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  • 6 Marks

FR – L2 – Q79 – Business Combinations

Prepare Peak Ltd's consolidated statement of financial position as at 31 Dec 20X4, incorporating 60% acquisition of Riser Ltd.

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.

Section Content
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

Peak Ltd Riser Ltd
Assets
Non-current assets
Property, plant and equipment 240,000 180,000
Investment in Riser Ltd 140,000
Current assets 250,000 196,000
630,000 376,000
Equity
Share capital 225,000 139,000
Retained earnings 180,000 80,000
405,000 219,000
Current liabilities 225,000 157,000
630,000 376,000
Requirement Prepare the consolidated statement of financial position of Peak Ltd and its subsidiary as at 31 December 20X4.

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  • 6 Marks

FR – L2 – Q78 – Consolidated Financial Statements

Prepare the consolidated statement of financial position for Melodious Ltd group as at 31 December 20X4.

The following are the summarised statements of financial position of a group of companies as at 31 December 20X4.

Melodious Ltd GH₵ Verse Ltd GH₵
Assets
Non-current assets
Property, plant and equipment 105,000 65,000
Investment 85,000
Current assets 220,000 55,000
Total Assets 410,000 120,000
Equity and liabilities
Equity
Share capital 100,000 50,000
Retained earnings 155,000 49,000
255,000 99,000
Current liabilities 155,000 21,000
Total Equity and Liabilities 410,000 120,000

Melodious Ltd purchased 80% of Verse Ltd’s shares on 1 January 20X4 when there was a credit balance on that company’s retained earnings of GH₵20,000.
Required
Prepare the Melodious Ltd group consolidated statement of financial position as at 31 December 20X4.

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  • 8 Marks

FR – L2 – Q77 – Consolidated Financial Statements

Prepare consolidated statement of financial position for Apex Ltd and its subsidiary Nexus Ltd as at 31 Dec 20X4.

Statements of financial position at 31 December 20X4

Nexis Ltd Vion Ltd
GH¢ GH¢
Investment in Vion Ltd 60,000
Sundry assets 247,500 226,600
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

Nexis Ltd bought 80% of Vion Ltd when the balance on Vion Ltd’s retained profit was GH¢50,000.
Required
Prepare the consolidated statement of financial position at 31 December 20X4.

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  • 10 Marks

FR – L2 – Q76 – Business Combinations

Prepare Peak Ltd's consolidated statement of financial position as at 31 Dec 20X4 after acquiring 75% of Ridge Ltd.

Peak Ltd
Statements of financial position at 31 December 20X4

Peak Ltd Ridge Ltd
Assets GH₵000 GH₵000
Non-current assets
Property, plant and equipment 35,000 20,000
Investment in Ridge Ltd 12,000
Current assets 16,000 14,000
Total assets 63,000 34,000
Equity and liabilities
Capital and reserves
Share capital 10,000 4,000
Retained earnings 13,000 12,000
23,000 16,000
Non-current liabilities
8% Debenture loans 20,000 9,000
Current liabilities 20,000 9,000
Total equity and liabilities 63,000 34,000

On 1 January 20X2, Peak Ltd acquired 75% of Ridge Ltd for GH₵12,000,000. At that date, the balance on Ridge Ltd’s retained earnings was GH₵8,000,000.

Required:
Prepare the consolidated statement of financial position of Peak Ltd as at 31 December 20X4.

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  • 20 Marks

FR – L2 – Q75 – Statement of Cash Flows

Prepare a cash flow statement for Apex Ltd for 20X9 per IAS 7 and analyze gross profit margin changes.

(a) Apex Ltd is a wholesaler and retailer of office furniture. Extracts from the company’s financial statements are set out below:

Statement of profit or loss and other comprehensive income for the year ended:

31 March 20X9 31 March 20X8
GH₵’000 GH₵’000 GH₵’000 GH₵’000
Revenue: 12,800 26,500
53,000 65,800 28,500 55,000
Cost of sales (43,800) (33,000)
Gross profit 22,000 22,000
Operating expenses (11,200) (6,920)
Finance costs:
– loan notes (380) (180)
– overdraft (220) (600) – (180)
Profit before tax 10,200 14,900
Income tax expense (3,200) (4,400)
Profit for the year 7,000 10,500
Other comprehensive income:
Gain on property revaluation 5,000 1,200
Total comprehensive income 12,000 11,700

Statement of changes in equity for the year ended 31 March 20X9

Stated Capital GH₵’000 Capital Surplus GH₵’000 Income Surplus GH₵’000 Total GH₵’000
Balances b/f 8,500 2,500 15,800 26,800
Share issue 12,900 12,900
Comprehensive income 5,000 7,000 12,000
Dividends paid (4,000) (4,000)
Balances c/f 21,400 7,500 18,800 47,700

Statements of financial position as at 31 March:

20X9 GH₵’000 20X9 GH₵’000 20X8 GH₵’000 20X8 GH₵’000
Assets
Non-current assets
Property, plant and equipment 43,200 30,600
43,200 30,600
Current assets
Inventories 7,800 5,600
Trade receivables 8,900 4,800
Cash and cash equivalents 600 1,200
17,300 11,600
Total assets 60,500 42,200
Equity and liabilities
Equity
Stated capital 21,400 8,500
Capital surplus 7,500 2,500
Income surplus 18,800 15,800
47,700 26,800
Non-current liabilities
Loan notes 5,000 3,000
Current liabilities
Trade payables 4,800 6,900
Bank overdraft 600 1,500
Taxation 2,400 4,000
7,800 12,400
Total equity and liabilities 60,500 42,200

The following information is also relevant:
(i) During the year, property, plant and equipment costing GH₵2,600,000 was acquired.
(ii) The depreciation charge for the year to 31 March 20X9 was GH₵2,800,000. There were no disposals of non-current assets during the year.
(iii) The increase in loan notes was due to an issue of further notes at par on 1 April 20X8.

Required:
Prepare a statement of cash flows for Apex Ltd for the year ended 31 March 20X9 in accordance with IAS 7, using the indirect method.

(b) In the year to 31 March 20X9, the directors of Apex Ltd decided to source their supplies from a new supplier located in Kumasi. The new supplier offered a 10% reduction in the cost of purchases compared with the previous supplier. However, the new supplier offered a shorter period of credit than the previous supplier (all purchases are on credit). In order to encourage higher sales, Apex Ltd increased its credit period to its customers, and some of the cost savings (on trade purchases) were passed on to customers by reducing selling prices on both cash and credit sales by 5% across all products.

Required:
(i) Calculate the gross profit margin that you would have expected Apex Ltd to achieve for the year ended 31 March 20X9 based on the selling and purchase price changes described by the directors. (2 marks)
(ii) Comment on the directors’ surprise at the unchanged gross profit and suggest what other factors may have affected gross profit for the year ended 31 March 20X9.

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  • 15 Marks

FR – L2 – Q74 – Statement of Cash Flows

List four advantages of cash flow accounting as per IAS 7.

IAS 7 Statement of Cash Flows states that additional information may be relevant to users in understanding the financial position and liquidity of an entity.

(a) State FOUR advantages of cash flow accounting.

(b) Highlight THREE of the disclosures which are required by the Standard (with comments) by the management of the entity when preparing the statement of cash flow

(c) Nexis Limited’s statement of profit or loss for the year ended 31 December 20X4 and statement of financial position as at 31 December 20X3 and 20X4 are as follows:

NEXIS LIMITED
Statement of profit or loss for the year ended 31 December 20X4

GH¢’m
Revenue 360
Raw Materials consumed 35
Staff costs 47
Depreciation 59
Loss on disposal of non-current assets 9
150
Operating profit before interest and tax 210
Interest payable 14
Profit before tax 196
Taxation 62
134

NEXIS LIMITED
Statement of Financial Position as at 31 December 20X4

20X4 GH¢’m 20X3 GH¢’m
Non-Current Assets
Cost 798
Depreciation 159
639
Current Assets
Inventory 12 10
Trade receivable 38 29
Bank 24 28
74 67
Total Assets 713
Equity and liabilities
Share capital 198 182
Retained earnings 358 291
556 473
Non-current liabilities
Long-term loans 100 250
Current liabilities
Trade payables 6 3
Taxation 51 43
57 46
Total equity and liabilities 713

Dividend paid was GH¢33 million.
During the year, the company paid GH¢45 million for a new piece of machinery.

Required
Prepare a Statement of Cash Flows for Nexis Limited for the year ended 31 December 20X4, in accordance with the requirements of IAS 7, using the indirect method.

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  • 20 Marks

FR – L2 – Q73 – Statement of Cash Flows

Prepare a cash flow statement for Fellon Plc for 20X4 using IAS 7, based on provided financial data and additional information.

Fellon Plc has prepared the following rough draft accounts for the year ended 31 December 20X4.

Statement of profit or loss

GH₵’000
Revenue 11,563
Cost of sales (5,502)
Gross profit 6,061
Distribution costs (402)
Administration expenses (882)
Interest payable (152)
Operating profit before tax 4,625
Taxation (35%) including deferred tax (1,531)
Profit after tax 3,094
Dividends (700)
Retained profit 2,394

Statements of financial position

31 December 20X4 GH₵’000 31 December 20X3 GH₵’000
Non-current assets
Property, plant and equipment 10,380 9,108
Current assets
Inventories 2,208 1,314
Trade receivables 1,986 1,392
Investments 1,992 2,190
Cash at bank and in hand – 576
6,186 5,472
Total assets 16,566 14,580
Equity and liabilities
Equity
Share capital 4,392 3,600
Retained earnings 6,714 4,320
11,106 7,920
Non-current liabilities
Long-term loans 1,240 1,800
Deferred repairs provision 702 516
1,942 2,316
Current liabilities
Trade payables 2,038 1,714
Bank overdraft 222 –
Taxation 1,258 2,630
3,518 4,344
Total equity and liabilities 16,566 14,580

The following data is relevant.
(1) The 10% long-term loan was redeemed at par.
(2) Plant and equipment with a written down value of GH₵276,000 was sold for GH₵168,000. New plant was purchased for GH₵2,500,000.
(3) Buildings costing GH₵1,300,000 were acquired during the year.
(4) The investments are highly liquid securities held for the short term.

Required
Prepare the cash flow statement and supporting notes in accordance with IAS 7 for Fellon Plc for 20X4.

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  • 20 Marks

FR – L2 – Q72 – Statement of Cash Flows

Prepare a cash flow statement for Model Ltd for 20X4 per IAS 7, using trial balance and additional information.

MODEL LTD
The following trial balance relates to Model Ltd as at 31 December 20X4.

GH¢’000 GH¢’000
Freehold property at cost 5,700
Plant and machinery at cost 36,000
Fixtures and fittings at cost 12,000
Inventories 14,000
Trade receivables 15,200
Long-term investments 4,600
Cash at bank 11,400
Accumulated depreciation: Plant and machinery 12,000
Accumulated depreciation: Fixtures and fittings 7,000
10% Long-term loan 1,800
Ordinary share capital 20,000
Share premium 2,500
Retained earnings 14,000
Revenue 92,000
Cost of sales 60,000
Operating expenses 7,200
Corporation tax 21,500
Trade payables 14,440
Long-term investment income 450
Government stock 3,000
169,250 169,250

The following information is relevant.
(a) There had been no disposal of freehold property in the year.
(b) A machine tool which had cost GH¢8,000,000 (in respect of which GH¢6,000,000 depreciation had been provided) was sold for GH¢3,000,000, and fixtures which had cost GH¢5,000,000 (in respect of which depreciation of GH¢2,000,000 had been provided) were sold for GH¢1,000,000. Profits and losses on those transactions had been dealt with through the statement of profit or loss.
(c) The statement of profit or loss charge in respect of tax was GH¢22,000,000.
(d) The premium paid on redemption of the long-term loan was GH¢2,000,000, which has been written off to the statement of profit or loss.
(e) The proposed dividend for 20X3 had been paid during the year.
(f) Interest received during the year was GH¢450,000. Interest charged in the statement of profit or loss for the year was GH¢6,400,000. Accrued interest of GH¢440,000 is included in payables at 31 December 20X3 (nil at 31 December 20X4).
(g) The government stock is a long-term investment.

Required
Prepare a cash flow statement for the year ended 31 December 20X4, together with notes as required by IAS 7.

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  • 20 Marks

FR – L2 – Q71 – Presentation of Financial Statements

Prepare Zestful Ltd's statement of profit or loss and financial position for 20X9, incorporating inventory adjustments, depreciation, tax, and joint operation.

The following trial balance relates to Zestful Ltd as at 31st December 20X9.

Description GH₵’000 GH₵’000
Revenue 213,800
Cost of sales 143,800
Operating expenses 22,400
Trade receivables 13,500
Bank 900
Closing inventories – 31st December 20X9 (note (i)) 10,500
Interest expenses (note (iii)) 5,000
Rental income from investment property 1,200
Plant and equipment – cost (note (ii)) 36,000
Land and building – at valuation (note (ii)) 63,000
Accumulated depreciation 16,800
Investment property – valuation 1st January 20X9 (note (ii)) 16,000
Trade payables 11,800
Joint arrangement (note (v)) 8,000
Deferred tax (note (iv)) 5,200
Ordinary shares of 25p each 20,000
10% Redeemable preference shares of GH₵1 each 10,000
Retained earnings – 1st January 20X9 17,500
Revaluation surplus (note (ii)) 21,000
Total 318,000 318,000

The following additional information is relevant:
(i) An inventory count on 31st December 20X9 listed goods with a cost of GH₵10.5 million. This includes some damaged goods that had cost GH₵800,000. These would require remedial work costing GH₵450,000 before they could actually be sold for an estimated GH₵950,000.
(ii) Non-current assets:

  • Plant: All plant, including that of the joint operation (note v), is depreciated at 12.5% on reducing balance basis.
  • Land and building: The land and building were revalued at GH₵15 million and GH₵48 million respectively on 1st January 20X9 creating a GH₵21 million revaluation surplus. At this date the building had a remaining life of 15 years. Depreciation policy is on a straight-line basis. Zestful Ltd does not make a transfer to realized profits in respect of excess depreciation. Depreciation on both the building and the plant should be charged to the cost of sales.
  • Investment property: On 31st December 20X9 a qualified surveyor valued the investment property at GH₵13.5 million. Zestful Ltd uses the fair value model in IAS 40 Investment Property to measure its investment property.
    (iii) Interest expenses include interest on loan notes and an ordinary dividend of 4p per share that was paid in June 20X9.
    (iv) The directors have estimated the provision for income tax for the year ended 31st December 20X9 at GH₵8 million. The deferred tax provision ended 31st December 20X9 is to be adjusted (through the profit or loss) to reflect the tax base of the company’s net assets is GH₵12 million less than their carrying amounts. The rate of tax is 30%.
    (v) On 1 January 20X9 Zestful Ltd entered into a joint arrangement with other entities. Each venturer contributes their own assets and is responsible for their own expenses including depreciation assets of the joint arrangement. Zestful Ltd is entitled to 40% of the joint venture’s total turnover. The joint arrangement is not a separate entity and is regarded as a joint operation.
    Details of Zestful Ltd joint venture transactions are:

Description GH₵’000
Plant and equipment at cost 12,000
Share of joint venture turnover (40% of total turnover) 8,000
Related joint venture cost of sales excluding depreciation (5,000)
Trade receivables 1,500
Trade payables (2,500)

Required:
Prepare a statement of profit or loss for the year ended 31 December 20X9 and a statement of financial position as at that date.

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  • 20 Marks

FR – L2 – Q69 – Presentation of Financial Statements

Prepare Nova Bekasi Ltd's statement of profit or loss and financial position for 20X5 per IAS 1, considering inventory, depreciation, tax, and goodwill impairment.

NOVA BEKASI LIMITED
The list of balances of Nova Bekasi Limited shows the following balances at 31 December 20X5.

Dr GH₵’000 Cr GH₵’000
Share capital (600,000 shares) 320
General reserve 20
Accumulated profit 1 January 20X5 50
Inventory (goods for resale) at 1 January 20X5 60
Revenue 1,000
Purchases 540
Purchases returns 26
Sales returns 28
Carriage outwards 28
Warehouse wages 80
Sales representatives salaries 60
Administrative wages 40
Warehouse plant and equipment – cost 126
Accumulated depreciation – 1 January 20X5 50
Delivery vehicle hire 20
Goodwill 100
Distribution expenses 10
Administrative expenses 30
Directors’ salaries (charge to administrative expenses) 30
Rental income 16
Trade receivables 330
Cash at bank 60
Trade payables 60
1,542 1,542

Additional information
(1) Inventory (goods for resale) at 31 December 20X5 amounted to GH₵100,000.
(2) Annual depreciation on warehouse plant and equipment of GH₵32,000 should be provided.
(3) Income tax for 20X5 should be taken as GH₵50,000.
(4) The recoverable amount of goodwill was only GH₵90,000.

Required
Prepare the company’s statement of profit or loss for the year to 31 December 20X5 and a statement of financial position at that date in accordance with IAS 1 Presentation of Financial Statements.

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