Question Tag: Acquisition Accounting

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  • 20 Marks

FR – May 2022 – L2 – SB – Q3 – Consolidated Financial Statements

Prepare a consolidated statement of financial position for Daddy PLC as of December 31, 2020, incorporating the acquisition of Mummy PLC.

Daddy PLC is a first-tier entity quoted on the Nigerian Stock Exchange (NSE). The entity acquired 640 billion equity shares in Mummy PLC on January 1, 2020. The purchase consideration comprised the following:

  • Issue of one ordinary share of Daddy PLC in exchange for every two shares in Mummy PLC.
  • Issue of N100 12% loan notes in Daddy PLC in exchange for every 400 shares in Mummy PLC.
  • A cash payment of 15 kobo per share for every share acquired in Mummy PLC on January 1, 2020.

At the date of acquisition, the market price of Daddy PLC’s shares was 75 kobo each. The cost incurred by banks when a fixed-rate loan is paid out early is assumed to be nil. Also, Daddy PLC has recorded the 12% loan notes in the purchase consideration in the accounts.

Below are the statements of financial position for Daddy PLC and Mummy PLC as of December 31, 2020:

Additional Information:

  1. Mummy PLC’s net assets were at fair value except for an item of property, which had a fair value N50 billion higher than its carrying amount.
  2. The fair value of non-controlling interests at the date of acquisition was N100 billion.
  3. Mummy PLC sold goods worth N20 billion to Daddy PLC. N5 billion of these were included in Daddy PLC’s inventory as of December 31, 2020.
  4. Goodwill impairment of N30 billion.

You are required to prepare the consolidated statement of financial position as at December 31, 2020.

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  • 3 Marks

FR – NOV 2016 – L2 – Q1b – Business Combinations (IFRS 3)

Calculation of gain on bargain purchase arising from business acquisition with consideration of fair values and non-controlling interests.

Harmony Limited acquired 70% interest in the equity shares of Foremost Limited for N3,000,000 on January 1, 2015. The abridged Statement of Financial Position of both companies at the date of acquisition were as follows:

HARMONY LIMITED FOREMOST LIMITED
N’000 N’000
Identifiable Assets 32,800 8,000
Investment in Foremost Limited 3,000 _____
35,800 8,000
Equity 24,000 4,800
Identifiable Liabilities 11,800 3,200
35,800 8,000

The fair value of the identifiable assets of Foremost Limited amounts to N11,200,000 and the fair value of its liabilities is N3,200,000. The Non-Controlling Interest will be measured as a percentage of the Net Asset of the acquiree.

Required:

Calculate the Gain on Bargain Purchase arising from the acquisition.

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  • 20 Marks

CR – Nov 2019 – L3 – Q1 – Consolidated Financial Statements

Prepare the consolidated statement of financial position for Herd Ltd and its subsidiaries as of 31 March 2019.

The following statements of financial position are as at 31 March 2019:

Assets Herd Ltd (GH¢m) Swarm Ltd (GH¢m) Army Ltd (GH¢m)
Tangible non-current assets 1,280 440 280
Investment in Swarm Ltd 400 – –
Investment in Army Ltd 60 – –
Current assets 544 190 130
Total assets 2,284 630 410
Equity and liabilities Herd Ltd (GH¢m) Swarm Ltd (GH¢m) Army Ltd (GH¢m)
Stated capital 950 260 230
Revaluation reserve 90 – –
Retained earnings 390 210 94
Total equity 1,430 470 324
Non-current liabilities 640 30 16
Current liabilities 214 130 70
Total equity and liabilities 2,284 630 410

Herd Ltd acquired the following shareholdings in Swarm Ltd and Army Ltd:

Company Date of Acquisition Holding Acquired Fair Value of Net Assets (GH¢m) Purchase Consideration (GH¢m)
Swarm Ltd 1 April 2016 10% 325 30
1 April 2018 70% 460 370
Army Ltd 1 April 2018 25% 200 60

You are provided with the following additional information relevant to the consolidation:

  • The carrying value of Swarm Ltd’s net assets at 1 April 2016 was equal to its fair value (GH¢325m).
  • The fair value of the initial 10% investment in Swarm Ltd at 31 March 2018 was GH¢40m.
  • Herd Ltd uses the full fair value method for acquisition accounting. The non-controlling interests in Swarm Ltd at 1 April 2018 were valued at GH¢95m.
  • The fair value of Swarm Ltd’s land was GH¢25m above its carrying value as of 1 April 2018. No change in this value occurred subsequently.
  • Army Ltd’s land had a fair value excess of GH¢16m over its carrying value as of 1 April 2017.
  • Goodwill from the acquisition of Swarm Ltd has been impaired by GH¢15m as of 31 March 2019. No impairment has occurred for the Army Ltd investment.
  • Herd Ltd formed a defined benefit pension scheme and contributed GH¢250m to it, included in receivables as of 31 March 2019. The present value of the pension obligations is GH¢317m, and the fair value of plan assets is GH¢302m.

Required: Prepare the consolidated statement of financial position of the Herd Ltd group as at 31 March 2019.

 

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  • 20 Marks

FR – May 2022 – L2 – SB – Q3 – Consolidated Financial Statements

Prepare a consolidated statement of financial position for Daddy PLC as of December 31, 2020, incorporating the acquisition of Mummy PLC.

Daddy PLC is a first-tier entity quoted on the Nigerian Stock Exchange (NSE). The entity acquired 640 billion equity shares in Mummy PLC on January 1, 2020. The purchase consideration comprised the following:

  • Issue of one ordinary share of Daddy PLC in exchange for every two shares in Mummy PLC.
  • Issue of N100 12% loan notes in Daddy PLC in exchange for every 400 shares in Mummy PLC.
  • A cash payment of 15 kobo per share for every share acquired in Mummy PLC on January 1, 2020.

At the date of acquisition, the market price of Daddy PLC’s shares was 75 kobo each. The cost incurred by banks when a fixed-rate loan is paid out early is assumed to be nil. Also, Daddy PLC has recorded the 12% loan notes in the purchase consideration in the accounts.

Below are the statements of financial position for Daddy PLC and Mummy PLC as of December 31, 2020:

Additional Information:

  1. Mummy PLC’s net assets were at fair value except for an item of property, which had a fair value N50 billion higher than its carrying amount.
  2. The fair value of non-controlling interests at the date of acquisition was N100 billion.
  3. Mummy PLC sold goods worth N20 billion to Daddy PLC. N5 billion of these were included in Daddy PLC’s inventory as of December 31, 2020.
  4. Goodwill impairment of N30 billion.

You are required to prepare the consolidated statement of financial position as at December 31, 2020.

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  • 3 Marks

FR – NOV 2016 – L2 – Q1b – Business Combinations (IFRS 3)

Calculation of gain on bargain purchase arising from business acquisition with consideration of fair values and non-controlling interests.

Harmony Limited acquired 70% interest in the equity shares of Foremost Limited for N3,000,000 on January 1, 2015. The abridged Statement of Financial Position of both companies at the date of acquisition were as follows:

HARMONY LIMITED FOREMOST LIMITED
N’000 N’000
Identifiable Assets 32,800 8,000
Investment in Foremost Limited 3,000 _____
35,800 8,000
Equity 24,000 4,800
Identifiable Liabilities 11,800 3,200
35,800 8,000

The fair value of the identifiable assets of Foremost Limited amounts to N11,200,000 and the fair value of its liabilities is N3,200,000. The Non-Controlling Interest will be measured as a percentage of the Net Asset of the acquiree.

Required:

Calculate the Gain on Bargain Purchase arising from the acquisition.

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  • 20 Marks

CR – Nov 2019 – L3 – Q1 – Consolidated Financial Statements

Prepare the consolidated statement of financial position for Herd Ltd and its subsidiaries as of 31 March 2019.

The following statements of financial position are as at 31 March 2019:

Assets Herd Ltd (GH¢m) Swarm Ltd (GH¢m) Army Ltd (GH¢m)
Tangible non-current assets 1,280 440 280
Investment in Swarm Ltd 400 – –
Investment in Army Ltd 60 – –
Current assets 544 190 130
Total assets 2,284 630 410
Equity and liabilities Herd Ltd (GH¢m) Swarm Ltd (GH¢m) Army Ltd (GH¢m)
Stated capital 950 260 230
Revaluation reserve 90 – –
Retained earnings 390 210 94
Total equity 1,430 470 324
Non-current liabilities 640 30 16
Current liabilities 214 130 70
Total equity and liabilities 2,284 630 410

Herd Ltd acquired the following shareholdings in Swarm Ltd and Army Ltd:

Company Date of Acquisition Holding Acquired Fair Value of Net Assets (GH¢m) Purchase Consideration (GH¢m)
Swarm Ltd 1 April 2016 10% 325 30
1 April 2018 70% 460 370
Army Ltd 1 April 2018 25% 200 60

You are provided with the following additional information relevant to the consolidation:

  • The carrying value of Swarm Ltd’s net assets at 1 April 2016 was equal to its fair value (GH¢325m).
  • The fair value of the initial 10% investment in Swarm Ltd at 31 March 2018 was GH¢40m.
  • Herd Ltd uses the full fair value method for acquisition accounting. The non-controlling interests in Swarm Ltd at 1 April 2018 were valued at GH¢95m.
  • The fair value of Swarm Ltd’s land was GH¢25m above its carrying value as of 1 April 2018. No change in this value occurred subsequently.
  • Army Ltd’s land had a fair value excess of GH¢16m over its carrying value as of 1 April 2017.
  • Goodwill from the acquisition of Swarm Ltd has been impaired by GH¢15m as of 31 March 2019. No impairment has occurred for the Army Ltd investment.
  • Herd Ltd formed a defined benefit pension scheme and contributed GH¢250m to it, included in receivables as of 31 March 2019. The present value of the pension obligations is GH¢317m, and the fair value of plan assets is GH¢302m.

Required: Prepare the consolidated statement of financial position of the Herd Ltd group as at 31 March 2019.

 

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