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:

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

Tota l 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.

. 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.

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