Study Session Notes - Consolidations

BFC 3211
Financial Accounting 3
Study guide
Part 1
Consolidated Financial Statements
What are consolidated financial statements?
 Consolidated financial statements are the financial statements of a group that

are presented as the financial statements of a single economic entity.
 Combining more than one set of financial statements (parent & subsidiaries)
Define parent and subsidiaries
 IAS 27 and IFRS 10 – Consolidated and separate financial statements
Important sections:
IAS 27.4 – When can investments in companies be classified as separate?
… when investments held by the parent can be classified as subsidiaries,

joint ventures or associates
IAS 27.9 and 27.10 – When should investments in subsidiaries be

consolidated by a parent and when not?
…. All subsidiaries of the parent should be consolidated except for the

following circumstances:
 The parent itself a wholly-owned subsidiary, or partly-owned subsidiary of

another company which do not object to the non-presenting of consolidated
statements.
 The parent’s debt or equity instruments are not traded in a public market.
 The parent is not in the process of issuing securities in the public market.
Definitions
 Parent
 Subsidiary
 Wholly-owned subsidiary
 Partly-owned subsidiary
 Non-controlling shareholders (Outside SH)
 Control (usually more than 50%) – The power to govern the financial and
reporting policies of an entity so as to obtain benefits from its activities.
When does control exist if the parent owns only 50% or less of the voting
power of an entity?
 When the parent has power over more than 50 % of voting rights by
virtue of agreement with other investors
 The parent has the power to govern the financial and operating
policies of the entity under an agreement
 The parent can cast a majority of votes at meetings of the board of
directors
 The parent can appoint or remove a majority of the members on the
board of directors
 Group
 Acquisition date (IFRS3)
 Investment in subsidiaries
Pro-forma journal entries (pg. 586)
The elimination of internal transactions between the parent and its subsidiaries.
This has to be completed before compiling consolidated financial statements.
These transactions include:
 Dividends paid and received
 Interest paid and received
 Unrealised profits in inventory transactions
 Elimination of Current Accounts
 Inventory/Cash in transit
Inventory transactions
Inventory sold between the parent and the subsidiary often takes place at a mark
up and not at cost price. Before the consolidated financial statement can be
drawn up, this unrealized profit have to be eliminated.
Dealing with the investment
The investment that the parent company makes in the subsidiary can be shown
in the books of the parent company. However, the group’s financial statements
can not include the investment because it cannot show an investment in itself.
The investment is written off in a pro forma journal entry.
The investment will be written off against whatever was purchased from the
subsidiary. If the parent company paid more for the investment than the actual
value of those items, goodwill must be created. If the was lower, create a non-
distributable reserve.
We can find these values by doing the analysis of equity or through the
worksheet calculation.
Basic Steps in consolidations:
Step 1
Prepare an analysis of the subsidiary’s shareholders interest at the previous

financial year end or if the company only became a subsidiary during the current
financial year, at the date it became a subsidiary.
Step2
Pass pro forma journal entries for all of the following adjustments:
 Inter company balances

 Unrealized profit in stock and fixed assets
 Inter company transactions ( rent, interest etc)
 Transfers to the general reserves made by the subsidiary
 Outside shareholders share of the profit
 Inter company dividends
 Accumulated depreciation in respect of assets of the subsidiary at the date
it became a subsidiary.
Step 3
Prepare the consolidated financial statements after taking into consideration all of
the pro forma journal entries.
Step 4
Prove the outside shareholders interest

TUT 1
X Limited purchased all the shares in Y Limited on 31st March 2022 at which date
the summarized balance sheets of the companies were:
Statement of Financial Position AT 31 MARCH 2022
X LIMITED Y LIMITED
ASSETS
Non-current Assets 150 000 80 000
Land and Buildings at cost 100 000 60 000
Plant at cost 80 000 40 000
LESS: Accumulated Depreciation on Plant (30 000) (20 000)
Investments 160 000 0

Investment in Y. Limited 160 000 0
Current Assets 170 000 80 000

Inventories 70 000 40 000
Accounts Receivable 60 000 30 000
Bank 40 000 10 000
TOTAL ASSETS 480 000 160 000
EQUITY AND LIABILITIES

Capital and Reserves 430 000 140 000
Share Capital 300 000 100 000
General Reserve 80 000 25 000
Retained Income 50 000 15 000
Current Liabilities 50 000 20 000

Accounts Payable 50 000 20 000
TOTAL EQUITY AND LIABILITIES 480 000 160 000
At the acquisition date, it was considered that:

 Y. Limited’s land and buildings were worth R10 000 more than the
balance sheet value
 The other assets of Y. Ltd were stated at fair values in the statement of
Financial Position.
REQUIRED:
Prepare the consolidated statement of financial Position at 31 March 2022 and
show the workings in proper form.
TUT 2
H. Limited acquired all the shares in both X Ltd and Z Ltd on 1 January 2020. H
Ltd manufacturers a product from raw materials supplied by X Ltd at cost plus
30%. H Ltd normally realises a gross profit of 50% on turnover. Some of the
products manufactured by H Ltd are sold to Z Ltd at normal selling price less
20%. The costing records of H Ltd show that raw materials constitute 40% of the
cost of finished goods. The following are the details of stocks on hand at 31
December 2022 and 2023.
2022 2023
X Limited
Raw materials, at cost 10000 11800
H Limited
Raw materials, at cost 6 500 7 020
Finished goods, at cost 13000 19500
Z Limited
Finished goods acquired from H Ltd, at cost 5 200 -
None of the companies had made any adjustments for unearned profit on stock
unsold at 31 December 2022 or 2023.
YOU ARE REQUIRED:
To record, by means of pro forma journal entries, the adjustments to the

balances appearing in the books of the three companies necessary for the
purpose of preparing a consolidated balance sheet at 31/12/2023 and supporting
accounts for the year ended at that date.
TUT 3
Pater Ltd was one of the promoters of Seun Ltd, in which company it subscribed
for 30 000 R1 shares at par.
STATEMENT OF FINANCIAL POSITION AT 30 JUNE 2022.
Pater Ltd Seun Ltd

R R
ASSETS
Non-current Assets 84.654,00 43.484,00
Land and Buildings 28.700,00
Furniture 1.300.00 2.678.00
Plant and machinery 54.654,00 40.806,00
Investments 30.000,00 12.000,00

30000 R1 Shares in Seun Limited at cost -30000 30.000,00 -
12000 Debentures in Pater Limited at cost -12000 - 12.000,00
Loan Account - Seun Ltd -16000 16.000,00
Current Assets 73.290,00 36.722,00

Inventories +1320-120-870 24.604,00 9.570,00
Current Account – Seun Ltd -7320 7.320,00
Accounts Receivable 26.374,00 18.838,00
Bank 14.992,00 8.314,00
TOTAL ASSETS 203.944,00 92.206,00

Capital and Reserves 159.740,00 56.930,00
Share Capital (R1 Shares) -30000 60.000,00 40.000,00
6% Preference Capital 20.000,00
General Reserve 54.000,00
Retained Income - 7500 25.740,00 16.930,00
Non-Current Liabilities
7% Debentures -12000 18.000,00
Loan Account – Pater Ltd -16000 16 000,00
Current Liabilities 26.204,00 19.276,00
Accounts Payable 12.944,00 10.306,00
Current Account – Pater Limited +1320 -7320 6.000,00
SARS 7.260,00 2.970,00

Shareholders for Dividends 6.000,00
TOTAL EQUITY AND LIABILITIES 203.944,00 92.206,00
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30

JUNE 2022
Pater Ltd Seun Ltd

Incomes
Retained Income 30/6/2021 16 000 10 000
Gross profit for the year -990 31 600 15 200
Other income
Interest received
* On Debentures of Pater Ltd -840 840
* On Loan account Seun Ltd -1440 1 440
* On Current account Seun Ltd -200 200
Management Fee – Seun Ltd -2000 2 000
Expenses
Depreciation 5 780 2 500
Administration expenses 4 000
Management Fee – Pater Ltd -2000 2 000
Interest paid
* On Debentures -840 1 260
* On Loan account Pater Ltd -1440 1 440
* On Current account Pater Ltd -200 200
Taxation for the year 7 260 2 970
Dividends: Paid on Preference Shares 1 200

Paid on Ordinary Shares 6 000
Retained Income 30/06/2022 25 740 16 930
NOTES
1.The whole of Seun Ltd’s inventory was purchased from Pater at cost price
plus 10%.
2.Inventory invoiced at R1 320, (cost plus 10%) was in transit between Pater
and Seun on 30 June 2022.
REQUIRED
1.Consolidated Statement of comprehensive Income

2.Consolidated Statement of financial Position
TUT 4
The following are the summarised statements of financial position of B Limited

and F Limited at 28 February 2022.
B F
R R
ASSETS
Land and Buildings 40.000,00 40.000,00
Equipment 20.000,00 26.000,00
Investments 40.000,00 5.000,00

30000 R1 Shares in F Limited at cost 40.000,00 -
Debentures in B Limited at cost - 5.000,00
Current Assets 65.500,00 15.250,00

Inventories 27.000,00 8.050,00
Current Account - F Limited 2.000,00
Accounts
Receivable 32.000,00 6.200,00
Bank 4.500,00 1.000,00
TOTAL ASSETS 165.500,00 86.250,00

Capital 129.500,00 78.500,00
Share Capital (R1 Shares) 100.000,00 50.000,00
General Reserve 15.000,00 10.000,00
Retained Income 14.500,00 18.500,00
Non-Current Liabilities 20.000,00

8% Debentures 20.000,00
Current Account - B Limited 1.250,00
Shareholders for Dividends 10.000,00

FEBRUARY 2022
B Ltd F Ltd
Gross profit for the year 43 400 16 250
ADD: Other Income
Interest received on investment in 8% Debentures in B 400

Ltd.
43 400 16 650
LESS EXPENSES 9 900 7 150
Administrative expenses 3 000 2 500

Provision for depreciation 2 000 2 600
Interest paid on 8% Debentures 1 600 0
Directors remuneration 2 300 1 250
Auditors Remuneration 1 000 800
Net profit before taxation 33 500 9 500

Less Taxation 16 000 4 000
Net profit after taxation 17 500 5 500
Calculation of Retained Income:

ADD: Retained Income at beginning of year 12 000 15 000
Available for appropriation 29 500 20 500
LESS: Appropriations 15 000 2000
Transfer to general reserve 5 000 2
000
Dividends Paid 10
000
Retained income at end of year 14 500 18 500
NOTES
1. Administrative expenses for both companies represent payments for
normal administrative expenses.
2. F Limited purchases all stocks from B Limited at cost plus 15%.
3. On 25 February 2022, F Ltd sent a cheque for R520 to B Ltd. This
cheque was not yet received by B on 28 February 2022 and therefore the
books were closed off without taking in into account.
4. On 24 February 2015, F Ltd returned goods to the value of R230
purchased from B Ltd to them. B Ltd’s books were closed without taking it
into account.
5. The holding was acquired on 1 March 2020. On acquiring the holding, the
general reserve showed a credit balance of R8 000 and the
unappropriated profits stood at R6 000
REQUIRED
1. Consolidated Statement of comprehensive Income

2. Consolidated Statement of Financial Position
TUT 5
The following are summarised annual financial statements of two companies as

at 28 February 2022.
STATEMENT OF FINANCIAL POSITION AT

28 FEBRUARY 2022
H. LTD S. LTD
R R
ASSETS
Land and Buildings 380.000,00 46.000,00
Equipment 110.000,00 38.000,00
Furniture 7.000,00 10.800,00
Investments 114.000,00
S. Ltd 16 000 R5 Shares 114.000,00
Current Assets 122.000,00 90.600,00

Inventories 39.000,00 55.000,00
Accounts Receivable 38.000,00 33.600,00
Current Account - S. Ltd 10.000,00
Bank 35.000,00 2.000,00
TOTAL ASSETS 733.000,00 185.400,00

Share Capital and Reserves 570.000,00 156.000,00
Share Capital (R5 Shares) 500.000,00 100.000,00
General Reserves 40.000,00 16.800,00
Non-Current Liabilities 100.000,00 10.000,00
6% Debentures 100.000,00 10.000,00

Current Account - H Ltd 8.000,00
Shareholders for dividends 25.000,00

FEBRUARY 2022
H LTD S LTD
Retained Income 1/3/2021 26 000 37 000
Gross profit for the year 143 000 63 200
Other income 14 000
Operating expenses (108 000) (61 000)

75 000 39
200
Transfer to Reserve 20 000 6 000
Dividend recommended 25 000 -
Retained Income 28/2/2022 R30 000 R39 200
NOTES
1. On acquiring the holding, S Limited had a credit balance of R17 000 on

retained profits, whilst the general reserve stood at R10 000.
2. S Limited paid no dividends since the holding was acquired.
3. S Limited purchases all its stocks from H Limited at cost plus 10%.
4. On 25 February 2022, S Limited remitted R2 000 to H Limited. On 28
February 2022, H Limited had not yet received the amount.
5. On the acquisition date, S Limited had accumulated depreciation:
Furniture to the value of R2 800 on their books.
6. Included in the operating expenses of S Limited is internet expenses of
R9 000. This was paid to H Limited.
REQUIRED
1. Consolidated statement of comprehensive income
2. Consolidated statement of Financial Position
TUT 9
On 1 July 0014, ET Limited acquired the following interest in the issued capital of
TV Limited:
Ordinary shares – 75%

Preference shares – 40%
The abridged annual financial statements of the two companies at 30 June 0016
are as follows:
STATEMENT OF FINANCIAL POSITION
R R
ET LIMITED TV LIMITED
ASSETS
PPE 40.000,00 140.000,00
Investments 104.500,00
Ordinary Shares - TV Ltd 85.000,00
Preference Shares - TV Ltd 19.500,00
Current Assets 82.000,00 55.100,00

Inventories 30.000,00 33.100,00
Accounts
Receivable 44.500,00 22.000,00
Current Account - TV Ltd 7.500,00
TOTAL ASSETS 226.500,00 195.100,00

Share Capital and Reserves 181.500,00 171.000,00
Ordinary Shares (R10 each) 150.000,00 100.000,00
6% Preference Shares (R20 each) 50.000,00
General Reserves 20.000,00 12.000,00

Current Account - ET Ltd 3.100,00
STATEMENT OF COMPREHENSIVE INCOME
R R R R
Gross Profit 76 000 64 000
Dividends received from TV Ltd 4 950 -
80950 64 000
LESS: Directors Fees 7 000 4 000
Administrative 50 350 57 350 41 500 45 500
23 600 18 500
LESS: Income Tax 7 100 5 500
Net Profit After Tax 16 500 13 000
Other Transactions:
Dividend
s Paid Ordinary Shares 9 000 5 000
Preference Shares - 3 000
Transfer to General Reserve 4 000 20 100 2 000 15 500
Retained income for the year 3 500 3 000
ADD: Retained Income at beginning of year 8 000 6 000
Retained income at end of year 11 500 9 000
ADDITIONAL INFORMATION
1. On 1 July 0014, the retained income and general reserve on TV

Limited were R4 000 and R8 000 respectively.
2. On 30 June 0016, cash of R4 400 was in transit from ET Ltd to TV Ltd.
3. On 30 June 0016, ET Ltd’s inventory included goods of R6 600
purchased from TV Ltd. TV Ltd adds 10% to the cost of all goods sold
to ET Ltd.
4. Dividends were in all cases paid out of the current year’s income.
REQUIRED
The Consolidated Statement of financial Position and the Consolidated

Statement of comprehensive income(in vertical form) of ET Ltd for the year
ended 30 June 0016.
NOTE Show all workings.

TUT 10
Bona Limited bought 75% of the issued ordinary share Capital and 25% of the
issued preference share capital of Fide Limited on
1 January 2008 when the equity of Fide was as follows:
Ordinary Share Capital R100 000 (R1 shares)
Preference Share Capital R100 000 (R1 shares)
General Reserve R50 000
Retained Income R60 000
The following balances were extracted from the books of both companies on 30
June 2015:
BALANCE SHEET
BONA LIMITIED FIDE LIMITED
DR CR DR CR
Ordinary Share Capital R200 R100
000 000
Preference Share Capital 150 000 100 000
General Reserve 1/7/14 60 000 60 000
Retained Income 1/7/14 120 000 90 000
Land and Buildings R275 000 R170
000
Plant and Machinery 74 000 142 000
Accumulated Depreciation
Plant and Machinery 24 000 12 000
Stock 60 000 42 000
Debtors (ACCOUNTS 40 000 - 29 000
RECEIVABLE) 3500
Ordinary Proposed Dividends 20 000 10 000
ORDINARY DIVIDENDS PAID
Dividends Receivable 7 500
Net Income before Tax 120 000 40 000
Taxation 47 500 16 000
Shareholders for Dividends 20 000 10 000
Preference dividends paid 10 000
4 000
Creditors (ACCOUNTS 34 000 22 000 -
PAYABLE) 3500
Bank 22 500 18 000
Loan Levy 14 000 1 000
Investment in Subsidiary 180 000
Taxation due 16 500 4 000
R744 500 R744 R438 R438
500 000 000
The following additional information is available:
1.Bona Limited buys stock from Fide Limited at cost plus 50%.
Stock purchased from Fide Limited included in Bona’s stock were as

follows:
1-7-2014 Opening R9 000

30-6-2015 Closing R12 000
SUBSIDIARY (Fide) SELLS TO PARENT
Inventory – BONA
Gross Profit – FIDE
Opening Inventory – BONA (9000)
Closing Inventory – BONA (12000)
Cost + 50%
Cost = 100
MU = 50
Selling = 150
Unearned Profit in Opening Inventory
9000 x 50/150 = 3000
DR: Non-Controlling Interest 750
DR: Consolidated Retained Income 2250

*** because the profit was already allocated the previous year to the
retained income
CR: Gross Profit: Fide 3000
Unearned Profit in Closing Inventory

12000 x 50/150 = 4000
DR: Gross Profit: Fide 4000

CR: Inventory: Bona 4000
2.The accumulated depreciation on plant and machinery of Fide Limited on 1
January 2008 amounted to R4 000.
3.Net Income before taxation was arrived at after charging the following
expenses:
Sales – COS = Gross Profit + Income – Expenses = NPbeforeTax –

Tax = NPAT
Net Profit before Tax = 120000 + 40000 = 160000 + all expense – incomes =
GROSS PROFIT
160000 + 20000 + 33000 + 3500 + 6000 + 6000 – 5000 – 10000 = 213500

BONA FIDE
Interest Received R3 000 R2 000

Interest Paid R16 000 R4 000
Directors Emoluments R22 000 R11 000
Technical Fees paid to Manager R3 500 -
Auditors Remuneration R4 000 R2 000
Depreciation R4 500 R1 500
Dividends Received from Subsidiary R10 000 -
4.Turnover of Bona amounted to R3 225 000 and that of Fide amounted to R1

275 000 which included
R200 000 to Bona Limited.
(3225000 + 1275000 + 200000)
5.Included in Bona’s Debtors and Fide’s Creditors is an inter-company current

account of R3 500.
Bona (Parent) Debtors (DEBIT) 3500 (current account Fide)
Fide (Sub) Creditors (CREDIT) 3500 (current account Bona)

REQUIRED
A Consolidated Statement of comprehensive income and

Consolidated Statement of financial position for Bona Limited and
its subsidiary. (Notes to the financial statements are not required)
STATEMENT OF CHANGES IN EQUITY
STRUCTURE: (Planning)
1. Group Structure
Parent = Bona
Subsidiary = Fide
% Holding
75% = Ordinary Shares
25% = Preference Shares
Acquisition date: 01 Jan 2008 (IN THE PAST)
Current Financial Year = 30 June 2015
| ---------------------------------------- | ----------------------------------------------|
AD: 01.01.08 PFY: 30.06.2014

01.07.2014 CFY: 30.06.2015
Retained Income
AD – 60000 PFY: 90000
+30000 (since)
General Reserves
AD – 50000 PFY: 60000
+10000 (since)
Analysis of Equity for the year ended 30 June 2014
TOTAL AT SINCE NCI

Ordinary share
100 000 75 000 25 000
capital (75%)
Retained Income
60 000 45 000 15 000
AT
Retained Income
30 000 22 500 7 500
SINCE
General
50 000 37 500 12 500
Reserves AT
General
10 000 7 500 2 500
Reserves SINCE
Preference Share
100 000 25 000 75 000
Capital (25%)
VALUE OF
182 500 137 500
SUBSIDIARY
Investment by
180 000
Parent
NON-
DISTRIBUTABL 2 500
E RESERVE
Assets = Equity + Liabilities
Equity = Assets - Liabilities
1. Inter-company balances (Balance sheet)

2. Inter-company transactions (Income Statement)
3. Unearned Profit
4. Transfers to general reserves BY THE SUBSIDIARY
5. NCI Calculation
6. Accumulated depreciation by subsidiary at the time of
acquisition. 01.01.2008
7. Dividends paid by THE SUBSIDIARY
CALCULATION OF NCI
Nett Profit AFTER Tax (subsidiary) (40000 – 16000 = 24000)

Less: Preference Dividends Paid
Add: Unearned profit in Opening Inventory 3000
Less: Unearned profit in Closing Inventory (4000)
NPAT = 24000
Less (10000)
Add: 3000
Less: (4000)
__________________
13000
25% for NCI x 13000 = 3250

75% for NCI x 10000 = 7500
NCI Share 10 750
PRO-FORMA JOURNAL ENTRIES
Actual Entries
none
Pro-Forma Journal Entries

Creditors: Fide 3500
Debtors: Bona 3500
Consolidated Retained Income 2250

Non-Controlling Interest 750
Gross Profit: Fide 3000
Gross Profit: Fide 4000

Inventory: Bona 4000
Outside shareholders share of profit 10750

Non-Controlling Interest (EQUITY) 10750
Accumulated Depreciation: Plant & Machinery 4000

Plant & Machinery 4000
Ordinary dividends received: Bona 7500

Ordinary Dividends Paid: Fide 10000
Preference dividend received: Bona 2500

Preference Dividend paid: Fide 10000
Shareholders for Dividends: Fide 10000

Dividends receivable: Bona 7500
???? Outside shareholders dividends 2500
proposed
7. DIVIDENDS PAID BY THE SUBSIDIARY
Ordinary Dividends – SUB PAID R10,000 in ordinary

dividends
75% Parent - 7500

25% NCI - 2500
Preference Dividends – SUB PAID R10,000 in
preference dividends
25% Parent - 2500

75% NCI - 7500
BONA LIMITED & IT’S SUBISIDIARY
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED: 30 JUNE 2015
Sales (3225000+1275000-200000) 4 300 000

Cost of Sales (4 087 500)
Gross Profit (213500 + 3000 – 4000) 212 500
Add: Other Income
Interest Received (3000+2000) 5 000
Less: Expenses
Interest Paid (16000+4000) (20 000)
Directors Emoluments (22000+11000) (33 000)
Technical Fees paid to Manager (3 500)
Auditors Remuneration (4000+2000) (6 000)
Depreciation (4500+1500) (6 000)
NETT profit before Taxation 149 000
Less: Taxation (47500+16000) (63 500)
NETT Profit After Taxation 85 500
ATTRIBUTABLE TO:
Parent Shareholders 74 750
Non-Controlling Shareholder 10 750
85 000
Net Profit before Tax = 120000 + 40000 = 160000 + all expense – incomes =
GROSS PROFIT
160000 + 20000 + 33000 + 3500 + 6000 + 6000 – 5000 – 10000 = 213500

BONA FIDE
Interest Received R3 000 R2 000

Interest Paid R16 000 R4 000
Technical Fees paid to Manager R3 500 -
Dividends Received from Subsidiary R10 000
Turnover of Bona amounted to R3 225 000 and that of Fide amounted to R1 275
000 which included R200 000 to Bona Limited.
(3,225,000 + 1,275,000 – 200,000) = 4 300 000
Consolidated Statement of changes in equity

Retained General Non-
earnings Reserve controlling
interest
Balance brought forward
Opening Balance in the

books of the PARENT + 142 500 67 500 137 500
anything in the since
column Straight from
Analysis
Dividend paid by sub (10000)
Unearned profit in opening
(2250) (750)
stock
Profit for the year 74 750 10 750
Dividends paid – ordinary (20000)
- Preference (4000)
CLOSING BALANCE 191 000 67 500 137 500
BONA LIMITED AND ITS SUBSIDIARY
CONSOLIDATED BALANCE SHEET AT 30 JUNE 2015

Capital and Reserves
Ordinary Share Capital R200 000
Non-Distributable Reserve on Acquisition 2 500
Distributable Reserves
General Reserve R67 500
Retained Income 191 000 258 500
Ordinary shareholders interests 461 000
Preference share capital 150 000

Total shareholders interests 611 000
Outside shareholders interests 137 500
748 500
Current Liabilities
Creditors 52 500
Taxation Due 20 500
Proposed Dividend (20000 + 2500) 22 500 95 500
Total equity and liabilities R844 000
ASSETS
Fixed Assets R625 000
Loan Levy 15 000
Current Assets
Stock R 98 000
Debtors 65 500
Bank 40 500 204 000
Total Assets R844 000
TUT 11
SOLUTION
Alpha Ltd – Parent 80% control

Beta Ltd - partly owned subsiiary
AT -------------------------------------------- since ------------------------------------------ CY

AD: 01.01.2007 31.12.2013 31.12.2014
GR = 20000 (-10000) 10000
RI = 30000 (+40000) 70000

TOTAL AT SINCE NCI
Ordinary Share Capital 100000
Share Premium
General Reserves AT
SINCE
Retained Income AT
SINCE
Alpha Limited bought 80% of the issued ordinary share capital of Beta Limited on
1 January 2007 when Beta Limited had R30 000 on the credit of its Retained
Income and R20 000 to the credit of General Reserve.
On 31 December 2014, the following balances were extracted from the books of
both companies.
ALPHA LIMITED BETA LIMITED

DR. CR. DR. CR.
Land and Buildings 140.000 160.000

Plant and Machinery 60.000 50.000
Accumulated Depreciation
Plant and Machinery 15.000 9.000
Investments in Beta
Ltd
Shares at cost 130.000
Loan 50.000
Inventories 75.000 56.000
Debtors 36.000 22.000
Bank 15.000 9.000
Dividend Received 8.000
Ordinary Share Capital 200.000 100.000
Share Premium 15.000 10.000
Preference Share Capital 20.000 10.000
General Reserve 1.1.2014 50.000 10.000
Retained Income 1.1.2014 108.000 70.000
Net Income after Tax 76.000 21.000
Loan - Alpha 50.000
Creditors 32.000 18.000
Ordinary Dividends Declared 20.000 10.000
Shareholders for Dividend 20.000 10.000
Preference Dividend Paid 2.000 1.000
536.000 536.000 308.000 308.000
The following additional information is available:
1. The Company wishes to make the following transfers to General Reserve
Alpha Ltd R10 000

Beta Ltd R5 000
No entries for these transfers have been put through the books of any
company.
2. Alpha Limited buys all its inventory from Beta Limited at selling price less
25%. Beta Ltd’s normal mark-up is 60% on cost.
Inventory on hand of Alpha Ltd on 31 December 2013 amounted to R60

000.
3. Net income after tax was arrived at after allowing for the following:
ALPHA BETA
Income from Subsidiary
Dividends R8 000 -
Interest on Loan R5 000 -
Interest paid R1 000 R6 250
4. The accumulated depreciation on plant and machinery of Beta Ltd on 1

January 2007 amounted to
1 500.
5. Taxation for the year amounted to:
Alpha Limited R24 000

Beta Limited R9 000
6. Turnover for the year comprised the following:
Sales to Alpha - R1 275 000

Sales other R2 975 000 R1 825 000
Total turnover R2 975 000 R3 100 000
REQUIRED
A Consolidated Statement of comprehensive income and Statement of financial

position for Alpha Limited and its subsidiary.
Earnings per share

EARNINGS PER SHARE
Earnings per share (EPS) is widely used by potential investors a measure of a

company’s performance and investment possibilities.
Earnings per share can be used to compare a company’s performance from year
to year. It can also be used to compare the performance of similar companies
against each other.
IAS 33 deals with earnings per share calculations and the disclosure therefore.
Earnings per share is calculated as follows:
Basic earnings
WA number of Shares
 Basic Earnings
The profit or loss for the period less any preference dividends during the
same period.
 Weighted average number of shares

The number of shares in issue during the year after considering all the
new issues and redemptions during the same period.
Types of share issues:
 Normal ordinary share issue
 Capitalisation issue
 Right issue
 Normal ordinary share issue
When shares are issued at a determined price without any other

underlying regulations. This is the share issue most often used by
companies and anyone is liable to buy these shares.
When shares are issued under a normal share issue it will only affect the
weighted average number of shares in the year that the share issue has
taken place and it must be weighted pro-rata according to the date of
issue.
 Capitalisation issue
A Capitalisation Issue is an issue of new shares to existing shareholders

in proportion to their existing shareholding. Shareholders do not pay for
the new shares that they are receiving. It is funded out of the retained
income and is done to increase the capital of the business
When shares are issued under capitalisation issues, it must not be

weighted, and it will affect both years of the weighted average number of
shares calculation.
 Right issue
A rights issue is an issue of shares offered at a special price by a

company to its existing shareholders in proportion to their holding of old
shares. Existing shareholders can then buy shares at a price lower than
the fair market value.
The lower price can lead to more shares being issued than would have
been if the normal share price was used. To calculate the amount of these
“bonus” shares two things need to be calculated:
1. Ex-Right Value per share
(Fair Value of existing shares + Amount received from new share

issue)
Old number of shares + New number of shares issued in rights issue)
2. Adjustment Factor
Fair Value per share

Ex-Right value per share
Diluted earnings per share
When at the end of an accounting period, a company have in issue some

securities which do not, at present, have any claim to a share of equity earnings,
but may give rise to such claim in future.
Examples include:
 Convertible debentures
 Convertible preference shares
 Options and warrants for conversions
Disclosure
Disclosure will be dealt with during all the exercises.

TOPIC Earnings Per Share
FACULTY OF
BUSINESS AND NUMBER EPS001
ECONOMIC SCIENCES
MARKS 5
DEPARTMENT OF
APLLIED ACCOUNTING TIME 9 Minutes
ALLOWED
BLT Limited’s annual financial statements showed the following on 31

December:
Year ended 31/12/22 31/12/23
Net Profit, before tax 370 000 500 000

Tax for year 170 000 200 000
Net profit, after tax 200 000 300 000
Transfer to Reserves 70 000 110 000
Ordinary Dividends 90 000 150 000
Preference Dividends 30 000 30 000
Issued Share Capital

Preference - R5 shares 200 000 200 000
Ordinary - R4 shares 200 000 400 000
NB 50 000 ordinary shares of R4 each were issued on

30 June 2023
Calculate the earnings per ordinary share for 2022

and 2023.
FACULTY OF
ECONOMIC SCIENCES
MARKS 10
DEPARTMENT OF
ALLOWED
A. The following information regarding KLOOF LTD is available:
Issued share capital at 30 September 2022
R5000 000 in 10% Cumulative Preference Shares of R10 each.

R1 200 000 in Ordinary Shares of R3 = 400 000 shares.
On 1st October 2022, the company issued 100 000 Ordinary Shares for cash.
TRADING RESULTS
Year ended 31 December
2022 2021
Income before Taxation 9 166 670 7 500 000

Less Normal Tax 3 666 670 3 000 000
5 500 000 4 500 000
REQUIRED
Calculate the earnings per ordinary share for 2022 and 2022.
B. The following information regarding KLOOF Limited is available:

Issued share capital at 30 September 2022:
R5000 000 in 10% Cumulative Preference Shares of R10 each.

R1 200 000 in Ordinary Shares of R3 = 400 000 shares.
On 1 October 2022, the company issued 100 000 ordinary shares fully paid by
the way of capitalization of reserves in the proportion of 1 for 4.
TRADING RESULTS
Year ended 31 December
2022 2021
Income before Taxation 9 166 670 7 500 000

Less Normal Tax 3 666 670 3 000 000
5 500 000 4 500 000
REQUIRED
Calculate the earnings per ordinary share for 2021 and 2022.
FACULTY OF
ECONOMIC SCIENCES
MARKS 20
DEPARTMENT OF
ALLOWED
The following information was extracted from the books of a company for the year
ended 31/12/2021 and 31/12/2022:
31/12/21 31/12/22
Retained income at beginning of year 12 000 6 000

Gross income for the year 13 000 51 000
Other income
Dividends from investments 5 000 10 000
Interest received on loans 6 000 5 000
Taxation for the year
Normal company tax 4 000 12 000
Deferred tax 2 000 3 000
Dividends Paid
Ordinary – final - 10 000
Preference – final - ?
Transfers to Reserves 10 000 25 000
The issued share capital of the company is as follows:

31/12/21 31/12/22
Ordinary R2 shares R60 000 R72 000

6% Cumulative Preference Shares of R5 each R50 000 R50 000
NB
A rights issue of one share for every five held was made on 31/8/22 at R5 per
share.
(FAIR MARKET VALUE, R10)
REQUIRED
Calculate the earnings per ordinary share for both years.
TOPIC Earnings Per

FACULTY OF BUSINESS Share
AND ECONOMIC NUMBER
SCIENCES EPS008
MARKS
DEPARTMENT OF 15
APLLIED ACCOUNTING TIME ALLOWED
27 Minutes
BAT Ltd was formed during 2017 with a capital of R1 500 000 which was fully
subscribed for at par as follows:
Ordinary Shares of 50 cents each R1 000 000

10% Preference Shares of R1 each R500 000
R1 500 000
During the financial year ended 31 December 2019, the company carried out
the following:
(a On 31 March 2019 it made a rights issue of one Ordinary Share of 50

) cents each for every two Ordinary Shares previously held at Fair Market
Value of R1,00 per share, and
(b On 30 June 2019 it made a capitalization issue from its distributable
) reserves of one Ordinary Share of 50 cents each for every three Ordinary
Shares previously held.
NOTE
All shares were taken up.

The after taxation Net Income of the company amounted to R2 612 500 for
2019 and R2000 000 for 2018.
Preference dividends are paid on 30 June and 31 December in each year. The
dividends paid on the Ordinary Shares in both 2019 and 2018 were as follows:
1. An interim dividend of 10% paid in May and
2. A final dividend of 20% paid in December.
REQUIRED
Calculate the Earnings Per Share and give the presentation of this item in the
Income Statement of BAT Ltd for 2019, giving the comparative figures for 2018
PY: 1 Jan 2018 ----------------------------------------------------- 31 Dec 2018 (2018)

CY: 1 Jan 2019 ----------------------------------------------------- 31 Dec 2019 (2019)
NUMBER of shares
1. 01.01.2018 Opening Balances: R1000000 / 50cents = 2000000 shares
2. 01.01.2019 Opening Balance: 2 000 000 shares
3. 31.03.2019 (CY) = Rights Issue (cy- affects both) = 200000 / 2 =

1000000 shares @ 50 cents = R500000; FMV = R1,00; Time prior = 3/12; Time
after = 9/12)
4. 30.06.2019 (cy) = Capitalisation Issue: 1 for every 3 (divide by 3)
BASIC Earnings: Net profit after tax – preference dividend pad
Preference: no change; R500000 x 10% = R50000
2019 2018
Net profit after tax R2612500 R2000000
Less: (Preference dividends) (R50000) (R50000)
Basic Earnings R2 562 500 R1 950 000
WEIGHTED AVERAGE NUMBER OF SHARES

Balance brought down: 01 Jan 2018 2 000 000
Opening Balance brought down: 01.01.2019 2 000 000
2 000 000 2 000 000
31.03.2019 Rights Issue
2000000 / 2 = 1 000 000 shares issued
50 cents x 100000 = R 500 000
Ex-Right Value per Share:
(Fair value of Existing Shares + Amount

received from rights issue)
DIVIDE BY
(Old no of shares + new no of shares)
= (R1x2000000 + R500000)
DIVIDE BY
(2000000 + 100000)
= (R2 000 000 + R 500 000)

DIVIDE BY
(3 000 000)
= R2 500 000
DIVIDE BY
3 000 000
= R 0.8333 ex-right VALUE per share
Adjustment Factor (Bonus Element)
= FMV / EX-RIGHT VALUE PER SHARE

= R1 / R0.8333
= 1.2000
(2019)
(BAL x AF x Time prior) + (Old+New Shares x
Time after)
= (2000000 x 1.2000 x 3/12) + (3000000 x 9/12)

= 600 000 + 2 250 000
= 2 850 000
(2018)
(Balance x AF)
= (2000000 x 1.2000)
= 2 400 000
2 850 000 2 400 000

30.06.2019 Capitalisation
1 share FOR EVERY 3 shares = divide 3 950 000 800 000
(2019) 2850000 / 3 = 950000

(2018) 2400000 / 3 = 800000
Weighted average number of shares 3 800 000 3 200 000
EARNINGS PER SHARE R 0.67 R 0.61
Basic Earnings / Weighted Average Number

of shares
(2019) EPS = R2 562 500 / 3 800 000 = R0.67

(2018) EPS = R1 950 000 / 3 200 000 = R0.61
DISCLOSURE
2019 2018
Earnings per share R0.67 R0.61
NOTE
The earnings per equity share is based on Basic Earnings of R2562500 for the
current year (2018: R1950000), after adjusting for preference dividends and the
weighted average number of shares of 3800000 (2018: 3200000) after taking into
consideration the rights issue and capitalisation issue.
FACULTY OF
ECONOMIC SCIENCES
MARKS
20
DEPARTMENT OF
APLLIED TIME
36 Minutes
ACCOUNTING ALLOWED
The ABC Company Limited has an issued share capital of 100 000 ordinary
shares of R1 each and 50 000 8% Cumulative Preference Shares of R20 each
on 1 March 2021.
On 31 May 2021 the company issued 50 000 additional ordinary shares in

terms of a rights issue at R1,60 per share (FMV R2,40).
On 30 September 2022, 60 000 additional ordinary shares were issued to the

public as well as a further 30 000 8% preference shares.
An ordinary dividend of R10 000 was paid on 28 February 2023. Net income
after tax for the two years ended on 28 February 2022 and 2023 were R420
375 and R750 625 respectively.
On 31 December 2022 the company had a capitalization issue of 1 share for

every four shares held.
REQUIRED
Show how the information regarding earnings per share will be disclosed in the
annual financial statements of the company for the financial year ended 28
February 2022.
PY: 1 March 2021 -----------------------------------------– 28 February 2022 (2022)
CY: 1 March 2022 –--------------------------------------- 28 February 2023 (2023)
1. (01.03.2021) Opening Bal = 100000

2. (PY 31.05.2021) Rights Issue = 50000 no of shares; FMV =R2.40
(R1.60) R80000
3. (01.03.2022) Opening Balance = 150000
4. (30.09.2022) Normal Issue = 60000 shares (5/12)
5. (31.12.2022) Capitalisation = ¼
PREFERENCE DIVIDENDS
At 01.03.2021 Preference Shares = 50000 x R20 (8% Cumulative)

Preference dividend (2022) = 50000 x R20 = R1000000 x 8% = PY R80000
At 30.09.2022 Additional Prefer Shares = 30000 xR20 (8%) (5 months)

30000 x R20 = R600000 x 8% x 5/12 = R20000
CY = R80000 + R20000 = R100000
2023 2022
Basic Earnings
Net profit after Tax R750625 R420375

(less) Preference Dividend (R100000) (R80000)
Basic Earnings R650625 R340375
Weighted Average NUMBER of shares

Opening Balance (01.03.2021) 100000
Rights Issue: 31.05.2021
No of shares = 50000 @ R1.60 (FMV= R2.40)
EX-Right Value per Share:

(Fair Value of EXISTING SHARES + Amount
Received for New Issue)
DIVIDE BY
(Existing no. of shares + new shares issued)
(100000 x R2.40) + (50000 x R1.60)
DIVIDE
(100000 + 50000)
R240000 + R80000
DIVIDE
150000
R320000
DIVIDE
150000
Ex-right value per share – R 2.1333
Adjustment Factor (Bonus Element)
Fair Market Value

DIVIDE
EX-Right Value per Share
R2.40
DIVIDE
R2.1333
ADJ Factor = 1.1250
2022 ( Balance x AF x Time

PRIOR) + (balance x Time after)
(100000 x 1.1250 x 3/12) + (150000 x 9/12)
=140625
PreviousYear = (Balance x AF)
Opening Balance (01.03.2022) 150000 140625

30.09.2022 – Normal Issue
25000
60000 shares x 5/12
175000 140625
31.12.2022 Capitalisation Issue 43750 35156
1 share for every 4 held
(2022) 140625 / 4
(2023) 175000 / 4
WEIGHTED AVERAGE NUMBER OF SHARES 218750 175781
EPS = Basic Earnings / WA # of Shares
(2022) EPS = R340375 / 175781 = R1.94
(2023) EPS = R650625 / 218750 = R2.97

R2.97 R1.94
DISCLOSURE
2023 2022
Earnings per share R2.97 R1.94
NOTE
The earnings per equity share is based on Basic Earnings of R650625 (2022:
R340375), after adjusting for preference dividends and the weighted average
number of shares of 218750 (2022: 175781) after taking into consideration the
rights issue, normal issue and capitalisation issue.
VENUE: OVAL – 2ND AVENUE Room 425
Time: 09:00 – 10:30
8am
00h10 – START QUESTION 8

FACULTY OF
ECONOMIC SCIENCES
MARKS 20
DEPARTMENT OF
ALLOWED
The following information was extracted from the books of a company for the year
ended 31/12/2022.
Gross Profit for the year 290 800

Loss resulting from flood 40 000
Profit resulting from extraordinary foreign exchange dealings 60 000
Operating expenses 50 000
Preference dividend paid 32 000
Interest income 14 000
Interest expense 18 000
Ordinary dividend paid 30 000
Details pertaining to the issued share capital are as follows:
1.1.2022 Ordinary shares of R4 each R200 000

8% Cumulative preference shares of R6 each R400 000
31.3.2022 New issue of ordinary shares of R4 each R40 000

30.6.2022 A rights issue of one share for every four shares held was
made at R3 per share (FMV R9)
30.9.2022 A bonus issue of one share for every five shares held was
made
REQUIRED
Calculate the earnings per ordinary share for the year.

FACULTY OF
ECONOMIC SCIENCES
MARKS 20
DEPARTMENT OF
ALLOWED
The income statement of A. Ltd for the years ended 31 March 2016 and 2015 were
as follows, in summarized form:
2016 2015
Trading profit 5 862 500 5 012 000

Dividends received 963 000 839 000
Net profit before taxation 6 825 000 5 851 000
Less: Taxation 6 825 000 2 341 000
Net profit after Tax 4 095 500 3 510 000
Less
Dividends
Ordinary 2 200 000 1 900 000
Preference 125 500 2 325 500 51 000 1 951 000
Retained income for the year 1 764 500 1 569 000
Retained income beginning of 1 565 000 996 000
year
Retained income end of year 4 329 500 2 565 000
On 1 April 2014, A Ltd had 1 800 000 R1 ordinary shares in issue. On 31 July 2014,
it issued 450 000 ordinary shares. On 15 June 2015, the company made a
capitalization issue of 3 shares for every one held and on
31 December 2015, made a rights issue of 1 share for every 9 held, at 50c (FMV
500c).
REQUIRED
Give the information that should be disclosed for earnings per share in the financial
statements of the company.
Leasing
LEASES (IFRS 16 and IAS 17)
In January 2019, IFRS 16 brought about the update on the new standards for
leasing. IAS 17 use to be the sole guide for reporting on leases. Although IAS 17
is still relevant, the IFRS 16 updates overrule some aspects of IAS 17.
It is important to firstly understand the difference between the two parties:
Lessee – The party using the asset for a series oy payments. (tenant)
Lessor – The party providing the asset to be leased. (landlord)
The main reason for the update was that lessees were able to hide certain
liabilities resulting from leases and simply not present them on the face of the
financial statements. The leases referred to here is called operating leases.
There are two types of leases, operating leases, and finance leases.
Before looking at the types of leases, its is important to recognise and make
decisions on whether the transactions you are dealing with is in fact a lease and
not only a service contract.
You should consider:
 If the asset can be physically identified

 Can the lessee make decisions about the use of the asset?
 Can the lessor gain any economic benefits from the use of the asset?
 Can the lessor substitute the asset during the contract period?
The objective of this standard is to prescribe, for lessees and lessors, the
appropriate accounting policies and disclosure to apply in relation to leases.
The classification of leases adopted in this Standard is based on the extent to

which risks and rewards regarding ownership of a leased asset lie with the lessor
or the lessee.
A lease is classified as a finance lease if it transfers substantially all the risks and
rewards regarding ownership. A lease is classified as an operating lease if it
does not transfer substantially all the risks and rewards regarding ownership.
Leases in the financial statements of lessees
Accounting for leasing in the books of the lessee have changed and lessees do
not have to classify the lease anymore. All leases must be accounted for in the
same way. Lessees therefore do not have to classify if it is an operating lease or
a finance lease.
Recognition at the commencement of the lease:
There are two elements to consider:

 Right-of-use asset – The amount is normally calculated in the amount of
the lease liability and any other direct costs that can initially be associated
with the leased asset.
 Lease liability – This refers to the outstanding amount payable over the life
of the lease discounted back to its present value. In simpler terms the,
cash price of the lease.
Journal entries:
Dt: Right-of-use asset
Cr: Lease Liability
Any other direct costs can then be added:
Dt: Right-of use-asset

Cr: Bank/Accounts Payable
Subsequent periods recognition:
Dealing with depreciation of the leased asset
Dt: Depreciation
Cr: Accumulated depreciation: Right-of-use asset
Dealing with the interest
Dt: Interest expense

Cr: Lease Liability
Dealing with the lease payments
Dt: Lease Liability

Cr: Bank
IFRS 16 does allow for an exemption if the lease term is less than one year. So if
you rent a car for 6 months you do not have to account for the lease liability or
the right-of-use asset and you can account for all payments made in the profit
and loss account.
Leases in the financial statements of lessors
Also see decision tree graph.
Lessors, in contrast to the lessees, needs to classify the lease before accounting
for it in their books.
Operating Leases
Lessors shall present assets subject to operating leases in their financial
statements according to the nature of the asset. The depreciation policy for
depreciable leased assets shall be consistent with the lessor’s normal
depreciation policy for similar assets, and depreciation shall be calculated in
accordance with IAS 16 and IAS 38. Lease income from operating leases shall
be recognised in income on a straight-line basis over the lease term, unless
another systematic basis is more representative of the time pattern in which use
benefit derived from the leased asset is diminished.
Lessor recognizes a leased asset in their statement of financial position and the
interest and ease payments will be recognized as income on a straight-line basis
over the lease term.
Finance Leases
Lessors shall recognise assets held under a finance lease in their financial
statements and present them as a receivable at an amount equal to the net
investment in the lease. The recognition of finance income shall be based on a
pattern reflecting a constant periodic rate of return on the lessor’s net investment
in the finance lease.
Manufacturer or dealer lessors shall recognise selling profit or loss in the period,
in accordance with the policy followed by the entity for outright sales. If artificially
low rates of interest are quoted, selling profit shall be restricted to that which
would apply if a market rate of interest were charged.
Costs incurred by manufacturer or dealer lessors in connection with negotiating
and arranging a lease shall be recognised as an expense when the selling profit
is recognised.
Recognition at the commencement of the lease: Finance leases

The lessor should recognize the lease receivable at a value that is equal to the
net investment in the lease. This is the same value that will be used as described
in the books of the lessee.
Dt: Lease Receivable

Cr: Asset Account (PPE)
Subsequent periods recognition:
Interest Income should be dealt with as follows:
Dt: Lease Receivable

Cr: Interest Income
Lease payments received:
Dt: Bank
Cr: Lease receivable
Definition of Lease : IFRS 16
IFRS 16:
“An agreement whereby the LESSOR
conveys to the LESSEE in return for a
series of PAYMENTS the rights to USE an
asset for an agreed period of time”
Advantages & Disadvantages

Advantages:
 Can’t afford to buy asset
 Repairs & maintenance expense
of lessor
 Upgrade assets at end of lease
 Rentals tax deductible
Disadvantages:
 In long term, leasing more
expensive
 Unless option to obtain ownership,
no ownership passes at end of lease
Classification of Leases :
IFRS16
IFRS 16 defines :
Operating lease:
“ Any lease other than a finance lease..”
Example : Renting a flat

Renting a fax machine
Finance lease :
“Lease that transfers substantially all risk
& reward incident of ownership of an
asset. Title may or may not be eventually
transferred.”
 Like an ISA agreement, but

ownership not guaranteed to pass
 Look at substance of transaction

rather than legal form
Classification Decision Tree
Lessee obtains ownership

Yes at end of lease?
No
Yes Bargain purchase option
No
Lease major part of
Yes useful life (75% of life)
No
PV of future minimum
Yes
lease payments = fv of
asset
No
Yes Asset specialised?
No
Consider all of above factors & if
in substance risk & reward of
ownership passes :
FINANCE LEASE
OPERATING LEASE
LEASING (IFRS 16)
1. A business has provided a new lease on a factory building. The value of

the building is R5000 000 and the lease is for 5 years with annual
payments of R 500 000. The factory is expected to have a useful life of 20
years.
What type of lease will you account for?
2. On 1 January 2018 Celtic Ltd, liquor merchants, buys a small bottling and
labelling machine from Manor Ltd under a lease agreement. The cash
price of the machine was R7 710 while the amount to be paid was R10
000. The agreement required the immediate payment of a R2 000 deposit
with the balance being paid in four equal annual instalments commencing
on 31 December 2010. The charge rate for interest is 15% pa, calculated
on the remaining balance of the liability during each accounting period.
Depreciation is 25% pa on a straight line basis assuming a residual value
of nil. The cost price of the machine was R5200
Required
Account for the lease agreement and the disclosure thereof at the end of Dec
2018.
3. Lessee Ltd entered into a lease agreement in terms of which a machine

with a fair value of R250 450 was acquired in exchange for five annual
lease payments of R69 600 in arrears. In addition, Lessee Ltd will pay R
20 000 at the end of year 5 to take ownership of the machine. The
machine is expected to have a useful life of 5 years. The interest rate is
13.82%. This rate discounts the future minimum lease payments of R69
600 for five years and the guaranteed payment of R20 000 at the end of
year 5 to the fair value of R 250 450. The cost price of the asset was R180
000.
Required
Account for the lease and the disclosure thereof

4. The following details relate to a machine acquired by Beta Ltd in terms of
a finance lease agreement:
1 July 2018 --------------------++++31 Dec 2018++++-------------------- 30 June 2019
 Commencement date – 1 July 2018 + 6 months = 31 December

2018
 Cash price – R150 000
 Payments of R36 250 are payable half-yearly in arrears
 Lease period is 3 years ( periods of payments with interest)
 Interest rate is 23,5468%
 The cost price is R100 000
Depreciation is written off at 20% per annum on cost.
Required
Prepare an amortisation table and journalise all relevant

transactions
BOOKS OF THE LESSOR
Period Opening Payment Interest Capital Closing

balance Balance
(payment – interest) (opening balance
– capital)
1 150000 x 36250 17660 18590 131410

23.5468% x
6/12
2 131410 x 36250 15471 20779 110631
0.235468 x
6/12
3 110631 x 36250 13025 23225 87406
0.235468 x
6/12
4 87406 x 36250 10291 25959 61447
0.235468 x
6/12
5 61447 x 36250 7234 29016 32431
0.235468 x
6/12
6 32431 x 36250 3819 32431 0
0.235468 x
6/12
DATE DEBIT CREDIT AMOUNT
RECOGNITION AT COMMENCEMENT
1 Jul 2018 Lease Receivable 150000
Sales 150000
Recognition of a lease receivable sale at commencement
Cost of Sales 100000
Inventory 100000
Cost of Inventory sold on a lease
31 Dec 2018 Bank 36250
Lease Receivable 18590
Interest Income 17660
Payment received for Capital on lease and Interest income
30 June 2019 Bank 36250
Lease Receivable 20779
Interest Income 15471
Payment received for Capital on lease and Interest income
BOOKS OF THE LESSOR

JBL Ltd decided to lease a vehicle from Timmy Trucks that will be used to
make all their deliveries.
Details of the lease are as follows:
Commencement Date: 1 January 2021
Lease term: 10 years (PERIODS)
Lease payments: R100 000 annually

Effective Interest rate/Borrowing Rate: 6%
Useful life of the asset: 10 years
On the commencement of the lease, the lessee

has to pay R25 000 in
legal costs.
CR – BANK DR – ASSET
Required:
Prepare the amortization table and journalise all the relevant entries in the
books of the lessee.
Period Opening Payment Interest Capital Closing

balance (payment – interest) Balance
(opening balance
– capital)
1 736010 x 100000 44161 55839 680171

2 680171 100000 40810 59190 620981
3 620981 100000 37259 62741 558240
4 558240 100000 33494 66506 491734
5 491734 100000 29504 70496 421238
6 421238 100000 25274 74726 346512
7 346512 100000 20791 79209 267303
8 267303 100000 16038 83962 183341
9 183341 100000 11000 89000 94341
10 94341 100000 5660 94340 1
BOOKS OF THE LESSEE
DATE DEBIT CREDIT AMOUNT

1 Jan Lease Receivable 736010
2021
Sales 736010
Cost of Sales
Inventory
Recognition of Lease Liability for a Right use of asset at commencement
1 Jan Right use of asset 25000
2021
Bank 25000
Payment of legal costs at commencement of lease
31 Dec Lease Liability 100000
2021
Bank 100000
Lease payment made including interest paid
Interest expense 44161
Lease Liability 44161
Interest expense raised against lease liability
Depreciation 76101
Accumulated Depreciation: 76101
Right use of asset
Asset depreciated at cost over 10 year period
STATEMENT OF FINANCIAL POSITION AS AT 31 DEC 2021
ASSET
Non-Current Asset
Right use of asset 761010
LESS: Accumulated Depreciation (76101)
LIABILITIES
Non-Current Liability (long term)
Current Liability (short term)

Depreciation (Year 1)
Depreciate on its VALUE = Depreciable Value
Value of Asset = 736010 + 25000 + delivery cost + any direct cost =

761010 / 10 years = 76101
LEASE LIABILITY
Bank 100000 Right Use of Asset 736010
Bank 100000 Interest Expense Year 1 - 44161
EPS = 4-decimal (RIGHTS ISSUE)
100000 x 7,3601 = 736010
1 Jan 2021 lease commence for 10-year period
Interest = 6% of 736010 = R44161 per annum
(NET PRESENT VALUE – to evaluate the worth of an

investment in a lease taking into account all future
cashflows)
Cash IN - Lessor
Cash OUT – Lessee
Period of the lease -

Study Session Notes - Consolidations

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Study Session Notes - Consolidations

Uploaded by

Copyright:

Available Formats

BFC 3211

What are consolidated financial statements?

 Consolidated financial statements are the financial statements of a group that

Define parent and subsidiaries

 IAS 27 and IFRS 10 – Consolidated and separate financial statements

IAS 27.4 – When can investments in companies be classified as separate?

… when investments held by the parent can be classified as subsidiaries,

IAS 27.9 and 27.10 – When should investments in subsidiaries be

…. All subsidiaries of the parent should be consolidated except for the

 The parent itself a wholly-owned subsidiary, or partly-owned subsidiary of

 Non-controlling shareholders (Outside SH)

 Acquisition date (IFRS3)

Pro-forma journal entries (pg. 586)

These transactions include:

 Dividends paid and received

 Interest paid and received

 Unrealised profits in inventory transactions

 Elimination of Current Accounts

Basic Steps in consolidations:

Prepare an analysis of the subsidiary’s shareholders interest at the previous

 Inter company balances

Prove the outside shareholders interest

Statement of Financial Position AT 31 MARCH 2022

Investments 160 000 0

Current Assets 170 000 80 000

TOTAL ASSETS 480 000 160 000

EQUITY AND LIABILITIES

Current Liabilities 50 000 20 000

TOTAL EQUITY AND LIABILITIES 480 000 160 000

At the acquisition date, it was considered that:

YOU ARE REQUIRED:

To record, by means of pro forma journal entries, the adjustments to the

STATEMENT OF FINANCIAL POSITION AT 30 JUNE 2022.

Pater Ltd Seun Ltd

Investments 30.000,00 12.000,00

Loan Account - Seun Ltd -16000 16.000,00

Current Assets 73.290,00 36.722,00

TOTAL ASSETS 203.944,00 92.206,00

EQUITY AND LIABILITIES

SARS 7.260,00 2.970,00

TOTAL EQUITY AND LIABILITIES 203.944,00 92.206,00

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30

Pater Ltd Seun Ltd

Gross profit for the year -990 31 600 15 200

Dividends: Paid on Preference Shares 1 200

Retained Income 30/06/2022 25 740 16 930

1.Consolidated Statement of comprehensive Income

The following are the summarised statements of financial position of B Limited

Investments 40.000,00 5.000,00

Current Assets 65.500,00 15.250,00

TOTAL ASSETS 165.500,00 86.250,00

EQUITY AND LIABILITIES

Non-Current Liabilities 20.000,00

TOTAL EQUITY AND LIABILITIES 165.500,00 86.250,00

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 28

Interest received on investment in 8% Debentures in B 400

Administrative expenses 3 000 2 500

Net profit before taxation 33 500 9 500

Calculation of Retained Income:

1. Consolidated Statement of comprehensive Income

The following are summarised annual financial statements of two companies as

STATEMENT OF FINANCIAL POSITION AT

Current Assets 122.000,00 90.600,00