On 31 December Year 5, an associate, Anita Healthcare Ltd, holds inventory which is valued at GH¢32,000 purchased during the year from its investor Pamela Wellness Ltd. At the same date, Pamela Wellness Ltd holds inventory purchased from a subsidiary, Sophie Pharmaceuticals Ltd, which is valued at GH¢80,000.
Sales from Pamela Wellness Ltd to Anita Healthcare Ltd and from Sophie Pharmaceuticals Ltd to Pamela Wellness Ltd are priced at a mark-up of one-quarter on cost.
Pamela Wellness Ltd owns 30% of Anita Healthcare Ltd and 60% of Sophie Pharmaceuticals Ltd.
Required
Set out the adjustments necessary to reflect any unrealised profit in the above in the consolidated statement of financial position.
APEX LTD
The draft statements of financial position as at 31 December 20X4 of three companies are set out below.
Apex Ltd GHS’000
Nexus Ltd GHS’000
Zephyr Ltd GHS’000
Assets
Non-current assets
Property, plant and equipment
400
100
160
Investments:
– shares in Nexus Ltd (60%)
75
– shares in Zephyr Ltd (30%)
30
Current assets
445
160
80
Total assets
950
260
240
Equity and liabilities
Share capital
100
30
60
Retained earnings
650
180
100
Non-current loans
200
50
80
Total equity and liabilities
950
260
240
The reserves of Nexus Ltd and Zephyr Ltd when the investments were acquired were GHS’000 70 and GHS’000 30 respectively. Required
Prepare the consolidated statement of financial position as at 31 December 20X4.
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.
Statement of changes in equity for the year ended 30 June 20X4 (extract)
Falcon Ltd GH¢000
Crane Ltd GH¢000
Retained earnings brought forward
8,000
10,500
Profit for the financial year
12,000
8,000
Retained earnings carried forward
20,000
18,500
Required
Prepare Falcon Ltd’s consolidated statement of profit or loss, consolidated statement of financial position and a working showing the movement on consolidated retained profit for Falcon Ltd for the year ended 30 June 20X4.
Below is the formatted response for Question 90 from the provided documents, adhering to the specified structure and requirements. The question has two parts (90a and 90b), which are treated as separate questions since they can stand alone. The tables, financial statements, and answers are rendered exactly as in the attachment, with only the names of the companies and dates altered for copyright purposes. A summary report of changes is included at the end.
====================================================================== Question Title: FR – L2 – Q90a – 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: 15
Question Tags: Consolidation, Goodwill, Non-controlling Interest, Fair Value, Intragroup Transactions, Associates
Question Short Summary: Prepare goodwill calc and consol. stmt of profit/loss for Vantage Ltd’s 90% acquisition of Green Ltd, incl. fair value adj and intragroup sales.
Question:
On 1 January 20X9, Vantage Ltd acquired 18m of the equity shares of Green Ltd in a share exchange in which Vantage Ltd issued two new shares for every three shares it acquired in Green Ltd. This gave Vantage Ltd a holding of 90%. Additionally, on 31 December 20X9, Vantage Ltd will pay the shareholders of Green Ltd GH¢1.76 per share acquired. Vantage Ltd’s cost of capital is 10% per annum.
At the date of acquisition, shares in Vantage Ltd and Green Ltd had market prices of GH¢6.50 and GH¢2.50 each respectively.
Statement of Profit or Loss for the year ended 30 September 20X9
Vantage
Green
GH¢’000
GH¢’000
Revenue
129,200
76,000
Cost of sales
(102,400)
(52,000)
Gross profit
26,800
24,000
Distribution costs
(3,200)
(3,600)
Administrative expenses
(7,600)
(4,800)
Investment income
1,000
–
Finance costs
(840)
–
Profit before tax
16,160
15,600
Income tax expense
(5,600)
(3,200)
Profit for the year
10,560
12,400
Equity as at 1 October 20X8
Vantage
Green
Stated capital
120,000
30,000
Income surplus
108,000
12,400
The following information is relevant:
(i) At the date of acquisition the fair values of Green Ltd’s assets and liabilities were equal to their carrying amounts with the exception of two items:
An item of plant had a fair value of GH¢3.6 million above its carrying amount. The remaining life of the plant at the date of acquisition was three years. Depreciation is charged to cost of sales.
Green Ltd had a contingent liability which Vantage Ltd estimated to have a fair value of GH¢900,000. This has not changed as at 30 September 20X9. Green Ltd has not incorporated these fair value changes into its financial statements.
(ii) Vantage’s policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose, Green Ltd’s share price at the date can be deemed to be representative of the fair value of the shares held by the non-controlling interest.
(iii) Sales from Vantage Ltd to Green Ltd throughout the year ended 30 September 20X9 had consistently been GH¢1.6 million per month. Vantage Ltd made a mark-up of 25% on these sales. Green Ltd had GH¢3 million of these goods in inventory as at 30 September 20X9.
(iv) Vantage Ltd’s investment income is a dividend received from its investment in a 40% owned associate which it has held for several years. The underlying earnings for the associate for the year ended 30 September 20X9 were GH¢4 million.
Required
(a) Calculate the goodwill arising on the acquisition of Green Ltd and prepare the consolidated statement of profit or loss for Vantage Ltd for the year ended 30 September 20X9.
(b) Discuss the matters to consider in determining whether an investment in another company constitutes associated company status.
You're reporting an error for "FR – L2 – Q90 – Business Combinations"
10 Marks
FR – L2 – Q89 – Business Combinations
Prepare consolidated statement of profit or loss and retained profit movement for Melody Ltd for year ended 31 Dec 20X4, including negative goodwill and intra-group adjustments.
Melody Ltd
Statement of profit or loss for the year ended 31 December 20X4.
Melody Ltd GH¢’000
Harmony Ltd GH¢’000
Revenue
304,900
195,300
Cost of sales
(144,200)
(98,550)
Gross profit
160,700
96,750
Operating costs
(76,450)
(52,100)
Operating profit
84,250
44,650
Investment income
10,500
2,600
Profit before tax
94,750
47,250
Income tax expense
(42,900)
(16,500)
Profit for the year
51,850
30,750
Statement of changes in equity (extracts) for the year ended 31 December 20X4
Melody Ltd GH¢’000
Harmony Ltd GH¢’000
Retained earnings brought forward
80,200
31,000
Profit for the year
51,850
30,750
Proposed ordinary dividend
(20,000)
112,050
61,750
The following information is also available.
(1) Melody Ltd acquired 75% of the share capital of Harmony Ltd on 31 August 20X4.
(2) Negative goodwill of GH¢3.8 million arose on the acquisition.
(3) Profits of both companies are deemed to accrue evenly over the year except for the investment income of Harmony Ltd all of which was received in November 20X4.
(4) Melody Ltd has bought goods from Harmony Ltd throughout the year at GH¢2 million per month. At the year-end Melody Ltd does not hold any inventory purchased from Harmony Ltd.
Required
Prepare the consolidated statement of profit or loss and a working showing the movement on consolidated retained profit for the year ended 31 December 20X4.
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.
Statements of Financial Performance for the year ended 31st December 2023
GHS
Kolebu
Saint H
GHC’000
GHC’000
GHC’000
Revenue
Tax revenue
100,000
GoG receipt
2,000
Non-exchange revenue
100,000
2,000
3,000
Internally generated revenue
5,000
400
200
Exchange revenue
5,000
400
200
Total revenue
105,000
2,400
3,200
Expenses
Compensation for employees
40,000
600
500
Depreciation & amortisation
500
300
200
Goods and services
25,000
600
400
Finance costs
1,600
500
100
Total expenses
67,100
2,000
1,200
Surplus for the period
37,900
400
2,000
Statements of Financial Position for the year ended 31 December 2023
GHS
Kolebu
Saint H
GHC’000
GHC’000
GHC’000
Assets:
Cash & cash equivalent
25,000
800
500
Receivable: GHS
900
Receivable: Others
62,000
700
400
Inventories
12,000
300
200
Current assets
99,000
2,700
1,100
Property, plant & equipment
140,000
40,000
67,100
Investment- Saint H
60,000
Non-current assets
200,000
40,000
67,100
Total Asset
299,000
42,700
68,200
Liabilities
Payable: Kolebu
900
Payable others
60,000
8,000
3,000
Current borrowings
90,000
2,000
Current liabilities
150,900
10,000
3,000
Borrowing
45,000
10,000
5,000
Non-current liabilities
45,000
10,000
5,000
Total liabilities
195,900
20,000
8,000
Net asset (liabilities)
103,100
22,700
60,200
Net Asset/Equity:
GHS
Kolebu
Saint H
GHC’000
GHC’000
GHC’000
Contribution from owners
60,000
Accumulated Surplus (deficit)
103,100
22,700
200
Total Asset/Equity
103,100
22,700
60,200
Additional information
(i) The Ghana Health Services (GHS) is a government agency responsible for overseeing the health sector. The Kwadwo Teaching Hospital is funded through government appropriations and internally generated funds approved by Parliament. The GHS appoints most of the hospital’s board members on behalf of the government. All employees at Kwadwo receive their salaries from the Consolidated Fund.
(ii) On July 1, 2023, the GHS established the Blessed Hospital to provide high-quality healthcare services in the country. The GHS has fully funded the hospital’s operations through equity and debt guarantees and has also appointed the hospital’s governing board.
(iii) The appropriations to Kwadwo cover employee compensation and goods and services expenses at a ratio of 60% to 40%, respectively.
(iv) At the end of the reporting period, the GHS owed Kwadwo GHC900,000 for services rendered to its staff. The GHS has committed to paying this amount by the end of the second quarter of the following year.
(v) The separate financial statements of the GHS, Kwadwo, and Blessed Hospital are prepared using the same accounting policies.
Required:
Prepare in accordance with the relevant IPSASs:
(a) A consolidated statement of financial performance for the year ended 31 December 2023.
(b) A consolidated statement of financial position as at 31 December 2023.
(c) Note to the accounts.
(a) A local authority has a policy that, where it holds land that is surplus to its requirements, consideration should be given to making the land available for affordable housing. The local authority establishes terms and conditions to ensure that the housing provided remains affordable and available to meet local housing needs. In accordance with this policy, the local authority sold part of a site to a housing association for GH₵10 million to provide 20 affordable homes. The remainder of the site was sold at open market value to a private developer. The contract between the authority and the housing association specifies what the land can be used for, the quality of housing developments, ongoing reporting and performance management requirements, the process for return of unused land, and dispute resolution. The land must be used in a manner consistent with the local authority’s policy for affordable housing. The agreement also has requirements regarding the housing association’s quality assurance and financial management processes. The housing association must demonstrate that it has the capacity and authority to undertake the development. It must also demonstrate the added value that can be achieved by joining the local authority’s resources with that of the housing association to address a need within a particular client group in a sustainable way. The Board of the housing association is appointed by the members of the housing association. The local authority does not have a representative on the Board.
Required:
Assess whether the local authority could apply IPSAS 35 Consolidated Financial Statement to the activities of the Housing Association.
(b) A national museum is governed by a board of trustees who are chosen by the government department responsible for funding the museum. The trustees have freedom to make decisions about the operation of the museum. The department has the power to appoint the majority of the museum’s trustees.
Required:
Discuss whether the government department has the power over the activities of the museum. (c)
In a recent workshop, a senior fellow of a civil society organisation asserts that the efforts of the Financial Controller to prepare consolidated financial statements of the authority is an exercise in futility. It further noted that the exercise is a waste of public resources.
Required:
Discuss the merit and demerit of the view of the Senior Fellow in light of IPSAS 35.
