QUESTION ONE

The following financial statements relate to Stalky Ltd and Fanny Ltd:

Extract of Statement of Profit or Loss for the year ended 31 December 2020
Stalky Ltd Fanny Ltd
GH¢000 GH¢000
Profit before tax 15,400 8,900
Tax (5,600) (4,850)
Profit for the year 9,800 4,050

Statement of Financial Position as at 31 December 2020

Stalky Ltd Fanny Ltd
GH¢000 GH¢000
Assets
Non-current assets:
Property, plant and equipment 122,500 75,000
Investment in Fanny Ltd 58,000 -
180,500 75,000
Current assets (including loan advanced to Fanny Ltd) 69,500 44,900
Total assets 250,000 119,900
Equity and liabilities
Equity:
Ordinary share capital (issued @ GH¢0.50) 50,000 20,000
10% Preference share capital 5,300 2,500
Retained earnings 89,700 46,400
Other reserves 11,000 1,000
156,000 69,900

Non-current liabilities 35,000 14,000

Current liabilities (including loan from Stalky Ltd) 59,000 36,000
Total equity and liabilities 250,000 119,900

Additional information:
i) Stalky Ltd acquired 30 million ordinary shares of Fanny Ltd on 1 January 2019 when the
book value of Fanny Ltd’s share capital (i.e. including preference share capital) plus
reserves stood at GH¢58 million. Fanny Ltd has neither issued any share capital nor seen
any change in its other reserves since the acquisition of shareholdings by Stalky Ltd. 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.
ii) Fair value exercise conducted at the time of Fanny Ltd’s acquisition revealed the
following matters:
 A piece of equipment with an actual carrying amount of GH¢10 million had an assessed
fair value of GH¢16 million. The estimated remaining useful economic life of this
equipment at acquisition was six years.
 An in-process research and development project existed at acquisition that met the
recognition criteria of IAS 38: Intangible Assets. At that date, the fair value of the project

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 was GH¢5 million. The project started to generate economic benefits a year ago and is
expected to contribute to the entity over a further four years.
 The above adjustments necessitated deferred tax provision of GH¢1 million at acquisition. 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.
Fanny Ltd has not yet incorporated the above fair value adjustments into its own financial
statements. Depreciation and amortization are charged to cost of sales.
iii) During the year, Stalky Ltd sold goods worth GH¢25 million to Fanny Ltd and made a
mark-up of one-third in arriving at the selling price. At 31 December 2020, inventories of
Fanny Ltd included GH¢4.8 million in respect of the goods supplied by Stalky Ltd. At 31
December 2019, Fanny Ltd’s inventories included GH¢3 million worth of goods purchased
from Stalky Ltd at the same mark up on cost. Ignore deferred tax implications on these
items.
iv) 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 the books of Fanny Ltd due to
payment of GH¢2 million made on 30 December 2020 by Fanny Ltd to Stalky Ltd.
v) 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 and can be used
for this purpose. Goodwill was impaired by 10% for the year ended 31 December 2019. A
further impairment approximating 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.
(Total: 20 marks)
SOLUTION TO QUESTIONS
QUESTION ONE
STALKY GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31
DECEMBER 2020
Non-current assets: GH¢000
Property, plant and equipment (122,500 + 75,000 + 6,000 – 2,000) 201,500
Research project (5,000 – 1,000wk2) 4,000
Goodwill (wk3) 4,860
210,360
Current assets (69,500 + 44,900 – 8,000 + 2000 – 1,200) 107,200
Total assets 317,560

Equity & liabilities

Ordinary share capital 50,000
10% Preference share capital 5,300
Retained earnings (wk5) 93,045
Other reserves 11,000
Non-controlling interests 19,515
178,860
Non-current liabilities (35,000 + 14,000 + 700 deferred tax) 49,700
Current liabilities (59,000 + 36,000 – 6,000) 89,000
Total equity & liabilities 317,560

Workings

1. Group Structure

Stalky Ltd
30
40 x 100

Group = 75%
NCI 25%

Fanny Ltd
Reporting date 31st December 2020
Acquisition date 1st January 2019
Post acquisition period – 2 years

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2. Net assets schedule – Fanny
Acquisition date Reporting date Post
GH¢000 GH¢000 acquisition
profit
Ordinary share capital 20,000 20,000 0
Retained earnings 34,500 46,400 11,900
(58,000 – 20,000 – 2,500 –
1,000)
Other reserves 1,000 1,000
Fair value adjustment – 6,000 6,000
plant (16,000 – 10,000)
Additional depreciation - (2,000) (2,000)
(6,000/6 = 1,000 x 2)
In-process research 5,000 5,000
Amortisation (5,000/5) - (1,000) (1,000)
Deferred tax (1,000) (700) 300
65,500 74,700 9,200

Note: additional depreciation for only current period should be added to cost of
sales. Hence, cost of sales is adjusted for GH¢1m (GH¢6m/6)

3. Goodwill:
GH¢000
Cost of investment (58,000 – 1,500 legal fees) 56,500
Fair value of NCI [(40,000 – 30,000) x 1.5] 15,000
71,500
Less: Sub’s net assets at acquisition (65,500)
Goodwill at acquisition 6,000
Impairment loss (for the year to 31/12/19) (600)
At 31/12/2019 5,400
Impairment loss (for the year to 31/12/20) (540)
Goodwill at reporting (31/12/2020) 4,860)

Note: Total impairment loss to date

(600 + 540) = 1,140

4. Non-controlling interest GH¢000

Fair value at acquisition 15,000
(40,000 – 30,000) x 1.5
Share of sub’s post-acquisition movements 2,300
(25% x 9,200)

100% of sub’s preference share capital 2,500

Impairment (25% x 1,140) (285)
At 31/12/2020 19,515

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5. Retained earnings GH¢000
Parent: Balance b/d 89,700
Unrealized profit on inventory at end (1,200)
(1/4 x 4,800)
Due diligence costs (1,500)

Share of sub’s post-acq. earnings 6,900

(75% x 9,200)
Impairment (75% x 1,140) (855)
At 31/12/20 93,045

6. Unrealized profit
On yearend inventory (1/4 x 4,800) 1,200

On year start inventory (1/4 x 3,000) 750

Movement in provision for unrealized profit 350