FINANCIAL ACCOUNTING 379 GROUP STATEMENTS: INTRAGROUP TRANSACTIONS AND TAXATION Class exercise 1 PART A Presume H purchases shares in S on 1/1/2023 as follow: 1) 70% of S's shares for R800 000 (exercises control) Statements of financial position on the acquisition date: H S Share capital R 500 000 R 300 000 Reserves 1 000 000 700 000 Net assets R 1 500 000 R 1 000 000 Assume S's assets and liabilities are fairly valued. REQUIRED Show the analysis of equity and consolidation journals on the date of acquisition. PART B Presume S's profit for the year ended 31/12/2023 is R200 000 and there are no other changes in the equity of S and also no changes in the equity of H for the year. REQUIRED i) Prepare the additional consolidation journals (to those in Part A) on 31/12/2023 and add the additional information to the analysis started in part A. ii) Prepare the abridged consolidated statement of financial position of H and S on 31/12/2023. Use a consolidation worksheet as illustrated below. Statement of financial position on 31/12/2023: H S Jnl Cons R Share capital 500 000 300 000 (300 000) 500 000 Reserves Non-controlling interest Net assets Goodwill Class exercise 2: IMPAIRMENT OF GOODWILL ANALYSIS OF SHAREHOLDERS' INTEREST OF S LTD. H LTD. (80%) TOTAL AT SINCE NCI AT Share capital 10 000 8 000 2 000 Retained earnings 35 000 28 000 7 000 45 000 36 000 9 000 Cost of acquisition 40 000 Goodwill 4 000 SINCE To beginning of current year Retained earnings 100 000 80 000 20 000 Current year Profit for the year 7 500 6 000 1 500 152 500 86 000 30 500 IMPARIMENT of goodwill To beginning of current year (1 600) Recoverable amount in SFP 2 400 Current year (200) Recoverable amount in SFP 2 200 The question will give you the amount of the impairment that took place during the period. What would the journals look like? Regarding the "since" period: DR CR Regarding the current year: DR CR FINANCIAL ACCOUNTING 379 GROUP STATEMENTS: INTRAGROUP TRANSACTIONS AND TAXATION QUESTION 1 (10 marks: 18 minutes) Lexi Limited purchased a 75% interest in Nacho Limited’s ordinary share capital from the previous owners for R460 500 on 1 January 2019. Nacho Limited’s equity consisted of the following on 1 January 2019: Ordinary share capital R150 000 Retained earnings R250 000 The identifiable assets acquired and the liabilities taken over on the date of acquisition are shown at their fair values as required in terms of IFRS 3 Business Combinations. Lexi Limited buys all inventory from Nacho Limited. Total sales of inventory to Lexi Limited was R360 000 (2020: R275 000) for the current financial year ended 31 December 2021. Lexi Limited did not have any inventory on hand on 31 December 2020 and had inventory of R35 100 on hand on 31 December 2021. Nacho Limited sells all inventory at a markup of 35% on the cost price. On 1 October 2021 Lexi Limited sold machinery to Nacho Limited at a selling price of R200 000. Nacho Limited trades in this type of machinery and therefore regards these items as inventory in the records of the company. Lexi Limited however classified the machinery as property, plant and equipment and recognised depreciation on the machinery at 15% per year according to the straight-line method. Lexi Limited sold the machinery to Nacho Limited at a markup of 30% on the cost price. The items are still on hand in the financial records of Nacho Limited on 31 December 2021. Assume that any dividends received from Nacho Limited were correctly recognised in ‘Other income’ by Lexi Limited. Below are extracts from the statements of changes in equity of both Lexi Limited and Nacho Limited. LEXI LIMITED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2021 Ordinary share capital Retained earnings Total R R R Balance on 1 January 2021 100 000 410 000 510 000 Total comprehensive income for the year - 182 900 182 900 Profit for the year - 182 900 182 900 Other comprehensive income - - - Ordinary dividends - (10 000) (10 000) Balance on 31 December 2021 100 000 582 900 682 900 NACHO LIMITED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2021 Ordinary share capital Retained earnings Total R R R Balance on 1 January 2021 150 000 345 000 495 000 Total comprehensive income for the year - 136 500 136 500 Profit for the year - 136 500 136 500 Other comprehensive income - - - Ordinary dividends - (5 000) (5 000) Balance on 31 December 2021 150 000 476 500 626 500 Lexi Ltd. chose to measure non-controlling interests at the proportionate share of the identifiable net assets of the acquiree on the date of acquisition. Assume a normal company tax rate of 27%. REQUIRED Provide the pro-forma consolidation journal entries needed to compile the consolidated financial statements of the Lexi Limited group for the reporting period ended 31 December 2021, in accordance with the provisions of IFRS 10 Consolidated Financial Statements. Ignore any capital gains tax and VAT. No journal narrations are required. Show all calculations and cross-reference where needed. Round to the nearest Rand. FINANCIAL ACCOUNTING 379 GROUP STATEMENTS: INTRAGROUP TRANSACTIONS AND TAXATION QUESTION 1 - Suggested solution (a) LEXI LIMITED GROUP PRO-FORMA JOURNAL ENTRIES FOR THE YEAR ENDED 31 DECEMBER 2021 DEBIT CREDIT 1. Share capital (SCE) Retained earnings (SCE) Investment in Nacho Limited (SFP) Non-controlling interest (SCE) Goodwill (SFP) (Recognition of interest in subsidiary - with acquisition) 150 000 250 000 160 500 460 500 100 000 2. Revenue (P/L) 360 000 Cost of sales (P/L) 360 000 (Elimination of intragroup sales) 3. Cost of sales (P/L) [35 100 x 35/135] [S] 9 100 Inventory (SFP) 9 100 (Elimination of unrealised profit in the closing inventory) 4. Deferred tax (SFP) [9 100 x 27%] 2 457 Income tax expense (P/L) [S] 2 457 (Tax implications of unrealised profit) 5. Other income (P/L) [200 000 x 30/130] 46 154 Inventory (SFP) (S) 46 154 (Elimination of unrealised profit) 6. Deferred tax (SFP) [46 154 x 27%] 12 462 Income tax expense (P/L) 12 462 (Tax implications of unrealised profit) 7. Dividends received (P) (P/L) [5 000 x 75%] 3 750 Non-controlling interest (SCE) 1 250 Dividends paid (S) (SCE) 5 000 (Elimination of intragroup dividends) 8. Retained earnings (SCE) 23 750 Non-controlling interest (SCE) 23 750 (Recognition of non-controlling interest in retained earnings) y

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Dividendspaid

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Consolidation journals