Hard Ltd acquired 3,200,000of the ordinary shares of Soft Ltd on 1stOctober 2010.The consideration was agreed as follows: GHC5 million immediate cash payment and additional GHC1 million to be settled on 1stOctober 2013. A year later, Hard Ltd acquired 800,000 of the ordinary shares of Active Ltd for GHC1,600,000. The cost of capital to Hard Ltd is 25% per annum. The statements of financial position of the three companies as at 30thSeptember 2012 are as follows: Hard LtdGHC000Soft LtdGHC000Active LtdGHC000Non Current Assets: Patent Freehold land Plant Investments: In Soft Ltd In Active Ltd In others5005,1202,8405,0001,60030015,3608402,8001,800--4005,840-1,6001,080--1202,800Current Assets: Inventories Accounts receivable Bank 1,140840-__1,9808007603001,8606008002401,640Current Liabilities: Accounts payable Taxation Bank overdraft 1,1006801601,940660240-900560120-680NetCurrent Assets Deferred tax Net assets Equity: Stated capital Ordinary shares (issued at GHC0.50)Capital surplus Income surplus 40(400)15,0004,0002,0009,00015,000960-6,8002,0001,0003,8006,800960(160)3,6001,0002002,4003,600Additional information: i. The Income Surplus Account balances of the three companies were: Hard LtdGHC000Soft LtdGHC000Active LtdGHC0001/10/20101/10/20114,0006,0002,4003,0001,0001,600ICAGP.4.11112 ii.At the date of acquisition the fair values of Soft Ltd.’s net assets were equal to their carrying amounts with the exception of a plot of land that had a fair value of GHC400,000 in excess of its carrying amount. This fair value adjustment has not been reflected in the financial statements of Soft Ltd. iii. On 28thSeptember 2012, Hard Ltd processed an invoice for GHC100,000 in respect of an agreed allocation of overhead expenses to Soft Ltd. At 30thSeptember 2012, Soft Ltd had not accounted for this transaction. Prior to this, the current accounts between the two companies had been agreed at Soft Ltd owing GHC140,000 to Hard Ltd. These had been included in debtors and creditors respectively. iv. During the year, Active Ltd sold goods to Hard Ltd at a selling price of GHC280,000 which gave Active Ltd a profit of 40% on cost. Half of these goods remained in stock at 30thSeptember, 2012.v.An impairment review of the goodwill on acquisition of Soft Ltd on 30thSeptember 2012 revealed that goodwill has suffered loss of 25%.vi.There has been no additional share issue since the acquisitions. Required: (a)Prepare Consolidated Statement of Financial Position of Hard Ltd as at 30thSeptember 2012. (b)Under what circumstances will an entity be compelled to prepare Consolidated Financial Statements even though it holds less than50% of the ordinary shares of another company? (c)Under what circumstances will an entity be exempted from preparing Consolidated Financial Statements even though it holds more than 50% of the ordinary shares of another company?
Hard Ltd acquired 3,200,000of the ordinary shares of Soft Ltd on 1stOctober 2010.The consideration was agreed as follows: GHC5 million immediate cash payment and additional GHC1 million to be settled on 1stOctober 2013. A year later, Hard Ltd acquired 800,000 of the ordinary shares of Active Ltd for GHC1,600,000. The cost of capital to Hard Ltd is 25% per annum. The statements of financial position of the three companies as at 30thSeptember 2012 are as follows: Hard LtdGHC000Soft LtdGHC000Active LtdGHC000Non Current Assets: Patent Freehold land Plant Investments: In Soft Ltd In Active Ltd In others5005,1202,8405,0001,60030015,3608402,8001,800--4005,840-1,6001,080--1202,800Current Assets: Inventories Accounts receivable Bank 1,140840-__1,9808007603001,8606008002401,640Current Liabilities: Accounts payable
i. The Income Surplus Account balances of the three companies were: Hard LtdGHC000Soft LtdGHC000Active LtdGHC0001/10/20101/10/20114,0006,0002,4003,0001,0001,600ICAGP.4.11112
ii.At the date of acquisition the fair values of Soft Ltd.’s net assets were equal to their carrying amounts with the exception of a plot of land that had a fair value of GHC400,000 in excess of its carrying amount. This fair value adjustment has not been reflected in the financial statements of Soft Ltd.
iii. On 28thSeptember 2012, Hard Ltd processed an invoice for GHC100,000 in respect of an agreed allocation of overhead expenses to Soft Ltd. At 30thSeptember 2012, Soft Ltd had not accounted for this transaction. Prior to this, the current accounts between the two companies had been agreed at Soft Ltd owing GHC140,000 to Hard Ltd. These had been included in debtors and creditors respectively.
iv. During the year, Active Ltd sold goods to Hard Ltd at a selling price of GHC280,000 which gave Active Ltd a profit of 40% on cost. Half of these goods remained in stock at 30thSeptember, 2012.v.An impairment review of the
Required:
(a)Prepare Consolidated
(b)Under what circumstances will an entity be compelled to prepare Consolidated Financial Statements even though it holds less than50% of the ordinary shares of another company?
(c)Under what circumstances will an entity be exempted from preparing Consolidated Financial Statements even though it holds more than 50% of the ordinary shares of another company?
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