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UNIVERSITY OF CAPE COAST

COLLEGE OF HUMANITIES AND LEGAL STUDIES
SCHOOL OF BUSINESS
DEPARTMENT OF ACCOUNTING
ACC 402 ADVANCED FINANCIAL REPORTING II – GROUP ASSIGNMENT 2

Question 1
AFR, a public limited company, owns 75% of the equity share capital of FR3, a public limited company which
is situated in a foreign country. AFR acquired FR3 on 1 October 2017 for 240 million Krows (KR) when the
retained earnings of FR3 were 160 million Krows. FR3 has not revalued its assets or issued any equity capital
since its acquisition by AFR. The following financial statements relate to AFR and FR3:
Statements of Financial Position as at 30 September 2018
AFR FR3
Assets GH¢'000 KR'000
Property plant and equipment 594,000 292,000
Investment in FR3 96,000
Loan to FR3 10,000
Current Assets 710,000 204,000
Total Assets 1,410,000 496,000

Equity and Liabilities

Share capital (GH¢1/KR1) 120,000 64,000
Share premium 100,000 40,000
Retained earnings 720,000 190,000
Non-current liabilities 60,000 82,000
Current liabilities 410,000 120,000
Total Equity and Liabilities 1,410,000 496,000

Statements of Profit or Loss for the year ended 30 September 2018

AFR FR3
Assets GH¢'000 KR'000
Revenue 400,000 284,000
Cost of sales (240,000) (192,000)
Gross profit 160,000 92,000
Operating expenses (60,000) (40,000)
Operating profit 100,000 52,000
Investment income 8,000 -
Finance cost (4,000)
Profit before tax 108,000 48,000
Tax (40,000) (18,000)
Profit for the year 68,000 30,000
The following information is relevant to the preparation of the consolidated financial statements of AFR:
• AFR had made an interest free loan to FR3 of GH¢10 million on 1 October 2017. The loan was repaid
on 31 October 2018. FR3 had included the loan in non-current liabilities and had recorded it at the
exchange rate at 1 October 2017.
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• The fair value of the net assets of FR3 at the date of acquisition is to be assumed to be the same as
the carrying value. AFR uses the full goodwill method when accounting for acquisition of a subsidiary.
Goodwill was impairment tested at the reporting date and had reduced in value by ten per cent. At
the date of acquisition, the fair value of the non-controlling interest was KR76 million.
• FR3 operates with a significant degree of autonomy in its business operations.
• The following exchange rates are relevant to the financial statements:
Krows to GH¢1
1 October 2017 2.5
30 September 2018 2.1
Average rate for year to 30 September 2018 2

• AFR has paid a dividend of GH¢8 million during the financial year.
Required: Prepare a consolidated statement of profit or loss and other comprehensive income for the
year ended 30 September 2018 and a consolidated statement of financial position at that date.