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FAC2602 Learning Unit 6 2022

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FAC2602 Learning Unit 6 2022. The following are the trial balances of Sandy Ltd and South Ltd for the year ended 31 December 20.2: Sandy Ltd R South Ltd R Share capital - ordinary shares (800 000/355 000 shares) (800 000) (355 000) Retained earnings - 1 January 20.2 (480 000) (120 000) Gross profit (422 700) (166 200) Dividends received - 31 December 20.2 (23 800) - Auditors' remuneration Depreciation Staff costs Interest paid on bank overdraft 3 800 - Income tax expense Dividends declared and paid - 31 December 20. Property, plant and equipment at carrying amount Investment in South Ltd at fair value - 248 500 shares purchased on 1 July 20.2 364 700 - (cost price: R364 700) Cash at bank Inventory Additional information South Ltd became a subsidiary of Sandy Ltd on 1 July 20.2. The profit of South Ltd was earned evenly throughout the year. Consider the carrying amount of the assets and liabilities of South Ltd to be equal to the fair value thereof at the date of acquisition, with the exception of land. The excess of the purchase price over the net carrying amount of the assets at the date of acquisition was due to the difference between the carrying amount and the fair value of the land. 5 REQUIRED Draft the consolidated statement of profit or loss and other comprehensive income and the consolidated statement of changes in equity of the Sandy Ltd Group for the year ended 31 December 20.2 in compliance with the requirements of IFRS. Do all calculations to the nearest rand. SOLUTION 1 SANDY LTD GROUP CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 20.2 Notes R Gross profit 505 800 [422 700 + (166 200/12 x 6)] Administrative expenses (246 500) [102 000 + (42 000/12 x 6)] + [95 000 + (35 000/12 x 6)] + [8 500 + (5 000/12 x 6)] Finance costs (3 800) Profit before tax 1 255 500 Income tax expense [12 000 + (4 200/12 x 6)] (14 100) PROFIT FOR THE YEAR 241 400 Other comprehensive income for the year - TOTAL COMPREHENSIVE INCOME FOR THE YEAR 241 400 Total comprehensive income attributable to: Owners of the parent (241 400 − 12 000) 229 400 Non-controlling interests (b)12 000 241 400

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FAC2602
Learning
Unit 6 2022

, LEARNING OUTCOME
You should be able to consolidate the financial statements of a group of companies
where the interest in a subsidiary was acquired on a date other than at the end of the
financial year in accordance with International Financial Reporting Standards.




OVERVIEW


6.1 INTRODUCTION .................................................................................................. 2
6.2 APPORTIONMENT OF ITEMS IN THE STATEMENT OF PROFIT OR LOSS AND
OTHER COMPREHENSIVE INCOME .................................................................. 2
6.3 APPORTIONMENT OF ITEMS IN THE STATEMENT OF CHANGES IN EQUITY
.............................................................................................................................. 3
6.4 PRESENTATION OF THE CONSOLIDATED STATEMENT OF PROFIT OR
LOSS AND OTHER COMPREHENSIVE INCOME AND THE CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY ............................................................ 3
6.5 EFFECTIVE DATE OF ACQUISITION ................................................................. 9
6.6 EXERCISE ........................................................................................................... 9
SELF-ASSESSMENT .................................................................................................... 16



KEY CONCEPTS
• Current-year profit apportionment
• Allocate profits pre-acquisition
• Allocate profits post-acquisition
• Pro forma consolidation entries




1

, ASSESSMENT CRITERIA
After studying this learning unit, you should be able to:

• allocate the profit of the subsidiary in the year of acquisition
between the pre- and post-acquisition periods
• draft the consolidated annual financial statements where the
interest in a subsidiary was acquired on a date other than at the
end of the financial year in accordance with IFRS
• do the pro forma consolidation journal entries




6.1 INTRODUCTION
In the preceding learning units, the date of acquisition of an interest in a subsidiary has
always been the first day of the subsidiary's accounting period. In practice, the effective
date on which the delivery of shares takes place very rarely coincides with the end of a
financial year. The purchase of an interest in a subsidiary at a date other than the
accounting date is known as the interim acquisition of a subsidiary. We therefore need to
allocate items in the statement of profit or loss and other comprehensive income (to pre-
and post-acquisition date periods) to determine the amount of retained earnings at the
effective date of acquisition, which is a prerequisite for determining the goodwill at the
date of acquisition.



6.2 APPORTIONMENT OF ITEMS IN THE STATEMENT OF PROFIT OR
LOSS AND OTHER COMPREHENSIVE INCOME

If it is not practicable to apportion the profit or loss of the subsidiary for any financial year
with reference to the facts, we may treat it as if it accrued evenly from day to day during
the year and apportion it accordingly.

We must examine income and expenditure items individually to determine the basis on
which we should apportion each item between the period before acquisition and the
period since acquisition.




2

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