DEPARTMENT OF ECONOMICS AND FINANCIAL STUDIES

COLLEGE OF MANAGEMENT AND SOCIAL SCIENCES

FOUNTAIN UNIVERSITY, OSOGBO

ACC 401 COURSEWARE

General Information
Course Title

Advanced Financial Accounting

Course Code

ACC 401

Units

3 credits

Status

Compulsory

Course Duration

Three hours per week for 15 weeks (45hours)

Lecturer

Alley, Ibrahim Saliu

BSc (Ibadan), MSc (Abertay Dundee, UK)
E-mail:alleyi@yahoo.com
Ibrahimalley1@gmail.com

Department

Department of Economics and Financial Studies

College of Management and Social Sciences
Fountain University, Osogbo
Osun State, Nigeria

Location

Lecturers Suite
College of Management & Social Sciences,
Fountain University, Osogbo, Osun state, Nigeria.

Consultation Hour

Tuesdays 12 2pm

COURSE DETAILS
Conceptualisation and preparation of group accounts: Preparation of consolidated statement
of financial position involving elimination of intra group balances; accounting for profit on
intra-group transactions, accounting for non-controlling interest; accounting for goodwill
arising from business combination; intra-group sale of non-current asset; acquisition of
subsidiaries during its accounting period; Fair value in acquisition accounting; Preparation of
consolidated statement of financial performance (profit and loss and other comprehensive
income; Accounting for associates: the equity method; preparation of consolidated financial

position and performance involving an associate(s); accounting for merger and acquisition
problems of group companies.
Course Description
This course is a first semester course, introducing the students to the preparation of group
accounts and accounting treatment of merger and acquisition. Though studying for this
course officially requires no prerequisite, handling the intricacies involved is made easier by
the knowledge acquired in Financial Accounting courses in lower levels. The focus of this
course is the preparation of group accounts. Group accounting is a very wide topic and will
take most of the periods allocated to this course so as to be able to touch the technical aspects
of the topic. Emphasis will also be laid on business combination with particular reference to
partnership and will also treat piecemeal dissolution which is a follow up of wholesome
dissolution that have been treated at the lower level. Other contemporary topics like price
level change accounting and the behavioural aspect of accounting is also included.
Course Justification
The knowledge of Financial Accounting is not complete without knowing Accounting
treatment of Group (Parent, Subsidiaries, and Associate) transactions and other related issues.
Group accounts and most of the other topics are entirely new topics to the students because
they have not been mentioned at all at the lower levels. Students are therefore required to pay
attention and must pass this course before they can graduate more so that it is the concluding
aspect of financial accounting. This is to equip the students with knowledge of these
advanced level corporate problem situations. Financial accounting as a course will not be
taken in the subsequent level of the programme.

Course Objectives
At the end of this course, students will be able to:
-

Prepare consolidated accounts

Understand the laws and practices of group accounting

Account for fairly real partnership dissolution situation

Account for conversion of a partnership concern to a limited liability company

Account for price level change, and

Course Requirements
This is a compulsory course. All students taking it must attend normal classes and participate
in robust debates during the lectures. Students will be expected to carry out assignments.
They are expected to attend 75% of classes before they can sit for the examination.
Methods of Grading
S/N

Types of Grading

Scores (%)

Impromptu tests

Assignments

10

Mid-Semester Test

15

Final Examination

70

Total

100

Course Delivery Strategies

-

Physical delivery of lectures, using appropriate texts, notes and other learning
(enhancement) materials

Interactive discussion of pertinent issues and analysis of practical situations

Assessment of the feed-backs in terms of students response to direct and indirect

questions on concepts taught in class, and as they apply to practice.
LECTURE CONTENT

Week 1: Introduction to Group Accounts

Objective: At the end of this lecture, students are expected to understand the concepts,
relevant standards and regulatory frameworks guiding the preparation of group accounts and
some other introductory issues surrounding business combination.
Description
Background to group accounting: definition (of control), relevant laws in group accounting,
reason for preparation of group accounts, when a parent company may not be required to
prepare consolidated account and when a parent company may exclude a subsidiary from
consolidation.

Study Questions
1. Differentiate between a subsidiary and an associated company
2. What constitute cost of acquisition?
3. What is cost of control account used for?
4. Under what conditions can a subsidiary be excluded from consolidation?
5. Agbajowo is considering an investment in Aladase whose capital structure is s
follows: 10,000 A voting ordinary shares and 10,000 B non-voting ordinary shares.
Both classes of shares have the same dividend rights.
Required:
Describe the appropriate group accounting for Aladase if:
i.

Agbajowo purchased 6,000 A ordinary shares

ii.

Agbajowo purchased 10,000 B and 4,000 A ordinary shares

Reading List
1. Elliot, B. and Elliot J. (2006). Financial Accounting, Reporting and Analysis. 2 nd
Edition. Edinburg Gate: Prentice Hall.
2. ACCA BBP Study Pack (2012). Financial Reporting (International and UK Stream).
6th Edition. London: BPP Learning Media.
3. ACCA BBP Study Pack (2009). Financial Reporting. Berkshire: Kaplan Publishing
UK

Week 2: Introduction to Consolidation Procedures

Objective: At the end of this lecture, students are expected to understand the basic
procedures governing preparation of consolidated statement of financial position.
Description
Cancellation: shares and other investment in subsidiary companies; set off against net asset;
issues of intra-group trading. Part-cancellation: partial acquisition of subsidiary companies,
share and other consideration.

Study Questions
1. The following statements of financial positions of Palmat and Salmat have
been prepared at 30th June, 2010.
PALMAT SALMAT
N'000
N'000
Non- Current Asset
Property, Plant & Equipment
Investment
Shares in Salmat Ltd
20% shares of 12% loan stock in Salmat
Current Assets
Inventory
Receivables
Current account with Salmat
Cash
Financed by
Equity and Liabilities:
Equity
Ordinary Shares
Retained Earnings
Non-Current Liabilities
10% loan stock
12% loan stock
Current Liabilities
Payables
Taxation
Current Account with Palmat
Total Equity and liabilities

120,000

100,000

80,000
20,000
220,000
50,000
40,000
18,000
4,000
332,000

60000
30,000

100,000
95,000
195,000

80,000
28,000
108,000

6,000
196,000

75,000
50,000
47,000
15,000
62,000
332,000

16,000
10,000
12,000
38000
196,000

Palmat has owned all the ordinary shares and 40% of the loan stock of Salmat since
incorporation. Also, the difference on the current account arises because of goods in transit.

Required
Prepare the consolidated Statement of financial position of Palmat

Reading List
1. Elliot, B. and Elliot J. (2006). Financial Accounting, Reporting and Analysis. 2nd
Edition. Edinburg Gate: Prentice Hall.
2. ACCA BBP Study Pack (2012). Financial Reporting (International and UK Stream).
6th Edition. London: BPP Learning Media.
3. ACCA BBP Study Pack (2009). Financial Reporting. Berkshire: Kaplan Publishing
UK

Week 3: Treatment of Non-Controlling Interests

Objective: At the end of this topic, students should be able understand the concept noncontrolling interest, know when it arises and account for it appropriately in the group account.
Study question
The following statement have been prepared at 31st December 2010
PETERNAL
PLC
N'000
Non- Current Asset
Property, Plant & Equipment
Investment
Shares in Santana Ltd
Current Assets
Financed by Equity and
Liabilities:
Equity
Ordinary Shares
Shares Premium
Retained Earnings
Current Liabilities

SANTANA
LTD
N'000

85,000

18,000

60,000
145,000
160,000
305,000

84,000
102,000

65,000
35,000
70,000

20,000
10,000
25,000
170,000
135,000
305,000

55,000
47,000
102,000

Paternal Plc acquired its 80% holding in Santana Ltd on 1st January 2010, when Santana
Ltds retained earnings stood at N20 million. On this date, the fair value of 20% non
controlling interest in Santana wasN12.5 million.

There has been no impairment of goodwill since acquisition. The Paternal Group uses the fair
value method to value the non-controlling interest.
Required:
Prepare the consolidated Statement of financial position of Paternal Group as at 31st
December 2010.

Reading List
1. Elliot, B. and Elliot J. (2006). Financial Accounting, Reporting and Analysis. 2 nd
Edition. Edinburg Gate: Prentice Hall.
2. ACCA BBP Study Pack (2012). Financial Reporting (International and UK Stream).
6th Edition. London: BPP Learning Media.
3. ACCA BBP Study Pack (2009). Financial Reporting. Berkshire: Kaplan Publishing
UK

Week 4 &5: Treatment of Goodwill Arising on Consolidation

Objective: At the end of the lectures, students should be able account for goodwill, using
different methods: proportion of the net asset method, and the fair value method.
Description
Calculation of goodwill when there are acquisition profits, valuing goodwill when there is a
non-controlling interest valued at fair value; impairment of goodwill, gain on

bargain

purchase, forms of considerations: contingent consideration, deferred consideration; share

exchange, expenses and issue cost; consolidation adjustments

Study questions
1. Pat acquired the ordinary shares of Sat on 31st March 2010 when the dract statement
of financial position of each coma were as follows
Pat
Asset

Non-current assets
Investment in 50,000 shares of Sat at cost

80,000

Current Asset

40,000

Total assets

120,000

Equity and liabilities

Equity
Ordinary shares

75,000

Retained earnings

45,000

Total equity and liabilities

120,000

Current assets

60,000

Equity

50000

50,000 ordinary shares of N1 each

10,000

Retained earnings

60,000

Sat

Required:
Prepare the consolidated statement of financial position

Reading List
1. Elliot, B. and Elliot J. (2006). Financial Accounting, Reporting and Analysis. 2 nd
Edition. Edinburg Gate: Prentice Hall.
2. ACCA BBP Study Pack (2012). Financial Reporting (International and UK Stream).
6th Edition. London: BPP Learning Media.
3. ACCA BBP Study Pack (2009). Financial Reporting. Berkshire: Kaplan Publishing
UK

Week 6: Intra-group trading and other transactions

Objective: On the completion of this topic, students are expected to understand accounting
for intra-group transaction when preparing consolidated statement of financial position
Description

Accounting for unrealised profits; accounting for non-controlling interests in unrealised intragroup profits; intra-group sales of non-current assets.

Study questions
Hazelnut acquired 80% of the share capital of Peppermint two years ago, when the
reserves of Peppermint stood at N125 million. Hazelnut paid initial cash consideration of
N1billion. Additionally, Hazelnut issued 200 million shares with a nominal value of N1
and a current market value of N1.80. It was also agreed that Hazelnut would pay a further
N500 million in three years time. The current interest rate is 10%, and the share and
deferred considerations are yet to be recorded.

Below is the statement of financial position of Hazelnut and Peppermint as at

31/12/2004.
Hazelnut
Nmillion
Investment in Peppermint at cost

Peppermint
Nmillion

1,000

Non current asset

Current assets

5,500

Inventory

550

Receivables

400

Cash

200
7,650

1,500
100
200
50
1,850

Financed by equity and

liability
Share capital

2,000

Retained earnings

1,400
3,400

Non-current liability

3,000

Current liability

1,250
7,650

500
300
800
400
650
1,850

At acquisition, the fair value of the Peppermints non-current assets exceeded their book
value by N200 million. They had the remaining useful life of five years remaining at this
date. The consolidated goodwill has been impaired by one-fifth of its value.
The Hazelnut group values its goodwill using fair value method. At the date of acquisition the
fair value of the 20% non-controlling interest was N380 million.
Required:
Prepare the consolidated statement of financial position as at 31st December, 2004

Reading List
1. Elliot, B. and Elliot J. (2006). Financial Accounting, Reporting and Analysis. 2 nd
Edition. Edinburg Gate: Prentice Hall.
2. ACCA BBP Study Pack (2012). Financial Reporting (International and UK Stream).
6th Edition. London: BPP Learning Media.
3. ACCA BBP Study Pack (2009). Financial Reporting. Berkshire: Kaplan Publishing
UK

Week 7: Acquisition of a Subsidiary during its Accounting Period

Objective: On the completion of this topic, students are expected to understand accounting
for consolidation when acquisition takes place amid the financial period of the subsidiary.
Description
Consolidation while taking note of pre-acquisition profits, assumption of even accrual of
profit, relaxation of the assumption

Study question
Pat Co acquired 80% of the ordinary shares of Sat Co on April 2005. On 31st December 2004,
Sat Co accounts showed a premium account of N4million and retained earnings of
N15million. The statements of financial position of the two companies at 31st December,
2004 are set out below. Neither of the two companies has paid dividends during the year.
Non-controlling Interest should be valued at full fair value. The market price of the

subsidiarys shares was N2.50 prior to acquisition by the parent. There has been no
impairment of goodwill
Pat
Asset

N000

16 million ordinary shares of 50 kobo each in Sat

50,000

Property, Plant and Equipment

32,000

Sat
N000

30,000

82,000
Current assets

85,000

43,000

167,000

73,000

Financed by equity and liability

Equity
Ordinary shares of N1 each

100,000

Ordinary shares of 50 kobo each

10,000

Share premium account

7,000

4,000

Retained Earnings

40000

39000

147,000

53,000

20,000

20,000

Current liabilities
Total equity and liabilities

167,000

73,000

Required:
Prepare the consolidated statement of Financial Position of Pat as at 31st December, 2005.

Reading List
1. Elliot, B. and Elliot J. (2006). Financial Accounting, Reporting and Analysis. 2 nd
Edition. Edinburg Gate: Prentice Hall.
2. ACCA BBP Study Pack (2012). Financial Reporting (International and UK Stream).
6th Edition. London: BPP Learning Media.
3. ACCA BBP Study Pack (2009). Financial Reporting. Berkshire: Kaplan Publishing
UK

Week 8: Fair Values in Acquisition Accounting

Objective: On the completion of this topic, students are expected to account for various
aspects of consolidation in terms of their fair values.
Description
Goodwill, fair value adjustments, restructuring and future losses, intangible assets, contingent
liabilities, cost of business combination

Reading List
1. Elliot, B. and Elliot J. (2006). Financial Accounting, Reporting and Analysis. 2 nd
Edition. Edinburg Gate: Prentice Hall.
2. ACCA BBP Study Pack (2012). Financial Reporting (International and UK Stream).
6th Edition. London: BPP Learning Media.
3. ACCA BBP Study Pack (2009). Financial Reporting. Berkshire: Kaplan Publishing
UK

Week 9 & 10: Preparation of Consolidated Statement of Profit and loss & Other
Comprehensive Income
Objective: On the completion of the lectures, students should be able to prepare consolidated
statement of financial performance
Description
Consolidation procedures; intra-group trading; intra-group dividends; pre-acquisition profits

Study Questions
Given below are the income statements for the Herman Berger Plc and its subsidiary, QCC
Constructions, for the year ended 31 December, 2005.
Herman Berger

QCC

N' million

N' million

Revenue

3,200

2,560

Cost of sales

(2,200)

(1,480)

Gross profit

1,000

1,080

Distributive costs

(160)

(120)

Administrative expenses

(400)

(80)

440

880

160

600

880

Taxation

(400)

(480)

Profit for the year

200

400

investment income

Additional information

Herman Berger Plc paid N1.5 billion on 31st December 2001 for 80% of QCCs
ordinary shares capital of N800 million. The balance of the QCCs earnings was N600
million at that time.

Goodwill impairment at 1st January 2005 amounted to N152 million. A further

impairment of N38 million was found to be necessary at the year end. Impairments
are included within administrative charges.

Herman Berger made sales to QCC, at a selling price of N600 million during the year.
Not all sales had been sold externally by the year end. The profit element included in
QCC Constructions closing inventory was N30 million.

The figure for investment income in Herman Bergers income statement comprises
the parent share of the subsidiarys total dividend for the year.

Herman Berger values the non controlling interest using the proportion of the net
asset method.

Required:
Prepare a consolidated income statement for the year ended 31st December 2005 for the
Herman Berger Group.

Reading List
1. Elliot, B. and Elliot J. (2006). Financial Accounting, Reporting and Analysis. 2 nd
Edition. Edinburg Gate: Prentice Hall.
2. ACCA BBP Study Pack (2012). Financial Reporting (International and UK Stream).
6th Edition. London: BPP Learning Media.

3. ACCA BBP Study Pack (2009). Financial Reporting. Berkshire: Kaplan Publishing
UK

Week 11 & 12: Accounting for Associates

Objective: On the completion of the lectures, students should be able to prepare consolidated
statement of financial position and performance when the group structure involve (an)
associate(s)
Description
Definitions; separate financial statements of the investor; the equity method and application
to preparation of statement of financial position and performance

Study Questions
1. Cola Coca Plc acquired 80% of Sipep Ltd on 1st December 2004 paying N4.25 in cash
per share. At this date the balance on Sipep Ltds retained earnings were N870
million. On 1st of March 2007 Cola Coca Plc acquired 30% of Sevenup Incorporateds
ordinary shares. The consideration was settled by share exchange of 4 new shares
acquired in Sevenup Incorporated. The share price of Cola Coca Plc at the date of
acquisition was N5.00. Cola Coca Plc has not yet recorded in its books.
The statements of financial position of the three companies as at 30th November 2007 are as
follows:

Non-current asset
Property
Plant and Equipment
Investment
Current Asset
Inventory
Receivable
Cash

Cola Coca
N'million

Sipep
N'million

Sevenup
N'million

1,300
450
1,825

850
210

900
150

550
300
120
4,545

230
340
50
1,680

200
400
140
1790

Financed by Equity
Liabilities
Share capital (N1)
Share premium
Retained Earnings

and

Non-Current liabilities
10% loan notes
Current liabilies
Trade payables
Income tax

1,800
250
1,145
3,195

500
80
400
980

500

300

520
330
4,545

330
70
1,680

Additional Information

As at 1st December 2004, plant in the books of Sipep was determined to have a fair
value of N50 million in excess of its carrying value. The plant had a remaining life of
5 years at this time.

During the year, Sipep sold goods to Cola Coca for N400 million at a mark-up of
25%. Cola Coca had a quarter of these goods still in inventory at the year end.

In September, 2007 Sevenup sold goods to Cola Coca for N150 million. These goods
had a cost of N100 million. Cola Coca had N90 million (at cost to Cola Coca) in
inventory at the year end

As a result of the above transactions, Cola Cocas books showed N50 million and
N20 million as owning tp Sipep and Sevenup respectively at the year end. These
balances agreed with the amount recorded in Sipep and Sevenups books.

Non-controlling interests are measured using the proportion of the net asset method.
Goodwill is to be impaired by 30% at the reporting date. An impairment review found
the investment in the associate was to be impaired by N15 million at the year end.

Sevenup profit after tax for the year is N600 million.

Required:
Prepare a consolidate statement of financial position as at 30th November, 2007

250
1200
1450

250
90
1790

2. On 1 April 2009 Pandar purchased 80% of the equity shares in Salva. The acquisition
was through a share exchange of three shares in Pandar for every five shares in Salva.
The market prices of Pandars and Salvas shares at 1 April 2009 were N6 per share
and N3.20 respectively.

On the same date Pandar acquired 40% of the equity shares in Ambra paying N2 per share.

The summarised income statements for the three companies for the year ended 30 September
2009 are:

Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
investment
income
(interest
dividends)
Finance costs
Profit befroe tax
Income tax (expense) relief
Profit (loss) for the year

Pandar
N' 000
210,000
(126,000)
84,000
(11,200)
(18,300)

Salva
N' 000
150,000
(100,000)
50,000
(7,000)
(9,000)

Ambra
N' 000
50,000
(40,000)
10,000
(5,000)
(11,000)

9,500
(1,800)
62,200
(15,000)
47,200

(3,000)
31,000
(10,000)
21,000

nil
(6,000)
1,000
(5,000)

Salva
120,000
Nil

Ambra
40,000
nil

152,000

15,000

21,000
(8,000)

(5,000)
nil

and

The following information is relevant:

Panda
Equity shares of N1 each
200,000
Share premium
300,000
Retaied earnings 1st October
2008
40,000
Profit (loss) for the year ended 30th September
2009
47,000
Dividends paid (26th September 2009)
nil
The following information is relevant:

The fair values of the net assets of Salva at the date of acquisition were equal to their
carrying amounts with the exception of an item of plant which had a carrying amount
of N12 million and a fair value of N17 million. This plant had a remaining life of five
years (straight-line depreciation) at the date of acquisition of Salva. All depreciation
is charged to cost of sales. In addition Salva owns the registration of a popular

internet domain name. The registration, which had a negligible cost, has a five year
remaining life (at the date of acquisition); however, it is renewable indefinitely at a
nominal cost. At the date of acquisition the domain name was valued by a specialist
company at N20 million.The fair values of the plant and the domain name have not
been reflected in Salvas financial statements. No fair value adjustments were
required on the acquisition of the investment in Ambra.

Immediately after its acquisition of Salva, Pandar invested N50 million in an 8% loan
note from Salva. All interest accruing to 30 September 2009 had been accounted for
by both companies. Salva also has other loans in issue at 30 September 2009.

Pandar has credited the whole of the dividend it received from Salva to investment
income.

After the acquisition, Pandar sold goods to Salva for N15 million on which Pandar
made a gross profit of 20%. Salva had one third of these goods still in its inventory at
30 September 2009. There are no intra-group current account balances at 30
September 2009.

The non-controlling interest in Salva is to be valued at its (full) fair value at the date
of acquisition. For this purpose Salvas share price at that date can be taken to be
indicative of the fair value of the shareholding of the non-controlling interest.

The goodwill of Salva has not suffered any impairment; however, due to its losses,
the value of Pandars investment in Ambra has been impaired by N3 million at 30
September 2009.

All items in the above income statements are deemed to accrue evenly over the year
unless otherwise indicated.

Required:
Prepare the consolidated income statement for the Pandar Group for the year ended 30
September 2009.

Reading List
1. Elliot, B. and Elliot J. (2006). Financial Accounting, Reporting and Analysis. 2 nd
Edition. Edinburg Gate: Prentice Hall.
2. ACCA BBP Study Pack (2012). Financial Reporting (International and UK Stream).
6th Edition. London: BPP Learning Media.

3. ACCA BBP Study Pack (2009). Financial Reporting. Berkshire: Kaplan Publishing
UK

Week 13 & 14: Merger, Acquisition and Dissolution: Partnership Firms

Objective: At the end of these lectures to account for combination of merging partnership
firms as well as their wholesome and piecemeal dissolution.

Description:
Amalgamation of firms, dissolution of firms: wholesome and piecemeal, distribution to
partners.

Study Questions
1. Under what circumstances can a court decree a dissolution?
2. What is the priority of payment/claims when the firms resources are not sufficient to
pay off the liabilities of the firm?
3. The balance representing profit and loss on realization is shared using what ratio and
transferred to what account?
4. How are assets taken over by partners treated?
5. How are liabilities taken over by partners treated?
6. Differentiate between wholesome and piecemeal dissolution?
7. How are assets taken over by partners treated?
8. What ratios are used to distribute losses on partnership dissolution?
9. What ratio is being used to write off unrealized assets that are regarded as worthless
at each stage of the realization?
10. What rule is applied when a partner becomes insolvent in the course of adjusting
profits or losses?
11. When a partnership is to be dissolved, the current account (if any) is merged with
which account?

Reading list
1. Thomas and Ward (2012): Introduction to Financial Accounting. Seventh edition.
Berkshire: McGraw Hill
2. Wood and Sangster (2008): Business Accounting 1. Eleventh edition. Edinburg Gate:
Prentice Hall

Week 15: Revision

Objective: This week is specifically left for revision of all topics and sub-topics covered
during the teaching of the course. Students are required to ask any question related to the
course while the lecturer will ask the students questions to determine the level of
understanding of the course. Moreover, the revision is expected to refresh the students
memory and understanding of cogent issues and concepts they are expected to master for
practical use and examination purposes.

Revision Questions
1