QUESTION 4 (20 Marks)

4.1 Use the information below

INFORMATION

AB Ltd acquired 85% of the ordinary shares of CF Ltd. The net assets were fairly valued on 1 January 2021 except for machinery that were undervalued by R450 000. The machine was purchased on 1 January 2020 for RI 000 000 and had a useful life of 6 years. No adjustments at acquisition for the above matter. Assume a tax rate of 28%

REQUIRED: Prepare the journal entries (with narrations) for the year ended 31 December 2022 (10 marks)

4.2 Read the information below:

INFORMATION

AB wanted to achieve a 25% GP for each sale completed. Inventory sales between AB and CF Ltd amounted to RI 650 000 for the year ended 31 December 2022. Inventory on hand in CF Ltd previously purchased from AB Ltd:

R675 000 (31 December 2022)

R550 000 (31 December 2021)

Assume a tax rate of 28%

REQUIRED: Prepare the journal entries (with narrations) for the year ended 31 December 2022. (10 marks)