Tutorial Letter 101/3/2012 · FAC2602/102 3 1 GENERAL Dear Student, This tutorial letter contains...

FAC2602/102/3/2017

Tutorial Letter 102/3/2017 Selected Accounting Standards and Simple Group Structures

FAC2602 Semester 1 and 2 Department of Financial Accounting

This tutorial letter contains important information about the module.

2

CONTENTS

1

GENERAL .....................................................................................................................................

Page

3

2

3

A

B

PREPARATION DURING THE SEMESTER AND EXAM TECHNIQUE ......................................

ANNEXURES:

ADDITIONAL QUESTIONS...........................................................................................................

SOLUTIONS TO ADDITIONAL QUESTIONS ...............................................................................

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5

65

FAC2602/102

3

1 GENERAL

Dear Student, This tutorial letter contains general contact information, suggestions on preparation during the semester, exam technique and additional questions and solutions in annexures A and B. It is in your own interest to work through the solutions in conjunction with your own answers. Compare your answer against the suggested solution and ask yourself whether you understand why the solution is correct where your answer differs from it. Revise your tutorial matter and the assignments regularly. By repeatedly working through these questions and doing so under exam conditions (i.e. with no interruptions and within the allotted time), you will improve your knowledge of the subject and your exam technique. Questions 1 to 18 contains exam type questions and should be attempted after all applicable learning units have been mastered (refer to page 5). Questions 19 to 27 can be attempted whilst you are still busy with the learning units (refer to page 5.) Please use the following e-mail address to communicate with the lecturers:

[email protected]

Please use the following telephone number to communicate with the lecturers:

(012) 429-4234

Lecturers:

Ms C Wolfaardt Ms MJ Grobler Ms N Mahomed

Kind regards Lecturers: Accounting II (FAC2602)

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2 PREPARATION DURING THE SEMESTER AND EXAM TECHNIQUE

- After you have studied the theory of each learning unit and made sure that you understand

the principles involved, work through the illustrative examples and ensure you understand the application of the principles. Do not memorise the examples; try to understand why the specific calculations and journal entries were done.

- The next step is to attempt the questions in this tutorial letter. When you work through the

additional questions in this tutorial matter, answer the questions without referring to the suggested solution. Only once you have completed the question, should you compare your answer to the suggested solution. Analyse your answer against the solution and ask yourself whether you understand why the solution is correct where your answer differed. Revise the tutorial matter regularly. By repeatedly working through these questions under examination conditions (i.e. with no interruptions and within the time allowed), you will improve your knowledge of the subject and your examination technique.

Exam technique - Read the “REQUIRED” section first. Ensure that you understand what is required of you.

Please note that marks will not be awarded if you complete that which is not required and it will result in a waste of time if you prepare unnecessary workings or disclosures.

- When statements are required, start by writing the layout (wording) of the disclosure. The

disclosure will then be a guide for deciding what calculations to prepare. - After you have written down the layout (disclosure), start with the calculations. Once you

have done a calculation, transfer the answer to your layout (disclosure). Marks cannot be awarded if calculations are not transferred or referenced correctly to the statements.

- It is advisable to show shorter calculations in brackets on the face of the required

statements. This will save time and avoid duplication. Longer calculations which cannot fit into the line next to the disclosure can be done on a separate page. The figures in the disclosure should then be cross referenced to the calculations.

- Attempt each question in the paper. - Show all calculations, even if it is as simple as adding two figures. Even though a final

amount may be wrong, you can still earn marks for parts of a calculation performed and showed correctly.

- Unreadable handwriting can complicate the marking. As a result marks may be lost

unnecessary. Make sure that your handwriting is legible. - Keep to the suggested time for each question. This is a guideline of the maximum amount

of time a student should spend on each question. If you are unable to complete a question in the suggested time, leave the question and carry on with the next question. This will ensure you obtain the maximum marks per question in the minimum time.

- Do not waste unnecessary time trying to balance financial statements, as these totals

usually count only a few or no marks.

FAC2602/102

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3 ANNEXURE A: ADDITIONAL QUESTIONS

Question Topic

1 Group statements – statement of profit or loss and other comprehensive income

(exam type question: attempt after learning units 1 – 9 are mastered, focus on

learning unit 6)

2 Group statements – pro-forma consolidated journal entries

(exam type question: attempt after learning units 1 – 9 are mastered)

3 Statement of cash flows

(exam type question: attempt after learning unit B1 is mastered)

4 Multiple choice questions

(exam type question: attempt after learning unit 1 is mastered)

5

6

7

8

9

10

11

Group statements – statement of changes in equity and statement of financial

position (exam type question: attempt after learning units 1 – 9 are mastered)

Group statements – pro-forma consolidation journal entries

(exam type question: attempt after learning units 1 – 9 are mastered, focus on

learning unit 6)

Statement of cash flows


Group statements – pro-forma consolidated journal entries




Group statements – financial statements and pro-forma consolidated journal

entries (exam type question: attempt after learning units 1 – 9 are mastered)

Group statements – pro-forma consolidated journal entries





(exam type question: after learning units 1 – 9 are mastered, focus on 6)

14 Group statements – pro-forma consolidated journal entries


6

Question Topic

15

16



Group statements – statement of profit or loss and other comprehensive income

and pro-forma consolidated journal entries


17 Group statements – statement of financial position and pro-forma consolidated

journal entries




19

20

21

Group statements – financial statements

(attempt after learning units 1 – 5 are mastered)

Group statements – statement of financial position and pro-forma consolidated

journal entries (attempt after learning units 1 – 8 are mastered)

Group statements – statement of financial position and pro-forma consolidated


22 Group statements – statement of financial position and pro-forma consolidated



and statement of changes in equity (attempt after learning units 1 – 8 are

mastered)

24 Group statements – statement of financial position

(attempt after learning units 1 – 9 are mastered)

25 Group statements – financial statements and pro-forma consolidated journal

entries (attempt after learning units 1 – 8 are mastered)

26 Statement of cash flows (attempt after learning unit B1 is mastered)

27 Statement of cash flows (attempt after learning unit B1 is mastered)

FAC2602/102

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QUESTION 1 (36 marks)(43 minutes) The following are the trial balances of Iron Ltd and Ore Ltd as at 31 March 2016:

Credits

Iron Ltd R

Ore Ltd R

Share capital – Ordinary shares (200 000 / 50 000 shares) ........ – 8% Cumulative preference shares ..................... (50 000 / 20 000 shares) Revaluation surplus .................................................................... Retained earnings – 1 April 2015 ............................................... Sales .......................................................................................... Other income ............................................................................... Trade and other payables............................................................ Accumulated depreciation ...........................................................

200 000 50 000

180 000 210 000

3 900 000 167 200

1 056 130 543 000

100 000 20 000

50 000 88 000

2 500 000 15 950

491 340 495 000

6 306 330 3 760 290

Debits

Land and buildings ...................................................................... Plant and machinery .................................................................... Inventory ..................................................................................... Cost of sales ................................................................................ Administrative expenses.............................................................. Depreciation ................................................................................ Staff costs ................................................................................... Interest paid ................................................................................. Income tax expense .................................................................... Trade and other receivables ........................................................ Bank ............................................................................................ Dividends paid ............................................................................. Investment in Ore Ltd at cost price: - 40 000 Ordinary shares …………………………………………. - 8 000 8% Cumulative preference shares ………………………

500 000 908 000 195 000

2 020 000 313 000 152 000 588 000

16 000 158 330 845 500

55 000 45 000

500 000

10 500

400 000 800 000 230 000

1 085 000 88 000

102 800 600 000

1 200 178 906 206 084

59 200 9 100

- -

6 306 330 3 760 290

Additional information: 1. Iron Ltd acquired its interest in Ore Ltd on 31 October 2015. On this date the carrying

amount of Ore Ltd’s assets and liabilities were deemed to be equal to the fair value thereof. The revaluation surplus amounted to R50 000 at date of acquisition. It is the policy of the group to revalue land and buildings every three years.

Furthermore, it is also group policy to disclose goodwill at cost less impairment in the

consolidated financial statements. Goodwill was not impaired during the current year.

8

QUESTION 1 (continued) 2. Both companies classified the 8% cumulative preference share capital as equity. At date of

acquisition, the cumulative preference dividends of Ore Ltd were not in arrears. 3. The sales of Ore Ltd are seasonal. From 1 November 2015 to the end of the financial year,

sales amounted to R833 333. The income tax expense for the same period amounted to R47 044. Cost of sales must be allocated in proportion to the sales.

4. Included in administrative expenses of Ore Ltd is a loss of R14 500 relating to a copy

machine that was scrapped at the end of the current financial year. 5. Ore Ltd purchased machinery from Iron Ltd on 1 March 2016 at a cost of R65 000. On this

date the carrying amount of the machine was R45 000 in the accounting records of Iron Ltd. It is the group’s policy to recognise depreciation on plant and machinery on the straight-line method at a rate of 20% per annum.

6. Assume that all other income and expenditure of Ore Ltd were earned and incurred evenly

throughout the year. Assume that the profit after tax of Ore Ltd for the period 1 April 2015 to 31 October 2015 was R367 866.

7. Since the date of acquisition, Iron Ltd purchased some of its inventory from Ore Ltd at cost

plus 25%. Intragroup sales amounted to R200 000 during the year. Included in closing inventory of Iron Ltd is inventory to the value of R30 000 which was purchased from Ore Ltd.

8. Ore Ltd declared a dividend of 15 cents per ordinary share at the end of the financial year. 9. Assume each ordinary share carries one vote and that voting rights alone determine

control. 10. The issued share capital of both companies remained unchanged since incorporation. REQUIRED:

Marks

Prepare the consolidated statement of profit or loss and other comprehensive income of the Iron Ltd Group for the year ended 31 March 2016.

36

[36]

Please note: Your answer must comply with the requirements of International Financial Reporting Standards (IFRS). Notes to the consolidated statement of profit or loss and other comprehensive income and comparative figures are not required. Round off all amounts to the nearest Rand.

FAC2602/102

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QUESTION 2 (22 marks)(27 minutes) Lucky Ltd is a company that manufactures tin cans for the packaging of food. Fish Ltd sources sardines from the Middle East and sells it to retail stores. The Fish Ltd Group was founded on 1 June 2013, when Fish Ltd purchased 80% of the 500 000 ordinary shares in Lucky Ltd. 1. Since the date of acquisition, Lucky Ltd sells tin cans to Fish Ltd at a favourable rate of

cost plus 20%. On 1 June 2014 Fish Ltd had the following inventories on hand:

Inventory item R

Sardines 455 000

Tin cans – obtained from Lucky Ltd 300 000

Tin cans – obtained from Middle East suppliers 260 000

Current year sales by Lucky Ltd to Fish Ltd amounted to R600 000. At year end Fish Ltd

only had 40% of the current year sales on hand. 2. On 1 February 2014, Lucky Ltd sold a property to Fish Ltd for R1 400 000. Lucky Ltd

originally purchased this property for R1 200 000. On 1 February 2014 the property was revalued with an amount of R300 000, but the accountant of Lucky Ltd never accounted for the revaluation.

3. On 1 March 2015, Fish Ltd sold a machine with a carrying amount of R360 000, for

R400 000 to Lucky Ltd. It is group’s policy to depreciate machinery at 20% per annum according to the reducing balance method.

4. On 31 May 2015, Lucky Ltd declared a dividend of 30c per ordinary share. The accountant

has not yet provided for these dividends, neither was Fish Ltd notified of the dividends. REQUIRED:

Marks

Draft the following pro-forma consolidation journal entries of the Fish Ltd Group for the year ended 31 May 2015, after taking the above-mentioned information into account: a) Elimination of the unrealised profit included in the opening inventory. b) Elimination of the unrealised profit or loss on the sale of the property. c) Elimination of the unrealised profit or loss on the sale of the machine, as well as

the current year’s depreciation associated with the sale of the machine. d) Provision for the dividends payable. e) Elimination of the unrealised profit included in closing inventory.

(3½) (4)

(7½)

(3)

(4)

[22]

Please note: Narrations are required and indicate clearly to which company each account refers to. Show all calculations and round off all amounts to the nearest Rand. Ignore the taxation effect on unrealised profits and/or losses as well as capital gains tax.

10

QUESTION 3 (36 marks)(43 minutes) The following balances appear in the accounting records of Dawn Ltd for the financial year ended 30 September: Debits

2015 R

2014 R

Property, plant and equipment ............................................................. Financial assets at fair value through profit or loss .............................. Inventory Trade and other receivables ................................................................ Bank

850 000 625 000 668 500 507 100 108 500

543 400 512 000 558 900 887 500

-

2 759 100 2 501 800

Credits Share capital ........................................................................................ 12% Debentures .................................................................................. Other components of equity ................................................................. Retained earnings ............................................................................... Long-term borrowings .......................................................................... Taxation payable ................................................................................. Short-term portion of long-term borrowings ......................................... Dividends payable ............................................................................... Trade and other payables .................................................................... Provisions Bank overdraft .....................................................................................

560 000 250 000 462 000

73 336 202 680 104 500

24 100 58 284

732 600 291 600

-

500 000 100 000 392 000

50 000 175 000 168 000

39 400 120 000 637 800 291 600

28 000

2 759 100 2 501 800

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 SEPTEMBER 2015 R Revenue 1 250 000 Cost of sales ......................................................................................................... (845 900)

Gross profit ......................................................................................................... Other income ........................................................................................................

404 100 73 500

Staff costs Other expenses .................................................................................................... Finance costs .......................................................................................................

(110 000) (233 000)

(25 800)

Profit before tax .................................................................................................. Income tax expense .............................................................................................

108 800 (30 464)

Profit for the year ................................................................................................ 78 336

Additional information: 1. The company sold one of its vehicles during the year at a profit of R28 000. The vehicle

had a carrying amount of R33 000 and a residual value of R30 000 on date of sale. The vehicle was immediately replaced with two other identical vehicles at a cost of R89 000 each. There were no other sales of property, plant and equipment during the year.

FAC2602/102

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QUESTION 3 (continued) 2. It is the policy of the company to revalue land every three years. At the end of the current

financial year, the land was revalued by R70 000. Any other additions to property, plant and equipment during the year were to expand the company’s operations.

3. The balance of trade and other receivables was arrived at after taking into account an

allowance for credit losses of R17 600 (2014: R32 750). 4. The debentures were issued as follows: • 31 October 2013 – 12 % R100 000 redeemable after five years. • 1 May 2015 – 12% R150 000 redeemable in five equal annual installments with the

first installment payable on 1 May 2018. 5. Dawn Ltd sold some of its financial assets during the year at a loss of R2 000. These

assets were acquired at a cost of R14 000, which was also the fair value at the date of sale. These assets were held with the intention of short-term profit taking as part of the business model.

6. Other expenses include, amongst others, the loss on sale of investments and depreciation

of R45 000 for the year. 7. Other income is made up of dividend income, a recovery of credit losses and profit on sale

of assets. 8. Dawn Ltd made a payment of R88 000 to the South African Revenue Services for

provisional tax. This amount was incorrectly posted to the trade and other payables account.

9. The company declared and paid a dividend of R55 000 at the end of the financial year. REQUIRED:

Marks

Draft the statement of cash flows of Dawn Ltd, according to the direct method, for the year ended 30 September 2015, after taking into account the additional information given.

36

[36]

Please note: Your answer must comply with the requirements of International Financial Reporting Standards (IFRS). Round all amounts to the nearest Rand. Show all calculations. No comparative figures are required. The notes to the statement of cash flows are not required.

12

QUESTION 4 (6 marks)(7 minutes) REQUIRED: Answer the following 3 multiple choice questions. Select only one answer per question. 1. An entity that controls another entity is called a: (2) 1. parent 2. associate 3. subsidiary 4. controllee 2. Select the incorrect statement. For an investor to control an investee, the following,

amongst other things, must be applicable: (2) 1. the investor must have power over the investee 2. the investor must be able to use its power to affect returns 3. the investor must have exposure or rights to returns from the investee 4. the investor must have more than 50% shareholding in the investee 3. Select the incorrect statement. Group statements do not have to be presented by a

parent when, amongst other things: (2)

1. the parent’s debt or equity instruments are not traded in a public market 2. the ultimate parent produces consolidated financial statements 3. the parent will disclose the investment as per IFRS 39 4. the parent itself is a wholly-owned parent

FAC2602/102

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QUESTION 5 (45 marks)(54 minutes) Carson Ltd and Bates Ltd are part of a group of companies. Both companies manufacture household equipment. The following represent extracts from the financial statements of Carson Ltd and its subsidiary Bates Ltd: STATEMENTS OF FINANCIAL POSITION AS AT 31 OCTOBER 2014

Carson

Ltd R

Bates Ltd

R Assets Property at fair value Machinery at carrying amount

2 000 000

500 000

1 500 000

300 000 Plant at carrying amount Investment in Bates Ltd at fair value - 240 000 ordinary shares (cost price: R1 300 000) - 25 000 10% cumulative preference shares (cost price: R40 000) Inventory Trade and other receivables Bank – City Bank

1 200 000

1 300 000 40 000

300 000 484 000 200 000

800 000

- -

500 000 1 340 000

-

6 024 000 4 440 000

Equity and liabilities Share capital - Ordinary shares (200 000/300 000 shares) - 10% Cumulative preference shares (100 000 shares) Revaluation surplus Retained earnings Trade and other payables

400 000 -

800 000 3 340 000 1 484 000

500 000 100 000 450 000

2 820 000 550 000

Bank overdraft – City Bank - 20 000

6 024 000 4 440 000

STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 OCTOBER 2014 Retained

earnings Carson

Ltd

Retained earnings

Bates Ltd

R R Balance at 1 November 2013 Changes in equity for 2014 Total comprehensive income for the year

2 048 000

1 545 000

Profit for the year 1 372 000 1 365 000

Dividend paid: Ordinary

(80 000)

(50 000)

Preference - (40 000)

Balance at 31 October 2014 3 340 000 2 820 000

14

QUESTION 5 (continued) Additional information: 1. Acquisition and general information Carson Ltd acquired its interest in Bates Ltd on 1 November 2010. On this date the

retained earnings of Bates Ltd amounted to R850 000. On the same day a property of Bates Ltd, which had a carrying amount of R300 000, was

valued at R550 000. This revaluation was recorded in the financial records of Bates Ltd. It is the policy of the group to revalue property every two years. The only other revaluation occurred on 31 October 2012. Thereafter the value remained unchanged until 31 October 2014. Since 1 November 2010, Bates Ltd has not purchased or sold any property.

At date of acquisition, consider the carrying amounts of all the other assets and liabilities of

Bates Ltd to be equal to the fair values thereof.

No dividend was declared or paid by Bates Ltd during the period 1 November 2010 to 31 October 2013.

Assume each ordinary share carries one vote and that voting rights alone determine

control. The issued share capital of both companies remained unchanged since the incorporations of the companies.

Furthermore, it is also group policy to disclose goodwill at cost less impairment in the

consolidated financial statements. Goodwill was not impaired during the current year. The parent guarantees the overdraft of the subsidiary’s bank account. 2. Intragroup transactions

Since 1 November 2010, Carson Ltd purchases all its inventories from Bates Ltd at cost plus 25%. Carson Ltd’s inventory at 31 October 2013 amounted to R250 000.

Carson Ltd sold a machine to Bates Ltd on 1 May 2012 for R295 000. The machine was purchased by Carson Ltd for R400 000 when it on 1 May 2010. The group provides for depreciation at 20% per annum according to the straight-line method.

Carson Ltd discounted R10 000 of the R15 000 bills receivable from Bates Ltd at the bank before the expiry date of 31 December 2016. The remaining bills are included in trade and other receivables and trade and other payables respectively.

Carson Ltd had surplus space available in their office building and decided to lease the

extra office space at R10 000 per month to Bates Ltd, payable in advance, with effect from 1 January 2013. Bates Ltd also agreed to pay a deposit equal to two months’ instalments. The deposit has been recorded as trade and other receivables and trade and other payables respectively.

FAC2602/102

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QUESTION 5 (continued) REQUIRED: Draft the following consolidated statements of the Carson Ltd Group as at 31 October 2014: a) The statement of changes in equity – only the retained earnings column; b) The statement of financial position. Your answer must comply with the requirements of International Financial Reporting Standards (IFRS). Note: • Notes to the consolidated financial statements are not required. • Ignore the taxation effect on unrealised profits and/or losses, as well as capital gains tax. • Round off all amounts to the nearest Rand.

16

QUESTION 6 (26 marks)(31 minutes)

McLaren Ltd and Williams Ltd have had a good business relationship for a number of years, buying motor vehicles and spare parts to and from each other. The following information regarding McLaren Ltd and Williams Ltd has been provided:

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 JANUARY 2014

McLaren

Ltd Williams

Ltd R R Revenue 1 206 000 1 040 000 Cost of sales (740 000) (564 000)

Gross profit 466 000 476 000 Administrative expenses (65 000) (48 000) Depreciation (130 000) (120 000)

Profit before tax 271 000 308 000 Income tax expense (75 880) (86 240)

PROFIT FOR THE YEAR 195 120 221 760 Other comprehensive income for the year - -

TOTAL COMPREHENSIVE INCOME FOR THE YEAR 195 120 221 760

Additional information:

1. Due to the abovementioned mutual beneficial relationship, the board members of

McLaren Ltd decided to buy ordinary shares and 12% cumulative preference shares in Williams Ltd on 1 September 2013. McLaren Ltd acquired the following shares in Williams Ltd at cost, which was also the fair value at date of purchase: R 42 400 Ordinary shares 930 000 10 000 12% Cumulative preference shares 28 000

On 1 September 2013 Williams Ltd’s owners’ equity consisted of:

53 000 Ordinary shares 53 000 25 000 12% Cumulative preference shares 25 000 Retained earnings – 1 February 2013 718 635

It is the group’s policy to show goodwill at cost in the financial statements. Assume that the carrying amounts of all other assets and liabilities were equal to the fair values thereof. Assume each ordinary share carries one vote and that voting rights alone determine control.

2. Williams Ltd paid all arrear preference dividends on 31 January 2013. On 31 August

2013, Williams Ltd paid all outstanding preference dividends again. Consequently, Williams Ltd made the next payment of preference dividends on 31 January 2014.

FAC2602/102

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QUESTION 6 (continued) 3. McLaren Ltd purchased a vehicle from Williams Ltd on 1 March 2013 at carrying amount

plus 20%. McLaren Ltd uses the truck to transport other vehicles. The carrying amount of the truck in Williams Ltd’s financial records was R350 000 on 1 March 2013. The original cost price was R500 000 for Williams Ltd. On 30 September 2013, McLaren Ltd purchased another truck from Williams Ltd at carrying amount plus 10%. On 30 September 2013, the carrying amount of this truck was R230 000 in the financial records of Williams Ltd. The original cost price was R400 000 for Williams Ltd. Both vehicles were classified as plant and equipment in Williams Ltd’s and McLaren Ltd’s financial records.

4. Both companies depreciate vehicles at 15% per annum according to the straight-line

method. 5. Williams Ltd purchases all its inventories from McLaren Ltd at cost price plus 25%. The

accountant calculated that R105 000 of the inventory on hand at year end was purchased from McLaren Ltd since 1 September 2013.

6. All income and expenses of McLaren Ltd and Williams Ltd were earned evenly

throughout the year, except where otherwise indicated. 7. Assume a taxation rate of 28% and that all income is taxable and all expenses are tax

deductible. Income tax must be apportioned according to the profit before tax for the period. Ignore any other tax implications.

REQUIRED:

Draft the following pro-forma consolidation journal entries of the McLaren Ltd Group for the period ended 31 January 2014, after taking the above-mentioned information into account:

a) Elimination of the owners’ equity at acquisition.

(17½)

b) Elimination of the current year’s depreciation associated with the sale of the vehicle on 30 September 2013.

(4)

c) Elimination of the intragroup preference dividends and record the non-controlling interests in the preference dividends.

(4½)

Note:

• Indicate clearly to which company each account refers to. • Journal narrations are not required. • Show all calculations and round off all amounts to the nearest Rand. • Ignore the taxation effect on unrealised profits and/or losses as well as capital gains tax.

18

QUESTION 7 (29 marks)(35 minutes) The following balances were extracted from the accounting records of Fragile Ltd for the financial year ended 31 August 2014:

2014 R

2013 R

Credits Share capital (300 000/250 000 ordinary shares) (300 000/250 000 shares) 600 000 500 000 Revaluation surplus 145 000 105 000 Retained earnings – beginning of year 777 938 518 720 Deferred tax 20 300 14 700 Trade and other payables 455 000 588 000 Dividends payable 60 000 50 000 Short-term borrowings 140 000 40 000 Revenue 2 985 000 2 182 000 Dividends received 10 000 10 000 Other income 148 000 31 000 Interest income - 11 000 Tax payable 224 479 116 362 Accumulated depreciation – plant and machinery 148 000 118 000 Long-term borrowings 320 000 250 000

6 033 717 4 534 782

Debits Land and buildings at valuation 940 000 800 000 Plant and machinery at cost 550 000 400 000 Inventory 264 600 160 000 Trade and other receivables 680 000 500 000 Financial assets at fair value through profit or loss 750 000 550 000 Bank 192 007 150 000 Cost of sales 1 840 000 1 420 000 Other expenses 480 000 379 500 Income tax expense - current 224 190 116 362 - deferred 5 600 - Dividends declared 85 000 40 000 Interest paid 22 320 18 920

6 033 717 4 534 782

Additional information: 1. The company sold a significant portion of its financial assets in the current year in order to

improve its cash position. The total proceeds amounted to R300 000. Other income consists of profit on sale of financial assets amounting to R48 000 and a fair

value adjustment on the company’s financial assets to the amount of R100 000. The company’s financial assets are held for trading.

2. Included in other expenses is a loss on sale of plant and machinery of R6 000 and a

depreciation expense for plant and machinery amounting to R38 000. These are the only non-cash flow items included in other expenses.

FAC2602/102

19

QUESTION 7 (continued)

3. The company declared and paid an interim dividend of 10 cents per share on 28 February 2014.

The company issued additional shares on 1 August 2014. This was followed by the

declaration of a final dividend of 20 cents per share. 4. The increase in long-term borrowings was utilised in full to purchase additional plant and

machinery to increase the company’s production capacity. 5. It is the company’s policy to revalue its land and buildings every three years. Any

additional investment in land and buildings was to expand production capacity. REQUIRED: Draft the statement of cash flows of Fragile Ltd, according to the direct method, for the year ended 31 August 2014, after adjusting for all entries mentioned above. Your answer must comply with the requirements of International Financial Reporting Standards (IFRS). Note: • Round off all amounts to the nearest Rand. • Show all calculations. • No comparative figures are required. • The notes to the statement of cash flows are not required.

20

QUESTION 8 (27 marks)(32 minutes) Arrow Ltd operates as a manufacturer of packaging and industrial cleaning materials. In order to reduce their carbon footprint, the board of directors of Arrow Ltd decided to acquire 80% of the shares of Cycle Ltd, a locally based recycling company. Cycle Ltd became a subsidiary of Arrow Ltd on 1 January 2009. The following represents a list of balances of Arrow Ltd and Cycle Ltd as at 31 December 2013:

Arrow Ltd

Cycle Ltd

R R Debits Property, plant and equipment Investment in Cycle Ltd

2 846 000 494 000

1 880 408 -

Loan: Cycle Ltd 200 000 - Inventories Trade and other receivables Cash and cash equivalents

330 000 562 952

80 000

420 000 148 952

- Credits

Share capital – Ordinary shares (2 500 000/350 000 shares) 1 250 000 175 000 Other components of equity 500 000 250 000 Retained earnings 659 752 799 360 Loan: Arrow Ltd - 200 000 10% Debentures (12 000 debentures) - 120 000

An extract from the statement of profit or loss and other comprehensive income includes the following items: Arrow

Ltd Cycle

Ltd Sales

R 4 000 000

R 3 440 000

Opening inventory - 1 January 2013 300 000 390 000 Purchases 1 500 000 1 169 348 Management fees received from Cycle Ltd 60 000 - Depreciation: Plant and equipment 110 000 75 000 Management fees paid to Arrow Ltd - 60 000 Interest paid: Debentures - 14 400 Bank overdraft - 25 000 Loan – Arrow Ltd - 20 000 Interest received: Loan – Cycle Ltd 20 000 -

You may assume that Cycle Ltd’s profit after tax amounted to R611 860 before taking into account any intragroup transaction adjustments.

FAC2602/102

21

QUESTION 8 (continued) Additional information: 1. The equity of Cycle Ltd was made up as follows on the date that Cycle Ltd became a

subsidiary of Arrow Ltd. Each share carries one voting right. R Share capital 175 000 Retained earnings 180 000 Revaluation surplus 250 000 It is the group’s policy to show goodwill at cost in the financial statements. Assume that the carrying amounts of all other assets and liabilities were equal to the fair value thereof.

2. The retained earnings balances at 1 January 2013 were as follows:

R Arrow Ltd 170 000 Cycle Ltd 240 000

3. Since acquisition, Arrow Ltd has purchased 50% of its plastic materials from Cycle Ltd in

accordance with a decision made by the board of directors. Cycle Ltd sells the inventory to Arrow Ltd at a profit of 20% on the cost price. Cycle Ltd sold inventory amounting to R1 250 000 to Arrow Ltd for the year ended 31 December 2013. 50% of the opening and closing inventories of Arrow Ltd had been purchased from Cycle Ltd.

4. On 1 July 2012, Arrow Ltd sold machinery at a profit of R100 000 to Cycle Ltd. Cycle Ltd

paid R250 000 for the machinery. It is the group’s policy to depreciate machinery at 20% per year according to the straight-line method.

REQUIRED:

Draft the pro forma consolidation journal entries of the Arrow Ltd Group for the year ended 31 December 2013.

Please note:

Exclude all journals relating to dividend transactions.

Indicate clearly to which company each account refers.

No journal narrations are required.

Show all calculations.

Ignore the taxation effect on unrealised profits and/or losses as well as capital gains tax.

22

QUESTION 9 (25 marks)(30 minutes) You have been presented with the following information relating to Ingwe Ltd in order to draft the statement of cash flows for the year ended 31 December 2013: INGWE LTD STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2013 2013

R 2012

R ASSETS Non-current assets

Property, plant and equipment 270 824 210 924

Current assets

270 824 210 924

Inventory Trade and other receivables Cash and cash equivalents Financial assets at fair value through profit or loss

48 655 70 387

9 495 16 251

34 625 63 345

7 311 14 184

144 788 119 465

Total assets 415 612 330 389

EQUITY AND LIABILITIES

Share capital Other components of equity Retained earnings

17 650 98 192

105 196

17 650 80 760 87 090

Total equity 221 038 185 500

Non-current liabilities Long-term borrowings

56 308

37 423

Current liabilities Trade and other payables Taxation payable Dividends payable Short-term portion of long-term borrowings

51 270 45 681

5 291 36 024

37 033 37 351

7 291 25 791

138 266 107 466

Total liabilities 194 574 144 889

Total equity and liabilities 415 612 330 389

FAC2602/102

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QUESTION 9 (continued) INGWE LTD STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2013 2013

R

2012 R

Revenue 286 077 276 077 Cost of sales (174 027) (137 000)

Gross profit Other income Other expenses Finance cost

112 050 3 770

(63 405) (8 656)

139 077 3 060

(62 100) (8 200)

Profit before tax Income tax expense

43 759 (12 253)

71 837 (20 114)

PROFIT FOR THE YEAR 31 506 51 723 Other comprehensive income for the year – revaluation of property

17 432

-


Additional information: 2013 2012 R R 1. The following items, amongst others, are included in other

expenses:

Depreciation Credit losses written off

19 647 5 596

17 092 -

2. Included in trade and other payables is interest payable amounting

to:

518

422 3. Other income consists of the following items: Profit on disposal of plant and equipment 280 - Dividends received from investments 1 210 1 000 Interest received 2 280 2 060

3 770 3 060

4. An additional plant was bought during the current year at an amount of R19 500 for the

expansion of production. The proceeds from the disposal of plant and equipment amounted to R990 during the current year.

5. A financial asset with a value of R2 700 was sold on 30 June 2013. No profit or loss was

made. The company’s financial assets are held for trading, with the intention of short-term profit taking.

6. On 31 December 2013 an ordinary dividend of R13 400 was declared.

24

QUESTION 9 (continued) REQUIRED: Draft the statement of cash flows of Ingwe Ltd according to the direct method for the year ended 31 December 2013. Your answer must comply with the requirements of International Financial Reporting Standards (IFRS). Please note:

Ignore comparative figures.

Show all calculations.

Round off all amounts to the nearest Rand.

FAC2602/102

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QUESTION 10 (58 marks)(70 minutes) The following balances appear in the accounting records of Goldtek Ltd and Cointek Ltd for the financial year ended 29 February 2012: Debits

Goldtek Ltd R

Cointek Ltd R

Land and buildings at valuation Machinery at cost Bills receivable Current account: Cointek Ltd Bank Investments in Cointek Ltd at fair value: - 112 000 Ordinary shares (cost price R136 000) - 20 000 Preference shares (cost price R23 000) Inventories (including raw materials) Trade and other receivables Other expenses Income tax expense Rent: Cointek Ltd Finance cost Dividends paid (ordinary and preference shares) Dividends paid (preference shares)

1 680 000 536 000

30 800 42 400

5 426

136 000 23 000 22 400

140 343 48 334 56 183

2 400 5 280

46 100 -

264 000 219 000

- - -

- -

24 800 80 400

7 440 42 000

- 960 -

2 400

2 774 666 641 000

Credits Share capital – ordinary shares (880 000 /160 000 shares) 8,75% Preference shares (12 000 shares) 6% Preference shares (40 000 shares) Retained earnings – 1 March 2011 10% Debentures Current account: Goldtek Ltd Accumulated depreciation – machinery Accumulated depreciation – buildings Current tax payable Dividends received Trade and other payables Other income Bank overdraft Revaluation surplus – 1 March 2011 Gross profit Bills payable: Goldtek Ltd Rent: Goldtek Ltd Finance income

1 760 000 24 000

- 40 000 52 800

- 125 200 304 000

43 200 1 200

77 000 55 706

- 90 600

200 000 - - 960

160 000 -

40 000 12 200

- 40 000 46 000 36 000 21 600

- 53 520

- 12 080 50 000

156 000 11 200

2 400 -

2 774 666 641 000

26

QUESTION 10 (continued) Additional information: 1. Goldtek Ltd acquired its total interest in Cointek Ltd on 1 July 2007 for R159 000. On that

date the retained earnings of Cointek Ltd amounted to R7 200 and the revaluation surplus to R4 000. The share capital of Cointek Ltd has remained unchanged since 1 July 2007. At the date of acquisition the preference dividends were not in arrears. Both companies classified the preference share capital as equity.

In addition to the abovementioned, Goldtek Ltd determined the purchase price of the

shares by revaluing a vacant stand (included in land and buildings) by R16 000 on date of acquisition of Cointek Ltd.

The only other revaluation occurred on 1 January 2010 when both companies revalued

their land and buildings again. It is group policy to show goodwill at cost less impairment in the consolidated financial

statements. Goodwill was not impaired during the 2012 financial year. 2. The operations of the two companies are similar in that both Goldtek Ltd and Cointek Ltd

are involved in the manufacturing and refining of minerals. Owing to this, an agreement exists between the two companies whereby Goldtek Ltd purchases all its raw materials from Cointek Ltd at cost plus 25%.

The following information of Goldtek Ltd is available:

R Raw material inventories - 1 March 2011 Raw materials purchased during the year Raw material inventories - 29 February 2012

6 400 400 400

9 600 3. No preference dividends are in arrears. 4. All finance costs paid by Cointek Ltd were to Goldtek Ltd. 5. Cointek Ltd sent a cheque for R2 400 to Goldtek Ltd on 26 February 2012. This cheque

was only received by Goldtek Ltd on 4 March 2012. 6. The parent and the subsidiary do not bank with the same financial institution. 7. Sales of Goldtek Ltd for the year amounted to R1 200 000 (at a profit mark-up of 20% on

cost) and R780 000 for Cointek Ltd (at a profit mark-up of 25% on cost). 8. Goldtek Ltd discounted all the bills receivable from Cointek Ltd before the expiry date.

FAC2602/102

27

QUESTION 10 (continued) REQUIRED: a) Draft the consolidated annual financial statements (consolidated statement of profit or loss

and other comprehensive income, consolidated statement of changes in equity and consolidated statement of financial position) of the Goldtek Ltd Group for the year ended 29 February 2012, in accordance with International Financial Reporting Standards (IFRS).

Ignore comparative figures, the effect of taxation on any unrealised profits and/or losses

and capital gains tax. Notes to the financial statements are not required. Do all calculations to the nearest Rand. b) Draft only the following pro forma consolidated journal entries of the Goldtek Ltd Group at

29 February 2012: • Elimination of the unrealised profit in the closing inventory. • Elimination of the unrealised profit in the opening inventory. No narrations are required, but indicate clearly to which company each account refers to.

28

QUESTION 11 (13 marks)(15 minutes) The following information was extracted from the financial records of the Xingu Ltd Group at 31 March 2012: 1. Yalu Ltd became a subsidiary of Xingu Ltd on 10 January 2002. 2. On 1 October 2009, Yalu Ltd sold machine A with a carrying amount of R400 000 to

Xingu Ltd at a profit of R80 000. 3. On 1 January 2012, Xingu Ltd sold machine B with a carrying amount of R120 000 for

R140 000 to Yalu Ltd. 4. The policy of the group is to depreciate plant and machinery over 4 years according to the

straight-line method. REQUIRED: Draft the following pro forma consolidation journal entries of the Xingu Ltd Group for the year ended 31 March 2012, after taking the abovementioned information into account: a) Eliminate the unrealised profit on the sale of machines A and B. b) Eliminate all the previous years’ depreciation associated with the sale of machine A. c) Eliminate the current year’s depreciation associated with the sale of machines A and B. Narrations are required and indicate clearly to which company each account refers to. Ignore the taxation effect on unrealised profits and/or losses as well as capital gains tax. Show all calculations.

FAC2602/102

29

QUESTION 12 (29 marks)(35 minutes) The following information appears in the accounting records of Racing Rocket Ltd for the financial year ended 29 February: Debits

2012 R

2011 R

Land and buildings Plant and equipment Financial assets at fair value through profit or loss Inventory Trade and other receivables Prepaid expenses Dividends receivable Bank

1 200 000 600 000 180 700 102 000 106 450

3 000 5 200 1 500

300 000 225 000 153 000 130 000 43 000

2 000 2 000

-

2 198 850 855 000

Credits Share capital 12% Debentures of R200 each Revaluation surplus on land Retained earnings 7% Long-term borrowings 14% Long-term borrowings Accumulated depreciation – plant and equipment Tax payable – SARS Short-term portion of long-term borrowings Dividends payable Trade and other payables Accrued interest on long-term borrowings Bank overdraft

200 000

- 50 000 83 450

712 500 -

209 700 31 000

237 500 20 000

647 970 6 730

-

200 000 100 000

- 65 300

- 20 000

110 500 20 000 40 000 15 000

212 800 1 200

70 200

2 198 850 855 000

30

QUESTION 12 (continued) STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 29 FEBRUARY 2012 2012

R 2011

R Revenue 1 300 000 735 000 Cost of sales (400 000) (214 800)

Gross profit 900 000 520 200 Other income Dividends on investments

15 000

8 000

Expenses (848 125) (489 620)

Directors’ remuneration Salaries and wages Other expenses Auditors’ remuneration Depreciation Loss on sale of plant and equipment Finance charges

150 000 300 000 150 000 43 000

115 000 18 000 72 125

120 000 200 000 63 000 40 000 53 000

1 500 12 120


66 875 (18 725)

38 580 (10 802)

PROFIT FOR THE YEAR 48 150 27 778 Other comprehensive income for the year – revaluation 50 000 -


Additional information: 1. During the year, Racing Rocket Ltd executed an aggressive strategy to expand its

operations. Additional land and buildings as well as plant and equipment were acquired. No land and buildings were sold during the current year. In order to fund its growth strategy, a loan was taken out on 1 March 2011. Only interest was payable in the first year, thereafter four equal annual payments of capital and interest are due starting on 28 February 2013. The loan from the previous year was fully settled during the current year. Interest did not qualify for capitalisation.

2. The debentures were also redeemed at par on 30 June 2011. 3. The company sold two items of plant and machinery during the year and replaced them

with machinery costing R115 000. The first machine with an original cost price of R45 000 was sold for R30 000, incurring a loss of R5 000. A further loss was incurred on the sale of the second machine, which had an originally cost price of R38 000. The balance of the machinery acquired was to expand the company’s operations.

4. The company directors realised that they had surplus space available after the further

acquisition of land and buildings and decided to lease the extra office space at R7 500 per month, payable in advance, with effect from 1 May 2011. They did not communicate this to the accountant, Mr Spaceout, and he posted all rental receipts to the ‘Revenue account’. The tenant defaulted on the payment due on 1 February 2012 and only paid on 2 March 2012. None of these entries have been corrected in the accounting records to date.

FAC2602/102

31

QUESTION 12 (continued) 5. Mr Spaceout was unaware that there had been additional rates payable as a result of the

additional land and buildings acquired on 1 March 2011. He received a final demand on 15 February 2012 to pay an amount of R12 000 on or before 31 March 2012. No entries have been made in the accounting records in this regard to date.

6. Trade payables at 29 February 2012 included a provision of a bonus of R10 000 for

Mr Spaceout, which the directors decided to reverse. They informed him of this at his performance appraisal on 1 February 2012, but he has not processed this adjustment to date.

7. An interim ordinary dividend of 10 cents per share was paid on 31 August 2011 when

there were 200 000 ordinary shares in issue. On 31 January 2012 a further 50 000 ordinary shares were issued for R50 000, but Mr Spaceout posted this receipt to the ‘Revenue account’. In view of the anticipated decrease in forecasted profits the directors decided to reduce the final dividend per share by 60% of the interim dividend per share. They officially declared the dividend on 4 February 2012 and Mr Spaceout did provide for this.

8. The company’s financial assets are held for trading, as there is an intention of short-term

profit taking as part of the business model. REQUIRED: Draft only (1) the cash flow from operating activities and (2) cash flow from investing activities sections from the statement of cash flows of Racing Rocket Ltd for the year ended 29 February 2012, after correcting and adjusting for all entries mentioned above. The indirect method must be used. Your answer should comply with the requirements of International Financial Reporting Standards (IFRS). Ignore comparative figures. All calculations must be shown.

32

QUESTION 13 (44 marks)(53 minutes) The following represents the trial balances of Mickey Ltd and Donald Ltd at 31 December 2011: Credits

Mickey Ltd R

Donald Ltd R

Share capital – ordinary shares (500 000/200 000 shares) Long-term borrowings – Diznee Development Bank Loan account – Mickey Ltd Retained earnings – 1 January 2011 Sales Other income Trade and other payables Accumulated depreciation – property, plant and equipment

500 000 150 000

- 650 000

3 000 000 31 100

106 200 250 000

200 000 90 000 80 000

125 000 1 440 000

2 850 60 000

105 000

4 687 300 2 102 850

Debits

Property, plant and equipment Inventories Cost of sales Administrative expenses Depreciation Staff costs Interest paid – Diznee Development Bank Interest paid – Mickey Ltd Income tax expense Trade and other receivables Bank – Goofy Bank Dividends paid – 15 December 2011 Investment in Donald Ltd at fair value: 150 000 ordinary shares (cost price: R360 000) Loan account – Donald Ltd

1 035 000 340 000

2 100 000 125 000

90 000 200 000

13 500 -

140 728 81 072 62 000 50 000

360 000

90 000

500 000 200 000 864 000

60 000 48 000

124 100 12 000

2 750 92 960

109 040 70 000 20 000

- -

4 687 300 2 102 850

Additional information: 1. Mickey Ltd and Donald Ltd have enjoyed a good working relationship for a number of

years. Donald Ltd has historically always purchased some of its inventory from Mickey Ltd, and in reward for such loyalty, Mickey Ltd has sold inventory to Donald Ltd at a favourable price of cost plus 20%. In order to strengthen their relationship, Mickey Ltd acquired 150 000 shares in Donald Ltd on 1 May 2011.

2. All income and expenses of Mickey Ltd and Donald Ltd were earned evenly throughout the

year, except where otherwise stated.

FAC2602/102

33

QUESTION 13 (continued) 3. Total sales of Mickey Ltd to Donald Ltd for the 2011 financial year amounted to R800 000,

of which R300 000 was between 1 January 2011 and 30 April 2011. Of the closing inventory of R200 000 in the accounting records of Donald Ltd at year-end,

the accountant calculated that R110 000 was in relation to inventory purchased from Mickey Ltd since 1 May 2011. On 31 December 2011, Mickey Ltd invoiced and processed a sale of inventory to Donald Ltd of R10 000. Donald Ltd only received this inventory on 2 January 2012, and had not yet processed this transaction in its financial records.

The value of the opening inventory in the accounting records of Donald Ltd at

1 January 2011 was R150 000. The inventory of Donald Ltd at 1 May 2011 was valued at R110 000, but none of these items were bought from Mickey Ltd.

4. The sales of Donald Ltd were earned evenly. Donald Ltd maintains an overall average

gross profit margin of 40%. 5. Donald Ltd borrowed R50 000 from Mickey Ltd on 1 July 2011 to fund the purchase of

machinery and borrowed a further R30 000 on 1 December 2011 to fund general expenses. The loans are repayable on 30 June 2012 and 30 November 2012 respectively and bear interest at 10% per annum payable monthly in arrears. Donald Ltd paid the total interest on the R50 000 loan to Mickey Ltd on time, but only despatched a cheque on 31 December 2011 for the interest on the R30 000 loan. Mickey Ltd received this cheque on 5 January 2012 and only then accounted for that interest. Interest does not qualify for capitalisation.

6. Donald Ltd had borrowed R60 000 from Diznee Development Bank in the previous year

and borrowed an additional R30 000 on 1 May 2011. Interest at a rate of 15% per annum is applicable on both these loans and is payable monthly in arrears. The interest does not qualify for capitalisation.

7. The depreciation on the machinery which was acquired on 1 July 2011 (see no. 5 above)

was calculated at a rate of 15% per annum according to the reducing balance method. There were no other purchases or sales of property, plant and equipment during the year.

8. Since 1 May 2011, Donald Ltd has paid a monthly administration fee of R1 500 to

Mickey Ltd. The accountant of Donald Ltd has included these payments as part of “administrative expenses”.

9. Included in the staff costs of Donald Ltd is an amount of R28 100 for bonuses paid to staff

on 15 December 2011. 10. Other income consists of:

Mickey Ltd R

Donald Ltd R

Interest received from Goofy Bank Dividends received from Donald Ltd Interest received on loan to Donald Ltd Administration fees received from Donald Ltd

1 600 ? ? ?

2 850 - - -

34

QUESTION 13 (continued) 11. Assume a taxation rate of 28% and that all income is taxable and expenses are tax

deductible. Income tax must be apportioned according to the profit before tax for the period. Ignore any other tax implications.

REQUIRED: Draft the consolidated statement of profit or loss and other comprehensive income of the Mickey Ltd Group for the year ended 31 December 2011, in accordance with International Financial Reporting Standards (IFRS). Notes and pro-forma consolidated journal entries to the financial statements are not required. Do all calculations to the nearest Rand.

FAC2602/102

35

QUESTION 14 (26 marks)(31 minutes) The following balances were extracted from the accounting records of Swar Ltd and Vroski Ltd on 31 August 2012: Swar Ltd

R Vroski

Ltd R

Share capital – ordinary shares (50 000 / 20 000 shares) – 8% cumulative preference shares (100 000 shares)

Revaluation surplus Retained earnings Long-term borrowing – Swar Ltd Land and buildings at valuation Machinery at carrying amount Investments in Vroski Ltd - 15 000 Ordinary shares at fair value (cost R220 000) - 40 000 8% Cumulative preference shares at fair value (cost R52 000) - Loan Trade and other payables Trade and other receivables Inventories

250 000 -

180 000 199 000

- 300 000 255 000

220 000 52 000 50 000

178 000 55 000 90 000

100 000 100 000 120 000 122 000

50 000 600 000 150 000

- - -

108 000 64 000 77 000

Additional information: 1. Swar Ltd acquired its interest in Vroski Ltd on 1 September 2010 on which date Vroski Ltd

had retained earnings of R62 000. The preference dividends of Vroski Ltd were not in arrears at the date of acquisition. Vroski Ltd classified the 8% cumulative preference share capital as equity.

The carrying amounts of the assets and liabilities of Vroski Ltd were equal to their fair

values at acquisition, except for the value of the land and buildings which was deemed to be R120 000 more than the cost thereof. The revaluation was accounted for on the acquisition date.

2. Swar Ltd purchased Machine A with a carrying amount of R40 000 from Vroski Ltd on

1 December 2010 at a profit margin of 25%. On 1 March 2012, Swar Ltd bought a similar machine (Machine B) with a carrying amount of R20 000 from Vroski Ltd for R22 000. It is the policy of the group to depreciate machinery over five years using the straight-line method.

3. Included in the statement of changes in equity of Vroski Ltd for the year ended

31 August 2012 were the following items: R Preference dividends paid (2011 – R8 000) Ordinary dividends paid (2011 – R Nil)

8 000 10 000

36

QUESTION 14 (continued) REQUIRED: Draft the following pro forma consolidation journal entries of the Swar Ltd Group for the year ended 31 August 2012, after taking the abovementioned information into account: a) Elimination of owner’s equity at acquisition for both ordinary and preference shares. b) Elimination of unrealised profits on the sale of the machines. c) Elimination of the depreciation associated with the sale of the machines. d) Elimination of the intragroup dividends. Narrations are required. Indicate clearly to which company each account refers. Ignore the taxation effect on unrealised profits and/or losses as well as capital gains tax. All calculations must be shown.

FAC2602/102

37

QUESTION 15 (30 marks)(36 minutes) You have been presented with the following information relating to Sarina Ltd, a listed company, in order to draft the statement of cash flows: SARINA LTD STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2012 2012

R 2011

R ASSETS Non-current assets

Property, plant and equipment 250 824 208 924

Current assets

250 824 208 924

Inventory Trade and other receivables Cash and cash equivalents Financial assets at fair value through profit or loss

46 655 68 387

2 833 14 251

32 625 60 345

3 011 12 184

132 126 108 165

Total assets 382 950 317 089


Share capital Revaluation surplus Retained earnings

15 650 95 192 95 476

15 650 78 760 83 790

Total equity 206 318 178 200

Non-current liabilities Long-term borrowings Long-term borrowings for the purchasing of plant

45 181 4 127

33 402 1 021

Current liabilities

49 308 34 423

Trade and other payables Taxation payable Dividends payable Short-term portion of long-term borrowings

45 270 42 739

6 291 33 024

36 033 37 351

6 291 24 791

127 324 104 466

Total liabilities 176 632 138 889


38

QUESTION 15 (continued) SARINA LTD STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2012 Note 2012

R Revenue 296 077 Cost of sales (154 027)

Gross profit Other income Other expenses Net finance cost

142 050 1 496

(103 125) (7 656)


1 32 765 (9 174)

PROFIT FOR THE YEAR 23 591 Other comprehensive income for the year – revaluation of property 16 432

TOTAL COMPREHENSIVE INCOME FOR THE YEAR 40 023

SARINA LTD NOTE TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 1. Included in profit before tax are the following items:

R

Depreciation Profit on disposal of plant and equipment Income from investments Interest received Impairment loss on financial assets Credit losses written off

18 647 283

1 213 2 264 2 500 5 586

The following additional information is available: 1. The proceeds from the disposal of plant and equipment amounted to R989 during the

current year. It is estimated that R18 000 of the plant acquisitions will be used to expand production capacity.

2. No financial assets were sold during the current year. The financial assets are held for iuoiu trading with the intention of short-term profit taking. 3.

Included in trade and other receivables is the following:

2012 R

2011 R

Interest receivable 150 100 4. Included in trade and other payables is the following:

Interest payable 508 412 5. Dividends of R11 905 were declared and paid on 30 June 2012.

FAC2602/102

39


REQUIRED:

Draft the statement of cash flows of Sarina Ltd for the year ended 30 June 2012, after correcting and adjusting for all entries mentioned above, by using the direct method. Your answer should comply with International Financial Reporting Standards (IFRS).

Ignore comparative figures.

All calculations must be shown.

40

QUESTION 16 (36 marks)(43 minutes)

The following represent the trial balances of Spicy Ltd and Tangy Ltd at 28 February 2013:

Credits

Spicy Ltd R

Tangy Ltd R

Share capital – ordinary shares (500 000/150 000 shares) Retained earnings – 1 March 2012 5 000 10% Debentures of R15 each Accumulated depreciation – equipment Sales Long-term borrowings – Spicy Ltd Interest received Other income Bank overdraft Taxation payable Trade and other payables

800 000 405 000

- 175 000

1 350 000 -

14 975 94 200

- 32 500

261 360

75 000 80 000 75 000 42 000

925 000 150 000

- -

12 500 6 350

35 058

3 133 035 1 400 908

Debits

Land and buildings at fair value Equipment at cost/fair value Cash in bank Purchases Inventory: Atchars and chutneys – 1 March 2012 Inventory: Jams and syrups – 1 March 2012 Trade and other receivables Management fees paid to Spicy Ltd Rental paid Other expenses Dividends paid Depreciation – equipment Interest paid – debentures Interest paid – bank overdraft Interest paid – loan Income tax expense Investments in Tangy Ltd at fair value

810 000 270 000

7 200 850 000

90 000 50 000

246 426 - -

400 500 40 000 54 000

- - -

69 909 245 000

- 175 000

- 620 000

80 000 -

148 440 37 800 42 000

240 500 15 000

- 7 500 1 350 9 000

24 318 -

- Ordinary shares (cost price: R80 000) - Debentures (cost price: R15 000) - Loan

80 000 15 000

150 000

- - -

3 133 035 1 400 908

FAC2602/102

41

QUESTION 16 (continued) Additional information: 1. The main business of Spicy Ltd is to sell sweet and savoury items such as atchars,

chutneys, jams and syrups, which are unique and traditional in nature. Over the years, Tangy Ltd has accumulated a wide range of atchars and chutneys, made mainly from traditional family recipes. The directors of Spicy Ltd took a decision to invest in Tangy Ltd in order to ease its purchase of inventory and future expansion. On 1 March 2007, Spicy Ltd acquired 90 000 ordinary shares and 1 000 debentures in Tangy Ltd when Tangy Ltd’s retained earnings was R35 000. Assume that on the date of acquisition, the carrying amounts of the assets and liabilities were equal to the fair value thereof.

2. It is group policy to show goodwill at cost less impairment in the consolidated financial

statements. Goodwill was not impaired during the current year. 3. Spicy Ltd has purchased all its atchars and chutneys from Tangy Ltd, which Tangy Ltd

sells at cost plus 25%. On 1 June 2012, the board of directors of Tangy Ltd introduced a second line of inventory consisting of jams and syrups, and has since sold this to Spicy Ltd at cost plus 50%. Of the total inventory of jams and syrups on hand in the accounting records of Spicy Ltd at year end, 20% was bought from Tangy Ltd. Inventory on hand at 28 February 2013 were as follows:

R Spicy Ltd – Atchars and chutneys Spicy Ltd – Jams and syrups Tangy Ltd – Atchars and chutneys Tangy Ltd – Jams and syrups

175 000 60 000

150 000 50 000

Intragroup sales for the year amounted to R475 000. 4. On 28 February 2013, Spicy Ltd sold equipment to Tangy Ltd for R55 000 at a profit of

R5 000. The only other sales of equipment by Spicy Ltd to Savoury Ltd took place on 1 March 2012. Tangy Ltd had no other purchases or sales of equipment during the current year. These transactions have all been processed in the accounting records of Tangy Ltd. However, the bookkeeper of Tangy Ltd has not yet processed any depreciation on equipment for the current year. It is group policy to provide for depreciation at 20% per annum according to the straight-line method.

5. Due to a board resolution taken on 1 March 2011, Tangy Ltd pays a monthly management

fee of R3 000 to Spicy Ltd as from March 2011, which escalates by 5% annually. 6. Tangy Ltd rents property from Spicy Ltd at R3 500 per month. Spicy Ltd only received the

rental for February 2013 on 3 March 2013 and did not accrue this in the accounting records.

42

QUESTION 16 (continued) 7. Tangy Ltd has borrowed the following amounts from Spicy Ltd: 1 March 2010 – R100 000 1 June 2012 – R50 000

Interest is payable at 9% per annum, payable annually in arrears Interest on the first loan was paid and accounted for by the bookkeepers of Spicy Ltd and Tangy Ltd. The bookkeeper of Spicy Ltd has invoiced and accrued (trade and other receivables) the interest on the second loan. However, the bookkeeper of Tangy Ltd has neither paid nor accrued interest on the second loan. The interest does not qualify for capitalisation. The capital amounts are repayable five years from inception of the loans.

8. Interest received by Spicy Ltd comprises interest received from Tangy Ltd and interest

received from the bank. REQUIRED: a) Draft the consolidated statement of profit or loss and other comprehensive income of the

Spicy Ltd Group for the year ended 28 February 2013, after taking into account the abovementioned information, according to the requirements of International Financial Reporting Standards (IFRS).

The following are NOT required: Comparative figures; The taxation effect of unrealised profits and/or losses; Capital gains tax; and Notes to the financial statements. Do all calculations to the nearest Rand. (30) b) Draft the following pro-forma consolidated journal entries of the Spicy Ltd Group for the

year ended 28 February 2013, after taking the abovementioned information into account: – Elimination of the intragroup sales. – Elimination of the unrealised profit in the closing inventory. – Elimination of the unrealised profit in the opening inventory. – Elimination of the intragroup interest on debentures. Narrations are required.

Indicate clearly to which company each account refers. (6)

FAC2602/102

43

QUESTION 17 (38 marks)(46 minutes) The following represent the trial balances of Mali Ltd and Bongwe Ltd at 31 March 2013: Credits

Mali Ltd R

Bongwe Ltd R

Share capital – ordinary shares (2 000 000/1 000 000 shares) Retained earnings Trade and other payables Accumulated depreciation – plant and equipment Revaluation surplus Long-term borrowings Dividends payable

1 000 000

398 400 509 600 390 000 660 000 940 000

80 000

500 000 288 000 613 100 360 000 550 000

1 450 000 40 000

3 978 000 3 801 100

Debits Land at valuation Buildings at valuation Plant and equipment at cost/fair value Trade and other receivables Bank Inventories Investment in Bongwe Ltd – 700 000 ordinary shares at fair value (cost: R560 000)

600 000 1 300 000

600 000 580 000 183 000 155 000

560 000

600 000 1 200 000

760 000 512 000 256 100 473 000

-

3 978 000 3 801 100

Additional information: 1. Bongwe Ltd became a subsidiary of Mali Ltd on 1 April 2007. On this date the retained

earnings of Bongwe Ltd amounted to R85 000. The carrying amounts of Bongwe Ltd’s assets and liabilities were equal to their fair values at date of acquisition, except for the values of the land and buildings which were deemed to be R80 000 and R115 000 more than the carrying values respectively.

Both the land and buildings of Bongwe Ltd were acquired on 1 January 2001 at a cost of

R450 000 and R800 000 respectively. There were no other purchases of land or buildings since 1 April 2007. Since 2007 it is the policy of the group to revalue land and buildings every three years. Land and buildings are not depreciated.

It is the group’s policy to disclose goodwill at cost less impairment in the consolidated

financial statements. Goodwill was not impaired during the current year. 2. Mali Ltd purchased machinery with a carrying value of R60 000 from Bongwe Ltd on

30 June 2010 for R75 000. The machinery is expected to have a residual value of R2 000 at the end of its useful life and this value remained unchanged during the intragroup purchase. It is the policy of the group to depreciate machinery over five years, according to the straight-line method.

3. Both Mali Ltd and Bongwe Ltd declared dividends of 4 cents per share at the end of the

current financial year. No previous year’s dividends were declared or outstanding at 31 March 2013.

44

QUESTION 17 (continued) REQUIRED: a) Draft the consolidated statement of financial position of the Mali Ltd Group as at

31 March 2013, according to the requirements of International Financial Reporting Standards (IFRS).

The following are NOT required: Comparative figures; The taxation effect of unrealised profits and/or losses; Capital gains tax; and Notes to the financial statements. Do all calculations to the nearest Rand. (31) b) Draft the following pro-forma consolidated journal entries of the Mali Ltd Group for the year

ended 31 March 2013, after taking the abovementioned information into account: – Eliminate owners’ equity at date of acquisition. – Eliminate the unrealised profit on the sale of the machinery and the associated

depreciation. Narrations are required. Indicate clearly to which company each account refers. (7)

FAC2602/102

45

QUESTION 18 (26 marks)(31 minutes) You have been presented with the following information relating to Hope Ltd: HOPE LTD TRIAL BALANCE AS AT 31 DECEMBER 2012

Note

2012 R

2011 R

Property, plant and equipment – carrying amount Intangible assets Inventory Cash and cash equivalents Share capital – ordinary shares (200 000/100 000 shares) Retained earnings at the end of the year Deferred tax Trade and other receivables Trade and other payables Long-term borrowings Bank overdraft Tax payable Financial assets at fair value through profit or loss Other components of equity Current portion of long-term borrowings

1

2

625 000 13 750

212 500 6 250

(400 000) (215 950)

(2 675) 267 500

(128 750) (312 500)

(25 000) (34 500) 25 625

(18 750) (12 500)

312 500 -

175 000 12 500

(187 500) (106 250)

(2 500) 187 500 (88 750)

(293 750) (10 000)

- 20 000 (6 250)

(12 500)

HOPE LTD STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2012 2012

R Revenue 1 875 000 Cost of sales (1 250 000)

Gross profit Dividends received Other expenses Net finance cost

625 000 6 875

(375 000) (37 500)


219 375 (59 675)

Current tax Deferred tax

59 500 175

PROFIT FOR THE YEAR 159 700 Other comprehensive income – revaluation of property 12 500


46

QUESTION 18 (continued) HOPE LTD NOTES TO THE FINANCIAL STATEMENTS

1. Property, plant and equipment Land and buildings

R

Plant and equipment

R

Vehicles

R

Total

R Cost/valuation Accumulated depreciation

187 500 -

100 000 (37 500)

93 750 (31 250)

381 250 (68 750)

Carrying amount 1 January 2012 Depreciation Revaluation Additions Replacements Scrapping

187 500 -

12 500 131 250

- -

62 500 (47 500)

- 203 750

25 000 (6 250)

62 500 (6 250)

- - - -

312 500 (53 750) 12 500

335 000 25 000 (6 250)

Carrying amount 31 December 2012 331 250 237 500 56 250 625 000

Cost/valuation Accumulated depreciation

331 250 -

318 750 (81 250)

93 750 (37 500)

743 750 (118 750)

2. Long-term borrowings 2012

R 2011

R B Bank – secured by a first bond over land and buildings, repayable at R12 500 per annum, annually in arrears X Bank – unsecured and repayable on 1 January 2015

187 500 125 000

200 000

93 750

312 500 293 750

The following additional information is available:

a. A dividend of R50 000 was declared on 1 December 2012. Included in trade and other payables is an amount of R3 000 (2011 – R2 500) being dividends payable to share-holders.

b. Hope Ltd purchased additional land and machinery during the year, thereby increasing the capacity of the company. A machine with a carrying amount of R6 250, on which R3 750 depreciation has been written off, was scrapped during the year and replaced by a similar machine at a cost of R25 000.

c. Included in trade and other receivables is an amount of R5 000 (2011 – R Nil), being pre-paid sundry expenses.

d. A patent to manufacture equipment for aircrafts was purchased on 31 December 2012.

e. Financial assets were not impaired in the current year. Financial assets are held for trading and short-term profit taking.

REQUIRED:

Draft the statement of cash flows of Hope Ltd for the year ended 31 December 2012 after correcting and adjusting for all entries mentioned above, using the direct method, according to the requirements of International Financial Reporting Standards (IFRS).

Ignore comparative figures. Show all calculations.

FAC2602/102

47

QUESTION 19 (20 marks)(24 minutes) Diamond Ltd acquired 60 000 of the ordinary shares in Pearl Ltd on 1 March 2004. On this date Pearl Ltd had retained earnings of R15 000 and the carrying amounts of the assets and liabilities were considered equal to the fair values. The following represent the abridged trial balances of Diamond Ltd and Pearl Ltd at 28 February 2006: Debits

Diamond Ltd R

Pearl Ltd R

Land and buildings 31 500 90 000 Machinery and equipment - 10 000 Investment in Pearl Ltd at fair value (cost price: R160 000) 160 000 - Bank 153 500 - Trade and other receivables - 65 000 Inventories 500 112 000 Taxation 10 500 10 000 Dividends paid 9 000 8 000

365 000 295 000

Credits Share capital – ordinary shares (75 000/80 000 shares) 150 000 160 000 Retained earnings 31 500 34 000 Revaluation surplus 21 200 - Trade and other payables 125 600 23 750 Bank - 48 250 Profit before tax 30 700 29 000 Dividends received 6 000 -

365 000 295 000

REQUIRED:

Draft the consolidated financial statements of the Diamond Ltd Group at 28 February 2006 according to the requirements of International Financial Reporting Standards (IFRS). Notes to the financial statements are not required. Show all calculations.

48

QUESTION 20 (22 marks)(26 minutes) The following balances were taken from the accounting records of Lion Ltd and its subsidiary Puma Ltd on 31 December 2001: Lion

Ltd R

Puma Ltd R

Share capital – ordinary shares (40 000/30 000 shares) 200 000 150 000 Revaluation surplus of land and buildings 220 000 100 000 Retained earnings 266 000 174 000 Long-term borrowing – Lion Ltd - 100 000 Property, plant and equipment 400 000 500 000 Investment in Puma Ltd: - 22 500 Ordinary shares 280 000 - - Loan 112 000 - Trade and other payables 201 000 116 000 Trade and other receivables 35 000 56 000 Inventories 60 000 84 000

Additional information: 1. Lion Ltd acquired its interest in Puma Ltd on 1 January 1995, on which date Puma Ltd had

retained earnings of R106 000. The carrying amounts of the assets and liabilities were equal to the fair values, except the value of the land and buildings which was deemed to be R100 000 more than the cost price thereof. The accounting records were adjusted accordingly.

2. Since Lion Ltd acquired its interest in Puma Ltd, Puma Ltd has purchased all its

inventories from Lion Ltd. On 1 January 2001, Puma Ltd had R60 000 inventories on hand. Lion Ltd sells all its inventories at cost plus 20%. Inventories to the value of R12 000 was on its way to Puma Ltd at 31 December 2001.

3. The following decisions taken by the directors of the companies must still be accounted

for: - R5 000 interest payable by Puma Ltd to Lion Ltd (the interest does not qualify for

ihycapitalisation); - A dividend of 10c per share must be declared by both companies on

31 December 2001. No entry in this regard was passed by any of the companies. REQUIRED: a) Draft the consolidated statement of financial position of the Lion Ltd Group at

31 December 2001 in accordance with the requirements of International Financial Reporting Standards (IFRS).

Ignore taxation on unrealised profits and/or losses as well as capital gains tax. Comparative figures and notes are not required. b) Show the pro forma consolidation journal entry at 31 December 2001 to eliminate the

iintragroup transactions regarding the inventory.

FAC2602/102

49

QUESTION 21 (22 marks)(26 minutes) The following represented the abridged statements of financial position of Kansas Ltd and its subsidiary New York Ltd: STATEMENT OF FINANCIAL POSITION AS AT 28 FEBRUARY 2007 Kansas

Ltd R

New York Ltd R

ASSETS Property at valuation 450 000 140 000 Plant at carrying amount 124 000 152 000 Investment in New York Ltd at fair value – 37 500 ordinary shares (cost price: R180 000)

180 000

-

Long-term loan – Kansas Ltd - 40 000 Inventory 100 000 140 000 Bank – Chili Bank 80 000 - Trade and other receivables 10 000 48 000

Total assets 944 000 520 000

EQUITY AND LIABILITIES Share capital – ordinary shares (200 000/50 000 shares) 400 000 100 000 Revaluation surplus 100 000 - Retained earnings 192 000 164 000 Long-term borrowings 200 000 164 000

Loan – New York Ltd 20 000 - Other 180 000 164 000

Trade and other payables 52 000 22 000 Bank overdraft – Chili Bank - 70 000


Additional information: 1. Kansas Ltd acquired its interest in New York Ltd on 1 March 2004. On that date the

retained earnings of New York Ltd amounted to R64 000 and the property of New York Ltd was revalued at R200 000. The financial records were not adjusted accordingly and no purchases or sale of property took place since that date.

2. On 26 February 2007 Kansas Ltd mailed a cheque of R20 000 to New York Ltd.

New York Ltd received the cheque on 6 March 2007. 3. Kansas Ltd sold a machine to New York Ltd on 31 August 2006 at a profit of R20 000. The group provides for depreciation at 20% per annum according to the straight-line method.

50

QUESTION 21 (continued) 4. The companies declared and paid the following dividends during the current year: Kansas Ltd Ordinary dividends on 28 February 2007 – 10c per share Ordinary dividends on 30 June 2006 – 5c per share New York Ltd Ordinary dividends on 28 February 2007 – 5c per share. 5. Kansas Ltd guarantees the bank overdraft of New York Ltd for an unlimited amount. REQUIRED: a) Draft the consolidated statement of financial position of the Kansas Ltd Group at

28 February 2007 according to the requirements of International Financial Reporting Standards (IFRS).

Ignore comparative figures and the taxation effect on unrealised profits and/or losses as

well as capital gains tax. b) Do the pro forma consolidation journal entries at 28 February 2007 to eliminate the profit

and depreciation associated with the sale of the machine.

FAC2602/102

51

QUESTION 22 (30 marks)(36 minutes) Pink Ltd purchased 160 000 ordinary shares and 4 000 cumulative preference shares in Panther Ltd on 1 January 2006. On that date the balance of Panther Ltd’s retained earnings amounted to R75 000. Each ordinary share of Panther Ltd has one vote. On 31 December 2009 the following balances appeared in the accounting records of both companies:

Pink Ltd

Panther Ltd

Dr Cr Dr Cr Share capital – ordinary shares (1 000 000/200 000 shares) Revaluation surplus Retained earnings Long-term borrowings – Pink Ltd 10% Cumulative preference share capital (100 000/10 000 shares) Land and buildings Equipment Accumulated depreciation – equipment Investment in Panther Ltd at fair value: - Ordinary shares (cost price: R166 000) - Preference shares (cost price: R4 000) - Loan Inventory Trade and other receivables Dividends payable – ordinary shares Trade and other payables Bank

R

330 000 220 000

166 000 4 000

31 000 120 000

56 000

40 000

R

515 000 10 000

175 000 -

100 000

90 000

25 000 52 000

R

160 000 110 000

- - -

60 000 22 000

R

105 000 -

126 000 15 000 10 000

22 000

20 000 30 000 24 000

967 000 967 000 352 000 352 000

Additional information: 1. At acquisition Pink Ltd valued the land and buildings of Panther Ltd at R180 000. No

entry was made in respect of this in the records of Panther Ltd. No purchases of land and buildings by Panther Ltd took place since that date.

2. Since acquisition Panther Ltd purchased all its inventory from Pink Ltd at cost plus 20%.

On 31 December 2008 Panther Ltd’s inventory on hand amounted to R84 000. 3. On 1 January 2007 Pink Ltd purchased equipment from Panther Ltd at cost price plus

10% for an amount of R220 000. Both companies depreciate equipment at 10% per annum on cost.

4. At 1 January 2008 the preference dividends of Panther Ltd for the previous two years

were in arrears. All arrear preference dividends were paid in cash on 31 December 2009. The ordinary dividends receivable from Panther Ltd was debited against the loan account in the financial records of Pink Ltd. Both companies classified the 10% cumulative preference share capital as equity.

52

QUESTION 22 (continued) REQUIRED: a) Draft the consolidated statement of financial position of the Pink Ltd Group at

31 December 2009 to comply with the requirements of International Financial Reporting Standards (IFRS).

Ignore comparative figures, notes, taxation on unrealised profits and/or losses and capital gains tax. Clearly show all calculations.

b) Show the pro forma consolidation journal entries at 31 December 2009 to eliminate the

unrealised profits on inventory and intragroup sales.

FAC2602/102

53

QUESTION 23 (11 marks)(13 minutes) The following represent the abridged financial statements of A Ltd and B Ltd: STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2009 A Ltd B Ltd ASSETS Non-current assets

R

R

Property, plant and equipment Investment in B Ltd at fair value – 192 000 ordinary shares (cost price R330 000)

240 000

330 000

300 000

-

Current assets

570 000

300 000

Inventory Trade and other receivables

135 000 255 000

165 000 225 000

390 000 390 000

Total assets 960 000 690 000


Share capital – ordinary shares (300 000/240 000 shares) Retained earnings

300 000 375 000

240 000 360 000

Total equity Non-current liabilities Long-term borrowings

675 000

600 000

75 000

-

Current liabilities Trade and other payables Total liabilities

210 000

90 000

285 000 90 000


STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2009 A Ltd B Ltd Gross profit Dividend received

R 270 000

96 000

R 420 000

-


366 000 (108 000)

420 000 (120 000)

PROFIT FOR THE YEAR 258 000 300 000 Other comprehensive income for the year - -


54

QUESTION 23 (continued) EXTRACT FROM THE STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2009 Share capital Retained earnings

A Ltd

B Ltd

A Ltd

B Ltd

Balance on 1 January 2009 Changes in equity for 2009 Total comprehensive income for the year Profit for the year Dividend paid: Ordinary

R 300 000

R 240 000

R 225 000

258 000 (108 000)

R 180 000

300 000 (120 000)

Balance on 31 December 2009 300 000 240 000 375 000 360 000

Additional information: 1. On 1 January 2005, the date on which A Ltd acquired its interest in B Ltd, B Ltd’s owners’

equity was as follows: R Share capital – ordinary shares 240 000 Retained earnings 135 000

2. B Ltd purchases some of its inventory from A Ltd since 1 January 2009. A Ltd supplies

the inventories at cost plus 50% mark-up. Inventory on hand of B Ltd, purchased from A Ltd, amounted to R90 000 on 31 December 2009.

REQUIRED: Draft the consolidated statement of profit or loss and other comprehensive income and consolidated statement of changes in equity of A Ltd Group for the year ended 31 December 2009 in compliance with the requirements of International Financial Reporting Standards (IFRS). Ignore taxation on unrealised profits and/or losses and comparative figures.

FAC2602/102

55

QUESTION 24 (30 marks)(36 minutes) The following represent the abridged statement of financial position of Bravo Ltd and its subsidiary Charlie Ltd: STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2005

Bravo

Ltd R

Charlie

Ltd R

Assets Property at cost/valuation Machinery

750 000 340 000

400 000 190 000

At cost Accumulated depreciation

500 000 (160 000)

240 000 (50 000)

Plant at carrying amount Investments in Charlie Ltd - 80 000 ordinary shares at fair value (cost price R650 000) - 25 000 12% cumulative preference shares at fair value (cost price R40 000) - 9% Debentures (since 2003) - Unsecured loan at fair value Current account – Bravo Ltd Inventory Trade and other receivables Bills receivable – Charlie Ltd Bank – Alpha Bank

680 000

650 000

40 000 50 000 80 000

- 170 000 220 000 20 000 30 000

370 000

-

- - -

75 000 150 000 260 000

- -

3 030 000 1 445 000

Equity and liabilities Share capital – ordinary shares (100 000 shares) Share capital – ordinary shares (450 000 shares) 12% Cumulative preference shares (100 000 shares) Revaluation surplus Retained earnings Long-term borrowings

-

900 000 - -

1 816 750 64 750

500 000

- 75 000

150 000 306 000 170 000

- 9% debentures - Loan – Bravo Ltd - Current account – Charlie Ltd

- -

64 750

100 000 70 000

-

Trade and other payables Bills payable – Bravo Ltd Bank overdraft – Alpha Bank Dividends payable - Ordinary shares - Preference shares (current year)

220 000 - -

28 500

-

140 000 25 000 60 000

10 000

9 000

3 030 000 1 445 000

56

QUESTION 24 (continued) Additional information: 1. Bravo Ltd acquired its interest in Charlie Ltd on 1 July 2002. At that date the retained

earnings of Charlie Ltd amounted to R120 000. On the same day the property of Charlie Ltd, which had a carrying amount of R250 000, was revalued at R350 000, and this revaluation was recorded in the financial records of Charlie Ltd.

It is company policy to revalue Charlie Ltd’s property on 30 June every second year. Since

1 July 2002 Charlie Ltd has not purchased or sold any property. At date of acquisition, consider the carrying amounts of all the other assets and liabilities of Charlie Ltd to be equal to their fair values.

2. No dividends were in arrears at acquisition. Charlie Ltd classified the 12% cumulative

preference share capital as equity. 3. Assume each ordinary share carries one vote. 4. It is group policy to disclose goodwill at cost less impairment in the consolidated financial

statements. Goodwill was not impaired during the current year. 5. Since September 2002, Charlie Ltd purchases all its inventories from Bravo Ltd at the

normal selling price determined by Bravo Ltd, which is cost plus 20%. 6. Charlie Ltd sold a machine to Bravo Ltd on 1 January 2004 at a profit of R25 000. The

group provides for depreciation at 20% per annum according to the reducing balance method.

7. Bravo Ltd discounted R5 000 of the bills receivable from Charlie Ltd at the bank before the

expiry date of 31 July 2005. 8. On 29 June 2005, Charlie Ltd repaid R10 000 of the existing loan from Bravo Ltd.

Bravo Ltd received the repayment on 7 July 2005. 9. The parent guarantees the overdraft of the subsidiary’s bank account.

REQUIRED: Draft the consolidated statement of financial position of the Bravo Ltd Group as at 30 June 2005 according to the requirements of International Financial Reporting Standards (IFRS). Ignore comparative figures and the taxation effect on unrealised profits and/or losses as well as capital gains tax. Do all calculations to the nearest Rand.

FAC2602/102

57

QUESTION 25 (42 marks)(50 minutes) On 1 January 1996, Lipton Ltd purchased ordinary shares in Glen Ltd. At that stage Glen Ltd's owners' equity was compiled as follows: R Share capital – ordinary shares (200 000 shares) 200 000 Retained earnings 30 000 Lipton Ltd paid an amount of R4 000 for goodwill to Glen Ltd in order to gain control over Glen Ltd's operations. The remaining difference is attributable to a revaluation of Glen Ltd's land and buildings, which took place on date of acquisition. The revaluation surplus was not recorded in Glen Ltd's records. The condensed statements of profit or loss and other comprehensive income of the two companies for the year ended 30 June 2000 were as follows:

Lipton Ltd

Glen Ltd

Revenue Cost of sales

R 400 000

(248 000)

R 255 000

(153 000)

Gross profit Income received – dividend Administrative expenses Depreciation Finance cost

152 000 8 000

(40 000) (20 000) (20 000)

102 000 -

(24 000) (8 000)

(10 000)


80 000 (40 000)

60 000 (30 000)

PROFIT FOR THE YEAR 40 000 30 000

Other comprehensive income for the year - -


STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2000

Ordinary share capital

Retained earnings

Total

Lipton Ltd

Glen Ltd

Lipton Ltd

Glen Ltd

Lipton Ltd

Glen Ltd

Balance on 1 July 1999 Changes in equity for 2000 Total comprehensive income for the year Profit for the year Dividend paid: Ordinary

R 430 000

R 200 000

R 58 000

40 000 (8 000)

R 75 000

30 000 (5 000)

R 488 000

40 000 (8 000)

R 275 000

30 000 (5 000)

Balance on 30 June 2000 430 000 200 000 90 000 100 000 520 000 300 000

58

QUESTION 25 (continued) On 30 June 2000 the following items appeared in the statement of financial position of the two companies: Lipton Ltd Glen Ltd ASSETS Non-current assets

R

R

Land and buildings at cost Plant

210 000 110 000

150 000 148 000

Cost price Accumulated depreciation

160 000 (50 000)

180 000 (32 000)

Investment in Glen Ltd 180 000 shares at fair value (cost price R220 000)

220 000

-

Current assets

540 000 298 000

Trade and other receivables Inventories

30 000 95 000

12 000 83 000

Total assets

125 000 95 000

665 000 393 000


Share capital Retained earnings

430 000 90 000

200 000 100 000

Total equity Non-current liabilities

520 000 300 000

Long-term borrowings 45 000 23 000 Current liabilities Trade and other payables 100 000 70 000

Total liabilities Total equity and liabilities

145 000 93 000

665 000 393 000

Additional information: 1. Included in Lipton Ltd's plant is a machine sold on 1 July 1998 by Glen Ltd to Lipton Ltd.

Glen Ltd made a profit of R20 000 on this transaction. Plant is depreciated at 10% per annum on cost price.

2. Since April 1996, Lipton Ltd has purchased some of its inventories from Glen Ltd at the

normal selling price determined by Glen Ltd, which is cost price plus 25%. In respect of the year ended 30 June 2000, sales from Glen Ltd to Lipton Ltd amounted to R200 000.

3. At 30 June 1999, the inventories on hand of Lipton Ltd were valued at R60 000. 4. Opening and closing inventories of Lipton Ltd were purchased from Glen Ltd.

FAC2602/102

59

QUESTION 25 (continued) REQUIRED: a) Draft the consolidated financial statements of the Lipton Ltd Group for the financial year

ended 30 June 2000 according to the requirements of International Financial Reporting Standards (IFRS).

Ignore comparative figures, taxation on unrealised profits and/or losses and capital gains

tax. Show all calculations. b) Do the pro forma consolidation journal entries at 30 June 2000 to eliminate the intragroup

transactions associated with the sale of the assets and inventory.

60

QUESTION 26 (25 marks)(30 minutes) The following balances appeared in the accounting records of Milestone Ltd for the financial year ended: 28 February

2001 R

29 February 2000

R Debits Property, plant and equipment Financial assets at fair value through profit or loss Preliminary expenses Inventory Trade receivables Prepaid administration expenses Dividends receivable Bank

1 575 000

198 000 16 500

182 000 192 500

2 000 12 000

-

800 000

15 000 24 000 69 000

250 000 4 000

- 55 000

2 178 000 1 217 000

Credits Share capital – ordinary shares (1 000 000/400 000 shares) 10% Debentures (400/750 debentures) Revaluation surplus on land Retained earnings 18% Long-term borrowing Deferred tax Accumulated depreciation – property, plant and equipment Short-term portion of long-term borrowing Tax payable Dividends payable Trade payables Bank overdraft

1 000 000

80 000 275 000 335 500

30 000 5 000

175 000 10 000 14 000 50 000 25 000

178 500

410 000 150 000

75 000 325 000

40 000 12 000

100 000 10 000 34 000 20 000 41 000

-

2 178 000 1 217 000

FAC2602/102

61


STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 28 FEBRUARY 2001 Revenue

2001 R

1 100 000

2000 R

588 000 Cost of sales (400 000) (200 000)

Gross profit Expenses

700 000 (578 000)

388 000 (342 000)

Directors’ remuneration Distribution expenses Administrative expenses Auditors’ remuneration Depreciation Finance charges

50 000 150 000 100 000 60 000

195 000 23 000

30 000 125 000 75 000 38 000 55 000 19 000

Other income 42 000 9 000

Profit on sale of plant and equipment Dividends on investments

30 000 12 000

- 9 000


164 000 (56 000)

55 000 (22 000)

- Current year - Deferred

63 000 (7 000)

21 000 1 000

PROFIT FOR THE YEAR 108 000 33 000 Other comprehensive income for the year – revaluation of property 200 000 75 000


The following additional information is available:

1.1 500 000 Ordinary shares were issued to the public on 1 April 2000 for R550 000.

1.2 The company had a rights issue of shares to the value of R40 000 to the ordinary owners on 30 June 2000 in the ratio of 1 ordinary share for every 9 ordinary shares held.

1.3 R7 500 of the preliminary expenses was written off against retained earnings on 28 February 2001 and an ordinary dividend of 5 cents per share was declared.

2. The following changes in property, plant and equipment took place:

Land

R

Plant and equipment

R Carrying amount beginning of year 400 000 300 000

Cost Accumulated depreciation

400 000 -

400 000 (100 000)

Purchases at cost Disposals at carrying amount Revaluations during the year Depreciation for the year

75 000 -

200 000 -

800 000 (180 000)

- (195 000)

Carrying amount end of year 675 000 725 000

Valuation/Cost Accumulated depreciation

675 000 -

900 000 (175 000)

62


R500 000 of the purchases of property, plant and equipment represent replacements of assets disposed of.

3. The debentures were redeemed on 1 March 2000. 4. The interest free long-term borrowing was incurred on 1 January 1996 and the capital is

repayable in five equal annual instalments starting on 30 June 2000. 5. New financial assets were purchased during the year, but financial assets were not hg,jhg.impaired in the current year. Financial assets are held for trading and short-term profit hg,jhg.taking. REQUIRED: Draft the statement of cash flows of Milestone Ltd for the financial year ended 28 February 2001 according to the direct method. Your answer must comply with International Financial Reporting Standards (IFRS). Show the following calculations: 1. Cash receipts from customers 2. Cash payments to suppliers and employees 3. Dividends paid 4. Tax paid

FAC2602/102

63

QUESTION 27 (30 marks)(36 minutes) The following balances were obtained from the financial records of ABC Ltd as at 30 April: 2009

R 2008

R Debits Land and buildings at valuation Plant at cost Furniture at cost Inventories Financial assets at fair value through profit or loss Trade and other receivables Bank

1 400 000 1 200 000

680 000 86 000 56 000

145 000 -

1 100 000

800 000 450 000

44 000 36 000 88 000 46 000

3 567 000 2 564 000

Credits Share capital Retained earnings Long-term borrowing Trade and other payables Bank overdraft Taxation payable Dividends payable Revaluation surplus Accumulated depreciation – plant Accumulated depreciation – furniture

1 000 000

630 000 850 000

93 000 224 000 230 000 200 000 200 000

56 000 84 000

800 000 460 000 600 000

70 000 -

144 000 240 000 150 000

34 000 66 000

3 567 000 2 564 000

Additional information: 1. On 28 December 2008 land and buildings, with a value of R400 000, were sold for

R460 000. Land and buildings to the value of R650 000 were acquired to expand operations.

2. No furniture was sold or scrapped during the current year. All new purchases were to

expand operations. 3. Income from investments amounted to R4 500 for the year ended 30 April 2009. H.,h;;;.Financial assets were not impaired in the current year. Financial assets are held for H.,h;;;.trading. 4. The income tax expense for the current year is R89 000.

5. Sales for the current year amounted to R1 320 000 and profit before tax was R319 000.

6. On 1 March 2009, the company issued 50 000 ordinary shares for R200 000. 7. On 30 September 2008, an interim dividend of R20 000 was paid and on 30 April 2009 a

final dividend of R40 000 was declared.

64

QUESTION 27 (continued) 8. Part of the plant with a cost of R320 000 was sold during June 2008 (when the carrying

amount was R300 000) at a loss of R12 000. New plant was acquired on the same day. R420 000 of the plant was purchased to expand operations.

9. Depreciation on plant and furniture for the year ended 30 April 2009 amounted to

R60 000.

10. Assume that the cost of all other assets and liabilities are equal to their fair values. REQUIRED: Draft the statement of cash flows of ABC Ltd for the year ended 30 April 2009, using the indirect method, in compliance with the requirements of International Financial Reporting Standards (IFRS). Ignore comparative figures but show all calculations.

FAC2602/102

65

3 ANNEXURE B: SOLUTIONS TO ADDITIONAL QUESTIONS

QUESTION 1 1.1 IRON LTD GROUP CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHEN-

SIVE INCOME FOR THE YEAR ENDED 31 MARCH 2016 Revenue (3 900 000 + 833 333 – 200 000)

R 4 533 333

Cost of sales (2 020 000 + 361 667 – 200 000 + 6 000) (2 187 667)

Gross profit Other income [167 200 + 6 646 – (65 000 – 45 000) – 6 000 – 267) Administrative expenses (313 000 + 45 125) Other expenses [152 000 + 43 465 – (20 000 x 20%/12) + 588 000 + 250 000]

2 345 666 147 579

(358 125) (1 033 132)

Finance costs (16 000 + 500) (16 500)

Profit before tax 1 085 488 Income tax expense (158 330 + 47 044) (205 374)

PROFIT FOR THE YEAR 880 114 Other comprehensive income for the year -


Total comprehensive income attributable to: Owners of the parent (880 114 – 17 502) Non-controlling interests (17 102 + 400)

862 612 17 502

880 114

66

QUESTION 1 (continued) Calculations: 1. Analysis of ordinary owners’ equity of Ore Ltd (only the current year-section needed khlkj.to answer the required, but the rest is included for completeness)

Total

Iron Ltd

80%*

NCI 20%

At acquisition At Since

Share capital Revaluation surplus Retained earnings Profit for 7 months (calculation 3) Preference dividend (20 000 x 8% x 7/12)

R 100 000

50 000 88 000

367 866 (933)

R 80 000 40 000 70 400

294 293 (746)

R R 20 000 10 000 17 600 73 573

(187)

Equity attributable to goodwill – parent

604 933

16 053

483 947

16 053

120 986

-

Consideration and NCI 620 986 500 000 120 986

Since acquisition

Current year Profit for the year

85 511

68 409

17 102

Profit 5 months (calculation 4) Preference dividends (20 000 x 8% x 5/12) Unrealised profit in closing inventories (30 000 x 25/125)

92 178

(667)

(6 000)

Ordinary dividend (50 000 x 15c) (7 500) (6 000) (1 500)

698 997 62 409 136 588

* 40 000/50 000 shares = 80%

FAC2602/102

67

QUESTION 1 (continued) 2. Analysis of preference owners’ equity of Ore Ltd

Total

Iron Ltd 40%*

NCI 60% Preference shares At Since

At acquisition Share capital Profit attributable Dividend paid Equity attributable to goodwill – parent

R

20 000 933

(933)

R

8 000 373

(373)

R R

12 000 560

(560)

20 000 2 500

8 000 2 500

12 000 -


Since acquisition Current year Profit attributable (20 000 x 8% x 5/12) Dividend paid

667

(667)

267

(267)

400

(400)

22 500 - 12 000

*8 000/20 000 shares = 40% 3. Profit for 7 months until 31 October 2015 (not needed, only included for completeness)

Sales (2 500 000 – 833 333) 1 666 667 Cost of sales (1 666 667 x 1 085/2 500) (723 333) Other income (15 950 x 7/12) 9 304 Administrative expenses [(88 000 – 14 500) x 7/12] (42 875) Depreciation {[102 800 – (65 000/5/12)] x 7/12} (59 335) Staff costs (600 000 x 7/12) (350 000) Income tax expense (178 906 – 47 044) Finance cost (1 200 x 7/12)

(131 862) (700)

367 866

4. Profit for 5 months until 31 March 2016

Sales 833 333 Cost of sales (1 085 000 x 833 333/2500 000) (361 667) Other income (15 950 x 5/12) 6 646 Administrative expenses [(88 000 – 14 500) x 5/12 + 14 500] (45 125) Depreciation [(102 800 – {65 000 x 20% /12}) x 5/12 + 1 083] (43 465) Staff costs (600 000 x 5/12) Finance cost (1 200 x 5/12)

(250 000) (500)

Income tax expense (47 044)

92 178

68


Included to see if statements balance (not part of solution):

IRON LTD GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2016 ASSETS Non-current assets

R

Property, plant and equipment [(500 000 + 400 000 + 908 000 + 800 000 – 20 000) – {543 000 + 495 000 – 333}]

1 550 333

Goodwill (16 053 + 2 500) 18 553

Current assets

1 568 886

Inventory (195 000 + 230 000 – 6 000) Trade and other receivables (845 500 + 206 084) Cash and cash equivalents (55 000 + 59 200)

419 000 1 051 584

114 200

1 584 784

Total assets 3 153 670


Equity attributable to owners of the parent Share capital Other components of equity Retained earnings (210 000 + 862 612 – 45 000)

250 000 180 000

1 027 612

1 457 612 Non-controlling interests (136 588 +12 000) 148 588

Total equity 1 606 200

Current liabilities Trade and other payables (1 056 130 + 491 340)

1 547 470

Total liabilities 1 547 470

Total equity and liabilities 3 153 670

FAC2602/102

69


Guidelines to answer the question

Please note that a separate analysis of owners’ equity for the preference shares should

be prepared. If you refer to the learning units you will note that the analysis for the ordinary shares and the analysis for the preference shares are separate. The parent company is likely to own different percentages of ordinary and preference shares. Thus the allocation of the items in the analysis between the parent and non-controlling interests has to be separate using the two different interest percentages.

Make sure you understand all the dividend principles. A portion of profit equal to the cumulative preference dividends of R667 should be deducted from retained earnings in the ʺordinary analysisʺ and added (transferred) to the ʺpreference analysisʺ, so that it can be distributed (deducted again) as dividends. When the dividends are declared, it will be divided according to the preference percentage interest (40:60).

This question required the consolidated statement of profit or loss and other comprehensive income, where the subsidiary was acquired during the current year. Therefore we cannot just add the subsidiary’s items line by line. It should only be added for the five months the subsidiary was part of the group:

- The revenue of the subsidiary was provided for the 5 months and should be added as R833 333.

- The cost of sales of the subsidiary had to be calculated at the same proportions as the sales for the period: R1 085 000 x 833 333/2 500 000 = R361 667.

- Income tax was provided for the 5 months and no calculation was needed: R47 044. - Administrative expenses: as the loss on the copy machine occurred at year end, it should

not form part of the expense that is streamlined evenly over the year, but should exclusively be added at the end, as it happened in the last 5 months of the year: (88 000-14 500) x 5/12 +14 500 = R45 125.

Students spent a lot of time doing the full analyses, but it was not necessary, as only the

statement of profit or loss was required. Only the current year – section was necessary to calculate the total comprehensive income attributable to the non-controlling interests.

Students forgot to eliminate the intragroup dividends received by the parent from the subsidiary and forgot to subtract it from other income: Ordinary dividends (50 000 x 15c) x 80% = R6 000 Preference dividends (20 000 x 8% x 5/12) x40% = 267.

70

QUESTION 2

Dr R

Cr R

2.1 Retained earnings – Lucky Ltd Cost of sales – Lucky Ltd Elimination of unrealised profits included in opening inventory (300 000 x 20/120)

50 000

50 000

2.2 Property/PPE – Fish Ltd Retained earnings – Lucky Ltd Elimination of unrealised loss associated with the sale of property [(1 200 000 + 300 000) – R1 400 000)]

100 000

100 000

2.3 Other income – Fish Ltd Machinery or PPE – Lucky Ltd Elimination of unrealised profit associated with the sale of machine (400 000 – 360 000) Accumulated depreciation – Lucky Ltd Depreciation – Fish Ltd Elimination of unrealised depreciation associated with the sale of machine (40 000 x 20% x 3/12)

40 000

2 000

40 000

2 000

2.4 Non-controlling interests Dividends payable Provision for dividends payable to non-controlling interests (500 000 x 0.3 x 20%)

30 000

30 000

2.5 Cost of sales – Lucky Ltd Inventory – Fish Ltd Elimination of unrealised profits included in closing inventory [(600 000 x 40%) x 20/120)]

40 000

40 000

FAC2602/102

71



Read the required section carefully and make sure your answer includes all that is

required. In this question, narrations were required.

The question required specific journals, so do not waste valuable time by preparing journals that are not required.

Students incorrectly calculated an unrealised profit on the sale of property, instead of an unrealised loss. As the property was revalued, it is now worth: R 1 200 000 + R 300 000 = R 1 500 000. It was sold for R 1 400 000, hence a loss of R100 000 was made.

As the property was sold in a previous year, retained earnings are affected and not profit

or loss. To eliminate the loss, retained earnings should be credited and the property

debited.

Because Lucky Ltd has not yet made provision for the dividend and Fish Ltd has not yet reacted to it, we only provide for the dividend owing to the non-controlling owners, as we would have eliminated the intragroup dividends between Lucky Ltd and Fish Ltd anyway.

72

QUESTION 3 DAWN LTD STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 SEPTEMBER 2015 R R Cash flows from operating activities Cash receipts from customers (calculation 1) Cash payments to suppliers and employees (calculation 2)

1 645 550

(1 068 700)

Cash generated from operations Dividends received [73 500 – 28 000 – (32 750 – 17 600) or 15 150 calculated in T-account] Interest paid Dividends paid (calculation 3) Normal tax paid (calculation 4) Proceeds from sale of financial assets at fair value through profit or loss: held for trading (14 000 – 2 000) Increase in financial assets at fair value through profit or loss: held for trading

576 850

30 350 (25 800)

(116 716) (181 964)

12 000

(127 000)

Net cash from operating activities Cash flows from investing activities Investment to maintain production capacity

(178 000)

167 720

Replacement of vehicles (89 000 x 2) (178 000)

Investment to expand production capacity (136 600)

Additions to property, plant and equipment (136 600)

Proceeds from the sale of vehicle (33 000 + 28 000) 61 000

Net cash used in investing activities (253 600) Cash flows from financing activities Increase in loans [(202 680 + 24 100) – (175 000 + 39 400)] Proceeds from issue of shares (560 000 – 500 000) Proceeds from issue of debentures Net cash from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year

12 380 60 000

150 000

222 380

136 500 (28 000)

Cash and cash equivalents at end of year 108 500

Calculations: 1. Cash receipts from customers

Trade and other receivables

Balance (887 500 + 32 750) Sales

b/d

R 920 250

1 250 000

Bank* Balance (507 100 + 17 600)

c/d

R 1 645 550

524 700

2 170 250 2 170 250

*Balancing figure

FAC2602/102

73


OR


Balance Sales Credit losses recovered (32 750 – 17 600)

b/d

R 887 500

1 250 000

15 150

Bank* Balance

c/d

R 1 645 550

507 100

2 152 650 2 152 650

*Balancing figure

OR [instead of (32 750 – 17 600)]

Allowance for credit losses

Credit losses recovered* Balance

c/d

R 15 150 17 600

Balance

b/d

R 32 750

32 750 32 750

*Balancing figure 2. Cash paid to suppliers and employees

Trade and other payables, inventory and expenses

Balance – inventory Bank* Balance – payables (732 600 + 88 000)

b/d

c/d

R 558 900

1 068 700 820 600

Balance – payables Cost of sales Other expenses (110 000 + 233 000 – 45 000 – 2 000) Balance – inventory

b/d

c/d

R 637 800 845 900 296 000

668 500

2 448 200 2 448 200

*Balancing figure 3. Dividends paid Amounts unpaid at beginning of year Amounts charged to income Amounts unpaid at end of year

R 120 000 55 000

(58 284)

116 716

4. Taxation paid Amounts unpaid at beginning of year Amounts charged to income Amounts unpaid at end of year (104 500 – 88 000)

168 000 30 464

(16 500)

181 964

74


5. Property, plant and equipment

Balance New – expand (balancing) New – replacement (89 000 x 2) Revaluation (given)

R 543 400 136 600 178 000

70 000

Depreciation (given) Sold Balance

R 45 000 33 000

850 000

928 000 928 000

6. Financial assets at fair value through profit or loss

Balance New investments (balancing)

R 512 000 127 000

Sold Balance

R 14 000

625 000

639 000 639 000


Remember that the proceeds from disposal of financial assets, or the increase in

financial assets, that are held for trading, with the intention of short-term profit taking, should be disclosed under operating activities and not investing activities.

Students did not add the credit allowance balance of R32 750 to the opening balance of trade debtors and the R17 600 to the closing balance. Remember that the allowance will normally decrease the balance, but as we only want to cash effect (and an allowance has no cash effect), we add it back.

Remember to use the opening balance and closing balance of bank, provided in the question, to disclose the cash at the beginning and end of the year.

QUESTION 4 1. 1 2. 4 3. 3

FAC2602/102

75

QUESTION 5 CARSON LTD GROUP CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 OCTOBER 2014

CARSON LTD GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 OCTOBER 2014 ASSETS Non-current assets

R

Property, plant and equipment [2 000 000 + 1 500 000 + 500 000 + 300 000 + 1 200 000 + 800 000 – 55 000 (calculation 3) + 27 500 (calculation 3)] Goodwill (20 000 + 15 000)

6 272 500

35 000 6 307 500 Current assets

Inventory [300 000 + 500 000 – 60 000) Trade and other receivables [484 000 + 1 340 000 – (15 000 – 10 000) – 20 000 (deposit)] Cash and cash equivalents (200 000 – 20 000)

740 000 1 799 000

180 000

Total assets

2 719 000

9 026 500

EQUITY AND LIABILITIES Equity attributable to owners of the parent Share capital Other components of equity (800 000 + 160 000) Retained earnings

400 000 960 000

4 840 500 Non-controlling interests (75 000 + 742 000)

6 200 500 817 000


Current liabilities Trade and other payables (1 484 000 + 550 000 – 5 000 – 20 000)

2 009 000 Total liabilities 2 009 000


Retained earnings

Balance at 1 November 2013 [2 048 000 + 492 000 + 7 500 – 55 000 + 16 500 (calculation 3)] Changes in equity for 2014

R 2 509 000

Total comprehensive income for the year Profit for the year 2 411 500 Dividends paid: ordinary (80 000) Balance at 31 October 2014 4 840 500

76

QUESTION 5 (continued) Calculations: 1. Analysis of owners’ equity of Bates Ltd

Ordinary shares

Total

Carson Ltd 80%*

NCI 20%

At

Since

At acquisition Share capital Revaluation surplus (550 000 – 300 000) Retained earnings

R 500 000 250 000 850 000

R 400 000 200 000 680 000

R R 100 000 50 000

170 000

Equity represented by goodwill – parent

1 600 000 20 000

1 280 000 20 000

320 000 -

Consideration and NCI 1 620 000 1 300 000 320 000

Since acquisition To beginning of current year Retained earnings

615 000

492 000

123 000

Retained earnings – beginning of year Retained earnings – at acquisition Arrear preference dividends (100 000 x 10% x 3) (1/11/10 – 31/10/13) Unrealised profit in opening inventory (250 000 x 25/125)

1 545 000 (850 000)

(30 000)

(50 000)

Revaluation surplus (450 000 – 250 000) Current year Profit for the year

200 000

1 345 000

160 000

1 076 000

40 000

269 000

Given Preference dividends Unrealised profit in opening inventory (250 000 x 25/125) Unrealised profit in closing inventory (300 000 x 25/125)

1 365 000 (10 000) 50 000

(60 000)

Dividends paid (50 000) (40 000) (10 000)

3 730 000 RE1 528 000 OCE160 000

742 000

* 240 000

X 100

= 80% 300 000 1

FAC2602/102

77


Cumulative preference shares Total

Carson Ltd 25%* NCI 75% At Since

At acquisition Share capital

R 100 000

R 25 000

R R 75 000


100 000 15 000

25 000 15 000

75 000 -


Since acquisition To beginning of current year Arrear preference dividend Current year Profit attributable to preference shares Preference dividends paid (30 000 + 10 000 OR 100 000 x 10% x 4)

30 000

10 000

(40 000)

7 500

2 500

(10 000)

22 500

7 500 (30 000)

115 000 - 75 000

* 25 000 X

100 = 25% interest

100 000 1 3. Unrealised profit and depreciation

R

Cost of machine Depreciation – 1/5/2010 – 30/4/2012 (400 000 x 20% x 2)

400 000 (160 000)

240 000 Selling price 295 000

Profit 55 000

Depreciation: 1/5/2012 – 31/10/2013 (55 000 x 20% x 1.5) Depreciation: 1/11/2013 – 31/10/2014 (55 000 x 20%)

16 500 11 000

27 500

4. Profit for the year

R

Profit of Carson Ltd Profit of Bates Ltd

1 372 000 1 365 000

Unrealised profit in opening inventory

2 737 000 50 000

Unrealised profit in closing inventory Depreciation associated with sale of machine

(60 000) 11 000

Dividends received from subsidiary (40 000 + 10 000) (50 000)

Less non-controlling interests (269 000 + 7 500)

2 688 000 (276 500)

2 411 500

OR

78


R

Profit of Carson Ltd Profit of Bates Ltd (ordinary analysis)

1 372 000 1 076 000

Profit of Bates Ltd (preference analysis) 2 500 Depreciation associated with sale of machine 11 000 Dividends received from subsidiary (40 000 + 10 000) (50 000)

2 411 500

FAC2602/102

79



Make sure you know the format of the financial statements, namely the statement of

financial position, the statement of profit or loss and other comprehensive income and the statement of changes in equity. Marks are awarded for the proper disclosure and the wording.

Students forget to show their calculations. Marks are awarded for the individual figures. You will not earn the marks by merely showing a total figure that is incorrect. If you show how you get to the final amount, you can at least earn some of the marks, if not all.

Please note that a separate analysis of owners’ equity for the preference shares should be prepared. If you refer to the learning units you will note that the analysis for the ordinary shares and the analysis for the preference shares are separate. The parent company is likely to own different percentages of ordinary and preference shares. Thus the allocation of the items in the analysis between the parent and non-controlling interests has to be separate using the two different interest percentages.

In the analysis of owner’s equity, the adjustments for the opening and closing inventory

are normally calculated correctly but it is a concern that students are uncertain whether they should be adding or deducting the amounts. Students need to make sure they put the brackets in the correct place. In other words make sure you understand which amounts need to be added to the profit and which amounts need to be deducted. Many marks are lost when signs are wrong.

In the statement of financial position, marks are often allocated for wording/line headings such as “goodwill” and “non-controlling interests”. Students often write these headings under the wrong sections, for example, “non-controlling interests” will be disclosed under liabilities instead of equity. Make sure you know where items belong in the statements. Students also sometimes do not use the correct terminology. Many times marks are awarded for the proper disclosure and terminology which are then unnecessarily forfeited.

80

QUESTION 6 Dr Cr a) R R Share capital – ordinary shares 53 000 Retained earnings 718 635 Profit for the year 128 675

[308 000 – (350 000 x 0.2) – (230 000 x 0.1) + (500 000 x 0.15 /12) + (400 000 x 0.15 x 8/12)] x 7/12 + (350 000 x 0.2) – (500 000 x 0.15 / 12) – (400 000 x 0.15 x 7/12) = 181 146 181 146 – (181 146 x 0.28) = 130 425 130 425 – (25 000 x 12% x 7/12) = 128 675

Goodwill 209 752 Investment in Williams Ltd 930 000 Non-controlling interests (53 000 + 718 635 + 128 675) x (53 000 – 42 400)/53 000

180 062

Share capital – preference shares 25 000 Goodwill 18 000 Investment in Williams Ltd 28 000 Non-controlling interests 25 000 x [(25 000 – 10 000)/25 000]

15 000

b) Accumulated depreciation – McLaren Ltd

1 150

Depreciation – Williams Ltd 1 150 [(230 000 x 0.1) x 0.15 x 4/12]

c) Dividends received – McLaren Ltd (1 250 x 0.4)

500

Non-controlling interest (SFP) (1 250 x 0.6) 750 Preference dividends paid – Williams Ltd 1 250 (25 000 x 12% x 5/12)

FAC2602/102

81

QUESTION 6 (continued) Calculations: 1. Analysis of owners’ equity of Williams Ltd

Ordinary shares McLaren Ltd 80%*

NCI 20% Total At Since

R R R R At acquisition Share capital 53 000 42 400 10 600 Retained earnings 718 635 574 908 143 727 Profit 1/2/2013 – 31/8/2013 (calculation above)

128 675 102 940 25 735

900 310 720 248 180 062 Equity represented by goodwill – parent 209 752 209 752 -

Consideration and NCI 1 110 062 930 000 180 062

* 42 400 / 53 000 = 80%

12% Cumulative preference shares McLaren Ltd 40%*

NCI 60% Total At Since

R R R R At acquisition Share capital 25 000 10 000 15 000

25 000 10 000 15 000 Equity represented by goodwill – parent 18 000 18 000 -


*10 000 / 25 000 = 40%

82



It is important to study pro-forma consolidation journal entries. Remember the account

name and the company whose account it is must be written down to earn the marks. Read the required section thoroughly and make sure you answer ALL that is required.

Narrations are specifically excluded in this question and you will waste valuable time by including this in an exam if not required. This question required specific journals so do not waste time by providing journals that are not required, as it will not earn you marks.

Make sure that you show all your calculations. Then you can earn marks for parts of a calculation, even if the final amount is wrong. Make sure you know how to calculate the number of months that depreciation should be calculated for.

Make sure you read all the information in the scenario carefully and understand how to apply it in your answer. In this question the subsidiary was acquired 7 months into the year, hence all income and expenses must be apportioned, as only the income and expenses from September 2013 to January 2014 pertains to the group. Do you understand how to calculate the profit for the first 7 months of the year, performed in journal a)? We first subtract all income and expenses that relates to a specific period, to streamline what is left over 7 months, then we add back the items of income or expenses that relates specifically to the first 7 months of the year. This calculation is not concerned with any unrealised profits. It is merely a streamlining and allocating of the profit between before acquisition and after acquisition.

Read the information carefully. When dealing with the depreciation associated with the

intragroup sale of the second vehicle, remember that the vehicle was sold during the current year and the depreciation should be calculated for the relevant period, namely 30 September 2013 to the 31 January 2014, which is 4 months.

FAC2602/102

83

QUESTION 7 FRAGILE LTD STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 AUGUST 2014

Cash flow from operating activities Cash receipts from customers (calculation 1) Cash paid to suppliers and employees (calculation 2) Cash generated from operations

R

2 805 000 (2 513 600)

291 400

R

Dividends received Interest paid Dividends paid (calculation 3) Current tax paid (calculation 4) Proceeds from sale of financial assets at fair value through profit or loss: held for trading Increase in financial assets at fair value through profit or loss: held for trading (calculation 8)

10 000 (22 320)

(75 000) (116 073) 300 000

(352 000)

Net cash from operating activities Cash flow from investing activities

36 007

Investment to expand production capacity Additions to land and buildings (calculation 7)

(100 000)

Additions to plant and equipment (calculation 5) Proceeds from sale of plant and equipment [20 000 (calculation 5) – 8 000 (calculation 6) – 6 000]

(170 000)

6 000

Net cash used in investing activities

(264 000)

Cash flow from financing activities Proceeds from issue of shares (600 000 – 500 000) Increase in borrowings [(320 000 – 250 000) + (140 000 – 40 000)]

100 000 170 000

Net cash from financing activities 270 000

Net increase in cash and cash equivalents Cash and cash equivalents at beginning of the year

42 007 150 000

Cash and cash equivalents at end of the year 192 007

84

QUESTION 7 (continued) Calculations: 1. Cash receipts from customers

Balance – receivables b/d Sales

R 500 000

2 985 000

Bank* Balance – receivables c/d

R 2 805 000

680 000

3 485 000 3 485 000

* Balancing figure 2. Cash paid to suppliers and employees

Balance – inventory b/d Bank* Balance – payables c/d

R 160 000

2 513 600 455 000

Balance – payables b/d Cost of sales Other expenses [480 000 – 6 000 (loss on sale of asset) – 38 000 depreciation)] Balance – inventory c/d

R 588 000

1 840 000

436 000 264 600

3 128 600 3 128 600

* Balancing figure 3. Dividends paid

Amounts unpaid at beginning of year Interim dividends (250 000 x 0.10) Final dividends (300 000 x 0.20) Amounts unpaid at end of year

R 50 000 25 000 60 000

(60 000)

75 000

4. Taxation paid

Amounts unpaid at beginning of year Amounts charged to income Amounts unpaid at end of year

116 362 224 190

(224 479)

116 073

5. Plant and machinery at cost

Balance b/d Addition (refer to loans calculation)

R 400 000 170 000

Disposal* Balance c/d

R 20 000

550 000

570 000 570 000

* Balancing figure

FAC2602/102

85

QUESTION 7 (continued) 6. Accumulated depreciation – plant and machinery

Disposal* Balance c/d

R 8 000

148 000

Balance b/d Depreciation

R 118 000 38 000

156 000 156 000

* Balancing figure

7. Land and buildings at valuation

Balance b/d Revaluation (145 000 – 105 000) Additions*

R 800 000 40 000

100 000

Balance c/d

R 940 000

940 000 940 000

* Balancing figure 8. Financial assets at fair value through profit or loss

Balance b/d Fair value adjustments New investments*

R 550 000 100 000 352 000

Sold (300 000 – 48 000) Balance c/d

R 252 000 750 000

1 002 000 1 002 000

* Balancing figure


Make sure you know the format or framework of the statement of cash flows. The direct or indirect method can be asked in the exam. Marks are awarded for correct terminology and disclosure.

Make sure you indicate the brackets in the statement correctly. Make sure you understand which items increase cash and which items decrease cash.

When calculating the plant and equipment additions and replacements, determine if

you have to work with the cost and accumulated depreciation accounts or whether you have to work with the carrying amount of an asset which includes depreciation. In this question you were given the carrying amounts of property, plant and equipment. Always remember to disclose the additions for expansion and the additions for maintenance seperately.

Students spend so much time to calculate the cash outflow from purchases of property, plant and equipment, that they forget to disclose the cash inflow due to the proceeds from the disposal of assets.

Make sure you disclose the easy marks that are provided in the question. These include dividends received and interest paid. Many students waste time trying to calculate what these figures should be, even though they were already provided in the question.

86

QUESTION 8

Dr R

Cr R

1. Share capital 175 000 Retained earnings 180 000 Revaluation surplus 250 000 Goodwill 10 000 Investment in Cycle Ltd 494 000 Non-controlling interests (605 000 x 20%) 121 000 Elimination of owners’ equity of Cycle Ltd at acquisition

2. Sales – Cycle Ltd 1 250 000 Cost of sales – Arrow Ltd 1 250 000 Elimination of intragroup sales

3. Cost of sales – Cycle Ltd 27 500 Inventories – Arrow Ltd (330 000 x 50% x 20/120)

Elimination of unrealised profits in closing inventories 27 500

4. Retained earnings – Cycle Ltd 25 000 Cost of sales – Cycle Ltd

(300 000 x 50% x 20/120) 25 000

Elimination of unrealised profits in opening inventories

5.

Retained earnings – Arrow Ltd

100 000

Plant and Machinery/PPE – Cycle Ltd Elimination of unrealised profits associated with the sale of the machinery

100 000

6. Accumulated depreciation – Cycle Ltd 30 000 Depreciation – Arrow Ltd (100 000 x 20%) 20 000 Retained earnings – Arrow Ltd (100 000 x 20% x 6/12) 10 000 Elimination of unrealised depreciation associated with the sale

of the machinery

7. Loan – Cycle Ltd 200 000 Loan – Arrow Ltd 200 000 Elimination of intragroup loan accounts

8. Management fees received – Arrow Ltd 60 000 Management fees paid – Cycle Ltd 60 000 Elimination of management fees paid

9. Interest received – Arrow Ltd 20 000 Interest paid – Cycle Ltd 20 000 Elimination of intragroup interest on loan

FAC2602/102

87

Calculations:

1. Analysis of owners’ equity of Cycle Ltd

Ordinary shares

Total

Arrow Ltd 80%

NCI 20%

At Since

At acquisition Share capital Retained earnings Revaluation surplus

R 175 000 180 000 250 000

R 140 000 144 000 200 000

R R 35 000 36 000 50 000


605 000 10 000

484 000 10 000

121 000 -



35 000

28 000

7 000

Retained earnings – beginning of year Retained earnings – at acquisition Unrealised profit in opening inventory (300 000 x 50% x 20/120)

240 000 (180 000)

(25 000)


609 360

487 488

121 872

Given Unrealised profit in opening inventory Unrealised profit in closing inventory (330 000 x 50% x 20/120)

611 860 25 000

(27 500)

1 259 360 515 488 249 872


Dr R

Cr R

10. Non-controlling interests (SCI) (611 860 + 25 000 – 27 500) x 20%

121 872

Non-controlling interests (SFP) 121 872 Recording of non-controlling interest in profit after tax

11. Retained earnings (240 000 – 180 000 – 25 000) x 20% 7 000 Non-controlling interests 7 000 Recording of non-controlling interest for the period ending

31/12/2012

88



It is important to study pro-forma consolidation journal entries. Remember the account

name and the company whose account it is, must be written down to earn the marks.

This question did not require any specific journals, but rather all pro-forma consolidation journals. Make sure you do not loose some of the marks by forgetting to include the journals where easy marks can be obtained, such as to eliminate: management fees, non-controlling interests and intragroup sales.

Remember that the revaluation surplus at acquisition date should be included as part of equity when you eliminate owners’ equity at acquisition, in order to arrive at the correct amount for goodwill.

One of the first adjustments which should be made when consolidating is the elimination of the investment in the parent’s financial records and the owners’ equity section in the subsidiary’s financial records at acquisition date. All intragroup transactions must be eliminated, because the group is regarded as one economic entity and will not enter into transactions with itself. Do not make the mistake of eliminating only 80% of the components of equity (eg R140 000 of share capital), but eliminate it completely (eg R175 000).

In the analysis of owner’s equity, the adjustments for the opening and closing inventory

are normally calculated correctly but it is a concern that students are uncertain whether they should be adding or deducting the amounts. Students need to make sure they put the brackets in the correct place. In other words make sure you understand what amounts need to be added to the profit and what amounts need to be deducted. Many marks are lost when signs are wrong.

Read the information carefully. When dealing with the intragroup sales of inventory, remember to multiply the inventory figures by 50% (as only 50% of Arrow Ltd’s material were bought from Cycle Ltd).

Read the information carefully. When dealing with the depreciation associated with the intragroup sales of machinery, remember that the machinery was sold 18 months ago and the depreciation should be calculated for the six months in the previous year as well.

Make sure you know which company receives the loan and management fees, and which company pays these, as to eliminate (debit and credit) it correctly.

Understand which non-controlling interests accounts should be debited and credited when recording their interests, ie whether in the statement of financial position or the statement of profit or loss and other comprehensive income. Remember that the non-controlling interests in the statement of financial position are credited, as it reflects what is owed to the non-controlling owners in terms of their share of the equity. The profit in the statement of profit or loss and other comprehensive income is reduced, by debiting profit, to allocate it to the non-controlling owners.

FAC2602/102

89

QUESTION 9 INGWE LTD STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2013

R R Cash flows from operating activities Cash receipts from customers (calculation 1) Cash paid to suppliers and employees (calculation 2)

273 439

(212 078)

Cash generated from operations Dividends received Interest received Interest paid (422 + 8 656 – 518) Dividends paid (calculation 3) Normal tax paid (calculation 4) Proceeds from the sale of financial assets at fair value through profit or loss: held for trading Purchase of financial assets at fair value through profit or loss: held for trading (calculation 6)

61 361 1 210 2 280

(8 560) (15 400) (3 923)

2 700

(4 767)

Net cash from operating activities

Cash flows from investing activities Investment to maintain production capacity

(43 325)

34 901

Replacement of plant (calculation 5) (43 325)


Additions to plant (19 500)

Proceeds on sale of plant and equipment 990

Net cash used in investing activities (61 835) Cash flow from financing activities Proceeds from long-term loans [(56 308 + 36 024) – (37 423 + 25 791)] Net cash from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period

29 118

29 118

2 184 7 311

Cash and cash equivalents at end of period 9 495

Calculations:

3. Cash receipts from customers


Balance Sales

b/d

R 63 345

286 077

Credit losses Bank* Balance

c/f

R 5 596

273 439 70 387

349 422 349 422

* Balancing figure

90

QUESTION 9 (continued) 4. Cash paid to suppliers and employees


Balance – inventory Bank* Balance – payables (51 270 – 518)

b/d

c/f

R 34 625

212 078 50 752

Balance – payables (37 033 – 422) Cost of sales Other expenses (63 405 – 19 647 – 5 596) Balance – inventory

b/d

c/f

R 36 611

174 027

38 162 48 655

297 455 297 455

* Balancing figure

3. Dividends paid Amounts unpaid at beginning of year Amounts charged to income – final dividend Amounts unpaid at end of year

R 7 291

13 400 (5 291)

15 400

4. Taxation paid Amounts unpaid at beginning of year Amounts charged to income Amounts unpaid at end of year

37 351 12 253

(45 681)

3 923


Balance b/d New – expansion (given) New – replace or expand (balancing) Revaluation (given)

R 210 924

19 500 43 325 17 432

Depreciation (given) Sold (990 – 280) Balance c/f

R 19 647

710 270 824

291 181 291 181

6. Financial assets at fair value through profit or loss

Balance b/d New investments (balancing)

R 14 184 4 767

Sold (given) Balance c/f

R 2 700

16 251

18 951 18 951

FAC2602/102

91



Make sure you know the format or framework of the statement of cash flows. The direct

or indirect method can be asked in the exam. Marks are awarded for correct terminology and disclosure. For example, proceeds from the sale of financial assets held for trading should be disclosed under operating and not investing activities.

Make sure you indicate the brackets in the statement correctly. Make sure you

understand what items increase cash and what items decrease cash. When calculating the plant and equipment additions and replacements, determine if

you have to work with the cost and accumulated depreciation accounts or whether you have to work with the carrying amount of an asset which includes depreciation. In this question you were given the carrying amounts of property, plant and equipment. Always remember to disclose the additions for expansion and the additions for maintenance separately.

92

QUESTION 10 a) GOLDTEK LTD GROUP CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 29 FEBRUARY 2012 Revenue (1 200 000 + 780 000 – 400 400) Cost of sales [(1 200 000 x 100/120) + (780 000 x 100/125) – 1 280 + 1 920 – 400 400]

R 1 579 600

(1 224 240)

Gross profit Other income (55 706 + 2 400 + 1 200 – 2 400 – 1 200) Other expenses (48 334 + 7 440 + 2 400 – 2 400) Net finance cost

355 360 55 706

(55 774) (5 280)

Finance cost (5 280 – 960 + 960) Finance income (960 – 960)

(5 280) -

Profit before tax Income tax expense (56 183 + 42 000)

350 012 (98 183)



Total comprehensive income attributable to:

Owners of the parent 219 141 Non-controlling interests (32 208 – 720 + 1 200) 32 688

251 829

FAC2602/102

93


GOLDTEK LTD GROUP CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 29 FEBRUARY 2012

Ordinary share capital

R

Preference share capital

R

Revalu- ation

surplus R

Retained earnings

R Total

R

Non-controlling interests

R

Total equity

R

Balance at 1/3/2011 Changes in equity for 2012 Total comprehensive income for the year Profit for the year Dividends paid: - Ordinary - Preference

1 760 000

24 000 111 600

42 604

219 141

(44 000) (2 100)

1 938 204

219 141

(44 000) (2 100)

86 276

32 688

(1 200)

2 024 480

251 829

(44 000) (3 300)

Balance at 28/2/2012 1 760 000 24 000 111 600 215 645 2 111 245 117 764 2 229 009

90 600 + 21 000 = 111 600 24 000 x 8,75% = 2 100 46 100 – 2 100 (preference dividends) = 44 000 40 000 + 2 604 = 42 604 56 160 + 1 116 + 9 000 + 20 000 = 86 276 GOLDTEK LTD GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 29 FEBRUARY 2012 ASSETS Non-current assets

R

Property, plant and equipment (1 680 000 + 264 000 – 304 000 – 36 000 + 536 000 + 219 000 – 125 200 – 46 000)

2 187 800

Goodwill (4 960 + 3 000) 7 960

Current assets

2 195 760

Inventory (22 400 + 24 800 – 1 920) Trade and other receivables (30 800 +140 343 + 80 400 – 11 200* + 2 400) Cash and cash equivalents

45 280 242 743

5 426

293 449



Equity attributable to owners of the parent Share capital (1 760 000 + 24 000) Other components of equity Retained earnings

1 784 000 111 600 215 645

2 111 245 Non-controlling interests 117 764


94

QUESTION 10 (continued) Non-current liabilities 10% Debentures Current liabilities

52 800

Trade and other payables (77 000 + 53 520 + 11 200 – 11 200*) Current tax payable (43 200 + 21 600) Bank overdraft

130 520 64 800 12 080

207 400

Total liabilities 260 200


* Elimination of intragroup bills Calculations: 1. Analysis of ordinary owners’ equity of Cointek Ltd

Ordinary shares

Total

Goldtek Ltd 70%*

NCI 30% At

Since RE

Since OCE

At acquisition Share capital Revaluation surplus Retained earnings Revaluation surplus – vacant stand

R 160 000

4 000 7 200

16 000

R 112 000

2 800 5 040

11 200

R

R

R 48 000

1 200 2 160 4 800


187 200 4 960

131 040 4 960

56 160 -


Since acquisition To beginning of current year year Retained earnings

3 720

2 604

1 116

Balance 1/3/2011 At acquisition Unrealised profit in opening inventories (6 400 x 25/125)

12 200 (7 200) (1 280)

Revaluation surplus (calculation 3) 30 000 21 000 9 000 Current year 107 360 75 152 32 208

Profit for the year (calculation 4) Unrealised profit in opening inventories opening inventories Unrealised profit in closing inventories (9 600 x 25/125)

108 000 1 280

(1 920)

Preference dividends (40 000 x 6%) (2 400) (1 680) (720)

330 840 76 076 21 000 97 764

* Goldtek Ltd purchased 112 000 shares in Cointek Ltd, which had 160 000 shares in issue.

112 000 x

100 = 70% interest.

160 000 1

FAC2602/102

95

QUESTION 10 (continued) 2. Analysis of preference owners’ equity of Cointek Ltd

Goldtek Ltd 50%*

Preference shares Total At Since NCI 50%

At acquisition Share capital Equity represent by goodwill – parent

R

40 000 3 000

R

20 000 3 000

R R

20 000 -


Since acquisition Current year Profit for the year attributable to preference shares (40 000 x 6%) Dividends paid

2 400

(2 400)

1 200

(1 200)

1 200

(1 200)

43 000 - 20 000

shares 000 40

shares 000 20 = 50%

3. Revaluation surplus R Balance at 29 February 2012 At acquisition (4 000 + 16 000)

50 000 (20 000)

Increase in revaluation surplus since acquisition 30 000

4. Profit for the year Gross profit 156 000 Rent: Goldtek Ltd 2 400 Finance costs (960) Other expenses (7 440)

Profit before tax 150 000 Income tax expense (42 000)

108 000

b) Pro-forma consolidation journal entries for the year ended 29 February 2012

Dr

Cr

R R Cost of sales – Cointek Ltd 1 920 Inventory – Goldtek Ltd 1 920 Elimination of unrealised intragroup profit included in closing inventory of Goldtek Ltd (9 600 x 25/125)

Retained earnings – Cointek Ltd 1 280 Cost of sales – Cointek Ltd 1 280 Elimination of unrealised intragroup profit included in opening inventory of Goldtek Ltd (6 400 x 25/125)

96



Make sure you know the format of the financial statements. Marks are awarded for the

proper disclosure or the wording.

In a consolidation question, where all the statements are required, many of the marks will be marked through. This means that even if the figure you calculated in the statement of profit or loss and other comprehensive income attributable to non-controlling interests is incorrect and you have carried it correctly to the statement of changes in equity, this mark will be awarded.

Students forget to show their calculations. Marks are awarded for individual calculations. You will not earn marks by merely showing a total figure that is incorrect. This also applies in the statement of changes in equity: students often do not show their calculations to indicate how they arrive at a balance, thereby forfeiting many easy marks.

In the analysis of owner’s equity, the adjustments for the opening and closing inventory are normally calculated correctly but it is a concern that students are uncertain whether they should be adding or deducting the amounts. Students need to make sure they have the brackets in the correct place. In other words, make sure you understand what amounts need to be added to the profit and what amounts need to be deducted. Many marks are lost when signs are wrong.

Some students still combine the analysis of owner’s equity for the ordinary shares and the preference shares. If you refer to the learning units you will note that the analysis for the ordinary shares and the analysis for the preference shares are separate. The parent company is likely to own different percentages of ordinary and preference shares. Thus the allocation of the items in the analysis between the parent and non-controlling interests has to be separate, using the two different interest percentages.

Pro-forma consolidation journal entries may be required and these journals have been

extensively dealt with in the learning units. Please study the journal entries and make sure you understand the logic behind it. Note that marks may be awarded (read the “required”) for narrations, therefor do not omit it when asked to disclose.

Make sure you indicate clearly to which company each account refers, when writing out

journal entries.

In the statement of financial position, marks are often allocated for wording/line headings such as “goodwill” and “non-controlling interests”. Students often write these headings under the wrong sections, for example, “non-controlling interests” will be disclosed under liabilities instead of equity. Make sure you know where items belong in the statements. Students also sometimes do not use the correct terminology. Many times marks are awarded for the proper disclosure and terminology which are then unnecessarily forfeited.

FAC2602/102

97

QUESTION 11 Dr

R Cr R

a) Retained earnings – Yalu Ltd Plant and machinery/Machinery – Xingu Ltd Elimination of unrealised profits on the sale of machine A Profit on sale of machine/Net income – Xingu Ltd (140 000 – 120 000) Plant and machinery/Machinery – Yalu Ltd Elimination of unrealised profits on the sale of machine B

80 000

20 000

80 000

20 000

b) Accumulated depreciation – Xingu Ltd Retained earnings – Yalu Ltd Elimination of unrealised depreciation on the sale of machine A [80 000 x (6 + 12 months)/12 months x 25%]

30 000

30 000

c) Accumulated depreciation – Xingu Ltd Depreciation – Yalu Ltd Elimination of unrealised depreciation on the sale of machine A [80 000 x 12 months/12 months x 25%] Accumulated depreciation – Yalu Ltd Depreciation – Xingu Ltd Elimination of unrealised depreciation on the sale of machine B [20 000 x 3 months/12 months x 25%]

20 000

1 250

20 000

1 250


Make sure that you show all your calculations. For instance in journal entry b, even if

you don’t know the depreciation rate is 25%, you can still earn marks for the R80 000 if you know this should be part of the calculation AND you write it down. Make sure you know how to calculate the number of months that depreciation should be calculated for.

Read the required thoroughly and make sure you answer ALL that is required. Narrations are specifically required and you will lose valuable easy marks by not giving the narration as part of your answer.

It is important to study pro-forma consolidation journal entries. When pro-forma

consolidation journal entries are required, the account name and the company that generated the profit/loss must be written down to earn marks.

Do you understand that the elimination of the unrealised depreciation should be

calculated using the unrealised profit amount and not the cost price of the asset? The unrealised profit is realised by utilising the assets at the rate of depreciation.

98

QUESTION 12 RACING ROCKET LTD STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 29 FEBRUARY 2012

R R Cash flow from operating activities Profit before tax (calculation 1) Adjustments for: Depreciation Finance charges Loss on sale of plant and equipment Investment income

22 375

115 000 72 125 18 000

(15 000)

Changes in working capital

212 500 393 220

Decrease in inventory (130 000 – 102 000) Increase in trade and other receivables (106 450 + 7 500 – 43 000) Increase in prepaid expenses (3 000 – 2 000) Increase in trade and other payables (647 970 + 12 000 – 10 000 – 212 800)

28 000 (70 950) (1 000)

437 170

Net cash generated from operations Income from investments (15 000 – 5 200 + 2 000) Finance charges (72 125 – 6 730 + 1 200) Dividends paid (calculation 2) Normal tax paid (calculation 3) Purchase of financial assets at fair value through profit or loss: held for trading (180 700 – 153 000)

605 720 11 800

(66 595) (25 000) (7 725)

(27 700)

Net cash from operating activities Cash flow from investing activities Investment to maintain production capacity

(115 000)

490 500

Replacement of plant and equipment (given) (115 000)


Additions to land and buildings (calculation 4) Additions to plant and equipment (calculation 5)

(850 000) (343 000)

Proceeds from sale of plant and equipment [30 000 (given) + 19 200 (calculation 7)]

49 200

Net cash used in investing activities (1 258 800)

NOT REQUIRED IN THIS QUESTION: Cash flow from financing activities Proceeds on issue of shares (250 000 – 200 000) Proceeds from long-term borrowings (712 500 + 237 500) Redemption of debentures Repayment of long-term borrowings (20 000 + 40 000)

50 000 950 000

(100 000) (60 000)

Net cash from financing activities 840 000

Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period

71 700 (70 200)


FAC2602/102

99

QUESTION 12 (continued) Calculations: 1. Profit before tax R

Given Accrued rental for February 2012 Shares issued – correction Bonus Mr Spaceout Accrued rates

66 875 7 500

(50 000) 10 000

(12 000)

22 375

2. Dividends paid

Unpaid amounts at beginning of year Amounts debited against profit: Interim dividend: 200 000 shares x 10 cents Final dividend: 250 000 shares x 4 cents (10 cents – 60%) Unpaid amounts at end of year

15 000

20 000 10 000

(20 000)

25 000

3. Tax paid

Unpaid amounts at beginning of year Amounts debited against profit Unpaid amounts at end of year

20 000 18 725

(31 000)

7 725

4. Land and buildings at cost

Balance b/d Revaluation Additions

R 300 000

50 000 *850 000

Balance c/f

R 1 200 000

1 200 000 1 200 000

* Balancing figure 5. Plant and equipment at cost

Balance b/d Replacement Additions*

R 225 000 115 000

*343 000

Sale of 1st asset (given) Sale of 2nd asset (given) Balance c/f

R 45 000 38 000

600 000

683 000 683 000

* Balancing figure

100

QUESTION 12 (continued) 6. Accumulated depreciation: Plant and equipment

Accumulated depreciation on 1st asset sold [45 000 (cost) – 35 000 (CV)] Accumulated depreciation on 2nd asset sold Balance c/f

R

10 000

*5 800 209 700

Balance b/f Depreciation (given)

R 110 500 115 000

225 500 225 500

* Balancing figure 7. Calculation of proceeds on sale of the 2nd asset Carrying value = R38 000 (cost given) – R5 800 (balancing figure in calculation 6) = R32 200 Loss on sale = R18 000 (total loss given) – R5 000 (loss on sale of 1st asset) = R13 000 Therefore, proceeds on sale of the 2nd asset = R32 200 – R13 000 = R19 200

FAC2602/102

101



Make sure you know the format or framework of the statement of cash flows. The direct

or indirect method can be asked in the exam. First write out the format of the statement, before you start filling in figures. It will help to ensure you do not omit anything.

A suggestion is to start at the top, which with the indirect method will be with the “profit before tax”. Make sure you use the relevant figures from the given information, in this instance, the profit before tax in the statement of profit or loss and other comprehensive income. Go through the additional information and ensure that all relevant amounts and calculations are added to your statement. This is where you will for instance find the R7 500 rental accrued. Do this with every line item in the statement of cash flows. At the end, go back to the statement of financial position and statement of profit or loss and other comprehensive income provided, to ensure all amounts that need to be incorporated, are included. This is how you will for instance find that there is a revaluation surplus that needs to be incorporated in the land and buildings calculation.

Make sure you have the brackets in the statement correctly. Make sure you understand which items increase cash and which items decrease cash.

Do you understand why the profit before tax is adjusted for certain items? It is because

these items do not have a cash implication. Depreciation, for instance, is a book entry that has no cash effect.

When calculating the plant and equipment additions and replacements, determine if you

have to work with cost and accumulated depreciation accounts or whether you have to work with the carrying amount of an asset which includes depreciation. In this question you have to draw the accumulated depreciation T-account to calculate the accumulated depreciation of the second asset sold. This is needed to calculate the proceeds on the sale of the second asset.

If it makes it easier for you to understand the inflow or outflow of cash, you can draw

more T-accounts for calculations. For example:

Dividends receivable

Balance b/d Dividend on investments – income

R 2 000

15 000

Bank Balance c/d

R 11 800

5 200

17 000 17 000

102

QUESTION 13

MICKEY LTD GROUP CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2011

R Revenue (3 000 000 + 960 000 – 500 000) 3 460 000 Cost of sales [2 100 000 + 576 000 – 500 000 + (110 000 + 10 000) x 20/120] (2 196 000)

Gross profit 1 264 000 Other income [31 100 + 1 900 – 15 000 (20 000 x 75%) dividends – 2 750 interest + 250 (30 000 x 10% x 1/12) interest – 12 000 admin] or (1 900 + 1 600)

3 500

Administrative expenses (125 000 + 44 000 admin – 12 000 admin + 90 000 + 33 250 depreciation + 200 000 + 92 100 staff)

(572 350)

Finance costs (13 500 + 9 000 + 2 750 – 2 750) (22 500)

Profit before tax 672 650 Income tax expense (140 728 + 57 344) (198 072)



Total comprehensive income attributable to:

Owners of the parent (474 578 – 36 864) 437 714 Non-controlling interests [(960 000 – 576 000 + 1 900 – 44 000 – 33 250 – 92 100 – 9 000 – 2 750 – 57 344) x 25%]

36 864

474 578

MICKEY LTD GROUP CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2011 Ordinary

share capital

Retained earnings

Total

Non- controlling interests

Total equity

Balance at 1/1/2011

R 500 000

R 650 000

R 1 150 000

R -

R 1 150 000

Changes in equity for 2011 Equity on date of acquisition 104 146 104 146 Total comprehensive income for the year Profit for the year 437 714 437 714 36 864 474 578 Dividends paid: Ordinary (50 000) (50 000) (5 000) (55 000)

Balance at 31/12/2011 500 000 1 037 714 1 537 714 136 010 1 673 724

FAC2602/102

103

QUESTION 13 (continued) Calculations: 1. Analysis of owners’ equity of Donald Ltd

Ordinary shares

Total

Mickey Ltd 75% NCI

25% At Since

At date of acquisition

R

R

R

R

Share capital 200 000 150 000 50 000

Retained earnings 1/1/2011 125 000 93 750 31 250

Profit for the period 1/1/2011 to 30/4/2011 91 584 68 688 22 896

416 584 312 438 104 146

Equity represented by goodwill – parent 47 562 47 562 -


Since acquisition

To end of current year

Profit for the period 1/5/2011 to 31/12/2011 31/12/2011

147 456

110 592

36 864

Ordinary dividends (20 000) (15 000) (5 000)

591 602 95 592 136 010

2. Allocation of profit or loss and other comprehensive income items

Total

1/1/2011 – 30/04/2011 (4 months)

1/5/2011 – 31/12/2011 (8 months)

R R R

Sales Cost of sales (60%)

1 440 000 (864 000)

480 000 (288 000)

960 000 (576 000)

Gross profit (40%) Other Income Interest received – Goofy Bank Other expenses Administrative expenses Depreciation Staff costs Interest paid – Diznee Bank Interest paid – Mickey Ltd

576 000

2 850

(60 000) (48 000)

(124 100) (12 000) (2 750)

192 000

950

(16 000) (14 750) (32 000) (3 000)

-

384 000

1 900

(44 000) (33 250) (92 100) (9 000) (2 750)

Profit before tax Income tax expense (28%)

332 000 (92 960)

127 200 (35 616)

204 800 (57 344)

PROFIT FOR THE YEAR 239 040 91 584 147 456

Other comprehensive income for the year - - -

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

239 040

91 584

147 456

104

QUESTION 13 (continued) Sales: 1 440 000 x 4/12 = 480 000 1 440 000 x 8/12 = 960 000 Cost of sales: 480 000 x 60% = 288 000 960 000 x 60% = 576 000 Interest received: 2 850 x 4/12 = 950 2 850 x 8/12 = 1 900 Administrative expenses: (60 000 – 12 000) x 4/12 = 16 000 (60 000 – 12 000) x 8/12 + 12 000 = 44 000 Depreciation: 50 000 x 15% x 6/12 = 3 750 (48 000 – 3 750) x 4/12 = 14 750 (48 000 – 3 750) x 8/12 + 3 750 = 33 250 Staff cost: (124 100 – 28 100) x 4/12 = 32 000 (124 100 – 28 100) x 8/12 + 28 100 = 92 100 Interest paid – Diznee Bank: 60 000 x 15% x 4/12 = 3 000 (60 000 x 15% x 8/12) + (30 000 x 15% x 8/12) = 9 000

FAC2602/102

105



Consolidated statement of profit or loss and apportioning of profit and loss Study the format of the different statements. When required in an exam, a suggestion is

to first write out the format of a statement to ensure you include everything that needs to be included. After this you can start filling in the figures by going through the balances and additional information provided.

Make sure you read all the information in the scenario carefully and understand how to apply it in your answer. In this question the subsidiary was acquired 4 months into the year, hence all income and expenses must be apportioned, as only the income and expenses from May 2011 to December 2011 pertains to the group.

Study the intragroup transactions thoroughly to make sure you understand it. When inventory is sold within the group, the unrealised profit needs to be eliminated because that profit has not yet realised from a group perspective, and will only be realised once the inventory is sold to a third party.

Remember to eliminate intragroup transactions such as dividends, interest and admin fees paid/received between the companies, as from a group perspective, there has been no gain or loss. Go through the balances provided in the question to ensure that you eliminate such intragroup transactions.

Make sure you use all the additional information provided. Most students forget to include

the line item “administrative expenses”.

Make sure you understand the principles of apportioning. The finance costs of the subsidiary, for example, should only be included in the group’s statements for the 8 months that it was part of the group.

The taxation amount is apportioned between the pre- and post-acquisition period by calculating 28% of the apportioned profit before tax, i.e. 28% x pre-acquisition profit, and 28% x post-acquisition profit (R127 200 x 28% and R204 800 x 28%). It is not the total taxation expense of R239 040 multiplied by 4/12 and 8/12, as this assumes that the profit/loss was all incurred evenly (which it clearly was not).

106

QUESTION 14

a)

Dr R

Cr R

Share capital – ordinary shares – Vroski Ltd Retained earnings – Vroski Ltd Revaluation surplus – Vroski Ltd Goodwill Investment in Vroski Ltd Non-controlling interests Elimination of owners’ equity at acquisition – ordinary shares

100 000 62 000

120 000 8 500

220 000 70 500

Share capital – preference shares – Vroski Ltd Goodwill Investment in Vroski Ltd Non-controlling interests Elimination of owners’ equity at acquisition – preference shares

100 000 12 000

52 000 60 000

OR

Share capital – ordinary shares – Vroski Ltd Share capital – preference shares – Vroski Ltd Retained earnings – Vroski Ltd Revaluation surplus – Vroski Ltd Goodwill (8 500 + 12 000) Investment in Vroski Ltd (220 000 + 52 000) Non-controlling interests (70 500 + 60 000) Elimination of owners’ equity at acquisition – ordinary and preference shares

100 000 100 000

62 000 120 000

20 500

272 000 130 500

b) Retained earnings – Vroski Ltd (40 000 x 25%) Plant and machinery/Machinery – Swar Ltd Elimination of unrealised profit associated with the sale of machine A Profit on sale of machine/Net income – Vroski Ltd (22 000 – 20 000) Plant and machinery/Machinery – Swar Ltd Elimination of unrealised profit associated with the sale of machine B on 1 March 2012

Dr R

10 000

2 000

Cr R

10 000

2 000

OR

Retained earnings – Vroski Ltd (40 000 x 25%) Profit on sale of machine/Net income – Vroski Ltd (22 000 – 20 000) Plant and machinery/Machinery – Swar Ltd Elimination of unrealised profits associated with the sale of machines A and B

10 000

2 000

12 000

FAC2602/102

107

QUESTION 14 (continued) c) Accumulated depreciation – Swar Ltd Retained earnings – Vroski Ltd Elimination of unrealised depreciation associated with the sale of machine A [(10 000 x 20%) x (9 months/ 12 months)]

1 500

1 500

Accumulated depreciation – Swar Ltd Depreciation – Vroski Ltd Elimination of unrealised depreciation associated with the sale of machine A (10 000 x 20%) for 1 year

2 000

2 000

Accumulated depreciation – Swar Ltd Depreciation – Vroski Ltd Elimination of unrealised depreciation associated with the sale of machine B [(2 000 x 20%) x (6 months / 12 months)]

200

200

d) Dividends received – Swar Ltd (10 000 x 75%) + (8 000 x 40%) Non-controlling interests (10 000 x 25%) + (8 000 x 60%) Ordinary dividend paid – Vroski Ltd Preference dividend paid – Vroski Ltd Elimination of intragroup dividends and recording of non-controlling interests

10 700

7 300

10 000 8 000

Calculations: 1. Analysis of ordinary owners’ equity of Vroski Ltd

Ordinary shares

Total

Swar Ltd 75%

NCI 25%

At Since


R

100 000 62 000

120 000

R

75 000 46 500 90 000

R

R

25 000 15 500 30 000


282 000 8 500

211 500 8 500

70 500 -


108

QUESTION 14 (continued) 2. Analysis of cumulative preference owners’ equity of Vroski Ltd

Total

Swar Ltd 40%

NCI 60%

Preference shares At Since


R 100 000

R 40 000

R

R 60 000


100 000 12 000

40 000 12 000

60 000 -



Study the pro-forma consolidation journal entries thoroughly. Pro-forma consolidation

journal entries assist you to know where amounts in the various statements need to be adjusted.

Remember that the revaluation surplus at acquisition date should also be eliminated when you eliminate the owners’ equity at acquisition.

On consolidation we have to annually repeat all the entries, because we combine the

individual companies' financial statements every year and these statements do not contain the consolidation entries of the previous years. If profit was affected in the previous year, the adjustment will be made against retained earnings in the current year. Therefore the elimination of the unrealised profit on machine A is debited against retained earnings (sold on 1 December 2010), but the profit on machine B is debited against the profit account (sold on 1 March 2012).

FAC2602/102

109

QUESTION 15 SARINA LTD STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2012 R R Cash flow from operating activities Cash receipts from customers (calculation 1) Cash payments to suppliers and employees (calculation 2)

282 499

(235 308)

Cash generated from operations Dividends received Investment income (100 + 2 264 – 150) Interest paid (412 + 7 656 + 2 264 – 508) Dividends paid (calculation 3) Normal tax paid (calculation 4) Purchase of financial assets at fair value through profit or loss: held for trading(14 251 – 12 184 + 2 500) (calculation 6)

47 191 1 213 2 214

(9 824) (11 905) (3 786) (4 567)


(26 821)

20 536

Replacement of plant (calculation 5) (26 821)


Additions to plant (18 000)

Proceeds on sale of plant 989

Net cash used in investing activities (43 832) Cash flow from financing activities Increase in loans [(45 181 + 4 127 + 33 024) – (33 402 + 1 021 + 24 791)] Net cash from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of period

23 118

23 118

(178) 3 011


110


Calculations:

1. Cash receipts from customers


Balance (60 345 –100) Sales

b/d

R 60 245

296 077

Bad debts Bank* Balance (68 387 – 150)

c/f

R 5 586

282 499 68 237

356 322 356 322

* Balancing figure

2. Cash paid to suppliers and employees


Balance – inventory Bank* Balance – payables (45 270 – 508)

b/d c/f

R 32 625

235 308 44 762

Balance – payables (36 033 – 412) Cost of sales Other expenses (103 125 – 18 647 – 2 500 – 5 586) Balance – inventory

b/d c/f

R 35 621

154 027

76 392

46 655

312 695 312 695

* Balancing figure

3. Dividends paid Amounts unpaid at beginning of year Amounts charged to income Amounts unpaid at end of year

R 6 291 11 905

(6 291)

11 905


37 351 9 174

(42 739)

3 786


Balance b/d New – expand (given) New – replacement (balancing) Revaluation (given)

R 208 924

18 000 26 821 16 432

Depreciation (given) Sold (989 – 283) Balance c/f

R 18 647

706 250 824

270 177 270 177

6. Financial assets

Balance b/d New investments (balancing)

R 12 184 4 567

Impairment (given) Balance c/f

R 2 500 14 251

16 751 16 751

FAC2602/102

111



When you are almost finished with a particular question, it is a good idea to look at the

list of balances provided in the question again, to see if there was any movement between years. If there was a movement, remember to include the cash flow effect thereof in your statement of cash flows. For example, in this question you would have noticed that financial assets increased from R12 184 to R14 251. There would have been a net cash outflow to purchase the additional investments. Had you not looked at the given balances, you may have missed these marks.

The question stated that interest receivable and payable was part of the debtors and

creditors balances. These should be eliminated as it is not part of cash received from customers and cash paid to suppliers and employees. Interest received and paid are disclosed separately in the statement of cash flows.

Remember that we are dealing with cash items only. The “other expenses total” used in

the calculation of cash paid to suppliers and employees includes expenses like depreciation and credit losses, which are not cash expenses and should be eliminated.

Remember that for property, plant and equipment, we are working with the carrying

amount, as accumulated depreciation has already been deducted. So remember to include the depreciation in your t-account. Remember to also take the revaluation surplus into consideration.

112

QUESTION 16 a) SPICY LTD GROUP CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 28 FEBRUARY 2013 R Revenue (1 350 000 + 925 000 – 475 000) 1 800 000 Cost of sales (801 000)

Opening inventory [90 000 + 50 000 + 80 000 – (90 000 x 25/125)] 202 000 Purchases (850 000 + 620 000 – 475 000) 995 000

1 197 000 Closing inventory [175 000 + 60 000 + 150 000 + 50 000 – (175 000 x 25/125) – (60 000 x 20% x 50/150)]

(396 000)

Gross profit 999 000 Other income [94 200 – 37 800 (management) – (3 500 x 11 (rental)) – 9 000 (dividends received) – 5 000 (profit on sale of equipment)]

3 900

Other expenses (400 500 + 240 500 + 54 000 (dep) + 24 000 (dep)) (719 000) Net finance costs (6 250)

Interest expense [7 500 – 1 500 (debentures) + 1 350 (bank overdraft)] (7 350) Interest income (14 975 – 1 500 (debentures) – 9 000 – 3 375) 1 100

Profit before tax 277 650 Income tax expense (69 909 + 24 318) (94 227)



Total comprehensive income attributable to: Owners of the parent (183 423 – 5 663) 177 760 Non-controlling interests 5 663

183 423

b) JOURNAL ENTRIES

Dr R

Cr R

Sales – Tangy Ltd 475 000 Cost of sales/Purchases – Spicy Ltd Elimination of intragroup sales

475 000

Cost of sales/Purchases – Tangy Ltd 39 000 Inventory – Spicy Ltd Elimination of unrealised profit included in closing inventory of Spicy Ltd

39 000

Retained earnings – Tangy Ltd 18 000 Cost of sales/Purchases – Tangy Ltd Elimination of unrealised profit included in opening inventory of Spicy Ltd

18 000

Interest received on debentures – Spicy Ltd 1 500 Interest paid on debentures – Tangy Ltd Elimination of intragroup interest on debentures

1 500

FAC2602/102

113

QUESTION 16 (continued) Calculations: 1. Analysis of owners’ equity of Tangy Ltd

Spicy Ltd 60%*

NCI 40%

Total At Since

At acquisition Share capital Retained earnings

R

75 000 35 000

R

45 000 21 000

R

R

30 000 14 000


110 000 14 000

66 000 14 000

44 000 -



27 000

16 200

10 800

Opening balance 1/3/2012 At acquisition Unrealised profit in opening inventory – atchars & chutney (90 000 x 25/125)

80 000 (35 000)

(18 000)


14 157

8 494

5 663

Calculation 2 Unrealised profit in opening inventory – Atchars & chutney Unrealised profit in closing inventory – Atchars & chutney (175 000 x 25/125) Unrealised profit in closing inventory – Jams & syrups (60 000 x 20% x 50/150)

35 157

18 000

(35 000)

(4 000)

Ordinary dividend (15 000) (9 000) (6 000)

150 157 15 694 54 463

*90 000 shares / 150 000 shares = 60%

114

QUESTION 16 (continued) 2. Profit of Tangy Ltd

Sales Cost of sales

R 925 000

(500 000)

Opening inventory Purchases Closing inventory (150 000 + 50 000)

80 000 620 000

(200 000)

Gross profit Management fee Rental paid Other expenses Depreciation (calculation 3) Interest paid - debentures

- bank overdraft - loan (calculation 4)

425 000 (37 800) (42 000)

(240 500) (24 000) (7 500) (1 350)

(12 375)

Income tax expense

59 475 (24 318)

Profit for the year 35 157

3. Depreciation – Tangy Ltd

[175 000 – 55 000 (asset bought on 28 February 2013)] x 20% 24 000

4. Interest paid on loan from Spicy Ltd

Interest on loan of R50 000 – (50 000 x 9% x 9 months) 3 375 Interest on loan of R100 000 – given 9 000

Total interest on both loans 12 375

5. Interest received by Spicy Ltd

Interest received on loan 1 to Tangy Ltd (100 000 x 9%) 9 000 Interest received on loan 2 to Tangy Ltd (50 000 x 9% x 9 months) 3 375

Total interest on both loans 12 375 Interest received on debentures (1 000/5 000 x 75 000 x 10%) 1 500

Therefore, total interest received by Spicy Ltd from Tangy Ltd 13 875 Interest received from bank (balancing figure) 1 100

Total interest received (given) 14 975

6. Other income received by Spicy Ltd

Management fee received (3 000 x 1,05 x 12) 37 800 Profit on sale of asset 5 000 Rental income received (3 500 x 11) 38 500 Dividends received (15 000 x 60%) 9 000

Total other income received from Tangy Ltd 90 300 Profit on sale of assets to outsiders (Savoury Ltd) (balancing figure) 3 900

Total other income 94 200

FAC2602/102

115

QUESTION 17 a) MALI LTD GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT AS 31 MARCH 2013 ASSETS Non-current assets

R

Property, plant and equipment (600 000 + 600 000 + 1 300 000 + 1 200 000 + 600 000 + 760 000 – 390 000 – 360 000 – 15 000 + 2 250 + 6 000) Goodwill

4 303 250

14 000

Current assets

4 317 250

Trade and other receivables [580 000 + 512 000 – (40 000 x 70%)] Inventory (155 000 + 473 000) Cash and cash equivalents (183 000 + 256 100)

1 064 000 628 000 439 100

Total assets

2 131 100

6 448 350


Equity attributable to owners of the parent Share capital Other components of equity (660 000 + 248 500) Retained earnings (398 400 + 137 375)

1 000 000 908 500 535 775

Non-controlling interest

2 444 275 399 375

Total equity Non-current liabilities Long-term borrowings (940 000 + 1 450 000) Current liabilities

2 843 650

2 390 000

Trade and other payables (509 600 + 613 100) Dividends payable [80 000 + (40 000 x 30%)]

1 122 700 92 000


1 214 700

3 604 700

6 448 350

116


Additional explanation to understand the question: The dividends are declared by the subsidiary on 31 March 2013, but not yet paid. The pro-forma consolidation journal entries for dividends are:

Dr R

Cr R

Dividends received – Mali Ltd (40 000 x 70%) 28 000 Non-controlling interests (40 000 x 30%) 12 000 Dividends paid – Bongwe Ltd (4c x 1 000 000) 40 000 Elimination of intragroup dividend

Dividends payable – Bongwe Ltd 28 000 Trade and other receivable – Mali Ltd 28 000 Elimination of common items

In the subsidiary’s financial records this dividend payable is still a liability of R28 000 and for the parent it is a receivable asset. Therefore the intragroup dividend payable of R28 000 should be eliminated by deducting it from Bongwe Ltd’s dividends payable and Mali Ltd’s trade and other receivables (as there is no current account against which to set it off).

b) Pro-forma consolidated journal entries

Dr R

Cr R

Share capital Retained earnings Revaluation surplus Goodwill Investment in Bongwe Ltd Non-controlling interests Elimination of owners equity at acquisition – ordinary shares

500 000 85 000

195 000 14 000

560 000 234 000

Retained earnings – Bongwe Ltd Machinery – Mali Ltd Elimination of unrealised intragroup profit on sale of machinery

15 000

15 000

Accumulated depreciation – Mali Ltd Retained earnings – Bongwe Ltd Elimination of the depreciation associated with the sale of machinery

8 250

8 250

FAC2602/102

117

QUESTION 17 (continued) Calculations: 1. Analysis of owners’ equity of Bongwe Ltd

Ordinary shares

Total

Mali Ltd 70%* NCI 30% At Since

At acquisition Share capital Retained earnings Revaluation surplus (80 000 + 115 000)

R

500 000 85 000

195 000

R

350 000 59 500

136 500

R

R

150 000 25 500 58 500


780 000 14 000

546 000 14 000

234 000 -


Since acquisition To end of current year Retained earnings

196 250

137 375

58 875

Given At acquisition

288 000 (85 000)

Profit on sale of machinery (75 000 – 60 000) Depreciation (2 250 + 6 000) [15 000 / 5 years x 9 months] [15 000 / 5 years x 2 years]

203 000 (15 000)

8 250

Revaluation surplus – calculation 2

355 000

248 500

106 500

1 345 250 385 875 399 375

* 000 1000

000 700 is a 70% interest

2. Revaluation surplus

At acquisition

(1 April 2007)

Since acquisition

(1 April 2010)

Land 80 000 70 000 (600 000 – 450 000 – 80 000) Buildings 115 000 285 000 (1 200 000 – 800 000 – 115 000)

Total 195 000 355 000

Additional explanation to understand the question: The dividend declared on 31 March 2013 is not subtracted seperately in the analysis of owners’ equity of Bongwe Ltd, as the dividends are already subtracted from the closing balance of retained earnings provided on 31 March 2013 (closing balance given in the question amounting to R288 000). When a question gives an opening balance for retained earnings and additional income and expense accounts that still needs to be accounted for in retained earnings, then the dividends should still be accounted for and subtracted seperately.

118

QUESTION 18 HOPE LTD STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2012 R R Cash flow from operating activities Cash receipts from customers (calulation 1) Cash paid to suppliers and employees (calculation 2)

1 800 000 (1 568 000)

Cash generated from operations Dividends received Dividends paid (2 500 + 50 000 – 3 000) Finance costs Normal tax paid (59 500 – 34 500) Increase in financial assets at fair value through profit or loss: held for trading (25 625 – 20 000)

232 000 6 875

(49 500) (37 500) (25 000) (5 625)

Net cash inflow from operating activities Cash flow from investing activities

121 250

Acquisitions of property, plant and equipment (360 000)

Investment to maintain production capacity Investment to expand production capacity (131 250 + 203 750)

(25 000) (335 000)

Purchase of patent (13 750)

Net cash used in investing activities Cash flow from financing activities

(373 750)

Proceeds from issue of shares (400 000 – 187 500) Proceeds from long-term borrowings (125 000 – 93 750) Repayment of long-term borrowings (200 000 – 187 500)

212 500 31 250

(12 500)

Net cash inflow from financing activities 231 250

Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year (12 500 – 10 000)

(21 250) 2 500

Cash and cash equivalents at end of year (6 250 – 25 000) (18 750)

FAC2602/102

119

QUESTION 18 (continued) Calculations: 1. Cash receipts from customers


Balance Sales

b/d

R 187 500

1 875 000

Bank* Balance (267 500 – 5 000)

c/f

R 1 800 000

262 500

2 062 500 2 062 500

* Balancing figure 2. Cash paid to suppliers and employees


Balance – inventory Bank* Balance – payables (128 750 – 3 000)

b/d c/f

R 175 000

1 568 000 125 750

Balance – payables (88 750 – 2 500) Cost of sales Other expenses [375 000 – 53 750 (dep) – 6 250 (scrap)] Balance – inventory Balance – prepaid expenses

b/d c/f c/f

R 86 250

1 250 000

315 000

212 500 5 000

1 868 750 1 868 750

* Balancing figure 3. Dividends paid Amounts unpaid at beginning of year Amounts charged to income Amounts unpaid at end of year

R 2 500

50 000 (3 000)

49 500


- 59 500

(34 500)

25 000

120

QUESTION 19 DIAMOND LTD GROUP CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 28 FEBRUARY 2006 R Profit before tax (30 700 + 29 000) 59 700 Income tax expense (10 500 + 10 000) (20 500)



Total comprehensive income attributable to: Owners of the parent (39 200 – 4 750)

34 450 Non-controlling interests 4 750

39 200

DIAMOND LTD GROUP CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 28 FEBRUARY 2006

Share capital

Revalua-tion

surplus

Retained earnings

Total


Total equity

R R R R R R

Balance 1 March 2005 150 000 21 200 45 750 (a) 216 950 48 500 (b) 265 450 Changes in equity for 2006 Total comprehensive income for the year

Profit for the year 34 450 34 450 4 750 39 200 Dividend paid: ordinary (9 000) (9 000) (2 000) (11 000)

Balance 28 February 2006 150 000 21 200 71 200 242 400 51 250 293 650

(a) (31 500 + 14 250) (b) (43 750 + 4 750)

FAC2602/102

121

QUESTION 19 (continued) DIAMOND LTD GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 28 FEBRUARY 2006 ASSETS R Non-current assets Property, plant and equipment [(31 500 + 90 000) + 10 000] 131 500 Goodwill 28 750

Current assets

160 250

Inventory (500 + 112 000) 112 500 Trade and other receivables 65 000 Cash and cash equivalents 153 500

Total assets

331 000

491 250

EQUITY AND LIABILITIES Equity attributable to owners of the parent Share capital 150 000 Other components of equity 21 200 Retained earnings 71 200

Non-controlling interests (43 750 + 4 750 + 4 750 – 2 000)

242 400 51 250

Total equity Current liabilities

293 650

Trade and other payables (125 600 + 23 750) 149 350 Bank overdraft 48 250


Total equity and liabilities 491 250

122

QUESTION 19 (continued) Calculations: Analysis of owners’ equity of Pearl Ltd

Ordinary shares

Total

Diamond Ltd 75%

NCI 25% At Since

At acquisition Ordinary share capital Retained earnings

R 160 000 15 000

R 120 000

11 250

R

R 40 000

3 750


175 000 28 750

131 250 28 750

43 750 -

Consideration and NCI Since acquisition To beginning of current year Retained earnings (34 000 – 15 000) Current year Profit for the year (29 000 – 10 000) Ordinary dividends

203 750

19 000

19 000 (8 000)

160 000

14 250

14 250 (6 000)

43 750

4 750

4 750 (2 000)

233 750 22 500 51 250

* 00080

00060 is a 75% interest

Additional explanation to understand the question: Please note that the analysis contains three different periods, namely at acquisition, since acquisition to beginning of current year and current year. The reason is that you are required to do the statement of financial position, the statement of profit or loss and other comprehensive income and the statement of changes in equity of the group. The current year figures help you to do the statement of profit or loss and other comprehensive income, as you need to disclose the profit attributable to the non-controlling interests. You also need this split to complete the non-controlling interests – column in the statement of changes in equity.

FAC2602/102

123

QUESTION 20 LION LTD GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT AS 31 DECEMBER 2001 a) ASSETS R Non-current assets Property, plant and equipment (400 000 + 500 000) 900 000 Goodwill 13 000

Current assets

913 000

Trade and other receivables (35 000 + 56 000) 91 000 Inventory (60 000 + 84 000 + 12 000 – 16 000) 140 000

231 000



Equity attributable to owners of the parent Share capital 200 000 Other components of equity 220 000 Retained earnings (calculation 2) 298 250


718 250 104 000


822 250

Trade and other payables (201 000 + 116 000) 317 000 Dividends payable (4 000 + 750) 4 750



Additional explanation to understand the question: The R750 included in dividends payable represents the non-controlling interests percentage of the dividends payable by the subsidiary, as the group still owes this percentage of the dividends to the non-controlling shareholders. The rest of the dividends payable by the subsidiary, are payable to the parent and therefor this intragroup dividends should be eliminated. The pro-forma consolidated journal entry to make provision for the dividend payable to the non-controlling owners, is: Dr Cr R R Non-controlling interests 750 Dividends payable 750

124

QUESTION 20 (continued) b) Pro forma consolidation journal entry Dr

R Cr R

Retained earnings – Lion Ltd (60 000 x 20/120) 10 000 Cost of sales – Lion Ltd 10 000 Elimination of unrealised profit in opening inventory of Puma Ltd

Cost of sales – Lion Ltd [(84 000 + 12 000) x 20/120] 16 000 Inventory – Puma Ltd 16 000 Elimination of unrealised profit in closing inventory of Puma Ltd

Calculations: 1. Analysis of owners’ equity of Puma Ltd

* 000 30

500 22 is a 75% interest.

Ordinary shares

Total

Lion Ltd 75%*

NCI 25%

At

Since


R

150 000 106 000 100 000

R

112 500 79 500 75 000

R R

37 500 26 500 25 000


356 000 13 000

267 000 13 000

89 000 -

Consideration and NCI Since acquisition To end of current year

369 000 280 000 89 000

Retained earnings 63 000 47 250 15 750

Given 174 000 At acquisition (106 000)

68 000 Interest (5 000)

Dividends (30 000 x 10c) (3 000) (2 250) (750)

429 000 45 000 104 000

FAC2602/102

125

QUESTION 20 (continued) 2. Retained earnings

Lion Ltd

R 251 000

Given Interest receivable Dividends declared (40 000 x 10c) Unrealised profit in closing inventory

[(84 000 + 12 000) x 120

20]

266 000 5 000

(4 000) (16 000)

Puma Ltd 47 250

298 250

126

QUESTION 21 KANSAS LTD GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 28 FEBRUARY 2007 ASSETS Calculations R Non-current assets Property, plant and equipment 2 908 000 Goodwill 1 12 000

Current assets

920 000

Inventories (100 000 + 140 000) 240 000 Trade and other receivables (10 000 + 48 000) 58 000 Cash and cash equivalents (80 000 – 70 000 + 20 000) 30 000

328 000


EQUITY AND LIABILITIES Equity attributable to owners of the parent Share capital 400 000 Other components of equity 100 000 Retained earnings 3 249 000

749 000 Non-controlling interests 1 81 000

Total equity 830 000

Non-current liabilities

Long-term borrowings (180 000 + 164 000) 344 000 Current liabilities Trade and other payables (52 000 + 22 000) 74 000



FAC2602/102

127

QUESTION 21 (continued) Calculations: 1. Analysis of owners’ equity of New York Ltd

Ordinary shares

Total

Kansas Ltd 75% NCI 25% At Since

At acquisition Share capital Retained earnings Revaluation surplus (200 000 – 140 000)

R 100 000 64 000 60 000

R 75 000 48 000 45 000

R R 25 000 16 000 15 000


224 000 12 000

168 000 12 000

56 000 -


Since acquisition To end of current year Retained earnings (164 000 – 64 000)

100 000

75 000

25 000

336 000 75 000 81 000

* 000 50

500 37 is a 75% interest

Additional explanations to understand the question: According to additional information 4 in the question, the two companies declared and paid the dividends. The closing balance of retained earnings is also provided. This means the dividends have already been deducted from the retained earnings and do not appear in the analysis separately.

2. Property, plant and equipment R

Property Kansas Ltd New York Ltd (140 000 + 60 000 revaluation) Plant Kansas Ltd New York Ltd (152 000 – 20 000 profit + 2 000 depreciation)

450 000 200 000

124 000 134 000

908 000

3. Retained earnings

Kansas Ltd Profit on sale of machine Depreciation adjustment (20 000 x 6/12 x 20%) New York Ltd

192 000 (20 000)

2 000 75 000

249 000

128

QUESTION 21 (continued) 4. Pro-forma consolidated journal entries

Dr Cr Retained earnings – Kansas Ltd Plant – New York Ltd Elimination of intragroup profit on sale of plant

R 20 000

R 20 000

Accumulated depreciation – New York Ltd Depreciation – Kansas Ltd Reversal of depreciation charged on intragroup profit

2 000

2 000

FAC2602/102

129

QUESTION 22 a) PINK LTD GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2009 Calculations R ASSETS Non-current assets

Property, plant and equipment Goodwill

3 1

714 000 6 000

Current assets

720 000

Inventories [120 000 + 60 000 – (60 000 x 20/120)] Trade and other receivables (56 000 + 22 000) Cash and cash equivalents

170 000 78 000 40 000

Total assets

288 000

1 008 000


Equity attributable to owners of the parent Share capital (515 000 + 100 000) Other components of equity Retained earnings

4

615 000 10 000

194 600

Non-controlling interests (47 400 + 6 000)

1 + 2

819 600 53 400


873 000

Trade and other payables (52 000 + 30 000) Bank overdraft Dividends payable [(25 000 + 4 000 (20 000 x 20%)]

82 000 24 000 29 000


135 000

1 008 000

130

QUESTION 22 (continued) Calculations: 1. Analysis of owners’ equity of Panther Ltd

Total

Pink Ltd 80%

NCI 20% Ordinary shares

At Since

At acquisition Share capital Retained earnings Revaluation surplus (180 000 – 160 000)

R 105 000 75 000 20 000

R 84 000 60 000 16 000

R

R 21 000 15 000

4 000


200 000 6 000

160 000 6 000

40 000 -



37 000

29 600

7 400

Since acquisition (126 000 – 75 000) Profit on sale of equipment (10/110 x 220 000) Depreciation adjustment (10% x 20 000 x 3 years)

51 000 (20 000)

6 000

243 000 29 600 47 400

* 000 200

000 160 is an 80% interest.

2. Analysis of owners’ equity of Panther Ltd

Preference shares

Total

Pink Ltd 40%

NCI 60%

At Since

Share capital Purchase difference

R 10 000

-

R 4 000

-

R

R 6 000

-


* 000 10

000 4 is a 40% interest.

FAC2602/102

131

QUESTION 22 (continued) 3. Property, plant and equipment R Land and buildings (330 000 + 160 000 + 20 000) 510 000 Equipment - at cost (220 000 – 20 000 + 110 000) 310 000 - accumulated depreciation (90 000 – 6 000 + 22 000) (106 000)

714 000

4. Retained earnings

Pink Ltd - per trial balance 175 000 - unrealised profit in closing inventories (20/120 x 60 000) (10 000) Panther Ltd - per analysis 29 600

194 600

b) Pro-forma consolidated journal entries

Dr

Cr

Cost of sales – Pink Ltd Inventory – Panther Ltd Elimination of unrealised profits in closing inventory of Panther Ltd

R 10 000

R

10 000

Retained earnings – Pink Ltd (84 000 x 20/120) Cost of sales – Pink Ltd Elimination of unrealised profits in opening inventory of Panther Ltd

14 000

14 000

132

QUESTION 23 A LTD GROUP CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2009 Profit before tax (Calculation 1) Income tax expense (108 000 + 120 000)

R 660 000

(228 000)



Total comprehensive income attributable to: Owners of the parent (432 000 – 60 000) 372 000 Non-controlling interests 60 000

432 000

FAC2602/102

133

QUESTION 23 (continued) CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2009

Share capital

Retained earnings

Total


Total

equity Balance at 1 Jan 2009 Changes in equity for 2009 Total comprehensive income for the year Profit for the year Dividend paid: Ordinary

R 300 000

R #261 000

372 000 (108 000)

R 561 000

372 000 (108 000)

R 84 000

60 000 (24 000)

R 645 000

432 000 (132 000)

Balance at 31 Dec 2009 300 000 525 000 825 000 120 000 945 000

# 225 000 + 36 000 Calculations: 1. Profit before tax R A Ltd 270 000 B Ltd 420 000 Unrealised profit in closing inventory (50/150 x 90 000) (30 000)

660 000

2. Analysis of owners’ equity of B Ltd

Ordinary shares A Ltd 80%

Total At Since NCI 20%

At acquisition Share capital Retained earnings

R

240 000 135 000

R

192 000 108 000

R

R

48 000 27 000


375 000 30 000

300 000 30 000

75 000 -



45 000

36 000

9 000

Beginning of year At acquisition

180 000 (135 000)

Current year Profit for the year Dividend paid

300 000 (120 000)

240 000 (96 000)

60 000 (24 000)

630 000 180 000 120 000

134

QUESTION 24 BRAVO LTD GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2005 ASSETS Non-current assets

R

Property, plant and equipment [(750 000 + 400 000) + (680 000 + 370 000)] + [(500 000 + 240 000 – 25 000) – (160 000 + 50 000 – 7 000)] Goodwill (74 000 + 21 250)

2 712 000

95 250

Current assets

2 807 250

Inventory [(170 000 + 150 000) – (150 000 x 20/120)] Trade and other receivables (220 000 + 260 000)

295 000 480 000

Total assets

775 000

3 582 250

EQUITY AND LIABILITIES Equity attributable to owners of the parent Share capital Other components of equity Retained earnings (1 816 750 – 25 000 + 134 400)

900 000 40 000

1 926 150

Non-controlling interests (187 600 + 56 250)

2 866 150 243 850

Total equity

3 110 000

Non-current liabilities 9% Debentures (100 000 – 50 000) Current liabilities

50 000

Trade and other payables [(220 000 + 140 000) + (25 000 – 20 000)] Bank overdraft [60 000 – (30 000 + 10 000)] Dividends payable [28 500 + (10 000 x 20%) + (9 000 x 75%)]

365 000 20 000 37 250


422 250

472 250

3 582 250

FAC2602/102

135

QUESTION 24 (continued) Calculations: 1. Analysis of owners’ equity of Charlie Ltd

Ordinary shares

Total

Bravo Ltd 80%

NCI 20%

At

Since

At acquisition Share capital Revaluation surplus (350 000 – 250 000) Retained earnings

R 500 000 100 000 120 000

R 400 000

80 000 96 000

R R 100 000

20 000 24 000


720 000 74 000

576 000 74 000

144 000 -



168 000

134 400

33 600

Given (306 000 – 120 000) Intragroup profit – machinery Depreciation – machinery

186 000 (25 000)

7 000

Revaluation surplus (400 000 – 350 000) or (150 000 – 100 000)

50 000

40 000

10 000

1 012 000

40 000 134 400

OCE RE

187 600

Cumulative preference shares

Total

Bravo Ltd 25%

NCI 75%

At

Since


R 75 000

R 18 750

R

R 56 250


75 000 21 250

18 750 21 250

56 250 -


Since acquisition To end of current year Profit attributable to preference shares Preference dividend paid

27 000

(27 000)

6 750

(6 750)

20 250

(20 250)

96 250 - 56 250

136

QUESTION 24 (continued) 2. Depreciation Profit on sale of machine Depreciation – 1/1/2004 – 30/6/2004 (25 000 x 20% x 6/12)

R 25 000 (2 500)

Carrying amount – 30/6/2004 Depreciation – 1/7/2004 – 30/6/2005 (22 500 x 20%)

22 500 (4 500)

18 000

Depreciation up to 30 June 2005 for which an adjustment has to be made 7 000

(2 500 + 4 500)

FAC2602/102

137

QUESTION 25 a) LIPTON LTD GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2000 ASSETS Non-current assets

R

Property, plant and equipment Land and buildings at valuation (210 000 + 150 000 + 10 0002) Plant at carrying amount (110 000 + 148 000 – 20 000 + 4 000) Goodwill

370 000 242 000

4 000

Current assets

616 000

Inventories (95 000 + 83 000 – 19 000) Trade and other receivables (30 000 + 12 000)

159 000 42 000

Total assets

201 000

817 000

EQUITY AND LIABILITIES Equity attributable to owners of the parent Share capital Retained earnings

430 000 121 500


551 500 27 500

Total equity

579 000

Non-current liabilities Long-term borrowings (45 000 + 23 000) Current liabilities Trade and other payables (100 000 + 70 000)

68 000

170 000


238 000

817 000

138

QUESTION 25 (continued) LIPTON LTD GROUP CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2000 Revenue (400 000 + 255 000 – 200 000) Cost of sales (248 000 + 153 000 – 200 000 – 12 000 + 19 000)

R 455 000

(208 000)

Gross profit Other income (8 000 – 4 500) Administrative expenses (40 000 + 24 000 + 20 000 + 8 000 – 2 000) Finance cost (20 000 + 10 000)

247 000 3 500

(90 000) (30 000)

Profit before tax Income tax expense (40 000 + 30 000)

130 500 (70 000)



Total comprehensive income attributable to: Owners of the parent (60 500 – 2 500) Non-controlling interests (Calculation 1)

58 000 2 500

60 500

LIPTON LTD GROUP NOTES FOR THE YEAR ENDED 30 JUNE 2000

1. Profit before tax Included in profit before tax are the following items:

R

Income Dividends received

3 500

Expenses Depreciation (20 000 + 8 000 – 2 000)

26 000

LIPTON LTD GROUP CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2000

Ordinary Share capital

Retained earnings

Total


Total equity

Balance at 1 July 1999 Changes in equity for 2000 Total comprehensive income for the year Profit for the year Dividend paid: Ordinary

R

430 000

R

71 500*

58 000 (8 000)

R

501 500

58 000 (8 000)

R

25 500

2 500 (500)

R

527 000

60 500 (8 500)

Balance at 30 June 2000 430 000 121 500 551 500 27 500 579 000

* 58 000 + 13 500

FAC2602/102

139

QUESTION 25 (continued) Calculations: 1. Analysis of owners’ equity of Glen Ltd

Ordinary shares

Total

Lipton Ltd 90% NCI 10% At Since

At acquisition Share capital Revaluation surplus Retained earnings

R

200 000 10 0002 30 000

R

180 000 9 0001

27 000

R

R

20 000 1 000 3 000


240 000 4 000

216 000 4 000

24 000 -


Since acquisition To beginning of current year Retained earnings (1/1/1996 – 30/6/1999)

15 000

13 500

1 500

Retained earnings beginning of year Retained earnings at acquisition Unrealised profit in machinery Depreciation 1999 Unrealised profit in opening inventories

75 000 (30 000) (20 000) 2 0003 (12 0004)


25 000

22 500

2 500

Profit Unrealised profit in opening inventories Unrealised profit in closing inventories Depreciation 2000

30 000 12 0004 (19 0005) 2 0003

Dividends

(5 000)

(4 500)

(500)

279 000 31 500 27 500

References 1 – 5 appear on next page.

140

QUESTION 25 (continued) 1 Goodwill = 4 000 (given) Cost of investment = 220 000 (given) 90% at acquisition = 220 000 – 4 000 = 216 000 216 000 – 180 000 (share capital) – 27 000 (retained earnings) = 9 000 (90%)

2 90%

000 9 = 10 000 revaluation surplus

3 20 000 x 10% 4 60 000 x 25/125 5 95 000 x 25/125 b) Pro-forma consolidated journal entries

Dr

Cr Retained earnings – Glen Ltd Cost of sales – Glen Ltd Elimination of unrealised intragroup profit included in opening inventory of Lipton Ltd (60 000 x 25/125)

R 12 000

R

12 000

Retained earnings – Glen Ltd Machinery – Lipton Ltd Elimination of intragroup profit of Glen Ltd’s sale of machine to Lipton Ltd

20 000

20 000

Cost of sales – Glen Ltd Inventory – Lipton Ltd Elimination of unrealised intragroup profit included in closing inventory of Lipton Ltd (95 000 x 25/125)

19 000

19 000

Accumulated depreciation – Lipton Ltd Depreciation – Glen Ltd Retained earnings – Glen Ltd Reversal of depreciation charged on intragroup profit

4 000

2 000 2 000

FAC2602/102

141

QUESTION 26 MILESTONE LTD STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 28 FEBRUARY 2001

Cash flow from operating activities Cash receipts from customers (calculation 1) Cash paid to suppliers and employees (calculation 2)

R

1 157 500 (887 000)

R

Cash generated from operations Interest paid Dividends paid (calculation 3) Normal tax paid (calculation 4) Purchase of financial assets at fair value through profit or loss: held for trading (198 000 – 15 000)

270 500 (23 000)

(20 000) (83 000)

(183 000)


(500 000)

(38 500)

Replacement of property, plant and equipment (calculation 5) (500 000)


Additions to property, plant and equipment (calculation 5) (375 000)

Proceeds from sale of property, plant and equipment (180 000 + 30 000) 210 000

Net cash outflow from investing activities Cash flow from financing activities Proceeds on issue of shares Redemption of debentures Repayment of long-term borrowings (50 000 – 40 000)

550 000 (70 000) (10 000)

(665 000)


Net decrease in cash and cash equivalents Cash and cash equivalents beginning of year

(233 500)

55 000

Cash and cash equivalents end of year (178 500)

Calculations: 1. Cash received from customers


Balance b/d Sales

R 250 000

1 100 000

Bank* Balance c/f

R 1 157 500

192 500

1 350 000 1 350 000

* Balancing figure

142

QUESTION 26 (continued) 2. Cash payments to suppliers and employees


Balance – inventory b/d Balance – prepaid expenses b/d Bank* Balance – payables c/f

R 69 000

4 000 887 000

25 000

Balance – payables b/d Cost of sales Distribution expenses Directors’ remuneration Administrative expenses Auditors’ remuneration Balance – inventory c/f Balance – prepaid expenses c/f

R 41 000

400 000 150 000 50 000

100 000 60 000

182 000 2 000

985 000 985 000

* Balancing figure 3. Dividends paid

Unpaid amounts at beginning of year Amounts debited against profit (additional information 1.3 and calculation 6 – 1 000 000 shares x 5c) Unpaid amounts at end of year

R 20 000 50 000

(50 000)

20 000

4. Tax paid Unpaid amounts at beginning of year Amounts debited against profit Unpaid amounts at end of year

34 000 63 000

(14 000)

83 000

5. Property, plant and equipment at carrying amount

Balance b/d Revaluation Replacement Additions*

R 700 000 200 000 500 000 375 000

Sales at carrying amount Depreciation Balance c/f

R 180 000 195 000

1 400 000

1 775 000 1 775 000

*75 000 + 800 000 – 500 000 6. Ordinary share capital

Balance c/f

R 1 000 000

Balance (400 000 shares) b/d New issue (500 000 shares) Rights issue [(400 000 + 500 000) ÷ 9 = 100 000]

R 410 000 550 000

40 000

1 000 000 1 000 000

FAC2602/102

143

QUESTION 27 ABC LTD STATEMENT OF CASH FLOW FOR THE YEAR ENDED 30 APRIL 2009 R R Cash flow from operating activities Profit before tax Adjustments for: Depreciation Profit on sale of property (460 000 – 400 000) Loss on sale of plant Investment income

319 000

60 000

(60 000) 12 000 (4 500)

Changes in working capital

326 500 (76 000)

Increase in inventory (86 000 – 44 000) Increase in receivables (145 000 – 88 000) Increase in payables (93 000 – 70 000)

(42 000) (57 000) 23 000

Cash generated from operations Income from investments Dividends paid Normal taxation paid Additions to financial assets at fair value through profit or loss: held for trading (56 000 – 36 000)

250 500 4 500

(100 000) (3 000)

(20 000)

Net cash inflow from operating activities Cash flow from investing activities Investment to maintain production capacity

(300 000)

132 000

Replacement of plant Investment to expand production capacity Additions to plant Additions to land and buildings Additions to furniture

(300 000) (1 300 000)

(420 000) (650 000) (230 000)

Proceeds on sale of land and buildings Proceeds on sale of plant (300 000 – 12 000)

460 000 288 000

Net cash outflow from investing activities Cash flow from financing activities Proceeds from issue of shares Increase in long-term borrowings (850 000 – 600 000)

200 000 250 000

(852 000)


Net decrease in cash and cash equivalents Cash and cash equivalents beginning of year

(270 000) 46 000

Cash and cash equivalents end of year (224 000)

144

QUESTION 27 (continued) Calculations: 1. Profit before tax Profit (given) Income tax expense

R 319 000 (89 000)

Profit for the year 230 000

Retained earnings beginning of year Profit for the year (balancing) Dividends (20 000 + 40 000)

460 000 230 000 (60 000)

Retained earnings end of the year 630 000

2. Dividends paid Amounts unpaid at beginning of year Amounts charged to income (20 000 + 40 000) Amounts unpaid at end of year

240 000 60 000

(200 000)

100 000


144 000 89 000

(230 000)

3 000

4. Land and buildings

Balance b/d New – expand Revaluation (200 000 –150 000)

R 1 100 000 650 000

50 000

Sold Balance c/f

R 400 000

1 400 000

1 800 000 1 800 000

5. Plant at cost

Balance b/d New – expand New – replace (balancing)

R 800 000 420 000 300 000

Sold Balance c/f

R 320 000

1 200 000

1 520 000 1 520 000

6. Furniture at cost

Balance b/d New – expand (balancing)

R 450 000 230 000

Balance c/f

R 680 000

680 000 680 000

FAC2602/102

145

QUESTION 27 (continued) 7. Accumulated depreciation – plant

Sold (320 000 – 300 000) Balance c/f

R 20 000

56 000

Balance b/d Depreciation (balancing)

R 34 000 42 000

76 000 76 000

8. Accumulated depreciation – furniture

Balance c/f

R 84 000

Balance b/d Depreciation (balancing)

R 66 000 18 000

84 000 84 000

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Tutorial Letter 101/3/2012 · FAC2602/102 3 1 GENERAL Dear Student, This tutorial letter contains...

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