Chapter 31 - Gripping IFRS ICAP 2008 (Solution of Graded Questions)

Solutions to Gripping IFRS : Graded Questions
Partly owned subsidiaries
Solution 31.1
a) Shortcomings of consolidated financial statements Unprofitable companies are set off against profitable companies and are thus concealed Intra group transactions may represent a substantial portion of a companys activities. The reversal of inter-company transactions, whether these are at arms length or not, may result in figures such as reported turnover, not representing the true level of the groups activities. The statement of financial position gives no indication of individual companies assets and liabilities and ratios calculated on consolidated statements of financial position are merely group averages. As such they cannot highlight problem areas in individual companies. The holding company is not legally bound to honour the obligation of its subsidiaries. This further invalidates the use of ratios such as the current ratio, or the debt : equity ratio. The results and financial position reported per the consolidated financial statements are difficult to evaluate where the group consists of various operations (eg manufacturing and banking). The different constituent parts would have different profiles of profitability, risk and growth. b) Non-controlling shareholders An excess purchase price over equity paid by the holding company on acquisition of the subsidiary is not apportioned to outside shareholders. If the premium is paid in order to acquire control of the subsidiary, benefit accrues only to the holding company. As it is difficult to determine exactly what goodwill comprises, it is all deemed to be the cost of control. Applying the entity method, the premium paid due to a tangible asset being undervalued is grossed up and outside shareholders credited with their share of the increase in value. Outside shareholders have an interest in the resources of the subsidiary and they would be entitled to their share of any profit on the sale of the asset. The full transaction would be reversed and the full profit therefore removed from the subsidiarys net profit before tax. The holding company is deemed to control all the subsidiarys activities and the group is seen to be one entity. No profit can be made within the same entity. It must also be borne in mind that consolidated financial statements are drawn up mostly for the benefit of the holding companys members and for creditors. Outside shareholders will look to the subsidiarys financial statements for information on which to base their decision-making. The interest will still be deducted as an expense for the purpose of calculating Noncontrolling shareholders share of profits. It would however not be included in the amount of interest paid disclosed in the consolidated financial statements
```
Kolitz & Sowden-Service, 2009
Chapter 31: Page 1
Solution 31.2
PRAGUE LIMITED AND SALTZBURG LIMITED GROUP CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 SEPTEMBER 20X5 Revenue Cost of sales Gross profit Operating expenses Administration Depreciation Selling Profit before tax Income tax expense Profit for the period Other comprehensive income Total comprehensive income Attributable to Equity holders of parent Non-controlling interest C 750 000 (600 000) 150 000 (82 000) 64 500 10 000 7 500 68 000 (27 200) 40 800 0 40 800
(87 500 10 000 + 8 000 6 000 15 000)
(22 000 + 5 200)
(7 800 x 20%)
39 240 1 560 40 800
PRAGUE LIMITED AND SALTZBURG LIMITED GROUP CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 SEPTEMBER 20X5 Attributable to equity Share Retained holders of capital earnings parent C C C Balance at 30 September 100 000 47 000 147 000 20X4 Acquisition of subsidiary Total comprehensive 39 240 39 240 income Dividends (10 000) (10 000) Balance at 30 September 100 000 76 240 176 240 20X5
Noncontrolling interest C 16 360 1 560 (3 000) 14 920
Total C 147 000 16 360 40 800 (13 000) 191 160
Chapter 31: Page 2
Solution 31.2 continued

PRAGUE LIMITED AND SALTZBURG LIMITED GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 SEPTEMBER 20X5 C ASSETS Non-current assets Land Equipment Goodwill Current assets Inventories Accounts receivable Cash and cash equivalents 154 280 83 000 70 000 2 560 62 600 43 000 15 000 4 600 218 160 EQUITY AND LIABILITIES Equity Share capital Retained earnings Equity attributable to equity holders of the parent Non-controlling interest Non-current liability Deferred tax Current liabilities Accounts payable Current tax payable Shareholders for dividends
191 160 100 000 76 240 176 240 14 920 3 200 23 800 8 000 4 800 11 000 218 160
(10 000 + 1 000)
Workings
Allocation of income and expenses in Saltzburg Limited Total Rent received Admin expenses PBT Tax at 40 % PAT 37 500 (8 000) 29 500 11 800 17 700 1/10-30/6 (9 months) 22 500 (6 000)) 16 500 6 600 9 900 1/7-30/9 (3 months) 15 000 (2 000) 13 000 5 200 7 800
Calculation of tax in Prague Ltd Gross profit Expenses Admin Selling PBT Tax at 40 % 150 000 (95 000) 87 500 7 500 55 000 22 000
Chapter 31: Page 3

Analysis of equity of Saltzburg Limited At acquisition Share capital Share premium Retained earnings Profit after tax (1/10X4 30/6/X5) Land and buildings Deferred tax (8 000 X 0.40) Fair value of consideration transferred NCI (81 800 X 0.20) Fair value of identifiable net assets Goodwill Current year Profit after tax (1/7/X5 30/9/X5) Dividend paid 2/7/20X5 Dividend declared 31/12/X5 Non-controlling interest Total 50 000 5 000 12 100 9 900 8 000 (3 200) 83 400 68 000 16 360 84 360 81 800 2 560 20% 80%
16 360
65 440
7 800 (10 000) (5 000)
1 560 (2 000) (1 000) 14 920
6 240 (8 000) (4 000)
Pro forma consolidation journal entries 1. Share capital Share premium Retained earnings Profit for the period Land and buildings Goodwill Deferred tax Non-controlling interest (FP) Investment in Saltzburg Ltd Rent received Admin expenses Taxation Profit after tax Dividend income Non-controlling interest (FP) Dividends Non-controlling interest (CI) Non-controlling interest (FP) Dividend income Non-controlling interest (FP) Dividends Shareholders for dividend Dividends receivable Rent received Admin expenses Debit 50 000 5 000 12 100 9 900 8 000 2 560 Credit
3 200 16 360 68 000 22 500 6 000 6 600 9 900 8 000 2 000 10 000 1 560 1 560 4 000 1 000 5 000 4 000 4 000 15 000 15 000
2.
3.
6.
7.
8.
9.
Chapter 31: Page 4

Prague Limited 4. Taxation Current tax payable 22 000 22 000
Saltzburg Limited 5. Taxation Current tax payable 11 800 11 800
Prague Ltd Share capital Share premium Retained earnings 1/10/X4 Rent received Dividend income Gross profit Accumulated depreciation Accounts payable Profit for the period Non-controlling interest (FP) 100 000 47 000 4 000 150 000 30 000 8 000
Saltzburg Ltd 50 000 5 000 12 100 37 500 1) 1) 1) 2) 9) 7)
Consolidation adjustment Debit Credit 50 000 5 000 12 100 22 500 15 000 4 000
Consolidated balances 100 000 47 000 150 000 30 000 8 000 15 560 11 000 361 560
1) 3) 7) 9 900 2 000 1 000 5 000 2) 1) 6) 8) 9 900 17 000 1 560 5 000
Shareholders for dividends
10 000 349 000
5 000 109 600
8)
Land & buildings at cost Equipment at cost Invest in Saltzburg Ltd Admin expenses Selling expenses Current tax payable Inventories Accounts receivable Dividends receivable Cash and cash equivalents Dividend paid 2/7/X5 Taxation Non-controlling interest (CI) Dividends declared
100 000 60 000 87 500 7 500 19 000 43 000 15 000 4 000 3 000 -
75 000 8 000 10 000 -
1) 3)
8 000 8 000 1) 2) 9) 4) 5) 68 000 6 000 15 000 22 000 11 800
83 000 100 000 74 500 7 500 (4 800) 43 000 15 000
8) 1 600 10 000 4) 5) 6) 22 000 11 800 1 560 3) 2)
4 000 10 000 6 600 4 600 27 200 1 560 10 000 361 560
10 000 349 000
5 000 109 600
7)
5 000
Chapter 31: Page 5
Solution 31.3
a)
Investment in Seal Ltd C Date Description 120 000 30/12/X7 Impairment of investment 31/12/X7 Balance 120 000 117 600
Date 1/8/X5
Description Cash
C 2 400 117 600 120 000
1/1/X8
Balance
b)
Debit Share capital Retained earnings Land & buildings Goodwill Deferred tax Investment in Seal Non-controlling interest (FP) Retained earnings Non-controlling interest (FP) Profit on sale of land & buildings Land and buildings Deferred tax Tax expense Non-controlling interest (CI) Non-controlling interest (FP) Investment in Seal Impairment of investment Dividend income Non-controlling interest (FP) Dividends paid & declared Dividend income Non-controlling interest (FP) Dividends paid & declared Shareholders for dividend Current assets 100 000 30 000 20 000 4 800 6 000 120 000 28 800
(Analysis of equity at beginning of year) (Adjusting the C17 000 profit to Seal to give a 3 000 loss to the group) (Reversal of group deferred tax on sale of L&B) (Analysis of equity for the current year NCI share of profits) (Reversal of Penguins loss on writedown) (3 000 X 0.80) (17 000 X 0.80) (17 000 X 0.20)
Credit
(Analysis of equity at acquisition)
2 400 2 400 20 000 20 000 6 000 6 000 2 288 2 288 2 400 2 400 13 600 3 400 17 000
(3 000 X 0.80) (3 000 X 0.20)
2 400 600 3 000 2 400
(reversing Penguins dividends receivable)
2 400
Chapter 31: Page 6

c)
PENGUIN LIMITED AND SEAL LIMITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 20X7 Rental income Loss on sale of buildings Operating expenses Profit before tax Income tax expense Profit for the period Other comprehensive income Total comprehensive income Attributable to: Equity holders of the parent Non-controlling interest
(62 400 + 26 000) (17 000 20 000) (7 600 + 10 300) (16 400 + 7 260 6 000)
C 88 400 (3 000) (17 900) 67 500 (17 660) 49 840 0 49 840
47 552 2 288 49 840
Workings
Analysis of equity of Seal At acquisition Share capital Retained earnings Land & buildings Deferred tax (200 000 x 30%) Total 100 000 30 000 130 000 20 000 (6 000) 144 000 120 000 28 800 148 800 144 000 4 800 42 000 30 000 12 000 15 700 (7 260) 6 000 17 000 (20 000) 11 440 (17 000) (3 000) 147 440 (20%) (80%)
28 800
115 200
Fair value of consideration transferred NCI (144 000 X 0.20) Fair value of identifiable net assets Goodwill Beginning of year Retained earnings at beginning of year Retained earnings at acquisition Current year Profit before tax (26 000 10 300) Tax Group adjustment (Reversal of DT on sale of L&B) Profit on sale of L & B Group adjustment Dividend from sale of L&B Dividend from profits
2 400
9 600
2 288 (3 400) (600) 29 488
9 152 (13 600) (2 400)
Chapter 31: Page 7

Analysis of property Selling price Cost Profit / loss Seal 142 000 (125 000) 17 000 Group 142 000 (145 000) (3 000)
Penguin Debit Share capital Retained earnings Land & buildings Deferred tax Goodwill Investment in Seal Current assets Current liabilities Shareholders for dividend Dividend income Rental income Profit on sale of land & buildings Operating expenses Impairment of investment Taxation expense Dividends paid & proposed Non-controlling interest (CI) Non-controlling interest (FP) 117 600 96 400 32 000 9 000 16 000 62 400 220 000 Credit 300 000 50 000 Debit
Seal Credit 100 000 42 000
Adjustments Debit 100 000 30 000 2 400 20 000 6 000 4 800 2 400 120 000 Credit
Group Debit Credit 300 000 59 600
20 000 220 000 6 000 4 800 59 060 2 400 271 500
177 500 27 060 3 000 26 000 17 000 20 000 3 000 16 000
600
9 600 88 400 3 000 17 900
7 600 2 400 16 400 9 000
10 300 2 400 7 260 20 000 2 288 3 400 600 28 800 2 400 2 288 6 000 17 000 3 000
17 660 9 000 2 288 29 488
469 400 469 400 215 060 215 060
546 148
546 148
Chapter 31: Page 8
Solution 31.4
PORTUGAL LIMITED AND SPAIN LIMITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 20X9 C ASSETS Non-current assets Goodwill Land Plant - Cost - Accumulated depreciation Furniture - Cost - Accumulated depreciation Current assets Inventories Accounts receivable Cash and cash equivalents EQUITY AND LIABILITIES Equity Share capital General reserve Retained earnings Equity attributable to equity holders of parent Non-controlling interest Non-current liabilities Deferred tax Current liabilities Accounts payable
(130 + 80 + 30) (35 + 60 9.6 12) (14 + 18 12 1.2) (5 + 4 0,8) (2.5 + 1 0.8)
12 555 240 000 54 600 73 400 (18 800) 5 500 8 200 (2 700) 31 000 24 000 19 000 386 655 355 095 200 000 67 500 53 085 320 585 34 510
(10 500 3 360 + 420)
7 560 24 000 386 655
PORTUGAL LIMITED AND SPAIN LIMITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 20X9 Profit for the period Other comprehensive income Total comprehensive profit Attributable to Equity holders of parent Non-controlling interest
(67.5 7.5 + 24 + 1.2 0.42)
C 84 780 0 84 780
78 585 6 195 84 780
Chapter 31: Page 9

PORTUGAL LIMITED AND SPAIN LIMITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 20X9 Attributable to equity Share General Retained holders of capital reserve earnings parent C C C C 200 000 50 000 12 000 262 000 Balance at 30 June 20X8 Acquisition of subsidiary 78 585 78 585 Total comprehensive income (20 000) (20 000) Dividend 17 500 (17 500) Transfer to/from reserves 200 000 67 500 53 085 320 585 Balance at 30 June 20X9
Noncontrolling interest
30 815 6 195
Total
262 000 30 815 84 780
(2 500)
(22 500)
34 510
355 095
Workings
Plant Cost 1/7/20X6 Accumulated depreciation 30/6/20X8 Carrying amount 1/7/20X8 Depreciation 30/6/20X9 Carrying amount 30/6/20X9 Years 10 (2) 8 Spain Limited 60 000 12 000 48 000 (6 000) 42 000 Decrease Group
(9 600) 1 200 (8 400)
38 400 (4 800) 33 600
At acq 30/6/X9
CA 48 000 (9 600) 38 400 (4 800) 33 600
TB 48 000 48 000 (6 000) 42 000
TD (9 600) (9 600) 1 200 (8 400)
DT (3 360) (3 360) 420 (2 940) Dr Dr Cr Dr
Chapter 31: Page 10

Analysis of equity of Spain Ltd At acquisition Share capital Retained earnings (80 000 50 000) Land (30 000 X 0.35) Deferred tax Plant Deferred tax
A
Total 100 000 10 000 30 000 (10 500) (9 600) 3 360 123 260 105 000 30 815 135 815 (123 260) 12 555
25%
75%
30 815
92 445
Fair value of consideration transferred NCI (128 510 X 0,25) Fair value of identifiable net assets Goodwill .Retained earnings at beginning of year At 1/7/20X8 At acquisition Current year Profit for the period Depreciation adjustment Deferred tax Dividend Non-controlling interest
10 000 10 000 B 24 000 1 200 (420) 24 780 (10 000) 143 290
6 195 (2 500) 34 510
18 585 (7 500) 103 530
Chapter 31: Page 11

Pro forma consolidating journal entries (1) Share capital Retained earnings Land Deferred tax Goodwill Deferred tax Plant Non-controlling interest Investment in Spain Ltd Accumulated depreciation - plant Plant Accumulated depreciation - furniture Furniture Accumulated depreciation - plant Profit (Depreciation expense) Profit (Tax expense) Deferred tax Non-controlling interest (CI) Non-controlling interest (FP) Profit for the period Non-controlling interest Dividend paid Loan from Portugal Limited Loan to Spain Limited General reserve Transfer to general reserve Debit 100 000 10 000 30 000 3 360 12 555 Credit
(on plant) (on land)
10 500 9 600 30 815 105 000 12 000 12 000 800 800 1 200 1 200 420 420 6 195 6 195 7 500 2 500 10 000 30 000 30 000 2 500 2 500
(2)
(3)
(4)
(5)
(6) (7)
(8)
(9)*
* This pro-forma journal entry is required following the two entries in the parent and subsidiarys accounting
records respectively: Debit 10 000 Credit 10 000 10 000 10 000
Transfer to general reserve General reserve (Parents records) Transfer to general reserve General reserve (Subsidiarys records)
Chapter 31: Page 12

Portugal Limited Share capital General reserve Retained earnings 1/7/20X8 Profit for the period Accumulated depreciation - plant Accumulated depreciation - furniture Loan - Portugal Ltd Accounts payable Deferred tax NCI (FP) 361 000 Land and buildings Plant Furniture Inv in Spain Ltd Loan - Spain Ltd Inventories Accounts receivable Cash Dividends paid Goodwill NCI (CI) Transfer to G.R. 130 000 35 000 5 000 105 000 30 000 18 000 13 000 5 000 20 000 192 000 80 000 60 000 4 000 13 000 11 000 14 000 10 000 1) 6) 9) 361 000 192 000 12 555 6 195 17 500 1) 30 000 1) 2) 3) 8) 9 600 12 000 800 30 000 200 000 50 000 12 000 67 500 14 000 Spain Limited 100 000 10 000 24 000 18 000 1) 1) 7) 5) 2) 4) 3) 8) 1) 7) Consolidated adjustments Debit Credit 100 000 9) 17 500 10 000 7 500 4) 1 200 420 12 000 1 200 800 30 000 3 360 2 500 1) 5) 1) 6) 10 500 420 30 815 6 195 Consolidated Balances 200 000 67 500 12 000 84 780
2 500 15 000
1 000 30 000 9 000
18 800 2 700 24 000 7 560
34 510 451 850 240 000 73 400 8 200 31 000 24 000 19 000 20 000 12 555 6 195 17 500 451 850
7)
10 000
Chapter 31: Page 13
Solution 31.5
MAX LIMITED AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 OCTOBER 20X7 C ASSETS Non-current assets Land and buildings Plant and equipment Goodwill Current assets Inventories Accounts receivable Cash and cash equivalents
(130 + 125 + 130) (180 + 130 - 50 - 33)
385 000 227 000 1 480 18 000 32 100 5 000 668 580
EQUITY AND LIABILITIES Equity Share capital Non-distributable reserve General reserve Retained earnings Equity attributable to equity holders of parent Non-controlling interest Non-current liabilities Long term liabilities Deferred tax Current liabilities Accounts payable Shareholders for dividends Bank overdraft
(19,6 + 58,36) (60 + 80 - 20 + 30) (M 2,8 + L 2,1)
456 840 300 000 20 620 3 600 55 500 379 720 77 960 150 000 4 900 33 000 15 000 8 000 668 580
MAX LIMITED AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 OCTOBER 20X7 Profit before finance cost Finance cost Profit before tax Income tax expense Profit for the period Other comprehensive income Total comprehensive income Attributable to: Equity holders of the parent Non-controlling interest
(52,2 + 50 + 5 - 6 - 2 4) (7 + 11 - 2) (18 + 12)
C 95 200 (16 000) 79 200 (30 000) 49 200 0 49 200
(1 + 10,8)
37 400 11 800 49 200 0,1247
Earnings per share
(37 400 / 300 000 shares)
Chapter 31: Page 14

MAX LIMITED AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 OCTOBER 20X7
Share capital
C
Nondistributable reserve
C
General reserve
C
Retained earnings
C
Attributable to equity holders of parent

C
Minoritie s
C
Total
C
Balance at 31/10/20X6 Total comprehensiv e income Dividends Transfer to general reserve Balance at 31/10/20X7
300 000
~20 620
#36 700 37 400
356 480 37 400
^70 160 11 800
426 640 49 200
3 600
(15 000) (3 600)
(15 000)
(4 000)
(19 000)
300 000
20 620
3 600
55 500
378 880
77 960
456 840
~ [M 17,2 + L (12,9 7.2 2.28)] # [(M 30 + 6,8) + L (16 5 4,4 + 0,1) + A ( - 7 1,5 + 1,7) ^ [A (20,3 1,7) + L (44.88 + 2.28 + 4,4)]
Workings
Analysis of equity of Ape Limited At acquisition Share capital Retained earnings Total NCI (20%) P (80%)
100 000 1 500 101 500 81 100 20 300 101 400 101 500 100
20 300
81 200
Fair value of consideration transferred NCI (101 500 X 0,20) Fair value of identifiable net assets Gain on acquisition Beginning of year Retained earnings at 01/10/X7 At acquisition Current year Profit after tax Non-controlling interest
(7 000) (1 500) (8 500) 5 000
(1 700) 1 000 19 600
(6 800) 4 000
Chapter 31: Page 15
Analysis of equity of Lisa Limited At acquisition Share capital Retained earnings Land Deferred tax
Total
NCI (40%)
P(60%)
100 000 5 000 10 000 (2 800) 112 200
44 880
67 320
Fair value of consideration transferred NCI (113 600 X 0,40) Fair value of identifiable net assets Goodwill Beginning of year NDR at 01/10/X7 (Effectively) At acquisition
68 800 44 880 113 680 112 200 1 480
(17 917 X 0.72)
12 900 (7 200) 5 700 16 000 (5 000) 11 000
2 280
3 420
Retained earnings at 01/10/X7 At acquisition
4 400
6 600
Current year Profit before interest and tax Interest Tax Dividends Non-controlling interest
50 000 (11 000) (12 000) 27 000 (10 000)
10 800 (4 000) 58 360
16 200 (6 000)
Chapter 31: Page 16

Consolidating journal entries Debit 1. (Ape Limited) Share capital Retained earnings Non-controlling interest (FP) Retained earnings (Gain on acquisition) Investment in subsidiary (Ape) Non-controlling interest (FP) Retained earnings Non-controlling interest (CI) Non-controlling interest (FP) Investment in subsidiary (Ape) Retained earnings Profit before tax and interest Investment in subsidiary (Ape) 5. (Lisa Limited) Share capital Retained earnings Land Goodwill Deferred tax Non-controlling interest (FP) Investment in subsidiary (Lisa) Deferred tax Non-distributable reserve Land 6. 7. 8. 9. N.D.R Non-controlling interest (FP) Retained income Non-controlling interest (FP) Non-controlling interest (CI) Non-controlling interest (FP) Net operating profit (dividends received) Non-controlling interest (FP) Dividends declared Shareholders for dividends Dividends receivable Accounts payable Net operating profit (interest received) Interest paid General reserve Transfer to general reserve
or
Credit
100 000 1 500 20 300 100 81 100 1 700 1 700 1 000 1 000 6 800 6 800 4 000 4 000 100 000 5 000 10 000 1 480 2 800 44 880 68 800 2 800 7 200 10 000 2 280 2 280 4 400 4 400 10 800 10 800 6 000 4 000 10 000 10 000 6 000 4 000 2 000 2 000 2 400 2 400
2. 3. 4.
10.
11. 12.
General reserve Non-controlling interest (FP) Non-controlling interest (FP) Transfer to general reserve 13. Long term liabilities Investment in subsidiaries (loan)
2 400 2 400 2 400 2 400 20 000 20 000
Chapter 31: Page 17

Max Share capital N.D.R. General reserve Retained earnings 300 17.2 30 Lisa 100 12.9 6 16 Ape 100 (7) Consolidation adjustments Debit Credit 1) 100 5) 100 5) 7.2 6) 2.28 12) 2.4 1) 1.5 2) 1.7 5) 5 4) 6.8 7) 4.4 5) 0.1 Consolidated trial balance Debit Credit 300 20.62 3,6 36.7 83 4) 9) 11) 13) 4 6 2 20 10) 10) 2) 9) 10 1.7 4 1) 3) 5) 6) 7) 8) 5) 20.3 1 44.88 2.28 4.4 10.8 2.8 4 95.2 150 8 33 15
Accumulated depreciation Profit before tax and interest
50 52.2
33 50
Long term liability Bank overdraft Accounts payable Shareholders for dividends NCI (FP)
60 5 15 15
80 10 10
30 3 4 -
Deferred tax
2,8 547.2 130 180 68.8 78.3
2.1 320 125 130 -
5) 135 130 1)
2.8
77.96 4.9 827.98 385 310 -
Land Plant & equipment Investment in subs Lisa Investment in subs Ape 10% loan (Lisa) Inventory Accounts receivable Dividends receivable Cash Interest paid Transfer to general reserve Dividends proposed Tax NCI (CI) Goodwill
10
5) 5)
10 68.8 81.1 4 20
4)
6.8
1) 4) 13)
20 9 15.1 6 7 15 18
9 12 5 11 6 10 12
5 3) 8) 5) 1 10.8
10) 11) 12) 9)
6 2 2.4 10
18 32.1 5 16 3.6 15 30 11.8 1.48 827.98
547.2
300
135
Chapter 31: Page 18
Solution 31.6
a)
GENERAL JOURNAL OF HURRY LTD 01/01/X1 Investment in Scurry Ltd Bank Cash Dividend income Cash Dividend income Accounts receivable / Dividends accrued Dividend income
(25 000 x 0.8)
Debit 995 000
Credit 995 000
30/06/X1
20 000 20 000
01/09/X1
(120 000 x 0.8)
96 000 96 000
31/12/X1
(10 000 x 0.8)
8 000 8 000
Workings
Scurry (Pty) Ltd 800 000 (585 000) 215 000 Group 800 000 (675 000) 125 000
Selling price CA Profit
b)
HURRY LTD AND ITS SUBSIDIARY CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 20X5 Operating profit Profit on sale of land & buildings Profit before tax Taxation Profit for the period Other comprehensive income Total comprehensive income Attributable to Equity holders of parent. Non-controlling interest
(120 000 + 60 000 + 5 000 10 000 20 000 - 96 000 - 8 000) (800 000 - 675 000) (36 000 + 18 000 + 1 500)
C 51 000 125 000 176 000 (55 500) 120 500 0 120 500
88 400 32 100 120 500
Chapter 31: Page 19

c)
HURRY (PTY) LTD AND ITS SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 20X1
Share capital C 2 500 000 Retained earnings C 100 000 88 400 (50 000) (13 000) 125 400 General reserve C 15 000 Attributable to equity holders of parent C 2 615 000 88 400 (50 000) ^13 000 28 000 2 653 400 Noncontrolling interest Total 2 615 000 211 200 120 500 ( 81 000) 2 865 700
Balance at 31/12/X0 Acquisition of subsidiary Total comprehensive income Dividends Transfer to general reserve Balance at 31/12/X1
211 200 32 100 (31 000) 212 300
2 500 000
^ (5 000 + 8 000)
d)
HURRY LTD AND ITS SUBSIDIARY EXTRACT FROM CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 20X5 C ASSETS Goodwill Equipment - At cost - Accumulated depreciation EQUITY AND LIABILITIES Non-controlling interest 150 200 285 000 380 000 (95 000)
212 300
e) Pro-forma consolidating entries for interim and final dividends (20X1)

Debit Profit before tax / dividend income Non-controlling interest (FP) Dividends (Interim dividend paid) Profit before tax- dividend income Non-controlling interest (FP) Dividends Shareholders for dividend Accounts receivable / dividend receivable Accounts payable (Final dividend declared) Profit before tax / dividend income Non-controlling interest (FP) Dividends (Dividend from profit on property) 20 000 5 000 25 000 8 000 2 000 10 000 10 000 8 000 2 000 96 000 24 000 120 000 Credit
Chapter 31: Page 20

Workings
Analysis of equity of Scurry Ltd Minorities (20%) 700 000 40 000 160 000 80 000 (24 000) 100 000 1 056 000 Hurry Ltd (80%)
At acquisition Share capital General reserve Retained earnings Equipment Deferred tax Land & buildings (Property) Investment in Scurry Ltd Goodwill Beginning of the year Retained earnings at 01/01/20X1 Retained earnings at acquisition Current year Profit for the period Group profit on sale of property Depreciation adjustment - equipment Deferred tax Depreciation adjustment property Dividends - interim - property - final
211 200
844 800 995 000 150 200
160 000 (160 000)

-
257 000 (90 000) 5 000 (1 500) (10 000) 160 500 (25 000) (120 000) (10 000) 996 500
32 100 (5 000) (24 000) (2 000) 212 300
128 400 (20 000) (96 000) (8 000) 797 200
Equipment Cost to Scurry Ltd = 500 000 Depreciation expense per year = 100 000 (500 000 x 0.20) Accumulated depreciation at 01/01/20X1 = 200 000 Equipment thus two years old, three years remaining life Hurry estimates the remaining life at four years. Scurry Ltd 500 000 (200 000) 300 000 (100 000) 200 000 (100 000) (100 000) Adjustment Group
01/01/x1 31/12/x1 31/12/x2 31/12/x3 31/12/x4
Cost Accumulated depreciation Carrying amount Depreciation Depreciation Depreciation Depreciation
80 000 5 000 85 000 5 000 5 000 (95 000) -
380 000 (95 000) 285 000 (95 000) (95 000) (95 000) -
Deferred tax Group 380 000 (95 000) 285 000 (95 000) (95 000) 95 000 (95 000) Tax 300 000 (100 000) 200 000 (100 000) (100 000) TD 80 000 5 000 85 000 5 000 5 000 95 000 (95 000) DT 24 000 1 500 25 500 1 500 1 500 28 500 (28 500)
01/01/X1 31/12/X1 31/12/X2 31/12/X3 31/12/X4
Dr TE Cr DT
Dr DT Cr TE
Chapter 31: Page 21
Solution 31.7
a)
THE RUGBY GROUP CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR YEAR ENDED 31 DECEMBER 20X5 Profit before tax Income tax expense Profit for the period Other comprehensive income Total comprehensive income Attributable to: Equity holders of parent Non-controlling interest
(360 000 + 200 000 + 240 000 150 000 32 000) (108 000 + 60 000 22 500)
C 618 000 (123 000) 495 000 0 495 000
440 000 55 000 495 000
b)
THE RUGBY GROUP STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 20X5
Attributable to equity holders of parent
Share capital
NDR
Retained Earnings
Minorities
Total
Balance at 01/01/X5 Total comprehensive income Transfer to NDR Dividends Balance at 31/12/X5
C 2 000 000
C ^1 188 000 440 000 (79 200) (200 000) 1 348 800
C 3 206 000 440 000
C *367 000 55 000
C 3 555 000 495 000
~79 200 2 000 000 79 200
(200 000) 3 428 000
(8 000) 414 000
(208 000) 3 842 000
^ (920 000 + 730 000 420 000 62 000 + 20 000) * (305 000 + 62 000) ~ [(204 000 105 000) 19 800] ~ Scrum RE NDR (Transfer of after tax profit of R110 000 X 0,86) Group adjustments NDR RE (50 000 7 000)
NDR
Dr 204 000
Cr
204 000
105 000 105 000
19 800
RE
19 800
Chapter 31: Page 22

c)
Retained earnings Non-controlling interest (FP) NDR Property

Deferred tax Retained earnings
Debit 82 000 150 000
Credit 82 000 150 000
45 000 45 000
NDR Non-controlling interest (FP)
19 800 19 800
d)
Debit Journal of Scrum Limited Dividends Shareholders for dividend Journal of Prop Limited Dividends receivable Dividend income Pro-forma consolidating journal entries Dividend income Non-controlling interest (FP) Dividends Shareholders for dividend Dividends receivable 600 000 600 000 Credit
(600 000 X 0.80)
480 000 480 000
(600 000 X 0.20)
480 000 120 000 600 000 480 000 480 000
Workings
Scrum Ltd 890 000 650 000 240 000 Group 890 000 800 000 90 000
Selling price Cost Profit
Chapter 31: Page 23
Solution 31.7 continued Workings continued

Analysis of equity of Scrum Limited 20X5 Minorities (20%) P (80%) 20X6 Minorities (20%) P (80%)
Total At acquisition Share capital Retained earnings Property Deferred tax
Total
1 000 420 150 (45) 1 525 1 200 305 1 505 (1 525) (20)
305
1 220
1 000 420 150 (45) 1 525 1 200 305 1 505 (1 525) (20)
305
1 220
Fair value of consideration transferred NCI (1 547,5 X 0,20) Fair value of identifiable net assets Gain on acquisition
Beginning of year Retained earnings - At 01/01/X5 / X6 - At acquisition
730 (420) 310
62
248
866 (420) 446
89.2
356.8
NDR - At 01/01/X6 - At acquisition Group adjustment
204 0 204 (105) 99
19.8 414
79.2
Current year Profit before tax Taxation Profit on property Group adjustment Deferred tax
200 (60) 240 (150) 45 275 (40) 2 070
100 (30)
55 (8) 414
220 (32)
70 (600)
14 (120) 308
56 (480)
Dividend
Chapter 31: Page 24
Solution 31.8
POLAND LIMITED AND SLOVENIA LIMITED GROUP CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 AUGUST 20X1 Profit before finance costs Finance cost Profit before tax Income tax expense Profit for the period Other comprehensive income Total comprehensive income Attributable to : Equity holders of parent Non-controlling interest
(57,3 + 31 - 2)
(6,3 4,2)
(16,38 + 9,48)
C 86 300 (2 100) 84 200 (25 860) 58 340 0 58 340
(Ord 3,53 + Pref 3,6)
51 210 7 130 58 340
POLAND LIMITED AND SLOVENIA LIMITED GROUP CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 AUGUST 20X1 Attributable to equity holders of parent C 226 500 51 210 (15 000) 262 710
Balance at 31 August 20X0 Total comprehensive income Dividends Balance at 31 August 20X1
Share capital C 150 000 150 000
General reserve C ~ 39 500 39 500
Retained earnings C * 37 000 51 210 (15 000) 73 210
Noncontrolling interest ^65 500 7 130 (5 100) 67 530
Total 292 000 58 340 (20 100) 330 240
~ [35 000 + (10 000 4 000 1 500)] * [40 000 + (24 000 16 000 12 000 + 1 000)] ^ [(35 000 + 1 500 1 000) + 30 000]
Chapter 31: Page 25
Solution 31.8 continued. . .

POLAND LIMITED AND SLOVENIA LIMITED GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 AUGUST 20X1 C ASSETS Non-current assets Land and buildings Cost Accumulated depreciation Current assets Cash and cash equivalents
(130 + 200 + 20 12 - 2) (325 + 400 200 + 20) (195 + 340 200 + 14) (23,32 + 156,92)
196 000 545 000 (349 000) 180 240 376 240
EQUITY AND LIABILITIES Equity Share capital General reserve Retained earnings Attributable to equity holders of the parent Non-controlling interest Non-current liabilities Long term liability debentures Current liabilities Accounts payable Shareholders for dividends 330 240 150 000 39 500 73 210 262 710 67 530 15 000 12 700 18 300 376 240
(35 + 4.5)
(37.530 + 30) (45 30) (8.9 + 3.8)
(15 + 1.5 + 1.8)
Chapter 31: Page 26

Workings
Analysis of equity of Slovenia Limited Ordinary shares At acquisition Share capital General reserve Retained earnings Land and buildings Total 100 000 4 000 16 000 20 000 140 000 105 000 35 000 140 000 140 000 25% 75%
35 000
105 000
FV of consideration transferred NCI (140 000 X 0,25) FV of identifiable net assets Beginning of year General reserve Balance 1/9/20X0 At acquisition Retained earnings Balance 1/9/20X0 At acquisition Group depreciation (2 000 X 6 yrs)
10 000 (4 000) 6 000 24 000 (16 000) 8 000 (12 000) (4 000)
1 500
4 500
(1 000)
(3 000)
Current year Profit before interest and tax Interest received Interest paid Taxation Group depreciation Preference dividend Ordinary dividend Ordinary Non-controlling interest
31 000 4 200 (3 600) (9 480) (2 000) 20 120 (6 000) 14 120 (6 000)
3 530 (1 500) 37 530
10 590 (4 500)
Analysis of Slovenia Limited - Preference shares At acquisition Share capital Investment Current year Preference income for the year Dividend paid Dividend declared Preference Non-controlling interest
Total 50 000
60% 30 000
40% 20 000 20 000 2 400 (1 200) (1 200)
6 000 (3 000) (3 000)
3 600 (1 800) (1 800) 30 000
Chapter 31: Page 27

Workings continued
Slovenia Ltd 400 000 (200 000) 200 000 (20 000) (20 000) (20 000) (20 000) (20 000) (20 000) 80 000 (20 000) 60 000 Adjustment Group
01/09/W4 31/08/W5 31/08/W6 31/08/W7 31/08/W8 31/08/W9 31/08/X0 31/08/X1
Cost Accumulated depreciation Carrying amount Depreciation Depreciation Depreciation Depreciation Depreciation Depreciation Balance at boy Depreciation
20 000 (2 000) (2 000) (2 000) (2 000) (2 000) (2 000) (2 000)
220 000 (22 000) (22 000) (22 000) (22 000) (22 000) (22 000) 88 000 (22 000) 66 000
Chapter 31: Page 28

Journals
Proforma consolidating journal entries 1) Ordinary share capital General reserve Retained earnings Land and buildings Non-controlling interest (FP) Shares in Slovenia Ltd - ordinary Accumulated depreciation Land and buildings General reserve Non-controlling interest (FP) Non-controlling interest (FP) Retained earnings Non-controlling interest (CI) Non-controlling interest (FP) Dividend income Non-controlling interest (FP) Ordinary dividend Shareholders for dividend ordinary Dividend receivable Preference share capital Non-controlling interest Shares in Slovenia Ltd - preference Non-controlling interest (CI) Non-controlling interest (FP) Dividend income Non-controlling interest (FP) Preference dividend paid Preference dividend declared Shareholders for dividends - preference Dividend receivable Retained earnings Land and buildings Profit before tax, interest and dividends (Depreciation) Land and buildings Loan from Poland Ltd Loan to Slovenia Ltd Interest received Interest paid - loan Debentures Debentures in Poland Ltd Interest received Interest paid - debentures Debit 100 000 4 000 16 000 20 000 Credit
35 000 105 000 200 000 200 000 1 500 1 500 1 000 1 000 3 530 3 530 4 500 1 500 6 000 4 500 4 500 50 000 30 000 20 000 3 600 3 600 2 400 3 600 3 000 3 000 1 200 1 200 12 000 12 000 2 000 2 000 40 000 40 000 3 600 3 600 30 000 30 000 4 200 4 200
2) 3) 4) 5) 6)
7) 8)
9) 10)
11) 12) 13) 14) 15) 16) 17)
Chapter 31: Page 29
Solution 31.9
a)
THE COLOUR GROUP LIMITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 20X8 Revenue Profit before tax Income tax expense Profit for the period Other comprehensive income Total comprehensive income Attributable to: Equity holders of the parent Non-controlling interest
[P 1 500 000 + Sc 820 000 + (Si 1 000 000 125 000)] [(P 365 000 24 000 3 200) + (Sc 168 000 + 110 000 50 000) +(Si 208 000 2 000)] [P 94 584 + (Sc 62 440 14 000) + (Si 58 240 560)]
R 3 195 000 771 800 (290 704) 481 096 0 481 096
[Sc 44 890+ (Si 56 126 + 4 800)]
375 280 105 816 481 096
b)
THE COLOUR GROUP LIMITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 20X8 Attributable to Share Retained equity holders capital NDR earnings of parent R R R R 500 000 ^470 454 970 454 Balance 30/06/X7 375 280 375 280 TCI 32 400 (32 400) Transfer to NDR (70 000) (70 000) Dividend 500 000 32 400 743 334 1 275 734 Balance 30/06/X8
NCI R
*131 370 105 816
Total R
1 101 824 481 096
~(20 800) 216 386
(90 800) 1 492 120
^ [P 382 000 + (Sc 73 000 12 000 15 250 + 11 000) + (Si 87 000 32 000 3 000 + 840 21 136) * [(Sc 37 000 + 15 250) + (Si 57 984 + 21 136) # (79 200 36 000 10 800) ~ (Si Ord 16 000 + Pref 4 800)
Chapter 31: Page 30
Solution 31.9 continued . . .

# Scarlet RE NDR (Transfer of after tax profit of C110 000 X 0.72) Group adjustments NDR RE (50 000 14 000)
NDR
Dr 79 200
Cr
79 200
36 000 36 000
10 800
RE (79 200 36 000) X 0,25 or (60 000 X 0.72 X 0.25) or NCI RE NDR NCI
10 800
12 900 12 900 10 800 10 800
c)
THE COLOUR GROUP LIMITED EXTRACT FROM CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 30 JUNE 20X8 R ASSETS Non-current assets Goodwill, at cost Land, at cost Plant and equipment - Cost - Accumulated depreciation
(600 000+ 500 000 500 000) (400 000+ 290 000 29 000+ 18 000) (210 000+ 101 500 29 000 + 5 000)
13 024 600 000 391 500 679 000 (287 500)
d)
Debit 36 000 14 000 Credit
Non-distributable reserve Deferred tax Land Non-distributable reserve NCI (FP)
50 000 10 800 10 800
Chapter 31: Page 31

Workings
Analysis of equity of Scarlet Limited At acquisition Share capital Retained earnings Land Deferred tax (50 000 x 0.28) Fair value of consideration transferred NCI (155 000 X 0,25) Fair value of identifiable net assets Gain on acquisition Beginning of year RE at 1/7/X7 At acquisition Current year Profit before tax Profit on sale of land Group adjustment - profit Group adjustment - tax Taxation Total 100 000 12 000 50 000 (14 000) 148 000 100 000 37 000 137 000 (148 000) 11 000 73 000 (12 000) 61 000 168 000 110 000 (50 000) 14 000 (62 440) 179 560 Non Controlling Interest 44 890 97 140 134 670 15 250 45 750 37 000 111 000 25% 75%
Land & buildings Selling price Cost Profit / loss
Subsidiary 610 500 110
Group 610 550 60
Chapter 31: Page 32

Workings continued
Analysis of equity of Silver Limited At acquisition Share capital Retained earnings Plant & equipment Deferred tax Fair value of consideration transferred NCI (144 960 X 0.40) Fair value of identifiable net assets Goodwill Beginning of year RE at 1/7/X7 At acquisition Additional depreciation Deferred tax Current year Profit before tax Taxation Additional depreciation Deferred tax Preference dividend Dividends Non-controlling interest Total 100 000 32 000 18 000 (5 040) 144 960 100 000 57 984 157 984 144 960 13 024 87 000 (32 000) 55 000 (3 000) 840 52 840 208 000 (58 240) (2 000) 560 148 320 (8 000) 140 320 (40 000) 298 120 56 126 (16 000) 119 248 84 192 (24 000) 21 136 31 704 40% 60%
57 984
86 976
Preference share capital Profit Dividends
Total 8 000 (8 000)
60% 4 800 (4 800)
40% 3 200 (3 200)
Chapter 31: Page 33

Workings continued
Revaluation of plant Cost 1/1/X5 Depreciation 30/6/X5 Depreciation 1/1/X6 Carrying amount 1/1/X6 Depreciation 30/6/X6 Depreciation 30/6/X7 Depreciation 30/6/X8 Carrying amount 30/6/X8 Years 10 (1/2) (1/2) *9 (1/2) (1) (1) Subsidiary 290 000 (14 500) (14 500) 261 000 (14 500) (29 000) (29 000) 188 500 18 000 (1 000) (2 000) (2 000) 13 000 279 000 (15 500) (31 000) (31 000) 201 500 5 040 (280) (560) (560) 3 640 Revaluation Group Deferred tax
*101 500 accumulated depreciation / 29 000 = 3.5 yrs at 30/06/X8 . . .Bought 01/01/X5
Proforma consolidation entries for ordinary dividends Debit Silver PBT (P) NCI (FP) Dividends declared Shareholders for dividend Accounts receivable (P) 24 000 16 000 40 000 24 000 24 000 Credit
Proforma consolidation entries for preference dividends Debit NCI (FP) PBT Preference dividends paid 4 800 3 200 8000 Credit
Chapter 31: Page 34
Solution 31.10
(a) Journal entries relating to equipment of Skype Limited and related tax consequences
JOURNAL OF SKYPE LIMITED Debit 01/10/X5 Accumulated depreciation Equipment Equipment Revaluation reserve Deferred tax 30/09/X6 Depreciation expense Accumulated depreciation Deferred tax Tax expense 30/09/X7 Depreciation expense Accumulated depreciation Deferred tax Tax expense Accumulated depreciation Equipment (125 000 + 125 000) Equipment Revaluation reserve Deferred tax 400 000 400 000 150 000 106 500 43 500 125 000 125 000 7 250 7 250 125 000 125 000 7 250 7 250 250 000 250 000
Not required for answer
Credit
100 000 71 000 29 000
(b) At acquisition, pro-forma consolidation adjusting entry relating to the ordinary share capital of Skype Limited for the year ended 30 September 20X7
Debit Share capital Retained earnings Revaluation reserve Investment in Skype Limited Goodwill Non-controlling interest (FP) (At acquisition) 800 000 240 000 106 500 1 100 000 182 800 229 300 Credit
Chapter 31: Page 35

(c) Pro-forma consolidation adjusting entries relating to the preference share capital of Skype Limited for the year ended 30 September 20X7.
Debit Preference share capital Non-controlling interest (FP) (At acquisition) Non-controlling interest (CI) Non-controlling interest (FP) (Preference income for current year) Non-controlling interest (FP) Dividends - preference (Preference dividend declared) 100 000 100 000 Credit
8 000 8 000
8 000 8 000
(d) Journal entry in accounting records of Phone Limited and the pro-forma consolidation adjusting entries relating to the ordinary dividends declared by Skype Limited for the year ended 30 September 20X7.
Debit Journal of Phone Limited Accounts receivable Profit before interest and tax / Dividend income (16 000 X 0.80) Pro-forma consolidating adjusting entries Profit before interest and tax / Dividend income Non-controlling interest (FP) Dividends Shareholders for dividend Dividend receivable Accounts payable
(Reversing Phone Limiteds income) (Non-controlling share) (Reversing Skype Limiteds dividends) (Reversing Skype Limiteds liability) (Reversing Phone Limiteds asset) (Non-controlling share)
Credit
12 800 12 800
12 800 3 200 16 000 16 000 12 800 3 200
Chapter 31: Page 36

(e)
TALK FOR EVER GROUP CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 SEPTEMBER 20X7 C Profit before interest and tax Interest expense Profit before tax Taxation expense Profit for the period Other comprehensive income Revaluation surplus Total comprehensive income Profit for the period attributable to Equity holders of parent Non-controlling interest Total comprehensive income attributable to: Equity holders of parent Non-controlling interest
P (383 600 12 800 10 800) S (289 600 ) S (18 000 10 800) (108 112 + 75 900))
649 600 (7 200) 642 400 (184 012) 458 388 71 000 529 388
(37 540 + 8 000)
412 848 45 540 458 388
(Proof: 412 848 + 56 800) (37 540 + 8 000 + 14 200)
469 648 59 740 529 388
(f)
TALK FOR EVER GROUP CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 SEPTEMBER 20X5 Attributable to equity holders of parent Revaluation reserve Noncontrolling interest Retained earnings
Share capital
Balance at 30/09/X6 Total comprehensive income Dividends Balance at 30/09/X7
C 1 200 000
C ~213 000 #56 800
C ^1 036 000 412 848
C 2449 000 469 648
C *393 300 59 740
C 2 842 300 529 388
1 200 000
269 800
(20 000) 1 428 848
(20 000) 2 898 698
**(11 200) 441 840
(31 200) 3 340 488
~ (213 000 + 106 500 106 500) ^ (740 000 + 560 000 240 000 64 000 + 40 000) * (229 300 + 64 000 + 100 000) ** (3 200 + 8 000) # (100 000 X 0.71 = 71 000 X 0.80 = 56 800) (Dr Revaluation reserve 14 200 Cr NCI (FP) 14 200)
Chapter 31: Page 37
Total

Workings W1. Analysis of equity of S Limited Ordinary shares
NCI (20%) Parent (80%)
Total At acquisition Share capital Retained earnings Revaluation reserve 800 000 240 000 106 500 1 146 500 1 100 000 229 300 1 329 300 1 146 500 182 800 560 000 240 000 320 000 106 500 106 500 289 600 (18 000) (75 900) (8 000) 187 700 (16 000) 71 000 1 709 200
229 300
917 200
Fair value of consideration transferred NCI (1 146 500 X 0.20) Fair value of identifiable net assets Goodwill
Retained earnings at 01/10/X6 Retained earnings at acquisition
64 000
256 000
Revaluation reserve at 01/10/X6 Revaluation reserve at acquisition Current year Profit before interest and tax Interest expense Tax expense Preference dividend paid Ordinary dividend declared Revaluation
37 540 (3 200) 14 200 341 840
150 160 (12 800)
W2. Analysis of equity of S Limited Preference shares

NCI (100%) 100 000 Parent (0%) -
Total At acquisition Share capital Current year Preference income Dividend declared 100 000
8 000 (8 000) 100 000
8 000 (8 000) 100 000
Chapter 31: Page 38

W3. S Limited equipment and deferred tax
Yr 6 CA 600 000 150 000 6 30/09/X6 Depreciation / tax allowance (750 000 / 6) (600 000 / 6) 750 000 (125 000) 600 000 (100 000) 150 000 TB 600 000 TD 0 DT X29% 0 43 500 43 500 (7 250) L RS
01/10/X5
Carrying amount Revalue
106 500 106 500
625 000 30/09/X7 Depreciation / tax allowance (125 000)
500 000 (100 000)
125 000
36 250 (7 250)
106 500
500 000 Revalue 100 000 600 000
400 000
100 000
29 000 29 000
400 000
200 000
58 000
106 500 71 000 177 500
Chapter 31: Page 39
Solution 31.11
a) Pro-forma consolidation adjusting entries relating to the equipment of Sky Limited for the year ended 30 September 20X5.
Debit Ordinary share capital Retained earnings Property Equipment Deferred tax Non-controlling interest (FP) Investment in Sky Limited Goodwill Retained earnings Accumulated depreciation Deferred tax Retained earnings Depreciation expense Accumulated depreciation Deferred tax Taxation expense Profit before tax Equipment Accumulated depreciation
(Group depreciation adjustment from 01/10/X3 30/09/X4) (Group deferred tax adjustment from 01/10/X3 30/09/X4) (Current year group depreciation adjustment) (Current year group deferred tax adjustment) (7 250 + 29 000) (Adjusting the R40 000 profit to Sky to give a R60 000 loss to the group)
Credit
800 000 420 000 200 000 150 000 43 500 305 300 1 800 000 578 800 25 000 25 000 7 250 7 250 25 000 25 000 36 250 36 250 100 000 150 000 50 000
Note from authors: There is no reversal of the accumulated depreciation at acquisition of R400 000 as the equipment has been sold.
b) Pro-forma consolidation adjusting entries relating to the dividends declared by Sky Limited for the year ended 30 September 20X5
Debit Dividend income Non-controlling interest (FP) Dividends Dividend income Non-controlling interest (FP) Dividends Shareholders for dividend Dividends receivable Accounts payable 3 200 800 4 000
(Reversing Pies income) (Reversing Skys dividends) (Reversing Skys liability) (Reversing Pies asset) (Non-controlling share)
Credit
(Interim dividend paid)
6 400 1 600 8 000 8 000 6 400 1 600
Chapter 31: Page 40
Solution 31.11 continued c)

PIE AND SKY GROUP CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 SEPTEMBER 20X5 Profit before tax Taxation expense Profit for the period Other comprehensive income Revaluation surplus Total comprehensive income Attributable to: Equity holders of parent Form profit (355 400) for the period Non-controlling interest From other comprehensive income
P (320 000 + 9 600 9 600) S (280 000 + 31 000 25 000 100 000) (94 800 + 59 500 36 250)
C 506 000 (118 050) 387 950 50 000 437 950
395 400 42 550 437 950
d)
PIE AND SKY GROUP CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 SEPTEMBER 20X5
Attributable to equity holders of parent Revaluation reserve Noncontrolling interest
Retained earnings
Share capital
C
Balance at 30/09/X4 Total comprehensive income Dividends Balance at 30/09/X5
C
~40 000
C
^1 123 400 355 400 (16 000) 1 462 800
C
2 123 400 395 400 (16 000) 2 502 800
C
*339 750 42 550 (2 400) 379 900
C
2 463 150 437 950 (18 400) 2 882 700
1 000 000
1 000 000
40 000
^ (985 600 + 610 000 420 000 25 000 + 7 250 34 450) * (305 300 + 34 450) ~ [(250 000 200 000) X 0.80] (Dr Revaluation reserve 200 000
Cr Property 200 000) and (Dr Revaluation reserve 10 000 Cr Non-controlling FP 10 000)
Chapter 31: Page 41
Total

e) Pro-forma consolidation journal entries affected by the property and the equipment of Sky Limited for the year ended 30 September 20X6.
Debit Ordinary share capital Retained earnings Property Equipment Deferred tax Non-controlling interest (FP) Investment in Sky Limited Goodwill Revaluation reserve Property Revaluation reserve Non-controlling FP Retained earnings Deferred tax Equipment Or Retained earnings Accumulated depreciation Deferred tax Retained earnings Retained earnings Accumulated depreciation Equipment 50 000 50 000 43 500 43 500 100 000 50 000 150 000
(50 000 x 20%)
Credit
800 000 420 000 200 000 150 000 43 500 305 300 1 800 000 578 800 200 000 200 000
(50 000 x 20%)
10 000 10 000
(50 000 - 43 500 + 100 000)
106 500 43 500 150 000
Chapter 31: Page 42

Workings
Analysis of equity of Sky Limited At acquisition Share capital Retained earnings Property Equipment Deferred tax Investment in Sky Goodwill Beginning of year Retained earnings at 01/10/X4 Retained earnings at acquisition Group depreciation adjustment Group deferred tax adjustment 610 000 (420 000) 190 000 (25 000) 7 250 172 250 280 000 31 000 (59 500) (25 000) 36 250 (100 000) 162 750 (4 000) (8 000) 1 849 500 32 550 (800) (1 600) 369 900 130 200 (3 200) (6 400) Total 800 000 420 000 200 000 150 000 (43 500) 1 526 500 Minorities (20%) Parent (80%)
305 300
1221 200 1 800 000 578 800
34 450
137 800
Current year Operating profit before tax Dividend income Tax expense Group depreciation adjustment Group deferred tax adjustment (7 250 + 29
000)
Group adjustment to profit on sale of equipment Interim dividend paid Final dividend declared
Equipment of Sky Limited Cost 01/10/X3 30/09/X4 30/09/X5 Carrying amount Depreciation Depreciation
10 (4) 6
Cost 1 000 000 (400 000) 600 000 (100 000) (100 000) 400 000
Group adjustment
Group
150 000 (25 000) (25 000) 100 000
750 000 (125 000) (125 000) 500 000
Deferred tax 01/10/X3 30/09/X4 30/09/X5
Group 750 000 (125 000) (125 000) 500 000 (500 000)
Tax 600 000 (100 000) (100 000) 400 000 (400 000)
Temporary difference 150 000 (25 000) (25 000) 100 000 (100 000)
Deferred tax (X0,29) 43 500 (7 250) (7 250) 29 000 (29 000)
Cr Dr Dr Cr Dr
Chapter 31: Page 43

0 0 0

Workings continued
Sky Limited 440 000 (400 000) 40 000 Group 440 000 (500 000 (60 000)
Selling price Carrying amount
Chapter 31: Page 44

Chapter 31 - Gripping IFRS ICAP 2008 (Solution of Graded Questions)

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Chapter 31 - Gripping IFRS ICAP 2008 (Solution of Graded Questions)

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Solutions to Gripping IFRS : Graded Questions

Partly owned subsidiaries

Kolitz & Sowden-Service, 2009

Chapter 31: Page 1

Solutions to Gripping IFRS : Graded Questions

Partly owned subsidiaries

(87 500 10 000 + 8 000 6 000 15 000)

(22 000 + 5 200)

39 240 1 560 40 800

Noncontrolling interest C 16 360 1 560 (3 000) 14 920

Total C 147 000 16 360 40 800 (13 000) 191 160

Kolitz & Sowden-Service, 2009

Chapter 31: Page 2

Solutions to Gripping IFRS : Graded Questions

Partly owned subsidiaries

Solution 31.2 continued

(10 000 + 1 000)

Kolitz & Sowden-Service, 2009

Chapter 31: Page 3

Solutions to Gripping IFRS : Graded Questions

Partly owned subsidiaries

Solution 31.2 continued

7 800 (10 000) (5 000)

1 560 (2 000) (1 000) 14 920

6 240 (8 000) (4 000)

Kolitz & Sowden-Service, 2009

Chapter 31: Page 4

Solutions to Gripping IFRS : Graded Questions

Partly owned subsidiaries

Solution 31.2 continued

Saltzburg Limited 5. Taxation Current tax payable 11 800 11 800

Saltzburg Ltd 50 000 5 000 12 100 37 500 1) 1) 1) 2) 9) 7)

1) 3) 7) 9 900 2 000 1 000 5 000 2) 1) 6) 8) 9 900 17 000 1 560 5 000

Shareholders for dividends

10 000 349 000

5 000 109 600

75 000 8 000 10 000 -

8 000 8 000 1) 2) 9) 4) 5) 68 000 6 000 15 000 22 000 11 800

83 000 100 000 74 500 7 500 (4 800) 43 000 15 000

8) 1 600 10 000 4) 5) 6) 22 000 11 800 1 560 3) 2)

4 000 10 000 6 600 4 600 27 200 1 560 10 000 361 560

10 000 349 000

5 000 109 600

Kolitz & Sowden-Service, 2009

Chapter 31: Page 5

Solutions to Gripping IFRS : Graded Questions

Partly owned subsidiaries

C 2 400 117 600 120 000

(Analysis of equity at acquisition)

(3 000 X 0.80) (3 000 X 0.20)

2 400 600 3 000 2 400

(reversing Penguins dividends receivable)

Kolitz & Sowden-Service, 2009

Chapter 31: Page 6

Solutions to Gripping IFRS : Graded Questions

Partly owned subsidiaries

Solution 31.3 continued

C 88 400 (3 000) (17 900) 67 500 (17 660) 49 840 0 49 840

47 552 2 288 49 840

2 288 (3 400) (600) 29 488

9 152 (13 600) (2 400)

Kolitz & Sowden-Service, 2009

Chapter 31: Page 7