- 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.
Question
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.
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