FR – Mar 2025 – L2 – Q1 – Consolidated Financial Statements

Prepare consolidated financial statements for Aba LTD, including adjustments for acquisition, intra-group sales, government grants, and impairment.

Question

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.

Answer

ABA GROUP
CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2024

	GH¢’000
Sales revenue (200,500 + 50,500 – 4,600 – 5,000)	241,400
Cost of sales (110,000 + 24,000 – 4,600 – 1,000 + 730)	(129,130)
Gross profit	112,270
Grant income (W6)	125
Admin. expenses (50,300 + 15,700 + 1,373)	(67,373)
Finance cost	(1,200)
Profit before tax	43,822
Income tax expense (5,450 + 2,200)	(7,650)
Profit for the year	36,172
Profit attributable to:
Parent shareholders (balancing figure)	32,881
Non-controlling interest (W7)	3,291
Profit for the year	36,172

ABA GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2024

	GH¢’000
Non-current assets:
Property, plant & equipment (40,500 + 35,000 – 4,000 + 1,000)	73,500
Goodwill (W3)	12,357
	84,857
Current assets
Inventories (10,500 + 12,000 – 730)	21,770
Trade and other receivables (20,000 + 2,500)	22,500
Cash and cash equivalents (12,500 + 550)	13,050
	57,320
Total Assets	142,177
Equity
Share capital (GH¢1 per ordinary shares) (50,000 + 12,600)	62,620
Other component of equity (60% × 35,000 × 3/5 × GH¢0.2)	2,520
Retained earnings (W5)	42,881
NCI (W4)	17,501
	125,502
Deferred grant (W6)	4,875
Non-current liabilities
Long-term borrowings (5,600 + 800)	6,400
Current liabilities
Trade and other payables (4,750 + 650)	5,400
Total Equity and Liabilities	142,177

WORKINGS (IN GH¢’000)
1 Group structure
Aba Parent’s interest = 60%
↓ 60% NCI = 40%
Boafo Acquisition was 1 year ago.

2 Fair Value of the Identifiable Net Assets of the Subsidiary

	At acq’n	Post-Acq’n At Year-end
Share capital	35,000	35,000
Retained earnings	5,000	13,600
Fair value adjustments:
Plant	(4,000)	(4,000)
Excess depreciation (4,000 × 1/4 × 1)	–	1,000
	36,000	45,600

4 NCI
Fair value of NCI at acquisition | 14,210
Plus NCI% of Sub’s post-acqn profit (40% × 9,600) | 3,840
Less Share of Impairment loss (40% × 1,373) | (549)
| 17,501

6 Deferred Grant
Grant received (building) | 5,000
Less Grant income released (W5) | (125)
Deferred grant at 31 December 2024 | 4,875

ALLOWED ALTERNATIVE PRESENTATION
Candidates may present the grant as a liability:
Current liability (5,000 / 20) or (4,875 / 19.5) | 250
Non-current liability (4,875 – 250) | 4,625
| 4,875

(20 marks)

EXAMINER’S COMMENTS
Question One required candidates to prepare a Consolidated Statement of Profit or Loss and a Consolidated Statement of Financial Position for a Parent and a Subsidiary. However, overall performance on this question was below expectation, with many candidates scoring less than 5 out of 20 marks.
While some candidates demonstrated competence in the numerical aspects of the question, a significant number struggled with the correct presentation and structure of consolidated financial statements. This weakness was widespread and suggests a lack of emphasis on the structure and format of financial statements during preparation.

Guidance for Future Exams
a) Master the Structure and Presentation:

Carefully study the format and structure of consolidated financial statements as per IFRS.
Candidates are advised to make use of examination materials on ICAG website.
Practice preparing complete statements, ensuring correct classifications and disclosures.
b) Study Key IFRS Standards:
Candidates must ensure thorough coverage of the following standards:
IAS 27 – Separate Financial Statements
IAS 28 – Investments in Associates and Joint Ventures
IFRS 3 – Business Combinations
IFRS 10 – Consolidated Financial Statements
IFRS 11 – Joint Arrangements
IFRS 12 – Disclosure of Interests in Other Entities
IFRS 13 – Fair Value Measurement
c) Improve Practical Application:
Work on past questions and mock exams to reinforce consolidation techniques.
Pay special attention to goodwill calculations, elimination of intra-group balances, and NCI adjustments.

Tags: consolidated financial statements, Financial Position, Goodwill, IAS 20, IFRS 10, IFRS 3, Impairment, Intra-group Transactions, Non-Controlling Interest, Profit or Loss
Level: Level 2

Topic: Group Financial Statements and Consolidation
Series: MAR 2025

Uploader: Samuel Duah