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

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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)

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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 – May 2018 – L2 – Q1 – Group Financial Statements and Consolidation

Prepare the consolidated statement of profit or loss for Tamale Ltd for the year ended 30 September 2017 after acquisition of Navrongo Ltd.

Question

On 1 April 2017, Tamale Ltd acquired 60% of the 4 million ordinary shares of Navrongo Ltd in a share exchange of two shares in Tamale Ltd for three shares in Navrongo Ltd. The issue of shares has not yet been recorded by Tamale Ltd. At the date of acquisition, shares in Tamale Ltd had a market value of GH¢6 each. Below are the summarised draft financial statements of both companies.

Statements of Profit or Loss for the year ended 30 September 2017

	Tamale Ltd (GH¢’000)	Navrongo Ltd (GH¢’000)
Revenue	85,000	42,000
Cost of Sales	(63,000)	(32,000)
Gross Profit	22,000	10,000
Distribution Cost	(2,000)	(2,000)
Administrative Expenses	(6,000)	(3,200)
Finance Cost	(300)	(400)
Profit Before Tax	13,700	4,400
Income Tax Expense	(4,700)	(1,400)
Profit for the Year	9,000	3,000

Statements of Financial Position as at 30 September 2017

	Tamale Ltd (GH¢’000)	Navrongo Ltd (GH¢’000)
Assets
Non-Current Assets
Property, Plant and Equipment	40,600	12,600
Current Assets	16,000	6,600
Total Assets	56,600	19,200
Equity and Liabilities
Ordinary Shares	10,000	4,000
Retained Earnings	35,400	6,500
Equity	45,400	10,500
Non-Current Liabilities
10% Loan Notes	3,000	4,000
Current Liabilities	8,200	4,700
Total Equity and Liabilities	56,600	19,200

The following information is relevant:

i) At the date of acquisition, the fair values of Navrongo Ltd’s assets were equal to their carrying amounts with the exception of an item of plant, which had a fair value of GH¢2 million in excess of its carrying amount. It had a remaining life of five years at that date (straight-line depreciation is used). Navrongo Ltd has not adjusted the carrying amount of its plant as a result of the fair value exercise.

ii) Sales from Navrongo Ltd to Tamale Ltd in the post-acquisition period were GH¢8 million. Navrongo Ltd made a markup on cost of 40% on these sales. Tamale Ltd had sold GH¢5.2 million (at cost) as at 30 September 2017.

iii) Other than where indicated, profit or loss items are deemed to accrue evenly on a time basis.

iv) Navrongo Ltd’s trade receivables at 30 September 2017 include GH¢600,000 due from Tamale Ltd which did not agree with Tamale Ltd’s corresponding trade payable. This was due to cash in transit of GH¢200,000 from Tamale Ltd to Navrongo Ltd. Both companies have positive bank balances.

v) Tamale Ltd has a policy of accounting for any non-controlling interest at fair value. The fair value of the non-controlling interest in Navrongo Ltd at the date of acquisition was estimated to be GH¢5.9 million. Consolidated goodwill was not impaired at 30 September 2017.

Required:
a) Prepare the consolidated statement of profit or loss for Tamale Ltd for the year ended 30 September 2017.

(8 marks)

b) Prepare the consolidated statement of financial position for Tamale Ltd as at 30 September 2017.

(12 marks)

Answer

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Tags: Consolidation, Intercompany transactions, Non-Controlling Interest, Profit or Loss, Subsidiary
Level: Level 2

Topic: Group Financial Statements and Consolidation
Series: MAY 2018

FR – Aug 2022 – L2 – Q5c – Group Financial Statements and Consolidation

Explain how liabilities related to restructurings or exit activities and contingencies of an acquiree should be dealt with at the acquisition date under IFRS 3.

Question

In line with IFRS 3 (Business Combinations), explain how the following items of an acquiree should be dealt with at the acquisition date:

i) Liabilities related to restructurings or exit activities (3 marks)
ii) Contingencies (2 marks)

Answer

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Level: Level 2

Topic: Group Financial Statements and Consolidation
Series: AUG 2022

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

Preparation of consolidated statement of financial position for Adanse Group, considering intercompany transactions, fair value adjustments, and goodwill impairment.

Question

Below are the statements of financial position of two entities: Adanse Plc (Adanse) and Fomena Plc (Fomena).

Statement of financial position as at 31 August 2021

Additional information:
i) All ordinary shares were issued at GH¢2 per share. There have been no movements in the share capital of Fomena since its acquisition.
ii) On 1 September 2020, Adanse acquired 80% ordinary shares in Fomena when Fomena’s retained earnings balance was GH¢45 million. The purchase and sale agreement provided that the shares should be settled as follows:

Immediate issue of Adanse’s 25 million 15% cumulative redeemable preference shares, issued at GH¢3 per share. Adanse has not yet recorded this consideration.
Immediate transfer of a parcel of land with a carrying amount and fair value of GH¢17 million and GH¢20 million respectively. Adanse has only debited “Investment in shares” and credited “Property, Plant and Equipment” with the carrying amount of the land.

Goodwill in Fomena has been impaired by 10%. Goodwill is valued using full fair value method. Each ordinary share of Fomena had a fair market price of GH¢6 at acquisition and GH¢7.5 at the current year-end.

iii) At acquisition date, the carrying amount of Fomena’s identifiable net assets were equal to their fair value except the following two items:

Intangible asset (purchased franchise right) has a fair value of GH¢12 million and carrying amount of GH¢8 million. Its remaining useful life was estimated at 5 years. The recoverable amount of the right at 31 August 2021 was estimated at GH¢9 million. Fomena has not incorporated the fair values in its separate financial statements. (Ignore deferred tax for this adjustment)
An item of equipment has its fair value of GH¢5 million in excess of its carrying amount. It had a remaining useful life of 5 years. This fair value adjustment should be deemed as a temporary difference which suffers tax of 20%.

iv) Fomena sold goods to Adanse for GH¢3.2 million in July 2021. Adanse held a half of these items in its year-end inventory. Fomena bought the goods sold to Adanse for GH¢5 million from an outside supplier. At year-end, Fomena still owed the supplier 40% of the purchase cost. At year-end, Adanse did not owe Fomena in respect of the above transactions. All items were in good condition at the date of transfer. Ignore any deferred tax implications.

v) Adanse accounts for all passive equity investments at fair value through other comprehensive income. The fair value of Adanse’s investment in Fomena was GH¢110 million as at 31 August 2021.

Required:
Prepare a Consolidated Statement of Financial Position as at 31 August 2021.

Answer

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Level: Level 2

Topic: Group Financial Statements and Consolidation
Series: AUG 2022

FR – Nov 2018 – L2 – Q1b – Group Financial Statements and Consolidation

Preparation of consolidated statement of profit or loss for Faisal Group including two subsidiaries.

Question

b) You are the Financial Accountant of Faisal Ltd (Faisal), a Ghanaian listed company, involved in food retailing. During 2017, Faisal acquired interests in Zaytuna Ltd (Zaytuna) and Medeama Ltd (Medeama). The Statement of profit or loss for Faisal, Zaytuna, and Medeama for the year ended 31 December 2017 are as follows:

Statement of profit or loss for the year ended 31 December 2017

	Faisal (GH¢’million)	Zaytuna (GH¢’million)	Medeama (GH¢’million)
Revenue	450	150	75
Cost of sales	(300)	(90)	(45)
Gross profit	150	60	30
Operating expenses	(25)	(15)	(5)
Operating profit	125	45	25
Interest and similar charges	(15)	(5)	(1)
Profit on ordinary activities before taxation	110	40	24
Income tax expense	(27.5)	(10)	(6)
Profit on ordinary activities after taxation	82.5	30	18
Retained earnings at start of year	117.5	45	7
Retained earnings at end of year	200	75	25

Additional information:

On 1 April 2017, Faisal purchased 12 million of the 15 million GH¢1 ordinary shares in Zaytuna at a cost of GH¢8 per ordinary share. At the date of acquisition, the fair values of Zaytuna’s net assets were equal to their book value with the exception of property, the details of which are as follows:
Zaytuna Property Details:

Description GH¢’million

Cost 75

Accumulated depreciation at 1 January 2017 (6)

Net book value at 1 January 2017 69

The property, which had a useful economic life of 25 years on 1 January 2015, is in a prime commercial location and has increased dramatically in value since it was purchased by Zaytuna on 1 January 2015. The replacement cost of a similar building, with a similar remaining useful economic life at 1 April 2017, is GH¢100 million. The fair value at acquisition has not been reflected in the records of Zaytuna.
On 1 July 2017, Faisal purchased 4 million of the 10 million GH¢1 ordinary shares in Medeama at a cost of GH¢6 per ordinary share. At the date of acquisition, the fair values of Medeama’s net assets were equal to their book value with the exception of property that had a fair value of GH¢9 million in excess of its book value and a remaining useful life of four years.
In August 2017, Faisal sold goods to Zaytuna for GH¢7.5 million, and 20% of these goods remained unsold at 31 December 2017. Faisal prices its sales at cost plus 50%.
On 23 January 2018, Faisal sold its former head office administrative building for GH¢1.25 million. At 31 December 2017, the building was for sale and unoccupied, with staff having moved to a new premises. The book value of the building in the statement of financial position of Faisal as at 31 December 2017 was GH¢2 million.
Each company charges depreciation on a time-apportionment basis to operating expenses.
The directors of Faisal believe that any goodwill arising on the acquisition of Zaytuna and Medeama has been impaired by 25% as at 31 December 2017. The directors have a policy of measuring non-controlling interests at the proportionate share of identifiable net assets.

Description	GH¢’million
Cost	75
Accumulated depreciation at 1 January 2017	(6)
Net book value at 1 January 2017	69

(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:

Prepare the consolidated statement of profit or loss account of Faisal Group for the year ended 31 December 2017 in accordance with International Financial Reporting Standards (IFRS). (16 marks)

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Tags: Consolidated Statement of Profit or Loss, Consolidation, Subsidiaries
Level: Level 2

Topic: Group Financial Statements and Consolidation
Series: NOV 2018

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

Preparation of Consolidated Statement of Financial Position for Sunyani Group Ltd and its subsidiaries.

Question

Sunyani Ltd (Sunyani) is a limited liability company based in Brong Ahafo. It has shareholdings in two other companies, Berekum Ltd (Berekum) and Jinijini Ltd (Jinijini). Sunyani bought 150 million ordinary shares in Berekum on 1 August 2016, when the retained earnings of Berekum were GH¢22 million. The consideration was agreed at GH¢110 million for these shares.

On 1 August 2017, Sunyani bought a 40% holding in the ordinary shares of Jinijini when the retained earnings balance in Jinijini’s books stood at GH¢26 million. The consideration was an immediate cash payment of GH¢25 million. The directors of Sunyani negotiated the right to appoint 4 directors to Jinijini’s 12-person board as a result of its investment.

Statements of Financial Position are shown below for all three companies as at 31 July 2018.

Statements of Financial Position as at 31 July 2018:

Additional Information:

i) At the date of acquisition, Sunyani conducted a fair value exercise on Berekum’s net assets, which were equal to their carrying amounts with the following exceptions:

A property held by Berekum had a fair value GH¢10 million in excess of its carrying value. 75% of the value of this property relates to buildings with a useful economic life of 10 years at the date of acquisition.
Berekum had an unrecorded deferred tax liability of GH¢7 million, which was unchanged as at 31 July 2018.

ii) Sunyani’s policy is to value any Non-Controlling Interests (NCI) at their proportionate share of identifiable net assets at the acquisition date.

iii) Immediately after the acquisition, Berekum issued GH¢40 million of 6% loan notes, GH¢8 million of which were bought by Sunyani Ltd. This investment has been correctly recorded in the books of Sunyani under the heading “Investments.” All interest due on loan notes as at 31 July 2018 has been paid and recorded.

iv) During the financial year ended 31 July 2018, Berekum had sold goods to Sunyani amounting to GH¢30 million. The purchase price included a mark-up of 20% on cost. Berekum’s normal mark-up on goods sold is 60%. Of these goods, one-quarter remained in the closing inventory of Sunyani at the reporting date.

v) Sunyani has not accounted for any dividend receivable from its group companies. Both Sunyani and Jinijini have proposed dividends as shown in current liabilities. Jinijini’s proposed dividend relates entirely to the post acquisition period. No other dividends were paid or proposed in the year.

vi) Recorded in the books of Sunyani was an intra-group trade payable of GH¢10 million owed to Berekum at year-end. However, the books of Berekum showed a balance of GH¢11 million owed by Sunyani. It transpired that Berekum’s computer system had automatically charged to Sunyani’s account, interest of GH¢1 million due to late payments. It was subsequently agreed that Berekum would waive this interest.

vii) There were no impairment losses during the year end 31 July 2018.

(All workings may be rounded to the nearest GH¢0.01m)

Required: Prepare the Consolidated Statement of Financial Position for the Sunyani group as at 31 July 2018 in accordance with International Financial Reporting Standards.

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Tags: Associates, consolidated financial statements, Consolidation Adjustments, Goodwill, Non-Controlling Interest, Subsidiaries
Level: Level 3

Topic: Group Financial Statements and Consolidation
Series: MAY 2019

FR – Nov 2015 – L2 – Q5 – Group Financial Statements and Consolidation

This question involves calculating goodwill on acquisition and preparing a consolidated statement of profit or loss for VM Ltd for the year ended 30 September 2012, including intragroup adjustments.

Question

On 1 January 2012, VM Ltd acquired 18 million of the equity shares of GR Ltd in a share exchange in which VM Ltd issued two new shares for every three shares it acquired in GR Ltd. This gave VM Ltd a holding of 90%. Additionally, on 31 December 2012, VM Ltd will pay the shareholders of GR Ltd GHS 1.76 per share acquired. VM Ltd’s cost of capital is 10% per annum.

At the date of acquisition, shares in VM Ltd and GR Ltd had market prices of GHS 6.50 and GHS 2.50 each, respectively.

STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 30 SEPTEMBER 2012

Description	VM (GHS ‘000)	GR (GHS ‘000)
Revenue	129,200	76,000
Cost of sales	(102,400)	(52,000)
Gross profit	26,800	24,000
Distribution costs	(3,200)	(3,600)
Administrative expenses	(7,600)	(4,800)
Investment income	1,000	–
Finance costs	(840)	–
Profit before tax	16,160	15,600
Income tax expense	(5,600)	(3,200)
Profit for the year	10,560	12,400

Equity as at 1 October 2011

Description	VM (GHS ‘000)	GR (GHS ‘000)
Stated capital	120,000	30,000
Income surplus	108,000	70,000

The following information is relevant:

(i) At the date of acquisition, the fair values of GR Ltd’s assets and liabilities were equal to their carrying amounts with the exception of two items:

An item of plant had a fair value of GHS 3.6 million above its carrying amount. The remaining life of the plant at the date of acquisition was three years. Depreciation is charged to cost of sales.
GR Ltd had a contingent liability which VM Ltd estimated to have a fair value of GHS 900,000. This has not changed as at 30 September 2012.

GR Ltd has not incorporated these fair value changes into its financial statements.

(ii) VM Ltd’s policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose, GR Ltd’s share price at the date can be deemed to be representative of the fair value of the shares held by the non-controlling interest.

(iii) Sales from VM Ltd to GR Ltd throughout the year ended 30 September 2012 had consistently been GHS 1.6 million per month. VM Ltd made a mark-up of 25% on these sales. GR Ltd had GHS 3 million of these goods in inventory as at 30 September 2012.

(iv) VM Ltd’s investment income is a dividend received from its investment in a 40% owned associate, which it has held for several years. The underlying earnings for the associate for the year ended 30 September 2012 were GHS 4 million.

(v) Although GR Ltd has been profitable since its acquisition by VM Ltd, the market for GR Ltd’s product has been badly hit in recent months, and VM Ltd had calculated that the goodwill has been impaired by GHS 4 million as at 30 September 2012.

Required:

(a) Calculate the goodwill on acquisition of GR Ltd.
(5 marks)

(b) Prepare the consolidated statement of profit or loss for VM Ltd for the year ended 30 September 2012.
(15 marks)

(Total: 20 marks)

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Tags: Associate, consolidated financial statements, Consolidation, Fair value adjustment, Finance Costs, Goodwill, Group Structure, Intragroup Sales, Non-Controlling Interest, Unrealized profit
Level: Level 3