The following trial balances were obtained from the financial records of Flower Ltd (Flower) and Spike Ltd (Spike) for the financial year ended 28 February 2023:

On 1 March 2021, Flower purchased 80 000 shares (80%) in Spike for R123 000 and thereby obtained control over Spike on this date. The net assets and liabilities of Spike were considered to be fairly valued on the acquisition date. The fair value of the noncontrolling interest was R32 000 at acquisition.

Spikes equity comprised of the following balances on acquisition date, 1 March 2021:

There was an equivalent tax loss of R135 000 arising from the accumulated loss of

Spike on 1 March 2021, which was not recognised as a deferred tax asset by Spike. However, Flower was of the opinion that the profitability of Spike would be restored in the years to follow and the tax loss could then be utilised.

In Flowers separate financial statements, Flower classified its investment in Spike as a fair value through other comprehensive income (FVTOCI) financial asset as per IFRS

All fair value adjustments are therefore accounted for in other comprehensive income.

Flower does not have investments in any other entity (other than in Spike) and therefore the mark-to-market reserve relates specifically to fair value adjustments in Spike only.

Spike declared dividends on 28 February 2023 and these dividends were still outstanding at year end. Flowers dividend receivable from Spike is included under trade and other receivables.

Additional information:

• Flower elected to measure the non-controlling interest at its fair value at acquisition date (full goodwill method).
• There were no changes to the share capital (e.g. number of shares in issue) of Spike since Flowers initial investment in Spike on 1 March 2021.
• No portion of the investment in Spike was sold since its acquisition.
• Flower is not a share dealer for income tax purposes.
• Both Flower and Spike have a 28 February financial year end.
• Assume an Income Tax rate of 28% in every year and 80% of capital gains are included in taxable income in every year, at the time gains are realised.
• Ignore the effects of Dividend Tax and Value Added Tax (VAT).

REQUIRED:

Prepare all the pro-forma journal entries to account for Spike Ltd in the consolidated financial statements of the Flower Ltd Group for the financial year ended 28 February 2023.

Instructions:

• Dates and narrations are not required.
• Show and reference all your workings and calculations clearly.
• Be clear, where applicable, regarding which entity the entries are referring to i.e., put the name of the entity in brackets after the account description.
• Where journal entries affect the Profit and Loss accounts, be specific as to which account it is [e.g. Depreciation (Flower Ltd) (P/L)]. In other words, do not merely write Profit before tax.

\begin{tabular}{|l|r|} \hline Share capital (100 000 shares) & R100 000 \\ \hline Accumulated loss & (R135 000) \\ \hline Revaluation reserve: Land & R155 200 \\ \hline & R120 200 \\ \hline \end{tabular}