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On 1 January 20.7, the first day of the financial year, P held a 35% ownership interest in S Ltd. On 31 March 20.7, P Ltd, acquired a further ownership interest of 20% in S Ltd from other shareholders for R200 000. P Ltd accounted for its initial investment in S Ltd in its consolidated financial statements in terms of the equity method, as significant influence was exercised over the financial and operating policies of S Ltd from the date of purchase of the initial interest. From the date of acquisition of the second interest in S Ltd, P Ltd exercised control over the financial and operating policies of S Ltd. The following information applies to the year ended 31 December 20.7: Draft statements of Profit or Loss and Other Comprehensive Income for the year ended 31 December 20.7 P Ltd and S Ltd Other subsidiaries (consolidated) R000 R000 Revenue 11 825 1 200 Cost of sales (6 450) (700) Gross profit 5 375 500 Other income (dividend received) 60 - Other income (interest received) 30 - Depreciation on non-manufacturing assets (425) - Finance costs - (40) Other expenses (1 000) (80) Profit before tax 4 040 380 Income tax expense (1 470) (150) Profit for the year 2 570 230 Profit attributable to: Owners of the parent 1 750 230 Non-controlling interests 820 - 2 570 230

On 1 January 20.7, the first day of the financial year, P held a 35% ownership interest in S Ltd. On 31 March 20.7, P Ltd, acquired a further ownership interest of 20% in S Ltd from other shareholders for R200 000. P Ltd accounted for its initial investment in S Ltd in its consolidated financial statements in terms of the equity method, as significant influence was exercised over the financial and operating policies of S Ltd from the date of purchase of the initial interest. From the date of acquisition of the second interest in S Ltd, P Ltd exercised control over the financial and operating policies of S Ltd. The following information applies to the year ended 31 December 20.7: Draft statements of Profit or Loss and Other Comprehensive Income for the year ended 31 December 20.7 P Ltd and S Ltd Other subsidiaries (consolidated) R000 R000 Revenue 11 825 1 200 Cost of sales (6 450) (700) Gross profit 5 375 500 Other income (dividend received) 60 - Other income (interest received) 30 - Depreciation on non-manufacturing assets (425) - Finance costs - (40) Other expenses (1 000) (80) Profit before tax 4 040 380 Income tax expense (1 470) (150) Profit for the year 2 570 230 Profit attributable to: Owners of the parent 1 750 230 Non-controlling interests 820 - 2 570 230 EXTRACT FROM THE STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 20.7 Retained Earnings P Ltd and S Ltd Other subsidiaries (consolidated) R000 R000 Balance at 1 January 20.7 3 420 420 Changes in equity for 20.7 Profit for the year 1 750 230 Dividend paid: 31 December 20.7 (700) (100) Balance at 31 December 20.7 4 470 550 Additional information: 1. P Ltd acquired its 35% interest in S Ltd for R175 000 (equalling its proportion of the net asset value of S Ltd) when S Ltds retained earnings amounted to R 150 000. Since then, S Ltd has not issued any new shares. 2. S Ltds major asset is land. S Ltd revalued this property in its individual financial statements just before P Ltd acquired its 35% interest, and credited the revaluation surplus by R100 000. The land, presented in S Ltds statement of financial position at R800 000, is not depreciated. It is the policy of the group to realise the revaluation surplus when the asset is sold. Any amount paid in excess of the net asset value of S Ltd at the acquisition date of the additional date of the additional 20% ownership interest in S Ltd, is attributed to the fact that land in not fairly stated at this date. The remainder of S Ltds net assets are of a short-term nature and regarded as fairly stated in terms of the requirements of IFRS 3 Business Combinatons. 3. The fair value of P Ltds previously held equity interest in S Ltd was R350 000 at the date on which P Ltd obtained control over the financial and operating policies of S Ltd (i.e the acquisition date). 4. S Ltds net income was earned evenly throughout the year. 5. P Ltd elected to measure the non-controlling interest at its proportionate share of the acquirees identifiable net assets at the acquisition date. 6. P Ltd elected to measure the investment in S Ltd at cost in its separate financial statements in terms of IAS 27.10 (a) and IAS 28.44. 7. Assume that the opening balance of the non-controlling interest of P Ltd an other subsidiaries at 1 January 20.7 was R1 million. 8. A company tax rate of 30% applies and CGT is calculated at 50% thereof. Required Prepare the consolidated statement of profit or loss and other comprehensive income and the consolidated statement of changes in equity (column for share capital is not required) of the P Ltd Group for the year ended 31 December 20.7.

Question 6: (25) Ward is seeking to grow through acquisition and has identified two unlisted entities, Moon and Kirke, of similar size and operating in the same line of business but in different jurisdictions, as potential acquisition targets. Ward's chairman has confirmed that both entities are receptive to genuine offers. . . A board meeting has been scheduled to discuss the potential acquisition targets. Ward's chairman has requested that a report be prepared for the meeting which will include analysis of the following nine key financial ratios that board members use when considering acquisitions: . Gross profit percentage Profit before tax as a percentage of revenue Return on capital employed Asset turnover (revenue/capital employed) . Current ratio . Gearing (debt/equity) Interest cover Average rate of borrowings Approximate rate of tax The most recent published statements of profit or loss and comprehensive income for both Moon and Kirke are presented below, together with extracts from their statements of financial position: . . Statements of profit or loss and comprehensive Income Moon Kirke Revenue Cost of sales ROOO 6,340 (3,490) R000 6,800 (4,060) Gross profit Distribution costs Administrative expenses Share of profit of associate Gains on held for trading assets Finance costs 2,850 (830) (670) 210 2,740 (650) (670) (230) 60 (190) Profit before tax Income tax expense 1.330 (350) 1,290 (320) 980 970 Profit for the year Other comprehensive income Items that may be reclassified subsequently to profit or loss: Gains of available for sale assets Items that will not be reclassified to profit or loss: Revaluation of PPE 65 - 450 Total comprehensive income 1.495 970 Extracts from statements of financial position Total equity Borrowings (long term) Current assets Moon ROOO 5.100 2.800 Kirke ROOO 4,250 3,750 Current assets Current liabilities 1.950 1,680 2,300 1,560 Required: (a)' (b) Calculate the nine key ratios that the board use when considering acquisitions for Moon and Kirke. Compare and contrast the financial performance and financial position of entities Moon and Kirke. Explain what further information you would require in order to make an initial recommendation on which entity would be the most suitable target for acquisition (c) Question 6: (25) Ward is seeking to grow through acquisition and has identified two unlisted entities, Moon and Kirke, of similar size and operating in the same line of business but in different jurisdictions, as potential acquisition targets. Ward's chairman has confirmed that both entities are receptive to genuine offers. . . A board meeting has been scheduled to discuss the potential acquisition targets. Ward's chairman has requested that a report be prepared for the meeting which will include analysis of the following nine key financial ratios that board members use when considering acquisitions: . Gross profit percentage Profit before tax as a percentage of revenue Return on capital employed Asset turnover (revenue/capital employed) . Current ratio . Gearing (debt/equity) Interest cover Average rate of borrowings Approximate rate of tax The most recent published statements of profit or loss and comprehensive income for both Moon and Kirke are presented below, together with extracts from their statements of financial position: . . Statements of profit or loss and comprehensive Income Moon Kirke Revenue Cost of sales ROOO 6,340 (3,490) R000 6,800 (4,060) Gross profit Distribution costs Administrative expenses Share of profit of associate Gains on held for trading assets Finance costs 2,850 (830) (670) 210 2,740 (650) (670) (230) 60 (190) Profit before tax Income tax expense 1.330 (350) 1,290 (320) 980 970 Profit for the year Other comprehensive income Items that may be reclassified subsequently to profit or loss: Gains of available for sale assets Items that will not be reclassified to profit or loss: Revaluation of PPE 65 - 450 Total comprehensive income 1.495 970 Extracts from statements of financial position Total equity Borrowings (long term) Current assets Moon ROOO 5.100 2.800 Kirke ROOO 4,250 3,750 Current assets Current liabilities 1.950 1,680 2,300 1,560 Required: (a)' (b) Calculate the nine key ratios that the board use when considering acquisitions for Moon and Kirke. Compare and contrast the financial performance and financial position of entities Moon and Kirke. Explain what further information you would require in order to make an initial recommendation on which entity would be the most suitable target for acquisition (c)