- 6 Marks
FR – L2 – Q79 – Business Combinations
Question
On 31 December 20X1, Peak Ltd acquired 60% of Riser for GH₵140,000, at that date Riser Ltd had a retained earnings balance of GH₵50,000. The following statements of financial position have been prepared as at 31 December 20X4.
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| Question Title | FR – L2 – Q79 – Business Combinations | |||||||||||||||||||||||||||||||||||||||
| Level | LEVEL 2 | |||||||||||||||||||||||||||||||||||||||
| Professional Bodies | Institute of Chartered Accountants, Ghana (ICAG) | |||||||||||||||||||||||||||||||||||||||
| Programs | PROFESSIONAL PROGRAM | |||||||||||||||||||||||||||||||||||||||
| Subjects | Financial Reporting | |||||||||||||||||||||||||||||||||||||||
| Topics | Business Combinations (IFRS 3) | |||||||||||||||||||||||||||||||||||||||
| Total Marks | 6 | |||||||||||||||||||||||||||||||||||||||
| Question Tags | Consolidated Financial Statements, Goodwill, Non-Controlling Interest, Net Assets, Acquisition, Retained Earnings, Share Capital, Current Liabilities, Financial Position, IFRS 3 | |||||||||||||||||||||||||||||||||||||||
| Question Short Summary | Prepare Peak Ltd’s consolidated statement of financial position as at 31 Dec 20X4, incorporating 60% acquisition of Riser Ltd. | |||||||||||||||||||||||||||||||||||||||
| Preamble | On 31 December 20X1, Peak Ltd acquired 60% of Riser for GH₵140,000, at that date Riser Ltd had a retained earnings balance of GH₵50,000. The following statements of financial position have been prepared as at 31 December 20X4. | |||||||||||||||||||||||||||||||||||||||
| Financial Statements |
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| Requirement | Prepare the consolidated statement of financial position of Peak Ltd and its subsidiary as at 31 December 20X4. |
Answer
Consolidated statement of financial position as at 31 December 20X4
| Assets | GH₵ |
|---|---|
| Non-current assets | |
| Property, plant and equipment (240 + 180) | 420,000 |
| Goodwill | 26,600 |
| Current assets (250 + 196) | 446,000 |
| Total assets | 892,600 |
| Equity and liabilities | |
| Shareholders’ equity | |
| Share capital | 225,000 |
| Retained earnings (W5) | 198,000 |
| 423,000 | |
| Non-controlling interest (W4) | 87,600 |
| Current liabilities (225 + 157) | 382,000 |
| Total equity and liabilities | 892,600 |
Workings
(1) Group structure
Peak
60%
Riser
(2) Net assets of Riser Inc
| 31 Dec 20X4 | 31 Dec 20X3 | Post acquisition | |
|---|---|---|---|
| Ordinary shares | 139,000 | 139,000 | |
| Retained earnings | 80,000 | 50,000 | 30,000 |
| 219,000 | 189,000 |
(3) Goodwill
| GH₵ | |
|---|---|
| Cost | 140,000 |
| Net assets acquired (60% × 189,000) (W2) | (113,400) |
| 26,600 |
(4) Non-controlling interest
| GH₵ | |
|---|---|
| 40% × 219,000 (W2) | 87,600 |
(5) Retained earnings
| GH₵ | |
|---|---|
| Peak | 180,000 |
| Riser (60% × 30,000 (W2)) | 18,000 |
| 198,000 |
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