FR – L2 – Q84 – Business Combinations

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.

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