FR – L2 – Q81 – Business Combinations

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.

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