UNIVERSITY OF CAPE COAST

COLLEGE OF HUMANITIES AND LEGAL STUDIES

SCHOOL OF BUSINESS
DEPARTMENT OF ACCOUNTING
ACC 401 ADVANCED FINANCIAL REPORTING I

Question 1
The financial statements of ABZ Ltd and its investees for 2020 reporting period are as follows:

Statement of profit or loss for the year ended 31 December 2020

ABZ LTD U-SAVE LTD CK2 LTD
GH¢'000 GH¢'000 GH¢'000
Revenue 193 000 90 000 76 000
Cost of Sales - 126 000 - 64 000 - 40 000
Gross Profit 67 000 26 000 36 000
Distribution and Adm expenses - 22 000 - 10 400 - 6 000
Finance costs - 1 000 - 600
Other income 9 000
Profit before tax 53 000 15 000 30 000
Income tax expense - 10 000 - 3 000 6 000
Profit for the year 43 000 12 000 24 000

Statement of financial position as at 31 December 2020

ABZ LTD U-SAVE LTD CK2 LTD
GH¢'000 GH¢'000 GH¢'000
Assets
Non-current assets
Property Plant and Equipment 90 000 52 000 90 000
Investment in shares 27 000
WIP-Building Project 6 000
Current assets
Inventory 34 500 20 000 16 000
Trade receivables 16 000 7 500 12 000
Cash/Bank 34 500 7 000 2 000
Total assets 208 000 86 500 120 000

Equity and liabilities

Ordinary shares(all issued at GH¢1 each) 50 000 20 000 20 000
Retained earnings 93 000 40 000 80 000
Non-current liabilities-Loan notes 25 000 5 000 5 000
Current liabilities 40 000 21 500 15 000
Total equity and liabilities 208 000 86 500 120 000

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• On 1 January 2020, the management of ABZ Ltd acquired 15 million GH¢1 equity shares of U-Save
Ltd. The acquisition was through a share for share exchange of one share in ABZ Ltd for every two
shares in U-Save Ltd and a cash consideration of GH¢2 per acquired U-Save share to be settled on
1 January 2022. The market price of each ABZ Ltd share at the date of acquisition was GH¢4 and
that of U-Save was GH¢4.80. The cost of capital for ABZ approximates 10% per annum, giving a PV
factor of 0.8264.
• ABZ also acquired 6 million GH¢1 equity shares of CK2 Ltd at a cost of GH¢4.50 per share in cash.
Payment was effected immediately. Only the cash payment has been recorded.
• At the date of acquisition, the fair values of U-Save Ltd’s assets were equal to their carrying amounts,
except for a landed property which had a fair value of GH¢2 million below its carrying amount. This
has not been reflected in the financial statement of U-Save as at 31 December, 2020. Ignore
depreciation implications.
• On 1 January 2020 ABZ transferred an item of plant to U-Save at its agreed fair value of GH¢13
million. Its carrying amount prior to the transfer was GH¢10 million and the estimated remaining life
at the date of transfer was four years (straight-line depreciation). Depreciation on plant is charged to
cost of sales.
• During the year, U-Save Ltd transferred goods to ABZ Ltd at a transfer price of GH¢15 million with
profit mark-up of 25%. Half of the goods were still in inventory at 31 December 2020.
The inventory of CK2 Ltd includes goods received from ABZ Ltd at a transfer price of GH¢5 million
and mark-up of 25%. There were no intra-group payables or receivables at 31 December 2020.
• The companies paid the following dividend which were charged to the statement of changes in equity
(retained earnings column):
ABZ Ltd GH¢25 million (dividend per share of GH¢.50)
U-Save Ltd - GH¢4 million (dividend per share of GH¢.20)-Not recorded by ABZ Ltd
CK2 Ltd GH¢10 million (dividend per share of GH¢.50)
Other income in the statement of profit or loss of ABZ Ltd is the dividend received from CK2 and the
profit on the transfer of plant to.
• It is the policy of the group to measure non-controlling at proportion of net asset acquired impairment
test conducted at 31 December 2020 concluded that the value of investments in both companies
were 10% impaired.
• On 1 July 2020, ABZ purchased 2,000,000 equity shares in Eban, a key supplier. Eban’s shares are
listed on the Ghana Stock Exchange (GSE). This share purchase did not give ABZ control or
significant influence over Eban but ABZ intends to retain the shares in Eban as a long-term strategic
investment and has elected irrevocable to measure and recognise gains and losses through other
comprehensive income. ABZ paid GH¢2·50 per share for these shares. Additionally, brokers charge
a fee of 2% of the amounts paid to buy the shares. On 31 December 2020, Eban paid a dividend of
25 pesewas per share and the share price on that date were GH¢2.90. No entries of this transaction
has been made.

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 Required: Prepare for ABZ Group Ltd:
a) a consolidated statement of profit or loss for the year ended 31 December 2020.
b) a consolidated statement of financial position as at 31 December 2020.

Question 2
On 1 January 2019, Ebany Ltd and Mandy Ltd entered into a joint operation to purchase and operate an oil
pipeline. Both entities contributed equally to the purchase cost of GH¢10,000,000 and this was financed by
a joint loan of GH¢10,000,000. The terms of the contract are as follows:
• Ebany Ltd carries out all maintenance work on the pipeline but maintenance expenses are
shared between Ebany Ltd and Mandy Ltd in the ratio 40%: 60%.
• Both entities use the pipeline for their own operations and share any income from third parties
50%: 50%. Sales to third parties are invoiced by Mandy.
• The full interest on the loan is initially paid by Mandy Ltd but the expense is to be shared equally.
During the year ended 31 December 2019, Ebany Ltd carried out maintenance at a cost of GH¢800,000.
Income from third parties was GH¢2,800,000, all paid to Mandy Ltd. Interest of GH¢1,000,000 was paid for
the year on 31 December by Mandy.
Required: Prepare a schedule to show the relevant figures that would be recognised in the statement
of Financial Position and the Statement of Profit or Loss for the for the year to 31 December 2019.

Question 3
Mireille Plc is a manufacturing company with five operating segments. The following information are provided
for the year ended 31 December 2020:
Operating External Revenue Internal Profit/Loss Assets Liabilities
Segments Revenue
GH¢
1 1 410 000 76 000 388 000 400 000 260 000
2 164 000 (44 000) 88 000 80 000
3 600 000 162 000 412 000 250 000
4 70 000 20 000 150 000 120 000
5 180 000 76 000 (126 000) 100 000 50 000
Total 2 354 000 222 000 400 000 1 150 000 760 000
Required: For each operating segment, explain whether it is a reportable segment or not.

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