ACCF372

STUDY UNIT 12: Consolidation process of

subsidiary

QUESTION PACK
Copyright © 2024 edition. Review date 2024.
North-West University

No part of this document may be reproduced in any form or in any way without the written permission of the publishers.
 INDEX OF QUESTIONS
Question MA Study unit (Primary) Required L
1: Honky (Pty) 45 SU 12: Group Statements- Consolidation Calculations 1
Ltd Group process of subsidiary (IAS 27 & IFRS 10) Journals
Disclosure
2: Pops Ltd 20 SU 12: Group Statements- Consolidation Calculations 2
Group process of subsidiary (IAS 27 & IFRS 10) Journals
3: Lilly Ltd 32 SU 12: Group Statements- Consolidation Calculations 2
Group process of subsidiary (IAS 27 & IFRS 10) Journals
Disclosure
4: Kgotso Ltd 47 SU 12: Group Statements- Consolidation Calculations 2
Group process of subsidiary (IAS 27 & IFRS 10) Disclosure
5: Peacock Ltd 28 SU 12: Group Statements- Consolidation Calculations 2
Group process of subsidiary (IAS 27 & IFRS 10) Journals
Disclosure
6: G-Smith Ltd 45 SU 12: Group Statements- Consolidation Calculations 2
Group process of subsidiary (IAS 27 & IFRS 10) Journals
Disclosure
7: Wolf-Ltd 49.5 SU 12: Group Statements- Consolidation Calculations 2
Group process of subsidiary (IAS 27 & IFRS 10) Journals
Disclosure

DISCLAIMER: Please note that these questions are not to provide you with any scope for the
test and / or exams. It is merely for practice purposes to give you an opportunity to evaluate
your test and / or exam readiness before writing the actual tests and / or exams. You should
therefore still study every principle in each study unit, even if it is not included in any of the
test and / or exam question packs.
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QUESTION 1 (45 Marks)

Honky (Pty) Ltd (“Honky”) is a well-known company situated in the Western Cape Province. Honky
manufactures and sells wooden furniture and has made quite an impression on its customers due to the
outstanding quality of their furniture. One of Honky’s suppliers recently closed their doors due to the
Covid-19 pandemic and it made it difficult for Honky to get hold of certain of the materials that they make
use of. Honky heard of a supplier, Dory (Pty) Ltd (“Dory”), who is situated in the Mpumalanga Province.
Despite the distance, Honky decided to acquire an interest in Dory to assure that Honky would always
be provided with the material that they need.
Both Honky and Dory has a 28 February year end.
You are presented with the following abridged financial statements of the two related companies:
STATEMENT OF FINANCIAL POSITION Honky (Pty) Dory (Pty)
AS AT 28 FEBRUARY 2021 Ltd Ltd
R R

ASSETS
Non-current assets
Property plant and equipment 802 700 310 500
Investment in Dory (Pty) Ltd (150 000 shares at cost) 260 000 -
Loan to Dory (Pty) Ltd 80 000 -

Current assets
Inventory 114 000 111 000
Trade and other debtors 69 800 70 000
Current Account – Dory (Pty) Ltd 4 500 -
Palm Bank Ltd 310 900 -
TOTAL ASSETS 1 641 900 491 500

EQUITY AND LIABILITIES

Share capital and reserves
Share capital: Ordinary shares @ R1 each 1 015 000 200 000
General reserve 133 000 12 000
Retained earnings 413 900 135 000

Non-current liabilities
Loan from Honky (Pty) Ltd - 80 000

Current liabilities
Trade and other creditors 50 000 50 000
Current account – Honky (Pty) Ltd - 4 500
Shareholders for dividends 30 000 10 000
TOTAL EQUITY AND LIABILITIES 1 641 900 491 500

ACCF 221 2021 FIRST OPPORTUNITY 2/9

 STATEMENT OF PROFIT OR LOSS AND OTHER Honky (Pty) Dory (Pty)
COMPREHENSIVE INCOME FOR THE YEAR ENDED Ltd Ltd
28 FEBRUARY 2021 R R

Sales 725 900 249 700

Cost of sales (326 600) (199 760)
Gross profit 399 300 49 940
Other income 43 250 11 250
Other expenses (340 800) (24 050)
Profit before tax and finance charges 101 750 37 140
Finance charges (5 500) (4 000)
Profit before tax 96 250 33 140
Income tax expense (26 950) (9 279)
Profit for the year 69 300 23 861
Other comprehensive income - -
Total comprehensive income for the year 69 300 23 861

STATEMENT OF CHANGES IN Honky (Pty) Ltd Dory (Pty) Ltd

EQUITY FOR THE YEAR ENDED
28 FEBRUARY 2021 GENERAL RETAINED GENERAL RETAINED
RESERVE EARNINGS RESERVE EARNINGS
R R R R
Balance at 1 March 2020 133 000 374 600 12 000 121 139
Profit for the year 69 300 23 861
Dividends declared (30 000) (10 000)
Balance at 28 February 2021 133 000 413 900 12 000 135 000

Additional information:
1. On 1 March 2019, Honky acquired shares in Dory. The equity of Dory at acquisition date was
as follows:
 Share capital R200 000
 Retained earnings R100 000
 General reserve R5 000

At the date of acquisition, the directors of Honky were of the opinion that all the assets and liabilities, as
they appeared in the records of Dory, were stated at the fair value. Honky elected to measure any non-
controlling interests in an acquiree at their proportionate share of the acquiree’s identifiable net assets.

2. The liability for the loan originated on 1 September 2020. The loan bears interest at a rate of
5% per annum. On 28 February 2021, no capital payments had been made and the interest was
still outstanding.

3. Since the date of acquisition, Dory has been selling inventory to Honky at cost plus 20%. The
total intercompany sales for the current year amounted to R55 000. Closing inventory in Honky’s
records relating to the purchases from Dory was R10 500 on 28 February 2021 (28 February
2020 R7 800).

ACCF 221 2021 FIRST OPPORTUNITY 3/9

 4. Included in the property, plant and equipment of Honky is equipment bought from Dory on
1 September 2019 for R20 500.
The details of this equipment (as originally purchased by Dory) are as follows:
 Purchase date: 1 March 2019
 Cost Price: R20 500
 Depreciation: 10% per year, straight-line method to a residual value of R1 500. Honky will
continue to depreciate the equipment over the remaining useful life, also on the straight-line
method to a residual value of R1 500.

MARKS
REQUIRED – QUESTION 1:
Sub-
Total
total
1.1 Provide all the pro forma journal entries needed to consolidate the
Honky Ltd Group for the financial year ended 28 February 2021. 34.5

Clearly indicate the section of the financial statements affected by each

journal (i.e. SFP, SCE, P/L, OCI)

Journal narrations are not required. 34.5

1.2 Prepare the consolidated statement of profit or loss and other
comprehensive income of the Honky Ltd Group for the year ended 28
February 2021. 9.5
Comparative figures are not required.
Communication: Layout & Structure 1 10.5

TOTAL MARKS 45

ACCF 221 2021 FIRST OPPORTUNITY 4/9

QUESTION 2 20 MARKS

On 1 January 2007, Pops Limited acquired 65% interest in Weasel Limited. The abridged
financial statements of the companies on 31 December 2012 are as follows:
STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2012
Pops Ltd Weasel
Ltd
Assets R R
Non-current assets
Property, plant and equipment 140 000 190 000
Land and buildings 100 000 50 000
Machinery 30 000 70 000
- Cost 50 000 110 000
- Accumulated depreciation (20 000) (40 000)
Vehicles 10 000 70 000
- Cost 20 000 90 000
- Accumulated depreciation (10 000) (20 000)
Financial assets 281 200 50 000
- Investment in Weasel Ltd: 141 200 0
Ordinary shares 130 000 0
Current account – Weasel Ltd 11 200 0
- Other investments 140 000 50 000
Current assets 86 000 72 860
Inventories 30 000 33 000
Sundry current assets 56 000 39 860
Total assets 507 200 312 860
Equity and liabilities
Share capital and reserves 452 200 187 160
R1 ordinary shares 400 000 150 000
General reserve 20 000 15 000
Retained earnings 32 200 22 160
Current liabilities 55 000 125 700
Current account – Pops Ltd - 3 200
Shareholders for dividend 5 000 7 500
Sundry current liabilities 50 000 115 000
Total equity and liabilities 507 200 312 860

EXTRACT FROM THE STATEMENT OF PROFIT OR LOSS AND OTHER

COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2012
Pops Ltd Weasel
Ltd
R R
Revenue 650 000 560 000
Profit before tax 58 000 48 800
Tax (17 400) (14 640)
Profit for the year 40 600 34 160

Other comprehensive income 0 0

Total comprehensive income 40 600 34 160

EXTRACT FROM THE STATEMENT OF CHANGES IN EQUITY FOR THE YEAR

ENDED 31 DECEMBER 2012
Pops Ltd Weasel Ltd
Retained General Retained General
earnings reserve earnings reserve
R R R R
Balances 1/1/2012 16 600 15 000 8 000 10 000
Profit for the year 40 600 34 160
Transfer to reserves (5 000) 5 000 (5 000) 5 000
Ordinary dividend (20 000) (15 000) .
Balances 31/12/2012 32 200 20 000 22 160 15 000
Additional information:

1. On 1 January 2007, the retained earnings and the general reserve of Weasel Ltd were R5 000
and R3 000, respectively. Pops Ltd paid R130 000 for the investment.

2. On the date of acquisition of the interest, Pops Ltd was satisfied that the assets and liabilities of
Weasel Ltd were fairly valued.

3. It is the entity's policy to measure any non-controlling interests in an acquiree at their

proportionate share of the acquiree's identifiable net assets.

4. The following items were included in the profit before tax amount:

Pops Ltd Weasel Ltd

R R
Investment income 14 875 15 000
- Income received from 4 875 0
subsidiary company:
Ordinary dividend from Weasel Ltd 4 875 0
- Other investment income 10 000 15 000

5. Since 1 January 2011, Pops Ltd has sold some of its products to Weasel Ltd at cost plus
25%. The total sales of the products to Weasel Ltd amount to R115 000 for the current year.

6. On 31 December 2011, there were R20 000 and on 31 December 2012 R15 000 of these
products at the given value included in the closing inventory of Weasel Ltd.

7. Included in the machinery of Pops Ltd is equipment bought from Weasel Ltd on 1
January 2012 for R16 200. The details of the equipment (as originally purchased by Weasel
Ltd) sold are as follows:

a. Purchase date: 1 January 2010;

b. Cost price: R18 500
c. Depreciation: 10% per year, straight line, residual value Rnil (Pops
8. Ltd considers this rate to be fair.)

9. On 31 December 2012, Weasel Ltd declared a final ordinary dividend of R7 500 and
recorded it in their financial records. Pops Ltd, however, did not record this dividend in their
financial records.

10. Weasel made a payment of R8 000 to Pops on 31 December 2012. Weasel has already
accounted for it against Pops' Current Account, but Pops has not yet accounted for it
because they have not yet received it.

11. The corporate tax rate is 28%.

REQUIRED
a) Prepare the at acquisition date pro-forma journal entries for the 2012 group financial
statements. (5)
b) Prepare the pro-forma journal entries for the elimination of all intra-group transactions
for the 2012 group financial statements. Journal narrations are not required.
-part i) WITHOUT THE EFFECT OF TAXATION (9)
-part ii) WITH THE EFFECT OF DEFFERED TAXATION (14)
QUESTION 3 32 MARKS

The following abridged financial statements of two companies are presented to you:
STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2010
LILLY LTD VALLEY LTD
R R
ASSETS
Non-current assets at carrying values 970 000 350 000
Property, plant and equipment 410 000 350 000
Investment in Valley Ltd (160 000 shares @ cost) 560 000 -

Current assets 340 000 520 000

Inventory at cost 174 000 312 000
Debtors 166 000 208 000
1 310 000 870 000

EQUITY AND LIABILITIES

Share capital and reserves 1 000 000 650 000
Share capital – ordinary shares of R2.00 each 800 000 400 000
General reserve 80 000 100 000
Retained earnings 120 000 150 000

Non-current liabilities 150 000 20 000

Interest bearing loans 100 000 20 000
Deferred tax 50 000 -

Current liabilities 160 000 200 000

Creditors 96 000 138 000
SARS 64 000 62 000
1 310 000 870 000

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR
ENDED 31 DECEMBER 2010
LILLY LTD VALLEY LTD
R R
Sales 800 000 485 000
Cost of sales (340 000) (275 000)
Gross Profit 460 000 210 000
Total overhead expenses
Salaries and wages 160 000 70 000
Depreciation Vehicles 68 572 30 000
Profit before taxation 231 428 110 000
Taxation (71 428) (40 000)
Profit for the year 160 000 70 000
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2010

General reserve Retained earnings Total

R R R
Lilly Ltd
Balance 31/12/2009 20 000 100 000 120 000
Profit for the year 160 000 160 000
Transfer to general reserve 60 000 (60 000) -
Dividends declared (80 000) (80 000)
Balance 31/12/2010 80 000 120 000 200 000

Valley Ltd
Balance 31/12/2009 80 000 100 000 180 000
Profit for the year 70 000 70 000
Transfer to general reserve 20 000 (20 000) -
Balance 31/12/2010 100 000 150 000 250 000

Additional Information:
 Lilly Ltd (“Lilly”) acquired the interest in Valley Ltd (“Valley”) on 31 December 2007 when
the general reserve and retained earnings of Valley were R40 000 and R80 000
respectively.
 From 1 January 2010, Lilly started buying goods from Valley. Valley sold the goods at a
markup of 25% on cost to Lilly. The total sales by Valley to Lilly for the year amounted to
R180 000.

 On 31 December 2010 Lilly had inventory of R12 500 on hand that they purchased from
Valley.

 On 1 July 2010 Lilly bought a delivery vehicle from Valley for R50 000. The carrying value
of the vehicle in the books of Valley amounted to R45 000.

 Both companies depreciate vehicles at 20% per annum on a straight line basis with a
residual value of R nil. South African Revenue Service (SARS) allows a wear and tear
allowance based on the same formula.

 The company tax rate is 28%.

REQUIRED:
a) Prepare the equity and liabilities portion of the consolidated statement of financial
position of Lilly Ltd and its subsidiary as at 31 December 2010.
Part i) Without tax (13)
part ii) With Tax (14.5)

b) Prepare the necessary pro forma journals to account of Investment in Valley in the
consolidated financial statements of the Lily Group Ltd for the year ended
31 December 2010
Part i) Without tax (19)
part ii) With Tax (22)

No comparative figures are required. Show all calculations clearly.

QUESTION 4 47 MARKS

You are presented with the following abridged financial statements of two related companies:
STATEMENT OF FINANCIAL POSITION Kgotso Ltd Themba Ltd
AT 30 DECEMBER 2013 R R
ASSETS
Non-current assets
Property plant and equipment 162 600 133 500
Financial assets: Investments
90 000 shares at cost in Themba Ltd 89 400
Loan to Themba Ltd 45 000
30 000 shares at cost in Tlotlo Ltd 30 000 30 000
Deferred tax 12 000

Current assets
Inventory 37 500 52 500
Accounts receivable 31 500 28 500
Current Account – Kgotso Ltd 9 000
Dividends receivable – Tlotlo Ltd 1 500 1 500
Bank: Commerce Bank Ltd 16 500
426 000 255 000
EQUITY AND LIABILITIES
Share capital and reserves
Share capital: Ordinary shares @ R1 each 112 500
Ordinary shares @ R2 each 225 000
General reserve 37 500 30 000
Retained earnings 22 500 15 000

Non-current liabilities
10% Debentures 90 000 45 000
10% Loan – Kgotso Ltd 15 000
Deferred tax 18 000

Current liabilities
Income tax payable 5 000 3 000
Accounts payable 40 000 9 000
Bank – Finance Bank Ltd 7 500
Current account – Themba Ltd 6 000
426 000 255 000
STATEMENT OF PROFIT OR LOSS AND OTHER Kgotso Ltd Themba Ltd
COMPREHENSIVE INCOME FOR THE YEAR
ENDED 31 DECEMBER 2013
R R
Operating profit for the year 135 000 76 500
Other income 30 000 3 000
Other expenses -75 000 -57 000
SA normal company taxation -36 000 -9 000
Profit for the year 54 000 13 500
 STATEMENT OF CHANGES IN Kgotso Ltd Themba Ltd
EQUITY FOR THE YEAR
ENDED 31 DECEMBER 2013
GENERAL RETAINED GENERAL RETAINED
RESERVE EARNINGS RESERVE EARNINGS
R R R R
Balance at 1 January 2013 22 500 17 250 22 500 9 000
Profit for the year 54 000 13 500
Transfer to general reserve 15 000 -15 000 7 500 -7 500
Dividends declared -33 750
Balance at 31 December 2013 37 500 22 500 30 000 15 000

Additional information:
1. Kgotso Ltd obtained the interest in Temba Ltd on 1 January 2009 when the general
reserve and the retained income were R12 000 and R6 000, respectively.

2. The liability for the debentures and the loan originated in 2009

3. Tlotlo Ltd is an unlisted company with issued share capital of R225 000 of shares of
R0.50 each. The investment in Tlotlo does not constitute any form of control or
significant influence over Tlotlo.

4. Since January 2013, Themba Ltd purchased some of its inventory from Kgotso Ltd at
cost plus 25%. On 31 December 2013, Themba Ltd had R13 500 of this inventory on
hand according to the system.

5. Inventory of R1 500 was purchased by Themba Ltd from Kgotso Ltd, but the
merchandise was not received by Themba Ltd on 31 December 2013. This amount
was not included in the closing inventory of Themba Ltd. The R1 500 represents the
invoice price of the inventory.

6. On 31 December 2013, Themba Ltd paid R1 500 to Kgotso Ltd and recorded the
payment on this date. Kgotso Ltd only received this payment on 5 January 20x10.

7. The loans from Kgotso Ltd to Themba Ltd consist of 10% debentures of R30 000 and a
loan of R15 000.

8. The bank overdraft of Themba Ltd is guaranteed by Kgotso Ltd.

9. The tax rate is 28%

REQUIRED:
a) Prepare the consolidated statement of financial position for the Kgotso Ltd Group as
at 31 December 2013 in accordance with the requirements of International Financial
Reporting Standards (IFRS). Comparative figures are not required. (without tax) (47)
b) With the effect of tax taken into account (49)
QUESTION 5 28 MARKS
On 1 January 2011, Peacock Ltd acquired 75% of Sally Ltd for R160 000. The following financial
statements of these two companies were presented to you:
STATEMENT OF FINANCIAL POSITION ON 31 DECEMBER 2013
PEACOCK SALLY
R R
ASSETS
Non-current assets 1 062 700 227 250
Property, plant and equipment 897 700 227 250
Investment in Sally Ltd 165 000 -

Current assets 294 700 81 000

Inventory 14 000 11 000
Trade- and other debtors 69 800 70 000
Bank 210 900 -
TOTAL ASSETS 1 357 400 308 250

Equity 1 098 900 247 000

Share capital (R1 shares) 1 000 000 200 000
Mark-to-market reserve 15 000 -
Retained earnings 50 900 35 000
General reserve 33 000 12 000

Non-current liabilities 178 500 6 000-

Loan from Finance Bank 174 000 -
Deferred tax liability 4 500 6 000

Current liabilities 80 000 55 250

Trade- and other creditors 80 000 50 000
Bank overdraft - 5 250
TOTAL EQUITY AND LIABILITIES 1 357 400 308 250

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR
ENDED 31 DECEMBER 2013
PEACOCK SALLY
R R
Sales 710 900 249 700
- Cost of sales (326 600) (199 760)
Gross profit 384 300 49 940
Other income 39 500 11 250
Dividends received from Sally Ltd 3 750 -
Other expenses (52 300) (13 800)
Depreciation
- Equipment (73 500) (3 250)
- Motor vehicles (200 000) (1 500)
Selling and admin expenses (15 000) (5 500)
Profit before tax 86 750 37 140
Tax expense (26 100) (11 140)
Profit for the year 60 650 26 000
Other comprehensive income
Mark-to-market reserve 15 000 -
Total comprehensive income for the year 75 650 26 000
EXTRACT FROM THE STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31
DECEMBER 2013
Mark-to- Retained earnings General reserve
market
reserve
PEACOCK PEACOCK SALLY PEACOCK SALLY
R R R R R
Balance on 1 January 2013 - 12 000 18 000 23 000 8 000
Profit for the year - 60 650 26 000
Dividends - (12 000) (5 000)
Transfer to general reserve - (10 000) (4 000) 10 000 4 000
Mark-to-market reserve 15 000 -
Balance on 31 December 15 000 50 650 35 000 33 000 12 000
2013

Additional information:

1. At acquisition, Sally Ltd’s retained earnings and general reserve amounted to R8 000
and R5 000 respectively.

2. It is the policy of Peacock Ltd to show all non-controlling interests at fair value. On date
of acquisition, the fair value of the non-controlling interest in Sally Ltd amounted to R140
000.

3. Included in the property, plant and equipment of Peacock Ltd is equipment bought from
Sally Ltd on 1 June 2013 for R18 200.

The details of this equipment (as originally purchased by Sally Ltd) are as follows:

 Purchase date: 1 January 2008

 Cost price: R20 500
 Depreciation: 10% per year, straight line (Peacock considers this rate to be
fair)

4. Since date of acquisition, Sally Ltd sold inventory to Peacock Ltd at cost plus 20%. The
total sales for the current year amounted to R35 000.

Closing inventory in Peacock Ltd’s records relating to the purchases from Sally Ltd was as follows:

2012 R 7 800
2013 R10 800

5. The income tax rate remained unchanged at 28% for companies since 2010.

REQUIRED:

a) Prepare the at acquisition date pro-forma journal entries for the Peacock Ltd group. (5)

b) Prepare the consolidated statement of changes in equity of Peacock Ltd and its
subsidiary company on 31 December 2013 in accordance with International Financial
Reporting Standards (IFRS) (show all your workings). Part i) without tax (30.5)
Part ii) with taxation (35)
Comparative amounts are not required.
QUESTION 6 (45 Marks)
G-Smith Ltd purchased 80% of the share capital of H-Amla Ltd on 1 January 2005, the
equity of the
company at this date was as follows:
R
Share Capital 250 000
Retained Earnings 75 000

The cost price of the investment in H-Amla Ltd was R 340,000.

The following financial statements are presented to you for the year ended 31 December
2008
Statement of financial Position as at 31 December 2008
G-Smith Ltd H-Amla Ltd
Assets
Non Current Assets
Property 1,000,000 450,000
Plant and Equipment
Cost 200,000 600,000
Accumulated - 50,000 - 300,000
Investment in H-Amla (200,000 shares at fair 340,000 -
value)
Investment in Debentures G-Smith ltd (15 000 30,000
12%
Loan : H- 70,000 -
Current Assets
Inventory 25,000 40,000
Bank 40,000 25,000
Debtors 20,000 35,000
TOTAL ASSSETS 1,645,000 880,000

Equity and Liabilities

Equity G-Smith Ltd H-Amla Ltd
Share Capital (R1 ordinary 700,000 250,000
Retained Earnings 405,000 186,672
Remeasurement Reserve 31,950 -
Non Current Liabilities
Deferred 13,050 -
12% Debentures 240,000
Loan : G-Smith - 70,000
Current Liabilities
Creditors 255,000 373,328
TOTAL EQUITY AND LIABILITIES 1,645,000 880 000

Statement of Profit or Loss and Other Comprehensive Income for the year ended
31 December 2008
G-Smith Ltd H-Amla Ltd
Sales 1,200,000 800,000
Cost of sale - 720,000 - 480,000
Gross Profit 480,000 320,000
Other income 68,000 3,600
Dividends Received 28,000
Management Fees received 40,000
Interest received - 3,600
Other expenses - 143,800 - 136,000
Interest Paid - 28,800
Management Fees Paid - 40,000
Other expenses - 115,000 - 96,000
Profit before Taxation 404,200 187,600
Taxation - 113,176 - 52,528
Profit for the year 291,024 135,072

Total Comprehensive 291,024 135,072

Income
Statement of Changes in Equity G-Smith Ltd H-Amla Ltd
Opening Balance 263,976 86,600
Total Comprehensive 291,024 135,072
Income
Dividends Paid (150,000) (35,000)
Closing Balance 405,000 186,672

Additional Information
1. G-Smith Ltd accounts for its investments in subsidiaries in terms of IFRS 9 at cost
2. H-Amla Ltd sells inventory to G-Smith Ltd at cost plus 35%.
3. The total intercompany sales for the year from H-Amla ltd to G-Smith ltd amounted to
R 450,000.
4. The following inventories on hand, which were purchased from H-Amla Ltd:
31 December 2008 20 000
31 December 2007 15 000
5. H-Amla Ltd purchased plant from G-Smith Ltd on 1 January 2006 at an amount of R75
000. At this stage
R
Cost 110 000
Accumulated Depreciation (44 000)
Net Book value 66 000
6. Both Companies provides depreciation on this plant on a straight line basis at a rate of
10% per annum.
7. Assume a tax rate of 29%.
8. Round all amounts to the nearest
Rand
You are required to:
Record all the relevant pro forma journals relating to the consolidation at
31 December 2008
(29.5) Prepare the consolidated financial statements for G-Smith Group on
31 December 2008.
QUESTION 7 49.5 Marks
Wolf Ltd purchased 75% of the share capital of Pack Ltd on 1 January 2006, the equity of the
company at this date was as follows:
R
Share Capital 150,000
Retained Earnings 55,000
Mark to market Reserve 20,000

The cost price of the investment in Pack Ltd was R 180,000.

The following financial statements are presented to you for the year ended 31 December 2011

Statement of financial Position

as at 31 December 2008
Wolf Ltd Pack Ltd
Assets
Property 650,000 350,000
Plant and Equipment
Cost 500,000 400,000
Accumulated Depreciation (200,000) (160,000)
Investment in Pack Ltd 180,000 -
Loan : Pack Ltd 40,000 -
Inventory 75,000 45,000
Bank 55,000 25,000
Debtors 25,000 18,500
1,325,000 678,500

Equity and Liabilities

Share Capital (R1 ordinary shares) 750,000 150,000
Retained Earnings 450,000 95,000
Mark to market Reserve 12,900 40,000
Deferred Tax 2,100 -
Loan : Wolf Ltd - 40,000
Creditors 110,000 353,500
1,325,000 678,500

Statement of Comprehensive Income

for the year ended 31 December 2008
Sales 1,250,000 675,000
Cost of Sales (812,500) (438,750)

Gross Profit 437,500 236,250

Other expenses (255,000) (128,000)
Dividends Received 22,455 -
Management Fees Received (Paid) 25,000 (25,000)

Profit before Taxation 229,955 83,250

Taxation (64,387) (23,310)

Profit for the year 165,568 59,940

Total Comprehensive Income 165,568 59,940

Statement of Changes in Equity
for the year ended 31 December 2008

Opening Balance 341,000 65,000

Total Comprehensive Income 165,568 59,940
Dividends Paid (56,568)(29,940)

Closing Balance 450,000

95,000

Additional Information

1. Wolf Ltd accounts for its investments in subsidiaries in terms of IFRS 9 at Cost.

2. Pack Ltd sells inventory to Wolf Ltd at cost plus 25%.

3. The total intercompany sales for the year from Pack Ltd to Wolf Ltd amounted to R 350,000.

4. Wolf Ltd had the following inventories on hand, which were purchased from Pack Ltd:

31 December 2008 65,000

31 December 2007 50,000

5. Pack Ltd purchased equipment from Wolf Ltd on 1 January 2006. Wolf Ltd made a profit of R
20,000
on the transaction.

6. Pack Ltd provides depreciation on this equipment on a straight line basis at a rate of 20% per
annum.
7. Assume a tax rate of 28%.

You are required to:

a) Provide the at acquisition pro forma journal (5)

b) Provide the pro forma journals in relation to intergroup inventory sales (7)

c) Provide the pro forma journals in relation to intergroup fixed assets sales (7)

d) Provide the pro forma journals required to account for non-controlling interest excluding
the at acquistion journal already done in part (a) (8)

e) Provide the pro forma journals in respect of intercompany balances. (3.5)

f) Disclose the following items in the Consolidated financial statements of Wolfpack

Ltd. (Clearly provide your calculation)
i) Plant and Equipment (Both Cost and Accumulated Depreciation) (5)
ii) Inventory (2)
iii) Cost of sales (5)
iv) Non-controlling interest in the Statement of Comprehensive Income (2)
v) Non-controlling interest in the Statement of Financial (5)
Position
Total 49.5