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)
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b) Calculate the non-controlling interest in the adjusted profit of S Ltd for the year to 31st March 2015. (3 marks)
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The profits after tax are GHC2,925, but the preference dividends would have been paid, as distributable profits exist. The ordinary NCI is 20% of the retention.