Question Tag: Intra-Group Sales

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  • 25 Marks

CR – Nov 2016 – L3 – Q1a – Consolidated Financial Statements (IFRS 10)

Prepare consolidated financial statements for Bata Plc and subsidiaries including goodwill, NCI, and intra-group adjustments.

Bata Plc, which operates in the manufacturing sector, has been surviving the challenges operating in the Nigerian economic environment. The draft Statements of Financial Position of Bata Plc and its subsidiaries as at October 31, 2016 are as follows:

The following information is relevant to the preparation of the group financial statements:

  1. Acquisition Dates: Bata Plc acquired 60% of the share capital of Jewe Plc on November 1, 2012, and 10% of Gaba Plc on November 1, 2013, at costs of N852 million and N258 million, respectively. Jewe Plc acquired 70% of Gaba’s share capital on November 1, 2013.
  2. Retained Earnings at Acquisition:

  • Fair Values at Acquisition: The fair values of Jewe and Gaba’s net assets were N930 million and N660 million, respectively, including non-depreciable land. The fair value of non-controlling interest (NCI) was N390 million for Jewe and N330 million for Gaba. Bata Plc adopts the full goodwill method under IFRS 3.
  • Impairment: Impairment testing shows Jewe suffered a loss of N60 million, but Gaba had no impairment.
  • Intra-group Sales: Bata sold inventory to Jewe and Gaba for N480 million and N360 million, respectively, invoicing with a 25% markup on cost. At year-end, half of Jewe’s inventory remains unsold, while Gaba sold its entire stock to third parties.
  • Deep Discount Bond: Bata purchased a bond for N500 million with a redemption value of N740.75 million in three years. The bond’s effective interest rate is estimated at 14%. The Accountant has not yet recorded amortized cost for this financial asset.

Required: Prepare a Consolidated Statement of Financial Position for Bata Plc and its subsidiaries as at October 31, 2016.

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  • 20 Marks

FR – Nov 2021 – L2 – Q2 – Consolidated Financial Statements (IFRS 10)

Prepare a consolidated statement of profit or loss and other comprehensive income for Okechukwu Group for the year ended December 31, 2019.

The statements of profit or loss and other comprehensive income of Okechukwu and its subsidiary, Ogenta Limited, for the year ended December 31, 2019, are presented below:

Item Okechukwu Plc (N’000) Ogenta Ltd (N’000)
Revenue 487,500 330,800
Cost of sales (304,500) (258,300)
Gross profit 183,000 72,500
Investment income 26,300 10,200
Distribution cost (24,050) (13,370)
Administrative expenses (40,625) (21,120)
Finance costs (10,500) (9,860)
Profit before tax 134,125 38,350
Income tax expense (33,800) (13,000)
Profit for the year 100,325 25,350
Other comprehensive income 23,880 10,440
Total comprehensive income 124,205 35,790

Additional information:

  1. Okechukwu Plc acquired 300 million of the ordinary shares issued by Ogenta Limited for N428 million.
  2. During the year ended December 31, 2019, Okechukwu Plc invoiced goods worth N80 million to Ogenta Limited. It is the policy of Okechukwu Plc to invoice goods at cost plus 33⅓%. Three-quarters of these goods are yet to be sold by Ogenta Limited at the year-end.
  3. Extracts from the books of Ogenta Limited at the date of acquisition reveal the following capital structure:
    • Issued ordinary shares of 50 kobo each: N200 million
    • General reserves: N80 million
    • Retained earnings: N52.5 million
  4. The fair value of the non-controlling interests at the acquisition date amounted to N92.5 million.
  5. An impairment test on the goodwill of Ogenta Limited conducted on December 31, 2019, indicated that the goodwill should be written down by N3.2 million.
  6. On the acquisition date, the fair value of net assets of Ogenta Limited was equal to their carrying amount, except for land and building and office equipment, which had fair values of N5 million and N1.5 million, respectively, in excess of their carrying amounts. The group non-current assets are depreciated at the rate of 10% per annum on a straight-line basis and charged to administrative expenses.
  7. Ogenta Limited paid a total of N20 million as dividends to all its shareholders for the year ended December 31, 2019. Okechukwu Plc has accounted for the dividend received.
  8. The finance cost of Ogenta Limited includes N2 million paid to Okechukwu Plc as interest on a loan. Okechukwu Plc has recognized the amount as interest received.

Required:
Prepare the consolidated statement of profit or loss and other comprehensive income for Okechukwu Group for the year ended December 31, 2019.

 

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  • 10 Marks

FR – Nov 2017 – L2 – Q1a – Consolidation of Group Statements

This question tests candidates on preparing a consolidated statement of profit or loss and other comprehensive income for a group, accounting for goodwill, non-controlling interest, intra-group transactions, and fair value adjustments.

On April 1, 2017, Higherhigher Limited acquired 60% of the equity share capital of Lowerlower Limited in a share exchange of two shares in Higherhigher for three shares in Lowerlower. The issue of shares has not yet been recorded by Higherhigher Limited. At the date of acquisition, shares in Higherhigher had a market value of N6 each.

Below is the summarised draft financial statements of both companies:

Statement of Profit or Loss and other Comprehensive Income for the year ended September 30, 2017 Higherhigher Limited (N’000) Lowerlower Limited (N’000)
Revenue 2,720,000 1,344,000
Cost of sales (2,016,000) (1,024,000)
Gross profit 704,000 320,000
Distribution costs (64,000) (64,000)
Administrative expenses (192,000) (102,400)
Finance costs (9,600) (12,800)
Profit before tax 438,400 140,800
Income tax expense (150,400) (44,800)
Profit for the year 288,000 96,000

Additional information:

  1. The fair value of Lowerlower Limited’s assets was equal to their carrying amounts, except for a plant with a fair value of N64m in excess of the carrying amount, which had a remaining life of five years. Straight-line depreciation was used. Lowerlower has not adjusted the carrying amount of its plant.
  2. Sales from Lowerlower to Higherhigher after the acquisition were N256m, with a 40% mark-up. Higherhigher sold N166.4m of these goods by September 30, 2017.
  3. Lowerlower’s receivables include N19.2m due from Higherhigher, which didn’t agree with Higherhigher’s payables due to cash in transit of N6.4m.
  4. Non-controlling interest is measured at fair value. The fair value of the goodwill attributable to the non-controlling interest is N48m.
  5. Consolidated goodwill was not impaired.

You are required to prepare:

  • The consolidated statement of profit or loss and other comprehensive income for the year ended September 30, 2017.

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  • 25 Marks

CR – Nov 2016 – L3 – Q1a – Consolidated Financial Statements (IFRS 10)

Prepare consolidated financial statements for Bata Plc and subsidiaries including goodwill, NCI, and intra-group adjustments.

Bata Plc, which operates in the manufacturing sector, has been surviving the challenges operating in the Nigerian economic environment. The draft Statements of Financial Position of Bata Plc and its subsidiaries as at October 31, 2016 are as follows:

The following information is relevant to the preparation of the group financial statements:

  1. Acquisition Dates: Bata Plc acquired 60% of the share capital of Jewe Plc on November 1, 2012, and 10% of Gaba Plc on November 1, 2013, at costs of N852 million and N258 million, respectively. Jewe Plc acquired 70% of Gaba’s share capital on November 1, 2013.
  2. Retained Earnings at Acquisition:

  • Fair Values at Acquisition: The fair values of Jewe and Gaba’s net assets were N930 million and N660 million, respectively, including non-depreciable land. The fair value of non-controlling interest (NCI) was N390 million for Jewe and N330 million for Gaba. Bata Plc adopts the full goodwill method under IFRS 3.
  • Impairment: Impairment testing shows Jewe suffered a loss of N60 million, but Gaba had no impairment.
  • Intra-group Sales: Bata sold inventory to Jewe and Gaba for N480 million and N360 million, respectively, invoicing with a 25% markup on cost. At year-end, half of Jewe’s inventory remains unsold, while Gaba sold its entire stock to third parties.
  • Deep Discount Bond: Bata purchased a bond for N500 million with a redemption value of N740.75 million in three years. The bond’s effective interest rate is estimated at 14%. The Accountant has not yet recorded amortized cost for this financial asset.

Required: Prepare a Consolidated Statement of Financial Position for Bata Plc and its subsidiaries as at October 31, 2016.

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  • 20 Marks

FR – Nov 2021 – L2 – Q2 – Consolidated Financial Statements (IFRS 10)

Prepare a consolidated statement of profit or loss and other comprehensive income for Okechukwu Group for the year ended December 31, 2019.

The statements of profit or loss and other comprehensive income of Okechukwu and its subsidiary, Ogenta Limited, for the year ended December 31, 2019, are presented below:

Item Okechukwu Plc (N’000) Ogenta Ltd (N’000)
Revenue 487,500 330,800
Cost of sales (304,500) (258,300)
Gross profit 183,000 72,500
Investment income 26,300 10,200
Distribution cost (24,050) (13,370)
Administrative expenses (40,625) (21,120)
Finance costs (10,500) (9,860)
Profit before tax 134,125 38,350
Income tax expense (33,800) (13,000)
Profit for the year 100,325 25,350
Other comprehensive income 23,880 10,440
Total comprehensive income 124,205 35,790

Additional information:

  1. Okechukwu Plc acquired 300 million of the ordinary shares issued by Ogenta Limited for N428 million.
  2. During the year ended December 31, 2019, Okechukwu Plc invoiced goods worth N80 million to Ogenta Limited. It is the policy of Okechukwu Plc to invoice goods at cost plus 33⅓%. Three-quarters of these goods are yet to be sold by Ogenta Limited at the year-end.
  3. Extracts from the books of Ogenta Limited at the date of acquisition reveal the following capital structure:
    • Issued ordinary shares of 50 kobo each: N200 million
    • General reserves: N80 million
    • Retained earnings: N52.5 million
  4. The fair value of the non-controlling interests at the acquisition date amounted to N92.5 million.
  5. An impairment test on the goodwill of Ogenta Limited conducted on December 31, 2019, indicated that the goodwill should be written down by N3.2 million.
  6. On the acquisition date, the fair value of net assets of Ogenta Limited was equal to their carrying amount, except for land and building and office equipment, which had fair values of N5 million and N1.5 million, respectively, in excess of their carrying amounts. The group non-current assets are depreciated at the rate of 10% per annum on a straight-line basis and charged to administrative expenses.
  7. Ogenta Limited paid a total of N20 million as dividends to all its shareholders for the year ended December 31, 2019. Okechukwu Plc has accounted for the dividend received.
  8. The finance cost of Ogenta Limited includes N2 million paid to Okechukwu Plc as interest on a loan. Okechukwu Plc has recognized the amount as interest received.

Required:
Prepare the consolidated statement of profit or loss and other comprehensive income for Okechukwu Group for the year ended December 31, 2019.

 

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  • 10 Marks

FR – Nov 2017 – L2 – Q1a – Consolidation of Group Statements

This question tests candidates on preparing a consolidated statement of profit or loss and other comprehensive income for a group, accounting for goodwill, non-controlling interest, intra-group transactions, and fair value adjustments.

On April 1, 2017, Higherhigher Limited acquired 60% of the equity share capital of Lowerlower Limited in a share exchange of two shares in Higherhigher for three shares in Lowerlower. The issue of shares has not yet been recorded by Higherhigher Limited. At the date of acquisition, shares in Higherhigher had a market value of N6 each.

Below is the summarised draft financial statements of both companies:

Statement of Profit or Loss and other Comprehensive Income for the year ended September 30, 2017 Higherhigher Limited (N’000) Lowerlower Limited (N’000)
Revenue 2,720,000 1,344,000
Cost of sales (2,016,000) (1,024,000)
Gross profit 704,000 320,000
Distribution costs (64,000) (64,000)
Administrative expenses (192,000) (102,400)
Finance costs (9,600) (12,800)
Profit before tax 438,400 140,800
Income tax expense (150,400) (44,800)
Profit for the year 288,000 96,000

Additional information:

  1. The fair value of Lowerlower Limited’s assets was equal to their carrying amounts, except for a plant with a fair value of N64m in excess of the carrying amount, which had a remaining life of five years. Straight-line depreciation was used. Lowerlower has not adjusted the carrying amount of its plant.
  2. Sales from Lowerlower to Higherhigher after the acquisition were N256m, with a 40% mark-up. Higherhigher sold N166.4m of these goods by September 30, 2017.
  3. Lowerlower’s receivables include N19.2m due from Higherhigher, which didn’t agree with Higherhigher’s payables due to cash in transit of N6.4m.
  4. Non-controlling interest is measured at fair value. The fair value of the goodwill attributable to the non-controlling interest is N48m.
  5. Consolidated goodwill was not impaired.

You are required to prepare:

  • The consolidated statement of profit or loss and other comprehensive income for the year ended September 30, 2017.

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