You are a Senior Financial Accountant at Luxury Breeze Limited, a company that specializes in providing of best holiday destination to all local and international traveller to Namibia. About us: With a 31 December year end. Luxury Breeze Ltd group initially opened its door in 1995 by the founder Cobus Marais, a man who was born and raised in Mariental a town located in the south of his mother land Namibia. With the need of lodges in the country during that time Cobus decided to open a Lodge in his town. He started from a back-yard structure of his parents house where he could only accommodate 2 families when they travel in Mariental and to the nearest areas. When Cobus parents travel to the farm for holiday, he can use the whole house as a guest house. When the business boomed in year the 2000 he managed to secure a space in the Namib desert and build a luxurious 5-star hotel in order to accommodate the traveller to the Namibian well known desert. Cobus believes in providing good service to his customer and his moto is A satisfied customer will always return. Due to the location of the hotels and lodges in the Namib Desert, it has been cumbersome for Cobus to get the customers to come and experience the desert if the customer does not have their own transportation they would likely not make it to the lodge or if their cars are not 4X4 or SUVs. Cobus acquired a bus for his customers and arranged for the customer travels from the airport, north, south, east of the country to make it to the desert. Although it brings boom into his business the bus could only go twice a week and customers would spend excess costs because customers would not have a means of return transport when they only book for a shorter period of time, hence it became chaotic again. In the process to make customers happy and to experience the Namib desert at their convenience, Luxury Ltd identified Rent A Car (Pty) Ltd as a potential solution to their problem. Rent A Car Rent A Car (Pty) Ltd is a company that is owned by two friends who won a good price on the Olympic championship and they decided to put their money into good use identifying a business in the vehicle rental Industry in the country. This was an ideal opportunity to peruse and Cobus did not look back but rather entered into an agreement and acquired 40% of the shares in Rent A Car since Rent A Car was looking to raise funds. To Luxury Breeze 40% was classified as an associate for the group and has been accounted as an associate since the acquisition date 01 January 2009 to date. Rent a car was acquired on the 01 January 2009 when the for an amount of N$ 2 000 000, when the retained earnings were N$ 500 000.

f entities in Luxury group: TRIAL BALANCE FOR YEAR END 31 DECEMBER 2020 LUXURY BREEZE LTD RENT A CAR Total assets Land and Buildings 20 000 000.00 2 550 000.00 Motor Vehicle 8 500 000.00 9 000 000.00 Accumulated depreciation Motor vehicle - 625 000.00 - 2 000 000.00 Office equipment 128 000 000.00 7 000 000.00 Accumulated depreciation Office Equipment - 2 500 000.00 - 2 500 000.00 Investments 6 900 000.00 - Investment in Debentures 750 000.00 - Deferred tax - 1 500 000.00 Current assets Cash and cash equivalent 8 000 000.00 755 000.00 Trade and other receivables 4 759 000.00 225 000.00 Due to related parties 750 000.00 - Equity and Liabilities Ordinary share capital - 1 200 000.00 - 100 000.00 Retained earnings - 4 767 250.00 - 968 750.00 Revaluation reserves - 80 000.00 - Liabilities Loan - 856 000.00 - Debentures liabilities - - 750 000.00 Deferred tax - - Current liabilities - - Trade and other payable - 280 000.00 - 450 000.00 Current tax payable 75 000.00 - 150 000.00 Due from related parties - - 1 500 000.00 Dividend payable 150 000.00 - Sales - 728 850 000.00 - 57 645 000.00 Cost of sales 546 637 500.00 ? Finance cost - 50 000.00 Investment income - 27 750.00 - Water and electricity 1 164 500.00 1 300 000.00 Depreciation 7 000 000.00 85 000.00 Income tax 2 500 000.00 65 000.00 Dividend 4 000 000.00 300 000.00

COMMERCE, MANAGEMENT AND LAW Page 25 of 27 Over the year of parent associate, the relationship has been growing so well and Luxury Breeze experienced an increase their customer base and also revenue for Rent A car was on the rise. But when it comes to peek time such as festive times and Easter weekend it was hard for Luxury Breeze to secure all the cars for Rent A Car because Rent A car was experiencing an influx of car rental request to their own customer and Luxury Breeze could not get first priority because they do not have control. On the 30 March 2020 Lizette Marias a daughter of Mr Cobus suggested that they should increase their shareholding as from 01 June 2020 and then they can have control over Rent A car so that when its time for festive season they secure all cars for their customers. Mr Cobus concurred with the idea and as from 01 June 2020 Luxury Breeze increase their shareholding from 40% to 80%. In order to acquire additional shareholding in Rent A Car, Luxury Breeze settled the transaction by: Cash of N$ 1 500 000 A guarantee that Luxury Breeze will pay an additional 2 million to the previous shareholders of Rent A car should their profit double, the fair value of the consideration was N$ 900 000. Luxury Breeze also settled the transaction by selling to Rent A Car one of their double sleepliner bus worth N$ 500 000. The fair value of the previous held investment was N$ 4 000 000. Transaction post business combination: Sales for Rent A Car from the rental of cars increase by 4 times after the 01 June 2020. Luxury group maintains a mark-up of 33%. All other expenses have been incurred evenly throughout the year. Due to the increase in petrol and lockdown that happened in June 2020 to August 2020, rent a car needed cash and in order to raise funds Rent A Car issue 10 000 6% dentures to Luxury Breeze in order to raise funds. The debentures had a market value of N$ 750 0000.This debenture was issued on 01 June 2020. Rent a car declares a dividend of N$ 300 0000. The dividend was declared into two intervals half of dividend on 03 March 2020 and another half on the 31 December 2020. Rent A Car made a sale of N$ 4 000 000 to Luxury Breeze in the current year. As at 31 December Rent A car owes Luxury Breeze an amount of N$ 750 000 incurred by Luxury Breeze on behalf of Rent A car for the renewal of the vehicle licenses and maintenance in current year. Accounting please assist: Although there had been a change in entity type Mr Cobus did not feel the need to change the accounting from associate to consolidation because he is not aware of any changes in the business to him. He stated that there is no change in our accounting because we just increase our stake from 40% to 80% all we can do is increase what we previously recorded at 40% to double. Mr Cobus now said he is not good in the IFRS and their consultant is already on a vacation he would require your assistance because auditors are coming in anytime soon. Please assist Mr Cobus to distinguish between the accounting implications for associate and consolidation. Additional information: - NCI is measured as proportionate share - All assets and liabilities are fairly values - It is the policy of Luxury Breeze and its Subsidiary to account for investment at cost Required FACULTY OF COMMERCE, MANAGEMENT AND LAW Page 26 of 27 1. Prepare a memo to Mr Cobus (CEO) where you explain to him: - What are the associates and how do we account for associates - Discuss what are intra-group transactions and how are they accounted for 9 mark - 1 communication mark - 2. Prepare journal entries to account for associate from the date of acquisition to changes in ownership include journal entries 36 marks 3. Prepare all Pro-form Journals to consolidate Rent A car in the financial statement of Luxury Breeze Group. 29 marks 4. Prepare an extract statement of Changes in Equity for Luxury Breeze Group for the year end 31 December 2020 only show Retained earnings and Non-controlling interest. 25 Marks