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  • 20 Marks

FR – Nov 2024 – L2 – Q1- Group Financial Statements

Preparation of the consolidated statement of profit or loss and statement of financial position for Yarkpawolo Group, including goodwill calculation and intra-group adjustments.

Yarkpawolo LTD, a company in the healthcare industry, purchased 80% of the ordinary shares of Weah LTD on 1 January 2023. There are three elements to the purchase consideration: an immediate payment of GH¢1,400,000 and two further payments of GH¢100,000 on 31 December 2023 and GH¢120,000 on 31 December 2024 if the return on capital employed (ROCE) exceeds 15% in each of the financial years. All indicators have suggested that the ROCE for the company will be 17% and 16% for the financial years ending 31 December 2023 and 31 December 2024 respectively.

Yarkpawolo uses a discount rate of 10% in any present value calculations. The present value of GH¢ 1 receivable based on 10% are as follows:

Year Present Value
1 0.909
2 0.826

The draft financial statements of both companies as at 31 December 2023 are as follows:

Statement of Profit or Loss for the year ended 31 December 2023

Yarkpawolo (GH¢’000) Weah (GH¢’000)
Sales revenue 14,000
Cost of sales (10,000)
Gross profit 4,000
Operating expenses (2,050)
Profit before tax 1,950
Income tax expense (450)
Profit for the year 1,500
Retained earnings brought forward 3,500
Retained earnings to statement of financial position 5,000

Statement of Financial Position as at 31 December 2023

Yarkpawolo (GH¢’000) Weah (GH¢’000)
Non-current assets:
Property, Plant & Equipment 4,500
Patents 500
Investment in Weah 1,400
Total Non-current assets 6,400
Current assets:
Inventories 5,500
Trade and other receivables 2,000
Cash and cash equivalents 1,200
Total Current assets 8,700
Total Assets 15,100
Equity:
Share capital (GH¢0.20 per ordinary share) 1,500
General reserve 3,000
Retained earnings as at 31 December 2023 5,000
Total Equity 9,500
Non-current liabilities:
Long-term borrowings 1,600
Current liabilities:
Trade and other payables 4,000
Current portion of long-term borrowings –
Total Liabilities 5,600
Total Equity and Liabilities 15,100

Additional Information:

  1. Fair Value Adjustments on PPE:

    • Property: Increase from GH¢200,000 to GH¢250,000 (Depreciation rate 10%)
    • Plant: Increase from GH¢80,000 to GH¢100,000 (Depreciation rate 20%)
    • Equipment: Decrease from GH¢120,000 to GH¢80,000 (Depreciation rate 20%)
    • Weah has not adjusted its PPE values for the fair value assessment.

  2. Intra-Group Trading:

    • Since acquisition, Weah purchased GH¢50,000 worth of goods from Yarkpawolo. Half of these goods remained in inventory at year-end. Yarkpawolo makes a mark-up on cost of 25%.
    • Yarkpawolo also purchased GH¢50,000 of goods from Weah, with one-third remaining in inventory. Weah sells at a margin of 20%.

  3. Intercompany Balances:

    • Yarkpawolo’s trade receivables include GH¢5,000 owed by Weah. The current accounts do not balance due to GH¢2,000 in transit from Weah.

  4. Impairment:

    • A goodwill impairment review identified a loss of GH¢100,000. No adjustment has been made yet.

  5. Non-controlling Interest Valuation:

    • Yarkpawolo values non-controlling interest at fair value at the acquisition date. The share price for Weah was GH¢0.75 per share.

Required:
Prepare for Yarkpawolo LTD:
(a) Consolidated Statement of Profit or Loss for the year ended 31 December 2023
(b) Consolidated Statement of Financial Position as at 31 December 2023

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  • 30 Marks

CR – May 2016 – L3 – Q1 – Presentation of Financial Statements (IAS 1)

Explain earnings management, calculate goodwill, and prepare a consolidated statement of cash flows for Joy-land Group.

Given that accrual accounting tends to mask actual cash flow performance, stock analyst and rating agencies are generally more interest in cash flow. The directors of Joy-land Plc have called for the cash flow statement of the group so as to have a view of earnings performance devoid of accruals. The following draft group financial statements relate to Joy-land Plc.
Joy-land Plc Group: Statement of financial position as of November 30

Joy-land Group: Statement of comprehensive income for the year ended November 30, 2015.

Joy-land Group: Statement of comprehensive income for the year ended November 30, 2015.

Joy-land Group: Statement of changes in equity for the year ended November 30, 2015

The following additional information relates to the financial statements of Joy-land
(i) On December 1 2013, Joy-land acquired 8% of the ordinary shares of Talk peace. Joy-land had treated this investment as available for sale in the financial statement to November 30, 2014. On December 1, 2014. Joyland acquired a further 52% of the ordinary shares of Talk-peace and gained control of the company, the consideration for the acquisitions was as follows:

At December 1, 2014 the fair value of the 8% holding in talk peace held by Joy-land at the time of the business combination was N20 million and the fair value of the noncontrolling interest in Talk-peace was N80million. no gain or loss on the 8% holding in Talk-peace had been reported in the financial statement at December 1, 2014, the
purchase consideration at December 1, 2014 comprised cash of N60 million and share of N60million.
The fair value of identifiable net assets of Talk-peace at the date of acquisition comprised the following:

(ii) Goodwill Impairment

  • Goodwill for all subsidiaries has undergone impairment testing for the financial year ending November 30, 2015.
  • Impairment losses identified were specific to subsidiaries 100% owned by Joy-land.

(iii) Purchase of Research Project (IAS 38)

  • On December 1, 2014, Joy-land purchased a research project from a third party for ₦32 million, which was recognized as an intangible asset under IAS 38.
  • Additional costs incurred during the year include:
    • ₦8 million to complete the research phase.
    • ₦16 million for product development (capitalizable).
    • ₦4 million for initial marketing costs (not capitalizable; already accounted for correctly).
  • No other additions to intangible assets were recorded, except those from the acquisition of Talk-peace.

(iv) Rights Issue by Talk-peace

  • On November 30, 2015, Talk-peace issued new shares on a 1 for 4 basis.
  • The issue was fully subscribed and raised ₦20 million in cash.

(v) Investment Property (IAS 40)

  • Joy-land uses the fair value model to measure its investment properties.
  • During the year:
    • Part of the air-conditioning system (carrying value: ₦2 million) was replaced with a new system costing ₦4 million.
    • The replacement aligns with the treatment under IAS 40.

(vi) Sale of Surplus Land

  • Joy-land sold surplus land with a carrying value of ₦40 million for:
    • ₦60 million in cash, and
    • Plant valued at ₦16 million (part of the consideration).
  • The resulting gain on disposal has already been included in the income statement.
  • Depreciation for property, plant, and equipment (PPE) for the year totaled ₦108 million.

(vii) Defined Benefit Scheme

  • Joy-land operates a defined benefit pension scheme for select top executives and expatriates (in addition to its contributory pension scheme).
  • Current-year figures for the defined benefit scheme:
    Description ₦’m
    Opening Balance (Dec 1, 2014) 88
    Current Year Charge to P&L 16
    Contributions Paid (28)
    Actuarial Loss to OCI 24
    Closing Balance (Nov 30, 2015) 100

(viii) The associate company did not pay any dividends in the year.
(ix) Deferred tax of N40illion arose on the gains on available for sale investments in the year

Required
(a) As the CFO of the group, briefly explain to the legal and engineer directors what is meant by earnings management giving TWO examples of how accruals could   be employed in the earning management. (3 marks)
N’m
Balance at the beginning, December 1, 2014 88
Charge to profit or loss for the year 16
Pension contributions paid during the year (28)
Actuarial loss to other comprehensive income 24
Balance at the end, November 30 2015 100
(b) Determine the goodwill arising on the acquisition of the subsidiary on December 1, 2014 and total goodwill impairments of the group as at November 30, 2015 statement of cash flow on the assumption that it is the policy of Joyland Plc to value Non-controlling interest at full fair value. (3 marks)
(c) Prepare a consolidated statement of cash flows for the Joy-land Group for the year ended November 30, 2015 using the indirect method under IAS 7 ‘statement of Cash flow.
Note; Ignore deferred taxation other than where is mention in the question.

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  • 30 Marks

CR – Nov 2014 – L3 – SA – Q1 – Consolidated Financial Statements (IFRS 10)

Prepare a consolidated statement of financial position for Bagat Plc, incorporating details on acquisitions, impairments, and inter-company balances.

Bagat Plc has two subsidiaries (Megat and Mingat) and one associate (Cagat). Since the adoption of IFRS by Government Bagat has been preparing its consolidated financial statements in accordance with the principles of International Financial Reporting Standards (IFRS). The draft Statements of Financial Position of Bagat and its two subsidiaries as at 31 May 2013 are as follows:

Draft Statements of Financial Position as at 31 May 2013

The following information is relevant to the preparation of the group financial statements:

i. On 1 June, 2012, Bagat acquired 80% of the equity interest of Megat Plc. On the date of acquisition, the retained earnings of Megat were N2.72 billion and other components of equity were N80 million. There had been no new issue of capital by Megat since the date of acquisition. The purchase consideration comprised cash of N6 billion whereas the fair value of the identifiable net assets of Megat on this date was N8 billion. The excess of the fair value of the net assets is due to an increase in the value of non-depreciable land. An independent valuer has stated that the fair value of the non-controlling interests in Megat was N1.72 billion on 1 June, 2012. It is the policy of Bagat to measure non-controlling interests on the basis of their proportionate share in the identifiable net assets of the acquired subsidiary and not at fair value (full goodwill method).

ii. Also on 1 June, 2012, Bagat acquired 70% of the ordinary shares of Mingat. The consideration for the acquisition of these shares was N2.56 billion. Under the purchase agreement of 1 June, 2012, Bagat is required to pay the former shareholders of Mingat 30% of the profits of Mingat on 31 May, 2014 for each of the financial years to 31 May, 2013 and 31 May, 2014. The fair value of this arrangement was estimated at N120 million at 1 June, 2012, and this value has not changed. This amount has not been included in the financial statements. The fair value of the identifiable net assets at 1 June, 2012 of Mingat was N3.52 billion and the retained earnings and other components of equity were N1.1 billion and N140 million respectively. There had been no new issue of share capital by Mingat since the date of acquisition and the excess of the fair value of the net assets is due to an increase in the value of property, plant, and equipment (PPE). The fair value of the non-controlling interests in Mingat was N1.06 billion on this date. PPE is depreciated on a straight-line basis over seven years.

iii. Finally, Bagat acquired a 25% interest in Cagat Plc on 1 June, 2012 for N400 million achieving significant influence over that company in its financial and operating policy decisions. Cagat Plc retained earnings for the year to 31 May, 2013 was N200 million.

iv. Included in trade receivables of Bagat at 31 May, 2013 is a receivable from Megat of N30 million. Unknown to Bagat, Megat has paid this amount through a bank transfer by the close of work on 31 May, 2013, but it had not yet been reflected in the bank statement of Bagat. Megat has already passed accounting entries to reflect this transaction.

v. Goodwill arising on the purchase of Mingat was tested for impairment on 31 May, 2013, and this provided evidence of impairment to the tune of N36 million. No accounting entries have been passed to reflect the impairment.

Required:

Prepare a consolidated statement of financial position as at 31 May, 2013 for the Bagat Group. (30 Marks)

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  • 6 Marks

CR – May 2023 – L3 – Q2b – Consolidated Financial Statements (IFRS 10)

Discuss the advantages of using consolidated financial statements and enumerate the contents of an environmental report in an annual report.

(b) The annual reports of the group also contain separate financial statements of the parent company (Octopus Petroleum Plc). Some companies also include social and environmental reports as part of their financial statements.

Required:
i. Explain why it is better to use the consolidated financial statements for financial analysis rather than the parent’s separate financial statements. (4 Marks)
ii. Enumerate the possible contents of an environmental report included in the annual report of companies. (2 Marks)

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  • 22 Marks

CR – May 2023 – L3 – Q1a – Consolidated Financial Statements (IFRS 10)

Prepare a consolidated statement of financial position for Omi PLC and subsidiaries.

The draft statement of financial position of Omi PLC, Ruwa Limited, and Mmili Limited as of November 30, 2020, are as follows:

Additional Information for Consolidated Financial Statements Preparation:

  1. Acquisition of Ruwa Limited:
    • Omi PLC acquired 80% of Ruwa Limited’s ordinary share capital on December 1, 2017.
    • Retained earnings of Ruwa Limited at acquisition: N400 million.
    • Fair value of Ruwa Limited’s net assets: N2,840 million.
    • Any fair value adjustment pertains to net current assets, which had been realized by November 30, 2020.
    • No new issue of shares occurred in the group since the establishment of the current structure.
  2. Acquisition of Mmili Limited:
    • On December 1, 2018, Omi PLC acquired 40% and Ruwa Limited acquired 25% of Mmili Limited’s ordinary share capital.
    • Retained earnings of Mmili Limited at acquisition: N200 million.
    • Retained earnings of Ruwa Limited at acquisition: N600 million.
    • No revaluation surplus existed in Mmili Limited’s books at acquisition, and the fair value of Mmili Limited’s net assets was consistent with their carrying amount.
  3. Development Costs:
    • Significant expenditure incurred on developing internet products. These were initially written off but later reinstated as development inventories upon commercial use.
    • Costs do not meet the recognition criteria of IAS 38 – Intangible Assets.
    • Ruwa Limited included N80 million of these costs in its inventory, of which N20 million relates to expenses from periods before December 1, 2017.
    • The group wishes to ensure compliance with IFRS for this treatment.
  4. Internet Equipment:
    • Ruwa Limited purchased new internet equipment for N200 million, excluding a trade discount of N24 million.
    • The discount was recorded in the income statement.
    • Depreciation is calculated using the straight-line method over six years.
  5. Property, Plant, and Equipment Policy:
    • The group transitioned from the revaluation model to the cost model under IAS 16 – Property, Plant, and Equipment in 2020.
    • Mmili Limited’s assets were revalued on December 1, 2019, creating a revaluation surplus of N280 million.
    • Mmili Limited’s property was originally purchased in December 2018 for N1,200 million, with depreciation over six years.
    • The group does not transfer excess depreciation from revaluation reserves to retained earnings.
  6. Valuation of Non-controlling Interests:
    • The group values non-controlling interests at acquisition using their proportionate share of the subsidiary’s identifiable net assets.
  7. Defined Benefit Pension Scheme:
    • Omi PLC established a defined benefit pension scheme, contributing N400 million to it.
    • Details as of November 30, 2020:
      • Present value of obligation: N520 million.
      • Fair value of plan assets: N500 million.
      • Current service cost: N440 million.
      • Interest cost (scheme liabilities): N80 million.
      • Expected return on pension assets: N40 million.
      • Actuarial gain: N60 million.
    • The only recorded entry was the cash contribution, included in Omi PLC’s trade receivables.
    • Directors propose recognizing actuarial gain immediately in the statement of profit or loss.

Required:
Prepare the consolidated statement of financial position of Omi Group for the year ended November 30, 2020, in accordance with relevant IFRS.

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  • 30 Marks

AAA – May 2018 – L3 – SA – Q1 – Audit of Complex Entities

Evaluate materiality reassessment, audit findings, and joint audit implications for Honey Group’s financial statements.

You are a manager in Puposola & Company (Chartered Accountants) responsible for the audit of the Honey Group (the Group), a quoted company. The Group’s main activity is steel manufacturing and it comprises of a parent company and three subsidiaries. Your firm currently audits all components of the Group. You are working on the audit of the Group’s financial statements for the year ended June 30, 2017. This morning, the audit engagement partner left a note for you.

“Hello

I have gone through the draft consolidated financial statements and accompanying notes which summarise the key audit findings and some background information.

Although, at the planning stage, materiality was initially determined to be N900,000, and was calculated based on the assumption that Honey Group is a high-risk client due to its listing status. However, due to a number of issues that arose during the audit, there is a need to revise the materiality level for the financial statements as a whole. The revised level of materiality should now be N700,000.

Thank you.”

The Group’s draft consolidated financial statements, with notes referenced to key audit findings, are shown below:

Draft Consolidated Statement of Comprehensive Income

Note June 30, 2017 Draft (N’000) June 30, 2016 Actual (N’000)
Revenue 98,795 103,100
Cost of sales (75,250) (74,560)
Gross profit 23,545 28,540
Operating expenses (14,900) (17,500)
Operating profit 8,645 11,040
Share of profit of associate 1,010 900
Finance costs (380) (340)
Profit before tax 9,275 11,600
Taxation (3,200) (3,500)
Profit for the year 6,075 8,100
Other comprehensive income for the year, net of tax:
Gain on property revaluation 800 —–
Actuarial losses on defined benefit plan (1,100) (200)
Other comprehensive loss (300) (200)
Total comprehensive income for the year 5,775 7,900

Notes: Key Audit Findings on Statement of Comprehensive Income

  1. Revenue has been stable for all components of the Group with the exception of one subsidiary, Copesink Company, which witnessed a 25% decrease in revenue.
  2. Operating expenses for the year to June 2017 is shown net of profit on a property disposal of N2 million. Our evidence includes agreeing the cash receipts to the bank statement and sale documentation, and we have confirmed that the property has been removed from the non-current asset register. The audit junior noted when reviewing the sale document that there is an option to repurchase the property in five years’ time, but did not discuss the matter with management.
  3. The property revaluation relates to the Group’s head office. The audit team has not obtained evidence on the revaluation, as the gain was immaterial based on the initial calculation of materiality.
  4. The actuarial loss is attributed to an unexpected stock market crash. The Group’s pension plan is managed by Axial Company, a firm of independent fund managers who maintain the necessary accounting records relating to the plan. Axial Company has supplied written representation as to the value of the defined benefit plan’s assets and liabilities at June 30, 2017. No other audit work has been performed other than to agree the amount reported in the financial statements to supporting documentation supplied by Axial Company.

Draft Consolidated Statement of Financial Position

Note June 30, 2017 Draft (N’000) June 30, 2016 Actual (N’000)
ASSETS
Non-current assets
Property, plant and equipment 81,800 76,300
Goodwill 5,350 5,350
Investment in associate 4,230 4,230
Non-current assets held for sale 7,800 –
Total non-current assets 99,180 85,880
Current assets
Inventory 8,600 8,000
Receivables 8,540 7,800
Cash and cash equivalents 2,100 2,420
Total current assets 19,240 18,220
Total assets 118,420 104,100
EQUITY AND LIABILITIES
Equity
Share capital 12,500 12,500
Revaluation reserve 3,300 2,500
Retained earnings 33,600 29,400
Non-controlling interest 4,350 4,000
Total equity 53,750 48,400
Non-current liabilities
Defined benefit pension plan 10,820 9,250
Long-term borrowings 43,000 35,000
Deferred tax 1,950 1,350
Total non-current liabilities 55,770 45,600
Current liabilities
Trade and other payables 6,200 7,300
Provisions 2,700 2,800
Total current liabilities 8,900 10,100
Total liabilities 64,670 55,700
Total equity and liabilities 118,420 104,100

Notes: Key Audit Findings on Statement of Financial Position

  1. The goodwill relates to each of the subsidiaries in the Group. Management has confirmed in writing that goodwill is stated correctly, and our other audit procedure was to arithmetically check the impairment review conducted by management.
  2. The associate is a 30% holding in Jamil Company, purchased to provide investment income. The audit team has not obtained evidence regarding the associate as there is no movement in the amount recognised in the statement of financial position.
  3. The non-current assets held for sale relate to a trading division of one of the subsidiaries, which represents one third of that subsidiary’s net assets. The sale of the division was announced in May 2017, and is expected to be complete by December 31, 2017. Audit evidence obtained includes a review of the sales agreement and confirmation from the buyer obtained in July 2017, that the sale will take place.
  4. Two of the Group’s subsidiaries are partly owned by shareholders external to the Group.
  5. A loan of N8 million was obtained in October 2016 at an interest rate of 2%, payable annually in arrears. The terms of the loan have been confirmed from the loan agreement provided by the bank. There was no repayment of the loan in the books as at prior year end.

Required:

a. Explain why auditors may need to reassess materiality as the audit progresses. (4 Marks)

b. Assess the implications of the key audit findings for the completion of the audit.

Note: Your assessment must consider whether the key audit findings indicate a risk of material misstatement. Where the key audit findings refer to audit evidence, you must also consider the adequacy of the audit evidence obtained, but you do not need to recommend further specific procedures. (18 Marks)

c. Discuss TWO advantages and TWO disadvantages of a joint audit being performed on the financial statements. (8 Marks)

(Total 30 Marks)

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  • 30 Marks

CR – Nov 2023 – L3 – SA – Q1 – Consolidated Financial Statements (IFRS 10)

Prepare a consolidated statement of financial position for Sports PLC Group, considering goodwill, non-controlling interests, impairments, and disposals.

Sports PLC is a company which operates in the service sector. Sports PLC has a business relationship with Football PLC and Volleyball PLC. The financial positions of these companies as at September 30, 2020, are stated below:

Item Sports PLC Football PLC Volleyball PLC
Non-current assets: N’m N’m N’m
Property, plants, and equipment 1,840 600 620
Investment in subsidiaries:
– Football PLC 1,460 – –
– Volleyball PLC 640 – –
Investment in Handball PLC 96 – –
Intangible assets 396 60 70
Total Non-current assets 3,792 1,300 690
Current assets 1,790 960 500
Total assets 5,582 2,260 1,190

Equity and liabilities

Item Sports PLC Football PLC Volleyball PLC
Ordinary share capital 1,840 800 400
Other components of equity 146 74 50
Retained earnings 1,790 884 278
Total equity 3,776 1,758 728
Non-current liabilities 990 246 186
Current liabilities 816 256 276
Total liabilities 1,806 502 462
Total equity and liabilities 5,582 2,260 1,190

Additional Information

  1. Acquisition of Football PLC:
    • On October 1, 2018, Sports PLC acquired 70% of the equity interest in Football PLC. The purchase consideration was cash of N1,460 million. At the acquisition date, the fair value of the non-controlling interests (NCI) in Football PLC was N590 million. The fair value of the identifiable net assets acquired was N1,670 million. Retained earnings of Football PLC were N638 million, and other components of equity were N54 million. The excess in fair value is due to non-depreciable land.
  2. Acquisition of Volleyball PLC:
    • On October 1, 2019, Football PLC acquired 80% of the equity interest in Volleyball PLC for a cash consideration of N640 million. The fair value of the non-controlling interests for 20%, 30%, and 44% holdings was N144 million, N216 million, and N322 million, respectively. At the date of acquisition, the fair value of the identifiable net assets of Volleyball PLC was N724 million. Retained earnings were N212 million, and other components of equity were N40 million. The excess in fair value is due to non-depreciable land. The group’s policy is to measure the non-controlling interests at fair value at the acquisition date.
  3. Impairment Testing:
    • As of September 30, 2020, both Football PLC and Volleyball PLC were tested for impairment. The recoverable amounts for Football PLC and Volleyball PLC were N2,850 million and N1,208 million, respectively. Directors determined that impairment was due to poor performance of intangible assets.
  4. Investment in Handball PLC:
    • On October 1, 2018, Sports PLC acquired a 14% interest in Handball PLC for N36 million, classified as fair value through other comprehensive income (FVTOCI). On April 1, 2020, Sports PLC acquired an additional 16% interest for N54 million, achieving significant influence. The value of the original 14% investment on April 1, 2020, was N42 million. Handball PLC reported after-tax profits of N40 million for the year ending September 30, 2019, and N60 million for the year ending September 30, 2020. In September 2020, Sports PLC received a dividend of N4 million from Handball PLC, credited to other components of equity.
  5. Project Development Costs:
    • Sports PLC purchased patents costing N20 million on October 1, 2019, to develop new products. An additional investigative cost of N14 million was incurred, and a working prototype was created at a cost of N8 million. Another N6 million was spent to prepare the product for sale, and marketing costs amounted to N4 million. All costs were included in intangible assets.
  6. Disposal Plan:
    • Sports PLC intends to dispose of a major patent line. At the date the criteria for “held for sale” were met, the carrying amounts were:
      • Property, Plant, and Equipment: N36 million
      • Inventories: N98 million
      • Current Liabilities (Trade Payables): N6 million
    • Expected proceeds are N60 million. No adjustments have been made to the financial statements for this decision.

Required: Prepare the consolidated statement of financial position for Sports PLC Group as of September 30, 2020. (30 Marks)

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  • 30 Marks

CR – NOV 2017 – Q1 – Consolidated Financial Statements

Prepare the consolidated statement of financial position for Papa Group as at March 31, 2017.

The following are the financial statements of Papa, Tata, and Chebe, all Plcs. as at March 31, 2017:

Papa (N’m) Tata (N’m) Chebe (N’m)
Assets:
Tangible non-current assets 1,280 440 280
Investment in Tata 413 – –
Investment in Chebe 60 – –
Current assets 531 190 130
Total assets 2,284 630 410

Equity and liabilities:

Equity and Liabilities Papa (N’m) Tata (N’m) Chebe (N’m)
Share capital of N1 each 800 240 200
Share premium 150 20 30
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

Papa acquired the following shareholdings in Tata and Chebe:

Date of acquisition Holding acquired Fair value of net assets Purchase consideration
Tata April 1, 2014 30% 325
April 1, 2016 50% 460
Chebe April 1, 2016 25% 200

You are also provided with the following information, which will be relevant to the consolidated financial statements of Papa Plc:

(i) None of the companies has issued any additional share capital since April 1, 2014.
(ii) The financial statements of Papa have not yet been adjusted for the gain or loss arising on gaining control of Tata.
(iii) At April 1, 2014, the carrying value of the net assets of Tata was the same as their fair value of N325 million.
(iv) Papa Plc. wishes to use the full fair value method of accounting for the acquisition of Tata, and at April 1, 2016 the estimated value of goodwill attributable to non-controlling interests was N3 million. The estimated fair value of the initial investment in 30% of the shares of Tata was N150 million at March 31, 2017.
(v) Included in the tangible non-current assets of Tata is land, valued at cost, which on March 31, 2017 had a fair value of N25 million in excess of its carrying value. There has been no subsequent significant change in that value.
(vi) At April 1, 2016, the fair value of Chebe’s land was N16 million in excess of its carrying value. There has been no subsequent significant change in that value.
(vii) Goodwill arising on acquisition is tested for impairment at each year-end. At March 31, 2017, an impairment loss of N15 million was recognised for Tata.
(viii) There has been no impairment of the investment in Chebe.

Required:
Prepare the consolidated statement of financial position of Papa Group as at March 31, 2017.
(Total 30 Marks)

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  • 20 Marks

FR – May 2024 – L2 – SA – Q3 – Consolidated Financial Statements

Preparation of consolidated financial statements, calculation of goodwill, and non-controlling interest.

Olu Nigeria PLC has a subsidiary, Oba Limited, which it acquired on January 1, 2022. The financial statements of the companies are detailed below:

Statements of Profit or Loss for the year ended September 30, 2022

Additional Information:

  1. Olu PLC acquired its 70% interest in Oba Limited through a share exchange of three shares in Olu PLC for every five shares in Oba Limited. At the acquisition date, the shares of Olu PLC were sold at ₦8.10 each on the Nigerian Exchange (NGX). The parent company has not recorded this share issue in its books.
  2. At the acquisition date, the fair value of Oba Limited’s assets equaled their carrying amounts except for an item of plant, which had a fair value of N30,000,000 above its carrying amount. This fair value increase has not been adjusted in Oba Limited’s books. The plant’s remaining life at acquisition was five years.
  3. During the year, Oba Limited transferred goods worth N40,000,000 to Olu PLC. These goods were invoiced at cost plus 25%, and only a quarter of them were sold by Olu PLC at year-end.
  4. Included in the other income was N6,550,000 received from Oba Limited as interest paid on a loan granted by Olu PLC. The loan was fully repaid before September 30, 2022.
  5. An impairment test revealed a goodwill impairment of N28,000,000 at the acquisition date.
  6. It is the group’s policy to value non-controlling interests at fair value. The prevailing market price per ordinary share of Oba Limited at January 1, 2022, was ₦5.05.
  7. The gain on the revaluation of property arose from an independent valuation of the group’s property in September 2022.
  8. Administrative expenses of Oba Limited included N10,000,000 paid as management fees to Olu PLC, and the income has been duly recorded in Olu PLC’s books.
  9. Income and expenses accrue evenly over the period.

Required:

a. Prepare the consolidated statement of profit or loss and other comprehensive income for Olu Group for the year ended September 30, 2022. (12 Marks)

b. Calculate the goodwill on acquisition and the non-controlling interest at the reporting date. (4 Marks)

c. IFRS 10 – Consolidated Financial Statements states that a parent must present consolidated financial statements for its investments in subsidiaries.

Required:
State FOUR exceptions to this pronouncement. (4 Marks)

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  • 20 Marks

FR – May 2024 – L2 – SB – Q2 – Consolidated Financial Statements (IFRS 10)

Prepare a consolidated statement of financial position for Sokoto Nig. PLC as at October 31, 2023, and explain how the investment in the subsidiary should be accounted for in the parent’s separate financial statements.

The following are the statements of financial position of Sokoto Nig. PLC and Niger Nig. LTD for the year ended October 31, 2023:

Additional Information:

  1. Sokoto Nig. PLC purchased 70% of the issued ordinary share capital of Niger Nig. LTD four years ago when the retained earnings of Niger Nig. LTD were N160,000. There has been no impairment of goodwill.
  2. For the purpose of the acquisition, plant and machinery in Niger Nig. LTD with a carrying amount of N400,000 were revalued to a fair value of N480,000. The revaluation was not recorded in the accounts of Niger Nig. LTD. Depreciation is charged at 20% using the straight-line method.
  3. Sokoto Nig. PLC sells goods to Niger Nig. LTD at a mark-up of 25%. At October 31, 2023, the inventories of Niger Nig. LTD included N360,000 of goods purchased from Sokoto Nig. PLC.
  4. Niger Nig. LTD owes Sokoto Nig. PLC N280,000 for goods purchased, and Sokoto Nig. PLC owes Niger Nig. LTD N120,000.
  5. It is the group policy to value non-controlling interests at fair value.
  6. The market price of the shares of the non-controlling shareholders just before the acquisition was N1.50 per share.

You are required to:
a. Prepare the consolidated statement of financial position of Sokoto group as at October 31, 2023. (17 Marks)
b. Explain how investment in a subsidiary should be accounted for in the separate financial statements of the parent. (3 Marks)

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  • 15 Marks

FR – Nov 2015 – L2 – Q5 – Consolidated Financial Statements (IFRS 10)

Prepare the consolidated statement of financial position and calculate goodwill and non-controlling interest for UDO Group Plc.

The trial balance of UDO Plc and its subsidiary, ALOMA Plc, as at December 31, 2014, is given below:

UDO Plc acquired 75% of ALOMA Plc on January 1, 2014, for N1,300,000,000, when the retained earnings of ALOMA Plc were N600 million and the share premium was N170 million. Neither the acquisition nor the loan notes obtained to finance the purchase were recorded in the trial balance. There has been no impairment of goodwill, and no change in share capital since acquisition. It is the group policy to value the non-controlling interest at fair value, which was estimated to be N160 million.

Required:
Prepare the consolidated statement of financial position of UDO Group Plc as at December 31, 2014.

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  • 20 Marks

FR – Nov 2019 – L2 – Q3 – Consolidated Financial Statements (IFRS 10)

Prepare a consolidated statement of financial position for Family Plc as of September 30, 2019, including the calculation of goodwill, unrealised profit, and non-controlling interests.

Family Plc. is the parent company of Children Limited. The statements of financial position of the two companies as at September 30, 2019, are presented below:

Statement of Financial Position as at September 30, 2019

Assets Family Plc Children Ltd
Office building complex 5,000 1,920
Plant and machinery 7,000 6,000
Investment in Children Ltd shares 6,028 –
Total Non-current Assets 18,028 7,920
Current Assets
Inventory 3,600 1,900
Trade receivables 4,100 1,700
Other receivables 300 20
Tax assets 0 100
Bank balances 1,440 840
Total Current Assets 9,440 4,560
Total Assets 27,468 12,480
Equity and Liabilities Family Plc Children Ltd
Ordinary shares of N1.50 each 21,600 9,600
Retained earnings 1,260 480
Total Equity 22,860 10,080
Current Liabilities
Trade payables 2,000 280
Other payables 928 200
Overdrafts 1,680 1,920
Total Current Liabilities 4,608 2,400
Total Equity and Liabilities 27,468 12,480

Additional Information:

  1. Family Plc acquired 4.8 billion shares in Children Limited a year ago when Children Limited had retained earnings of N144 million, and the fair value of the non-controlling interest was N3.396 billion. Profits were evenly distributed over the years.
  2. During the year ended September 30, 2019, Family Plc sold goods with an invoiced value of N576 million at cost plus 20% to Children Limited. Half of the goods were still in Children Limited’s inventory as at the end of the year.
  3. Children Limited owed Family Plc N72 million for goods purchased during the year.
  4. Included in the other payables is the proposed dividend of 2.5 kobo per share for Children Limited for the year ended September 30, 2019. Both companies agreed that the proposed dividend should be paid by the directors of Children Limited before consolidation.

Required:

Prepare the Consolidated Statement of Financial Position for Family Plc as at September 30, 2019.
(20 Marks)

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  • 9 Marks

CR – May 2021 – L3 – Q2b – Disposal Group

Discuss the accounting treatment for Berko Ltd.’s sale of shares in Jamila Ltd in the consolidated financial statements.

Berko Ltd acquired all the equity shares in Jamila Ltd on 1 January 2018 for a consideration of GH¢1,250 million. The carrying amount and fair value of the identifiable net assets at acquisition were GH¢1,230 million. On 31 December 2020, Berko Ltd was in the process of selling its entire shareholding in Jamila Ltd, and so it was decided that Jamila Ltd should be treated as a disposal group held for sale in accordance with IFRS 5: Non-current Assets Held for Sale and Discontinued Operations at that date. The carrying amounts of Jamila Ltd’s net assets before classification as held for sale at 31 December 2020 in the individual statement of financial position are as follows:

GH¢’million
Property, plant, and equipment 836
Intangibles (excluding goodwill) 428
Current assets (at recoverable amount) 584
Non-current liabilities (322)
Current liabilities (254)
Total net assets 1,272

The group has a policy of revaluing its property, plant, and equipment in accordance with IAS 16: Property, Plant, and Equipment. There have been no revaluations or any other gains or losses included within Jamila Ltd’s different components of equity since the date of acquisition as the carrying amount was deemed to be a close enough approximation to its fair value. However, on 31 December 2020, property with a carrying amount of GH¢330 million was considered to have a fair value of GH¢340 million. No adjustment has yet been made for this fair value. The total fair value less costs to sell the disposal group at 31 December was estimated to be GH¢1,220 million. There have been no previous impairments to the goodwill of Jamila Ltd.

Required:
Recommend to the directors of Berko Ltd how the above transaction should be accounted for in the consolidated financial statements as at 31 December 2020 including financial statement extracts in accordance with relevant International Financial Reporting Standards.

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  • 10 Marks

R – Nov 2020 – L2 – Q1a – Consolidated Statement of Profit or Loss

Prepare a consolidated statement of profit or loss for Kingdom Ltd and Paradise Ltd for the year ended 31 December 2019.

Prepare the consolidated statement of financial position for Kingdom Ltd group as at 31
December 2019 (10 Marks)

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  • 3 Marks

FR – May 2020 – L2 – Q1b – Consolidated Goodwill Calculation

Calculate the goodwill for the acquisition of Shormeh Ltd by Naa Ltd on 1st April 2019.

Calculate the consolidated goodwill that arose on the acquisition date for Naa Ltd’s acquisition of Shormeh Ltd. (3 Marks)

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  • 5 Marks

FR – May 2020 – L2 – Q5d – Consolidated Financial Statements

Explain the concept of consolidated financial statements and identify exemptions from preparing them.

d) IFRS 10: Consolidated Financial Statements outlines the requirements for the preparation and presentation of consolidated financial statements, requiring entities to consolidate other entities it controls. The control principle in IFRS 10 sets out the following three elements of control: power over the investee; exposure, or rights, to variable returns from involvement with the investee; and the ability to use power over the investee to affect the amount of those returns.

i) What are Consolidated Financial Statements? (1 mark)

ii) Identify FOUR (4) circumstances under which a company may gain control over another company but will not be allowed to prepare consolidated financial statements. (4 marks)

 

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  • 10 Marks

FR – Nov 2020 – L2 – Q1a – Consolidated Statement of Profit or Loss

Prepare the consolidated statement of profit or loss and other comprehensive income for Kingdom Ltd Group for the year ending 31 December 2019.

Statement of profit or loss and other comprehensive income for the year ended 31 December 2019 of Kingdom Ltd and Paradise Ltd.

Description Kingdom Ltd (GH¢000) Paradise Ltd (GH¢000)
Revenue 125,200 60,000
Cost of sales (91,600) (48,000)
Gross profit 33,600 12,000
Distribution costs (4,000) (2,400)
Administrative expenses (7,000) (3,600)
Finance costs (400) 0
Profit before tax 22,200 6,000
Income tax expenses (6,200) (2,000)
Profit for the year 16,000 4,000
Other comprehensive income: Gain on revaluation of property 3,000 0
Total comprehensive income 19,000 4,000

Statement of financial position as at 31 December 2019

Description Kingdom Ltd (GH¢000) Paradise Ltd (GH¢000)
Assets
Non-current assets:
Property, plant, and equipment (PPE) 37,400 27,800
10% loan note 2,000 0
Total non-current assets 39,400 27,800
Current assets:
Inventory 8,600 2,400
Trade receivables 9,400 5,000
Bank 0 600
Total current assets 18,000 8,000
Total assets 57,400 35,800

Additional relevant information:
i) Kingdom Ltd acquired 60% of the share capital of Paradise Ltd on 1 April 2019. The purchase consideration was settled by a share exchange transaction of two shares in Kingdom Ltd for every three acquired shares in Paradise Ltd. The share price of Kingdom Ltd at the acquisition date was GH¢3 per share. In addition, Kingdom Ltd will also pay cash consideration of GH¢0.275 on 1 April 2020 for each acquired share in Paradise Ltd. Kingdom Ltd’s cost of capital is 10% per annum. None of the consideration has been recorded by Kingdom Ltd.

ii) The fair values of Paradise Ltd’s net assets and liabilities were equal to their carrying amounts at the date of acquisition with the exception of Paradise’s property, which had a fair value of GH¢8 million above its carrying amount. For the purpose of consolidation, this led to an increase in depreciation charges (in cost of sales) of GH¢200,000 in the post-acquisition period to 31 December 2019. Paradise Ltd has not incorporated the fair value of property increase into its entity’s financial statements.

iii) The policy of Kingdom Ltd group is to value all properties to fair value at each year end. On 31 December 2019, the increase in Kingdom Ltd’s property has already been recorded. However, a further increase of GH¢1.2 million in the value of Paradise Ltd’s property since its value at acquisition to 31 December 2019 has not yet been recorded.

iv) Kingdom Ltd made sales to Paradise Ltd throughout the year 2019 and it had consistently been GH¢600,000 per month. Kingdom Ltd made a mark-up of 25% on all of these sales. A total of GH¢1.2 million (at cost to Paradise) of Paradise Ltd’s inventory at 31 December 2019 had been supplied by Kingdom Ltd during the post-acquisition period.

v) At 31 December 2019, Kingdom Ltd had a trade receivable balance owing from Paradise Ltd of GH¢2.4 million. However, this did not agree to the equivalent trade payable of Paradise Ltd as a result of a payment by Paradise Ltd of GH¢800,000 made in December 2019, which did not reflect in Kingdom Ltd’s bank account until 4 January 2020. Kingdom Ltd’s policy for cash timing differences is to adjust the parent’s financial statements.

vi) Kingdom Ltd on December 2019, accepted a GH¢1 million 10% loan note from Paradise Ltd.

vii) At 31 December 2019, the goodwill that arose on acquisition was impaired by GH¢1 million. Kingdom Ltd has a policy of treating goodwill impairment as part of administrative expense.

viii) It is the policy of Kingdom Ltd group to value the non-controlling interest at fair value. For this purpose, Paradise Ltd’s share price was trading at GH¢2.50 each at the acquisition date.

ix) Assume that all items of income and expenditure accrue evenly throughout the year except where indicated otherwise.

Required:
a) Prepare the consolidated statement of profit or loss and other comprehensive income for Kingdom Ltd group for the year ended 31 December 2019. (10 marks)

 

 

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  • 10 Marks

FR – Nov 2017 – L2 – Q1a – Consolidation of Group Statements

This question tests candidates on preparing a consolidated statement of profit or loss and other comprehensive income for a group, accounting for goodwill, non-controlling interest, intra-group transactions, and fair value adjustments.

On April 1, 2017, Higherhigher Limited acquired 60% of the equity share capital of Lowerlower Limited in a share exchange of two shares in Higherhigher for three shares in Lowerlower. The issue of shares has not yet been recorded by Higherhigher Limited. At the date of acquisition, shares in Higherhigher had a market value of N6 each.

Below is the summarised draft financial statements of both companies:

Statement of Profit or Loss and other Comprehensive Income for the year ended September 30, 2017 Higherhigher Limited (N’000) Lowerlower Limited (N’000)
Revenue 2,720,000 1,344,000
Cost of sales (2,016,000) (1,024,000)
Gross profit 704,000 320,000
Distribution costs (64,000) (64,000)
Administrative expenses (192,000) (102,400)
Finance costs (9,600) (12,800)
Profit before tax 438,400 140,800
Income tax expense (150,400) (44,800)
Profit for the year 288,000 96,000

Additional information:

  1. The fair value of Lowerlower Limited’s assets was equal to their carrying amounts, except for a plant with a fair value of N64m in excess of the carrying amount, which had a remaining life of five years. Straight-line depreciation was used. Lowerlower has not adjusted the carrying amount of its plant.
  2. Sales from Lowerlower to Higherhigher after the acquisition were N256m, with a 40% mark-up. Higherhigher sold N166.4m of these goods by September 30, 2017.
  3. Lowerlower’s receivables include N19.2m due from Higherhigher, which didn’t agree with Higherhigher’s payables due to cash in transit of N6.4m.
  4. Non-controlling interest is measured at fair value. The fair value of the goodwill attributable to the non-controlling interest is N48m.
  5. Consolidated goodwill was not impaired.

You are required to prepare:

  • The consolidated statement of profit or loss and other comprehensive income for the year ended September 30, 2017.

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  • 14 Marks

FR – Nov 2018 – L2 – SB – Q2b – Consolidated Financial Statements (IFRS 10)

Prepare the consolidated statement of financial position for Anambra Ltd and Omambala Ltd.

Anambra Limited acquired 80% of Omambala Limited’s ordinary shares for N210 million on January 1, 2013. On the acquisition date, the retained earnings of Omambala Limited were N105 million. The fair value of non-controlling interest in Omambala Limited at the date of acquisition was N56 million. The financial statements of the two companies for the year ended December 31, 2017, are as follows:

Anambra Limited:

Item N’000
Non-current Assets 210,000
Investments 280,000
Current Assets:
Inventories 56,000
Trade and other receivables 42,000
Cash and cash equivalents 7,000
Total Assets 595,000
Share Capital 56,000
Share Premium 14,000
Retained Earnings 206,500
Loan Notes 210,000
Trade Payables 108,500
Total Equity and Liabilities 595,000

Omambala Limited:

Item N’000
Non-current Assets 157,500
Current Assets:
Inventories 52,500
Trade and other receivables 98,000
Cash and cash equivalents 17,500
Total Assets 325,500
Share Capital 42,000
Share Premium 7,000
Retained Earnings 175,000
Loan Notes 59,500
Trade Payables 42,000
Total Equity and Liabilities 325,500

Additional information:

  1. Anambra Limited sold goods to Omambala Limited for N35 million with a gross profit margin of 25%. As of December 31, 2017, 40% of the goods were still in Omambala Limited’s inventory.
  2. The fair values of Omambala’s net assets are equal to their carrying amounts at the acquisition date, except for land, which was included at a cost of N105 million and had a fair value of N126 million.

Required:
Prepare the consolidated statement of financial position for Anambra Limited group as at December 31, 2017.

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  • 20 Marks

FR – Nov 2017 – L2 – Q1a – Group Financial Statements and Consolidation

This question tests candidates on the calculation of goodwill for an acquisition and the preparation of consolidated financial statements in accordance with IFRS.

Spacefon Ltd (Spacefon), in its quest to gain dominance in the telecommunication industry, bought an 80% holding in the equity of Buzz and 40% of the equity shares of Kasapa Ltd (Kasapa) on 1 July 2017. The purchase price of the investment of Buzz Ltd (Buzz) was agreed at GH¢4,400 million, of which GH¢1,600 million was paid in cash. The remaining balance was paid by issuing 800 million equity shares each of GH¢1 nominal value to the seller at their then fair value of GH¢3.50 each. The 20% non-controlling interest in Buzz had a fair value of GH¢900 million at that date. Buzz’s net assets had a fair value of GH¢4,700 million on 1 July 2017. Spacefon applies the fair value method to calculate goodwill on acquisition.

The following statements of comprehensive income relate to Spacefon and its investee companies, Buzz and Kasapa.

Statements of Profit or Loss for the year ended 31 October 2017 Spacefon Ltd (GH¢ million) Buzz Ltd (GH¢ million) Kasapa Ltd (GH¢ million)
Revenue 4,428 2,448 1,530
Cost of Sales (1,674) (864) (680.4)
Gross Profit 2,754 1,584 849.6
Operating expenses (1,116) (828) (522)
Finance costs (180) (108) (54)
Other income 32.4 – –
Investment income 129.6 – –
Profit before taxation 1,620 648 273.6
Taxation (270) (108) (54)
Profit for the year 1,350 540 219.6
Other comprehensive income
Gains on revaluations of property 226.8 72 64.8
Total comprehensive income for the year 1576.8 612 284.4

Additional Information:

  1. Included in the fair value of Buzz’s net assets on the acquisition date was some machinery owned by Buzz but carried at GH¢90 million below its fair value. The revised fair value was not incorporated into the books of Buzz, as Buzz has not adopted a policy of revaluing machinery assets. The useful economic life of this machinery at the acquisition date was estimated to be six years.
  2. During the post-acquisition period, Buzz sold goods to Spacefon for GH¢50 million. These goods were sold by Buzz at a profit of 30 pesewas per GH¢1 on the sales price, and 40% of the goods remained in the inventory of Spacefon at 31 October 2017.
  3. Since acquiring its investment in Buzz, Spacefon has managed the administration of the entire group. Spacefon invoiced Buzz GH¢4 million for its share of these costs. Spacefon recorded this transaction within “other income,” and Buzz recorded it within “operating expenses.”
  4. The goodwill of Buzz was reviewed for impairment at 31 October 2017 and was found to have a recoverable amount of GH¢400 million. There was no impairment of the investment in Kasapa.
  5. On 1 October 2017, Spacefon sold some land to Kasapa for GH¢12 million, recording a profit of GH¢8 million. This profit is included within “other income” in the books of Spacefon.

(Note: All calculations may be taken to the nearest GH¢0.01 million, and assume all expenses and gains accrue evenly throughout the year unless otherwise instructed.)

Required: a) Calculate the goodwill arising on the acquisition of Buzz by Spacefon, and the goodwill amount that should appear in the consolidated Statement of Financial Position of Spacefon as at 31 October 2017. (3 marks)

b) Prepare a Consolidated Statement of Profit or Loss account for Spacefon Group for the year ended 31 October 2017 in accordance with IFRS. (17 marks)

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