Tutorial Letter 104/0/2023: FAC4862/NFA4862/ZFA4862

FAC4862/104/0/2023
NFA4862/104/0/2023
ZFA4862/104/0/2023
ZFA4862/104/0/2021
Tutorial Letter 104/0/2023
ADVANCED FINANCIAL ACCOUNTING II
FAC4862/NFA4862/ZFA4862
Year module
Department of Financial Governance
IMPORTANT INFORMATION:
This tutorial letter contains important information

about your module.
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INDEX Page
Due date 3
Personnel and contact details 3
Prescribed method of study 4
Suggested working programme 4
United Nations Global Compact Principles 5
Learning unit 7 Change in degree of control 6
8 Related party disclosures 33
Self-assessment questions and suggested solutions 38
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DUE DATE
DUE DATE FOR THIS TUTORIAL LETTER: 16 MAY 2023
TEST 3 ON TUTORIAL 104: 13 JUNE 2023
PERSONNEL AND CONTACT DETAILS

Personnel Telephone
Number
Lecturers
Mr P Masha (module responsible leader) –
Ms S Aboobaker 012 429 6381
Mr H Combrink 012 429 4792
Ms T Mahuma 012 429 2716
Mr S Mlotshwa –
Ms A Oosthuizen 012 429 8971
Ms T van Mourik 012 429 3549
Please send all e-mail queries to: fac4862postgrad@unisa.ac.za
Lecturer Online Consultation system

The School of Applied Accountancy has a new Lecturer Online Consultation system. This system
allows you to book a consultation session with your lecturers in any of your registered modules in the
School of Applied Accountancy. Please note the following:
• This system is to be used to consult on study material content and NOT for administration
questions. A lecturer will leave or decline the booking request should you not adhere to this
condition. For admin related queries please kindly refer to your TUT101 of the module in
question.
• You will only be able to access the system through your mylife account, so make sure you are
logged into your UNISA profile when accessing the link.
• Please enter your mylife email address on the booking link, as this is the official way of
communication between lecturers and students.
• Each booking session is for 30 minutes and you can only book a session a minimum of
24 hours in advance.
• Make sure you specify your consultation topic and specific reference, if applicable (e.g.,
change in degree of control, TUT103 question 2) to allow the lecturers to prepare.
• Only one student is allowed per consultation session, please do not share the meeting link you
receive with your classmates, they will have to book their own session.
• Should you no longer be available to honour your appointment, please cancel the booking, to
allow other students a chance to book.
• A day after your consultation, you will receive a feedback form, please kindly give us feedback
on the service. This takes about 4 minutes to complete.
• You can access the booking system on the following link: Online booking system.
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PRESCRIBED METHOD OF STUDY

1. Firstly, study the relevant chapter(s) in your prescribed textbook so that you master the basic principles
and supplement this with the additional information in the learning unit (where applicable).
2. Read the standards and interpretation(s) covered by the learning unit.
3. Do the questions in the study material and make sure you understand the principles contained in the
questions.
4. Consider whether you have achieved the specific outcomes of the learning unit.
5. After the completion of all the learning units, attempt the self-assessment questions (open book, but
within the time constraint) to test whether you have mastered the contents of this tutorial letter.
SUGGESTED WORKING PROGRAMME

MAY 2023
WEDNESDAY THURSDAY FRIDAY SATURDAY SUNDAY MONDAY TUESDAY
10 11 12 13 14 15 16
Change in Change in Change in Change in Related party Do self- Do self-
degree of degree of degree of degree of disclosures assessment assessment
control control control control questions questions
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THE UNITED NATIONS GLOBAL COMPACT PRINCIPLES
INTRODUCTION
The United Nations Global Compact (UNGC) is underpinned on the principle of

corporate sustainability which emphasises the value- and principles-based approach to
doing business.
It established the ten principles based on the four main values: human rights, labour
practices, environmental concerns and anti-corruption.
The summary of the principles is provided in the table below.
OBJECTIVES/OUTCOMES
After you have engaged this topic, you should be able to demonstrate an awareness of
the importance of the UNGC principles.
This topic is not examinable, but it is important that you should have a sufficient
awareness of these principles as they are applicable in practice.
The summary of the 10 UNGC principles
UNGC Human rights 1. Businesses should support and respect the protection of
ten internationally proclaimed human rights; and
principles 2. Make sure that they are not complicit in human rights abuses.
Labour 3. Businesses should uphold the freedom of association and the
effective recognition of the right to collective bargaining;
4. The elimination of all forms of forced and compulsory labour;
5. The effective abolition of child labour; and
6. The elimination of discrimination in respect of employment and
occupation.
Environment 7. Businesses should support a precautionary approach to
environmental challenges;
8. Undertake initiatives to promote greater environmental
responsibility; and
9. Encourage the development and diffusion of environmentally
friendly technologies.
Anti-corruption 10 Businesses should work against corruption in all its forms,
including extortion and bribery.
Source: Greenstone, 2014
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LEARNING UNIT 7 – CHANGE IN DEGREE OF CONTROL
INTRODUCTION
An investor may increase or decrease its existing interest in the net assets of an investee
by means of various corporate actions. This change in interest should be reflected in the
financial statements as it results in a change in interest that the investor has in the net
asset value of the investee. The objective of this learning unit is to illustrate the
circumstances under which the investor’s interest in an investee change and how such
changes are accounted for in the separate and consolidated financial statements of the
investor.
UNGC principle 10 is applicable here, stating that businesses should work against
corruption in all its forms, including extortion and bribery.
OBJECTIVES/OUTCOMES
At the end of this learning unit, you should be able to
1. identify the acquirer in a business combination that involves a parent-subsidiary

relationship and determine the acquirer’s percentage ownership interest in the
subsidiary before and after an increase or decrease in holding.
2. identify the circumstances giving rise to a change in control:

- acquisition of an additional interest in an existing subsidiary
- acquisition of an additional interest whereby the IFRS 9 investee becomes a
subsidiary
- disposal of entire interest in a subsidiary
- disposal of a partial interest whereby the subsidiary becomes an IFRS 9
investment
- disposal of a partial interest in a subsidiary whereby the subsidiary remains a
subsidiary
3. account for the effect of a change in ownership interest in the separate and
consolidated financial statements.
4. apply the consolidation procedures and prepare a set of consolidated financial

statements (also refer to tutorial letter 103).
The following is however not examinable for CTA level 1:

- acquisition of an additional interest where an associate becomes a subsidiary
- disposal of an interest in a subsidiary whereby it becomes an associate
- subsidiaries held for sale and discontinued operations
- change of interest in complex groups
- rights issues
- share buy-backs
- loss of control through an agreement
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PRESCRIBED STUDY MATERIAL
The following must be studied before you attempt the questions in this learning unit:
1. Group Statements, 18th edition, volume 2 – relevant chapters and sections relating
to changes in degree of control and ownership interests
2. The specific paragraphs dealing with change in degree of control in the following
standards:
- IFRS 10 Consolidated Financial Statements (par 23-26, par B96-B99)

(refer to learning unit 3).
- IFRS 12 Disclosure of Interest in Other Entities (par 10, 18 and 19)
(refer to learning unit 6)
ADDITIONAL READING
The following illustrates one of the processes followed by the IASB to continuously
assess and review the accounting standards. Please note that it is for information
purposes and is not examinable.
1. The IASB issued a Request for Information on the Post-implementation

Review of IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and
IFRS 12 Disclosure of Interests in Other Entities. The purpose of the request was to
obtain information from the users, preparers and auditors of financial statements
regarding specific identified requirements contained in the standards.
The comments sought by the IASB in the Post-implementation review included

information on the following:
Accounting requirements—Change in the relationship between an investor and an
Investee:
“Some stakeholders said IFRS Standards should provide greater detail on how to
account for a transaction, event or circumstances that alter the relationship between an
investor and an investee.”
Accounting requirements—Partial acquisition of a subsidiary that does not constitute a

business:
”Some stakeholders are unsure how an investor should account for a transaction in which
an investor acquires control of a subsidiary that does not constitute a business, as
defined by IFRS 3.”
Based on the feedback received and assessment of the relevant standards, the IASB
concluded that the three standards are working as intended. Additional information can
be accessed here: https://www.ifrs.org/projects/work-plan/pir-of-ifrs-10-12-relating-to-
consolidated-financial-statements/#current-stage.
2. The IASB has a Supporting materials for IFRS Accounting Standards website,
including, inter alia, a dedicated section for IFRS 10. The supporting materials include:
- Educational material
- Educational webcasts and webinars
- IFRS Interpretations Committee agenda decisions
The supporting materials for IFRS 10 can be accessed here:

https://www.ifrs.org/supporting-implementation/supporting-materials-by-ifrs-
standards/ifrs-10/
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THE REST OF LEARNING UNIT 7 IS BASED ON THE ASSUMPTION THAT YOU

HAVE ALREADY STUDIED THE RELEVANT PRESCRIBED STUDY MATERIAL.
SECTION A – SAICA’S PRINCIPLES OF EXAMINATION LEVELS

The SAICA principles of examination levels provide guidance on how the standards (or topics
within a standard) will be examined.
The principles of examination levels applicable for learning unit 7 will be as follows:
The extract of principles of examination levels for IFRS 10 is as follows:
Description Paragraph Level Notes

Scope 4 Awareness
Accounting requirements 22-24 Core Non-controlling interests
(transactions with owners in their
capacity as owners)
25 – 26 Core Loss of control
Vertical Awareness I.e., the parent’s subsidiary has an
groups investment in a subsidiary/associate
Change in Depends
ownership
IFRS 5 – Excluded Subsidiaries acquired with a view to
Groups resale and subsidiaries classified as
held for sale
Application guidance B96 Core Changes in proportion held by non-
controlling interests
B97 – B99 Core Loss of control
B99A Excluded Loss of control – not a business
B100 – B101 Excluded Investment entity
The extract of principles of examination levels for IFRS 12 is as follows:

Interests in subsidiaries 18 Core Changes in ownership interest that
do not result in a loss of control
19 Core Losing control of a subsidiary
Application guidance B1 Core
B2 – B6 Core Aggregation
B7 – B9 Core Interests in other entities
B10 – B17 Core Summarised financial information
B18 – B20 Core Commitments for joint ventures
B21 – B26 Core Unconsolidated structured entities
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COMMENT
Changes in interests in investments could occur as a result of one of the following:
1. Acquisition of a controlling interest in an existing IFRS 9 investee or a new

investment
2. Disposal of a controlling interest in an investee resulting in an IFRS 9 investee or
no investment retained
3. Acquisition or disposal of a partial investment in an investee but control retained
both before AND after the transaction
4. Acquisition or disposal on any investment where significant influence was gained
or lost before or after the transaction (all change in control/significant influence
transactions relating to associates are not examinable for CTA 1)
5. Share buy-back which results in a decrease in the net asset value of the investee
(excluded)
6. Additional shares issued by the investee in one of two ways (results in an increase
in the net asset value of the investee):
• issue of shares at fair value; or
• a rights issue (excluded)
EXAMPLE
The example illustrates the following changes in control:
Page
PART I Subsidiary becomes an IFRS 9 investment (core) 10
PART II IFRS 9 investment becomes a subsidiary (core) 18
PART III No change in control (acquisition of a further interest in subsidiary) (core) 24
PART IV No change in control (partial disposal of interest in subsidiary) (core) 28
PART V Disposal of entire interest in subsidiary (core) 31
Blue Ltd is a holding company that has held various investments in Red Ltd for the years ended
31 December 20.19 and 20.20. Apart from the investment in Red Ltd, there were no other activities
in Blue Ltd.
Blue Ltd elected to measure non-controlling interests at the proportionate share of the subsidiary’s
net identifiable assets for all acquisitions.
The abridged trial balance of Red Ltd are provided on different dates:
30 Jun 30 Nov 30 June 30 Nov 31 Dec

20.19 20.19 20.20 20.20 20.20
R R R R R
Property, plant and equipment 250 000 250 000 250 000 250 000 250 000
Inventory 55 000 70 000 75 000 80 000 85 000
Trade receivables 110 000 100 000 135 000 140 000 150 000
Cash and cash equivalents 120 000 140 000 150 000 175 000 200 000
Trade payables (185 000) (160 000) (110 000) (125 000) (135 000)
Share capital (100 000 shares) (100 000) (100 000) (100 000) (100 000) (100 000)
Retained earnings (250 000) (300 000) (400 000) (420 000) (450 000)
- - - - -
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The abridged trial balance of Blue Ltd on 30 June 20.19 was as follows:
R
Cash 450 000
Share capital (200 000)
Retained earnings (1 January 20.19) (250 000)
-
Additional information
1. Red Ltd paid a dividend of R7 500 on 31 December 20.20. The profit of Red Ltd was earned
evenly during 20.19 and 20.20.
2. Both companies have a 31 December year end.
3. Blue Ltd elected to measure non-controlling interests at the proportionate share of the
subsidiary’s net identifiable assets.
4. The current tax rate is 27% and the capital gains tax inclusion rate is 80%. Ignore
Dividend Tax and Value Added Tax (VAT).
COMMENT
It is important to note that the example provided in this section does not cover all
possible scenarios of changes in the interest in an investee. You are therefore reminded
to refer to the prescribed study material before attempting questions on this learning unit.
PART I (SUBSIDIARY BECOMES AN IFRS 9 INVESTMENT) (CORE)
Blue Ltd acquired a 60% controlling interest in Red Ltd on 30 June 20.19 for a cash amount of
R250 000. All the assets and liabilities of Red Ltd were regarded to be fairly valued on
30 June 20.19. No additional assets, liabilities or contingent liabilities were identified at that date.
On 30 November 20.19, Blue Ltd disposed of a 50% interest in Red Ltd for R450 000 resulting in a
remaining 10% interest. From 30 November 20.19, Blue Ltd no longer exercised control over
Red Ltd.
The remaining interest’s fair value was as follows on the different dates:
R
30 November 20.19 70 000
31 December 20.19 90 000
1. Investments in subsidiaries are accounted for at cost in terms of IAS 27.10(a) in the separate
financial statements.
2. Investments other than investments in subsidiaries are measured in terms of IFRS 9 Financial
Instruments. Blue Ltd elected to present subsequent changes in the fair value of the
investment in other comprehensive income in a mark-to-market reserve.
3. Blue Ltd elected to transfer any cumulative gains or losses within equity in terms of
IFRS 9.B5.7.1.
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REQUIRED
(a) Prepare the journal entries in the separate financial statements of Blue Ltd for the year ended
31 December 20.19.
(b) Prepare the pro forma consolidation journal entries for the Blue Ltd Group for the year ended
31 December 20.19.
PART I – Suggested solution
SUBSIDIARY BECOMES AN IFRS 9 INVESTMENT
It is very important to understand that there is a loss of control when a subsidiary becomes an
IFRS 9 investment. At year end, the parent is not required to consolidate the investment as control
is no longer present. In practice, the parent will start with its separate financial information only and
then add the information from the investment while it was still a subsidiary (i.e., the parent’s portion
of the retained earnings and reserves, 100% of the current year profits and non-controlling interests’
share therein, etc). This is also the approach followed by Unisa. The consolidated profit or loss is
calculated using the steps set out in IFRS 10.B98 - .B99. These steps are as follows:
1. Derecognise the assets (including goodwill) and liabilities of the subsidiary at their carrying
amounts when control is lost;
2. Derecognise the carrying amount of any non-controlling interests in the former subsidiary at
the date when control is lost;
3. Recognise the fair value of the consideration received, if any, from the transaction that
resulted in the loss of control;
4. Recognise any retained investment in the former subsidiary at its fair value at the date when
control is lost;
5. Reclassify to profit or loss, or transfer directly to retained earnings if required by other IFRSs,
all amounts recognised to other comprehensive income in relation to that subsidiary on the
same basis as would be required if the parent disposed of the related assets or liabilities; and
6. Recognise any resulting difference as a gain or loss in profit or loss attributable to the parent.
These steps can also be used to follow a different approach whereby the subsidiary is first
recognised and then derecognised. When a parent loses control of a subsidiary, one of the two
approaches can be followed and no matter which approach is followed, the resulting consolidated
financial statements would be exactly the same. The two approaches are set out in more detail
below:
Unisa’s preferred approach
The first approach for preparing the pro forma consolidation journals would be to assume that on the
date that control was lost, the parent and subsidiary’s financials were not combined
(no consolidation took place). The pro forma consolidation journals would therefore commence by
journalising the parent’s share of the post-acquisition reserves of the subsidiary followed by 100% of
the current year’s profit or loss and other comprehensive income whilst it was a subsidiary and
recognising non-controlling interests’ share therein. It is important to note that the parent’s and non-
controlling interests’ share in the subsidiary will only be disclosed in the consolidated statement of
profit or loss and other comprehensive income and statement of changes in equity. The next step
would be to eliminate the parent’s gain or loss on disposal of the shares recognised in its separate
records followed by recognising the consolidated gain or loss with the loss of control. The last step
is the reclassification to profit or loss, or a transfer directly to retained earnings if required by other
IFRSs, all amounts recognised in other comprehensive income in relation to that subsidiary on the
same basis as would be required if the parent disposed of the related assets or liabilities.
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Alternative approach (approach 2)
The second possible approach that can be used to prepare the pro forma consolidation journals
would be to assume that on the date that control was lost, the parent and subsidiary’s financials
were first combined as if there was no loss of control (a consolidation took place). This would entail
adding the two trial balances of the parent and subsidiary together on a line-by-line basis.
When preparing the pro forma consolidation journals, the basic consolidation procedures will be
followed (i.e., eliminating the original investment in the subsidiary against the at acquisition equity of
the subsidiary, etc). After the basic consolidation procedures, the subsidiary should be
derecognised by following the six steps described in IFRS 10.B98 - .B99.
Conclusion
From the above, it is clear that following the Unisa preferred approach will result in fewer pro forma
consolidation journals, and whereas the steps in IFRS 10.B98 are used to calculate the
consolidated gain or loss with the loss of control, these steps need to be journalised in the
alternative approach (approach 2).
When preparing the pro forma consolidation journals when control is lost, any one of the two
approaches above can be used. Both alternatives will be marked in tests and the examination and
students will not be “forced” to use a specific approach. In our tutorial letter, we use the Unisa
preferred approach (the parent and subsidiary’s financials were not combined) as our default
solution. However, the alternative approach will be provided on myUnisa for the additional questions
in section A in the learning unit (this tutorial letter contains the solutions using the alternative
approach for the self-assessment questions).
COMMENT
It is important to note that no consolidation of the financial statements of the subsidiary

and the parent has taken place at year end. Therefore, it is important to note that the
consolidation process commences with Blue Ltd’s financial statements only and because
no consolidation has yet taken place, Red Ltd is only an investment in Blue Ltd’s
financial statements at year end (31 December 20.19). The pro forma consolidation
journal entries will therefore be to account for the relevant items of Red Ltd in the
consolidated financial statements at year end. These items will focus on the since
acquisition equity reserves and current year’s profit or loss items, which consist of items
accumulated while Red Ltd was a subsidiary until date of disposal and control was lost
(remember the effect on non-controlling interests).
Based on the above, careful attention should be given to the fact that no assets and
liabilities pertaining to Red Ltd, goodwill or non-controlling interests have been
recognised in the statement of financial position in the consolidated financial statements
as no consolidation of these items has taken place (like items have not been added
line for line). Therefore, no journal will be processed in order to derecognise these items
and the only pro forma consolidation journal entries will be to account for since
acquisition equity reserves and the current year’s profit or loss of Red Ltd.
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(a) Separate financial statements of Blue Ltd (b) Consolidated financial statements
Dr Cr Dr Cr
R R R R
30 June 20.19
Investment in Red Ltd (SFP) 250 000
Bank (SFP) 250 000
Account for investment

acquired in Red Ltd [J1]
30 November 20.19
Investment in Red Ltd
(SFP) (50 000 x 60%) 30 000
NCI (P/L)
(50 000 x 40%) [C1] 20 000
Profit for 5 months (P/L)
(300 000 – 250 000) 50 000
Recognition of profit for the

period while the investment
was still a subsidiary [J1]
30 November 20.19
Bank (SFP) 450 000 Gain on disposal
Investment in Red Ltd (separate) (P/L) [C3] 241 667
(SFP) (250 000 x 50/60) 208 333 Gain on disposal
Gain on disposal (P/L) (group) (P/L) [C4] 240 000
[C3] 241 667 Investment in Red Ltd
(SFP) (balancing) 1 667
Account for disposal of Recognition of consolidated

interest in separate financial gain on disposal and
statements [J2] elimination of the amount
recognised in the separate
financial statements [J2]
Income tax expense (P/L) 52 200
Tax payable (SFP)
(241 667 x 27% x 80%) 52 200
Capital gains tax payable on
disposal of shares [J3]
Investment in Red Ltd (SFP) Fair value adjustment (P/L) 28 333
[70 000 – (250 000 x 10/60)] 28 333 Deferred tax (SFP) 6 120
Fair value adjustment (P/L) 28 333 Investment in Red Ltd
Deferred tax (SFP) (SFP) 28 333
(28 333 x 27% x 80%) 6 120 Income tax expense (P/L) 6 120
Reversal of fair value
Account for fair value adjustment recognised in
adjustment on remaining separate financial
investment on date of disposal statements on date of
of interest [J4] disposal [J3]
This fair value adjustment
has already been taken into
account in the calculation of
the gain on disposal for the
group
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Dr Cr Dr Cr
R R R R
31 December 20.19
Investment in Red Ltd (SFP) From 30 November 20.19
(90 000 – 70 000) 20 000 Red Ltd is an IFRS 9
Mark-to-market (OCI) 15 680 investment in the records of
Deferred tax (SFP) Blue Ltd. Therefore, it is not
(20 000 x 27% x 80%) 4 320 necessary to reverse the fair
value adjustments made in
Account for fair value the separate financial
adjustment on IFRS 9 statements of Blue Ltd, as it
investment at year end [J5] is treated exactly the same
in both entities
COMMENT
In the separate financial statements, the IFRS 9 investment is held at fair value, and so
the interest must be remeasured to fair value [J4]. On the group’s side however, the gain
on disposal according to IFRS 10.B98 already includes the fair value on the remaining
investment, so it needs to be reversed on group level to avoid double accounting of the
fair value adjustment.
The fair value adjustment [J4] in the separate financial statements of the parent is
recognised in profit or loss and not in other comprehensive income. This is in terms of
IFRS 9.5.1.1 and IFRS 9.B5.1.2A.
The reversal of [J4] in the separate records is required in [J3] in the consolidated
records as the group has already recognised the remaining 10% interest to fair value.
This is evidenced in [C4] as the fair value of remaining interest (and therefore the fair
value adjustment) is included in the calculation of the consolidated gain on disposal
COMMENT
It is important to note that no consolidation of the financial statements of the subsidiary

and the parent took place. Therefore, it is important to understand that Red Ltd is an
IFRS 9 investment of Blue Ltd at year end (31 December 20.19), and the consolidation
process commences with only Blue Ltd’s financial statements. The pro forma
consolidation journal entries will therefore focus on the inclusion of the relevant items of
Red Ltd in the consolidated financial statements. These items will be focused on the
since acquisition equity reserves and the current year’s profit or loss items, which consist
of items accumulated while Red Ltd was a subsidiary (remember the effect on
non-controlling interests).
Based on the above, careful attention should be given to the fact that no assets and
liabilities pertaining to Red Ltd, goodwill or non-controlling interests are recognised in the
statement of financial position in the consolidated financial statements. Therefore, no
journal will be processed in order to derecognise these items.
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CALCULATIONS
C1. Analysis of the owners’ equity of Red Ltd
Blue Ltd
Total 60% - 10% NCI
At Since
At acquisition
Share capital 100 000 60 000 40 000
Retained earnings 250 000 150 000 100 000
350 000 210 000 140 000
Equity represented by goodwill 40 000 40 000 -
Consideration and NCI 390 000 250 000 140 000
Current year
Profit from 30/6/20.19 – 30/11/20.19
(300 000 – 250 000) 50 000 30 000 20 000
440 000 250 000 30 000 160 000
Loss of control over subsidiary:
Derecognition of assets and liabilities
(IFRS 10.B98) (440 000) (250 000) (30 000) (160 000)
- - - -
C2. Proof of goodwill of Red Ltd [IFRS 3.32]
Consideration transferred at acquisition date 250 000

Non-controlling interests [C1] 140 000
390 000
Fair value of identifiable net assets (350 000)
Goodwill 40 000
C3. Gain/loss on disposal in separate financial statements
Proceeds 450 000

Less: Cost (250 000 x 50/60) (208 333)
Gain in separate financial statements 241 667
C4. Consolidated gain/loss on disposal (IFRS 10.B98)
Derecognise assets and liabilities (including goodwill) (400 000 + 40 000) (440 000)
Derecognise non-controlling interests (400 000 x 40%) 160 000
Fair value of consideration 450 000
Fair value of remaining interest 70 000
Consolidated gain on disposal 240 000
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COMMENT
The consolidation will be performed as follows on 31 December 20.19:
Pro forma
Blue Ltd Red Ltd con- Conso-
(note 1) (note 2) solidation lidated
entries
R R R R
Gain on disposal (241 667) - 1 667 (240 000)
Fair value adjustment (P/L) (28 333) - 28 333 -
Dividend received - - - -
Profit for the year - - (50 000) (50 000)
Non-controlling interests (P/L) - - 20 000 20 000
Income tax expense 60 253 - (6 120) 54 133
Investment in Red Ltd (note 3) 90 000 - - 90 000
Cash and cash equivalents 650 000 - - 650 000
Share capital (200 000) - - (200 000)
Retained earnings (250 000) - - (250 000)
Mark-to-market reserve (note 4) (15 520) - - (15 520)
Tax payable (54 133) - - (54 133)
Deferred tax (note 4) (10 600) - 6 120 (4 480)
- - - -
Note 1:
This is the separate financial statements of Blue Ltd on 31 December 20.19 after the
journal entries in (a) have been processed.
Note 2:
As Red Ltd is not a subsidiary at year end, no consolidation of the financial statements of
the subsidiary and the parent is done.
Note 3:
The balance of the Investment in Red Ltd would be as follows on 31 December 20.19:
Separate financial statements Consolidated financial statements
R R
Cost (30 June 20.19) [J1] 250 000 CA in separate F/S 90 000
Disposal [J2] (208 333) Pro forma consolidation
entries: -
Fair value adjustment [J3] 28 333 Profit while a subsidiary [J1] 30 000
Balance on 30 Nov 20.19 70 000 Disposal of interest [J2] (1 667)
Fair value adjustment [J4] 20 000 Reversal of fair value adj [J3] (28 333)
Balance on 31 Dec 20.19 90 000 Balance on 31 Dec 20.19 90 000
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Note 4:
In the separate financial statements, the mark-to-market reserve will be the difference
between the fair value of the retained investment and the fair value of the retained
investment on disposal date:
R
Fair value of retained investment 90 000
Less: Fair value of retained investment (70 000)
20 000
Deferred tax (20 000 x 27% x 80%) (4 320)
15 680
Pro forma journal entry J3 reverses the fair value adjustment on the date of disposal,
leaving only the fair value adjustment of R20 000 (before deferred tax) at year end in the
mark-to-market reserve. This is correct as the fair value of R70 000 on
30 November 20.19 will be regarded as the fair value on initial recognition of a financial
asset in accordance with IFRS 9 (IFRS 10.25(b)).
Also note that the fair value adjustment in J3 will be classified through profit or loss as
IFRS 9 indicates that financial assets must be recognised through profit or loss on initial
recognition, and then only with subsequent measurement at either amortised cost, fair
value through other comprehensive income or through profit or loss. In this example,
Blue Ltd elected to present subsequent changes in fair value in other comprehensive
income in a mark-to-market reserve.
Alternative for the pro forma journals in (b)
The alternative approach assumes that the parent consolidated the former subsidiary’s financial
statements at the date when control is lost.
The alternative approach is available on myUnisa.
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PART II (IFRS 9 INVESTMENT BECOMES A SUBSIDIARY) (CORE)
Blue Ltd acquired a 10% interest in Red Ltd on 30 November 20.19 for R70 000 cash, which was
deemed the fair value on that date.
On 30 June 20.20, Blue Ltd acquired a further 50% interest in Red Ltd for a cash amount of
R200 000. From this date, Blue Ltd had control over Red Ltd as per the definition of control in terms
of IFRS 10 Consolidated Financial Statements. All the assets and liabilities of Red Ltd were
regarded to be fairly valued on 30 June 20.20. No additional assets, liabilities or contingent liabilities
were identified at this date.
The fair value of the previously held investment was as follows on the different dates:
R
31 December 20.19 90 000

30 June 20.20 120 000
The fair value of the shares was R6,25 per share on 31 December 20.20.
1. Investments in subsidiaries are accounted for at cost in the separate financial statements in
terms of IAS 27.10(a).
2. Investments other than investments in subsidiaries are measured in terms of IFRS 9 Financial
Instruments. Blue Ltd irrevocably elected to present subsequent changes in the fair value of
the investments in other comprehensive income in a mark-to-market reserve.
3. Blue Ltd elected to transfer any cumulative gains or losses within equity in terms of
IFRS 9.B5.7.1.
REQUIRED
(a) Prepare the journal entries in the separate financial statements of Blue Ltd for the year ended
31 December 20.19 and 31 December 20.20.
31 December 20.20.
PART II – Suggested solution
IFRS 9 INVESTMENT BECOMES A SUBSIDIARY
In terms of IAS 27.10, an entity shall account for investments in subsidiaries, joint ventures and
associates in their separate financial statements either
(a) at cost; or
(b) in accordance with IFRS 9 (not examinable, excluded from syllabus); or
(c) using the equity method as described in IAS 28 (not examinable, excluded from syllabus).
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The entity has two options to measures its IFRS 9 investment
Measure the investment in terms of IFRS 9 Measure the investment in terms of IFRS 9
paragraph B5.7.5 that presents changes in fair paragraph 4.1.5 that presents changes in fair
value in other comprehensive income (note value through profit or loss
that the investment should not be held for
trading and is an irrevocable decision made by
the investor)
Remeasure the initial investment to fair value Remeasure the initial investment to fair value
at date of acquisition in terms of IFRS 3.42 in at date of acquisition in terms of IFRS 3.42 in
the parent’s separate financial statements the parent’s separate financial statements
(recognise resulting profit or loss on (recognise the resulting profit or loss on the
remeasurement in other comprehensive remeasurement in profit or loss)
income)
If the entity has made the election in terms of No transfer is required as the fair value
IFRS 9.B5.7.1 to transfer the cumulative adjustments were already recognised in profit
profit/loss within equity – transfer all or loss (retained earnings)
cumulative fair value adjustments from date of
initial investment acquired to date of control
obtained, if an investment, to retained
earnings
AND AND
The investment in subsidiary is now The investment in subsidiary is now accounted

accounted for at cost in the separate financial for at cost in the separate financial statements
statements (fair value of existing shareholding (fair value of existing shareholding plus fair
plus fair value of consideration of additional value of consideration of additional interest)
interest) per IAS 27.10(a). per IAS 27.10(a).
COMMENT
Before any pro forma consolidation journal entries are processed, it is very important to
determine what the starting point of the consolidation process is.
From 30 November 20.19 to 30 June 20.20 Red Ltd is an equity investment in terms of
IFRS 9 Financial Instruments, in the separate financial statements of Blue Ltd
(10% x 100 000 = 10 000 shares) and measured at fair value through other compre-
hensive income. On 30 June 20.20, Blue Ltd acquired a further 50% interest in Red Ltd
and thus obtained control over Red Ltd. In the separate financial statements of Blue Ltd,
this investment will be measured at cost. However, in the consolidated financial
statements at 31 December 20.20 (the reporting date), Red Ltd is accounted for as a
subsidiary of Blue Ltd with a 60% interest. The first step in the consolidation process will
be to combine like items in the financial statements of the parent (Blue Ltd) and the
subsidiary (Red Ltd) on a line-by-line basis in accordance with IFRS 10.B86. The second
step will be to process the pro forma consolidation journals as a result of the first step.
As the starting point of the consolidation, it is ALWAYS assumed that the line-items of
Blue Ltd and Red Ltd have been combined. As a result, the following pro forma
consolidation journals should be processed.
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Dr Cr Dr Cr
R R R R
30 November 20.19
Bank (SFP) 70 000
Account for investment
acquired in Red Ltd [J1]
31 December 20.19
Mark-to-market (SCE) 15 680
Deferred tax (SFP)
(20 000 x 27% x 80%) 4 320
Fair value of IFRS 9
investment at year end [J2]
30 June 20.20 31 December 20.20
Investment in Red Ltd (SFP) Mark-to-market (SCE)
(120 000 – 90 000) 30 000 [120 000 – 70 000 -
Mark-to-market (OCI) 23 520 (50 000 x 27% x 80%)] 39 200
Deferred tax (SFP) Retained earnings 39 200
(30 000 x 27% x 80%) 6 480 (SCE)
Account for fair value Transfer of fair value

adjustment of investment on adjustments previously
date of acquisition of recognised in mark-to-
additional interest [J3] market reserve to retained
earnings with
measurement of equity
interest previously held at
group level (23 520 [J3] +
15 680 [J2] (separate))
[J1]
Bank (SFP) (given) 200 000
Account for further 50%

interest acquired [J4]
COMMENT
[J1] in consolidated financial statements is all the previously recognised fair value
adjustments that will be transferred to retained earnings in terms of IFRS 9.B5.7.1 on the
date the IFRS 9 investment became a subsidiary, due to Blue Ltd electing to transfer any
cumulative gains or losses within equity in terms of IFRS 9.B5.7.1.
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Dr Cr Dr Cr
R R R R
Share capital (SCE) 100 000

Retained earnings (SCE) 400 000
Goodwill (SFP) [C1] 20 000
NCI (SFP/SCE) 200 000
Investment (SFP) 320 000
Elimination of owners’ equity

at acquisition [J2]
NCI (P/L) [C1] 23 000
Non-controlling interests in
profit for the year from
30/6/20.20 to 31/12/20.20
[J3]
Bank (SFP) [C1] 4 500 Dividend received (P/L) 4 500
Dividends received (P/L) 4 500 NCI (SFP/SCE) [C1] 3 000
Dividends paid (SCE) 7 500
Account for dividend Elimination of intragroup

received from Red Ltd [J5] dividends and recording of
non-controlling interests
therein [J4]
COMMENT
In terms of IFRS 3.42, Blue Ltd should first remeasure its previous investment of 10 000
shares to the fair value of R120 000 at the date of acquisition. Furthermore, Blue Ltd
already recognised the resulting fair value adjustments with the remeasurement in other
comprehensive income under IFRS 9. For the group, the cumulative fair value
adjustments previously recognised in the mark-to-market reserve are transferred to
retained earnings on the date of acquisition only if the entity made the election in terms
of IFRS 9.B5.7.1.
The cost of the original investment (fair value on 30 November 20.19) was R70 000. The
fair value of this investment on 30 June 20.20 was R120 000, which resulted in the
cumulative gain of R50 000 before tax. The after-tax amount of R39 200 is transferred
within equity.
30/11/20.19 31/12/20.19 30/6/20.20 31/12/20.20
Transfer fair value adjustments to Subsidiary at cost [J3]

retained earnings on date of acquisition
of control [J1]
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CALCULATIONS
Blue Ltd
Total 60% NCI
At Since
At acquisition
Share capital 100 000 60 000 40 000
500 000 300 000 200 000
Consideration and NCI
520 000 320 000 200 000
[120 000(FV) + 200 000]
Current year
Profit from 30/6/20.20 - 31/12/20.20
[(450 000 – 400 000) + 7 500] 57 500 34 500 23 000
Dividend (7 500) (4 500) (3 000)
570 000 30 000 220 000
Consideration transferred at acquisition date (given) 200 000

Acquisition date fair value of previously held equity 120 000
520 000
Goodwill 20 000
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COMMENT
The consolidation will be performed as follows on 31 December 20.20:
Pro forma
Blue Ltd Red Ltd consoli- Conso-
(note 1) (note 2) dation lidated
entries
R R R R
Dividend received (4 500) - 4 500 -
1
Profit for the year - (57 500) - (57 500)
Non-controlling interests (P/L) - - 23 000 23 000
Investment in Red Ltd (note 3) 320 000 - (320 000) -
Property, plant and equipment - 250 000 - 250 000
Goodwill - - 20 000 20 000
Inventory - 85 000 - 85 000
Trade receivables - 150 000 - 150 000
Cash and cash equivalents 184 500 200 000 - 384 500
Share capital (200 000) (100 000) 100 000 (200 000)
2
Retained earnings (250 000) (400 000) 360 800 (289 200)
Dividend paid - 7 500 (7 500) -
3
Mark-to-market reserve (39 200) - 39 200 -
4
Non-controlling interests (SFP) - - (220 000) (220 000)
Trade payables - (135 000) - (135 000)
Deferred tax (note 4) (10 800) - - (10 800)
- - - -
1
Profit from 30 June 20.20 when control was obtained (see [C1]).
Information is not given for the profit for the full year.
2
-39 200 [J1] + 400 000 [J2]
3
39 200 [J1]
4
-200 000 [J2] – 23 000 [J3] + 3 000 [J4]
Note 1:
This is the separate financial statements of Blue Ltd after the journal entries in (a) have
been processed.
Note 2:
As Red Ltd is a subsidiary at year end, the trial balance on 31 December 20.20 will be
used for the consolidation.
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COMMENT
Note 3:
R R
Balance on 31 Dec 20.19
([J1] + [J2]) 90 000 Investment in separate F/S 320 000
Fair value adjustment [J3] 30 000 Eliminate cost [J2] (320 000)
Further acquisition [J4] 200 000 Balance on 31 Dec 20.20 -
Balance on 30 Jun 20.20 320 000
No adjustment -
Balance on 31 Dec 20.20 320 000
Note 4:
The remaining balance on deferred tax relates to the transfer to retained earnings [J1],
R50 000 – R41 200 = R10 800 or 50 000 x 27% x 80% = R10 800.
PART III (NO CHANGE IN CONTROL – ACQUISITION OF A FURTHER INTEREST IN

SUBSIDIARY) (CORE)
On 30 June 20.20, Blue Ltd acquired a 60% interest in Red Ltd for R320 000.
Blue Ltd acquired an additional 10% interest in Red Ltd on 30 November 20.20 for R60 000. All the
assets and liabilities of Red Ltd were regarded to be fairly valued on 30 November 20.20.
No additional assets, liabilities or contingent liabilities were identified at this date.
Investments in subsidiaries are accounted for at cost in terms of IAS 27.10(a).
REQUIRED
(a) Prepare the journal entries in the separate financial statements of Blue Ltd on
30 November 20.20 and 31 December 20.20.
31 December 20.20 (you do not have to show the at acquisition elimination journal).
EXAMINATION TECHNIQUE
Always read the required carefully. Required (b) specifically states that the at acquisition
journal is not required. Do not waste unnecessary time providing journals not required.
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PART III – Suggested solution
NO CHANGE IN CONTROL – ACQUISITION OF A FURTHER INTEREST IN SUBSIDIARY
When there is a change in the parent’s ownership interest in a subsidiary that do not result in a loss
of control (percentage holding increase or decrease but do not result in a loss of control), it should
be accounted for as an equity transaction in accordance with IFRS 10.23. Equity transactions are
transactions with owners of the subsidiary in their capacity as owners. Non-controlling interests is
classified as equity in accordance with IFRS 10.22 and thus any transaction with
non-controlling interests where there is no loss of control should be accounted for as an equity
transaction.
Students should note the following with regard to equity transactions:
1. Carrying amounts of the parent and non-controlling interests’ interests in the subsidiary should
reflect the change in interests in the consolidated financial statements;
2. This change should be recognised directly in equity and thus no gain or loss is recognised in
profit or loss;
3. The acquisition of additional shares where there is no change in control is not deemed a
business combination and thus there is no change in the carrying amount of the subsidiary’s
assets (including goodwill) and liabilities recognised in the consolidated financial statements
as it is already included at 100%;
4. IFRS 10.B96 states that the amount recognised directly in equity as a result of the change in
ownership should be determined as the difference between
1) the amount by which non-controlling interests is adjusted (difference between
non-controlling interests before and after the change in ownership); and
2) the fair value of the consideration paid or received.
Note that this amount is affected by the group’s policy whether to measure non-controlling
interests either at the proportionate share of the subsidiary’s net identifiable assets or at fair
value.
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Dr Cr Dr Cr
R R R R
31 December 20.20
NCI (P/L) [C1] 8 000
NCI (SFP/SCE) 8 000
30/6/20.20 to 30/11/20.20
[J1]
30 November 20.20
Investment in Red Ltd (SFP) 60 000 Change in ownership
Bank (SFP) 60 000 (equity) (SCE) [C3] 8 000
NCI (SFP/SCE) [C1] 52 000
Investment in Red Ltd
(SFP) 60 000
Account for further 10% Acquisition of a further 10%

interest acquired in Red Ltd interest in Red Ltd [J2]
[J1]
NCI (P/L) [C1] 11 250
30/11/20.20 to 31/12/20.20
[J3]
31 December 20.20
Bank (SFP) 5 250 Dividend received (P/L) 5 250
Dividend received (P/L) 5 250 NCI (SFP/SCE) [C1] 2 250

therein [J4]
COMMENT
There was no change in control when the additional 10% interest was purchased on
30 November 20.20. Blue Ltd already obtained control of Red Ltd on 30 June 20.20
when Blue Ltd acquired the 60% interest in Red Ltd. The additional 10% acquired on
30 November 20.20 does not result in a change in control and thus it is deemed an
equity transaction and recognised directly in equity (IFRS 10.23).
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CALCULATIONS
Blue Ltd
Total 60% - 70% NCI
At Since
At acquisition
Share capital 100 000 60 000 40 000
500 000 300 000 200 000
Current year
Profit (30/6/20.20 – 30/11/20.20)
(420 000 – 400 000) 20 000 12 000 8 000
540 000 12 000 208 000
Further 10% acquisition
(208 000 x 10/40) or [(540 000 – 20 000
goodwill) x 10%] 52 000 (52 000)
Changes in ownership (equity)
(IFRS 10.23) 8 000 8 000
Consideration and NCI 60 000 156 000
Profit (1/12/20.20 – 31/12/20.20)
(450 000 – 420 000 + 7 500) 37 500 26 250 11 250
Dividend (7 500) (5 250) (2 250)
578 000 33 000 165 000
Consideration transferred at acquisition date (given) 320 000

520 000
Goodwill 20 000
C3. Change in ownership recognised in equity [IFRS 10.B96]
Fair value of consideration received by non-controlling interests (given) 60 000

Amount by which non-controlling interests are adjusted (208 000 x 10/40) (52 000)
Non-controlling interests after transaction on 30/11/20 ((540 000 – 20 000) x 30%) 156 000
Non-controlling interests before transaction on 30/11/20 ((540 000 – 20 000) x 40%) (208 000)
Amount to be recognised directly in equity 8 000
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COMMENT
R R
Cost on 30 June 20.20 320 000 Investment in separate F/S 380 000
Acquisition of 10% [J1] 60 000 Eliminate cost (320 000)
Balance on 30 Nov 20.20 380 000 Acquisition of 10%
No fair value adjustment - eliminated [J2] (60 000)
Balance on 31 Dec 20.20 380 000 Balance on 31 Dec 20.20 -
PART IV (NO CHANGE IN CONTROL – PARTIAL DISPOSAL OF INTEREST IN SUBSIDIARY)

(CORE)
Please note that part IV follows on from part III of the example.
Assume that, instead of acquiring a further 10% interest in part C above, Blue Ltd disposed of a
10% interest in Red Ltd on 30 November 20.20 for R65 000 (this was also the fair value of the
shares on this date). Blue Ltd still had control over Red Ltd as per the definition of control in terms of
IFRS 10 Consolidated Financial Statements.
You can assume that the cost of the 10% interest disposed of was R53 333 and according to the
SARS, this also represents the base cost of these shares.
REQUIRED
(a) Prepare the journal entries in the separate financial statements of Blue Ltd on
30 November 20.20 and 31 December 20.20.
31 December 20.20 (you do not have to show the at acquisition elimination journal).
Always read the required carefully. Required (b) specifically states that the at acquisition
journal is not required. Do not waste unnecessary time providing journals not required.
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PART IV – Suggested solution
NO CHANGE IN CONTROL – PARTIAL DISPOSAL OF INTEREST IN SUBSIDIARY
COMMENT
Changes in a parent’s ownership interest in a subsidiary that do not result in the parent
losing control of the subsidiary are equity transactions (IFRS 10.23). When the
proportion of the equity held by non-controlling interests changes, an entity shall adjust
the carrying amounts of the controlling and non-controlling interests to reflect the
changes in their relative interests in the subsidiary. The entity shall recognise directly in
equity any difference between the amount by which the non-controlling interests are
adjusted, and the fair value of the consideration paid or received, and attribute it to the
owners of the parent (IFRS 10.B96).
Dr Cr Dr Cr
R R R R
Bank (SFP) 65 000

Investment (SFP) 53 333
(320 000 x 10/60)
Profit on disposal (P/L) 11 667
Account for 10% interest

disposed of in Red Ltd [J1]
Tax payable (SFP)
((65 000 – 53 333) x
27% x 80%) 2 520
Capital gains tax payable on

disposal of shares (65 000
(proceeds) less 53 333
(cost)) [J2]
NCI (P/L) [C1] 8 000
NCI (SFP/SCE) 8 000
30/6/20.20 to 30/11/20.20
[J1]
Change in ownership
(equity) (SCE) [C2] 13 000
Profit on disposal (P/L) 11 667
Pro forma correction of

group gain on disposal to
separate equity category
[IFRS 10.23] [J2]
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Dr Cr Dr Cr
R R R R
NCI (P/L) [C1] 18 750
1/12/20.20 to 31/12/20.20
[J3]
30/11/20.20 – 31/12/20.20
Bank (SFP) (7 500 x 50%) 3 750 Dividend received (P/L) 3 750
Dividend received (P/L) 3 750 NCI (SFP/SCE) [C1] 3 750

therein [J4]
CALCULATIONS
Blue Ltd
Total 60% - 50% NCI
At Since
At acquisition
Share capital 100 000 60 000 40 000
500 000 300 000 200 000
Current year
Profit (30/6/20.20 – 30/11/20.20)
(420 000 – 400 000) 20 000 12 000 8 000
540 000 12 000 208 000
Disposed of 10%
(300 000 x 10/60); (12 000 x 10/60);
(208 000 x 10/40) (50 000) (2 000) 52 000
540 000 10 000 260 000
Profit (1/12/20.20 – 31/12/20.20)
(450 000 – 420 000 + 7 500) 37 500 18 750 18 750
Dividend (7 500) (3 750) (3 750)
570 000 25 000 275 000
C2. Change in ownership recognised in equity [IFRS 10.B96]
Fair value of consideration received (given) 65 000

Amount by which non-controlling interests are adjusted (208 000 x 10/40) (52 000)
Non-controlling interests after transaction on 30/11/20 ((540 000 – 20 000) x 50%) (260 000)
Non-controlling interests before transaction on 30/11/20 ((540 000 – 20 000) x 40%) 208 000
Amount to be recognised directly in equity 13 000
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COMMENT
The balance of the investment in Red Ltd would be as follows on 31 December 20.20:
R R
Balance on 30 June 20.20
(part II) 320 000 Investment in separate F/S 266 667
Eliminate cost
Dispose of 10% [J1] (53 333) (part II – [J2]) (320 000)
Balance on 31 Dec 20.20 266 667 Dispose of 10% [J2] 53 333
Balance on 31 Dec 20.20 -
PART V (DISPOSAL OF ENTIRE INTEREST IN SUBSIDIARY) (CORE)
Please note that part V follows on part II of the example
Summary of part II
• On 30 November 20.19, Blue Ltd acquired a 10% interest in Red Ltd for R70 000.
• On 30 June 20.20, Blue Ltd acquired a further 50% interest which resulted in a 60%
controlling interest over Red Ltd.
• Cost of total investment = R320 000 [R120 000 (fair value of 10% interest) + R200 000 (cost
of further 50%)].
• Balance of investment in separate financial statements of Blue Ltd on 31 December 20.20 =
R320 000.
REQUIRED
What would the effect on the pro forma journals of part II be if Blue Ltd sold the entire investment in
Red Ltd on 31 December 20.20 for R375 000? For part E, you can assume that Red Ltd did not pay
any dividends during the current year.
PART V – Suggested solution
DISPOSAL OF ENTIRE INTEREST IN SUBSIDIARY
Dr Cr
R R
J1 Investment in Red Ltd (SFP) 30 000

Non-controlling interests (P/L) [C1] 20 000
Profit for the year (P/L) [C1] 50 000
Account for profit of Red Ltd for the year while subsidiary
J2 Gain on disposal (separate) (P/L) (375 000 – 320 000) 55 000
Gain on disposal (group) (P/L) [C2] 25 000
Recognition of consolidated gain on disposal and eliminating of profit on
disposal in separated financial statements
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CALCULATIONS
Blue Ltd
Total 60% - 0% NCI
At Since
At acquisition
Share capital 100 000 60 000 40 000
500 000 300 000 200 000
(120 000(FV) + 200 000) 520 000 320 000 200 000
Current year
Profit from 30/6/20.20 – 31/12/20.20
(450 000 – 400 000) 50 000 30 000 20 000
570 000 320 000 30 000 220 000
Dispose of entire interest in subsidiary (570 000) (320 000) (30 000) (220 000)
- - - -
C2. Consolidated gain/loss on disposal [IFRS 10.B98]
Derecognise assets and liabilities (including goodwill) (550 000 + 20 000) (570 000)
Derecognise non-controlling interests (550 000 x 40%) 220 000
Fair value of consideration 375 000
Fair value of remaining interest -
Consolidated gain on disposal (including fair value adjustments) 25 000
Alternative for the pro forma journals
The alternative approach is available on myUnisa.
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LEARNING UNIT 8 – RELATED PARTY DISCLOSURES
INTRODUCTION
IAS 24 deals with the identification of related party relationships and the disclosure
requirements of related party relationships, transactions and outstanding balances,
including commitments, in the consolidated (IFRS 10), separate (IAS 27) and individual
financial statements.
UNGC principle 10 is applicable here, stating that businesses should work against
corruption in all its forms, including extortion and bribery.
OBJECTIVES/OUTCOMES
At the end of this learning unit, you should be able to
1. define the following terms:
• related party
• related party transaction
• key management personnel
• close member of the family of a person
• control, joint control and significant influence
• compensation
• government
• government-related entity
2. identify a related party
3. identify related party transactions
4. disclose relationships between related parties
5. disclose transactions and outstanding balances, including commitments, with

related parties other than key management personnel
6. disclose key management personnel compensation
7. disclose related party information for government-related entities
PRESCRIBED STUDY MATERIAL
The following must be studied before you attempt the question in this learning unit:
1. IAS 24 Related Party Disclosures
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THE REST OF LEARNING UNIT 8 IS BASED ON THE ASSUMPTION THAT YOU

HAVE ALREADY STUDIED THE RELEVANT PRESCRIBED STUDY MATERIAL.
SECTION A – SAICA’s PRINCIPLES OF EXAMINATION LEVELS

The SAICA principles of examination levels provide guidance on how the standards (or topics
within a standard) will be examined.
The principles of examination levels for IAS 24 are as follows:

Objective 1 Core
Scope 2–4 Core
Purpose of related party disclosures 5–8 Core
Definitions 7 – 12 Core
Disclosures 13 – 24 Core All entities
25 – 27 Core Government-related entities
Effective date and transition 28 Excluded
EXAMPLE
The following example illustrates the method required to identify related parties:
1. Identify related parties
The following information is available regarding A Ltd:
• A Ltd purchase 80% of its raw materials from B Ltd. A Ltd does not have any other
transactions with B Ltd.
• Mr Booysen holds 5% of the issued ordinary shares and voting rights of A Ltd. His 16-year-old
son holds 30% of the voting rights in A Ltd which he inherited from his grandfather.
• The majority of A Ltd’s issued ordinary shares and voting rights are held by the South African
government. A Ltd is the sole provider of specialist advice concerning the development of
roads to the Tshwane City Council.
Identify the related parties of A Ltd:
Mr Booysen’s son is a related party of A Ltd, as he has more than 20% interest, which is presumed
to be significant influence (IAS 24.9(a)(ii)).
Mr Booysen is a related party of A Ltd, as he is a close member of his son’s family, and his son has
significant influence (IAS 24.9(a)(ii)).
The South African government is a related party of A Ltd, as A Ltd is controlled by the government.
This relates to the definition of a government-related entity (IAS 24.9).
B Ltd is not a related party of A Ltd, as a single supplier with whom the reporting entity has
conducted transactions of a material extent, merely because of their economic dependence, is
excluded from the definition (IAS 24.11(d)).
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SECTION B – QUESTION ON RELATED PARTY DISCLOSURES
QUESTION 8.1 (14 marks – 21 minutes)
A Ltd, a company with several overseas contracts, negotiates export contracts on behalf of
South African manufacturers. They earn, inter alia, revenue by charging 15% royalties on the
exporters’ sales over the next five years.
The following transactions were entered into during the year ended 30 June 20.20:
1. A contract is negotiated on behalf of B Ltd, a 25% associate company of A Ltd, and royalties
of 10% is charged on B Ltd’s exports of R10 000 000.
2. A contract is negotiated on behalf of C Ltd, a wholly owned subsidiary of A Ltd, and royalties
of 6% is charged on C Ltd’s exports of R6 000 000.
3. A Ltd purchases inventories from D Ltd at cost plus 33,3%. D Ltd normally realises a profit of
50% on cost. Purchases from D Ltd amounted to R800 000 according to the purchases
account of A Ltd for the year ended 30 June 20.20. A Ltd owns only 10% of the ordinary share
capital of D Ltd but can appoint all the directors of D Ltd in terms of a shareholders’
agreement.
4. A Ltd borrowed R20 000 000 from Loaners Bank. The amount represents the largest liability in
the statement of financial position of A Ltd as at 30 June 20.20.
5. A Ltd prepared all the export contracts for B Ltd and C Ltd. If attorneys would have prepared
these contracts, it would have cost approximately R200 000 in total. A Ltd did not invoice
B Ltd or C Ltd.
6. A Ltd control E Ltd through a shareholders’ agreement, even though it only has 30% of the
issued share capital. No transactions were entered into by the two companies during the
current financial year.
REQUIRED
Marks
(a) Discuss which of the entities mentioned are related parties of A Ltd in terms of 5
IAS 24 Related Party Disclosures.
(b) Disclose all relevant information resulting from IAS 24 Related Party Disclosures, in 9
the notes to A Ltd’s separate financial statements for the year ended 30 June 20.20.
Please note:
• Your answer must comply with the International Financial Reporting Standards (IFRS).
• Comparative figures are not required.
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QUESTION 8.1 – Suggested solution
(a) Related parties
B Ltd is a related party of A Ltd, on account of significant influence in accordance with

IAS 24.9(b)(ii) (B Ltd is an associate of A Ltd). (1)
C Ltd and E Ltd are related parties of A Ltd, on account of control in accordance with
IAS 24.9(b)(i) (C Ltd and E Ltd are subsidiaries of A Ltd). (2)
D Ltd is a related party of A Ltd, on account of control of the board of directors by A

Ltd in accordance with IAS 24.9(b)(vi). (1)
Loaners Bank is not a related party of A Ltd, as providers of finance are specifically
excluded in accordance with IAS 24.11(c)(i). (1)
(5)
(b) Disclosure
A LTD
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 20.20
2. Related parties
Relationships between parents and subsidiaries
The following represents a list of the significant subsidiaries of the group:
Ownership interest
20.20
C Ltd 100 (1)
D Ltd 10 (1)
E Ltd 30 (1)
Transactions with related parties other than key management personnel
20.20
R
Service provided to:
B Ltd (10 000 000 x 10%) 1 000 000 (1)
C Ltd (6 000 000 x 6%) 360 000 (1)
Purchases of goods from:

D Ltd 800 000 (1)
A Ltd prepares all B Ltd’s and C Ltd’s export contracts at no charge. (1)
All the above-mentioned transactions were made on terms equivalent to those

that prevail in arm’s length transactions, except for transactions between A Ltd
and D Ltd which are made in terms of a discount agreement between the parties. (1)
Transactions with key management personnel
No compensation was paid to key management personnel during the year. (1)
(9)
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A good examination technique with the identification of related parties is to start by

drawing a group structure with the relationship of each party to the reporting entity.
Thereafter, start evaluating each relationship against the definition of a related party in
accordance with IAS 24.9.
COMMENT
Included in IAS 24 is six illustrative examples. These examples should be studied,

together with the Standard. This will enhance the understanding of the requirements of
the standards and ensure that it can be applied in a practical manner.
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SELF-ASSESSMENT QUESTIONS AND SUGGESTED SOLUTIONS

Question
Question Source Marks Topics covered Page
name
1 Laduma Ltd FAC4862 40 • Consolidated statement of changes 39
Test 3/2018 in equity –subsidiary becomes
IFRS 9 investment and no change in
control (acquisition of further
interest)
• Discussion of related parties
2 Vho-Sassa Ltd FAC4862 40 • Consolidated journals – loss of 49
Test 3/2019 control
• Consolidated statements of changes
in equity – change in ownership
reserve
3 Motlokase Ltd FAC4862 40 • Consolidated journals – IFRS 9 61
Test 3/2020 investment becomes a subsidiary
• Calculate profit/loss in consolidated
financial statements on loss of
control
• Consolidated statements of changes
in equity – change in ownership
reserve
4 Angel Maine FAC4862 40 • Consolidated journals – loss of 75
Coon Ltd Test 3/2021 control
WWC Auditors • Preparation of memorandum
and discussing impairment loss and
Accountants subsequent reversal thereof
5 PalmTree Ltd FAC4862 40 • Consolidated journals – IFRS 9 86
Test 3/2022 investment becomes a subsidiary
with intragroup transactions.
• Discussion of additional interest
acquired.
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QUESTION 1 40 marks
YOU HAVE 15 MINUTES TO READ THIS QUESTION.
Laduma Ltd is one of the leading manufacturers of soccer accessories in South Africa.
Laduma Ltd is listed on the Johannesburg Stock Exchange and has made investments in other
related industries over the past few years. All the companies in the group have a 30 April year end.
The following extracts from the separate trial balances of the respective companies are presented
as at 30 April 20.18 (you may assume that all equity, profit or loss and other comprehensive income
items are shown below):
Laduma Ltd Silver Golden

Arrows Ltd Stars Ltd
Dr/(Cr) Dr/(Cr) Dr/(Cr)
R R R
Ordinary share capital
- 250 000 ordinary shares each (250 000)
- 150 000 ordinary shares each (150 000) (150 000)
Retained earnings (1 May 20.17) (2 365 585) (879 885) (1 355 460)
Mark-to-market reserve (1 May 20.17) (635 000) - (265 900)
Revaluation reserve (revaluation of land) (500 000) - -
Profit for the year (568 500) (328 700) (499 860)
Other comprehensive income:
- revaluation of land (350 000) - -
- mark-to-market reserve (136 800) - (89 500)
Shareholding of Laduma Ltd
The issued ordinary shares in Laduma Ltd are widely held with the following shareholders having a
significant (more than 5%) shareholding (each share entitles the shareholder to one vote):
Shareholder Percentage shareholding Note Description

Mr L Duma 25% CEO of Laduma Ltd
Laduma Retirement Fund 14% 1 Retirement fund
Mrs G Moon 5,8% 2 Natural person
Celtic Ltd 18,9% 3 Company
1. The Laduma Retirement Fund is a defined contribution plan with all of Laduma Ltd’s
permanent employees as members.
2. Mrs G Moon is a natural person that believes in diversifying her investment risks.
3. Mr L Duma’s son, Mr SP Duma, invested in Celtic Ltd during March 20.17. Mr SP Duma
exercised significant influence over the financial and operating policy decisions of Celtic Ltd
from March 20.17.
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Investment in Silver Arrows Ltd
Laduma Ltd acquired 75% of the issued ordinary shares and voting rights of Silver Arrows Ltd on
30 May 20.15 for a cash consideration of R600 000. From that date, Laduma Ltd had control over
Silver Arrows Ltd as defined in IFRS 10 Consolidated Financial Statements. On this date, the equity
of Silver Arrows Ltd consisted of share capital and retained earnings amounting to R150 000 and
R435 850, respectively. Goodwill of R13 613 arose from this acquisition. All assets and liabilities of
Silver Arrows Ltd were deemed to be fairly valued, with the exception of the following:
• Silver Arrows Ltd developed a new patent for manufacturing lighter soccer balls in 20.14.
Silver Arrows Ltd did not recognise this intangible asset in their separate financial statements.
The fair value of this patent amounted to R250 000 on 30 May 20.15, based on similar market
conditions, and is expected to have an indefinite useful life. The South African Revenue
Services (SARS) does not allow any deductions against taxable income in respect of this
patent.
No additional assets, liabilities or contingent liabilities were identified on 30 May 20.15.
Laduma Ltd acquired an additional 10% interest in the ordinary share capital of Silver Arrows Ltd on
1 February 20.18 for a cash consideration of R180 000. All assets and liabilities of Silver Arrows Ltd
were regarded to be fairly valued on 1 February 20.18, except for the patent, which had a fair value
of R285 000 on that date.
No additional assets, liabilities or contingent liabilities were identified on 1 February 20.18.
Investment in Golden Stars Ltd
On 1 July 20.16, Laduma Ltd acquired a 60% interest in Golden Stars Ltd for a cash consideration
of R540 000, and exercised control over Golden Stars Ltd in terms of IFRS 10 Consolidated
Financial Statements from that date.
On 1 July 20.16, the share capital, retained earnings and mark-to-market reserve amounted to
R150 000, R645 870 and R85 000 respectively. All the assets and liabilities of Golden Stars Ltd
were deemed to be fairly valued at that date, except for plant and equipment that were undervalued
by R65 000. The plant and equipment had a remaining useful life of three years on that date.
No additional assets, liabilities or contingent liabilities were identified at the acquisition date.
On 1 March 20.18, the board of directors of Laduma Ltd decided to reduce the company's
shareholding in Golden Stars Ltd. Laduma Ltd sold a 55% interest in Golden Stars Ltd for a cash
consideration of R1 569 420 and no longer exercised control or had significant influence over the
financial and operating policy decisions of Golden Stars Ltd from that date.
The fair value of the remaining investment was R130 000 on 1 March 20.18.
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Intragroup transactions during the year
The following intragroup transactions took place within the group during the year ended
30 April 20.18:
• Silver Arrows Ltd bought equipment, with a carrying amount of R258 900, from Laduma Ltd on
30 June 20.17 for an amount of R423 500. This equipment was originally purchased on
1 January 20.14 and had a useful life of six years on that date. The assessment of the useful
life has remained unchanged since that date. The equipment is used by both companies in the
manufacturing of soccer accessories.
1. The Laduma Ltd Group elected to measure non-controlling interests at the proportionate share
of the acquiree’s net identifiable assets at acquisition date for all acquisitions.
2. It is the accounting policy of Laduma Ltd to account for investments in subsidiaries at cost in
its separate financial statements in accordance with IAS 27.10(a).
3. It is the accounting policy of Laduma Ltd to account for investments in equity instruments,
other than investments in subsidiaries, in accordance with IFRS 9 Financial Instruments.
Laduma Ltd irrevocably elected to present subsequent changes in the fair value of
investments in other comprehensive income in a mark-to-market reserve.
4. Laduma Ltd and Golden Stars Ltd declared and paid a dividend of R55 000 and R35 000
respectively on 28 February 20.18.
5. All revenue and expense items, as well as other comprehensive income items, accrued evenly
throughout the year. All intragroup sales and purchases accrued evenly throughout the year
for all companies except where stated otherwise. There were no intragroup transactions
during the previous year.
6. The opening balances in the consolidated financial statements of the Laduma Ltd Group on
1 May 20.17 for retained earnings, mark-to-market reserve and non-controlling interests were
R3 116 457, R743 540 and R1 028 723 respectively.
7. Assume a normal income tax rate of 27% and a capital gains tax inclusion rate of 80%.
Ignore value added tax (VAT) and dividend tax.
8. There were no changes in the issued ordinary share capital of any of the companies in the
group.
9. Laduma Ltd recognises any difference between the amount by which the non-controlling
interests are adjusted and the fair value of the consideration paid or received as a result of an
equity transaction directly in a change in ownership reserve in equity.
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REQUIRED
YOU HAVE 60 MINUTES TO ANSWER THIS QUESTION.
Marks
(a) Prepare the consolidated statement of changes in equity of the Laduma Ltd Group 34
for the year ended 30 April 20.18.
Communication skills: presentation and layout 1
Please note:
• The following columns are not required:
- share capital
- revaluation surplus
- total and total equity
• Dividend per share disclosure is not required.
(b) Discuss, with reasons, whether the identified shareholders of Laduma Ltd and 4
Mr SP Duma are related parties of Laduma Ltd for the year ended 30 April 20.18.
Communication skills: logical argument 1
Please note:
• Round off all amounts to the nearest rand.

• Notes to the consolidated statement of changes in equity are not required.
• Show all your calculations.
MJM
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QUESTION 1 – Suggested solution
(a) LADUMA LTD GROUP
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED

30 APRIL 20.18
Change Non- Mark-to-
Retained
in owner- controlling market
earnings
ship interests reserve
R R R R
Balance at 1 May 20.17 3 116 457 - 1 028 723 743 540
Changes in equity for 20.18
Partial acquisition of subsidiary [C6] (32 759) (147 241) (5)
Total comprehensive income for the
year
Profit for the year: [C1]; [C5] 173 370 226 870 (24)
Other comprehensive income
(89 500 x 10/12 = 74 583 x 40%);
((74 583 x 60%) + 136 800) 29 833 181 550 (2)
Dividends paid (55 000) (14 000) (2)
Loss of control over subsidiary [C3] (890 997) (1)
Transfer of mark-to-market reserve
[(265 900 – 85 000) + (89 500 x
10/12) x 60%] 153 290 (153 290) (2)
Balance at 30 April 20.18 3 388 117 (32 759) 233 188 771 800
Total (36)
Maximum (34)
Communication skills: presentation and layout (1)
(b) Discuss, with reasons, whether the identified shareholders of Laduma Ltd and
Mr SP Duma are related parties of Laduma Ltd for the year ended 30 April 20.18.
Definition
A related party is a person or entity related to the entity that is preparing its financial
statements (reporting entity) (IAS 24.9).
Mr L Duma is a member of key management personnel and is thus a related party

(IAS 24.9(a)(iii)). (1)
Laduma Retirement Fund is a defined contribution plan for the benefit of its employees and
is a related party of Laduma Ltd (IAS 24.9(b)(v)). (1)
Mrs G Moon does not have control, joint control or significant influence over Laduma Ltd
and is not a member of key management personnel, and therefore she will not be a related
party of Laduma Ltd (IAS 24.9(a)). (1)
Mr SP Duma is a close family member of a key member of management personnel, namely

he is the son of Mr L Duma, and therefore Mr SP Duma is a related party of Laduma Ltd
(IAS 24.9(a)). (1)
Mr SP Duma has significant influence over Celtic Ltd and is a close family member of
Mr L Duma, a member of key management personnel, Laduma Ltd, therefore Celtic Ltd is
NOT a related party of Laduma Ltd as Mr L Duma does not control Laduma Ltd
(IAS24.IE23). (1)
Total (5)
Maximum (4)
Communication skills: logical argument (1)
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CALCULATIONS
C1. Profit for the year
Laduma Ltd (673 665)

Profit for the year 568 500
Unrealised profit on equipment (164 600 [C2] x 73%) (120 158) [1]
Depreciation of unrealised profit on equipment [C2] 40 053 [2]
Dividends received from Golden Stars Ltd (35 000 x 60%) (21 000) [1]
Profit in separate financial statements [C4] (1 074 420) [2]
Reversal of day one fair value adjustment in Laduma Ltd’s separate
financial statements ((130 000 – (540 000 x 5/60)) x (1 – (27% x 80%))) (66 640) [2]
Silver Arrows Ltd 254 743

Profit for period 1/5/17 – 31/1/18 (328 700 x 9/12 x 75%) 184 894 [1]
Golden Stars Ltd 229 368

Profit for the year (499 860 x 10/12 x 60%) 249 930 [2]
IFRS 3 Plant and equipment depreciation
((65 000 x 73%)/36 x 26 = 34 269 x 60%) (20 562) [2]
Consolidated profit with disposal of investment – IFRS 10.B98 [C3] 362 924 [6]
173 370
[20]
COMMENT
When a subsidiary becomes an IFRS 9 Investment, you should remember that you are
accounting for two investments in one year. You should thus first account for the
subsidiary for the period while it was a subsidiary, and then for the IFRS 9
Financial Instruments. The remaining interest of 5% should be classified as a financial
asset in terms of IFRS 9. In terms of IFRS 9.5.1.1, the financial asset is initially measured
at fair value. Any difference between the transaction price and the fair value on initial
recognition will always be recognised in profit or loss. Thereafter you will measure the
IFRS 9 financial asset in accordance with the parent’s policy which will be given in the
scenario.
The fair value of the remaining interest on 1 March 20.18 is R130 000. The carrying
amount of the investment in the separate financial statements of the parent is R45 000,
which is calculated as the cost price of R540 000 less the portion of the cost that was
sold, which is 5/60. The remeasurement gain is thus R85 000 which is the R130 000 less
R45 000. In the separate financial statement of the parent, you will thus increase the
investment to the fair value of R130 000. Deferred tax on this adjustment should be
provided at the CGT rate as the investment will be recovered through sale.
These journals should be reversed on group level.
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C2. Unrealised profit on intragroup equipment
Remaining useful life (72 – 42) 30 months

Unrealised profit (423 500 – 258 900) 164 600 [1]
Depreciation for 20.18 (164 600/30 x 10) 54 867 [1]

Deferred tax expense (54 867 x 27%) (14 814) [1]
Adjustment for 20.18 40 053
[3]
C3. Consolidated profit with disposal of shares – Golden Stars Ltd
Derecognition of net asset value (2 227 493)

- share capital 150 000
- retained earnings 1 355 460
- mark-to-market reserve 265 900
- profit for 10 months (499 860 x 10/12) 416 550 [1]
- other comprehensive income for 10 months
[1]
(89 500 x 10/12) 74 583
- dividends declared (35 000) [1]
Derecognition of non-controlling interests (2 227 493 x 40%) 890 997 [1]
Recognition of fair value of remaining interest 130 000 [1]
Recognition of consideration received 1 569 420 [1]
362 924
[6]
C4. Profit on disposal of interest in separate books of Laduma Ltd
Proceeds 1 569 420 [1]

Less: Historic cost price (540 000/60 x 55) (495 000) [1]
1 074 420
[2]
C5. Profit attributable to non-controlling interests
Silver Arrows Ltd 73 958

Golden Stars Ltd 152 912
Golden Star Ltd (499 860 x 10/12 x 40%) 166 620 [1]
IFRS 3 plant and equipment depreciation (34 269 [C1] x 40%) (13 708) [1]
226 870
[4]
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C6. Change in ownership amount recognised in equity [IFRS 10.B96]
Fair value of consideration paid (180 000) [1]

Amount by which non-controlling interests are adjusted 147 241
Non-controlling interests after transaction (368 103 x 15/25) (220 862) [1]
Non-controlling interests before transaction (((150 000 + 435 850 +
(250 000 x 78,4%)) x 25%) + ((879 885 – 435 850) x 25%) + 61 631 [C5]) 368 103 [3]
Amount to be recognised directly in equity (loss) (32 759)

[5]
OR
Fair value of consideration paid (180 000) [1]

Amount by which non-controlling interests are adjusted
Net asset value acquired
((150 000 + 879 885 + (328 700 x 9/12) + (250 000 x 78,4%)) x 10%) 147 241 [4]
Amount to be recognised directly in equity (32 759)
[5]
OR
Fair value of consideration received (180 000) [1]

Amount by which non-controlling interests are adjusted 147 241
Portion of non-controlling interests acquired ((600 000 – 13 613) x 10/75) 78 185 [2]
Since acquisition reserves acquired
[((879 885 – 435 850) x 75%) + 184 894 [C1]) x 10/75)] 69 056 [2]
Amount to be recognised directly in equity (32 759)
[5]
COMMENT
The amount by which non-controlling interests are adjusted is R147 241. Non-controlling
interests are measured at the proportionate share of the acquiree’s net assets. You can
therefore take the total non-controlling interests’ share before the change. In accordance
with IFRS 10.B96, the amount to be recognised directly in equity is the difference
between the proceeds of R180 000 and the amount by which non-controlling interests are
adjusted of R147 241. An amount of R32 759 will thus be recognised in equity in a
separate column called “Changes in ownership”.
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C7. Analysis of owners’ equity of Silver Arrows Ltd (for completeness only)
Laduma Ltd
75% - 85% 25% - 15%
Total At Since NCI
At acquisition
Share capital 150 000
Retained earnings 435 850
Intangible asset (250 000 x 78,4%) 196 000
781 850 586 388 195 463
Equity represented by goodwill
(balancing) 13 613 13 613 -
Since acquisition
Beginning of the year
Retained earnings (879 885 –
435 850) 444 035 333 026 111 009
Current year
Profit for the year
(9 months (1/5/17 – 31/1/18)) 246 525 184 894 61 631
1 486 023 517 920 368 103
Change in ownership - 78 185 69 056 (147 241)

1 485 522 586 976 220 862
Profit for the year

(3 months (1/2/18 – 30/4/18)) 82 175 69 849 12 326
1 568 198 656 825 233 188
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C8. Analysis of owners’ equity of Golden Stars Ltd (for completeness only)
Laduma Ltd
60% - 5% 40% - 95%
Total At Since NCI
At acquisition
IFRS 3 remeasurement of equipment
(65 000 x 73%) 47 450
Mark-to-market reserve 85 000
928 320 556 992 371 328
Gain on bargain purchase (balancing) (16 992) (16 992) -
Since acquisition
Beginning of the year
Retained earnings
(1 355 460 – 645 870) 709 590 425 754 283 836
Mark-to-market reserve
(265 900 – 85 000) 180 900 108 540 72 360
IFRS 3 remeasurement depreciation
(47 450 / 36 x 10) (13 181) (7 909) (5 272)
Current year
Profit for the year (10 months) 416 550 249 930 166 620
IFRS 3 remeasurement depreciation
(47 450 /36 x 26) (34 269) (20 561) (13 708)
(89 500 x 10/12) 74 583 44 750 29 833
Dividend paid (35 000) (21 000) (14 000)
2 210 501 779 504 890 997
Disposal of controlling interest (2 210 501) (779 504) (890 997)
QUESTION 1
Please refer to the Lessons tool on myUnisa for Tutorial Letter 104 for feedback and
guidance on the appropriate examination technique required in this question.
MJM
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QUESTION 2 40 marks
Vho-Sassa Ltd (Vho-Sassa) is one of the leading manufacturers of payment security devices
worldwide. Vho-Sassa is listed on the Johannesburg Stock Exchange and has made investments in
other related industries over the past few years. Vho-Sassa and all its investments have a 30 April
year end.
The following extracts from the separate trial balances of the respective companies are presented
as at 1 May 20.18 (you may assume that all amounts are correct):
Patson Grizzy
Dr/(Cr) Dr/(Cr)
R R
Retained earnings (885 000) (401 000)
Revaluation reserve (revaluation of land) - (59 920)
(1 035 000) (560 920)
Investment in Patson Ltd (Patson)
In order to diversify their operations, Vho-Sassa acquired 60% of the share capital and voting rights
of Patson on 1 October 20.12. From that date, Vho-Sassa obtained control of Patson as defined in
IFRS 10 Consolidated Financial Statements. The purchase consideration payable for this
acquisition consisted of the cash payment of R1 055 000 and the issue of 15 000 ordinary shares of
Vho-Sassa. Vho-Sassa paid R30 000 transaction costs for the issue of the shares that was included
in the cash consideration of R1 055 000.
Patson had the following equity balances at the respective date:
30 April 20.19 1 October 20.12

Dr/(Cr) Dr/(Cr)
R R
- 150 000 ordinary shares each (150 000) (150 000)
Retained earnings (1 285 000) (1 097 000)
(1 435 000) (1 247 000)
All the other assets and liabilities of Patson were deemed to be fairly valued at 1 October 20.12 and
no additional assets, liabilities or contingent liabilities were identified.
Patson declared and paid a dividend of R20 000 on 31 October 20.18.
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During the 20.19 financial year, the board of directors of Vho-Sassa decided to reduce the group’s
shareholding in Patson. Vho-Sassa sold a 50% interest in Patson for a consideration of R1 000 000
on 31 January 20.19, resulting in a remaining 10% interest and therefore no longer exercised
control or significant influence over the financial and operating policy decisions of Patson.
Investment in Grizzy Ltd (Grizzy)
Vho-Sassa acquired 75% of the share capital and voting rights of Grizzy on 1 November 20.15 for a
cash consideration of R315 000. From that date, Vho-Sassa obtained control over Grizzy. Grizzy is
a company that imports, distributes and services machinery used for the manufacturing of electronic
devices. Grizzy’s equity reserves at the date of acquisition consisted of the following:
Dr/(Cr)
R
Retained earnings (210 450)
Revaluation surplus (land) (59 920)
(370 370)
On 1 November 20.15, Grizzy’s assets and liabilities were deemed to be fairly valued, except the
land which was undervalued by R45 000. No additional assets, liabilities or contingent liabilities
were identified by Vho-Sassa on the date of acquisition.
On 1 June 20.18, Vho-Sassa bought a machine for R85 000 from Grizzy. Vho-Sassa uses the
machine in the production of the payment security devices. Grizzy sold the machine to Vho-Sassa
at cost plus 20%. On that date Vho-Sassa determined that the remaining useful life of the machine
is four years with no residual value.
Vho-Sassa acquired a further 10 000 shares in Grizzy from the non-controlling interests on
30 April 20.19 for a cash amount of R40 500.
On 30 April 20.19, Grizzy revalued its land upward by R60 000 and correctly accounted for it in its
separate financial statements.
Grizzy recorded a profit of R172 650 for the year ended 30 April 20.19.
1. It is the accounting policy of the Vho-Sassa Group to measure investments in equity

instruments, other than investments in associates and subsidiaries, in accordance with IFRS 9
Financial Instruments. The Vho-Sassa Group irrevocably elected to present subsequent
changes in the fair value of the investments in other comprehensive income as a mark-to-
market reserve.
2. Grizzy has control over Minister Ltd. Minister Ltd is a company that provides environmental
management services and the company currently exercises significant influence over financial
and operating policy decisions of No-Rain Ltd.
3. It is the accounting policy of Vho-Sassa to account for investments in subsidiaries at cost in its
separate financial statements in accordance with IAS 27.10(a).
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4. Vho-Sassa elected to measure non-controlling interests at their fair value at the acquisition
date for all its acquisitions.
5. Profit for the year accrued evenly throughout the year for Vho-Sassa and all its subsidiaries.
6. The fair value of the shares was as follows at the respective dates:
Date Vho-Sassa Patson Grizzy

R R R
1 October 20.12 15,50 8,45 3,25

1 November 20.15 15,70 9,10 4,20
31 January 20.18 16,00 9,80 5,50
30 April 20.19 16,45 10,20 5,85
8. There were no other changes in the issued share capital of any of the companies during the
year, except those mentioned in the information.
9. Vho-Sassa recognises any difference between the amount by which the non-controlling
equity transaction directly in a changes in ownership reserve in equity.
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REQUIRED
Marks
(a) Prepare the pro forma consolidation journal entries to account for the investment in 23
Patson Ltd in the consolidated financial statements of the Vho-Sassa Ltd Group for
the year ended 30 April 20.19.
Please note:
• Journal entries relating to deferred tax are required.
• Journal narrations are required.
(b) Present the following column in the consolidated statement of changes in equity 10
of the Vho-Sassa Ltd Group for the year ended 30 April 20.19:
• Change in ownership reserve
(c) Identify, with reasons, the parties related to Vho-Sassa Ltd for the year ended 4
30 April 20.19.
Communication skills: logical argument 1
Please note:
• Round off all amounts to the nearest rand.

• Show all your calculations.
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(a) VHO-SASSA LTD GROUP
PRO FORMA CONSOLIDATION JOURNALS FOR THE YEAR ENDED 30 APRIL 20.19
Dr Cr
R R
J1 Retained earnings (SCE) ((885 000 – 1 097 000) x 60%) 127 200 (2)
Investment in Patson Ltd (SFP) 127 200 (1)
Recognition of opening retained earnings relating to a
subsidiary
J2 Investment in Patson Ltd (SFP) (balancing) 189 000 (1)
Profit for the period 1 May 20.18 to 31 January 20.19 (P/L)
[C3] 315 000 (2)
Non-controlling interests (P/L) [C3] 126 000 (1)
Recognition of profit for the period while the investment was
still a subsidiary
J3 Other income (P/L) (20 000 x 60%) 12 000 (1)
Elimination of the intragroup dividend while the investment
was still a subsidiary
J4 Consolidated loss on disposal of a subsidiary (P/L) [C4] 160 300 (12)
Loss on sale of shares (P/L) [C5] 47 917 (2)
Investment in Patson Ltd (SFP) (balancing) 112 383 (1)
Recognition of consolidated loss on disposal and elimination
of the amount recognised in the separate financial
statements
J5 Investment in Patson Ltd (SFP)
(147 000 – (1 257 500 x 10/60)) 62 583 (2)
Fair value adjustment (P/L) 62 583 (1)
Reversal of fair value adjustment recognised in the separate
financial statements on date of disposal
J6 Income tax expense (P/L) (62 583 (J5) x 27% x 80%) 13 518 (1)
Deferred tax (SFP) 13 518
Tax implications of reversal of fair value adjustment
Total (28)
Maximum (23)
Alternative approach
J1 Ordinary share capital (SFP) 150 000

Retained earnings (SFP) 1 097 000 (1)
Investment in Patson Ltd (SFP) [C1] 1 257 500 (2)
Non-controlling interests (SFP) [C1] 507 000 (2)
Goodwill (SFP) (balancing) 517 500 (1)
At acquisition elimination journal
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Dr Cr
R R
J2 Non-controlling interests (P/L) [C3] 126 000 (3)

Non-controlling interests (SFP) (balancing) 41 200 (1)
Retained earnings (SCE) (885 000 – 1 097 000) x 40%) 84 800 (2)
Share of since acquisition reserves to non-controlling
interests for the previous years until 30 April 20.18
J3 Other income (P/L) (20 000 x 60%) 12 000 (1)
Dividends paid (SCE) 20 000 (1)
Non-controlling interests (SFP) 8 000 (1)
Elimination of intragroup dividend while the investment was
still a subsidiary
J4 Non-controlling interests (SFP) 540 200 (1)
Share capital (SFP) 150 000 (1)
Retained earnings (SCE) 885 000 (1)
Profit to date of sale (P/L) (315 000 – 20 000) 295 000 (1)
Consolidated loss on disposal of a subsidiary (P/L) (1)
(balancing) 160 300
Loss on sale of shares (P/L) [C5] 47 917 (2)
Investment in Patson Ltd (SFP) 1 047 917 (1)
Derecognition of assets and liabilities (including goodwill),
recognition of remaining interest at fair value and
recognition of loss of disposal of interest
J5 Investment in Patson Ltd (SFP) (2)
(147 000 – 1 257 500 x 10/60) 62 583
Fair value loss (separate) (P/L) 62 583 (1)
Reversal of fair value adjustment recognised in the separate
J6 Tax expense (P/L) (62 583 x 27% x 80%) 13 518 (1)
Deferred tax (SFP) 13 518
Tax implications of reversal of fair value adjustment
Total (28)
Maximum (23)
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QUESTION 2 (a)
The question required the pro forma consolidation journal entries to account for the
investment in Patson Ltd in the consolidated financial statements of the
Vho-Sassa Ltd Group for the year ended 30 April 20.19.
It is important to note that the parent had two investments in subsidiaries (Patson Ltd
and Grizzy Ltd) but that the required was for the investment in Patson Ltd ONLY.
There were a few candidates that provided the journals for Grizzy Ltd as well.
This resulted in unnecessary time wasted and the inevitable loss of marks.
This illustrates the importance of reading and understanding the required before
commencing with the answer.
In this scenario, the parent sold its controlling interest with the result being that the
investment was a subsidiary for a portion of the year and an IFRS 9 investment for the
remainder. Therefore, it was a LOSS OF CONTROL transaction. It is worrisome that
many candidates treated the transaction in accordance with IFRS 10.23: Changes in a
parent’s ownership interest in a subsidiary that do not result in the parent losing control
of the subsidiary are equity transactions (i.e. transactions with owners in their capacity
as owners). The result was that many marks were lost in determining the gain/loss on
disposal of shares in the group.
For a loss of control scenario, candidates can also refer to example 1, part 1 in Tutorial
Letter 104, page 9. There are two different approaches to journalise the results of a loss
of control transaction namely the Unisa approach and the alternative approach.
The requirement of [J5] and [J6] of the suggested solution
It is important to firstly note that the proceeds in the separate and consolidated records
are the same. The reason for the different profits though is the use of different carrying
amounts. The carrying amount in the separate financial statements of the parent is the
original cost paid (IAS 27.10(a)) versus the consolidation of 100% of the subsidiary
line-by-line less attributing non-controlling interests’ share.
Since the investment is now at fair value in the separate on the date of disposal, the
parent will increase the remaining cost to fair value. In the consolidated records
however, the remaining interest is already measured at fair value as the IFRS 10.B98
calculation includes recognising the remaining interest at fair value. Therefore, we need
to reverse the fair value recognised by the parent, otherwise the investment will be at a
higher value than its fair value.
Lastly, it is important to remember that in any change of degree of control question, it is

an investment in subsidiary for a portion of the current year and maybe even the prior
years. Ensure that you are able to do the at acquisition journal, process the IFRS 3
adjustments, determine the consideration and non-controlling interests, eliminate
intragroup transactions, allocate non-controlling interests their share of profits and
losses, et cetera. This will ensure that you are still able to score enough marks to pass
the question. In this question, without doing any loss of control journal entries [J4],
candidates would still have been able to achieve 14/23 = 61%!
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(b) VHO-SASSA LTD GROUP
EXTRACT OF THE CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE

YEAR ENDED 30 APRIL 20.19
Change in
ownership
reserve
R
Balance at 1 May 20.18 -
Acquisition of additional 10% interest [C6] 38 198 (10)
Balance at 30 April 20.19 38 198
(10)
Communication skill: presentation and layout (1)
COMMENT
QUESTION 2 (b)
In transactions with owners in their capacity as owners, the difference between

consideration paid and the amount that non-controlling interests changes with is
disclosed in the “Change in ownership” column. Always read the required carefully – this
was the ONLY column required. Remember that when a subsidiary is measured at fair
value, it will also share in goodwill/excess, as in this scenario. This means that the
amount to use to calculate what non-controlling interests changes with will include the
goodwill. In this question, it could have been either:
• the net assets of the subsidiary (including IFRS 3 adjustments) PLUS goodwill
multiplied by the percentage that non-controlling interests changes with (10%); or
• the non-controlling interests balance multiplied with the increase in the non-controlling
interests (10%/25%).
Where a subsidiary is measured at proportionate share, always ensure that the parent’s
goodwill is excluded from any change in ownership calculations.
(c) Identification of related parties of Vho-Sassa Ltd
A related party is a person or entity related to the entity that is preparing its financial
statements (reporting entity) (IAS 24.9).
Vho-Sassa has neither control or joint control nor exercise significant influence over the
financial and operating polices of Patson Ltd at year end; Patson Ltd is therefore not a
related party of Vho-Sassa Ltd (IAS 24.9(a)(iii)). (1)
Vho-Sassa Ltd has control over Grizzy Ltd, thus Grizzy Ltd is a related party of
Vho-Sassa Ltd (IAS 24.9(a)(iii)). (1)
Minister Ltd is a subsidiary of Grizzy Ltd and is a related party of Vho-Sassa Ltd
(IAS 24.9(b)(v)). (1)
No-Rain Ltd is an associate of Minister Ltd, therefore not a related party of

Vho-Sassa Ltd. (1)
Total (4)
Communication skills: logical argument (1)
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CALCULATIONS
C1. Calculation of goodwill – Patson Ltd
Net asset value (1 247 000)

Non-controlling interests (8,45 x 40% x 150 000) 507 000 [1]
Consideration transferred (1 055 000 + (15 000 x 15,50) – 30 000) 1 257 500 [2]
Goodwill 517 500
[3]
C2. Share of retained earnings – Patson Ltd
Retained earnings (885 000 – 1 097 000) (212 000)

Parent (212 000 x 60%) (127 200)
Non-controlling interests (212 000 x 40%) (84 800) [1]
C3. Share of profit for the year – Patson Ltd
Profit for the year ((1 285 000 – 885 000 + 20 000) x 9/12) 315 000 [2]
Non-controlling interests (315 000 x 40%) 126 000 [1]
C4. Consolidated loss on disposal of a subsidiary – Patson Ltd
Derecognise all assets and liabilities (including goodwill)

(1 035 000 + 315 000 [C3] – 20 000 + 517 500 [C1]) (1 847 500) [6]
Derecognise non-controlling interest (507 000 [C1] – 84 800 [C2] +
126 000 [C3] – (20 000 x 40%)) 540 200 [4]
Fair value of consideration 1 000 000 [1]
Fair value of remaining interest (10% x 150 000 x 9,80) 147 000 [1]
Consolidated gain/(loss) on disposal (160 300)
[12]
C5. Loss on sale of a subsidiary in separate financial statements
Cost of investment in Patson Ltd (1 257 500 [C1] x 50/60) (1 047 917) [1]
Proceeds on disposal 1 000 000 [1]
(47 917)
[2]
C6. Change in ownership (IFRS10.B96) – Grizzly Ltd
Consideration paid (40 500) [1]

Amount by which the non-controlling interests are adjusted
(786 988 [C7] x 10%) 78 698 [10]
38 198
Total [11]
Maximum [10]
OR
Consideration paid (40 500) [1]

Amount by which the non-controlling interests are adjusted 78 698
Non-controlling interests after change in ownership
((786 988 [C7] – 14 350 [C8]) x 15% + (3 588 [C9] x 15/25)) (118 048) [14]
Non-controlling interests before change in ownership
((786 988 [C9] – 14 350 [C8]) x 25% + 3 588 [C9]) 196 746 [1]
38 198
Total [16]
Maximum [10]
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C7. Net asset value of Grizzy Ltd at the date of change in ownership
Ordinary share capital 100 000

- as at 1 May 20.18 401 000 [1]
- profit for the year 172 650 [1]
- unrealised profit on sale of machine (20/120 x 85 000) (14 167)
- deferred tax on unrealised profit 3 825 [1]
- realisation of unrealised profit (14 167/4 x 11/12) 3 247
- deferred tax on realisation of unrealised profit (877) [1]
Revaluation surplus (land) 106 960
- as at 1 November 20.15 59 920 [1]
- upward adjustment as at 30 April 20.19 60 000 [1]
- deferred tax on upward adjustment (60 000 x 80% x 27%) (12 960) [1]
Goodwill [C8] 14 350 [4]
786 988
[11]
C8. Calculation of goodwill – Grizzy Ltd
Ordinary share capital (100 000)

Revaluation surplus (59 920) [1]
Land (45 000 x (1 – 27% x 80%) (35 280) [1]
(405 650)
Non-controlling interests at fair value (4,20 x 25% x 100 000) 105 000 [1]
Consideration transferred 315 000 [1]
Total goodwill 14 350
[4]
Parent ((315 000 – 405 650) x 75%) 10 763

Non-controlling interests (105 000 – (405 650 x 25%)) 3 588 [2]
[2]
C9. Intragroup transaction
Gross Tax at Net of tax

27%
Selling price 85 000 (22 950) 62 050
Cost price 70 833 (19 125) 51 708
Profit (85 000 x 20/120) 14 167 (3 825) 10 342 [1]
Depreciation (14 167/4 x 11/12) (3 247) 877 (2 370) [1]

[2]
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Journal entries regarding intragroup transactions (for completeness only)
Dr Cr
R R
Revenue (P/L) 85 000

Machinery (SFP) [C4] 14 167
Cost of sales (P/L) 70 833
Deferred tax (SFP) [C4] 3 825
Tax expense (P/L) 3 825
Accumulated depreciation (SFP) 3 247
Cost of sales (P/L) 3 247
Tax expense (P/L) 877
Deferred tax (SFP) [C4] 877
Analysis of owners’ equity of Patson Ltd (for completeness only)
60% - 10%
Vho-Sassa Ltd
Total At Since NCI
At acquisition
Ordinary share capital 150 000 90 000 60 000
Retained earnings 1 097 000 658 200 438 800
1 247 000 748 200 498 800
Goodwill 517 500 509 300 8 200
((1 055 000 – 30 000) + (15 000 x
15,50)); (8,45 x 40% x 150 000) 1 764 500 1 257 500 507 000
Since acquisition until beginning of

the year
Retained earnings
(885 000 – 1 097 000) (212 000) (127 200) (84 800)
Current year
Profit for the year
(1 285 000 – 885 000 + 20 000) x 9/12) 315 000 189 000 126 000
Dividends (20 000) (12 000) (8 000)
1 847 500 1 257 500 49 800 540 200
Loss of control over subsidiary
Derecognition of assets and liabilities
(IFRS 10.B98) (1 847 500) (1 257 500) (49 800) (540 200)
- - - -
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Analysis of equity Grizzly Ltd (for completeness only)
75% - 85%
Vho-Sassa Ltd
Total At Since NCI
At acquisition
Ordinary share capital 100 000 75 000 25 000
Revaluation surplus 59 920 44 940 14 980
Land 45 000 33 750 11 250
Deferred tax (45 000 x 27% x 80%) (9 720) (7 290) (2 430)
405 650 304 238 101 413
Goodwill 14 350 10 763 3 588
(R4,20 x 25% x 100 000) 420 000 315 000 105 000
Since acquisition until beginning of

the year
Retained earnings (401 000 - 210 450) 190 550 142 913 47 637
Current year
Profit for the year
(172 650 – 14 167 + 3 247 + 3 825 –
877) 164 678 123 509 41 169
Revaluation surplus
(60 000 – 45 000) x (1 – (80% x 27%)) 11 760 8 820 2 940
786 988 315 000 275 242 196 746
Acquisition of additional interest

Further 10% acquisition
(196 746 x 10/25) OR
(590 242 x 10/75) 42 000 36 698 (78 698)
786 988 311 940 118 048
Journal entries for the changes in ownership in Grizzly Ltd (for completeness only)
Dr Cr
R R
Non-controlling interests (SFP) 78 698
Investment in Grizzy Ltd (SFP) 40 500
Change in ownership reserve (SCE) 38 198
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QUESTION 3 40 marks
Motlokase Ltd (Motlokase) is an investment holding company with investments predominantly in the
energy and mining sectors. The company aims to achieve consistent long-term growth by investing
in sustainable projects. Motlokase is listed on the Johannesburg Stock Exchange. Motlokase and all
investment companies have a year end of 29 February.
Struggling with rolling power cuts, Eskom has stated that it requires an additional 5 000 megawatts
(MW) of capacity to carry out critical maintenance on its power plants and to decommission older
power plants.
As a result, there is renewed focus on the Independent Power Producers Procurement Programme
(IPPPP), which creates opportunities for greater investment in renewable energy.
Investment in Umoya Ltd
Motlokase acquired 15% of the ordinary share capital and voting rights in Umoya Ltd (Umoya) on
1 March 20.15 for a cash consideration of R100 million. Umoya operates a 120MW wind farm in the
Northern Cape and is currently in the planning phase for the construction of another wind farm in the
Eastern Cape that will have a generating capacity of 160 MW.
Motlokase acquired an additional 40% of the share capital and voting rights of Umoya on
1 September 2019. From that date, Motlokase obtained control of Umoya as defined in IFRS 10
Consolidated Financial Statements. In order to pay the consideration on 1 September 20.19,
Motlokase obtained a loan from the Independent Development Corporation amounting to
R350 million and funded the remaining R50 million from its cash reserves.
Umoya had the following equity balances at the respective dates:
1 March 20.19 1 March 20.15

Dr/(Cr) Dr/(Cr)
R’000 R’000
Ordinary share capital (1 000 000 ordinary shares) (700 000) (700 000)
Retained earnings/loss 2 500 3 000
(697 500) (697 000)
All the assets and liabilities of Umoya were deemed to be fairly valued, except for the following:
• Umoya owns various pieces of land that cost R43 million. Umoya measures land in
accordance with the cost model per IAS 16 Property, Plant and Equipment. The land was
independently valued at R50 million on 1 September 20.19. There was no change in the value
of the land since that date.
All the other assets and liabilities of Umoya were deemed to be fairly valued at 1 September 20.19
and no additional assets, liabilities or contingent liabilities were identified.
Motlokase has been providing specialised monthly consulting services to Umoya from
1 March 20.19 at a cost of R1,5 million per month. Umoya settles each invoice strictly within seven
days after month end.
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Umoya made a profit of R40 million for the 20.20 financial year. The price per share of Umoya
amounted to R1 000 per share on 1 September 20.19.
Investment in Amalahle Ltd
Motlokase acquired 75% of the share capital and voting rights of Amalahle Ltd (Amalahle) on
1 January 20.15 for a cash consideration of R22 million. From that date, Motlokase obtained control
over Amalahle as defined in IFRS 10 Consolidated Financial Statements. Amalahle is a coal
exploration and mining company.
Amalahle’s equity reserves at the date of acquisition consisted of the following:
Dr/(Cr)
R’000
Ordinary share capital (100 000 ordinary shares) (1 000)
Revaluation surplus (land) (1 850)
(14 970)
All of Amalahle’s assets and liabilities were deemed to be fairly valued on 1 January 20.15, except
for the following:
• Specialised machinery is used in the mining operations. Due to various factors, including an
increased demand and limited manufacturers of the machinery, the fair value of the machinery
used by Amalahle had a fair value of R4 million higher than its carrying amount.
The specialised machinery used by Amalahle has a remaining useful life of eight years from
1 January 20.15.
• Amalahle owns land which was undervalued by R3 million.
No additional assets, liabilities or contingent liabilities were identified by Motlokase on the date of
acquisition. The fair value of the non-controlling interests amounted to R5 million on that date.
Motlokase took a drastic decision to exit the coal mining industry and sold all its shares in Amalahle
to an independent third party on 31 January 20.20 for a cash consideration of R25 million.
The following information relating to Amalahle is relevant to the transaction:

• The retained earnings balance on 1 March 20.19 amounted to R16,5 million;
• The cumulative fair value adjustments on land since its original purchase up to
31 January 20.20 amounted to R9 million. It is the accounting policy of Amalahle to account
for land in accordance with the revaluation model in accordance with IAS 16 Property, Plant
and Equipment. These adjustments were correctly processed in its separate financial records;
and
• The loss after tax for the 20.20 financial year is R1,1 million.
Investment in Ilanga Ltd
Motlokase acquired a 51% controlling interest in Ilanga Ltd (Ilanga) on 1 July 20.16. Ilanga operates
a successful solar farm on the Garden Route. Ilanga was founded by Mr Bavuma, who owns 40% of
the issued share capital and voting rights of Ilanga. This shareholding provides Mr Bavuma with
significant influence over the financial and operating policy decisions of Ilanga Ltd. All of Ilanga’s
assets and liabilities were deemed to be fairly valued on 1 July 20.16. No additional assets, liabilities
or contingent liabilities were identified by Motlokase on the date of acquisition.
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Mr Bavuma is married to Mrs Bavuma, who holds the remaining 9% interest. She is a director and
shareholder of an events company named Tembi Ltd. She exercises significant influence over the
financial and operating policy decisions of Tembi Ltd.
The following information for Ilanga for the 20.20 financial year is presented:
Dr/(Cr)
R’000
Ordinary share capital (1 000 000 ordinary shares) (5 000)
Retained earnings – 1 July 20.16 (500)
Retained earnings – 1 March 20.19 (9 850)
Profit for the year (7 000)
Dividend declared and paid on 30 October 20.19 1 000
Motlokase acquired the 40% shareholding of Mr Bavuma on 31 October 20.19 at its fair value.
The price per share of Ilanga was as follows at the respective dates:
31 October 20.19 1 March 20.19 1 July 20.16

Fair value R37,50 R30,00 R18,00
1. It is the accounting policy of the Motlokase Group to account for land in accordance with the
revaluation model in the consolidated financial statements in accordance with IAS 16
Property, Plant and Equipment.
2. There were no other share transactions, apart from those specifically stated in the scenario.
3. Investments other than investments in subsidiaries are measured in terms of IFRS 9

Financial Instruments. Motlokase irrevocably elected to present subsequent changes in the
fair value of the investments in other comprehensive income in a mark-to-market reserve.
4. Motlokase elected to transfer any cumulative gains or losses within equity in terms of
IFRS 9.B5.7.1.
5. It is the accounting policy of Motlokase to account for investments in subsidiaries at cost in its
separate financial statements in accordance with IAS 27.10(a).
6. Motlokase elected to measure non-controlling interests at their fair value at the acquisition
date for all its acquisitions.
7. Motlokase recognises any difference between the amount by which the non-controlling
equity transaction directly in a changes in ownership reserve in equity.
8. The profit for the year accrued evenly throughout the year for Motlokase and all the
companies in the group.
9. There were no changes in the issued share capital of any of the companies since their
respective incorporation dates.
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REQUIRED
Marks
(a) Prepare the pro forma consolidation journal entries to account for the investment 15
in Umoya Ltd in the consolidated financial statements of the Motlokase Ltd Group for
the year ended 29 February 20.20.
Please note:
• Pro forma journal entries for other companies in the group are not required.
• Journals relating to deferred taxation are required.
(b) Calculate the consolidated gain or loss on disposal for the investment in 13
Amalahle Ltd in the consolidated financial statements of the Motlokase Ltd Group for
the year ended 29 February 20.20.
(c) Prepare only the “Changes in ownership equity” column in the consolidated 6
statement of changes in equity of the Motlokase Ltd Group for the year ended
29 February 20.20.
Please note:
• No other columns are required.
(d) Discuss, with reasons, whether the relevant parties identified in the scenario are 4
related parties to Ilanga Ltd on 30 October 20.19.
Please note:
• You do not have to discuss whether Umoya Ltd or Amalahle Ltd are related. parties.
Please note:
• Round off all amounts to the nearest thousand rand.

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(a) Prepare the pro forma consolidation journal entries to account for the investment in
Umoya Ltd in the consolidated financial statements of the Motlokase Ltd Group for the
year ended 29 February 20.20.
Dr Cr
R’000 R’000
J1 Mark-to-market reserve (SCE)

[(150 000 x 1) – 100 000) x 78,4%] 39 200 (2)
Transfer of fair value adjustments previously recognised in
mark-to-market reserve to retained earnings with
measurement of equity interest previously held, at group level
J2 Share capital (SCE) 700 000
Profit for the year (P/L) (40 000/2) 20 000 (1)
Land (SFP) (50 000 – 43 000) 7 000 (1)
Deferred tax (SFP) (7 000 x 27% x 80%) 1 512 (1)
Goodwill (SFP) (balancing) 277 012 (1)
Non-controlling interests (SFP/SCE) (450 000 x 1) 450 000 (1)
Investment in Umoya (SFP)
[(150 000 x 1) + (350 000 + 50 000)] 550 000 (2)
At acquisition date elimination journal entry
J3 Other income (P/L) (1 500 x 6) 9 000 (1)
Other expenses (P/L) 9 000 (1)
Elimination of intragroup transaction
J4 Trade payables (SFP) (given) 1 500 (1)
Trade receivables (SFP) 1 500
Elimination of intragroup balances at year end
J5 Non-controlling interests (P/L) (20 000 [J2] x 45%) 9 000 (1)
Allocation of current year profit to non-controlling interests
(15)
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QUESTION 3 (a)
It is important to note that the parent had three investments namely Umoya, Amalahle
and Ilanga but that the required was for the investment in Umoya ONLY. It was pleasing
to note that almost all students understood the required and provided the pro forma
journal entries for the investment in Umoya only.
Remember that the starting point for a consolidation is the combined trial balance of the
group. This is 100% of the trial balance of the parent plus 100% of the trial balance of
the subsidiary added together line-by-line. This step is always assumed to have taken
place before the commencement of the pro forma journal entries.
This combined trial balance contains line-items such as:

• investment is subsidiary;
• share capital of the parent;
• share capital of the subsidiary;
• no goodwill;
• no non-controlling interests;
• the assets and liabilities of the subsidiary is carried at their carrying amounts
(no IFRS 3 adjustments that are only processed at consolidation); and
• line-items such as inventory, cost of sales, et cetera still contain intragroup balances.
Now, since the consolidated entity is seen as one economic entity, it cannot have an
investment in itself, it cannot have transactions with itself, and we therefore need to
process the consolidation procedures prescribed in IFRS 10.19-24.
Separate versus consolidated
Before we continue, it is important to distinguish between the journal entries processed

by the parent in its separate accounting records and the pro forma journal entries
processed in the consolidated financial records. The parent will process the acquisition
of the investment in its separate records by example: Dr Investment (SFP) and
Cr Bank/Loan (SFP). There were a few students who provided these journals in their
answer. This is incorrect as the combined trial balance will already include the
Dr Investment (SFP) line-item.
The pro forma journal entries refer to the journal entries processed in the consolidated
financial statements. The first entry, which never changes, is the at acquisition
elimination journal. The requirements of IFRS 3 are applied in this journal entry whereby
the consideration, non-controlling interests and assets and liabilities are measured in
accordance with IFRS 3.
At-acquisition equity
The equity of the subsidiary (share capital and retained earnings) at acquisition date is
eliminated in the at acquisition journal. Almost all students obtained these marks. It was
disappointing to notice that some students eliminated only the parent’s share of for
example share capital of R385 000 000 (7 000 000 x 55%), which is incorrect as the
combined trial balance includes 100% of the line-items of the subsidiary and the
non-controlling interests’ share of 45% is allocated against the non-controlling interests
line-item in equity.
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QUESTION 3 (a) – continue
Non-controlling interests measurement
Furthermore, the accounting policy of the parent relating to non-controlling interests is

provided in the scenario in note 6 of the additional information. The policy in this
question was to measure the non-controlling interests at fair value. It was therefore
incorrect to measure non-controlling interests at their proportionate share. Always read
the scenario carefully to determine the parent’s measurement policy.
Consideration payable
The consideration payable for the acquisition of a subsidiary is determined in

accordance with the provisions of IFRS 3.37 - .40 and in the majority of instances, is
measured at fair value. The fair value of the loan obtained, and cash paid at acquisition
is used to determine the value of the consideration paid for the 40%.
Step-acquisition
In addition, IFRS 3.41 - .42 provides guidance where a subsidiary is acquired in stages
as was the case with Umoya. The previously held interest of 15% must be measured at
its fair value at acquisition date and added to the fair value of the consideration paid for
the additional 40% in order to obtain control. The consideration payable was therefore
R150 000 000 (previously held interest) + R350 000 000 (loan) + R50 000 000 (cash).
At acquisition adjustment to land
In this scenario, it was further stated that land was undervalued by R7 000 000 at
acquisition. The entry in the at acquisition journal [J2] is to debit land (SFP). There were
a few students that processed debit revaluation surplus (SCE). This is incorrect.
The combined trial balance contains the land of the subsidiary line-item at its carrying
amount. The land line-item must therefore be increased with R7 000 000 through a debit
entry. As the carrying amount of land will be recovered through sale, the resulting
deferred tax is calculated at the capital gains tax rate.
Since acquisition up to the beginning of the year
After the at acquisition journal has been provided (recording of situation at the
acquisition of the subsidiary), the next step is to record the history since acquisition of
the subsidiary up to the beginning of the year. The reason why there is a distinction
between up to the beginning of the current year and the current year is due to equity
movements in prior years being recorded in equity (SCE), whereas current year
movements are recorded in profit or loss (P/L) and other comprehensive income (OCI).
Control over the subsidiary was only obtained during the current year and no recording
of since acquisition up to the beginning of the year movements and transactions are
required.
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QUESTION 3 (a) – continue
Current year transactions
During the current year, there were intragroup transactions (consulting services)
between the parent and the subsidiary. These transactions were for the entire year even
though the parent only obtained control after six months of the current year. Do you
remember that we previously stated that the consolidated entity is seen as one economic
entity that cannot have transactions with itself? The intragroup consulting services are
therefore only eliminated for the period while the company was a subsidiary, therefore
for six months.
In addition, the scenario stated that the invoices are settled within seven days after
month end. The consulting services for February are therefore still outstanding.
The subsidiary will disclose a trade payable and the parent a trade receivable.
The consolidated entity will therefore eliminate the intragroup balances at consolidation.
Non-controlling interests share of profit or loss
100% of the trial balance of the subsidiary is included in the combined trial balance.
However, as the parent does not own 100%, we need to attribute non-controlling
interests their portion of the current year profits or losses and other comprehensive
income. This is evidenced in the consolidated statement of profit or loss and other
comprehensive income which includes 100% of the transactions of the subsidiary and at
the bottom of the statement, the attribution (split) between the parent and non-controlling
interests is provided.
In this scenario, there were no IFRS 3 adjustments or intragroup transactions affecting

the profit of the subsidiary and the profit for the six months provided in the scenario x
non-controlling interests shareholding percentage gives their share of P/L.
Journals general
The classification of each journal description as either equity (SCE), assets or liabilities
(SFP), profit or loss (P/L) or other comprehensive income (OCI), must always be
provided. In addition, always provide the journal narrations, even if the required is silent
on the issue. Remember that the narration does not have to be a paragraph as a few
words will also suffice.
It is very important that you are able to correctly process journals based on the scenario.
If you can provide the journal(s) required based on the scenario, it indicates that you
understand your work. Furthermore, as you know which line-item to debit or credit and
the classification (i.e. land (SFP) or cost of sales (P/L)), you are able to present the
various statements as well.
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(b) Calculate the consolidated gain or loss on disposal for the investment in Amalahle Ltd
in the consolidated financial statements of the Motlokase Ltd Group for the year ended
29 February 20.20.
R’000
Derecognise assets and liabilities (excluding goodwill)

(33 723 – 6 758) [C2] (26 965) (6)
Derecognise goodwill [C2] (6 758) (5)
Derecognise non-controlling interests [C2] 6 681 (1)
Recognise fair value of consideration received (given) 25 000 (1)
Recognise fair value of remaining interest (none) -
Loss in consolidated financial statements (2 042)
(13)
QUESTION 3 (b)
This part of the question required the calculation of the consolidated gain or loss on the
loss of control. Remember that all calculations are marked, IF used in your answer.
This section was answered well, and the majority of students did well. Again, as multiple
entities are provided in the scenario, always read the required carefully to ensure that
you use the correct entity in your solution.
The consolidated gain or loss on disposal of a subsidiary is calculated using

IFRS 10.B98.
The basics of IFRS 10.B98 are that all information included in the consolidated trial
balance on the day of loss of control must be eliminated and the consideration and
remaining interest measured at fair value.
Derecognise assets and liabilities
Students needed to determine the consolidated value of the assets and liabilities of the
subsidiary on the day of loss of control that must be derecognised. Remember that the
first step of the consolidation process, the combining of 100% line-by-line of the trial
balance of the parent and the subsidiary, is always presumed to have taken place.
At consolidation, the trial balance of the subsidiary at their carrying values is therefore
included. However, IFRS 3 required the assets and liabilities to be fairly valued at the
acquisition date. In this scenario, land and machinery were not at their fair value at the
acquisition date.
The consolidated trial balance is therefore adjusted to include the adjustment to land to
fair value and the related deferred tax. Furthermore, the machinery carrying amount is
adjusted with the fair value adjustment at acquisition. As it is a depreciable asset, the
depreciation on the fair value adjustment must also be recognised at consolidation for
the period from acquisition up to the current year. This is required as the subsidiary only
continues depreciating the carrying amount of the machinery. The useful life was
96 months (eight years) at acquisition and the period since acquisition up to the disposal
date is 61 months.
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QUESTION 3 (b) – continue
The after-tax machinery fair value adjustment remaining at the disposal date is therefore
R1 065 000 (2 920 000 – 1 855 000). The tax rate used is the normal 27% as the
carrying amount of the asset is recovered through use.
Derecognise goodwill
As the policy is to measure non-controlling interests at fair value, non-controlling

interests will share in goodwill or gain on bargain purchase. The total goodwill (both
parent and non-controlling interests) must be derecognised.
Derecognise non-controlling interests
The carrying amount of non-controlling interests at disposal date must be derecognised.

It is important to note that this value will be the fair value at acquisition date of
R5 000 000 plus non-controlling interests’ share of since acquisition profits or losses and
other comprehensive income.
If non-controlling interests is measured at the proportionate share of the acquiree’s net

assets, the calculation of the non-controlling interests carrying amount to derecognise is
potentially a bit easier as the net assets of the subsidiary (excluding goodwill) at disposal
date is used x non-controlling interests’ share to get to their carrying value.
Recognise fair value of consideration received
The fair value of the consideration received for the disposal of the share must be used.
In this scenario it was provided as R25 000 000.
Recognise fair value of remaining interest
In this scenario, the total interest was disposed and there is no remaining interest.
(c) MOTLOKASE LTD GROUP

EXTRACT OF CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR
ENDED 29 FEBRUARY 20.20
Change in
ownership
equity
R’000
Balance at 1 March 20.19 -

Change in equity for 20.20
Partial acquisition of subsidiary [C3] 2 593 (6)
Balance at 29 February 20.20 2 593
Total (6)
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QUESTION 3 (c)
This question required the presentation of an extract to the consolidated statement of

changes in equity. It is very important to read the required carefully as for this question,
ONLY the “Change in ownership equity” column was required and only for the current
year. There were some instances where students provided other columns or did not
provide the required columns.
It is important to note that the “Change in ownership” column is only used to disclose
transactions where the parent has control over the subsidiary both before and after the
transaction. It was therefore only the transaction with Ilanga that could have been
disclosed in this column. There were some students who disclosed information for the
other group companies. Not only was this incorrect, but it also wastes unnecessary time
that could have been used to earn marks in other sections.
IFRS 10.B96 provides guidance on the treatment of transactions where the parent has
control both before and after the transaction: An entity shall adjust the carrying amounts
of the controlling and non‑controlling interests to reflect the changes in their relative
interests in the subsidiary. The entity shall recognise directly in equity any difference
between the amount by which the non‑controlling interests are adjusted and the fair
value of the consideration paid or received, and attribute it to the owners of the parent.
The consideration paid is calculated as 400 000 shares at R37,50 = R15 000 000.
The next step is to determine the amount by which non-controlling interests or the parent
needs to be adjusted. The difference between the two amounts will be the amount
disclosed in the “Changes in ownership equity” column.
There are several ways to calculate the amount with which non-controlling interests or
the parent changes but all approaches require either the calculation of the carrying
amount of the net assets value of the subsidiary at the date of the transaction or the
value of non-controlling interests.
It is important to note that as non-controlling interests is measured at fair value, they will
share in goodwill or gain on bargain purchase. The goodwill will therefore have to be
taken into account when determining the amount with which non-controlling interests
changes. As non-controlling interests is measured at fair value at acquisition, the
carrying amount of non-controlling interests at the transaction date will be the fair value
at acquisition of R8 820 000 plus its share of the since acquisition reserves and current
year P/L and OCI. This share totals R6 379 000 [C3]. The carrying amount of non-
controlling interests is therefore R15 199 000 (8 820 000 + 6 379 000). As the parent
acquires 40% of non-controlling interests’ 49%, the carrying amount of R15 199 000 x
40%/49% calculates the amount by which non-controlling interests is adjusted
= R12 407 000.
Another method to calculate the amount with which non-controlling interests is adjusted
is to calculate the 100% value of the net assets at the disposal date (18 517 000) x the
shareholding change of 40% = R7 407 000. It is important to note that as non-controlling
interests shares in goodwill, a portion of their goodwill must also be allocated to the
parent. The goodwill attributable to non-controlling interests at acquisition is the
difference between their fair value of R8 820 000 and their proportionate share of the net
assets at acquisition of R2 295 000 (5 500 000 x 49%) = R6 525 000. The portion of the
non-controlling interests goodwill now attributable to the parent after the transaction is
R5 000 000 (R6 525 000 x 40%/49%). This provides the same answer at R12 407 000
(7 407 000 + 5 000 000).
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(d) Discuss, with reasons, whether the relevant parties identified in the scenario are related
parties to Ilanga Ltd on 30 October 20.19.
Ilanga Ltd is a subsidiary of Motlokase Ltd and Motlokase is therefore related to

Ilanga Ltd. (1)
Mr Bavuma exercises significant influence over the financial and operating policy
decisions of Ilanga Ltd and is therefore a related party to Ilanga Ltd. (1)
Mrs Bavuma is the domestic partner of Mr Bavuma and is a close family member of
Mr Bavuma. She is therefore related to Ilanga Ltd. (1)
As Mrs Bavuma (a close family member) only has significant influence over Tembi Ltd
and Mr Bavuma also only has significant influence over Ilanga Ltd, Tembi Ltd is not a
related party of Ilanga Ltd. (1)
(4)
QUESTION 3 (d)
You should be very happy if you get a related party question as the Standard provides
detailed guidance and illustrative examples to obtain good marks. This was the last
section in the paper and illustrates why it is important to have good time management to
ensure that all questions are attempted. Students who attempted the question did fairly
well.
It is again important to emphasise the importance of reading the required carefully to

understand which entity is the reporting entity for which the related parties must be
identified. Some students identified related parties but did not state whether they are
related to the reporting entity or not. To earn marks, you need to answer the required
and cannot merely rewrite the information in the scenario.
Of the four related parties, the party identified incorrectly the most was Tembi Ltd.
Mrs Bavuma has significant influence over Tembi Ltd and is a close family member of
Mr Bavuma, but he only has significant influence over the reporting entity. As he does
not have control or joint control over the reporting entity, Tembi Ltd is not a related party.
Please review and familiarise yourself with the illustrative examples to IAS 24. As an
example, this scenario is similar to IAS 24.IE23.
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CALCULATIONS
C1. Analysis of owners’ equity of Umoya Ltd
15% - 55%
Total NCI
At Since
R’000 R’000 R’000 R’000
At acquisition
Profit for six months (40 000/2) 20 000
Land (50 000 – 43 000) 7 000
Deferred tax (7 000 x 80% x 27%) (1 512)
722 988 397 643 325 345
Goodwill 277 012 152 357 124 655
Consideration 1 000 000 550 000 450 000
Current year
(1/9/20.19 – 29/2/20.20)
Profit (40 000/2) 20 000 11 000 9 000
1 020 000 11 000 459 000
C2. Analysis of owners’ equity of Amalahle Ltd
75% - 0%
Total NCI
At Since
R’000 R’000 R’000 R’000
At acquisition
Share capital 1 000
Retained earnings 12 120 [1]
Revaluation surplus
(1 850 + (3 000 x 78,4%)) 4 202 [2]
Equipment adjustment (4 000 x 2 920 [1]
73%)
20 242 15 182 5 061
Goodwill 6 758 6 819 (61)
Consideration 27 000 22 000 5 000 [1]
Since acquisition
Retained earnings [1]
(16 500 – 12 120) 4 380 3 285 1 095
Loss 1/3/19 – 31/1/20
(1 100 x 11/12) (1 008) (756) (252) [1]
Equipment depreciation (2 920 x
61/96) (1 855) (1 392) (464) [2]
Revaluation surplus
((9 000 x 78,4%) – 1 850) 5 206 3 905 1 302 [2]
33 723 5 042 6 681
Dispose of entire interest (33 723) (5 042) (6 681)
- - -
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C3. Change in ownership in Ilanga Ltd (51% - 91%)
R’000
Non-controlling interests at acquisition (1 000 x 49% x R18) 8 820 [1]

Non-controlling interests share in retained earnings (9 850 – 500) x 49% 4 582 [1]
Current year profit ((7 000 x 8/12) x 49%) 2 287 [1]
Dividend paid to non-controlling interests (1 000 x 49%) (490) [1]
Balance of non-controlling interests on 31 October 20.19 15 199
Non-controlling interests is adjusted with 40%/49% x 15 199 (12 407) [1]
Fair value of consideration paid on 31 October 20.19

(R37,50 x 1 000 x 40%) 15 000 [1]
Amount disclosed in change in ownership column 2 593
[6]
OR
Share capital (given) 5 000
Retained earnings at acquisition (given) 500
Equity at acquisition 5 500 [1]
Retained earnings since (9 850 000 – 500 000) 9 350 [1]
Current year profit (7 000 x 8/12) 4 667 [1]
Dividend paid (given) (1 000) [1]
Net assets on 31 October 20.19 18 517
Net assets purchased from non-controlling interests (18 517 x 40%) (7 407) [1]
Goodwill acquired from non-controlling interests
((8 820 – (5 500 x 49%)) x 40%/49%) (5 000) [2]
Fair value of consideration paid on 31 October 20.19
(R37,50 x 1 000 x 40%) 15 000 [1]
Amount disclosed in change in ownership column 2 593
Total [8]
Maximum [6]
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QUESTION 4 40 marks
This question consists of two independent parts.
PART I 34 marks
Angel Maine Coon Ltd (Angel) is a breeder and distributor of Maine Coon cats. Angel was
established by Mr Street in 20.16 and the company is listed on the JSE Limited. As a result of the
increase in the breeding of these exotic cats over the last few years, Angel has decided to expand
their business. All the companies in the group have a 30 April year end.
Persian Ltd (Persian)
On 1 June 20.19 Angel acquired an 80% interest in the ordinary share capital of Persian for a
purchase consideration of R1 316 500. Included in this amount is R32 500 for legal fees incurred for
the drafting of the purchase agreement. Angel expensed this amount in its separate financial
statements. From this date, Angel exercised control over Persian as per the definition of control in
accordance with IFRS 10 Consolidated Financial Statements.
The equity of Persian amounted to the following at the different dates:
01/06/20.19 30/04/20.20 30/04/20.21

R R R
Share capital (50 000 ordinary shares) 100 000 100 000 100 000
Retained earnings 984 000 1 185 000 1 586 000
Revaluation surplus 165 000 201 000 201 000
Mark-to-market reserve 225 000 250 000 265 000
1 474 000 1 736 000 2 152 000
The assets and liabilities of Persian were deemed to be fairly valued at the acquisition date, with the
exception of the following:
• Land of Persian was undervalued by R40 000. Land is included in property, plant and
equipment and has an indefinite useful life. On 30 April 20.20 Persian recorded an increase in
the revaluation surplus relating to the increase in the fair value of the land. This was the only
revaluation performed by Persian during the 20.20 financial year. Due to the Covid-19
lockdown the value of land stayed the same for the 20.21 financial year.
Other information relating to Persian
1. On 31 July 20.20, Persian declared and paid a dividend of R38 500, to shareholders
registered on 30 April 20.20.
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2. On 30 November 20.20, Angel sold 35 000 of the ordinary shares in Persian for a cash
consideration of R1 500 000. The price paid of R42,86 per share included a control premium.
From this date, Angel does not exercise control over Persian as per the definition of control in
accordance with IFRS 10 Consolidated Financial Statements.
On 30 November 20.20, the market value of the shares of Persian was R41 per share.
3. The revaluation surplus and mark-to-market reserve amounted to R201 000 and R265 000
respectively on 30 November 20.20 as well as on 30 April 20.21.
Additional information relevant to the Angel Maine Coon Ltd Group
• It is the accounting policy of all the companies in the Angel Maine Coon Ltd Group to account
for investments in associates and subsidiaries at cost in accordance with IAS 27.10(a) in their
• It is the accounting policy of the Angel Maine Coon Ltd Group to measure property, plant and
equipment, except land, in accordance with the cost model in terms of IAS 16 Property, Plant
and Equipment. Land is measured in accordance with the revaluation model.
• It is the accounting policy of the Angel Maine Coon Ltd Group to transfer the revaluation
surplus to retained earnings upon disposal of the asset.
• Angel Maine Coon Ltd classifies its equity investments as financial assets in accordance with
IFRS 9 Financial Instruments in its separate financial statements and irrevocably elected to
present subsequent changes in the fair value of the investment in other comprehensive
income in a mark-to-market reserve. Angel Maine Coon Ltd elected to transfer any cumulative
gains or losses within equity in terms of IFRS 9.B5.7.1.
• The profit after tax was earned evenly throughout the year for all companies in the group.
• The Angel Maine Coon Ltd Group elected to measure non-controlling interests at the
proportionate share of the acquiree’s identifiable net assets at the acquisition date for all
acquisitions.
• Assume a normal South African income tax rate of 27% and a capital gains tax inclusion rate
of 80%. Ignore Value Added Tax (VAT) and Dividend Tax.
PART II 6 marks
You are the trainee accountant of WWC Auditors and Accountants. You are presented with the
following information.
Annexure A
The following information is applicable to a vacant plot owned by Cool and the Gang Ltd, a company
with a 31 March year end:
R
Cost price on 1 April 20.18 2 000 000
Net replacement cost on 31 March 20.19 2 500 000
Recoverable amount on 31 March 20.20 1 500 000
Recoverable amount on 31 March 20.21 2 570 000
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The plot is accounted for in accordance with the revaluation model of IAS 16 Property, Plant and
Equipment. The plot is a non-depreciable asset.
The plot was revalued for the first time on 31 March 20.19. Cool and the Gang Ltd realises the
revaluation surplus when the asset is derecognised.
A possible sinkhole on the plot indicated on 31 March 20.20, that the plot was impaired. However,
the sinkhole proved not to be that significant, thus resulting in a reversal of the impairment on
31 March 20.21. Cool and the Gang Ltd did not perform any revaluations during the 20.21 financial
year.
The financial manager, Mr Perfection, calculated the impairment loss and reversal which proved to
be correct.
Calculation of impairment
Carrying Carrying
Revaluation
amount amount
surplus
with no with
(OCI)
impairment impairment
R R R
Cost on 1 April 20.18 2 000 000 2 000 000 -
Revaluation surplus 31 March 20.19 500 000 500 000 500 000
Carrying amount on 31 March 20.19 2 500 000 2 500 000 500 000
Carrying amount on 31 March 20.20 2 500 000 2 500 000 500 000
Impairment loss 20.20 (2 500 000 – 1 500 000) - (1 000 000) (500 000)
Carrying amount on 31 March 20.20 2 500 000 1 500 000 -
Carrying amount on 31 March 20.21 prior to reversal of
impairment loss 2 500 000 1 500 000 -
Reversal of impairment loss (2 500 000 – 1 500 000) - 1 000 000 500 000
Carrying amount on 31 March 20.21 2 500 000 2 500 000 -
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REQUIRED
Marks
PART I
Prepare the pro forma journal entries to account for the investment in Persian Ltd in the 33
consolidated financial statements of the Angel Maine Coon Ltd Group for the year ended
30 April 20.21. Journal entries related to deferred taxation are also required.
PART II
One of the partners, Mr Nkomo has asked you to write a memorandum to the financial 5
manager of Cool and the Gang Ltd, explaining to him what needs to be done with the
impairment loss and subsequent reversal as calculated by himself for the years ended
31 March 20.20 and 31 March 20.21.
Please note:

• The individual accounts affected must be mentioned in cases where the information
is provided.
• Round off all amounts to the nearest Rand.
• Your answer must comply with International Financial Reporting Standards (IFRS).
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QUESTION 4 - Suggested solution
PART I
Prepare the pro forma journal entries to account for the investment in Persian Ltd in the
consolidated financial statements of the Angel Maine Coon Ltd Group for the year ended
30 April 20.21. Journal entries related to deferred taxation are also required.
Dr Cr
R R
J1 Investment in Persian (SFP) 184 512 (1)

Retained earnings - beginning of year (SCE) [C1] 160 800 (1)
Mark-to-market reserve (SCE) [C1] 20 000 (1)
Revaluation surplus reserve (SCE) [C1] 3 712 (2)
Recognition of opening equity relating to subsidiary
J2 Investment in Persian (SFP) [C1] 205 100 (1)
Non-controlling interests (P\L) [C1] 51 275 (1)
Profit for the period (P/L) [C1] 256 375 (3)
Recognition of profit for the period while the investment was
still a subsidiary
J3 Investment in Persian (SFP) [C1] 12 000
Non-controlling interests (OCI) [C1] 3 000 (1)
Mark-to-market reserve (OCI) 15 000 (1)
Recognition of other comprehensive income for period while
the investment was a subsidiary
J4 Other income (Dividend received) (P/L) (38 500 x 80%) 30 800 (1)
Investment in Persian (SFP) 30 800 (1)
Elimination of intragroup dividend while the investment was still
a subsidiary
J5 Gain on disposal of shares (separate) (P/L) [C3] 376 500 (2)
Gain on disposal of shares (consolidated) (P/L) [C4] 50 188 (11)
Investment in Persian (SFP) 326 312 (1)
Recognition of consolidated gain on disposal and elimination of
the amount recognised in the separate financial statements
J6 Fair value adjustment (separate) (P/L) 44 500 (1)
Investment in Persian (SFP)
[205 000 [C4] – (1 284 000 x 10/80)] 44 500 (2)
Reversal of fair value adjustment recognised in separate
J7 Deferred tax (SFP) (44 500 x 27% x 80%) 9 612 (1)
Tax implications on reversal of fair value adjustment
(12 000 (J4) + 20 000 (J2)) 32 000 (2)
Revaluation Reserve (SCE) (J1) 3 712 (1)
Transfer of equity reserves to retained earnings on the loss of
control – IFRS 10.B98(c) and IFRS10.B99
Total (36)
Maximum (33)
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Alternative approach
Dr Cr
R R
Revaluation surplus (SCE) 165 000
Mark-to-market reserve (SCE) 225 000 (1)
Land (SFP) 40 000
Deferred tax (40 000 x 80% x 27%) (SFP) 8 640 (1)
Goodwill (balancing) (SFP) 79 712
Investment in Persian (SFP) 1 284 000 (2)
At acquisition elimination journal
J2 Non-controlling interests (P/L) 51 275 (1)
Non-controlling interests (OCI) 3 000 (1)
Revaluation surplus (SCE) 928 (1)
Mark-to-Market reserve (SCE) 5 000 (1)
Share of since acquisitions reserves to non-controlling
interests to the previous years until 30 April 20.20
J3 Other income (dividend received) (P/L) (38 500 x 80%) 30 800 (1)
Non-controlling interests (SFP) (38 500 x 20%) 7 700 (1)
Elimination of intragroup dividend while the investment
was still a subsidiary
J4 Non-controlling interests (SFP) 393 775 (1)
Share capital (SFP) 100 000 (1)
Retained earnings (SCE) (1 185 000 – 38 500) 1 146 500 (1)
Profit to date of sale (P/L)
((1 586 000 – 1 185 000 + 38 500) x 7/12) 256 375 38 500)
(3) x 7/12)
Revaluation surplus (SCE) 201 000 (1)
Goodwill (SFP) 79 712 (1)
Investment in Persian (IFRS 9) (SFP) 205 000 (2)
Gain on sale of shares (P/L) [C3] 376 500 (2)
Consolidated gain on disposal of a subsidiary (P/L) 50 188 (1)
Investment in Persian (SFP) 1 123 500 (1)
Derecognition of assets and liabilities, recognition of
remaining interest at fair value and recognition of loss of
disposal of interest
J5 Fair value adjustment (separate) (P/L) 44 500 (1)
Investment in Persian (SFP)
[205 000 [C4] – (1 284 000 x 10/80)] 44 500 (2)
Reversal of fair value adjustment recognised in separate
J6 Deferred tax (SFP) (44 500 x 27% x 80%) 9 612 (1)
Tax implications on reversal of fair value adjustment
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Dr Cr
R R
[12 000 (J4) + 20 000 (J2)] 32 000 (2)
Revaluation Reserve (SCE) [C1] 3 712 (1)
Transfer of equity reserves to retained earnings on the
loss of control – IFRS 10.B98(c) and IFRS10.B99
Total (36)
Maximum (33)
QUESTION 4, PART I
We just want to highlight a few errors that students tend to make with these types of
questions.
Legal fees of R32 500 that were included in the consideration paid at acquisition. Many
students did not deduct this from the consideration, resulting in an overstatement of
goodwill. IFRS 3.53 states that these kinds of fees should not be part of the
consideration, and therefore must be deducted from the consideration paid.
When a subsidiary becomes an IFRS 9 Investment, you should remember that you are
accounting for two investments in one year. You should thus first account for the
subsidiary for the period while it was a subsidiary, and then for the IFRS 9 Financial
Asset. The remaining interest of 10% should be classified as a financial asset in terms
of IFRS 9. In terms of IFRS 9.5.1.1, the financial asset is initially measured at fair value.
Any difference between the transaction price and the fair value on initial recognition
will always be recognised in profit or loss. Thereafter you will measure the IFRS 9
financial asset in accordance with the parent’s policy which will be given in the scenario.
The fair value of the remaining interest on 30 November 2020 is R205 000
(5 000 x R41). The carrying amount of the investment in the separate financial
statements of the parent is R160 500, which is calculated as the cost price of
R1 284 000 less the portion of the cost that was sold, which is 35/40. In the separate
financial statement of the parent, you will thus increase the investment to the fair value
of R44 500. Deferred tax on this adjustment should be provided at the CGT rate as the
investment will be recovered through sale. These journals should be reversed on group
level.
Please page back to page 11 and 12 where the different approaches are discussed.
Both approaches’ suggested solutions are given, please make sure that you understand
either one of the two approaches. Study the approach that makes more sense to you as
an individual. Forget how your fellow student do this, and only uses the one that make
sense to you.
Don’t mix the two approaches as this will cause havoc in your consolidated financial
statements.
MJM
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QUESTION 4, PART I
The very last journal is where the mark-to-market reserve and revaluation surplus are
transferred to retained earnings.
Angel Maine Coon Ltd elected to transfer any cumulative gains or losses within equity
when control of an investment in subsidiary is lost, therefore one needs to transfer any
mark-to-market reserve related to the investment in the subsidiary in the statement of
comprehensive income to retained earnings.
Similarly, it is the accounting policy of the Angel Maine Coon Ltd Group to transfer the
revaluation surplus to retained earnings upon disposal of the asset, and therefore a
journal needs to be processed to debit revaluation surplus, and credit retained earnings.
MJM
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CALCULATIONS
C1. Analysis of owners' equity of Persian
Persian 80% - 10%

Total NCI
At Since
Revaluation surplus 165 000
Land fair value adjustment 40 000
Deferred tax
(40 000 x 27% x 80%) (8 640)
1 505 360 1 204 288 301 072
Goodwill 79 712 79 712 -
(1 316 500 – 32 500) 1 585 072 1 284 000 301 072
Since acquisition until

beginning of the year
Retained earnings
(1 185 000 – 984 000) 201 000 160 800 40 200 [1]
(250 000 – 225 000) 25 000 20 000 5 000 [1]
Revaluation surplus
(201 000 – 165 000 –
(40 000 – 8 640)) 4 640 3 712 928 [2]
Current year
Profit after tax ((1 586 000 –
1 185 000 + 38 500) x 7/12) 256 375 205 100 51 275 [3]
Mark-to-mark reserve
(265 000 – 250 000) 15 000 12 000 3 000 [1]
Dividends (38 500) (30 800) (7 700) [1]
2 048 587 370 812 393 775
Loss of control over

subsidiary
Derecognition of assets and
liabilities (IFRS 10.B98) (2 048 587) (1 284 000) (370 812) (393 775)
- - - -
C2. Proof of goodwill of Persian [IFRS 3.32]
Consideration transferred at acquisition date (1 316 500 - 32 500) 1 284 000 [2]
Non-controlling interests (1 505 360 x 20%) 301 072 [1]
1 585 072
Fair value of identifiable net assets
(1 474 000 + 40 000 – (40 000 x 80% x 27%) (1 505 360) [1]
Goodwill 79 712
[5]
MJM
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C3. Gain or loss on disposal of interest in separate financial statements
Proceeds 1 500 000 [1]

Less: Cost (1 284 000 x 35 000/40 000) (1 123 500) [1]
Gain in separate financial statements 376 500
[2]
C4. Consolidated gain or loss on disposal (IFRS 10.B98)
Derecognise assets and liabilities (including goodwill) [C1] or

(2 152 000 – (1 586 000 – 1 185 000 + 38 500) x 5/12) + 79 712 [C2]) (2 048 587) [7]
Derecognise non-controlling interests [C1] 393 775 [1]
Recognise fair value of consideration 1 500 000 [1]
Recognise fair value of remaining interest (5 000 x R41) 205 000 [2]
Consolidated gain on disposal 50 188
[11]
PART II
Memorandum to financial manager
To: Mr Perfection
Date: 22 June 20.21
Subject: Impairment loss and subsequent reversal
Dear Sir,
The impairment loss for the vacant plot owned by Cool and the Gang Ltd, which is a
previous revalued asset, should be recognised in other comprehensive income to the extent
that the impairment loss does not exceed the amount in the revaluation surplus specific to
the vacant plot (IAS 36.61). (1)
The impairment loss for the vacant plot will thus reduce its revaluation surplus (IAS 36.61).
The amount of the impairment loss which exceeds the amount in the revaluation surplus
(R1 000 000 – R500 000 = R500 000) will be recognised in profit or loss. (2)
The reversal of an impairment loss shall not exceed the carrying amount that would have
been determined had no impairment loss been recognised for the vacant plot in prior years
(IAS 36.117). In this scenario the carrying amount would have been R2 500 000 if there
were no previous impairment losses. This is applicable whether the asset is accounted for in
accordance with the cost model or the revaluation model. (2)
Any increase in the carrying amount, above the carrying amount that would have been
determined had no impairment loss been recognised for the asset in prior years is a
revaluation (IAS 36.118).
It is important to note that when an asset is revalued, in this case being the vacant plot, the
entire class of asset to which that asset belongs has to be revalued (IAS 16.36). This
revaluation has to be performed in accordance with the normal revaluation policy of the
entity and in accordance with IAS 16. (1)
MJM
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Cool and the Gang Ltd did not perform any revaluations during the 20.21 financial year. The
increase of R70 000 (R2 500 000 – R2 570 000), above what the carrying amount would have
been had no impairment loss taken place, is ignored and is not recognised as a revaluation.
(1)
The reversal of an impairment loss on a revalued asset is recognised in other comprehensive

income and increases the revaluation surplus for that asset. However, to the extent that an
impairment loss on the same revalued asset was previously recognised in profit or loss
(R500 000 - refer to the comment on impairment loss above), a reversal of that impairment is
recognised in profit or loss (IAS 36.120). Thus, R500 000 of the impairment loss is reversed
through profit or loss and R500 000 (R1 000 000 – R500 000) through other comprehensive
income. (2)
Total (9)
Maximum (5)
QUESTION 4, PART II
For discussion questions, lay the foundation of your answer by applying the relevant
theory and demonstrating insight into the question. Identify all the issues and address all
considerations in your application. Remember to conclude at the end.
Markers have found that candidates use their own abbreviations (SMS style) in their
answers. Marks cannot be awarded for this as it is not up to the markers to interpret
abbreviations that are not commonly used. The increased use of an SMS writing style in
a professional examination is a major concern. Candidates should pay specific attention
to the way in which they write their answers, and bear in mind that this is a professional
examination for which presentation marks are awarded.
MJM
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QUESTION 5 40 marks
PalmTree Ltd was founded by a few newly qualified lawyers on 25 April 20.9 and listed on the
Johannesburg Stock Exchange. The main objective of PalmTree Ltd is the erecting of cell phone
towers disguised as trees all over the country. PalmTree Ltd acquired numerous medium sized
players in the industry to consolidate their hold on this market. All companies in the group have a
31 March year end.
RoyalPalm Ltd
One of these acquisitions is the investment in RoyalPalm Ltd which is a leader in cell phone towers
in Northwest, Limpopo and Mpumalanga provinces of South Africa. RoyalPalm Ltd currently has
contracts with leading telecommunication companies for the installation and maintenance of new
and existing cell phone towers.
On 1 June 20.19 PalmTree Ltd acquired a 15% interest in the ordinary share capital of
RoyalPalm Ltd for a purchase consideration of R1 479 375.
PalmTree Ltd acquired an additional 40% of the share capital and voting rights of RoyalPalm Ltd on
1 September 20.21. From that date, PalmTree Ltd obtained control of RoyalPalm Ltd as defined in
IFRS 10 Consolidated Financial Statements. The consideration for the additional investment
amounted to R4 875 000, which consisted of R2 545 000 cash and land with a carrying amount and
fair value of R2 330 000.
RoyalPalm Ltd had the following equity balances at the respective dates:
01/09/20.21 31/03/20.22
R R
Share capital (150 000 ordinary shares) 250 000 250 000
Mark-to-market reserve 755 005 783 015
The assets and liabilities of RoyalPalm Ltd were deemed to be fairly valued at the acquisition date,
with the exception of the following:
• On 1 September 20.21, RoyalPalm Ltd had a patent which was fairly valued by an
independent actuary at R985 600. The expectation is to obtain future economic benefits from
this patent over the next six years.
• On 1 September 20.21, the fair value of inventory was reliably determined at R15 800 less
than the carrying amount. This inventory was still on hand at year end. On 31 March 20.22,
RoyalPalm Ltd’s inventory on hand was written down to net realisable value R16 000 less than
cost price.
MJM
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The share price of RoyalPalm Ltd was as follows on the various dates:
R
1 June 20.19 65,75
31 March 20.20 78,60
31 March 20.21 81,45
1 September 20.21 85,00
On 1 November 20.21, PalmTree Ltd sold one of its machines used to manufacture the counterfeit
tree leaves for the cell phone towers, to RoyalPalm Ltd for R448 600. The cost price of this machine
was R825 950. This machine was originally bought on 1 January 20.17, with a residual value and
useful life of R120 000 and eight years respectively at that date. The residual value and useful life
remained unchanged on 1 November 20.21.
Imikindo Ltd
On 31 May 20.9, PalmTree Ltd acquired a 68% interest in the ordinary share capital of Imikindo Ltd
for a cash consideration of R5 990 807. PalmTree Ltd had control over Imikindo Ltd as per the
definition of control in terms of IFRS 10 Consolidated Financial Statements, from this date. The
equity of Imikindo Ltd consisted of share capital and retained earnings amounting to R365 000 and
R8 445 010 respectively.
The assets and liabilities of Imikindo Ltd were deemed to be fairly valued at the acquisition date and
no additional assets, liabilities or contingent liabilities were identified at acquisition date.
On 1 February 20.22 the shareholders of PalmTree Ltd approved the resolution to exercise the
option to acquire an additional 12% interest in Imikindo Ltd. This option was exercised on
5 April 20.22, and it gave PalmTree Ltd an additional seat on the board of directors.
Additional information relevant to the PalmTree Ltd Group
• It is the accounting policy of all the companies in the PalmTree Ltd Group to account for
investments in associates and subsidiaries at cost in accordance with IAS 27.10(a) in their
• It is the accounting policy of the PalmTree Ltd Group to measure property, plant and
equipment, except land, in accordance with the cost model in terms of IAS 16 Property, Plant
and Equipment.
• PalmTree Ltd classifies its equity investments as financial assets in accordance with IFRS 9
Financial Instruments in its separate financial statements and irrevocably elected to present
subsequent changes in the fair value of the investment in other comprehensive income in a
mark-to-market reserve.
• The profit after tax and mark-to-market movement was earned evenly throughout the year for
all companies in the group.
• The PalmTree Ltd Group elected to measure non-controlling interests at the proportionate
share of the acquiree’s identifiable net assets at the acquisition date for all acquisitions.
• PalmTree Ltd recognises any difference between the amount by which the non-controlling
interests are adjusted and the fair value of the consideration paid or received (attributable to
the owners of the parent in an equity transaction) directly in a change in ownership reserve in
equity.
• Assume a normal South African income tax rate of 27% and a capital gains tax inclusion rate
of 80%. Ignore Value Added Tax (VAT) and Dividend Tax.
MJM
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REQUIRED
Marks
(a) Prepare the pro forma consolidation journal entries to account for the investment in 29
RoyalPalm Ltd in the consolidated financial statements of the PalmTree Ltd Group for
the year ended 31 March 20.22. Journal entries related to deferred taxation are also
required.
(b) Assume PalmTree Ltd acquired an additional 12% interest in Imikindo Ltd on 9
1 February 20.22 for a market-related cash consideration. Discuss, with reasons and
calculations, the correct accounting treatment of the additional 12% interest in the
consolidated financial statements of PalmTree Ltd Group for the year ended
31 March 20.22.
Please note:

• The individual accounts affected must be mentioned in cases where the information
is provided.
• Round off all amounts to the nearest Rand.
• Your answer must comply with International Financial Reporting Standards (IFRS).
MJM
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QUESTION 5 - Suggested solution
(a) Prepare the pro forma consolidation journal entries to account for the investment in
RoyalPalm Ltd in the consolidated financial statements of the PalmTree Ltd Group for
the year ended 31 March 20.22. Journal entries related to deferred taxation are also
required.
Dr Cr
R R
((150 000 x 15% x (85,00 – 65,75)) x 78,4%) 339 570 (3)
Transfer of fair value adjustments previously recognised in
mark-to-market reserve to retained earnings with
measurement of equity interest previously held, at group
level in accordance with IFRS 9.B5.7.1
Retained earnings (SCE) 9 521 039
Intangible asset: patent (SFP) 985 600 (1)
Inventory (SFP) 15 800 (1)
Deferred tax ((985 600 – 15 800) x 27%) (SFP) 261 846 (1)
Non-controlling interests (SFP) ((250 000 + 9 521 039 +
755 005 + 985 600 – 15 800 – 261 846) x 45%) 5 055 299 (2)
Investment in RoyalPalm Ltd (SFP) (4 875 000 + (150
6 787000
500x 15%
(2)x 85,00))
Goodwill (balancing) (SFP) 608 801 (1)
At acquisition elimination journal on 1 September 2021
J3 Inventory (SFP) 15 800
Cost of sales (P/L) 15 800 (1)
Reversal of fair value adjustment at acquisition
J4 Income tax expense (P/L) (15 800 x 27%) 4 266
Deferred tax (SFP) 4 266 (1)
Deferred tax on reversal of fair value adjustment
J5 Amortisation: intangible asset (P/L)
(985 600/6 x 7/12) 95 822 (2)
Accumulated amortisation: intangible asset (SFP) 95 822 (1)
Amortisation on the intangible asset for 7 months
J6 Deferred tax (SFP) (95 822 x 27%) 25 872
Income tax expenses (P/L) 25 872 (1)
Recognition of deferred tax on amortisation
J7 Non-controlling interests (P/L)
(((10 891 005 – 9 521 039) + 15 800 [J3] – 4 266 [J4]
– 95 822 [J5] + 25 872 [J6]) x 45%) 590 197 (4)
Non-controlling interests (OCI)
((783 015 – 755 005) x 45%) 12 605 (1)
Share of profit and other comprehensive to non-controlling
interests in the current year for 7 months
J8 Other income (P/L) [C1] 49 161 (3)
Property, plant and equipment (SFP) 49 161 (1)
Elimination of unrealised profit in the intragroup
transaction
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Dr Cr
R R
J9 Deferred tax (SFP) (49 161 x 27%) 13 273
Income tax expense (P/L) 13 273 (1)
Tax implications on the elimination of the intragroup
transaction
J10 Accumulated depreciation (SFP) (49 161/ (96 – 58) x 5) 6 469 (1)
Cost of sales: depreciation (P/L) 6 469 (1)
Realisation of the unrealised profit of the intragroup
transaction
J11 Income tax expense (P/L) (6 469 x 27%) 1 747
Deferred tax (SFP) 1 747 (1)
Tax implication of the realisation of the unrealised profit of
the intragroup transaction
Total (33)
Maximum (29)
Many students are confused between the reversal of the mark-to-market reserve in
Journal 1 and the inclusion of the mark-to-market reserve in the at acquisition journal
(Journal 2).
Journal 1: Mark-to-market reserve:

This journal relates to the investment in PalmTree Ltd’s separate financial records.
PalmTree Ltd owns 15% shares in RoyalPalm Ltd, which is classified as an IFRS 9
investment. While PalmTree Ltd held this 15% investment, the fair value adjustments
were recorded in other comprehensive income. On 1 September 20.21 PalmTree Ltd
bought an additional 40% interest, resulting in a total shareholding of 55% and thereby
obtaining control over RoyalPalm Ltd.
PalmTree Ltd elected to transfer any cumulative gains or losses within equity in
accordance with IFRS 9.B5.7.1. This means that PalmTree Ltd (as the separate company
and not the group of companies) should transfer the fair value adjustments currently in
mark-to-market reserve (only relating to the RoyalPalm Ltd investment) to retained
earnings. Remember that this amount is already after tax, as the deferred tax was already
taken into account in the year that the fair value adjustments arose.
In this question, PalmTree Ltd bought the 15% shares at R65,75 per share. On
1 September 2021 the shares were fairly valued at R85,00 per share. Therefore, there
was a fair value increase of R19,25 (R85,00 – R65,75) per share.
This is before tax, and the after-tax amount needs to be calculated:

At acquisition (150 000 x 65,75 x 15%) = 1 479 375
At 1 September 2021 (150 000 x 85,00 x 15%) = 1 912 500
Fair value increase 433 125 x 78,4%
Amount to be transferred from the mark-to-market reserve to retained earnings is

R339 570.
MJM
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If PalmTree Ltd has not elected to transfer any cumulative gains or losses within equity in
accordance with IFRS 9.B5.7.1, then journal 1 would not have been required. The fair
value adjustments previously recognised would remain in the mark-to-market reserve.
Journal 2 Mark-to-market reserve:

This journal relates to the mark-to-market reserve of the subsidiary in its separate
accounting records. The subsidiary as an individual company, which also owns IFRS 9
investments that are carried at fair value through other comprehensive income.
PalmTree Ltd, as the parent, must eliminate all the reserves of the subsidiary at
acquisition as part of the consolidation process. In this question, the reserves consisted of
share capital, retained earnings and the mark-to-market reserve.
CALCULATIONS
C1. Unrealised profit with intragroup transaction
Selling price of machinery 448 600 [1]

Less: carrying amount (399 439)
Cost price 825 950
Accumulated depreciation ((825 950 – 120 000)/96 months x 58
months) (426 511) [2]
49 161
[3]
C2. Analysis of owners' equity of RoyalPalm Ltd (only for completeness)
PalmTree 55%
Total NCI
At Since
Retained earnings 9 521 039
Intangible asset (patent) 985 600
Deferred tax
(985 600 x 27%) (266 112)
Inventory (15 800)
Deferred tax (15 800 x 27%) 4 266
11 233 998 6 178 699 5 055 299
Goodwill 608 801 608 801 -
(4 875 000 + (150 000 x
15% x 85,00)) 11 842 799 6 787 500 5 055 299
Current year
Profit after tax 1 311 550 721 352 590 197
Profit after tax
(10 891 005 – 9 521 039) 1 369 966
Amortisation (patent)
(985 600/6 x 7/12 x 73%) (69 950)
Inventory reversal
(15 800 x 73%) 11 534
Mark-to-mark reserve
((783 015 – 755 005) 28 010 15 406 12 605
13 182 359 6 787 500 736 758 5 658 101
MJM
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(b) Assume PalmTree Ltd acquired an additional 12% interest in Imikindo Ltd on
1 February 20.22 for a market-related cash consideration. Discuss, with reasons and
calculations, the correct accounting treatment of the additional 12% interest in the
consolidated financial statements of PalmTree Ltd Group for the year ended
31 March 20.22.
With the acquisition of the additional 12% interest in Imikindo Ltd the original 68%
controlling interest will be increased to 80% controlling interest. (1)
Paragraph 23 of IFRS 10 determines that changes in a parent’s interest

(PalmTree Ltd) in a subsidiary (Imikindo Ltd) that does not result in a loss of control
are accounted for as an equity transation. (1)
When the proportion of the equity held by non-controlling interests changes,

PalmTree Ltd should adjust the carrying amounts of the controlling and non-controlling
interests to reflect the additional 12% interests in Imikindo Ltd.
PalmTree Ltd will recognise directly in equity any difference between the amount by
which the non-controlling interests are adjusted and the fair value of the consideration
paid or received and attribute it to the owners’ equity of PalmTree Ltd. (IFRS 10.B96). (2)
The accounting treatment prescribed by IFRS 10 between PalmTree Ltd and the
non-controlling shareholders is an equity transaction as both are owners of the (1)
subsidiary.
The adjustment to non-controlling interests is calculated as follows:

On 1 February 20.22, total non-controlling interests will be calculated based on their
original 32% and new 20% interest. The difference between the two values will be the
change in equity.
Total Non-controlling Non-controlling Change in

interests at 32% interests at 20% equity
R R R R
Retained
earnings 8 445 010
Net asset
value 8 810 010 2 819 203 1 762 002 1 057 201 (3)
Going forward from 1 February 20.22 the non-controlling interests included in the
consolidated financial statements is calculated at 20%. (1)
The gain or loss on such a transaction will be recognised directly in equity. (1)
No change in the carrying values of Imikindo Ltd’s assets or liabilities (including

goodwill) should be recognised as a result of such transactions. (2)
The transaction will reflect in the consolidated statement of changes in equity. (1)
Total (13)
Maximum (9)
MJM

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FAC4862/104/0/2023

Tutorial Letter 104/0/2023

ADVANCED FINANCIAL ACCOUNTING II

Department of Financial Governance

This tutorial letter contains important information

Personnel and contact details 3

Prescribed method of study 4

Suggested working programme 4

United Nations Global Compact Principles 5

Learning unit 7 Change in degree of control 6

8 Related party disclosures 33

Self-assessment questions and suggested solutions 38

TEST 3 ON TUTORIAL 104: 13 JUNE 2023

PERSONNEL AND CONTACT DETAILS

Please send all e-mail queries to: fac4862postgrad@unisa.ac.za

Lecturer Online Consultation system

PRESCRIBED METHOD OF STUDY

2. Read the standards and interpretation(s) covered by the learning unit.

SUGGESTED WORKING PROGRAMME

THE UNITED NATIONS GLOBAL COMPACT PRINCIPLES

The United Nations Global Compact (UNGC) is underpinned on the principle of

The summary of the principles is provided in the table below.

The summary of the 10 UNGC principles

Source: Greenstone, 2014

LEARNING UNIT 7 – CHANGE IN DEGREE OF CONTROL

At the end of this learning unit, you should be able to

1. identify the acquirer in a business combination that involves a parent-subsidiary

2. identify the circumstances giving rise to a change in control:

4. apply the consolidation procedures and prepare a set of consolidated financial

The following is however not examinable for CTA level 1:

PRESCRIBED STUDY MATERIAL

- IFRS 10 Consolidated Financial Statements (par 23-26, par B96-B99)

1. The IASB issued a Request for Information on the Post-implementation

The comments sought by the IASB in the Post-implementation review included

Accounting requirements—Partial acquisition of a subsidiary that does not constitute a

The supporting materials for IFRS 10 can be accessed here:

THE REST OF LEARNING UNIT 7 IS BASED ON THE ASSUMPTION THAT YOU

SECTION A – SAICA’S PRINCIPLES OF EXAMINATION LEVELS

The extract of principles of examination levels for IFRS 10 is as follows:

Description Paragraph Level Notes

The extract of principles of examination levels for IFRS 12 is as follows:

Description Paragraph Level Notes

Changes in interests in investments could occur as a result of one of the following:

1. Acquisition of a controlling interest in an existing IFRS 9 investee or a new

The example illustrates the following changes in control:

30 Jun 30 Nov 30 June 30 Nov 31 Dec

2. Both companies have a 31 December year end.

PART I (SUBSIDIARY BECOMES AN IFRS 9 INVESTMENT) (CORE)

PART I – Suggested solution

SUBSIDIARY BECOMES AN IFRS 9 INVESTMENT

Unisa’s preferred approach

Alternative approach (approach 2)

It is important to note that no consolidation of the financial statements of the subsidiary

Account for investment

Recognition of profit for the

Account for disposal of Recognition of consolidated

It is important to note that no consolidation of the financial statements of the subsidiary

C1. Analysis of the owners’ equity of Red Ltd

C2. Proof of goodwill of Red Ltd [IFRS 3.32]

Consideration transferred at acquisition date 250 000

C3. Gain/loss on disposal in separate financial statements

Proceeds 450 000