QUESTION $2[40$ marks$]$

Sian Ltd operates as a manufacturer of packaging and industrial cleaning materials. To reduce

their carbon footprint, the Board of directors of Sian Ltd decided to acquire $80\%$ of the shares

of Naidoo, a locally based recycling company. Naidoo Ltd became a subsidiary of Sian Ltd on $1$

January $2013.$

The following represents a list of balances of Sain Ltd and Naidoo Ltd as at $31$ Dec $2013$:

Naidoo

Ltd

R

Sian

Ltd

Debits

R

Property, plant and equipment

$11384000$

Investment in Naidoo Ltd

$7521632$

$1976000$

Loan: Naidoo Ltd $-$

$800000$

Inventories $-$

$1320000$

Trade and other receivables

$1680000$

$2251808$

Cash and cash equivalents

$595808$

$320000$

Credits $-$

Share capital $$ Ordinary shares $(2500000/350000$

shares$)$

$5000000$

$700000$

Other components of equity

$2000000$

Retained earnings

$1000000$

$2639008$

Loan: Sian Naidoo

$3197440$

$10\%$ Debentures $(12000$ debentures$)-$

$800000-$

$480000$

$6$

$6$

An extract from the statement of profit or loss and other comprehensive income includes

the following items:

Sian Ltd Naidoo Ltd

Sales

R

$16000000$

R

$13760000$

Opening inventory $-1$ January $201312000001560000$

Purchases $60000004677392$

Management fees received from Naidoo $240000-$

Depreciation: Plant and equipment $440000300000$

Management fees paid to Sian $-240000$

Interest paid: Debentures $-57600$

Interest paid: Bank overdraft $-100000$

Interest paid :Loan $$ Sian $-80000$

Interest received: Loan $$ Naidoo Ltd $80000-$

Naidoo Ltd$$s profit after tax amounted to R$2447440$ before considering any intragroup

transaction adjustments.

Additional information

$1.$ The equity of Naidoo Ltd was made up as follows on the date that Naidoo Ltd became

a subsidiary of Sian Ltd$.$ Each share carries one voting right.

R

Share capital $700000$

Retained earnings $720000$

Revaluation surplus $1000000$

It is the Sian$$s policy to show goodwill at cost in the financial statements. Assume that

the carrying amounts of all other assets and liabilities were equal to the fair value thereof.

$2.$ The retained earnings balances at $1$ January $2013$ were as follows:

R

Sian Ltd $680000$

Naidoo Ltd $960000$

$3.$

$4.$

Since acquisition, Sian Ltd has purchased $50\%$ of its plastic materials from Naidoo Ltd in

accordance with a decision made by the board of directors. Naidoo Ltd sells the inventory

to Sian Ltd at a profit of $20\%$ on the cost price. Naidoo Ltd sold inventory amounting to

R$5000000$ to Sian Ltd for the year ended $31$ December $2013.$

$50\%$ of the opening and closing inventories of Sian Ltd had been purchased from

Naidoo Ltd$.$

On $1$ July $2013,$ Sian Ltd sold machinery at a profit of R$400000$ to Naidoo Ltd$.$ Naidoo Ltd

paid R$1000000$ for the machinery. It is the group$$s policy to depreciate machinery at $20\%$

per year according to the straight$-$line method.

REQUIRED:

$($a$)$ Calculate the percentage interest in Naidoo Limited

$($b$)$ Prepare Analysis of owner$$s equity of Naidoo Ltd on acquisition

$[5]$

$[20]$

$($c$)$ Draft the pro forma consolidation journal entries of the Sain Ltd Group for the year ended

$31$ December $2013.$

$[25]$

NB

You are not required to prepare Statement of Comprehensive Income, Statement of changes in

Equity and Statement of Financial Position