Question 1 a) The following are the draft statements of financial position of Mukwa Plc, Ngalati Ple and Miteke Plc as at 30th November 2020: Mukwa Ple Ngalati Plc Miteke Plc K'million K'million K'million Assets Non-current assets 1,620 Property, plant and equipment 540 859 Investments 507 34 106 2,127 574 965 Current Assets 335 235 156 Inventory 215 82.5 119 Trade receivables 368.5 158.5 172 Other receivables 268 118 125 Cash & cash equivalents 1,186.5 594 572 3.313.5 1.168 1.537 Total assets Equity and liabilities Equity 925 260 216 Equity shares K1 300 97.5 nil Other components of equity Retained earnings 475 154 446 Total equity 1.700 511.5 662 Non-current Liabilities Deferred tax 435 220 188 13% loan notes 540.5 nil nil 975.5 220 188 Current Liabilities Trade payables 345 185 250 Other payables 78 61.5 176 Taxation 215 190 261 Total current liabilities 638 436.5 687 Total liabilities 1,613.5 656.5 875 Total equity and liabilities 3.313.5 1.168 1.537 Additional information: 1. Mukwa Plc acquired 60% of Kl equity shares of Ngalati Plc on 1st December 2018 for a share exchange of 3 shares in Mukwa Plc for every 4 shares in Ngalati Plc. The fair values of Ngalati's and Mukwa's equity shares at Ist December 2018 were K1.25 and K2.50 respectively. The fair value of net assets of Ngalati Ple at 1st December 2018 stood at K410 million. The other components of equity and retained earnings were K42.5 million and K95 million respectively on the acquisition date. The increase in fair value relates to an item of plant with a remaining economic useful life of five years at the date of acquisition. The fair value of non-controlling interest in Ngalati Ple on acquisition date was K130 million. Ngalati Ple has neither issued additional equity shares nor incorporated increase in fair value of net assets in its financial statements since acquisition date, On 30th November 2020, Mukwa Ple acquired additional 20% of Ngalati Ple's total equity shares for a cash consideration of K65 million. Mukwa Ple acquired 75% of K1 equity shares of Miteke Ple on 1st December 2019 for a cash consideration of K427.5 million. The fair value of net assets at the date of acquisition was K540 million. Retained earnings were K267 million at 1st December 2019. There were no other components of equity on that date. The increase in the fair value of net assets relates to non-depreciable land. The fair value of non-controlling interest was K142.5 million at 1st December 2019. Miteke Plc has neither issued additional equity shares nor incorporated the increase in fair value of net assets since acquisition date. Note: Only the cash consideration in relation to acquisition of equity shares in both Ngalati Plc and Miteke Plc has been accounted for in the above draft statements of financial position On 1 December 2019, Mukwa Plc granted 1,000 share appreciation rights (SARs) to each of its 500 managers on condition that they remain with Mukwa Plc for the next two years. All of the rights vest on 30 November 2021 but they can be exercised from 1 December 2021 up to 30 November 2022. At the grant date, the value of each SAR was K24. In the year to 30 November 2020, 20 managers left. Mukwa Plc estimates that a further 40 managers will leave during year to 30 November 2021. In the year to 30 Novemberl 2021, 25 managers left. The fair value of the SARS is as follows: Fair value of SAR Date K26 30 November 2020 K28 30 November 2021 K30 30 November 2022 Mukwa Plc has not accounted for share appreciation rights for the year ended 30 November 2020. The balance of investment in Mukwa is a financial asset classified as a fair value through other comprehensive income FVTOCI instrument and at 30 Novemmber 2020, it had a fair value of KK20 million. Furthermore, the investments in Ngalati Ple and Miteke Ple are classified as financial assets at fair value through other comprehensive income in accordance with IFRS 9. The fair values of investments in Ngalati Ple, cash consideration only, and in Miteke Plc at 30th November 2020 were K68.5 million and K438.5 million respectively. 7. Goodwill in Ngalati Plo was impaired by K3.5 million as at 30 November 2020 respectively, However, goodwill in Miteke Ple had not been impaired since the date of acquisition 8. It is group policy to value NCI at fair value. 9. Unless otherwise stated, assume all profits and losses accrue evenly throughout the year. Required: a) Prepare a consolidated statement of financial position for Mukwa group as at 30th November 2020 in accordance with applicable International Financial Reporting Standards. (40 marks) b) An entity Guru Inc. owns 80% of the equity shares of another entity Bulu Ltd for some time now. It also owns 30% of equity shares of another entity Doko Plc which gives Guru Inc. significant influence. You are reviewing the financial statements of Guru Inc and discover that Guru Inc. is itself a subsidiary of another entity Fufu Plc. Fufu Plc, has 90% voting power in Guru Inc. and prepares and publishes consolidated financial statements in accordance with IFRS 10 consolidated financial statements. Guru Inc. equity shares are not publicly traded and the entity isn't even in the process of issuing its securities on the public securities market. You have discovered that Guru Inc does prepare consolidated financial statements as a result of the control it has of Bulu Ltd. and the significant influence over Doko Plc. Required: Evaluate the appropriateness of Guru Inc. preparation of consolidated financial statements for itself and its subsidiary Bulu Ltd. and associate Doko Ple. (10 marks) [Total: 50 marks Question 1 a) The following are the draft statements of financial position of Mukwa Plc, Ngalati Ple and Miteke Plc as at 30th November 2020: Mukwa Ple Ngalati Plc Miteke Plc K'million K'million K'million Assets Non-current assets 1,620 Property, plant and equipment 540 859 Investments 507 34 106 2,127 574 965 Current Assets 335 235 156 Inventory 215 82.5 119 Trade receivables 368.5 158.5 172 Other receivables 268 118 125 Cash & cash equivalents 1,186.5 594 572 3.313.5 1.168 1.537 Total assets Equity and liabilities Equity 925 260 216 Equity shares K1 300 97.5 nil Other components of equity Retained earnings 475 154 446 Total equity 1.700 511.5 662 Non-current Liabilities Deferred tax 435 220 188 13% loan notes 540.5 nil nil 975.5 220 188 Current Liabilities Trade payables 345 185 250 Other payables 78 61.5 176 Taxation 215 190 261 Total current liabilities 638 436.5 687 Total liabilities 1,613.5 656.5 875 Total equity and liabilities 3.313.5 1.168 1.537 Additional information: 1. Mukwa Plc acquired 60% of Kl equity shares of Ngalati Plc on 1st December 2018 for a share exchange of 3 shares in Mukwa Plc for every 4 shares in Ngalati Plc. The fair values of Ngalati's and Mukwa's equity shares at Ist December 2018 were K1.25 and K2.50 respectively. The fair value of net assets of Ngalati Ple at 1st December 2018 stood at K410 million. The other components of equity and retained earnings were K42.5 million and K95 million respectively on the acquisition date. The increase in fair value relates to an item of plant with a remaining economic useful life of five years at the date of acquisition. The fair value of non-controlling interest in Ngalati Ple on acquisition date was K130 million. Ngalati Ple has neither issued additional equity shares nor incorporated increase in fair value of net assets in its financial statements since acquisition date, On 30th November 2020, Mukwa Ple acquired additional 20% of Ngalati Ple's total equity shares for a cash consideration of K65 million. Mukwa Ple acquired 75% of K1 equity shares of Miteke Ple on 1st December 2019 for a cash consideration of K427.5 million. The fair value of net assets at the date of acquisition was K540 million. Retained earnings were K267 million at 1st December 2019. There were no other components of equity on that date. The increase in the fair value of net assets relates to non-depreciable land. The fair value of non-controlling interest was K142.5 million at 1st December 2019. Miteke Plc has neither issued additional equity shares nor incorporated the increase in fair value of net assets since acquisition date. Note: Only the cash consideration in relation to acquisition of equity shares in both Ngalati Plc and Miteke Plc has been accounted for in the above draft statements of financial position On 1 December 2019, Mukwa Plc granted 1,000 share appreciation rights (SARs) to each of its 500 managers on condition that they remain with Mukwa Plc for the next two years. All of the rights vest on 30 November 2021 but they can be exercised from 1 December 2021 up to 30 November 2022. At the grant date, the value of each SAR was K24. In the year to 30 November 2020, 20 managers left. Mukwa Plc estimates that a further 40 managers will leave during year to 30 November 2021. In the year to 30 Novemberl 2021, 25 managers left. The fair value of the SARS is as follows: Fair value of SAR Date K26 30 November 2020 K28 30 November 2021 K30 30 November 2022 Mukwa Plc has not accounted for share appreciation rights for the year ended 30 November 2020. The balance of investment in Mukwa is a financial asset classified as a fair value through other comprehensive income FVTOCI instrument and at 30 Novemmber 2020, it had a fair value of KK20 million. Furthermore, the investments in Ngalati Ple and Miteke Ple are classified as financial assets at fair value through other comprehensive income in accordance with IFRS 9. The fair values of investments in Ngalati Ple, cash consideration only, and in Miteke Plc at 30th November 2020 were K68.5 million and K438.5 million respectively. 7. Goodwill in Ngalati Plo was impaired by K3.5 million as at 30 November 2020 respectively, However, goodwill in Miteke Ple had not been impaired since the date of acquisition 8. It is group policy to value NCI at fair value. 9. Unless otherwise stated, assume all profits and losses accrue evenly throughout the year. Required: a) Prepare a consolidated statement of financial position for Mukwa group as at 30th November 2020 in accordance with applicable International Financial Reporting Standards. (40 marks) b) An entity Guru Inc. owns 80% of the equity shares of another entity Bulu Ltd for some time now. It also owns 30% of equity shares of another entity Doko Plc which gives Guru Inc. significant influence. You are reviewing the financial statements of Guru Inc and discover that Guru Inc. is itself a subsidiary of another entity Fufu Plc. Fufu Plc, has 90% voting power in Guru Inc. and prepares and publishes consolidated financial statements in accordance with IFRS 10 consolidated financial statements. Guru Inc. equity shares are not publicly traded and the entity isn't even in the process of issuing its securities on the public securities market. You have discovered that Guru Inc does prepare consolidated financial statements as a result of the control it has of Bulu Ltd. and the significant influence over Doko Plc. Required: Evaluate the appropriateness of Guru Inc. preparation of consolidated financial statements for itself and its subsidiary Bulu Ltd. and associate Doko Ple. (10 marks) [Total: 50 marks