CR – Nov 2017 – L3 – Q1 – Consolidated Financial Statements

Preparation of a consolidated statement of financial position with fair value adjustments, goodwill, non-controlling interest, and other consolidation adjustments.

Question

On 1 June 2015, Makola acquired 85% of the ordinary shares of Kejetia when Kejetia’s other reserves were GH¢4 million and retained earnings were GH¢10 million. The fair value of the net assets of Kejetia was GH¢60 million at 1 June 2015. Kejetia acquired 60% of the ordinary shares of Kotokuraba on 1 June 2015 when the other reserves of Kotokuraba were GH¢8 million and retained earnings were GH¢6 million. The fair value of the net assets of Kotokuraba at that date was GH¢39 million. The excess of the fair value over the net assets of Kejetia and Kotokuraba is due to an increase in the value of non-depreciable land of the companies.

Below are the statements of financial position of the three companies as at 31 May 2017:

	Makola (GH¢000)	Kejetia (GH¢000)	Kotokuraba (GH¢000)
Assets
Non-current assets
Property, Plant & Equipment	275,000	20,000	26,000
Investment in Kejetia	60,000	–	–
Investment in Kotokuraba	–	30,000	–
Investment Property	10,000	–	–
Current Assets
Inventory	40,000	23,200	16,000
Trade Receivables	10,000	5,800	4,000
Total Assets	395,000	79,000	46,000
Equity and Liabilities
Ordinary shares	150,000	40,000	20,000
Other reserves	30,000	5,000	8,000
Retained earnings	135,000	25,000	10,000
Total Equity	315,000	70,000	38,000
Non-current liabilities	45,000	2,000	3,000
Bank Overdraft	35,000	7,000	5,000
Total Liabilities	80,000	9,000	8,000
Total Equity and Liabilities	395,000	79,000	46,000

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

There have been no issues of ordinary shares in the group since 1 June 2015.
Kejetia owns several trade names highly regarded in the market. None have been acquired externally. Makola recognized a GH¢5 million valuation of these trade names in the acquisition, not included in the net assets of Kejetia. Group policy is to amortize intangible assets over 10 years.
On 1 June 2016, Makola sold inventory to Kejetia for GH¢28 million (cost: GH¢23 million). Kejetia sold this inventory for GH¢35 million on 15 July 2017.
Makola issued 24,000 convertible bonds with a nominal interest rate of 6% and a three-year term, repayable at par. Interest is payable annually in arrears, and each bond can be converted into 300 shares of Makola. The market interest rate for similar debt was 8%. The bonds were issued on 1 June 2016 and accounted for in non-current liabilities at face value.
On 31 May 2017, Makola acquired plant worth GH¢6 million in exchange for land valued at GH¢7 million (carrying value GH¢4 million). Makola made a transfer of GH¢4 million in respect of this transaction.
Goodwill has been tested for impairment at 31 May 2016 and 31 May 2017, and no impairment loss occurred. The group values non-controlling interest at its proportionate share of the subsidiary’s identifiable net assets at acquisition.

Required: Prepare the consolidated statement of financial position of the Makola Group as at 31 May 2017 in accordance with International Financial Reporting Standards (IFRS).

Answer