6 Question 2 [40 marks] MILK Ltd is a South African company well known for their...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
6 Question 2 [40 marks] MILK Ltd is a South African company well known for their milkshake shops all over the country. MILK Ltd saw a business opportunity and decided to invest in SHAKE Ltd. The following financial information relating to the entities are available: SHAKE LTD STATEMENT OF CHANGES IN EQUITY AS AT 31 AUGUST 2020 SHARE CAPITAL R Balance at 31 August 2019 Profit for the year Dividends paid Balance at 31 August 2020 HFAC331-1-Jul-Dec2021-SA1-SUPP-LVN-V4-04052021 Revenue Cost of sales Gross profit Other income (Including dividends received) Other expenses Finance costs Profit before tax Income tax expense Profit for the year 7 Additional information: 1 800 000 STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 AUGUST 2020 1 800 000 RETAINED EARNINGS R MILK R 10 000 000 (5 500 000) 4 500 000 60 000 (100 000) (50 000) 4 410 000 (1 234 800) 3 175 200 1 778 448 601 500 (43 000) 2 336 948 SHAKE R 5019 333 (3 450 830) 1 568 503 118 481 (517 500) (354 984) 814 500 (213 000) 601 500 HFAC331-1-Jul-Dec2021-SA1-SUPP-LVN-V4-04052021 Additional information: 8 • On 1 May 2020 MILK Ltd acquired 730 000 ordinary shares in SHAKE Ltd for R3 066 000. This was not a "cum div" transaction. SHAKE Ltd has 1 000 000 issued ordinary shares in issue. The identifiable assets acquired and the liabilities at the acquisition date are shown at their acquisition date fair values, as determined in terms of IFRS 3. MILK Ltd chose to measure its investment in SHAKE Ltd in accordance with IFRS 9, at fair value through other comprehensive income in its separate financial statements. Fair value adjustments are recognised in the mark-to- market reserve. 2.1 . On 31 August 2020 the fair value of the investment in SHAKE Ltd was R3 251 000. The fair value adjustment was correctly recognised in the separate financial statements of MILK Ltd. MILK Ltd measures the non-controlling interest of SHAKE Ltd at fair value at acquisition date. The market value of the shares in SHAKE Ltd was R4.10 per share on 1 May 2020. MILK Ltd has been renting land from SHAKE Ltd since 2015. The current year's rent was R5 000 per month and MILK Ltd settled this monthly amount in cash. . On 31 July 2020, SHAKE Ltd sold a delivery van (non-current asset) to MILK Ltd at a profit of R7 200. • MILK Ltd is not a trader in vehicles. Both companies depreciate vehicles using the straight-line basis. On 31 July 2020 the remaining useful life of the vehicle was 4 years with no residual value. • The company tax rate is 28% and 66.6% of capital gains is taxable. REQUIRED: HFAC331-1-Jul-Dec2021-SA1-SUPP-LVN-V4-04052021 Prepare the following pro forma consolidation journal entries (include tax where applicable) for the year ended 31 August 2020: 8 REQUIRED: 2.1 2.2 Prepare the following pro forma consolidation journal entries (include tax where applicable) for the year ended 31 August 2020: . Reversal of the fair value adjustment of the investment in SHAKE Ltd. ● The elimination of the owners' interest of SHAKE Ltd and the investment in SHAKE Ltd at the date of acquisition. HFAC331-1-Jul-Dec2021-SA1-SUPP-LVN-V4-04052021 Indicate which component (SFP/SCE/SPL) of the financial statement is affected by each journal entry. Journal explanations/descriptions are not required. (15 marks) Prepare the consolidated Statement of Profit or Loss and Other Comprehensive income of MILK Ltd and its subsidiary for the year ended 31 August 2020. (25 marks) Competency Framework Reference: III-2.1 III-2.2 III-2.3 III-2.4 Develops or evaluates accounting policies in accordance with IFRS Identifies the economic substance of financial transactions in order to correctly identify the appropriate IFRS and accounting treatment Accounts for the entity's routine transactions Analyses and calculates, or evaluates, the accounting for routine transactions (e.g. sales, cost of sales, operating expenses) Accounts for the entity's non-routine transactions Analyses and calculates, or evaluates, the accounting for non- routine transactions, such as - business acquisitions Prepares financial statements using IFRS Gathers the relevant financial information from various sources Prepares general-purpose financial statements or, if appropriate, special-purpose financial statements to achieve fair presentation of the entity's financial position and performance. HFAC331-1-Jul-Dec2021-SA1-SUPP-LVN-V4-04052021 6 Question 2 [40 marks] MILK Ltd is a South African company well known for their milkshake shops all over the country. MILK Ltd saw a business opportunity and decided to invest in SHAKE Ltd. The following financial information relating to the entities are available: SHAKE LTD STATEMENT OF CHANGES IN EQUITY AS AT 31 AUGUST 2020 SHARE CAPITAL R Balance at 31 August 2019 Profit for the year Dividends paid Balance at 31 August 2020 HFAC331-1-Jul-Dec2021-SA1-SUPP-LVN-V4-04052021 Revenue Cost of sales Gross profit Other income (Including dividends received) Other expenses Finance costs Profit before tax Income tax expense Profit for the year 7 Additional information: 1 800 000 STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 AUGUST 2020 1 800 000 RETAINED EARNINGS R MILK R 10 000 000 (5 500 000) 4 500 000 60 000 (100 000) (50 000) 4 410 000 (1 234 800) 3 175 200 1 778 448 601 500 (43 000) 2 336 948 SHAKE R 5019 333 (3 450 830) 1 568 503 118 481 (517 500) (354 984) 814 500 (213 000) 601 500 HFAC331-1-Jul-Dec2021-SA1-SUPP-LVN-V4-04052021 Additional information: 8 • On 1 May 2020 MILK Ltd acquired 730 000 ordinary shares in SHAKE Ltd for R3 066 000. This was not a "cum div" transaction. SHAKE Ltd has 1 000 000 issued ordinary shares in issue. The identifiable assets acquired and the liabilities at the acquisition date are shown at their acquisition date fair values, as determined in terms of IFRS 3. MILK Ltd chose to measure its investment in SHAKE Ltd in accordance with IFRS 9, at fair value through other comprehensive income in its separate financial statements. Fair value adjustments are recognised in the mark-to- market reserve. 2.1 . On 31 August 2020 the fair value of the investment in SHAKE Ltd was R3 251 000. The fair value adjustment was correctly recognised in the separate financial statements of MILK Ltd. MILK Ltd measures the non-controlling interest of SHAKE Ltd at fair value at acquisition date. The market value of the shares in SHAKE Ltd was R4.10 per share on 1 May 2020. MILK Ltd has been renting land from SHAKE Ltd since 2015. The current year's rent was R5 000 per month and MILK Ltd settled this monthly amount in cash. . On 31 July 2020, SHAKE Ltd sold a delivery van (non-current asset) to MILK Ltd at a profit of R7 200. • MILK Ltd is not a trader in vehicles. Both companies depreciate vehicles using the straight-line basis. On 31 July 2020 the remaining useful life of the vehicle was 4 years with no residual value. • The company tax rate is 28% and 66.6% of capital gains is taxable. REQUIRED: HFAC331-1-Jul-Dec2021-SA1-SUPP-LVN-V4-04052021 Prepare the following pro forma consolidation journal entries (include tax where applicable) for the year ended 31 August 2020: 8 REQUIRED: 2.1 2.2 Prepare the following pro forma consolidation journal entries (include tax where applicable) for the year ended 31 August 2020: . Reversal of the fair value adjustment of the investment in SHAKE Ltd. ● The elimination of the owners' interest of SHAKE Ltd and the investment in SHAKE Ltd at the date of acquisition. HFAC331-1-Jul-Dec2021-SA1-SUPP-LVN-V4-04052021 Indicate which component (SFP/SCE/SPL) of the financial statement is affected by each journal entry. Journal explanations/descriptions are not required. (15 marks) Prepare the consolidated Statement of Profit or Loss and Other Comprehensive income of MILK Ltd and its subsidiary for the year ended 31 August 2020. (25 marks) Competency Framework Reference: III-2.1 III-2.2 III-2.3 III-2.4 Develops or evaluates accounting policies in accordance with IFRS Identifies the economic substance of financial transactions in order to correctly identify the appropriate IFRS and accounting treatment Accounts for the entity's routine transactions Analyses and calculates, or evaluates, the accounting for routine transactions (e.g. sales, cost of sales, operating expenses) Accounts for the entity's non-routine transactions Analyses and calculates, or evaluates, the accounting for non- routine transactions, such as - business acquisitions Prepares financial statements using IFRS Gathers the relevant financial information from various sources Prepares general-purpose financial statements or, if appropriate, special-purpose financial statements to achieve fair presentation of the entity's financial position and performance. HFAC331-1-Jul-Dec2021-SA1-SUPP-LVN-V4-04052021 6 Question 2 [40 marks] MILK Ltd is a South African company well known for their milkshake shops all over the country. MILK Ltd saw a business opportunity and decided to invest in SHAKE Ltd. The following financial information relating to the entities are available: SHAKE LTD STATEMENT OF CHANGES IN EQUITY AS AT 31 AUGUST 2020 SHARE CAPITAL R Balance at 31 August 2019 Profit for the year Dividends paid Balance at 31 August 2020 HFAC331-1-Jul-Dec2021-SA1-SUPP-LVN-V4-04052021 Revenue Cost of sales Gross profit Other income (Including dividends received) Other expenses Finance costs Profit before tax Income tax expense Profit for the year 7 Additional information: 1 800 000 STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 AUGUST 2020 1 800 000 RETAINED EARNINGS R MILK R 10 000 000 (5 500 000) 4 500 000 60 000 (100 000) (50 000) 4 410 000 (1 234 800) 3 175 200 1 778 448 601 500 (43 000) 2 336 948 SHAKE R 5019 333 (3 450 830) 1 568 503 118 481 (517 500) (354 984) 814 500 (213 000) 601 500 HFAC331-1-Jul-Dec2021-SA1-SUPP-LVN-V4-04052021 Additional information: 8 • On 1 May 2020 MILK Ltd acquired 730 000 ordinary shares in SHAKE Ltd for R3 066 000. This was not a "cum div" transaction. SHAKE Ltd has 1 000 000 issued ordinary shares in issue. The identifiable assets acquired and the liabilities at the acquisition date are shown at their acquisition date fair values, as determined in terms of IFRS 3. MILK Ltd chose to measure its investment in SHAKE Ltd in accordance with IFRS 9, at fair value through other comprehensive income in its separate financial statements. Fair value adjustments are recognised in the mark-to- market reserve. 2.1 . On 31 August 2020 the fair value of the investment in SHAKE Ltd was R3 251 000. The fair value adjustment was correctly recognised in the separate financial statements of MILK Ltd. MILK Ltd measures the non-controlling interest of SHAKE Ltd at fair value at acquisition date. The market value of the shares in SHAKE Ltd was R4.10 per share on 1 May 2020. MILK Ltd has been renting land from SHAKE Ltd since 2015. The current year's rent was R5 000 per month and MILK Ltd settled this monthly amount in cash. . On 31 July 2020, SHAKE Ltd sold a delivery van (non-current asset) to MILK Ltd at a profit of R7 200. • MILK Ltd is not a trader in vehicles. Both companies depreciate vehicles using the straight-line basis. On 31 July 2020 the remaining useful life of the vehicle was 4 years with no residual value. • The company tax rate is 28% and 66.6% of capital gains is taxable. REQUIRED: HFAC331-1-Jul-Dec2021-SA1-SUPP-LVN-V4-04052021 Prepare the following pro forma consolidation journal entries (include tax where applicable) for the year ended 31 August 2020: 8 REQUIRED: 2.1 2.2 Prepare the following pro forma consolidation journal entries (include tax where applicable) for the year ended 31 August 2020: . Reversal of the fair value adjustment of the investment in SHAKE Ltd. ● The elimination of the owners' interest of SHAKE Ltd and the investment in SHAKE Ltd at the date of acquisition. HFAC331-1-Jul-Dec2021-SA1-SUPP-LVN-V4-04052021 Indicate which component (SFP/SCE/SPL) of the financial statement is affected by each journal entry. Journal explanations/descriptions are not required. (15 marks) Prepare the consolidated Statement of Profit or Loss and Other Comprehensive income of MILK Ltd and its subsidiary for the year ended 31 August 2020. (25 marks) Competency Framework Reference: III-2.1 III-2.2 III-2.3 III-2.4 Develops or evaluates accounting policies in accordance with IFRS Identifies the economic substance of financial transactions in order to correctly identify the appropriate IFRS and accounting treatment Accounts for the entity's routine transactions Analyses and calculates, or evaluates, the accounting for routine transactions (e.g. sales, cost of sales, operating expenses) Accounts for the entity's non-routine transactions Analyses and calculates, or evaluates, the accounting for non- routine transactions, such as - business acquisitions Prepares financial statements using IFRS Gathers the relevant financial information from various sources Prepares general-purpose financial statements or, if appropriate, special-purpose financial statements to achieve fair presentation of the entity's financial position and performance. HFAC331-1-Jul-Dec2021-SA1-SUPP-LVN-V4-04052021 6 Question 2 [40 marks] MILK Ltd is a South African company well known for their milkshake shops all over the country. MILK Ltd saw a business opportunity and decided to invest in SHAKE Ltd. The following financial information relating to the entities are available: SHAKE LTD STATEMENT OF CHANGES IN EQUITY AS AT 31 AUGUST 2020 SHARE CAPITAL R Balance at 31 August 2019 Profit for the year Dividends paid Balance at 31 August 2020 HFAC331-1-Jul-Dec2021-SA1-SUPP-LVN-V4-04052021 Revenue Cost of sales Gross profit Other income (Including dividends received) Other expenses Finance costs Profit before tax Income tax expense Profit for the year 7 Additional information: 1 800 000 STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 AUGUST 2020 1 800 000 RETAINED EARNINGS R MILK R 10 000 000 (5 500 000) 4 500 000 60 000 (100 000) (50 000) 4 410 000 (1 234 800) 3 175 200 1 778 448 601 500 (43 000) 2 336 948 SHAKE R 5019 333 (3 450 830) 1 568 503 118 481 (517 500) (354 984) 814 500 (213 000) 601 500 HFAC331-1-Jul-Dec2021-SA1-SUPP-LVN-V4-04052021 Additional information: 8 • On 1 May 2020 MILK Ltd acquired 730 000 ordinary shares in SHAKE Ltd for R3 066 000. This was not a "cum div" transaction. SHAKE Ltd has 1 000 000 issued ordinary shares in issue. The identifiable assets acquired and the liabilities at the acquisition date are shown at their acquisition date fair values, as determined in terms of IFRS 3. MILK Ltd chose to measure its investment in SHAKE Ltd in accordance with IFRS 9, at fair value through other comprehensive income in its separate financial statements. Fair value adjustments are recognised in the mark-to- market reserve. 2.1 . On 31 August 2020 the fair value of the investment in SHAKE Ltd was R3 251 000. The fair value adjustment was correctly recognised in the separate financial statements of MILK Ltd. MILK Ltd measures the non-controlling interest of SHAKE Ltd at fair value at acquisition date. The market value of the shares in SHAKE Ltd was R4.10 per share on 1 May 2020. MILK Ltd has been renting land from SHAKE Ltd since 2015. The current year's rent was R5 000 per month and MILK Ltd settled this monthly amount in cash. . On 31 July 2020, SHAKE Ltd sold a delivery van (non-current asset) to MILK Ltd at a profit of R7 200. • MILK Ltd is not a trader in vehicles. Both companies depreciate vehicles using the straight-line basis. On 31 July 2020 the remaining useful life of the vehicle was 4 years with no residual value. • The company tax rate is 28% and 66.6% of capital gains is taxable. REQUIRED: HFAC331-1-Jul-Dec2021-SA1-SUPP-LVN-V4-04052021 Prepare the following pro forma consolidation journal entries (include tax where applicable) for the year ended 31 August 2020: 8 REQUIRED: 2.1 2.2 Prepare the following pro forma consolidation journal entries (include tax where applicable) for the year ended 31 August 2020: . Reversal of the fair value adjustment of the investment in SHAKE Ltd. ● The elimination of the owners' interest of SHAKE Ltd and the investment in SHAKE Ltd at the date of acquisition. HFAC331-1-Jul-Dec2021-SA1-SUPP-LVN-V4-04052021 Indicate which component (SFP/SCE/SPL) of the financial statement is affected by each journal entry. Journal explanations/descriptions are not required. (15 marks) Prepare the consolidated Statement of Profit or Loss and Other Comprehensive income of MILK Ltd and its subsidiary for the year ended 31 August 2020. (25 marks) Competency Framework Reference: III-2.1 III-2.2 III-2.3 III-2.4 Develops or evaluates accounting policies in accordance with IFRS Identifies the economic substance of financial transactions in order to correctly identify the appropriate IFRS and accounting treatment Accounts for the entity's routine transactions Analyses and calculates, or evaluates, the accounting for routine transactions (e.g. sales, cost of sales, operating expenses) Accounts for the entity's non-routine transactions Analyses and calculates, or evaluates, the accounting for non- routine transactions, such as - business acquisitions Prepares financial statements using IFRS Gathers the relevant financial information from various sources Prepares general-purpose financial statements or, if appropriate, special-purpose financial statements to achieve fair presentation of the entity's financial position and performance. HFAC331-1-Jul-Dec2021-SA1-SUPP-LVN-V4-04052021
Expert Answer:
Answer rating: 100% (QA)
Part 21 Reversal of the fair value adjustment of the investment in SHAKE Ltd Debit Mark to Market Reserve MILK ltd SCE R150501 Debit Deferred tax MILK ltd SFP R185000 x 28 x666 R34499 Credit Investmen... View the full answer
Related Book For
Posted Date:
Students also viewed these accounting questions
-
Empire (Pty) Ltd is a South African resident. It is a manufacturing business that manufactures shoes. The different types of shoes manufactured include running and walking shoes, as well as high...
-
The following additional information is available for the Dr. Ivan and Irene Incisor family from Chapters 1-5. Ivan's grandfather died and left a portfolio of municipal bonds. In 2012, they pay Ivan...
-
Harriet Ltd is a South African company that manufactures commercial buses and trucks. The companys products are customer-focused, technologically advanced and fuel efficient. This has propelled the...
-
You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: What is the Sharpe ratio, Treynor ratio, and Jensens alpha for eachportfolio?...
-
Lanier Manufacturing has multiple divisions that make a wide variety of products. Recently, the Bearing Division and the Wheel Division got into an argument over a transfer price. The Wheel Division...
-
A computer has 32-bit virtual addresses and 4-KB pages. The program and data together fit in the lowest page (0-4095) The stack fits in the highest page. How many entries are needed in the page table...
-
(NPV and IRR with alternative costs) Mr. Fox has just bought an old apartment for $1,000,000. Mr. Fox plans to rent out the apartment. The apartment in its current condition can be rented out for...
-
Global Electronics Company (GEC), a U.S. taxpayer, manufactures laser guitars in its Malaysian operation (LG-Malay) at a production cost of $120 per unit. LG-Malay guitars are sold to two customers...
-
25. Which of the following will provide the largest differences? Comparing the actual results to the flexible budget, Comparing the static budget to the flexible budget, Comparing the static budget...
-
Use the information below and prepare the Multi-Step Income Statement for Hot Place on August 31. Sales $1,250,000 Interest Revenue 25 Sales Discounts 15,000 Sales Returns and Allowances 30,000 Cost...
-
In a laser cutting process of aluminum plates of 1mm thick, a through hole is to be drilled, followed by melting-dominated cutting. If the focused laser beam is 0.25 mm in diameter (assuming it is...
-
The vice president of production has requested that top management have the information systems division investigate the feasibility of a computer system to improve the scheduling of production....
-
Alfonza Company sells chairs that are used at computer stations. Its beginning inventory of chairs was 100 units at \(\$ 40\) per unit. During the year, Alfonza made two batch purchases of this...
-
Berryhill Co. started the year with no inventory. During the year, it purchased two identical inventory items at different times. The first purchase cost \(\$ 750\) and the other, \(\$ 1,000\)....
-
Distinguish between the par value and the issue price of a bond. When are they the same? When are they different? Explain. If a \($5,000\) bond is sold for 101, how much cash is paid/received?
-
Ralph Kaye owned a small company that sold garden equipment. The equipment was expensive, and a perpetual system was maintained for control purposes. Even so, lost, damaged, and stolen merchandise...
-
Financial independence will eliminate your need to work will provide you with the opportunity to choose which work you do is only attainable in your retirement years will come after you have taken adv
-
How is use of the word consistent helpful in fraud reports?
-
During the 2011 annual accounting period, Terwilliger Company completed the following transactions: a. On January 1, 2011, purchased a patent for $21,000 cash (estimated useful life, seven years). b....
-
Cinergy is a utility company that provides gas and electric service in Ohio, Kentucky, and Indiana. The companys dividend yield is 6.6 percent. Starbucks, a well-known retailer of coffee products,...
-
A recent annual report of The New York Times Company, a diversified media company that currently includes newspapers (including The New York Times), Internet businesses, and television and radio...
-
Develop brief answers to each of the following questions: 1. Under what conditions would a company have both minority interest and goodwill in a consolidation? 2. Why must the financial statements of...
-
Omar Corporation, which has begun investing in trading securities, engaged in the following transactions: Jan. 6 Purchased 7,000 shares of Quaker Oats stock, $30 per share. Feb. 15 Purchased 9,000...
-
Payroll for piece-rate wage system LPGA Manufacturing Company operates on a modified wage plan. During one week's operation, the following direct labor costs were incurred: Required: 1. Compute the...
Study smarter with the SolutionInn App