GROUP ACCOUNTS

Regulatory Framework
1. Companies Code, 1963 Act 179 s127 and Part III of 4th Schedule
2. Accounting Standards
a. IFRS 3 - Business Combinations
b. IFRS 10 - Consolidated Financial Statements
c. IAS 27 - Separate Financial Statements
d. IAS 28 - Investments in Associates and Joint Ventures

Bases for Group Accounts

≤ 20% → Trade Investment
> 20% ≤ 50% → Associated Company
> 50% → Subsidiary

Identifying a Business Combination / Scope

A business combination is transaction or event in which acquirer obtains control over a business (e.g.
acquisition of shares or net assets, legal mergers, reverse acquisitions).

IFRS 3 does not apply to:

 Formation of a joint venture
 Acquisition of an asset or group of assets that is not a business
 A combination of entities or businesses under common control.

Exclusion of a Subsidiary from Group Account

Companies Code
a. Impracticable
b. Materiality / Significance
c. Cost Benefit: - monetary
- Time
d. Dissimilar activities
e. Misleading or harmful results

Exemption of Parent Company (IFRS 10 - Consolidated Financial Statements)

A parent is required to present consolidated financial statements, except if:

a. It meets all the following conditions:

- It is a subsidiary of another entity and all its other owners, including those not otherwise entitled
to vote, have been informed about, and do not object to, the parent not presenting consolidated
financial statements
- Its debt or equity instruments are not traded in a public market
- It did not, nor is in the process of filing, financial statements for the purpose of issuing
instruments to the public
- Its ultimate or any intermediate parent produces IFRS compliant consolidated financial
statements available for public use.

b. It is a post or long term-employment benefit plan to which IAS 19 Employee Benefits applies

c. It meets the criteria of an investment entity.

Definition of ‘control of an investee’

An investor controls an investee when the investor is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to affect those returns through its power over the
investee.
Evidence of Control (General)
a. Investment of more than 50% equity shares of the subsidiary company.
b. Power to cast majority of votes.
c. Power to govern the financial and the operating policies of the enterprise.
d. Power to appoint or remove the majority of directors.
e. Power over more than 50% of the voting rights at board of directors meetings.

Evidence of Control (IFRS 10)

An investor determines whether it is a parent by assessing whether it controls the investee. An investor
controls an investee if it has all of the following:
a. Power over the investee
b. Exposure, or rights, to variable returns from its involvement with the investee
c. The ability to use its power, to affect the amount of the investor’s returns.

Goodwill (IFRS 3)
Goodwill is recognised as the excess between:
- The aggregate of the consideration transferred, any non-controlling interest in the acquiree and, in a
business combination achieved in stages, the acquisition-date fair value of the acquirer’s previously
held equity interest in the acquiree
- The identifiable net assets acquired (including any deferred tax balances).

a. Goodwill can be grossed up to include the amounts attributable to NCI

b. It should not be amortised
c. Positive Goodwill should be included in non-current assets.
d. Negative Goodwill should be treated as income in the Income Statement.

Proposed Dividend as Post Balance Sheet Event (IAS 10)

Dividends that are declared after reporting date are non-adjusting events.

Consolidated Statement of Financial Position

The consolidation imply that the assets, liabilities and post-acquisition surpluses of the parent company
and its subsidiaries are added line by line for each element of assets, liabilities and surpluses

Note that the group balance sheet must eliminate all intergroup balances e.g.:
- Cost of investment in the parent account and capital in the subsidiary’s balance sheet.
- Debtors and creditors for intergroup sales and purchases and intergroup dividend receivable and
payable.
- Unrealized profit on stocks arising from intergroup purchases.
- Items in transit

Non-Controlling Interests
 A parent presents non-controlling interests in the consolidated statement of financial position within
equity, separately from the equity of the owners of the parent
 Changes in a parent’s ownership interest in a subsidiary that do not result in the parent losing control
of the subsidiary are equity transactions.

Steps in Consolidated Statement of Financial Position

A business combination must be accounted for by applying the acquisition method.

Step 1: Ascertain the group structure.

a. Identify Acquirer
b. Determine the Acquisition Date: The date which the acquirer obtains control of the acquiree.

Step 2: Analyse all surpluses in PRE and POST acquisition surpluses.

Determine the effective date that each of the subsidiaries became an effective member of the
group. The surpluses existing on that date is called Pre-Acquisition Surplus.
 To determine the post-acquisition for each subsidiary we deduct the adjusted pre-acquired on the
date of acquisition.

Step 3: Computation of Goodwill

Goodwill is computed as the cost of investment plus fair value of NCI at acquisition less the fair
value of the net assets acquired on the date of acquisition.

Cost of investment represents the purchase consideration paid by the parent company to acquire
interests in the subsidiaries.

Fair value of net assets acquired consists of pre-acquisition capital and surpluses modified by fair
value adjustment.

Step 4: Computation of Non-Controlling Interest

NCI is that part of the net assets of the subsidiary at the balance sheet date that is attributable
directly or indirectly to members outside the group.

It is the minority’s % on the equity shares of the subsidiary multiplied by the net assets of the
subsidiary at the balance date adjusted by any minority share in the cost of investment of a sub-
subsidiary.

If there is any preference shares issued by a subsidiary to people outside the group these will
become part of the minority interest.

Step 5: Computation of Group Surpluses

Each of the existing surpluses will have to be consolidated separated. To obtain the group
surplus you start with the parent company’s balance at the balance sheet date in respect of that
particular surplus and add the group share of the post-acquisition surpluses of the subsidiaries.

Step 6: Computation of Group Interest in Associates Undertaking. (N/A)

Step 7: Compilation of Consolidated Statement of Financial Position

Assemble all assets, liabilities, capital and surpluses applying the principles already discussed.

May 2012 Q1 P3
IAS 27 “Consolidated and separate financial statements” provides circumstances in which an entity can
be said to have control over another (subsidiary).

Required:
i. Outline five (5) conditions that are indicative of the existence of control. (5 marks)

ii. The statement of financial position as at 31 December 2011, of Tarsco Ltd and its subsidiary company
Angel Ltd are summarized below:

Tarsco Ltd Angel Ltd

GH¢ GH¢
Intangible Assets - 5,000.00
Property, Plant and Equipment 70,000.00 62,000.00
Investment in Angel Ltd 30,000.00 -
100,000.00 67,000.00
 Tarsco Ltd Angel Ltd
GH¢ GH¢
Intangible Assets - 5,000.00
Property, Plant and Equipment 70,000.00 62,000.00
Investment in Angel Ltd 30,000.00 -
100,000.00 67,000.00
Current Assets

Tarsco Ltd Angel Ltd

GH¢ GH¢
Intangible Assets - 5,000.00
Property, Plant and Equipment 70,000.00 62,000.00

Tarsco Ltd Angel Ltd

GH¢ GH¢
Intangible Assets - 5,000.00
Property, Plant and Equipment 70,000.00 62,000.00
Investment in Angel Ltd 30,000.00 -
100,000.00 67,000.00
Current Assets
Inventory 30,000.00 45,000.00
Trade Receivables 62,500.00 52,500.00
Current Account – Angel Ltd 10,000.00
Bank 50,000.00

Additional Information
1. Tarsco Ltd acquired 15,000 ordinary shares in Angel Ltd on 1 January 2008. The price paid was GH
¢30,000. The balance on Angel Ltd’s Income Surplus at the date of acquisition by Tarsco Ltd was GH
¢12,500.

2. On 31 December 2011, there was cash in transit from Angel Ltd to Tarsco Ltd of GH¢5,000.

3. On 31 December 2011 the inventory of Angel Ltd included GH¢12,000 of goods purchased from
Tarsco Ltd. Tarsco Ltd had invoiced these goods at cost plus 25%.

4. Tarsco Ltd has not yet recognized its dividend receivable from Angel Ltd at 31 December 2011.

5. It is the policy of the group to value Non-controlling interest at fair value. The market price of a
share of Angel Ltd immediately prior to date of acquisition was GH¢2.00.

6. Goodwill has been impaired since acquisition to the tune of GH¢2,000.

7. The carrying value of the assets of Angel on the date of acquisition approximated their fair values
except a capitalized research cost included in the Intangible Assets at a value of GH¢2,500. The
policy of Tarsco Ltd, in line with ISA 38, is to write off such expenses as they arise.

Required:
Prepare a Consolidated Statement of Financial Position for Tarsco Ltd Group as at 31 December 2011.
(15 marks)
(Total: 20 marks)

Solution
i.
 The power to govern the financial and operating policies of an entity.
 Ownership of more than 50% of the ordinary shares in the investee entity;
 Casting more than half of the voting rights because of an agreement with other investors;
 Governing the financial and operating policies of the entity by law or by agreement;
 Appointment or removal of the majority of the members of the board of directors and control of the
entity is by that board;
 Casting the majority of votes at a meeting of the board of directors and control is exercised by that
board

Group Structure
Tarsco Ltd
15,000
75% ( )
20,000

Angel Ltd

Group Interest Non-Controlling Interest Total

Angel Ltd 75% 25% 100%

Analysis of Pre and Post Acquisition Profit

Tarsco Ltd 1/1/2008 31/12/2011

Income Surplus
GH¢52,500
Angel Ltd
Income Surplus
GH¢12,500- GH¢2,500 GH¢27,500 - GH¢2,500
GH¢15,000(Post acquisition)

Computation of Goodwill GH¢ GH¢

Cost of Investment 30,000
Fair value of NCI at acquisition (GH¢2 x 5,000) 10,000
40,000
Less Fair Value of Net Assets Acquired
Stated Capital 20,000
Income Surplus 10,000 30,000
Gross Goodwill at acquisition 10,000
Less Goodwill impaired (2,000)
Goodwill at year end 8,000

Apportionment of Impairment Loss

Dr Parent (75% x 2,000) 1,500
Dr NCI 500
Cr Goodwill 2,000

Unrealized Profit on Inventory (URP)

URP = 25/125 x 12,000
= 2,400

DR Consolidated income surplus 2,400

CR Inventory 2,400

NCI at Year End

Net assets of NCI at year end GH¢
 Stated Capital 20,000
Income Surplus 25,000
45,000

NCI 25% x 45,000 11,250

Goodwill attributable to NCI (2,500 – 500) 2,000
13,250

Consolidated Income Surplus ` GH¢

Parent 52,500
Share of post-acquisition reserves ([27,500-2,500] – [12,500-2,500]) x 75% 11,250
Share of dividend receivable 75% x 2,000 1,500
Share of impairment lost 75% x 2,000 (1,500)
Unrealized profit on inventory (2,400)
61,350

Tarsco Ltd
Consolidated Statement of Financial Position as at 31/12/2011
GH¢ GH¢
Non-Current Assets
Intangible assets (5,000 – 2,500) 2,500.00
Goodwill 8,000.00
Property Plant & Equipment (70,000 + 62,000) 132,000.00
142,500.00
Current Assets
Inventory [(30,000 + 45,000 – 2,400 (URP)] 72,600.00
Receivables (62,000 + 52,500) 115,000.00
Bank (50,000 + 5,000) 55,000.00 242,600.00
Total assets 385,100.00

GH¢ GH¢
Non-Current Assets
Intangible assets (5,000 – 2,500) 2,500.00
Goodwill 8,000.00
Property Plant & Equipment (70,000 + 62,000) 132,000.00
142,500.00
Current Assets
Inventory [(30,000 + 45,000 – 2,400 (URP)] 72,600.00
Receivables (62,000 + 52,500) 115,000.00
Bank (50,000 + 5,00) 55,000.00 242,600.00
Total assets 385,100.00

Equity and Liabilities

Share capital 100,000.00

Accounting for Associate and Joint Ventures pg. 185

The statements of financial position of J Co and its investment companies, P Co and S Co at 31
December, 20X5 are shown below

STATEMENT OF FINANCIAL POSITION AS AT

31 DECEMBER 20X5
J Co P Co S Co
GH¢'000 GH¢'000 GH¢'000
Non-Current Assets
Freehold Property 1,950 1,250 500
Plant and Machinery 795 375 285
Investment 1,500 - -
4,245 1,625 785
Current Assets
Inventory 575 300 265
Trade Receivables 330 290 370
Cash 50 120 20
955 710 655

Total Assets 5,200 2,335 1,440

Equity and Liabilities

Equity
Share Capital 2,000 1,000 750
Income Surplus 1,460 885 390
3,460 1,885 1,140
Non-current Liabilities
12% loan stock 500 100

Current Liabilities
Trade Payables 680 350 300
Bank Overdraft 560
1,240 350 300

Total Equity and Liabilities 5,200 2,335 1,440

Additional information
(a) J Co acquired 60% of the ordinary shares in P Co on 1 January 20X0 for GH¢1,000,000 when the
income surplus of P Co were GH¢200,000

(b) At the date of acquisition of P Co, the fair value of its freehold property was considered to be
GH¢400,000 greater than its value in P Co’s statement of financial position. P Co had acquired the
property in January 20W0 and the buildings element (50% of the total value) is depreciated on cost
over 50 years.

(c) J Co acquired 30% of the ordinary shares in S Co on 1 January 20X4 for GH¢500,000 when the
income surplus of S Co were GH¢150,000.

(d) P Co manufactures a component used by both J Co and S Co. Transfers are made by P Co at cost
plus 25%. J Co held GH¢100,000 inventory of these components at 31 December 20X5. In the same
period J Co sold goods to S Co of which S Co had GH¢80,000 in inventory at 31 December 20X5. J Co
had marked these goods up by 25%.
(e) The goodwill in P Co is impaired and should be fully written off. An impairment loss of GH¢92,000
is to be recognised on the investment in S Co.

(f) Non-controlling interest is valued at full fair value. P Co shares were trading at GH¢1.60 just prior
to the acquisition by J Co.

Required
Prepare, in a format suitable for inclusion in the annual report of the J Group, the consolidated statement
of financial position at 31 December 20X5.

Solution

Group Structure
J Co
60% 30%

P Co S Co.

Group Interest Non-Controlling Interest Total

P Co. 60% 40% 100%
S Co. 30% 70% 100%

Analysis of Pre and Post Acquisition Profit

J Co. 1/1/x0 1/1/x4 31/12/X5

Income Surplus
GH¢1,460
P Co.
Income Surplus
GH¢200+400 GH¢885+400-30-20 = 1,235
GH¢685
(30)
(20) = 635
S Co.
Income Surplus
GH¢150 GH¢390
GH¢240(Post acquisition)

Additional Depreciation = GH¢400 x 50% ÷ 40[x0-w0] x 6 yrs = GH¢30

The unrealised profit in inventory P Co. = GH¢100 x 25/125 = GH¢20

J Co. = GH¢80 x 25/125 x 30% = GH¢4.8

Computation of Goodwill GH¢ GH¢

Cost of Investment 1,000
Fair value of NCI at acquisition (GH¢1.6x 400) 640
1,640
Fair Value of Net Assets Acquired
Stated Capital 1,000
Income Surplus 600 1,600
Gross Goodwill at acquisition 40
Goodwill impaired (40)
Goodwill at year end - .
NCI at Year End
Net assets of NCI GH¢
Stated Capital 1,000
Income Surplus 1,235
Impairment Loss (40)
2,195
NCI 40% x 2,195 878

Investment in Associate
Cost of Investment 500
Share of post-acquisition reserves 240 x 30% 72
The unrealised profit (4.80)
Impairment Loss (92)
475.20

Consolidated Income Surplus ` GH¢

Parent 1,460
Share of post-acquisition reserves P Co ([635-40] x 60%) 357
S Co (240 x 30%) 72
Impairment lost - S Co. (92)
Unrealized profit on inventory - S Co. (4.8)
1,792.20

Consolidated Statement of Financial Position as at 31/12/20x5

GH¢'000
Non-Current Assets
Freehold Property (1950 + 1250 + 400 -30) 3,570.00
Plant & Machinery (795 + 375) 1,170.00
Investment in Associate 475.20
5,215.20
Current Assets
Inventory [(575 + 300 – 20 (URP)] 855.00
Receivables (330 + 290) 620.00
Cash (50 + 120) 170.00
1,645.00

Total assets 6,860.20

Equity and Liabilities

Share capital 2,000.00
Income surplus 1,792.20
NCI 878.00
4,670.20

Non-Current Liabilities
Loan Stock (500 + 100) 600.00

Current Liabilities
Trade payables (680 + 350) 1,030.00
Bank overdraft 560.00
2,190.00

6,860.20

Nov 2012 Q2 P3
Happy ltd acquired 90% of the equity shares in Joy ltd on 1st July, 2011 for GH¢100,000.

The draft financial statements of the parent company and its subsidiary for the year ended 30 th June,
2012 is as follows:

Statement of Financial Position as at 31st Dec., 2011

Tomah Ltd GH¢

Non Current Asset:
Property, Plant & Machinery

Current Assets:
Inventories 12,000.00
Account Receivables 37,500.00
Bank & Cash on hand 500.00
50,000.00
Current Liabilities:
Payables (22,605.00)
Net current assets

Statement of Financial Position as at 31st Dec., 2011

Tomah Ltd GH¢

Non Current Asset:
Property, Plant & Machinery 190,000.00

Current Assets:
Statement of Financial Position as at 31st Dec., 2011

Tomah Ltd GH¢

Non Current Asset:
Property, Plant & Machinery 190,000.00

Current Assets:
Inventories 12,000.00
Account Receivables 37,500.00
Bank & Cash on hand 500.00
50,000.00
Current Liabilities:
Payables (22,605.00)
Net current assets 27,395.00
Total assets less current liabilities 217,395.00

Non Current Liabilities:

Additional information:
i. During the year, Happy Limited sold goods to Joy limited for GH¢2,500. These goods were invoiced
to Joy limited at a margin of 20% and one quarter of the goods remained unsold to external customers
as at 30th June, 2012.

ii. Joy limited sent goods to Happy limited for GH¢4,500. These were invoiced at a mark-up of 50% and
half remained in stock at the reporting date.

iii. At the date of acquisition, the fair value of Joy Ltd’s net assets were equal to the carrying amounts
with the exception of an item of plant that had a fair value of GHC5,000 in excess of its carrying value
and a remaining useful life of four years. Joy limited has not reflected this fair valuation adjustment in
its financial statements.
iv. An impairment review of goodwill at the year revealed a loss of GH¢2,000.

v. Both companies paid dividends during the year. The dividends distributed by Happy limited and Joy
limited were GH¢5,000 and GH¢2,500 respectively.

Required:
Prepare:
a. Consolidated income statements for the year ended 30th June 2012.
b. Consolidated statements of Financial Position as at 30th June 2012.

Solution
Investment took place July 1, 2011.

Group Structure
Happy Ltd
90%

Joy Ltd

Group NCI Total

Joy Ltd 90% 10% 100%

Analysis of Pre and Post Acquisition Profit

Happy 1/7/2011 30/6/2012

Income Surplus
392,250
Joy
Income Surplus
20,000 (37,500-2,500) 55,000
-750 -750
-1,250 -1,250
-2,000 -2,000
31,000 51,000

The unrealised profit (URP) in inventory Happy Ltd = (GH¢2,500/4) x 20/100

= GH¢125

Joy Ltd = (GH¢4,500/2) x 50/150

= GH¢750

Additional Depreciation = GH¢5,000/4 = GH¢1,250

Calculation for Goodwill GH¢ GH¢

Investment at cost 100,000
Less fair value of net assets at acquisition (25,000 + 17,500 + 2,500)
Stated Capital 25,000
Income Surplus 20,000
Revalued Assets adj 5,000
50,000
Group (90% x 50,000) (45,000)
Total goodwill 55,000
Less impairment 2,000
Goodwill c/fwd 53,000
Non-Controlling Interest GH¢
Net assets per statement of financial position
Stated Capital 25,000
Income Surplus (55,000 – 1,250 – 750-2,000) 51,000
Revalued Assets adj 5,000
81,000

NCI 10% x 81,000 8,100

Consolidated Retained Earnings GH¢

Happy Ltd 392,250
The unrealised profit (URP) in inventory (125)
Joy’s post acquisition profit ((31,000- x 90%) 27,900
420,000

Statement of Financial Position as at 31st Dec., 2011

Tomah Ltd GH¢ Yagao Ltd GH¢

Non Current Asset:
Property, Plant & Machinery 190,000.00

Current Assets:
Inventories 12,000.00 26,250.00
Account Receivables 37,500.00 105,000.00
Bank & Cash on hand 500.00 22,000.00
50,000.00 153,250.00
Current Liabilities:
Payables (22,605.00) (117,670.00)
Statement of Financial Position as at 31st Dec., 2011

Tomah Ltd GH¢ Yagao Ltd GH¢

Non Current Asset:
Property, Plant & Machinery 190,000.00
Statement of Financial Position as at 31st Dec., 2011

Tomah Ltd GH¢ Yagao Ltd GH¢

Non Current Asset:
Property, Plant & Machinery 190,000.00

Current Assets:
Inventories 12,000.00 26,250.00
Account Receivables 37,500.00 105,000.00
Bank & Cash on hand 500.00 22,000.00
50,000.00 153,250.00
Current Liabilities:
Payables (22,605.00) (117,670.00)
Net current assets 27,395.00
 Statement of Financial Position as at 31st Dec., 2011

Tomah Ltd GH¢ Yagao Ltd GH¢

Non Current Asset:
Property, Plant & Machinery 190,000.00

Current Assets:
Inventories 12,000.00 26,250.00
Account Receivables 37,500.00 105,000.00
Bank & Cash on hand 500.00 22,000.00
50,000.00 153,250.00

Statement of Financial Position as at 31st Dec., 2011

Tomah Ltd GH¢ Yagao Ltd GH¢

Non Current Asset:
Property, Plant & Machinery 190,000.00

Current Assets:
Inventories 12,000.00 26,250.00
Account Receivables 37,500.00 105,000.00
Bank & Cash on hand 500.00 22,000.00
50,000.00 153,250.00
Current Liabilities:

Nov 2010 Q1 P3
On 1 July 2009, Obra acquired 60% of the equity share capital of Nkwa in a share exchange of two shares
in Obra for three shares in Nkwa. At the date of acquisition shares of` Obra had a market value of GHS6
each. Below are the summarized draft financial statements of both companies.

lncome Statements for the year ended 31 December 2009

GH¢’000 GH¢’000
Revenue 170,000.00 84,000.00
Cost of sales (126,000.00) (64,000.00)
Gross profit 44,000.00 20,000.00
Administration and distribution costs (16,000.00) (10,400.00)
Finance costs (600.00) (800.00)
Profit before tax 27,400.00 8,800.00
Income tax expense (9,400.00) (2,800.00)
Profit for the year 18,000.00 6,000.00

GH¢’000 GH¢’000
Revenue 170,000.00 84,000.00
Cost of sales (126,000.00) (64,000.00)
Gross profit 44,000.00 20,000.00
Administration and distribution costs (16,000.00) (10,400.00)
Finance costs (600.00) (800.00)
Profit before tax 27,400.00 8,800.00
Income tax expense (9,400.00) (2,800.00)
Profit for the year 18,000.00 6,000.00

Statements of financial position as at 31 December 2009

GH¢’000 GH¢’000
Non-current assets
Property, plant and equipment 81,200.00 25,200.00
investment in Nlcwa 19,200.00
Current assets 32,000.00 13,200.00

The following information is relevant:

(i) At the date of acquisition, the fair values of Nkwa’s assets were equal to their carrying amounts with
the exception of an item of plant, which had a fair value of GHS4 million in excess of its carrying
amount. It had a remaining life of five years at that date (straightline depreciation is used). Nkwa has
not adjusted the carrying amount of its plant as a result of the fair value exercise.

(ii) Sales from Nkwa to Obra in the post acquisition period were GHS16 million. Nkwa made a mark up
on cost of 40% on these sales. Obra had sold GHS10.4 million (at cost to Obra) of these goods by 31
December 2009.

(iii) Other than where indicated, income statement items are deemed to accrue evenly on a time basis.
Both companies did not declare dividend for 2009 financial year.

(iv) Obra has a policy of accounting for any non-controlling interest at fair value. For this purpose the
fair value of the goodwill attributable to the non—controlling interest in Nkwa is GHS3 million.
Consolidated goodwill was not impaired at 3l December 2009.

Required:
(a) Prepare the consolidated income statement for Obra for the year ended 31 December 2009.
(8 marks)
(b) Prepare the consolidated statement of financial position for Obra as at 31 December 2009.
(12 marks)
(Total: 20 marks)

Solution

Investment took place July 1, 2009.

Group Structure

Obra
60%

Nkwa
Group NCI Total
Nkwa 60% 40% 100%

Analysis of Pre and Post Acquisition Profit

Obra 1/7/2009 31/12/2009

Income Surplus
GH¢52,800 GH¢18,000 (Post acq.) GH¢70,800
Nkwa
Income Surplus
GH¢10,000+4,000 GH¢3,000 (Post acq.) GH¢13,000 +4,000
- GH¢1,600 - GH¢1,600
- GH¢400 - GH¢400
GH¢1,000 GH¢15,000

The unrealised profit (URP) in inventory = GHS16 million – GHS10.4 million) x 40/140
= GHS1,600,000
Calculation for Goodwill GHS’000
Investment at cost 19,200
Fair value of non-controlling interest 11,800
Cost of the controlling interest 31,000

Less fair value of net assets at acquisition (8,000 + 10,000 + 4,000)

Stated Capital 8,000
Income Surplus 14,000 (22,000)
Total goodwill 9,000

Fair value of non-controlling interest (at acquisition)

Share of fair value of net assets (22,000 x 40%) 8,800
Attributable goodwill per question 3,000
11,800
Current assets GH¢’000
Obra 32,000
Nkwa 13,200
URP in inventory (1,600)
43,600

Consolidated Retained Earnings GH¢’000

Obra 70,800
Nkwa’s post acquisition profit (GH¢1,000 x 60%) 600
71,400

Non-Controlling Interest GH¢’000

Net assets per statement of financial position
Stated Capital 8,000
Income Surplus 15,000
23,000
NCI 40% x 23,000 9,200
Share of goodwill (per question) 3,000
12,200

(a) Obra
Consolidated Income Statement for the year ended 31 December 2009
Obra Nkwa Total
GH¢ GH¢(6/12) GH¢
Sales 170,000.00 42,000.00 212,000.00
Intragroup Sales (16,000.00) (16,000.00)
Group sales 154,000.00 42,000.00 196,000.00

Cost of Sales 126,000.00 32,000.00 158,000.00

Intergroup Purchase (16,000.00) (16,000.00)
URP in inventory 1,600.00 1,600.00
110,000.00 33,600.00 143,600.00

Gross Profit 44,000.00

Obra 8,400.00
Nkwa 52,400.00
Total

Distribution Costs 4,000.00 2,000.00 6,000.00

Admin Expenses 12,000.00 3,200.00 15,200.00
Finance Cost 600.00 400.00 1,000.00
Additional Depreciation 400.00 400.00
 Obra Nkwa Total

Profit before tax 27,400.00 2,400.00 29,800.00

Income Tax Expense (9,400.00) (1,400.00) (10,800.00)
18,000.00 1,000.00 19,000.00
NCI (40% of GH¢1,000) (400.00) (400.00)

Consolidated Statement of Financial Position as at 31 December 2009

GH¢’000
Revenue 170,000.00 84,000.00
Cost of sales (126,000.00) (64,000.00)
Gross profit 44,000.00 20,000.00
Administration and distribution costs (16,000.00) (10,400.00)
Finance costs (600.00) (800.00)
Profit before tax 27,400.00 8,800.00

GH¢’000
Revenue 170,000.00 84,000.00
Cost of sales (126,000.00) (64,000.00)
Gross profit 44,000.00 20,000.00
Administration and distribution costs (16,000.00) (10,400.00)
Finance costs (600.00) (800.00)
Profit before tax 27,400.00 8,800.00
Income tax expense (9,400.00) (2,800.00)
Profit for the year 18,000.00 6,000.00

Statements of financial position as at 31 December 2009