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Question Seven The draft statements of financial position at 31 March 2021 and statements of profit or loss for the year ended 31 March 2021 for three entities, are given below: Statements of financial position as at 31 March 2021 Notes Toon Loony Plat R000 ROOO R000 Non-current Assets Property, plant and equipment (vi) 50,050 30,450 28,942 Investments: 17,370,000 Ordinary shares in Loony at cost (i); (ii);(iii) 35,610 3,980,000 Ordinary shares in Plat at cost (iv) 8,000 93,660 30,450 28,942 Current Assets Inventory (v) 34,910 9,310 2,580 Trade receivables 38,790 16,530 2,660 Cash and cash equivalents (vii) 5,010 1,480 318 78, 710 27, 320 5,558 11 Total Assets 172,370 57,770 34,51 Equity and Liabilities Equity shares of R1 each 112,620 17,370 15,920 Share premium 0 3,470 0 Retained earnings 15,630 10,650 3,590 128,250 31,490 19,510 Non-current liabilities Long term borrowings 32,000 15,000 9,140 Current liabilities Trade payables 11,320 10,830 5,530 Loan interest payable 800 450 320 12,120 11,280 5,850 Total equity and liabilities 172,370 57,770 34,500 Summarised statements of profit or loss for the year ended 31 March 2021 Toon Loony Plat R000 R000 ROOO Revenue 130,000 67,410 31,890 Cost of sales (75,470) (40,470) (18,920) Gross profit 54,530 26,940 12,970 Expenses (37,660) (20,230) (9,460) 16,870 6,710 3,510 Finance cost (1,600) (900) (640) 15,270 5,810 2,870 Income tax expense (3,050) (1,160) (580) Profit for the year 12,220 4,650 2,290 Additional information: 12 (i) Toon acquired all of Loony's equity shares on 1 April 2019 in a share for share exchange. The agreed purchase consideration was R35,610,000. Loony's retained earnings were R3,000,000 on 1 April 2019. (ii) The fair value of Loony's property, plant and equipment on 1 April 2019 exceeded its carrying value by R1,200,000. The excess of fair value over carrying value was attributed to buildings owned by Loony. At the date of acquisition these buildings had a remaining useful life of 12 years. Toon's accounting policy is to depreciate all property, plant and equipment using the straight line basis with no residual value. (iii) Toon carried out an impairment review of the goodwill arising on acquisition of Loony and found that as at 31 March 2021 the goodwill had NOT been impaired but had actually increased in value by R50,000. (iv) Toon purchased its shareholding in Plat on 1 April 2020 for R8,000,000. The fair value of Plat's net assets was the same as its carrying value at that date. Toon exercises significant influence over all aspects of Plat's financial and operating policies. (v) Toon occasionally trades with Loony. During February 2021 Toon sold Loony goods for R960,000. Loony had not paid for the goods by 31 March 2021. Toon uses a mark-up of 331/3% on cost. 20% of the goods had been sold by Loony at 31 March 2021. (vi) Toon sold a piece of machinery to Loony on 1 April 2020 for R115,000. The machinery had previously been used in Toon's business and had been included in Toon's property, plant and equipment at a carrying value of R90,000. Toon had recognised the profit on disposal in revenue. The machinery had a remaining useful life of 5 years on 1 April 2020. (vii) Loony transferred R115,000 to Toon on 31 March 2021 which was not recorded by Toon until April 2021. Required: (a )Explain how a post acquisition increase in goodwill, for example in note (iii) above, should be treated in consolidated financial statements. (2 marks) (b) Prepare the consolidated statement of financial position for Toon as at 31 March 2021, in accordance with the requirements of International Financial Reporting Standards. (23 marks) Notes to the financial statements are not required, but all workings must be clearly shown. (Total for Question Four = 25 marks)