QUESTION 1 (25 marks) Kingsley Ltd is a well-known apparel company that specialises in men's and women's fashion. Kingsley Ltd was founded in Cape Town in year 2000 and is listed on the Johannesburg Stock Exchange. Kingsley Ltd holds investments in other entities that are leading clothing brands in South Africa. All the companies in the Kingsley Ltd Group have a 31 March year end. You have been appointed as the Group financial accountant to assist in the preparation of the group financial statements for the year ended 31 March 2023. The companies mentioned below form part of the Kingsley Ltd Group. 1. Investment in Hilton Ltd Hilton Ltd is a company based in Woodstock, Cape Town which manufactures and retails womens clothing. Hilton was incorporated in 2018 and has 135 000 ordinary shares in issue with par value of R1,50 per share. On 1 July 2021, Kingsley Ltd acquired 40 500 ordinary shares in Hilton Ltd from the previous investors. Since 1 July 2021, Kingsley Ltd has exercised significant influence over the financial and operating policy decisions of Hilton Ltd. The total consideration amounting to R239 500 was settled on the same date with cash amounting to R115 700 and a piece of land fairly valued at R123 800. On the acquisition date, the retained earnings, the only reserve of Hilton Ltd had a credit balance amounting to R327 300. The identifiable assets and liabilities of Hilton Ltd were considered to be fairly valued and equal to the carrying amounts thereof except for land which had a fair value of R180 500 and a carrying amount of R222 000. The carrying amount of the land was not adjusted in the separate financial statements of Hilton Ltd. The financial accountant of Hilton Ltd has prepared the following extracts from the financial statements. HILTON LTD STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2023 Share capital Retained Earnings Revaluation Reserve* R R R Opening balance as at 1 April 2022 202 500 1 295 190 28 570 Changes in equity for the year: Profit for the year .......................................... - 1 856 097 - Other comprehensive income ....................... - - 54 330 Dividends paid at 31 March 2023 ................. - (36 000) - Closing balance as at 31 March 2023 202 500 3 115 287 82 900 * This revaluation reserve relates to machinery. 2. Investment in Urban Ltd On 31 March 2021, Kingsley Ltd acquired control of Urban Ltd by acquiring 70% issued ordinary shares of Urban Ltd for a cash consideration amounting to R2 010 000. On this date, Urban Ltd had 300 000 ordinary shares in issue with a par value of R1,50 per share. Urban Ltd was incorporated in 2017 and is South Africas largest branded fashion clothing and footwear retailer. The acquisition of the interest by Kingsley Ltd met the definition of a business combination in terms of IFRS 3 Business Combinations. On the acquisition date, the retained earnings of Urban Ltd amounted to R738 000 (credit balance). On 31 March 2021, the market value of Urban Ltd shares amounted to R3,00 per share. Page 3 of 4 QUESTION 1 (continued) 3. Intercompany transactions within the Kingsley Ltd Group 3.1 Transactions with Hilton Ltd Since 1 October 2022, Kingsley Ltd sold inventory to Hilton Ltd. Total sales from Kingsley Ltd to Hilton Ltd amounted to R284 500 and were paid for in cash. Kingsley Ltd sells inventory at a profit mark-up of 25% on the cost price. At year end, Hilton Ltd had sold half of the inventory purchased from Kingsley Ltd to external third parties. On 1 November 2022, Kingsley Ltd sold its new and unused equipment to Hilton Ltd for R93 000. Kingsley Ltd had originally bought this equipment from its supplier on 31 October 2022 and paid R74 000. Hilton Ltd classified this machinery as property, plant and equipment. This transaction was settled in cash by Hilton Ltd on the same date. This equipment was made available for use by Hilton Ltd on 1 November 2022, and on this date an estimated useful life of 5 years was allocated to it. The depreciation rate used is consistent with tax allowances granted on this equipment. 3.2 Transactions with Urban Ltd On 1 March 2023, Urban Ltd sold its new and unused Industrial Embroidery Machine to Kingsley Ltd for R155 000. Urban Ltd had originally bought this machinery from its supplier on 28 February 2023 and paid R130 000. Kingsley Ltd classified this machinery as property, plant, and equipment. In terms of the sale agreement, Kingsley Ltd will settle this transaction is two instalments. At year end, Kingsley Ltd had settled 65% of the transaction amount and the balance will be settled on 30 April 2023. 4. Notes to the financial statements of Kingsley Ltd for the year ended 31 March 2023. The Chief Financial Officer of Kingsley Ltd, Mr M. Noah has asked you to finalise the preparation of the notes to the financial statements of Kingsley Ltd for the year ended 2023, including the extract below: KINGSLEY LTD Notes for the year ended 31 March 2023 2. Related parties 2.1 Related parties Kingsley Ltd is related to Hilton Ltd because Hilton Ltd is an associate of Kingsley Ltd. 2.2 Transactions The following transactions occurred between related parties of the company during the past financial year: 2023 R Inventory sold to Hilton Ltd 284 500 Equipment sold to Hilton Ltd 93 000 All the above transactions were entered into at market-related prices and at arm's length terms and conditions. 5. Mr Noah, the Chief Financial Officer of Kingsley Ltd, is a SAICA member and a registered CA(SA) in good standing. He has indicated that he has resolved to not list members of the executive team as parties related to the entity because of other interests that such members may hold in other companies. Mr Noah owns a majority shareholding in AlphaTravel, a South African travel management company. The relevant activities of AlphaTravel, including the appointment of directors are directed through a majority of voting rights. AlphaTravel has arranged business travel and accommodation logistics for Kingsley Ltd during the current and past financial years. The transactions with Alpha Travel during the 2023 financial year, amounted to R135 000. Page 4 of 4 QUESTION 1 (continued) Additional information Kingsley Ltd measures its investments in Hilton Ltd and Urban Ltd at cost in its separate accounting records in terms of IAS 27, Separate Financial Statements. The income and expenses of all companies within the Kingsley Ltd Group were earned evenly throughout the current year except where specifically indicated. The Kingsley Ltd Group measures the non-controlling interests at fair value on the acquisition date. The South African normal tax rate is 27%. The capital gains tax inclusion rate is 80%. You may assume that both the tax rates have been effective and remained unchanged since 1 July 2021. Each share carries one vote and the share capital of each of the companies in the Kingsley Ltd Group has remained unchanged since incorporation.

a) Calculate the carrying amount of the Investment in Associate that will be presented in the consolidated statement of financial position of the Kingsley Ltd Group as at 31 March 2023