QUESTION 3 (36 marks)(43 minutes) The following are the audited statements of financial position of Summer Limited, Sun Limited and Fun Limited as at 28 February 20.6: Summer Limited Sun Limited Fun Limited R R R ASSETS Non-current assets 285 000 142 400 35 405 Property, plant and equipment 132 000 122 400 35 405 Investment in Sun Limited at fair value 135 000 Investment in Fun Limited at fair value 20 000 Investment in Beach Limited at fair value 18 000 Current assets 23 000 20 800 Cash and cash equivalents 23 000 20 800 Total assets 308 000 163 200 35 405 EQUITY AND LIABILITIES Total equity 281 800 163 200 35 405 Share capital-R1 ordinary shares 60 000 100 000 30 000 Retained earnings 196 000 63 200 5405 Mark-to-market reserve 25 800 Total liabilities 26 200 Non-current liabilities Deferred tax Current liabilities 4 200 4 200 Short-term loan Total equity and liabilities Additional information 22 000 22 000 308 000 163 200 35 405 1. Summer Limited acquired 90 000 ordinary shares in Sun Limited on 1 March 20.3 when the retained earnings of Sun Limited were R10 500. 2. Sun Limited acquired 24 000 ordinary shares in Fun Limited on 1 March 20.5. 3. 4. At both the above acquisition dates there were no unidentified assets, liabilities or contingent liabilities and the fair values of all assets, liabilities and contingent liabilities were confirmed to be equal the carrying amounts thereof. The profit for the current year per the audited statements of comprehensive income of the entities were as follows: Summer Limited Sun Limited Fun Limited R 33 400 10 508 22 305 QUESTION 3 (continued) 5. 6. On 1 March 20.5, Sun Limited sold machinery with a carrying amount of R22 000 to Summer Limited for R31 000. On this date the estimated remaining useful life of the machine was 3 years. The entities' policy is to provide for depreciation over the expected useful life of machinery using the straight-line method which is consistent with the wear and tear allowances of the South African Revenue Service. On 1 March 20.5 Summer Limited invested in a joint venture, Beach Limited, and acquired a 25% interest in the joint venture. The following is the trial balance of Beach Limited on 28 February 20.6: Property, plant and equipment Short-term loan to Summer Limited R 70 000 Cash and cash equivalents Share capital-R1 ordinary shares Retained earnings - 1 March 20.5 22 000 6 600 (50 000) (32 900) (15 700) 7. 8. 9. Profit for the year The short-term loan was made to Summer Limited on 1 May 20.5 and is interest free. The loan is repayable in full on 30 April 20.6. The fair values of all assets, liabilities and contingent liabilities of Beach Limited were confirmed to be equal to the carrying amounts thereof on 1 March 20.5. The mark-to-market reserve relates to the revaluation of the investment in Sun Limited to fair value. The fair value of available-for-sale financial assets is equal to the cost price thereof unless otherwise stated. At the end of the current financial year, it was assessed that goodwill in Sun Limited was impaired by R510. Goodwill in all the other entities was not considered to be impaired at year end. The group uses the proportionate method to recognise goodwill. The SA Normal tax rate is 28% and in all the entities, each share carries one vote. REQUIRED 1. Prepare only the EQUITY AND LIABILITIES section of the consolidated statement of financial position of the Summer Limited Group as at 28 February 20.6. 2. Calculate the following amounts that will be disclosed in the consolidated statement of financial position of the Summer Limited Group as at 28 February 20.6: Goodwill Deferred tax (specify if the amount is a deferred tax asset or liability) Your answer must comply with the requirements of the Companies Act, 1973 and Generally Accepted Accounting Practice. Notes to the consolidated annual financial statements and comparative figures are not required. All calculations must be done to the nearest Rand.