UNIVERSITY OF CAPE COA ST

COLLEGE OF HUMANITIES AND LEGAL STUDIES

SCHOOL OF BUSINESS
DEPARTMENT OF ACCOUNTING
ACC 401 ADVANCED FINANCIAL REPORTING I
CONSOLIDATION OF STATEMENTS OF PROFIT OR LOSS
Question 1
S Ltd is an 80% subsidiary of P Ltd that was acquired several years ago. The statements of profit or loss of
the two entities are provided below:

Statement of Profit or Loss for the year ended 31/12/18 P LTD S LTD
GH¢'000 GH¢'000
Revenue 400,000 200,000
Cost of sales (300,000) (120,000)
Gross profit 100,000 80,000
Operating Costs (20,000) (50,000)
Profit before tax 80,000 30,000
Tax (24,000) (10,000)
Profit for the year 56,000 20,000
Required: Prepare the consolidated statement of profit or loss for P Ltd Group for the year to 31
Dec 2018.

Question 2
The following draft statements of profit or loss of PEGGEY and its subsidiary SHADEY are provided for the
year to 31 December 2016.
PEGGY SHADEY
GH¢ GH¢
Revenue 1,200,000 600,000
Cost of Sales 720,000 280,000
Gross Profit 480,000 320,000
Operating Expenses 186,000 90,000
Profit from Operations 294,000 230,000
Finance Cost 6,000
Profit before tax 294,000 224,000
Tax 100,000 64,000
Profit after tax 194,000 160,000

The following information is available:

• During the year SHADEY sold goods to PEGGY for GH¢40,000 making a mark-up of one third.
Only 20% of the goods were sold before the year end.
• Goodwill has been subjected to impairment review and has revealed an impairment of GH¢10,000
which is to be recognised in operating cost.

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 • Fair value exercise at acquisition has resulted in additional depreciation charge of GH¢30,000 to
be recognised in cost of sales
• The policy of PEGGY is to measure non-controlling interest at fair value.
Required: Prepare the consolidated statement of profit or loss for PEGGY group for 31 December,
2016.
Question 3
Tokyo is an 80% subsidiary acquired by Japan two years ago.
• During the year Tokyo has sold goods to Japan for GH¢3,000m at a mark-up of 50%. At year end
one fifth of these goods remained unsold by Japan.
• There was no impairment of goodwill.
• On acquisition of Tokyo, a fair value adjustment of GH¢200m was made to the plant of Tokyo with
a remaining life of five years and depreciation is on straight-line basis, with no residual value.
• At acquisition Japan advanced Tokyo a loan of GH¢2,000m and charged its subsidiary an effective
rate of interest of 10%. Both companies have correctly accounted for the transaction.
Below are the statements of profit and loss and other comprehensive income.
JAPAN TOKYO
GH¢m GH¢m
Revenue 20,000 4,000
Cost of Sales - 8,000 - 800
Gross Profit 12,000 3,200
Operating costs - 6,000 - 1,800
Operating profits 6,000 1,400
Investment income 6,000 1,400
Finance costs - 1,200 - 200
Profit before tax 10,800 2,600
Tax - 1,600 - 400
Profit for the year 9,200 2,200
Other Comprhensive Income
Revaluation gains 400 40
Total comprehensive income 9,600 2,240
Required: Prepare the consolidated statement of profit or loss and other comprehensive income for
Japan.

Question 4
On 30 November 2015 Ethos acquired 75% of the issued ordinary capital of Pathos. No dividends were
paid by either company during the year. The investment income is from quoted investments and has been
correctly accounted for. The following statements of profit or loss were prepared for the year ended 31
March 2016.

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 ETHOS PATHOS
GH¢000 GH¢000
Revenue 303,600 217,700
Cost of Sales - 143,800 - 102,200
Gross Profit 159,800 115,500
Operating costs - 71,200 - 51,300
Operating profits 88,600 64,200
Investment income 2,800 1,200
Profit before tax 91,400 65,400
Tax - 46,200 - 32,600
Profit for the year 45,200 32,800

Required: Prepare consolidated profit or loss for the year ended 31 March, 2016.
Question 5
Page Ltd bought 70% of Sage Ltd on 1 July 2016. The following are their statements of profit or loss for the
year ended 31 March, 2017.

PAGE SAGE
GH¢ GH¢
Revenue 312,000 104,000
Cost of Sales - 178,000 - 56,000
Gross Profit 134,000 48,000
Operating costs - 85,000 - 32,000
Operating profits 49,000 16,000
Investment income 20,000
Profit before tax 69,000 16,000
Tax - 21,000 - 5,000
Profit for the year 48,000 11,000
Other Comprhensive Income
Revaluation gains 12,000 5,000
FVTOCI - Loss - 1,000
Total comprehensive income 60,000 15,000

Additional information:
• On 1 July 2016, an item of plant in the books of Sage Ltd had a fair value of GH¢50,000 in excess
of its carrying amount. At this time, the plant had a remaining life of 10 years. Depreciation is
charged to cost of sales.
• During the post-acquisition period Sage Ltd sold goods to Page Ltd for GH¢44,000. Of this amount
GH¢5,000 was included in the inventory of Page at the year end. Sage earns a 35% margin on its
sales.

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 • Goodwill amounting to GH¢8,000 arose on the acquisition of Sage Ltd, which had been measured
using the fair value method. Goodwill is to be impaired by 10% at the year-end. Impairment losses
should be charged to operating expenses.
• Sage Ltd paid a dividend of GH¢5,000 on 1 January, 2017.
Required: Prepare the consolidated statement of profit or loss and other comprehensive income for
Page Ltd for the year ended 31 March, 2017.

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