QUESTION 1 (65 marks) The following trial balances were obtained from the financial records of Tea Ltd (Tea) and Coffee Ltd (Coffee) for the financial year ended 31 December 2022: On 1 January 2020, Tea acquired 80% of the ordinary share capital (160 000 shares) of Coffee for R275 000 cash and thereby obtained control over Coffee on that date. The share capital of Coffee on 1 January 2020 was R200 000 and retained earnings was R84 000. All Coffees assets and liabilities were considered to be fairly valued on this date except for an item of property, plant, and equipment (PPE) which was considered to be Final Trial balances Tea Ltd (R) Coffee Ltd (R) DR CR DR CR Ordinary Share capital: R1 each 800 000 200 000 Retained earnings: 1 January 2022 212 382 142 130 Ordinary dividends declared: 31 December 2022 140 000 120 000 Trade and other payables 275 000 320 004 Shareholders for dividends ordinary 140 000 120 000 Property, plant, and equipment 1 200 600 830 150 Trade and other receivables 295 000 167 000 Investment in Coffee (associate) 135 000 - Sales 3 420 000 1 900 000 Cost of Sales 2 565 000 1 140 000 Other income 195 000 47 300 Other expenses 576 000 340 500 Finance costs 10 800 1 500 Income tax expense 119 982 130 284 5 042 382 5 042 382 2 729 434 2 729 434 ANNEXURE I: FORMATIVE ASSESSMENT 2 110 HFAC333-1-Jan-June2023-FA2-SK-V4-02022023 R75 000 more than the carrying value on 1 January 2020. The PPE item had a remaining useful life of 3 years from 1 January 2020 and a residual value of zero. Tea elected to measure the non-controlling interest at its proportionate share of Coffees identifiable net assets at the acquisition date. Tea also measures investments in subsidiaries and associates at cost in its separate financial statements. On 30 June 2022, Tea disposed 120 000 of its ordinary shares in Coffee for R379 718 and thereby, from that date, exercised significant influence over Coffee. All Coffees assets and liabilities were considered to be fairly valued on the disposal date. On 30 June 2022, the fair value of Teas remaining interest in Coffee was R135 000. Included in other income of Tea is the gain on disposal of the shares in Coffee of R173 468 [calculated as R379 718 minus (R275 000 x 60%/80%)]. The tax effect of the sale transaction was included in the tax expense [calculated as R173 468 X 22.4% = R38 857]. Coffee declared a dividend to all its shareholders on 15 December 2022. This was the only dividend declaration made during the financial year. The dividends were still outstanding at year end. The amount receivable by Tea is included in other income and trade and other receivables. Other information: Coffee's profit was earned evenly throughout the financial year. All companies in the Tea Ltd Group have a 31 December financial year end. Assume an Income Tax rate of 28% for all periods and 80% of capital gains are included in taxable income in all periods at the time gains are realised. Ignore the effects of Dividend Tax and Value Added Tax (VAT). ANNEXURE I: FORMATIVE ASSESSMENT 2 111 HFAC333-1-Jan-June2023-FA2-SK-V4-02022023

REQUIRED: 1.1 Prepare only the initial at acquisition general journal for the Tea Group of companies to account for the consolidation of Coffee Ltd on 1 January 2020. Dates and narrations are not required (10 marks)

1.2 Prepare the Consolidated Statement of Profit and Loss and Other Comprehensive Income for the Tea Group for the financial year ended 31 December 2022. Show and reference all your workings and calculations clearly. (55 marks)