QUESTION 1 (48 marks) Trees Ltd is a company with investments in various other entities. All companies in the group have a 30 June year-end. The following trial balances as at 30 June 2022 are presented to you: Trees Ltd Leaves Ltd Roots Ltd R R R Debits Property, plant and equipment 1 333 800 619 400 283 000 Investment subsidiaries - Leaves Ltd 235 000 - - - Roots Ltd 210 000 - - Investment in preference shares 80 000 - - Trade receivables 321 200 28 400 10 800 Bank 578 200 25 600 1 200 Ordinary dividends (declared & paid: 31/05/2022) 200 000 10 000 - Preference dividend (declared & paid: 30/06/2022) - 20 000 - Loss for the year - - 20 400 2 958 200 703 400 315 400 Credits Ordinary share capital (Number of shares: 500 000; 100 000; 50 000) 500 000 100 000 50 000 10% Preference share capital - 200 000 - Retained earnings (01/07/2021) 1 877 500 287 200 254 200 Trade payables 228 200 17 500 11 200 Profit for the year 352 500 98 700 - 2 958 200 703 400 315 400 3 HFAC331-1-Jan-June2023-SuppSA1-CP-V3-22062022 Investment in Leaves Ltd: Trees Ltd acquired 80 000 shares in Leaves Ltd on 31 May 2019. At the acquisition date, Leaves Ltd had a retained earnings balance of R154 200. At the acquisition date, the assets and liabilities of Leaves Ltd were considered fairly valued according to IFRS 3, except for a machine, which Trees Ltd considered to be undervalued by R40 000. The machine had a remaining useful life of 4 years on 31 May 2019. On 1 July 2021, Leaves Ltd issued 20 000 preference shares. Trees Ltd took up 8 000 of the preference shares issued by Leaves Ltd. The preference share dividend payment has priority over that of the ordinary shareholders. At 30 June 2022, all the preference dividends were declared and paid. Investment in Roots Ltd: Trees Ltd acquired 30 000 shares in Roots Ltd on 1 March 2018 for R225 000. At the acquisition date, Roots Ltd had a retained earnings balance of R298 500. At the acquisition date, the assets and liabilities of Roots Ltd were considered fairly valued according to IFRS 3. Due to Roots Ltd making losses for the 2021 and 2022 financial years, Trees Ltd recognised an impairment loss of R15 000 in respect of its investment in Roots Ltd in its separate financial statements for the 30 June 2022 financial year. The impairment loss was included in arriving at Trees Ltd's profit for the year, and the investment in Roots Ltd is reflected in Trees Ltd's trial balance at its impaired value of R210 000. To prepare the consolidated financial statements, Trees Ltd determined the recoverable amount of Roots Ltd to be R290 000 as at 30 June 2022. 4 HFAC331-1-Jan-June2023-SuppSA1-CP-V3-22062022 General information: Trees Ltd accounts for investments in both ordinary shares and preference shares in subsidiaries at cost iQUESTION 1 (48 marks) Trees Ltd is a company with investments in various other entities. All companies in the group have a 30 June year-end. The following trial balances as at 30 June 2022 are presented to you: Trees Ltd Leaves Ltd Roots Ltd R R R Debits Property, plant and equipment 1 333 800 619 400 283 000 Investment subsidiaries - Leaves Ltd 235 000 - - - Roots Ltd 210 000 - - Investment in preference shares 80 000 - - Trade receivables 321 200 28 400 10 800 Bank 578 200 25 600 1 200 Ordinary dividends (declared & paid: 31/05/2022) 200 000 10 000 - Preference dividend (declared & paid: 30/06/2022) - 20 000 - Loss for the year - - 20 400 2 958 200 703 400 315 400 Credits Ordinary share capital (Number of shares: 500 000; 100 000; 50 000) 500 000 100 000 50 000 10% Preference share capital - 200 000 - Retained earnings (01/07/2021) 1 877 500 287 200 254 200 Trade payables 228 200 17 500 11 200 Profit for the year 352 500 98 700 - 2 958 200 703 400 315 400 3 HFAC331-1-Jan-June2023-SuppSA1-CP-V3-22062022 Investment in Leaves Ltd: Trees Ltd acquired 80 000 shares in Leaves Ltd on 31 May 2019. At the acquisition date, Leaves Ltd had a retained earnings balance of R154 200. At the acquisition date, the assets and liabilities of Leaves Ltd were considered fairly valued according to IFRS 3, except for a machine, which Trees Ltd considered to be undervalued by R40 000. The machine had a remaining useful life of 4 years on 31 May 2019. On 1 July 2021, Leaves Ltd issued 20 000 preference shares. Trees Ltd took up 8 000 of the preference shares issued by Leaves Ltd. The preference share dividend payment has priority over that of the ordinary shareholders. At 30 June 2022, all the preference dividends were declared and paid. Investment in Roots Ltd: Trees Ltd acquired 30 000 shares in Roots Ltd on 1 March 2018 for R225 000. At the acquisition date, Roots Ltd had a retained earnings balance of R298 500. At the acquisition date, the assets and liabilities of Roots Ltd were considered fairly valued according to IFRS 3. Due to Roots Ltd making losses for the 2021 and 2022 financial years, Trees Ltd recognised an impairment loss of R15 000 in respect of its investment in Roots Ltd in its separate financial statements for the 30 June 2022 financial year. The impairment loss was included in arriving at Trees Ltd's profit for the year, and the investment in Roots Ltd is reflected in Trees Ltd's trial balance at its impaired value of R210 000. To prepare the consolidated financial statements, Trees Ltd determined the recoverable amount of Roots Ltd to be R290 000 as at 30 June 2022. 4 HFAC331-1-Jan-June2023-SuppSA1-CP-V3-22062022 General information: Trees Ltd accounts for investments in both ordinary shares and preference shares in subsidiaries at cost in its separate financial statements. Trees Ltd elected to measure the non-controlling interest at its proportionate share of the subsidiary's identifiable net assets. There were no changes in the issued share capital of any of the companies in the group. Leaves Ltd's preference shares were classified as equity. Assume a tax rate of 28% and a capital gains tax inclusion rate of 80%. REQUIRED: Prepare the pro forma journal entries required to prepare the consolidated financial statements of the Trees Ltd Group for the financial year ending 30 June 2022. Investment in Leaves Ltd (30 marks) Investment in Roots Ltd (18 marks)n its separate financial statements. Trees Ltd elected to measure the non-controlling interest at its proportionate share of the subsidiary's identifiable net assets. There were no changes in the issued share capital of any of the companies in the group. Leaves Ltd's preference shares were classified as equity. Assume a tax rate of 28% and a capital gains tax inclusion rate of 80%. REQUIRED: Prepare the pro forma journal entries required to prepare the consolidated financial statements of the Trees Ltd Group for the financial year ending 30 June 2022. Investment in Leaves Ltd (30 marks) Investment in Roots Ltd (18 marks)