Topic: Consolidated Financial Statements (IFRS 10)

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CR – May 2023 – L3 – Q2b – Consolidated Financial Statements (IFRS 10)

Discuss the advantages of using consolidated financial statements and enumerate the contents of an environmental report in an annual report.

Question

(b) The annual reports of the group also contain separate financial statements of the parent company (Octopus Petroleum Plc). Some companies also include social and environmental reports as part of their financial statements.

Required:
i. Explain why it is better to use the consolidated financial statements for financial analysis rather than the parent’s separate financial statements. (4 Marks)
ii. Enumerate the possible contents of an environmental report included in the annual report of companies. (2 Marks)

Answer

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Tags: consolidated financial statements, Environmental Reports, Sustainability Reporting
Level: Level 3

Topic: Consolidated Financial Statements (IFRS 10)

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

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

Question

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:

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.
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.
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.
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.
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.
Valuation of Non-controlling Interests:
- The group values non-controlling interests at acquisition using their proportionate share of the subsidiary’s identifiable net assets.
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.

Answer

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Tags: consolidated financial statements, Defined benefit plans, Goodwill, IFRS 10, Non-Controlling Interest, Property Plant and Equipment
Level: Level 3

Topic: Consolidated Financial Statements (IFRS 10)

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

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

Question

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

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

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

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

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

Answer

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Tags: Consolidation, Financial Assets, Financial Position, Impairment, Intra-Group Sales, Inventory Adjustment
Level: Level 3

Topic: Consolidated Financial Statements (IFRS 10)

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.

Question

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:

Makoko Limited paid N90 million for the acquisition of Ojodu Limited when the retained earnings of Ojodu Limited were N13 million.
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.
Makoko Limited paid N41 million for the shareholding in Egbeda Limited when the retained earnings of Egbeda Limited were N12 million.
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.
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.
The companies issued share capital has not changed since the date of acquisition.
No dividends were paid during the year.
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)

Answer

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Tags: Associate, Consolidation, Financial Position, Goodwill, Impairment, Non-Controlling Interest, Subsidiary
Level: Level 3

Topic: Consolidated Financial Statements (IFRS 10)

CR – Nov 2020 – L3 – Q1 – Consolidated Financial Statements (IFRS 10)

Prepare consolidated profit or loss, financial position, cash flow benefits explanation, and share disposal accounting for a group structure.

Question

Statements of financial position as at December 31, 2019

Statement of profit or loss for the year ended December 31, 2019

Statement of changes in equity (extract) for the year ended December 31,
2019

Additional Information:

Haba owns 80% of Suka‘s shares, purchased in 2016 for N20.5 million cash, when Suka’s retained earnings balance was N7 million.
In 2014, Haba purchased 60% of Zara‘s shares by issuing shares with a nominal value of ₦6.5 million at a premium of N6.5 million. At acquisition, Zara‘s retained earnings were N3 million, and the fair value of net assets was N24 million. Any undervaluation was attributed to land still held as of December 31, 2019.
Inventory at December 31, 2019, includes goods Zara and Suka purchased from Haba valued at ₦5.2 million and N3.9 million, respectively. Haba aims for a 30% profit margin on cost. Total sales from Haba to Zara and Suka were N8 million and N6 million, respectively.
Haba and Suka each proposed dividends before year-end of N2 million and N2.5 million, respectively. These have not been accounted for yet.
Haba conducted annual impairment tests on goodwill per IFRS 3 and IAS 36. The estimated recoverable amount of goodwill was N5 million in 2016 and N4.5 million in 2019.

Requirements:

a. Prepare the consolidated statement of profit or loss for the year ended December 31, 2019.
(10 Marks)

b. Prepare the consolidated statement of financial position as at December 31, 2019.
(10 Marks)

c. Explain the benefits to external users of including a statement of group cash flows in the annual report.
(10 Marks)

d. At December 31, 2019, Hard plc owned 90% of Spark Limited’s shares. The net assets of Spark in Hard Group’s consolidated financial statements amounted to N800 million, with no asset revaluation.

On January 1, 2020, Hard sold 80% of its Spark equity for N960 million cash, and the fair value of Hard’s remaining Spark shares is N100 million.

Required: Explain how the Spark share disposal should be accounted for in Hard Group’s consolidated financial statements.
(10 Marks)

Answer

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Tags: Cash Flow, Consolidation, Financial Position, Group Statements, Profit or Loss, Share Disposa
Level: Level 3

Topic: Consolidated Financial Statements (IFRS 10)

CR – May 2024 – L3 – SB – Q2 -Consolidated Financial Statements (IFRS 10)

Memo advising on acquisition decision based on financial analysis of Betta and Gamma Ltd.

Question

Alpha PLC is an entity which has grown in recent years by acquiring established businesses. Alpha PLC is contemplating acquiring Betta Limited and Gamma Limited, both operating in the same industry as Alpha PLC. The management of Alpha PLC has indicated a total acquisition price of N12 million for each company. The following financial statements provide insight into the performance and financial position of both Betta Limited and Gamma Limited as at September 30, 2020:

Statement of Profit or Loss (for the year ended September 30, 2020):

	Betta Ltd (N’000)	Gamma Ltd (N’000)
Revenue	25,000	40,000
Cost of sales	(19,000)	(32,800)
Gross profit	6,000	7,200
Distribution costs	(800)	(1,400)
Administrative expenses	(450)	(900)
Finance costs	(250)	(900)
Profit before tax	4,500	4,000
Income tax expense	(900)	(1,000)
Profit for the year	3,600	3,000

Statement of Financial Position (as at September 30, 2020):

	Betta Ltd (N’000)	Gamma Ltd (N’000)
Non-current assets
Property, plant and equipment
– Property	–	3,000
– Owned plant and equipment	4,800	2,000
– Leased plant and equipment	–	5,300
Total non-current assets	4,800	10,300
Current assets
Cash at bank and in hand	1,600	200
Trade receivables	1,600	5,100
Inventories	1,600	3,400
Total current assets	4,800	8,700
Total assets	9,600	19,000
Equity and liabilities
Ordinary shares (N1.00 each)	1,000	2,000
Revaluation surplus on property	–	900
Retained earnings	1,600	2,700
Total equity	2,600	5,600
Non-current liabilities
Finance lease obligation	–	4,200
5% loan notes (Dec 2026)	5,000	–
10% loan notes (Dec 2026)	–	5,000
Total non-current liabilities	5,000	9,200
Current liabilities
Trade payables	1,250	2,100
Finance lease obligation	–	1,000
Tax payable	750	1,100
Total current liabilities	2,000	4,200
Total equity and liabilities	9,600	19,000

Additional Ratios Calculated:
- Gross profit margin: Betta 24.0%, Gamma 18.0%
- Profit margin (before interest and tax): Betta 19.0%, Gamma 12.3%
- Return on capital employed (ROCE): Betta 62.5%, Gamma 31.0%
- Current ratio: Betta 2.4:1, Gamma 2.1:1
- Acid test ratio: Betta 1.6:1, Gamma 1.26:1
- Net assets turnover: Betta 3.3 times, Gamma 2.5 times
- Gearing: Betta 65.8%, Gamma 64.6%

Required:

a. Write a memo to the Director of Alpha PLC advising him on how to make the investment decision considering the performance and financial position of Betta Limited and Gamma Limited for the year ended September 30, 2020. (14 Marks)

b. What other qualitative factors should the management of Alpha PLC take into consideration assuming Gamma Limited is a foreign subsidiary? (6 Marks)

Answer

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Tags: Business Acquisition, Corporate Reporting, Financial Position, Investment Decision, Ratio Analysis
Level: Level 3

Topic: Consolidated Financial Statements (IFRS 10)
Series: MAY 2024

CR – May 2024 – L3 – SA – Q1 – Consolidated Financial Statements (IFRS 10)

Analysis of consolidated statements and adjustments for Cabalar PLC's foreign subsidiary under IFRS.

Question

Cabalar Nig. PLC, a company located in Ajao Industrial Estate, Lagos, specializes in the production of Adire T-Shirts. The company has a number of subsidiaries located in the South-South and South-West regions of the country and overseas.

On October 1, 2022, Cabalar PLC acquired 100% of the ordinary shares of Mansa-Konko Limited, an Adire T-Shirts distribution company based in the Gambia, West Africa. The official national currency of The Gambia is known as Gambia Dalasi (GMD).

The draft statement of financial position of Mansa-Konko Limited prepared under Gambia GAAP as at September 30, 2023, is as follows:

Description	GMD ‘000
Non-current assets:
Property, plant, and equipment	308,000
Intangible assets	42,500
Financial investments	38,500
Current assets	118,500
Total assets	507,500
Equity and liabilities:
Share capital (GMD 1 per share)	50,000
Retained earnings	213,000
Revaluation surplus	84,000
Total equity	347,000
Non-current liabilities:
Loan notes	50,000
Provisions	75,000
Current liabilities	35,500
Total equity and liabilities	507,500

Additional Information:
The following are key transactions of Mansa-Konko Limited under Gambia GAAP. There is no deferred tax under Gambia GAAP:

Equipment:
- On January 1, 2023, Mansa-Konko Limited acquired some specialist equipment from the United States of America (USA) for $150 million. Payment for the equipment was made on March 31, 2023.
- In accordance with local Gambia GAAP, the cost of the equipment was recognized on January 1, 2023, at GMD 50 million, using the opening rate of exchange at October 1, 2022.
- Full year’s depreciation of GMD 5 million was charged to cost of sales as Mansa-Konko Limited depreciates the equipment over a ten-year life, with no residual value. The equipment was included in the statement of financial position at GMD 45 million.
- A sum of GMD 12.5 million has been debited to retained earnings, representing the difference between the amount paid to the supplier (GMD 62.5 million on March 31, 2023) and the cost recorded in non-current assets (GMD 50 million).
Impairments:
- Mansa-Konko Limited bought a warehouse on October 1, 2016, for GMD 180 million, depreciated over 20 years with no residual value. On October 1, 2022, due to a rise in property prices, the warehouse was revalued to GMD 210 million, with a revaluation surplus of GMD 84 million recognized. No transfers were made between the revaluation surplus and retained earnings under Gambia GAAP in respect of depreciation.
- Recently, there was a slump in the local property market, prompting an impairment review as of September 30, 2023. The warehouse was assessed as worth GMD 60 million, leading to a charge of GMD 90 million to profit or loss to reflect the difference between the carrying amount of GMD 150 million and the new value of GMD 60 million.
Financial Instruments:
- On April 1, 2023, Mansa-Konko Limited bought five million shares in a local quoted company at GMD 7.7 per share. This represents a 3% shareholding. The company intends to hold the shares until December 31, 2023, for profit. The shares have been recognized at cost in the statement of financial position in accordance with Gambia GAAP. The market value at September 30, 2023, was GMD 12.5 per share.
- Under Gambia tax rules, income tax is charged at 20% on accounting profit recognized on the sales of the investment.
Provisions:
- On October 1, 2022, Mansa-Konko Limited signed an agreement with the Gambian government for exclusive rights for the next 20 years to supply Adire T-shirts for Gambia’s national traditional festival (GNTF).
- The cost of acquiring these rights was GMD 42.5 million, recognized as intangible assets in Mansa-Konko Limited’s statement of financial position. Under the terms of the agreement, Mansa-Konko Limited must replace all damaged T-shirts at the end of the 20-year period.
- There is a 40% probability that the replacement cost of damaged T-shirts would be GMD 75 million and a 60% probability of GMD 50 million.
- For prudency, a provision of GMD 75 million was made in the financial statements and debited to operating costs.
- Mansa-Konko Limited has a pre-tax discount rate of 8%. The replacement cost will be allowed for tax purposes when paid. The relevant income tax rate is expected to remain at 20%.
Exchange Rates:

Date USD to GMD GMD to NGN

October 1, 2022 $3.00 GMD 4.2 = N1

January 1, 2023 $2.50

March 31, 2023 $2.40

September 30, 2023 $2.00 GMD 5.0 = N1

Note: In Gambia, the tax treatments of property, plant, and equipment, as well as exchange differences, are similar to IFRS treatments.

Date	USD to GMD	GMD to NGN
October 1, 2022	$3.00	GMD 4.2 = N1
January 1, 2023	$2.50
March 31, 2023	$2.40
September 30, 2023	$2.00	GMD 5.0 = N1

Required:
(a) As the financial controller of Cabalar Nig. PLC, draft a report addressed to the finance director of your company explaining any adjustments needed to ensure that the subsidiary company’s (Mansa-Konko Limited’s) financial statements comply with IFRS requirements. (18 Marks)

(b) Prepare a revised statement of financial position for Mansa-Konko Limited that will be suitable for consolidation with the parent’s (Cabalar PLC’s) financial statements as of September 30, 2023, in accordance with IFRS. (12 Marks)

Note: Show all workings.
(Total: 30 Marks)

Answer

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Tags: Consolidation, Currency Translation, IFRS Compliance, Subsidiaries
Level: Level 3

Topic: Consolidated Financial Statements (IFRS 10)
Series: MAY 2024

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.

Question

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:

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.
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.
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.
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.
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.
An impairment test conducted at the year-end did not reveal any impairment losses.
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

Answer

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Tags: Consolidation, Financial Position, Goodwill, Intra-group Transactions, Non-Controlling Interest, Profit and Loss
Level: Level 3

Topic: Consolidated Financial Statements (IFRS 10)
Series: MAY 2018

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.

Question

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:

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.
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.
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.
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.
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.
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:

A consolidated statement of financial position as at December 31, 2017. (20 Marks)
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)

Answer

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Tags: Acquisition, Consolidated Statement, Equity Method, Financial Position, Impairment, Joint Venture, Non-Controlling Interest
Level: Level 2

Topic: Consolidated Financial Statements (IFRS 10)

CR – Nov 2023 – L3 – SB – Q2 – Consolidated Financial Statements (IFRS 10)

Analyze the profitability, cash flow, and investor ratios of Mama-Kitchen PLC and discuss dividend policy and EPS limitations.

Question

Mama-Kitchen PLC owns a number of subsidiaries that operate standard fast-food eateries in all the six geopolitical zones of the country. You are the financial analyst of your Bank (Pam-Pam Bank Nigeria Limited) which owns 10% of the issued share capital of Mama-Kitchen PLC.

You are provided with the following financial and background information on Mama-Kitchen PLC.

Mama-Kitchen PLC

Consolidated statement of profit or loss for the year ended September 30

	2023	2022
Revenue	188,900	145,850
Cost of sales	(141,700)	(110,400)
Gross profit	47,200	35,450
Admin expenses	(31,200)	(22,400)
Profit from operations	16,000	13,050
Finance cost	(2,050)	(2,100)
Profit before taxation	13,950	10,950
Income tax expense	(3,050)	(2,300)
Profit for the year	10,900	8,650
Earnings per share – basic	26.8k	21.3k
Earnings per share – diluted	21.2k	19.2k

Mama-Kitchen PLC

Consolidated statement of cash flows for the year ended September 30

	2023	2022
Cash flows from operating activities:
Profit before taxation	13,950	10,950
Finance cost	2,050	2,100
Depreciation and amortisation	15,300	11,050
Loss on disposal of PPE	150	50
(Increase)/decrease in inventories	(200)	50
Increase/decrease in receivables	(1,250)	(100)
Increase in trade payables	2,250	650
Total	32,250	24,750
Interest paid	(2,050)	(2,200)
Tax paid	(1,600)	(1,300)
Net cash flows from operating activities	28,600	21,250
Cash flows from investing activities:
Purchase of PPE	(29,850)	(28,950)
Proceed from sale of PPE	100	150
Net cash used in investing activities	(29,750)	(28,800)
Cash flows from financing activities:
Proceeds from issues of shares	1,200	100
Borrowings	3,250	10,000
Net cash flow from financing activities	4,450	10,100
Net increase in cash and cash equivalents	3,300	2,550
Cash and cash equivalents at beginning	12,400	9,850
Cash and cash equivalents at year end	15,700	12,400

Details of revenue, fast food outlets profits, and new fast food outlets openings for the year ended September 30

	2023	2022
Revenue per fast food outlets:
At September 30	1,770	1,715
Opened in the current financial year	1,290	–
Gross profit per outlet opened
At September 30	435	415
In the current financial year	345

Note:

30 new outlets were opened during the year ended September 30, 2023, bringing the total to 115 fast food outlets.

Additional financial information

	2023	2022
Gross profit margin	25%	24.3%
Debt equity ratio	35.2%	44.4%
Current ratio	0.56:1	0.48:1
Trade payables payment period	86 days	103 days
Return on capital employed	20%	19.1%
Cash return on capital employed	40.2%	36.3%
Earnings before Interest, tax, depreciation and amortisation (N‟m)	31,300	24,100
Non-current assets turnover	1.68 times	1.49 times
Share price (at September 30)	302k	290k

Background information

i. Mama-Kitchen PLC has a reputation of depreciating its assets more slowly than others in the industry.

ii. The strategy of the group is to fund new fast food outlets capital expenditure from existing operating cash flows without needing to raise new borrowings.

iii. Revenue growth in the industry is estimated at 4.1% per annum.

iv. It is the company’s policy to increase promotional and advertising spending on new outlets to encourage strong initial sales.

v. The board has accused the management of concentrating on new outlet openings to the detriment of existing outlets.

vi. One of your colleagues, a financial analyst, stated that the company has not been able to pay dividends because of the debit balance on its consolidated retained earnings.

Required:

a. Draft a report addressed to the Managing Director of Pam-Pam Bank Limited analyzing the profitability, cash flows, and investor ratios of Mama-Kitchen PLC. You should also identify and justify matters that you consider will require further investigations.
(13 Marks)

b. Explain the validity or otherwise of your colleague financial analyst’s statement that Mama-Kitchen PLC was unable to pay dividends because of the debit balance on consolidated retained earnings.
(4 Marks)

c. Explain the usefulness and limitations of diluted earnings per share information to investors.
(3 Marks)

Answer

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Tags: Cash Flow, Dividend Policy, Earnings Per Share, Financial Ratios, Investor Ratios, Profitability analysis
Level: Level 3

Topic: Consolidated Financial Statements (IFRS 10)
Series: NOV 2023

CR – Nov 2023 – L3 – SA – Q1 – Consolidated Financial Statements (IFRS 10)

Prepare a consolidated statement of financial position for Sports PLC Group, considering goodwill, non-controlling interests, impairments, and disposals.

Question

Sports PLC is a company which operates in the service sector. Sports PLC has a business relationship with Football PLC and Volleyball PLC. The financial positions of these companies as at September 30, 2020, are stated below:

Item	Sports PLC	Football PLC	Volleyball PLC
Non-current assets:	N’m	N’m	N’m
Property, plants, and equipment	1,840	600	620
Investment in subsidiaries:
– Football PLC	1,460	–	–
– Volleyball PLC	640	–	–
Investment in Handball PLC	96	–	–
Intangible assets	396	60	70
Total Non-current assets	3,792	1,300	690
Current assets	1,790	960	500
Total assets	5,582	2,260	1,190

Equity and liabilities

Item	Sports PLC	Football PLC	Volleyball PLC
Ordinary share capital	1,840	800	400
Other components of equity	146	74	50
Retained earnings	1,790	884	278
Total equity	3,776	1,758	728
Non-current liabilities	990	246	186
Current liabilities	816	256	276
Total liabilities	1,806	502	462
Total equity and liabilities	5,582	2,260	1,190

Additional Information

Acquisition of Football PLC:
- On October 1, 2018, Sports PLC acquired 70% of the equity interest in Football PLC. The purchase consideration was cash of N1,460 million. At the acquisition date, the fair value of the non-controlling interests (NCI) in Football PLC was N590 million. The fair value of the identifiable net assets acquired was N1,670 million. Retained earnings of Football PLC were N638 million, and other components of equity were N54 million. The excess in fair value is due to non-depreciable land.
Acquisition of Volleyball PLC:
- On October 1, 2019, Football PLC acquired 80% of the equity interest in Volleyball PLC for a cash consideration of N640 million. The fair value of the non-controlling interests for 20%, 30%, and 44% holdings was N144 million, N216 million, and N322 million, respectively. At the date of acquisition, the fair value of the identifiable net assets of Volleyball PLC was N724 million. Retained earnings were N212 million, and other components of equity were N40 million. The excess in fair value is due to non-depreciable land. The group’s policy is to measure the non-controlling interests at fair value at the acquisition date.
Impairment Testing:
- As of September 30, 2020, both Football PLC and Volleyball PLC were tested for impairment. The recoverable amounts for Football PLC and Volleyball PLC were N2,850 million and N1,208 million, respectively. Directors determined that impairment was due to poor performance of intangible assets.
Investment in Handball PLC:
- On October 1, 2018, Sports PLC acquired a 14% interest in Handball PLC for N36 million, classified as fair value through other comprehensive income (FVTOCI). On April 1, 2020, Sports PLC acquired an additional 16% interest for N54 million, achieving significant influence. The value of the original 14% investment on April 1, 2020, was N42 million. Handball PLC reported after-tax profits of N40 million for the year ending September 30, 2019, and N60 million for the year ending September 30, 2020. In September 2020, Sports PLC received a dividend of N4 million from Handball PLC, credited to other components of equity.
Project Development Costs:
- Sports PLC purchased patents costing N20 million on October 1, 2019, to develop new products. An additional investigative cost of N14 million was incurred, and a working prototype was created at a cost of N8 million. Another N6 million was spent to prepare the product for sale, and marketing costs amounted to N4 million. All costs were included in intangible assets.
Disposal Plan:
- Sports PLC intends to dispose of a major patent line. At the date the criteria for “held for sale” were met, the carrying amounts were:
  - Property, Plant, and Equipment: N36 million
  - Inventories: N98 million
  - Current Liabilities (Trade Payables): N6 million
- Expected proceeds are N60 million. No adjustments have been made to the financial statements for this decision.

Required: Prepare the consolidated statement of financial position for Sports PLC Group as of September 30, 2020. (30 Marks)

Answer

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Tags: consolidated financial statements, Disposal, Goodwill, Group Accounts, IAS 36, IFRS 10, Impairment, Investment in Associate, Non-Controlling Interest
Level: Level 3

Topic: Consolidated Financial Statements (IFRS 10)
Series: NOV 2023

CR – Nov 2022 – L3 – Q1 – Consolidated Financial Statements (IFRS 10)

Prepare consolidated statement of financial position for RAM, DAM, and TAM as at April 30, 2021, including adjustments for goodwill, revaluation, and retained earnings.

Question

The following draft statements of financial position of RAM, DAM, and TAM, all of which are public limited companies as at April 30, 2021, are provided:

	RAM Plc (N’m)	DAM Plc (N’m)	TAM Plc (N’m)
Non-current assets:
Property, plant, and equipment	2,030	705	356
Investment in DAM	690	–	–
Investment in TAM	180	110	–
Total non-current assets	2,900	815	356
Current assets:
Inventories	450	185	75
Trade receivables	270	115	60
Cash and cash equivalents	105	65	85
Total current assets	825	365	220
Total assets	3,725	1,180	576
Equity and liabilities
Equity:
Ordinary share capital	2,400	620	220
Share premium	300	105	56
Revaluation reserves	60	–	–
Retained earnings	685	280	76
Total equity	3,385	1,005	412
Non-current liabilities	200	65	64
Current liabilities	140	110	100
Total equity and liabilities	3,725	1,180	576

Additional Information:

Three years ago, on May 1, 2018, RAM Plc acquired 80% of the ordinary share capital of DAM Plc when DAM’s retained earnings were N110m. There were no new share issues since the group structure was created. The fair value of non-controlling interests at acquisition was N160m, and the fair value of DAM Plc’s net assets was N850m at that date. Any fair value adjustments related to inventory were realized by the current year-end.
Two years ago, to veil the identity of the true owner of TAM Plc, RAM Plc acquired 40%, while DAM Plc acquired 25% of TAM’s ordinary share capital on the same date, when the retained earnings of TAM Plc were N65m and those of DAM Plc were N160m. The fair value of non-controlling interest in TAM Plc was N155m as at acquisition, with no revaluation reserve in TAM’s books at that time. The fair values of TAM Plc’s net assets as at acquisition were not materially different from their carrying amount.
The group operates in the oil industry and incurs expenditure on research and development. These costs, previously written off to the statement of profit or loss and other comprehensive income as incurred, are reinstated when the related products are commercialized. The reinstated costs are shown as ‘Development Inventory.’ The costs do not meet IAS 38 criteria for classification as intangibles, and net cash inflows are unlikely to exceed development costs. DAM Plc included N22m of these costs in inventory this year.
DAM Plc purchased significant new production equipment this year. Its cost before a trade discount was N60m, with a discount of N12m taken to the income statement. Depreciation is on a straight-line basis over six years.
The group policy now states tangible non-current assets at depreciated historical cost. This year, the group changed from the revaluation model to the cost model under IAS 16, except for TAM Plc’s tangible non-current assets, which were revalued by TAM Plc’s directors on the first day of the current year, creating an N80m revaluation reserve. TAM Plc’s assets were initially purchased on May 1, two years prior, at N320m, depreciated over six years. The group does not transfer revaluation reserves to retained earnings annually for excess depreciation. There were no additions or disposals in TAM’s assets over the last two years.
Goodwill from DAM Plc’s acquisition was impairment tested each year; the current year-end revealed a recoverable value of N900m for DAM Plc. TAM Plc’s goodwill has not been impaired since acquisition.
The group policy is to value non-controlling interests at fair value.

Required:
Prepare a consolidated statement of financial position for the RAM Group as at April 30, 2021.
(Total: 30 Marks)

Answer

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Tags: Consolidation, Financial Position, Goodwill, Non-Controlling Interest, Revaluation Reserve
Level: Level 3

Topic: Consolidated Financial Statements (IFRS 10)
Series: NOV 2022

CR – NOV 2017 – Q1 – Consolidated Financial Statements

Prepare the consolidated statement of financial position for Papa Group as at March 31, 2017.

Question

The following are the financial statements of Papa, Tata, and Chebe, all Plcs. as at March 31, 2017:

	Papa (N’m)	Tata (N’m)	Chebe (N’m)
Assets:
Tangible non-current assets	1,280	440	280
Investment in Tata	413	–	–
Investment in Chebe	60	–	–
Current assets	531	190	130
Total assets	2,284	630	410

Equity and liabilities:

Equity and Liabilities	Papa (N’m)	Tata (N’m)	Chebe (N’m)
Share capital of N1 each	800	240	200
Share premium	150	20	30
Revaluation reserve	90	–	–
Retained earnings	390	210	94
Total equity	1,430	470	324
Non-current liabilities	640	30	16
Current liabilities	214	130	70
Total equity and liabilities	2,284	630	410

Papa acquired the following shareholdings in Tata and Chebe:

Date of acquisition	Holding acquired	Fair value of net assets	Purchase consideration
Tata	April 1, 2014	30%	325
	April 1, 2016	50%	460
Chebe	April 1, 2016	25%	200

You are also provided with the following information, which will be relevant to the consolidated financial statements of Papa Plc:

(i) None of the companies has issued any additional share capital since April 1, 2014.
(ii) The financial statements of Papa have not yet been adjusted for the gain or loss arising on gaining control of Tata.
(iii) At April 1, 2014, the carrying value of the net assets of Tata was the same as their fair value of N325 million.
(iv) Papa Plc. wishes to use the full fair value method of accounting for the acquisition of Tata, and at April 1, 2016 the estimated value of goodwill attributable to non-controlling interests was N3 million. The estimated fair value of the initial investment in 30% of the shares of Tata was N150 million at March 31, 2017.
(v) Included in the tangible non-current assets of Tata is land, valued at cost, which on March 31, 2017 had a fair value of N25 million in excess of its carrying value. There has been no subsequent significant change in that value.
(vi) At April 1, 2016, the fair value of Chebe’s land was N16 million in excess of its carrying value. There has been no subsequent significant change in that value.
(vii) Goodwill arising on acquisition is tested for impairment at each year-end. At March 31, 2017, an impairment loss of N15 million was recognised for Tata.
(viii) There has been no impairment of the investment in Chebe.

Required:
Prepare the consolidated statement of financial position of Papa Group as at March 31, 2017.
(Total 30 Marks)

Answer

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Tags: consolidated financial statements, Financial Reporting, Group Accounting
Level: Level 3

Topic: Consolidated Financial Statements (IFRS 10)
Series: NOV 2017

FR – May 2016 – L2 – Q3 – Business Combinations

Calculate goodwill and prepare the consolidated income statement for Panda Group, including post-acquisition adjustments.

Question

On October 1, 2015, Panda purchased 75% of the equity shares in Sanda through a share exchange of two shares in Panda for every three shares in Sanda. The stock market price of Panda’s shares on October 1, 2015, was N6 per share.

The summarized statements of comprehensive income for the two companies for the year ending March 31, 2016, are as follows:

Item	Panda (N’000)	Sanda (N’000)
Revenue	675,000	360,000
Cost of Sales	(390,000)	(165,000)
Gross Profit	285,000	195,000
Distribution Costs	(35,400)	(18,000)
Administrative Expenses	(40,500)	(34,500)
Finance Costs	(2,250)	(1,800)
Profit Before Tax	206,850	140,700
Income Tax Expense	(72,000)	(41,700)
Profit for the Year	134,850	99,900
Other Comprehensive Income
Gain on Revaluation of Land	3,750	1,500
Loss on Fair Value of Equity Financial Asset	(1,050)	(600)
Total Comprehensive Income	137,550	99,900

Additional Information:

Equity at October 1, 2015:
- Panda: Equity Shares (N1 each) N375,000, Share Premium N150,000, Revaluation Reserve (Land) N12,600, Retained Earnings N135,000
- Sanda: Equity Shares (N1 each) N240,000, Retained Earnings N220,500
Immediately after acquisition, Panda transferred a plant item to Sanda valued at N7.5 million (carrying amount: N4 million). The plant had a remaining life of two and a half years, and depreciation is charged to cost of sales.
After the acquisition, Sanda sold goods to Panda for N60 million, which cost Sanda N45 million. N18 million of these goods remained in Panda’s closing inventory.
Non-controlling interest in Sanda is valued at fair value, set at N150 million by Panda’s directors.
The goodwill of Sanda has not suffered impairment.
All items in the comprehensive income statements accrue evenly over the year.

Required:

a) Calculate the amount paid by Panda and the goodwill arising on the acquisition of Sanda. (6 Marks)

b) Prepare the consolidated statement of comprehensive income for Panda Group for the year ending March 31, 2016. (14 Marks)

Answer

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Tags: Business Combinations, Consolidated Income, Financial Reporting, Goodwill Calculation
Level: Level 2

Topic: Business Combinations (IFRS 3), Consolidated Financial Statements (IFRS 10)
Series: MAY 2016

FR – May 2016 – L2 – Q4 – Business Combinations (IFRS 3)

Calculate and assess Quintet Plc's performance against industry averages using ratio analysis.

Question

Quintet Plc sells provisions through its stores located in various retail shopping centers in the major cities in Nigeria. It has recently been experiencing declining profitability, and the board is concerned whether this issue is specific to the company or related to the sector as a whole. Additionally, concerns regarding the company’s solvency have been raised. To address these, the company has engaged a consulting firm specializing in corporate report analysis to provide average ratios across the business sector to rate performance.

Below are the ratios provided by the consulting firm for Quintet Plc’s business sector based on the year ending June 30, 2015:

Debt to equity: 38%
Gross profit margin: 35%
Operating profit margin: 12%
Return on year-end capital employed (ROCE): 16.8%
Net asset turnover: 1.4 times
Current ratio: 1.25:1
Average inventory turnover: 3 times
Trade payables’ payment period: 64 days

The financial statements of Quintet Plc for the year ending September 30, 2015, are as follows:

Income Statement

Item	Amount (N’000)
Revenue	224,000
Opening Inventory	33,200
Purchases	175,600
Closing Inventory	(40,800)
Gross Profit	56,000
Operating Costs	(39,200)
Finance Costs	(3,200)
Profit Before Tax	13,600
Income Tax Expense	(4,000)
Profit for the Year	9,000

Statement of Financial Position

Item	Amount (N’000)
Assets
Non-current assets
Property and shop fittings	102,400
Deferred development expenditure	20,000
Total Non-current assets	122,400
Current Assets
Inventory	40,800
Bank	4,000
Total Current Assets	44,800
Total Assets	167,200
Equity and Liabilities
Equity
Equity shares of N1 each	60,000
Property revaluation reserve	12,000
Retained earnings	34,400
Total Equity	106,400
Non-current Liabilities
10% loan notes	32,000
Current Liabilities
Trade payables	21,600
Current tax payable	7,200
Total Current Liabilities	28,800
Total Equity and Liabilities	167,200

Note:

Net asset is defined by the consulting firm as total assets less current liabilities.
The deferred development expenditure relates to a one-off payment for a franchise as a sole distributor of a particular product under negotiation but not concluded as of September 30, 2015, although payment has been made.

Required:

a) Compute the equivalent ratios for Quintet Plc provided by the consulting firm for the business sector.
(9 Marks)

b) Write a report to the board assessing the profitability and solvency performance of Quintet Plc compared to its business sector averages. For clarity, solvency measures both liquidity and gearing.
(11 Marks)

Answer

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Tags: Financial Reporting, Profitability, Ratio Analysis, Sector Comparison, Solvency
Level: Level 2

Topic: Business Combinations (IFRS 3), Consolidated Financial Statements (IFRS 10)
Series: MAY 2016

FR – May 2015 – L2 – SB – Q7 – Consolidated Financial Statements (IFRS 10)

Identify and explain events after the reporting period, discuss treatment of liquidation and dividends under IAS 10.

Question

(a) There is usually a lead time between the end of an entity’s accounting year and when the financial statements are approved and signed off by the directors. In between this period, there are two types of events according to IAS 10-Events After The Reporting Period, which may require consideration when preparing financial statements.

Required:
Identify and explain these events and state how they are treated in the financial statements. (4 Marks)

(b) Company A is indebted to company B to the tune of N50,000,000. The financial year-end of company B is 30 June 2014. On 30 July 2014, company B received a letter from a liquidator advising it that company A has gone into insolvency. The letter revealed that company A ceased operations a month ago and that company B is only likely to receive a liquidation dividend of 20k for every naira owed by company A. It is the normal practice of company B’s board to approve the audited financial statements three months after the financial year end.

Required:

Explain how the above transactions should be treated in the financial statements of company B in accordance with IAS 10-Events After The Reporting Period. (2 Marks)
Prepare journal entries that are required to adjust company B’s financial statements to account for the above event. (2 Marks)
State what would have been the treatment in the financial statements assuming it was fire that destroyed company B’s factory building on 30 July 2014. (3 Marks)

(c) The directors of XYZ Plc declared that a dividend of N1 per ordinary share be paid to shareholders on the company’s register as at 15 April 2014. The financial statements were approved by the company’s board on 30 May 2014. The shareholders, at the company’s annual general meeting held on 15 June 2014, approved the payment of the dividend to eligible shareholders on 1 July 2014.

Required:
Explain how the dividend proposed by the Directors should be treated in the financial statements of XYZ Plc in accordance with IAS 10. (4 Marks)

Answer

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Tags: Adjusting Events, Contingent Liabilities, Dividends, Events After Reporting Period, Liquidation
Level: Level 2

Topic: Consolidated Financial Statements (IFRS 10)
Series: MAY 2015

FR – May 2016 – L2 – Q2b – Consolidated Financial Statements (IFRS 10)

Preparation of consolidated financial position statement, considering goodwill and NCI.

Question

The statement of financial position of PAPA Pie and MAMA Pie as at December 31, 2015, were as follows:

PAPA PLC	N’000	MAMA PLC	N’000
Property Plant & Equipment	9,000	Property Plant & Equipment	5,000
Investment in MAMA Pie	5,000	Other Assets	1,500
Other Assets	2,000
Total Assets	16,000	Total Assets	6,500
Share Capital	500	Share Capital	500
Retained Earnings	14,500	Retained Earnings	5,000
Other Liabilities	1,000	Other Liabilities	1,000
Total Equity & Liabilities	16,000	Total Equity & Liabilities	6,500

PAPA Plc acquired 80% equity interest in MAMA Plc two years ago.

At the date of acquisition, MAMA’s retained earnings stood at N3 million, and the fair value of its net assets was N5 million. This was N1.5 million above the carrying amount of the net assets at this date. The fair value adjustment related to an asset that had a remaining useful economic life of 10 years as at the date of acquisition.

The goodwill arising on consolidation has not suffered any impairment.

Required:

Prepare the consolidated statement of financial position of PAPA Pie Group as at December 31, 2015, on the assumption that non-controlling interest is valued at fair value (the full goodwill method). (15 Marks)

Answer

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Tags: Consolidation, Goodwill, Group Accounts, Non-Controlling Interest
Level: Level 2

Topic: Consolidated Financial Statements (IFRS 10)
Series: MAY 2016

FR – May 2015 – L2 – SA – Q1 – Consolidated Financial Statements

Prepare consolidated financial statements for Unitarisation Plc and compute Gain on Bargain Purchase.

Question

Unitarisation Plc is a successful Nigerian Company that recently amended its objects clause to promote national unity and encourage anti-terrorism compliance. The company acquired 60% of the equity share capital of Famous Plc to further this mission. Summarised draft financial statements of the two companies are as follows:

Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 October 2014

	Unitarisation Plc (N’m)	Famous Plc (N’m)
Revenue	51,000	25,200
Cost of Sales	(37,800)	(19,200)
Gross Profit	13,200	6,000
Distribution Costs	(1,200)	(1,200)
Administrative Expenses	(3,600)	(1,920)
Finance Costs	(180)	(240)
Profit before Tax	8,220	2,640
Income Tax Expense	(2,820)	(840)
Profit for the Year	5,400	1,800

Statement of Financial Position as at 31 October 2014

	Unitarisation Plc (N’m)	Famous Plc (N’m)
Non-current assets:
Property, Plant & Equipment	24,360	7,560
Current Assets	9,600	3,960
Total Assets	33,960	11,520
Equity & Liabilities:
Equity Shares of N1 each	6,000	2,400
Retained Earnings	21,240	3,900
Total Equity	27,240	6,300
Non-current Liabilities:
12% Loan Notes	1,800	2,400
Current Liabilities	4,920	2,820
Total Equity & Liabilities	33,960	11,520

Additional Information:

Shares of Famous Plc were acquired on 1 May 2014, and the issue of shares was not recorded by Unitarisation Plc.
There is cash in transit of N120,000,000 due from Unitarisation Plc to Famous Plc.
Non-controlling interests are valued at full fair value; at acquisition, the fair value of non-controlling interests in Famous Plc was N3,540,000,000.
Famous Plc’s assets’ fair value equaled carrying amounts at acquisition except for one equipment valued N1,200,000,000 above its carrying amount with a 5-year remaining life, using straight-line depreciation.
The acquisition of 60% of Famous Plc’s shares was settled via a share exchange of two shares in Unitarisation Plc for three shares in Famous Plc, valued at N6 per share.
Post-acquisition, Unitarisation Plc bought goods from Famous Plc for N4,800,000,000 with a 40% markup; N3,120,000,000 of these goods were unsold by year-end.
Famous Plc’s trade receivables included N360,000,000 from Unitarisation Plc, with a discrepancy in Unitarisation’s payable ledger.
Profits or losses are assumed to accrue evenly.

Required:

Prepare Unitarisation Plc Consolidated Profit or Loss and Other Comprehensive Income for the year ended 31 October 2014. (10 Marks)
Prepare Unitarisation Plc Consolidated Statement of Financial Position as at 31 October 2014. (10 Marks)
Prepare the Consolidated Statement of Changes in Equity for the year ended 31 October 2014. (6 Marks)
Explain “Gain on Bargain Purchase” according to IFRS 3 on Business Combinations. (4 Marks)

Answer

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Tags: Consolidated Equity Changes, Consolidated Financial Position, Consolidated Profit or Loss, Gain on Bargain Purchase
Level: Level 2

Topic: Consolidated Financial Statements (IFRS 10)
Series: MAY 2015

FR – Nov 2022 – L2 – Q3a – Consolidated Statement of Financial Position

Preparation of the consolidated statement of financial position for Food Plc and its subsidiary Eba Ltd as of September 30, 2020.

Question

a. Food Plc has a subsidiary, Eba Limited. The statements of financial position of the companies as at September 30, 2020 are presented below:

Additional Information:
(i) Food PLC acquired four hundred and eighty million shares in Eba Limited two years ago when the balances in retained earnings and general
reserves were N60,000,000 and N48,000,000 respectively.
(ii) The fair value of non-controlling interests in Eba limited as at the acquisition date was N158,000,000.
(iii) During the year, goods costing N80,000,000 to Food PLC were transferred to Eba Limited. It is the policy of Food PLC to transfer goods at cost plus 25%. A quarter of these goods have been sold by Eba Limited at year end.
(iv) Part of the bills receivable have been discounted by Food PLC.
(v) The sum of N8,000,000 transferred by Eba Limited to Food PLC as part payment for indebtedness was received after the reporting date.
(vi) An impairment test revealed a loss of N16,000,000 on the goodwill arising on the acquisition of Eba Limited.
(vii) The carrying amount of the net assets of Eba Limited is N20,000,000 more than the fair value at acquisition date. This was due to the loss in value of the company’s machinery occasioned by change in technology. The machinery is depreciated at a flat rate of 15% on cost.
(viii) The nominal value of the ordinary shares of Food PLC are denominated in 50 kobo per share, while those of Eba Limited are 25 kobo each.

Required:
a. Prepare the consolidated statement of financial position of Food group as at September 30, 2020. (15 Marks)

Answer

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Tags: Consolidated Financial Position, Fair value adjustment, Goodwill Calculation, Group Accounting, Non-Controlling Interest
Level: Level 2

Topic: Consolidated Financial Statements (IFRS 10)
Series: NOV 2022

FR – May 2021 – L2 – Q4 – Consolidated Financial Statements (IFRS 10)

Prepare consolidated statement of profit or loss and financial position for Bottle Nigeria Plc.

Question

Bottle Nigeria Plc acquired 80% of Glass Limited’s equity share since its incorporation about 10 years ago.

The two companies’ draft financial statements as at December 31, 2019, are as follows:

Statements of profit or loss for the year ended December 31, 2019:

	Bottle Nigeria Plc	Glass Limited
Revenue	N225,000	N45,000
Cost of Sales	(N130,500)	(N27,000)
Gross Profit	N94,500	N18,000
Other Expenses	(N76,500)	(N14,400)
Profit Before Tax	N18,000	N3,600
Income Tax Expense	(N5,850)	(N1,125)
Profit for the Year	N12,150	N2,475

Statement of Financial Position as at December 31, 2019:

	Bottle Nigeria Plc	Glass Limited
Assets
Non-Current Assets:
Property, Plant & Equipment	N86,400	N9,000
Investment in Glass Ltd	N3,600	—
Total Non-Current Assets	N90,000	N9,000
Current Assets
Inventories	N22,500	N5,400
Trade Receivables	N29,250	N1,800
Cash & Cash Equivalents	N17,550	N1,575
Total Current Assets	N69,300	N8,775
Total Assets	N159,300	N17,775

Equity and Liabilities:

	Bottle Nigeria Plc	Glass Limited
Equity
Ordinary Share Capital	N90,000	N4,500
Retained Earnings	N22,500	N10,800
Total Equity	N112,500	N15,300
Current Liabilities
Trade Payables	N40,950	N1,350
Current Tax Liabilities	N5,850	N1,125
Total Current Liabilities	N46,800	N2,475
Total Equity and Liabilities	N159,300	N17,775

Additional Information:

On December 31, 2019, Bottle Nigeria Plc dispatched goods that cost N3,600,000 to Glass Limited at an invoice price of N4,500,000. Glass Limited received the goods on January 2, 2020, and recorded the transaction on that date.
The group’s policy is to value the non-controlling interest at acquisition at its proportionate share of the fair value of the subsidiary’s identifiable net assets.

Required:

i. Prepare Bottle Group’s draft consolidated statement of profit or loss for the year ended December 31, 2019. (8 Marks)

ii. Prepare the consolidated statement of financial position as at December 31, 2019. (10 Marks)

iii. Explain the term “cash and cash equivalent” under IAS 7 Statement of Cash Flows. (2 Marks)

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Tags: Consolidation, Financial Statements, IFRS 10, Non-Controlling Interest
Level: Level 2