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Part 22 Accounting Question – Consolidation After Acquisition date

The following financial information for the reporting period ended 31 December 2018 is presented to you:

STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2018

H Ltd S Ltd
ASSETS
Non-current assets 740 000 400 000
Property, plant and equipment 390 000 400 000
Investment in S Ltd: 48 000 shares at fair value 350 000 -

Current assets 390 000 330 000

Inventories 80 000 165 000
Trade and other receivables 255 000 105 000
Financial assets 60 000
Cash and cash equivalents 55 000

Total assets 1 130 000 730 000

EQUITY AND LIABILITIES

Capital and reserves 695 000 490 000
Issued ordinary share capital (75 000/60 000 shares) 300 000 240 000
Mark-to-market reserve 20 000 10 000
Retained earnings 375 000 240 000

Current liabilities 435 000 240 000

Trade and other payables 210 000 50 000
Short-term borrowings 225 000 150 000
Bank overdraft – 40 000

Total equity and liabilities 1 130 000 730 000

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STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE REPORTING PERIOD ENDED 31 DECEMBER 2018
H Ltd S Ltd
R R
Gross profit 472 500 750 000
Other expenses (202 500) (450 000)
Dividend received from S Ltd 96 000 -
Profit before tax 366 000 300 000
Income tax expense (108 000) (120 000)
PROFIT FOR THE YEAR 258 000 180 000
Market to market reserve 5 000 2000
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 263 000 182 000

Statement of changes in Equity for the reporting period 31 December 2018

Mark-to-market reserve Retained earnings
H Ltd S Ltd H Ltd S Ltd
R R
Balance on 1 January 2018 15 000 8 000 225 000 180 000
Profit for the year 258 000 180 000
Other comprehensive reserve for 5 000 2 000
the year
Ordinary dividend paid (108 000) (120 000)
Balance on 31 December 2018 20 000 10 000 375 000 240 000

ADDITIONAL INFORMATION:
1. On 1 January 2015, the date on which H Ltd acquired the interest in S Ltd for R330 000, the equity of
S Ltd consisted of:

R
Share capital 240 000
Retained earnings 135 000
Mark-to-market reserve 4 000

2. Assume that the identifiable assets acquired and the liabilities assumed at acquisition date are shown
at their acquisition-date fair values, as determined in terms of IFRS 3.

3. H Ltd accounts for its investments in subsidiaries in accordance with the cost price method in its
individual financial records.

4. H Ltd elected to measure the non-controlling interests in an acquiree at at fair value at the acquisition
date

5. On 1 January 2015 the directors were of the opinion that the non-controlling interests were R78 000,
based on market prices.

6. H Ltd classified the equity investment in S Ltd under IFRS 9 in its separate financial statements and
recognised fair value adjustments in a mark-to-market reserve (othercomprehensive income).

7. Ignore tax implications.

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REQUIRED:

1.1 Prepare the analysis of equity of S Ltd for the reporting period ended 31 December 2018. (10)
(Hint: Calculate the percentage shareholding of parent in subsidiary first).

1.2 Prepare the necessary pro-forma consolidation journal entries for the reporting period ended 31
December 2018 (10)

1.3 Prepare the Consolidated Statement of Financial Position of the H Ltd Group for the reporting period
ended 31 December 2018. (10)

(30)