Program (SQ): PROFESSIONAL PROGRAM

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  • 25 Marks

FR – L2 – Q97 – Business Combinations

Prepare Peak Plc's consolidated statement of financial position as at 31 March 20X4, incorporating acquisitions of Flare Plc and Crest Ltd, with adjustments for intra-group transactions and fair value.

Peak Plc acquired the following non-current investments on 1 April 20X3:
(1) 4 million of Flare Plc’s 5 million equity shares, by means of an exchange of one share in Peak for every one share in Flare Plc, plus GH¢6.05 million in cash for each Flare Plc share acquired. The professional fees associated with the acquisition amounted to GH¢1 million. The market price of shares in Peak Plc at the date of the acquisition was GH¢9 per share. The market price of Flare Plc shares just before the acquisition was GH¢7. The cash part of the consideration is deferred and will not be paid until two years after the acquisition.
(2) 25% of Crest Ltd’s 6 million equity shares, at a cost of GH¢6 per share. The money to make this payment was obtained by issuing one million new shares in Peak Plc at GH¢9 per share.

None of these transactions has yet been recorded in the summary statements of financial position that are shown below.

The summarised draft statements of financial position of the three companies at 31 March 20X4 are as follows:

Statement of financial position Peak Plc Flare Plc Crest Ltd
GH¢ million GH¢ million GH¢ million
Assets
Non-current assets
Property, plant and equipment 60.0 31.0 16.0
Other equity investments 0.8 nil nil
60.8 31.0 16.0
Current assets 18.2 8.0 9.0
Total assets 79.0 39.0 25.0
Equity and liabilities
Equity shares 18.0 9.0 10.0
Retained earnings: at 1 April 20X3 36.0 16.0 8.0
– for year ended 31 March 20X4 8.0 3.0 2.0
62.0 28.0 20.0
Non-current liabilities
6% loan notes 10.0 – –
7% loan notes – 6.0 3.0
Current liabilities 7.0 5.0 2.0
Total equity and liabilities 79.0 39.0 25.0

The following information is relevant:
(1) Peak Plc has chosen to value the non-controlling interest in Flare Plc using the fair value method permitted by IFRS 3 (revised). The fair value of the non-controlling interests at the acquisition date is estimated to be the market value of the shares before the acquisition.
(2) At the date of acquisition of Flare Plc, the fair values of its assets were equal to their carrying amounts.
(3) The cost of capital of Peak Plc is 10% per year.
(4) During the year ended 31 March 20X4, Flare Plc sold goods to Peak Plc for GH¢3.6 million, at a mark-up of 50% on cost. Peak Plc had 75% of the goods in its inventory at 31 March 20X4.
(5) There were no intra-group receivables and payables at 31 March 20X4.
(6) On 1 April 20X3, Peak Plc sold a group of machines to Flare Plc at their agreed fair value of GH¢3 million. At the time of the sale, the carrying amount of the machines was GH¢2 million. The estimated remaining useful life of the plant at the date of the sale was four years. Plant and machinery is depreciated to a residual value of nil using straight-line depreciation and at 1 April 20X3 the machines had an estimated remaining life of five years.
(7) “Other equity investments” are included in the summary statement of financial position of Peak Plc at their fair value on 1 April 20X3. Their fair value at 31 March 20X4 is GH¢0.65 million.
(8) Impairment tests were carried out on 31 March 20X4. These show that there is no impairment of the value of the investment in Crest Ltd or in the consolidated goodwill.
(9) No dividends were paid during the year by any of the three companies.

Required
Prepare the consolidated statement of financial position for Peak Plc as at 31 March 20X4.

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  • 10 Marks

FR – L2 – Q96 – Consolidated Financial Statements

Prepare Shade Ltd's consolidated statement of profit or loss for 20X4, adjusting for intra-group sales and unrealised profits.

Shade Ltd holds 80% of the ordinary share capital of Find Ltd (acquired on 1 February 20X4) and 30% of the ordinary share capital of Reach Ltd (acquired on 1 July 20X3).
Shade Ltd had no other investments.
The draft statements of profit or loss for the year ended 30 June 20X4, are set out below.

Shade Ltd GH¢000 Find Ltd GH¢000 Reach Ltd GH¢000
Revenue 12,614 6,160 8,640
Operating expenses (11,318) (5,524) (7,614)
Dividends receivable 150 – –
1,446 636 1,026
Taxation (621) (275) (432)
Profit after taxation 825 361 594

Included in the inventory of Find Ltd at 30 June 20X4 was GH¢50,000 for goods purchased from Shade Ltd in May 20X4 which the latter company had invoiced at cost plus 25%. These were the only goods sold by Shade Ltd to Find Ltd but it did make sales of GH¢180,000 to Reach Ltd during the year. None of these goods remained in Reach Ltd’s inventory at the year end.
Required
Prepare a consolidated statement of profit or loss for Shade Ltd for the year ended 30 June 20X4.

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  • 10 Marks

FR – L2 – Q95 – Business Combinations

Adjust unrealised profit in inventory for consolidation of Anita Healthcare Ltd, Pamela Wellness Ltd, and Sophie Pharmaceuticals Ltd.

On 31 December Year 5, an associate, Anita Healthcare Ltd, holds inventory which is valued at GH¢32,000 purchased during the year from its investor Pamela Wellness Ltd. At the same date, Pamela Wellness Ltd holds inventory purchased from a subsidiary, Sophie Pharmaceuticals Ltd, which is valued at GH¢80,000.
Sales from Pamela Wellness Ltd to Anita Healthcare Ltd and from Sophie Pharmaceuticals Ltd to Pamela Wellness Ltd are priced at a mark-up of one-quarter on cost.
Pamela Wellness Ltd owns 30% of Anita Healthcare Ltd and 60% of Sophie Pharmaceuticals Ltd.

Required
Set out the adjustments necessary to reflect any unrealised profit in the above in the consolidated statement of financial position.

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  • 10 Marks

FR – L2 – Q94 – Associates and Joint Ventures

Prepare entries for Portico Ltd's 30% holding in Armand Ltd in the Year 5 consolidated financial statements, including financial position and profit or loss.

Portico Ltd acquired 30% of the equity shares in Armand Ltd (which satisfies the definition of associate) during Year 1 at a cost of GH₵350,000 when the fair value of the net assets of Armand Ltd was GH₵250,000. Since that time, the investment in Armand Ltd has been impaired by GH₵4,000.
On 31 December Year 5, the net assets of Armand Ltd were GH₵400,000. Since the date of acquisition, there have been no changes in the share capital of Armand Ltd or in any reserves other than retained earnings.
In the year to 31 December Year 5, the profits of Armand Ltd after tax were GH₵50,000.

Required
Show how the holding in Armand Ltd would be reflected in the Year 5 consolidated statement of financial position and consolidated statement of profit or loss.

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  • 10 Marks

FR – L2 – Q93 – Consolidated Financial Statements

Prepare Apex Ltd's consolidated statement of financial position as at 31 December 20X4, incorporating subsidiary and associate investments.

APEX LTD
The draft statements of financial position as at 31 December 20X4 of three companies are set out below.

Apex Ltd GHS’000 Nexus Ltd GHS’000 Zephyr Ltd GHS’000
Assets
Non-current assets
Property, plant and equipment 400 100 160
Investments:
– shares in Nexus Ltd (60%) 75
– shares in Zephyr Ltd (30%) 30
Current assets 445 160 80
Total assets 950 260 240
Equity and liabilities
Share capital 100 30 60
Retained earnings 650 180 100
Non-current loans 200 50 80
Total equity and liabilities 950 260 240

The reserves of Nexus Ltd and Zephyr Ltd when the investments were acquired were GHS’000 70 and GHS’000 30 respectively.
Required
Prepare the consolidated statement of financial position as at 31 December 20X4.

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  • 20 Marks

SCS – L3 – Q41- Corporate Governance

Compare and contrast unitary and dual board structures in corporate governance.

(a)

Ghanara’s model of corporate governance is based on the UK model, which is a single, or unitary board. The unitary board is made up of a mix of executive and non-executive directors. All directors have the right to participate in board decision making. Other countries operate dual board model (for example, Germany, which has a management board and a supervisory board) or even a three-board model, which operates in Japan. All participants in the single board have legal responsibility for management of the company and strategic performance.

Required:

Compare and contrast unitary board structure and dual board structure.                                                                                                                                                                                                                                                                                                                                                          (b)

The intensity of competition among rival firms within an industry will affect the profitability of the industry as a whole. Within the past decade, the Ghanaian telecommunication industry has witnessed intense competition, taking several forms. You are a strategic management consultant and have been invited as guest lecturer in one private university to discuss the intensity of competition among rival firms in the telecommunication industry.

Required:

Discuss FOUR factors that could be responsible for the intensity of competition among rival firms within the telecommunication industry in Ghana.

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  • 20 Marks

FR – L2 – Q92 – Consolidated Financial Statements

Prepare consolidated financial statements for Henks Plc, including profit or loss, changes in equity, and financial position for 20X4.

HENKS PLC

Statements of financial position as at 31 December 20X4

Henks Plc GH₵000 Streen Ltd GH₵000 Scote Ltd GH₵000
Non-current assets
Property, plant and equipment 32,000 25,000 20,000
Investments 33,500 – –
65,500 25,000 20,000
Current assets
Cash at bank and in hand 9,500 2,000 4,000
Trade receivables 20,000 8,000 17,000
Inventory 30,000 18,000 18,000
59,500 28,000 39,000
125,000 53,000 59,000
Share capital 46,500 10,000 15,000
Retained earnings 55,000 37,000 27,000
101,500 47,000 42,000
Current liabilities 23,500 6,000 17,000
125,000 53,000 59,000

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

Henks Plc GH₵000 Streen Ltd GH₵000 Scote Ltd GH₵000
Revenue 125,000 117,000 82,000
Cost of sales (65,000) (64,000) (42,000)
Gross profit 60,000 53,000 40,000
Distribution and administrative costs (35,000) (22,000) (23,000)
Profit before taxation 25,000 31,000 17,000
Income tax expense (10,000) (9,000) (5,000)
Profit after tax 15,000 22,000 12,000

Statement of changes in equity (extract) for the year ending 31 December 20X4

Henks Plc GH₵000 Streen Ltd GH₵000 Scote Ltd GH₵000
Retained earnings brought forward 40,000 15,000 15,000
Retained profit for the financial year 15,000 22,000 12,000
Dividends – – –
Retained earnings carried forward 55,000 37,000 27,000

You are given the following additional information.
(1) Henks Plc owns 80% of Streen Ltd’s shares. These were purchased in 20X1 for GH₵20.5 million cash, when the balance on Streen Ltd’s retained earnings stood at GH₵7 million.
(2) Five years ago, Henks Plc purchased 60% of the shares of Scote Ltd by the issue of shares with a market value of GH₵13 million. At that date, the retained earnings of Scote Ltd stood at GH₵3 million and the fair value of the net assets of Scote Ltd was GH₵24 million. It was agreed that any undervaluation of the net assets should be attributed to land. This land was still held at 31 December 20X4.
(3) Included in the inventory of Scote Ltd and Streen Ltd at 31 December 20X4 are goods purchased from Henks Plc for GH₵5.2 million and GH₵3.9 million, respectively. Henks Plc aims to earn a profit of 30% on cost. Total sales from Henks Plc to Scote Ltd and to Streen Ltd were GH₵8 million and GH₵6 million, respectively.
(4) Henks Plc and Streen Ltd each proposed a dividend before the year end of GH₵2 million and GH₵2.5 million, respectively. No accounting entries have yet been made for these.
(5) Henks Plc has conducted annual impairment tests on goodwill in accordance with IFRS 3 and IAS 36. The estimated recoverable amount of goodwill at 31 December 20X1 was GH₵5 million and at 31 December 20X4 was GH₵4.5 million.

Required
Prepare the consolidated statement of profit or loss and consolidated statement of changes in equity for the year ended 31 December 20X4 and the consolidated statement of financial position at that date.

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  • 12 Marks

FR – L2 – Q91 – Consolidated Financial Statements

Prepare Falcon Ltd's consolidated profit or loss, financial position, and retained profit movement for 20X4.

FALCON LTD

Statement of changes in equity for the year ended 30 June 20X4 (extract)

Falcon Ltd GH¢000 Crane Ltd GH¢000
Retained earnings brought forward 8,000 10,500
Profit for the financial year 12,000 8,000
Retained earnings carried forward 20,000 18,500

Required

Prepare Falcon Ltd’s consolidated statement of profit or loss, consolidated statement of financial position and a working showing the movement on consolidated retained profit for Falcon Ltd for the year ended 30 June 20X4.

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  • 20 Marks

FR – L2 – Q90 – Business Combinations

Prepare goodwill calc and consol. stmt of profit/loss for Vantage Ltd's 90% acquisition of Green Ltd, incl. fair value adj and intragroup sales.

Below is the formatted response for Question 90 from the provided documents, adhering to the specified structure and requirements. The question has two parts (90a and 90b), which are treated as separate questions since they can stand alone. The tables, financial statements, and answers are rendered exactly as in the attachment, with only the names of the companies and dates altered for copyright purposes. A summary report of changes is included at the end.

====================================================================== Question Title: FR – L2 – Q90a – 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: 15
Question Tags: Consolidation, Goodwill, Non-controlling Interest, Fair Value, Intragroup Transactions, Associates
Question Short Summary: Prepare goodwill calc and consol. stmt of profit/loss for Vantage Ltd’s 90% acquisition of Green Ltd, incl. fair value adj and intragroup sales.

Question:

On 1 January 20X9, Vantage Ltd acquired 18m of the equity shares of Green Ltd in a share exchange in which Vantage Ltd issued two new shares for every three shares it acquired in Green Ltd. This gave Vantage Ltd a holding of 90%. Additionally, on 31 December 20X9, Vantage Ltd will pay the shareholders of Green Ltd GH¢1.76 per share acquired. Vantage Ltd’s cost of capital is 10% per annum.

At the date of acquisition, shares in Vantage Ltd and Green Ltd had market prices of GH¢6.50 and GH¢2.50 each respectively.

Statement of Profit or Loss for the year ended 30 September 20X9

Vantage Green
GH¢’000 GH¢’000
Revenue 129,200 76,000
Cost of sales (102,400) (52,000)
Gross profit 26,800 24,000
Distribution costs (3,200) (3,600)
Administrative expenses (7,600) (4,800)
Investment income 1,000 –
Finance costs (840) –
Profit before tax 16,160 15,600
Income tax expense (5,600) (3,200)
Profit for the year 10,560 12,400

Equity as at 1 October 20X8

Vantage Green
Stated capital 120,000 30,000
Income surplus 108,000 12,400

The following information is relevant:

(i) At the date of acquisition the fair values of Green Ltd’s assets and liabilities were equal to their carrying amounts with the exception of two items:

  1. An item of plant had a fair value of GH¢3.6 million above its carrying amount. The remaining life of the plant at the date of acquisition was three years. Depreciation is charged to cost of sales.
  2. Green Ltd had a contingent liability which Vantage Ltd estimated to have a fair value of GH¢900,000. This has not changed as at 30 September 20X9. Green Ltd has not incorporated these fair value changes into its financial statements.

(ii) Vantage’s policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose, Green Ltd’s share price at the date can be deemed to be representative of the fair value of the shares held by the non-controlling interest.

(iii) Sales from Vantage Ltd to Green Ltd throughout the year ended 30 September 20X9 had consistently been GH¢1.6 million per month. Vantage Ltd made a mark-up of 25% on these sales. Green Ltd had GH¢3 million of these goods in inventory as at 30 September 20X9.

(iv) Vantage Ltd’s investment income is a dividend received from its investment in a 40% owned associate which it has held for several years. The underlying earnings for the associate for the year ended 30 September 20X9 were GH¢4 million.

Required

(a) Calculate the goodwill arising on the acquisition of Green Ltd and prepare the consolidated statement of profit or loss for Vantage Ltd for the year ended 30 September 20X9.

(b) Discuss the matters to consider in determining whether an investment in another company constitutes associated company status.

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  • 10 Marks

FR – L2 – Q89 – Business Combinations

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.

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