QUESTION 1 [40 MARKS] You were recently appointed as the group financial accountant of the Strawberry Ltd group of companies. The accountants of the various companies in the group finalised the trial balances of the individual companies and handed them to you for preparation of the consolidated financial statements for publication. The financial year-end of the group is 31 March 2021. The summarised trial balances are as follows: CREDITS Strawberry Grape Peach Mango Ltd Ltd Ltd Ltd N$'000 N$'000 N$'000 N$'000 2 850 710 1 510 500 840 2 640 1 200 150 2 250 1 000 250 1 450 Ordinary R1 shares Retained earnings - 1 April 2020 Sales Investment income Creditors Deferred taxation 760 678 1 200 1 583 250 75 564 7072 95 5 275 30 2 980 5258 1 475 1 025 602 800 1 050 980 1 932 1 645 1 200 400 950 DEBITS Land and buildings - at carrying amount Machinery and equipment - at carrying amount Investment in Peach Ltd - cost Investment in Grape Ltd - cost Investment in Mango Ltd - cost Cost of sales Operating expenses Finance costs Income tax expense Ordinary dividends declared Inventories Debtors Bank 570 1 117 580 20 410 57 128 125 1 400 160 80 300 200 400 8 165 238 20 200 775 400 245 160 7 072 68 17 5 275 475 60 88 85 55 2 980 5 258 ADDITIONAL INFORMATION 1. Grape Ltd 1.1 Strawberry Ltd acquired a 40 % interest in Grape Limited on 1 April 2012 for N$400 000. The retained earnings of Grape Ltd amounted to N$300 000 at that date. All assets and liabilities, were regarded as being fairly valued. 1.2 Strawberry Ltd sold inventories from 1 April 2019 on a regular basis to Grape Ltd at a profit of 25% on cost. Total sales from Strawberry Ltd to Grape Ltd amounted to N$500 000 for the current financial year. Inventories to the value of N$100 000 which was sold by Strawberry Ltd to Grape Ltd was still on hand at 31 March 2020 and N$200 000 at 31 March 2021. 1.3 On 1 April 2019 machinery with a carrying value of N$125 000 was sold to Strawberry Ltd for N$150 000. The machine was still included in the property, plant and equipment of Strawberry Ltd at 31 March 2021. Depreciation is provided at 20% per annum on the cost price of machinery 2. Peach Ltd 2.1 Strawberry Ltd acquired 960 000 ordinary shares in Peach Ltd for N$1 200 000 a number of years ago when Peach Ltd's retained earnings amounted to N$120 000. On this date Strawberry Ltd valued vacant land of Peach Ltd N$50 000 higher than the book value at that stage. Peach did not recognise the revaluation in their records. All other assets and liabilities were regarded as being fairly valued. 2.2 Peach Ltd sells inventories to Strawberry Ltd at cost price plus 25%. Included in inventories of Strawberry Ltd are the following inventories purchased from Peach Ltd: 1 April 2020 N$ 40 000 31 March 2021 N$ 80 000 The inventories on 1 April 2020 were sold fully to third parties by 31 March 2021. Total sales of inventories by Peach Ltd to Strawberry Ltd amounted to N$500 000 during the 2021 financial year. 3. Mango Ltd 3.1 Peach Ltd acquired 600 000 ordinary shares in Mango Ltd for N$950 000 on 1 October 2020. All assets and liabilities were regarded as being fairly valued. 3.2 The monthly sales and associated cost of sales of Mango Ltd increased with 25% from 1 August 2020. The operating expenses of Mango Ltd accrued evenly throughout the year. = 4. General 4.1 Accounting policies 4.1.1 Investments are accounted for at cost in the separate financial statements of Strawberry Ltd Group. 4.1.2 It is the accounting policy of the Strawberry Ltd group to measure the non-controlling interest at its proportionate share of the acquiree's identifiable net assets. Page 14 of 27 FACULTY OF COMMERCE, MANAGEMENT AND LAW 4.1.3 Investments in associated companies are accounted for in accordance with the equity method. 4.2 Taxation 4.2.1 Assume that the statutory tax rate has remained unchanged at 28% for a number of years. 4.3 Dividends The dividends of all companies in the group were approved and authorised at directors' meetings held on 15 March 2021. The dividends will be paid on 30 April 2021. The dividends were correctly accounted for by all companies in the group. Dividends payable and receivable are included in creditors and debtors respectively in the trial balances of the individual companies. Marks 35 REQUIRED: (a) Prepare all the pro-forma consolidation journal entries in the books of the group for the reporting period ended 31 March 2021. Journal narrations are not required. (b) Indicate at what amounts the following line items will be included in the consolidated financial statements of the Strawberry Ltd Group as at 31 March 2021: i. Investment in associate ii. Share of profit of associate 5 TOTAL MARKS 40 II QUESTION 1 [40 MARKS] You were recently appointed as the group financial accountant of the Strawberry Ltd group of companies. The accountants of the various companies in the group finalised the trial balances of the individual companies and handed them to you for preparation of the consolidated financial statements for publication. The financial year-end of the group is 31 March 2021. The summarised trial balances are as follows: CREDITS Strawberry Grape Peach Mango Ltd Ltd Ltd Ltd N$'000 N$'000 N$'000 N$'000 2 850 710 1 510 500 840 2 640 1 200 150 2 250 1 000 250 1 450 Ordinary R1 shares Retained earnings - 1 April 2020 Sales Investment income Creditors Deferred taxation 760 678 1 200 1 583 250 75 564 7072 95 5 275 30 2 980 5258 1 475 1 025 602 800 1 050 980 1 932 1 645 1 200 400 950 DEBITS Land and buildings - at carrying amount Machinery and equipment - at carrying amount Investment in Peach Ltd - cost Investment in Grape Ltd - cost Investment in Mango Ltd - cost Cost of sales Operating expenses Finance costs Income tax expense Ordinary dividends declared Inventories Debtors Bank 570 1 117 580 20 410 57 128 125 1 400 160 80 300 200 400 8 165 238 20 200 775 400 245 160 7 072 68 17 5 275 475 60 88 85 55 2 980 5 258 ADDITIONAL INFORMATION 1. Grape Ltd 1.1 Strawberry Ltd acquired a 40 % interest in Grape Limited on 1 April 2012 for N$400 000. The retained earnings of Grape Ltd amounted to N$300 000 at that date. All assets and liabilities, were regarded as being fairly valued. 1.2 Strawberry Ltd sold inventories from 1 April 2019 on a regular basis to Grape Ltd at a profit of 25% on cost. Total sales from Strawberry Ltd to Grape Ltd amounted to N$500 000 for the current financial year. Inventories to the value of N$100 000 which was sold by Strawberry Ltd to Grape Ltd was still on hand at 31 March 2020 and N$200 000 at 31 March 2021. 1.3 On 1 April 2019 machinery with a carrying value of N$125 000 was sold to Strawberry Ltd for N$150 000. The machine was still included in the property, plant and equipment of Strawberry Ltd at 31 March 2021. Depreciation is provided at 20% per annum on the cost price of machinery 2. Peach Ltd 2.1 Strawberry Ltd acquired 960 000 ordinary shares in Peach Ltd for N$1 200 000 a number of years ago when Peach Ltd's retained earnings amounted to N$120 000. On this date Strawberry Ltd valued vacant land of Peach Ltd N$50 000 higher than the book value at that stage. Peach did not recognise the revaluation in their records. All other assets and liabilities were regarded as being fairly valued. 2.2 Peach Ltd sells inventories to Strawberry Ltd at cost price plus 25%. Included in inventories of Strawberry Ltd are the following inventories purchased from Peach Ltd: 1 April 2020 N$ 40 000 31 March 2021 N$ 80 000 The inventories on 1 April 2020 were sold fully to third parties by 31 March 2021. Total sales of inventories by Peach Ltd to Strawberry Ltd amounted to N$500 000 during the 2021 financial year. 3. Mango Ltd 3.1 Peach Ltd acquired 600 000 ordinary shares in Mango Ltd for N$950 000 on 1 October 2020. All assets and liabilities were regarded as being fairly valued. 3.2 The monthly sales and associated cost of sales of Mango Ltd increased with 25% from 1 August 2020. The operating expenses of Mango Ltd accrued evenly throughout the year. = 4. General 4.1 Accounting policies 4.1.1 Investments are accounted for at cost in the separate financial statements of Strawberry Ltd Group. 4.1.2 It is the accounting policy of the Strawberry Ltd group to measure the non-controlling interest at its proportionate share of the acquiree's identifiable net assets. Page 14 of 27 FACULTY OF COMMERCE, MANAGEMENT AND LAW 4.1.3 Investments in associated companies are accounted for in accordance with the equity method. 4.2 Taxation 4.2.1 Assume that the statutory tax rate has remained unchanged at 28% for a number of years. 4.3 Dividends The dividends of all companies in the group were approved and authorised at directors' meetings held on 15 March 2021. The dividends will be paid on 30 April 2021. The dividends were correctly accounted for by all companies in the group. Dividends payable and receivable are included in creditors and debtors respectively in the trial balances of the individual companies. Marks 35 REQUIRED: (a) Prepare all the pro-forma consolidation journal entries in the books of the group for the reporting period ended 31 March 2021. Journal narrations are not required. (b) Indicate at what amounts the following line items will be included in the consolidated financial statements of the Strawberry Ltd Group as at 31 March 2021: i. Investment in associate ii. Share of profit of associate 5 TOTAL MARKS 40