FR – L2 – Q92 – Consolidated Financial Statements

Prepare consolidated financial statements for Henks Plc, including profit or loss, changes in equity, and financial position for 20X4.

Question

HENKS PLC

Statements of financial position as at 31 December 20X4

	Henks Plc GH₵000	Streen Ltd GH₵000	Scote Ltd GH₵000
Non-current assets
Property, plant and equipment	32,000	25,000	20,000
Investments	33,500	–	–
	65,500	25,000	20,000
Current assets
Cash at bank and in hand	9,500	2,000	4,000
Trade receivables	20,000	8,000	17,000
Inventory	30,000	18,000	18,000
	59,500	28,000	39,000
	125,000	53,000	59,000
Share capital	46,500	10,000	15,000
Retained earnings	55,000	37,000	27,000
	101,500	47,000	42,000
Current liabilities	23,500	6,000	17,000
	125,000	53,000	59,000

Statement of profit or loss for the year ended 31 December 20X4

	Henks Plc GH₵000	Streen Ltd GH₵000	Scote Ltd GH₵000
Revenue	125,000	117,000	82,000
Cost of sales	(65,000)	(64,000)	(42,000)
Gross profit	60,000	53,000	40,000
Distribution and administrative costs	(35,000)	(22,000)	(23,000)
Profit before taxation	25,000	31,000	17,000
Income tax expense	(10,000)	(9,000)	(5,000)
Profit after tax	15,000	22,000	12,000

Statement of changes in equity (extract) for the year ending 31 December 20X4

	Henks Plc GH₵000	Streen Ltd GH₵000	Scote Ltd GH₵000
Retained earnings brought forward	40,000	15,000	15,000
Retained profit for the financial year	15,000	22,000	12,000
Dividends	–	–	–
Retained earnings carried forward	55,000	37,000	27,000

You are given the following additional information.
(1) Henks Plc owns 80% of Streen Ltd’s shares. These were purchased in 20X1 for GH₵20.5 million cash, when the balance on Streen Ltd’s retained earnings stood at GH₵7 million.
(2) Five years ago, Henks Plc purchased 60% of the shares of Scote Ltd by the issue of shares with a market value of GH₵13 million. At that date, the retained earnings of Scote Ltd stood at GH₵3 million and the fair value of the net assets of Scote Ltd was GH₵24 million. It was agreed that any undervaluation of the net assets should be attributed to land. This land was still held at 31 December 20X4.
(3) Included in the inventory of Scote Ltd and Streen Ltd at 31 December 20X4 are goods purchased from Henks Plc for GH₵5.2 million and GH₵3.9 million, respectively. Henks Plc aims to earn a profit of 30% on cost. Total sales from Henks Plc to Scote Ltd and to Streen Ltd were GH₵8 million and GH₵6 million, respectively.
(4) Henks Plc and Streen Ltd each proposed a dividend before the year end of GH₵2 million and GH₵2.5 million, respectively. No accounting entries have yet been made for these.
(5) Henks Plc has conducted annual impairment tests on goodwill in accordance with IFRS 3 and IAS 36. The estimated recoverable amount of goodwill at 31 December 20X1 was GH₵5 million and at 31 December 20X4 was GH₵4.5 million.

Required
Prepare the consolidated statement of profit or loss and consolidated statement of changes in equity for the year ended 31 December 20X4 and the consolidated statement of financial position at that date.

Answer

HENKS PLC

Consolidated statement of financial position as at 31 December 20X4

Assets	GH₵000	GH₵000
Non-current assets
Property, plant and equipment (32,000 + 25,000 + 20,000 + 6,000)		83,000
Goodwill		4,500
		87,500
Current assets
Cash at bank and in hand (9,500 + 2,000 + 4,000)	15,500
Receivables (20,000 + 8,000 + 17,000)	45,000
Inventory (30,000 + 18,000 + 18,000 – 2,100)	63,900
		124,400
Total assets		211,900
Equity and liabilities
Share capital	46,500
Retained earnings (W5)	88,300
		134,800
Non-controlling interest (W4)		28,100
Current liabilities
Trade payables (23,500 + 6,000 + 17,000)	46,500
Proposed dividends – to minority shareholders (2,500 – 2,000)	500
– to Henks’s shareholders	2,000
		49,000
Total equity and liabilities		211,900

Consolidated statement of profit or loss for the year-ended 31 December 20X4

	GH₵000
Revenue (W6)	310,000
Cost of sales (W6)	(159,100)
Gross profit	150,900
Distribution costs and administrative costs (W6)	(80,500)
Profit before taxation	70,400
Tax (W6)	(24,000)
Profit after taxation	46,400
Non-controlling interest (W6)	(9,200)
Profit	37,200

Statement of movements on reserves for the year-ended 31 December 20X4

	Share Capital GH₵000	Retained earnings GH₵000	Total GH₵000
Balance at start	46,500	53,100 (W7)	99,600
Profit for the year		37,200	37,200
Dividends		(2,000)	(2,000)
Balance at end	46,500	88,300	134,800

Workings

(1) Group structure
Henks Plc
80% Streen Ltd
60% Scote Ltd

(2) Net assets

Streen	Reporting Date GH₵000	Date of Acquisition GH₵000	Post-acquisition GH₵000
Share capital	10,000	10,000
Retained earnings	37,000	7,000
Per question
Proposed dividend	(2,500)
	44,500	17,000	27,500

Scote	Reporting Date GH₵000	Date of Acquisition GH₵000	Post-acquisition GH₵000
Share capital	15,000	15,000
Retained earnings	27,000	3,000
Revaluation reserve		6,000
	42,000	24,000	18,000

(3) Goodwill on Streen

	GH₵000
Cost of shares	20,500
Net assets acquired (80% × 17,000) (W2)	(13,600)
	6,900
Of which:
Written off by start of the year (6,500 – 5,000)	1,500
Written off by end of the year (6,500 – 4,500)	2,000
Recognised as impairment during the year (balancing figure)	500

Goodwill on Scote

	GH₵000
Cost of shares	13,000
Net assets acquired (60% × 24,000 (W2))	(14,400)
	(1,400)

(4) Non-controlling interest

	GH₵000
Streen (20% × 44,500 (W2))	8,900
Scote (40% × 48,000 (W2))	19,200
	28,100

(5) Consolidated retained earnings c/f

	GH₵000
Henks	65,000
Dividend receivable from Streen (80% of 2,500)	2,000
Proposed dividend	(2,000)
Streen (80% × 27,000 (W2))	21,600
Scote (60% × 24,000 (W2))	14,400
PURP ((5,200 + 3,900) × 30/130)	(2,100)
Goodwill impairment – Streen	(2,000)
Negative goodwill – Scote	1,400
	88,300

(6) Consolidation schedule

	Henks GH₵000	Streen GH₵000	Scote GH₵000	Adj GH₵000	Consol GH₵000
Sales revenue	125,000	117,000	82,000	(14,000)	310,000
C of S – per Q	(65,000)	(64,000)	(42,000)	14,000
– PURP (W5)				(2,100)	(159,100)
Distrib and admin	(35,000)	(22,000)	(23,000)		(80,500)
Tax	(10,000)	(9,000)	(5,000)		(24,000)
PAT	15,000	22,000	12,000		46,400
Non-controlling interest in profit after tax		20%	40%
		4,400	4,800		9,200

(7) Consolidated retained earnings b/f

	GH₵000
Henks	40,000
Share of post-acquisition profits of Streen (80% × (15,000 – 7,500))	6,000
Share of post-acquisition profits of Scote (60% × (15,000 – 3,000))	7,200
Goodwill impairment – Streen	(1,500)
Negative goodwill credited	1,400
	53,100

Tags: Consolidation, Dividends, Financial Statements, Goodwill, Impairment, Intra-group Transactions, Non-controlling Interest, Profit or Loss, Retained Earnings, Statement of Financial Position
Level: Level 2

Topic: Dividends

Uploader: Samuel Duah