Activity 3 - Annexure C - Suggested Solution

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University of Johannesburg **We aren't endorsed by this school
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ACCOUNTING 32
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Accounting
Date
Feb 23, 2023
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5
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Suggested Solution The consolidated financial statements of the P Ltd Group in respect of the year ended 31 December 20.18, will be drawn up as follows: P LTD GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20.18 ASSETS Non-current assets Property, plant and equipment (902 000(P) + 540 000(S)(1) + 95 000(J1) (1)) 1 537 000 Goodwill (C3) 49 065 (1P) Other investments 188 000 1 774 065 Current assets Inventory (10 400(P) + 50 250(S)) 60 650 Trade receivables (59 500(P) + 141 000(S)) 200 500 261 150 Total assets R2 035 215 EQUITY AND LIABILITIES Equity attributable to owners of the parent Share capital - Ordinary shares 160 000 - Preference shares 100 000 Retained earnings 1 014 624 1 274 624 Non-controlling interests (C3) 150 241 (1P) Total equity 1 424 865 Non-current liabilities Long-term liabilities (370 000(P) + 130 000(S) - 30 000 (J5) (1)) 470 000 Deferred tax (J1) 21 280 (1) 491 280 Current liabilities Trade payables (J3) 35 000 (1P) Tax payable (93 870(S) - 9 800(J3) (1)) 84 070 119 070 Total liabilities 610 350 Total equity and liabilities R2 035 215 UNIT 5 - ANNEXURE C _ Suggested solution
P LTD GROUP CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 20.18 Revenue (1 295 000(P) + 205 000(C1)) 1 500 000 Cost of sales (815 500(P) + 100 000(C1)) (915 500) Gross profit 584 500 (1) Other expenses (120 000(P) + 18 000(C1) (1)) (138 000) (1P) Administrative costs ( 8 750(P) + 35 000(J3) (1)) (43 750) (1P) Other income (P) 9 500 Finance costs (41 000(P) + 3 000(S)) (44 000) Profit before tax 368 250 Income tax expense (89 600(P) + 15 085(S) - 9 800(J3) (1)) (94 885) (1P) PROFIT FOR THE YEAR 273 365 Other comprehensive income for the year - TOTAL COMPREHENSIVE INCOME FOR THE YEAR R273 365 Total comprehensive income attributable to: Owners of the parent (273 365 - 10 741) 262 624 (1) Non-controlling interests 10 741 (1) R273 365 P LTD GROUP EXTRACT FROM THE CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 20.18 Retained earnings Non- controlling Interest Balance at 1 January 20.18 (P) 810 000 - (1) Changes in equity for 20.18 Acquisition of subsidiary - 142 000 Total comprehensive income for the year: Profit for the year 262 624 10 741 Preference dividend paid (8 000) - Ordinary dividend paid (50 000) (2 500) Balance at 31 December 20.18 R1 014 624 R150 241 (1) Available 19 marks max 15 marks P LTD GROUP NOTES FOR THE YEAR ENDED 31 DECEMBER 20.18 (1) 2. Acquisition of subsidiary On 1 October 20.18 P Ltd acquired 75% (1) of the outstanding ordinary shares of S Ltd and obtained control of S Ltd (1) . S Ltd is operational in the telecommunications sector and as a result of the acquisition the P Ltd Group will be a leading provider of these services in the market.
The goodwill of R49 065 (1) arising from the acquisition results mainly from the synergies expected from combining the operations of P Ltd and S Ltd. The following table summarises the consideration paid for S Ltd and the amounts of the assets acquired and liabilities assumed at the acquisition date, as well as the fair value of the non-controlling interests in S Ltd. Total consideration transferred - Cash R430 000 (1) Acquisition-related costs (1) 8 750 Recognised amounts of the identifiable assets acquired and liabilities assumed Property, plant and equipment (240 000 + 247 500) 487 500 (1) Trade receivables (balancing figure) 56 715 (1) Deferred tax (21 280) (1) Total identifiable net assets 522 935 Non-controlling interests in S Ltd (142 000) (1) Goodwill 49 065 (P) R430 000 The fair value of the non-controlling interests in S Ltd, an unlisted company, was estimated by applying a market approach and an income approach. (detail of meas- urement basis of the non-controlling interests as per requirements of IFRS 3.B64(o)). The revenue included in the consolidated statement of profit or loss and other comprehensive income since 1 October 20.18 contributed by S Ltd was R205 000(C1) (1) . S Ltd also contributed profit of R48 250(C1) over the same period (1) . Had S Ltd been consolidated from 1 January 20.18, the consolidated statement of profit or loss and other comprehensive income would have included revenue of R820 000(C1) and profit of R300 250(C1) (1) . Available 14 marks max 5 marks Calculations C1 Allocation of S Ltd's profit Total 1/1 - 30/9 9 months 1/10 - 31/12 3 months Revenue 820 000 615 000 205 000 Cost of sales (400 000) (300 000) (100 000) Gross profit 420 000 315 000 105 000 Other expenses (72 000) (54 000) (18 000) Interest paid P Ltd (750) - (750) Other (12 000) (9 000) (3 000) Management fee (arose only after acquisition) (35 000) - (35 000) (1) Profit before tax 300 250 252 000 48 250 Income tax expense (93 870) (78 785) (15 085) Income tax expense (35 000 × 28%) 9 800 - 9 800 Profit for the year R216 180 R173 215 (1) R42 965 (1) # 252 000/300 250 × 93 870 = 78 785(1) & 48 250/300 250 × 93 870 = 15 085(1)
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