FR – L2 – Q83 – Business Combinations

On 31 December 20X0, Tough Ltd acquired 60% of the ordinary share capital of Gentle Ltd for GH¢110 million. The following statements of financial position have been prepared as at 31 December 20X4. Statements of Financial Position as at 31 December 20X4

Tough Ltd Gentle Ltd
GH¢’000 GH¢’000
Assets
Non-current assets
Property, plant and equipment 225,000 175,000
Investments in Gentle Ltd 110,000
Current assets 271,000 157,000
606,000 332,000
Equity and liabilities
Capital and reserves
Share capital 115,000 110,000
Retained earnings 260,000 80,000
375,000 190,000
Current liabilities 231,000 142,000
606,000 332,000

During the year to 31 December 20X4, Tough Ltd sold a tangible asset to Gentle Ltd for GH¢50 million. The asset was originally purchased in the year to 31 December 20X1 at a cost of GH¢100 million and had a useful economic life of five years. Gentle Ltd’s depreciation policy is 25% per annum based on cost. Both companies charge a full year’s depreciation in the year of acquisition and none in the year of disposal. Required Prepare the consolidated statement of financial position of Tough Ltd and its subsidiary as at 31 December 20X4.

Consolidated statement of financial position as at 31 December 20X4

Assets GH¢’000
Non-current assets
Property, plant and equipment (225 + 175 – 17.5 (W6)) 382,500
Goodwill (W3) 14,000
Current assets (271 + 157) 428,000
824,500
Equity and liabilities
Shareholders’ equity
Share capital 115,000
Retained earnings (W5) 260,500
375,500
Non-controlling interest (W4) 76,000
Current liabilities (231 + 142) 373,000
824,500

Workings (1) Group structure Tough Ltd 60% Gentle Ltd (2) Net assets of Gentle Ltd

31 Dec 20X4 31 Dec 20X0 Post acquisition
GH¢’000 GH¢’000 GH¢’000
Share capital 110,000 110,000
Retained earnings 80,000 50,000 30,000
190,000 160,000 30,000

(3) Goodwill

GH¢’000
Cost 110,000
Net assets acquired (60% × 160,000 (W2)) (96,000)
14,000

(4) Non-controlling interest

GH¢’000
40% × 190,000 (W2) 76,000

(5) Retained earnings

GH¢’000
Tough 260,000
Less: Adjustment re intra-group transfer (17,500)
Gentle (60% × (80,000 – 50,000 (W2))) 18,000
260,500

(6) PURP on non-current assets

IS GH¢’000 SHOULD BE GH¢’000
Cost 50,000 Cost 100,000
Accumulated depreciation (12,500) Accumulated depreciation (80,000)
37,500 20,000
Dr Retained earnings 17,500 Cr Non-current assets 17,500