Question Tag: Consolidation

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  • 5 Marks

CR – Nov 2024 – L3 – Q4b – Consolidation and Financial Reporting

Discuss the appropriate reporting figures a parent company should include in its consolidated financial statements when its subsidiaries have different reporting dates.

A parent company has a year-end of 31 December 2023. One of its subsidiaries has a year-end of 30 June 2023, and another has a year-end of 30 September 2023.

Required:
What figures should the parent include in its consolidated financial statements in respect of these subsidiaries?

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  • 10 Marks

AAA – Nov 2024 – L3 – Q1b – Group Audit Risks and Consolidation Issues

Audit risks and procedures for a multinational group audit engagement.

You are a Senior Auditor at Dromo Audit Firm, assigned to audit a new client, Afroherb Pharma LTD, a multinational pharmaceutical company. During the initial stages of engagement planning, you discovered that Afroherb Pharma LTD operates in multiple jurisdictions, including Ghana, Liberia, Sierra Leone, and The Gambia. The parent company is in Ghana, and the companies in the other jurisdictions are all subsidiaries. All these jurisdictions have significant regulatory requirements and operational difficulties. The company has recently expanded its product line to include vaccine production following the introduction of The Vaccine Centre in Ghana. The production of vaccines is also subject to stringent regulatory reviews.

Required:
i) State FOUR audit procedures you could perform in relation to the consolidation of the financial statements of Afroherb Group. 
ii) Identify TWO specific risks associated with auditing Afroherb Pharma LTD, particularly in relation to its expansion into vaccine products. How should these risks be managed?
iii) State TWO problems associated with the planning of group audits

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  • 30 Marks

CR – May 2015 – L3 – Q1 – Consolidated Financial Statements (IFRS 10)

Prepare a consolidated statement of financial position for Barewa Group as of 31 May 2013, considering acquisitions and adjustments.

Barewa Plc has two subsidiary companies and one associate. Since the adoption of International Financial Reporting Standards (IFRS) by companies listed on the Nigeria Stock Exchange, Barewa has been preparing its consolidated financial statements in accordance with the provisions of International Financial Reporting Standards (IFRSs).

The draft Statements of Financial Position of Barewa and its two subsidiaries as at 31 May, 2013 are as follows:

Assets Barewa (N’m) Megida (N’m) Mindara (N’m)
Non-current assets
Plant 2,650 2,300 1,610
Investments – Megida 3,000
Investments – Mindara 1,280
Associate (Calamari) 200
Available for sale 510 60 50
Total Non-current assets 7,640 2,360 1,660
Current assets
Inventory 1,350 550 730
Trade receivables 910 450 320
Cash and cash equivalent 1,020 1,000 80
Total Current assets 3,280 2,000 1,130
Total Assets 10,920 4,360 2,790
Equity and Liabilities
Share capital 5,200 2,200 1,000
Retained earnings 2,400 1,500 800
Other components of equity 120 40 70
Total equity 7,720 3,740 1,870
Non-current liabilities
Long-term loans 1,200 150 50
Deferred tax 250 90 30
Total non-current liabilities 1,450 240 80
Current liabilities
Trade payables 1,150 300 600
Current tax payables 600 80 240
Total current liabilities 1,750 380 840
Total Equity and Liabilities 10,920 4,360 2,790

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

  • Acquisition of Megida Plc
    • Date of Acquisition: 1 June 2012
    • Barewa acquired 80% of the equity interest in Megida Plc.
    • At the date of acquisition, Megida’s retained earnings were N1.36 billion, and other components of equity amounted to N40 million.
    • There had been no new issuance of share capital by Megida since the acquisition date.
    • The consideration for the acquisition was N3 billion in cash.
    • The fair value of Megida’s identifiable net assets at acquisition was N4 billion, with the excess attributed to an increase in the value of non-depreciable land.
    • An independent valuation determined that the fair value of the non-controlling interest (NCI) in Megida on 1 June 2012 was N860 million.
    • Barewa’s policy is to measure NCI based on their proportionate share in the identifiable net assets of the subsidiary, not at fair value (full goodwill method).
  • Acquisition of Mindara Plc
    • Date of Acquisition: 1 June 2012
    • Barewa acquired 70% of the ordinary shares of Mindara Plc.
    • The consideration for the acquisition included:
      • An upfront payment of N1.28 billion.
      • A contingent consideration requiring Barewa to pay the former shareholders 30% of Mindara’s profits on 31 May 2014 for each of the financial years ending 31 May 2013 and 31 May 2014. This arrangement was valued at N120 million as of 1 June 2012 and remains unchanged. It has not been included in the financial statements.
    • The fair value of the identifiable net assets at acquisition was N1.76 billion. This included retained earnings of N550 million and other components of equity of N70 million.
    • There had been no new issuance of share capital by Mindara since the acquisition date.
    • The excess fair value of the net assets was due to an increase in property, plant, and equipment (PPE), which is depreciated on a straight-line basis over seven years.
    • The fair value of the non-controlling interest (NCI) in Mindara was N530 million on the acquisition date.
  • Investment in Calamari Plc
    • On 1 June 2011, Barewa acquired a 10% interest in Calamari Plc for N80 million. This was classified as an available-for-sale investment.
    • As of 31 May 2012, the value of this investment had increased to N90 million.
    • On 1 June 2012, Barewa acquired an additional 15% interest in Calamari for N110 million, achieving significant influence.
    • Calamari recorded profits after dividends of N60 million and N100 million for the financial years ending 31 May 2012 and 31 May 2013, respectively.
  • Equity Instrument Purchase
    • On 1 June 2012, Barewa purchased an equity instrument valued at 100 million pesos, classified as available-for-sale.
    • Relevant exchange rates:
      • 31 May 2012: N5.1 to 1 peso.
      • 31 May 2013: N5.0 to 1 peso.
    • The fair value of the instrument as of 31 May 2013 was 90 million pesos, reflecting an impairment that Barewa has not recorded.
  • Loan to a Director
    • A loan of N10 million to a director has been included in cash and cash equivalents.
    • The loan is repayable on demand with no specific repayment date.
    • The directors believe that this treatment complies with International Financial Reporting Standards (IFRS), as no IFRS explicitly prohibits showing the loan as cash.
  • Goodwill Impairment
    • There is no impairment of goodwill arising from the acquisitions.

Required

Prepare a consolidated statement of financial position for Barewa Group as of 31 May 2013.

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  • 15 Marks

AAA – May 2017 – L3 – Q6 – Group Audits

Draft a memorandum describing challenges, procedures, and instructions for a group audit engagement involving subsidiaries and associates in different countries.

You are an Audit Senior in ABC firm of Chartered Accountants, a Pan-African audit firm. You just resumed from your examination leave and received the following email from Mrs. Chidi, an Audit Manager in your firm.

Dear Audu,

Welcome back from leave and best of luck in your examination.
We have just been appointed as financial statements auditors to Gbogbonise Plc., a conglomerate having its head office in Lagos. Our preliminary discussion with the group Chief Financial Officer (CFO) indicates that the company has five subsidiaries and two associates. One of the subsidiaries is incorporated and operates in Ghana while one of the associates is incorporated and operates in The Gambia. The other members of the group are incorporated and operate in Nigeria. The group operations cover automobiles, agriculture, and manufacturing.
We will be meeting with the audit committee in three weeks to present our audit plan and strategy for the assignment.

Required:

a. Challenges that may be encountered in this engagement. (5 Marks)

b. General procedures that may be performed on significant and non-significant components. (3 Marks)

c. Salient items to be included in the group audit instructions. (3 Marks)

d. Procedures to be performed relating to the consolidation of the group. (4 Marks)

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  • 30 Marks

CR – May 2017 – L3 – Q1 – Foreign Currency Transactions and Translation (IAS 21)

Assess functional currency and prepare a consolidated statement of financial position under IFRS.

Rapuya Plc. is a Nigerian public limited company operating in the mining industry. The draft Statements of Financial Position of Rapuya Plc., and its two subsidiaries, Puta Limited and Soma Limited as at April 30, 2017, are as follows:

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

(i) On May 1, 2016, Rapuya acquired 52% of the ordinary shares of Soma Limited, a foreign subsidiary. The retained earnings of Soma Limited on this date were 220 million defas. The fair value of the identifiable net assets of Soma Limited on May 1, 2016, was 990 million defas. The excess of the fair value over the net assets of Soma Limited is due to an increase in the value of non-depreciable land.

Rapuya Plc. wishes to use the ‘full goodwill’ method to consolidate the financial statements of Soma. The fair value of the non-controlling interest in Soma Limited at May 1, 2016, was 500 million defas.

Soma Limited is located in Tome, a small country in West Africa, and operates a mine. The income of Soma Limited is denominated and settled in defas. The output of the mine is routinely traded in defas, and its price is determined initially by local supply and demand. Soma Limited pays 30% of its costs and expenses in naira, with the remainder being incurred locally and settled in defas. Soma’s management has a considerable degree of authority and autonomy in carrying out the operations of Soma Limited and is not dependent upon group companies for financial support. The Finance Controller is not certain from the above whether the defas or naira should be taken as the functional currency of Soma Limited.

There have been no issues of ordinary shares and no impairment of goodwill since acquisition.

(ii) Also on May 1, 2016, Rapuya Plc. had acquired 70% of the equity interests of Puta Limited. The purchase consideration amounted to N226 million, which Rapuya Plc. paid through bank transfer in compliance with the cashless policy of the Federal Government of Nigeria. The fair value of the identifiable net assets recognized by Puta Limited was N240 million, excluding the patent below. The identifiable net assets of Puta Limited at May 1, 2016, included a brand with a fair value of N8 million. This had not been recognized in the financial statements of Puta Limited. The brand is estimated to have a useful life of four years. The retained earnings of Puta Limited were N98 million, and other components of equity were N6 million at the date of acquisition. The remaining excess of the fair value of the net assets is due to an increase in the value of non-depreciable land.

Rapuya Plc. wishes to use the ‘full goodwill’ method in consolidating the financial statements of this subsidiary. The fair value of the non-controlling interest in Puta Limited was N92 million on May 1, 2016. There have been no issues of ordinary shares since acquisition, and goodwill on acquisition is not impaired.

(iii) The following exchange rates are relevant for the preparation of the group financial statements:

Defas to Naira Exchange Rate
May 1, 2016 3:1
April 30, 2017 2.5:1
Average for year to April 30, 2017 2.9:1

Required:

(a) Advise the Finance Controller on what currency should be taken as the functional currency of Soma Limited, applying the principles set out in IAS 21 – The Effects of Changes in Foreign Exchange Rates. (5 Marks)

(b) Prepare a consolidated statement of financial position of the Rapuya Group as at April 30, 2017, in accordance with International Financial Reporting Standards (IFRS). (Show all workings) (25 Marks)

(Total: 30 Marks)

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  • 30 Marks

CR – Nov 2016 – L3 – SA – Q1 – Consolidated Financial Statements (IFRS 10)

Prepare a Consolidated Statement of Financial Position for Bata Plc and subsidiaries; explain IAS 21 principles for translating foreign subsidiaries.

a. Bata Plc, which operates in the manufacturing sector, has been surviving the challenges operating in the Nigerian economic environment. The draft Statements of Financial Position of Bata Plc and its subsidiaries as at October 31, 2016, are as follows:

Bata N’million Jewe N’million Gaba N’million
Non-current assets Property, plant, and equipment 4,320 360 420
Investments in subsidiaries 1,110 600 –
Financial assets 500 – –
Total Non-current assets 5,930 960 420
Current assets 1,050 570 540
Total assets 6,980 1,530 960
Equity Share capital – N1 ordinary shares 2,400 600 300
Retained earnings 3,410 540 390
Other components of equity 450 – –
Total equity 6,260 1,140 690
Current liabilities 720 390 270
Total liabilities and equity 6,980 1,530 960

Additional Information:

  1. Acquisition of Subsidiaries:
    • Bata Plc acquired 60% of the share capital of Jewe Plc on November 1, 2012, and 10% of Gaba Plc on November 1, 2013. The costs of the combinations were N852 million and N258 million, respectively.
    • Jewe Plc acquired 70% of the share capital of Gaba Plc on November 1, 2013.
  2. Retained Earnings Balances:
Date Jewe Plc (N’million) Gaba Plc (N’million)
November 1, 2012 270 –
November 1, 2013 360 240
  1. Fair Value Adjustments:
    • At acquisition dates, the fair value of the net assets was N930 million for Jewe Plc and N660 million for Gaba Plc. The difference in the fair value and book value relates to non-depreciable land.
    • The fair value of non-controlling interest (NCI) was N390 million for Jewe Plc and N330 million for Gaba Plc. Bata Plc adopts the full goodwill method under IFRS 3 to account for NCI.
  2. Impairment Testing:
    • Jewe Plc suffered an impairment loss of N60 million.
    • Gaba Plc did not suffer any impairment loss.
  3. Intra-group Inventory Sales:
    • During the year ended October 31, 2016, Bata Plc sold inventory to Jewe Plc and Gaba Plc.
    • The invoiced prices of the inventories were N480 million and N360 million, respectively.
    • Bata Plc invoices goods to achieve a markup of 25% on cost to all third parties, including group companies.
    • At the year-end, half of the inventory sold to Jewe Plc remained unsold, but the entire inventory sold to Gaba Plc had been sold to third parties.
  4. Financial Asset:
    • Bata Plc purchased a deep discount bond for N500 million on November 1, 2015.
    • The bonds will be redeemed in 3 years for N740.75 million and are carried at amortized cost in line with IAS 39.
    • The Accountant has not passed the correct entries to reflect amortized cost valuation at year-end, and the financial asset is shown at N500 million.

Compound sum of N1: (1 + r)^n

Year 12% 14%
1 1.1200 1.1400
2 1.2544 1.2996
3 1.4049 1.4815
4 1.5735 1.6890

Required:

  1. Prepare a Consolidated Statement of Financial Position for Bata Plc and its subsidiaries as at October 31, 2016.       (25 Marks)
  2. Explain to the directors of Bata Plc how the assets, liabilities, income, and expenses of a foreign subsidiary, including the resulting goodwill, are translated for consolidation purposes under IAS 21. (5 Marks)

(Total: 30 Marks)

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  • 30 Marks

AAA – Nov 2014 – L3 – SA – Q1 – Group Audits

Identify business risks, audit planning effects, and implications of acquisitions for the consolidated financial statements audit of Wasp Ltd.

You are an audit manager in Ruby & Co, a firm of Chartered Accountants. One of your audit clients, Wasp Ltd., provides satellite broadcasting services in a rapidly growing market.

In February 2014, Wasp Ltd. purchased Xstatic Ltd., a competitor group of companies. Significant revenue, cost, and capital expenditure synergies are expected as the operations of Wasp Ltd. and Xstatic Ltd. are being combined into one group of companies.

The following financial and operating information consolidates the results of the enlarged Wasp Ltd. group:

Year-end 31 December 2014 (Budget) 2013 (Actual)
Revenue ₦6,827m ₦4,404m
Cost of Sales (₦3,109m) (₦1,991m)
Distribution Costs and Administrative Expenses (₦2,866m) (₦1,700m)
Research and Development Costs (₦25m) (₦22m)
Depreciation and Amortization (₦927m) (₦661m)
Interest Expense (₦266m) (₦202m)
Loss Before Tax (₦366m) (₦172m)
Number of Subscribers 14.9m 7.6m
Average Revenue Per Subscriber (ARPS) ₦437 ₦556

In November 2014, Wasp Ltd. purchased MTbox Ltd., a large cable communications provider in Gambia, where your firm has no representation. The financial statements of MTbox Ltd. for the year ending 31 December 2014 will continue to be audited by a local firm of Chartered Accountants. MTbox Ltd.’s activities have not been reflected in the above estimated results of the group.

Wasp Ltd. is committed to introducing its corporate image into Gambia.

In order to sustain growth, significant costs are expected to be incurred as operations are expanded, networks upgraded, and new products and services introduced.

Required:

a. Identify and describe the principal business risks for the Wasp group. (9 Marks)

b. Explain what effect the acquisitions will have on the planning of Ruby & Co’s audit of the budgeted consolidated financial statements of Wasp Ltd. group for the year ending 31 December 2014. (10 Marks)

c. Explain the role of a Letter of Comfort as evidence in the audit of financial statements. (6 Marks)

d. Discuss how non-consolidated entities under common control affect the scope of an audit and the audit work undertaken. (5 Marks)

(Total 30 Marks)

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  • 30 Marks

CR – May 2019 – L3 – Q1 – Consolidated Financial Statements (IFRS 10)

Prepare the consolidated statement of financial position for a group with a foreign subsidiary and inter-company transactions as at September 30, 2017.

Oyin Plc. a Nigerian company acquired 960 million equity share capital of Kemy Plc., a foreign subsidiary based in Brazil, on 1 October, 2015 for 1.08 billion Brazilian real (BRL). The functional and presentation currency of Kemy Plc. is the BRL. Since acquisition, Kemy Plc., has operated autonomously of Oyin group.

The statements of financial position of Oyin Plc. and Kemy Plc. as at 30 September, 2017 are as follows:

Additional Information:

  1. It is the policy of Oyin Plc. group to recognize non-controlling interest at acquisition at the proportionate share of the net assets. The retained earnings of Kemy Plc., at the date of acquisition were 390 million BRL.
  2. Kemy Plc. sells goods to Oyin Plc. at cost plus a mark-up of 33 1/3%. At 30 September, 2017, Oyin Plc. held N15 million of the goods. The goods were purchased at an exchange rate of N1 to 5 BRL. On 28 September, 2017, Oyin Plc. sent Kemy Plc., a payment for N15 million to clear the intra-group payables. Kemy received and recorded the cash on 2 October, 2017.
  3. On 1 October, 2016, Kemy Plc. purchased a leasehold building for 375 million BRL, taking out a loan note payable after five years to finance the purchase. The estimated useful life of the building on 1 October, 2016 was 25 years with no estimated residual value. The building is to be depreciated on a straight-line basis. The building was professionally revalued at 450 million BRL on 30 September, 2017 and the directors have included the revalued amount in the statement of financial position.Both companies adopt a policy of revaluation for their properties. There was no difference between the carrying amount and fair value of the property of Oyin Plc. at 30 September, 2017.
  4. Exchange Rates:
Date BRL to N1
1 October, 2015 6.0
30 September, 2015 5.5
30 September, 2017 5.0
Average for the year to 30 September, 2016 5.2

Required:
Prepare the consolidated statement of financial position of Oyin group at 30 September, 2017.

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  • 25 Marks

CR – May 2021 – L3 – Q1a – Consolidated Financial Statements (IFRS 10)

Prepare a consolidated cash flow statement for Feedme Limited using the indirect method.

Feedme Limited
Feedme Limited is a company that has been in operations for over two decades producing “Trobomao,” a natural cocoa powder beverage. Five years ago, it acquired 100% interest in Butane Nigeria Limited and 75% interest in Shawama Supermarket Limited in 2019. Draft consolidated financial statements of Feedme Limited are provided below:

Draft Consolidated Statement of Financial Position (December 31, 2019):

Draft consolidated statement of profit or loss and other comprehensive income for the year ended December 31, 2019

Additional information:

i. There had been no acquisition or disposal of freehold buildings during the year.
ii. Information relating to the acquisition of Shawama Supermarket Limited is as follows:

iii. Loan notes were issued at a discount in 2019 and the carrying amount of the loan as at December 31, 2019 included N600,000 representing the finance cost attributable to the discount and allocated in respect of the current reporting period.

Required:
Prepare a consolidated statement of cash flows for Feedme Limited Group for the year ended December 31, 2019 in accordance with IAS 7 using indirect method.

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  • 15 Marks

AAA – May 2022 – L3 – Q7 – Risk Management in Audits

Evaluate key risk areas for auditors in consolidating Nigerian and UK company accounts, considering transfer pricing and related party transactions.

BARCHI International Limited is a company with corporate registrations in both the United Kingdom (U.K.) and Nigeria. The Chairman of the company is based in Nigeria and from time to time travels to the U.K. to oversee the office there and order for the purchase of some of the articles for sale. To ensure steady supply of the products, some of the products are also ordered from China. The purchases from the U.K. are charged to the Nigerian entity in pound sterling, while the purchases from China are charged to the Nigerian company in American dollars.

In September 2020, the Chairman embarked on a trip to Dubai for two weeks where he spent part of his annual holiday. During this period, he hosted a couple of friends with the costs that were paid for by the company as the costs were above his approved annual holiday expenses. He subsequently traveled to the U.K. and was quarantined for two weeks due to COVID-19 before moving to the usual business lodge that he uses. Despite using that period to oversee the U.K. company, all the costs incurred were borne by the Nigerian company.

The products bought in the U.K. and sent to Nigeria were charged at cost plus 25%, while the Nigerian company was responsible for insurance and freight. The goods purchased from China were forwarded to Nigeria at the cost of landing in Nigeria plus 30%. The China-made products are less expensive and therefore give better profits despite the cost of the long-distance freight.

Money was transferred to the Chairman’s account for the company’s purchases in the U.K., the purchases made in China, and the Chairman’s personal expenses. An agent in China bought the goods which were paid for by the Chairman.

The U.K. company staff handled the documentation of all the transactions of the Chairman while there and transferred them to Nigeria subject to the approval of the Chairman.

Separate records were not maintained for the Chairman’s expenses in the U.K. However, his comparison of the results of the two units showed that for the immediate past financial year, the Nigerian company had performed sub-optimally and way below the targeted profit in relation to the U.K. company. The Chairman is very unhappy about this as he expects that his personal visit to the U.K. would reduce the purchasing and associated costs.

It is usual for the Chairman to account for the cost of purchases based on his personal expenses attributable to each purchase together with the actual cost of purchases. The U.K. component is elated about this costing method which favors it and would wish that this arrangement continues.

The two units prepare separate financial statements which are audited by separate accounting firms before the two financial statements are consolidated in Nigeria for the Chairman’s evaluation.

Required:

Evaluate, with appropriate justifications, from the scenario above, the areas of risk which the auditor needs to consider. (15 Marks)

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  • 30 Marks

CR – Nov 2022 – L3 – Q1 – Consolidated Financial Statements (IFRS 10)

Prepare consolidated statement of financial position for RAM, DAM, and TAM as at April 30, 2021, including adjustments for goodwill, revaluation, and retained earnings.

The following draft statements of financial position of RAM, DAM, and TAM, all of which are public limited companies as at April 30, 2021, are provided:

RAM Plc (N’m) DAM Plc (N’m) TAM Plc (N’m)
Non-current assets:
Property, plant, and equipment 2,030 705 356
Investment in DAM 690 – –
Investment in TAM 180 110 –
Total non-current assets 2,900 815 356
Current assets:
Inventories 450 185 75
Trade receivables 270 115 60
Cash and cash equivalents 105 65 85
Total current assets 825 365 220
Total assets 3,725 1,180 576
Equity and liabilities
Equity:
Ordinary share capital 2,400 620 220
Share premium 300 105 56
Revaluation reserves 60 – –
Retained earnings 685 280 76
Total equity 3,385 1,005 412
Non-current liabilities 200 65 64
Current liabilities 140 110 100
Total equity and liabilities 3,725 1,180 576

Additional Information:

  1. Three years ago, on May 1, 2018, RAM Plc acquired 80% of the ordinary share capital of DAM Plc when DAM’s retained earnings were N110m. There were no new share issues since the group structure was created. The fair value of non-controlling interests at acquisition was N160m, and the fair value of DAM Plc’s net assets was N850m at that date. Any fair value adjustments related to inventory were realized by the current year-end.
  2. Two years ago, to veil the identity of the true owner of TAM Plc, RAM Plc acquired 40%, while DAM Plc acquired 25% of TAM’s ordinary share capital on the same date, when the retained earnings of TAM Plc were N65m and those of DAM Plc were N160m. The fair value of non-controlling interest in TAM Plc was N155m as at acquisition, with no revaluation reserve in TAM’s books at that time. The fair values of TAM Plc’s net assets as at acquisition were not materially different from their carrying amount.
  3. The group operates in the oil industry and incurs expenditure on research and development. These costs, previously written off to the statement of profit or loss and other comprehensive income as incurred, are reinstated when the related products are commercialized. The reinstated costs are shown as ‘Development Inventory.’ The costs do not meet IAS 38 criteria for classification as intangibles, and net cash inflows are unlikely to exceed development costs. DAM Plc included N22m of these costs in inventory this year.
  4. DAM Plc purchased significant new production equipment this year. Its cost before a trade discount was N60m, with a discount of N12m taken to the income statement. Depreciation is on a straight-line basis over six years.
  5. The group policy now states tangible non-current assets at depreciated historical cost. This year, the group changed from the revaluation model to the cost model under IAS 16, except for TAM Plc’s tangible non-current assets, which were revalued by TAM Plc’s directors on the first day of the current year, creating an N80m revaluation reserve. TAM Plc’s assets were initially purchased on May 1, two years prior, at N320m, depreciated over six years. The group does not transfer revaluation reserves to retained earnings annually for excess depreciation. There were no additions or disposals in TAM’s assets over the last two years.
  6. Goodwill from DAM Plc’s acquisition was impairment tested each year; the current year-end revealed a recoverable value of N900m for DAM Plc. TAM Plc’s goodwill has not been impaired since acquisition.
  7. The group policy is to value non-controlling interests at fair value.

Required:
Prepare a consolidated statement of financial position for the RAM Group as at April 30, 2021.
(Total: 30 Marks)

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  • 15 Marks

FR – May 2016 – L2 – Q2b – Consolidated Financial Statements (IFRS 10)

Preparation of consolidated financial position statement, considering goodwill and NCI.

The statement of financial position of PAPA Pie and MAMA Pie as at December 31, 2015, were as follows:

PAPA PLC N’000 MAMA PLC N’000
Property Plant & Equipment 9,000 Property Plant & Equipment 5,000
Investment in MAMA Pie 5,000 Other Assets 1,500
Other Assets 2,000
Total Assets 16,000 Total Assets 6,500
Share Capital 500 Share Capital 500
Retained Earnings 14,500 Retained Earnings 5,000
Other Liabilities 1,000 Other Liabilities 1,000
Total Equity & Liabilities 16,000 Total Equity & Liabilities 6,500

PAPA Plc acquired 80% equity interest in MAMA Plc two years ago.

At the date of acquisition, MAMA’s retained earnings stood at N3 million, and the fair value of its net assets was N5 million. This was N1.5 million above the carrying amount of the net assets at this date. The fair value adjustment related to an asset that had a remaining useful economic life of 10 years as at the date of acquisition.

The goodwill arising on consolidation has not suffered any impairment.

Required:

Prepare the consolidated statement of financial position of PAPA Pie Group as at December 31, 2015, on the assumption that non-controlling interest is valued at fair value (the full goodwill method). (15 Marks)

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  • 20 Marks

FR – May 2021 – L2 – Q4 – Consolidated Financial Statements (IFRS 10)

Prepare consolidated statement of profit or loss and financial position for Bottle Nigeria Plc.

Bottle Nigeria Plc acquired 80% of Glass Limited’s equity share since its incorporation about 10 years ago.

The two companies’ draft financial statements as at December 31, 2019, are as follows:

Statements of profit or loss for the year ended December 31, 2019:

Bottle Nigeria Plc Glass Limited
Revenue N225,000 N45,000
Cost of Sales (N130,500) (N27,000)
Gross Profit N94,500 N18,000
Other Expenses (N76,500) (N14,400)
Profit Before Tax N18,000 N3,600
Income Tax Expense (N5,850) (N1,125)
Profit for the Year N12,150 N2,475

Statement of Financial Position as at December 31, 2019:

Bottle Nigeria Plc Glass Limited
Assets
Non-Current Assets:
Property, Plant & Equipment N86,400 N9,000
Investment in Glass Ltd N3,600 —
Total Non-Current Assets N90,000 N9,000
Current Assets
Inventories N22,500 N5,400
Trade Receivables N29,250 N1,800
Cash & Cash Equivalents N17,550 N1,575
Total Current Assets N69,300 N8,775
Total Assets N159,300 N17,775

Equity and Liabilities:

Bottle Nigeria Plc Glass Limited
Equity
Ordinary Share Capital N90,000 N4,500
Retained Earnings N22,500 N10,800
Total Equity N112,500 N15,300
Current Liabilities
Trade Payables N40,950 N1,350
Current Tax Liabilities N5,850 N1,125
Total Current Liabilities N46,800 N2,475
Total Equity and Liabilities N159,300 N17,775

Additional Information:

  1. On December 31, 2019, Bottle Nigeria Plc dispatched goods that cost N3,600,000 to Glass Limited at an invoice price of N4,500,000. Glass Limited received the goods on January 2, 2020, and recorded the transaction on that date.
  2. The group’s policy is to value the non-controlling interest at acquisition at its proportionate share of the fair value of the subsidiary’s identifiable net assets.

Required:

i. Prepare Bottle Group’s draft consolidated statement of profit or loss for the year ended December 31, 2019. (8 Marks)

ii. Prepare the consolidated statement of financial position as at December 31, 2019. (10 Marks)

iii. Explain the term “cash and cash equivalent” under IAS 7 Statement of Cash Flows. (2 Marks)

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  • 20 Marks

FR – May 2017 – L2 – SB – Q2 – Consolidated Financial Statements

Calculate non-controlling interest, goodwill, and consolidated reserves for Abuja Limited’s acquisition of Abaji Limited.

Abuja Limited acquired 80% of Abaji Limited’s ordinary shares on January 1, 2015. The company paid an immediate N5.00 per share and a further payment of N19,440,000 in cash. The company only recorded the cash consideration of N5 per share. The two statements of financial position as of December 31, 2015, are as follows:

Additional Information:

  1. Non-Controlling Interests (NCI): Abuja Limited values NCI using the fair value at the acquisition date, set at N14,940,000. Due to impairment, the NCI value reduced to N14,220,000 by December 31, 2015.
  2. Revaluation: Abaji Limited revalued its land and buildings at the acquisition date, increasing the value by N3,600,000, with an additional increase of N720,000 on December 31, 2015.
  3. Brand Valuation: Abaji Limited’s product line brand was valued at N7,200,000, with a 10-year useful life as of January 1, 2015. This brand is not included in Abaji’s statement of financial position.
  4. Intercompany Loan: Abuja Limited provided a loan of N10,800,000 to Abaji Limited at acquisition. Interest, payable annually, was not recorded by Abuja Limited by the end of the year.
  5. Development Costs: Abaji Limited completed a development project on June 30, 2015, costing N9,000,000, of which N1,800,000 was amortized by year-end. Only N3,240,000 of development costs were capitalized by the acquisition date, but Abuja Limited’s directors deem these costs unrecognized assets under IAS 38.
  6. Inventory Profits: Abaji Limited sold goods to Abuja Limited, with one-third remaining in Abuja’s inventory at December 31, 2015. The sale profit was N1,080,000.

Required:

Provide the figures to be included in the consolidated statement of financial position as of December 31, 2015, for:

  • a. Non-Controlling Interest (7 Marks)
  • b. Goodwill (7 Marks)
  • c. Consolidated Reserves:
    i. Share premium
    ii. Retained earnings
    iii. Revaluation reserve
    (Show workings for all calculations)

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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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  • 22 Marks

FR – NOV 2016 – L2 – Q1c – Business Combinations (IFRS 3)

Complex consolidation question involving share exchange, fair value adjustments, intra-group transactions, associate investments and goodwill impairment.

On January 1, 2016 Kehinde Plc acquired 45million of the Equity shares of Taiwo Plc in a share exchange in which Kehinde Plc issued two (2) new shares for every three (3) shares it acquired in Taiwo Plc. This gave Kehinde Plc a holding of 90%, additionally on 31 December, 2016, Kehinde Plc will pay shareholders of Taiwo Plc N1.76 per share acquired. Kehinde Plc cost of capital is 10% per annum.

At the date of acquisition, the shares in Kehinde Plc and Taiwo Plc had a market price of N6.50 and N2.50 respectively.

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED SEPTEMBER 30, 2016

KEHINDE PLC TAIWO PLC
N’000 N’000
Revenue 323,000 190,000
Cost of Sales (256,000) (130,000)
Gross Profit 67,000 60,000
Distribution Cost (8,000) (9,000)
Administrative Expenses (19,000) (12,000)
Investment Income 2,500 –
Finance Cost (2,100) –
Profit before Tax 40,400 39,000
Income Tax Expenses (14,000) (8,000)
Profit for the year 26,400 31,000

Equity as at October 1, 2015:
Share Capital(N1 per share) 300,000 75,000
Retained Earnings 270,000 175,000

The following additional information is also relevant:

(i) At the date of acquisition the Fair Value of Taiwo Plc’s assets and liabilities were equal to their carrying amount with the exception of two items:

  • An item of plant had a fair value of N9million above the carrying amount. The remaining life of the plant at the date of acquisition was three (3) years. Depreciation is charged to cost of sales.
  • Taiwo Plc had a contingent liability which Kehinde Plc estimated to have a fair value of N2.25million. This has not changed as at September 30, 2016.
  • Taiwo Plc has not incorporated this fair value changes into its financial statements.

(ii) It is Kehinde Plc’s policy to value non-controlling interest at fair value at the date of acquisition. For this purpose, Taiwo Plc 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 Kehinde Plc to Taiwo Plc throughout the year ended September 30, 2016 had consistently been N4million per month. Kehinde Plc made a mark-up of 25% on these sales. Taiwo Plc had N7.5million of these goods in inventory as at September 30, 2016.

(iv) Kehinde Plc’s investment income is a dividend received from its investment in a 40% owned associates which it has held for several years. The underlying earnings of the associate for the year ended September 30, 2016 were N10million.

(v) Although Taiwo Plc has been profitable since its acquisition by Kehinde Plc, the market for Taiwo Plc’s product has been badly hit in recent months and Kehinde Plc has calculated that the goodwill has been impaired by N10million as at September 30, 2016.

Required:

(i) Calculate the goodwill on acquisition of Taiwo Plc. (7 Marks)

(ii) Prepare the Consolidated Statement of Profit or Loss and Other Comprehensive Income for Kehinde Plc group for the year ended September 30, 2016. (15 Marks)

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  • 5 Marks

FR – NOV 2016 – L2 – Q1a – Business Combinations (IFRS 3)

Question tests understanding of IFRS 3 treatment of non-controlling interests and its impact on consolidated financial statements.

IFRS 3 on Business Combination permits a non-controlling interest at the date of acquisition to be valued by one of two methods. i. At its proportionate share of the subsidiary’s identifiable Net Assets or ii. At its Fair Value (usually determined by the directors of the parent Company).

Required:

Explain the difference that the accounting treatment of these alternative methods could have on the Consolidated Financial Statements, including where Consolidated Goodwill may be impaired.

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  • 20 Marks

FR – Nov 2021 – L2 – Q2 – Consolidated Financial Statements (IFRS 10)

Prepare a consolidated statement of profit or loss and other comprehensive income for Okechukwu Group for the year ended December 31, 2019.

The statements of profit or loss and other comprehensive income of Okechukwu and its subsidiary, Ogenta Limited, for the year ended December 31, 2019, are presented below:

Item Okechukwu Plc (N’000) Ogenta Ltd (N’000)
Revenue 487,500 330,800
Cost of sales (304,500) (258,300)
Gross profit 183,000 72,500
Investment income 26,300 10,200
Distribution cost (24,050) (13,370)
Administrative expenses (40,625) (21,120)
Finance costs (10,500) (9,860)
Profit before tax 134,125 38,350
Income tax expense (33,800) (13,000)
Profit for the year 100,325 25,350
Other comprehensive income 23,880 10,440
Total comprehensive income 124,205 35,790

Additional information:

  1. Okechukwu Plc acquired 300 million of the ordinary shares issued by Ogenta Limited for N428 million.
  2. During the year ended December 31, 2019, Okechukwu Plc invoiced goods worth N80 million to Ogenta Limited. It is the policy of Okechukwu Plc to invoice goods at cost plus 33⅓%. Three-quarters of these goods are yet to be sold by Ogenta Limited at the year-end.
  3. Extracts from the books of Ogenta Limited at the date of acquisition reveal the following capital structure:
    • Issued ordinary shares of 50 kobo each: N200 million
    • General reserves: N80 million
    • Retained earnings: N52.5 million
  4. The fair value of the non-controlling interests at the acquisition date amounted to N92.5 million.
  5. An impairment test on the goodwill of Ogenta Limited conducted on December 31, 2019, indicated that the goodwill should be written down by N3.2 million.
  6. On the acquisition date, the fair value of net assets of Ogenta Limited was equal to their carrying amount, except for land and building and office equipment, which had fair values of N5 million and N1.5 million, respectively, in excess of their carrying amounts. The group non-current assets are depreciated at the rate of 10% per annum on a straight-line basis and charged to administrative expenses.
  7. Ogenta Limited paid a total of N20 million as dividends to all its shareholders for the year ended December 31, 2019. Okechukwu Plc has accounted for the dividend received.
  8. The finance cost of Ogenta Limited includes N2 million paid to Okechukwu Plc as interest on a loan. Okechukwu Plc has recognized the amount as interest received.

Required:
Prepare the consolidated statement of profit or loss and other comprehensive income for Okechukwu Group for the year ended December 31, 2019.

 

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  • 15 Marks

FA – May 2013 – L1 – SB – Q6 – Accounting Concepts

This question involves preparing the current accounts, cash-in-transit and inventories-in-transit accounts, and an aggregate Statement of Financial Position for October Enterprises Limited.

October Enterprises Limited has its Head office in Lokoja with branches in Ibiam and Imala. The following are the separate Statements of Financial Position of the Head Office (HO) and branches as at 31 December 2012:

Additional Information:

i. Ibiam’s current account balance with HO was arrived at after debiting ₦2,750 cash remitted to Ibiam on 31 December, which was received on 1 January the following year.
ii. Imala’s current account balance with HO was arrived at after debiting ₦8,250 value of inventories returned to Imala on 31 December, which was received in Imala on 1 January the following year.
iii. HO current account balance with Ibiam was arrived at after debiting ₦2,065 inventories returned to HO on 31 December and received in Lokoja on 5 January the following year.
iv. Imala’s current account with Ibiam was arrived at after debiting ₦4,125 inventories sent to Imala on 31 December and received in Imala on 10 January the following year.
v. HO current account with Imala was arrived at after debiting ₦13,750 cash sent to Lokoja on 31 December and received in Lokoja on 12 January the following year.

You are required to prepare:
a. Current accounts (6 Marks)
b. Cash-in-transit account (1 Mark)
c. Inventories-in-transit account (3 Marks)
d. Aggregate Statement of Financial Position as at 31 December 2012, after incorporating the above transactions. (5 Marks)

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  • 20 Marks

CR – May 2020 – L3 – Q1 – Consolidated Statement of Financial Position

Prepare the consolidated statement of financial position for Phato Ltd and its subsidiaries as at 30 September 2019, including relevant calculations for goodwill, non-controlling interest, and asset impairments.

Phato Ltd, is a Public Limited Liability Company which operates in the service sector in Ghana. Phato Ltd has a business relationship with two other Ghanaian companies, Sakara Ltd and Saadi Ltd, which are public limited liability companies too. The draft statements of financial position of these three companies are as below as at 30 September 2019.

Phato Ltd GH¢ million Sakara Ltd GH¢ million Saadi Ltd GH¢ million
Assets:
Non-current assets
Property, plant, and equipment 460.0 150.0
Investment in subsidiaries
Sakara Ltd 365.0
Saadi Ltd 160.0
Investment in Azuri Ltd 24.0
Intangible assets 99.0 15.0
Total Non-current assets 948.0 325.0
Current assets 447.5 240.0
Total assets 1,395.5 565.0
Equity and liabilities:
Equity:
Share capital 460.0 200.0
Other components of equity 36.5 18.5
Retained earnings 447.5 221.0
Total equity 944.0 439.5
Non-current liabilities 247.5 61.5
Current liabilities 204.0 64.0
Total liabilities 451.5 125.5
Total equity and liabilities 1,395.5 565.0

Additional relevant information:

  1. Phato Ltd, on 1 October 2017, acquired 60% of the equity interests of Sakara Ltd. The cost of the investment comprised cash of GH¢360 million. At acquisition, the fair value of the non-controlling interest in Sakara Ltd was estimated at GH¢146 million. The fair value of the identifiable net assets acquired totaled GH¢417.5 million, including retained earnings of GH¢159.5 million and other components of equity at GH¢13.5 million. The excess in fair value results from non-depreciable land.
  2. Sakara Ltd, on 1 October 2018, acquired 70% of Saadi Ltd for GH¢160 million. The fair value of non-controlling interest was estimated at GH¢36 million. The fair value of the identifiable net assets of Saadi Ltd at acquisition was GH¢181 million, retained earnings GH¢53 million, and other components of equity GH¢10 million.
  3. Phato Ltd acquired a 14% interest in Azuri Ltd for GH¢9 million on 1 October 2017. On 1 April 2019, Phato Ltd acquired an additional 16% interest in Azuri Ltd for GH¢13.5 million, achieving significant influence.
  4. Phato Ltd purchased patents for GH¢5 million and incurred other development costs for product development.
  5. Impairment tests were conducted on Sakara Ltd and Saadi Ltd.

Required:
Prepare the consolidated statement of financial position for the Phato Ltd Group as at 30 September 2019.

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