Question 7: (25) On 1 January 20.7, the first day of the financial year, P held a 35% ownership interest in S Ltd. On 31 March 20.7, P Ltd, acquired a further ownership interest of 20% in S Ltd from other shareholders for R200 000. P Ltd accounted for its initial investment in S Ltd in its consolidated financial statements in terms of the equity method, as significant influence was exercised over the financial and operating policies of S Ltd from the date of purchase of the initial interest. From the date of acquisition of the second interest in S Ltd, P Ltd exercised control over the financial and operating policies of S Ltd. The following information applies to the year ended 31 December 20.7: Draft statements of Profit or Loss and Other Comprehensive Income for the year ended 31 December 20.7 P Ltd and S Ltd Other subsidiaries (consolidated) R'000 R'000 Revenue 11 825 1 200 Cost of sales (6 450) (700) Gross profit 5 375 500 Other income (dividend received) 60 Other income interest received) 30 Depreciation on non-manufacturing assets (425) Finance costs (40) (80) Other expenses (1 000) 4 040 380 Profit before tax (150) (1 470) Income tax expense 2 570 230 Profit for the year Profit attributable to: 1 750 230 Owners of the parent 820 Non-controlling interests 2 570 230 EXTRACT FROM THE STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 20.7 Retained Earnings P Ltd and S Ltd Other subsidiaries (consolidated) R'000 R'000 Balance at 1 January 20.7 3 420 420 Changes in equity for 20.7 Profit for the year 1 750 230 Dividend paid: 31 December 20.7 (700) (100) Balance at 31 December 20.7 4470 550 Additional information: 1. P Ltd acquired its 35% interest in S Ltd for R175 000 (equalling its proportion of the net asset value of S Ltd) when S Ltd's retained earnings amounted to R 150 000. Since then, S Ltd has not issued any new shares. 2. SLtd's major asset is land. S Ltd revalued this property in its individual financial statements just before P Ltd acquired its 35% interest, and credited the revaluation surplus by R100 000. The land, presented in S Ltd's statement of financial position statements just before P Ltd acquired its 35% interest, and credited the revaluation surplus by R100 000. The land, presented in S Ltd's statement of financial position at R800 000, is not depreciated. It is the policy of the group to realise the revaluation surplus when the asset is sold. Any amount paid in excess of the net asset value of S Ltd at the acquisition date of the additional date of the additional 20% ownership interest in S Ltd, is attributed to the fact that land in not fairly stated at this date. The remainder of S Ltd's net assets are of a short-term nature and regarded as fairly stated in terms of the requirements of IFRS 3 Business Combinatons. 3. The fair value of P Ltd's previously held equity interest in S Ltd was R350 000 at the date on which P Ltd obtained control over the financial and operating policies of S Ltd (i.e the acquisition date). 4. S Ltd's net income was earned evenly throughout the year. 5. P Ltd elected to measure the non-controlling interest at its proportionate share of the acquiree's identifiable net assets at the acquisition date. 6. P Ltd elected to measure the investment in S Ltd at cost in its separate financial statements in terms of IAS 27.10 (a) and IAS 28.44. 11 Question 7: (25) On 1 January 20.7, the first day of the financial year, P held a 35% ownership interest in S Ltd. On 31 March 20.7, P Ltd, acquired a further ownership interest of 20% in S Ltd from other shareholders for R200 000. P Ltd accounted for its initial investment in S Ltd in its consolidated financial statements in terms of the equity method, as significant influence was exercised over the financial and operating policies of S Ltd from the date of purchase of the initial interest. From the date of acquisition of the second interest in S Ltd, P Ltd exercised control over the financial and operating policies of S Ltd. The following information applies to the year ended 31 December 20.7: Draft statements of Profit or Loss and Other Comprehensive Income for the year ended 31 December 20.7 P Ltd and S Ltd Other subsidiaries (consolidated) R'000 R'000 Revenue 11 825 1 200 Cost of sales (6 450) (700) Gross profit 5 375 500 Other income (dividend received) 60 Other income interest received) 30 Depreciation on non-manufacturing assets (425) Finance costs (40) (80) Other expenses (1 000) 4 040 380 Profit before tax (150) (1 470) Income tax expense 2 570 230 Profit for the year Profit attributable to: 1 750 230 Owners of the parent 820 Non-controlling interests 2 570 230 EXTRACT FROM THE STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 20.7 Retained Earnings P Ltd and S Ltd Other subsidiaries (consolidated) R'000 R'000 Balance at 1 January 20.7 3 420 420 Changes in equity for 20.7 Profit for the year 1 750 230 Dividend paid: 31 December 20.7 (700) (100) Balance at 31 December 20.7 4470 550 Additional information: 1. P Ltd acquired its 35% interest in S Ltd for R175 000 (equalling its proportion of the net asset value of S Ltd) when S Ltd's retained earnings amounted to R 150 000. Since then, S Ltd has not issued any new shares. 2. SLtd's major asset is land. S Ltd revalued this property in its individual financial statements just before P Ltd acquired its 35% interest, and credited the revaluation surplus by R100 000. The land, presented in S Ltd's statement of financial position statements just before P Ltd acquired its 35% interest, and credited the revaluation surplus by R100 000. The land, presented in S Ltd's statement of financial position at R800 000, is not depreciated. It is the policy of the group to realise the revaluation surplus when the asset is sold. Any amount paid in excess of the net asset value of S Ltd at the acquisition date of the additional date of the additional 20% ownership interest in S Ltd, is attributed to the fact that land in not fairly stated at this date. The remainder of S Ltd's net assets are of a short-term nature and regarded as fairly stated in terms of the requirements of IFRS 3 Business Combinatons. 3. The fair value of P Ltd's previously held equity interest in S Ltd was R350 000 at the date on which P Ltd obtained control over the financial and operating policies of S Ltd (i.e the acquisition date). 4. S Ltd's net income was earned evenly throughout the year. 5. P Ltd elected to measure the non-controlling interest at its proportionate share of the acquiree's identifiable net assets at the acquisition date. 6. P Ltd elected to measure the investment in S Ltd at cost in its separate financial statements in terms of IAS 27.10 (a) and IAS 28.44. 11