant they believe has been camed in the year to 31 March 2017.Gidimadjor Ltd accounts for government grants as a separate item of deferred credit in its statement of financial position. Gidimadjor Ltd has no intention of selling the plant before the end of its economic life. Required: Advise, and quantify where possible, how the above items should be treated in Gidimadjor LED's financial statements for the year ended 31 March 2017 (3 marks) c) Gidi Professional Institute is constructing a Tuition Center at Aboabo that will take about 18 months to complete. The company commenced construction on 2 January 2018 The following payments were made during the year: GH4000 31 January 40,000 31 March 90,000 30 June 20,000 31 October 40,000 30 November 50,000 The first payment on 31 January was funded from the company's pool of debts. However, the company succeeded in raising Medium-Term Loan Notes for an amount of GH160,000,000 on 31 March 2018 at a simple interest rate of 9 percent per year, calculated and payable monthly in arrears. These funds were specifically used for the construction. Excess funds were temporarily invested at 6 percent monthly in arrears and payable in cash. The pool of debts was again used for a GH40,000,000 payment on 30 November 2018 which could not be funded from the Medium-Term Loan Notes. The construction project was temporarily halted for three weeks in May 2018 when substantial technical and administrative work was carried out. The following amounts of debts were outstanding at the reporting date of 31 December 2018: GH&'000 Medium-Term Loan Notes 160,000 Bank Overdraft 240,000 10% 7-year Notes 1/10/2018 with simple interest payable annually at 31 Dec 1,800,000 For the bank overdraft, the weighted average amount outstanding during the year was GH150,000,000 and the total interest charged by the bank amounted to GH6,760,000 for the year. Required Calculate the total amount of interest to be capitalised (5 marks) d) Explain how the transactions below should be treated in the financial statements of Gidimadjor Catering Services in accordance to IAS 10; Events after the Reporting Period: i. Gidimadjor Catering Services has an investment worth GH1 million in its financial statements at 31 December 2018. Due to the continuing recession, the investment reduced in value to GH900,000 by 15, January 2019. ii. On 8 January 2019, one of the accountants left Gidimadjor Catering Services suddenly. On further investigation, the company realized that this employee had been paying himself money from the bank account in relation to false rental invoices. The amount of the overpayment was found to be GH86,000. With the help of the police, the accountant was tracked down and repaid all of the money on 18 January 2019 On 10 January 2019, Gidimadjor Catering Services sold some inventory for GH80,000. This inventory had been included in the year-end inventory count at cost of GH100,000 iv. Gidimadjor Catering Services LTD sold a truck on 31 December 2018 for GH20,000. This truck had been purchased on 1 January 2013. On 31 December, a non-refundable deposit of GH15,000 was paid towards a new truck and a cheque was posted with the balancing payment of GH50,000. This cheque was not received and cashed by the seller until 4 January 2019. (4 marks) (Total: 15 marks)