DEPARTMENT OF ACCOUNTANCY

Accounting 22
2022

Unit 6: Group Statements

Consolidation after acquisition date
QUESTION
BANK
QUESTION 6-A

On 1 July 20x2 H Limited acquired a 100% investment in S Limited at a price of R132 000. On the date
of acquisition, S Limited’s reserves consisted of the following amounts:

R
Retained earnings 24 000
Revaluation reserve 40 000
Replacement reserve 13 500
77 500

There were no changes in S Limited’s issued share capital since the date of acquisition.

Trial balance on 30 June 20x5

H Limited S Limited
R R
Debits
Property, plant and equipment 250 000 150 000
Investment in S Limited 132 000 -
Debtors 68 000 24 000
Bank 30 000 36 000
Inventories 132 000 35 000
Income tax expense 21 000 12 000
Dividends declared and paid 14 000 8 000
Transfers to replacement reserve 13 000 3 000
660 000 268 000

Credits
Share capital 150 000 60 000
Share premium 30 000 6 000
Revaluation reserve 25 000 40 000
Retained earnings 295 000 50 000
Replacement reserve 45 000 23 000
Creditors 40 000 52 000
Profit before tax 75 000 37 000
660 000 268 000

REQUIRED:

a) Provide the consolidation journal entries for the reporting period ended 30 June 20x5.

b) Prepare the consolidated statement of comprehensive income and consolidated statement of

changes in equity for the reporting period ended 30 June 20x5 and the consolidated statement of
financial position on 30 June 20x5 for H Limited and its subsidiary.
QUESTION 6-A (SUGGESTED SOLUTION)

Total At acquisition Since

acquisition

At acquisition (1 July 20x2)

Share capital 60 000 60 000
Share premium 6 000 6 000
Revaluation reserve 40 000 40 000
Retained earnings 24 000 24 000
Replacement reserve 13 500 13 500
143 500 143 500
Gain from bargain purchase (11 500) (11 500)
Consideration 132 000 132 000

Since acquisition
(i) Until beginning of current year
Retained earnings (50 000 - 24 000 (at)) 26 000 26 000RE
Replacement reserve [(23 000 - 3 000) - 13 500] 6 500 6 500RR

(ii) Current year

Profit after tax (37 000 - 12 000) 25 000 25 000RE
Dividends (8 000) (8 000)RE
Transfer to RR (3 000) (3 000)RE
Replacement reserve 3 000 3 000RR
181 500 40 000RE
9 500RR

Consolidation journal entries

Dr Cr
Dr Share capital (S) 60 000
Dr Share premium (S) 6 000
Dr Revaluation reserve (S) 40 000
Dr Retained earnings (S) 24 000
Dr Replacement reserve (S) 13 500
Cr Retained earnings (beginning of year) 11 500
Cr Investment in S (H) 132 000

Dr Profit before tax / Dividends received (H) 8 000

Cr Dividends paid (S) 8 000

Consolidated statement of comprehensive income of H Ltd and subsidiary for the reporting
period ended 30 June 20x5

R
Profit before tax (75 000 + 37 000 - 8 000 div rec) 104 000
Tax expense (21 000 + 12 000) (33 000)
Profit after tax 71 000
QUESTION 6-A (SUGGESTED SOLUTION - CONTINUED)

Consolidated statement of changes in equity for the reporting period ended 30 June 20x5

Retained Replacement
earnings reserve
R R

Opening balance at 1 July 20x4 332 500 38 5002

1

Profit for the year 71 000 -

Transfer to replacement reserve (13 000 + 3 000) (16 000) 16 000
Ordinary dividend (14 000) -
Closing balance at 30 June 20x5 373 500 54 500
1
H 295 000 + S 26 000 + 11 500 (gain from bargain purchase) = 332 500
2
H (45 000 - 13 000) + S 6 500 = 38 500

Consolidated statement of financial position of H Ltd and its subsidiary on 30 June 20x5

R
ASSETS
Non-current assets
Property, plant and equipment (250 000 + 150 000) 400 000

Current assets
Inventories (132 000 + 35 000) 167 000
Debtors (68 000 + 24 000) 92 000
Bank (30 000 + 36 000) 66 000

Total assets 725 000

EQUITY AND LIABILITIES

Equity attributable to owners of the parent
Share capital 150 000
Share premium 30 000
Revaluation reserve 25 000
Retained earnings 373 500
Replacement reserve 54 500

Total equity 633 000

Current liabilities
Creditors (40 000 + 52 000) 92 000

Total equity and liabilities 725 000

QUESTION 6-B

On 1 April 20x3 H Limited acquired 100 000 ordinary shares from S Limited at a price of R160 000. At
that date the balances on S Limited’s replacement reserve and retained earnings amounted to R30 000
and R55 000 respectively.

The following are the Statements of Financial Position of H Limited and S Limited on
31 March 20x5:

H Limited S Limited
R R
ASSETS
Property, plant and equipment 240 000 120 000
Investment in S Limited (note 1) 260 000 -
Other investments 250 000 50 000
Inventories 85 000 140 000
Debtors 135 000 70 000
Bank 46 000 12 000
1 016 000 392 000

EQUITY AND LIABILITIES

Ordinary shares (R0.50) 550 000 50 000
Replacement reserve 120 000 65 000
Mark-to-market reserve 20 000 -
Retained earnings 230 000 82 000
Long-term loan – H Limited - 100 000
Creditors 96 000 95 000
1 016 000 392 000

The following are the Statements of Comprehensive Incomes of H Limited and S Limited for the
reporting period ended 31 March 20x5

H Limited S Limited
R R
Profit before tax (note 2) 151 000 47 000
Tax (46 000) (15 000)
Profit for the period 105 000 32 000

Extract from the Statements of Changes in Equity of H Limited and S Limited for the reporting
period ended 31 March 20x5:

Retained earnings
H Limited S Limited
R R
Opening balance 194 000 66 000
Profit for the period 105 000 32 000
Transfer to replacement reserve (24 000) (6 000)
Ordinary dividend (45 000) (10 000)
Closing balance 230 000 82 000
QUESTION 6-B (CONTINUED)

Additional information:

1. The “investment in S Limited” in H Limited’s Statement of Financial Position consists of the

following amounts:

Investment at fair value (cost price: R140 000) 160 000

Loan 100 000
260 000

H Limited revalued the investment on 1 April 20x4.

2. Profit before tax includes the following amounts:

H Limited S Limited
R R
Income
Dividends received 25 000 12 000

REQUIRED:

a) Provide the consolidation journal entries on 31 March 20x5.

b) Prepare the consolidated financial statements for the reporting period ended 31 March 20x5.
QUESTION 6-B (SUGGESTED SOLUTION)

Total At acquisition Since

acquisition

At acquisition (1 April 20x3)

Share capital 50 000 50 000
Replacement reserve 300 000 30 000
Retained earnings 55 000 55 000
135 000 135 000
Equity represented by goodwill 5 000 5 000
Consideration (260 000 - 100 000 - 20 000) 140 000 140 000

Since acquisition
(i) Until beginning of current year
Retained earnings (66 000 - 55 000 (at)) 11 000 11 000RE
Replacement reserve [(65 000 - 6 000) - 30 000] 29 000 29 000RR

(ii) Current year

Profit after tax 32 000 32 000RE
Dividends (10 000) (10 000)RE
Transfer to RR (6 000) (6 000)RE
Replacement reserve 6 000 6 000RR
202 000 27 000RE
35 000RR

Consolidation journal entries

Dr Cr
Dr Mark-to-market reserve 20 000
Cr Investment in S (H) 20 000

Dr Share capital (S) 50 000

Dr Retained earnings (S) 55 000
Dr Replacement reserve (S) 30 000
Dr Goodwill 5 000
Cr Investment in S (H) 140 000

Dr Loan - H (S) 100 000

Cr Investment in S (H) 100 000

Dr Profit before tax / Dividends received (H) 10 000

Cr Dividends paid (S) 10 000

Consolidated statement of comprehensive income for the reporting period ended 31 March 20x5

R
Profit before tax (151 000 H + 47 000 S - 10 000 dividend) 188 000
Tax (46 000 + 15 000) (61 000)
Profit after tax 127 000
QUESTION 6-B (SUGGESTED SOLUTION - CONTINUED)

Consolidated statement of changes in equity for the reporting period ended 31 March 20x5

Retained Replacement
earnings reserve
R R

Opening balance at 1 April 20x4 205 000 125 0002

1

Profit for the year 127 000 -

Transfer to replacement reserve (30 000) 30 0003
3

Dividend (only H) (45 000) -

Closing balance at 31 March 20x5 257 000 155 0005
4

1
194 000 + 11 000
2
(120 000 - 24 000) H + 29 000 = 125 000
3
24 000 + 6 000 = 30 000
4
Can also be calculated as: 250 000 H + 27 000 S (Analysis)
5
Can also be calculated as: 120 000 H + 35 000 S (Analysis)

Consolidated statement of financial position on 31 March 20x5

R
ASSETS
Non-current assets
Property, plant and equipment (240 000 + 120 000) 360 000
Goodwill 5 000
Other investments (250 000 + 50 000) 300 000
665 000

Current assets
Inventories (85 000 + 140 000) 225 000
Debtors (135 000 + 70 000) 205 000
Bank (46 000 + 12 000) 58 000
488 000

Total assets 1 153 000

EQUITY AND LIABILITIES

Equity attributable to owners of the parent
Ordinary shares 550 000
Replacement reserve 155 000
Retained earnings 257 000
962 000

Current liabilities
Creditors (96 000 + 95 000)) 191 000

Total equity and liabilities 1 153 000

QUESTION 6-C

The following Statements of Financial Position at 30 June 20X4 are presented to you:

H Limited S Limited

R R
ASSETS
Non-current assets 280 000 140 000
Property, plant and equipment 180 000 140 000
Investment in subsidiary 100 000 -

Current assets 100 000 110 000

Inventories 30 000 20 000
Trade and other receivables 50 000 80 000
Cash and cash equivalents 20 000 10 000

Total assets 380 000 250 000

EQUITY AND LIABILITIES

Capital and reserves 340 000 230 000
Issued ordinary share capital 200 000 100 000
Replacement reserve 40 000 60 000
Retained earnings 100 000 70 000

Current liabilities 40 000 20 000

Trade and other payables 30 000 5 000
SARS - Tax payable 10 000 15 000

Total equity and liabilities 380 000 250 000

Additional information:

1. Both companies’ ordinary share capital comprises shares of R2 each and each share carries one
voting right.

2. At the date of acquisition of the 80% investment in the subsidiary company, two years ago, and the
owner’s equity was as follows:

R
Share capital 100 000
Replacement reserve 5 000
Retained earnings 15 000

REQUIRED:

Prepare the consolidated statement of financial position of H Limited and its subsidiary at 30 June 20x4.
QUESTION 6-C (SUGGESTED SOLUTION)

ANALYSIS OF OWNERS’ EQUITY OF S LIMITED

Total At (80%) Since (80%) NCI (20%)

R R R R

At acquisition
Share capital 100 000 80 000 20 000
Retained earnings 15 000 12 000 3 000
Replacement reserve 5 000 4 000 1 000
Net asset value 120 000 96 000 24 000
Equity represented by goodwill 4 000 4 000
Cost of investment & NCI 124 000 100 000 24 000

Since acquisition to 30 June 20x4

Retained earnings 55 000 44 000RE 11 000

On 30 June 20x4 70 000
At acquisition (15 000)

Replacement reserve 55 000 44 000RR 11 000

On 30 June 20x4 60 000
At acquisition (5 000)

230 000 96 000 44 000RE 46 000

44 000RR

Proof of non-controlling interest: 20% x R230 000 = R46 000.

Note: It is actually two years since the date of acquisition. However, you do not have sufficient
information to split the movements in the reserves between since acquisition to beginning of
current year and current year. This is however not a problem as you do not have to prepare an
statement of comprehensive income in this question, because it was not required.
QUESTION 6-C (SUGGESTED SOLUTION - CONTINUED)

H LIMITED AND ITS SUBSIDIARY

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 30 JUNE 20x4

R
ASSETS
Non-current assets
Property, plant and equipment (180 000 H + 140 000 S) 320 000
Goodwill 4 000
324 000

Current assets
Inventories (30 000 H + 20 000 S) 50 000
Trade and other receivables (50 000 H + 80 000 S) 130 000
Cash and cash equivalents (20 000 H + 10 000 S) 30 000
210 000

Total assets 534 000

EQUITY AND LIABILITIES

Equity attributable to owners of the parent
Issued ordinary share capital (H only) 200 000
Reserves (40 000 H + 44 000) 84 000
Retained earnings (100 000 H + 44 000 (3)) 144 000
428 000

Non-controlling interest (per analysis) 46 000

Total equity 474 000

Current liabilities
Trade and other payables (30 000 H + 5 000 S) 35 000
SARS: Tax payable (10 000 H + 15 000 S) 25 000
60 000

Total equity and liabilities 534 000

QUESTION 6-D

Use the information provided in Question 11-C together with this information:

1. STATEMENT OF COMPREHENSIVE INCOME FOR THE REPORTING PERIOD ENDED

30 JUNE 20x4

H Limited S Limited
R R

Revenue 752 000 590 000

Cost of sales (376 000) (295 000)
Gross profit 376 000 295 000
Other operating expenses (182 000) (155 000)
Profit from operations 194 000 140 000
Income from subsidiary 8 000 -
Investment income - 4 000
Profit before tax 202 000 144 000
Income tax expense (97 000) (69 000)
Profit for the year 105 000 75 000

2. EXTRACT FROM THE STATEMENT OF CHANGES IN EQUITY FOR THE REPORTING PERIOD
ENDED 30 JUNE 20x4

Retained earnings

H Limited S Limited

R R

Balance beginning of year 40 000 20 000

Profit for the year 105 000 75 000
Transfer to replacement reserve (20 000) (15 000)
Ordinary dividend paid (25 000) (10 000)
Balance end of year 100 000 70 000

REQUIRED:

Prepare the consolidated statement of comprehensive income and the consolidated statement of changes
in equity of H Limited and its subsidiary for the reporting period ended 30 June 20x4.
QUESTION 6-D (SUGGESTED SOLUTION)

ANALYSIS OF OWNERS’ EQUITY OF S LIMITED

Total At (80%) Since (80%) NCI (20%)

R R R R

At acquisition
Share capital 100 000 80 000 20 000
Retained earnings 15 000 12 000 3 000
Replacement reserve 5 000 4 000 1 000
120 000 96 000 24 000
Equity represented by goodwill 4 000 4 000
Cost of investment & NCI 124 000 100 000 24 000

Since acquisition
To beginning of current year
Retained earnings
(20 000 - 15 000) 5 000 4 000RE 1 000

Replacement reserve
(60 000 - 15 000 - 5 000) 40 000 32 000RR 8 000

Current year
Profit after tax 75 000 60 000RE 15 000
Transfer to replacement reserve (15 000) (12 000) (3 000)
RE
Dividends (10 000) (8 000) (2 000)
RE
Replacement reserve 15 000 12 000RR 3 000

44 000RE
23 000 44 000RR 46 000

Proof of non-controlling interest: R230 000 x 20% = R46 000.

QUESTION 6-D (SUGGESTED SOLUTION - CONTINUED)

H LIMITED AND ITS SUBSIDIARY

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE REPORTING PERIOD
ENDED 30 JUNE 20x4

R
Revenue (752 000 H + 590 000 S) 1 342 000
Cost of sales (376 000 H + 295 000 S) (671 000)
Gross profit (376 000 H + 295 000 S) 671 000
Operating costs (182 000 H + 155 000 S) (337 000)
Profit from operations (194 000 H + 140 000 S) 334 000
Investment income (0 H + 4 000 S) 4 000
Profit before tax 338 000
Income tax expense (97 000 H + 69 000 S) (166 000)
Profit for the year 172 000

Attributable to:
- Owners of the parent 157 000
- Non-controlling interest 15 000

172 000

Note that “non-controlling interest” refer to the portion of profit after tax attributable to the Non-controlling
shareholders. This figure comes from the analysis and is calculated before dividends paid are taken into
account. Dividends paid are deducted on the statement of changes in equity below.

H LIMITED AND ITS SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE REPORTING PERIOD ENDED
30 JUNE 20x4

Non-
Share Replacement Retained
controlling
capital reserve earnings
interest
R R R R

Opening balance 200 000 52 000(1) 44 000 33 000

(3) (4)
Profit for the year - - 157 000 15 000
Ordinary dividends - -
- Paid by parent (25 000)
- Attributable to non-controlling
interest (2 000)
Transfer to replacement reserve - 32 000(2) (32 000) -
Balance at end of year 200 000 84 000 144 000 46 000

(1) (40 000 - 20 000) H + 32 000 H in S = 52 000

(2) 20 000 H + (15 000 x 80%) = 32 000
(3) 40 000 H + 4 000 H in S = 44 000
(4) 24 000 + 1 000 + 8 000 = 33 000
QUESTION 6-E

On 1 July 20x2 H Limited acquired a 75% investment in S Limited at a price of R140 000. The following
extract of S Limited’s Statement of Financial Position on 1 July 20x2 is provided to you:

R
Share capital 100 000
Retained earnings 40 000
Replacement reserve 30 000
170 000

Trial balance on 30 June 20x5

H Limited S Limited
R R
Debits
Property, plant and equipment 250 000 170 000
Investment in S Limited (note 1) 165 000 -
Debtors 72 000 34 000
Bank 30 000 56 000
Inventories 132 000 35 000
Income tax expense 63 000 10 000
Dividends declared and paid 20 000 7 000
Transfers to replacement reserve 8 000 2 000
740 000 314 000
Credits
Share capital 150 000 100 000
Retained earnings (1 July 20x4) 270 000 64 000
Replacement reserve 45 000 47 000
Mark-to-market reserve 25 000 -
Creditors 40 000 68 000
Profit before tax (note 2) 210 000 35 000
740 000 314 000

Additional information:

1. The fair value adjustment to the investment in S Limited was recorded on 30 June 20x4. No
adjustments to fair value have been recorded since that date.

2. H Limited’s profit before tax includes dividends received from S Limited.

REQUIRED:

a) Prepare the consolidated statement of comprehensive income and consolidated statement of

changes in equity for the reporting period ended 30 June 20x5 and the consolidated statement of
financial position on 30 June 20x5 for H Limited and its subsidiary.

b) Provide the consolidation journal entries for the reporting period ended 30 June 20x5.

Note: Ignore deferred tax implications.

QUESTION 6-E (SUGGESTED SOLUTION)

Total H Ltd (75%) NCI (25%)

At Since

At acquisition (1 July 20x2)

Share capital 100 000 75 000 25 000
Retained earnings 40 000 30 000 10 000
Replacement reserve 30 000 22 500 7 500
170 000 127 500 42 500
Equity represented by goodwill 12 500 12 500
Consideration 182 500 140 000
(165 - 25) 42 500

Since acquisition
(i) Until beginning of current year
Retained earnings
(64 000 - 40 000 (at)) 24 000 18 000RE 6 000

Replacement reserve
[(47 000 - 2 000) - 30 000] 15 000 11 250RR 3 750

(ii) Current year

Profit after tax (35 000 - 10 000) 25 000 18 750RE 6 250
Dividends (7 000) (5 250) (1 750)
RE
Transfer to replacement reserve (2 000) (1 500) (500)
RE
Replacement reserve 2 000 1 500RR 500

227 000 30 000RE 56 750

12 750RR

Consolidated Statement of comprehensive income of H Limited and subsidiary for the reporting
period ended 30 June 20x5

R
Profit before tax (210 000 + 35 000 - 5 250 div) 239 750
Tax expense (63 000 + 10 000) (73 000)
Profit after tax 166 750

Attributable to:
Owners of the parent (balancing figure: 166 750 - 6 250) 160 500
Non-controlling interest (from analysis) 6 250
166 750
QUESTION 6-E (SUGGESTED SOLUTION - CONTINUED)

Consolidated statement of changes in equity for the reporting period ended 30 June 20x5
Attributable to equity holders
Non-
of the parent
controlling
Retained Replacement
interest
earnings reserve
R R R

Opening balance (1 July 20x4) 288 000 48 250 52 250

(2)
Profit for the year 160 500 - 6 250
Transfer to replacement reserve (8 000 + 1 500) (9 500) 9 500
Ordinary dividend
- Paid by the parent (20 000)
- Attributable to non-controlling interest (1 750)
Closing balance (30 June 20x5) 419 000 57 750 56 750

(1) H 270 000 + S 18 000 = 288 000

(2) H (45 000 - 8 000) + S 11 250 = 48 250

Consolidated statement of financial position of H Limited and its subsidiary on 30 June 20x5

R
ASSETS
Non-current assets
Property, plant and equipment (250 000 + 170 000) 420 000
Goodwill 12 500
432 500

Current assets
Debtors (72 000 + 34 000) 106 000
Bank (30 000 + 56 000) 86 000
Inventories (132 000 + 35 000) 167 000
359 000

791 500

EQUITY AND LIABILITIES

Equity attributable to owners of the parent
Share capital 150 000
Retained earnings 419 000
Replacement reserve 57 750
626 750

Non-controlling interest 56 750

Total equity 683 500

Current liabilities
Creditors (40 000 + 68 000) 108 000

591 500
QUESTION 6-E (SUGGESTED SOLUTION - CONTINUED)

Consolidation journal entries

Dr Cr
Dr Mark-to-market reserve 25 000
Cr Investment in S Limited (H) 25 000
Reversal of fair value adjustment

Dr Share capital (S) 100 000

Dr Retained earnings (S) 40 000
Dr Revaluation reserve (S) 30 000
Dr Goodwill 12 500
Cr Non-controlling interest 42 500
Cr Investment (H) 140 000
Elimination of shareholders equity of S Limited at date of
acquisition

Dr Retained earnings 6 000

Dr Replacement reserve 3 750
Cr Non-controlling interest (SFP) 9 750
Recording of non-controlling interest in retained earnings and
replacement reserve at beginning of current year

Dr Non-controlling interest (SCI) 6 250

Cr Non-controlling interest (SFP) 6 250
Recording of non-controlling interest in profit after tax

Dr Dividend received (H) 5 250

Dr Non-controlling interest (SFP) 1 750
Cr Dividend paid (S) 7 000
Elimination of intragroup dividend and recording of non-controlling
interest in the dividend

Dr Replacement reserve (SFP) 500

Cr Transfer to replacement reserve 500
Elimination of non-controlling interest in transfer of reserves during
the current year