FRPA – APRIL 2024 – L3 – Q5 – Budgetary Control and IFRS 10 Consolidation
Explain budgetary control system and three ways it ensures operational efficiency; explain consolidated financial statements and four circumstances where control exists but consolidation not required.
a) Budgetary Control is a crucial aspect of managing businesses finances. By implementing a robust Budgetary Control System, businesses can use their financial resources effectively and efficiently to achieve their goals and objectives.
You are required to:
i) Explain what is meant by Budgetary Control System. (3 marks) ii) Recommend three (3) ways by which Budgetary Control System can help to provide information to ensure operational efficiency. (6 marks) b) 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 (3) elements of control: power over the investee; exposure to, or rights to, variable returns from its investment with the investee; and the ability to use power over the investee to affect the amount of those returns.
You are required to: i) Explain what Consolidated Financial Statements are (3 marks) ii) Identify four (4) circumstances under which a company may gain control over another company but would not be required to prepare Consolidated Financial Statements. (8 marks) (Total: 20 marks)
Aba LTD (Aba), a technology company, acquired 60% of the share capital of Boafo LTD (Boafo) on 1 January 2024. There are two elements to the purchase consideration – a share exchange transaction of three shares in Aba for every five shares acquired in Boafo, and a cash consideration of GH¢20.4 million on the date of acquisition. The share price of Aba at the acquisition date was GH¢1.2 per share. Only the cash consideration of GH¢20.4 million has been recorded in the books by Aba. The market price of Boafo’s shares just before the acquisition was GH¢1.015.
The summarised draft Financial Statements of both companies as at 31 December, 2024 are as follows:
Statement of Profit or Loss for the year ended 31 December 2024
Aba (GH¢’000)
Boafo (GH¢’000)
Sales revenue
200,500
50,500
Cost of sales
(110,000)
(24,000)
Gross profit
90,500
26,500
Admin expenses
(50,300)
(15,700)
Finance cost
(1,200)
–
Profit before tax
39,000
10,800
Income tax expense
(5,450)
(2,200)
Profit for the year
33,550
8,600
Statement of Financial Position as at 31 December 2024
Aba (GH¢’000)
Boafo (GH¢’000)
Non-current assets:
Property, plant & equipment
40,500
35,000
Investment in Boafo
20,400
–
60,900
35,000
Current assets
Inventories
10,500
12,000
Trade and other receivables
20,000
2,500
Cash and cash equivalents
12,500
550
43,000
15,050
103,900
50,050
Equity
Share capital (GH¢1 per ordinary shares)
50,000
35,000
Retained earnings as at 31 December 2023
10,000
5,000
Retained earnings for year ended 31 December 2024
33,550
8,600
93,550
48,600
Non-current liabilities
Long-term borrowings
5,600
800
Current liabilities
Trade and other payables
4,750
650
10,350
1,450
103,900
50,050
The following information is relevant:
i) The fair values of Boafo’s net assets were equal to their carrying amounts at the date of acquisition with the exception of a plant which was valued at GH¢4 million below its carrying amount. The remaining useful life for this plant is four (4) years and this period has not changed as a result of the acquisition. Depreciation of plant is on a straight-line basis and charged to cost of sales. The fair value of the plant has not been incorporated in the financial statements.
ii) In the post-acquisition period, Aba sold goods to Boafo at a total value of GH¢4.6 million. These goods cost Aba GH¢3 million. During the year, Boafo had sold GH¢2.5 million out of the GH¢4.6 million goods from Aba for GH¢3.2 million.
iii) On the first of July 2024, Aba received a grant from the Government in the form of a building. The value of this building was GH¢5 million with a useful life of 20 years. The Accountant of Aba who is not a Chartered Accountant credited the value of the building to revenue. It has been advised that the recognition of this transaction should be done in line with the provisions of IAS 20: Accounting for Government Grants and Disclosure of Government Assistance. It is the group’s policy to recognise grants relating to assets as deferred income.
iv) Aba’s policy is to value non-controlling interest at fair value at the date of acquisition. For this purpose, Boafo’s share price at that date can be deemed to be representative of the fair value of the shares held by the non-controlling interest.
v) Goodwill was reviewed for impairment at the end of the reporting period and had suffered an impairment loss equivalent to 10% of goodwill at acquisition which is to be treated as an operating expense.
Required:
Prepare for Aba LTD a Consolidated Statement of Profit or Loss for the year ended 31 December 2024 and a Consolidated Statement of Financial Position as at 31 December 2024.
a) Gogomi LTD, a privately owned joint venture, produces a range of equipment for the oil and gas industry in Ghana. One of the venturers, Oman Pension Funds (OPF), who holds one-third of Gogomi LTD’s ordinary shares, has decided to sell all of its holdings. This plan forms part of measures OPF is using to redirect focus of its investment strategy by replacing its equity assets with fixed-income holdings. OPF would therefore like to know the current value of its shareholdings to guide it during any negotiation with a potential buyer.
The following draft financial statements (together with the additional information) should be used to estimate the share value:
Draft statement of profit or loss of Gogomi LTD for the year ended 31 August 2024
GH¢000
Revenue
115,500
Cost of sales
(80,300)
Gross profit
35,200
Selling and distribution
(12,300)
Administrative expenses
(8,550)
Profit before tax
14,350
Tax
(2,030)
Profit after tax
12,320
Draft statement of financial position of Gogomi LTD as at 31 August 2024
GH¢000
Assets
Non-current assets:
Properties
52,400
Plant and equipment
53,300
Current assets
35,300
Total assets
141,000
Equity and liabilities
Capital and reserves
Ordinary shares @ GH¢2 each
24,000
10% Irredeemable preference shares @ GH¢1.50 each
6,000
Retained earnings
57,500
Non-current liabilities
38,080
Current liabilities
15,420
Total equity and liabilities
141,000
Additional information:
Included in properties is an office building whose fair value has been measured by a valuation specialist at GH¢25 million. This value compares to a book value of GH¢19.5 million. Plant is not yet adjusted for a required reversal of GH¢2 million impairment charge previously written off to profit or loss account against an item of plant. On 28 August 2024, Gogomi LTD bought an item of equipment and paid GH¢15.2 million, net of 5% withholding tax, to the equipment dealer. Management have expensed the associated withholding tax (already paid to the local tax office) within the income statement.
Included in receivables is an amount of GH¢4.4 million owed by a customer who has fallen into an unexpected, serious financial difficulty. As a consequence, expert assessment indicates that Gogomi LTD will have to wait until 31 August 2025 to receive the full amount in a single payment.
Gogomi LTD’s current ordinary dividend cover computed, based on the above draft accounts, is 4. Preference dividends have been fully paid.
A comparable quoted firm’s price-earnings ratio and dividend yield are 7.2 and 4.52% respectively. No adjustment should be made to these ratios, if they are used in any computations.
Applicable cost of capital is 10%.
Required:
Determine a range of values to be placed on each ordinary share of Gogomi LTD using:
i) Net assets basis
ii) Price-earnings basis
iii) Dividend yield basis
b) For the purpose of consolidation, a parent must consolidate all controlled entities. However, there is an exemption that applies to investment entities.
Pato Aluworks Group (Pato) is an aluminium processing and casting entity that supplies high quality aluminum coils to both local and foreign markets. Pato has 3 subsidiaries namely Asanka, Jaritan and Topoya and one associate Dosi all of which it acquired several years ago. The Group’s Consolidated Statement of Profit or Loss Account for the year ended 31 December 2024 and Consolidated Statement of Financial Position as that date are set out below:
Consolidated Statement of Profit or Loss for the year ended 31 December (extract)
2024
2023
GH¢
GH¢
Profit from operations
651,150
640,496
Impairment reversal/(loss)
2,500
(1,250)
Finance costs
(52,000)
(40,825)
Share of profits of associate
127,575
108,439
Profit before tax
729,225
706,860
Income tax expense
(145,800)
(123,930)
Profit for the year (continuing operations)
583,425
582,930
Profit for the year (discontinued operations)
102,375
Profit for the year
685,800
582,930
Attributable to:
Owners of Pato
571,725
485,966
Non-controlling interest
114,075
96,964
685,800
582,930
Consolidated Statement of Financial Position as at 31 December
ASSETS
2024
2023
Non-current assets
GH¢
GH¢
Property, plant and equipment
2,283,350
2,212,875
Intangible assets
22,000
–
Investment in associate
418,275
404,550
2,723,625
2,617,425
Current assets
Trade and other receivables
170,325
200,025
Cash and cash equivalents
46,125
32,625
216,450
232,650
Total assets
2,940,075
2,850,075
EQUITY AND LIABILITIES
Equity
Ordinary share capital (GH¢0.50 shares)
495,000
315,000
Share deals account
112,500
45,000
Retained earnings
1,491,750
1,518,975
Attributable to the equity holders of Pato
2,099,250
1,878,975
Non-controlling interest
315,450
339,300
2,414,700
2,218,275
Non-current liabilities
Lease Liabilities
239,100
300,000
Employee benefit obligations
42,150
37,500
Current liabilities
Trade and other payables
90,000
118,800
Due to related parties
1,125
–
Income tax payable
153,000
175,500
244,125
294,300
Total equity and liabilities
2,940,075
2,850,075
Additional information:
i) Pato owns 60% in Jaritan. The goodwill attributable to Pato arising on acquisition was GH¢67,500. The carrying value of Jaritan’s identifiable net assets (excluding goodwill arising on acquisition) in the group consolidation financial statements is GH¢180,000 at 31 December 2024. The recoverable amount of Jaritan is expected to be GH¢230,000 and no impairment loss had been recorded up to 31 December 2023.
ii) Pato sold all of its 75% shareholding in Asanka for cash during the year end December 31, 2024. As at December 31, 2023, all of the goodwill acquired in the business combination with Asanka had been written off. The profit from discontinued operations in the consolidated income statement above relates wholly to the sale of the shares in Asanka and can be analysed as follows:
GH¢
Profit before tax
93,150
Income tax expense
(14,400)
Profit on disposal
23,625
102,375
The net assets of Asanka at the date of disposal were as follows:
GH¢
Property, plant and equipment
421,875
Trade and other receivables
31,275
Cash and cash equivalents
3,375
Trade and other payables
(19,012)
437,512
iii) On 31 March 2024 Pato issued 100,000 ordinary shares for cash. This was followed by a bonus issue on 30 September 2024, utilising the share deals account. The consolidated statement of changes in equity for the year shows that all group companies paid ordinary dividends during the year.
iv) Depreciation of GH¢395,100 was recognised during the year ended 31 December 2024. In addition to the property, plant and equipment disposed of through the sale of Asanka, plant with a carrying amount of GH¢126,000 was sold for cash of GH¢135,000.
v) Trade and other payables include GH¢11,250 (2023: GH¢6,750) of unpaid interest due on the bank loan.
Required:
Prepare a consolidated statement of cash flows for Pato for the year ended 31 December 2024, including a note reconciling profit before tax to cash generated from operations, using the indirect method. (A note showing the effects of the disposal of Asanka is not required).
You're reporting an error for "CR – Mar 2025 – L3 – Q1 – Consolidated Cash Flows"
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?
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:
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.
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.
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.
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.
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.
Valuation of Non-controlling Interests:
The group values non-controlling interests at acquisition using their proportionate share of the subsidiary’s identifiable net assets.
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.
You're reporting an error for "CR – May 2023 – L3 – Q1a – Consolidated Financial Statements (IFRS 10)"
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
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.
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.
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.
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.
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.
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)
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:
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.
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)
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:
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.
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.
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.
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.
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.
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)
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:
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.
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.
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.
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.
An impairment test revealed a goodwill impairment of N28,000,000 at the acquisition date.
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.
The gain on the revaluation of property arose from an independent valuation of the group’s property in September 2022.
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.
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)
You're reporting an error for "FR – May 2024 – L2 – SA – Q3 – Consolidated Financial Statements"
20 Marks
FRPA – APRIL 2024 – L3 – Q5 – Budgetary Control and IFRS 10 Consolidation
Explain budgetary control system and three ways it ensures operational efficiency; explain consolidated financial statements and four circumstances where control exists but consolidation not required.
a) Budgetary Control is a crucial aspect of managing businesses finances. By implementing a robust Budgetary Control System, businesses can use their financial resources effectively and efficiently to achieve their goals and objectives.
You are required to:
i) Explain what is meant by Budgetary Control System. (3 marks) ii) Recommend three (3) ways by which Budgetary Control System can help to provide information to ensure operational efficiency. (6 marks) b) 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 (3) elements of control: power over the investee; exposure to, or rights to, variable returns from its investment with the investee; and the ability to use power over the investee to affect the amount of those returns.
You are required to: i) Explain what Consolidated Financial Statements are (3 marks) ii) Identify four (4) circumstances under which a company may gain control over another company but would not be required to prepare Consolidated Financial Statements. (8 marks) (Total: 20 marks)
Aba LTD (Aba), a technology company, acquired 60% of the share capital of Boafo LTD (Boafo) on 1 January 2024. There are two elements to the purchase consideration – a share exchange transaction of three shares in Aba for every five shares acquired in Boafo, and a cash consideration of GH¢20.4 million on the date of acquisition. The share price of Aba at the acquisition date was GH¢1.2 per share. Only the cash consideration of GH¢20.4 million has been recorded in the books by Aba. The market price of Boafo’s shares just before the acquisition was GH¢1.015.
The summarised draft Financial Statements of both companies as at 31 December, 2024 are as follows:
Statement of Profit or Loss for the year ended 31 December 2024
Aba (GH¢’000)
Boafo (GH¢’000)
Sales revenue
200,500
50,500
Cost of sales
(110,000)
(24,000)
Gross profit
90,500
26,500
Admin expenses
(50,300)
(15,700)
Finance cost
(1,200)
–
Profit before tax
39,000
10,800
Income tax expense
(5,450)
(2,200)
Profit for the year
33,550
8,600
Statement of Financial Position as at 31 December 2024
Aba (GH¢’000)
Boafo (GH¢’000)
Non-current assets:
Property, plant & equipment
40,500
35,000
Investment in Boafo
20,400
–
60,900
35,000
Current assets
Inventories
10,500
12,000
Trade and other receivables
20,000
2,500
Cash and cash equivalents
12,500
550
43,000
15,050
103,900
50,050
Equity
Share capital (GH¢1 per ordinary shares)
50,000
35,000
Retained earnings as at 31 December 2023
10,000
5,000
Retained earnings for year ended 31 December 2024
33,550
8,600
93,550
48,600
Non-current liabilities
Long-term borrowings
5,600
800
Current liabilities
Trade and other payables
4,750
650
10,350
1,450
103,900
50,050
The following information is relevant:
i) The fair values of Boafo’s net assets were equal to their carrying amounts at the date of acquisition with the exception of a plant which was valued at GH¢4 million below its carrying amount. The remaining useful life for this plant is four (4) years and this period has not changed as a result of the acquisition. Depreciation of plant is on a straight-line basis and charged to cost of sales. The fair value of the plant has not been incorporated in the financial statements.
ii) In the post-acquisition period, Aba sold goods to Boafo at a total value of GH¢4.6 million. These goods cost Aba GH¢3 million. During the year, Boafo had sold GH¢2.5 million out of the GH¢4.6 million goods from Aba for GH¢3.2 million.
iii) On the first of July 2024, Aba received a grant from the Government in the form of a building. The value of this building was GH¢5 million with a useful life of 20 years. The Accountant of Aba who is not a Chartered Accountant credited the value of the building to revenue. It has been advised that the recognition of this transaction should be done in line with the provisions of IAS 20: Accounting for Government Grants and Disclosure of Government Assistance. It is the group’s policy to recognise grants relating to assets as deferred income.
iv) Aba’s policy is to value non-controlling interest at fair value at the date of acquisition. For this purpose, Boafo’s share price at that date can be deemed to be representative of the fair value of the shares held by the non-controlling interest.
v) Goodwill was reviewed for impairment at the end of the reporting period and had suffered an impairment loss equivalent to 10% of goodwill at acquisition which is to be treated as an operating expense.
Required:
Prepare for Aba LTD a Consolidated Statement of Profit or Loss for the year ended 31 December 2024 and a Consolidated Statement of Financial Position as at 31 December 2024.
a) Gogomi LTD, a privately owned joint venture, produces a range of equipment for the oil and gas industry in Ghana. One of the venturers, Oman Pension Funds (OPF), who holds one-third of Gogomi LTD’s ordinary shares, has decided to sell all of its holdings. This plan forms part of measures OPF is using to redirect focus of its investment strategy by replacing its equity assets with fixed-income holdings. OPF would therefore like to know the current value of its shareholdings to guide it during any negotiation with a potential buyer.
The following draft financial statements (together with the additional information) should be used to estimate the share value:
Draft statement of profit or loss of Gogomi LTD for the year ended 31 August 2024
GH¢000
Revenue
115,500
Cost of sales
(80,300)
Gross profit
35,200
Selling and distribution
(12,300)
Administrative expenses
(8,550)
Profit before tax
14,350
Tax
(2,030)
Profit after tax
12,320
Draft statement of financial position of Gogomi LTD as at 31 August 2024
GH¢000
Assets
Non-current assets:
Properties
52,400
Plant and equipment
53,300
Current assets
35,300
Total assets
141,000
Equity and liabilities
Capital and reserves
Ordinary shares @ GH¢2 each
24,000
10% Irredeemable preference shares @ GH¢1.50 each
6,000
Retained earnings
57,500
Non-current liabilities
38,080
Current liabilities
15,420
Total equity and liabilities
141,000
Additional information:
Included in properties is an office building whose fair value has been measured by a valuation specialist at GH¢25 million. This value compares to a book value of GH¢19.5 million. Plant is not yet adjusted for a required reversal of GH¢2 million impairment charge previously written off to profit or loss account against an item of plant. On 28 August 2024, Gogomi LTD bought an item of equipment and paid GH¢15.2 million, net of 5% withholding tax, to the equipment dealer. Management have expensed the associated withholding tax (already paid to the local tax office) within the income statement.
Included in receivables is an amount of GH¢4.4 million owed by a customer who has fallen into an unexpected, serious financial difficulty. As a consequence, expert assessment indicates that Gogomi LTD will have to wait until 31 August 2025 to receive the full amount in a single payment.
Gogomi LTD’s current ordinary dividend cover computed, based on the above draft accounts, is 4. Preference dividends have been fully paid.
A comparable quoted firm’s price-earnings ratio and dividend yield are 7.2 and 4.52% respectively. No adjustment should be made to these ratios, if they are used in any computations.
Applicable cost of capital is 10%.
Required:
Determine a range of values to be placed on each ordinary share of Gogomi LTD using:
i) Net assets basis
ii) Price-earnings basis
iii) Dividend yield basis
b) For the purpose of consolidation, a parent must consolidate all controlled entities. However, there is an exemption that applies to investment entities.
Pato Aluworks Group (Pato) is an aluminium processing and casting entity that supplies high quality aluminum coils to both local and foreign markets. Pato has 3 subsidiaries namely Asanka, Jaritan and Topoya and one associate Dosi all of which it acquired several years ago. The Group’s Consolidated Statement of Profit or Loss Account for the year ended 31 December 2024 and Consolidated Statement of Financial Position as that date are set out below:
Consolidated Statement of Profit or Loss for the year ended 31 December (extract)
2024
2023
GH¢
GH¢
Profit from operations
651,150
640,496
Impairment reversal/(loss)
2,500
(1,250)
Finance costs
(52,000)
(40,825)
Share of profits of associate
127,575
108,439
Profit before tax
729,225
706,860
Income tax expense
(145,800)
(123,930)
Profit for the year (continuing operations)
583,425
582,930
Profit for the year (discontinued operations)
102,375
Profit for the year
685,800
582,930
Attributable to:
Owners of Pato
571,725
485,966
Non-controlling interest
114,075
96,964
685,800
582,930
Consolidated Statement of Financial Position as at 31 December
ASSETS
2024
2023
Non-current assets
GH¢
GH¢
Property, plant and equipment
2,283,350
2,212,875
Intangible assets
22,000
–
Investment in associate
418,275
404,550
2,723,625
2,617,425
Current assets
Trade and other receivables
170,325
200,025
Cash and cash equivalents
46,125
32,625
216,450
232,650
Total assets
2,940,075
2,850,075
EQUITY AND LIABILITIES
Equity
Ordinary share capital (GH¢0.50 shares)
495,000
315,000
Share deals account
112,500
45,000
Retained earnings
1,491,750
1,518,975
Attributable to the equity holders of Pato
2,099,250
1,878,975
Non-controlling interest
315,450
339,300
2,414,700
2,218,275
Non-current liabilities
Lease Liabilities
239,100
300,000
Employee benefit obligations
42,150
37,500
Current liabilities
Trade and other payables
90,000
118,800
Due to related parties
1,125
–
Income tax payable
153,000
175,500
244,125
294,300
Total equity and liabilities
2,940,075
2,850,075
Additional information:
i) Pato owns 60% in Jaritan. The goodwill attributable to Pato arising on acquisition was GH¢67,500. The carrying value of Jaritan’s identifiable net assets (excluding goodwill arising on acquisition) in the group consolidation financial statements is GH¢180,000 at 31 December 2024. The recoverable amount of Jaritan is expected to be GH¢230,000 and no impairment loss had been recorded up to 31 December 2023.
ii) Pato sold all of its 75% shareholding in Asanka for cash during the year end December 31, 2024. As at December 31, 2023, all of the goodwill acquired in the business combination with Asanka had been written off. The profit from discontinued operations in the consolidated income statement above relates wholly to the sale of the shares in Asanka and can be analysed as follows:
GH¢
Profit before tax
93,150
Income tax expense
(14,400)
Profit on disposal
23,625
102,375
The net assets of Asanka at the date of disposal were as follows:
GH¢
Property, plant and equipment
421,875
Trade and other receivables
31,275
Cash and cash equivalents
3,375
Trade and other payables
(19,012)
437,512
iii) On 31 March 2024 Pato issued 100,000 ordinary shares for cash. This was followed by a bonus issue on 30 September 2024, utilising the share deals account. The consolidated statement of changes in equity for the year shows that all group companies paid ordinary dividends during the year.
iv) Depreciation of GH¢395,100 was recognised during the year ended 31 December 2024. In addition to the property, plant and equipment disposed of through the sale of Asanka, plant with a carrying amount of GH¢126,000 was sold for cash of GH¢135,000.
v) Trade and other payables include GH¢11,250 (2023: GH¢6,750) of unpaid interest due on the bank loan.
Required:
Prepare a consolidated statement of cash flows for Pato for the year ended 31 December 2024, including a note reconciling profit before tax to cash generated from operations, using the indirect method. (A note showing the effects of the disposal of Asanka is not required).
You're reporting an error for "CR – Mar 2025 – L3 – Q1 – Consolidated Cash Flows"
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?
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:
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.
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.
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.
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.
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.
Valuation of Non-controlling Interests:
The group values non-controlling interests at acquisition using their proportionate share of the subsidiary’s identifiable net assets.
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.
You're reporting an error for "CR – May 2023 – L3 – Q1a – Consolidated Financial Statements (IFRS 10)"
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
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.
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.
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.
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.
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.
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)
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:
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.
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)
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:
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.
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.
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.
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.
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.
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)
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:
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.
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.
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.
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.
An impairment test revealed a goodwill impairment of N28,000,000 at the acquisition date.
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.
The gain on the revaluation of property arose from an independent valuation of the group’s property in September 2022.
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.
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)
