FAC3704 exam pack aswers

TION 1 (SUGGESTED SOLUTION) Part (a)(i): Investment in associate (Limited): At acquisition: Investment in Limited at cost price (ordinary shares) – given Investment in Limited at cost price (preference shares) – given Since acquisition: Retained earnings ((-245 000 – 20 000) x 40%) Correction (106 000 – 102 000(cost price)) Current year: Profit for the period ((779 500 + 18 000 – 332 200 – 176 884) x 40%) Correction – see comment 1 Dividends paid (30 000 x 40%) Intragroup transaction: Closing inventories ((47 000 x 25/125) x 40%) Comment 1: R 92 000 10 000 102 000 - (106 000) 4 000 - 115 366 (4 000) (12 000) (3 760) 95 606a hen an associate mak s losses w ich result i a decrease in the carrying amount of the investment, the investor should not recognise those losses exceeding its interest in the investment. The investment in Limited amounts to a cost of R102 000 (90 000 + 10 000). Since the ac uisition a loss of R106 000 has accrued in the associate Limited. The loss thus exceeds the carrying amount of R 02 000 by R4 000 (106 000 – 102 000). here the investment losses excee s the carrying amount of its interest in the associate, the investor should not r down to Rnil. cognise an further losses once the investme t has been written In the current year (year ended 31 December 2014) the associate, Limited made a profit. The first R4 000 of the profit is employed against the R4 000 attributable losses that were not recognised in previous years.