Question 6 On 1 October 2020, Papa Ltd acquired 60% of the 4 million ordinary shares of Mama Ltd in a share exchange of two shares in Papa Ltd for three shares in Mama Ltd. and a further Ghe 600,000 on 1 October 2025 if Mama attained certain profit targets. For the purpose of the future payment the cost of capital of City is 10%. The issue of shares has not yet been recorded by Papa Ltd. At the date of acquisition, shares in Papa Ltd had a market value of GH6 each. Below are the summarized draft financial statements of both companies. Statements of Profit or Loss for the year ended 30 September 2021 Papa Ltd GHC000 Revenue Cost of Sales Gross Profit Distribution Cost Administrative Expenses Finance Cost Profit Before Tax Income Tax Expense Profit for the Year Mama Ltd GH'000 85,000 42,000 (63,000) (32,000) 22,000 10,000 (2,000) (2,000) (6,000) (3,200) (300) (400) 13,700 4,400 (4,700) (1,400) 9,000 3,000 Statements of Financial Position as at 30 September 2021 Assets Non-Current Assets Property, Plant and Equipment Current Assets Total Assets Equity and Liabilities Ordinary shares Retained Earnings Non-Current Liabilities 10% Loan Notes Current Liabilities Total Equity and Liabilities The following information is relevant: Papa Ltd Mama Ltd GHC'000 GH'000 40,600 12,600 16,000 6,600 56,600 19,200 10,000 4,000 35,400 6,500 45,400 10,500 3,000 4,000 8,200 4,700 56,600 19,200 i.At the date of acquisition, the fair values of Mama Ltd's non-current assets were equal to their carrying amounts with the exception of an item of plant, which had a fair value of GHe2 million below its carrying amount. It had a remaining life of five years at that date. Mama Ltd has not adjusted the carrying amount of its plant as a result of the fair value exercise.