- 10 Marks
FR – L2 – Q88 – Business Combinations
Question
Haven Ltd
The following are the statement of profit or loss for the year ended 31 December 20X4 of Haven Ltd and its subsidiary Seren Ltd.
| Haven Ltd GH¢’000 | Seren Ltd GH¢’000 | |
|---|---|---|
| Revenue | 1,120 | 390 |
| Cost of sales | (610) | (220) |
| Gross profit | 510 | 170 |
| Distribution costs | (50) | (40) |
| Administration costs | (55) | (45) |
| Operating profit | 405 | 85 |
| Investment income | 20 | 4 |
| Finance costs | (18) | (4) |
| Profit before tax | 407 | 85 |
| Income tax expense | (140) | (25) |
| Profit for the year | 267 | 60 |
| Retained profit brought forward | 100 | 45 |
| Profit for year | 267 | 60 |
| Dividends paid and proposed | (50) | (20) |
| Retained profit carried forward | 317 | 85 |
The following information is relevant.
(1) Haven Ltd acquired 75% of Seren Ltd six years ago when Seren Ltd’s retained earnings were GH¢9,000.
(2) Haven Ltd made sales to Seren Ltd totalling GH¢100,000 in the year. At the year end the statement of financial position of Seren Ltd included inventory purchased from Haven Ltd. Haven Ltd had taken a profit of GH¢3,000 on this inventory.
(3) Haven Ltd’s investment income includes GH¢15,000 being its share of Seren Ltd’s dividends.
Required
Prepare a consolidated statement of profit or loss and a working showing the movement on consolidated retained profit for the year ended 31 December 20X4.
Answer
Haven Ltd
Consolidated statement of profit or loss for the year-ended 31 December 20X4
| GH¢’000 | |
|---|---|
| Revenue | 1,410 |
| Cost of sales | (733) |
| Gross profit | 677 |
| Distribution costs | (90) |
| Administrative expenses | (100) |
| Operating profit | 487 |
| Investment income | 9 |
| Finance costs | (22) |
| Profit before tax | 474 |
| Income tax expense | (165) |
| Profit after tax | 309 |
| Non-controlling interest (W3) | (15) |
| Profit | 294 |
Movement on consolidated retained earnings for the year-ended 31 December 20X4
| GH¢’000 | |
|---|---|
| Retained earnings at 1 January 20X3 (W4) | 127 |
| Retained earnings for the year | 294 |
| Dividends | (50) |
| Retained earnings at 31 December 20X4 (W5) | 371 |
Workings
(1) Group structure
Haven
75%
Seren
(2) Consolidated statement of profit or loss
| Haven GH¢’000 | Seren GH¢’000 | Adj GH¢’000 | Consolidated GH¢’000 | |
|---|---|---|---|---|
| Revenue | 1,120 | 390 | (100) | 1,410 |
| Cost of sales | (610) | (220) | 100 – (3 PURP) | (733) |
| Distribution costs | (50) | (40) | (90) | |
| Administrative expenses | (55) | (45) | (100) | |
| Investment income (20-15) | 5 | 4 | 9 | |
| Interest payable | (18) | (4) | (22) | |
| Tax | (140) | (25) | (165) | |
| PAT | 60 | 309 |
(3) Non-controlling interest
25% × 60,000 (W1) or as per PAT in question = 15,000
(4) Reserves brought forward
| GH¢’000 | |
|---|---|
| Haven | 100 |
| Seren (75% × (45-9)) | 27 |
| 127 |
(5) Reserves carried forward (proof)
| GH¢’000 | |
|---|---|
| Haven | 317 |
| PURP | (3) |
| Seren (75% × (85-9)) | 57 |
| 371 |
(6) Inter-company dividend
| GH¢’000 | |
|---|---|
| Payable by Seren | 20 |
| Receivable by Haven (75% × 20) | 15 |
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