Berko Ltd acquired all the equity shares in Jamila Ltd on 1 January 2018 for a consideration of GH¢1,250 million. The carrying amount and fair value of the identifiable net assets at acquisition were GH¢1,230 million. On 31 December 2020, Berko Ltd was in the process of selling its entire shareholding in Jamila Ltd, and so it was decided that Jamila Ltd should be treated as a disposal group held for sale in accordance with IFRS 5: Non-current Assets Held for Sale and Discontinued Operations at that date. The carrying amounts of Jamila Ltd’s net assets before classification as held for sale at 31 December 2020 in the individual statement of financial position are as follows:
GH¢’million
Property, plant and equipment 836
Intangibles (excluding goodwill) 428
Current assets (at recoverable amount) 584
Non-current liabilities (322)
Current liabilities (254)
. 1,272
The group has a policy of revaluing its property, plant and equipment in accordance with IAS 16: Property, Plant and Equipment. There have been no revaluations or any other gains or losses included within Jamila Ltd’s different components of equity since the date of acquisition as the carrying amount was deemed to be a close enough approximation to its fair value. However, on 31 December 2020, property with a carrying amount of GH¢330 million was considered to have a fair value of GH¢340 million. No adjustment has yet been made for this fair value. The total fair value less costs to sell off the disposal group at 31 December was estimated to be GH¢1,220 million. There have been no previous impairments to the goodwill of Jamila Ltd.
Required:
Recommend to the directors of Berko Ltd how the above transaction should be accounted for in the consolidated financial statements as at 31 December 2020 including financial statement extracts in accordance with relevant International Financial Reporting Standards. (9 marks)
View Solution
Jamila Ltd
- Goodwill in Jamila Ltd would originally be calculated as GH¢20 million (GH¢1,250 million – GH¢1,230 million). The net assets in Jamila Ltd are now GH¢1,292 million at 31st December 2020 (GH¢1,272 million per question and GH¢20 million goodwill).
- Since the group has a revaluation policy under IAS 16 Property, Plant and Equipment, the group must revalue the property plant and equipment of Jamila Ltd to fair value of GH¢340 million on classification as held for sale. A gain of GH¢10 million (GH¢340 million – GH¢330 million) would be recorded within other components of equity.
- The net assets of Jamila Ltd would now have a carrying amount of GH¢1,302 million including GH¢846 million for property, plant and equipment. On classification as held for sale, Jamila Ltd must be measured at the lower of carrying amount and fair value less costs to sell. An impairment arises of GH¢82 million (GH¢1,302 million – GH¢1,220 million).
- This will first be allocated to the goodwill of GH¢20 million. The remaining impairment of GH¢62 million is allocated to non-current assets to which the measurement requirements of IFRS5 Non-current Assets Held for Sale and Discontinued Operations apply. No impairment will therefore be allocated to the current assets of Jamila Ltd.
Calculations
The remaining impairment loss of GH¢62 million should be allocated to property, plant and equipment and other intangible assets in proportion to their respective carrying amounts as follows:
Property, plant and equipment GH¢62 million x (GH¢846m/ (GH¢846 million + GH¢428 million)) = GH¢41 million Other intangible assets GH¢ 62 million x (GH¢428 million/( GH¢846 million + GH¢428 million)) = GH¢21 million.
The assets and the liabilities of the disposal group should be separately presented within the current assets and current liabilities of the consolidated financial statements. GH¢1,796 million (GH¢805 million + GH¢407 million + GH¢584 million) or (GH¢836 + GH¢10 + GH¢428 – GH¢62 + GH¢584) will be included within current assets and GH¢576 million (GH¢322 million + GH¢254 million) within current liabilities. (5 marks evenly spread using ticks)
