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  • 15 Marks

FR – L2 – Q100 – Presentation of Financial Statements

Prepare a report analyzing JB Co Ltd's financial position using gearing and liquidity ratios, highlighting areas for further investigation.

BNN Co is considering acquiring an interest in its competitor JB Co Ltd. The managing director of BNN Co has obtained the three most recent statements of financial position of JB Co Ltd as shown below.

JB Co Ltd – Statement of Financial Position at 31st December

20X7 GH$’000 20X8 GH$’000 20X9 GH$’000
Non-current assets
Land and buildings 11,460 12,121 11,081
Plant and equipment 8,896 9,020 9,130
20,356 21,141 20,211
Current assets
Inventories 1,775 2,663 3,995
Trade receivables 1,440 2,260 3,164
Cash 50 53 55
3,265 4,976 7,214
Total assets 23,621 26,117 27,425
Equity
Share capital 8,000 8,000 8,000
Retained earnings 6,434 7,313 7,584
14,434 15,313 15,584
Non-current liabilities
12% debentures 20X9–20Y2 5,000 5,000 5,000
Current liabilities
Trade payable 390 388 446
Bank 1,300 2,300 3,400
Income taxes payable 897 1,420 1,195
Dividend payable 1,600 1,696 1,800
4,187 5,804 6,841
Total equity and liabilities 23,621 26,117 27,425

Required:
Prepare a report for the managing director of BNN Co. commenting on the financial position of JB Co Ltd. and highlight any areas that require further investigation (using gearing and liquidity ratios only).

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  • 20 Marks

FR – L2 – Q99 – Presentation of Financial Statements

Calculate financial ratios for Jeck Ltd for the year ended 31 March 20X9 based on provided financial statements.

Jeck Ltd is a listed company that assembles domestic electrical goods which it then sells to both wholesale and retail customers. Jeck Ltd’s management was disappointed in the company’s results for the year ended 31 March 20X8. In an attempt to improve performance the following measures were taken early in the year ended 31 March 20X9:

  • A national advertising campaign was undertaken,
  • Rebates to all wholesale customers purchasing goods above set quantity levels were introduced,
  • The assembly of certain lines ceased and was replaced by bought-in completed products. This allowed Jeck Ltd to dispose of surplus plant.

Jeck Ltd’s summarised financial statements for the year ended 31 March 20X9 are set out below:

Statement of Financial Position as at 31 March 20X9

GH$’000 GH$’000
Non-current assets
Property, plant and equipment (note (ii)) 550
Current assets
Inventory 250
Trade receivables 360
Bank Nil
610
Total assets
Equity and liabilities
Stated capital (400m shares) 100
Income surplus 380
480
Non-current liabilities
8% loan notes 200
Current liabilities
Bank overdraft 10
Trade payables 430
Current tax payables 40
480
Total equity and liabilities

Statement of Profit or Loss and Other Comprehensive Income for the Year Ended 31 March 20X9

GH$’000
Revenue (25% cash sales)
Cost of sales
Gross profit
Operating expenses
Operating profit
Profit on disposal of plant (note (i))
Financial charges
Profit before tax
Income tax expense
Profit for the year

Below are ratios calculated for the year ended 31 March 20X8:

  • Return on year-end capital employed (profit before interest and tax over total assets less current liabilities): 17%
  • Net assets (equal to capital employed) turnover: 4 times
  • Gross profit margin: 6.3%
  • Net profit (before tax) margin: Not provided
  • Current ratio: 1.6:1
  • Closing inventory holding period: 46 days
  • Trade receivables’ collection period: 45 days
  • Trade payables’ payment period: 55 days
  • Dividend yield: 3.75%
  • Dividend cover: 2 times

Notes:
(i) Jeck Ltd received GH$120m from the sale of plant that had a carrying amount of GH$80m at the date of its sale.
(ii) The market price of Jeck Ltd’s share throughout the year averaged GH$3.75 each. There were no issues or redemption of shares or loans during the year.
(iii) Dividends paid during the year ended 31 March 20Y0 amounted to GH$90m, maintaining the same dividend paid in the year ended 31 March 20X9.

Required:
(a) Calculate ratios for the year ended 31 March 20X9 (showing your workings) for Jeck Ltd, equivalent to those provided above.

(b) Analyse the financial performance and position of Jeck Ltd for the year ended 31 March 20X9 compared to the previous year.

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  • 10 Marks

FR – L2 – Q94 – Associates and Joint Ventures

Prepare entries for Portico Ltd's 30% holding in Armand Ltd in the Year 5 consolidated financial statements, including financial position and profit or loss.

Portico Ltd acquired 30% of the equity shares in Armand Ltd (which satisfies the definition of associate) during Year 1 at a cost of GH₵350,000 when the fair value of the net assets of Armand Ltd was GH₵250,000. Since that time, the investment in Armand Ltd has been impaired by GH₵4,000.
On 31 December Year 5, the net assets of Armand Ltd were GH₵400,000. Since the date of acquisition, there have been no changes in the share capital of Armand Ltd or in any reserves other than retained earnings.
In the year to 31 December Year 5, the profits of Armand Ltd after tax were GH₵50,000.

Required
Show how the holding in Armand Ltd would be reflected in the Year 5 consolidated statement of financial position and consolidated statement of profit or loss.

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  • 10 Marks

FR – L2 – Q93 – Consolidated Financial Statements

Prepare Apex Ltd's consolidated statement of financial position as at 31 December 20X4, incorporating subsidiary and associate investments.

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.

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  • 12 Marks

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.

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.

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  • 8 Marks

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.

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.

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  • 6 Marks

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.

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 6
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 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.
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.

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  • 8 Marks

FR – L2 – Q77 – Consolidated Financial Statements

Prepare consolidated statement of financial position for Apex Ltd and its subsidiary Nexus Ltd as at 31 Dec 20X4.

Statements of financial position at 31 December 20X4

Nexis Ltd Vion Ltd
GH¢ GH¢
Investment in Vion Ltd 60,000
Sundry assets 247,500 226,600
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

Nexis Ltd bought 80% of Vion Ltd when the balance on Vion Ltd’s retained profit was GH¢50,000.
Required
Prepare the consolidated statement of financial position at 31 December 20X4.

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  • 10 Marks

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.

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.

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  • 20 Marks

FR – L2 – Q73 – Statement of Cash Flows

Prepare a cash flow statement for Fellon Plc for 20X4 using IAS 7, based on provided financial data and additional information.

Fellon Plc has prepared the following rough draft accounts for the year ended 31 December 20X4.

Statement of profit or loss

GH₵’000
Revenue 11,563
Cost of sales (5,502)
Gross profit 6,061
Distribution costs (402)
Administration expenses (882)
Interest payable (152)
Operating profit before tax 4,625
Taxation (35%) including deferred tax (1,531)
Profit after tax 3,094
Dividends (700)
Retained profit 2,394

Statements of financial position

31 December 20X4 GH₵’000 31 December 20X3 GH₵’000
Non-current assets
Property, plant and equipment 10,380 9,108
Current assets
Inventories 2,208 1,314
Trade receivables 1,986 1,392
Investments 1,992 2,190
Cash at bank and in hand – 576
6,186 5,472
Total assets 16,566 14,580
Equity and liabilities
Equity
Share capital 4,392 3,600
Retained earnings 6,714 4,320
11,106 7,920
Non-current liabilities
Long-term loans 1,240 1,800
Deferred repairs provision 702 516
1,942 2,316
Current liabilities
Trade payables 2,038 1,714
Bank overdraft 222 –
Taxation 1,258 2,630
3,518 4,344
Total equity and liabilities 16,566 14,580

The following data is relevant.
(1) The 10% long-term loan was redeemed at par.
(2) Plant and equipment with a written down value of GH₵276,000 was sold for GH₵168,000. New plant was purchased for GH₵2,500,000.
(3) Buildings costing GH₵1,300,000 were acquired during the year.
(4) The investments are highly liquid securities held for the short term.

Required
Prepare the cash flow statement and supporting notes in accordance with IAS 7 for Fellon Plc for 20X4.

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