QUESTION 1 OF ICAN’S MAY 2015 CORPORATE REPORTING EXAMINATION

Barewa Plc has two subsidiary companies and one associate. Since the adoption of IFRS by companies listed on the Nigeria Stock Exchange, Barewa has been preparing its consolidated financial statements in accordance with the principles of International Financial Reporting Standards (IFRSs). The draft Statements of Financial Position of Barewa and its two subsidiaries as at 31 May, 2013 are as follows:

BAREWA GROUP
Statement of Financial Position as at 31 May, 2013
		BAREWA	MEGIDA	MINDARA
		=N='Million	=N='Million	=N='Million
	ASSETS:
	NON-CURRENT ASSETS:
	PLANT	2,650.00	2,300.00	1,610.00
	INVESTMENTS - MEGIDA	3,000.00
	MINDARA	1,280.00
	ASSOCIATE CALAMARI	200.00
	AVAILABLE FOR SALE	510.00	60.00	50.00
		7,640.00	2,360.00	1,660.00
	CURRENT ASSETS:
	INVENTORY	1,350.00	550.00	730.00
	TRADE RECEIVABLES	910.00	450.00	320.00
	CASH AND CASH EQUIVALENT	1,020.00	1,000.00	80.00
		3,280.00	2,000.00	1,130.00
	TOTAL ASSETS	10,920.00	4,360.00	2,790.00
	EQUITY AND LIABILITIES
	SHARE CAPITAL	5,200.00	2,200.00	1,000.00
	RETAINED EARNINGS	2,400.00	1,500.00	800.00
	OTHER COMPONENTS OF EQUITY	120.00	40.00	70.00
	TOTAL EQUITY	7,720.00	3,740.00	1,870.00
	NON-CURRENT LIABILITIES
	LONG-TERM LOANS	1,200.00	150.00	50.00
	DEFERRED TAX	250.00	90.00	30.00
	TOTAL NON-CURRENT LIABILITIES	1,450.00	240.00	80.00
	CURRENT LIABILITIES:
	TRADE PAYABLES	1,150.00	300.00	600.00
	CURRENT TAX PAYABLES	600.00	80.00	240.00
		1,750.00	380.00	840.00
	TOTAL EQUITY AND LIABILITIES	10,920.00	4,360.00	2,790.00

The following information is relevant to the preparation of the group financial statements:

1.     On 1 June 2012, Barewa acquired 80% of the equity interests of Megida plc. On the date of acquisition, the retained earnings of Megida were N1.36billion and other components of equity were N40million. There had been no issue of capital by Megida since the date of acquisition. The purchase consideration comprised cash of N3billion whereas the fair value of the identifiable net assets of Megida on this date was N4billion. The excess of the fair value of the net assets is due to an increase in the value of non-depreciable land. An independent valuer has stated that the fair value of the non-controlling interest in Megida was N860million on 1 June 2012. It is the policy of Barewa to measure non-controlling interests on the basis of their proportionate share (interest) in the identifiable net assets of the acquired subsidiary and not at fair value (full goodwill method).

2.     Also on the 1 June 2012, Barewa acquired 70% of the ordinary shares of Mindara. The consideration for the acquisition of these shares was N1.28billion. Under the purchase agreement of 1 June, 2012, Barewa is required to pay the former shareholders 30% of the profits of Mindara on 31 May 2014 for each of the financial years to 31 May, 2013 and 31 May 2014. The fair value of this arrangement was estimated at N120million at 1 June 2012. This value had not changed and has not been included in the financial statements.

The fair value of the identifiable net assets at 1 June 2012 of Mindara was N1.76billion, and the retained earnings and other components of equity were N550million and N70million respectively. There had been no new issue of share capital by Mindara since the date of acquisition and the excess of the fair value of the net assets is due to an increase in the value of property, plant and equipment (PPE). The fair value of the non-controlling interests in Mindara was N530million on this date. PPE is depreciated on a straight line basis over seven years.

3.     Barewa acquired a10% interest in Calamari, a public limited liability company on 1 June, 2011 for N80million. The investment was accounted for as an available for sale investment and at 31 May 2012, its value was N90million. On 1 June 2012, Barewa acquired an additional 15% interest in Calamari for N110million and achieved a significant influence. Calamari made profits after dividends of N60million and N100million for the years to 31 May 2012 and 31 May 2013.

4.     Finally, on 1 June 2012, Barewa purchased an equity instrument of 100million pesos which was its fair value. The instrument was classified as available for sale. The relevant exchange rate is as follows:

	N to pesos	Fair Value of instruments-pesos (million)
31 May 2012	N5.1	100
31 May 2013	N5.0	90

Barewa has not recorded any change in the value of the instrument since 31 May 2012. The reduction in fair value as at 31 May 2013 is deemed to be as a result of impairment.

5.     The directors have included a loan to a director of Barewa in cash and cash equivalents of N10million. The loan has no specific repayment date on it but is repayable on demand. The directors feel that there is no problem with this accounting entry as there is a choice of accounting policy within International Financial Reporting Standards (IFRSs) and that showing the loan as cash is their choice of accounting policy as there is no IFRS which states that this policy cannot be utilized.

6.     There is no impairment of goodwill arising on the acquisitions.

Required:

Prepare a consolidated statement of financial position as at 31 May, 2013 for the Barewa group.

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