Topic: Group Financial Statements and Consolidation

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FR – Nov 2024 – L2 – Q1- Group Financial Statements

Preparation of the consolidated statement of profit or loss and statement of financial position for Yarkpawolo Group, including goodwill calculation and intra-group adjustments.

Question

Yarkpawolo LTD, a company in the healthcare industry, purchased 80% of the ordinary shares of Weah LTD on 1 January 2023. There are three elements to the purchase consideration: an immediate payment of GH¢1,400,000 and two further payments of GH¢100,000 on 31 December 2023 and GH¢120,000 on 31 December 2024 if the return on capital employed (ROCE) exceeds 15% in each of the financial years. All indicators have suggested that the ROCE for the company will be 17% and 16% for the financial years ending 31 December 2023 and 31 December 2024 respectively.

Yarkpawolo uses a discount rate of 10% in any present value calculations. The present value of GH¢ 1 receivable based on 10% are as follows:

Year	Present Value
1	0.909
2	0.826

The draft financial statements of both companies as at 31 December 2023 are as follows:

Statement of Profit or Loss for the year ended 31 December 2023

Yarkpawolo (GH¢’000)	Weah (GH¢’000)
Sales revenue	14,000
Cost of sales	(10,000)
Gross profit	4,000
Operating expenses	(2,050)
Profit before tax	1,950
Income tax expense	(450)
Profit for the year	1,500
Retained earnings brought forward	3,500
Retained earnings to statement of financial position	5,000

Statement of Financial Position as at 31 December 2023

Yarkpawolo (GH¢’000)	Weah (GH¢’000)
Non-current assets:
Property, Plant & Equipment	4,500
Patents	500
Investment in Weah	1,400
Total Non-current assets	6,400
Current assets:
Inventories	5,500
Trade and other receivables	2,000
Cash and cash equivalents	1,200
Total Current assets	8,700
Total Assets	15,100
Equity:
Share capital (GH¢0.20 per ordinary share)	1,500
General reserve	3,000
Retained earnings as at 31 December 2023	5,000
Total Equity	9,500
Non-current liabilities:
Long-term borrowings	1,600
Current liabilities:
Trade and other payables	4,000
Current portion of long-term borrowings	–
Total Liabilities	5,600
Total Equity and Liabilities	15,100

Additional Information:

Fair Value Adjustments on PPE:
- Property: Increase from GH¢200,000 to GH¢250,000 (Depreciation rate 10%)
- Plant: Increase from GH¢80,000 to GH¢100,000 (Depreciation rate 20%)
- Equipment: Decrease from GH¢120,000 to GH¢80,000 (Depreciation rate 20%)
- Weah has not adjusted its PPE values for the fair value assessment.
Intra-Group Trading:
- Since acquisition, Weah purchased GH¢50,000 worth of goods from Yarkpawolo. Half of these goods remained in inventory at year-end. Yarkpawolo makes a mark-up on cost of 25%.
- Yarkpawolo also purchased GH¢50,000 of goods from Weah, with one-third remaining in inventory. Weah sells at a margin of 20%.
Intercompany Balances:
- Yarkpawolo’s trade receivables include GH¢5,000 owed by Weah. The current accounts do not balance due to GH¢2,000 in transit from Weah.
Impairment:
- A goodwill impairment review identified a loss of GH¢100,000. No adjustment has been made yet.
Non-controlling Interest Valuation:
- Yarkpawolo values non-controlling interest at fair value at the acquisition date. The share price for Weah was GH¢0.75 per share.

Required:
Prepare for Yarkpawolo LTD:
(a) Consolidated Statement of Profit or Loss for the year ended 31 December 2023
(b) Consolidated Statement of Financial Position as at 31 December 2023

Answer

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Level: Level 2

Topic: Group Financial Statements and Consolidation
Series: Nov 2024

R – Nov 2020 – L2 – Q1a – Consolidated Statement of Profit or Loss

Prepare a consolidated statement of profit or loss for Kingdom Ltd and Paradise Ltd for the year ended 31 December 2019.

Question

Prepare the consolidated statement of financial position for Kingdom Ltd group as at 31
December 2019 (10 Marks)

Answer

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Tags: consolidated financial statements, Group Accounts, Profit or Loss
Level: Level 2

Topic: Group Financial Statements and Consolidation
Series: NOV 2020

FR – May 2020 – L2 – Q1a – Consolidated statement of profit or loss and OCI

Prepare a consolidated statement of profit or loss and other comprehensive income for Naa Ltd and its subsidiary, Shormeh Ltd, for the year ended 30 September 2019.

Question

Answer

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Tags: Consolidation, Group Financial Statements, Other Comprehensive Income, Profit and Loss
Level: Level 2

FR – May 2020 – L2 – Q1b – Consolidated Goodwill Calculation

Calculate the goodwill for the acquisition of Shormeh Ltd by Naa Ltd on 1st April 2019.

Question

Calculate the consolidated goodwill that arose on the acquisition date for Naa Ltd’s acquisition of Shormeh Ltd. (3 Marks)

Answer

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Tags: Acquisition, consolidated financial statements, Goodwill
Level: Level 2

Topic: Group Financial Statements and Consolidation
Series: MAY 2020

FR – May 2021 – L2 – Q1a – Calculation of Goodwill in Consolidation

Calculate goodwill for Abirem at acquisition and at reporting for a group financial statement consolidation.

Question

Tafo Group is a key player in the food processing industry made up only of Tafo Ltd (Tafo) and Abirem Ltd (Abirem). Below are the consolidated statement of comprehensive income of Tafo Group and the separate statements of comprehensive income of Tafo and Bonsu Ltd (Bonsu) for the year ended 31 December 2020.

Statements of Comprehensive Income for the Year Ended 31 December 2020

GH¢ Million	Tafo Group	Tafo	Bonsu
Revenue	116	90	25
Cost of Sales	(78)	(62)	(15)
Gross Profit	38	28	10
Distribution Costs	(7)	(5)	(1.6)
Administrative Expenses	(11)	(7.5)	(3.4)
Finance Costs	(8.5)	(2)	(0.5)
Investment Income	6	5.3	–
Profit Before Tax	17.5	18.8	4.5
Tax	(5.6)	(4.8)	(1.5)
Profit for the Year	11.9	14	3
Other Comprehensive Income
Gain on Revaluation (Net of Tax)	4.5	3.4	–
Total Comprehensive Income	16.4	17.4	3

Additional Information:

Tafo purchased 80% of the 10 million ordinary shares (all issued at GH¢2 each) of Abirem on 1 January 2020 when the balance of Abirem’s reserves was GH¢35 million. Tafo agreed to settle the consideration in two unconditional instalments as follows:
- Cash payment of GH¢33 million on 1 January 2021.
- Cash payment of GH¢30.25 million on 1 January 2022.
The policy of the group is to value any non-controlling interests at fair value. For this purpose, it was agreed to use the share price of Abirem as an approximation of its fair value. Abirem’s market capitalisation figures at 1 January 2020 and 31 December 2020 stood at GH¢70 million and GH¢75 million, respectively. The appropriate discount rate for Tafo is 10%. The required unwound discount has been included in the group’s (but not Tafo’s) finance costs.
On 1 January 2020, a fair value exercise was carried out on Abirem’s net assets. The results showed that the book value of the depreciable plant was higher than its fair value by GH¢4 million. Post-acquisition depreciation adjustment of GH¢0.8 million is required.
Tafo has held a 20% equity interest in Bonsu for several years. On 31 December 2020, an impairment loss of GH¢0.2 million was estimated for the investment in the associate. The group’s policy is to present the share of the associate’s profit before tax and share of the associate’s tax expense separately within the consolidated statement of comprehensive income. The investment income of the group shown above includes the group’s share of associate’s profit before tax (including the effects of the GH¢0.2 million impairment loss).
Sales from Abirem to Tafo occurring evenly throughout the year amounted to GH¢8 million. By 31 December 2020, Tafo had sold all these goods except for items worth GH¢1.8 million. Abirem applies a cost-plus 20% markup on all sales.
At 31 December 2020, it was concluded that 5% of the goodwill in Abirem had been impaired. The impairment has been charged to administrative expenses.
Assume that all the necessary consolidation adjustments are correctly included in the above consolidated statement of comprehensive income.

Required:
a) Calculate the goodwill in Abirem at acquisition and reporting.
(5 marks)

Answer

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Tags: Acquisition, Consolidation, Financial Reporting, Goodwill, Impairment
Level: Level 2

Topic: Group Financial Statements and Consolidation
Series: MAY 2021

FR – May 2021 – L2 – Q1c – Analysis of Consolidated Profit and Total Comprehensive Income

Provide an analysis of the consolidated profit and total comprehensive income attributable to non-controlling interest and parent equity holders.

Question

Show an analysis of consolidated profit for the period and total comprehensive income attributable to non-controlling interest and parent’s equity holders.
(5 marks)

Answer

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Tags: Consolidation, Non-Controlling Interest, Profit Attribution
Level: Level 2

Topic: Group Financial Statements and Consolidation
Series: MAY 2021

FR – Nov 2017 – L2 – Q1a – Group Financial Statements and Consolidation

This question tests candidates on the calculation of goodwill for an acquisition and the preparation of consolidated financial statements in accordance with IFRS.

Question

Spacefon Ltd (Spacefon), in its quest to gain dominance in the telecommunication industry, bought an 80% holding in the equity of Buzz and 40% of the equity shares of Kasapa Ltd (Kasapa) on 1 July 2017. The purchase price of the investment of Buzz Ltd (Buzz) was agreed at GH¢4,400 million, of which GH¢1,600 million was paid in cash. The remaining balance was paid by issuing 800 million equity shares each of GH¢1 nominal value to the seller at their then fair value of GH¢3.50 each. The 20% non-controlling interest in Buzz had a fair value of GH¢900 million at that date. Buzz’s net assets had a fair value of GH¢4,700 million on 1 July 2017. Spacefon applies the fair value method to calculate goodwill on acquisition.

The following statements of comprehensive income relate to Spacefon and its investee companies, Buzz and Kasapa.

Statements of Profit or Loss for the year ended 31 October 2017	Spacefon Ltd (GH¢ million)	Buzz Ltd (GH¢ million)	Kasapa Ltd (GH¢ million)
Revenue	4,428	2,448	1,530
Cost of Sales	(1,674)	(864)	(680.4)
Gross Profit	2,754	1,584	849.6
Operating expenses	(1,116)	(828)	(522)
Finance costs	(180)	(108)	(54)
Other income	32.4	–	–
Investment income	129.6	–	–
Profit before taxation	1,620	648	273.6
Taxation	(270)	(108)	(54)
Profit for the year	1,350	540	219.6
Other comprehensive income
Gains on revaluations of property	226.8	72	64.8
Total comprehensive income for the year	1576.8	612	284.4

Additional Information:

Included in the fair value of Buzz’s net assets on the acquisition date was some machinery owned by Buzz but carried at GH¢90 million below its fair value. The revised fair value was not incorporated into the books of Buzz, as Buzz has not adopted a policy of revaluing machinery assets. The useful economic life of this machinery at the acquisition date was estimated to be six years.
During the post-acquisition period, Buzz sold goods to Spacefon for GH¢50 million. These goods were sold by Buzz at a profit of 30 pesewas per GH¢1 on the sales price, and 40% of the goods remained in the inventory of Spacefon at 31 October 2017.
Since acquiring its investment in Buzz, Spacefon has managed the administration of the entire group. Spacefon invoiced Buzz GH¢4 million for its share of these costs. Spacefon recorded this transaction within “other income,” and Buzz recorded it within “operating expenses.”
The goodwill of Buzz was reviewed for impairment at 31 October 2017 and was found to have a recoverable amount of GH¢400 million. There was no impairment of the investment in Kasapa.
On 1 October 2017, Spacefon sold some land to Kasapa for GH¢12 million, recording a profit of GH¢8 million. This profit is included within “other income” in the books of Spacefon.

(Note: All calculations may be taken to the nearest GH¢0.01 million, and assume all expenses and gains accrue evenly throughout the year unless otherwise instructed.)

Required: a) Calculate the goodwill arising on the acquisition of Buzz by Spacefon, and the goodwill amount that should appear in the consolidated Statement of Financial Position of Spacefon as at 31 October 2017. (3 marks)

b) Prepare a Consolidated Statement of Profit or Loss account for Spacefon Group for the year ended 31 October 2017 in accordance with IFRS. (17 marks)

Answer

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Tags: consolidated financial statements, Goodwill, IFRS 10, Profit and Loss
Level: Level 2

Topic: Group Financial Statements and Consolidation
Series: NOV 2017

FR – Mar 2023 – L2 – Q1 – Group Financial Statements and Consolidation

Prepare the consolidated statement of financial position for Panin Group as of 31 December 2021, considering various acquisitions and intercompany transactions.

Question

Below are the financial statements of Panin, Kakra, and Tawia.

Additional information:

On 1 January 2021, Panin acquired 27 million equity shares in Kakra, transferring a parcel of land with a carrying value of GH¢90 million and fair value of GH¢96 million. The balances on Kakra’s retained earnings and revaluation reserves at this date were GH¢72 million and GH¢5.5 million respectively.
On 1 January 2021, Kakra’s internally developed brand had a fair value of GH¢11 million. The brand has an indefinite useful life, but at year-end its value-in-use was assessed at GH¢8 million.
On 1 July 2021, Panin also acquired 5 million equity shares in Tawia for GH¢32 million. Tawia earned post-acquisition profit of GH¢10 million after tax and revaluation gains of GH¢500,000.
In 2021, Kakra made intercompany sales to Panin for GH¢7.8 million, with a profit of 25% on cost, and GH¢1.2 million of these goods were in Panin’s inventory as at 31 December 2021. Kakra also sold to Tawia, and all goods remained in Tawia’s inventory.
Dividends payable were declared by Kakra and Tawia, but Panin has not yet taken credit for its share.
On 1 January 2021, Panin sold machines to Kakra for GH¢8 million, with a carrying value of GH¢6 million, depreciating them at 20% per annum.
Goodwill should be impaired by 10%.
Non-controlling interest should be valued at their proportionate share of fair value of the subsidiary’s identifiable net assets.

Required:

Prepare a consolidated statement of financial position for Panin Group as at 31 December 2021.

Answer

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Level: Level 2

Topic: Group Financial Statements and Consolidation
Series: MAR 2023

FR – April 2022 – L2 – Q1 – Group Financial Statements and Consolidation

Prepare consolidated statement of financial position for Stalky Ltd and its subsidiary Fanny Ltd as of 31 December 2020, including necessary adjustments.

Question

The following financial statements relate to Stalky Ltd and Fanny Ltd:

Additional information:
1. Stalky Ltd acquired 30 million ordinary shares of Fanny Ltd on 1 January 2019 when the book value of Fanny Ltd’s share capital (including preference share capital) plus reserves stood at GH¢58 million. The recorded investment includes GH¢1.5 million due diligence costs incurred by Stalky Ltd to facilitate its acquisition of Fanny Ltd. Stalky Ltd has no interest in Fanny Ltd’s issued preference shares.

2. Fair value exercise conducted at the time of Fanny Ltd’s acquisition revealed the following:

A piece of equipment with a carrying amount of GH¢10 million had an assessed fair value of GH¢16 million. Estimated remaining useful life: six years.
An in-process research and development project valued at GH¢5 million was identified. It started generating economic benefits a year ago and is expected to continue for four more years.
Deferred tax provision of GH¢1 million was required. By 31 December 2019, the provision required had reduced to GH¢0.9 million, and by 31 December 2020 had decreased further to GH¢0.7 million.

3. During the year, Stalky Ltd sold goods worth GH¢25 million to Fanny Ltd with a mark-up of one-third. At 31 December 2020, Fanny Ltd’s inventories included GH¢4.8 million of these goods. At 31 December 2019, Fanny Ltd’s inventories included GH¢3 million worth of goods purchased from Stalky Ltd at the same mark-up. Ignore deferred tax implications on these items.

4. The trade receivables of Stalky Ltd included GH¢8 million receivable from Fanny Ltd. This balance did not agree with the equivalent trade payable in Fanny Ltd’s books due to payment of GH¢2 million made on 30 December 2020 by Fanny Ltd to Stalky Ltd.

5. The group’s policy is to measure the non-controlling interests in subsidiaries at fair value. The fair value per ordinary share in Fanny Ltd at acquisition was GH¢1.50. Goodwill was impaired by 10% for the year ended 31 December 2019. A further impairment of 10% of the remaining goodwill is required in the current period. All impairment losses are charged to operating expenses.

Required:
Prepare the Consolidated Statement of Financial Position as at 31 December 2020 for Stalky Ltd Group.

Answer

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Level: Level 2

Topic: Group Financial Statements and Consolidation
Series: APR 2022

FR – Nov 2019 – L2 – Q1 – Group Financial Statements and Consolidation

Consolidated statement of financial position of Atia Ltd and Santana Ltd as at 30 June 2019.

Question

The draft statements of financial position of Atia Ltd and that of Santana Ltd as at 30 June 2019 are as follows:

Additional relevant information:
1) On July 1, 2018, Atia Ltd purchased 21 million shares of Santana Ltd. At this date, the retained earnings of Santana Ltd were estimated at GH¢17 million, and the revaluation surplus was GH¢2 million.
2) Atia Ltd paid an initial cash amount of GH¢46 million and agreed to pay Santana Ltd’s shareholders a further GH¢14 million on July 1, 2020. The financial accountant has recorded both elements of the consideration in investments.
3) Atia Ltd has a cost of capital of 8% per annum.
4) During the accounting period, Atia Ltd sold goods totaling GH¢4 million to Santana Ltd at a gross profit margin of 25%. As of 30 June 2019, Santana Ltd still had GH¢0.5 million of these goods in inventory. Atia Ltd has a normal margin of 45%.
5) On the acquisition date, the fair values of Santana Ltd’s net assets were equal to their carrying amounts, except for inventory, which had a cost of GH¢1.5 million but a fair value of GH¢1.8 million. As of 30 June 2019, 10% of these goods remained in Santana Ltd’s inventory.
6) Atia Ltd values non-controlling interest (NCI) at fair value. The NCI’s value at acquisition is estimated at GH¢7.5 million.
7) No impairment was recognized for goodwill.

Required: Prepare the consolidated statement of financial position of the Atia group as at 30 June 2019.
(20 marks)

Answer

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Topic: Group Financial Statements and Consolidation
Series: NOV 2019

FR – Nov 2023 – L2 – Q1a – Group Financial Statements and Consolidation

Calculate the goodwill on acquisition of Danke Plc by Monko Plc as per the given financial information.

Question

Below are the financial statements of Monko Plc and its investee company, Danke Plc for
the year ended 30 September 2023:
Statements of Profit or Loss and other Comprehensive Income for the year ended 30
September 2023

Additional information:
i) On 1 April 2023, Monko Plc acquired 75% of the equity shares of Danke Plc. Danke Plc had been experiencing difficult trading conditions and making significant losses. Taking into consideration Danke Plc’s difficulties, Monko Plc made an immediate cash payment of only GH¢1.50 per share. In addition, Monko Plc will pay a further amount in cash on 30 September 2024 if Danke Plc returns to profitability by that date. The value of this contingent consideration at the date of acquisition was estimated to be GH¢1,800,000 but in the light of continuing losses, it value was
estimated at only GH¢1,500,000 as at 30 September 2023. The contingent consideration has not been recorded by Monko Plc. At the date of acquisition, shares in Danke Plc had a listed market price of GH¢1.20 each.
ii) On 1 April 2023, the fair values of Danke Plc’s assets were equal to their carrying amounts with the exception of a leased property. This had a fair value of GH¢2,000,000 above its
carrying amount and a remaining lease term of 10 years at that date. Depreciation is charged to cost of sales.
iii) Monko Plc transferred raw materials at their cost of GH¢4,000,000 to Danke Plc in June 2023. Danke Plc processed all of these materials incurring additional direct costs of GH¢1,400,000 and sold them back to Monko Plc in August 2023 for GH¢9,000,000. At 30 September 2023, Monko Plc had GH¢1,500,000 of these goods still in inventory.
iv) Monko Plc has recorded its investment in Danke Plc at the cost of the immediate cash payment. Other equity investments (included in the financial assets-equity investments) are carried at fair value through profit or loss as at 1 October 2022. The other equity investments have fallen in value by GH¢200,000 during the year ended 30 September 2023.
v) Monko Plc’s policy is to value the non-controlling interest at fair value at the date of
acquisition. Danke Plc’s share price at that date can be deemed to be representative of the
fair value of the shares held by the non-controlling interest.
vi) All items in the above statements of profit or loss are deemed to accrue evenly over the year unless otherwise indicated.
Required:
a) Compute the Goodwill on acquisition of Danke Plc. (4 marks)
b) Prepare the Consolidated Statement of Profit or Loss and other Comprehensive Income for
Monko Plc Group for the year ended 30 September 2023. (16 marks)

Answer

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Tags: Acquisition, Bargain Purchase, Goodwill, IFRS 3, Negative Goodwill, Subsidiary

Topic: Accounting for Investments in Subsidiaries, Group Financial Statements and Consolidation
Series: NOV 2023

FR – July 2023 – L2 – Q1 – Group Financial Statements and Consolidation

Prepare the Consolidated Statement of Financial Position for a parent company Tarkwa Ltd and its subsidiary Awaso Ltd, incorporating the acquisition of 80% shares and related adjustments.

Question

Tarkwa Ltd (Tarkwa) has been operating in the clothing and textiles industry in the past decade. On 1 July 2021, it acquired Awaso Ltd (Awaso) which operates in the same industry. The statements of Financial Position of the two companies as at 31 December 2021 are as follows:

	Tarkwa GH¢000	Awaso GH¢000
Assets
Non-current assets	185,400	93,000
Current Assets
Inventory	76,200	31,800
Other current assets	58,200	24,000
Total current assets	134,400	55,800
Total assets	319,800	148,800
Equity and Liabilities
Equity
Share capital (issued at GH¢1 each)	120,000	50,000
Retained earnings:
Balance at January 1, 2021	73,200	51,600
Profit/(loss) for the year ended December 31, 2021	30,000	(18,000)
Total equity	223,200	83,600
Non-current liabilities
Deferred tax	30,000	4,000
Current liabilities
Trade payables and accruals	66,600	61,200
Total Equity and Liabilities	319,800	148,800

Additional information:

i) Tarkwa acquired 80% of Awaso’s equity shares by means of immediate cash payment of GH¢1.80 per each acquired share. However, the former shareholders agreed to return some of the consideration by 30 June 2022 if Awaso’s sales growth falls below a defined threshold over the next year. The value of this contingent consideration at the date of acquisition was estimated to be GH¢4 million. At 31 December 2021, in the light of Awaso’s falling sales, the value was revised to GH¢4.5 million. Tarkwa has only recorded the immediate cash payment.

ii) Tarkwa conducted a fair value exercise on Awaso’s net assets, which were equal to their carrying values including Awaso’s investment property with the exception of an item of owner-occupied property which had a fair value of GH¢5 million below its carrying amount. The property had a remaining useful life of 20 years as at 1 July 2021. Awaso has already incorporated the fair value change (together with the depreciation adjustment) in its own financial statements.

iii) At 31 December 2021, Awaso held goods in inventory, which had been supplied by Tarkwa at a mark-up on cost of 35%. The goods had cost Awaso GH¢6.75 million. 50% of the inventory remained unsold.

iv) The investment properties of Tarkwa and Awaso are carried at their fair values at January 1, 2021. However, at 31 December 2021, an item of properties had fair values of GH¢36.6 million and GH¢10.8 million respectively, with the change in Awaso’s investment properties all occurring since acquisition. These properties had carrying amounts at GH¢33,000 and GH¢12,000 respectively at the same date.

v) It is Tarkwa’s group policy to value the non-controlling interest using the fair value method at the acquisition date. For this purpose, a share price for Awaso of GH¢1.50 each is representative of the fair value of the shares held by the non-controlling interest.

Required:
Prepare the Consolidated Statement of Financial Position for Tarkwa as at December 31, 2021.

(Total: 20 marks)

Answer

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Tags: Consolidation, Contingent Consideration, Goodwill, Group Financial Statements, Non-Controlling Interest
Level: Level 2

Topic: Group Financial Statements and Consolidation
Series: JULY 2023

FR – May 2017 – L2 – Q5b – Group Financial Statements and Consolidation

Prepare the trial balance of a foreign branch in Ghana cedi and the closing entries for the branch in the head office accounts.

Question

OTL Ltd commenced business on 1 January 2015. The head office is in Ghana, and there is a branch in Nigeria. The currency unit of Nigeria is the Naira (₦).

Additional Information:
The trial balance of the head office was prepared before any entries had been made in respect of any profits or losses of the branch. Remittances from head office to branch and from branch to head office were recorded in the books at the actual amounts paid and received.

The rates of exchange were:

On 1 January 2015: ₦80 = GH¢1
Average rate for year 2015: ₦70.4 = GH¢1
On 31 December 2015: ₦64 = GH¢1

Required:
i) Prepare the Trial Balance of the Nigeria branch as at 31 December 2015, in Ghana cedi.
ii) The closing entries, as at 31 December 2015, in the branch account in the books of the head office; and
iii) A summary of the Statement of Financial Position of OTL Ltd as at 31 December 2015.

Answer

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Tags: Branch accounts, consolidated financial statements, Foreign Currency Translation, Trial Balance
Level: Level 2

Topic: Group Financial Statements and Consolidation
Series: MAY 2017

FR – Nov 2021 – L2 – Q5d – Group Financial Statements and Consolidation

Discuss the factors that determine whether an investment in another company constitutes an associate status.

Question

Discuss the matters to consider in determining whether an investment in another company constitutes an associate status.

Answer

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Tags: IAS 28, Investment in Associates, Significant influence, Tags: Associate Status
Level: Level 2

Topic: Group Financial Statements and Consolidation
Series: NOV 2021

FR – May 2017 – L2 – Q1 – Group Financial Statements and Consolidation

Prepare consolidated financial statements for a parent and subsidiary, including profit or loss, statement of changes in equity, and statement of financial position.

Question

Ghanbetter is a 90% subsidiary of Asonbata, acquired one year ago for GH¢4 billion, when the retained earnings of Ghanbetter were GH¢800 million. Below are the financial statements of the companies:

Statement of Profit or Loss for the year ended 31 December, 2016

Additional Information:
i) During the year Asonbata sold goods to Ghanbetter for GH¢100 million. These goods were sold at a margin of 20%, and one quarter remained in inventory at the year-end.

ii) During the year Ghanbetter sold goods to Asonbata for GH¢180 million. These goods were sold at a mark-up of 50%, and one half remained in inventory at the year-end.

iii) At the year-end, there were no outstanding inter-company current account balances.

iv) At the date of acquisition, the fair value of Ghanbetter’s net assets was equal to their carrying value, except for an item of plant that had a fair value of GH¢200 million in excess of its carrying value and a remaining useful life of four years.

v) Goodwill is to be calculated using the proportionate basis. An impairment review at the year-end reveals that no impairment loss arose.

vi) Both companies have paid a dividend during the year. The dividend distributed by Asonbata was GH¢200 million, and that of Ghanbetter GH¢100 million. The investment income that Asonbata has recognised is the dividend received from Ghanbetter shortly before the year-end.

Required:
Prepare the Consolidated Statement of Financial Position, Statement of Changes in Equity, and Consolidated Statement of Profit or Loss for Asonbata for the year ended 31 December, 2016.

Answer

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Topic: Group Financial Statements and Consolidation
Series: MAY 2017

FR – Nov 2021 – L2 – Q1 – Group Financial Statements and Consolidation

Prepare the Consolidated Statement of Financial Position for Sankofa Group considering investments, goodwill, and intra-group transactions.

Question

The following statement of financial position relates to Sankofa and Kaakyire as at 31 October 2020.

Statement of Financial Position	Sankofa (GH¢’000)	Kaakyire (GH¢’000)
Non-current assets
Property, Plant and Equipment	37,000	30,000
Investment Property	5,000	–
Investments	24,000	–
Total Non-current assets	66,000	30,000
Current assets
Inventory	9,000	8,000
Other current assets	21,000	14,000
Total Current assets	30,000	22,000
Total assets	96,000	52,000
Equity and liabilities
Ordinary shares (issued @ GH¢2.50)	20,000	8,000
Retained earnings	26,000	16,000
Total Equity	46,000	24,000
Non-current liabilities
10% debentures	11,900	12,000
Current liabilities
Payables	38,100	16,000
Total Equity and liabilities	96,000	52,000

Additional information:
i) On 1 November 2018, Sankofa purchased 2.4 million of the ordinary shares of Kaakyire when Kaakyire’s retained earnings balance stood at GH¢11 million. There have been no movements in share capital since the acquisition. As part of the consideration given for the shares acquired, the shareholders of Kaakyire accepted 1 million shares worth GH¢7 million in Sankofa at acquisition. The remaining consideration was agreed to be paid on 31 October 2020 for GH¢12.1 million. The present values of GH¢1 receivable based on 10% (considered to be an appropriate discount rate for Sankofa) are as follows:

Present Value of GH¢1 receivable
In one year’s time:
In two years’ time:

Entries have been correctly passed for the effects of all of the above, including any unwound discounts, except for the final payment made on 31 October 2020.

ii) At acquisition, the fair values of Kaakyire’s assets, liabilities, and contingencies were equal to their carrying amounts, with the exception of the following assets:

Carrying amount (GH¢’000)	Fair value (GH¢’000)
Trade receivables	1,250
Inventory	1,500
Properties	14,000

The properties had a remaining useful life of 10 years. No items of property were sold during the two years to 31 October 2020. The inventory and the receivable were realised during the post-acquisition period.

iii) On 1 November 2019, Kaakyire sold an item of plant to Sankofa for GH¢5 million. Kaakyire originally bought the plant from Gyidie for GH¢6 million, and Kaakyire had provided accumulated depreciation of GH¢2.2 million up to the date of sale. Kaakyire considered the plant to have a remaining useful life of 5 years at the date of transfer.

iv) The Investment Property in the books of Sankofa represents an office facility that was completed on 1 November 2018 at the cost of GH¢3.5 million. The useful economic life of the facility was estimated at 20 years. Immediately after the acquisition of Kaakyire, Sankofa began to rent this property out to Kaakyire under a lease agreement. Sankofa Group values its investment properties using the fair value model under IAS 40 Investment Properties and its owner-occupied properties using the cost model under IAS 16 Property, Plant and Equipment.

v) On 1 November 2019, Sankofa acquired 30% of the ordinary shares of Kaboom at the cost of GH¢6 million. During the year ended 31 October 2020, Kaboom reported a profit after tax of GH¢2 million. No dividends were paid or declared by Kaboom during the period. At year-end, Kaboom’s inventory included GH¢1.2 million worth of goods bought from Sankofa during the year to October 2020. Sankofa charges a 25% margin on all sales.

On 31 October 2019, Goodwill acquired in Kaakyire was attributed with an impairment loss of GH¢0.5 million. The group’s policy is to measure non-controlling interest at the proportion of the fair value of the subsidiary’s net assets.

Required:
Prepare the Consolidated Statement of Financial Position for the Sankofa Group as at 31 October 2020.

Answer

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Tags: Consolidation, Fair value adjustment, Goodwill, Intra-group Transactions, Investment, Non-Controlling Interest, Statement of Financial Position, Subsidiary
Level: Level 2

Topic: Group Financial Statements and Consolidation
Series: NOV 2021

FR – May 2016 – L2 – Q2 – Group Financial Statements and Consolidation

Prepare a consolidated statement of financial position and calculate the non-controlling interest for H Plc, and explain the need to consolidate fair values.

Question

On 1st April 2014, H Plc. acquired four million of the ordinary shares of S Ltd, paying GH¢4.50 each. At the same time, H Plc also purchased GH¢500,000 of S Ltd 10% redeemable preference shares. At the acquisition date, the retained earnings of S Ltd were GH¢8,400,000.

Reproduced below are the draft statements of financial positions of the two companies at 31st March 2015:

Extracts from the statement of profit or loss of S Ltd, before intra group
adjustments, for the year to 31st March 2015 are:

The following information is relevant:

Included in the land and buildings of S Ltd is a large area of development land at a cost of GH¢5 million. Its fair value at the date S Ltd was acquired was GH¢7 million, and by 31st March 2015, this had risen to GH¢8.5 million. The group valuation policy for development land is to carry it at fair value and not depreciate it.
At the date of acquisition of S Ltd, its plant and equipment included plant that had a fair value of GH¢4 million in excess of its carrying value. This plant had a remaining life of 5 years. Depreciation is calculated on a straight-line basis.
During the year, S Ltd sold goods to H Plc. for GH¢1.8 million. S Ltd adds a 20% mark-up on cost to all its sales. Goods with a transfer price of GH¢450,000 were included in the inventory of H Plc. at 31st March 2015. The balance on the current accounts between H Plc. and S Ltd was GH¢240,000 on 31st March 2015.
An impairment test carried out at 31st March 2015 showed that consolidated goodwill was impaired by GH¢1,488,000.
S Ltd had paid its preference dividends in full and ordinary dividends of GH¢500,000.

Required:

Prepare the consolidated statement of financial position of H Plc. as at 31st March 2015.
Calculate the non-controlling interest in the adjusted profit of S Ltd for the year to 31st March 2015.
Explain why IFRS 3 Business Combinations requires an acquirer to consolidate the fair values of the assets and liabilities of an acquired subsidiary, at the acquisition date.

Answer

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Tags: consolidated financial statements, Depreciation, Fair Value, Goodwill, Group Structure, Non-Controlling Interest, Post-Acquisition Profit
Level: Level 2

Topic: Group Financial Statements and Consolidation
Series: MAY 2016

FR – March 2024 – L2 – Q1 – Group Financial Statements and Consolidation

Consolidation of Chicha Plc and Wale Plc financial statements, involving adjustments for intra-group transactions, non-controlling interest, and goodwill.

Question

On 1 July 2022, Chicha Plc acquired 80% of the ordinary shares of Wale Plc at a cost of GH¢2,570,000. On the same date, it also acquired 50% of Wale Plc’s 10% loan notes at par. The summarised draft financial statements of both companies are:

Statements of Profit or Loss for the year ended 31 March 2023
	Chicha Plc	Wale Plc
Sales revenue	15,000	6,000
Cost of sales	(10,500)	(5,000)
Gross profit	4,500	1,000
Operating expenses	(1,500)	(50)
Loan interest received/(paid)	18.75	(50)
Profit before tax	3,018.75	900
Income tax expense	(750)	(150)
Profit for the year	2,268.75	750

Statements of Financial Position as at 31 March 2023
	Chicha Plc	Wale Plc
Non-current assets
Property, plant and equipment	4,830	2,000
Investments	2,820	–
Total Non-current assets	7,650	2,000
Current assets	3,750	2,000
Total assets	11,400	4,000
Equity and liabilities
Equity
Stated capital	2,500	500
Retained earnings	6,400	2,100
Total equity	8,900	2,600
Non-current liabilities
10% loan notes	–	500
Current liabilities	2,500	900
Total equity and liabilities	11,400	4,000

The following information is relevant:

The fair values of Wale Plc’s assets were equal to their book values except for its plant, which had a fair value of GH¢800,000 more than its book value at the date of acquisition. The remaining life of all of Wale Plc’s plant at the acquisition date was four years. Depreciation is on a straight-line basis and charged to cost of sales. Wale Plc has not adjusted the value of its plant as a result of the fair valuation of the assets.
In the post-acquisition period, Chicha Plc sold goods to Wale Plc for GH¢3,000,000. These goods had cost Chicha Plc GH¢2,250,000. During the year, Wale Plc had sold GH¢2,500,000 of these goods for GH¢3,750,000.
The current accounts of the two companies were reconciled at the year-end with Wale Plc owing Chicha Plc GH¢187,500.
The goodwill was reviewed for impairment at the end of the reporting period and had suffered an impairment loss of GH¢75,000, which is to be treated as an operating expense.
Chicha Plc’s and Wale Plc’s retained earnings as at 1 April 2022 were GH¢4,131,250 and GH¢1,350,000, respectively. No dividends were paid or declared by either entity during the year.
It is the group policy to value the non-controlling interest at acquisition at fair value. The directors valued the non-controlling interest at GH¢625,000 at the date of acquisition.
Revenues and profits should be deemed to accrue evenly throughout the year.

Required:
Prepare for Chicha Plc a Consolidated Statement of Profit or Loss for the year ended 31 March 2023 and Statement of Financial Position as at 31 March 2023.

Answer

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Tags: Consolidation, Financial Position, Goodwill, Group Financial Statements, Intragroup Transactions, Non-Controlling Interest, Profit or Loss
Level: Level 2

Topic: Group Financial Statements and Consolidation
Series: MAR 2024

FR – Nov 2016 – L2 – Q1b – Group Financial Statements and Consolidation

Explain the elements of control an investor must have over an investee as outlined in IFRS 10 Consolidated Financial Statements.

Question

IFRS 10 Consolidated Financial Statements outlines the requirements for the preparation and presentation of consolidated financial statements, requiring entities to consolidate entities it controls.

Required:
Explain and justify how IFRS 10 Consolidated Financial Statements determines elements of control of an investor over an investee.

Answer

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Tags: Consolidation, Control, IFRS 10, Investor-Investee
Level: Level 2

Topic: Group Financial Statements and Consolidation
Series: NOV 2016

FR – Nov 2016 – L2 – Q1a – Group Financial Statements and Consolidation

Prepare the consolidated statement of financial position for Bantama Ltd Group as at 30 September 2016, with provided details of acquisition and adjustments.

Question

Bantama Ltd acquired six million of Abrepo Ltd’s ordinary shares on 1 April 2016 for an agreed consideration of GH¢25 million. The consideration was settled by a share exchange of five new shares in Bantama Ltd for every three shares acquired in Abrepo Ltd, and a cash payment of GH¢5 million. The cash transaction has been recorded, but the share exchange has not been recorded.

The draft statements of financial position of the two companies as at 30 September 2016 are:

Additional information:

The fair value of Abrepo Ltd’s land at the date of acquisition was GH¢4 million in excess of its carrying value. Abrepo Ltd’s financial statements contain a note of a contingent asset for an insurance claim of GH¢800,000 relating to some inventory that was damaged by a flood on 5 March 2016. The insurance company is disputing the claim. Bantama Ltd has taken legal advice on the claim and believes that it is highly likely that the insurance company will settle it in full in the near future.
At the date of acquisition, Bantama Ltd sold an item of plant that had cost GH¢2 million to Abrepo Ltd for GH¢2.4 million. Bantama Ltd has charged depreciation of GH¢240,000 on this plant since it was acquired.
Bantama Ltd’s current account debit balance of GH¢820,000 with Abrepo Ltd does not agree with the corresponding balance in Abrepo Ltd’s books. Investigations revealed that on 26 September 2016, Bantama Ltd charged Abrepo Ltd GH¢200,000 for its share of central administration costs. Abrepo Ltd has not yet recorded this invoice. Intercompany current accounts are included in accounts receivable or payable as appropriate.
Abrepo Ltd paid a dividend of GH¢400,000 on 30 September 2016. The profit and dividend of Abrepo Ltd are deemed to accrue evenly throughout the year. Abrepo Ltd’s retained earnings of GH¢8.8 million for the year to 30 September 2016 as shown in its statement of financial position are after the deduction of the dividend. Bantama Ltd’s policy is to credit to income only those dividends received from post-acquisition profits. Bantama Ltd has not yet accounted for the dividend from Abrepo Ltd. The cheque has been received but not banked.
At the year-end, an impairment review was carried out on the consolidated goodwill arising from the acquisition of Abrepo Ltd, and an impairment loss of GH¢595,000 was identified. No adjustment has yet been made for this. It is group policy to value non-controlling interest at acquisition at its proportionate share of the fair value of the subsidiary’s identifiable net assets.

Required:

Prepare the consolidated statement of financial position of Bantama Ltd group as at 30 September 2016.

Answer

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Tags: Consolidation, Goodwill, Impairment, Intragroup Transactions, Non-Controlling Interest
Level: Level 2