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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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  • 6 Marks

FR – L2 – Q78 – Consolidated Financial Statements

Prepare the consolidated statement of financial position for Melodious Ltd group as at 31 December 20X4.

The following are the summarised statements of financial position of a group of companies as at 31 December 20X4.

Melodious Ltd GH₵ Verse Ltd GH₵
Assets
Non-current assets
Property, plant and equipment 105,000 65,000
Investment 85,000
Current assets 220,000 55,000
Total Assets 410,000 120,000
Equity and liabilities
Equity
Share capital 100,000 50,000
Retained earnings 155,000 49,000
255,000 99,000
Current liabilities 155,000 21,000
Total Equity and Liabilities 410,000 120,000

Melodious Ltd purchased 80% of Verse Ltd’s shares on 1 January 20X4 when there was a credit balance on that company’s retained earnings of GH₵20,000.
Required
Prepare the Melodious Ltd group consolidated statement of financial position 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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  • 15 Marks

FR – L2 – Q32 – Intangible Assets

Explain accounting treatment for intangible asset transactions of Tobi Plc for 20X4 per IFRS.

Tobi Plc entered into the following transactions during the year ended 31 December 20X4. The directors of Tobi Plc wish to capitalise all assets where possible.

(1) On 1 January Tobi Plc acquired the net assets of Gidi for GH¢105,000. The assets acquired had the following book and fair values:

Book value Fair value
Goodwill – 5,000
Patents 5,000 5,000
Non-current assets 50,000 50,000
Other sundry net assets 40,000 40,000

The recoverable amount of the goodwill at 31 December 20X4 was estimated at GH¢2,000.

(2) On 1 April Tobi Plc purchased a patent for GH¢20,000. The patent has a remaining useful life of eight years.

(3) On 1 April Tobi Plc purchased a brand for GH¢50,000. The brand has a remaining useful life of five years.

(4) During the year Tobi Plc incurred expenditure of GH¢30,000 developing a new brand.

(5) During the year Tobi Plc incurred expenditure of GH¢40,000 developing customer lists.

Required
Show how the above transactions would appear in the financial statements (including notes to the financial statements) of Tobi Plc as of 31 December 20X4.

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  • 20 Marks

FA – L1 – Q81 – Preparation of Partnership accounts

Prepare capital accounts and statement of financial position for Alvin, Boris, and Gina partnership after Gina's admission, including adjustments for goodwill and revaluation.

Alvin and Boris are partners in a firm sharing profits and losses in the ratio of 3:2. The Statement of financial position of the firm as on 31 March 20X9 was as under:

Assets GH¢
Furniture and fixture 600,000
Office equipment 300,000
Motor car 375,000
Inventory 250,000
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Due to expansion in the business, Gina was admitted as a partner with effect from 1 April 20X9. Gina brought furniture worth GH¢120,000 and inventory costing GH¢80,000. She also contributed cash of GH¢150,000 plus her proportionate share of goodwill valued at two years’ purchase of the average profits of the last three years.
Following adjustments were considered necessary, at the time of admission:
(i) On 1 April 20X7, new furniture costing GH¢8,000 was purchased but wrongly debited to revenue account. The firm charges depreciation on furniture @ 10% on straight line basis.
(ii) An invoice dated 1 October 20X8 for purchase of goods amounting to GH¢24,000 has not been recorded.
(iii) Value of the sundry receivables on 31 March 20X9 is to be reduced by 6%.
The profits of the last three years, before the above adjustments were:

Year GH¢
20X8-11 352,100
20X7-10 232,000
20X9-09 128,000

It was decided that the future profits of the firm would be shared among Alvin, Boris, and Gina in the ratio of 5:3:2 respectively.

Required:
Prepare the capital accounts of the partners and the statement of financial position of the firm on Gina’s admission as a partner.

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  • 20 Marks

FA – L1 – Q80 – Preparation of Partnership accounts

Prepare capital accounts for Djembo, Akwele, and Eduvie partnership after Eduvie's admission, including revaluation, goodwill, and profit allocation.

Djembo and Akwele were in partnership and shared profits and losses in the ratio of 3:2 respectively. The balances on the partners’ capital accounts at July 1 20X8 were: Djembo GH₵250,000, Akwele GH₵400,000.
Due to expansion of business, Eduvie was admitted as a partner on October 1, 20X8 under the following arrangements:
(i) Assets were revalued upwards by GH₵200,000 but the revaluation was not recorded in the books.
(ii) Goodwill of the firm was assessed at GH₵300,000 and was retained in the books.
(iii) Eduvie invested GH₵500,000 as capital.
(iv) Eduvie was allowed a monthly salary of GH₵20,000 whereas Djembo and Akwele continued to receive salaries of GH₵28,000 and GH₵25,000 per month respectively, as in the past.
(v) The balance profit was to be shared: Djembo 35%; Akwele 35% and Eduvie 30%.
(vi) Mr. Atikpui was hired as manager from October 1, 20X8 at a salary equal to 5% of the profit remaining after deducting such salary but before charging partners’ salaries.
The profit for the year ended June 30, 20X9 amounted to GH₵486,000 after:
(i) Making allowance for a debt of GH₵48,000 incurred prior to July 20X8; and
(ii) providing for the partners’ salaries.
In addition to salaries, the partners withdrew the following amounts:
Djembo GH₵150,000; Akwele GH₵120,000; and Eduvie GH₵90,000

Required:
Partners’ capital accounts for the year ended June 30, 20X9.

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  • 10 Marks

FA – L1 – Q79 – Preparation of Partnership accounts

Prepare journal entries for partner retirement and admission, excluding goodwill in the books.

A summarized statement of financial position of ABC Partnership as on January 31, 20X9 is given below:

Debit GH₵ Credit GH₵
Non-current assets 1,700,000 Current liabilities 1,900,000
Current assets 4,700,000 James, Capital 1,000,000
Emma, Capital 1,500,000
Liam, Capital 2,000,000
6,400,000 6,400,000

James, Emma, and Liam share profits in the ratio of their capital in the partnership.
On January 31, 20X9, James retired from the partnership. For the purposes of his retirement, goodwill of the partnership was estimated at GH₵1.89 million. It was agreed that James would take cash from the business equal to the value of his closing capital after the goodwill adjustment.
On February 1, 20X9, Sophia was admitted to the partnership. The new profit sharing ratio was agreed at 3:4:2 for Emma, Liam, and Sophia respectively. Sophia agreed to bring in cash equivalent to her share of assets (excluding goodwill) in the new partnership plus an additional amount of GH₵0.5 million for goodwill.

Required:
Prepare journal entries to record the above transactions under the following assumption:
(a) Goodwill is not recorded in the books of account.

(b) Goodwill is recorded in the books of account.

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  • 20 Marks

FA – L1 – Q78 – Preparation of Partnership accounts

Prepare capital accounts and statement of financial position for M, N, O partnership after O's retirement and T's admission, adjusting for goodwill and revaluations.

M, N, and O are partners sharing profit in the ratio of their capitals. Their statement of financial position at June 30, 20X9 was as follows:

Statement of financial position as at June 30, 20X9

Assets GH₵
Land and building 450,000
Motor cars 350,000
Equipment 95,000
Inventories 500,000
Receivables 400,000
Less: Allowance (60,000)
340,000
Investments 300,000
Cash in hand 65,000
Cash at bank 450,000
Total Assets 2,550,000

Capital and Liabilities GH₵
Capital:
M 640,000
N 320,000
O 480,000
1,440,000
Payables and accrued expenses 485,000
Loan from N 625,000
Total Capital and Liabilities 2,550,000

On July 1, 20X9, O retired. His share of the net assets of the partnership was ascertained after taking into account the following adjustments:
(i) The allowance against receivables was to be adjusted to 10% of the book value of the receivables.
(ii) Inventories were to be written down by 5%.
(iii) The investments were revalued to their market value which was GH₵ 435,000.
(iv) Investments with a market value of GH₵ 160,000 were taken over by O.
(v) A motor car having a book value of GH₵ 150,000 was taken over by O for GH₵ 200,000.
(vi) O’s share of goodwill was agreed at GH₵ 216,000.

T was admitted as a partner on the same day that O retired and on the basis of the adjusted statement of financial position. He was given one-fourth share in the profits and he bought a proportionate share of capital and goodwill by paying cash into the business. The basis of valuation of goodwill for the purpose of admission of T as a partner was the same as at the time of O’s retirement.

M and N have decided that the cash paid in by T in respect of goodwill will be taken out of the business by them in their profit-sharing ratio.

Required:
Prepare capital accounts of the partners in columnar form and the statement of financial position of the firm as at July 1, 20X9 after the admission of T, assuming that goodwill is not retained in the books of account.

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