QUESTION 1: 30 MARKS Impairment to an amount in the current financial year Information 1. H Limited acquired 80 000 ordinary shares in S Limited on 1 January 20.8 for R140 000. The owners equity of S Limited at that date was as follows: R Share capital 100 000 ordinary shares 100 000 Retained earnings 50 000 On this date the assets and liabilities were considered to be fairly valued and there were no unaccounted for contingent liabilities. 2. The retained earnings of S Limited amounted to R150 000 at 1 January 20.9. 3. At 31 December 20.9 the goodwill of S Limited had been impaired to R5 000. 4. The profit for the year of S Limited was R30 000. 5. The group applies the full goodwill method to account for goodwill. 6. The fair value of the non-controlling interest on 1 January 20.8 was R35 000. Prepare the following: The analysis of owners equity at acquisition. The pro forma consolidation journal entries for the year ended 31 December 20.9. FINANCIAL ACCOUNTING 3B Individual Assignment 2 Page 3 of 7 Damelin QUESTION 2 10 MARKS Investor sells to associate A Limited has a 25% interest in B Limited and has significant influence over B Limited. A Limited sold inventory to B Limited at a profit. At year end B Limited still had inventory on hand amounting to R100 000. A Ltd sells inventory to B Ltd at a profit mark-up of 20% on selling price. Assume a SA normal tax rate of 30%. QUESTION 3 60 MARKS (Increase in holding, no change in status, and an associate) The following trial balances have been extracted from the financial records of the relevant companies for the year ended 31 December 20.8: Retained earnings Wayne Limited Jiyane Limited Carol Limited R R R Property, plant and equipment 593 000 302 500 223 600 Investment in Jiyane Limited at fair value 80 000 ordinary shares 209 250 Investment in Carol Limited at fair value 30 000 ordinary shares 60 000 Dividends paid 30 April 20.8 20 000 Dividends paid 30 December 20.8 10 000 Income tax expense 83 491 27 840 40 600 Trade receivables 53 159 35 610 46 700 Prepare Prepare thethe propro formaforma consolidationconsolidation journaljournal entriesentries forfor thethe aboveabove transaction.transaction. FINANCIAL ACCOUNTING 3B Individual Assignment 2 Page 4 of 7 Damelin Cash and cash equivalents 12 500 22 890 76 200 Share capital 300 000 ordinary shares (300 000) Share capital 150 000 ordinary shares (175 000) Share capital 100 000 ordinary shares (100 000) Retained earnings 1 January 20.8 (293 900) (151 500) (22 000) Profit before dividend income (287 900) (96 000) (140 000) Dividends received (16 000) (3 000) Long-term liability (91 000) Trade and other payables (53 600) (43 340) (44 100) Additional information 1. Wayne Limited acquired 80 000 ordinary shares in Jiyane Limited on 1 January 20.3 On this date Jiyane Limiteds share capital was R100 000 (100 000 shares) and the retained earnings was R55 000. 2. Jiyane Limited acquired 30 000 ordinary shares in Carol Limited on 1 October 20.8. Jiyane Limited exercises significant influence over the financial and operating policies of Carol Limited. The profit for the current year was earned evenly throughout the year. 3. At both the above acquisition dates there were no unidentified assets, liabilities or contingent liabilities and the fair values of all assets, liabilities and contingent liabilities were confirmed to be equal to the carrying amounts thereof. On 1 May 20.8 Jiyane Limited had a rights issue of 1 ordinary share for every 2 shares held at R1,50 per share. The parent took up 47 500 of the shares and the non-controlling shareholders took up the balance. 4. The fair value of available-for-sale financial assets is equal to the cost price thereof, unless otherwise stated. 5. The SA Normal tax rate is 29% and for all the entities, each share carries one vote. 6. It is the accounting policy of the group to measure non-controlling interest using the partial goodwill method. FINANCIAL ACCOUNTING 3B Individual Assignment 2 Page 5 of 7 Damelin 7. At the end of the current year goodwill was assessed for impairment and it was not considered to be impaired. TOTAL MARKS: 100 End of Question Paper PreparePrepare thethe consolidatedconsolidated financialfinancial statementsstatements ofof thethe WayneWayne LimitedLimited GroupGroup forfor thethe yearyear endedended 3131 DecemberDecember 20.8.20.8. endedended 3131 DecemberDecember 20.8.20.8. Journal narrations Journal narrations areare required.required. Notes Notes toto thethe financialfinancial statementsstatements areare notnot required.required. Your Your answeranswer mustmust complycomply withwith thethe requirementsrequirements ofof GenerallyGenerally AcceptedAccepted AccountingAccounting Practice.Practice. All All calculationscalculations mustmust bebe donedone toto thethe nearestnearest Rand.Rand.