QUESTION –PARENT/WITH SUBSIDIARY AND ASSOCIATE

Below are the separate financial statements of Father Plc and two investee companies which also
operate in the same industry as the investor entity.
Statements of Profit or Loss and Other Comprehensive Income for the year ended 31 December
2023
Father Plc Mother Plc Uncle Plc
GHS’000 GHS’000 GHS’000
Revenue 92,500 45,000 30,000
Cost of sales (70,500 ) (36,000 ) (18,000)
––––––– ––––––– ---------
Gross profit 22,000 9,000 12,000
Distribution costs (2,500 ) (1,200 ) (1,000)
Administrative expenses (5,500 ) (2,400 ) (2,000)
Finance costs (100 ) nil (nil)
–––––– ––––––– ---------
Profit before tax 13,900 5,400 9,000
Income tax expense (3,900 ) (1,500 ) (2,200)
––––––– ––––––– --------
Profit for the year 10,000 3,900 6,800
Other comprehensive income:
Gain on revaluation of land 500 nil nil
––––––– ––––––– -------
Total comprehensive income 10,500 3,900 6,800
––––––– ––––––– -------

Statements of financial position as at 31 December 2023

Father Plc Mother Plc Uncle Plc

GHS’000 GHS’000 GHS’000
Non-current assets
Property, plant and equipment 25,500 13,900 15,000
Investments 5,400 nil nil
––––––– ––––––– ---------
30,900 13,900 15,000
Current assets 12,500 2,400 3,000
––––––– ––––––– --------
Total assets 43,400 16,300 18,000
––––––– ––––––– ---------
Equity
Equity shares of GHS1 each 15,000 5,000 6,000
Land revaluation reserve – 31 December 2023 2,000 nil nil
Other equity reserve – 31 December 2023 500 nil nil
Retained earnings 12,900 4,500 5,000
––––––– ––––––– -------
30,400 9,500 11,000
Non-current liabilities
20% loan notes 3,000 nil nil
Current liabilities 10,000 6,800 7,000
––––––– ––––––– -------
Total equity and liabilities 43,400 16,300 18,000
––––––– ––––––– ----------
The following information is relevant:

i) On 1 September 2023, Father Plc acquired 80% of the equity share capital of Mother Plc.
The consideration consisted of two elements: a share exchange of three shares in Father Plc for every
five acquired shares in Mother Plc and the issue of a GHS100 6% loan note for every 500 shares
acquired in Mother Plc. The share issue has not yet been recorded by Father Plc, but the issue of the
loan notes has been recorded. At the date of acquisition, shares in Father Plc had a market value of
GHS5 each and the shares of Mother had a stock market price of GHS3·50 each.

Father had earlier, on 1 July 2023, acquired 2.4 million shares in Uncle Plc on the stock market at a
price of GHS1.50 per share.

(ii) At the date of acquisition, the fair values of Mother Plc’s assets were equal to their carrying
amounts with the exception of its property. This had a fair value of GHS1·2 million below its carrying
amount. This would lead to a reduction of the depreciation charge (in cost of sales) of GHS50,000 in
the post-acquisition period. Mother Plc has not incorporated this value change into its separate
financial statements.

Father’s group policy is to revalue all properties to current value at each year end. On 31 December
2023, the value of Mother’s property was unchanged from its value at acquisition, but the land
element of Father Plc’s property had increased in value by GHS500,000 as shown in other
comprehensive income.

(iii) Sales from Mother Plc to Father Plc throughout the year ended 31 December 2023 was GHS12
million. Mother made a mark-up on cost of 25% on these sales. Father Plc had GHS2 million (at cost
to Father Plc) of inventory that had been supplied in the post-acquisition period by Mother Plc as at
31 December 2023.

(iv) In December 2023, Father Plc sold goods to Uncle Plc for GHS2,000,000, thus achieving a profit
mark-up of 25%. The entire consignment remained unsold and included in the inventory of Uncle
Plc as at 31 December 2023.

(v) Father’s investments include some available-for-sale investments that have increased in value by
GHS300,000 during the year. The other equity reserve relates to these investments and is based on
their value as at 31 December 2022. There were no acquisitions or disposals of any of these
investments during the year ended 31 December 2023.

v) Father’s policy is to value the non-controlling interest at fair value at the date of acquisition. For
this purpose Mother’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) It was determined at the year end that GHS330,000 of the goodwill relating to the acquisition of
Mother was impaired.
Required:
(1) Prepare the consolidated statement of profit or loss and other comprehensive income for
Father Plc Group for the year ended 31 December 2023.
(II) Prepare the consolidated statement of financial position for Father Plc Group as at 31
December 2023.
Answer to Illustration 5
(a) Father Plc Group
Consolidated statement of profit or loss and other comprehensive income for the year ended 31
December 2023
GHS’000
Revenue (92,500 + (45,000 x 4/12) – 4,000 intra-group sales) 103,500
Cost of sales (w (i)) (79,010 )
––––––––
Gross profit 24,490
Distribution costs (2,500 + (1,200 x 4/12)) (2,900 )
Administrative expenses (5,500 + (2,400 x 4/12)) (6,300 )
Goodwill impairment (330)
----------
Net operating profit 14,960
Share of profit of associate 1,360
----------
16,320
Finance costs (100 )
––––––––
Profit before tax 16,220
Income tax expense (3,900 + (1,500 x 4/12)) (4,400 )
––––––––
Profit for the year 11,820
––––––––
Other comprehensive income:
Gain on available-for-sale investments 300
Gain on revaluation of property 500
––––––––
Total other comprehensive income for the year 800
––––––––
Total comprehensive income 12,620
––––––––
Profit for year attributable to:
Equity holders of the parent 11,696
Non-controlling interest ((1,300 see below – 400 URP + 50
reduced depreciation)-330 impairment loss x 20%) 124
––––––––
11,820
––––––––
Total comprehensive income attributable to:
Equity holders of the parent 12,496
Non-controlling interest 124
––––––––
12,620
––––––––
Mother’s profit for the year ended 31 December 2023 of GHS3·9 million are GHS2·6 million (3,900
x 8/12) pre-acquisition and GHS1·3 million (3,900 x 4/12) post-acquisition.
(b) Consolidated statement of financial position as at 31 December 2023.
GHS’000
Assets
Non-current assets
Property, plant and equipment (w (ii)) 38,250
Goodwill (w (iii)) 8,970
Investment in Associate 4,800
Available-for-sale investments (1,800 – 800 consideration + 300 gain) 1,300
–––––––
53.320
Current assets (w (iv)) 14,150
–––––––
Total assets 67,470
–––––––
Equity and liabilities
Equity attributable to owners of the parent
Equity shares of GHS1 each ((15,000 +12,000) w (iii)) 27,000
Land revaluation reserve 2,000
Other equity reserve (500 + 300) 800
Retained earnings (w (v)) 14,596
–––––––
44,396
Non-controlling interest (w (vi)) 3,624
–––––––
Total equity 48,020
Non-current liabilities
6% loan notes 3,000
Current liabilities (10,000 + 6,800 – 350 intra group balance) 16,450
–––––––
Total equity and liabilities 67,470
–––––––
Workings in GHS’000

1 Control Structure
M U
Father 80% 40% (2.4m shares/6m shares)
NCI 20%
Others 60%
Subsidiary Associate
Reporting period 1/1/2023 -31/12/2023
Acquisition Date: Subsidiary 1/9/2023
Pre-acquisition 8 months
Post-acquisition 4 months

Acquisition Date: Associate 1/1/2023

2 Net Assets of Subsidiary At Acq At Reporting

Share Capital 5,000 5,000
Retained Earnings 3,200 4,500
Revaluation Deficit (1.200) (1,200)
Excess Depreciation 50
URP on inventory (400)
[25/125 x 2000]
--------- ----------
7,000 7.950
===== ======
Post acquisition retained earnings 950

(iii) Goodwill in Mother

Investment at cost
Shares (5,000 x 80% x 3/5 x GHS5) 12,000
6% loan notes (5,000 x 80% x 100/500) 800
–––––––
12,800
Fair value of NCI 3500
-------
16,300
Stated capital 5,000
Pre-acquisition retained earnings 3,200
Adds: fair value adjustment for property (1,200)
` ––––––
Net assets at date of acquisition 7,000
–––––––
Goodwill 9,300
Impairment (930)
------
8,370
====

Intra-group adjustments

a) Sales/Purchases 4,000
DR Sales 4,000
CR Cost of sales 4000
 b) URP on inventory [25/125 x 2,000] 400
DR Cost of sales 400
CR Inventory 400

c) URP on Downstream Transaction

25/125 x 2,000 400
Adjustment required 40% of 400 = 160

DR Cost of sales 160

CR Investment in Associate 160

vi) Non-controlling interest in CSPL

Post-acquisition profit from income statement
20% o(f 950 190
Share of Goodwill impairment [20% of 330 (66)
–––––––
124
=====

vi) Non-controlling interest in statement of financial position

At date of acquisition 3,500
Post-acquisition profit from income statement
20% o(f 950 190
Share of Goodwill impairment [20% of 330 (66)
–––––––
3,624
–––––––

Investment in associate
Cost [2.4 m x 1.5] 3,600
Post acq retained profit 1,360
URP (160)
-------
4,800
====

(v) Consolidated Retained earnings

Father 12,900
Mother’s post-acquisition adjusted profit
((1,300 – 400 URP +50 excess dep –
330 impairment]) x 80%) 496
Associate’s post acq profit 1,360
URP –Associate (160)
–––––––
14,596
(i) Cost of sales
Father 70,500
Mother (36,000 x 4/12) 12,000
Intra-group purchases (4,000 )
URP in inventory 400
Excess depreciation charge (50)
URP-Associate 160
–––––––
79,010
The unrealised profit (URP) in inventory is calculated as GHS2 million x 25/125 = GHS400,000.

(ii) Non-current assets

Father 25,500
Mother 13,900
Fair value reduction at acquisition ( 1,200)
Excess depreciation 50
–––––––
38,250
–––––––

The 2·4 million shares (5,000 x 80% x 3/5) issued by Father at GHS5 each would be recorded as
share capital of GHS12 million.

(iv) Current assets

Father 12,500
Mother 2,400
URP in inventory (400 )
Intra-group balance (350 )
–––––––
14,150
–––––––