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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.

Question

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.

Answer

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Tags: Acquisition, Business Combinations, Consolidated Financial Statements, Financial Position, Goodwill, IFRS 3, Net Assets, Non-controlling Interest, Retained Earnings, Subsidiary
Level: Level 2

Topic: Business Combinations (IFRS 3)

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.

Question

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

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

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.

Answer

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Tags: Acquisition, Consolidated Financial Statements, Current Liabilities, Financial Position, Goodwill, IFRS 3, Net Assets, Non-controlling Interest, Retained Earnings, Share Capital
Level: Level 2

Topic: Business Combinations (IFRS 3)

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.

Question

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.

Answer

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Tags: Acquisition, Consolidated Financial Statements, Debenture Loans, Financial Position, Goodwill, Group Structure, IFRS 3, Net Assets, Non-controlling Interest, Retained Earnings
Level: Level 2

Topic: Business Combinations (IFRS 3)

FR – L2 – Q8 – Financial Reporting Standards

Explain the correctness of accounting treatments for preference shares, customer liquidation, and goodwill impairment in Trust Plc's financial statements.

Question

The following information has been extracted from the draft financial statements of Trust Plc for the year ended 31 December 20X8.

Net assets	Profit for the year
GH¢000	GH¢000
5,000	500

As the senior in charge of the audit, you identify the following:
(i) The company has preference shares in issue and these are included in equity at an amount of GH¢500,000. The annual dividend of 10% has been recognised in equity. The shares are to be redeemed in three years’ time.
(ii) One of Trust Plc’s customers went into liquidation shortly after the year-end owing Trust Plc GH¢25,000. The finance director has argued that the liquidation did not exist at the year-end and has retained the balance in the financial statements.
(iii) The company had recognised impairment of goodwill in the amount of GH¢400,000 in the financial statements for the year ended 31 December 20X8. The finance director has reversed the write-off in this year’s accounts due to an upturn in fortunes of the cash-generating unit to which the goodwill related. This has resulted in a credit of the full amount to the statement of profit or loss.

Required:
(a) Explain whether the above accounting treatments are correct and, if not, explain the correct

(b) Adjust the net assets and profit figures after making any necessary corrections in respect of the above accounting treatments.

(c) Identify and explain any ethical issues arising in the above. (Assume that Kofi is a full member of ICAG and that you are a student member).

Answer

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Tags: Accounting Corrections, Financial Adjustments, Net Assets, Profit Adjustment
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

Tag (SQ): Net Assets

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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.

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.

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.

FR – L2 – Q8 – Financial Reporting Standards

Explain the correctness of accounting treatments for preference shares, customer liquidation, and goodwill impairment in Trust Plc's financial statements.

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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.

You're reporting an error for "FR – L2 – Q80 – Business Combinations"

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.

You're reporting an error for "FR – L2 – Q79 – Business Combinations"

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.

You're reporting an error for "FR – L2 – Q76 – Business Combinations"

FR – L2 – Q8 – Financial Reporting Standards

Explain the correctness of accounting treatments for preference shares, customer liquidation, and goodwill impairment in Trust Plc's financial statements.

You're reporting an error for "FR – L2 – Q8 – Financial Reporting Standards"

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