- 20 Marks
Question
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).
Answer
Consolidated statement of cash flows for the year ended 31 December 2024
| GH¢ | GH¢ | |
|---|---|---|
| Cash flows from operating activities | ||
| Cash generated from operations (Note) | 1,082,812 | |
| Impairment in Jaritan (W7) | 37,500 | |
| Impairment reversal | 2,500 | |
| Interest paid (W1) | (47,500) | |
| Income tax paid (W2) | (182,700) | |
| Net cash inflow from operating activities | 892,612 | |
| Cash flows from investing activities | ||
| Purchase of property, plant and equipment (W3) | (1,013,450) | |
| Purchase of intangible asset | (22,000) | |
| Proceeds from sale of property, plant and equipment | 135,000 | |
| Dividends received from associate (W4) | 113,850 | |
| Disposal of Asanka Ltd net of cash disposed of ((437,512 × 75%) + 23,625) – 3,375) | 348,384 | |
| Net cash outflow from investing activities | (438,216) | |
| Cash flows from financing activities | ||
| Proceeds from share issues (495,000 + 112,500) – (315,000 + 45,000) | 247,500 | |
| Financing of Lease obligations (300,000 – 239,100) | (60,900) | |
| Dividends paid (W5) | (598,950) | |
| Dividends paid to non-controlling interest (W6) | (28,547) | |
| Net cash outflow from financing activities | (440,897) | |
| Net increase in cash and cash equivalents during the year | 13,500 | |
| Cash and cash equivalents at beginning of the year | 32,625 | |
| Cash and cash equivalents at end of the year | 46,125 |
Note: Reconciliation of profit before tax to cash generated from operations
| GH¢ | |
|---|---|
| Profit before tax (729,225 + 93,150) | 822,375 |
| Impairment reversal | (2,500) |
| Impairment in Jaritan (W7) | (37,500) |
| Share of profits of associate | (127,575) |
| Finance cost | 52,000 |
| Profit on disposal of property, plant and equipment (135,000 – 126,000) | (9,000) |
| Depreciation charge | 395,100 |
| Increase in trade and other receivables ((170,325 + 31,275) – 200,025) | (1,575) |
| Employee benefit obligations (42,150 – 37,500) | 4,650 |
| Due to related parties | 1,125 |
| Decrease in trade and other payables ((118,800 – 6,750) – (90,000 + 19,012 – 11,250)) | (14,288) |
| Cash generated from operations | 1,082,812 |
(1) Interest paid
| GH¢ | GH¢ | ||
|---|---|---|---|
| Cash (β) | 47,500 | B/d | 6,750 |
| C/d | 11,250 | CIS | 52,000 |
| 58,750 | 58,750 |
(2) Income tax
| GH¢ | GH¢ | ||
|---|---|---|---|
| Cash (β) | 182,700 | B/d | 175,500 |
| C/d | 153,000 | CIS (145,800 + 14,400) | 160,200 |
| 335,700 | 335,700 |
(3) Property, plant and equipment
| GH¢ | GH¢ | ||
|---|---|---|---|
| B/d | 2,212,875 | Disposal of sub | 421,875 |
| Other disposals | 126,000 | ||
| Additions (β) | 1,013,450 | Depreciation charge | 395,100 |
| C/d | 2,283,350 | ||
| 3,226,325 | 3,226,325 |
(4) Investment in associate
| GH¢ | GH¢ | ||
|---|---|---|---|
| B/d | 404,550 | Cash received (β) | 113,850 |
| CIS | 127,575 | C/d | 418,275 |
| 532,125 | 532,125 |
(5) Retained earnings
| GH¢ | GH¢ | ||
|---|---|---|---|
| Dividends in SCE (β) | 598,950 | B/d | 1,518,975 |
| C/d | 1,491,750 | CIS | 571,725 |
| 2,090,700 | 2,090,700 |
(6) Non-controlling interest
| GH¢ | GH¢ | ||
|---|---|---|---|
| Cash (β) | 28,547 | B/d | 339,300 |
| Disposal (437,512 × 25%) | 109,378 | ||
| C/d | 315,450 | CIS | 114,075 |
| 453,375 | 453,375 |
W7 Impairment of Goodwill – Jaritan
| Goodwill GH¢ | Net assets GH¢ | Total GH¢ | |
|---|---|---|---|
| Carrying amount | 67,500 | 180,000 | 247,500 |
| Unrecognized non-controlling interest (67,500 × 40/60) | 45,000 | 45,000 | |
| 112,500 | 180,000 | 292,500 | |
| Recoverable amount | 230,000 |
Impairment loss = 292,500 – 230,000 = 62,500
Goodwill will be reduced by 60% of 62,500, i.e. 37,500.
Profit or loss will be charged with 37,500.
Note on Adjustment of Impairment of Goodwill in Jaritan
Additional information (i) of the question indicated that: “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”.
Based on this information, goodwill in Jaritan is impaired by GH¢37,500 given the lower recoverable amount of the subsidiary (GH¢230,000) as against the carrying value (GH¢292,500) of the subsidiary at the reporting date, 31 December 2024.
This means the consolidated profit or loss was debited (most likely operating expenses), and goodwill account also credited. To adjust, for the purpose of estimating operating net cash flow, we add back (i.e. credit) this impairment loss to profit before tax as it is a non-cash item.
However, the statement of financial position as at the end of 2024 and 2023, have goodwill conspicuously missing, even though it is said that goodwill at the reporting date of 2024 was even GH¢62,500 before the impairment review of Jaritan (which was purchased several years ago).
No account on the statement of financial position can therefore be identified to have been reduced by the impairment loss of GH¢37,500 in the absence of goodwill. The earlier impairment loss of GH¢37,500 initially expected to have been recognised is therefore added back to reflect the fact that no impairment loss of goodwill has been recognized in the accounts for the year 2024.
EXAMINER’S COMMENTS
This question on consolidated cashflow statement was very unpopular and unexpected although the question was very straightforward. Few candidates could identify the effect of group transactions on the consolidated cashflow statement. Candidates appeared unprepared, and that reflected in the relatively poor responses to the question. Some candidates deviated from the question and produced format akin to consolidated statements of financial position rather than consolidated cash flow statements. Candidates who appeared on track struggled with the workings, and that impacted unfavourably on their mark scores. It is recommended that the topic on cash flow statement be treated thoroughly by tutors and candidates. Candidates are advised to prepare adequately and solve past questions before taking the paper.
- Topic: Consolidated Financial Statements (IFRS 10)
- Series: MAR 2025
- Uploader: Samuel Duah