ANN Co is considering acquiring an interest in its competitor IB Co LTD. The managing director of ANN Co has obtained the three most recent statements of financial position of IB Co Ltd as shown below.
           IB CO Ltd- Statement of financial position at 31st December.

Required:
Prepare a report for the managing director of ANN Co. commenting on the financial position of IB Co Ltd. and highlight any areas that require further investigation (using gearing and liquidity ratios only).                                                            (15 marks)

The functional currency according to IAS 21 the effects of changes in foreign exchange rates is the currency of the primary economic environment where the entity operates.
Required:
Identify THREE factors in accordance with IAS 21 that an entity will consider in determining its functional currency.     (3 marks)

As a newly qualified accountant with The Institute of Chartered Accountants (Ghana) (ICAG), you are asked to make a short presentation to the rest of the staff in the accounting and finance department of your employer who are themselves yet to join ICAG as students about the standard setting process adopted by the International Accounting Standards Board.
Required:
Discuss the standard setting process as adopted by the IASB to these junior staff.                                                            (5 marks)

You are the finance director of ABC Company. ABC is preparing its financial statements for the year ended 31st December 2015. The following item has been brought to your attention:
ABC acquired the entire share capital of XYZ Ltd during the year. The acquisition was achieved through a share exchange. The terms of the exchange were based on the relative values of the two companies obtained by capitalizing the companies’ estimated cash flows. When the fair value of XYZ’s Ltd identifiable net assets was deducted from the value of the company as a whole, its goodwill was calculated at GH¢2.5 million. A similar exercise valued the goodwill of ABC at GH¢4 million. The directors wish to incorporate both goodwill values in the companies’ consolidated financial statements
Required:
Describe how ABC should treat the item in its financial statements for the year ended 31st December 2015 commenting on the directors views, where appropriate.                                                                                                                                    (5 marks)

Naniama Ltd issued 3,000 convertible bonds at par. The bonds are redeemable in 4 years’ time at their par value of GH¢100 per bond. The bonds pay interest annually in arrears at an interest rate (based on nominal value) of 5%. Each bond can be converted at the maturity date into 5 GH¢1.00 shares. The prevailing market interest rate for four year bonds that have no right of conversion is 8%.
The present value at 8% of GH¢1 receivable at end of:

Required:
Show the initial accounting treatment of the bond in accordance with International Financial Reporting Standards (IFRS).       (5 marks)

i) The issue share capital of Ghana Trust, a publicly listed company on the Ghana Stock Exchange, at 31st March 2013 was GH¢10 million. Its shares are denominated at 25 pesewas each. Ghana Trust’s earnings attributable to its ordinary shareholders for the year ended 31st March 2013 were also GH¢10 million, given an earnings per share of 25 pesewas.

Year ended 31st March 2014
On 1st July 2013 Ghana Trust issued eight million ordinary shares at full market price. On 1st January 2014 a bonus issue of one new ordinary share for every four ordinary shares held was made. Earnings attributable to ordinary shareholders for the year ended 31st March 2014 were GH¢13.8 million.
Year ended 31st March 2015
On 1st October 2014 Ghana Trust made a rights issue of shares of two new ordinary shares at a price of GH¢1.00 each for every five ordinary shares held. The offer was fully subscribed. The market price of Ghana Trust’s ordinary shares immediately prior to the offer was GH¢2.40 each. Earnings attributable to shareholders for the year ended 31st March 2015 were GH¢19.5 million.
Required:
Calculate Ghana Trust’s earnings per share for the years ended 31st March 2014 and 2015 including comparative figures. (7 marks)

ii) On 1st April 2015 Ghana Trust issued GH¢20 million 8% convertible loan stock at par. The terms of the conversion (on 1st April 2018) are that for every GH¢100 of loan stock, 50 ordinary shares will be issued at the option of loan stockholders. Alternatively, the loan stock will be redeemed at par for cash. Also, on 1st April 2015 the directors of Ghana Trust were awarded share options on 12 million ordinary shares exercisable from 1st April 2018 at GH¢1.50 per share. The average market value of Ghana Trust’s ordinary shares for the year ended 31st March 2015 was GH¢2.50 each. The income tax rate is 25%. Earnings attributable to ordinary shareholders for the year ended 31st March 2015 were GH¢25,200,000. The share options have been correctly recorded in the statement of profit or loss.
Required:
Calculate Ghana Trust’s basic and diluted earnings per share for the year ended 31st March 2015 (comparative figures are not required).
You may assume that both the convertible loan and the directors’ options are dilutive.                                                    (5 marks)

On 1st April 2014, H Plc. acquired four million of the ordinary shares of S Ltd, paying GH¢4.50 each. At the same time, H Plc also purchased, GH¢500,000 of S Ltd 10% redeemable preference shares. At the acquisition date, the retained earnings of S Ltd were GH¢8,400,000.
Reproduced below are the draft statements of financial positions of the two companies at 31st March 2015:

Extracts from the statement of profit or loss of S Ltd, before intra group adjustments, for the year to 31st March 2015 are:

The following information is relevant.
i) Included in the land and buildings of S Ltd is a large area of development land at cost of GH¢5 million. Its fair value at the date S Ltd was acquired was GH¢7 million and by 31st March 2015 this had risen to GH¢8.5 million. The group valuation policy for development land is that it should be carried at fair value and not depreciated.
ii) Also at the date of acquisition of S Ltd, S Ltd plant and equipment included plant that had a fair value of GH¢4 million in excess of its carrying value. This plant had a remaining life of 5 years. The group calculates depreciation on a straight-line basis. The fair value of the other net assets of S Ltd approximated to their carrying values.
iii) During the year, S Ltd sold goods to H Plc. for GH¢1.8 million. S Ltd adds a 20% mark-up on cost to all its sales. Goods with a transfer price of GH¢450,000 were included in the inventory of H Plc. at 31st March 2015.The balance on the current accounts of the H Plc and S Ltd was GH¢240,000 on 31st March 2015.
iv) An impairment test carried out at 31st March 2015 showed that the consolidated goodwill was impaired by GH¢1,488,000.
v) S Ltd had paid its preference dividends in full and ordinary dividends of GH¢500,000.
Required:
a) Prepare the consolidated statement of financial position of H Plc. as at 31st March 2015.                                          (14 marks)

b) Calculate the non-controlling interest in the adjusted profit of S Ltd for the year to 31st March 2015.                        (3 marks)

The following trial balance relates to Zealow Ltd as at 31st December 2015.

The following additional information is relevant:
i) An inventory count on 31st December 2015 listed goods with a cost of GH¢10.5 million. This includes some damaged goods that had cost GH¢800,000. These would require remedial work costing GH¢450,000 before they could actually be sold for an estimated GH¢950,000.
ii) Non-current assets:
Plant:
All plant, including that of the joint operation (note v), is depreciated at 12.5% on reducing balance basis.
Land and building:
The land and building were revalued at GH¢15 million and GH¢48 million respectively on 1st January 2015 creating a GH¢21 million revaluation surplus. At this date the building had a remaining life of 15 years. Depreciation policy is on a straight-line basis. Zealow Ltd does not make a transfer to realized profits in respect of excess depreciation.

Depreciation on both the building and the plant should be charged to the cost of sales.
Investment property:
On 31st December 2015 a qualified surveyor valued the investment property at GH¢13.5 million. Zealow Ltd uses the fair value model in IAS 40 Investment property to value its investment property.
iii) Interest expenses include overdraft charges, the full year’s preference dividend and an ordinary dividend of 4p per share that was paid in June 2015.
iv) The directors have estimated the provision for income tax for the year ended 31st December 2015 at GH¢8 million. The deferred tax provision at 31st December 2015 is to be adjusted (through the profit or loss statement) to reflect that the tax base of the company’s net assets is GH¢12 million less than their carrying amounts. The rate of tax is 30%.
v) On 1st January 2015 Zealow Ltd entered into a joint arrangement with two other entities. Each venturer contributes their own assets and is responsible for their own expenses including depreciation on assets of the joint arrangement. Zealow Ltd is entitled to 40% of the joint venture’s total turnover. The joint arrangement is not a separate entity and is regarded as a joint operation.
Details of Zealow Ltd joint venture transactions are:

Required:
a) Prepare the statement of profit or loss for Zealow Ltd for the year ended 31st December 2015.                                 (10 marks)

b) Prepare the statement of financial position for Zealow Ltd as at 31st December 2015.                                               (10 marks)

On 1 January 2012, VM Ltd acquired 18m of the equity shares of GR Ltd in a share exchange in which VM Ltd issued two new shares for every three shares it acquired in GR Ltd. This gave VM Ltd a holding of 90%. Additionally, on 31 December 2012, VM Ltd will pay the shareholders of GR Ltd GHS1.76 per share acquired. VM Ltd’s cost of capital is 10% per annum.
At the date of acquisition, shares in VM Ltd and GR Ltd had market prices of GHS6.50 and GHS2.50 each respectively.

     STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 30 SEPTEMBER 2012.

Equity as at 1 October 2011
Stated capital                                        120,000                    30,000
Income surplus                                     108,000                    70,000

The following information is relevant:
(i) At the date of acquisition the fair values of GR Ltd’s assets and liabilities were equal to their carrying amounts with the exception of two items:
1. An item of plant had a fair value of GHS3.6million above its carrying amount. The remaining life of the plant at the date of acquisition was three years. Depreciation is charged to cost of sales.
2. GR Ltd had a contingent liability which VM Ltd estimated to have a fair value of GHS900, 000. This has not changed as at 30 September 2012.
GR Ltd has not incorporated these fair value changes into its financial statements.

(ii) VM’s policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose, GR Ltd’s share price at the date can be deemed to be representative of the fair value of the shares held by the non-controlling interest.
(iii) Sales from VM Ltd to GR Ltd throughout the year ended 30 September 2012 had consistently been GHS1.6million per month. VM Ltd made a mark-up of 25% on these sales. GR Ltd had GHS3million of these goods in inventory as at 30 September 2012.
(iv) VM Ltd’s investment income is a dividend received from its investment in a 40% owned associate which it has held for several years. The underlying earnings for the associate for the year ended 30 September 2012 were GHS4million.
(v) Although GR Ltd has been profitable since its acquisition by VM Ltd, the market for GR Ltd’s product has been badly hit in recent months and VM Ltd had calculated that the goodwill has been impaired by GHS4million as at 30 September 2012.
Required:
(a) Calculate the goodwill on acquisition of GR.                                                                                                                (5 marks)

(b) Prepare the consolidated statement of profit or loss for VM Ltd for the year ended 30 September 2012.                 (15 marks)

LB Ltd also sells building materials to other contractors from its warehouse and is considering setting up another retail branch in a different part of the country.
The directors have been told that the branch can be run directly through the head office or set up a separate entity, but are not sure how the accounting will work.
Required:
Explain to the directors how this transaction should be treated in the books of LB Ltd.                                                   (5 marks)