10 QUESTION TWO a) The following summarized trial balances pertain to Takoradi Ltd and its subsidiary Accra Ltd for the year ended 31 December 2018: Takoradi Ltd Accra Ltd Debit Credit Debit Credit GHem GHem GHm GHcm Sales 5.177 3.996 Cost of sales 3.255 2.448 Operating expenses 713 636 Other income 350 18 Tax expense 403 288 Share capital (GHC 10 each) 3.720 1,600 Share premium 1.430 322 Retained earnings as at 1 January 2018 2.293 516 Current liabilities 713 651 Property, plant and equipment 5.418 1.934 Investments 1.600 Loan to AL's Director Current assets 2.284 1.797 13,683 13,683 7,103 7,103 Additional information: Takoradi Ltd acquired 96 million shares of Accra Ltd on 1 May 2018 at following consideration: Cash payment of GHC 450 million and Issuance of 40 million shares of Takoradi Ltd at GH 25 each On acquisition date, carrying values of Accra Ltd's net assets were equal to fair value except the following: A building whose fair values and value-in-use were GH 390 million and GHc 520 million respectively as against canying value of GH 480 million. The group follows cost model for subsequent measurement of property, plant and equipment. The remaining life of building on acquisition date was 20 years. Fair value of the building has increased to GHC 440 million at 31 December 2018. A brand which had not been recognized by Acera Ltd. The fair value of the brand was assessed at GH 162 million. It is estimated that benefit would be obtained from the brand for the next 6 years. (111) Takoradi Ltd measures the non-controlling interest at fair value. On the date of acquisition, the market price of Accra Ltd's shares was GH 14 per share. (iv) On 1 July 2018 Takoradi Ltd sold an equipment to Accra Ltd for GH 250 million at a gain of GHC 20 million. Accra Ltd has charged depreciation of GHC 12.5 million on this equipment (v) In each month of 2018, Accra Ltd sold goods costing GH 40 million to Takoradi Ltd at cost plus 20%. At year end, 75% of the goods purchased in December were included in stock of Takoradi Ltd. (vi) Accra Ltd's credit balance of GHC 38 million in Takoradi Ltd's books does not agree with Accra Ltd's books due to GH 7 million charged by Takoradi Ltd for management service on 26 December 2018. Total management fee charged by Takoradi Ltd to Accra Ltd since acquisition amounted to GH 16 million. (vii) Accra Ltd declared interim cash dividend of GH 0.50 per share in December 2018. Takoradi Ltd has correctly recorded the dividend in its books. However, Accra Ltd has not yet accounted for the dividend. (viii) The incomes and expenses of Accra Ltd may be assumed to have accrued evenly during the year. Required: Prepare the following: i. Consolidated statement of profit or loss for the year ended 31 December 2018. [12 marks] ii. Consolidated statement of financial position as at 31 December 2018. [15marks] b) IFRS 10 Consolidated Financial Statements outlines the requirements for the preparation and presentation of consolidated financial statements, requiring entities to consolidate entities it controls. State how IFRS 10 Consolidated Financial Statements determines elements of control of an investor over investee. [3 mark] 10 QUESTION TWO a) The following summarized trial balances pertain to Takoradi Ltd and its subsidiary Accra Ltd for the year ended 31 December 2018: Takoradi Ltd Accra Ltd Debit Credit Debit Credit GHem GHem GHm GHcm Sales 5.177 3.996 Cost of sales 3.255 2.448 Operating expenses 713 636 Other income 350 18 Tax expense 403 288 Share capital (GHC 10 each) 3.720 1,600 Share premium 1.430 322 Retained earnings as at 1 January 2018 2.293 516 Current liabilities 713 651 Property, plant and equipment 5.418 1.934 Investments 1.600 Loan to AL's Director Current assets 2.284 1.797 13,683 13,683 7,103 7,103 Additional information: Takoradi Ltd acquired 96 million shares of Accra Ltd on 1 May 2018 at following consideration: Cash payment of GHC 450 million and Issuance of 40 million shares of Takoradi Ltd at GH 25 each On acquisition date, carrying values of Accra Ltd's net assets were equal to fair value except the following: A building whose fair values and value-in-use were GH 390 million and GHc 520 million respectively as against canying value of GH 480 million. The group follows cost model for subsequent measurement of property, plant and equipment. The remaining life of building on acquisition date was 20 years. Fair value of the building has increased to GHC 440 million at 31 December 2018. A brand which had not been recognized by Acera Ltd. The fair value of the brand was assessed at GH 162 million. It is estimated that benefit would be obtained from the brand for the next 6 years. (111) Takoradi Ltd measures the non-controlling interest at fair value. On the date of acquisition, the market price of Accra Ltd's shares was GH 14 per share. (iv) On 1 July 2018 Takoradi Ltd sold an equipment to Accra Ltd for GH 250 million at a gain of GHC 20 million. Accra Ltd has charged depreciation of GHC 12.5 million on this equipment (v) In each month of 2018, Accra Ltd sold goods costing GH 40 million to Takoradi Ltd at cost plus 20%. At year end, 75% of the goods purchased in December were included in stock of Takoradi Ltd. (vi) Accra Ltd's credit balance of GHC 38 million in Takoradi Ltd's books does not agree with Accra Ltd's books due to GH 7 million charged by Takoradi Ltd for management service on 26 December 2018. Total management fee charged by Takoradi Ltd to Accra Ltd since acquisition amounted to GH 16 million. (vii) Accra Ltd declared interim cash dividend of GH 0.50 per share in December 2018. Takoradi Ltd has correctly recorded the dividend in its books. However, Accra Ltd has not yet accounted for the dividend. (viii) The incomes and expenses of Accra Ltd may be assumed to have accrued evenly during the year. Required: Prepare the following: i. Consolidated statement of profit or loss for the year ended 31 December 2018. [12 marks] ii. Consolidated statement of financial position as at 31 December 2018. [15marks] b) IFRS 10 Consolidated Financial Statements outlines the requirements for the preparation and presentation of consolidated financial statements, requiring entities to consolidate entities it controls. State how IFRS 10 Consolidated Financial Statements determines elements of control of an investor over investee. [3 mark]