UGBS

BSC ACCOUNTING
LEVEL 400
CORPORATE REPORTING –INTERIM ASSESSMENT
ANSWER ALL QUESTIONS AND SUBMIT THE HANDWRITTEN ANSWERS FOR
ASSEEMENT
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1 On what basis may a subsidiary be excluded from consolidation?
A The activities of the subsidiary are dissimilar to the activities of the rest of the group.
B The subsidiary was acquired with the intention of reselling it after a short period of time.
C The subsidiary is based in a country with strict exchange controls which make it difficult for
it to transfer funds to the parent.
D The parent looses control over the subsidiary

2 When negative goodwill arises, IFRS 3 Business combinations requires that the amounts
involved in computing goodwill should first be reassessed. When the amount of the negative
goodwill has been confirmed, how should it be accounted for?
A Charged as an expense in profit or loss
B Capitalised and presented under non-current assets
C Credited to profit or loss
D Shown as a deduction from non-current assets

3 Which of the following is the criterion for treatment of an investment as an associate?

A Ownership of a majority of the equity shares
B Ability to exercise control
C Existence of significant influence
D Exposure to variable returns from involvement with the investee

4 Which TWO of the following statements are correct when preparing consolidated
financial statements?
I A subsidiary cannot be consolidated unless it prepares financial statements to the same
reporting date as the parent.
II A subsidiary with a different reporting date may prepare additional statements up to the
group reporting date for consolidation purposes.
III A subsidiary's financial statements can be included in the consolidation if the gap between
the parent and subsidiary reporting dates is five months or less.
IV Where a subsidiary's financial statements are drawn up to a different reporting date from
those of the parent, adjustments should be made for significant transactions or events
occurring between the two reporting dates.

A I and II
B II and IV
C III and IV
D 1 and III

5 IFRS 3 Business combinations requires an acquirer to measure the assets and liabilities of
the acquiree at the date of consolidation at fair value. IFRS 13 Fair value measurement provides
guidance on how fair value should be established. Which of the following is not one of the issues
to be considered according to IFRS 13 when arriving at the fair value of a non-financial asset?
A The characteristics of the asset
B The present value of the future cash flows that the asset is expected to generate during its
remaining life
C The principal or most advantageous market for the asset
D The highest and best use of the asset

6 IFRS 10 Consolidated financial statements provides a definition of control and identifies

three separate elements of control. Which one of the following is not one of these elements of
control?
A Power over the investee
B The power to participate in the financial and operating policies of the investee
C Exposure to, or rights to, variable returns from its involvement with the investee
D The ability to use its power over the investee to affect the amount of the investor's returns

7 Peter Ltd owns 100% of the share capital of the following companies. The directors are
unsure of whether the investments should be consolidated. In which of the following
circumstances would the investment NOT be consolidated?
A Peter has decided to sell its investment in Alpha as it is loss-making; the directors believe its
exclusion from consolidation would assist users in predicting the group's future profits
B Beta is a bank and its activity is so different from the engineering activities of the rest of the
group that it would be meaningless to consolidate it
C Delta is located in a country where local accounting standards are compulsory and these are not
compatible with IFRS used by the rest of the group
D Gamma is located in a country where a military coup has taken place and Peter has lost control of
the investment for the foreseeable future

8 Cloud obtained a 60% holding in the 100,000 GHS1 shares of Mist on 1 January 2018,
when the retained earnings of Mist were GHS850,000. Consideration comprised GHS250,000 cash,
GHS400,000 payable on 1 January 2019 and one share in Cloud for each two shares acquired.
Cloud has a cost of capital of 8% and the market value of its shares on 1 January 2018 was
GHS2.30. Cloud measures non-controlling interest at fair value. The fair value of the non-
controlling interest at 1 January 2018 was estimated to be GHS400,000.
What was the goodwill arising on acquisition?
A GHS139,370
B GHS169,000
C GHS119,370
D GHS130,370

9 On 1 August 2017 Pat Ltd purchased 18 million of the 24 million equity shares of Salla Ltd.
The acquisition was through a share exchange of two shares in Pat for every three shares in Salla.
The market price of a share in Pat at 1 August 2017 was GHS5.75. Pat will also pay in cash on 31
July 2019 (two years after acquisition) GHS2.42 per acquired share of Salla. Pat's cost of capital is
10% per annum. What is the amount of the consideration attributable to Pat for the acquisition
of Salla?
GHS105 million
GHS139.5 million
GHS108.2 million
GHS103.8 million

10 On 1 April 2018 Parent acquired 75% of Son's equity shares by means of a share exchange
and an additional amount payable on 1 April 2019 that was contingent upon the post-acquisition
performance of Son Ltd. At the date of acquisition Parent assessed the fair value of this contingent
consideration at GHS4.2 million but by 31 March 2019, it was clear that the amount to be paid
would be only GHS2.7 million. How should Parent Ltd account for this GHS1.5 million
adjustment in its financial statements as at 31 March 2019?
A Debit current liabilities/Credit goodwill
B Debit retained earnings/Credit current liabilities
C Debit goodwill/Credit current liabilities
D Debit current liabilities/Credit retained earnings

11 Crash acquired 70% of Bang's 100,000 GHS1 ordinary shares for GHS800,000 when the
retained earnings of Bang were GHS570,000 and the balance in its revaluation surplus was
GHS150,000. Bang also has an internally developed customer list which has been independently
valued at GHS90,000. The non-controlling interest in Bang was judged to have a fair value of
GHS220,000 at the date of acquisition. What was the goodwill arising on acquisition?
A GHS200,000
B GHS163,000
C GHS226,000
D GHS110,000

12 Phantom acquired 70% of the GHS100,000 equity share capital of Ghost, its only
subsidiary, for GHS200,000 on 1 January 2018 when the retained earnings of Ghost were
GHS156,000. At 31 December 2018 retained earnings are as follows.
GHS
Phantom 275,000
Ghost 177,000
Phantom considers that goodwill on acquisition is impaired by 50%. Non-controlling interest is
measured at fair value, estimated at GHS82,800. What are group retained earnings at 31 December
2018?
A GHS276,300
B GHS289,700
C GHS280,320
D GHS269,200

13 Tazer, a parent company, acquired Lowdown, an unincorporated entity, for GHS2.8

million. A fair value exercise performed on Lowdown's net assets at the date of purchase showed:
GHS'000
Property, plant and equipment 3,000
Identifiable intangible asset 500
Inventory 300
Trade receivables less payables 200
4,000
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How should the purchase of Lowdown be reflected in Tazer's consolidated statement of financial
position?
A Record the net assets at their values shown above and credit profit or loss with GHS1.2 million
B Record the net assets at their values shown above and credit Tazer's consolidated goodwill with
GHS1.2 million
C Write off the intangible asset (GHS500,000), record the remaining net assets at their values
shown above and credit profit or loss with GHS700,000
D Record the purchase as a financial asset investment at GHS2.8 million
Information relevant to questions 14 and 15
On 1 April 2017 Root acquired 116 million of Branch's 145 million ordinary shares for an
immediate cash payment of GHS210 million and issued at par one 10% GHS100 loan note for
every 200 shares acquired. At the date of acquisition Branch owned a recently built property that
was carried at its depreciated construction cost of GHS62 million. The fair value of this property at
the date of acquisition was GHS82 million and it had an estimated remaining life of 20 years.
Branch also had an internally-developed brand which was valued at the acquisition date at GHS25
million with a remaining life of 10 years. The inventory of Branch at 31 March 2019 includes goods
supplied by Root for a sale price of GHS56 million. Root adds a mark-up of 40% on cost to all
sales.

14 What will be the amount of the adjustment to group retained earnings at 31 March 2019 in
respect of the movement on the fair value adjustments?
A GHS7 million
B GHS3.5 million
C GHS5.6 million
D GHS2.8 million

15 How should the unrealised profit be posted?

A DR Cost of sales / CR Inventories
B DR Cost of sales / DR Non-controlling interest / CR Inventories
C DR Inventories / CR Cost of sales
D DR Inventories / CR Non-controlling interest / CR Cost of sales

16 Henry acquired 80% of Stephen on 1 July 2018. In the post-acquisition period Henry sold
goods to Stephen at a price of GHS12 million. These goods had cost Henry GHS9 million. During
the year to 31 March 2019, Stephen had sold GHS10 million (at cost to Stephen) of these goods for
GHS15m million. How will this affect group cost of sales in the consolidated statement of profit or
loss of Henry for the year ended 31 March 2019?
A Increase by GHS11.5 million
B Increase by GHS9.6 million
C Decrease by GHS11.5 million
D Decrease by GHS9.6 million

17 On 1 July 2017, Spider acquired 60% of the equity share capital of Fly and on that date
made a GHS10 million loan to Fly at a rate of 8% per annum. What will be the effect on group
retained earnings at the year end date of 31 December 2017 when this intragroup transaction is
cancelled?
A Group retained earnings will increase by GHS400,000.
B Group retained earnings will be reduced by GHS240,000.
C Group retained earnings will be reduced by GHS160,000.
D There will be no effect on group retained earnings.

18 W Ltd acquired 80% of C Ltd on 1 January 2018. At the date of acquisition C Ltd had a
building which had a fair value GHS22 million and a carrying amount of GHS20 million. The
remaining useful life was 20 years. At the year end date of 30 June 2018 the fair value of the
building was GHS23 million. C Ltd’s profit for the year to 30 June 2018 was GHS1.6 million which
accrued evenly throughout the year. W Ltd measures non-controlling interest at fair value. At 30
June 2018, it estimated that goodwill in C Ltd was impaired by GHS500,000. What is the total
comprehensive income attributable to the non-controlling interest at 30 June 2018?
A GHS250,000
B GHS260,000
C GHS360,000
D GHS400,000

19. WT Plc owns 80% of the ordinary shares of UP Plc . The cost of sales figures for 2013 for WT Plc
and UP Plc were GH¢11 million and GH¢10 million respectively. During 2013, WT Plc sold goods which
had cost GH¢2 million to UP Plc for GH¢3 million. UP Plc has not yet sold any of these goods. What is the
consolidated cost of sales figure for 2013?
A. GH¢16 million
B. GH¢18 million
C. GH¢19 million
D. GH¢17 million

20 On 1 October 2018 Pacemaker Ltd acquired 30 million of Vandal Ltd's 100 million shares
in exchange for 75 million of its own shares. The stock market value of Pacemaker's shares at the
date of this share exchange was GHS1.60 each. Vandal’s's profit is subject to seasonal variation. Its
profit for the year ended 31 March 2019 was GHS100 million. GHS20 million of this profit was
made from 1 April 2018 to 30 September 2018. Pacemaker has one subsidiary and no other
investments apart from Vandal Ltd. What amount will be shown as 'investment in associate' in the
consolidated statement of financial position of Pacemaker as at 31 March 2019?

A GHS144 million
B GHS150 million
C GHS78 million
D GHS126 million

21 How should an associate be accounted for in the consolidated statement of profit or loss?
A The associate's income and expenses are added to those of the group on a line-by-line basis.
B The group share of the associate's income and expenses is added to the group figures on a line-by
line basis.
C The group share of the associate's profit after tax is recorded as a one-line entry.
D Only dividends received from the associate are recorded in the group statement of profit or loss.

22 James Ltd owns 30% of Mary Ltd. During the year to 31 December 2018, Mary Ltd sold
GHS2 million of goods to James, of which 40% were still held in inventory by James Ltd at the
year end. Mary Ltd applies a mark-up of 25% on all goods sold. What effect would the above
transactions have on group inventory at 31 December 2018?
A Debit group inventory GHS48,000
B Debit group inventory GHS160,000
C Credit group inventory GHS48,000
D No effect on group inventory

23 An associate is an entity in which an investor has significant influence over the investee.
Which TWO of the following indicate the presence of significant influence?
I The investor owns 360,000 of the 1,500,000 equity voting shares of the investee.
II The investor has representation on the board of directors of the investee.
III The investor is able to insist that all of the sales of the investee are made to a subsidiary of
the investor.
IV The investor controls the votes of a majority of the board members

A I and III
B II and IV
C I and II
D III and IV

24. The summarised statements of financial position of Pet Plc and Dog Plc as at 31st December 2014 are as
follows:
PetPlc Dog Plc
GH¢ GH¢
Net Assets 300,000 160,000
Share capital ( ord. shares issue at GH¢1
/shares)
100,000 100,000
Retained earnings
200,000 60,000
300,000 160,000

On 31 December 2014 Yam Plc purchased for cash 90% of Pet Plc’s shares for GH¢360,000 and
75% of Dog Plc’s shares for GH¢100,000. The carrying amounts of the assets in both companies are
considered to be fair values.
In the consolidated statement of financial position of Yam Plc at 31 December 2014, goodwill and
gain on a bargain purchase will be shown as
Goodwill Gain on a bargain purchase
A. GH¢nil GH¢nil
B. GH¢60,000 GH¢60,000
C. GH¢90,000 GH¢nil
D. GH¢90,000 GH¢20,000

25 Accra Plc owns 100% of the issued share capital of Kumasi Plc, and sells goods to its subsidiary at a
profit margin of 20%. At the year end their statements of financial position showed inventories of
Accra Plc GH¢290,000
Kumasi Plc GH¢160,000
The inventory of Kumasi Plc included GH¢40,000 of goods supplied by Accra Plc and there was
inventory in transit from Accra to Kumasi amounting to a further GH¢20,000. At what amount
should inventory be carried in the consolidated statement of financial position?
A. GH¢438,000
B. GH¢442,000
C. GH¢458,000
D. GH¢462,000
Question 26
Below are the financial statements of Esinam Plc and its investee company, Fafa Plc for the year ended 30 th
September 2022

Statements of profit or loss for the year ended 30 September 2022

Esinam Plc FafaPlc Dzibodi Plc
GHS’000 GHS’000 GHS’000

Revenue 110,000 66,000 40,000

Cost of sales (88,000) (67,200) (24,000)
–––––––– ––––––– ----------
Gross profit (loss) 22,000 (1,200) 16,000
Distribution costs (3,000) (2,000) (4.000)
Administrative expenses (5,250) (2,400) (3.000)
Finance costs (250) nil (1,000)
–––––––– ––––––– ----------
Profit (loss) before tax 13,500 (5,600) 8,000
Income tax (expense)/relief (3,500) 1,000 (2,000)
–––––––– ––––––– --------
Profit (loss) for the year 10,000 (4,600) 6,000
======= ====== =====

Statements of financial position as at 30 September 2022

Assets GHS’000 GHS’000 GHS’000
Non-current assets
Property, plant and equipment 35,000 21,000 30,000
Financial asset: equity investments (note (iv) 22,000 nil nil
–––––––– ––––––– --------
57,000 21,000 30,000
Current assets 16,500 4,800 10,000
–––––––– ––––––– ---------
Total assets 73,500 25,800 40,000
–––––––– ––––––– ---------
Equity and liabilities
Equity
Equity shares of GHS 1 pesewas each 30,000 nil nil
Equity shares issued at GHS0.50 each nil 6,000 10,000
Revaluation surplus 5,000 nil nil
Retained earnings 23,500 12,000 23,000
–––––––– ––––––– --------
58,500 18,000 33,000
Current liabilities 15,000 7,800 7,000
–––––––– ––––––– ----------
Total equity and liabilities 73,500 25,800 40,000
–––––––– ––––––– ======
The following information is relevant:

i) On 1st March 2020, Esinam Plc acquired 5 million shares in Dzibodi Plc at the secondary capital
market at a price of GHS1.20 per share (cum dividend), on which date the retained earnings of
Dzibodi stood at This shareholding has remained to date. . By this shareholding, Esinam Plc has
gained significant influence over Dzibodi stood at GHS14 million.

ii) On 1 April 2022, Esinam Plc acquired 75% of the equity shares of Fafa Plc. Fafa Plc had been
experiencing difficult trading conditions and making significant losses. In allowing for Fafa Plc’s difficulties,
Esinam Plc made an immediate cash payment of only GHS1·50 per share. In addition, Esinam Lt will pay a
further amount in cash on 30 September 2023 if Fafa Plc returns to profitability by that date. The value of
this contingent consideration at the date of acquisition was estimated to be GHS1·8 million, but at 30
September 2022 in the light of continuing losses, its value was estimated at only GHS1·5 million. The
contingent consideration has not been recorded by Esinam Plc. At the date of acquisition, shares in Fafa Plc
had a listed market price of GHS1·20 each;

iii) On 1 April 2022, the fair values of Fafa Plc’s assets were equal to their carrying amounts with the
exception of a leased property. This had a fair value of GHS2 million above its carrying amount and a
remaining lease term of 10 years at that date. All depreciation is included in cost of sales.

(iv) Esinam Plc transferred raw materials at their cost of GHS4 million to Fafa Plc in June 2022. Fafa Plc
processed all of these materials incurring additional direct costs of GHS1·4 million and sold them back to
Esinam Plc in August 2022 for GHS9 million. At 30 September 2022, Esinam Plc had GHS1·5 million of
these goods still in inventory.

(v) Esinam Plc has recorded its investment in Fafa Plc and Dzibodi 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 2021. The other equity investments have fallen in value by
GHS200,000 during the year ended 30 September 2022.

(vi) Esinam Plc policy is to value the non-controlling interest at fair value at the date of acquisition. For this
purpose, Fafa 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.

(vii) All items in the above statements of profit or loss are deemed to accrue evenly over the year unless
otherwise indicated.
Required:
(a) Prepare the consolidated statement of profit or loss and other comprehensive income for Esinam
Plc for the year ended 30 September 2022 and the consolidated statement of financial position for
Esinam Plc as at 30 September 2022. [25 marks]