MZUMBE UNIVERSITY CPA REVIE CLASSES

REVIEW QUESTIONS ON CONSOLIDATED STATEMENT OF FINANCIAL

POSITION

CPA MWITA, KIBHULI

QUESTION ONE

Base plc acquired 60% of the common shares of Ball plc on 1 January 20X0 and gained control.
At that date the statements of financial position of the two companies were as follows:

BASE “000” BALL “000”

Assets

Non-current assets

Property, Plant and Equipment 250,000 100,000

Investment in Ball 90,000 -

Current assets 100,000 70,000

Total assets 440,000 170,000

Equity and Liabilities

Equity

Share capital 200,000 80,000

Share premium 20,000

Retained earnings 160,000 10,000

360,000 110,000

Current liabilities 80,000 60,000

Total equity and liabilities 440,000 170,000

Note:

The fair value of the property, plant and equipment in Ball at 1/1/20X0 was TZS 120,000,000.
The fair value of the non-controlling interest in Ball at 1/1/20X0 was TZS 55,000,000. The ‘fair
value method’ should be used to measure the non-controlling interest.

CPA KIBHULI MWITA 1

Required:

Prepare a consolidated statement of financial position for Base as at 1 January 20X0

QUESTION TWO
On 1 January 2017 Parent ltd acquired 7,200 equity shares in Daughter Ltd for TZS 13,000,000.
The fair value of the net assets in Daughter ltd was equal to their book value with exception to
Land which was value a TZS 5,000,000 above their book value. The statement of financial
position of both companies as at 1 January 2017 which were as follows: -

Parent Ltd Daughter

Equity share capital of TZS 1,000 each 40,500,000 9,000,000

Retained earnings 4,500,000 1,800,000

45,000,000 10,800,000

Cash 20,000,000 2,000,000

Other net assets 25,000,000 8,800,000

45,000,000 10,800,000

Required:

Prepare consolidated statement of financial position as at 1 January 2017.

QUESTION THREE

On 1 January 2017 Parent ltd acquired 7,200 equity shares in Daughter Ltd for TZS 13,000,000.
The fair value of the net assets in Daughter ltd was equal to their book value with exception to
building which was value a TZS 5,000,000 above their book value. The remaining useful life of
the building is 5 years. The retained earnings daughter at the date of acquisition was TZS
600,000. The statement of financial position of both companies as at 31 st December 2017 which
were as follows: -

CPA KIBHULI MWITA 2

 Parent Ltd Daughter

Equity share capital of TZS 1,000 each 40,500,000 9,000,000

Retained earnings 4,500,000 1,800,000

45,000,000 10,800,000

Cash 20,000,000 2,000,000

Other net assets 25,000,000 8,800,000

45,000,000 10,800,000

Required:

Prepare consolidated statement of financial position as at 31st December 2017.

QUESTION FOUR

On 1 January 2017 Parent ltd acquired 12,000 equity shares in Daughter Ltd for TZS 26,000,000.
The statement of financial position of both companies as at 31 st December 2017 which were as
follows: -

Parent Ltd Daughter

Equity share capital of TZS 1,000 each 61,500,000 15,000,000

Retained earnings 9,500,000 5,000,000

71,000,000 20,000,000

Cash 10,000,000 2,200,000

Investment in Daughter 26,000,000

Other net assets 35,000,000 17,800,000

CPA KIBHULI MWITA 3

 71,000,000 20,000,000

Additional information

i. Retained earnings of the daughter was having a debit balance of TZS200,000 at the date
of acquisition.
ii. The fair value of the net assets in Daughter ltd was equal to their book value with
exception to building which was value a TZS 5,000,000 above their book value. The
remaining useful life of the building is 5 years.
iii. At the date of acquisition parent Ltd sold an item of property, plant and equipment to
Daughter for TZS 20,000,000. The asset originally cost TZS 40,000,000 and has been
wrote down to TZS 16,000,000 as at 31st December 2016.Both companies depreciate
property, plant and equipment on a straight-line basis over 5 years.

Required:

Prepare consolidated statement of financial position as at 31st December 2017.

QUESTION FIVE

On 1 January 2017 Parent ltd acquired 12,000 equity shares in Daughter Ltd for TZS 26,000,000.
The statement of financial position of both companies as at 31 st December 2017 which were as
follows: -

Parent Ltd Daughter

Equity share capital of TZS 1,000 each 61,500,000 15,000,000

Retained earnings 9,500,000 5,000,000

71,000,000 20,000,000

Cash 10,000,000 2,200,000

Investment in Daughter 26,000,000

CPA KIBHULI MWITA 4

 Other net assets 35,000,000 17,800,000

71,000,000 20,000,000

Additional information

i. Retained earnings of the daughter was having a debit balance of TZS200,000 at the date
of acquisition.
ii. The fair value of the net assets in Daughter ltd was equal to their book value with
exception to building which was value a TZS 5,000,000 above their book value. The
remaining useful life of the building is 5 years.
iii. At the date of acquisition parent Ltd sold an item of property, plant and equipment to
Daughter for TZS 20,000,000. The asset originally cost TZS 40,000,000 and has been
wrote down to TZS 16,000,000 as at 31st December 2016.Both companies depreciate
property, plant and equipment on a straight-line basis over 5 years.
iv. Closing inventory of Parent Ltd include goods despatched from Daughter Ltd for TZS
12,000,000. Daughter Ltd makes a profit margin of 25% on all sales made to Parent Ltd.

Required:

Prepare consolidated statement of financial position as at 31st December 2017.

EXAMINATION QUESTIONS

QUESTION SIX
a) International Financial Reporting Standard [IFRS 10] requires an entity that is a parent to
prepare consolidated financial statements.

(i)Define control in the context of IFRS 10.

(ii)
State the justification of full consolidation where the parent owns less than 100%
of the ordinary shares of a subsidiary.
b) On 1 July 2013, Halahala Company acquired 128,000 of Sosomola company’s 160,000
st

shares. The following Statements of Financial Position have been prepared as at 31 st

December 2016.

Halahala Sosomola

TZS ‘000’ TZS ‘000’

Property, plant and equipment 152,000 129,600

CPA KIBHULI MWITA 5

 Investment in Sosomola 203,000 -

Inventory at cost 112,000 74,400

Receivables 104,000 84,000

Bank balance 41,000 8,000

612,000 296,000

Ordinary share capital (TZS 1,000 each) 100,000 160,000

Retained earnings 460,000 112,000

Payables 52,000 24,000

612,000 296,000

The following information is available:

(i) At 1st July 2013 Sosomola had a debit balance of TZS.11,000,000 on retained
earnings.
(ii) Property, plant and equipment of Sosomola included land at a cost of
TZS.72,000,000. This land had a fair value of TZS.100,000,000 at the date of
acquisition.
(iii) An impairment review at 31st December 2016 shows that goodwill is impaired by
40%.
(iv) The inventory of Sosomola includes goods purchased from Halahala for
TZS.16,000,000. Halahala invoiced those goods at cost plus 25%.
(v) The receivables at 31st December 2016 in Halahala include a receivable of
TZS.7,800,000 from Sosomola, and the payables in Sosomola include an amount
of TZS.6,000,000 payable to Halahala. The difference reflects a remittance made
at 30th December 2016, not yet received and recorded in Halahala’s books.
Required:

Prepare the Consolidated Statement of Financial Position of Halahala as at 31st December 2016.

QUESTION SEVEN
On 30 September 20X0 Gold plc acquired 75% of the equity shares, 30% of the preferred shares
and 20% of the bonds in Silver plc and gained control. The balance of retained earnings on 30
September 20X0 was TZS16,000,000. The fair value of the land owned by Silver was
TZS3,000,000 above book value. No adjustment has so far been made for this revaluation.

The statements of financial position of Gold and Silver at 31 December 20X1 were as follows:

CPA KIBHULI MWITA 6

 GOLD “000” SILVER “000”

Assets

Property, plant and Equipment (including 82,300 108,550

land)

Investment in Silver 46,000

Current assets

Inventory 23,200 10,000

Silver current account 20,000

Bond interest receivable 175

Other current assets 5,000 7,500

Total assets 176,675 126,050

Equity and liabilities

Equity share capital 60,000 27,600

Preferred shares 10,000 20,000

Retained earnings 75,000 21,200

145,000 68,800

Non-current liabilities-Bonds 12,500 17,500

Current liabilities

Gold current account 20,000

Bond interest payable 625 875

Other current liabilities 18,550 18,875

Total equity and liabilities 176,675 126,050

Notes:

i. 20% of the goodwill is to be written off as an impairment loss.

CPA KIBHULI MWITA 7

 ii. During the year Gold sold some of its inventor y to Silver for TZS3,000, which
represented cost plus a mark-up of 25%. Half of these goods are still in the inventor y of
Silver at 31/12/20X1.
iii. There is no depreciation of land.
iv. There has been no movement on share capital since the acquisition.
v. Method 1 is to be used to compute the non-controlling interest.

Required:

Prepare a consolidated statement of financial position as at 31 December 20X1.

QUESTION EIGHT
Prop and Flap have produced the following statements of financial position as at 31 October
2008:
PROP “000” FLAP “000”
Assets
Non-current assets
Plant and equipment 2,100,000 480,000
Investments 800,000
Current assets
Inventories 800,000 280,000
Receivables 580,000 280,000
Cash and cash equivalents 400,000 8,000
Total assets 4,760,000 1,188,000
Equity and Liabilities
Equity share capital 2,400,000 680,000
Retained earnings 860,000 200,000
Non-current liabilities
Long term borrowings 400,000 Nil
Current liabilities
Payables 1,100,000 228,000
Bank overdraft Nil 80,000
Total equity and liabilities 4,760,000 1,188,000
The following information is relevant to the preparation of the financial statements of the Prop
Group:
(i) Prop acquired 80% of the issued ordinary share capital of Flap many years ago when the
retained earnings of Flap were TZS72 million. Consideration transferred was TZS800 million.
Flap has performed well since acquisition and so far, there has been no impairment to goodwill.
(ii) At the date of acquisition, the plant and equipment of Flap was revalued upwards by TZS40
million, although this revaluation was not recorded in the accounts of Flap. Depreciation would
have been TZS32 million greater had it been based on the revalued figure.

CPA KIBHULI MWITA 8

(iii) Flap buys goods from Prop upon which Prop ear ns a margin of 20%. At 31 October 2008
Flap’s inventories include TZS180 million goods purchased from Prop.
(iv) At 31 October 2008 Prop has receivables of TZS140 million owed by Flap and payables of
TZS60 million owed to Flap.
(v) The market price of the non-controlling interest shares just before Flap’s acquisition by Prop
was TZS1.30. It is the group’s policy to value the non-controlling interest at fair value.
Required:
Prepare the Prop Group consolidated statement of financial position as at 31 October 2008.

QUESTION NINE

On 1 April 20X8, Moja acquired 60% of the equity share capital of Mbili in a share exchange of
two shares in Moja for three shares in Mbili. At that date the retained earnings of Mbili were
TZS5 million. The issue of shares has not yet been recorded by Moja. At the date of acquisition
shares in Moja had a market value of TZS 6 each. Below are the summarized draft statements of
financial position of both companies.

STATEMENTS OF FINANCIAL POSITION AS AT 30 SEPTEMBER 20X8

MOJA “000” MBILI “000”

Assets

Non-current assets

Property, Plant and Equipment 40,600 12,600

Current assets 16,000 6,600

Total assets 56,600 19,200

Equity and liabilities

Equity share of TZS 1 each 10,000 4,000

Retained earnings 35,400 6,500

45,400 10,500

Non-current liabilities

10% loan notes 3,000 4,000

Current liabilities 8,200 4,700

Total equity and liabilities 56,600 19,200

CPA KIBHULI MWITA 9

The following information is relevant.

(i) At the date of acquisition, the fair values of Mbili's assets were equal to their carrying
amounts with the exception of an item of plant, which had a fair value of TZS2 million in excess
of its carrying amount. It had a remaining life of five years at that date (straight-line depreciation
is used). Mbili has not adjusted the carrying amount of its plant as a result of the fair value
exercise.

(ii) Sales from Mbili to Moja in the post-acquisition period were TZS8 million. Mbili made a
markup on cost of 40% on these sales. Moja had sold TZS5.2 million (at cost to Moja) of these
goods by 30 September 20X8.

(iii) Mbili's trade receivables at 30 September 20X8 include TZS600,000 due from Moja which
did not agree with Moja 's corresponding trade payable. This was due to cash in transit of
TZS200,000 from Moja to Mbili. Both companies have positive bank balances.

(iv) Moja has a policy of accounting for any non-controlling interest at full fair value. The fair
value of the non-controlling interest in Mbili at the date of acquisition was estimated to be
TZS5.9 million. Consolidated goodwill was not impaired at 30 September 20X8.

Required:

(a) Prepare the consolidated statement of financial position for Moja as at 30 September 20X8.

QUESTION TEN

Mlali, a public listed company, acquired 75% of Changa’s ordinary shares on 1 April 20X4.
Mlali paid an immediate TZS3·50 per share in cash and agreed to pay a further amount of
TZS108 million on 1 April 20X5. Mlali's cost of capital is 8% per annum. Mlali has only
recorded the cash consideration of TZS3·50 per share.

The summarized statements of financial position of the two companies at 31 March 20X5 are
shown below:

MLALI “000” CHANGA “000”

Property, plant and equipment (note i) 420,000 320,000

Development expenditure (note Nil 40,000

Investments (note ii) 300,000 20,000

720,000 380,000

CPA KIBHULI MWITA 10

 Current assets 133,000 91,000

Total assets 853,000 471,000

Equity and Liabilities

Ordinary shares of TZS 1 each 270,000 80,000

Reserves:

Share premium 80,000 40,000

Revaluation 45,000 Nil

Retained earnings- 1 April 2014 160,000 134,000

- Year to 31 March 2015 190,000 76,000

745,000 330,000

Non-current liabilities

10% intra-group loan (note ii) Nil 60,000

Current liabilities 108,000 81,000

Total equity and liabilities 853,000 471,000

The following information is relevant:

(i) Mlali has a policy of revaluing land and buildings to fair value. At the date of acquisition
Changa's land and buildings had a fair value TZS20 million higher than their carrying amount
and at 31 March 20X5 this had increased by a further TZS4 million (ignore any additional
depreciation).

(ii) Included in Mlali's investments is a loan of TZS60 million made to Change at the date of
acquisition. Interest is payable annually in arrears. Changa paid the interest due for the year on
31 March 20X5, but Mlali did not receive this until after the year end. Mlali has not accounted
for the accrued interest from Change.

(iii) Changa had established a line of products under the brand name of Titanware. Acting on
behalf of Mlali, a firm of specialists, had valued the brand name at a value of TZS40 million with
an estimated life of 10 years as at 1 April 20X4. The brand is not included in Changa's statement
of financial position.

CPA KIBHULI MWITA 11

(iv) Changa's development project was completed on 30 September 20X4 at a cost of TZS50
million. TZS10 millions of this had been amortised by 31 March 20X5. Development costs
capitalised by Changa at the date of acquisition were TZS18 million. Mlali's directors are of the
opinion that Changa's development costs do not meet the criteria in IAS 38 Intangible assets for
recognition as an asset.

(v) Change sold goods to Mlali during the year at a profit of TZS 6 million, one-third of these
goods were still in the inventory of Mlali at 31 March 20X5.

(vi) An impairment test at 31 March 20X5 on the consolidated goodwill concluded that it should
be written down by TZS20 million. No other assets were impaired.

(vii) It is the group policy to measure non-controlling interest fair value. The fair value of the
non-controlling interest in Change at the acquisition date was TZS83 million.

Required:

Calculate the following figures as they would appear in the consolidated statement of financial
position of Mlali at 31 March 20X5:

(i) Goodwill

(ii) Non-controlling interest

(iii) The following consolidated reserves:

share premium, revaluation surplus and retained earnings.

QUESTION ELEVEN

On 1st April 2016, Pengo acquired 120,000,000 in Suzy when the retained earnings of Suzy were
TZSs 20,000,000. This was by way of a cash payment of TZSs 75,000,000 and an immediate
share exchange of 1 share in Pengo for every 4 shares in Suzy. In addition to the immediate
settlement, a cash payment of TZSs 50,000,000 has been agreed and is due on 1 st April 2019.
The market price of Pengo’s share was TZSs 2.40 on 1 st April 2016 and Suzy’s share price was
TZSs 1.50. Based on Pengo’s cost of capital (taken as 10% per annum), TZSs 1 receivable in
there years’ time can be taken to have a present value of TZSs 0.75. Pengo has only recorded the
immediate cash payment of TZSs 75,000,000 in its financial statements to date. In addition, on
the acquisition date, Pengo lent Suzy TZSs 10,000,000 repayable in 5 years’ time. All interest
has been recorded by both Pengo and Suzy at the year-end.

The summarised statements of financial position of the two companies as at 31st March 2017 are:

PENGO SUZY

CPA KIBHULI MWITA 12

 TZS”000” TZS”000”

ASSET

NON-CURRENT ASSETS

Property, plant and Equipment 317,000 152,500

Investment in Pengo 85,000

Available for sale investment 90,000

492,000 152,500

CURRENT ASSET

Inventories 45,000 30,000

Trade Receivable 156,000 67,000

Bank 25,750 7,500

226,750 104,500

TOTAL ASSET 718,750 257,000

EQUITY

Ordinary share capital TZSs 1 each 300,000 150,000

Share premium 45,000 -

Revaluation reserve 57,500 -

Retained earnings 202,000 69,500

604,500 219,500

Non- current liabilities

10% loan notes 20,000 10,000

Current liabilities 94,250 27,500

718,750 257,000

The following notes are relevant:

CPA KIBHULI MWITA 13

 i. Pengo has a policy of revaluing its land and buildings to fair value. At the date of
acquiring Suzy’s land and building had a fair value TZSs 35,000,000 higher than their
book value and at 31st March 2017 this has increased by a further TZSs 5,000,000(ignore
any additional depreciation)
ii. The available for sale investment are included in Pengo statement of financial position
(above) at their fair value on 1st April 2016, but they have a fair value of TZSs
86,000,000 at 31st March 2017.
iii. During the post-acquisition period Suzy sold goods to Pengo for TZSs 30,000,000. The
profit made by Suzy on these goods was TZSs 12, 000,000. Pengo had TZSs 10,000,000
of these goods left in inventory at the year-end.
iv. Pengo has a policy of valuing non- controlling interest at the fair value at the date of
acquisition. For this purpose, the share price of Suzy at this date should be used.
v. Goodwill has fallen in value by 10% at 31st March 2017.

Required:

a) Prepare a consolidated statement of financial position for Pengo as at 31st March 2017.
b) Explain how consolidated financial statements are useful to the users of such financial
position

QUESTION TWELVE
IFRS 3"Business Combinations" Prescribes the method of accounting to be used when an entity
(the acquirer) obtains control of a business. Control is not defined in IFRS 3 but a definition is
provided in IFRS 10"Consolidated Financial Statements"
Required:
(i) Define ‘control’ in accordance of IFRS 10 and clearly explaining main element of control
included in the definition.
(ii)Explain initial recognition and subsequent measurement of both positive and negative
goodwill.
(b) Kinax prepares consolidated financial statements to 30 September each year. On 1 January
2014, Kinax acquired 75% of the equity shares of Nai and gained control of Nai. Nai has 12
million equity shares in issue. Details of the purchase consideration are as follows:
 On 1 January 2014, Kinax issued two shares for every three shares acquired in Nai. On 1
January 2014, the market value of an equity share in Kinax was TZS6.50 and the market
value of an equity share in Nai was TZS6·00.
 On 31 December 2014, Kinax will make a cash payment of TZS7·15 million to the
former shareholders of Nai who sold their shares to Kinax on 1 January 2014. On 1
January 2014, Kinax would have needed to pay interest at an annual rate of 10% on
borrowings.
 On 31 December 2015, Kinax may make a cash payment of TZS30 million to the former
shareholders of Nai who sold their shares to Kinax on 1 January 2014. This payment is

CPA KIBHULI MWITA 14

 contingent upon the revenues of Kinax growing by 15% over the two-year period from 1
January 2014 to 31 December 2015. On 1 January 2014, the fair value of this contingent
consideration was TZS25 million. On 30 September 2014, the fair value of the contingent
consideration was TZS22 million.
On 1 January 2014, the carrying values of the identifiable net assets of Nai in the books of that
company totalled TZS60 million. On 1 January 2014, the fair values of these net assets totalled
TZS70 million. The rate of deferred tax to apply to temporary differences is 20%.
During the nine months ended on 30 September 2014, Nai had a poorer than expected operating
performance. Therefore, on 30 September 2014 it was necessary for Kinax to recognise an
impairment of the goodwill arising on acquisition of Nai, amounting to 10% of its total computed
value.
Required:
Using both methods permitted by IFRS 3 for measuring Non-controlling Interest at the date of
acquisition, Compute the impairment of goodwill and explain how this impairment should be
recognised in the consolidated financial statements of Kinax

QUESTION THIRTEEN

On 1 April 20X8, Pedantic acquired 80% of the equity share capital of Sophistic in a share
exchange of two shares in Pedantic for three shares in Sophistic. At that date the retained
earnings of Sophistic were TZS10 million. The issue of shares has not yet been recorded by
Pedantic. At the date of acquisition shares in Pedantic had a market value of TZS 6
each. Below are the summarised draft statements of financial position of both companies.
STATEMENTS OF FINANCIAL POSITION AS AT 30 SEPTEMBER 20X8
Pedantic Sophistic
Assets TZS'000 TZS'000
Non-current assets
Property, plant and equipment 81,200 25,200
Current assets 32,000 13,200
Total assets 113,200 38,400
Equity and liabilities
Equity shares of TZS1 each 20,000 8,000
Retained earnings 70,800 13,000
90,800 21,000
Non-current liabilities
10% loan notes 6,000 16,000
Current liabilities 16,400 9,400
Total equity and liabilities 113,200 38,400

The following information is relevant.

CPA KIBHULI MWITA 15

(i) At the date of acquisition, the fair values of Sophistic's assets were equal to their carrying
amounts with the
exception of an item of plant, which had a fair value of TZS4 million in excess of its carrying
amount. It had a remaining life of five years at that date (straight-line depreciation is used).
Sophistic has not adjusted the carrying amount of its plant as a result of the fair value exercise.
(ii) Sales from Sophistic to Pedantic in the post acquisition period were TZS8 million. Sophistic
made a mark up on cost of 40% on these sales. Pedantic had sold TZS5.2 million (at cost to
Pedantic) of these goods by 30 September 20X8.
(iii) Sophistic's trade receivables at 30 September 20X8 include TZS600,000 due from Pedantic
which did not agree with Pedantic's corresponding trade payable. This was due to cash in transit
of TZS200,000 from Pedantic to Sophistic. Both companies have positive bank balances.
(iv) Pedantic has a policy of accounting for any non-controlling interest at full fair value. The
fair value of the noncontrolling interest in Sophistic at the date of acquisition was estimated to be
TZS5.9 million. Consolidated goodwill was not impaired at 30 September 20X8.
Required
(a) Prepare the consolidated statement of financial position for Pedantic as at 30 September
20X8.
(b) Pedantic has been approached by a potential new customer, Trilby, to supply it with a
substantial quantity of goods on three months credit terms. Pedantic is concerned at the risk that
such a large order represents in the current difficult economic climate, especially as Pedantic's
normal credit terms are only one month's credit. To support its application for credit, Trilby has
sent Pedantic a copy of Tradhat's most recent audited consolidated financial statements. Trilby is
a wholly-owned subsidiary within the Tradhat group. Tradhat's consolidated financial statements
show a strong statement of financial position including healthy liquidity ratios.
Comment on the importance that Pedantic should attach to Tradhat's consolidated financial
statements when deciding on whether to grant credit terms to Trilby.

CPA KIBHULI MWITA 16