- 12 Marks
FR – L2 – Q81 – Business Combinations
Question
PRIME CARE LTD
The following are the draft statements of financial position of PrimeCare Ltd and its subsidiary Frost Ltd as at 31 December 20X4.
| PrimeCare Ltd | GH¢000 | Frost Ltd | GH¢000 |
|---|---|---|---|
| Assets | |||
| Non-current assets | |||
| Property, plant and equipment | 100,000 | 68,000 | |
| Investments | 68,000 | ||
| Current assets | |||
| Cash | 11,000 | 2,000 | |
| Trade receivables | 72,600 | 19,100 | |
| Frost Ltd current account | 3,200 | ||
| Inventory | 17,000 | 11,000 | |
| 271,800 | 100,100 | ||
| Equity and liabilities | |||
| Shareholders’ equity | |||
| Share capital | 120,000 | 60,000 | |
| Retained earnings | 91,900 | 16,000 | |
| Capital reserve | 23,000 | 7,000 | |
| Current liabilities | |||
| PrimeCare Ltd current account | 3,200 | ||
| Trade payables | 33,900 | 12,900 | |
| Proposed dividend | 3,000 | 1,000 | |
| 271,800 | 100,100 |
Notes
(1) Frost Ltd has 50,000 shares in issue. PrimeCare Ltd acquired 45,000 of these on 1 January 20X1 for a cost of GH¢65,000,000 when the balances on Frost Ltd’s reserves were:
- Capital reserve: 20,000
- Retained earnings: 10,000
(2) PrimeCare Ltd declared a dividend of GH¢3,000,000 before the year end and Frost Ltd declared one of GH¢2,000,000. These transactions have been approved by the shareholders but have not been accounted for.
(3) The current account difference is due to cash in transit.
Required
Prepare the consolidated statement of financial position as at 31 December 20X4 of PrimeCare Ltd.
Answer
Consolidated statement of financial position as at 31 December 20X4
| Assets | GH¢000 |
|---|---|
| Non-current assets | |
| Property, plant and equipment | 168,000 |
| Investments (68,000 – 65,000) | 3,000 |
| Goodwill (W3) | 6,500 |
| Current assets | |
| Cash at bank and in hand | 13,000 |
| Trade receivables | 91,700 |
| Inventories | 28,000 |
| 309,200 |
| Equity and liabilities | GH¢000 |
|---|---|
| Capital and reserves | |
| Share capital | 120,000 |
| Capital reserve (W6) | 18,000 |
| Retained earnings (W5) | 210,480 |
| 348,480 | |
| Non-controlling interest (W4) | 11,420 |
| Current liabilities | |
| Trade payables | 46,800 |
| Proposed dividend | 2,500 |
| 409,200 |
Workings
(1) Group structure
PrimeCare
90%
Frost
(2) Net assets of Frost
| Reporting date | Date of acquisition | Post acquisition | |
|---|---|---|---|
| GH¢000 | GH¢000 | GH¢000 | |
| Share capital | 60,000 | 60,000 | |
| Capital reserve | 7,000 | 20,000 | (13,000) |
| Retained earnings | 16,000 | 10,000 | 6,000 |
| Proposed dividend | (1,000) | (1,000) | |
| Fair value adjustment | 32,200 | 32,200 | |
| 114,200 | 90,000 | 24,200 |
(3) Goodwill
Cost of shares: 65,000
Less: Net assets acquired (90% × 65,000) (W2): (58,500)
Goodwill: 6,500
(4) Non-controlling interest
10% × 114,200 (W2): 11,420
(5) Retained earnings
PrimeCare: 91,900
Proposed dividend: (3,000)
Dividend receivable from Frost: 1,800
Frost (90% × 24,200 (W2)): 21,780
Retained earnings: 210,480
(6) Capital reserve
Frost (90% × 20,000 (W2)): 18,000
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