QUESTION 2 60 Marks Smoothie Ltd, a Dairy products manufacturing entity trading in Namibia, recently found itself with free cash flow. It decided to invest in Yoghurt Ltd, another financially sound Dairy products manufacturing entity. The following information is available: The Debits and Credits for the two entities as at 30 September 2020 are as follows: Page 20 of 26 DEBITS Smoothie Ltd Yoghurt Ltd N$ N$ Machinery 100 000 90 000 Land and buildings 325 000 250 000 Loan-Smoothie Ltd - 80 000 Investment in Yoghurt Ltd at cost price(36 000 shares) 120 0000 - Inventories 77 000 56 000 Dividends declared 18 000 10 000 Bank 20 000 - Income tax expense 51 929 40 824 Trade receivables 185 000 134 500 Total 896 929 661 324 CREDITS Ordinary share capital(80 000 Smoothie and 60 000 Yoghurt ltd 160 000 120 000 Retained earnings -1 October 2019 209 469 128 524 Bank overdraft - 58 000 Revaluation surplus 50 000 75 000 Loan-Yoghurt Ltd 80 000 - Dividends payable 18 000 10 000 Accumulated depreciation 44 000 38 000 Trade payables 150 000 86 000 Profit before tax 185 460 145 800 Total 896 929 661324 Additional information about the two entities is also provided below: 1. Smoothie Ltd acquired its interest in Yoghurt on 1 October 2014, when the retained earnings and the revaluation reserve (Land and buildings were revalued) of Yoghurt amounted to N$12 800 and N$50 000, respectively. The values of all other assets were deemed to be equal to their fair values. It is the policy of the group to value its Land and buildings every three years. Yoghurt Ltd has not purchased or sold any items of its Land and buildings since 1 October 2014. 2. Since the date of acquisition, Yoghurt Ltd purchased some of its inventory from Smoothie Ltd at a cost plus 33.33%. The closing inventory of Yoghurt Ltd on 30 September 2020 is an amount of N$25 000 (2019: N$18 000) purchased from Smoothie Ltd. Total sales by Smoothie Ltd to Yoghurt Ltd amounted to N$300 000 during the current reporting year. 3. Yoghurt Ltd sold one of its machinery to Smoothie Ltd on 1 March 2018 at a profit of N$ 6 000. The carrying amount of the machine in the financial records of Yoghurt Ltd was N$18 000 on this date. The group's policy is to depreciate machinery at 20%per annum according to the reducing balance method. Page 21 of 26 Required: 2.1 Prepare the Pro forma Consolidation Journal entries required to prepare the consolidated financial statements of Smoothie Ltd Group for the year ended 30 September 2020. Narrations are required 30Marks Part b The following represents the abridged statement of financial position of Bensam Ltd (Bensam) and its subsidiary Chinks Ltd (Chinks). Statements of Financial Position as at 30 June 2005. Bensam Chinks N$ N$ ASSETS Property at cost/valuation 750 000 400 000 Machinery 340 000 160 000 @ Cost 500 000 240 000 Accumulated depreciation (160 000) (50 000) Plant at carrying amount 680 000 370 000 Investments in Chinks : 80 000 ordinary shares at fair value(cost price N$650 000) 650 000 - 25 000 12% cumulative preference shares at fair value (cost price N$40 000) 40 000 - 9% Debentures (since 2003) 50 000 - Unsecured loan at fair value 80 000 - Current Account-Bensam - 75 000 Inventory 170 000 150 000 Trade and other receivables 220 000 260 000 Bills receivable-Chinks 20 000 - Bank-NBS Bank 30 000 - 3 030 000 1 445 000 EQUITY AND LIABILITIES Ordinary shares at N$5 each - 500 000 Ordinary shares at N$2 each 900 000 12% Cumulative preference shares at 75c each - 75 000 Revaluation of property - 150 000 Retained earnings 1 816 750 306 000 Interest bearing borrowings 64 750 170 000 9% debentures - 100 000 Loan Bensam - 70 000 Current Account-Chinks 64 750 Trade and other payables 220 000 140 000 Bills payable-Bensam - 25 000 Bank overdraft-NBS Bank - 60 000 Shareholders for dividends-Ordinary shares 28500 10000 Page 22 of 26 Preference shares (current year) - 9 000 3 030 000 1 445 000 Additional Information: 1. Bensam acquired its interest in Chinks on 1January 2002. At that date the retained earnings of Chinks amounted to N$120 000. On the same day the property of Chinks which had a carrying amount of N$250 000 was revalued at N$350 000. It is company policy to revalue Chinks property on 30 June every second year. Since 1 July 2002 Chinks has not purchased or sold any property. At the date of acquisition, consider the carrying amount of all the other assets and liabilities of Chinks to be equal to the fair value thereof. 2. No dividend was declared or paid by Chinks during the period 1 July 2001 and 30 June 2002 3. Assume each ordinary share carries one vote. 4. Its group policy to show goodwill at cost in the financial statements. 5. Since September 2002, Chinks purchased all its inventories from Bensam at the normal selling price, determined by Bensam which is cost plus 20%. 6. Chinks sold a machine to Bensam on 1 January 2004 at a profit of N$25 000. The group provides for depreciation at 20% per annum according to the reducing balance method. 7. Bensam discounted the N$5 000 of the Bills receivable from Chinks at the bank before the expiry date of 31 July 2005. 8. On 29 June 2005, Chinks repaid N$10 000 of the existing loan from Bensam. Bensam received the repayment on 7 July 2005. 9. The parent guarantees the overdraft of the subsidiarys bank account. 10. Ignore tax implications Required: Marks Prepare the consolidated Statement of financial position of Bensam and its subsidiary as at 30 June 2005 according to the requirements of IFRS. showing all necessary workings as they carry marks. 30