DISCUSSION QUESTION

Papyrus Ltd was incorporated in 19.06 and is one of the oldest book stores in Bloemfontein.
On 1 January 20.15, Papyrus Ltd purchased 36 000 ordinary shares in Parchment Ltd, a
company that exclusively sells Afrikaans’ books. From this date, Papyrus Ltd exercised
significant influence over the financial and operating policy decisions of Parchment Ltd. The
assets and liabilities of Parchment Ltd were fairly valued on this date, with the exception of
trade and other receivables that were overvalued by R10 000.

Papyrus Ltd wished to further expand its business and on 1 December 20.16 acquired control
of Paper Ltd by acquiring 90% of the issued ordinary shares in Paper Ltd. The assets and
liabilities were fairly valued at this date.

The following balances were extracted from the trial balances of Parchment Ltd and Paper at
various dates:
Parchment Ltd Paper Ltd
01/01/20.15 01/12/20.16 01/12/20.16
R R R
Share capital - 120 000 ordinary shares 220 000 220 000 -
Share capital - 100 000 ordinary shares - - 100 000
Retained earnings 1 060 000 1 480 000 90 000
Revaluation reserve 210 000 245 000 -

The following are the trial balances of the relevant entities as at 30 November 20.17:
Parchment
Papyrus Ltd Paper Ltd
Ltd
R R R
Share capital - 500 000 ordinary shares (500 000) - -
- 120 000 ordinary shares - (220 000) -
- 100 000 ordinary shares - - (100 000)
Retained earnings - 30 November 20.17 (3 560 000) (1 630 000) (104 000)
Revaluation surplus (350 000) (290 000) -
Mark-to-market reserve (162 704) - -
Long term loans - (100 000) -
Deferred tax asset / (liability) 14 670 (8 500) -
Loan from Papyrus Ltd - (12 500) (45 000)
Loans from other owners - - (55 000)
Trade and other payables (485 000) (202 500) (154 000)
Bank overdraft - (15 400) -
Property, plant and equipment 2 567 000 1 660 900 257 000
Investment in Parchment Ltd at cost 430 330 - -
Investment in Paper Ltd at cost 185 000 - -
Loan to Parchment Ltd 12 500 - -
Loan to Paper Ltd 45 000 - -
Trade and other receivables 594 000 416 000 102 000
Inventory 467 000 402 000 99 000
Cash and cash equivalents 579 500 - -
- - -
QUESTION 2 (continued)

Additional information

1. All the entities have a 30 November year-end.

2. On 28 February 20.17, Paper Ltd sold office equipment to Papyrus Ltd for an amount of
R59 975. Paper originally purchased this office equipment for R60 000 on 1 December
20.16. On 1 December 20.16, Paper Ltd estimated that the office equipment had a total
useful life of six years. The entity’s policy is to provide for depreciation over the expected
useful life of the office equipment using the straight-line method which is consistent with
the allowance of the South African Revenue Service.
3. From 1 January 20.15, Parchment Ltd purchased inventory from Papyrus Ltd.
Papyrus Ltd sold the inventory at a profit margin of 25% on cost. Total sales amounted to
R400 000 in the 20.16 financial year and R620 000 in the 20.17 financial year.

Inventory purchased from Papyrus Ltd that was still on hand at year-end was as follows:

30 November 20.16 - R90 000

30 November 20.17 - R130 000
4. During the current year Papyrus Ltd sold inventory to the value of R100 000 to Paper Ltd
at a profit mark-up of 40% on the selling price. On 30 November 20.17, Papyrus Ltd had
inventory on hand amounting to R60 000 that was purchased from Paper Ltd.
5. Parchment Ltd declared a dividend of R30 000 on 1 September 20.17. Paper Ltd did not
declare a dividend for the current financial year.
6. Papyrus Ltd has the right to demand repayment of the loans to Parchment Ltd and
Paper Ltd at any time.
7. The Papyrus Ltd Group accounts for investments in associates using the equity method
in accordance with IAS 28, Investments in Associates and Joint Ventures.

8. The Papyrus Ltd Group elected to measure non-controlling interests in an acquiree at

their proportional share of the acquiree’s identifiable net assets.
9. Assume the SA normal tax rate is 28% and that the capital gains tax is calculated at 80%
thereof.

REQUIRED:
Prepare only the asset section of the consolidated statement of financial position of the
Papyrus Ltd Group as at 30 November 20.17.
(30)
Your answer must comply with the requirements of International Financial Reporting
Standards (IFRS).
Comparative figures to the consolidated financial statements are not required.
All amounts are to be calculated to the nearest R1.