- 20 Marks
Question
The following are the statements of financial position of Sokoto Nig. PLC and Niger Nig. LTD for the year ended October 31, 2023.
| Sokoto Nig. PLC | Niger Nig. LTD. | |
|---|---|---|
| N’000 | N’000 | |
| Non-current assets: | ||
| Plant and machinery | 2,600 | 560 |
| Furniture and fittings | 1,600 | 400 |
| 4,200 | 960 | |
| Investment: | ||
| Shares in Niger. Nig. LTD at cost | 1,600 | – |
| Current assets: | ||
| Inventories at cost | 1,760 | 560 |
| Trade receivables | 1,160 | 840 |
| Cash and cash equivalents | 800 | – |
| 3,720 | 1,400 | |
| Total assets | 9,520 | 2,360 |
| Equity and liabilities: | ||
| Equity: | ||
| N1 ordinary shares | 5,600 | 1,360 |
| Retained earnings | 1,720 | 400 |
| 7,320 | 1,760 | |
| Current liabilities: | ||
| Trade payables | 2,200 | 440 |
| Bank overdraft | – | 160 |
| 2,200 | 600 | |
| Total equity and liabilities | 9,520 | 2,360 |
Additional information:
i. Sokoto Nig. PLC purchased 70% of the issued ordinary share capital of Niger Nig. LTD four years ago, when the retained earnings of Niger Nig. LTD were N160,000. There had been no impairment of goodwill.
ii. For the purpose of the acquisition, plant and machinery in Niger Nig. LTD with carrying amount of N400,000 was revalued to its fair value of N480,000. The revaluation was not recorded in the accounts of Niger Nig. LTD. Depreciation is charged at 20% using the straight-line method.
iii. Sokoto Nig. PLC sells goods to Niger Nig. LTD at a mark-up of 25%. At October 31, 2023 the inventories of Niger Nig. LTD included N360,000 of the goods purchased from Sokoto Nig. PLC.
iv. Niger Nig. Ltd owes Sokoto Nig. PLC N280,000 for goods purchased and Sokoto Nig. PLC owes Niger Nig. LTD N120,000.
v. It is the group policy to value non-controlling interests at fair value.
vi. The market price of the shares of the non-controlling shareholders just before the acquisition was N1.50 per share.
Required:
a. Prepare consolidated statement of financial position of Sokoto group as at October 31, 2023.
(17 Marks)
b. Explain how investment in a subsidiary should be accounted for in the separate financial statements of the parent.
(3 Marks)
Answer
SOKOTO NIG. PLC CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT OCTOBER 31, 2023
Non-current assets:
| N‟000 | |
|---|---|
| Plant and machinery (2,600+560+80-64) | 3,176 |
| Furniture and fittings (1,600+400) | 2,000 |
| Goodwill (Wk3) | 612 |
| Total non-current assets | 5,788 |
Current assets:
| N‟000 | |
|---|---|
| Inventories (1,760+560-72) | 2,248 |
| Trade receivables (1,160+840-280-120) | 1,600 |
| Cash and cash equivalents | 800 |
| Total current assets | 4,648 |
| Total assets | 10,436 |
Equity:
| N‟000 | |
|---|---|
| Ordinary shares of N1 each | 5,600 |
| Retained earnings (Wk 6) | 1,771 |
| 7,371 | |
| Non-controlling interests (Wk5) | 665 |
| Total equity | 8,036 |
Current liabilities:
| N‟000 | |
|---|---|
| Trade payables (2,200+440-120-280) | 2,240 |
| Bank overdraft | 160 |
| Total current liabilities | 2,400 |
| Total equity and liabilities | 10,436 |
Working notes
Wk 1: Group structure Sokoto Nig. PLC —————70% ————— Niger Nig. LTD NCI = 30%
Wk 2: Net asset of subsidiary
| At rep. date | At acq. date | Post-acq. | |
|---|---|---|---|
| N’000 | N’000 | N’000 | |
| Ordinary shares | 1,360 | 1,360 | |
| Retained earnings | 400 | 160 | 240 |
| Fair value adjustments: | |||
| Plant and machinery | 80 | 80 | – |
| Depreciation (80 x 20% x 4years) | (64) | – | (64) |
| 1,776 | 1,600 | 176 |
Wk 3: Determination of goodwill on acquisition
| N’000 | N’000 | |
|---|---|---|
| Fair value of consideration transfer: | ||
| Cost of investment | 1,600 | |
| NCI at fair value (30% x 1,360 x N1.50) | 612 | |
| 2,212 | ||
| Less: Net assets of subsidiary at acquisition | (1,600) | |
| Goodwill at acquisition | 612 |
Wk 4: Unrealised profit
| N’000 | |
|---|---|
| URP = 360 × 25/125 | 72 |
Wk 5: Valuation of NCI
| N’000 | |
|---|---|
| NCI at acquisition (Wk 3) | 612 |
| Add: Share of Post-acquisition profit (30% x 176) | 52.8 |
| 664.8 |
Wk 6: Consolidated retained earnings
| N’000 | |
|---|---|
| Sokoto Plc | 1,720 |
| Add: Share of post-acquisition profit (70% x 176) | 123.2 |
| Unrealised profit | (72.0) |
| Consolidated retained earnings | 1,771 |
b. Accounting for investment in subsidiary in parent’s separate financial statements
i) Cost method: In accordance with IAS 27-Separate Financial Statements, the investment in a subsidiary is recorded at cost in the parent’s separate financial statements. Dividends received from the subsidiary are recognised as income.
ii) Fair value method: In accordance with IFRS 9-Financial Instruments, the investment can also be measured at Fair Value through Profit or Loss (FVTPL) or Fair Value Through Other Comprehensive Income (FVOCI) depending on the parent’s business model.
- Topic: Consolidated Financial Statements (IFRS 10)
- Series: MAY 2024
- Uploader: Samuel Duah