lOMoARcPSD|49343224
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QUESTION 1 (27 marks) (32 minutes)
Arrow Ltd operates as a manufacturer of packaging and industrial cleaning materials. In order to
reduce their carbon footprint, the board of directors of Arrow Ltd decided to acquire 80% of the
shares of Cycle Ltd, a locally based recycling company. Cycle Ltd became a subsidiary of Arrow
Ltd on 1 January 2009.
The following represents a list of balances of Arrow Ltd and Cycle Ltd as at 31 December 2013:
Arrow Cycle
Ltd Ltd
R R
DEBITS
Property, plant and equipment Investment 2 846 0001 880 408
in Cycle Ltd 494 000 -
Loan: Cycle Ltd 200 000 -
Inventories 330 000 420 000
Trade and other receivables 562 952 148 952
Cash and cash equivalents 80 000 -
CREDITS
Share capital – Ordinary shares
(2 500 000/350 000 shares) 1 250 000 175 000
Other components of equity 500 000 250 000
Retained earnings 659 752 799 360
Loan: Arrow Ltd - 200 000
10% Debentures (12 000 debentures) - 120 000
An extract from the statement of profit or loss and other comprehensive income includes the
following items:
Arrow Cycle
Ltd Ltd
R4 R3
Sales 000 000 440 000
Opening inventory - 1 January 2013 300 000 390 000
Purchases 1 500 000 1 169 348
Management fees received from Cycle Ltd 60 000 -
Depreciation: Plant and equipment 110 000 75 000
Management fees paid to Arrow Ltd - 60 000
Interest paid: Debentures - 14 400
Bank overdraft - 25 000
Loan – Arrow Ltd - 20 000
Interest received: Loan – Cycle Ltd 20 000 -
You may assume that Cycle Ltd’s profit after tax amounted to R611 860 before taking into
account any intragroup transaction adjustments.
QUESTION 1 (continued)
2
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, lOMoARcPSD|49343224
QUESTION 1 (27 marks) (32 minutes)
Arrow Ltd operates as a manufacturer of packaging and industrial cleaning materials. In order to
reduce their carbon footprint, the board of directors of Arrow Ltd decided to acquire 80% of the
shares of Cycle Ltd, a locally based recycling company. Cycle Ltd became a subsidiary of Arrow
Ltd on 1 January 2009.
The following represents a list of balances of Arrow Ltd and Cycle Ltd as at 31 December 2013:
Arrow Cycle
Ltd Ltd
R R
DEBITS
Property, plant and equipment Investment 2 846 0001 880 408
in Cycle Ltd 494 000 -
Loan: Cycle Ltd 200 000 -
Inventories 330 000 420 000
Trade and other receivables 562 952 148 952
Cash and cash equivalents 80 000 -
CREDITS
Share capital – Ordinary shares
(2 500 000/350 000 shares) 1 250 000 175 000
Other components of equity 500 000 250 000
Retained earnings 659 752 799 360
Loan: Arrow Ltd - 200 000
10% Debentures (12 000 debentures) - 120 000
An extract from the statement of profit or loss and other comprehensive income includes the
following items:
Arrow Cycle
Ltd Ltd
R4 R3
Sales 000 000 440 000
Opening inventory - 1 January 2013 300 000 390 000
Purchases 1 500 000 1 169 348
Management fees received from Cycle Ltd 60 000 -
Depreciation: Plant and equipment 110 000 75 000
Management fees paid to Arrow Ltd - 60 000
Interest paid: Debentures - 14 400
Bank overdraft - 25 000
Loan – Arrow Ltd - 20 000
Interest received: Loan – Cycle Ltd 20 000 -
You may assume that Cycle Ltd’s profit after tax amounted to R611 860 before taking into
account any intragroup transaction adjustments.
QUESTION 1 (continued)
2
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