Fac4 T4

FAC4864/105/0/2020
NFA4864/105/0/2020
ZFA4864/105/0/2020
Tutorial letter 105/0/2020
APPLIED FINANCIAL ACCOUNTING II
FAC4864/NFA4864/ZFA4864
Year Module
Department of Financial Governance
IMPORTANT INFORMATION:
This tutorial letter contains important information

about your module.
2 FAC4864/105
NFA4864/105
ZFA4864/105
INDEX Page
Due date 3
Personnel and contact details 3
Prescribed method of study 3
Suggested working programme 4
Learning unit 9 The effects of changes in foreign exchange rates (translation) 5
10 Statement of cash flows 21
11 Integrated reporting 37
Self assessment questions and suggested solutions 43
MJM
3 FAC4864/105
NFA4864/105
ZFA4864/105
DUE DATE
DUE DATE FOR THIS TUTORIAL LETTER: 21 JULY 2020
TEST 4 ON TUTORIAL 105: 28 JULY 2020
PERSONNEL AND CONTACT DETAILS

Personnel Telephone
Number
Lecturers
Mr T Nkwane (Course leader) 012 429-6346
Ms S Aboobaker 012 429-4373
Mr H Combrink 012 429-4792
Mr M Hlongwane 012 429-4713
Ms T Mahuma 012 429-2022
Ms A Oosthuizen 012 429-8971
Ms T van Mourik 012 429-3549
Ms C Wright 012 429-2004
Please send all e-mail queries to: fac4864postgrad@unisa.ac.za
Please use the module telephone number to contact the lecturers: 012 429-4720
PRESCRIBED METHOD OF STUDY

1. Firstly study the relevant chapter(s) in your prescribed textbook so that you master the basic principles
and supplement this with the additional information in the learning unit (where applicable).
2. Read the standards and interpretation(s) covered by the learning unit.
3. Do the questions in the study material and make sure you understand the principles contained in the
questions.
4. Consider whether you have achieved the specific outcomes of the learning unit.
5. After completion of all the learning units - attempt the self assessment questions (open book, but within
the time constraint) to test whether you have mastered the contents of this tutorial letter.
MJM
4 FAC4864/105
NFA4864/105
ZFA4864/105
SUGGESTED WORKING PROGRAMME
JULY 2020
WEDNESDAY THURSDAY FRIDAY SATURDAY SUNDAY MONDAY TUESDAY
15 16 17 18 19 20 21
The effects The effects The effects Statement Statement Do self Do self
of changes of changes of changes of cash of cash assessment assessment
in foreign in foreign in foreign flows flows, questions questions
exchange exchange exchange Integrated
rates rates rates reporting
(translation) (translation) (translation)
MJM
5 FAC4864/105
NFA4864/105
ZFA4864/105
LEARNING UNIT 9 – THE EFFECTS OF CHANGES IN FOREIGN

EXCHANGE RATES (TRANSLATION)
INTRODUCTION
There are multiple currency units in use throughout the world and therefore certain
entities may present financial statements in one currency, while the parent of this entity
may present its financial statements in a different currency. On consolidation, it would not
be possible to consolidate US$ financial statements with Euro financial statements as this
would give rise to non-sensical information. For this reason, financial statements need to
be translated to the same currency unit before being consolidated. IAS 21 deals with this
matter. In addition, stand-alone entities may have a functional currency different from
their presentation currency. Should this be the case, the translation from functional
currency to presentation currency should be performed in terms of this standard.
OBJECTIVES/OUTCOMES
After you have studied this learning unit, you should be able to do the following:
1. Identify the functional currency of a foreign operation.
2. Translate the financial statements of a foreign operation of which the functional

currency differs from the presentation currency of its parent, to the presentation
currency of the parent.
3. Consolidate the translated financial statements of the foreign operation of which the
functional currency differs from the presentation currency of the parent by applying
normal consolidation techniques.
4. Translate the financial statements of a stand-alone foreign operation from its

functional currency to a different presentation currency.
5. Consolidate the financial statements of a foreign operation with the same functional
currency as that of its parent.
6. Account for the changes in degree of control in foreign operations.
7. Disclose the required information in respect of foreign operations in accordance

with IFRS 12 Disclosure of Interests in Other Entities and IAS 21 The Effects of
Changes in Foreign Exchange Rates.
PRESCRIBED STUDY MATERIAL
The following must be studied before you attempt the questions in this learning unit:
1. Group Statements, 17th edition, Volume 2 (Chapter 15).
2. IAS 21 The Effects of Changes in Foreign Exchange Rates.
MJM
6 FAC4864/105
NFA4864/105
ZFA4864/105
THE REST OF LEARNING UNIT 9 IS BASED ON THE ASSUMPTION THAT YOU

HAVE ALREADY STUDIED THE RELEVANT PRESCRIBED STUDY MATERIAL.
SECTION A - SAICA’S PRINCIPLES OF EXAMINATION LEVELS

The SAICA principles of examination levels for IAS 21 are as follows:
Description Paragraph Level Notes

Objective 1–2 Core
Scope 3–7 Core
Definitions 8 – 13; Core
15 – 16
14 Excluded IAS 29 Financial Reporting in
Hyperinflationary Economies is
excluded
Summary of the approach required 17 – 19 Core
by this standard
Reporting foreign currency 20 – 34 Core
transactions in the functional 35 – 37 Excluded Changes in functional currency is
currency excluded
Use of a presentation currency 38 – 41 Core
other than the functional currency 42 – 43 Excluded
44 – 49 Core
Tax effects of all exchange 50 Core
differences
Disclosure 51 – 57 Core
Effective date and transition 58 – 60K Excluded
EXAMPLES
EXAMPLE 1
Subbie Ltd operates in France and is a foreign subsidiary of Pari Ltd, a South African company. The
financial director of Pari Ltd (with a Rand functional currency) has been instructed to determine
whether the functional currency of Subbie Ltd should be Rand or Euro.
The following information relates to the investment in Subbie Ltd:
Subbie Ltd imports all its merchandice from Pari Ltd and then sells the products in France. The
proceeds from the sale of the products are remitted to South Africa three times a week and are
readily available for remittance.
MJM
7 FAC4864/105
NFA4864/105
ZFA4864/105
REQUIRED
Critically assess Subbie Ltd’s functional currency.
EXAMPLE 1 - Suggested solution
The parent/subsidiary relationship between Subbie Ltd and Pari Ltd leads us to the criteria contained
in IAS 21.11. If the following applies, the functional currency of the subsidiary and parent are the
same:
- Subbie Ltd imports all goods from Pari Ltd (South Africa) and proceeds on disposal are remitted
to South Africa on a regular basis. Thus the activities of Subbie Ltd (Foreign subsidiary) are
carried out as an extension of the reporting entity (IAS 21.11(a)).
- In addition, transactions with the reporting entity (all purchases are from Pari Ltd) are a high
proportion of the Subbie Ltd’s activities (IAS 21.11(b)).
- Since the proceeds realised from sale are remitted regularly to South Africa, the cash flows of
Pari Ltd are directly affected by the transactions of Subbie Ltd (IAS 21.11(c)).
Taking the above into account, it can be said that Subbie Ltd should have the same functional
currency - being Rand - as Pari Ltd. Therefore functional currency of Subbie Ltd will be the Rand.
The consolidation of Subbie Ltd and Pari Ltd will be in line with the normal consolidation principles for
Rand denominated companies in South Africa.
EXAMPLE 2
The trial balances of P Ltd and FO Ltd are as follows on 31 December 20.19:
P Ltd FO Ltd
R $
Debits
Loan to FO Ltd 20 000 -

Investment in FO Ltd (60 000 shares) 60 000 -
Land acquired at incorporation - 370 000
80 000 370 000
Credits
Share capital (70 000 ordinary shares) 70 000 -

Share capital (100 000 ordinary shares) - 100 000
Retained earnings 10 000 67 151
Mortgage bond - 200 000
Loan from P Ltd - 2 849
80 000 370 000
P Ltd acquired its interest in FO Ltd on the date of incorporation of FO Ltd and immediately advanced
a loan of R20 000 to FO Ltd. The exchange rate was R7,02 = $1 at that date but changed to R8,00 =
$1 on 31 December 20.19. The loan of P Ltd to FO Ltd is repayable in US$, but settlement is
neither planned nor likely to occur in the foreseeable future. Consequently the loan is part of the
net investment in the subsidiary in accordance with IAS 21.15.
The functional currency and the presentation currency of the parent and subsidiary are not the same,
since FO Ltd is an autonomous self-funding foreign operation (IAS 21.11(a)).
MJM
8 FAC4864/105
NFA4864/105
ZFA4864/105
REQUIRED
Provide the correct journal entry in respect of the loan in the separate financial statements of P Ltd
as well as the pro forma consolidation journals in respect of this loan in the consolidated financial
statements of the P Ltd Group for the year ended 31 December 20.19 (ignore deferred taxation).
EXAMPLE 2 – Suggested solution
Journal in P Ltd’s records

Dr Cr
R R
Loan to FO Ltd (SFP) [(R20 000/R7,02) x (8 - 7,02)] 2 792
Foreign exchange difference (P/L) 2 792
Restatement of loan at closing rate
Pro forma consolidation journals in P Ltd Group
J1 Foreign exchange difference (P/L) 2 792

Foreign currency translation reserve (FCTR) (OCI) 2 792
Transfer exchange difference to FCTR
J2 Loan from P Ltd (SFP) (R20 000 + R2 792) (SFP) 22 792
Loan to FO Ltd (SFP) 22 792
Eliminate the intragroup loan
The functional currency of the subsidiary is US$ and that of the parent is Rand and the loan initially
represented R20 000/R7,02 = $2 849. Consequently the monetary item should be restated to closing
rate at year end using an exchange rate of R8,00 = $1 and therefore an exchange difference of
R2 792 arises.
Since the loan is a part of the net investment in the subsidiary, IAS 21.32 is applied and the exchange
difference is transferred from profit or loss to FCTR, initially recognised in other comprehensive
income, on consolidation.
Note that IAS 21.33 states that this principle would also apply when the loan was repayable in the
functional currency of the parent. In that case however, the exchange difference to be transferred to
FCTR would have been recognised in the profit or loss of the subsidiary and not in the parent’s profit
or loss.
COMMENT
If the loan forming part of the net investment in the subsidiary was in neither the
functional currency of P Ltd nor that of FO Ltd – say Euro, an exchange difference arises
in the reporting entity’s separate financial statements and in the foreign operation’s
separate financial statements and the exchange difference must be accounted for in
those separate financial statements, respectively (in the profit or loss) – IAS 21.28. Such
exchange differences are reclassified to the separate component of equity (FCTR) in the
financial statements that include the foreign operation and the reporting entity (i.e.
financial statements in which the foreign operation is consolidated, proportionately
consolidated or accounted for using the equity method) – IAS 21.33.
MJM
9 FAC4864/105
NFA4864/105
ZFA4864/105
EXAMPLE 3
The trial balances of P Ltd and FO Ltd are as follows on 31 December 20.19:
P Ltd FO Ltd
R $
Debits
Loan to FO Ltd 20 000 -
Investment in FO Ltd (60 000 shares) 60 000 -
Land acquired at incorporation - 370 000
80 000 370 000
Credits
Share capital (70 000 ordinary shares) 70 000 -
Share capital (100 000 ordinary shares) - 100 000
Mortgage bond - 200 000
Loan from P Ltd - 2 574
80 000 370 000
P Ltd acquired its interest in FO Ltd on the date of incorporation of FO Ltd and immediately advanced
a loan of R20 000 to FO Ltd. The exchange rate was R7,77 = $1 at that date but changed to R8,00 =
$1 on 31 December 20.19. The loan of P Ltd to FO Ltd is repayable in US$ and the loan is not part
of the net investment in the subsidiary.
The functional currency and the presentation currency of the parent and subsidiary are not the same,
since FO Ltd is an autonomous self-funding foreign operation.
REQUIRED
Provide the correct journal entry in respect of the loan in the separate financial statements of P Ltd
as well as the pro forma consolidation journals in respect of this loan in the consolidated financial
statements of the P Ltd Group for the year ended 31 December 20.19 (ignore deferred taxation).
Journal in P Ltd’s records

Dr Cr
R R
Loan to FO Ltd (SFP) [(R20 000/R7,77) x (R8 – R7,77)] 592

Foreign exchange difference (P/L) 592
Restatement of loan at closing rate
Pro forma consolidation journals in P Ltd Group
Loan from P Ltd (SFP) (R20 000 + R592) 20 592

Loan to FO Ltd (SFP) 20 592
Eliminate the intragroup loan
The functional currency of the subsidiary is US$ and that of the parent is Rand and the loan initially
represented R20 000/R7,77 = $2 574. Consequently the monetary item should be restated to closing
rate at year end using an exchange rate of R8,00 = $1 and therefore an exchange difference of R592
arises. The exchange difference is a gain, as P Ltd will now receive a higher Rand amount when the
loan is settled.
Since the loan is not part of the net investment in the subsidiary, IAS 21.32 is not applied and the
exchange difference remains in profit or loss at consolidation and is not transferred to FCTR.
MJM
10 FAC4864/105
NFA4864/105
ZFA4864/105
EXAMPLE 4
Assume that the functional currency of Parent Ltd is the Rand (R), while the exchange rate of the
country in which Foreign Operation Ltd (FO Ltd) (a subsidiary of Parent Ltd) is situated and registered
for tax purposes, is FC (FC = foreign currency).
At the beginning of the year a property, plant and equipment (PPE) item was acquired by FO Ltd for
FC540 000, when the R/FC exchange rate was R1 = FC10. This asset has an expected useful life of
five years and a residual value of Rnil for accounting purposes. For tax purposes, the asset is written
off over three years and the ruling tax rate in the country of FO Ltd is 28%. At year end the exchange
rate in the country of FO Ltd is R1 = FC8. Assume that the parent does not have a similar asset
class.
REQUIRED
Assuming that the foreign operation is an extension of the business of the parent, provide the
calculations of the carrying amount and deferred tax balance related to the PPE-item in the
consolidated financial statements.
R
Carrying amount
Cost (FC540 000/10) 54 000
Depreciation (FC540 000/5/10) (10 800)
Carrying amount of PPE-item in the consolidated statement of financial position
at end of Year 1 43 200
The above implies that this non-monetary asset will be accounted for using the exchange rate at
transaction date, as per IAS 21.23(b), and that this amount will not be restated to the closing rate at
each year end. Because the foreign entity is an extension of the business of the parent, the
functional currency of FO Ltd is deemed the same as Parent Ltd’s functional currency.
FC
Tax base (to be converted at R1 = FC8, the closing rate)
Cost 540 000
Tax allowance (540 000/3) (180 000)
Tax base at end of Year 1 360 000
Rand value at closing rate end of Year 1 (360 000/8) R45 000
R
Deferred tax balance in the consolidated statement of financial position
Deductible temporary difference (R43 200 – R45 000) 1 800
Deferred tax asset (1 800 x 28%) 504
Since the tax base of the asset is a monetary item, it will be translated to Rand using the closing
exchange rate at year end as per IAS 21.23(a).
As the Rand has deteriorated against the FC (you initially needed FC10 to buy a Rand and now you
only need FC8), the tax base will exceed the carrying amount of the PPE-item, and a deferred tax
asset will arise on consolidation. If the Rand improved against the FC to R1 = FC12, a deferred tax
liability would have arisen [(R43 200 - (360 000/12)) x 28%] = R3 696 cr.
MJM
11 FAC4864/105
NFA4864/105
ZFA4864/105
EXAMPLE 5
Refer to the information in Example 4 above.
REQUIRED
Assuming that the foreign operation is an autonomous operation, provide the calculations of the
carrying amount and deferred tax balance related to the PPE-item in the consolidated financial
statements.
FC
Carrying amount
Cost 540 000
Depreciation (540 000/5) (108 000)
Carrying amount at historical cost in FO Ltd’s statement of financial position
at end of Year 1 432 000
Tax base in FC
Cost 540 000
Tax allowance (540 000/3) (180 000)
Tax base at end of Year 1 in FO Ltd’s tax records 360 000
Deferred tax balance in the statement of financial position of FO Ltd

Taxable temporary difference (FC432 000 – FC360 000) 72 000
Deferred tax liability (72 000 x 28%) 20 160
R
Carrying amount of PPE-item in consolidated statement of financial position
(432 000/8) 54 000
Deferred tax liability in consolidated statement of financial position (20 160/8) 2 520
As FO Ltd (the foreign operation) is an autonomous foreign operation, the assets and liabilities of this
subsidiary should be translated at closing rate on consolidation at year end (IAS 21.39(a)).
Since the tax base of the asset is a monetary item, it will also be translated to Rand using the closing
rate.
Therefore, at year end, both the carrying amount and the tax base will be translated at closing rate,
providing a deferred tax liability on consolidation that is equal to the deferred tax liability in the foreign
currency (FC 20 160), translated at closing rate (FC8).
MJM
12 FAC4864/105
NFA4864/105
ZFA4864/105
COMMENT
IFRS 3 adjustments
Assets and liabilities that are created or that require a fair value adjustment at the
acquisition date in terms of IFRS 3, will be accounted for in pro forma journal entries if it
was not accounted for in the separate records of the acquiree (refer to Learning unit 2,
Business combinations, in Tutorial Letter 102). Therefore, these adjustments that have
not been made in the separate records of the acquiree will also require FCTR
adjustments at group level, since it was not automatically converted to the closing rate
upon consolidation. Refer to Chapter 15 in Group Statements, Volume 2 for additional
examples.
MJM
13 FAC4864/105
NFA4864/105
ZFA4864/105
SECTION B - QUESTION ON FOREIGN OPERATIONS
QUESTION 9.1 (40 marks – 60 minutes)
Lewis Ltd, a South African company with a functional currency of Rand, purchased 80% of
Hamilton Ltd on 1 July 20.18 for $600 000, at which date the fair value of the net assets of
Hamilton Ltd was $700 000. Lewis Ltd had control of Hamilton Ltd from this date. The fair value of the
net assets exceeded the carrying value of the net assets by $60 000, as a result of a fair value
adjustment of $75 000 relating to a piece of land. Hamilton Ltd did not revalue its land at the date of
acquisition. Deferred tax at the applicable foreign tax rate of 20% was taken into account.
Hamilton Ltd has a functional currency of US$. There have been no impairment losses relating to
goodwill.
The purchase consideration was paid with $500 000 in cash and the issue of 50 000 ordinary shares
of Lewis Ltd. Lewis Ltd had to pay R100 000 transaction costs for the issue of the shares that was
included in the proceeds of the share issue. Prior to the issue of these shares Lewis Ltd had 100 000
issued ordinary shares, which were originally issued at R10 a share.
Movements in retained earnings are as follows:
Lewis Hamilton
Ltd Ltd
R $
Balance 1/7/20.18 320 000 -
Profit 20.19 350 000 130 000
Profit 20.20 845 000 180 000
Dividend 31/8/20.19 - (30 000)
Dividend 31/5/20.20 (110 000) -
Balance 30/6/20.20 1 405 000 280 000
Additional information
1. No dividends were paid in 20.19. Assume that profits were earned evenly throughout the
financial year to which they relate.
2. The only other movement in equity of Hamilton Ltd that took place after acquisition relates to
the revaluation of the land referred to above. Hamilton Ltd revalued the land by $100 000 on
31 December 20.19, and provided deferred tax at the applicable foreign tax rate of 20%.
3. No gains or losses of Lewis Ltd were taken directly to equity.
4. The group policy is to transfer the revaluation surplus to retained earnings when they are
realised.
5. Lewis Ltd disposed of all its shares in Hamilton Ltd on 30 June 20.20 for an amount of
$1 050 000. Lewis Ltd accounts for investments in subsidiaries at cost in its separate financial
statements in terms of IAS 27.10(a).
6. Lewis Ltd has elected to measure non-controlling interests at the proportionate share of the
acquiree’s identifiable net assets at the acquisition date.
MJM
14 FAC4864/105
NFA4864/105
ZFA4864/105
7. Lewis Ltd and Hamilton Ltd both have a financial year end of 30 June.
8. The applicable exchange rates are as follows:

1$ : R
1/7/20.18 10,00
Average 20.19 8,00
30/6/20.19 7,00
Average 20.20 6,80
31/8/20.19 6,97
31/12/20.19 6,50
30/6/20.20 6,00
REQUIRED
Marks
Prepare the consolidated statement of profit or loss and other comprehensive income and 39
the consolidated statement of changes in equity of the Lewis Ltd Group for the year ended
30 June 20.20. Start your answer with “PROFIT FOR THE YEAR”.
Communication skills: Presentation and layout 1
Please note:
• Comparative figures are required.

• Earnings per share and dividend per share are not required.
• Round off all amounts to the nearest thousand Rand.
• Your answer must comply with International Financial Reporting Standards (IFRS).
MJM
15 FAC4864/105
NFA4864/105
ZFA4864/105
QUESTION 9.1 - Suggested solution
LEWIS LTD GROUP
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 JUNE 20.20
20.20 20.19
R'000 R'000
PROFIT FOR THE YEAR [C4] 154 1 390 (10)

Other comprehensive income
Items that will not be reclassified to profit or loss:
Gains on property revaluation [C1] 163 - (1)
Income tax relating to property revaluation (33) - (1)
130 -
Items that may be reclassified subsequently to profit
or loss:
Exchange differences on translating foreign operations
(955 + 40) [C1]; (2 230 + 120) [C1] (995) (2 350) (5)
Foreign currency translation reserve released [C3] 2 708 - (1)
1 713 (2 350)
Other comprehensive income for the year, net of tax 1 843 (2 350)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1 997 (960)
Profit attributable to:

Owners of the parent (balancing figures) (91) 1 182 (1)
Non-controlling interests [C1] 245 208 (1)
154 1 390
Total comprehensive income attributable to:

Owners of the parent (balancing figures) 1 917 (722) (1)
Non-controlling interests
(245 + 33 – 7 – 191) [C1]; (208 – 446) 80 (238) (3)
1 997 (960)
(24)
MJM
16 FAC4864/105
NFA4864/105
ZFA4864/105
LEWIS LTD GROUP
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED

30 JUNE 20.20
Reva-
Share luation Retained Total
capital FCTR surplus earnings Total NCI equity
R’000 R’000 R’000 R’000 R’000 R’000 R’000
Balance at 1/7/20.18 1 000 - - 320 1 320 - 1 320 (2)
Changes in equity for
20.19
Shares issued1 900 - - - 900 - 900 (2)
Subsidiary acquired
[C1]2 - - - - - 1 400 1 400 (1)
Total comprehensive
income for the year3 - (1 904) - 1 182 (722) (238) (960)
- Profit for the year4 - - - 1 182 1 182 208 1 390 (1)
- Other comprehensive
income5 - (1 904) - - (1 904) (446) (2 350) (2)
Balance at 30/6/20.19 1 900 (1 904) - 1 502 1 498 1 162 2 660
Changes in equity for
20.20
Total comprehensive
income for the year - 1 904 104 (91) 1 917 80 1 997
- Profit for the year6 - - - (91) (91) 245 154 (1)
- Other comprehensive
income7 - 1 904 104 - 2 008 (165) 1 843 (2)
Dividends8 - - - (110) (110) (42) (152) (2)
Subsidiary sold9 - - - - - (1 200) (1 200) (1)
Revaluation surplus
released10 - - (104) 104 - - - (1)
Balance at 30/6/20.2011 1 900 - - 1 405 3 305 -3 305 (15)
Total (39)
Communication skills: Presentation and layout (1)
EXPLANATORY COMMENTS
1. Lewis Ltd issued 50 000 ordinary shares in order to make up the difference of
$100 000 between the consideration of $600 000 and the $500 000 that was paid in
cash. Therefore the issue of shares worth $100 000 amounted to R1 000 000 by
using the exchange rate at acquisition date. The R100 000 transaction costs are
deducted from the proceeds of R1 000 000, resulting in the share issue of
R900 000.
2. Non-controlling interests (NCI) balance at the beginning of the year was zero - NCI
is credited when the subsidiary is acquired and debited when the subsidiary is sold.
The NCI will be 20% of all the movements in equity of the subsidiary. Note that the
NCI is shown as a separate balance, being the share of net assets and is not
disclosed as retained earnings, FCTR etc.
3. Total comprehensive income include all amounts recognised in the consolidated

statement of profit or loss and other comprehensive income. This will include FCTR
plus any revaluation surplus. Dividends are a distribution of profits and are
therefore not included in the calculation. IAS 1 requires that comprehensive income
be allocated between profit or loss and other comprehensive income.
MJM
17 FAC4864/105
NFA4864/105
ZFA4864/105
EXPLANATORY COMMENTS
4. Profit for the year [C4] is translated using the average exchange rate [(1 040 x 0,8)
+ 350].
5. Group FCTR = 1 904 (1 784 + 120) [C1].
6. Profit for the year attributable to the parent and to NCI is transferred from the
consolidated statement of profit or loss and other comprehensive income.
7. The debit movement in FCTR of R804 ((764 + 40) [C1]) was eliminated by the
release of the FCTR with the disposal of the subsidiary of R2,708m (included in the
consolidated loss recognised in P/L), but total equity should not be affected as it is
a reclassification from one category of equity (FCTR) to another (retained
earnings). Total equity changes when the FCTR arises, not when it is released to
profit (reclassification within equity through other comprehensive income).
The revaluation surplus is calculated at the date of revaluation by translating the

revaluation surplus with the exchange rate at the date of revaluation. As the asset
prior to the revaluation and after the revaluation will be translated at the same
exchange rate, the revaluation surplus in Rands can be cancelled by translating the
foreign exchange reserve at the rate at the date of revaluation. (Note that when the
subsidiary’s functional currency is the same as the parent, the asset prior to the
revaluation surplus is translated at the historic rate, and after the revaluation, at the
rate at the date of the revaluation. The revaluation surplus then needs to be
translated to Rands, by comparing the Rand value of the asset prior and after the
revaluation).
8. Dividends would include only those of the parent and the amounts applicable to
NCI in the subsidiary. The group’s share of the subsidiary’s dividends is eliminated
from the group profit - see [C4].
9. The profit on the sale of the subsidiary has been included in the group profit. An
amendment to the total equity is required as a result of no longer consolidating the
subsidiary and as a result NCI should be derecognised. The adjustment has no
impact on the equity attributable to the equity holders of the parent.
10. The release of the revaluation surplus has no impact on total equity - it is a
reclassification from one type of equity to another. The treatment differs from that
relating to the FCTR, as the FCTR was reclassified to profit or loss.
11. The balance after the sale of the subsidiary is the retained earnings of the parent
i.e. R1 405 000.
MJM
18 FAC4864/105
NFA4864/105
ZFA4864/105
CALCULATIONS
C1. Analysis of the owners’ equity of Hamilton Ltd
Lewis Ltd
= 80%
Total Good-
US$ will Rate Total At Since NCI
R’000 R’000 1$ = R R’000 R’000 R’000 R’000
At acquisition
Fair value of net assets on
1/7/20.18a 700 10,00 7 000 5 600 1 400
Equity represented by
goodwill (balancing)b 40 10,00 400 400 -
Consideration ($600 x 10) 700 40 7 400 6 000 1 400
Since acquisition until

beginning of year
Retained earnings (20.19) 130 8,00 1 040 832 208
830 40 8 440 832 1 608
FCTR – goodwill
[40 x (7- 10)] (120) (120) -
FCTR – excluding goodwillc
(balancing figures) (2 230) (1 784) (446)
Total equity – 30/6/20.19 830 40 7,00 6 090 6 000 (1 072) 1 162
Current year
Profit (20.16) 180 6,80 1 224 979 245
Revaluation surplus
– grossd 25 6,50 163 130 33
Revaluation surplus – tax
(25 x 20%) (5) 6,50 (33) (26) (7)
Dividends (30) 6,97 (209) (167) (42)
1 000 40 7 235 6 000 (156) 1 391
FCTR – goodwill
[40 x (6 – 7)] (40) (40) -
FCTR – excluding good-
will (balancing figures) (955) (764) (191)
Total equity 30/6/20.20 1 000 40 6,00 6 240 6 000 (960) 1 200
Loss of control over
subsidiary:
Derecognition of assets
and liabilities
[IFRS 10.B98] (1 000) (40) (6 240) (6 000) 960 (1 200)
- - - - - -
COMMENT
a
Total fair value of net assets given which includes the fair value adjustment of the land
of $75 000.
b
The FCTR on goodwill is 100% attributable to the group, as no goodwill have been
allocated to NCI as NCI is measured at the proportionate share of net assets.
c
The movement in FCTR (excluding goodwill) is the balancing figure in each column,
after the total equity or net asset value at year end is restated to the closing rate
[((830 + 40) x R7) = 6 090], and thereafter the FCTR on the goodwill is separately
calculated.
d
Hamilton Ltd revalued the land at fair value to $100 000 in their accounts. However,
$75 000 is already included in the opening balance at acquisition on group level, thus
only $25 000 is recognised.
MJM
19 FAC4864/105
NFA4864/105
ZFA4864/105
C2. Profit on sale of shares – Lewis Ltd’s separate financial statements

R’000
Proceeds on sale of shares ($1 050 x 6) 6 300 [1]

Investment in Hamilton Ltd ($600 x 10) (6 000) [1]
Profit on sale 300 [2]
COMMENT
The shares were accounted for at cost in the financial statements of Lewis Ltd. The profit
on sale is therefore the difference between the proceeds on sale (translated at spot rate
at the time of sale) and the cost of the investment (translated at spot rate at the date of
acquisition as it is a non-monetary asset).
C3. Profit on sale of shares – Lewis Ltd Group

R’000
Proceeds on sale of shares ($1 050 x 6) 6 300 [1]
Carrying amount of equity of Hamilton Ltd (5 840 [C1] – 800 [C1]) (5 040) [2]
Recycle FCTR attributable to Hamilton Ltd to P/L
(1 784 + 120 + 764 + 40) [C1] (2 708) [2]
Consolidated loss on sale (1 448) [5]
OR
Consolidated gain/loss on disposal [IFRS 10.B98]

R’000
Derecognise assets and liabilities (incl goodwill) (6 240)
Derecognise NCI 1 200
Fair value of consideration received ($1 050 x 6) 6 300
Recycle FCTR attributable to Hamilton Ltd to P/L (2 708)
Consolidated loss on sale (1 448)
COMMENT
From a group perspective, the profit on sale is the total of:

- Difference between the proceeds on sale of R6,3m ($1 050 000 x 6) and the
carrying amount at the date of disposal. The carrying amount at the date of disposal
is the attributable portion of the net asset value at the date of sale R4,8m
(1 000’ x 6 x 80%) and the goodwill recognised as at 30 June 20.16 of R240’
(400’ – 120’ – 40’), which equals a total of R5,04m and therefore the difference is
R1,26m (6,3m – 5,04m).
- The foreign currency translation reserve attributable to the investment needs to be
taken into account in the gain or loss on disposal. The foreign currency translation
reserve will have a debit balance of R2,708m (1 784’ + 764’ + 120’ + 40’), which is
the group’s share of the effect of the strengthening of the Rand since the date of
acquisition on the net asset value of the subsidiary and the goodwill.
- Overall a loss on sale of R1,448m (2,708m - 1,26m) will be recognised.
MJM
20 FAC4864/105
NFA4864/105
ZFA4864/105
C4. Group profit for the period

30/6/20.20 30/6/20.19
R’000 R’000
Profit of Lewis Ltd (given) 845 350 [½]

Less: Dividends from Hamilton Ltd (30 000 x 0,8 x R6,97)
[C1] (167) [1½]
Profit on sale of shares [C2] (300)
Consolidated loss on sale of shares [C3] (1 448)
Profit of Hamilton Ltd
($180 000 x R6,80); ($130 000 x R8,00) 1 224 1 040 [1]
154 1 390 [3]
COMMENT
Intragroup dividends received from Hamilton Ltd of $30 000 were included in the profit for
the year of Lewis Ltd, thus eliminated from profit on consolidation.
MJM
21 FAC4864/105
NFA4864/105
ZFA4864/105
LEARNING UNIT 10 – STATEMENT OF CASH FLOWS
INTRODUCTION
An entity and group should prepare a statement of cash flows in accordance with the
requirements of IAS 7 and should present it as an integral part of its financial statements
for each period for which financial statements are presented. Information about the cash
flow of the entity provides users of financial statements with a basis to assess the ability
of the entity to generate cash and cash equivalents and the needs of the entity to utilise
those cash flows.
OBJECTIVES/OUTCOMES
After you have studied this learning unit, you should be able to do the following:
1. Define cash and cash equivalents.
2. Define and distinguish between cash flows from operating activities, investing
activities and financing activities.
3. Distinguish between the direct method and indirect method of accounting for cash
flows from operating activities, and apply it in the preparation of the consolidated
statement of cash flows.
4. The measurement and disclosure of cash flows from foreign currency.
5. The measurement and disclosure of cash flows from investments in subsidiaries,

associates and joint ventures.
6. The measurement and disclosure of cash flows from acquisitions and sale of
subsidiaries and other business units.
7. Disclosure of non-cash flow transactions.
8. Disclose cash flow information in the financial statements.
The following must be studied before you attempt the question in this learning unit:
1. Group Statements, 17th edition, Volume 2 (Chapter 16).
2. IAS 7 Statement of Cash Flows.
MJM
22 FAC4864/105
NFA4864/105
ZFA4864/105


The SAICA principles of examination levels for IAS 7 are as follows:

Objective Core
Scope 1–3 Core
Benefits of cash flow information 4–5 Core
Definitions 6–9 Core
Presentation of a statement of 10 – 17 Core Statement of cash flows report cash flows
cash flows from:
• Operating activities
• Investing activities
• Financing activities
Reporting cash flows from 18 – 20 Core Report cash flows from operating
operating activities activities using either:
Direct method
• Disclose major classes of gross cash
receipts and gross cash payments
Indirect method
• Profit or loss is adjusted for non-cash
transactions, any deferrals or accruals
of past or future operating cash
receipts or payments, and items of
income or expense associated with
financing or investing cash flows.
Reporting cash flows from 21 Core
investing and financing activities
Reporting cash flows on a net 22 – 24 Core
basis
Foreign currency cash flows 25 Core
26 Awareness Treatment of foreign operations in a
statement of cash flow are at an
awareness level only
27 – 28 Core
Interest and dividends 31 – 34 Core
Taxes on income 35 – 36 Core
Investments in subsidiaries, 37 – 38 Core
associates and joint ventures
Changes in ownership interests 39 – 42B Core
in subsidiaries and other
businesses
Non-cash transactions 43 – 44 Core
MJM
23 FAC4864/105
NFA4864/105
ZFA4864/105

Changes in liabilities arising 44A – 44E Core
from financing activities
Components of cash and cash 45 – 47 Core
equivalents
Other disclosures 48 – 50(c) Core
50(d) Excluded
51 Core
52 Excluded
Effective date and transition 53 – 61 Excluded
SECTION B – QUESTION ON STATEMENT OF CASH FLOWS

QUESTION 10.1 (55 marks - 83 minutes)
Dance Ltd is a manufacturing company listed on the JSE Limited. The company has interests in
various subsidiaries and has a 31 December year end. The following information relates to the
Dance Ltd Group:
DANCE LTD GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20.19
20.19 20.18
R R
ASSETS
Non-current assets
Land at valuation 1 941 413 1 632 300
Plant and equipment at cost less accumulated depreciation 2 528 000 2 143 500
Investments in associates 345 000 335 000
Investment in Ballet Ltd at fair value - 190 000
Goodwill 52 000 52 000
4 866 413 4 352 800
Current assets
Inventory 960 800 957 200
Trade receivables 1 055 900 1 040 200
Cash and cash equivalents 203 800 66 510
Non-current assets held for sale 72 000 -
2 292 500 2 063 910
Total assets 7 158 913 6 416 710
MJM
24 FAC4864/105
NFA4864/105
ZFA4864/105
20.19 20.18
R R
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital (2 200 000 shares; 2 000 000 shares) 2 307 500 2 000 000
Foreign currency translation reserve - 36 000
Mark-to-market reserve - 65 082
Revaluation surplus 115 000 50 000
Retained earnings 1 856 750 992 518
4 279 250 3 143 600
Non-controlling interests 343 325 23 210
Total equity 4 622 575 3 166 810
Non-current liabilities
Long-term loan - 700 000
Deferred tax 59 538 44 200
Total non-current liabilities 59 538 744 200
Current liabilities
Trade payables 2 438 700 2 444 000
Shareholders for dividends 4 200 5 000
Tax payable 33 900 56 700
Total current liabilities 2 476 800 2 505 700
Total liabilities 2 536 338 3 249 900
Total equity and liabilities 7 158 913 6 416 710
DANCE LTD GROUP
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 20.19
R
Revenue 4 500 200
Cost of sales (1 925 000)
Gross profit 2 575 200
Other expenses (874 400)
Finance costs (250 600)
Share of profit of associates 14 000
Profit before tax 1 464 200
Income tax expense (435 800)
PROFIT FOR THE YEAR 1 028 400
Other comprehensive income ?

TOTAL COMPREHENSIVE INCOME FOR THE YEAR ?

Owners of the parent 840 400
Non-controlling interests 188 000
1 028 400

Owners of the parent ?
Non-controlling interests ?
?
MJM
25 FAC4864/105
NFA4864/105
ZFA4864/105
The following additional information have already been taken into account in the financial
statements above
1. Included in other expenses in the consolidated profit before tax of the Dance Ltd Group are the
following:
R
Depreciation on plant and equipment 480 000

Unrealised exchange gain on foreign debtors (127 000)
Realised exchange loss on long-term loan 115 000
Other expenses are furthermore shown net of any other income, reclassification adjustments
and/or profit which may be forthcoming from the additional information below.
2. Investment in Ballet Ltd
Dance Ltd acquired 100 000 shares in Ballet Ltd on 2 January 20.18 for a cash amount of
R110 000 when the equity of Ballet Ltd was as follows:
R
Share capital (1 000 000 shares) 1 000 000

Retained earnings 100 000
Dance Ltd purchased another 500 000 shares in Ballet Ltd for a cash amount of R1 225 000 on
1 January 20.19. On this date, Dance Ltd obtained control over Ballet Ltd. The fair value of the
plant and equipment (the only asset/liability of Ballet Ltd) was R2 500 000 on that date.
3. Investment in Hip-Hop Ltd
Dance Ltd acquired a 60% interest in Hip-Hop Ltd on 1 January 20.18. On this date, Dance Ltd
obtained control over Hip-Hop Ltd. Hip-Hop Ltd is incorporated in Go-Go land and has a
functional currency of FC. No goodwill arose at acquisition date.
Dance Ltd sold its entire interest in Hip-Hop Ltd on 1 October 20.19 for R1 366 920. On this
date, Dance Ltd lost control over Hip-Hop Ltd. The exchange rate was FC1 = R17,28 on
1 October 20.19.
Particulars of the net assets of Hip-Hop Ltd at 1 October 20.19 were as follows:
FC
Plant and equipment 105 000
Trade receivables 52 500
Bank overdraft (30 000)
127 500
An amount of R7 980 regarding the foreign exchange rate gain in the current year on this
investment has been allocated to the non-controlling interests. It may be assumed that the
movement in the foreign currency translation reserve (FCTR) is attributable to plant and
equipment only.
Hip-Hop Ltd was the only foreign operation of Dance Ltd.
MJM
26 FAC4864/105
NFA4864/105
ZFA4864/105
4. The minutes of the directors’ meeting of Dance Ltd held on 1 January 20.19 confirm that the
management decision to discontinue the operations of the packaging department of Dance Ltd
was ratified with effect from 1 January 20.19. The decision was announced on this date. The
packaging department specialises in the distribution of packaging and has always been a
material division of Dance Ltd. The division was separately identifiable for physical, operational
and financial reporting purposes.
The operations of the packaging department were discontinued on 31 August 20.19. The
enforcement of the formal plan to end operations had a material influence on the packaging
department for the period 1 January 20.19 to 31 August 20.19. An extract of the financial
statements prepared by management for the packaging department for the eight months ending
31 August 20.19 were as follows:
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE

EIGHT MONTHS ENDED 31 AUGUST 20.19
R
Revenue 483 000
Cost of sales (246 000)
Gross profit 237 000
Loss before tax (417 000)
Taxation relief – current 166 500
LOSS AFTER TAX (250 500)
STATEMENT OF FINANCIAL POSITION ITEMS AS AT 31 AUGUST 20.19
31/8/20.19 31/12/20.18
R R
Inventory - 370 500
Trade receivables - 579 000
Trade payables - (393 000)
The above statement of profit or loss and other comprehensive income figures of the packaging
department are included in the applicable profit or loss categories in the statement of profit or
loss and other comprehensive income of Dance Ltd. All losses incurred by the packaging
department are deductible for tax purposes.
5. Interest earned on an investment amounted to R146 900 for the year and is included in other
expenses. Included in finance costs is an amount of R143 000 which was still outstanding on
31 December 20.19.
6. Dance Ltd classified plant, with a carrying amount of R78 000, as held for sale on
31 December 20.19. This was the only asset classified as such by the group. No plant or
equipment was disposed of during the year.
7. The only companies in the group that own land is Dance Ltd and Funky Ltd, a subsidiary in
which Dance Ltd has an 80% interest and control over. Both these companies revalued their
land during the 20.19 financial year. The land of Funky Ltd increased in value with R90 000
during 20.19. Neither party disposed of any land during the year.
MJM
27 FAC4864/105
NFA4864/105
ZFA4864/105
8. Dance Ltd declared a dividend of R41 250 for the year ended 31 December 20.19.
9. It may be assumed that no impairment relating to goodwill has taken place.
10. Apart from movements that are clearly evident from the information above, no disposals or
acquisitions of investments took place during the year.
11. Dance Ltd elected to measure non-controlling interests for all acquisitions at the proportionate
share of the net asset value.
12. Cash flows from dividends and interest paid and received are classified as operating activities.
13. It is the accounting policy of Dance Ltd to account for investments in subsidiaries at cost in
accordance with IAS 27.10(a) in its separate financial statements.
14. Dance Ltd irrevocably elected to present any subsequent changes in the fair value of their
investments in equity instruments in other comprehensive income in a mark-to-market reserve
in terms of IFRS 9 Financial Instruments.
15. Assume a normal income tax rate of 28% and a capital gains tax inclusion rate of 80%. Ignore
the effects of Value Added Tax (VAT) and Dividend Tax.
REQUIRED
Marks
Prepare the consolidated statement of cash flows of the Dance Ltd Group for the year 54
ended 31 December 20.19 according to the direct method.
Communications skills: Presentation and layout 1
Please note:
• Comparative figures and notes to the consolidated statement of cash flows are not
required.
• Round off all amounts to the nearest Rand.
MJM
28 FAC4864/105
NFA4864/105
ZFA4864/105
QUESTION 10.1 - Suggested solution
DANCE LTD GROUP
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 20.19
Continuing Discon- Total

tinued
R R R
Cash flows from operating activities
Cash receipts from customers [C1] 2 642 300 (4) 1 062 000 3 704 300 (1)
Cash payments to suppliers and employees [C2] (1 879 670) (14) (922 500) (2 802 170) (2)
Cash generated by operations 762 630 139 500 902 130
Interest paid [C3] (107 600) (1) (107 600)
Dividends paid [C9] (50 603) (8) (50 603)
Income taxes paid [C5] (632 557) (8) 166 500 (466 057) (1)
Dividends received [C10] 4 000 (2) 4 000
Interest received (given) 146 900 (½) 146 900
Net cash from operating activities 122 770 306 000 428 770
Cash flows from investing activities

Acquisition of property, plant and equipment
(207 350 [C6] + 236 950 [C7]) (444 300) (7)
Acquisition of subsidiary (given) (1 225 000) (½)
Proceeds on disposal of subsidiary *
(1 366 920 + (30 000 x R17,28)) 1 885 320 (2)
Net cash from investing activities 216 020
Cash flows from financing activities

Proceeds from issue of share capital
(2 307 500 – 2 000 000) 307 500 (1)
Loan repaid (700 000 + 115 000) (815 000) (1)
Net cash used in financing activities (507 500)
Net increase in cash and cash equivalents 137 290

Cash and cash equivalents at beginning of period 66 510 (½)
Cash and cash equivalents at end of period 203 800 (½)
(54)
Communication skills: presentation and layout (1)
COMMENT
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations requires an entity
to disclose the net cash flows attributable to the operating, investing and financing
activities of discontinued operations. These disclosures may be presented either in the
notes or on the face of the statement of cash flows. Refer to IFRS 5.33(c).
In this question the notes to the consolidated statement of cash flows were not required,
therefore the allocation between continuing and discontinued operations must be
presented on the face of the statement of cash flows.
* Where a subsidiary is acquired or sold during the year and control is lost or acquired,
it will be classified under investing activities (IAS 7.39).
MJM
29 FAC4864/105
NFA4864/105
ZFA4864/105
EXAM TECHNIQUE
Remember that the illustrative examples in IFRS Part B2 (IAS 7IE) contains the standard
format and presentation of a statement of cash flow.
CALCULATIONS
EXAM TECHNIQUE
An alternative method of calculating the cash flows is by means of T-accounts.
C1. Cash receipts from customers
Continuing
Trade receivables – opening balance (1 040 200 – 579 000) 461 200 [1]
– closing balance (given) (1 055 900) [½]
Foreign exchange gain (given) 127 000 [1]
Revenue (4 500 200 – 483 000) 4 017 200 [½]
Disposal of subsidiary (52 500 x R17,28) (907 200) [1]
2 642 300
[4]
Discontinued
Trade receivables – opening balance (given) 579 000 [½]
Revenue (given) 483 000 [½]
1 062 000
[1]
COMMENT
As the consolidated statement of profit or loss and other comprehensive income and the
consolidated statement of financial position were presented without an allocation
between continuing and discontinued operations, the balances of the discontinued
operations must be deducted from the total balances in order to calculate the results of
the continuing operations.
MJM
30 FAC4864/105
NFA4864/105
ZFA4864/105
C2. Cash paid to suppliers and employees
Continuing
Cost of sales (1 925 000 – 246 000) (1 679 000) [1]
Other expenses (874 400 + 146 900 – 654 000) (367 300) [2]
Non-cash items:
Depreciation (non-cash) (given) 480 000 [½]
Exchange gain on debtors (non-cash) (given) (127 000) [½]
Exchange loss on long-term loan (financing activity) (given) 115 000 [½]
Gain on bargain purchase [1 225 000 + 190 000 – (60% x 2 500 000)] (85 000) [2]
Impairment loss on held for sale asset (non-cash) (78 000 – 72 000) 6 000 [1]
Profit on disposal of subsidiary [1 366 920 – (60% x 127 500 x 17,28)] (45 000) [2]
Reclassification adjustment of FCTR [36 000 + (7 980 / 40% x 60%)] (47 970) [2]
Movements in working capital:

Inventory [960 800 - (957 200 – 370 500)] (374 100) [1]
Trade payables – opening balance (2 444 000 – 393 000) (2 051 000) [½]
– closing balance
(2 438 700 – 143 000 (finance costs)) 2 295 700 [1]
(1 879 670)
[14]
Discontinued
Cost of sales (given) (246 000) [½]
Other expenses (given) (654 000) [½]
Movements in working capital:

Inventory – opening balance (given) 370 500 [½]
Trade payables – opening balance (given) (393 000) [½]
(922 500)
[2]
EXAM TECHNIQUE
In this scenario, the profit on disposal of subsidiary of R45 000 was not a complex
calculation. The amount can also be calculated in terms of IFRS 10.B98:
R
Derecognise assets and liabilities (including goodwill)
[(127 500 x R17,28) + 0 (goodwill)] (2 203 200)
Derecognise non-controlling interests (2 203 200 x 40%) 881 280
Fair value of consideration received 1 366 920
Fair value of remaining interest -
45 000
MJM
31 FAC4864/105
NFA4864/105
ZFA4864/105
COMMENT
“Other expenses” are adjusted for non-cash items (such as allowances for credit losses,
foreign exchange differences that have not yet realised, depreciation, impairment losses)
and items that require separate disclosure on the face of the statement of cash flows (i.e.
dividends), in order to determine cash amounts paid. You are encouraged to read the
scenarios very carefully to determine what amounts are included in “Other expenses”.
When control is lost, any FCTR recognised in OCI in relation to the subsidiary sold
(R47 970) should be reclassified to P/L. This is a non-cash item and should thus not be
taken into account when calculating cash paid to suppliers and employees and therefore
it is reversed.
C3. Interest paid
Finance costs (given) (250 600) [½]

Finance costs outstanding at year end (given) 143 000 [½]
(107 600)
[1]
C4. Revaluation surplus of Dance Ltd
Revaluation surplus – opening balance (given) 50 000 [½]

– closing balance (given) (115 000) [½]
Revaluation by Funky Ltd
[(90 000 x 80%) – (90 000 x 80% x 80% (CGT rate) x 28%)] 55 872 [2]
Post-tax revaluation of Dance Ltd (9 128)
[3]
COMMENT
The revaluation of R9 128 is net of tax. The gross amount is thus R11 763
[R9 128/(1 – (80% x 28%))]. The tax effect is R2 635 (R11 763 x 28% x 80%).
T-accounts for these calculations are as follows:
Revaluation surplus
Opening balance 50 000
Funky Ltd revaluation [C4] 55 872
Dance Ltd revaluation
Closing balance 115 000 (balancing) 9 128
115 000 115 000
Deferred tax liability

Deferred tax in P/L (balancing) 7 457 Opening balance 44 200
Funky Ltd revaluation [C5] 20 160
Closing balance 59 538 Dance Ltd revaluation [C5] 2 635
66 995 66 995
MJM
32 FAC4864/105
NFA4864/105
ZFA4864/105
COMMENT
SARS taxation payable

Tax paid (balancing) 632 557 Opening balance 56 700
Tax charge through P/L
(435 800 + 166 500) 602 300
Closing balance 33 900 Deferred tax in P/L 7 457
666 457 666 457
C5. Income taxes paid
Deferred tax – opening balance (given) (44 200) [½]

– closing balance (given) 59 538 [½]
Revaluation by Funky Ltd (90 000 x 80% x 28%) (20 160) [1]
Revaluation by Dance Ltd
[9 128 [C4] / (1 – (80% x 28%)) x 80% x 28%] (2 635) [4]
Deferred tax movement included in income tax expense in P/L (7 457)
Continued operations tax expense
[435 800 (Total) + 166 500 (Discontinued)#] (602 300) [1]
Current tax for the year (609 757)
Tax payable – opening balance (given) (56 700) [½]
(632 557)
[8]
COMMENT
The income tax expense in the statement of profit or loss and other comprehensive
income includes the movement in the deferred tax liability. Deferred tax is a non-cash
item and should be excluded when calculating the cash amount paid.
The deferred tax liability in the consolidated statement of financial position includes
deferred tax on OCI items (revaluations by Funky Ltd and Dance Ltd). These items
should be includes from the movement in the deferred tax balance, in order to determine
the deferred tax movement that forms part of the income tax expense of R602 300.
The revaluation of Funky Ltd is included at 80% in the revaluation surplus account, after
20% was allocated to non-controlling interests.
# Only the continued operations’ tax expense is required. Included in the expense was
the tax saving of discontinued operations. This had to be removed (add the saving
back) in order to be left with only the continued operations’ tax.
MJM
33 FAC4864/105
NFA4864/105
ZFA4864/105
COMMENT
The journals for the revaluation would have been as follows:
Dr Cr
R R
Land (SFP) 90 000
Revaluation surplus (OCI) 69 840
Deferred tax (SFP) 20 160
Non-controlling interests (OCI) (69 840 x 20%) 13 968
Non-controlling interests (SFP/SCE) 13 968
Dance Ltd’s portion of the revaluation surplus of Funky Ltd is thus R55 872 (R69 840 –
R13 968). The deferred tax of R20 160 allocated to the statement of financial position
relates to 100% of the revaluation and not only 80% attributable to the parent. The 80%
revaluation surplus must therefore be reversed in order to calculate the revaluation
surplus of the parent (Dance Ltd) [C4]. Subsequently in C5 is the R20 160 deferred tax
of Funky Ltd allocated to the deferred tax account.
C6. Land – additions
Land – opening balance (given) 1 632 300 [½]

Revaluation by Funky Ltd (given) 90 000 [½]
Revaluation by Dance Ltd [9 128 [C4] / (1 – (80% x 28%))] 11 763 [½]
(207 350)
[2]
C7. Plant and equipment – additions
Plant and equipment – opening balance (given) 2 143 500 [½]

Increase in FCTR (7 980 / 0,4) 19 950 [1]
Subsidiary acquired (given) 2 500 000 [1]
Subsidiary sold (105 000 x R17,28) (1 814 400) [1]
Depreciation (given) (480 000) [½]
Plant classified as held for sale (given) (78 000) [½]
(236 950)
[5]
C8. Dividends declared by subsidiaries to NCI
NCI – opening balance (given) (23 210) [½]

Profit for the year (given) (188 000) [½]
FCTR attributable to NCI (given) (7 980) [1]
Revaluation [(90 000 x 20%) – (90 000 x 20% x 80% x 28%)] (13 968) [1½]
Subsidiary acquired (2 500 000 x 40%) (1 000 000) [1]
Subsidiary sold (127 500 x R17,28 x 40%) 881 280 [1½]
(8 553)
[6½]
MJM
34 FAC4864/105
NFA4864/105
ZFA4864/105
COMMENT
Dividends paid by subsidiaries to the parent are eliminated in the consolidated financial
statements by processing the following journal:
Dr Dividends received (P/L)

Dr NCI (SFP)
Cr Dividends paid (SCE)
Dividends paid by subsidiaries to NCI will thus affect the consolidated statement of cash
flows as it will have an impact on the group’s cash flow.
If the amount of dividends paid by subsidiaries are thus not given in a question, you
should reconcile the non-controlling interests account to calculate this amount.
C9. Dividends paid
Shareholders for dividends – opening balance (given) (5 000) [½]

Dance Ltd (given) (41 250) [½]
NCI [C8] (8 553) [6½]
(50 603)
[8]
C10. Dividends received
Investments in associates – opening balance (given) 335 000 [½]

– closing balance (given) (345 000) [½]
Share of profit of associates (given) 14 000 [1]
4 000
[2]
COMMENT
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations requires an entity
to disclose the net cash flows attributable to the operating, investing and financing
activities of discontinued operations. These disclosures may be presented either in the
notes or on the face of the statement of cash flows. Refer to IFRS 5.33(c).
Please refer to the alternative solution if it was required to disclose the discontinued
operation in the notes to the consolidated statement of cash flows. In order to present the
total operations on the face of the consolidated statement of cash flows, both continued
and discontinued operations must thus be added together.
MJM
35 FAC4864/105
NFA4864/105
ZFA4864/105
QUESTION 10.1 - Alternative solution
DANCE LTD GROUP
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 20.19
R
Cash receipts from customers 3 704 300 (5)
Cash payments to suppliers and employees (2 802 170) (16)
Cash generated by operations 902 130
Interest paid (107 600) (1)
Dividends paid (50 603) (8)
Income taxes paid (466 057) (9)
Dividends received 4 000 (2)
Interest received 146 900 (½)
Net cash from operating activities 428 770

Acquisition of property, plant and equipment (444 300) (7)
Acquisition of subsidiary (1 225 000) (½)
Proceeds on disposal of subsidiary 1 885 320 (2)
Net cash from investing activities 216 020

Proceeds from issue of share capital 307 500 (1)
Loan repaid (815 000) (1)
Net cash used in financing activities (507 500)

(54)
NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED
31 DECEMBER 20.19
1. Cash flow relating to the discontinued operation

R
Cash flows from operating activities [C1] 306 000 (4)

Cash flows from investing activities -
Cash flows from financing activities -
306 000
(4)
MJM
36 FAC4864/105
NFA4864/105
ZFA4864/105
EXAM TECHNIQUE
It is extremely helpful if you have to prepare the statement of cash flows or notes to open
the IFRS book and write the format straight from the standard (illustrative example in
IFRS Part B2 (IAS 7 IE)). This will also ensure that you get the presentation marks
awarded in the question.
Remember if amounts calculated are not disclosed on the face of the statement of cash
flows, NO marks will be awarded for the calculation. Always remember to reference to
your calculations on the face of the statement of cash flows.
CALCULATIONS
C1. Cash flows from operating activities
Loss from operations (417 000) [1½]

Income tax benefit 166 500 [1]
Decrease – inventory 370 500 [½]
– trade receivables 579 000 [½]
– trade payables (393 000) [½]
306 000 [4]
MJM
37 FAC4864/105
NFA4864/105
ZFA4864/105
LEARNING UNIT 11 – INTEGRATED REPORTING
INTRODUCTION
King IV calls for entities to issue an integrated report on an annual basis. The
Johannesburg Stock Exchange also requires entities to publish an integrated report as
part of its listing requirements. The integrated report communicates to the stakeholder of
the company the key issues affecting the company and the effect the company’s
operations have had on the economic, social and environmental well-being of the
community, both positive and negative.
OBJECTIVES/OUTCOMES
The following is presented by The Institute of Directors in Southern Africa of King IV

Report:
Integrated annual reports should “tell the story” of how – that is, the activities by which the
organisation creates value.
An integrated annual report should explain the performance of the organisation and
should have sufficient information on how the organisation has positively and negatively
affected the economy, society and the environment. It should show what value the
organisation has created (or not) through the enhancement or diminution of each of the
different forms of capital.
Finally, integrated reports should look to the future. This enables stakeholders to judge
whether the organisation can sustain delivery of value. The organisation should report on
how its business model could be adapted to enhance the positive effects and eliminate or
enhance the negative effects on the economy, society and the environment.
Integrated reporting was introduced into corporate governance in South Africa by King III
and has been adopted widely, both locally and internationally. King III defines integrated
reporting as “a holistic and integrated representation of the company’s performance in
terms of both its finances and its sustainability”. King III replaced the “triple bottom-line”
(and its depiction of the three separate bottom lines consisting of the economy, society
and environment) with the intertwined economic, social and environmental ‘triple context’.
The significance of the change was that King III indicated that these aspects were
intertwined. Accordingly, King IV Code stated in Principle 2.1 that: “The governing body
should lead the value creation process by appreciating that strategy, risk and opportunity,
performance and sustainability development are inseparable elements”.
MJM
38 FAC4864/105
NFA4864/105
ZFA4864/105
The following must be studied before you attempt the questions in this learning unit:
1. Framework for Integrated Reporting and the Integrated Report (discussion paper)
http://www.sustainabilitysa.org/Portals/0/IRC%20of%20SA%20Integrated%20Report
ing%20Guide%20Jan%2011.pdf
2. Sustainability reporting guidelines
https://www.globalreporting.org/resourcelibrary/G3.1-Guidelines-Incl-Technical-
Protocol.pdf
3. Sustainability reporting and Integrated Reporting (article)
https://www.saica.co.za/TechnicalInformation/SustainabilityandIntegratedReporting/
SustainabilityReportingandIntegratedReporting/tabid/1653/language/en-
ZA/Default.aspx
4. King IV is included in SAICA Student Handbook, Governance, Volume 2D.
MJM
39 FAC4864/105
NFA4864/105
ZFA4864/105


Integrated reporting is examinable at a core level in terms of the SAICA’s principles of examinable
levels.
An integrated report consists of the following as discussed in the Framework for Integrated
Reporting and the Integrated Report Discussion Paper 2011:
Sustainability
Report
Governance
Financial And
statements Remuneration Report
The Integrated Report
Governance and
Financial statements Sustainability Report
Remuneration Report
• Prepared in accordance with • Covering a combination of • Prepared with reference to
IFRS environmental, social and King IV
governance matters. Pre-
pared in accordance with a
recognised framework such
as the Global Reporting
Initiative (GRI).
The Global Reporting Initiative (GRI) Level C template shows organisations what a basic
sustainability report should contain, based on the requirements in the GRI Guidelines:
1. Strategy and Analysis
This section is intended to provide a high-level, strategic view of the organisation’s relationship
to sustainability in order to provide context for subsequent and more detailed reporting against
other sections of the Guidelines. It may draw on information provided in other parts of the
report, but this section is intended to produce insight on strategic topics rather than simply
summarise the contents of the report. The strategy and analysis should consist of the statement
outlined in 1.1.
MJM
40 FAC4864/105
NFA4864/105
ZFA4864/105
1.1 Statement from the most senior decision-maker of the organisation (e.g., CEO, Chair, or
equivalent senior position) about the relevance of sustainability to the organisation and its
strategy. The statement should present the overall vision and strategy for the short-term,
medium-term (e.g. 3-5 years), and long-term, particularly with regard to managing the key
challenges associated with economic, environmental and social performance. The
statement should include:
• Strategic priorities and key topics for the short/medium-term with regard to
sustainability, including respect for the internationally agreed standards and how
they relate to long-term organisational strategy and success;
• Broader trends (e.g. macroeconomic or political) affecting the organisation and
influencing sustainability priorities;
• Key events, achievements, and failures during the reporting period;
• Views on performance with respect to targets;
• Outlook on the organisation’s main challenges and targets for the next year and
goals for the coming 3-5 years; and
• Other items pertaining to the organisation’s strategic approach.
2. Organisational Profile
2.1 Name of the organisation.

2.2 Primary brands, products and/or services.
2.3 Operational structure of the organisation, including main divisions, operating companies,
subsidiaries and joint ventures.
2.4 Location of organisation’s headquarters.
2.5 Number of countries where the organisation operates, and names of countries with either
major operations or that are specifically relevant to the sustainability issues covered in the
report.
2.6 Nature of ownership and legal form.
2.7 Markets served (including geographic breakdown, sectors served and types of customers/
beneficiaries).
2.8 Scale of the reporting organisation, including:
• Number of employees;
• Net sales (for private sector organisations) or net revenues (for public sector
organisations);
• Total capitalisation broken down in terms of debt and equity (for private sector
organisations); and
• Quantity of products or services provided.
2.9 Significant changes during the reporting period regarding size, structure or ownership
including:
• The location of, or changes in, operations, including facility openings, closings and
expansions; and
• Changes in the share capital structure and other capital formation, maintenance,
and alteration operations (for private sector organisations).
2.10 Awards received in the reporting period.
MJM
41 FAC4864/105
NFA4864/105
ZFA4864/105
3. Report Parameters
Report Profile
3.1 Reporting period (fiscal/calendar year) for information provided.

3.2 Date of most recent previous report (if any).
3.3 Reporting cycle (annual, biennial, etc.).
3.4 Contact point for questions regarding the report or its contents.
Report scope and boundary
3.5 Process for defining report content, including:

• Determining materiality;
• Prioritising topics within the report; and
• Identifying stakeholders the organisation expects to use the report.
3.6 Boundary of the report (e.g., countries, divisions, subsidiaries, leased facilities, joint
ventures, suppliers).
3.7 State any specific limitations on the scope or boundary of the report.
3.8 Basis for reporting on joint ventures, subsidiaries, leased facilities, outsourced operations
and other entities that can significantly affect comparability from period to period and/or
between organisations.
3.9 Explanation of the effect of any re-statements of information provided in earlier reports,
and the reasons for such re-statement (e.g., mergers/acquisitions, change of base
years/periods, nature of business, measurement methods).
3.10 Significant changes from previous reporting periods in the scope, boundary or
measurement methods applied in the report.
4. Governance, Commitments and Engagement
Governance
4.1 Governance structure of the organisation, including committees under the highest
governance body responsible for specific tasks, such as setting strategy or organisational
oversight.
4.2 Indicate whether the Chair of the highest governance body is also an executive officer
(and, if so, their function within the organisation’s management and the reasons for this
arrangement).
4.3 For organisations that have a unitary board structure, state the number of members of the
highest governance body who are independent and/or non-executive members.
4.4 Mechanisms for shareholders and employees to provide recommendations or direction to
the highest governance body.
4.5 Include reference to processes regarding:
• The use of shareholder resolutions or other mechanisms for enabling minority
shareholders to express opinions to the highest governance body; and
• Informing and consulting employees about the working relationships with formal
representation bodies such as organisation level ‘work councils’, and representation
of employees in the highest governance body. Identify topics related to economic,
environmental and social performance raised through these mechanisms during the
reporting period.
MJM
42 FAC4864/105
NFA4864/105
ZFA4864/105
Stakeholder Engagement
The following disclosure items refer to general stakeholder engagement conducted by the
organisation over the course of the reporting period. These disclosures are not limited to
stakeholder engagement implemented for the purposes of preparing a sustainability report.
4.6 List of stakeholder groups engaged by the organisation. Examples of stakeholder groups
are:
• Communities;
• Civil society;
• Customers;
• Shareholders and providers of capital;
• Suppliers; and
• Employees, other workers and their trade unions.
4.7 Basis for identification and selection of stakeholders with whom to engage.
Please refer to the following annual reports for an example of an integrated report:
• Sun International Integrated Annual Report 2018

http://www.financials.tsogosun.com/2018/downloads.pdf
• Woolworths Holdings Integrated Report 2018

http://www.woolworthsholdings.co.za/wp-content/uploads/2017/09/WHL_integrated_Report_2018.pdf
• Murray & Roberts Annual Integrated Report 2018

http://www.murrob.com/inv-annual-reports/2018.asp
MJM
43 FAC4864/105
NFA4864/105
ZFA4864/105
SELF ASSESSMENT QUESTIONS AND SUGGESTED SOLUTIONS
Question Question name Source Marks Topics covered Page
1 Giraffe Ltd UNISA 40 • Consolidated statement of 45

financial position – foreign
operation
• Discussion – functional
currency vs presentation
currency
2 PinkElephant Ltd FAC4864 28 • Consolidation journal entries 53

(Part I) Test 4 of 2017 for a foreign operation
(adapted)
Nice Ltd FAC4864 12 • Calculation of foreign

(Part II) Test 3 of 2012 currency translation reserve
(adapted)
3 Fine Dine Ltd FAC4864 20 • Consolidated statement of 62
Test 4 of 2014 cash flows – direct method
- Cash flows from investing
activities
- Cash flows from financing
activities
4 Solarlite Ltd FAC4864 33 • Consolidation journal entries 69

(Part I) Test 3 of 2015 including change in owner-
ship journals: subsidiary
remains a subsidiary and
foreign operations
Texco Ltd FAC4864 7 • IAS 21 foreign exchange
(Part II) Test 3 of 2014 discussion (net investment)
5 CTA Ltd FAC4864 40 • Calculation of consolidated 78

Test 3 of 2016 gain or loss in terms of
IFRS 10.B98 – B99 – foreign
subsidiary
• Consolidated statement of
changes in equity
- Mark-to-market reserve
column
- Non-controlling interests
column
• Discussion – disposal of
shares in two transactions
• Calculation of FCTR, NCI
and change in ownership
amounts in consolidated
statement of changes in
equity.
MJM
44 FAC4864/105
NFA4864/105
ZFA4864/105
Question Question name Source Marks Topics covered Page

6 Steel Security Ltd FAC4864 40 • Consolidated statement of 87
- Cash flows from
operating activities
activities
• Discussion – disclosure of
redeemable preference
shares in consolidated state-
ment of financial position
7 PawPatrol Ltd FAC4864 40 • Consolidated statement of 104

(adapted) • Disposal of subsidiary note
8 GreenZar Ltd FAC4864 29 • Consolidated statement of 119
Test 4 of 2018 changes in equity
- Foreign currency reserve
- Non-controlling interests
Rhino Brands Ltd 11 • Acquisition of subsidiary
note
• Calculation of dividends paid
9 Are We There FAC4864 25 • Consolidated statement of 129
Yet Ltd Test 4 of 2019 financial position – foreign
operation
- only equity section
• Pro forma journal entries
including disposal of interest
in a foreign operation
Adjustus Ltd 15 • Consolidated statement of
cash flows – indirect method
- Cash flows from operating
activities
• List elements of a basic
sustainability report
10 Birdie Ltd FAC4864 23 • Critical discussion of non- 141
Exam 2019 compliance of IAS 7
activities
- Cash flows from financial
activities
MJM
45 FAC4864/105
NFA4864/105
ZFA4864/105
QUESTION 1 40 marks
YOU HAVE 15 MINUTES TO READ THIS QUESTION
PART I 33 marks
The trial balances of Giraffe Ltd and its foreign subsidiary, Zebra Inc, (denominated in Botswana
Pula) for the year ended 31 December 20.16 are as follows:
Giraffe Zebra
Ltd Inc
R P
Credits
Revenue 135 000 30 000
Share capital (50 000 ordinary shares each) 100 000 50 000
Retained earnings (1 January 20.16) 30 000 20 000
Long-term loan - 7 600
Accumulated depreciation: Property, plant and equipment 10 000 4 000
Dividends received (from Zebra Inc) 6 400 -
Trade and other payables 5 040 1 800
South African Revenue Service (SARS) 7 200 2 100
Loan from Giraffe Ltd - 2 400
293 640 117 900
Debits
Property, plant and equipment at cost 50 000 20 000
Trade and other receivables 25 490 28 600
Loan to Zebra Inc 3 000 -
Investment in Zebra Inc - 40 000 shares at cost 76 000 -
Cost of sales 75 000 14 500
Operating costs 20 000 5 000
Interest paid - 1 000
Dividends paid (both on 30 November 20.16) 10 000 4 000
Income tax expense 12 950 2 800
Foreign tax 900 -
293 640 117 900
1. Giraffe Ltd obtained its interest in Zebra Inc on 1 January 20.16 and obtained control in
accordance with IFRS 10 Consolidated Financial Statements on that date. Giraffe Ltd elected to
measure the non-controlling interests at their fair value for all acquisitions. The non-controlling
interests’ fair value at acquisition date of Zebra Inc amounted to P15 200.
2. Giraffe Ltd granted an interest free loan of R3 000 to Zebra Inc on 1 January 20.16. This loan is
repayable by Zebra Inc in Rand. No further adjustments were made by either company after
1 January 20.16 in respect of this loan. The loan to Zebra Inc does not form part of the net
investment in the foreign operation.
MJM
46 FAC4864/105
NFA4864/105
ZFA4864/105
3. The applicable exchange rates were as follows:
1 January 20.16 P1 = R1,25

30 November 20.16 P1 = R2,00
31 December 20.16 P1 = R1,75
Average for the year P1 = R1,50
4. Apart from a once-off spike in the exchange rate on 30 November 20.16, the exchange rate
deteriorated evenly during 20.16.
5. The exemptions contained in Section 10(1)(k) of the Income Tax Act apply in respect of
dividends received by the parent.
PART II 7 marks
Ink Ltd is a listed company registered in South Africa and sells a specialised South African product.
The majority of its business is denominated in Rand and the competitive forces and regulations of
South Africa have a major impact on the determination of the sales prices of the products of the
company. Furthermore, Rand is the currency used in the payment of salaries and wages, material
and other operating costs. The company also procures financing in Rand.
The managing director of the company is an American citizen and she is of the opinion that the
shares of the company would be more marketable if the financial statements of the company is
prepared in US$ rather than Rand. To simplify matters she instructed the financial director to account
for all transactions of Ink Ltd in US$.
The financial director, Mr Blue, is not convinced that this instruction is acceptable from an accounting
perspective and asked you, the company’s auditor, to advise him on the correct accounting treatment.
MJM
47 FAC4864/105
NFA4864/105
ZFA4864/105
QUESTION 1
YOU NOW HAVE 60 MINUTES TO ANSWER THIS QUESTION
REQUIRED
Marks
PART I
Prepare the consolidated statement of financial position of the Giraffe Ltd Group as at 32
31 December 20.16. Assume that Zebra Inc operates autonomously by generating and
holding its own cash resources and funding.
Communication skills: presentation and layout 1
Please note:
• Comparative figures are not required.

• Round off all amounts to the nearest Rand or Pula.
PART II
Write a memorandum to the financial director in which you discuss the approach proposed 6
by the managing director.
Communication skills: logical flow and format 1
Please note:
• Your answer does not need to address disclosure requirements.

MJM
48 FAC4864/105
NFA4864/105
ZFA4864/105
QUESTION 1 - Suggested solution
PART I
GIRAFFE LTD GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20.16
R
ASSETS
Non-current assets
Property, plant and equipment
(50 000 – 10 000 + 35 000 [C3] – 7 000 [C3]) 68 000 (2)
Goodwill (6 000 [C2] x R1,75) 10 500 (3½)
78 500
Current assets
Trade and other receivables (25 490 + 50 050 [C3]) 75 540 (1)
Cash and cash equivalents (20 300 + 73 500 [C3]) 93 800 (1)
169 340
Total assets 247 840

Share capital 100 000 (½)
Retained earnings [30 000 + (135 000 – 75 000 – 20 000 – 12 950 –
900) + 8 863 [C1] – 10 000 dividend] 55 013 (7½)
Other components of equity [C3] (FCTR) 32 677 (12)
187 690
Total equity 215 475
Long-term loan [C3] 13 300 (½)
Current liabilities
Trade and other payables (5 040 + 3 150 [C3]) 8 190 (1)
Current tax payable (7 200 + 3 675 [C3]) 10 875 (1)
Total current liabilities 19 065
Total liabilities 32 365
Total equity and liabilities 247 840
COMMENT
Note that the majority of balances on the statement of financial position, with the
exception of equity and goodwill, could be determined WITHOUT using the analysis of
equity. We recommend that you do this before doing the analysis of equity as good
exam technique.
(32)
MJM
49 FAC4864/105
NFA4864/105
ZFA4864/105
CALCULATIONS
C1. Analysis of the owners’ equity of Zebra Inc
Giraffe Ltd
Total Rate Total 80% NCI
At Since
P 1P = R R R R R
At acquisition
Share capital 50 000 1,25 62 500 50 000 12 500
Retained earnings 20 000 1,25 25 000 20 000 5 000
70 000 87 500 70 000 17 500
goodwill – parent and NCI 6 000 1,25 7 500 6 000 1 500
Consideration and NCI 76 000 95 000 76 000 19 000
Current year
Revenue 30 000
Cost of sales (14 500)
Foreign exchange gain
(P2 400 – (R3 000 ÷ R1,75)) 686
Operating costs (5 000)
Interest paid (1 000)
Tax (2 800)
Total current year profit 7 386 1,50 11 079 8 863 2 216 [5½]
Dividend paid (30/11/20.16) (4 000) 2,00 (8 000) (6 400) (1 600)

Equity at 31/12/20.16 79 386 98 079 2 463 19 616
FCTR (goodwill)
[6 000 x (1,75 – 1,25)] 3 000 2 400 600
FCTR (excluding goodwill,
balancing figure) 37 847 30 278 7 569
Equity at closing rate 79 386 1,75 138 926 35 141 27 785
[5½]
COMMENT
As per IAS 21.47, the goodwill arising on the acquisition of Zebra Inc shall be treated as
an asset of Zebra Inc. Thus the goodwill shall be expressed in the functional currency (P)
of Zebra Inc and shall be translated at the closing rate (P1 = R1,75).
Note that NCI shares in the FCTR attributable to goodwill as Giraffe Ltd elected to
measure NCI at fair value. If NCI shares in the FCTR attributable to goodwill, it is not
necessary to calculate the FCTR (goodwill) and FCTR (excluding goodwill) separately as
illustrated in [C1]. This is due to NCI sharing in the total FCTR movement (including
goodwill) in accordance with its shareholding percentage (20%).
MJM
50 FAC4864/105
NFA4864/105
ZFA4864/105
C2. Proof of calculation of goodwill in terms IFRS 3.32
P R
Consideration transferred at acquisition date: IFRS 3.32(a)(i) 60 800 76 000 [1]

Amount of NCI: IFRS 3.32(a)(ii) 15 200 19 000 [1]
76 000 95 000
Net of the identifiable assets acquired and liabilities at
acquisition date: IFRS 3.32(b) 70 000 87 500 [1]
Goodwill 6 000 7 500
[3]
C3. Conversion trial balance

Exchange Entity
Amount rate Dr/(Cr)
P R
Revenue (30 000) 1,50# (45 000) [½]
Foreign exchange gain
(P2 400 – (R3 000 ÷ R1,75)) (686) 1,50# (1 029) [½]
Share capital (50 000) 1,25* (62 500) [½]
Retained earnings (20 000) 1,25* (25 000) [½]
Long-term loan (7 600) 1,75^ (13 300) [½]
Accumulated depreciation (4 000) 1,75^ (7 000) [½]
Property, plant and equipment 20 000 1,75^ 35 000 [½]
Trade and other receivables 28 600 1,75^ 50 050 [½]
Cash and cash equivalents 42 000 1,75^ 73 500 [½]
Trade and other payables (1 800) 1,75^ (3 150) [½]
SARS (2 100) 1,75^ (3 675) [½]
Loan from Giraffe Ltd (R3 000 ÷ R1,75) (1 714) 1,75^ (3 000)& [½]
Cost of sales@ 12 500 1,50# 18 750 [½]
Operating costs 5 000 1,50# 7 500 [½]
Interest paid 1 000 1,50# 1 500 [½]
Depreciation@ 2 000 1,50# 3 000 [½]
Dividend 4 000 2,00A 8 000 [½]
Current tax 2 800 1,50# 4 200 [½]
Exchange rate difference (balancing figure) - (37 846) [½]
Nil Nil
FCTR as per above 37 846 [1]

Plus: FCTR movement in goodwill
(P6 000 x (1,75 – 1,25)) 3 000 [½]
Less: FCTR allocated to NCI
[(37 846 + 3 000) x 20%] (8 169) [1]
FCTR as per statement of financial position 32 677+
[12]
#
Average rate
*
At acquisition rate
^
Closing rate
A
Actual rate
@
Total of P14 500 appears on trial balance in question.
+
Note that this equals the FCTR balance as per [C1] (R30 278 + R2 400 = R32 678). The
R1 difference between the FCTR calculated in C1 and C2 is attributable to rounding.
&
Note that the loan from Giraffe Ltd represents an intragroup balance which is eliminated
on consolidation.
MJM
51 FAC4864/105
NFA4864/105
ZFA4864/105
C4. Non-controlling interests

R
Fair value at acquisition date (15 200 x 1,25) 19 000 [½]
Profit for the year attributable to non-controlling interests [C1] 2 216 [½]
Dividend paid [C1] (1 600) [½]
FCTR attributable to non-controlling interests [C1] 8 169 [½]
27 785
[2]
COMMENT
Note that the FCTR is a credit in this case as the Rand deteriorated against the Pula. If
it had strengthened, the FCTR would have been a debit balance, but the accounting
treatment and disclosure position would be the same.
A strengthening functional currency would result in smaller presentation currency

amounts when assets and liabilities are translated at closing rate at year end.
Consequently previous balances would have to be reduced – in the case of assets this
implies a credit against assets to reduce balances and a debit against the FCTR as the
other leg of the transaction.
The opposite would obviously apply in the case of the deterioration of the functional
currency against the presentation currency.
PART II
MEMORANDUM
From: A. Auditor
To: Mr Blue Date: xx.xx.xxxx
RE: FUNCTIONAL CURRENCY VERSUS PRESENTATION CURRENCY
IAS 21.8 states that presentation currency is the currency in which the financial statements
are presented.
In terms of IAS 21.9 the functional currency of an entity is the currency of the primary
economic environment in which the entity operates. This environment would be the one in
which the entity primarily generates and expends cash. The following factors support the
Rand as being the appropriate functional currency of Ink Ltd: (1)
- The sales prices of the products of Ink Ltd is influenced by the Rand, as well as the
competitive forces and regulations of South Africa. (1)
- The sales prices of the products of Ink Ltd is influenced by the Rand, as well as the
competitive forces and regulations of South Africa. (1)
MJM
52 FAC4864/105
NFA4864/105
ZFA4864/105
- The Rand is the currency influencing labour, material and other costs of the company
and these costs are paid in Rand. (1)
- Financing for the company’s operations is obtained in Rand. (1)
Once a functional currency is selected, it will, in terms of IAS 21.13, only be changed when a
change in the underlying transactions, events and conditions warrant it.
The approach proposed by the managing director, i.e. using the US$ instead of Rand as the
functional currency to account for the transactions of Ink Ltd, is not acceptable. However, it is
acceptable to present the financial statements in US$ (IAS 21.18). (1)
Should the functional currency and presentation currency of an enterprise differ, the
translation of the functional currency to presentation currency should be done by using the
closing rate method. The exact procedure to be followed on conversion is set out in
IAS 21.38-50. (1)
Please feel free to contact me with any additional queries in this regard.
(6)
Communication skills: logical flow and format (1)
MJM
53 FAC4864/105
NFA4864/105
ZFA4864/105
QUESTION 2 40 marks
This question consists of two independent parts.
PART I 28 marks
PinkElephant Ltd is a JSE listed company, and has acquired 75% of the ordinary shares in
BlueLeopard Ltd on 1 December 20.16 for a cash consideration of R352 000. BlueLeopard Ltd is a
Mauritian company, and its functional currency is the Mauritian Rupee (MUR). From
1 December 20.16, PinkElephant Ltd had control over BlueLeopard Ltd as per the definition of control
in accordance with IFRS 10 Consolidated Financial Statements. The fair value of the non-controlling
interests amounted to R117 334 on the date of acquisition.
All the assets and liabilities of BlueLeopard Ltd were considered to be fairly valued on
1 December 20.16, with the exception of equipment which was undervalued with MUR105 500. The
equipment had a remaining useful life of three years at the date of acquisition. No additional assets,
liabilities or contingent liabilities were identified on the date of acquisition.
The equity of BlueLeopard Ltd consisted of the following on the various dates:
20.16/12/01 20.17/07/31
MUR MUR
Share capital (300 000 ordinary shares) 250 000 250 000
1 035 000 1 115 000
The following exchange rates apply:
Exchange rate
MUR : ZAR
1 December 20.16 2,50 : 1

1 June 20.17 2,65 : 1
Average for the period 1 December 20.16 to 31 July 20.17 2,35 : 1
31 July 20.17 2,75 : 1
1. It is the accounting policy of PinkElephant Ltd to account for investments in subsidiaries at cost
in its separate financial statements in accordance with IAS 27.10(a).
2. PinkElephant Ltd elected to measure non-controlling interests at fair value at the acquisition
date for all acquisitions.
3. BlueLeopard Ltd declared a dividend of MUR25 000 on 1 June 20.17.
4. All the companies in the group have a 31 July year end.
5. Assume a normal income tax rate of 28% and a capital gains tax inclusion rate of 80% in
South Africa. Ignore Value Added Tax (VAT) and Dividend Tax.
MJM
54 FAC4864/105
NFA4864/105
ZFA4864/105
6. Assume a normal income tax rate of 15% and no capital gains tax in Mauritius.
PART II 12 marks
Nice Ltd is an independent shoe manufacturer. Nice Ltd is listed on the JSE Limited. The company
has a 31 May year end.
Nice Ltd acquired a 60% (24 000 ordinary shares) controlling interest in Red LLC on 1 June 20.11 at
a cost of R1 000 000 payable on 1 June 20.12. Red LLC is operated in a foreign country and has a
functional currency of FC. The statement of financial position of Red LLC reflected net assets with a
carrying amount of FC95 000 at acquisition date. All the assets and liabilities were fairly valued
except for land that was undervalued with FC30 500. The tax authorities in the foreign country
accepted the fair value of land as the base cost. Red LLC did not account for this revaluation in its
financial statements. No additional assets, liabilities or contingent liabilities were identified at that
date. The non-controlling interests were measured at fair value at the acquisition date.
The following exchange rates and share prices of Red LLC are applicable:
Share price Exchange rates

FC FC1 = R
1 June 20.11 2,45 8,50

31 May 20.12 2,60 9,45
Average for the financial year ended 31 May 20.12 2,75 8,20
Red LLC had the following balances as at 31 May 20.12:
FC
Dr/(Cr)
Land 60 000
Buildings 59 000
Vehicles 12 000
Bank (10 000)
Share capital (40 000 ordinary shares*) (No additional shares were issued during 20.12) (50 000)
Retained earnings (1 June 20.11) (45 000)
Profit for the current year (evenly accrued) (26 000)
* Each share entitles a shareholder to one vote.
1. Nice Ltd accounts for investments in subsidiaries and associates at cost in its separate financial
statements in accordance with IAS 27.10(a).
2. Assume a market related pre-tax discount rate of 11,1% per annum, compounded annually.
3. Assume a normal income tax rate of 28% and a capital gains tax inclusion rate of 80% in
South Africa.
4. All the companies in the group’s profit after tax accrued evenly during the year ended
31 May 20.12.
5. No dividends were declared during the year by any company in the group.
6. The tax rate in the foreign country in which Red LLC is registered is 20%.
MJM
55 FAC4864/105
NFA4864/105
ZFA4864/105
QUESTION 2
REQUIRED
Marks
PART I
Provide the pro forma consolidation journal entries to account for the investment in 27
BlueLeopard Ltd in the consolidated financial statements of the PinkElephant Ltd Group
for the year ended 31 July 20.17.
Please note:
• Journal narrations are required.

• Journals relating to deferred taxation are required.
PART II 12
Calculate the foreign currency translation reserve of the investment in Red LLC at
31 May 20.12 that should be disclosed in the consolidated statement of changes in equity
of the Nice Ltd Group for the year ended 31 May 20.12.
Please note:
• Show all calculations.

MJM
56 FAC4864/105
NFA4864/105
ZFA4864/105
PART I
Pro forma consolidation journals to account for investment in BlueLeopard Ltd
Dr Cr
R R
J1 Share capital (SCE) (250 000/2,50) 100 000 (1½)
Retained earnings (SCE) (785 000/2,50) 314 000 (1)
Equipment (SFP) (105 500/2,50) 42 200 (1)
Deferred tax (SFP) (42 200 x 15%) 6 330 (1)
Goodwill (SFP) (balancing) 19 464 (½)
NCI (SFP) (given) 117 334 (1)
Investment (SFP) (given) 352 000 (1)
At acquisition elimination journal
J2 Depreciation (P/L) [(105 500/3 x 8/12) / 2,75] 8 525 (2½)
Accumulated depreciation (SFP) 8 525 (½)
Provide depreciation on equipment revalued at acquisition date
(translated at closing rate)
J3 Deferred tax (SFP) (8 525 x 15%) 1 279 (1)
Income tax expense (P/L) 1 279 (½)
Tax effect on depreciation provided
J4 FCTR (OCI) 5 030 (½)
Goodwill (SFP) [48 660 / (2,50 – 2,75)] 1 769 (1½)
Equipment (SFP) [105 500 / (2,50 – 2,75)] 3 836 (1½)
Deferred tax (SFP) (3 836 x 15%) 575 (1)
Adjustment of goodwill and fair value adjustments to closing
rate
J5 Other income (P/L) [(25 000 / 2,65) x 75%] 7 076 (2)
NCI (SFP) [(25 000 / 2,65) x 25%] 2 358 (½)
Dividend declared (SCE) (25 000 / 2,65) 9 434 (1½)
Elimination of intragroup dividends
J6 Non-controlling interests (P/L)
[[((865 000 - 785 000 + 25 000) / 2,35) – 8 525 (J2) + 1 279
(J3)] x 25%] 9 359 (3½)
Non-controlling interests (OCI) [C1] 12 205 (3)
Non-controlling interests (SFP) 2 846 (½)
Account for NCI’s share in profit and OCI
(27)
Communication skills: presentation and layout (narrations) (1)
MJM
57 FAC4864/105
NFA4864/105
ZFA4864/105
CALCULATION
C1. Analysis of owners’ equity of BlueLeopard Ltd
PinkElephant: 75%
Total Total
MUR Rate R At Since NCI
At acquisition
Share capital 250 000 2,50 100 000
Retained earnings 785 000 2,50 314 000
Equipment 105 500 2,50 42 200
Deferred tax (105 500 x 15%) (15 825) 2,50 (6 330)
1 124 675 2,50 449 870 337 403 112 467
Equity represented by goodwill
(balancing) 48 660 2,50 19 464 14 597 4 867
Consideration and NCI 1 173 335 469 334 352 000 117 334
Current year
Profit (865 000 – 785 000 + 25 000) 105 000 2,35 44 681 33 511 11 170
Depreciation (105 500 / 3 x 8/12) (23 444) 2,75 (8 525) (6 394) (2 131)
Deferred tax (23 444 x 15%) 3 517 2,75 1 279 959 320
Dividend (25 000) 2,65 (9 434) (7 076) (2 358)
FCTR (goodwill) [48 660 / (2,50 – 2,75)] (1 769) (1 327) (442) [1½]
FCTR (excluding goodwill) (47 054) (35 291) (11 763) [1½]
1 233 408 2,75 448 512 (15 618) 112 130
PART II
Calculation of the foreign currency translation reserve
FCTR calculated using the owners’ equity analysis
Foreign currency translation reserve attributable to the owner [C7] 102 203
(12)
OR
FCTR calculated using other calculations
FCTR originating from translating trial balance [C4] 122 750 (3½)
FCTR movement on goodwill and revaluation [C5] 47 588 (6½)
NCI portion of FCTR [C6] (68 135) (2)
102 203
(12)
OR
FCTR calculated using the net asset value
Foreign currency translation reserve attributable to the owner [C8] 102 203
(12)
MJM
58 FAC4864/105
NFA4864/105
ZFA4864/105
COMMENT
Eliminating the unrealised profit included in the inventory balance or depreciation on a fair
value adjustment or intragroup sale happens at year end and not throughout the year.
Therefore, the closing rate will be used to translate the journal to the functional currency.
There are however different schools of thought on this principle. It can also be argued that
the elimination of any intragroup transactions will follow the same translation principle as:
• assets and liabilities shall be translated at the closing rate at the date of the statement
of financial position;
• income and expenses shall be translated at the exchange rate applicable at the date of
the transaction or an average exchange rate for the period; and
• all resulting exchange differences shall be recognised in the foreign currency
translation reserve (FCTR)) in other comprehensive income.
However, we follow the first option - translate at the spot rate at year end.
MJM
59 FAC4864/105
NFA4864/105
ZFA4864/105
CALCULATIONS
C1. Pro forma journals for recording the foreign currency translation reserve
The journals are provided for illustration and completion purposes only
Dr Cr
R R
J1 Land (FC30 500 x R8,50) (SFP) 259 250
Revaluation surplus (OCI) 259 250
Adjustment of land to fair value at acquisition
J2 Share capital (FC50 000 x R8,50) (SCE) 425 000
Retained earnings (FC45 000 x R8,50) (SCE) 382 500
Revaluation surplus (SCE) (journal 1) 259 250
Goodwill (SFP) (balancing) [C2] 166 540
Non-controlling interests (SFP/SCE)
[(40 000 x 40%) x FC2,45 x R8,50] 333 200
Investment in Red LLC [C3] (SFP) 900 090
Elimination journal at acquisition
J3 Non-controlling interests (P/L)
[(FC26 000 x R8,20) x 40%] 85 280
Allocation of 40% of current year’s profit to non-
controlling interests
J4 Land (SFP) [FC30 500 x (R9,45 – R8,50)] or [C5] 28 975
Goodwill (SFP)
[FC19 593 [C2] x (R9,45 – R8,50)] or [C5] 18 613
Foreign currency translation reserve (OCI) 47 588
Adjustment of goodwill and revaluation of land to closing
rate for the current year
J5 Non-controlling interests (OCI) [C6] or
[(122 750 [C4] + 47 588 (J4)) x 40%] 68 135
Allocation of 40% of the FCTR movement on goodwill,
land and trial balance to NCI
COMMENT
Remember that the first step in the consolidation process is the adding of the trial balance
of the parent to the RAND trial balance of the foreign operation. The RAND trial balance
will already include a balance for the FCTR of R122 750 [C4] to balance the translated
trial balance. To calculate the closing balance of the FCTR: R122 750 [C4] + R47 588 (J4)
– R68 135 (J5) = R102 203.
MJM
60 FAC4864/105
NFA4864/105
ZFA4864/105
C2. Goodwill - Nice Ltd

FC Exchange Rand
rate
Net assets of Red LLC 125 500 8,50 1 066 750 [½]
- Share capital (given) 50 000
- Retained earnings (95 000 – 50 000) 45 000
- Revaluation of land (given) 30 500
Non-controlling interests @ fair value
[(40 000 x 40%) x FC2,45] 39 200 8,50 (333 200) [1½]
Consideration [C3] (900 090) [2]
Goodwill 19 593 8,50 166 540 [4]
COMMENT
Note that goodwill is converted at the exchange rate at acquisition date (1/6/20.11).
C3. Investment in Red LLC
Consideration transferred: Investment in Red LLC

- FV = R1 000 000 (given)
- n = 1 (given)
- i = 11,1% (pre-tax discount rate)
- PMT = 0
- COMP PV 900 090 [2]
C4. FCTR calculated using the conversion trial balance
FC Exchange R
Dr/(Cr) Rate
Land (given) 60 000 9,45 567 000 [½]
Buildings (given) 59 000 9,45 557 550 [½]
Vehicles (given) 12 000 9,45 113 400 [½]
Bank (given) (10 000) 9,45 (94 500) [½]
Share capital (given) (50 000) 8,50 (425 000) [½]
Retained earnings (given) (45 000) 8,50 (382 500) [½]
Profit for the year (evenly occurred) (26 000) 8,20 (213 200) [½]
Foreign currency translation reserve (FCTR) 122 750 [3½]
C5. FCTR movement on goodwill and land
Land: Revaluation [FC30 500 x (R9,45 – R8,50)] 28 975 [1½]

Goodwill [FC19 593 [C2] x (R9,45 – R8,50)] 18 613 [5]
FCTR recognised in OCI 47 588 [6½]
MJM
61 FAC4864/105
NFA4864/105
ZFA4864/105
C6. Non-controlling interest’s portion in FCTR
FCTR movement as per translated trial balance [C4] 122 750 [½]
FCTR movement for goodwill and land [C5] 47 588 [½]
Total FCTR movement 170 338
NCI portion in FCTR movement (R170 338 x 40%) 68 135 [1]
[2]
Total [C4 + C5 + C6] [12]
OR Alternative to the above calculations
C7. FCTR calculated using the analysis of the owners’ equity of Red LLC
Nice Ltd (60%)

Total Rate Total NCI
At Since
FC R R R R
At acquisition
Share capital 50 000
Revaluation
(given) 30 500
125 500 8,50 1 066 750 640 050 426 700 [1½]
Goodwill [C2] 19 593 8,50 166 540 260 040 (93 500) [2½]
Consideration 145 093 8,50 1 233 290 900 090 333 200 [2]
Profit for year

(given) 26 000 8,20 213 200 127 920 85 280 [3]
FCTR 170 338 102 203 68 135 [3]
171 093 9,45 1 616 828 230 123 486 615 [12]
OR Alternative to the above calculations
C8. FCTR calculated using the net asset value
Net assets [(95 000 + 30 500) x (9,45 – 8,50)] 119 225 [2]
Current year profit [26 000 x (9,45 – 8,20)] 32 500 [1½]
Translation of goodwill [19 593 (J1 below) x (9,45 – 8,50)] 18 613 [8]
Total foreign currency translation reserve 170 338
Attributable to parent (170 338 x 60%) 102 203 [½]

[12]
Dr Cr
FC FC
J1 Net assets (SFP) (given) 95 000 [½]
Land (SFP) (given) 30 500 [½]
Investment in Red LLC (SFP) (900 090 [C3]/8,50) 105 893 [3]
Non-controlling interests (SFP/SCE)
(40 000 x 2,45 x 40%) 39 200 [2]
Goodwill (SFP) (balancing) 19 593 [1]
[7]
MJM
62 FAC4864/105
NFA4864/105
ZFA4864/105
QUESTION 3 20 marks
Fine Dine Ltd was incorporated in 20.5 by Mr. C Chef after the completion of his studies. The
company had 1 000 ordinary shares in issue to the value of R1 000. At the incorporation of the
company, Mr. C Chef entered into a lease agreement for the rental of a restaurant venue in order to
start his own restaurant, Fine Dine with Me. The restaurant has proven extremely popular and
Mr. C Chef has since opened a further 35 Fine Dine with Me restaurants across Gauteng.
Fine Dine Ltd
The following information was extracted from the financial statements of Fine Dine Ltd for the year
ended 30 June 20.14:
Dr/(Cr)
R
Interest received (69 850)

Depreciation (equipment, furniture and fittings) 545 210
Impairment loss on furniture and fittings 15 300
Loss on disposal of property, plant and equipment (including all intragroup transactions) 99 000
Dividends paid on 29 May 20.14 275 000
FD Investments Ltd
Obtaining suitable venues to lease has proven difficult which resulted in Fine Dine Ltd having to
acquire numerous properties to continue its expansion. Fine Dine Ltd’s accountant has recommended
that Mr. C Chef incorporate a new company, FD Investments Ltd, to purchase these properties.
FD Investments Ltd was incorporated on 1 July 20.11 with an issued ordinary share capital of 10 000
shares. FD Investments Ltd is fully owned and controlled by Fine Dine Ltd as per the definition of
control in accordance with IFRS 10 Consolidated Financial Statements.
In order to raise new capital to purchase additional properties, Fine Dine Ltd sold 4 000 non-
controlling shares held in FD Investments Ltd to a venture capital company on 1 January 20.14. The
Fine Dine Ltd Group has correctly recorded a profit of R1 410 000 in the consolidated financial
statements on this sale.
The equity of FD Investments Ltd consisted of the following at the various dates:
1 July 20.11 1 July 20.13 1 January 20.14 30 June 20.14

R R R R
Share capital 10 000 10 000 10 000 10 000

Retained earnings - 3 313 000 3 965 000 4 473 950
In addition to the sale of shares held in FD Investments Ltd, Fine Dine Ltd issued 200 new ordinary
shares to the same venture capital company on 1 January 20.14 at a price of R10 000 a share.
MJM
63 FAC4864/105
NFA4864/105
ZFA4864/105
The following information was extracted from the financial statements of FD Investments Ltd for the
year ended 30 June 20.14:
Dr/(Cr)
R
Interest received (10 585)

Depreciation (equipment, furniture and fittings) 400 440
Fair value adjustment on investment property (2 333 580)
Dividends paid on 13 December 20.13 115 000
Dividends paid on 24 May 20.14 150 000
Fine Seafood Ltd
Fine Dine Ltd acquired a 25% shareholding in Fine Seafood Ltd on 1 April 20.14 in order to expand
into the Western Cape. Fine Seafood Ltd had an issued ordinary share capital of R1 000 000 and
retained earnings of R2 130 000 at 1 April 20.14. Fine Dine Ltd exercised significant influence over
the financial and operating policy decisions of Fine Seafood Ltd from that date. The purchase
consideration paid on 1 April 20.14 consisted of the following:
Cash paid 750 000

Attorney’s fees 25 000
Due diligence fees 9 000
The profit after tax of Fine Seafood Ltd for the three months ended 30 June 20.14 was R270 000.
Fine Dine Ltd sold equipment with a carrying amount of R85 000 to Fine Seafood Ltd for R120 000 on
30 June 20.14. This equipment is used in the preparation of food and had a remaining useful life of
four years from that date.
Non-current assets
The following balances were extracted from the notes to the consolidated financial statements of the
Fine Dine Ltd Group for the year ended 30 June 20.14:
Furniture
Investment
Equipment and
property
fittings
R R R
Opening balance - 1 July 20.13 4 574 000 2 987 520 25 550 000
Closing balance - 30 June 20.14 5 845 650 3 514 050 31 800 000
Carrying amount of assets disposed 415 875 214 585 -1
1
No investment property was disposed of during the year.
The consolidated statement of financial position for the Fine Dine Ltd Group as at 30 June 20.14
correctly discloses a closing balance for investments in associates of R821 250.
MJM
64 FAC4864/105
NFA4864/105
ZFA4864/105
1. The only equity investment disposal in the Fine Dine Ltd Group for the current financial year
was the disposal of the 4 000 shares held in FD Investments Ltd. There were no other
investments in associates, joint ventures and subsidiaries except as stated in the information
provided.
2. Fine Dine Ltd elected to measure non-controlling interests at the proportionate share of the
acquiree’s identifiable net assets at acquisition date for all acquisitions.
3. Apart from the investments in fixed property, FD Investments Ltd also invests in various equity
investments but does not hold a shareholding of more than 5% in each investment.
FD Investments Ltd received dividends from these investments on 23 February 20.14
amounting to R65 000 in total.
4. Cash flows from interest and dividends received are classified as investing activities and cash
flows from interest and dividends paid are classified as financing activities.
5. Goodwill is tested for impairment on an annual basis and no impairment loss was recognised in
the financial statements during the current financial year.
6. It is the policy of Fine Dine Ltd to measure investments in subsidiaries and investments in
associates at cost in its separate financial statements in accordance with IAS 27.10(a).
7. The Fine Dine Ltd Group accounts for property, plant and equipment in accordance with the
cost model as per IAS 16 Property, Plant and Equipment and for investment property in
accordance with the fair value model as per IAS 40 Investment Property.
Value Added Tax (VAT) and Dividend Tax.
MJM
65 FAC4864/105
NFA4864/105
ZFA4864/105
QUESTION 3
REQUIRED
Marks
Prepare only the cash flows from investing activities and the cash flows from financing 19
activities sections of the consolidated statement of cash flows of the Fine Dine Ltd Group for
the year ended 30 June 20.14.
Please note:
• Comparative figures and notes to the consolidated statement of cash flows are not
required.
MJM
66 FAC4864/105
NFA4864/105
ZFA4864/105
FINE DINE LTD GROUP
EXTRACT FROM THE CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR
ENDED 30 JUNE 20.14
20.14
R
Purchase of property, plant and equipment [C1] (3 389 590) (4½)
Purchase of investment property [C2] (3 916 420) (1½)
Proceeds from sale of property, plant and equipment
(415 875 + 214 585 – 99 000) 531 460 (1½)
Acquisition of associate (750 000 + 25 000) (775 000) (1)
Interest received (69 850 + 10 585) 80 435 (1)
Dividends received (65 000 + 20 000 [C3]) 85 000 (5½)
Net cash used in investing activities (7 384 115)

Proceeds from issue of share capital (200 x 10 000) 2 000 000 (1)
Proceeds on partial disposal of subsidiary [C4] 3 000 000 (2½)
Dividends paid [275 000 + ((150 000 x 4 000/10 000) or [C5])] (335 000) (1½)
Net cash from financing activities 4 665 000
Total (20)
Maximum (19)
COMMENT
Remember to write down the name of the company and the appropriate title of the
statement you are presenting (i.e. consolidated statement of cash flows for the year
ended xxx). Always refer to IAS 7.IE for an example of the name and structure of a
statement of cash flows and to IAS 1.IG for the example of a statement of changes in
equity, statement of financial position and statement of profit or loss and other
comprehensive income.
In accordance with IAS 7.22, only cash flows received and paid on behalf of customers
and cash flows received and paid for items in which the turnover is quick are allowed to
be disclosed on a net basis. Therefore, students had to disclose the line items
separately for each of the proceeds from sale of PPE, cash paid to acquire PPE and
cash paid to purchase investment property.
When you are required to present a statement of cash flows, many of the marks that you
can obtain are for amounts provided in the question scenario. Students must please
practise their exam technique to ensure that these easy marks are obtained (i.e. know
where to use all the amounts provided).
MJM
67 FAC4864/105
NFA4864/105
ZFA4864/105
CALCULATIONS
C1. Purchase of property, plant and equipment
Opening balance - Equipment (given) 4 574 000 [½]

Opening balance - Furniture and fittings (given) 2 987 520 [½]
Depreciation (545 210 + 400 440) (945 650) [1]
Impairment loss on furniture and fittings (given) (15 300) [½]
Disposal of various equipment (415 875 + 214 585) (630 460) [1]
Closing balance - Equipment (given) (5 845 650) [½]
Closing balance - Furniture and fittings (given) (3 514 050) [½]
Property, plant and equipment acquired (3 389 590)
[4½]
C2. Purchase of investment property
Opening balance - 1 July 20.13 (given) 25 550 000 [½]

Closing balance - 30 June 20.14 (given) (31 800 000) [½]
Fair value adjustments (given) 2 333 580 [½]
Investment property acquired (3 916 420)
[1½]
C3. Dividends received
Opening balance of associate (given) -

Associate acquired during the year (750 000 + 25 000) 775 000 [½]
Excess recognised [(1 000 000 + 2 130 000) x 25% - 775 000] 7 500 [1½]
Share of profit from associate (270 000 x 25%) 67 500 [1]
Elimination of unrealised profit on sale of equipment
[(120 000 - 85 000) x 25%] (8 750) [1½]
Closing balance of associate (given) (821 250) [½]
Dividends received from associate 20 000
[5]
COMMENT
When you are presented with a scenario where there is an investment in associate,
ALWAYS calculate its balancing amount (this can be dividends received, associate
acquired or associate disposed). Again, the amounts are provided, you must be able to
determine where to disclose the cash movement in the statement of cash flows.
The question stated that there were no other investments in associates except as stated
in the question. The balancing amount in the investment in associates account would
thus be dividends received. This is however not always the case. A question can
sometimes give you the dividends received from associates amount, where the balancing
amount would then be associates acquired or disposed.
C4. Proceeds on partial disposal of subsidiary
Net assets of subsidiary at disposal date (10 000 + 3 965 000) 3 975 000 [1]
Dispose of 40% (3 975 000 x 4 000/10 000) 1 590 000 [1]
Accounting profit made (given) 1 410 000 [½]
Proceeds received for partial disposal of subsidiary 3 000 000
[2½]
MJM
68 FAC4864/105
NFA4864/105
ZFA4864/105
COMMENT
In accordance with IAS 7.42A and 42B, cash flows arising from a transaction in which a
subsidiary is both a subsidiary before and after the transaction, are accounted for as an
equity transaction and must be disclosed as a financing activity.
C5. Dividends paid to NCI
NCI opening balance -

Share of profit attributable to NCI [(4 473 950 – 3 965 000) x 40%] (203 580) [½]
Partial disposal of subsidiary [C4] (1 590 000)
Closing balance (balancing) 1 733 580 [½]
Dividend paid to NCI (150 000 x 4 000/10 000) (60 000)
[1]
COMMENT
Dividends paid on 13 December 20.13 of R115 000 will not be taken into account as
Fine Dine Ltd still had a 100% interest in FD Investments Ltd on that date and nothing
was thus paid to NCI.
MJM
69 FAC4864/105
NFA4864/105
ZFA4864/105
QUESTION 4 40 marks
PART I 33 marks
SolarLite Ltd is a JSE listed company that sets up solar panels all across South Africa. SolarLite Ltd
is a company with extensive experience in setting up solar panels and management believes that
they have a technological advantage over other companies in the same industry.
During 20.13, the directors of SolarLite Ltd made a decision to expand their business by acquiring
shares in Power-2-U Ltd, a company situated in Australia. Power-2-U Ltd’s functional currency is the
Australian Dollar (AUD).
SolarLite Ltd acquired 70% of the shares in Power-2-U Ltd on 1 March 20.14 for a cash consideration
of AUD1 600 000. From 1 March 20.14, SolarLite Ltd had control over Power-2-U Ltd as per the
definition of control in accordance with IFRS 10 Consolidated Financial Statements. At the date of
acquisition, the equity of Power-2-U Ltd consisted of share capital amounting to AUD500 000
(500 000 ordinary shares) and retained earnings amounting to AUD1 850 000.
On 15 February 20.14, one of the solar panels installed by Power-2-U Ltd at a local gym fell from the
roof and two people were seriously injured. Power-2-U Ltd’s lawyers are of the opinion that the claim
against Power-2-U Ltd will probably not succeed. On 1 March 20.14 the fair value of the claim, taking
into account all possible outcomes, was determined at AUD280 000. The amount of any settlement
will be tax deductible in Australia.
All assets and liabilities of Power-2-U Ltd were considered to be fairly valued at the date of
acquisition. No additional assets, liabilities or contingent liabilities were identified at the date of
acquisition.
The following occurred since the date of acquisition:
1. During the current year SolarLite Ltd sold inventory to Power-2-U Ltd. On 28 February 20.15,
inventory purchased from SolarLite Ltd amounting to R132 300 was still on hand. Total sales
from SolarLite Ltd to Power-2-U Ltd for the 20.15 financial year amounted to AUD100 000.
SolarLite Ltd sells inventory at a mark-up of 20% on cost.
2. On 31 December 20.14, Power-2-U Ltd settled the claim relating to the solar panel that fell from
the roof at the gym for AUD450 000.
3. SolarLite Ltd extended a loan of R1 500 000 to Power-2-U Ltd on 1 March 20.14. The following
information is applicable to the loan:
• The loan is denominated in Australian Dollars;

• The loan bears interest at a market related interest rate of 12% per annum;
• The interest is payable in arrears on 28 February (you can assume that the interest
payments were settled on their due dates);
• Repayment of the loan is not expected in the foreseeable future;
• SolarLite Ltd considers the loan to be part of its net investment in Power-2-U Ltd; and
• SolarLite Ltd and Power-2-U Ltd consider the loan as a monetary item.
MJM
70 FAC4864/105
NFA4864/105
ZFA4864/105
4. On 28 February 20.15 SolarLite Ltd sold 50 000 of their shares in Power-2-U Ltd for
AUD300 000. After the sale of these shares, SolarLite Ltd still had control over Power-2-U Ltd
as per the definition of control in accordance with IFRS 10 Consolidated Financial Statements.
The equity of Power-2-U Ltd consisted of the following on 28 February 20.15:
AUD

Retained earnings 2 370 000
2 870 000
The following exchange rates apply:
Exchange rate
AUD : ZAR
1 March 20.14 1 : 8,50

31 December 20.14 1 : 8,65
Average for the period 1 March 20.14 to 28 February 20.15 1 : 8,72
28 February 20.15 1 : 9,02
1. It is the accounting policy of SolarLite Ltd to account for investments in subsidiaries at cost in
2. SolarLite Ltd elected to measure the non-controlling interests at the proportionate share of the
acquiree’s net assets at acquisition date for all acquisitions.
3. SolarLite Ltd’s functional and presentation currency is the South African Rand.
4. Power-2-U Ltd did not declare any dividends during the year.
5. All the companies in the group have a 28 February year end.
6. Assume a South African normal income tax rate of 28% and a capital gains tax inclusion rate of
80%. Ignore the effects of Dividend Tax and Value Added Tax (VAT).
7. Assume that Australia’s income tax rate is 20%.
MJM
71 FAC4864/105
NFA4864/105
ZFA4864/105
PART II 7 marks
Texco Ltd acquired a 100% interest in Choco AG on 30 June 20.13 for R2 000 000. Choco AG is a
company incorporated in Switzerland and has been supplying Texco Ltd with Swiss chocolates over
the last 10 years. The functional currency of Texco Ltd is the Rand (R) and Choco AG’s functional
currency is the Swiss Franc (CHF). At the date of acquisition, Texco Ltd granted a loan (denominated
in CHF) to Choco AG for CHF80 000 when the exchange rate was CHF1 = R12,50. At
31 December 20.13 the exchange rate was CHF1 = R12,00. No repayment terms have been agreed
on and Texco Ltd will not require settlement of the loan in the near future. Texco Ltd and Choco AG
both have a 31 December year end.
MJM
72 FAC4864/105
NFA4864/105
ZFA4864/105
QUESTION 4
REQUIRED
Marks
PART I
Prepare the pro forma journals of the SolarLite Ltd Group for the year ended 32
28 February 20.15. Please note that the at acquisition elimination journal is not required.
Please note:
• Journals relating to deferred taxation are required.

• Journal narrations are required.
PART II
Discuss, with reasons and with reference to amounts, how the loan granted to Choco AG 6
should be accounted for in the separate financial statements of Texco Ltd as well as in the
consolidated financial statements of the Texco Ltd Group for the year ended
31 December 20.13.
Communication skills: logical flow and layout 1
Please note:
• You can assume that Choco AG is a foreign operation in terms of IAS 21 The Effects
of Changes in Foreign Exchange Rates.
MJM
73 FAC4864/105
NFA4864/105
ZFA4864/105
PART I
Pro forma journals of the SolarLite Ltd Group

Dr Cr
R R
J1 Goodwill (SFP) [(950 300/8,50) x (9,02 – 8,50)] 58 136 (2)
Foreign currency translation reserve (OCI) 58 136 (½)
Adjustment of goodwill and FCTR for the current period
J2 Sales (SolarLite) (P/L) (100 000 x 8,72) 872 000 (1)
Cost of sales (Power-2-U) (P/L) 872 000 (½)
Elimination of intragroup sales
J3 Cost of sales (SolarLite) (P/L) (132 300 x 20/120) 22 050 (1½)
Inventory (SFP) 22 050 (½)
Elimination of unrealised profit on inventory
J4 Deferred tax (SFP) (22 050 x 28%) 6 174 (1)
Income tax expense (SolarLite) (P/L) 6 174 (½)
Elimination of tax on unrealised profit
J5 Foreign exchange difference (P/L) 91 765 (½)
Foreign currency translation reserve (OCI)
[(1 500 000/8,50) x (9,02 – 8,50)] 91 765 (1½)
Reclassifying foreign exchange movement of net investment
held in Power-2-U Ltd to OCI [IAS 21.32]
J6 Interest income/Other income (P/L) 184 659 (½)
Interest expense/Finance costs (P/L)
(1 500 000/8,50 x 12% x 8,72) 184 659 (2)
Elimination of intragroup interest
J7 Loan from SolarLite Ltd (SFP) 1 591 765 (½)
Loan to Power-2-U Ltd (SFP)
(1 500 000 (given) + 91 765(J5)) OR (1 500 000/8,50 x 9,02) 1 591 765 (1½)
Elimination of intragroup loan
J8 Deferred tax (SFP) [56 000 x (8,65 – 8,50)] OR (42 000 x 20%) 8 400 (1½)
Foreign currency translation reserve (balancing) (OCI) 33 600 (1½)
Contingent liability (SFP) [280 000 x (8,65 – 8,50)] 42 000 (½)
Accounting for foreign exchange movement on contingent
liability
J9 Contingent liability (SFP) [(280 000 x 8,50) + 42 000(J8)] 2 422 000 (1½)
Other expenses (P/L) 2 422 000 (½)
Reversal of contingent liability recognised on date of
acquisition upon settlement
J10 Income tax expense (P/L) 484 400 (½)
Deferred tax (SFP) [(56 000 x 8,50) + 8 400(J8)] OR
(2 422 000 x 20%) 484 400 (1)
Reversal of deferred tax on contingent liability
J11 Non-controlling interests (P/L) [C1] 1 941 600 (3)
Non-controlling interests (OCI) [C1] 403 320 (1½)
Non-controlling interests (SFP/SCE) 2 344 920 (½)
Recognition of non-controlling interests’ portion in current year
profit and other comprehensive income
MJM
74 FAC4864/105
NFA4864/105
ZFA4864/105
Dr Cr
R R
J12 Investment in Power-2-U Ltd (SFP) (13 600 000 x 10/70) 1 942 857 (1)
Profit on sale (separate) (P/L) (300 000 x 9,02 – 1 942 857) 763 143 (1½)
FCTR (SCE) [C2] 134 440 (½)
Change in ownership (SCE) ([C2] or balancing) 251 700 (4½)
Non-controlling interests (SFP/SCE) ([C3] or balancing) 2 588 740 (½)
Adjustment to non-controlling interests and equity on disposal
of partial interest in Power-2-U Ltd
Total (34)
Maximum (32)
COMMENT
Journal 1
IAS 21.47 states that any goodwill arising on the acquisition of a foreign operation shall be
treated as an asset of the foreign operation. Goodwill should thus be expressed in the
functional currency of the foreign operation and should be translated at the closing rate.
Any assets/liabilities recognised only for consolidation purposes (for example goodwill) are
created through consolidation journal entries and any restatement of these assets or
liabilities also need to be accounted for by means of consolidation journals.
Journal 3
The unrealised profit is eliminated at year end and not throughout the year. In this
scenario, the closing inventory was given at the Rand amount and did not need to be
translated. In cases where translation is required for intragroup transactions, the closing
rate (i.e. R9,02) would be used to translate P/L and SFP items.
Journal 5
As the loan forms part of the net investment in the subsidiary, IAS 21.32 should be
applied. The foreign exchange difference recognised in P/L in the separate financial
statements should be transferred to the foreign currency translation reserve (OCI) in the
consolidated financial statements.
Journal 8
At acquisition a contingent liability amounting to R2 380 000 was recognised in terms of
IFRS 3. As this is a liability recognised only for consolidation purposes, it should be
adjusted to the closing rate at year end by means of a consolidation journal.
Journal 11
The contingent liability reversal and the tax effect thereon need to be deducted from the
profit before allocating the profit attributable to the non-controlling interests. The intragroup
transaction was a sale from the parent to the subsidiary and will thus have no effect on the
profit of the subsidiary.
MJM
75 FAC4864/105
NFA4864/105
ZFA4864/105
EXAM TECHNIQUE
• Marks for calculations are only awarded if it was used in the journals.
• Please read carefully whether journal narrations are required to ensure you obtain
the easy marks for presentation.
• Always indicate the classification for accounts in journals, for example P/L, SFP, OCI
or SCE.
• In this question, the at acquisition elimination journal was not required. Read the
required carefully to ensure you don’t waste valuable time.
PART II
A monetary item for which settlement is neither planned nor likely to occur in the foreseeable
future is, in substance, a part of the entity’s net investment in that foreign operation
(IAS 21.15).
No repayment terms have been agreed on for the loan granted by Texco Ltd to Choco AG
and Texco Ltd will not require settlement of the loan in the near future. (1)
The loan will therefore be seen as part of Texco Ltd’s net investment in Choco AG. (1)
Separate financial statements – Texco Ltd
A foreign currency transaction shall be recorded, on initial recognition in the functional

currency, by applying to the foreign currency amount the spot exchange rate between the
functional currency and the foreign currency at the date of the transaction (IAS 21.21).
The loan will initially be accounted for at the exchange rate on 30 June 20.13 (date that the
loan is granted) for CHF 80 000 x R12,50 = R1 000 000. (1)
At the end of each reporting period, foreign currency monetary items shall be translated using
the closing rate (IAS 21.23 (a)). The CHF dominated loan must therefore be translated to
Rand at 31 December 20.13 at CHF = R12,00. The loan receivable by Texco Ltd is therefore
translated to R960 000 (CHF80 000 x R12,00). (1)
Exchange differences arising on the translation of monetary items at a rate different from that
at which it was translated at initial recognition shall be recognised in profit or loss (IAS 21.28).
The exchange loss of R40 000 (1 000 000 – 960 000) shall be recognised in the profit or loss
section of the statement of profit or loss and other comprehensive income in the separate
financial statements of Texco Ltd for the financial year ended 31 December 20.13. (1)
Consolidated financial statements – Texco Ltd Group
Exchange differences arising on monetary items that forms part of a reporting entity’s net
investment in a foreign operation that is recognised in profit or loss in the separate financial
statements must be recognised initially in other comprehensive income (IAS 21.32).
The foreign exchange loss of R40 000 recognised in profit or loss in the separate financial
statements of Texco Ltd must thus be transferred to the foreign currency translation reserve
in other comprehensive income. (1)
MJM
76 FAC4864/105
NFA4864/105
ZFA4864/105
The loan receivable in the separate financial statements of Texco Ltd for R960 000 (R12,00 x
CHF80 000) and the loan payable by Choco AG of R960 000 (CHF80 000) translated at the
closing rate of R12,00 in the conversion trial balance must be eliminated on consolidation as
it represents an intragroup loan. (1)
Total (7)
Maximum (6)
Communication skills: logical flow and layout (1)
COMMENT
• The loan will be seen as part of Texco Ltd’s net investment in Choco AG.
• Loans that are considered to be part of the net investment requires exchange gains
or losses to be transferred to a FCTR.
• The exchange gain or loss cannot be eliminated as it will only originate in
Texco Ltd as the loan is denominated in CHF. Choco AG’s functional currency is
CHF and will therefore not have an exchange gain or loss in its separate financial
statements.
CALCULATIONS
C1. Analysis of owners’ equity of Power-2-U Ltd

SolarLite Ltd
Total (70% - 60%)
Rate Total NCI
AUD
At Since
R R R R R
At acquisition
Share capital 500 000 8,50
Retained earnings 1 850 000 8,50
Contingent liability (280 000) 8,50
Deferred tax
(280 x 20%) 56 000 8,50
2 126 000 8,50 18 071 000 12 649 700 5 421 300

Goodwill 111 800 8,50 950 300 950 300 -
Consideration and NCI
(1 600 x 8,50) 2 237 800 8,50 19 021 300 13 600 000 5 421 300
Current year
Profit for the year
(2 370 – 1 850) 520 000 8,72 4 534 400 3 174 080 1 360 320 [1½]
Reverse contingent liability
[280 – (280 x 20%)] 224 000 8,65 1 937 600 1 356 320 581 280 [1]
1 941 600
FCTR (goodwill)
[111 800 x (9,02 – 8,50)] 58 136 58 136 -
FCTR (balancing) 1 344 400 941 080 403 320
28 February 20.15 2 981 800 9,02 26 895 836 13 600 000 5 529 616 7 766 220
Disposal of 10%
(13 600 x 10/70);(C2) (1 942 857) (645 883) 2 588 740
2 981 800 26 895 836 11 657 143 4 883 733 10 354 960
C2. Change in ownership [IFRS 10.B96]
Proceeds (AUD300 000 x 9,02) 2 706 000 [½]

Amount by which NCI is adjusted (2 870 000 x 10% x 9,02) (2 588 740)
NCI before transaction [(26 895 836 - (950 300 + 58 136)) x 30%] 7 766 220 [1]
NCI after transaction [(26 895 836 - (950 300 + 58 136)) x 40%] (10 354 960) [1]
FCTR
(941 080 x 10/70) OR (1 344 400 x 10% = 134 440) 134 440 [1½]
Amount to be recognised directly in equity 251 700
[4]
MJM
77 FAC4864/105
NFA4864/105
ZFA4864/105
C3. Amount by which NCI is adjusted
NCI before transaction [(26 895 836 - (950 300 + 58 136)) x 30%] 7 766 220 [1]
NCI after transaction [(26 895 836 - (950 300 + 58 136)) x 40%] (10 354 960) [1]
(2 588 740)
[2]
OR
Amount by which NCI is adjusted ((2 981 800 – 111 800) x 10% x 9,02) (2 588 740) [2]
OR
NCI before transaction = 7 766 220 x 10/30 (2 588 740) [2]
C4. Conversion trial balance as at 28 February 20.15
AUD Rate ZAR

Profit for the year:
Given profit for the year
(2 370 000 – 1 850 000) (520 000) 8,72 (4 534 400)
Reversal of contingent liability
(280 000 – 56 000) (224 000) 8,65 (1 937 600)
Net assets (given) 2 870 000 9,02 25 887 400
Equity at acquisition
(500 000 + 1 850 000 – 280 000 + 56 000) (2 126 000) 8,50 (18 071 000)
FCTR (balancing) - (1 344 400)
- -
FCTR as per conversion trial balance 1 344 400

FCTR on goodwill [111 800 x (9,02 – 8,50)] 58 136
Total FCTR 1 402 536
FCTR attributed to NCI (1 344 400 x 30%) (403 320)
FCTR attributed to parent 999 216
MJM
78 FAC4864/105
NFA4864/105
ZFA4864/105
QUESTION 5 40 marks
CTA Ltd (CTA) is a South African based multinational telecommunications company, operating in
many African countries. CTA is listed on the JSE Limited and the group has a 31 March year end.
On 15 October 20.14 CTA acquired an 80% controlling interest in Ifoni Plc (Ifoni), a Nigerian company
also in the telecommunications industry, for a purchase consideration of $400 000. The purchase
consideration was deemed to be a fair value for the 80% controlling interest. The equity of Ifoni
comprised of the following credit balances on 15 October 20.14:
$
Share capital (50 000 shares) 50 000
Mark-to-market reserve 75 000
400 000
All the assets and liabilities of Ifoni were considered to be fairly valued at their carrying amounts on
15 October 20.14. No additional assets, liabilities or contingent liabilities were identified at the
acquisition date.
During the 20.16 financial year, Ifoni was involved in numerous legal actions in Nigeria and CTA
therefore decided to dispose of their controlling interest in Ifoni. 65% of the shares in Ifoni was sold to
Vphone Ltd on 31 March 20.16 for an amount of $550 000. CTA retained a 15% non-controlling
interest in Ifoni after the disposal. You may assume that the requirements of IFRS 5 Non-current
Assets Held for Sale and Discontinued Operations were not met until the date of disposal.
The following trial balance for Ifoni as at 31 March 20.16 is presented to you:
Debit Credit
$ $
Property, plant and equipment 360 000
Investments in equity instruments 210 000
Current assets 75 000
Issued ordinary share capital (50 000 shares) 50 000
Retained earnings – 1 April 20.15 350 000
Loss for the year 120 000
Mark-to-market reserve – 1 April 20.15 86 250
Other comprehensive income for the year
(fair value adjustments on equity instruments) 8 750
Dividends paid (paid on 31 January 20.16) 15 000
Long-term loan 91 250
Deferred tax 68 750
Current liabilities 125 000
780 000 780 000
MJM
79 FAC4864/105
NFA4864/105
ZFA4864/105
• The following exchange rates are applicable at the respective dates:
$1 = R
15 October 20.14 7,00

31 March 20.15 7,75
Average – 15 October 20.14 to 31 March 20.15 7,50
31 January 20.16 8,00
31 March 20.16 8,10
Average – 1 April 20.15 to 31 March 20.16 7,90
• The price per share of Ifoni at the respective dates was as follows:
15 October 20.14 12,50

31 March 20.15 15,00
28 March 20.16 16,00
31 March 20.16 17,00
• The CTA group elected to measure non-controlling interests at fair value at acquisition date for
the acquisition of Ifoni.
• It is the accounting policy of CTA Ltd to account for investments in subsidiaries at cost in
• It is the accounting policy of CTA Ltd to account for investments in equity instruments other
than investments in subsidiaries in terms of IFRS 9 Financial Instruments. CTA Ltd irrevocably
elected to present subsequent changes in the fair value of the investments in a mark-to-market
reserve through other comprehensive income. The group has elected to transfer cumulative
gains or losses on equity instruments previously recognised in other comprehensive income to
retained earnings on disposal of the instrument.
• All the income, expenses and fair value adjustments accrued evenly throughout the year unless
otherwise indicated in the question.
MJM
80 FAC4864/105
NFA4864/105
ZFA4864/105
QUESTION 5
REQUIRED
Marks
(a) Calculate the consolidated gain or loss, in terms of IFRS 10.B98 – B99, arising from 20
the sale of the interest in Ifoni Plc in the consolidated financial statements of the
CTA Ltd Group for the year ended 31 March 20.16.
(b) Present the following columns in the consolidated statement of changes in equity of 5
the CTA Ltd Group for the year ended 31 March 20.16:
• Mark-to-market reserve; and

• Non-controlling interests.
(c) Discuss, in accordance with IFRS 10 Consolidated Financial Statements, the impact 5
on the disposal transaction(s), if CTA Ltd disposed of 12 500 shares in Ifoni Plc for
$12 per share on 28 March 20.16 and 20 000 shares for $20 per share on
31 March 20.16, instead of the one transaction for $550 000 on 31 March 20.16. Your
discussion should not address IFRS 10.B98.
(d) Assume for part (d) that instead of CTA Ltd disposing of 65% of the shares in Ifoni Plc, 10
CTA Ltd only disposed of 20% of the shares in Ifoni Plc on 31 March 20.16 for
$80 000. After the disposal, CTA Ltd still owned a 60% controlling interest in Ifoni Plc.
Calculate the following amounts that will be presented in the consolidated statement of
changes in equity of the CTA Ltd Group for the year ended 31 March 20.16 relating to
the 20% disposal:
(i) Transfer of foreign currency translation reserve amount;

(ii) Disposal of interest amount in the non-controlling interests’ column; and
(iii) Disposal of interest amount in the change in ownership’s column.
Please note:

• Ignore any income tax consequences.
• Show and reference calculations clearly.
MJM
81 FAC4864/105
NFA4864/105
ZFA4864/105

(a) Calculate the consolidated gain or loss, in terms of IFRS 10.B98 – B99
$ Rate R
Derecognise net asset value on date of sale

excluding goodwill [C1] 360 000 8,10 (2 916 000) (3½)
Derecognise goodwill [C2] 125 000 8,10 (1 012 500) (3)
Derecognise non-controlling interests [C3] 925 700 (9½)
Recognise the fair value of the consideration
received 550 000 8,10 4 455 000 (1)
Recognise the fair value of the remaining interest
(50 000 x 15% x $17) 127 500 8,10 1 032 750 (2)
Reclassification of FCTR in terms of B99 [C3]
(75 000 + 257 250 + 35 000 + 117 150) 484 400 (2)
2 969 350
Total (21)
Maximum (20)
COMMENT
When calculating the consolidated gain or loss in terms of IFRS 10.B98 – B99, one must
remember the following steps:
1. Derecognise net asset value on date of sale:

• The question gave the trial balance, and the net asset value could easily be
calculated (see C1).
• Remember that goodwill arising on the acquisition of a foreign operation shall be
treated as an asset, and it shall be translated at the spot rate on the date of disposal.
2. Derecognise non-controlling interests (NCI):

• The CTA Group elected to measure NCI at fair value. Therefore NCI will also share
in goodwill and the foreign currency translation reserve (FCTR) movement relating to
goodwill.
• When calculating the NCI, the FCTR-balance movement relating to goodwill as well
as the FCTR-balance movement relating to the net asset value of the interest must
be added.
• Remember that when NCI are measured at fair value, one cannot simply take the
net asset value times 20%, as goodwill is not allocated to the parent and NCI in the
profit-sharing ratio.
3. Recognise the fair value of the consideration received:

• The amount was given, but please note that the consideration was given in US$,
and not in Rand, therefore the amount needs to be translated using the spot rate on
31 March 20.16.
4. Recognise the fair value of the remaining interest:

• All the information was given, please remember to translate it at the spot rate on
31 March 20.16.
5. Reclassification of FCTR in terms of IFRS 10.B99:

• On the disposal of a foreign operation, the cumulative amount of the FCTR, which is
included in the consolidated statement of changes in equity, shall be reclassified
from equity to profit or loss. This amount of FCTR will only be the portion allocated to
the parent (CTA Ltd) as the NCI’s portion are already included in the NCI amount of
R925 700 that will be derecognised.
MJM
82 FAC4864/105
NFA4864/105
ZFA4864/105
(b) CTA LTD GROUP

31 MARCH 20.16
Mark-to- Non-
market controlling
reserve interests
R R
Balance at 1 April 20.15 [C3] 67 500 1 087 438 (1)

Change in equity for 20.16
Total comprehensive income for the year
- Loss for the year [C3] - (189 600) (½)
- Other comprehensive income for the year
[C3]; (13 825 [C3] + 38 037 [C3]) 55 300 51 862 (1½)
Dividends [C3] - (24 000) (1)
Disposal of subsidiary - (925 700) (½)
Transfer to retained earnings
(67 500 [C3] + 55 300 [C3]) (122 800) - (½)
Balance at 31 March 20.16 - -
(5)
COMMENT
Mark-to-market reserve column
• Balance at 1 April 20.15

° The opening balance of the mark-to-market reserve will consist of the movement for
the year since acquisition till 31 March 20.15.
° Also remember it will only be the parent’s portion (CTA Ltd), as the allocation to
non-controlling interests has already been allocated with the following journal:
Dr Mark-to-market reserve (SCE) [(86 250 – 75 000) x 7,50 x 20%]

Cr Non-controlling interests (SCE/SFP)
• Other comprehensive income for the year:

° The mark-to-market reserve adjustment for the year was $8 750, this amount
should be translated at the average exchange rate for the period 1 April 20.15 to
31 March 20.16, as the information stated that the adjustments accrued evenly
throughout the year.
° Again, as stated previously, it will only be the parent’s portion (CTA Ltd), as the
allocation to non-controlling interests has already been allocated with the following
journal:
Dr Non-controlling interests (OCI) [8 750 x 7,90 x 20%]

Cr Non-controlling interests (SCE/SFP)
• Transfer to retained earnings:

° It was stated in the additional information that the group has elected to transfer
cumulative gains or losses on equity instruments previously recognised in other
comprehensive income to retained earnings on disposal of the instrument. CTA Ltd
disposed of Ifoni Plc, and therefore the balance of the mark-to-market reserve
should be transferred to retained earnings.
MJM
83 FAC4864/105
NFA4864/105
ZFA4864/105
COMMENT
Non-controlling interests column
• Balance at 1 April 20.15

° The CTA Group elected to measure NCI at fair value and therefore NCI’s share in
goodwill and the foreign currency translation reserve (FCTR) movement relating to
goodwill should be added to the opening balance.
• Other comprehensive income for the year:

° When calculating NCI, the FCTR-balance movement relating to goodwill as well as
the FCTR-balance movement relating to the net asset value of the interest must be
added.
• Dividends
° Remember that dividends received from the subsidiary will decrease NCI. The pro
forma journal to eliminate intragroup dividends will be as follows:
Dr Non-controlling interests (SCE/SFP)

Dr Other income (dividend received) (P/L)
Cr Dividend declared (SCE)
• Disposal of subsidiary
° CTA Ltd disposed of the subsidiary, therefore NCI was derecognised when control
was lost, resulting in a balance of zero at year end.
(c) Accounting implications of disposing the subsidiary in two transactions
According to IFRS 10.B97 a parent might lose control of a subsidiary in two or more
arrangements (transactions).
CTA Ltd has disposed of Ifoni Plc in two transactions, namely 12 500 shares on
28 March 20.16 and 20 000 shares on 31 March 20.16. (1)
In determining whether to account for the arrangement as a single transaction, the

parent shall consider the terms and conditions of the arrangements and their economic
effects.
One or more of the following may indicate that the parent should account for the
multiple arrangement as a single transaction:
• They are entered into at the same time or in contemplation of each other.
• They form a single transaction designed to achieve an overall commercial effect.
• The occurrence of one arrangement is dependent on the occurrence of at least
one other arrangement.
• One arrangement considered on its own is not economically justified but it is
economically justified when considered together with other arrangements.
The first transaction on 28 March 20.16 was not considered to be economically justified,
as $12 per share is below the market value of $16 per share. However if the first
disposal is considered together with the second disposal at $20 per share the
transaction is economically justified. (2)
MJM
84 FAC4864/105
NFA4864/105
ZFA4864/105
$12 x 12 500 =
150 000
$20 x 20 000 =
400 000
550 000
The $550 000 paid for the single transaction is equal to the two separate disposals
added together. (1)
From the discussion we can conclude that the two arrangements must be accounted for
as one single transaction. (1)
(5)
(d) Consolidated statement of changes in equity for the year ended 31 March 20.16 for 20%
disposal
(i) Transfer of foreign currency translation reserve (FCTR):
Parent’s since acquisition FCTR 332 250 (½)

Parent’s current year FCTR 152 150 (½)
484 400
% of parent’s interest sold 20/80 (½)
121 100
(1½)
(ii) Disposal of interest in the non-controlling interests’ column:
Disposal of cost of investment ($400 000 x 7,00 x 20/80) 700 000 (1½)
Disposal of since reserves
[(450 000 + 67 500 – 758 400 – 96 000 + 55 300) x 20/80] (70 400) (5½)
629 600
(7)
OR
Non-controlling interests before 20% disposal (from Part (a)) (925 700) (½)
Non-controlling interests after 20% disposal 1 676 400
Net asset value excluding goodwill (360 000 x 8,10 x 40%) 1 166 400 (2)
Goodwill of non-controlling interests (315 000 + 18 750 + 8 750) 342 500 (1½)
Goodwill of parent relinquished [(560 000 + 75 000 + 35 000) x 20/80] 167 500 (2)
Change in non-controlling interests (1 676 400 – 925 700) 750 700

Transfer of FCTR disclosed separate in SCE (from Part (d)(i)) (121 100) (½)
629 600
(7)
MJM
85 FAC4864/105
NFA4864/105
ZFA4864/105
(iii) Disposal of interest in the change in ownership column:
$ Rate R
Proceeds 80 000 8,10 648 000 (1)

Change in non-controlling interests (from Part (d)(ii)) (629 600) (½)
18 400
(1½)
CALCULATIONS
C1. Net asset value on date of sale
$
Assets less liabilities:
Property, plant and equipment 360 000 [½]
Investments in equity instruments 210 000 [½]
Current assets 75 000 [½]
Long-term loan (91 250) [½]
Deferred tax (68 750) [½]
Current liabilities (125 000) [½]
360 000
OR [3]
Equity:
Issued ordinary share capital 50 000 [½]
Retained earnings – 1 April 20.15 350 000 [½]
Loss for the year (120 000) [½]
Mark-to-market reserve – 1 April 20.15 86 250 [½]
Other comprehensive income for the year
(fair value adjustments on equity instruments) 8 750 [½]
Dividends paid (paid on 31 January 20.16) (15 000) [½]
360 000
[3]
C2. Goodwill calculation
Consideration transferred 400 000 [½]

Plus: Non-controlling interests (12,50 x 50 000 x 20%) 125 000 [1½]
Minus: Net asset value (400 000) [½]
125 000
[2½]
MJM
86 FAC4864/105
NFA4864/105
ZFA4864/105
C3. Owner’s equity analysis of Ifoni Plc
Total Rate Total Ifoni Ltd NCI

$ R 80% 20%
At acquisition
Net asset value
(50 + 275 + 75) 400 000 7,00 2 800 000 2 240 000 560 000
goodwill 125 000 7,00 875 000 560 000 315 000
Consideration and NCI 525 000 7,00 3 675 000 2 800 000 875 000 [½]
1 2
Since acquisition
Retained earnings
(350 000 – 275 000) 75 000 7,50 562 500 450 000 112 500 [1½]
Mark-to-market
(86 250 – 75 000) 11 250 7,50 84 375 67 500 16 875 [1½]
FCTR (goodwill) 93 750 75 000 18 750 [½]
FCTR 321 563 257 250 64 313 [½]
611 250 7,75 4 737 188 3 649 750 1 087 438 [½]
Current year
Loss for the year (120 000) 7,90 (948 000) (758 400) (189 600) [1]
Dividend paid (15 000) 8,00 (120 000) (96 000) (24 000) [1]
Mark-to-market (OCI) 8 750 7,90 69 125 55 300 13 825 [1]
FCTR (goodwill) 43 750 35 000 8 750 [½]
FCTR (OCI) 146 437 117 150 29 287 [½]
485 000 8,10 3 928 500 3 002 800 925 700 [½]
[9½]
1 $400 000 x 7,00
2 10 000 x $12,50 x 7,00
MJM
87 FAC4864/105
NFA4864/105
ZFA4864/105
QUESTION 6 40 marks
The following is an extract from the consolidated financial statements of the Steel Security Ltd Group:
STEEL SECURITY LTD GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 29 FEBRUARY 20.16
20.16 20.15
R R
ASSETS
Non-current assets
Land 950 000 720 000
Property, plant and equipment 50 410 320 335
Investments in equity instruments 282 900 175 000
Investments in associates 320 115 220 285
Goodwill - 10 115
1 603 425 1 445 735
Current assets
Inventory 115 750 110 455
Non-current assets held for sale 257 000 -
Suspense account 255 101 -
Cash and cash equivalents - 8 750
715 296 201 208
Total assets 2 318 721 1 646 943

Share capital 500 000 500 000
Revaluation surplus 55 872 -
Mark-to-market reserve 45 480 20 338
954 601 937 085
Total equity 1 285 958 1 138 748
Long-term borrowings 585 520 200 250
Current liabilities
Bank overdraft 24 985 -
Tax payable 45 580 28 750
Total current liabilities 260 775 232 365
Total liabilities 1 032 763 508 195
MJM
88 FAC4864/105
NFA4864/105
ZFA4864/105
EXTRACT FROM THE CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER

COMPREHENSIVE INCOME FOR THE YEAR ENDED 29 FEBRUARY 20.16
20.16
R
Revenue 1 760 300

Gross profit 596 565
Other income 117 225
Profit before tax 331 265
PROFIT FOR THE YEAR 65 684
Other comprehensive income:
Gain on revaluation of land ?
Mark-to-market reserve (fair value adjustments to investments in equity instruments) 25 142
Other comprehensive income for the year, net of tax ?
TOTAL COMPREHENSIVE INCOME FOR THE YEAR ?

65 684
1. Land
On 28 February 20.15 Steel Security Ltd acquired a 60% controlling interest in Be Safe Ltd.
Be Safe Ltd's equity, fairly valued, amounted to R250 000 on that date. You can assume that no
goodwill or gain on bargain purchase arose on the acquisition date with regards to this
acquisition. The revaluation surplus relates to the land of Be Safe Ltd that was revalued during
the current financial year. No land was disposed of during the current financial year.
2. Property, plant and equipment
• On 29 February 20.16, management decided to sell a plant with a carrying amount of

R268 500, for R265 000 by 30 April 20.16. Costs to sell the plant will amount to R8 000.
Management concluded a valid non-cancellable sales contract with a buyer using fair
values.
• The total depreciation for the current financial year amounted to R182 700 and is included
in other expenses.
MJM
89 FAC4864/105
NFA4864/105
ZFA4864/105
3. Investments in equity instruments
Steel Security Ltd has various investments in financial assets and did not dispose of any
financial assets during the current financial year.
4. Investments in associates
Steel Security Ltd has various investments in associates. Steel Security Ltd received dividends
amounting to R65 000 from these associates and did not dispose of any associates during the
current financial year.
5. Investment in Power Systems Ltd
On 1 June 20.14 Steel Security Ltd acquired a 70% controlling interest in Power Systems Ltd
for a cash consideration of R210 000. All the assets and liabilities of Power Systems Ltd were
deemed to be fairly valued on 1 June 20.14. No additional assets, liabilities or contingent
liabilities were identified on the acquisition date.
The equity of Power Systems Ltd consisted of the following on the various dates:
1 June 20.14 28 February 20.15

R R
Share capital (100 000 shares) 100 000 100 000

285 550 338 875
On 30 September 20.15, Steel Security Ltd disposed of a 15% interest in Power Systems Ltd
for a cash consideration of R70 000 resulting in a remaining controlling interest of 55%.
The profit of Power Systems Ltd for the period 1 March 20.15 to 29 February 20.16 amounted
to R129 240. The profit for the period 1 October 20.15 to 29 February 20.16 only consisted of
revenue and cost of sales. The gross profit percentage of Power Systems Ltd for this period
was 25% and all sale transactions were made on credit. You may assume that the tax on these
sale transactions was correctly accounted for.
As the accountant has limited knowledge of IFRS 10 Consolidated Financial Statements, he

accounted for the transaction as if Steel Security Ltd lost control over Power Systems Ltd.
The accountant processed the following journal with regards to the disposal in the separate
financial statements of Steel Security Ltd:
Dr Cr
R R
J1 Bank (SFP) 70 000
Investment in Power Systems Ltd (SFP) (210 000 x 15/70) 45 000
Profit on sale of interest (P/L) (included in other expenses) 25 000
MJM
90 FAC4864/105
NFA4864/105
ZFA4864/105
The accountant accounted for the following in the consolidated financial statements:
• at acquisition elimination journal;

• journal to account for non-controlling interests' portion of retained earnings and profit up
to 30 September 20.15;
• journal to derecognise assets, liabilities and goodwill (you can assume that he correctly
calculated goodwill);
• journal to derecognise non-controlling interests (you can assume that he correctly
calculated non-controlling interests);
• debited the investment in Power Systems Ltd with R45 000; and
• created a suspense account where the difference was accounted for.
The net assets of Power Systems Ltd on 30 September 20.15 were as follows:
Dr/(Cr)
R
Property, plant and equipment (the depreciation on these property, plant and
equipment items for the 20.16 financial year were correctly accounted for) 475 590
Inventory 72 200
Cash and cash equivalents 85 560
Long-term borrowings (227 790)
Trade payables (62 300)
Power Systems Ltd did not declare or pay any dividends during the current financial year.
6. Investment in TDA Ltd
On 1 July 20.15 Steel Security Ltd acquired a 65% controlling interest in TDA Ltd for a cash
consideration of R290 000. All the assets and liabilities of TDA Ltd were deemed to be fairly
valued on 1 July 20.15. No additional assets, liabilities or contingent liabilities were identified on
the acquisition date. The net assets of TDA Ltd on 1 July 20.15 were as follows:
Dr/(Cr)
R

Inventory 98 500
The profit of TDA Ltd for the period 1 July 20.15 to 29 February 20.16 amounted to R101 300.
All items classified through profit or loss relating to this transaction is included in other
expenses.
7. Investment in wholly-owned subsidiary
On 1 August 20.14 Steel Security Ltd acquired a wholly-owned subsidiary. No goodwill or gain
on bargain purchase arose with this transaction.
On 29 February 20.16 Steel Security Ltd sold 75% of its interest in the subsidiary.
Steel Security Ltd exercised significant influence over the financial and operating policy
decisions of this entity from 29 February 20.16. All the assets and liabilities of this entity were
deemed to be fairly valued and no additional assets or liabilities were identified on that date.
The fair value of the remaining 25% interest amounted to R75 000 on 29 February 20.16.
MJM
91 FAC4864/105
NFA4864/105
ZFA4864/105
The net assets of this entity on 29 February 20.16 were as follows:
Dr/(Cr)
R
Inventory 21 165
257 700
8. Profit before tax
Apart from the information provided, the following items are included in profit before tax:
R
Other income
Dividends received from financial assets (refer to number 9) 85 000
Interest received 20 500
Profit on disposal of subsidiary (refer to number 7) 11 725
9. Dividends received
The dividends received of R85 000 accrued to Steel Security Ltd on 29 February 20.16.
Dividends received for the 20.15 financial year accrued to Steel Security Ltd on
28 February 20.15 and amounted to R80 000. The dividends for both years were only received
after the respective year ends and were correctly classified as receivables at the respective
year ends.
10. Acquisition of preference shares
Steel Security Ltd plans to acquire a 60% interest in the 12% redeemable cumulative
preference shares of Iron Ltd in the 20.17 financial year. The preference shares will have a two-
month maturity date which will enable Steel Security Ltd to meet any short-term cash
commitments. The preference shares will be readily redeemable in cash at a premium of 10%.
Other information
1. It is the accounting policy of Steel Security Ltd to account for investments in subsidiaries and
investments in associates at cost in its separate financial statements in accordance with
IAS 27.10(a).
2. It is the accounting policy of Steel Security Ltd to account for investments in equity instruments,
other than investments in subsidiaries and associates, in accordance with IFRS 9
Financial Instruments. Steel Security Ltd irrevocably elected to present subsequent changes in
the fair value of the investments in other comprehensive income in a mark-to-market reserve.
3. Steel Security Ltd elected to measure non-controlling interests at the proportionate share of the
acquiree’s identifiable net assets at acquisition date for all acquisitions.
MJM
92 FAC4864/105
NFA4864/105
ZFA4864/105
4. Steel Security Ltd paid a dividend of R65 000 during the current financial year.
5. Cash flows from interest and dividends received are classified as investing activities and cash
flows from interest and dividends paid are classified as operating activities.
6. Assume that profits were earned evenly throughout the year.
the financial statements during the current financial year.
9. All the companies in the group have a 29 February year end.
10. The bank overdraft is repayable on demand.
MJM
93 FAC4864/105
NFA4864/105
ZFA4864/105
QUESTION 6
REQUIRED
Marks
(a) Prepare only the following sections of the consolidated statement of cash flows of 34
the Steel Security Ltd Group for the year ended 29 February 20.16 according to the
direct method:
- cash flows from operating activities; and

- cash flows from investing activities.
Please note:
• The amounts for cash receipts from customers and cash paid to suppliers and
employees must be calculated.
• Notes to the consolidated statement of cash flows are not required.
(b) Critically discuss, with reasons, how the acquisition of the redeemable preference 4
shares in Iron Ltd will be disclosed in the consolidated statement of financial position
of the Steel Security Ltd Group in terms of IAS 7 Statement of Cash Flows.
Please note:
MJM
94 FAC4864/105
NFA4864/105
ZFA4864/105
(a) Cash flows from operating activities and cash flows from investing activities
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED

29 FEBRUARY 20.16
R
Cash receipts from customers [C1] 1 622 843 (3)
Cash paid to suppliers and employees [C2] (1 278 916) (8½)
Cash generated from operations 343 927
Interest paid (given) (45 500) (½)
Dividends paid [C3] (92 300) (5½)
Income taxes paid [C7] (172 001) (3½)

Interest received (given) 20 500 (½)
Dividends received (65 000 + 80 000) 145 000 (1)
Acquisition of land [C8] (110 000) (2)
Acquisition of property, plant and equipment [C9] (509 405) (3)
Acquisition of equity instruments [C10] (75 500) (1½)
Acquisition of associates [C11] (23 950) (2)
Proceeds from disposal of subsidiary
(257 700 – 75 000 + 11 725 – 5 580) 188 845 (2)
Acquisition of subsidiary, net of cash acquired (290 000 + 10 850) (300 850) (1)
Net cash used in investing activities (665 360)
(34)
EXAM TECHNIQUE
The given information clearly stated that cash flows from interest and dividends received
are classified as investing activities and cash flows from interest and dividends paid are
classified as operating activities. Students that classified interest and dividends
incorrectly lost out on an easy presentation mark. It is thus very important to carefully
read the given information.
MJM
95 FAC4864/105
NFA4864/105
ZFA4864/105
COMMENT
Proceeds from disposal of subsidiary
The proceeds from the disposal of the wholly-owned subsidiary were not provided in the
given information. Student thus had to calculate it by applying IFRS 10.B98:
Derecognise assets and liabilities (given) (257 700)

Derecognise non-controlling interests (100% subsidiary) -
Recognise fair value of remaining interest (given) 75 000
Recognise consideration received (balancing) 194 425
Consolidated profit on disposal (given) 11 725
The proceeds from this disposal is thus the consideration received of R194 425 less the
cash and cash equivalents of the subsidiary of R5 580 = R188 845.
(b) Critical discussion of redeemable preference shares
• Cash comprises cash on hand and demand deposits (IAS 7.6).

• Cash and cash equivalents are short-term, highly liquid investments that are readily
convertible to known amounts of cash and which are subject to an insignificant risk
of change in value (IAS 7.6).
• Cash equivalents are held for the purpose of meeting short-term cash commitments
rather than for investment or other purposes (IAS 7.7).
• Steel Security Ltd wants to acquire the interest in preference shares to meet short-
term cash commitments. (1)
• For the redeemable preference shares to qualify as a cash equivalent it must be
readily convertible to a known amount of cash and be subject to an insignificant risk
of change in value (IAS 7.7). (1)
• Therefore, an investment normally qualifies as a cash equivalent only when it has a
short maturity (IAS 7.7).
• The redeemable preference shares to be acquired in Iron Ltd will have a fixed two-
month maturity date and it will be readily redeemable in cash at a premium of 10%. (1)
• The redeemable preference shares will thus form part of cash and cash equivalents
in the consolidated statement of financial position. (1)
(4)
EXAM TECHNIQUE
The required was to critically discuss how the acquisition of the redeemable preference
shares in Iron Ltd will be disclosed in the consolidated statement of financial position
and not in the consolidated statement of cash flows. Read carefully to avoid losing
valuable marks.
MJM
96 FAC4864/105
NFA4864/105
ZFA4864/105
CALCULATIONS
Revenue 1 760 300 [½]

Revenue for Power Systems Ltd (1/10/20.15 – 29/2/20.16)
(129 240 x 5/12 x 100/25) 215 400
Trade receivables for Power Systems Ltd (1/10/20.15 – 29/2/20.16) (215 400)
Increase in trade receivables (82 003 – 87 445) (5 442) [½]
Dividends receivable – 20.15 (80 000) [½]
Dividends receivable – 20.16 85 000 [½]
Reversal of trade receivables incorrectly derecognised (71 005) [½]
Disposal of subsidiary (66 010) [½]
1 622 843
[3]
COMMENT
Investment in Power Systems Ltd
Steel Security Ltd disposed of a 15% interest in Power Systems Ltd on

30 September 20.15. The given information clearly states that Steel Security Ltd still had
control over Power Systems Ltd after the disposal.
The accounting clerk accounted for the disposal as if Steel Security Ltd lost control over
Power Systems Ltd. The accounting clerk thus incorrectly derecognised the assets and
liabilities. The closing balances of the assets and liabilities given on the consolidated
statement of financial position are thus incorrect as the assets and liabilities of
Power Systems Ltd were incorrectly derecognised. Before you can thus calculate the
movement in trade receivables, you must first correct the closing balance (thus credit in
T-account).
You should also remember that the accounting clerk did not consolidate
Power Systems Ltd from 30 September 20.15 as he thought Power Systems Ltd was not
a subsidiary of Steel Security Ltd anymore. You thus still have to account for the
transactions from 1 October 20.15 to 29 February 20.16. The given information clearly
states that the profit for that period only consisted of revenue (all sales transactions on
credit) and cost of sales, and that the gross profit percentage of Power Systems Ltd for
this period was 25%. The journals that were processed in Power Systems Ltd’s separate
financial statements for this period was as follows:
Dr Cr
R R
J1 Trade receivables (SFP) (129 240 x 5/12 x 100/25) 215 400

Revenue (P/L) 215 400
J2 Cost of sales (P/L) (215 400 x 25%) 161 550

Inventory (SFP) 161 550
The closing balance of trade receivables should thus also be adjusted with the above
journal before you can calculate the movement in trade receivables.
MJM
97 FAC4864/105
NFA4864/105
ZFA4864/105
COMMENT
The T-account for trade receivables will be as follows:
Trade receivables
Opening balance 82 003 Closing balance 87 445
Revenue [1 760 300 + Correction of trade receiv-
(129 240 x 5/12 x 100/25)] 1 975 700 ables incorrectly derecog-
Dividends receivable (20.16) 85 000 nised by accountant 71 005
Trade receivables of
Power Systems Ltd not yet
accounted for
(129 240 x 5/12 x 100/25) 215 400
Dividends receivable (20.15) 80 000
Disposal of subsidiary 66 010
Bank (balancing) 1 622 843
2 142 703 2 142 703
Dividends receivable
The dividends received amounting to R85 000 included in other income only accrued to
Steel Security Ltd on 29 February 20.16 and was thus not received in cash. The dividends
that accrued to Steel Security Ltd on 28 February 20.15 amounting to R80 000 was
however received in cash in the current financial year and should be included as
dividends received on the face of the consolidated statement of cash flows.
The movement in the dividends receivable account will be adjusted as per the T-account
above.
MJM
98 FAC4864/105
NFA4864/105
ZFA4864/105
Cost of sales (1 163 735) [½]

Cost of sales for Power Systems Ltd (1/10/20.15 – 29/2/20.16)
(215 400 [C1] x 75%) (161 550)
Other expenses (402 905) [½]
Reversal of incorrect profit on partial disposal of subsidiary (25 000) [½]
Adjusted for non-cash items:

Impairment loss on NCAHFS [268 500 – (265 000 – 8 000)] 11 500 [1½]
Depreciation 182 700 [½]
Gain on bargain purchase
[((368 190 + 98 500 – 10 850) x 65%) – 290 000] (6 296) [1½]
Changes in working capital:

Inventory - increase in inventory (110 455 – 115 750) (5 295) [½]
- disposal of subsidiary (21 165) [½]
- acquisition of subsidiary 98 500 [½]
- reversal of inventory incorrectly derecognised (72 200) [½]
- inventory for Power Systems Ltd (1/10/20.15 – 29/2/20.16) 161 550
Trade payables and accruals

- increase in trade payables (73 115 – 80 010) 6 895 [½]
- reversal of trade payables incorrectly derecognised 62 300 [½]
- disposal of subsidiary 55 785 [½]
(1 278 916)
[8½]
COMMENT
Please refer to the comment box under [C1] for details regarding the investment in
Power Systems Ltd.
Cost of sales
As the accounting clerk did not consolidate Power Systems Ltd from
30 September 20.15, the transactions of Power Systems Ltd from 1 October 20.15 to
29 February 20.16 were not taken into account. You thus first have to include these
transactions in cost of sales before you start with the cash paid to suppliers and
employees calculation.
Other expenses
According to the given information, the accounting clerk processed a journal in the
separate financial statements of Steel Security Ltd with regards to the disposal of the
investment in Power Systems Ltd. This journal is incorrect as he treated this disposal as
a loss of control. According to the journal, a profit of R25 000 is incorrectly included in
other expenses. You thus first have to reverse this journal in other expenses before you
start with the cash paid to suppliers and employees calculation.
MJM
99 FAC4864/105
NFA4864/105
ZFA4864/105
COMMENT
Inventory
The T-account for inventory will be as follows:
Inventory
Inventory of Power Systems Correction of inventory
Ltd not yet accounted for incorrectly derecognised by
(215 400 x 25%) 161 550 accountant 72 200
Acquisition of subsidiary 98 500 Disposal of subsidiary 21 165
Cost of sales (balancing) 161 390
370 505 370 505
The T-account for trade payables and accruals will be as follows:

Closing balance 80 010 Opening balance 73 115
Correction of payables Other expenses (balancing) 124 980
incorrectly derecognised by
accountant 62 300
Disposal of subsidiary 55 785
198 095 198 095
C3. Dividends paid
Decrease in shareholders for dividends (130 500 – 110 200) (20 300) [½]
Dividends declared by Steel Security Ltd (65 000) [½]
Dividends declared to non-controlling interests [C4] (7 000) [4½]
(92 300)
[5½]
MJM
100 FAC4864/105
NFA4864/105
ZFA4864/105
C4. Non-controlling interests
Increase in non-controlling interests (201 663 – 331 357) 129 694 [½]
Reversal of NCI incorrectly derecognised [C5] 124 280 [2]
Partial disposal of sub not accounted for [C6] 62 139
Profit for part of year while still sub not accounted for
(129 240 x 5/12 x 45%) 24 233
Partial disposal of sub not accounted for [C6] (62 139)
Profit for part of year while still sub not accounted for
(129 240 x 5/12 x 45%) (24 233)
NCI’s portion of current year profit (64 182) [½]
NCI’s portion of current year OCI (55 872 x 40/60) (37 248) [1]
Acquisition of subsidiary (455 840 x 35%) (159 544) [½]
Dividends paid to NCI (7 000)
[4½]
C5. Non-controlling interests incorrectly derecognised
At acquisition (100 000 + 185 550) 285 550 [½]

Since acquisition (238 875 – 185 550) 53 325 [½]
Current year (129 240 x 7/12) 75 390 [½]
414 265
NCI at 30% (414 265 x 30%) 124 280 [½]
[2]
C6. Partial disposal of subsidiary (IFRS 10.B96)
Fair value of consideration received 70 000

Amount by which NCI is adjusted (62 139)
NCI after transaction [(285 550 + 53 325 + 75 390) x 45%] (186 419)
NCI before transaction [(285 550 + 53 325 + 75 390) x 30%] 124 280
Amount to be recognised directly in equity 7 861
COMMENT
Please refer to the comment box under [C1] for details regarding the investment in
Power Systems Ltd.
The accounting clerk incorrectly derecognised non-controlling interests (NCI). You thus
first have to correct the closing balance of NCI (thus debit in T-account) before you can
calculate whether there were any dividends paid to NCI.
As Power Systems Ltd is still a subsidiary of Steel Security Ltd, the disposal transaction
should be treated as an equity transaction in accordance with IFRS 10.B96. You will thus
recognise in equity the difference between the proceeds and the amount by which NCI
are adjusted (refer to [C6]). This adjustment to NCI will have no effect when you reconcile
NCI, as you first correct the closing balance of NCI with the amount of R62 139, where
after you’ll debit NCI to reconcile and calculate whether there were any dividends paid to
NCI.
MJM
101 FAC4864/105
NFA4864/105
ZFA4864/105
COMMENT
The T-account for NCI will be as follows:
Non-controlling interests
Correction of NCI incorrectly NCI’s share of profit [64 182
derecognised by accountant (given) + 24 233] 88 415
[C5] 124 280
NCI’s share in profit of NCI’s share in OCI (see
Power Systems Ltd not yet comment box under [C8]) 37 248
accounted for (129 240 x 5/12 Partial disposal of sub 62 139
x 45%) 24 233
Partial disposal not yet Acquisition of subsidiary 159 544
accounted for [C5] 62 139
Dividends paid (balancing) 7 000
549 009 549 009
Increase in deferred tax balance (75 580 – 186 468) 110 888 [½]
Revaluation of land (120 000 [C8] x 28% x 80%) (26 880) [1]
Fair value adjustment on equity instrument
(32 400 [C10] x 28% x 80%) (7 258) [1]
Movement of deferred tax included in profit or loss 76 750
Increase in tax payable balance (28 750 – 45 580) 16 830 [½]
Current tax included in profit or loss (265 581) [½]
(172 001)
[3½]
COMMENT
Revaluation of land and fair value adjustment on equity instrument
Please refer to the comment boxes under [C8] and [C10] for further explanations.
C8. Acquisition of land
Increase in land balance (720 000 – 950 000) (230 000) [½]
Revaluation of land [55 872 / 60% / (1 – (28% x 80%))] 120 000 [1½]
(110 000)
[2]
MJM
102 FAC4864/105
NFA4864/105
ZFA4864/105
COMMENT
Revaluation of land
The given information states that the revaluation surplus on the face of the consolidated
statement of financial position relates to land of Be Safe Ltd (a 60% subsidiary of
Steel Security Ltd) that was revalued during the current financial year. The revaluation
surplus amount of R55 872 on the face of the consolidated statement of financial position
is thus after tax and after NCI’s share. You thus have to calculate the gross amount
and the amount before NCI’s share was attributed.
The journal processed in the separate financial statements of Be Safe Ltd to account for
this revaluation was as follows:
Dr Cr
R R
J1 Land (SFP)
[55 872/60% = 93 120/(1 – (28% x 80%))] 120 000
Revaluation surplus (OCI) (55 872/60%) 93 120
Deferred tax (SFP) (120 000 x 28% x 80%) 26 880
Account for revaluation of land
The journal processed in the consolidated financial statements to account for NCI’s share
in the revaluation surplus was as follows:
Dr Cr
R R
J1 Non-controlling interests (OCI) (93 120 x 40%) 37 248

Non-controlling interests (SFP) 37 248
NCI’s share in revaluation surplus of subsidiary
C9. Acquisition of PPE
Decrease in PPE balance (320 335 – 50 410) 269 925 [½]

Acquisition of subsidiary 368 190 [½]
Reversal of PPE incorrectly derecognised (475 590) [½]
Depreciation (182 700) [½]
Plant classified as held for sale (268 500) [½]
(509 405)
[3]
C10. Acquisition of equity instruments
Increase in equity instruments balance (175 000 – 282 900) (107 900) [½]
Fair value adjustment [(45 480 – 20 338)/(1 – (28% x 80%))] 32 400 [1]
(75 500)
[1½]
MJM
103 FAC4864/105
NFA4864/105
ZFA4864/105
COMMENT
According to the given information, the investments in equity instruments belong to

Steel Security Ltd. The mark-to-market reserve on the face of the consolidated statement
of financial position thus relates to fair value adjustments on equity instruments of
Steel Security Ltd and is after tax. The journal that was processed in the separate
financial statements of Steel Security Ltd regarding these investments was as follows:
Dr Cr
R R
J1 Investments in equity instruments (SFP)

[25 142/(1 – (28% x 80%))] 32 400
Mark-to-market reserve (OCI) (given) 25 142
Deferred tax (SFP) (32 400 x 28% x 80%) 7 258
Account for fair value adjustments on equity
instruments
C11. Acquisition of associates
Increase in investment in associates balance (220 285 – 320 115) (99 830) [½]
Share of profit of associates 65 880 [½]
Recognise investment in associate at fair value (sub becomes assoc) 75 000 [½]
Dividends received from associates (65 000) [½]
(23 950)
[2]
COMMENT
The dividends received from associates amounting to R65 000 were given in the
information. The given information also clearly states that no associates were disposed of
during the year. The balancing amount would thus be “Acquisition of associates”.
If the question stated that no associates were acquired or disposed of during the current
financial year, the balancing amount would be dividends received. It is thus very
important to carefully read the given information.
MJM
104 FAC4864/105
NFA4864/105
ZFA4864/105
QUESTION 7 40 marks
PawPatrol Ltd is an investment parent company that is listed on the JSE Limited. The company has
interests in various companies. All the companies in the group have a 31 July year end.
The following information from the consolidated financial statements of the PawPatrol Ltd Group for
the year ended 31 July 20.17 is submitted to you. These may be assumed to be correct, except
where indicated otherwise in the additional information provided in the question.
PAWPATROL LTD GROUP

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 JULY 20.17
20.17 20.16
R R
ASSETS
Non-current assets
Land 1 136 111 560 000
Property, plant and equipment 2 021 274 1 587 680
Intangible assets 150 000 -
Investments in equity instruments 516 000 358 000
Investments in associates - 148 800
Goodwill 161 500 161 500
3 984 885 2 815 980
Current assets
Inventory 201 500 192 440
686 378 568 640
Total assets 4 671 263 3 384 620

Share capital 350 000 300 000
Retained earnings 1 798 032 658 000
Mark-to-market reserve 299 000 150 000
Revaluation surplus 495 194 250 000
Change in ownership reserve 235 000 -
3 177 226 1 358 000
Total equity 4 085 894 1 734 500
Deferred tax 299 319 422 500
Current liabilities
Current portion of long-term liabilities - 420 500
Current tax payable 65 400 438 420
Total current liabilities 286 050 1 227 620
Total liabilities 585 369 1 650 120
MJM
105 FAC4864/105
NFA4864/105
ZFA4864/105
PAWPATROL LTD GROUP

COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 JULY 20.17
20.17
R
Revenue 8 654 800

Gross profit 4 356 750
Other income (dividends received) 35 400
Other expenses (2 546 800)
Gain on revaluation of land 377 222
Mark-to-market reserve (fair value adjustments to investments in equity instruments) 194 000
Other comprehensive income for the year, net of tax 571 222
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1 841 554

Owners of the parent 1 150 832
1 270 332

Owners of the parent 1 590 026
1 841 554
The total depreciation for the current financial year on property, plant and equipment amounted
to R465 800.
The total carrying amount of property, plant and equipment sold during the current financial
year amounted to R236 500. The profit on disposal of these assets amounted to R56 800.
2. Trade and other receivables
Trade and other receivables consisted of the following at 31 July 20.17:
20.17 20.16
R R
Trade receivables 338 810 286 400

Prepaid expenses 15 400 -
354 210 286 400
MJM
106 FAC4864/105
NFA4864/105
ZFA4864/105
3. Investments in equity instruments
Various purchase transactions took place during the current financial year. Those investments
that have not performed as expected were sold at their fair value. The original cost price of
these investments sold amounted to R150 000.
PawPatrol Ltd irrevocably elected to present subsequent changes in the fair value of the
investments in equity instruments in other comprehensive income through the use of a mark-to-
market reserve in accordance with IFRS 9 Financial Instruments.
PawPatrol Ltd has elected to transfer the cumulative gain or loss on equity instruments
previously recognised in other comprehensive income to retained earnings on disposal of the
equity instruments in accordance with IFRS 9.B5.7.1.
An amount of R45 000 was transferred to retained earnings during the current financial year by
the accountant, which you may assume is correct.
4. Investment in Marshall Ltd
PawPatrol Ltd acquired a 30% interest in Marshall Ltd on 1 February 20.15 for a cash
consideration of R85 500, when the equity of Marshall Ltd (fairly valued) amounted to
R285 000. PawPatrol Ltd exercised significant influence over the financial and operating policy
decisions of Marshall Ltd from 1 February 20.15. No additional assets or liabilities were
identified on 1 February 20.15. On 1 March 20.17 PawPatrol Ltd purchased an additional
16 000 shares in Marshall Ltd for a cash consideration of R40 250 resulting in PawPatrol Ltd's
interest increasing to 46%.
From that date, PawPatrol Ltd had control over Marshall Ltd as per the definition of control in
accordance with IFRS 10 Consolidated Financial Statements. The fair value of the previously
held investment amounted to R196 000 on the date of the additional acquisition.
The fairly valued assets and liabilities of Marshall Ltd at 1 March 20.17 were as follows:
Dr/(Cr)
R
Intangible assets 185 000

Inventory 265 000
Trade and other payables (40 000)
601 000
The fair value adjustment as a result of change in ownership and the amortisation on the
intangible asset while Marshall Ltd was a subsidiary, is included in other expenses.
Marshall Ltd paid a dividend of R35 000 on 15 July 20.17.
There were no other investments in associates disposed of or acquired during the current
financial year.
MJM
107 FAC4864/105
NFA4864/105
ZFA4864/105
5. Investment in Rubble Ltd
PawPatrol Ltd acquired 85% of the issued ordinary share capital of Rubble Ltd on
30 April 20.14 for a cash consideration of R850 000. From that date, PawPatrol Ltd obtained
control over Rubble Ltd as per the definition of control in accordance with IFRS 10 Consolidated
Financial Statements. No additional assets, liabilities or contingent liabilities were identified at
the acquisition date. On 30 April 20.17, PawPatrol Ltd sold a 20% interest in Rubble Ltd at a
profit of R235 000 (included in the change in ownership reserve). PawPatrol Ltd still had control
over Rubble Ltd after the sale of the shares with a remaining 65% interest.
The fairly valued equity of Rubble Ltd consisted of the following on the various dates:
30 April 31 July 31 July

20.14 20.16 20.17
R R R
Share capital (100 000 ordinary shares) 100 000 100 000 100 000
Retained earnings 525 000 785 000 945 000
Mark-to-market reserve 185 000 185 000 185 000
Revaluation surplus on land (31 July 20.17) - - 377 222
810 000 1 070 000 1 607 222
Rubble Ltd declared and paid a dividend of R85 000 on 31 March 20.17.
The profit for the year accrued evenly thoughout the year.
6. Investment in Rocky Ltd
PawPatrol Ltd acquired a 70% controlling interest in Rocky Ltd on 30 November 20.12 for a
cash consideration of R450 000. The total equity (fairly valued) of Rocky Ltd on
30 November 20.12 amounted to R642 857. No additional assets, liabilities or contingent
liabilities were identified at the acquisition date. No goodwill or gain on bargain purchase arose
with the acquisition of Rocky Ltd.
On 31 July 20.17 PawPatrol Ltd sold 90 000 of its shares in Rocky Ltd to outside shareholders
for a cash consideration of R550 000. PawPatrol Ltd lost control over Rocky Ltd due to the sale
of these shares. PawPatrol Ltd's 10% remaining interest in Rocky Ltd had a fair value of
R88 000 on 31 July 20.17. The disposal of the interest in subsidiary did not comply with IFRS 5
Non-current Assets Held for Sale and Discontinued Operations until the date of disposal.
Extract from the trial balance of Rocky Ltd as at 31 July 20.17:
Dr/(Cr)
R
Share capital (150 000 ordinary shares) (200 000)

Retained earnings (31 July 20.16: R520 000 cr) (620 000)
Inventory 350 000
Trade and other receivables 371 500
-
There were no changes in the share capital of Rocky Ltd since the date of acquisition.
MJM
108 FAC4864/105
NFA4864/105
ZFA4864/105
Other information
1. It is the accounting policy of PawPatrol Ltd to account for investments in subsidiaries and
associates at cost in its separate financial statements in accordance with IAS 27.10(a).
2. PawPatrol Ltd elected to measure non-controlling interests at the proportionate share of the
acquiree's identifiable net assets at the acquisition date for all its acquisitions.
3. On 31 July 20.17 PawPatrol Ltd declared a dividend of R55 800. No other dividends were
declared or paid during the year, except where indicated in the question.
4. Total amortisation for the current financial year amounted to R35 000.
5. Cash flows from interest and dividends are classified as operating activities by the
PawPatrol Ltd Group.
the consolidated financial statements during the current financial year.
MJM
109 FAC4864/105
NFA4864/105
ZFA4864/105
QUESTION 7
REQUIRED
Marks
(a) Prepare the consolidated statement of cash flows of the PawPatrol Ltd Group for 35
the year ended 31 July 20.17 using the direct method.
(b) Prepare the following notes to the consolidated statement of cash flows of the 4
PawPatrol Ltd Group for the year ended 31 July 20.17:
• Disposal of Rocky Ltd
Please note:

MJM
110 FAC4864/105
NFA4864/105
ZFA4864/105
QUESTION 7 – Suggested solution
(a) PAWPATROL LTD GROUP
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 JULY 20.17
R
Cash receipts from customers [C1] 8 230 890 (1½)
Cash paid to suppliers and employees [C2] (6 773 270) (11½)
Cash generated from operations 1 457 620
Interest paid (given) (112 500) (½)
Dividends paid [C6] (132 450) (3)
Dividends received (given) 35 400 (½)
Income taxes paid [C7] (1 155 108) (3½)

Acquisition of land [C11] (90 000) (1½)
Acquisition of property, plant and equipment [C8] (1 135 894) (1½)
Acquisition of investments in equity instruments [C9] (27 990) (3½)
Proceeds from disposal of property, plant and equipment
(236 500 + 56 800) 293 300 (1)
Proceeds from disposal of investments in equity instruments [C9] 207 990 (½)
Proceeds from disposal of subsidiary (550 000 – 98 500) 451 500 (1)
Acquisition of subsidiary, net of cash acquired (40 250 – 191 000) 150 750 (1)
Net cash used in investing activities (150 344)

Proceeds from issue of shares (350 000 – 300 000) 50 000 (½)
Proceeds from partial disposal of subsidiary [C10] 468 750 (4½)
Loan repaid (420 500) (½)
Net cash from financing activities 98 250

Total (37)
Maximum (35)
MJM
111 FAC4864/105
NFA4864/105
ZFA4864/105
(b) PAWPATROL LTD GROUP
30 JUNE 20.17
1. Disposal of subsidiary
During 20.17 the PawPatrol Ltd Group disposed of a subsidiary, Rocky Ltd. The fair
values of assets and liabilities on disposal date were as follows:
R
Inventory 350 000 (½)
Trade receivables 371 500 (½)
Cash and cash equivalents 98 500 (½)
Net assets disposed of 820 000
Non-controlling interests (820 000 x 30%) (246 000) (1)
Fair value of retained investment (given) (88 000) (½)
Profit on sale of shares [C5] 64 000 (½)
Total consideration received in cash 550 000
Less cash and cash equivalents of subsidiary disposed of (98 500) (½)
Net cash inflow 451 500
(4)
COMMENT
In terms of IAS 7.42 the aggregate amount of the cash paid or received as consideration
for obtaining or losing control of subsidiaries is reported in the statement of cash flows
and its notes, net of cash and cash equivalents acquired or disposed of.
MJM
112 FAC4864/105
NFA4864/105
ZFA4864/105
COMMENT
Indirect method
If you are required to prepare the consolidated statement of cash flows using the indirect
method, please pay attention to the following:
By using the indirect method, the net cash flows from operating activities are determined
by adjusting profit or loss for the effects of:
• Changes in working capital;

• Non-cash items; and
• All other items which are not investing or financing cash flows.
It is important to note that the cash flows from investing and financing activities are
disclosed in the same manner using both the direct and indirect methods.
Only the cash generated from operations section calculation will be affected when the
consolidated statement of cash flows is prepared using the indirect method. This is
illustrated below:

Adjusted for:
Profit on sale of interest in subsidiary [C5] (64 000)
Share of profit of associates (31 500)
Finance costs 112 500
Other income (dividend received) (35 400)
Depreciation 465 800
Amortisation – intangible assets 35 000
Profit on sale of property, plant and equipment (given) (56 800)
Fair value adjustments [C4] (15 700)
Gain on bargain purchase [C3] (40 210)
Decrease in trade receivables [C1] (423 910)
Increase in inventory [C2] (94 060)
Decrease in trade payables [C2] (143 050)
Increase in prepaid expenses [C2] (15 400)
Cash generated from operations 1 457 620
CALCULATIONS
Revenue 8 654 800 [½]

Increase in trade receivables (338 810 – 286 400) (52 410) [½]
8 230 890
[1½]
MJM
113 FAC4864/105
NFA4864/105
ZFA4864/105
COMMENT
Cash receipts from customers
An entity shall report cash flows from operating activities using the direct method, whereby
major classes of gross cash receipts and gross cash payments are disclosed.
Examples of cash flows from operating activities are:

• cash receipts from the sale of goods and the rendering of services;
• cash receipts from royalties, fees, commissions and other revenue;
• cash payments to suppliers for goods and services;
• cash payments to and on behalf of employees;
• cash payments or refunds of income taxes unless they can be specifically identified
with financing and investing activities; and
• cash receipts and payments from contracts held for dealing or trading purposes.
Please note the distinction between trade receivables and trade and other receivables.
Often, the latter includes other receivables that are not related to debtors e.g. in this
question ‘Prepaid expenses’.
EXAM TECHNIQUE
Cash receipts from customers
Another method of calculating the cash amounts is by means of a T-account:
Trade receivables
Revenue 8 654 800 Disposal of subsidiary 371 500
Bank 8 230 890
8 941 200 8 941 200
MJM
114 FAC4864/105
NFA4864/105
ZFA4864/105
Cost of sales (4 298 050) [½]

Other expenses (2 546 800) [½]
Adjusted for non-cash items:

Amortisation 35 000 [½]
Depreciation 465 800 [½]
Gain on bargain purchase [C3] (40 210) [2]
Fair value adjustment ito IFRS 3.42 [C4] (15 700) [1½]
Profit on disposal of subsidiary [C5] (64 000) [2½]
Profit on disposal of property, plant and equipment (56 800) [½]
Changes in working capital:

Inventory - increase in inventory (201 500 – 192 440) (9 060) [½]
- disposal of subsidiary (350 000) [½]
- acquisition of subsidiary 265 000 [½]
Trade and other payables

- decrease in trade payables (145 650 – 248 700) (103 050) [½]
- acquisition of subsidiary (40 000) [½]
Prepaid expenses
- increase in prepaid expenses (0 – 15 400) (15 400) [½]
(6 773 270)
[11½]
COMMENT
To calculate the cash paid to suppliers and employees in terms of the direct method,
changes in the balances of inventory and trade payables are calculated. The line item
“Other expenses” in the statement of profit or loss and other comprehensive income
include amounts paid to suppliers and employees.
“Other expenses” are adjusted for non-cash items (such as allowance for credit losses,
foreign exchange differences that have not yet realised, depreciation, impairment losses
etc.) and items that require separate disclosure on the face of the statement of cash flows
(for example dividends received), in order to determine the cash amount paid to suppliers
and employees.
MJM
115 FAC4864/105
NFA4864/105
ZFA4864/105
EXAM TECHNIQUE
Another method of calculating the movement in working capital is by means of a

T-account:
Inventory
Subsidiary acquired 265 000 Disposal of subsidiary 350 000
Cost of sales 94 060
551 500 551 500
Prepaid expenses
Opening balance - Closing balance 15 400
Other expenses 15 400
15 400 15 400
Trade payables
Other expenses 143 050 Acquisition of subsidiary 40 000
288 700 288 700
C3. Gain on bargain purchase
Consideration transferred 40 250 [½]

Non-controlling interests (601 000 x 54%) 324 540 [½]
Fair value of previously held interest 196 000 [½]
560 790
Net asset value on 1 March 20.17 (601 000) [½]
Gain on bargain purchase (40 210)
[2]
C4. Fair value adjustment ito IFRS 3.42
Cost of investment (85 500) [½]

Equity (94 800) [½]
(180 300)
Fair value (given) 196 000 [½]
Fair value adjustment 15 700
[1½]
C5. Consolidated gain on disposal of subsidiary
Derecognise NAV (200 000 + 620 000) (820 000) [1]

Derecognise goodwill (given) -
Derecognise NCI (820 000 x 30%) 246 000 [½]
Consideration received 550 000 [½]
Fair value of remaining interest 88 000 [½]
Consolidated gain on disposal of subsidiary 64 000
[2½]
MJM
116 FAC4864/105
NFA4864/105
ZFA4864/105
COMMENT
The aggregate cash flows arising from obtaining or losing control of subsidiaries or other
businesses (e.g. associates) shall be presented separately and classified as investing
activities (IAS 7.39).
C6. Dividends paid
Decrease in shareholders for dividends (120 000 – 75 000) (45 000) [½]
Dividends declared by PawPatrol Ltd (55 800) [½]
Dividends declared to non-controlling interests
(Marshall: 35 000 x 54%) (18 900) [1]
(Rubble: 85 000 x 15%) (12 750) [1]
(132 450)
[3]
COMMENT
Students must remember to calculate the portion of dividends declared to NCI. In this
question, the amount of dividends paid by subsidiaries was given, you thus did not have
to reconcile the non-controlling interests account.
In order to calculate the cash movement, one needs to take into account the movement in
shareholders for dividends and the dividends declared to NCI by the subsidiaries.
EXAM TECHNIQUE
Another method of calculating the dividends paid is by means of a T-account:
Non-controlling interests (for completeness)

Disposal of subsidiary Profit attributable to NCI 119 500
(820 000 x 30%) 246 000 OCI attributable to NCI 132 028
Dividends declared to NCI 31 650 Sub acquired (Marshall) 324 540
Partial disposal of Rubble 233 750
1 186 318 1 186 318
Shareholders for dividends

Bank 132 450 Dividends declared to (NCI) 31 650
Dividends declared by parent 55 800
207 450 207 450
MJM
117 FAC4864/105
NFA4864/105
ZFA4864/105
Decrease in deferred tax balance (422 500 – 299 319) (123 181) [½]
Fair value adjustment on equity instrument (250 000 x 28% x 80%) (56 000) [1]
Revaluation of land (486 111 [C11] x 28% x 80%) (108 889) [1]
Movement of deferred tax included in profit or loss (288 070)
Decrease in tax payable balance (438 420 – 65 400) (373 020) [½]
Current tax included in profit or loss (494 018) [½]
(1 155 108)
[3½]
COMMENT
Cash flows from taxes on income shall be disclosed separately and shall be classified as
cash flows from operating activities unless specifically identified otherwise (IAS 7.35).
The income tax expense per the statement of profit or loss and other comprehensive
income includes the movement in the deferred tax liability. As deferred tax is a non-cash
item, it should be excluded from the income tax expense when calculating the tax paid for
the period.
C8. Acquisition of PPE
Increase in PPE balance (2 021 274 – 1 587 680) (433 594) [½]
Disposal of PPE (236 500) [½]
Depreciation (465 800) [½]
(1 135 894)
[1½]
COMMENT
Disclosure of cash flows representing increases in operating capacity (like PPE

acquisitions for investment in future operations) may be presented separately from cash
flows required to maintain operating capacity (like PPE replacements), as this may be
relevant to the users of the financial statements (IAS 7.50(c)).
EXAM TECHNIQUE
Another method of calculating the acquisition of PPE is by means of a T-account:
Property, plant and equipment

Opening balance 1 587 680 Closing balance 2 021 274
Bank 1 135 894 Depreciation 465 800
PPE sold 236 500
2 723 574 2 723 574
MJM
118 FAC4864/105
NFA4864/105
ZFA4864/105
C9. Acquisition of investments in equity instruments
Increase in equity instruments balance (358 000 – 516 000) (158 000) [½]
Fair value adjustment [194 000/(1 – (28% x 80%))] 250 000 [1]
Fair value of remaining interest 88 000 [½]
Disposal of equity instruments [150 000 + (45 000 / 0,776)] (207 990) [1½]
(27 990)
[3½]
EXAM TECHNIQUE
Another method of calculating the acquisition of equity instruments is by means of a

T-account:
Investments in equity instruments

Financial assets sold
Fair value adjustment 250 000 [150 000 + (45 000 / 0,776)] 207 990
Fair value of remaining sub 88 000
Bank 27 990
723 990 723 990
C10. Partial disposal of subsidiary (IFRS 10.B96)
Fair value of consideration received (balancing) 468 750

Amount by which NCI is adjusted (233 750)
NCI after transaction [(1 070 000 + ((945 000 - 785 000 + 85 000) x 9/12)
– 85 000) x 15%] 175 313 [3½]
NCI before transaction [(1 070 000 + ((945 000 - 785 000 + 85 000) x
9/12) – 85 000) x 35%] (409 063) [½]
Amount to be recognised directly in equity 235 000 [½]

[4½]
COMMENT
The profit on the partial disposal of subsidiary should be accounted for as an equity
transaction with other equity holders as control was not lost (IFRS 10.23). This profit was
thus never included in P/L and therefore it’s not treated as a non-cash item in C2.
C11. Acquisition of land
Increase in land balance (1 136 111 – 560 000) (576 111) [½]
Revaluation of land (377 222/0,776) 486 111 [1]
(90 000)
[1½]
MJM
119 FAC4864/105
NFA4864/105
ZFA4864/105
QUESTION 8 40 marks
PART I 29 marks
GreenZar Ltd (GreenZar) is a South African company listed on the Johannesburg Stock Exchange,
incorporated in 20.1 and is a retailer of herbal medicinal products.
The group accountant of GreenZar, Mary Jane, has requested you to assist in the finalisation of the
preparation of the consolidated statement of changes in equity of the GreenZar Ltd Group for the year
ended 30 June 20.18.
On 2 October 20.15, GreenZar acquired 75% of the ordinary shares and voting rights of Herbado Ltd
(Herbado) for a cash consideration of R1 025 000 and obtained control over Herbado in terms of
IFRS 10 Consolidated Financial Statements from that date. Herbado is incorporated in Jamaica and
has the Jamaican Dollar (J$) as its functional currency. On 2 October 20.15, Herbado had 15 000
issued ordinary shares with ordinary share capital amounting to J$1 500 000. There has been no
change in the issued ordinary share capital of Herbado since the date of acquisition.
All the assets and liabilities of Herbado were deemed to be fairly valued at acquisition date with the
exception of trade payables that were overvalued by J$565 000. These trade payables were settled
by 30 June 20.16.
Other components of the equity of Herbado are reflected as follows on the respective dates:
Retained earnings Mark-to-market reserve

J$ J$
2 October 20.15 12 570 000 -

1 July 20.16 13 850 000 -
1 July 20.17 14 870 000 340 000
30 June 20.18 15 300 000 365 000
On 28 February 20.18, GreenZar reduced its shareholding in GreenZar from 75% to 65%. The shares
in GreenZar were sold for an amount equal to the fair value of the shares. GreenZar did not lose
control over Herbado at this date. Non-controlling interests were adjusted with an amount of
R173 809 as a result of this sale (calculated in accordance with IFRS 10.B96).
The fair value of the share price of Herbado amounted to J$1 235 per share and J$1 687 per share
on 2 October 20.15 and 28 February 20.18 respectively.
Herbado declared and paid a dividend of J$120 000 on 30 June 20.18.
MJM
120 FAC4864/105
NFA4864/105
ZFA4864/105
The following exchange rates were applicable at the respective dates:
R1 = JMD (J$)
2 October 20.15 10,90

Average for the period 2 October 20.15 to 30 June 20.16 10,82
30 June 20.16 10,75
Average for the period 1 July 20.16 to 30 June 20.17 9,35
30 June 20.17 9,10
Average for the period 1 July 20.17 to 28 February 20.18 9,45
28 February 20.18 10,12
Average for the period 1 March 20.18 to 30 June 20.18 10,25
30 June 20.18 10,54
1. It is the accounting policy of GreenZar to account for investments in subsidiaries at cost in its
separate financial statements in terms of IAS 27.10(a).
2. GreenZar elected to measure non-controlling interests at fair value at the acquisition date for all
acquisitions.
3. Profit after tax and other comprehensive income accrued evenly throughout the year.
4. Assume a normal income tax rate of 28% in South Africa and a tax rate of 30% in Jamaica for
the entire financial year. Assume a capital gains tax inclusion rate of 80% in South Africa.
Ignore the effects of Dividend Tax and Value Added Tax (VAT).
PART II 11 marks
Rhino Brands Ltd is a South African company listed on the Johannesburg Stock Exchange in the fast-
moving consumer goods (FMCG) industry. Rhino Brands Ltd has investments in various entities, all
of which have a 30 June year end.
The following information is provided for consideration:
RHINO BRANDS LTD GROUP
EXTRACT FROM THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT

30 JUNE 20.18
20.18 20.17
Dr/(Cr) Dr/(Cr)
R R
Retained earnings (3 244 258) (2 457 000)

Non-controlling interests (995 080) (1 054 813)
Shareholders for dividends (45 000) (132 400)
MJM
121 FAC4864/105
NFA4864/105
ZFA4864/105
RHINO BRANDS LTD GROUP

COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 20.18

1 252 711
1. Rhino Brands Ltd has enjoyed success over the years, particularly in the production, packaging
and distribution of cold meats. However, this has recently drastically changed since the Minister
of Health reported that the Listeria Monocytogenes bacterium was traced to the production
plants of Rhino Brands Ltd. This bacterium has caused an outbreak of a deadly food-borne
disease. Due to this health scare, Rhino Brands Ltd recently decided to acquire a subsidiary
that specialises in food production health inspections, namely Bophelo Ltd. It is expected that
this acquisition will contribute significantly to re-earning the trust of the consumers and the
market.
On 1 November 20.17, Rhino Brands Ltd acquired an 80% controlling interest in Bophelo Ltd.
To settle the consideration of R1 485 800, the group issued 100 000 Rhino Brands Ltd ordinary
shares to the previous shareholders at a fair value of R5,20 per share, and made a cash
payment to settle the balance. At the acquisition date, the net assets of Bophelo Ltd were as
follows:
Dr/(Cr)
R
Property, plant and equipment 1 485 000

Inventory 124 000
1 485 800
All the assets and liabilities of Bophelo Ltd were deemed to be fairly valued on
1 November 20.17. No additional assets, liabilities or contingent liabilities were identified at the
acquisition date.
2. Rhino Brands Ltd acquired a 70% controlling interest in Bagme Ltd on 30 November 20.11 for
R2 500 000. Bagme Ltd is one of the existing subsidiaries of Rhino Brands Ltd responsible for
supplying packaging materials for the products of Rhino Brands Ltd. Rhino Brands Ltd
increased their existing interest in Bagme Ltd from 70% to 80% on 1 March 20.18. Rhino
Brands Ltd acquired the additional interest for a total cash consideration of R521 000. At the
acquisition date of the additional interest, the net asset value of Bagme Ltd amounted to
R4 000 000, which was also the fair value. Rhino Brands Ltd continued to exercise control over
Bagme Ltd. The non-controlling interests were equal to the proportionate share of the net
assets on 1 March 20.18.
MJM
122 FAC4864/105
NFA4864/105
ZFA4864/105
Bagme Ltd paid a dividend during the current financial year.
3. Rhino Brands Ltd acquired a 45% interest in Mahala Ltd on 1 September 20.16 for a cash
consideration of R480 000. Rhino Brands Ltd exercised significant influence over the financial
and operating policy decisions of Mahala Ltd from that date. On 1 July 20.17, the carrying
amount of the investment in Mahala Ltd was R717 500. On 1 September 20.17 Rhino Brands
Ltd acquired an additional 15% interest in Mahala Ltd for R140 000. From that date, Rhino
Brands Ltd had control over Mahala Ltd as per the definition of control in accordance with IFRS
10 Consolidated Financial Statements. The fair value of the identifiable net assets of Mahala
Ltd on 1 September 20.17 amounted to R1 640 000.
4. On 1 August 20.12, Rhino Brands Ltd acquired a 65% controlling interest in Listyalosis Ltd for a
cash consideration of R840 000. From that date, Rhino Brands Ltd had control over
Listyalosis Ltd as per the definition of control in accordance with IFRS 10 Consolidated
Financial Statements. On that date the issued share capital of Listyalosis Ltd amounted to
R200 000 (100 000 issued ordinary shares), while the retained earnings amounted to
R520 000. All the assets and liabilities of Listyalosis Ltd were deemed to be fairly valued on the
acquisition date and no additional assets, liabilities or contingent liabilities were identified.
On 1 August 20.17, Rhino Brands Ltd sold 55 000 shares in Listyalosis Ltd to non-controlling
interests for R880 000. From that date, Rhino Brands Ltd lost control over Listyalosis Ltd. On
1 August 20.17, the fair value of the shares of Listyalosis Ltd was R16 per share and remained
unchanged at year end.
The fair value of the assets and liabilities of Listyalosis Ltd as at 1 August 20.17 was
R1 298 000 (R1 450 000 as at 30 June 20.18).
Other additional information
1. It is the accounting policy of Rhino Brands Ltd to account for investments in subsidiaries and
associates at cost in accordance with IAS 27.10(a).
2. It is the accounting policy of Rhino Brands Ltd to account for investments in equity instruments,
other than investments in subsidiaries and associates, in accordance with IFRS 9 Financial
Instruments. Rhino Brands Ltd irrevocably elected to present subsequent changes in the fair
value of the investments in other comprehensive income in a mark-to-market reserve.
3. Rhino Brands Ltd elected to measure non-controlling interests at the proportionate share of the
acquiree's identifiable net assets at acquisition date for all acquisitions.
the effects of Dividend Tax and Value Added Tax (VAT).
MJM
123 FAC4864/105
NFA4864/105
ZFA4864/105
QUESTION 8
REQUIRED
Marks
PART I
Prepare the consolidated statement of changes in equity of the GreenZar Ltd Group for 27
the years ended 30 June 20.18 and 30 June 20.19. Only the foreign currency
translation reserve and the non-controlling interests columns are required.
Please note:
• Comparative figures are required.

• Notes to the consolidated statement of changes in equity are not required.
• Round off all amounts to the nearest Rand or Jamaican Dollar.
PART II
(a) With regards to the acquisition of Bophelo Ltd, prepare the acquisition of subsidiary 5
note to the consolidated statement of cash flows of the Rhino Brands Ltd Group for
the year ended 30 June 20.18.
(b) Calculate the dividends paid amount to be disclosed in the cash flows from 6
operating activities of the consolidated statement of cash flows of the
Rhino Brands Ltd Group for the year ended 30 June 20.18.
Please note:
MJM
124 FAC4864/105
NFA4864/105
ZFA4864/105
PART I
GREENZAR LTD GROUP

30 JUNE 201.8
FCTR NCI
R R
a b
Balance as at 1 July 20.16 [C1]; [C2] 15 572 450 513 (8½)
Changes in equity for 20.17
Total comprehensive income for the year 214 106 107 732
c
- Profit for the year [C1] - 27 273 (1½)
d e
- Other comprehensive income [C1]; [C3] 214 106 80 459 (3)
Balance as at 30 June 20.17 229 678 558 245
Changes in equity for 20.18
Total comprehensive income for the year (199 448) (59 542)
f
- Profit for the year (9 700 [C1] + 6 260 [C1]) - 15 960 (4½)
g h
- Other comprehensive income (151 940 [C1] + 47 508 [C1]) ; [C4] (199 448) (75 502) (7½)
Disposal of 10% interest [C5] - 163 444 (2½)
Transfer of FCTR [C5] (10 365) 10 365 (1)
Dividends [C1] - (3 985) (½)
19 865 668 527
Total (29)
Maximum (27)
MJM
125 FAC4864/105
NFA4864/105
ZFA4864/105
PART II
(a) RHINO BRANDS LTD GROUP
30 JUNE 20.18
1. Acquisition of subsidiary
During the year, the Rhino Brands Ltd Group acquired an 80% controlling interest in
Bophelo Ltd. The fair value of the assets acquired and liabilities assumed were as follows:
Property, plant and equipment 1 485 000

Inventory 124 000
Net assets acquired 1 485 800 (2)
Non-controlling interests (1 485 800 x 20%) (297 160) (½)
Goodwill (balancing) 297 160 (½)
Total consideration paid (given) 1 485 800 (½)
Consideration paid by non-cash transfers (100 000 x 5,20) (520 000) (1)
Consideration settled in cash 965 800
Bank overdraft of subsidiary acquired 80 000 (½)
Net cash outflow 1 045 800
(5)
(b) Dividends paid
Decrease in shareholders for dividends (132 400 – 45 000) (87 400) (½)
Dividends declared by Rhino Brands Ltd [C6] (140 953) (1)
Dividends paid to NCI [C7] (483 093) (5)
(711 446)
Total (6½)
Maximum (6)
MJM
126 FAC4864/105
NFA4864/105
ZFA4864/105
CALCULATIONS
C1. Analysis of owner's equity of Herbado Ltd
GreenZar
Exchange
Total Total (75% - 65%) NCI
rate
At Since
JMD (J$) R1 = R R R R
JMD (J$)
At acquisition
Share capital 1 500 000 10,90 137 615 103 211 34 404 [½]
Retained earnings 12 570 000 10,90 1 153 211 864 908 288 303 [½]
Trade payable
adjustments
[J$565 000 x (1-0,30)] 395 500 10,90 36 284 27 213 9 071 [½]
14 465 500 10,90 1 327 110 995 333 331 778 [½]
Goodwill 1 338 237 10,90 122 774 29 667 93 107
Consideration and fair
value of non-
*424
controlling interests 15 803 737 10,90 1 449 884 1 025 000 885 [2]
Since acquisition
and until beginning
of the year
Retained earnings –
20.16 (J$13 850 000 –
J$12 570 000 –
J$395 500) 884 500 10,82 81 747 61 310 20 437 [2]
FCTR (1 552 394 –
81 747 – 1 449 884) 20 763 a15572 5 191 [½]
b450
16 688 237 10,75 1 552 394 76 882 513 [½]
[7]
Retained earnings –
20.17 (J$14 870 000 –
c27
J$13 850 000) 1 020 000 9,35 109 091 81 818 273 [1½]
Mark-to-market
e9
reserve (given) 340 000 9,35 36 364 27 273 091 [1]
FCTR (1 983 323 –
36 364 – 109 091 –
d214 e71 368
1 552 394) 285 474 106 [½]
18 048 237 9,10 1 983 323 400 079 558 245 [½]
[2]
MJM
127 FAC4864/105
NFA4864/105
ZFA4864/105
GreenZar
Exchange
Total Total (75% - 65%) NCI
rate
At Since
JMD (J$) R1 = R R R R
JMD (J$)
Current year
Profit for the period
1 July 20.17 to 28 Feb 20.18
[(J$15 300 000 - J$14 870 000
f9
+ J$120 000) x 8/12] 366 667 9,45 38 801 29 101 700 [2½]
Mark-to-market reserve
[(J$365 000 - J$340 000) x
h441
8/12] 16 667 9,45 1 764 1 323 [1½]
FCTR (1 821 301 – 1 764 –
38 801 – 1 983 323) (202 587) g(151940) h(50 647) [½]
18 431 571 10,12 1 821 301 278 563 517 739 [½]
Disposal of 10% interest
- Cost price (136 667) 136 667
- Retained earnings (22 964) 22 964
- Mark-to-market reserve (3 813) 3 813
- FCTR (10 365) 10 365
Profit for the period

1 March 20.18 to
30 June 20.18
[(J$15 300 000 - J$14 870 000
f6
+ J$120 000) x 4/12] 183 333 10,25 17 886 11 626 260 [2]
Mark-to-market reserve
[(J$365 000 - J$340 000) x
h285
4/12] 8 333 10,25 813 528 [1½]
Dividend declared (given) (120 000) 10,54 (11 385) (7 400) (3 985) [½]
g(47 508) h(25 582)
FCTR (balancing) (73 090) [½]
18 503 237 10,54 1 755 525 888 333 198 667 668 526 [½]
[5½]
* [(15 000 x 25% x 1 235)/10,90]
C2. Balance at 1 July 20.16: NCI
NCI at acquisition [C1] 424 885 [½]

NCI in profit (81 747 [C1] x 25%) 20 437 [½]
NCI in FCTR (20 763 x 25%) 5 191 [½]
b
450 513
[1½]
C3. Changes in equity for 20.17: OCI (NCI)
Mark-to-market reserve (36 364 [C1] x 25%) 9 091 [½]

FCTR (285 474 [C1] x 25%) 71 368 [½]
e
80 459
[1]
C4. Changes in equity for 20.18: OCI (NCI)
Mark-to-market reserve (1/7/20.17 – 28/2/20.18) (1 764 [C1] x 25%) 441 [½]

Mark-to-market reserve (1/3/20.18 – 30/6/20.18) (813 [C1] x 35%) 285 [½]
FCTR (202 587 [C1] x 25%) (50 647) [½]
FCTR (73 090 [C1] x 35%) (25 581) [½]
h
(75 502)
[2]
MJM
128 FAC4864/105
NFA4864/105
ZFA4864/105
C5. Disposal of 10% interest (NCI)
Amount by which NCI are adjusted (given) 173 809 [½]

Transfer of FCTR on disposal [(15 572 + 214 106 – 151 940) x 10/75] (10 365) [2]
163 444
[2½]
C6. Dividends declared by Rhino Brands Ltd
Increase in retained earnings (3 244 258 – 2 457 000) 787 258 [½]
Profit for period attributable to owners of the parent (given) (928 211) [½]
(140 953)
[1]
C7. Dividends paid to non-controlling interests
Decrease in NCI (1 054 813 – 995 080) (59 733) [½]

Proft attributable to non-controlling interests (given) (324 500) [½]
Acquisition of subsidiary (Bophelo) (1 485 800 x 20%) (297 160) [1]
Acquisition of subsidiary (Mahala) (1 640 000 x 40%) (656 000) [1]
Disposal of subsidiary (Listyalosis) (1 298 000 x 35%) 454 300 [1]
Partial acquisition of subsidiary (Bagme) [4 000 000 x (30% - 20%)] 400 000 [1]
(483 093)
[5]
MJM
129 FAC4864/105
NFA4864/105
ZFA4864/105
QUESTION 9 40 marks
The question consists of two independent parts.
PART I 25 marks
Are We There Yet Ltd (AWTY Ltd) is a South African company that operates in the education and
training sector and is listed on the Johannesburg Stock Exchange. AWTY Ltd is a parent company
that has investments in the education and training sector. The functional currency of AWTY Ltd is the
South African Rand (R). All companies in the group have a 31 March year end.
1. The following balances have been included by the group accountant of AWTY Ltd Group in the
preliminary consolidated trial balance of the AWTY Ltd Group for the year ended
31 March 20.19:
Dr/(Cr)
R’000
Investment in End Game PLC – 42 500 ordinary shares at cost 176 000
Loan to End Game PLC 56 580
Dividends paid on 28 February 20.19 34 000
Share capital – 50 000 issued ordinary shares (100 000)
Retained earnings – 1 April 20.18 (350 000)
Profit after tax for the year attributable to owner of the parent (68 150)
Non-controlling interests (SFP (45 000)
(296 570)
The group accountant has indicated that he is clueless regarding IAS 21 The Effects of
Changes in Foreign Exchange Rates and was therefore unable to consolidate the financial
results of the foreign operation, End Game PLC. The non-controlling interests of R45 000 000
included in the preliminary consolidated trial balance relate to other subsidiaries that have
already been correctly consolidated by the Group Accountant. The information relating to the
foreign operation is provided in the paragraphs below.
2. On 1 April 20.18, AWTY Ltd acquired 42 500 of the ordinary shares of End Game PLC and from
that date, AWTY Ltd had control of End Game PLC, as per definition of control in accordance
with IFRS 10 Consolidated Financial Statements. End Game PLC is a Zambian registered
company and has the Zambian Kwacha (ZMK) as its functional currency.
All assets and liabilities of End Game PLC were deemed to be fairly valued at the acquisition
date. No additional assets, liabilities or contingent liabilities were identified at the acquisition
date. AWTY Ltd elected to measure the non-controlling interest at its proportionate share of the
acquiree’s identifiable net assets at the acquisition date.
MJM
130 FAC4864/105
NFA4864/105
ZFA4864/105
The group accountant correctly calculated goodwill at the acquisition date as follows:
DRAFT ANALYSIS OF EQUITY OF END GAME PLC
AWTY Ltd
NCI
Total Rate Total 85%
15%
At Since
ZMK’000 ZMK1 = R R’000 R’000 R’000 R’000
At acquisition
123 030 1,40 172 242 146 406 25 836
Equity represented by 21 139 1,40 29 594 29 594 -
goodwill
144 169 201 836 176 000 25 836
AWTY Ltd granted an interest free loan to End Game PLC on 1 April 20.18 (repayable in
South African Rands). However, AWTY Ltd did not stipulate any settlement terms for the loan
granted to End Game PLC. The terms and conditions of the loan as agreed upon on
1 April 20.18 are unlikely to change in the foreseeable future. End Game PLC recorded the loan
in its statement of financial position as at 31 March 20.19 at ZMK40 414 000.
End Game PLC declared and paid a dividend of ZMK25 000 000 on 28 February 20.19.
End Game PLC reported a profit after tax, excluding any of the foreign exchange difference on
the loan, of ZMK36 700 000 for the year ended 31 March 20.19. This profit is not included in
profit after tax on the consolidated trail balance.
3. Theandraxis Dlambalala is the managing director of AWTY Ltd, appointed by the employees’
trust that owns 40% of the issued ordinary shares of AWTY Ltd. The employees’ trust held their
annual general meeting on 2 May 20.19 where it was resolved that it was not beneficial for
AWTY Ltd to have and pursue interest in education and training in other countries. On
30 June 20.19, through the persuasion of Theandraxis Dlambalala, AWTY Ltd resolved to
dispose of 31 875 shares in End Game PLC for a cash consideration of R149 600 000 as
AWTY Ltd exercised significant influence over the financial and operating policy decisions of
End Game PLC from that date. The fair value of the remaining investment in End Game PLC
amounted to R75 124 000 at that date.
The profit for the period 1 April 20.19 to 30 June 20.19 amounted to ZMK13 763 000, excluding
any foreign exchange differences on the loan.
Included in the draft workings prepared by the group accountant is the following incomplete
journal entry with regards to the disposal of End Game PLC on 30 June 20.19:
Dr Cr
R’000 R’000
Investment in End Game PLC (SFP) 31 125

Gain on disposal of interests on separate (P/L) 17 600
Group loss on disposal of interest (P/L) 36 090
Profit for the period 1 April 20.19 to 30 June 20.19 (P/L) 21 333
Retained earnings (SCE) (opening balance on 1 April 20.19) 11 097
Consolidating the amounts during the period when End Game was a
subsidiary
MJM
131 FAC4864/105
NFA4864/105
ZFA4864/105
The group accountant struggled to complete the journal entry above to account for the disposal
of the interest in End Game PLC and decided to discuss it with the CFO for the finalisation at
year end, which is only expected to be in the following year ending 31 March 2020. The group
loss on disposal of R36 089 000 did not include any reclassification of foreign exchange
differences.
1. All the amounts provided may be accepted as correct, except where indicated otherwise.
2. Income and expenses were earned and incurred evenly throughout their respective reporting
periods.
3. The applicable exchange rates were as follows:
ZMK1 = R
1 April 20.18 1,40

28 February 20.19 1,90
31 March 20.19 1,90
Average for the year ended 31 March 20.19 1,65
30 June 20.19 1,70
Average for the three months ended 30 June 20.19 1,55
PART II 15 marks
Adjustus Ltd is an investment parent company that is listed on the Johannesburg Stock Exchange
and has had various acquisitions and disposals of investments in various companies since its
incorporation.
Adjustus Ltd is in the process of finalising the consolidated annual financial statements for the year
ended 30 June 20.19. The consolidated statement of financial position and the consolidated
statement of profit or loss and other comprehensive income have been finalised. You are required to
assist with the finalisation of the consolidated statement of cash flows for the year ended
30 June 20.19.
The following information has been provided to you:
1. Profit for the year
The following is an extract from the consolidated statement of profit or loss and other
comprehensive income for the year ended 30 June 20.19:
MJM
132 FAC4864/105
NFA4864/105
ZFA4864/105
ADJUSTUS LTD GROUP

COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 20.19
R’000
Profit before interest and share of profit or loss of associates 226 924
Finance cost (17 776)
Profit before tax 221 477
PROFIT FOR THE YEAR 172 835
Revaluation surplus 38 800
Other comprehensive income for the year, net of tax 38 800
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 211 635
2. Long-term liabilities
Adjustus Ltd borrowed ¥30 000 000 from a bank in Japan on 1 January 20.19. No capital was
repaid during the current financial year. The loan bears interest at a market related interest rate
of 9% related to a foreign loan. The interest is payable annually in arrears. Any accrued interest
is included in trade and other payables. No other loans were raised during the current financial
year.
3. Depreciation
The total depreciation for the year on property, plant and equipment amounted to R29 200 000.
The revaluation surplus occurred when Eeeazy Ltd, a subsidiary in which Adjustus Ltd has 60%
interest, revalued its land on 30 June 20.19.
4. Concession Ltd
Adjustus Ltd acquired a 20% interest in Concession Ltd on 1 April 20.17 for R21 000 000 and
exercised significant influence over the financial and operating policy decisions of Concession
Ltd from that date. The fair value of the net assets of Concession Ltd amounted to R65 000 000
on 1 April 20.17.
On 1 July 20.18, Adjustus Ltd acquired an additional 40% interest in Concession Ltd and
obtained control of Concession Ltd as per IFRS 10 Consolidated Financial Statements. The fair
value of the previously held 20% interest and the fair value of the non-controlling interest
amounted to R24 000 000 and R15 000 000 respectively on the date of the change in the
shareholding. Any fair value adjustment has been included in other expenses.
MJM
133 FAC4864/105
NFA4864/105
ZFA4864/105
The fair values of the identifiable net assets of Concession Ltd on 1 July 20.18 were as follows:
R’000
Property plant and equipment 48 000

Inventory 35 000
Long-term liabilities (18 050)
70 000
5. Information from the consolidated statement of financial position
ADJUSTUS LTD GROUP
EXTRACT FROM THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT

30 JUNE 20.19
20.19 20.18
R’000 R’000
Current Assets
Inventory 178 515 119 875
641 044 391 665
Current liabilities
Current tax payable 15 600 20 375
161 565 132 705
6. Additional information
1. The spot currency exchange rate of the Japanese Yen (¥) to the South African Rand (R)
was ¥1 = R8,70 on 1 January 20.19, and ¥1 = R9,20 on 30 June 20.19. The average
exchange rate for the period 1 January 20.19 to 30 June 20.19 for ¥1 amounted to R9,00.
2. Assume a normal income tax rate of 28% and a capital gains tax inclusion rate of 80%.
Ignore Value Added Tax (VAT).
MJM
134 FAC4864/105
NFA4864/105
ZFA4864/105
QUESTION 9
REQUIRED
Marks
PART I
(a) Prepare only the equity section of the consolidated statement of financial position of 12
the Are We There Yet Ltd Group as at 31 March 20.19.
(b) Assist the group accountant to complete the pro forma journal entry regarding the 12
disposal of End Game PLC on 30 June 20.19. Provide any other additional pro forma
journal entries that are required to account for the disposal of a subsidiary on that
date. Pro forma journal entries to account for the investment in the associate are not
required. Journal narrations are not required.
Please note:

• Show all your calculations.
PART II
(a) Prepare only the net cash flows from operating activities section of the 13
consolidated statement of cash flows of the Adjustus Ltd Group as at 31 March 20.19
using the indirect method.
(b) List, according the Global Reporting Initiative (GRI) Level C guidelines, the elements 1
that a basic sustainability report should contain. Detailed discussions are not
required.
Please note:

• Show all your calculations.
MJM
135 FAC4864/105
NFA4864/105
ZFA4864/105
PART I
(a) AWTY LTD GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 20.19
R’000
EQUITY
Share capital 100 000 (½)
Retained earnings [350 000 + 68 150 – (25 000 x 1,90 x 85%) +
(36 700 x 1,65 x 85%) – 34 000] 395 247 (3½)
Other components of equity [C2] 87 832 (7)
583 079
Total equity 660 508
Total (14)
Maximum (12)
(b) Pro forma journals of AWTY Ltd Group
Dr Cr
R’000 R’000
Investment in associate (SFP) 75 124 [½]

Investment in End Game PLC (SFP) (balancing) 44 814 [½]
Gain on disposal of interest (P/L) on separate 17 600 [½]
Non-controlling interest (P/L) for period 1 April 20.19 to
30 June 20.19 (13 763 x 1.55 x 15%) 3 200 [1]
Group loss on disposal of interest (P/L) 36 090 [½]
Exchange differences on translation of foreign operation
(OCI) [C4] 37 192 [6½]
Non-controlling interest (OCI) [C6] 4 130 [2]
Profit for the period 1 April 20.19 to 30 June 20.19
(13 763 x 1,55) 21 333 [½]
Retained earnings (SCE) opening balance 11 097 [½]
FCTR opening balance (Part a) (SCE) 87 832 [½]
Consolidating the relevant amounts in respect of period when
End Game PLC was a subsidiary.
Reclassification adjustment (OCI) [C5] 55 585 [4]
Gain on disposal of interest (P/L) 55 585 [½]
Reclassification of realised exchange gains to profit or loss
Total [17½]
Maximum [12]
MJM
136 FAC4864/105
NFA4864/105
ZFA4864/105
COMMENT
The investment in End Game PLC could also have been calculated as follows:
R’000
Retained earnings – opening balance 11 097

FCTR – opening balance 87 833
Current three months profit (13 763 x 1,55 x 85%) 18 133
Current movement of FCTR (37 192 [C4] x 85%) (33 062)
Separate gain on disposal (17 600)
Group’s loss on disposal (36 090)
New investment in associate (75 124)
(44 813)
Journal could also have been split into smaller journals:
Dr Cr
R’000 R’000
J1 Investment in End Game PLC 98 930

Retained earnings – opening balance 11 097
FCTR – opening balance 87 833
J2 Investment in End Game PLC 18 133
NCI (P/L) 3 200
Profit for the period 21 333
J3 Gain on disposal in separate 17 600
Loss on disposal in group 36 090
Investment in associate 75 124
Investment in End Game PLC 128 814
J4 FCTR 37 192
NCI (OCI) 4 130
Investment in End Game PLC 33 062
CALCULATIONS
C1. FCTR (excluding goodwill)
R’000
Net asset value at acquisition 201 836 [½]

Profit after tax (36 700 x 1,65) 60 555 [½]
Foreign exchange gain on loan (40 414 – 56 580/1,90) = 10 635 x 1,65 17 548 [2]
Dividend paid (25 000 x 1,90) (47 500) [½]
232 439
FCTR on goodwill ((21 139 x 1,90) – 29 594) 10 569 [1]
243 008
Equity at closing rate
(144 169 + 36 700 + 10 635 – 25 000) = 166 504 x 1,90 316 358 [1]
73 350
[5½]
MJM
137 FAC4864/105
NFA4864/105
ZFA4864/105
C2. Foreign currency translation reserve
FCTR (excluding goodwill) [C1] 73 350 [5½]

Less FCTR allocated to NCI (73 350 x 15%) (11 003) [½]
Plus FCTR movement in goodwill 10 569 [½]
Plus Foreign exchange gain on loan (17 548 [C1] x 85%) 14 916 [½]
87 832
[7]
COMMENT
Since the loan is part of the net investment in End Game PLC, IAS 21.32 is applied and
the exchange difference is transferred from P/L to FCTR. The loan is repayable in Rand
and therefore the exchange differences to be transferred to FCTR will be recognised in
subsidiary’s profit or loss.
The journal would be:
Dt: Foreign exchange difference (P/L)

Cr: Foreign currency translation resere (OCI)
C3. Non-controlling interest
R’000
Proportional value of NCI at acquisition date (End Game PLC) 25 836 [½]
Profit for the year attributable to NCI (60 555 [C1] x 15%) 9 083 [½]
Foreign exchange gain on the loan (17 548 [C1] x 15%) 2 632 [½]
Dividend paid (7 125) [½]
FCTR attributable to NCI [C2] 11 003 [½]
NCI balance (other subsidiaries) 45 000 [½]
86 429
[3]
C4. Exchange differences on translation of the foreign operation
Foreign exchange on the loan

[(56 580/1,90 – 56 580/1,70) = 3 503 x 1,55] (5 430) [1½]
FCTR (goodwill) (21 139 x (1,70 – 1,90)) (4 228) [1]
FCTR (excluding goodwill) (27 534)
Net asset value at 30 June 20.19
[(ZMK176 763 (166 504 [C1] + 13 763 (given) – 3 503) x 1,70)] 300 499 [2]
Movement in net asset (4 228 + 5 430 – 21 333 – 316 358 [C1]) (328 033) [2]
37 192
[6½]
MJM
138 FAC4864/105
NFA4864/105
ZFA4864/105
C5. Reclassification adjustment
Foreign exchange on the loan - 31 March 20.19 [C2] 17 548 [½]

- 30 June 20.19 [C4] (5 430) [½]
FCTR excluding goodwill - 31 March 20.19 [C1] 73 350 [½]
- 30 June 2019 [C4] (27 534) [½]
57 934
NCI portion (57 934 x 15%) (8 690) [½]
FCTR on goodwill (10 569 [C1] – 4 228 [C4]) 6 341 [1]
55 585
[2½]
C6. Analysis of equity of End Game PLC
AWTY LTD NCI

Total Rate Total 85% 15%
At Since
ZMK’000 ZMK1 = R R’000 R’000 R’000 R’000
At acquisition
(01/04/20.18)
123 030 1,40 172 242 146 406 25 836
Goodwill 21 139 1,40 29 594 29 594 -
Consideration and NCI 144 169 201 836 176 000 25 836
Current year
Profit after tax for the year 36 700 1,65 60 555 51 472 9 083
Foreign exchange gain on
loan (40 414 – 56 580/1,90)
(P/L) 10 635 1,65 17 548 14 916 2 632
Dividend paid (25 000) 1,90 (47 500) (40 375) (7 125)
Equity at 31 March 20.19 166 504 232 439 26 013 30 427
FCTR (goodwill)
((21 139 x 1,90) – 29 594) 10 569 10 569 -
balancing figure) 73 350 62 348 11 003
Equity at closing rate 166 504 1,90 316 358 98 930 41 430
1 April to 30 June 20.19

Profit for the three months
to 30 June 20.19 13 763 1,55 21 333 18 133 3 200
Foreign exchange on loan

(56 580/1,90 – 56 580/1,70) (3 503) 1,55 (5 430) (4 616) (815)
FCTR (goodwill)
(21 139 x (1,70 – 1,90) (4 228) (4 228) -
balancing figure) (27 534) (23 404) (4 130)
Equity at closing 30/06/19 176 764 1,70 300 499 84 815 39 685
Loss of control over

subsidiary
Derecognise net assets
IFRS 10.B98 (176 763) (300 499) (84 815) (39 685)
- - - -
MJM
139 FAC4864/105
NFA4864/105
ZFA4864/105
PART II
(a) ADJUSTUS LTD GROUP
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR 30 JUNE 20.19
R
Profit before tax 221 477 [½]
Adjustments 47 917
Foreign exchange loss on loan (¥30 000 x (R9,20 – R8,70) 15 000 [1½]
Foreign exchange loss on the interest accrued
[(¥30 000 x 9% x 6/12) x (R9,20 – R9,00)] 270 [2½]
Depreciation (given) 29 200 [½]
Fair value adjustment on the investment in associate (IFRS 3.42) [C1] (2 000) [2½]
Share of profit of associates (12 329) [½]
Finance cost 17 776 [½]
Movement in trade and other receivables (129 075 – 176 957 + 26 450) (21 432) [1]
Movement in inventories (119 875 – 178 515 + 35 000) (23 640) [1]
Movement in trade and other payables [C2] (24 000) [2]
Cash generated from operations 200 322
Income tax paid [C3] (43 602) [3½]
Net cash generated from operations 156 720
Total [16]
Maximum [13]
Communication skills: presentation and layout [1]
(b) The Global Reporting Initiative (GRI) Level C template guides organisations on what
information should be contained in a basic sustainability report including:
1. Strategy and analysis [½]

2. Organisational profile [½]
3. Report profile, scope and boundary [½]
4. Governance, commitments and engagements [½]
Total [2]
Maximum [1]
CALCULATIONS
C1. Fair value adjustment on investment in associate
Fair value on 30 June 20.19 24 000 [½]

Carrying amount of investment in associate (22 000)
Cost price (21 000) [½]
Share of profit of associate since acquisition (70 000 – 65 000) x 20% (1 000) [1½]
2 000
[2½]
MJM
140 FAC4864/105
NFA4864/105
ZFA4864/105
C2. Movement in trade and other payables
Movement in balances (115 520 – 102 900) 12 620 [½]

Acquisition of subsidiary (24 200) [½]
Accrued interest [(¥30 000 x 9% x 6/12) x R9,20] (12 420) [1]
2 000
[2]
C3. Income tax paid
Deferred tax balances (30 445 – 9 430) 21 015 [½]

Deferred tax on revaluation (38 800/0,776 x 28% x 80%) (11 200) [2]
Income tax expense (48 642) [½]
Tax payable balances (15 600 – 20 375) (4 775) [½]
(43 602)
[3½]
MJM
141 FAC4864/105
NFA4864/105
ZFA4864/105
QUESTION 10 23 marks
Birdie Ltd is a company listed on the Johannesburg Stock Exchange. Birdie Ltd is a leading tour
operator company with a few subsidiaries and joint ventures.
The group accountant of Birdie Ltd, Mr Sylvester, approached you to be of assistance with the
consolidated statement of cash flows for the financial year ended 31 July 20.19.
1. Statement of cash flows
The following extract of the consolidated statement of cash flow of Birdie Ltd for the year ended
31 July 20.19 was prepared by Mr Sylvester:
R
Acquisition of property, plant and equipment (3 210 850)
Proceeds from disposal of subsidiary 2 500 000
Profit from disposal of property, plant and equipment 66 000
Acquisition of subsidiary (476 000)
Net cash used in investing activities (1 120 850)

Goodwill (237 500)
Dividend paid ?
Dividend received 15 000
Proceeds from issue of share capital 400 000
Proceeds of lease liability 668 960
Net cash used in financing activities ?
2. Consolidated trail balance
The following extract of the consolidated trail balance as at 31 July 20.19 for the Birdie Ltd
Group was presented to you:
20.19 20.18
R R
Property, plant and equipment 7 659 000 8 435 000

Investment in joint ventures 278 600 450 000
Goodwill 89 000 326 500
Retained earnings (5 433 340) (4 375 340)
Non-controlling interests (556 392) (1 828 500)
Lease liability (477 110) -
Current portion of lease liability (191 850) -
Shareholders for dividends (40 000) (24 000)
MJM
142 FAC4864/105
NFA4864/105
ZFA4864/105
The proceeds from the disposal of property, plant and equipment amounted to R650 000 for the
year and the carrying amount of these assets on date of disposal was R584 000. It is estimated
that R1 500 000 of the property, plant and equipment acquisitions are investments in future
operations, and the remaining was for replacements.
On 1 August 20.18, Birdie Ltd acquired new vehicles with a cost of R800 000 by means of a
lease agreement. The liability is payable in five annual instalments of R191 850 each, payable
annually in advance, commencing on 1 August 20.18. The accrued interest is included in
finance costs. Birdie Ltd did not elect the simplified accounting treatment for the equipment.
4. Investment in other companies
4.1 Sweetie Ltd
On 1 November 20.15, Birdie Ltd acquired a 55% controlling interest in Sweetie Ltd for
R1 750 000 cash. On that date the issued share capital of Sweetie Ltd amounted to
R250 000, while the retained earnings amounted to R2 500 000. All the assets and
liabilities of Sweetie Ltd were deemed to be fairly valued on the acquisition date.
On 1 April 20.19 Birdie Ltd disposed of a 45% interest in Sweetie Ltd for R2 500 000
resulting in a remaining interest of 10%. The remaining 10% interest had a fair value of
R500 000 on 1 April 20.19. From that date, Birdie Ltd did not exercise control or
significant influence over the financial and operating policy decisions of Sweetie Ltd. The
net assets of Sweetie Ltd amounted to R4 670 000 on 1 April 20.19.
The settlement amount consisted of cash payment of R2 000 000 and inventory valued at
R500 000. The disposal of the interest did not comply with IFRS 5 Non-current Assets
Held for Sale and Discontinued Operations until the date of disposal.
Sweetie Ltd had a bank overdraft amounted to R130 000 as at 1 April 20.19.
Birdie Ltd elected to measure non-controlling interest for the acquisition of Sweetie Ltd at
their proportionate interest in the acquiree’s identifiable net assets at the acquisition date.
Birdie Ltd did not dispose of another subsidiary during the current financial year.
4.2 Spike Ltd
Birdie Ltd acquired a 30% interest in Spike Ltd on 1 July 20.15 for R150 000 and had joint
control over Spike Ltd from that date. Spike Ltd was correctly classified as a joint venture.
The fair value of the net assets of Spike Ltd on that date amounted to R400 000 and the
acquisition of Spike Ltd did not result in the recognition of an excess on 1 July 20.15. On
1 February 20.19, Birdie Ltd acquired an additional 50% interests in Birdie Ltd and
obtained control of Spike Ltd as per IFRS 10 Consolidated Financial Statements from that
date. The purchase consideration was settled as follows:
• A cash payment of R110 000.

• Issue of 2 500 ordinary shares of Birdie Ltd to the seller. The fair value of these shares
was R120 per share on 1 February 20.19 and R130 per share on 31 July 20.19.
• The transfer of equipment to Spike Ltd be used for business purposes, with a carrying
amount of R66 000 and a fair value of R75 000 on 1 February 20.19.
MJM
143 FAC4864/105
NFA4864/105
ZFA4864/105
The fair value of the previously held 30% interest amounted to R320 000 on the date of
change in the shareholding and the fair value of the non-controlling interests was
R195 000.
The assets and liabilities according to the trail balance of Spike Ltd as at
1 February 20.19 were as follows:

Inventory 95 000
938 000
All the assets and liabilities of Spike Ltd were deemed to be fairly valued on the
acquisition date. Birdie Ltd elected to measure non-controlling interest for the acquisition
of Spike Ltd at fair value at the acquisition date. Birdie Ltd did not acquire another
subsidiary during the current financial year.
4.3 Granny Ltd
On 1 June 20.19 Birdie Ltd acquired 40% interest in Granny Ltd for cash. Birdie Ltd jointly
control Granny Ltd and was correctly classified as a joint venture. No other joint venture
were acquired or disposed of, except for the Spike Ltd (refer to note 4.2) during the
• The following amounts were included in the 2019 consolidated financial statements for the
group:
Share of profit of joint ventures 75 000

Other income (Consists of dividends received - R40 000 from joint ventures, the
rest from other financial assets) 55 000
Finance cost (84 000)
Profit for the period attributable to owners of the parent 1 123 000
Profit for the period attributable to non-controlling interests 685 392
• Birdie Ltd discloses cash flows from interest and dividends received as investing activities, and
interest and dividends paid as financing activities.
• Goodwill in the consolidated financial statement of the Birdie Ltd was not impaired for the
• Assume the total amount disclosed as investing activity for “Acquisition of property, plant and
equipment” (refer note 1) is correct.
• Assume a normal income tax rate of 28% and a capital gains tax inclusion rate of 80%. Ignore
MJM
144 FAC4864/105
NFA4864/105
ZFA4864/105
QUESTION 10
REQUIRED
Marks
Critically discuss any non-compliance with IAS 7 in the investing and financing activities 23
sections of the consolidated statement of cash flows of the Birdie Ltd Group for the year
ended 31 July 20.19 that was prepared by Mr Sylvester.
Please note:

• Round all amounts to the nearest Rand.
MJM
145 FAC4864/105
NFA4864/105
ZFA4864/105
QUESTION 10 – Suggested solution
Critically discuss any non-compliance with IAS 7 in the investing and financing activities
sections of the consolidated statement of cash flows of the Birdie Ltd Group for the year
ended 31 July 2019 that was prepared by Mr Sylvester.
Investing activities
The amount for “Acquisition of property, plant and equipment” should be split between the
cash flow to maintain operating capacity and increase operating activity (IAS 7.50(c)).
Therefore, the amount should be disclosed as follows:
- Maintaining operating activity R1 710 850 (3 210 850 – 1 500 000)

- Increase in operating activity R1 500 000 (given) (2)
The “Proceeds from disposal of subsidiary” amount should be presented net of cash of the
subsidiary disposed. The cash amount received was R2 000 000 and the bank overdraft of
Sweetie Ltd was R130 000. Therefore, the net cash inflow should be disclosed as
R2 130 000. (1)
The “Acquisition of subsidiary” amount should also be presented net of cash of the
subsidiary acquired. The cash amount paid was R110 000 and the bank balance of
Spike Ltd was R52 000. Therefore, the net cash outflow should be disclosed as R58 000. (1)
The “Profit from disposal of property, plant and equipment” should not be disclosed as this
is not a cash flow item. Instead the proceeds from the disposal of property, plant and
equipment of R650 000 should be disclosed on the face of the statement as an investing
activity. (1½)
The “dividends received” should not be disclosed under financing activities, as

Birdie Ltd Group discloses cash flows from interest and dividends received as investing
activities, and not financing activities. The amount is also incorrect, as the dividends
received from joint ventures were not taken into account. The amount of R55 000 should be
disclosed on the face of the statement as an investing activity. (1½)
During the current year Birdie Ltd acquired 40% interest in Granny Ltd (a joint venture) for
cash. This should be presented as an investment activity. The amount should be calculated
as follows: (2½)
Investment in joint venture: Opening balance 450 000

Spike Ltd (joint venture derecognised) [(938 000 x 30%) + 30 000] (311 400)
Share of profit of joint ventures 75 000
Dividends received form joint ventures (40 000)
Investment in joint venture: Closing balance (278 600)
Granny Ltd acquired for cash amount of (105 000)
MJM
146 FAC4864/105
NFA4864/105
ZFA4864/105
Financing activities
The movement in goodwill is not a cash flow and should not be included in the statement of
cash flows. (1)
The “Dividends paid” amount will be calculated as follows: (5½)

R
Dividends declared
Retained earnings – opening balance (4 375 340) [½]
Profit for the period attributable to owners of the parent (1 123 000) [½]
Retained earnings – closing balance 5 433 340 [½]
(65 000)
Dividends paid to shareholders of parent
Shareholders for dividend – opening balance (24 000) [½]
Dividends declared (65 000)
Shareholders for dividend – closing balance 40 000 [½]
(49 000)
Dividends paid to shareholders on non-controlling interests

Non-controlling interests – opening balance (1 828 500) [½]
Profit for the period attributable to non-controlling interests (685 392) [½]
Acquisition of Spike Ltd (195 000) [½]
Disposal of Sweetie Ltd (4 670 000 x 45%) 2 101 500 [1]
Non-controlling interests – closing balance 556 392 [½]
(51 000)
Dividends paid
Dividends paid to shareholders of parent (49 000)
Dividends paid to shareholders of non-controlling interests (51 000)
Dividends paid in cash (100 000)
The “Proceeds from the shares issued” amount should only include shares issued for cash.
As part of the consideration paid for the step acquisition of Spike Ltd, Birdie Ltd issued
R300 000 (2 500 x R120) shares. Therefore, the “Proceeds from the shares issued” amount
should be disclosed as R100 000 (400 000 – 300 000). (2)
The lease liability was incurred to acquire new vehicles with a cost of R800 000 by means of
a lease agreement. Therefore, there will be no cash inflow from obtaining the lease. The
lease payment of R191 850 for the year will also not be presented as a financing activity,
but rather as part of the “Acquisition of property, plant and equipment” calculation as a non-
cash item. (2)
The cash outflow of interest paid should be disclosed on the face of the statement under
financing activities. The amount will be calculated as follows: (3)
Lease – initial capital amount (800 000) [½]

Less: Instalment paid on 1 August 20.18 191 850 [½]
Outstanding balance as at 1 August 20.18 (608 150)
Outstanding balance as at 31 July 20.19 (477 110 + 191 850) 668 960 [1]
Accrued interest on lease liability 60 810
Finance cost (84 000) [½]
(23 190)
Total (23)
MJM

Fac4 T4

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Fac4 T4

Uploaded by

Copyright:

Available Formats

FAC4864/105/0/2020

Tutorial letter 105/0/2020

APPLIED FINANCIAL ACCOUNTING II

Department of Financial Governance

This tutorial letter contains important information

Personnel and contact details 3

Prescribed method of study 3

Suggested working programme 4

Learning unit 9 The effects of changes in foreign exchange rates (translation) 5

10 Statement of cash flows 21

Self assessment questions and suggested solutions 43

TEST 4 ON TUTORIAL 105: 28 JULY 2020

PERSONNEL AND CONTACT DETAILS

Please send all e-mail queries to: fac4864postgrad@unisa.ac.za

PRESCRIBED METHOD OF STUDY

2. Read the standards and interpretation(s) covered by the learning unit.

SUGGESTED WORKING PROGRAMME

LEARNING UNIT 9 – THE EFFECTS OF CHANGES IN FOREIGN

1. Identify the functional currency of a foreign operation.

2. Translate the financial statements of a foreign operation of which the functional

4. Translate the financial statements of a stand-alone foreign operation from its

6. Account for the changes in degree of control in foreign operations.

7. Disclose the required information in respect of foreign operations in accordance

PRESCRIBED STUDY MATERIAL

1. Group Statements, 17th edition, Volume 2 (Chapter 15).

2. IAS 21 The Effects of Changes in Foreign Exchange Rates.

THE REST OF LEARNING UNIT 9 IS BASED ON THE ASSUMPTION THAT YOU

SECTION A - SAICA’S PRINCIPLES OF EXAMINATION LEVELS

Description Paragraph Level Notes

The following information relates to the investment in Subbie Ltd:

Critically assess Subbie Ltd’s functional currency.

EXAMPLE 1 - Suggested solution

Loan to FO Ltd 20 000 -

Share capital (70 000 ordinary shares) 70 000 -

EXAMPLE 2 – Suggested solution

Journal in P Ltd’s records

Pro forma consolidation journals in P Ltd Group

J1 Foreign exchange difference (P/L) 2 792

EXAMPLE 3 – Suggested solution

Journal in P Ltd’s records

Loan to FO Ltd (SFP) [(R20 000/R7,77) x (R8 – R7,77)] 592

Pro forma consolidation journals in P Ltd Group

Loan from P Ltd (SFP) (R20 000 + R592) 20 592

EXAMPLE 4 – Suggested solution

Refer to the information in Example 4 above.

EXAMPLE 5 – Suggested solution

Deferred tax balance in the statement of financial position of FO Ltd

SECTION B - QUESTION ON FOREIGN OPERATIONS

QUESTION 9.1 (40 marks – 60 minutes)

Movements in retained earnings are as follows:

3. No gains or losses of Lewis Ltd were taken directly to equity.

8. The applicable exchange rates are as follows:

Communication skills: Presentation and layout 1

• Comparative figures are required.

QUESTION 9.1 - Suggested solution

LEWIS LTD GROUP

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

PROFIT FOR THE YEAR [C4] 154 1 390 (10)

Profit attributable to:

Total comprehensive income attributable to:

LEWIS LTD GROUP

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED

3. Total comprehensive income include all amounts recognised in the consolidated