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FR – L2 – Q84 – Business Combinations

Prepare Prime Ltd's consolidated statement of financial position as at 31 Dec 20X4, considering acquisition of Nexus Ltd, fair value adjustments, and unrealised profits.

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

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Tags: Acquisition, Business Combinations, Consolidated Financial Statements, Fair Value Adjustment, Financial Position, Goodwill, IFRS 3, Non-controlling Interest, Subsidiary, Unrealised Profits
Level: Level 2

Topic: Business Combinations (IFRS 3)

FR – L2 – Q80 – Business Combinations

Prepare Peak Ltd's consolidated statement of financial position as at 31 Dec 20X4 after acquiring 80% of Ridge Ltd.

Question

PEAK LTD
Statements of financial position at 31 December 20X4

	Peak Ltd GH¢000	Ridge Ltd GH¢000
Investment in Ridge Ltd (80%)	100,000
Sundry assets	207,500	226,600
	307,500	226,600
Share capital	120,000	50,000
Retained earnings	87,500	70,000
Liabilities	100,000	106,600
	307,500	226,600

Peak Ltd purchased the shares in Ridge Ltd on 30th September 20X4. Ridge Ltd’s retained profit for the year ended 31st December 20X4 was GH¢24,000,000.

Required
Prepare the consolidated statement of financial position at 31 December 20X4.

Answer

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Tags: Acquisition, Business Combinations, Consolidated Financial Statements, Financial Position, Goodwill, IFRS 3, Net Assets, Non-controlling Interest, Retained Earnings, Subsidiary
Level: Level 2

Topic: Business Combinations (IFRS 3)

FR – L2 – Q79 – Business Combinations

Prepare Peak Ltd's consolidated statement of financial position as at 31 Dec 20X4, incorporating 60% acquisition of Riser Ltd.

Question

On 31 December 20X1, Peak Ltd acquired 60% of Riser for GH₵140,000, at that date Riser Ltd had a retained earnings balance of GH₵50,000. The following statements of financial position have been prepared as at 31 December 20X4.

Section

Content

Question Title

FR – L2 – Q79 – Business Combinations

Level

LEVEL 2

Professional Bodies

Institute of Chartered Accountants, Ghana (ICAG)

Programs

PROFESSIONAL PROGRAM

Subjects

Financial Reporting

Topics

Business Combinations (IFRS 3)

Total Marks

Question Tags

Consolidated Financial Statements, Goodwill, Non-Controlling Interest, Net Assets, Acquisition, Retained Earnings, Share Capital, Current Liabilities, Financial Position, IFRS 3

Question Short Summary

Prepare Peak Ltd’s consolidated statement of financial position as at 31 Dec 20X4, incorporating 60% acquisition of Riser Ltd.

Preamble

Financial Statements

	Peak Ltd	Riser Ltd
Assets
Non-current assets
Property, plant and equipment	240,000	180,000
Investment in Riser Ltd	140,000
Current assets	250,000	196,000
	630,000	376,000
Equity
Share capital	225,000	139,000
Retained earnings	180,000	80,000
	405,000	219,000
Current liabilities	225,000	157,000
	630,000	376,000

Requirement

Prepare the consolidated statement of financial position of Peak Ltd and its subsidiary as at 31 December 20X4.

Answer

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Tags: Acquisition, Consolidated Financial Statements, Current Liabilities, Financial Position, Goodwill, IFRS 3, Net Assets, Non-controlling Interest, Retained Earnings, Share Capital
Level: Level 2

Topic: Business Combinations (IFRS 3)

FR – L2 – Q76 – Business Combinations

Prepare Peak Ltd's consolidated statement of financial position as at 31 Dec 20X4 after acquiring 75% of Ridge Ltd.

Question

Peak Ltd
Statements of financial position at 31 December 20X4

	Peak Ltd	Ridge Ltd
Assets	GH₵000	GH₵000
Non-current assets
Property, plant and equipment	35,000	20,000
Investment in Ridge Ltd	12,000
Current assets	16,000	14,000
Total assets	63,000	34,000
Equity and liabilities
Capital and reserves
Share capital	10,000	4,000
Retained earnings	13,000	12,000
	23,000	16,000
Non-current liabilities
8% Debenture loans	20,000	9,000
Current liabilities	20,000	9,000
Total equity and liabilities	63,000	34,000

On 1 January 20X2, Peak Ltd acquired 75% of Ridge Ltd for GH₵12,000,000. At that date, the balance on Ridge Ltd’s retained earnings was GH₵8,000,000.

Required:
Prepare the consolidated statement of financial position of Peak Ltd as at 31 December 20X4.

Answer

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Tags: Acquisition, Consolidated Financial Statements, Debenture Loans, Financial Position, Goodwill, Group Structure, IFRS 3, Net Assets, Non-controlling Interest, Retained Earnings
Level: Level 2

Topic: Business Combinations (IFRS 3)

FM – L2 – Q119 – Business valuations

Calculate offer price for SmallCorp using a forward P/E multiple of 8.0 based on expected earnings

Question

LargeCorp is considering a takeover bid for SmallCorp, another company in the same industry. SmallCorp is expected to have earnings next year of GH₵86,000. If LargeCorp acquires SmallCorp, the expected results from SmallCorp will be as follows:

	Year after the acquisition
	Year 1	Year 2	Year 3
Sales	GH₵200,000	GH₵280,000	GH₵320,000
Cash costs/expenses	120,000	160,000	180,000
Capital allowances	20,000	30,000	40,000
Interest charges	10,000	10,000	10,000
Cash flows to replace assets and finance growth	25,000	30,000	35,000

From Year 4 onwards, it is expected that the annual cash flows from SmallCorp will increase by 4% each year in perpetuity. Tax is payable at the rate of 30%, and the tax is paid in the same year as the profits to which the tax relates. If LargeCorp acquires SmallCorp, it estimates that its gearing after the acquisition will be 35% (measured as the value of its debt capital as a proportion of its total equity plus debt). Its cost of debt is 7.4% before tax. LargeCorp has an equity beta of 1.60. The risk-free rate of return is 6% and the return on the market portfolio is 11%.
Required:

(a) Suggest what the offer price for SmallCorp should be if LargeCorp chooses to value SmallCorp on a forward P/E multiple of 8.0 times.

(b) Calculate a cost of capital for LargeCorp.

Answer

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Tags: Acquisition, Business valuations, Cash Flows, DCF, Perpetuity, WACC
Level: Level 2

Topic: Business valuations

Tag (SQ): Acquisition

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FR – L2 – Q84 – Business Combinations

Prepare Prime Ltd's consolidated statement of financial position as at 31 Dec 20X4, considering acquisition of Nexus Ltd, fair value adjustments, and unrealised profits.

FR – L2 – Q80 – Business Combinations

Prepare Peak Ltd's consolidated statement of financial position as at 31 Dec 20X4 after acquiring 80% of Ridge Ltd.

FR – L2 – Q79 – Business Combinations

Prepare Peak Ltd's consolidated statement of financial position as at 31 Dec 20X4, incorporating 60% acquisition of Riser Ltd.

FR – L2 – Q76 – Business Combinations

Prepare Peak Ltd's consolidated statement of financial position as at 31 Dec 20X4 after acquiring 75% of Ridge Ltd.

FM – L2 – Q119 – Business valuations

Calculate offer price for SmallCorp using a forward P/E multiple of 8.0 based on expected earnings

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FR – L2 – Q84 – Business Combinations

Prepare Prime Ltd's consolidated statement of financial position as at 31 Dec 20X4, considering acquisition of Nexus Ltd, fair value adjustments, and unrealised profits.

You're reporting an error for "FR – L2 – Q84 – Business Combinations"

FR – L2 – Q80 – Business Combinations

Prepare Peak Ltd's consolidated statement of financial position as at 31 Dec 20X4 after acquiring 80% of Ridge Ltd.

You're reporting an error for "FR – L2 – Q80 – Business Combinations"

FR – L2 – Q79 – Business Combinations

Prepare Peak Ltd's consolidated statement of financial position as at 31 Dec 20X4, incorporating 60% acquisition of Riser Ltd.

You're reporting an error for "FR – L2 – Q79 – Business Combinations"

FR – L2 – Q76 – Business Combinations

Prepare Peak Ltd's consolidated statement of financial position as at 31 Dec 20X4 after acquiring 75% of Ridge Ltd.

You're reporting an error for "FR – L2 – Q76 – Business Combinations"

FM – L2 – Q119 – Business valuations

Calculate offer price for SmallCorp using a forward P/E multiple of 8.0 based on expected earnings

You're reporting an error for "FM – L2 – Q119 – Business valuations"

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