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

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 Ltds retained earnings amounted to R 150 000. Since then, S Ltd has not issued any new shares. 2. S Ltds 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 Ltds 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 Ltds 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 Ltds 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 Ltds net income was earned evenly throughout the year. 5. P Ltd elected to measure the non-controlling interest at its proportionate share of the acquirees 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.

12 7. Assume that the opening balance of the non-controlling interest of P Ltd an other subsidiaries at 1 January 20.7 was R1 million. 8. A company tax rate of 30% applies and CGT is calculated at 50% thereof. Required Prepare the consolidated statement of profit or loss and other comprehensive income and the consolidated statement of changes in equity (column for share capital is not required) of the P Ltd Group for the year ended 31 December 20.7.

P Ltd and S Ltd Other subsidiaries (consolidated) R'000 R'000 11 825 1 200 (6 450) (700) 5 375 500 60 30 (425) Revenue Cost of sales Gross profit Other income (dividend received) Other income interest received) Depreciation on non-manufacturing assets Finance costs Other expenses Profit before tax Income tax expense Profit for the year Profit attributable to: Owners of the parent Non-controlling interests (1 000) 4 040 (40) (80) 380 (150) 230 (1 470) 2 570 1 750 230 820 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 4 470 550 P Ltd and S Ltd Other subsidiaries (consolidated) R'000 R'000 11 825 1 200 (6 450) (700) 5 375 500 60 30 (425) Revenue Cost of sales Gross profit Other income (dividend received) Other income interest received) Depreciation on non-manufacturing assets Finance costs Other expenses Profit before tax Income tax expense Profit for the year Profit attributable to: Owners of the parent Non-controlling interests (1 000) 4 040 (40) (80) 380 (150) 230 (1 470) 2 570 1 750 230 820 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 4 470 550