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QUESTION 1 On 1 June 2019, Manchester United Ltd bought 48 million ordinary shares in Chelsea FC Ltd paying GHS 280 million cash. The summarised

QUESTION 1

On 1 June 2019, Manchester United Ltd bought 48 million ordinary shares in Chelsea FC Ltd paying GHS 280 million cash. The summarised statement of financial position for the two entities as at 31 December 2019 were as follows:

Man Utd. Ltd Chelsea Ltd

GHSm GHSm

Non- current assets:

Property, plant and equipment 276 230

Investment 324 -

600 230

Current assets:

Inventory 30 34

Trade receivables 38 40

Cash and cash equivalents 4 -

72 74

Total assets 672 304

EQUITY AND LIABILITIES

Equity:

Share capital 228 80

Retained earnings 378 138

606 218

Non- current liabilities

8% loan stocks - 40

Current liabilities

Trade payables 66 46

Equity and Liabilities 672 304

Additional Information:

  1. On the date of acquisition, an item of equipment of Man United. Ltd with a carrying amount of GHS60 million had a fair value of GHS96 million and had remaining useful life of ten years from that date. This fair valuation has not been reflected in the financial statement of Man United Ltd.
  2. The inventory of Chelsea Ltd at 31 December 2019 included GHS 16 million worth of goods purchased from Man United at cost plus 25%
  3. Chelsea Ltd earned a profit after tax of GHS 18 million in 2019. No dividend was paid in the year.
  4. The loan stock in the books of Chelsea Ltd was acquired by Man United Ltd on 1 June 2019.

Included in the Man United Ltd receivables is GHS 8 million relating to inventory sold to Chelsea Ltd since acquisition. Chelsea raised a cheque for GHS 5 million and sent it to Man United Ltd on 30 December 2019. Man United Ltd got value for the cheque 2 January 2020

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