FAC 3704 GROUP FINANCIAL REPORTING Mr Jacques van

FAC 3704 GROUP FINANCIAL REPORTING

Mr Jacques van Staden Office: AJH van der Walt Building Office 2 -12 E – Mail: vstadj@unisa. ac. za Tel No: 012 429 3298

FAC 3704 LECTURERS Ms LA Jordaan Ms M Scott Mr J van Staden Ms B Segoaa Tel No: E-mail: 012 429 4250 fac 3704 -fi@unisa. ac. za

How do I prepare for FAC 3704?

1. Start early

2. Know your terminology

3. Practice REGULARLY

4. Learn from your mistakes

5. Ask if something is not clear

STUDY UNIT 1 BUSINESS COMBINATIONS

IFRS 3: BUSINESS COMBINATIONS - SUMMARY Acquisition method Identify the acquirer and account for business combination transaction separately from related transaction • Entity that obtains control is acquirer • Separate related transactions and apply other IFRS standards Acquisition date • Date on which control of net assets and operations is transferred to the acquirer Consideration transferred Recognition of identifiable assets and liabilities Initial measurement of fair value of identifiable assets and liabilities • Use fair value at acquisition date, also for business combination achieved in stages • Costs directly attributable not part of business combination • Contingent consideration • Assets/liabilities recognised separately • Basic recognition: Meet definitions in Conceptual Framework • Classifying or designating • Exceptions (contingent liabilities) • Fair value as at acquisition date • Market values or valuation techniques • Exceptions

Non-controlling interest • At proportionate (partial) share of net assets, or • At fair value (full goodwill method) Goodwill/Gain on bargain purchase • Consideration transferred + non-controlling interest + FV of previously-held interest at date of acquisition (only step acquisition) – Net assets acquired and measured in terms of IFRS 3 = Goodwill: Recognise as asset, subsequent impairment test (IAS 36) or Gain on bargain purchase: Reassess all items; if still gain, recognise at acquisition date in profit of loss Measurement period Disclosure • Limited to one year from acquisition date • Provisional values recognised if accounting incomplete • Also recognise assets and liabilities that previously were not recognised even though they existed • Facts and circumstances existing at acquisition date should be considered • Correction of error if it becomes known after measurement period

RECOGNISING GOODWILL / GOBP – PARTIAL GW METHOD On 1 January 20. 19, P Ltd acquired 75% interest from S Ltd. From that date P Ltd had control over S Ltd as per the definition of IFRS 10. The fair value of the consideration was R 1 400 000. The fair value of the identifiable net assets of S Ltd amounted to R 1 650 000. The non-controlling interests are measured at its proportionate share of the aquiree’s identifiable net assets at the acquisition date. Required: Calculate goodwill / gain on bargain purchase Calculation: Consideration transferred NCI (25% x 1 650 000) FV of previous held interest Less: Net identifiable assets required Goodwill 1 400 000 412 500 1 812 500 (1 650 000) 162 500

RECOGNISING GOODWILL / GOBP – FULL GW METHOD On 1 January 20. 19, P Ltd acquired 75% interest from S Ltd. From that date P Ltd had control over S Ltd as per the definition of IFRS 10. The fair value of the consideration was R 1 400 000. The fair value of the identifiable net assets of S Ltd amounted to R 1 650 000. The non-controlling interests are measured at fair value of R 430 000 at the acquisition date. Required: Calculate goodwill / gain on bargain purchase Calculation: Consideration transferred NCI FV of previous held interest Less: Net identifiable assets required Goodwill 1 400 000 430 000 1 830 000 (1 650 000) 180 000

STUDY UNIT 2 CONSOLIDATIONS AFTER THE DATE OF ACQUISITION

OVERVIEW OF IFRS 10 • • Definitions Control Consolidated financial statements Control Group NCI Parent Separate financial statements Subsidiary Does control exist? NO YES Apply other relevant standards i. e. IFRS 9, IFRS 11 and IAS 28 Consolidate • Line-by-line combination • Eliminate carrying amount of investment • Calculate NCI • Eliminate intragroup transactions • Other considerations: • accounting policies • reporting date • Change in ownership interests, not leading to loss in control • Loss of control

WHAT IS CONTROL? An investor controls and investee 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 (IFRS 10. 6) Elements of control • Power over the investee • Exposure / rights to / variable returns from involvement of the investee • The ability to use power over the investee to affect the amount of the investors returns

INTRAGROUP TRANSACTIONS Bank Tax Intragroup PPE Inventories

INTRAGROUP TRANSACTIONS (examples) Pinetown Ltd sold inventories to Silverlake Ltd at cost plus 25%. At the end of the reporting period, Silverlake Ltd had R 50 000 of inventories on hand which were purchased from Pinetown Ltd. Total sales of inventories from Pinetown Ltd to Silverlake Ltd during the current reporting period amounted to R 100 000. Pinetown Ltd has a 80% interest in Silverlake Ltd and controls Silverlake Ltd. Assume a tax rate of 28% Required: Prepare the intragroup journal entries Dt. Revenue Ct. Cost of Sales Dt Cost of Sales Ct. Inventory Dt Deferred tax Ct. Income tax expense ` 100 000 10 000 2 800

INTRAGROUP TRANSACTIONS (examples) Silverlake Ltd sold inventories to Pinetown Ltd at cost plus 25%. At the end of the reporting period, Pinetown Ltd had R 50 000 of inventories on hand which were purchased from Silverlake Ltd. Total sales of inventories from Silverlake Ltd to Pinetown Ltd during the current reporting period amounted to R 100 000. Pinetown Ltd has a 80% interest in Silverlake Ltd and controls Silverlake Ltd. Assume a tax rate of 28% Required: Prepare the intragroup journal entries Dt. Revenue Ct. Cost of Sales Dt Cost of Sales Ct. Inventory Dt Deferred tax Ct. Income tax expense ` 100 000 10 000 2 800

INTRAGROUP TRANSACTIONS (examples) Betty Ltd is a subsidiary of Alpha Ltd sold inventories to Betty Ltd at a profit of 25% on the cost of inventory during 20. 8 and 20. 9. On 31 December 20. 8 Betty Ltd had inventory on hand of R 300 000, which was bought from Alpha Ltd. On 31 December 20. 9 Betty Ltd had inventory on hand of R 200 000, which was bought from Alpha Ltd. Assume a tax rate of 28% Required: Prepare the intragroup journal entries Journal entries for 20. 8 Dt Cost of Sales Ct. Inventory Dt Deferred tax Ct. Income tax expense ` 60 000 16 800

INTRAGROUP TRANSACTIONS (examples) Journal entries for 20. 9 Dt Retained earnings Ct. Cost of Sales Dt Income tax expense Ct. Deferred Tax [p 202 of textbook] Dt Cost of Sales Ct. Inventory Dt Deferred tax Ct. Income tax expense ` 60 000 16 800 40 000 11 200

INTRAGROUP TRANSACTIONS (examples) Johnny Ltd has a 100% interest in Walker Ltd since 20. 5. Johnny Ltd controls Walker Ltd. On 2 January 20. 6 Johnny Ltd sold an office building to Walker Ltd for R 20 000. The carrying amount of the building for Johnny Ltd was R 15 000. Both entities year end falls on 31 December. Assume a tax rate of 28%. Required: Prepare the intragroup journal entries Journal entries for 20. 6 Dt Profit on sale of buildings/ Other income 5 000 Ct. PPE 5 000 Dt Deferred tax 1 400 Ct. Income tax expense 1 400 `

INTRAGROUP TRANSACTIONS (examples) Johnny Ltd has a 100% interest in Walker Ltd since 20. 5. Johnny Ltd controls Walker Ltd. On 2 January 20. 6 Johnny Ltd sold an office building to Walker Ltd for R 20 000. The carrying amount of the building for Johnny Ltd was R 15 000. Both entities year end falls on 31 December. Assume a tax rate of 28%. Required: Prepare the intragroup journal entries Journal entries for 20. 7 Dt Retained Earnings Dt Deferred Tax Ct PPE 3 600 1 400 5 000

INTRA GROUP TRANSACTIONS (examples) Captain Ltd has a 100% interest in Morgan Ltd since 20. 5. Captain Ltd controls Morgan Ltd. On 31 December 20. 6 Morgan Ltd sold a machine to Captain Ltd for R 20 000. The carrying amount of the machine for Morgan Ltd was R 15 000. Depreciation is provided for at 20% per annum on the straight line method. Both entities year end falls on 31 December. Assume a tax rate of 28%. Required: Prepare the intragroup journal entries Journal entries for 20. 6 Dt Profit on sale of PPE Ct. PPE Dt Deferred tax Ct. Income tax expense ` 5 000 1 400

INTRAGROUP TRANSACTIONS (examples) Captain Ltd has a 100% interest in Morgan Ltd since 20. 5. Captain Ltd controls Morgan Ltd. On 31 December 20. 6 Morgan Ltd sold a machine to Captain Ltd for R 20 000. The carrying amount of the machine for Morgan Ltd was R 15 000. Depreciation is provided for at 20% per annum on the straight line method. Both entities year end falls on 31 December. Assume a tax rate of 28%. Required: Prepare the intragroup journal entries Journal entries for 20. 7 Dt Retained Earnings 3 600 Dt Deferred Tax 1 400 Ct. PPE 5 000 Dt Accumulated Depreciation 1 000 Ct. Depreciation 1 000 Dt Income tax expense 280 Ct. Deferred tax 280

SUNDRY ASPECTS Adjustments at acquisition date Preference shares Impairment of goodwill Sundry aspects Insolvent subsidiaries Losses of a subsidiary

STUDY UNIT 4 ACCOUNTING FOR INVESTMENTS IN ASSOCIATES

WHEN IS AN ENTITY AN ASSOCIATE • Significant influence required – power to participate in financial and operating policy decisions. • Presumption that 20% or more of voting rights provides significant influence

ACCOUNTING FOR AN ASSOCIATE COST • Includes goodwill (no pro forma journal required) • Any excess recognised as part of share in profit of associate / jv (pro forma journal required) • Consider effect of fair value adjustments upon acquisition (No pro forma journal required at acquisition) • Changes in equities since acquisition date PLUS Changes in equity since acquisition • Profit and other comprehensive income of associate / jv • Adjust for subsequent effect of FV adjustments at acquisition, cumulative preference shares and intragroup gains and losses • Dividends received reduce investment

ACCOUNTING FOR AN ASSOCIATE Only two/three line items included in financials at % interest held • Investment in associate - SFP • Share of profit of associate – SP/LOCI • Share of other comprehensive income of associate – SP/LOCI

STUDY UNIT 5 ACCOUNTING FOR INTERESTS IN JOINT ARRANGEMENTS

ACCOUNTING FOR A JOINT VENTURE • Joint Ventures have rights to the net assets (equity) of the arrangement • Account for the investor’s portion of the net assets using the equity method (IAS 28) • Eliminate gains and losses between the investor and joint venture EQUITY ACCOUNT (IAS 28) – similar to associates (study unit 4)

ACCOUNTING FOR A JOINT OPERATION • Joint Operations have rights to the assets and obligations for the liabilities of the arrangement • Account for the investor’s portion of assets, liabilities, revenue and expenses in terms of IFRS 11 • Eliminate gains and losses between the investor and joint operation

EXAMPLE: BLOEMBOOKS LTD • Where do I start ? ? ? – Read the required • What is required ? ? ? – A statement of financial position – Asset section • Additional guidance – All amounts should be calculated to the nearest rand • Read through the question – Identify entities – Identify group structure – Identify intercompany transactions

GROUP STRUCTURE Bloembooks Ltd 30% Graffiti Ltd Bloembooks exercise significant influence over the financial and operating decisions of Graffiti. ASSOCIATE = EQUITY ACCOUNTING IAS 28 45% Butterworks Ltd JOINT OPERATION (given) APPORTIONED ACCOUNTING IFRS 11

PREPARE THE SKELETON BLOEMBOOKS LTD GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 NOVEMBER 20. 13 R ASSETS Non-current assets Property, plant and equipment Investment in Associate Deferred tax asset Total non-current assets Current assets Trade and other receivables Inventory Cash and cash equivalents Loan to Graffiti Ltd Loan to Butterworks Ltd Total current assets Total assets

FILL THE SKELETON WITH EASY MARKS BLOEMBOOKS LTD GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 NOVEMBER 20. 13 R ASSETS Non-current assets Property, plant and equipment (2 752 000 Investment in Associate (640 000 Deferred tax asset (-32 296 Total non-current assets Current assets Trade and other receivables (594 000 Inventory (467 000 Cash and cash equivalents (579 500 Loan to Graffiti Ltd (12 500 Loan to Butterworks Ltd (45 000 Total current assets Total assets

APPLY IFRS 11 FOR BUTTERWORKS BLOEMBOOKS LTD GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 NOVEMBER 20. 13 R ASSETS Non-current assets Property, plant and equipment (2 752 000 + 115 650 (257 000 x 45%) Investment in Associate (640 000 Deferred tax asset (-32 296 Total non-current assets Current assets Trade and other receivables (594 000 + 45 900 (102 000 x 45%) Inventory (467 000 + 44 550 (99 000 x 45%) Cash and cash equivalents (579 500 Loan to Graffiti Ltd (12 500 Loan to Butterworks Ltd (45 000 Total current assets Total assets

BLOEMBOOKS LTD: POINT 2 It is the accounting policy of Bloembooks Ltd to account for investments in associates in accordance with IFRS 9, Financial Instruments in their separate financial statements. Bloembooks Ltd irrevocably elected to present the subsequent changes in the fair value of the investment in other comprehensive income in the markto-market reserve. What is a mark-to-market reserve ? ? ? Will this affect the SFP ? ? ? Which accounts ? ? ?

BLOEMBOOKS LTD: POINT 2 What was the original cost of the investment in Graffiti Ltd? Investment at FAIR value = R 640 000 Mark-to-market reserve = R 162 704 Movement tax rate: 28% x 66. 6% =18. 648% Therefore the value attributable to the Associate is = 162 704 x 100/ (100 -18. 648) = 200 000 Therefore the original cost of the Investment in Graffiti Ltd was R 640 000 – 200 000 = 440 000 What is the reversing accounting entry:

BLOEMBOOKS LTD: POINT 2 Accounting entry? Dt. Mark-to-market reserve (200 000 x 18. 648%) 162 704 Dt. Deferred Tax (200 000 x 18. 648%) 37 296 Ct. Investment in Associate 200 000 `

FILL IN THE SKELETON BLOEMBOOKS LTD GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 NOVEMBER 20. 13 R ASSETS Non-current assets Property, plant and equipment (2 752 000 + 115 650 Investment in Associate (640 000 – 200 000 Deferred tax asset (-32 296 + 37 296 Total non-current assets Current assets Trade and other receivables (594 000 + 45 900 Inventory (467 000 + 44 550 Cash and cash equivalents (579 500 Loan to Graffiti Ltd (12 500 Loan to Butterworks Ltd (45 000 Total current assets Total assets

ACCOUNTING FOR AN ASSOCIATE COST • Includes goodwill (no pro forma journal required) • Any excess recognised as part of share in profit of associate / jv (pro forma journal required) • Consider effect of fair value adjustments upon acquisition (No pro forma journal required at acquisition) • Changes in equity since acquisition date PLUS Changes in equity since acquisition • Profit and other comprehensive income of associate / jv • Adjust for subsequent effect of FV adjustments at acquisition, cumulative preference shares and intragroup gains and losses • Dividends received reduce investment

GRAFFITI Calculate goodwill / gain on bargain purchase on Graffiti Share capital (220 000 x 30%) Retained earnings (1 052 800 x 30%)* Revaluation reserve (210 000 x 30%) EQUITY AT ACQUISITION INVESTMENT IN GRAFFITI LTD AT COST GAIN ON BARGAIN PURCHASE *1 060 000 – 7 200(10 000 x 72%) = 1 052 800 66 000 315 840 63 000 444 840 (440 000) 4 840

FILL IN THE SKELETON BLOEMBOOKS LTD GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 NOVEMBER 20. 13 R ASSETS Non-current assets Property, plant and equipment (2 752 000 + 115 650 Investment in Associate (640 000 – 200 000 + 4 840 Deferred tax asset (-32 296 + 37 296 Total non-current assets Current assets Trade and other receivables (594 000 + 45 900 Inventory (467 000 + 44 550 Cash and cash equivalents (579 500 Loan to Graffiti Ltd (12 500 Loan to Butterworks Ltd (45 000 Total current assets Total assets

ACCOUNTING FOR AN ASSOCIATE COST • Includes goodwill (no pro forma journal required) • Any excess recognised as part of share in profit of associate / jv (pro forma journal required) • Consider effect of fair value adjustments upon acquisition (No pro forma journal required at acquisition) • Changes in equity since acquisition PLUS Changes in equity since acquisition • Profit and other comprehensive income of associate / jv • Adjust for subsequent effect of FV adjustments at acquisition, cumulative preference shares and intragroup gains and losses • Dividends received reduce investment

GRAFFITI Movement in equity: (1 January 2011 – 30 November 2012) Retained earnings (1 480 000 – 1 052 800)* x 30% Revaluation reserve (245 000 – 210 000) x 30% SINCE ACQUISITION TO BEGINNING OF YEAR * – 1 060 000 + 7 200 = 1 052 800 128 160 10 500 138 660

FILL IN THE SKELETON BLOEMBOOKS LTD GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 NOVEMBER 20. 13 R ASSETS Non-current assets Property, plant and equipment (2 752 000 + 115 650 Investment in Associate (640 000 – 200 000 + 4 840 + 138 660 Deferred tax asset (-32 296 + 37 296 Total non-current assets Current assets Trade and other receivables (594 000 + 45 900 Inventory (467 000 + 44 550 Cash and cash equivalents (579 500 Loan to Graffiti Ltd (12 500 Loan to Butterworks Ltd (45 000 Total current assets Total assets

ACCOUNTING FOR AN ASSOCIATE COST • Includes goodwill (no pro forma journal required) • Any excess recognised as part of share in profit of associate / jv (pro forma journal required) • Consider effect of fair value adjustments upon acquisition (No pro forma journal required at acquisition) • Changes in equity since acquisition PLUS Changes in equity since acquisition • Profit and other comprehensive income of associate / jv • Adjust for subsequent effect of FV adjustments at acquisition, cumulative preference shares and intragroup gains and losses • Dividends received reduce investment

GRAFFITI Movement in equity: (Current year) Profit for the year (1 630 000 – 1 480 000 + 30 000) x 30% Revaluation reserve (290 000 - 245 000) x 30% CURRENT YEAR 54 000 13 500 67 500

FILL IN THE SKELETON BLOOMBOOKS LTD GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 NOVEMBER 20. 13 R ASSETS Non-current assets Property, plant and equipment (2 752 000 + 115 650 Investment in Associate (640 000 – 200 000 + 4 840 + 138 660+67500 Deferred tax asset (-32 296 + 37 296 Total non-current assets Current assets Trade and other receivables (594 000 + 45 900 Inventory (467 000 + 44 550 Cash and cash equivalents (579 500 Loan to Graffiti Ltd (12 500 Loan to Butterworks Ltd (45 000 Total current assets Total assets

BUTTERWORKS LTD: POINT 3 On 31 March 2013, Butterworks sold office equipment to Bloembooks Ltd for an amount of R 58 000. Butterworks originally purchased this office equipment for R 60 000 on the date when the joint operation was entered into. On 1 July 2012, Butterworks established that the office equipment had a total useful life of six years. The entity’s policy is to provide for depreciation over the expected useful life of the office equipment using the straight-line method which is consistent with the allowance of the South African Revenue Service.

JOINT OPERATION SELLS TO INVESTOR (PPE) Group Structure Bloembooks Sale of Equipment Bloembooks UPWARD !!! 45% Butterworks (JO) What is the unrealised profit on the sale ?

JOINT OPERATION SELLS TO INVESTOR (PPE) Step 1: What is the carrying amount of the equipment on 31 March 2013 ? Cost price: 60 000 Accumulated depreciation (1/11/2012) Depreciation (2013: 1 July 2012 – 31 March 2013) (60 000 / 6 x 9/12) (7 500) Carrying amount 52 500 Step 2: What is the unrealised profit on the sale of the equipment? Proceeds 58 000 Carrying amount (52 500) Unrealised profit 5 500 x Profit share of 45%(JO) = 2 475

JOINT OPERATION SELLS TO INVESTOR (PPE) Accounting entry? 31 March 2013 Dt. Other income Ct. PPE Dt. Deferred tax Ct. Income tax expense 2 475 693 `

FILL IN THE SKELETON BLOEMBOOKS LTD GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 NOVEMBER 20. 13 R ASSETS Non-current assets Property, plant and equipment (2 867 650 – 2 475 Investment in Associate (651 000 Deferred tax asset (-32 296 + 37 296 + 693 Total non-current assets Current assets Trade and other receivables (594 000 + 45 900 Inventory (467 000 + 44 550 Cash and cash equivalents (579 500 Loan to Graffiti Ltd (12 500 Loan to Butterworks Ltd (45 000 Total current assets Total assets WHAT ABOUT THE DEPRECIATION ? ? ?

JOINT OPERATION SELLS TO INVESTOR (PPE) Unrealised profit x Profit share of 45% = 5 500 2 475 Remaining useful life 6 years x 12 months = 72 months 1 July 2012 – 31 March 2013 = (9 months) Remaining useful life as on 31 March 2013 = 63 months Therefore the depreciation is: 2 475 / 63 x 8 (1 April to 30 Nov) = 314

JOINT OPERATION SELLS TO INVESTOR (PPE) Accounting entry? 30 November 2013 Dt. Accumulated depreciation/PPE Ct. Depreciation ` 314 Dt. Income tax expense (314 x 28%) Ct. Deferred tax ` 88 314 88

FILL IN THE SKELETON BLOEMBOOKS LTD GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 NOVEMBER 20. 13 R ASSETS Non-current assets Property, plant and equipment (2 867 650 – 2 475 + 314 Investment in Associate (651 000 Deferred tax asset (-32 296 + 37 296 + 693 - 88 Total non-current assets Current assets Trade and other receivables (594 000 + 45 900 Inventory (467 000 + 44 550 Cash and cash equivalents (579 500 Loan to Graffiti Ltd (12 500 Loan to Butterworks Ltd (45 000 Total current assets Total assets

GRAFFITI LTD: POINT 4 From 1 January 2011, Graffiti Ltd purchased inventory from Bloembooks Ltd sold the inventory at a profit margin of 25% on cost. Total sales amounted to R 400 000 in the 2012 financial year and R 620 000 in the 2013 financial year. Inventory purchased from Bloembooks Ltd that was still on hand at year-end was as follows: • 30 November 2012 - R 90 000 • 30 November 2013 - R 130 000 What of the information is relevant ? ? ?

INVESTOR SELLS TO ASSOCIATE (INVENTORY) Group Structure Bloembooks Sale of Equipment Bloembooks DOWNWARD!!! 30% Graffiti (Associate) What is the unrealised profit on the sale ?

INVESTOR SELLS TO ASSOCIATE (INVENTORY) Closing inventory x 25 / 125 x Interest in associate (30%) = 130 000 7 800

INVESTOR SELLS TO ASSOCIATE (INVENTORY) Accounting entry? Dt. Gross Profit Ct. Investment in Associate ` 7 800 Dt. Deferred rax (7 800 x 28%) Ct. Income tax expense ` 2 184 2 184 7 800

FILL IN THE SKELETON BLOEMBOOKS LTD GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 NOVEMBER 20. 13 R ASSETS Non-current assets Property, plant and equipment (2 867 650 – 2 475 + 314 Investment in Associate (651 000 – 7 800 Deferred tax asset (-32 296 + 37 296 + 693 – 88 + 2 184 Total non-current assets Current assets Trade and other receivables (594 000 + 45 900 Inventory (467 000 + 44 550 Cash and cash equivalents (579 500 Loan to Graffiti Ltd (12 500 Loan to Butterworks Ltd (45 000 Total current assets Total assets

BUTTERWORKS LTD: POINT 5 During the current year Butterworks sold inventory to the value of R 100 000 to Bloembooks Ltd at a profit mark-up of 40% on the selling price. On 30 November 2013, Bloembooks Ltd had inventory on hand amounting to R 60 000 that was purchased from Butterworks.

JOINT OPERATION SELLS TO INVESTOR (INVENTORY) Group Structure Bloembooks Sale of Inventory Bloembooks UPWARD !!! 45% Butterworks (JO) What is the unrealised profit on the sale ?

JOINT OPERATION SELLS TO INVESTOR (INVENTORY) Closing inventory x 40 / 100 x Interest in associate (45%) = 60 000 10 800

JOINT OPERATION SELLS TO INVESTOR (INVENTORY) Accounting entry? Dt. Cost of Sales Ct. Inventory 10 800 ` Dt. Deferred tax (10 800 x 28%) Ct. Income tax expense ` 3 024

FILL IN THE SKELETON BLOEMBOOKS LTD GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 NOVEMBER 20. 13 R ASSETS Non-current assets Property, plant and equipment (2 867 650 – 2 475 + 314 Investment in Associate (651 000 – 7 800 Deferred tax asset (-32 296 + 37 296 + 693 – 88 + 2 184 + 3 024 Total non-current assets Current assets Trade and other receivables (594 000 + 45 900 Inventory (467 000 + 44 550 – 10 800 Cash and cash equivalents (579 500 Loan to Graffiti Ltd (12 500 Loan to Butterworks Ltd (45 000 Total current assets Total assets

GRAFFITI LTD: POINT 6 The fair value of the investment in Graffiti Ltd amounted to R 580 000 on 30 November 2012. IRRELEVANT : WHY ? ? ?

GRAFFITI LTD: POINT 7 Graffiti Ltd declared a dividend of R 30 000 on 1 September 2013.

DIVIDEND PAID BY ASSOCIATE Accounting entry? Dt. Other Income (30 000 x 30%) Ct. Investment in Associate ` 9 000

FILL IN THE SKELETON BLOEMBOOKS LTD GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 NOVEMBER 20. 13 R ASSETS Non-current assets Property, plant and equipment (2 867 650 – 2 475 + 314 Investment in Associate (651 000 – 7 800 – 9 000 Deferred tax asset (-32 296 + 37 296 + 693 – 88 + 2 184 + 3 024 Total non-current assets Current assets Trade and other receivables (594 000 + 45 900 Inventory (467 000 + 44 550 – 10 800 Cash and cash equivalents (579 500 Loan to Graffiti Ltd (12 500 Loan to Butterworks Ltd (45 000 Total current assets Total assets

FILL IN THE SKELETON BLOEMBOOKS LTD GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 NOVEMBER 20. 13 R ASSETS Non-current assets Property, plant and equipment (2 867 650 – 2 475 + 314 Investment in Associate (651 000 – 7 800 – 9 000 Deferred tax asset (-32 296 + 37 296 + 693 – 88 + 2 184 + 3 024 Total non-current assets Current assets Trade and other receivables (594 000 + 45 900 Inventory (467 000 + 44 550 – 10 800 Cash and cash equivalents (579 500 Loan to Graffiti Ltd (12 500 Loan to Butterworks Ltd (45 000 – 20 250 (45 000 x 45%) Total current assets Total assets

FILL IN THE SKELETON: ADD ALL AMOUNTS UP BLOEMBOOKS LTD GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 NOVEMBER 20. 13 R ASSETS Non-current assets Property, plant and equipment (2 867 650 – 2 475 + 314 2 865 489 Investment in Associate (651 000 – 7 800 – 9 000 634 200 Deferred tax asset (-32 296 + 37 296 + 693 – 88 + 2 184 + 3 024 10 813 Total non-current assets 3 510 502 Current assets Trade and other receivables (594 000 + 45 900 639 900 Inventory (467 000 + 44 550 – 10 800 500 750 Cash and cash equivalents (579 500 Loan to Graffiti Ltd (12 500 Loan to Butterworks Ltd (45 000 – 20 250 (45 000 x 45%) 24 750 Total current assets 1 757 400 Total assets 5 267 902

QUESTIONS?

Wishing you the best on your studies! FAC 3704 LECTURERS