QUESTION 4 (20 MARKS) Born Again Limited acquired 60 000 of the ordinary shares in New Creation Limited on 1 March 2013. On this date New creation Limited had retained earnings of $15 000 and the carrying amounts of the assets and liabilities were equal to the fair values. The following represent the abridged trial balances of Diamond Limited and Pearl Limited at 28 February 2015: Born Again Ltd $ New ?creation ltd $ DEBITS Land and buildings 31 500 90 000 Machinery and equipment - 10 000 Investment in New creation ltd @ fair value (cost price:160 000) 160 000 Cash and cash equivalence 153 500 Trade and other receivables - 65 000 inventories 500 112 000 taxation 10 500 10 000 Dividends paid 9 000 8 000 365 000 295 000 Credits Ordinary share capital $2 each 150 000 160 000 Retained earnings 31 500 34 000 Revaluation reserve 21 200 - Cash and cash equivalence - 48 250 Trade and other payables 125 600 23 700 Profit before tax 30 700 29 000 Dividends received 6000 365 000 295 000 Required_ consolidated and cashflow statement

MIDLANDS STATE UNIVERSITY FACULTY OF COMMERCE DEPARTMENT OF ACCOUNTING GROUP STATEMENTS AND STATEMENT OF CASHFLOWS: ACC 219 SESSIONAL EXAMINATION OCTOBER / NOVEMBER 2015 DURATION: 3 HOURS INSTRUCTIONS 1. Answer all questions in section A (Question 1, 2 and 3 are compulsory) and choose one question in section B. 2. Begin an answer to a new question on a new page. 3. In order to earn marks, show all workings. 4. Use of nonprogrammable financial calculator is permitted. 5. Clearly highlight anv assumptions wherever they are made. 1 QUESTION 1(28 MARKS) (compulsory) At date of incorporation of Tuck Limited (1 July 2013), Shop Limited acquired 80 000 ordinary shares of $0, 5 each in Tuck Limited. The following represented the trial balances of Shop Limited and Tuck Limited at 30 June 2015: Shop Credits Ordinary shares of $0,5 each Retained earnings Trade and other payables Accumulated depreciation Revaluation of land and buildings Interest bearing borrowing Shop Limited Bank overdraft Waterfall Bank 200 000 70 000 90 000 86 000 50 000 100 000 596 000 200 000 110 000 20 000 68 000 150 000 Land and buildings at valuation Plant and equipment at cost price Trade and other receivables Bank Rapid Bank Inventories Loan Tuck Limited Investment in Tuck Limited at fair value 596 000 Tuck 50 000 55 000 50 000 64 000 24 000 100 000 . 343 000 67 000 170 000 26 000 46 000 34 000 343 000 Additional information 1. Since Shop Limited acquired its interest in Tuck Limited, Shop Limited has purchased all its inventories from Tuck Limited. Tuck Limited sells all its inventories at cost plus 25%. On 30 June 2015 Shop Limited had $80 000 inventories on hand. 2. Shop Limited posted a cheque of $50 000 to Tuck Limited on 25 June 2015. The cheque got lost in the post and the cheque was cancelled. 3. Tuck Limited bought a machine from Shop Limited on 30 June 2015. River Limited made a profit of $30 000 on the sale. Both companies depreciate plant and equipment at 20% on the straightline method REQUIRED: questions (choose only A, B, C or D) concerning the consolidated statement of financial position of Shop Limited and its subsidiary for the financial year ended 30 June 2015 in compliance with the requirements After taking the abovementioned information into account, answer the 2 following multiple choice of the Companies Act and Generally Accepted Accounting Practice. Ignore taxation on unrealized profits and/or losses as well as capital gains tax. Each question carries 2 Marks 1. Ordinary share capital in the consolidated statement of financial position amounts to: A. $200 000 B. $250 000 C. $240 000 D. None of the above. 2. Revaluation reserve of land and buildings in the consolidated statement of financial position amounts to: A. $69 200 B. $74 000 C. $50 000 D. None of the above. 3. Unrealized profit adjustment on closing inventories in the analysis of shareholders' equity of Tuck Limited amounts to: A. $16 000 B. $13 600 C. $ 6 800 D. None of the above. 4. Retained earnings in the consolidated statement of financial position amount to: A. $103 120 B. $ 84 000 C. $114 000 D. None of the above. 5. Noncontrolling interest in the consolidated statement of financial position amounts to: A. $21 000 B. $25 800 C. $23 080 D. None of the above 6. Land and buildings in the consolidated statement of financial position amount to: A. $291 000 B. $267 000 C. $253 600 D. None of the above. 7. Plant and equipment in the consolidated statement of financial position amount to: A. $130 000 B. $108 800 C. $100 000 D. None of the above. 8. Trade and other receivables in the consolidated statement of financial position amount to A. $ 40 800 3 B. $ 96 000 C. $146 000 D. None of the above. 9. Inventories in the consolidated statement of financial position amount to: A. $102 000 B. $ 81 600 C. $ 95 200 D. None of the above. 10. Cash and cash equivalents/bank overdraft in the consolidated statement of financial position amount to: A. Bank overdraft $54 000 B. Cash and cash equivalents $46 000, Bank overdraft $100 000 C. Cash and cash equivalents $46 000, Bank overdraft $50 000 D. None of the above. 11. Trade and other payables in the consolidated statement of financial position amount to: A. $130 000 B. $140 000 C. $190 000 D. None of the above. 12. Investment in Tuck Limited in the consolidated statement of financial position amounts to: A. Nil B. $48 000 C. $ 8 000 D. None of the above. 13. Goodwill in the consolidated statement of financial position amounts to: A. $ 8 000 B. $90 000 C. Nil D. None of the above. 14. Longterm borrowing Shop Limited in the consolidated statement of financial position amounts to: A. $100 000 B. $150 000 C. $ 80 000 D. None of the above QUESTION 2 (22 MARKS)(compulsory) 2a) Alpha Ltd and Beta Ltd respectively own 38% and 40% of the ordinary shares with voting rights in Delta Ltd. The other shares are held by various other individual shareholders. Alpha 4 Ltd also holds a call option from Beta Ltd to buy half of its shares in Delta Ltd (i.e. a 20% interest in Delta Ltd) at any time, at R10 per share. Delta Ltd's shares are currently trading at R25 per share. The business activities of Delta Ltd are closely related to those of Alpha Ltd. Required: who controls Delta Ltd? (10 marks) 2b) Hooky Ltd has 1 000 ordinary shares in issue. Each share entitles the shareholder to one vote at a shareholders' meeting. The relevant activities of Hocky Ltd are directed by the shareholders' meetings. Consider the following scenarios: Scenario 1: Sport Ltd owns 400 ordinary shares of Hocky Ltd and the other shares' are held by various individuals. No individual owns more than 50 ordinary shares of Hocky Ltd. Most of these individuals do not attend any shareholders' meetings. Scenario 2: Sport Ltd owns 400 ordinary shares of Hocky Ltd and the other shares are held by Goal Ltd (350 shares) and Stick Ltd (250 shares). Required: under both scenarios who has control over Hocky ltd? (7 marks) 2c) Electric Ltd owns 55% of the equity shares of Sparky Ltd. Sparky Ltd was set up by a local municipality to handle the supply of electricity to households and businesses within the borders of the local municipality. The municipality owns the other 45% of the equity shares of Sparky Ltd. The operating activities are closely regulated by the local municipality and Sparky Ltd may only operate under a license granted by the local municipality. Electricity prices are regulated by the local municipality. (5 marks) Required: who controls Spark ltd? QUESTION 3 (30 MARKS) The condensed trial balances of Work Related Limited at 31 October 21014 and 2013 are as follows: 5 2014 2013 "000" "000" property 1750 1400 Motor vehicles 436 410 machinery 385 370 inventory 178 154 Trade and other receivables 214 220 Cash and cash equivalence 2 76 Other financial instruments: investment at fair value 20 40 2 985 2 670 Share capital 440 330 Revaluation reserve 220 10 Interest free loan 900 1 100 Retained earnings 1001 870 Accumulated depreciation:machinery 141 120 76 54 Trade and other payables 139 142 Tax payables 44 28 Dividends payable 24 16 2985 2670 Debits Credits : motor vehicle Additional information: 1) The following information was obtained from the statement of profit or loss and other comprehensive income for year ended 31 October 2014 : "000" 6 revenue 750 Cost of sales (300) Gross profit 450 Other income 4 Administration and selling expenses (88+48+72) (208) Other expenses (6) Profit before tax 240 Income tax expenses (85) Profit for the period 155 Other comprehensive income ,i Revaluation surplus a i 210 Total comprehensive income 365 2) Extract from the statement of changes in equity for the year ended 31/10/14 : Revaluation Retained reserve earnings Profit for the period 155 155 Dividend declared (24) (24) Revaluation reserve 210 210 3) A new motor car was purchased for $54 000. An old vehicle was sold total ot, its carrying amount on 30 /10/14 4) A machine with a carrying amount of $60 000 on which $51 000 had already been written off as depreciation was traded in for $54 000 and replaced with new machine. 5) Depreciation for the current year : Motor vehicle $48 000 Machinery $ 72 000 6) The investment was sold on 28 February 2014 for $24 000 Required: 7 Draft the statement of cash flows of Work Related limited for year ended 31/10/14 1 accordance with the requirements of IFRS using the direct method. Show the following calculations: cash received from customers, cash paid to suppliers and employees, tax paid and dividends paid. Section B (Choose one question) QUESTION 4 (20 MARKS) Born Again Limited acquired 60 000 of the ordinary shares in New Creation Limited on 1 March 2013. On this date New creation Limited had retained earnings of $15 000 and the carrying amounts of the assets and liabilities were equal to the fair values. The following represent the abridged trial balances of Diamond Limited and Pearl Limited at 28 February 2015: New creation Born Again Ltd ltd $ $ DEBITS Land and buildings 31 500 90 000 Machinery and equipment 10 000 Investment in New creation ltd @ fair value (cost price:160 000) 160 000 Cash and cash equivalence 153 500 Trade and other receivables 65 000 inventories 500 112 000 taxation 10 500 10 000 Dividends paid 9 000 8 000 365 000 295 000 Credits Ordinary share capital $2 each 150 000 160 000 Retained earnings 31 500 34 000 Revaluation reserve 21 200 Cash and cash equivalence 48 250 Trade and other payables 125 600 23 700 Profit before tax 30 700 29 000 Dividends received 6000 365 000 295 000 Required_ 8 Draft the consolidated financial statements of Born Again Limited and its subsidiary New creation Limited at 28 February 2015. Notes to the financial statements are not required. Show all calculations. [20 Marks] QUESTION 5 (20 Marks) a) What are relevant activities and how are they useful in determining control[(5 marks] b) What is control of an investee according to IFRS 10 [5 marks] c) What are the shortcomings of consolidated financial statements? [10 marks] END OF PAPER""'"""1 J.! 9 ""'"""