FAC3704
ASSIGNMENT 1 SOLUTIONS
SEMESTER 01 – 2025
Case Study: Group Financial Reporting at Stellar Holdings Ltd
Introduction
Stellar Holdings Ltd is a South African-based investment company that owns multiple
subsidiaries across different industries. In 2021, Stellar acquired a 75% interest in
BrightTech (Pty) Ltd, a technology firm specializing in software development. The
acquisition was made for R50 million, and at the acquisition date, BrightTech’s net assets
had a fair value of R40 million.
Since acquiring BrightTech, Stellar has engaged in several intragroup transactions,
including:
1. Sale of inventory: Stellar sold R5 million worth of inventory to BrightTech, with a
30% mark-up. At the reporting date, 40% of this inventory remained unsold.
2. Intragroup dividends: BrightTech declared R2 million in dividends, of which
Stellar received R1.5 million.
3. Intercompany loan: Stellar provided BrightTech with a R10 million loan at a 7%
interest rate, which has not yet been repaid.
Stellar’s financial reporting team must now consolidate BrightTech’s financials into the
group accounts for the year ended 31 December 2023, ensuring compliance with
International Financial Reporting Standards (IFRS).
Multiple-Choice Questions (MCQs) – Based on the Case Study
Section A: Business Combinations and Consolidation (10 Marks)
1. What percentage of BrightTech’s financial statements should be consolidated into
Stellar Holdings’ accounts? a) 100%
b) 75%
c) 50%
d) 25%
2. How should the non-controlling interest (NCI) be calculated at acquisition?
a) As a percentage of the subsidiary’s share capital
b) As a percentage of the subsidiary’s total assets
c) As a percentage of the subsidiary’s net assets at fair value
d) As a percentage of the parent’s investment in the subsidiary
3. At acquisition, how much goodwill should Stellar Holdings recognize? a) R10
million
b) R15 million
c) R5 million
d) No goodwill should be recognized
4. Which IFRS standard governs business combinations and consolidation? a) IFRS 9
, b) IFRS 10
c) IFRS 15
d) IFRS 16
5. In consolidated financial statements, how is intra-group inventory profit eliminated?
a) By adjusting retained earnings
b) By reversing the unrealized profit from the inventory
c) By recognizing the profit in the non-controlling interest
d) By eliminating only half of the unrealized profit
6. What happens to BrightTech’s share capital in the consolidated financial statements?
a) It is included in full
b) It is proportionally consolidated
c) It is eliminated on consolidation
d) It is transferred to retained earnings
7. How should dividends received from BrightTech be treated in the consolidated
statement of cash flows?
a) As an investing activity
b) As an operating activity
c) They are eliminated in consolidation
d) As a financing activity
8. How should the intercompany loan be treated in the consolidated balance sheet? a)
Eliminated in full
b) Recorded under liabilities
c) Recognized as an asset only
d) Eliminated only at the parent level
9. If BrightTech made a profit of R12 million in 2023, what portion of the profit is
allocated to Stellar Holdings? a) R12 million
b) R9 million
c) R6 million
d) R3 million
10. What is the main purpose of preparing consolidated financial statements?
a) To present a combined financial position of the parent and subsidiaries
b) To reflect each subsidiary’s financial position separately
c) To eliminate intercompany transactions permanently
d) To calculate the parent’s tax obligations
Section B: Intragroup Transactions (10 Marks)
11. How much of the intragroup inventory profit should be eliminated at year-end? a)
R500,000
b) R600,000
c) R1.5 million
d) R1.2 million
12. How are intragroup dividends treated in the consolidated financial statements?
a) Recognized as income
b) Eliminated in full
c) Recorded as retained earnings
d) Transferred to non-controlling interest
ASSIGNMENT 1 SOLUTIONS
SEMESTER 01 – 2025
Case Study: Group Financial Reporting at Stellar Holdings Ltd
Introduction
Stellar Holdings Ltd is a South African-based investment company that owns multiple
subsidiaries across different industries. In 2021, Stellar acquired a 75% interest in
BrightTech (Pty) Ltd, a technology firm specializing in software development. The
acquisition was made for R50 million, and at the acquisition date, BrightTech’s net assets
had a fair value of R40 million.
Since acquiring BrightTech, Stellar has engaged in several intragroup transactions,
including:
1. Sale of inventory: Stellar sold R5 million worth of inventory to BrightTech, with a
30% mark-up. At the reporting date, 40% of this inventory remained unsold.
2. Intragroup dividends: BrightTech declared R2 million in dividends, of which
Stellar received R1.5 million.
3. Intercompany loan: Stellar provided BrightTech with a R10 million loan at a 7%
interest rate, which has not yet been repaid.
Stellar’s financial reporting team must now consolidate BrightTech’s financials into the
group accounts for the year ended 31 December 2023, ensuring compliance with
International Financial Reporting Standards (IFRS).
Multiple-Choice Questions (MCQs) – Based on the Case Study
Section A: Business Combinations and Consolidation (10 Marks)
1. What percentage of BrightTech’s financial statements should be consolidated into
Stellar Holdings’ accounts? a) 100%
b) 75%
c) 50%
d) 25%
2. How should the non-controlling interest (NCI) be calculated at acquisition?
a) As a percentage of the subsidiary’s share capital
b) As a percentage of the subsidiary’s total assets
c) As a percentage of the subsidiary’s net assets at fair value
d) As a percentage of the parent’s investment in the subsidiary
3. At acquisition, how much goodwill should Stellar Holdings recognize? a) R10
million
b) R15 million
c) R5 million
d) No goodwill should be recognized
4. Which IFRS standard governs business combinations and consolidation? a) IFRS 9
, b) IFRS 10
c) IFRS 15
d) IFRS 16
5. In consolidated financial statements, how is intra-group inventory profit eliminated?
a) By adjusting retained earnings
b) By reversing the unrealized profit from the inventory
c) By recognizing the profit in the non-controlling interest
d) By eliminating only half of the unrealized profit
6. What happens to BrightTech’s share capital in the consolidated financial statements?
a) It is included in full
b) It is proportionally consolidated
c) It is eliminated on consolidation
d) It is transferred to retained earnings
7. How should dividends received from BrightTech be treated in the consolidated
statement of cash flows?
a) As an investing activity
b) As an operating activity
c) They are eliminated in consolidation
d) As a financing activity
8. How should the intercompany loan be treated in the consolidated balance sheet? a)
Eliminated in full
b) Recorded under liabilities
c) Recognized as an asset only
d) Eliminated only at the parent level
9. If BrightTech made a profit of R12 million in 2023, what portion of the profit is
allocated to Stellar Holdings? a) R12 million
b) R9 million
c) R6 million
d) R3 million
10. What is the main purpose of preparing consolidated financial statements?
a) To present a combined financial position of the parent and subsidiaries
b) To reflect each subsidiary’s financial position separately
c) To eliminate intercompany transactions permanently
d) To calculate the parent’s tax obligations
Section B: Intragroup Transactions (10 Marks)
11. How much of the intragroup inventory profit should be eliminated at year-end? a)
R500,000
b) R600,000
c) R1.5 million
d) R1.2 million
12. How are intragroup dividends treated in the consolidated financial statements?
a) Recognized as income
b) Eliminated in full
c) Recorded as retained earnings
d) Transferred to non-controlling interest
