QUESTION 1 (18 marks) (22 minutes) Farm Ltd is involved in the IT industry and sells computer hardware to wholesalers. Due to increasec demand for computer parts, the board of directors of Farm Ltd decided to expand the business through a business acquisition. On 1 April 2021, Farm Ltd acquired a controlling interest in PC Ltd which is a manufacturer of specialized computer equipment for a cash consideration of R4 500000 . The following information exists on 28 February 2023. Additional information: 1. On 1 April 2021, Farm Ltd acquired 70% of the ordinary shares and 75% of the preference shares in PC Ltd. The net assets of PC Ltd on acquisition date consisted of ordinary share capital of R650 000, preference share capital of R300000, retained earnings of R1 680000 , and a revaluation surplus on land of R2 760000 . PC Ltd classified the cumulative preference share capital as equity and no preference dividends were in arrears at acquisition. It is group policy to show goodwill at cost less impairment, and goodwill has not been impaired since acquisition. The issued share capital of both companies remained unchanged since incorporation. Assume that each ordinary share carries one vote and voting rights alone are used to determine control. At the date of acquisition, all assets, and liabilities of PC Ltd were measured at fair value, except for a portion of land. Reports from an independent valuer were obtained on 1 April 2021 and found that this portion of land had a carrying amount of R1 695000 and was valued at R1 910000 on acquisition date. The revaluation surplus in PC Ltd at the beginning of the current year amounted to R3 567190. Farm Ltd did not have any other revaluations in the current financial year. 2. Since acquisition, Farm Ltd purchased computer parts from PC Ltd at a consistent markup of 25% on cost. Inventory in Farm Ltd on 28 February 2022 amounted to R1 500000 , and 70% thereof represented purchases from PC Ltd. On 28 February 2023, PC Ltd's inventory amounted to R5 000000 and Farm Ltd's inventory amounted to R2 000000 , of which 40% was from suppliers external to the group. FAC2602 Assessment 3 - Semester 2