Unit: Advanced Financial Reporting and Analysis
11 Questions| S Ltd. Sh.“000” | M Ltd. Sh.“000” | B Ltd. Sh.“000” | |
| Assets: | |||
| Non-current assets: | |||
| Property, plant and equipment | 102,800 | 101,120 | 88,480 |
| Investment property | 23,600 | - | - |
| Investment in: | |||
| M Ltd. | 112,000 | - | - |
| B Ltd. | 88,000 | - | - |
| Current assets | 25,280 | 20,224 | 17,696 |
| Total assets | 351,680 | 121,344 | 106,176 |
| Equity and liabilities: | |||
| Equity: | |||
| Share capital (Sh.1.00 par value) | 160,000 | 64,000 | 56,000 |
| Retained earnings | 101,480 | 22,784 | 19,936 |
| Other components of equity | 9,400 | 1,920 | 1,680 |
| 270,880 | 88,704 | 77,616 | |
| Non-current liabilities | 15,168 | 12,134.40 | 10,617.60 |
| Current liabilities | 65,632 | 20,505.60 | 17,942.40 |
| Total equity and liabilities | 351,680 | 121,344 | 106,176 |
| 1. | The following information relates to the acquisition of the equity shares in M Ltd. and B Ltd.: | |||
| Company | Date of acquisition of equity shares in company | Percentage of shareholding acquired | Purchased full goodwill arising from the acquisitions | |
| Sh.“000” | ||||
| M Ltd. | 1 January 2022 | 80% | 44,800 | |
| B Ltd. | 30 June 2023 | 60% | 38,400 | |
| At the date of acquisition, the assets and liabilities of B Ltd. were already at fair value. However, an upward fair value adjustment of Sh.4,400,000 was required with respect to production machinery of M Ltd. The remaining useful life of this production machinery as at the date of acquisition was five years. It is the policy of the group to measure non-controlling interest at fair value. | |
| 2. | The consolidated retained earnings and other components of equity recognised in the consolidated financial statements of S Group as at 31 December 2023 were Sh.63,519,200 and Sh.3,360,000 respectively. Non-controlling interest recognised under equity of the consolidated statement of financial position as at 31 December 2023 was Sh.20,000,000. All consolidation adjustments, unless otherwise stated, were correctly stated in the opening consolidated financial statements. |
| 3. | There were no intercompany transactions between S Ltd. and any of the subsidiaries acquired before the current accounting year. However, in the year ended 31 December 2024, M Ltd. sold goods worth Sh.2,240,000 to B Ltd. at a margin of 20%. Of these goods, 30% were yet to be sold as at 31 December 2024. |
| 4. | The purchased goodwill arising from the acquisitions as presented in note (1) are the original goodwill amounts and are thus before any impairment loss. As at 31 December 2024, an impairment review was carried out on the two subsidiaries using the impairment testing procedure recommended under IAS 36 (Impairment of Assets) for cash generating units. Each subsidiary was a cash generating unit. The recoverable amounts of the net assets of M Ltd. and B Ltd. as at 31 December 2024 were Sh.133,244,800 and Sh.116,544,000 respectively. No impairment loss has been recognised in respect of the goodwill in both subsidiaries in the previous years. |
| 6. | S Ltd. owns a building which was formerly used as an administration office. At the beginning of the year 2024, S Ltd. rented the building to M. Ltd. at an annual rental of Sh.2,000,000 and has as a result accounted for the building as an investment property. The carrying value of the building at the date of transfer to M. Ltd. (which approximated the fair value) was Sh.22,400,000. It is the policy of S Ltd. to measure investment properties at fair value. A fair value gain of Sh.1,200,000 has been recognised by S Ltd. at 31 December 2024. The estimated remaining useful life of the building as at the date of transfer was 20 years. M Ltd. uses the building for administrative purposes. M Ltd. has paid the rental for the current year and charged it as an expense. S Ltd. has included the rental income for the year as other income in the current year’s statement of profit or loss. |
| 7. | The summarised financial performance of the three companies for the year ended 31 December 2024 from their individual statements of profit or loss and other comprehensive income (before any consolidation adjustment) is presented below: |
| 7. | S Ltd. | M Ltd. | B Ltd. | |
| Sh.“000” | Sh.“000” | Sh.“000” | ||
| Profit for the year | 16,598.40 | 28,499.20 | 28,800 | |
| Other comprehensive income | 815.20 | 712 | 736 |
| Sh.“million” | |
| Cost of acquisition as at 1 August 2022 | 20 |
| (Depreciation rate on the straight-line method to nil residual value was 10%) | |
| At 31 January 2025: | |
| Fair value | 14 |
| Costs to sell | 0.4 |
| At 31 July 2025: | |
| Recoverable amount | 15.2 |
| Year | 1 | 2 | 3 | 4 | 5 | 6 |
| Present value factor-discount rate 9.49% | 0.9133 | 0.8342 | 0.7619 | 0.6958 | 0.6355 | 0.5804 |
| Sh.“million” | |
| Current service cost | 165 |
| Cash contributions into the scheme | 300 |
| Benefits paid during the year | 240 |
| Net loss on curtailment | 33 |
| Gain on re-measurement of liability as at 31 December 2024 | 27 |
| 1. | At the year end, Auma Ltd.’s property, plant and equipment had a tax base and carrying value of Sh.72 million and Sh.95 million respectively. |
| 2. | The company’s provision for decontamination costs was Sh.11 million at the year end. These costs had been appropriately discounted. Decontamination costs are tax deductible when paid. |
| 3. | The company had inventory with a carrying value of Sh.24 million. This did not agree with the tax base because of a Sh.3 million write-down by Auma Ltd. for obsolete items. Tax relief is only granted for inventories upon sale. |
| 4. | The company incurred Sh.15 million with respect to the development of a new software during the financial year. This software was capitalised and will be amortised over the next five (5) years. A full year’s amortisation charge is required in the first year upon completion or purchase. This charge was deducted in the current year’s financial statements. The company’s income tax rate is 30%. |
Want to join the discussion?
Log in to post comments and interact with tutors.
Login to Comment