Advanced Financial Reporting 2 Sem 2 Exams Ucc CoDE 2020/2021 Section B

SECTION B 

Answer any TWO questions from this section.

SECTION A –  CLICK HERE

Question 1
The summarised draft statements of financial position of the Prestige and
Samite at 31 March 2021 are as follows:

Additional information:
1. On 1 April 2020, Prestige acquired the following non-current
investments:

• 6,000,000 shares in Samite by an exchange of two shares in Prestige for every four shares in Samite, plus GHc 1.25 per acquired Samite shares in cash. The market price of each Prestige share at the date of
  acquisition was GHc 6 and the market price of each Samite share at
  the date of acquisition was GHC 3.25. Retained earnings of Samite
  on 1 April 2020 were GH¢ 12,000,000.
• Prestige acquired 30% of the ordinary shares of Adade Ltd for
  GHC 2,000,000 cash.
• In addition, GHC 1,000,000 professional cost relating to the
  acquisition of Samite is included in the cost of the investment of
  Samite.

2. On the date of acquisition Samite had an internally generated brand
name with estimated fair value of GHc 4,000,000 and an indefinite
life. An impairment review at year end reveals that it has suffered
impairment of GHc 800,000.

3. On 1 April 2020, Prestige sold an item of plant to Samite at its
agreed fair value of GHc 5,000,000. Its carrying value prior to the
sale was GHc 4,000,000 and the estimated remaining life of the
plant at the date of sale was five years.

4. During the year ended 31 March 2021 Samite sold goods to Prestige
for GHc 5,400,000 at a mark-up of 50% on cost. Prestige had a third
of these goods in inventory at 31 March, 2021. There were no intra-
group balances.

5. Prestige values non-controlling interests at fair value at the date of
acquisition and the share price of Samite should be used for this
purpose. Impairment test at year end concluded that GH¢3,000,000
of goodwill was impairment.

6. Adade’s profit after tax for the year to 31 March 2021 is GHc 800,000.

Required:
Prepare the consolidated statement of financial position for the
Prestige Group as at 31 March 2021. [20 Marks]

Question 2
A. The valuation of unlisted shares is highly subjective and therefore
requires that aside the financial analysis, other non-financial factors
must be considered in arriving at the value. Among the bases commonly
used for valuing unlisted shares are Earnings, Dividend and Net Assets.

Required:
I. Explain these three bases and the situation in which each is most
appropriate. [6 Marks]
II. Outline four qualitative factors to consider in the valuation of a
business. [4 Marks]

B. Akpafu purchased 70% of the ordinary shares of Peki for GHC 2,100,000
several years ago. At the acquisition date the carrying amount of the net
assets of Peki was GHC 2,000,000. The identifiable net assets of Peki
were carried at fair value with the exception of freehold non-depreciable
land which had a carrying amount of GHc 100,000 and a fair value of
GH¢ 300,000. The non-controlling interest was measured at its fair
value of GHC 720,000.

On 1 October 2020, Akpafu sold a 40% holding in the ordinary shares
of Peki for GHC 1,440,000. On that day, the net assets of Peki were
GH¢ 3,260,000. The directors believe that the remaining 30% holding
gives Akpafu significant influence over Peki. The fair value of the 30%
holding on 1 October 2020 was GHC 1,020,000. Half of the goodwill in
Peki was impaired by the date of disposal. Akpafu’s reporting date is 31
December, 2020.

Required:
Explain, with calculations, how the above share transactions should be
accounted for on the date of disposal. [10 Marks]

Question 3
Alavanvo Ltd’s statement of financial position is as follows:

The company has proposed the following scheme of reconstruction. Assets
are to be revalued to GHc 1,620,000. A new company is to be set up
(Mawunyo Ltd) with initial share capital subscribed by the existing
shareholders of Alavanyo Ltd for cash consideration of GHc 750,000.
Mawunyo Ltd is to purchase the trade and assets of Alavanyo and take
responsibility for the bank overdraft for a consideration of
GHc 900,000 made up of new capital instruments in Mawunyo Ltd as
follows:

Alavanyo Ltd will distribute the purchase consideration received from
Mawunyo Ltd as follows:

Required
a) A scheme of reconstruction must fulfil certain conditions before it is
undertaken, identify four of such conditions. [4 Marks]
b) Prepare the statement of financial position for Mawunyo Ltd
immediately after the reconstruction. [8 Marks]
c) Prepare Ledger accounts to reflect the winding up of Alavanyo
Ltd. [8 Marks]

Question 4
A. Explain the differences that exist between the following:
i. historical cost accounting and current purchasing power
accounting. [2 Marks]
ii. historical cost accounting and current cost accounting. [2 Marks]
iii. current purchasing power accounting and current cost accounting [2 Marks]

B. Benji Ltd plans to dispose of a group of its assets, which form a disposal
group. Immediately before the classification as held for sale, the total
carrying amount of the disposal group was GHC 89,200,000, analysed
as follows:

The entity estimates that fair value less cost to sell of the disposal group
amounted to GHC 78,000,000.

Required:
Prepare a schedule to show the allocation of the impairment loss and
the values after the impairment. [4 Marks]

C. Describe with three examples each, four types of capital categories
under the integrated reporting framework. [10 Marks]

SECTION A –  CLICK HERE