Instructions:
This is a case we worked on during the Annual AICPA Accounting and Tax Conference in Washington DC a few years ago. It is a fairly complicated case that took my team a while to figure out. I believe it is a great way to practice your debits and credits. It was a 100-minute session with top KPMG European partners acting as workshop leaders.
Required - Make all journal entries indicated for FY 2012 using pages 3 and 4. Observe that positive R/E and Reserve numbers are credits and negative numbers are debits to R/E and Reserves. Your analyses must show the accounts that are Credited and Debited against the DRs and CRs made in the R/E account and in the OCI Reserve accounts.
This is a critical analysis and thinking case that requires you to analyze incomplete information and synthesize a solution drawing upon mostly Intermediate Accounting knowledge and information gained from the IFRS text. The MSWord file email attachment should be one page (the last page completed).
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Case a EXAMPLES OF FINANCIAL STATEMENT DISCLOSURES SAB Miller ple Annual Report 2012 Consolidated balance sheet At March 31 2012 2011 Notes USSM USS Equity Share capital 26 166 166 Share premium 6,480 6,384 Merger relief reserve 4,586 4,586 Other reserves 27b 1,978 1,881 Retained earnings 27a 11,863 8,991 Total shareholders' equity 25,073 22,008 Noncontrolling interests 940 751 Total equity 26,013 22,759 26. Share capital 2012 US8m 2011 USSM Group and company Called up, allotted and fully paid share capital 1,664,323,483 ordinary shares of 10 US cents ench (2011: 1,659,040,014) 50,000 deferred shares of 1.00 cach (2011: 50,000) 166 166 166 166 Deferred shares of Nominal value l each US 50,000 165 At April 1, 2010 Issue of shares-share incentive plans At March 31, 2011 Issue of shares share incentive plans At March 31, 2012 Ordinary shares of 10 US cents each 1,654,749,852 4,290,162 1,659,040,014 5,283,469 1,664,323,483 50,000 166 50,000 166 Changes to authorized share capital With effect from October 1, 2009, the company adopted new articles of association which removed any previous limit on the authorized share capital. Directors are still limited as to the number of shares they can at any time allot because allotment authority continues to be required under the Companies Act 2006, suve in respect of employee shares plans. Changes to issued share capital During the year, the company issued 5,283,469 (2011: 4,290,162) new ordinary shares of 10 US cents to satisfy the exercise of options granted under the various share incentive plans, for consideration of US $96 million (2011: US $73 million). Rights and restrictions relating to share capital Convertible participating shares. Altria is entitled to require the company to convert its ordinary shares into convertible participating shares so as to ensure that Altria's voting shareholding does not exceed 24.99% of the total voting shareholding If such an event occurs, the convertible participating shares will rank pari passu with the ordinary shares in all respects and no action shall be taken by the company in relation to ordinary shares unless the same action is taken in respect of the convertible participating shares. On distribution of the profits (whether by cash dividend, dividend in specie, scrip dividend, capitalization issue or otherwise), the convertible participating shares will rank pari passu with the ordinary shares. On a return of capital (whether winding-up or otherwise), the convertible participating shares will rank pari passu with the ordinary shares. Altria is entitled to vote its convertible participating shares at general meetings of the company on a poll on the basis of one-tenth of a vote to every convertible participating share on all resolutions other than a resolution: (1) Proposed by any person other than Altria, to wind-up the company, (ii) Proposed by any person other than Altria, to appoint an administrator or to approve any arrangement with the company's creditors; (ii) Proposed by the board, to sell all or substantially all of the undertaking of the company, or (iv) Proposed by any person other than Altria, to alter any of the class rights attaching to the convertible participating shares or to approve the creation of any new class of shares, in which case Altria shall be entitled on a poll to vote on the resolution on the basis of one vote for each convertible participating share, but for the purposes of any resolution other than a resolution mentioned in (iv) above, the convertible participating shares shall be treated as being of the same class as the ordinary shares and no separate meeting or resolution of the holders of the convertible participating share shall be required to be convened or passed. Upon a transfer of convertible participating shares by Altria other than to an affiliate, such convertible participating shares shall convert into ordinary shares. Altria is entitled to require the company to convert its convertible participating shares into ordinary shares if: 0 A third party has made a takeover offer for the company and (if such offer becomes or is declared unconditional in all respects) it would result in the voting shareholding of the third party being more than 30% of the total votingsharcholding, and () Altria has communicated to the company in writing its intention not itself to make an offer competing with such third party offer, provided that the conversion date shall be no earlier than the date on which the third party's offer becomes or is de- clared unconditional in all respects. Altria is entitled to require the company to convert its convertible participating shares into ordinary shares if the voting shareholding of a third party should be more than 24.99%, provided that: The number of ordinary shares held by Altria following such conversion shall be limited to one ordinary share more than the number of ordinary shares held by the third party, and (1) Such conversion shall at no time result in Altria's voting shareholding being equal to or greater than the voting shareholding which would require Altria to make a mandatory offer in terms of Rule 9 of the City Code. If Altria wishes to acquire additional ordinary shares (other than pursuant to a preemp- tive issue of new ordinary shares or with the prior approval of the board), Altria shall first convert into ordinary shares the lesser of: (1) Such number of convertible participating shares as would result in Altria's voting shareholding being such percentage as would, in the event of Altria subsequently acquiring one additional ordinary share require Altria to make a mandatory offer in terms of Rule 9 of the City Code; and m) All of its remaining convertible participating shares. The company must use its best endeavors to procure that the ordinary shares arising on conversion of the convertible participating shares are admitted to the Official List and to trading on the London Stock Exchange's market for listed securities, admitted to listing and trading on the JSE Ltd., and admitted to listing and trading on any other stock exchange upon which the ordinary shares are from time to time listed and traded, but no admission to listing or trading shall be sought for the convertible participating shares while they remain convertible participating shares. Deferred shares The deferred sharcs do not carry any voting rights and do not entitle holders thereof to receive any dividends or other distributions. In the event of a winding-up, deferred share- holders would receive no more than the nominal value. Deferred shares represent the only nonequity share capital of the group 2 71.7% 2012 Share-based payments The group operates various share incentive plans. The share incentives outstanding are summarized as follows: 2017 Scheme Number Number GBP share options 16,622,334 15,088,057 ZAR share options 13,024,503 13,686,079 GBP stock appreciation rights (SAR) 2,820,144 3,575,370 GBP performance share awards 6,880,114 7,364,124 GBP value share awards 6,877,784 3,168,200 GBP cash settled awards 335,940 Total share incentives outstanding! 46,560,819 42,881,830 Total share incentives outstanding exclude shumes relating to the BBBEE scheme Further details relating to all of the share incentive schemes can be found in the directors remuneration report on pages 68 to 83. The exercise prices of incentives outstanding at March 31, 2012, ranged from 0 to 25.48 and ZAR 53.30 to ZAR290.23 (2011: E0 to 22.44 and ZAR43.09 to ZAR 225.08). The movement in share awards outstanding is summarized in the following tables. 27. a. Retained earnings Treasury and Retained EBT shares earnings Total USSM USSM USSM At April 1, 2010 (673) 8,198 7,525 Profit for the year 2,408 2,408 Other comprehensive income (63) (63) Actuarial losses taken to other comprehensive income (28) (28) Share of associates and joint ventures' losses recognized in other comprehensive income (71) (71) Deferred tax credit on items taken to other compre- hensive income 36 36 Dividends paid (1,115) (1,115) Buyout of noncontrolling interest (10) (10) Utilization of EBT shares 16 (16) Credit entry relating to share-based payments 246 246 At March 31, 2011 (657) 9,648 8,991 Profit for the year 4,2216 4,221 Other comprehensive income (119) (119) Actuarial losses taken to other comprehensive income (9)Cr (9) Share of associates and joint ventures' losses recognized in other comprehensive income (181) ( (181) Deferred tax credit on items taken to other comprehensive income 71 Or 71 Dividends paid (1,324) 06 (1,324) Dilution on noncontrolling interests as a result of (5)or (5) business combinations Payment for purchase of own shares for share trusts (52) (52) Buyout of noncontrolling interests Utilization of EBT shares 48C (48) Or Credit entry relating to share-based payments 158 Cr 158 At March 31, 2012 (661) 12,524 11,863 The group's retained earnings include amounts of US $790 million (2011: US $693 mil- lion), the distribution of which is limited by statutory or other restrictions -- -- 3 Treasury and EBT shares reserve. On February 26, 2009, 77,368,338 SABMiller ple nonvoting convertible shares were converted into ordinary shares and then acquired by the company to be held as treasury shares. While the purchase price for each share was 10.54, the whole amount of the consideration was paid between group companies. On February 15, 2010, 5,300,000 of these treasury shares were transferred to the EBT for nil consideration. These shares will be used to satisfy awards outstanding under the various share incentive plans. As of March 31, 2012, a total of 72,068,338 shares (2011: 72,068,338) were held in treasury There are two employee benefit trusts currently in operation, being the SABMiller Employee Benefit Trust (the EBT) and the SABMiller Associated Companies' Employees' Benefit Trust (the AC-EBT). The EBT hold shares in SABMiller ple for the purposes of the various executive share incentive plans, further details of which are disclosed in the directors' remuneration report. At March 31, 2012 the EBT held 5,605,746 shares (2011: 7,437,406 shares) which cost US$98 million (2011: US$94 million) and had a market value of US$225 million (2011: US$263 million). These shares have been treated as a deduction in arriving at shareholders' funds. The EBT used funds provided by SABMiller plc to purchase such of the shares as were purchased in the market. The costs of funding and administering the scheme are charged to the income statement in the period to which they relate. The AC-EBT holds shares in SABMiller ple for the purposes of providing share incen- tives for employees of companies in which SABMiller has a significant economic and strategic interest but over which it does not have management control. Further details on the AC-EBT are disclosed in the directors' remuneration report. At March 31, 2012 the AC-EBT held 335,940 shares which cost US$11 million and had a market value of US$13 million. These shares have been treated as a deduction in arriving at shareholders' funds. The AC-EBT used funds provided by Gardwell Ltd, a wholly owned indirect subsidiary of SABMiller ple, to purchase the shares. The costs of funding and administering the scheme are charged to the income statement in the period to which they relate. Shares currently held in each EBT rank pari passu with all other ordinary shares, how- ever, in both cases the trustees have elected to waive dividends and decline from voting shares, except in circumstances where they may be holding shares beneficially owned by a participant. There were no beneficially owned shares in either EBT as at March 31, 2012. 27. Retained carnings and other reserves continued t. Other reserves The analysis of other reserves is as follows: Foreign Net currency Cash flow investment Available translation hedging hedging for sale reserve reserve reserve reserve Total US&m USSM USSM US m US At April 1, 2010 1,533 (11) (203) 3 1,322 Currency translation differences: Subsidiaries 501 - Associates and joint ventures 149 Net investment hedges (137) (137) Cash flow hedges 39 39 Deferred tax on items taken to other (14) (14) comprehensive income. Share of associates and joint 21 21 ventures gains recognized in other comprehensive income At March 31, 2011 2,183 35 (340) 3 1,881 Currency translation differences: -Subsidiaries 243 243 - Associates and joint ventures (106) (106) Net investment hedges (1) (1) Cash flow hedges 6 6 Deferred tax on items taken to other 3001 30 comprehensive income Share of associates' and joint ven- (75) tures' losses recognized in other comprehensive income AEMarab 501 (75)66 71.7% 4 Case a EXAMPLES OF FINANCIAL STATEMENT DISCLOSURES SAB Miller ple Annual Report 2012 Consolidated balance sheet At March 31 2012 2011 Notes USSM USS Equity Share capital 26 166 166 Share premium 6,480 6,384 Merger relief reserve 4,586 4,586 Other reserves 27b 1,978 1,881 Retained earnings 27a 11,863 8,991 Total shareholders' equity 25,073 22,008 Noncontrolling interests 940 751 Total equity 26,013 22,759 26. Share capital 2012 US8m 2011 USSM Group and company Called up, allotted and fully paid share capital 1,664,323,483 ordinary shares of 10 US cents ench (2011: 1,659,040,014) 50,000 deferred shares of 1.00 cach (2011: 50,000) 166 166 166 166 Deferred shares of Nominal value l each US 50,000 165 At April 1, 2010 Issue of shares-share incentive plans At March 31, 2011 Issue of shares share incentive plans At March 31, 2012 Ordinary shares of 10 US cents each 1,654,749,852 4,290,162 1,659,040,014 5,283,469 1,664,323,483 50,000 166 50,000 166 Changes to authorized share capital With effect from October 1, 2009, the company adopted new articles of association which removed any previous limit on the authorized share capital. Directors are still limited as to the number of shares they can at any time allot because allotment authority continues to be required under the Companies Act 2006, suve in respect of employee shares plans. Changes to issued share capital During the year, the company issued 5,283,469 (2011: 4,290,162) new ordinary shares of 10 US cents to satisfy the exercise of options granted under the various share incentive plans, for consideration of US $96 million (2011: US $73 million). Rights and restrictions relating to share capital Convertible participating shares. Altria is entitled to require the company to convert its ordinary shares into convertible participating shares so as to ensure that Altria's voting shareholding does not exceed 24.99% of the total voting shareholding If such an event occurs, the convertible participating shares will rank pari passu with the ordinary shares in all respects and no action shall be taken by the company in relation to ordinary shares unless the same action is taken in respect of the convertible participating shares. On distribution of the profits (whether by cash dividend, dividend in specie, scrip dividend, capitalization issue or otherwise), the convertible participating shares will rank pari passu with the ordinary shares. On a return of capital (whether winding-up or otherwise), the convertible participating shares will rank pari passu with the ordinary shares. Altria is entitled to vote its convertible participating shares at general meetings of the company on a poll on the basis of one-tenth of a vote to every convertible participating share on all resolutions other than a resolution: (1) Proposed by any person other than Altria, to wind-up the company, (ii) Proposed by any person other than Altria, to appoint an administrator or to approve any arrangement with the company's creditors; (ii) Proposed by the board, to sell all or substantially all of the undertaking of the company, or (iv) Proposed by any person other than Altria, to alter any of the class rights attaching to the convertible participating shares or to approve the creation of any new class of shares, in which case Altria shall be entitled on a poll to vote on the resolution on the basis of one vote for each convertible participating share, but for the purposes of any resolution other than a resolution mentioned in (iv) above, the convertible participating shares shall be treated as being of the same class as the ordinary shares and no separate meeting or resolution of the holders of the convertible participating share shall be required to be convened or passed. Upon a transfer of convertible participating shares by Altria other than to an affiliate, such convertible participating shares shall convert into ordinary shares. Altria is entitled to require the company to convert its convertible participating shares into ordinary shares if: 0 A third party has made a takeover offer for the company and (if such offer becomes or is declared unconditional in all respects) it would result in the voting shareholding of the third party being more than 30% of the total votingsharcholding, and () Altria has communicated to the company in writing its intention not itself to make an offer competing with such third party offer, provided that the conversion date shall be no earlier than the date on which the third party's offer becomes or is de- clared unconditional in all respects. Altria is entitled to require the company to convert its convertible participating shares into ordinary shares if the voting shareholding of a third party should be more than 24.99%, provided that: The number of ordinary shares held by Altria following such conversion shall be limited to one ordinary share more than the number of ordinary shares held by the third party, and (1) Such conversion shall at no time result in Altria's voting shareholding being equal to or greater than the voting shareholding which would require Altria to make a mandatory offer in terms of Rule 9 of the City Code. If Altria wishes to acquire additional ordinary shares (other than pursuant to a preemp- tive issue of new ordinary shares or with the prior approval of the board), Altria shall first convert into ordinary shares the lesser of: (1) Such number of convertible participating shares as would result in Altria's voting shareholding being such percentage as would, in the event of Altria subsequently acquiring one additional ordinary share require Altria to make a mandatory offer in terms of Rule 9 of the City Code; and m) All of its remaining convertible participating shares. The company must use its best endeavors to procure that the ordinary shares arising on conversion of the convertible participating shares are admitted to the Official List and to trading on the London Stock Exchange's market for listed securities, admitted to listing and trading on the JSE Ltd., and admitted to listing and trading on any other stock exchange upon which the ordinary shares are from time to time listed and traded, but no admission to listing or trading shall be sought for the convertible participating shares while they remain convertible participating shares. Deferred shares The deferred sharcs do not carry any voting rights and do not entitle holders thereof to receive any dividends or other distributions. In the event of a winding-up, deferred share- holders would receive no more than the nominal value. Deferred shares represent the only nonequity share capital of the group 2 71.7% 2012 Share-based payments The group operates various share incentive plans. The share incentives outstanding are summarized as follows: 2017 Scheme Number Number GBP share options 16,622,334 15,088,057 ZAR share options 13,024,503 13,686,079 GBP stock appreciation rights (SAR) 2,820,144 3,575,370 GBP performance share awards 6,880,114 7,364,124 GBP value share awards 6,877,784 3,168,200 GBP cash settled awards 335,940 Total share incentives outstanding! 46,560,819 42,881,830 Total share incentives outstanding exclude shumes relating to the BBBEE scheme Further details relating to all of the share incentive schemes can be found in the directors remuneration report on pages 68 to 83. The exercise prices of incentives outstanding at March 31, 2012, ranged from 0 to 25.48 and ZAR 53.30 to ZAR290.23 (2011: E0 to 22.44 and ZAR43.09 to ZAR 225.08). The movement in share awards outstanding is summarized in the following tables. 27. a. Retained earnings Treasury and Retained EBT shares earnings Total USSM USSM USSM At April 1, 2010 (673) 8,198 7,525 Profit for the year 2,408 2,408 Other comprehensive income (63) (63) Actuarial losses taken to other comprehensive income (28) (28) Share of associates and joint ventures' losses recognized in other comprehensive income (71) (71) Deferred tax credit on items taken to other compre- hensive income 36 36 Dividends paid (1,115) (1,115) Buyout of noncontrolling interest (10) (10) Utilization of EBT shares 16 (16) Credit entry relating to share-based payments 246 246 At March 31, 2011 (657) 9,648 8,991 Profit for the year 4,2216 4,221 Other comprehensive income (119) (119) Actuarial losses taken to other comprehensive income (9)Cr (9) Share of associates and joint ventures' losses recognized in other comprehensive income (181) ( (181) Deferred tax credit on items taken to other comprehensive income 71 Or 71 Dividends paid (1,324) 06 (1,324) Dilution on noncontrolling interests as a result of (5)or (5) business combinations Payment for purchase of own shares for share trusts (52) (52) Buyout of noncontrolling interests Utilization of EBT shares 48C (48) Or Credit entry relating to share-based payments 158 Cr 158 At March 31, 2012 (661) 12,524 11,863 The group's retained earnings include amounts of US $790 million (2011: US $693 mil- lion), the distribution of which is limited by statutory or other restrictions -- -- 3 Treasury and EBT shares reserve. On February 26, 2009, 77,368,338 SABMiller ple nonvoting convertible shares were converted into ordinary shares and then acquired by the company to be held as treasury shares. While the purchase price for each share was 10.54, the whole amount of the consideration was paid between group companies. On February 15, 2010, 5,300,000 of these treasury shares were transferred to the EBT for nil consideration. These shares will be used to satisfy awards outstanding under the various share incentive plans. As of March 31, 2012, a total of 72,068,338 shares (2011: 72,068,338) were held in treasury There are two employee benefit trusts currently in operation, being the SABMiller Employee Benefit Trust (the EBT) and the SABMiller Associated Companies' Employees' Benefit Trust (the AC-EBT). The EBT hold shares in SABMiller ple for the purposes of the various executive share incentive plans, further details of which are disclosed in the directors' remuneration report. At March 31, 2012 the EBT held 5,605,746 shares (2011: 7,437,406 shares) which cost US$98 million (2011: US$94 million) and had a market value of US$225 million (2011: US$263 million). These shares have been treated as a deduction in arriving at shareholders' funds. The EBT used funds provided by SABMiller plc to purchase such of the shares as were purchased in the market. The costs of funding and administering the scheme are charged to the income statement in the period to which they relate. The AC-EBT holds shares in SABMiller ple for the purposes of providing share incen- tives for employees of companies in which SABMiller has a significant economic and strategic interest but over which it does not have management control. Further details on the AC-EBT are disclosed in the directors' remuneration report. At March 31, 2012 the AC-EBT held 335,940 shares which cost US$11 million and had a market value of US$13 million. These shares have been treated as a deduction in arriving at shareholders' funds. The AC-EBT used funds provided by Gardwell Ltd, a wholly owned indirect subsidiary of SABMiller ple, to purchase the shares. The costs of funding and administering the scheme are charged to the income statement in the period to which they relate. Shares currently held in each EBT rank pari passu with all other ordinary shares, how- ever, in both cases the trustees have elected to waive dividends and decline from voting shares, except in circumstances where they may be holding shares beneficially owned by a participant. There were no beneficially owned shares in either EBT as at March 31, 2012. 27. Retained carnings and other reserves continued t. Other reserves The analysis of other reserves is as follows: Foreign Net currency Cash flow investment Available translation hedging hedging for sale reserve reserve reserve reserve Total US&m USSM USSM US m US At April 1, 2010 1,533 (11) (203) 3 1,322 Currency translation differences: Subsidiaries 501 - Associates and joint ventures 149 Net investment hedges (137) (137) Cash flow hedges 39 39 Deferred tax on items taken to other (14) (14) comprehensive income. Share of associates and joint 21 21 ventures gains recognized in other comprehensive income At March 31, 2011 2,183 35 (340) 3 1,881 Currency translation differences: -Subsidiaries 243 243 - Associates and joint ventures (106) (106) Net investment hedges (1) (1) Cash flow hedges 6 6 Deferred tax on items taken to other 3001 30 comprehensive income Share of associates' and joint ven- (75) tures' losses recognized in other comprehensive income AEMarab 501 (75)66 71.7% 4
