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- 20 Marks
CR – May 2020 – L3 – Q1 – Consolidated Statement of Financial Position
Prepare the consolidated statement of financial position for Phato Ltd and its subsidiaries as at 30 September 2019, including relevant calculations for goodwill, non-controlling interest, and asset impairments.
Question
Phato Ltd, is a Public Limited Liability Company which operates in the service sector in Ghana. Phato Ltd has a business relationship with two other Ghanaian companies, Sakara Ltd and Saadi Ltd, which are public limited liability companies too. The draft statements of financial position of these three companies are as below as at 30 September 2019.
| Phato Ltd GH¢ million | Sakara Ltd GH¢ million | Saadi Ltd GH¢ million |
|---|---|---|
| Assets: | ||
| Non-current assets | ||
| Property, plant, and equipment | 460.0 | 150.0 |
| Investment in subsidiaries | ||
| Sakara Ltd | 365.0 | |
| Saadi Ltd | 160.0 | |
| Investment in Azuri Ltd | 24.0 | |
| Intangible assets | 99.0 | 15.0 |
| Total Non-current assets | 948.0 | 325.0 |
| Current assets | 447.5 | 240.0 |
| Total assets | 1,395.5 | 565.0 |
| Equity and liabilities: | ||
| Equity: | ||
| Share capital | 460.0 | 200.0 |
| Other components of equity | 36.5 | 18.5 |
| Retained earnings | 447.5 | 221.0 |
| Total equity | 944.0 | 439.5 |
| Non-current liabilities | 247.5 | 61.5 |
| Current liabilities | 204.0 | 64.0 |
| Total liabilities | 451.5 | 125.5 |
| Total equity and liabilities | 1,395.5 | 565.0 |
Additional relevant information:
- Phato Ltd, on 1 October 2017, acquired 60% of the equity interests of Sakara Ltd. The cost of the investment comprised cash of GH¢360 million. At acquisition, the fair value of the non-controlling interest in Sakara Ltd was estimated at GH¢146 million. The fair value of the identifiable net assets acquired totaled GH¢417.5 million, including retained earnings of GH¢159.5 million and other components of equity at GH¢13.5 million. The excess in fair value results from non-depreciable land.
- Sakara Ltd, on 1 October 2018, acquired 70% of Saadi Ltd for GH¢160 million. The fair value of non-controlling interest was estimated at GH¢36 million. The fair value of the identifiable net assets of Saadi Ltd at acquisition was GH¢181 million, retained earnings GH¢53 million, and other components of equity GH¢10 million.
- Phato Ltd acquired a 14% interest in Azuri Ltd for GH¢9 million on 1 October 2017. On 1 April 2019, Phato Ltd acquired an additional 16% interest in Azuri Ltd for GH¢13.5 million, achieving significant influence.
- Phato Ltd purchased patents for GH¢5 million and incurred other development costs for product development.
- Impairment tests were conducted on Sakara Ltd and Saadi Ltd.
Required:
Prepare the consolidated statement of financial position for the Phato Ltd Group as at 30 September 2019.
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- 5 Marks
CR – Nov 2020 – L3 – Q4b – Fair Value in Consolidation
Explain why a fair value exercise is performed when a parent acquires a controlling stake in a subsidiary.
Question
Under IFRS 3: Business Combinations, the identifiable assets, liabilities, and contingent liabilities of subsidiaries are required to be brought into the consolidated financial statements at their fair value rather than their book value.
Required:
Explain the justification for undertaking a fair value exercise when a parent acquires a controlling stake in a subsidiary company.
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- Tags: Business Combinations, Consolidation, Fair Value, IFRS 3, Subsidiary valuation
- Level: Level 3
- Topic: Business combinations and consolidation
- Series: NOV 2020
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- 20 Marks
CR – May 2021 – L3 – Q1 – Consolidation with Subsidiaries and Associate
Prepare consolidated statement of financial position including two subsidiaries and an associate. Adjust for goodwill, non-controlling interest, and contingent consideration.
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- 4 Marks
FR – May 2018 – L2 – Q1b – Business Combinations (IFRS 3)
Calculate goodwill on acquisition based on fair value measurement of the non-controlling interest.
Question
A parent acquired 600,000 equity shares of its subsidiary three years ago for N1,200,000. The subsidiary’s issued equity share capital on that date was N250,000, with each share having a nominal value of 25 kobo. Other components of the subsidiary’s net assets at the acquisition date included share premium of N550,000 and retained earnings of N680,000. The subsidiary’s shares were quoted at N1.80 per share when the parent took control.
Required: Calculate the goodwill on acquisition if the parent measures non-controlling interest at its fair value.
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- Tags: Acquisition, Business Combinations, Fair Value, Goodwill, IFRS 3, Non-Controlling Interest
- Level: Level 2
- Topic: Business Combinations (IFRS 3)
- Series: MAY 2018
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- 5 Marks
FR – Mar 2023 – L2 – Q5d – Business combinations and consolidation
Explains fair value in IFRS 13 and its application to assets and liabilities in business combinations.
Question
d) IFRS 3: Business Combinations defines fair value consistently with IFRS 13: Fair Value Measurement. IFRS 3 requires the acquiree’s assets and liabilities to be incorporated into the consolidated financial statements at their fair values rather than at their carrying amounts.
Required:
i) Explain the meaning of fair value in accordance with IFRS 13. (2 marks)
ii) Explain the reasons why the acquiree’s assets and liabilities are measured and recognised at their fair value within the consolidated financial statements. (3 marks)
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- Tags: Assets and liabilities, Business Combinations, Consolidation, Fair Value, Goodwill, IFRS 13, IFRS 3
- Level: Level 2
- Topic: Business combinations and consolidation
- Series: MAR 2023
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- 4 Marks
FR – Nov 2019 – L2 – Q5d – Group Financial Statements and Consolidation
Identify factors causing negative goodwill and explain its accounting treatment in consolidated financial statements.
Question
Negative Goodwill is based on the accounting concept of Goodwill, an intangible asset that represents the worth of a company’s brand name, patents and other intellectual property, customer base, licenses, and other items that are difficult to put an amount on but help to make a company valuable. When the price paid is less than the actual value of the company’s net tangible assets, negative goodwill results.
Required:
In accordance with IFRS 3: Business Combinations, identify THREE (3) factors that account for negative goodwill and indicate its accounting treatment when it occurs in the preparation of consolidated financial statements.
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- 5 Marks
FR – May 2016 – L2 – Q3c – Financial Reporting Standards and Their Applications
Describe the accounting treatment of goodwill for ABC's financial statements, including directors' views on recognizing goodwill.
Question
You are the finance director of ABC Company. ABC is preparing its financial statements for the year ended 31st December 2015. The following item has been brought to your attention:
ABC acquired the entire share capital of XYZ Ltd during the year. The acquisition was achieved through a share exchange. The terms of the exchange were based on the relative values of the two companies obtained by capitalizing the companies’ estimated cash flows. When the fair value of XYZ’s Ltd identifiable net assets was deducted from the value of the company as a whole, its goodwill was calculated at GH¢2.5 million. A similar exercise valued the goodwill of ABC at GH¢4 million. The directors wish to incorporate both goodwill values in the companies’ consolidated financial statements.
Required:
Describe how ABC should treat the item in its financial statements for the year ended 31st December 2015, commenting on the directors’ views where appropriate.
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- 5 Marks
FR – Aug 2022 – L2 – Q5c – Group Financial Statements and Consolidation
Explain how liabilities related to restructurings or exit activities and contingencies of an acquiree should be dealt with at the acquisition date under IFRS 3.
Question
In line with IFRS 3 (Business Combinations), explain how the following items of an acquiree should be dealt with at the acquisition date:
i) Liabilities related to restructurings or exit activities (3 marks)
ii) Contingencies (2 marks)
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- Tags: Business Combinations, Contingencies, IFRS 3, Restructuring Liabilities
- Level: Level 2
- Topic: Group Financial Statements and Consolidation
- Series: AUG 2022
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- 20 Marks
CR – Apr 2022 – L3 – Q1 – Consolidated financial statements, Business combinations and consolidation,
Prepare a consolidated statement of financial position for a group of companies considering complex adjustments for goodwill, impairments, and non-controlling interests.
Question
Below are the statements of financial position for three companies as of 31 July 2021:
| Statements of Financial Position as at 31 July 2021 | Papa Plc GH¢’million | Mama Plc GH¢’million | Bebe Plc GH¢’million |
|---|---|---|---|
| Non-current assets: | |||
| Property, plant, and equipment | 3,888 | 1,680 | 1,224 |
| Investments | 3,560 | 2,600 | 200 |
| Total non-current assets | 7,448 | 4,280 | 1,424 |
| Current assets: | |||
| Inventories | 1,080 | 368 | 300 |
| Trade receivables | 1,376 | 416 | 100 |
| Cash & bank | 368 | 104 | 64 |
| Total current assets | 2,824 | 888 | 464 |
| Total assets | 10,272 | 5,168 | 1,888 |
| Equity: | |||
| Share capital of GH¢1 each | 4,000 | 1,200 | 640 |
| Revaluation surplus | 2,400 | 960 | 400 |
| Retained earnings | 1,432 | 800 | 760 |
| Total equity | 7,832 | 2,960 | 1,800 |
| Current liabilities: | |||
| Trade payables | 1,144 | 1,080 | 56 |
| Taxation | 1,296 | 1,128 | 32 |
| Total current liabilities | 2,440 | 2,208 | 88 |
| Total equity and liabilities | 10,272 | 5,168 | 1,888 |
Additional information:
- Papa Plc bought 720 million shares in Mama Plc on 1 August 2019 at GH¢2.50 per share in cash. On that date, Mama’s retained earnings were GH¢480 million, and net assets equaled their carrying amounts except for property, plant, and equipment, which had a fair value excess of GH¢320 million.
- Papa implements a policy of carrying property, plant, and equipment at fair values across group companies from the date of acquisition.
- On 1 August 2020, Mama bought 512 million shares in Bebe Plc. The consideration was GH¢3 per share in cash with an additional payment of GH¢1 per share due on 31 July 2022. The fair value of the contingent consideration was GH¢320 million on 1 August 2020 and GH¢416 million on 31 July 2021. Bebe’s retained earnings were GH¢664 million, and the revaluation surplus was GH¢360 million.
- Bebe controls the brand “Y start,” with a fair value of GH¢40 million and a useful life of 20 years. This has not been recognized in the accounts.
- Papa uses the fair value method for non-controlling interests, using GH¢2.50 per share for this purpose.
- Goodwill impairment loss of GH¢40 million for Mama and GH¢20 million for Bebe was recognized on 31 July 2021.
- Mama bought goods from Bebe for GH¢16 million, with 60% unsold at year-end. These goods cost Bebe GH¢12 million.
Required: Prepare the Consolidated Statement of Financial Position for Papa Group as of 31 July 2021, in accordance with IFRS.
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- 20 Marks
CR – May 2020 – L3 – Q1 – Consolidated Statement of Financial Position
Prepare the consolidated statement of financial position for Phato Ltd and its subsidiaries as at 30 September 2019, including relevant calculations for goodwill, non-controlling interest, and asset impairments.
Question
Phato Ltd, is a Public Limited Liability Company which operates in the service sector in Ghana. Phato Ltd has a business relationship with two other Ghanaian companies, Sakara Ltd and Saadi Ltd, which are public limited liability companies too. The draft statements of financial position of these three companies are as below as at 30 September 2019.
| Phato Ltd GH¢ million | Sakara Ltd GH¢ million | Saadi Ltd GH¢ million |
|---|---|---|
| Assets: | ||
| Non-current assets | ||
| Property, plant, and equipment | 460.0 | 150.0 |
| Investment in subsidiaries | ||
| Sakara Ltd | 365.0 | |
| Saadi Ltd | 160.0 | |
| Investment in Azuri Ltd | 24.0 | |
| Intangible assets | 99.0 | 15.0 |
| Total Non-current assets | 948.0 | 325.0 |
| Current assets | 447.5 | 240.0 |
| Total assets | 1,395.5 | 565.0 |
| Equity and liabilities: | ||
| Equity: | ||
| Share capital | 460.0 | 200.0 |
| Other components of equity | 36.5 | 18.5 |
| Retained earnings | 447.5 | 221.0 |
| Total equity | 944.0 | 439.5 |
| Non-current liabilities | 247.5 | 61.5 |
| Current liabilities | 204.0 | 64.0 |
| Total liabilities | 451.5 | 125.5 |
| Total equity and liabilities | 1,395.5 | 565.0 |
Additional relevant information:
- Phato Ltd, on 1 October 2017, acquired 60% of the equity interests of Sakara Ltd. The cost of the investment comprised cash of GH¢360 million. At acquisition, the fair value of the non-controlling interest in Sakara Ltd was estimated at GH¢146 million. The fair value of the identifiable net assets acquired totaled GH¢417.5 million, including retained earnings of GH¢159.5 million and other components of equity at GH¢13.5 million. The excess in fair value results from non-depreciable land.
- Sakara Ltd, on 1 October 2018, acquired 70% of Saadi Ltd for GH¢160 million. The fair value of non-controlling interest was estimated at GH¢36 million. The fair value of the identifiable net assets of Saadi Ltd at acquisition was GH¢181 million, retained earnings GH¢53 million, and other components of equity GH¢10 million.
- Phato Ltd acquired a 14% interest in Azuri Ltd for GH¢9 million on 1 October 2017. On 1 April 2019, Phato Ltd acquired an additional 16% interest in Azuri Ltd for GH¢13.5 million, achieving significant influence.
- Phato Ltd purchased patents for GH¢5 million and incurred other development costs for product development.
- Impairment tests were conducted on Sakara Ltd and Saadi Ltd.
Required:
Prepare the consolidated statement of financial position for the Phato Ltd Group as at 30 September 2019.
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Report an error
- 5 Marks
CR – Nov 2020 – L3 – Q4b – Fair Value in Consolidation
Explain why a fair value exercise is performed when a parent acquires a controlling stake in a subsidiary.
Question
Under IFRS 3: Business Combinations, the identifiable assets, liabilities, and contingent liabilities of subsidiaries are required to be brought into the consolidated financial statements at their fair value rather than their book value.
Required:
Explain the justification for undertaking a fair value exercise when a parent acquires a controlling stake in a subsidiary company.
Find Related Questions by Tags, levels, etc.
- Tags: Business Combinations, Consolidation, Fair Value, IFRS 3, Subsidiary valuation
- Level: Level 3
- Topic: Business combinations and consolidation
- Series: NOV 2020
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- 20 Marks
CR – May 2021 – L3 – Q1 – Consolidation with Subsidiaries and Associate
Prepare consolidated statement of financial position including two subsidiaries and an associate. Adjust for goodwill, non-controlling interest, and contingent consideration.
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- 4 Marks
FR – May 2018 – L2 – Q1b – Business Combinations (IFRS 3)
Calculate goodwill on acquisition based on fair value measurement of the non-controlling interest.
Question
A parent acquired 600,000 equity shares of its subsidiary three years ago for N1,200,000. The subsidiary’s issued equity share capital on that date was N250,000, with each share having a nominal value of 25 kobo. Other components of the subsidiary’s net assets at the acquisition date included share premium of N550,000 and retained earnings of N680,000. The subsidiary’s shares were quoted at N1.80 per share when the parent took control.
Required: Calculate the goodwill on acquisition if the parent measures non-controlling interest at its fair value.
Find Related Questions by Tags, levels, etc.
- Tags: Acquisition, Business Combinations, Fair Value, Goodwill, IFRS 3, Non-Controlling Interest
- Level: Level 2
- Topic: Business Combinations (IFRS 3)
- Series: MAY 2018
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- 5 Marks
FR – Mar 2023 – L2 – Q5d – Business combinations and consolidation
Explains fair value in IFRS 13 and its application to assets and liabilities in business combinations.
Question
d) IFRS 3: Business Combinations defines fair value consistently with IFRS 13: Fair Value Measurement. IFRS 3 requires the acquiree’s assets and liabilities to be incorporated into the consolidated financial statements at their fair values rather than at their carrying amounts.
Required:
i) Explain the meaning of fair value in accordance with IFRS 13. (2 marks)
ii) Explain the reasons why the acquiree’s assets and liabilities are measured and recognised at their fair value within the consolidated financial statements. (3 marks)
Find Related Questions by Tags, levels, etc.
- Tags: Assets and liabilities, Business Combinations, Consolidation, Fair Value, Goodwill, IFRS 13, IFRS 3
- Level: Level 2
- Topic: Business combinations and consolidation
- Series: MAR 2023
Report an error
- 4 Marks
FR – Nov 2019 – L2 – Q5d – Group Financial Statements and Consolidation
Identify factors causing negative goodwill and explain its accounting treatment in consolidated financial statements.
Question
Negative Goodwill is based on the accounting concept of Goodwill, an intangible asset that represents the worth of a company’s brand name, patents and other intellectual property, customer base, licenses, and other items that are difficult to put an amount on but help to make a company valuable. When the price paid is less than the actual value of the company’s net tangible assets, negative goodwill results.
Required:
In accordance with IFRS 3: Business Combinations, identify THREE (3) factors that account for negative goodwill and indicate its accounting treatment when it occurs in the preparation of consolidated financial statements.
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Report an error
- 5 Marks
FR – May 2016 – L2 – Q3c – Financial Reporting Standards and Their Applications
Describe the accounting treatment of goodwill for ABC's financial statements, including directors' views on recognizing goodwill.
Question
You are the finance director of ABC Company. ABC is preparing its financial statements for the year ended 31st December 2015. The following item has been brought to your attention:
ABC acquired the entire share capital of XYZ Ltd during the year. The acquisition was achieved through a share exchange. The terms of the exchange were based on the relative values of the two companies obtained by capitalizing the companies’ estimated cash flows. When the fair value of XYZ’s Ltd identifiable net assets was deducted from the value of the company as a whole, its goodwill was calculated at GH¢2.5 million. A similar exercise valued the goodwill of ABC at GH¢4 million. The directors wish to incorporate both goodwill values in the companies’ consolidated financial statements.
Required:
Describe how ABC should treat the item in its financial statements for the year ended 31st December 2015, commenting on the directors’ views where appropriate.
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- 5 Marks
FR – Aug 2022 – L2 – Q5c – Group Financial Statements and Consolidation
Explain how liabilities related to restructurings or exit activities and contingencies of an acquiree should be dealt with at the acquisition date under IFRS 3.
Question
In line with IFRS 3 (Business Combinations), explain how the following items of an acquiree should be dealt with at the acquisition date:
i) Liabilities related to restructurings or exit activities (3 marks)
ii) Contingencies (2 marks)
Find Related Questions by Tags, levels, etc.
- Tags: Business Combinations, Contingencies, IFRS 3, Restructuring Liabilities
- Level: Level 2
- Topic: Group Financial Statements and Consolidation
- Series: AUG 2022
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- 20 Marks
CR – Apr 2022 – L3 – Q1 – Consolidated financial statements, Business combinations and consolidation,
Prepare a consolidated statement of financial position for a group of companies considering complex adjustments for goodwill, impairments, and non-controlling interests.
Question
Below are the statements of financial position for three companies as of 31 July 2021:
| Statements of Financial Position as at 31 July 2021 | Papa Plc GH¢’million | Mama Plc GH¢’million | Bebe Plc GH¢’million |
|---|---|---|---|
| Non-current assets: | |||
| Property, plant, and equipment | 3,888 | 1,680 | 1,224 |
| Investments | 3,560 | 2,600 | 200 |
| Total non-current assets | 7,448 | 4,280 | 1,424 |
| Current assets: | |||
| Inventories | 1,080 | 368 | 300 |
| Trade receivables | 1,376 | 416 | 100 |
| Cash & bank | 368 | 104 | 64 |
| Total current assets | 2,824 | 888 | 464 |
| Total assets | 10,272 | 5,168 | 1,888 |
| Equity: | |||
| Share capital of GH¢1 each | 4,000 | 1,200 | 640 |
| Revaluation surplus | 2,400 | 960 | 400 |
| Retained earnings | 1,432 | 800 | 760 |
| Total equity | 7,832 | 2,960 | 1,800 |
| Current liabilities: | |||
| Trade payables | 1,144 | 1,080 | 56 |
| Taxation | 1,296 | 1,128 | 32 |
| Total current liabilities | 2,440 | 2,208 | 88 |
| Total equity and liabilities | 10,272 | 5,168 | 1,888 |
Additional information:
- Papa Plc bought 720 million shares in Mama Plc on 1 August 2019 at GH¢2.50 per share in cash. On that date, Mama’s retained earnings were GH¢480 million, and net assets equaled their carrying amounts except for property, plant, and equipment, which had a fair value excess of GH¢320 million.
- Papa implements a policy of carrying property, plant, and equipment at fair values across group companies from the date of acquisition.
- On 1 August 2020, Mama bought 512 million shares in Bebe Plc. The consideration was GH¢3 per share in cash with an additional payment of GH¢1 per share due on 31 July 2022. The fair value of the contingent consideration was GH¢320 million on 1 August 2020 and GH¢416 million on 31 July 2021. Bebe’s retained earnings were GH¢664 million, and the revaluation surplus was GH¢360 million.
- Bebe controls the brand “Y start,” with a fair value of GH¢40 million and a useful life of 20 years. This has not been recognized in the accounts.
- Papa uses the fair value method for non-controlling interests, using GH¢2.50 per share for this purpose.
- Goodwill impairment loss of GH¢40 million for Mama and GH¢20 million for Bebe was recognized on 31 July 2021.
- Mama bought goods from Bebe for GH¢16 million, with 60% unsold at year-end. These goods cost Bebe GH¢12 million.
Required: Prepare the Consolidated Statement of Financial Position for Papa Group as of 31 July 2021, in accordance with IFRS.
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