- 10 Marks
FR – L2 – Q76 – Business Combinations
Question
Peak Ltd
Statements of financial position at 31 December 20X4
| Peak Ltd | Ridge Ltd | |
|---|---|---|
| Assets | GH₵000 | GH₵000 |
| Non-current assets | ||
| Property, plant and equipment | 35,000 | 20,000 |
| Investment in Ridge Ltd | 12,000 | |
| Current assets | 16,000 | 14,000 |
| Total assets | 63,000 | 34,000 |
| Equity and liabilities | ||
| Capital and reserves | ||
| Share capital | 10,000 | 4,000 |
| Retained earnings | 13,000 | 12,000 |
| 23,000 | 16,000 | |
| Non-current liabilities | ||
| 8% Debenture loans | 20,000 | 9,000 |
| Current liabilities | 20,000 | 9,000 |
| Total equity and liabilities | 63,000 | 34,000 |
On 1 January 20X2, Peak Ltd acquired 75% of Ridge Ltd for GH₵12,000,000. At that date, the balance on Ridge Ltd’s retained earnings was GH₵8,000,000.
Required:
Prepare the consolidated statement of financial position of Peak Ltd as at 31 December 20X4.
Answer
Peak Ltd
Consolidated statement of financial position as at 31 December 20X4
| GH₵000 | |
|---|---|
| Assets | |
| Non-current assets | |
| Property, plant and equipment (35,000 + 20,000) | 55,000 |
| Goodwill | 3,000 |
| Current assets (16,000 + 14,000) | 30,000 |
| Total assets | 88,000 |
| Equity and liabilities | |
| Capital and reserves | |
| Share capital | 10,000 |
| Retained earnings (W5) | 16,000 |
| Non-controlling interest (W4) | 4,000 |
| Long-term liabilities | |
| 8% Debenture loans (20,000 + 9,000) | 29,000 |
| Current liabilities (20,000 + 9,000) | 29,000 |
| Total equity and liabilities | 88,000 |
Workings
(1) Group structure
Peak
75%
Ridge
(2) Net assets of Ridge
| Reporting date | Date of acquisition | Post-acquisition | |
|---|---|---|---|
| GH₵000 | GH₵000 | GH₵000 | |
| Share capital | 4,000 | 4,000 | |
| Retained earnings | 12,000 | 8,000 | 4,000 |
| Total | 16,000 | 12,000 | 4,000 |
(3) Goodwill
| GH₵000 | |
|---|---|
| Cost of shares | 12,000 |
| Less: Net assets acquired (75% × 12,000 (W2)) | (9,000) |
| Goodwill | 3,000 |
(4) Non-controlling interest
(25% × 16,000 (W2)) = GH₵4,000
(5) Retained earnings
Peak’s retained earnings: 13,000
Ridge’s post-acquisition retained earnings (75% × 4,000 (W2)) = 3,000
Total retained earnings = 13,000 + 3,000 = 16,000
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