Question 11 The Huck Group of Huck and its investee companies Berry and Fyn at 31 May 2020 are shown below: Draft Income Statements for the year ended 31 May 2020 Huck Berry Fyn R000 R000 R000 Revenue 1,138 488 149 Cost of sales (576) (214) (59) _____ _____ _____ Gross profit 562 274 90 Other operating expenses (138) (54) (40) _____ _____ _____ Profit from operations 424 220 50 Interest payable (38) (44) (14) _____ _____ _____ Profit before tax 386 176 36 Taxation (54) (24) (6) _____ _____ _____ Profit for the year 332 152 30 _____ _____ _____ 8 Draft Statements of financial position as at 31 May 2020 Huck Berry Fyn R000 R000 R000 R000 R000 R000 Non-current assets PPE 690 812 712 Investments 1,950 - - ____ ____ ____ 2,640 812 712 Current assets Inventories 700 594 56 Receivables 1,000 180 130 Cash and cash equivalents 375 25 15 ____ ____ ____ 2,075 799 201 ____ ____ ____ 4,715 1,611 913 ____ ____ ____ 9 Equity Share capital (R1 ordinary shares) 1,875 600 500 Reserves 1,125 690 160 ____ ____ ____ 3,000 1,290 660 Non-current liabilities 7% Loan note 300 200 50 Current liabilities Trade Payables 1,350 101 188 Taxation 65 20 15 ____ ____ ____ 1,415 121 203 ____ ____ ___ 4,715 1,611 913 ____ ____ ____ Additional information During the year Huck acquired a new asset with a fair value of R100,000 under a finance lease. The lease agreement states payments of R20,000 must be paid for six years on 31 May each year, starting on 31 May 2020. At the end of the six year period legal title of the asset will pass to Huck. Huck believes the only accounting entry he must make in relation to this asset is for the R20,000 payment he has made and he has treated this as an operating expense. Huck acquired 600,000 ordinary shares in Berry on 1 June 2016 for R1,550,000 when the reserves of Berry were R200,000. 10 At the date of acquisition of Berry, the fair value of its property was R375,000 higher than its book value and considered to have a remaining life of 10 years. Huck acquired 150,000 ordinary shares in Fyn on 1 June 2019 for R400,000 when the reserves of Fyn were R90,000. The fair values of assets of Fyn were the same as their net book value at that date. Depreciation should be treated as an operating expense. Huck manufactures a component used by Berry and Fyn. Huck sells this component at a margin of 25% and sold goods to Berry for R52,000 during the year. None of these goods had been sold by Berry at 31 May 2020. Huck sold goods to Fyn for R80,000 and Fyn had sold all of these goods at 31 May 2020. The receivables of Huck include R60,000 in respect of amounts owing by Berry and R35,000 in respect of amounts owing by Fyn. The corresponding balances in the payables of Berry and Fyn are R40,000 (Berry) and R35,000 (Fyn). On 30 May 2020 Berry had sent a cheque to Huck for R20,000. The impairment test on goodwill applied to Berry showed goodwill is being impaired by 10% per annum on a straight line basis. There has been no impairment for Fyn. Requirements: (a) Prepare the calculations for the adjustments required to be made in the accounts of Huck for the year ended 31 May 2020, to account for the finance lease in note (i). You should apply the sum of the digits method when calculating the finance cost and prepare all workings to the nearest thousand. You should assume these calculations will have no effect on taxation. (5 marks) (b) Prepare the consolidated statement of comprehensive income and consolidated statement of financial position of the Huck group at 31 May 2020, incorporating the calculations you have made in requirement (a) above. (20 marks)