QUESTION 2

On 1 January, 2020, King Ltd acquired 75% of the equity shares of Queen Ltd by means of an immediate share exchange and a cash payment of GH2 per share. It was further agreed that the cash payment will be due on 1 January, 2025. King Ltd has recorded the share exchange, but is yet to record the cash consideration. The cost of capital of King Ltd is 20% per annum. The summarized statements of financial position of the two companies as at 31 December 2017 are:

ASSETS Non-Current Assets: Property, Plant & Equipment Investments: Queen Ltd Loan Notes Other investments

King Ltd GH '000

164,300

40,000 7,500 6,000

217,800

Queen Ltd GH'000

85,500

85,500

31,200 16,500

1,800 135,000

30,000 -

54,000

24,000 108,000

12,000 -

15,000

Current Assets Inventory 41,700 Trade Receivables 34,200 Bank 2,700

Total Assets

Equity and Liabilities: Stated Capital Capital Surplus Income Surplus (at 31/12/2016) For the year ended 31/12/2017

Non-current Liabilities: 25% loan notes Deferred Tax Current Liabilities

296,400

75,000 52,800 48,600 42,000

218,400

36,000 13,500 28,500

The following information is relevant

(i) At the date of acquisition, King Ltd conducted a fair value exercise on Queen Ltd.s net assets which were equal to their carrying amounts except the following: An item of a plant had a fair value of GH9million above its carrying amount. At the date of acquisition, it had a remaining economic useful life of five (5) years. Ignore deferred tax implications. King Ltds policy is to value non-controlling interest as the proportionate of the net assets. An impairment test at the year-end showed that goodwill had suffered a loss of GH4,000,000.

Required: Show only the 5 basic workings needed to prepare the consolidated financial statements