- 12 Marks
FR – L2 – Q84 – Business Combinations
Question
On 1 July 20X1 Prime Ltd acquired 128,000 of Nexus Ltd’s 160,000 shares. The following statements of financial position have been prepared as at 31 December 20X4.
| Prime Ltd GH¢000 | Nexus Ltd GH¢000 | |
|---|---|---|
| Property, plant and equipment | 152,000 | 129,600 |
| Investment in Nexus Ltd | 203,000 | – |
| Inventory at cost | 112,000 | 74,400 |
| Receivables | 104,000 | 84,000 |
| Bank balance | 41,000 | 8,000 |
| Total | 612,000 | 296,000 |
| Prime Ltd GH¢000 | Nexus Ltd GH¢000 | |
|---|---|---|
| Share capital | 100,000 | 160,000 |
| Retained earnings | 460,000 | 112,000 |
| Payables | 52,000 | 24,000 |
| Total | 612,000 | 296,000 |
The following information is available.
(1) At 1 July 20X1 Nexus Ltd had a debit balance of GH¢11 million on retained earnings.
(2) Property, plant and equipment of Nexus Ltd included land at a cost of GH¢72 million. This land had a fair value of GH¢100,000 at the date of acquisition.
(3) The inventory of Nexus Ltd includes goods purchased from Prime Ltd for GH¢16 million. Prime Ltd invoiced those goods at cost plus 25%.
Required
Prepare the consolidated statement of financial position of Prime Ltd as at 31 December 20X4.
Answer
Prime Ltd
Consolidated statement of financial position as at 31 December 20X4
| Assets | GH¢000 |
|---|---|
| Non-current assets | |
| Property, plant and equipment (152,000 + 129,600 + 28,000 (W2)) | 309,600 |
| Goodwill (W3) | 61,400 |
| Current assets | |
| Bank (41,000 + 8,000) | 49,000 |
| Receivables (104,000 + 84,000) | 188,000 |
| Inventory (112,000 + 74,400 – 3,200 (W6)) | 183,200 |
| Total assets | 791,200 |
| Equity and liabilities | GH¢000 |
|---|---|
| Capital and reserves | |
| Share capital | 100,000 |
| Retained earnings (W5) | 555,200 |
| Non-controlling interest (W4) | 60,000 |
| Current liabilities (52,000 + 24,000) | 76,000 |
| Total equity and liabilities | 791,200 |
Workings
(1) Group structure
Prime
128/160 = 80% ord
Nexus
(2) Net assets of Nexus
| Reporting date GH¢000 | Date of acquisition GH¢000 | Post acquisition GH¢000 | |
|---|---|---|---|
| Share capital | 160,000 | 160,000 | – |
| Fair value adjustment on non-current assets | 28,000 | 28,000 | – |
| Retained earnings | 112,000 | (11,000) | 123,000 |
| Total | 300,000 | 177,000 | 123,000 |
(3) Goodwill
| GH¢000 | |
|---|---|
| Cost of shares | 203,000 |
| Less Net assets acquired (80% × 177,000 (W2)) | (141,600) |
| Goodwill | 61,400 |
(4) Non-controlling interest
| GH¢000 | |
|---|---|
| Share of net assets (20% × 300,000 (W2)) | 60,000 |
(5) Retained earnings
| GH¢000 | |
|---|---|
| Prime | 460,000 |
| PURP (W6) | (3,200) |
| Nexus (80% × 123,000 (W2)) | 98,400 |
| Total | 555,200 |
(6) Unrealised profits
| GH¢000 | |
|---|---|
| SP | 16,000 |
| Cost | (12,800) |
| GP | 3,200 |
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