CR – L3 – Q1 – Consolidated financial statements

Prepare consolidated statement of profit or loss and OCI for Oakwood Group with adjustments for acquisitions, disposals, and other items.

Question

The following financial statements relate to Oakwood, a public limited company:

Oakwood Group Statements of Profit or Loss and Other Comprehensive Income for the year ended

30 April 2024.

Oakwood Birchwood Norwood

GH¢ million GH¢ million GH¢ million Revenue 1,200 345 210 Cost of sales (936) (195) (108) Gross profit 264 150 102 Other income 63 21 6 Administrative costs (45) (27) (36) Other expenses (105) (57) (24) Operating profit 177 87 48 Finance costs (15) (18) (12) Finance income 18 15 24 Profit before tax 180 84 60 Income tax expense (57) (27) (15) Profit for the year 123 57 45

Other comprehensive income – revaluation surplus

Total comprehensive income for year 153 57 45

The following information is relevant to the preparation of the group statement of profit or loss and other comprehensive income: i) On 1 May 2022, Oakwood acquired 60% of the equity interest of Birchwood, a public limited

company for GH¢240 million. The fair value of the identifiable net assets acquired was GH¢330 million at that date. The fair value of the non-controlling interest (NCI) in Birchwood was GH¢135 million on 1 May 2022. Oakwood wishes to use the ‘full goodwill’ method for all acquisitions. The share capital and retained earnings of Birchwood were GH¢75 million and GH¢195 million respectively and other components of equity were GH¢18 million at the date of acquisition. The excess of the fair value of the identifiable net assets at acquisition is due to non-depreciable land.

Goodwill had impaired by 20% as of 30 April 2023. However, on 30 April 2024, the impairment of goodwill had reversed, and goodwill was valued at GH¢6 million above its original value. This upward change in value has already been included in the above draft financial statements of Oakwood prior to the preparation of the group accounts.

ii) Oakwood disposed of an 8% equity interest in Birchwood on 30 April 2024 for a cash

consideration of GH¢54 million and had accounted for the gain or loss in other income. The carrying value of the net assets of Birchwood on 30 April 2024 was GH¢360 million before any adjustments on consolidation.

Oakwood accounts for investments in subsidiaries using IFRS 9: Financial Instruments and has made an election to show gains and losses in other comprehensive income. The carrying

value of the investment in Birchwood was GH¢270 million on 30 April 2023 and GH¢285 million on 30 April 2024 before the disposal of the equity interest.

iii) Oakwood acquired 60% of the equity interests of Norwood, a public limited company, on 30 April

The purchase consideration was cash of GH¢210 million. Norwood’s identifiable net assets were fair valued at GH¢258 million and the NCI had a fair value of GH¢84 million at that date.

On 1 November 2023, Oakwood disposed of a 40% equity interest in Norwood for a consideration of GH¢150 million. Norwood’s identifiable net assets were GH¢270 million and the value of the NCI was GH¢102 million at the date of disposal. The remaining equity interest was fair valued at GH¢120 million. After the disposal, Oakwood exerts significant influence. Any increase in net assets since acquisition has been reported in profit or loss and the carrying value of the investment in Norwood had not changed since acquisition. Goodwill had been impairment tested and no impairment was required. No entries had been made in the financial statements of Oakwood for this transaction other than for cash received.

iv) Oakwood sold inventory to Birchwood for GH¢36 million at fair value. Oakwood made a loss of

GH¢6 million on the transaction and Birchwood still holds GH¢24 million in inventory at the year end.

v) On 1 May 2022, Oakwood purchased an item of property, plant and equipment for GH¢36

million and it is being depreciated using the straight-line basis over 10 years with a zero residual value. On 30 April 2023, the asset was revalued to GH¢39 million but on 30 April 2024, the value of the asset had fallen to GH¢21 million. Oakwood uses the revaluation model to value its non-current assets. The effect of the revaluation on 30 April 2024 had not been taken into account in total comprehensive income but depreciation for the year had been charged.

vi) On 1 May 2022, Oakwood awarded 24,000 share options to each of its seven directors. The

condition attached to the award is that the directors must remain employed by Oakwood for three years. The fair value of each option at the grant date was GH¢100 and the fair value of each option on 30 April 2024 was GH¢110. On 30 April 2023, it was estimated that three directors would leave before the end of three years. Due to an economic downturn, the estimate of directors who were going to leave was revised to one director on 30 April 2024. The expense for the year as regards the share options had not been included in profit or loss for the current year, and no directors had left by 30 April 2024.

vii) Ignore the taxation effects of the above adjustments unless specified. Any expense

adjustments should be amended in other expenses.

Required: a) Prepare a Consolidated Statement of Profit or Loss and Other Comprehensive Income for

the year ended 30 April 2024 for the Oakwood Group.

b) Explain, with suitable calculations, how the sale of the 8% interest in Birchwood should be

dealt with in the Consolidated Statement of Financial Position on 30 April 2024.

Answer

Oakwood Group

Consolidated Statement of profit or loss and other comprehensive income for the year ended 30 April 2024

GH¢ million Revenue 1,614.00 Cost of sales (1,149.00) Gross profit 465.00 Other income 137.10 Administrative costs (90.00) Other expenses (224.08) Share of profits of associate 4.50 Operating profit 292.52 Finance costs (30.00) Finance income 45.00 Profit before tax 307.52 Income tax expense (91.50) Profit for the year 216.02 Other comprehensive income:

Items which will not be reclassified to profit or loss

Changes in revaluation surplus 8.40 Total comprehensive income for the year 224.42 Profit/loss attributable to: (w7)

Owners of the parent 180.62 non-controlling interest 35.40

216.02 Total comprehensive income attributable to:

Owners of the parent 177.62 non-controlling interest 31.80

209.42

Workings 1

Oakwood Birchwood Norwood Adjustment Group

GH¢’ m GH¢’ m GH¢’ m GH¢’ m GH¢’ m Revenue 1,200.00 345.00 105.00 (36.00) 1,614.00 Cost of sales (936.00) (195.00) (54.00) 36.00 (1,149.00) Gross profit 264.00 150.00 51.00

465.00 Other income (63 – 15.9 + 66) W2/W3 113.10 21.00 3.00

137.10

Administrative costs (45.00) (27.00) (18.00) (90.00) Other expenses (105.00) (57.00) (12.00)

Impairment of goodwill (15.00)

Share of profits of associates 4.50

PPE expense (7.08)

Share options (6.40)

(219.58) Operating profit 203.13 87.00 24.00

314.13 Finance costs (15.00) (18.00) (6.00) (30.00) Finance income 18.00 15.00 12.00

45.00 Profit before tax 206.13 93.00 30.00

329.13

Income tax expense (57.00) (27.00) (7.50)

(91.50) Profit for the year 149.13 66.00 22.50

237.63 Other comprehensive income

(GHS30m – GHS15m (W2)) 15.00

15.00 Revaluation adjustment (6.60)

(6.60) Total comprehensive income for year 157.53 66.00 22.50

246.03

Note that the share of the associates’ profit should be disclosed on the face of the statement of profit or loss. Therefore, other expenses will be GH¢219.57m plus GH¢4.5m, i.e. GH¢224.07m.

GH¢’ m GH¢’ m Fair value of consideration for 60% interest 240 Fair value of non-controlling interest 135 375 Fair value of identifiable net assets acquired

(330) Goodwill

Goodwill impairment After goodwill has been impaired (20% of GH¢45m, i.e. GH¢9m), any subsequent increase in the recoverable amount is likely to be internally generated goodwill rather than a reversal of purchased goodwill impairment. IAS 38 Intangible Assets prohibits the recognition of internally generated goodwill; thus, any reversal of impairment is not recognized. Hence, GH¢15 million needs to be charged to profit or loss to undo the reversal. Total impairment is still GH¢9 million.

3 Birchwood

The gains recorded regarding the investment in Birchwood will be as follows: Gain on investment in Birchwood (GH¢285m – GH¢270m) GH¢15m Gain on sale of holding in Birchwood (GH¢54 – (8%/60% of GH¢285m))

GH¢15.9m

No gain or loss is recognized in profit or loss on the sale of Birchwood in the group accounts as the sale is shown as a movement in equity. Therefore, it is eliminated. Additionally, the gain on the revaluation of the investment in Birchwood will also be eliminated on consolidation as the calculation of goodwill will be based on the fair value of the consideration at the date of acquisition and not at date of disposal.

4 Norwood

GH¢’ m GH¢’ m Fair value of consideration for 60% interest 210 Fair value of non-controlling interest 84 294 Fair value of identifiable net assets acquired

(258) Goodwill

As Oakwood has sold a controlling interest in Norwood, a gain or loss on disposal should be calculated. Additionally, the results of Norwood should only be consolidated in the statement of profit or loss and other comprehensive income for the six months to 1 November 2023. Thereafter Norwood should be equity accounted. The gain recognized in profit or loss would be as follows:

GH¢’ m Fair value of consideration 150 Fair value of residual interest to be recognized as an associate 120 Value of NCI 102

372 Less: net assets and goodwill derecognized

net assets (270) Goodwill (36) Gain on disposal to profit or loss 66

The share of the profits of the associate would be 20% of a half year’s profit (GH¢45m/2), i.e. GH¢4.5 million.

5 Property, Plant and Equipment

GH¢’ m Carrying amount on 1 May 2023 39 Depreciation for year (GHS39m/9) (4.32) Carrying amount at 30 April 2024 34.68 Fall in value charged to revaluation surplus (GHS39m – (GHS36m – (GHS36m/10))) (6.60) Fall in value charged to profit or loss (7.08) Carrying amount after revaluation 30 April 2024 21

6 Share options

Year Expense for year (GH¢’ m)

Cumulative expense (GH¢’ m)

Calculation

30 April 2023 3.20 3.20 4 directors x GH¢100 x

24,000 x 1/3 30 April 2024 6.40 9.60 6 directors x GH¢100 x

24,000 x 2/3

7 non-controlling interest (NCI)

NCI in profits for year is (40% of GHS66m + 40% of GH¢45 million/2) = GH¢35.4 million NCI in TCI (40% of 57 + 40% of GH¢45 million/2) = GH¢31.8 million

8 Intra-group sales/purchases

The loss on the sale of the inventory is not eliminated from group profit or loss. Because the sale is at fair value, the inventory value must have been impaired and therefore the loss on sale must remain realized. However, the revenue and cost of sales of GH¢36 million will be eliminated.

B) Dealing with the sale of 8% interest in Birchwood in the CSOFP

Once control has been achieved, further transactions whereby the parent entity acquires further equity interests from non-controlling interests, or disposes of equity interests but without losing control, are accounted for as equity transactions, that is, transactions with owners in their capacity as owners. Thus, it follows that:  the carrying amounts of the controlling and non-controlling interests are adjusted

to reflect the changes in their relative interests in the subsidiary; any difference between the amount by which the non-controlling interests is

adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to the owners of the parent; and there is no consequential adjustment to the carrying amount of goodwill, and no

gain or loss is recognized in profit or loss.

Sale of equity interest in Birchwood

GH¢’ m Fair value of consideration received 54.00 Amount recognized as non-controlling interest (net assets as per question at year end [(GH¢360m + fair value adjustment PPE at acquisition GH¢42m + goodwill (45 – 9)) x 8%)] (35.10) Positive movement in parent’s equity 18.90

The fair value adjustment is GH¢330m – (GH¢75m + GH¢195m + GH¢18m). The income should be shown as a movement in equity not in income. Hence it does not affect the consolidated statement of profit or loss and other comprehensive income.

Summary report of all changes:

Changed Odupon to Oakwood, Benkum to Birchwood, Nifa to Norwood throughout questions and answers to alter company names subtly while preserving context.
No individual names or locations changed as none were specific beyond company names.
Ensured all figures, tables, and workings rendered exactly as in the attachment.
Educational value preserved by keeping accounting concepts and calculations intact.

Tags: Associate, Consolidation, Disposal, Goodwill, Impairment, Intra-Group, Revaluation, Share Options
Level: Level 3

Topic: Consolidated Financial Statements
Series: NOV 2025

Uploader: Samuel Duah