Question 1

The proposed accounting treatment for the Mboma brand by the CEO of Shinyungwe Limited raises
important questions regarding compliance with International Financial Reporting Standards (IFRS). In
assessing its appropriateness, we need to consider the principles outlined in relevant IFRS standards,
particularly those related to intangible assets.

1. **Recognition**: According to IFRS, an intangible asset should be recognized if it is probable that

future economic benefits will flow to the entity and the cost or value of the asset can be reliably
measured. In this case, since the Mboma brand has been legally registered, launched successfully, and
valued by an independent valuator, it meets the criteria for recognition as an intangible asset.

2. **Measurement**: The valuation of the Mboma brand at N$75 million by an independent sportswear
valuator provides a reliable measure of its value. However, it's crucial to ensure that this valuation
reflects the economic benefits the brand is expected to generate over its useful life, and that it is
periodically reassessed for impairment if necessary.

3. **Subsequent Measurement**: After initial recognition, the Mboma brand would typically be
accounted for at cost less any accumulated amortization and impairment losses, in accordance with IAS
38 Intangible Assets. If the brand is expected to have an indefinite useful life, it should not be amortized
but instead tested for impairment annually.

4. **Disclosure**: Shinyungwe Limited should disclose relevant information regarding the Mboma brand
in its financial statements, including its nature, valuation, useful life, and any significant assumptions
made in determining its value.

Overall, the CEO's proposal to recognize the Mboma brand in the financial statements appears to align
with the principles of IFRS, given that the brand meets the criteria for recognition as an intangible asset
and its value has been reliably measured. However, it's important for the company to ensure ongoing
compliance with IFRS requirements for the subsequent measurement and disclosure of the brand in its
financial statements.
Question 2

a) **Calculation of fixed overhead allocation rate per unit for 2023 financial year:**

The fixed overhead allocation rate per unit can be calculated using the following formula:

\[ \text{Fixed overhead allocation rate per unit} = \frac{\text{Total fixed overhead costs}}{\text{Normal
production capacity}} \]

Given:

- Total fixed overhead costs = N$190,800

- Normal production capacity = 4,500 books per month

\[ \text{Fixed overhead allocation rate per unit} = \frac{190,800}{4,500} = \text{N\$42.40 per unit} \]

b) **Identification of costs to be included in the cost of inventory:**

i. Impairment losses on machinery and equipment used in manufacturing process - No, impairment
losses should not be included in the cost of inventory as they are considered non-operating expenses.

ii. Costs to design a product for a specific customer - Yes, these costs are directly attributable to the
production of inventory and should be included.

iii. Packaging costs incurred to prepare inventory for sale - Yes, packaging costs are part of the cost of
preparing inventory for sale.

iv. Selling costs - No, selling costs are not part of the cost of inventory but are expensed in the period
they are incurred.

v. Amortisation of development costs relating to a specific product - Yes, amortization of development

costs directly related to inventory production should be included.

vi. Raw materials spillage - Yes, raw materials spillage represents a loss in the production process and
should be included in the cost of inventory.

c) **Calculation of impairment loss for the year ended 30 June 2023:**

To calculate the impairment loss, we need to compare the carrying amount of the asset with its
recoverable amount. The recoverable amount is the higher of fair value less costs of disposal and value
in use.

For Plant:

Carrying amount = N$1,700,000

Recoverable amount = Higher of fair value less costs of disposal and value in use

Fair value less costs of disposal = N$1,650,000

Value in use = Present value of net cash flows over the useful life

\[ \text{Present value of net cash flows} = \frac{N\$450,000}{1 + 0.10} + \frac{N\$450,000}{(1 + 0.10)^2}

+ \frac{N\$450,000}{(1 + 0.10)^3} + \frac{N\$450,000}{(1 + 0.10)^4} + \frac{N\$450,000 + N\$30,000}{(1
+ 0.10)^5} \]

\[ = N\$367,082.64 + N\$333,711.49 + N\$303,374.08 + N\$275,794.62 + N\$243,884.20 \]

\[ = N\$1,523,846.03 \]

Since the fair value less costs of disposal is less than the value in use, the recoverable amount is
N$1,523,846.03.

Impairment loss for Plant = Carrying amount - Recoverable amount

\[ = N\$1,700,000 - N\$1,523,846.03 \]

\[ = N\$176,153.97 \]

For Machinery:

Carrying amount = N$1,500,000

Recoverable amount = Higher of fair value less costs of disposal and value in use

Fair value less costs of disposal = N$1,340,000

Value in use = Present value of net cash flows over the next five years
\[ \text{Present value of net cash flows} = N\$380,000 + \frac{N\$390,000}{(1 + 0.10)} +
\frac{N\$410,000}{(1 + 0.10)^2} + \frac{N\$400,000}{(1 + 0.10)^3} + \frac{N\$360,000}{(1 + 0.10)^4} \]

\[ = N\$380,000 + N\$354,545.45 + N\$322,313.22 + N\$293,012.93 + N\$266,375.39 \]

\[ = N\$1,616,247.99 \]

Since the fair value less costs of disposal is less than the value in use, the recoverable amount is
N$1,616,247.99.

Impairment loss for Machinery = Carrying amount - Recoverable amount

\[ = N\$1,500,000 - N\$1,616,247.99 \]

\[ = -N\$116,247.99 \]

Since the recoverable amount exceeds the carrying amount for the machinery, there is no impairment
loss to be recognized.

d) **Journal entries to record impairment losses:**

For Plant:

\[ \text{Impairment Loss} \quad Dr. \quad 176,153.97 \]

\[ \quad \quad \quad \text{Accumulated Depreciation - Plant} \quad Cr. \quad 176,153.97 \]

e) **Sources of information for assessing impairment in accordance with IFRS 36:**

- External sources such as market prices of similar assets, appraisal reports, or independent expert
opinions.

- Internal sources including the company's cash flow projections, budgeted financial statements, and
current market conditions.

- Technological advancements and changes in industry standards affecting the asset's usefulness or
demand.

- Legal or regulatory changes impacting the asset's operation or market value.

- Physical damage, obsolescence, or changes in the asset's condition.

- Changes in the company's business strategy or operating environment that could affect the asset's
future cash flows.

- Market trends and economic indicators influencing demand for products or services produced by the
asset.

Question3

a) **Pro-forma journal entries for the acquisition date (1 January 2023):**

1. To record the acquisition of Yodo Ltd:

\[ \text{Investment in Yodo Ltd} \quad Dr. \quad 400,000 \]

\[ \quad \quad \quad \text{Cash (Bank)} \quad Cr. \quad 400,000 \]

b) **Statement of Financial Position as at 31 December 2023 for the group:**

| | Moon Ltd | Yodo Ltd | Group |

|----------------------------|-----------|-----------|-----------|

| **Assets** | | | |

| Property, Plant & Equipment| 330,000 | 287,500 | 617,500 |

| Investment in Yodo Ltd | 450,000 | - | 450,000 |

| Investment in First rand Ltd Shares| 10,000 | - | 10,000 |

| 12% Debentures | 75,000 | - | 75,000 |

| Inventories | 80,000 | 120,000 | 200,000 |

| Trade receivables | 108,500 | 175,500 | 284,000 |

| Other current assets | 35,000 | 62,000 | 97,000 |

| Cash and cash equivalents | 150,000 | - | 150,000 |

| **Total Assets** | **1,238,500** | **645,000** | **1,883,500** |

| | | | |

| **Equity and Liabilities** | | | |

| Share capital | 645,000 | 360,000 | 1,005,000 |

| General reserve | 59,000 | - | 59,000 |

| Retained earnings | 413,000 | 128,250 | 541,250 |

| **Total Equity** | **1,117,000** | **488,250** | **1,605,250** |

| | | | |

| **Liabilities** | | | |

| Long-term loan | 82,500 | - | 82,500 |

| Trade payables | 120,000 | 35,000 | 155,000 |

| Other current liabilities | 1,500 | 9,250 | 10,750 |

| Bank overdraft |- | 30,000 | 30,000 |

| **Total Liabilities** | **203,000** | **74,250** | **277,250** |

| **Total Equity & Liabilities**| **1,238,500** | **645,000** | **1,883,500** |

c) **Pro-forma consolidation journal entries for the year ended 31 December 2023:**

1. To eliminate the investment in Yodo Ltd and recognize non-controlling interest:

\[ \text{Investment in Yodo Ltd} \quad Dr. \quad 450,000 \]

\[ \quad \quad \quad \text{Non-controlling interest} \quad Cr. \quad 42,000 \]

\[ \quad \quad \quad \text{Retained earnings (Group)} \quad Cr. \quad 8,000 \] (Difference between
consideration and fair value of NCI)

\[ \quad \quad \quad \text{Retained earnings (Yodo)} \quad Cr. \quad 400,000 \]

2. To eliminate Yodo Ltd's equity:

\[ \text{Share capital (Yodo)} \quad Dr. \quad 360,000 \]

\[ \quad \quad \quad \text{General reserve (Yodo)} \quad Dr. \quad X \] (No information provided,
assuming 0 for this example)

\[ \quad \quad \quad \text{Retained earnings (Yodo)} \quad Dr. \quad 128,250 \]

\[ \quad \quad \quad \text{Non-controlling interest} \quad Cr. \quad 488,250 \]

3. To eliminate Yodo Ltd's assets and liabilities:

\[ \text{Property, Plant & Equipment (Yodo)} \quad Dr. \quad 287,500 \]

\[ \quad \quad \quad \text{Investment in First rand Ltd Shares} \quad Dr. \quad 10,000 \]

\[ \quad \quad \quad \text{12% Debentures} \quad Dr. \quad 75,000 \]

\[ \quad \quad \quad \text{Inventories (Yodo)} \quad Dr. \quad 120,000 \]

\[ \quad \quad \quad \text{Trade receivables (Yodo)} \quad Dr. \quad 175,500 \]

\[ \quad \quad \quad \text{Other current assets (Yodo)} \quad Dr. \quad 62,000 \]

\[ \quad \quad \quad \text{Trade payables (Yodo)} \quad Cr. \quad 35,000 \]

\[ \quad \quad \quad \text{Other current liabilities (Yodo)} \quad Cr. \quad 9,250 \]

\[ \quad \quad \quad \text{Bank overdraft (Yodo)} \quad Cr. \quad 30,000 \]

Question 4

a) **Pro-forma consolidation journal entries for the year ended 31 December 2023:**

1. To eliminate investment in Horizon Ltd and recognize non-controlling interest:

\[ \text{Investment in Horizon Ltd} \quad Dr. \quad 210,000,000 \]

\[ \quad \quad \quad \text{Non-controlling interest} \quad Cr. \quad X \] (To be calculated)

\[ \quad \quad \quad \text{Retained earnings (Group)} \quad Cr. \quad Y \] (To be calculated)

\[ \quad \quad \quad \text{Retained earnings (Horizon)} \quad Cr. \quad 210,000,000 - X - Y \]

2. To eliminate Horizon Ltd's equity:

\[ \text{Retained earnings (Horizon)} \quad Dr. \quad Z \] (To be calculated)

\[ \quad \quad \quad \text{Transfer to general reserve (Horizon)} \quad Dr. \quad 2,500,000 \]

\[ \quad \quad \quad \text{Dividends declared (Horizon)} \quad Dr. \quad 12,000,000 \]

\[ \quad \quad \quad \text{Share capital (Horizon)} \quad Dr. \quad 24,500,000 \]

\[ \quad \quad \quad \text{Non-controlling interest} \quad Cr. \quad 14,000,000 + Z \]

3. To eliminate Horizon Ltd's assets and liabilities:

\[ \text{Property, Plant & Equipment (Horizon)} \quad Dr. \quad 126,500,000 \]

\[ \quad \quad \quad \text{Other investments (Horizon)} \quad Dr. \quad 14,000,000 \]

\[ \quad \quad \quad \text{Inventory (Horizon)} \quad Dr. \quad 160,000,000 \]

\[ \quad \quad \quad \text{Accounts receivable (Horizon)} \quad Dr. \quad 155,000,000 \]

\[ \quad \quad \quad \text{Bank (Horizon)} \quad Dr. \quad 7,500,000 \]

\[ \quad \quad \quad \text{Accounts payable (Horizon)} \quad Cr. \quad 15,500,000 \]

\[ \quad \quad \quad \text{Long term liabilities (Horizon)} \quad Cr. \quad 74,000,000 \]

\[ X = 210,000,000 - \text{(Non-controlling interest)} \]

\[ Y = 210,000,000 - X - 19,200,000 + Z \]

\[ Z = 6,000,000 - 2,500,000 - 12,000,000 = 6,000,000 \]

\[ X = 210,000,000 - (14,000,000 + Z) = 210,000,000 - (14,000,000 + 6,000,000) = 190,000,000 \]

\[ Y = 210,000,000 - 190,000,000 - 19,200,000 + 6,000,000 = 6,800,000 \]

b) **Statement of profit or loss and other comprehensive income for the year ended 31 December 2023
of the Dawn group:**

| | Dawn Ltd | Horizon Ltd | Group |

|--------------------------------|------------|-------------|-------------|

| **Revenue (25% of Gross Profit)** | ??? | ??? | ??? |

| **Cost of sales** | 300,000,000 | ??? | ??? |

| **Gross Profit** | ??? | ??? | ??? |

| **Expenses** | | | |

| - Administrative Expenses | 71,750,000 | 48,100,000 | 119,850,000 |

| - Depreciation | ??? | ??? | ??? |

| - Finance Costs | 4,440,000 | 5,920,000 | 10,360,000 |

| - Other Expenses | ??? | ??? | ??? |

| **Total Expenses** | ??? | ??? | ??? |

| **Profit Before Tax** | ??? | ??? | ??? |

| **Income Tax Expense** | 9,050,000 | 3,000,000 | 12,050,000 |

| **Profit for the Year** | ??? | ??? | ??? |

Notes:

- Revenue is calculated as 25% of the Gross Profit, which needs to be calculated.

- Cost of sales for Dawn Ltd is provided, while Horizon Ltd's cost of sales needs to be calculated as
Revenue minus Gross Profit.

- Depreciation for Dawn Ltd needs to be calculated using the given information about the diminishing
value method and the property, plant, and equipment value.

- Other Expenses for Dawn Ltd and Horizon Ltd need to be calculated as Total Expenses minus
Administrative Expenses, Depreciation, and Finance Costs.