QUESTION $1$

IGNORE VAT AND DIVIDENDS WITHOLDING TAX.

Background information

Gadget Genius $($Pty$)$ Ltd $("$GG$")$ is a private company, operating in the computer and electronics retail industry. GG sells various computers, catering to a diverse market from gaming enthusiasts to professionals. GG operates within South Africa and is the parent company in the GG group.

The GG group strategically acquired its equity investments to enhance the efficiency and reliability of its supply chain. These acquisitions were aimed at streamlining operations, reducing costs, ensuring faster delivery times, and ultimately delivering greater value to its customers and strengthening the group's market position. The GG group consists of the following entities:

Gadget Genius $($Pty$)$ Ltd

Titan Tech $($Pty$)$ Ltd $("$Titan$")$

Comet Couriers $($Pty$)$ Ltd $("$Comet$")$

You are part of the GG group's financial reporting team tasked with finalising the GG group's financial statements for the financial year ended $31$ March $2024("$FY$2024").$ All companies in the GG group have a $31$ March year end.

$2.$ Titan Tech $($Pty$)$ Ltd

Titan is a prominent computer hardware manufacturer based in South Africa that specializes in producing a wide array of computer components including processors, motherboards, and storage devices. These high$-$quality components are supplied to electronic retailers across the country. GG realised that by obtaining a controlling interest in Titan, it could reduce the costs of acquiring computer components.

On $1$ September $2023,$ GG acquired a $75\%$ controlling interest in Titan by purchasing ordinary shares from Titan's existing shareholders, who are unrelated to the GG group.

On $31$ March $2023,$ Titan's equity consisted of ordinary share capital of R$1400000($which remained unchanged throughout FY$2024)$ and retained earnings of R$2875000.$ This information was confirmed in Titan's FY$2023$ audited annual financial statements.

All Titan's assets and liabilities were fairly valued on $1$ September $2023,$ except for the following items:

On $1$ September $2023,$ the carrying amount of Titan's warehouse building $("$the warehouse"$),$ used to store Titan's inventory, was correctly determined to be R$3600000.$ On the same date the fair value of the warehouse was R$3800000.$ The fair value adjustment on the warehouse was correctly calculated to be an amount of R$200000.$

The warehouse was purchased on $1$ September $2019$ at a cost of R$4500000$ and on the date of purchase, it had an estimated useful life of $20$ years, with a nil residual value. These estimates remained unchanged.

The South African Revenue Services $($SARS$)$ grants capital allowances of $5\%$ per annum $($not apportioned for periods shorter than a year$)$ on the warehouse.

GG agreed to pay the following consideration to Titan's previous shareholders in exchange for the $75\%$ controlling interest in Titan:

A cash amount of R$3500000$ payable one year after acquisition date, on $31$ August $2024.$ No interest will be charged on this amount. This payment arrangement is beyond the normal credit term of three months.

A forklift used in the warehouse, which had a carrying amount of R$1200000$ and fair value of R$1400000$ on $1$ September $2023.$

GG elected to measure the non$-$controlling interest relating to this business combination at their fair value. The fair value of the non$-$controlling interest on $1$ September $2023$ was correctly determined to be an amount of R$1250000.$

$2\mathrm{.}1$ Draft at$-$acquisition journal entry

GG$\text{'}$s junior accountant posted the following at$-$acquisition proforma journal entry on $1$ September $2023$ to account for Titan in the GG group financial statements:

$\backslash$table$[[$Account$,$Debit,Credit$],[$Dr Share capital $($EQ$),1400000,],[$Dr Retained earnings $($EQ$),2875000,],[$Dr Buildings $($SFP$),200000,],[$Dr Gain on bargain purchase $($P$/$L$)$ Balancing,$1576150,],[$Cr Deferred tax $($SFP$),,4320011$

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