Question

On 1 June 2019, Manchester United Ltd bought 48 million ordinary shares in Chelsea FC Ltd paying GHS 280 million cash. The summarised statement of financial position for the two entities as at 31 December 2019 were as follows:

                                                            Man Utd. Ltd             Chelsea Ltd

                                                            GHS’m                        GHS’m

Non- current assets:

Property, plant and equipment            276                            230

Investment                                          324                              -      

                                                            600                            230

Current assets:

Inventory                                            30                               34

Trade receivables                                38                               40

Cash and cash equivalents                  4                                  -

                                                          72                                74       

Total assets                                       672                            304

EQUITY AND LIABILITIES

Equity:

Share capital                                        228                                80

Retained earnings                               378                            138

                                                            606                            218

Non- current liabilities

8% loan stocks                                      -                                 40

Current liabilities

Trade payables                                    66                                46

Equity and Liabilities                        672                            304

Additional Information:

1. On the date of acquisition, an item of equipment of Man United. Ltd with a carrying amount of GHS60 million had a fair value of GHS96 million and had remaining useful life of ten years from that date. This fair valuation has not been reflected in the financial statement of Man United Ltd.
2. The inventory of Chelsea Ltd at 31 December 2019 included GHS 16 million worth of goods purchased from Man United at cost plus 25%
3. Chelsea Ltd earned a profit after tax of GHS 18 million in 2019. No dividend was paid in the year.
4. The loan stock in the books of Chelsea Ltd was acquired by Man United Ltd on 1 June 2019.
5. Included in the Man United Ltd receivables is GHS 8 million relating to inventory sold to Chelsea Ltd since acquisition. Chelsea raised a cheque for GHS 5 million and sent it to Man United Ltd on 30 December 2019. Man United Ltd got value for the cheque 2 January 2020.
6. It is the policy of the group to value NCI at acquisition using the proportion of net assets method. Goodwill is impaired by GHS 10 million at the reporting date.

REQUIRED:

Prepare the Consolidated Statement of Financial Position of Man United Ltd Group as at 31 December 2019.

Answer 1

workings:
1)Calculation For goodwill or capital reserve arising on acquisition:
	GHS’m
Net assets of Chelsea ltd
Share capital	$    80.00
Retained earnings	$    84.12
	$ 164.12
NCI under proportionate method:
164.12*32/80	$    65.65
Purchase consideration	$ 280.00
goodwill/(capital reserve)	$    50.23

Calculation of pre acquisition profit and post acqusition profit of Man Utd Ltd
	Pre acquisition GHS’m		Post acquisition GHS’m
Retained Earnings of Chelsea as on 01/01/2019	$              138.00	Retained earnings earned during the year(next 6 months)	$                     9.00
Add: pre profit earned during the first 6 months	$                   9.00
Add: unrealised profit on purchase from Man Utd Ltd	$                   3.20
Less: impairment of goodwil	$                10.00
Pre acquisition profit available for distribution	$              140.20	Post acquisition profit available for distribution	$                     9.00
Man Utd Ltd	$                84.12	Holtz corp	$                     5.40
NCI	$                56.08	NCI	$                     3.60

Consolidated retained earnings of Man utd ltd:
Retained earnings as per statement	378
add: post acquisition profits	$                   5.40
Less: unreaslised profit on sale to chelsea	$                   3.20
	$              380.20

calculation of NCI
Share capital	$    32.00
pre acquisition profits	$    56.08
post acquisition profits	$       3.60
	$    91.68

Consolidated Statement of Financial position of Man Utd. Ltd
as on December,2019
(I) ASSETS
Non- current assets:
Goodwill		40.23
Property, plant and equipment	506
Add:Revaluation of equpiment	36
Less: Dep on equipment for remaining ten years	3.6
		538.4
Investment		324
Current assets:
Inventory
Less: unrealised gain on stock	64
	3.2	60.8
Trade receivables	78
Less: mutual owing	8	70
Cash and cash equivalents	4
Add: cheque in transit	5	9
TOTAL ASSETS
(II) EQUITY AND LIABILITIES
Equity:
Share capital		228
Retained earnings		$ 380.20
NCI		$    91.68
capital reserve		$    25.20
Non- current liabilities
8% loan stocks		40
Current liabilities
Trade payables	112
Less: mutual owing	8	104