Mango Ltd YE 31 March 2009

Split of profits
6 months 6 months
Total 1 April 08 - 1 Oct 08 1 Oct 08 - 31 March 09
Sales 1,450,000 673,214 1.0 776,786 1
Cost of sales -580,000 -269,286 0.5P -310,714 0.5P 580/1450 x 673 214
Operating expenses -20,000 -10,000 0.5 -10,000 0.5 580/1450 x 776 786
Profit before tax 850,000 393,929 456,071
Income tax expense -238,000 -110,300 0.5P -127,700 0.5P
612,000 283,629 328,371 5
Effective tax rate 28%
238/850

Sales

Increase in sales 1 August 2008 1 April 08 - 1 Oct 08 1 Oct 08 - 31 March 09

103 571 x 4 103 571 (1.25) x 6
4x + 1.25(8)x = 1 450 000 103 571 (1.25) x 2
14x = 1 450 000
x = 103 571 103,571 414,285.71 776,785.71
258,928.57
673,214.29 776,785.71
Analysis of Mango
At acquisition
Total Mango Since NCI
Ltd
R R
60%
Share capital 1,000,000
Retained earnings 250,000
Pre acq profits 283,629
1,533,629 920,177 613,451
Goodwill 29,823
Cost 950,000

Since acquisition

Profit (post acq) 328,371 197,023 131,349

Dividends paid -20,000 -12,000 -8,000
1,842,000 185,023 736,800
Analysis of Mango
Alternative RE = 250 000 + 283 629

Dr/(Cr) Cr/(Dr)
s/cap Ret earn Total NCI Inv (G/will) Since RE
40%
@ acq 1,000,000 533,629 1,533,629 613,451 950,000 -29,823

RE
boy 1,000,000 533,629 1,533,629 613,451 950,000 -29,823 -

Profit for year 328,371 328,371 131,349 197,023

Div paid -20,000 -20,000 -8,000 -12,000

eoy 1,000,000 842,000 1,842,000 736,800 950,000 -29,823 185,023

1,842,000
1,842,000

Share capital 1,000,000 0.5

RE 250,000 0.5
Sales (p/l) 673,214 0.5P
COS (p/l) 269,286 0.5P
Operating expenses (p/l) 10,000 0.5P
Income tax (p/l) 110,300 0.5P
Goodwill 29,823 1P
NCI (SOFP) 613,451 0.5P
Investment in Mango 950,000 0.5
1,953,037 1,953,037

NCI (p/l) 131,349 0.5P

NCI (SOFP) 131,349 0.5P

Dividend received 12,000 0.5

NCI (SOFP) 8,000 0.5
Dividend paid 20,000 0.5

Dividends payable (SFP) 12000

Dividends receivable (SFP) 12,000

7.5
Split profits 5
12.5
ACCC 371 Question Bank, Question 2 Suggested Solution
Analysis of owners equity of Grape Ltd
At acquisition
Total Grape
Ltd
R R
(40%)
Share capital 500 000
Retained earnings 300 000
800 000 320 000
Goodwill 80,000
Cost 400,000

Since acquisition
To the beginning of the year
Retained earnings (840 - 300) 540 000 216 000

Current year
Net profit (2 640 - 1 400 - 160 - 80 - 300) 700,000 280,000
Dividends -200,000 -80,000
500,000 200,000

Dr/(Cr) Cr/(Dr)
s/cap Ret earn Total NCI Inv (G/will) Since RE
60%
@ acq 500,000 300,000 800,000 480,000 400,000 -80,000

RE 540,000 540,000 324,000 216,000

boy 500,000 840,000 1,340,000 804,000 400,000 136,000 -

Profit for year 700,000 700,000 420,000 280,000

Div paid -200,000 -200,000 -120,000 -80,000

eoy 500,000 1,340,000 1,840,000 1,104,000 400,000 136,000 200,000

1,840,000
1,840,000
ACCC 371 Question Bank, Question 2 Suggested Solution
Analysis of owners equity of Grape Ltd
At acquisition
Total Grape
Ltd
R R
(40%)
Share capital 500 000
Retained earnings 300 000
800 000 320 000
Goodwill 330,000
Cost 650,000

Since acquisition
To the beginning of the year
Retained earnings (840 - 300) 540 000 216 000

Current year
Net profit (2 640 - 1 400 - 160 - 80 - 300) 700,000 280,000
Dividends -200,000 -80,000
500,000 200,000

Dr/(Cr) Cr/(Dr)
s/cap Ret earn Total NCI Inv (G/will) Since RE
60%
@ acq 500,000 300,000 800,000 480,000 650,000 -330,000

RE 540,000 540,000 324,000 216,000

boy 500,000 840,000 1,340,000 804,000 650,000 -114,000 -

Profit for year 700,000 700,000 420,000 280,000

Div paid -200,000 -200,000 -120,000 -80,000

eoy 500,000 1,340,000 1,840,000 1,104,000 650,000 -114,000 200,000

1,840,000
1,840,000
.
 ACCC 371 Question Bank, Question 2 Suggested Solution
Grape Ltd

Investment in associate 416,000 0.5

Div received 80,000 0.5
Retained earnings 216,000 0.5
Share of profit of associate 280,000 0.5

Retained earnings (8 000 x 72%) 5,760 1

Deferred tax (8 000 x 28%) 2,240 0.5P
Investment in associate (100 000 x 25/125 x 40%) 8,000 0.5
Prior year inventory sold

Cost of sales (100 000 x 100/125 x 40%) 32,000 0.5

Investment in associate (100 000 x 25/125 x 40%) 8,000 0.5
Revenue (100 000 x 40%) 40,000 0.5
Realisation of prior year inventory sold

Deferred tax (p/l) 2,240 0.5P

Deferred tax (SOFP) 2,240 0.5P
Reversal of deferred tax on prior year inventory sold

Revenue (200 000 x 40%) 80,000 0.5

Cost of sales (200 000 x 100/125 x 40%) 64,000 0.5
Investment in associate (200 000 x 25/125 x 40%) 16,000 0.5
Current year inventory sold

Deferred tax (SOFP) 4,480 0.5P

Deferred tax (p/l) 4,480 0.5P
Tax on unrealised profit of current year inventory sold

Retained earnings (10 000 – 2 000 ) x 72% 5,760 1

Deferred tax (10 000 – 2 000) x 28% 2,240 1
Accumulated depreciation (25 000 x 20% x 40%) 2,000 0.5P
Equipment (150 000 - 125 000 x 40%) 10,000 0.5
Elimination of prior year profit in equipment

OR

Retained earnings 7,200 0.5

Deferred tax (SOFP) 2,800 0.5
Equipment (150 000 - 125 000 x 40%) 10,000 0.5

Accumulated depreciation (25 000 x 20% x 40%) 2,000 0.5

Retained earnings 1,440 0.5
Deferred tax (SOFP) 560 0.5
Accumulated depreciation 2,000 0.5
Share of profit of associate 2,000 0.5
Depreciation on prior year equipment

Share of profit of associate 560 0.5P

Deferred tax (SOFP) 560 0.5P
Deferred tax on depreciation on prior year equipment

Peach Ltd

Sales 500,000 0.5

Cost of sales 500,000 0.5

Cost of sales 16,000 0.5

Inventories 16,000 0.5
(80 000 x 25/125)

Deferred tax (SOFP) 4,480 0.5

Deferred tax (p/l) 4,480 0.5

Retained earnings 5,760 1

Deferred tax (SOFP) 2,240 0.5
Inventories 8,000
(40 000 x 25/125)

Inventories 8,000
Cost of sales 8,000 0.5

Deferred tax (p/l) 2,240 0.5

Deferred tax (SOFP) 2,240 0.5

20

20
 ACCC 371 Question Bank, Question 2 Suggested Solution
Analysis of owners equity of Peach Ltd
At acquisition 80%
Total Peach NCI
Ltd
R000 R000 R000

Share capital 1,200,000

Retained earnings 120,000
Retained earnings 43,000
1,363,000 1,090,400 272,600
Goodwill 109,600
Cost 1,200,000
Since acquistion
To the beginning of the year

Retained earnings 24,240 19,392 4,848

- Up to BOY (150 - 120) 30,000
- Unreal profit (R40 000 x 25/125 x 72%) -5,760

1,387,240 19,392 277,448

Current year
739,263 591,410 147,853
Profit Mango 197,023
Net profit (2 250 - 1 117 - 400 - 8 - 165) 560,000
Dividends received -12,000
U/P prior year (8 000 - 2 240) 5,760
U/P current year (R80 000 x 25/125 x 72%) -11,520

Goodwill - Mango -29,823 -23,858 -5,965

2,126,503 586,944 419,336

 Dr/(Cr) Cr/(Dr)
s/cap Ret earn Land Inventories Def tax Total NCI Inv (G/will) Since RE
20%
@ acq 1,200,000 120,000 50,000 -7,000 1,363,000 272,600 1,200,000 -109,600

RE 30,000 -8,000 2,240 24,240 4,848 19,392

boy 1,200,000 150,000 50,000 -8,000 -4,760 1,387,240 277,448 1,200,000 -109,600 19,392

Profit for year - Peach 548,000 - -8,000 2,240 542,240 108,448 433,792
Profit for year - Mango 197,023 197,023 39,405 157,618

Goodwill - Mango -29,823 -29,823 -5,965 -23,858

Div paid - - - -

eoy 1,200,000 865,200 50,000 -16,000 -2,520 2,096,680 419,336 1,200,000 -109,600 586,944
2,096,680
2,096,680

Share capital 1,200,000 0.5 OR Share capital 1,200,000 0.5

Retained earnings 120,000 0.5 Retained earnings 120,000 0.5
Retained earnings 43,000 Land 50,000 0.5
NCI 272,600 0.5 P Def tax (SOFP) 7,000 1
Investment in Peach 1,200,000 0.5 NCI 272,600 0.5
Goodwill 109,600 1P Investment in Peach 1,200,000 0.5
1,472,600 1472600 Goodwill 109,600 1
1,479,600 1,479,600
Land 50,000 0.5
Reval surplus 43000
Def tax (SOFP) 7000 1

RE 4,848 0.5P
NCI (SOFP) 4,848 0.5P

NCI (p/l) 147,853 1P

NCI (SOFP) 147,853 1P

NCI (SOFP) 5,965 0.5P

Goodwill 5,965 0.5P
8.5
 ACCC 371 Question Bank, Question 2 Suggested Solution

Investment in associate

Cost 400,000
Attributable net assets 320,000 0.5
Goodwill 80,000 0.5

Since acq equity

Retained earnings 216,000 0.5
Profit 200,000
Profit 280,000 0.5
Dividends -80,000 0.5

Unrealised profit -16,000 1

800,000

Share of profit of associate

Profit 280,000 0.5

Unrealised profit - equipm 2,000 0.5
Unrealised profit - equipm -560 0.5

max 5
ACCC 371 Question Bank, Question 4 Suggested Solution
PART A

Reval - Cheese

1Plant 400,000 0.5

Reval surplus 284,000 0.5
Def tax (SOFP) 116,000 0.5P

2Retained earnings 85,200 1(1.5 years)

Deferred tax (SOFP) 34,800 0.5P
Accumulated depreciation 120,000 0.5

3Depreciation 80,000 0.5Current year

Accumulated depreciation 80,000 0.5

4Deferred tax (SOFP) 23,200 0.5P

Deffered tax (p/l) 23,200 0.5P

Disposal - Cheese

5Investment in Cheese 675,000 1

Gain on disposal of interest 125,000 1
Change in ownership (equity) 57,920 1P 2.5 for
NCI (SOFP) 742,080 1P calc

6SARS Payable 18,125 0.5P 14.50%

Income tax expense 18,125 0.5P

Intergroup inventory - Milk

7Sales 2,000,000 0.5

Cost of sales 2,000,000 0.5

(200 000 x 25/125)

8Cost of sales 40,000 0.5
Inventories 40,000 0.5

9Deferred tax (SOFP) 11,600 0.5P

Deffered tax (p/l) 11,600 0.5P

Available 16
Max 15
PART C
Statement of financial position

Goodwill 94,800
Milk 86,000 2.5 awarded for calc - see analysis
Cheese 8,800 1.5 awarded for calc - see analysis
94,800 4

NCI
O/B 715,760
Calc or
At acq 672,800 0.5P
award
BOY (300 x 20%) 60,000 marks in
Acc depr plant (85 200 x 20%) -17,040 0.5P analysis
Profit - SOCI 251,600 0.5P From SOCI
Disposal - cheese 742,080 1P
Acquisition - milk -638,000 1P
Dividends - milk -16,000 0.5
Dividends - cheese -32,000 0.5
1,023,440
Available 4.5
Max 4

Deferred tax
Diary 380,000 0.5
Milk 40,000 0.5
Cheese 80,000 0.5
J1 116,000 0.5
J2 -34,800 0.5
J4 -23,200 0.5
J9 -11,600 0.5
J6 18,125 0.5
Available 4
Max 3
 Available Max
Part A 16 15
Journals 13.5
For calc of change in own. 2.5

Part B 26 24
SOCI 24
Calc of FV adjustm 2

Part C
Goodwill 4 4
Calculation/analysis 4

NCI 4.5 4
SOFP 3.5
Calc/analysis 1

Deferred tax 4 3

Bonus marks for adjusting analysis 1.5

56 50
ACCC 371 Question Bank, Question 4 Suggested Solution
Calculations

Analysis Milk

Total Diary NCI

Ltd
40% (60% - 40%)
R R R

At acquisition

Share capital 1,600,000 640,000 960,000

Retained earnings 400,000 160,000 240,000
2,000,000 800,000
Reval surplus 500 000 200,000 300,000
Cost 1,000,000

2 500 000 1,000,000 1,500,000

Since aquistion

Up to BOY
Retained earnings (630 - 400) 230 000 92 000 138 000
2,730,000 92,000 1,638,000

Current year

Up to 1 Jan 2007
(R920 000 x 6/12) 460,000 184,000 276,000
3,190,000 276,000 1,914,000
Additional 20% interest 638,000 1P x 20/60 -638,000
CV old investment 1,276,000 0.5P
1,914,000
2,000,000
# see al-
Cost - additional 20% 700,000 0.5 ternative to
FV old investment 1,300,000 0.5 calc g/w

Goodwill to be recognised 86,000

Up to 30 June 2007 60%

- Profit for the year 431,600 258,960 172,640
(R920 x ½) 460,000
Less: unrealised profit inventory
(R200 000 x 25/125 x 71%) -28,400 0.5
(- 40 000 (J7) + 11 600 (J8))
Ordinary dividends -40,000 -24,000 -16,000

3,581,600 510,960 1,432,640

1 Fair value adjustment
Marks
Carrying value of previously held investement
1,276,000 (1 000 + 92 + 184) 1.5P
awarded
Fair value 1,300,000 0.5 in SOCI
Fair value adjustment to be recognised 24,000

2 Alternative to calc goodwill

Additional 20% 638,000 1P
Marks
Consideration 724,000
awarded
Cost 700,000 0.5 in SOFP
Fair value adjustment 24,000 1P
Goodwill 86,000
 Analysis Cheese

Diary 80%-60%
Totaal At Since
NCI
R R R R
At acquistion

Share capital 2,800,000 2,240,000 560,000

Retained earnings 280,000 224,000 56,000
Reval surpl (400 000 x 71%) 284,000 227,200 0.5 56,800

3,364,000 2,691,200 0.5P 672,800

Goodwill 8,800
Cost 2,700,000 0.5

Since acq
214,800 171,840 42,960
Retained earnings (580 000 - 280 000) 300,000
Accumulated depreciation - Plant -85,200 J2 0.5

214,800 171,840 715,760

Current year
Profit(1/7/2006 - 31/12/2006)
Calc 5 131,600 105,280 26,320

346,400 277,120 742,080

-742,080
Disposal 20/80 -672,800 1P 742,080
-69,280 1P
Consideration received 800,000 0.5

Change in ownership 57,920 CT (Profit)

Profit up to 30 Junie 2007 (calc 5) 131,600 78,960 52,640

Dividends -80,000 -48,000 -32,000

R 3 762 000 R 246 540 R 940 500

3 Profit in Diary's separate books

Proceeds
Cost (2700/2240x280)
Profit Given
Tax @14.5%

4 Alternative to calc amount to be recognised in equity OR

Profit in Diary's separate books 125,000 0.5
Ad back goodwill, control not lost, NCI @ prop share 2,200 1P
 Since acq reserves lost -69,280 1P
Profit for group 57,920
BUT no change in status = recognised in EQUITY

Calc of FV adj - Milk 1.5

Calc of goodwill - Milk 2
Calc of CIO - Cheese 2.5
6

5 Profit - R320 000 x 6/12 = R 160 000

Add depreciation (J3,J4 x 6/12) (28 400) 1
R 131 600

PART B

DIARY LTD GROUP

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED

30 JUNE 2012. 2012 Marks
R000
½ ½ ½ 1
Revenue [12 960 + 6 212 (12 424 X 6/12) + 5 850 - 2 000 23,022 2.5

½½ ½ ½
Cost of sales [5 184 + 3 727 (7 454 X 6/12) + 3 510
- 2 000 + 40 -10,461 3.5
1 1
Gross profit 12,561
½ ½ '½ 1
Operating expenses (5 360 + 1 725 (3 450 X 6/12) + 1 610 + 80 -8,795
2.5

Net profit 3,766

Remeasurement gain 24 0.5

.
Share of profit of associate (920 x 6/12 x 40%)/analysis 184 1

'½ '½
Dividends received (72 - 24 - 48) (or award mark if no div received in SOCI) - 1

½ 1 1
Interest received (432 - 96(1280 x 15% x 6/12) - 240) 96 2.5

4,070
½ ½ 1 ½
Finance cost (60 + 100 (200 X 6/12) - 96 (1 280 x 6/12 x 15%) + 270 94 3.5
- 240)
 1
Profit before tax 4,164
½ ½ 1 1 1 1
Taxation (913 + 200 (400 X 6/12) + 140 - 23,2 - 11.6 - 18.125 1,200 5

Profit for the year 2,964

Other comprehensive income - 22
Total comprehensive icome for the year 2,964

Profit attributable to:

Owners of the parent Balancing 2,712 0.5

Non-controlling interests 252 1.5
Milk 172,640
Cheese 26,320
Cheese 52,640 R 2 694

Calc of FV adj 2

26

Max 24
 Dr/(Cr) milk Cr/(Dr)
ACCC 371 Question Bank, Question 4 Suggested Solution

Since Rev
s/cap Rev res Ret earn Inventory Def/tax Total NCI Inv (G/will) Since RE res
60% Inv in assoc before change
@ acq 1,600,000 500,000 400,000 2,500,000 1,500,000 1,000,000 - Cost 1,000,000 0.5
rev res - - - Plus since reserves 92,000 0.5
ret earn 230,000 230,000 138,000 92,000 -
boy 1,600,000 500,000 630,000 2,730,000 1,638,000 1,000,000 - 92,000 - 184,000 0.5
1,276,000
Profit 1 Assoc 460,000 460,000 276,000 184,000
1,600,000 500,000 1,090,000 3,190,000 1,914,000 1,000,000 - 276,000 -
X20/60 Fair value 1,300,000 0.5
Transfer reval reserve to ret earn 1 0.5 1 - Remeasruement gain 24,000
Change in ownership -638,000 700,000 -86,000 24,000
1,600,000 500,000 1,090,000 3,190,000 1,276,000 1,700,000 -86,000 300,000 - Inv in assoc after change change
40% Fair value above 1,300,000
0.5 (-28.4) Additional cost 700,000
Profit 2 Sub 460,000 -40,000 11,600 431,600 172,640 258,960 2,000,000
Dividends -40,000 -40,000 -16,000 -24,000
eoy 1,600,000 500,000 1,510,000 -40,000 11,600 3,581,600 1,432,640 1,700,000 -86,000 534,960
3,581,600
3,581,600
 Dr/(Cr) Cheese Cr/(Dr)

Change in
Since Rep ownership
s/cap Ret earn Plant Acc depr Def tax Total NCI Inv Goodwill Since RE Res equity
0.50 20%
@ acq 2,800,000 280,000 400,000 -116,000 3,364,000 672,800 2,700,000 -8,800
0.50 0.50
movement till boy 0.5
movement till boy 300,000 -120,000 34,800 214,800 42,960 171,840
boy 2,800,000 580,000 400,000 -120,000 -81,200 3,578,800 715,760 2,700,000 -8,800 171,840 - -
Profit b4 change 160,000 -40,000 11,600 131,600 26,320 105,280
Dividend
2,800,000 740,000 400,000 -160,000 -69,600 3,710,400 742,080 2,700,000 -8,800 277,120
40%
Disposal x 20/80
1 1
742,080 -672,800 -69,280 -
Disposal of shares 675,000 2 700x20/80 Since reserves lost
-2,200 8 800x20/80
Consideration 800,000
Consideration received 800,000 0.50 -57,920 Adjustm to NCI 742,080
2,800,000 740,000 400,000 -160,000 -69,600 3,710,400 1,484,160 2,025,000 -8,800 207,840 -57,920 Change in own 57,920
check 1,484,160 (3710 400 x 40 %)
1 NCI at prop share will always be their % holding times equity Or co profit - group profit
Profit after change 160,000 -40,000 11,600 131,600 52,640 78,960
Dividends -80,000 -80,000 -32,000 -48,000 see alternative analysis
eoy 2,800,000 820,000 400,000 -200,000 -58,000 3,762,000 1,504,800 2,025,000 -8,800 238,800 -57,920
ACCC 371 Question Bank, Question 9 suggested solution

(a) Discuss, with supporting arguments, whether Continent Ltd controls Globe Ltd in terms of IFRS 10 Consolidated Financial Statements.

Control of an investee arises when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee (definition, IFRS 10 Appendix A); OR; For
1
control to exist there has to be (1) power, (2) exposure to variability in returns, and (3) a link between power and returns.

(1) Power
Power is existing rights that give the current ability to direct the relevant activities (definition, IFRS 10 Appendix A). 0.5
Relevant activities are activities of the investee that significantly affect the investee’s returns (definition, IFRS 10 Appendix A). 0.5
The presumption is that a mere 35% existing shareholding does not lead to control. 1
Continent has concluded a shareholder agreement with Mr Achike and substance over form should prevail. 1
IFRS 10 requires a consideration of other aspects not only the existing shareholding. 1
The ethics & risk and audit committees exist to enhance sound corporate governance, but are generally not directly responsible for directing the relevant activities (e.g. operating and financing decisions).
1

The fact that the CEO of Continent and Globe is the same person, offers further evidence that Continent may have de facto power over Globe (i.e. the practical ability to influence decisions, even if not by right) (see e.g. IFRS 10 par. B18(d)).
1

When considering control consider actual (35%) and potential voting rights (30 001/130 001). (also worth 2 marks as below have to show calc for second mark). OR 2 OR
Alternative 1 Options from a fresh share issue by Globe: Continent also has a share option (potential voting rights) that could result in it holding 50% + 1 share (i.e. a majority of shareholder voting rights) if the option is exercised. [Calculation: (35 000 +
30 001)/(100 000 + 30 001)].
Alternative 2 Options acquired from existing shareholder: Continent also has a share option (potential voting rights) that could result in it holding increasing to 65 001 (65%) (i.e. a majority of shareholder voting rights) if the option is exercised.
1
[Calculation: (35 000 + 30 001)/(100 000 )].
1
However, to assess whether power exists, only substantive rights must be considered. 0.5
To be substantive, rights need to be exercisable when decisions about the relevant activities need to be made, and the holder needs to have a practical ability to exercise those rights. 0.5
Although the potential voting rights are not currently exercisable (option needs to be exercised first), it appears that Continent can exercise the option at any time before important decisions are to be made.
1
Moreover, they also appear to have the practical ability to exercise the option even though the exercise price is market-related, as the Atlas Group is described as a "prosperous" group / Continent has significant equity reserves [Mark for an indication
1
that Continent is financially able from the given information from the scenario].
Continent is allowed to currently exercise the option as Globe is currently in a solvent position (per the information given in the question: positive equity reserves). 1

Conclusion on Power:
From the analysis above Atlas has power over Globe. 1P

(2) Exposure to variability in returns

Continent is exposed to variability in returns (e.g. dividends and capital growth can vary depending on the performance of Globe). 1

(3) Link between power and returns

There is a link between power and variability in returns, as Continent can use its power over Globe to affect the returns, through the implementation of specific operating and financing policies.
1

Overall conclusion:
Therefore, on balance, it appears that Continent does control Globe (conclusion mark).

[Note: the question gave a substantial amount of information to assess control, whereas the discussion was only for 15 marks. The suggestion solution therefore focuses only on the core principles relevant to assessing control in this scenario with
inclusion of some higher level control indicators]

Communications skills – logical argument1

[Note to marker: The mark is for making a conclusion in line with the above arguments.
No mark should be awarded if the student contradicts him/her self]

Available marks17
Maximum marks15
(b) Provide all the pro forma consolidation journal entries required to consolidate Continent Ltd group into the group financial statements of the Atlas Ltd Group for the financial year ended 31 December 2015. Journal narrations are not required.

IN RESPECT OF CONTINENT:

Dr. Intangible assets (SoFP) R 2,000,000 1 [Mark for recognising intangible asset at FV]
Cr. Revaluation surplus / Retained earnings (at acquisition) (SoCE) R 1,440,000
Cr. Deferred tax (SoFP) (2 000 000 x 28%) R 560,000 0.5P [Mark for using amount of the recognised intangible asset]
At acquisition revaluation of net assets to fair value (IFRS 3)

Dr. Share capital (SoCE) R 10,000,000 0.5 [Given]

Dr. Retained earnings (at acquisition) (SoCE) R 55,000,000 0.5 [Given]
Dr. Revenue (p/l) (84 000 000 x 4/12) R 28,000,000 1.5 [Half a mark for Dr Revenue] [Mark for only taking out 4 months] [C2]
Cr. Expenses (p/l) ((72 400 000 - 2850 000) x 4/12) R 23,183,333 1.5 [Half a mark for Cr Expenses] [Mark for taking out bonusses before times by 4/12] [C2]
2.5 [Half a mark for Cr Taxation] 2 P [Marks for splitting tax according to profit
Cr.Taxation (p/l) R 1,328,736 before tax- see student workings] [C2]
Dr. Revaluation surplus / Retained earnings (at acquisition) (SoCE) R 1,440,000
Dr. Goodwill (SoFP) [Balancing or from C1] R 16,455,306 1P [Mark if used as balancing figure or if used amount calculated in C1]
Cr. Non-controlling interest (SoFP) [From part b] R 13,985,586 1P [1 Mark if used FV at acquisition equity @ 20%]
Cr, Investment in Continent Ltd (SoFP) [From part b] R 72,397,651 3.5 [3.5 Marks for calculation of consideration][See C1 for breakdown of marks]
Main elimination journal at acquisition in respect of Continent
OR
[Note to markers: students can split or combine journals in any way, as long as the net effect is the same as the suggested solution. For example, the above 2
journals can be combined, as follows:]

Dr. Intangible assets (SoFP) R 2,000,000 1 [Mark for recognising intangible asset at FV]
Dr. Share capital (SoCE) R 10,000,000 0.5 [Given]
Dr. Retained earnings (at acquisition) (SoCE) R 55,000,000 0.5 [Given]
Dr. Revenue (p/l) (84 000 000 x 4/12) R 28,000,000 1.5 [Half a mark for Dr Revenue] [Mark for only taking out 4 months] [C2]
Cr. Expenses (p/l) ((72 400 000 - 2850 000) x 4/12) R 23,183,333 1.5 [Half a mark for Cr Expenses] [Mark for taking out bonusses before times by 4/12] [C2]
2.5 [Half a mark for Cr Taxation] 2 P [Marks for splitting tax according to profit
Cr.Taxation (p/l) R 1,328,736 before tax- see student workings] [C2]
Dr. Goodwill (SoFP) [Balancing or from C1] R 16,455,306 1P [Mark if used as balancing figure or if used amount calculated in C1]
Cr. Deferred tax (SoFP) (2 000 000 x 28%) R 560,000 0.5P [Mark for using amount of the recognised intangible asset]
Cr. Non-controlling interest (SoFP) [From part b] R 13,985,586 1P [1 Mark if used FV at acquisition equity @ 20%] [C1]
Cr, Investment in Continent (SoFP) [From part b] R 72,397,651 3.5 [3.5 Marks for calculation of consideration][See C1 for breakdown of marks]

Dr. Amortisation expense (p/l) [C1] R 444,444

1C [Carried forward from C3]
Cr. Accumulated amortisation on intangible assets (SoFP) R 444,444
Recognise amortisation on intangible assets

Dr. Deferred tax (SoFP) (444 444 x 28%) R 124,444

1P [If used above]
Cr. Deferred tax (p/l) R 124,444
Deferred tax on the above

Dr. Non-controlling interest (p/l) [C3] R 1,702,414

6C (Mark for journal] [5 Marks for calcuation carried forward from C3 below]
Cr. Non-controlling interest (SoFP) R 1,702,414
Recognise NCI in current year profits of Continent

Dr. Dividends received (p/l) (2 600 000 x 80%) R 2,080,000 0.5

Dr. Non-controlling interest (SoFP) R 520,000 0.5
Cr. Dividends declared (SoCE) R 2,600,000 0.5
Elimination of inter-company dividends

Dr. Dividends payable / Shareholders for dividends (SoFP) R 2,080,000

'1
Cr. Dividends receivable (SoFP) R 2,080,000
Elimination of inter-company debtors & creditors

IN RESPECT OF GLOBE:
Dr. Share capital (SoCE) (100 000 x R1 500) R 150,000,000 1 [Mark for calculating share capital]
Cr. Non-controlling interest (SoFP) (150 000 000 x 65%) R 97,500,000 0.5 [Half a mark if used FV at acquisition equity @ 65%]
Cr. Investment in Globe Ltd (SoFP) (150 000 000 x 35%) R 52,500,000 1 [Mark for calculating consideration]
Main elimination journal at acquisition in respect of Globe

Dr. Non-controlling interest (p/l) [11 200 000 x 65%] R 7,280,000 1 [Mark for calculating NCI portion @ 65%]
Cr. Non-controlling interest (SoFP) R 7,280,000 0.5 [Half a mark for NCI]
Recognise NCI in current year profits of Globe

CALCULATIONS

[Note to markers: students could have shown these calculations as part of the journals above, if so, marks should still be awarded for the calculations.
The marks below have been awarded in journals above don’t double count.
C1. Goodwill calculation of Continent

Consideration R 72,397,651
-> Property R 38,500,000 [1 Mark for including at FV]
-> Deferred cash payment (35 000 000 FV, 12 N, 8/12 I, Comp PV) R 32,317,651 [1.5, half a mark for each input]
-> Contingent consideration R 1,580,000 [1 Mark for including at FV excluding valuer fee]
-> Transaction costs (valuer's fee): expensed, not part of consideration R - [No mark allocated as students can just ignore and not show in calculation]
Total calc marks 3.5
Fair value of net assets R -69,927,931
-> Share capital R 10,000,000
-> Retained earnings on 1 January 2015 R 55,000,000
-> Profit after tax 1 January 2015 to 1 May 2015 - interim acquisition [C2] R 3,487,931
-> Supply contract: (see IFRS 3 par. B43) R 2,000,000
-> Deferred tax on the above (2 000 000 x 28%) R -560,000

Non-controlling interest (69 927 931 x 20%) R 13,985,586

Goodwill R 16,455,306

[Note: there is no goodwill pulling up from Globe, as Continent paid a consideration equal to the share issue price upon incorporation of the new company]

C2. Profit after tax for Continent

1 Jan 2015 - 1 May 2015 1 May 2015 - 31 Dec 2015

Revenue [84 000 000 x 4/12] [84 000 000 x 8/12] 28,000,000 56,000,000
Expenses [ 72 400 000 - 2 850 000 = 6 955 000] [6 955 000 x 4/12] [ 6 955 000 x 8/12] -23,183,333 -46,366,667
Bonuses -2,850,000
4,816,667 6,783,333
Taxation [4 816 667 + 6 783 333 = 11 600 000]
[4 816 667 / 11 600 000 x 3 200 000]
[6 783 333 / 11 600 000 x 3 200 000] -1,328,736 -1,871,264
Profit after tax 3,487,931 4,912,069

C3. NCI in current year profit of Continent

Profit since acquisition (10 452 000 x 8/12) R 4,912,069 2P [Mark for using post acquisition profit for 8 months only] [One mark for putting back bonus expense after tax]
Amortisation of supply contract (2 000 000 x 8/36) R -444,444 1P [Mark for calculating depreciation on the amount included in the goodwill calculation above for 8 months only]
Tax on the above (444 444 x 28%) R 124,444 0.5P [Half a mark for tax on the inclusion above]
Profit of Globe (vertical group) (11 200 000 x 35%) R 3,920,000 1 [Mark for pulling up proportionate share of Globe's profit]
R 8,512,069

NCI (8 516 000 x 20%) R 1,702,414 0.5P [Half a mark for calculating NCI on profit calculated above at 20%]

Available marks28
Maximum marks25
Atlas in Continent

1-Jan-15 1-May-15 31-Dec-15

Movement
Share capital 10,000,000 - 10,000,000
Retained earnings 55,000,000 Profit for the year 4,912,069 -2,600,000
Intangible asset 2,000,000 Globe profit at 35% 3,920,000
Tax on intangible -560,000 8,832,069
Profit 1 Jan - 1 May 3,487,931 Amortisation -444,444
Total @ acq equity 69,927,931 Tax on amortisation 124,444
8,512,069
Consideration 72,397,651 Continent @ 80% 6,809,655 -2,080,000
-> Property 38,500,000 NCI @ 20% 1,702,414 -520,000
-> Deferred cash payment 32,317,651
-> Contingent consideration 1,580,000

NCI @ 20% 13,985,586

Nett assets -69,927,931

GW/(GBP) 16,455,306

Continent in Globe
1-May-15 31-Dec-15

Movement
Share capital 150,000,000 - 150,000,000
Retained earnings - Profit for the year 11,200,000
Total @ acq equity 150,000,000 Continent @ 35% 3,920,000
NCI @ 65% 7,280,000
Consideration 52,500,000
NCI @ 65% 97,500,000

Nett assets -150,000,000

GW/(GBP) -
ACCC 371 Question Bank, Question 11 suggested solution

(a) Calculate the total income tax expense in the separate financial statements of CraftCori Ltd for the financial year ended 31 December 2015.

CALCULATIONS
R
C1. Current tax - CraftCori 2015

Profit before tax (given) 3,175,000 1.00 [Given, but should only use CC]
Non-taxable/non-deductible items: 101,000
- Dividends received not taxable -80,000 1.00 [Given, but should only use CC. Sign must be correct]
- Depreciation on office buildings (1 305 000 - 400 000 / 5) [C5] 181,000 1.00 [Sign must be correct]
Taxable profit before temporary differences 3,276,000
Movement in temporary differences (taxable) -2,295,208
- Wear-and-tear on manufacturing machinery (12 000 000 x 20%) [C6] -2,400,000 1.00 [A mark if both are correct. Sign must be correct]
- Depreciation on manufacturing machinery ((14 500 000 - 14 000 000)/3) [C6] 166,667 1.00 [Sign must be correct]
- Allowance for credit losses
Current year charge in p/l (4 275 000 - 3 450 000 x 10%) -82,500 1.00 [Half for 4 2750 000 - 3 450 000 half for 10%. Sign must be correct]
Opening balance allowance (4 275 000 x 10% x 25%) 106,875 1.00 [Half for 4 2750 000 x 10% half for 25%. Sign must be correct]
[2 Marks should also be awarded if students showed the nett of R20 625]
Closing balance allowance (3 450 000 x 10% x 25%) -86,250 1.00 [Half for 3 450 000 x 10% half for 25%. Sign must be correct]

Taxable profit 980,792

Current tax (980 792 x 28%) 274,622 1P [If multiplied taxable profit calculated by 28%] [Half a mark should also be given if students got to an assessed loss and show R0 current tax]

8.00

Temporary Deferred Tax

C2. Deferred tax Carrying amount Tax base Rate Change tax rate
differences asset/(liability) 27%
[Deferred tax calc not required. For illustrative purposes only]
Wednesday, December 31, 2014

Office building [C5] 1,305,000 - 1,305,000 exempt/ias 12(par 15) p/l -

Manufacturing machinery [C6] 14,500,000 7,200,000 7,300,000 -1,790,640

- Carrying amount less residual value 500,000 - 500,000 0.27 -135,000 OCI -5,000
- Residual value less cost 2,000,000 - 2,000,000 0.180 -359,640 OCI -13,320
- Below cost 12,000,000 7,200,000 4,800,000 0.27 -1,296,000 p/l -48,000

Allowance for credit losses (4 275 000 x 10% x 25%) 427,500 106,875 -320,625 0.27 86,569 p/l 3,206
Net deferred tax liability 8,284,375 0.21 -1,704,071 -63,114

Change in tax rate beginning of 2014 (1 704 071 x 1/27) -63,114 1 [Mark for calculating total tax rate change]
- Related to p/l (63 114 - 18 320) cr SoFP dr p/l -44,794 1P p/l [Mark for taking total rate change above and deducting OCI rate change below]
- Related to OCI (494 640 [Given] x 1/27) cr SoFP dr OCI -18,320 1 OCI
Restated opening balance to 28% -1,767,185

3.00
 Temporary Deferred Tax
Carrying amount Tax base Rate
differences asset/(liability) 28%
Thursday, December 31, 2015 [Signs must be correct]

Office building [C5] 1,900,000 - 400,000 -74,670

- Cost 1,500,000 1,500,000 - 0.28 1.00 p/l [Mark for tax base of 1 500 000 due to change in intention]
- Above cost 400,000 - 400,000 0.187 -74,670 1.00 OCI [Mark for use of CGT rate]

Manufacturing machinery [C6] 15,000,000 4,800,000 10,200,000 -2,668,960

- Carrying amount less residual value 1,000,000 - 1,000,000 0.28 -280,000 1.00 OCI [Mark for correct amount TD and correct rate]
- Residual value less cost 2,000,000 - 2,000,000 0.186 -372,960 1.00 OCI [Mark for correct amount TD and correct rate]
- Below cost 12,000,000 4,800,000 7,200,000 0.28 -2,016,000 1.00 p/l [Mark for correct amount TD and correct rate]

Allowance for credit losses (3 450 000 x 10%) (3 450 000 x 10% x 25%) 345,000 0.50 86,250 0.50 -258,750 0.28 72,450 p/l

Deferred tax liability @ 28% 10,341,250 0.26 -2,671,180

6.00
C3. Profit and loss movement - CraftCori

Opening deferred tax SoFP Cr 1,704,071

Tax rate change - p/l p/l only Cr 44,794 1.5P [A mark for movement in balances + Half a mark for including tax rate change]
Closing deferred - tax SoFP Cr -2,671,180 [If students used the corrected opening balance the total rate change had to be added]
Exclude OCI movement CY: Cr SoFP Dr OCI 279,657
- Total OCI 2014 [Given] 494,640 [Mark for calculating OCI movement]
1P
- Total OCI 2015 (74 670 [C2] + 280 000 [C2] + 372 960 [C2]) 727,630
- p/l movement in depreciation of machinery (166 667 x 28%) 46,667 1P [See explanatory note at the end of the suggested solution]
Movement = deferred tax profit and loss (TD's) Cr SoFP Dr p/l -642,658

3.50

C4. Total income tax expense for CraftCori 962,074

- Current tax expense (CC) [C1] 274,622 0.5C [Half a mark for carried forward from current tax calc] [Sign must be correct]
- Tax rate change p/l 44,794 0.5C [Half a mark for carried forward from rate change calc] [Must be p/l only] [Sign must be correct]
- Deferred tax movement (CC) [C3] 642,658 0.5C [Half a mark for carried forward from p/l movement calc] [Sign must be correct]

1.50

Available marks 23.00

Maximum marks 22
C5. Office buildings - CraftCori Accounting Tax

Cost at 1 July 2013 1,500,000

Less: Depreciation 2013 (1 500 000 - 200 000 / 10 * 6/12) -65,000
Carrying amount at 31 December 2013 1,435,000
Less: Depreciation 2014 (1 500 000 - 200 000 / 10) -130,000
Carrying amount at 31 December 2014 1,305,000 [Not required. Given for illustrative purposes only]
Less: Depreciation 2015 (1 305 000 - 400 000 / 5) -181,000 [Mark awarded above in C1 at inclusion in current tax calculation]
Carrying amount at 31 December 2015 1,124,000
Revaluation (1 900 000 - 1 124 000) 776,000 [Given]
Revalued carrying amount on 31 December 2015 1,900,000 [Given]

C6. Manufacturing machinery - CraftCori Accounting Tax

Cost at 1 January 2013 12,000,000 12,000,000

Less: Depreciation 2013 ((12 000 000 - 14 000 000)/5) - -2,400,000
Carrying amount at 31 December 2013 12,000,000 9,600,000
Less: Depreciation 2014 ((12 000 000 - 14 000 000)/5) - -2,400,000
Carrying amount at 31 December 2014 12,000,000 7,200,000
Revaluation on 31 December 2014 (14 500 000 - 12 000 000) 2,500,000 - [Not required. Given for illustrative purposes only]
Revalued carrying amount on 31 December 2014 14,500,000 [Given] 7,200,000
Less: Depreciation 2015 ((14 500 000 - 14 000 000)/3) -166,667 -2,400,000 [Marks awarded above at inclusion in current tax calculation]
Revalued carrying amount on 31 December 2015 14,333,333 4,800,000
Revaluation on 31 December 2015 (15 000 000 - 14 333 333) 666,667 [Given] -
Revalued carrying amount on 31 December 2015 15,000,000 [Given] 4,800,000
(b) Prepare an extract from the consolidated statement of profit or loss and other comprehensive income for the CraftCori Ltd Group for the financial year ended 31 December 2015 in accordance with the requirements of the International Financial Reporting Standards (IFRS). You should start with the profit
before tax line item. Comparative figures are not required. You are not required to disclose the profit and total comprehensive income attributable to the parent and the non-controlling interest separately. Ignore IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.

CRAFTCORI LTD GROUP

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2015

2015
R
Profit before tax
(3 175 000 (CC) + 3 651 376 (MD) 6,826,376 0.5 + 0.5 [Given]

Income tax expense -2,461,598 [Marks awarded in C7 below]

PROFIT FOR THE YEAR 4,364,778

Other comprehensive income: items that will not be reclassified to profit or loss 1,722,324
- Revaluation surplus (776 000 [C5] + 666 667[C6]) 1,442,667 0.5 + 0.5 [Given]
- Deferred tax on OCI movement in current year [C3] 279,657 1C [Mark for carried forward from C3] [Calculation mark awarded in calculation] [Sign must be correct]

TOTAL COMPREHENSIVE INCOME FOR THE YEAR 6,087,102

Profit attributable to: 4,364,778

Owners of the parent (4 364 778 - 430 370) 3,934,408
Non-controlling interest (2 151 852 [C9] x 20%) 430,370
[Not required. Disclosed for illustrative purposes only]
Total comprehensive income attributable to: 6,087,102
Owners of the parent (6 087 102 - 430 370) 5,656,732
Non-controlling interest (2 151 852 [C9] x 20%) 430,370

Communications skills – presentation and layout 1.00

[Note to marker: The mark is for presenting the consolidated statement of profit or loss and other
comprehensive income with the appropriate headings, financial year-end and currency]
4.00

C7. Total income tax expense for CraftCori Group 2,461,598

- Current tax expense (CC) [C1] 274,622 0.5C [Half a mark for carried forward from current tax calc] [Sign must be correct] [Must be p/l only]
- Rate change 44,794 0.5C [Half a mark for carried forward from rate change calc] [Sign must be correct] [Must be p/l only]
- Deferred tax movement (CC) [C3] 642,658 0.5C [Half a mark for carried forward from p/l movement calc] [Sign must be correct] [Must be p/l only]
- Current tax expense (MD) 1,325,450 0.5 [Given] [Sign must be correct]
- Deferred tax movement (MD) [C8] 174,074 0.5C [Half a mark for carried forward from p/l movement calc] [Sign must be correct]

2.5
C8. Profit and loss movement - MorningDew

Opening deferred tax SoFP (920 000 + (920 000 x 1/27 = 34 074)) Dr 954,074
[Given]
Closing deferred - tax SoFP Dr -780,000
Movement = deferred tax profit and loss (TD's) 174,074 1.00 [Mark for calculating movement in balances]
Cr SoFP Dr p/l [p/l only as non of MD's assets were revalued they carry their assets on the cost model]

1
Available marks 7.50
Maximum marks 7
C9. NCI portion of profit - MorningDew

Profit before tax 3,651,376

Less: Current tax expense -1,325,450
Deferred tax expense [C8] -174,074
Profit after tax 2,151,852 [Not required. Given for illustrative purposes only]

Profit attributable to NCI (2 151 852 x 20%) 430,370

C10. Tax rate recons

CraftCori CraftCori Group
Accounting profit 3,175,000 6,826,376
Tax at 28% 889,000 28.00% 1,911,385 28.00%
Tax effect of non-taxable/non-deductible items:
- Dividends received not taxable -22,400 -0.71% -22,400 -0.33%
- Depreciation on office buildings 50,680 1.60% 50,680 0.74%
- Change in tax rate 44,794 1.41% 78,868 1.16% [Not required. Given for illustrative purposes only]
- Permanent differences of MorningDew (Information not provided in question) - - 443,065 6.49%
Income tax expense 962,074 30.30% 2,461,598 36.06%

Amount as per calculation in C6 & C7 / Effective tax rate 962,074 30.30% 2,461,598 36.06%

Difference 0 0.00% 0 0.00%

Explanatory note:

If the journals were done to account for the temporary differences of the manufacturing machinery on the SoCI approach it would be the following:

Dr. Income tax expense (p/l) [(2 400 000 - 166 667) x 28%] 625,333
Cr. Deferred tax (SoFP) 625,333
Recognition of deferred tax on difference between depreciation and wear-and-tear

Dr. Manufacturing machinery (SoFP) (15 000 000 - 14 333 333 [C6]) 666,667
Cr. Revaluation surplus (OCI) 666,667
Revaluation of manufacturing machinery on 31 December 2015

Dr. Income tax expense (OCI) (666 667 x 28% [Above RV in CY]) 186,667
Cr. Deferred tax (SoFP) 186,667
Recognition of deferred tax on revaluation in OCI

Total deferred tax recognised (SoFP) in current year in: 812,000

- Profit or loss 625,333
- Other comprehensive income 186,667

If the journals were done to account for the movements in the temporary differences of the manufacturing machinery on the SoFP approach it would be the following:

Dr. Income tax expense (p/l) 672,000

(7 200 000 [CY TD in p/l in C2] - 4 800 000 [PY TD in p/l in C2] x 28%) = 672 000
Dr. Income tax expense (OCI) 140,000
(1 000 000 [Above RV in CY in C2] - 500 0000 [Above RV in PY in C2] x 28%) = 140 000
(2 000 000 [Above cost CY in C2] - 2 000 000 [Above cost PY in C2] x 18.6%) = 0
Cr. Deferred tax (SoFP) 812,000
Recognition of deferred tax movements in the current year

Total deferred tax recognised (SoFP) in current year in: 812,000

- Profit or loss 672,000
- Other comprehensive income 140,000

Difference in deferred tax recognised in profit or loss (625 333 [SoCI] - 672 000 [SoFP]) -46,667
Difference in deferred tax recognised in profit or loss (140 000 [SoCI] - 186 667 [SoFP]) -46,667
Profit or loss will therefore be overstated and OCI understated if just the total movements are used, hence adding back the difference when calculating the p/l movement for the year).
ACCC 371 Question Bank, Question 12 suggested solution

Part 1 Marks 16
Part 2 Marks 24
Minutes 72
Part 1
Harris Limited (Harris) acquired 75 000 shares in Solly(Solly) Limited on 1 January 2007 for R 120 000.
On that date Solly's equity consisted of :
Rand
Share capital 100 000 R 1 shares 100,000
Retained earnings 15,000
Revaluation reserve 20,000

Harris elected to measure the non controlling interest at fair value. The fair value of the non controlling
interest was R 40 000 on acquisition date.

Harris accounts for the investment in Solly at cost in its separate financial statements in accordance
with IAS 27

On 30 June 2011 Harris disposed of 5 000 shares in Solly for R 25 000.

The disposal of Solly does not comply with the criteria of IFRS 5 (Non current assets held for sale and
discontinued operations).

Solly earned profit evenly throughout the year. The company tax rate is 30% and CGT is calculated at
50% thereof.

Solly did not revalue any of their assets in the 2011 financial year.

Part 1
ACCC 371 Question Bank, Question 12 suggested solution

Part 1 Marks 16
Trial balance for the period ended 31 December 2011
dr/(cr) dr/(cr)
Harris Solly
Share capital ( 50 000, 100 000 number of shares) -50,000 -100,000
Revaluation reserve - -140,000
Retained earnings -130,000 -45,000
Deferred tax 28,500 -14,000
Property plant and equipment - revaluation model 311,500
Inventory 149,300 14,000
Bank -24,000 3,500
Investment in cost 112,000
Revenue -900,000 -1,250,000
Cost of sales 785,000 1,150,000
Other income (gain on disposal of Solly) -17,000 0
Income tax expense 46,200 70,000
Other comprehensive income -
Other comprehensive income - income tax
- -
Subtotals
Profit before other comprehensive income -85,800 -30,000

REQUIRED

Compile the pro-forma journal entries needed to account for Sally in the groups
books at the end of December 2011. Narations are not required. 16

Part 1
 ACCC 371 Question Bank, Question 12 suggested solution
Part 1

4 years

01-Jan-2007 01-Jan-2011 30-Jun-2011 31-Dec-2011

AT BOY Sold 5% EOY Change
Shares 75,000 70,000 (5,000)
Ownership 75% 70% -5%

SOLLY
Analysis TOTAL AT SINCE NCI
75% 70% 25% 30%
SCAP 100,000 75,000 25,000
RE 15,000 11,250 3,750
RR 20,000 15,000 5,000
135,000 101,250 33,750
Goodwill 25,000 18,750 6,250
Consideration 160,000 120,000 40,000

SINCE
BOY SUBSIDIARY
RE (45-15) 30,000 22,500 RE 7,500
RR (140-20) 120,000 90,000 RR 30,000
CY
(1250-1150-70)x6/1
Profit 2 15,000 11,250 RE 3,750
325,000 123,750 81,250

Disposal of Shares (5000 (81,25x5%/25%) or

shares) (120x5%/75%) +
(123,75x5%/75%) -8,000 -8,250 16,250

-6,000 RR Realised to RE
CY -2,250 RE
(1250-1150-70)x6/1
Profit 2 15,000 10,500 4,500
340,000 126,000 102,000
 Part 1
Company Profit (added back)

Proceeds 25,000
Cost of Investment (of shares
disposed) -8,000
Company Profit 17,000

Group Profit (account for)

Proceeds 25,000 Proceeds 25,000

Cost of Investment (of shares
disposed) -8,000 OR NCI Adj -16,250
Since Reserves -8,250
Company
Company Profit 8,750 Profit 8,750 = Change in Ownership

AVAILABLE 17
JOURNALS MAX 16

# DESCRIPTION DEBIT CREDIT MARKS

1 Share Capital (SCE) 100,000 1

1 Retained Earnings (SCE) 15,000 1
1 Revaluation Reserve 20,000 1
1 Goodwill 25,000 1 P
1 Investment in Solly -120,000 1
1 NCI (SoFP) -40,000 1 P
Main elimination journal at acquisition

2 Retained Earnings 7,500 1

2 Revaluation Reserve 30,000 1
NCI (SoFP) -37,500 1
NCI until BOY
 Part 1
OR
3 NCI (P/L) 3,750 0.5 P
3 NCI (SoFP) -3,750 0.5 P NCI (P/L) (3750+4500) 8,250 1 P
NCI CY before change in ownership NCI (SoFP) -8,250 1 P
NCI CY
4 NCI (P/L) 4,500 0.5 P
4 NCI (SoFP) -4,500 0.5 P
NCI CY after change in ownership

5 Revaluation Reserve 6,000 1

5 Retained Earnings -6,000 1
Reallocate Revaluation reserve relating to disposal to RE

6 Investment in Solly 8,000 1

Gain on disposal of interest (co
6 profit) 17,000 1 CIO 8,250
Gain on disposal of interest
6 (group profit) -8,750 1 P
6 NCI (SoFP) -16,250 1
Change in Ownership
 Cell: I81
Note: Author:
The alternative journal would only be allowed if investment in S was accounted for at FV
IN H's books. Then the company profit in not in profit and loss it is essentially in the
ACCC 371 Question Bank, Question 12 suggested solution 0 12/31/1899

Question 2

U are the filnancial manager of Man United Ltd group of companies. You are required to prepare the necessary
consolidated annual financial statements for the year ended 31 December 2011 for approval of the board at the next
annual general meeting.

1. MAN UNITED INVESTMENT IN QPR LIMITED

1.1. On 01 January 2009, Man United acquired a 25% equity interest in QPR Ltd for R80 000 (50 000 out of the 200 000 no
of shares). QPR's issued share capital at the time was R200,000 and has remained constant since then. Since that date Man
United exercised significant influence over the operating and financial policies of QPR Ltd. QPR Limited had the following
accounts.

Balance Balance: Balance:

Account Description
01-Jan-2009 31-Dec-2010 31-Dec-2011
Retained Earnings R20,000 R40,000 R60,000
General Reserve R30,000 R40,000 R40,000

The balance of Retained Earnings at 31 December 2011 is after distribution of dividends of R10,000 for the year.

The detailed books of QPR were not available at year end 31 December 2011. The only information provided to you is:-

'- Revenue per annum is R400,000 and the gross profit percentage is fixed at 60%.
'- Administration, distribution and other operating expenses totals R198,333 and income tax expenses for the year
amounted to R11,667.

The profits and losses are earned and incurred evenly over the period. Taxation expenses are also incurred evenly over the
period.

1.2. On 30 September 2011 Man United acquired an additional 100,000 shares in QPR from NCI for an amount of R2,50 per
share which is reported to be the fair value per share. The market value per share of R2,50 is an indication of the fair value
per share of the previously held interest.

2. ACCOUNTING POLICIES OF THE GROUP

2.1. Non controlling interest is measured at their proportionate share of the net asset value of subsidiaries,

2.2. Investment in associate is accounted for according to the equity method of accounting.

2.3. It is the policy of the company to measure and carry investments in subsidiaries associates and joint ventures at cost

2.4. Deferred taxation is accounted for on all temporary differences in accordance with the statement of financial position
method.
2.5. CGT is based on inclusion rate of 50% at the marginal tax rate of 28%.

3. Dividends are declared, authorized and paid at year end, 31 December 2011. All dividends were correctly recorded by
all companies in the group and included in other Income.

REQUIRED
ACCC 371 Question Bank, Question 12 suggested solution 0 12/31/1899

Question 2

Provide pro-forma consolidation journal entries for the year ended 31 December 2011 to incorporate
QPR into the group accounts. Ignore journal narrations.
24
ACCC 371 Question Bank, Question 12 suggested solution
QUESTION 2

2 years 9 months 3 months

01-Jan-2009 01-Jan-2011 30-Sep-2011 31-Dec-2011

AT BOY EOY Change
Shares 50,000 150,000 100,000
Ownership 25% 75% 50%

QPR
Analysis TOTAL AT SINCE NCI
25% 75% 75% 25%
SCAP 200,000 50,000 150,000
RE 20,000 5,000 15,000
GR 30,000 7,500 22,500
250,000 62,500 187,500
Goodwill doesn't share in
Goodwill 17,500 17,500 - the CIO @ proportionate
Consideration 267,500 80,000 187,500

SINCE
BOY ASSOCIATE
RE (40-20) 20,000 5,000 15,000
GR (40-30) 10,000 2,500 7,500

CY
Profit See calc below 22,500 5,625 16,875
320,000 13,125 226,875

Additional Shares (100 000)

Previous Equity Held 75,625
Equity acquired (50%) 151,250 -151,250
Total Equity acquired 226,875
Goodwill 148,125
Consideration and NCI 375,000 75,625
Cost of new shares 250,000 SUBSIDIARY
FV of previous investment 125,000
QUESTION 2

CY
Profit See calc below 7,500 5,625 1,875
Dividends -10,000 -7,500 -2,500
GR - - -
317,500 11,250 75,000
 QUESTION 2

WORKINGS AVAILABLE 26
MAX 24
1 Remeasurement Gain @ acquisition date
CA of previous investment 93,125
FV of previous investment 125,000
Gain 31,875 1

2 Proof of Goodwill

Consideration 375,000
PLUS NCI 75,625
Less: 100% net assets (302,500)
Goodwill 148,125

3 Investment in Associate before change

Cost 80,000
PLUS Since Reserves 13,125
93,125 1

4 FV adjustment to Investment - N/A as the accounting policy states @ cost

5 PROFIT FOR THE YEAR TOTAL BEFORE AFTER

Revenue 400,000 300,000 100,000

Cost of Sales (160,000) (120,000) (40,000)
Gross Profit 240,000 180,000 60,000
Admin, Distrib and Opex (198,333) (148,750) (49,583)
Income Tax (11,667) (8,750) (2,917)
Profit after Tax 30,000 22,500 7,500
 QUESTION 2

JOURNALS
# DESCRIPTION DEBIT CREDIT MARKS

Account for Income in Associate PY

1 Investment in QPR Ltd (SoFP) 7,500 1 Or half each if done separately
1 Retained Earnings (SCE) -5,000 1 Or half each if done separately
1 General Reserve (SCE) -2,500 1 Or half each if done separately

Account for Income in Associate CY

2 Investment in QPR Ltd (SoFP) 5,625 1
2 Share in Profit of Associate (P/L) -5,625 1

Remeasurement of Investment - Workings 1

3 Investment in QPR Ltd (SoFP) 31,875 1 P
3 Remeasurement Gain (P/L) (31,875) 1 P If journal agrees to FV calculation

Transfer General Reserve to retained earnings (assumed to have disposed of inv in A)

4 General Reserve (SCE) 2,500 1
4 Retained Earnings (SCE) (2,500) 1

@ Acquisition A becomes S
5 Share Capital (SCE) 200,000 1
5 Retained Earnings (SCE) 40,000 1
5 General Reserve (SCE) 40,000 1
5 Revenue (P/L) 300,000 1
5 Cost of Sales (P/L) -120,000 1 Operating profit while associate now
22,500
5 Admin, Distrib and OPEX (P/L) -148,750 1 eliminated
5 Income Tax Expense (P/L) -8,750 1
5 Goodwill 148,125 1 P
5 Investment in QPR Ltd -375,000 1 IFRS 3: FV old plus cost new
5 NCI (SoFP) -75,625 1 P NCI after change in ownership

NCI CY
6 NCI (P/L) 1,875 1 P
6 NCI (SoFP) -1,875 1 P Only if it equals NCI after change
 QUESTION 2
Dividens Paid CY
7 Dividends Received (P/L) 7,500 1
7 NCI (SoFP) 2,500 1
7 Dividends Paid (SCE) -10,000 1
 Cell: B49
Note: Author:
Always indicate this calc in test or exam (sometimes might count marks)
Cell: B54
Note: Author:
Always indicate this calc in test or exam (sometimes might count marks)
Cell: B61
Note: Author:
Always indicate this calc in test or exam (sometimes might count marks)
ACCC 371 Question Bank, Question 12 suggested solution
Harris Solly memo

Partial disposal of sub (NCI at fair value)

1Timeline 1.1.07 1.1.11 30.6.11 31.12.11

acq 1 boy acq 2 eoy

75,000 shares -5,000 shares sold

R 120,000 cost R (8,000) portion of original inv. Disposed

NCI at fair value 40,000 R 25,000 proceeds

R 17,000 Company profit

RE R 15,000 R 45,000
Revaluation reserve R 20,000 R 140,000
Profit R 30,000 R 15,000 15,000

2 Analysis of investment @ cost vs FV

cost of inv Disposed 8,000 8,000 -8,000 -

Retained 112,000 112,000 112,000
120,000 120,000 -8,000 112,000

3 Ownership table
h nci total h nci total
75,000 25,000 100,000 75% 25% 0%
-5,000 5,000 - -5% 5%
70,000 30,000 100,000 70% 30% 0%

Big S becomes small S

No change in control /NOT Crossing the boundary /NOT change in status
Transaction with equity participant NCI
Profit/Loss remains in equity

1 Group Profit 2 Group Profit 3 Group Profit

Proceeds gained by H R 25,000 Net assets sold 15,000 Company profit R 17,000 see above
Goodwill relinquished
NCI gained equity of R 16,250 see analysis NCI shares in g/will 1,250 Since reserves lost R (2,250)
16,250 R (6,000) R (8,250)
R 8,750 Proceeds 25,000 R 8,750
Adjustment to parent equity 8,750
diff group vs co = since res lost R 8,250

Memo 1 Vaal
 Dr/(Cr) Cr/(Dr)
Change in
Revaluation Retained Since Reval ownership
s/cap reserve earnings Total NCI Investment Goodwill Since RE Res equity
25%
@ acq 100,000 20,000 15,000 135,000 33,750 120,000 -18,750
NCI gets their share of goodwill 6,250 -6,250 1
NCI at fair value 40,000 -25,000 0. Transfer realised other reserves to RE
movement till boy 120,000 120,000 30,000 90,000 1. derecognise part investm at cost
2
movement till boy 30,000 30,000 7,500 22,500 2. derecognise % since reserves
boy 100,000 140,000 45,000 285,000 77,500 120,000 -25,000 22,500 90,000 - by adding back co profit and accounting for group profit
Profit b4 change 15,000 15,000 3,750 11,250 3. NCI gets their additional share of net assets
3
Dividend - - - 15,000
100,000 140,000 60,000 300,000 81,250 120,000 -25,000 33,750 90,000 - Plus a portion of H's goodwill at acquisition now acquired
30% 0. 1,250
Transfer realised reserves to RE 6,000 -6,000 16,250
4
1. 2.
Disposal of shares 3. sum of 16,250 -8,000 5 R (8,250) 4 . NCI balance after change must be their share of net assets
their share of net assets 15,000 -17,000 add back co profit 90,000
plus share of H's goodwill 1,250 8,750 put in group profit Plus their share of goodwill at acquisition
6,250
Plus a portion of H's goodwill at change now acquired
1,250
Allocate group profit to change in ownership equity 5. -8,750 8,750 97,500
4. 5. If no change in status re-allocate group profit/loss to equity
100,000 60,000 300,000 97,500 112,000 -25,000 22,750 84,000 8,750
check 97,500 New % equity plus portion of goodwill allocated to nci

Profit after change 15,000 15,000 4,500 6 10,500

eoy 100,000 75,000 315,000 102,000 112,000 -25,000 33,250 84,000 8,750
check -
- Available 17
@ acq Maximum 16
Dr s/cap 100,000 1
Dr Retained earnings 15,000 1
Dr Revaluation reserve 20,000 1
Cr NCI 40,000 1 1 p
Cr Investment 120,000 1
Dr Goodwill 25,000 1 p
160,000 160,000

NCI till boy

Memo 1 Vaal
Dr Retained earnings 7,500 1
Dr Revaluation reserve 30,000 2 1
Cr NCI (SOFP) 37,500 1

NCI CY
Dr NCI (P/L) 3750 + 4500 8,250 3 6 1 p
Cr NCI (SOFP) -8,250 1 p

Re-allocate replacement reserve to RE

Dr Revaluation reserve 6,000 1
Cr Retained earnings 6,000 4 1

Change in ownership
Dr Investment 8,000 Reduce % investment using historical cost 1
Dr Gain on disposal of interest (co profit) 17,000 8,250 reverse co profit 1
5
Cr Change in ownership equity (group profit) 8,750 raise group profit in equity 1 p
Cr NCI 16,250 The rest goes to NCI 1
25,000 25,000 note the net effect of reversing co profit and
raising group profit amounts to change in since reserves

Harris Limited Group

Statement of Changes in equity
For the year ended 31 December 2011

Share capital Change in Non

( 50 000, 100 Revaluation Retained ownership controlling
000 number reserve earnings equity Total interest Total equity
of shares) 152,500 check
Balance 1 January 2011 50,000 90,000 152,500 292,500 77,500 370,000
Total comprehensive income for the year 98,800 98,800 8,250 107,050
Transfer from Revaluation reserve -6,000 6,000 - -
Disposal of interest 8,750 8,750 16,250 25,000
Balance 31 December 2011 50,000 84,000 257,300 8,750 400,050 102,000 502,050
- -
Check 50,000 84,000 257,300 8,750 400,050 102,000 502,050
224,050
33,250

Difference - - - - - - -
-
h s total

Memo 1 Vaal
Profit 85,800 85,800
OCI - eliminated in full

85,800 85,800
NCI' share 8,250
94,050

opening RE 130,000 130,000

Closing retained earnings 224,050

Alternative analysis of earnings ü 75% 25%

70% 30%
Total H NCI
At Since
At acquisition
Share capital 100 000 75 000 25 000
Revaluation reserve 20 000 15 000 5 000
Retained earnings 15 000 11 250 3 750

135 000 101 250 33 750

Goodwill / (bargain purchase gain) 25 000 18 750 6 250
Consideration and NCI 120 000 40 000

Since acquisition
To beginning of year
Revaluation reserve 120 000 90 000 30 000
Retained earnings 30 000 22 500 7 500
77 500
Current year
Profit before change 15 000 11 250 3 750
325 000 123 750 81 250
90 000 RR
33 750 RE

Changes in ownership - duisposal of shares - 8 000 - 8 250 16 250

- 6 000 RR 15 000 their share of net assets
- 2 250 RE 1 250 plus share of H's goodwill

Profit after change 15 000 10 500 4 500

check
Total equity as at 31 Dec 2011 340 000 126 000 102 000 -
84,000 RR -
42,000 RE

Memo 1 Vaal
 33,250 reals RE
8,750 change in ownership equity

Memo 1 Vaal
ACCC 371 Question Bank, Question 12 suggested solution
Man and QBR memo
QPR
Associate becomes a subsidiary (NCI proportionate share)

1Timeline 1.1.2001 1.1.20111 30.9.2011 31.12.2011

acq 1 boy acq 2 eoy

50,000 shares 100,000 shares

R 80,000 cost move R 250,000 cost
RE R 20,000 R 20,000 R 40,000 60,000
GR R 30,000 R 10,000 R 40,000 40,000
Profit for the year R 30,000 R 22,500 9/12 R 7,500 3/12
Dividend 25% R (10,000)
before
total change after change R 5,625
revenue 400,000 300,000 100,000
cos 40% -160,000 -120,000 -40,000
opex -198,333 -148,750 -49,583
inc tax -11,667 -8,750 -2,917
R 30,000 R 22,500 R 7,500

2 Analysis of investment @ cost vs FV

Investment at cost acq 1 80,000 80,000 80,000 80,000

acq 2 250,000 250,000
80,000 80,000 330,000 330,000

Fair value of investment on date of change 125,000 =2.5*50000

3 Ownership table A becomes S
h nci total h nci total Crossing the boundry
50,000 150,000 200,000 25% 75% 0% First FV investment
The new cost of investment cost
100,000 -100,000 - 50% -50% + since reserve plus fV adj
150,000 50,000 200,000 75% 25% 0%
 Dr/(Cr) QPR Cr/(Dr)
Since Rev res
s/cap GR Ret earn Total NCI Inv (G/will) Since RE Inv in assoc before change
75% Cost 80,000
@ acq 200,000 30,000 20,000 250,000 187,500 80,000 -17,500 Plus since reserves 5,000
rev res 10,000 10,000 7,500 2,500 1 2,500
ret earn 20,000 20,000 15,000 5,000 5,625
boy 200,000 40,000 40,000 280,000 210,000 80,000 -17,500 5,000 2,500 93,125 1
For cost plus since reserves p
2
Profit 1 Assoc 22,500 22,500 16,875 5,625 =2.5*50000
200,000 40,000 62,500 302,500 226,875 80,000 -17,500 10,625 2,500 Fair value 125,000 1
25% Remeasruement gain 31,875 3
Transfer reval reserve to ret earn diff 2,500 -2,500 4
Change in ownership -151,250 250,000 -130,625 31,875 Inv in assoc after change change
200,000 40,000 62,500 302,500 75,625 330,000 -148,125 45,000 - Fair value above 125,000
75,625 25%x equity 5 Additional cost 250,000
375,000
Profit 2 Sub 7,500 7,500 1,875 6 6 5,625 Goodwill proof
7
Div paid -10,000 -10,000 -2,500 -7,500 Consideration 375,000
eoy 200,000 40,000 60,000 300,000 75,000 330,006 -148,125 43,125 Plus NCI 75,625
75,000 Less 100% bet assets -302,500
148,125

Account for interest in reserves as an associate until boy @ acq A becomes S

Account for income in assoc PY Dr s/cap 200,000 1
Dr Inv in S 7,500 1 Dr Ret earn 40,000 at boy 1
Cr Retained earnings 5,000 1 1 Dr Reval reserve 40,000 1
Cr General reserve 2,500 1 Operating profit while assoc 22,500
Dr Revenue 300,000 1
Account for income in assoc CY Cr cos 40% 5 120,000 1
Dr Inv in S 5,625 1 Cr opex 148,750 1
Cr Income from associate 5,625 1 2 Cr inc tax 8,750 1
Cr NCI 75,625 1
Remeasurement of investent Step 1 Cr Inv 375,000 1
Dr Inv in S 31,875 1 p Dr (G/will) 148,125 1
Cr Other income (remeasurement gain) 31,875 1 3 p 728,125 728,125 -

Extra step transfer reval reserve to retained earnings (assumed to have disposed of inv in A) CY profit
Dr Reval reserve 2,500 1 Dr NCI (P/L) 1,875 1 p
Cr Retained earnings -2,500 1 4 Cr NCI (SFP) 6 1,875 1 p
Only the NCI after change
Marks available 26 CY div paid
Total marks 24 Dr Dividend received 7,500 1
Dr NCI (SFP) 7 2,500 1
Cr Dividend paid 10,000 1
 ANALYSIS OF SHAREHOLDERS INTEREST IN QPR LIMITED
25% 25%-75% 75% - 25%
AT ACQUISITION TOTAL AT SINCE NCI
Share Capital 200,000
Retained Earnings 20,000
General Reserve 30,000
250,000 62,500 187,500
Goodwill (Capitalised) 17,500 -
Investment in Red Ltd 80,000

SINCE ACQUISITION

To the beginning of current yr

30,000 7,500 22,500
Retained Earnings (40-20) 20,000 5,000 15,000
General Reserve 10,000 2,500 7,500

Current year - 30 Sept 2011

22,500 5,625 16,875
Profit for the year 22,500
302,500 13,125 226,875
ACQUISITION OF 50% INTEREST
100,000 Shares from NCI 151,250 (151,250) 226875*50/75
Equity acquired 01 Jan 2009 62,500
Equity earned to 30 Sept 2011 13,125
Total Equity acquired / Earned 226,875
Goodwill 148,125 148,125
Consideration paid 375,000

Consideration: new additional shares 250,000

FV of PHI 125,000

Current Year - 31 Dec 2011 (2,500) (1,875) (625)

Profit after change in ownership 7,500 5,625 1,875
Dividends paid (10,000) (7,500) (2,500)
General Reserve - - -
448,125 11,250 75,000
Diff change in ownerhip (31,875) - check
ACCC 371 Question Bank, Question 13 suggested solution

(a) Draft a memorandum to Sonny Corleone in which you discuss whether or not Mafia Ltd exercises significant influence over the
financial and operating policies of Untouchables Ltd as of 1 May 2014. Your answer should be limited to the requirements of IAS 28
Investments in Associates and Joint Ventures.

FORMAT OF A MEMO
To: Financial director of Mafia/Untouchables
From: CA Student
Date: May 2016
Subject: Does Mafia exercise significant influence over Untouchables
Dear Sonny

IAS 28 Investments in associates and joint ventures sets out the criteria to prove or disprove significant
IAS 28 influence. Given

Significant influence is the power to participate in the financial and operating policy decisions of the investee
1
IAS 28.3 but is not control or joint control of those policies.

If an entity holds, directly or indirectly, 20% or more of the voting power of the investee, it is presumed that 1
the entity has significant influence, unless it can be clearly demonstrated that it is not the case.
Application Mafia Ltd holds directly only 18% (180 000 / 1 000 000) of the ordinary shares of Untouchables Ltd and
therefore does not exercise significant influence based on this alone. Or the 18% shareholding does not in 1
itself lead to significant influence.

We therefore need to assess if Mafia Ltd holds indirectly any voting power of the investee (other factors
should thus also be considered).

IAS 28.6 The existence of significant influence by an entity is usually evidenced in one or more of the following ways:

(a) Representation on the board of directors

1
Application Sonny Corleone is the financial director of Mafia Ltd and Untouchables Ltd.

(b) Participation in policy making processes

1
Application Vito Corleone appointed Sonny as the financial director of Untouchables Ltd.

(c) Material transactions between entity and investee

1
Application Mafia purchases scripts from Untouchables Ltd.
Untouchables Ltd sales to Mafia Ltd as a percentage of total sales 2 000 000 / 2 500 000 is material. OR
Untouchables Ltd's scripts on hand as a percentage of inventory 650 000 / 1 300 1
Application 000 = material

(d) Interchange of managerial personnel

1
Application Sonny Corleone is the financial director of all 3 companies in the group.

(e) Provide essential technical information

Since 1 May 2014 Untouchables Ltd relies heavily on technical support from the key management personnel 1
Application of Mafia Ltd who have been in this industry for years.

Conclusion: Due to aforementioned, although Mafia Ltd only directly holds 18% of the issued share capital,
through its indirect involvement the Mafia Ltd group exercises significant influence over the financial and 1
operating policies of Untouchables. P
[Note to marker: The mark is for making a conclusion in line with the arguments provided]
[No mark should be awarded if the student contradicts him/her self.]

Communication skills – presentation and layout 1

[Note to marker: The mark is for presenting the discussion in a memorandum format]

Available marks11
Maximum marks8
ACCC 371 Question Bank, Question 13 suggested solution

(b) Prepare ALL the pro forma journal entries required to consolidate Untouchables Ltd into the Mafia Ltd group for the financial year ended 30 April 2016.

[Note to marker: Account names should be correct to earn the "journal" mark. If nothing in brackets default SoFP (e.g NCI/ Dtax)]

30-Apr-16

One mark for GW/GOBP calculation to check if there is a GOBP 1[For calculation of GW check] [C1]

Dr. Mark to market reserve (SoCE) 61,014 0.5P [Journal]

Dr. Deferred tax (SoFP) (75 000 x 18.648%) 13,986 0.5P [Calc use of CGT rate]
1
Cr. Investment in Untouchables (SoFP) (400 000 - 325 000) 75,000 1[Calc]
Eliminate fair value adjustment on investment until beginning of current year

Dr. Fair value adjustment (OCI) (450 000 - 400 000) 50,000 11 [Calc]
2 Cr. Investment in Untouchables (SoFP) 50,000 0.5[Journal]
Eliminate fair value adjustment on investment in the current year

Dr. Deferred tax (SoFP) (50 000 x 18.648%) 9,324 1P [Calc use of CGT rate]
3 Cr. Income tax / Income tax (OCI) 9,324 0.5[Journal]
Deferred tax on the above

Dr. Investment in Untouchables (SoFP) 49,262 4[C2] [Calc]

4 Cr. Retained earnings (SoCE) 49,262 0.5[Journal]
Accounting for shares of profits until beginning of year

Dr. Retained earnings (SoCE) 13,932 2.5[Calc] [0.5 for each input]
Cr. Profit share in associate 13,932 0.5[Journal]
5 (E)
(430 000 x 125/100 = 537 500 - 430 000 = 107 500 x 72% x 18%)
Eliminate interco profit in stock until beginning of year
OR
[Note to marker: Students could have split journal as follows]

Dr. Retained earnings (SoCE) 19,350 2[calc] [0.5 for each input]
Cr. Profit share in associate 19,350 0.5[Journal]
5.1 (E)
(430 000 x 125/100 = 537 500 - 430 000 = 107 500 x 18%) or (430 000 x 25/100 x 18%)
Eliminate interco profit in stock until beginning of year

5.2 (E) Dr. Profit share in associate (19 350 x 28%) 5,418 0.5P [Calc]
 5.2 (E) Cr. Retained earnings (SoCE) 5,418 [Journal mark awarded above]
Tax on elimination of interco profit in stock until beginning of year

Dr. Retained earnings (SoCE) 11,146 2.5[Calc] [0.5 for each input]
Cr. Profit share in associate 11,146 0.5[Journal]
5 (A)
(430 000 x 25/125 = 86 000 x 72% x 18%) 1[For calculation of 18%] [C1]
Eliminate interco profit in stock until beginning of year
OR
[Note to marker: Students could have split journal as follows]

Dr. Retained earnings (SoCE) 15,480 2[calc] [0.5 for each input]
Cr. Profit share in associate 15,480 0.5[Journal]
5.1 (A)
(430 000 x 25/125 = 86 000 x 18%)
Eliminate interco profit in stock until beginning of year

Dr. Profit share in associate (15 480 x 28%) 4,334 0.5P [Calc]
5.2 (A) Cr. Retained earnings (SoCE) 4,334 [Journal mark awarded above]
Tax on elimination of interco profit in stock until beginning of year
 Dr. Investment in Untouchables (SoFP) 225,184 2[C3] [Calc]
6 Cr. Profit share in associate 225,184 0.5[Journal]
Accounting for shares of profits for the current year

Dr. Profit share in associate 29,250 2[Calc] [0.5 for each input]
Cr. Inventory (SoFP) 29,250 0.5[Journal]
7 (E)
(650 000 x 125/100 = 812 500 - 650 000 = 162 500 x 18%) or (650 000 x 25/100 = 162 500 x 18%)
Eliminate interco profit in stock at the end of the current year

Dr. Deferred tax (SoFP) (29 250 x 28%) 8,190 0.5P [Calc]
8 (E) Cr. Profit share in associate 8,190 0.5[Journal]
Deferred tax on elimination of interco profit in stock at the end of the current year

Dr. Profit share in associate 23,400 2[Calc] [0.5 for each input]
Cr. Inventory (SoFP) 23,400 0.5[Journal]
7 (A)
(650 000 x 25/125 = 130 000 x 18%)
Eliminate interco profit in stock at the end of the current year

Dr. Deferred tax (SoFP) (23 400 x 28%) 6,552 0.5P [Calc]
8 (A) Cr. Profit share in associate 6,552 0.5[Journal]
Deferred tax on elimination of interco profit in stock at the end of the current year

Dr. Dividends received (p/l) (200 000 x 18%) 36,000 1[Calc]

Cr. Investment in Untouchables (SoFP) 36,000 0.5[Journal]
Elimination of dividends received from associate
OR
[Note to marker: Students could have combined journal 4 & 6 as follows]

Dr. Investment in Untouchables (SoFP) 274,447 1[Journal]

Cr. Retained earnings (SoCE) 49,262 4[C2] [Calc]
4+6
Cr. Profit share in associate 225,184 2[C3] [Calc]
Accounting for since acquisition shares of profit

[Note to marker: Students could have combined journal 5, 7 & 8 as follows]

English
5 Dr. Retained earnings (SoCE) 13,932 2.5
+ Dr. Profit share in associate (13 932 - 29 250 + 8 192) 7,128 2.5
[Same mark allocation as above]
7 Dr. Deferred tax (SoFP) (29 250 x 28%) 8,190 0.5
+ Cr. Inventory (SoFP) 29,250 0.5
8 Eliminate interco profit in stock for the current year 0.5[Journal]

Afrikaans
5 Dr. Retained earnings (SoCE) 11,146 2.5
[Same mark allocation as above]
+ Cr. Profit share in associate (11 146 - 23 400 + 6552) 5,702 2.5
7
+
8
5
+
[Same mark allocation as above]
7 Dr. Deferred tax (SoFP) (23 400 x 28%) 6,552 0.5
+ Cr. Inventory (SoFP) 23,400 0.5
8 Eliminate interco profit in stock for the current year 0.5[Journal]

Communication skills – presentation and layout 1

[Note to marker: The mark is for presenting the journals with the appropriate date and journal narrations]

Available marks22
Maximum marks22
 ACCC 371 Question Bank, Question 13 suggested solution

WORKINGS IF USED CALCULATIONS

C1. Shareholding in Untouchables Ltd and GW calculation

Number of shares acquired 180,000
Number of ordinary shares issued 1,000,000
18%

Consideration paid 325,000 0.5

Less: Nett assets @ 18% 1,529,664 -275,340 0.5P [ For using calculated nett assets @ 18%]
- Share capital 1,000,000
- Retained earnings 500,000
- Revaluation of braodcasting rights 41,200
(98 000 / 5 x 3 = 58 800 - 100 000)
- Tax on revalution -11,536

GW/(GPBP) 49,660

C2. Profit share in associate until beginning of the current year

Movement in retained earnings (1 May 2014 - 1 May 2015) (783 568 - 500 000) 283,568 1 [Calc]
Amortisation on broadcasting right (IAS 28.32) (41 200 / 3) -13,733 1 [Calc]

- Original cost 98,000

- Accumulated amortisation (98000 / 5 x 2) -39,200 0.5 [Calc]
- Carrying amount on 1 May 2014 58,800

- Fair value of 1 May 2014 100,000

- Fair value adjustment to be amortised 41,200 0.5 [Calc]

Deferred tax on broadcasting right (13 733 x 28%) 3,845 0.5 P [Calc]
273,680

Mafia Ltd share in associate's profit share until BOY @ 18% 49,262 0.5 [for use of 18%)

C3. Profit share in associate in the current year

Profit for the year 1,338,912 0.5[Given]

Amortisation on broadcasting right (IAS 28.32) (41 200 / 3) -13,733 0.5[calc]
Deferred tax on broadcasting right (13 733 x 28%) 3,845 0.5P [calc]
Preference dividend (78 000 x 18%) -78,000 0.5[calc]
1,251,024

Mafia Ltd share in associate's profit share in the current year @ 18% 225,184
WORKINGS IF USED TIMELINES

TL1 - Mafia Ltd in Untouchables Ltd

Mafia Ltd interest in Untouchables Ltd 18%
At acquisition Beginning of CY End of CY

1-May-14 Movement 1-May-15 Movement 30-Apr-16

Profit Dividends
Share Capital 1,000,000 1,000,000 1,000,000
Retained earnings 500,000 283,568 783,568 1,338,912 -200,000 1,922,480
Broadcasting right 29,664 Amortisation -13,733 Preference dividends -78,000
(100 000 - (98 000 / 5 x 3) x 72%)) Tax on amortisation 3,845 Amortisation -13,733
Total net assets 1,529,664 273,680 Tax on amortisation 3,845
Since @ 18% 49,262 C2 1,251,024 -200,000
Consideration 325,000 Since @ 18% 225,184 -36,000
Net assets @ 18% -275,340 C3
Goodwill/(GBP) 49,660

Tax 28%
CGT 18.648% 81.352%

Dr/(Cr) Cr/(Dr)
Retained
Share capital earnings Inventory of H Intangible Dtax Total NCI SoFP Investment Goodwill Since RE
19,600 82% 18%
@ acq 1,000,000 500,000 41,200 -11,536 1,529,664 1,254,324 325,000 -49,660
[ 100 000 -(98 000 x3/5 )] 180 000 / 1 000 000

ret earn 283,568 283,568 232,526 51,042

C2
amortise intangible -13,733 3,845 -9,888 -8,108 -1,780
interco profit -107,500 30,100 -77,400 -63,468 -13,932
160,950 35,330

boy 1,000,000 783,568 -107,500 27,467 22,409 1,725,944 1,415,274 325,000 -49,660 35,330

profit less preff div 1,260,912 1,260,912 1,033,948 226,964

C3
amortise intangible -13,733 3,845 -9,888 -8,108 -1,780
interco profit -9,500 2,660 -6,840 -5,609 -1,231
1,020,231 223,953

ordinary div -200,000 -200,000 -164,000 -36,000

eoy 1,000,000 1,844,480 -117,000 13,733 28,915 2,770,128 2,271,505 325,000 -49,660 223,284
-
ACCC 371 Question Bank, Question 13 suggested solution

(a) Calculate the following balances that need to be disclosed in the consolidated statement of financial position of the Mafia Ltd group for the financial year ended 30 April 2016:
• Goodwill; and
• Non-controlling interests.
Comparative figures are not required as part of your calculation.

WORKINGS IF USED CALCULATIONS

[Note to marker: The marks below can also be awarded in the time line]

C1. Shareholding in Sopranos Ltd

Number of shares acquired 1,687,500
Number of ordinary shares issued 2,250,000
75%1

C2. Goodwill

Sopranos Ltd

Consideration 1 0.5 [Given]

Add: Non-controlling interest (-255 200 x 25%) -63,800 0.5 P [Calc]

Less: Net assets 255,200

- Share capital 4,500,000 0.5 [Given]
- Retained earnings -5,000,000 0.5 [Given]
- Broadcasting right (1 000 000 - (1 100 000 / 10 x 6)) 340,000 1.5 [Calc] [Half a mark for each input]
- Deferred tax on the above (340 000 x 28%) -95,200 0.5 P

Goodwill on 1 May 2012 191,401

Acquisition of competitor's group of assets and liabilities 270,000 0.5 [Given]

Total goodwill balance as at 30 April 2016 461,401

C3. Non-controlling interests

[Note to marker: Award the marks for amounts in calculation before multiplying by 25%]
[Note to marker: The marks below can also be awarded in the time line]

Recognition on at acquisition of Sopranos Ltd -63,800 0.5 P [Above]

Share in since acquisition equity reserves
- Retained earnings (1 May 2012 - 1 May 2015) (-5 000 000 + 1 978 800 = 6 978 800 x 25%) 1,744,700 1 [Calc]
- Additional amortisation on revaluation of broadcasting right on -42,500 1 P [Calc]
acquisition of Sopranos Ltd (340 000 / 6 x 3 = 170 000 x 25%)
- Deferred tax on the above (170 000 x 25% = 42 500 x 28% OR 42 500 x 28%) 11,900 0.5 P [Calc]
Share in current year profit (2 221 200 x 25%) 555,300 0.5 [Calc]
- Additional amortisation on revaluation of broadcasting right on -14,167 0.5 P [Calc]
acquisition of Sopranos Ltd (340 000 / 6 x 1 = 56 667 x 25%)
- Deferred tax on the above (56 667 x 25% = 14 167 x 28% OR 14 167 x 28%) 3,967 0.5 P [Calc]
Share in current year ordinary dividend (300 000 x 25%) -75,000 0.5 [Calc]
2,120,400

Available marks 10.5

Maximum marks 10

WORKINGS IF USED TIMELINES

TL1 - Mafia Ltd in Sopranos Ltd

Mafia Ltd interest in Untouchables Ltd 75%
At acquisition Non-controlling interests 25% Beginning of CY End of CY

1-May-12 Movement 1-May-15 Movement 30-Apr-16

Profit Dividends
Share Capital 4,500,000 4,500,000 4,500,000
Retained earnings -5,000,000 6,978,800 1,978,800 2,221,200 -300,000 3,900,000
Broadcasting right 244,800 Amortisation -170,000 Amortisation -56,667
(1 100 000 / 10 x 6 = 660 000 - 1 000 000) x 72% Tax on amortisation 47,600 Tax on amortisation 15,867
Total net assets -255,200 6,856,400 2,180,400 -300,000
Since @ 75% 5,142,300 Since @ 75% 1,635,300 -225,000
Consideration 1 NCI @ 25% 1,714,100 C3 NCI @ 25% 545,100 -75,000
Non-controlling interests -63,800 C3 C3

Net assets 255,200 C3

Goodwill/(GBP) 191,401

Total NCI Proof

At Acquisition -63,800
Since until beginning of current year 1,714,100
Profit in current year 545,100
Dividend in current year -75,000
2,120,400

Dr/(Cr) Cr/(Dr)

Share capital Retained earnings Intangible Dtax Total NCI SoFP Investment Goodwill Since RE
25.0000% C1 C2 18%
@ acq 4,500,000 -5,000,000 340,000 -95,200 -255,200 -63,800 1 -191,401
180 000 / 1 000 000

ret earn 6,978,800 6,978,800 1,744,700 5,234,100

amortise intangible -170,000 47,600 -122,400 -30,600 -91,800

boy 4,500,000 1,978,800 170,000 -47,600 6,601,200 1,650,300 1 -191,401 5,142,300

profit 2,221,200 2,221,200 555,300 1,665,900

amortise intangible -56,667 15,867 -40,800 -10,200 -30,600
ordinary div -300,000 -300,000 -75,000 -225,000

eoy 4,500,000 3,900,000 113,333 -31,733 8,481,600 2,120,400 1 -191,401 6,552,600

C3
 Cell: C109
Note: De Villiers:
Is this not 4 years? I changed the question.
 Cell: M42
Note: Alinka:
delete later
ACCC 371 Question Bank, Question 16 suggested solution 28.000% Available marks 44
18.648% Maximum marks 42
Group statements

Workings
Deferred tax
CA FV FV adj Tax rate Net
Land 1,000,000 1,245,845 245,845 18.648% -45,845 200,000
Inventory 280,000 300,000 20,000 28.000% -5,600 14,400
-51,445
80%
Interco profit on sale (H made profit - not in analysis) Analysis of S Total At Since NCI
At acq Share capital 2,000,000
CA in H's books Retained earnings 870,000
Cost 680,000 Revaluation reserve 340,000
Acc Depr -180,000 Revaluation 214,400
500,000 Land 200,000 245845-45845
Selling price 600,000 tax net Inventory 14,400 20000-5600
Interco profit 1 Jan 100,000 -28,000 72,000 3,424,400 3,424,400 2,739,520 684,880
Remaining useful life 4 Goodwill parent 160,480
Depr 2013 (100 000 /4* 6/12) -12,500 3,500 -9,000 Goodwill NCI 15,120
87,500 -24,500 63,000 Consideration 3,424,400 2,900,000 700,000
Since acquisition
FV adjustment on inv in S 18.648% Reval surplus 80,000 64,000 16,000
Inv in S FV adj Deferred tax net Retained earnings -434,400 -347,520 -86,880
At acquisition 2,900,000 -420000-20000+5600 3,070,000 -283,520 629,120
Beginning of year 2,800,000 -100,000 18,648 -81,352 Current year
End of year 3,050,000 250,000 -46,620 203,380 Reval surplus 60,000 48,000 12,000
Profit 114,000 91,200 22,800
Dividend -100,000 -80,000 -20,000
3,144,000 -224,320 643,920
- - -
20%

(Goodwill)/
Gain or Since
Retained earnings Revaluation Deferred bargain Reval
Share capital reserve Land Inventory PPE tax Total NCI Investment purchase Since RE reserve
At acquisition 2,000,000 870,000 340,000 245,845 20,000 -51,445 3,424,400 684,880 2,900,000 -160,480
no subsequent depr 15,120 -15,120
700,000 -175,600

Movement reval surplus 80,000 80,000 16,000 64,000

Movement retained earnings -420,000 -20,000 5,600 -434,400 -86,880 -347,520
Beginning of year 2,000,000 450,000 420,000 245,845 - - -45,845 3,070,000 629,120 2,900,000 -175,600 -347,520 64,000

174,000 34,800 139,200

Increase in reval surplus 60,000 60,000 12,000 48,000
Profit 114,000 114,000 22,800 91,200

Dividend paid -100,000 -100,000 -20,000 -80,000

End of year 2,000,000 464,000 480,000 245,845 - - -45,845 3,144,000 643,920 2,900,000 -175,600 -288,320 64,000

Adjustments profit made by H -112,500 24,500 -88,000

Net adjustments (H+S) -112,500 -21,345 3,056,000
ACCC 371 Question Bank, Question 16 suggested solution 28.000% Available marks 44
18.648% Maximum marks 42
Group statements
Journals alternative 1 Journals alternative 2
dr cr dr cr
1a Dr Investment in S (2 900 000 - 2 800 000) 100,000 1.00 1 Dr Investment in S (2 900 000 - 2 800 000) 100,000 1.00
Cr Retained earnings 100,000 1.00 Cr Retained earnings 81,352 2.00
Reversal of PY FV adjustment on investment in S Cr Deferred tax (SoFP) (100 000 x 18.648%) 18,648 1.00 p
net RE Reversal of PY FV adjustment and deferred tax on investment in S
1b Dr Retained earnings 18,648 1.00 p 81,352 to replace 1a and 1b
Cr Deferred tax (SoFP) (100 000 x 18.648%) 18,648 1.00 p or
Reversal of PY deferred tax on FV adjustment on investment in S one principal mark for CGT rate
other princilal mark for RE Dr Fair value adjustments (profit/loss) 250,000 1.00
1c Dr Fair value adjustments (profit/loss) 250,000 1.00 Cr Investment in S (2 900 000 - 2 800 000) 150,000 2.00
Cr Investment in S 250,000 1.00 Dr Deferred tax (SoFP) (250 000 x 18.648%) 27,972 2.00 p
Reversal of CY FV adjustment on investment in S Cr Deferred tax (profit/loss) / Taxation expense/ Income tax expense
46,620 1.00 p

1d Dr Deferred tax (SoFP) (250 000 x 18.648%) 46,620 1.00 p Cr Retained earnings 81,352 2.00 p balancing
Cr Deferred tax (profit/loss) / Taxation expense/ Income tax expense 46,620 1.00 p 277,972 277,972 8.00
Reversal of PY deferred tax on FV adjustment on investment in S 8.00 to replace 1a, 1b,1c and 1d
one principal mark for CGT rate
other princilal makr for correct journal accounts

2a Dr Retained earnings/Equity (100 000 - 28 000 - 12 500 + 3 500) 63,000 1.00 Full marks awarded for each journal line
Dr Deferred tax (SoFP) (28 000 - 3 500) 24,500
Dr Accumulated depreciation PPE (100 000 / 4 x 6/12) 12,500
Cr Property plant and equipment(PPE)-cost (600 000 - 500 000) 100,000 1.00 As no marks awarded for analysis
Reversal of interco profit on sale of asset
Note to markers:
2c Dr Accumulated depreciation PPE (100 000 / 4) 25,000 1.00 General rule where accounts can appear in etiher profit/loss / OCI or SoFP
Cr Depreciation 25,000 1.00 a destination should be provided in brackets (e.g NCI (p/l)…Dtax (SoFP)
Realisation of interco profit on sale of asset If a student has failed to put the destination in brackets asume it is SoFP

2d Dr Deferred tax (profit/loss) / Taxation expense/ Income tax expense 7,000 1.00 p
Cr Deferred tax (SoFP) (25 000 x 28%) 7,000 1.00 p
Realisation of deferred tax on interco profit on sale of asset

3a Dr Land 245,845 1.00 3 Dr Share capital 2,000,000 1.00

Cr Deferred tax (SoFP) (245 845 x18.648%) 45,845 1.00 p for CGT rate Dr Retained earnings 870,000 1.00
Cr Retained earnings (SoCE) net dtax 200,000 1.00 p balancing Dr Revaluation reserve 340,000 1.00
51,445 Dr Land 245,845 2.00
3b Dr Inventory 20,000 1.00 Dr Inventory 20,000 2.00
Cr Deferred tax (SoFP) (20 000 x 28%) 5,600 1.00 p for co tax rate Cr Deferred tax (SoFP) (245 845 x18.648%) 51,445 2.00 p
Cr Retained earnings/Equity 14,400 1.00 p balancing Cr Non controlling interest NCI (SoFP). 700,000 1.00
684,880
3c Dr Share capital 2,000,000 1.00 15,120
Dr Retained earnings /Equity 1,084,400 Cr Investment in S 2,900,000 1.00
870,000 0.50 Dr Goodwill 175,600 1.00 p
200,000 0.50 p
14,400 0.50 p 160,480
Dr Revaluation reserve /Equity 340,000 15,120
340,000 0.50 12
3,651,445 3,651,445
Cr Non controlling interest NCI (SoFP). 700,000 1.00 At acquisition journal -
Cr Investment in S 2,900,000 1.00
Dr Goodwill 175,600 1.00 p
3,600,000 3,600,000 12
At acquisition journal -
ACCC 371 Question Bank, Question 16 suggested solution 28.000% Available marks 44
18.648% Maximum marks 42
Group statements

4 Dr Revaluation reserve SoFP (420 000 - 340 000) x20% 16,000 1.00 p refer to amount in analysis
Cr NCI (SoFP) 16,000 1.00 p or amount in brackets x 20%
Increase in S's reval surplus allocated to NCI

5a Dr Retained earnings/Equity 20,000 1.00 p Dr Deferred tax (SoFP) (20 000 x 28%) 5,600 1.00 p
Cr Inventory 20,000 1.00 p net RE Cr Inventory 20,000 1.00
Reversal of FV adj on inventory at acq 14,400 Dr NCI (SoFP) (870 000 - 450 000 + 20 000 - 5 600)86,880 2.00 p direction
Cr Retained earnings 72,480 2.00 p
5b Dr Deferred tax (SoFP) (20 000 x 28%) 5,600 1.00 p
Cr Retained earnings/Equity 5,600 1.00 p 92,480 92,480 6.00
Reversal of D/tax on FV adj on inventory at acq
Can do journal together net amount amount to NCI
5c Dr NCI (SoFP) (870 000 - 450 000 + 20 000 - 5 600) 86,880 1.00 p direction 70,880
Cr Retained earnings 86,880 1.00 p direction
Allocating movement in RE till BOY to NCI
6.00

6a Dr NCI (OCI) OCI (60 000 x 20%) 12,000 1.00

Cr NCI (SoFP) 12,000 1.00
Allocating movement in reval surplus in CY to NCI

6b NCI (P/L) (114 000 x 20%) 22,800 1.00 No marks unless destination in brackets
NCI (SoFP) 22,800 1.00 No marks unless destination in brackets
Allocating movement in profit in CY o NCI

7a Dr Dividends received 80,000 1.00

Dr NCI (SoCIE or SoFP). 20,000 1.00
Cr Dividend paid (SoCE) 100,000 1.00
Elimination of interco dividends

7b Dr Dividends payable (SoFP) 80,000 1.00

Cr Dividends receivable (SoFP) 80,000 0.50

Narrations 80% 1.00

ACCC 371 Question Bank, Question 17 Suggested Solution Marks 19
Maximum 18
Question 2 Group statements Inv prop D tax
Note to markers:
acquired 1 jan 2012 for R 16 000000 General rule where accounts can appear in etiher profit/loss / OCI or SoFP
Start leasing out to H on 30 June 2012 a destination should be provided in brackets (e.g NCI (p/l)…Dtax (SoFP)
80% owned subsidiary If a student has failed to put the destination in brackets asume it is SoFP
building allowance 5% If journals are repeated in attempt to eventually get the right journal mark with the "Net effect"
not apportioned for time
historical cost = base cost
FV on date of transfer 16,700,000
FV at year end 17,000,000
n 20
Workings 5% 28%
Investment property in the books of the subsidiary
students should now that building allowance is not proportionate for time
Movement
CA TB TD rate D/tax A/(L) Dr/(Cr)
1-Jan-12 16,000,000 cost 16,000,000
30-Jun-12 700,000 FV adj
16,700,000
31-Dec-12 300,000 FV adj -800,000 IAS 12 par 51 C:D tax on inv prop at CTG for amounts above cost
31-Dec-12 17,000,000 fair value 15,200,000 -1,800,000 -410,480 410,480
Above cost -1,000,000 18.648% -186,480 1
Below cost -800,000 28% -224,000 for split above
cost at cgt rate
Investment property in the books of the Group trated as PPE (owner occupied)

n 20 historical cost = base cost

months 240 5% 28%
10%
remaining life 234
Movement
Months past CA TB TD rate D/tax A/(L) Dr/(Cr)
6
1-Jul-12 16,700,000 16,000,000
remaining
16700000/(240-6)*6 (428,205.13) depr -800,000 buiild allow Intention is use. Depreciable assets deferred tax at 28%
31-Dec-12 16,271,795 15,200,000 -1,071,795 28% -300,103 300,103
1 1 or mark above then diff would be 110,377
or give mark for 16.7 as transfer in FV
ACCC 371 Question Bank, Question 17 Suggested Solution Marks 19
Maximum 18
Question 2 Group statements Inv prop D tax
Provide the proforma consolidation entries to account for the above mentioned property in the consolidated annual financial statements

Alternative 1

Reverse the property accounted for as investment properly in subs records dr cr

Don’t reverse the FV adjustment until date of change ( R700 000)

1 Dr Fair value adjustment on investment property 300,000 1

Cr Investment property 300,000 1
Reversal of fair value adjustment on investment property after change

2 Dr PPE 16,700,000 1
Cr Investment property 16,700,000 1
Reclassify investment property to PPE at fair value on date of change
dr/cr
3 Dr Deferred tax (SOFP) 410,480 net effect p/l 1 p
Cr (Deferred tax p/l) / Income tax expense / Taxation expense 410,480 -110,480 1 p
Reverse deferred tax liability raised in subs books 300000-410480

Account for property accounted for PPE

4 Dr Depreciation 428,205 1
Accumulated Depreciation: Property 428,205 1
Depreciation on owner occupied property in the group dr/cr
using ppe amount above net effect p/l
5 Dr (Deferred tax p/l) / Income tax expense / Taxation expense 300,103 728,308 1 p
Cr Deferred tax (SOFP) 300,103 =428205+300103 1 p
Raise Deferred tax at a group level

net effect of deferred tax 110,377 110,377

Allocate NCI their share

6 Dr NCI (p/l) 22,096 110480*20% 1 p

Cr NCI (SoFP) 22,096 cr p/l above 110480 1 p
dr nci (p/l) 20% 110480
7 Dr NCI (SoFP) 145,662 1 p
Cr NCI (p/l) 145,662 728308*20% 1 p
NCI combined NCI (p/l) -123,566 -123,566 4 marks
NCI (SoFP) 123,566 123,566

8 Dr Rental income/other income/ etc 17000*6 102,000 1

ACCC 371 Question Bank, Question 17 Suggested Solution Marks 19
Maximum 18
Question 2 Group statements Inv prop D tax
Cr Rental expense 102,000 1
Elimination of intercompany income and expenses

Alternative 2 for journal 3 and 5 (D/tax journal)

Combine D tax movement

Dr Deferred tax (SOFP) 110,377 2 marks
Cr (Deferred tax p/l) / Income tax expense / Taxation expense 110,377 2 marks
ACCC 371 Question Bank, Question 17 Suggested Solution Marks 19
Maximum 18
Question 2 Group statements Inv prop D tax
Alternative 3 : Do deferred tax journals after every journal affecting profit

Reverse the property accounted for as investment properly in subs records dr cr Marks 19
Maximum 18
Don’t reverse the FV adjustment until date of change ( R700 000)

1 Dr Fair value adjustment on investment property 300,000 same as journal 1 above 1

Cr Investment property 300,000 1
Reversal of fair value adjustment on investment property after change

1b Dr Deferred tax (SOFP) 28% 84,000 new 1 p

Cr (Deferred tax p/l) / Income tax expense / Taxation expense 84,000 1 p
Deferred tax on Reversal of fair value adjustment on investment property after change

2 Dr PPE 16,700,000 same as journal 1 above 1

Cr Investment property 16,700,000 1
Reclassify investment property to PPE at fair value on date of change
dr/cr
Account for property accounted for PPE net effect p/l
216,000
4 Dr Depreciation 428,205 1
Accumulated Depreciation: Property 428,205 1
Depreciation on owner occupied property in the group using ppe amount above

4b Dr Deferred tax (SOFP) 28% 119,897 new 1 p

Cr (Deferred tax p/l) / Income tax expense / Taxation expense 119,897 dr/cr 1 p
Deferred tax on depreciation on owner occupied property in the group net effect p/l
308,308
4c Dr (Deferred tax p/l) / Income tax expense / Taxation expense 93,520 new
Cr Deferred tax (SOFP) 93,520
Account for change in tax rate S vs Group for amount above cost (28% - 18.6%) x 1 000 000

net effect of deferred tax 110,377

Allocate NCI their share

6 Dr NCI (SoFP) 43,200 216000x20% 1 p

Cr NCI (p/l) 43,200 1 p

7 Dr NCI (SoFP) 61,662 308308x20% 1 p

Cr NCI (p/l) 61,662 1 p
ACCC 371 Question Bank, Question 17 Suggested Solution Marks 19
Maximum 18
Question 2 Group statements Inv prop D tax
7b Dr NCI (SoFP) 18,704 new
Cr NCI (p/l) 18,704 93520*20%
NCI combined NCI (p/l) -123,566 -123,566 4 marks
NCI (SoFP) 123,566 123,566

8 Dr Rental income/other income/ etc 17000*6 102,000 same as journal 8 above 1

Cr Rental expense 102,000 1
Elimination of intercompany income and expenses
ACCC 371 Question Bank, Question 18 suggested solution

(a) Provide ONLY the pro forma consolidation journal entry required to account for the acquisition of the additional 10% in shares in Wendy Solutions
Ltd on 1 January 2016 in the group financial statements of the Billions Ltd group. Journal narrations are not required.

[Note to marker: Account names should be correct to earn the "journal" mark. If nothing in brackets default SoFP (e.g NCI/ Dtax)]

############

Dr Fair value adjustment (OCI) R 1,750,000 [Info purpose]

Ct Investment in Wendy Solutions Ltd R -1,750,000 [Info purpose]
Reversal of FV adj on investment

Ct Deferred tax (SoFP) R 326,340 [Info purpose]

Ct Deferred tax (OCI) R -326,340 [Info purpose]
Tax on reversal of FV adj on investment

Dr Share Capital (SoCE) R 2,000,000 [Info purpose]

Dr Retained Earnings (SoCE) [At Acquisition] R 250,000 [Info purpose]
Dr Revaluation Surplus (OCI) (300 000 - 84 000) R 216,000 [Info purpose]
Dr Goodwill (SoFP) R 20,400 [Info purpose]
Ct Investment in Wendy Solutions Ltd (SoFP) R -1,500,000 [Info purpose]
Ct NCI (SoFP) R -986,400 [Info purpose]
Main elimination journal at acquisition

Dr Non-controlling interest (NCI) (p/l) R 208,960 [Info purpose]

Ct Non-controlling interest (NCI) (SoFP) R -208,960 [Info purpose]
NCI portion of RE since acquisition (before CIO)

Dr Dividend received (p/l) [Axe Capital Ltd] R 120,000 [Info purpose]

Dr Non-controlling interest (NCI) (SoFP) R 80,000 [Info purpose]
Ct Dividend paid (SoCE) R -200,000 [Info purpose]
Elimination of intragroup dividend (31 Dec 2015)

1 Dr Non-controlling interest (NCI) (SoFP) R 278,840 3.0 [C2]

1 Dr Change in ownership (equity) (SoCE) R 21,160 1.0 P [C3]
1 Ct Investment in Wendy Solutions Ltd (SoFP) R -300,000 1.0 [Journal]
Acquisition of additional interest in Wendy Solutions Ltd

Dr Non-controlling interest (NCI) (p/l) R 156,720 [Info purpose]

Ct Non-controlling interest (NCI) (SoFP) R -156,720 [Info purpose]
NCI portion of RE since acquisition (after CIO)

Available marks5
Maximum marks5
(b) Provide ONLY the pro forma consolidation journal entries required to consolidate the Axe Capital group into the group financial statements of the
Billions Ltd group for the financial year ended 30 June 2016. Journal narrations are not required. You are not required to provide the pro forma
journal entries required to consolidate Wendy Solutions Ltd into the Axe Capital Ltd group.

[Note to marker: Account names should be correct to earn the "journal" mark. If nothing in brackets default SoFP (e.g NCI/ Dtax)]

############

2 Dr Market-to-market reserve (SoCE) R 406,760 0.5 [Journal]

2 Dr Deferred tax (SoFP) R 93,240 0.5 [Mark for use of CGT rate]
2 Ct Investment in Axe Capital Limited (SoFP) (406 760 / 81.35%) R -500,000 1.0 P [Mark for calc]
Reversal of fair value adj on investment

3 Dr Fair value adjustment (OCI) (6 800 000 - 5 300 000) R 1,500,000 1.0 [Mark for calc]
3 Ct Investment in Axe Capital Limited (SoFP) R -1,500,000 0.5 P [Journal]
Reversal of fair value adj on investment

4 Dr Deferred tax (SoFP) (1 500 000 x 18.648%) R 279,720 0.5 [Mark for use of CGT rate]
4 Ct Deferred tax (OCI) R -279,720 0.5 P [Journal]
Reversal of fair value adj on investment

5 Dr Retained Earnings (SoCE) [At acq] (312 500 x 72%) R 225,000

5 Dr Deferred Tax (SoFP) (312 500 x 28%) R 87,500 0.5 [Mark for calc]
5 Ct Contingent Liability (SoFP) R -312,500 1.0 [For use at FV]
Recognition of contingent liability at group level

6 Dr Retained earnings (SoCE) R 50,000 1.0 [Mark for calc]

6 Ct Investment in Axe Capital Limited (SoFP) R -50,000 0.5 P [Journal]
Transaction costs capitalised in separate records now expensed (IFRS 3)

7 Dr Share Capital (SoCE) R 5,000,000 0.5 [Given]

7 Dr Retained Earnings (SoCE) [At acq] (1 000 000 - 225 000) R 775,000 0.5 P [Mark for calc]
7 Dr Goodwill (SoFP) R 130,000 1.0 P [Balancing]
7 Ct Investment in Axe Capital Limited (SoFP) R -4,750,000 3.5 [C4]
7 Ct NCI (SoFP) R -1,155,000 1.0 P
Main elimination journal at acquisition 0.5 P [Journal]
[Note to marker: Students could have combined journal 5 and 7 into one journal]
OR

Dr Share Capital (SoCE) R 5,000,000 0.5 [Given]

Dr Retained Earnings (SoCE) [At acq] R 1,000,000 0.5 [Given]
Dr Deferred Tax (SoFP) (312 500 x 28%) R 87,500 0.5 [Mark for calc]
Dr Goodwill (SoFP) R 130,000 1.0 P [Balancing]
Ct Contingent Liability (SoFP) R -312,500 1.0 P [For use at FV]
Ct Investment in Axe Capital Limited (SoFP) R -4,750,000 3.5 [C4]
Ct NCI (SoFP) R -1,155,000 1.0 P
Main elimination journal at acquisition 0.5 [Journal]

8 Dr Retained earnings (SoCE) [At acq] ((3 000 000 - 1 000 000) x 20%) R 400,000 1.5 [Mark for calc]
8 Ct Non-controlling interest (NCI) (SoFP) R -400,000 0.5 P [Journal]
NCI portion of RE since acquisition

9 Dr Dividend received (p/l) [Billions Ltd] (750 000 x 80%) R 600,000 0.5 [Mark for calc]
9 Dr Non-controlling interest (NCI) (SoFP)(750 000 x 20%) R 150,000 0.5 [Mark for calc]
9 Ct Dividend paid (SoCE) R -750,000 0.5 P [Journal]
Elimination of intragroup dividend (31 Dec 2015)

10 Dr Retained Earnings (Since acq)[Billions Ltd] R 325,408 0.5 [Mark for calc]
10 Dr Deferred Tax (SoFP) R 74,592 0.5 [Mark for use of CGT rate]
10 Ct Land [SoFP] [Axe Capital Ltd] R -400,000 0.5 P [Journal]
Elimination of intragroup profit on sale of land

11 Dr Non-controlling interest (NCI) (p/l) R 816,464 3.0 [C5 + C6]

11 Ct Non-controlling interest (NCI) (SoFP) R -816,464 0.5 P [Journal]
NCI portion of RE since acquisition (after CIO)

12 Dr Non-controlling interest (NCI) (SoFP) R 4,080 3.0 [C7]

12 Ct Goodwill (SoFP) R -4,080 0.5 P [Journal]
 Recognition of goodwill of Wendy solutions

13 Dr Land [SoFP] [Axe] (R400 000 x 50% or R300 000 - R100 000) R 200,000 1.0 [Mark for calc]
13 Ct Gain on sale of land (p/l) R -200,000 0.5 P [Journal]
50% of Intragroup sale of land now sold to third party

14 Dr Deferred Tax (p/l) R 37,296 0.5 [Mark for use of CGT rate]
14 Ct Deferred Tax (SoFP) R -37,296 0.5 P [Journal]
Tax implication on 50% of Intragroup sale of land now sold to third party
15 Dr Retained Earnings - Beginning of the year [Billions Ltd] R 43,200 0.5 P [Journal]
15 Dr Deferred tax (SoFP) [Billions Ltd] (300 000 x 28%) R 16,800 0.5 [Mark for calc]
15 Ct Cost of sales (p/l) [Billions Ltd] (300 000 x 25/125) R -60,000 1.0 [Mark for calc]
Correction of opening balances due to intercompany sale of inventory

16 Dr Income tax (p/l) [Billions Ltd] (300 000 x 28%) R 16,800 0.5 P [Mark for calc]
16 Ct Deferred tax (SoFP) [Billions Ltd] R -16,800 0.5 [Journal]
Tax implication on unrealised profit in opening inventory

17 Dr Sales (p/l) [Billions Ltd] R 1,200,000 0.5 [Given]

17 Ct Cost of sales (p/l) [Billions Ltd] R -1,200,000 0.5 [Journal]
Elimination of intercompany sales for the year

18 Dr Cost of sales (p/l) [Billions Ltd] (850 000 x 25/125) R 170,000 1.0 [Mark for calc]
18 Ct Inventory (SoFP) [Axe Capital] R -170,000 0.5 [Journal]
Elimination of unrealised profit in closing inventory of Axe Capital

19 Dr Deferred tax (SoFP) [Billions Ltd] (170 000 x 28%) R 47,600 0.5 P [Mark for calc]
19 Ct Income tax (p/l) [Billions Ltd] R -47,600 0.5 [Journal]
Tax implication on unrealised profit in closing inventory

Available marks35.5
Maximum marks35
ACCC 371 Question Bank, Question 18 suggested solution

WORKINGS IF USED CALCULATIONS

NCI
Total
C1 Wendy Profit 40% 30%
Sales -R 5,600,000
Cost of sales R 3,920,000
Other income -R 2,000,000
Expenses R 840,000
Depreciation R 1,000,000
Income tax expense R 795,200
Profit after tax -R 1,044,800
x6/12 (July - Dec) -R 522,400 -R 208,960 0.5 P
-R 365,680
x6/12 (Jan - Feb) -R 522,400 -R 156,720 0.5 P

C2 Adjustment to NCI due to change in ownership 3 [carry over to required b(i)]

Totals
- Share capital 2,000,000
0.5
- Retained earnings at acquisition 250,000
- Intangible asset at acquisition (300 000 x 72%) 216,000 1 (0.5 + 0.5P Tax)
- Since acquisition retained earnings 522,400 0.5
- Dividend -200,000 0.5
2,788,400
40%
NCI before additional interest 1,115,360
X % change 10%
0.5
/ NCI % before 40%
Additional acquisition 278,840

[carry over to required b(i)]

C3 Change in Ownership (IFRS 10.B96) Journal 1
Fair value of consideration received R 300,000 [given]
NCI Adjustment (perspective NCI) -R 278,840
NCI after add interest R 836,520[ (2768000 -20400GW) x 0.3
NCI before add interest -R 1,115,360[ (2768000 -20400GW) x 0.4
Recognised in equity (NO LOSS OF CONTROL) R 21,160 1 P
C4 Consideration paid for Axe Capital Journal in separate records of Billions (info)
Immediate cash payment R 1,000,0000.5 Dr Investment in Axe Capital R 4,800,000
Cash payment in 1 year of R2 915 000 R 2,650,000 [R5 000 + R50
FV = R 2,915,000 0.5 Cr (transaction)]
Bank [R1 000 + R50] -R 1,050,000
i= 10% 0.5 Cr Creditors -R 3,500,000
N= 1 0.5 [R2 650 + R850]
Cr -R 250,000
Share Capital (Equity)
Contingent payment R 850,0000.5
Equity (Share price on acquisition date [250 000 x R1.00] R 250,0001
Legal Fees R0
R 4,750,000

C5 Billions Share in CY Profit for Axe Capital

Profit - Axe Capital 3,523,200 0.5
Less Dividends received -120,000 0.5
Profit (Wendy Solutions Ltd) (1 July - 31 Dec 2015) 313,440 0.5 P [carry over to C8(c)
Profit (Wendy Solutions Ltd) (1 Jan - 30 June 2016) 365,680 0.5 P 'Retained Earnings Calc']
4,082,320
Billions share in Axe Capital (CY) @ 80% [R4 082 320 x 80%) 3,265,856 P
C6 NCI @ 20% of above [R4 082 320 x 20%) 816,464 1 P [carry over to C9 'NCI Calc']

C7 Goodwill carried over from Wendy to Axe Capital

Share Capital 2,000,000
0.5 [given]
Retained Earnings 250,000
Intangible Asset (Revaluation Reserve) 216,000 1
2,466,000
Net Assets of Wendy [R2 466 000 x 60%] 1,479,600 0.5 @ 80%
Less: Consideration 1,500,000 0.5 [given]
Goodwill 20,400
Carry over to Axe and allocate NCI @ 20% [R20 400 x 20%] 4,080 0.5
WORKINGS IF USED ANALYSIS

A1 Analysis of owners equity of Wendy Solutions Ltd

TOTAL Axe Capital Ltd NCI
60% 70% Summary of marks Taken to
NCI calc in
At acquisition AT SINCE C1 1 SoCE C9
Wednesday, July 01, 2015 C2 3 Journal 1
Share capital 2,000,000 1,200,000 800,000 C3 0 Journal 1
Retained earnings 250,000 150,000 100,000 C4 3.5 Journal 7
Revaluation Surplus - RE calc in
Intangible Asset 216,000 129,600 86,400 C5 3 SoCE C8(c)
NCI calc in
2,466,000 1,479,600 - 986,400 C6 1 SoCE C9
Goodwill -20,400 -20,400 - C7 3
Consideration 2,445,600 1,500,000 986,400 14.5

Since acquisition - BOY

Current Year
Profit (6 months) C1 522,400 313,440 208,960
Dividends Paid -200,000 -120,000 -80,000
2,768,000 193,440 1,115,360

Additional acquisition C2 278,840 -278,840

Change in ownership
(equity) (IFRS 10.23) C3 21,160
Consideration and NCI 300,000 836,520

Profit (6 months) C1 522,400 365,680 156,720

3,290,400 559,120 993,240
A2 Analysis of owners equity of Axe Capital Ltd
TOTAL Billions Ltd NCI
80%
At acquisition AT SINCE
Sunday, July 01, 2012
Share capital 5,000,000 4,000,000 1,000,000
Retained earnings 1,000,000 800,000 200,000
Contingent Liability -225,000 -180,000 -45,000
5,775,000 4,620,000 - 1,155,000
Goodwill -130,000 -130,000 -
Consideration 5,645,000 4,750,000 C4 1,155,000

Since acquisition - BOY

Retained Earnings 2,000,000 1,600,000 400,000
[R3 000 000 BOY less R1 000 000 AT]

Current Year C5 C6
Total Profit 4,082,320 3,265,856 816,464
Profit - Axe 3,523,200 2,818,560 704,640
Less Dividends received -120,000 -96,000 -24,000
Profit (Wendy Solutions Ltd) 313,440 250,752 62,688
Profit (Wendy Solutions Ltd) 365,680 292,544 73,136

Goodwill (Wendy Solutions Ltd) -20,400 -16,320 -4,080 C7

Dividends Paid -750,000 -600,000 -150,000
10,956,920 4,249,536 2,217,384
WORKINGS IF USED TIMELINES

TL1 - Billions Ltd in Axe Capital Ltd Since 80%

NCI 20%
1-Jul-12 1-Jul-15 30-Jun-16

Movement Profit Dividend

Share capital 5,000,000 - 5,000,000 5,000,000
Retained earnings 1,000,000 2,000,000 3,000,000 3,523,200 -750,000 5,773,200
Since 1,600,000
NCI 400,000 Wendy Profit 313,440
Contingent liability -225,000 - -225,000 Wendy Profit 365,680 -225,000
5,775,000 Dividend -120,000
4,082,320 C5
C5 Since 3,265,856 -600,000
C6 NCI 816,464 -150,000

Goodwill of Wendy 0 - -20,400 -20,400

Since -16,320
NCI -4,080
Consideration 4,750,000 C4
- Cash payment 1,000,000
- Future payment 2,650,000

- Contingent payment 850,000

- Share issue 250,000

NCI (5 775 000 @ 20%) 1,155,000

5,905,000

Nett assets -5,775,000

Goodwill 130,000
TL2 - Axe Capital Ltd in Wendy Solutions Ltd Since 60% Since 70%
NCI 40% NCI 30%

1-Jul-15 1-Jan-16 30-Jun-16

Profit Dividend Profit

Share capital 2,000,000 2,000,000 2,000,000
Retained earnings 250,000 522,400 -200,000 322,400 522,400 844,800
Since 313,440 -120,000 Since 365,680 C1
NCI 208,960 -80,000 NCI 156,720
Intangible asset 216,000
2,466,000

Consideration 1,500,000
NCI (2 466 000 @ 40%) 986,400
2,486,400

Nett assets -2,466,000

Goodwill 20,400 C7
Total NCI at 1 Jan 2016 before additional interest was obtained

At acquisition @ 40% 986,400

Profit share @ 40% 208,960
Dividend @ 40% -80,000
1,115,360

Total NCI at 1 Jan 2016 after additional interest was obtained

At acquisition @30% 739,800

Profit share @ 30% 156,720
Dividend @ 30% -60,000
836,520

Consideration 300,000
NCI loss of interest -278,840 C2
- NCI @ 40% 1,115,360
- NCI @ 30% 836,520

Change in ownership 21,160 C3

ACCC 371 Question Bank, Question 18 suggested solution

(c) Prepare the consolidated statement of changes in equity of the Billions Ltd group for the year ended 30 June 2016. Comparative figures are not required.

Billions Ltd
Consolidated Statement of Changes in Equity for the year ended 30 June 2016 TOTAL MARKS

Retained Changes in Non-controlling

Share Capital Earnings C8 Ownership C3 TOTAL interest C9 TOTAL EQUITY
R R R R R R
0.5 0.5 [Given]
Balance at 1 July 2015 R 10,000,000 R 6,181,392 2.5 1P R - R 16,181,392 R 1,555,000 1.0P R 17,736,392 3.5 [3P]
Change in Equity for 2016 R -
Total comprehensive income for the year R -
Acquisition of Wendy Ltd R 986,400 0.5 PR 986,400 0.5 [0.5P]
Profit for the year R - R 8,363,360 7.0 1P R - R 8,363,360 R 1,182,144 1.5P R 9,545,504 8.5 [2.5P]
Dividends R - R -1,000,000 0.5 R - R -1,000,000 R -230,000 1.0 R -1,230,000 1.5
Acquisition of additional interest R - R - R -21,160 1P R -21,160 R -278,840 0.5P R -300,000 1.5 [1.5P]
NCI share in goodwill of Wendy Solutions R - R -4,080 0.5P R -4,080 0.5 [0.5P]
Balance at 30 June 2016 R 10,000,000 R 13,544,752 R -21,160 R 23,523,592 R 3,210,624 R 26,734,216
-

Communication skills – presentation and layout 1

[Note to marker: The mark is for presenting the consolidated statement of changes in equity with the appropriate headings, dates and currency.]

Available marks17.5
Maximum marks17
 Wendy Solutions
Workings Billions Ltd Axe Capital Ltd Ltd TOTAL
Analysis Analysis
C8 Retained Earnings
Balance at 1 July 2015 R 4,956,800 (f) R 1,224,592 (a) R - R 6,181,392
Profit for the year R 4,934,800 (b) R 3,428,560 (c) R 8,363,360
Dividends R -1,000,000 0.5 [given] R -1,000,000
Balance at 30 June 2016 R 13,544,752

(a) Analysis - Axe capital (RE Since Acquisition R 1,600,000 0.5 P

Less Elimination profit on land sold, journal 10 R -325,408 0.5 P
Less Elimination of transaction costs, journal 6 R -50,000 0.5 P
R 1,224,592

(b) Profit for the year Billions Ltd R 5,614,000 0.5

Add: Unrealised profit in opening inventory, journal 15 R 60,000 0.5 P
Less: Tax on the above, journal16 R -16,800 0.5 P
Less: Unrealised profit in closing inventory, journal 18 R -170,000 0.5 P
Add: Tax on the above, journal 19 R 47,600 0.5 P
Dividends received from Axe Capital Ltd R -600,000 0.5
R 4,934,800

(c) Profit for the year Axe Capital Ltd R 3,265,856 3 P C5

Add Reversal of 50% of unrealised profit land now sold 3rd
party, journal 13 R 200,000 0.5 P
Less tax on reversal above, journal 14 R -37,296 0.5 P
R 3,428,560

(f) Opening balance as at 1 July 2015 R 5,000,000 0.5

Less: Unrealised profit in opening inventory R -43,200 0.5 P
R 4,956,800

C9 Non-controlling interest
Balance at 1 July 2015 R 1,555,000 (d) R 1,555,000
Profit for the year R 816,464 0.50 P R 365,680 1 C1 R 1,182,144
Acquisition of additional interest R -278,840 0.5 C2 R -278,840
Acquisition of additional interest - At acquisition R 986,400 (e) R 986,400
NCI share in goodwill of Wendy Solutions R -4,080 0.5 C7 R -4,080
Dividends R -150,000 0.5 R -80,000 0.5 R -230,000
Balance at 30 June 2016 R 3,210,624

(d) NCI - At acquisition (Axe) R 1,155,000 0.5 P

NCI - Since acq (Axe) R 400,000 0.5 P
R 1,555,000
(e) NCI - At acquisition (Wendy) R 986,400 0.5 P
[Note: This SoFP and SoCI are not required. It is provided for completeness purposes only]

Billions Ltd
Consolidated Statement of Financial Position as at 30 June 2016
Wendy Solutions
Billions Ltd Axe Capital Ltd Pro-forma journals
Ltd TOTAL
(H) (S) (ss-SS) Axe Capital Ltd Wendy Solutions
ASSETS 100% 100% 100%
Non-current assets
Property plant and equipment R 5,000,000 R 3,000,000 R 2,500,000 -R 200,000 R0 R 10,300,000
Intangible assets R0 R0 R0 R 216,000 R0 R 216,000
Investment in Axe Capital Ltd at fair value R 6,800,000 R0 R0 -R 6,800,000 R0 R0
Investment in Wendy Solutions Ltd at fair value R0 R 3,550,000 R0 R0 -R 3,550,000 R0
Goodwill R0 R0 R0 R 125,920 R 20,400 R 146,320

Current assets
Accounts receivable R 17,344,700 R 4,993,200 R 219,800 R0 R0 R 22,557,700
Inventory R 2,000,000 R 850,000 R 400,000 -R 170,000 R0 R 3,080,000
Bank R 4,380,000 R 950,000 R 825,000 R0 R0 R 6,155,000
Deferred tax R0 R0 R0 R0 R0 R 241,696

Total assets R 35,524,700 R 13,343,200 R 3,944,800 -R 6,828,080 -R 3,529,600 R 42,696,716

EQUITY AND LIABILITIES

Share capital R 10,000,000 R 5,000,000 R 2,000,000 -R 5,000,000 -R 2,000,000 R 10,000,000
Retained earnings R 13,544,752
Change in ownership R0 R0 R0 R0 -R 21,160 -R 21,160

Non-controlling interest R0 R0 R0 R 2,227,464 R0 R 3,210,624

Total Equity R 10,000,000 R 5,000,000 R 2,000,000 -R 2,772,536 -R 2,021,160 R 26,734,216
Non-current liabilities

Current liabilities
Accounts payable R 12,500,000 R 2,300,000 R 850,000 R 312,500 R0 R 15,962,500
Deferred tax R 360,000 R 270,000 R0 -R 545,356 -R 326,340 R0

Total liabilities R 12,860,000 R 2,570,000 R 850,000 -R 232,856 -R 326,340 R 15,962,500

Total equity and liabilities R 22,860,000 R 7,570,000 R 2,850,000 -R 3,005,392 -R 2,347,500 R 42,696,716
 Billions Ltd
Consolidated Statement of Profit or Loss and Other Comprehensive income for the year ended 30 June 2016
Wendy Solutions
Billions Ltd Axe Capital Ltd Pro-forma journals
Ltd TOTAL
Wendy Solutions
(H) (S) (ss-SS) Axe Capital Ltd Ltd
100% 100% 100%
Revenue R 28,500,000 R 18,400,000 R 5,600,000 R -1,200,000 R 51,300,000
Cost of sales R -19,950,000 R -12,880,000 R -3,920,000 R 1,090,000 R -35,660,000
Gross Profit R 8,550,000 R 5,520,000 R 1,680,000 R -110,000 R - R 15,640,000

Other income R 5,700,000 R 3,680,000 R 2,000,000 R 200,000 R 11,580,000

Dividends received R 600,000 R 120,000 R -600,000 R -120,000 R -
Operating expenses R -4,275,000 R -2,760,000 R -840,000 R -7,875,000
Depreciation R -2,000,000 R -1,200,000 R -1,000,000 R -4,200,000

Profit before tax R 8,575,000 R 5,360,000 R 1,840,000 R -510,000 R -120,000 R 15,145,000

Income tax expense R -2,961,000 R -1,836,800 R -795,200 R -6,496 R -5,599,496
PROFIT FOR THE YEAR R 5,614,000 R 3,523,200 R 1,044,800 R -516,496 R -120,000 R 9,545,504

Other comprehensive income:

Items that will not be reclassified to profit or loss:
Market-to-market reserve R 3,250,000 R -1,500,000 R -1,750,000 R -
Income tax relating to items that will not be reclassified R -606,060 R 279,720 R 326,340 R -
Other comprehensive income for the year, net of tax R 2,643,940 R - R - R -1,220,280 R -1,423,660 R -

TOTAL COMPREHESIVE INCOME FOR THE YEAR R 8,257,940 R 3,523,200 R 1,044,800 R -1,736,776 R -1,543,660 R 9,545,504

Profit attributable to:

Owners of the parent R 5,614,000 R 3,523,200 R 1,044,800 R -1,332,960 R -485,680 R 8,363,360
Non-controlling interests (p/l) R - R - R - R 816,464 R 365,680 R 1,182,144
R 5,614,000 R 3,523,200 R 1,044,800 R -516,496 R -120,000 R 9,545,504
Total comprehensive income attributable to:
Owners of the parent R 8,257,940 R 3,523,200 R 1,044,800 R -2,553,240 R -1,909,340 R 8,363,360
Non-controlling interests (p/l) R - R - R - R 816,464 R 365,680 R 1,182,144
R 8,257,940 R 3,523,200 R 1,044,800 R -1,736,776 R -1,543,660 R 9,545,504
ACCC 371 Question Bank, Question 20 suggested solution

2.5 Years

01-Jul-2012 01-Jul-2012 31-Dec-2012 30-Jun-2013

AT BOY Purchase 20% EOY Change
Shares 750,000 1,125,000 375,000
Ownership 40% 60% 20%

TUKS
Analysis TOTAL AT SINCE NCI
40% 60% 60% 40%
SCAP 1,875,000 750,000 1,125,000
RE 562,500 225,000 337,500
RR 180,000 72,000 108,000
2,617,500 1,047,000 1,570,500
Gain on Bargain Purchase -47,000 -47,000 -
Consideration 2,570,500 1,000,000 1,570,500

SINCE
BOY
Gain on Bargain Purchase 47,000 47,000 ASSOCIATE
RE (862.5-562.5) 300,000 120,000 180,000
Additional Depreciation (250/5x2.5x72%) -90,000 -36,000 -54,000

CY
(1350+20x6/12
Profit ) 685,000 274,000 411,000
(250/5x6/12x7
Additional Depreciation 2%) -18,000 -7,200 -10,800
3,494,500 397,800 2,096,700

Additional Shares
Previous Equity Held 1,397,800
Equity acquired (20%) 698,900 -698,900
Total Equity acquired 2,096,700
Goodwill 253,300
Consideration and NCI 2,350,000 1,397,800
Cost of new shares 850,000 SUBSIDIARY
FV of previous investment 1,500,000

CY
Profit (1350-685) 665,000 399,000 266,000
(250/5x6/12x7
Additional Depreciation 2%) -18,000 -10,800 -7,200
Dividends -375,000 -225,000 -150,000
3,766,500 561,000 1,506,600
Remeasurement Gain @ acquisition date
CA of previous investment 1,397,800
FV of previous investment 1,500,000
Gain 102,200 Note: with acquiring it is "previous investment"

FV adjustment to Investment
Previous Investment
Cost 1,000,000
FV 1,350,000
Movement 350,000 BOY
M-t-M 301,000
D/tax 49,000

Current Investment
Cost 1,850,000
FV 2,475,000
Movement 625,000 CY
M-t-M 537,500
D/tax 87,500

Additional depreciation on revaluation reserve

Revaluation 250,000
Useful Life 5
Months in year associate 0.50
Months in year subsidiary 0.50

Depreciation 50,000
Income Tax 14,000

JOURNALS (info purposes)

DESCRIPTION DEBIT CREDIT

Market to Market Reserve (SCE) 301,000

D/Tax (SoFP) 49,000
Investment in Tukkies (SoFP) -350,000
Fair Value Adjustment (P/L) 625,000
Investment in Tukkies (SoFP) -625,000

D/Tax (SoFP) 87,500

Income Tax (P/L) -87,500

Plant and Machinery (SoFP) 250,000

D/Tax (SoFP) -70,000
Revaluation Surplus (SCE) -180,000

Investment in Tukkies (SoFP) 84,000

Retained Earnings (SCE) -84,000

Investment in Tukkies (SoFP) 266,800

Share in Profit of Tukkies (P/L) -266,800

Investment in Tukkies (SoFP) 102,200

Remeasurement Gain (P/L) -102,200

Share Capital (SCE) 1,875,000

Retained Earnings (SCE) 772,500
Revaluation Reserve 180,000
Revenue 2,937,500
Cost of Sales -1,375,000
Trading Expenses -525,000 Adjusted for additional depreciation
Financing Charges -125,000
Income Tax Expense -245,500 Adjusted for additional tax on depreciation
Goodwill 253,300
Investment in Tukkies -2,350,000
NCI (SoFP) -1,397,800

NCI (P/L) 273,200

NCI (SoFP) -273,200

Dividends Received (P/L) 225,000

NCI (SoFP) 150,000
Dividends Paid (SCE) -375,000
ACCC 371 Question Bank, Question 20 suggested solution

2 years and 4 months 9 months 3 months

01-Mar-2010 01-Jul-2012 30-Mar-2013 30-Jun-2013

AT BOY Sell 20% EOY Change
Shares 420,000 280,000 (140,000)
Ownership 60% 40% -20%

TUKS
Analysis TOTAL AT SINCE NCI
60% 40% 40% 60%
SCAP 1,400,000 840,000 560,000
RE 450,000 270,000 180,000
RR 233,333 140,000 93,333
2,083,333 1,250,000 833,333
Goodwill 41,667 - 41,667 Goodwill @ FV - do not share in
Consideration 2,125,000 1,250,000 875,000 CIO

SINCE
BOY SUBSIDIARY
RE (1200-450) 750,000 450,000 300,000

CY
Profit (1050x9/12) 787,500 472,500 315,000
3,662,500 1,250,000 922,500 1,490,000

Disposal of Shares (140 000) -416,667 -307,500 724,167

Derecongise Goodwill and NCI -2,214,167
Remeasurment Gain 63,667 ASSOCIATE
3,662,500 833,333 678,667 -
CY
Profit (1050x3/12) 262,500 105,000 -
Dividends -500,000 -200,000 -
3,425,000 833,333 583,667 -
 WORKINGS

1 Remeasurement Gain @ acquisition date

CA of retained investment 1,448,333
FV of retained investment 1,512,000 Note: with disposal is "retained investment"
Remeasurement Gain 63,667

2 Company Profit (added back)

Proceeds 750,000
Cost of Investment (of shares
disposed) -416,667
Company Profit 333,333

3 Group Profit (account for)

Proceeds 750,000 Proceeds 750,000

Cost of Investment (of shares
disposed) -416,667 OR NCI Adj -724,167
Since Reserves -307,500
Company
Company Profit 25,833 Profit 25,833 = Change in Ownership

4
Investment in records of H
Cost @ Acq 1,250,000
Movement 850,000
30-Jun-2012 2,100,000
Movement b4 change 168,000
30-Mar-2013 2,268,000 30-Mar-2013 756,000
Bal B/F (420-140x5.4) 1,512,000
Adjustment 168,000
FV @ YE 1,680,000
 M-t-M reserve in records of H

PY Movement 731,000 BOY Movement in M-t-M 731,000

CY Movement in M-t-M 288,960
CY Movment
b4 change 144,480 1,019,960
Sale 291,827 875,480
Bal B/F 583,653 Sale - M-t-M recycled to RE 291,827
CY Movment
after change 144,480
CB 728,133

Deferred Tax

PY Movement 119,000 BOY Movement in Dtax 119,000

CY Movement in Dtax 47,040
23,520 166,040
Sale 47,507 142,520
Bal B/F 95,013 Sale - M-t-M recycled to RE 47,507
CY Movment
after change 23,520
CB 118,533

INTRAGROUP TRANSACTIONS

5 Intragroup Loan & Interest

Loan Amount 3,750,000

Interest @ 12% 450,000
Interest - Subsidiary 337,500 When associate you do not eliminate interest, only when Sub

6 Inventories
Puk - Kovsies - 1 April 2013 Puk Seller, therefore associate's SoFP is affected
CP +P SP
100 25 125
Sales 1,250,000 N/A - As it's associate
 Unrealised Profit Tax Net
Sales 200,000 56,000 144,000
Cost of Sales (160,000) (44,800) (115,200)
Unrealised Profit 40,000 11,200 28,800

7 Profit for the year Total Before After

Sales 4,375,000 3,281,250 1,093,750
Cost of Sales (1,325,000) (993,750) (331,250)
Gross Profit 3,050,000 2,287,500 762,500
Trading Expenses (850,000) (637,500) (212,500)
Financing Charges (750,000) (562,500) (187,500)
Income Tax Expense (400,000) (300,000) (100,000)
Profit for the year 1,050,000 787,500 262,500
ACCC 371 Question Bank, Question 20 suggested solution

JOURNALS AVAILABLE 33
MAXIMUM 32
DESCRIPTION DEBIT CREDIT MARKS ALTERNATIVE MARKS

Eliminate difference between fair value and original cost

Market to Market Reserve (SCE) 731,000 1 P

D/Tax (SoFP) 119,000 1 P
Investment in Kovsies (SoFP) -850,000 1 D tax SoFP 166,040 2
Mark to market reserve 731,000 1
Fair Value Adjustment (P/L) 336,000 1 Fair value adjustment (OCI) 336,000 1
Investment in Kovsies (SoFP) -336,000 1 Tax on OCI amounts (47,040) 1
Investment in Kovsies (1,186,000) 2
D/Tax (SoFP) 47,040 1 P
Income Tax (P/L) -47,040 1 P

Reverse the realisation of M2M reserve to RE done by H and the tax thereon

Retained Earnings (SCE) 291,827 1

Market-to-Market Reserve (SCE) -291,827 2

Income Tax (P/L) 47,507 1 P

Deferred Tax (SoFP) -47,507 1 P

Elimination of interco interest paid while being a sub

Interest Received (Puk) 337,500 1

Interest Paid (Kovsies) -337,500 1

Elimination of interco profit in stock while being an associate

Sales (P/L) 200,000 1

Cost of Sales (P/L) -160,000 1
Investment in Kovsies (SoFP) -40,000 1

D/Tax (SoFP) 11,200 1 P

 Income Tax (P/L) (11,200) 1 P

Account for remaining inv as associate for last 3 months

Investment in Kovsies (SoFP) 105,000 0.5 P

Share in profit of associate (p/l) -105,000 1

Dividends Received (p/l) 200,000 1

Investment in Kovsies (SoFP) -200,000 0.5 P

Gain on disposal of interest (P/L) 333,333 1

Retained Earnings: BOY (SCE) -450,000 1 P
Revenue -3,281,250 1 bring in 9 months of profit and loss items while sub (100%)
Cost of Sales 993,750 1 bring in 9 months of profit and loss items while sub (100%)
Trading Expenses 637,500 1 bring in 9 months of profit and loss items while sub (100%)
Financing Charges 562,500 1 bring in 9 months of profit and loss items while sub (100%)
Income Tax Expense 300,000 1 bring in 9 months of profit and loss items while sub (100%)
loose 2 marks if counted months wrong
NCI (P/L) - first 9 months 315,000 1

Gain on disposal of interest - group

(P/L) -25,833 1 P
Gain on disposal of interest -
remeasurment gain (P/L) -63,667 1 P
Investment in Kovsies 678,667 1 P

Land (SoFP 271,318 1

D/Tax (SoFP) -37,984 1
Revaluation Surplus (SCE) -233,333 1
ACCC 371 Question Bank, Question 20 suggested solution
Max 25
STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME FOR THE
YEAR ENDED 30 JUNE 2013 Available 25.5 2%
Ref MARKS
Revenue 1 17,093,750
Cost of Sales 2 (6,683,750)
Gross Profit 10,410,000
Other Income 412,500
Interest Received 3 212,500
Dividends Received 4 200,000
Gain on disposal of subsidiary 5 25,833
Remeasurement Gain 6 165,867
Share of profit in associate 7 371,800
Trading Expenses 8 (2,585,000)
Financing Charges 9 (975,000)
Profit before Taxation 7,262,500
Income Tax Expense 10 (2,154,307)
Profit for the year 5,108,193

Profit attributable to:

Owners of the Parent 4,534,393
Non-Controlling Interest 11 573,800

Calculations

1 Revenue
Puk 100% 11,075,000 0.5
Tukkies 5 875 000*6/12 2,937,500 0.5
Kovsies 4 375 000*9/12 3,281,250 0.5

Plus/Less: Intragroup Transactions

Inventory Sales - Associate (200,000) 1

17,093,750

2 Cost of Sales
Puk 100% 4,475,000 0.5
Tukkies 2 750 000*6/12 1,375,000 0.5
Kovsies 1 325 000*9/12 993,750 0.5

Plus/Less: Intragroup Transactions

Inventory Sales - Associate (160,000) 1

6,683,750

3 Interest Received
Puk 100% 550,000 0.5
Tukkies -
Kovsies -

Plus/Less: Intragroup Transactions

Loan (337,500) 1

212,500

4 Dividends Received
Puk 100% 625,000 0.5
Tukkies (225,000) 0.5
Kovsies (200,000) 0.5

200,000

5 Gain on disposal of interest (subsidiary)

 Tukkies -
Kovsies 25,833 1 P

25,833

6 Remeasurement Gain
Tukkies 102,200 1 P
Kovsies 63,667 1 P

165,867

7 Share of profit in associate

Tukkies 266,800 1 P
Kovsies 105,000 1 P
371,800

8 Trading Expenses
Puk 100% 1,472,500 0.5
Tukkies 1 000 000*6/12 500,000 0.5
Kovsies 850 000*9/12 637,500 0.5

Plus/Less: Intragroup Transactions

Additional depreciation (25,000) 1

2,585,000

9 Financing Charges
Puk 100% 625,000 0.5
Tukkies 250 000*6/12 125,000 0.5
Kovsies 750 000*9/12 562,500 0.5

Plus/Less: Intragroup Transactions

Loan (337,500) 1
975,000

10 Income Tax
Puk 100% 1,552,500 0.5
Tukkies 525 000*6/12 272,500 0.5
Kovsies 400 000*9/12 300,000 0.5

Plus/Less: Intragroup Transactions

Tax on Additional depreciation (7,000) 1
Tax on inventory (11,200) 1

OCI realised to P/L on disposal of shares 47,507 2

2,154,307

11 Non-Controlling Interest

Tukkies 258,800 1 P
Kovsies 315,000 1 P
573,800
ACCC 371 Question Bank, Question 20 suggested solution
Max 10
STATEMENT OF FINANCIAL POSITION AT 30 JUNE 2013 Available 10.5 5%
MARKS

GOODWILL

Tukkies (Analysis) 253,300 2

Kovsies (Analysis) No goodwill on face of SOFP Associate
253,300

Proof of Goodwill OR
Consideration FV old 1,500,000 0.5
cost new 850,000 0.5
Plus NCI 1,397,800 0.5
Less FV net assets (3,494,500) 0.5 total equity column
253,300

INVESTMENT IN ASSOCIATE

Cost of remaining investment (1 250 000*40%/60%) 833,333 1

Since Acquisition Reserves (Analysis) 583,667 1 P
Less: Intercompany Profit against investment in A (40,000) 1
1,377,000

DEFERRED TAXATION

Puk 1,253,333 0.5

Tukkies 87,500 0.5
Kovsies (Not sub at year-end) -

Plus/Less: Intragroup Transactions

Tukkies
Reversal of market-to-market reserve 136,500 1
Revaluation Reserve - Machinery (70,000) 0.5

Kovsies
Reversal of market-to-market reserve 166,040 1
Revaluation Reserve - Land (37,984) 0.5
Inventory - Unrealised Profit 11,200 0.5
Reversal of OCI transferred to RE (47,507) 1
1,499,082
 ACCC 371 Question Bank, Question 20 suggested solution
Berekeninge:

Belegging in Tukkies Bpk

Merk tot mark tot 30/06/2013

R
187 000 aandele @ 60% x R2,20 = 2 475 000
Kosprys - 1ste Aankoop = 1 000 000
2de Aankoop 850 000
R 1 850 000 (1 850 000)
Billike waarde aansuiwering R 625 000
- Merk to mark reserwe (86%) R 537 500
- Uitgestelde belasting (14%) 87 500
R 625 000

Merk tot mark 30 Junie 2012

Billike waarde (1 875 000 aandele @ 40% x R1,80) 1 350 000

Kosprys 1 000 000
R 350 000
Merk tot mark reserwe - 86% R 301 000
Uitgestelde belasting 49 000
R 350 000

Belegging in Kovsie Bpk

420 000 - 140 000 = 280 000 x R6,00 1 680 000
Kosprys - R1 250 000 x 280/420 833 333
Billike waarde aanpassing R 846 667
Merk to mark einde van jaar @ 86% 728 134
Uitgestelde belasting @ 14% 118 533
Merk tot mark einde van jaar R 846 667

Merk tot mark begin van jaar

Billike waarde - 420 000 x 5 2 100 000
Kosprys 1 250 000
R 850 000

Merk tot mark reserwe @ 86% 731 000

Uitgestelde belasting @ 14% 119 000
R 850 000

Merk tot mark oorgedra na Behoue verdienste

Billike waarde van 140 000 aandele op 30/12/2012 756 000

(140 000 x 5,40)
Kosprys (140/420 x R1 250 000) (416 667)
R 339 333
Merk tot mark - 86% 291 826
Uitgestelde belasting - 14% 47 507
R 339 333
ACCC 371 Question Bank, Question 20 suggested solution
Ontleding van die Eienaarsekwiteit van Kovsies Bpk

Totaal PUK Bpk NBB

(60% - 40%)
R R R

Met verkryging
Aandelekapitaal 1 400 000
Behoue verdienste 450 000
1 850 000 1 110 000 740 000

Teenprestasie (1 250 000)

Herwaardasie surplus 233 333 140 000 93 333
2 083 333 833 333

Klandisiewaarde R 41 667 41 667

875 000

Sedert verkryging
Behoue verdienste (1 200 000 - 450 000) 750 000 450 000 300 000

Hierdie jaar tot 30 Maart 2013

Wins (1 050 000 x 9/12) 787 500 472 500 315 000
3 620 833 922 500 1 490 000

Verkoop 140 000 aandele

Reserwes "verloor" (20/60 x 922 500) (307 500)

Billike waarde (280 000 @ R5,40) 615 000

Hermeting (bereken hierna) 63 667

678 667
Tot 30 Junie 2013
Wins (R1 050 000 - 787 500) 262 500 105 000
Dividende verklaar (500 000) (200 000)
R 3 383 333 R 583 667

Wins en verlies met verkoop van belang R

(IFRS 10: B98)

Onterken netto bates (ekwiteit) 3 620 833
Onterken klansisiewaarde 41 667
Onterken nie-beherende belang (1 490 000)
2 172 500
Erken teenprestasie ontvang (750 000)
Billike waarde van oorblywende beleging (1 512 000)
'(R5,40 x 280 000)
Wins op groepvlak R 89 500

Hermetingswins (sien ontleding)

Hermeting
Drawaarde = R1 250 000 x 40/60 + 615 000 = 1 448 333
Billike waarde (280 000 @ R5,40) 1 512 000
R 63 667 63 667
Kapitale wins R 25 833

Toets
Drabedrag verkoop - 1 250 000 + 922 500 x 20/60 = 724 167
Verkoopopbrengs 750 000
Kapitale wins R 25 833
ACCC 371 Question Bank, Question 20 suggested solution

Ontleding van die aandeelhoursbelang van Tukkies Bpk

Totaal PUK Bpk NBB

(40% - 60%)
Met Verkryging R R R

Aandelekapitaal 1 875 000

Behoue verdienste 562 500
Aanleg (R250 000 x 72%) 180 000
2 617 500 1 047 000 1 570 500
Teenprestasie (1 000 000)
Wins met winskoopaankoop R 47 000
Sedert Verkryging
Tot begin van huidige jaar 47 000
- Behoue verdienste 210 000 84 000 126 000
'(862 500 - 562 500) 300 000
Addisionele waardevermindering
'(250 000 / 5 x 2 en 1/2 jaar x 72%) (90 000)

Hierdie jaar
Wins tot 30 Desember 2012 647 000 258 800 388 200
'(R1 350 000 + 20 000 x 6/12) 787,500
Addisionele waardevermindering
'(R250 000 / 5 x 6/12 x 72%) (18 000)

3 474 500 389 800 2 084 700

Koop 20% 694 900 (694 900)

Ekwiteit eerste aankoop 1000 000
Ekwiteit sedert eerste aankoop 389 800
2 084 700
Teenprestasie (2 500 000)
Billike waarde 1ste aankoop 1 650 000
2de Aankoop 850 000
Klandisiewaarde R 415 300
1 389 800
Tot 30 Junie 2013 667 000 400 200 266 800

Wins (1 350 000 - 695 000) 262,500

Addisionele waardevermindering (18 000)

DIV paud -500000

R 4 141 500 R 790 000 R1 656 600

Wins met hermeting

R
Drawaarde van 40% belegging op 30 Desember 2012
Kosprys 1 000 000
Sedert verkryging reserwes 389 800
Drawaarde 1 389 800
Billike waarde (1 875 000 x 40% x R2,00) 1 500 000
Hermetingswins R 110 200
ACCC 371 Question Bank, Question 20 suggested solution
Puk Bpk en sy filiale
Gekonsolideerde Staat van wins of verlies en ander omvattende inkomste vir die jaar geëindig 30 Junie 2013
R
Inkomste (Berekening 1) 17,093,750 3.5
Koste van verkope (Berekening 2) (6 353 750) 4.5
Bruto wins 10,740,000
Ander inkomstes 512,200
Dividende ontvang (Berekening 2) 100,000 2
Rente ontvang (550 000 - 337 500) 212,500 `
Wins met verkoop van belang in filiaal 89,500 P
- Hermetingswins van oorblywende belegging 63,667 P
- Kapitale wins 25,833 P
Hermetingswins van aanvanklike belegging in filiaal 110,200 P
Winsdeel van geassosieerdes (258 800 + 105 000) (Ontleding) 363,800 P
Bedryfsuitgawes (Berekening 4) (2 660 000) 3.5
Finansieringskostes (berekening 5) (975 000) 4.5
Wins vir die jaar voor: 7,981,000
Inkomstebelastinguitgawe (Berekening 6) (2 137 307) 7.5
R 5,843,693
Toeskryfbaar aan:
Eienaars van die moeder (Balanserend) 5,261,893 P
Niebeherende belang (Tukkies 266 800 + Kovsies 315 000) (Sien ontleding) 581,800 P+2
R 5,843,693
Maksimum 35.5
Uiteensetting (indrukspunt) 2
Plus: Berekening 2
37.5
- Wins met verkoop van belang in filiaal 6
- Hermetingswins 2
- Hermetingswins aanvanklike belegging 3
- Winsdeel van geassosieerde (sien ontleding) 2
50÷2 = 25
Maksimum 20 punte
Berekeninge by die Staat van Wins en verlies
1) Inkomste R
PUK Bpk Groep 11,075,000 ½
Tukkies Bpk (R5 875 000 x 6/12) 2,907,500 P
Kovsies Bpk (R4 375 000 x 9/12) 3,281,250 P
17,293,750
Plus/(Min): Verkope aan geassosieerde
- Voorraad - R500 000 x 40% (200 000) ü
R 17,093,750 3.5
of (R1 250 000 x 40%) - R 500,000
2) Koste van verkope
PUK Bpk groep 3,825,000 ½
Tukkies Bpk (R2 750 000 x 6/12) 1,375,000 ü
Kovsies Bpk (R1 325 000 x 9/12) 993,750 ü
6,193,750
Plus/(Min): Koste van verkope 160,000 PP
Verkope aan geassosieerde
(25/125 x R500 000) = R 100,000
40% R 40,000
Verkope 200,000
Of 160,000
R500 000 - 40 000 = R 460,000
R 6,353,750

4.5
3) Dividende ontvang
Puk Bpk Groep 525,000
Min:Dividende
Kovsies Bpk
Tukkies Bpk (60% x R375 000) (225 000) ü
 Dividende Kovsies Bpk (40% x R500 000) (200 000) ü
R 100,000 2

4) Bedryfsuitgawes R
Puk Bpk groep 1,472,500 ½
Tukkies Bpk (R1 000 000 x 6/12) 500,000 ü
Kovsies Bpk (R850 000 x 9/12) 637,500 ü
2,610,000
Plus: Addisionele waardevermindering
(R250 000 ÷ 5) 50,000 ü
R 2,660,000

5) Finansieringskostes
Puk Bpk (groep) 625,000 ½
Tukkies Bpk (R250 000 x 6/12) 125,000 ü
Kovsies Bpk (R750 000 x 9/12) 1,312,500

Plus: Rente intergroep (R2 500 000 + 1 250 000 = 3 750 000 x 12% x 9/12) (337 500) PP
R 975,000 (4.5)

6) Inkomstebelastinguitgawe
Puk Bpk (groep) 1,552,500 ½
Tukkies Bpk (R525 000 x 6/12) 262,500 ü
Kovsies Bpk (R400 000 x 9/12) 300,000 ü
2,115,000

Plus/(Min):EAT Regstelling
(R250 000 ÷ 5 = R50 000 x 28%) (14 000) ü
Voorraad - ongerealiseerde wins
(25/125 x R500 000 x 40% x 28%) (11 200) ü

2,089,800
Plus: Terugskrywing van mark tot mark nou omgeswaai 47,507 P + 2 berekening
R 2,137,307 74

Proforma konsolidasie Joernale Kovsies Bpk

Dt Kt
R R
1) Merk tot mark reserwe (86%) 731,000
Uitgestelde belasting (14%) 119,000
Belegging in Kovsies Bpk 850,000
(Merk tot mark begin van die jaar)
(R1 250 000 - (420 000 x R5) = R850 000 hermetingswins) 3

2) Merk tot mark reserwe 336,000 1

Belegging in Kovsies Bpk 336,000
(Sien berekenings) +2
3
3) Uitgestelde belasting (SVFP) 47,040
Inkomstebelasting van AOI (merk tot mark reserwe) 47,040 (1)

4) Grond 271,317
Herwaardasiesurplus 233,333
Uitgestelde belasting 37,984
(R233 333 ÷ 86) 3

5) Aandelekapitaal 1,400,000
Behoue verdienste 450,000
Herwaardasiesurplus 233,333
Klandisiewaarde 41,667
Niebeherende belang 875,000
Belegging in Kovsies Bpk 1,250,000 6
 (met verkrygingsjoernaal)

6) Behoue verdienste 300,000

Niebeherende belang 300,000 1
(NBB tot begin van die huidige jaar)

7) Niebeherende belang 315 000

Niebeherende belang 3,315,000 1

8) Wins met verkoop (moeder) teen billike waarde) -

Wins met verkoop van belang groep (B98) 89,500P
Netto bates (ekwiteit) 3,620,833P
Klandisiewaarde 41,667P
Niebeherende belang 1,490,000 P
 Belegging in Kovsies Bpk 2,262,100 P
5
9) Behoue verdienste 291,826 1
Merk tot mark reserwe 291,826+2 bereken
(omswaai van joernaal deur moeder) 3

10) Belasting 47,507 1

Uitgestelde belasting 47,507P
(Omswaai van joernaal deur moeder) 2

11) Inkomste (PUK Bpk 200,000

Koste van verkope (PUK Bpk) 150,000
Belegging in geassosieerde (Kovsies) 40,000
(25 x 125 x R500 000 x 40% = R40 000) 3

12) Uitgestelde belasting 11,200

Belasting (PUK Bpk) 11,200 1

13) Rente betaal (Kovsies Beperk) 337,500 P

Rente ontvang (PUK Bpk) 337,500 +2 bereken
(R2 500 000 + 1 250 000 x 12% x 9/12)
3

14) Belegging in Kovsies Bpk 105,000

Winsdeel van geassosieerde 105,000 2

15) Dividende ontvang (PUK) 200,000

Belegging in geassosieerde 200,000 2

16) Koste van verkope (9/12) 993,750½

Bedryfsuitgawes (9/12) 637,500½
Finansieringskostes (9/12) 562,500½
Inkomstebelasting (9/12) 300,000½
Behoue verdienste 787,500
Inkomste 3,281,250½
40
Maks 30

Kovsies Bpk R
1) Hermeting gedurende die jaar

140 000 aandele verkoop

(5,40 - 5,00) x 140 000 56,000P
280 000 aandele (oorblywend) (R6,00 - 5,0 x R280 000) 280,000
R 336,000
Merk tot mark (86%) 288,960
Uitgestelde belasting (14%) 47,040
R 336,000
2) PUK Bpk
- 140 000 aandele verkoop
- Merk tot mark reserwe
- 140 000/420 000 x R1 250 000 = 416,667
- Billike waarde (140 000 x 5,40) 756,000
- Billike waarde aanpassing R 339,333
- Merk tot mark - 86% 291,826
- Uitgestelde belasting - 14% 47,507
R 339,333
3) Belegging in Kovsies
Teen billike waarde PUK Bpk 1,680,000P
Joernaal 1 (850 000)P
Joernaal 2 (336 000)P
Joernaal 5 (1 250 000) P
(756 000)
1,512,000
2,268,000
Billike waarde 1,512,000
Plus: Winsdeel van geassosieerde 105,000
Min: Dividende ontvang (200 000)
R 1,417,000
ACCC 371 Question Bank, Question 20 suggested solution
Vaal workings
Tukkies

No of shares % holding
H NCI TOTAL H NCI TOTAL
750,000 1,125,000 1,875,000 no change 40% 60% 100%
1875000x40%
375,000 (375,000) 20% -20%
1,125,000 750,000 1,875,000 given 60% 40% 100%

RE BOY 862,500 given

1,350,000 bal no
Div paid (375,000)
RE EOY 1,837,500 given

Profit above 1,350,000

Exclude tax 20,000 by adding it to profit 1,350,000
1,370,000 6/12 685,000 b4
685 000 - 20 000 665,000 after 86%
14%
Inv in H record at FV M2M reserve in H records
Cost 1,000,000
350,000 301,000
FV BOY 1,350,000
1.8*750000

FV B4 change 150,000 129,000

2*750000 1,500,000 bal bf 430,000

Purchase of new shares 850,000

FV adj after change 125,000 (107,500)

FV EOY 2,475,000 bal bf 537,500
2.2*1125000
Remeasurement gain Goodwill proof
CA of equity acc inv in A (1,397,800) Consideration FV old 1,500,000
FV of previously held investment 1,500,000 2*750000 cost new 850,000
Remeasurement gain 102,200 Plus NCI 1,397,800
Less FV net assets (3,494,500)
253,300
 n
5 28% 60% 60% - 40%
(gwill)/ gain
scap re ppe dtax total nci inv since re
1 jan 2010 1,875,000 562,500 250,000 (70,000) 2,617,500 1,570,500 1,000,000 47,000
(47,000) 47,000
Move 300,000 (125,000) 35,000 210,000 126,000 84,000
BOY 1 Jul 12 1,875,000 862,500 125,000 (35,000) 2,827,500 1,696,500 1,000,000 - 131,000

Up to change 685,000 (25,000) 7,000 667,000 400,200 266,800

125 000/2.5*6/12 3,494,500 2,096,700 1,000,000 - 397,800

Purchase of shares diff (698,900) 850,000 (253,300) 102,200 -

Rebalance NCI 1,397,800 80% 3484500

40%
Profit after change 665,000 (25,000) 7,000 647,000 258,800 388,200
Div paid (375,000) (375,000) (150,000) (225,000)
1,875,000 1,837,500 75,000 (21,000) 3,766,500 1,506,600 1,850,000 (253,300) 663,200
-
-
ACCC 371 Question Bank, Question 20 suggested solution
Vaal workings
Kovsies

No of shares % holding
H NCI TOTAL H NCI TOTAL
420,000 280,000 700,000 no change 60% 40% 100%

(140,000) 140,000 -20% 20%

280,000 420,000 700,000 given 40% 60% 100%

RE BOY 1,200,000 given

1,050,000 bal no
Div paid (500,000)
RE EOY 1,750,000 given

Profit above 1,050,000

1,050,000 9/12 787,500 b4

685 000 - 20 000 262,500 after 86%
14%
Inv in H record at FV M2M reserve in H records
Cost 1,250,000 Sale 756,000 2268*20/60 Sale 291,827
850,000 731,000
FV BOY - 2,100,000
5*420000

FV B4 change 168,000 144,480

5.4*420000 2,268,000 bal bf 875,480

Bal bf 5.4*280000 1,512,000 2268-756 Bal bf 583,653

1,512,000
FV adj after change 168,000 144,480
FV EOY 1,680,000 bal bf 728,133
6*280000

Remeasurement gain
CA of Equity acc inv after change (1,448,333) cost plus since reserves
FV of retained investment 1,512,000 5.4*280000
Remeasurement gain 63,667

Gwill formula FV Prop Net assets =

Consideration 1,250,000 1,250,000 Consideration /60% 2,083,333
Plus NCI at propr share 60% of net 875,000 - (1,850,000)
Less FV of net assets assets ? - Balance after tax reval of land 233,333 sum
H's Goodwill = nil - 1,250,000 Before tax reval 271,318 233333/.86
(37,984)

Co profit Group profit

Proceeds 750,000 Company profit 333,333
Share of cost derecognised (416,667) Since reserves lost (307,500)since res *20/60
333,333 n 25,833

5 28% 40%
(gwill)/ gain
scap re land dtax total nci inv since re
1 jan 2010 1,400,000 450,000 271,318 (37,984) 2,083,333 833,333 1,250,000 -
41,667 (41,667)
875,000 (41,667)
Move 750,000 - 750,000 300,000 450,000
BOY 1 Jul 12 1,400,000 1,200,000 271,318 (37,984) 2,833,333 1,175,000 1,250,000 (41,667) 450,000

Up to change 787,500 - 787,500 315,000 472,500

3,620,833 1,490,000 1,250,000 (41,667) 922,500
1250*20/60
Take out co profit (333,333)
Put in group profit sum 25,833
Sale of shares - 724,167 (416,667) (307,500)
2,214,167 833,333 615,000 615,000
Remeasurement gain 63,667 63,667
Derecognise NCI and Gwill (2,214,167) (2,214,167)
FV of retained inv 1,470,333 -
 5.4*280000 1,512,000

60%
Profit after change 262,500 - - 262,500 157,500 105,000
Div paid (500,000) (500,000) (300,000) (200,000)
833,333 - 891,167
Inv in A
Cost plus since res 1,724,500
 ACCC 371 Question Bank, Question 23 suggested solution

AVAILABLE MAX
Question a IFRS 3 - Theory 7 5
Question b IFRS 3 - Calculating Goodwill 10 10
Question c Pro forma Journals 20 15
Question d SOCE 11 10
48 40 17%
ACCC 371 Question Bank, Question 23 suggested solution
(a) Discuss whether the transaction between Wimbledon Ltd and Roland Garros Ltd complies to the definition of a
“business combination” in terms of IFRS 3 Marks

IFRS 2 defines a business combination as a transaction or other event in which an acquirer obtains control of one or more
businesses 1

Wimbledon obtains control over Roland Garros as its purchasing 80% of the share capital of Roland Garros. This means
they have a significant share in Roland Garros and will be able to affect those returns through this significant share 1

A Business in IFRS 3 is defined (revised) as a integrated set of activities (inputs, processes and outputs) and assets capable
to provide returns to investors 1

Roland Garros is a business as it has an integrated set of activities as it has

-Appropriate Inputs (over 100 employees, owns assets that manufactures equipment) 1
-Process enablers (ability to manufacture and create outputs) 1
-Outputs (evidenced by the profits made over the last number of years) 1

As Wimbledon is obtaining control and Roland Garros is a business, this transaction satisfies the definition of a business
combination in terms of IFRS 3 1

AVAILABLE 7
MAX 5
ACCC 371 Question Bank, Question 23 suggested solution
(b) Calculate the goodwill arising from Wimbledon Ltd’s acquisition of Roland Garros Ltd on the acquisition date as it would appear in the
consolidated financial statements of Wimbledon Ltd Marks

Goodwill = Total Net Assets LESS %NCI LESS Consideration

Included in
Consideration R consideration

Cash payable 1 April 2013 R 600,000 R 600,000 1

Cash payable 31 March 2014 R 275,000 R 250,000 1
Shares (20000*R12) R 240,000 R 240,000 1
Contingent Payment R 280,000 R 280,000 1
Lawyers Fees R 50,000 R - Have to eliminate @ consolidation 1
R 1,445,000 R 1,370,000

Total Net Assets

Share Capital R 1,000,000 0.5

Retained Earnings R 531,250 =460000+(285000*0.25) 0.5
Revaluation Surplus (Land) R 203,380 250 000 x (100%-18.648%) 1
Intangible Asset R 108,000 150 000 x (100%-28%) 1
Contingent Liability R -165,600 230 000 x (100%-28%) 1
R 1,677,030

NCI @ Fair Value R 400,000 1

Goodwill R 92,970 1 p

AVAILABLE 10
MAX 10
 ACCC 371 Question Bank, Question 23 suggested solution

(c) Provide the AT Acquisition pro-forma journals that Wimbledon Ltd will process to
consolidate Roland Garros Ltd for the year ended 31 December 2013
Journals

Description Debit Credit MARKS

In the separate records of wimbledon
1 Dr Investment in Roland Garros Ltd R 1,420,000 Just Information
(IAS 27 Capitilise valuations fees, @ Cost Model)
Cr Bank (Cash + Valuation Fees) R 650,000 Just Information
Cr Financial Liability (future cash) R 250,000 Just Information
Cr Financial Liability (contingent payment) R 280,000 Just Information
Cr Share Capital R 240,000 Just Information
Recognition of business combination of Roland Garros at fair value Just Information
AT CONSOLIDATION

1 Dr Land R 250,000 1
Cr Revaluation Surplus (OCI) R 203,380 1 P
Cr Deferred Tax (SoFP) R 46,620 1 Use of CGT Rate
Pro forma revaluation of Land at group level

2 Dr Intangible Assets R 150,000 1

Cr Revaluation Surplus (OCI) R 108,000 1 P
Cr Deferred Tax (SoFP) R 42,000 1 Use of statutory tax rate
Pro forma recognition of intangibles at group level

3 Dr Retained Earnings R 165,600 1 P

Dr Deferred Tax (SoFP) R 64,400 1
Cr Contingent Liability R 230,000 1
Pro forma recognition of contingent liability at group level Alternative to journal 4 and 5

4 Dr Retained Earnings (transaction costs) R 50,000 1 Dr Share Capital R 1,000,000 0.5

Cr Investment in Roland Garros Ltd R 50,000 1 Dr Retained Earnings R 294,400 1.5 (0.5 RE at acq)
Reversal of transactions costs capitlised at acquisition in separate records of W Dr Revenue (p/l) (650 000 x3/12) R 162,500 0.5
Cr Cost of Sales (p/l) (250 000 x 3/12) R 62,500 0.5
5 Dr Share Capital R 1,000,000 0.5 Cr Operating expenses (p/l) (30 000 x 3/12) R 7,500 0.5
Dr Retained Earnings (460 000 - 165 600) R 294,400 1.5 (0.5 RE at acq)
Cr Income tax (p/l) (85 000 x 3/12) R 21,250 0.5
Dr Revenue (p/l) (650 000 x3/12) R 162,500 0.5 Dr Revaluation Surplus R 311,380 2
Cr Cost of Sales (p/l) (250 000 x 3/12) R 62,500 0.5 Dr Goodwill R 142,970 1 P
Cr Operating expenses (p/l) (30 000 x 3/12) R 7,500 0.5 Cr Investment in Roland Garros Ltd R 1,420,000 1
Cr Income tax (p/l) (85 000 x 3/12) R 21,250 0.5 Cr NCI (SoFP) R 400,000 1
Dr Revaluation Surplus (203 380 + 108 000) R 311,380 2 Main elimination jorunal entry at acquisition
Dr Goodwill R 92,970 1 P
Cr Investment in Roland Garros Ltd R 1,370,000 1 Dr Retained Earnings (transaction costs) R 50,000 1
Cr NCI (SoFP) R 400,000 1 Cr Goodwill R 50,000 1
Main elimination jorunal entry at acquisition R 1,861,250 R 1,861,250 Reversal of transactions costs capitlised at acquisition in separate records of W
AVAILABLE 20
MAX 15
ACCC 371 Question Bank, Question 23 suggested solution
(d) Provide the retained earnings column in the consolidated statement of changes in equity for the year
ended 31 December 2013

WIMBLEDON GROUP LTD

EXTRACT FROM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31
DECEMBER 20.7
Australian
Wimbledon Roland Garros Open Retained
(H) MARKS (S) MARKS (A) MARKS Earnings
Balance at 1 January 2013 R 2,000,000 1 R - 1 R 12,500 1 R 2,012,500
Total Comprehensive Income for
the year R 850,000 1 R 171,000 2 R 15,781 3 R 1,036,781 See Workings on Australian and Roland Garros
Dividends paid R -80,000 1 R - R - 1 R -80,000 Dividends paid for Australian must be zero
Balance at 31 December 2013 R 2,770,000 R 171,000 R 28,281 R 2,969,281

AVAILABLE 11
MAX 10

Workings Roland Garros (Profit)

Total Profit for the year R 285,000

Only Subs for 9 months R 213,750 1

Allocate NCI portion R -42,750 1
R 171,000

Workings Australian Open Ltd (Profit)

Total Profit for the year R 65,000

Only have 25% share R 16,250 1
Inventory - Elimination of profit R -625 1
Inventory - Tax Effect R 156 1
R 15,781
ACCC 371 Question Bank, Question 23 suggested solution
Tax 28.00% 72.00%
CGT Rate 18.65% 81.35%

ANALYSIS IN ROLAND GARROS

WIMBLEDON LTD
AT ACQUISITION Total 80% NCI@20%
AT SINCE
Share Capital R 1,000,000 R 800,000 R 200,000
Retained Earnings R 460,000 R 368,000 R 92,000
Revaluation Surplus (Land) R 203,380 R 162,704 R 40,676
Revaluation Surplus (Intangible Asset) R 108,000 R 86,400 R 21,600
Retained Earning (Contingent Liability) R -165,600 R -132,480 R -33,120
Profit for year (3 months) R 71,250 R 57,000 R 14,250
R 1,677,030 R 1,341,624 R 335,406
Goodwill R 92,970 R 28,376 R 64,594
Consideration R 1,770,000 R 1,370,000 R 400,000

SINCE ACQUISITION

Current year
Profit R 213,750 R 171,000 R 42,750
Dividends Paid R -80,000 R -64,000 R -16,000
R 1,903,750 R 1,370,000 R 107,000 R 426,750

ANALYSIS OF AUSTRALIAN OPEN LTD

WIMBLEDON LTD
AT ACQUISITION Total 25%
AT SINCE
Share Capital R 400,000 R 100,000
Retained Earnings R 100,000 R 25,000
Revaluation Reserve R 25,000 R 6,250
R 525,000 R 131,250 R -
Goodwill (Included in investment) R 48,750 R 48,750
Consideration R 573,750 R 180,000 R -

SINCE ACQUISITION
At beginning of the year
Retained Earnings (150 000 - 100 000) R 50,000 R 12,500

Current year
Profit R 65,000 R 16,250
Dividends Paid R -10,000 R -2,500
R 678,750 R 26,250

Journals

Dr Investment in Associate (SoFP) R 26,250

 Cr Share of Profit in Associate (P/L) R 16,250
Cr Retained Earnings R 12,500
Dr Dividend Income (P/L) R 2,500
Bringing to book the associate

Dr Share of profit of associate (P/L) R 625

Cr Inventories R 625
Elimination of unrealised profit in closing inventories

Dr Deferred Tax (SoFP) R 156

Cr Share of profit of associate (P/L) R 156
Tax implication of unrealised profit in closing inventories
ACCC 371 Question Bank, Question 23 suggested solution

Roland Garros Ltd

01-Jan-2013 01-Apr-2013
Share Capital R 1,000,000 R 1,000,000
Retained Earnings R 460,000 R 500,000
Total R 1,460,000 R 1,500,000

Australian Open Ltd

01-Oct-2013
Share Capital R 400,000
Retained Earnings R 100,000
Revaluation Reserve R 25,000
Total R 525,000

EXTRACT FROM STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31

DECEMBER 2013
Retained Earnings
Roland Garros Australian Open
Wimbledon Ltd
Ltd Ltd
Balance as at 1 January 2013 R 2,000,000 R 460,000 R 150,000
Changes in equity for 2013
Ordinary Dividends Paid -R 80,000 -R 80,000 -R 10,000
Profit for the year R 850,000 R 285,000 R 65,000
Balance as at 31 December 2013 R 2,770,000 R 665,000 R 205,000
 ACCC 371 Question Bank, Question 27 suggested solution
Vaal workings Sum marks FV journals subtotal
Generic ss Good journals not required
Investments @ Fair Value Try Ltd Good Ltd Generic s 18.5 4.5 23.00 Try
Ordinary Preference Ordinary
Shares Shares Shares S add ons PPE 9.50 9.50
1 Jan 2012 and 1 Jan 2011 750,000 52,000 50,000 FV journals
Movement - BOY 10,000 3,000 2,000 Preff share generic 6.5 4.5 11.00
31-Dec-2012 760,000 55,000 52,000 S add ons interco profit in stocl 8 8.00
Movement - CY 5,000 1,000 3,000 42.5 9 51.50
31-Dec-2013 765,000 56,000 55,000 exclude SS 51.50
max 40.00
Diff since cost 15,000 4,000 5,000
Dtax on diff 2,800 747 933 Generic ss 0
M2M after tax 12,200 3,253 4,067 dr s/cap 40,000 journals not required
15,453 dr Ret earn 16,000
H First cr Inv 50,000
1Timeline S in SS Good in Try 80% 50% dr (G/will) 5,200
1-Jan-12 ords preffs cr NCI SoFP 11,200
at acq boy eoy S Try
32,000 80% dr Ret earn 4,800
40,000 80%for 50,000 inv at cost SS Good cr NCI SoFP 4,800

s/cap @ acq 40,000 dr NCI (P/l) 3,000

re @ acq 16,000 assume date is same as when H acq s 40,000 15,000 profit cr NCI SoFP 3,000
gr @ acq - div paid Alternative
Analysis of earnings of SS - method 1 (pretend same date) Analysis of earnings of SS - method 2 FV journals M2M Reserve 1,627
2 Dr/(Cr) Cr/(Dr) Dr/Cr Cr/(Dr) SS journals not required Dtax (SoFP) 373
s/cap Ret earn Total NCI Inv (G/will) Since RE s/cap Ret earn Total NCI Inv (Gwill) Since RE dr M2M res 1,627 4,066.62 4,067 Investment in Good Ltd 2,000
jan 2012 20% jan 2011 20% dr FV adj OCI 3,000
@ acq 40,000 16,000 56,000 11,200 50,000 -5,200 40,000 8,000 48,000 9,600 50,000 -11,600 cr Tax on OCI 560.03 FV Adjustment (OCI 3,000
16k - 8k dr Dtax SOFP 933 Investment in Good Ltd 3,000
Up to Jan 12 8,000 8,000 1,600 6,400 cr Inv in Ss 5,000.00 55000-50000
RE 24,000 24,000 4,800 19,200 24,000 24,000 4,800 19,200 5,560 - Dtax (SoFP) 560
boy 40,000 40,000 80,000 16,000 50,000 -5,200 19,200 40,000 40,000 72,000 14,400 50,000 -11,600 25,600 Income Tax (OCI) 560
-
Profit for year 15,000 15,000 3,000 12,000 15,000 15,000 3,000 12,000
Div paid - - - - - - - -

eoy 40,000 55,000 95,000 19,000 50,000 -5,200 31,200 40,000 55,000 87,000 17,400 50,000 -11,600 37,600
95,000 19,000
95,000 - check
3Timeline H in S (First in Try) FV journals 4.5 Alternative
1-Jan-12 Calculation marks awarded as part of NCI journal (all principal marks) S ord M2M Reserve 8,133 0.5
at acq boy eoy Up to BOY 2 dr M2M res 8,133 1 12,200 12,200 Dtax (SoFP) 1,867 0.5 p
160,000 p 0.5 for bringing down goodwill of SS -5,200 dr FV adj OCI 5,000 1 Investment in Good Ltd 10,000 0.5
200,000 80%for 750,000 inv at cost p 0.5 for bringing down since RE of SS 19,200 cr Tax on OCI 933.38 1
425,000 profit p 0.5 for incorporating AT interco profit in stock -7,200 dr Dtax SOFP 2,800 0.5 p cgt rate FV Adjustment (OCI 5,000 1
s/cap @ acq 400,000 less div rec ss p 0.5 for incorporating AT realisation of rev PPE -36,000 cr Inv in Ss 15,000.00 1 765000-750000 Investment in Good Ltd 5,000 0.5
re @ acq 250,000 650,000 half mark -10,000 less preff div Current year 2 15,933 15,933.38 4.50
gr @ acq 50,000 80,000 -20,000 div paid p 0.5 for bringing down since RE of SS 12,000 Dtax (SoFP) 933 0.5 p
4 p 0.5 for decucting preff div -10,000 Income Tax (OCI) 933 1 4.50
Analysis of earnings of S - ordinary shares (pretend S acq SS on same day as H acq S) - method 1 p 0.5 for incorporating AT interco profit in stock -2,880
p 0.5 for incorporating AT realisation of rev PPE -79,200 Generic S method 1 18.50 Generic S method 2
Dr/(Cr) Cr/(Dr) Alternative -
Plant
s/cap Gen res Inventory Plant kept disposed Dtax
Goodwill Ret earn Total NCI Inv (G/will) Since RE Since GR dr s/cap 400,000 0.50 dr s/cap 400,000 - 0.50 -
half mark 20% dr Gen res 50,000 1.00 dr Gen res 50,000 - 1.00 -
@ acq 400,000 50,000 150,000 100,000 -70,000 -5,200 250,000 874,800 174,960 750,000 -50,160 dr Inventory - dr Inventory - - - -
=250000*200000/500000 25,040 -25,040 dr Plant 250,000 1.00 dr Plant 250,000 - 1.00 p
200,000 -75,200 cr D tax SoFP 70,000 0.50 p cr D tax SoFP - 70,000 0.50
Transfer to GR 30,000 30,000 6,000 24,000 cr Goodwill 5,200 1.00 cr Goodwill of SS 11,600 1.00
half mark half mark dr Ret earn 250,000 1.00 dr Ret earn 256,400 1.00
Total RE 150 / 5 100 / 5 419,200 376,000 75,200 300,800 cr Inv 750,000 1.00 cr Inv 750,000 1.00 p
RE - S Ltd -10,000 -30,000 -20,000 16,800 400,000 356,800 71,360 285,440 dr Goodwill 75,200 1.00 p dr Goodwill 75,200 1.00 p
RE - SS Ltd sum -43,200 half mark 19,200 19,200 3,840 15,360 cr NCI SoFP 200,000 1.00 p cr NCI SoFP 200,000 1.00 -
boy 400,000 80,000 -10,000 120,000 80,000 -53,200 -5,200 669,200 1,280,800 281,200 750,000 -75,200 300,800 24,000 1,025,200 1,025,200 8.00 1,031,600 1,031,600 8.00
sum gwill 70,000 sum gwill 63,600
Total profit depr -10,000 427,000 344,920 68,984 275,936 dr General reserve 6,000 1.00 p
profit on sale -70,000 cr NCI SOFP 6,000 1.00 p
Profit for year -S -4,000 -30,000 -80,000 31,920 415,000 332,920 66,584 266,336 giving NCI their share of GR up to BOY
Profit for year -SS Ltd sum -82,080 half mark 12,000 12,000 2,400 9,600 dr Ret earn 75,200 0.50 p
Div paid -20,000 -20,000 -4,000 -16,000 cr NCI SoFP 75,200 0.50 p
Transfer out of RE half mark half mark -30,000 -30,000 -6,000 -24,000 2 marks awarded in calcs 2.00
Transfer to GR 30,000 30,000 6,000 24,000 dr NCI (P/l) 68,984 0.50 p
cr NCI SoFP 68,984 0.50 p
eoy 400,000 110,000 -14,000 90,000 - -21,280 -5,200 1,046,200 1,605,720 346,184 750,000 -75,200 536,736 48,000 2 marks awarded in calcs 2.00
sum re S 1,015,000 1,605,720 346,184 dr div rec 16,000 0.50
per affs 1,015,000 1,605,720 - dr NCI SoFP 4,000 0.50 p
diff - - cr Div paid 20,000 0.50

4
dr NCI (SoCIE/ SoFP) 6,000
cr Transf to GR 6,000 1.00 p
dr General reserve 6,000 1.00 p
cr NCI (SoCIE/ SoFP) 6,000
giving NCI their share of GR in current year (reminder transfer is sep line items in AFS)
Analysis of earnings of S - ordinary shares method 2 S Add ons PPE 9.50
Alternative (1 mark each except for reval surplus)
Dr/(Cr) Cr/(Dr) dr RE 36,000 1.00 p dr Plant 250,000 1
Plant
s/cap Gen res Inventory Plant kept disposed Dtax (G/will) Ret earn Total NCI Inv (G/will) Since RE Since GR dr Dtax Sofp 14,000 0.50 p cr D tax SoFP 70,000 0.5p
half mark 20% cr Acc Depr 50,000 1.00 cr Reval surpl / euitey 180,000 no mark
@ acq 400,000 50,000 - 150,000 100,000 -70,000 -11,600 256,400 874,800 174,960 750,000 -50,160 30 000 + 20 000 cancels out
=250000*200000/500000 25,040 -25,040 dr s/cap 400,000 400,000 below 1
250 000 + 6400 200,000 -75,200 dr Depr 40,000 1.00 dr Gen res 50,000 50,000 1
Transfer to GR 30,000 30,000 6,000 24,000 cr Acc Depr 40,000 1.00 dr Reval surpl / euitey 180,000 no mark
half mark half mark 30 000 + 10 000 cr Goodwill 5,200 1
Total RE 150 / 5 100 / 5 419,200 376,000 75,200 300,800 dr Dtax SoFP 11,200 0.50 p dr Ret earn 250,000 1
RE - S Ltd -10,000 -30,000 -20,000 16,800 19,200 -24,000 -4,800 -19,200 cr Dtax profit/loss 11,200 0.50 p cr Inv 750,000 1
RE - SS Ltd sum -43,200 half mark 400,000 400,000 80,000 320,000 dr Goodwill 75,200 1
boy 400,000 80,000 -10,000 120,000 80,000 -53,200 -11,600 675,600 1,280,800 281,200 750,000 -75,200 300,800 24,000 dr Profit on sale 70,000 1.00 cr NCI SoFP 200,000 1
dr Plant acc depr 30,000 1.00 955,200 955,200 8.50
Total profit depr -10,000 427,000 344,920 68,984 275,936 cr Plant cos 100,000 1.00
profit on sale -70,000 Alternative (also 1 mark each)
Profit for year -S -4,000 -30,000 -80,000 31,920 415,000 332,920 66,584 266,336 dr Dtax SoFP 19,600 0.50 p Deferred Tax (SoFP) 19,600 0.5
Profit for year -SS Ltd sum -82,080 half mark 12,000 12,000 2,400 9,600 cr Dtax profit/loss 19,600 0.50 p Accumulated depreciation 30,000 1
Div paid -20,000 -20,000 -4,000 -16,000 30,800 4.00 Profit on sale of plant 70,000 1
Transfer out of RE half mark half mark -30,000 -30,000 -6,000 -24,000 Sum dtax in analysis 31,920 1 mark each Income tax expense (P/L) 19,600 0.5
Transfer to GR 30,000 30,000 6,000 24,000 -1,120 dtax on intercp profit in stock Plant 100,000 1
Adjustment on the revaluation amount on the profit on sale of plant 4.00
eoy 400,000 110,000 -14,000 90,000 - -21,280 -11,600 1,052,600 1,605,720 346,184 750,000 -75,200 536,736 48,000 S Add ons continues
346,184
- Interco profit in stock journals
Calculation marks awarded as part of NCI journal Retained earnings (Try) 7,200 1.00 p
Up to BOY 2 Deferred Tax SoFP 2,800 no mark cancels out below
p 0.5 for bringing down goodwill of SS -11,600 Cost of sales (try) 10,000 1.00
p 0.5 for bringing down since RE of SS 19,200 =50000/125*25
p 0.5 for incorporating AT interco profit in stock -7,200 Unrealised profits in opening balance of inventory
p 0.5 for incorporating AT realisation of rev PPE -36,000 Income tax expense(Try) 2,800 1.00 p
Current year 2 Deferred Tax SoFP 2,800 no mark cancels out above
p 0.5 for bringing down since RE of SS 12,000 Tax effect of Unrealised profits in opening balance of inventory
p 0.5 for decucting preff div -10,000 Sales (Try) 1,000,000 1.00
p 0.5 for incorporating AT interco profit in stock -2,880 Purchases (COS) (First) 1,000,000 1.00
p 0.5 for incorporating AT realisation of rev PPE -79,200 Elimination of intercompany sales of inventory
Cost of sales (Try) 14,000 1.00
Inventory 14,000 1.00
=70000/125*25
Unrealised profits in closing balance of inventory
Deferred Tax 3,920.00 0.50 p
Income tax expense(Try) 3,920 0.50 p
(14 000 x 28% 8.00
Tax effect of unrealised profits on closing balance of inventory
Analysis of earnings of S - preference shares
Dr/(Cr) Cr/(Dr)
s/cap Ret earn Total NCI Inv (G/will) Since RE Pref generic 6.50 FV journals 4.50
50% S Preff
@ acq 100,000 100,000 50,000 52,000 -2,000 dr scap 100,000 1.00 dr M2M res 2,440 1.00
CY profit 10,000 10,000 5,000 5,000 cr NCI SoFP 50,000 1.00 dr FV adj OCI 1,000 1.00
Div paid -10,000 -10,000 -5,000 -5,000 cr Inv 52,000 1.00 cr Tax on OCI 187 1.00 3,253 3,253
100,000 - - - 100,000 50,000 52,000 -2,000 - dr gwill 2,000 1.00 p dr Dtax SOFP 747 0.50 p cgt rate
100,000 50,000 cr Inv in Ss 4,000 1.00 56000-52000
100,000 - dr NCI profit/loss 5,000 0.50 p 4,187 4,187 4.50
cr NCI SoFP 5,000 0.50 p
Note to markers: Some students may put both NCI journals in one line Alternative
dr Div rec 5,000 0.50 M2M Reserve 2,440 0.50
dr NCI SoFP 5,000 0.50 p Dtax (SoFP) 560 0.50 p
cr Div paid 10,000 0.50 Investment in Good Ltd 3,000 0.50
Note to markers: Some students may put both div journals in one line
FV Adjustment (OCI 1,000 1.00
Investment in Good Ltd 1,000 0.50

Dtax (SoFP) 187 0.50 p

Income Tax (OCI) 187 1.00 4.50
ACCC 371 Question Bank, Question 27 suggested solution
Mafikeng workings
01-Jan-2011 01-Jan-2012 01-Jan-2013 31-Dec-2013

First Ltd
01-Jan-2012 01-Jan-2012
Ordinary Shares 80% Preference Shares 50%
Scap 200,000 Scap 100,000
RE 250,000
GR 50,000
Consideration 750,000 Consideration 52,000

Try Ltd

01-Jan-2011S in SS BEFORE H IN S
Ordinary Shares 80%
Scap 40,000
RE (1 Jan 2011) 8,000
RE (1 Jan 2012) 16,000
Consideration 50,000
Good Ltd

Workings
Undervaluation of PPE at acquisition 1 Jan 2012
PPE Dtax Revaluation
Plant 250,000 70,000 180,000

Additional Depreciation BOY = 1 year

Acc Depr Dtax RE
Plant (RUL -5 years) 50,000 14,000 36,000
50,000 14,000 36,000

Plant Sold
Plant with original cost of R200 000
Cost of Total plant at acquisition was R500 000
Thus R200 000/R500 000 was sold (2/5)

Depreciation current year

Acc Depr Dtax Deprec
Plant sold (2/5) 10,000 2,800 7,200
Plant not sold (3/5) 30,000 8,400 21,600
40,000 11,200 28,800

Profit on sale of plant

Plant (2/5) 100,000

Accumulated depreciation 30,000 depr over 5 years for 1.5 years
Profit on sale of plant 70,000
DTAx 19,600 Total impact per analysis diff
50,400 79,200 -82,080 -2,880

Investments @ Fair Value Try Ltd Good Ltd

Preference Ordinary
Ordinary Shares Shares Shares
1 Jan 2012 and 1 Jan 2011 750,000 52,000 50,000
Movement - BOY 10,000 3,000 2,000
31-Dec-2012 760,000 55,000 52,000
Movement - CY 5,000 1,000 3,000
31-Dec-2013 765,000 56,000 55,000
Deferred Tax
Movement - BOY 1,867 560 373
Movement - CY 933 187 560
2,800 747 933

Movement 12,200 3,253 4,067

 Cell: C32
Note: Author:
this should be 250 000 / 5 not / 10.
ACCC 371 Question Bank, Question 27 suggested solution
METHOD 1 April 2014 GSquestion
ANALYSIS - GOOD LIMITED SS Mafikeng analysis

AT ACQUISITION (1 Jan 2012) TOTAL FIRST NCI

ORDINARY SHARES 80% 20%
Share Capital R 40,000 R 32,000 R 8,000
Retained Earnings R 16,000 R 12,800 R 3,200
R 56,000 R 44,800 R 11,200
Goodwill R 5,200 R 5,200
Consideration R 61,200 R 50,000 R 11,200

SINCE ACQUISITION
BOY
RE (Up to 1 Jan 2013) R 24,000 R 19,200 R 4,800

CURRENT YEAR
Profit R 15,000 R 12,000 R 3,000
R 100,200 R 31,200 R 19,000
Control check R0 R0

ANALYSIS - TRY LIMITED S

AT ACQUISITION 1 Jan 2012 TOTAL FIRST NCI

ORDINARY SHARES 80% 20%
Share Capital R 400,000 R 320,000 R 80,000
Retained Earnings R 250,000 R 200,000 R 50,000
General Reserve R 50,000 R 40,000 R 10,000
Revaluation Reserve (250 000) x 0.72 R 180,000 R 144,000 R 36,000
Goodwill - Good Ltd -R 5,200 -R 4,160 -R 1,040
R 874,800 R 699,840 R 174,960
Goodwill R 75,200 R 50,160 R 25,040
Consideration R 950,000 R 750,000 R 200,000

SINCE ACQUISITION
BOY
RE - Try Ltd (650 000 - 250 000) R 400,000 R 320,000 R 80,000
Interco profit in o/stock - 10 000 x .72 -R 7,200 -R 5,760 -R 1,440
RE - Good Ltd R 19,200 R 15,360 R 3,840
RE - Additional
Depreciation -R 36,000 -R 28,800 -R 7,200
General Reserve (110 000 - 30 000- 50 000) R 30,000 R 24,000 R 6,000

CURRENT YEAR
Profit - Try Ltd R 425,000 R 340,000 R 85,000
Interco profit in c/stock (+10 000 - 14 000 ) x 72% -R 2,880 -R 2,304 -R 576

Profit - Preference Dividend -R 10,000 -R 8,000 -R 2,000

Profit - Good Ltd R 12,000 R 9,600 R 2,400
Profit - Additional
Depreciation -R 28,800 -R 23,040 -R 5,760
Reverse profit on sale
revalued plant -R 50,400 -R 40,320 -R 10,080
Transfer to General
Reserve R 30,000 R 24,000 R 6,000
GR - Transfer out of RE -R 30,000 -R 24,000 -R 6,000
Dividends Paid -R 20,000 -R 16,000 -R 4,000
R 1,680,920 R 584,736 R 346,184
control check R0 R0
METHOD 2

ANALYSIS - GOOD LIMITED SS

AT ACQUISITION (1 Jan 2011) TOTAL FIRST NCI

ORDINARY SHARES 80% 20%
Share Capital R 40,000 R 32,000 R 8,000
Retained Earnings R 8,000 R 6,400 R 1,600
R 48,000 R 38,400 R 9,600
Goodwill R 11,600 R 11,600
Consideration R 59,600 R 50,000 R 9,600

SINCE ACQUISITION
BOY
RE (Up to 1 Jan 2012) R 8,000 R 6,400 R 1,600
RE (Up to 1 Jan 2013) R 24,000 R 19,200 R 4,800

CURRENT YEAR
Profit R 15,000 R 12,000 R 3,000

ANALYSIS - TRY LIMITED S

AT ACQUISITION TOTAL FIRST NCI

ORDINARY SHARES 80% 20%
Share Capital R 400,000 R 320,000 R 80,000
Retained Earnings R 250,000 R 200,000 R 50,000
General Reserve R 50,000 R 40,000 R 10,000
Revaluation Reserve R 180,000 R 144,000 R 36,000
Retained Earnings - Good
Ltd R 6,400 R 5,120 R 1,280
Goodwill - Good Ltd -R 11,600 -R 9,280 -R 2,320
R 874,800 R 699,840 R 174,960
Goodwill R 75,200 R 50,160 R 25,040
Consideration R 950,000 R 750,000 R 200,000

SINCE ACQUISITION
BOY
RE (650 000 - 250 000) R 400,000 R 320,000 R 80,000
RE - Additional
Depreciation -R 36,000 -R 28,800 -R 7,200
RE - Good Ltd R 19,200 R 15,360 R 3,840
General Reserve (110 000 - 30 000- 50 000) R 30,000 R 24,000 R 6,000
Interco profit in o/stock - 10 000 x .72 -R 7,200 -R 5,760 -R 1,440

CURRENT YEAR
Profit R 425,000 R 340,000 R 85,000
Interco profit in c/stock (+10 000 - 14 000 ) x 72% -R 2,880 -R 2,304 -R 576
Profit - Additional
Depreciation -R 28,800 -R 23,040 -R 5,760
Reverse profit on sale
revalued plant -R 50,400 -R 40,320 -R 10,080 -R 9,440

Profit - Preference Dividend -R 10,000 -R 8,000 -R 2,000

Profit - Good Ltd R 12,000 R 9,600 R 2,400
General Reserve R 30,000 R 24,000 R 6,000
Transfer to General
Reserve -R 30,000 -R 24,000 -R 6,000
Dividends Paid -R 20,000 -R 16,000 -R 4,000
R 1,680,920 R 584,736 R 346,184
R0 R0
ANALYSIS - TRY LTD - PREFERENCE SHARES

AT ACQUISITION TOTAL FIRST NCI

50% 50%
Share Capital R 100,000 R 50,000 R 50,000
R 100,000 R 50,000 R 50,000
Goodwill R 2,000 R 2,000
Consideration R 102,000 R 52,000 R 50,000

SINCE ACQUISITION
BOY
Profit attr to Pref Shareh R 10,000 R 5,000 R 5,000
Dividends Paid -R 10,000 -R 5,000 -R 5,000

CURRENT YEAR
Profit attr to Pref Shareh R 10,000 R 5,000 R 5,000
Dividends Paid -R 10,000 -R 5,000 -R 5,000

R 50,000
 Cell: F11
Note: A company can measure some at FV and others at prop share it’s a choice in IFRS 3.
ACCC 371 Question Bank, Question 27 suggested solution
Statement of Profit and Loss and other comprehensive income for the year ended 31 Dec 2013

Intercompany Intercompany Intercompany

Revaluation Sale of revalued Inventory Inventory Inventory
First Try Good Marks of PPE PPE Sales OB CB Marks Total
Revenue 2,000,000 1,500,000 350,000 1 -70,000 -1,000,000 2p 2,780,001
Cost of Sales -1,250,000 -758,000 -150,000 1 1,000,000 10,000 -14,000 3p -1,161,999
Gross Profit 750,000 742,000 200,000 - -70,000 - 10,000 -14,000 1,618,000
Other Expenses -502,000 -250,000 -180,000 1 -40,000 1p -971,999
Profit before tax 248,000 492,000 20,000 -40,000 -70,000 - 10,000 -14,000 646,000
Taxations -115,000 -67,000 -5,000 1 11,200 19,600 -2,800 3,920 4p -155,079
Profit for the year 133,000 425,000 15,000 -28,800 -50,400 - 7,200 -10,080 490,920
Other compr income for year -
TOTAL COMPREHENSIVE INCOME
FOR YEAR 133,000 425,000 15,000 -28,800 -50,400 - 7,200 -10,080 490,920
Total comprehensive income
attributable to:
Owners of the parent 1p 418,936
NCI 68,984 3,000 2p 71,984

Total Marks 17
Consolidated Statement of Changes in Equity for the year ended 31 Dec 2013

Preference Market-to- General

Share Capital Share Capital Market Reserve Retained Earnings Total NCI Total Equity Marks
First Try Good Analysis Try Total
Balance at 1 Jan 2013 200,000 100,000 19,520 450,000 300,800 750,800 970,320 297,200 1,267,520 5
Changes in equity for 2013 - - -
Total Comprehensive income for the
year: - - - 80,000 -40,000 - - 418,936 378,936 458,936 67,984 526,920
Profit for the year 418,936 418,936 418,936 71,984 490,920 2
Transfer to general reserve 80,000
Preference Dividend paid -10,000 -10,000 -10,000 -10,000 1
Dividend paid -30,000 -30,000 -30,000 -4,000 -34,000 2
Balance at 31 Dec 2013 200,000 100,000 19,520 410,000 410,000 - - 719,736 1,129,736 1,859,256 365,184 2,224,440
-
Total Marks 10
 (a) S workings

ACCC 371 Question Bank, Question 28 suggested solution

S workings Soda use rate 28.000% Consideration paid
Ownership table sell rate 28.00% 66.60% 18.648% 81.352% Cash 4,000,000
h nci Soda h nci total FV on conting consid. 400,000
1,125 375 1,500 75% 25% 100% 4,400,000
- - 0% 0% FV of conting consid changed 31 dec 2013
1,125 375 1,500 75% 25% 100% Outside of measurement period. Don’t adjust.

Dr/(Cr) Cr/(Dr)
Internally
Share Revaluation generated Retained Since Rev res
capital reserve Land intangible Deferred tax earnings Total NCI Inv (G/will) Since RE
200k * 72% 482,028 25%
@ acq 1,500,000 144,000 150,000 500,000 -167,972 3,600,000 5,726,028 1,431,507 4,400,000 -105,479
rev res - land cgt rate - - -
ret earn - - -400,000 -400,000 -100,000 -300,000
boy 1,500,000 144,000 150,000 500,000 -167,972 3,200,000 5,326,028 1,331,507 4,400,000 -105,479 -300,000 -

Sale of Internally gen asset -500,000 140,000 -360,000 -90,000 -270,000

Profit Sub 2,770,000 2,770,000 692,500 6 2,077,500
2,410,000 602,500 1,807,500
Revaluation of land by S at end of year 146,434 -150,000 27,972 24,406 6,101 18,304

Dividend paid -360,000 -360,000 -90,000 -270,000

eoy 1,500,000 290,434 - - - 5,610,000 7,400,434 1,850,108 4,400,000 -105,479 1,237,500 18,304
- 1,850,108 1,255,804
-
ANALYSIS OF SHAREHOLDERS INTEREST IN S
75% 25%
AT ACQUISITION TOTAL AT SINCE NCI
Share Capital 1,500,000
Retained Earnings 3,600,000
Revaluation reserve 144,000
Revaluation land (after tax) 122,028
Revalued Intangible (After tax) 360,000
5,726,028 4,294,521 1,431,507 -
Goodwill (Capitalised) 105,479 - -
Investment in Red Ltd 4,400,000

SINCE ACQUISITION

To the beginning of current yr (400,000) (300,000) (100,000)

Retained Earnings (400,000) (300,000) (100,000)
- -

Current Year 2,074,406 1,555,804 518,601

Profit S 2,770,000 2,077,500 692,500

Page 1 of 9
 (a) S workings

Sale of Internally gen asset (360,000) (270,000) (90,000)

Reverse reval of land at acq (122,028) (91,521) (30,507)
Reval of S at end of year 146,434 109,825 36,608
Dividends paid (360,000) (270,000) (90,000)
- - -
7,400,434 1,255,804 1,850,108
Diff - - check
-
-

Page 2 of 9
 (a) S workings

Required journals to consolidate S Available 27.00

Max 27.00
At acquisition Alternative to journal 1
1 Dr Share capital 1,500,000 1.00 Dr Land 150,000 1.00
Dr Revaluation reserve 144,000 1.00 Cr Revaluation reserve 122,028
Dr Retained earnings 3,600,000 1.00 Cr Deferred Tax (SoFP) 27,972 0.50 use CGT rate
Dr Land/PPE 150,000 1.00
Dr Internally generated intangible 500,000 1.00 Dr Internally generated intangible 500,000 1.00
Cr Deferred tax SoFP 167,972 1.00 p Cr Revaluation reserve 360,000
half mark for using cgt rate on land and other half for use rate on int asset
Cr NCI SoFP 1,431,507 1.00 p Cr Deferred Tax (SoFP) 140,000 0.50 use statutory rate
Cr Investment in S 4,400,000 1.00
Dr Goodwill 105,479 1.00 p Dr Share capital 1,500,000 1.00
5,999,479 5,999,479 9.00 Dr Revaluation reserve 626,028 1.00 for given amount of R144 000
Dr Retained earnings 3,600,000 1.00
2 NCI share up to BOY Cr NCI SoFP 1,431,507 1.00 p
Dr NCI (SFP) 100,000 1.00 p Cr Investment in S 4,400,000 1.00
Cr Retained earnings 100,000 1.00 Dr Goodwill 105,479 1.00 p
Note other way around due to loss made by S 9.00

Sale of intangible asset

3 Dr Other income/ Gain on sale 500,000 1.00
Cr Internally generated intangible 500,000 1.00

Tax on the above

4 Dr Dtax SoFP 140,000 0.50 p
Cr Taxation / Dtax (P/l) 140,000 0.50 p

Allocate NCI their share of CY profit

5 Dr NCI (P/L) 602,500 analysis 1.00
Cr NCI (SFP) 602,500 1.00 p

Reverse Prior year reval on land

6 Dr Other comprehensive inc- CY reval 150,000 1.00
Cr Land/PPE 150,000 1.00

Dr Dtax SoFP 27,972 0.50

Cr Taxation on other comprehensive income 27,972 0.50

Allocate NCI their share of CY reval

7 Dr NCI OCI 6,101 1.00
Cr NCI SFP 6,101 1.00 p
(180 000 - 150 000) x ( 100% - 18.646%) x 25%

Eliminate interco div CY

8 Dr Dividend rec/Other income 270,000 1.00
Dr NCI (SFP) 90,000 1.00

Page 3 of 9
 (a) S workings

Cr Dividend paid 360,000 1.00

Eliminate interco management fees

9 Dr Other income 240,000 1.00
Dr Expenses/Acc. Fees paid 240,000 1.00

Narrations 1.00

Page 4 of 9
 (b) A workings

ACCC 371 Question Bank, Question 28 suggested solution

A workings - Juice
Ownership table
h nci Total h nci total
400 600 1,000 40% 60% 100%
Interco transactions
H made profit 28% A made the profit
Sale of PPE to A CA 750,000 Sale of Inventory
SP 950,000 Cost 250,000
Profit 200,000 -56,000 144,000 SP 300,000
remaining useful life 4 Profit 50,000 -14,000 36,000
sold on last day of financial year 200,000 -56,000 144,000 40% 20,000 -5,600 14,400
40% 80,000 -22,400 57,600
A Profit 1,813,440 given
-36,000 exclude interco profit last 6 months
1,777,440
first half 888,720 6/12
second half 924,720 Plus interco profit
Dr/(Cr) J Cr/(Dr)
s/cap Inventory D/tax Ret earn Total NCI Inv gain Since RE
18.65% 60%
@ acq 500,000 - 2,688,720 3,188,720 1,913,232 800,000 475,488 dr inv in A
1 80 00 000 + 888 720 -475,488 475,488 cr share of profits
888,720 355,488
Profit (profit - AT INTERCO PROFIT STOCK ) / 2 see
+ ATcalc
INTERCO
above PROFIT
924,720
STOCK 924,720 554,832 369,888
Eliminate interco profit -50,000 14,000 -36,000 -21,600 -14,400

Dividend paid -100,000 -100,000 -60,000 -40,000

EOY 500,000 - -50,000 14,000 3,513,440 3,977,440 2,386,464 800,000 - 790,976
- -
ANALYSIS OF SHAREHOLDERS INTEREST IN Associate
50% 40%
AT ACQUISITION TOTAL AT SINCE Group statement alternative
Share Capital 500,000 Don’t put interco transactions in analysis
Retained Earnings 2,688,720 Just do journals and incorporate
-
3,188,720 1,275,488
Gain on bargain purchase cap cost of inv (475,488)
Investment in Red Ltd 800,000

SINCE ACQUISITION

Page 5 of 9
 (b) A workings

Current Year July to December

Profit for the year 924,720 369,888

Dividends paid (100,000) -40,000

824,720 329,888
Diff 14,400 Correct as this is the alternative

Page 6 of 9
 (b) A workings

Available 12
Max 12 Alternative to journal 1 and 2
Account for income and dividends in associate
0 Capitalise gain to inve in A Dr Investment in Associate 329,888 2.00 p
Dr Investment in joint A/ CC 475,488 1.00 Cr Share in Profit in Associate 369,888 1.00
Cr Share of profit from associate 475,488 1.00 Dr Dividends received/other income 40,000 1.00

1 Account for income from A CY Carrying amount of cost of investment in A - alt 1

Dr Investment in joint A/ CC 369,888 1.00 p Cost 800,000

Cr Share of profit from associate 369,888 1.00 Since reserves 790,976 Includes interco profit elim and gain
1 mark for calc 1 mark for journal when A made the profit
2 Eliminate dividend received from A 1,590,976
Dr Dividends received/ Other income 40,000 1.00 Add back interco profit where A made profit
Cr Investment in A/CC 40,000 1.00 p Does not affect Inv in A, goes against assets of S
14,400
3 Eliminate 40% of the intercompany profit on sale of asset Take into account interco profits where H made profit
Dr Other income/ Gain on sale of asset 80,000 1.00 and adjusted against Investment in A
Cr Investment in associate 80,000 1.00 -80,000
S made the profit but PPE is in A's books (950-750)x 40% 1,525,376

4 Deferred tax on the intercompany profit on sale of asset Carrying amount of cost of investment in A - alt 2
Dr Deferred SoFP 22,400 0.50 p Cost 800,000
Cr D tax p/l or Taxation 22,400 0.50 p Gain on bargain purchase 475,488
H made the profit but PPE is in A's books 28% Since reserves 369,888
22,400 Since reserves -40,000 Div X 40%
5 Eliminate 40% of the intercompany profit in stock 1,605,376
Dr Share of profit from associate 20,000 1.00
Cr Inventory 20,000 1.00 Take into account interco profits where H made profit
A made the profit but inventory in groups books (300-250)x 40% Adjusted against Investment in A -80,000 (950-750)x40%
1,525,376
6 Deferred tax on the intercompany profit in stock - Check
Dr Deferred tax SoFP 5,600 0.50 P
Cr Share of profit of
associate 5,600 0.50 P
A made the profit but inventory in groups books 28%
5,600
No journal for elimination of account fees
Minus 1 if student has journal for this

Page 7 of 9
 (c) SoCI

ACCC 371 Question Bank, Question 28 suggested solution

Statement of profit and loss and other comprehensive income One mark for each amount (sign has to be correct). Except for H + S(half mark each) the other amounts are principle amounts refer to amounts use in journals
For the year ending 31 December 2013 Calculation Available Max
Data in question H+S Pro forma's 22.00 18.00
H S A S J3 S J4 S J5 S J6 S J7 S J8 S J9 A J0 A J1 A J2 A J3 A J4 A J5 Total
Sales -22,250,000 -12,550,000 -9,850,000 34,800,000 34,800,000 1.00
Cost of sales 15,490,000 8,700,000 6,810,000 -24,190,000 -24,190,000 1.00
Gross profit 10,610,000
Other income -970,000 -550,000 - 1,520,000 -500,000 -270,000 -240,000 -40,000 -80,000 390,000 6.00 p
Expenses 1,282,000 700,000 618,000 -1,982,000 240,000 -1,742,000 2.00 p
Income tax expense 1,699,440 930,000 608,560 -2,629,440 140,000 22,400 -2,467,040 3.00 p
Share of profits of associates 475,488 369,888 -14,400 830,976 355,488 3.00 p
-
Profit -4,748,560 -2,770,000 -1,813,440 - 7,621,936
-

Other comprehensive income that will not be reclassified to profit and loss 24,406
Other comprehensive income revaluation at end of year - -180,000 180,000 -150,000 30,000 2.00 p
Tax on other comprehensive income - 33,566 -33,566 27,972 -5,594 2.00 p
-
Total comprehensive income 7,646,342
-
Profit attributable to: 7,621,936
Owners of the parent 7,019,436 -
Non controlling interests 602,500 602,500 1.00 p
-
Total comprehensive income attributable to: 7,646,342
Owners of the parent 7,037,740 check -
Non controlling interests 6,101 608,601 608,601 1.00 p
- -

Dividend paid (declared and paid 31 December 2013) 420,000 360,000 -780,000 360,000 -420,000

Page 8 of 9
 (c) SoCI

Statement of changes in equity - not required just for reference

Revaluat Non
Retained ion controlling
Share capital earnings reserve Total interest Total equity
Opening balance 1 January 2013 1,000,000 1,800,000 - 2,800,000 1,331,507 4,131,507
1,431,507
-100,000
Transfer of revaluation reserve to retained earnings - - -
Total comprehensive income 7,019,436 18,304 7,037,740 608,601 7,646,342

Dividend paid -420,000 -420,000 -90,000 -510,000

Closing balance 31 Dec 2013 1,000,000 8,399,436 18,304 9,417,740 1,850,108 11,267,849
- - - check
Opening Closing
Test RE ( H + since A/S/JV) balance balance
H 2,100,000 6,428,560
Plus since S -300,000 1,237,500
Plus since A - 790,976
H interco profit made on sale to A -57,600
1,800,000 8,399,436
- diff

Statement of financial posistion - not required just for reference H+S

Share capital (2 000, 1 500, 1 000 number of shares) -1,000,000 -1,500,000 -1,000,000
Retained earnings -2,100,000 -3,200,000 -8,399,436
Revaluation reserve - -144,000 -18,304
Non controlling interest -1,850,108
Deferred tax -250,000 -150,000 28,000 -372,000
Goodwill 105,479
Investment in S 4,400,000 -
Investment in A 800,000 1,525,376
Property plant and equipment 3,058,560 7,411,434 10,469,994
Accounts receivable 190,000 110,000 300,000
Inventory 100,000 150,000 -20,000 230,000
Bank 160,000 139,000 299,000
Accounts payable -1,030,000 -260,000 -1,290,000
Profit -4,748,560 -2,770,000 in closing bal above
OCI -146,434 in closing bal above
DIV 420,000 360,000 in closing bal above

Closing re -6,428,560 -5,610,000 0 should be nil

-6,428,560 -5,610,000 0 diff from above
Diff - - 0.56
Sum SoFP -0 0

Page 9 of 9
ACCC 371 Question Bank, Question 30 suggested solution

Identification of the issue: IFRS 10 " Consolidated annual fnancial statements" defines control and if control can
be demonstrated the investment in Mondi should be consolidated. OR Control is obtained/defined in IFRS 10 as the
power over an investee that gives an investee exposure to variable returns and the ability to use that power to
affect such returns (link).
1

IEC may have power over Mondy if it has the practical ability to direct the relevant activities 1
Presumtion: The 48.1 % (130/270) shareholding is regarded as significant in relation to the other shareholders. OR
48% shareholding alone does not result in control but other factors have to be considered (IFRS 10 par 8)

1
The other shareholders are mostly small and widely dispersed with NO history of collaboration between a group of
them during meetings to enforce certain views or opinions. 1

Possible preliminary conclusion on power: Application example 4 of IFRS 10 - Where an investor holds 48% of the
voting rights and the remaining voting rights are held by thousands of other shareholder the investor can conclude
that it has sufficient dominant voting interest to meet the power criterion. 1

On average only 95% of all voting shareholders attend the AGM meeting and thus less than 50% shareholding
would in fact result on majority voting rights. 1
42.5% (95/2) will be required to achieve a majority. 1
Since 1994 the IEC only held an effective interest of 31% (29.6/95) and would not have had a majority; however
since 2004 they effectivelt hold 50.6% (48.1/95) which does give them majority.
1
IEC should only consider Substantive rights that have practical ability to exercise that rights. 1
The preference share were not substantive as there are no record of outstanding dividends that will give voting
rights, and should not be considered. 1
The preference share are also only protective in nature are they only allow votes with regards to issues that directly
affect the preference shareholders
1
Final conclusion on power : It seems that IEC does have power over Mondy 1
IEC is exposed to variable returns in the form of dividends 1
Due to the majority voting right they also have the ability to affect the variable returns by decision making that will
affect the profits of Mondy since 2004. 1

Conclusion on control: Due to the practical ability to obtain a majority vote at annual general meetings which will
lead to the appointment of directors who in turn affect relevant activities of Mondi, the IEC controls Mondi.
1
Available 15
Max 10
ACCC 371 Question Bank, Question 30 suggested solution

Consideration transferred at acquisition date R 1,509,091

- Cash payment R 909,091 2
Fv = 1000000
N1
I=10%

Shares - 100000*5 R 500,000 1

Contingent consideration R 100,000 1

Non controlling interest R 4,500,000 1

R 6,009,091
Nett identifiable assets and liabilities R -7,017,352
- Share capital (given) R 1,500,000 1

- Revaluation land (100000-(100000*(28%*66.6%))) R 81,352 1

- Retained earnings (given) R 5,400,000 1
- Inventory (50000*.72) R 36,000 1
Gain on bargain purchase R -1,008,261 1p
Mark for applying goodwill definition. FV of Stabilo's assets LESS NCI - Consideration = Goodwill
Available 10
Marks 10
 Q32
ACCC 371 Question Bank, Question 32 suggested solution Available marks Calc/formula 6
Journals 18
Change in ownership Sub → Assoc pro forma journals 24
Maximum marks 22

THE ANALYSIS IS JUST A USEFUL AID: MARKS ALLOCATED

Partial disposal of interest in sub S - A (NCI at prop share) IN THE ACTUAL JOURNALS

1 Facts given 01-Apr-2009 01-Jul-2012 30-Sep-2012 30-Jun-2013

BOY Disposal EOY
80% interest disposed half… 40%
Consideration
R 1,100,000 Portion of original inv. disposed R (550,000) (40/80 x 1100k)
includes FV of contingent consideration Proceeds R 860,000
R 310,000
FV of retained investment R 805,000

FV adjustments at acquisition: no adjustments required. CA = FV for all assets. Management's intention with development asset = irrelevant.

Parent NCI Total Company profit

80% 20% 100%
-40% 40%
40% 60% 100% O/bal Move C/bal

Revaluation surplus R 18,000 dr bal R 24,500 42,500

Retained earnings R 250,000 R 730,000 Assume CFH reserve arose at EOY

12/12 3/12 9/12

Assoc share at 40%
153,600
Profit R 512,000 R 128,000 R 384,000
Revenue R 1,112,000 R 278,000 R 834,000
COS R (360,000) R (90,000) R (270,000)
Income tax expense R (240,000) R (60,000) R (180,000)

OCI Movement in reserve above R 24,500 24,500

Page 1 of 9
 Q32

ACCC 371 Question Bank, Question 32 suggested solution Available marks Calc/formula 6
Journals 18
Change in ownership Sub → Assoc pro forma journals 24
Maximum marks 22
2 Calculations/formulas

a FV adj on remaining investment

Cost 1 100 000 /2 550,000 1 p cost / 2
Since reserves (486 400 +14 400) /2 250,400 1 p Sine RE lost per analysis
800,400
Fair value Given 805,000
Fair value gain Increase 4,600 1 P
3
b1 Company (parent's) profit b2 ALTERNATIVE
Co proceeds R 860,000 1 Gain on sale of interest in group's records
less % investment sold (1 100 x 40/80) R (550,000) See above Consideration received upon sale of shares 860,000 0.5
= Company profit R 310,000 1 p Fair value of investment retained (also consideration: group gets something) 805,000 0.5
NCI derecognised (group doesn't owe them anymore) Analysis 375,200 1
b2 Group profit Less: Flake's equity lost (no control anymore) Analysis -1,876,000 0.5
Company profit above 310,000 Less: Flake's goodwill lost -100,000 0.5
Since reserves lost R (250,400) 1 p Gain on sale of portion of interest (incl. FV adjustment) 64,200
3 marks
R 59,600 Less: portion of this already recognised as fair value adjustment -4,600 on left
Amounts previously recognised in OCI: n/a Gain on sale of portion of interest (excl. FV adjustment) 59,600
recycled CFH reserve (SEE NOTE BELOW) Amounts previously recognised in OCI reclassified to p/l n/a
(e.g recycled CFH reserve)
Group gain excluding FV adjustment R 59,600 3 Group gain excluding FV adjustment 59,600 6

PLEASE SEE FURTHER ALTERNATIVE CALCULATIONS FOR THE GROUP PROFIT UNDERNEATH THE VERTICAL ANALYSIS.
PLEASE AWARD SAME NUMBER OF MARKS AS ABOVE IF STUDENT CHOSE ANY OTHER ALTERNATIVE.

NOTE on recycling of Revaluation surplus:

When control is lost, IFRS 10 par B98(c) and B99 require that OCI items be reclassified to P/L if subsidiary would have been required to do so when disposing of the underlying asset.
A revaluation surplus is not transferred to profit and loss but to retained earnings or another category of equity.
Thus the recycled revaluation surplus does not form part of the group profit or loss.

Page 2 of 9
 Q32
Available marks Calc/formula 6
Journals 18
24
Maximum marks 22
3 Horizontal analysis of equity (Vaal method) - see later for Potch analysis.
Equity of S/A Cr/(Dr)
Since
Revaluation revaluation
s/cap surplus Ret earn Total NCI Inv Goodwill Since RE suplus
20%
@ acq 1,000,000 - 250,000 1,250,000 250,000 1,100,000 -100,000 1

movement till boy 18,000 18,000 3,600 14,400

2
movement till boy 480,000 480,000 96,000 384,000
boy 1,000,000 18,000 730,000 1,748,000 349,600 1,100,000 -100,000 384,000 14,400 1 -
Profit b4 change 128,000 128,000 25,600 102,400
3
M2M b4 change - - - -
Balance b4 change 1,000,000 18,000 858,000 1,876,000 375,200 1,100,000 -100,000 486,400 14,400 -
6
60%
14,400 -14,400 0.
7
3. sum of 1 and
4 2% 1. 2.
Disposal of shares 800,400 -550,000 -250,400 Sum since reserves lost
their share of net assets -310,000 TAKE OUT co profit
4 59,600 PUT IN group profit ex fv adj
they don't get any g will (prop share)

1,000,000 18,000 858,000 1,876,000 1,175,600 550,000 -100,000 250,400 - -

check
-1,071,000
Gain on remeasurement of investment 5 4,600 4,600 9
Derecognise NCI and remaining goodwill -1,075,600 -1,175,600 100,000
New investment at fair value 805,000 - 550,000 - 255,000 - -
Profit after change 384,000 384,000 153,600 7
OCI transfer to reval reserve 24,500 24,500 9,800 8
- - -
eoy 1,000,000 42,500 1,242,000 2,284,500 - 550,000 - 408,600 9,800 -
Closing bal A Inv + since reserves 968,400
OR YOU CAN DO A SHORT CUT

Balance b4 change 1,000,000 18,000 858,000 1,876,000 375,200 1,100,000 -100,000 486,400 14,400 -
7
14,400 -14,400
4

Page 3 of 9
 Q32
Available marks Calc/formula 6
Journals 18
24
Maximum marks 22
Change in ownership 800,400 -550,000 4 -250,400
20%
Derecognise certain balances -1,175,600 100,000
Gain on remeasurement of investment 4,600
Profit after change 384,000 384,000 7 153,600
OCI transfer to Revaluation surplus 24,500 24,500 9,800
8

eoy 1,000,000 42,500 1,242,000 2,284,500 - 550,000 - 408,600 9,800 -

Closing bal A Inv + since reserves 968,400

Page 4 of 9
 Q32
ACCC 371 Question Bank, Question 32 suggested solution Available marks Calc/formula 6
Journals 18
Change in ownership Sub → Assoc pro forma journals 24
Maximum marks 22
4 Journals

ALTERNATIVE 1: SHORTCUT METHOD

Logic for shortcut journals
You have sold part of your investment in Sub it now becomes an associate.
You are not going to consolidate associate at the end of the year, therefore starting point is Sweet's TB only.
1 At the beginning of the year you however had an NCI and Since RE that related to Sub so you have to bring that in.
2 You also shared in profit for 3 months of the year so bring that in on a line by line basis.
3 Give NCI their share of the first 3 months' profit too.
That will bring your since RE up to an amount of ...
4 You now have to derecognise since reserves (by adding back co profit and putting in group profit).
5 You now have to derecognise NCI that you have built up in journals above.
6 IFRS 10 requires that the remaining investment be revalued to FV (805 000 - 550 000 as this is what pulls through from trial balance).
7 IFRS 10 par B98(c): When sub is sold realise portion of other since reserves (recycle to profit or RE depending on nature of reserve).
Dr Cr Calculations
1 Cr NCI (SoFP) 349,600 (1 000'+250'+18'+480') x 20% 1P
1 Cr Retained earnings 384,000 (480') x 80% 1
1 Cr Revaluation surplus 14,400 (18') x 20% 1
2 Cr Revenue R 278,000 Net effect 1 112' x 3/12 RE c/bal 1
2 Dr COS R 90,000 profit 360' x 3/12 486,400 1
2 Dr Income tax expense R 60,000 R 128,000 240' x 3/12 1
3 Dr NCI (p/l) 25,600 128' x 20% 1
Cr NCI (SoFP) 25,600 or (1112-360-240)x3/12x20% 1
4 Dr Profit on sale of inv (company) (p/l) R 310,000 See calc above 1P
Cr Profit on sale of inv (group) (p/l) R 59,600 See calc above 1P
Cr Fair value adjust on inv (group) (p/l) R 4,600 See calc above 1P
5 Dr NCI (SoFP) 375,200 Journal 1 + 3 for NCI 1
6 Dr Investment in Flake 255,000 FV less CA (805' - 550') 1p
1,115,800 1,115,800 -

7 Dr Revaluation reserve 14,400 1

Cr Retained earnings 14,400 1
Revaluation surplus recycled to retained earnings.

Subsequent equity accounting after change:

Dr Investment in Flake 163,400 1p

Page 5 of 9
 Q32
ACCC 371 Question Bank, Question 32 suggested solution Available marks Calc/formula 6
Journals 18
Change in ownership Sub → Assoc pro forma journals 24
Maximum marks 22
CrShare of profit of associate 153,600 (1112'-360'-240') x 9/12 x 40% 1
Cr Share of OCI of associate 9,800 24,5' x 40% 1
Sweet's share of equity accounted earnings in CY

18

Page 6 of 9
 Q32
ACCC 371 Question Bank, Question 32 suggested solution Available marks Calc/formula
Journals
Change in ownership Sub → Assoc pro forma journals
Maximum marks
ALTERNATIVE 2: CONSOLIDATE FIRST AND THEN DECONSOLIDATE LATER

Below follows an alternative where Flake Ltd is first seen as a subsidiary and therefore consolidated up until control is lost, after which it is "deconsolidated".

The starting point is therefore Sweet Ltd AS WELL AS Flake's trial balances that are added together and then adjusted by way of pro forma journals.

Pro forma consolidation journals Calculations Dr Cr

J1 Share capital 1,000,000 0.5
Retained earnings 250,000 0.5
Goodwill 100,000bal 0.5P
Non-controlling interest 20% x (1 000'+250') 250,000 0.5P
Investment in Flake 1,100,000 0.5
Consolidation of Flake Ltd
J2 Retained earnings 96,000 0.5
Revaluation surplus 3,600 0.5
Non-controlling interest (SoFP) 99,600 0.5P
Accounting for line items of non-controlling interest in the equity of Flake Ltd
J3 Non-controlling interest (p/l) 128'x20% 25,600 0.5
Non-controlling interest (SoFP) or (1112-360-240)x3/12x20% 25,600 0.5
Accounting for line items of non-controlling interest in the equity of Flake Ltd
J4 Non-controlling interest (SoFP) J1+J2+J3 nci b4 change 375,200 0.5p
Investment in Flake Ltd 1100'/2 550,000 0.5p
Gain on sale of Investment in Flake (according to Sweet) 860-550 proceed-inv/2 310,000 0.5P
Investment in Associate Given 805,000 0.5
Assets and Liabilities Total equity 1250'+18'+480'+128' 1,876,000 0.5p
Goodwill As above 100,000 0.5P
Gain on sale of interest (Group) (p/l) See calc above 59,600 0.5P
Fair value adjustment (p/l) See calc above 4,600 0.5P
Deconsolidation per IFRS 10.B98
J5 Investment in Associate Sum of 163,400 1p
Share of profit of associate (p/l) (1112'-360'-240')x9/12x40% 153,600 1
Share of OCI of associate (OCI) 24,5' x 40% 9,800 1

Page 7 of 9
 Q32
ACCC 371 Question Bank, Question 32 suggested solution Available marks Calc/formula
Journals
Change in ownership Sub → Assoc pro forma journals
Maximum marks
Accounting for Sweet's portion of equity of the associate
J6 Assets and Liabilities (SoFP) (balancing) 408,500 1P
Cost of sales (360 000 x 9/12) 270,000 0.5
Income tax expense (240 000 x 9/12) 180,000 0.5
Revaluation surplus through OCI (OCI) 24,500 1
Revenue (1 112 000 x 9/12) 834,000 1
Derecognise line items for the period Flake was not a subsidiary

J7 Dr Revaluation reserve 14,400 1

Cr Retained earnings 14,400 1

18
4,537,300 4,537,300

Page 8 of 9
 Cell: O79
Note: Author:
If reserve can recycle to profit and loss do it through profit and loss e.g cfh reserve. Else
ACCC 371 Question Bank, Question 39 suggested solution Available 13.00
Max #REF!
Question 66a
Email format: 1.00

Email address To, From, Heading: Should we consolidate X Gen

IFRS 10 par 2a A parent should consolidate a subsidiary if it controls a subsidiary. IFRS 10 sets out the requirements of establishing Control. 1.00
The presumption is that an ordinary shareholding of more than OR BB only has a 45% shareholding and that in itself does not
50% will result in control. result in control. 1.00
IFRS 10 par 8 An investor shall consider all facts and circumstances when assessing control. 1.00

IFRS 10 par 7 An investor controls and investee when it has all the following 1.00
Power
Exposure/rights to variable returns
And a link between the two

Power is the existing right that give an entity the current ability
IFRS 10 par 10 to direct relevant activities 1.00

New financing, business decisions, and management

Relevant activities of X Gen are operating and financing appointments of X Gen need the approval of the BB board of
activities that affect returns (IFRS 10 B 11) directors, which is a relevant activity. 1.00
BB has agreed to subscribe to a debenture issue by X Gen which
is a decision about the funding of X Gen - a further relevant
activity. 1.00
Through the shareholder agreement BB has the current ability to
BB has power over X Gen: direct relevant activities (power). 1.00
BB will receive ordinary dividends distributed from variable
profits and thus has a right to variable returns ( higher profits
IFRS 10 par 15 Exposure/rights to variable returns more dividends etc.) 1.00

Based on the fact that BB is making relevant decisions of X Gen

they are able to influence X Gen's profits thus proving a link
IFRS 10 par 17 And a link between power and returns between power and return. 1.00
A special decision requiring 75% approval is a protective right and
not a substantive rights and need not be considered in
IFRS 10 par B26 Consider only substantive rights not protective rights establishing power or control. 1.00
Conclusion BB controls X Gen and should consolidate X Gen (PS: NCI would be at 55%) 1.00 p
ACCC 371 Question Bank, Question 39 suggested solution Available 7.00
Max 7.00
Question 66b

face/par value= pv 150,000 10 1,500,000 0.50

coupon = pmt 12% 180,000 0.50
future value = fv 120% 1,800,000 0.50
period = n 3 0.50
compute i 17.619% 1.00 p
Principal for student to know no
market rate
Amort table Have to compute i
obal interest cap cbal
end year 1 1,500,000 264,279 84,279 1,584,279 1 500 000 + 84 279
1 500 000 x017.619% 264 278 - 180 000
end year 2 1,584,279 279,128 99,128 1,683,407 not needed
end year 3 1,683,407 296,593 116,593 1,800,000 not needed

Pro forma journals

Eliminate intercompany interest

Dr Interest received 264,279 1.00 Journal
Cr Interest paid 264,279 1.00 p year 1 int in amort
No mark if coupon amount of
180 000
Eliminate the financial instrument balances

Dr Financial liability/ Debenture Liability/ Debentures 1,584,279 1.00 Journal

Cr Financial asset / Investment in Debentures/ Debentures 1,584,279 1.00 p year 1 cbal in amort

No mark if initial loan amount of

1 500 000
ACCC 371 Question Bank, Question 39 suggested solution Available 34.50
Q Max 33.00
Question 66c movem tax oci m2m Key:
Cost of Investment 1,000,000 18.648% PPE = Property plant and equipment
Fair value boy 1,250,000 250,000 -46,620 203,380 203,380 NCI = Non Controlling interest
Fair value eoy 1,050,000 -200,000 37,296 -162,704 40,676

The term Deferred tax (p/l) can be interchanged with Taxation or Income tax

H sold inventory to S (not in analysis) 28%

Interco
Sales for year 780,000 profit tax net
On hand BOY 130,000 32,500 -9,100 23,400
25% on SP EOY 160,000 40,000 -11,200 28,800
Movement 7,500 -2,100 5,400
28%
18.648% 20%

ANALYSIS Y GEN 80% 20%

AT ACQUISITION Calculations Total AT SINCE NCI
Share Capital 250,000 200,000 50,000
Retained Earnings 780,000 624,000 156,000
(60 000 + (92 192 x
Revaluation Reserve (100-18.648)) 135,000 108,000 27,000
1,165,000 932,000 233,000
Goodwill 85,000 68,000 17,000
Investment in Y Gen 1,250,000 1,000,000 250,000

SINCE ACQUISITION
Retained Earnings (955 000 - 780 000) 175,000 140,000 35,000
PPE - Profit -144,000 -115,200 -28,800
Revaluation Reserve (85 000 - 60 000) 25,000 20,000 5,000
1,306,000 44,800 261,200
CURRENT YEAR
Profit 160,000 128,000 32,000
Land Sold -75,000 -60,000 -15,000
PPE - Depreciation 14,400 11,520 2,880
Revaluation Reserve 11,063 8,850 2,213
Dividends -60,000 -48,000 -12,000
 1,356,463 85,170 271,293
control check -0 -0
Pro - forma journals -
1 Dr Deferred tax (SoFP) 46,620 0.50 p CGT rate
Dr Mark to marker reserve 203,380 1.00 Journal (direction and account descriptions all 3)
Cr Investment 250,000 0.50 amount
Reversal of prior year investment adjusted to fair value

2 Dr Investment 200,000 0.50 amount

Cr Remeasurement gain/FV adj (OCI) 200,000 1.00 Journal (direction and account descriptions)

Reversal of current year investment adjusted to fair value

Dr Deferred tax (OCI) 37,296 0.50 p CGT rate
Cr Deferred tax (SoFP) 37,296 1.00 Journal (direction and account descriptions)
Deferred tax on the above
Dr Retained earnings 23,400 1.00 Journal (direction and account descriptions)
Dr Dtax SoFP 9,100 no mark
or just Dtax p/l and leave below journal
Cr COS 32,500 0.50 amount
Prior year interco profit in stock reversed to COS in CY
Some first put to inventory then take inventory to COS
Dr Dtax (p/l) 9,100 0.50 p
Cr Dtax SoFP 9,100 no mark
Realise Dtax SoFP to p/l (can follow short cut)

Dr Revenue 780,000 0.50 amount

Cr Cost of sales 780,000 1.00 Journal (direction and account descriptions)
Eliminate current year interco sales

Dr Cost of sales 40,000 0.50 amount

Cr Inventory 40,000 1.00 Journal (direction and account descriptions)
Eliminate interco profit in closing stock

Dr Dtax SoFP 11,200 0.50 p 28%

Cr Dtax (p/l) 11,200 1.00 Journal (direction and account descriptions)
Deferred tax on the above

Dr Share capital 250,000 0.50 There is an alternative to first reval and then eliminate
Dr Retained earnings 780,000 0.50 Net effect the same
Revaluation reserve 60,000 0.50 No additional marks awarded for long way round
Investment property: Land 92,192 1.00
 Deferred tax (SoFP) 17,192 0.50 p CGT rate
Cr NCI (SOFP) 250,000 0.50 FV given
Cr Investment 1,000,000 0.50
Dr Goodwill 85,000 1.00 p
1,267,192 1,267,192
At acquisition elimination
Dr Revaluation reserve 5,000 0.50 amount
Cr NCI (SOFP) 5,000 1.00 Journal (direction and account descriptions)
Allocating NCI there share of reserves to BOY

Dr Retained earnings 144,000 1.00 Journal (direction and account descriptions)

Dr Deferred tax (SoFP) 56,000 0.50 p 28%
Cr PPE 200,000 0.50 amount
Reverse intercompany profit on sale on PPE in prior year

Dr Retained earnings 6,200 1.00 Journal (direction and account descriptions)

Cr NCI (SOFP) 6,200
(200 000 x 72%) x 20% -28,800 0.50 amount
175 000 x 20% 35,000 0.50 amount
Allocating NCI there share of reserves to BOY

Dr Accumulated Depreciation :Plant 20,000 0.50 p Calc profit above / 10 years

Cr Depreciation 20,000 1.00 p Journal (direction and account descriptions)
Realising intercompany profit on sale though depreciation If profit above opposite here

Dr Deferred tax (p/l) 5,600 0.50 p 28% of depr above

Cr Deferred tax (SoFP) 5,600 1.00 Journal (direction and account descriptions)
Tax on the above

Dr NCI (OCI) 2,213 1.00 Journal (direction and account descriptions)

Cr NCI (SOFP) 2,213 0.50 amount
Allocating NCI their share of the revaluation surplus (take note opposite direction)

Dr Profit on sale of land 92,192 1.00 Journal (direction and account descriptions)
Cr Investment property: Land 92,192 0.50 amount
Reverse the fair value adjustment on land at acquisition on subsequent sale thereof

Dr Deferred tax (SoFP) 17,192 0.50 P CGT rate

Cr Deferred tax (p/l) 17,192 1.00 Journal (direction and account descriptions)
Tax on the above
Dr NCI (SOFP) -19,880 1.00 Journal (direction and account descriptions)
Cr NCI (p/l) 200 000 /10 x 72% x 20% 2,880 0.50 amount
92 192 8 x (100% -18.648%) x 20% -15,000 0.50 amount
160 000 x 20% 32,000 0.50 amount
Allocating NCI there share of the current year loss (take note opposite direction)

Dr Dividend received 48,000 1.00 Journal (direction and account descriptions)

Dr NCI (SoFP) 12,000
Cr Dividend paid 60,000 0.50 amount
Eliminating intercompany dividend

Narrations 1.00
ACCC 371 Question Bank, Question 39 suggested solution

Trial balance of Y Gen as at 30 June 2015

dr/(cr)
Statement of financial position items
Share capital (250,000)
Revaluation Reserve (85,000)
Retained earnings (955,000)
Deferred tax liability (93,000)
Investment property 350,000
Property plant and equipment (PPE) 607,063
Inventory 420,000
Accounts receivable 399,000
Accounts payable (462,000)
Receiver of Revenue (60,000)
Items in profit and loss
Revenue (8,755,000)
Costs of sales 6,128,500
Other income (551,490)
Other expenses 3,000,000
Taxation 17,990
(160,000)
Items in other comprehensive income
Revaluation of PPE (13,599)
Taxation other comprehensive income 2,536
(11,063)
Equity distributions
Dividend paid 60,000

Profit -160,000
Check -
OCI -11,063
Check -

TB balance -240,000
ACCC 371 Question Bank, Question 40 suggested solution

Available
Question marks Max Time (minutes)
Part A
a) 9 9 16.2
b) 14 14 25.2
c) 11.50 9 16.2
Presentation 1 1 1.8
35.5 33 59.4

Part B
a) 3 3 5.4

Part C
a) 7 4 7.2
7 4 7.2

Total for test 45.5 40 72

ACCC 371 Question Bank, Question 40 suggested solution
Part A
Not required, provided for completeness
a) Marks
YOGI LIMITED AND ITS SUBSIDARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2014
Rand
ASSETS 5,200,692
Non-current assets
Land and buildings (3500 + 400 + 600 (1) + Reval Land 75 (1)) 4,575,000 2
Machinery (350 + 134 + 60 (1) + Loss on machine 65 (1) - Acc dep on machine 20 (1)) 589,000 3
Investments (given in TB) 16,000 1
Goodwill (See Analysis Swift - Calculation 1 for marks allocated) 20,692 3
Part a) MAX 9.0
Current assets 1,247,600
Inventory (320 + 328 + 50 - 42) 656,000
Accounts receivable (264 + 175 +7) 446,000
Bank (12 + 133,6) 145,600
Total assets 6,448,292

EQUITY AND LIABILITIES

Total equity 5,640,093
Equity attributable to equity holders of the
Parent 5,015,277
Share capital 4,550,000
Retained earnings 463,650
Other reserves 1,627 -
Non-controlling interest (71,76 + 526,05) 624,816

Total liabilities 808,199

Non-current liabilities
Long term liabilities 540,000
Deferred tax (0.373 + 18.2 - 5.6 - 14 + 14 - 11.76 + 13.986) 15,199
Current liabilities
Accounts payable (143 + 80 + 30) 2.226 253,000
Total equity and liabilities +(50 000 -42000)x28% 6,448,292
b)
YOGI LIMITED AND ITS SUBSIDARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR
ENDED 31 DECEMBER 2014 Rand
Profit before tax (180 + 210 + 60 (1) + OB Inventory 50 (1) - CB Inventory 42 (1) - Dep Machine 20 (1)) 438,000 4

Income tax expense (64 + 70 + 12 (1) + OB Inventory 14 (1) - CB Inventory 11.76 (1) - Dep Machine 5.6 (1)) (142,640) 4

Profit for the period 295,360

Total comprehensive income for the year 295,360
Attributable to:
Equity holders of the parent 207,256
Non-controlling interest (13.44 (2) + 74.664 (4) ) (See analysis Mini + Swift for allocation of 6 marks) 88,104 6
295,360
Part b) Max 14
c)
YOGI LIMITED AND ITS SUBSIDARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED
31 DECEMBER 2014
Ord share Pref share Ret Mark-to-m Total * NCI Tot equity *
capital * capital * Earnings arket
reserve

Rand Rand Rand Rand Rand Rand Rand

Balance 31/12/x7 4,050,000 500,000 374,394 1,627 4,926,021 836,112 5,762,133
See Calc 4
allocation 8
marks 8.002.5p
Total comprehensive income for the year 207,256 207,256 88,104 295,360 1(0.5p + 0.5p)
Pref.div (50,000) (50,000) - (50,000) 0.5
Ord.div (68,000) (68,000) (299,400) (367,400) See calc 5 2
Balance 31/12/x8 4,050,000 500,000 463,650 1,627 5,015,277 624,816 5,640,093
Part c) AVAILABLE 11.50
* Not required - only for completeness sake Part c) MAX 9

Presentation a) - c) 1.0
 ACCC 371 Question Bank, Question 40 suggested solution
Calculations MARKER MUST MAKE SURE CALCS ARE AWARDED MARKS

Notes to Students on using the memo

Items in green affects Statement of Financial Position - Required Part A

Items in yellow affects profit and loss - Required Part B
Items in blue affects Statement of Changes in Equity - Required Part C

Land Dtax Rev Surp

1 Revaluation on Land 75,000 13,986 61,014 Dt Land, Ct Dtax, Ct RS

2 Inventory - Swift Analysis CP P SP

100 25 125
Profit Dtax RE
Opening Balance 250,000 50,000 14,000 36,000 Dt RE, Dt Tax (p/l) Ct COS
Closing Balance 210,000 42,000 11,760 30,240 Dt Cos, Ct Inv, Dt Dtax, Ct Tax (P/L)

3 Machinery - Mini Analysis

UL 5years
31-Mar-2012
Cost Price 300,000
2012 Depreciation -45,000 9/12
2013 Depreciation -60,000 12/12
CA - 31 December 2013 195,000
Proceeds 130,000 Machine Dtax RE
Loss on sale of machinery 65,000 65,000 18,200 46,800 (Dt Machine, Ct Dtax Ct RE)

RUL - months (60 - 9 -12) 39 Dtax

Depreciation 2013 (12/39) 20,000 5,600 14,400 (Dt Depr, Ct Acc Depr, Dt Dtax, Ct Tax (p/l)
Accumulated Depreciation 20,000

Calculation 4 - SoCE (Opening Balance)

RETAINED EARNINGS
Retained Earnings - Yogi 156,000 Given 0.5
Retained Earnings - Mini 17,094 (5 (0.5) + Loss on Machinery 46.8 (0.5) x 60%x50% (1) 2
Retained Earnings - Swift 200,200 (1165-765 (0.5) -36 (0.5)) x 55% (0.5) 1.5
Gain on Bargain Purchase Mini 1,100 (2 x 55%) (0.5) 0.5 P
374,394

MARKET TO MARKET 1,627 Given 0.5

NCI
Mini 60,720 (40 (0.5p) + (20,720) (0.5p)) 1 P
Swift 774,492 (596,706 (0.5p) + 163,800 (0.5p) + 13,986 (0.5p)) 1.5 P
Mini - Gain on Bargain Purchase 900 (2 x 45% (0.5p)) 0.5 P
836,112

Calculation 5 - SoCE (Ordinary Dividends)

Retained Earnings -68,000 Given 0.5

NCI - Mini -2,400 (6x40% (0.5)) 0.5
NCI - Swift (Special) -270,000 (600x40% (0.5)) 0.5
-27,000 (60x40% (0.5)) 0.5
-367,400

Analysis of equity of Mini Ltd

60% 40%
Total At RE NCI
ORDINARY SHARES
1. At acquisition 14/9/2011:
Share cap 100,000 60,000 40,000
Investment 58,000
Gain on bargain purchase 2,000
2. Since acquisition:
i. To begin C Yr
Ret earnings (5 + OB inventory 46.8) 51,800 31,080 20,720
ii. Current year

Profit (Profit 60 - Tax 12 (0.5) - Dep Part b

machine 20 (0.5) + Tax on dep 5.6 Calc 2
(0.5)) = R33 600 x 45% (NCI) (0.5)p 33,600 20,160 13,440 2(0.5P)
Dividends (6,000) (3,600) (2,400)
179,400 47,640 71,760

Analysis of equity of Swift Ltd

55% 45%
Total At RE NCI
ORDINARY SHARES
1. At acquisition 31/12/2008:
Share cap 500,000
0.5
Ret earnings 765,000
Part a
Revaluation surp (75-13.986) 61,014 10.5 each
Calc 1
1,326,014 729,308 596,706 1P
Investment 750,000 0.5
Goodwill (20,692)
2. Since acquisition:
i. To begin C Yr 395,080 217,294 177,786
RE - S (1165-765-36) 364,000 200,200 163,800
RE - M 31,080 17,094 13,986
Gain on bargain purchase: Mini 2,000 1,100 900

ii. Current year

Dividend (600,000) (330,000) (270,000)
165,920 91,256 74,664
Profit - S 145,760 80,168 65,592 3(1P) Part b
(210-70 (0.5) + 36 (0.5p) - 42 (0.5) + 11.76 (0.5)) = R145 760 x 45% (NCI) (0.5p) Calc 2
Profit - M (R20 160 (0.5p) x 45% NCI (0.5p)) 20,160 11,088 9,072 1P
Dividends (60,000) (33,000) (27,000)

1,229,014 (20,692) (54,450) 553,056

ACCC 371 Question Bank, Question 40 suggested solution
Part B
Punte

Impairment (p/l) (15 000 x 55%) (45,100) See calc below for marks 2
Acc impairment losses for goodwill (SoFP) (45,100) allocated to amount 1Journal
3

Calc
Carrying value 1,266,636
Net identifiable assets 1,229,014 ½P
Goodwill grossed up (20.692/55%) 37,622 √
Recoverable amount 1,348,636 ½
Impairment of goodwill on 31/12/2014 (82,000)
ACCC 371 Question Bank, Question 40 suggested solution
Punte
Part C
a)

Yogi still controls Swift and consolidation is still required. The issue of preference shares by Swift will affect 1
the Yogi group consolidation as follows:

- Yogi chose according to IFRS 3.19 to measure non-controlling interest in preference shares
at fair value. Even though Yogi does not have any interest in the preference shares of Swift, 1
the fact that the non-controlling interest is shown at the fair value thereof, the goodwill of the
group will be affected (will increase by R3 000) 1

- Non-controlling interest in SoFP will increase by R42 100 (R43 000 - R900) 2

- Non-controlling interest in P/L will increase by R1 100 (R2 000 - R900) 2

Part a) 7
Workings
Analysis of equity of Swift Ltd
0% 100%
Total At Since NCI
PREFERENCE SHARES
1. At acquisition 1/1/2014:
Share cap 40,000 40,000
Goodwill 3,000 3,000
Consideration and NCI 43,000 43,000

Profit attributable to preference 2,000 0 2,000

shareholders

Preference dividend (2,000) 0 (2,000)

43,000 43,000

Preference dividend effect on ordinary shareholders:

Analysis of equity of Swift Ltd
55% 45%
Total At Since NCI
ORDINARY SHARES
Current year
Profit for the year - pref div (2,000) (1,100) (900)
ACCC 371 Question Bank, Question 40 suggested solution
Part A
Not required, provided for completeness
a) Punte
YOGI LIMITED AND ITS SUBSIDARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2014
Rand
ASSETS 5,200,692
Non-current assets
Land and buildings (3500 + 400 + 600 (1) + Reval Land 75 (1)) 4,575,000 2
Machinery (350 + 134 + 60 (1) Loss on machine + 65 (1) Acc dep on machine - 20 (1)) 589,000 3
Investments 16,000 1
Goodwill (See calc 2.1 for allocation of 3 marks awarded) 20,692 3
Part a) 9.0
Current assets 1,247,600
Inventory (320 + 328 + 50 - 42) 656,000
Accounts receivable (264 + 175 +7) 446,000
Bank (12 + 133,6) 145,600
Total assets 6,448,292

EQUITY AND LIABILITIES

Total equity 5,640,093
Equity attributable to equity holders of the
Parent 5,015,277
Share capital 4,550,000
Retained earnings 463,650
Other reserves 1,627 -
Non-controlling interest (71,76 + 526,05) 624,816

Total liabilities 808,199

Non-current liabilities ALT
Long term liabilities 540,000 h -373
Deferred tax (0.373 + 18.2 - 5.6 - 14 + 14 - 11.76 + 13.986) 15,199 hor analys -12,600
Current liabilities hor analys -2,226
Accounts payable (143 + 80 + 30) 2.226 253,000 -15,199
Total equity and liabilities +(50 000 -42000)x28% 6,448,292
b)
YOGI LIMITED AND ITS SUBSIDARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR
ENDED 31 DECEMBER 2014 Rand
Profit before tax (180 + 210 + 60 + 50 - 42 - 20 ) 438,000 4
√ √ √
√
Income tax expense (64 + 70 + 12 - 5.6 - 11.76 + 14) (142,640) 4
√ √ √
√
Profit for the period 2.24 295,360
Total comprehensive income for the year 295,360 check NCI CY
Attributable to: s 74,664
Equity holders of the parent 207,256 ss 13,440
Non-controlling interest (13.44 + 74.664) (See calc 3 for allocation of 6 marks awarded) 88,104 6 88,104
295,360
Part b) 14
c)
YOGI LIMITED AND ITS SUBSIDARIES Check H + since S boy H
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED H 156,000
31 DECEMBER 2014 S 218,394
Ord share Pref share Ret Earnings Mark-to-ma Total NCI Tot equity
capital capital rket reserve
SS diff
Rand Rand Rand Rand Rand Rand Rand 374,394 -
Balance 31/12/x7 4,050,000 500,000 374,394 1,627 4,926,021 836,112 5,762,133 See calc 4 for
allocation of 7.5
marks 7.5 check NCI BOY
Total comprehensive income for the year 207,256 207,256
88,104 295,360 s 775,392
Pref.div (50,000) (50,000) - (50,000) 0.5 ss 60,720
Ord.div (68,000) (68,000)
(299,400) (367,400) See calc 5 1 836,112
Balance 31/12/x8 4,050,000 500,000 463,650 1,627 5,015,277
624,816 5,640,093 check NCI CY
Part c) 9 s 74,664
Check H + since S H 517,000 =156000+180000+363000-64000-68000-50000 ss 13,440
S -53,350 Presentation a) - c) 1.0 88,104
SS check NCI EOY
CALCULATIONS 463,650 DIFF - DT CT s 553,056
Calc 1 boy - Rand Rand ss 71,760
1Machinery (300000 - 45000 - 60000) - 130000 65,000 624,816
 RE (M) 46,800
Deferred tax (SoFP) 18,200

2Depr (M) 20,000

Acc depr (65000 x 12/39) 20,000

Deferred tax (SoFP) 5,600

Income tax expense (p/l) 5,600

3 RE (S) 36,000.0
Profit (S) (250000 x 25/125) 50,000
Income tax expense 14,000
 OR

RE (S) 36,000
Deferred tax (SoFP) 14,000
Profit (S) (250000 x 25/125) 50,000

Income tax expense (p/l) 14,000

Deferred tax (SoFP) 14,000

4 Profit (S) (210000 x 25/125) 42,000

Inventory 42,000
Deferred tax (SoFP) 11,760
Income tax expense (p/l) 11,760

5 Excess on acquisition 1,100

Retained earnings 1,100

6Land 75,000
Revaluation surplus (SoCE) 61,014
Deferred tax (SoFP) 13,986

Calc 2
2.1
IFRS 3.32: calculation of gain from bargain purchase on ordinary shares of Mini:

Consideration transferred on acquisition date 58,000 ½

Amount of non-controlling interest (100k x 40%) 40,000 ½
98,000
Net of identifiable assets acquired and liabilities assumed (100,000) ½
Gain from a bargain purchase (2,000)

2.2
IFRS 3.32: calculation of goodwill on ordinary shares of Swift:

Consideration transferred on acquisition date 750,000 ½

Amount of non-controlling interest [500k + 765k + 61.014k) x 45%] 596,706
√ ½ 1,346,706
½
Net of identifiable assets acquired and liabilities assumed (1,326,014) ½ P
Goodwill 20,692

Calc 3
NCI (P/L): Mini 13,440
½P ½P
* 60 - 12 - 20 + 5.6 = 33.6
½
33.6 x 40% ½

NCI (P/L): Swift 74,664

Mini: 33.6 x 60% x 45% 9,072
½P ½

Swift: 65,592
* 210 - 70 + 50 - 42 - 14 + 11.76 = 145.76
½ ½P
½P ½P ½P

145.76 x 45% ½

Calc 4
Retained earnings √
Yogi: Given 156,000
Mini: 17,094
* (5 + 46.8) x 60% x 55%
√
Swift: 200,200
* (1 165 - 765 - 36) x 55%
√
√

Gain on bargain purchase: Mini 1,100

See Calc 2.1 (2 x 55%)
½P
374,394
Mark-to-market Given

NCI
Mini:
At acquisition (100k x 40%) 40,000 ½P
Since (5 + 46.8) x 40% 20,720 ½P

Swift
At acquisition 596,706 ½P
Since 177,786
Swift:(1165 - 765 - 36) x 45% 163,800 ½P
Mini:(5 + 46.8) x 40% x 45% 13,986 ½P

Gain on bargain purchase: Mini 1,100 ½P

(2 x 45%)
836,312

Calc 5
Retained earnings: dividends Given 68,000

NCI
Mini (6 x 40%) 2,400 ½
Swift (600 + 60) x 45% 297,000 ½
299,400

Analysis of equity of Mini Ltd

60% 40%
Total At RE NCI
ORDINARY SHARES
1. At acquisition 14/9/2011:
Share cap 100,000 60,000 40,000 1
Investment 58,000
Gain on bargain purchase 2,000
2. Since acquisition:
i. To begin C Yr
Ret earnings (5 + 46.8) 51,800 31,080 20,720 1
ii. Current year
Profit (60 - 12 -20+5.6) 33,600 20,160 13,440 2(0.5P)
Dividends (6,000) (3,600) (2,400)
179,400 47,640 71,760
Analysis of equity of Swift Ltd
55% 45%
Total At RE NCI
ORDINARY SHARES
1. At acquisition 31/12/2008:
Share cap 500,000 0.5
Ret earnings 765,000
Revaluation surp 61,014 1
1,326,014 729,308 596,706
Investment 750,000 0.5
Goodwill (20,692)
2. Since acquisition:
i. To begin C Yr 395,080 217,294 177,786
RE - S (1165-765-36) 364,000 200,200 163,800 2
RE - M 31,080 17,094 13,986 1P
Gain on bargain purchase: Mini 2,000 1,100 900 1P

ii. Current year

Dividend (600,000) (330,000) (270,000)
165,920 91,256 74,664
Profit - S 145,760 80,168 65,592 3(0.5P)
(210-70+50-42-14 + 11.76)
Profit - M 20,160 11,088 9,072 1P
Dividends (60,000) (33,000) (27,000)

1,229,014 (20,692) (54,450) 553,056

ACCC 371 Question Bank, Question 40 suggested solution
Alternative analysis and workings 195,000 ca
260,000 sp
Mini 28.00% 40%
scap re ppe dtax total nci inv (gwil) since re
at acq 100,000 - 100,000 40,000 58,000 2,000
gain -2,000 2,000
move 5,000 65,000 -18,200 51,800 20,720 31,080
boy 100,000 5,000 65,000 -18,200 151,800 60,720 58,000 - 33,080
profit 48,000 -20,000 5,600 33,600 13,440 20,160
=60000-12000
div paid -6,000 -6,000 -2,400 -3,600
100,000 47,000 45,000 -12,600 179,400 71,760 58,000 - 49,640
147,000
179,400

28.00%
66.60%
18.64800%
Swift 81.3520% 45%
scap re re mini land inventory dtax total nci inv (gwil) since re
at acq 500,000 765,000 75,000 -13,986 1,326,014 596,706 750,000 -20,692
gain -
move 400,000 33,080 -50,000 14,000 397,080 178,686 218,394
boy 500,000 1,165,000 33,080 75,000 -50,000 14 1,723,094 775,392 750,000 -20,692 218,394

profit allready excludes

140,000 20,160 8,000 -2,240 165,920 74,664 91,256
=210000-70000
div rec ss
div paid -660,000 -660,000 -297,000 -363,000
500,000 645,000 53,240 75,000 -42,000 -2,226 1,229,014 553,056 750,000 -20,692 -53,350
1,229,014
1,229,014
 ACCC 371 Question Bank, Question 41 suggested solution Note to markers
If a student does not have anything in brackes assume SoFp
DT CT Marks Taxation (p/l) can be interchanged with Deferred tax (p/l) or Income tax(p/l)

1 A (i) S: BLUE PROFORMA JOURNALS (Consol BLUE into Grey (EI) - only BLUE journals required) ALTERNATIVES

(1) DT Mark to Market Reserve 16,270 0.5 amount Key

DT Dtax (SoFP) 3,730 0.5 CGT PPE = Property plant and equipment
CTInvestment in S (BLUE) (20,000) 1 Journal (direction & account descriptions) NCI = Non controlloing interest
Reverse opening Mark to Market reserve - Investment adjustment RE = Retained earnings

(2) DT Fair Value adjustment (OCI) 10,000 1 Journal (direction & account descriptions)
CTInvestment in S (BLUE) (10,000) 0.5 amount

DT Dtax (SoFP) 1,865 0.5 CGT

CTIncome Tax (OCI) (1,865) 0.5 Journal (direction & account descriptions)
Reverse current year fair value adjustment
Method 1 Alternative like Group statements (long way)
(3) DT Share Capital 850,000 0.5 DT Land 108,320 0.5
DT Retained Earnings 80,000 0.5 CTRevaluation Surplus (OCI) (88,120)
DT General Reserve 10,000 0.5 CTDeferred Taxation (SoFP) (20,200) 0.5
DT PPE 250,000 0.5
DT Goodwill (S - Blue) 148,121 1 P NAV at fV x 60% vs 850 000 CTRevaluation Surplus (OCI) (180,000)
DT Land/PPE (owner occupied) 108,320 0.5 CTDeferred Taxation (SoFP) (70,000) 0.5
DT Plant and Machinery/ PPE 250,000 0.5
half for each p (150 000 + 50 550 + 2 500)x 55%
CTGoodwill (SS - Yellow) input (38,322) 2.5 P vs 150 000 DT Share Capital 850,000 0.5
CTInvestment in S (H: Grey) (850,000) 0.5 DT Retained Earnings 80,000 0.5
CTNCI (SoFP) (467,919) 1 P nav at FV x NCI % DT General Reserve 10,000 0.5
CTDeferred Taxation (SoFP) (90,200) 1 P half land and cgt rest at 28% DT Revaluation Surplus 268,120
- Land, PPE & Stock 1,446,441 (1,446,441) DT Goodwill (S - Blue) 148,121 1 P
AT acquisition Journal (S: BLUE) - 8.50 CTGoodwill (SS - Yellow) (38,322) 2.5 P
CTInvestment in S (H: Grey) (850,000) 0.5
CTNCI (SoFP) (467,919) 1 P
Method 2 1,356,242 (1,356,242) 8.5
-
DT Share Capital 850,000 0.5
DT Retained Earnings blue 80,000 0.5
DT Retained Earnings yellow 15,868 0.5
DT General Reserve blue 10,000 0.5
DT General Reserve yellow 550 0.5
DT Goodwill (S - Blue) 148,121 1NAV at fV x 60% vs 850 000
DT Land 108,320 0.5
DT PPE 250,000 0.5
p (150 000 + 21 700 + 1 500)x 55%
CTGoodwill (SS - Yellow) (54,740) 2.5 vs 150 000
CTInvestment in S (H: Grey) (850,000) 0.5
CTNCI (SoFP) (467,919) 0.5
CTDeferred Taxation (SoFP) (90,200) 0.5
- Land, PPE & Stock 1,462,859 (1,462,859) 8.50
(4) DT Retained Earnings 25,000 0.50 amount Alternative like Group statements (long way)
DT Depreciation (P/L) 50,000 0.50 amount DT Retained Earnings 18,000 1.00
CTAccumulated Depreciation (SoFP) (75,000) 1.00 Journal (direction & account descriptions) DT Deferred tax (SoFP) 7,000 0.50
Recognise additional depreciation due to revaluation CTAccumulated Depreciation (SoFP) (25,000) 0.50
Depr up to BOY
DT Deferred Tax (SoFP) 21,000 1.00 Journal (direction & account descriptions) DT Depreciation (P/L) 50,000 0.50
CTRetained Earnings (7,000) 0.50 p 28% CTAccumulated Depreciation (SoFP) (50,000) 0.50
CTIncome Tax Exp (P/L) (14,000) 0.50 p 28% DT Deferred tax (SoFP) 14,000 0.50
Tax effect of above Journal 4.00 CTIncome Tax Exp (P/L) (14,000) 0.50
[Remember - students may also split the two journals above] 4.00

(5) DELETED INVENTORY

can award half marks in analysis too (7 up to BO)
(6) DT Retained Earnings (S + SS) 72,989 4.00 1/2 each
p - S [ (195 000 (move re) - 25 000 ppe + 7 000) + ss (27 950 (move re) - 25 000 inv + 7 000) x since 55% = 5 473] x 40% nci
DT General Reserve (S + SS) 8,090 2.00 1/2 each
p - [S 15 000 (move GR) +ss (9,500 move GR*55%= 5225) * ]40%
DT Revaluation Surplus (S + SS) 14,400 1.00 1/2 each
36000 (move to boy) x 40%
CTNCI (SoFP) (95,479) 1.00 Journal (direction & account descriptions)
Allocatte since acquisition reserves to NCI
can award half marks in analysis too (4.5 in CY)
(7) DT NCI (P/L) (S + SS) 118,113 4.50 1/2 each
p - S [ (324 000 - 44 000 prof - Y div) - 50 000 ppe + 14 000) + ss (84 240 (prof) + 12 500 inv - 3 500) x since 55% = 5 473] x 40% nci
CTNCI (SoFP) (118,113) 1.00 Journal (direction & account descriptions)
Allocatte current year profits to NCI

(8) DT Dividend Received 129,000 0.50 amount

DT NCI (SoFP) 86,000 0.50 P bal no
CTDividend Paid (215,000) 1.00 Journal (direction & account descriptions)
Reverse Dividends Paid/received
JRNLS (S: BLUE) 32.5
CALC MARKS (S: BLUE and YELLOW) - see journal 4 and 5 above
Available 32.5
Maximum 30
ACCC 371 Question Bank, Question 41 suggested solution Was Sub -> to Assoc.
60% --> 40%
1 A (ii PROFORMA JOURNALS TO CONSOLIDATE Ass INTO Parent DT CT Marks
Change in ownership: Change in status (Was Sub for first 9 mnths)

(1) Gain/Loss on Disposal

DT Gain on Disposal of Interest (H: Grey) 15,500 1 P H separate records
CTInvestment in A (2,257) 0.5 P Received Disposed Gain
CT(Gain)/Loss on Disposal (Equity sold) (9,414) 1 P 45,000 29,500 15,500
CT(Gain)/Loss on Remeasurement (Equity retained) (3,829) 1 P

(2) P/L allocation from when it was still Sub Allocate 9 months As per TB
DT Cost of sales 69,000 1 P 92,000
DT Other operating expenses 1,725 1 P 2,300
DT Income tax expense 4,347 1 P 5,796
DT NCI (P/L) 4,471 1 P
CTRevenue (86,250) 1 P (115,000)
DT Investment in A 6,707 0.5 P (14,904)

(3) Since Reserves allocation

DT Investment in A 11,550 0.5 P Investm. H separate records: TEST
CTRetained Earnings (11,550) 0.5 P 16,000 Cost of retained Investment 59,000
FV of retained Investment (75,000)
(4) Transfer of Reserves (16,000) -
There is no item in OCI in RED To show note/understanding
Sum of entries to Inv in A 16,000 worth 1.5 marks
(5) NCI adjustment - recognition, opening balance & current yr Also amount to diff of FV and rem in at cost Principal marks
DT NCI (SoFP) - derecognised portion 57,571 1 p derecognise obal +cy 75,000 59,000 16,000
CTNCI (SoFP) - Opening Balance (53,100) 0.5 amount
CTNCI (SoFP) - Current Yr (4,471) 0.5 p
1.00 Journal (direction & account descriptions)
ASSOCIATE JOURNALS (LAST 3 MONTHS)

DT Investment in A 1,490 0.5 amount

CTShare of Profit in A (RED) (1,490) 1.00 Journal (direction & account descriptions)
(Recognise Profit of Associate)

DT Other Income (P/L) 6,000 0.5 amount

 CTInvestment in A (6,000) 1.00 Journal (direction & account descriptions)
(Elimination of Dividend received)
JRNLS 16
CALC MARKS See journal Can award in analysis
Available 16
Maximum 15
 Cell: F12
Note: Allocate 9 months income to Red

Cell: B13
Note: name:
Please change layout of memo. Stock adjustments must be part of cos, depr part of
Cell: F16
Note: name:
pls check direction once memo format ammended
Cell: F21
Note: name:
This must come out of div received or other income
Cell: C25
Note: name:
part of other income
A1(ii) Alternative for S to A
ALTERNATIVE: CONSOLIDATE FIRST AND THEN DECONSOLIDATE LATER
The textbook approach is to use only the trial balance of P Ltd as starting point
and then do a summary journal where A Ltd is incorporated into P Ltd's trial
balance according to the equity method.
The textbook approach therefore sees A Ltd as an associate from the start
and then to work it into the group by way of a pro forma journal.
Below follows an alternative where A Ltd is first seen as a subsidiary and therefore
consolidated up until control is lost, after which it is "deconsolidated".
The starting point is therefore P Ltd AS WELL AS A Ltd's trial balances
that are added together and then adjusted by way of pro forma journals.
This alternative takes a longer time, but is easier to understand.
The alternative can be applied to any situation where control is lost. Available Max
16.00 15.00
B3 Pro forma consolidation journals Dr Cr formula
R R
J1 Share capital 100,000 100,000 - 0.50
Retained earnings 5,500 8,000 -2,500 0.50
General reserve 8,000 0.50
Goodwill 20,400 20,400 - 0.50 p
Non-controlling interest 45,400 45,400 - 0.50 p
Investment in A over eliminated by 51000 88,500 88,500 - 0.50
Consolidation of A Ltd 133,900 133,900
-
J2 Retained earnings 7,700 7,700 - 0.50
Mark-to-market reserve (OCI) - -
Non-controlling interest (SoFP) 7,700 7,700 - 1.00
Accounting for line items of non-controlling interest in the equity of A Ltd -
-
J3 Non-controlling interest (p/l) 4,471 4,471 - 0.50
Non-controlling interest (SoFP) 4,471 4,471 - 1.00 journal
Accounting for line items of non-controlling interest in the equity of A Ltd -
-
J4 Non-controlling interest (SoFP) nci before date of change 57,571 57,571 - 0.50 p
Investment in A put back over elimination 29,500 29,500 - 0.50
Gain on sale of Investment in A (according to P Ltd) 15,500 1.00 p
Investment in Associate starting point in inv A at FV 75,000 75,000 - 0.50
Assets and Liabilities nav at date change 143,928 143,928 - 0.50 p
Goodwill 20,400 20,400 - 0.50 p
Gain on sale of interest (Group) (p/l) 9,414 1.00 p
Fair value adjustment (p/l) 3,829 3,829 - 1.00 p
Deconsolidation per IAS 27.34 186,986 168,157 355,142
-
J5 Investment in Associate 1,490 1,490 1.00 Journal
Share of profit of associate (p/l) 1,490 1,490 - 0.50
Share of OCI of associate (OCI) - -
Investment in Associate 6,000
Dividend received 6,000 6,000 0.50
Accounting for P's portion of equity of the associate 7,490 7,490 14,981
-
J7 Assets and Liabilities (SoFP) (balancing) 5,175 1.00 p
Cost of sales take out 3 months 23,000 0.50
Other operating expenses take out 3 months 0
Income tax expense take out 3 months 575 0.50
Gain on investments at fair value through OCI (OCI) take out 3 months
Revenue 28,750 0.50
Derecognise line items for the period A was not a subsidiary 28,750 28,750 0
As per TB
Revenue -115,000
Cost of sales 92,000
Other income 0
Other operating expenses 2,300
Income tax expense 5,796
OCI fair value ajustment on Investments 0
1 A (ii)PROFORMA JOURNALS TO CONSOLIDATE Ass INTO Parent
Example 13.6 partial disposal of interest in sub S - A ( NCI at prop share ) - as group satements does it
Equity of S/A Cr/(Dr)
Since M2M
s/cap GR Ret earn Total NCI Inv Goodwill Since RE res
40%
@ acq 100,000 8,000 5,500 113,500 45,400 88,500 -20,400 1

movement till boy - - - -

2
movement till boy 19,250 19,250 7,700 11,550
boy 100,000 8,000 24,750 132,750 53,100 88,500 -20,400 11,550 - -
Profit b4 change 11,178 11,178 4,471 6,707 0. Transfer ALL other since reserves to RE
3
reval b4 change - - - - ( S - A no longer consolidating)
Balance b4 change 100,000 8,000 35,928 143,928 57,571 88,500 -20,400 18,257 - - 1. derecognise part investm at cost
6
60% 2. derecognise % since reserves
- - 0. by adding back co profit and accounting for group profit
18,257 -
3. sum of 1 and 1.
2% 2. 3. NCI gains since reserves and your inv lost
4
Disposal of shares 35,586 -29,500 -6,086 Sum since reserves lost 35,586
their share of net assets 15,500 add back co profit NCI at % share NOT FV. They don’t get a part of old goodwill
-9,414 put in group profit ex fv adj 4 . NCI balance after change will now be derecognised
they don't get any g will (prop share) goodwill realised
They did not even share in the goodwill at acquisition

100,000 35,928 143,928 93,157 59,000 -20,400 12,171 - - 5. If change in status diff goes to group profit/loss
93,157 Not at prop share anymore
-68,928 CA of sub after change
Gain on remeasurement of investment 5 3,829 3,829 9 Cost 59,000
Derecognise NCI and remaining goodwill -72,757 -93,157 20,400 Since reserves 12,171
New investment at fair value 75,000 - 59,000 - 16,000 - - 71,171
Profit after change 3,726 3,726 1,490 7 Fair value 75,000
- - 8 Fair value gain 3,829
Div paid -15,000 -15,000 -6,000
eoy 100,000 24,654 132,654 - 59,000 - 11,490 - - Company pforit 15,500
Closing bal A Inv + since reserves 70,490 Less since reserves lsot -6,086 18 257 * 20/60
equals group profit 9,414
 Logic for shortcut journals
You have sold part of your investment in Sub it now becomes an associate
You are not going to consolidate s2 at the end of the year
1 At the beginning of the year you however had an NCI and Sine RE that related to S so you have to bring that in
2 You also shared in profit for 3 months of the year so bring that in on a line by line basis
3 Give NCI their share of the first months profit too
That will bring your since RE up to an amount of ...
4 You now have to derecognise since reserves (by adding back co profit and putting in group profit)
5 You now have to derecognise NCI that you have built up in journals above
6 IAS 27/IFRS 3 requires that the remaining inv be revalued to FV in co books ( 80 000 - 51 000 = 29 000)
7 IAS 27/IFRS 3: When sub is sold realise portion of other since reserve (recycle to profit like revaluation surplus on PPE)

Marks Calc
1 Cr NCI (SoFP) 53,100 4.50 (100 000 + 8 000 + 5 500 + 19 250 ) x 40%
1 Cr Retained earnings 11,550 1.00 (24 750 - 5 500 = 19 250) x 60%
1 Cr GR -
100%9/12 0.50
2 Cr Revenue R 86,250 11,178 (115,000) (86,250) 0.50
2 Dr COS R 69,000 92,000 69,000 0.50
Dr Expenses R 1,725 2,300 1,725 0.50
2 Dr Tax R 4,347 5,796 4,347
(14,904) (11,178) 1.00 p calc
3 Dr NCI (SoCI) 4,471 check RE closing balance 1.00 Journal
Cr NCI (SoFP) 4,471 4,471.20 18,257
1.00 (45 000 - 88500 * 20 / 60)
4Dr Profit on sale of investment (company) R 15,500 1.00 p Company profit less since reserves lost
Cr Profit on sale of investment (group) R 9,414 1.00 p derecognition of NCI boy plus NCI CY
Cr Profit on sale of investment (group) remeasurement R 3,829
5 Dr NCI (SoFP) 57,571
1.50 p Bal no Investment in A
6Dr Investment in A 16,000 made up as follows
75,000 59,000 16,000
168,614 168,614 -
Subsequent equity accounting after change

Dr Investment in A 1,490
CrShare of profit from associate 1,490 1.00 Journal
Cr Share of OCI from asssociate - 0.50 calc
Your share of equity accounted earnings in CY

Dr Other income /div received 6,000

Cr Investment in A 6,000 0.50 calc
Eliminate interco div 16.00
ACCC 371 Question Bank, Question 41 suggested solution

1 A (ii) Line items in group AFS

Mark allocation should be for every line as follows Available 14
1 mark for H + S + SS Max 12
1 mark for x/12 of Red while they were a sub 12
1 principle mark for incorporating YE adjustments or half mark if asked in A

Data in question Proforma

H S (60%) SS (55%) S -> A (40%)
Grey Blue Yellow Red Jrnl Total
Statement of profit and loss and other comprehensive income
For the year ending 31 December 2015
1 mark 1 mark 2 marks
Cost of sales 6,180,000 2,000,000 520,000 69,000 -12,500 8,756,500 4.00
either add in 9/12 Dr Inv Cr COS (25 -12.5)
or add 100% & 92,000 -25,000 see analysis for workings
deduct 3/12 -23,000 12,500 see analysis for workings
2 p mark (check sign) 4.00

Statement of Financial Position

As at 31 December 2015
1 mark negative 1 if included 1.00
Property, Plant and Equiptment 1,670,006 547,000 125,000 - 2,625,326

Land 108,320 p (asked in A 1) 0.50

Plant and Machinery
Reval at acq 250,000 p (asked in A 1) 0.50
Subs depr -25,000 p (asked in A 1) 0.50
-50,000 p (asked in A 1) 0.50
175,000 3.00
Max 3.00
Investment in A (RedFox) 140,981
- Cost at FV (IFRS 3) 75,000 1 mark 1.00
- Since reserves:
Current year Share of Profit in Associate 1,490 p (asked in 1(ii) 1.00
Dividend elimination -6,000 p (asked in 1(ii) 1.00
70,490 3.00

Statement of Changes in equity

For the year ending 31 December 2015 1 mark elim at acq of S
H Since S Since SS Since A 1.00
General reserve - -9,000 -3,135 - -12,135
 -25,000 -12,000 TB
60% -10,000 -2,500 AT method 1
-15,000 -9,500 move 1.00
55% na -5,225 Since in Yellow 1.00
60% -9,000 -3,135 Since in Blue 5 225 * 60% 1.00
-9,000 -3,135 since reserves 4.00
Max 2.00
 ACCC 371 Question Bank, Question 41 suggested solution
R Marks
CASH PMT
Cash payable immediately 1,000,000 0.5 given
Deferred Cash payment: 892,857
FV = 1,000,000 ; I/YR = 12%; P/YR = 1; N= 1; PMT = 0) 892,857 2 P
interest (0.5), FV (0.5), N(0.5) compute PV (.5)

ASSET TRANSFERRED
Asset transferred at its Fair Value 1,500,000 0.5

LIABILITIES ASSUMED
Liability assumed 150,000 0.5

CONTINGENT CONSIDERATION
Probable contingent consideration 750,000 1

EQUITY ISSUED
Equity instruments issued – shares 1,500,000 1 half each
(50,000 x R30 each)
5,792,857

5.5 Available
5 Max
 METHOD 1: DEEMED SAME ACQUISITION DATE
Blue --> Yellow 55% Grey --> Blue 60% Grey --> Red 60% --> 40%
Descr. Calcs Total AT SINCE NCI Descr. Total AT SINCE NCI Descr. Total AT SINCE NCI
AT ACQUISITION AT ACQUISITION AT ACQUISITION Acquisition cost 88,500
SC 150,000 SC 850,000 SC 100,000
RE (30/6/2014) 50,550 RE (incl Stock) 80,000 RE 5,500
GR (30/6/2014) 2,500 GR 10,000 GR 8,000
203,050 111,678 91,372 Goodwill (SS) (38,322) 113,500 68,100 45,400
Goodwill 38,322 RS 268,120 701,879 467,919 Goodwill 20,400
Consideration at cost 150,000 - Land 88,120 Consideration at cost 88,500

- PPE 180,000
SINCE ACQUISITION Goodwill 148,121 SINCE ACQUISITION
Up to BEG of Current Yr Consideration at cost 850,000 Up to BEG of Current Yr
RE 27,950 1,169,798 467,919 RE 19,250 11,550 7,700
2014 Reverse Unreal.Profit (18,000) SINCE ACQUISITION
9,950 5,473 4,478 Up to BEG of Current Yr GR - - -
GR 9,500 5,225 4,275 RS 36,000 21,600 14,400 Current Yr - up to and including 30 Sept.15
GR 15,000 9,000 6,000 Profit 11,178 6,707 4,471

95,479
Current Yr RE (Note 1) 177,000 106,200 70,800 143,928 18,257 57,571
Profit 84,240 RE (SS) 5,473 3,284 2,189 Loss of control -
2014 Recognise Unreal.Profit 18,000 GR (SS) 5,225 3,135 2,090 Disposal of % (29,500) (6,086) 35,586
2015 Reverse Unreal.Profit (9,000) Current Yr Derecogn.G/W, NCI (93,157) Profit allocated: 14,904

118,113
93,240 51,282 41,958 Profit (SS) 51,282 30,769 20,513 143,928 59,000 12,171 - After tax depr. Adj. -
Profit (S) (Note 2) 244,000 146,400 97,600 Remeasurement Gain 3,829 14,904
Dividends paid (80,000) (44,000) (36,000) Current Yr - 01 Oct - 31 Dec'15 9 monthts -> 30 Sept 11,178
235,740 17,980 106,083 Dividends paid (215,000) (129,000) (86,000) Profit 3,726 1,490 3 months -> 31 Dec 3,726
1,488,777 191,388 595,511 Dividends paid (15,000) (6,000) 1 mark for using correct split
Calculation marks awarded as part of NCI journal (all principal marks) (Note 1) NCI Since 132,654 59,000 11,490
Up to BOY Adjustment to Since RE NCI (P/L) Remeasurement Gain/Loss
for bringing down goodwill of SS into AT of S (NET, see below) -38,322 RE - At 01/01/15 195,000 275 000-80 000 - FV of Investment retained (30/9/15) 75,000
for bringing down since RE of SS into S 5,473 - Incr. Depr on PPE (25,000) Using 6/12 - CA (value) of Investment retained 71,171
for bringing down since GR of SS into S 5,225 - Tax effect 7,000 GAIN 3,829
for reversing 2014 interco profit in stock (RE of SS) -18,000 Group Gain/Loss on Disposal
For using 30/6/14 RE in AT OR Bringing 50,550 - Proceeds 45,000
down RE & GR (Before 30/6/14) into AT 177,000 - less cost derecognised - At cost (29,500)
Date RE GR Company Gain/Loss on Disposal 15,500
Method 2:Goodwill using 01/1/13 (54,740) 01/01/13 21,700 1,500 (Note 2) - less cost derecognised - Since reserv. (6,086)
01/1/13 RE in AT 15,868 30/6/14 50,550 2,500 Adjustment to Profit (S) Group gain GAIN 9,414
01/1/13 GR in AT 550 Movement 28,850 1,000 Profit - At 31/12/15 324,000
(38,322) 55% 15,868 550 Less div rec ss (44,000) OR IFRS 10.B98
Current year - - Incr. Depr on PPE (50,000) Using full yr Derecognise A/L (incl Goodwill) (164,328)
for bringing down Profit of SS - Tax effect 14,000 Derecognise CA of NCI 57,571
for reversing 2015 interco profit in stock 244,000 Recognise FV of consideration 45,000
for recognising 2014 interco profit in stock AT ACQUISITION REVALUATIONS: Tax on Recognise FV of investment retained 75,000
FV adjustm. Depr adj. Tax eff. GAIN 13,243
Land 108,320 (20,230) - diff -
STOCK TRANSACTIONS: SS ('S') --> S ('H') PPE 250,000 (70,000) 50,000 (14,000) TOTAL CALCULATION MARKS FOR RED: See journal
Total Sales Unrealised Tax effect
Closing Stock Profit on SP
Period Profit
YE 2015 Closing 550,000 50,000 25/100 12,500 (3,500)
YE 2014 Opening 750,000 100,000 25/100 25,000 (7,000)
Tax at 28%
TOTAL CALCULATION MARKS FOR BLUE: See journals for calc marks
TOTAL CALCULATION MARKS FOR YELLOW: See journals for calc marks -
 Grey

60% Blue Red

55% Was Sub -> to Assoc.

Acquisition Date Yellow 60% --> 40%
Deem 30/06/14
Blue --> Yellow
30/6/14 YE:14 YE: 31/12/15

Method 1: "Acquired" BOY

30/06/2014 Grey --> Blue

30/6/14 YE:14 YE: 31/12/15

Acquired BOY

1/7/2012 Grey --> Red

1/7/2012 YE:14 YE: 31/12/15

Acquired BOY 9 months = Sub 3mnths = Assoc.

COST 31-Dec-14 movem. 30-Sep-15 movem. 31-Dec-15 movem. After tax Res
870,000
BLUE 850,000 20,000 875,000 - 880,000 10,000 24,400
RED
Fair value adjustment 20,000 - 10,000
Tax effect (3,730) - (1,865)
 Type Holder Subsidiary Sub-subsidiary Sub --> Assoc

Trial balance 31 December 2015 Grey Blue Yellow Red

Dr / (Cr) Dr / (Cr) Dr / (Cr) Dr / (Cr)
Ordinary share capital (1,250,000) (850,000) (150,000) (100,000)
Retained earnings - 1 January 2015 (1,900,500) (275,000) (78,500) (24,750)
Mark to market reserve - 1 January 2015 (16,270) - - -
Revaluation reserve - 1 January 2015 (180,000) (36,000) - -
General reserve - 1 January 2015 - (25,000) (12,000) (8,000)
Property, plant and equipment 1,670,006 547,000 125,000 5,800
Investment in Red at cost 59,000 - - -
Investment in Blue at fair value 880,000 - - -
Investment in Yellow at cost - 150,000 - -
Inventory 650,000 250,000 55,000 9,500
Debtors 150,000 80,000 18,000 5,000
Creditors (20,000) (30,000) (7,000) (3,100)
Bank and cash 967,060 298,000 53,740 115,454
Revenue (7,574,500) (2,456,000) (650,000) (115,000)
Cost of sales 6,180,000 2,000,000 520,000 92,000
Other income (150,500) (44,000)
Other operating expenses 154,500 50,000 13,000 2,300
Income tax expense 389,340 126,000 32,760 5,796
OCI fair value ajustment on Investments (10,000) - - -
Tax on OCI 1,865 - - -
Dividend declared and paid 31 December 2015 - 215,000 80,000 15,000

Subtotal of Profit for the year (1,001,160) (324,000) (84,240) (14,904)

Balance check 0.52 - - -
Profit check - - - -
Closing Mark to Market Reserve - 31 December 2015 (24,405)
yellow method 2 45%
scap re gr inv dtax total nci inv gwill since re since gen res
at acq 150,000 21,700 1,500 173,200 77,940 150,000 (54,740)
1,000 1,000 450 550
6/30/2014 28,850 28,850 12,983 15,868
acq date grey in blue 50550-21700 2500-1500
9,500 9,500 4,275 5,225
move 27,950 (25,000) 7,000 9,950 4,478 5,473
boy 150,000 78,500 12,000 (25,000) 7,000 222,500 100,125 150,000 (54,740) 21,340 5,775

Profit 84,240 12,500 (3,500) 93,240 41,958 51,282

Dividend (80,000) (80,000) (36,000) (44,000)

150,000 82,740 12,000 (12,500) 3,500 235,740 106,083 150,000 (54,740) 28,622 5,775
235,740 106,083 check
235,740 - diff

yellow method 1 45%

scap re gr inv dtax total nci inv gwill since re since gen res
at acq 150,000 50,550 2,500 203,050 91,373 150,000 (38,323)
6/30/2014 - - -
- - -

9,500 9,500 4,275 5,225

move 27,950 (25,000) 7,000 9,950 4,478 5,473
boy 150,000 78,500 12,000 (25,000) 7,000 222,500 100,125 150,000 (38,323) 5,473 5,225

Profit 84,240 12,500 (3,500) 93,240 41,958 51,282

Dividend (80,000) (80,000) (36,000) (44,000)

150,000 82,740 12,000 (12,500) 3,500 235,740 106,083 150,000 (38,323) 12,755 5,225
235,740 106,083 check
235,740 - diff
Blue method 2 40%
since rev
scap re rev surpl re yellow gr gr yellow gwill yellos land ppe dtax total nci inv gwill since re since gr
surpl
at acq 850,000 80,000 15,868 10,000 550 (54,740) 108,320 250,000 (90,199.51) 1,169,798 467,919.19 850,000 (148,121)
15,000 5,225 20,225 8,090 12,135
36,000 36,000 14,400 21,600
up to boy 195,000 5,473 (25,000) - 7,000 182,473 72,989 109,484

cy 280,000 51,282 (50,000) 14,000 295,282 118,113 177,169

324-44 - - -
div pd (215,000) (215,000) (86,000) (129,000)
850,000 340,000 36,000 72,622 25,000 5,775 (54,740) 108,320 175,000 - (69,200) 1,488,777 595,511 850,000 (148,121) 157,653 12,135 21,600

Blue method 1 40%

scap re rev surpl re yellow gr gr yellow gwill yellos land ppe dtax total nci inv gwill since re since gr
at acq 850,000 80,000 - 10,000 - (38,323) 108,320 250,000 (90,199.51) 1,169,798 467,919.19 850,000 (148,121)
15,000 5,225 20,225 8,090 12,135
36,000 36,000 14,400 21,600
up to boy 195,000 5,473 (25,000) - 7,000 182,473 72,989 109,484

cy 280,000 51,282 (50,000) 14,000 295,282 118,113 177,169

324-44 - - -
div pd (215,000) (215,000) (86,000) (129,000)
850,000 340,000 36,000 56,755 25,000 5,225 (38,323) 108,320 175,000 - (69,200) 1,488,777 595,511 850,000 (148,121) 157,653 12,135 21,600
595,511 check
red 40%

scap re gr ppe dtax total nci inv gwill since re since gen res
at acq 100,000 5,500 8,000 113,500 45,400 88,500 (20,400)
- - -
- - -
move 19,250 - - 19,250 7,700 11,550
boy 100,000 24,750 8,000 0 132,750 53,100 88,500 (20,400) 11,550 - Group profit
45000-
Co profit 20/60*88500 15,500
Profit to sept 11,178 11,178 4,471 6,707 less since reserves (6,086)
100,000 35,928 8,000 - - 143,928 57,571 88,500 (20,400) 18,257 - 9,414

sum ca retained FV diff

35,586 (29,500) (6,086) 59,000
take out co profit (15,500) 12,171
put in group profit 9,414 71,171 75,000 3,829

3,829 3,829
(72,757) (93,157) 20,400

100,000 35,928 8,000 75,000 86,356.80 59,000 (20,400) 12,171

60%
Profit after sept 3,726 3,726 2,235.60 1,490
Dividend (15,000) (15,000) (9,000) (6,000)

100,000 24,654 8,000 - - 132,654 79,592 59,000 (20,400) 7,662 -

 Cell: F12
Note: Allocate 9 months income to Red

Cell: B13
Note: name:
Please change layout of memo. Stock adjustments must be part of cos, depr part of
Cell: F16
Note: name:
pls check direction once memo format ammended
Cell: F21
Note: name:
This must come out of div received or other income
Cell: C25
Note: name:
part of other income
ACCC 371 Question Bank, Question 42 suggested solution `

(a) Recognition and measurement of EAWC’s interest in Talana Manzi in EAWC’s consolidated financial Available 18.00
Max 15.00
From: CA@gmail.com
To: Student@Yahoo.co.za
Subject: Classification and measurement of EAWC's interest in Talana Manzi
Dear Sir
Email format 1.00
IFRS 11 sets out the types of joint arrangements def 1.00

IFRS 11.4 1. A joint arrangement is an arrangement in which two or more parties have joint control. def 1.00
2. Joint control is the contractually agreed sharing of control, which exists only when
IFRS 11.7 decisions about the relevant activities require unanimous consent of the parties sharing def 1.00
a) A contract/agreement exists between EAWC and PZES. application 1.00

b) It would appear that the relevant activities of Talana Manzi are those relating to the
sourcing and pricing of exotic animals, as these determine the returns of the entity. application 1.00
c) However, each investor holds 50% of the shares and of the voting rights. This means that
the shareholders must be in agreement in order to come to a decision. Therefore
unanimous consent is required because shareholders holding at least 51% must make
decisions. application 1.00
Conclusion - 3. Therefore EAWC and PZES have joint control over Talana Manzi and a joint arrangement
Classification exists. p 1.00

IFRS 11.14 A joint arrangement can either be a joint venture or a joint operation 1.00
4. An entity shall determine the type of joint arrangement in which it is involved. The
classification of a joint arrangement depends upon the rights and obligations of the parties
to the arrangement. 1.00
5. A joint operation is a joint arrangement whereby the parties that have joint control have
rights to the assets and obligations for the liabilities relating to the arrangement, whereas (give mark for each
a joint venture is a joint arrangement whereby the parties that have joint control have definition: JO and
IFRS 11.15 and 11.6 rights to the net assets of the arrangement. JV) 2.00
6. As Talana Manzi is a separate legal entity, it may represent either of these two types of
IFRS 11.B19 joint arrangements. 1.00
7. Other facts and circumstances will need to be considered as the legal form and the
IFRS 11.B21/B29 terms of the contractual arrangement are not clear. 1.00

8. Talana Manzi will sell all of its output to EAWC and PZES at a price determined in order
to cover the expenses incurred by Talana Manzi. This indicates that that PZES and EAWC
have rights to substantially all the economic benefits of the assets of Talana Manzi and
are, in substance, responsible for the settlement of the liabilities of Talana Manzi. Talana
Manzi does not appear to have any other sources of income, as it appears that EAWC and
PZES are each obligated to purchase 50% of the output of Talana Manzi. Therefore the
cash flows from EAWC and PZES in substance satisfy the obligations of Talana Manzi. application 3.00

9. Based on the above, in my opinion EAWC and PZES have rights to the assets and
obligations for the liabilities of Talana Manzi and therefore Talana Manzi meets the
definition of a joint operation. P 1.00
(b) The impact of contingent liability on the measurement of goodwill Available 6.00
Max 3.00
IFRS 3 par 23. The requirements of IAS 37 do not apply in determining which contingent liabilites to recognise 1
at acquisition date as long as there is a present obligation with a realiably measurable fair value.

For business combinations (including consolidated financial statements) IFRS 3 relaxes the usual recognition 1
requirements (wider recognition criteria) in that liabilities only have to be reliably measurable (probability does
not affect recognition).

EAWS should thus recognise a contingent liability even if it is not probably that it will lead to an outflow of 1
resources because its fair value is reliably measurable .

At acquisition the liability (as a result of a present obligation) should be recognised at fair value (R2.5 million) 1
in terms of IFRS 3.

As long as the contingent liability is a present obligation and fair value can be determined it should be 1
accounted for as a liability at acquisition

This will increase the group liabilities at acquisition and therefore increase the amount of goodwill recognised. 1
ACCC 371 Question Bank, Question 44 suggested solution MAX 7
AVAILABLE 10
Q73(a) - Discuss whether Game of Thrones has significant influence over House Stark Ltd

FORMAT OF A MEMO 1
To: Chief Executive Officer of Game of Thrones Group Ltd 3 out of 5
From: CA Student
Date: 31 October 2015
Subject: Does Game of Thrones Ltd Group exercise significant influence over House Stark Ltd
Dear CEO

IAS 28 IAS 28 Investments in associates and joint ventures sets out the criteria to prove or disprove significant influence. Given

Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint
IAS 28.3 control of those policies. 1

If an entity holds, directly or indirectly, 20% or more of the voting power of the investee, it is presumed that the entity has significant
influence, unless it can be clearly demonstrated that it is not the case. 1
Application: Game of Thrones holds directly only 19% of the ordinary shares of Stark Ltd and therefore does not exercise significant
influence based on this alone. Or the 19% shareholding does not in itself lead to significant influence. 1

We therefore need to assess if Game of Thrones holds indirectly any voting power of the investee (other factors should thus also be
considered).
IAS 28.6 The existence of significant influence by an entity is usually evidenced in one or more of the following ways:
(a) Representation on the board of directors 0.5
application 1 of the 5 members are employed by Game of Thrones thus Game of thrones has representation on the board of Stark. 0.5
(b) Participation in policy making processes 0.5
application Game of Thrones appointed the new CFE Mr Rob Stark on 1 aug 2014 0.5
(c) Material transactions between entity and investee 0.5
application This is not applicable because sale of land only took place after control was obtained 0.5
(d) Interchange of managerial personnel 0.5
The financial director of the Game of Thrones group acted as CFO from January 2012 - December 2014 (Littlefinger). Therefore there
application was an interchange of managerial personnel which could lead to significant influence. 0.5
(e) Provide essential technical information 0.5
 House Stark obtained essential technical information from an employee of Game of Thrones (Tyrion Lannister) that will increase their
application profits by 60%. 0.5

Conclusion: Due to aforementioned, although Game of Thrones only directly holds 19% of the issued share capital, through its indirect
involvement the Game of Thrones group exercises significant influence over the financial and operating policies of House Stark up to
the change in ownership transaction on 1 Jan 2015. P 1
ACCC 371 Question Bank, Question 44 suggested solution Tax 28% Available Max
CGT 18.648% 81.352% 32.50 29.00
Q73(b)Journal to account for A-S (House Stark)

Workings
6 months
1Timeline 1.7.2012 1.7.2014 1.1.2015 30.6.2015
acq 1 boy acq 2 eoy
Inv in assoc before change
950,000 shares 2,050,000 shares Cost 1,425,000
R 1,425,000 cost R 3,895,000 cost Plus since reserves boy 92,872
RE R 600,000 R 1,179,333 1.900 cost per share div -57,000
Revaluation reserve increase R 72,000 1.900 fair value per share profit 145,501
1,606,373
before
total change after change
Revenue 6,594,000 3,297,000 3,297,000 Profit for the year 1,857,000
Cost of sales -3,895,000 -1,947,500 -1,947,500 Exclude other income 640 - 240 -400,000 Fair value 1,805,000
Other income 400,000 400,000 And tax on the above 18.65% 74,592 Remeasurement gain/(loss) 198,627
Other expenses -650,000 -325,000 -325,000 Net amount -325,408
Finance charges -240,000 -120,000 -120,000 1,531,592 Inv in assoc after change
Income tax expense -352,000 -138,704 -213,296 R (138,704) First 6 months 765,796 Fair value above 1,805,000
R 1,857,000 R 765,796 R 1,091,204 Additional cost 3,895,000
A S R 765,796 - 5,700,000
2 Analysis of investment @ cost vs FV 325,408
Second 6 months 1,091,204
Price per share acq 1 1.500 1.600 1.900 2.100 Goodwill proof
acq 2 1.900 2.100 Consideration (IFRS 3) 5,700,000
FV old 1,805,000
Investment at cost acq 1 1,425,000 1,520,000 1,805,000 1,995,000 cost new 3,895,000
acq 2 3,895,000 4,305,000 Plus NCI 2,621,838
1,425,000 1,520,000 5,700,000 6,300,000 Less : 100% FV net assets -6,554,596 5 000' + 1880
1,767,242
Fair value adjusments through OCI 95,000 285,000 190,000 -1,767,242
410,000 Total
- 95,000 285,000 600,000 885,000 352,000 -74,592 277,408 138,704
Mark to market reserve after tax 77,284 231,853 488,112
sum 309,138 realised to RE
3 Ownership table
h nci total h nci total
950,000 4,050,000 5,000,000 19% 81% 0%
2,050,000 -2,050,000 - 41% -41%
3,000,000 2,000,000 5,000,000 60% 40% 0%
 Dr/(Cr) Cr/(Dr)
Share Retained
capital Land Dtax earnings Total NCI SoFP Investment Goodwill Since RE
81%
@ acq 5,000,000 600,000 5,600,000 4,536,000 1,425,000 -361,000
rev res - - -
ret earn 488,800 488,800 395,928.00 92,872
boy 5,000,000 1,088,800 6,088,800 4,931,928 1,425,000 -361,000 92,872 -
Dividend paid -300,000 -300,000 -243,000 -57,000
Profit 1 Assoc 765,796 765,796 620,294.76 145,501
5,000,000 - - 1,554,596 6,554,596 5,309,223 1,425,000 -361,000 181,373 -
40.0%
Change in ownership 41% NAV of 5 000 000 + 1 480 004 (2,687,384.36) 3,895,000 -1,406,243 198,627
5,000,000 - - 1,554,596 6,554,596 2,621,838.40 5,320,000 -1,767,243 380,000 -
Profit 2 Sub -400,000 74,592 1,091,204 765,796 306,318 6 459,478
eoy 5,000,000 - 74,592 2,645,800 7,320,392 2,928,156.80 5,320,006 -1,767,243 839,478
74,592.00 Calculations
Alternative 1 - Account for interest in reserves as an associate until boy (text book approach)

Presentation and layout - Narrations 1.00

Eliminate fair value adjustment on investment until BOY

1 Dr Mark to market reserve (SCE) 77,284 1.00 Journal
Dr Deferred tax (SoFP) 17,716 0.50 p cgt rate
Cr Investment 95,000 1 520 000 - 1 425 000 1.00 calc half each

Eliminate fair value adjustment in the current year

2 Dr Fair value adjustment (OCI) 885,000 (950 000 *1.90 = 1 805 000) - 1 520 000 = 285 000 1.00 Journal
Cr Investment 885,000 3 000 000 * (2.10 - 1.90) = 600 000 3.00 calc
Ps: 3000 000 = 950 000 + 2 050 000 Half for each input

Alternative: (950K (0.5) x (30c) (1)) + (3M (0.5) x 20c (1))30c = R1.90-R1.60) or 0.5 each20c = R2.10-R1.90 or 0.5 eachTotal marks = 3 (see calc marks below)
Deferrred tax on the above
3 Dr Deferred tax (SoFP) 165,035 1.00 Journal
Cr Taxation /Deferred tax (OCI) 165,035 0.50 p cgt rate

4 Dr
Cr

Account for prior year reserves of associate

5 Dr Investment in associate 92,872 1.00 Journal
Cr Retained earnings 92,872 ((1 088 800 - 600 000 = 488 800) * 19% 1.00 calc
half for 488 800 half for 19%
Account for income in assoc
6 Dr Investment 88,501 1.00 Journal
Cr Share of profit of associate 145,501.24 Half for profit no
[(1 857 000 - 400 000 + 74 592)*6/12] *
19% Half for excluding profit on sale of land
= 765 796 * 19% 2.00 calc Half for the cgt effect
Dr Div received 57,000 300 000 * 19% 1.00 calc Half for 6/12
7 Remeasurement of investment Step 1 Half for fair value of retained 1 805 000
Dr Investment 198,627 FV less cost plus since reserves see alt calc above Half for cost of original investment 1 425 000
Cr Other income (remeasurement in (p/l) 198,627 (1.90 * 950 000) - 1 425 000 - 19%*[488 1.00 Journal p Half for since reserve up to BOY 92 872
800 + 1091 204 - 400 000 + 74 592-300 2.50 calc p Half for since reserve CY 145 501
000) OR
alternative: 950K (0.5) x R1.9 (0.5) - CP (0.5) - J5 (0.5P) - J6 (0.5P) 1805000-(1425000+92872+88501) Half for div (75 000)
 8 @ acq Note to markers J6 calc marks J 11 calc marks
Dr Share capital 5,000,000 0.50 Calc marks awarded in share of profit J6
Dr Retained earnings 1,088,800 at boy 0.50 and NCI J11 half each for the following
Sum Marker can award these marks in calcs
Dr Revenue 3,297,000 6 594 000 * 6/12 765,796 0.50 instead of in the journal as follows:
Cr Dividend paid 300,000 0.50 PROFIT 1 875 000 0.50 0.50
Cr Cost of sales 1,947,500 3 895 000 * 6 /12 0.50 excluding 400 000 0.50 0.50
Cr Other income - earned in second half of year for cgt effect above 0.50 0.50
Cr Other expenses 325,000 650 000 *6/12 0.50 6/12 0.50 0.50
Cr Finance charges 120,000 240 000 *6/12% 0.50 40% 0.50
Cr Income tax expense 138,704 check (352 000-74592)*6/12 or 176 000 - 37 296 1.00 profit-tax(0.5) x 6/12(0.5) 2.00 2.50
Cr NCI SoFP 2,621,838 2,621,838 NAV of (6 554 596)* 40% 1.00 P (sum above x 40%)
Cr Investment 5,700,000 1 8050 000 + 3 895 000 1.00 FV of old +cost new
Dr Goodwill 1,767,243 1.00 J
11,153,043 11,153,042 DIFF 0.24
Eliminate interco transaction
9 Dr Profit on sale of land (p/l) 400,000 (640 000 - 240 000) 1.00 Journal
Cr Land (SoFP) 400,000 0.50 calc

Tax on the above entry

10 Dr Deferred tax (SoFP) 74,592 400 000 * 18.648% 1.00 Journal
Cr Deferred tax (p/l) 74,592 0.50 p cgt rate

11 CY profit Half for PROFIT 1 875 000

Dr NCI (P/L) 306,318 1.00 Journal Half for excluding the interco profit 400 000
[(1 875 000 - 400 000 + 74 592)*6/12 + (400 000 -
Cr NCI (SoFP) 306,318 74 592) - (400 000 - 74 592)] x 40% 2.50 calc p Half for cgt effect above
or [(1 875 000 - 400 000 + 74 592)*6/12 ]x 40% half p Half for 6/12
p Half for 40%
ACCC 371 Question Bank, Question 44 suggested solution
GAME OF THRONES - HOUSE House Stark LTD (A-S)
Q73(b) STEPS A-S
1. Account for investment as Associate
Numberof Shares % SHAREHOLDING until date of CIO (equity method)
TOTAL PARENT NCI TOTAL PARENT NCI 2. At acquisition date determine total of
Before 5,000,000 950,000 4,050,000 100% 19.00% 81% equity acquired BEFORE and additional
Additional Shares - 2,050,000 -2,050,000 41% -41% interest (NCI x % change/% before)
After 5,000,000 3,000,000 2,000,000 100% 60.00% 40% 3. FV previous investment (deemed
disposed of and acquired @ FV Less
R of Shares equity before add interest) - difference
TOTAL PARENT NCI 4. Consideration = FV of previous equity
Before 5,000,000 950,000 4,050,000 held + consideration for additional
Additional Shares - 5,125,000 -5,125,000 5. Transfer FVA preivous recognised in
After 5,000,000 6,075,000 -1,075,000 OCI to RE (disposed part)
6. Calcuate goodwill by using FV for
shares previously held and add cost of
ANALYSIS GAME OF THRONES - House Stark (A-S) SBB 19% 60% shares
TOTAL AT SINCE NCI
Share Capital 5,000,000 950,000 4,050,000
Retained Earnings 600,000 2,800,000 1 2,800,001
5,600,000 3,750,000 1 6,850,001
Goodwill -2,325,000 Investment in Stark (before CIO) (A)

ASSOCIATE
Consideration 5,600,000 1,425,000 Cost 1,425,000
Since 181,373
SINCE ACQUISITION 1,606,373
BOY
Retained Earnings 488,800 92,872 395,928 Fair value on CIO 950 000 XR1.9 1,805,000
Profit 765,796 145,501 620,295

Dividends paid -300,000 -57,000 -243,000 Re-measurement (IFRS 3.42) 198,627

6,554,596 181,373 7,623,224
Purchase of additional shares
Equity acquired before 3,750,000
Equired earned 181,373

ADDITIONAL %
Acquisition of interest (Note 1) Bal no 5,001,385 -5,001,385
8,932,759
40%(5600000+48800+765796-300000)
Equity represented by Goodwill -3,232,759 -3,232,759
 ADDITIONAL %
Consideration and NCI 8,321,838 5,700,000 2,621,838
Consideration paid for additional
shares 1,805,000
Fair value of equity interest
previously held 3,895,000

SUB
Profit 1,091,204 654,722.40 436,482
Interco profit on sale of land -325,408 -195,245 -130,163
9,087,634 640,851 2,928,157
ACCC 371 Question Bank, Question 44 suggested solution MAX 15
AVAILABLE 17.5
Q3(c) Journal to account for the joint operation - House Lannister (JO)
1
DR Property, plant and equipment (SoFP) 1,533,000 R3 066 000 x 50% 0.50
DR Inventories (SoFP) 233,500 R467 000 x 50% 0.50
DR Bank (SoFP) 10,000 R20 000 x 50% 0.50
DR Ordinary dividends received from Lannister ((p/l) 100,000 R200 000 x 50% 0.50
DR Preference dividends received from Lannister ((p/l) 42,500 R85 000 x 50% 0.50
DR Cost of Sales (P/L) 206,500 R413 000 x 50% 0.50
DR Financing Charges (P/L) 62,500 R125 000 x 50% 0.50
DR Income Tax (P/L) 79,500 R159 000 x 50% 0.50
CRRevenue (P/L) (792,500)
R1 585 000 x 50% 0.50
CRInvestment in House Lannister – ordinary shares (SoFP) (800,000)
To correct the journal that the accountant passed 0.50
Note 1 CRPreference shares asset (GoT) (SoFP) (425,000)
R850 000 x 50% OR record the % liability here and write J2 0.50
CRLoan from Khaleeesi Ltd (SoFP) (425,000)
R850 000 x 50% 0.50
DR Goodwill (SoFP) 175,000 (800 000)-(50%*(1150000+100000)) 2.00
0.50 dtax cgt rate
Deferred tax should be deducted of land reval but then NAV in Q is incorrect. Award half mark for Dtax
Accounting for joint operation using CGT rate.
2,442,500 -2,442,500 -
Note 1: only 50% of the asset should remain in the books of GoT and nothing of the liability. For that to happen the asset should be credited with R425K or if the liability is credited in J1 the
following journal should be passed:
Alternative DR Preference shares liability (L) (SoFP) 425,000 If recorded in J1 eliminate here.
CRPreference shares asset (GoT) (SoFP) 425,000
Eliminating the intra group preference shares

2 DT Revenue (p/l) (GAME OF THRONES) 450,000 R900 000 x 50% 1.00 half name half calc
CRCost of Sales (p/l) (GAME OF THRONES) (375,000) R900 000 x 50% (0.5) X 100/120 (0.5) 1.50 half name one calc
CREquipment (SofP) (LANNISTER) (75,000) R900 000 x 50% (0.5) X 20/120 (0.5) 1.50 half name one calc
Elimination of intergroup sales

3 DT Dtax (SofP) 21,000 R75 000 x 28% 1.00 p journ

CRIncome tax (p/l) (21,000) Account names + direction 0.50 p calc 28%
Tax effect of Journal (2)

4 DT Acc depreciation (LANNISTER) (SoFP) 7,500 R75 000 X 10% 1.00 journ
CRDepreciation (LANNISTER) (p/l) (7,500) Account names + direction 1.00 p calc
Realisation of unrealised gain included in equipment as a result of depreciation (R75 000 x 10%)

5 DT Income tax (p/l) 2,100 R7 500 X 10% 1.00 p journ

CRDtax (SofP) (2,100) Journal descriptions + direction 0.50 p calc 28%
Tax effect of Journal (4)
 STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2015
Game of House Stark House Lannister
Thrones Ltd Ltd Ltd

R R R
Assets
Non-current assets
Property, plant and equipment 15,380,778 7,120,000 3,066,000
Land 1,000,000 2,000,000 -
Investment in House Stark Ltd – at fair value 6,300,000 - -
Investment in House Lannister Ltd ordinary shares
800,000 - -
– at cost/fair value
Investment in House Lannister Ltd
850,000 - -
– 10% R1 preference shares)
24,330,778 9,120,000 3,066,000
Current assets
Debtors 2,250,000 523,000 -
Inventory 1,650,000 697,000 467,000
Cash and cash equivalents 2,250,000 546,000 20,000
Short term investments 1,587,334 - -
7,737,334 1,766,000 487,000

Total assets 32,068,112 10,886,000 3,553,000

 STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2015
Game of House Stark House Lannister
Thrones Ltd Ltd Ltd
R R R
Equity and liabilities
Equity
Ordinary share capital 7,500,000 5,000,000 1,250,000
10% R1 preference share capital - - 850,000
Mark-to-market-reserve 488,112 - -
Retained earnings 12,850,000 2,645,800 603,000
20,838,112 7,645,800 2,703,000
Non-current liabilities
Non-current liabilities 8,645,000 650,000 -
15% Loan House Khaleesi Ltd - - 850,000
8,645,000 650,000 850,000
Current liabilities
Creditors 2,585,000 2,590,200 -

32,068,112 10,886,000 3,553,000

 STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2015
Game of House Stark House Lannister
Thrones Ltd Ltd Ltd
R R R
Revenue 10,510,000 6,594,000 1,585,000
Cost of sales -4,985,000 -3,895,000 -413,000
Gross profit 5,525,000 2,699,000 1,172,000
Other income 2,300,000 400,000 -
Interest received 650,000 - -
Sundry income 825,000 400,000 -
Ordinary dividends received 825,000 - -
Preference dividends received 85,000 - -
Other expenses -1,625,800 -650,000 -
Financing charges -825,000 -240,000 -125,000
Profit before taxation 5,374,200 2,209,000 1,047,000
Income tax expense -2,012,000 -352,000 -159,000
Profit for the year 3,362,200 1,857,000 888,000

Other comprehensive income that will not be reclassified to profit and loss

Fair value adjustment on investments in equity shares 885,000 - -

Tax on fair value adjustment on equity shares -165,035 - -
719,965 - -

TOTAL COMPREHENSIVE INCOME FOR THE YEAR 4,082,165 1,857,000 888,000

EXTRACT FROM STATEMENTS OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2015
Retained earnings
 Game of House Stark House Lannister
Thrones Ltd Ltd Ltd
R R R
Balance at 1 July 2014 9,280,035 1,088,800 -
Ordinary dividends paid -512,200 -300,000 -200,000
Preference dividends paid - - -85,000
Total comprehensive income for the year 4,082,165 1,857,000 888,000
Balance as at 30 June 2015 12,850,000 2,645,800 603,000
ACCC 371 Question Bank, Question 52 suggested solution

(AMOUNTS IN BRACKETS NOT FOR PUBLICATION PURPOSES)

LIONS LIMITED AND SUBSIDIARY COMPANY

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2007

Income (450 000 (Lions) + 198 900 (Luip) - 80 500 (J5)) 568 400 (2)
Cost of sales (225 000 (Lions) + 99 450 (Luip) - 80 500 (J5) + 3 000 (J6)) (246 950) (3)

Gross profit 321 450

Other income 4 600

Dividends received (12 000 - 8 000) 4 000 (1)

Management fees (2 400 - 1 800) 600 (1)

Other operating expenses (104 400 (Lions) + 58 500 (Luip) +1 725 (J2) - 1 800) (162 825) (3)
Profit before tax 163 225
Income tax expense (67 500 (Lions) + 20 475 (Luip) - 500 - 870) (86 605) (3)

Net profit after tax R 76 620

Allocated to :

- Equity shareholders of holding company (675 000 - 8 000 + 13 696) 73 196 (1)
- Non-controlling interest 3 424 (1)

R 76 620
15

LIONS LIMITED AND SUBSIDIARY COMPANY

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED

31 DECEMBER 2007

Retained General Total Non-controlling

earnings reserve interest
R R R R

Balance at 31 December 2006

(20 000 - 15 000) 45 000 5 000 50 000 -
Purchase of subsidiary - - - 39 538
Net profit for the year 73 196 - 73 196 3 424
Transfer to general reserve
(15 000 (Lions) + 2 000 (Luip)) (17 000) 17 000 - -
Ordinary dividend paid (7 500) - (7 500) (2 000)

Balance at 31 December 2007 R 93 696 R 22 000 R 115 696 R 40 962

(4) (2) (3)

9

1
LIONS LIMITED AND SUBSIDIARY COMPANY Marks

CONSOLIDATED STATEMENT OF FINANCIAL POSITION ON 31 DECEMBER 2007

R
ASSETS

Non-current assets 355 525

Property, plant and equipment (165 000 (Lions) + 93 750 (Luip) + 11 500 - 1 725) 268 525 (3)
Other investments (55 000 (Lions) + 32 000 (J4)) 87 000 (½)

Current assets 440 270

Inventory (170 000 (Lions) + 94 400 (Luip) - 3 000 (J4)) 261 400 (2)
Debtors (95 000 (Lions) + 65 550 (Luip)) 160 550 (½)
Bank (12 820 (Lions) + 5 500 (J2)) 18 320 (1)

R 795 795

EQUITY AND LIABILITIES

Capital and reserves 456 658

Share capital 300 000 (½)
General reserve (20 000 + 2 000) 22 000 (½)
Retained earnings (90 000 + 3 696) 93 696 (½)
415 696
Non-controlling interest 40 962 (½)

Non-current liabilities 210 637

Longterm loans (140 000 (Lions) + 50 000 (Luip)) 190 000 (½)
Defered tax (20 390 + 3 335 - 870 - 1 718 - 500) 20 637 (4)

Current liabilities 128 500

Creditors (86 300 (Lions) + 15 200 (Luip)) 101 500 (½)
Overdraft (17 500 (Lions) + 9 500 (Luip)) 27 000 (1)

R 795 795
15

Total 39

Max 37

2
CALCULATIONS

B1 Proportioning of Luiperd's profit

Total 1/1 - 31/3 1/4 - 31/12
R R R

Income (1) 249 900 51 00 198 900

Cost of sales (2) (124 950) (25 500) (99 450)
Gross profit 124 950 25 500 99 450
Other operating expenses (3) (73 500) (15 000) (58 500)
Profit before tax 51 450 10 500 40 950
Income tax expense (25 725) (5 250) (20 475)

Profit after tax R 25 725 R 5 250 R 20 475

(1) 3a + (9a x 1,3) = 249 000, where a then equals 17 000

(2) 3a + (9a x 1,3) = 124 950, where a then equals 8 500
(3) 3a + (9a x 1,3) = 73 500, where a then equals 5 000

Dt Ct
R R

B2 Pro forma consolitation journal entries

J1 Property, plant and equipment 11 500

Revaluation surplus (OCI) (71%) 8 165

Defered tax (29%) 3 335

Revaluation of PPE on acquisition date

J2 Depreciation (Luiperds Ltd) 1 725

Accumulated depreciation 1 725

(R11 500 x 20% x 9/12)

J3 Defered tax 500

Income tax expense (p/l) 500

(1 725 x 29%)

J4 Bank 5 500

Current account : Luiperds Limited 5 500

Accounting of cash in transit in

Lions Limited's records

J5 Income (Luiperds Ltd) 80 500

Cost of sales (Lions Ltd) 80 500

Ellimination of inter company sales

3
4
 Dt Kt
R R

J6 Cost of sales (Luiperds Ltd) 3 000

Inventory 3 000

Ellimination of unrealised profit in the

closing inventory of Lions Ltd

J7 Prepaid tax 870

Income tax expense (p/l)(Luiperds Ltd) 870

Ellimination of unrealised profit in the

closing inventory of Lions Ltd (tax implication)

J8 Current account : Lions Limited 11 000

Current account : Luiperds Limited 11 000

B3 Analysis of shareholders interest of Luiperds Limited

Non-controlling
Total At Since interest
Ordinary shares R R R R

i On date of acquisition (1/4/2007)

Share capital 100 000 80 000 20 000
General reserve (15 000 - 2 500) 12 500 10 000 2 500
Retained earnings (71 775 + 5 250) 77 025 61 620 15 405
189 525 151 620 37 905
Revaluation surplus 8 165 6 532 1 633
197 690 158 152 39 538
Investment in Luiperds Limited (158 152)

Goodwill R Nil

ii Since acquisition
Current year
Profit after tax 17 120 13 696 3 424
(20 475 - 1 725 + 500 - 3 000 + 870) (2 500) (2 000) (500)
Transfer to general reserve 2 500 2 000 500
General reserve (10 000) (8 000) (2 000)

Dividend R 204 810 R 5 696 R 40 962

GR 2 000
RE 3 696

5
ACCC 371 Question Bank, Question 53 suggested solution

Analysis of B Ltd 60%

Total At RE NCI
Ordinary share capital 3,500,000
Retained earnings 1,000,000
4,500,000 2,700,000 1,800,000
Equity represented by goodwill - Parent 1,300,000
Consideration and NCI 4,000,000

Since to the Beginning of Current Year

Retained earnings 2,600,000 1,560,000 1,040,000

Current Year
Profit - B Ltd 5,600,000 3,360,000 2,240,000
Profit - C Ltd 1,274,000 764,400 509,600
Goodwill - C Ltd (100,000) (60,000) (40,000)
Dividend Paid (2,000,000) (1,200,000) (800,000)
11,874,000 4,484,400 4,749,600

Journals: Debit Credit

Rand Rand
Cost of sales 200,000
Inventory (1 000 000 x 20/100) 200,000

Deferred tax 60,000

Income tax expense (200 000 x 30%) 60,000

Retained earnings 70,000

Deferred tax 30,000
Cost of sales (500 000 x 20/100) 100,000

Income tax expense 30,000

Deferred tax (100 000 x 30%) 30,000
ACCC 371 Question Bank, Question 53 suggested solution
Analysis of C Ltd 70%

Total At RE NCI
Ordinary share capital 1,000,000
Retained earnings 1,000,000
2,000,000 1,400,000 600,000
Equity represented by goodwill - Parent 100,000
Consideration and NCI 1,500,000

Current Year
Profit 1,820,000 1,274,000 546,000
(17400 - 11000 - 600 - 3000 - 980) 3,820,000 1,274,000 1,146,000
ACCC 371 Question Bank, Question 53 suggested solution
Marks
Calculation of profit ascribable to parent and non-controlling interest

Profit of group before pro forma journals 9,470,000

Net effect of journals (-7000+100-200+7000-30+60) (70,000)
profit for the year 9,400,000

Profit ascribable to parent 6,104,400

Non-controlling interest (2240+509,6+546) 3,295,600

Consolidated statement of changes in equity for the year ended 31 December 20.5
Retained
Shares capital earnings Total NBB
R R R R
Balance at beginning of year 14,000,000 8,990,000 22,990,000 3,440,000 5.50
Profit for the year 6,104,400 6,104,400 3,295,600 9.00
Goodwill (40,000) 1.00
Ordinary shares dividend (400,000) (400,000) (800,000) 1.50
Balance at the end of the year 14,000,000 14,694,400 28,694,400 5,895,600
7500+1560 -70 = 8990
1800+1040+600=3440

Total available 17.00

Maximum 15.00
ACCC 371 Question Bank, Question 54 suggested solution

Stormers Limited and its subsidiary companies

Consolidated statement of financial position at 31 December 2008

2008 2007
Assets R000 R000
Non-current assets 4 887
Land and buildings (1 855 + 1 340) 3 195
Equipment 1 440
Cost price (1 400 + 800 -11,250) 2 189
Accumulated depreciation (500 + 250 – 0,85) (749)
Investment in jointly-controlled entity 252
(150 000 + 95 258 (since acq analysis)) +(u/profit)
(R75 000 - 21 000 - 5 625 + 1 575 x 15%)
Current assets 2 630
Inventory (520 + 250 - 40) 730
Debtors (600+ 250) 850
Cash and cash equivalents (700 + 350) 1 050

Total assets R7 517

Equity and liabilities

Equity 6 909
Ordinary share capital 2 000
Preference share capital 600
Retained earnings 3 210
Equity attributable to parent’s equity holders 5 810
Non-controlling interest (699 437 + 400 000) 1 099

Non-current liabilities 37
Deferred tax (Calculation C6) 37
Current liabilities 571
Creditors (366 + 205) 571

R7 517

1
Stormers Limited and its subsidiary companies
Consolidated statement of comprehensive income for the year ended 31 December 2008

2008 2007
R000 R000
Revenue (2 500 + 1 600 - 400) 3 700
Cost of sales (600 + 600 - 400 - 50 + 40) (790)
Gross profit 2 910
Other income 1 190
- Dividends received (120 - 87,5 + 50 - 22,5) 60
- Other income (530 + 600) 1 130
Operating expenditures (250 + 150) (400)
Profit share of jointly-controlled entity (analysis) 79
Profit before tax 3 779
Income tax expense (632 + 420 + 14 - 11) (1 055)
Profit for the year 2 724
Other comprehensive income -
Total comprehensive income for the year R2 724

Attributable to:
- Equity shareholders of the parent 2 353
- Non-controlling interest (analysis: Cheetahs) 371
(R331 + 40 pref: Cheetahs) R2 724

(Test: Stormers Limited 1 668

Dividends received (87)
1 581
Since (Cheetahs) 772
R2 353

Stormers Limited and its subsidiary companies

Consolidated statement of change in equity for the year ended 31 December 2008
Ordinary Preference Retained Non- Total
share share earnings control-
capital capital ling
interest
R R R R R
Balance beginning of year 2 000 600 1 117 806 4 523
Net profit for the year (TCI) - - 2 353 371 2 724
Ordinary dividends paid (200) (38) (238)
Preference dividends paid (60) (40) (100)
R2 000 R600 R3 210 R1 099 R6 909

2
C1. Analysis of the shareholders’ interest of Bulls Limited

At acquisition Total Cheetahs (15%) NCI

R R R
Ordinary share capital 500 000
Retained earnings 240 000
Revaluation reserve (R60 000 x 86%) 51 600
791 600 118 740
Paid by Cheetahs Limited (150 000)
Goodwill R31 260
Since acquisition
Until beginning of current year
Retained earnings (500-240) 260 000 39 000

This year
Net profit for the year 525 050 78 758
Bulls Limited 575 000
Unreal. profit (equipment: 150-75) (75 000)
Tax (R75 000 x 28%) 21 000
Depreciation (R75 000 x 10% x 9/12) 5 625
Tax (R5 625 x 28%) (1 575)
Dividends paid (150 000) (22 500)
R1 426 650 R95 258

C2 Analysis of shareholders’ interest of Cheetahs Limited

Total Stormers (70%) NCI
R R R
At acquisition
Ordinary share capital 1 000 000
Retained earnings 155 000
Inventory (R50 000 x72%) 36 000
1 191 000 833 700 357 300
Paid by Stormers Limited (820 000)
R13 700

Since acquisition
Until beginning of current year 13 700
Retained earnings 162 000 113 400 48 600
Cheetahs Limited (350-155) 195 000
Inventory (at acquisition) (36 000)
Unreal. profit Inventory (R50 000 x 72%) (36 000)
Bulls Limited (analysis) 39 000

1 353 000 127 100 405 900

3
Current year
1 103 458 772 421 331 037
Cheetahs Limited 1 080 000
Preference dividends (40 000)
Dividends received Bulls (22 500)
Unreal. profit inventory (begin) 36 000
Unreal. profit inventory (end)(72%) (28 800)
Bulls Limited (analysis) 78 758
Dividends paid (125 000) (87 500) (37 500)
2 331 458 R812 021 R699 437

Calculations

C3 Retained earnings beginning of the year

Current year
R
Stormers Limited 990 000
Cheetahs (analysis) 127 100
1 117 100

C4 Non-controlling interest beginning of the year

Preference shareholders 400 000
Cheetahs 405 900
805 900
C5 Retained earnings end of the year
R
Stormers Limited 2 398
Cheetahs (Since: analysis) 812
R3 210
C6 Deferred tax
Stormers Limited 45
Remeasurement reserve written back (R86 ÷ 86%) x 14%) (14)
Cheetahs Limited 27
Remeasurement reserve written back (R43 ÷ 86% x 14%) (7)
51
Unrealised profit in closing inventory (Cheetahs) (11)
Bulls Ltd (R75 000 x 28% x 15%) (Unreal. profit) (3)
(R5 625 x 28% x 15%) (Depreciation) 0,236
R37

4
ACCC 371 Question Bank, Question 55 suggested solution

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2008

100%A + 0%B + 100%C + 100%D* Adjustments

ASSETS
Non-current assets
Property, plant and equipment 1 005 512
Gross carrying value 213 090 + 159 360 + 77 000¸ + 5 000x¸ - 2 500v¸ + 1 092 200
250v¸ + 640 000w¸
Accumulated depreciation 31 000 + 23 000 + 18 000¸ - 958v¸ - 458v¸ + 104v¸ (86 688)
+ 37 333w¸ - 21 333w¸

Investment in Brisbane 65 000 -21 000u¸ + 3 623z¸ 47 623

Investment property 1 870 000¸ - 110 000w¸ - 20 000w¸ - 1 100 000
640 000w¸
Goodwill 6 850z¸ + 7 740z¸ 14 590
Deferred tax 46 000 + 5 000 + 2 100¸ - 4 620u¸ - 8 064u¸ + 11 973
700x¸ - 432v¸ + 128v¸
+ 41v¸ - 30 800w¸ -
5 600w¸ - 10 453w¸ -
5 973w¸

Current assets
Trade and other receivables 20 260 + 15 500 + 13 800¸ 49 560
Inventories 51 270 + 24 270 + 27 000¸ 102 540
Cash and cash equivalents 18 700 + 5 000 + 27 200¸ 50 900
2 382 698

EQUITY AND LIABILITIES

EQUITY
Ordinary share capital From Consolidated SoCE ¸500 000
Retained earnings From Consolidated SoCE 1 646 808
Revaluation surplus From Consolidated SoCE 30 000

Non-controlling interest From Consolidated SoCE ¸107 960

LIABILITIES

Current liabilities
Trade and other payables 28 400 + 44 030 + 25 500¸ 97 930
2 382 698
 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2008

100%A + 0%B + 100%C + 100%D – Adjustments

(3/12 x 100%D)
Revenue 110 000 + 37 000 + 91 800 – 22 950¸ 215 850
Cost of sales 55 000 + 13 000 + 45 800 – 11 450¸ (102 350)
Gross profit 113 500
Other income 113 000 + 77 000 + 14 000 – 3 500¸ - 33 000u¸ - 500z¸ - (23 490)
27 500z¸ - 145 440w¸ -
24 000z¸ + 6 450z¸
39 000 + 8 000 + 14 000 – 3500¸ - 20 000w¸ + 21 333w¸ + 89 273
Other expenses
145 440w¸
Share of profit of Associates 2 123v + 6 050z + 458v¸ - 128v¸ +146v¸ - 8 608
41v¸
Finance income 68 800 + 18 000 + 33 000 – 8 250¸ 111 550
Finance costs 20 000 + 26 000 + 23 000 – 5 750¸ (63 250)
Profit before tax 236 191
Income tax expense 26 280 + 13 900 + 11 600 - 1 900y ¸ - 5 973w¸ - 5 600w¸ - (33 687)
4 620u¸
Profit for the year 202 504

Attributable to:
Equity holders of the parent (balancing figure) 154 034
Non-controlling interest (35 550 +12 920)z ¸c 48 470

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2008

Equity holders of the parent Non-

controlling Total
Ordinary Retained Revaluation interest
share capital earnings surplus
Balance b/f 500 000 Ø1 542 774 30 000 60 150z
Profit for the year ¸c 154 034 48 470
Dividends paid ¸ (50 000) (43 500)z
Acquisition of 42 840z
additional interest
in Darwin
Balance c/f 500 000 1 646 808 30 000 107 960 2 284 768

Ø1 689 000 - 79 200w - 26 880w - 49 536u + 2 000u - 1 110u + 1 000z + 7 500z

¸¸¸Presentation

65 ‡ 60
 CALCULATIONS

u Fair value movements on investments - split between current and prior years
Additional information point 2

Investments in ordinary shares of Brisbane, Canberra and Darwin

Original cost 150 000
(44 000 + 66 000 + 40 000)
Therefore increases between acquisition
and beginning of current year
(processed to retained earnings b/f) 57 600

Balance b/f (therefore) 207 600

Profit recognised in current year (given) 33 000

Acquisition of additional interest in D 12 000

Balance c/f (given) 252 600

(65 000B + 88 000C + 99 600D)

It is not necessary to split the increase in fair value of the investments between Canberra and Darwin
because they are eliminated in full anyway in the consolidated financial statements – it is merely
necessary to know what portion of the fair value movement relates to current and prior years.

In respect of Brisbane (the associate), it is only necessary to know what the cost of the investment
was for the purposes of preparing financial statements (ie, to equity account for the investment in
associate). All the fair value gains on the remeasurement of the investment in Brisbane would be
reversed in total in the same way as they are reversed for investments in subsidiaries.

dr Retained earnings (b/f: i.e. beginning of year) 49 536

dr Deferred tax (F/P) 8 064
cr Investments (F/P) 57 600
Prior year fair value movements

dr Other income (profit on remeasurement to fair value) (P/L) 33 000

cr Investments (F/P) 33 000
dr Deferred tax (F/P) 4 620
cr Income tax expense (P/L) 4 620
Current year fair value movements
v Intercompany transaction between Australia and Brisbane (associate)
Additional information point 3

dr Investment in Brisbane (F/P) 3 623

cr Retained earnings (b/f) 2 000
cr Share of profit of associate (P/L) 2 123
dr Other income (dividends) (P/L) 500
Equity account for associate

dr Retained earnings (b/f) 1 110

dr Deferred tax (F/P) 432
dr Accumulated depreciation (23/60 x 10 000) x 25% 958
cr Property, plant and equipment – cellphones (F/P) 2 500
(10 x [3 333 – 2 333]) x 25%
Correction of retained earnings at the beginning of the year in
respect of the unrealised profit included in the cost of the
cellphones

dr Accumulated depreciation (F/P) 458

cr Share of profit of associate (P/L) 458
dr Share of profit of associate (P/L) 128
cr Deferred tax (F/P) 128
Realisation of the unrealised profit through depreciation – for
the first two months of the year, depreciation on 10 cellphones
would have been written off, for the last 10 months (after the
theft of one), depreciation would have been written off on only
9 cellphones.
[2/12 x 20% x 10 000] + [10/12 x 20% x 9000] x 25%

dr Property, plant and equipment (F/P) 250

cr Accumulated depreciation (F/P) (1000 x [25/60]) x 25% 104
cr Share of profit of associate (P/L) 146
dr Share of profit of associate (P/L) 41
cr Deferred tax (F/P) 41
Correction of over elimination of unrealised profit included in
the carrying amount of the cellphone on the date that it was
stolen.
w Intercompany transaction between Australia and Canberra (subsidiary)
Additional information point 4

The land and the warehouse are investment property in the individual financial statements of
Australia. On consolidation, only the warehouse portion of the investment property needs to be
reclassified to property, plant and equipment (because inter-company lease is eliminated, i.e. the
buildings are not investment properties at group level). The land will remain investment property (at
fair value) since it is still held for capital appreciation at group level.

Fair value movements between original purchase date to the beginning of the current year and during
the current year are calculated as follows (in Australia’s financial statements)

Original cost (1 April 2006) 640 000

Fair value movement to retained earnings b/f 110 000
Balance b/f (1 January 2008) 750 000
Fair value movement to p/l in current year 20 000
Balance c/f (31 December 2008) 770 000

Reversal of fair value adjustments and reclassification to PPE:

dr Retained earnings (b/f) 79 200

dr Deferred tax (F/P) 30 800
cr Investment property – Warehouse (F/P) 110 000
Prior year fair value movements

dr Profit on remeasurement (other income) (P/L) 20 000

cr Investment property – Warehouse (F/P) 20 000
dr Deferred tax (F/P) 5 600
cr Income tax expense (P/L) 5 600
Current year fair value movements

dr Property, plant and equipment (F/P) 640 000

cr Investment property – Warehouse (F/P) 640 000
Transfer warehouse to property, plant and equipment

Accumulated depreciation effects on prior years, and depreciation in the current year:

dr Retained earnings (b/f) 26 880

dr Deferred tax (F/P) 10 453
cr Accumulated depreciation (F/P) 37 333
640 000 x (21/360)

dr Depreciation (other expenses) (P/L) 21 333

cr Accumulated depreciation (F/P) 21 333
dr Deferred tax (F/P) 5 973
cr Income tax expense (P/L) 5 973
640 000 x (12/360)

Reverse intercompany rental paid in the current year:

dr Other income (P/L) 145 440

cr Other expenses (P/L) 145 440
12 120 x 12
x At acquisition revaluations
Additional information point 1

Canberra
dr Land (F/P) 5 000
cr Deferred tax (F/P) 700
cr Revaluation surplus (at) 4 300
At acquisition revaluation of land held by Canberra

y Pre- and post- acquisition date income tax expense split for Darwin
Total January – March April - December
Revenue 91 800
Cost of sales (45 800)
Gross profit 46 000
Other income 14 000
Other expenses (14 000)
Finance income 33 000
Finance cost (23 000)
Profit before tax 56 000 14 000 42 000
Income tax expense
Normal tax (7 600) (1 900) (9 700)

Profit for the period 44 400 12 100 32 300

-
z Analyses of equity:

…of Brisbane

Australia (25%)
Total
At Since
At acquisition (31/07/2005)
Ordinary share capital 120 000 30 000
Retained earnings at acquisition 2 000 500
Revaluation surplus 4 000 1 000
126 000 31 500
Investment in Brisbane (44 000)
Goodwill (12 500)

Since acquisition
∑ To beginning of current year
Retained earnings 8 000 2 000

∑ To end of current year

Profit for the period ☼ 8 490 2 123
Dividends (2 000) (500)
140 490 35 123
☼ 20 090 + 20 000 + 64 000 – 13 600 – 30 000 – 32 000 – 20 000

…of Canberra

Australia (50%)
NCI
Total
(50%)
At Since
At acquisition (01/04/2006)
Ordinary share capital 100 000 50 000 50 000
Retained earnings at acquisition 14 000 7000 7000
Revaluation surplus 4 300 2 150 2 150
118 300 59 15 59 150
Investment in Darwin (66 000)
Goodwill (6 850)

Since acquisition
∑ To beginning of current year
Retained earnings 2 000 1 000 1 000
60 150
∑ To end of current year
Profit for the period # 71 100 35 550 35 550
Dividends (55 000) (27 500) (27 500)
136 400 68 200 68 200
# 77 000 + 18 000 + 37 000 - 13 900 - 26 000 - 13 000 – 8 000
…of Darwin

Australia (50 - 60%)

Total NCI
At Since
At acquisition (30/09/2001)
Ordinary share capital 80 000 40 000 40 000
Investment in Darwin (40 000)
-

Since acquisition
∑ To beginning of current year
Retained earnings 15 000 7 500 7 500

∑ To change in ownership
Profit before change in ownership
12 100 6 050 6 050
y
ACQUISITION DATE (01/04/08) 107 100 53 550
Acquisition of interest from NCI s/holders ^ 10 710 (10 710)
Equity acquired on 30/09/2001 40 000
Equity earned up to 01/04/08 13 550
Total equity earned and acquired 64 260
Goodwill 7 740
Consideration * 72 000 42 840

∑ To end of current year

Profit after change in ownership y 32 300 19 380 12 920
Dividends (40 000) (24 000) (16 000)
99 400 59 640 39 760

^ 53 550 x (10/50)

*R12 000 paid for 8000 shares, therefore R 1.50 per share in Darwin.

Thus fair value of previously held equity interest is 40 000 x R1.50 = 60 000
Add: cash paid of R12 000 = 72 000

Gain on remeasurement of previously held equity interest to fair value = 6 450, calculated as follows:

Fair value of investment previously held (see calc above) (60 000)
Carrying amount of investment previously held (equity method) = 40 000 + 7 500 + 6 050 53 550
Fair value adjustment (gain) 6 450

Goodwill calculation in IFRS 3 format:

Fair value of previously held interest 60 000

Consideration transferred (cash) 12 000
Non-controlling interest 42 840
Less: net assets acquired (80 000 + 15 000 + 12 100) (107 100)
Goodwill 7 740
ACCC 371 Question Bank, Question 56 suggested solution

Pro-forma consolidation journal entries:

(J1)
Dr Mark-to-market reserve (OCI) 256 186 (1)
Deferred taxation (SoFP) 41 705 (1P for CGT rate)
Cr Investment in Petunia 297 891 (1P)
Reversal of fair value adjustment on investment (1 500 000 – 1 202 109)

(J2)
Dr Share capital 1 000 000 (1)
Retained earnings 500 000 (1)
Revaluation reserve 453 600 (1P)
Goodwill 29 949 (1P)
Cr Investment in Petunia 1 202 109 (1P)
Non-controlling interest (SoFP) (40% x 1 932 000) 781 440 (1P)
Main elimination journal of Petunia

(J3)
Dr Intangible asset 630 000 (1+1P)
Cr Deferred tax (SoFP) 176 400 (1P)
Revaluation reserve (OCI) 453 600 (1P)
At acquisition remeasurement of intangible asset i.t.o. IFRS 3
[900 000 – 270 000*(£25 000 x 12,00)]
* 300 000 cost less 30 000 amortization (300 000 ÷ 5 yrs x 6/12)

(J4)
Dr Retained earnings 50 400 (1)
Deferred tax (SoFP) 19 600 (1)
Cr Accumulated amortisation 70 000 (1)
Amortisation to the beginning of the year (630 000 x 6/54)

(J5)
Dr Amortisation 116 667 (1)
Cr Accumulated amortization 116 667 (1)
Amortisation of license (630 000 x 10/54)

(J6)
Dr Deferred tax (SoFP) 32 667 (1P)
Cr Tax expense (p/l) 32 667 (1P)
Tax effect of amortisation

(J7)
Dr Accumulated amortization 186 667 (1P)
Deferred tax (SoFP) 124 133 (1P)
Profit on sale of intangible asset 443 333 (1P)
Cr Intangible asset 630 000 (1)
Tax expense (p/l) 124 133 (1P)
Sale of intangible asset to a third party

Journals 3 to 7 can be replaced with:

Dr Retained earnings 50 400
Amortization 116 667
Profit on sale of intangible asset 443 333
Cr Revaluation reserve 453 600
Tax expense 156 800
(J8)
Dr Retained earnings 63 840 (1)
Cr Non-controlling interest (SoFP) 63 840 (1P)
Non-controlling interest’s portion of retained earnings

(J9)
Dr Dividend received (P/L) 84 000 (1)
Dr Non-controlling interest (SoFP) 36 000 (1)
Cr Dividend declared (SoCE) 120 000 (1)
Elimination of inter company dividend

(J10)
Dr Non-controlling interest (P/L) 49 553
Cr Non-controlling interest (SoFP) 1P 49 553
Non-controlling interest’s portion in current year profit (22 053 (1+1P) + 27 500 (1))

(J11)
Dr Non-controlling interest (SoFP) 216 833 (1P)
Dr Changes in ownership (SoCE) 83 167 (1P)
Cr Investment in Petunia 300 000 (1)
Acquisition of further 10% interest in Petunia eliminated

40 Ltd to 35

Also see last page of this solution regarding

the effect of IFRS 3
Analysis of Petunia (simply an aid to assist student in preparing the journals – not required)

Violet NCI
60% - 70% 40% - 30%
Total At Since
At acquisition:
Share capital 1 000 000
Retained earnings 500 000
Revaluation reserve 453 600
1 953 600 1 172 160 781 440
Investment in Petunia (1 202 109)
Goodwill (29 949)

Since acquisition:
●To begin of current
year
Retained earnings 159 600 95 760 63 840
(710 – 500 – 50.4)

● Current year
Profit after tax 55 133 33 080 22 053
(458 333 – 116 667 +
32 667 – 443 333 +
124 133)
2 168 333
Further acquisition 216 833 (216 833)
Investment in Petunia (300 000)
Change in ownership (83 167)

Profit after tax 91 667 64 167 27 500

Dividend declared (120 000) (84 000) (36 000)
2 140 000 109 007 642 000

Profit after tax: 5 500 000 – 4 422 000 + 132 000 – 330 000 – 330 000 = 550 000
∑ 550 000 x 10/12 = 458 333
∑ 550 000 x 2/12 = 91 667
TUTORIAL NOTE: IFRS 3 Business combinations

IFRS 3 gives more guidance on all matters affecting goodwill at acquisition date. One of these matters is the
value of the consideration (investment). Assume for example that the question did not give the amount of
the consideration, but stated the following:

The following consideration was transferred by Violet in order to obtain the investment in Petunia:

∑ 15 000 R1 ordinary shares in Violet were transferred to Petunia. Although these shares traded at R19
on 1 July 2006, the contract between the parties stated that the shares are transferred at R15 per
share.
∑ Violet will transfer cash to the value of R800 000 and the transfer will take place as follows:
ß Instalments to the value of R400 000 each will be made on 1 July 2007 and 1 July 2008
respectively.
∑ An amount of R500 000 will be paid in cash to Petunia on 1 July 2010 if the profits generated by Petunia
exceed R10 000 000 per annum by 1 July 2010. On 1 July 2006 the financial advisors of Petunia
regarded the probability of this target being achieved as low. The services of a broker were involved in
order to assess the risk involved with this payment. Assume that a nominal 15% pre-tax annual
discount rate is applicable. The broker determined that a premium of 2% should be added to the
discount rate in order for a third party to be willing to assume the obligation.

By using the principles in IFRS 3, the consideration is then:

Shares transferred (15 000 x R19) 285 000

Cash payment (PMT = 400 000, I = 15, N = 2) 650 284
Contingent payment (FV = 500 000, N = 4, I = 17) 266 825
Total 1 202 109
ACCC 371 Question Bank, Question 57 suggested solution

Lavender@Large Ltd group

Consolidated statement of financial position at 30 June 20.6 Rand
Assets
Non - Current assets
Property plant and equipment (1 400 925+514 000) 1,914,925
Investment in associate 121,050
Goodwill 10,000
Deferred tax 980
Current assets
Inventory (127 000+150 000-3 500) 273,500
Bank (150 000+131 000) 281,000
2,601,455
Equity and liabilities
Equity 2,255,835
Ordinary share capital 150,000
Retained earnings 2,126,960
Changes in ownership (21,125)
Non-controlling interest 175,620
Current liabilities
Accounts payable (80 000+90 000) 170,000
2,601,455

Consolidated statement of comprehensive income for the year ended 30 June 20.6 Rand
Gross profit (633 500+416 000-3 500+3 000) 1,049,000
Other income (148 500-140 000-7 500+3 600-1 000) 3,600
Share of profit of associate 33,850
Other expenses (132 000+91 000) (223,000)
Profit before tax 863,450
Income tax expense (255 075+130 000+840-980) (384,935)
Profit for the year 478,515

Attributable to:
Equity holders of the parent 424,872
Non-controlling interest (29 898+23 745) 53,643
478,515

Consolidated statement of changes in equity for the year ended 30 June 20.6
Retained Changes in
Share capital earnings ownership Total NCI Total
Rand Rand Rand Rand Rand Rand
Balance at beginning of the year 150,000 1,717,088 1,867,088 327,752 2,194,840
Profit for the year 424,872 424,872 53,643 478,515
Purchase of shares (21,125) (30,875) (52,000)
Sale of shares 176,400 176,400
Change from sub to associate (348,800) (348,800)
Ordinary dividend paid (15,000) (15,000) (2,500) (17,500)
Balance at the end of the year 150,000 2,126,960 (21,125) 2,276,960 175,620 2,431,455

Calc 1: 172 400+155 352 = 327 752 Can combine

Calc 2: 1 220 000 + 292 488 + 204 600 = 1 717 088
Calc 3: 29 898 + 23 745 = 53 643
ACCC 371 Question Bank, Question 57 suggested solution
Analysis of Basil Ltd 70% - 75%

At the date of acquisition: Total At RE NCI

Ordinary share capital 100,000
100,000 70,000 30,000
Investment (80,000)
(10,000)
Since to the Beginning of Current Year
Retained earnings (420-2,160) 417,840 292,488 125,352
155,352
Current Year
Profit after tax (195/2+3-0,840) 99,660 69,762 29,898
617,500
Purchase 5% 30,875 (30,875)
Investment (52,000)
Change in ownership (21,125)

Profit after tax (195/2-3,5+0,980) 94,980 71,235 23,745

Dividend Paid (10,000) (7,500) (2,500)
702,480 (31,125) 425,985 175,620

Journals: Debit Credit

Rand Rand
Current year:
Cost of sales 3,500
Inventory 3,500

Deferred tax SoFP 980

Income tax expense 980

Prior year:
Retained earnings 2,160
Deferred tax SoFP 840
Cost of sales 3,000

Income tax expense 840

Deferred tax SoFP 840

Through the year:

Sales (p/l) (S) 150000

Cost of sales (p/l) (S) 150000
ACCC 371 Question Bank, Question 57 suggested solution
Analysis of Parsley Ltd 60% - 20%

At the date of acquisition: Total At RE NCI

Ordinary share capital 50,000
Retained earnings 40,000
90,000 54,000 36,000
Investment (R20 000 ÷ 10 000 x 30 000 shares) (60,000)
(6,000)
Since to the Beginning of Current Year
Retained earnings (381-40) 341,000 204,600 136,400
431,000 204,600 172,400
Current Year (4,000) 4,000
Sale of 20 000 shares (36,000) (136,400) 172,400
348,800

Profit after tax 169,250 33,850

Dividend Paid (5,000) (1,000)
595,250 101,050

Calculation of Profit/loss on sale of interest in subsidiary: Rand

Proceeds 180,000
Cost of interest sold (2/3 x 60 000) (40,000)
Profit on sale per records of L@L 140,000
Since acquisition reserves sold:
Retained earnings (136,400)
3,600
OR: Formula

Proceeds 180,000
Net assets sold (172,400)
Goodwill realised (4,000)
3,600

In H's records:

Bank 180000
Investment in Parsley 40000(60 000*40/60)
Gain on sale of interest (p/l) 140000
ACCC 371 Question Bank, Question 58 suggested solution
Principle marks = "P"

ALFA LIMITED

PRO-FORMA JOURNALS DR CR
R R

1.)
Land (50 000 - 30 000) 20
Revaluation surplus 20 (1)

2.)
Revaluation surplus 2,8
Deferred tax 2,8 ( 1P )
(R20 000 x 50% x 28%)

9.)
Retained earnings (beginning of year) 20
Land 20 (1)

10.)
Deferred tax 2,8
Retained earnings (beginning of year) 2,8 ( 1P )

OR Summary
Retained earnings (beginning of year) 17,2
(20 000 - 2 800) OR
Revaluation surplus 17,2 (4)

3.)
Equipment (R40 - 30) 10
Revaluation surplus 10 (1)

4.)
Revaluation surplus 2,8
Deferred tax 2,8 ( 1P )
(R10 000 x 28%)

5.)
Retained earnings at acquisition 6,154
Inventory 6,154
(R20 000 - 13 846)

6.)
Deferred tax (SoFP) 1,723
Retained earnings at acquisition 1,723
R6 154 x 28%

11.)
Inventory 6,154
Retained earnings since to beginning of year 6,154
(Revalued inventory sold)

1
 DR CR
R R
12.)
Retained earnings since to beginning of year 1,723
Deferred tax 1,723

OFSummary (most common method):

Retained earnings at acquisition 4,431
Retained earnings since to beginning of year 4,431 ( 2P )

7.)
Retained earnings (beginning of year) 4,800 ( 1P )
Deferred tax 1,866 ( 1P )
Accumulated depreciation 6,666 ( 1 )
(R10 000 / 9 x 6 x 72%)
Depreciation to 31/12/2006

8.)
Depreciation 1,111
Accumulated depreciation 1,111 (1)
Deferred tax (1 111 x 28%) 0,311
Income tax expense (p/l) 0,311 ( 1P )

13.)
Share capital 60
Capital redemption reserve 5
General reserve 15
Retained earnings (R65 - 4) 61 (1)
Revaluation surplus Land 17
( 1P)
Equipment 7

Investment in Beta Limited 80 ( 1 )

Non-controlling interest 33 ( 1P )
Gain on bargain purchase 52 ( 1P )

R 165 R 165

14.)
Retained earnings (beginning of year) 42
Non-controlling interest 42 (1)

15.)
General reserve 2
Non-controlling interest 2 (1)

16.)
Non-controlling interest (p/l) 17
Non-controlling interest 17 ( 1P )

17.)
General reserve 2
Transfer to general reserve 2 (1)

2
 DR CR
R R

18.)
Ordinary dividends received (p/l) 4 (1)
Non-controlling interest 1 (1)
Dividends paid 5 (1)

19.)
Retained earnings at acquisition 2
Preference dividend 2 (1)

20.)
Dividend received (p/l) 1 (1)
Non-controlling interest 2 (1)
Dividends paid (Pref) 3 (1)
(10/25 x R2 500)

21.)
Preference share capital 25
Goodwill 2 ( 1P )
Investment in Beta Ltd 12
Non-controlling interest 15 (1)

R 27 R 27

22.)
Non-controlling interest (p/l) 2
Non-controlling interest (SoFP) 2 (1)

23.)
Gain on bargain purchase 52
Retained earnings (beginning of year) 52 ( 1P )

24.)
Retained earnings (beginning of year) 3 ( 1P )
Deferred tax 2 ( 1P )
Cost of sales 5 (1)
(R50 000 x 10/110) (R4 545) (Beginvoorraad)

25.)
Income tax expense (p/l) 2
Deferred tax 2 ( 1P )

26.)
Sales (Beta) 400
Cost of sales (Alfa) 400 (1)

27.)
Cost of sales (Beta) 18
Inventory (Alfa) 18 (1)
(R200 000 x 10/110)

28.)
Deferred tax 5
Income tax expense (p/l) (Beta) 5 ( 1P )

3
 DR CR
R R
29)
Share capital 22
Retained earnings (loss) 115 ( 1 )
Goodwill 94 ( 1P )
Investment in Alfa Limited 1 (1)
R 116 R 116

30.)
General reserve 2
Transfer to general reserve 2 (1)

31.)
Transfer to non-distributable reserve 24
Non-distributable reserve 24 (1)

32.)
Retained earnings (beginning of year) (Alfa) 2 ( 1P )
Deferred tax 1 ( 1P )
Accumulated depreciation 1 (1)
Equipment (Beta) 4 (1)
(25/125 x R20 000)

Sales (equipment) (Alfa Ltd)

R 4 R 4

33.)
Accumulated depreciation 0.4
Depreciation 0.4 (1)
(R4 000 x 10%)

34.)
Income tax expense (p/l) 0.112
Deferred tax 0.112 ( 1P )

35.)
Sales (Alfa) 20
Cost of sales (Beta) 20 (1)

36.)
Cost of sales 0.308
Inventory 0.308 (1)

37.)
Deferred tax 0.086
Income tax expense (p/l) (0.308 x 28%) 0.086 ( 1P )

38.)
Management fees received 12
Management fees paid 12 (1)

56

÷2= 28

Maximum 25

4
ANALYSIS OF ORDINARY SHAREHOLDING OF BETA LTD
(FOR COMPLETENESS)

Total Alfa Ltd NCI

(80%) (20%)
R 000 R 000 R 000

At acquisition

Share capital 60
Capital redemption reserve 5
General reserve 15
Retained earnings 65
Revaluation : Land (20 000 - 2 800) 17
: Equipment (10 000 - 2 800) 7
: Inventory (6 154 - 1 723) (4)

165 132 33
Consideration paid by Alfa Limited 80
Gain on bargain purchase R 52

Since

To beginning of current year

Retained earnings (calculation 1) 211 169 42

Gain on bargain purchase 52
221
General reserve (R35 - 15 - 10) 10 8 2
386 229 77

This year
Net profit for the year (calculation 2) 84 67 17
Transfer to general reserve (10) (8) (2)
General reserve 10 8 2
Ordinary dividend paid (5) (4) (1)
R 465 R 292 R 93

General R 16
RE 276

5
ANALYSIS OF PREFERENCE SHAREHOLDING OF BETA LTD
(FOR COMPLETENESS)
Total Alfa Limited NCI
R R R
At acquisition (40%) (60%)

Preference share capital 25 000 10 000 15 000

Preference dividend (2 500 - 2 500) - - -
10 000
Consideration paid by Alfa Limited 12 000
Goodwill R 2 000

Since

Profit attributable to preference shareholders 2 500 1 000 1 500

Preference dividend (2 500) (1 000) (1 500)
R 25 000 R - R 15 000

6
CALCULATIONS

1.) Retained earnings of Beta Limited (1/1/2001 - 31/2/2006) R

Balance 31/12/2006 300 000

Less: At acquisition 61 000
Given 65 000
Inventory (4 000)

Increase 239 000

Plus/ (Minus) (252 73)

- Additional depreciation (Journal 7) (4 800)

- Inventory (R50 000 x 10/110 x 72%) (3 273)
- Minus: Land (Journal 9 & 10) (17 200)

213 727
Less: Preference dividend in arrears
(R25 000 x 10%) (2 500)
R 211 227

2.) Net profit Beta Limited (2007)

Profit (given) 97 000
Additional depreciation (Journal 8) (800)
Unrealised profit (opening inventory) 3 273
Unrealised profit (closing inventory) (R200 000 x 10/110 x 72%) (13 091)
86 382
Less: Preference dividend (2 500)
R 83 882

3.) Allocation of net profit after tax of Celcius Limited

Total 1/1 - 30/6 1/7 - 31/12

Sales 300 000 * 146 512 153 488
Cost of sales (150 000) @ (73 256) (76 744)
Gross profit 150 000 73 256 76 744
Operating expenses # (38 000) (19 000) (19 000)
Management fees (12 000) - (12 000)
Profit before tax 100 000 54 256 45 744
Tax (35 000) ** (18 990) (16 010)
Profit for the year R 65 000 R 35 266 R 29 734

* Set sales for the month equal to x

9(1,1)x + 3x = 300 000
x = 23 256
3 (23 256) + 3(1,1)(23 256) = 146 512
@ 146 512/2 = 73 256 or 150/300 x R146 512 = R73 256
# 50 000 - (2 000 x 6) = 38 000 x 6/12 = R19 000
** (54 256 / 100 000) x 35 000 = 18 990

7
4.) Sales of equipment (Alfa) R

Profit - (20/125 x R20 000) 4 000

Tax (286) (1 120)
R 2 880

Depreciation - per year (R40 000 x 10%) R 400

For 3 years R 1 200
Less: Tax (28%) (336)
R 864 (864)
R 2 016

8
ANALYSIS OF ORDINARY SHAREHOLDING OF CELCIUS LTD
(FOR COMPLETENESS)
A Ltd (75%) NCI
TOTAL AT SINCE

AT ACQUISITION
Share capital 20 000 15 000 5 000
General reserve (10 000 - 8 000) 2 000 1 500 500
Retained loss
(-150 00 + 35 266) (114 734) (86 051) (28 683)
(92 734) (69 551) (23 183)
Adjustment (23 183) 23 183
(92 734) -
Investment in Celcius LTD (1 000)
Gain on bargain purchase R (93 734)
SINCE ACQUISITION
Net profit after tax 29 734 22 301 7 433
Adjustment 7 433 (7 433)
Transfer to general reserve (8 000) (6 000) (2 000)
General reserve 8 000 6 000 2 000
Transfer to non-distributable reserve (23 734)
Non-distributable reserve 23 734
(R 63 000) R 29 734 R -
GR R 6 000
NDR R 23 734

ANALYSIS OF ORDINARY SHAREHOLDING OF CELCIUS LTD

(FOR COMPLETENESS)
At acquisition Total Alfa LTD NCI
(70%)
R R R

Share capital 20 000 15 000 5 000

General reserve (10 000 - 8 000) 2 000 1 500 500
Retained loss
- Given (150 000)
- Calculated 35 266
(114 734)
22 000 (22 000) (16 500) (5 500)
R 92 734 - - -
(92 734) (92 734) -
(92 734)
Consideration paid by Alfa Ltd 1 000
Goodwill R (93 734)
Since
Current year

Net profit after tax R 29 734

Less: Transfer to general reserve (8 000)
R 21 734
General reserve 8 000 6 000 2 000
Net profit 21 734 21 734 -
2 000 (2 000)
R (63 000) R 29 734

GR R 6 000
NDR R 23 734

9
ALFA LIMITED AND SUBSIDIARY COMPANY

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2007

2007 2006
R000 R000

Revenue (1 000 + 600 + 153,4 - 400 - 20) 1 333 (5)

Cost of sales (500 + 300 + 76,744 - 400 - 20 + 18 - 5 + 0,3) (470) (8)

Gross profit 863

Other operating expenses (200 + 150 + 19 - 0,4 + 1,111 + 12,000 + 4,00 + 1,00) (387) (8)
Net profit before tax 476
Less: Income tax expense (105 + 53 + 16 - 0,311 + 2 - 5 + 0,112 - 0,086) (171) (8)
Net profit after tax R 305

Attributable to:
Holding company 287 (1)
Non-controlling interest (17 + 1,5) 18 (2)
R 305

(Test : R195 - 4 - 1 (pref) + 0,4 - 0,112 - 0,308 + 0,086 = 190 + 67 + 30 = R287)

32
÷2 16
Maximum 15

Journals 25
Total 40
Bonus: Attribution of profit 1

10
ACCC 371 Question Bank, Question 62 suggested solution

(a) Prepare the pro forma consolidation journal entries required to consolidate Ocean’s Eleven (Pty) Ltd into Brangelina (Pty) Ltd for the financial year ended 31 December 2016. Journal narrations are not required.

[Note to marker: Account names should be correct to earn the "journal" mark. If nothing in brackets default SoFP (e.g. Dtax)]

Dr Gain on disposal of investment in Ocean's Eleven Ltd (p/l) R 600,000 1.5 [C1] [Mark for calc]
Cr Retained earnings - BOY (SoCE) -R 688,000 2 [C2] [Mark for calc]
Cr Revaluation surplus - BOY (SoCE) -R 200,000 1 [C2] [Mark for calc]
Cr Revenue (p/l) -R 750,000 0.5 [C3] [Mark for calc]
Dr Cost of Sales (p/l) R 337,500 0.5 [C3] [Mark for calc]
Dr Income tax (p/l) R 115,500 0.5 [C3] [Mark for calc]
J1 Dr NCI (p/l) R 59,400 1 [C4] [Mark for calc]
Dr Investment in Ocean's Eleven (SoFP) R 100,000 1.5 [C5] [Mark for calc]
Cr Group profit on disposal of shares (p/l) -R 37,200 1 [C6] [Mark for calc]
Dr Group loss on remeasurement of disposal of shares (p/l) R 462,800 10 [C6] [Mark for calc]
Dr Non-controlling interest (SoFP) R 1,409,400 1 P [Mark for calc if used amount calculated in C6]
Cr Non-controlling interest (SoFP) -R 1,409,400 1 P [Mark for calc if used amount calculated in C6]
Consolidation of subsidiary for first 9 months and recognition of disposal of interest 1 [Journal]

Dr Revaluation Reserve (SoCE) R 200,000 0.5 [Mark for calc if used amount calculated in C2/above]
J2 Cr Retained earnings (SoCE) -R 200,000 1 [Journal]
Transfer of revaluation to retained earnings on loss of control over subsidiary ito IFRS 10.B99

Dr Investment in Ocean's Eleven (SoFP) R 39,600 2 [C7] [Mark for calc]

J3 Cr Share in profit of associate (p/l) -R 39,600 0.5 [Journal]
Accounting for Brangelina's share of profit of associate for current year (3 months)

Dr Other income (p/l) (25 000 x 40%) R 10,000 1 [Mark for calc]
J4 Cr Investment in Ocean's Eleven (SoFP) -R 10,000 0.5 [Journal]
Accounting for Brangelina's share of dividend from associate for current year (3 months)

[Note to marker: J3 +J4 could also have been combined as follows]

Dr Investment in Ocean's Eleven (SoFP) R 29,600 1 [Journal]

Cr Share in profit of associate (p/l) -R 39,600 2 [C7] [Mark for calc]
J3+J4
Dr Other income (p/l) R 10,000 1 [Mark for calc]
Accounting for Brangelina's share of equity of associate for current year (3 months)

Dr Share in profit of associate (p/l) (1 200 000 x 30/130 = 276 923 x 40%) R 110,769 1 [Mark for calc]
J5 Cr Property, plant and equipment (SoFP) -R 110,769 0.5 [Journal]
Elimination of the unrealised intragroup gain included in the plant of Ocean's Eleven Pty Ltd

Dr Deferred Tax (SoFP) (110 769 x 28%) R 31,015 0.5 P [Mark for calc]
J6 Cr Share in profit of associate (p/l) -R 31,015 0.5 [Journal]
Tax implication on unrealised profit on sale of equipment

Dr Accumulated depreciation (SoFP) (110 769 x 20% x 3/12) R 5,538 1 P [Mark for calc]
J7 Cr Share in profit of associate (p/l) -R 5,538 0.5 [Journal]
Realisation of unrealised profit in the current year through depreciation

Dr Share in profit of associate (p/l) (5 538 x 28%) R 1,551 0.5 P [Mark for calc]
J8 Cr Deferred Tax (SoFP) -R 1,551 0.5 [Journal]
Tax implication on depreciation above
CALCULATIONS AND OTHER INFORMATION

Change in Ownership
%
Table
Total Parent NCI
Before Disposal 100% 80% 20%
Disposal 0% -40% 40%
After Disposal 100% 40% 60% 0.5 [Mark for calc]
Number
Total Parent NCI
Before Disposal 500,000 400,000 100,000
Disposal - -200,000 200,000
After Disposal 500,000 200,000 300,000 0.5 [Mark for calc]

C1. Gain on disposal of interest in separate financial statements of Brangelina

Proceeds 3,100,000 0.5 [Given]

Cost price of portion sold (R5000 000 X 40%/80%) -2,500,000 1 [Mark for calc]
Gain on disposal of interest in separate AFS (p/l) 600,000

C2. Share in since acquisition equity

Retained earnings (1 500 000 - 1 000 000 = 500 000 x 80%) 400,000 1 [Mark for calc]
Realisation of contingent liability paid (500 000 x 72% = 360 000 x 80%) 288,000 1 [Mark for calc] [0.5 for 500 000 x 72% + 0.5 for 80%]
688,000

Revaluation Surplus (R307 307 x 81.352% x 80%) 200,000 1 [Mark for calc] [0.5 for 307 307 x 18.352 % + 0.5 for 80%]

C3. Share in current year equity until date control is lost

Revenue (1 000 000 x 9/12) 750,000 0.5

Cost of sales (450 000 x 9/12) 337,500 0.5
Income tax expense (154 000 x 9/12) 115,500 0.5
297,000
C4. NCI share in current year equity until date control is lost

Share in current year profit (297 000 x 20%) 59,400 1 P [Mark for calc]

C5. Fair value adjustment to remaining investment on date control is lost

Fair value of remaining investment (200 000 x 13) 2,600,000 0.5 [Mark for calc]
Less: Cost of portion of investment sold (5 000 000 x 40%/80%) -2,500,000 1 [Mark for calc]
100,000

C6: Calculation of group profit/(loss) sale of shares (including FV adjustment to remaining investment)
Alternative 1: From the NCI perspective

Consideration received on sale of shares 3,100,000 0.5 [Given]

Plus: FV of remaining investment on date of sale of shares (200 000 x 13) 2,600,000 0.5 P [Mark for calc if used C5]
Less: CA of investment disposed of on date of sale of shares -6,125,600
Total net assets of Ocean's Eleven Ltd on date when control is lost 7,047,000
- Share capital 5,000,000 0.5 [Given]
- Retained earnings (1 000 000 + 500 000 + 360 000 - 360 000) 1,500,000 2 P [Mark for calc 0.5 + 0.5P + 0.5P + 0.5P if used C2 ]
- Profit for the year 297,000 0.5 P [Mark for calc if used C3]
- Revaluation surplus (R307 307 x 81.352%) 250,000 0.5 P [Mark for calc if used C2]
Plus: GW recognised on @ acquisition date 488,000
- Consideration transferred 5,000,000 0.5 [Given]
- Plus: non-controlling interest (5 640 000 x 20%) 1,128,000 0.5 P [Mark for calc]
- Net assets on acquisition date (5 000 000 + 1 000 000 - 360 000) -5,640,000 1.5 [Mark for calc 0.5 + 0.5 + 0.5]

Less: total NCI on date when control is lost -1,409,400

- At acquisition NCI 1,128,000 0.5 P [Mark already awarded]
- Share in since reserves - Retained earnings (500 000 + 360 000 = 860 000 x 20%) 172,000 0.5 P [Mark for calc if used C2]
- Share in since reserves - Revaluation surplus (250 000 x 20%) 50,000 0.5 P [Mark for calc if used C2]
- Share in profit for the year (297 000 x 20%) 59,400 0.5 P [Mark for calc if used C3]

Group profit/(loss) on sale of shares (3 100 000 + 2 600 000 - 6 125 600) -425,600

Calculation of group profit/(loss) on sale of shares as a result of FV adjustment to remaining investment

Consideration received on sale of shares 3,100,000 [Mark already awarded]

Less: Brangelina Ltd's share of CA of investment disposed of on date of sale of shares (6 125 600 x 40%/80%) or (6 125 600 x 200 000/400 000) -3,062,800 1 P [Mark for calc using %lost/%previously held]
Group 37,200

Group profit/(loss) on sale of shares (excluding FV adjustment) (425 600 + 37 200) -462,800 1 P [Mark for calc using total loss above]

Alternative 2: From the group/parent perspective

Consideration received on sale of shares 3,100,000 0.5 [Given]

Less: Bragnelina's share in net assets disposed of on date control is lost (7 047 000 x 80% x 40%/80%) -2,818,800 1 P [Mark for calc]
7,047,000
- Share capital 5,000,000 0.5 [Given]
- Retained earnings (1 000 000 + 500 000 + 360 000 - 360 000) 1,500,000 2 P [Mark for calc 0.5 + 0.5P + 0.5P + 0.5P if used C2 ]
- Profit for the year 297,000 0.5 P [Mark for calc if used C3]
- Revaluation surplus (R307 307 x 81.352%) 250,000 0.5 P [Mark for calc if used C2]

Less: GW recognised on @ acquisition date lost on date control is lost (488 000 x 40%/80%) -244,000 1 P [Mark for calc]
488,000
- Consideration transferred 5,000,000 0.5 [Given]
- Plus: non-controlling interest (5 640 000 x 20%) 1,128,000 0.5 P [Mark for calc]
- Net assets on acquisition date (5 000 000 + 1 000 000 - 360 000) -5,640,000 1.5 [Mark for calc 0.5 + 0.5 + 0.5]
37,200

Fair value of remaining investment (200 000 x 13) 2,600,000 0.5 P [Mark for calc if used C5]
Less: Bragnelina's share in net assets disposed of on date control is lost (7 047 000 x 80% x 40%/80%) -2,818,800 1 P [Mark for calc if used amount above]
Less: GW recognised on @ acquisition date lost on date control is lost (488 000 x 40%/80%) -244,000 1 P [Mark for calc if used amount above]
-462,800
C7: Profit share in associate after date control is lost

Revenue (1 000 000 x 3/12) 250,000 0.5 [Mark for calc]

Cost of sales (450 000 x 3/12) 112,500 0.5 [Mark for calc]
Income tax expense (154 000 x 3/12) 38,500 0.5 [Mark for calc]
99,000

Share in profit (99 000 x 40%) 39,600 0.5 P [Mark for calc]
Available marks 34
Maximum marks 34
ACCC 371 Question Bank, Question 62 suggested solution

(b) Calculate the consolidated retained earnings balance to be disclosed in the consolidated financial statements of Brangelina (Pty) Ltd for the financial year ended 31 December
2016.

Balance on 1 January 2016 - Brangelina Ltd 2,500,000 0.5 [Given]

Share in Ocean's Eleven Ltd's since acquisition reserves 688,000 0.5 P [If used calc in Q2(a) J1]
Profit for the year - Brangelina Ltd 6,919,200 0.5 [Given]
Dividend paid - Brangelina Ltd -500,000 0.5 [Given]
Reversal of gain on disposal of investment in Ocean's Eleven Ltd -600,000 0.5 P [If used calc in Q2(a) J1]
Share in current year profit before loss of control (396 000 x 9/12) 297,000 0.5 P [Given profit OR If used calc in Q2(a) J1]
NCI's share in current year profit before control is lost -59,400 0.5 P [If used calc in Q2(a) J1]
Group profit/(loss) on sale of shares as a result of FV adjustment to remaining investment 37,200 0.5 P [If used calc in Q2(a) J1]
Group profit/(loss) on sale of shares (excluding FV adjustment) -462,800 0.5 P [If used calc in Q2(a) J1]
Transfer of revaluation to retained earnings on loss of control 200,000 0.5 P [If used calc in Q2(a) J2]
Profit share in associate 39,600 0.5 P [If used calc in Q2(a) J3]
Dividends received from associate -10,000 0.5 P [If used calc in Q2(a) J4]
Intercompany profit on sale of PPE -110,769 0.5 P [If used calc in Q2(a) J5]
Tax on above 31,015 0.5 P [If used calc in Q2(a) J6]
Realisation of intercompany profit on sale of PPE through depreciation 5,538 0.5 P [If used calc in Q2(a) J7]
Tax on above -1,551 0.5 P [If used calc in Q2(a) J8]
8,973,034
Available marks8
Maximum marks8
ACCC 371 Question Bank, Question 62 suggested solution

(c) According to the financial director of Brangelina (Pty) Ltd, the Pitt-Roberts Foundation (Pty) Ltd must be classified as a joint operation in the consolidated
financial statements of Brangelina (Pty) Ltd should the agreement with Pretty Women (Pty) Ltd be entered into, but he is now uncertain whether this is correct.

In a report, advise the financial director on the accuracy of his classification of the Pitt-Roberts Foundation (Pty) Ltd in the consolidated financial statements of
Brangelina (Pty) Ltd in terms of IFRS 11 Joint Arrangements. A detailed discussion on control in terms of IFRS 10 Consolidated Financial Statements is not
required.

REPORT
To: The Group Financial Director
From: CA Student
Date: 28 November 2016
Subject: Classification of joint arrangement as a joint venture or joint operation

Dear Sir
Please see below my response on the classification of the Pitt-Roberts Foundation.

A joint arrangement exists when two or more parties have joint control 0.5
Joint control is the contractually agreed sharing of control, which exists only when decisions about the relevant activities require unanimous consent of the 0.5
parties sharing such control.
A contractual arrangement exists between Brangelina and Pretty Woman. 0.5
Brangelina and Pretty Woman each holds 50% of the shares and the voting rights which means in terms of the contract both the shareholders must be in 1
agreement to come to a decision with regards to the relevant activities. Unanimous consent is therefore required.
1
Brangelina and Pretty Woman therefore have joint control over the Pitt-Roberts Foundation therefore constitutes a joint arrangement.
The joint arrangement can either be classified as a joint operation or a joint venture.
A Joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the 0.5
liabilities, relating to the arrangement.
0.5
A Joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.

When making the assessment on the classification of the joint arrangement, Brangelina and Pretty Woman must consider the following (IFRS 11.B15):
(a) the structure of the joint arrangement
(b) when the joint arrangement is structured through a separate vehicle: 0.5
(i) the legal form of the separate vehicle,
(ii) the terms of the contractual agreement and
(iii) facts and circumstances
The joint arrangement is carried out through a separate vehicle (Pitt-Roberts Foundation) 1
The legal form causes the separate vehicle to be considered in its own right (i.e. the assets and liabilities held in Pitt-Roberts Foundation are the assets and 1
liabilities of Pitt-Roberts Foundation and not the assets and liabilities of Brangelina and Pretty Woman)
The terms of the contractual arrangement do not specify that Brangelina and Pretty Woman have rights to the assets, or obligations for the liabilities, relating 1
to the arrangement.
The terms of the contractual arrangement establish that Brangelina and Pretty Woman have rights to the net assets of Pitt-Roberts Foundation. 1

There are no other facts and circumstances that indicate that Brangelina and Pretty Woman have rights to substantially all the economic benefits of the 1
assets relating to the arrangement, and that Brangelina and Pretty Woman have an obligation for the liabilities relating to the arrangement.

Therefore, the classification of the Pitt-Roberts Foundation is incorrect as it should be classified as a joint venture 1

Kind Regards
S Student

Communication skills – presentation and layout 1

[Note to marker: The mark is for presenting the discussion in a memorandum format.]

Available marks12
Maximum marks11
ACCC 371 Question Bank, Question 62 suggested solution

Brangelina (Pty) Ltd interest in Oceans (Pty) Ltd 80% Brangelina (Pty) Ltd interest in Oceans (Pty) Ltd 40%
NCI 20% NCI NA

At acquisition Beginning of CY Sale of interest End of CY

48 MONTHS 9 MONTHS 3 MONTHS

1-Jan-14 1-Jan-16 1-Oct-16 31-Dec-16

Movement Movement Movement
Retained Revaluation
Share capital
earnings surplus Profit Dividends Profit Dividends

Share Capital 5,000,000 - 5,000,000 - - 5,000,000 - - 5,000,000

Retained earnings 1,000,000 500,000 1,500,000 297,000 - 1,797,000 99,000 -25,000 1,871,000
Contingent liability -500,000 Realisation 500,000 - - -
Tax on contingent liability 140,000 Tax on realisation -140,000 - - -
Revaluation 250,000 250,000 250,000 250,000
860,000 250,000 297,000 - 99,000 -25,000
Since @ 80% 688,000 200,000 Since @ 80% 237,600 - Since @ 40% 39,600 -10,000
NCI @ 20% 172,000 50,000 NCI @ 20% 59,400 -

Total net assets (equity) 5,640,000 6,750,000 7,047,000 7,121,000

Consideration 5,000,000 Consideration received on sale of shares 3,100,000

NCI (5 360 000 x 20%) 1,128,000 Plus: FV of remaining investment on date of sale of shares (200 000 x 13.00) 2,600,000
Net assets -5,640,000 Profit for the year: Less: CA of investment disposed of on date of sale of shares -6,125,600
Goodwill/(GBP) 488,000 1 Jan 2016 - 30 Sep 2016 (396 000 x 9/12) 297,000 Total net assets of S Ltd on date when control is lost 7,047,000
1 Oct 2016 - 31 Dec 2016 (396 000 x 3/12) 99,000 Plus: GW recognised on @ acquisition date 488,000
Less: total NCI on date when control is lost -1,409,400

Group profit / (loss) on sale of shares (including remeasurement gain) -425,600

Consideration received on sale of shares 3,100,000

Less: Portion (%) of CA of investment disposed of on date of sale of shares (152 000 x 40/80) -3,062,800
Group profit on sale of shares (Excl. remeasurement gain) 37,200

Remeasurement gain / (loss) (425 600 + 37 200) -462,800

NCI running balance 1,128,000 1,350,000 1,409,400 NA

ACCC 371 Question Bank, Question 64 suggested solution

(a) Write a report to the directors of Main Lodge wherein you discuss whether their decision to proportionately consolidate Modjagi into the separate financial statements of Mabula was the correct approach
in accounting for the investment in the ordinary shares of Main Lodge in accordance with IFRS 11.

Note: Due to this being a closed book assessment, full marks are awarded for theory principles.

REPORT

To: The board of directors of Mabula (Pty) Ltd

Date: 19 May 2017
Subject: Decision to proportionately consolidate Modjagi into the separate financial statements of Mabula

Classification as a joint arrangement

Notes to marker:
IFRS 11 sets out the classification and measurement requirements of a joint arrangement into either a joint venture or joint operation.
As the directors have decided to proportionally consolidate Modjagi, they have thus concluded that the classification of the joint
arrangement is a joint operation.
A joint arrangement is an arrangement in which two or more parties have joint control (IFRS 11.4). 1 [Mark for definition]
Joint control is the contractually agreed sharing of control, which exists only when decisions about the relevant activities require
[Mark for definition]
unanimous consent of the parties sharing such control (IFRS11.7). 1
Relevant activities are activities that significantly affect the returns of Modjagi. 1 [Mark for definition]
a) A contract exists between Main Lodge and Mr Wild as they entered into an agreement on the same date that they obtained shares in
[Mark for noting that a contract exists]
Modjagi. 1
b) It would appear that the relevant activities of Modjagi are those relating to the sourcing of horses and quad bikes, all staff matters and
[Mark for identification of relevant activities]
pricing structures. 1
c) However, each investor holds 50% of the shares and of the voting rights and agreed that they will vote together on the relevant
[Mark for noting that they will vote together]
activities. 1
This means that the shareholders must be in agreement in order to come to a decision. Therefore unanimous consent is required. [Mark for noting that unanimous consent is required]
1
Conclusion:
[Mark for conclusion]
Therefore Main lodge and Mr Wild have joint control over Modjagi and a joint arrangement exists. 0.5
Classification as a joint operation
An entity shall determine the type of joint arrangement in which it is involved / We need determine whether the investment in Modjagi is an
1 [Mark for noting that the type needs to be considered]
investment in a joint operation or a joint venture.
The classification of a joint arrangement depends upon the rights and obligations of the parties to the arrangement. 1 [Mark for noting that classification depends on the rights and
A joint operation is a joint arrangement whereby the parties that have joint control have rights to the assets and obligations for the
1 [Mark for definition]
liabilities relating to the arrangement.
1 [Mark for definition]
A joint venture is a joint arrangement whereby the parties that have joint control have rights to the net assets of the arrangement.
[Mark for noting that because it is a separate legal entity we
1
As Modjagi Ltd is a separate legal entity (i.e. separate vehicle), it may represent either of these two types of joint arrangements. need to it could represent any one of the two types of joint
arrangements]
Other facts and circumstances will need to be considered as the legal form and the terms of the contractual arrangement are not clear.
[Note to marker: If students did not give the i.e., they should have discussed it under the correct heading to obtain the mark]
Legal form:
- Modjagi is a separate legal entity and therefore a separate legal person. 1 [Mark for separate legal entity]
- The legal form of the contractual arrangement indicates that the assets and liabilities held in Modjagi belongs to Main Lodge and Mr 1 [Mark for assets and liabilities belong to joint operators]
Wild (i.e. therefore giving them rights to the assets and obligations to the liabilities).
Terms: Parties to the arrangements have rights to assets as Main lodge and Mr Wild will share in the remaining assets on a 50/50 basis if [Mark for noting that parties have rights to the assets on a
1
Modjagi was to be closed down or liquidated (i.e. therefore giving them rights to the assets). 50/50 basis and therefore giving them rights to the assets]
Other fact and circumstances: Modjagi operates horse and quad bike trips for the guests in the Main Lodge and Bush Lodge (i.e. Its [Mark for noting that parties will cover debt on a 50/50 basis
1
activities primarily aim to provide the parties with an output). and therefore obligations for the liabilities]
Other fact and circumstances: Parties to the arrangements have obligations for liabilities as they will stand in for Modjagi debts on a 50/50 [Mark for noting that parties will cover debt on a 50/50 basis
1
basis if there was ever a shortfall (i.e. therefore giving them obligations to the liabilities). and therefore obligations for the liabilities]
[Mark for noting that parties will be liable for any claims
Other fact and circumstances: Parties to the arrangements are jointly liable for claims raised by third parties as Main lodge and Mr Wild will
1 raised by third parties on a 50/50 basis and therefore
cover the cost on a 50/50 basis if Modjadji is ever sued (i.e. therefore giving them obligations to the liabilities).
obligations for the liabilities]
Conclusion:
Based on the above, in my opinion, Main Lodge and Mr Wild have rights to the assets and obligations for the liabilities of Modjagi and 0.5 [Mark for conclusion]
therefore Modjagi meets the definition of a joint operation.
Overall conclusion:
[Overall conclusion mark below]
Therefore, the directors were correct to proportionally consolidate Modjagi.

END OF MEMORANDUM

Communication skills – Presentation and layout 1

[Note to marker: This mark is for presenting the discussion in a memorandum format]
Communication skills – logical argument 1
[Note to marker: This mark is for making a conclusion on whether it was correct to proportionally consolidate Modjagi]

Available marks 21
Maximum marks 17
 Cell: B33
Note: De Villiers:
If students did not give the i.e. they should have discussed it under the correct heading.
ACCC 371 Question Bank, Question 64 suggested solution

(b) Prepare an extract from the consolidated statement of profit or loss and other comprehensive income of the Mabula Group for the financial year ended 31 December 2016. Start the extract at the profit after tax line item.
Comparative figures are not required.

MABULA (PTY)LTD GROUP

CONSOLIDATED STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2016

R
2016

Profit for the year 3,868,237 [C1] [Mark for calc]

Other comprehensive income
Items that will not be reclassified to profit and loss
Gains on property revaluation 72,000 1 [Given]
Investment in equity instruments - eliminates in full on consolidation
Share of other comprehensive income of associates 14,400 [C2] [Mark for calc]
Total comprehensive income for the year 3,954,637

Profit attributable to:

Owners of the parent (3 868 237 - 397 702) 3,470,535 0.5 P [Mark for calc if used C1 - C3]
Non controlling interests 397,702 [C3] [Mark for calc]

Total comprehensive income attributable to:

Owners of the parent (3 954 637 - 412 102) 3,542,535 0.5 P [Mark for calc if used Total comp inc less C4]
Non controlling interests 412,102 [C4] [Mark for calc]

Communication skills – presentation and layout 1

[Note to marker: The mark is for presenting the SoCI with the appropriate headings, and currency]

Available marks24.5
Maximum marks23
CALCULATIONS
C1. Profit after tax
Mabula 1,152,000 0.5 [Given]
Main Lodge 2,016,000 0.5 [Given]
Less: Div received by Mabula from Main Lodge (180 000 x 80%) -144,000 1 [Mark for calc]
Less: Div received by Mabula from Bush Lodge (120 000 x 40%) -48,000 1 [Mark for calc]
Plus: Share of profits of associate (before interco transactions)
Profit for the year (1 800 000 x 40%) 720,000 1 [Mark for calc]
Realisation of contingent liability (90 000 x 40%) 36,000 1 P [Mark for calc if used amount below]
Gain on bargain purchase with the acquisition of Bush Lodge (220 000 - 385 312) 165,312
Consideration paid 220,000 0.5 [Given]
Less: Share in net assets (660 000 x 40%) 385,312 0.5 [Given]
- Share capital 500,000 0.5 [Given]
- Retained earnings 280,000 0.5 [Given]
- Revaluation reserve 250,000 0.5 [Given]
- Revaluation of land 30,000 1 [Mark for calc]
- Tax on revaluation of land (30 000 x 22.4%) -6,720 1 P [Mark for calc if used 22.4%]
- Contingent liability -90,000 1 [Given]
- Tax on contingent liability - [-1 if included tax]
Eliminatiom of intercompany profit in stock (33 000 x 20/120 x 40%) -2,200 1 + 0.5 [Mark for calc]
Tax on above (2 200 x 28%) 616 0.5 P [Mark for calc]
Elimination of intercompany profit on sale of asset (500 000/120 x 66 = 275 000 - 375 000 = 100 000 x 40%) -40,000 1 + 0.5 + 0.5 [Mark for calc]
Tax on above (40 000 x 28%) 11,200 0.5 P [Mark for calc]
Realisation of intercompany profit on sale of asset (40 000 / 66 x 3) 1,818 1 P [Mark for calc if used 40 000 / 66 x 3]
Tax on above (1 818 x 28%) -509 0.5 P [Mark for calc]
3,868,237
C2. Share of other comprehensive income of associates
Bush Lodge (36 000 x 40%) 14,400 1 [Mark for calc]

C3. Profit attributable to NCI Alternative 1 Alternative 2

Main Lodge (2 016 000 x 20%) 403,200 2,016,000 0.5 [Given]
Intercompany profit on sale of asset (40 000 x 20%) -8,000 -40,000 0.5 P [Mark for calc if used amount in C1]
Tax on above (11 200 x 20%) 2,240 11,200 0.5 P [Mark for calc if used amount in C1]
Realisation of intercompany profit on sale of asset (1 818 x 20%) 364 1,818 0.5 P [Mark for calc if used amount in C1]
Tax on above (509 x 20%) -102 -509 0.5 P [Mark for calc if used amount in C1]
1,988,509
X 20% 397,702 397,702 0.5 P [Mark for calc if used 20%]

C4. Total comprehensive income attributable to NCI

NCI share of OCI
Main Lodge OCI (72 000 x 20%) 14,400 0.5 P [Mark for calc if used amount in C2]
Profit attributable to NCI 397,702 0.5 P [Mark for calc if used amount in C3]
412,102
 Cell: C45
Note: De Villiers:
Please just watch out for if students started with the 980 000 total equity as given in the
ACCC 371 Question Bank, Question 68 suggested solution

(a) With reference to the information in paragraph 2.2.1 (audit misstatement 1), provide ONLY the correcting journal entries required to correct the error in connection with the head office building portion of the property in the separate
financial statements of 4RT SA for the financial year ended 31 October 2017. The correction of the land portion is not required.

[Note to marker: Account names should be correct to earn the "journal" mark. If nothing in brackets default SoFP (e.g. Dtax)]
[Note to marker: No marks are to be awarded if the student did not use the amount within a journal entry, i.e. calculations are only marked if it was used within a journal entry]
[Note to marker: If students used any 1 of the amounts in J4 as the balancing figure, award marks for the calculations of the amounts used within the other two line items actually calculated]

Journal entries

31-Oct-17
MR MD
Dr Property, plant and equipment - Buildings (SoFP) (320 000 / 20% x 80%) or (1 600 000 x 80%) 1,280,000 1 1 [Mark for calc]
1 CrInvestment property (SoFP) 1,280,000 0.5 0.5 [Journal]
Reclassification of investment property to PPE

Dr Fair value adjustment (p/l) (40 000 / 20% x 80%) 160,000 1 1 [Mark for calc]
2 CrInvestment property (SoFP) 160,000 0.5 0.5 [Journal]
Reversal of current year fair value adjustment

Dr Depreciation (p/l) (1 280 000 / 10) 128,000 1 1 P [Mark for calc if used amount in J1 & 10Y]
3 CrAccumulated depreciation - Buildings (SoFP) 128,000 0.5 0.5 [Journal]
Accounting for depreciation in current year

Dr Property, plant and equipment - Buildings (SoFP) 320,000 [C1] [Mark for calc]
CrAccumulated depreciation - Buildings (SoFP) 32,000 [C2] [Mark for calc]
4
CrRevaluation surplus (OCI) 288,000 [C3] [Mark for calc]
Accounting for revaluation at year end 1 1 [Journal]

Dr Income tax expense (OCI) (288 000 x 28%) 80,640 1 1 P [Mark for calc if used amount in J4 x 28%]
CrIncome tax expense (p/l) (160 000 x 22.4%) 35,840 1 1 P [Mark for calc if used amount in J2 x 22.4%]
5
CrDeferred tax (SoFP) (80 640 - 35 840) 44,800 1 1 P [Journal]
Correction of deferred tax
OR
Dr Deferred tax (SoFP) (160 000 x 22.4%) 35,840 1 1 P [Mark for calc if used amount in J2 x 22.4%]
CrIncome tax expense (p/l) 35,840 0.5 0.5 [Journal]
Reversal of deferred tax raised in investment property

Dr Income tax expense (OCI) (288 000 x 28%) 80,640 1 1 P [Mark for calc if used amount in J4 x 28%]
CrDeferred tax (SoFP) 80,640 0.5 0.5 [Journal]
Reversal of deferred tax raised in investment property
1,968,640 1,968,640

CALCULATIONS Communications skills – presentation and layout 1 1 [Mark for journal narrations]

C1. Adjustment to cost on revaluation

Net replacement value on 31 October 2017 (360 000 / 20% x 80%) 1,440,000 1 1 [Mark for calc]
Gross replacement value on 31 October 2017 (1 440 000 / 9 x 10) 1,600,000 1 1 P [Mark for calc if used 9/10]
Cost on 1 November 2016 (320 000 / 20% x 80%) or (1 600 000 x 80%) 1,280,000 0.5 0.5 P [Mark for calc if used amount in J1]
Adjustment to cost (1 600 000 - 1280 000) 320,000

C2. Adjustment to accumulated depreciation

Accumulated depreciation should be (1 600 000 / 10) 160,000 1 1 P [Mark for calc if used GRV in C1]
Current accumulated depreciation balance on 31 October 2017 128,000 0.5 0.5 P [Mark for calc if used amount in J3]
Adjustment to accumulated depreciation (160 000 - 128 000) 32,000

C3. Revaluation surplus

Net replacement value on 31 October 2017 (360 000 / 20% x 80%) 1,440,000 0.5 0.5 P [Mark for calc if used amount in C1]
Carrying amount on 31 October 2017 (1 280 000 - 128 000 = 1 152 000) or (1 280 000 / 10 x 9) 1,152,000 1 1 P [Mark for calc if used amount in J1]
Revaluation surplus (1 440 000 - 1 152 000) 288,000

TOTAL MARKS OBTAINED

Available marks 14
Maximum marks 14
Communication skills 1
Total marks 15
ACCC 371 Question Bank, Question 68 suggested solution

(b) With reference to the information in paragraph 2.2.2 (audit misstatement 2), briefly explain to the chief financial officer how the balances of each of the affected equity, asset, liability and overall deferred tax asset general ledger accounts will change (i.e. increase or decrease) as a result
of the recognition of the impairment loss on the manufacturing plant in the separate financial statements of 4RT SA for the financial year ended 31 October 2017. Your explanations should be supported by appropriate amounts and calculations.

Equity account: Retained earnings

MR MD
The retained earnings account balance will decrease with the after tax effect of the impairment loss recognised in profit or loss. 0.5 + 0.5 0.5 + 0.5 [Mark for noting 0.5 decrease in 0.5 retained earnings balance]
The impairment loss to be recognised in profit or loss will amount to the following:

Carrying amount of plant on 31 October 2017 ( 4 630 500 / 4 x 3 = 3 472 875 + 2 205 000) 5,677,875 1 + 0.5 1 + 0.5 P [Mark for calc if used CA calculated below /4 x 3 + RV]
- Depreciable carrying amount on 1 November 2016 (10 500 000 x 70% = 7 350 000 - 2 205 000 = 5 145 000 / 10 x 9) 4,630,500 1 + 0.5 + 1 1 + 0.5 + 1 [Mark for calc] [Can also calc depreciation seperately and deduct]
Carrying amount of machinery on 31 October 2017 ( 2 835 000 / 4 x 3 = 2 126 250) 2,126,250 1 1 P [Mark for calc if used CA calculated below /4 x 3]
- Depreciable carrying amount on 1 November 2016 (10 500 000 x 30% = 3 150 000 / 10 x 9) 2,835,000 1 + 0.5 1 + 0.5 [Mark for calc]
Carrying amount of goodwill on 31 October 2017 (12 000 000 - 10 500 000) 1,500,000 1 1 [Mark for calc if USED WITHIN CGU i.e. added to the CA of CGU
BEFORE calculation of impairment]
Carrying amount of CGU on 31 October 2017 9,304,125
Recoverable amount of CGU on 31 October 2017 is the higher of: -6,500,000 0.5 0.5 [Mark for choosing higher]
- Fair value less cost to sell 6,500,000 0.5 0.5 [Given]
- Value in use 3,500,000 0.5 0.5 [Given]

Total impairment loss to be recognised in profit or loss. 2,804,125

Income tax effect on the impairment loss (2 804 125 - 1 500 000 = 1 304 125 x 28%) -365,155 1 + 0.5 1 + 0.5 P [Mark for calc if deducted GW calculated above x 28%]
Total decrease in the retained earnings balance 2,438,970
Asset account: Goodwill
The goodwill balance will decrease by R1 500 000 as it will be fully impaired. 0.5 + 0.5 + 0.5 0.5 + 0.5 + 0.5 P [0.5 Mark for decrease 0.5 for goodwill and 0.5P Mark for amount]
Asset account: Accumulated depreciation
The accumulated depreciation and impairment loss account balances of the plant and the machinery will increase as follows: 0.5 + 0.5 0.5 + 0.5 [Mark for noting 0.5 increase in 0.5 Acc Dep balance]
- Plant (1 304 125 x 5 677 875 / 7 804 125 (5 667 875 + 2 125 250)) 948,813 1 1 P [Mark for calc if used amounts above]
- Machinery (1 304 125 x 2 126 250 / 7 804 125 (5 667 875 + 2 125 250)) 355,312 1 1 P [Mark for calc if used amounts above]
Deferred tax asset
[Mark for noting 0.5 increase in 0.5 Def tax Asset / DECREASE IN DEF
The deferred tax asset account balance will increase with R365 155 (2 804 125 - 1 500 000 = 1 304 125 x 28%) 0.5 + 0.5 0.5 + 0.5 P TAX LIABILITY] [Calc mark already awarded above] [Can also award
calc mark here but only once]
[Providing the discussion with appropriate principles and
Communications skills – appropriate style 1 1 calculations. Did not just provide principles/calculations]

TOTAL MARKS OBTAINED

Available marks 18
Maximum marks 16
Communication skills 1
Total marks 17
ACCC 371 Question Bank, Question 68 suggested solution

(c) With reference to the information in paragraph 2.3.1 (audit misstatement 3), prepare the error note in accordance with the requirements of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to be disclosed in the
separate financial statements of 4RT SA for the financial year ended 31 October 2017. Ignore taxation.

[Note: If the direction in incorrect, penalise with 0.5 marks per line item]
[Note to marker: No marks are to be awarded if the student did not use the amount within the note, i.e. calculations are only marked if it was used within the note]

4RT SA MOTOR COMPANY (PTY) LTD

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2017

12. Prior period error

MR MD MR MD
An error was made in the classification of a lease transaction during the prior financial year. 1 1 [Mark for noting error in classification]
4RT SA incorrectly elected the recognition exemption in accounting for the lease transaction during the 2016 financial
year as they were of the opinion that the show room is a low value asset in relation to other asset they own in terms of 1 1 [Mark for detail description of error]
IFRS 16 Leases.
The comparative amounts for the 2016 financial year have been restated. 1 1 [Mark for noting that comparative figures restated]
R
2016
The effect on the statement of profit or loss and other comprehensive income

(Decrease) / Increase in lease expense -281,320 0.5 0.5 -0.5 -0.5 [Given]
(Decrease) / Increase in legal fees expense (9 500 x 50%) -4,750 1 1 -0.5 -0.5 [Mark for calc]
(Decrease) / Increase in finance costs 119,972 -0.5 -0.5 [C1] [Mark for calc]
(Decrease) / Increase in depreciation expense 168,258 -0.5 -0.5 [C2] [Mark for calc]
Decrease / (Increase) in profit for the year 2,160

The effect on the statement of financial position

(Decrease) / Increase in right-of-use asset 841,288 -0.5 -0.5 [C3] [Mark for calc]
Decrease / (Increase) in accrued expenses 21,320 -0.5 -0.5 [C4] [Mark for calc]
Decrease / (Increase) in lease liabilities -864,768 -0.5 -0.5 [C5] [Mark for calc]
Decrease / (Increase) in retained earnings 2,160 1 1 -0.5 -0.5 P [Mark for calc if used amount above / balancing]

[Mark for presenting the note with the correct headings, date, currency
Communication skills – presentation and layout 1 1
and ONLY 2016FY]

CALCULATIONS

C1. Finance cost

[NO MARKS ARE AWARDED FOR INPUTS IF USED THE SMOOTHED
PAYMENT OF 281 320 AS A PMT]
Cfi 1 = 260,000
0.5 0.5 [Given] [Both years should be correct]
Cfi 2 = 260,000
Cfi 3 (260 000 x 1.1) = 286,000
1 1 P [Mark for calc if used amount in Y1-Y2]
Cfi 4 = 286,000
Cfi 5 (286 000 x 1.1) = 314,600 1 1 P [Mark for calc if used amount in Y3-Y4]

I= 11.94% 0.5 0.5 [Given]

Comp NPV = 1,004,796

Finance cost for 1 November 2016 - 31 October 2016 (1 004 796 x 11.94%) 119,972 0.5 0.5 P [Mark for calc if used NPV calculated above x IIR]

C2. Depreciation expense

Cost of right-of-use asset 1,004,796 0.5 0.5 P [Mark for calc if used amount in C1]
Capitalisation of initial direct costs incurred by the lessee (9 500 x 50%) 4,750 1 1 P [Mark for calc if used amount above]
1,009,546

Depreciation expense for 1 November 2016 - 31 October 2016 (1 009 546 / 6) 168,258 1 1 P [Mark for calc if used 6 years as ownership transfers]

C3. Right-of-use asset

Initial cost 1,009,546 0.5 0.5 P [Mark for calc if used amount in C2] [CAN ALSO GIVE IDC IN C2 HERE]
Accumulated depreciation (1 009 546 / 6) -168,258 0.5 0.5 P [Mark for calc if used amount / years in C2] [Can also award calc mark
Carrying amount of right of use asset 841,289 here but only once]

OR

Carrying amount of right of use asset on 31 October 2016 (1 009 546 / 6 x 5) 841,289 1 1 P [Mark for calc if uses amount / years in C2]

C4. Accrued expense

Actual lease payment 260,000 0.5 0.5 [Given]

Straight-lined lease payment 281,320 0.5 0.5 [Given]
21,320

C5. Lease liability

Initial amount recognised 1,004,796 0.5 0.5 P [Mark for calc if used amount in C1]
less principle payment (260 000 - 119 972) -140,028 1 1 P [Mark for calc if used FC amount in C1]
Carrying amount of lease liability on 31 October 2016 864,768

TOTAL MARKS OBTAINED

Available marks 15
Maximum marks 15
Communication skills 1
Total marks 16
 Cell: K32
Note: 23066024:

Cell: A78
Note: De Villiers:
I will not do this laternative as the CIO calc was not required
ACCC 371 Question Bank, Question 68 suggested solution

(d) With reference to the information in paragraph 3.4.1 (strategy 1), prepare the journal entries required to account for the promotional costs incurred and the sale of the 25 vehicles for the financial year ended 31
October 2017. Journal entries to account for the inventory and related cost of sales are not required. Journal narrations are not required.

[Note to marker: Account names should be correct to earn the "journal" mark. If nothing in brackets default SoFP (e.g. Dtax)]
[Note to marker: No marks are to be awarded if the student did not use the amount within a journal entry, i.e. calculations are only marked if it was used within a journal entry]

Pro forma journal entries

26-Feb-16
MR MD
Dr Bank (SoFP) (345 000 x 25) 8,625,000 1 1 [Mark for calc]
CrRevenue (p/l) (8 625 000 x 330 000 / 363 000 (330 000 + 33 000)) 7,840,909 1 1 P [Mark for calc]
1
CrContract liability / Revenue received in advance (SoFP) (8 625 000 x 33 000 / 363 000 (330 000 + 33 000)) 784,091 1 1 P [Journal]
Recognision of sale on transaction date

Dr Other expenses (p/l) 150,000 0.5 0.5 [Given]

2 CrBank (SoFP) 150,000 1 1 [Journal]
Recognision of promotional expenses as an expense in terms of IAS 38

31-Oct-17

Dr Contract liability / Revenue received in advance (SoFP) (784 091 x 110 000 / 575 000) 150,000 1 1 [Mark for calc]
3 CrRevenue (p/l) 150,000 0.5 0.5 [Journal]
Recognition of revenue on maintenace plan

Dr Deferred tax (SoFP) (784 091 - 150 000 = 634 091 x 28%) or (784 091 x 465 000 / 575 000 = 634 091 x 28%) 177,545 1 + 0.5 1 + 0.5 [Mark for calc]
4 CrIncome tax expense (p/l) 177,545 0.5 0.5 [Journal]
Recognition of deferred tax on contract liability
9,102,545 9,102,545

TOTAL MARKS OBTAINED

Available marks 8
Maximum marks 8
Communication skills 0
Total marks 8
 Cell: K32
Note: 23066024:

Cell: A78
Note: De Villiers:
I will not do this laternative as the CIO calc was not required
ACCC 371 Question Bank, Question 69 suggested solution

(a) Calculate the change in ownership equity amount to be recognised in the consolidated financial statements of the MM Group as at 28 February 2017 as a result of
the acquisition of the additional shares in Bouncy Bounce by MM on 1 November 2016.

CALCULATIONS

C1. Shareholding after CIO MR MD

Number of shares before CIO (3 000 000 x 55%) 1,650,000
Additional shares acquired 600,000
Shareholding after CIO (2 250 000 / 3 000 000) 2,250,000
75% 1 1 [Mark for calc]

C3. Change in ownership equity

Consideration received by NCI (Comp PV) 825,000

FV (600 000 x 1.54) = 924,000 1 1 [Mark for calc]
N= 1 0.5 0.5 [Given]
I (8.64%/ 72%) = 12% 1 1 [Mark for calc]

Less: Adjustment to NCI -1,075,800 [C3] [Mark for calc]

Change in ownership equity -250,800

C3. Non-controlling interest Total net assets NCI

At acquisition until beginning of current year
- Share capital 3,000,000 0.5 0.5 [Given]
- Retained earnings 1,560,000 0.5 0.5 [Given]
- License undervalued (500 000 - 250 000) 250,000 1 1 [Mark for calc]
- Tax on License (250 000 x 28%) -70,000 0.5 0.5 P [Mark for calc]
- Amortisation on License (RUL 120 months) [R250 000 / 120 x 14] -29,167 1 1 [Mark for calc]
- Tax on amortisation [R29 167 x 28%] 8,167 0.5 0.5 P [Mark for calc]
4,719,000
Current year before additional interest
- Profit for the year before additional interest 672,000 [C4]
- Amortisation on License (RUL 120 months) [R250 000 / 120 x 8] -16,667 1 1 [Mark for calc]
- Tax on amortisation [R16 667 x 28%] 4,667 0.5 0.5 P [Mark for calc]
5,379,000
Total NCI on date of CIO (5 379 000 x 45%) 2,420,550 0.5 0.5 P [Mark for calc]

C4. Share in profit before CIO

Total profit for the year 1,033,920 0.5 0.5 [Given]
Unrealised profit in closing inventory (180 000 x 25/125) -36,000 1 1 [Mark for calc]
Tax on unrealised profit in closing inventory (36 000 x 28%) 10,080 0.5 0.5 P [Mark for calc]
Profit incurred evenly 1,008,000

Profit for the period before CIO (1 008 000 x 8/12) 672,000 0.5 0.5 P [Mark for calc]

C5. Adjustment to NCI due to CIO

Total NCI on date of CIO x NCI% lost / NCI% before CIO (2 420 550 x 20%/45%) 1,075,800 1 1 P [Mark for calc]
OR
-1,075,800
Total NCI before CIO (5 379 000 x 45%) -2,420,550 0.5 0.5 P [Mark for calc]
Total NCI after CIO (5 379 000 x 25%) 1,344,750 0.5 0.5 P [Mark for calc]

TOTAL MARKS OBTAINED

Available marks 13
Maximum marks 13
Communication skills 0
Total marks 13
ACCC 371 Question Bank, Question 69 suggested solution

(b) Prepare ONLY the pro forma journal entries required to consolidate Time Square into the consolidated financial statements of the MM Group for the financial year ended 28 February 2017.

[Note to marker: Account names should be correct to earn the "journal" mark. If nothing in brackets default SoFP (e.g. Dtax)]
[Note to marker: No marks are to be awarded if the student did not use the amount within a journal entry, i.e. calculations are only marked if it was used within a journal entry]
MR MD

Interest before CIO (3 250 000 / 5 000 000) 65% 0.5 0.5 [Mark for calc]
Interest after CIO (3 250 000 - 1 750 000 = 1 500 000 / 5 000 000) 30% 1 1 [Mark for calc]

Journal entries

28-Feb-17

Dr Cost of sales (p/l) (5 000 000 x 10/12) 4,166,667 0.5 0.5 [Mark for calc]
Dr Operating expenses (p/l) (2 426 800 x 10/12) 2,022,333 0.5 0.5 [Mark for calc]
Dr Income tax expense (p/l) (1 840 496 x 10/12) 1,533,747 0.5 0.5 [Mark for calc]
Dr Income tax expense (OCI) 56,000 0.5 0.5 [Given]
Dr Non-controlling interest (p/l) 1,380,372 [C1] [Mark for calc]
Dr Non-controlling interest (OCI) (250 000 - 56 000 = 194 000 x 35%) 67,900 1 1 [Mark for calc]
Dr Investment in Time Square (Pty) Ltd (SoFP) 1,419,231 [C2] [Mark for calc]
Dr Non-controlling interest (SoFP) 3,828,272 1 1 P [Mark for calc]
1 Dr Other income (p/l) 1,480,769 [C3] [Mark for calc]
CrGain on bargain purchase (p/l) 20,000 [C4] [Also award marks if used within C5]
CrSales (p/l) (12 500 000 x 10/12) 10,416,667 0.5 0.5 [Mark for calc]
CrOther income (p/l) (1 500 000 x 10/12) 1,250,000 0.5 0.5 [Mark for calc]
CrRevaluation surplus (OCI) 250,000 1 1 [Given]
CrNon-controlling interest (SoFP) (2 380 000 + 1 380 372 + 67 900) 3,828,272 1 1 P [Mark for calc]
CrRe-measurement gain on sale of shares (p/l) 168,624 [C5] [Mark for calc]
CrGroup gain on sale of shares (p/l) 21,728 [C5] [Mark for calc]
Accounting for change in ownership on date control is lost 1 1 [Journal]

Dr Revaluation surplus (SoCE) (194 000 x 65%) 126,100 1 1 P [Mark for calc]
2
CrRetained earnings (SoCE) 126,100 1 1 [Journal]
Realisation of since acquisition reserves to retained earnings on date control is lost

Dr Investment in Time Square (Pty) Ltd (SoFP) (4 732 704 x 2/12 x 30%) 236,635 1 1 P [Mark for calc]
3 CrProfit share in Associate (p/l) 236,635 0.5 0.5 [Journal]
Accounting for share in current year profits after CIO

Dr Profit on sale of equipment (p/l) (20%/80% x 550 000 = 137 500 x 30%) 41,250 1 + 0.5 1 + 0.5 P [Mark for calc]
4 CrInvestment in Time Square (Pty) Ltd (SoFP) 41,250 0.5 0.5 [Journal]
Elimination of unrealised profit on intercompany sale of PPE

Dr Deferred tax (SoFP) (41 250 x 28%) 11,550 0.5 0.5 P [Mark for calc]
5 CrIncome tax expense (p/l) 11,550 0.5 0.5 [Journal]
Tax on elimination of unrealised profit on intercompany sale of PPE

Dr Investment in Time Square (Pty) Ltd (SoFP) (137 500 - 37 500 = 100 000 / 48 x 2) x 30% 1,250 1 + 0.5 + 0.5 1 + 0.5 + 0.5 P [Mark for calc]
6 CrDepreciation (p/l) 1,250 0.5 0.5 [Journal]
Realisation of unrealised profit on intercompany sale of PPE

Dr Income tax expense (p/l) 350 0.5 0.5 P [Mark for calc]
7 CrDeferred tax (SoFP) (4 167 x 28%) 350 0.5 0.5 [Journal]
Realisation of unrealised profit on intercompany sale of PPE

Dr Sales (p/l) (180 000 x 30%) 54,000 1 1 [Journal]

CrCost of sales (180 000 x 100/125 x 30%) 43,200 0.5 0.5 [Mark for calc]
8
CrInvestment in Time Square (Pty) Ltd (SoFP) (54 000 - 43 200) or (180 000 x 25/125 x 30%) 10,800 1 1 [Mark for calc]
Elimination of intercompany sale of inventory

Dr Deferred tax (SoFP) (10 800 x 28%) or (36 000 x 28% x 30%) 3,024 0.5 0.5 [Mark for calc]
9
CrIncome tax expense (p/l) 3,024 0.5 0.5 [Journal]
Tax on elimination of intercompany sale of inventory
16,429,450 16,429,450 R 0.00

Communication skills – presentation and layout 1 1 [Mark for journal narrations]

-1 -1 -1 [If eliminated management fees]

CALCULATIONS

C1. NCI share in profit before CIO

Total comprehensive income 4,926,704 0.5 0.5 [Given]

Revaluation of land -250,000 0.5 0.5 [Given]
Tax on revaluation of land 56,000 0.5 0.5 [Given]
4,732,704

NCI share in profit before CIO (4 732 704 x 10/12 x 35%) 1,380,372 1 1 P [Mark for calc]

C2. Remeasurement of remaining investment on date control is lost

Carrying amount of investment after disposal of shares (4 400 000 x 1 500 000 / 3 250 000) 2,030,769 1 1 [Mark for calc]
Fair value of remaining investment on date of disposal of shares 3,450,000 0.5 0.5 [Given]
1,419,231

C3. Profit on sale of shares recognised in separate financial statements

Proceeds (1 750 000 x R2.20) 3,850,000 0.5 0.5 [Mark for calc]
Less: Cost of shares sold (1 750 000 / 3 250 000 x R4 400 0000) OR (35%/65% x R4 400 000) -2,369,231 1 1 [Mark for calc]
1,480,769

C4. Gain on bargain purchase

- Gain on bargain purchase on acquisition date -20,000

Consideration 4,400,000 0.5 0.5 [Given]
Non-controlling interest (6 800 000 x 35%) 2,380,000 0.5 0.5 P [Mark for calc]
Less: Net assets on acquisition date (SC 5 000 000 + RE 1 800 000) -6,800,000 1 1 [Mark for calc]

C5. Group gain on sale of shares

Alternative 1:

Proceeds received on sale of shares (1 750 000 x 2.20) 3,850,000 0.5 0.5 [Mark for calc]
Fair value of remaining investment on date of disposal of shares 3,450,000 0.5 0.5 [Given]
Less: Carrying amount of investment on date control is lost (10 937 920 - 3 828 272) OR (10 937 920 x 65%) -7,109,648 0.5 0.5 P [Mark for calc]
- Total net assets on date control is lost 10,937,920
Share Capital 5,000,000 [Mark already awarded above]
Retained Earnings 1,800,000 [Mark already awarded above]
Profit before control is lost (4 732 704 x 10 /12) 3,943,920 1 1 P [Mark for calc]
M-to-M before control is lost (R250 000 - R56 000) 194,000 1 1 P [Mark for calc]

- Derecognise NCI (10 937 920 x 35%) -3,828,272 1 1 P [Mark for calc]

- Group gain on sale of shares (including remeasurement gain) (32 497 + 177 855) 190,352
- Group gain on sale of shares (excluding remeasurement gain) (3 850 000 - 3 817 503) -21,728
Proceeds received on sale of shares (1 750 000 x 2.20) 3,850,000 [Mark already awarded above]
Less: Portion of CA of investment sold (7 089 648 x 35%/65%) -3,828,272 1 1 P
- Remeasurement gain 168,624

Alternative 2: OR

Proceeds received on sale of shares (1 750 000 x 2.20) 3,850,000 0.5 0.5 [Mark for calc]
Less: Carrying amount of investment on date control is lost
- Total net assets on date control is lost (10 937 920 x 35%) 10,937,920 -3,828,272 0.5 0.5 P [Mark for calc]
Share Capital 5,000,000 [Mark already awarded above]
Retained Earnings 1,800,000 [Mark already awarded above]
Profit before control is lost (4 732 704 x 10 /12) 3,943,920 1 1 P [Mark for calc]
M-to-M before control is lost (R250 000 - R56 000) 194,000 1 1 P [Mark for calc]

- Group gain on sale of shares (excluding remeasurement gain) (3 850 000 + 10 769 - 3 828 272) 21,728

Fair value of remaining investment on date of disposal of shares 3,450,000 0.5 0.5 [Given]
Less: Carrying amount of retained investment on date control is lost (7 089 648 x 30%/65%) -3,281,376 0.5 0.5 P [Mark for calc]
7,109,648
- Consideration paid for initial interest 4,400,000 0.5 0.5 [Given]
- Gain on bargain purchase 20,000 0.5 0.5 p [Mark if used amount in C4]
- Share in since acquisition reserves (3 943 920 + 194 000 = 4 137 920 x 65%) 2,689,648 0.5 0.5 P [Mark for calc]
Profit before control is lost (4 732 704 x 10 /12) 3,943,920 [Mark already awarded above]
Revalution surplus before control is lost (R250 000 - R56 000) 194,000 [Mark already awarded above]

- Remeasurement gain 168,624

- Group gain on sale of shares (including remeasurement gain) (32 497 + 177 855) 190,352

OR
Alternative 3:

Company profit on sale of shares

Proceeds received on sale of shares (1 750 000 x 2.20) 3,850,000 0.5 0.5 [Mark for calc]
Less: Carrying amount of investment Derecognised (Sep AFS) (4 400 000 * 1 750 000 / 3 250 000) -2,369,231 1 1 [Mark for calc]
1,480,769
Less since reserves lost
Retained earnings (4 732 704 x 10 /12 = 3 943 920 x 65%) 2,563,548 1 1 P [Mark for calc]
Gain - (p/l) part of since reserves 20,000 0.5 0.5 p [Mark if used amount in C4]
Revaluation surplus (R250 000 - R56 000 = 194 000 x 65%) 126,100 1 1 P [Mark for calc]
2,709,648
Times 35/65 -1,459,041 0.5 0.5 P [Mark for calc]
Group profit excluding FV adjustment 21,728

Fair value adjustment

Fair value of retained 3,450,000
Retained cost (4 400 000 x 30%/65%) 2,030,769 0.5 0.5 [Mark for calc]
Retained since reserves (1 448 272 times 30%/65%) 1,250,607 0.5 0.5 [Mark for calc]
-3,281,376
168,624
Total group profit (including FV adjustment) 190,352

TOTAL MARKS OBTAINED

Available marks 36
Maximum marks 36
Communication skills 1
Total marks 37
ACCC 371 Question Bank, Question 69 suggested solution

(c) Identify and discuss any errors and omissions you noted within the journal entry processed to account for the acquisition of Sun Show in the separate financial statements of MM on 31 March 2017. Each error or omission identified should be supported by a brief reason from IAS 32 or IFRS 3. You are not
required to re-perform the goodwill calculation or to provide correcting journal entries, i.e. only comment (identify and discuss) on the given journal entry as it is above. Present your discussion in the following tabular format:

Nr Error or omission identified MR MD Note to marker Reason(s) MR MD Note to marker

The land and building acquired was not recognised. [Mark for noting not recognised] All identifiable assets acquired and liabilities assumed forming part of [Mark for noting that all identifiable assets acquired
1 0.5 0.5 the business combination should be recognised separately from 1 1 should be recognised separately from goodwill on the
goodwill on the acquisition date. acquisition date]
The liquor license was not recognised at fair value. OR [Mark for noting not recognised at fair value] All identifiable assets acquired and liabilities assumed forming part of [Mark for noting that all identifiable assets should be
2 The liquor licence was recognised at its carrying amount. 0.5 0.5 the business combination should be recognised at fair value on the 1 1 recognised are fair value on the acquisition date]
acquisition date.
3 Goodwill should not have been recognised. 0.5 0.5 [Mark for noting that should not be Goodwill should not be recognised because it is not identifiable. 1 1 [Mark for noting that goodwill in not identifiable]
The workforce should not have been recognised [Mark for noting that should not be The workforce should not be recognised as it is not an asset under the [Mark for noting that the workforce is not an asset under
4 0.5 0.5 recognised] control of MM.
1 1 the control of MM]
Acquisition related costs were capitalised. OR [Mark for noting capitalised or not expensed] Acquisition related costs should be recognised in profit or loss [Mark for noting that acquisition related cost should
5
Acquisition related costs were not expensed.
0.5 0.5 (expensed).
1 1 have been recognised in profit or loss (expensed)]
The transaction costs on the issue of the shares were expensed. OR [Mark for noting expensed or not capitalised The transaction costs on the issue of the shares should be capitalised to [Mark for noting that acquisition related cost should
6 The transaction costs on the issue of the shares were not capitalised to equity. 0.5 0.5 to equity] the share capital (recognised directly in equity). 1 1 have been capitalised to the share capital (recognised
directly in equity)]
A goodwill was recognised. OR [Mark for noting that a GBP was not If the consideration paid is in excess of the recognised identifiable net [Mark for noting that from the given entry, a gain on
Gain on bargain purchase was not recognised. recognised or GW was recognised] assets, goodwill should have been recognised in the statement of bargain purchase should have been recognised in profit
financial position. OR or loss]
7 0.5 0.5 If the consideration paid is less than the recognised identifiable net 1 1
assets, a gain on bargain purchase should have been recognised in the
statement of profit or loss and other comprehensive income.

A gain on the transfer of the vehicles was recognised in profit or loss. OR [Mark for noting that a gain was recognised or The difference between the fair value and the carrying amount of the [Mark for noting that FV < CA is a loss that should have
A loss on the transfers for the vehicles was not recognised in profit or loss. that no loss was recognised] vehicles should be recognised as a loss (expense) in profit or loss as the been recognised]
8 0.5 0.5 carrying amount exceeds the fair value of the vehicles on the 1 1
acquisition date.
The cash payment was not recognised. OR [Mark for noting that cash payment was not The consideration transferred to effect the business combination [Mark for noting the consideration should have been
9 The cash payment should also have been recognised. 0.5 0.5 recognised or should have been recognised] should be recognised at fair value on the acquisition date. 1 1 recognised at FV on acquisition date]

Only the carrying amount of the vehicles transferred was derecognised. OR [Mark for noting that CA was derecognised or The cost and accumulated depreciation should be derecognised [Mark for noting that cost and Acc Dep should be
10 The accumulated depreciation of the vehicles was not derecognised. OR 0.5 0.5 Acc Dep no derecognised as well or not separately. 1 1 derecognised separately]
The vehicles was not derecognised at cost. derecognised at cost.
The share capital was not recognised at fair value on the acquisition date [Mark for noting that share capital not The consideration transferred to effect the business combination [Mark for noting the consideration should have been
11 0.5 0.5 recognised at acquisition date FV] should be recognised at fair value on the acquisition date.
1 1 recognised at FV on acquisition date]
The contingent payment was not recognised at its fair value. [Mark for noting that contingent payment was Obligations and rights associated with contingent consideration should [Mark for noting the contingent payment should have
12 0.5 0.5 not recognised at FV] be recognised at its at acquisition date fair value.
1 1 been recognised at FV on acquisition date]
The trade payables was not recognised. [Mark for noting not recognised] All identifiable assets acquired and liabilities assumed forming part of [Mark for noting that all identifiable liabilities assumed
13 0.5 0.5 the business combination should be recognised separate from goodwill 1 1 should be recognised separately from goodwill on the
on the acquisition date. acquisition date]
The contingent liability was recognised. [Mark for noting that contingent liability was A contingent liability should only be recognised on the acquisition date [Mark for noting that should only be recognised if a
14 0.5 0.5 recognised] if there is a present obligation (i.e. no present obligation existed on the 1 1 present obligation exists on the acquisition date]
acquisition date).
Communication skills – structure 1 1 [Mark for providing discussion in this tabular format]

TOTAL MARKS OBTAINED

Available marks 21
Maximum marks 17
Communication skills 1
Total marks 18
ACCC 371 Question Bank, Question 77 suggested solution

(a) Discuss whether SMS should consolidate CD into the consolidated financial statements of the SMS Group for the financial year ended 30 April 2017.

[Note: Due to this being an open-book assessment, limited marks are awarded for theory principles.]

IFRS 10 Consideration Application Notes to marker

Control leads to consolidation In terms of IFRS 10, SMS will be required to consolidate CD if it controls CD. [Identify the issue: Control leads to
1
consolidation unless an exemption applies]
Define control Par 6: An investor controls an entity when the investor is exposed to variable returns from the investee and also
has the ability to affect those returns through its power over the investee; OR the extended definition;
Par 7: An investor controls an entity when the investor has power over the investee, is exposed to variable rights 1 [Mark for definition]
or returns from its involvement with the investee and the ability to use its power over the investee to affect those
returns.
Define power 'An investor has power over an investee when the investor has existing rights that give it the current ability to
1 [Mark for definition]
direct the relevant activities of the entity.
Presumption SMS ONLY has a 48% equity interest in CD, which in itself is less than 50% thus not control, however other factors
1 [Mark for 48% alone is no control]
still have to be considered.
Relevant activities The relevant activities of CD is the financial and operating activities that enable them to manufacture and sell [Mark for application of relevant activities
memory sticks. 1
specifically for CD]
Directing relevant activities The directors direct the relevant activities as they decide on buying and selling goods and services, acquiring
[Mark for application of directors being
assets, researching new products and obtaining funding. 1
engaged in relevant activities ]
Directors are appointed at the AGM by shareholders thus shareholders (i.e. SMS) can direct relevant activities. [Mark for the link between the shareholders
1
having power as they appoint directors ]
Protective rights The fact that shareholder approval is required to sell more than 50% of CD's assets is a protective right (not a
substantive right) and need not be considered in determining power. 1 [Mark for identifying a protective right]

Other shareholders are widely The other shareholders only hold 2% to 3% shareholdings and are silent investors as they hardly attend annual
spread general meetings where directors are appointed. Thus the other shareholders are widely spread. 1 [Mark for application of widely spread]

Conclusion of power/directing SMS with its 48% interest has power over CD as they have the ability to appoint directors whom directs the
relevant activities relevant activities. [See communication skills mark below]

Exposure to variable returns The profitability of CD exposes SMS to variable returns in the form of dividends and capital growth of its
investment. 1 [Mark for application of exposure to returns]

Ability to affect those returns As SMS (i.e. shareholder) appoints the directors of CD who in turn has power of relevant activities, SMS has the [Mark for link between power and affecting
through power ability to affect the returns of CD. 1
returns]
Conclusion of control SMS therefore controls CD and SHOULD consolidate CD into the consolidated financial statements of the SMS
Group for the financial year ended 30 April 2018. [See communication skills mark below]
Communication skills − logical argument 1 [ Mark for concluding on whether SMS should
consolidate CD]

TOTAL MARKS OBTAINED

Available marks 11
Maximum marks 9
Communication skills 1
Total marks 10
ACCC 371 Question Bank, Question 77 suggested solution

(b) Calculate the closing balance of non-controlling interest to be presented in the consolidated statement of financial position of the SMS Group as at 30 April 2018. Comparative figures are not
required.

Non controlling interest (SoFP) 30 April 2018 4 058 704 MA Notes to marker
At acquisition 1 308 112 C1 [See calc below]
Up to beginning of year 1 268 592 C2 [See calc below]
Current year 1 482 000 C3 [See calc below]

CALCULATIONS:

C1. At acquisition NCI @ 52%

Share capital 2,250,000 1 [Given]
Retained earnings -80,000 1 [Given]
Undervalued asset after tax (After tax = 345 600) 480,000 1 [Given]
Tax on undervalued asset -134,400 0.5 P [Mark for tax using 28%]
2,515,600 1,308,112
C2. Since acquisition
Movement in retained earnings (720 000 + 80 000) 800,000 1 P [Mark for calc]
Movement in mark-to-market reserve (0 - 1 618 000) 1,618,000 1 [Given]
Realisation of revaluation at acquisition (depreciation) after tax (345 600 / 8) -43,200 1 P [Mark for calc after tax]
Eliminate interco loss on sale of licence 100,000 1 [Given]
Tax on interco loss on sale of licence (100 000 x 28%) -28,000 0.5 P [Mark for tax using 28%]
Realisation of intercompany loss on of sale of licence (amortisation) (100 000 / 5 x 6/12) -10,000 1 P [Mark for /5 x 6/12]
Tax on realisation of interco loss on of sale of licence (10 000 x 28%) 2,800 0.5 P [Mark for tax using 28%]
2,439,600 1,268,592

Profit after tax 3,750,000 1 [Given]

C3. Current
Realisation
year of revaluation at acquisition (depreciation) (480 000 / 8 x 72%) -43,200 1 + 0.5 P [Mark for calc see C2 above]
Realisation of intercompany loss on sale - licence (amortisation) (100 000 / 5 x 72%) -14,400 1 + 0.5 P [Mark for calc see C2 above]
Eliminate interco profit on sale of inventory ((42 000 x 10 (30-20) = 420 000) -420,000 1+1 [Mark for calc]
Tax on realisation of interco profit (420 000 x 28%) 117,600 0.5 P [Mark for tax using 28%]
Dividends paid -540,000 1 [Given]
2,850,000 1,482,000
4,058,704 1 [Mark for using 52%]
[-2 if no balance calculated or if just used journals
-2
without calculating a balance]
TOTAL MARKS OBTAINED

Available marks 18
Maximum marks 18
Communication skills 0
Total marks 18
ACCC 371 Question Bank, Question 77 suggested solution

(c) Prepare an extract from the separate cash flow statement of SMS for the financial year ended 30 April 2018 which includes ONLY the following:
• Cash flow from investing activities; and
• Cash flow from financing activities.
Comparative figures are not required.

[Note to marker: Start with extract from the cash flow and then mark workings. If workings without cash flow no marks]
[Note to marker: If tranfer is at the wring direction, no transfer mark awarded / If no calc marks then penalise in cash flow]

SMS (Pty) Ltd

Extract from the statement of cash flows for the year ended 30 April 2018
MA Notes to marker
2 018

Cash flow from investing activities - 403 215

Proceeds from sales of investments in equity instruments 730 000 C1 [See calc below]
Purchase of plant and equipment - 78 215 C2 [See calc below]
Proceeds on sale of intangible assets 475 000 1 [Given]
Purchase of intangibles assets -1 530 000 C3 [See calc below]

Cash flows from financing activities 173 494

Proceeds from issue of shares 450 000 C4 [See calc below]
Repayment of borrowings (lease liabilities) (Amrt 1-12 Prin) - 276 506 1 P [Mark for calc if used Amrt 1-12 Princ in C2]

Communication skills - presentation and layout 1 [Mark for presenting the CFS with
CALCULATIONS: appropriate currency, date and headings]

C1. Proceeds from sales of investments in equity instruments Dr / (Cr)

Opening balance 1,200,000

Plus: fair value adjustment (139 680 / 77.6%) 180,000 0.5 + 1 [0.5 Mark for FV + 1 Mark for use of CGT rate]
Less: closing balance -650,000 0.5 [Mark for transferring calc to cash flow]
Sale of shares at fair value (inflow) 730,000

C2. Purchase of plant and equipment

Opening balance 3,587,000

Plus:non cash addition through lease - Right of use asset 1,419,785
I (12 / 12) = 1% 1 [Mark for calc]
PMT = -36,000 0.5 [Given]
FV = -85,000 0.5 [Given]
N= 48 0.5 [Given]
Comp PV = 1,419,785
Less: closing balance -4,520,000
Less: depreciation -565,000 1 [Given]
Purchase of PPE in cash (outflow) -78,215 0.5 [Mark for transferring calc to cash flow]

C3. Purchase of intangibles assets

Opening balance 850,000
Less: amortisation -330,000 1 [Given]
Less:closing balance -1,650,000
Less: sale of intangible -400,000 1 [Given]
Purchase of intangible in cash (outflow) -1,530,000 0.5 [Mark for transferring calc to cash flow]

C4. Proceeds from issue of shares

Opening balance -1,500,000
Less: closing balance 1,950,000
450,000 0.5 [Mark for transferring calc to cash flow]

TOTAL MARKS OBTAINED

Available marks 11
Maximum marks 11
Communication skills 1
Total marks 12
ACCC 371 Question Bank, Question 78 suggested solution

(a) Discuss whether or not Marvel exercises significant influence over the financial and operating policy decisions of Wolverine as of 1 January 2015. Your discussion should be
limited to the requirements contained in IAS 28.

[Note to marker: No theory marks are to be awarded if no reasonable attempt at application.]

Considerations: MA Notes to Markers

IAS 28 IAS 28 Investments in Associates and Joint Ventures sets out the criteria to prove or disprove [Context]
significant influence.
IAS 28.3 Significant influence is the power to participate in the financial and operating policy 1 [Identification of applicable theory]
decisions of the investee but it is not control or joint control of those policies.
If an entity holds, directly or indirectly, 20% or more of the voting power of the investee, it is
IAS 28.5 1 [Identification of applicable theory]
presumed that the entity has significant influence, unless it can be clearly demonstrated that it is not
the case.
Marvel has existing voting rights of 18% of the ordinary shares of Wolverine , which is less than 20%
and therefore does not exercise significant influence based on this alone . OR The 18% existing [Mark for 18% (existing voting right) in itself not
Application 1
shareholding does not in itself lead to significant influence. significant influence]

Other factors should however be considered

Marvel should also consider the potential voting rights of 1% that exist as a result of the share [Mark for noting that 1% potential voting right
IAS 28.7 1
options as they are currently exercisable (exercisable from 1 January 2015). should be consider as it is currently exercisable]
When considering if potential voting rights lead to significant influence we ignore the fact that
IAS 28.8 Marvel's management does not have any intention to exercise the option to obtain the shares i.e. 1 [Mark for ignoring management's intention)
still consider it as it is currently exercisable.
When considering if potential voting rights lead to significant influence we ignore whether [Do not consider whether parent has the financial
IAS 28.9 1
Wolverine has the financial ability to exercise their right i.e. still consider it as it is currently ability to exercise the options]
IAS 28.6 exercisable.
The existence of significant influence by an entity is usually also evidenced in one or more of the
Participation in policy making process/Interchange of managerial personnel: [Mark for CEO of parent takes part in policy making
IAS 28.6 (b)/(d) Mr. Batman, the CEO of Marvel, participates in the process of hiring employees, acquisition of 1 of associate/ interchange of management
significant assets and financing decisions of Wolverine. personnel]
Material transaction between entity and investee: [Mark for associate purchases material inventory
IAS 28.6 ( c) 1
Wolverine purchases inventory from Marvel which is a material transaction (cost 1 500 000). from parent]
Conclusion:
Due to the aforementioned, although Marvel only holds 18% of the issued share capital, through its indirect
involvement Marvel exercise significant influence over the financial and operating policies of Wolverine. [Mark awarded below for conclusion]

[Mark is for marking a conclusion in line with the

Communication skills - logical argument 1
argument provided].

TOTAL MARKS OBTAINED

Available Marks 8.0

Maximum Marks 7.0
Communication skills 1.0
Total Marks 8.0
ACCC 371 Question Bank, Question 78 suggested solution

(b) Prepare ONLY the at aquisition pro forma journal entry required to recognise any goodwill or gain from a bargain purchase arising from the
acquisition of the ordinary shares in Medusa in the consolidated financial statements of the Marvel Group for the financial year ended 30 June
2012. Journal narrations are not required.

[Note to marker: Account names should be correct to earn the "journal" mark. If nothing in brackets default SoFP (e.g. Dtax)]

Alternative 1:
Significant influence is the power to participate in the financial and operating policy decisions MA Notes
of the investee but tonot
it is marker
control or joint control
Dr. Share capital (SoCE) 4,550,000 0.5 [Given]
Dr. Retained earnings 3,850,000 0.5 [Given]
Dr. Mark-to-market reserve (SoFP) 150,000 0.5 [Given]
Dr. Intangible assets - Trade name (SoFP) 1,000,000 0.5 [Given]
Dr. Land (SoFP) (2 400 000 - 2 000 000) 400,000 1 [Mark for calc]
Dr. Revenue (p/l) (5 600 000 x 3/12) 1,400,000 0.5 [Mark for calc]
Dr. Other income (p/l) (350 000 - 80 000 x 3/12 = 67 500 + 80 000) 147,500 0. 5 + 0.5 [Mark for calc]
Cr. Gain from a bargain purchase (p/l) 325,012 1 P [Journal for GW or GBP]
Cr. Office buildings (SoFP) 300,000 0.5 P [Given]
Cr. Deferred tax (SoFP) 285,600 C1
Cr. Contingent liability (SoFP) 1,000,000 0.5 [Given]
Cr. Cost of sales (p/l) (1 400 000 x 3/12) 350,000 0.5 [Mark for calc]
Cr. Other expenses (p/l) (1 100 000 x 3/12) 275,000 0.5 [Mark for calc]
Cr. Income tax expense (770 000 x 3/12) 192,500 0.5 [Mark for calc]
Cr. Investment in Medusa (SoFP) 5,769,388 C2
Cr. Non-controlling interest (SoFP) 3,000,000 0.5 [Given]
Main elimination journal entry
11,497,500 11,497,500
Alternative 2:

Dr. Intangible asset (SoFP) 1,000,000 [Marks awarded below]

Cr. Deferred tax (SoFP) 280,000
Cr. Revaluation surplus (SoCE) 720,000
IFRS 3 adjustment on acquisition date

Dr. Land (SoFP) 400,000 [Marks awarded below]

Cr. Deferred tax (SoFP) 89,600
Cr. Revaluation surplus (SoCE) 310,400
IFRS 3 adjustment on acquisition date

Dr. Deferred tax (SoFP) 84,000 [Marks awarded below]

Dr. Revaluation surplus (SoCE) 216,000
Cr. Office buildings (SoFP) 300,000
IFRS 3 adjustment on acquisition date

Dr. Retained earnings (SoCE) 1,000,000 [Marks awarded below]

Cr. Contingent liability (SoFP) 1,000,000
IFRS 3 adjustment on acquisition date

Dr. Share capital (SoCE) 4,550,000 0.5 [Given]

Dr. Retained earnings (SoCE) (3 850 000 - 1000 000) 2,850,000 1.5 [Mark for calc]
Dr. Mark-to-market reserve (SoFP) 150,000 0.5 [Given]
Dr. Revaluation surplus (SoCE) 814,400 C3
Dr. Revenue (p/l) (5 600 000 x 3/12) 1,400,000 0.5 [Mark for calc]
Dr. Other income (p/l) (350 000 - 80 000 x 3/12 = 67 500 + 80 000) 147,500 1 [Mark for calc]
Cr. Gain from a bargain purchase (p/l) 325,012 1 P [Journal]
Cr. Cost of sales (p/l) (1 400 000 x 3/12) 350,000 0.5 [Mark for calc]
Cr. Other expenses (p/l) (1 100 000 x 3/12) 275,000 0.5 [Mark for calc]
Cr. Income tax expense (770 000 x 3/12) 192,500 0.5 [Mark for calc]
Cr. Investment in Medusa (SoFP) 5,769,388 C2
Cr. Non-controlling interest (SoFP) 3,000,000 0.5 [Given]
Main elimination journal entry
9,911,900 9,911,900
CALCULATION:

C1. Deferred tax

 - Intangible asset - Tradename (1 000 000 x 28%) 280,000 0.5 [Mark for calc]
- Land - (400 000 x 22.4%) 89,600 1 [Mark for calc]
- Office buildings (300 000 x 28%) (84,000) 0.5 [Mark for calc]
- Contingent liability - -0.5 [If raised tax on CL]
- Workforce - -0.5 [If included workforce]
285,600
C2. Cost of investment
- Fair value on 30 June 2018 6,200,000 0.5 [Given]
- Fair value adjustments made (310 875 / 77.6%) (400,612) 1 [Mark for calc]
- Transaction costs capitalised (30,000) 1 [Given]
5,769,388
C3. Revaluation surplus
- Intangible asset - Tradename (1 000 000 x 72%) 720,000 1 [Mark for calc]
- Land - (2 400 000 - 2 000 000 = 400 000 x 77.6%) 310,400 0.5 + 1 [Mark for calc]
- Office buildings (300 000 x 72%) (216,000) 1 [Mark for calc]
- Contingent liability - -0.5 [If raised tax on CL]
- Workforce - -0.5 [If included workforce]
814,400
TOTAL MARKS OBTAINED

Available Marks 13
Maximum Marks 13
Communication skills 0
Total Marks 13
ACCC 371 Question Bank, Question 78 suggested solution

(c) Provide ALL the pro forma journal entries required in the consolidated financial statements of the Marvel Group for the financial year ended 30 June 2018 to ONLY
eliminate all intragroup transactions and balances.

[Note to marker: Account names should be correct to earn the "journal" mark. If nothing in brackets default SoFP (e.g. Dtax)]

JOURNAL ENTRIES:
DR policy decisions
Significant influence is the power to participate in the financial and operating CR of the investee but itMA Notes
is not control or jointto Markers
control of those policies.
Sale of PPE
J1 Share of profit of associate (p/l) 97,200 [C1]
Office building (SoFP) 97,200 1 [Journal Mark]
Elimination of unrealised profit included in the equipment
J2 Deferred tax (SFP) (97 200 x 28%) 27,216 0.5 P [Mark for calc]
Share of profit of associate (p/l) 27,216 0.5 [Journal Mark]
Tax implication of unrealised profit included in the equipment

Inventories sold as PPE

J3 Retained earning (SCE) 38,880 1 [C2] [Journal Mark]
Deferred tax (SoFP) 15,120 [C2]
Investment in Associate (SoFP) 54,000 [C2]
Correction of retained earnings at beginning of the year
J4 Investment (SoFP) 16,200 [C3]
Deferred tax (SoFP) 4,536 [C3]
Retained earnings (SCE) 11,664 [C3]
Correction of retained earnings at beginning of the year 1 [Journal Mark]
OR Combination of J3+J4
Retained earning (SCE) 27,216
Deferred tax (SoFP) 10,584 2 [Journal Mark]
Investment (SoFP) 37,800
Correction of retained earnings at beginning of the year
J5 Investment (SoFP) (54 000/5) 10,800 1 P [Mark for calc]
Depreciation (p/l) 10,800 1 [Journal Mark]
Realisation of unrealised profit for the current year through depreciation
J6 Income tax expense / Deferred tax (p/l) (10 800 x 28%) 3,024 0.5 P [Mark for calc]
Deferred tax (SFP) 3,024 0.5 [Journal Mark]
Tax implication on realisation of unrealised profit for the current year

Financial instrument
J7 Finance income (p/l) 7,484 [C5]
Finance cost (p/l) 7,484 0.5 [Journal Mark]
Elimination of intracompany interest
J8 Accrued expense (SoFP) 7,484 [C5] [Same as above]
Interest receivable (SoFP) 7,484 0.5 [Journal Mark]
Elimination of intracompany balance
J9 Financial liability (SoFP) 100,000 1 P [Given]
Financial asset (SoFP) 100,000 0.5 P [Journal Mark]
Elimination of intracompany balance
OR Combination of J8+J9
Financial liability (SoFP) 107,484 [C5 + C6]
Financial asset (SoFP) 107,484 1 [Journal Mark]

Communications skills - presentation and layout 1 [Journal narrations]

CALCULATIONS:

Wolverine
C1 Disposal of PPE
Proceeds 1,840,000 0.5 [Given]
Carrying amount 1 July 2017 (2 000 000- (2 000 000/10 x 3.5) -1,300,000 1 P [Mark for - 3.5 or + 6.5]
Gain on disposal 540,000
Eliminate 18% 97,200 0.5 P [Mark for x18%]

C2 Inventory sold as PPE

Unrealised profit on inventory (1 500 000 x 25/125) 300,000 1 [Mark for calc]

Eliminate 18% 54,000 0.5 P [Mark for calc]

Tax on unrealised profit (54 000 x 28%) -15,120 0.5 P [Mark for calc]
Unrealised profit after tax (54 000 - 15 120) 38,880

C3 Investment (Accumulated depreciation) (54 000 / 5 x 1.5) 16,200 1 P [Mark for calc]
Tax on accumulated depreciation (16 200 x 28%) -4,536 0.5 P [Mark for calc]
Retained earnings (16 200 - 4 536) 11,664
Ultron
C4 Financial instrument
N= 5 0.5 [Given]
PV = -100,000 0.5 [Given]
PMT (1 000xR100 x12%) = 12,000 1 [Mark for calc]
FV (1 000 x 1.2) = 120,000 1 [Mark for calc]
COMP I = 14.97%

C5 1 Amort- 1 Amort (Finance income/cost) (100 000 x 14.97% x 6/12) 7,484 1 P [Mark for calc]

C6 Balance of the financial liability as at 30 June 2018 (100 000 + 7 484) 107,484 1P [Mark for calc]

TOTAL MARKS OBTAINED

Available Marks 19
Maximum Marks 18
Communication skills 1
Total Marks 19
ACCC 371 Question Bank, Question 79 suggested solution

(a) Prepare ALL the pro forma journal entries until; including the date the shares in Tassenberg were sold, that are required to consolidate ONLY Tassenberg into the consolidated financial
statements of the for the Gummy Bear Group for the financial year ended 30 September 2018.

Pro forma journal entries in connection with the sale of the fermenter, intercompany dividends paid and received and to consolidate the GummyBear Group into the PapSak Group are not
required.

[Note to marker: Account names should be correct to earn the "journal" mark. If nothing in brackets default SoFP (e.g. Dtax)] MA Notes to marker

Journal entries

J1 Dr. Share capital (SoCE) 3,500,000 0.5 [Given]

Dr. Retained earnings - At acquisition (SoCE) (5 650 000 - 3 500 000) 2,150,000 1 P [Mark for calc]
Dr. Intangible assets (SoCE) (3 850 000 - 3 650 000) 200,000 1 [Mark for calc]
Cr. Deferred tax (SoFP) (200 000 x 28%) 56,000 0.5 P [Mark for calc]
Cr. Investment in Tassenberg (SoFP) (2 500 000 + 920 000) 3,420,000 1 [Mark for calc]
Cr. Non-controlling interest (SoFP) (5 794 000 x 20%) 1,158,800 1 P [Mark for calc]
Cr. Retained earnings - Since acquisition (SoCE) 1,215,200 1 P [Journal only if GBP is recognised in or reclassified to RE
Elimination of at acquisition equity [Or Goodwill]

J2 Dr. Retained earnings - Since acquisition (SoCE) 196,600 [C1]

Cr. Non-controlling interest (SoFP) 196,600 0.5 [Journal]
Share in since acquisition reserves

J3 Dr. Retained earnings - Since acquisition (SoCE) 117,000 [Marks awarded below in C1]
Dr. Deferred tax (SoFP) 45,500 [Marks awarded below in C1]
Cr. Accumulated amortisation (SoFP) 162,500 1 [Journal]
Additional amortisation due to undervalued intangible asset

J4 Dr. Revaluation surplus - Since acquisition (SoCE) (890 000 x 20%) 178,000 1 [Given]
Cr. Non-controlling interest (SoFP) 178,000 0.5 [Journal]
Share in since acquisition reserves

J5 Dr. Non-controlling interest (p/l) 212,733 [C2]

Cr. Non-controlling interest (SoFP) 212,733 1 [Journal]
Share in current year reserves until before change in ownership

J6 Dr. Amortisation (p/l) 37,500 [Marks awarded below in C2]

Cr. Accumulated amortisation (SoFP) 37,500 0.5 [Journal]
Additional amortisation on intangible asset

J7 Dr. Deferred tax (SoFP) 10,500 [Marks awarded below in C2]

Cr. Income tax expense (p/l) 10,500 1 P [Journal]
Tax on additional amortisation on intangible asset

J8 Dr. Investment in Tassenberg (SoFP) 855,000 [C3] [Marks awarded below in C3]
Dr. Profit on sale of investment (p/l) 1,845,000 [C3]
Cr. Non-controlling interest (SoFP) 1,722,133 [C4] [Marks awarded below in C3]
Cr. Change in ownership equity (SoCE) 977,867 1 [Journal]
Recognition of change in ownership

J9 Dr. Revalution surplus (SoCE) (712 000 x 20/80) 178,000 1 P [Mark for calc]
Cr. Retained earnings (SoCE) 178,000 1 J [Journal]
Realisation of of since reserves to retained earnings

Communication skills - presentation and layout 1 [Mark for journal narrations]

CALCULATIONS:

C1. Movement in since acquisition reserves NCI @ 20%

Movement in retained earnings (3 250 000 - 2 150 000) 1,100,000 1 P [Mark for calc]
Additional amortisation due to undervalued intangible asset (200 000 / 48 x 39) (162,500) 1 P [Mark for calc if used /48 x 39]
Tax on the above (162 500 x 28%) 45,500 0.5 P [Mark for calc]
983,000 196,600 0.5 P [Mark for calc if used 20%]
C2. Share in current year reserves until before change in ownership
Profit for the year 1,325,000 [Marks awarded below]
Intercompany profit on sale of fermenter (250 000 - 220 000) (30,000) 1 [Mark for calc]
Tax on above (30 000 x 28%) 8,400 0.5 P [Mark for calc]
1,303,400
Profit for the year until change in ownership (1 303 400 x 10/12) 1,086,167 1 [Mark for calc if used 10/12 correctly done]
Realisation of intercompany profit (30 000 / 4 x 10/12) 6,250 1 P [Mark for calc if used 10/12]
Tax on the above (6 250 x 28%) (1,750) 0.5 P [Mark for calc]
Additional amortisation on intangible (200 000 / 48 x 9) (37,500) 1 P [Mark for calc if used /48 x 9]
Tax on the above (37 500 x 28%) 10,500 0.5 [Mark for calc]
1,063,667 212,733 0.5 P [Mark for calc if used 20%]

C3. Profit on sale of shares

Consideration 2,700,000 0.5 [Given]
less: Portion of investment sold (3 420 000 x 20/80) (855,000) 1 P [Mark for calc if used amount in J1 and 20/80]
 1,845,000
C4. Change in ownership equity
Consideration 2,700,000 [Mark awarded above in C3]
Less: Adjustment to NCI (3 444 267 - 1 722 133) or (total NCI on date of sale of shares) (1,722,133) 1 P
977,867

TOTAL MARKS OBTAINED

Available marks 26
Maximum marks 23
Communication skills 1
Total marks 24
ACCC 371 Question Bank, Question 79 suggested solution

(b) Prepare an extract from the consolidated statement of profit or loss and other comprehensive income of the Klippies & Cola Group for the financial year ended 30 September 2018. Begin your extract
at the profit after tax line item.

You are not required to show calculations of any remeasurement gain or loss on a retained investment separately from any group gain or loss recognised on an actual disposal of an investment.
Comparative figures are not required.

KLIPPIES & COLA (PTY) LTD GROUP

Extract from the statement of profit or loss and other comprehensive income for the year ended 30 April 2018 MA Notes to marker
2 018
R

Profit for the year 588,260 [C1]

Other comprehensive income:

Items that will not be reclassified to profit or loss:
Fair value adjustments on equity investments 116,400 1 [Given]
Revaluation of property, plant and equipment (125 000 x 77.6%) 97,000 1 [Mark for calc]

Total comprehensive income for the year 801,660

Profit attributable to:

Owners of the parent (588 260 - 83 460) 504,800 0.5 P [Mark for calc / balancing figure]
Non-controlling interests (208 650 x 40%) 83,460 1 P [Mark for calc if used amountin C1 x 40%]
588,260
Total comprehensive income attributable to:
Owners of the parent (801 660 - 122 260) 679,400 0.5 P [Mark for calc / balancing figure]
Non-controlling interests (125 000 x 77.6% = 97 000 x 40% = 38 800 ) + (83 460) 122,260 1 + 0.5 P [Mark for calc]
801,660

Communication skills - presentation 1 [Mark for presenting SoCI with appropriate

CALCULATIONS: headings, date and currency & OCI net of tax]

C1. Profit for the year

Klippies & Cola 2,960,000 0.5 [Given]

Savannah (325 000 - 46 800 (325 000 x 25/125 x 72%) = 278 200 x 9/12) 208,650 0.5 + 0.5 + 0.5 + 0.5 [Mark for dedcuting interco and 0.5 for x 9/12 calc]
Profit on sale of investment (p/l) (1 580 000 x 45/60 = 1 185 000 - 1 700 000) (515,000) 0.5 + 0.5 P [Mark for calc if used amount below and 45/60]
Share capital 4,500,000 0.5 [Given]
Retained earnings (2,500,000) 0.5 [Given]
2,000,000
Share in net assets on the acquisition date (2 000 000 x 60%) 1,200,000 0.5 P [Mark for calc if used 60%]
Goodwill recognised 380,000 0.5 [Given]
Consideration paid for 60% interest 1,580,000

Group loss on sale of shares (1 700 000 + 395 000 - 4 160 390) (2,065,390)
Consideration received 1,700,000 0.5 [Given]
Fair value of remaining investment (1 580 000 x 15/60) 395,000 1 [Mark for calc if used 15/60]
Carrying amount of investment on date of sale (4,160,390)
- Total net assets on date control is lost 6,300,650
At acquisition equity (4 500 000 - 2 000 000) 2,000,000 [Mark already awarded above]
Movement in retained earnings (1 495 000 + 2 500 000) 3,995,000 1 [Mark for calc]
Profit for the year before CIO (260 000 x 9/12) 208,650 0.5 P [Mark for calc if used amount above]
Revaluation of land (125 000 x 77.6%) 97,000 0.5 P [Mark for calc if used amount above]
- Goodwill recognised on the acquisition date 380,000 0.5 [Given]
- Less: NCI on date control is lost (6 300 650 x 40%) (2,520,260) 0.5 P [Mark for calc]

588,260

TOTAL MARKS OBTAINED

Available marks 15.5

Maximum marks 15
Communication skills 1
 Gummy Bear NCI
Before change in ownership 80% 20%
After change in ownership 60% 40%

TOTAL AT SINCE NCI

AT ACQUISITION (30 Jun 2014):
Share capital (100 000 x 35) 3,500,000
Retained earnings (5 650 000 - 3 500 000) 2,150,000
Revaluation surplus (3 850 000 - 3 650 000) 200,000
Tax on the above (200 000 x 28%) (56,000)
5,794,000 4,635,200 1,158,800
Consideration 3,420,000
- Cash 2,500,000
- Transfer of inventory 920,000

Goodwill / (GBP) (1,215,200) 1,215,200

SINCE UNTIL BEGINNING OF CURRENT YEAR (1 OCT 2017)

Retained earnings 983,000 786,400 196,600

- Movement in since period (3 250 000 - 2 150 000) 1,100,000
- Additional amortisation (200 000 / 48 x 39) (162,500)
- Tax on the above (162 500 x 28%) 45,500

Revaluation surplus 890,000 712,000 178,000

Current year:
Profit for the year before CIO 1,063,667 850,933 212,733
- Profit (1 325 000 - 30 000 + 8 400 = 1 303 400 x 10/12) 1,086,167
- Realisation of intercompany profit (30 000 / 4 x 10/12) 6,250
- Tax on the above (6 250 x 28%) (1,750)
- Additional amortisation on intangible (200 000 / 48 x 9) (37,500)
- Tax on the above (37 500 x 28%) 10,500

Dividends paid (120,000) (96,000) (24,000)

8,610,667 3,468,533 1,722,133

Consideration 2,700,000
Adjustment to NCI (3 444 267 - 1 722 133) (1,722,133) 1,722,133
Change in ownership equity 977,867

8,610,667 3,468,533 3,444,267

Profit for the year after CIO 218,133 130,880 87,253

- Profit (1 303 400 x 2/12) 217,233
- Realisation of intercompany profit (30 000 / 4 x 2/12) 1,250
- Tax on the above (1 250 x 28%) (350)

8,828,800 3,599,413 3,531,520

 Klippies & Cola NCI
Before change in ownership 60% 40%
After change in ownership 0% 100% Pro forma journal entry

TOTAL AT SINCE NCI Dr. Revaluation surplus (SoCE) 58,200

AT ACQUISITION (1 FEB 2016): Dr. Income tax expense (OCI) 28,000
Share capital 4,500,000 Dr. NCI (p/l) 83,460
Retained earnings (2,500,000) Dr. NCI (OCI) 38,800
2,000,000 1,200,000 800,000 Dr. NCI (SoFP) 2,520,260
Consideration 1,580,000 Dr. Profit on sale of investment (p/l) (1 580 000 x 45/60 = 1 185 000 - 1 700 000) 515,000
Dr.Group loss on sale of shares 2,065,390
Goodwill / (GBP) 380,000 Cr. Retained earnings (SoCE) 2,397,000
Cr. Revaluation surplus (OCI) 125,000
Cr. Profit (p/l) 208,650
SINCE UNTIL BEGINNING OF CURRENT YEAR (1 OCT 2017) Cr. NCI (SoFP) 2,520,260
Cr. Retained earnings (SoCE) 58,200
Retained earnings (1 495 000 + 2 500 000) 3,995,000 2,397,000 1,598,000
5,309,110 5,309,110
Current year:
Profit for the year before CIO (325 000 - 46 800 x 9/12) 208,650 125,190 83,460 Group gain / (loss):

Revaluation of land (125 000 x 77.6%) 97,000 58,200 38,800 Consideration received 1,700,000
6,300,650 2,580,390 2,520,260 Fair value of remaining investment (1 580 000 x 15/60) 395,000
Carrying amount of investment on date of sale (4,160,390)
(6,300,650) (2,580,390) (2,520,260) - Total net assets on date control is lost 6,300,650
- - - - Goodwill recognised on the acquisition date 380,000
- Less: NCI on date control is lost (2,520,260)

Group gain / (loss) (2,065,390)

ACCC 371 Question Bank, Question 83 suggested solution

(a) Prepare the consolidated statement of changes in equity for the BookFace Group for the year ended 31 December 2018 that will be used as a benchmark to audit the consolidated financial statements of the BookFace Group. Comparative figures are
not required. Non-controlling interests and the total columns are not required. Show calculations of any remeasurement gain or loss on a retained investment separately from any group gain or loss recognised on an actual disposal of an investment.

Change in
Retained Mark-to-ma Notes to
Share capital MA MD MA MD MA MD ownership MA
earnings rket reserve markers
BookFace(Pty)Ltd Group equity
Consolidated statement of changes in equity for the year ended 31 December 2018
Opening balance 1 January 2018 3,500,000 1 1 23,417,400 C1 310,500 1 1 [Given]
Recycle mark to market reserve to retained earnings 310,500 0.5 0.5 P -310,500 1 1 [Given]
Total comprehensive income 9,607,143 C2 82,500 C3 [Mark for calc]
Change in ownership subsidiary without loss of control -298,700 C4 [Mark for calc]
Dividend paid -900,000 0.5 0.5 [Given]
Transfer of mark to market reserve to retained earnings
Closing balance 31 Dec 2018 3,500,000 32,435,043 82,500 -298,700
Communications skills - presentation and layout 1 1 [Mark for presenting the SoCE in correct format in terms of IAS 1]
CALCULATIONS:

C1. Retained earnings at the beginning of the year MA MA Notes to markers

BookFace 17,400,600 0.5 0.5 [Given]
ChatSnap 2,124,000 1 1 [Given]
GramInsta gain on bargain purchase 292,800 1 1 [Given]
GramInsta since retained earnings retained earnings (2 400 000 /40% x 60%) 3,600,000 1 1 [Mark for calc]
23,417,400
C2. Total comprehensive income for the year: Retained earnings
BookFace 7,800,000 0.5 0.5 [Given]
Less dividend received from ChatSnap (300 000 x 30%) (90,000) 1 1 [Mark for calc]
Less dividend received from GramInsta (1 000 000 x 60%) (600,000) 1 1 [Mark for calc]
Intercompany profit on sale of license (450 000 - (500 000 / 60 x 42)) (100,000) 0.5 + 1 0.5 + 1 [0.5 Mark for 450 000 and 1 Mark for calc using /60 x 42]
Tax on above (100 000 x 28%) 28,000 0.5 0.5 P [Mark for calc]
Realisation (amortisation) of interco profit on license (100 000 / 42 x 3) 7,143 1 1 P [Mark for calc]
Tax on above (7 143 x 28%) (2,000) 0.5 0.5 P [Mark for calc]
Intercompany profit on sale of inventory (25 000 x 25/125 x 30%) (1,500) 1 1 [Mark for calc]
Tax on above (1 500 x 28%) 420 0.5 0.5 P [Mark for calc]
ChatSnap profit before change in ownership (547 200 x 6/12 = 273 600 x 90%) 246,240 1 + 0.5 1 + 0.5 [1 Mark for calc of 273 600 and 0.5 marks for 90%]
ChatSnap share of profit of associate (273 600 x 30%) 82,080 1 1 P [Mark for calc for 30%]

GramInsta Profit up to change in ownership (6 100 000 x 3/12 = 1 525 000 x 60%) 915,000 1 1 [0.5 Mark for calc of 1 525 000 and 0.5 marks for 60%]
GramInsta Profit after change in ownership (6 100 000 x 9/12 = 4 575 000 x 70%) 3,202,500 1 1 [0.5 Mark for calc of 4 575 000 and 0.5 marks for 70%]

Company profit/loss on sale of shares

Proceeds 4,200,000 0.5 0.5 [Given]
FV = 4 260 000 0.5 0.5 [Given]
N=1 0.5 0.5 [Given]
I = 10% 0.5 0.5 [Given]
Comp PV = 4 200 000
Less cost of investment derecognised (3 000 000 x 60/90) (2,000,000) 1 1 [Mark for calc]
2,200,000 (2,200,000)
Group gain/loss
Alternative 1
Company profit 2,200,000 1 1 P [Mark if used amount above]
Less: since reserves lost (2 434 500 + 246 240 = 2 680 740 x 60/90) (1,787,160) 0.5 + 0.5 + 1 0.5 + 0.5 + 1 [0.5 + 0.5 Mark for calc of 2 680 740 and 1 mark for 60/90]
412,840 412,840
Alternative 2
Consideration received upon sale of shares 4,200,000 0.5 0.5 [Mark if used amount above]
Fair value of investment retained 1,800,000 0.5 0.5 [Given]
Less: CA of investment on date control is lost 5,680,740
- Total net assets on date control is lost (5 595 000 + 273 600) 5,868,600 0.5 + 0.5 0.5 + 0.5 [Mark for calc]
- Goodwill derecognised on date control is lost 399,000 0.5 0.5 [Given]
- Less: NCI derecognised on date control is lost (5 868 600 x 10%) (586,860) 1 1 [Mark for calc]
Gain on sale of portion of interest (incl. FV adjustment) 319,260
Exclude: portion of this already recognised as fair value adjustment 93,580 [Mark already awarded below]
Gain on sale of portion of interest (excl. FV adjustment) 412,840

Alternative 3
Proceeds 4,200,000 0.5 0.5 P [Mark if used amount above]
Less: Net assets disposed (excl goodwill) (5 595 000 + 273 600 = 5 868 600 x 60%) (3,521,160) 0.5 + 0.5 + 0.5 0.5 + 0.5 + 0.5 [0.5 + 0.5 Mark for calc of 5 868 600 and 0.5 mark for 60%]
Less: Goodwill realised (only of the parent) (399 000 x 60/90) (266,000) 1 1 [Mark for calc]
412,840

Remeasurement gain/loss
Alternative 1
Carrying amount of retained investment (3 000 000 x 30/90) OR (3 000 000 - 2 000 000) (1,000,000) 0.5 0.5 [Mark for calc]
Carrying amount of retained reserves (2 434 500 + 246 240 = 2 680 740 x 30/90) (893,580) 0.5 + 0.5 + 1 0.5 + 0.5 + 1 P [0.5 + 0.5 Mark for calc of 2 680 740 and 1 mark for 30/90]
Fair value of retained investment 1,800,000 0.5 0.5 [Given]
(93,580) (93,580)

Alternative 2
Proceeds 4,200,000 0.5 0.5 P [Mark if used amount above]
Less: CA of investment disposed of (5 680 740 x 60/90) (3,787,160) 1 1 P [Mark if used amount above]
412,840
Less: Group gain (incl. FV adjustment) (319,260) 1 1 P [Mark if used amount above]
93,580
9,607,143
C3. Total comprehensive income for the year: Mark-to-market reserve
ChatSnap share of OCI of associate (275 000 x 30%) 82,500 1 1 [Mark for calc]

C4. Change in ownership without loss of control

Alternative 1
Equity at change in ownership date
Share capital 600,000 0.5 0.5 [Given]
Retained earnings (after contingent liability) 17,388,000 0.5 0.5 [Given]
Increase in retained earnings up to the beginning of the year (2 400 000 /40%) 6,000,000 1 1 [Given]
Profit up to change in ownership (6 100 000 x 3/12 = 1 525 000) 1,525,000 0.5 0.5 P [Mark for calc if used amount above]
Dividend paid before change in ownership (1,000,000) 0.5 0.5 [Given]
Equity at change in ownership date 24,513,000

Purchase price 2,750,000 0.5 0.5 [Given]

Less: Additional interest purchased / Adjustment to NCI (24 513 000 x 10%) (2,451,300) 1 1 P [Mark for calc if used amount above]
298,700
Alternative 2
NCI proceeds received 2,750,000 0.5 0.5 [Given]

NCI before change in ownership at 40% 9,805,200

At acquisition 7,195,200 0.5 0.5 [Given]
Up to beginning of year 2,400,000 1 1 [Given]
Current year profit share up to date of change (6 100 000 x 3/12 x 40%) 610,000 1 1 P [Mark for calc if used amount above]
Dividend paid (1 000 000 x 40%) (400,000) 1 1 [Mark for calc]

NCI after change in ownership at 30% (9 805 200 x 30%) (7,353,900) 0.5 0.5 [Mark for calc if used amount above]
298,700

TOTAL MARKS OBTAINED

Available marks 34
Maximum marks 34
Communication skills 1
Total marks 35
ACCC 371 Question Bank, Question 83 suggested solution

(b) Briefly discuss which asset and liability line items in the consolidated statement of financial position of the BookFace Group will be affected by processing the pro forma journal
entries to eliminate the intercompany sale of the licence and the intercompany sale of inventory, for the year ended 31 December 2018. Your discussion should clearly indicate
whether the affected line item will increase or decrease as a result of the pro forma journal entries referred to above. Reference to amounts are not required.

[Note: As this is an open-book assessment, limited marks are awarded for theoretical principles.] [Theoretical marks are only awarded for identification of the issue and application

The pro-forma journals will affect the following balances in the consolidated statement of financial position:
Sale of license MA MD Notes to marker
The elimination of the intercompany profit on sale of the license will decrease the intangible
0.5 + 0.5 0.5 + 0.5 [0.5 Mark for IA and 0.5 mark for decrease]
assets line item.
The deferred tax pro forma entry will decrease in the deferred tax liability (or increase in asset) [0.5 Mark for DT and 0.5 mark for decrease (L) / increase
0.5 + 0.5 0.5 + 0.5
line item. (A)]
The realisation of the intercompany profit through amortisation will increase the intangible assets
line item. 0.5 + 0.5 0.5 + 0.5 [0.5 Mark for IA and 0.5 mark for increase]

The deferred tax pro forma entry on the realisation of the intercompany profit will increase in the [0.5 Mark for DT and 0.5 mark for increase (L) / decrease
0.5 + 0.5 0.5 + 0.5
groups deferred tax liability (or decrease in asset) line item. (A)]
Inventory MA MD Notes to marker
The elimination 30% of the intercompany profit on the sale of inventory will decrease the
0.5 + 0.5 0.5 + 0.5 [0.5 Mark for Inv in A and 0.5 mark for decrease]
investment in associate line item.
The deferred tax pro forma entry on the elimination of the sale of stationary will decrease in the [0.5 Mark for DT and 0.5 mark for decrease (L) / increase
groups deferred tax liability (or increase in asset) line item. 0.5 + 0.5 0.5 + 0.5
(A)]
Communication skills – appropriate style 1 1 [Mark for discussing effect on line items not Cost and Acc

TOTAL MARKS OBTAINED

Available marks 6
Maximum marks 6
Communication skills 1
Total marks 7
ACCC 371 Question Bank, Question 83 suggested solution

(c) Discuss, supported by brief reasons, whether you agree or disagree with the classification and measurement of the investment in TerTwit in the consolidated financial statements of the BookFace
Group as set out in the accounting opinion obtained from Accounting.com if BookFace decides to enter into the transaction during the 2019 financial year. If you disagree, provide recommendations of
the correct classification and measurement of the investment in TerTwit in the consolidated financial statements of the BookFace Group. Ignore taxation.

[Note: As this is an open-book assessment, limited marks are awarded for theoretical principles.] [Theoretical marks are only awarded for identification of the issue and application thereof]

Classification of the investment MA MD Notes to marker

I do not agree that the investment should be classified as an associate for reasons set out below: 1 1 [Mark for disagree with classification]
Control IFRS 10:
Par 6: An investor controls an entity when the investor is exposed to variable returns from the investee and
also has the ability to affect those returns through its power over the investee; OR the extended definition;
Par 7: An investor controls an entity when the investor has power over the investee, is exposed to variable
rights or returns from its involvement with the investee and the ability to use its power over the investee to
affect those returns.
1 1 [Max 1 Mark for definition] [Identifying the issue]
Significant influence IAS 28:
Significant influence is the power to participate in the financial and operating policy decisions of the
investee but it is not control or joint control of those policies.
Joint control IFRS 11:
Joint control is the contractually agreed sharing of control, which exists only when decisions about the
relevant activities require unanimous consent of the parties sharing such control.
Reasons:
A 50% shareholding is not enough to argue that BookFace has control over TerTwit. 1 1 [Mark for presumption is that > 50% could lead to control)
Although a shareholding of 50% could lead to significant influence (its within the range of 20% to 50%) [Mark for presumption is that 20% - 50% could lead to significant
1 1
other factors should also be considered. influence)
[Mark for entering into agreement]
The decisions about the relevant activities of TerTwit are made by the directors of TerTwit (of which 1 1
[Mark for noting that BF may have power to participate in the financial
BookFace can appoint one per the agreement entered into), this may indicate that BookFace may have
and operating policy decisions of TT due to being able to appoint one
power to participate in the financial and operating policy decisions of TerTwit. 1 1
director]
Although BookFace and Company A have entered into an agreement to each appoint one director of
TerTwit who makes the decisions about the relevant activities of TerTwit , unanimous consent is however
1 1 [Mark for majority vote needed or unanimous consent]
required regarding the decisions about the relevant activities as directors decisions about the relevant
activities can only be made with a majority vote by directors.
BookFace and Company A will thus have joint power/control over TerTwit and not significant influence
1 1 [Mark for joint control]
through their contractually agreed sharing of control.
Recommendations:
BookFace should classify the investment in TerTwit as a joint arrangement (joint venture or a joint
1 1 [Mark for joint arrangement]
operation).
LEGAL FORM:
TerTwit is set up as a separate vehicle (TerTwit is a company) and could thus be classified as a joint 1 1 [Mark for separate vehicle can be JV or JO]
operation or a joint venture.
TERMS:
BookFace does not have rights to assets or obligations for liabilities of TerTwit and should thus classify the
joint arrangement as a joint venture. OR 1 1 [Mark for classification as a JV]
BookFace has rights to 50% of the net assets of TerTwit and should thus classify the investment as a joint
venture.
Measurement MA MD Notes to marker
I do not agree with the measurement of a subsidiary. 1 1 [Mark for disagree with measurement]
Reasons:
The consolidation of 100% of assets, liabilities income and expenses with an NCI of 50% would be the [Mark for noting that proposed consolidation is for a subsidiary]
1 1
accounting treatment of a subsidiary.
Recommendations:
Initial measurement:
An a joint venture should be equity accounted in the consolidated annual financial statements of the [Mark for correct accounting treatment of associate or JV would be
1 1
BookFace Group not consolidated. equity accounting]

The investment in the joint venture should therefore initially be measured at cost. 1 1 [Mark for initial measurement = cost]
The cost of the investment would include any goodwill. If a gain on bargain purchase raised it will increase
[Mark for correct consideration of goodwill or gain on bargain
the investment in the joint venture so the cost is equal to BookFace's share in the net assets of TetTwit on 1 1
purchase]
the acquisition date.
Subsequent measurement: [Mark for 50% of growth in since reserves will be allocated to the
The investment in the joint venture will subsequently increase or decrease (limited to R0) with 50% of the 1 1 investment in the joint venture]
since reserves (profit and other comprehensive income) of TerTwit.
Only 50% if intercompany transactions should be eliminated (not eliminated in full). 1 1 [Mark for only eliminating 50% of intercompany transactions]
Also, 50% of any dividends received will have to be eliminated. 1 1 [Mark for only eliminating 50% of dividends received]
Communication skills – logical argument 1 1 [Mark for making conclusions in line with arguments provided]

TOTAL MARKS OBTAINED

Available marks 18
Maximum marks 13
Communication skills 1
Total marks 14
ACCC 371 Question Bank, Question 86 suggested solution

(a) Prepare ALL the pro forma consolidation journal entries required to consolidate Bvest Luxury into the consolidated financial statements of the SAEasyRental Group for the financial year
ended 30 September 2018.

[Note to marker: Account names should be correct to earn the "journal" mark. If nothing in brackets default SoFP (e.g. Dtax)] MA Notes to marker

Journal entries

TEST: At acquisition of Bvest Luxure - Test for gain on bargain purchase

Consideration R600,000 0.5 [Given]
Less: SAEasyRental's share in equity on 1 October 2016
-R875,000 1 [Mark for calc]
(R2 500 000 x 35% = 875 000 shares @R1)
Goodwill / (GBP) -R275,000

J1 Dr. Investment in Bvest Luxury (SoFP) R3,366,134 1 P [Journal]

Cr. Retained Earnings (SoCE) (7 250 000 x 35%) R275,000 1 P [Mark for capitalising GBP]
Cr. Retained Earnings (SoCE) R2,537,500 1 [Mark for calc]
Cr. Revaluation Surplus (SoCE) R45,360 [C1] [Mark for calc]
Cr. Share in profit of Associate (p/l) (5 808 840 x 3/12 x 35%) R508,273 1 [Mark for calc]
Accounting for investors interest in associate through growth in equity

J2 Dr. Retained Earnings (SoCE) R30,555 [C2] [Mark for calc]

Dr. Deferred Tax (SoFP) R8,820 [C2] [Mark for calc]
Cr. Investment in Bvest Luxury (SoFP) R39,375 1 [Journal]
Elimination of intercompany sale of land

J3 Dr. Revaluation Surplus (SoCE) R45,360 [For amount carried forward from J1]
[C1]
Cr. Retained Earnings (SoCE) R45,360 1 [Journal]
Transfer of revaluation surplus to retained earnings

Dt. Investment in Bvest Luxury (SoFP) R448,242 [C3]

J4 Cr. Other income (re-measurement gain) (p/l) R448,242 1 [Journal]
Accounting for re-measurement gain on equity interest previously held

Dr. Share capital (SoCE) R2,500,000 0.5 [Given]

Dr. Retained earnings - Since acquisition (SoCE) R7,250,000 0.5 [Given]
Dr. Revaluation Surplus (SoCE) R129,600 0.5 P [For amount calculated in C1]
Dr. Sales (p/l) (R18 580 000 x3/12) R4,645,000 0.5 [Mark for calc] (3/12 and calc)
Dr. Other income (p/l) (R2 230 000 x 3/12) R557,500 0.5 P [Mark for calc]
Cr. Cost of Sales (p/l) (R3 716 000 x3/12) R929,000 0.5 P [Mark for calc]
J5
Cr. Operating expenses (p/l) (R8 650 000 x 3/12) R2,162,500 0.5 P [Mark for calc]
Cr. Income tax expense (p/l) (R2 635 160 x 3/12) R658,790 0.5 P [Mark for calc]
Cr. Investment in Bvest Luxury (SoFP) R9,112,500 [C4] [Mark for calc]
Cr. Non-controlling interest (SoFP) R2,832,950 0.5 [Given]
Dr. Goodwill (SoFP) R613,640 1 P [Journal]
Elimination of at acquisition equity and recognition of goodwill

Dr. NCI (p/l) (R5 808 840 x 9/12 x 25%) R1,089,158 1 [Mark for calc]
J6 Cr. NCI (SoFP) R1,089,158 0.5 [Journal]
NCI's portion of current year profit for 9 months

Dr. Dividends received (SoCE) (R1 500 000 x 75%) R1,125,000 0.5 [Mark for calc]
Dr. Non-controlling interest (SoFP) (R1 500 000 x 25%) R375,000 0.5 P [Mark for calc]
J7
Cr. Dividends paid (SoCE) R1,500,000 1 [Journal]
Elimination of intercompany dividends received

Dr. Profit on sale of building (p/l) (1 200 000 - 950 000) R250,000 1 [Mark for calc]
J8 Cr. Investment property (SoFP) R250,000 1 [Journal]
Elimination of intercompany sale of building

Dr. Deferred tax (SoFP) (250 000 x 28%) R70,000 1 P [Mark for calc if used amount in J8 and 28%]
J9 Cr. Income tax (p/l) R70,000 0.5 [Journal]
Elimination of intercompany sale of building

Dr. Accumulated depreciation (SoFP) (250 000 / 60 x 6) or (250 000 / 5 x 6/12) R25,000 1 P [Mark for calc]
J10 Cr. Depreciation (p/l) R25,000 0.5 [Journal]
Realisation of unrealised profit on sale of building

Dr. Income tax (p/l) (25 000 x 28%) R7,000 0.5 P [Mark for calc if used amount in J10 and 28%]
J11 Cr. Deferred tax (SoFP) R7,000 0.5 [Journal]
Tax on realisation of unrealised profit on sale of building
R22,536,008 R22,536,008
CALCULATIONS:

C1. Revaluation of head office building on 1 October 2017

Cost on 1 October 2015 R5,000,000
Depreciation (R5 000 000 x24/240) -R500,000
Carrying Amount on 1 October 2017 (R5 000 000 x 216/240) R4,500,000 1 [Mark for calc]
GRV on 1 October 2017 R5,200,000
NRV on 1 October 2017 (R5 200 000 x 216/240) R4,680,000 1 [Mark for calc]
Revaluation R180,000
Tax on revaluation (R180 000 x 28%) -R50,400 0.5 P [Mark for calc if used 28%]
R129,600
Revaluation surplus on head-office building (R129 600 x 35%) R45,360 0.5 P [Mark for calc if used 35%]

C2. Intercompany sale of land

Cost price R450,000 [Mark awarded below]
Unrealised profit (R450 000 x 25%/100%) R112,500 1 [Mark for calc]
Tax on profit (R112 500 x 22.4%) -R25,200 1 P [Mark for calc]
Retained Earnings R87,300
Amount attributable due to being associate (87 300 x 35%) R30,555 0.5 P [Mark for calc if used 35%]

C3. Fair value adjustment on previous equity interest held

Cost of initial investment R600,000 [Mark already awarded in GBP test above]
Growth in equity (J1) R3,366,134 1 P [Mark for calc if used amounts in J1]
Intercompany transaction on sale of land (J3) -R39,375 0.5 P [Mark for calc if used amounts in J2]
CA of Investment on 1 Jan 2017 R3,926,759
FV of retained investment 1 Jan 2017 (875 000 x R5) R4,375,000 1 P [Mark for calc]
Fair value adjustment (P/L) R448,242

C4. Consideration of additional 1 000 000 shares purchased

Cash payment R4,737,500 0.5 [Given]
Plus: Fair value of retained investment (875 000 x R5) R4,375,000 [Mark already awarded above in C4]
Total consideration R9,112,500

Communication skills - presentation and layout 1 [Mark for journal narrations]

Available marks 32
Maximum marks 32
Communication skills 1
Total marks 33
ACCC 371 Question Bank, Question 86 suggested solution

(b) Calculate the change in ownership equity to be recognised as a result of the shares sold in Rent4W by SAEasyRental in the consolidated financial statements of the SAEasyRental Group for the
financial year ended 30 September 2018.

[Note to marker: Account names should be correct to earn the "journal" mark. If nothing in brackets default SoFP (e.g. Dtax)] MA Notes to marker

Alternative 1

Change in ownership equity

Consideration received from disposal of shares R1,100,000 1 [Given]
Adjustment to non-controlling interest -R1,099,300 [C1]
700

CALCULATIONS:

C1. Adjustment to non-controlling interest

TOTAL NCI BEFORE CHANGE IN OWNERSHIP R1,563,233

- NCI share on acquisition date R1,200,000 0.5 [Given]
- Goodwill attributable to NCI (4 476 000 x 20% = 895 200 - 1 200 000)
R4,476,000
At acquisition equity R4,350,000 1 [Given]
Contingent liability -R75,000 1 [Given]
Tax on contingent liability (75 000 x 28%) R21,000 0.5 P [Mark for calc if used 28%]
Brand name R250,000 1 [Given]
Tax on brand name (250 000 x 28%) -R70,000 0.5 P [Mark for calc if used 28%]
-0.5 [If included workforce]
- NCI share in current year reserves until before chance in ownership (1 816 167 x 20%) R363,233 0.5 P [Mark for calc if used 20%]
R1,816,167
Profit for the year (2 560 000 + 10 500 = 2 570 500 x 8/12) R1,713,667 1 + 0.5 [1 Mark for excluding fine and 0.5 mark for 8/12]
Fines paid -10,500 1 -0.5 [Mark for adding back fine] [- 0.5 if raised tax on fine]
Additional amortisation on brand name (250 000 / 10 x 8/12) -R16,667 1 [Mark for calc if used / 10 x 8/12]
Tax on above (16 667 x 28%) R4,667 0.5 P [Mark for calc if used 28%]
Other comprehensive income 250,000 1 [Given]
Dividends paid -125,000 1 [Given]

TOTAL NCI AFTER CHANGE IN OWNERSHIP R2,662,533

- NCI share in net assets after change in ownership (4 476 000 + 1 816 167 = 6 292 167 x 35%) R2,202,258 0.5 + 0.5 P [0.5 Mark for calc of 6 292 167 and 0.5 mark for 35%]
- Goodwill attributable to NCI (4 476 000 x 20% = 895 200 - 1 200 000) R304,800 0.5 + 0.5 P [Mark for calc if used total NA below x 20%]
- Portion of SAEasyRental's goodwill realised to NCI (829 200 x 15/80) R155,475 0.5 P [Mark for calc if used 15/80]
Consideration at acquisition R4,410,000
- Bonds R100,000 1 [Given]
- Minibuses (1 130 000 - 120 000) 1,010,000 1 [Given]
- Contingent payment R3,300,000 1 [Given]

Share in net assets of Rent4W on the acquisition date (4 476 000 x 80%) -R3,580,800 0.5 P [Mark for calc if used 80% OR + NCI @ 20% less total NA]
-0.5 [If included transaction costs on bonds]
Goodwill / (GBP) R829,200 -0.5 [If included acquisition related costs]

Adjustment to NCI due to change in ownership R1,099,300

Alternative 2

Change in ownership equity

Consideration received from disposal of shares R1,100,000 1 [Given]
Less reserves lost ( 4 410 000 + 1 452 933 = 5 862 933 x 15/80 = 1 099 300) -R1,099,300 1+1+1 P [Mark for calc if used total COST & SINCE RESERVES below]
R700

CONSIDERATION R4,410,000
- Bonds R100,000 1 [Given]
- Minibuses (1 130 000 - 120 000) 1,010,000 1 [Given]
- Contingent payment R3,300,000 1 [Given]

NET ASSETS ON ACQUISITION DATE R4,476,000

At acquisition equity R4,350,000 1 [Given]
Contingent liability -R75,000 1 [Given]
Tax on contingent liability (75 000 x 28%) R21,000 0.5 P [Mark for calc if used 28%]
Brand name R250,000 1 [Given]
Tax on brand name (250 000 x 28%) -R70,000 0.5 P [Mark for calc if used 28%]

- SHARE IN SINCE RESERVES UNTIL BEFORE CHANGE IN OWNERSHIP (1 816 167 x 80%) R1,452,933 1 P [Mark for calc if used 80%]
R1,816,167
Profit for the year (2 560 000 + 10 500 = 2 570 500 x 8/12) R1,713,667 1 + 0.5 [1 Mark for excluding fine and 0.5 mark for 8/12]
Fines paid -10,500 1 -0.5 [Mark for adding back fine] [- 0.5 if raised tax on fine]
Additional amortisation on brand name (250 000 / 10 x 8/12) -R16,667 1 [Mark for calc if used / 10 x 8/12]
Tax on above (16 667 x 28%) R4,667 0.5 P [Mark for calc if used 28%]
Other comprehensive income 250,000 1 [Given]
Dividends paid -125,000 1 [Given]

TOTAL MARKS OBTAINED

Available marks 18
Maximum marks 18
Communication skills 0
Total marks 18
ACCC 371 Question Bank, Question 86 suggested solution

c) Assuming that the contingent consideration payable to the previous owners of the shares in Rent4W is correctly classified as a financial liability in the separate financial statements of SAEasyRental,
discuss the recognition, classification and measurement (initial and subsequent) of the contingent consideration payable in the separate financial statements of SAEasyRental for the financial year
ended 30 September 2018. Support your discussion with appropriate amounts and calculations. Limit your discussion to the requirements of IFRS 9. Ignore taxation.

Recognition MA Notes to markers

In terms of IFRS 9.3.1.1 an entity shall recognise a financial liability when the entity becomes a party to the contractual agreement.1 [Mark for applicable theory]
SAEasyRental entered into the agreement to purchase the shares on 1 October 2017 and became a part to the agreement on 1 [Mark for noting that due to entering agreement on 1 Oct
this date. SAEasyRental should therefore recognise the liability on 1 October 2017. 1 P
2017 it should be recognised on this date]
Classification
In terms of IFRS 9.4.2.1 an entity shall classify all financial liabilities as subsequently measured at amortised cost except for
contingent consideration recognised by the acquirer in a business combination to which IFRS 3 applies as such contingent 1 [Mark for applicable theory]
payment shall be classified to be subsequently measured at fair value through profit or loss.
The contingent payment is payable by SAEasyRental within a business combination and should therefore be classified to be [Mark for noting that because CP is payable within a BC it
1
subsequently measured at fair value through profit or loss. should be classified at FV through p/l]
Initial measurement
In terms of IFRS 9.5.1.1 an entity shall measure a financial liability initially at fair value plus or minus any transaction costs if
1 [Mark for applicable theory]
not classified at fair value through profit or loss.
The contingent payment should therefore be initially recognised at its fair value of R3 300 000. 1 [Mark for initially at FV of R3 300 000]
Subsequent measurement
As the contingent payment is classified to be subsequently measured at fair value through profit or loss, the contingent [Mark for subsequently measured to FV of R3 800 000]
payment should subsequently be remeasured to its fair value at year end of R3 800 000 and the fair value adjustment of 1+1 [Mark for calc of FV adjustment of R500 000]
R500 000 (R3 800 000 - R3 300 000) should be recognised in profit or loss.
Communication skills – logical argument 1 [Mark for basing subsequent measurement on classification]

TOTAL MARKS OBTAINED

Available marks 10
Maximum marks 7
Communication skills 1
Total marks 8
 AT SINCE NCI Retained Earnings
ANALYSIS OF OWNERS EQUITY IN BVEST LUXURY TOTAL
35% 75% 65%-25% 1-Oct-17 Balance (b/f) R7,250,000
At Acquisition 1 October 2006
Share Capital R2,500,000 R875,000 R1,625,000
Retained Earnings (at incorporation) R0 R0 R0
R2,500,000 R875,000 R1,625,000 30-Sep-18Dividends paid R1,500,000 30-Sep-18 Profit for the year R5,808,840
Goodwill/GBP R437,500 30-Sep-18Balance (c/f) R11,558,840
Investment in A R1,312,500 R1.50 R13,058,840 R13,058,840

Since Acquisition 30-Sep-18Balance (b/f) R11,558,840

Beginning of year
Retained Earnings R7,250,000 R2,537,500 R4,712,500
R9,750,000 R2,537,500 R6,337,500
Current year
Revaluation Surplus R129,600 R45,360 R84,240
Profit for the year (x3/12) R1,452,210 R508,273 R943,937
R11,331,810 R3,091,134 R7,365,677
Total Net Assets R8,498,858
Equity (net assets) acquired and earned to date
(R27 516 900 x 40%) R3,966,133
Equity acquired from NCI
(R17 885 985 x 40%/25%) R4,532,724 -R4,532,724
Total Consideration R9,112,500 R2,832,950
Paid for additional 40% interest R4,737,500 R4.74
Fair value of "previous" investment in A R4,375,000 R5.00
Goodwill (Consideration - Total Net Assets) R613,640

Profit for the year R4,356,630 R3,267,473 R1,089,158

Dividends paid -R1,500,000 -R1,125,000 -R375,000
R14,188,440 R5,233,606 R3,547,108

AT SINCE NCI
ANALYSIS OF OWNERS EQUITY IN RENT4W TOTAL
80% 20%
At Acquisition 1 October 2017
At acquisition equity given R4,350,000 R3,480,000
Contingent Liability -R75,000 -R60,000
Tax on contingent liability R21,000 R16,800
Intangible asset R250,000 R200,000
Tax on intangible asset -R70,000 -R56,000
R4,476,000 R3,580,800 R0 R1,200,000
Goodwill/GBP R829,200 R304,800
Investment in A R4,410,000
- Bonds R100,000
- Minibuses (1 380 000 - 120 000) R1,260,000
- Settlement of debt -R250,000
- Contingent payment R3,300,000

Current year until before CIO

- Profit for the year (2 560 000 + 10 500 = 2 570 500 x 8/12) R1,713,667 R1,370,933 R342,733
- Fines paid -R10,500 -R8,400 -R2,100
- Additional amortisation on brand name (250 000 / 10 x 8/12) -R16,667 -R13,333 -R3,333
- Tax on above (16 667 x 28%) R4,667 R3,733 R933
Other comprehensive income R250,000 R200,000 R50,000
Dividends paid -R125,000 -R100,000 -R25,000
R6,292,167 R1,452,933 R1,868,033

Disposal of shares
Consideration received R1,100,000
Adjustment to NCI -R794,500 R794,500
Change in ownership equity R305,500

- Profit for the year (2 560 000 + 10 500 = 2 570 500 x 4/12) R856,833 R556,942 R299,892
- Additional amortisation on brand name (250 000 / 10 x 4/12) -R8,333 -R5,417 -R2,917
- Tax on above (8 333 x 28%) R2,333 R1,517 R817
R7,143,000 R2,960,325

NCI should be after CIO 2,662,533

- NCI share in net assets (6 292 167 x 35%) 2,202,258 Dr. Profit on sale (826 875 - 1 100 000) 273,125
- NCI share in goodwill on the acquisition date 304,800 Dr. Investment 826,875
- Goodwill realised to NCI (829 200 x 15/80) 155475 Cr. NCI 794,500
Cr. Change in ownership equity 305,500
NCI before CIO R1,868,033 1,100,000 1,100,000
-794,500