UNIT 1 - ASSIGNMENT AN QUESTION 1 (25 MARKS) (8 MINUTES READING TIME) (30 MINUTES WRITING TIME) VestBid Freight Limited ("VestBid") is a company that operates in the freight management industry. Recently, VestBid became aware of a company, Bereka Forwarding & Shipping (Pty) Lid ("Bereka"), which was struggling to remain profitable under the difficult global economic conditions. Bereka is regarded as a business in terms of IFRS 3 Business Combinations After performing a due diligence review, VestBid decided to acquire all of the assets and liabilities of Bereka. The date of the transaction was initially proposed to take place on 1 January 2021. However, a number of suspension legal conditions meant that control over the assets and liabilities could only be transferred on 30 June 2021. As at 30 June 2021, the statement of financial position of Bereka Ltd was as follows: STATEMENT OF FINANCIAL POSITION OF BEREKA (PTY) LTD AS AT 30 JUNE 2021 Carrying Fair Amounts Values ASSETS Non-current Assets 3 900 000 6 500 000 Property, plant and equipment 1 900 000 2 500 000 Investment property 1 200 000 2 500 000 Intangible assets 800 000 1 500 000 Current assets 1 500 000 300 000 Inventories 100 000 100 000 Receivables 1 400 000 1 200 000 Total assets 5 400 000 EQUITY AND LIABILITIES Equity 2 400 000 Share capital 1 600 000 N/A Retained earnings 400 000 N/A Revaluation surplus 400 000 N/A Liabilities Current liabilities 2 000 000 Deferred tax 800 000 Trade and other payables 600 000 800 000 Provision for freight maintenance costs 600 000 600 000 Non-current liabilities 1 000 000 2 000 000 Long-term loan 1 000 000 2 000 000 Total equity and liabilities 5 400 000- 3 - Purchase consideration The following transactions made up the purchase consideration relating to the acquisition of Bereka: A cash amount of R 2 000 000 was paid by VestBid immediately on 30 June 2021 to the former owners of Bereka. An additional cash payment of R2 000 000 is payable by VestBid on 31 December 2021. The effect of discounting is material and the present value of the amount payable on 30 June 2021 is R1 800 000. VestBid issued a total of 200 000 no par value ordinary shares on 30 June 2021. On that date, the shares were trading at a fair value of R12 per share Vacant land belonging to VestBid was also transferred to the former owners on 30 June 2021. The land had a carrying amount of R 2 600 000 and a fair value of R3 600 000 on 30 June 2021. As part of VestBid's commitment to open and transparent communication with its stakeholders, the company also incurred R500 000 worth of advertising expenditure on 30 June 2021 to market the acquisition of Bereka. This is regarded as a separate transaction In terms of IFRS 3 Business Combinations. Additional information The financial director of VestBid inspected the statement of financial position of Bereka and noted that the fair value of the entity's receivables is lower than its carrying amount. As a result, he decided that upon initial recognition of the acquisition in the separate financial statements of VestBid, the receivables amount will be recognised at its carrying amount as this will reflect favourably on the entity's current ratio. VestBid has a financial year-end of 30 June. The transaction described does not constitute a joint arrangement in terms of IFRS 11, nor does Bereka constitute a business under common control in terms of IFRS 3. Ignore the effects of all taxation implications. REQUIRED: a) Discuss whether the above transaction falls within the scope of IFRS 3 Business Combinations by applying the definition of a business combination to the scenario and by addressing the scope exclusions contained in IFRS 3 Business Combinations. (7) b) Assuming the acquisition of the assets and liabilities is a business in terms of IFRS 3, prepare the journal entries to correctly account for the above transaction in the separate financial statements of VestBid Lid on 30 June 2021. (18)