1. Explain how negative goodwill may arise and its accounting treatment. 2. Global Ltd. is a…

1. Explain how negative goodwill may arise and its accounting treatment.

2. Global Ltd. is a company incorporated under the laws of Ghana. Its accounts are IAS compliant. It states in its 2017 accounts (in accordance with IAS 27, para. 13):

Principles of consolidation:

The consolidated Financial statements include all subsidiaries which are controlled by the Parent Company, unless such control is assumed to be temporary or due to long-term restrictions signi?cantly impairing a subsidiary’s ability to transfer funds to the Parent Company.


Discuss whether these are acceptable reasons for excluding a subsidiary from the consolidated ?nancial statements under the revised IAS 27.

3. In each of the following cases you are required to give your opinion, with reasons, on whether or not there is a parent/subsidiary under IFRS 3. Suggest any other information, if any that might be helpful in making a decision.

a Silver acquired 15% of the equity voting shares and 90% of the non-voting preferred shares of Diamond. Diamond has no other category of shares and the directors of Silver are also the directors of Diamond. There is a common head of?ce with shared administration departments and the functions of Diamond are mainly the provision of marketing and transport facilities for Silver. Another company, Gold holds 55% of the equity voting shares of Diamond but has never used its voting power to interfere with the decisions of the directors.

b Print Ltd. owns 75% of the voting equity shares in View Ltd. and 25% of the voting equity shares in Praise Ltd. View Ltd owns 30% of the voting equity shares in Praise Ltd. and has the right to appoint a majority of the directors.

4. Sky Ltd. has acquired holdings in the following companies:

Moon Ltd. 68% of the ordinary share capital acquired on 1 February 2014 for GH¢ 6 million cash. Sky Ltd also acquired 20% of the preference share capital on the same date for GH¢1 million cash.

Sun Ltd. 25% of the ordinary share capital acquired on 10 March 2015 for GH¢2 million cash.

The Draft Statements of Financial Position for the Companies as at 31 December 2015 were as follows:

Sky Ltd Moon Ltd Sun Ltd

GH¢000 GH¢000 GH¢000

Non- current assets

Freehold property 15,000 8,000 2,000

Fixtures and fittings 27,000 10,000 1,000

Investments 9000 – –

Current assets

Stocks 4,000 2,500 500

Debtors 8,500 1,700 400

Cash _ 700 _

Current liabilities (5,000) (1,300) (200)

Long-term liabilities (5,500) (1,000) (300)

53,000 20,600 3,400

Financed by:

Ordinary shares of GH¢1 each 35,000 12,000 1500

Preference shares of GH¢1 each 5,000 3,000 300

Revaluation reserve 10,000 3,000 –

Profit and loss account 3,000 2,600 1,600

53,000 20,600 3,400

Additional information:

a. Sky Ltd.’s investments were acquired when the reserves of the companies were:

Moon Ltd Sun Ltd

GH¢000 GH¢000

Revaluation reserve 1500 –

Profit and loss account (2000) 600

b. The fair value of the freehold property in Moon Ltd was GH¢1.5 million above book value at the date of acquisition; all of this related to the land element of the property.

c. Sky Ltd sold various items of fixtures and fittings to Moon Ltd for GH¢750000 on 31 March 2014. The assets were invoiced at cost plus 25%. It is the group’s policy to depreciate that class of asset at a rate of 25% per annum.


a. Prepare the consolidated statement of financial position as at 31 December 2015.


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