- 12 Marks
FR – L2 – Q82 – Business Combinations
Question
The summarised statements of financial position of Furry Ltd and Webber Ltd as at 31 December 20X4 were as follows.
| Assets | Furry Ltd GH₵000 | Webber Ltd GH₵000 |
|---|---|---|
| Non-current assets | ||
| Property, plant and equipment | 120,000 | 60,000 |
| Investments | 55,000 | — |
| Current assets | ||
| Cash | 11,000 | 4,000 |
| Investments | — | 3,000 |
| Trade receivables | 72,600 | 19,100 |
| Current account – Furry Ltd | — | 3,200 |
| Inventory | 17,000 | 11,000 |
| Total | 275,600 | 100,300 |
| Equity and liabilities | Furry Ltd GH₵000 | Webber Ltd GH₵000 |
|---|---|---|
| Capital and reserves | ||
| Share capital | 120,000 | 60,000 |
| Capital reserve | 23,000 | 16,000 |
| Retained earnings | 91,900 | 7,300 |
| Current liabilities | 38,000 | 17,000 |
| Total | 275,600 | 100,300 |
The following information is relevant:
(1) On 31 December 20X1, Furry Ltd acquired 48,000 shares in Webber Ltd for GH₵55,000,000 cash. Webber Ltd has 60,000 shares in total.
(2) The inventory of Furry Ltd includes GH₵4,000,000 goods from Webber Ltd invoiced to Furry Ltd at cost plus 25%.
(3) The difference on the current account balances is due to cash in transit.
(4) The balance on Webber Ltd’s retained earnings was GH₵2,300,000 at the date of acquisition. There has been no movement in the balance on Webber Ltd’s capital reserve since the date of acquisition.
Required:
Prepare the consolidated statement of financial position of Furry Ltd and its subsidiary Webber Ltd as at 31 December 20X4.
Answer
Consolidated statement of financial position as at 31 December 20X4
| Assets | GH₵000 |
|---|---|
| Non-current assets | |
| Property, plant and equipment | 180,000 |
| Current assets | |
| Cash at bank and in hand | 15,500 |
| Investments | 3,000 |
| Receivables | 91,700 |
| Inventory (17,000 + 11,000 – 800) | 27,200 |
| Total assets | 317,400 |
| Equity and liabilities | GH₵000 |
|---|---|
| Capital and reserves | |
| Share capital | 120,000 |
| Capital reserve | 23,000 |
| Retained earnings (W5) | 102,900 |
| 245,900 | |
| Non-controlling interest (W4) | 16,500 |
| Current liabilities | 55,000 |
| Total equity and liabilities | 317,400 |
Workings
(1) Group structure
Furry Ltd owns 80% of Webber Ltd (48,000/60,000 shares).
(2) Net assets of Webber Ltd
| Reporting date GH₵000 | Date of acquisition GH₵000 | Post-acquisition GH₵000 | |
|---|---|---|---|
| Share capital | 60,000 | 60,000 | — |
| Capital reserve | 16,000 | 16,000 | — |
| Retained earnings | 7,300 | 2,300 | 5,000 |
| Unrealised profit in inventory (W3) | (800) | — | (800) |
| 82,500 | 78,300 | 4,200 |
(3) Goodwill
Cost of shares: 55,000
Less: Net assets acquired (80% × 78,300 (W2)): (62,640)
Negative goodwill: (7,640)
(4) Non-controlling interest
Share of net assets (20% × 82,500 (W2)): 16,500
(5) Retained earnings
Furry Ltd: 91,900
Webber Ltd (80% × 4,200 (W2)): 3,360
Negative goodwill (W3): 7,640
Total: 102,900
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