ACC 304- INTERMEDIATE FINANCIAL ACCOUNTING II

MODULE I- PUBLISHED FINANCIAL REPORTS AND ACCOUNTS

UNIT I- PREPARATION OF PUBLISHED FINANCIAL STATEMENT

The preparation of published financial statement is governed by the Companies and Allied
Matters Act 2004. at the end of the accounting year, a financial statement is required to be
submitted to the shareholder in the annual General Meeting. The financial statement must be
published by public companies, but need not to be published by private companies.

CONTENTS OF FINANCIAL STATEMENTS

The financial statements shall include;

i. Statement of accounting policies

ii. a statement of comprehensive income or, in the case of company not trading for
profit, an income and expenditure account for the year
iii. The statement of financial position as at the last day of the company's financial
year.
iv. Notes to the published financial statement
v. Statement of cashflows
vi. The auditor's report
vii. The director's report
viii. The audit committee's report
ix. A five years financial summary
x. In the case of a holding company, the group financial statements.

The financial statements of a private company need not to include the following;

i. Statement of accounting policies

ii. Statement of cashflows
iii. The Audit committee's report.

PRESENTATION OF FINANCIAL STATEMENTS

The objective of IAS 1 is to prescribe the basis for presentation of general-purpose financial
statement in order to ensure that the financial statements are in accordance with IFRS. The key
issues are to ensure comparability with the entity's financial statements of previous periods and
with the financial statement of other entities, it also enables informed users to rely on a formal,
definable structure and facilities financial analysis.

Page 1 of 4
UNIT II- SCOPE OF THE STANDARD

IAS 1 Outline

• What constitutes a complete set of financial statements; The overall requirements for the
presentation of financial statements, including guidelines for their structure.
• The distriction between current and non-current elements
• Minimum requirements for the content of financial statements an updated IAS1 was
issued in September 2007. Performance reporting and the reporting of comprehensive
income are major issues dealt with in the revised standard, and voluntary name changes
are suggested for key financial statements.

KEY CONCEPTS

1) Fair presentation: The financial statement should present fairly financial position,
financial performance, and cashflows of the entity. Fair presentation requires the faithful
representation of the effects of transactions, other events, and conditions in accordance
with the definitions and recognition criteria for assets, liabilities, income and expenses set
out in the framework. The application of IFRS is presumed to result in fair presentation.
2) Departure from requirements of an IFRS is allowed only in the extremely rare
circumstances in which the application of the IFRS would be so misleading as to conflict
with the objectives of financial statements. In such circumstances, the entity should
disclose the reasons for and the financial effect of the departure from the IFRS.
3) Current assets are:
- assets expected to be realized or intended for sales or consumption in the entity's normal
operating cycle;
- assets held primarily for trading;
- assets expected to be realized within 12 months after reporting date;
- cash or cash equivalents, unless the assets are restricted in use for atleast 12 months
after the reporting period, or are to be used to settle liability.
4) Current liabilities are:
- liabilities expected to be settled in the entity's normal operating cycles;
- liabilities held primarily for trading
- liabilities due to be settled within 12 months afte the reporting date;
- liabilities for which the entity does not have an unconditional right to defer settlemen
for atleast 12 months after the reporting period.
5) Non-Current assets an liabilities are expected to be settled more than 12 months after the
reporting date
6) The portion of non-current interest-bearing liabilities to be settled within 12 months after
the reporting date can beclassified as non-current liabilities if:
- The original term is greater than 12 months
- It is the intention to refinance or reschedule the obligation
- The agreement to refinance or reschedule the obligation is completed on or before the
reporting date.

Page 2 of 4
 7) Other comprehensive income comprises items of income and expenses that are not
recognized in profit or loss as permitted or required by other IFRSs. These include:
- changes in revaluation surplus of non-current or intangible assets in terms of IAS16 and
IAS38
- actuarial gains and losses on defined benefit plans recognized in accordance with IAS19
- gain and losses arising from translating the financial statements of a foreign operation
recognized in terms of IAS2.
- gains and losses on re-measuring available for sale financial assets in terms of IAS39
- the effective portion of gains and losses on hedging instruments in a cash flow hedge in
terms IAS39
Total comprehensive income is the change in equity during a period resulting from
transactions, other than those changes resulting from transactions with owners in their
capacity as owners - that is, the sum of profit or loss for the period and othe
comprehensive income.

ACCOUNTING TREATMENT

1) Financial statements should provide information about an entity's financial position

performance, and cashflows that is useful to a wide range of users for economic decision
making.
2) Departure from requirements of an IFRS is allowed only in the extremely rare
circumstances in which the application of the IFRS would be so misleading as to conflict
with the objectives of financial statements in such circumstances, the entity should
disclose the following:
- That management has concluded that the financial statement present fairly the entity's
financial position, financial performance and cashflows.
- That it has complied with the applicable IFRSs, except that it has departed from
particular requirement to achieve fair presentation.
- The title of the IFRS from which it has departed
- The nature and reasons for the departure
- The financial effect of the departure, for each period presented.
3) The presentation and classification of items should be consistent feom one period to
another unless a change would result in a more appropriate presentation, or a change is
required by the IFRS.
4) A complete set of financial statements comprises the following:
- Statement of financial position (formally Balance Sheet)
- Statement of comprehensive income (formally Income Statement)
- Statement of changes in equity
- Statement of cashflows
- Notes to the financial statements rhat contain accounting policies and other explanatory
informations

Page 3 of 4
 - Statement of financial position for the beginning of the earliest comparative period
when an entity applies an accounting policy retrospectively, makes a retrospective
restatement of items in its financial statement
Entities are encouraged to finish other related financial and nonfinancial information in
addition to the financial statements. This information can include a financial review by
management that describes and explains the main features of entity's financial
performance and position, environmental reports and value-added statements. Reports
that are presented of the financial statement are outside of the scope of IFRS.
5) Fair presentation: the financial statement should present fairly the financial position,
financial performance, and cash flows of the entity.
The following aspects should be addressed with regard to compliance with the IFRS:
- Compliance with the IFRS should be disclosed
- Compliance with all requirements of each standard is compulsory.
- Disclosure cannot rectify in appropriate accounting treatments.
- If the requirements of new revised IFRS are adopted before its effective data, this fact
should be disclosed.
6) Financial statement should be presented on a going-concern basis unless management
intended to liquidate the entity or cease trading, or has no realistic alternative bid to do
so. If an entity does not present its financial statement on a going-concern basis, it shall
disclose the fact, the basis on which it has prepared the financial statements, and the
reason why the entity is not considered to be a going concern. Uncertainties related to
events and conditions that cost as significant doubt on the entity's ability to continue as a
going concern should be disclosed.
7) The accrual basis of accounting should be applied when preparing the financial
statements, expect for cashflow information. Under the basis, items are recognized as
assets, liabilities, equity, income and expenses when they meet the definition and
recognition criteria
8) Aggregation of immaterial items of a similar nature and function is allowed. Material
items should not be aggregated. Items with a dissimilar nature or functions should be
presented separately, unless they are immaterial.
9) Assets and liabilities should not be offset unless it is required or allowed by another
IFRS. However, immaterial gains, losses and related expenses arising from similar
transactions and events can be offset.
10) With regard to comparative information, the following aspects are presented for all
amount reported in the financial statements:
- numerical information for the previous period; and
- relevant narrative and descriptive information.

Page 4 of 4
ACC 304

MODULE II- PRESENTATION AND DISCLOSURE

Financial Statements should be clearly identified and distinguished from other types of
information in the same published document. Each component of the financial statement should
be clearly identified, with the following information prominently displayed:

- name of reporting entity

- whether the financial statements are of an individual entity (stand-alone) or of group of

entities (consolidated).

- reporting date or period coveted

- presentation currency

- level of presentation used in presenting amounts

* Statement of financial position: The statement of financial position provides information

about the financial position of the entity. It should distinguish between major categories and
classifications of assets and liabilities.

*Current or Non-current distinction: The statement of financial position should normally

distinguish between current and non-current liabilities. Assets and liabilities to be recovered
or settled within 12 months should be disclosed as current.

* Liquidity - based presentation: where a presentation based on liquidation provides more

relevant and reliable information (for example, in the case of a bank or similar financial
institution), assets and liabilities should be presented in the order in whichthey can or might
be required to be liquidated.

* irrespective of the method of presentation adopted, an entity should disclose the amount
expected to be recovered or settled within and after more than 12 months of the reporting
period for each asset and liability line.

* Capital disclosures encompass the following:

• The entity's objectives, policies, and process for managing capital

- a description of what the entity manages as capital
- whether the entity complies with any externally imposed capital adequacy
requirements and the nature of those requirements.
- how it is meeting its objectives for managing capital.
• Quantitative data about what the entity regards as capital
• Consequences of noncompliance with capital requirement, where applicable.
a) An entity should disclose the following capital information either in the statement of
financial position, statement of changes in equity, or in the notes.
for each class of share capital:
- numbers of shares authorized
 - number of shares issued and fully paid
- number of shares issued and not fully paid.
- par value per share, or that it has no par value.
- reconciliation of the number of shares at the beginning and end of year.
- rights, preferences, and restrictions attached to that class, including restrictions on
dividends and the repayment of capital.
- shares in the entity held by the entity itself, subsidiaries or associates
- number of shares reserved for issue under options and sales contracts including the
terms and amounts.
- a description of the nature and purpose of each reserve within equity

STATEMENT OF ACCOUNTING POLICIES AND BASES

Accounting Bases refer to the totality of methods that can be adopted by an enterprise for
applying fundamental accounting concepts to financial transactions

STATEMENT OF COMPREHENSIVE INCOME

Information about performance of the entity should be displayed/provided in a single

statement of comprehensive income or in two statements, a separate income statement
followed immediately by a statement displaying components of other comprehensive income.
Minimum information to be presented on the face of the statement of comprehensive income
include the following as per IAS1

a) Revenue
b) Finance cost
c) Share of profits or losses of associate or joint ventures
d) Tax expense
e) The total gain or loss on discontinued operations
f) Each components of other comprehensive income classified by nature
g) Analysis of expenses based on either their nature or function

FORMAT OF STATEMENT OF COMPREHENSIVE INCOME

Statement of comprehensive income for the year ended 31st December 2004

Revenue xx

Cost of sales (xx)

Gross profit xx

Distribution expense (xx)

Administrative (xx)

Trading profit xx

interest income xx­­

Profit before interest and tax xx

Interest payable and similar charge (xx)

Profit before tax xx

Taxation (xx)

Profit for the year xx_

STATEMENT OF CHANGES IN EQUITY

The statement of changes in equity reflects information abouts the increase or

decrease in the net assets or wealth of an enterprises

Information to be presented on the face of the statement of changes in equity are:

a) Total comprehensive income for the period

b) the effect of retrospective application (for example,correction of errors) in accordance
with IAS8 on each of the components of equity
c) For each component of equity, a reconciliation between the carrying amount at the
beginning and the end of the year.
d) Capital transacions with owners and distributions to owner.
e) The amount of dividends recognized s distibutions to owners during the period.
f) Reconciliation of the balance of accumulated profit or loss at the beginning and end of
the period.
g) Reconciliation of the carrying amount of each class of equity capital, share premium
and each reserve at the beginning and end of the period.

FORMAT OF THE STATEMENT OF CHANGES IN EQUITY AS PER IAS1

ALADE PLC

Statement of changes in equity for the year ended 31st December 20x6

Share Retained Available Revaluation Total

capital earnings for sale surplus
financial
asset
Balance at N'000 N'000 N'000 N'000 N'000
1/1/20x5 Xx Xx xx --- xxx
 Changes in
accounting --- Xx --- --- xxx
policy
Restated Xx Xx xx __ xxx
balance
Changes in
equity --- (xx) --- --- (xx)
dividends

Total
comprehensive --- Xx xx xx xxx
income for the
year
Balance at Xx Xx xx xx xxx
31/12/20x5
Changes in
equity for xx __ __ __ xxx
20x6 issue of
shares capital

Dividend --- (xx) --- --- (xxx)

Total
comprehensive __ Xx (xx) xx xxx
income for the
year
Transfer to
retained --- Xx --- (xx) ---
earnings
Balance at Xx Xx xx xx xxx
31/12/20x6

STATEMENT OF FINANCIAL POSITION

The statement of financial position provide information about the financial position of
the entity. It should distinguish between major categories and classification of assets and
liabilities.

FORMAT OF STATEMENT OF FINANCIAL POSITION

ALADE PLC

Statement of financial position as at 31 December 20x6

Asssets N'000

Non current assets

Property, plant and equipment xx

Goodwill xx
Other intangible assets xx

Available for sales financial assets _xx

Total Non Current Assets _xx

Current Assets

Inventories xx

Trade receivables xx

Other current assets xx

Cash and cash equivalent _xx

Total Current Assets _xx

Total Assets xxx

Equity and Liabilities

Equity / share capital xx

Retained earning _xx

Total equity _xx

Non currrent liabilities

Long term borrowings xx

Deferred tax xx

Long term provision _xx

Total non current liabilities _xx

Current Liabilities

Trade and other payables xx

Short term borrowings xx

Current tax payable xx

Short term provisions _xx

Total current liabilities _xx

Total Liabilities _xx

Total equity and liabilities xxx

ILLUSTRATIONS

UNIT I- ILLUSTRATION ONE

TEEJAY Top Nigeria Plc. prepares annual financial statement to September 30. At September
30, 2017 the company list of account balances were as follows:

DR #’000 CR #’000
Revenue 185,000
Production costs 103,500
Inventory at October 1,2016 17,375
Distribution costs 13,500
Administrative expenses 18,250
Loan interest expenses 3,000
Land at valuation 131,250
Building- cost 100,000
Plant and equipment at cost 160,000
Accumulated depreciation- building at 1/10/16 26,625
Accumulated depreciation PPE at 1/10/16 31,000
Trade receivables 51,500
Trade payables 28,000
Bank overdraft 1,000
Issued ordinary shares @ 50k each(30/09/17) 175,000
Share premium @ (30/09/17) 50,000
Revaluation surplus 37,500
Retained earnings 39,250
12% Loan notes (payable 2021) 25,000
598,375 598,375

The following are relevant to the preparation of the financial statements for the year ended
September 30, 2017.

(1) Inventory at September 30, 2017 amounted to #19.5m

(2) Depreciation is to be provided on cost of the non-current assets as follows: i) building
2% p.a (ii) plant and equipment 20% p.a. 80% of the depreciation is to be charged to
cost of sales and 10% each to distribution costs and administrative expenses.
(3) Land is o be revalued to #125m.
(4) Accrued expenses and prepayments were:
Accrued expenses prepayments
#’000 #’000
Distribution costs 2,375 1,500
Administrative expenses 875 750
 (5) During the year ended September 30, 2017, 100millon ordinary shares were issued @
75k per share. The directors of Teejay Top declared an interim dividend of 2k per share
in September 2017. No dividends were paid during the year.
(6) Loan interest is paid annually on September 30 each year

REQUIRED:
Prepare in accordance with IAS 1:
(i) Statement of profit or loss and other comprehensive income for the year ended
September 30 2017
(ii) Statement of changes in equity
(iii) Statement of financial position as at September 30 2017.
ILLUSTRATION TWO

The following trial balance has been extracted from the books of LAWANSON PLC as at
March 31, 2019.

N’000 N’000
Land at cost 360
Building at cost 750
Equipment at cost 588
Vehicle at cost 852
Goodwill 900
Accumulated depreciation: At April 1, 2018:
Buildings 270
Equipment 228
Vehicles 396
Inventory at April 1, 2018 321
Trade receivables and payables 549 351
Allowance for receivables 24
Bank balances 171
Current taxation 18
Ordinary share of N1 each 600
Retained earnings at April1,2018 1,509
Revenue 4,296
Purchases 1,464
Directors’ fees 450
Wages and salaries 828
General distribution costs 303
General administrative expenses 558
Dividend paid 60
Rent received 90
Disposal of vehicle 30
7,983 7,983
The following information is also available:

1. The company’s non-depreciable land was valued at N900,000 on march 31, 2019 and
this valuation is to be incorporated into the accounts for the year ended March, 31 2019.
 2. The company’s depreciation policy is as follows: Building, 4% p.a straight line,
Equipment, 40% p.a. reducing balance, Vehicles, 25% p.a. straight line.
In all cases, a full year’s depreciation is charged in the year of disposal. None of the
assets had been fully depreciated by March 31, 2013.
3. On February 1, 2019, a vehicle used entirely for administrative purposes was sold for
N30,000. The sale proceeds were banked and credited to a disposal account, but no
other entries were made in relation to this disposal. The vehicle had cost N132,000 in
August 31, 2015. This was the only disposal of a non-current asset made during the
year ended March 31, 2019.
4. . Depreciation is apportioned as follows:
Distribution cost Administrative
expenses
Buildings 50% 50%
Equipment 25% 75%
Vehicles 70% 30%

5. The company‟s inventory at March 31, 2019 is valued at N357,000.

6. Trade receivables include a debt of N24,000 which is to be written off. The allowance
for receivables is to be adjusted to 4% of the receivables which remain after the debt
has been written off.
7. Current tax for the year ended March 31, 2018 was over-estimated by N18,000. The
current tax liability for the year ended March 31, 2019 is estimated to be N90,000.
8. One-quarter of wages and salaries, was paid to the distribution staff and the remaining
three-quarters were paid to the administrative staff.
9. General administrative expenses include bank overdraft interest of N27,000.
Required:
Prepare a statement of profit or loss and other comprehensive income for the year ended
March 31, 2019.
ILLUSTRATION THREE

BARAJE NIGERIA PLC has an authorised and issued share capital of #400 million made up
of 800 million ordinary shares of 50k each. The following is the company’s trial balance as at
30th June 2015.

Trial balance as at 30th June 2015

DR #’000 CR #’000
Freehold Land 50,000
Short term deposits 100,000
Sundry Receivables 121,640
Cash in hand 21,724
Cash at bank 80,000
Furniture and fittings at cost 89,440
Plant and equipment at cost 328,000
Accumulated depreciation:
Furniture and fittings 22,360
 Plant and equipment 65,600
Inventories at 1/7/2014 54,320
Sundry payables 78,840
Bank overdraft 50,000
Wages 194,560
Telephone and postages 4,200
Printing and stationeries 12,120
Auditors remuneration 4,000
Transport and travelling 4,280
Insurance 4,120
Interest paid 8,200
Interest received 2,000
Electricity 7,600
Salaries ( including Directors’ 153,700
remuneration #2 million)
Rates 4,280
Purchases 613,664
Revenue/Turnover 1,280,248
Dividends (Interim) 48,000
Statement of comprehensive income 4,800
Share capital 400,000
1,903,848 1,903,848

Additional information:

a) The directors recommended that 5% of receivables should be set aside as bad debts
b) Inventories at 30/06/2015 are valued at #57,296,000
c) Unpaid wages at 30/06/2015 amounted to 4,800,000 and electricity accrued was
#560,000
d) Depreciation is to be provided as follows: ( i) plant and equipment 10% (ii) Furniture
and fittings 5%
e) Sales manager is entitled to sales commission of 2% of gross profit
f) Insurance paid in advanced amounted to #570,000
g) Plant which stood in the book at 1/7/2014 at #16million has been sold for #12 million.
in part exchange for new plant costing #24 million. A new invoice for #12 million had
been made in respect of this transaction. The original cost of the old plant was #20
million. It is the company’s policy to charge a full year’s depreciation in the year of
purchase and non in the year of sale.
h) A final dividend of 8% (making a total of 20%) was recommended by the directors in
respect of the year to 30/06/2015
i) Income tax of 70 million was provided for by the company.
You are required to prepare in a form suitable for publication the following:

1) Statement of comprehensive income for the year ended 30/06/2015.

2) Statement of changes in equity as at 30/062015.
Statement of financial position as at 30/062015.
MODULE III-BANK RUPTCY
UNIT 1- INTRODUCTION
The law relating to bankruptcy is the Bankruptcy Act of 1979. A person who cannot meet his
financial liabilities as and when they fall due is said to be insolvent i.e bankrupt. Before a
person can be made bankrupt, he must have committed an act of bankruptcy.
 PEOPLE WHO MAY BE DECLARED BANKRUPT
The following people may be declared bankrupt under the bankruptcy laws:

Debtors who are unable to meet their financial obligations

•
Partnerships (including limited partnership)
•
Married women
•
The estate of the deceased debtors
•
Undischarged bankrupt (who may be declared bankrupt the second time
•
for debts incurred after the date of the receiving order in the prior
bankruptcy)
 PEOPLE WHO MAY NOT BE DECLARED BANKRUPT
• Companies incorporated under the Companies and Allied Matters Act
CAP C20 LFN 2004
• Lunatics
• Foreigners having no dwelling house in Nigeria, never resided in
Nigeria and has no business connection in Nigeria
• Deceased debtors

THE FOLLOWING ARE DEFAULTS CONSTITUTE ACT OF BANKRUPT

1.) If a creditor has obtained judgment of final order against a debtor for
any execution thereon not having been stayed, the debtor has
committed an act of bankruptcy. If he has a bankruptcy notice served
on him within 14days and thereafter he does not comply with the
requirements of the notice or satisfy the court that he has counter
claim or set off cross demand which equals to or exceeds the amount
of the judgment debt.
2.) If the execution against the debtor has been levied by the seizure of
his goods and the goods have either been sold or held by the bailiff
for 21days
3.) If the debtor flies in the court a declaration of his inability to pay his
debts or if he presents bankruptcy petition against himself.
For a group of creditors or a creditor to present a petition against a debtor, the following
conditions must hold:
a.) The debt owed by the debtor to the petitioning creditor(s) must not
be less than ₦2,000
b.) The debt must be a liquidated sum payable either immediately or at
some certain future time.
c.) The act of bankruptcy on which the petition is based must have
occurred within 3months before the date of petition
 d.) The debtor must ordinarily resident in Nigeria or within a year
before
The date of petition if the debtor has ordinarily resident in Nigeria
or has a dwelling house or place in Nigeria or has carried out
business in Nigeria personally or by means of an agent
UNIT II- PROCEDURES IN BANKRUPTCY
The under listed are the procedure followed before a person or a partnership business is
declared bankrupt.
Presentation of petition
A creditor or a group of creditors present a petition to a Federal High Court of the inability
of a debtor to pay his debts and therefore requesting a receiving order to be made against
the debtor. This petition must be accompanied with a sworn affidavit giving all the required
information including the fact that the debtor has committed an act of bankruptcy.
The Receiving Order
Where the court is satisfied with the creditors’ petition that the debtor has committed an act
of bankruptcy, a receiving order will be made in the newspapers and a receiver is appointed
by the court to receive the property of the debtor. At this stage the debtor though not yet
declared bankrupt will maintain the ownership of the property but the possession and
control will be with the receiver.
The Bankruptcy Act 1979 requires that the receiver should be a person appointed as
Registrar General of Companies under the CAMA CAP C20 LFN 2004 and acts as an
interim trustee until one is appointed, his functions include:

•To investigate the conduct of the debtor and report to the court stating whether the
debtor has engaged in any misconduct to justify being denied a discharge
• To conduct the public examination of the debtor at the public hearing to be held
by the court
• To protect the assets of the debtor
• To manage the assets of the debtor if no special manager is appointed
• To convene and preside over the first meeting of the creditors
• To manage the business if the debtor in line with the mandate given by the creditor
or committee of inspection
Appointment of a Manager
The court may appoint a special manager to manage the estate or business of the debtor and
exercise such power as may be entrusted to him by the official receiver, the manager is only
appointed by the court if:

• At the instance of the official receiver

• If the nature of the estate or business of the receivable necessitates such
appointment (too large)
• The appointment will be for the overall interest of all the payables
Presentation of statement of affairs
A statement of affairs showing the assets and liabilities of a debtor will be prepared and
submitted to the official receiver within 7days of the receiving order if made on the debtor’s
petition, or 14 days if made on the creditor’s petition
First Meeting of the payables
The official receiver shall call for the first meeting of the creditors after the court has granted
the receiving order. The meeting shall consider the composition or scheme of arrangement as
presented by the insolvent person. An arrangement is an agreement whereby the debtor agrees
that his property be transferred to the trustee to be named by the creditors and after the
satisfaction of the creditor claims, the debtor’s property shall be reassigned to him.
‘Composition’ on the other hand is an agreement whereby the creditors agree to lesser
settlement of amounts owed to them. For any of the alternatives to succeed, two third of the
creditors must give their approval but where neither arrangement nor composition succeeds,
the next stage of the proceeding is entered into and that is public examination.
Public Examination
The insolvent person shall be subjected to a public examination under oath, this is conducted
to ascertain the:
a.) Affairs c.) Dealings e.) Causes of failure of the insolvent person
b.) Conducts d.) Property
Such public examination may not be conducted if:
a.) The insolvent is mentally disabled
b.) Physically Disabled or
c.) Not in Nigeria.
With satisfaction that all the affairs of the debtor has been examined and investigated, the court
shall make an order declaring that the public order has been concluded.
Adjudication Order
This is the order of the court declaring the insolvent person bankrupt; in this case he trustee in
bankruptcy shall now legally take possession of the property of the bankrupt and shares this to
the creditors in accordance with the provisions of the Act. The bankrupt person henceforth adds
“a bankrupt” after his name.
The adjudication order has the following effect on the bankrupt is that he shall not be eligible
for:

• Election into public office in Nigeria

• Appointment as justice of peace
• Admission to practice any profession regulated by law
• Appointment as a trustee of a trust estate
Appointment of Trustee in Bankruptcy
When the debtor has been adjudged bankrupt, the creditors may pass an ordinary resolution
appointing the official receiver, a creditor or any other qualified person to act as trustee in
bankruptcy, however, the creditors at their own instance could delegate the responsibility for
appointing the trustee in bankruptcy to the committee of inspection.
Functions of Trustee in Bankruptcy
Where a trustee in bankruptcy is appointed, his functions will include:

• To carry on the business of the bankrupt as far as may be necessary for the
beneficial winding up of the business
• To institute or defend the any action or other legal proceedings relating to the
property of the bankrupt
• To employ a legal practitioner or other professional or agent to carry out any
business as sanctioned by the committee of inspection
• To accept as the consideration for the sale of any property of the bankrupt a sum
of money payable at future time as deemed appropriate
• To mortgage or pledge any part of the property of the bankrupt for the purpose
of raising money for the payment of his debts
• To take compromise or arrangements with creditors as deemed necessary
• To keep proper records on the bankrupt’s estate or business
• To divide in its existing form amongst the creditors any property that cannot be
readily sold
Records to be kept by the trustee in bankruptcy

• Cash book for the receipts and payments

• Trading account showing the periodic position of the trading activities
• A book to record the administration of the estate of the bankrupt
Discharge Order
The bankrupt person may apply for discharge or the discharge application may be at the
instance of the following:
a.) Court c.) Trustee in bankruptcy
b.) Receiver d.) Any of the creditors.
The court shall not grant the order in the following circumstances:

• The bankrupt has committed act of bankruptcy

• Continues trading after being insolvent
• Has previously been adjudged bankrupt
• He is guilty of any fraud.
Whatever is the case, the bankrupt person shall be freed of the bankrupt after five years, and
this shall free him from civil rights mentioned under the adjudication order.
Statement of Affairs
Within 7 days if made on debtors’ petition, or within 14 days if made on creditors’ petition, the
debtor must prepare and submit a statement of affairs to the official receiver. This statement,
which must be prescribed form and verified by an affidavit, must set out the assets and
liabilities of the debtor.
MODULE 4 - EXPLANATORY NOTES ON THE PAYABLES
UNIT I- TYPES OF PAYABLES
1. Unsecured Payables
The unsecured payables will rank for payment out of available assets after deducting the
preferential payables and payables for rent, their debt has no any form of security (naked) and
these may include the following:

• Unsecured bank overdraft facility

• Bills payable
• Rent not recoverable by power of distrain
• Wages, PAYE in excess of the ones recognized as preferential
2. Fully Secured Payables
The realizable value of the security is offset against the secured debt and any surplus (a) either
transferred to the assets available to settle preferential creditors and unsecured creditors or (b)
transferred to the partially secured debt if this has a second charge on the assets.
On the other hand the realizable value of the security may be less than the secured debt, the
deficiency shall rank for payment as unsecured creditors.
3. Partly Secured Creditors
The surplus arising from the fully secured debt is used in settling the partly secured creditors
and any deficiency transferred to unsecured creditors.
4. Liability on Bills Discounted
This refers to bills receivable discounted with finance houses and any amount that may rank
for payment shall be transferred to the ‘ranking column’
5. Contingent Liabilities
Any contingent liability other than liability on bills discounted shall be treated like the liability
on bills discounted
6. Deferred Debts
They are part of unsecured creditors but their debts shall only be paid after the unsecured
creditors, this usually includes:

• Loans by a wife to the husband or vice versa for the purpose of trade
• Money paid to the debtor under a contract of apprenticeship
• An amount due to the vendor of a goodwill sold to the debtor
• The sum owed by a partnership firm to any of the partners
• Sums borrowed to the debtor for use in his business which attracts share of the
profit of the debtor instead of the normal interest on loan
7. Payables for rents
The landlord has the right to exercise the power of distrain for any rent owed to him before the
commencement of bankruptcy. However, if he distrains after the commencement of the
bankruptcy, he is only entitled to six months’ rent and the balance shall be considered as
unsecured creditors.
8. Preferential Payables
This shall be met directly from the assets realized; the amount involved is only shown on the
liability side only to disclose the gross liabilities it can never rank for payment as the unsecured
creditors. Preferential creditors include the following:

• Local rates due 12months before the receiving order

• All taxes assess on the receivables before the receiving order, where there are
arrears, the highest amount of 12 months before the receiving order is chosen
as preferential the remaining liabilities transferred to unsecured creditors.
• All PAYE deductions of 12 months before the receiving order and the highest
amount being preferential where many assessment years are involved, the
remaining liabilities thrown to the unsecured creditors
• Any VAT outstanding of 12 months before the receiving order
• Wages or salaries of any clerk, servant or workman for a maximum of 4 months
but not exceeding ₦300 per employee. This shall also include all holiday
remunerations and sick pay owed to the servants, clerks and workman
• All accrued holiday or bonus payable to the clerks, servants on termination of
employment by reasons of death or receiving the order
• reasonable
•
ILLUSTRATION ONE

The following information relates to BAWASA

N000 Assets N000

Liabilities

Capital 25,000 Freehold premises 50,000

Profit for the year 10,000 Furniture & equip 37,500

35,000 Inventory 12,500

Less drawings 5,000 Current Assets

30,000 Trade receivables 17,500

Trade payables 54,000 Bank 3,000

Bank O/D (secured on freehold premises)37,500 Cash in hand 1,000

121,500 121,500

Additional information

I. The business of BAWASA are estimated as follows: freehold #65,000,000, furniture& equipment
#9,000,000, trade receivables #13,500,000, bank balance #3,000
II. Trade payables included an amount of #3, 750,000 regarded as preferential.
III. BAWASA personal asset include a motor car valued at #5,000,000. A saving account maintain with
MFR ltd standing at #1,875,000. A plasma TV valued at #875,000. His personal liabilities were #500,000
due to staff and #1,250,000 for unsuccessful football forecast due to his pooled agent.
IV. The value of his asset and liabilities remain unchanged.

You are required to prepare as at 31st December 2009

(1) Statement of affairs (2) Deficiency/surplus account
 ILLUSTRATION TWO
From the following information prepare the statement of affairs of Musa and Okoro as at 30/6/2003 who have just
been declared bankrupt.

Plant and machinery(#30,000)expected to realize #25,000,inventory in trade (12,000)expected to produce #7000,

patent right (#5000)expected to produce #3000,furniture and fittings (#625),expected to realize #400,cash in hand
#10,cash at bank #120,bills receivable #2514(Good),bills payable #4035,loan #20,000 having a first charge on
plant and machinery,liabilities for damages awarded for injured workers under workmen compensation act
covered by insurance Act #100,payabless #33,406,#8,000 of which have a second charge on plant and machinery
rent owing for one year #620,rates #85 preferential wages and salaries#80,trade receivables #10,816(Good #7,068
subject to 5% discount)doubtful #2020,expected to produce 25% and the remaining is bad. .Liability of bills
discounted #1856 of which #104 is expected to rank. .

Musa private estate shows an expected surplus of #60 while okoro estate shows a deficiency of #146.capital as
commencement of business is #10,000. Trading for the years are as follows:

Year1 Profit of #1,160.

Year2 A loss of #1,857.

Year3 Profit of #587.

Year4 Profit of #316.

Year5 Loss of #2,872.

Drawings:

Musa #900 per year

Okoro#500 per year

The above Profit or Loss figures are arrived at after charging interest on capital at #500 per year

Required: prepare a statement of affairs and deficiency as at these dates

ILLUSTRATION THREE

The following information relates Mr Adamu (The bankrupt)

Unsecured creditors:

Bills payable 3,713,500

Sundry debt 257,680

Trading account 18,074,580

Fully secured creditors 16,000,000

Secured on the security estimated to realize 18,000,000.

Liabilities on bills discounted #1,115,460, expected to rank 107,020

Payables for unpaid rent ( preferential )#200,000.

Preferential for rent, taxes and wages#245,460

Furniture and fittings (estimated to realize #1,200,000),#2,161,280

Cash in hand 21,260

Cash at bank 120,580

inventory in trade{estimated to realise (5,000,000)} 8,121,820

Household, furniture& fittings (estimated to realize 440,000) 901,060

Book debt: Good 5,357,540

Doubtful (1,053,160 ) expected to realize half of the amount.

Bad 775,480

Bills of exchange 475,820

Reqd: Draw up a statement of affairs to be presented to the creditors of the Adamu

ILLUSTRATION FOUR

(a) OMO AGEGE commenced business on 1, January 2010 with a capital of #672m. His
profits for the years to 2014 were #80m; #64m; #36m; #28m and #8m respectively. His
drawings averaged #44m per annum. On 31 December, 2014 a receiving order was
made against him when his affairs were as follows:
#’000
Unsecured payables 400,000
Mortgage on freehold property 80,000
Payables partly secured (life policy estimated to realise #80m) 240,000
Payables for salaries and wages 9,600
Bill receivable discounted and expected to rank 6,400
Plant and machinery (costs #160m) estimated to realise 40,000
Freehold factory (costs #800m) estimated to realise 400,000
Book debts: Good 120,000
Doubtful (#40m) to realise 12,000,
Bad 100,000
Furniture and fittings (costs #16m) estimated to realise 7,000
Inventory (costs #160m) estimated to realise 111,000
Cash in hand 1, 600
You are required to prepare a Statement of affairs and a deficiency/surplus account from the
above information.

b An undischarged bankrupt may suffer from some legal disabilities. State FOUR of them.
MODULE 5- RECEIVERSHIP AND LIQUIDATION
UNIT 1- RECEIVERSHIP
A company or part of a company property may be put under receivership which means the
receiver receives the whole of the company from the management if appointed as a receiver
for the whole company or he receives part of the company’s property if his appointment is
restricted to only a part of the company’s property.
Appointment of a receiver manager
Receiver and managers can be appointed either under a power contained in an instrument or
by the court.
Appointment by the court
The court may on the application of a person interested, appoint a receiver or receiver and
manager of the property or undertaking of a company if:

• The principal money borrowed by the company or the interest is in arrears or

• The security or property of the company is in jeopardy S389(1) of CAMA CAP
LFN2004
The court has an inherent jurisdiction to appoint a receiver in order to put property in safe hands
until the right of those interested in t can be determined.
Appointment out of Court
By far the most common type of the encountered in the business world arises as a result of an
agreement. This type of agreement is usually one entered into by a company which wishes to
borrow money to sue in its business and as a security for the loan, is prepared to agree that the
lender be given the right, in the event of the borrower failing to adhere to the terms of the loan
agreement, of appointing a receiver to take over assets of the company with the main objective
of securing to the lender the repayment of the outstanding loan.
It is to be noted that by S181 of CAMA CAP C20 LFN 2004 that the holder of a fixed charge
can only appoint a receiver whose mandate is to take custody of the specific asset and realize
this for the benefit of the debenture holders. In the same vein, only the holder of a floating
charge or a combination of fixed and floating charge may appoint a receiver and manager, a
receiver appointed manager has the power to carry on any business or undertaking of the
company under receivership.
Disqualification from appointment as a receiver
S 387 of CAMA CAP C20 LFN 2004 disqualifies the following from appointment as a
receiver:

• An infant
• Any person of unsound mind
• A body corporate
• An undischarged bankrupt
• A director or auditor of the company
• Any person convicted of any offence involving fraud, dishonesty or felony.
Powers and Duties of the Receiver and Manager
 Before making any move towards taking control of the assets of the company, the receiver
must ascertain from the debenture holders the precise powers which he is endowed. Receivers
and Managers derive their powers from the main instrument under which they are appointed.
The statutory powers are contained in schedule II of CAMA CAP C20 LFN 2004 and these
are:

• Power to take possession of, collect and get in the property of the company
and for that purpose to take such proceedings as may be seem to him
expedient
• Power to sell or otherwise dispose of the property of the company by public
auction or private contract
• Power to raise or borrow money and grant security thereof over the property
of the company
• Power to appoint a solicitor or accountant or other professionally qualified
person to assist him in the performance of his functions
• Power to bring or defend any action or other legal proceedings in the name
and on behalf of the company
• Power to refer to arbitration any question affecting the company
• Power to effect and maintain insurance in respect of the business and property
of the company
• Power to use the company’s seal
• Power to do all acts to execute in the name and on behalf of the company a
deed, receipt or other document
• Power to draw, accept, make and endorse any bill of exchange or promissory
note in the name and on behalf of the company
• Power to appoint any agent to do any business which he is unable to do
himself or which can more conveniently be done by an agent and power to
employ and dismiss employees
• Power to do all such things (including the carrying on of works) as may be
necessary for the realization of the property of the company
• Power to make any payment which is necessary or incidental to the
performance of his functions
• Power to carry on the business of the company
• Power to establish subsidiaries of the company
• Power to transfer to the subsidiaries of the company the whole or any part of
the business and property of the company
• Power to grant or accept a surrender of a lease or tenancy of any of the
property of the company, and to take a lease or tenancy of any property
required or convenient for the business of the company
• Power to make any arrangement or compromises on behalf of the company
• Power to call up any uncalled capital of the company
• Power to rank and claim in the bankruptcy, insolvency, or liquidation of any
person indebted to the company and to receive dividends and to accede to
trust deeds for the creditors of any such person
• Power to present or defend a petition for the winding up of a company
• Power to change the situation of the company’s registered office
• Power to do all things incidental to the exercise of the foregoing powers
Statement of Affairs
S 396 (1) of CAMA CAP C20 LFN 2004 requires that within fourteen days of the receipt by
the company of the notice from the receiver advising of his appointment, a statement of affairs
of the company is to be prepared and submitted to the receiver. Power is given to substitute for
the fourteen days such longer period as he may allow.
Distributions of proceeds of realization

•Receiver’s remuneration, costs and expenses as stated in the deed of

appointment
• Preferential payables: He is not under any obligation to agree the claims of
the unsecured payables he must agree all claims of preferential payables in
order that he may be in a position to settle this out of his charge realization
before making payments to the debenture holders
UNIT II- LIQUIDATION
Introduction
The provisions of CAMA CAP C20 LFN 2004 relate to the processes of the liquidation of
companies just as the provisions of Bankruptcy Act 1979 regulate the bankruptcy processes of
individuals and partnership business. The essential provisions are highlighted below:
Modes of company liquidation
The modes of winding – up as stipulated by Section 410 (1) of CAMA CAP C20 LFN 2004
are:

• Compulsory winding – up by the court

• Members voluntary winding – up
• Winding – up subject to the supervision of the court.
Compulsory winding – up:
Circumstances under which compulsory winding-up may occur are:
i.) Resolution by members of company requesting the court to liquidate the company
compulsorily
ii.) Default in making statutory reports or holding of statutory meetings
iii.) Where the members of the company has been reduced below the statutory minimum
of two
iv.) Where the company is insolvent
v.) Where in the opinion of the court it is just and equitable to do so.
Members’ voluntary winding-up:
The following circumstances may warrant member’s voluntary winding-up:
i.) A special resolution passed to that effect by members of the company
ii.) On expiration of term fixed by the memorandum and articles of association
iii.) Occurrence of an event predetermined in the memorandum and articles of
association.
Liquidation subject to court supervision:
This is also members voluntary winding-up, the members may pass a resolution requesting the
court to supervise the liquidation process hence it is called winding-up subject to court
supervision.
Petition for winding up of A Company
By section 401(1) of CAMA C20 LFN 2004 an application to the court for the winding up of
a company may be made either by:

•The company
•A payable, including a contingent or prospective payables of the company
•A contributory
•The Corporate Affairs Commission
•A trustee in bankruptcy to, or a personal representative of a creditor or
contributory
• By all or any of those parties together or separately
Appointment of official Receiver by the court (S 419)
The official receiver who is appointed in a company court winding up shall be a deputy Chief
Registrar of The Federal High Court and his appointment is covered by S419 of CAMA CAP
C20 LFN 2004. His functions are covered by S421 of the Act and these include:
1.) To submit a preliminary report to the court
i.) As to issued, subscribed and paid up, and estimated amount of assets
and liabilities and
ii.) If the company has failed, as to the cause of the failure and
iii.) Whether, in his opinion, further inquiry is desirable as to any matter
relating to the promotion, formation or failure of the company.
2.) The official receiver may if he thinks fit, make further reports stating the manner in
which the company was formed and whether in his opinion fraud has been committed
by any person in its promotion or formation, or by any officer of the company in relation
to the company since its formation and the reports may include any other matter which,
in his opinion, is desirable to bring to the notice of the court.
MODULE 6- Appointment of Liquidators (S 422)
UNIT 1- INTRODUCTION
The appointment of liquidators is covered by S422 of CAMA CAP C20 LFN 2004 in a
compulsory winding up by the court that has the following powers and duties as stipulated by
S 425(1) and (2)
i.) To bring or defend a court action on behalf of the company
ii.)To appoint a legal practitioner or other professionals to assist him in his
functions.
iii.) To make any calls in respect of any class of share capital that has calls
outstanding
iv.) To compromise the debts owed the company or accept securities for the
discharge of the debts
v.) To take out, in his official name, letters of administration to any deceased
contributory and to take any other action necessary to obtain payment of any
amount due from a contributory or his estate
vi.) To carry on the business of the company as may be necessary for the purpose
of winding up
vii.) To sell the property of the company
viii.) To draw, accept make and endorse any bill of exchange on behalf of the
company
ix.) To enter into contracts on behalf of the company and to use the company’s seal
for that purpose
x.) To prove, rank, claim and receive dividends on behalf of the company in the
bankruptcy of a contributory for any sum due from the latter’s estate to the
company
xi.) To raise any money required and pledge the assets of the company as securities
for the sum raised
xii.) To make a compromise or arrangement with creditors of the company
xiii.) To pay creditors of the company
xiv.) To appoint an agent to perform tasks that he is unable to perform himself
COMMITTEE OF INSPECTION
Sections 433 CAMA CAP C20 LFN 2004 allows the appointment of the
committee of inspection which comprises of representative of the contributories
and creditor and their function is to assist the liquidator in carrying his
assignment.
Final Accounts prepared on liquidation
The following are the final accounts prepared on liquidation:

• Statement of affairs
• Receiver’s receipt and payment account
• Liquidator’s receipt and payment account
• Deficiency accounts (which may include initial and final deficiency)
• Record of proceedings at meetings
Statement of Affairs
On liquidation, a statement of affairs in a prescribed form must be submitted by the directors,
secretaries or officers of the company within 14 days of the winding up order or of the
appointment of a provisional liquidator. The statement of affairs will contain the assets and
liabilities of the company.
Before a company can go into voluntary liquidation, there must be sufficient assets to pay all
debts in full otherwise the directors will suffer heavy penalties if they are found guilty.
The Assets
These shall be separated as to
1.) Those that are not specifically pledged
2.) Those that are specifically pledged from which the secured payables will be
deducted.
Liabilities
The liabilities must b stated in the following orders
a.) Secured payables
b.) Preferential payables
c.) Liabilities secured with a floating charge on the assets of the company
d.) Unsecured payables
e.) Shareholders
Preferential Payables
1.) All local rates and charges due from the company at the relevant date, and having
become due and payable within 12 months next before that date, and all Pay-As-You-
Earn tax deductions, assessed taxes, land tax, property or income tax assessed on or due
from the company up to the annual day of assessment next before the relevant tax date,
and in case PAYE tax deductions, not exceeding deductions made in respect of one year
of assessment and, in any other case, not exceeding in the whole one year’s assessment
2.) Deductions under the National Provident Fund Act 1961 which by Pension Act 2004,
all relevant pension contributions to an employee’s retirement savings account with a
recognized pension fund administrator
3.) All wages and salaries of any clerk or servant in respect of services rendered to the
company
4.) All wages of any workman or labourer whether payable for time or for piece work, in
respect or services rendered to the company
5.) All accrued holiday remuneration becoming payable to any clerk, servant, workman or
labourer (or in the case of his death to any person in his rights) on the termination of
his employment before or by the effect of the winding up order or resolution
6.) All payments under the Workmen’s Compensation Act.
ILLUSTRATION ONE
Okoro Nig.ltd got into financial difficulties on 30/09/2009. The directors passed a resolution
that the company be wound up voluntarily. The trial balance of the company as at that date
is presented below.

#’000 #’000

Plant& Machinery 200,600

Freehold Building 305,000

Motor Vehicle 96,300

inventory 149,280

Receivables 106,700

payables 168,800

Call in arrears/advance 2,500 6,000

Cash in hand 14,650

10% debentures 100,000

Debenture Interest (30/09/09) 5,000

Trading loss for the year 22,520

Bills payable 36,000

Bank overdraft 120,800

Retained profit 62,550

Taxation (2007 56,400 2008 42,000) 98,400

Ordinary share of #1 each 200,000

3% preference share of #1 each 100,000

897,550 897,550

ADDITIONAL INFORMATION

A. The assets are estimate to produce as follows

Plant & Machinery 124,600

Freehold Building 378,900

Motor Vehicle 62,400

inventory 89,700

Call in arrears 1,280

Receivables: 48,600

Doubtful 44,400

Bad debt 13,700

The doubtful debt will produce 25k in the naira value

B. payables consist of: Local taxes {16 month 9600} payee deductions {Jan-September 2009
26800, NPF contribution #10000, loan for settlement of staff salaries #50400} 168800

Sundry trade payables #72000

Sundry trade payables are to be settled at an interest rate of 10k per naira in the event of
liquidation.

C. The 10% debenture is secured on the freeholds building while the bank overdrafts have a
floating charge on the asset

D. The cost and expenses of liquidation and legal cost #22400 and the liquidation fees #10000
plus 5% of the amount distributed to ordinary shareholders

E. The preference shareholder are to be settle at a 8k per share before the ordinary shareholders

F. There is a contingent liability of #5600 on bill discounted to rank @ #4200

Prepare statement of affairs and deficiency account as at 30/09/09

ILLUSTRATION TWO

INAKUNA Nigeria Limited got into financial difficulties and on 30/6/2015, a receiver was
appointed by debenture holders with floating charge; and a liquidator was appointed on 31st
October 2015. On the date of receiver’s appointment, the trial balance of the company was as
follows:

Trial balance

N’000 N’000
Plant and equipment 305,000
Inventory 183,750
Receivables and payables 102,500 178,750
Mortgage loan 20,000
Taxation (2013 N65,000000; 2014 95,000
N30,000,000)
10% debentures 120,000
Debenture interest accrued (30/6/2015) 6,000
Motor vehicles 94,800
Profit or loss accounts 80,000
Cash in hand 20,200
Capital reserves 11,500
5% preference shares of N1 each full 30,000
paid
Ordinary shares of N1 each fully paid 250,000
Ordinary share of N 1 each 60k paid up 75,000
786,250 786,250

Additional information:
 (1) payables consist of: N
Paye tax deductions (January to June 2015) 18,400,000
NPF contribution 7,600,000
Local rates (16 months to 30/6/2015) 4,800,000
Loans for settlement of staff salaries 47,450,000
Sundry trade payables 100,500,000

178,750,000
Sundry trade payables have agreed to accept a dividend of 92k in the naira value in full
settlement.
(2) The mortgage loan was secured on a fixed plant with a book value of N40,000,000 but
was realized by the receiver for N31,800,000
(3) The receiver also realized the remaining plant and equipment for N228,600,000 and the
motor vehicles for N49,950,000. The expense of the receiver was N9,840,000, while
the remuneration was agreed at N6,000,000 plus 3% of the amount realized. On
31/10/2015, he made all his obligatory payments and transferred to the liquidator the
balance of cash in hand.
(4) The liquidator realized the inventories for N102,226,000 and collected only 65% of the
book receivables. His expenses and remuneration were N12,300,000 and #25,440,000
respectively.
(5) The preference shareholders were to be settled at a premium of 10 kobo per share before
the ordinary shareholders.
You are required to:
Prepare the final accounts of:
(i) The receiver 10 marks
(ii) The liquidator 10 marks
ILLUSTRATION THREE

Oluwo Ltd passed a resolution at the extra ordinary general meeting on January 1st, 2010 to
close business voluntarily. The following is the balance sheet of the coy as at that date

N 000

Fixed assets

P&M 1,280,000

inventory 620,000

Receivables 1,011,000

Cash 9,000

Profit or Loss account 415,000

3,335,000

Share capital

Ordinary share capital 1,200,000

5% preference share of cash fully paid 650,000

6% Debentures 350,000

payables 1,135,000

3,335,000

Additional information

The Plant & Machinery including inventory on 1stjanuary 2010 realized N1,811,000,000 and
receivables other than N42,000,000 which was considered irrecoverable were received in full.

The payables were paid in full; N34,000,000 of the total sum was regarded as preferential
creditors.

The debentures were repaid with half year outstanding interest of N10,500,000, on 31st match
2010.

Stated in the articles of association was a clause which confers on the preference shareholders
the right to have their capital and arrears at the date of commencement of winding up (but not
thereafter) paid in priority to ordinary shareholders. The arrears of such preference shares on
31/12/2009 was N81,250,000.

The liquidator’s remuneration was agreed at 21/2% on the amount realised and 21/2% on the
dividend paid to the shareholders. The liquidator’s expenses were N38,450,000.

Required:

I Prepare the liquidators receipts and payments account. show all workings .

II Outline five examples of preferential debts.

MODULE 7- FOREIGN BRANCH ACCOUNT
UNIT 1- INTRODUCTION

Foreign branches are those situated outside the foreign country where the head office is
located. They are usually self- accounting and transactions are denominated in the currency
of the host nation.

TRANSACTION METHODS FOR FOREIGN BRANCHES

For the purpose of translating foreign branches, the methods that can be used are

 Temporal method
 Closing rate method
 Monetary and non monetary method
1.Closing rate method

Under this method, all assets and liabilities are translated at the rate ruling at the statement of
financial position date. This method is also referred to as the current rate method.

2. Temporal method

Under this method, current assets and liabilities are translated at the rate ruling at the statement
of financial position date and noncurrent assets and liabilities are translated at the applicable
historical rate at the dates they were acquired or incurred. This method is sometimes referred
to as current and noncurrent method.

3. Monetary and non monetary method

Under this method monetary and non monetary assets and liabilities are translated at the rate
ruling at the statement of financial position dates and non monetary assets and liabilities at the
historical rates ruling at the dates they were acquired or incurred. Assets and liabilities are
regarded as monetary if their nominal values are fixed. All other statement of financial position
items are classified as non monetary.

EXCHANGE RATE

The exchange rate to use for each transaction under the following method is translated below.

TRANSACTIONS TEMPORAL METHOD CLOSING RATE

METHOD
Inventories The actual rate ruling on the The closing rate, if acquired
acquired date of purchase or by branch or at actual
transfer value, if acquired by head
office.
Non- current asset At actual rate ruling on the Rate ruling on the statement
date of purchase or transfer. of financial position date.
 Current asset and current Rate ruling on the statement Rate ruling on the statement
liabilities of financial position date. of financial position date.

Profit or loss items Average rate of exchange Rate ruling on the statement
for the year. of financial position date.

Head office current account Actual rate Figure in the head office
book.

ILLUSTRATION 1

Malami plc opened a foreign branch in Japan on 1 January 2011, supplying necessary funds on
that date. Non- current assets costing 80,000 yen and inventory costing 36,000 yen were
purchased on 1st January 2011 leaving the branch with a cash balance of 24,000 yen. The trial
balance of the branch at 31st December 2011 is given below. No provision has yet been made
for depreciation on the non-current assets, which have an estimated useful life of 10 years and
a new residual value. The closing inventories of the branch are valued at 54,000 yen. The
exchange rates are as follows:

1 January 2011 8 yen to ₦1

31 December 10 yen to ₦1

Average for the year 9 yen to ₦1

Rate applicable to closing inventory 9.6 yen to ₦1.Malamiplc branch trial balance as at
31/12/2011.

Yen Yen

Head office current account 140,000

Non-current assets. Cost 80,000

Revenue 540,000

Purchase 450,000

Opening inventory 36,000

Expenses 81,000

Trade receivable 45,000

Trade payable 33,000

Cash 21,000

713,000 713,000

REQUIRED
Prepare the branch trading and statement of comprehensive income and statement of financial position in naira
ready for consolidation with head office results. Using temporal method.

ILLUSTRATION 2

The following information relates to kudi, a foreign subsidiary of ego plc. Statement of financial position as at
31/12/12.

Cedi

Non- current assets at cost 2,250,000

Less depreciation (900,000)

1,350,000

Inventory 900,000

Receivables 450,000

2,700,000

Ordinary shares 450,000

Retained profit 1,260,000

1,710,000

Loans 495,000

Payables 247,500

Taxation 247,500

2,700,000

Statements of comprehensive income for the year ended 31st December 2013.

Cedi

Profit before tax 720,000

Tax 360,000

360,000

Other relevant information

(a) Exchange rate value

(I) C75 to ₦1 when the company was incorporated.

(ii) C62.5 to ₦1 when this company acquired its assets

(iii) C50 to ₦1 at January 2011.

(Iv)C40 to ₦1, average rate during the year ending31/12/2013.

 (V) The exchange rate at 31/12 2013 was C25.

Depreciation is at the rate of 12% P. A

(b) The opening inventory of kudi plc was C 540,000

(c) Ego plc acquired all the shares capital of kudi plc for 8,000 when the reserve of the latter was nil.
You are required to show for inclusion in the consolidated accounts of the group

(i) The translated statement of financial position of kudi plc as at 31/12/12

(ii) The translated statement of comprehensive income using the closing rate method.
ASSIGNMENT

Lekwot Enterprise operates in Nigeria with a branch in Ghana, Dudu Enterprise. The
financial statements prepared in Cede (Ghana Currency) were as follows:

Dudu Enterprises
Statement of Profit or Loss for the year ended 31st December, 2016
Cedi Cedi
Turnover 850,000
Less cost of sales
Opening inventory 355,750
Add purchases 120,500
476,250
Closing inventory (206,420)
(269,830)
Gross profit 580,170
Depreciation 18,000
Operating expenses 142,820
(160,820)
Net profit 419,350
Dudu Enterprises
Statement of Financial Position as at 31st December, 2016
Non-current assets (Net Cedi Cedi
Book Value)
Furniture and Fittings 562,000
Motor Vehicles 120,000
682,000

Current asset

Closing inventory 206,420

Account receivables 110,000

Cash at bank 85,000

401,420

Current liabilities

Current account 128,500

Account payables 140,000

(268,500) 132,920

814,920

Financed by:

Retained profit 634,700

Long term debt 180,220

814,920

Additional information for the period was given as follows:

i. The head office current account and the tangible assets were agreed at when the
exchange rate was ₦0.20/1cedi on 01/01/2014.
ii. On 1/1/2016 the retained earnings was ₦23,500
iii. The exchange rates for cedi during the period were:
1/1/2016 ₦0.56/1cedi
31/12/2016 ₦0.73/1cedi
Required:
Translate the financial statement of Dudu Enterprises into Naira using temporal method
MODULE 8 INFLATION ACCOUNTING

UNIT I- INTRODUCTION

Conventional accounts are based on historical cost that is assets are valued in the balance sheet as
their cost of acquisition. Expenses are also charged against revenues in the determination of profit
based upon the historical cost of the assets used up in generating the revenue. The system was
developed long ago during decades of relatively stable price levels and continued to be used before
the consequences of inflation on the preparation of financial accounts were recognized. Post war
(11) reconstructions witnessed an ever-increasing rate of price changes and since then academic
as well as practicing accountants have been paying particular attention to the need to formally
adjust for the effect of inflation in publishing accounts. Limitations of historical cost accounting

Historical cost accounting has five main limitations and these are:

1. Depreciation inadequate for the replacement of fixed assets: - Historical cost accounting seems
to write off the cost of fixed assets over their useful lives.it does not set out to provide a fund from
which the fixed assets can be replaced at the end of their lives. Nevertheless, in a period of stable
prices, sufficient cash could be set aside over the life of an asset to replace it at its original cost. In
times of inflation, insufficient fund is provided in this way to enable the business replaces its assets.

2. Cost of sales understated:-In historical cost accounts, stock consumed and sols is charged
against sales at its original cost, rather than at the cost of replacing it. But, in order to retain the
same stock level, the company has to finance the difference (and used to do so entirely out of
profits after tax until introduction of stock relief).

3. Need for increase in other working capital not recognized:-In most companies, debtors are
greater than creditors, so, on an unchanged volume of business, “debtors minus creditors “increase
with inflation, requiring extra money to be provided for working capital. Historical cost accounts
fail to recognize that this extra working capital is necessary to maintain the operating capacity of
the business and that it has to be provided for the business to retain its going concern.

4. Borrowing benefits not shown: - Borrowings are shown in monetary terms, and if nothing is
repaid, and nothing further is borrowed, borrowing appears stable. This is a distortion of the picture
because a gain has been made at the expense of the lender (since in real terms the value of the loan
has declined): some schools of thought feel that this gain ought to be reflected in the accounts.

5. Year on year figures not comparable: -in addition to being overstated due to ;

a. Inadequate provision for depreciation

b. Understated cost of sales

Page 1 of 8
 c. No provision for increase in other working capital,

Profits are stated in terms of money which has itself declined in value. Similarly, turnover and
dividends are not comparable with those of other years, because they are expressed in naira of
different purchasing power. The reporting of profit inflated naira gives a far too rosy impression
of growth in profitability. This tends to lull both managers and shareholders into thinking that their
company is doing very much better than it really is, it encourage unions and employees to expect
wage increases that are unmatched by real (as opposed to reported) profit growth, and it also can
does encourage government measures that are very harmful to the long- term prosperity of the
company, e.g. the imposition of price controls, or excess profit tax made on a completely false
impression of profitability.

Having discussed the limitations of historical cost accounting on published financials statements,
we shall now look at the various attempts made to date to bring the effect of inflations into the
annual historical financial statements. These are:

1. Current purchasing power (CPP)

An exposure draft, ED 8-Accounting for Changes in the purchasing power of Money-was
issued in 1973 (which became provisional SSAP 7 in 1974)recommending that company
adopt what came to be known as current purchasing power(CPP). The main features of ED
8 were that;
a. Companies could continue to keep their record and present their basic account in
historical terms, i.e. in terms of the value of naira at the time of each transaction or
revaluation.
b. In addition, all listed companies would present to their shareholders a supplementary
statement in terms of the value of the naira at the end of a period to which the account
related.
c. The conversion of the figures in the basic accounts into figure in the supplementary
statement should be by means of a general index of purchasing power of the naira(the
retail price index)
d. Directors should provide in a note to the supplementary statement an explanation of
the basis on which it has been prepared, and should comment on the significance of the
figures.
CPP accounting was concerned solely with removing the distorting effects of changes
in the general purchasing power of money on accounts prepared in accordance with
established practice(i.e. on historical cost basis).it did not deal with changes in the
relative values of non-monetary items(which can and do occur in the absence of
inflation).
CPP accounts were criticized on a number of grounds. Among these were:
a) Shareholders were faced with a choice between two sets of figures which frequently
gave very different results. Both could not be correct.

Page 2 of 8
 b) CPP accounting enhanced the profits of companies which were heavily borrowed,
particularly those showing low profits on an historical basis. These were assumed
by CPP to be increasing in value in line with inflation (i.e maintaining their real
value), while the money borrowed to acquire them was declining in real value. The
more heavily borrowed the company, the more profits became boosted by CPP.
Basics of CPP Accounting
With CPP accounting, the figures in the historical costs are adjusted in order to take
account of changes in the purchasing power of money during the period covered by
the historical cost accounts. Profit is recognized only when the capital has been
maintained in real terms (purchasing power of the share capital must be
maintained).
The mechanics of CPP
To prepare CPP, we first start with a set of historical costs are adjusted in order to
take account of changes in the purchasing power of money during the period
covered by the historical cost accounts. Profit is recognized only when the capital
has been maintained in real terms (purchasing power of the share capital must be
maintained).

Basics of CPP Accounting

With CPP accounting. The figures in the historical cost are adjusted in order to take
account of changes in the purchasing power of money during the period covered by
the historical cost accounts. Profit is recognized only when the capital has been
maintained in real terms (purchasing power of the share capital must be maintained)

Advantages of CPP
1. Simplicity- once a set of historical accounts has been prepared, it is quite simple to prepare
a set of CPP.
2. Objectivity- it is objective since it is prepared on actual transactions and there is no element
of subjectivity in choosing an index since a specific index is used as Retail Price index.
3. Cheapness- it is a cheap system to implement since very few additional records need to be
kept.
4. Concern with shareholders capital- CPP accounting is designed to show if shareholders
capital is maintaining its purchasing power. Only when the capital has been maintained can
the company be said to be making profit.
5. It is a system of inflation accounting- since it does not adjust the basis of valuing assets but
only adjusts the measuring units (Naira). Also it does differentiate monetary and non-
monetary assets which are an important factor in accounting for inflation
Disadvantages of CPP

Page 3 of 8
 1. Subjectivity- since the figure are based on historical cost, the disadvantages of historical
costs are passed over especially weaknesses in producing the historical cost accounts.
2. Unrealistic assets value- since a general index is being applied to the assets, the assets value
which appears in the accounts are unrealistic.
3. Confusing unit of measurement- the naira unit of measurement on both historical accounts
may be implied by readers as same for subsequent years.
4. Its concept of profit- the concept adopted for capital maintenance is not very useful.
5. Gains/losses on monetary items- there is controversy over whether gains and losses on
monetary items should be regarded as profits or losses.
6. Use of general index- there is a general argument that the use of General index is irrelevant
when measuring the effect of inflation on companies, that the general index may be useful
as to supermarkets but not useful to a company buying heavy machineries.
CURRENT COST ACCOUNTING

Provisional SSAP 7 was issued in May 1974 on CPP accounting, however the Sandilands Reports
in accounting for inflation in September 1975 came out in favour of Current Cost Accounting
(CCA) therefore the provisional SSAP 7 was withdrawn in October 1978.

Its features and Advantages

According to SSAP 16 on Current Cost Accounting, the basic objective of current cost accounting
is to provide more useful information that that available from the historical cost of accounting
alone, for the guidance of management of the business, the shareholders and others on such matters
as the financial viability of the business, returns on investment, pricing policy, cost control and
distribution decisions and gearing.

The main features of SSAP 16 are as follows:

1. Current cost information should be published in addition to historical cost information as

part of the annual financial report.
2. The current cost accounts should consists of an income statement and a balance sheet with
explanatory notes.
3. The current cost income statement should show the current cost operating profit or loss.
This is derived by making three adjustments to historical cost profit before interest and
taxation in respect of depreciation, cost of sales and monetary working capital. The nature
of these adjustments is discussed in detail later on in this chapter.
4. The current cost income statement should also include a figure which is attributable to
shareholders. This is derived by making a gearing adjustment to the current cost operating
profit.
5. Current cost earnings per share based on the current cost profit attributable to the
shareholders should be disclosed.

Page 4 of 8
 6. The current cost balance sheet should include fixed assets and inventories at their value to
the business. The balance sheet may be shown in summary form and should include a
separate current cost reserve showing the effects of three elements:
(i) Revaluation surplus or deficits arising from price changes in respect of fixed assets
and inventories.
(ii) The monetary working capital adjustment
(iii) The gearing adjustment.
Advantages of CCA

No doubt to convince the accounting fraternity further of the benefits of CCA, the IASG’S
introduction carefully spells out the advantages of this form of accounting as follows:

(a) Calculating depreciation on the basis of the value to the business of fixed assets will
provide a more realistic measure of resources used in the period.
(b) Calculating the cost of sales on the basis of the cost of replacing goods at the time they
were sold will help maintain the value of the entity in real terms.
(c) The introduction of the appropriation account will bring together revaluation surplus
and current cost profit, which will help directors in their retention and dividend
intention.
(d) Assets will be shown at their current value in the balance sheets.
(e) A statement of the changes in equity interest, after allowing for changes in the value of
money. Will show how the company has performed in real terms during inflationary
periods.
(f) The effects of holding monetary items of gains or losses will be highlighted.
(g) Both management and users of accounts will be provided with more realistic
information on such things as the value of assets, cost, and profit, and thus on real
returns on assets and capital.
(h) It clearly distinguishes between gains made from operations and gains made from
holding assets.

MONETARY WORKING CAPITAL ADJUSTMENT (MWCA)

The term monetary working capital includes trade receivables, bill receivable,
prepayment, trade payables, bills payable, accruals, cash and banks balances and
bank overdrafts. The method employed is to convert opening and closing monetary
working capital from a historical basis to a current cost basis by the use of
appropriate index numbers. The excess of the historical cost figure over the current
cost constitutes the MWCA. capital instead of being included in stock subject to
COSA. In arriving at the figure of monetary working capital, only item noted above
which are purely employed in the day – to – day operating activities of the business
are included, e.g. receivables and payables relating to acquisition of non current
Page 5 of 8
 assets and disposals are excluded from MWC also some cash and bank balances
and overdrafts which are regarded as a component of net borrowings.
Monetary working capital is an operating asset which must be maintained to allow
the operating capability of a business to remain unimpaired. The MWC represents
the variations in finance needed for monetary working capital purposes as a result

QUESTION ONE
DEBARE was formed on 1 January 2006 with a fully subscribed share capital of
N200, 000. On the same date a loan of N100, 000 was raised.
On 31st 2006, storage facilities with a twenty-year life no residual value were
purchased for N 150, 000. On the same date 1,000 stock items were purchased for
N100, 000. On 30th June 2006, 600 of the stock were sold for N90, 000. Expense
of N10, 000 was paid on 30 June 2006. All transactions were for cash.
The company provides a full year’s depreciation in the year of acquisition of an
asset.
A general price index moved:
1 January 2006 660
31 January 2006 715
30 June 2006 780
31 December 858
Assuming straight line depreciation, you are required to:
(a) Prepare historical cost accounts for the year to 31 December 2006
(b) Prepare current purchasing power (CPP) accounts for the year to 31 December
2006
(c) State the advantages of CPP.

QUESTION 2
Mr. Giwa Jikolo sent his company’s latest financial statements shown below under historical cost
basis to Mr. Field Grass, a friend, residing in united states and to seek financial assistance from
him. The assistance is to purchase machines and equipment to replace the old ones, presently in
use. Mr. Grass faxed back the accounts requesting that the accounts should be more realistic by
showing the present values adapted to price index, current purchasing power or current cost:
nothing that the value of money is not constant especially in Nigeria where the Naira fluctuates
widely against major rule foreign currencies. He insists that his bank requires these to grant the
loan he has applied for on behalf of Jikolo and sons Ltd.
JIKOLO AND SONS LTD
PROFIT OR LOSS ACCOUNT FOR THE YEAR ENDED 31ST DECEMBER 2015
N000 N000
Revenue 15,000
Cost of sales

Page 6 of 8
 Opening inventory 2,650
Purchases 10,490
13,140
Closing inventory 2,960 10,180
Gross profit 4,820
Depreciation
Building 220
Plant and machinery 956
Other expenses 2,614 3,790
Net profit 1,030

JIKOLO AND SONS LTD

STATEMENT OF FINANCIAL POSITION AS AT 31ST DECEMBER 2015
Non-current assets N000 N000
Land and building 44,600
Plant and equipment 77,400
Current assets
Inventory 29,700
Receivables 15,300
Cash 2,000
Equity and Liabilities
Ordinary shares 70,000
Retained earnings 22,000
Non-current liabilities
Mortgage loans 50,000
Current liabilities
Payables 13,000
Taxation 8,500
Dividend 5,500
169,000 169,000
Required:
Redraft the financial statements using the current purchasing power basis. The price index at the
beginning of the year was 100 while the index at the end of the year was 120. All revenue
transactions during the year are stated at an average index of 110. (12 marks).

(a) Advise on the use as against historical cost of:

(a) Price index
(b) Current purchasing power.
(c) Monetary unit.
Page 7 of 8
 Outline the major requirements jikolo and sons Ltd. Might provide to meet the conditions for
obtaining foreign loan.

Page 8 of 8
 KWARA STATE UNIVERSITY, MALETE
FACULTY OF MANAGEMENT AND SOCIAL SCIENCES
DEPEARTMENT OF ACCOUNTING AND FINANCE

COURSE SYLLABUS

ACC 304 INTERMEDIATE FINANCIAL ACCOUNTING II

Introduction: the students are expected to show an understanding and competence in published
financial reports and accounts, accounts of banks and other financial institutions, accounts of
insurance companies, bankruptcy and liquidation. Understand and prepare foreign branch
Accounts, accounting for inflation, consequential loss and loss of stock and accounting for
taxation.

Objectives: The aim is to prepare the students to have knowledge in intermediate financial
accounting in preparation for group accounts(consolidation).

Course Teaching Methods: The teaching methods employed by the lecturer include lecture
method, discussion method, demonstration method,

Course outlines
PUBLISHED FINANCIAL REPORTS AND ACCOUNTS

ACCOUNTS OF BANKS AND OTHER FINANCIAL INSTITUTIONS

ACCOUNTS OF INSURANCE COMPANIES

BANKRUPTCY AND LIQUIDATION

FOREIGN BRANCH ACCOUNTS

ACCOUNTING FOR INFLATION

CONSEQUENTIAL LOSS AND LOSS OF STOCK AND

ACCOUNTING FOR TAXATION

Instructional materials: White Board, Books and Calculator

Evaluation: The students will be evaluated using class work, group discussion, assignment, in
class tests and end of semester examination.

ASSIGNMENTS
Each unit of the course has a self-assessment exercise. You will be expected to attempt them as
this will enable you understand the content of the unit.