UNIVERSITY OF CAPE COAST

COLLEGE OF HUMANITIES AND LEGAL STUDIES

SCHOOL OF BUSINESS
DEPARTMENT OF ACCOUNTING
ACT804D ADVANCED FINANCIAL ACCOUNTING – CHANGE IN GROUP STRUCTURE

Investing in an entity for control may be through purchasing a single block of shares or in a single
transaction, which is often the case. There may however be situations where control is achieved through
successive share purchases at different dates. The standard IFRS 3 refers to this as Business Combination
achieved in Stages (step acquisition/piecemeal acquisition).
It may start as an investment of less than 20% which is accounted for by applying the provisions of IFRS
9, Financial Instruments: Recognition and Measurements. Then additional acquisition of let’s say 15% will
increase the total share holdings to 35%. This then requires the application of IAS 28, Investment in Associates
and Joint Venture. Finally, the entity acquires 20% additional shares, bringing the total percentage holding to
55%. At this point, control is triggered (crossing of an accounting boundary), and therefore the entity applies IFRS
3 and IFRS 10 to account for the transaction. The entity’s status during the accounting year will determine the
accounting treatment in the consolidated statement of profit or loss and other comprehensive income (pro-rate
accordingly). The status at the year end will determine the accounting treatment in the consolidated statement of
financial position (no pro-rating).
Three scenarios may arise in step acquisition:
• Trade investment crossing boundary to Associate (IFRS 9 to IAS 28).
• Trade investment crossing boundary to Subsidiary (IFRS 9 to IFRS 3 and IFRS 10).
• Investment in associate crossing boundary to Subsidiary (IAS 28 to IFRS 3 and IFRS 10).

Accounting for Step Acquisitions-Crossing the 50% Control Boundary

At the date control is achieved:
• Re-measure previously held equity interest to fair value
• Recognise any resulting gain/loss in statement of profit or loss
• Calculate goodwill based on entity accounting policy
• Consolidate subsidiary as appropriate (pre and post control issues/consolidation adjustments)
• Pay attention to previous acquisition designated as FVTOCI (IFRS 9)

Investment to associate (eg 10% to 40%)

Where an investment in equity instruments becomes an associate, the investment (measured either at cost or at
fair value) is treated as part of the cost of the associate.
Statement of profit or loss and other comprehensive income-Equity account as an associate from the date
of significant influence.
Statement of financial position-Equity account as an associate.

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Investment to subsidiary (eg 10% to 80%)
Statement of profit or loss and other comprehensive income
• Remeasure the investment to fair value at the date the parent achieves control
• Consolidate as a subsidiary from the date the parent achieves control
Statement of financial position
• Calculate goodwill at the date the parent achieves control
• Consolidate as a subsidiary at the year end
Associate to subsidiary (eg 30% to 80%)
Statement of profit or loss and other comprehensive income
• Equity account as an associate to the date the parent achieves control
• Remeasure the associate to fair value at the date the parent obtains control
• Consolidate as a subsidiary from the date the parent obtains control
Statement of financial position
• Calculate goodwill at the date the parent obtains control
• Consolidate as a subsidiary at the year end

The substance of the transaction is a sale and acquisition…the previous investment is technically disposed of
and a new investment made. The following questions highlights the different scenarios that may exist.

From Simple Trade Investment to Subsidiary (Example 10% to 80%)

Question 1
A holds a 10% investment in B at Gh¢96,000 in accordance with IFRS 9. On 1 Jun, 2020 it acquires a further
50% of B’s equity shares at the cost of Gh¢640,000. Non-controlling interest is calculated using FV method. On
1 Jun, 2020 fair values were as follows:
 B’s Net Assets Gh¢800,000
 NCI Gh¢400,000
 The original 10% investment Gh¢104,000
Explain, with relevant figures, how this transaction should be accounted for in the books of A.

Question 2
Apollos acquired a 15% investment in Jemain for Gh¢400,000 and remained carried at cost in the books of
Apollos' books. This investment now has a fair value of Gh¢1,200,000. Apollos has just made a further investment
of 40% of the shares in Jemain for Gh¢4,000,000. The net assets of Jemain have now been determined at
Gh¢2,400,000 and the fair value of NCI at Gh¢3,200,000. Apollos has a policy of valuing NCI at fair value at the
date of acquisition.
Calculate the goodwill arising on the acquisition of Jemain.

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Question 3
Aryee has owned 90% of the ordinary shares of Flora for many years. Aryee also has a 10% investment in the
shares of Bryne, which was held in the consolidated statement of financial position as at 31/12/2019 at
Gh¢240,000 in accordance with IFRS 9. On 30 June 2020, Aryee acquired a further 50% of Bryne's equity shares
at a cost of Gh¢1,600,000. The drafts statements of profit or loss for the three companies for the year ended 31
December 2020 are presented below:
Aryee (Gh¢000) Flora (Gh¢000) Bryne (Gh¢000)
Revenue 5,000 3,000 2,000
Cost of sales (3,000) (700) (1,200)
Gross Profit 2,000 2,300 800
Operating Costs (600) (800) (600)
Profits from Operations 1,400 1,500 200
Income Tax (280) (300) (40)
Profit for the period 1,120 1,200 160
The NCI is calculated using fair value method. On 20 June 2020, fair values were as follows:
• Bryne's identifiable net assets Gh¢2,000,000
• The NCI in Bryne Gh¢1,000,000
• The original 10% investment in Bryne Gh¢ 260,000
Required: Prepare the consolidated statement of profit or loss for Aryee Group for the year ended 31
December 2020 and Calculate the goodwill arising on the acquisition of Bryne.

Question 4 - Step Acquisition (Associate to Subsidiary)

You are provided with the following statements of financial positions as at 31/12/2020.
Ash (Gh¢) Ley (Gh¢)
Investment 640,000
Sundry Assets 1,400,000 1,000,000
2,040,000 1,000,000
Equity share capital 800,000 400,000
Retained Earnings 1,000,000 488,000
Liabilities 240,000 112,000
2,040,000 1,000,000
Ash acquired 40% of Ley’s shares on 31/12/2015 for Gh¢360,000. At this date the retained earnings of Ley stood
at Gh¢304,000. A further 20% of Shares in Ley was acquired by Ash three years later for Gh¢280,000. On this
date the FV of the existing holding in Ley was Gh¢420,000. Ley’s retained earnings were Gh¢400,000 on the
second acquisition date. NCI is valued using proportion of net assets method.
Prepare consolidated SFP for ASH group as at 31/12/2020.

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Question 5 - Step Acquisition (Simple investment to Associate)
On 01/01/2019, Eban Ltd acquired 10% equity investment in Auge Plaines for Gh¢400,000 and the investment
was classified as FVTOCI. On 01/07/20, Eban Ltd acquired further 15% of the shares for consideration of
Gh¢1,200,000. At this time the carrying value of the original investment is Gh¢640,000 and the fair value of
Gh¢800,000. The profit for the year ended 31/12/20 was Gh¢960,000. During the second half of the year, Auge
Plaines sold goods to Eban Ltd for Gh¢60,000 at a mark-up of 1/3. At the end of the year, 20% of these goods
remained unsold.
Required: Calculate the carrying value of the investment at the reporting date and extracts from of the
group retained earnings.

Question 7-Increase in shareholding (Control maintained)

Gad owned 80% equity shares in Maud for many years. Gad is considering acquiring more shares in Maud. The
NCI of Maud currently has a carrying value of Gh¢80,000 with the net assets and goodwill of Gh¢500,000 and
Gh¢100,000 respectively. Gad is considering the following two situations:
1. To buy 20% of Maud’s shares leaving no NCI for Gh¢100,000
2. To buy 5% of Maud’s shares for Gh¢16,000.
Required: Calculate the adjustments required to NCI and other components of equity.

Question 8 - Sale of shares (Control maintained)

SEKA Ltd, a parent has 80% shares in ELA Ltd. Currently the net assets of ELA Ltd are Gh¢1,200,000, NCI
Gh¢320,000 and the goodwill Gh¢880,000. You are given the following scenarios:
a) SEKA has sold a quarter of its shares for Gh¢440,000.
b) SEKA has sold shares for Gh¢80,000, reducing its holding by 5% to 75%.
Calculate the difference arising in both situations that will be taken to equity and pass journal entries to
record in both scenarios.

Question 9 - Sale of shares (Control maintained)

Until 30 Sept 2007, Juno held 90% of Hera. On that date it sold 10% interest in the equity capital for Gh¢150,000.
The carrying amount of net assets and goodwill on the date of disposal were Gh¢1,000,000 and Gh¢200,000
respectively. At acquisition the NCI was fair valued.
Account for the sale of shares in Juno

Question 10 - Sale of shares (Full Sale of subsidiary)

Rock has held 70% investment in Dog for two years. Goodwill has been calculated using the full goodwill method.
There
have been no goodwill impairment to date. Rock disposes of all of its shares in Dog. The following information
has been
provided:
Gh¢
Cost of investment 2,000
Dog-FV of Net Asset at acquisition 1,900
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Dog-FV of NCI at acquisition 800
Sales Proceeds 3,000
Net Assets at Disposal 2,400
Calculate profit/loss in Rock’s individual financial statement and in the consolidated financial statements.

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