QUESTION 3

The following are the condenced financial statements of Blue Ltd and Red Ltd for the
reporting period ended 30 June 2010:
STATEMENTS OF FINANCIAL POSITION AS AT 30 JUNE 2010
								Blue Ltd	Red Ltd
ASSETS								R	R
Fixed property								1,450,000	1,000,000
Property, plant and equipment								128,000	100,000
	Gross carrying amount							200,000	250,000
	Accumulated depreciation							(72,000)	(150,000)
Investment in Red Ltd							1,050,000		-
Investment in unlisted shares								-	250,000
Current account: Red Ltd								200,000	-
Inventories								160,000	280,000
Trade receivables								450,000	230,000
Bank								538,500	637,500
Total assets								3,976,500	2,497,500
EQUITY AND LIABILITIES
Share capital (2 000 000/1 000 000 shares)								2,000,000	1,000,000
Retained earnings								1,546,500	980,000
Deferred tax								50,000	40,000
Current account: Blue Ltd								-	87,500
Dividend payable								100,000	150,000
Trade and other payables								280,000	240,000
Total equity and liabilities								3,976,500	2,497,500
STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2010
								Blue Ltd	Red Ltd
Revenue								2,000,000	1,500,000
Cost of sales								(1,100,000)	(1,100,000)
Gross profit								900,000	400,000
Dividend received								112,500	10,000
Other income								48,000	-
Other expenses								(74,000)	(60,000)
Profit before tax								986,500	350,000
Income tax expense								(440,000)	(120,000)
PROFIT FOR THE YEAR								546,500	230,000
TOTAL COMPREHENSIVE INCOME FOR THE YEAR								546,500	230,000
EXTRACT OF STATEMENTS OF CHANGES IN EQUITY								Retained earnings
FOR THE YEAR ENDED 30 JUNE 2010								Blue Ltd	Red Ltd
Balance at 1 July 2009								1,200,000	900,000
Changes in equity for 2010
Ordinary dividends paid and provided								(200,000)	(150,000)
Total comprehensive income for the year								546,500	230,000
Balance at 30 June 2010								1,546,500	980,000

Additional information

1. Blue Ltd acquired 750 000 ordinary shares in Red Ltd on 1 July 2007 when the equity of Red Ltd was as follows:

Share capital (1 000 000 shares) R1 000 000

Retained earnings R350 000

2. Blue Ltd purchases all its inventories from Red Ltd at cost price plus 25%. Total inventories to the value of R750 000 were sold to Red Blue Ltd by Blue Red Ltd during the reporting period. Inventories in the records of Red Blue Ltd were R250 000 on 1 July 2009.

3. The identifiable assets acquired and the liabilities assumed at acquisition date are shown at their acquisition-date fair values, as determined in terms of IFRS 3. Non-controlling interests are initially measured at their proportionate share of the net identifiable assets of Red Ltd.

6. The tax rate is 28%.

REQUIRED

1. Prepare all the pro forma journal entries required to prepare the consolidated financial statements of the Blue Ltd Group for the reporting period ended 30 June 2010. Journal narrations are not required. Show all calculations clearly and round to the nearest Rand.

2. Prepare the consolidated statement of Financial Position of the Blue Ltd Group for the reporting period ended 30 June 2010.