On 1 January 2021, Groove acquired 75% of Amigos equity shares by means of an immediate share exchange of two shares in Groove for five shares in Amigo. The fair value of Groove and Amigos shares on 1 January 2021 were K400 and K300 respectively. In addition to the share exchange, Groove will make a cash payment of K132 per acquired share, deferred until 1 January 2022. Groove has not recorded any of the considerations for Amigo in its financial statements. Grooves cost of capital is 10% per annum.

The summarised statements of financial position of the two companies as at 30 June 2021 are:

ASSETS

Non-current assets (note (ii))

Property, plant and equipment

Financial asset equity investments (note (v))

Current assets

Inventory (note (iv))

Trade receivables (note (iv)) Bank

Total assets

EQUITY AND LIABILITIES

Equity

Equity shares of K1 each

Other component of equity Retained earnings at 1 July 2020

for year ended 30 June 2021

Current liabilities (note (iv)) Total equity and liabilities

The following information is relevant:

Groove Amigo K000 K000

55,000 28,600 11,500 6,000 66,500 34,600

17,000 15,400 14,300 10,500 2,200 1,600 33,500 27,500 100,000 62,100

20,000 20,000 4,000 nil 26,200 14,000 24,000 10,000 74,200 44,000 25,800 18,100 100,000 62,100

(i) Amigos business is seasonal and 60% of its annual profit is made in the period 1 January to 30 June each year.

(ii) At the date of acquisition, the fair value of Amigos net assets was equal to their carrying amounts with the following exceptions:

An item of the plant had a fair value of K2 million below its carrying value. At the date of acquisition, it had a remaining life of two years. The fair value of Amigos investments was K7 million (see also note (v)). Amigo owned the rights to a popular mobile (cell) phone game. At the date of acquisition, a specialist valuer estimated that the rights were worth K12 million and had an estimated remaining life of five years.

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(iii)Following an impairment review, consolidated goodwill is to be written down by K3 million as of 30 June 2021.

(iv)Groove sells goods to Amigo at cost plus 30%. Amigo had K18 million of goods in its inventory on 30 June 2021 which had been supplied by Groove. In addition, on 28 June 2021, Groove processed the sale of K800,000 of goods to Amigo, which Amigo did not account for until their receipt on 2 July 2021. The in-transit reconciliation should be achieved by assuming the transaction had been recorded in the books of Amigo before the year-end. On 30 June 2021, Groove had a trade receivable balance of K24 million due from Amigo which differed from the equivalent balance in Amigos books due to the sale made on 28 June 2021.

(v) On 30 June 2021, the fair values of the financial asset equity investments of Groove and Amigo were K132 million and K79 million respectively.

(vi)Grooves policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose, Amigos share price at that date is representative of the fair value of the shares held by the non-controlling interest.

Required:

Prepare the consolidated statement of financial position for Groove as at 30 June 2021.