FAC3762/108
QUESTION 1 (50 marks) (90 minutes)
The following are extracts from the financial statements of the entities in the Smith Ltd Group
for the year ended 31 December 2018:
EXTRACT FROM THE STATEMENTS OF FINANCIAL POSITION AS AT
31 DECEMBER 2018
Smith Warner Bancroft
Ltd Ltd Ltd
R R R
ASSETS
Non-current assets
Property, plant and equipment ................................ 3 055 800 2 145 000 980 555
Investment in Warner Ltd .................................... 910 000 - -
Investment in Bancroft Ltd................................... - 1 300 000 -
Investments in other equity instruments .............. 258 000 175 000 98 000
Total non-current assets .................................. 4 223 800 3 620 000 1 078 555
Current assets
Loan to Bancroft Ltd ............................................ - 95 500 -
Inventories........................................................... 522 800 485 000 365 000
Cash and cash equivalents ................................. 389 400 251 000 211 700
Trade and other receivables................................ 175 440 152 800 87 420
Total current assets .......................................... 1 087 640 984 300 664 120
TOTAL ASSETS ................................................. 5 311 440 4 604 300 1 742 675
EXTRACT FROM THE STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR
ENDED 31 DECEMBER 2018
Smith Warner Bancroft
Ltd Ltd Ltd
R R R
RETAINED EARNINGS
Balance as at 1 January 2018 ........................... 3 258 745 2 658 741 1 215 961
Profit for the year ................................................. 952 247 588 700 325 899
Dividends paid – 31 December 2018 .................. (120 000) (85 000) (30 000)
Balance as at 31 December 2018 ..................... 4 090 992 3 162 441 1 511 860
SHARE CAPITAL
Balance as at 1 January 2018 ........................... 100 000 80 000 60 000
Balance as at 31 December 2018 ..................... 100 000 80 000 60 000
Additional information
Warner Ltd
1. On 1 January 2015, Smith Ltd acquired control of Warner Ltd with the acquisition of
96 000 of the 160 000 issued ordinary shares of Warner Ltd. On this date, all the
identifiable assets and liabilities of Warner Ltd were considered to be equal to their
carrying amounts. On 1 January 2015, the retained earnings of Warner Ltd amounted
to R1 385 920 and the fair value of one Warner Ltd share was R9,40.
9
, FAC3762/108
Bancroft Ltd
2. On 1 August 2018, Warner Ltd acquired control of Bancroft Ltd by acquiring an 80%
interest in the ordinary share capital of Bancroft Ltd. The share capital of Bancroft Ltd
consisted of 60 000 issued ordinary shares. On the acquisition date, the fair value of
one Bancroft Ltd share was R27,00 (31 December 2018: R28,00).
3. On the acquisition date, the identifiable assets and liabilities of Bancroft Ltd were
considered to be equal to their carrying amounts, except for the following assets:
Carrying Fair
amount value
R R
Land .................................................................................... 950 200 1 025 000
Trade receivables (debtor: Aston Ltd) ................................. 122 000 111 000
On 31 December 2018, Bancroft Ltd accounted for the impairment of the debtor,
Aston Ltd, from R122 000 to R111 000 in its separate financial records.
Intragroup transactions
4. Smith Ltd is a manufacturer of motor vehicles. Smith Ltd sold a manufactured motor
vehicle to Warner Ltd at a profit mark-up of 25% on the selling price. Warner Ltd uses
the motor vehicle to deliver inventory to customers.
The following information regarding the motor vehicle was obtained from the asset
register of Warner Ltd at 31 December 2018:
Remaining
Asset Consideration useful life on Depreciation
number Purchase paid date of method
date purchase
Straight-line over
MV123 1 July 2017 R175 000 5 years the remaining
useful life
5. On 1 December 2018, Warner Ltd granted a loan of R95 500 to Bancroft Ltd. The loan
is repayable on demand and bears interest at 9% per year. The interest for
December 2018 is still outstanding at year-end. Warner Ltd has correctly accounted for
the interest receivable in “other income” and “trade and other receivables”, respectively.
Bancroft Ltd has correctly accounted for the loan from Warner Ltd as follows in its
separate accounting records:
Debit Credit
R R
Bank ..................................................................................... 95 500
Loan from Warner Ltd ........................................................... 95 500
Accounting for the capital portion of the loan received
Finance charges ................................................................... 716
Trade and other payables ..................................................... 716
Accounting for the outstanding interest payable at year-end
10
, FAC3762/108
Other information
6. The profit for the year of Bancroft Ltd was earned evenly during the current year.
7. The Smith Ltd Group and Warner Ltd measure investments in subsidiaries in their
separate accounting records at cost price in accordance with IAS 27, Separate Financial
Statements.
8. Investments in other equity instruments are measured at fair value through profit or loss,
in accordance with IFRS 9, Financial Instruments. The fair value of all equity
investments can be assumed to be equal to their cost price.
9. The Smith Ltd Group elected to measure all non-controlling interests at their fair value
at the acquisition dates.
10. The SA normal tax rate is 28% and capital gains tax is calculated at 80% of this. You
may assume that both the tax rates have remained unchanged since 1 January 2015.
11. Each share carries one vote and the issued share capital of all the entities in the group
remained unchanged since 1 January 2015.
REQUIRED:
Marks
(a) Prepare only the pro forma consolidation journal entries relating to the
intragroup loan and interest (additional information point 5) of the Smith
Ltd Group for the year ended 31 December 2018. 7
Journal narrations are required.
(b) Prepare only the asset section of the consolidated statement of financial
position of the Smith Ltd Group as at 31 December 2018. 23
You may assume that the deferred tax balance as at 31 December 2018
was not an asset.
(c) Prepare the consolidated statement of changes in equity of the
Smith Ltd Group for the year ended 31 December 2018. 20
Total columns are not required.
TOTAL [50]
Please note:
Your answer must comply with the requirements of International Financial
Reporting Standards (IFRS).
Notes to the annual financial statements and comparative figures are not
required.
All calculations must be shown and amounts must be rounded to the nearest
rand.
11
, FAC3762/108
SUGGESTED SOLUTION 1
QUESTION 1
PART A
CONSOLIDATION JOURNAL ENTRIES TO ELIMINATE THE INTRAGROUP LOAN AND
INTEREST
Debit Credit
R R
Loan from Warner Ltd 95 500
Loan to Bancroft Ltd 95 500
Eliminate intragroup balances
Other income/Interest received 716
Finance costs/Interest paid 716
Eliminate intragroup interest on loan
Trade and other payables 716
Trade and other receivables 716
Eliminate intragroup outstanding interest payable
Other income/Interest received 716
Trade and other receivables 716
Eliminate intragroup interest on loan
Trade and other payables 716
Finance costs/Interest paid 716
Eliminate intragroup outstanding interest payable
PART B
SMITH LTD GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2018
ASSETS R
Non-current assets
Property, plant and equipment (3 055 800 + 2 145 000 + 980 555 +
74 800(1 025 000 - 950 200) – 43 750(25/100 x 175 000) + 13 125(8 750
(43 750/5) x 18/12)) 6 225 530
Goodwill (102 769 (C1) + 45 680 (C1)) 148 449
Investments in other equity instruments (258 000 + 175 000 + 98 000) 531 000
Total non-current assets 6 904 479
12
QUESTION 1 (50 marks) (90 minutes)
The following are extracts from the financial statements of the entities in the Smith Ltd Group
for the year ended 31 December 2018:
EXTRACT FROM THE STATEMENTS OF FINANCIAL POSITION AS AT
31 DECEMBER 2018
Smith Warner Bancroft
Ltd Ltd Ltd
R R R
ASSETS
Non-current assets
Property, plant and equipment ................................ 3 055 800 2 145 000 980 555
Investment in Warner Ltd .................................... 910 000 - -
Investment in Bancroft Ltd................................... - 1 300 000 -
Investments in other equity instruments .............. 258 000 175 000 98 000
Total non-current assets .................................. 4 223 800 3 620 000 1 078 555
Current assets
Loan to Bancroft Ltd ............................................ - 95 500 -
Inventories........................................................... 522 800 485 000 365 000
Cash and cash equivalents ................................. 389 400 251 000 211 700
Trade and other receivables................................ 175 440 152 800 87 420
Total current assets .......................................... 1 087 640 984 300 664 120
TOTAL ASSETS ................................................. 5 311 440 4 604 300 1 742 675
EXTRACT FROM THE STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR
ENDED 31 DECEMBER 2018
Smith Warner Bancroft
Ltd Ltd Ltd
R R R
RETAINED EARNINGS
Balance as at 1 January 2018 ........................... 3 258 745 2 658 741 1 215 961
Profit for the year ................................................. 952 247 588 700 325 899
Dividends paid – 31 December 2018 .................. (120 000) (85 000) (30 000)
Balance as at 31 December 2018 ..................... 4 090 992 3 162 441 1 511 860
SHARE CAPITAL
Balance as at 1 January 2018 ........................... 100 000 80 000 60 000
Balance as at 31 December 2018 ..................... 100 000 80 000 60 000
Additional information
Warner Ltd
1. On 1 January 2015, Smith Ltd acquired control of Warner Ltd with the acquisition of
96 000 of the 160 000 issued ordinary shares of Warner Ltd. On this date, all the
identifiable assets and liabilities of Warner Ltd were considered to be equal to their
carrying amounts. On 1 January 2015, the retained earnings of Warner Ltd amounted
to R1 385 920 and the fair value of one Warner Ltd share was R9,40.
9
, FAC3762/108
Bancroft Ltd
2. On 1 August 2018, Warner Ltd acquired control of Bancroft Ltd by acquiring an 80%
interest in the ordinary share capital of Bancroft Ltd. The share capital of Bancroft Ltd
consisted of 60 000 issued ordinary shares. On the acquisition date, the fair value of
one Bancroft Ltd share was R27,00 (31 December 2018: R28,00).
3. On the acquisition date, the identifiable assets and liabilities of Bancroft Ltd were
considered to be equal to their carrying amounts, except for the following assets:
Carrying Fair
amount value
R R
Land .................................................................................... 950 200 1 025 000
Trade receivables (debtor: Aston Ltd) ................................. 122 000 111 000
On 31 December 2018, Bancroft Ltd accounted for the impairment of the debtor,
Aston Ltd, from R122 000 to R111 000 in its separate financial records.
Intragroup transactions
4. Smith Ltd is a manufacturer of motor vehicles. Smith Ltd sold a manufactured motor
vehicle to Warner Ltd at a profit mark-up of 25% on the selling price. Warner Ltd uses
the motor vehicle to deliver inventory to customers.
The following information regarding the motor vehicle was obtained from the asset
register of Warner Ltd at 31 December 2018:
Remaining
Asset Consideration useful life on Depreciation
number Purchase paid date of method
date purchase
Straight-line over
MV123 1 July 2017 R175 000 5 years the remaining
useful life
5. On 1 December 2018, Warner Ltd granted a loan of R95 500 to Bancroft Ltd. The loan
is repayable on demand and bears interest at 9% per year. The interest for
December 2018 is still outstanding at year-end. Warner Ltd has correctly accounted for
the interest receivable in “other income” and “trade and other receivables”, respectively.
Bancroft Ltd has correctly accounted for the loan from Warner Ltd as follows in its
separate accounting records:
Debit Credit
R R
Bank ..................................................................................... 95 500
Loan from Warner Ltd ........................................................... 95 500
Accounting for the capital portion of the loan received
Finance charges ................................................................... 716
Trade and other payables ..................................................... 716
Accounting for the outstanding interest payable at year-end
10
, FAC3762/108
Other information
6. The profit for the year of Bancroft Ltd was earned evenly during the current year.
7. The Smith Ltd Group and Warner Ltd measure investments in subsidiaries in their
separate accounting records at cost price in accordance with IAS 27, Separate Financial
Statements.
8. Investments in other equity instruments are measured at fair value through profit or loss,
in accordance with IFRS 9, Financial Instruments. The fair value of all equity
investments can be assumed to be equal to their cost price.
9. The Smith Ltd Group elected to measure all non-controlling interests at their fair value
at the acquisition dates.
10. The SA normal tax rate is 28% and capital gains tax is calculated at 80% of this. You
may assume that both the tax rates have remained unchanged since 1 January 2015.
11. Each share carries one vote and the issued share capital of all the entities in the group
remained unchanged since 1 January 2015.
REQUIRED:
Marks
(a) Prepare only the pro forma consolidation journal entries relating to the
intragroup loan and interest (additional information point 5) of the Smith
Ltd Group for the year ended 31 December 2018. 7
Journal narrations are required.
(b) Prepare only the asset section of the consolidated statement of financial
position of the Smith Ltd Group as at 31 December 2018. 23
You may assume that the deferred tax balance as at 31 December 2018
was not an asset.
(c) Prepare the consolidated statement of changes in equity of the
Smith Ltd Group for the year ended 31 December 2018. 20
Total columns are not required.
TOTAL [50]
Please note:
Your answer must comply with the requirements of International Financial
Reporting Standards (IFRS).
Notes to the annual financial statements and comparative figures are not
required.
All calculations must be shown and amounts must be rounded to the nearest
rand.
11
, FAC3762/108
SUGGESTED SOLUTION 1
QUESTION 1
PART A
CONSOLIDATION JOURNAL ENTRIES TO ELIMINATE THE INTRAGROUP LOAN AND
INTEREST
Debit Credit
R R
Loan from Warner Ltd 95 500
Loan to Bancroft Ltd 95 500
Eliminate intragroup balances
Other income/Interest received 716
Finance costs/Interest paid 716
Eliminate intragroup interest on loan
Trade and other payables 716
Trade and other receivables 716
Eliminate intragroup outstanding interest payable
Other income/Interest received 716
Trade and other receivables 716
Eliminate intragroup interest on loan
Trade and other payables 716
Finance costs/Interest paid 716
Eliminate intragroup outstanding interest payable
PART B
SMITH LTD GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2018
ASSETS R
Non-current assets
Property, plant and equipment (3 055 800 + 2 145 000 + 980 555 +
74 800(1 025 000 - 950 200) – 43 750(25/100 x 175 000) + 13 125(8 750
(43 750/5) x 18/12)) 6 225 530
Goodwill (102 769 (C1) + 45 680 (C1)) 148 449
Investments in other equity instruments (258 000 + 175 000 + 98 000) 531 000
Total non-current assets 6 904 479
12
