Tag (SQ): Retained Earnings

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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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  • 12 Marks

FR – L2 – Q91 – Consolidated Financial Statements

Prepare Falcon Ltd's consolidated profit or loss, financial position, and retained profit movement for 20X4.

FALCON LTD

Statement of changes in equity for the year ended 30 June 20X4 (extract)

Falcon Ltd GH¢000 Crane Ltd GH¢000
Retained earnings brought forward 8,000 10,500
Profit for the financial year 12,000 8,000
Retained earnings carried forward 20,000 18,500

Required

Prepare Falcon Ltd’s consolidated statement of profit or loss, consolidated statement of financial position and a working showing the movement on consolidated retained profit for Falcon Ltd for the year ended 30 June 20X4.

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  • 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.

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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  • 10 Marks

FR – L2 – Q88 – Business Combinations

Prepare Haven Ltd's consolidated statement of profit or loss and retained earnings movement for 20X4, adjusting for intercompany sales and dividends.

Haven Ltd
The following are the statement of profit or loss for the year ended 31 December 20X4 of Haven Ltd and its subsidiary Seren Ltd.

Haven Ltd GH¢’000 Seren Ltd GH¢’000
Revenue 1,120 390
Cost of sales (610) (220)
Gross profit 510 170
Distribution costs (50) (40)
Administration costs (55) (45)
Operating profit 405 85
Investment income 20 4
Finance costs (18) (4)
Profit before tax 407 85
Income tax expense (140) (25)
Profit for the year 267 60
Retained profit brought forward 100 45
Profit for year 267 60
Dividends paid and proposed (50) (20)
Retained profit carried forward 317 85

The following information is relevant.
(1) Haven Ltd acquired 75% of Seren Ltd six years ago when Seren Ltd’s retained earnings were GH¢9,000.
(2) Haven Ltd made sales to Seren Ltd totalling GH¢100,000 in the year. At the year end the statement of financial position of Seren Ltd included inventory purchased from Haven Ltd. Haven Ltd had taken a profit of GH¢3,000 on this inventory.
(3) Haven Ltd’s investment income includes GH¢15,000 being its share of Seren Ltd’s dividends.

Required
Prepare a 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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  • 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 – 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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  • 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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