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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  • 5 Marks

FR – May 2019 – L2 – Q1a – Consolidated Financial Statements (IFRS 10)

Explain the usefulness of consolidated financial statements

Explain why consolidated financial statements are useful to the users of financial statements as opposed to just the parent company’s separate financial statements.

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  • 7 Marks

FR – Mar/Jul 2020 – L2 – Q3a – Exceptions to Consolidated Financial Statements Under IFRS 10

Explain the exceptions to the requirement for a parent to prepare consolidated financial statements according to IFRS 10.

International Financial Reporting Standards (IFRS 10) – Consolidated Financial Statements states that a parent must prepare consolidated financial statements for the group as a whole.
Required:
Explain the exceptions to this rule according to IFRS 10. (7 Marks)

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  • 13 Marks

FR – Mar/Jul 2020 – L2 – Q3b – Consolidated Statement of Financial Position for Papa Limited Group

Preparation of consolidated statement of financial position for Papa Limited group as at December 31, 2018.

The following information relates to financial statements included in the annual report of Papa Limited and Mama Limited as at December 31, 2018. Papa Limited acquired 80% of the ordinary shares of Mama Limited for N1,200m on January 1, 2014:

Additional Information:
1. At the date of acquisition, Mama Limited retained earnings were N600m. Non-controlling interest fair value in Mama Limited on the date of acquisition was N320m.
2. Papa Limited sold goods worth N200m to Mama Limited during the year making 25% gross profit margin. 40% of the goods are still included in the inventories of Mama Limited as at December 31, 2018.
3. The fair values of the net assets of Mama Limited at the date of acquisition are the same as their carrying amounts, with the exception of land and buildings. The cost of these land and buildings is N600m, and it was estimated to have a fair value of N720m.
Required:
Prepare the consolidated statement of financial position for the Papa Limited group as at December 31, 2018. (13 Marks)

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  • 5 Marks

FR – Mar 2023 – L2 – Q5d – Business combinations and consolidation

Explains fair value in IFRS 13 and its application to assets and liabilities in business combinations.

d) IFRS 3: Business Combinations defines fair value consistently with IFRS 13: Fair Value Measurement. IFRS 3 requires the acquiree’s assets and liabilities to be incorporated into the consolidated financial statements at their fair values rather than at their carrying amounts.

Required:
i) Explain the meaning of fair value in accordance with IFRS 13. (2 marks)
ii) Explain the reasons why the acquiree’s assets and liabilities are measured and recognised at their fair value within the consolidated financial statements. (3 marks)

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  • 20 Marks

FR – Mar 2023 – L2 – Q1 – Group Financial Statements and Consolidation

Prepare the consolidated statement of financial position for Panin Group as of 31 December 2021, considering various acquisitions and intercompany transactions.

Below are the financial statements of Panin, Kakra, and Tawia.

Additional information:

  1. On 1 January 2021, Panin acquired 27 million equity shares in Kakra, transferring a parcel of land with a carrying value of GH¢90 million and fair value of GH¢96 million. The balances on Kakra’s retained earnings and revaluation reserves at this date were GH¢72 million and GH¢5.5 million respectively.
  2. On 1 January 2021, Kakra’s internally developed brand had a fair value of GH¢11 million. The brand has an indefinite useful life, but at year-end its value-in-use was assessed at GH¢8 million.
  3. On 1 July 2021, Panin also acquired 5 million equity shares in Tawia for GH¢32 million. Tawia earned post-acquisition profit of GH¢10 million after tax and revaluation gains of GH¢500,000.
  4. In 2021, Kakra made intercompany sales to Panin for GH¢7.8 million, with a profit of 25% on cost, and GH¢1.2 million of these goods were in Panin’s inventory as at 31 December 2021. Kakra also sold to Tawia, and all goods remained in Tawia’s inventory.
  5. Dividends payable were declared by Kakra and Tawia, but Panin has not yet taken credit for its share.
  6. On 1 January 2021, Panin sold machines to Kakra for GH¢8 million, with a carrying value of GH¢6 million, depreciating them at 20% per annum.
  7. Goodwill should be impaired by 10%.
  8. Non-controlling interest should be valued at their proportionate share of fair value of the subsidiary’s identifiable net assets.

Required:

Prepare a consolidated statement of financial position for Panin Group as at 31 December 2021.

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  • 20 Marks

FR – Nov 2019 – L2 – Q1 – Group Financial Statements and Consolidation

Consolidated statement of financial position of Atia Ltd and Santana Ltd as at 30 June 2019.

The draft statements of financial position of Atia Ltd and that of Santana Ltd as at 30 June 2019 are as follows:

Additional relevant information:
1) On July 1, 2018, Atia Ltd purchased 21 million shares of Santana Ltd. At this date, the retained earnings of Santana Ltd were estimated at GH¢17 million, and the revaluation surplus was GH¢2 million.
2) Atia Ltd paid an initial cash amount of GH¢46 million and agreed to pay Santana Ltd’s shareholders a further GH¢14 million on July 1, 2020. The financial accountant has recorded both elements of the consideration in investments.
3) Atia Ltd has a cost of capital of 8% per annum.
4) During the accounting period, Atia Ltd sold goods totaling GH¢4 million to Santana Ltd at a gross profit margin of 25%. As of 30 June 2019, Santana Ltd still had GH¢0.5 million of these goods in inventory. Atia Ltd has a normal margin of 45%.
5) On the acquisition date, the fair values of Santana Ltd’s net assets were equal to their carrying amounts, except for inventory, which had a cost of GH¢1.5 million but a fair value of GH¢1.8 million. As of 30 June 2019, 10% of these goods remained in Santana Ltd’s inventory.
6) Atia Ltd values non-controlling interest (NCI) at fair value. The NCI’s value at acquisition is estimated at GH¢7.5 million.
7) No impairment was recognized for goodwill.

Required: Prepare the consolidated statement of financial position of the Atia group as at 30 June 2019.
(20 marks)

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  • 4 Marks

FR – Nov 2019 – L2 – Q5d – Group Financial Statements and Consolidation

Identify factors causing negative goodwill and explain its accounting treatment in consolidated financial statements.

Negative Goodwill is based on the accounting concept of Goodwill, an intangible asset that represents the worth of a company’s brand name, patents and other intellectual property, customer base, licenses, and other items that are difficult to put an amount on but help to make a company valuable. When the price paid is less than the actual value of the company’s net tangible assets, negative goodwill results.

Required:
In accordance with IFRS 3: Business Combinations, identify THREE (3) factors that account for negative goodwill and indicate its accounting treatment when it occurs in the preparation of consolidated financial statements.

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  • 20 Marks

FR – July 2023 – L2 – Q1 – Group Financial Statements and Consolidation

Prepare the Consolidated Statement of Financial Position for a parent company Tarkwa Ltd and its subsidiary Awaso Ltd, incorporating the acquisition of 80% shares and related adjustments.

Tarkwa Ltd (Tarkwa) has been operating in the clothing and textiles industry in the past decade. On 1 July 2021, it acquired Awaso Ltd (Awaso) which operates in the same industry. The statements of Financial Position of the two companies as at 31 December 2021 are as follows:

Tarkwa GH¢000 Awaso GH¢000
Assets
Non-current assets 185,400 93,000
Current Assets
Inventory 76,200 31,800
Other current assets 58,200 24,000
Total current assets 134,400 55,800
Total assets 319,800 148,800
Equity and Liabilities
Equity
Share capital (issued at GH¢1 each) 120,000 50,000
Retained earnings:
Balance at January 1, 2021 73,200 51,600
Profit/(loss) for the year ended December 31, 2021 30,000 (18,000)
Total equity 223,200 83,600
Non-current liabilities
Deferred tax 30,000 4,000
Current liabilities
Trade payables and accruals 66,600 61,200
Total Equity and Liabilities 319,800 148,800

Additional information:

i) Tarkwa acquired 80% of Awaso’s equity shares by means of immediate cash payment of GH¢1.80 per each acquired share. However, the former shareholders agreed to return some of the consideration by 30 June 2022 if Awaso’s sales growth falls below a defined threshold over the next year. The value of this contingent consideration at the date of acquisition was estimated to be GH¢4 million. At 31 December 2021, in the light of Awaso’s falling sales, the value was revised to GH¢4.5 million. Tarkwa has only recorded the immediate cash payment.

ii) Tarkwa conducted a fair value exercise on Awaso’s net assets, which were equal to their carrying values including Awaso’s investment property with the exception of an item of owner-occupied property which had a fair value of GH¢5 million below its carrying amount. The property had a remaining useful life of 20 years as at 1 July 2021. Awaso has already incorporated the fair value change (together with the depreciation adjustment) in its own financial statements.

iii) At 31 December 2021, Awaso held goods in inventory, which had been supplied by Tarkwa at a mark-up on cost of 35%. The goods had cost Awaso GH¢6.75 million. 50% of the inventory remained unsold.

iv) The investment properties of Tarkwa and Awaso are carried at their fair values at January 1, 2021. However, at 31 December 2021, an item of properties had fair values of GH¢36.6 million and GH¢10.8 million respectively, with the change in Awaso’s investment properties all occurring since acquisition. These properties had carrying amounts at GH¢33,000 and GH¢12,000 respectively at the same date.

v) It is Tarkwa’s group policy to value the non-controlling interest using the fair value method at the acquisition date. For this purpose, a share price for Awaso of GH¢1.50 each is representative of the fair value of the shares held by the non-controlling interest.

Required:
Prepare the Consolidated Statement of Financial Position for Tarkwa as at December 31, 2021.

(Total: 20 marks)

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  • 20 Marks

FR – May 2017 – L2 – Q1 – Group Financial Statements and Consolidation

Prepare consolidated financial statements for a parent and subsidiary, including profit or loss, statement of changes in equity, and statement of financial position.

Ghanbetter is a 90% subsidiary of Asonbata, acquired one year ago for GH¢4 billion, when the retained earnings of Ghanbetter were GH¢800 million. Below are the financial statements of the companies:

Statement of Profit or Loss for the year ended 31 December, 2016

Additional Information:
i) During the year Asonbata sold goods to Ghanbetter for GH¢100 million. These goods were sold at a margin of 20%, and one quarter remained in inventory at the year-end.

ii) During the year Ghanbetter sold goods to Asonbata for GH¢180 million. These goods were sold at a mark-up of 50%, and one half remained in inventory at the year-end.

iii) At the year-end, there were no outstanding inter-company current account balances.

iv) At the date of acquisition, the fair value of Ghanbetter’s net assets was equal to their carrying value, except for an item of plant that had a fair value of GH¢200 million in excess of its carrying value and a remaining useful life of four years.

v) Goodwill is to be calculated using the proportionate basis. An impairment review at the year-end reveals that no impairment loss arose.

vi) Both companies have paid a dividend during the year. The dividend distributed by Asonbata was GH¢200 million, and that of Ghanbetter GH¢100 million. The investment income that Asonbata has recognised is the dividend received from Ghanbetter shortly before the year-end.

Required:
Prepare the Consolidated Statement of Financial Position, Statement of Changes in Equity, and Consolidated Statement of Profit or Loss for Asonbata for the year ended 31 December, 2016.

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  • 20 Marks

FR – Nov 2021 – L2 – Q1 – Group Financial Statements and Consolidation

Prepare the Consolidated Statement of Financial Position for Sankofa Group considering investments, goodwill, and intra-group transactions.

The following statement of financial position relates to Sankofa and Kaakyire as at 31 October 2020.

Statement of Financial Position Sankofa (GH¢’000) Kaakyire (GH¢’000)
Non-current assets
Property, Plant and Equipment 37,000 30,000
Investment Property 5,000 –
Investments 24,000 –
Total Non-current assets 66,000 30,000
Current assets
Inventory 9,000 8,000
Other current assets 21,000 14,000
Total Current assets 30,000 22,000
Total assets 96,000 52,000
Equity and liabilities
Ordinary shares (issued @ GH¢2.50) 20,000 8,000
Retained earnings 26,000 16,000
Total Equity 46,000 24,000
Non-current liabilities
10% debentures 11,900 12,000
Current liabilities
Payables 38,100 16,000
Total Equity and liabilities 96,000 52,000

Additional information:
i) On 1 November 2018, Sankofa purchased 2.4 million of the ordinary shares of Kaakyire when Kaakyire’s retained earnings balance stood at GH¢11 million. There have been no movements in share capital since the acquisition. As part of the consideration given for the shares acquired, the shareholders of Kaakyire accepted 1 million shares worth GH¢7 million in Sankofa at acquisition. The remaining consideration was agreed to be paid on 31 October 2020 for GH¢12.1 million. The present values of GH¢1 receivable based on 10% (considered to be an appropriate discount rate for Sankofa) are as follows:

Present Value of GH¢1 receivable
In one year’s time:
In two years’ time:

Entries have been correctly passed for the effects of all of the above, including any unwound discounts, except for the final payment made on 31 October 2020.

ii) At acquisition, the fair values of Kaakyire’s assets, liabilities, and contingencies were equal to their carrying amounts, with the exception of the following assets:

Carrying amount (GH¢’000) Fair value (GH¢’000)
Trade receivables 1,250
Inventory 1,500
Properties 14,000

The properties had a remaining useful life of 10 years. No items of property were sold during the two years to 31 October 2020. The inventory and the receivable were realised during the post-acquisition period.

iii) On 1 November 2019, Kaakyire sold an item of plant to Sankofa for GH¢5 million. Kaakyire originally bought the plant from Gyidie for GH¢6 million, and Kaakyire had provided accumulated depreciation of GH¢2.2 million up to the date of sale. Kaakyire considered the plant to have a remaining useful life of 5 years at the date of transfer.

iv) The Investment Property in the books of Sankofa represents an office facility that was completed on 1 November 2018 at the cost of GH¢3.5 million. The useful economic life of the facility was estimated at 20 years. Immediately after the acquisition of Kaakyire, Sankofa began to rent this property out to Kaakyire under a lease agreement. Sankofa Group values its investment properties using the fair value model under IAS 40 Investment Properties and its owner-occupied properties using the cost model under IAS 16 Property, Plant and Equipment.

v) On 1 November 2019, Sankofa acquired 30% of the ordinary shares of Kaboom at the cost of GH¢6 million. During the year ended 31 October 2020, Kaboom reported a profit after tax of GH¢2 million. No dividends were paid or declared by Kaboom during the period. At year-end, Kaboom’s inventory included GH¢1.2 million worth of goods bought from Sankofa during the year to October 2020. Sankofa charges a 25% margin on all sales.

On 31 October 2019, Goodwill acquired in Kaakyire was attributed with an impairment loss of GH¢0.5 million. The group’s policy is to measure non-controlling interest at the proportion of the fair value of the subsidiary’s net assets.

Required:
Prepare the Consolidated Statement of Financial Position for the Sankofa Group as at 31 October 2020.

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