Question Tag: Non-Controlling Interests

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  • 20 Marks

CR – May 2021 – L3 – Q4 – Business Combinations (IFRS 3)

Evaluate the impact of restructuring plans on individual and group accounts for Tanimo PLC and its subsidiaries.

Emili PLC and Wagbo PLC are both public limited companies wholly owned by Tanimo PLC, also a public limited company. Tanimo group PLC operates in the agro-allied industry; but the directors felt that the current structure does not serve their intended purpose and are therefore considering two different restructuring plans for the group.

The statements of financial position of Tanimo PLC and its subsidiaries Emili PLC and Wagbo PLC as at May 31, 2021, are as follows:

Statements of Financial Position as at May 31, 2021

Item Tanimo PLC (Nm) Emili PLC (Nm) Wagbo PLC (Nm)
Property, Plant, and Equipment 600 200 45
Cost of Investment in Emili PLC 60 – –
Cost of Investment in Wagbo PLC 70 – –
Net Current Assets 160 100 20
Total Assets 890 300 65
Equity & Liabilities:
Share Capital (Ordinary Shares of N1 each) 120 60 40
Retained Earnings 770 240 25
Total Equity & Liabilities 890 300 65

Tanimo PLC acquired the investment in Wagbo PLC on June 1, 2015, when the company’s retained earnings balance was N20 million. The fair value of the net assets of Wagbo PLC on June 1, 2015, was N60 million.

Emili PLC was incorporated by Tanimo PLC on June 1, 2015, and has always been a wholly owned subsidiary. The fair value of the net assets of Emili PLC as at May 31, 2021, was N310 million, and of Wagbo PLC, it was N80 million. The fair values of the net current assets of both Emili PLC and Wagbo PLC are approximately the same as their carrying amounts.

The directors are not certain what effects the following plans would have on the individual accounts of the companies and the group accounts. Local companies’ legislation requires that the amount at which share capital is recorded is dictated by the nominal value of the shares issued, and if the value of the consideration received exceeds that amount, the excess is recorded in the share premium account. Shares cannot be issued at a discount. In the case of a share-for-share exchange, the value of the consideration can be deemed to be the carrying amount of the investment exchanged.

It is the group’s policy to value non-controlling interests at its proportionate share of the fair value of the subsidiary’s identifiable net assets.

The two different plans to restructure the group are as follows:

  1. Plan 1
    • Emili PLC is to purchase the whole of Tanimo’s PLC investment in Wagbo PLC.
    • The directors are undecided as to whether the purchase consideration should be 50 million N1 ordinary shares of Emili PLC or a cash amount of N75 million.
  2. Plan 2
    • The assets and trade of Wagbo PLC are to be transferred to Emili PLC at their carrying amount.
    • Wagbo PLC would initially become a non-trading company.
    • The consideration for the transfer will be N60 million, which will be left outstanding on the intercompany account between Emili PLC and Wagbo PLC.

Required:

Discuss the key considerations and the accounting implications of the above plans for the Tanimo PLC group. Your answer should show the potential impact on the individual accounts of Tanimo PLC, Emili PLC, and Wagbo PLC and the group accounts after each plan has been implemented.

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  • 30 Marks

AAA – Nov 2023 – L3 – SA – Q1 – Audit of Complex Entities

Prepare the consolidated statement of financial position for Sports PLC Group as of September 30, 2020, with adjustments for subsidiaries, non-controlling interests, goodwill, and investments.

BP Fashion Limited is trading and expanding in the fashion industry. Over the years, the company has been audited by LMP Professional Services. The company is considering going to the stock market to raise funds through an increase in its issued share capital for the purpose of expansion into new markets.

The summarised two-year financial statements and the nine (9) months accounts of the company are given below:

BP Fashion Limited

Summarised Income Statement For the Years Ended December 31,

2019 2020 2021 (9 months)
Revenue ₦2,952m ₦3,510m ₦4,139m
Cost of sales (₦1,402m) (₦1,671m) (₦1,987m)
Gross profit ₦1,550m ₦1,839m ₦2,152m
Other income ₦15m ₦21m ₦25m
Operating costs:
– Employee costs (₦390m) (₦460m) (₦538m)
– Occupancy costs (₦262m) (₦312m) (₦373m)
– Other operating costs (₦278m) (₦326m) (₦389m)
Earnings before interests, taxes, depreciation and amortisation (EBITDA) ₦635m ₦762m ₦877m

 

Summarised Statement of Financial Position

2019 2020 2021 (9 months)
Non-current assets
Property, plant and equipment ₦375m ₦470m ₦470m
Deferred tax ₦30m ₦35m ₦40m
Total non-current assets (A) ₦405m ₦505m ₦510m
Current assets
Inventories ₦425m ₦525m ₦655m
Trade and other receivables ₦125m ₦150m ₦175m
Cash and equivalents ₦425m ₦545m ₦780m
Total current assets (B) ₦975m ₦1,220m ₦1,610m
Total assets (A + B) ₦1,380m ₦1,725m ₦2,120m

Equity and Liabilities

2019 2020 2021 (9 months)
Share capital and reserves ₦885m ₦1,135m ₦1,430m
Long-term loans ₦125m ₦125m ₦125m
Employees’ benefits ₦20m ₦35m ₦50m
Deferred tax ₦55m ₦65m ₦70m
Non-current liabilities ₦200m ₦225m ₦245m
Trade and other payables ₦270m ₦335m ₦410m
Tax payable ₦25m ₦30m ₦35m
Current liabilities ₦295m ₦365m ₦445m
Total equity and liabilities ₦1,380m ₦1,725m ₦2,120m

It has become necessary, and as part of the NGX Exchange Limited‟s requirements,
to appoint another firm of accountants to review the financial statements for some
specified periods. Your firm Stratcom Partners has been approached to carry out the
necessary review.

Required:

a. Highlight the features of professional engagements as contained in ISRE 2410:
International Standard on Review Engagement and ISRS 4410 (revised):
International standard on Related Services. (8 Marks)
b. Detail out the procedures to be carried out in the review of interim financial
information. (6 Marks)

c. In view of the changes in inventories in the financial statements given above,
between the last two periods, provide the substantive procedures that would
be carried out to establish a reliable evidence of the change. (6 Marks)

d. Prepare the outline of the reporting requirements of a compilation engagement.
(10 Marks)

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  • 20 Marks

FR – May 2015 – L2 – SB – Q2 – Property Plant and Equipment

Determine disclosure requirements for separate financial statements and calculate equity, non-controlling interests, goodwill, and property valuation adjustments.

(a) When a parent company elects not to prepare consolidated financial statements and instead prepares separate financial statements, what are the disclosure requirements stipulated in IAS 27 on Separate Financial Statements? (6 Marks)

(b) Kerewanta Plc acquired 60% of the equity shares of Orijinmi Plc through a share exchange (three shares in Kerewanta Plc for four shares in Orijinmi Plc). The share value of Kerewanta Plc at the acquisition date (April 1, 2013) was N10 per share. Additionally, Kerewanta Plc would make a deferred cash payment of 70k per acquired share on April 1, 2014. Kerewanta Plc’s cost of capital is 12% per annum, with the following information extracted as of March 31, 2014:

Additional Information:

  1. An equipment in Orijinmi Plc had a fair value of N360,000,000 above its carrying amount with a four-year remaining life. The group uses straight-line depreciation.
  2. Orijinmi Plc had an unrecorded deferred tax liability of N10,000,000 as of March 31, 2014, with no goodwill impairment.
  3. Non-controlling interests are valued at fair value at acquisition. Fair value of Orijinmi Plc’s non-controlling interests at acquisition was N6 per share.

Required: Calculate the following as at March 31, 2014:

  1. Equity
  2. Non-controlling Interests
  3. Consolidated Goodwill
  4. Property, Plant, and Equipment (14 Marks)

 

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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.

Required:
Prepare a consolidated statement of financial position as of 31 May 2020 for the Blavo Group.

 

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  • 20 Marks

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

Prepare consolidated statement of financial position for Stalky Ltd and its subsidiary Fanny Ltd as of 31 December 2020, including necessary adjustments.

The following financial statements relate to Stalky Ltd and Fanny Ltd:

Additional information:
1. Stalky Ltd acquired 30 million ordinary shares of Fanny Ltd on 1 January 2019 when the book value of Fanny Ltd’s share capital (including preference share capital) plus reserves stood at GH¢58 million. The recorded investment includes GH¢1.5 million due diligence costs incurred by Stalky Ltd to facilitate its acquisition of Fanny Ltd. Stalky Ltd has no interest in Fanny Ltd’s issued preference shares.

2. Fair value exercise conducted at the time of Fanny Ltd’s acquisition revealed the following:

  • A piece of equipment with a carrying amount of GH¢10 million had an assessed fair value of GH¢16 million. Estimated remaining useful life: six years.
  • An in-process research and development project valued at GH¢5 million was identified. It started generating economic benefits a year ago and is expected to continue for four more years.
  • Deferred tax provision of GH¢1 million was required. By 31 December 2019, the provision required had reduced to GH¢0.9 million, and by 31 December 2020 had decreased further to GH¢0.7 million.

3. During the year, Stalky Ltd sold goods worth GH¢25 million to Fanny Ltd with a mark-up of one-third. At 31 December 2020, Fanny Ltd’s inventories included GH¢4.8 million of these goods. At 31 December 2019, Fanny Ltd’s inventories included GH¢3 million worth of goods purchased from Stalky Ltd at the same mark-up. Ignore deferred tax implications on these items.

4. The trade receivables of Stalky Ltd included GH¢8 million receivable from Fanny Ltd. This balance did not agree with the equivalent trade payable in Fanny Ltd’s books due to payment of GH¢2 million made on 30 December 2020 by Fanny Ltd to Stalky Ltd.

5. The group’s policy is to measure the non-controlling interests in subsidiaries at fair value. The fair value per ordinary share in Fanny Ltd at acquisition was GH¢1.50. Goodwill was impaired by 10% for the year ended 31 December 2019. A further impairment of 10% of the remaining goodwill is required in the current period. All impairment losses are charged to operating expenses.

Required:
Prepare the Consolidated Statement of Financial Position as at 31 December 2020 for Stalky Ltd Group.

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  • 15 Marks

CR – May 2018 – L3 – Q1a – Consolidated Financial Statements

Prepare consolidated financial statements for Sawaba Group, including a foreign subsidiary, for the year ended 31 December 2017.

Sawaba Ltd (Sawaba) is a listed entity incorporated in Ghana with the object of producing and selling Designed clothing. The functional and presentation currency of Sawaba is the Ghana cedi (GH¢). In its quest to extend its market outside Ghana, the directors of the company decided to acquire a subsidiary in Nigeria. The corporate name of the investee entity is Enugu Plc (Enugu).

In pursuit to its agenda, Sawaba acquired 4,044,000 of the shares in Enugu for GH¢1,680,000 on 31 December 2014 when Enugu’s retained earnings stood at ₦5,752,000. Enugu operates as an autonomous subsidiary. Its functional currency is the Nigerian Naira (₦). The fair value of the identifiable net assets of Enugu were equivalent to their book values at the acquisition date.

The draft financial statements of Sawaba and its subsidiary, Enugu for 2017 financial year are set out below.

Statements of Profit or Loss and Comprehensive Income for the year ended 31 December 2017

i) Exchange rates moved as follows:
31 December 2014 ₦4.40 = GH¢1.00
31 December 2015 ₦4.16 = GH¢1.00
31 December 2016 ₦4.00 = GH¢1.00
15 May 2017 ₦3.90 = GH¢1.00
31 December 2017 ₦3.60 = GH¢1.00
Average for 2017 ₦3.75 = GH¢1.00

ii) Enugu paid an interim dividend of ₦7,488,000 on 15 May 2017. Sawaba also paid an interim dividend of GH¢1,400,000 on 30 September 2017. No other dividends were paid or declared in 2017.

iii) Assessment of consolidation goodwill for impairment indicated nil impairment in the consolidated financial statements by 31 December 2017. No goodwill impairment had been recognised in the previous years.

iv) Group policy is to measure non-controlling interests at fair value at the acquisition date. The fair value of the non-controlling interests in Enugu was measured at GH¢540,000 on 31 December 2014.

Required:
Prepare the consolidated statements of profit or loss and other comprehensive income, an extract from the statement of changes in equity for income surplus for the year ended 31 December 2017 and the consolidated statement of financial position at 31 December 2017 for Sawaba Group.

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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.

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:

  1. 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.
  2. Papa implements a policy of carrying property, plant, and equipment at fair values across group companies from the date of acquisition.
  3. 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.
  4. 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.
  5. Papa uses the fair value method for non-controlling interests, using GH¢2.50 per share for this purpose.
  6. Goodwill impairment loss of GH¢40 million for Mama and GH¢20 million for Bebe was recognized on 31 July 2021.
  7. 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 – July 2023 – L3 – Q1 – Consolidated Financial Statements

Prepare the consolidated statement of financial position for Banky Ltd as of February 28, 2023.

The following Statements of Financial Position relate to Banky Ltd (Banky), Zinko Ltd (Zinko), and Tooli Ltd (Tooli):

Statements of Financial Position as at 28 February 2023 Banky Zinko Tooli
Assets GH¢ million GH¢ million GH¢ million
Non-current assets 1,500 1,040 960
Deferred tax – 80 –
Current assets 1,188 584 600
Total assets 2,688 1,704 1,560
Equity and liabilities Banky Zinko Tooli
Equity
Equity shares of GH¢5 each 600 500 500
Other reserves 150 90 60
Retained earnings 976 390 355
Total equity 1,726 980 915
Current liabilities 962 724 645
Total equity and liabilities 2,688 1,704 1,560

Additional Information: i) On 1 March 2022, Banky purchased 80 million equity shares in Zinko through a share exchange of three shares in Banky for every two shares in Zinko. The fair values of each share of Banky and Zinko were GH¢7 and GH¢10.5 respectively at acquisition date. Shares issued by Banky have not yet been recorded in the books.

ii) On acquisition date, Zinko’s retained earnings and other reserves were GH¢230 million and GH¢60 million respectively. Fair value of Zinko’s identifiable net assets was equal to their carrying value except that Zinko had a disclosed contingent liability with a fair value of GH¢8 million at acquisition. Provision in respect of this contingent liability has been recognised by Zinko at GH¢7.2 million as at 28 February 2023.

iii) On the same date Zinko was acquired, Zinko also purchased 60% equity holding in Tooli. The purchase and sale agreement for this transaction provided that Zinko would pay cash amount of GH¢500 million (excluding GH¢2 million consultancy costs which Zinko settled immediately and charged against its other comprehensive income) to the former shareholders of Tooli in two years’ time on condition that Zinko’s sales growth exceeds 20% per annum. The fair value of this consideration was estimated at GH¢450 million at acquisition and GH¢438 million at 28 February 2023. Zinko has not yet recorded this transaction. Both values were deemed as final on the two given dates.

iv) However, the professional valuation of Tooli’s identifiable net assets was not finalised at acquisition so a provisional fair valuation of GH¢845 million for the net assets was applied to arrive at the purchase consideration. The final valuation report which was released on 31 January 2023 showed a revised fair value of GH¢860 million for Tooli’s identifiable net assets. Any fair value adjustment was due to an item of plant whose remaining useful life was 5 years at acquisition. On this date, Tooli’s retained earnings and other reserves were GH¢275 million and GH¢55 million respectively.

v) Banky’s closing inventories include goods sold by Zinko at a margin of 20%. These items were invoiced at GH¢5 million but are currently included in Banky’s inventories at their net realisable value of GH¢4.2 million.

vi) The policy of the group is to measure non-controlling interests using their proportion of the fair value of identifiable net assets. An impairment review carried out revealed that goodwill in Zinko at this year-end had a “gross” recoverable amount of GH¢230 million.

vii) Ignore deferred tax adjustments unless otherwise indicated.

Required: Prepare the Consolidated Statement of Financial Position for Banky Ltd as at 28 February 2023.

(All figures should be approximated to the nearest GH¢0.1 million)

(Total: 20 marks)

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  • 20 Marks

CR – May 2021 – L3 – Q4 – Business Combinations (IFRS 3)

Evaluate the impact of restructuring plans on individual and group accounts for Tanimo PLC and its subsidiaries.

Emili PLC and Wagbo PLC are both public limited companies wholly owned by Tanimo PLC, also a public limited company. Tanimo group PLC operates in the agro-allied industry; but the directors felt that the current structure does not serve their intended purpose and are therefore considering two different restructuring plans for the group.

The statements of financial position of Tanimo PLC and its subsidiaries Emili PLC and Wagbo PLC as at May 31, 2021, are as follows:

Statements of Financial Position as at May 31, 2021

Item Tanimo PLC (Nm) Emili PLC (Nm) Wagbo PLC (Nm)
Property, Plant, and Equipment 600 200 45
Cost of Investment in Emili PLC 60 – –
Cost of Investment in Wagbo PLC 70 – –
Net Current Assets 160 100 20
Total Assets 890 300 65
Equity & Liabilities:
Share Capital (Ordinary Shares of N1 each) 120 60 40
Retained Earnings 770 240 25
Total Equity & Liabilities 890 300 65

Tanimo PLC acquired the investment in Wagbo PLC on June 1, 2015, when the company’s retained earnings balance was N20 million. The fair value of the net assets of Wagbo PLC on June 1, 2015, was N60 million.

Emili PLC was incorporated by Tanimo PLC on June 1, 2015, and has always been a wholly owned subsidiary. The fair value of the net assets of Emili PLC as at May 31, 2021, was N310 million, and of Wagbo PLC, it was N80 million. The fair values of the net current assets of both Emili PLC and Wagbo PLC are approximately the same as their carrying amounts.

The directors are not certain what effects the following plans would have on the individual accounts of the companies and the group accounts. Local companies’ legislation requires that the amount at which share capital is recorded is dictated by the nominal value of the shares issued, and if the value of the consideration received exceeds that amount, the excess is recorded in the share premium account. Shares cannot be issued at a discount. In the case of a share-for-share exchange, the value of the consideration can be deemed to be the carrying amount of the investment exchanged.

It is the group’s policy to value non-controlling interests at its proportionate share of the fair value of the subsidiary’s identifiable net assets.

The two different plans to restructure the group are as follows:

  1. Plan 1
    • Emili PLC is to purchase the whole of Tanimo’s PLC investment in Wagbo PLC.
    • The directors are undecided as to whether the purchase consideration should be 50 million N1 ordinary shares of Emili PLC or a cash amount of N75 million.
  2. Plan 2
    • The assets and trade of Wagbo PLC are to be transferred to Emili PLC at their carrying amount.
    • Wagbo PLC would initially become a non-trading company.
    • The consideration for the transfer will be N60 million, which will be left outstanding on the intercompany account between Emili PLC and Wagbo PLC.

Required:

Discuss the key considerations and the accounting implications of the above plans for the Tanimo PLC group. Your answer should show the potential impact on the individual accounts of Tanimo PLC, Emili PLC, and Wagbo PLC and the group accounts after each plan has been implemented.

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  • 30 Marks

AAA – Nov 2023 – L3 – SA – Q1 – Audit of Complex Entities

Prepare the consolidated statement of financial position for Sports PLC Group as of September 30, 2020, with adjustments for subsidiaries, non-controlling interests, goodwill, and investments.

BP Fashion Limited is trading and expanding in the fashion industry. Over the years, the company has been audited by LMP Professional Services. The company is considering going to the stock market to raise funds through an increase in its issued share capital for the purpose of expansion into new markets.

The summarised two-year financial statements and the nine (9) months accounts of the company are given below:

BP Fashion Limited

Summarised Income Statement For the Years Ended December 31,

2019 2020 2021 (9 months)
Revenue ₦2,952m ₦3,510m ₦4,139m
Cost of sales (₦1,402m) (₦1,671m) (₦1,987m)
Gross profit ₦1,550m ₦1,839m ₦2,152m
Other income ₦15m ₦21m ₦25m
Operating costs:
– Employee costs (₦390m) (₦460m) (₦538m)
– Occupancy costs (₦262m) (₦312m) (₦373m)
– Other operating costs (₦278m) (₦326m) (₦389m)
Earnings before interests, taxes, depreciation and amortisation (EBITDA) ₦635m ₦762m ₦877m

 

Summarised Statement of Financial Position

2019 2020 2021 (9 months)
Non-current assets
Property, plant and equipment ₦375m ₦470m ₦470m
Deferred tax ₦30m ₦35m ₦40m
Total non-current assets (A) ₦405m ₦505m ₦510m
Current assets
Inventories ₦425m ₦525m ₦655m
Trade and other receivables ₦125m ₦150m ₦175m
Cash and equivalents ₦425m ₦545m ₦780m
Total current assets (B) ₦975m ₦1,220m ₦1,610m
Total assets (A + B) ₦1,380m ₦1,725m ₦2,120m

Equity and Liabilities

2019 2020 2021 (9 months)
Share capital and reserves ₦885m ₦1,135m ₦1,430m
Long-term loans ₦125m ₦125m ₦125m
Employees’ benefits ₦20m ₦35m ₦50m
Deferred tax ₦55m ₦65m ₦70m
Non-current liabilities ₦200m ₦225m ₦245m
Trade and other payables ₦270m ₦335m ₦410m
Tax payable ₦25m ₦30m ₦35m
Current liabilities ₦295m ₦365m ₦445m
Total equity and liabilities ₦1,380m ₦1,725m ₦2,120m

It has become necessary, and as part of the NGX Exchange Limited‟s requirements,
to appoint another firm of accountants to review the financial statements for some
specified periods. Your firm Stratcom Partners has been approached to carry out the
necessary review.

Required:

a. Highlight the features of professional engagements as contained in ISRE 2410:
International Standard on Review Engagement and ISRS 4410 (revised):
International standard on Related Services. (8 Marks)
b. Detail out the procedures to be carried out in the review of interim financial
information. (6 Marks)

c. In view of the changes in inventories in the financial statements given above,
between the last two periods, provide the substantive procedures that would
be carried out to establish a reliable evidence of the change. (6 Marks)

d. Prepare the outline of the reporting requirements of a compilation engagement.
(10 Marks)

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  • 20 Marks

FR – May 2015 – L2 – SB – Q2 – Property Plant and Equipment

Determine disclosure requirements for separate financial statements and calculate equity, non-controlling interests, goodwill, and property valuation adjustments.

(a) When a parent company elects not to prepare consolidated financial statements and instead prepares separate financial statements, what are the disclosure requirements stipulated in IAS 27 on Separate Financial Statements? (6 Marks)

(b) Kerewanta Plc acquired 60% of the equity shares of Orijinmi Plc through a share exchange (three shares in Kerewanta Plc for four shares in Orijinmi Plc). The share value of Kerewanta Plc at the acquisition date (April 1, 2013) was N10 per share. Additionally, Kerewanta Plc would make a deferred cash payment of 70k per acquired share on April 1, 2014. Kerewanta Plc’s cost of capital is 12% per annum, with the following information extracted as of March 31, 2014:

Additional Information:

  1. An equipment in Orijinmi Plc had a fair value of N360,000,000 above its carrying amount with a four-year remaining life. The group uses straight-line depreciation.
  2. Orijinmi Plc had an unrecorded deferred tax liability of N10,000,000 as of March 31, 2014, with no goodwill impairment.
  3. Non-controlling interests are valued at fair value at acquisition. Fair value of Orijinmi Plc’s non-controlling interests at acquisition was N6 per share.

Required: Calculate the following as at March 31, 2014:

  1. Equity
  2. Non-controlling Interests
  3. Consolidated Goodwill
  4. Property, Plant, and Equipment (14 Marks)

 

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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.

Required:
Prepare a consolidated statement of financial position as of 31 May 2020 for the Blavo Group.

 

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  • 20 Marks

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

Prepare consolidated statement of financial position for Stalky Ltd and its subsidiary Fanny Ltd as of 31 December 2020, including necessary adjustments.

The following financial statements relate to Stalky Ltd and Fanny Ltd:

Additional information:
1. Stalky Ltd acquired 30 million ordinary shares of Fanny Ltd on 1 January 2019 when the book value of Fanny Ltd’s share capital (including preference share capital) plus reserves stood at GH¢58 million. The recorded investment includes GH¢1.5 million due diligence costs incurred by Stalky Ltd to facilitate its acquisition of Fanny Ltd. Stalky Ltd has no interest in Fanny Ltd’s issued preference shares.

2. Fair value exercise conducted at the time of Fanny Ltd’s acquisition revealed the following:

  • A piece of equipment with a carrying amount of GH¢10 million had an assessed fair value of GH¢16 million. Estimated remaining useful life: six years.
  • An in-process research and development project valued at GH¢5 million was identified. It started generating economic benefits a year ago and is expected to continue for four more years.
  • Deferred tax provision of GH¢1 million was required. By 31 December 2019, the provision required had reduced to GH¢0.9 million, and by 31 December 2020 had decreased further to GH¢0.7 million.

3. During the year, Stalky Ltd sold goods worth GH¢25 million to Fanny Ltd with a mark-up of one-third. At 31 December 2020, Fanny Ltd’s inventories included GH¢4.8 million of these goods. At 31 December 2019, Fanny Ltd’s inventories included GH¢3 million worth of goods purchased from Stalky Ltd at the same mark-up. Ignore deferred tax implications on these items.

4. The trade receivables of Stalky Ltd included GH¢8 million receivable from Fanny Ltd. This balance did not agree with the equivalent trade payable in Fanny Ltd’s books due to payment of GH¢2 million made on 30 December 2020 by Fanny Ltd to Stalky Ltd.

5. The group’s policy is to measure the non-controlling interests in subsidiaries at fair value. The fair value per ordinary share in Fanny Ltd at acquisition was GH¢1.50. Goodwill was impaired by 10% for the year ended 31 December 2019. A further impairment of 10% of the remaining goodwill is required in the current period. All impairment losses are charged to operating expenses.

Required:
Prepare the Consolidated Statement of Financial Position as at 31 December 2020 for Stalky Ltd Group.

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  • 15 Marks

CR – May 2018 – L3 – Q1a – Consolidated Financial Statements

Prepare consolidated financial statements for Sawaba Group, including a foreign subsidiary, for the year ended 31 December 2017.

Sawaba Ltd (Sawaba) is a listed entity incorporated in Ghana with the object of producing and selling Designed clothing. The functional and presentation currency of Sawaba is the Ghana cedi (GH¢). In its quest to extend its market outside Ghana, the directors of the company decided to acquire a subsidiary in Nigeria. The corporate name of the investee entity is Enugu Plc (Enugu).

In pursuit to its agenda, Sawaba acquired 4,044,000 of the shares in Enugu for GH¢1,680,000 on 31 December 2014 when Enugu’s retained earnings stood at ₦5,752,000. Enugu operates as an autonomous subsidiary. Its functional currency is the Nigerian Naira (₦). The fair value of the identifiable net assets of Enugu were equivalent to their book values at the acquisition date.

The draft financial statements of Sawaba and its subsidiary, Enugu for 2017 financial year are set out below.

Statements of Profit or Loss and Comprehensive Income for the year ended 31 December 2017

i) Exchange rates moved as follows:
31 December 2014 ₦4.40 = GH¢1.00
31 December 2015 ₦4.16 = GH¢1.00
31 December 2016 ₦4.00 = GH¢1.00
15 May 2017 ₦3.90 = GH¢1.00
31 December 2017 ₦3.60 = GH¢1.00
Average for 2017 ₦3.75 = GH¢1.00

ii) Enugu paid an interim dividend of ₦7,488,000 on 15 May 2017. Sawaba also paid an interim dividend of GH¢1,400,000 on 30 September 2017. No other dividends were paid or declared in 2017.

iii) Assessment of consolidation goodwill for impairment indicated nil impairment in the consolidated financial statements by 31 December 2017. No goodwill impairment had been recognised in the previous years.

iv) Group policy is to measure non-controlling interests at fair value at the acquisition date. The fair value of the non-controlling interests in Enugu was measured at GH¢540,000 on 31 December 2014.

Required:
Prepare the consolidated statements of profit or loss and other comprehensive income, an extract from the statement of changes in equity for income surplus for the year ended 31 December 2017 and the consolidated statement of financial position at 31 December 2017 for Sawaba Group.

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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.

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:

  1. 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.
  2. Papa implements a policy of carrying property, plant, and equipment at fair values across group companies from the date of acquisition.
  3. 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.
  4. 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.
  5. Papa uses the fair value method for non-controlling interests, using GH¢2.50 per share for this purpose.
  6. Goodwill impairment loss of GH¢40 million for Mama and GH¢20 million for Bebe was recognized on 31 July 2021.
  7. 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 – July 2023 – L3 – Q1 – Consolidated Financial Statements

Prepare the consolidated statement of financial position for Banky Ltd as of February 28, 2023.

The following Statements of Financial Position relate to Banky Ltd (Banky), Zinko Ltd (Zinko), and Tooli Ltd (Tooli):

Statements of Financial Position as at 28 February 2023 Banky Zinko Tooli
Assets GH¢ million GH¢ million GH¢ million
Non-current assets 1,500 1,040 960
Deferred tax – 80 –
Current assets 1,188 584 600
Total assets 2,688 1,704 1,560
Equity and liabilities Banky Zinko Tooli
Equity
Equity shares of GH¢5 each 600 500 500
Other reserves 150 90 60
Retained earnings 976 390 355
Total equity 1,726 980 915
Current liabilities 962 724 645
Total equity and liabilities 2,688 1,704 1,560

Additional Information: i) On 1 March 2022, Banky purchased 80 million equity shares in Zinko through a share exchange of three shares in Banky for every two shares in Zinko. The fair values of each share of Banky and Zinko were GH¢7 and GH¢10.5 respectively at acquisition date. Shares issued by Banky have not yet been recorded in the books.

ii) On acquisition date, Zinko’s retained earnings and other reserves were GH¢230 million and GH¢60 million respectively. Fair value of Zinko’s identifiable net assets was equal to their carrying value except that Zinko had a disclosed contingent liability with a fair value of GH¢8 million at acquisition. Provision in respect of this contingent liability has been recognised by Zinko at GH¢7.2 million as at 28 February 2023.

iii) On the same date Zinko was acquired, Zinko also purchased 60% equity holding in Tooli. The purchase and sale agreement for this transaction provided that Zinko would pay cash amount of GH¢500 million (excluding GH¢2 million consultancy costs which Zinko settled immediately and charged against its other comprehensive income) to the former shareholders of Tooli in two years’ time on condition that Zinko’s sales growth exceeds 20% per annum. The fair value of this consideration was estimated at GH¢450 million at acquisition and GH¢438 million at 28 February 2023. Zinko has not yet recorded this transaction. Both values were deemed as final on the two given dates.

iv) However, the professional valuation of Tooli’s identifiable net assets was not finalised at acquisition so a provisional fair valuation of GH¢845 million for the net assets was applied to arrive at the purchase consideration. The final valuation report which was released on 31 January 2023 showed a revised fair value of GH¢860 million for Tooli’s identifiable net assets. Any fair value adjustment was due to an item of plant whose remaining useful life was 5 years at acquisition. On this date, Tooli’s retained earnings and other reserves were GH¢275 million and GH¢55 million respectively.

v) Banky’s closing inventories include goods sold by Zinko at a margin of 20%. These items were invoiced at GH¢5 million but are currently included in Banky’s inventories at their net realisable value of GH¢4.2 million.

vi) The policy of the group is to measure non-controlling interests using their proportion of the fair value of identifiable net assets. An impairment review carried out revealed that goodwill in Zinko at this year-end had a “gross” recoverable amount of GH¢230 million.

vii) Ignore deferred tax adjustments unless otherwise indicated.

Required: Prepare the Consolidated Statement of Financial Position for Banky Ltd as at 28 February 2023.

(All figures should be approximated to the nearest GH¢0.1 million)

(Total: 20 marks)

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