The Woody Group of Woody and its investee companies Coo and Hoo at 31 May 2020 are shown below:

Draft Income Statements for the year ended 31 May 2020

	woody R 000	COO R 000	HOO R 000
revenue	1 138	488	149
cost of sales	576	214	59
gros profit	562	274	90
other operating expenses	138	54	40
profit from operations	424	220	50
interest payable	38	44	14
profit before tax	386	176	36
taxation	54	24	6
profit for the year	332	152	30

draft statements as of financial position as at 31 May 2020

	woody R 000	coo R 000	HOO R 000
non current assets
PPE	690	812	712
Investments	1 950	-	-
	2 640	812	712
current assets
inventories	700	594	56
recievables	1000	180	130
cash ans cash equivalent	375	25	15
	2075	799	201
	4715	1611	913
equity
share capital ( R1 ordinary share	1 875	600	500
reserves	1 125	690	160
	3000	1290	660
non current liabilities
7 % loan note	300	200	50
current liabilities
trade payables	1350	101	188
taxation	65	20	15
	1415	121	203
	4715	1611	913

Additional information

During the year Woody acquired a new asset with a fair value of R100,000 under a finance lease. The lease agreement states payments of R20,000 must be paid for six years on 31 May each year, starting on 31 May 2020. At the end of the six-year period legal title of the asset will pass to Woody

. Woody believes the only accounting entry he must make in relation to this asset is for the R20,000 payment he has made and he has treated this as an operating expense.

Woody acquired 600,000 ordinary shares in Coo on 1 June 2016 for R1,550,000 when the reserves of Coo were R200,000.

At the date of acquisition of Coo, the fair value of its property was R375,000 higher than its book value and considered to have a remaining life of 10 years.

Woody acquired 150,000 ordinary shares in Hoo on 1 June 2019 for R400,000 when the reserves of Hoo were R90,000. The fair values of assets of Hoo were the same as their net book value at that date. Depreciation should be treated as an operating expense.

Woody manufactures a component used by Coo and Hoo. Woody sells this component at a margin of 25% and sold goods to Coo for R52,000 during the year. None of these goods had been sold by Coo at 31 May 2020. Woody sold goods to Hoo for R80,000 and Hoo had sold all of these goods at 31 May 2020.

The receivables of Woody include R60,000 in respect of amounts owing by Coo and R35,000 in respect of amounts owing by Hoo. The corresponding balances in the payables of Coo and Hoo are R40,000 (Coo) and R35,000 (Hoo). On 30 May 2020 Coo had sent a cheque to Woody for R20,000.

The impairment test on goodwill applied to Coo showed goodwill is being impaired by 10% per annum on a straight line basis. There has been no impairment for Hoo. Requirements:

11.1 Prepare the calculations for the adjustments required to be made in the accounts of Woody for the year ended 31 May 2020, to account for the finance lease in note (i). You should apply the sum of the digits method when calculating the finance cost and prepare all workings to the nearest thousand. You should assume these calculations will have no effect on taxation. (5)

11.2 Prepare the consolidated statement of comprehensive income and consolidated statement of financial position of the Woody group at 31 May 2020, incorporating the calculations you have made in requirement (a) above. (20)