Question Tag: Non-Controlling Interest

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  • 20 Marks

CR – Nov 2024 – L3 – Q1 – Consolidated Financial Statements

Prepare the consolidated statement of financial position for Okaekwei PLC, considering acquisitions and fair value adjustments.

The following financial statements relate to Okaekwei PLC (Okaekwei), Ablekuma PLC (Ablekuma), and Katamanso PLC (Katamanso), three companies operating in the manufacturing industry.

Statement of Financial Position as at 31 October 2024

Description Okaekwei (GH¢’000) Ablekuma (GH¢’000) Katamanso (GH¢’000)
Non-current assets:
Property, plant and equipment 88,307 53,657 82,875
Investments 102,500 78,095 –
Total Non-current Assets 190,807 131,752 82,875
Current assets:
Inventory 9,492 4,618 14,642
Trade receivables 4,573 8,101 18,085
Cash and Bank 11,625 4,599 30,056
Total Current Assets 25,690 17,318 62,783
Total Assets 216,497 149,070 145,658
Equity & Liabilities:
Share capital (GH¢1) 106,250 63,750 61,625
Retained earnings 38,607 42,361 27,025
Other component of equity 3,825 3,060 2,678
Total Equity 148,682 109,171 91,328
Liabilities:
Non-current liabilities 40,851 20,327 31,582
Current liabilities 26,964 19,572 22,748
Total Liabilities 67,815 39,899 54,330
Total Equity & Liabilities 216,497 149,070 145,658

Additional Information:

  1. Acquisition of Katamanso:

    • On 1 November 2023, Ablekuma acquired 60% of the ordinary shares of Katamanso at a cost of GH¢55 million.
    • Due diligence costing GH¢0.25 million was undertaken and included in the investment cost.
    • Retained earnings and other components of equity of Katamanso at acquisition were GH¢21.6 million and GH¢1.65 million, respectively.

  2. Fair Value Adjustments:

    • A fair value exercise was conducted, with a building’s fair value exceeding its carrying value by GH¢1.2 million (remaining useful life: 20 years).
    • The financial statements of Katamanso do not yet reflect this adjustment.
    • Non-controlling interest is measured using the proportionate share of identifiable net assets.

  3. Acquisition of Ablekuma by Okaekwei:

    • On 1 November 2022, Okaekwei purchased 80% of the ordinary shares of Ablekuma for GH¢92 million.
    • The investment value reflects the fair value of the subsidiary at 31 October 2024.
    • Retained earnings and other equity components at acquisition: GH¢29.6 million and GH¢2.32 million.

  4. Deferred Tax on Fair Value Adjustments:

    • Deferred tax is to be provided at 25% on temporary differences arising from fair value adjustments.

  5. Intragroup Transactions:

    • On 1 June 2024, Ablekuma sold inventory (cost: GH¢2 million) to Katamanso for GH¢1.8 million.
    • As of 31 October 2024, these goods were still in Katamanso’s inventory, valued at the purchase cost. The fair value of the inventory at year-end was GH¢1.78 million.

  6. Intragroup Transfer of PPE:

    • On 1 August 2024, Okaekwei transferred a production machine to Ablekuma at GH¢2 million (carrying value: GH¢2.4 million).
    • The remaining useful life was five years, but Ablekuma depreciates it over four years.
    • Okaekwei harmonizes accounting policies upon consolidation.

Required:

Prepare the Consolidated Statement of Financial Position of Okaekwei PLC as at 31 October 2024.

(All workings are to be rounded to the nearest thousand).

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  • 20 Marks

FR – Nov 2024 – L2 – Q1- Group Financial Statements

Preparation of the consolidated statement of profit or loss and statement of financial position for Yarkpawolo Group, including goodwill calculation and intra-group adjustments.

Yarkpawolo LTD, a company in the healthcare industry, purchased 80% of the ordinary shares of Weah LTD on 1 January 2023. There are three elements to the purchase consideration: an immediate payment of GH¢1,400,000 and two further payments of GH¢100,000 on 31 December 2023 and GH¢120,000 on 31 December 2024 if the return on capital employed (ROCE) exceeds 15% in each of the financial years. All indicators have suggested that the ROCE for the company will be 17% and 16% for the financial years ending 31 December 2023 and 31 December 2024 respectively.

Yarkpawolo uses a discount rate of 10% in any present value calculations. The present value of GH¢ 1 receivable based on 10% are as follows:

Year Present Value
1 0.909
2 0.826

The draft financial statements of both companies as at 31 December 2023 are as follows:

Statement of Profit or Loss for the year ended 31 December 2023

Yarkpawolo (GH¢’000) Weah (GH¢’000)
Sales revenue 14,000
Cost of sales (10,000)
Gross profit 4,000
Operating expenses (2,050)
Profit before tax 1,950
Income tax expense (450)
Profit for the year 1,500
Retained earnings brought forward 3,500
Retained earnings to statement of financial position 5,000

Statement of Financial Position as at 31 December 2023

Yarkpawolo (GH¢’000) Weah (GH¢’000)
Non-current assets:
Property, Plant & Equipment 4,500
Patents 500
Investment in Weah 1,400
Total Non-current assets 6,400
Current assets:
Inventories 5,500
Trade and other receivables 2,000
Cash and cash equivalents 1,200
Total Current assets 8,700
Total Assets 15,100
Equity:
Share capital (GH¢0.20 per ordinary share) 1,500
General reserve 3,000
Retained earnings as at 31 December 2023 5,000
Total Equity 9,500
Non-current liabilities:
Long-term borrowings 1,600
Current liabilities:
Trade and other payables 4,000
Current portion of long-term borrowings –
Total Liabilities 5,600
Total Equity and Liabilities 15,100

Additional Information:

  1. Fair Value Adjustments on PPE:

    • Property: Increase from GH¢200,000 to GH¢250,000 (Depreciation rate 10%)
    • Plant: Increase from GH¢80,000 to GH¢100,000 (Depreciation rate 20%)
    • Equipment: Decrease from GH¢120,000 to GH¢80,000 (Depreciation rate 20%)
    • Weah has not adjusted its PPE values for the fair value assessment.

  2. Intra-Group Trading:

    • Since acquisition, Weah purchased GH¢50,000 worth of goods from Yarkpawolo. Half of these goods remained in inventory at year-end. Yarkpawolo makes a mark-up on cost of 25%.
    • Yarkpawolo also purchased GH¢50,000 of goods from Weah, with one-third remaining in inventory. Weah sells at a margin of 20%.

  3. Intercompany Balances:

    • Yarkpawolo’s trade receivables include GH¢5,000 owed by Weah. The current accounts do not balance due to GH¢2,000 in transit from Weah.

  4. Impairment:

    • A goodwill impairment review identified a loss of GH¢100,000. No adjustment has been made yet.

  5. Non-controlling Interest Valuation:

    • Yarkpawolo values non-controlling interest at fair value at the acquisition date. The share price for Weah was GH¢0.75 per share.

Required:
Prepare for Yarkpawolo LTD:
(a) Consolidated Statement of Profit or Loss for the year ended 31 December 2023
(b) Consolidated Statement of Financial Position as at 31 December 2023

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  • 30 Marks

CR – May 2016 – L3 – Q1 – Presentation of Financial Statements (IAS 1)

Explain earnings management, calculate goodwill, and prepare a consolidated statement of cash flows for Joy-land Group.

Given that accrual accounting tends to mask actual cash flow performance, stock analyst and rating agencies are generally more interest in cash flow. The directors of Joy-land Plc have called for the cash flow statement of the group so as to have a view of earnings performance devoid of accruals. The following draft group financial statements relate to Joy-land Plc.
Joy-land Plc Group: Statement of financial position as of November 30

Joy-land Group: Statement of comprehensive income for the year ended November 30, 2015.

Joy-land Group: Statement of comprehensive income for the year ended November 30, 2015.

Joy-land Group: Statement of changes in equity for the year ended November 30, 2015

The following additional information relates to the financial statements of Joy-land
(i) On December 1 2013, Joy-land acquired 8% of the ordinary shares of Talk peace. Joy-land had treated this investment as available for sale in the financial statement to November 30, 2014. On December 1, 2014. Joyland acquired a further 52% of the ordinary shares of Talk-peace and gained control of the company, the consideration for the acquisitions was as follows:

At December 1, 2014 the fair value of the 8% holding in talk peace held by Joy-land at the time of the business combination was N20 million and the fair value of the noncontrolling interest in Talk-peace was N80million. no gain or loss on the 8% holding in Talk-peace had been reported in the financial statement at December 1, 2014, the
purchase consideration at December 1, 2014 comprised cash of N60 million and share of N60million.
The fair value of identifiable net assets of Talk-peace at the date of acquisition comprised the following:

(ii) Goodwill Impairment

  • Goodwill for all subsidiaries has undergone impairment testing for the financial year ending November 30, 2015.
  • Impairment losses identified were specific to subsidiaries 100% owned by Joy-land.

(iii) Purchase of Research Project (IAS 38)

  • On December 1, 2014, Joy-land purchased a research project from a third party for ₦32 million, which was recognized as an intangible asset under IAS 38.
  • Additional costs incurred during the year include:
    • ₦8 million to complete the research phase.
    • ₦16 million for product development (capitalizable).
    • ₦4 million for initial marketing costs (not capitalizable; already accounted for correctly).
  • No other additions to intangible assets were recorded, except those from the acquisition of Talk-peace.

(iv) Rights Issue by Talk-peace

  • On November 30, 2015, Talk-peace issued new shares on a 1 for 4 basis.
  • The issue was fully subscribed and raised ₦20 million in cash.

(v) Investment Property (IAS 40)

  • Joy-land uses the fair value model to measure its investment properties.
  • During the year:
    • Part of the air-conditioning system (carrying value: ₦2 million) was replaced with a new system costing ₦4 million.
    • The replacement aligns with the treatment under IAS 40.

(vi) Sale of Surplus Land

  • Joy-land sold surplus land with a carrying value of ₦40 million for:
    • ₦60 million in cash, and
    • Plant valued at ₦16 million (part of the consideration).
  • The resulting gain on disposal has already been included in the income statement.
  • Depreciation for property, plant, and equipment (PPE) for the year totaled ₦108 million.

(vii) Defined Benefit Scheme

  • Joy-land operates a defined benefit pension scheme for select top executives and expatriates (in addition to its contributory pension scheme).
  • Current-year figures for the defined benefit scheme:
    Description ₦’m
    Opening Balance (Dec 1, 2014) 88
    Current Year Charge to P&L 16
    Contributions Paid (28)
    Actuarial Loss to OCI 24
    Closing Balance (Nov 30, 2015) 100

(viii) The associate company did not pay any dividends in the year.
(ix) Deferred tax of N40illion arose on the gains on available for sale investments in the year

Required
(a) As the CFO of the group, briefly explain to the legal and engineer directors what is meant by earnings management giving TWO examples of how accruals could   be employed in the earning management. (3 marks)
N’m
Balance at the beginning, December 1, 2014 88
Charge to profit or loss for the year 16
Pension contributions paid during the year (28)
Actuarial loss to other comprehensive income 24
Balance at the end, November 30 2015 100
(b) Determine the goodwill arising on the acquisition of the subsidiary on December 1, 2014 and total goodwill impairments of the group as at November 30, 2015 statement of cash flow on the assumption that it is the policy of Joyland Plc to value Non-controlling interest at full fair value. (3 marks)
(c) Prepare a consolidated statement of cash flows for the Joy-land Group for the year ended November 30, 2015 using the indirect method under IAS 7 ‘statement of Cash flow.
Note; Ignore deferred taxation other than where is mention in the question.

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  • 30 Marks

CR – May 2017 – L3 – Q1 – Foreign Currency Transactions and Translation (IAS 21)

Assess functional currency and prepare a consolidated statement of financial position under IFRS.

Rapuya Plc. is a Nigerian public limited company operating in the mining industry. The draft Statements of Financial Position of Rapuya Plc., and its two subsidiaries, Puta Limited and Soma Limited as at April 30, 2017, are as follows:

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

(i) On May 1, 2016, Rapuya acquired 52% of the ordinary shares of Soma Limited, a foreign subsidiary. The retained earnings of Soma Limited on this date were 220 million defas. The fair value of the identifiable net assets of Soma Limited on May 1, 2016, was 990 million defas. The excess of the fair value over the net assets of Soma Limited is due to an increase in the value of non-depreciable land.

Rapuya Plc. wishes to use the ‘full goodwill’ method to consolidate the financial statements of Soma. The fair value of the non-controlling interest in Soma Limited at May 1, 2016, was 500 million defas.

Soma Limited is located in Tome, a small country in West Africa, and operates a mine. The income of Soma Limited is denominated and settled in defas. The output of the mine is routinely traded in defas, and its price is determined initially by local supply and demand. Soma Limited pays 30% of its costs and expenses in naira, with the remainder being incurred locally and settled in defas. Soma’s management has a considerable degree of authority and autonomy in carrying out the operations of Soma Limited and is not dependent upon group companies for financial support. The Finance Controller is not certain from the above whether the defas or naira should be taken as the functional currency of Soma Limited.

There have been no issues of ordinary shares and no impairment of goodwill since acquisition.

(ii) Also on May 1, 2016, Rapuya Plc. had acquired 70% of the equity interests of Puta Limited. The purchase consideration amounted to N226 million, which Rapuya Plc. paid through bank transfer in compliance with the cashless policy of the Federal Government of Nigeria. The fair value of the identifiable net assets recognized by Puta Limited was N240 million, excluding the patent below. The identifiable net assets of Puta Limited at May 1, 2016, included a brand with a fair value of N8 million. This had not been recognized in the financial statements of Puta Limited. The brand is estimated to have a useful life of four years. The retained earnings of Puta Limited were N98 million, and other components of equity were N6 million at the date of acquisition. The remaining excess of the fair value of the net assets is due to an increase in the value of non-depreciable land.

Rapuya Plc. wishes to use the ‘full goodwill’ method in consolidating the financial statements of this subsidiary. The fair value of the non-controlling interest in Puta Limited was N92 million on May 1, 2016. There have been no issues of ordinary shares since acquisition, and goodwill on acquisition is not impaired.

(iii) The following exchange rates are relevant for the preparation of the group financial statements:

Defas to Naira Exchange Rate
May 1, 2016 3:1
April 30, 2017 2.5:1
Average for year to April 30, 2017 2.9:1

Required:

(a) Advise the Finance Controller on what currency should be taken as the functional currency of Soma Limited, applying the principles set out in IAS 21 – The Effects of Changes in Foreign Exchange Rates. (5 Marks)

(b) Prepare a consolidated statement of financial position of the Rapuya Group as at April 30, 2017, in accordance with International Financial Reporting Standards (IFRS). (Show all workings) (25 Marks)

(Total: 30 Marks)

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  • 25 Marks

CR – May 2021 – L3 – Q1a – Consolidated Financial Statements (IFRS 10)

Prepare a consolidated cash flow statement for Feedme Limited using the indirect method.

Feedme Limited
Feedme Limited is a company that has been in operations for over two decades producing “Trobomao,” a natural cocoa powder beverage. Five years ago, it acquired 100% interest in Butane Nigeria Limited and 75% interest in Shawama Supermarket Limited in 2019. Draft consolidated financial statements of Feedme Limited are provided below:

Draft Consolidated Statement of Financial Position (December 31, 2019):

Draft consolidated statement of profit or loss and other comprehensive income for the year ended December 31, 2019

Additional information:

i. There had been no acquisition or disposal of freehold buildings during the year.
ii. Information relating to the acquisition of Shawama Supermarket Limited is as follows:

iii. Loan notes were issued at a discount in 2019 and the carrying amount of the loan as at December 31, 2019 included N600,000 representing the finance cost attributable to the discount and allocated in respect of the current reporting period.

Required:
Prepare a consolidated statement of cash flows for Feedme Limited Group for the year ended December 31, 2019 in accordance with IAS 7 using indirect method.

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  • 26 Marks

FM – May 2023 – L3 – Q1a – Business Valuation Techniques

Evaluate ZL's valuation using multiple methods and recommend whether KK should acquire ZL. Discuss takeover regulation factors.

KK, a company quoted on the Stock Exchange, has cash balance of ₦230 million which are currently invested in short-term money market deposits. The cash is intended to be used primarily for strategic acquisitions, and the company has formed an acquisition committee with a remit to identify possible acquisition targets. The committee has suggested the purchase of ZL, a company in a different industry that is quoted on the AIM (Alternative Investment Market). Although ZL is quoted, approximately 50% of its shares are still owned by three directors. These directors have stated that they might be prepared to recommend the sale of ZL, but they consider that its shares are worth ₦220 million in total.

Summarised financial data:

Economic data:

  • Risk-free rate of return: 6% p.a.
  • Market return: 14% p.a.
  • Inflation rate: 2.4% p.a., expected to remain stable.

Expected effects of the acquisition:

  1. 50 employees of ZL would immediately be made redundant at an after-tax cost of ₦12 million. Pre-tax annual wage savings are expected to be ₦7.50 million (at current prices) for the foreseeable future.
  2. Some land and buildings of ZL would be sold for ₦8 million (after tax).
  3. Pre-tax advertising and distribution savings of ₦1.50 million per year (at current prices) would be possible.
  4. The three existing directors of ZL would each be paid ₦1 million per year for three years for consultancy services. This amount would not increase with inflation.

Required:

a. Calculate the value of ZL based upon:
i. The use of comparative P/E ratios (3 Marks)
ii. The dividend valuation model (4 Marks)
iii. The present value of relevant operating cash flows over a 10-year period (10 Marks)
iv. Provide an evaluation of each of the three valuation methods in (i) to (iii) above. (7 Marks)
v. Recommend whether KK should go ahead with the offer for ZL. (2 Marks)

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  • 22 Marks

CR – May 2023 – L3 – Q1a – Consolidated Financial Statements (IFRS 10)

Prepare a consolidated statement of financial position for Omi PLC and subsidiaries.

The draft statement of financial position of Omi PLC, Ruwa Limited, and Mmili Limited as of November 30, 2020, are as follows:

Additional Information for Consolidated Financial Statements Preparation:

  1. Acquisition of Ruwa Limited:
    • Omi PLC acquired 80% of Ruwa Limited’s ordinary share capital on December 1, 2017.
    • Retained earnings of Ruwa Limited at acquisition: N400 million.
    • Fair value of Ruwa Limited’s net assets: N2,840 million.
    • Any fair value adjustment pertains to net current assets, which had been realized by November 30, 2020.
    • No new issue of shares occurred in the group since the establishment of the current structure.
  2. Acquisition of Mmili Limited:
    • On December 1, 2018, Omi PLC acquired 40% and Ruwa Limited acquired 25% of Mmili Limited’s ordinary share capital.
    • Retained earnings of Mmili Limited at acquisition: N200 million.
    • Retained earnings of Ruwa Limited at acquisition: N600 million.
    • No revaluation surplus existed in Mmili Limited’s books at acquisition, and the fair value of Mmili Limited’s net assets was consistent with their carrying amount.
  3. Development Costs:
    • Significant expenditure incurred on developing internet products. These were initially written off but later reinstated as development inventories upon commercial use.
    • Costs do not meet the recognition criteria of IAS 38 – Intangible Assets.
    • Ruwa Limited included N80 million of these costs in its inventory, of which N20 million relates to expenses from periods before December 1, 2017.
    • The group wishes to ensure compliance with IFRS for this treatment.
  4. Internet Equipment:
    • Ruwa Limited purchased new internet equipment for N200 million, excluding a trade discount of N24 million.
    • The discount was recorded in the income statement.
    • Depreciation is calculated using the straight-line method over six years.
  5. Property, Plant, and Equipment Policy:
    • The group transitioned from the revaluation model to the cost model under IAS 16 – Property, Plant, and Equipment in 2020.
    • Mmili Limited’s assets were revalued on December 1, 2019, creating a revaluation surplus of N280 million.
    • Mmili Limited’s property was originally purchased in December 2018 for N1,200 million, with depreciation over six years.
    • The group does not transfer excess depreciation from revaluation reserves to retained earnings.
  6. Valuation of Non-controlling Interests:
    • The group values non-controlling interests at acquisition using their proportionate share of the subsidiary’s identifiable net assets.
  7. Defined Benefit Pension Scheme:
    • Omi PLC established a defined benefit pension scheme, contributing N400 million to it.
    • Details as of November 30, 2020:
      • Present value of obligation: N520 million.
      • Fair value of plan assets: N500 million.
      • Current service cost: N440 million.
      • Interest cost (scheme liabilities): N80 million.
      • Expected return on pension assets: N40 million.
      • Actuarial gain: N60 million.
    • The only recorded entry was the cash contribution, included in Omi PLC’s trade receivables.
    • Directors propose recognizing actuarial gain immediately in the statement of profit or loss.

Required:
Prepare the consolidated statement of financial position of Omi Group for the year ended November 30, 2020, in accordance with relevant IFRS.

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  • 30 Marks

CR – Nov 2021 – L3 – Q1 – Consolidated Financial Statements (IFRS 10)

Prepare consolidated financial position of Makoko Group for the year ended Dec 31, 2021, and discuss accounting implications of significant influence.

Makoko Intercontinental Holdings Limited is a global merchant of cash crops. A policy of strategic acquisitions over the years has placed the company in a position to source for export products competitively. The lockdown arising from the recent pandemic posed a significant challenge for the export of their products throughout the year 2020. At a board meeting to review the performance of the company for that year and discuss the impact of the pandemic, the Managing Director noted the significant drop in the general performance indices. In order to get a greater market presence and higher demand locally, the board decided to acquire the following investments on January 1, 2021:

  • 60% of the equity share of Ojodu Limited;
  • 50% of 10% loan notes of Ojodu Ltd at par;
  • 40% stake in the ordinary shares of Egbeda Confectioneries Limited.

In the opinion of the board, both Ojodu Limited and Egbeda Confectioneries Limited are the biggest local customers of Makoko Intercontinental Holdings Limited and a control through shareholding would give the investing company greater stake in the operational decisions of the investee companies. Importantly, it would also boost revenue by allowing unrestricted access to local markets. It is believed that this will forestall any adverse impact of further lockdowns that may hinder export sales in the future.

The draft financial statements of the companies for the year are as follows:

Statements of financial position as at December 31, 2021

Additional Information:

  1. Makoko Limited paid N90 million for the acquisition of Ojodu Limited when the retained earnings of Ojodu Limited were N13 million.
  2. The fair value of Ojodu’s freehold property was N6.5 million higher than the carrying amount as at the date of acquisition. This valuation has not been reflected in the books of Ojodu Limited.
  3. Makoko Limited paid N41 million for the shareholding in Egbeda Limited when the retained earnings of Egbeda Limited were N12 million.
  4. An impairment test as at December 31, 2021 showed that goodwill was impaired by N3.5 million and the investment in Egbeda Limited was impaired by N0.8 million.
  5. During the year, Makoko Limited sold products to Egbeda Limited at a price of N8 million. These goods had cost Makoko Limited N5 million. Half of the goods were still in the inventory of Egbeda Limited as at December 31, 2021.
  6. The companies issued share capital has not changed since the date of acquisition.
  7. No dividends were paid during the year.
  8. Non-controlling interests in subsidiaries are to be measured at the appropriate proportion of the subsidiary’s identifiable net assets.

Required: a. Prepare the consolidated statement of financial position for the Makoko Group for the year ended December 31, 2021. (20 Marks)

b. The Directors of Makoko Intercontinental Holdings Limited are concerned about getting significant influence, if not absolute control, of all entities they intend to buy into. The five-year strategic plan of the company (2020 – 2024) focuses on having control of the cash crops segment of the agribusiness sector of the economy. This is in order to make them ready to roll out the next developmental phase of the business, which is to migrate from exporting raw products to finished products for industrial and household use.

Towards this goal, the board requires the Group Accountant to make a presentation on the accounting implications of gaining significant influence in another entity.

Required: Discuss the issues involved in the requirements of the Board as specified above. (5 Marks)

c. A friend to the Chief Accountant of Makoko Intercontinental Holdings Limited, who is a consultant to Ojodu Limited and Egbeda Confectionaries Limited, is requesting for information on the new acquisitions from his friend, the Chief Accountant.

Required: Identify the ethical issues involved in the above scenarios and their implications. (5 Marks)

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  • 30 Marks

CR – May 2018 – L3 – SA – Q1 – Consolidated Financial Statements (IFRS 10)

repare consolidated financial statements for Komolafe Group including profit or loss and statement of financial position for year-end 2016.

Komolafe Group carries on business as a distributor of warehouse equipment and importer of fruit into the country. Komolafe was incorporated in 2008 to distribute warehouse equipment. It diversified its activities during the year 2010 to include the import and distribution of fruit, and expanded its operations by the acquisition of shares in Kelvins in 2012 and Kelly in 2014.

Accounts for all companies are made up to December 31.

The draft statements of profit or loss and other comprehensive income for Komolafe, Kelvins, and Kelly for the year ended December 31, 2016 are as follows:

Komolafe Kelvins Kelly
Revenue 91,200 49,400 45,600
Cost of sales (36,100) (10,926) (10,640)
Gross profit 55,100 38,474 34,960
Distribution costs (6,650) (4,274) (3,800)
Administrative expenses (6,950) (1,900) (3,800)
Finance costs (650) – –
Profit before tax 40,850 32,300 27,360
Income tax expense (16,600) (10,780) (8,482)
Profit for the year 24,250 21,520 18,878
Other comprehensive income for the year:
Items that will not be reclassified to profit or loss in subsequent period
Revaluation of property 400 200 –
Total Comprehensive Income 24,650 21,720 18,878

The draft statement of financial position as at December 31, 2016, is as follows:

Komolafe Kelvins Kelly
Non-current assets
Property, plant, and equipment (carrying amount) 70,966 48,546 26,126
Investments
Shares in Kelvins 13,300 – –
Shares in Kelly – 7,600 –
Total Non-current assets 84,266 56,146 26,126
Current assets 3,136 18,050 17,766
Total assets 87,402 74,196 43,892
Equity
Ordinary shares 16,000 6,000 4,000
Retained earnings 45,276 48,150 39,796
Current liabilities 26,126 20,046 96
Total equity and liabilities 87,402 74,196 43,892

The following information is available relating to Komolafe, Kelvins, and Kelly:

  1. On January 1, 2012, Komolafe acquired 5,400,000 N1 ordinary shares in Kelvins for N13,300,000, at which date there was a credit balance on the retained earnings of Kelvins of N2,850,000. No shares have been issued by Kelvin since Komolafe acquired its interest.
  2. At the date of acquisition, the fair value of the identifiable net assets of Kelvins was N10 million. The excess of the fair value of net assets is due to an increase in the value of non-depreciable land.
  3. On January 1, 2014, Kelvins acquired 3,200,000 N1 ordinary shares in Kelly for N7,600,000, at which date there was a credit balance on the retained earnings of Kelly of N1,900,000. No shares have been issued by Kelly since Kelvins acquired its interest. The fair value of the identifiable net assets of Kelly at the date of acquisition approximates their book values.
  4. During 2016, Kelly made intra-group sales to Kelvins of N960,000, making a profit of 25% on cost. N150,000 of these goods were in inventories at December 31, 2016.
  5. During 2016, Kelvins made intra-group sales to Komolafe of N520,000, making a profit of 25% on sales. N120,000 of these goods were in inventories at December 31, 2016.
  6. An impairment test conducted at the year-end did not reveal any impairment losses.
  7. It is the group’s policy to value the non-controlling interest at fair value at the date of acquisition. The fair value of the non-controlling interests in Kelvins on January 1, 2012, was N1,000,000. The fair value of the 28% non-controlling interest (direct and indirect) in Kelly on January 1, 2014, was N1,800,000.

Required:
Prepare for Komolafe Group:

a. A consolidated statement of profit or loss and other comprehensive income for the year ended December 31, 2016. (13 Marks)

b. A consolidated statement of financial position as at December 31, 2016. (12 Marks)

c. In business combination, the consideration given by the acquirer to gain control of the acquiree can be in different forms, including deferred and contingent considerations. While deferred and contingent considerations represent amounts of consideration to be transferred in the future, the two differ in nature and form.

Required:
Briefly distinguish between deferred and contingent consideration. (5 Marks)

Total: 30 Marks

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  • 30 Marks

CR – Nov 2018 – L3 – SA – Q1a – Consolidated Financial Statements (IFRS 10)

Prepare a consolidated statement of financial position for Adegaga Laboratories Plc., including the effects of an acquisition and goodwill impairment.

Adegaga Laboratories Plc (“AdeLabs”) is one of the largest companies in Nigeria engaged in cosmetic development and manufacturing. Its largest customer base is in the healthcare sector for post-surgery patients and the Nigeria movie industry (aka Nollywood). In the prior financial period, AdeLabs’ expansion strategy has been largely focused on growth by acquisition and joint ventures.

Additional Information:

  1. As part of this, AdeLabs acquired 80% of the equity share capital of Bodegas Limited (“Bodegas”) on January 1, 2015, when the retained earnings of Bodegas was N93.75 million. Following the share acquisition, AdeLabs had control over Bodegas – no shares have been issued by Bodegas following the acquisition. The non-controlling interest in Bodegas was measured at its fair value of N20 million at the date of acquisition.
  2. On January 1, 2016, AdeLabs acquired 50% of the equity share capital of ChidePlastics Limited (“ChidePlast”) when the retained earnings of ChidePlast was N41.25 million. This acquisition was classified as a joint venture in accordance with IFRS 11 Joint Arrangements. ChidePlast has not issued any shares since the acquisition date.
  3. The balance on “other reserves” relates to movements in the values of investments in Bodegas and ChidePlast in the books of AdeLabs. N18.75 million relates to Bodegas, and the remainder to ChidePlast.
  4. AdeLabs’ non-current liabilities relate to a borrowing (long-term) taken out on January 1, 2017. This borrowing has an agreed coupon rate of 4% p.a., and the interest expense due in respect of 2017 has been paid and accounted for in profit for the year. The effective interest rate estimated with this financial liability is 8% p.a.
  5. As part of its annual impairment review, AdeLabs concluded that the goodwill on the acquisition of Bodegas was impaired by 20% at December 31, 2017. No other impairments of goodwill have arisen.
  6. AdeLabs sold goods to ChidePlast with a value of N75 million and a selling margin of 40% in November 2017. As at year-end December 31, 2017, 75% of these items are unsold.

Accounts for all companies are made up to December 31 annually.

Required:

Prepare for Adegaga Laboratories Plc:

  1. A consolidated statement of financial position as at December 31, 2017. (20 Marks)
  2. On January 1, 2018, AdeLabs acquired an additional 10% of the equity shares of Bodegas. The purchase consideration for this additional acquisition was N52,500,000.

    i. Briefly explain how this additional acquisition will impact the preparation of AdeLabs’ consolidated financial statements for the year ended December 31, 2017. (4 Marks)

    ii. Calculate the adjustment that will be required to be made to AdeLabs’ statement of financial position as a result of this acquisition. (6 Marks)

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  • 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.

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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  • 20 Marks

FR – May 2017 – L2 – Q1 – Group Financial Statements and Consolidation

Prepare consolidated financial statements for a parent and subsidiary, including profit or loss, statement of changes in equity, and statement of financial position.

Ghanbetter is a 90% subsidiary of Asonbata, acquired one year ago for GH¢4 billion, when the retained earnings of Ghanbetter were GH¢800 million. Below are the financial statements of the companies:

Statement of Profit or Loss for the year ended 31 December, 2016

Additional Information:
i) During the year Asonbata sold goods to Ghanbetter for GH¢100 million. These goods were sold at a margin of 20%, and one quarter remained in inventory at the year-end.

ii) During the year Ghanbetter sold goods to Asonbata for GH¢180 million. These goods were sold at a mark-up of 50%, and one half remained in inventory at the year-end.

iii) At the year-end, there were no outstanding inter-company current account balances.

iv) At the date of acquisition, the fair value of Ghanbetter’s net assets was equal to their carrying value, except for an item of plant that had a fair value of GH¢200 million in excess of its carrying value and a remaining useful life of four years.

v) Goodwill is to be calculated using the proportionate basis. An impairment review at the year-end reveals that no impairment loss arose.

vi) Both companies have paid a dividend during the year. The dividend distributed by Asonbata was GH¢200 million, and that of Ghanbetter GH¢100 million. The investment income that Asonbata has recognised is the dividend received from Ghanbetter shortly before the year-end.

Required:
Prepare the Consolidated Statement of Financial Position, Statement of Changes in Equity, and Consolidated Statement of Profit or Loss for Asonbata for the year ended 31 December, 2016.

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  • 20 Marks

FR – Nov 2021 – L2 – Q1 – Group Financial Statements and Consolidation

Prepare the Consolidated Statement of Financial Position for Sankofa Group considering investments, goodwill, and intra-group transactions.

The following statement of financial position relates to Sankofa and Kaakyire as at 31 October 2020.

Statement of Financial Position Sankofa (GH¢’000) Kaakyire (GH¢’000)
Non-current assets
Property, Plant and Equipment 37,000 30,000
Investment Property 5,000 –
Investments 24,000 –
Total Non-current assets 66,000 30,000
Current assets
Inventory 9,000 8,000
Other current assets 21,000 14,000
Total Current assets 30,000 22,000
Total assets 96,000 52,000
Equity and liabilities
Ordinary shares (issued @ GH¢2.50) 20,000 8,000
Retained earnings 26,000 16,000
Total Equity 46,000 24,000
Non-current liabilities
10% debentures 11,900 12,000
Current liabilities
Payables 38,100 16,000
Total Equity and liabilities 96,000 52,000

Additional information:
i) On 1 November 2018, Sankofa purchased 2.4 million of the ordinary shares of Kaakyire when Kaakyire’s retained earnings balance stood at GH¢11 million. There have been no movements in share capital since the acquisition. As part of the consideration given for the shares acquired, the shareholders of Kaakyire accepted 1 million shares worth GH¢7 million in Sankofa at acquisition. The remaining consideration was agreed to be paid on 31 October 2020 for GH¢12.1 million. The present values of GH¢1 receivable based on 10% (considered to be an appropriate discount rate for Sankofa) are as follows:

Present Value of GH¢1 receivable
In one year’s time:
In two years’ time:

Entries have been correctly passed for the effects of all of the above, including any unwound discounts, except for the final payment made on 31 October 2020.

ii) At acquisition, the fair values of Kaakyire’s assets, liabilities, and contingencies were equal to their carrying amounts, with the exception of the following assets:

Carrying amount (GH¢’000) Fair value (GH¢’000)
Trade receivables 1,250
Inventory 1,500
Properties 14,000

The properties had a remaining useful life of 10 years. No items of property were sold during the two years to 31 October 2020. The inventory and the receivable were realised during the post-acquisition period.

iii) On 1 November 2019, Kaakyire sold an item of plant to Sankofa for GH¢5 million. Kaakyire originally bought the plant from Gyidie for GH¢6 million, and Kaakyire had provided accumulated depreciation of GH¢2.2 million up to the date of sale. Kaakyire considered the plant to have a remaining useful life of 5 years at the date of transfer.

iv) The Investment Property in the books of Sankofa represents an office facility that was completed on 1 November 2018 at the cost of GH¢3.5 million. The useful economic life of the facility was estimated at 20 years. Immediately after the acquisition of Kaakyire, Sankofa began to rent this property out to Kaakyire under a lease agreement. Sankofa Group values its investment properties using the fair value model under IAS 40 Investment Properties and its owner-occupied properties using the cost model under IAS 16 Property, Plant and Equipment.

v) On 1 November 2019, Sankofa acquired 30% of the ordinary shares of Kaboom at the cost of GH¢6 million. During the year ended 31 October 2020, Kaboom reported a profit after tax of GH¢2 million. No dividends were paid or declared by Kaboom during the period. At year-end, Kaboom’s inventory included GH¢1.2 million worth of goods bought from Sankofa during the year to October 2020. Sankofa charges a 25% margin on all sales.

On 31 October 2019, Goodwill acquired in Kaakyire was attributed with an impairment loss of GH¢0.5 million. The group’s policy is to measure non-controlling interest at the proportion of the fair value of the subsidiary’s net assets.

Required:
Prepare the Consolidated Statement of Financial Position for the Sankofa Group as at 31 October 2020.

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  • 20 Marks

FR – May 2016 – L2 – Q2 – Group Financial Statements and Consolidation

Prepare a consolidated statement of financial position and calculate the non-controlling interest for H Plc, and explain the need to consolidate fair values.

On 1st April 2014, H Plc. acquired four million of the ordinary shares of S Ltd, paying GH¢4.50 each. At the same time, H Plc also purchased GH¢500,000 of S Ltd 10% redeemable preference shares. At the acquisition date, the retained earnings of S Ltd were GH¢8,400,000.

Reproduced below are the draft statements of financial positions of the two companies at 31st March 2015:

Extracts from the statement of profit or loss of S Ltd, before intra group
adjustments, for the year to 31st March 2015 are:

The following information is relevant:

  1. Included in the land and buildings of S Ltd is a large area of development land at a cost of GH¢5 million. Its fair value at the date S Ltd was acquired was GH¢7 million, and by 31st March 2015, this had risen to GH¢8.5 million. The group valuation policy for development land is to carry it at fair value and not depreciate it.
  2. At the date of acquisition of S Ltd, its plant and equipment included plant that had a fair value of GH¢4 million in excess of its carrying value. This plant had a remaining life of 5 years. Depreciation is calculated on a straight-line basis.
  3. During the year, S Ltd sold goods to H Plc. for GH¢1.8 million. S Ltd adds a 20% mark-up on cost to all its sales. Goods with a transfer price of GH¢450,000 were included in the inventory of H Plc. at 31st March 2015. The balance on the current accounts between H Plc. and S Ltd was GH¢240,000 on 31st March 2015.
  4. An impairment test carried out at 31st March 2015 showed that consolidated goodwill was impaired by GH¢1,488,000.
  5. S Ltd had paid its preference dividends in full and ordinary dividends of GH¢500,000.

Required:

  1. Prepare the consolidated statement of financial position of H Plc. as at 31st March 2015.
  2. Calculate the non-controlling interest in the adjusted profit of S Ltd for the year to 31st March 2015.
  3. Explain why IFRS 3 Business Combinations requires an acquirer to consolidate the fair values of the assets and liabilities of an acquired subsidiary, at the acquisition date.

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  • 20 Marks

FR – March 2024 – L2 – Q1 – Group Financial Statements and Consolidation

Consolidation of Chicha Plc and Wale Plc financial statements, involving adjustments for intra-group transactions, non-controlling interest, and goodwill.

On 1 July 2022, Chicha Plc acquired 80% of the ordinary shares of Wale Plc at a cost of GH¢2,570,000. On the same date, it also acquired 50% of Wale Plc’s 10% loan notes at par. The summarised draft financial statements of both companies are:

Statements of Profit or Loss for the year ended 31 March 2023
Chicha Plc Wale Plc
Sales revenue 15,000 6,000
Cost of sales (10,500) (5,000)
Gross profit 4,500 1,000
Operating expenses (1,500) (50)
Loan interest received/(paid) 18.75 (50)
Profit before tax 3,018.75 900
Income tax expense (750) (150)
Profit for the year 2,268.75 750
Statements of Financial Position as at 31 March 2023
Chicha Plc Wale Plc
Non-current assets
Property, plant and equipment 4,830 2,000
Investments 2,820 –
Total Non-current assets 7,650 2,000
Current assets 3,750 2,000
Total assets 11,400 4,000
Equity and liabilities
Equity
Stated capital 2,500 500
Retained earnings 6,400 2,100
Total equity 8,900 2,600
Non-current liabilities
10% loan notes – 500
Current liabilities 2,500 900
Total equity and liabilities 11,400 4,000

The following information is relevant:

  1. The fair values of Wale Plc’s assets were equal to their book values except for its plant, which had a fair value of GH¢800,000 more than its book value at the date of acquisition. The remaining life of all of Wale Plc’s plant at the acquisition date was four years. Depreciation is on a straight-line basis and charged to cost of sales. Wale Plc has not adjusted the value of its plant as a result of the fair valuation of the assets.
  2. In the post-acquisition period, Chicha Plc sold goods to Wale Plc for GH¢3,000,000. These goods had cost Chicha Plc GH¢2,250,000. During the year, Wale Plc had sold GH¢2,500,000 of these goods for GH¢3,750,000.
  3. The current accounts of the two companies were reconciled at the year-end with Wale Plc owing Chicha Plc GH¢187,500.
  4. The goodwill was reviewed for impairment at the end of the reporting period and had suffered an impairment loss of GH¢75,000, which is to be treated as an operating expense.
  5. Chicha Plc’s and Wale Plc’s retained earnings as at 1 April 2022 were GH¢4,131,250 and GH¢1,350,000, respectively. No dividends were paid or declared by either entity during the year.
  6. It is the group policy to value the non-controlling interest at acquisition at fair value. The directors valued the non-controlling interest at GH¢625,000 at the date of acquisition.
  7. Revenues and profits should be deemed to accrue evenly throughout the year.

Required:
Prepare for Chicha Plc a Consolidated Statement of Profit or Loss for the year ended 31 March 2023 and Statement of Financial Position as at 31 March 2023.

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  • 17 Marks

FR – Nov 2016 – L2 – Q1a – Group Financial Statements and Consolidation

Prepare the consolidated statement of financial position for Bantama Ltd Group as at 30 September 2016, with provided details of acquisition and adjustments.

Bantama Ltd acquired six million of Abrepo Ltd’s ordinary shares on 1 April 2016 for an agreed consideration of GH¢25 million. The consideration was settled by a share exchange of five new shares in Bantama Ltd for every three shares acquired in Abrepo Ltd, and a cash payment of GH¢5 million. The cash transaction has been recorded, but the share exchange has not been recorded.

The draft statements of financial position of the two companies as at 30 September 2016 are:

Additional information:

  1. The fair value of Abrepo Ltd’s land at the date of acquisition was GH¢4 million in excess of its carrying value. Abrepo Ltd’s financial statements contain a note of a contingent asset for an insurance claim of GH¢800,000 relating to some inventory that was damaged by a flood on 5 March 2016. The insurance company is disputing the claim. Bantama Ltd has taken legal advice on the claim and believes that it is highly likely that the insurance company will settle it in full in the near future.
  2. At the date of acquisition, Bantama Ltd sold an item of plant that had cost GH¢2 million to Abrepo Ltd for GH¢2.4 million. Bantama Ltd has charged depreciation of GH¢240,000 on this plant since it was acquired.
  3. Bantama Ltd’s current account debit balance of GH¢820,000 with Abrepo Ltd does not agree with the corresponding balance in Abrepo Ltd’s books. Investigations revealed that on 26 September 2016, Bantama Ltd charged Abrepo Ltd GH¢200,000 for its share of central administration costs. Abrepo Ltd has not yet recorded this invoice. Intercompany current accounts are included in accounts receivable or payable as appropriate.
  4. Abrepo Ltd paid a dividend of GH¢400,000 on 30 September 2016. The profit and dividend of Abrepo Ltd are deemed to accrue evenly throughout the year. Abrepo Ltd’s retained earnings of GH¢8.8 million for the year to 30 September 2016 as shown in its statement of financial position are after the deduction of the dividend. Bantama Ltd’s policy is to credit to income only those dividends received from post-acquisition profits. Bantama Ltd has not yet accounted for the dividend from Abrepo Ltd. The cheque has been received but not banked.
  5. At the year-end, an impairment review was carried out on the consolidated goodwill arising from the acquisition of Abrepo Ltd, and an impairment loss of GH¢595,000 was identified. No adjustment has yet been made for this. It is group policy to value non-controlling interest at acquisition at its proportionate share of the fair value of the subsidiary’s identifiable net assets.

Required:

Prepare the consolidated statement of financial position of Bantama Ltd group as at 30 September 2016.

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  • 20 Marks

FR – May 2018 – L2 – Q1 – Group Financial Statements and Consolidation

Prepare the consolidated statement of profit or loss for Tamale Ltd for the year ended 30 September 2017 after acquisition of Navrongo Ltd.

On 1 April 2017, Tamale Ltd acquired 60% of the 4 million ordinary shares of Navrongo Ltd in a share exchange of two shares in Tamale Ltd for three shares in Navrongo Ltd. The issue of shares has not yet been recorded by Tamale Ltd. At the date of acquisition, shares in Tamale Ltd had a market value of GH¢6 each. Below are the summarised draft financial statements of both companies.

Statements of Profit or Loss for the year ended 30 September 2017

Tamale Ltd (GH¢’000) Navrongo Ltd (GH¢’000)
Revenue 85,000 42,000
Cost of Sales (63,000) (32,000)
Gross Profit 22,000 10,000
Distribution Cost (2,000) (2,000)
Administrative Expenses (6,000) (3,200)
Finance Cost (300) (400)
Profit Before Tax 13,700 4,400
Income Tax Expense (4,700) (1,400)
Profit for the Year 9,000 3,000

Statements of Financial Position as at 30 September 2017

Tamale Ltd (GH¢’000) Navrongo Ltd (GH¢’000)
Assets
Non-Current Assets
Property, Plant and Equipment 40,600 12,600
Current Assets 16,000 6,600
Total Assets 56,600 19,200
Equity and Liabilities
Ordinary Shares 10,000 4,000
Retained Earnings 35,400 6,500
Equity 45,400 10,500
Non-Current Liabilities
10% Loan Notes 3,000 4,000
Current Liabilities 8,200 4,700
Total Equity and Liabilities 56,600 19,200

The following information is relevant:

i) At the date of acquisition, the fair values of Navrongo Ltd’s assets were equal to their carrying amounts with the exception of an item of plant, which had a fair value of GH¢2 million in excess of its carrying amount. It had a remaining life of five years at that date (straight-line depreciation is used). Navrongo Ltd has not adjusted the carrying amount of its plant as a result of the fair value exercise.

ii) Sales from Navrongo Ltd to Tamale Ltd in the post-acquisition period were GH¢8 million. Navrongo Ltd made a markup on cost of 40% on these sales. Tamale Ltd had sold GH¢5.2 million (at cost) as at 30 September 2017.

iii) Other than where indicated, profit or loss items are deemed to accrue evenly on a time basis.

iv) Navrongo Ltd’s trade receivables at 30 September 2017 include GH¢600,000 due from Tamale Ltd which did not agree with Tamale Ltd’s corresponding trade payable. This was due to cash in transit of GH¢200,000 from Tamale Ltd to Navrongo Ltd. Both companies have positive bank balances.

v) Tamale Ltd has a policy of accounting for any non-controlling interest at fair value. The fair value of the non-controlling interest in Navrongo Ltd at the date of acquisition was estimated to be GH¢5.9 million. Consolidated goodwill was not impaired at 30 September 2017.

Required:
a) Prepare the consolidated statement of profit or loss for Tamale Ltd for the year ended 30 September 2017.

(8 marks)

b) Prepare the consolidated statement of financial position for Tamale Ltd as at 30 September 2017.

(12 marks)

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  • 20 Marks

FR – Aug 2022 – L2 – Q1 – Group Financial Statements and Consolidation

Preparation of consolidated statement of financial position for Adanse Group, considering intercompany transactions, fair value adjustments, and goodwill impairment.

Below are the statements of financial position of two entities: Adanse Plc (Adanse) and Fomena Plc (Fomena).

Statement of financial position as at 31 August 2021

Additional information:
i) All ordinary shares were issued at GH¢2 per share. There have been no movements in the share capital of Fomena since its acquisition.
ii) On 1 September 2020, Adanse acquired 80% ordinary shares in Fomena when Fomena’s retained earnings balance was GH¢45 million. The purchase and sale agreement provided that the shares should be settled as follows:

  • Immediate issue of Adanse’s 25 million 15% cumulative redeemable preference shares, issued at GH¢3 per share. Adanse has not yet recorded this consideration.
  • Immediate transfer of a parcel of land with a carrying amount and fair value of GH¢17 million and GH¢20 million respectively. Adanse has only debited “Investment in shares” and credited “Property, Plant and Equipment” with the carrying amount of the land.

Goodwill in Fomena has been impaired by 10%. Goodwill is valued using full fair value method. Each ordinary share of Fomena had a fair market price of GH¢6 at acquisition and GH¢7.5 at the current year-end.

iii) At acquisition date, the carrying amount of Fomena’s identifiable net assets were equal to their fair value except the following two items:

  • Intangible asset (purchased franchise right) has a fair value of GH¢12 million and carrying amount of GH¢8 million. Its remaining useful life was estimated at 5 years. The recoverable amount of the right at 31 August 2021 was estimated at GH¢9 million. Fomena has not incorporated the fair values in its separate financial statements. (Ignore deferred tax for this adjustment)
  • An item of equipment has its fair value of GH¢5 million in excess of its carrying amount. It had a remaining useful life of 5 years. This fair value adjustment should be deemed as a temporary difference which suffers tax of 20%.

iv) Fomena sold goods to Adanse for GH¢3.2 million in July 2021. Adanse held a half of these items in its year-end inventory. Fomena bought the goods sold to Adanse for GH¢5 million from an outside supplier. At year-end, Fomena still owed the supplier 40% of the purchase cost. At year-end, Adanse did not owe Fomena in respect of the above transactions. All items were in good condition at the date of transfer. Ignore any deferred tax implications.

v) Adanse accounts for all passive equity investments at fair value through other comprehensive income. The fair value of Adanse’s investment in Fomena was GH¢110 million as at 31 August 2021.

Required:
Prepare a Consolidated Statement of Financial Position as at 31 August 2021.

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  • 20 Marks

FR – May 2019 – L2 – Q1 – Group Financial Statements and Consolidation

Preparation of Consolidated Statement of Financial Position for Sunyani Group Ltd and its subsidiaries.

Sunyani Ltd (Sunyani) is a limited liability company based in Brong Ahafo. It has shareholdings in two other companies, Berekum Ltd (Berekum) and Jinijini Ltd (Jinijini). Sunyani bought 150 million ordinary shares in Berekum on 1 August 2016, when the retained earnings of Berekum were GH¢22 million. The consideration was agreed at GH¢110 million for these shares.

On 1 August 2017, Sunyani bought a 40% holding in the ordinary shares of Jinijini when the retained earnings balance in Jinijini’s books stood at GH¢26 million. The consideration was an immediate cash payment of GH¢25 million. The directors of Sunyani negotiated the right to appoint 4 directors to Jinijini’s 12-person board as a result of its investment.

Statements of Financial Position are shown below for all three companies as at 31 July 2018.

Statements of Financial Position as at 31 July 2018:

 

 

Additional Information:

i) At the date of acquisition, Sunyani conducted a fair value exercise on Berekum’s net assets, which were equal to their carrying amounts with the following exceptions:

  • A property held by Berekum had a fair value GH¢10 million in excess of its carrying value. 75% of the value of this property relates to buildings with a useful economic life of 10 years at the date of acquisition.
  • Berekum had an unrecorded deferred tax liability of GH¢7 million, which was unchanged as at 31 July 2018.

ii) Sunyani’s policy is to value any Non-Controlling Interests (NCI) at their proportionate share of identifiable net assets at the acquisition date.

iii) Immediately after the acquisition, Berekum issued GH¢40 million of 6% loan notes, GH¢8 million of which were bought by Sunyani Ltd. This investment has been correctly recorded in the books of Sunyani under the heading “Investments.” All interest due on loan notes as at 31 July 2018 has been paid and recorded.

iv) During the financial year ended 31 July 2018, Berekum had sold goods to Sunyani amounting to GH¢30 million. The purchase price included a mark-up of 20% on cost. Berekum’s normal mark-up on goods sold is 60%. Of these goods, one-quarter remained in the closing inventory of Sunyani at the reporting date.

v) Sunyani has not accounted for any dividend receivable from its group companies. Both Sunyani and Jinijini have proposed dividends as shown in current liabilities. Jinijini’s proposed dividend relates entirely to the post acquisition period. No other dividends were paid or proposed in the year.

vi) Recorded in the books of Sunyani was an intra-group trade payable of GH¢10 million owed to Berekum at year-end. However, the books of Berekum showed a balance of GH¢11 million owed by Sunyani. It transpired that Berekum’s computer system had automatically charged to Sunyani’s account, interest of GH¢1 million due to late payments. It was subsequently agreed that Berekum would waive this interest.

vii) There were no impairment losses during the year end 31 July 2018.

(All workings may be rounded to the nearest GH¢0.01m)

Required: Prepare the Consolidated Statement of Financial Position for the Sunyani group as at 31 July 2018 in accordance with International Financial Reporting Standards.

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  • 20 Marks

FR – Nov 2015 – L2 – Q5 – Group Financial Statements and Consolidation

This question involves calculating goodwill on acquisition and preparing a consolidated statement of profit or loss for VM Ltd for the year ended 30 September 2012, including intragroup adjustments.

On 1 January 2012, VM Ltd acquired 18 million of the equity shares of GR Ltd in a share exchange in which VM Ltd issued two new shares for every three shares it acquired in GR Ltd. This gave VM Ltd a holding of 90%. Additionally, on 31 December 2012, VM Ltd will pay the shareholders of GR Ltd GHS 1.76 per share acquired. VM Ltd’s cost of capital is 10% per annum.

At the date of acquisition, shares in VM Ltd and GR Ltd had market prices of GHS 6.50 and GHS 2.50 each, respectively.

STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 30 SEPTEMBER 2012

Description VM (GHS ‘000) GR (GHS ‘000)
Revenue 129,200 76,000
Cost of sales (102,400) (52,000)
Gross profit 26,800 24,000
Distribution costs (3,200) (3,600)
Administrative expenses (7,600) (4,800)
Investment income 1,000 –
Finance costs (840) –
Profit before tax 16,160 15,600
Income tax expense (5,600) (3,200)
Profit for the year 10,560 12,400

Equity as at 1 October 2011

Description VM (GHS ‘000) GR (GHS ‘000)
Stated capital 120,000 30,000
Income surplus 108,000 70,000

The following information is relevant:

(i) At the date of acquisition, the fair values of GR Ltd’s assets and liabilities were equal to their carrying amounts with the exception of two items:

  1. An item of plant had a fair value of GHS 3.6 million above its carrying amount. The remaining life of the plant at the date of acquisition was three years. Depreciation is charged to cost of sales.
  2. GR Ltd had a contingent liability which VM Ltd estimated to have a fair value of GHS 900,000. This has not changed as at 30 September 2012.

GR Ltd has not incorporated these fair value changes into its financial statements.

(ii) VM Ltd’s policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose, GR Ltd’s share price at the date can be deemed to be representative of the fair value of the shares held by the non-controlling interest.

(iii) Sales from VM Ltd to GR Ltd throughout the year ended 30 September 2012 had consistently been GHS 1.6 million per month. VM Ltd made a mark-up of 25% on these sales. GR Ltd had GHS 3 million of these goods in inventory as at 30 September 2012.

(iv) VM Ltd’s investment income is a dividend received from its investment in a 40% owned associate, which it has held for several years. The underlying earnings for the associate for the year ended 30 September 2012 were GHS 4 million.

(v) Although GR Ltd has been profitable since its acquisition by VM Ltd, the market for GR Ltd’s product has been badly hit in recent months, and VM Ltd had calculated that the goodwill has been impaired by GHS 4 million as at 30 September 2012.

Required:

(a) Calculate the goodwill on acquisition of GR Ltd.
(5 marks)

(b) Prepare the consolidated statement of profit or loss for VM Ltd for the year ended 30 September 2012.
(15 marks)

(Total: 20 marks)

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