QUESTION $3(46$ marks$)$

Shoots Ltd and Stalks Ltd are two JSE$-$listed entities in the horticulture industry that

specialises in germinating seeds until they sprout. The sprouts are then sold to various

consumers, such as food retailers and nurseries.

Both Shoots Ltd and Stalks Ltd have a $31$ December financial year$-$end.

The following trial balances were obtained from the financial records of Shoots Ltd and

Stalks Ltd for the financial year ended $31$ December $2023$:

Trial balances Shoots Ltd

$($R$)$

Stalks Ltd

$($R$)$

DR CR DR CR

Ordinary share capital $1000000100000$

Retained earnings

$(1$ January $2023)$

$34660064000$

Revaluation reserve: Land

$(1$ January $2023)$

$156800-$

Mark$-$to$-$market reserve

$(1$ January $2023)$

$2744011760$

Ordinary dividends $($paid$)15000050000$

Land $($at fair value$)1200000390000$

Plant and equipment

$($at carrying value$)$

$1929950302060$

Investments at FVOCI $32800076500$

Trade and other receivables $121000163000$

Bank $6500052000$

Deferred tax liability $1512019440$

Trade and other payables $255000320000$

Summary of profit and loss

accounts:

Profit before tax $2300000600000$

Income tax expense $608850162000$Other comprehensive

income:

Revaluation gain: Land $30000090000$

Income tax expense:

Revaluation gain on land $6480019440$

Fair value gain on investment $8500012500$

Income tax expense: Fair

value gain on investment $183602700$

$448596044859601217700121770$On $1$ January $2023,$ Shoots Ltd purchased $90000$ ordinary shares $(90\%)$ in Stalks Ltd

for R$174600$ and thereby obtained control over Stalks Ltd on this date. The net assets

and liabilities of Stalks Ltd were considered to be fairly valued on the acquisition date.

The equity of Stalks Ltd on the date of acquisition consisted of the following credit

balances:

Description R

Ordinary share capital $100000$

Retained earnings $64000$

Mark$-$to$-$market reserve $11760$

The following are the market values of each Stalk Ltd share at various dates:

R

$1$ January $20231\mathrm{.}94$

$1$ March $20232\mathrm{.}22$

$31$ December $20232\mathrm{.}74$

Towards the end of the current financial year, Stalks Ltd$\text{'}$s business started losing

customers due to increased competition in the industry. Despite the uncertain future,

the entity still paid dividends. Dividends of both entities were paid on the $31$ December

$2023.$ The dividend income of Shoots Ltd was recorded in the $$other income$$ account

in their separate financial records.

Other comprehensive

income:

Revaluation gain: Land $30000090000$

Income tax expense:

Revaluation gain on land $6480019440$

Fair value gain on investment $8500012500$

Income tax expense: Fair

value gain on investment $183602700$

$4485960448596012177001217700$

ANNEXURE F: FORMATIVE ASSESSMENT $1$

$71$ HFAC$331-1-$Jul$-$Dec$2024-$FA$1-$SK$-$V$4-04072024$

After the payment of dividends by Stalks Ltd$,$ Shoots Ltd determined that the

recoverable amount of Stalks Ltd as a cash$-$generating unit was R$650000$ on $31$

December $2023.$

Additional information:

$$ Shoots Ltd elected to measure the non$-$controlling interest at its proportionate

share of the net identifiable assets $($partial goodwill method$).$

$$ In Shoots Ltd$$s separate financial statements, Shoots Ltd classified its investment

in Stalks Ltd as a $$fair value through other comprehensive income$($FVTOCI$)$

financial asset amongst other IFRS $9$ investments also held at FVTOCI.

$$ There have been no changes to the issued share capital $($e$.$g$.,$ number of shares

in issue$)$ of Stalks Ltd since Shoots Ltd$$s initial investment in Stalks Ltd on $1$

January $2023.$

$$ No portion of the investment in Stalks Ltd was sold since its acquisition.

$$ Shoots Ltd is not a share dealer for income tax purposes.

$$ For all financial years, assume a Company Income Tax rate of $27\%$ and $80\%$ of

capital gains are included in taxable income at the time gains are realised.

$$ Assume that any goodwill arising as a result of a business combination is not

deductible for tax purposes.

$$ Ignore the effects of Dividend Tax and Value Added Tax $($VAT$).$

REQUIRED:

Prepare all the pro$-$forma general journal entries to account for Stalks Ltd in the

consolidated financial statements of the Shoots Ltd Group for the financial year ended

$31$ December $2023.$