Question 3
ICAN
•
2023
•
FINANCIAL REPORTING
•
mixed
Case Stimulus
Olu Nigeria PLC has a subsidiary, Oba Limited, which it acquired on January 1, 2022. The financial statements of the companies are detailed below:
Statements of profit or loss for the year ended September 30, 2022
Olu PLC Oba LTD
Revenue 446,250 233,100
Cost of sales (330,750) (174,600)
Gross profit 115,500 58,500
Other income 40,250 -
Distribution costs (10,250) (11,100)
Administrative expenses (31,650) (14,760)
Finance costs (8,575) (7,200)
Profit before taxation 105,275 25,440
Income tax expense (28,670) (5,790)
Profit for the year 76,605 19,650
Other comprehensive Income:
Gain on revaluation of property 26,600 5,000
Total comprehensive Income 103,205 24,650
Statement of financial position as at September 30, 2022
Olu PLC Oba LTD
Non-current assets: N’000 N’000
Property, plant and equipment 253,750 82,530
Intangibles 31,420 -
Current assets
Inventories 72,200 30,440
Trade receivables 65,250 25,560
Cash and bank balances 12,550 6,450
435,170 144,980
Equity and liabilities N’000 N’000
Ordinary shares of N1 each 100,000 40,000
Retained earnings 235,600 50,550
Non-current liabilities
10% Loan notes 30,000 32,600
Deferred tax 6,400 4,180
Current liabilities
Trade payables 34,500 11,860
Income tax payable 28,670 5,790
435,170 144,980
Additional Information
(i) Olu PLC acquired its 70% interest in Oba Limited through a share exchange of three shares in Olu PLC for five shares in Oba Limited. At the acquisition date, the shares of Olu PLC were sold at ₦8.10 each at the Nigerian Exchange (NGX). The parent company is yet to record this share issue in its books.
(ii) At the acquisition date, the fair value of Oba Limited’s assets were equal to their carrying amounts except for an item of plant which had a fair value of N30,000,000 in excess of its carrying amount. This fair value increase have not been adjusted for in the books of Oba Limited. The said plant has a remaining life of five years at acquisition date.
(iii) During the year Oba Limited transferred goods worth N40,000,000 to Olu PLC. Those goods were invoiced at cost plus 25% and only a quarter of the goods have been sold by Olu PLC at the year end.
(iv) Included in the other income was N6,550,000 received from Oba Limited as interest paid on loan granted by Olu Plc. The loan was fully repaid before September 30, 2022.
(v) An impairment test carried out revealed loss in value of goodwill at the acquisition date of N28,000,000.
(vi) It is the group’s policy to value non-controlling interest at their fair value. The prevailing market price per ordinary share of Oba Limited at January 1, 2022 was N5.05.
(vii) The gain on revaluation of property arose from an independent valuation of the groups property in September 2022.
(viii) The administration expenses of Oba Limited included N10,000,000 paid as management fees to Olu Plc and the income have been duly accounted for in the books.
(ix) Except where indicated, income and expenses accrue evenly over the period.
Requirements
(
a
)
Prepare the consolidated statement of profit or loss and other comprehensive income for Olu group for the year ended September 30, 2022.
(
b
)
Calculate the goodwill on acquisition and the Non-controlling interest at the reporting date.
(
c
)
State FOUR exceptions to the above pronouncement of IFRS 10.
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About This Question
This is
Ican
2023
Financial Reporting
Question 3.
It is one of the
mixed
questions from the
2023
Ican
Financial Reporting
examination.