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QUESTION 1

On January 1, 20X5, Aspire purchased heavy-duty equipment for GHc400,000. On the date of installation, it was
estimated that the machine has a useful life of ten years and a residual value of GHc40,000. Accordingly, the annual
depreciation worked out to GHc36,000 = [(GHc400,000 – GHc40,000)/10].

On January 1, 20X9, after four years of using the equipment, the company decided to review the useful life of the
equipment and its residual value. Technical experts were consulted. According to them, the remaining useful life of the
equipment at January 1, 20X9, was seven years and its residual value was GHc46,000.

Required

Compute the revised annual depreciation for the year 20X9 and future years.

SOLUTION

The revised annual depreciation based on the remaining useful life and revised residual value will be computed based on
this formula:

Revised annual depreciation = (Net book value at January 1, 20X9 – revised residual value)/remaining useful life

Net book value at January 1,20X9:

= GHc400,000 – (GHc36,000 × 4 years)

= GHc256,000

Revised annual depreciation for 20X9 and future years:

= (GHc256,000 – GHc46,000)/7 = GHc30,000

QUESTION 2
Using the requirements set out in IAS 10 Events after the Reporting Period, which of the following would be classified
as an adjusting event after the reporting period in financial statements ended 31 March 20X4 that were approved by
the directors on 31 August 20X4?

A _A reorganization of the enterprise, proposed by a director on 31 January 20X4 and agreed by the Board on 10 July
20X4.

B _A strike by the workforce which started on 1 May 20X4 and stopped all production for 10 weeks before being
settled.

C _The receipt of cash from a claim on an insurance policy for damage caused by a fire in a warehouse on 1 January
20X4. The claim was made in January 20X4 and the amount of the claim had not been recognized at 31 March 20X4 as
it was uncertain that any money would be paid. The insurance enterprise settled with a payment of GHc1.5 million on
1 June 20X4.

D _The enterprise had made large export sales to the USA during the year. The year-end receivables included GHc2
million for amounts outstanding that were due to be paid in US dollars between 1 April 20X4 and 1 July 20X4. By the
time these amounts were received, the exchange rate had moved in favour of the enterprise

SOLUTION

The warehouse fire is an adjusting event as it occurred before the reporting date. Settlement of the insurance claim
should therefore be included in the financial statements.
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The other events are non-adjusting as they occurred after the reporting date and do not provide evidence of conditions
existing at the reporting date.

Issue B is a brand-new event, and therefore should not be adjusted. As it is clearly material the event should be
disclosed in the notes to the accounts

QUESTION 3

Aspire is a manufacturer of automobile spare parts. It transacts business through a business model that has worked for
several years and has made the entity a successful enterprise that is rated in the top ten businesses in its field by a trade
journal. Aspire believes in working with reliable and dependable vendors and also sells only to entities that it can either
control or exercise significant influence over. The business model works in this way:

1. Aspire purchases everything it needs from Sigmund Ltd, a well-known supplier. Due to the high quality of the material
that Sigmund has provided over the last ten years, Aspire has never purchased from any other supplier. Thus, it may be
considered economically dependent on Sigmund.

2. Aspire sells 70% of its output to a company owned by a director and the balance to an entity that is its “associate”
by virtue of Aspire owning 35% of the share capital of that company.

3. Aspire stores inventory in a warehouse that is leased from the wife of its director. The lease rentals are at arm’s
length.

4. Aspire has provided an interest-free loan to a company owned by the chief executive officer (CEO) of Aspire for the
purposes of financing the purchase of delivery vans which the company owned by the CEO is using for transporting
goods from the warehouse of the supplier to the warehouse used by Interesting Inc. for storing inventory.

Required

Based on the requirements of IAS 24, identify which transactions would need to be disclosed as related-party
transactions under IAS 24.

Solution

Let us examine each of the transactions in order to determine whether they would warrant disclosure as a related-party
transaction under IAS 24.

1. Notwithstanding the fact that Aspire purchases all its raw materials from Sigmund and is economically dependent on it,
Sigmund does not automatically become a related party. Thus for the purpose of IAS 24, purchases made from Sigmund
are not considered related-party transactions.

2. 70% of the sales are to an entity owned by a “director” (i.e., an entity controlled by a key management person), and
30% of the sales are made to an entity that Aspire. has “significant influence” over. Thus both sales are to related parties
as defined in IAS 24 and would need to be disclosed as such.

3. The lease of the warehouse, although at arm’s length, has been entered into with the wife (a “close member of the
family”) of a “director” (a key management person) and thus needs to be disclosed as a related-party transaction.

4. The interest-free loan to an entity owned by a director needs to be disclosed as a related-party transaction. The fact
that it is interest-free may warrant disclosure because it may not be construed as an “arm’s-length transaction” since
Aspire would not normally provide unrelated parties with interest-free loans.
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NOTE: IAS 24, paragraph 21, requires that “disclosures that related-party transactions were made on terms equivalent to
those that prevail in arm’s-length transactions are made only if such terms can be substantiated.”

Furthermore, the rental expenses paid for hiring a delivery van belonging to an entity owned by a director also would need
to be disclosed as a related-party transaction since these charges are paid to an entity “controlled” by a key management
person.

QUESTION 4

Aspire bought a building on 1 January 20X1. The purchase price was GHc2.9m, associated legal fees were GHc0.1m and
general administrative costs allocated to the purchase were GHc0.2m. Aspire also paid sales tax of GHc0.5m, which was
recovered from the tax authorities. The building was attributed a useful economic life of 50 years.

Required:

Determine the initial cost of the building the building, the depreciation to be charged in each respective year and the
net book value accordingly.

SOLUTION

The building would have been recognized on 1 January 20X1 at a cost of GHc3m (GHc2.9m purchase price + GHc0.1m
legal fees). Recoverable sales tax is excluded from the cost of property, plant and equipment. General administrative
costs of GHc0.2m will have been expensed to profit or loss as incurred.

Depreciation of GHc0.06m (GHc3m/50 years) would be charged to profit or loss in each of the years ended 31
December.

QUESTION 5

A piece of machinery has an annual service costing GHc10,000. During the most recent service it was decided to replace
part of the engineering meaning that it will work faster and produce more units of product per hour. The cost of the
replacement part is GHc20,000.

Would this expenditure be treated as capital or revenue expenditure?

SOLUTION

•GHc10,000 servicing cost is revenue expenditure, written off to the statement of profit or loss.

•GHc20,000 replacement part enhances future economic benefits and so is capital expenditure and increases the cost of
non-current assets in the statement of financial position.

QUESTION 6

An entity purchases an aircraft that has an expected useful life of 20 years with no residual value. The aircraft requires
substantial overhaul at the end of years 5, 10 and 15. The aircraft cost GHc25 million and GHc5 million of this figure is
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estimated to be attributable to the economic benefits that are restored by the overhauls. In year 6, the cost of the
overhaul is estimated to be GHc6 million.

Required

Calculate the annual depreciation charge for the years 1–5 and years 6–10.

SOLUTION

The aircraft is treated as two separate components for depreciation purposes:

Years 1–5 GHcm

Initial overhaul value GHc5m depreciated over 5 years 1

Balance of GHc20m depreciated over 20 years 1

Depreciation charge per annum 2

When the first overhaul is completed at the end of year 5 at a cost of, say, GHc6 million, then this cost is capitalized and
depreciated to the date of the next overhaul:

Years 6–10 GHcm

Overhaul GHc6m depreciated over 5 years 1.2

Aircraft depreciation 1.0

Depreciation charge per annum 2.2

QUESTION 7

On 31 December 20X1, Aspire noticed that one of its items of plant and machinery is often left idle. On this date, the
asset had a carrying amount of GHc500,000 and a fair value of GHc325,000. The estimated costs required to dispose of
the asset are GHc25,000.

If the asset is not sold, Aspire estimates that it would generate cash inflows of GHc200,000 in each of the next two
years. The discount rate that reflects the risks specific to this asset is 10%.

Required:

(a)Discuss the accounting treatment of the above in the financial statements for the year ended 31 December 20X1.

(b)How would the answer to part (a) be different if there was a balance of GHc10,000 in other components of equity
relating to the prior revaluation of this specific asset?
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SOLUTION

(a)The value in use is calculated as the present value of the asset's future cash inflows and outflows.

GHc000

Cash flow Year 1 (200 × 0.909) 182

Cash flow Year 2 (200 × 0.826) 165

347

The recoverable amount is the higher of the fair value less costs to sell of GHc300,000 (GHc325,000 – GHc25,000) and
the value in use of GHc347,000.

The carrying amount of the asset of GHc500,000 exceeds the recoverable amount of GHc347,000. Therefore, the asset is
impaired and must be written down by GHc153,000 (GHc500,000 – GHc347,000). This impairment loss would be
charged to the statement of profit or loss.

Dr Profit or loss GHc153,000

Cr PPE GHc153,000

(b)The asset must still be written down by GHc153,000. However, GHc10,000 of this would be recognized in other
comprehensive income and the remaining GHc143,000 (GHc153,000 – GHc10,000) would be charged to profit or loss.

Dr Profit or loss GHc143,000

Dr Other comprehensive income GHc10,000
Cr PPE GHc153,000

QUESTION 8

On 1 July 20X7, it is discovered that the damage to the machine is worse than originally thought. The machine is now
considered to be worthless and the recoverable amount of the factory as a cash-generating unit is estimated to be
GHc950,000. At 1 July 20X7, the cash-generating unit comprises the following assets:

GHc000
Building 500
Plant and equipment (including the damaged machine at a carrying amount of GHc35,000) 335
Goodwill 85
Net current assets (at recoverable amount) 250

––––––

1,170

––––––

Required

In accordance with IAS 36 Impairment of Assets, what will be the carrying amount of Aspire’s plant and equipment
when the impairment loss has been allocated to the cash-generating unit?
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SOLUTION

The impairment loss of GHc220,000 (GHc1,170 – GHc950) is allocated:

GHc35,000 to damaged plant and GHc85,000 to goodwill, the remaining GHc100,000 allocated proportionally to the
building and the undamaged plant.

The impairment to be allocated to the plant will be GHc37,500 (GHc100,000 × (300/(300+500))), leaving an amended
carrying amount of the plant of GHc262,500 (GHc300,000 – GHc37,50)

QUESTION 9

Aspire revalued its land and buildings at the start of the year to GHc10 million (GHc4 million for the land). The property
cost GHc5 million (GHc1 million for the land) ten years prior to the revaluation. The total expected useful life of 50 years
is unchanged. Aspire policy is to make an annual transfer of realized amounts to retained earnings.

Show the effects of the above on the financial statements for the year.

SOLUTION

Workings:

(W1) Land and buildings GHc000

Balance b/f (5m – (10/50 × 4m)) 4,200

Revaluation (β) 5,800

Valuation 10,000

Depreciation (6m/40 years) (150)

Balance c/f per SFP 9,850

Statement of profit or loss and other comprehensive income (extract)

GHc000

Depreciation (W1) (150)

Other comprehensive income:

Revaluation gain (W1) 5,800

Statement of financial position (extract)

GHc000

Non-current assets
Land and buildings (W1) 9,850

Equity
Revaluation surplus (SOCIE) 5,730
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Statement of changes in equity (extract)

Revaluation surplus GHc000

Balance b/f 0
Revaluation gain (W1) 5,800
Transfer to retained earnings

(150 – (4m/50 years)) (70)

Balance c/f 5,730

QUESTION 10

On 1 April 20X8 the fair value of Aspire property was GHc100,000 with a remaining life of 20 years. Aspire’s policy is to
revalue its property at each year end. At 31 March 20X9 the property was valued at GHc86,000. The balance on the
revaluation surplus at 1 April 20X8 was GHc20,000 which relates entirely to the property.

Aspire does not make a transfer to realised profit in respect of excess depreciation.

Required:

1. Prepare extracts of Aspire financial statements for the year ended 31 March 20X9 reflecting the above information.

2. State how the accounting would be different if the opening revaluation surplus did not exist.

SOLUTION

Workings:

(W1) Depreciation GHc100,000/20 years = GHc5,000

(W2) Revaluation

Carrying amount of leasehold at

31 March 20X9 (100,000 – 5,000 (W1)) 95,000
Leasehold valuation at 31 March 20X9 86,000
Loss on revaluation (9,000)

Extracts of the financial statements for Aspire at 31 March 20X9

Statement of profit or loss and other comprehensive income (extract)

GHc

Depreciation (W1) (5,000)

Other comprehensive income:

Revaluation loss (W2) (9,000)

Statement of financial position (extract)

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Non-current assets
Property (at valuation) 86,000

Equity
Revaluation surplus (20,000 – 9,000) 11,000

Statement of changes in equity (extract)

Revaluation surplus

Balance at 1 April 20X8 20,000

Revaluation of leasehold (W2) (9,000)

Balance at 31 March 20X9 11,000

NB. If the opening revaluation surplus did not exist, then the revaluation loss of GHc9,000 would need to be taken
through the statement of profit or loss as an impairment expense

QUESTION 11

Aspire purchased a property costing GHc750,000 on 1 January 20X4 with a useful economic life of 10 years. It has no
residual value. At 31 December 20X4 the property was valued at GHc810,000 resulting in a gain on revaluation being
recorded in other comprehensive income of GHc135,000. There was no change to its useful life. Aspire does not make
a transfer to realised profits in respect of excess depreciation on revalued assets.

On 31 December 20X6 the property was sold for GHc900,000.

Required:

How should the disposal on the previously revalued asset be treated in the financial statements for the year ended 31
December 20X6?

SOLUTION

Profit on disposal

GHc000 GHc000

Sale proceeds 900

Valuation at 31 December 20X4 810

Less: Depreciation ((810 ÷ 9 yrs) × 2 yrs) (180)

Carrying amount at 31 Dec 20X6 (630)

Profit on disposal 270

Transfer remaining balance on revaluation surplus

GHc000
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Dr Revaluation surplus 135
Cr Retained earnings 135

QUESTION 12

Aspire owns a building that it used as its head office. On 1 January 20X1, the building, which was measured under the
cost model, had a carrying amount of GHc500,000. On this date, when the fair value of the building was GHc600,000,
Aspire vacated the premises. However, the directors decided to keep the building in order to rent it out to tenants and
to potentially benefit from increases in property prices. Aspire measures investment properties at fair value. On 31
December 20X1, the property has a fair value of GHc625,000

Required:

Discuss the accounting treatment of the building in the financial statements of Aspire for the year ended 31 December
20X1

SOLUTION

When the building was owner-occupied, it was an item of property plant and equipment. From 1 January 20X1, the
property was held to earn rental income and for capital appreciation so it should be reclassified as investment property.

Per IAS 40, if owner occupied property becomes investment property that will be carried at fair value, then a revaluation
needs to occur under IAS 16 at the date of the change in use.

The building must be revalued from GHc500,000 to GHc600,000 under IAS 16. This means that the gain of GHc100,000
(GHc600,000 – GHc500,000) will be recorded in other comprehensive income and held in a revaluation reserve within
equity.

Investment properties measured at fair value must be revalued each year end, with the gain or loss recorded in profit or
loss. At year end, the building will therefore be revalued to GHc625,000 with a gain of GHc25,000 (GHc625,000 –
GHc600,000) recorded in profit or loss.

Investment properties held at fair value are not depreciated.

QUESTION 13

Aspire owns a property, which it rents out to some of its employees. The property was purchased for GHc30 million on
1 January 20X2 and had a useful life of 30 years at that date. On 1 January 20X7 it had a market value of GHc50 million
and its remaining useful life remained unchanged. Management wishes to measure properties at fair value where this
is allowed by accounting standards.

Required:

How should the property be treated in the financial statements of Lavender for the year ended 31 December 20X7.

SOLUTION

Property that is rented out to employees is deemed to be owner-occupied and therefore cannot be classified as
investment property.

Management wish to measure the property at fair value, so Aspire adopts the fair value model in IAS 16 Property, Plant
and Equipment, depreciating the asset over its useful life and recognizing the revaluation gain in other comprehensive
income.
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Before the revaluation, the building had a carrying amount of GHc25m (GHc30m×25/30). The building would have been
revalued to GHc50m on 1 January 20X7, with a gain of GHc25m (GHc50m – GH25m) recognized in other comprehensive
income.

The building would then be depreciated over its remaining useful life of 25 years (30 – 5), giving a depreciation charge of
GHc2m (GHc50m/25) in the year ended 31 December 20X7. The carrying amount of the asset as at 31 December 20X7 is
GHc48m (GHc50m – GHc2m).

QUESTION 14

Aspire carries out research and development. In the year ended 30 June 20X5 Aspire incurred total costs in relation to
project X of GHc750,000, spending the same amount each month up to 30 April 20X5, when the project was completed.
The product produced by the project went on sale from 31 May 20X5.

The project had been confirmed as feasible on 1 January 20X5, and the product produced by the project was expected
to have a useful life of five years.

What is the carrying amount of the development expenditure asset as at 30 June 20X5?

SOLUTION

The costs of GHc750,000 relate to ten months of the year (up to April 20X5). Therefore, the costs per month were
GHc75,000. As the project was confirmed as feasible on 1 January 20X5, the costs can be capitalized from this date. So
four months of these costs can be capitalized = GHc75,000 × 4 = GHc300,000.

The asset should be amortized from when the products go on sale, so one month’s amortization should be charged to 30
June 20X5. Amortization is (GHc300,000/5) × 1/12= GHc5,000. The carrying amount of the asset at 30 June 20X5 is
GHc300,000 – GHc5,000 = GHc295,000.

QUESTION 15

In the current accounting period, Aspire has spent GHc3m sending its staff on specialist training courses. Whilst these
courses have been expensive, they have led to a marked improvement in production quality and staff now need less
supervision. This in turn has led to an increase in revenue and cost reductions. The directors of Aspire believe these
benefits will continue for at least three years and wish to treat the training costs as an asset. The assistant agrees with
them and has recognised an asset in the financial statements.

Required

Comment on the assistant's treatment of the training cost in the financial statements and advise whether it is in line
with International Financial Reporting Standards.

SOLUTION

Although well trained staff add value to a business, IAS 38 prohibits the capitalisation of training costs. The assistant
should have treated these costs as an expense.

This is because an entity has 'insufficient control over the expected future economic benefits' arising from staff training;
in other words, trained staff are free to leave and work for someone else. Training is part of the general cost of
developing a business as a whole.
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QUESTION 16

Aspire took out a GHc10 million 6% loan on 1 January 20X1 to build a new football stadium. Not all of the funds were
immediately required so GHc2 million was invested in 3% bonds until 30 June 20X1.Construction of the stadium began
on 1 February 20X1 and was completed on 31 December 20X1.

Calculate the amount of interest to be capitalized in respect of the football stadium as at 31 December 20X1

Interest should only be capitalized from 1 February 20X1, when the construction begins.

SOLUTION

The total interest cost for the year is GHc600,000 (GHc10 million × 6%). Of this, January's interest should be expensed as
it was incurred before the building was underway. Therefore GHc550,000 (11/12) relates to the asset, with GHc50,000
(1/12) being shown as a finance cost in the statement of profit or loss.

In relation to the income earned, a similar situation applies. January's interest is earned before construction begins.

Therefore, this is taken as finance income to the statement of profit or loss, with the other 5 months relating to the asset.

Interest earned = GHc30,000 (GHc2 million × 3% × 6/12)

Of this, GHc5,000 (1 month) is taken to the statement of profit or loss, with the other GHc25,000 (5 months) relating to
the asset.

The total that can be capitalized is the net interest incurred during the construction period, which will be:

GHc550,000 – GHc25,000 = GHc525,000

The statement of profit or loss will include:

GHc

Finance cost (50,000)

Investment income 5,000

QUESTION 17

Aspire Ltd had two loan facilities in place at the beginning and end of 2012, thus a 12.5% Debenture stocks GHc480,000
(to be repayable in 2015) and a 15% Bank loan GHc320,000 (repayable in 2014)

On 1 January 2012 the company began the construction of a qualifying asset, a piece of machine for hydro-electric plant
at a cost of GHC400,000, using this existing borrowings (the 12.5% debenture and the 15% bank loan).

Expenditure drawn down for the construction was GHC120,000 on 1 January 2012; GHC80,000 on 1 May 2012 and
GHC200,000 on 1 October 2012. The machine was completed and put to use on 31 December 2012.

Required:

Calculate the borrowing costs to be capitalized for the machine.

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SOLUTION

Aspire Ltd has utilized existing funds on its books to construct the Qualifying asset hence general borrowing. IAS 23
Borrowing cost require that the entity determine the weighted average cost of all the existing funds and apply this rate to
all funds drawn for the construction of the qualifying asset

Hence all funds drawn by Aspire from its existing pool of funds shall attract a rate of interest calculated based on the
weighted average rate and capitalization Rate

This is calculated by = (Total interest on existing loan/ Total loan Balance) x 100

Total interest on existing loan is GHc108,000 thus the sum of GHc60,000 from (12.5% x 480,000) and GHc48,000 (15% x
320,000)

But the total loan Balance is GHc800,000 so the sum of 480,000 + 320,000.

Therefore, the Capitalization rate = (108,000/800,000) x 100 = 13.5%

We can now calculate interest on the various amounts drawn using the period to the completion of the plant

The first Tranche will bear an interest of GHc16,200 (13.5% X 120,000) The Second Tranche will bear an interest of
GHc7,200 (13.5% X 80,000 X 8/12) The Third Tranche will bear an interest of GHc6,750 (13.5% x 200,000 x 3/12)

So the total Interest to be capitalized 30,150

Summary

Initial cost of Plant to introduced into the book is (400,00 + 30,150) = GHs 430,150 *** the interest is capitalized as part
of the asset cost

QUESTION 18

An entity is given GHc300,000 on 1 January 20X1 to keep staff employed within a deprived area. The entity must not
make redundancies for the next three years, or the grant will need to be repaid. By 31 December, 20X1, no
redundancies have taken place and none are planned.

Presentation of revenue grants - IAS 20 allows such grants to either be:

•presented as a credit in the statement of profit or loss, or

•deducted from the related expense

SOLUTION

The grant should be released over three years, meaning that GHc100,000 is taken to the statement of profit or loss each
year. This can be shown as a separate line in the statement of profit or loss or deducted from administrative expenses (or
wherever the staff costs are charged).

As GHc100,000 has been released to the statement of profit or loss, the remaining GHc200,000 will be held in deferred
income, to be recognized over the next two years. Of this, GHc100,000 will be released within the next year, so will be
held within current liability.
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QUESTION 19

An entity opens a new factory and receives a government grant of GHc15,000 in respect of capital equipment costing
GHc100,000. It depreciates all plant and machinery at 20% pa straight-line.

Required: Show the statement of profit or loss and statement of financial position extract

Presentation of Capital grants - IAS 20 permits two treatments:

•Write off the grant against the cost of the non-current asset and depreciate the reduced cost. •Treat the grant as a
deferred credit and transfer a portion to revenue each year, so offsetting the higher depreciation charge on the
original cost.

SOLUTION

Method 1: Deduct from asset Statement of profit or loss (extract)

GHc

Depreciation (85,000 × 20%) (17,000)

Statement of financial position (extract)

GHc

Non-current assets: Plant & machinery (100,000 – 15,000) 85,000

Accumulated depreciation (17,000)

68,000

Method 2: Treat grant as deferred income

(W1) Government grant deferred income

GHc GHc

Transfer to profit or loss (15,000 × 20%) 3,000

Grant cash received 15,000

Balance c/f 12,000

––––– –––––

15,000 15,000

Statement of profit or loss (extract)

GHc

Depreciation (100,000 × 20%) (20,000)

Government grant credit (W1) 3,000
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Statement of financial position (extract)

GHc
Non-current assets: Plant & machinery 100,000
Accumulated depreciation (20,000)

80,000

Non-current liabilities
Government grant (12,000 (W1)– 3,000 (current liability)) 9,000
Current liabilities Government grant (15,000 × 20%) 3,000

QUESTION 20

On 1 January 20X1, Aspire acquires a building for GHc200,000 with an expected life of 50 years. On 31 December 20X4
Aspire puts the building up for immediate sale. Costs to sell the building are estimated at GHc10,000.

Required

Outline the accounting treatment of the above if the building had a fair value at 31 December 20X4 of:

(a) GHc220,000

(b) GHc110,000.

SOLUTION

Until 31 December 20X4 the building is a normal non-current asset and its accounting treatment is prescribed by IAS 16.
The annual depreciation charge was GHc4,000 (GHc200,000/50).

As such, the carrying amount at 31 December 20X4, prior to reclassification, was GHc184,000 (GHc200,000 – (4 ×
GHc4,000)).

(a)On 31 December 20X4 the building is reclassified as a non-current asset held for sale. It is measured at the lower of
carrying amount (GHc184,000) and fair value less costs to sell (GHc220,000 – GHc10,000 = GHc210,000). This means that
the building will continue to be measured at GHc184,000.

(b)On 31 December 20X4 the building is reclassified as a non-current asset held for sale. It is measured at the lower of
carrying amount (GHc184,000) and fair value less costs to sell (GHc110,000 – GHc10,000 = GHc100,000). The building will
therefore be measured at GHc100,000 as at 31 December 20X4. An impairment loss of GHc84,000 (GHc184,000 –
GHc100,000) will be charged to the statement of profit or loss

QUESTION 21

Afoko Ltd is getting ready to move its factory from its existing location to a new industrial free zone specially created
by the government for manufacturers. To avail itself of the preferential licensing offered by the local governmental
authorities as a reward for moving into the free trade zone and the savings in costs that would ensue (since there are
no duties or taxes in the free trade zone), Afoko Ltd must move into the new location before the end of the year.
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The lease on its present location is not cancelable and is for another two years from year-end. The obligation under the
lease is the annual rent of GHc100,000

Required

Advise Afoko Ltd what amount, if any, it needs to provide at year-end toward this lease obligation.

SOLUTION

The lease agreement is an executory onerous contract because after moving to the new location, Afoko would derive no
economic benefits from the existing factory building but would still need to pay rent under the agreement since the
lease is not cancelable. Thus, the unavoidable costs exceed the benefits expected under the lease contract.

Based on the annual obligation under the lease agreement, the total amount needed to be provided at year-end is the
total commitment under the lease (GHc100,000 × 2years).

QUESTION 22

Hilbert ltd.’s employees was injured during the year. He had been operating a piece of machinery which had been
known to have a faulty guard. The company’s lawyers have advised that the employees has a very strong case, but will
be unable to estimate the likely financial damages until further medical evidence becomes available.

One of the company’s customers is claiming compensation for the losses sustained as a result of a delayed delivery. The
customer had ordered a batch of cut sheet with the intention of producing leaflets to promote a special offer. There
was a delay in supplying the paper and the leaflets could not be prepared in time. The company’s lawyers have advised
that there was no specific agreement to supply the goods in time for this promotion and furthermore, that it would be
almost impossible to attribute the failure of the special offer to the delay in the supply of the paper.

SOLUTION

A present obligation of the employee arising from his injuries exits, though we are advised that it is not possible to quantify
the liability. There are two possible course of action in accounting for this inter. The lawyers could be pressed to make a
prudent estimate of the amount of damages, perhaps from preliminary medical reports, and this estimate should then be
provided in the account if the lawyers still insist that such an estimate is impossible, there no point in guessing on a value
to accrue.

Instead the facts should be disclosed as contingent liability in a note to the accounts, stating that no liability has currently
been recognized since a fair estimate is impossible. However, it is important that this note is worded in such a way that
no liability is admitted, for this might prejudice the company’s potion in subsequent legal proceedings.

The second case is clearer cut. Lawyers have advised that there was no specific agreement to supply the paper in time for
the promotion, so any possible liability is remote. IAS 37 does not require the disclosure of remote contingencies; they
should be completely ignored in the account if the probability of an outflow of economic resources is remote.

QUESTION 23

On 1 July 2012, the JD Group acquired a newly constructed oil platform at a cost of GH₵60million together with the
right to extract oil from an offshore oilfield under a government license. The terms of the license are that JD Group will
have to remove the platform (which will then have no value) and restore the sea bed to an environmentally satisfactory
condition in 10 years’ time when the oil reserves have been exhausted. The estimated cost of this on 30th June 2022
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will be GHc30million. The present value of GHc1 receivable in 10 years at the appropriate discount rate for JD Group of
8% is GHc0.46.

Required:

Explain and quantify how the oil platform should be treated in the financial statements of the JD Group for the year
ended 30th June 2013.

SOLUTION

Future costs associated with the acquisition/construction and use of non-current assets, such as the environmental costs
in this case, should be treated as a liability as soon as they become unavoidable. For JD this would be at the same time
as the platform is acquired and brought into use.

The provision is for the present value of the expected costs and this same amount is treated as part of the cost of the
asset. The provision is ‘unwound’ by charging a finance cost to the income statement each year and increasing the
provision by the finance cost. Annual depreciation of the asset effectively allocates the (discounted) environmental costs
over the life of the asset.

Income statement for the year ended 30 June 2013 GHC’000

Depreciation (see below) 7,380

Finance costs (GHc13,8 million x 8%) 1,104

Statement of financial position as at 30 June 2013

Non-current assets

Cost (GHC60 million + GHC13.8 million (GHC15 million x 0·46) 73,800

Depreciation (over 10 years) (7,380)

66,420

Non-current liabilities
Environmental provision (GHC13.8 million x 1·08) or [GHC13.8 m + GH1.104 m] 14,904

QUESTION 24

Aspire bought an asset worth GHc50,000 on 1/01/2016 and decides to depreciate it on straight line basis with a useful
life of 20 years and a residual value of 10,000. The asset has an allowable tax depreciation of 25% on reducing balance
basis. The applicable income tax rate is 10%

Required

Determine the deferred tax (asset or liability in respect of the asset acquired by Aspire for year ended 2016

SOLUTION

Year ended 2016

Step 1. CA of the asset is 50,000 - (50,000 -10,000)/20 years = GHc48,000

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Step 2. TB of the asset is 50,000 – (50,000@ 25%) = GHc37,500

Step 3. Temporary Difference is GHc10,500 (48,000 – 37,500)

Step 4. This temporary difference is Taxable (CA is greater than TB). Hence, we apply our tax rate to obtain our Deferred
tax liability of GHc1050 (10,500 @ 10%)

Accounting treatment (a provision is made in respect of the liability)

DR Profit or loss (deferred tax provision) GHc1,050

CR SOFP (Deferred Tax Liability) GHc1050

QUESTION 25

On 1 December 2001, Aspire Ltd receives an order from a customer for a computer as well as 12 months of technical
support. Aspire delivers the computer (and transfers its legal title) to the customer on the same day. The customer paid
GHc420 upfront. If sold individually, the selling price of the computer is GHc300 and the selling price of the technical
support is GHc120.

Required:

Apply the 5 stages of revenue recognition, per IFRS 15, to determine how much revenue Aspire should recognize

SOLUTION

Step 1 Let us identify the contract

There is an agreement between Aspire Ltd and its customer for the provision of goods and services.

Step 2 Now let us identify the separate performance obligations within a contract
There are two performance obligations (promises) within the contract:

1. The supply of a computer

2. The supply of technical support

Step 3 Let us determine the transaction price

The total transaction price is GHc420.

Step 4 Let us allocate the transaction price to the performance obligations in the contract
Based on standalone selling prices, GHc300 should be allocated to the sale of the computer and GHc120 should be
allocated to the technical support.

Step 5 We Recognize revenue when (or as) a performance obligation is satisfied

Control over the computer has been passed to the customer so the full revenue of GHc300 allocated to the supply of the
computer should be recognized on 1 December 2001.

The technical support is provided over time, so the revenue allocated to this should be recognized over time. In the year
ended 31 December 20X1, revenue of GHc10 (1/12 × GHc120) should be recognized from the provision of technical
support.
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QUESTION 26

Aspire Co entered into a GHc10 million contract to build an asset for a customer on 1 April 20X4. The contract is expected
to take 2 years and a surveyor has assessed the value of work done as GHc4 million. The contract will cost GHc8 million
and Aspire Co has spent GHc4 million to date. Aspire Co measures progress towards completion using an output
method, comparing the work certified to date to the total contract price.

What profit should Aspire Co recognize for the year ending 31 December 20X4?

SOLUTION

Using the output method, the contract progress is assessed at 40% (GHc4m/GHc10m). Therefore 40% of the revenue and
expenses should be recognized in the statement of profit or loss during the year. This would give revenue of GHc4 million
and cost of sales of GHc3.2 million (40% of GHc8m), therefore giving a total profit of GHc800,000.

QUESTION 27

During the year, Aspire entered into a contract to construct an asset for a customer. The performance obligation is
satisfied over time. The balance in the trial balance represents:

Cost incurred to date GHc14 million

Value of contract billed (work certified) and cash received GHc10 million
The contract commenced on 1 October 20X2 and is for a fixed price of GHc25 million.

The costs to complete the contract at 30 September 20X3 are estimated at GHc6 million. Aspire 's policy is to
measure progress based on the work certified as a percentage of the contract price

SOLUTION

Contract with customer

Step 1 – Overall
GHc000 GHc000
Total contract revenue 25,000
Costs incurred to date 14,000
Estimated costs to complete 6,000
(20,000)
–––––––
Total contract profit 5,000
–––––––
Step 2 – Progress
Percentage of completion is 40% (10,000/25,000)

Step 3 – Statement of profit or loss

Revenue 10,000
Cost of sales (40% × 20,000 total costs) (8,000)
–––––––
Profit for year 2,000
–––––––
Step 4 – Statement of financial position
Costs to date 14,000
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Profit to date 2,000
Billed to date (10,000)
–––––––
Contract asset 6,000
–––––––

QUESTION 28
During the year Aspire entered into two lease arrangements:
(a) A nine-month lease of an item of plant commencing on 1 August 20X3. A payment of GHc180,000 was made on
1 August 20X3. The useful life of the plant is five years.

(b) A four-year lease of 500 tablet computers for its staff. The market price of each tablet is approximately GHc800,
with a useful life of four years. Lease payments of GHc240 per year per tablet are payable in advance, commencing
on 1 April 20X3. The present value of the lease payments is GHc800 per tablet computer, equivalent to a finance
rate of 13.7% per annum.

Aspire's accounting policy is to apply any optional exemptions permitted by IFRS 16 Leases.

SOLUTION
(a)
IFRS 16 includes optional recognition exceptions for short term leases and for leases of low value assets. Aspire has
chosen to apply these recognition exemptions.
Short-term leases are leases with a lease term of 12 months or less. The nine-month lease of plant qualifies as a short-
term lease. The lease payment should be charged to profit or loss on a straight-line basis over the lease term.
A charge of GHc40,000 (GHc180,000 x 2/9) should be recognised in profit or loss for the year to 30 September 20X3.
The remaining lease payment of GHc140,000 should be recognised as a prepayment in the statement of financial
position.
(b)
The four-year lease of 500 tablets is considered to be a lease of low value assets. Even though the lease of the tablet
computers is material to Aspire, the exemption can still be applied because the underlying assets, i.e. the tablets, are
individually of low value.
The lease payments should be charged to profit or loss on a straight-line basis over the lease term. A charge of
GHc60,000 (GHc240 x 500 x 6/12) should be recorded in profit or loss, and a prepayment of GHc60,000 should be
recorded in the statement of financial position for the year ended 30 September 20X3.

QUESTION 29
On 1 January 2015, Aspire entered into a five-year lease of machinery. The machinery has a useful life of six years. The
annual lease payments are GHc5,000 per annum, with the first payment made on 1 January 2015. To obtain the lease
Aspire incurs initial direct costs of GHc1,000 in relation to the arrangement of the lease but the lessor agrees to
reimburse Aspire GHc500 towards the costs of the lease. The rate implicit in the lease is 5%. The present value of the
minimum lease payments is GHc22,730.

Required

Demonstrate how the lease will be accounted in the financial statements of Aspire over the five-year period in line with
new IFRS 16 Lease.

SOLUTION
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Initial Recognition
1. Record the right of use asset and lease liability
DR Right-of-use asset GHc 22,730
CR Lease liability GHc 22,730

2. Record the initial direct costs

DR Right-of-use asset GHc 1,000
CR Cash GHc 1,000

3. Record the incentive payments received

DR Cash GHc 500
CR Right-of-use asset GHc 500
Right-of-use asset = 22,730 + 1,000 – 500 = 23,230

Subsequent measurement
Depreciate the asset over the earlier lease term of five years.
Expense (p.a.) = GHc23,230/5 = GHc4,646

Record finance lease payments and interest using the rate implicit in the lease

Year B/f Payment Capital balance Finance cost (5%) C/f

1 22,730 (5,000) 17,730 887 18,617
2 18,617 (5,000) 13,617 681 14,298
3 14,298 (5,000) 9,298 465 9,763
4 9,763 (5,000) 4,763 237 5,000
5 5,000 (5,000)

QUESTION 30

Aspire is an entity located in a Ghana, a country whose currency is (GHc).

Seventy per cent of Aspire’s sales are denominated in GHc and 30% of them are denominated in sterling (£). Aspire
does not convert receipts from customers into other currencies. Aspire buys most of its inventories, and pays for a
large proportion of operating costs, in sterling.

Aspire has two bank loans outstanding. Both of these loans are denominated in GHc.

Required:

What is the functional currency of Aspire?

SOLUTION

Firstly, the primary indicators of functional currency should be applied. Most of Aspire’s sales are denominated in GHc
and so this would suggest that the GHc is its functional currency. However, since a lot of the costs of the business are
denominated in sterling, it could be argued that its functional currency is sterling.
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Since the primary indicators of functional currency are not clear cut, it is important to look at the secondary indicators.
Receipts are retained in both GHc and sterling. However, funding is generated in the form of GHc loans, which further
suggests that the GHc might be Aspire's functional currency.

All things considered, it would seem that the functional currency of Aspire is GHc. This means that any business
transactions that are denominated in sterling must be translated into GHc in order to record them

QUESTION 31

On 7 May 20X6 Aspire with a functional currency of (GHc) sold goods to a German entity for €48,000. On this date, the
rate of exchange was GHc1 = € 3.2.

The sale is translated into the functional currency using the exchange rate in place on the transaction date.

GHc

Dr Receivables (€48,000/3.2) 15,000

Cr Revenue 15,000

By the reporting date of 31 July 20X6, the invoice had not been settled.

On this date, the rate of exchange was GHc1 = €3.4.

Receivables are a monetary item so must be retranslated into the entity's functional currency at the year-end using the
closing exchange rate.

The receivable at year end should therefore be held at GHc14,118 (€48,000/3.4). The following entry is required:

GHc

Dr Profit or loss (exchange loss) 882

Cr Receivables (GHc15,000 – GHc14,118) 882

QUESTION 32

Aspire, has a functional and presentation currency of the (GHc), accounts for land using the revaluation model in IAS
16 Property, Plant and Equipment. On 1 July 20X5, Aspire purchased a plot of land in another country for 1.2 million
dinars. At 30 June 20X6, the fair value of the plot of land was 1.5 million dinars.

Relevant exchange rates:

Dinars to GHc1

1 July 20X5 4.0

30 June 20X6 3.0

The land is initially recognized at cost. This should be translated into the functional currency using the exchange rate on
the purchase date. The land is therefore initially recorded at GHc300,000 (1.2m dinars/4.0).

Land is not a monetary item so its cost is not retranslated. However, in accordance with the revaluation model in IAS 16,
a fair value has been determined. This valuation is in dinars and so must be translated into the functional currency using
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the exchange rate in place when the fair value was determined. This means that the land will must be revalued to
GHc500,000 (1.5m dinars/3.0).

The increase in the carrying value of the land of ghC200,000 (GHc500,000 – GHc300,000) will be reported as a revaluation
gain in other comprehensive income for the year and a revaluation reserve will be included within other components of
equity on the statement of financial position at the reporting date.

QUESTION 33

Aspire bought 100,000 shares in a listed entity on 1 November 2015. Each share cost Ghc5 to purchase and a fee of
Ghc0.25 per share was paid as commission to a broker. The fair value of each share at 31 December 2015 was
Ghc3.50.

Aspire acquired the shares as part of a long-term strategy to realize the gains in the future.

QUESTION 34

On 1 January 20X1, Aspire bought a GHc100,000 5% bond for Ghc95,000, incurring acquisition costs of Ghc2,000.
Interest is received annually in arrears. The bond will be redeemed at a premium of Ghc5,960 over nominal value on
31 December 20X3. The effective rate of interest is 8%. The fair value of the bond was as follows:

31 December 20X1 GHc110,000 31 December 20X2 GHc104,000

Explain, with calculations, how the bond will have been accounted for over all relevant years if:

(a) Aspire planned to hold the bond until the redemption date.
(b) Aspire may sell the bond if the possibility of an investment with a higher return arises.
(c)Aspire planned to trade the bond in the short term

QUESTION 35

On 1 January 20X1 Aspire issued a loan note with a GHc50,000 nominal value. It was issued at a discount of 16% of
nominal value. The costs of issue were GHc2,000. Interest of 5% of the nominal value is payable annually in arrears.
The bond must be redeemed on 1 January 20X6 (after 5 years) at a premium of GHc4,611. The effective rate of
interest is 12% per year.

Required: How will this be reported in the financial statements of Aspire over the period to redemption?

QUESTION 36

On 1 January 20X1 Aspire issued a 50m three-year convertible bond at par. The coupon rate is 10%, payable annually
in arrears on 31 December. The bond is redeemable at par on 1 January 20X4. Bondholders may opt for conversion in
the form of shares. The terms of conversion are two 25-cent equity shares for every GHc1 owed to each bondholder
on 1 January 20X4. Bonds issued by similar entities without any conversion rights currently bear interest at 15%.

Assume that all bondholders opt for conversion in shares

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QUESTION 37

Aspire, a listed company has 170,000 shares at the beginning of 2017. On 31 may issued 80,000 new shares for cash.

Required

Calculate the weighted average number of outstanding shares @ the end of 2017.

QUESTION 38

Aspire has issued 400 shares @ full price of GHc3 per share on 1/7/16, relevant information from the 2016 financial
statement showed the following

Profit after tax and preference dividend for 2016 & 2015 are GHc1,120 & GHc900 respectively.

Number of shares in issue at 31/12 for 2016 & 2015 are 2,000 & 1,600 respectively.

Required

Calculate the BEPS & comparative for 2015.

QUESTION 39

Aspire had 1,500 shares in issue at 31/12/2011, on 1/3/12 it made a bonus issue of 2 new shares for every 5 existing
shares held. Profit attributable to ordinary shareholders for 2011 & 2012 was GHc690 & GHc825 respectively

Required

Calculate the BEPS in 2011 financial Statement

Calculate the BEPS in 2012 FS and comparison for 2011 in 2012 Financial Statement.

QUESTION 40

Assume that Aspire has 10,000 shares in issue, it now proposes to make 1 for 4 right issues at a price of GHc 3/share.
The market Value of the existing share before the right issue was made is GHc 3.5/share.

What is the TERP?

Computation of EPS with RI.

QUESTION 41

Aspire Ltd has produced the following Net profit for the year end 31/12

Year GHc

2016 1,100
2017 1,500
2018 1,800

On 1 January 2017 the number of shares outstanding was 500, during 2017; the company announced a right issue
with the following details.
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1 new shares for every 5 outstanding @ exercise price of GHc5. Last date to exercise the right is 1 st march 2017. The
market value of the shares of Aspire prior to exercisable on 1/3/17 was GHc11.

Required

Compute the earnings per share for 2016, 2017 & 2018

QUESTION 42

Aspire has 12,000,000 ordinary shares and GH¢4,000,000 5% convertible bonds in issue. As at 31 December 2002,
there have been no new issues of shares or bonds for several years. The bonds are convertible into ordinary shares in
2003 or 2004, at the following rates:

At 30 shares for every GH¢100 of bonds if converted at 31 December 2003

At 25 shares for every GH¢100 of bonds if converted at 31 December 2004

Total earnings for the year to 31 December 2002 were GH¢36,000,000. Tax is payable at a rate of 30% on profits.

Required

Determine the basic EPS and diluted EPS for 2002

Question 43

Aspire has 10,000,000 ordinary shares in issue. There has been no new issue of shares for several years. However, the
company issued GH¢2,000,000 of convertible 6% bonds on 1 April 2005. These are convertible into ordinary shares at
the following rates:

On 31 March Year 2010 25 shares for every GH¢100 of bonds

On 31 March Year 2011 20 shares for every GH¢100 of bonds

Tax is at the rate of 30%. In the financial year to 31 December 2005 total earnings were GH¢40,870,000.

Required

Determine the 2005 basic EPS and diluted EPS

QUESTION 44

Aspire had total earnings during 2003 of GH¢25,000,000. It has 5,000,000 ordinary shares in issue. There are
outstanding share options on 400,000 shares, which can be exercised at a future date, at an exercise price of GH¢25
per share. The average market price of shares in Aspire during 2003 was GH¢40.

Required

Determine the diluted EPS for 2003

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SOLUTION 37

In computing the weighted average number of shares, one need to take into consideration the product of the
outstanding shares multiplied by the weight of the reporting period.

Date Number of shares Fraction of year Weighted Average

1/1/17 – 31/05/17 170,000 5/12 70,833

31/015/17 – 31/12/17 250,000 7/12 145,833

Total Outstanding Shares 216,663

SOLUTION 38

BEPS =earnings/weighted average no. of shares

2016

Since new shares were issues in 2016, we need to compute for the weighted average number of shares outstanding at
the year end.

Date Number of shares Fraction of year Weighted Average

1/1/16 - 1/7/16 1,600 6/12 800

1/7/16 - 31/12/16 1,800 6/12 1000

Total outstanding number of shares 1,800

Earnings = 900

BEPS = 1,120/1,800 = GHc 0.62

NOTE

With shares issued at full price, prior year BEPS (e.g. 0.62 above) need not to be adjusted to reflect the new shares
issued in the current year, This is because the new full price share brought in full consideration or additional inflow of
resources in the current year,

But unlike Bonus Shares and right issues shares, the bonus shares and the bonus element in the right issue shares (note:
RI shares has a component of bonus element) do not result in any additional inflow of resource, so to make a better
comparison with prior year BEPS, prior year BEPS needs to be adjusted for the bonus element even though the bonus
issue occurred in the current year.

We assume the bonus element existed from the beginning of the prior year. So therefore BI & RI in the prior year BEPS
needs to be adjusted for the bonus element.

SOLUTION 39

BEPS = Earnings/Total Number of Outstanding Shares,

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2011

690/1,500 = GHc0.46

2012

Computation of weighted average number of shares after the Bonus Issue

Bonus shares = 2/5*1,500=600

Total shares = 600+1,500= 2,100 (NB the Bonus Issue happened at the beginning of the period).

Earnings = 825

BEPS = 825/2,100 = GHc0.39/share

Computation of Comparative adjusted BEPS

Step 1. Ascertain the Prior year EPS. = 0.46/share

Step 2. Computation of bonus fraction. =No. of share before BI/Total shares after BI =1,500/ (1,500+600) =5/7

Step 3. Multiply the bonus fraction by the prior year EPS = 0.46*5/7= 0.33/ share

SOLUTION 40

4 Shares @ GHc3.50 = GHc14

1 Shares @ GHc 3 = GHc3

5 GHc17

TERP = GH17 = GHc3.40 per share

SOLUTION 41

BEPS= Earnings/weighted average no, of outstanding shares

2016

BEPS = 1,100/500 = GHc 2.2/share

2017 With the RI

Step 1. Determine the TERP= Market Value after RI/Total Shares After RI

5 Shares @ 11 = GHc55

1 Share @ 5 = GHc5

6 60

TERP = 60 = GHc10

6
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Step 2. Computation of Weighted average no. of outstanding share

Date Number of shares Right Fraction Fraction of year Weighted Average

1/1/17 to 1/3/17 500 11/10 2/12 92

1/7/16 - 31/12/16 600 10/12 500

Total outstanding number of shares 592

BEPS for 2017 = 1,500/592 = GHc 2.53/shares

Computation of comparative EPS for prior year,

Prior year BEPS* (TERP / Market price before RI) = 2.2*10/11 = GHc 2.00

2018

1,800/600 = GHc3.00

SOLUTION 42

Basic EPS:

Year to 31 December 2002: GH¢36,000,000/12 million = GH¢3 per share

Diluted EPS:

Number of shares Earnings (GH¢) EPS (GH¢)

Basic EPS figures 12,000,000 36,000,000 3

Dilution:

Number of shares 1,200,000

4,000,000 X 30/100

Add back interest:

5% x GH¢4,000,000 200,000

Less tax at 30% (60,000)

Adjusted figures 13,200,000 36,140,000 2.74

Diluted EPS: GH¢36,140,000/13.2 million = GH¢2.74 per share

Note: The number of potential shares is calculated using the conversion rate of 30 shares for every GH¢100 of bonds,
because this conversion rate produces more new shares than the other conversion rate, 25 shares for every GH¢100 of
bonds.
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SOLUTION 43

Basic EPS

Year 2005 = GH¢40,870,000/10,000,000 = GH¢4.087 per share

Diluted EPS:

Number of shares Earnings (GH¢) EPS (GH¢)

Basic EPS figures 10,000,000 40,870,000 4.087

Dilution:
Number of shares

2 million x 25/100 x 9/12 375,000

Add back interest:

6% x GH¢2,000,000 x 9/12 90,000

Less tax at 30% (27,000)

Adjusted figures 10,375,000 40,933,000 3.94

Diluted EPS: GH¢40,933,000/10.375 million = GH¢3.94 per share

SOLUTION 44

Step 1: Cash proceeds from exercise of the options

400,000 x GH¢25 GH¢10,000,000

Step 2: Divide by the average share price in the period GH¢40

Shares issued at full price 250,000

Step 3 Number of shares issued on exercise of the option 400,000

Step 4 Shares issued for free 150,000

Diluted EPS calculation

Number of shares Earnings (GH¢) EPS (GH¢)

Basic EPS figures 5,000,000 25,000,000 5

Dilution:

Number of shares 150,000

Adjusted figures 5,150,000 25,000,000 4.85

Diluted EPS: GH¢25,000,000/5.15 million = GH¢4.85 per share