Safuna Patukani, a public limited company, has investments in Safuna and Shupiwe. All three companies prepare their financial statements in accordance with International Financial Reporting Standards. The presentation currency of the group is the Kwacha (K). Shupiwe's functional currency is the Franc (FR). The draft statements of profit or loss for the year ended 30 April 2020 are presented below: Patukani Safuna K'm Shupiwe FR'm K'm 68 143 (61) 210 (126) (42) 82 26 84 (6) Revenue Cost of sales Gross Profit Distribution Costs Administrative Expenses Operating Profit Investment Income Finance Costs (10) (23) (14) (29) (10) 49 10 41 1 0 2 (4) (2) (3) 38 Profit Before Tax 48 8 Taxation (11) (2) (8) Profit for the Period 37 6 30 The following notes are relevant to the preparation of the consolidated financial statements: 1. Patukani acquired 70% of Safuna's one million Kl ordinary shares for K6 million many years ago. At the acquisition date, the carrying value of Safuna's net assets was K5 million, and this was deemed to be the same as their fair value. The non-controlling interest was measured using the proportion of net assets method. Goodwill arising on the acquisition of Safuna has never been impaired. On 31 October 2019, Patukani sold 300,000 of its shares in Safuna for K6.5 million. The fair value of the interest retained was K9.5 million. The retained earnings of Safuna were K9 million as at 30 April 2019. The only entry posted in Patukani's individual financial statements is to record the cash received and to credit these proceeds to a suspense account. 2. On 1 May 2019. Patukani purchased 60% of Shupiwe's one million FRI ordinary shares for FR71 million. The non-controlling interest at acquisition was valued at FR29 million using the fair value method. At 1 May 2019, the carrying value of Shupiwe's net assets was FR60 million but the fair value was FR70 million. The excess in fair value was due to an unrecognised brand with a remaining useful economic life of five years at the acquisition date At 30 April 2020, it was determined that goodwill arising on the acquisition of Shupiwe was impaired by FR4 million The following exchange rates are relevant: FR: KI 1 May 2019 5.0 30 April 2020 4.0 Average for year ended 30 April 2020 4.6 3 On 1 May 2018, Patukani signed a lease to use an item of machinery. The useful economic life of the machine and the lease term were both five years. Lease payments are due annually in advance. The lease payment for the first year was K1.2 million. Patukani's rate of borrowing is 10%. The present value of the lease payments, excluding the payment made on 1 May 2018, was K3.8 million. Lease payments increase annually by the rate of inflation over the previous 12 months. On 1 May 2019, inflation for the prior 12 months was 8%. The lease was correctly accounted for in accordance with IFRS 16 Leases in the year ended 30 April 2019. The only entry made in the current year is to record the cash payment made to the lessor within cost of sales. Required: (a) () Discuss, with calculations, how Patukani should account for Safuna in the consolidated statement of profit or loss and other comprehensive income for the year ended 30 April 2020. Discuss , with calculations, how Patukani should account for Shupiwe in the Consolidated statement of profit or loss and other comprehensive income for the Year ended 30 April 2020. (HD) Explain how the lease agreement should be accounted for in the consolidated Financial statements for the year ended 30 April 2020. Show the adjusting entries required. Related party relationships are a particularly key concem when preparing financial statements for group entities. The objective of IAS 24 Related Party Disclosures is to ensure that financial statements contain the necessary disclosures to make users aware of the possibility that financial statements may have been affected by the existence of related parties. Required: (b) Describe the main circumstances that give rise to related parties and explain why the disclosure of related party relationships and transactions is important (10 marks) (Total: 50 marks) Safuna Patukani, a public limited company, has investments in Safuna and Shupiwe. All three companies prepare their financial statements in accordance with International Financial Reporting Standards. The presentation currency of the group is the Kwacha (K). Shupiwe's functional currency is the Franc (FR). The draft statements of profit or loss for the year ended 30 April 2020 are presented below: Patukani Safuna K'm Shupiwe FR'm K'm 68 143 (61) 210 (126) (42) 82 26 84 (6) Revenue Cost of sales Gross Profit Distribution Costs Administrative Expenses Operating Profit Investment Income Finance Costs (10) (23) (14) (29) (10) 49 10 41 1 0 2 (4) (2) (3) 38 Profit Before Tax 48 8 Taxation (11) (2) (8) Profit for the Period 37 6 30 The following notes are relevant to the preparation of the consolidated financial statements: 1. Patukani acquired 70% of Safuna's one million Kl ordinary shares for K6 million many years ago. At the acquisition date, the carrying value of Safuna's net assets was K5 million, and this was deemed to be the same as their fair value. The non-controlling interest was measured using the proportion of net assets method. Goodwill arising on the acquisition of Safuna has never been impaired. On 31 October 2019, Patukani sold 300,000 of its shares in Safuna for K6.5 million. The fair value of the interest retained was K9.5 million. The retained earnings of Safuna were K9 million as at 30 April 2019. The only entry posted in Patukani's individual financial statements is to record the cash received and to credit these proceeds to a suspense account. 2. On 1 May 2019. Patukani purchased 60% of Shupiwe's one million FRI ordinary shares for FR71 million. The non-controlling interest at acquisition was valued at FR29 million using the fair value method. At 1 May 2019, the carrying value of Shupiwe's net assets was FR60 million but the fair value was FR70 million. The excess in fair value was due to an unrecognised brand with a remaining useful economic life of five years at the acquisition date At 30 April 2020, it was determined that goodwill arising on the acquisition of Shupiwe was impaired by FR4 million The following exchange rates are relevant: FR: KI 1 May 2019 5.0 30 April 2020 4.0 Average for year ended 30 April 2020 4.6 3 On 1 May 2018, Patukani signed a lease to use an item of machinery. The useful economic life of the machine and the lease term were both five years. Lease payments are due annually in advance. The lease payment for the first year was K1.2 million. Patukani's rate of borrowing is 10%. The present value of the lease payments, excluding the payment made on 1 May 2018, was K3.8 million. Lease payments increase annually by the rate of inflation over the previous 12 months. On 1 May 2019, inflation for the prior 12 months was 8%. The lease was correctly accounted for in accordance with IFRS 16 Leases in the year ended 30 April 2019. The only entry made in the current year is to record the cash payment made to the lessor within cost of sales. Required: (a) () Discuss, with calculations, how Patukani should account for Safuna in the consolidated statement of profit or loss and other comprehensive income for the year ended 30 April 2020. Discuss , with calculations, how Patukani should account for Shupiwe in the Consolidated statement of profit or loss and other comprehensive income for the Year ended 30 April 2020. (HD) Explain how the lease agreement should be accounted for in the consolidated Financial statements for the year ended 30 April 2020. Show the adjusting entries required. Related party relationships are a particularly key concem when preparing financial statements for group entities. The objective of IAS 24 Related Party Disclosures is to ensure that financial statements contain the necessary disclosures to make users aware of the possibility that financial statements may have been affected by the existence of related parties. Required: (b) Describe the main circumstances that give rise to related parties and explain why the disclosure of related party relationships and transactions is important (10 marks) (Total: 50 marks)