QUESTION 2 (25 marks)

The Indegenous Group carries on business as a distributor of warehouse equipment and importer of fruit into the country. Indegenous was incorporated in 20X1 to distribute warehouse equipment. It diversified its activities during 20X3 to include the import and distribution of fruit, and expanded its operations by the acquisition of shares in Melon in 20X5 and in Kiwi in 20X7.

Accounts for all companies are made up to 31 December.

The draft income statements for Indegenous, Melon and Kiwi for the year ended 31 December 20X9 are as follows.

Revenue	Indegenous R'0 00 45,6 00	Melon R'0 00 24,7 00	Kiwi R'0 00 22,8 00
Cost of sales	18,050	5,463	5,320
Gross profit	27,550	19,237	17,480
Distribution costs	3,325	2,137	1,900
Administrative expenses	3,475	950	1,900
Finance costs	325
Profit before tax	20,425	16,150	13,680
Income tax expense	8,300	5,390	4,241
Profit for the year	12,125	10,760	9,439

Dividends paid and declared for the period	9,500
The draft statements of financial position as at 31 December 20X9 are as follows.
Non-current assets	Indegenous R'000	Melon R'000	Kiwi R'00 0
Property, plant and equipment (NBV) Investments Shares in Melon	35,483 6,650	24,273	13,063
Shares in Kiwi		3,800
	42,133	28,073	13,063
Current assets	1,568	9,025	8,883
	43,701	37,098	21,946
Equity
R1 ordinary shares	8,000	3,000	2,000
Retained earnings	22,638	24,075	19,898
	30,638	27,075	21,898
Current liabilities	13,063	10,023	48
	43,701	37,098	21,946

The following information is available relating to Indegenous, Melon and Kiwi.

On 1 January 20X5 Indegenous acquired 2,700,000 R1 ordinary shares in Melon for R6,650,000 at which date there was a credit balance on the retained earnings of Melon of R1,425,000. No shares have been issued by Melon since Indegenous acquired its interest.

On 1 January 20X7 Melon acquired 1,600,000 R1 ordinary shares in Kiwi for R3,800,000 at which date there was a credit balance on the retained earnings of Kiwi of R950,000. No shares have been issued by Kiwi since Melon acquired its interest.

During 20X9, Kiwi had made intragroup sales to Melon of R480,000 making a profit of 25% on cost and

R75,000 of these goods were in inventories at 31 December 20X9.

During 20X9, Melon had made intragroup sales to Indigenous of R260,000 making a profit of 331/3% on cost and

R60,000 of these goods were in inventories at 31 December 20X9.

On 1 November 20X9 Indigenous sold warehouse equipment to Melon for R240,000 from inventories. Melon has included this equipment in its property, plant and equipment. The equipment had been purchased on credit by indigenous for R200,000 in October 20X9 and this amount is included in its current liabilities as at 31 December 20X9.

Melon charges depreciation on its warehouse equipment at 20% on cost. It is company policy to charge a full year's depreciation in the year of acquisition to be included in the cost of sales.

An impairment test conducted at the year-end did not reveal any impairment losses.

It is the group's policy to value the non-controlling interest at fair value at the date of acquisition. The fair value of the non-controlling interests in Melon on 1 January 20X5 was R500,000. The fair value of the 28% non-controlling interest in Kiwi on 1 January 20X7 was R900,000.

Required

Prepare for the Indigenous Group:

(a) A consolidated income statement for the year ended 31 December 20X9 (25 marks)