Tutorial Letter 103/3/2016: Group Financial Reporting

FAC3704/103/3/2016
Tutorial letter 103/3/2016
Group Financial Reporting
FAC3704
Semesters 1 and 2
Department of Financial Accounting
IMPORTANT INFORMATION:
Please activate your myUnisa profile and myLife email address and ensure you have regular
access to the myUnisa module site FAC3704 as well as to your group site.
Note: This is an online module, and therefore your module is available on myUnisa. However, in
order to support you in your learning process, you will also receive study material in printed format.
Bar code
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CONTENTS
1 INTRODUCTION ..................................................................................................................... 2
2 LECTURERS AND CONTACT DETAILS ................................................................................ 2
3 EXAM PREPARATION AND APPROACH .............................................................................. 4
4 EXAMINABLE TOPICS IN THE SYLLABUS .......................................................................... 7
5 INTEGRATED QUESTIONS AND SUGGESTED SOLUTIONS .............................................. 8
1 INTRODUCTION
Dear student
In this tutorial letter 103, please find integrated questions with the suggested solutions. It is in your
own interest to work through the suggested solution in conjunction with the question and your answer.
These questions will assist with your exam preparation and are of an exam standard.
You will notice in our suggested solutions, dealing with company financial statements, opposite certain
items calculations are shown in brackets. Such calculations are given for tuition purposes only and
consequently do not form part of the statutory disclosure requirements.
2 LECTURERS AND CONTACT DETAILS

You may contact your lecturers by post, e-mail, telephone or on myUnisa.
Lecturers Office number

Mrs LA Jordaan AJH van der Walt Building 2-56
Mrs M Scott AJH van der Walt Building 2-59
Mr J van Staden AJH van der Walt Building 2-53
Mrs R Coetzee AJH van der Walt Building 2-57
Personal appointments
Please make an appointment, in advance, with your lecturer should you wish to see them personally
with specific problem areas in your studies. Lecturers are available from 07:45 to 16:00 on weekdays.
Telephonic enquiries
You can contact your lecturers telephonically, by making use of the course contact number provided
below. An available lecturer will take your call and assist you as promptly as they can.
(012) 429 4250
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FAC3704/103
E-mail
You can also communicate with the lecturers via e-mail. Please make use of the following e-mail
address which is specific to the FAC3704 module to ensure a prompt reply:
Semester 1 FAC3704-16-S1@unisa.ac.za OR
FAC3704@unisa.ac.za
Semester 2 FAC3704-16-S2@unisa.ac.za OR
FAC3704@unisa.ac.za
It is essential that you include your name, student number and telephone number in all e-mails.
Due to the high volumes of e-mails received by lecturers from students it is not always possible to
reply to these e-mails immediately. Please be patient as your e-mails will be attended to as soon as
possible.
myUnisa
You can also communicate with the lecturers via myUnisa.
Online address: http://my.unisa.ac.za
Postal Address
Name of lecturer, Department of Financial Accounting
University of South Africa
P O Box 392
Unisa
0003
College Information Coordinators
Jabulani Chauke: (012) 429 2982

Christine Tage: (012) 429 2233
E-mail: CASenquiries-Undergraduate@unisa.ac.za
College Information Hub
Tel no: (012) 429 4211
The Department of Financial Accounting is situated on the main campus on the second floor of the
AJH van der Walt Building.
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3 EXAM PREPARATION AND APPROACH
The following matters regarding the examination paper require your attention:
RELATIVE IMPORTANCE OF CERTAIN TOPICS IN THE STUDY MATERIAL
Please refer to section 4 hereunder regarding topics that are not examinable for this module.
Relating to the examinable topics, there are no examinable topics in the study material that are
more important than others and no discussion will be conducted in this regard.
You will be examined on all examinable topics (excluding those pointed out in section 4 hereunder) as
indicated in the prescribed books and all tutorial letters. It is not sufficient to only work through your
assignments because all the principles are not tested in there.
Please ensure that you have received the following study material:
1. Tutorial letter MO001/4/2016
2. Tutorial letter 101/3/2016
The following study material will only be available online (after the due dates of the compulsory
assignments) under the additional resources tab:
5. Tutorial letter 201/1/2016 (semester 1) ; Tutorial letter 201/2/2016 (semester 2)
6. Tutorial letter 202/1/2016 (semester 1) ; Tutorial letter 202/2/2016 (semester 2)
CHOICE OF CORRECT PAPER: FAC3704
It is your responsibility to ensure that you receive the correct paper in the examination. If you are
handed the wrong paper, you must immediately request the invigilator to hand you the correct paper.
FORMAT OF THE EXAMINATION PAPER
The May/June 2016 (October/November 2016) examination paper will consist of 100 marks and the
duration will be 3 hours.
SUPPLEMENTARY EXAMINATIONS AND REMARKING OF SCRIPTS
Please take note of the following important information regarding supplementary examinations and
remarks:
- To qualify for a supplementary examination opportunity, you must obtain a final mark of 40% -
49% for modules offered by the School of Accounting Sciences (for example FAC3704).
- The year mark, previously obtained will contribute to the final result of students writing
supplementary examinations. It will also contribute in the case of aegrotat (sick) examinations.
- Supplementary examinations will be conducted in October/November 2016 (May/June 2017) for
students who fail the May/June 2016 (October/November 2016) examination paper and achieve a
final mark between 40% - 49% for FAC3704.
- Only those students who obtain a final mark of 35% - 49% or 68% - 74% in a module may apply
for a remark of such examination answer book.
- A student will not be entitled to a supplementary examination (if applicable) on the grounds of a
remark result.
For more information refer to the general rules for study and examinations in the myStudies@Unisa
publication.
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FAC3704/103
REMARKING OF EXAM SCRIPTS

Students who apply for the remarking of their scripts should provisionally register for the module as if
they have failed. Registration can be cancelled if the remark is successful.
EXAM PREPARATION
Steps to follow when preparing for the exam:
- First read through the theory at the start of each study unit in the study guide, and in your Group
Statements textbook making sure that you understand the principles involved. You must not read
the next sentence unless you understand what you have just read.
- Work through the illustrative examples that demonstrate the application of the principles. It is
important to work through the examples in the tutorial letter MO001/4/2016 and in the Group
Statements textbook. Do not memorise the examples, try to understand why the specific
calculations were done.
- When working through the examples please be aware of the disclosure requirements in terms of
the International Financial Reporting Standards which are required by certain sections (i.e.
statement of cash flows, associates and joint arrangements). Make sure you understand why it
has been disclosed in that specific manner. Once you understand, memorise the disclosure
requirements by referring back to the accounting standard and your tutorial letter MO001/4/2016.
- Prepare a summary of all the principles relevant to each topic and the accounting treatment and
disclosure thereof.
- The next step is to attempt the integrated questions in this tutorial letter. Answer the questions
without referring to the solution by following the steps prescribed in the next section - exam
technique. Once you have completed an answer you should compare your answer with the
suggested solution. If your answer differs from the suggested solution refer back to the tutorial
letter MO001/4/2016, the Group Statements textbooks and the accounting standard. If you still
don’t understand what has been done in the suggested solution, contact one of your lecturers.
- Remember if you don’t understand the principles involved there will be no advantage in working
through numerous questions. If you understand the principles, working through one or two
questions per scenario should be sufficient.
- Please do not attempt new questions in the few hours before you write your exam. It will only
confuse and unsettle you if you come across something you cannot do. Remember you must be
both cognitively and psychologically prepared.
- On the morning of your exam, refresh your memory by reading through the summaries you have
compiled and reciting the disclosure requirements. This will help you to relax as you will be familiar
with the information by then.
EXAM TECHNIQUE
If students apply the correct exam technique they will be able to complete the answer within the time
frame allowed and their answers will be structured as to obtain the marks in the shortest time possible.
How should you answer a question?
- Read the REQUIRED section first. Ensure that you are clear of what is required from you. Please
note that marks will not be awarded if you do not complete what is required. For example: If you
are required to provide only the note to the statement of financial position, no marks will be
awarded for disclosing the statement of financial position and/or notes to the statement of profit or
loss and other comprehensive income (e.g. profit before tax and current tax notes).
- It is also important that you read what is not required as it wastes time if you prepare unnecessary
workings and disclosure. TIME MANAGEMENT IS VERY IMPORTANT IN ANY PAPER.
- Start off by writing the layout (wording) of the disclosure. The disclosure will then be a guide for
deciding what calculations to prepare.
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- After you have written down the layout (disclosure), start with the calculations. Once you have
done a calculation, immediately transfer the answer to your layout (disclosure). Don’t wait until all
the calculations have been done before transferring the answer. NO MARKS will be awarded if
calculations are not correctly transferred to the required section!
- It is advisable to show shorter calculations on the face of the statement of profit or loss and other
comprehensive income, statement of financial position or notes (whichever is required) in brackets
next to the disclosure. This will save time and avoid duplication. Longer calculations which cannot
fit into the line next to the disclosure or the next line must be done on a separate page marked
“calculations”. The figures in the disclosure should then be cross referenced to the calculations.
NO MARKS will be awarded if calculations are not correctly transferred to the required section!
- Never exceed the time allocated per question.
- Attempt each question in the paper. Leaving out a question could be the reason you fail.
- When answering an examination paper, it is normally advisable to answer the questions in the
order that they have been given. When an examination paper is prepared due care and
consideration is given in determining the sequence of the questions. A question on a topic that
you may consider to be easy may in fact be the more difficult question of the paper and answering
it first might cause you to spend too much time on it or upset you so much that it influences your
ability to answer the rest of the paper.
- If in doubt, always go back to the basic principles, especially where two or more topics are
combined.
- Show all calculations, even if it is as simple as adding two figures together. Marks cannot be
allocated if we cannot see how the amount has been made up.
- Make sure that you transfer the calculated amounts correctly to the disclosure. If the REQUIRED
section stipulates for instance: prepare the statement of financial position, then marks will not be
awarded to calculations that have not been transferred to the layout (disclosure). If the
REQUIRED has asked for calculations then the calculations will be marked.
- Students will only lose marks once for an error. When the figure as calculated by the student is
used (even though calculated incorrectly) in other calculations or disclosure, marks will be
allocated if the principle is applied correctly.
PERSEVERE
We would like to encourage you to tackle your studies with enthusiasm. Remember, success can only
be achieved by effort and perseverance.
Every year we find that many students do not turn up at the examination venue. You must never inflict
this disservice on yourself. Remember that if you write, you have a chance, if you don’t, you have no
chance at all.
All the best with your studies!
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FAC3704/103
4 EXAMINABLE TOPICS IN THE SYLLABUS

TOPICS THAT ARE NOT EXAMINABLE:
The following topics are not examinable and will not be assessed in any of the assignments
and examinations during the first and second semester:
1. Change in control of a subsidiary through the buying and selling of shares that results in a change
in status.
2. Change as a result of the issue of additional shares by means of:

• rights issue;
• share buyback;
• capitalisation issue; and
• share-based payment.
3. Consolidated statement of cash flows (the entire chapter).
MO 001/4/2016:
The following chapters/sections in tutorial letter MO 001/4/2016 will not be examined:
 Learning unit 6 - Changes in ownersip:
- Section 6.2 (a): associate or joint venture becomes a subsidiary.
- Section 6.2 (b): investment becomes and associate or jointventure; and associate or joint
venture becomes a greate or associate or joint venture.
- Section 6.3.1: Example of loss of control (change in status).
- Example 6.2: Subsidiary becomes an associate.
- Example 6.3: Increase in holding, change in status, an associate becomes a subsidiary.
- Example 6.4: Increase in holding, no change in status and associate.
 Learning unit 7 – Consolidated statment of cash flows (the entire learning unit).
Textbook: Group statements, Volume 2 (Binnekade, CS, et al 2013, sixteenth edition):

The following chapters/sections in Volume 2 of the Group statements textbook (Binnekade, CS, et al
2013, sixteenth edition) will not be examined:
 Chapter 13 - Changes in control of subsidiary by buying and selling shares:
- Section 13.5: Acquisition of an additional interest whereby an associate becomes a subsidiary
(including Example 13.3).
- Section 13.9: Partial disposal of an interest in a subsidiary whereby it becomes an associate
(including Example 13.6).
- Changes of interest in a complex group (Example 13.7).
- Self assessment question - Question 13.1.
 Chapter 14: Changes resulting from the issue of additional shares by investees and other
changes in ownership (the entire chapter).
 Chapter 15: Investment held for sale (the entire chapter).
 Chapter 16: Foreign operations (the entire chapter).
 Chapter 17: Consolidated statement of cash flows (the entire chapter).
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5 INTEGRATED QUESTIONS AND SUGGESTED SOLUTIONS
QUESTION SUBJECT MARKS TIME

NUMBER (Minutes)
1 Change in ownership and joint operation 50 90

2 Consolidation of a group of entities (joint operation
30 54
and associate)
3 Consolidation of a group of entities (joint venture
56 101
and associate)
4 Complex group with intragroup transactions 58 104
5 Journal entries to account for a joint venture 27 49
6 Horizontal group with intragroup transactions 35 63
7 Vertical group with intragroup transactions 38 68
8 Subsidiary and joint arrangements (vertical group) 45 81
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FAC3704/103
QUESTION 1 (50 marks)(90 minutes)
Panem Ltd is a company that produces combat equipment and invests in other similar entities in South
Africa. Everdeen Ltd manufactures bows and arrows. All the companies in the Panem Ltd Group have
a 31 December year end.
The following are extracts of the trial balances of the entities in the Panem Ltd Group for the year
ended 31 December 2013:
Panem Everdeen Mellark
Ltd Ltd Ltd
R R R
Credits
Share capital:
– 1 000 000 ordinary shares 1 000 000 - -
– 350 000 ordinary shares - 500 000 -
– 80 000 8% cumulative preference shares - 80 000 -
Share capital – 250 000 ordinary shares - - 250 000
Retained earnings – 1 January 2013 2 777 600 960 000 90 000
Accumulated depreciation 1 650 000 214 000 390 000
Trade and other payables 150 000 82 000 76 000
Revenue 4 114 000 2 200 000 1 050 000
Other income 386 000 96 000 20 000
10 077 600 4 132 000 1 876 000
Debits
Property, plant and equipment 5 589 294 1 788 728 843 800
Investments in equity instruments:
– Everdeen Ltd at cost: ordinary shares 584 706 - -
– Everdeen Ltd at cost: cumulative preference shares 40 000 - -
– Mellark Ltd at cost 136 000 - -
Trade and other receivables 200 000 115 000 50 000
Cash and cash equivalents 190 000 260 000 98 000
Inventories 380 000 280 000 85 000
Ordinary dividends paid – 31 December 2013 200 000 50 000 10 000
Preference dividends paid – 31 December 2013 - 6 400 -
Cost of sales 1 600 000 950 000 530 000
Other expenses 480 000 423 600 150 000
Income tax expense 677 600 258 272 109 200
10 077 600 4 132 000 1 876 000
Additional information
1. On 1 January 2010, Panem Ltd acquired control of Everdeen Ltd by acquiring 85% of the issued
ordinary shares in Everdeen Ltd for R710 000. The retained earnings of Everdeen Ltd amounted
to R300 000 on 1 January 2010.
2. On 1 January 2010, Panem Ltd also acquired 50% of the issued cumulative preference shares of
Everdeen Ltd for R40 000. No preference dividends were in arrears on 1 January 2010 and all
preference dividends had been declared and paid until 31 December 2013. On 1 January 2010
the fair value of the identifiable assets and liabilities of Everdeen Ltd were considered to be equal
to the carrying amounts thereof.
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QUESTION 1 (continued)
3. Panem Ltd acquired a 40% interest in Mellark Ltd on 1 January 2013. In terms of a contractual
agreement with other operators, Panem Ltd exercises joint control over the economic activities of
Mellark Ltd. The arrangement was classified as a joint operation as per IFRS 11, Joint
Arrangements and the consideration paid was equal to the fair value of the net assets of Mellark
Ltd on the date of acquisition. The contractual arrangement specifies that all revenues, expenses,
assets and liabilities are allocated according to the percentage interest held by the operators. At
acquisition date the fair value of the identifiable assets and liabilities of Mellark Ltd were
considered to be equal to the carrying amounts thereof.
4. Since 2012, Panem Ltd purchased inventory from Everdeen Ltd at a margin of 25% on the cost
price. During the current year Panem Ltd purchased inventories to the value of R750 000 from
Everdeen Ltd. On 31 December 2013, 50% of the inventory on hand in the records of Panem Ltd
had been purchased from Everdeen Ltd (31 December 2012: R110 000).
5. On 1 March 2013, Panem Ltd sold a vacant piece of land to the jointly controlled entity, Mellark
Ltd for R600 000. The vacant piece of land was originally acquired by Panem Ltd on 1 May 2010
for R500 000.
6. Panem Ltd is responsible for the day-to-day management of Mellark Ltd at an agreed
management fee of R28 000 per annum in accordance with the contractual arrangement.
Management fees paid to Panem Ltd are included in “other expenses” of Mellark Ltd and
management fees received are included in “other income” of Panem Ltd.
7. On 1 May 2013 Panem Ltd disposed of 52 500 of the ordinary shares held in Everdeen Ltd for an
amount of R255 000 (fair value) to non-controlling shareholders. The profit on the disposal of
shares is included in “other income” of Panem Ltd. Panem Ltd continued to control Everdeen Ltd.
8. The disposal of the interest in the subsidiary, Everdeen Ltd, did not comply with the criteria of
IFRS 5, Non-current Assets Held for Sale and Discontinued Operations until the date of disposal.
9. The profit of Everdeen Ltd and Mellark Ltd was earned evenly during the current year.
10. The Panem Ltd Group measures its investments in equity instruments at cost, in accordance with
IAS 27, Separate Financial Statements.
11. The Panem Ltd Group uses the partial (proportionate) goodwill method to recognise goodwill.
Goodwill relating to the Everdeen Ltd investment was tested for impairment at 31 December 2013
and it was determined that the fair value of the goodwill was R22 000 on 31 December 2013.
Panem Ltd did not recognise any impairment on its investment in Everdeen Ltd in its separate
accounting records.
12. The SA normal tax rate is 28% and capital gains tax is calculated at 66,6% thereof (effective
capital gains tax rate of 18,648%). You may assume that the tax rate has remained unchanged
since 1 January 2010.
13. Each share carries one vote and the issued share capital of all the entities in the group remained
unchanged since 1 January 2010.
REQUIRED:
(a) Prepare the consolidated statement of profit or loss and other comprehensive income of the
Panem Ltd Group for the year ended 31 December 2013. (37)
(b) Prepare the consolidated statement of changes in equity for the Panem Ltd Group for the year
ended 31 December 2013. (13)
Please note: Total columns are not required in the consolidated statement of changes in equity.
Your answer must comply with the requirements of International Financial Reporting Standards
(IFRS).
Comparative figures and notes to the consolidated financial statements are not required.
All amounts are to be calculated to the nearest R1.
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QUESTION 1 (SUGGESTED SOLUTION)
PART A
PANEM LTD GROUP
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDING 31 DECEMBER 2013
R
Revenue (4 114 000 + 2 200 000 + 420 000 (1 050 000 x 40%) - 750 000) 5 984 000
Cost of sales (1 600 000 + 950 000 + 212 000 (530 000 x 40%) - 22 000
(110 000 x 25/125) - 750 000 + 38 000 (380 000 x 50% x 25/125)) (2 028 000)
Gross profit 3 956 000
Other income (386 000 + 96 000 + 8 000 (20 000 x 40%) - 4 000 (10 000 x 40% div 266 894
JO) - 11 200 (28 000 x 40% management fee) - 40 000 (C1) – 35 000 (50 000 x
70%div sub) - 3 200 (6 400 (80 000 x 8%) x 50% preference div) - 129 706 (C3))
Other expenses (480 000 + 423 600 + 60 000 (150 000 x 40%) - 11 200 (960 400)
(management fee) + 8 000 (C5))
Profit before tax 3 262 494
Income tax expense (677 600 + 258 272 + 43 680 (109 200 x 40%) + 6 160 (22 000 x
28%) - 7 459 (C2) - 10 640 (38 000 x 28%)) (967 613)
PROFIT FOR THE YEAR 2 294 881
Other comprehensive income for the year -
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 2 294 881
Total comprehensive income for the year attributable to:
Owners’ of the parent 2 133 081
Non-controlling interests 161 800
2 294 881
PART B
PANEM LTD GROUP
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED
31 DECEMBER 2013
Share Retained Change in Non-
capital earnings ownership controlling
interests
R R R R
4
Balance at 1 January 2013 1 000 000 3 325 136 256 6241
Total comprehensive income:
-Profit for the year 2 133 081 161 800
Disposal of interest (C4) 3 114 251 886
Ordinary dividends paid (200 000) (15 000)2
Preference dividends paid (3 200)3
Balance at 31 December 2013 1 000 000 5 258 217 3 114 652 110
1
120 000 (C5) + 96 624 (C5) + 40 000 (80 000 x 50%) (preference share capital) = 256 624
2
50 000 x 30% = 15 000
3
80 000 x 8% x 50% = 3 200
4
2 777 600 + 547 536 (C5) = 3 325 136
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QUESTION 1 (SUGGESTED SOLUTION)(continued)
Calculations
C1 Unrealised profit on sale of land
R
Selling price 600 000
Carrying amount (500 000)
Profit on sale of land 100 000
Eliminate only 40% interest 40 000
C2 Tax effect on unrealised profit on sale of land

R
Unrealised profit 40 000
Tax on unrealised profit (40 000 x 18,648% (28% x 66,6%)) 7 459
C3 Profit on sale of shares – separate financial statements of Panem Ltd

R
Consideration received (given) 255 000
Carrying amount of shares sold
(710 000/297 500 shares (350 000 x 85%) = R2,39 x 52 500 shares sold (given)
(125 294)
Profit on sale of shares 129 706
C4 Change in ownership (equity)

R
Consideration received (given) 255 000
Equity of subsidiary transferred to NCI
(800 000 (C5) + 644 160 (C5) + 235 083 (C5)) x 15% (251 886)
Goodwill transferred to NCI (no goodwill transferred to NCI as control retained and
partial goodwill method used) -
Change in ownership 3 114
Comment:
When there is a change in % interest holding in a subsidiary and the parent entity
retained control of the subsidiary (i.e. parent has control of the subsidiary before
and after the change in interest), IFRS 3 requires the transaction to be
recognised as a transaction between owners (i.e. as an equity transaction).
The difference between the consideration received by Panem Ltd on the disposal of
the shares in Everdeen Ltd and the equity “lost/transferred” to the NCI will be
accounted for directly in equity in a reserve called change in ownership.
Any profit/loss recognised on the disposal of the shares in the parent’s separate
financial statements will be reversed on consolidation. In this question, Panem Ltd
recognised a profit on disposal of shares in Everdeen Ltd of R129 706 which must
be reversed on consolidation.
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FAC3704/103
C5 Analysis of owners’ equity of Everdeen Ltd

100% Panem Ltd 85% - 70% 15% - 30%
Total At Since NCI
At acquisition R R R R
Share capital 500 000 425 000 75 000
Retained Earnings 300 000 255 000 45 000
800 000 680 000 120 000
Equity presented by goodwill 30 000 30 000 -

Consideration and NCI 830 000 710 000 120 000
Since acquisition
Adjusted retained earnings 644 160 547 536 96 624
Retained earnings
(960 000 - 300 000) 660 000 561 000 99 000
Unrealised profit in opening
inventory (110 000 x 25/125) (22 000) (18 700) (3 300)
Tax effect on unrealised profit
(22 000 x 28%) 6 160 5 236 924
1 474 160 547 536 216 624
Current year
Profit before change in interest 235 083 199 820 35 262
Profit for 4 months of the year
(657 7281 x 4/12) 219 243 186 356 32 886
Adjusted for: 15 840 13 464 2 376
Unrealised profit in opening
inventory – realised
(110 000 x 25/125) 22 000 18 700 3 300
Tax effect on opening inventory
(22 000 x 28%) (6 160) (5 236) (924)
1 709 243 747 356 251 886
Disposal of 52 500 ordinary
shares
Proceeds on disposal (given) 255 000
Transfer of equity to NCI
[(800 000 + 644 160 + 235 083) x
15%] or [(680 000 + 547 536 +
199 820) x 15/85] (251 886)
Change in ownership equity reserve 3 114
13
Analysis of owners’ equity of Everdeen Ltd (continued)

100% Panem Ltd 85% - 70% 15% - 30%
Total At Since NCI
R R R R
Profit after change in interest 411 125 287 788 123 338
Net profit for 8 months of the year

(657 7281 x 8/12) 438 485 306 940 131 546
Adjusted for: (27 360) (19 152) (8 208)
Unrealised profit in closing inventory
(190 000 x 25/125) (38 000) (26 600) (11 400)
Tax effect on unrealised profit
(38 000 x 28%) 10 640 7 448 3 192
Dividends paid (50 000) (35 000) (15 000)

2 070 368 1 415 794 612 110
Goodwill at acquisition 30 000

Current year impairment of goodwill - SP/LOCI (8 000)
Balance at end of year 22 000
1
2 200 000 (revenue) + 96 000 (other income) - 950 000 (cost of sales) - 423 600 (other expenses) -
258 272 (income tax expense) - 6 400 (80 000 x 8%) (preference dividend) = 657 728.
Bloembooks Ltd was incorporated in 1902 and is one of the oldest book stores in Bloemfontein. On
1 January 2011, Bloembooks Ltd purchased 36 000 ordinary shares in Graffiti Ltd, a company that
exclusively sells Afrikaans’ books. From this date, Bloembooks Ltd exercised significant influence over
the financial and operating policy decisions of Graffiti Ltd. The assets and liabilities of Graffiti Ltd were
fairly valued on this date, with the exception of trade and other receivables that were overvalued by
R10 000.
Bloembooks Ltd wished to further expand its business and on 1 July 2012 entered into a joint
operation to create Butterworks on the same date. Butterworks is not a separate legal entity.
Butterworks will be a supplier of school and university text books, an industry which has expanded
significantly over the past two decades. Bloembooks Ltd is entitled to 45% of all Butterworks's assets
and liabilities, as well as revenues and expenses, by means of a contractual arrangement. The
arrangement is classified as a joint operation in accordance with IFRS 11, Investments in Joint
Arrangements.
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FAC3704/103
The following balances were extracted from the trial balances of Graffiti Ltd and Butterworks at various
dates:
Graffiti Ltd Butterworks
01/01/2011 01/12/2012 01/12/2012
R R R
Share capital - 120 000 ordinary shares 220 000 220 000 -
Retained earnings 1 060 000 1 480 000 45 000
Revaluation reserve 210 000 245 000 -
The following are the trial balances of the relevant entities as at 30 November 2013:
Bloembooks
Graffiti Ltd Butterworks
Ltd
R R R
Share capital - 500 000 ordinary shares (500 000) - -
- 120 000 ordinary shares - (220 000) -
Retained earnings - 30 November 2013 (3 560 000) (1 630 000) (204 000)
Revaluation surplus (350 000) (290 000) -
Mark-to-market reserve (162 704) - -
Long term loans - (100 000) -
Deferred tax liability (32 296) (8 500) -
Loan from Bloembooks Ltd - (12 500) (45 000)
Loans from other owners - - (55 000)
Trade and other payables (485 000) (202 500) (154 000)
Bank overdraft - (15 400) -
Property, plant and equipment 2 752 000 1 660 900 257 000
Investment in Graffiti Ltd at fair value 640 000 - -
Loan to Graffiti Ltd 12 500 - -
Loan to Butterworks 45 000 - -
Inventory 467 000 402 000 99 000
Cash and cash equivalents 579 500 - -
- - -
1. All the entities have a 30 November year-end.

2. It is the accounting policy of Bloembooks Ltd to account for investments in associates in
accordance with IFRS 9, Financial Instruments in their separate financial statements.
Bloembooks Ltd irrevocably elected to present the subsequent changes in the fair value of the
investment in other comprehensive income in the mark-to-market reserve.
3. On 31 March 2013, Butterworks sold office equipment to Bloembooks Ltd for an amount of
R58 000. Butterworks originally purchased this office equipment for R60 000 on the date when
the joint operation was entered into. On 1 July 2012, Butterworks estimitated that the office
equipment had a total useful life of six years. The entity’s policy is to provide for depreciation over
the expected useful life of the office equipment using the straight-line method which is consistent
with the allowance of the South African Revenue Service.
4. From 1 January 2011, Graffiti Ltd purchased inventory from Bloembooks Ltd. Bloembooks Ltd
sold the inventory at a profit margin of 25% on cost. Total sales amounted to R400 000 in the
2012 financial year and R620 000 in the 2013 financial year.
15
Inventory purchased from Bloembooks Ltd that was still on hand at year-end was as follows:
30 November 2012 - R90 000

30 November 2013 - R130 000
5. During the current year Butterworks sold inventory to the value of R100 000 to Bloembooks Ltd at
a profit mark-up of 40% on the selling price. On 30 November 2013, Bloembooks Ltd had
inventory on hand amounting to R60 000 that was purchased from Butterworks.
6. The fair value of the investment in Graffiti Ltd amounted to R580 000 on 30 November 2012.
7. Graffiti Ltd declared a dividend of R30 000 on 1 September 2013.
8. Bloembooks Ltd has the right to demand repayment of the loans to Graffiti Ltd and Butterworks at
any time.
9. The Bloembooks Ltd Group accounts for investments in associates using the equity method in
accordance with IAS 28, Investments in Associates and Joint Ventures.
10. Assume the SA normal tax rate is 28% and that the capital gains tax is calculated at 66,6%
thereof.
REQUIRED:
Prepare only the asset section of the consolidated statement of financial position of the Bloembooks
Ltd Group as at 30 November 2013. (30)
(IFRS).
Comparative figures to the consolidated financial statements are not required.
BLOEMBOOKS LTD GROUP

EXTRACT OF THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT
30 NOVEMBER 2013
2013
ASSETS R
Non-current assets
Property, plant and equipment
(2 752 000 + 115 650 (257 000 x 45%) - 2 475 (C1) + 314 (C1)) 2 865 489
Investment in associate (C2) 634 200
Deferred tax asset (C3) 10 813
Total non-current assets 3 510 502
Current assets
Inventory (467 000 + 44 550 (99 000 x 45%) – 10 800 ((60 000 x 40/100) x 45%)) 500 750
Trade and other receivables (594 000 + (102 000 x 45%)) 639 900
Cash and cash equivalents 579 500
Loan to Graffiti Ltd 12 500
Loan to Butterworks (45 000 - 20 250 (45 000 x 45%)) 24 750
Total current assets 1 757 400
Total assets 5 267 902
16
FAC3704/103
Comment:
Important exam technique
IAS 28 is very clear that ‘investment in associate’ must be disclosed separately from
any other investment. NO MARKS will be awarded in an exam if this is disclosed
under “investments in equity instruments”.
Calculations
C1 Unrealised profit on sale of equipment
R
Cost of equipment 60 000
Accumulated depreciation at 31 March 2013
(9 months elapsed from 1 July 2012 = 60 000/6 x 9/12) (7 500)
Carrying amount at 31 March 2013 52 500
Proceeds of sale of equipment 58 000
Unrealised profit on sale 5 500
Apportioned to Bloembooks Ltd (5 500 x 45%) 2 475
Reversal of current year’s depreciation (2 475/5,25 years remaining useful life
x 8/12) or (2 475/63 x 8 months)
(6 x 12 = 72 months – 9 months = 63 months, remaining useful life) 314
C2 Investment in associate
36 000 / 120 000 = 30% R

Fair value and carrying amount at year-end (given) 640 000
Reversal of fair value adjustments (162 704 x 100/81,352) (200 000)
Cost price of investment in associate 440 000
Gain on bargain purchase (C4) 4 840
Recognition of equity since acquisition until beginning of current year
(128 160 + 10 500) (C4) 138 660
Recognition of share of profit and other comprehensive income
(54 000 + 13 500) (C4) 67 500
Reversal of intragroup dividend received (9 000)
Reversal of current year unrealised profit in closing inventory
(130 000 x 25/125 x 30%)(C4) (7 800)
643 200
C3 Deferred tax asset
R
Deferred tax liability at year-end (given) (32 296)
Reversal of all fair value adjustments (MTMR)
(200 000 x 18,648%) or (162 704 x 18,648%/81,352%) 37 296
Unrealised profit in closing inventory – Graffiti Ltd
(130 000 x 25/125 x 30%) x 28% 2 184
Unrealised profit in equipment (2 475 (C1) x 28%) 693
Reversal of current year’s depreciation (314 (C1) x 28%) (88)
Unrealised profit in closing inventory – Butterworks
[(60 000 x 40/100 x 45%) x 28%] 3 024
10 813
17
C4 Analysis of owners' equity of Graffiti Ltd

Bloembooks Ltd
100% 36 000/120 000 = 30%
Total At Since CA
Share capital 220 000 66 000
Retained earnings
[1 060 000 - (10 000 x 72%)] 1 052 800 315 840
Revaluation surplus 210 000 63 000
1 482 800 444 840
Gain on bargain purchase 4 840 4 840
Investment in Graffiti Ltd 440 000 440 0001 440 000
Since acquisition
Retained earnings [(1 480 000 –
1 060 000 + (10 000 x 72%)) x 30%] 427 200 128 160 128 160
Revaluation surplus (245 000 - 210 000) 35 000 10 500 10 500
Current year
Profit for the year [1 630 000 – 1 480 000
+ 30 000 dividend] 180 000 54 000 54 000
Revaluation surplus (290 000 - 245 000) 45 000 13 500 13 500
Dividend paid (30 000) (9 000) (9 000)
1 071 200 440 000 197 160 642 000
Unrealised profit in closing inventory
(130 000 x 25/125) (26 000) (7 800)
634 200
1
[640 000 - 200 000(162 704 x 100/81,352)] = 440 000
18
FAC3704/103
You are assisting the chief financial officer of the Earth Ltd Group with the year end consolidation. The
following is an extract from the annual financial statements of Earth Ltd and its related group
investment companies for the year ended 31 December 2013:
EXTRACT FROM THE STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 2013

Earth Water Air Fire
Ltd Ltd Ltd Ltd
R R R R
ASSETS
Non-current assets
Property, plant and equipment 4 500 000 2 000 000 400 000 350 000
Investment in equity instruments 1 195 000 128 000 - -
Total non-current assets 5 695 000 2 128 000 400 000 350 000
Current assets
Cash and cash equivalents 550 000 150 000 66 200 10 500
Inventory 670 000 115 000 450 000 70 000
Trade and other receivables 700 000 255 280 50 000 60 000
Total current assets 1 920 000 520 280 566 200 140 500
Total assets 7 615 000 2 648 280 966 200 490 500
EQUITY
Share capital - 500 000 ordinary shares 1 000 000 - - -
- 150 000 ordinary shares - 300 000 - -
- 80 000 ordinary shares - - 80 000 -
- 50 000 ordinary shares - - - 100 000
LIABILITIES
Non-current liabilities
Deferred tax (mark-to-market reserve) 48 485 5 221 - -
EXTRACT FROM THE STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED
31 DECEMBER 2013
Earth Water Air Fire
Ltd Ltd Ltd Ltd
R R R R
RETAINED EARNINGS
Balance at 1 January 2013 3 500 000 446 000 120 000 150 000
Profit for the year 2 865 000 1 536 500 706 200 70 500
Dividends paid (100 000) (50 000) (20 000) (10 000)
Balance as at 31 December 2013 6 265 000 1 932 500 806 200 210 500
MARK-TO-MARKET RESERVE
Balance at 1 January 2013 16 270 - - -
Other comprehensive income for the year 195 245 22 779 - -
Balance at 31 December 2013 211 515 22 779 - -
19
1. Water Ltd
On 1 January 2013, Earth Ltd obtained control of Water Ltd, by acquiring 120 000 ordinary
shares in Water Ltd. The consideration paid consisted of a cash amount of R650 000 and a
vehicle transferred at a fair value (equal to the carrying amount) of R150 000. The market price
of Water Ltd’s shares on this date was R6,40 per share. The following is an extract from the trial
balance of Water Ltd on 1 January 2013:
Dr/(Cr)
R
Share capital (300 000)
Retained earnings (446 000)
Revaluation surplus (120 280)
On the acquisition date the fair value of the identifiable assets and liabilities of Water Ltd were
equal to the carrying amounts thereof, except for a newly occupied manufacturing building which
was valued by R100 000 more than its carrying amount. The new manufacturing building was
ready for use on 1 January 2013. The revaluation of the new building was not recorded in the
accounting records of Water Ltd.
Earth Ltd fair valued its investment in Water Ltd in the current year by R180 000 more than the
cost price thereof.
Water Ltd acquired a 5% interest in Wind Ltd on 1 June 2013 for an amount of R100 000. The
investment was fair valued to R128 000 at 31 December 2013.
On 31 December 2013, the directors of Earth Ltd assessed goodwill and determined that the
goodwill in Water Ltd was impaired by R18 000 in the current year. No impairment was
recognised on the investment in Water Ltd in the separate financial statements.
2. Air Ltd
On 31 December 2011, Earth Ltd acquired 40% of the ordinary share capital in Air Ltd and paid
a cash amount of R45 000 for the shares. At the date of acquisition the retained earnings of
Air Ltd amounted to R40 000. Since 31 December 2011, Earth Ltd exercised significant
influence over the financial and operating policy decisions of Air Ltd.
Earth Ltd fair valued its investment in Air Ltd by R70 000 more than the cost price thereof.
R50 000 of this amount relates to the fair value adjustment in the current year.
On 1 January 2012, Earth Ltd started selling inventory to Air Ltd at a profit mark-up of 25% on
the selling price. On 31 December 2013, Air Ltd had inventory on hand that was purchased from
Earth Ltd amounting to R120 000 (2012: R60 000).
3. Fire Ltd
Earth Ltd acquired 15 000 of the ordinary shares in Fire Ltd on 1 January 2013. A cash amount
of R90 000 was paid for these shares. Since this date, Earth Ltd exercised joint control over the
financial and operating policy decisions of Fire Ltd in terms of a contractual agreement. The
arrangement was classified as a joint venture in accordance with IFRS 11, Joint Arrangements.
No gain on bargain purchase arose at the acquisition of Fire Ltd.
On 31 December 2013, Earth Ltd fair valued its investment in Fire Ltd to R100 000.
20
FAC3704/103
On 1 September 2013, Fire Ltd sold furniture with a carrying amount of R135 000 to Earth Ltd
for R180 000. The furniture is included in the statement of financial position of Earth Ltd on
31 December 2013. On this date the remaining useful life of the furniture was two years. The
entity’s policy is to provide for depreciation over the expected useful life of the furniture, using
the straight-line method which is in line with the allowance received from the South African
Revenue Service.
4. The fair value of the identifiable assets and liabilities of Air Ltd and Fire Ltd at the respective
acquisition dates were considered to be equal to the carrying amounts of these items.
5. General accounting information and policies
The Earth Ltd Group:
- measures their non-controlling interests at fair value (full goodwill method).
- measures its investments in equity instruments at fair value through other comprehensive income.
- depreciate newly occupied manufacturing buildings at 5% per annum which is in line with the
allowance received from the South African Revenue Service.
- accounts for investments in associates and joint ventures in accordance with the equity
method.
Earth Ltd has no other investments in equity instruments, other than the investments detailed in
the given information.
The share capital of the companies remained unchanged since the acquisition dates of the
companies. Assume that each share carries one vote.
The SA normal tax rate remained unchanged at 28% since 31 December 2011 and capital gains
tax is calculated at 66,6% thereof.
REQUIRED:
(a) Prepare the pro forma journal entries to account for the intragroup sale of furniture between
Fire Ltd and Earth Ltd for the year ending 31 December 2013 (no journal narrations are required).
(8½)
(b) Prepare only the asset section of the consolidated statement of financial position of the Earth Ltd
Group as at 31 December 2013 (assume that there is no deferred tax asset). (23)
(c) Calculate the amount that will be disclosed as deferred tax in the consolidated statement of
financial position as at 31 December 2013 of the Earth Ltd Group. Clearly indicate whether
amounts used are deferred tax assets or liabilities. (7)
(d) Prepare the consolidated statement of changes in equity of the Earth Ltd Group for the
year ended 31 December 2013. The total columns are not required in the consolidated statement
of changes in equity. (17½)
Your answers must comply with the requirements of International Financial Reporting Standards
(IFRS).
21
PART A
Dr Cr
R R
J1 Dr Share of profit of joint venture (P/L) 13 500
((180 000 -135 000) x 30%)
Cr Property, plant and equipment (SFP) 13 500
Elimination of unrealised profit on sale of furniture
J2 Dr Deferred tax (SFP) (13 500 x 28%) 3 780

Cr Share of profit of joint venture (P/L) 3 780
Tax effect of eliminating unrealised profit on sale of furniture
J3 Dr Property, plant and equipment (depreciation) (SFP) 2 250

(13 500/2 x 4/12)
Depreciation adjustment
J4 Dr Share of profit of joint venture (P/L) (2 250 x 28%) 630

Cr Deferred tax (SFP) 630
Tax effect of depreciation adjustment
PART B
EARTH LTD GROUP

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2013
ASSETS
Non-current assets R
(4 500 000 + 2 000 000 + 100 000 - 5 000 (100 000 x 5%) (depreciation) – 13 500(part a)
+ 2 250(part a)) 6 583 750
Investment in equity instruments (Wind Ltd) (given) 128 000
Investment in associate - Air Ltd (C1) 342 480
Investment in joint venture - Fire Ltd (C2) 108 150
Goodwill (C6) 35 720
Current assets
Trade and other receivables (700 000 + 255 280) 955 280
Cash and cash equivalents (550 000 + 150 000) 700 000
Inventory (670 000 + 115 000) 785 000
Comment:
Important exam technique
IAS 28 is very clear that ‘investment in associate’ and ‘investment in joint venture’
must be disclosed separately from any other investment. No marks will be awarded
in an exam if these are disclosed under 'investments in equity instruments'.
Associates and joint ventures are both accounted for using the equity method. You
should notice in the above consolidated statement of financial position that Air Ltd
and Fire Ltd are accounted for in exactly the same way.
22
FAC3704/103
Calculations
C1 Investment in associate
R
Cost price (given) 45 000
Gain on bargain purchase (48 000 ((80 000 + 40 000) x 40%) - 45 000) 3 000
Recognition of equity since acquisition until beginning of year
((120 000 - 40 000) x 40%) 32 000
Recognition of share of profit for the current year
(706 200 x 40%) 282 480
Reversal of intra-group dividends (20 000 x 40%) (8 000)
Elimination of current year unrealised profit in closing inventory
((120 000 x 25/100) x 40%) (12 000)
342 480
C2 Investment in joint venture

R
15 000/50 000 = 30%
Cost price (given) 90 000
Recognition of share of profit for the current year
(70 500 x 30%) 21 150
Reversal of intra-group dividends (10 000 x 30%) (3 000)
108 150
PART C
Dr/(Cr)
Opening balance deferred tax liability: R
- Earth Ltd – liability (48 485)
- Water Ltd – liability (5 221)
Reversal of MTMR deferred tax – (given) - asset 48 485
- Investment in Water Ltd (180 000 x 18,648%) 33 566
- Investment in Air Ltd (70 000 x 18,648%) 13 054
- Investment in Fire Ltd (10 000 x 18,648%) 1 865
Revaluation (100 000 x 28%) (part b) - liability (28 000)
Depreciation ((100 000 x 5%) x 1 year x 28%) - asset 1 400
Closing inventory - associate
(120 000 x 25/100 x 40% = 12 000 x 28%) (part b) - asset 3 360
Unrealised profit - furniture - joint venture (part a) - asset 3 780
Unrealised profit - depreciation - furniture - joint venture (part a) - liability (630)
Closing balance deferred tax liability (25 311)
23
PART D
EARTH LTD GROUP

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED
31 DECEMBER 2013
Share Retained
MTMR NCI
capital earnings
R R R R
Balance at 1 January 2013 1 000 000 3 530 680 C3 -

Acquisition of subsidiary 192 000
Profit for the year 4 317 130 C4 302 980 C5
Other comprehensive income
for the year 18 2231 4 5562
Dividends (100 000) (10 000)3
Balance at
31 December 2013 1 000 000 7 747 810 18 223 489 536
1
22 779 x 80% = 18 223
2
22 779 x 20% = 4 556
3
50 000 x 20% = 10 000
C3 Opening retained earnings

R
3 500 000
Earth Ltd (given)
Air Ltd - associate - gain on bargain purchase (C1) 3 000
Air Ltd - associate - movement in retained earnings (C1) 32 000
Unrealised profit in opening inventory - Air Ltd (60 000 x 25% x 40%) (6 000)
Tax on unrealised profit in opening inventory (6 000 x 28%) 1 680
3 530 680
C4 Profit for the year attributable to owners of the parent R

Earth Ltd (given) 2 865 000
Water Ltd - subsidiary (given) 1 536 500
Elimination of intragroup dividends - Water Ltd (50 000 x 80%) (40 000)
Elimination of intragroup dividends - Air Ltd (part b) (8 000)
Elimination of intragroup dividends - Fire Ltd (part b) (3 000)
Impairment of goodwill (given) (18 000)
Additional depreciation due to revaluation of building at acquisition date (5 000)
Tax on additional depreciation 1 400
Unrealised intragroup profit in opening inventory, realised in current year 6 000
Tax on realisation of intragroup profit (1 680)
Unrealised intragroup profit in closing inventory (12 000)
Tax on unrealised intragroup profit 3 360
Share of profit from associate – Air Ltd (part b) 282 480
Share of profit from joint venture – Fire Ltd (part b) 21 150
24
FAC3704/103
QUESTION 3 (SUGGESTED SOLUTION)(continued) R
Unrealised profit on intragroup sale of equipment (part a) (13 500)

Tax on unrealised intragroup profit (part a) 3 780
Realisation of a portion of unrealised intragroup profit (part a) 2 250
Tax on realisation of intragroup profit (part a) (630)
4 620 110
Minus: profit for the year attributable to NCI (C5) 302 980
4 317 130
C5 Profit for the year attributable to NCI R

Water Ltd (profit for the year) (given) 1 536 500
Additional depreciation due to revaluation of building at acquisition date (5 000)
Tax on additional depreciation 1 400
Impairment of goodwill (given) (18 000)
1 514 900
Attributable to NCI (20%) 302 980
C6 Goodwill
Comment:
An analysis of owners’ equity is for calculation purposes only - it is not the required
disclosure. In this question only the “at acquisition” section of the analysis of owners’
equity was prepared in order to calculate the goodwill at acquisition date. The full
analysis has deliberately been omitted from this solution in order to highlight the fact
that it is not always necessary to prepare an analysis.
Analysis of owners equity of Water Ltd - subsidiary

100% Earth Ltd 80% 20%
Total At Since NCI
R R R R
At acquisition
Share capital (given) 300 000 240 000 60 000
Retained earnings (given) 446 000 356 800 89 200
Revaluation surplus (given) 120 280 96 224 24 056
Revaluation surplus
(100 000 x 72%) 72 000 57 600 14 400
938 280 750 624 187 656
Goodwill 53 720 49 376 4 344
Consideration
(650 000 + 150 000);
NCI (150 000 - 120 000) x R6,40) 992 000 800 000 192 000
Goodwill at date of acquisition 53 720

Impairment loss (given) (18 000)
Goodwill at 31 December 2013 35 720
25
The following are extracts of the trial balances of the entities in the Pearson Ltd Group for the year
ended 30 June 2013:
Pearson Morgan Stanley Fredman
Ltd Ltd Ltd Ltd
Dr/(Cr) Dr/(Cr) Dr/(Cr) Dr/(Cr)
R R R R
Property, plant and equipment at
carrying amount 2 420 000 688 000 826 000 344 000
Investments in equity instruments: - - - -
- Morgan Ltd at fair value 950 000 - - -
- Stanley Ltd at fair value - 612 000 - -
- Fredman Ltd at fair value 118 800 - - -
Trade and other receivables 340 200 312 000 145 000 180 000
Inventories 340 000 185 000 226 000 111 000
Cash and cash equivalents 260 000 177 000 384 000 178 000
Share capital: - - - -
- 600 000 ordinary shares (600 000) - - -
- 335 000 ordinary shares - (335 000) - -
- 240 000 ordinary shares - - (480 000) -
- 120 000 ordinary shares - - - (120 000)
Retained earnings/accumulated loss –
1 July 2012 (1 518 000) 370 500 (625 080) (144 000)
Trade and other payables (377 400) (683 600) (170 500) (330 000)
Mark-to-market reserve – 1 July 2012 (97 622) - - -
Deferred tax on mark-to-market reserve
– 30 June 2013 (9 324) - - -
Profit before tax (2 845 278) (1 904 028) (463 083) (304 167)
Other comprehensive income:
mark-to-market reserve – fair value 56 946 - - -
adjustment on investment, net after tax
Income tax expense 796 678 533 128 129 663 85 167
Dividends paid - 30 June 2013 165 000 45 000 28 000 -
- - - -
1. On 1 August 2010, Pearson Ltd acquired control over Morgan Ltd by acquiring 244 550 of Morgan
Ltd's ordinary shares. On this date the retained earnings of Morgan Ltd amounted to R546 000
and the consideration was settled with R900 000 in cash. On 1 August 2010 the market value of
Morgan Ltd’s shares were R3,20 per share.
2. At the acquisition date the fair value of the identifiable assets and liabilities of Morgan Ltd were
considered to be equal to the carrying amounts thereof, except for the following assets:
Fair value Carrying amount

R R
Trade receivables 180 000 220 000
Inventory 135 000 162 000
26
FAC3704/103
3. On 1 January 2013, Pearson Ltd sold a manufacturing machine to Morgan Ltd for R155 000. The
profit mark-up on the selling price was 25%. On 1 January 2013 the machine had a remaining
useful life of 4 years. The entity’s policy is to provide for depreciation over the expected useful life
of the machinery, using the straight-line method which is in line with the allowance received from
the South African Revenue Service.
4. On 28 February 2012, Morgan Ltd acquired control over Stanley Ltd by acquiring 204 000 ordinary
shares in Stanley Ltd. The full consideration of R612 000 was paid in cash. At the date of
acquisition Stanley Ltd’s retained earnings amounted to R172 000 and the identifiable assets and
liabilities were considered to be fairly valued and equal to the carrying amounts thereof. On 28
February 2012, the market value of Stanley Ltd’s shares were R3,00 per share.
5. Since the acquisition of Stanley Ltd, Stanley Ltd sold inventory to Morgan Ltd. The inventory was
sold at a mark-up of 20% on the cost price. Included in inventory on hand on 30 June 2013,
Morgan Ltd had inventory purchased from Stanley Ltd amounting to R112 000, excluding the
R13 000 inventory in transit (refer note 6), (30 June 2012: R90 000).
6. On 30 June 2013, inventory invoiced to the value of R13 000 was still in transit between Stanley
Ltd and Morgan Ltd. This transaction had not been recorded in the accounting records of Morgan
Ltd as at 30 June 2013. Stanley Ltd recognised the sale and included the R13 000 in “trade and
other receivables” of the current year.
7. On 1 August 2012, Pearson Ltd acquired 45% of the issued ordinary shares of Fredman Ltd for
R118 800 when the retained earnings of Fredman Ltd amounted to R144 000. At acquisition date
the fair value of the identifiable assets and liabilities of Fredman Ltd were considered to be equal
to the carrying amounts thereof. In terms of a contractual agreement with other operators,
Pearson Ltd exercises joint control over the economic activities of Fredman Ltd. The arrangement
was classified as a joint operation as per IFRS 11, Joint Arrangements and the consideration paid
was equal to the fair value of the investment in Fredman Ltd on the date of acquisition. The
contractual arrangement specifies that Pearson Ltd is entitled to 45% of all the revenues,
expenses, assets and liabilities of Fredman Ltd.
8. The group measures its investments in equity instruments at fair value through other
comprehensive income. The fair value of all equity instruments is equal to the cost thereof, unless
otherwise stated.
9. The Pearson Ltd group measures non-controlling interests at fair value (full goodwill method).
Goodwill relating to the investment in Morgan Ltd was tested for impairment on 30 June 2013 and
it was determined that the goodwill was impaired by R120 000.
10. The SA normal tax rate is 28% and capital gains tax is calculated at 66,6% thereof. You may
assume that the tax rate has remained unchanged since 1 August 2010.
11. Each share carries one vote and the issued share capital of all the entities in the group remained
unchanged since 1 August 2010.
REQUIRED:
(a) Prepare only the asset section (including the deferred tax asset) of the consolidated statement of
financial position of the Pearson Ltd Group as at 30 June 2013. (28)
(b) Prepare only the retained earnings and non-controlling interests columns of the consolidated
statement of changes in equity of the Pearson Ltd Group for the year ended 30 June 2013. (30)
Your answer must comply with the requirements of International Financial Reporting Standards.
All calculations must be shown and amounts are to be calculated to the nearest R1.
27
PART A
PEARSON LTD GROUP

30 JUNE 2013
ASSETS R
Non-current assets
(2 420 000 + 688 000 + 826 000 + 154 800(344 000 x 45%) - 38 750 + 4 844) 4 054 894
Goodwill
(356 680(C2) + 42 194(C2) + 10 200(C1) - (120 000)(impairment)) 289 074
Deferred tax asset (10 850 - 1 356 + 5 833) 15 327
Current assets
Trade and other receivables
(340 200 + 312 000 + 145 000 + 81 000(180 000 x 45%) - 13 000) 865 200
Inventories
(340 000 + 185 000 + 226 000 + 49 950(111 000 x45%) + 13 000 - 20 833) 793 117
Cash and cash equivalents
(260 000 + 177 000 + 384 000 + 80 100(178 000 x 45%)) 901 100
PART B
PEARSON LTD GROUP

EXTRACT OF THE CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR
ENDED 30 JUNE 2013
Retained Non-controlling
earnings interests
R R
a
Balance at 1 July 2012 1 158 605 315 249b
Profit for the year 3 189 952c 456 256d
Dividends paid (165 000) (16 350)e
Balance at 30 June 2013 4 183 556 755 155
a
1 518 000 – 359 395(C2) = 1 158 605
b
289 440(C2) + 108 000(C1) – 132 927(C2) + 66 342(C1) – 15 606(C2)(goodwill Stanley) = 315 249
c
2 048 600(2 845 278 – 796 678) + 1 370 900(1 904 028 - 533 128) + 333 420(463 083 – 129 663) +
98 550((304 167 – 85 167) x 45%) – 120 000(impairment) – 20 833(closing inventory) + 5 833(tax) +
15 000(opening inventory) – 4 200(tax) – 38 750(profit machine) + 10 850(tax) + 4 844(depreciation)
– 1 356(tax) – 32 850(dividend) – 23 800(dividend) = 3 646 208 – 406 873 – 49 383 = 3 189 952
d
406 873(C2) + 49 383 (C1) = 456 256
e
12 150(C2) + 4 200(C1) = 16 350
28
FAC3704/103
Calculations
C1 Analysis of owners’ equity of Stanley Ltd
100% 85% Morgan Ltd 15%
Total At Since NCI
At acquisition: 28 February 2012 R R R R
Share capital 480 000 408 000 72 000
Retained earnings 172 000 146 200 25 800
652 000 554 200 97 800
Equity represented by goodwill 68 000 57 800 10 200
Consideration paid & NCI at fair value
(240 000 – 204 000) x R3,00 720 000 612 000 108 000
Since acquisition 442 280 375 938 66 342

Retained earnings (625 080 – 172 000) 453 080 385 118 67 962
Unrealised profit in inventory
((90 000 x 20/120) x 72%) (10 800) (9 180) (1 620)
Current year 329 220 279 837 49 383

Profit for the year (463 083 – 129 663) 333 420 283 407 50 013
Realisation of unrealised profit prior year 10 800 9 180 1 620
((125 000 x 20/120) x 72%) (15 000) (12 750) (2 250)
Dividends paid (28 000) (23 800) (4 200)
1 463 500 631 975 219 525
Comment:
The group is a vertical group. The analysis of Stanley Ltd (bottom entity) will be
prepared first. As Morgan Ltd has an 85% interest in Stanley Ltd, 85% of the equity of
Stanley Ltd will be attributable to Morgan Ltd.
Pearson Ltd in turn owns 73% of Morgan Ltd. It is important to realise that due to
Morgan Ltd’s 85% interest in Stanley Ltd, Pearson Ltd also owns 73% of the 85%
equity of Stanley Ltd owned by Morgan Ltd.
For example, per C1 (analysis), Stanley Ltd made a profit for the year of R329 220
(after the elimination of intragroup transactions). Of this, Morgan Ltd owns 85% (R279
837), and the NCI of Stanley Ltd the remaining 15% (R49 383). Pearson Ltd owns
73% of Morgan Ltd and is therefore entitled to 73% x R279 837 = R204 281 (C2) (or
R329 220 x 85% x 73% = R204 281), and the NCI the remaining 27% (R75 556).
(Refer also to the analysis of Morgan Ltd).
29
The following diagram schematically shows how the profit of Stanley Ltd is allocated to the non-
controlling interests:
PEARSON LTD
Profit from Morgan Ltd:
279 837 x 73% = 204 281 (C2)
NCI
Profit of Stanley Ltd
attributable to NCI:
279 837 x 27% = 75 556
MORGAN LTD
(1)
Profit from Stanley Ltd:
329 220 x 15% = 49 383
329 220 x 85% = 279 837 (C2)
(2)
STANLEY LTD
Profit for the year: R329 220 (C1)
The following diagram schematically shows how the profit of Morgan Ltd is allocated to the non-
controlling interests:
PEARSON LTD
Profit from Morgan Ltd:
1 227 100 x 73% = 895 783
NCI
Profit of Morgan Ltd
attributable to NCI:
MORGAN LTD
1 227 100 x 27% = 331 317
Profit for the year: R1 227 100
(3)
(1370 900(C2) – 120 000(C2) –
23 800(C2) = 1 227 100))
The amount that will be disclosed as “profit attributable to the non-controlling interests” in the
consolidated statement of profit or loss and other comprehensive income of the Pearson Ltd
Group is R75 556 (1) + R49 383 (2) + R331 317 (3) = R456 256.
30
FAC3704/103
C2 Analysis of owners’ equity of Morgan Ltd

100% 73% Pearson Ltd 27%
Total At Since NCI
R R R R
At acquisition: 1 August 2010
Share capital 335 000 244 550 90 450
Trade receivables
(40 000(180 000 – 220 000) x 72%) (28 800) (21 024) (7 776)
Inventory
(27 000(135 000 – 162 000) x 72%) (19 440) (14 191) (5 249)
832 760 607 915 224 845
Equity represented by goodwill 356 680 292 085 64 595
Consideration and NCI at fair value
((335 000 – 244 550) x R3,20) 1 189 440 900 000 289 440
Since acquisition to current year

(2010 - 2012) (492 322) (359 395) (132 927)
Accumulated loss (-370 500 - 546 000) (916 500) (669 045) (247 455)
Realisation of trade receivables at acquisition 28 8001 21 024 7 776
Realisation of inventory at acquisition 19 4401 14 191 5 249
Since acquisition RE of Stanley Ltd (C1) 375 938 274 435 101 503
Goodwill on acquisition of Stanley Ltd (C1) (57 800) (42 194) (15 606)
Current year (2013) 1 506 937 1 100 064 406 873

Profit for the year (1 904 028 – 533 128) 1 370 900 1 000 757 370 143
Goodwill impairment (120 000) (87 600) (32 400)
Dividends received from Stanley Ltd (23 800) (17 374) (6 426)
Profit for the year Stanley Ltd (C1) 279 837 204 281 75 556
Dividends paid – 30 June 2013 (45 000) (32 850) (12 150)
2 101 255 707 819 535 630
Comment:
1
Trade receivables and inventories are both current assets; and are therefore
expected to realise within 12 months (hence the realisation of these current assets in
the next period - “since acquisition to beginning of current year”). The write down of
the inventory and the trade receivables at the acquisition date is passed for group
purposes only in order to correctly calculate the goodwill/gain on bargain purchase
at the acquisition date (IFRS 3). The write down is not accounted for in the separate
accounting records of Morgan Ltd. Due to this write down at the acquisition date, the
carrying amounts of these assets from the perspective of the group are less than
those reflected in the separate accounting records of Morgan Ltd. When these assets
realise, due to their carrying amounts being less, the profit for the group will be more,
or the loss for the group will be less than that recognised in the separate accounting
records of Morgan Ltd.
31
On 1 January 2011, Courtney Ltd acquired 35% of the issued shares of Ballantyne Ltd for R180 000.
Courtney Ltd exercised joint control over the financial and operating policy decisions of Ballantyne Ltd
since 1 January 2011. The arrangement was classified as a joint venture in accordance with IFRS 11,
Joint Arrangements.
The financial accountant of the group prepared the following section of the analysis of owner’s equity
in Ballantyne Ltd, which you may assume is correct:
100% 35%
Total At
At acquisition – 1 January 2011 R R
Retained earnings 170 000 59 500
Mark-to-market reserve 5 000 1 750
525 000 183 750
Equity represented by gain on bargain purchase 3 750
Investment in Ballantyne Ltd at cost price 180 000
At acquisition date there were no unidentified assets or liabilities and the fair value of the identifiable
assets and liabilities of Ballantyne Ltd were considered to be equal to the carrying amounts thereof.
The following is an extract from the trial balance of Ballantyne Ltd for the year ended
31 December 2012:
Dr/(Cr)
R
Share capital – 350 000 ordinary shares (350 000)
Retained earnings – 1 January 2012 (190 000)
Mark-to-market reserve – 1 January 2012 (13 838)
Deferred tax on mark-to-market reserve (4 092)
Accumulated depreciation (180 000)
Trade and other payables (20 140)
Revenue (390 000)
Other income (8 000)
Other comprehensive income: mark-to-market reserve – fair value adjustment on
investment, net after tax (4 070)
Property, plant and equipment 420 000
Investments in equity instruments:
- Barton Ltd at fair value 125 000
- Fletcher Ltd at fair value 150 000
Trade receivables 46 390
Cash and cash equivalents 12 070
Inventory 110 000
Dividends paid – 31 December 2012 20 000
Cost of sales 160 000
Other expenses 69 500
Income tax expense 47 180
-
32
FAC3704/103
1. During the current year Courtney Ltd started selling inventory to Ballantyne Ltd at a 30% mark-up
on the selling price. On 31 December 2012, Ballantyne Ltd had inventory amounting to R70 000
on hand which was purchased from Courtney Ltd.
2. On 31 December 2012, the investment in Ballantyne Ltd was recorded at a fair value of R198 000
in the financial records of Courtney Ltd.
3. Joint ventures are accounted for using the equity method.
4. The group measures its investments in equity instruments at fair value through other
otherwise stated.
assume that the tax rate and the capital gains tax rate has remained unchanged since
1 January 2011.
6. Each share carries one vote.
REQUIRED:
Prepare the pro-forma journal entries to account for the joint venture in the financial statements of the
Courtney Ltd Group for the year ended 31 December 2012. (27)
Journal narrations are not required.

(IFRS).
Comparative figures are not required.
Calculations are to be done to the nearest R1.
R R
J1 Dr Mark-to-market reserve
(18 000 (198 000 -180 000) x 81,352%) 14 643
Dr Deferred tax (18 000 x 18,648%) 3 357
Cr Investment in joint venture – Ballantyne Ltd (SFP) 18 000
Reversal of MTMR on investment in Ballantyne Ltd
J2 Dr Investment in joint venture – Ballantyne Ltd 3 750

Cr Retained earnings (gain on bargain purchase) 3 750
Recording of gain on bargain purchase (given)
Comment on J2:
Courtney Ltd purchased a 35% interest in Ballantyne for R180 000. The net asset value of the
investment in Courtney Ltd was R183 750 on this date, which resulted in a gain on bargain purchase
of R3 750. The investment in Ballantyne Ltd is increased by R3 750 to equal the value of the
investment. If the investment was acquired in the current year, the gain on bargain purchase would be
included in the ‘share of profit from joint venture’ – however as it relates to a prior period it is reflected
in retained earnings.
33
J3 Dr Investment in joint venture – Ballantyne Ltd (SFP) 10 093

Cr Retained earnings (190 000 – 170 000) x 35% 7 000
Cr Mark-to-market reserve (13 838 – 5 000) x 35% 3 093
Recording of interests in retained earnings and MTMR since acquisition
to beginning of the current year
J4 Dr Investment in joint venture – Ballantyne Ltd (SFP) 43 887

Cr Share of other comprehensive income of joint venture (OCI) 1 425
Recognition of share in profit of joint venture
(390 000 + 8 000 - 160 000 - 69 500 - 47 180) x 35%
Recognition of share in other comprehensive income of joint venture
(4 070 x 35%)
J5 Dr Revenue (70 000 x 35%) 24 500

Cr Cost of Sales (70 000 x 70/100 x 35%) 17 150
Cr Investment in joint venture – Ballantyne Ltd
(70 000 x 30/100 x 35%) 7 350
Elimination of unrealised profit in closing inventory of Ballantyne Ltd
Comment on J5:
As the inventory in the books of Ballantyne Ltd (buyer) was overstated with the unrealised profit at
year end, the 'investment in joint venture' account should be adjusted as this account reflects
Courtney Ltd's interest in the assets and liabilities (net assets) of Ballantyne Ltd.
J6 Dr Deferred tax (SFP) (70 000 x 30/100 x 35% = 7 350 x 28%) 2 058
Cr Income tax expense (P/L) 2 058
Tax effect of eliminating unrealised profit in closing inventory of
Ballantyne Ltd
J7 Dr Other income (dividend received) (20 000 x 35%) 7 000

Cr Investment in joint venture – Ballantyne Ltd (SFP) 7 000
Elimination of dividends received from joint venture (Ballantyne Ltd)
Comment on J7:
When Ballantyne Ltd pays dividends, its equity (net assets) is reduced by the amount of the
dividend paid. Consequently, Courtney Ltd's interest in Ballantyne Ltd's equity (net assets) also
reduces, hence the reduction in “investment in joint venture”.
34
FAC3704/103
C1 Analysis of owners’ equity of Ballantyne Ltd

(Not required – prepared for tuition purposes only)
Total Courtney Ltd 35%

100% 35% CA
At acquisition At Since
R R R R
Mark-to-market reserve 5 000 1 750
525 000 183 750
Equity represented by gain on bargain
purchase (3 750) (3 750)
Investment in Ballantyne Ltd @ cost price 521 250 180 000 180 000
Since acquisition to beginning of the

current year 32 588 13 843 13 843
Gain on bargain purchase 3 750 3 750 3 750
Retained earnings (190 000 – 170 000) 20 000 7 000 7 000
Mark-to-market reserve (13 838 – 5 000) 8 838 3 093 3 093
Current year 125 390 43 887 43 887

Profit for the year 121 320 42 462 42 462
Other comprehensive income for the year 4 070 1 425 1 425
Dividend paid (20 000) (7 000) (7 000)
659 228 180 000 50 730 230 730
Carrying amount of investment in joint
venture adjusted for:
(70 000 x 30/100 x 35%) (21 000) (7 350)
223 380
Comment:
Courtney Ltd (investor) sells inventory to Ballantyne Ltd (joint venture). Therefore the
inventory is in the accounting records of Ballantyne Ltd. Only the line item “investment
in joint venture” is disclosed in the consolidated statement of financial position and
therefore the unrealised profit on sale of this inventory is adjusted against this line
item.
35
Mosaic Ltd is a company that manufactures mosaic furniture and invests in other similar entities in
South Africa. All the companies in the Mosaic Ltd group have a 29 February year end. The following
information was provided by the management of the Mosaic Ltd group:
Extract from the trial balances of the entities in the Mosaic Ltd group for the year ended
29 February 2012:
Mosaic Ltd Garnet Ltd Violet Ltd
Dr/(Cr) Dr/(Cr) Dr/(Cr)
R R R
Share capital: -
– 250 000 ordinary shares (250 000) -
– 200 000 ordinary shares - (200 000) (100 000)
– 100 000 ordinary shares - - (180 000)
Retained earnings – 1 March 2011 (750 000) (480 000) (80 000)
Accumulated depreciation: property, plant and equipment (150 000) (280 000) (68 000)
Profit after tax (298 800) (214 560) 337 920
Property, plant and equipment 533 600 948 560
Investments in equity instruments: -
- Garnet Ltd at fair value 280 000 - -
- Violet Ltd at fair value 140 000 - -
- Ruby Red Ltd at fair value 100 000 - -
- Amethyst Ltd at fair value - 25 000 20 000
- Aquamarine Ltd at fair value - - 58 000
Trade receivables 115 000 45 000 63 000
Inventory 180 000 87 000 -
Dividends paid – 29 February 2012 100 000 50 000
1. On 1 January 2009, Mosaic Ltd acquired control over Garnet Ltd by purchasing 160 000 of the
issued ordinary shares of Garnet Ltd for R280 000 when the retained earnings of Garnet Ltd
amounted to R140 000.
2. At the acquisition date, the fair value of the identifiable assets and liabilities of Garnet Ltd were
considered to be equal to the carrying amounts thereof, except for land which was revalued by
R10 000 more than its carrying amount and inventory which was written down by R9 000 to its
net realisable value.
3. On 1 March 2011, Mosaic Ltd acquired a 49% interest in Violet Ltd. In terms of a contractual
agreement with the other operators, Mosaic Ltd exercises joint control over the economic
activities of Violet Ltd. The arrangement is classified as a joint operation as per IFRS 11, Joint
Arrangements. The contract specifies that all revenue, expenses, assets and liabilities are
allocated according to the interest held by the operators. At acquisition date, the fair value of
the identifiable assets and liabilities of Violet Ltd were considered to be equal to the carrying
amounts thereof.
4. During the current year Mosaic Ltd sold inventory of R100 000 to Violet Ltd at a profit of 25%
on the cost price of the inventory. On 29 February 2012, Violet Ltd had inventory on hand
amounting to R50 000 that was purchased from Mosaic Ltd.
36
FAC3704/103
5. On 1 December 2011, Mosaic Ltd sold equipment with a carrying amount of R110 000 to
Garnet Ltd for R125 000. On this date the remaining useful life of the equipment was 3 years.
The entity’s policy is to provide for depreciation over the expected useful life of the equipment
using the straight-line method which is in line with the allowance received from the South
African Revenue Service. On 29 February 2012, 40% of the selling price of the equipment was
still outstanding and is included in “trade receivables” and “trade and other payables” of
Mosaic Ltd and Garnet Ltd respectively.
6. The Mosaic Ltd Group measures its investments in equity instruments at fair value through
other comprehensive income. The fair value of the investments in equity instruments is equal
to the cost price thereof, unless otherwise stated.
7. The Mosaic Ltd Group elected to measure non-controlling interests at fair value (full goodwill
method) at acquisition date. Goodwill was tested for impairment at 29 February 2012 and it
was determined that the goodwill relating to Garnet Ltd was impaired by R2 000.
8. The market value of Garnet Ltd’s shares at 1 January 2009 was R1,75 per share.
assume that the tax rate has remained unchanged since 1 January 2009.
REQUIRED:
(a) Prepare only the asset section (including deferred tax asset) of the consolidated statement of
financial position of the Mosaic Ltd Group as at 29 February 2012. (30)
(b) Calculate the amount that will be disclosed as non-controlling interests in the consolidated
statement of financial position of the Mosaic Ltd Group as at 29 February 2012. (5)
(IFRS).
All amounts must be rounded off to the nearest R1.
37
PART A
MOSAIC LTD GROUP

29 FEBRUARY 2012
R
ASSETS
Non-current assets
Property, plant and equipment (533 600 + 948 560 + 165 581(337 920 x 49%) + 10 000 -
15 000 (125 000 - 110 000) - 150 000 - 280 000 - 39 200 (80 000 x 49%) + 1 250
(15 000/3 x 3/12)) 1 174 791
*Investment in Ruby Red Ltd 100 000
*Investment in Amethyst Ltd 25 000
*Investment in Aquamarine Ltd (20 000 x 49%) 9 800
Goodwill (8 345 - 2 000 + 2 800) 9 145
Deferred tax (-1 865 (10 000 x 18,648%) + 1 372 (4 900 x 28%) + 4 200 (15 000 x 28%) -
350 (1 250 x 28%) 3 357
Current assets
Trade and other receivables (115 000 + 45 000 + 28 420 (58 000 x 49%) - 50 000
(125 000 x 40%)) 138 420
Cash and cash equivalents (78 000 + 85 000 + 30 870 (63 000 x 49%)) 193 870
Inventory (180 000 + 87 000 + 31 850 (65 000 x 49%) - 4 900 (50 000 x 25/125 x 49%)) 293 950
Total current assets 626 240

*May be combined as one line item
PART B
Non-controlling interests R
At acquisition date fair value (200 000 x 20% x R1,75) 70 000
Since acquisition date ((480 000 - 140 000 + 6 480) x 20%) 69 296
Current year:
Profit for the year ((214 560 - 2 000) x 20%) 42 512
Dividends paid (50 000 x 20%) (10 000)
171 808
Alternative calculation:
Balance at beginning of year 139 2961
Total comprehensive income for the year:
Profit for the year ((214 560 - 2 000) x 20%) 42 512
Dividends paid (50 000 x 20%) (10 000)
Closing balance 171 808
1
70 000 (200 000 x 20% x R1,75) + 68 000 ((480 000 - 140 000) x 20%) + 1 296 (6 480 x 20%) =
139 296
38
FAC3704/103
Calculations
Note: It is important to note that preparing an analysis of owners’ equity is for calculation purposes
only - it is not the required disclosure.
C1 Analysis of owners’ equity of Garnet Ltd

100% Mosaic Ltd 80% 20%
Total At Since NCI
R R R R
At acquisition
Share capital 200 000 160 000 40 000
Adjustment for inventory (9 000 x 72%) (6 480) (5 184) (1 296)
Revaluation surplus (10 000 x 81,352%) 8 135 6 508 1 627
341 655 273 324 68 331
Equity presented by goodwill 8 345 6 676 1 669
Investment in Garnet Ltd and NCI 350 000 280 000 70 000
Since acquisition to beginning of the current year

Retained earnings (480 000 - 140 000) 340 000 272 000 68 000
Reversal of inventory adjustment 6 480 5 184 1 296
Current year
Adjusted profit for the year 212 560 170 048 42 512
Impairment of goodwill (2 000) (1 600) (400)
Dividend paid (50 000) (40 000) (10 000)

852 560 280 000 402 048 171 808
OR
Goodwill can be calculated using the proof of goodwill method:
R
Consideration transferred at acquisition date: IFRS 3.32(a)(i) 280 000
Plus: Amount of non-controlling interests (200 000 x 20% x 1,75): IFRS 3.32(a)(ii) 70 000
350 000
Less: net of assets acquired and liabilities assumed at acquisition date: IFRS 3.32(b) (341 655)
Goodwill 8 345
OR
Goodwill can be calculated by preparing the at acquisition journal entry:
Dr Cr
R R
Dr Share capital 200 000
Dr Retained earnings at acquisition date (140 000 – 6 480) 133 520
Dr Revaluation surplus 8 135
Dr Goodwill (balancing) 8 345
Cr Investment in Garnet Ltd at cost 280 000
Cr Non-controlling interests 70 000
39
C2 Analysis of owners’ equity of Violet Ltd

100% Mosaic Ltd
49%
Total At
R R
At acquisition
280 000 137 200
Equity presented by goodwill 2 800 2 800
Investment in Violet Ltd @ cost price 282 800 140 000
Comment:
From the above it should be clear that there are many methods that may be applied to
obtain the correct answer. It is important for you to decide which method works the best for
you and then to apply that method in an examination. Do not apply more than one method
as you will be wasting time.
It is of the utmost importance to realise that an analysis of owners’ equity is only a

calculation and will earn you no marks in an examination unless the amounts calculated in
the analysis have been correctly disclosed in the financial statements.
40
FAC3704/103
QUESTION 7 (38 marks) (68 minutes)

The following information was provided by the financial manager of the Rocky Ltd Group:
Extracts from the trial balances of the entities in the Rocky Ltd Group for the year ended 29 February
2012:
Rocky Ltd Trail Ltd Cliff Ltd
R R R
Debits
Property, plant and equipment at carrying amount 434 400 226 000 285 200
Investment in equity instruments:
- Trail Ltd at fair value 368 000 - -
- Cliff Ltd at fair value - 185 000 -
Inventories 124 500 248 010 133 222
Loan to Trail Ltd 145 000 - -
Finance costs - 18 125 -
Other expenses 42 700 78 000 25 300
Dividends paid - 28 February 2012 26 000 34 000 18 000
1 535 724 1 252 684 935 434
Credits
Share capital - 500 000 ordinary shares (500 000) - -
- 190 000 ordinary shares - (402 000) -
- 220 000 ordinary shares - - (220 000)
Mark-to-market reserve – 1 March 2011 (24 406) (12 203) -
Retained earnings - 1 March 2011 (194 324) (185 084) (370 734)
Deferred tax on mark-to-market reserve (5 594) (2 797) -
Loan from Rocky Ltd - (145 000) -
Gross profit (354 000) (273 000) (186 000)
Other income (172 000) (38 300) (25 200)
Other comprehensive income: revaluation surplus –
fair value adjustment of land, net after tax - (17 908) -
1 535 724 1 252 684 935 434
1. On 1 December 2008, Rocky Ltd acquired control over Trail Ltd by purchasing 142 500 ordinary
shares in Trail Ltd. On this date the retained earnings of Trail Ltd amounted to R54 260. The
consideration paid was settled with R220 000 in cash and the transfer of land with a market value
of R118 000.
2. On 28 February 2009, Trail Ltd acquired 77 000 ordinary shares in Cliff Ltd. The full consideration
of R170 000 was paid in cash. From this date Trail Ltd exercised significant influence over the
financial and operating policy decisions of Cliff Ltd. At the date of acquisition, Cliff Ltd’s retained
earnings amounted to R294 000.
41
3. On the acquisition dates of Trail Ltd and Cliff Ltd the fair value of all assets and liabilities were
considered to be equal to the carrying amounts thereof and there were no unidentified assets,
liabilities or contingent liabilities.
4. On 1 June 2010, Trail Ltd sold a manufacturing machine to Rocky Ltd for R152 000. The profit on
the sale of the machine amounted to R34 600 and on that date the machine had a remaining
useful life of three years. The depreciation written off on the machine was in line with the
allowance received from the South African Revenue Service.
5. On 1 March 2011, Rocky Ltd issued an interest bearing loan (payable annually in arrears) of
R145 000 to Trail Ltd. The loan bears interest at 12,5% per annum and the interest payment
received by Rocky Ltd is included in “other income”. The interest payment made by Trail Ltd is
included in “finance charges”.
6. Since 1 December 2008, Rocky Ltd sold inventory to Trail Ltd at a mark-up of 15% on the cost
price. On 29 February 2012, Trail Ltd had inventory to the amount of R92 000 on hand that was
purchased from Rocky Ltd (28 February 2011: R69 000).
7. The Rocky Ltd Group elected to measure non-controlling interests in an acquiree at their
proportional share of the acquiree’s identifiable net assets (partial goodwill method).
8. The Rocky Ltd Group measures its investments in equity instruments at fair value through other
otherwise stated.
9. You may assume that the SA normal tax rate remained unchanged at 28% and the capital gains
tax inclusion rate was 66,6% since 1 December 2008.

REQUIRED:
(a) Prepare the consolidated statement of profit or loss and other comprehensive income for the
Rocky Ltd Group for the year ended 29 February 2012. (24)
(b) Prepare only the retained earnings column in the consolidated statement of changes in equity of
the Rocky Ltd Group for the year ended 29 February 2012. (14)
(IFRS).
Notes to the consolidated annual financial statements and comparative figures are not required.
Calculations are to be done to the nearest R1.
42
PART A
ROCKY LTD GROUP

FOR THE YEAR ENDED 29 FEBRUARY 2012
R
15 15
Gross profit (354 000 + 273 000 - 12 000 (92 000 x /115) + 9 000 (69 000 x /115)) 624 000
Other income (172 000 + 38 300 - 25 500 (34 000 x 75%) – 6 300 (18 000 x 35%) - 160 375
18 125 (145 000 x 12,5%))
Share of profit from associate (186 000 + 25 200 - 25 300 - 52 052) x 35%
(See also analysis Cliff Ltd) 46 847
Finance cost (18 125 – 18 125) -
Other expenses (42 700 + 78 000 -11 533) (109 167)
Income tax expense (135 324 + 60 249 + 3 229 (11 533 x 28%) - 3 360 (12 000 x 28%) +
2 520 (9 000 x 28%)) (197 962)
PROFIT FOR THE YEAR 524 093
Other comprehensive income
Items that will not be reclassified to profit or loss:
Revaluation surplus: fair value adjustments on land, net after tax (given) 17 908
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 542 001
Profit attributable to:

Owners of parent 473 149
524 093
Total comprehensive income attributable to:
Owners of parent 486 580
542 001
1
154 926 (273 000 + 38 300 -18 125 - 78 000 - 60 249) - 6 300 (Cliff dividend) + 11 533 (property,
plant and equipment) + 46 847 (Cliff profit) – 3 229 (tax on depreciation) = 203 777 x 25% = 50 944
2
50 944 + 4 477 (17 908 X 25%) = 55 421
PART B
ROCKY LTD GROUP

EXTRACT OF THE CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR
ENDED 28 FEBRUARY 2012
Retained
earnings
R
Balance at 1 March 2011 (C1) 303 712
Total comprehensive income for the year
Profit for the year (Part A) 473 149
Dividends paid (given) (26 000)
Balance at 28 February 2012 750 860
10
C1 Opening retained earnings calculation R

Retained earnings – Rocky Ltd (given) 194 324
Retained earnings – Trail Ltd Group (C2) 111 673
Gain on bargain purchase on acquisition of Trail Ltd 4 195
Unrealised profit on intragroup sale of inventory
(69 000 x 15/115) x 72% = 6 480 OR (9 000 – 2 520) (6 480)
303 712
C2 Retained earnings – Trail Ltd Group R
Retained earnings – Trail Ltd (185 084 – 54 260) 130 824
Gain on bargain purchase - Cliff Ltd 9 900
Retained earnings - Cliff Ltd (C3) 26 857
Elimination of profit on sale of machine (34 600)
Tax on profit on sale of machine (34 600 x 28%) 9 688
9
Depreciation on machine (34 600/3 x /12) 8 650
Tax on depreciation (8 650 x 28%) (2 422)
148 897
Retained earnings – Trail Ltd Group x 75% 111 673
44
FAC3704/103
C3 Analysis of owners’ equity of Trail Ltd
Rocky Ltd
100% 75% 25%
Total At Since NCI
R R R R
At acquisition
Share capital 402 000 301 500 100 500
456 260 342 195 114 065
Gain on bargain purchase (4 195) (4 195)
Consideration paid and NCI
(220 000 + 118 000) 452 065 338 000 114 065
Since acquisition to beginning of

current year 148 897 111 673 37 224
Retained earnings
(185 084 - 54 260) 130 824 98 118 32 706
Gain on bargain purchase - Cliff Ltd
(C4) 9 900 7 425 2 475
Retained earnings - Cliff Ltd (C4) 26 857 20 143 6 714
Elimination of intragroup profit on sale
of machine (34 600) (25 950) (8 650)
Tax on profit on sale of machine
(34 600 x 28%) 9 688 7 266 2 422
Depreciation on machine
(34 600/3 x 9/12) 8 650 6 488 2 163
Tax on depreciation (8 650 x 28%) (2 422) (1 817) (606)
Current year 203 777 152 833 50 944

Dividends received from Cliff Ltd
included in Trail Ltd’s profits (C4) (6 300) (4 725) (1 575)
Depreciation on machine
(34 600/3 years) 11 533 8 650 2883
Tax on depreciation (11 533 x 28%) (3 229) (2 422) (807)
Profit for the year - Cliff Ltd (C4) 46 847 35 135 11 712
Other comprehensive income (given) 17 908 13 431 4 477
Dividends paid (given) (34 000) (25 500) (8 500)
788 647 252 436 198 210
1
273 000 + 38 300 - 18 125 - 78 000 - 60 249 = 154 926
45
C4 Analysis of owners’ equity of Cliff Ltd

Trail Ltd
100% 35% 35%
Total At Since CA
514 000 179 000
Gain on bargain purchase (9 900) (9 900)
Consideration paid 504 100 170 000 170 000
Since acquisition to
beginning of current year 76 734 36 757 36 757
Gain on bargain purchase 9 900 9 900
Retained earnings: (370 737 -
294 000) 76 734 26 857 26 857
Current year 133 848 46 847 46 847

Profit for the year (186 000 +
25 200 - 52 052) 133 848 46 847 46 847
Dividends paid (given) (18 000) (6 300) (6 300)
696 682 77 304 247 304
Comment:
The group is a vertical group. The analysis of Cliff Ltd (bottom entity) will be prepared first.
As Trail Ltd has a 35% interest in Cliff Ltd, 35% of the equity of Cliff Ltd will be attributable
to Trail Ltd.
Rocky Ltd in turn owns 75% of Trail Ltd. It is important to realise that due to Trail Ltd’s 35%
interest in Cliff Ltd, Rocky Ltd also owns 75% of the 35% equity of Cliff Ltd owned by
Trail Ltd.
For example, per C4 (analysis), Cliff Ltd made a profit of R133 848. Of this profit, Trail Ltd
owns 35% (R46 847). Rocky Ltd owns 75% of Trail Ltd and is therefore entitled to 75% x
R46 847 = R35 135 (or 133 848 x 35% x 75% = R35 135), and the NCI the remaining 25%
(R11 712). (Refer also to analysis of Trail Ltd).
46
FAC3704/103
The following are the trial balances of Rainbow Ltd, Red Ltd and Blue Ltd for the year ended
31 December 2011:
Rainbow Ltd Red Ltd Blue Ltd
Debits R R R
Property, plant and equipment 553 000 428 180 457 280
Investment in equity instruments:
- Red Ltd at fair value 450 000 – –
- Green Ltd at fair value 120 000 – –
- Blue Ltd at fair value – 200 000 –
Inventory 241 227 387 000 466 800
Cost of sales 380 000 171 650 550 000
Other expenses 200 760 120 000 222 000
2 028 214 1 436 400 1 791 000
Credits
Share capital - 200 000 ordinary shares 250 000 – –
- 100 000 ordinary shares – 200 000 –
- 100 000 ordinary shares – – 100 000
Retained earnings – 1 January 2011 900 214 472 000 580 000
Mark-to-market reserve – 8 135 –
Deferred taxation – 1 865 –
Revenue 693 000 576 900 913 000
Other income 185 000 177 500 198 000
2 028 214 1 436 400 1 791 000
Information relating to acquisitions
Red Ltd:
1. Rainbow Ltd acquired control of Red Ltd on 1 January 2011 by acquiring 70 000 shares in Red Ltd
for R450 000.
2. During the year Rainbow Ltd sold inventory amounting to R120 000 to Red Ltd. Rainbow Ltd sells
its inventory at cost plus 25%. At year end Red Ltd had inventory of R80 000 on hand which was
purchased from Rainbow Ltd.
Blue Ltd:
3. On 1 January 2009, Red Ltd acquired a 50% interest in Blue Ltd. In terms of a contractual
agreement with other operators, Red Ltd exercises joint control over the economic activities of
Blue Ltd. The contractual agreement specifies that Red Ltd is entitled to 50% of all revenues,
expenses, assets and liabilities of Blue Ltd. After considering all the requirements of IFRS 11,
Joint Arrangements, the joint arrangement was correctly classified as a joint operation.
4. On 1 January 2009 the retained earnings of Blue Ltd amounted to R280 000 and the consideration
paid was equal to the interest in the net assets acquired. No goodwill or gain on bargain purchase
existed at acquisition date.
5. Included in "other expenses" of Blue Ltd are management fees of R60 000 paid to Red Ltd. The
management fees received are included in "other income" of Red Ltd.
47
Green Ltd:
6. On 1 January 2010, Rainbow Ltd entered into a joint arrangement by acquiring 40% of the issued
share capital of Green Ltd for R120 000. After considering all the requirements of IFRS 11, Joint
Arrangements, the joint arrangement was correctly classified as a joint venture.
7. The following information can be assumed to be correct relating to the joint venture, Green Ltd:
Total 40%
At acquisition - 1 January 2010 R R
120 000
Consideration transferred 120 000
8. The profit for the financial year ended 31 December 2011 for Green Ltd amounted to R287 280.
9. On 31 December 2011, a sworn appraiser valued a manufacturing building in Green Ltd with a
carrying amount of R120 000 to a fair value of R150 000. Green Ltd uses the cost model in terms
of IAS 16, Property, Plant and Equipment to account for land and buildings, while Rainbow Ltd
uses the revaluation model to account for land and buildings.
10. On the acquisition dates of Red Ltd, Green Ltd and Blue Ltd the fair value of all assets and
liabilities were considered to be equal to the carrying amounts thereof and there were no
unidentified assets, liabilities or contingent liabilities, unless stated otherwise.
11. The Rainbow Ltd Group elected to measure any non-controlling interests in an acquiree as its
proportional share of the acquiree’s identifiable net assets at acquisition date (partial goodwill
method).
12. All the entities in the group measure investments in equity instruments at fair value through other
comprehensive income. The fair values of the equity instruments are equal to the cost thereof,
unless otherwise stated.
13. The SA normal tax rate is 28% and capital gains tax is calculated at 66,6% thereof.
14. Each share carries one vote and the share capital of all companies has remained unchanged.
REQUIRED:
a) Prepare the pro-forma journal entries to account for the joint operation in Red Ltd Group’s financial
statements for the year ended 31 December 2011. (18)
b) Prepare the consolidated statement of profit or loss and other comprehensive income for the
Rainbow Ltd Group for the year ended 31 December 2011. (27)
Your answer must comply with the requirements of International Financial Reporting Standards.
Notes to the consolidated annual financial statements and comparative figures are not required.
Journal narrations are not required.
48
FAC3704/103
PART A
Pro-forma journal entries to account for Blue Ltd
Dr Cr
R R
J1 Mark-to-market reserve (given) 8 135
Deferred taxation (given) 1 865
Investment in Blue Ltd (balancing figure) 10 000
Elimination of fair value adjustment of Blue Ltd
J2 Property, plant and equipment (457 280 x 50%) 228 640
Inventory (466 800 x 50%) 233 400
Cost of sales (550 000 x 50%) 275 000
Other expenses (222 000 x 50%) 111 000
Income tax expense (94 920 x 50%) 47 460
Share capital (100 000 x 50%) 50 000
Retained earnings (580 000 x 50%) 290 000
Revenue (913 000 x 50%) 456 500
Other income (198 000 x 50%) 99 000
Recording 50% of Blue Ltd 895 500 895 500
J3 Share capital (100 000 x 50%) 50 000
Retained earnings (280 000 x 50%) 140 000
Investment in Blue Ltd (200 000 – 10 000) 190 000
Elimination of investment at acquisition date
J4 Other income (management fees received) 30 000
Other expenses (management fees paid) 30 000
Elimination of intragroup management fees paid/received
(60 000 x 50%)
OR J2, J3 and J4 combined:

Property, plant and equipment (457 280 x 50%) 228 640
Inventory (466 800 x 50%) 233 400
Cost of sales (550 000 x 50%) 275 000
Other expenses ((222 000 x 50%) – (60 000 x 50%)) 81 000
Income tax expense (94 920 x 50%) 47 460
Investment in Blue Ltd (200 000 – 10 000) 190 000
Retained earnings ((580 000 – 280 000) x 50%) 150 000
Revenue (913 000 x 50%) 456 500
Other income ((198 000 x 50%) – (60 000 x 50%)) 69 000
Recording 50% of Blue Ltd 865 500 865 500
49
PART B
RAINBOW LTD GROUP

FOR THE YEAR ENDING 31 DECEMBER 2011
R
Revenue (693 000 + 576 900 + 456 500 (913 000 x 50%) – 120 000) 1 606 400
Cost of sales (380 000 + 171 650 + 275 000 (550 000 x 50%) – 120 000 +
16 000(C1)) (722 650)
Gross profit 883 750
Other income (185 000 + 177 500 + 99 000 (198 000 x 50%) – 30 000 (60 000 x 50%)
+ 125 400 (C2)) 556 900
Share of profit of joint venture (287 280(given) x 40%) 114 912
Other expenses (200 760 + 120 000 + 111 000 (222 000 x 50%) – 30 000) (401 760)
Profit before tax 1 153 802
Income tax expense (83 227 + 129 570 + 47 460 (94 920 x 50%) – 4 480(C1)) (255 777)
PROFIT FOR THE YEAR 898 025
Other comprehensive income:
Items that will not be reclassified to profit or loss: R
Share of other comprehensive income of joint venture; net of tax
(30 000 (150 000 – 120 000) x 72% x 40%)(C3) 8 640
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 906 665
Profit attributable to: R

Owner of the parent 761 459
Non-controlling interests
(99 954 (333 180 x 30%)(C4) + 36 612 (244 080 x 50% x 30%)(C5)) 136 566
898 025
Total comprehensive income attributable to:
Owners of the parent 770 099
906 665
50
FAC3704/103

Calculations
C1 Unrealised profit on sale of inventory
R
25
Unrealised profit on closing inventory (80 000 x /125) 16 000
Tax on unrealised profit in closing inventory (16 000 x 28%) 4 480
C2 Gain on bargain purchase at acquisition of Red Ltd

100% 70%
Total At
At acquisition R R
Retained earnings – Blue Ltd ((580 000 – 280 000) x 50%) 150 000 105 000
822 000 575 400
Gain on bargain purchase 125 400
Consideration paid (given) 450 000
C3 Revaluation of manufacturing building of Green Ltd R
Revaluation of manufacturing building (150 000 – 120 000) 30 000
Tax on revaluation (30 000 x 28%) (8 400)
Revaluation after tax 21 600
Rainbow Ltd’s share of revaluation after tax (21 600 x 40%) 8 640
C4 NCI’s share in profit for the year – Red Ltd
R
Revenue 576 900
Other income 177 500
Cost of sales (171 650)
Other expenses (120 000)
Income tax expense (129 570)
Profit for the year 333 180
NCI’s share in profit of Red Ltd (333 180 x 30%) 99 954
C5 Profit for the year - Blue Ltd

R
Revenue 913 000
Other income 198 000
Cost of sales (550 000)
Other expenses (222 000)
Income tax expense (94 920)
Profit for the year 244 080
Red Ltd’s share in profit of Blue Ltd for the year
(244 080 x 50%) 122 040
NCI’s share of profit of Blue Ltd (122 040 x 30%) 36 612
51
Comment:
The group is a vertical group. Rainbow Ltd has control (70%) over Red Ltd which in turn
has a 50% interest in Blue Ltd.
It is important to realise that due to Red Ltd's 50% interest in Blue Ltd, Rainbow Ltd also
owns 70% of the 50% equity of Blue Ltd owned by Red Ltd.
For example (per C5), Blue Ltd made a profit of R244 080. Of this, Red Ltd owns 50%
(R122 040). Rainbow Ltd owns 70% of Red Ltd and is therefore entitled to 70% x R122 040
= R85 428, and the NCI is entitled to the remaining 30% (R36 612) (Refer C5).
Ref:/ FAC3704_2016_TL_103_3_E.pdf
©
UNISA 2016
52

Tutorial Letter 103/3/2016: Group Financial Reporting

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Tutorial Letter 103/3/2016: Group Financial Reporting

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FAC3704/103/3/2016

Tutorial letter 103/3/2016

Group Financial Reporting

Department of Financial Accounting

2 LECTURERS AND CONTACT DETAILS ................................................................................ 2

3 EXAM PREPARATION AND APPROACH .............................................................................. 4

4 EXAMINABLE TOPICS IN THE SYLLABUS .......................................................................... 7

5 INTEGRATED QUESTIONS AND SUGGESTED SOLUTIONS .............................................. 8

2 LECTURERS AND CONTACT DETAILS

Lecturers Office number

(012) 429 4250

You can also communicate with the lecturers via myUnisa.

Online address: http://my.unisa.ac.za

College Information Coordinators

Jabulani Chauke: (012) 429 2982

College Information Hub

Tel no: (012) 429 4211

REMARKING OF EXAM SCRIPTS

4 EXAMINABLE TOPICS IN THE SYLLABUS

2. Change as a result of the issue of additional shares by means of:

3. Consolidated statement of cash flows (the entire chapter).

Textbook: Group statements, Volume 2 (Binnekade, CS, et al 2013, sixteenth edition):

QUESTION SUBJECT MARKS TIME

1 Change in ownership and joint operation 50 90

QUESTION 1 (50 marks)(90 minutes)

C2 Tax effect on unrealised profit on sale of land

C3 Profit on sale of shares – separate financial statements of Panem Ltd

C4 Change in ownership (equity)

QUESTION 1 (SUGGESTED SOLUTION)(continued)

C5 Analysis of owners’ equity of Everdeen Ltd

Equity presented by goodwill 30 000 30 000 -

Change in ownership equity reserve 3 114

Analysis of owners’ equity of Everdeen Ltd (continued)

Net profit for 8 months of the year

Dividends paid (50 000) (35 000) (15 000)

Goodwill at acquisition 30 000

QUESTION 2 (30 marks)(54 minutes)

1. All the entities have a 30 November year-end.

30 November 2012 - R90 000

QUESTION 2 (SUGGESTED SOLUTION)

BLOEMBOOKS LTD GROUP

QUESTION 2 (SUGGESTED SOLUTION)(continued)

C1 Unrealised profit on sale of equipment

36 000 / 120 000 = 30% R

C4 Analysis of owners' equity of Graffiti Ltd

QUESTION 3 (56 marks)(101 minutes)

EXTRACT FROM THE STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 2013

J2 Dr Deferred tax (SFP) (13 500 x 28%) 3 780

J3 Dr Property, plant and equipment (depreciation) (SFP) 2 250

J4 Dr Share of profit of joint venture (P/L) (2 250 x 28%) 630

EARTH LTD GROUP

QUESTION 3 (SUGGESTED SOLUTION)(continued)

C2 Investment in joint venture

EARTH LTD GROUP

Balance at 1 January 2013 1 000 000 3 530 680 C3 -

C3 Opening retained earnings

C4 Profit for the year attributable to owners of the parent R

QUESTION 3 (SUGGESTED SOLUTION)(continued) R

Unrealised profit on intragroup sale of equipment (part a) (13 500)

C5 Profit for the year attributable to NCI R

Analysis of owners equity of Water Ltd - subsidiary

Goodwill at date of acquisition 53 720

Fair value Carrying amount