Sand, a public listed company, acquired 600 million equity shares in Stone on 1 April 2006. The purchase consideration was made up of: a share exchange of one share in Sand for two shares in Stone; the issue of GHS100 10% loan note for every 500 shares acquired; and

a deferred cash payment of 11 pesewas per share acquired payable on 1 April 2007.

Sand has only recorded the issue of the loan notes. The value of each Sand share at the date of acquisition was 75 pesewas and Sand has a cost of capital of 10% per annum.

The balance sheets of the two companies at 31 March 2007 are shown below:

Sand Stone

GHS,000 GHS ,000

Assets

Property, plant and equipment 640,000 340,000

Investments 120,000 nil

Intellectual property nil 30,000

760,000 370,000

Current assets

Inventory 76,000 22,000

Trade receivables 84,000 44,000

Bank nil 4,000

Total assets 920,000 440,000

Equity and liabilities

Equity shares of 25 cents each 300,000 200,000

Income surplus 1 April 2006 210,000 120,000

year ended 31 March 2007 90,000 20,000

600,000 340,000

Non-current liabilities

10% loan notes 120,000 20,000

Current liabilities

Trade payables 130,000 57,000

Current tax payable 45,000 23,000

Overdraft 25,000 nil

Total equity and liabilities 920,000 440,000

The following information is relevant:

(i) At the date of acquisition the fair values of Stones net assets were approximately equal to their carrying amounts with the exception of its properties. These properties had a fair value of GHS40 million in excess of their carrying amounts which would create additional depreciation of GHS2 million in the post-acquisition period to 31 March 2007. The fair values have not been reflected in Stones balance sheet.

(ii) The intellectual property is a system of encryption designed for internet use. Stone has been advised that government legislation (passed since acquisition) has now made this type of encryption illegal. Stone will receive GHS10 million in compensation from the government.

(iii) Stone sold to Sand goods for GHS15 million in the post-acquisition period. GHS5 million of these goods are included in the inventory of Sand at 31 March 2007. The profit made by Stone on these sales was GHS6 million.

Stones trade payable account (in the records of Sand) of GHS7 million does not agree with Sands trade receivable account (in the records of Stone) due to cash in transit of GHS4 million paid by Sand.

(iv) Due to the impact of the above legislation, Sand has concluded that the consolidated goodwill has been impaired by GHS27 million.

Required:

Prepare the consolidated balance sheet of Sand as at 31 March 2007