- 25 Marks
FR – L2 – Q98 – Consolidated Financial Statements
Prepare Kari Plc's consolidated statement of financial position as at 31 March 20X4, accounting for subsidiaries and associates.
Question
Kari Plc acquired 90% of Kane Ltd’s GH$1 ordinary shares on 1 April 20X2 paying GH$3.00 per share. The balance on Kane Ltd’s retained earnings at this date was GH$800,000. On 1 October 20X3, Kari Plc acquired 30% of Kora Ltd’s GH$1 ordinary shares for GH$3.50 per share. The statements of financial position of the three companies at 31 March 20X4 are shown below:
| Kari Plc | Kane Ltd | Kora Ltd | ||||
|---|---|---|---|---|---|---|
| GH$000 | GH$000 | GH$000 | GH$000 | GH$000 | GH$000 | |
| Non-current assets | ||||||
| Property, plant and equipment | 8,050 | 3,600 | 1,650 | |||
| Investments | 4,000 | 910 | nil | |||
| 12,050 | 4,510 | 1,650 | ||||
| Current assets | ||||||
| Inventory | 830 | 340 | 250 | |||
| Accounts receivable | 520 | 290 | 350 | |||
| Bank | 240 | nil | 100 | |||
| 1,590 | 630 | 700 | ||||
| Total assets | 13,640 | 5,140 | 2,350 | |||
| Equity and liabilities | ||||||
| Equity: | ||||||
| Ordinary shares of GH$1 each | 5,000 | 1,200 | 600 | |||
| Reserves: | ||||||
| Retained earnings b/f | 6,000 | 1,400 | 900 | |||
| Profit year to 31 March 20X4 | 1,400 | 600 | 300 | |||
| 7,400 | 2,000 | 1,200 | ||||
| 12,400 | 3,200 | 1,800 | ||||
| Non-current liabilities | ||||||
| 10% Loan notes | 500 | 240 | nil | |||
| Current liabilities | ||||||
| Accounts payable | 420 | 960 | 350 | |||
| Taxation | 220 | 250 | 100 | |||
| Overdraft | nil | 490 | nil | |||
| 640 | 1,700 | 450 | ||||
| Total equity and liabilities | 13,640 | 5,140 | 2,350 |
The following information is relevant:
(i) The fair value of the non-controlling interest in Kane Ltd at the date of acquisition was GH$2.50 per share.
(ii) In January 20X4 Kari Plc sold goods to Kora Ltd for GH$65,000. These were transferred at a mark-up of 30% on cost. Two thirds of these goods were still in the inventory of Kora Ltd at 31 March 20X4.
(iii) To facilitate the consolidation procedures the group insists that all inter-company current account balances are settled prior to the year-end. However a cheque of GH$40,000 from Kane Ltd to Kari Plc was not received until early April 20X4. Inter-company balances are included in accounts receivable and payable as appropriate.
(iv) Kora Ltd is to be treated as an associated company of Kari Plc.
(v) An impairment test at 31 March 20X4 on the consolidated goodwill of Kane Ltd and Kora Ltd concluded that it should be written down by GH$468,000 and GH$12,000 respectively. No other assets were impaired.
Required
(a) Prepare the consolidated statement of financial position of Kari Plc as at 31 March 20X4.
(b) Discuss the matters to consider in determining whether an investment in another company constitutes associated company status.
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