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  • 25 Marks

FR – L2 – Q97 – Business Combinations

Prepare Peak Plc's consolidated statement of financial position as at 31 March 20X4, incorporating acquisitions of Flare Plc and Crest Ltd, with adjustments for intra-group transactions and fair value.

Peak Plc acquired the following non-current investments on 1 April 20X3:
(1) 4 million of Flare Plc’s 5 million equity shares, by means of an exchange of one share in Peak for every one share in Flare Plc, plus GH¢6.05 million in cash for each Flare Plc share acquired. The professional fees associated with the acquisition amounted to GH¢1 million. The market price of shares in Peak Plc at the date of the acquisition was GH¢9 per share. The market price of Flare Plc shares just before the acquisition was GH¢7. The cash part of the consideration is deferred and will not be paid until two years after the acquisition.
(2) 25% of Crest Ltd’s 6 million equity shares, at a cost of GH¢6 per share. The money to make this payment was obtained by issuing one million new shares in Peak Plc at GH¢9 per share.

None of these transactions has yet been recorded in the summary statements of financial position that are shown below.

The summarised draft statements of financial position of the three companies at 31 March 20X4 are as follows:

Statement of financial position Peak Plc Flare Plc Crest Ltd
GH¢ million GH¢ million GH¢ million
Assets
Non-current assets
Property, plant and equipment 60.0 31.0 16.0
Other equity investments 0.8 nil nil
60.8 31.0 16.0
Current assets 18.2 8.0 9.0
Total assets 79.0 39.0 25.0
Equity and liabilities
Equity shares 18.0 9.0 10.0
Retained earnings: at 1 April 20X3 36.0 16.0 8.0
– for year ended 31 March 20X4 8.0 3.0 2.0
62.0 28.0 20.0
Non-current liabilities
6% loan notes 10.0 – –
7% loan notes – 6.0 3.0
Current liabilities 7.0 5.0 2.0
Total equity and liabilities 79.0 39.0 25.0

The following information is relevant:
(1) Peak Plc has chosen to value the non-controlling interest in Flare Plc using the fair value method permitted by IFRS 3 (revised). The fair value of the non-controlling interests at the acquisition date is estimated to be the market value of the shares before the acquisition.
(2) At the date of acquisition of Flare Plc, the fair values of its assets were equal to their carrying amounts.
(3) The cost of capital of Peak Plc is 10% per year.
(4) During the year ended 31 March 20X4, Flare Plc sold goods to Peak Plc for GH¢3.6 million, at a mark-up of 50% on cost. Peak Plc had 75% of the goods in its inventory at 31 March 20X4.
(5) There were no intra-group receivables and payables at 31 March 20X4.
(6) On 1 April 20X3, Peak Plc sold a group of machines to Flare Plc at their agreed fair value of GH¢3 million. At the time of the sale, the carrying amount of the machines was GH¢2 million. The estimated remaining useful life of the plant at the date of the sale was four years. Plant and machinery is depreciated to a residual value of nil using straight-line depreciation and at 1 April 20X3 the machines had an estimated remaining life of five years.
(7) “Other equity investments” are included in the summary statement of financial position of Peak Plc at their fair value on 1 April 20X3. Their fair value at 31 March 20X4 is GH¢0.65 million.
(8) Impairment tests were carried out on 31 March 20X4. These show that there is no impairment of the value of the investment in Crest Ltd or in the consolidated goodwill.
(9) No dividends were paid during the year by any of the three companies.

Required
Prepare the consolidated statement of financial position for Peak Plc as at 31 March 20X4.

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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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  • 20 Marks

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.

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.

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  • 25 Marks

FR – L2 – Q86 – Business Combinations

Prepare Drobo Ltd's consolidated statement of financial position as at 31 March 20X4, incorporating fair value adjustments, intra-group transactions, and goodwill impairment.

On 1 April 20X3, Draco Limited acquired 90% of the equity shares in Aboro Limited. On the same day Draco Limited accepted a 10% loan note from Aboro Limited for GH₵200,000 which was repayable at GH₵40,000 per annum (on 31 March each year) over the next five years. Aboro Limited’s retained earnings at the date of acquisition were GH₵2,200,000.

Statements of financial position as at 31 March 20X4

Draco Limited Aboro Limited
GH₵000 GH₵000 GH₵000 GH₵000
Non-current assets
Property, plant and equipment 2,120 1,990
Intangible – software – 1,800
Investments – equity in Aboro Limited 4,110 –
Investments – 10% loan note Aboro Limited 200
Investments – others 65 210
6,495 4,000
Current assets
Inventories 719 560
Trade receivables 524 328
Aboro Limited current account 75
Cash 20
1,338 888
Total assets 7,833 4,888
Equity and liabilities:
Capital and reserves
Equity shares of GH₵1 each 4,000 2,000
Retained earnings 2,900 1,955
6,900 3,955
Non-current liabilities
10% Loan note from Draco Limited 160
Government grant 230
390
Current liabilities
Trade payables 475 472
Draco Limited current account 60
Income taxes payable 228 174
Operating overdraft 27
730 706
Total equity and liabilities 7,833 4,888

The following information is relevant
(i) Included in Aboro Limited’s property at the date of acquisition was a leased property recorded at its depreciated historical cost of GH₵400,000. The property had been sub-let for its remaining life of only four years at an annual rental of GH₵80,000 payable in advance on 1 April each year. The directors of Draco Limited are of the opinion that the fair value of this property is best reflected by the present value of its future cash flows. An appropriate cost of capital for the group is 10% per annum.
The present value of a GH₵1 annuity received at the end of each year where interest rates are 10% can be taken as:
3 year annuity GH₵2.50
4 year annuity GH₵3.20

(ii) The software of Aboro Limited represents the depreciated cost of the development of an integrated business accounting package. It was completed at a capitalised cost of GH₵2,400,000 and went on sale on 1 April 20X2. Aboro Limited’s directors are depreciating the software on a straight-line basis over an eight-year life (i.e. GH₵300,000 per annum). However, the directors of Draco Limited are of the opinion that a five-year life would be more appropriate as sales of business software rarely exceed this period.

(iii) The inventory of Draco Limited on 31 March 20X4 contains goods at a transfer price of GH₵25,000 that were supplied by Aboro Limited who had marked them up with a profit of 25% on cost. Unrealised profits are adjusted for against the profit of the company that made them.

(iv) On 31 March 20X4 Aboro Limited remitted to Draco Limited a cash payment of GH₵55,000. This was not received by Draco Limited until early April. It was made up of an annual repayment of the 10% loan note of GH₵40,000 (the interest had already been paid) and GH₵15,000 of the current account balance.

(v) The accounting policy of Draco Limited for non-controlling interests (NCI) in a subsidiary is to value NCI at a proportionate share of the net assets.

(vi) An impairment test at 31 March 20X4 on the consolidated goodwill concluded that it should be written down by GH₵120,000. No other assets were impaired.

Required
Prepare the consolidated statement of financial position of Draco Limited as at 31 March 20X4.

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  • 12 Marks

FR – L2 – Q85 – Business Combinations

Prepare Greetings Ltd's consolidated statement of financial position as at 31 Dec 20X4, including fair value adjustments for Farewell Ltd.

On 1 January 20X1, Greetings Ltd acquired 60% of the ordinary share capital of Farewell Ltd for GH₵110,000. At that date Farewell Ltd had a retained earnings balance of GH₵60,000.
The following statements of financial position have been prepared as at 31 December 20X4.

Assets Greetings Ltd Farewell Ltd
Non-current assets GH₵ GH₵
Property, plant and equipment 225,000 175,000
Investments in Farewell Ltd 110,000 –
Current assets 271,000 157,000
Total assets 606,000 332,000
Equity and liabilities
Capital and reserves
Share capital 100,000 100,000
Retained earnings 275,000 90,000
375,000 190,000
Current liabilities 231,000 142,000
Total equity and liabilities 606,000 332,000

The fair value of Farewell Ltd’s net assets at the date of acquisition was determined to be GH₵170,000.
The difference between the book value and the fair value of the net assets at the date of acquisition was due to an item of plant which had a useful life of 10 years from the date of acquisition.
Required
Prepare the consolidated statement of financial position of Greetings Ltd and its subsidiary 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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  • 12 Marks

FR – L2 – Q83 – Business Combinations

Prepare Tough Ltd's consolidated statement of financial position as at 31 Dec 20X4, adjusting for intra-group asset transfer and fair value.

On 31 December 20X0, Tough Ltd acquired 60% of the ordinary share capital of Gentle Ltd for GH¢110 million. The following statements of financial position have been prepared as at 31 December 20X4. Statements of Financial Position as at 31 December 20X4

Tough Ltd Gentle Ltd
GH¢’000 GH¢’000
Assets
Non-current assets
Property, plant and equipment 225,000 175,000
Investments in Gentle Ltd 110,000 —
Current assets 271,000 157,000
606,000 332,000
Equity and liabilities
Capital and reserves
Share capital 115,000 110,000
Retained earnings 260,000 80,000
375,000 190,000
Current liabilities 231,000 142,000
606,000 332,000

During the year to 31 December 20X4, Tough Ltd sold a tangible asset to Gentle Ltd for GH¢50 million. The asset was originally purchased in the year to 31 December 20X1 at a cost of GH¢100 million and had a useful economic life of five years. Gentle Ltd’s depreciation policy is 25% per annum based on cost. Both companies charge a full year’s depreciation in the year of acquisition and none in the year of disposal. Required Prepare the consolidated statement of financial position of Tough Ltd and its subsidiary as at 31 December 20X4.

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  • 12 Marks

FR – L2 – Q82 – Business Combinations

Prepare Furry Ltd's consolidated statement of financial position as at 31 Dec 20X4, adjusting for intra-group inventory and cash in transit.

The summarised statements of financial position of Furry Ltd and Webber Ltd as at 31 December 20X4 were as follows.

Assets Furry Ltd GH₵000 Webber Ltd GH₵000
Non-current assets
Property, plant and equipment 120,000 60,000
Investments 55,000 —
Current assets
Cash 11,000 4,000
Investments — 3,000
Trade receivables 72,600 19,100
Current account – Furry Ltd — 3,200
Inventory 17,000 11,000
Total 275,600 100,300

Equity and liabilities Furry Ltd GH₵000 Webber Ltd GH₵000
Capital and reserves
Share capital 120,000 60,000
Capital reserve 23,000 16,000
Retained earnings 91,900 7,300
Current liabilities 38,000 17,000
Total 275,600 100,300

The following information is relevant:
(1) On 31 December 20X1, Furry Ltd acquired 48,000 shares in Webber Ltd for GH₵55,000,000 cash. Webber Ltd has 60,000 shares in total.
(2) The inventory of Furry Ltd includes GH₵4,000,000 goods from Webber Ltd invoiced to Furry Ltd at cost plus 25%.
(3) The difference on the current account balances is due to cash in transit.
(4) The balance on Webber Ltd’s retained earnings was GH₵2,300,000 at the date of acquisition. There has been no movement in the balance on Webber Ltd’s capital reserve since the date of acquisition.

Required:
Prepare the consolidated statement of financial position of Furry Ltd and its subsidiary Webber Ltd as at 31 December 20X4.

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  • 12 Marks

FR – L2 – Q81 – Business Combinations

Prepare PrimeCare Ltd's consolidated statement of financial position as at 31 December 20X4, including Frost Ltd, with adjustments for dividends and cash in transit.

PRIME CARE LTD
The following are the draft statements of financial position of PrimeCare Ltd and its subsidiary Frost Ltd as at 31 December 20X4.

PrimeCare Ltd GH¢000 Frost Ltd GH¢000
Assets
Non-current assets
Property, plant and equipment 100,000 68,000
Investments 68,000
Current assets
Cash 11,000 2,000
Trade receivables 72,600 19,100
Frost Ltd current account 3,200
Inventory 17,000 11,000
271,800 100,100
Equity and liabilities
Shareholders’ equity
Share capital 120,000 60,000
Retained earnings 91,900 16,000
Capital reserve 23,000 7,000
Current liabilities
PrimeCare Ltd current account 3,200
Trade payables 33,900 12,900
Proposed dividend 3,000 1,000
271,800 100,100

Notes
(1) Frost Ltd has 50,000 shares in issue. PrimeCare Ltd acquired 45,000 of these on 1 January 20X1 for a cost of GH¢65,000,000 when the balances on Frost Ltd’s reserves were:

  • Capital reserve: 20,000
  • Retained earnings: 10,000

(2) PrimeCare Ltd declared a dividend of GH¢3,000,000 before the year end and Frost Ltd declared one of GH¢2,000,000. These transactions have been approved by the shareholders but have not been accounted for.

(3) The current account difference is due to cash in transit.

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

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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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