- 20 Marks
FR – July 2023 – L2 – Q1 – Group Financial Statements and Consolidation
Prepare the Consolidated Statement of Financial Position for a parent company Tarkwa Ltd and its subsidiary Awaso Ltd, incorporating the acquisition of 80% shares and related adjustments.
Question
Tarkwa Ltd (Tarkwa) has been operating in the clothing and textiles industry in the past decade. On 1 July 2021, it acquired Awaso Ltd (Awaso) which operates in the same industry. The statements of Financial Position of the two companies as at 31 December 2021 are as follows:
| Tarkwa GH¢000 | Awaso GH¢000 | |
|---|---|---|
| Assets | ||
| Non-current assets | 185,400 | 93,000 |
| Current Assets | ||
| Inventory | 76,200 | 31,800 |
| Other current assets | 58,200 | 24,000 |
| Total current assets | 134,400 | 55,800 |
| Total assets | 319,800 | 148,800 |
| Equity and Liabilities | ||
| Equity | ||
| Share capital (issued at GH¢1 each) | 120,000 | 50,000 |
| Retained earnings: | ||
| Balance at January 1, 2021 | 73,200 | 51,600 |
| Profit/(loss) for the year ended December 31, 2021 | 30,000 | (18,000) |
| Total equity | 223,200 | 83,600 |
| Non-current liabilities | ||
| Deferred tax | 30,000 | 4,000 |
| Current liabilities | ||
| Trade payables and accruals | 66,600 | 61,200 |
| Total Equity and Liabilities | 319,800 | 148,800 |
Additional information:
i) Tarkwa acquired 80% of Awaso’s equity shares by means of immediate cash payment of GH¢1.80 per each acquired share. However, the former shareholders agreed to return some of the consideration by 30 June 2022 if Awaso’s sales growth falls below a defined threshold over the next year. The value of this contingent consideration at the date of acquisition was estimated to be GH¢4 million. At 31 December 2021, in the light of Awaso’s falling sales, the value was revised to GH¢4.5 million. Tarkwa has only recorded the immediate cash payment.
ii) Tarkwa conducted a fair value exercise on Awaso’s net assets, which were equal to their carrying values including Awaso’s investment property with the exception of an item of owner-occupied property which had a fair value of GH¢5 million below its carrying amount. The property had a remaining useful life of 20 years as at 1 July 2021. Awaso has already incorporated the fair value change (together with the depreciation adjustment) in its own financial statements.
iii) At 31 December 2021, Awaso held goods in inventory, which had been supplied by Tarkwa at a mark-up on cost of 35%. The goods had cost Awaso GH¢6.75 million. 50% of the inventory remained unsold.
iv) The investment properties of Tarkwa and Awaso are carried at their fair values at January 1, 2021. However, at 31 December 2021, an item of properties had fair values of GH¢36.6 million and GH¢10.8 million respectively, with the change in Awaso’s investment properties all occurring since acquisition. These properties had carrying amounts at GH¢33,000 and GH¢12,000 respectively at the same date.
v) It is Tarkwa’s group policy to value the non-controlling interest using the fair value method at the acquisition date. For this purpose, a share price for Awaso of GH¢1.50 each is representative of the fair value of the shares held by the non-controlling interest.
Required:
Prepare the Consolidated Statement of Financial Position for Tarkwa as at December 31, 2021.
(Total: 20 marks)
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