QUESTION 4 MINUTES)

20

MARKS

(30

The following abridged financial statements of two related companies for the years ending 31 December 20x9, are presented to you: STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 20X9 Pepper Ltd Assets Non-current assets Equipment Investment in Salt Ltd 400 000 ordinary shares @ fair value (Cost: R695 000) Deferred tax Current Assets Inventory Current account: Salt Ltd Better bank Trade Receivables Total Assets EQUITY AND LIABILITIES Share capital and reserves Share capital: Ordinary shares (issued @ R1 each) Retained earnings Mark-to-market reserve Shareholders interest Current liabilities Trade and other payables Better bank Current account: Pepper Ltd R 900 000 Salt Ltd R 450 000

715 000 15 000

40 000

400 000 75 000 990 000 3 095 000

300 000 70 000 700 000 1 560 000

1 000 000 1 100 000 20 000 2 120 000 900 000 75 000 3 095 000

500 000 540 000 1 040 000 450 000 70 000 1 560 000

STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 20X9 Pepper Ltd Salt Ltd R R 20x9 20x9 Sales 900 000 600 000 Cost of sales (200 000) (300 000) Gross profit 700 000 300 000 Less expenses (100 000) (180 000) Profit for the year before tax 600 000 120 000 Taxation (100 000) (80 000) Profit for the year 500 000 40 000 Other comprehensive income

Items that will not be reclassified to profit and loss Mark-to-market reserve Other comprehensive income for the year TOTAL COMPREHENSIVE INCOME FOR THE YEAR

20 000 20 000 520 000

40 000

EXTRACT FROM THE STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 20X9 Mark-tomarket reserve Pepper Ltd Balance at 1 January 20x9 Profit for the year Other comprehensive income for the year Balance at 31 December 20x9 ADDITIONAL INFORMATION: Pepper Ltd obtained the interest in Salt Ltd on 1 January 20x6 when Salt Ltd's retained earnings amounted to R350 000. The share capital has remained unchanged since that date. The parties agreed that they will open bank accounts at Better bank and that both entities will issue guarantees to the bank for any overdraft that the other party might incur. Since 1 January 20x8, Pepper Ltd bought some of its inventory from Salt Ltd at cost plus 25%. Intragroup-sales between Pepper Ltd and salt Ltd were as follows: a. 20x8 b. 20x9 R 300 000 R 200 000 Retained earnings

Pepper Ltd 600 000 500 000 1 100 000

Salt Ltd 500 000 40 000 540 000

20 000 20 000

Pepper Ltd had the following inventory bought from Salt Ltd on hand at: a. 31 December 20x8 b. 31 December 20x9 R 100 000 R 150 000

Pepper Ltd classifies the investment in the subsidiary as a financial asset at fair value through other comprehensive income in terms of IFRS 9. Changes in fair value are recognised in other comprehensive income and accumulated in equity through the mark-tomarket reserve. It is the entity's policy to measure any non-controlling interests in an acquiree at their proportionate share of the acquiree's identifiable net assets. Assume that the identifiable assets acquired and the liabilities assumed at acquisition date are shown at their acquisition-date fair values, as determined in terms of IFRS 3.

On 28 December 20x9 the accountant of Salt Ltd asked Pepper Ltd to transfer R 5 000 into Salt's account at Better bank. He omitted to record the transfer in Salt's ledger. The corporate tax rate is 28%.

REQUIRED: Prepare the statement of financial position as at 31 December 20x9 in the group financial statements of Pepper Ltd and subsidiary to comply with International Financial Reporting Standards (IFRS). (20) Comparative figures are not required. QUESTION 4 MINUTES) 20 MARKS (30

The following abridged financial statements of two related companies for the years ending 31 December 20x8 and 20x9, are presented to you: STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER Assets Non-current assets Equipment Gross carry amount Accumulated depreciation Investment in Saw Ltd 350 000 ordinary shares @ cost Current assets Inventory Current account Paw Ltd VAT control account Trade receivables EQUITY AND LIABILITIES Share capital and reserves Share capital: Ordinary shares of R2 each General reserve Retained earnings Total equity Current liabilities Trade and other payables Deferred tax SARS taxation account Current account Saw Ltd Paw Ltd 20x9 R 3 300 000 2 100 000 2 500 000 400 000 1 200 000 790 000 190 000 95 000 505 000 4 090 000 Saw Ltd 20x9 R 1 450 000 1 450 000 1 900 000 450 000 1 337 000 300 000 55 000 70 000 912 000 2787 000

2 000 000 350 000 830 000 3 180 000 910 000 775 000 20 000 70 000 45 000

1 000 000 400 000 854 000 2 254 000 533 000 332 000 5 000 196 000 -

4 090 000

2 787 000

STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 20X9 PAW Ltd Saw Ltd R R Sales 2 000 000 2 000 000 Cost of sales 1 600 000 1 000 000 Gross profit 400 000 1 000 000 Less expenses 150 000 300 000 Profit for before tax 250 000 700 000 Taxation 70 000 196 000 Profit after tax 180 000 504 000 Other comprehensive income Items that will not be reclassified to profit and loss Other comprehensive income for the year TOTAL COMPREHENSIVE INCOME FOR THE YEAR 180 000 504 0000

EXTRACT FROM THE STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 20X9 General reserve Retained earnings Paw Ltd Saw Ltd Paw Ltd Saw Ltd Balance at 1 January 20x9 300 000 300 000 700 000 450 000 Changes in equity for 20x9 Profit for the year 180 000 504 000 Transfer to general reserve 50 000 100 000 (50 000) (100 000) Balance at 31 December 20x9 350 000 400 000 830 000 854 000

ADDITIONAL INFORMATION: Paw Ltd obtained the interest in Saw Ltd on 1 January 20x6 when Saw Ltd's retained profit and general reserve amounted to R350 000 and R100 000, respectively. The share capital has remained unchanged since that date. The parties agreed that Paw Ltd will buy all its merchandise from Saw Ltd at the same price at which Saw Ltd sells to all its customers. Paw Ltd has a lucrative contract with the Limpopo Province Roads Department and is able to mark up the goods purchased from Saw Ltd by 25% to arrive at their selling price. Inventory is bought by Paw Ltd from Saw Ltd at cost plus 25%. Paw Ltd had the following inventory bought from Saw Ltd on hand: 31 December 20x8 21 December 20x9 R100 000 R200 000

Intra-group sales for the 20x9 year amounts to R1 600 000.

It is the entity's policy to measure any non-controlling interests in an acquiree at their proportionate share of the acquiree's identifiable net assets. Assume that the identifiable assets acquired and the liabilities assumed at acquisition date are shown at their acquisition date fair values, as determined in terms of IFRS 3. On 23 December 20x9, Saw Ltd despatched goods at a selling price of R10 000 to Paw Ltd. Due to a strike by the truck drivers, the goods only arrived at Paw Ltd on 8 January 20x10. The corporate tax rate is 28%.

REQUIRED: Provide the pro forma consolidation journal entries to prepare the group financial statements of Paw Ltd and its subsidiaries at 31 December 20x9. The on acquisition date pro forma journal is not required. (20)