Prepare consolidated statement of profit or loss and retained profit movement for Melody Ltd for year ended 31 Dec 20X4, including negative goodwill and intra-group adjustments.
Melody Ltd
Statement of profit or loss for the year ended 31 December 20X4.
Melody Ltd GH¢’000
Harmony Ltd GH¢’000
Revenue
304,900
195,300
Cost of sales
(144,200)
(98,550)
Gross profit
160,700
96,750
Operating costs
(76,450)
(52,100)
Operating profit
84,250
44,650
Investment income
10,500
2,600
Profit before tax
94,750
47,250
Income tax expense
(42,900)
(16,500)
Profit for the year
51,850
30,750
Statement of changes in equity (extracts) for the year ended 31 December 20X4
Melody Ltd GH¢’000
Harmony Ltd GH¢’000
Retained earnings brought forward
80,200
31,000
Profit for the year
51,850
30,750
Proposed ordinary dividend
(20,000)
112,050
61,750
The following information is also available.
(1) Melody Ltd acquired 75% of the share capital of Harmony Ltd on 31 August 20X4.
(2) Negative goodwill of GH¢3.8 million arose on the acquisition.
(3) Profits of both companies are deemed to accrue evenly over the year except for the investment income of Harmony Ltd all of which was received in November 20X4.
(4) Melody Ltd has bought goods from Harmony Ltd throughout the year at GH¢2 million per month. At the year-end Melody Ltd does not hold any inventory purchased from Harmony Ltd.
Required
Prepare the consolidated statement of profit or loss and a working showing the movement on consolidated retained profit for the year ended 31 December 20X4.
Haven Ltd
The following are the statement of profit or loss for the year ended 31 December 20X4 of Haven Ltd and its subsidiary Seren Ltd.
Haven Ltd GH¢’000
Seren Ltd GH¢’000
Revenue
1,120
390
Cost of sales
(610)
(220)
Gross profit
510
170
Distribution costs
(50)
(40)
Administration costs
(55)
(45)
Operating profit
405
85
Investment income
20
4
Finance costs
(18)
(4)
Profit before tax
407
85
Income tax expense
(140)
(25)
Profit for the year
267
60
Retained profit brought forward
100
45
Profit for year
267
60
Dividends paid and proposed
(50)
(20)
Retained profit carried forward
317
85
The following information is relevant.
(1) Haven Ltd acquired 75% of Seren Ltd six years ago when Seren Ltd’s retained earnings were GH¢9,000.
(2) Haven Ltd made sales to Seren Ltd totalling GH¢100,000 in the year. At the year end the statement of financial position of Seren Ltd included inventory purchased from Haven Ltd. Haven Ltd had taken a profit of GH¢3,000 on this inventory.
(3) Haven Ltd’s investment income includes GH¢15,000 being its share of Seren Ltd’s dividends.
Required
Prepare a consolidated statement of profit or loss and a working showing the movement on consolidated retained profit for the year ended 31 December 20X4.
On 1st April 20X8, HeadSpace Plc acquired four million of the ordinary shares of Skyline Ltd, paying GH¢4.50 each. At the same time, HeadSpace Plc also purchased GH¢500,000 of Skyline Ltd 10% redeemable preference shares. At the acquisition date, the retained earnings of Skyline Ltd were GH¢8,400,000.
Reproduced below are the draft statements of financial position of the two companies at 31st March 20X9:
HeadSpace Plc GH¢’000
Skyline Ltd GH¢’000
Non-current assets
Land and buildings
22,000
12,000
Plant and equipment
20,450
10,220
Investments in Skyline Ltd:
Equity
18,000
–
Preference
500
–
Total non-current assets
60,950
22,220
Current assets
Inventories
9,850
6,590
Trade receivables
11,420
3,830
Cash at bank and in hand
490
–
Total assets
82,710
32,640
Equity
Ordinary shares of GH¢1 each
10,000
5,000
10% Preference shares
–
2,000
Retained earnings
51,840
14,580
Non-current liabilities
10% Debentures 20Y2
12,000
4,000
Current liabilities
Trade payables
6,400
4,510
Bank overdraft
–
570
Taxation
2,470
1,980
Total equity and liabilities
82,710
32,640
Extracts from the statement of profit or loss of Skyline Ltd, before intra-group adjustments, for the year to 31st March 20X9 are:
GH¢’000
Profit before tax
5,400
Taxation expense
1,600
3,800
The following information is relevant:
(i) Included in the land and buildings of Skyline Ltd is a large area of development land recorded at cost of GH¢5 million. Its fair value at the date Skyline Ltd was acquired was GH¢7 million and by 31st March 20X9 this had risen to GH¢8.5 million. The group valuation policy for development land is that it should be carried at fair value and not depreciated.
(ii) Also at the date of acquisition of Skyline Ltd, Skyline Ltd plant and equipment included plant that had a fair value of GH¢4 million in excess of its carrying amount. This plant had a remaining life of 5 years. The group calculates depreciation on a straight-line basis. The fair value of the other net assets of Skyline Ltd approximated to their carrying amounts.
(iii) During the year, Skyline Ltd sold goods to HeadSpace Plc for GH¢1.8 million. Skyline Ltd adds a 20% mark-up on cost to all its sales. Goods with a transfer price of GH¢450,000 were included in the inventory of HeadSpace Plc at 31st March 20X9. The balance on the current accounts of HeadSpace Plc and Skyline Ltd was GH¢240,000 on 31st March 20X9.
(iv) An impairment test carried out at 31st March 20X9 showed that the consolidated goodwill was impaired by GH¢1,488,000.
(v) Skyline Ltd had paid its preference dividends in full and ordinary dividends of GH¢500,000.
Required:
(a) Prepare the consolidated statement of financial position of HeadSpace Plc as at 31st March 20X9.
(b) Calculate the non-controlling interest in the adjusted profit of Skyline Ltd for the year to 31st March 20X9.
(c) Explain why IFRS 3 Business Combinations requires an acquirer to consolidate the fair values of the assets and liabilities of an acquired subsidiary, at the acquisition date.
Prepare Drobo Ltd's consolidated statement of financial position as at 31 March 20X4, incorporating fair value adjustments, intra-group transactions, and goodwill impairment.
On 1 April 20X3, Draco Limited acquired 90% of the equity shares in Aboro Limited. On the same day Draco Limited accepted a 10% loan note from Aboro Limited for GH₵200,000 which was repayable at GH₵40,000 per annum (on 31 March each year) over the next five years. Aboro Limited’s retained earnings at the date of acquisition were GH₵2,200,000.
Statements of financial position as at 31 March 20X4
Draco Limited
Aboro Limited
GH₵000
GH₵000
GH₵000
GH₵000
Non-current assets
Property, plant and equipment
2,120
1,990
Intangible – software
–
1,800
Investments – equity in Aboro Limited
4,110
–
Investments – 10% loan note Aboro Limited
200
Investments – others
65
210
6,495
4,000
Current assets
Inventories
719
560
Trade receivables
524
328
Aboro Limited current account
75
Cash
20
1,338
888
Total assets
7,833
4,888
Equity and liabilities:
Capital and reserves
Equity shares of GH₵1 each
4,000
2,000
Retained earnings
2,900
1,955
6,900
3,955
Non-current liabilities
10% Loan note from Draco Limited
160
Government grant
230
390
Current liabilities
Trade payables
475
472
Draco Limited current account
60
Income taxes payable
228
174
Operating overdraft
27
730
706
Total equity and liabilities
7,833
4,888
The following information is relevant
(i) Included in Aboro Limited’s property at the date of acquisition was a leased property recorded at its depreciated historical cost of GH₵400,000. The property had been sub-let for its remaining life of only four years at an annual rental of GH₵80,000 payable in advance on 1 April each year. The directors of Draco Limited are of the opinion that the fair value of this property is best reflected by the present value of its future cash flows. An appropriate cost of capital for the group is 10% per annum.
The present value of a GH₵1 annuity received at the end of each year where interest rates are 10% can be taken as:
3 year annuity GH₵2.50
4 year annuity GH₵3.20
(ii) The software of Aboro Limited represents the depreciated cost of the development of an integrated business accounting package. It was completed at a capitalised cost of GH₵2,400,000 and went on sale on 1 April 20X2. Aboro Limited’s directors are depreciating the software on a straight-line basis over an eight-year life (i.e. GH₵300,000 per annum). However, the directors of Draco Limited are of the opinion that a five-year life would be more appropriate as sales of business software rarely exceed this period.
(iii) The inventory of Draco Limited on 31 March 20X4 contains goods at a transfer price of GH₵25,000 that were supplied by Aboro Limited who had marked them up with a profit of 25% on cost. Unrealised profits are adjusted for against the profit of the company that made them.
(iv) On 31 March 20X4 Aboro Limited remitted to Draco Limited a cash payment of GH₵55,000. This was not received by Draco Limited until early April. It was made up of an annual repayment of the 10% loan note of GH₵40,000 (the interest had already been paid) and GH₵15,000 of the current account balance.
(v) The accounting policy of Draco Limited for non-controlling interests (NCI) in a subsidiary is to value NCI at a proportionate share of the net assets.
(vi) An impairment test at 31 March 20X4 on the consolidated goodwill concluded that it should be written down by GH₵120,000. No other assets were impaired.
Required
Prepare the consolidated statement of financial position of Draco Limited as at 31 March 20X4.
On 1 January 20X1, Greetings Ltd acquired 60% of the ordinary share capital of Farewell Ltd for GH₵110,000. At that date Farewell Ltd had a retained earnings balance of GH₵60,000.
The following statements of financial position have been prepared as at 31 December 20X4.
Assets
Greetings Ltd
Farewell Ltd
Non-current assets
GH₵
GH₵
Property, plant and equipment
225,000
175,000
Investments in Farewell Ltd
110,000
–
Current assets
271,000
157,000
Total assets
606,000
332,000
Equity and liabilities
Capital and reserves
Share capital
100,000
100,000
Retained earnings
275,000
90,000
375,000
190,000
Current liabilities
231,000
142,000
Total equity and liabilities
606,000
332,000
The fair value of Farewell Ltd’s net assets at the date of acquisition was determined to be GH₵170,000.
The difference between the book value and the fair value of the net assets at the date of acquisition was due to an item of plant which had a useful life of 10 years from the date of acquisition. Required
Prepare the consolidated statement of financial position of Greetings Ltd and its subsidiary as at 31 December 20X4.
Prepare Prime Ltd's consolidated statement of financial position as at 31 Dec 20X4, considering acquisition of Nexus Ltd, fair value adjustments, and unrealised profits.
On 1 July 20X1 Prime Ltd acquired 128,000 of Nexus Ltd’s 160,000 shares. The following statements of financial position have been prepared as at 31 December 20X4.
Prime Ltd GH¢000
Nexus Ltd GH¢000
Property, plant and equipment
152,000
129,600
Investment in Nexus Ltd
203,000
–
Inventory at cost
112,000
74,400
Receivables
104,000
84,000
Bank balance
41,000
8,000
Total
612,000
296,000
Prime Ltd GH¢000
Nexus Ltd GH¢000
Share capital
100,000
160,000
Retained earnings
460,000
112,000
Payables
52,000
24,000
Total
612,000
296,000
The following information is available.
(1) At 1 July 20X1 Nexus Ltd had a debit balance of GH¢11 million on retained earnings.
(2) Property, plant and equipment of Nexus Ltd included land at a cost of GH¢72 million. This land had a fair value of GH¢100,000 at the date of acquisition.
(3) The inventory of Nexus Ltd includes goods purchased from Prime Ltd for GH¢16 million. Prime Ltd invoiced those goods at cost plus 25%.
Required
Prepare the consolidated statement of financial position of Prime Ltd as at 31 December 20X4.
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.
The summarised statements of financial position of Furry Ltd and Webber Ltd as at 31 December 20X4 were as follows.
Assets
Furry Ltd GH₵000
Webber Ltd GH₵000
Non-current assets
Property, plant and equipment
120,000
60,000
Investments
55,000
—
Current assets
Cash
11,000
4,000
Investments
—
3,000
Trade receivables
72,600
19,100
Current account – Furry Ltd
—
3,200
Inventory
17,000
11,000
Total
275,600
100,300
Equity and liabilities
Furry Ltd GH₵000
Webber Ltd GH₵000
Capital and reserves
Share capital
120,000
60,000
Capital reserve
23,000
16,000
Retained earnings
91,900
7,300
Current liabilities
38,000
17,000
Total
275,600
100,300
The following information is relevant:
(1) On 31 December 20X1, Furry Ltd acquired 48,000 shares in Webber Ltd for GH₵55,000,000 cash. Webber Ltd has 60,000 shares in total.
(2) The inventory of Furry Ltd includes GH₵4,000,000 goods from Webber Ltd invoiced to Furry Ltd at cost plus 25%.
(3) The difference on the current account balances is due to cash in transit.
(4) The balance on Webber Ltd’s retained earnings was GH₵2,300,000 at the date of acquisition. There has been no movement in the balance on Webber Ltd’s capital reserve since the date of acquisition.
Required:
Prepare the consolidated statement of financial position of Furry Ltd and its subsidiary Webber Ltd as at 31 December 20X4.
Prepare PrimeCare Ltd's consolidated statement of financial position as at 31 December 20X4, including Frost Ltd, with adjustments for dividends and cash in transit.
PRIME CARE LTD
The following are the draft statements of financial position of PrimeCare Ltd and its subsidiary Frost Ltd as at 31 December 20X4.
PrimeCare Ltd
GH¢000
Frost Ltd
GH¢000
Assets
Non-current assets
Property, plant and equipment
100,000
68,000
Investments
68,000
Current assets
Cash
11,000
2,000
Trade receivables
72,600
19,100
Frost Ltd current account
3,200
Inventory
17,000
11,000
271,800
100,100
Equity and liabilities
Shareholders’ equity
Share capital
120,000
60,000
Retained earnings
91,900
16,000
Capital reserve
23,000
7,000
Current liabilities
PrimeCare Ltd current account
3,200
Trade payables
33,900
12,900
Proposed dividend
3,000
1,000
271,800
100,100
Notes
(1) Frost Ltd has 50,000 shares in issue. PrimeCare Ltd acquired 45,000 of these on 1 January 20X1 for a cost of GH¢65,000,000 when the balances on Frost Ltd’s reserves were:
Capital reserve: 20,000
Retained earnings: 10,000
(2) PrimeCare Ltd declared a dividend of GH¢3,000,000 before the year end and Frost Ltd declared one of GH¢2,000,000. These transactions have been approved by the shareholders but have not been accounted for.
(3) The current account difference is due to cash in transit.
Required
Prepare the consolidated statement of financial position as at 31 December 20X4 of PrimeCare Ltd.
PEAK LTD
Statements of financial position at 31 December 20X4
Peak Ltd GH¢000
Ridge Ltd GH¢000
Investment in Ridge Ltd (80%)
100,000
Sundry assets
207,500
226,600
307,500
226,600
Share capital
120,000
50,000
Retained earnings
87,500
70,000
Liabilities
100,000
106,600
307,500
226,600
Peak Ltd purchased the shares in Ridge Ltd on 30th September 20X4. Ridge Ltd’s retained profit for the year ended 31st December 20X4 was GH¢24,000,000.
Required
Prepare the consolidated statement of financial position at 31 December 20X4.
