Embamba Ltd., a company quoted
Embamba Ltd., a company quoted on the Nairobi Stock Exchange, with 200 million shares in issue on 1 April 1996, has owned 75% of the ordinary share capital and 60% of the preference share capital of Fanya Limited since 1 April 1990 when the balance on the pro?t and loss account of Fanya Ltd. was Sh. 120 million.
On 1 July 1996, Fanya Ltd. purchased 40% of the ordinary share capital of Guvu Ltd. as a longterm investment and appointed two directors to its board.
On 1 October 1996, Embamba Ltd. purchased 50% of the ordinary share capital of Hadithi Ltd.; the other 50% was purchased by ABC Inc. a multi-national. Embamba and ABC both have joint control of Hadithi.
On 2 January 1997, Embamba Ltd., issued 138 million of its ordinary shares of Sh.10 to the owners of 92 million shares (in exchange for these shares) in Imani Ltd., which has 100 million ordinary shares u. Sh.10 in issue and which are quoted on the Nairobi Stock Exchange. The Registrar of Companies has approved the use of the merger method of accounting for this union. The market values of the shares in Embamba and Imani were Sh.40 and Sh.60 respectively as at the time. Neither Embamba nor Imani have any reserves other than their balances on the pro?t and loss accounts.
E Ltd Sh.m
F Ltd Sh. m
G Ltd Sh. M
H Ltd Sh. M
I Lttd Sh. m
Revenue 6 000 1.440 960 820 7,200 Pro?t for the year 1,320 280 290 220 1,600 Dividends received 74 20 1394 300 Taxation (460) (100) (90) (60) (600) Pro?t after tax 934 200 200 160 1,000 Preference divs paid – (40) – – Ordinary dividends: Interim paid (200) (40) (50) (40) (300) Final proposed (1,014) (60) (70) (60) (300) (1,214) (100) (120) (100) (600) Retained pro?t for year (280) 60 80 60 400
Statement of retained earnings
At 1 April 1996 2,480 580 360 210 1,200
Retained pro?t for year (280) 60 80 60 400
At 31 March 1997 2,200 640 440 270 1,600
All companies paid their interim dividends in the month of December 1996. Embamba Ltd. Considers that all goodwill is impaired at the rate of 20% per annum from the date of acqusition. The goodwill that had arisen on the purchase of Fanya Ltd. was Sh.80 million. The goodwill paid by Embamba Ltd. on the purchase of its shares in Hadithi Ltd. was Sh.50 million. The premium paid by Fanya on the purchase of its shares in Guvu Ltd. was Nil. Embamba Ltd. wishes to account for the results of Hadithi Ltd. in the same way as ABC Inc. does i.e. proportionate consolidation combining items on a line-by-line basis.
Required: A consolidated income statement for the group in accordance with the relevant International Financial Reporting Standards; include a Statement of Retained Earnings, disclosing how much of the retained pro?t for the year and carried forward is included in the holding company, the subsidiary companies, the joint venture and the associated company. (20 marks)
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