- 20 Marks
Question
On 1 April 2017, Tamale Ltd acquired 60% of the 4 million ordinary shares of Navrongo Ltd in a share exchange of two shares in Tamale Ltd for three shares in Navrongo Ltd. The issue of shares has not yet been recorded by Tamale Ltd. At the date of acquisition, shares in Tamale Ltd had a market value of GH¢6 each. Below are the summarised draft financial statements of both companies.
Statements of Profit or Loss for the year ended 30 September 2017
| Tamale Ltd (GH¢’000) | Navrongo Ltd (GH¢’000) | |
|---|---|---|
| Revenue | 85,000 | 42,000 |
| Cost of Sales | (63,000) | (32,000) |
| Gross Profit | 22,000 | 10,000 |
| Distribution Cost | (2,000) | (2,000) |
| Administrative Expenses | (6,000) | (3,200) |
| Finance Cost | (300) | (400) |
| Profit Before Tax | 13,700 | 4,400 |
| Income Tax Expense | (4,700) | (1,400) |
| Profit for the Year | 9,000 | 3,000 |
Statements of Financial Position as at 30 September 2017
| Tamale Ltd (GH¢’000) | Navrongo Ltd (GH¢’000) | |
|---|---|---|
| Assets | ||
| Non-Current Assets | ||
| Property, Plant and Equipment | 40,600 | 12,600 |
| Current Assets | 16,000 | 6,600 |
| Total Assets | 56,600 | 19,200 |
| Equity and Liabilities | ||
| Ordinary Shares | 10,000 | 4,000 |
| Retained Earnings | 35,400 | 6,500 |
| Equity | 45,400 | 10,500 |
| Non-Current Liabilities | ||
| 10% Loan Notes | 3,000 | 4,000 |
| Current Liabilities | 8,200 | 4,700 |
| Total Equity and Liabilities | 56,600 | 19,200 |
The following information is relevant:
i) At the date of acquisition, the fair values of Navrongo Ltd’s assets were equal to their carrying amounts with the exception of an item of plant, which had a fair value of GH¢2 million in excess of its carrying amount. It had a remaining life of five years at that date (straight-line depreciation is used). Navrongo Ltd has not adjusted the carrying amount of its plant as a result of the fair value exercise.
ii) Sales from Navrongo Ltd to Tamale Ltd in the post-acquisition period were GH¢8 million. Navrongo Ltd made a markup on cost of 40% on these sales. Tamale Ltd had sold GH¢5.2 million (at cost) as at 30 September 2017.
iii) Other than where indicated, profit or loss items are deemed to accrue evenly on a time basis.
iv) Navrongo Ltd’s trade receivables at 30 September 2017 include GH¢600,000 due from Tamale Ltd which did not agree with Tamale Ltd’s corresponding trade payable. This was due to cash in transit of GH¢200,000 from Tamale Ltd to Navrongo Ltd. Both companies have positive bank balances.
v) Tamale Ltd has a policy of accounting for any non-controlling interest at fair value. The fair value of the non-controlling interest in Navrongo Ltd at the date of acquisition was estimated to be GH¢5.9 million. Consolidated goodwill was not impaired at 30 September 2017.
Required:
a) Prepare the consolidated statement of profit or loss for Tamale Ltd for the year ended 30 September 2017.
(8 marks)
b) Prepare the consolidated statement of financial position for Tamale Ltd as at 30 September 2017.
(12 marks)
Answer
TAMALE GROUP
CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 30 SEPTEMBER 2017
| GH¢’000 | |
|---|---|
| Revenue (85,000 + (42,000 X 6/12) – 8,000 (W7)) | 98,000 |
| Cost of sales (or W7) (63,000 + (32,000 x 6/12) – 8,000 intra-grp sales + 200(W2) + 800(W2)) | (72,000) |
| Gross profit | 26,000 |
| Distribution costs (2,000 + (2,000 X 6/12)) | (3,000) |
| Administrative expenses (6,000 + (3,200 X 6/12)) | (7,600) |
| Finance costs (300 + (400 X 6/12)) | (500) |
| Profit before tax | 14,900 |
| Income tax expense (4,700 + (1,400 X 6/12)) | (5,400) |
| Profit for the year | 9,500 |
| Profit attributable to: | |
| Owners of the parent | 9,300 |
| Non-controlling interests (W4) | 200 |
| Total | 9,500 |
b)
TAMALE GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 30 SEPTEMBER 2017
| GH¢’000 | |
|---|---|
| Non-current assets | |
| Property, plant and equipment (40,600 + 12,600 + 2,000 Fv adj. – 200 Dep adj.) | 55,000 |
| Goodwill (W3) | 4,500 |
| Total non-current assets | 59,500 |
| Current assets | |
| (16,000 + 6,600 – 800 pup – 600 interco rec + 200 CIT) (W8) | 21,400 |
| Total assets | 80,900 |
| Equity | |
| Share capital (10,000 + 9,600 share exch.) | 19,600 |
| Retained earnings (W4) | 35,700 |
| Equity attributable to parent | 55,300 |
| Non-controlling interest (W5) | 6,100 |
| Total equity | 61,400 |
| Non-current liabilities | |
| 10% loan notes (3,000 + 4,000) | 7,000 |
| Current liabilities | |
| (8,200 + 4,700 – 400 (W10)) | 12,500 |
| Total equity and liabilities | 80,900 |
Workings:
- Group structure
Tamale Ltd owns 60% of Navrongo Ltd
Non-controlling interest: 40%Acquisition date: 1st April 2017
Reporting date: 30th September 2017
Mid-year acquisition, six months before year-end. - Net Assets of Navrongo Ltd
| Acquisition date (GH¢’000) | Reporting date (GH¢’000) | Post acquisition movement (GH¢’000) | |
|---|---|---|---|
| Stated capital | 4,000 | 4,000 | – |
| Retained earnings | 5,000 | 6,500 | 1,500 |
| Fair value adjustment (plant) | 2,000 | 2,000 | – |
| Depreciation adjustment (2000/5 x 6/12) | – | (200) | (200) |
| PUP on inventory (40/140 x (8000 – 5200)) | – | (800) | (800) |
| Total | 11,000 | 11,500 | 500 |
- Goodwill computation
| GH¢’000 | |
|---|---|
| Cost of investment (60% × 4,000 × 2/3 × 6) | 9,600 |
| Fair value of NCI at acquisition | 5,900 |
| Total | 15,500 |
| Less: Net assets at acquisition (W2) | (11,000) |
| Goodwill at acquisition | 4,500 |
- Consolidated retained earnings
| GH¢’000 | |
|---|---|
| Balance at 30/09/2017 (Tamale Ltd) | 35,400 |
| Group share of post-acquisition profit (60% x 500) | 300 |
| Total retained earnings | 35,700 |
- Non-controlling interest (NCI)
| GH¢’000 | |
|---|---|
| Fair value of NCI at acquisition | 5,900 |
| NCI share of post-acquisition profit (40% x 500) | 200 |
| Total NCI | 6,100 |
- Intragroup trading
| Debit (GH¢’000) | Credit (GH¢’000) | |
|---|---|---|
| Cancel intragroup sales/purchases | Sales | 8,000 |
| Purchases | ||
| Eliminate unrealised profit: | Cost of sales/income surplus ((8,000 – 5,200) x 40/140) | 800 |
| Inventories (SOFP) |
- Cost of sales
| GH¢’000 | |
|---|---|
| Tamale Ltd | 63,000 |
| Navrongo Ltd (32,000 x 6/12) | 16,000 |
| Movement on FV adjustment (W6) | 200 |
| Intragroup purchases (W7) | (8,000) |
| Unrealised profit (W7) | 800 |
| Total | 72,000 |
- Current assets
| GH¢’000 | |
|---|---|
| Tamale Ltd | 16,000 |
| Navrongo Ltd | 6,600 |
| Unrealised profit in inventory (W7) | (800) |
| Intercompany receivables | (600) |
| Cash in transit (W10) | 200 |
| Total current assets | 21,400 |
- Topic: Group Financial Statements and Consolidation
- Series: MAY 2018
- Uploader: Dotse