CONVEX Ltd. is a new company that was established on 1st January, 2020 to oversee the production of coronavirus vaccines for Ghana. On 1st July, 2020, CONVEX Ltd. acquired 75% shares in CONCAVE Ltd., a pharmaceutical company, to speed up the vaccine production. As a new graduate from UGBS, CONVEX Ltd. has employed you as their accountant. At a management meeting held, a number of issues were raised about how CONVEX Ltd. should deal with its transactions and investment in CONCAVE Ltd. and the need to conduct financial ratio analysis to determine the profitability and sustainability of CONCAVE Ltd. In a memo to management, provide your views on how the following issues should be addressed. ISSUE Assuming there is the need for CONVEX Ltd. to prepare consolidated financial statements and CONCAVE Ltd. has presented its separate financial statement to CONVEX Ltd., comment on how the following transactions between CONVEX Ltd. and CONCAVE Ltd. will be accounted for in the consolidated financial statements and explain to management the reason for the suggested treatment a) At the acquisition date, CONVEX Ltd. paid GH¢20 million cash and promised to pay additional GH¢2 million if the vaccine production is successful. However, the value of net assets of CONCAVE Ltd. was just GH¢16 million.
CONVEX Ltd. is a new company that was established on 1st January, 2020 to oversee the production of coronavirus vaccines for Ghana. On 1st July, 2020, CONVEX Ltd. acquired 75% shares in CONCAVE Ltd., a pharmaceutical company, to speed up the vaccine production. As a new graduate from UGBS, CONVEX Ltd. has employed you as their accountant. At a management meeting held, a number of issues were raised about how CONVEX Ltd. should deal with its transactions and investment in CONCAVE Ltd. and the need to conduct financial ratio analysis to determine the profitability and sustainability of CONCAVE Ltd. In a memo to management, provide your views on how the following issues should be addressed.
ISSUE
Assuming there is the need for CONVEX Ltd. to prepare consolidated financial statements and CONCAVE Ltd. has presented its separate financial statement to CONVEX Ltd., comment on how the following transactions between CONVEX Ltd. and CONCAVE Ltd. will be accounted for in the consolidated financial statements and explain to management the reason for the suggested treatment
a) At the acquisition date, CONVEX Ltd. paid GH¢20 million cash and promised to pay additional GH¢2 million if the vaccine production is successful. However, the value of net assets of CONCAVE Ltd. was just GH¢16 million.
Step by step
Solved in 2 steps
