Plateau Pharmaceuticals Limited (Plateau), is a Namibian publicly listed company in the Health sector. Plateau, manufactures medical
Question:
Plateau Pharmaceuticals Limited (Plateau), is a Namibian publicly listed company in the Health sector. Plateau, manufactures medical drugs for sale to various pharmacies (retail outlets) and to medical institutions. Plateau decided to expand its operations in the health sector in Namibia and the existence of free cash flows at the end of September 2020 encouraged the decision. After comprehensive market research and financial analysis of the viability of various listed companies in the sector, Plateau decided to invest in Savanna Medical Facilities Limited (Savannah).
Savannah is listed on the Namibian Stock Exchange which manufactures the raw material required to produce medical drugs. Plateau gained control of Savanna on 1 October 2020 when all control assessment conditions were satisfied in accordance with IFRS 10: Consolidated Financial Statements. You are an intern at Plateau and you were working closely with the Financial Accountant of the Group Mr. Knowitall, who was suddenly attacked by the new Omicron BA12 variant of the coronavirus. The Group Finance Director Mrs. Nononsense knows you have been working with Mr. Knowitall and hence give you the following information for the group. On 1 October 2020 Plateau acquired 3 million equity shares in Savannah by an exchange of one share in Plateau for every two shares in Savannah plus N$1.25 per acquired Savannah share in cash. The market price of each Plateau share at the date of acquisition was N$6. Savannah also expects Plateau to pay an additional amount of N$1 000 000 at the end of 30 June 2025 as part of the consideration transferred. The cost of capital for Plateau is 14% p.a. Only the cash consideration paid of the above investments has been recorded by Plateau.
In addition, N$500,000 of professional costs relating to the acquisition of Savannah are also included in the cost of the investment. At the date of acquisition, the fair values of Savannah’s assets were equal to their carrying amounts with the exception of Savannah’s land which had a fair value of N$500,000 below it’s carrying amount; it was written down by this amount shortly after acquisition and has not changed in value since then. During the year ended 30 September, 2021 Savannah sold goods to Plateau for N$2.7 million. Savannah’s profit on sales of these goods is 33 1/3%. Plateau had a third of the goods still in its inventory on 30 September 2021. There were no intragroup payables/receivables on 30 September 2021. The fair value through profit or loss investments is included in Plateau’s statement of financial position (above) at their fair value on 1 October 2020, but they have a fair value of N$9 million on 30 September 2021. Plateau sold an asset with a carrying amount of N$ 500 000 to Savanna on 1 May 2021 for an amount of N$600 000. On the date of sale, the asset’s remaining useful life was 4 years.
Intermediate Accounting
ISBN: 978-0176509736
10th Canadian Edition, Volume 1
Authors: Donald Kieso, Jerry Weygandt, Terry Warfield, Nicola Young,