Under IFRS 3: Business Combinations, the identifiable assets, liabilities and contingent liabilities of subsidiaries are therefore required to be brought into the consolidated financial statements at their fair value rather than their book value. The difference between fair values and book values is a consolidation adjustment made only for the purposes of the consolidated financial statements.

Required:
Explain the justification for undertaking fair value exercise when a parent acquires a controlling stake in a subsidiary company. (5 marks)

Anidaso Ltd operates in the manufacturing industry in Ghana. The company is in the process of selling some of its shares to the general public in order to raise enough funds to expand its operations. Below are the financial statements of the company:

• The patents in the statement of financial position represents a license to produce an improved variety of a product and is expected to generate a pre-tax profit of GH¢10,000 per year for the next five years.
• Abiola Limited is a competitor company listed on the Ghana Stock Exchange and data extracted from its recently published financial statements revealed the following details:
  Market capitalisation                                                          GH¢1,000,000
  Number of ordinary shares                                                         800,000
  Earnings per share                                                                      GH¢0.20
  Dividend payout ratio                                                                    80%
• The cost of capital of Anidaso Ltd is 10%.

Required:
Determine the value to be placed on each share of Anidaso Ltd using the following methods of valuation:
i) Net assets;                              (4 marks)

ii) Price-earnings ratio;              (4 marks)

iii) Dividend yield;                     (3 marks)

iv) Discounted cash flow.           (4 marks)

Goodman recently qualified as accountant with the Institute of Chartered Accountants (Ghana). He works with a manufacturing company in Tamale, Ghana, and he has been asked, by his line manager, to complete a costing exercise and given a very short deadline as well as limited resources for the exercise. Goodman thinks that the President of the company is planning to use this information to restructure the company, including making some of Goodman’s close colleagues redundant. Goodman is very worried that the outcome of his work cannot be robust enough to be used for such a big business decision by the company, but his line manager is putting him under a lot of pressure to complete the work pretty much quickly.

Required:
Evaluate FOUR (4) ethical issues facing Goodman and recommend FOUR (4) possible courses of action Goodman should consider taking. (10 marks)

During the year ended 31 December 2018 Pakyi Ltd invested in a convertible bond on its issue date. The bond matures four years after the issue date and at that date the bond can be converted into ordinary shares of the investee or repaid at par. The entity’s plan for the bond is to hold it until it matures and collect the cash flows.

Required:
Advise the directors of Pakyi Ltd of the accounting treatment on the above transaction under IFRS 9: Financial Instruments for the year ended 31 December 2018.   (4 marks)

Tato Company (Tato), a listed company, purchased a significant item of equipment on 1 July 2018. The list price of the equipment was GH¢12 million, although the supplier always gives Tato a 10% discount on its list prices. Tato was unable to finance the purchase outright and the supplier therefore agreed to accept an arrangement whereby the amount of the payment would be determined by Tato’s share price on 30 June 2020.

At 30 June 2020, under the terms of the agreement, the supplier can choose to receive either:

• cash, equal to the value of 500,000 of Tato’s shares on that date; or
• 540,000 Tato’s shares on 30 June 2020, provided that they cannot be sold for 1 year after that date.

Tato’s share price was GH¢19.80 per share on 1 July 2018 and GH¢20.40 on 30 June 2019.
Required:
Demonstrate with suitable calculations, how the arrangement should be accounted for in Tato Company’s financial statements for the year ended 30 June 2019.          (6 marks)

A company is being sued by a customer in respect of some products supplied which the customer claims are faulty. The customer is suing for GH¢220,000 plus damage. Court costs are likely to amount to GH¢40,000. The company’s lawyer has advised that there is an 80% chance that the case will be lost and that the full amount claimed by the customer will become payable against the company.

The company is fully insured and the lawyer has advised that the insurance policy covers the event and should be utilized.

Required:
Determine the amount that should be recognised as a provision and charged to profit or loss and determine the treatment of the insurance claim. (4 marks)

Tekyiman Ltd (Tekyiman) sold one of its warehouses on 1 July 2019 to a finance house and leased it back under an operating lease on the same date. The carrying amount of the warehouse on 1 July 2019 was GH¢16 million. The terms of the sale and leaseback were as follows; sale proceeds of GH¢23.5 million and half-yearly lease rental payments of GH¢1 million paid in arrears on 31 December and 30 June over a period of 4 years.
The open market value of the property would have been GH¢20 million if not leased back on these terms. The lease rental payments were approximately double market rates for such a lease. The finance house can terminate the lease at any time with a month’s notice to Tekyiman, at which point any excess of the sales proceeds over market value of the property not yet repaid becomes repayable immediately.

Tekyiman depreciated the property up to 1 July 2019 and then derecognised it, recognising a profit of GH¢7.5 million (netted against expenses in the statement of profit or loss). The first GH¢1 million, 6 monthly lease rental payment, made on 31 December 2019 has been charged to cost of sales. No other accounting entries have been made.

Tekyiman now wishes to amortise the excess of the sales proceeds over market value on a straight line basis over the period the warehouse will be used (4 years).

Required:
Advise the directors of the entity of the correct accounting treatment of the above transaction under IFRS 16: Leases (as the information permits) for the year ended 31 December 2019.    (6 marks)

Katamanso Ltd (Katamanso) is a company which is a subsidiary of a media company. Katamanso’s principal asset is the rights it owns to a classic film. Katamanso had the following intangible assets as at the year end 31 December 2017:

The following information includes all relevant events that occurred during the year ended 31 December 2018:

i) The film was originally published on 1 January 1970 and the rights were acquired by Katamanso on 1 January 2015 for GH¢10 million. Copyright was set at 50 years from the date the film was originally published. The film was amortised by Katamanso using straight line method over the remaining copyright period. However, recent legislative changes passed on 1 January 2018 have extended the copyright period from 50 years to 70 years, subject to payment of a registration fee prior to the original expiry date. This, together with associated legal costs, amounted to GH¢70,000 and was paid on 1 January 2018.

As a result, the market value of the rights to the film was GH¢12.1 million at 31 December 2018, according to Katamanso’s professional valuers, who determined the valuation on 1 January 2018.

ii) During the year Katamanso developed a new interactive website to market the film and associated merchandise given its extended copyright period. The website includes its own e-commerce system for online DVD sales, direct streaming of the film and associated material and merchandise sales.
Costs incurred were as follows:                                      GH¢’000
Planning the new website                                                         8
Registration of various domain names                                    18
Internal design costs                                                                85
External contractor design costs                                             112
New content development                                                        38
Advertising of the new website                                                22

The new website went live on 1 July 2018 and the old website, which was being amortised using straight line method over five years, was taken offline on that date and will not be used for any other purpose.

Required:
Prepare a note reconciling the carrying amount of Katamanso’s intangible assets from the beginning to the year ended 31 December 2018 as required by IAS 38: Intangible Assets. (Note: Comparative information is not required. All amounts are material)                 (10 marks)

Bolga Ltd is a limited liability company in Ghana, which has investments in a number of other companies. The draft statements of profit or loss for Bolga Ltd and its other investments for the year ended April 30 2020 are given below:

Additional relevant information:
i) Bolga Ltd purchased 80% of Navrongo Ltd’s three million GH¢5 ordinary shares for GH¢12 million two years ago. At the acquisition date, the carrying value of Navrongo’s net assets was GH¢10 million, and this was deemed to be the same as their fair value. The non-controlling interest was measured using the proportion of net assets method. Goodwill on acquisition of Navrongo is not impaired. On 31 October 2019, Bolga Ltd sold one million, four hundred and forty thousand of its shares in Navrongo Ltd for GH¢13 million. The fair value of the interest retained was GH¢19 million. The retained earnings of Navrongo Ltd was GH¢5 million as at April 30, 2019. The only entry posted in Bolga Ltd’s individual financial statements was the GH¢13 million cash received. This was debited to the bank account and the credit posted to the suspense account.

ii) On 1 May 2019, Bolga Ltd acquired 60% of Serrekunda Ltd’s one million GMD1 ordinary shares for GMD284 million. Serrekunda is a Gambian based company with Gambian Dalasi (GMD) as its currency. The non-controlling interest at acquisition was valued at GMD116 million using the fair value method. At 1 May 2019, the carrying amount of Serrekunda Ltd’s net assets was GMD240 million but the fair value was GMD280 million. The excess in the fair value was due to a brand with a remaining useful economic life of 5 years at the date of acquisition.

On 30 April 2020, it was determined that goodwill arising on the purchased of Serrekunda Ltd was impaired by GMD16 million. Goodwill impairments are charged as administrative expenses.

iii) On 28 February 2020, Navrongo Ltd paid a dividend of GH¢2 million to its ordinary shareholders.

iv) On 1 June 2019, Bolga Ltd started a construction of a new building project and financed this out of its general borrowings. The construction was completed on 30 April 2020 at a total cost of GH¢20 million excluding interest on borrowings. Bolga Ltd has had the following loans outstanding for the whole financial year:
                                                                                            GH¢000
10% bank loan                                                                       28,000
8% loan notes                                                                        12,000
All the interest for the year has been expensed to the statement of profit or loss. None of the loan notes are held by any other companies within the Bolga Ltd.

v) On 1 November 2019, Bolga Ltd granted 20,000 share options to each of its 100 managers. These options will vest on 31 October 2021 if the managers are still employed. However, five managers had left the company by 30 April, 2020 and it is expected that another five will leave by 31 October 2021. The fair value of the share options was GH¢3.10 on 1 November 2019 and GH¢10 on 30 April, 2020. There have not been any accounting entries posted in relation to this scheme.

vi) The following exchange rates are relevant:
                                                                                                    GMD: GH¢1
May 1 2019                                                                                         10.0
April 30 2020                                                                                        8.0
Average for the year ended 30 April 2020                                          9.2

Required:
Prepare the consolidated statement of profit or loss and other comprehensive income for the year ended 30 April 2020.
(Total: 20 marks)

The shareholders of Japan Rocks, a computer chip manufacturing company based in Japan, are planning acquiring 60% of the shares in Konadu Yiadom Ltd in Ghana. The return on income for Konadu Yiadom Ltd for the year ended 31 December 2020 showed a loss of GH¢3,600,000 and the financial cost of GH¢900,000.

As a tax expert, the parties are requesting an opinion on the tax implications of the proposed transactions for Konadu Yiadom Ltd and its current shareholders.

Required:
Advise Japan Rocks and its shareholders on the income tax implications of the acquisition of shares by Japan Rocks and the treatment of financial cost.     (10 marks)