2 HFAC331-1-Jul-Dec2021-SA1-SUPP-LVN-V4-04052021 Question 1 [60 marks] The following are the condensed financial statements of Jack Ltd and Daniels Ltd for the year ended 31 December 2020: 3 STATEMENT OF FINANCIAL POSITION ASSETS Jack R Daniels R Vehicles at cost 750 000 375 000 Accumulated depreciation - Vehicles (300 000) (150 000) Investment in Daniels: (90 000 ordinary shares at fair value) 196 129 (10 000 preference shares at cost) 25 100 Loan to Daniels Ltd 10 000 Trade receivables 150 150 175 000 Bank Inventory 184 000 65 000 35 750 90 000 1 051 129 555 000 EQUITY AND LIABILITIES Share capital (100 000 shares; 120 000 shares) 500 000 240 000 7% R2 Preference share capital 110 000 100 000 Retained earnings 143 000 103 000 Loan from Jack Ltd 10 000 Mark-to-market reserve (1/1/2020) 62 956 Trade payables 140 000 72 000 Deferred tax 95 173 30 000 1 051 129 555 000 HFAC331-1-Jul-Dec2021-SA1-SUPP-LVN-V4-04052021 STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME 3 HFAC331-1-Jul-Dec2021-SA1-SUPP-LVN-V4-04052021 STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME Jack Daniels R R Revenue 700 000 430 000 Cost of sales (355 000) (250 000) Gross profit 345 000 180 000 Other income (including dividends received) 25 000 18 500 Other expenses (including depreciation) (84 000) (60 000) Profit before tax 286 000 138 500 Income tax expense (120 000) (50 000) Profit for the year 166 000 88 500 STATEMENT OF CHANGES IN EQUITY Retained Earnings Jack Daniels R R Balance as at 1 January 2020 87 000 41 500 Total profit for the year 166 000 88 500 Ordinary dividend paid (80 000) (20 000) Preference dividend paid (30 000) (7 000) Balance as at 31 December 2020 143 000 103 000 Additional information: HFAC331-1-Jul-Dec2021-SA1-SUPP-LVN-V4-04052021 HFAC331-1-Jul-Dec2021-SA1-SUPP-LVN-V4-04052021 Additional information: On 1 January 2018, Jack Ltd purchased 90 000 ordinary shares in Daniels Ltd for R115 000 when the retained earnings of Daniels Ltd amounted to R8 000. Since that date, the ordinary share capital has remained unchanged. At the acquisition date, the assets and liabilities were considered to be fairly valued in accordance with IFRS 3. It is Jack Ltd's policy to measure any non-controlling interests in an acquiree at its proportionate share of the acquiree's identifiable net assets. Jack Ltd chose to measure its investment in Daniels Ltd in accordance with IFRS 9 at fair value through other comprehensive income in its separate financial statements. All fair value adjustments are recognised in a mark-to-market reserve. There was no change in the fair value of the investment in Daniels Ltd during the year ended 31 December 2020. On 1 January 2020, Jack Ltd acquired 10 000 preference shares in Daniels Ltd for R25 100. On 31 December 2020, all the preference dividends had been declared and paid. Jack Ltd measures the investment in preference shares at its cost price. On 31 July 2018, Jack Ltd sold a vehicle to Daniels Ltd for R20 000. The carrying value of the vehicle was R16 500 on the date of the sale. Daniels Ltd is not a trader of vehicles. On 31 July 2018, the remaining useful life of the vehicle was estimated at 5 years with no residual value. Since 1 January 2019, Jack Ltd has been purchasing all its inventories from Daniels Ltd at a profit mark-up of 15% on the cost price of the goods. These goods are inventories in the records of Jack Ltd. Total sales from Daniels Ltd to Jack Ltd during the current reporting period amounted to R120 000. Jack Ltd's inventory balance on 1 January 2020 amounted to R32 500. The tax rate remained unchanged at 28%. The capital gains tax rate is 22,4% (80% of capital profit x 28% current tax rate). Assume that goodwill has not been impaired since acquisition. 5 HFAC331-1-Jul-Dec2021-SA1-SUPP-LVN-V4-04052021 of capital profit x 28% current tax rate). Assume that goodwill has not been impaired since acquisition. 5 HFAC331-1-Jul-Dec2021-SA1-SUPP-LVN-V4-04052021 REQUIRED: Prepare the pro-forma consolidation journal entries (include tax where applicable) necessary to prepare the consolidated financial statements of Jack Ltd and its subsidiary for the year ended 31 December 2020. Competency Framework Reference: III-2.1 III-2.2 III-2.3 (60 marks) 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 6 HFAC331-1-Jul-Dec2021-SA1-SUPP-LVN-V4-04052021