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UNIVERSITY EXAMINATIONS
October 2022
FAC3762
International Group and Financial Accounting
100 marks
3 hours
EXAMINATION PANEL: AS APPOINTED BY THE DEPARTMENT
This paper consists of TEN (10) pages.
Instructions:
1. This paper consists of TWO (2) questions.
2. All questions must be answered.
3. Basic calculations, where applicable, must be shown.
4. Each question attempted must commence on a new (separate) page.
5. The use of a programmable pocket calculator is permissible.
6. This a closed book examination
7. PROPOSED TIMETABLE: (Avoid deviating from this as far as possible.)
Time in
Marks minutes
Question 1 74,5 134
Question 2 25,5 46
TOTAL 100 180
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Date: 19 October 2022
INSTRUCTIONS ON THE DAY OF ASSESSMENT:
Ensure you are connected to the internet in order to log into

the Invigilator App and scan this QR code.
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alternatively enter the Exam Access Code below the QR code to
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Keep the Invigilator App open on your cell phone for the full duration of the assessment. You are
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Unless otherwise specified by your institution, this does NOT replace the normal upload of your script
to your institutions online portal
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After completing invigilation and following all app instructions, you must upload your Invigilation App data. If
however there is a delay in the upload of the app data at the end of the assessment, you should prioritise the
upload of your script to your university portal and you can temporarily minimise the app to do so. Uploading of app data
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portal.
Should you encounter any technical difficulty, please WhatsApp The Invigilator Helpdesk on 073 505 8273.
EXAMINATION RULES AND INSTRUCTIONS
Download this paper as soon as it has been accessed.
Remember to complete and adhere to the Honesty Declaration.
Please upload your submission in PDF-format: a single file not larger than 20Mb,
before the expiry of the available time. (https://cas.myexams.unisa.ac.za).
Additional student instructions:

1. Students must upload their answer scripts in a single PDF file (answer scripts must
not be password protected or uploaded as “read only” files).
2. NO emailed scripts will be accepted.
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opportunity will be granted for resubmission.
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opportunity for resubmission will be granted.
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have transgressed Unisa’s examination rules and will have their marks withheld.
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results from the Invigilator App. Failure to do so will result in students deemed not
have utilised invigilation or proctoring tools.
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Students suspected of dishonest conduct during the examinations will be subjected
to disciplinary processes. Students may not communicate with other students, or
request assistance from other students during examinations. Plagiarism is a violation
of academic integrity, and students who do plagiarise or copy verbatim from
published work will be in violation of the Policy on
Academic Integrity and the Student Disciplinary Code and may be referred to
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disciplinary hearing. Unisa has a zero tolerance for plagiarism and/or any other forms
of academic dishonesty.
14. Students are provided 30 minutes to submit their answer scripts after the official
examination time. Students who experience technical challenges should report to
the SCSC 080 000 1870 or their College exam support centers (refer to the
https://www.unisa.ac.za/sites/myunisa/default/Announcements/Get-help-during-
the-examinations-by-contacting-the-Student-Communication-Service-Centre )
within 30 minutes. Queries received after one hour of the official examination
duration time will not be responded to. Submissions made after the official
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qualify the student for any special concessions or future assessments.
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Students experiencing the above challenges are advised to apply for an
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session. Students will not be able to apply for an aegrotat for a third
examination opportunity. Students experiencing the above challenges in their
second examination opportunity will have to reregister for the module.
17. Students experiencing technical challenges, contact the SCSC 080 000 1870 or
email Examenquiries@unisa.ac.za or refer to
https://www.unisa.ac.za/sites/myunisa/default/Announcements/Get-help-during-
the-examinations-by-contacting-the-Student-Communication-Service-Centre ) for
the list of additional contact numbers. Communication received from your myLife
account will be considered.
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Question 1 (72,5 marks) (134 minutes)
Bonang Ltd (Bonang) is a company specialising in textile production and was established in
2004. Bonang supplies companies as well as entrepreneur designers with quality fabric in
various African prints. You are appointed as the financial manager and are tasked with
assisting in the preparation of the separate and consolidated financial statements for Bonang
and the Bonang Ltd Group, respectively for the year ended 28 February 2022.
In preparation of the separate financial statements, the following information was provided
with respects to Bonang.
1. Investment in debentures
Bonang purchased 1 000 10% redeemable debentures of R100 each for R100 000 on
1 March 2021 from FeloD Ltd and incurred R2 000 transaction costs that were directly
attributable to the acquisition of the debentures. The nominal value of the debentures is equal
to the purchase price thereof. The interest is payable annually in arrears. The debentures are
redeemable on 28 February 2025 at R120 000. It is the intention of Bonang to collect annual
contractual cash flows of principal and interest from the investment with no intention to trade.
The fair value of the investment on 1 March 2021 and 28 February 2022 was R100 000 and
R106 000 respectively. The debentures were not considered to be credit impaired on initial
recognition. There has not been a significant increase in credit risk at any stage. All
payments for the 2022 financial year were received on time. Bonang estimates that if the
investment defaults over the 3 year period then an estimated 20% of the gross carrying
amount will be lost. On 28 February 2022, the expected credit loss information for the
investment in the redeemable debentures was as follows:
1 March 28 28 28 28
2021 February February February February
2022 2023 2024 2025
Probability of default
occurring in the next 12 0% 2% 4% 4% 4%
months
Probability of default
occurring until 3% 3% 5% 6% 6%
28 February 2023
(lifetime expected credit
loss
2. Transaction with Ricardo M

Bonang entered into a contract with Ricardo M (Pty) Ltd (Richardo M), a production events
company, to lease out an insignificant portion of its head office space to Ricardo M. The
lease period is three years with an escalation rate of 10%. The rental payments for the 2022
year are R300 000 in total (R25 000 per month) and the rental payments will increase by
10% per year from the second year of the lease period. The lease contract began on
1 August 2021 and Ricardo M paid the full R300 000 on 1 August 2021.
There are no tax allowances granted on the head office building. The building had a carrying
amount of R480 000 on 1 March 2021 and a remaining useful life of 12 years. The residual
value of the building is regarded to be insignificant.
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3. Human resources
The gross salaries of Bonang for the ended 28 February 2022 were R6 000 000 (excluding
bonusses). The amount includes PAYE on the gross salaries and the employees’ share of the
defined contribution plan contributions. Bonang made a contribution of 7,5% of the gross
salaries to the Bonang Provident Fund, a defined contribution plan.
Bonang pays annual bonuses to all employees on 28 February of each year, which is equal
to one month’s gross salary, apportioned for the number of months worked during the year.
Bonang only paid the annual bonusses on 1 April 2022 due to a cash shortfall on 28 February
2022.
On 1 February 2022, Bonang made the decision to offer a 5% salary increase, effective from
1 March 2022 to all employees of the company. On 1 April 2022 the company and the Union
reached an agreement on a 10% salary increase. All employees would receive back pay for
the additional 5% increase in respect of the March 2022 salaries. There were no salary
increases during the 2020 and 2021 financial years. The financial statements were authorised
for issue on 15 April 2022.
All the employees are entitled to 20 days leave per financial year. Employees must take a
minimum of 15 days leave per annum. Of the remaining five days, only four days can be
transferred and taken in the next leave cycle. The remaining day not taken, can be
accumulated and paid out on the day of resignation or retirement. Previous experience has
shown that on average, only three days of the leave that was transferred to be taken as leave
during the next year, are in fact taken. There were no new employments or resignations in the
current year.
The bonuses and leave pay accruals will be allowed as tax deductions when paid.
On 28 February 2021 the accumulated leave to be paid out on the day of termination of the
employees’ services, amounted to an average of six days. There were 260 working days in a
financial year.
Accrued employee benefits on 28 February 2021 R

Unused leave days for 2021 that was taken during 2022 161 538
Unused leave transferred to date of termination of service 138 462
300 000
4. Investments held by Bonang
Bonang holds various investments listed on the stock exchange. In the current year, Bonang
purchased additional shares. The percentage holding for all of the listed investments is less
than 10% and these are held for trading. The investments are measured at fair value through
profit and loss and will be included as part of gross income when the shares are sold.
Carrying amount Fair value

Investments - 1 March 2021 120 000 154 000
Investments - 28 February 140 000 195 000
2022
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5. Entities within the Bonang Group

Within the Bonang Group, there are two entities DeeDee Ltd and Mohale Ltd. The details of
the entities are given below.
5.1 DeeDee Ltd (DeeDee)

On 1 September 2020, Bonang obtained control of DeeDee Ltd by acquiring 80 000 of the
100 000 issued ordinary shares of DeeDee Ltd, an 80% share. The purchase consideration
transferred to the previous owners of the shares was settled as follows:
• Cash of R100 000 which was paid on the same date.
• A property, with a carrying amount of R640 000 which had a fair value of R804 000 on
the date control was obtained.
• 10 000 ordinary equity shares in Print Ltd with an issue price of R3.00 per share and a
fair value of R5.00 per share on 1 September 2020.
At the date of acquisition, the retained earnings (credit) balance was R785 950 and share
capital was R165 000. All the identifiable assets and liabilities of DeeDee were fairly valued
except for two balances, land and accounts receivable. The land, with a carrying amount of
R490 000 was undervalued by R55 000. DeeDee did not revalue the land as its policy for
owner-occupied land is the cost model in terms of IAS 16: Property, Plant and Equipment. On
28 February 2022, the land’s fair value was R635 000. The accounts receivable balance was
overvalued by R35 000 on 1 September 2020.
On 1 March 2021, the retained earnings balance of Dee Dee was R1 295 980.
On 1 March 2022, the directors of Bonang Ltd received and accepted an offer of R350 000
(fair value) from a third party to purchase 9 000 of the ordinary shares which were held by
Bonang Ltd in Dee Dee Ltd. On the disposal date, Dee Dee Ltd had no unidentified assets,
liabilities or contingent liabilities.
5.2 Mohale (Pty) Ltd (Mohale)

Mohale is a company formed in 2014 by a group of friends who are designers by profession.
The company intended to market and sell their products using the Mohale franchise. Its
success drew the attention of investors and venture capitalists.
On 1 December 2019, Bonang acquired 35% of the 100 000 R1 shares in Mohale and paid
R500 000 for the stake. Bonang exercised significant influence over the financial and
operating policy decisions of Mohale in accordance with IAS 28: Investments in Associates
and Joint Ventures.
The net asset value of Mohale amounted to R 1,2 million on 1 December 2019 and all the
identifiable net assets of Mohale were fairly valued at that date. The retained earnings balance
of Mohale Ltd on 1 December 2019 was R120 000.
As at 28 February 2022, Mohale had inventory on hand to the value of R45 000 that had been
acquired from Bonang during the 2022 financial year. Bonang levied a 25% mark-up on cost.
Mohale declared dividends of R25 000 to its shareholders on 28 February 2022.
6. Summarised financial information

The financial accountant has provided you with the following information in the separate
financial statements of each entity within the Bonang Group. You may assume that all the
transactions in notes 1 - 4 have been correctly accounted for where applicable.
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Bonang DeeDee Mohale

R R R
Profit before tax 798 000 960 400 58 000
Tax expense (P/L) 241 000 312 600 15 400
Dividend declared 90 000 154 000 25 000
7. Strategic contractual arrangement (after year-end)

Material Ltd (Material) is a South African company that has 800 000 shares in issue. Material
imported specialised weaving machinery (known as looms) from China. These machines are
known to be the best available in the market. The machines weave the fabric faster and
experience fewer breakdowns. Material’s main business is the leasing of these machines to
various customers.
Bonang and Lebone Ltd (Lebone) identified access and the use of the machinery as a strategic
business opportunity and they acquired all the shares in Material. Bonang and Lebone each
acquired 400 000 ordinary shares on 1 March 2022. Each ordinary share is entitled to one
vote and each shareholder can appoint five of the ten directors to the board of directors of
Material. Bonang and Lebone entered into a strategic agreement on 1 March 2022.
Some of the key aspects of the agreement are as follows:
• Material will exclusively lease its specialized weaving machinery to Bonang and Lebone
on an equal basis.
• A majority decision by the board of directors is required for decisions regarding the
operating, investing and financing activities.
• The operating model of Material changed to a break-even operating model.
8. Other information relating the Bonang Group

• The Bonang Ltd Group measures non-controlling interests at their proportionate share of
the acquiree’s identifiable net assets at the acquisition date.
• The Bonang Ltd Group accounts for owner -occupied property, plant and equipment using
the cost model in terms of IAS 16, Property, Plant and Equipment,
• The initial residual values and useful life estimates of property, plant and equipment
remained unchanged unless specifically stated otherwise.
• Investments in subsidiaries, associates and joint ventures are measured at cost in
Bonang’s Ltd’s separate financial statements.
• The South African normal tax rate is 28% and the capital gains tax (CGT) inclusion rate is
80%. You may assume that both tax rates have remained unchanged.
• Goodwill has correctly never been impaired.
• All the companies within the Bonang Ltd Group have a 28 February year end.
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REQUIRED
PART A
With respects to the separate financial statements of Bonang Ltd
a Disclose the following notes to the annual financial statements of

Bonang Ltd for the year ended 28 February 2022
20
• Profit before tax
Comparative figures and any qualitative disclosure are not required.
1
Communication skills – layout
b Prepare the statement of financial position of Bonang Ltd as at 28

February 2022 as far as possible from the given information.
The cash and cash equivalents, retained earnings/accumulated loss 15
and current tax liability need not be presented.
Comparative figures are not required.
PART B
With respects to the consolidated financial statements of Bonang

Group
a Prepare the pro forma at-acquisition journal entry that Bonang will
process to account for its investment in DeeDee in the Bonang Group’s
7
financial statements.
b Calculate the consolidated profit for the year that will be presented in
the consolidated statement of profit or loss and other comprehensive
income for the Bonang Group.for the year ended 28 February 2022.
8
Comparative figures and the Profit attributable to the parent and non-
controlling interest is NOT required.
c Prepare only the pro-forma consolidation journal entries that will be

processed to account for the disposal of the 9 000 shares by Bonang
9,5
Ltd in the consolidated financial statements of the Bonang Ltd Group for
the year ended 28 February 2023.
d Draft an email to the Financial Director wherein you discuss, with

reasons in terms of IFRS 11 the appropriate classification of the
strategic agreement between Bonang Ltd and Lebone Ltd in the
consolidated financial statements of the Bonang Ltd Group for the year 14
ended 28 February 2023.
TOTAL 74,5
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Question 2 (25,5 marks) (46 minutes)
Turner Industrial Ltd (Turner) is a company that operates in the commercial drill manufacturing
industry, selling drilling equipment to end users. The financial year end of the company is
31 December.
Due to the tough economic environment, rising interest rates and competition in the industry,
Turner had been struggling to increase sales which resulted in profit margins falling. The
financial director structured lease deals that will be competitive in the market to increase sales.
On 1 January 2021, Turner entered into an agreement in which Turner leased an All Geared
Extra Heavy Duty Radial Drill to Impact Industries Ltd (Impact). The lease agreement contains
a lease in terms of IFRS 16, Leases.
The terms of the lease are as follows:
• Commencement date: 1 January 2021
• Lease period: 3 years
• Lease payments: R80 000, annually in advance, payable on 1 January of each year
• Guaranteed residual value: R10 000, payable on 31 December 2023
• Interest rate as quoted: 18,7927%
• Legal fees incurred by Turner: R5 000
• Ownership of the asset will pass to Impact at the end of the lease term at no cost.
The drill was manufactured at a cost of R180 000. The normal selling price of the drill is
R210 000 and the fair value is R235 000. The economic life of the asset is 4 years. The market
related interest rate for similar lease agreements is 22%.
REQUIRED
Discuss the classification of the lease in the accounting records of 11,5
Turner Industrial Ltd in terms of IFRS 16 – Leases, as far as possible
a from the given information.
Communication skills 1
Assuming that the lease is classified as a finance lease and a dealer

lessor, prepare the journal entries to account for the lease in the
b accounting records of Turner Industrial Ltd for the year ended 31 13
December 2021.
Journal narrations are required.
TOTAL 25,5
©
UNISA 2022
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SOLUTION 1
PART A
(a) Extract of the Notes to the Financial Statements of Bonang Ltd for the year
ended 28 February 2022
1. Profit before tax
Profit before tax includes the following:
R
Incomes
Finance income (𝑖) 13 689
Operating lease income (𝑖𝑖𝑖) 193 083
Fair value adjustment on shares [195 000 − 154 000 − (140 000 −
120 000)] 21 000
Income from subsidiary:
- Dividends income (80% ∗ 154 000) 123 200
Income from other financial assets
- Unlisted investments: Dividend income (25 000 ∗ 35%) 8 750
Expenses
Expected credit loss (𝑖) 2 114
Depreciation (𝑖𝑖) 40 000
Employee benefits 6 909 557
Short – term employee benefits (𝑖𝑣) 6 459 557
Defined contribution plan (6 000 000 ∗ 7.5%) 450 000
Calculations
i. Investment in debentures
2
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Effective interest at initial recognition
𝑃𝑉 = −(100 000 + 2 000) = −102 000

𝑃𝑀𝑇 = (100 000 ∗ 10%) = 10 000
𝐹𝑉 = 120 000
𝑛=4
𝑖 = 13.4204%
Amortisation table using effective interest rate of 13.4204% per

annum
Date Instalment Effective Capital Closing

(Coupon interest at Growth balance
interest) @ 16% p.a
16% p.a
R R R R
1 March 2021 - - - 102 000
28 February 2022 10 000 13 689 3 689 105 689
28 February 2023 10 000 14 184 4 184 109 873
29 February 2024 10 000 14 745 4 745 114 618
29 February 2025 10 000 15 382 5 382 120 000
Expected credit losses = (105 689 ∗ 2%)

= 𝟐 𝟏𝟏𝟒
ii. Depreciation
480 000
Depreciation on building = ( )
12
= 𝟒𝟎 𝟎𝟎𝟎
iii. Operating lease income
Straight - lining of lease income
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R
1 August 2021 – 30 July 2022 300 000
1 August 2022 – 30 July 2023 (300 000 ∗ 1.1) 330 000
1 August 2023 – 30 July 2024 (330 000 ∗ 1.1) 363 000
993 000
993 000
Straight – lining of lease income =( )
36
= 𝟐𝟕 𝟓𝟖𝟑. 𝟑𝟑
Operating lease income = (27 583.33 ∗ 7)

= 𝑹𝟏𝟗𝟑 𝟎𝟖𝟑
iv. Short – term employee benefits
R
Gross Salaries 6 000 000
6 000 000 500 000
Bonus accrual: 2022 ( 12 )
(300 000)
Leave accrual: 2021
3
Leave accrual: 2022 (leave to be taken) (6 000 000 ∗ 1.1 ∗ 1.075 ∗ ) 81 865
260
7
Leave accrual: 2022 (leave to be paid out) (6 000 000 ∗ 1.1 ∗ ) 177 692
260
6 459 557
(b) Extract of the Statement of Financial Position as at 28 February 2022
R
ASSETS
NON – CURRENT ASSETS
Property, plant & equipment (480 000 − 40 000) 440 000
Investment in FeloD Ltd debentures (105 689 − 2 114) 103 575
Investment in associate [100 000 + 804 000 + (10 000 ∗ 5)] 954 000
Investment in associate 500 000
CURRENT ASSETS
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Investment in listed investments 195 000

Dividends receivable (123 200 + 8 750) 131 950
LIABILITIES
CURRENT LIABILITIES
Prepaid operating lease income (300 000 − 193 083) 106 917
Provision for bonus 500 000
Provision for leave (81 865 + 177 692) 259 557
PART B
(a) Pro Forma Journal Entries
DR CR
R R
Share Capital 165 000
Retained Earnings [785 950 − (35 000 ∗ 0.72)] 760 750
Revaluation Surplus (55 000 ∗ 77.6%) 42 680
Goodwill (balancing figure) 179 256
Non – controlling interest (SFP) [(165 000 + 760 750 + 42 680) ∗ 20%] 193 686
Investment in DeeDee 954 000
Elimination of owners` equity in DeeDee Ltd at acquisition
(b) Calculation of consolidated profit for the year ended 28 February 2022
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R
Profit before tax [798 000 + 960 400 + ((58 000 − 15 400) ∗ 1 749 090
25
35% − (45 000 ∗ 125 ∗ 35%) − (25 000 ∗ 35%) − (154 000 ∗
80%) (552 718)
25
Income tax expense [241 000 + 312 600 − (45 000 ∗ 125 ∗
35% ∗ 28%)]
Profit for the year 1 196 372
(c) Pro – Forma Journal Entries
DR CR
R R
9 000 107 325
Investment in DeeDee Ltd (80 000 ∗ 954 000)
242 675
Other income (profit on sale of shares) (350 000 − 107 325)
170 229
Change in ownership (SOCIE)
179 711
Non - controlling interests (SFP) (1)
Recording of increase in non – controlling interests due to sale of
shares
Calculations
1. Analysis of Owners` Equity of DeeDee Ltd
Total Bonang Ltd (80%) NCI (20%)

At Since
R R R R
At Acquisition
Share Capital 165 000 132 000 33 000
6

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Retained Earnings 760 750 608 600 152 150

Given 785 950
Accounts Receivable (35 000 ∗ 72%) (25 200)
Revaluation Surplus (55 000 ∗ 77.6%) 42 680 34 144 8 536

968 430 774 744 193 686
Equity represented by goodswill 179 256 179 256 -
Purchase Consideration & NCI 1 147 686 954 000 193 686
Since Acquisition
To beginning of current year
Given (1 295 980 − 785 950) 510 030
Accounts Receivable 25 200
Current year
Profit for the year (960 400 − 312 600) 647 800 518 240 129 560
Ordinary dividends (154 000) (123 200) (30 800)
2 176 716 823 224 399 492
Sale of 9 000 shares – 1 March 2022

Transfer of equity to NCI [(968 430 + 535 230 + (179 771) 179 771
647 800 − 154 000) ∗ 9%]
Proceeds from sale of shares 350 000
Change in ownership reserve 2 176 716 170 229 579 263
2 176 716 823 224 579 263
(d) To: Financial Director (Bonang Ltd)
7

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From: Advisor
Date: 08 March 2007
Subject: Appropriate classification of strategic agreement between Bonang
Ltd and Lebone Ltd
A joint arrangement is an arrangement in which two or more parties have

joint control [IFRS 11.4].
Joint control is the contractually agreed sharing of control, which exists

only when decisions about the relevant activities require unanimous
consent of the parties sharing such control [IFRS 11.7].
(a) A contract (strategic agreement) exists between Bonang Ltd and
Lebone Ltd.
(b) It would appear that the relevant activities of Material Ltd are those
relating to the importing and leasing of specialized weaving machinery, as
these determine the returns of the entity.
However, each investor holds 50% of the shares and of the voting rights
and each shareholder can appoint five of the ten directors to the board of
directors of Material. This means that the shareholders must be in
agreement in order to come to a decision. Therefore unanimous consent
is required.
Therefore Bonang Ltdi and Lebone Ltd have joint control over Material
Ltd and a joint arrangement exists.
Bonang shall determine the type of joint arrangement in which it is

involved. The classification of a joint arrangement depends upon the
rights and obligations of the parties to the arrangement [IFRS 11.14].
A joint operation is a joint arrangement whereby the parties that have joint
control have rights to the assets and obligations for the liabilities relating
to the arrangement, whereas a joint venture is a joint arrangement
whereby the parties that have joint control have rights to the net assets of
the arrangement [IFRS 11.15-16].
As Material is a separate legal entity, it may represent either of these two

types of joint arrangements [IFRS 11.B19].
8

R1,135 per month?
Bonang will consider other facts and circumstances as the legal form and
the terms of the contractual arrangement are not clear.
Material will will exclusively lease its specialized weaving machinery to

Bonang and Lebone at a price determined in order to cover the expenses
incurred by Material, as Material`s operating model changed to a break –
even operating model from the date of the arrangement. This indicates
that Bonang and Lebone have rights to substantially all the economic
benefits of the assets of Material and are, in substance, responsible for
the settlement of the liabilities of Material (IFRS 11.B30-.B32). Material
does not appear to have any other sources of income, as it appears that
Bonang and Lebone are each obligated to lease all the specialized
weaving machinery of Material. Therefore the cash flows from Bonang
and Lebone in substance satisfy the obligations of Material.
Conclusion:
Based on the above, in my opinion Bonang and Lebone have rights to the
assets and obligations for the liabilities of Material and therefore Material
meets the definition of a joint operation.
9

R1,135 per month?
SOLUTION 2
(a) Classification of leases
Is the lease term for a major part of an asset’s useful life?

Yes, the lease term is three years which is a major part of the assets useful life of
four years
Is ownership transferred to the lessee at the end of lease term?

Yes, ownership of the asset will pass to Impact at the end of the lease term
Is the present value of the minimum lease payments equal to the fair value of
the leased asset?
𝑛=3
𝑃𝑀𝑇 = 80 000
𝐹𝑉 = 10 000
𝑖 = 22
𝑷𝑽 = 𝟐𝟎𝟒 𝟖𝟑𝟎
No, the present value of the minimum lease payments of 204 830 is not equal to the
fair value of R235 000 of the leased asset.
Is the underlying asset of such a specialised nature that only the lessee can
use it without major
modifications?
No, the bulldozer is not of a specialised nature and can be used by the lessor or a
third party after the lease term.
10

R1,135 per month?
Based on all the above, the lease is classified as a finance lease considering that
ownership will transfer and it is for a greater part of the useful life of the asser.
(b) Journal Entries
DR CR
R R
1 January 2022
Legal expenses (P / L) 5 000
Bank (SFP) 5 000
Account for the payment of legal fees related to the
finance lease
Gross investment in finance lease (SFP) 250 000

Unearned finance income (SFP) 45 170
Revenue (P / L) 204 830
Cost of sales (P / L) 180 000
Inventory (SFP) 180 000
Recognise lease receivable and sale of inventory
Bank (SFP) 80 000

Gross investment in finance lease (SFP) 80 000
Recognition of 1st lease instalment received
11

R1,135 per month?
31 December 2021
Unearned finance income (SFP) 27 463
Finance income (P / L) 27 463
Finance income on lease for the year
Calculations
The fair value is therefore, R204 830 (part (a) and not R210 000,
Unearned finance income
R
Gross investment in the lease [(80 000 ∗ 3) + 10 000] 250 000
Unearned finance income (balancing figure) (45 170)
Net investment in the lease 204 830
Amortisation Table

interest at balance
22% p.a
R R R R
1 January 2021 80 000 - 80 000 124830
1 January 2022 80 000 27 463 52 537 72 293
1 January 2023 80 000 15 904 64 096 8 197
31 December 2023 10 000 1 803 8 197 0
12

R1,135 per month?
COLLEGE OF ACCOUNTING SCIENCES

DEPARTMENT OF FINANCIAL ACCOUNTING
TEST 3: 22 JULY 2022
FAC3762
INTERNATIONAL GROUP AND FINANCIAL REPORTING
60 marks
108 minutes
(15 minutes for downloading and 30 minutes for uploading)
THIS PAPER CONSISTS OF EIGHT (8) PAGES.

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R1,135 per month?
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2

R1,135 per month?
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R1,135 per month?
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PAPER
1. The paper consists of ONE (1) question.

2. All parts of the question must be answered.
3. All calculations and workings must be shown.
Marks Time (minutes)
Test 3: Question 60 108
TOTAL 60 108

R1,135 per month?
QUESTION 1 (60 marks) (108 Minutes)

Paperlink Ltd (Paperlink) is the largest paper, plastics packaging and recycling business in South Africa.
Paperlink holds investments in other companies such as Shred Ltd (Shred) and Kleen Ltd (Kleen). The
Paperlink Ltd Group is listed on the JSE and all companies in the Paperlink Ltd Group have a 30 June year
end.
The following are extracts from the summarised trial balances of the entities in the Paperlink Ltd Group
for the year ended 30 June 2022:
Paperlink Ltd Shred Ltd Kleen Ltd

Dr/(Cr) Dr/(Cr) Dr/(Cr)
R R R
Property, plant and equipment at cost 1 617 000 1 299 641 561 000
- Investment in Shred Ltd at cost 1 400 000 - -
- Investment in Kleen Ltd at cost 250 000 - -
- Investment in equity instruments 130 000
Trade and other receivables 303 230 296 850 85 700
Cash and cash equivalents 390 650 445 100 325 400
Inventories 214 600 388 310 129 200
Ordinary dividend paid – 30 June 2022 180 000 152 000 75 000
Retained earnings –1 July 2021 (1 918 000) (1 555 000) (650 000)
Share capital: – 150 000 ordinary shares (750 000) - -
– 120 000 ordinary shares (240 000)
– 90 000 ordinary shares (90 000)
Accumulated depreciation (150 400) (90 800) (53 000)
Deferred tax liability (60 300) (25 200) (10 150)
Trade and other payables (205 700) (180 450) (70 550)
Profit for the year (1 358 400) (475 331) (282 000)
– fair value adjustment on land, net after tax - (15 120) (20 600)
– fair value gain on equity instruments, net after tax (42 680) - -
1. Investment in Shred Ltd

Shred offers secure document shredding, product destruction, recycling and e-waste disposal services
throughout South Africa. To expand the business of the Paperlink Ltd Group, Paperlink acquired 90 000
of the 120 000 issued ordinary shares of Shred on 1 July 2021 for a cash consideration amounting to
R1 400 000. This acquisition met the definition of a business combination as defined in IFRS 3, Business
Combinations. At the acquisition date, the share capital amounted to R240 000.
The carrying amounts of the assets and liabilities of Shred at acquisition date were considered to be fairly
valued, except for the solar energy unit (consisting of solar panels and integrated back-up battery packs)
that was installed on 1 July 2021. Shred installed the solar energy unit to ensure that they will be able to
continue operating in times where they might experience load shedding. The solar energy unit (equipment)
had a carrying amount of R103 000 on 1 July 2021. The remaining useful life of the solar energy unit was
3 years on this date. Both companies depreciate equipment over the expected useful life of the asset using
the straight-line method. This is consistent with the allowance granted by the South African Revenue
Service.

R1,135 per month?
The accountant of Paperlink knows that on acquisition date all assets and liabilities must be measured at
fair value in terms of IFRS 13 but is not sure at what amount to measure the fair value of the solar energy
unit. Thus, the revaluation was not accounted for in the records of Shred Ltd.
There is no principal market where second-hand solar energy units are sold in South Africa but two
markets were identified where second hand solar energy units are sold at different prices. The two markets
being the Mpumalanga Alternative Energy Market and the Green Solar Shop in the Free State. Shred
transacts in both markets and could access the prices in those markets for the solar energy unit on
1 July 2021 (the measurement date).
At the Mpumalanga Alternative Energy Market, the price that would be received to sell the solar energy
unit is R129 000. Transaction costs in that market are R2 800 and the costs to transport the asset to that
market are R6 000 (i.e. the net amount that would be received is R120 200).
At the Green Solar Shop, the price that would be received to sell the solar energy unit is R128 000.
Transaction costs in that market are R500 and the costs to transport the asset to that market are R7 000
(i.e. the net amount that would be received is R120 500).
The above information is illustrated in the table below for ease of understanding:
Mpumalanga Alternative Green Solar Shop

Energy Market
R R
Price 129 000 128 000
Transport costs (6 000) (7 000)
Transaction costs (2 800) (500)
Net price 120 200 120 500
2. Shred entered into a lease agreement with Realbasics Ltd (Realbasics) on 1 January 2022 to lease one
of its new grinding machines to Realbasics. The lease agreement is a lease in terms of IFRS 16, Leases.
The following information relates to the lease:
Commencement of agreement 1 January 2022

Cost price of machines R135 845
Fair value of leased machine R135 845
Duration of lease agreement 5 years
Instalment R22 500 payable half yearly in arrears
Unguaranteed residual value R28 500
The machine has no guaranteed residual value. Shred incurred R1 500 legal fees to secure the lease
agreement. At the end of the lease period the machine will be transferred to Realbasics at no additional
cost. The machine was available for use and brought into use on 1 January 2022. Transactions arising
from the lease have not been recorded in the accounting records of Shred.
3. On 31 March 2022, Paperlink sold two standby diesel generators with an original cost price of R54 000,
for R53 800 to Shred. This generator was bought by Paperlink on 1 July 2021 and has a useful life of 10
years. The tax allowance on the generator is 10% per year apportioned for periods of use less than a year.
The residual value of the generator was insignificant. The carrying amount of the generator will be
recovered through use. The generator was classified as property, plant and equipment under the cost
model, in the accounting records of both Paperlink and Shred.

R1,135 per month?
4. Investment in Kleen (Pty) Ltd

On 1 February 2022, Paperlink acquired 27 000 ordinary shares in Kleen (Pty) Ltd (Kleen) for R250 000,
which was paid in cash. Kleen is a collection, sorting, baling and recycling business located in Akasia,
Pretoria. At the acquisition date, the retained earnings of Kleen had a credit balance and the identifiable
assets and liabilities of Kleen were considered to be fairly valued and equal to the carrying amounts
thereof. Since 1 February 2022, Paperlink exercised significant influence over the financial and operating
policy decisions of Kleen in accordance with IAS 28 Investments in Associates and Joint Ventures.
5. Since 1 February 2022, Kleen sold PET materials (inventory) to Paperlink at a profit mark-up of 25% on
the cost price. Total sales from Kleen to Paperlink for the year ended 30 June 2022 amounted to R50 000.
These sales took place evenly throughout the period post the acquisition of Kleen. At year end, half of the
inventory bought from Kleen was still on hand and was recorded as such in Paperlink’s accounting records.
6. Equity instruments other than investments in subsidiaries and associates
Paperlink portfolio of equity instruments other than investments in subsidiaries and associates, includes
50 000 shares. This portfolio is measured at fair value, with fair value changes presented in Other
Comprehensive Income (OCI). The shares are held for long-term capital growth. The shares were
originally bought at R1.50 per share and the fair value per share amounted to R2.60 on 30 June 2022.
Additional information
7. The Paperlink Ltd Group depreciates its property, plant, and equipment using the straight-line method
over its expected useful life. Paperlink Ltd Group’s depreciation policy is consistent with tax allowances
granted by the South African Revenue Service.
8. The Paperlink Ltd Group presents items of Other Comprehensive Income net after tax.
9. Paperlink measures its investment in Shred and its investment in Kleen, at cost in its separate financial
statements in terms of IAS 27, Separate Financial Statements.
10. The Paperlink Ltd Group measures investments in associates using the equity method in accordance with
IAS 28, Investments in Associates and Joint Ventures.
11. The Paperlink Ltd Group measures its non-controlling interest at its proportionate share of identifiable net
assets.
12. The income and expenses of Shred and Kleen were earned and incurred evenly throughout the current
year unless indicated otherwise.
13. The SA normal tax rate is 28% and capital gains tax is calculated at 80% thereof. You may assume that
the tax rate has remained unchanged since 1 July 2020.
14. Each share carries one vote and the share capital of all companies has remained unchanged since
1 January 2021.
15. All the companies in the Paperlink Ltd Group have a 30 June year end.

R1,135 per month?
REQUIRED:
Marks
(a) Draft a report to the accountant of the Paperlink Ltd Group, discussing the correct
amount that should be disclosed as the fair value of the solar energy unit on
1 July 2021 in terms of IFRS 13, Fair Value Measurement. Your answer must make
clear reference to the requirements of fair value measurement. 12
Communication skills: Presentation and Layout 1½
(b) For Part b, you may assume that the fair value of the solar energy unit is R121 000
Prepare the extract of the Consolidated Statement of Profit or Loss and Other
Comprehensive Income of the Paperlink Ltd Group for the year ended 30 June 2022
starting with the line item “Profit for the year” 25
(c) Prepare only the assets section of the Consolidated Statement of Financial Position of
the Paperlink Ltd Group as at 30 June 2022. 16½
Only show transactions arising from the lease agreement, Investment in Kleen (Pty)
Ltd and Investment in Shred Ltd.
TOTAL 60
Please note:
Your answers must comply with the requirements of International Financial Reporting Standards (IFRS).
Notes to the annual financial statements and comparative figures are not required.
Round all amounts to the nearest Rand. Show all calculations.
Round all percentages calculated to the nearest three decimals.
You may ignore Income tax, Value Added Tax and Dividend tax.
UNISA 2022 ©

R1,135 per month?
FAC3762/203
SUGGESTED SOLUTION TO TEST 3/2022
QUESTION 1
PART A
To: Accountant of Paperlink Ltd

Subject: Fair value of the solar panels and back-up battery pack
Dear Accountant of Paperlink Ltd/Mr xxx
In terms of IFRS 13, fair value is defined as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement date.
An orderly transaction is defined as a transaction that assumes exposure to the market for a period
before the measurement date to allow for marketing activities that are usual and customary for
transactions involving such assets or liabilities; it is not a forced transaction (e.g. a forced liquidation
or distress sale).
In terms of IFRS 13, a fair value measurement assumes that the transaction to sell the asset or
transfer the liability takes place in the principal market for the asset or liability.
The principal market is defined as the market with the greatest volume and level of activity for the
asset. The fair value of the asset in a principal market would be measured using the price that would
be received in that market, after taking into account transport costs. (Thus, including the transport
costs).
In the absence of a principal market, or if neither market is the principal market the transaction to
sell the asset (or transfer the liability) is assumed to take place in the most advantageous market for
the asset or liability. However, the most advantageous market will only be referred to in the absence
of the principal market. The fair value of the asset would be measured using the price in the most
advantageous market.
The most advantageous market is the market that maximises the amount that would be received to
sell the asset, or that minimizes the amount that would be paid to transfer the liability, after taking
into account transaction and transport costs.
There is no principal market where second-hand solar energy units are sold in South Africa, therefore
Paperlink Ltd Group should use the most advantageous market to measure fair value.
Conclusion
The most advantageous market is the Green Solar Shop as it results in a net price (price in market
less transaction costs and transport costs) of R120 500 which is higher or greater net value than the
Mpumalanga Alternative Energy Market’s net price of R120 200. The fair value of the asset would
be measured using the price in that market (R128 000), less transport costs (R7 000), resulting in a
fair value measurement of R121 000. Although transaction costs are taken into account when
determining which market is the most advantageous market, the price used to measure the fair value
of the asset is not adjusted for those costs (however it is adjusted for transport costs)
Your sincerely
UNISA Student
4
R1,135 per month?
FAC3762/203
PART B
PAPERLINK LTD GROUP
EXTRACT OF THE CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2022
R
Profit for the year (C1) 1 757 431
Other comprehensive income for the year, after tax
Items that will not be reclassified to profit or loss:
Fair value adjustments on land; net after tax 15 120
Fair value gain on equity instruments, net after tax 42 680
Share of other comprehensive income of associate (20 600 x 30%) 6 180
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1 821 411
Profit for the year attributable to: R

Owners of the parent 1 636 754
Non-controlling interests (475 331 + 16 246 - 4 549 - 6 000 + 1 680) x 25% 120 677
1 757 431
Total comprehensive income for the year attributable to:
Non-controlling interests 120 677 + (15 120 x 25%) 124 457
1 821 411
C1 – Profit for the year R

Paperlink Ltd
Profit for the year (given) 1 358 400
Less: dividend received from Shred (152 000 x 75%) (114 000)
Less: dividend received from Kleen (75 000 x 30%) (22 500)
Less: unrealised profit on disposal of generator (PPE) [53 800 – 49 950 (54 000 –
4 050(54 000/10 x 9/12))] (3 850)
Tax on unrealised profit (3 850 x 28%) 1 078
Add realised portion through depreciation 3 850/9.25 (10 - 0.75(9/12)) x 3/12 OR
3 850/111 x 3 104
Tax on depreciation (104 x 28%) (29)
A 1 219 203
Shred Ltd
Profit for the year (given) 475 331
Finance income on lease 16 246
Tax on finance income (16 246 x 28%) (4 549)
Additional depreciation on revaluation of equipment (solar panels) (18 000/3
years) (6 000)
Tax on depreciation (6 000 x 28%) 1 680
B 482 708
Kleen (Pty) Ltd
Gain on bargain purchase (C2) 21 350
Share of profit of associate (282 000 x 5/12) x 30% 35 250
Unrealised profit (inventory) (50 000 x 50% x 25/125 x 30%) (1 500)
Tax on unrealised profit (1 500 x 28%) 420
C 55 520
Total profit for the year (A + B + C) 1 757 431
C2 – Gain on bargain purchase R

Share Capital 90 000
Retained Earnings 650 000
5
R1,135 per month?
FAC3762/203
Profit (7 months) (282 000 x 7/12) 164 500
904 500
x 30% (271 350)
Consideration 250 000
Gain on bargain purchase (21 350)
PART C
PAPERLINK LTD GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2022
ASSETS R
Non-current assets
Investment in associate (C1) 290 280
Goodwill (C2) 44 030
Net investment in finance lease (C3) 116 276
Current assets
Net investment in finance lease (131 091 – 116 276) 14 815
C1 – Investment in associate R
Cost 250 000
Gain on bargain purchase 21 350
Profit for the year (5 months) (282 000 x 5/12) x 30% 35 250
Other comprehensive income (20 600 x 30%) 6 180
Dividend paid (75 000 x 30%) (22 500)
290 280
C2 - Goodwill
Share capital 240 000
Retained earnings 1 555 000
Revaluation surplus (16 246 x 28%) 18 000
Tax on revaluation surplus (18 000 x 28%) (5 040)
1 807 960
X 75% (1 355 970)

Consideration 1 400 000
Goodwill 44 030
C1 – Net investment in finance lease

Interest rate implicit in the lease
N = 10 (5 x 2)
Pmt = 22 500
FV = 28 500
PV = 137 345 (135 845 + 1 500)
Comp i = 11,289%
Amortisation table
Interest @
Date Instalment Capital Balance
11,289%
01 Jan 2022 (22 500) 137 345
30 June 2022 (22 500) 16 246 (6 254) 131 091
31 Dec 2022 (22 500) 15 506 (6 994) 124 097
30 June 2023 (22 500) 14 679 (7 821) 116 276
31 Dec 2023 (22 500) 13 753 (8 747) 107 529
30 June 2024 (22 500) 12 720 (9 780) 97 749
31 Dec 2024 (22 500) 11 562 (10 938) 86 811
6
R1,135 per month?
FAC3762/203
30 June 2025 (22 500) 10 268 (12 232) 74 579
31 Dec 2025 (22 500) 8 822 (13 578) 60 901
30 June 2026 (22 500) 7 204 (15 296) 45 605
31 Dec 2026 (22 500) 5 395 (17 105) 28 500
Analysis of owner’s equity of Kleen Ltd

100% 30% 30% Investment
Total At Since in Associate
R R R R
At acquisition date
Share capital 90 000 27 000
Retained earnings 650 000 195 000
Profit (7 months) (282 000 x 7/12) 164 500 49 350
904 500 271 350
Consideration paid 250 000 250 000
Since acquisition date

Gain on bargain purchase 21 350 21 350
Current year
Profit for the year (282 000 – 164 500) 117 500 35 250 35 250
Other comprehensive income 20 600 6 180 6 180
Dividends paid (75 000) (22 500) (22 500)
964 000 250 000 40 280 290 280
Investment in Associate 290 280
Analysis of owner’s equity of Shred Ltd
Paperlink Ltd
100% 75% 25%
At acquisition date Total At Since NCI
Share capital 240 000 180 000 60 000
Retained earnings 1 555 000 1 166 250 388 750
Revaluation surplus (121 000 -103 000) 18 000 13 500 4 500
Tax on revaluation surplus (5 040) (3 780) (1 260)
1 807 960 1 355 970 451 990
Equity represented by goodwill 44 030 -
Purchase consideration 1 400 000 1 400 000 -
Since acquisition
Current year 482 708 362 031 120 677
Profit for the year 475 331 356 498 118 833
Finance income i 16 246 12 185 4 062
Tax on finance income (4 549) (3 412) (1 137)
Depreciation on solar panels (6 000) 4 500 1 500
Tax on depreciation 1 680 1 260 420
Other comprehensive income (after tax) 15 120 11 340 3 780

Dividends paid (152 000) (114 000) (38 000)
2 153 788 1 400 000 259 371 538 477
7
R1,135 per month?

TEST 2: 13 June 2022
FAC3762
40 marks
72 minutes
THIS PAPER CONSISTS OF FIVE (5) PAGES.

test.

R1,135 per month?
The Invigilator
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1. Go to https://my.unisa.ac.za/portal and login with your myUnisa credentials i.e. student
number and password.
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- https://stratus.unisa.ac.za/sacdl20/asps/unisa_assignments.asp
• Students who cannot access myUnisa for the test question paper or to upload their answer
scripts should use the following link - https://mooc.unisa.ac.za/portal - CAS Test 2 2022.
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R1,135 per month?
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academic dishonesty.
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Your submission will be date stamped and only submissions received up to 15:00 pm will be marked.
PAPER

Test 2: Question 1 40 72
TOTAL 40 72

R1,135 per month?
QUESTION 1 (40 marks)(72 minutes)

Super Speed Ltd (Super) is a company that amongst other manufactures and sells go-carts to
retailers worldwide and has a 31 March year-end.
Lease agreement
On 1 March2020, Super entered into a non-cancellable lease agreement to lease welding equipment
from Weld It Ltd (Weld It) for five years. The lease agreement contains a lease as defined in IFRS
16, Leases.
The following items were specified in the lease agreement:
Commencement date of lease 1 April 2020
Fair value of welding equipment on 1 April 2020 (incl. VAT) R 2 070 000
Lease term 5 Years
Instalments payable annually in arrears (incl. VAT) R496 000
Date of first instalment 31 March 2021
The Value Added Tax will also be financed by Weld It. Per the lease agreement, ownership of the
welding equipment will not transfer to Super at the end of the five-year lease term. Super entered
into an agreement with Go Ltd (Go) on 1 April 2020 whereby Go will purchase the welding equipment
from Weld It on 31 March 2025 for an unguaranteed residual value of R300 000. Go is not related to
Super nor to Weld It.
Weld It and Super both incurred commission payable to Mac Brokers for the conclusion of the lease
agreement. Weld It paid the total commission of R20 000 (excluding VAT) to Mac Brokers on
1 April 2020. On the same day, Super refunded Weld It with R12 000 for its share of the commission.
It is the policy of Super to depreciate the welding equipment over its useful life using the straight-line
method. On 1 April 2020, Super estimated the remaining useful life of the welding equipment to be
six years with an estimated residual value for purposes of depreciation of R250 000 (excl. VAT). The
estimated residual value remained unchanged since 1 April 2020.
Land and Plant
On 1 December 2020, Super purchased a piece of land for the erection of plant for the manufacturing
of the go-carts. The company paid R1 150 000 (incl. VAT) in cash for the land. The building activities
started on 1 April 2021 and the plant was ready for use on 1 January 2022 and taken into use on
1 February 2022.
The directors of Super decided that from 1 April 2021, 50% of the welding equipment will be used in
the construction of the plant. Plant is regarded as a qualifying asset in terms of IAS23 – Borrowing
costs. Super incurred construction costs to the amount of R1 035 000 (incl. VAT) during the
construction period. The construction costs were paid in cash.
It is the policy of Super to depreciate the plant at 15% per annum on the reducing balance method.
The estimated residual value of the plant at the end of its useful life will be R100 000. Land is not
depreciated.

R1,135 per month?
Taxation
The South African Revenue Service allows a capital allowance on manufacturing plant as follows:
40% in the first year of use and 20% per annum in the following three years, not pro-rata for periods
shorter than a year.
With the exception of Mac Brokers all other companies are registered VAT vendors. The following
taxation rates remained unchanged since 1 April 2020:
S A Normal Tax rate 28%
Value Added Tax rate 15%
The lease meets the definition of Part (b) of the ICA definition.
REQUIRED
Marks
(a) Disclose the following notes to the annual financial statements of Super Speed
Ltd for the year ended 31 March 2022:
- Profit before tax 13½
- Property, plant and equipment 5
- Leases 12½
(b) Calculate the deferred tax asset/liability in the accounting records of Super
Speed Ltd at 31 March 2022. 9
40
Please note:
Your answers must comply with the requirements of International Financial Reporting Standards
(IFRS).
Round off all percentages to five decimal places.
Round off all amounts to the nearest rand.
UNISA 2022 ©

R1,135 per month?
FAC3762/202
3 SUGGESTED SOLUTION TO TEST 2/2022
QUESTION 1
Part a
SUPER SPEED LTD

NOTES FOR THE YEAR ENDED 31 MARCH 2022
2022
1. Profit before tax R
Profit before tax is stated after taking the following into account:
Expenses
Finance costs 96 700
Total finance costs [C1 + C2 + C4] 154 719
Borrowing costs capitalised [C6] (58 019)
Depreciation 240 766
Total depreciation (36 766 [C7] + 326 400 [C5]) 363 166
Depreciation capitalised [C6] (122 400)
2. Property, plant and equipment Land Plant Total
Carrying amount at beginning of year 1 000 000 - 1 000 000
Cost (1 150 000 x 100/115) 1 000 000 - 1 000 000
Accumulated depreciation - - -
Additions (1 035 000 x 100/115 + 1 022 400 1 022 400

122 400)
Borrowing costs capitalised 58 019 58 019
Depreciation - (36 766) (36 766)
Carrying amount at end of year 1 000 000 1 043 653 2 043 653
Cost 1 000 000 1 080 419 2 080 419
Accumulated depreciation - (36 766) (36 766)
This study source was downloaded by 100000799301222 from CourseHero.com on 10-17-2022 15:07:46 GMT -05:00
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Solutionpdf/Distribution of this document is illegal R1,135 per month?
3. Leases
3.1 Right of use assets - Equipment
Carrying amount at the beginning of the year [C5] 1 305 599
Depreciation for the year [C5] (326 400)
Carrying amount at the end of the year 979 199
3.2 Maturity analysis of future payments outstanding on 31 March 2022
Future lease payments (undiscounted)
For the year ended 31 March 2023 [C4] 496 000
Total future lease payments 1 488 000
Total future finance costs ((496 000 x 5) - 1 889 999 - 185 172 - 154 719 250 110
[C4] OR 121 282 + 84 569 + 44 259 OR 590 001 – 185 172–154 719
Lease liability 1 237 890
Short-term portion presented under current liabilities [C4] 374 718
Long-term portion presented under non-current liabilities [C4] 863 172
3.3 Total cash outflows relating to leases:
Presented under financing activities
Cash payments for capital portion of lease liabilities [C4] 341 281
Presented under operating activities
Cash payments for interest portion of lease liabilities [C4] 154 719
Total cash outflow relating to leases 496 000
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This study
FAC3762/202
CALCULATIONS
C1. Step 1: Calculate interest rate implicit in the lease
N 5
PV 2 078 000 (2 070 000 + 8 000 lessor’s initial direct costs)
PMT 496 000
FV 300 000
I 9,79747% (calculate)
C2. Step 2: Calculate the present value of the lease liability at commencement date
N 5
I 9,79747%
PMT 496 000
FV 0
PV 1 889 999 (calculate)
C3. Step 3: Calculate cost of right-of-use-asset
Initial measurement of the lease liability 1 889 999

Value added tax (270 000)
Initial direct costs of the lessee (commission paid by Ultra Speed Ltd) 12 000
1 631 999
C4. Step 4: Prepare the amortisation table
Interest at Closing
Instalments 9,79747% Capital balance
R R R R
1 April 2020 1 889 999
31 March 2021 496 000 (a)185 172 310 828 1 579 171
31 March 2022 496 000 (b)154 719 341 281 1 237 890
31 March 2023 496 000 (c)121 282 374 718 863 172
31 March 2024 496 000 84 569 411 431 451 741
31 March 2025 496 000 44 259 451 741 -
2 480 000 590 001 1 889 999
(a) 1 889 999 x 9,79747% (b)1 579 171 x 9,79747% (c)1 237 890 x 9,79747
This study source was downloaded by 100000799301222 from CourseHero.com on 10-17-2022 15:07:46 GMT -05:00
C5. Calculation of depreciation and carrying amount of right-of-use asset
Right-of-use asset at inception of the lease [C3] 1 631 999

Depreciation for the year ended 31 March 2021 (1 631 999/5 years) (326 400)
Carrying amount at 31 March 2021 1 305 599
Depreciation for 2022 (1 631 999/5) (326 400)
Carrying amount at 31 March 2022 979 199
C6. Calculation of cost of plant
Construction costs (1 035 000 x 100/115) 900 000

Interest on lease capitalized (154 719 x 9/12 x 50%) 58 019
Depreciation on right-of-use asset capitalised ((326 400 x 9/12 x 50%) 122 400
Cost/Depreciable amount of plant at 1 January 2022 1 080 419
C7. Calculation of depreciation and carrying amount of plant
Cost at 1 January 2022 1 080 419

Depreciation for 2022 (1 080 419 – 100 000) x (15% x 3/12) (36 766)
Carrying amount at 31 March 2022 1 043 653
Part (b)
Deferred tax calculation
Carrying Tax base Temporary Deferred

amount tax
Differences Asset/(Liab)
Right-of-use asset 979 199 - 979 199

Lease liability (1 237 890) (a) (162 000) (1 075 890)
Land 1 000 000 Exempt Exempt
Plant 1 043 653 (b) 540 000 503 653
406 962 (113 949)
(a) 2 070 000 x 15/115 x 3/5 OR 2 070 000 x 15/115 x (496 000 x 3/2 480 000)
(b) 900 000 x 60%
Ref:/ FAC3762_2022_TL_202_0.pdf
©
UNISA 2022
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TEST 1: 22 APRIL 2022
FAC3762
40 marks
72 minutes
THIS PAPER CONSISTS OF SIX (6) PAGES.

test.

R1,135 per month?
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R1,135 per month?
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Your submission will be date stamped and only submissions received up to 12:45 am will be marked.
PAPER

Test 1: Question 40 72
TOTAL 40 72

R1,135 per month?
QUESTION 1 (40 marks) (72 Minutes)

Good Juice Ltd (Good Juice), is a company that produces cold-pressed juices and is based in Cape
Town, Western Cape. It has a 30 September year end and has experienced growth over the past
two years despite lockdown restrictions. The following transactions took place in the current financial
year.
Debentures
On 1 October 2020, Good Juice issued 2 200 convertible debentures at their fair value of R1 000
each. The debentures have a face value of R1 000 and bear a fixed coupon interest rate of 9% per
annum, compounded annually. The coupon interest is payable annually in arrears on 30 September.
The debentures are convertible at the option of Good Juice on 30 September 2025, at a ratio of one
ordinary share for every debenture held. Any debentures which are not converted on 30 September
2025 will be redeemed at their face value on the same date.
A market related interest rate for similar debentures without a conversion option is 11,5% per annum
compounded annually.
The financial accountant of Good Juice was unsure as to how to account for these debentures, and
thus the only journal entry processed to account for the debentures was as follows:
Dr Cr
1 October 2020 R R
Bank (SFP) 2 200 000
Debenture liability (SFP) 2 200 000
Proceeds received from the issue of debentures
Investment in Rea-Vaya Ltd (Rea-Vaya)

On 1 April 2021, Good Juice purchased 150 000 ordinary shares in Rea-Vaya, a courier company
with distribution routes across Gauteng and Limpopo. Good Juice paid R18 per share and paid
broker’s commission of R25 000.
On 13 August 2021, Rea-Vaya, declared a dividend of R2 per share to all the ordinary shareholders.
The dividend was paid on 31 August 2021.
Good Juice intends to sell the shares once the share price breaches the R25 mark. On 30 September
2021, the share price was R21.50.

R1,135 per month?
Investment in Mixer (Pty) Ltd (Mixer)

On 1 July 2021, Good Juice acquired a 55% stake in Mixer, a small start-up company, based in
Johannesburg, which makes and sells fresh juice. Good Juice paid R1 500 000 for its stake and
incurred direct acquisition costs of R37 500. This acquisition is part of a strategy to expand its
operations into Gauteng. Good Juice has control over Mixer as defined in IFRS 10-Consolidated
Financial Statements.
Good Juice made the irrevocable election in terms of IFRS 9-Financial Instruments to measure the
investment in Mixer shares at fair value through other comprehensive income in its separate
accounting records. The fair value gain to be processed at year end is R48 500.
On 30 September 2021, Mixer declared a dividend of R125 000.
Human resource matters
The average gross salaries (excluding bonusses) for the employees of Good Juice were R7 260 000
for the year ended 30 September 2021. All employees are entitled to a bonus equal to one month’s
gross salary. Bonusses are paid out at the end of June each year. The accrued bonuses on
30 September 2020 amounted to R217 500.
On 1 September 2021 the directors of Good Juice approved a salary increase of 6% as from
1 October 2021. The company’s leave cycle runs from 1 July to 30 June of each year. There are 252
working days in a year. Employees are entitled to 18 days’ vacation leave per annum Unused leave
days can be carried forward to the next leave cycle but must be taken before the end of October of
the next leave cycle. Five and a half unused leave days were carried forward to 1 July 2021 and six
days were taken from 1 July 2021 to 30 September 2021. The accrued leave (excluding
accumulated leave) for the year ended 30 September 2020 amounted to R47 904.
The company contributes 7,5% and the employees 6,5% on the gross salaries to the Good Juice
Provident Fund. The provident fund of the company is classified as a defined contribution plan.

R1,135 per month?
REQUIRED
Marks
(a) Discuss, in terms of IAS 32, Financial Instruments: Presentation, the
correct classification and initial measurement of the convertible
debentures issued by Good Juice on 1 October 2020. 12
Your discussion must include all relevant calculations.
Communication skills – logical argument 1
(b) Prepare the profit before tax note that will be disclosed in the
financial statements of Good Juice for the year ended
30 September 2021. 17
(c) Prepare the statement of financial position of Good Juice as at

30 September 2021 as far as possible from the given information. 9
The cash and cash equivalents and retained earnings/accumulated

loss need not be presented.
The split between the current and non-current portions of the
debentures need not be presented.
Communication skills – layout and format 1
TOTAL 40
Please note:
Your answers must comply with the requirements of International Financial Reporting
Standards (IFRS).
Round all amounts to the nearest Rand.
You may ignore income tax and value added tax.
Comparative figures are not required
UNISA 2022 ©

R1,135 per month?
QUESTION 1
Part a
Classification
IAS 32 requires that a reporting entity identify the separate components of a financial
instrument for the purposes of classification namely, equity and liability.
Because of the nature of the debenture agreement, Good Juice does not have the
unconditional right to avoid making the annual coupon payments/interest and thus has an
obligation to make the fixed coupon payments on an annual basis.
With regards to the principle (capital) portion of the debentures, Good Juice has an
unconditional right to avoid paying cash as the company can choose to issue shares, in
settlement of debentures, or may pay cash to redeem the debentures.
The conversion rights grant Good Juice the right to issue a fixed number of shares for a
fixed redemption value and represent equity.
The coupon payment represents a financial liability and the conversion option are equity
instruments and form part of the equity component of the debentures. Therefore, the
debentures are a compound financial instrument.
Initial measurement:
The fair value of the convertible debentures as a whole must be determined. This amount is
R2 200 000 for the 2 200 debentures (2 200 x R1 000).
The next step is to determine the fair value of the financial liability component of the
debentures. The liability must be initially measured at the fair value of debentures without
the conversion option (as the conversion option is an equity instrument). (IAS 32.32))
The fair value of the liability portion is determined as follows using a financial calculator:
N=5
I = 11.5%
PMT = R2 200 000 x 9% = R198 000
FV = 0
Compute PV = R722 675.81
The liability component of the debentures will be measured at its fair value of R722 676.
The final step is to subtract the fair value of the liability from the fair value of the instrument
as a whole to determine the equity portion. Thus, the equity portion must be initially
measured at the residual of R1 477 324 (R2 200 000 – R722 676)
4
R1,135 per month?
FAC3762/201
Part b
Profit before tax note

Income
Dividends received (2 x 150 000 + 125 000 x 55%) 368 750
Fair value adjustment (R21.50 - R18) x 150 000 525 000
Expenses
Finance cost (R722 676 x 11,5%) 83 108
Commission expense 25 000
Employee benefits:
Short-term employee benefits (C1) 7 891 236
Post-employment benefits (7 260 000 x 7.5%) 544 500
Calculations
C1: Short-term employee benefits
Gross salaries 7 260 000

Movement in bonus accrual:
Accrual 2020 reversed (217 500)
Bonusses paid (7 230 000/12) 605 000
Accrual for 2021(7 260 000/12) x 1.06 x 3/12 160 325
Movement in leave accrual:
Accrual for 2020 reversed (47 904)
Accrual for 2021 [(7 260 000 x 1.06 x 1.075)/252 x 4] 131 134
7 891 236
Unused leave days on 30 September 2021:

Opening balance 4 days
Leave days entitled to – 1 July 2021 – 30 September 2021
(18/12 x 3) 4.5 days
Leave days taken - 1 July 2021 – 30 September 2021 (6) days
Unused leave days on 30 September 2021: 4 days

R1,135 per month?
Part (c)
Good Juice (Pty) Ltd
Statement of Financial Position as at 30 September 2021.
ASSETS
Non-current assets
Investment in equity instruments 4 811 000
[(150 000 x 21,5) + (1 500 000 + 37 500 + 48 500)]

Current assets
Dividend/Other receivable (125 000 x 55%) 68 750
EQUITY AND LIABILITIES
Equity component - debentures 1 477 324
Mark-to-market reserve 48 500
Non-current liabilities
Convertible debentures (722 676 + 83 108 - 198 000) 607 784
Current liabilities
Other payables/ accruals (160 325 + 131 314) 291 639
Ref:/ FAC3762_2022_TL_201_0.pdf
©
UNISA 2022
6
R1,135 per month?
May/June Test 2021
FAC3762
100 marks
3 hours
60 minutes for uploading
THIS PAPER CONSISTS OF TEN (10) PAGES.
PLEASE NOTE:
1. The paper consists of THREE (3) questions.
4. Each question attempted, must commence on a new (separate) page.
Marks Minutes
Question 1 40 marks 72 minutes
Total 100 marks 180 minutes

R1,135 per month?
Commence the submission (uploading) of your answer file as soon as you have completed the
assessment, do not wait for the session to conclude.
Suggestion: Start uploading your answer file at 12:00 (3 hours after the start of the test session)
at the latest, to allow enough time for any delays in the process.
You HAVE to submit your answers in one pdf file. The file name of your pdf document must be in the
Submission method:
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• Select the “Assessment info” tab on the left;
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• Only ONE PDF formatted file is allowed to be uploaded.
Your submission will be date stamped and only submissions received up to 13:00 will be marked.

R1,135 per month?
Taking Space Limited (TS Ltd) is a South African based retail giant that was established in
March 2005 and listed on the Johannesburg Stock Exchange (JSE) during May 2010. TS Ltd
is the holding company within the TS Ltd Group. TS Ltd offers clothing, accessories, cosmetics,
sporting and outdoor apparel, homeware and furniture targeted at the upper middle class.
TS Ltd stores operate in major shopping malls nationwide. The trial balance of TS Ltd and other
companies within the TS Ltd Group for the financial year ended 2021 are detailed below:
Extracts from the abridged trial balance of the entities in the TS Ltd Group for the year
ended 28 February 2021
TS Ltd Zet Ltd ZStreet Ltd
Dr./(Cr.) Dr./(Cr.) Dr./(Cr.)
R R R
Plant and equipment at cost 1 385 350 1 900 490 605 915
Investment in Zet Ltd at cost 1 713 500 - -
Investment in Drop Ltd at cost 75 380 - -
Investment in ZStreet Ltd at cost 516 400 - -
Inventory 195 117 307 314 253 657
Cost of sales 1 105 780 708 179 360 070
Other expenses 416 200 220 586 132 352
Income tax expense 350 550 217 341 91 538
Dividends paid–28 February 2021 231 000 143 220 90 000
Revenue (1 723 670) (1 444 202) (670 782)
Other income (853 200) (459 725) (426 613)
Retained earnings - 1 March 2020 (1 635 147) (644 727) (392 888)
Share capital –900 000 ordinary shares (1 450 000) - -
Share capital –800 000 ordinary shares - (1 440 000) -
Share capital – 200 000 ordinary shares - - (280 000)
- - -
Additional information:
Zet Limited (Zet Ltd)
1. Zet Ltd was established during February 2016 and offers clothing, accessories, sporting and
outdoor apparel targeting the lower middle class. On 1 March 2020, TS Ltd successfully
purchased 680 000 shares of the issued ordinary shares in Zet Ltd from the previous owners
of the shares. The purchase price was settled in cash immediately with the consideration
amounting to R1 713 500. On this date, the fair values of the identifiable assets and liabilities
of Zet Ltd were equal to the carrying amounts. Zet Ltd’s share capital has remained
unchanged since March 2005.
2. Zet Ltd holds an annual general meeting (AGM) on an annual basis. Decisions to direct the
relevant activities of Zet Ltd are made at the AGM and each share entitles the holder to one
vote. Zet Ltd’s Memorandum of Incorporation (MOI) specifies that shareholders holding at
least 10% of the voting rights may call for a shareholders meeting provided that a notice of
the meeting is delivered to all shareholders entitled to vote at least 20 business days before
the meeting date. Existing policies affecting the relevant activities can be changed only at a
Want to earn
special shareholders meeting orDistribution
at an AGM.
of this document is illegal R1,135 per month?
QUESTION 1 (continued)
3. On 1 September 2020, Zet Ltd sold computer equipment with an original cost price of
R72 000, and a carrying amount of R48 000 for R60 000 to TS Ltd. On this date, the
remaining useful life of computer equipment was 2 ½ years and the residual value thereof
was insignificant. The computer equipment was classified as property, plant and equipment
under the cost model, in the accounting records of both Zet Ltd and TS Ltd.
Drop Limited (Drop Ltd)
4. Drop Ltd designs and sells leisure sneakers and running shoes. Drop Ltd was established in
2015 and is based in Johannesburg, South Africa. Drop Ltd has sold over a million sneakers
since its incorporation.
5. On 1 May 2020, TS Ltd purchased 20 000 of the issued ordinary shares of Drop Ltd for
R75 380 from the previous owners of the shares. On this date, all the assets and liabilities
of Drop Ltd were considered to be fairly valued. From this date, TS Ltd exercised significant
influence in accordance with IAS 28, Investments in Associates and Joint Ventures over the
financial and operating policies of Drop Ltd.
The following balances were extracted from the trial balance of Drop Ltd on 1 May 2020:
Dr./(Cr.)
R
Share capital (80 000 ordinary shares) (120 000)
Retained earnings (200 000)
The retained earnings (credit) balance on 1 May 2020 includes profit for the two months
ending 30 April 2020. The retained earnings (credit) balance on 28 February 2021,
amounted to R318 750. Drop Ltd declared and paid a dividend of 15 cents per share on
28 February 2021.
6. During the 2021 financial year, Drop Ltd sold its leisure sneakers to the value of R120 000
to TS Ltd. TS Ltd managed to sell 80% of these sneakers to its customers by the year ended
28 February 2021. Drop Ltd sold the sneakers to TS Ltd at a mark-up of 25% on cost.
ZStreet Limited (ZStreet Ltd)
7. ZStreet Ltd specialises in homeware and décor. ZStreet Ltd was established in 2017 and
has stores operating nationwide.
8. On 1 June 2019, TS Ltd acquired 75% of the ordinary shares of ZStreet Ltd for an immediate
cash consideration amounting to R516 400. This acquisition met the definition of a business
combination as defined in IFRS 3, Business Combinations. At the acquisition date, the
retained earnings (credit balance) of ZStreet Ltd amounted to R227 500 and the identifiable
assets and liabilities were fairly valued.
9. The goodwill that was recognised at acquisition of ZStreet Ltd was tested for impairment
during the 2021 financial year and it was determined that this goodwill has been impaired
down to R25 000.

R1,135 per month?
Other information relating to the TS Ltd Group:
10. All companies in the TS Ltd Group have a 28 February year end.
11. TS Ltd measures investments in subsidiaries and associates in its separate financial
statements at cost in terms of IAS 27, Separate Financial Statements.
12. TS Ltd Group accounts for investments in associates using the equity method in terms of
IAS 28, Investments in Associates and Joint Ventures.
13. TS Ltd Group measures the non-controlling interest at their proportionate share of the
acquiree’s identifiable net assets at acquisition dates.
14. The SA normal tax rate is 28% and capital gains tax is calculated at 80% thereof. You may
assume that the tax rate has remained unchanged since 1 January 2015.
15. Each share carries one vote and the issued share capital of all entities in the TS Ltd Group
remained unchanged since acquisition dates.
16. You may assume that income and expenses of all entities in the TS Ltd Group was earned
and incurred evenly throughout the year, except where the opposite is stated or clearly
evident.
17. TS Ltd Group depreciates its equipment using straight-line method over the expected
useful life of equipment. TS Ltd Group’s depreciation policy is in line with the allowances
granted by the South African Revenue Service.
REQUIRED:
Marks
(a) With reference to the information provided in point 1 and 2 above, discuss
whether Zet Ltd is a subsidiary of the TS Ltd Group for the 2021 financial 8
year.
Communication skills: logical argument 1
(b) Prepare the consolidated statement of profit or loss and other

comprehensive income of the TS Ltd Group for the year ended
30
28 February 2021.
You may assume that Zet Ltd is a subsidiary of the TS Ltd Group.
Communication skills: presentation and layout 1
TOTAL [40]
Please note:
Your answer must comply with the requirements of International Financial
Reporting Standards (IFRS).
Round off all amounts to the nearest Rand. Show all calculations.
Want to earn
You have been appointed as the Group Financial Accountant of the Gallery Limited (Gallery Ltd)
Group. Your duties include preparing the consolidated financial statements of the Gallery Ltd
Group and assisting the Financial Director.
Gallery Ltd was established in 2010 and is an importer and distributor of niche perfumes to
boutiques and specialty stores throughout South Africa. Over the years, Gallery Ltd’s business
has grown significantly, and the company has made a number of investment acquisitions.
The following are extracts from the summarised trial balances of the entities in the Gallery Ltd
Group for the year ended 28 February 2021:
Gallery Ltd Scent Ltd Joy Ltd
Dr./(Cr.) Dr./(Cr.) Dr./(Cr.)
R R R
Property, plant and equipment at cost 1 260 309 1 098 280 601 101
Investments in equity instruments
- Investment in Scent Ltd at cost 800 000 - -
- Investment in Joy Ltd at cost 220 000 - -
Cash and cash equivalents 1 549 209 725 680 544 000
Inventories 415 000 303 200 90 790
Ordinary dividend paid – 28 February 2021 250 000 200 000 25 000
Retained earnings – 1 March 2020 (2 030 000) (1 615 000) (659 210)
Share capital – 1 500 000 ordinary shares (1 500 000) - -
- 500 000 ordinary shares - (500 000) -
- 100 000 ordinary shares - - (300 000)
Profit for the year (830 553) (308 580) (242 646)
- - -
1. On 1 March 2017, Gallery Ltd obtained control over Scent Ltd by acquiring 80% of the issued
ordinary shares of Scent Ltd for a cash consideration of R800 000. At the acquisition date, the
retained earnings balance (credit) of Scent Ltd amounted to R380 000 and the fair values of
the identifiable assets and liabilities of Scent Ltd were considered to be equal to the carrying
amounts thereof, except for the following:
Fair value Carrying amount

Trade receivables R200 000 R250 000
On 1 March 2017, the market value of one Scent Ltd share was R2,20.
2. On 1 June 2020, Gallery Ltd sold 50 000 ordinary shares that it held in Scent Ltd to a third
party for R400 000 (fair value). On the disposal date, Scent Ltd had no unidentified assets,
liabilities or contingent liabilities. The transaction did not result in a loss of control of Scent
Ltd and it remained a subsidiary of Gallery Ltd. No other disposals were made by the Gallery
Ltd Group during the current year.

R1,135 per month?
3. On 1 January 2021, Gallery Ltd acquired 40 000 ordinary shares in Joy Ltd for R220 000,
which was paid in cash. At the acquisition date, the retained earnings of Joy Ltd amounted
to R202 000 (excluding the profit for the period up until the date significant influence is
obtained) and the identifiable assets and liabilities of Joy Ltd were considered to be fairly
valued and equal to the carrying amounts thereof. Since 1 January 2021, Gallery Ltd
exercised significant influence over the financial and operating policy decisions of Joy Ltd in
accordance with IAS 28 Investments in Associates and Joint Ventures.
4. Since 1 January 2021, Gallery Ltd sold inventory to Joy Ltd at a profit mark-up of 25% on the
selling price. Total sales from Gallery Ltd to Joy Ltd for the year ended 28 February 2021
amounted to R60 000 and took place evenly throughout the year. At year end, Joy Ltd had
80% of this inventory was still on hand.
5. Gallery Ltd measures its investment in Scent Ltd and its investment in Joy Ltd, at cost in its
separate financial statements in terms of IAS 27, Separate Financial Statements.
6. The Gallery Ltd Group measures investments in associates using the equity method in
accordance with IAS 28, Investments in Associates and Joint Ventures.
7. The income and expenses of Scent Ltd and Joy Ltd were earned and incurred evenly
throughout the current year.
8. The Gallery Ltd Group measures its non-controlling interest at fair value.
assume that the tax rate has remained unchanged since 1 January 2017.
10. All the companies in the Gallery Ltd Group have a 28 February year end.
11. Each share carries one vote, and the share capital has remained unchanged since
1 January 2018.

R1,135 per month?
REQUIRED:
Marks
(a) Prepare only the asset section of the consolidated statement of financial
position of the Gallery Ltd Group as at 28 February 2021. 18
(b) Prepare only the non-controlling interest column of the consolidated

statement of changes in equity of the Gallery Ltd Group for the year ended
28 February 2021. 13
(c) Prepare only the pro-forma consolidation journal entries to account for the
disposal of the 50 000 shares by Gallery Ltd in the consolidated financial
statements of the Gallery Ltd Group for the year ended 28 February 2021. 6
You may ignore the income tax consequences.
Journal narrations are not required.
No abbreviations for general ledger account names may be used.
TOTAL [39]
Please note:
Your answer must comply with the requirements of International Financial Reporting
Standards (IFRS).
Round off all amounts to the nearest Rand. Show all calculations
Ignore Value added tax (VAT) and Dividend tax

R1,135 per month?
Capital Investors Ltd is a hedge fund company based in Johannesburg with a 31 December
year end. Capital Investors Ltd purchased 1 000 10% redeemable debentures for R100 000 on
1 January 2020 and incurred R2 000 transaction costs that were directly attributable to
acquisition of the debentures. The debentures are redeemable on 31 December 2021 at
R120 000. It is the intention of Capital Investors Ltd to collect annual contractual cash flows of
principal and interest from the investment with no intention to trade.
The fair value of the investment on 1 January 2020 and 31 December 2020 was R100 000 and
R115 000 respectively. The debentures were not considered to be credit impaired at any stage.
On 31 December 2020, the expected credit loss information for the investment in the
redeemable debentures was as follows:
1 January 2020 31 December 2020 31 December 2021

Probability of default occurring
in the next 12 months 0% 3% 5%
Probability of default occurring
until 31 December 2021 (lifetime 2% 4% 8%
expected credit loss
The bookkeeper had processed the following journal entries to account for the redeemable
debentures in the accounting records of Capital Investors Ltd for the year ended
31 December 2020:
Dr Cr
R R
J1 1 January 2020
Bank 98 000
Investment in debentures (SFP) 100 000
Transaction costs (P/L) 2 000
Purchase of debentures
J2 31 December 2020
Fair value gain (OCI) 15 000
Remeasurement of investment in debentures to fair value
J3 31 December 2020
Bank 10 000
Finance income 10 000
Finance income received on investment in debentures
J4 31 December 2020
Allowance for credit losses 4 600
Expected credit losses/Impairment loss 4 600
Provision for expected credit losses - (115 000 x 4%)

R1,135 per month?
10
REQUIRED:
Marks
(a) Discuss the accuracy of the journal entries provided by the bookkeeper to account
for the investment in debentures in the accounting records of Capital Investors Ltd
for the year ended 31 December 2020. Your discussion should include reasons for
errors identified and should provide recommendations on how to correctly account
for the investment in debentures for the 2020 financial year in terms of IFRS 9 –
Financial Instruments. Your discussion should be supported by relevant amounts
and calculations. 20
Ignore taxation.
Communication skill: logical argument 1
TOTAL [21]
Please note:
Standards.
Show all calculations. Round of all amounts to the nearest Rand.
©
UNISA 2021

R1,135 per month?
FAC3762/201
QUESTION 1
PART A
In order to establish if Zet Ltd is a subsidiary of the TS Group we need to determine whether TS Ltd
controls Zet Ltd.
In terms of IFRS 10.6 an investor controls an investee when it is exposed or has rights, to variable
returns from its involvement with the investee and has the ability to affect those returns through its
power over the investee.
OR
IFRS 10.7 indicates that an investor controls an investee if and only the investor has all the following
(a) power over the investee;
(b) exposure, or rights, to variable returns from its involvement with the investee
(c) and the ability to use its power over the investee to affect the amount of the investor's returns
Marks awarded for either definition, not both.
In accordance with IFRS 10.B35, an investor that holds more than half of the voting rights of an
investee has power in the following situations, unless those voting rights are:
(a) the relevant activities are directed by a vote of the holder of the majority of the voting rights, or
(b) the majority of the members of the governing body that directs the relevant activities are
appointed by a vote of the holder of the majority of voting rights.
TS Ltd currently holds 85% (680 000/800 000 shares) shareholding thus TS Ltd holds substantive
majority of voting rights at Zet Ltd.
These rights give TS Ltd the current ability to use its majority vote at the AGM to direct the relevant
activities of Zet Ltd. Since the existing policies affecting relevant activities can be changed only at
special shareholders meeting or at an AGM. TS Ltd can use its majority voting to change existing
policies. Thus, TS Ltd has power over Zet Ltd.
TS Ltd is exposed to the variable returns from Z Ltd through distributed profits (dividends) and the
value of its investment in Zet Ltd.
TS Ltd has the ability to use its majority voting rights at the AGM to affect its returns through financial
and operating policies.
Therefore, TS Ltd has control over Zet Ltd and Zet Ltd is a subsidiary of TS Ltd.
PART B
TS LTD GROUP
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
INCOME FOR THE YEAR ENDED 28 FEBRUARY 2021
R
Revenue (1 723 670 + 1 444 202 + 670 782) 3 838 654
Cost of sales (1 105 780 + 708 179 + 360 070) (2 174 029)
Gross profit 1 664 625
Other income [853 200 + 459 725 + 426 613 - 12 000 (60 000 - 48 000) +
58 518 (C1) - 121 737 (143 220 x 85%) - 67 500 (90 000 x 75%) - 3 000 (12 000 x
25%)] 1 593 819

R1,135 per month?
Other expenses [416 200 + 220 586 + 132 352 - 2 400(12 000/2.5 x 6/12) +
110 775 (C2)] (877 513)
Share of profit of associate [4 620 + 29 688 - 864 (120 000 x 20% x 25/125 x 25%
x 72%)] (C3) 33 444
Profit before tax 2 414 375
Income tax expense [350 550+ 217 341 + 91 538 + 672(2 400 x 28%) –
3 360(12 000 x 28%)] (656 741)
PROFIT FOR THE YEAR 1 757 634
Other comprehensive income -

Total comprehensive income for the year 1 757 634
Profit for the year attributable to:

Non-controlling interests (C4) 240 995
1 757 634
Calculations
C1 Gain on bargain purchase (Zet Ltd)

Share capital 1 440 000
Retained earnings 644 727
2 084 727
x 85%
1 772 018
Consideration paid (1 713 500)
NCI is at proportionate share so there is no need to include it in calculation. If students used
the usual goodwill calculation, they would get to the same answer.
C2 Impairment of goodwill (Z Street Ltd)
507 500
x 75%
380 625
Consideration paid (516 400)
Goodwill – at acquisition 135 775
Goodwill balance at year end (25 000)
Impairment loss 110 775
C3 – Share of profit of associate
320 000
x 25%
80 000
Investment at cost 75 380
Profit (318 750 – 200 000) x 25% 29 688
Intercompany sale of inventory (120 000 x 20%) x 25/125 x 25% (1 200)
Tax on intercompany sale of inventory (1 200 x 28%) 336
Share of profit of associate 33 444
If students did not apply the 25% share on the associate, no marks are awarded
4
R1,135 per month?
FAC3762/201
C4 - Profit attributable to non-controlling interest

Profit for the year – Zet Ltd (1 444 202 – 708 179 + 459 725 – 220 586 - 217 341) 757 821
Profit on sale of equipment (60 000 – 48 000) (12 000)
Tax on profit on sale of equipment (12 000 x 28%) 3 360
Depreciation (12 000/2.5 x 6/12) 2 400
Tax on depreciation (2 400 x 28%) (672)
750 909
NCI share – 15% 112 636 A
No marks awarded if the % NCI was not applied to the amounts
Profit for the year – ZStreet Ltd (670 782 - 360 070 + 426 613 - 132 352 - 91 538) 513 435
NCI share – 25% 128 359 B
Profit for the year attributable to non-controlling interest 240 995 A+B
No marks awarded if the % NCI was not applied to the amounts. NCI at proportionate share,
this means the goodwill impairment is NOT attributed to them.
The analysis of owners’ equity IS NEVER A REQUIRED, it is a working provided for tuition purposes.
Analysis of owner’s equity of Zet Ltd

TS Ltd
100% 85% 15%
Zet was acquired in current year, need Total At Since NCI
to check if there is goodwill or a gain R R R R
At acquisition date: 1 March 2020
Share capital 1 440 000 1 224 000 216 000
Retained earnings 644 727 548 018 96 709
2 084 727 1 772 018 312 709
Gain on bargain purchase (58 518) (58 518) -
Consideration paid 2 026 209 1 713 500 312 709
Current year
1 Mar 2020 – 28 Feb 2021 750 909 638 273 112 636
Profit for the year (1 444 202 – 708 179 +
459 725 – 220 586 - 217 341) 757 821
Sale of equipment
Profit on sale (60 000 - 48 000) (12 000)
Tax effect (12 000 x 28%) 3 360
Depreciation (12 000/2.5 x 6/12) 2 400
Tax effect (2 400 x 28%) (672)
Dividends paid (143 220) (121 737) (21 483)

2 575 928 1 713 500 467 261 395 167
Analysis of owner’s equity of ZStreet Ltd

TS Ltd
100% 75% 25%
Goodwill was impaired in current year, Total At Since NCI
you need to determine what was the R R R R
goodwill at acquisition
At acquisition date: 1 March 2019
Share capital 280 000 210 000 70 000
5

R1,135 per month?

507 500 380 625 126 875
Goodwill 135 775 135 775 -
Consideration paid 643 275 516 400 126 875
Since acquisition to the beginning of

the current year
Retained earnings (392 888 – 227 500) 165 388 124 041 41 347
Current year
Profit for the year (670 782 - 360 070 + 426
613 - 132 352 - 91 538) 513 435 385 076 128 359
Dividends paid (90 000) (67 500) (22 500)

1 197 316 516 400 415 531 265 385
Impairment of goodwill (110 775)
Goodwill balance 25 000
Analysis of owner’s equity of Drop Ltd
TS Ltd
100% 25% 25%
Total At Since Carrying
amount
R R R R
At acquisition date – 1 May 2020
320 000 80 000
Gain on bargain purchase (4 620) 4 620
Current year
Share of profit of associate
(318 750 – 200 000) 118 750 29 688 29 688
Sale of inventory
(120 000 x 20%) x 25/125 (4 800) (1 200) (1 200)
Tax effect on sale of inventory
(4 800 28%) 1 344 336 336
Dividends paid (80 000 x R0.15) (12 000) (3 000) (3 000)

423 294 75 380 28 854 105 824
Share of profit of associate 33 444
6
R1,135 per month?
FAC3762/201
QUESTION 2
PART A
GALLERY LTD GROUP
ASSET SECTION OF THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 28

FEBRUARY 2021
ASSETS
Non-current assets R
Property, plant and equipment (1 260 309 + 1 098 280 - 180 309 - 240 440) 1 937 840
2 396 898
Current assets
Inventory (415 000 + 303 200) 718 200
Trade and other receivables (716 090 + 596 840) 1 312 930
Cash and cash equivalents (1 549 209 + 725 680) 2 274 889
4 306 019
Total assets 6 702 917
CALCULATIONS
C1 Goodwill R
Non-controlling interest (500 000 x 20% x R2.20) 220 000
Net asset value (844 000)
Trade receivables (50 000)
Deferred tax 14 000
176 000
C2 Investment in associate R
Profit for the year – 10 months 202 205
Total 704 205
x 40%
281 682
Profit for the year – 2 months 16 176
Intercompany sale of inventory (4 800)
Dividends paid (10 000)
283 058
The tax effect of the intercompany sale of inventory is
not included tin the Investment in Associate balance. The
investor (Gallery Ltd) sold to the Associate (Joy Ltd)

R1,135 per month?
PART B
Consolidated statement of changes in equity for the year ended 28 February 2021
Non-
controlling
interest
R
Opening balance (C1) 474 200
Profit for the year (C2) 84 860
Sale of interest in subsidiary (C3) 234 815
Dividends paid – 28 February 2021 (C4) (60 000)
733 875
Calculations
C1 – Opening balance of non-controlling interest R

Fair value of non-controlling interest at acquisition (500 000 x 20% x R2.20) 220 000
Movement in Retained earnings (1 615 000 – 380 000) x 20% 247 000
Adjusted for:
Trade receivables write down (50 000 x 72% x 20%) 7 200
474 200
C2 – NCI’s share in the current year profit R

Share in profit for the year before acquisition of interest (R308 580 x 3/12 x 20%) 15 429
Share in profit for the year after acquisition of interest (R308 580 x 9/12 x 30%) 69 431
84 860
C3 – Sale of interest R
Net asset value transferred (R844 000 + R1 271 000 + R77 145) x 10/100 219 215
Goodwill relinquished R800 000 - R675 200(R844 000 x 80%) = R124 800 x 10/80 15 600
234 815
Remember to calculate the goodwill relinquished
portion on the sale of the shares
C4 – NCI’s share in dividend paid R

Scent Ltd (200 000 x 30%) (60 000)
PART C
Journal entry to account for the disposal of the 50 000 shares by Gallery Ltd
Debit Credit
R R
Investment in Scent Ltd (R800 000/400 000) = R2.00 x 50 000 100 000
Other income/Profit on sale of investment in subsidiary
(400 000 - 100 000) 300 000
Non-controlling interest (SFP) (219 215 + 15 600) 234 815
Change in ownership/Retained earnings
(R400 000 - R234 815) 165 185
8
R1,135 per month?
FAC3762/201
The analysis of owners’ equity IS NEVER A REQUIRED, it is a working provided for tuition purposes.
Analysis of owner’s equity of Scent Ltd
Gallery Ltd
100% 80% - 70% 20 – 30%
Share capital 500 000 400 000 100 000
Trade receivables (50 000 x 72%) or
(50 000 – 14 000(50 000 x 28%) (36 000) (28 800) (7 200)
844 000 675 200 168 800
Equity represented by goodwill 176 000 124 800 51 200
Purchase consideration 793 000 800 000 220 000
the current year 1 271 000 1 016 800 254 200
Retained earnings (1 615 000 - 380 000) 1 235 000 988 000 247 000
Receivables revalued at acquisition date
(50 000 x 72%) 36 000 28 800 7 200
Current year
Profit for the year (3 months)
(308 580 x 3/12) 77 145 61 716 15 429
Change in control
Consideration paid 400 000
NAV and goodwill transferred
(800 000 + 1 016 800 + 61 716) x 10/80 (234 815)
Equity transfer 165 186
Profit for the year (9 months)

(308 580 x 9/12) 231 435 162 005 69 431
Dividend paid (200 000) (140 000) (60 000)

2 399 580 800 000 1 100 521 499 060
Analysis of owner’s equity of Joy Ltd

R R R R
At acquisition date – 1 Jan 2021 The gain on bargain purchase

Share capital 300 000 120 000 is included in the Investment in
Retained earnings 202 000 80 800 Associate balance
Profit for the year – 10 months 202 205 80 882
704 205 281 682
Current year
Intercompany sale of inventory
(R60 000 x 80% x 25%) (12 000) (12 000) (12 000)
Dividends paid (25 000) (10 000) (10 000)

R1,135 per month?
QUESTION 3
Capital Investors Ltd invested in debentures with the objective to collect contractual cash flows of
principal and interest from the investment with no intention to trade. In terms of IFRS 9.4.1.2 financial
assets should be classified as measured at amortised cost if the objective of the business model is
to collect contractual cash flows of principal and interest with no intention to trade in or sell the
instrument. Therefore, the investment in debentures should be classified as subsequently measured
at amortised cost.
Journal entries 1 to 3 are all incorrect in that it is based on a classification of a financial asset
measured at fair value through other comprehensive income where the intention is not to collect
contractual cash flows of principal and interest but to sell the asset. Based on the business model,
the debentures should be measured at amortised cost.
Marks were awarded for a discussion on amortised cost and application thereof. (only 10% of the
total marks). Majority of the marks were for discussion of each journal entry provided.
Journal entry 1
The direction of the journal and the amounts are incorrect. The transaction costs are expensed.
Capital Investors Ltd is the investor (financial asset) and therefore the investment in debentures must
be debited with R102 000 and the bank credited with R102 000 as the transaction costs should be
capitalised to the investment in debentures in terms of IFRS 9.5.1.1 due to the costs being
incremental to the transaction.
Journal entry 2
This journal is incorrect due to the incorrect classification. The company has no intention to sell the
debentures, thus the fair value of the asset is irrelevant.
Journal entry 3
The entry is incomplete and the amounts incorrect. The finance income has not been capitalised to
the investment. The finance income was incorrectly based on the coupon rate. The investment must
be debited with the interest on the debentures. The interest should be calculated using the effective
interest rate of 17.9025% (C1) applied to the gross carrying amount of the asset, therefore the
finance income to be recognized should be R18 261(C2). The difference between the interest
received and the interest earned will increase the gross carrying amount of the investment as the
effective interest rate of 17.9025% is higher than the coupon rate of 10%.
Journal entry 4
The direction and amounts of the journal entry are incorrect. The allowance was incorrectly based
on the fair value (R115 000) of the debentures. It was also incorrectly based on the probability of
default occurring over the lifetime of the debentures. Expected credit losses/Impairment losses
should be debited and Allowance for credit losses should be credited. The allowance should be
based on the gross carrying amount of the debentures. (R110 261 - C2) Due to the fact that the
debentures were not considered credit impaired on 31 December 2020, IFRS requires that the rate
that must be used is the probability of default occurring in the next 12 months of 3% The allowance
for credit losses must therefore be R3 308 (110 261 x 3%).
It was important for students to explain the errors in all the journals – i) what was wrong, ii) why it
incorrect iii) provide a recommendation (explain the correct treatment) based on the amortised
cost model.
10
R1,135 per month?
FAC3762/201
Calculations
C1 - Effective interest rate
PV = 102 000
FV = 120 000
PMT = 10 000 (100 000 x 10%)
N = 2
I ? = 17,9025%
C2 - Amortisation table
Date Interest @ 17.9025% Receipts Balance
01 January 2020 102 000
31 December 2020 *18 261 10 000 110 261
31 December 2021 19 739 130 000 -
• 102 000 x 17,9025%
Ref:/ FAC3762_2021_TL_202_0.pdf
©
UNISA 2021
11

R1,135 per month?
FAC 3762/2021
Assignment 2
Unique number: 800077
ASSIGNMENT 02 (COMPULSORY FOR 2021)
WRITTEN ASSIGNMENT
Study:
➢ Learning units 1 to 11 of tutorial letters 102 to 106.
QUESTION 1
Plastico Ltd is a manufacturer of plastic products. It was established in 1990 and has operated
in the Gauteng area with a footprint across South Africa. The entity has a 31 December year
end. The following transactions occurred during the 2020 financial year.
Construction of plant
Due to the outbreak of the COVID-19 virus, the directors of the company decided to erect a
new plant for the production of plastic containers to be used for the bottling of hand sanitisers.
The new plant cost the company R4 500 000 (excluding interest) to erect and was financed by
the issue of 4 000 convertible debentures at their fair value of R1 000 each, while the remaining
R500 000 was paid for in cash. The debentures have a face value of R1 000 each and bear
interest at a fixed coupon rate of 9.5% per annum compounded bi-annually in arrears. The
coupon interest is payable bi-annually in arrears on 31 August and 28 February of each year.
The plant is a qualifying asset in terms of IAS 23, Borrowing costs.
The debentures were issued on 1 March 2020 and are convertible at the option of Plastico Ltd
on 28 February 2024 at a ratio of one share for every fifty debentures held. Any debentures not
converted on 28 February 2024 will be redeemed at their fair value on the same date. A market
related interest rate for similar debentures without a conversion option is 11% per annum,
compounded bi-annually.
Construction of the plant started on 1 February 2020. The expenses were incurred as follows:
1 February 2020 R500 000
1 March 2020 R2 000 000
1 May 2020 R2 000 000
Total R4 500 000
Interest earned on excess funds amounted to R18 546 for the period. The plant was ready for
use on 30 November 2020 but was only brought into use on 4 January 2021 when the entity
commenced its operations at the start of the year.

R1,135 per month?
FAC 3762/2021
Assignment 2
Contract with MIT Ltd

On 1 May 2020, Plastico Ltd entered into a lease agreement with MIT Ltd, a manufacturer of
industrial generators, to lease a generator with a fair value of R1 000 000. The generator was
used in the construction of the plant. The directors of Plastico Ltd decided to keep the generator
after the completion of the plant to use during loadshedding.
The terms of the lease agreement are as follows:
Commencement date 1 May 2020
Lease term 5 years
Interest rate (compounded bi-annually in arrears) 13,2% per annum
Lease instalments (payable bi-annually in arrears) R132 381
A market related interest rate for similar lease agreements was 16% per annum on 1 May 2020.
Plastico Ltd will have exclusive use of the generator and will determine when where and how
the generator will be used. Plastico Ltd is responsible for the maintenance and insurance of the
generator. Ownership of the generator will be transferred to Plastico Ltd at the end of the lease
term at the guaranteed value of R100 000. MIT Ltd paid commission of R50 000 to its sales
representative and Plastico Ltd incurred legal fees of R10 000 in relation to the lease
agreement.
The manufacturing costs of the generator was R750 000 and the present value of the
unguaranteed residual value was R23 160 on 1 May 2020.
Accounting policy
The company depreciates its assets using the straight-line method over the expected useful
lives of the assets. The expected useful lives of the plant and generator are ten and six years
respectively. The plant has no residual value for depreciation purposes at the end of its useful
life.
Investment in Multico Ltd
Plastico Ltd acquired 1 000 ordinary shares in Multico Ltd for R100 000 on 1 January 2020.
Broker fees of R2 000 were incurred by Plastico Ltd. The fair value of the shares was R103 000
at the time of the acquisition. Multico Ltd’s shares traded at R110 per share on
31 December 2020.
The investment in Multico Ltd was irrevocably designated as measured at fair value through
other comprehensive income on 1 January 2020.

R1,135 per month?
FAC 3762/2021
Assignment 2
REQUIRED:
Marks
(a) Disclose the plant and the lease in the notes to the annual financial
statements of Plastico Ltd for the year ended 31 December 2020. 44
(b) Present the effects of the investment in the shares of Multico Ltd for the
financial year ended 31 December 2020 of Plastico Ltd in the extracts of:
• the statement of profit or loss and other comprehensive income; and

• the statement of financial position. 7
(c) Discuss in terms of IFRS 16 Leases, the initial measurement of the lease
agreement in the accounting records of MIT Ltd on 1 May 2020.
Your discussion must include all relevant calculations. 9

TOTAL [60]
Please note:
Your answers must comply with the requirements of International Financial

All percentages must be rounded to four decimal places and all amounts to the
nearest Rand.

R1,135 per month?
FAC 3762/2021
Assignment 2
QUESTION 2
Milly Ltd is a company specialising in textile production and was established in 2004. It supplies
companies as well as entrepreneur designers with quality fabric in various prints from the
continent. You are the Group financial accountant for the Milly Ltd Group. You have been
provided with the trial balances and relevant information of the entities in the Milly Group.
Below are extracts of the trial balances of the companies in the Milly Ltd Group.
Extracts of the Trial balances for the year ended 28 February 2021
Mask (Pty)
Milly Ltd Dapper Ltd Ltd
Dr / (Cr) Dr/ (Cr) Dr / (Cr)
Property, plant and equipment - Cost 5 595 287 963 846 1 560 000
Investments in equity instruments: -
– Dapper Ltd at cost 704 000 - -
– Mask Ltd at cost 471 200 -
– Other investments at fair value 154 000 - -
Trade and other receivables 1 571 000 554 774 76 200
Inventory 2 250 000 960 000 87 000
Cost of sales 2 625 000 2 400 000 203 750
Other expenses 1 262 500 451 334 119 400
Ordinary dividend paid - 1 February 2021 300 000 400 000 163 000
Share capital – 500 000 ordinary shares (3 000 000) - -
Share capital – 100 000 ordinary shares - (200 000) -
Retained earnings – 1 March 2020 (4 471 112) (710 000) (1 063 600)
Mark-to-market reserve (26 384)
Plant and equipment - Accumulated
depreciation (687 500) (316 000) -
Deferred tax liability (70 558) (25 000) -
Trade and other payables (1 935 817) (102 920) (276 230)
Revenue (5 000 000) (4 800 000) (667 200)
Other income (712 500) (286 666) (293 400)
- - -
Dapper Ltd
On 1 September 2019, Milly Ltd obtained control of Dapper Ltd by acquiring an 80% share of
Dapper Ltd’s share capital. The purchase consideration was settled as following:
• Cash of R200 000
• A property, with a carrying amount of R440 000 which had a fair value of R504 000.

R1,135 per month?
FAC 3762/2021
Assignment 2
At the date of acquisition, the retained earnings balance was R585 950. All the assets and
liabilities were fairly valued except for the following assets:
Carrying Fair value
Amount
Land 490 000 560 000
Trade receivables 95 000 76 000
Inventory 840 000 773 000
Dapper Ltd’s applies the cost model on all its property, plant and equipment. On 1 April 2020,
Dapper Ltd sold the land (which was revalued at acquisition) to an external party for an amount
of R 545 000. The fair value of the land did not significantly change from the time of acquisition
till the date of sale.
Dapper Ltd sold one of its industrial sewing machines to Milly Ltd on 1 September 2020 for
R300 000. The machine’s carrying amount was R250 000 at the time of sale with a remaining
useful life of 5 years. The residual value of the machine is insignificant. The transaction will be
settled in four equal instalments. At year end, Milly Ltd had settled only 25% of the balance.
The amount will be settled before the end of the 2022 financial year.
On 9 September 2021, Milly Ltd sold 20% of its share in Dapper Ltd to the non-controlling
shareholders for R185 000.
Mask (Pty) Ltd
On 1 December 2020, Milly acquired shares in a company called Mask (Pty) Ltd, an entity that
produces and sells fabric masks and other items of protective accessories. It paid R471 200 for
a 40% share in the entity. According to the agreement, decisions in a shareholder’s meeting
require the unanimous consent of all the shareholders. The remaining 2 shareholders who
collectively own 60% of the voting rights cannot pass any decisions without Milly Ltd’s vote. At
this date, the assets and liabilities of Mask (Pty) Ltd were fairly valued.
During January 2021, Mask (Pty) Ltd started selling fabric to Milly Ltd. The mark-up on cost is
20%. By the end of February 2021, Milly Ltd had purchased inventory of R75 000 from Mask.
25% of the total inventory purchased was still on hand as at 28 February 2021.
Other investments
Milly Ltd holds various investments listed on the stock exchange. The percentage holding for
these investments is less than 10% and these are not held for trading. The investments are
measured at fair value through other comprehensive income. The accountant has not
processed the fair value adjustments for the 2021 year.
Investments - 28 February 2021 120 000 162 000

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FAC 3762/2021
Assignment 2
Other information
• The Milly Group measures non-controlling interests at their proportionate share of the
acquiree’s identifiable net assets at the acquisition date.
Milly Ltd’s separate financial statements.
• The Milly Group applies IAS 16 - Revaluation model for owner-occupied land and
IAS 16 – Cost model for buildings, plant and equipment.
• SA normal tax is 28% and the CGT inclusion rate is 80%. You may assume that both tax
rates have remained unchanged since 1 January 2018.
• You may assume that profits have been earned evenly throughout the year.
• Goodwill has never been impaired.
• All the companies in the Milly Ltd Group have a 28 February year end.
REQUIRED
Prepare the pro-forma journal entries that the Milly Group will process for the
following transactions that occurred during the 2021 financial year.
a)
• The sale of machinery to Milly Ltd from Dapper Ltd
12
• The sale of inventory to Milly Ltd from Mask (Pty) Ltd
Prepare consolidated statement of profit and loss and other comprehensive
b) 22
income of the Milly Group for the year ended 28 February 2021.
Discuss the impact the sale transaction on 9 September 2021 will have on
the Milly Group.
c)
Your discussion should include how the Milly Group will account for this 5
transaction in the 2022 financial year.
TOTAL [40]
Please note:
Your answer should comply with the requirements of International Financial
Notes to the annual financial statements and comparatives are not required.

R1,135 per month?
3 SUGGESTED SOLUTION TO ASSIGNMENT 02/2021
QUESTION 1
PART A
PLASTICO LTD
NOTES FOR THE YEAR ENDED 31 DECEMBER 2020
2020
R
4. Property, plant and equipment

Plant
Carrying amount at beginning of year -
Cost -
Accumulated depreciation -
Additions (4 500 000 + 100 379) 4 600 379
Borrowing costs capitalized (C5) 150 000
Depreciation for the year (C6) (39 586)
Carrying amount at end of year 4 710 793
Cost 4 750 379
Accumulated depreciation (39 586)
5. Leases
5.1 Right-of-use asset
Additions (C4) 1 032 474
Carrying amount at end of year 917 755
5.2 Maturity analysis of future lease payments outstanding at reporting

date
For the year ended 31 December 2021 (132 381 x 2) 264 762
For the year ended 31 December 2022 264 762
For the year ended 31 December 2025 (132 381 + 100 000) 232 381
Total future finance costs (1 291 429 – 972 520) (318 909)
Lease liability 972 520
Short term portion presented under current liabilities (972 520 – 817 331) 155 189
Long term portion presented under non-current liabilities 817 331
5.3 Total cash outflows relating to leases

Cash payment of principle portion of lease liabilities (132 381 - 62 888) 69 493
Cash payment of legal fees 10 000
Cash payment of interest portion of lease liabilities 62 888
4
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FAC3762/203
PART B
PLASTICO LTD
EXTRACT FROM THE STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
INCOME FOR THE YEAR ENDED 31 DECEMBER 2020
2020
R
Revenue XXXX
Other income
Fair value gain on equity investment / financial assets (103 000 – 102 000) 1 000
Cost of sales (XXX)

Other expenses (XXX)
Finance costs (XXX)
Profit before tax for the year (XXX)
Taxation XXX
Profit for the year XXX
Other comprehensive income for the year
Items that may never be reclassified to profit and loss
Fair value gain on equity investment / financial assets [(110 x 1 000) – 103 000] 7 000
Total comprehensive income for the year XXX
PLASTICO LTD
EXTRACT FROM THE STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2020
2020
R
ASSETS
Non-current assets
Investment in Multico Ltd shares (110 x 1 000) 110 000
Share capital and reserves XXX
Share capital XXX
Share revaluation reserve 7 000
PART C
The Conceptual Framework requires financial statements to be faithfully presented. Faithful

presentation refers inter alia to the depiction of substance over form. In terms of IFRS 16, Leases
the risks and rewards of ownership are transferred from the lessor (MIT Ltd) to the lessee (Plastico
Ltd). The substance of the transaction therefor represents a sale rather than a proper lease.
Additional to the sale, the seller (MIT Ltd) provides financing to the purchaser (Plastico Ltd) to finance
the purchase.
5

R1,135 per month?
MIT Ltd is a manufacturer of industrial generators. This means that the company’s normal operating
activities involve dealing in generators that it has manufactured. Thus the asset sold under the
finance lease is inventory and not property, plant and equipment.
The inventory must be derecognised and therefor also means that a cost of sales expense must be
recognized. In terms of IFRS 16, Leases, the cost of sales expense must be measured at:
• the cost of the underlying asset (the generator) less

• the present value of any unguaranteed residual value.
The cost of sales in this instance will then be R726 840 (R750 000 – R23 160)
The standard also requires that revenue must be recognised on the sale. The revenue must be
measured as follows:
• the lower of the fair value of the underlying asset and

• the present value of the lease payments, discounted at the market interest rate.
The present value of the lease payments is as follows:
N = 10
I = 16% p.a
PMT = R132 381
FV = R150 000
PV = ? = R957 766
IFRS 16, Leases also stipulates that the initial direct costs (the commission of R50 000) be expensed
in profit or loss.
CALCULATIONS
1. Liability component of convertible debentures
N = 4x2=8
PMT = 190 000(4 000 x 1 000 x 9,5% x 6/12)
I = 11%
FV = 0
PV = ? = R1 203 568
2. Interest rate implicit in the lease
N = 5 x 2 = 10
PV = 1 050 000 (1 000 000 + 50 000)
FV = 150 000 (100 000 + 50 000)
PMT = 132 381
I = 6,1506% - Therefore, yearly rate = 12,3012%
3. Present value of lease liability
N = 10
PMT = 132 381
I = 6.1506 %
FV = 100 000
PV = ? = R1 022 474
4. Right of use asset

Initial measurement 1 022 474
Initial direct costs 10 000
1 032 474
6
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FAC3762/203
5. Borrowing costs capitalised

Debentures - 31 Aug (1 203 568 x 11% x 6/12) 66 196
Debentures - 30 Nov [R1 079 764 (1 203 568 – 190 000 + 66 196) x 11% x 3/12] 29 693
Lease - 31 Oct (1 022 474 x 12,3012% x 6/12) 62 888
Lease - 30 Nov [(1 022 474 – 132 381 + 62 888) x 12,3012% x 1/12] 9 769
168 546
Interest received (18 546)
Borrowing costs capitalised 150 000
6. Depreciation on right of use asset

Gross carrying amount (C4) 1 032 474
Depreciation (1 032 474 /6 x 8/12) (114 719)
Net carrying amount on 31 December 2020 917 755
7. Depreciation on plant
Construction costs 4 500 000
Borrowing costs capitalised - debentures (66 196 + 29 693 – 18 546) 77 343
Borrowing costs capitalised - lease (62 888 + 9 769) 72 657
Depreciation - right-of-use asset (114 719 (C6) x 7/8) 100 379
Depreciable amount 4 750 379
Depreciation on plant (4 750 379 /10 x 1/12) (39 586)
Net carrying amount on 31 December 2020 4 710 793
Amortisation table
Date Interest Instalments Capital Balance
12,3012%
1 May 2020 1 022 474
31 October 2020 (1) 62 888 132 381 69 493 952 981
31 December 2020 (2) 19 538 972 520
30 April 2021 (3) 39 076 132 381 73 767 879 215
31 October 2021 (4) 54 076 132 381 78 304 800 911
31 December 2021 (5) 16 420 817 331
(1) 1 022 474 x (12,3012% x 6/12) = 62 888

(2) 952 981 x (12,3012% x 2/12) = 19 538
(3) 952 981 x (12,3012% x 4/12) = 39 076
(4) 879 215 x (12,3012% x 6/12) = 54 076
(5) 800 911 x (12,3012% x 2/12) = 16 420

R1,135 per month?
QUESTION 2
PART A
Dr Cr
R R
Other income (P/L) (R300 000 – R250 000) 50 000

Equipment (SFP) 50 000
Elimination of unrealised profit on sale of machine
Deferred tax (SFP) (R50 000 x 28%) 14 000
Income tax expense (P/L) 14 000
Tax effect of unrealised profit on sale of machine
Accumulated depreciation (PPE) (R50 000/60 x 6) 5 000
Other expenses/depreciation (P/L) 5 000
Realisation of unrealised profit on sale of machine through the use of
the asset
Income tax expense (R5 000 x 28%) 1 400
Deferred tax (SFP) 1 400
Tax effect on realisation of profit on sale of machine through
depreciation
Non-controlling interest (SFP) (50 000 x 72%) – (5 000 x72%) x 20% 6 480
Non-controlling interest (P/L) 6 480
Non-controlling interest's share in the unrealised profit on sale of
machine
Trade payables (SFP) (R300 000 x 75%) 225 000
Trade receivables (SFP) 225 000
Elimination of intercompany debtor and creditor
Share of profit from joint venture [25%x (R75 000 x 20/120) x 40%] 1 250
Elimination of unrealised profit on sale of inventory
Deferred tax (SFP) (R1 250 x 28%) 350
Income tax expense (P/L) 350
Tax effect of unrealised profit on sale of inventory
PART B
MILLY LTD GROUP

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 28 FEBRUARY 2021
R
Revenue ((5 000 000 + 4 800 000) 9 800 000
Cost of sales (2 625 000 + 2 400 000) (5 025 000)
Other income (C1) 493 966
Other expenses (1 262 500 + 451 334 - 5 000) (1 708 834)
Share of profit from joint venture (C2) 207 775
Income tax expense (C3) (1 050 646)

Other comprehensive income for the year, net of tax
8
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FAC3762/203
Fair value adjustment on investments in equity instruments, net after tax (8 000 x
22.4%) 6 208

Non-controlling interests (145 520 x 20%) 29 104
2 723 469
Total comprehensive income attributable to:

Non-controlling interests 29 104
2 723 469
Calculations
C1 Other income
Dapper Ltd 712 500
Milly Ltd 286 666
Less:
Dividend income – Dapper Ltd (400 000 x 80%) (320 000)
Dividend income – Mask Ltd (163 000 x 40%) (65 200)
Profit on sale of equipment (50 000)
Reversal of land adjustment (70 000)
493 966
C2 Share of profit of joint venture

Profit (3 months)
(667 200 +293 400 - 203 750 -119 400 - 150 486) x 3/12 x 40% 48 696
Gain on bargain purchase
[150 000 +1 063 600 + 365 223 (Profit 9 months)] x 40%- 471 200 160 329
Intercompany sale of inventory (3 125 x 40%) (1 250)
207 775
C3 – Income tax expense

Dapper Ltd 537 384
Milly Ltd 541 892
Tax on profit on sale - machinery (14 000)
Tax on depreciation adjustment 1 400
Tax on profit on sale – inventory (350)
Reversal of land deferred tax (70 000 x 22.4%) (15 680)
1 050 646
PART C
The sale transaction where Milly sold a portion of the shares to other shareholders did not result in
a loss of control.
IFRS 10 classifies these types of transactions as a transaction between equity owners of the
subsidiary.
Milly would have recorded a profit on sale of on the disposal of the shares of R44 200 (185 000 –
9

R1,135 per month?
140 800 (704 000 x 20%) which will need to be reversed in the Group financial statements
A group adjustment will need to be calculated between the group value equating 20% of the value
of Dapper and the R180 000.
The group adjustment is not a profit but is recorded as an equity adjustment, either in retained
earnings or in a separate equity reserve.
(The analysis of owners’ equity was not required in the question; this is provided for tuition purposes
only.)
Analysis of owner’s equity of Dapper Ltd
Milly Ltd
100% 80% 20%
Share capital 200 000 160 000 40 000
Retained earnings at acquisition 585 950 468 760 117 190
Land adjustment (560 000 – 490 000) 70 000 56 000 14 000
Deferred tax (70 000 x 22.4%) (15 680) (12 544) (3 136)
Trade receivables (95 000 – 76 000) (19 000) (15 200) (3 800)
Deferred tax (19 000 x 28%) 5 320 4 256 1 064
Inventory (840 000 – 773 000) (67 000) (53 600) (13 400)
Deferred tax 18 760 15 008 3 752
778 350 622 680 155 670
Equity represented by goodwill 81 320
the current year 175 970 140 776 35 194
(19 000 x 72%) 13 680 10 944 2 736
(67 000 x 72%) 48 240 38 592 9 648
Current year 145 520 116 416 29 104

Reversal of land (70 000) (56 000) (14 000)
Deferred tax 15 680 12 544 3 136
Intercompany sale of machine (50 000) (40 000) (10 000)
Deferred tax 14 000 11 200 2 800
Depreciation on machine 5 000 4 000 1 000
Deferred tax (1 400) (1 120) (280)
Dividend paid – 28 February 2021 (400 000) (320 000) (80 000)
699 840 622 680 (62 808) 139 968
10
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FAC3762/203
Analysis of owner’s equity of Mask Ltd

Total At Since in Joint
R R R Venture
R
At acquisition date – 1 Dec 2020
Retained earnings 1 063 600 425 440
1 578 823 631 529
Investment in Mask Ltd 471 200 471 200
Current year
Dividends paid (163 000) (65 200) (65 200)

Investment in Joint Venture 615 025
Ref:/ FAC3762_2021_TL_202_0.pdf
©
UNISA 2021
11

R1,135 per month?
UNIVERSITY EXAMINATIONS
October/November 2020
FAC3762
100 Marks
Duration 3 Hours
30 minutes for uploading (submission cut-off time)
THIS PAPER CONSISTS OF EIGHT (8) PAGES.
EXAM QUESTION PAPER - INSTRUCTIONS:

Please note:
1. This paper consists of TWO (2) questions.
2. You are strongly advised to carefully read the required before attempting the questions
concerned.
4. All calculations must be shown.
5. Each question attempted, must commence on a new (separate) page.
6. PROPOSED TIME-TABLE: (Avoid deviating from this as far as possible).
CONTENTS
TIME
QUESTION TOPIC MARKS
Minutes
1 Consolidation of a group of entities and related parties 40 72
2 Leases: Lessor, Financial Instruments, Employee
60 108
benefits
TOTAL 100 180
The Invigilator
Day of the assessment instructions:
- Please remember to keep your cell phone fully charged for the duration of the assessment.
- Please log into The Invigilator App if you have not done so yet. You need to be connected to the
internet in order to log in.
- Scan the QR code below once the examination starts. If you encounter difficulty with scanning
of the QR code, you can also enter the QR access code as indicated at the bottom of the QR
code to start the online invigilation.
- Once the QR code is scanned, avoid any disturbances by putting your phone on airplane mode.
No internet connection is needed during the assessment.
- Keep the Invigilator app open at all times on your cell phone during the assessment.
- You may place your cell phone next to you. Your cell phone does not need to face you however
should be close enough to hear the notifications from The Invigilator App.
- The Invigilator App will notify you when an action is required.
[TURN OVER]
R1,135 per month?
2 FAC3762
10/11 2020
- In order to receive notifications do not put your cell phone on silent mode and ensure media
volume is turned up.
- When an action is required, a notification beep will be heard, and an instruction will be visible.
- Please take note that once the examination time is over, firstly focus on scanning and
uploading your script to your assessment platforms. Uploading your script is time
sensitive.
- Once your script is uploaded on your assessment platform, you may switch on your data
to start the uploading process on The Invigilator app.
- Good Luck!
INSTRUCTIONS - UPLOADING ANSWER FILES:
Follow these steps to submit your take-home answer file.

1. Access the myUnisa landing page at https://my.unisa.ac.za/portal
2. Click on the EXAMS banner (link) available on the myUnisa landing page.
3. Login with your student number and myUnisa password.
4. Find the FAC3762 module code. Click on the link to submit your answer file.
(Note: The link will only display if the examination session is still open for submissions).
5. A new screen will open that will guide you through the steps to upload your answer file.
6. Read the Honesty Declaration statement. If you agree, type I AGREE in the text box.
Note: You cannot continue with the submission process if you do not complete the
requirements of the declaration. Then click on the Continue button.
7. Verify your answer file’s details and ensure that you are uploading the correct answer file to
the correct course and assessment number.
8. Click on the Continue button to submit your answer file. If you do not click on Continue, no
submission action will take place.
NOTE: You must successfully submit your single PDF file before the submission cut-off time. Please
do not wait until the last minute to submit, instead, submit your file as soon as the three (3) hours
duration of the examination have passed. If you do not successfully submit before the cut-off time
you will be marked as absent from the examination.
[TURN OVER]

R1,135 per month?
3 FAC3762
10/11 2020
Generation Z Cricket Manufacturers Ltd (Gen Z Ltd) was established on 1 June 1994 by two
retired cricket players, Shane du Plessis and Francois Warne. Since 1 June 1994, Shane’s son,
David, was the chief executive officer of Gen Z Ltd. David Warne is a distinguished
businessman and is also the executive director of Hadeda Cricket Balls Ltd (Hadeda Ltd) and
a non-executive director of Sparrow Bat Protectors Ltd (Sparrow Ltd).
The purpose of Gen Z Ltd is to manufacture and distribute high quality cricket gear and
equipment, which is acceptable in terms of international standards. The shareholding of
Gen Z Ltd is as follow:
Shareholder Number of
shares
Shane du Plessis 15 000
Francois Warne 15 000
Jonty du Plessis (Shane du Plessis’s oldest son – 10 years old) 10 000
Lundi Bavuma Trust (Trade union of Gen Z Ltd) 5 000
Kagiso Ntini (West Indian international cricket player) 33 000
Zetari Trust (Post-employment benefit plan of Gen Z Ltd) 2 000
Brian Blara Sixes Ltd 10 000
Other shareholders (individual shareholding less than 2%) 10 000
Total number of shares 100 000
Gen Z Ltd has investments in the following entities:

1. Hadeda Cricket Balls Ltd (Hadeda Ltd)
Hadeda Ltd produces the world known Hadeda cricket ball, which is currently used in all local
and international cricket tournaments. Their head office is in Durban, South Africa.
On 1 January 2018, Gen Z acquired a controlling interest in Hadeda Ltd by purchasing 450 000
of the issued ordinary shares. On this date the retained earnings of Hadeda Ltd amounted to
R410 000 and the fair value of all the identifiable assets and liabilities of Hadeda Ltd were
considered to be equal to the carrying amounts thereof. On 1 January 2018 the market value
of Hadeda Ltd’s shares were R1,50 per share. A gain on bargain purchase resulting from this
acquisition amounted to R23 375.
2. Spartan Wood Manufacturers Ltd (Spartan Ltd)

Spartan Ltd buy quality wood from foresting farmers. Spartan Ltd then process the wood to
manufacture furniture, which is then sold to distributors of furniture. Spartan Ltd’s head office is
in Polokwane, South Africa.
On 1 December 2015, Gen Z Ltd acquired 35% of the issued ordinary shares in Spartan Ltd.
In terms of a contractual agreement with other operators, Gen Z Ltd exercises joint control over
the economic activities of Spartan Ltd. The arrangement was correctly classified as a joint
venture in terms of IFRS 11, Joint Arrangements. On this date the retained earnings of
Spartan Ltd amounted to R155 000 and the market value of Spartan Ltd’s shares were R1,72
per share. A gain on bargain purchase resulting from this acquisition amounted to R11 750.
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4 FAC3762
10/11 2020
During the current year, Spartan Ltd sold wooden stumps (inventory/raw material) of R192 563
to Gen Z Ltd. Gen Z Ltd uses these wooden stumps to manufacture cricket wickets. Spartan Ltd
sells inventory to Gen Z Ltd at a profit mark-up of 50% on the cost price. On 31 May 2020,
Gen Z Ltd had inventory of R48 100 on hand which was purchased from Spartan Ltd.
Hadeda Ltd has investments in the following entities:
1. Robin Bats Ltd (Robin Ltd)

Robin Ltd produces cricket bats used by local and international cricket teams. It is currently
ranked in a major cricket magazine in the top 3 bats in the world. Robin Ltd’s head office is in
East London, South Africa.
On 1 February 2020, Hadeda Ltd acquired a controlling interest in Robin Ltd by purchasing
104 000 of the issued ordinary shares of Robin Ltd. On this date, the fair value of the identifiable
assets and liabilities of Robin Ltd were considered to be equal to the carrying amounts thereof.
On 1 February 2020 the market value of Robin Ltd’s shares were R3,85 per share. Goodwill
resulting from this acquisition amounted to R34 053.
Income and expenses of Robin Ltd were incurred evenly throughout the year.
2. Byes Ltd
Byes Ltd is a company that operates in the IT-industry; their head office is in Johannesburg,
South Africa.
On 1 March 2019, Hadeda Ltd acquired a 5% interest in Byes Ltd for R185 000. On
31 December 2019, the investment in Byes Ltd was revalued to its fair value of R196 875. The
business model test of Hadeda Ltd revealed that the objective of the investment in Byes Ltd
was to hold the asset with the principal aim to sell the asset. The investment in Byes Ltd was
therefore classified as a financial asset at fair value through profit or loss, in accordance with
IFRS 9, Financial Instruments. The fair value movement was correctly accounted for by the
accountant of Hadeda Ltd, in the separate financial statements of Hadeda Ltd.
1. The extracts of the trial balances of the entities in the Gen Z Ltd Group for the year ended
31 May 2020 are given in Annexure A. All companies in the group have a 31 May year-end.
2. The Gen Z Ltd Group accounts for investments in joint ventures using the equity method in
3. The Gen Z Ltd Group measures non-controlling interests at their proportionate share of the
acquiree’s identifiable net assets at acquisition date.
assume that the tax rate has remained unchanged since 1 December 2015.
5. Each share carries one vote and the issued share capital of all the entities in the group
remained unchanged since 1 December 2015.
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5 FAC3762
10/11 2020
Annexure A
Extracts from the trial balances of the entities in the Gen Z Ltd Group for the year ended
31 May 2020:
Gen Z Hadeda Robin Spartan
Ltd Ltd Ltd Ltd
Dr/(Cr) Dr/(Cr) Dr/(Cr) Dr/(Cr)
R R R R
Property, plant and equipment at 5 893 424 1 288 999 1 200 108 601 804
cost...............................................
Investments in equity instruments:
- Hadeda Ltd at cost .................... 700 000 - - -
- Robin Ltd at cost ....................... - 390 000 - -
- Spartan Ltd at cost .................... 60 000 - - -
- Byes Ltd at fair value................. - 196 875 - -
Loan to Hadeda Ltd ...................... 200 000 - - -
Trade and other receivables 145 250 99 750 101 238 50 619
Inventories.................................... 612 500 263 419 79 625 39 813
Cash and cash equivalents .......... 525 000 133 875 73 937 36 969
Dividends paid – 31 May 2020 ..... 437 500 131 250 5 688 2 843
Share capital:
- 100 000 ordinary shares ........... (1 075 000) - - -
- 500 000 ordinary shares ........... - (393 750) - -
- 200 000 ordinary shares ........... - - (284 050) -
- 50 000 ordinary shares ............. - - - (50 000)
Retained earnings - 1 June 2019 (4 499 110) (634 406) (280 000) (140 000)
Loan from Gen Z Ltd .................... - (200 000) - -
Profit for the year .......................... (1 301 631) (518 573) (180 695) (90 348)
Other comprehensive income - fair
value adjustment on land, net after
tax ................................................ - (6 500) - (1 750)
Deferred tax liability ...................... (1 120) (2 100) (2 730) (1 365)
Trade and other payables ............ (385 000) (328 125) (255 938) (127 968)
Accumulated depreciation ............ (1 311 813) (420 714) (457 183) (320 617)
- - - -
[TURN OVER]

R1,135 per month?
6 FAC3762
10/11 2020
REQUIRED:
Marks
(a) Write a report, to the financial director of Gen Z Ltd, where you identify and
discuss with reasons, which entities and persons will be classified as related
parties to Gen Z Ltd Group for the year ended 31 May 2020 in terms of IAS
24, Related Party Disclosures. 11

(b) Prepare the extract of the consolidated statement of profit or loss and
other comprehensive income of the Gen Z Ltd Group for the year ended
31 May 2020 starting with the line item “Profit for the year”. 17

(c) Prepare only the retained earnings and revaluation surplus columns in the
consolidated statement of changes in equity of the Gen Z Ltd Group for
the year ended 31 May 2020. 8½
Communication skills: presentation and layout ½

TOTAL [40]
Please note:
Standards (IFRS).
Round off all amounts to the nearest Rand.
[TURN OVER]

R1,135 per month?
7 FAC3762
10/11 2020
Power Limited is a public company trading in various markets. Power Ltd manufactures
machinery which it sells or leases to its customers. Power Ltd has a 30 September year-end.
1. On 1 October 2018 Power Ltd purchased 1 000 debentures from George Ltd for R1 200 000
(fair value). Interest on the debentures in paid annually on 30 September. The debentures
will be redeemed on 30 September 2023 at their face value. Details of the debentures are
as follows:
Redemption date 30 September 2023
Coupon interest rate 13% per annum
Fair value R1 200 000
Face value R1 100 000
The investment in the debentures is held within a business model of Power Ltd, whose
objective is to collect future contractual cash flows of interest and principal on specified
dates.
2. Power Limited purchased 10 000 ordinary shares in JSE Limited in April 2018 for R10 each
(fair value) and incurred transaction costs of R1 000. The shares purchased are held by
Power Limited for trading purposes. The fair value of the shares increased to R12,80 per
share at the end of the current year. Power Limited elected to measure the shares at fair
value through profit and loss.
3. Power Ltd entered into a finance lease agreement with Solar Ltd on 1 October 2018,
whereby Solar Ltd will lease a machine from Power Ltd. The lease agreement is a lease in
terms of IFRS 16, Leases. The following information relates to the lease:
Commencement of agreement 1 October 2018
Cost price of machine R180 000
Selling price of leased machine R210 000
Period of lease agreement 4 years
R71 475 payble annually in arrears from
Instalment
30 September 2019.
Market-related interest rate 16% per annum
Interest rate implicit in the lease 14% per annum
The machine has no guaranteed or unguaranteed residual value. Power Ltd incurred R500
legal fees to secure the lease agreement. At the end of the lease period the machine will
be transferred to Solar Ltd at no additional cost. The machine was available for use and
brought into use on 1 October 2018.
4. Power Ltd paid gross monthly salaries of R500 000 per month for the twelve months ended
30 September 2019. Power Ltd made a contribution of 7,5% of the gross salaries to the
Power Provident Fund, a defined contribution plan.
On 1 September 2019, Power Ltd made the decision to offer a 5% salary increase, effective
from 1 October 2019 to all employees of the company. Power Ltd pays annual bonuses to
all employees on 30 September of each year, which is equal to one month’s salary,
apportioned for the number of months worked during the year. Power Ltd paid the annual
bonuses on 1 November 2019, the date the company and the Union reached an agreement
[TURN OVER]

R1,135 per month?
8 FAC3762
10/11 2020
of a 10% salary increase. All employees would receive back pay for the additional 5%
increase in respect of the October 2019 salaries.
5. All the employees are entitled to 25 days leave per calendar year. Employees must take a
minimum of 15 days leave per annum. Of the remaining ten days, only eight days can be
transferred and taken in the next leave cycle. The remaining two days leave per annum not
taken, can be accumulated and paid out on the day of resignation or retirement. Previous
experience has shown that on average, only five days of the leave that was transferred to
be taken as leave during the next year, are in fact taken. There were no new employments
or resignations in the current year.
6. On 30 September 2019 the accumulated leave paid out on the day of termination of the
employees’ services, amounted to an average of ten days. There were 250 working days
in a financial year.
7. Accrued employee benefits on 30 September 2018: R
Unused leave days for 2018 that was taken during 2019 160 400
Unused leave transferred to date of termination of service 240 000
400 400
REQUIRED:
Marks
(a) Discuss how the investment in the debenture would be classified in terms
of IFRS 9, in the financial statements of Power Ltd. 5½
Communication skills: presentation and layout 1½
(b) Prepare only the journal entries relating to the employee benefits (additional
information point 3 to 6) for the year ended 30 September 2019. 15½
(c) Prepare the extract of the statement of financial position of Power Limited
for the year ended 30 September 2019. 14½
(d) Disclose only the following notes to the annual financial statements of
Power Ltd for the year ended 30 September 2019:
(i) Profit before tax (include finance income); 5½
(ii) Net investment in finance leases; 9
(iii) Categories of financial instruments (excluding credit risk) 4
TOTAL [60]
Please note:
Standards (IFRS).
You may ignore any income tax and deferred tax implications.
Accounting Policies and comparative figures are not required.
Show all calculations and round off interest amounts to the four decimal places.
Round off all amounts to the nearest Rand.
©
UNISA 2020
[TURN OVER]

R1,135 per month?
OCTOBER –
NOVEMBER
2020
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SOLUTION 1: CONSOLIDATION OF A GROUP OF

ENTITIES & RELATED PARTIES
(a) To: Financial Director (Gen Z Ltd)
From: M.R.J.K
Date: 26 September 2016
Subject: Related Parties of Gen Z Ltd
The above subject matter refers.
The following will be regarded as the related parties of Gen Z Ltd:
i. Hadeda Ltd is a related party of Gen Z Ltd because Hadeda Ltd is a

subsidiary of Gen Z Ltd;
ii. Spartan Ltd is a related party of Gen Z Ltd because Spartan Ltd is a joint
venture of Gen Z Ltd;
iii. Robin Ltd is a related party of Gen Z Ltd because Robin Ltd is a sub –
subsidiary of Gen Z Ltd;
iv. David Warne is a related party of Gen Z Ltd as he is the Chief Executive
Officer of Gen Z Ltd, a key member of management personnel of Gen Z Ltd;
v. Zetari Trust is a related party of Gen Z Ltd as it is a post – employment
benefit plan of Gen Z Ltd; and
vi. Shane du Plessis is a related party of Gen Z Ltd as, he is the father of David
Warne, a key member of the management personnel of Gen Z Ltd.
(b) Extract of the Consolidated Statement of Profit or Loss & Other

Comprehensive Income of the Gen Z Ltd Group for the year ended 31 May
2020
R
Profit for the year [1 301 631 + 518 573 + 180 695 − 2 958 − 118 125 −
995 + 27 582] 1 906 403
Other comprehensive income 7 113
Fair value adjustment on land 6 500
Share of fair value adjustment of land in associate 613
Total comprehensive income 1 913 516

Owners of the parent (1 906 403 − 1 822 799) 1 822 799
NCI (28 911 + 51 857 + 2 836) 83 604
1 906 403
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Total Comprehensive Income attributable to:

Owners of the parent (1 913 516 − 84 251) 1 829 265
NCI (83 604 + 650) 84 251
1 913 516
Calculations
Robin Ltd
104 000
% Interest of Hadeda Ltd in Robin Ltd = 200 000 ∗ 100
= 𝟓𝟐%
Analysis of the Owners` Equity of Robin Ltd
Total Hadeda Ltd (52%) NCI (48%)

At Since
At Acquisition R R R R
Share Capital 284 050 147 706 136 344
8 400 463 208 241 192 222
Retained Earnings 280 000 + (180 695 ∗ )]
12
684 513 355 947 328 566
Equity represented by goodwill 34 053 34 053 -
Purchase Consideration & NCI 718 566 390 000 328 566
Since Acquisition
Current Year
4 60 232 31 321 28 911
Profit for the year (180 695 ∗ )
12
(5 688) (2 958) (2 730)
Dividends paid
773 110 28 363 354 747
Hadeda Ltd
450 000
% Interest of Gen Z Ltd in Hadeda Ltd = ∗ 100
500 000
= 𝟗𝟎%
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Analysis of the Owners` Equity of Hadeda Ltd
Total Gen Z Ltd Ltd (90%) NCI (10%)

At Since
Share Capital 393 750 354 375 39 375
803 750 723 375 80 375
Purchase Consideration & NCI 780 375 700 000 80 375
Since Acquisition
Given (634 406 − 410 000) 224 406 201 965 22 441
Gain on bargain purchase 23 375 23 375 -
Current Year
Profit for the year – Hadeda Ltd 518 573 466 716 51 857
Profit for the year – Robin Ltd (31 321 −
2 958) 28 363 25 527 2 836
Fair value adjustment on land 6 500 5 850 650
Dividends paid (131 250) (118 125) (13 125)
1 450 343 605 308 145 034
Analysis of the Owners` Equity of Spartan Ltd
Total Gen Z Ltd Ltd (35%) Carrying

Amount
At Since
Share Capital 50 000 17 500
Retained Earnings 155 000 54 250
205 000 71 750
Investment in Spartan Ltd (60 000) 60 000
Excess of fair value over cost 11 750
Since Acquisition
Retained Earnings 8 250 8 250
Given (140 000 − 155 000) (10 000) (3 500)
Excess of fair value over cost 11 750
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Current Year
Profit for the year 78 804 27 582
Given 90 348 31 622 31 622
Unrealised profit in closing inventory
50 (11 544) (4 040)
(48 100 ∗ 150 ∗ 72%)
Fair value adjustment on land 1 750 613 613

Dividends paid (2 843) (995) (995)
272 711 35 450 99 490
(c) Extract of the Consolidated Statement of Changes in Equity for the year ended
31 May 2020
Retained Revaluation
Earnings Surplus
R R
Balance at beginning of year 4 732 700 -
Total Comprehensive Income 1 822 799 6 463
Dividends paid (437 500) -
Balance at end of year 6 117 999 6 463
Calculations
Retained earnings at beginning of year

= (4 499 110 + 225 340 + 8 250)
= 𝟒 𝟕𝟑𝟐 𝟕𝟎𝟎
Revaluation for the year = (7 113 − 650)

= 𝟔 𝟒𝟔𝟑
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SOLUTION 2: LEASES: LESSOR, FINANCIAL

INSTRUMENTS, EMPLOYEE BENEFITS
(a) Discussion – Classification of Debentures
The investment in George Ltd’s debentures meets the definition of a financial

asset as it provides Power Ltd with the contractual right to receive cash from
George Ltd.
In terms of IFRS 9 par. 4.1.1, financial assets shall be classified and

subsequently measured on the basis of the entity’s business model for managing
the financial asset and the contractual characteristics of the financial asset.
A financial asset shall be measured at amortised cost if both of the following
conditions are met (IFRS 9.4.1.2):
(a) The asset is held within a business model whose objective is to hold assets in
order to collect contractual cash flows, and
(b) The contractual terms of the financial asset give rise on specified dates to
cash flows that are solely payments of principal and interest on the principal
amount outstanding.
The debentures are held within a business model whose objective is to hold
assets in order to collect contractual cash flows, as a result the first condition is
met.
The cash flows are made up of interest and principal only at specified dates, as a
result the second condition is also met.
Conclusion:
The investment should be classified as a financial asset subsequently measured
at amortised cost as both the conditions are met. (IFRS 9 par. 4.1.2).
(b) General Journal
DR CR
R R
Short – term employee benefits (P / L) (500 000 ∗ 12) 6 000 000
Bank (SFP) 6 000 000
Payment of salary cost
Short – term employee benefits (P / L) (6 000 000 ∗ 7.5%) 450 000

Bank (SFP) 450 000
Payment of contributions to a defined contribution plan
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Short – term employee benefits (P / L) 500 000

Bonus accrual (SFP) 500 000
Accrual of bonus at year end
10 252 000
Short – term employee benefits (P / L) [(6 000 000 ∗ 1.05 ∗ 250 )]
252 000
Accrued leave (SFP)
Accrual of leave days transferred to date of termination of service
5 135 450
Short – term employee benefits (P / L) [(6 000 000 ∗ 1.05 ∗ 1.075 ∗ )]
250 135 450
Accrued leave (SFP)
Accrual of leave days to be taken in next financial year
Accrued leave (SFP) 400 400

Short – term employee benefits (P / L) 400 000
Reversal of accrued leave from previous year
(c) Extract of the Statement of Financial Position of Power Ltd for the year
ended 30 September 2019
R
Assets
Non – current Assets
Financial asset at armortised cost – Investment in George Ltd 1 165 897
Net Investment in finance lease 114 734
Current Assets
Financial asset at armortised cost – Investment in George Ltd 17 907
Financial asset through profit or loss – Investment in JSE Ltd shares
(10 000 ∗ 12.80) 128 000
Net investment in finance lease 45 791
Non -Current Liabilities

Leave accrual 252 000
Current Liabilities
Bonus accrual 500 000
Leave accrual 135 450
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Calculations
C1. Investment in debentures
𝑃𝑉 = −1 200 000
𝑛=5
𝑃𝑀𝑇 = (1 100 000 ∗ 13%) = 143 000
𝐹𝑉 = 1 100 000
𝒊 = ? = 𝟏𝟎. 𝟓𝟔𝟕%

(Coupon interest at (growth) Balance
interest) @ 10.567% p.a
13% p.a
1 October 2018 - - - 1 200 000
30 September 2019 143 000 126 804 16 196 1 183 804
30 September 2020 143 000 125 093 17 907 1 165 897
30 September 2021 143 000 123 200 19 800 1 146 097
30 September 2022 143 000 121 108 21 892 1 124 205
30 September 2023 143 000 118 795 24 205 1 100 000
C2. Lease
Present value of lease at market – related rate of 16% p.a
𝑛=4
𝑃𝑀𝑇 = 71 475
𝐹𝑉 = 0
𝑖 = 16
𝑷𝑽 = ? = 𝑹𝟐𝟎𝟎 𝟎𝟎𝟎
The fair value is therefore, R200 000 and not R210 000
Calculation of unearned finance income
R
Gross investment in the lease (71 475 ∗ 4) 285 900
Unearned finance income (285 900 − 200 000) (85 900)
Net investment in the lease 200 000
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Amortisation table
Date Instalment Interest at Capital Closing

16% p.a Balance
1 October 2018 - - - 200 000
30 September 2019 71 475 32 000 39 475 160 525
30 September 2020 71 475 25 684 45 791 114 734
30 September 2021 71 475 18 357 53 118 61 616
30 September 2022 71 475 9 859 61 616 -
(d) Extract of the Notes to the Financial Statements for the year ended 30
September 2019
(i) Profit before tax
Profit before tax has been determined after taking the following into
account:
R
Incomes
Finance income (126 804 + 32 000) 158 804
Fair value gain on shares held through profit or loss [10 000 ∗ (12.80 − 10)] 28 000
Revenue 200 000
Expenses
Legal fees 500
Cost of Sales 180 000
Employee benefits
Short – term employee benefits (6 000 000 + 500 000 + 252 000 +
135 450 − 400 400] 6 487 050
Defined contribution plan 450 000
(ii) Net investment in finance leases
1. Reconciliation of Net Investment in finance leases:
R
Opening balance -
New leases entered into 200 000
Lease payments received (39 475)
Closing balance 160 525
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2. Maturity analysis of future lease instalments receivable at

reporting date:
2020 2021 2022

R R R
Undiscounted lease payments 71 475 71 475 71 475
Unearned finance income (25 684) (18 357) (9 859)
Net investment in the lease 45 791 53 118 61 616
(iii) Categories of financial instruments
2019
R
Non – current financial assets
Financial assets at amortised cost
Investment in debentures 1 165 897
1 280 631
Current financial assets

Financial assets at amortised cost
Investment in debentures 17 907
63 698
Financial assets at fair value through profit or loss

Investment in shares 128 000
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FAC3762/2020
Assignment 1
WRITTEN ASSIGNMENT
Study:
 Learning units 1 to 6 of tutorial letters 102 to 104; and
 Chapters 1 to 8 of Group Statements – Volume 1; and
 Chapters 9 to 12 of Group Statements – Volume 2
Bonang Ltd is a media company that specializes in print and digital publications. Having
been formed in the early 2000’s, it has done well in establishing its brand nationally and
in some parts of Africa. The company has decided to grow their footprint by acquiring
subsidiaries and associates over the years. All entities have a 31 December year end.
The trial balances for the year ended 31 December 2019 were as follows:
Bonang Ltd Ranaka Ltd Kganya Ltd
Dr /(Cr) Dr/(Cr) Dr/(Cr)
R R R
Property, plant and equipment at cost ... 2 000 000 1 600 000 1 000 000
Investment in Ranaka Ltd at cost .......... 650 000 - -
Investment in Kganya Ltd at cost ........... 450 000 - -
Other financial instruments at fair value . 165 000 - 250 000
Trade and other receivables .................. 458 000 398 745 698 000
Inventory ................................................ 370 850 212,092 547 898
Cash and cash equivalents.................... 758 500 319 000 410 542
Dividends paid – 31 December 2019 ..... 475 000 154 000 227 650
Cost of Sales ......................................... 1 874 000 1 187 900 812 568
Other expenses ..................................... 480 013 718 313 365 478
Income tax expense............................... 324 700 288 610 680 320
Revenue ................................................ (2 847 000) (2 356 500) (1 945 000)
Other Income ......................................... (507 013) (774 500) (465 401)
Fair value adjustment on investment in
equity instruments; net after tax ............. (97 120) - (58 700)
Share capital.......................................... (1 650 000) (345 000) (295 000)
Retained earnings - 1 January 2019 ...... (2 156 000) (989 650) (1 254 700)
Mark-to- mark reserve - 1 January 2019 (26 384) - (458 475)
Accumulated depreciation .................... (79 346) (33 000) (57 273)
Deferred tax liability ............................... (297 470) (115 430) (32 907)
Trade and other payables ...................... (345 730) (264 580) (425 000)
- - -

R1,135 per month?
FAC3762/2020
Assignment 1
Ranaka Ltd
1. On 1 March 2018, Bonang Ltd acquired control over Ranaka Ltd by acquiring 75% of
the issued ordinary shares of Ranaka Ltd for R650 000. At that date, the share capital
of Ranaka Ltd amounted to R345 000 and the retained earnings amounted to
R765 000.
2. On 1 March 2018, the fair value of the identifiable net assets acquired were
considered to be equal to the carrying amounts thereof in the financial statements of
Ranaka Ltd, with the following exceptions:
⁻ Inventory with a carrying amount of R2 million had a net reliasable value of
R1,6 million. All inventory was sold during the 2018 financial year.
⁻ A contingent liability relating to a customer claim. Ranaka Ltd has not recognized
the liability in its financial statements even though Ranaka Ltd’s lawyers have
confirmed that there is a pending court case regarding the claim. The fair value of
this contingent liability was reliably determined to be R250 000.
3. The following transactions occurred during the current year

⁻ Ranaka Ltd sold inventory to the value of R360 000 (2018: R280 000) to
Bonang Ltd. Ranaka Ltd sells inventory at a profit mark-up of 25% on cost.
⁻ On 31 December 2019, Bonang Ltd had inventory on hand of R250 000 relating to
purchases from Ranaka Ltd. (31 December 2018: R90 000)
4. On 31 December 2019, the directors of Bonang Ltd assessed the goodwill in

Ranaka Ltd and found it to be impaired by R50 000.
Kganya Ltd
5. On 1 January 2017, Bonang Ltd acquired a 40% of the issued ordinary shares in
Kganya Ltd for R450 000. Since this date, Bonang Ltd exercised significant influence
over the financial and operating policy decisions of Kganya Ltd. On the acquisition
date, all the assets and liabilities of Kganya Ltd were considered to be fairly valued.
A gain on bargain purchase amounting to R6 800 arose on acquisition date.
At that date, Kganya had the following equity balances:
Share capital R295 000
Retained earnings R557 000
Mark to mark reserve R290 000
6. On 1 September 2019, Bonang Ltd sold a piece of land to Kganya Ltd. The property,
with a carrying amount of R796 000 was bought by Kganya for R745 000. The
transaction was accounted for in the accounting records of the investor, Bonang Ltd.

R1,135 per month?
FAC3762/2020
Assignment 1
Other information
7. Bonang Ltd and Kganya Ltd measure its investments in equity instruments at fair
value through other comprehensive income unless otherwise stated.
8. Bonang Ltd measures investments in associates and joint ventures at cost price in its
9. The Bonang Ltd Group accounts for investments in associates and joint ventures
using the equity method in terms of IAS 28, Investments in Associates and Joint
Ventures.
10. The Bonang Ltd Group measures non-controlling interests at their proportionate
share of the acquiree’s identifiable net assets at the acquisition date.
11. The share capital of the companies in the group remained unchanged since the
acquisition dates of the companies. Assume that each share carries one (1) vote.
12. The SA normal tax rate remained unchanged at 28% since 1 January 2017 and
capital gains tax is calculated at 80% thereof.
REQUIRED:
Marks
(a) Draft an e-mail to the accountant of Bonang Ltd discussing the
accounting treatment of Kganya Ltd in the consolidated financial
statements of the Bonang Ltd Group. 9
(b) Prepare only the journal entries to account for the “investment in
associate” in accounting records of the Bonang Ltd Group as at 19
31 December 2019.
(c) Prepare only the non-controlling interests column of the consolidated

statement of changes in equity of the Bonang Ltd Group for the year
ended 31 December 2019. 10
(d) Prepare only the asset section of the consolidated statement of financial
position of the Bonang Ltd Group as at 31 December 2019. 12
Total [50]
All answers should comply with the requirements of International
Financial Reporting Standards.
Comparative figures and notes to the consolidated statements are not
required.
All amounts should be rounded to the nearest Rand

R1,135 per month?
FAC3762/201
3. SUGGESTED SOLUTION TO COMPULSORY ASSIGNMENT 01/2020
PART A
Draft an e-mail to the accountant of Bonang Ltd discussing the accounting treatment
of Kganya Ltd in the consolidated financial statements of the Bonang Ltd Group.
Format of the e-mail

To: Accountant of Bonang Ltd/ Mr X
Subject: Accounting treatment of Kganya Ltd in the consolidated financial statements of

the Bonang Ltd Group
Dear Accountant of Bonang Ltd/Mr xxx
The group elected to account for the investment in associate to be measured according to
the equity method as explained in IAS 28, Investments in Associates and Joint ventures.
According to the equity method the investment is initially recorded at cost and after the date
of acquisition, increases and decreases are recorded by including the following:
- The proportionate share of the profit or loss of the investor in the investee after the date of
acquisition.
Thus, add Bonang Ltd's share of 40% in the since acquisition to beginning of the current
year retained earnings of the associate to the cost price of the investment. Then add
Bonang Ltd's share in the current year's profit to the carrying amount
- Distributions received from the investee.
Thus, deduct the dividend received from the associate from the carrying amount of the
investment in associate
- The portion of prior year adjustments in the investee since the date of acquisition, and
Thus, there are no adjustments applicable for prior year.
- Adjustments to the carrying amount due to changes to the proportionate interest of the
entity in the investee, flowing from changes to the equity interest of the investee not included
in profit or loss which is recognised in other comprehensive income.
Thus, add Bonang Ltd's share of 40% in the since acquisition to beginning of the current
year mark-to-market reserve to the carrying amount of the investment in associate. Then
add Bonang Ltd's share of 40% in the current year's other comprehensive income to the
carrying amount.
The excess of the investor's share in the fair value of the net assets of the associate over
the cost of the investment on the acquisition date is recognised as a gain on bargain
purchase. This is done by taking this gain on bargain purchase into account in calculating
the share of profit of the associate in the period in which the investment is acquired.
Thus, add the gain on bargain purchase of R6 800 to the since acquisition to beginning of
the current year's share in retained earnings.
3
R1,135 per month?
FAC3762/201
I hope this e-mail assisted you on how to treat and account for investment in associate in
the accounting records of the Bonang Ltd Group. If you have any further questions you are
welcome to send me an e-mail.
Kind regards,
Student/Audit clerk
IDENTIFICAITON IN EMAIL
Please only use the term trainee accountant/audit clerk/student when you
sign off in the e-mail. Refrain from using your own name or any form of
identification. You are not allowed to use the reference CA(SA) next to
your name if you are not registered with SAICA.
PART B
Debit Credit
R R
J1 Investment in associate, Kganya Ltd 450 000
Investment in Kganya Ltd 450 000
Reclassification from investment at cost price to investment
in associate in accordance with the equity method.
(697 700 (1 254 700 – 557 000) x 40%) = 279 080 + 6 800
Mark-to-market reserve 67 390
(168 475 (458 475 – 290 000) x 40%)
Share in profit of associate 220 814
(552 035 (1 945 000 + 465 401 – 812 568 – 365478 – 680
320) x 40%)
Share in other comprehensive income of associate 23 480
(58 700 x 40%)
Accounting for the associate's share in the profits of the
associate and other comprehensive income of the associate
since acquisition date.
J3 Dividend received / Other income (227 650 x 40%) 91 060
Investment in associate, Kganya Ltd 91 060
Elimination of intragroup dividend received (distributions by
investee).
Other expenses / Depreciation 20 400
(51 000 (796 000 – 745 000) x 40%)
Elimination of downstream sale of land.
J5 Income tax expense 4 590
Deferred tax liability (20 400 x 22.4 % (28% x 80%)) 4 590
Elimination of downstream sale of land.
Investment in associate 976 904
4
R1,135 per month?
PART C
(The entire consolidated statement of changes in equity was not required in the question; this is provided for tuition purposes only.)
BONANG LTD GROUP
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2019
Mark-to Total
Share Retained mark equity
capital earnings reserve attributable NCI Total
equity
R R R R R R
Balance as at 1 January 2019 1 650 000 2 816 647 C4 93 774 C6 4 047 406 267 923 C1 4 315 329
Total comprehensive income for the year: - 1 340 237 120 600 1 460 837 228 284 1 689 121
Profit for the year - 1 340 237 C5 - 1 340 237 228 284 C2 1 568 521
Other comprehensive income for the year - - 120 600 C7 120 600 120 600
Dividends paid – 31 December 2019 - (475 000) - (475 000) (38 500) C3 (513 500)
Balance at 31 December 2019 1 650 000 3 681 884 214 374 457 707 5 754 848
Calculations
C1 – Opening balance of NCI R
Inventory write-off) (400 000(2 000 000 – 1 600 000) x 72%) (288 000)
Contingent liability (250 000)
Identifiable net assets of Ranaka Ltd at acquisition date 572 000
Non-controlling interests’ share in the at acquisition identifiable net assets (572 000 x 25%) 143 000
Since acquisition date:
Movement in retained earnings: 989 650(opening balance) – 765 000(at acquisition date) 224 650
Adjusted for:
Inventory written down (400 000 x 72%) 288 000
Prior year unrealised profit included in closing inventory (18 000 (90 000 x 25/125) x 72%) (12 960)
Adjusted retained earnings of Ranaka Ltd 499 690
Non-controlling interests’ share in the since acquisition retained earnings (499 690 x 25%) 124 923
Opening NCI 143 000 (at acquisition date) + 124 923 (since acquisition date) 267 923
5

R1,135 per month?
C2 – NCI's share in the current year profit R

Profit for the year – Ranaka Ltd
(2 356 500 + 774 500 – 1 187 900 – 718 313 – 288 610 936 177
Adjusted for:
Realisation of unrealised profit included in opening inventory
(18 000(90 000 x 25/125) x 72%) 12 960
Unrealised profit included in closing inventory (50 000(250 000 x 25/125) x 72%) (36 000)
Adjusted profit for the year 913 137
Non-controlling interests’ share in profit for the year (913 137 x 25%) 228 284
C3 – NCI's share in dividend paid R

(154 000 x 25%) 38 500
(The following calculations were not required in the question; this is provided for tuition
purposes only).
C4 – Opening balance of retained earnings R

Bonang Ltd 2 156 000
Ranaka Ltd 989 650

Less: at acquisition date retained earnings (765 000)
224 650
Adjusted for:
Inventory written down (400 000 x 72%) 288 000
Prior year unrealised profit included in closing inventory (18 000 (90 000 x (12 960)
25/
125) x 72%)
Adjusted retained earnings of Ranaka Ltd 499 690
Less: Non-controlling interests’ share in the since acquisition retained (124 923)
earnings (499 690 x 25%)
Parent’s share in since acquisition retained earnings 374 767
Kganya Ltd
Movement in retained earnings: (697 700(1 254 700(opening balance) –
557 000(at acquisition date) x 40%) 279 080
Gain on bargain purchase (given) 6 800
285 880
Opening balance of retained earnings 2 816 647
C5 – Parent’s share in the current year profit for the year R
Profit for the year - Bonang Ltd (2 847 000 – 1 874 000 + 507 013 – 480 013
- 324 700) 675 300
Profit for the year - Ranaka Ltd (2 356 600 – 1 187 900 + 774 500 – 718
313 - 288 610) 936 177
Share in profit of associate (552 035 (1 945 000 + 465 401 - 812 568 - 365
478 - 680 320) x 40%) 220 814
1 832 291

R1,135 per month?
FAC3762/201
Adjusted for:
Intragroup dividend received from the subsidiary (Ranaka Ltd)
(154 000 x 75%) (115 500)
Intragroup dividend received from the associate (Kganya Ltd)
(227 650 x 40%) (91 060)
Unrealised profit included in closing inventory (250 000 x 25/125) (50 000)
Tax effect of unrealised profit included in closing inventory (50 000 x 28%) 14 000
Realisation of unrealised profit included in opening inventory
(90 000 x 25/125) 18 000
Tax effect of realisation of unrealised profit included in opening inventory
(18 000 x 28%) (5 040)
Impairment of goodwill (50 000)
Unrealised loss on sale of land to the associate (51 000 (745 000 - 796 000)
x 40%) 20 400
Tax effect of unrealised loss on sale of land to the associate (20 400 x
22.4% (28% x 80%)) (4 570)
Total consolidated profit for the year 1 568 521

Less: NCI’s share in current year profit (228 284)
1 340 237
OR
BONANG LTD GROUP
R
Revenue (2 847 000 + 2 356 500 - 360 000) 4 843 500
Cost of sales (1 874 000 + 1 187 900 - 360 000 - 18 000 (90 000 x 25/125) +
50 000 (250 000 x 25/125) (2 733 900)
Other income (507 013 +774 500 -115 500 (154 000 x 75%) - 91 060
(227 650 x 40%) 1 074 953
Other expenses (480 013 + 718 313 - 50 000 (impairment loss) - 20 400
(51 000 (745 000 - 796 000) x 40%) (unrealised loss) (1 227 926)
Share of profit of associate (552 035 (1 945 000 + 465 401 - 812 568 - 365
478 - 680 320) x 40%) 220 814
Income tax expense (324 700 + 288 610 - 14 000 (50 000 x 28%) + 5 040
(18 000 x 28%) + 4 570 (20 400 x 22.4%) (608 920)
Fair value adjustment on investments in equity instruments, net after tax
(97 120 + 0) 97 120
Share in other comprehensive income of associate (58 700 x 40%) 23 480
Other comprehensive income for the year, net of tax 120 600
7
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FAC3762/201
R
Non-controlling interests [913 137 (936 177 (2 356 500 + 774 500 –
1 187 900 - 718 313 - 188 610) + 12 960 (18 000 (90 000 x 25/125) x 72%) –
36 000 (50 000 (250 000 x 25/125) x 72%) X 25%] 228 284
1 568 521
Non-controlling interests (228 284 + 0) 228 284
1 689 121
C6 – Opening balance of mark-to-market reserve R

Bonang Ltd 26 384
Ranaka Ltd -
Kganya Ltd
Movement in mark-to-market reserve: (168 475(458 475(opening balance)
– 290 000(at acquisition date) x 40%) 67 390
Opening balance of mark-to-market reserve 93 774
C7 – Parent’s share in the current other comprehensive income R

Bonang Ltd 97 120
Ranaka Ltd -
Less: NCI’s share in current year’s other comprehensive income -
Kganya Ltd (58 700 x 40%) 23 480
120 600
PART D
BONANG LTD GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2019
ASSETS R
Non-current assets
Property, plant and equipment (2 000 000 + 1 600 000 – 79 346 – 33 000) 3 487 654
Other equity instruments (165 000 + 250 000) 415 000
Total non-current assets 5,050,558
Current assets
Trade and other receivables (458 000 + 398 745) 856,745
Cash and cash equivalents (758 500 + 319 000) 1,077,500
Inventory (370 850 + 212 092 – 50 000 (250 000 x 25/125) 532,942
Total current assets 2,467,187
TOTAL ASSETS 7,517,745
8
R1,135 per month?
FAC3762/201
CALCULATIONS
C1 Investment in associate
R
Cost price 450 000
Gain on bargain purchase (given) 6 800
Associate’s share in since acquisition retained earnings (697 700 (1 254 700
– 557 000) x 40%) 279 080
Associate’s share in since acquisition mark-to-market reserve (168 475 (458
475 – 290 000) x 40%) 67 390
Associate’s share in profit for the year (552 035 (1 945 000 + 465 401 - 812
568 - 365 478 - 680 320) x 40%) 220 814
Associate’s share in other comprehensive income (51 000 (745 000 –
796 000) x 40%) 23 480
Dividend paid (227 650 x 40%) (91 060)
Unrealised loss on sale of land (51 000 (745 000 - 796 000) x 40%) 20 400
976 904
OR
Analysis of owner’s equity of Kganya Ltd
Total At Since in
R R R Associate
R
At acquisition date
Mark-to-market reserve 290 000 116 000
1 142 000 456 800
Gain on bargain (6 800)

Gain on bargain purchase 6 800 6 800
Retained earnings (697 700
(1 254 700 – 557 000) x 40%) 697 700 279 080 279 080
Mark-to-market reserve (168 475
(458 475 – 290 000) x 40%) 168 475 67 390 67 390
2 008 175 353 270 803 270
Current year
Profit for the year (1 945 000 + 552 035 220 814 220 814
465 401 – 812 568 – 365478 – 680
320)
Other comprehensive income 58 700 23 480 23 480
Dividends paid (227 650) (91 060) (91 060)
2 391 260 506 504 956 504
Unrealised loss on sale of land
(51 000 (745 000 - 796 000) x 40%) 20 400
9
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FAC3762/201
C2 Goodwill
Proof of goodwill of Ranaka Ltd (IFRS 3.32)
R
Consideration transferred at acquisition date 650 000
Plus: non-controlling interests (572 000(345 000 + 765 000 - 288 000(400 000
x 72%) - 250 000) x 25%) 143 000
793 000
Less: net amount of identifiable assets acquired and liabilities assumed at
acquisition date (345 000 + 765 000 - 288 000(400 000 x 72%) - 250 000) (572 000)
Goodwill 221 000
Less: impairment loss (50 000)
Balance of goodwill at 31 December 2019 171 000
(The analysis of owners’ equity was not required in the question; this is provided for tuition
purposes only.)
Analysis of owner’s equity of Ranaka Ltd
Bonang Ltd
100% 75% 25%
Share capital 345 000 258 750 86 250
Inventory (400 000 x 72%) or (400 000
– 112 000(400 000 x 28%) (288 000) (216 000) (72 000)
Contingent liability (250 000) (187 500) (62 500)
572 000 429 000 143 000
Equity represented by goodwill 221 000 221 000 -
Since acquisition to the beginning
of the current year 499 690 374 767 124 923
Retained earnings (989 650 - 765 000) 224 650 168 488 76 162
Inventory revalued at acquisition date
(400 000 x 72%) 288 000 216 000 72 000
Unrealised profit included closing
inventory, net after tax (18 000(90 000
x 25/125) x 72%) (12 960) (9 720) (3 240)
1 292 690 374 767 267 923
Current year
Realisation of unrealised profit
included in opening inventory realised,
net after tax (18 000(90 000 x 25/125) x
72%) 12 960 9 720 3 240
Unrealised profit included in closing
inventory (50 000(250 000 25/125) x
72%) (36 000) (27 000) (9 000)
Dividends paid (154 000) (115 500) (38 500)
2 051 827 650 000 944 120 457 707
10
R1,135 per month?
FAC3762
Assignment 02/2020
On 1 January 2018, House Ltd obtained control of Coffee Ltd by acquiring 130 000 of the issued
ordinary shares of House Ltd. On the acquisition date, the retained earnings of Coffee Ltd
amounted to R95 000. The purchase price was settled with cash of R90 000 and a machine
with a carrying amount of R145 000 and a fair value of R150 000 on 1 January 2018.
The carrying amounts of the assets and liabilities of Coffee Ltd at acquisition date were
considered to be fairly valued, except for the solar energy unit (consisting of solar panels and
integrated back-up battery packs) that was installed on 1 January 2018. Coffee Ltd installed the
solar energy unit to ensure that they will be able to keep selling coffee in times where they might
experience load shedding. The solar energy unit (equipment) had a carrying amount of R93 000
on 1 January 2018. The remaining useful life of the solar energy unit was 3 years on this date.
Both companies depreciate equipment over the expected useful life of the asset using the
straight line method. This is consistent with the allowance received by the South African
Revenue Service. The revaluation was not accounted for in the records of Coffee Ltd.
The accountant of House Ltd knows that on acquisition date all assets and liabilities must be
measured at fair value in terms of IFRS 13 but is not sure at what amount to measure the fair
value of the solar energy unit.
There is no principle market where second hand solar energy units are sold in South Africa but
two markets were identified where second hand solar energy units are sold at different prices.
The two markets being the Gauteng Alternative Energy Market and the Green Solar Shop in
the Western Cape. Coffee Ltd transacts in both markets and could access the prices in those
markets for the solar energy unit on 1 January 2018 (the measurement date). At the Gauteng
Alternative Energy Market, the price that would be received to sell the solar energy unit is
R120 000. Transaction costs in that market are R2 800 and the costs to transport the asset to
that market are R5 000 (i.e. the net amount that would be received is R112 200).
At the Green Solar Shop, the price that would be received to sell the solar energy unit is
R118 000. Transaction costs in that market are R500 and the costs to transport the asset to
that market are R5 000 (i.e. the net amount that would be received is R112 500).
The above information is illustrated in the table below for ease of understanding:
Gauteng Alternative Green Solar

Energy Market Shop
R R
Price 120 000 118 000
Transport costs (5 000) (5 000)
Fair value 115 000 113 000
Transaction costs (2 800) (500)
Net Price 112 200 112 500

R1,135 per month?
The following are extracts from the trial balances of House Ltd and Coffee Ltd for the year
ended 31 December 2019:
House Coffee
Ltd Ltd
Dr/(Cr) Dr/(Cr)
R R
Property, plant and equipment at cost .............................................. 459 940 340 120
- Coffee Ltd at fair value ................................................................... 250 000 -
- Beans Ltd at fair value ................................................................... 59 500 -
- Ground Ltd at fair value .................................................................. - 98 350
Trade and other receivables ............................................................. 65 000 15 000
Cash and cash equivalents .............................................................. 34 500 42 000
Inventories ........................................................................................ 105 000 34 000
Cost of sales..................................................................................... 119 200 57 500
Other expenses ................................................................................ 62 000 12 000
Income tax expense ......................................................................... 41 160 19 880
Dividends paid - 31 December 2019 ................................................ 15 000 5 000
Share capital:
- 250 000 ordinary shares ................................................................ (500 000) -
- 200 000 ordinary shares ................................................................ - (250 000)
Retained earnings - 1 January 2019 ................................................ (220 600) (140 000)
Mark-to-market reserve – 1 January 2019 ....................................... (3 880) (660)
Accumulated depreciation ................................................................ (95 000) (68 000)
Deferred tax liability .......................................................................... (3 920) (1 870)
Trade and other payables ................................................................ (50 000) (17 000)
Revenue ........................................................................................ (272 200) (124 000)
Other income .................................................................................... (56 000) (16 500)
Other comprehensive income – fair value adjustment on equity
instruments, net after tax .................................................................. (9 700) (5 820)
- -
1. Since 2018, House Ltd sold coffee beans (inventory) to Coffee Ltd at a profit mark-up of
25% on the cost price. During the current year the total sales of inventory from House Ltd
to Coffee Ltd amounted to R40 000 (2018: R20 000). The inventory on hand at
31 December 2019 in the accounting records of Coffee Ltd that was purchased from
House Ltd amounted to R5 000 (31 December 2018: R1 000).
2. On 30 September 2018, Coffee Ltd purchased a 3% interest in Ground Ltd for R90 000. The
fair value of this investment was R90 850 on 31 December 2018 and R98 350 on
31 December 2019. Coffee Ltd classified the investment in Ground Ltd in terms of IFRS 9,
Financial Instruments in its separate financial statements and recognises any fair value
adjustments in other comprehensive income (mark-to-market equity reserve).

R1,135 per month?
FAC3762
Assignment 02/2020
3. On 1 August 2018, House Ltd purchased a 5% interest in Beans Ltd for R52 000. The fair
value of this investment was R57 000 on 31 December 2018 and R59 500 on
31 December 2019. House Ltd classified the investment in Coffee Ltd and Beans Ltd in
terms of IFRS 9, Financial Instruments in its separate financial statements and recognised
fair value adjustments in other comprehensive income (mark-to-market equity reserve).
4. The fair value of the investment in Coffee Ltd was R240 000 at the end of
31 December 2018.
5. The House Ltd Group measures non-controlling interests in an acquiree at acquisition date
at their proportionate share of the acquiree’s net identifiable assets. At 31 December 2019,
the directors of House Ltd determined that the goodwill of R6 390 that arose at the
acquisition of Coffee Ltd was impaired by R2 000. No impairment loss was recognised in
the separate financial statements of House Ltd.
6. The House Ltd Group measures its investments in equity instruments at fair value through
other comprehensive income unless otherwise stated.
7. The SA normal tax rate is 28% and the capital gains inclusion rate is 80%. You may assume
that both rates have remained unchanged since 1 January 2018.
8. Each share carries one vote and the share capital of all companies has remained
unchanged since 1 January 2018.
REQUIRED:
Marks
(a) Draft an e-mail to the accountant of The House Ltd Group discussing the
correct amount that should be disclosed as the fair value of the solar energy
unit on 1 January 2018 in terms of IFRS 13, Fair Value Measurement. Your
answer must make clear reference to the requirements of fair value 13
measurement.
(b) For part b only, you may assume that the net asset value of Coffee Ltd on
1 January 2018 amounted to R359 400.
Prepare the consolidated statement of profit or loss and other comprehensive
income of the House Ltd Group for the year ended 31 December 2019. 24
TOTAL [40]
Please note:
Notes to the annual financial statements and comparative figures are not
required.
All calculations must be shown and amounts must be rounded to the nearest R1.
5

R1,135 per month?
The following are the financial statements of Rooibos Ltd and Tea Ltd at 31 December 2019:
STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE
YEAR ENDED 31 DECEMBER 2019
Rooibos Tea
Ltd Ltd
R R
Revenue ............................................................................ 472 500 337 500
Cost of sales ...................................................................... (283 500) (200 000)
Gross profit ...................................................................... 189 000 137 500
Other income ..................................................................... 39 000 -
Other expenses ................................................................. (35 500) (2 500)
Profit before tax ............................................................... 192 500 135 000
Income tax expense........................................................... (53 900) (37 800)
PROFIT FOR THE YEAR .................................................. 138 600 97 200
Other comprehensive income ........................................ - -

TOTAL COMPREHENSIVE INCOME FOR THE YEAR ... 138 600 97 200
EXTRACT FROM THE STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED
31 DECEMBER 2019
Rooibos Tea
Ltd Ltd
Retained Retained
earnings earnings
R R
Balance at 1 January 2019 .............................................. 650 500 519 300
Changes in equity for 2019:
Profit for the year ............................................................... 138 600 97 200
Dividends paid (31 May 2019) ........................................... (120 000) (40 000)
Balance at 31 December 2019......................................... 669 100 576 500

R1,135 per month?
FAC3762
Assignment 02/2020
STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 2019

Rooibos Tea
Ltd Ltd
R R
ASSETS
Non-current assets
Property, plant and equipment ........................................ 500 000 600 000
Investment in Tea Ltd at cost .......................................... 865 000 -
Total non-current assets .............................................. 1 365 000 600 000
Current assets
Cash and cash equivalents ............................................. 100 000 50 000
Inventory ......................................................................... 198 760 320 850
Trade and other receivables ........................................... 111 740 147 950
Total current assets...................................................... 410 500 518 800
Total assets ................................................................... 1 775 500 1 118 800
EQUITY
Share capital: .................................................................
-1 000 000 ordinary shares ............................................. 1 000 000 -
- 500 000 ordinary shares ............................................. - 500 000
Retained earnings........................................................... 669 100 576 500
Total equity.................................................................... 1 669 100 1 076 500
LIABILITIES
Current liabilities ..........................................................
Trade and other payables ............................................... 106 400 42 300
Total current liabilities ................................................. 106 400 42 300
Total liabilities ............................................................... 106 400 42 300
Total equity and liabilities ............................................ 1 775 500 1 118 800
1. On 1 January 2017, Tea Ltd became a subsidiary of Rooibos Ltd when Rooibos Ltd
purchased 325 000 of the issued ordinary share of Tea Ltd for R610 000. On this date the
retained earnings of Tea Ltd amounted to R320 000. On acquisition date the identifiable
net assets of Tea Ltd were considered to be fairly valued. No additional liabilities or
contingent liabilities of Tea Ltd were identified at the acquisition date.
2. On 30 June 2019 Rooibos Ltd purchased an additional 100 000 shares in Tea Ltd from the
non-controlling interests for R255 000.
3. Tea Ltd’s profit was earned evenly during the current year ended 31 December.
4. Rooibos Ltd recognised its investment in Tea Ltd at cost price in its separate accounting
records in terms with IAS 27, Separate Financial Statements.

R1,135 per month?
5. Rooibos Ltd elected to measure the non-controlling interests in the acquiree at its fair value
on acquisition date. On 1 January 2017 the fair value of the non-controlling interests
amounted to R315 000.
assume that the tax rates have remained unchanged since 1 January 2017.
7. Each share carries one vote and the issued share capital of all entities in the group has
remained unchanged since 1 January 2017.
REQUIRED:
Marks
Prepare the consolidated statement of financial position of the Rooibos Ltd Group
for the year ended 31 December 2019. 24
Total columns are not required.
TOTAL [25]
Please note:
All calculations must be shown and amounts must be rounded off to the nearest
R1.

R1,135 per month?
FAC3762
Assignment 02/2020
CREAM LTD
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE
YEAR ENDED 29 FEBRUARY 2020
R
Revenue ....................................................................................................... 350 000
Cost of sales ................................................................................................. (176 000)
Gross profit ................................................................................................. 174 000
Other income ................................................................................................ 2 000
Other expenses ............................................................................................ (11 000)
Profit before tax .......................................................................................... 165 000
Income tax expense........................................... (65 000)
PROFIT FOR THE YEAR ............................................................................. 100 000
Revaluation of land, net after tax .................................................................. 55 000
Other comprehensive income ....................................................................... 55 000
TOTAL COMPREHENSIVE INCOME FOR THE YEAR .............................. 155 000
CREAM LTD
EXTRACT FROM THE STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED
29 FEBRUARY 2020
Retained
earnings
R
Balance at 1 March 2019 ............................................................................ 65 000

Changes in equity for 2019 to 2020:
Profit for the year .......................................................................................... 100 000
Dividends paid (29 February 2020)............................................................... (11 000)
Balance at 29 February 2020 ..................................................................... 154 000

R1,135 per month?
CREAM LTD
STATEMENT OF FINANCIAL POSITION AS AT 29 FEBRUARY 2020
R
ASSETS
Non-current assets
Property, plant and equipment ....................................................................... 165 000
Total non-current assets ............................................................................. 165 000
Current assets
Cash and cash equivalents ............................................................................ 80 000
Inventory ........................................................................................................ 63 000
Trade and other receivables .......................................................................... 12 000
Total current assets..................................................................................... 155 000
Total assets .................................................................................................. 320 000
EQUITY
Share capital: ................................................................................................
-100 000 ordinary shares ............................................................................... 110 000
Retained earnings.......................................................................................... 154 000
Other components of equity (revaluation surplus) ......................................... 55 000
Total equity................................................................................................... 319 000
LIABILITIES
Current liabilities .........................................................................................
Trade and other payables .............................................................................. 1 000
Total current liabilities ................................................................................ 1 000
Total liabilities .............................................................................................. 1 000
Total equity and liabilities ........................................................................... 320 000
1. On 1 March 2015, Cookies Ltd obtained a 40% interest in Cream Ltd for R59 400 when the
retained earnings of Cream Ltd amounted to R20 000. Since this date, Cookies Ltd
exercised significant influence over the financial and operating policy decisions of
Cream Ltd. On the acquisition date all the assets and liabilities of Cream Ltd were
considered to be fairly valued. Goodwill amounting to R7 400 arose on the acquisition of
Cream Ltd.
Intragroup transactions
2. On 1 March 2017, Cream Ltd sold equipment to Cookies Ltd at a profit mark-up of 50% on
the cost price thereof. The cost price of the equipment for Cookies Ltd was R27 000. The
equipment was included in property, plant and equipment of Cookies Ltd on
29 February 2020. Depreciation is provided at 20% per year on the cost of the equipment
by both companies. On the date of sale, the remaining useful life of the equipment was four
years.
3. The revaluation surplus in the accounting records of Cream Ltd relates to land that was
revalued to its fair value on 28 February 2020.
10

R1,135 per month?
FAC3762
Assignment 02/2020
Other information
4. Cookies Ltd measures investments in associates and joint ventures at cost price in its
5. The Cookies Ltd Group accounts for investments in associates and joint ventures using the
equity method in terms of IAS 28, Investments in Associates and Joint Ventures.
6. The share capital of the companies in the group remained unchanged since the acquisition
dates of the companies. Assume that each share carries one (1) vote.
7. The SA normal tax rate remained unchanged at 28% since 1 March 2015 and capital gains
tax is calculated at 80% thereof.
REQUIRED:
Marks
Prepare the journal entries to account for the investment in Cream Ltd in the
consolidated financial statements of the Cookies Ltd Group for the year ending
TOTAL [18]
Please note:
Standards (IFRS).
All calculations must be shown and amounts must be rounded off to the nearest R1.
11

R1,135 per month?
On 1 January 2016, Fantastic Ltd purchased 1 000 R50 10% bonds at their fair value of
R48 000. Transaction costs incurred to purchase these bonds were R350. Fantastic Ltd has a
31 December year-end.
Interest received on the bonds is payable annually on 31 December and the principal amount
will be settled on the maturity date of the bonds on 31 December 2019. The effective interest
rate for the bonds is 11.065% per annum.
Fantastic Ltd intends to hold these bonds to collect contractual cash flows, and classifies them
at amotised cost. There is no indication that the investment in bonds has been credit-impaired
since the purchase date.
REQUIRED:
Marks
Prepare the journal entries to account for the bonds in the accounting records of
Fantastic Ltd on 1 January 2016 and 31 December 2019. 17
Dates and journal narrations are required.
TOTAL [17]
Please note:
Standards (IFRS).
All interest rates must be rounded to three decimal places after the comma.
©
UNISA 2020
12

R1,135 per month?
FAC3762/202
3. SUGGESTED SOLUTION TO COMPULSORY ASSIGNMENT 02/2020
QUESTION 1
PART A
From: Student
To: Accountant of the House Ltd Group/Mr X
Subject: Fair value of the solar panels and back-up battery pack
Good day/Dear Accountant
In terms of IFRS 13, fair value is defined as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants at the
measurement date.
An orderly transaction is defined as a transaction that assumes exposure to the market for
a period before the measurement date to allow for marketing activities that are usual and
customary for transactions involving such assets or liabilities; it is not a forced transaction
(e.g. a forced liquidation or distress sale).
In terms of IFRS 13, a fair value measurement assumes that the transaction to sell the asset
or transfer the liability takes place in the principal market for the asset or liability.
The principal market is defined as the market with the greatest volume and level of activity
for the asset. The fair value of the asset in a principle market would be measured using the
price that would be received in that market, after taking into account transport costs (thus
including the transport costs.)
In the absence of a principal market, or if neither market is the principle market, the
transaction to sell the asset (or transfer the liability) is assumed to take place in the most
advantageous market for the asset or liability. However, the most advantageous market will
only be referred to in the absence of the principal market. The fair value of the asset would
be measured using the price in the most advantageous market.
The most advantageous market, is the market that maximises the amount that would be
received to sell the asset, or that minimizes the amount that would be paid to transfer the
liability, after taking into account transaction and transport costs.
There is no principal market where second hand solar energy units are sold in South Africa,
therefore The House Ltd group should use the most advantageous market to measure fair
value.
Conclusion
The most advantageous market is the Green Solar Shop as it results in a net price (price in
market less transaction costs and transport costs) of R112 500 which is higher or greater
net value than the Gauteng Alternative Energy Market’s net price of R112 200.
The fair value of the asset would be measured using the price in that market (R118 000),
less transport costs (R5 000), resulting in a fair value measurement of R113 000. Although
transaction costs are taken into account when determining which market is the most
advantageous market, the price used to measure the fair value of the asset is not adjusted
for those costs (however it is adjusted for transport costs).
Regards
UNISA Student
3
R1,135 per month?
FAC3762/202
VALUATION TECHNIQUES
When measuring fair value, the entity has to determine the valuation technique
to use. IFRS 13, Fair value measurement, describes three techniques that can
be used to determine the fair value, as follows: (i) the market approach, (ii) the
income approach and (iii) the cost approach.
The market approach is described as: when an entity uses “prices and other
relevant information generated by market transactions involving identical or
comparable (i.e. similar) assets, liabilities or a group of assets and liabilities”.
The income approach is described as: when an entity converts future cash
flows to arrive at a discounted amount.
Considering the information given in the question, the market approach is
applicable.
PART B
HOUSE LTD GROUP
R
Revenue (272 200 + 124 000 - 40 000) 356 200
Cost of sales (119 200 + 57 500 – 40 000 - 200 (1 000 x 25/125) + 1 000
(5 000 x 25/125) (137 500)
Gross profit 218 700
Other income (56 000 +16 500 -3 250(div)(5 000 x 65%) 69 250
Other expenses (62 000 + 12 000 + 2 000 (impairment of goodwill) + 6 667
[20 000((113 000 -93 000)/3years)] (82 667)
Profit before tax 205 283
Income tax expense (41 160 + 19 880 + 56(200 x 28%) - 280(1 000 x
28%) - 1 867(6 667 x 28%) (58 949)
PROFIT FOR THE YEAR 146 334
Fair value adjustment on investments in equity instruments, net after tax
(9 700 + 5 820 - 7 760[10 000 – 2 240(10 000 x 80% x 28%)] 7 760
Other comprehensive income for the year, net of tax 7 760
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 154 094

Owners of the parent 130 122
Non-controlling interests (46 320 (51 120 (124 000 + 16 500 - 57 500 -
12 000 - 19 880) - 4 800(6 667 - 1 887)) x 35%) 16 212
146 334
Non-controlling interests (16 212 + 2 037(5 820 x 35%)) 18 249
154 094
4
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QUESTION 2
ROOIBOS LTD GROUP
ASSETS R
Non-current assets
Property, plant and equipment (500 000 + 600 000) 1 100 000
Goodwill (C1) or (C2) 105 000
Total non-current assets 1 205 000
Current assets
Trade and other receivables (111 740 + 147 950) 259 690
Inventories (198 760 + 320 850) 519 610
Cash and cash equivalents (100 000 + 50 000) 150 000
Total current assets 929 300
TOTAL ASSETS 2 134 300

Equity attributable to owners of the parent 1 812 125
Retained earnings (C3) 845 545
Other equity reserves (Change in ownership reserve) (C5) (33 420)
Total equity 1 985 600
Non-current liabilities -
Total non-current liabilities -
Current liabilities
Trade and other payables (106 400 + 42 300) 148 700
Total current liabilities 148 700
TOTAL EQUITY AND LIABILITIES 2 134 300
Calculations
C1 Calculate the goodwill or gain on bargain purchase as at 1 January 2017
R
Consideration transferred 610 000

Plus: Non-controlling interests ((500 000 shares x 35%) x R1,80) 315 000
925 000
Less: Net assets acquired and liabilities assumed (500 000 + 320 000) (820 000)
Goodwill 105 000

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C2 Analysis of owner’s equity of Tea Ltd
Rooibos Ltd
100% 65% 35%
(325 000/500 000)
100% 85% 15%
(425 000/500 000)
Total At Since NCI
R R R R
At acquisition date: 1 January 2017
Share capital 500 000 325 000 175 000
820 000 533 000 287 000
Goodwill 105 000 77 000 28 000
Consideration paid 925 000 610 000 315 000
Since acquisition to the beginning

of the current year
Current year:
1 Jan 2019 – 30 June 2019
Profit for the year (97 200 x 6/12) 48 600 31 590 17 010
Dividend paid – 31 May 2019 (40 000) (26 000) (14 000)
1 132 900 135 135 387 765
Change in degree of control
Total adjustment to NCI: (221 580)
Goodwill transferred (28 000 x 20/35) (16 000)
NAV transfer from non-controlling
interests
(359 765(287 000 + 69 755 + 17 010 -
14 000) x 20/35) or
(1 047 900(820 000 + 199 300+ 48 600
- 40 000) x 20/100) (205 580)
Change in ownership equity reserve 33 420
Current year:
1 July 2019 – 31 Dec 2020
1 181 500 610 000 176 445 173 475
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C3 Retained earnings closing balance R

Rooibos Ltd 650 500
Tea Ltd 519 300
At acquisition retained earnings (320 000)
Less: NCI share in since retained earnings
(199 300(519 300 - 320 000) x 35%) (69 755)
Opening balance for retained earnings 780 045
Current year:
Consolidated profit for the year
(138 600 + 97 200 - 26 000(div)(40 000 x 65%)) 209 800
Less: NCI’s share in profit of subsidiary
(17 010 (48 600(97 200 x 6/12) x 35%) + 7 290 (48 600 x 15%)) (24 300)
Dividend paid by parent (120 000)
Closing balance for retained earnings 845 545
C4 Non-controlling interests closing balance R

NCI at acquisition date (175 000(500 000 x 35%) x R1,80)) 315 000
Since acquisition to beginning of current year 69 755
Opening balance of NCI 384 755
Profit for first 6 months (1 Jan – 30 June)(97 200 x 6/12 x 35%) 17 010
Dividend paid (paid 31 May therefore us 35%) (40 000 x 35%) (14 000)
Profit for last 6 months(1 July – 31JDec)(97 200 x 6/12 x 15%) 7 290
Acquisition of additional interest by parent (C6)
(387 765 (315 000 (fair value) + 69 755 + 17 010 - 14 000) x 20/35) (221 580)
Closing balance for NCI 173 475
C5 Change in ownership R
Consideration transferred 255 000
Less: NCI amount adjusted
(387 765 (315 000 (fair value) + 69 755 + 17 010 - 14 000) x 20/35) (221 580)
33 240
Alternative approach:
C1 Profit attributable to the parent R
Profit for the year (138 600 + 97 200) 235 800
Less: Intragroup dividend received (40 000 x 65%) (26 000)
Elimination of intragroup sale of inventories (-100 000 + 100 000) -
Total consolidated profit for the year: 209 800
Less: NCI’s share in profit of subsidiary (C2) (24 300)
Parent’s share in current year profit 185 500
C2 NCI's share in the current year profit of subsidiary R

Adjusted profit of the subsidiary for the year 97 200
Apportion for 6/12 months 48 600
NCI’s share (48 600 x 35%) 17 010
Apportioned for 6/12 months 48 600
NCI’s share (48 600 x 15%) 7 290
NCI’s share in the profit for the year(17 010 + 7 290) 24 300
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C3 – Opening balance of retained earnings (Parent) R

Rooibos Ltd (given) 650 500
Subsidiary: Since acquisition date:
Movement in retained earnings (199 300(519 300 – 320 000) x 65%) 129 545
780 045
C4 – Opening balance of NCI R

At acquisition date:
NCI (given) 315 000
Since acquisition date:
Movement in retained earnings (519 300 - 320 000) 199 300
NCI’s share x 35% 69 755
Opening balance of NCI (315 000 + 69 755) 384 755
C5 – Adjustment to NCI due to change in control R

NCI column
(387 765(315 000 + 69 755 + 17 010 - 14 000) x 20/35) 221 580
A) Calculate the NAV that will transfer due to change in ownership

NCI column
(359 765 (287 000 + 69 755 + 17 010 -14 000) x 20/35) 205 580
Total Column
[1 047 900 (820 000 + 199 300 + 48 600(97 200 x 6/12)) - 40 000) x 20/100] 205 580
B) Calculate the goodwill that transfers due to change in ownership

NCI’s share in NAV at acquisition date (820 000 x 35%) (287 000)
NCI at acquisition date at fair value 315 000
Goodwill attributable to NCI 28 000
Goodwill that transfers (28 000 x 20/35) 16 000

(205 580(A) +16 000(B)) 221 580
C6 – Change in amount of NCI due to change in ownership

Less: Adjustment to NCI (221 580)
33 420
8
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FAC3762/202
QUESTION 3
Debit Credit
R R
J1 Investment in associate, Cream Ltd 59 400
Investment in Cream Ltd at cost 59 400
Reclassification of investment at cost to investment in
associate in terms of the equity method.
J2 Investment in associate, Cream Ltd (SFP) 75 600
Retained earnings – Beginning of the year (SOCIE)
(65 000 - 20 000) x 40% 18 000
Share in profit of associate (P/L)
(100 000 x 40%) 40 000
Share in other comprehensive income of associate (OCI)
(55 000 x 40%) 22 000
Dividends received/Other income (P/L) (11 000 x 40%) 4 400
Accounting of associate
J3 Retained earnings – Beginning of the year (SOCIE)(2 160 -
605) 1 555
Deferred tax (asset) (SFP) ((3 600– 1 440) x 28%) 605
Equipment (SFP) (27 000 x 50/150 x 40%) 3 600
Accumulated depreciation on equipment (SFP) 1 440
(720(3 600 x 20%) x 2 years or (720(3 600/5 years) x 2 years
Correction of retained earnings at the beginning of the year
due to unrealised profit included in equipment of Cream Ltd
J4 Accumulated depreciation on equipment (SFP) 720
(3 600 x 20%)
Share in profit of associate (P/L) 720
Realisation of unrealised profit in the current year through
depreciation
J5 Share in profit of associate (P/L) 202
Deferred tax (asset) (SFP) (720 x 28%) 202
Tax implications of realisation of unrealised profit through
depreciation
Alternative journal entries for J2:

J2a Investment in associate, Cream Ltd (SFP) 18 000
Retained earnings – Beginning of the year (SOCIE) 18 000
(65 000 - 20 000) x 40%
Accounting of the since acquisition to beginning of the year
retained earnings.
J2b Investment in associate, Cream Ltd (SFP) 22 000
Share in other comprehensive income of associate (OCI)
(55 000 x 40%) 22 000
Accounting of other comprehensive income of associate
J2c Investment in associate, Cream Ltd (SFP) 40 000
Share in profit of associate (P/L) (100 000 x 40%) 40 000
Accounting of profit of associate
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Debit Credit
R R
J2d Dividends received/Other income (P/L) (11 000 x 40%) 4 400
Investment in associate, Cream Ltd (SFP) 4 400
Elimination of dividend received from the associate
Calculations
C1 - Analysis of owner’s equity of Cream Ltd
Cookies Ltd
100% 40% 40%
Total At Since Carrying
R R R amount
R
At acquisition date
130 000 52 000
Goodwill (7 400)
Since acquisition to beginning of

the current year
Retained earnings
(65 000 - 20 000) x 40%) 40 000 18 000 18 000
Current year
Realisation of unrealised profit
through depreciation
(9 000(27 000 x 50/150) x 20%) 1 800 720 -
Tax effect on realisation of
unrealised profit (1 800 x 28%) (504) (202) -
Dividends paid (11 000) (4 400) (4 400)
Other comprehensive income –
revaluation of land 55 000 22 000 22 000
264 000 53 600 RE 135 000
22 000 RS
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QUESTION 4
Journal entries
Dr Cr
1 January 2016 R R
J1A Financial asset at amortised cost: bonds (SFP) 48 000
Bank/Cash (SFP) 48 000
Recording of 1 000 R50 10% bonds at fair value
J1B Financial asset at amortised cost: bonds (SFP) 350
Bank/Cash (SFP) 350
Recording of transaction costs incurred on purchase of
bonds
J1A and J1B can be combined in one journal as follows
J1 Financial asset at amortised cost: bonds (SFP)
(48 000 + 350) 48 350
Bank/Cash (SFP) 48 350
Recording of 1 000 R50 10% bonds at fair value
31 December 2016
J2 Bank/Cash (SFP) 5 000
Financial asset at amortised cost: bonds (SFP) 350
Interest income (P/L) (48 350 x 11,065%) 5 350
Subsequent measurement of bonds at amortised cost
(Interest earned on bonds and cash received)
31 December 2017
Interest income (P/L) (48 700(48 350 + 350) x 11.065%) 5 389
31 December 2018
Interest income (P/L) (49 089(48 700 + 389) x 11.065%) 5 432
JOURNAL ENTRIES FOR 2017 AND 2018

The journal entries for 2017 and 2018 were not required.
11
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Dr Cr
R R
31 December 2019
Interest income (P/L) (49 521(49 089 + 432) x 11,065%) 5 479

Financial asset at amortised cost:
bonds (SFP) 50 000
Settlement of bonds on maturity date
Calculations:
C1 Amortisation table for the corporate bonds:
Date Opening Closing
balance Payments Effective interest balance
R R R R
31 December 2016 48 350 (5 000) (48 350 x 11.065%) 48 700
= 5 350
31 December 2017 48 700 (5 000) (48 700 x 11.065%) 49 089
= 5 389
31 December 2018 49 089 (5 000) (49 089 x 11.065%) 49 521
= 5 432
31 December 2019 49 521 (5 000) (49 519 x 11.065%) 0
(50 000) = 5 479
CALCULATING THE EFFECTIVE INTEREST RATE
If the effective interest rate was not given in the question, it would be
calculated as follows:
1 P/YR
PV = - 48 350 (48 000 (fair value) + 350 (transaction costs)
FV = 50 000
N=4
Pmt = R50 x 1 000 = R50 000 x 10% = 5 000
I = ? = 11,065%
Ref: / FAC3762_2020_TL_202_0_B.pdf
©
UNISA 2020
12
R1,135 per month?
FAC3762/2021
Assignment 1
WRITTEN ASSIGNMENT
Study:
➢ Learning units 1 to 4 of tutorial letters 102 to 103; and
➢ Chapters 1 to 8 of Group Statements – Volume 1; and
➢ Chapters 9 to 12 of Group Statements – Volume 2
You have been appointed as the Group financial accountant of the Brick Ltd Group. The
accountants of the three separate entities provided you with the following trial balances
and additional information for the year ended 30 June 2020:
Brick Cement Tile

Ltd Ltd Ltd
R R R
Debits
Property, plant and equipment - carrying amount 4 340 000 2 320 000 1 335 000
- Investment in Cement Ltd - cost ........................ 1 054 000 - -
- Investment in Tile Ltd - cost............................... 74 350 - -
Trade and other receivables ................................. 744 000 478 400 132 000
Cash and cash equivalents .................................. 1 240 000 - 33 000
Inventories ............................................................ 992 000 339 200 396 000
Cost of sales ........................................................ 3 720 000 1 272 000 1 452 000
Other expenses .................................................... 942 400 322 240 198 000
Income tax expense.............................................. 1 881 824 645 837 369 600
Ordinary dividends paid – 30 June 2020 .............. 496 000 50 000 132 000
15 484 574 5 427 677 4 047 600
Credits
Share capital:
- 500 000 ordinary shares .................................... 1 500 000 - -
- 420 000 ordinary shares .................................... - 840 000 -
- 280 000 ordinary shares .................................... - - 280 000
Retained earnings – 1 July 2019 .......................... 1 968 974 399 437 72 600
Deferred tax .......................................................... 74 400 25 440 -
Trade and other payables ..................................... 558 000 212 000 725 000
Bank overdraft ...................................................... - 50 000 -
Revenue ............................................................... 11 160 000 3 816 000 2 640 000
Other income ........................................................ 223 200 84 800 330 000
15 484 574 5 427 677 4 047 600

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FAC3762/2021
Assignment 1
1. Transactions between Brick Ltd and Cement Ltd
1.1. On 1 May 2018, Brick Ltd acquired control over Cement Ltd by acquiring 80% of the
issued ordinary shares of Cement Ltd when the retained earnings of Cement Ltd
amounted to R208 000. This amount was verified as correct by the financial director
of the Brick Ltd Group. On the acquisition date, all the identifiable assets and liabilities
of Cement Ltd were considered to be at their fair value, with the exception of land
which had a carrying amount of R148 000 and a fair value of R178 000. The valuators
priced Cement’s shares at R2.60 per share.
1.2. From 1 May 2018, Brick Ltd purchased inventory from Cement Ltd. All inventory sold
by Cement Ltd are with a profit margin of 25% on cost price. You may assume that
the inventory on hand at year-end in the accounting records of Brick Ltd was sold to
outside parties in the first month of the following year.
The following extracts were provided by the accountant of Brick Ltd:
Year ended Year ended

30 June 2019 30 June 2020
Purchases by Brick Ltd from Cement Ltd R640 000 R1 825 000
Inventory on hand – Brick Ltd R150 000 R400 000
2. Transactions between Brick Ltd and Tile Ltd
2.1. On 1 April 2019, Brick Ltd acquired 70 000 of the 280 000 issued ordinary shares in
Tile Ltd for a cash amount of R74 350. At the date of acquisition, the retained
earnings of Tile Ltd amounted to R40 000. All the identifiable assets and liabilities of
Tile Ltd were fairly valued. From 1 April 2019, Brick Ltd exercised significant influence
over the financial and operating policy decisions of Tile Ltd.
2.2. From 1 April 2019, Tile Ltd sold inventory to Brick Ltd at a profit mark-up of 40% on
the selling price. You may assume that the inventory on hand at year-end in the
accounting records of Brick Ltd was sold to outside parties in the first month of the
following year.
2.3. From 1 January 2020, Tile Ltd purchased bricks from Brick Ltd. Brick Ltd sold the
inventory at a profit margin of 20% on the selling price. At year-end 30 June 2020,
Tile Ltd still had inventory amounting to R75 000 on hand. Total sales up to 30 June
2020 amounted to R400 000.

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FAC3762/2021
Assignment 1
3. Other information
3.1. The Bricks Ltd Group measures non-controlling interest at fair value on acquisition.
3.2. The goodwill that arose on acquisition of Cement Ltd was tested for impairment on
30 June 2020 and was found to be impaired by R22 580.
3.3. The consolidated comprehensive income of the Bricks Ltd Group for the current
year amounted to R6 598 159. This amount is correct.
3.4. Brick Ltd’s bank account is held with Trust Bank, while Cement Ltd’s bank account
is held with Lead bank.
3.5. Brick Ltd measures investments in subsidiaries and investments in associates in its
separate financial statements at cost in accordance with IAS 27, Separate Financial
Statements and IAS 28, Investment in Associates, respectively.
3.7. South Africa’s normal tax rate is 28% and capital gains tax is calculated at 80%
thereof. You may assume that both the tax rates have remained unchanged since
1 May 2018.
3.8. All the companies in the Brick Ltd Group have a 30 June year end.
3.9. Each share carries one vote and the issued share capital of all entities in the group
remained unchanged since 1 May 2018.

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FAC3762/2021
Assignment 1
REQUIRED:
Marks
(a) Write an e-mail to the financial director of the Brick Ltd Group, Ms Samuels,
explaining how to account for the bank balance of Brick Ltd and the bank 5
overdraft of Cement Ltd, in the consolidated statement of financial position
of the Brick Ltd Group as at 30 June 2020. Clearly indicate the correct
presentation of these items and when offsetting of these items is permitted.
(b) Prepare the consolidated statement of changes in equity of the
Brick Ltd Group for the year ended 30 June 2020. 21
(c) Prepare the consolidated statement of financial position of the
Brick Ltd Group for the year ended 30 June 2020. 24
[50]
Please note:

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FAC3762/201
3 SUGGESTED SOLUTION TO COMPULSORY ASSIGNMENT 01/2021
PART A
To: Ms Samuels
From: Group Financial Accountant
Date: 31 March 2021
Subject: Treatment of bank overdraft on consolidation
Dear Ms Samuels
Regarding your query relating to the presentation of the consolidated bank accounts of the Bricks
Ltd Group:
According to IAS 1 an entity is not allowed to offset assets and liabilities unless required or permitted
by an IFRS. On consolidation the bank overdraft of one entity should only be set off against the
favourable bank balance of another entity in the group, if both entities have their account at the same
bank and when all of the following conditions have been met:
• the bank itself would set off the two accounts against each other in terms of an agreement
(or legal enforceable right) between the two entities concerned and the bank, AND
• the group has the intention to settle the accounts on a net basis
Bricks Ltd is banking with Trust Bank while Cement Ltd is banking with another/different bank, XYZ
Bank. Therefore, none of the above requirements are met, and the bank accounts cannot be offset
against each other at consolidation.
The favourable bank balance of Bricks Ltd of R1 240 000 should be presented as cash and cash
equivalents as part of current assets in the asset section of the consolidated statement of financial
position as at 30 June 2020.
The bank overdraft of Cement Ltd of R60 000 should be presented as bank overdraft as part of
current liabilities in the liabilities section of the consolidated statement of financial position as at
30 June 2020.
Hope you find the above in order, and please contact me if there is any unclarity regarding the above.
Kind regards
Group Financial Accountant
PART B
Bricks Ltd Group

Consolidated statement of changes in equity for the year ended 30 June 2020
Non-
Retained controlling
Share Capital Earnings interest
R R R
Opening balance 1 500 000 2 118 644 C1 252 367 C2
Total comprehensive income
for the year
- Profit for the year 6 282 590 C3 320 429 C4
Dividend paid (496 000) (10 000)
Closing balance 1 500 000 7 905 234 562 796

R1,135 per month?
Calculations
C1 - Opening balance - Retained earnings

Bricks Ltd
Opening retained earnings (given) 1 968 974
Excess of fair value above cost at acquisition of Associate [(280 000 + 40 000) x
(70 000/280 000)] – 74 350 5 650
Parent’s share in the profit of Associate since acquisition to the beginning of the
current year (72 600 – 40 000) x 25% 8 150
1 982 774 (A)
Cement Ltd
Movement in Retained earnings
(Since acquisition - Beginning of current year) (399 437 – 208 000) 191 437
Unrealised profit - Sub sell to parent (150 000 x 25/125) (30 000)
Tax on unrealised profit (30 000 x 28%) 8 400
169 837
Parent's share (169 837 x 80%) 135 870 (B)
Total (A + B) 2 118 644
C2 - Opening balance – Non-controlling interest

Cement Ltd
At acquisition (420 000 x 20% x 2.60) 218 400 (A)
Movement in Retained earnings (399 437 – 208 000) 191 437

Unrealised profit (-30 000 + 8 400) (21 600)
169 837
NCI share (169 837 x 20%) 33 967 (B)
Total (A + B) 252 367
C3 - Profit for the year

Profit for the year - Bricks Ltd Group 6 603 019
Less NCI (320 429) (C4)
6 282 590
C4 - NCI profit
Profit for the year (3 816 000 +84 000 – 1 272 000 - 322 240 – 645 837) 1 660 723
Opening inventory - realised profit (30 000 – 8400) 21 600

Closing inventory - unrealised profit (400 000 x 25/125 x 72%) (57 600)
Goodwill impairment (22 580)
1 602 143
NCI share – 20% 320 429
4
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PART C
BRICKS LTD GROUP
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2020
ASSETS
Non-current assets R
Property, plant and equipment (4 340 000 + 2 320 000 + 30 000) 6 690 000
7 157 540
Current assets
Inventory (C3) 1 251 200
Trade and other receivables (744 000 + 478 400) 1 222 400
Cash and cash equivalents 1 240 000
3 703 600
Equity and liabilities

Retained earnings 7 905 234
Equity attributable to owners of parent 9 405 234
Deferred tax liability (C4) 83 110
Current liabilities
Trade and other payables (558 000 + 212 000) 770 000
Bank overdraft 50 000
820 000
Total equity and liabilities 10 871 140

R1,135 per month?
CALCULATIONS
Calculation 1
(C1) R
Investment in associate - Cost 74 350
Gain on bargain purchase (part b) 5 650
Retained earnings movement (part b) 8 150
Share of profit from associate (950 400 x 25%) 237 600
Dividend paid (132 000 x 25%) (33 000)
Unrealised profit from sale of inventory (75 000 x 25% x 20%) (3 750)
Investment in associate at year end 289 000
Calculation 2
(C2) R
Retained earnings at acquisition 208 000
Land – fair value 23 280
Non-controlling interest (218 400)
Investment in subsidiary (1 054 000)
Goodwill at acquisition 201 120

Goodwill impairment (22 580)
Goodwill balance at year end 178 540
Calculation 3
(C3) R
Parent 992 000
Subsidiary 339 200
Unrealised profit in closing inventory – Cement Ltd sold to Bricks Ltd
(400 000 x 25/125) (80 000)
1 251 200
Calculation 4
(C4) R
Parent 74 400
Subsidiary 25 440
Deferred tax on land adjustment at acquisition (30 000 x 22.4%) 6 720
Unrealised profit in closing inventory – Cement Ltd sold to Bricks Ltd
(80 000 x 28%) (22 400)
Unrealised profit in closing inventory – Bricks Ltd sold to Tiles Ltd
(3 750 x 28%) (1 050)
83 110
Ref:/ FAC3762_2021_TL_201_0.pdf
6
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Lecturer’s comment
The analysis of equity for Cement and Tile are provided for tuition purposes. The analysis are
workings and are not the solution.
Analysis of owner’s equity of Cement Ltd (subsidiary)

100% 80% 20%
At acquisition date Total Bricks Ltd NCI
Share capital 840 000 672 000 168 000
Land 30 000 24 000 6 000
Deferred tax (6 720) (5 376) (1 344)
1 071 280 857 024 214 256
Equity represented by goodwill 201 120 196 876 4 144
Purchase consideration 1 272 400 1 054 000 218 400
Since acquisition to the beginning of the

current year 169 837 135 870 33 967
Retained earnings (399 437 - 208 000) 191 437 153 150 38 287
Unrealised profit included in opening inventory,
net after tax (150 000 x 20% x 72%)
(21 600) (17 280) (4 320)
Current year
Profit for the year 1 660 723 1 328 579 332 145
Realisation of unrealised profit included in
opening inventory realised, net after tax 21 600 17 280 4 320
(150 000 x 20% x 72%)
Unrealised profit included in closing inventory (57 600) (46 080) (11 520)
(400 000 x 20% x 72%)
Goodwill impaired (22 580) (18 064) (4 516)
Dividend paid (50 000) (40 000) (10 000)

1 513 454 572 796

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Analysis of owner’s equity of Tile Ltd (associate)

R R R R
At acquisition date
320 000 80 000
Gain on bargain (74 350) 74 350

Accumulated profit (72 600 – 40 000) 32 600 8 150 8 150
Current year
Dividends paid (132 000) (33 000) (33 000)
Unrealised profit in inventory (75 000 x
25% x 20%) (Parent sells to Associate)
(3 750)
©
UNISA 2021
8
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FAC 3762/2021
Assignment 2
WRITTEN ASSIGNMENT
Study:
➢ Learning units 1 to 11 of tutorial letters 102 to 106.
QUESTION 1
Plastico Ltd is a manufacturer of plastic products. It was established in 1990 and has operated
in the Gauteng area with a footprint across South Africa. The entity has a 31 December year
end. The following transactions occurred during the 2020 financial year.
Construction of plant
Due to the outbreak of the COVID-19 virus, the directors of the company decided to erect a
new plant for the production of plastic containers to be used for the bottling of hand sanitisers.
The new plant cost the company R4 500 000 (excluding interest) to erect and was financed by
the issue of 4 000 convertible debentures at their fair value of R1 000 each, while the remaining
R500 000 was paid for in cash. The debentures have a face value of R1 000 each and bear
interest at a fixed coupon rate of 9.5% per annum compounded bi-annually in arrears. The
coupon interest is payable bi-annually in arrears on 31 August and 28 February of each year.
The plant is a qualifying asset in terms of IAS 23, Borrowing costs.
The debentures were issued on 1 March 2020 and are convertible at the option of Plastico Ltd
on 28 February 2024 at a ratio of one share for every fifty debentures held. Any debentures not
converted on 28 February 2024 will be redeemed at their fair value on the same date. A market
related interest rate for similar debentures without a conversion option is 11% per annum,
compounded bi-annually.
Construction of the plant started on 1 February 2020. The expenses were incurred as follows:
1 February 2020 R500 000
1 March 2020 R2 000 000
1 May 2020 R2 000 000
Total R4 500 000
Interest earned on excess funds amounted to R18 546 for the period. The plant was ready for
use on 30 November 2020 but was only brought into use on 4 January 2021 when the entity
commenced its operations at the start of the year.

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FAC 3762/2021
Assignment 2
Contract with MIT Ltd

On 1 May 2020, Plastico Ltd entered into a lease agreement with MIT Ltd, a manufacturer of
industrial generators, to lease a generator with a fair value of R1 000 000. The generator was
used in the construction of the plant. The directors of Plastico Ltd decided to keep the generator
after the completion of the plant to use during loadshedding.
The terms of the lease agreement are as follows:
Commencement date 1 May 2020
Lease term 5 years
Interest rate (compounded bi-annually in arrears) 13,2% per annum
Lease instalments (payable bi-annually in arrears) R132 381
A market related interest rate for similar lease agreements was 16% per annum on 1 May 2020.
Plastico Ltd will have exclusive use of the generator and will determine when where and how
the generator will be used. Plastico Ltd is responsible for the maintenance and insurance of the
generator. Ownership of the generator will be transferred to Plastico Ltd at the end of the lease
term at the guaranteed value of R100 000. MIT Ltd paid commission of R50 000 to its sales
representative and Plastico Ltd incurred legal fees of R10 000 in relation to the lease
agreement.
The manufacturing costs of the generator was R750 000 and the present value of the
unguaranteed residual value was R23 160 on 1 May 2020.
Accounting policy
The company depreciates its assets using the straight-line method over the expected useful
lives of the assets. The expected useful lives of the plant and generator are ten and six years
respectively. The plant has no residual value for depreciation purposes at the end of its useful
life.
Investment in Multico Ltd
Plastico Ltd acquired 1 000 ordinary shares in Multico Ltd for R100 000 on 1 January 2020.
Broker fees of R2 000 were incurred by Plastico Ltd. The fair value of the shares was R103 000
at the time of the acquisition. Multico Ltd’s shares traded at R110 per share on
31 December 2020.
The investment in Multico Ltd was irrevocably designated as measured at fair value through
other comprehensive income on 1 January 2020.

R1,135 per month?
FAC 3762/2021
Assignment 2
REQUIRED:
Marks
(a) Disclose the plant and the lease in the notes to the annual financial
statements of Plastico Ltd for the year ended 31 December 2020. 44
(b) Present the effects of the investment in the shares of Multico Ltd for the
financial year ended 31 December 2020 of Plastico Ltd in the extracts of:
• the statement of profit or loss and other comprehensive income; and

• the statement of financial position. 7
(c) Discuss in terms of IFRS 16 Leases, the initial measurement of the lease
agreement in the accounting records of MIT Ltd on 1 May 2020.
Your discussion must include all relevant calculations. 9

TOTAL [60]
Please note:
Your answers must comply with the requirements of International Financial

All percentages must be rounded to four decimal places and all amounts to the
nearest Rand.

R1,135 per month?
FAC 3762/2021
Assignment 2
QUESTION 2
Milly Ltd is a company specialising in textile production and was established in 2004. It supplies
companies as well as entrepreneur designers with quality fabric in various prints from the
continent. You are the Group financial accountant for the Milly Ltd Group. You have been
provided with the trial balances and relevant information of the entities in the Milly Group.
Below are extracts of the trial balances of the companies in the Milly Ltd Group.
Extracts of the Trial balances for the year ended 28 February 2021
Mask (Pty)
Milly Ltd Dapper Ltd Ltd
Dr / (Cr) Dr/ (Cr) Dr / (Cr)
Property, plant and equipment - Cost 5 595 287 963 846 1 560 000
Investments in equity instruments: -
– Dapper Ltd at cost 704 000 - -
– Mask Ltd at cost 471 200 -
– Other investments at fair value 154 000 - -
Trade and other receivables 1 571 000 554 774 76 200
Inventory 2 250 000 960 000 87 000
Cost of sales 2 625 000 2 400 000 203 750
Other expenses 1 262 500 451 334 119 400
Ordinary dividend paid - 1 February 2021 300 000 400 000 163 000
Share capital – 500 000 ordinary shares (3 000 000) - -
Share capital – 100 000 ordinary shares - (200 000) -
Retained earnings – 1 March 2020 (4 471 112) (710 000) (1 063 600)
Mark-to-market reserve (26 384)
Plant and equipment - Accumulated
depreciation (687 500) (316 000) -
Deferred tax liability (70 558) (25 000) -
Trade and other payables (1 935 817) (102 920) (276 230)
Revenue (5 000 000) (4 800 000) (667 200)
Other income (712 500) (286 666) (293 400)
- - -
Dapper Ltd
On 1 September 2019, Milly Ltd obtained control of Dapper Ltd by acquiring an 80% share of
Dapper Ltd’s share capital. The purchase consideration was settled as following:
• Cash of R200 000
• A property, with a carrying amount of R440 000 which had a fair value of R504 000.

R1,135 per month?
FAC 3762/2021
Assignment 2
At the date of acquisition, the retained earnings balance was R585 950. All the assets and
liabilities were fairly valued except for the following assets:
Carrying Fair value
Amount
Land 490 000 560 000
Trade receivables 95 000 76 000
Inventory 840 000 773 000
Dapper Ltd’s applies the cost model on all its property, plant and equipment. On 1 April 2020,
Dapper Ltd sold the land (which was revalued at acquisition) to an external party for an amount
of R 545 000. The fair value of the land did not significantly change from the time of acquisition
till the date of sale.
Dapper Ltd sold one of its industrial sewing machines to Milly Ltd on 1 September 2020 for
R300 000. The machine’s carrying amount was R250 000 at the time of sale with a remaining
useful life of 5 years. The residual value of the machine is insignificant. The transaction will be
settled in four equal instalments. At year end, Milly Ltd had settled only 25% of the balance.
The amount will be settled before the end of the 2022 financial year.
On 9 September 2021, Milly Ltd sold 20% of its share in Dapper Ltd to the non-controlling
shareholders for R185 000.
Mask (Pty) Ltd
On 1 December 2020, Milly acquired shares in a company called Mask (Pty) Ltd, an entity that
produces and sells fabric masks and other items of protective accessories. It paid R471 200 for
a 40% share in the entity. According to the agreement, decisions in a shareholder’s meeting
require the unanimous consent of all the shareholders. The remaining 2 shareholders who
collectively own 60% of the voting rights cannot pass any decisions without Milly Ltd’s vote. At
this date, the assets and liabilities of Mask (Pty) Ltd were fairly valued.
During January 2021, Mask (Pty) Ltd started selling fabric to Milly Ltd. The mark-up on cost is
20%. By the end of February 2021, Milly Ltd had purchased inventory of R75 000 from Mask.
25% of the total inventory purchased was still on hand as at 28 February 2021.
Other investments
Milly Ltd holds various investments listed on the stock exchange. The percentage holding for
these investments is less than 10% and these are not held for trading. The investments are
measured at fair value through other comprehensive income. The accountant has not
processed the fair value adjustments for the 2021 year.
Investments - 28 February 2021 120 000 162 000

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FAC 3762/2021
Assignment 2
Other information
• The Milly Group measures non-controlling interests at their proportionate share of the
acquiree’s identifiable net assets at the acquisition date.
Milly Ltd’s separate financial statements.
• The Milly Group applies IAS 16 - Revaluation model for owner-occupied land and
IAS 16 – Cost model for buildings, plant and equipment.
• SA normal tax is 28% and the CGT inclusion rate is 80%. You may assume that both tax
rates have remained unchanged since 1 January 2018.
• You may assume that profits have been earned evenly throughout the year.
• Goodwill has never been impaired.
• All the companies in the Milly Ltd Group have a 28 February year end.
REQUIRED
Prepare the pro-forma journal entries that the Milly Group will process for the
following transactions that occurred during the 2021 financial year.
a)
• The sale of machinery to Milly Ltd from Dapper Ltd
12
• The sale of inventory to Milly Ltd from Mask (Pty) Ltd
Prepare consolidated statement of profit and loss and other comprehensive
b) 22
income of the Milly Group for the year ended 28 February 2021.
Discuss the impact the sale transaction on 9 September 2021 will have on
the Milly Group.
c)
Your discussion should include how the Milly Group will account for this 5
transaction in the 2022 financial year.
TOTAL [40]
Please note:
Your answer should comply with the requirements of International Financial
Notes to the annual financial statements and comparatives are not required.

R1,135 per month?
3 SUGGESTED SOLUTION TO ASSIGNMENT 02/2021
QUESTION 1
PART A
PLASTICO LTD
2020
R

Plant
Cost -
Additions (4 500 000 + 100 379) 4 600 379
Borrowing costs capitalized (C5) 150 000
Carrying amount at end of year 4 710 793
Cost 4 750 379
5. Leases
5.1 Right-of-use asset
Additions (C4) 1 032 474
Carrying amount at end of year 917 755
5.2 Maturity analysis of future lease payments outstanding at reporting

date
For the year ended 31 December 2021 (132 381 x 2) 264 762
For the year ended 31 December 2025 (132 381 + 100 000) 232 381
Total future finance costs (1 291 429 – 972 520) (318 909)
Lease liability 972 520
Short term portion presented under current liabilities (972 520 – 817 331) 155 189
Long term portion presented under non-current liabilities 817 331
5.3 Total cash outflows relating to leases

Cash payment of principle portion of lease liabilities (132 381 - 62 888) 69 493
Cash payment of legal fees 10 000
Cash payment of interest portion of lease liabilities 62 888
4
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FAC3762/203
PART B
PLASTICO LTD
EXTRACT FROM THE STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
2020
R
Revenue XXXX
Other income
Fair value gain on equity investment / financial assets (103 000 – 102 000) 1 000
Cost of sales (XXX)

Other expenses (XXX)
Finance costs (XXX)
Profit before tax for the year (XXX)
Taxation XXX
Profit for the year XXX
Items that may never be reclassified to profit and loss
Fair value gain on equity investment / financial assets [(110 x 1 000) – 103 000] 7 000
Total comprehensive income for the year XXX
PLASTICO LTD
EXTRACT FROM THE STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2020
2020
R
ASSETS
Non-current assets
Investment in Multico Ltd shares (110 x 1 000) 110 000
Share capital and reserves XXX
Share capital XXX
Share revaluation reserve 7 000
PART C
The Conceptual Framework requires financial statements to be faithfully presented. Faithful

presentation refers inter alia to the depiction of substance over form. In terms of IFRS 16, Leases
the risks and rewards of ownership are transferred from the lessor (MIT Ltd) to the lessee (Plastico
Ltd). The substance of the transaction therefor represents a sale rather than a proper lease.
Additional to the sale, the seller (MIT Ltd) provides financing to the purchaser (Plastico Ltd) to finance
the purchase.
5

R1,135 per month?
MIT Ltd is a manufacturer of industrial generators. This means that the company’s normal operating
activities involve dealing in generators that it has manufactured. Thus the asset sold under the
finance lease is inventory and not property, plant and equipment.
The inventory must be derecognised and therefor also means that a cost of sales expense must be
recognized. In terms of IFRS 16, Leases, the cost of sales expense must be measured at:
• the cost of the underlying asset (the generator) less

• the present value of any unguaranteed residual value.
The cost of sales in this instance will then be R726 840 (R750 000 – R23 160)
The standard also requires that revenue must be recognised on the sale. The revenue must be
measured as follows:
• the lower of the fair value of the underlying asset and

• the present value of the lease payments, discounted at the market interest rate.
The present value of the lease payments is as follows:
N = 10
I = 16% p.a
PMT = R132 381
FV = R150 000
PV = ? = R957 766
IFRS 16, Leases also stipulates that the initial direct costs (the commission of R50 000) be expensed
in profit or loss.
CALCULATIONS
1. Liability component of convertible debentures
N = 4x2=8
PMT = 190 000(4 000 x 1 000 x 9,5% x 6/12)
I = 11%
FV = 0
PV = ? = R1 203 568
2. Interest rate implicit in the lease
N = 5 x 2 = 10
PV = 1 050 000 (1 000 000 + 50 000)
FV = 150 000 (100 000 + 50 000)
PMT = 132 381
I = 6,1506% - Therefore, yearly rate = 12,3012%
3. Present value of lease liability
N = 10
PMT = 132 381
I = 6.1506 %
FV = 100 000
PV = ? = R1 022 474
4. Right of use asset

Initial measurement 1 022 474
Initial direct costs 10 000
1 032 474
6
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FAC3762/203
5. Borrowing costs capitalised

Debentures - 31 Aug (1 203 568 x 11% x 6/12) 66 196
Debentures - 30 Nov [R1 079 764 (1 203 568 – 190 000 + 66 196) x 11% x 3/12] 29 693
Lease - 31 Oct (1 022 474 x 12,3012% x 6/12) 62 888
Lease - 30 Nov [(1 022 474 – 132 381 + 62 888) x 12,3012% x 1/12] 9 769
168 546
Interest received (18 546)
6. Depreciation on right of use asset

Gross carrying amount (C4) 1 032 474
Depreciation (1 032 474 /6 x 8/12) (114 719)
Net carrying amount on 31 December 2020 917 755
7. Depreciation on plant
Construction costs 4 500 000
Borrowing costs capitalised - debentures (66 196 + 29 693 – 18 546) 77 343
Borrowing costs capitalised - lease (62 888 + 9 769) 72 657
Depreciation - right-of-use asset (114 719 (C6) x 7/8) 100 379
Depreciable amount 4 750 379
Depreciation on plant (4 750 379 /10 x 1/12) (39 586)
Net carrying amount on 31 December 2020 4 710 793
Amortisation table
Date Interest Instalments Capital Balance
12,3012%
1 May 2020 1 022 474
31 October 2020 (1) 62 888 132 381 69 493 952 981
31 December 2020 (2) 19 538 972 520
30 April 2021 (3) 39 076 132 381 73 767 879 215
31 October 2021 (4) 54 076 132 381 78 304 800 911
31 December 2021 (5) 16 420 817 331
(1) 1 022 474 x (12,3012% x 6/12) = 62 888

(2) 952 981 x (12,3012% x 2/12) = 19 538
(3) 952 981 x (12,3012% x 4/12) = 39 076
(4) 879 215 x (12,3012% x 6/12) = 54 076
(5) 800 911 x (12,3012% x 2/12) = 16 420

R1,135 per month?
QUESTION 2
PART A
Dr Cr
R R
Other income (P/L) (R300 000 – R250 000) 50 000

Equipment (SFP) 50 000
Elimination of unrealised profit on sale of machine
Deferred tax (SFP) (R50 000 x 28%) 14 000
Income tax expense (P/L) 14 000
Tax effect of unrealised profit on sale of machine
Accumulated depreciation (PPE) (R50 000/60 x 6) 5 000
Other expenses/depreciation (P/L) 5 000
Realisation of unrealised profit on sale of machine through the use of
the asset
Income tax expense (R5 000 x 28%) 1 400
Deferred tax (SFP) 1 400
Tax effect on realisation of profit on sale of machine through
depreciation
Non-controlling interest (SFP) (50 000 x 72%) – (5 000 x72%) x 20% 6 480
Non-controlling interest (P/L) 6 480
Non-controlling interest's share in the unrealised profit on sale of
machine
Trade payables (SFP) (R300 000 x 75%) 225 000
Trade receivables (SFP) 225 000
Elimination of intercompany debtor and creditor
Share of profit from joint venture [25%x (R75 000 x 20/120) x 40%] 1 250
Elimination of unrealised profit on sale of inventory
Deferred tax (SFP) (R1 250 x 28%) 350
Tax effect of unrealised profit on sale of inventory
PART B
MILLY LTD GROUP

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 28 FEBRUARY 2021
R
Revenue ((5 000 000 + 4 800 000) 9 800 000
Cost of sales (2 625 000 + 2 400 000) (5 025 000)
Other income (C1) 493 966
Other expenses (1 262 500 + 451 334 - 5 000) (1 708 834)
Share of profit from joint venture (C2) 207 775
Income tax expense (C3) (1 050 646)

Other comprehensive income for the year, net of tax
8
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FAC3762/203
Fair value adjustment on investments in equity instruments, net after tax (8 000 x
22.4%) 6 208

Non-controlling interests (145 520 x 20%) 29 104
2 723 469
Total comprehensive income attributable to:

2 723 469
Calculations
C1 Other income
Dapper Ltd 712 500
Milly Ltd 286 666
Less:
Dividend income – Dapper Ltd (400 000 x 80%) (320 000)
Dividend income – Mask Ltd (163 000 x 40%) (65 200)
Profit on sale of equipment (50 000)
Reversal of land adjustment (70 000)
493 966
C2 Share of profit of joint venture

Profit (3 months)
(667 200 +293 400 - 203 750 -119 400 - 150 486) x 3/12 x 40% 48 696
Gain on bargain purchase
[150 000 +1 063 600 + 365 223 (Profit 9 months)] x 40%- 471 200 160 329
Intercompany sale of inventory (3 125 x 40%) (1 250)
207 775
C3 – Income tax expense

Dapper Ltd 537 384
Milly Ltd 541 892
Tax on profit on sale - machinery (14 000)
Tax on depreciation adjustment 1 400
Tax on profit on sale – inventory (350)
Reversal of land deferred tax (70 000 x 22.4%) (15 680)
1 050 646
PART C
The sale transaction where Milly sold a portion of the shares to other shareholders did not result in
a loss of control.
IFRS 10 classifies these types of transactions as a transaction between equity owners of the
subsidiary.
Milly would have recorded a profit on sale of on the disposal of the shares of R44 200 (185 000 –
9

R1,135 per month?
140 800 (704 000 x 20%) which will need to be reversed in the Group financial statements
A group adjustment will need to be calculated between the group value equating 20% of the value
of Dapper and the R180 000.
The group adjustment is not a profit but is recorded as an equity adjustment, either in retained
earnings or in a separate equity reserve.
(The analysis of owners’ equity was not required in the question; this is provided for tuition purposes
only.)
Analysis of owner’s equity of Dapper Ltd
Milly Ltd
100% 80% 20%
Share capital 200 000 160 000 40 000
Retained earnings at acquisition 585 950 468 760 117 190
Land adjustment (560 000 – 490 000) 70 000 56 000 14 000
Deferred tax (70 000 x 22.4%) (15 680) (12 544) (3 136)
Trade receivables (95 000 – 76 000) (19 000) (15 200) (3 800)
Deferred tax (19 000 x 28%) 5 320 4 256 1 064
Inventory (840 000 – 773 000) (67 000) (53 600) (13 400)
Deferred tax 18 760 15 008 3 752
778 350 622 680 155 670
Equity represented by goodwill 81 320
the current year 175 970 140 776 35 194
(19 000 x 72%) 13 680 10 944 2 736
(67 000 x 72%) 48 240 38 592 9 648
Current year 145 520 116 416 29 104

Reversal of land (70 000) (56 000) (14 000)
Deferred tax 15 680 12 544 3 136
Intercompany sale of machine (50 000) (40 000) (10 000)
Deferred tax 14 000 11 200 2 800
Depreciation on machine 5 000 4 000 1 000
Deferred tax (1 400) (1 120) (280)
Dividend paid – 28 February 2021 (400 000) (320 000) (80 000)
699 840 622 680 (62 808) 139 968
10
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Analysis of owner’s equity of Mask Ltd

Total At Since in Joint
R R R Venture
R
At acquisition date – 1 Dec 2020
Retained earnings 1 063 600 425 440
1 578 823 631 529
Investment in Mask Ltd 471 200 471 200
Current year
Dividends paid (163 000) (65 200) (65 200)

Investment in Joint Venture 615 025
Ref:/ FAC3762_2021_TL_202_0.pdf
©
UNISA 2021
11

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FAC3762/108
QUESTION 1 (50 marks) (90 minutes)
The following are extracts from the financial statements of the entities in the Smith Ltd Group
for the year ended 31 December 2018:
EXTRACT FROM THE STATEMENTS OF FINANCIAL POSITION AS AT

31 DECEMBER 2018
Smith Warner Bancroft
Ltd Ltd Ltd
R R R
ASSETS
Non-current assets
Property, plant and equipment ................................ 3 055 800 2 145 000 980 555
Investment in Warner Ltd .................................... 910 000 - -
Investment in Bancroft Ltd................................... - 1 300 000 -
Investments in other equity instruments .............. 258 000 175 000 98 000
Total non-current assets .................................. 4 223 800 3 620 000 1 078 555
Current assets
Loan to Bancroft Ltd ............................................ - 95 500 -
Inventories........................................................... 522 800 485 000 365 000
Cash and cash equivalents ................................. 389 400 251 000 211 700
Trade and other receivables................................ 175 440 152 800 87 420
Total current assets .......................................... 1 087 640 984 300 664 120
TOTAL ASSETS ................................................. 5 311 440 4 604 300 1 742 675
EXTRACT FROM THE STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR

ENDED 31 DECEMBER 2018
Smith Warner Bancroft
Ltd Ltd Ltd
R R R
RETAINED EARNINGS
Balance as at 1 January 2018 ........................... 3 258 745 2 658 741 1 215 961
Profit for the year ................................................. 952 247 588 700 325 899
Dividends paid – 31 December 2018 .................. (120 000) (85 000) (30 000)
Balance as at 31 December 2018 ..................... 4 090 992 3 162 441 1 511 860
SHARE CAPITAL
Balance as at 1 January 2018 ........................... 100 000 80 000 60 000
Balance as at 31 December 2018 ..................... 100 000 80 000 60 000
Warner Ltd
1. On 1 January 2015, Smith Ltd acquired control of Warner Ltd with the acquisition of
96 000 of the 160 000 issued ordinary shares of Warner Ltd. On this date, all the
identifiable assets and liabilities of Warner Ltd were considered to be equal to their
carrying amounts. On 1 January 2015, the retained earnings of Warner Ltd amounted
to R1 385 920 and the fair value of one Warner Ltd share was R9,40.

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FAC3762/108
Bancroft Ltd
2. On 1 August 2018, Warner Ltd acquired control of Bancroft Ltd by acquiring an 80%
interest in the ordinary share capital of Bancroft Ltd. The share capital of Bancroft Ltd
consisted of 60 000 issued ordinary shares. On the acquisition date, the fair value of
one Bancroft Ltd share was R27,00 (31 December 2018: R28,00).
3. On the acquisition date, the identifiable assets and liabilities of Bancroft Ltd were
considered to be equal to their carrying amounts, except for the following assets:
Carrying Fair
amount value
R R
Land .................................................................................... 950 200 1 025 000
Trade receivables (debtor: Aston Ltd) ................................. 122 000 111 000
On 31 December 2018, Bancroft Ltd accounted for the impairment of the debtor,
Aston Ltd, from R122 000 to R111 000 in its separate financial records.
4. Smith Ltd is a manufacturer of motor vehicles. Smith Ltd sold a manufactured motor
vehicle to Warner Ltd at a profit mark-up of 25% on the selling price. Warner Ltd uses
the motor vehicle to deliver inventory to customers.
The following information regarding the motor vehicle was obtained from the asset
register of Warner Ltd at 31 December 2018:
Remaining
Asset Consideration useful life on Depreciation
number Purchase paid date of method
date purchase
Straight-line over
MV123 1 July 2017 R175 000 5 years the remaining
useful life
5. On 1 December 2018, Warner Ltd granted a loan of R95 500 to Bancroft Ltd. The loan
is repayable on demand and bears interest at 9% per year. The interest for
December 2018 is still outstanding at year-end. Warner Ltd has correctly accounted for
the interest receivable in “other income” and “trade and other receivables”, respectively.
Bancroft Ltd has correctly accounted for the loan from Warner Ltd as follows in its
separate accounting records:
Debit Credit
R R
Bank ..................................................................................... 95 500
Loan from Warner Ltd ........................................................... 95 500
Accounting for the capital portion of the loan received
Finance charges ................................................................... 716
Trade and other payables ..................................................... 716
Accounting for the outstanding interest payable at year-end
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Other information
6. The profit for the year of Bancroft Ltd was earned evenly during the current year.
7. The Smith Ltd Group and Warner Ltd measure investments in subsidiaries in their
separate accounting records at cost price in accordance with IAS 27, Separate Financial
Statements.
8. Investments in other equity instruments are measured at fair value through profit or loss,
in accordance with IFRS 9, Financial Instruments. The fair value of all equity
investments can be assumed to be equal to their cost price.
9. The Smith Ltd Group elected to measure all non-controlling interests at their fair value
at the acquisition dates.
10. The SA normal tax rate is 28% and capital gains tax is calculated at 80% of this. You
may assume that both the tax rates have remained unchanged since 1 January 2015.
remained unchanged since 1 January 2015.
REQUIRED:
Marks
(a) Prepare only the pro forma consolidation journal entries relating to the
intragroup loan and interest (additional information point 5) of the Smith
Ltd Group for the year ended 31 December 2018. 7
(b) Prepare only the asset section of the consolidated statement of financial
position of the Smith Ltd Group as at 31 December 2018. 23
You may assume that the deferred tax balance as at 31 December 2018
was not an asset.
(c) Prepare the consolidated statement of changes in equity of the
Smith Ltd Group for the year ended 31 December 2018. 20
Total columns are not required.
TOTAL [50]
Please note:
required.
All calculations must be shown and amounts must be rounded to the nearest
rand.
11

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SUGGESTED SOLUTION 1
QUESTION 1
PART A
CONSOLIDATION JOURNAL ENTRIES TO ELIMINATE THE INTRAGROUP LOAN AND

INTEREST
Debit Credit
R R
Loan from Warner Ltd 95 500
Loan to Bancroft Ltd 95 500
Eliminate intragroup balances
Other income/Interest received 716

Finance costs/Interest paid 716
Eliminate intragroup interest on loan
Trade and other payables 716

Trade and other receivables 716
Eliminate intragroup outstanding interest payable
Other income/Interest received 716

Trade and other receivables 716
Eliminate intragroup interest on loan
Trade and other payables 716

Finance costs/Interest paid 716
Eliminate intragroup outstanding interest payable
PART B
SMITH LTD GROUP
ASSETS R
Non-current assets
Property, plant and equipment (3 055 800 + 2 145 000 + 980 555 +
74 800(1 025 000 - 950 200) – 43 750(25/100 x 175 000) + 13 125(8 750
(43 750/5) x 18/12)) 6 225 530
Goodwill (102 769 (C1) + 45 680 (C1)) 148 449
Investments in other equity instruments (258 000 + 175 000 + 98 000) 531 000
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Current assets
Loan to Bancroft Ltd (95 500 - 95 500) -
Inventories (522 800 + 485 000 + 365 000) 1 372 800
Cash and cash equivalents (389 400 + 251 000 + 211 700) 852 100
Trade and other receivables 441 944
(175 440 + 152 800 + 87 420 – 11 000 + 11 000 - 716 (Part A))
Total current assets 2 639 844
CALCULATIONS
C1 Goodwill (Proof of goodwill method)
R
Warner Ltd
Consideration received 910 000
Non-controlling interests ((160 000 - 96 000) x R9,40) 601 600
Net assets assumed (80 000 + 1 385 920) (1 465 920)
Goodwill 45 680
Bancroft Ltd
Consideration received 1 300 000
Non-controlling interests ((20% x 60 000) x R27) 324 000
Net assets assumed (1 521 231)
Share capital
- Given 1 215 961
- Write down of trade receivables ((122 000 - 111 000) x 72%) (7 920)
- Current year (325 899 + 7 920 + 716 = 334 525 x 7/12) 195 145
Revaluation surplus ((1 025 000 - 950 200) x 77.6%) 58 045
Goodwill 102 769
Total goodwill (45 680 + 102 769) 148 449
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PART C
SMITH LTD GROUP

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED
31 DECEMBER 2018
Non-
Share Retained controlling
capital earnings interests Total
R R R R
Balance as at 1 January 2018 100 000 3 994 088C2 1 110 728C3 5 204 816
Changes in equity for 2018: -
Acquisition of subsidiary 324 000 324 000
-
Profit for the year 1 312 930C4 297 990C5 1 610 921
Dividend paid (120 000) (40 000)C6 (160 000)

Balance as at
31 December 2018 100 000 5 187 018 1 692 719 6 979 737
CALCULATIONS
C2 Opening retained earnings
R
Smith Ltd - parent 3 258 745
Warner Ltd - subsidiary (since acq to beg c-year)
(2 658 741 - 1 385 920) + 1 272 821 x 80% 763 693
Bancroft Ltd – sub-subsidiary (not yet acquired) -
Unrealised profit on sale of motor vehicle
(43 750 x 72%) (31 500)
Add: realisation of a portion of depreciation
(8 750 x 6/12 x 72%) 3 150
3 994 088
C3 Opening NCI
R
NCI at acquisition - Warner 601 600
Warner Ltd - subsidiary (since acq to beg c-year)
(1 272 821 x 40%) 509 128
1 110 728
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C4 & C5 Profit attributable to parent and NCI

C5 C4
Profit Profit
attributable attributable
to parent to NCI
R R R
Bancroft Ltd - sub-subsidiary 138 674 x 20% 27 735
Profit for the year (given)
(139 390(334 535 x 5/12) - 7 920 - 130 754
716)
Reversal of impairment of TR already
made at acquisition date 7 920
Warner Ltd – subsidiary 675 639 x 60% 405 383 270 256
Bancroft – Profit for the year
((130 754 + 7 920) x 80%) 110 939
Less: intragroup dividend from
Bancroft Ltd (30 000 x 80%) (24 000)
Smith Ltd – parent 907 547 x100% 907 547
Warner Ltd (85 000 x 60%) (51 000)
Add: realisation of a portion of
depreciation (8 750 x 72%) 6 300
1 3124 930 297 900
OR
Profit C5 C4
for the Profit att Profit att
year to parent to NCI
R R R
Smith Ltd - parent 907 547 x 100% 907 547
Warner Ltd (85 000 x 60%) (51 000)
Add: realisation of a portion of
depreciation (8 750 x 72%) 6 300
Bancroft Ltd – sub-subsidiary 138 674 x 80% 66 563 72 110
x 60%
Profit for the year (139 390(334 535 130 754
x 5/12) - 7 920 - 716)
Reversal of impairment of TR
already made at acquisition date 7 920
Warner Ltd – subsidiary 564 700 x 60% 338 820 225 880
Bancroft Ltd (30 000 x 80%) (24 000)
1 312 930 297 990
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OR
Profit att to
parent
R
Smith Ltd – parent 907 547
Less: intragroup dividend from Warner Ltd (85 000 x 60%) (51 000)
Add: realisation of a portion of depreciation (8 750 x 75%) 6 300
Warner Ltd - subsidiary 564 700

Less: intragroup dividend from Bancroft Ltd (30 000 x 80%) (24 000)
Bancroft Ltd - sub-subsidiary 138 674

Profit for the year (given) ((334 525 x 5/12) - 7 920 - 716) 130 754
Reversal of impairment of TR already made at acquisition date 7 920
Total consolidated profit 1 610 921
Less: Non-controlling interests in the profit for the year C4 (297 990)
Non-controlling interests in Bancroft Ltd (138 674 x 20%) (27 735)
Less: Non-controlling interests in Warner Ltd [675 639(564 700 +
110 936(138 674 x 80%)) x 40%] (270 256)
Profit attributable to the parent C5 1 312 930
C6 Dividend paid – NCI

R
Bancroft Ltd (85 000 x 40%) 34 000
Warner Ltd (30 000 x 20%) 6 000
40 000
myUnisa – Lessons
Log on to myUnisa and navigate to the Lessons Tool for a recording on

this question.
The recording is under the Lessons Smith Ltd Group tab on myUnisa.
16

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The following are extracts from the trial balances of the entities in the Chase Ltd Group for
the year ended 28 February 2019:
Chase Marshall Rubble
Ltd Ltd Ltd
Dr/(Cr) Dr/(Cr) Dr/(Cr)
R R R
Property, plant and equipment at cost price ..... 2 795 242 2 342 910 3 193 321
- Marshall Ltd at cost price ............................... 500 000 - -
- Rubble Ltd at cost price ................................. 400 000 - -
- Skye Ltd at fair value...................................... 200 000 - -
- Rocky Ltd at fair value.................................... - 150 000 -
- Everest Ltd at fair value ................................. - - 250 000
Trade and other receivables............................. 328 264 188 700 116 550
Cash and cash equivalents .............................. 212 750 196 180 37 740
Inventories........................................................ 140 046 196 920 58 460
Cost of sales .................................................... 1 339 200 1 908 000 1 356 000
Finance costs ................................................... - - 120 000
Other expenses ................................................ 323 750 358 900 424 642
Income tax expense ......................................... 426 874 357 000 110 445
Dividends paid – 28 February 2019 ................. 277 500 92 500 66 500
Share capital:
- 400 000 ordinary shares ................................ (800 000) - -
- 200 000 ordinary shares ................................ - (200 000) -
- 100 000 ordinary shares ................................ - - (370 000)
Retained earnings – 1 March 2018 .................. (1 449 390) (473 862) (1 053 294)
Mark-to-market reserve – 1 March 2018 .......... (15 520) (46 560) -
Accumulated depreciation ................................ (825 200) (903 526) (605 776)
Deferred tax ..................................................... (155 110) (46 222) (24 600)
Trade and other payables ................................ (503 146) (548 000) (287 402)
Long-term borrowings ...................................... - - (1 090 900)
Revenue ........................................................... (2 537 500) (3 220 000) (2 200 000)
Other income.................................................... (650 000) (321 900) (95 090)
Other comprehensive income – fair value
adjustments on equity instruments, net after
tax .................................................................... (7 760) (31 040) (6 596)
- - -
1. On 1 December 2016, Chase Ltd acquired 130 000 of the issued ordinary shares in
Marshall Ltd for a cash amount of R500 000. Chase Ltd acquired control of Marshall Ltd
on this date. On 1 December 2016, the equity of Marshall Ltd consisted of the following:
R
Share capital ............................................................................................ 200 000
Retained earnings ..................................................................................... 650 731
Mark-to-market reserve ............................................................................. 38 800
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2. On 1 December 2016, Marshall Ltd had no unidentifiable assets or liabilities. The fair
values of all assets and liabilities of Marshall Ltd were equal to their carrying amounts.
3. On 1 March 2017, Chase Ltd acquired 35% of the issued ordinary shares in Rubble Ltd
for a cash amount of R400 000. At the date of acquisition, the retained earnings of
Rubble Ltd amounted to R850 123. From 1 March 2017, Chase Ltd exercised significant
influence over the financial and operating policy decisions of Rubble Ltd.
4. From 1 March 2017, Rubble Ltd sold inventory to Chase Ltd at a profit mark-up of 50%
on the selling price. The following relates to the sales of inventory from Rubble Ltd to
Chase Ltd:
2019 2018
R R
Total sales for the year ..................................................... 220 000 185 000
Inventory on hand at year-end .......................................... 44 000 37 000
You may assume that the inventory on hand at 28 February 2018 of R37 000 was sold
by 28 February 2019 to outside parties.
5. During the current year, Chase Ltd purchased inventory of R450 000 from Marshall Ltd
at a profit mark-up of 25% on the cost price. On 28 February 2019, 20% of this inventory
was still on hand and Chase Ltd made the decision to write this inventory down to its net
realisable value of R76 000 in its separate accounting records.
6. Chase Ltd measures its investments in Marshall Ltd and Rubble Ltd at cost price in its
separate accounting records in accordance with IAS 27, Separate Financial Statements.
7. The Chase Ltd Group measures investments in associates using the equity method in
8. The entities in the Chase Ltd Group classify their investments in equity instruments at
fair value, in accordance with IFRS 9, Financial Instruments, and any fair value
adjustments are recognised in a mark-to-market reserve (other comprehensive income).
9. The Chase Ltd Group elected to measure the non-controlling interests in an acquiree at
their proportionate share of the acquiree’s identifiable net assets at the acquisition date.
10. The SA normal tax rate is 28% and capital gains tax is calculated at 80% thereof. You
may assume that the tax rates have remained unchanged since 1 December 2016.
remained unchanged since 1 December 2016.
12. All the companies in the Chase Ltd Group have a 28 February year-end.
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REQUIRED:
Marks
(a) Briefly discuss, with reasons, whether any of the transactions or events of
Chase Ltd, described in the additional information, constitute a business
combination, in terms of IFRS 3, Business Combinations. 4
(b) Prepare the consolidated statement of profit or loss and other comprehensive
income of the Chase Ltd Group for the year ended 28 February 2019.
31
(c) Prepare only the retained earnings column of the consolidated statement of
changes in equity of the Chase Ltd Group for the year ended
TOTAL [46]
Please note:
rand.
PART A
A business combination is a transaction or other event in which an acquirer obtains control

of one or more businesses.
Marshall Ltd meets the definition of a business as it is an integrated set of activities and
assets that are capable of being managed in order to provide a return (e.g. through dividends
or other economic benefits).
On 1 December 2016, Chase Ltd acquired control over Marshall Ltd.
Thus, this transaction meets the definition of a business combination.
The acquisition of the shares in Rubble Ltd does not constitute a business as the acquisition
did not give Chase Ltd control over Rubble Ltd (only significant influence).
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PART B
CHASE LTD GROUP

R
Revenue (2 537 500 + 3 220 000 - 450 000 (given)) 5 307 500
Cost of sales (1 339 200 + 1 908 000 - 450 000 + 4 000(18 000(450 000
x 20% x 25/125)) - 14 000(90 000 - 76 000)) (2 801 200)
Other income (650 000 + 321 900 – 60 125(92 500 x 65% (130 000/
200 000)) (sub div) - 23 275(66 500 x 35%) (ass div)) 888 500
Share of profit from associate (2 200 000 + 95 090 - 1 356 000 -120 000 -
424 642 -110 445) = 284 003 x 35% = 99 101 + 4 662 (3 700 x 50/100 x 72%
x 35%) (opening inv) - 5 544(44 000 x 50/100 x 72% x 35%) (closing inv) 98 519
Other expenses (323 750 + 358 900) (682 650)
Income tax expense (426 874 + 357 000 - 357 000 - 1 120(4 000 x 28%)) (782 754)
Other comprehensive income

Items that will not be reclassified to profit and loss
Fair value adjustment on investments; net after tax (7 760 + 31 040) 38 800
Share of other comprehensive income from joint venture (6 596 x 35%) 2 309

Non-controlling interests (3 220 000 + 321 900 - 1 908 000 - 358 900 -
357 000 = 918 000 - 4 000 + 1 120 = 915 120 x 35%) 320 292
2 027 915
Total comprehensive income attributable to: 1 737 868

Non-controlling interests (320 292 + 10 864(31 040 x 35%)) 2 069 024
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PART C
CHASE LTD GROUP
28 FEBRUARY 2019
Retained
earnings
R
Balance as at 1 March 2018 1 506 111
Changes in equity for 2019
Profit of the year 1 707 623
Other comprehensive income for the year -
Dividend paid (given) (277 500)
Balance as at 28 February 2019 2 936 234
CALCULATIONS
C1 Retained earnings opening balance
R
Chase Ltd (given) 1 449 390
Rubble Ltd (associate)(gain or bargain purchase)

(427 043(1 220 123(370 000(SC) + 850 123(RE)) x 35%) - 400 000)
27 043
Rubble Ltd (associate since acq to beg of current year)

(1 053 294 - 850 123 = 203 171 x 35% = 71 110 - 4 662 from share of
profit from associate) 66 448
Marshall Ltd (sub) (gain on bargain purchase)

(578 195 (889 531(200 000 (SC) + 650 731 (RE) + 38 800 (M2M)) x 68%)
- 500 000) 78 195
Marshall Ltd (sub since acq to beg of current year)

(473 862 - 650 731 = -176 569 x 65%) (114 965)
1 506 111
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C1 – Analysis of owner’s equity of Marshall Ltd

Chase Ltd
100% 65% 35%
Total At Since NCI
At acquisition – 1 December 2016
Share capital 200 000 130 000 70 000
Mark-to-market reserve 38 800 25 220 13 580
889 531 578 195 311 336
Investment in Marshall Ltd 811 336 500 000 311 336
Since acquisition date to beginning
of the current year:
(169 109) (109 921) (59 188)
Retained earnings (473 862 – 650 731) (176 869) (114 965) (61 904)
Mark-to-market reserve (46 560 –
38 800) 7 760 5 044 2 716
Current year: 2019 915 120 594 828 320 292
Profit for the year – Marshall Ltd 918 000 596 700 321 300
Unrealised profit on sale of inventory to
Chase Ltd (4 000) (2 600) (1 400)
Tax effect of unrealised profit
(4 000 x 28%) 1 120 728 392
Other comprehensive income for the
year – fair value adjustments on
investments in equity instruments, net
after tax 31 040 20 176 10 864
Dividends paid (92 500) (60 125) (32 375)
1 495 887 500 000 444 958 550 929
UNREALISED PROFIT INCLUDED IN CLOSING INVENTORY

Calculation of unrealised profit on sale of inventory to Chase Ltd:
20% x R450 000 = R90 000 x 25/125 = R18 000
Calculation of the cost price of the inventory for Marshall Ltd:
R90 000 – R18 000 (profit on sale of inventory) = R72 000.
This inventory was written down to net realisable value (NRV) of R76 000 in
the separate financial statements of Chase Ltd. Thus, this inventory is not
measured at R90 000 (cost price for Chase Ltd) in the separate financial
statements of Chase Ltd but at net realisable value of R76 000. In the
consolidated financial statements this inventory should be recognised at the
cost price of the inventory for Marshall Ltd (R72 000) (cost price of inventory
where it first entered the group). Therefore, the unrealised profit recognised
in the group’s financial statements will be limited to R4 000 (R76 000 –
R72 000).
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C4 - Analysis of owner’s equity of Rubble Ltd - ordinary shares

Chase Ltd
100% 35% 35%
Total At Since CA
At acquisition – 1 December 2016 R R R R
1 220 123 427 043
Gain on bargain purchase (27 043) (27 043) 27 043
Investment in Rubble Ltd 1 193 080 400 000 400 000

the year:
Retained earnings (1 053 294 - 850 123) 203 171 71 110 71 110
Current year 281 483 98 5199

Unrealised profit in opening inventory
(37 000 x 50/100 x 72%) 13 320 4 662 -
Unrealised profit in closing inventory
(44 000 x 50/100 x 72%) (15 840) (5 544) -
Other comprehensive income, fair value

adjustments on equity instruments 6 596 2 309 2 309
Dividends paid (66 500) (23 275) (23 275)
1 617 830 148 663 576 588
Carrying amount of investment associate
Rubble Ltd at 28 Feb 2019 576 588
myUnisa – Lessons
Log on to myUnisa and navigate to the Lessons Tool for a recording on

this question.
The recording is under the Lessons Chase Ltd Group tab on myUnisa.
23

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The following are extracts from the financial statements of the entities in the Gold Ltd Group
for the year ended 28 February 2018:
EXTRACT FROM THE STATEMENTS OF PROFIT OR LOSS AND OTHER

COMPREHENSIVE INCOME FOR THE YEAR ENDED 28 FEBRUARY 2018
Gold Diamond Platinum
Ltd Ltd Ltd
R R R
Revenue ....................................................... 9 000 000 4 320 000 2 160 000
Cost of sales ................................................... (6 300 000) (2 880 000) (1 060 000)
Gross profit...................................................... 2 700 000 1 440 000 1 100 000
Other income................................................... 450 000 108 000 -
Other expenses ............................................... (1 080 000) (576 000) (540 000)
Profit before tax ............................................... 2 070 000 972 000 560 000
Income tax expense ........................................ (579 600) (272 160) (156 800)
PROFIT FOR THE YEAR ............................... 1 490 400 699 840 403 200
Other comprehensive income for the year,
net after tax .................................................... 360 000 180 000 27 000
TOTAL COMPREHENSIVE INCOME FOR
THE YEAR ...................................................... 1 850 400 879 840 430 200
1. Gold Ltd acquired 80% of the ordinary share capital of Diamond Ltd on 1 March 2016
when the retained earnings of Diamond Ltd amounted to R60 000. On this date, there
were no unidentifiable assets or liabilities and the fair values of all assets and liabilities
of Diamond Ltd were considered to be equal to their cost price, unless otherwise stated.
2. Diamond Ltd acquired 60% of the ordinary share capital of Platinum Ltd on 1 March 2017
when the retained earnings amounted to R75 000. On this date, there were no
unidentifiable assets or liabilities and the fair values of all assets and liabilities of
Platinum Ltd were considered to be equal to their cost price, unless otherwise stated.
3. The Gold Ltd Group measures non-controlling interests at fair value at acquisition date.
The fair value of the non-controlling interests in Diamond Ltd amounted to R45 000 on
1 March 2016. The fair value of the non-controlling interests in Platinum Ltd amounted
to R75 000 on 1 March 2017.
Other information
4. During the financial year ended 28 February 2018, Diamond Ltd paid dividends of
R240 000, and Platinum Ltd paid dividends of R105 000.
5. The Gold Ltd Group measures investments in subsidiaries in their separate accounting
records at cost price in terms of IAS 27, Separate Financial Statements.
6. The investments in other equity instruments are measured at fair value through profit or
loss, in terms of IFRS 9, Financial Instruments. The fair value of all equity investments
can be assumed to be equal to their cost price.
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7. Goodwill arose on both the acquisition of Diamond Ltd and Platinum Ltd. The directors
of the Gold Ltd Group determined that there was no impairment of goodwill since
acquisition date.
may assume that both the tax rates have remained unchanged since 1 March 2016.
remained unchanged since 1 March 2016.
REQUIRED:
Marks
Prepare the consolidated statement of profit or loss and other comprehensive
income of the Gold Ltd Group for the year ended 28 February 2018. 20
TOTAL [20]
Please note:
required.
All calculations must be shown and amounts must be rounded to the nearest
rand.
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GOLD LTD GROUP

R
Revenue (9 000 000 + 4 320 000 + 2 160 000) 15 480 000
Cost of sales (6 300 000 + 2 880 000 + 1 060 000) (10 240 000)
Other income (450 000 + 108 000 - 192 000(240 000 x 80%) – 63 000
(105 000 x 60%)) 303 000
Other expenses (1 080 000 + 576 000 + 540 000) (2 196 000)
Profit before income tax 3 347 000
Income tax expense (579 600 + 272 160 + 156 800) (1 008 560)
Other comprehensive income for the year, net after tax (360 000
+ 180 000 + 27 000) 567 000
Total profit for the year attributable to:

Owners of the parent (balancing figure) 2 001 408
2 338 440
Total other comprehensive income for the year attributable to:

Owners of the parent (balancing figure) 2 518 368
Non-controlling interests (C2)(337 032 + 50 040) 387 072
2 905 440
CALCULATIONS
C1 – Non-controlling interests in current year’s profits
R
Profit of Platinum Ltd (403 200 x 40%) 161 280
Profit of Diamond Ltd (699 840 – 63 000 = 636 840 x 20%) 127 368
Profit of Platinum Ltd in Diamond Ltd (403 200 x 12%(60% x 20%)) 48 384
337 032
C2 – Non-controlling interests in current year’s other comprehensive income

R
Other comprehensive income of Platinum Ltd (27 000 x 40%) 10 800
Other comprehensive income of Diamond Ltd (180 000 x 20%) 36 000
Profit of Platinum Ltd in Diamond Ltd (27 000 x (60% x 20%)12%) 3 240
50 040
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The following balances were extracted from the financial statements of the entities in the
Rock Ltd Group for the year ended 31 October 2018:
Rock Sand
Ltd Ltd
Dr/(Cr) Dr/(Cr)
R R
Property, plant and equipment at carrying amount ........ 162 100 46 200
Investment in equity instrument:
- Sand Ltd at cost price ................................................. 20 900 -
Current assets ............................................................... 31 138 32 932
Dividends paid – 31 October 2018 ................................ 2 200 2 000
Share capital:
- 16 000 ordinary shares ............................................... (16 000) -
- 3 000 ordinary shares ................................................. (3 000)
Retained earnings – 1 November 2017 ......................... (150 106) (65 680)
Current liabilities ............................................................ (42 634) (7 700)
Profit for the year ........................................................... (7 598) (4 752)
- -
1. On 1 November 2014, Rock Ltd acquired 1 800 of the issued ordinary shares in Sand Ltd
for R5 900. On this date the retained earnings of Sand Ltd amounted to R4 100.
Rock Ltd exercised control over Sand Ltd since the acquisition date. There were no
unidentified assets, liabilities or contingent liabilities on acquisition date and the fair
value of all assets and liabilities was considered to be equal to the carrying amounts
except for the equipment. The equipment had a carrying amount of R120 500 and a fair
value of R123 000 on the acquisition date. Sand Ltd purchased the equipment on
1 November 2008 and depreciated it over 10 years using the straight-line method. On
1 November 2014 there was no change in the remaining useful life of the equipment.
The equipment had no residual value. Sand Ltd did not account for the fair value
adjustment in its separate financial records.
2. Sand Ltd purchased some of its inventory from Rock Ltd at cost price plus 25%.
Sand Ltd had the following inventory on hand that was purchased from Rock Ltd:
31 October 2017 ................................................................................ R15 000

31 October 2018 ................................................................................ R10 000
Inventory is generally realised within 3 months of purchase. Total sales of inventories

from Rock Ltd to Sand Ltd for the current reporting period amounted to R100 000.
3. On 30 June 2018, Rock Ltd acquired a further 600 ordinary shares (20% interest) in
Sand Ltd for R15 000 from the non-controlling interests.
4. Rock Ltd measures its investment in Sand Ltd at cost price in its separate accounting
records in terms of IAS 27, Separate Financial Statements.
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5. The Rock Ltd Group elected to measure the non-controlling interests in an acquiree at
fair value on acquisition date. On 1 November 2014 the fair value of the non-controlling
interests amounted to R3 920.
may assume that the tax rates have remained unchanged since 1 November 2014.
remained unchanged since 1 November 2014.
REQUIRED:
Marks
(a) Multiple-choice questions 4
(b) Prepare the consolidated statement of changes in equity of the
Rock Ltd Group for the year ended 31 October 2018. 25
The total columns are not required.

TOTAL [29]
Please note:
required.
rand.
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QUESTION 4(a) – MULTIPLE-CHOICE QUESTIONS
REQUIRED:
Answer the following questions by choosing the correct option out of the five options given
for each question. There is only ONE correct answer for each question.
All answers should comply with the requirements of International Financial Reporting
Standards (IFRS).
QUESTION 4.1
The following is not a condition that needs to be met for Rock Ltd to be exempt from
preparing consolidated financial statements in terms of IFRS 10, Consolidated Financial
Statements:
(a) Rock Ltd’s debt or equity instruments are not traded on a public stock market.
(b) Rock Ltd’s operating activities are vastly different from those of Sand Ltd.
(c) The parent company of Rock Ltd prepares consolidated financial statements for public
use that comply with IFRS.
(d) Rock Ltd is not in the process of filing its financial statements to issue any instruments
in a public stock market.
(e) Rock Ltd is either a wholly owned subsidiary or a partially owned subsidiary and all its
shareholders agree not to present consolidated financial statements.
(1)
QUESTION 4.2
The amount that will be recognised as goodwill/gain on bargain purchase on acquisition date
of Sand Ltd in terms of IFRS 3.32 is …
(a) gain on bargain purchase amounting to R560.

(b) goodwill amounting to R560.
(c) goodwill amounting to R920.
(d) gain on bargain purchase amounting to R920.
(e) gain on bargain purchase amounting to R3 000.
(1)
QUESTION 4.3
The non-controlling interests will be disclosed in the consolidated statement of financial

position as at 31 October 2018 as follows:
(a) as a separate item within the liability section

(b) not recognised separately in any section of the consolidated statement of financial
position, as 100% of the parent and 100% of the subsidiary is included for every line
item in the consolidated statement of financial position
(c) as a deduction from goodwill in the non-current assets section
(d) as a separate line item within the equity section (separate from the parent’s share)
(e) only disclosed by means of notes to the consolidated statement of financial position
(1)
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QUESTION 4.4
Which of the following is not an example of an intragroup balance?
(a) a loan made by a parent company to a subsidiary

(b) a loan made by one subsidiary to another subsidiary
(c) a trade payable owing to a subsidiary by its parent company
(d) a trade receivable owing to a subsidiary by another subsidiary that is one of its
customers
(e) a current bank account of the subsidiary and the overdraft account of the parent
company
(1)
PART A
QUESTION 4.1
The correct option is (b).
It is not a requirement that the operating activities from the parent and the subsidiary must
be the same in order not to present consolidated financial statements.
Study
Group statements (volume 1), 17th edition
- Chapter 1: Circumstances when consolidated financial statements need not be
prepared by the parent (p. 21)
QUESTION 4.2
The correct option is (c).
Proof of goodwill of Sand Ltd (IFRS 3.32)

R
Consideration transferred at acquisition date 5 900
Non-controlling interests (given) 3 920
9 820
Net amount of identifiable assets acquired and liabilities assumed at
acquisition date (3 000(SC) + 4 100(RE) + 1 800(RS)(2 500(123 000 –
120 500) x 72%)) (8 900)
Goodwill 920
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OR
Analysis of owner’s equity of Sand Ltd
Rock Ltd
(1 800/ 3 000 = 60%) 100% 60% 40%
Total At Since NCI
R R R R
At acquisition
Share capital 3 000 1 800 1 200
Revaluation of equipment (2 500(123 000 –
120 500) x 72%) 1 800 1 080 720
8 900 5 340 3 560
Equity represented by goodwill 920 560 360
Consideration and NCI 9 820 5 900 3 920
OR
Debit Credit
R R
Property, plant and equipment (123 000 – 120 500) 2 500
Deferred tax liability (SFP) 700
Revaluation surplus 1 800
Revaluation of equipment at acquisition date
Share capital 3 000

Revaluation surplus 1 800
Non-controlling interests (SFP) 3 920
Investment in Sand Ltd 5 900
Goodwill 920
Elimination of common items at acquisition date and
recognising goodwill at acquisition date
QUESTION 4.3
The correct option is (d).
Non-controlling interests are recognised as a separate item in the equity section of the
consolidated statement of financial position. This item will be presented separately from the
equity attributable to the parent.
QUESTION 4.4
The correct option is (e).
The set-off of bank accounts within a group does not constitute intragroup transactions.
Study
Group statements (volume 1), 17th edition
- Chapter 5: Bank overdrafts and guarantees (p. 210)
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PART B
ROCK LTD GROUP

31 OCTOBER 2018
Change in Non-
Share Retained ownership controlling
capital earnings reserve interests
R R R R
Balance as at
1 November 2017 16 000 184 084 - 28 012
Changes in equity for
2017/2018:
Acquisition of an additional
interest in a subsidiary (421) (14 580)
Total comprehensive income

for the year: 9 586 1 434
- Profit for the year 9 586 1 434
- Other comprehensive income
for the year - -
Dividend paid (2 200) (400)
Balance as at
31 October 2018 16 000 191 470 (421) 14 466
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

The total columns are not required in Part B and are therefore not included
in the solution provided. If the consolidated statement of changes in equity
were required without any mention of the total columns, you would have
to provide the total columns (this will include the split between the parent
and NCI).
DIVIDEND PAID IN THE RETAINED EARNINGS

Only include the parent’s dividend paid in the retained earnings column.
Remember that the dividend paid by the subsidiary is eliminated in the
journal entries for intragroup transactions.
Debit Credit
R R
Dividend received by Rock Ltd (2 000 x 80%) 1 600
Non-controlling interests (SFP) (2 000 x 20%) 400
Dividend paid by Sand Ltd 2 000
Thus in the consolidated trial balance – dividend paid: Rock Ltd R2 200 +
Sand Ltd R2 000 = R4 200 – R2 000 (journal entry above) = R2 200.
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CALCULATIONS
C1 Opening retained earnings
R
Rock Ltd (parent) 150 106
Adjustment for opening inventory (10 000 x 25/125 x 72%) (2 160)
147 946
Sand Ltd (subsidiary) 65 680

Less: at acquisition date RE (4 100)
Movement in retained earnings since acquisition date to beginning of
current year 61 580
Additional depreciation equipment re-measured at acquisition date
(2 500/4 x 3 years x 72%) or (1 800/4 x 3 years) 1 350
60 230
Less: non-controlling interests’ share in the since-acquisition movement
in RE (60 230 x 40%) (24 092)
Parent’s share in the since-acquisition retained earnings 36 138
Opening retained earnings (147 946 + 36 138) 184 084
C2 Opening NCI
R
At acquisition date 3 920
Non-controlling interests’ share in the since-acquisition movement in RE
(60 230 x 40%) (C1) 24 092
28 012
C3 NCI’s share in the profit of Sand Ltd for the year

R
Sand Ltd 4 752
Additional depreciation on re-measurement of equipment, net after tax
(2 500/4 x 1 = 625 x 72%) or (1 800/4 x 1) (450)
Total consolidated profit for the year 4 302
Apportioned for 8 months (4 302 x 8/12) – before the change in control 2 868
Apportioned for 4 months (4 302 x 8/12) – after the change in control 1 434
4 302
NCI’s share in the profit before the change in control (2 868 x 40%) 1 147
NCI’s share in the profit after the change in control (1 147 x 20%) 287
NCI’s share in the profit for the year 1 434
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NCI’s SHARE IN THE PROFIT FOR THE YEAR

Only look at the profit of the subsidiary. The non-controlling interests
cannot share in the profit of the parent. Don’t use the consolidated profit
for the year when you calculate NCI’s share in the profit for the year.
C4 Profit for the year attributable to the parent

R
Rock Ltd 7 598
Sand Ltd 4 752
12 350
Elimination of intragroup dividend received from Sand Ltd (2 000 x 80%) (1 600)
Additional depreciation on re-measurement of equipment, net after tax
(2 500/4 x 1 = 625 x 72%) or (1 800/4 x 1) (450)
Realisation of profit included in opening inventory, net after tax
(15 000 x 25/125 x 72%) 2 160
Unrealised profit included in closing inventory, net after tax
(10 000 x 25/125 x 72%) (1 440)
Total consolidated profit for the year 11 020
Less: NCI’s share in the profit for the year (C3) (1 434)
Profit for the year attributable to the parent 9 586
PROFIT FOR THE YEAR ATTRIBUTABLE TO THE PARENT

It is important to use the consolidated profit for the year when you calculate
the parent’s share in the profit for the year. Then you will deduct the non-
controlling interests’ share in the profit for the year. Refer to calculation
C3.
INTRAGROUP SALE OF INVENTORY

The elimination of the sale of intragroup inventory will have a zero effect
on the profit for the year line item. You will debit the revenue line item with
R100 000 and you credit the cost of sales line item with R100 000, i.e. +
R100 000 – R100 000 = R0.
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C5 Adjustment to NCI due to the change in degree of control

R
Asset pool 1: Net asset value of subsidiary
Using the TOTAL column:
At acquisition date equity (3 000(SC) + 4 100(RE) + 1 800(RS)) 8 900
Since acquisition date equity (C1) 60 230
Current year (first 8 months before change in control) (C3) 2 868
71 998
Change in % interest (71 998 x 20%) 14 400
Asset pool 2: Goodwill

(360 x 20/40) 180
Adjustment to NCI 14 580
OR
R
Using the NCI column:
At acquisition date equity (NAV at acquisition and goodwill included here –
both asset pools) 3 920
Since acquisition date equity (C1) 24 092
Current year (first 8 months before change in control) (C3) (4 302 x 8/12 =
2 868 x 40%) 1 147
29 159
Change in % interest (29 159 x 20/40) 14 580
Adjustment to NCI 14 580
NCI MEASURED AT FAIR VALUE ON ACQUISITION DATE

The group elected to measure the NCI in Sand Ltd at fair value on
acquisition date. This will impact the calculation of the adjustment to NCI.
There will be two asset pools that need to be transferred:
the net asset value pool and the goodwill pool.
C6 Change in ownership equity reserve

R
Less: adjustment to NCI (14 580)
421
C7 NCI’s share in dividend paid

R
Dividend paid by Sand Ltd 2 000
NCI’s share in dividend paid (2 000 x 20%) 400
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NCI’s SHARE IN THE DIVIDEND PAID

The non-controlling interests’ percentage interest here is 20% and not
40%. The dividend was paid after the change in percentage occurred. It
is very important that you look at the timing of the dividend paid and the
timing of when the change in degree of control occurred.
Analysis of owner’s equity of Sand Ltd

(1 800/3 000 = 60%) Rock Ltd
(1800 + 600 = 2 400/3 000 = 80%) 100% 60% - 80% 40% - 20%
Total At Since NCI
R R R R
At acquisition
Share capital 3 000 1 800 1 200
Revaluation of equipment (2 500(123 000 –
120 500) x 72%) 1 800 1 080 720
8 900 5 340 3 560
Equity represented by goodwill 920 560 360
Consideration and NCI 9 820 5 900 3 920
Since acquisition to beginning of the
current year 60 230 36 138 24 092
Additional depreciation on equipment, net
after tax (1 800/4 x 3) or (2 500/4 x 3 x 72%) (1 350) (810) (540)
70 050 36 138 28 012
Current year 2 868 1 721 1 147
(1 November 2017 – 30 June 2018)
after tax 1 800/4 x 8/12) or
(2 500/4 x 72% x 8/12) (300) (180) (120)
72 918 37 859 29 159
Change in degree of control
Adjustment to NCI
NCI column: (29 159 x 20/40) (14 580) (14 580)
Change in ownership equity reserve 421 14 579
Current year 1 434 1 147 287
(1 July 2018 – 31 October 2018)
Profit for the year (4 752 x 4/12) 1 584 1 267 317
after tax 1 800/4 x 4/12) or
(2 500/4 x 72% x 4/12) (150) (120) (30)
Dividend paid (2 000) (1 600) (400)

72 352 37 406 14 466
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Buck Ltd was established in 1995 and is a manufacturer and distributor of medication in
Gauteng. The following is an extract from the annual financial statements of Buck Ltd and
its related group investment companies for the year ended 31 December 2018:
BUCK LTD GROUP

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR
THE YEAR ENDED 31 DECEMBER 2018
Buck Ltd Nanny Kid
Group Ltd Ltd
R R R
Revenue .......................................................... 1 928 000 1 290 000 1 161 000
Cost of sales .................................................... (1 285 333) (645 000) (872 932)
Gross profit....................................................... 642 667 645 000 288 068
Other income.................................................... 30 000 - 12 800
Other expenses ................................................ (123 000) (89 456) (80 510)
Profit before tax .............................................. 551 667 555 544 220 358
Income tax expense ......................................... (154 467) (155 552) (61 700)
PROFIT FOR THE YEAR ................................ 397 200 399 992 158 658
Profit and total comprehensive income

for the year attributable to:
Owners of the parent ........................................ 341 592 399 992 158 658
Non-controlling interests................................... 55 608 - -
397 200 399 992 158 658
BUCK LTD GROUP

EXTRACT OF THE STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED
31 DECEMBER 2018
Buck Ltd Nanny Kid
Group Ltd Ltd
Retained Non- Retained Retained
earnings controlling earnings earnings
interests
R R R R
Balance as at 1 January 2018 ......... 240 000 165 000 80 000 205 200
Changes in equity for 2018:
Profit for the year ............................... 341 592 55 608 399 992 158 658
Dividends paid (30 November 2018) . (123 456) (1 118) (45 678) (25 200)
Balance as at 31 December 2018 ... 458 136 219 490 434 314 338 658
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BUCK LTD GROUP

STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 2018
Buck Ltd Nanny Kid
Group Ltd Ltd
R R R
ASSETS
Non-current assets
Property, plant and equipment ......................... 920 305 647 314 376 303
Investment in Nanny Ltd................................... 200 000 - -
Investment in Kid Ltd ........................................ 102 000 - -
Total non-current assets................................... 1 222 305 647 314 376 303
Current assets
Cash and cash equivalents .............................. 123 321 101 100 76 543
Inventory .......................................................... 520 000 412 800 288 000
Trade and other receivables............................. 312 000 88 300 58 200
Total current assets ....................................... 955 321 602 200 422 743
Total assets .................................................... 2 177 626 1 249 514 799 046
EQUITY
Equity attributable to owners of the parent . 1 458 136 934 314 638 658
Share capital:
- 500 000 ordinary shares ................................ 1 000 000 - -
-1 000 000 ordinary shares .............................. - 500 000 -
- 300 000 ordinary shares ................................ - - 300 000
Retained earnings ............................................ 458 136 434 314 338 658
Non-controlling interests................................... 219 490 - -
Total equity ..................................................... 1 677 626 934 314 638 658
LIABILITIES
Deferred tax liability .......................................... 120 000 81 200 34 500
Total non-current liabilities ........................... 120 000 81 200 34 500
Current liabilities
Trade and other payables ................................ 380 000 234 000 125 888
Total current liabilities ................................... 380 000 234 000 125 888
Total liabilities ................................................ 500 000 315 200 160 388
Total equity and liabilities ............................. 2 177 626 1 249 514 799 046
1. Nanny Ltd was incorporated in 2016 and has a huge distribution network of pharmacies
in South Africa. Nanny Ltd’s head office is in Polokwane, South Africa.
On 31 March 2018, Buck Ltd acquired 350 000 of the ordinary shares of Nanny Ltd for
R200 000. Since this date, Buck Ltd has exercised significant influence over the financial
and operating decisions of Nanny Ltd. On the acquisition date all the assets and liabilities
of Nanny Ltd were considered to be fairly valued. The strategic reason for the purchase
of the shares was to take advantage of Nanny Ltd’s distribution network to distribute
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Buck Ltd’s latest product range, product X2341 (ointment for measles). The published
market price for the investment in Nanny Ltd was R245 000 on 31 December 2018.
2. On 1 June 2015, Buck Ltd acquired 75 000 of the issued ordinary shares of Kid Ltd for
R102 000. In terms of a contractual arrangement with other operators, Buck Ltd
exercises joint control over the economic activities of Kid Ltd. The arrangement was
correctly classified as a joint venture in terms of IFRS 11, Joint Arrangements. On the
acquisition date all the assets and liabilities of Kid Ltd were considered to be fairly
valued. On 1 June 2015, the retained earnings of Kid Ltd amounted to R105 200.
Goodwill amounting to R700 arose on the acquisition of Kid Ltd on 1 June 2015.
3. During the current year, Nanny Ltd purchased product X2341 from Buck Ltd for
R250 000. Buck Ltd sold this product to Nanny Ltd at a profit mark-up of 15% on the cost
price. On 31 December 2018, Nanny Ltd had inventory of X2341 that was purchased
from Buck Ltd on hand amounting to R20 000.
4. From 1 June 2015, Buck Ltd purchased inventory from Kid Ltd. Kid Ltd sold the inventory
at a profit margin of 20% on the selling price. Total sales amounted to R310 000 in the
2017 financial year and R350 000 in the 2018 financial year.
Inventory purchased from Kid Ltd that was still on hand at year-end was as follows:
31 December 2017: R57 000

31 December 2018: R75 000
Other information
5. Buck Ltd measures investments in associates and joint ventures at cost price in terms
of IAS 27, Separate Financial Statements.
6. The Buck Ltd Group accounts for investments in associates and joint ventures using the
equity method in terms of IAS 28, Investments in Associates and Joint Ventures.
7. The share capital of the companies in the group has remained unchanged since the
acquisition dates of the companies. Assume that each share carries one vote.
8. The SA normal tax rate remained unchanged at 28% since 1 June 2015 and capital
gains tax is calculated at 80% thereof.
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REQUIRED:
Marks
(a) Prepare the pro forma journal entries to account for the intragroup
transactions of inventory (as per additional information points 3 and 4) for
the year ending 31 December 2018. 18
(b) Prepare the consolidated statement of financial position of the

Buck Ltd Group as at 31 December 2018. 23
(c) Prepare the “Investment in associate” note to the consolidated financial
statements of the Buck Ltd Group as at 31 December 2018:
10
The following information is not required:
- unrecognised share of losses
- risks relating to associates
TOTAL [51]
Please note:
required.
rand.
PART A
JOURNAL ENTRIES TO ACCOUNT FOR THE INTRAGROUP TRANSACTION OF

INVENTORY BETWEEN THE INVESTOR AND THE ASSOCIATE
Debit Credit
R R
Revenue (P/L)(20 000 x 115/115 x 35%) 7 000
Cost of sales (P/L)(20 000 x 100/115 x 35%) 6 087
Investment in associate (SFP) (20 000 x 15/115 x 35%) 913
Eliminate unrealised profit included in the closing inventory
Deferred tax asset (SFP) (913 x 28%) 256

Tax effect of the unrealised profit included in the closing
inventory
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REALISED TRANSACTION BETWEEN THE INVESTOR AND

ASSOCIATE
Realised intragroup transactions between the associate and the investor
will not be eliminated.
When you apply the equity method in a group, you start with the trial
balance of the investor and then you add the investor’s share in the equity
reserves of the associate since acquisition date to the investment in
associate at cost price in the trial balance of the parent.
The intragroup transactions between the investor and associate cannot be
eliminated because you don’t include the trial balance of the associate in
the group.
DIRECTION OF THE SALE OF INVENTORY IS IMPORTANT

The direction of the sale of inventory between the associate and the
investor is important because it will determine the line items that need to
be adjusted.
JOURNAL ENTRIES TO ACCOUNT FOR THE INTRAGROUP TRANSACTION OF

INVENTORY BETWEEN THE INVESTOR AND THE JOINT VENTURE
Debit Credit
R R
20
Retained earnings (57 000 x /100 x 25%) 2 850
Share in profit of joint venture 2 850
Restate retained earnings with the unrealised profit included
in opening inventory.
Share in profit of joint venture 798
Retained earnings 798
Tax effect on unrealised profit included in opening inventory
OR
Retained earnings (57 000 x 20/100 x 25% x 72%) 2 052
Restate retained earnings with the unrealised profit included
in opening inventory.
Share in profit of joint venture (P/L) (75 000 x 20/100 x 25%) 3 750
Unrealised profit included in closing inventory.
Deferred tax asset (SFP) (3 750 x 28%) 1 050
Share in profit of joint venture (P/L) 1 050
Tax effect on unrealised profit included in closing inventory
OR
Share in profit of joint venture (P/L) (75 000 x 20/100 x 25% x
72%) 2 700
Deferred tax asset (SFP) (3 750 x 28%) 1 050
Inventory (SFP) (75 000 x 20/100 x 25%) 3 750
Unrealised profit included in closing inventory.
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THE DIRECTION OF THE TRANSACTION BETWEEN THE INVESTOR

AND JOINT VENTURE IS IMPORTANT
Realised intragroup transactions between the associate and the investor
will not be eliminated.
When you apply the equity method in a group, you start with the trial
balance of the investor and then you add the investor’s share in the equity
reserves of the associate since acquisition date to the investment in
associate at cost price in the trial balance of the parent.
The intragroup transactions between the investor and associate cannot
be eliminated because you don’t include the trial balance of the associate
in the group.
PART B
BUCK LTD GROUP

ASSETS R
Non-current assets
Property, plant and equipment 920 305
Investments in joint venture (C2) 160 364
Current assets
Inventories (520 000 – 3 750(Part A)) 516 250
Cash and cash equivalents 312 000
Trade and other receivables 123 321
Total current assets 951 571

Equity attributable to owners of the parent 1 640 153
Deferred tax liability (120 000 – 256(Part A) – 1 050(Part A)) 118 694
Total non-current liabilities 118 694
Current liabilities
Trade and other payables 380 000
Total current liabilities 380 000
Total equity and liabilities 2 358 337
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CALCULATIONS
C1 Investment in associate
R
Cost price of investment in associate 200 000
Gain on bargain purchase (200 000(cost price) – 237 999 (6 79 998
(500 000(SC) + 80 000(RE) + 99 998(RE)(399 992 x 3/12)) x 35%
(350 000/1 000 000))) 37 999
Share in profit of associate (299 994(399 992 x 9/12) x 35%) 104 998
Dividend paid (45 678 x 35%) (15 987)
Unrealised profit included in closing inventory (Part A) (913)
326 097
C2 Investment in joint venture
R
Cost price of investment in associate 102 000
Since acquisition retained earnings (100 000(205 200 – 105 200) x 25%
(75 000/300 000)) 25 000
Share in profit of joint venture (158 657 x 25%) 39 664
Dividend paid (25 200 x 25%) (6 300)
160 364
C3 Retained earnings R
Opening balance:
Buck Ltd 240 000
Kid Ltd (joint venture) 25 000
265 000
Profit for the year:
Buck Ltd 341 592
Share in profit of associate (Nanny Ltd) (104 998 + 37 999) 142 997
Share in profit of joint venture (Kid Ltd) 39 664
Dividend received from associate (15 987)
Dividend received from joint venture (6 300)
Unrealised profit included in closing inventory, net after tax (657)
Unrealised profit included in closing inventory (913)
Unrealised profit included in closing profit - adjustment against revenue (7 000)
Unrealised profit included in closing profit - adjustment against cost of sales
6 087
Tax effect on unrealised profit included in closing inventory 256
Unrealised profit included in closing inventory, net after tax (2 700)
Unrealised profit included in closing inventory – adjustment against share in
profit of joint venture (3 750)
Tax effect on unrealised profit included in closing inventory 1 050
Dividend paid
Buck Ltd (123 456)
640 153
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EFFECT OF OPENING INVENTORY ON RETAINED EARNINGS

The unrealised profit included in the opening inventory will have a zero
effect on the closing retained earnings line item.
Refer to the journal entry below:
Debit Credit
R R
Retained earnings (57 000 x 20/100 x 25%
x 72%) 2 052
Restate retained earnings with the unrealised profit included in
opening inventory.
C4 Analysis of owner’s equity of Nanny Ltd

Buck Ltd Carrying
100% 35% amount
Total At Since (CA)
R R R R
At acquisition
Beginning of the year 80 000
Current year (399 992 x 3/12) 99 998
679 998 237 999
Investment in Nanny Ltd 200 000 200 000
Current year
Dividends paid (45 678) (15 987) (15 987)

934 314 89 011 327 010
Unrealised profit in inventory
(20 000 x 15/115 x 35%) - - (913)
89 011 89 011 326 097
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C5 Analysis of owner’s equity of Kid Ltd

Buck Ltd Carrying
100% 25% amount
Total At Since (CA)
R R R R
At acquisition
405 200 101 300
Goodwill 700
Investment in Nanny Ltd 102 000 102 000
Since acquisition to beginning of

the current year
Current year
Dividends paid (25 200) (6 300) (6 300)

638 658 102 000 58 364 160 364
PART C
BUCK LTD GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT FOR THE YEAR ENDED
31 DECEMBER 2018
1. Investment in associate
Buck Ltd has a 35% interest in the associate, Nanny Ltd, a company operating in the
pharmaceutical industry. Nanny Ltd is accounted for in accordance with the equity method.
It is incorporated in South Africa and its principal place of business is in Polokwane.
Nanny Ltd acts as a distribution agent for the products of Buck Ltd.
1.1 The summarised financial information of Nanny Ltd
R
Non-current assets 647 314
Current assets 602 200
Non-current liabilities -
Current liabilities 315 200
Total liabilities 315 200
Revenue 1 290 000

Profit for the year 399 992
Total comprehensive income for the year 399 992
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1.2 Reconciliation of the summarised financial information and the carrying amount
of the investment in associate
R
Summarised financial information: net assets as at 31 December 2018
(1 249 514 – 315 200) 934 314
35% interest in the net asset value 327 010
Plus: goodwill -
Minus: intercompany sales of inventory (913)
Carrying amount of investment in associate 326 097
1.3 Fair value of the investment of associate

R
The fair value of the investment in associate (published price quotations) 245 000
Arthur Ltd, a company based in Johannesburg, manufactures and sells designer

sunglasses. The founder of the company is Arthur Lubisi, the first African designer to
establish a sunglasses brand that is admired and sold all over the world. Arthur is the chief
executive officer and owns 15% of the issued shares of Arthur Ltd. Arthur Ltd has a 30 June
financial year-end.
Employee benefits
Arthur Ltd has 48 employees. The total gross salaries per month for the financial year ended
30 June 2019 for all 48 employees combined amounted to R1 200 000. No employee left
the employ of Arthur Ltd and no new employees were appointed during the financial year
ended 30 June 2019. Management estimates that the number of employees will remain 48
for the financial year ending 30 June 2020. Arthur Ltd gives annual increases to all its
employees on 1 July of each year, the start of the new financial year. The increase on 1 July
2018 was 6% and the increase on 1 July 2019 was 8%.
The employees contribute 7.5% of their gross salaries to a defined contribution plan and
Arthur Ltd contributes 7.5% of the gross salaries to the defined contribution plan to bring the
total contribution to 15%.
Arthur Ltd pays a bonus to all employees at the end of December each year which is equal
to one month’s salary. At the end of December, each employee receives double their normal
salary due to the salary and the bonus that is paid on the same day.
All employees of Arthur Ltd are entitled to 24 vacation leave days per calendar year. It is the
policy of Arthur Ltd that a maximum of 5 vacation leave days that were not taken by
31 December of each year may be transferred to the next leave cycle. Any unused leave
days exceeding 5 days will be forfeited. Employees are only allowed to have their unused
leave paid out when they resign or retire.
The following unused vacation leave days on 31 December 2018 were transferred to the
next leave cycle:
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 For employees who earn 30% of the gross monthly salaries, 5 days were transferred.
For the period from 1 January 2019 to 30 June 2019, these employees took an average
of 6 days’ vacation leave.
 For employees who earn 20% of the gross monthly salaries, 3 days were transferred.
For the period from 1 January 2019 to 30 June 2019, these employees took an average
of 7 days’ vacation leave.
 The remainder of the employees had no unused vacation leave days. For the period
from 1 January 2019 to 30 June 2019, these employees took an average of 8 days’
vacation leave.
The prior year leave pay accrual amounted to R431 800. There are 252 working days in a
financial year.
Investment in shares of Polar Ltd
On 1 September 2018, Arthur Ltd acquired 200 000 ordinary shares in Polar Ltd, a company
that makes polarised lenses for sunglasses. On 1 September 2018, Arthur Ltd paid R24 per
share and paid broker’s commission of R40 000. Arthur Ltd made this investment for
strategic purposes as Polar Ltd manufactures the lenses for certain models of Arthur Ltd’s
sunglasses. The investment in Polar Ltd shares represents a 55% investment in Polar Ltd.
Arthur Ltd has control over Polar Ltd as defined in IFRS 10, Consolidated Financial
Statements. On 1 September 2018, Arthur Ltd made the irrevocable election in terms of
IFRS 9, Financial Instruments (paragraph 5.7.5), to measure the investment in shares of
Polar Ltd at fair value through other comprehensive income in Arthur Ltd’s separate
accounting records.
On 15 April 2019, Polar Ltd declared and paid a dividend of R1,80 per share to all ordinary
shareholders. At 30 June 2019, the fair value per share of Polar Ltd amounted to R26,50.
For the financial year ended 30 June 2019, Arthur Ltd acquired polarised lenses at their
market-related (arm’s-length) price of R1 600 000 from Polar Ltd. The lenses were paid for
in cash.
Construction of the new manufacturing machine
On 1 August 2018, Arthur Ltd ordered a new manufacturing machine that is able to print
models of the sunglasses in three dimensions and cast the frames of the sunglasses. The
machine will also be used to polish the frames to the desired finish and fit the lenses to the
sunglasses. The cost of the new manufacturing machine amounted to R9 600 000. The
construction was done by MR Ltd and took 6 months to complete. The new manufacturing
machine meets the definition of a qualifying asset in terms of IAS 23, Borrowing Costs.
Arthur Ltd applied for a loan from Bob Bank on 1 August 2018 to finance the construction of
the new manufacturing machine. James Lubisi, the brother of Arthur Lubisi, is the financial
director of Bob Bank. The loan was approved on 14 August 2018 and Bob Bank advanced
the loan as needed by Arthur Ltd to pay the construction costs. The construction
commenced on 1 September 2018.
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The invoices for the construction are listed below:

Invoice Date invoice received Amount Date paid by
from MR Ltd R Bob Bank to MR Ltd
Invoice 1 1 September 2018 6 000 000 1 October 2018

Invoice 2 28 February 2019 3 600 000 28 February 2019
9 600 000
The loan from Bob Bank bears interest at a fixed rate of 12% per annum, compounded
annually, starting on 30 September 2019. According to the loan agreement, interest accrued
on the loan until 30 September 2019 will be settled in cash on 30 September 2019. The loan
of R9 600 000 is repayable in four annual instalments of R3 160 651 (capital and interest)
starting on 30 September 2020. The terms of the loan agreement were at arm’s length.
The new manufacturing machine was ready for use on 28 February 2019 and was brought
into use on 1 July 2019. It is the policy of Arthur Ltd to depreciate its new manufacturing
machine using the straight-line method over its expected useful life of 6 years. The new
manufacturing machine has a residual value of R250 000.
REQUIRED:
Marks
(a) Discuss when the capitalisation of borrowing costs on the new manufacturing
machine should commence and cease in the accounting records of Arthur Ltd. 5
(b) Discuss the classification, measurement and initial recognition of the loan
from Bob Bank in the accounting records of Arthur Ltd. 3
(c) Prepare all the journal entries relating to the investment in Polar Ltd in the
separate accounting records of Arthur Ltd for the financial year ending 30 June
2019.
 Indicate the date of each journal.
 Journal narrations are not required. 9
(d) Disclose the above information in the following notes to the separate annual
financial statements of Arthur Ltd for the financial year ended 30 June 2019:
 Profit before tax (including finance costs and finance income)
 Property, plant and equipment
 Related parties 37
TOTAL [54]
Please note:
Standards (IFRS).
Comparative figures are not required
Ignore income tax and value-added tax
Round all amounts off to the nearest rand.
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PART A
Capitalisation of borrowing costs should commence when all three of the following
conditions have been met:
1. Expenditure for asset is being incurred, 1 September 2018.
2. Borrowing costs are being incurred, 1 October 2018.
3. Activities to prepare asset for its intended use are in progress from 1 September 2018.
As a result, the borrowing costs can be capitalised from 1 October 2018.
The capitalisation of borrowing costs must cease when substantially all the activities
necessary to prepare the asset for its intended use have been completed or the asset is
ready for use, which is 28 February 2019.
PART B
The loan from Bob Bank meets the definition of a financial liability as it is a contractual
obligation to deliver cash to another entity, being Bob Bank.
Arthur Ltd will only recognise the liability once it becomes party to contractual provisions.
Even though the loan was approved on 14 August 2018, it was only drawn down from 1
October 2018.
The loan (financial liability) will be initially measured at its fair value of R6 000 000 on 1
October 2018.
In terms of IFRS 9, financial liabilities will be classified (and subsequently measured) at
amortised cost using the effective interest rate method.
PART C
Dr Cr
R R
1 September 2018
Investment in shares of Polar Ltd (SFP) (200 000 x R24) + R40 000 4 840 000
Bank (SFP) 4 840 000
Initial recognition and capitalisation of transaction costs
15 April 2019
Bank (SFP) (200 000 x R1,80) 360 000
Dividends received (P/L) 360 000
Recognition of dividends received
30 June 2019
Investment in shares of Polar Ltd (SFP) (200 000 x R26,40)R4 840 000 460 000
Fair value adjustment (OCI) 460 000
Recognise increase in fair value at year-end
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PART D
ARTHUR LTD
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019

R
Income
Dividends received from Polar Ltd (200 000 x 1,80) 360 000
Expenses
Employee benefits 15 673 966
Short-term employee benefits
Post-employment benefits (1 200 000 x 12 x 7.5%) 1 080 000
Depreciation (see PPE note below) 536 111
Net finance costs 384 000

Total finance costs [1 Mar '19 - 30 Jun '19: 384 000[9 600 000(6 000 000 + 684 000
3 600 000) x 12% x 4/12] + 300 000]
Borrowing costs capitalised (300 000)
Capitalisation rate used for the capitalisation of borrowing costs is 12% per annum

R
-
Carrying amount at the start of the year -
Cost -
Additions (6 000 000 + 3 600 000) 9 600 000

Borrowing costs capitalised 1 Oct 2018 - 28 Feb 2019: 6 000 000 x 12% x 300 000
5/
12
Depreciation (9 600 000 + 300 000) = 9 900 000 - 250 000 = 9 650 000/6 x (536 111)
4/
12
Carrying amount at the end of the year 9 363 889

Cost 9 900 000
Related parties
Polar Ltd is a related party as it is a subsidiary of Arthur Ltd/Arthur Ltd controls Polar Ltd.
Bob Bank is a related party of Arthur Ltd because Arthur Lubisi, CEO of Arthur Ltd, is the
brother of James Lubisi, the financial director of Bob Bank
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Transactions
R
Dividends received from Polar Ltd 360 000
Purchase of lenses from Polar Ltd 1 600 000
Finance costs incurred on loan from Bob Bank 684 000
Outstanding balances
Loan and interest payable to Bob Bank (9 600 000 + 684 000) 10 284 000
The transactions with Polar Ltd and Bob Bank were entered into at arm’s length.
CALCULATIONS
C1 Short-term employee benefits
R R
Salaries (1 200 000 x 12 months) 14 400 000
Movement in bonus accrual 1 248 000

Reverse prior year accrual (1 200 000 x 6/
12) (600 000)
paid on 31 Dec 2018
Bonus paid 1 200 000
Current year accrual to be paid (1 200 000 x 1,08 x 6/
12) 648 000
on 31 Dec 2019
Movement in leave accrual 25 966

Reverse prior year accrual (431 800)
Current year accrual 457 766
15 673 966
Number of unused vacation leave days at year-end

Percentage Leave days Leave days Leave taken Total unused
of transferred to 1 accrued (24/12 leave days at Y/E
employees Jan 2019 x 6 months)
30% 5 12 -6 11
20% 3 12 -7 8
50% 0 12 -8 4
Total salary per day (1 200 000 x 12 months x 1,08 increase x 1,075
employer contribution)/252 days 66 343
Percentage of Salary per day Total unused leave Leave pay accrual
employees days at Y/E at 30 June 2019
30% 66 343 11 218 931
20% 66 343 8 106 149
50% 66 343 4 132 686
457 766
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Eggs Aplenty Ltd is a producer, packager and distributor of organic eggs and has a 30 June
year-end. The company is passionate about delivering quality eggs that are farmed using
environmentally friendly methods. The information below is relevant to the financial year
ended 30 June 2019.
Due to the increased awareness of food safety and criticism of the use of antibiotics and
hormones in food products, the demand for organic eggs has increased. As a result of this
increased demand, Eggs Aplenty Ltd decided to invest in an additional delivery truck for the
distribution and delivery of eggs to different retailers.
Since Eggs Aplenty Ltd could not afford to purchase a new delivery truck in cash,
negotiations were entered into with Balemi Ltd, a neighbouring milk distributor, who had
extra delivery trucks.
On 1 October 2018, Eggs Aplenty Ltd entered into a 4-year lease agreement with
Balemi Ltd, whereby Eggs Aplenty Ltd would lease one of Balemi Ltd’s trucks. The lease
agreement contains a lease in terms of IFRS 16, Leases. The specific truck to be leased by
Eggs Aplenty Ltd from Balemi Ltd had a cash price (fair value) of R1 200 000 and a
remaining useful life of 4 years, as at 1 October 2018.
The truck had originally been purchased by Balemi Ltd on 1 October 2014 at a cost of
R2 290 000, with a total useful life of 8 years and a residual value of Rnil. The useful life and
residual value of the delivery truck remained unchanged and Eggs Aplenty Ltd agreed with
these estimates. Balemi Ltd has a 30 June year-end.
The lease agreement was signed, and the delivery truck was delivered to Eggs Aplenty Ltd
on 1 October 2018. It was ready for use on the same date. Eggs Aplenty Ltd incurred and
paid legal fees of R25 000 relating to the drafting of the lease agreement. In terms of the 4-
year lease agreement, Eggs Aplenty Ltd would be required to make 8 bi-annual payments
of R195 000 each, with the first payment being due on 31 March 2019. At the end of the
lease term, Eggs Aplenty Ltd will acquire legal ownership of the delivery truck subject to the
payment of the residual value guaranteed of R146 974.
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REQUIRED:
Marks
(a) Calculate the interest expense on the lease liability that will be recognised
in Eggs Aplenty Ltd’s statement of profit or loss for the year ended
30 June 2019 5
(b) Disclose the “leases” note to the annual financial statements of Eggs
Aplenty Ltd for the year ended 30 June 2019. 23
(c) Prepare all the journal entries required to account for the lease of the
delivery truck in the accounting records of Balemi Ltd, for the year ended
30 June 2019.
 The journal entry relating to the current year depreciation expense
for the delivery truck is not required.
 Journal narrations and dates are required for all journals. 16
(d) Multiple-choice questions 2

TOTAL [46]
Please note:
Ignore income tax and value-added tax.
Round all amounts off to the nearest rand.
QUESTION 7(d) – MULTIPLE-CHOICE QUESTIONS
The following two multiple-choice questions are based on the information provided in
question 7 on page 56. Answer the following questions by choosing the correct option for
each question. There is only ONE correct answer for each question.
QUESTION 7.1
For this question only, assume that Eggs Aplenty Ltd had only leased Balemi Ltd’s delivery
truck for a period of six months and had elected to apply all the recognition exemptions in
terms of IFRS 16, Leases. Eggs Aplenty Ltd would …
a) account for the lease as an operating lease.

b) be required by IFRS 16, Leases to recognise a right-of-use asset and lease liability for
the six-month lease period.
c) account for the lease as one relating to a low-value asset, in terms of the
IFRS 16, Leases, practical expedient.
d) account for the lease as a short-term lease, in terms of IFRS 16, Leases, practical
expedient.
e) account for the lease as a finance lease.
(1)
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QUESTION 7.2
For this question only, assume that ownership of the delivery truck will not transfer to
Eggs Aplenty Ltd at the end of the lease term and at lease inception, Eggs Aplenty Ltd has
the option to extend the four-year lease term by two years. It was reasonably certain, at the
lease inception date, that Eggs Aplenty Ltd would exercise this option. The lease term would
be determined as …
a) four years for both Eggs Aplenty Ltd and Balemi Ltd as this is the non-cancellable period
of the lease.
b) six years for both Eggs Aplenty Ltd and Balemi Ltd.
c) four years for Eggs Aplenty Ltd and six years for Balemi Ltd.
d) six years for Eggs Aplenty Ltd and four years for Balemi Ltd.
e) five years for both Eggs Aplenty Ltd and Balemi Ltd.
(1)
PART A
Interest expense calculation
R
6/
1 200 000 x 16%(C1) x 12 = 96 000
(1 200 000 + 96 000 - 195 000) x 16% x 3/12 = 44 040
140 040
PART B
EGGS APLENTY LIMITED
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2019
3. Leases
3.1 Right of use of asset R
Carrying amount at the beginning of the year -
Additions 1 225 000
Depreciation (229 688)
Carrying amount at the end of the year 995 313
3.2 Maturity analysis of lease payments

R
Future (undiscounted) lease payment
For the year ended 30 June 2020 390 000
Total future finance costs 366 934
Lease liability balance as at 30 June 2019 1 145 040
Current portion of lease liability 231 289
Non-current portion of lease liability 913 751
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3.3 Total cash flows relating to leases (extract from the statement of cash flows for
the year ended 30 June 2019)
R
Presented under cash flows from operating activities
Cash payments of legal fees paid at lease inception (25 000)
Cash payments of interest portion of lease liability (96 000)
Presented under cash flows from financing activities
Cash payments made towards capital portion of finance lease (99 000)
Total cash outflows relating to lease (220 000)
CALCULATIONS
C1 Determine the interest rate implicit in the lease (IRIL)
Pmt R195 000
N 8 (2 payments x 4 years)
PV (R1 200 000)
FV R146 974
Compute i 16% per annum
C2 Amortisation table
Instalments Finance costs Capital Balance
R R R R
1-Oct-18 1 200 000
31-Mar-19 195 000 96 000 99 000 1 101 000
30-Jun-19 44 040 1 145 040
30-Sep-19 195 000 44 040 106 920 994 080
31-Mar-20 195 000 79 526 115 474 878 606
30-Jun-20 35 144 913 751
70 288
30-Sep-20 195 000 35 144 124 711 753 895
31-Mar-21 195 000 366 934 60 312 134 688 619 207
30-Jun-21 24 768 643 975
49 536
30-Sep-21 195 000 24 768 145 463 473 743
31-Mar-22 195 000 37 899 157 101 316 642
30-Jun-22 12 666 329 308
25 332
30-Sep-22 195 000 12 666 169 669 146 974
30-Sep-22 146 974 -
1 560 000 506 974 1 200 000
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PART C
Journal entries for Balemi Limited (Lessor)
Dr Cr
R R
1 October 2018
Gross investment in lease (SFP) (195 000 x 8) = 1 560 000 + 146 974 1 706 974
Accumulated depreciation on delivery truck (SFP) (2 290 000 x 4/8 1 145 000
years)
Unearned finance income (SFP) (R 1706 974 – R120 000) 360 000
Delivery truck: Cost (SFP) 2 290 000
Profit on disposal of delivery truck (P/L) [1 200 000 – (2 290 000 55 000
– 1 145 000)]
Disposal of delivery truck and net investment in finance lease
31 March 2019
Unearned finance income (SFP) (From Amort table C2) 96 000
Finance income (P/L) 96 000
Recognition of finance income earned (1 Oct – 31 March)
31 March 2019
Bank (SFP) 195 000
Gross investment in lease (SFP) 195 000
Recognition of lease payment received from lessee
30 June 2019
Unearned finance income (SFP) (From Amort table C2) 44 040
Finance income (P/L) 44 040
Recognition of finance income earned (1 Apr – 30 June)
PART D
QUESTION 7.1
The correct option is (d): account for the lease as a short-term lease, in terms of
IFRS 16, Leases, practical expedient.
QUESTION 7.2
The correct option is (b): six years for both Eggs Aplenty Ltd and Balemi Ltd.
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Dance Ltd is an international dance company based in Johannesburg. The company has
a 31 December financial year-end. During the financial year that ended
31 December 2018, Dance Ltd secured a contract to teach various dancing styles to
school children who attend school within the Loro School Group.
The contract with the Loro School Group was signed on 1 May 2018 and dance lessons
started on 1 June 2018. To fulfil the requirements of the contract, three new dance
instructors were employed.
Dance Ltd entered into a lease agreement to lease three motor vehicles from
KL Costumes Ltd for the three new dance instructors. (KL Costumes Ltd no longer had a
use for the three motor vehicles.) KL Costumes Ltd is a company owned by Mrs Martin,
who is also the majority shareholder of Dance Ltd. The lease of the three motor vehicles
contains a lease as defined in terms of IFRS 16, Leases.
The lease agreement contains the following information:
Fair value of the three motor vehicles on 1 June 2018

(R160 000 x 3) R480 000
Effective date of agreement 1 June 2018
Lease term 4 years
Payment intervals starting on 31 May 2019 Annually in arrears
Instalment per annum R150 000
At the end of the lease term, ownership of the three motor vehicles will be transferred to
Dance Ltd. Legal fees of R4 500 were incurred by Dance Ltd when negotiating the lease
transaction. KL Costumes Ltd paid a commission fee of R6 000 to an agent to enter into
the lease agreement. The lease agreement had been entered into at arm’s length.
KL Costumes Ltd originally purchased the three motor vehicles on 1 June 2016 at a total
cost of R900 000 (R300 000 x 3). On this date, KL Costumes Ltd estimated the total
residual value of the three motor vehicles to be R60 000 (R20 000 x 3). KL Costumes Ltd
provides for depreciation on motor vehicles using the straight-line method over the useful
life of 6 years.
Dance Ltd provides for depreciation on motor vehicles using the straight-line method over
the useful life of the asset. On 1 June 2018, Dance Ltd estimated the remaining useful life
of the three motor vehicles to be 5 years with an estimated residual value of Rnil for each
motor vehicle.
The accounting profit before tax of Dance Ltd for the financial year ended
31 December 2018 after taking all the above transactions into account amounted to
R1 080 000. The current tax expense of Dance Ltd was R186 452, after taking all the
above transactions into account.
KL Costumes Ltd also has a 31 December year-end. The accounting profit before tax of
KL Costumes Ltd for the financial year ended 31 December 2018 after taking all the above
transactions into account amounted to R855 000. The current tax expense of
KL Costumes Ltd was R235 712, after taking all the above transactions into account.
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The SA normal income tax rate is 28%. The South African Revenue Service allows a tax
deduction over five years on motor vehicles using the straight-line method, apportioned
for part of a year. The balance for deferred tax as at 1 January 2018 for Dance Ltd was
Rnil and for KL Costumes Ltd was R17 733 (deferred tax liability). Both Dance Ltd and
KL Costumes Ltd had no non-taxable and non-deductible items for tax purposes for the
financial year ended 31 December 2018.
REQUIRED:
Marks
(a) Prepare the journal entries for the year ended 31 December 2018 in the
accounting records of Dance Ltd to account for the lease of the three motor
vehicles from KL Costumes Ltd.
Journal narrations and tax implications are not required. 13

(b) Disclose the following notes to the annual financial statements of
KL Costumes Ltd for the year ended 31 December 2018:
 Profit before tax
 Net investment in finance leases
 Related parties 20
(c) Calculate the deferred tax balance of KL Costumes Ltd as at

31 December 2018 using the statement of financial position approach.
Indicate whether the balance is a deferred tax asset or liability. 5
(d) Disclose the income tax expense note to the annual financial statements of
KL Costumes Ltd for the year ended 31 December 2018. 4
(e) Multiple-choice questions 8
TOTAL [50]
Please note:
Round all interest rates to four decimal places.
Round all amounts to the nearest rand.
Ignore value-added tax (VAT).
QUESTION 8(e) – MULTIPLE-CHOICE QUESTIONS
The four multiple-choice questions are based on the information given below.
On 1 March 2018, Coffee House Ltd entered into a lease agreement with Fresh Bakers
Ltd, whereby Coffee House Ltd would rent a portion of Fresh Bakers Ltd’s building that is
currently not in use. The renting of the building contains a lease as defined in terms of
IFRS 16, Leases.
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The terms of the lease agreement for the building are as follows:
Lease term 3 years

Effective date of agreement 1 March 2018
Instalment intervals Monthly in arrears
Instalment on 31 March 2018 R60 000
Date of first payment 31 March 2018
Last payment to be made on 28 February 2021
Annual escalation effective on 1 March 10%
Fresh Bakers Ltd incurred legal fees amounting to R3 600 to secure the lease agreement.
The building owned by Fresh Bakers Ltd was acquired on 30 June 2015 for R7 000 000.
The estimated residual value of the building for purposes of depreciation is R2 300 000.
Fresh Bakers Ltd provides for depreciation using the straight-line method over the useful
life of the building of 10 years.
Coffee House Ltd and Fresh Bakers Ltd both have a 30 June year-end.
Answer the following questions by choosing the correct option for each question.
There is only ONE correct answer for each question.
QUESTION 8.1
Which one of the following indicates that a lease is an operating lease?
a) Ownership will be transferred at the end of the lease.

b) The lease term is for a major part of the economic life of the underlying asset.
c) At inception date, the present value of the lease payments amount to at least
substantially all of the fair value of the underlying asset.
d) The underlying asset is of such a specialised nature that only the lessee can use
it without major modifications.
e) Not all risks and rewards incidental to ownership are transferred to the lessee.
(1)
QUESTION 8.2
The operating lease income that will be disclosed in profit before tax of Fresh Bakers Ltd for
the year ended 30 June 2018 amounts to …
a) R264 800.
b) R291 200.
c) R240 000.
d) R198 600.
e) R149 211.
(1)
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QUESTION 8.3
The depreciation that will be disclosed in profit before tax of Fresh Bakers Ltd for the year
ended 30 June 2018 amounts to …
a) R470 000.
b) R470 120.
c) R470 400.
d) R470 300.
e) R471 200.
(1)
QUESTION 8.4
The lease of the office building in the accounting records of Coffee House Ltd will be
accounted for as …
a) a short-term lease using the practical expedient exemption.

b) a low-value lease asset using the practical expedient exemption.
c) a right-of-use asset and lease liability using an interest rate of 10% per annum.
d) a right-of-use asset and lease liability using the incremental borrowing rate of
Coffee House Ltd.
e) an operating lease.
(1)
PART A
DANCE LTD
JOURNAL ENTRIES FOR THE YEAR ENDED 31 DECEMBER 2018
Dr Cr
R R
1 June 2018
Right-of-use asset (SFP) 486 000
Lease liability(SFP) 486 000
Right-of-use asset (SFP) 4 500

Bank (SFP) 4 500
31 December 2018
Depreciation (P/L) 57 225
Accumulated depreciation (SFP) 57 225
Finance costs (P/L) 25 504

Lease liability (SFP) 25 504
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CALCULATIONS
C1 Determine the interest rate implicit in lease (IRIL)
N= 4
PMT = (150 000)
FV = -
PV = 486 000 (480 000 + 6 000)
I= 8.9961%
C2 PV of lease liability
N= 4
PMT = (150 000)
I= 8.9961%
FV = 0
PV = 486 000
C3 Finance costs
486 000 x 8.9961% x 7/12 = 25 504
C4 Depreciation
486 000 + 4 500 = 490 500/(60 x 7) = 57 225
OR
486 000 + 4 500 = 490 500/5 x 7/12 = 57 225
PART B
KL COSTUMES LTD
2018
R
Profit before tax includes the following
Income
Expenses
Depreciation (900 000 – 60 000 = 840 000/6 x 5/12) 58 333
Loss on disposal of asset (480 000 – 620 000) 140 000
3. Net investment in finance leases

3.1 Reconciliation of net investment in the finance leases
R
Opening balance -
New leases entered 486 000
Lease instalments received -
Closing balance 511 504
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3.2 Maturity analysis of future lease instalments receivable at reportable date

2019 2020 2021 2022
R R R R
Undiscounted lease payments 150 000 150 000 150 000 150 000
Unearned finance income (38 144) (28 081) (17 113) (5 158)
Net investment in the lease 111 856 121 919 132 887 144 842
4. Related parties
KL Costumes Ltd is related to Dance Ltd as Mrs Martin, who is the owner of
KL Costumes Ltd, is also the majority shareholder of Dance Ltd.
R
Transactions
Finance income from Dance Ltd 25 504
Loss on disposal of asset (140 000)
Outstanding balances
Investment in the lease payable by Dance Ltd 511 504
The related party transaction was entered into at arm's length.
CALCULATIONS
C1 Profit on disposal of assets
R
Cost 900 000
Accumulated depreciation (900 000 – 60 000)/72 x 19 (221 667)
Carrying amount beginning of the year 678 333
Current year depreciation (900 000 – 60 000)/72 x 5 58 333
Carrying amount on date of disposal 620 000
OR
Cost 900 000 900 000
Residual value (60 000)
840 000 900 000
2016 depreciation (840 000/6 x 7/12) (81 667)
2017 depreciation (840 000/6) (140 000)
2018 depreciation (840 000/6 x 5/12) (58 333)
Carrying amount 620 000
C2 Amortisation table
Date Instalment Interest Capital Balance
R R R R
31-May-18 486 000
31 Dec-18 25 504 511 504
31-May-19 150 000 18 217 106 279 379 721
31 Dec-19 19 927 399 648
31-May-20 150 000 14 233 115 840 263 881
31-Dec-20 13 848 277 729
31-May-21 150 000 9 891 126 261 137 620
31-Dec-21 7 222 144 842
31-May-22 150 000 5 158 137 620 -
(486 000 x 8.9961%) x 5/12 = 18 217
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PART C
KL COSTUMES LTD
Deferred tax Carrying Temporary Deferred
amount Tax base difference tax
R R R R
31 December 2018
Net investment in the 511 504 - 511 504 (143 221)
lease
Motor vehicles - 435 000 (435 000) 121 800
Deferred tax liability (21 421)
Tax base of motor vehicles
Cost 900 000
Tax deduction 31 December 2016 (900 000/5 x 7/12) (105 000)
Tax deduction 31 December 2017 (900 000/5) (180 000)
Tax deduction 31 December 2018 (900 000/5) (180 000)
Tax base 31 December 2018 435 000
or 900 000 - 900 000/(5 x 12 = 60 months) x (7 + (12 + 12) = 31 months) = 435 000
PART D
KL COSTUMES LTD
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED
31 DECEMBER 2018
2. Income tax expense
2018
Major components of tax expense R
SA normal tax
Current tax 235 712
- Current year
Deferred tax
- Movement in temporary difference (21 421 (Part (c) - 17 733) 3 688
239 400
Tax reconciliation
Accounting profit/profit before tax 855 000
Tax at 28% 239 400
PART D
QUESTION 8.1
The correct option is (e): not all risks and rewards incidental to ownership are transferred
to the lessee.
QUESTION 8.2
The correct option is (a): R264 800.
QUESTION 8.3
The correct option is (c): R470 400
QUESTION 8.4
The correct option is (d): the lease of the office building in the accounting records of
Coffee House Ltd will be accounted for as a right-of-use asset and lease liability using the
incremental borrowing rate of Coffee House Ltd.
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Storage Solutions Ltd is a company based in Gauteng that rents storage space to
companies and individuals. Storage Solutions Ltd has a 31 March financial year-end. The
company decided to expand its business by constructing a new storage facility in Umhlanga,
KwaZulu-Natal. The new storage facility is a qualifying asset as defined in IAS 23, Borrowing
Costs.
Storage Solutions Ltd purchased land in Umhlanga on 1 April 2017 for R2 000 000 cash and
began designing the new storage facility which would be built on the land. The estimated
construction costs of the storage facility amounted to R3 900 000.
The construction costs were funded with a loan from VV Bank. The loan agreement with
VV Bank was concluded on 1 May 2017 with the following terms and conditions:
 The land in Umhlanga and the new storage facility will serve as security to VV Bank
until the loan and interest have been repaid in full.
 The loan amount of R3 900 000 will be advanced in progress payments during the
construction period.
 The loan bears interest at 13% per annum. The interest on the loan will be
compounded annually starting on 31 December 2017.
 The loan and interest will be repaid in full with one instalment on 30 April 2020.
The construction of the storage facility commenced on 1 June 2017 and the storage facility
was ready for use on 28 February 2018. Storage Solutions Ltd decided that the new storage
facility will only be rented out from 1 April 2018.
VV Bank paid the following invoices on behalf of Storage Solutions Ltd during the
construction period:
Invoice Date of payment Amount
R
Invoice 1 1 June 2017 600 000
Invoice 2 30 September 2017 1 800 000
Invoice 3 28 February 2018 1 500 000
3 900 000
Storage Solutions Ltd’s accounting policy is to depreciate assets over their estimated useful
life. The estimated useful life of the new storage facility is 10 years and the estimated
residual value is R800 000.
Employee benefits
The gross salaries per month for all the employees of Storage Solutions Ltd for the financial
year ended 31 March 2018 were as follows:
Employees Gross salaries per month
Directors and managers 180 000
Sales representatives 175 000
Storage personnel
Packers 115 000
Security guards (up to 30 September 2017) 60 000
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All employees received a salary increase of 5% on 1 April 2017 which is included in the
amounts reflected in the table above. A salary increase of 6% will take effect on 1 April 2018.
Storage Solutions Ltd decided to outsource its security service to FDP Security Ltd and as
a result the services of the security guards were no longer required. All the security guards
were retrenched on 1 October 2017 and received two months’ salary as a retrenchment
package.
It is the policy of Storage Solutions Ltd to pay a bonus to all its employees on 30 November,
equal to the gross salary of November. Employees who resign before 30 November forfeit
the bonus payable on 30 November. Bonuses were duly paid on 30 November 2017.
All the employees are entitled to 24 vacation leave days per calendar year (1 January to
31 December). No employees took any leave from 1 January 2018 until 31 March 2018.
Leave not taken during a leave cycle, limited to five days, may be transferred to the next
leave cycle to be used within the next six months. The average number of unused leave
days as at 31 December 2017 was two days per employee. At 31 March 2018, it is estimated
that all the unused leave days will be utilised by the employees.
Leave days are only paid out when employees resign and an amount of R14 300 was paid
to the security guards that were retrenched on 1 October 2017. There are 252 working days
in a financial year. The leave accrual as at 31 March 2017 amounted to R158 200.
REQUIRED:
Marks
(a) Disclose the property, plant and equipment note to the financial statements
of Storage Solutions Ltd for the financial year ended 31 March 2018 . 10
(b) Disclose employee benefits in the profit before tax note to the financial
statements of Storage Solutions Ltd for the financial year ended 31 March 14
2018.
TOTAL [24]
Please note:
Ignore value-added tax (VAT).
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PART A
STORAGE SOLUTIONS LTD
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2018
2018
Land Buildings
R R
Carrying amount at the beginning of the year - -
Cost - -
Accumulated depreciation - -
Additions 2 000 000 3 900 000

Depreciation (27 152)
Carrying amount at the end of the year 2 000 000 4 031 101
Cost 2 000 000 4 058 253
Accumulated depreciation - (27 152)
Land and storage facility in Umhlanga, KwaZulu-Natal serves as security for the loan
from VV Bank.
CALCULATIONS
C1 Borrowing costs capitalised
Capitalise from 1 June 2017 – 28 Feb 2018
R
Alternative 1
1 June 2017 – 30 September 2017
600 000 x 13% x 4/12 26 000
30 September 2017 – 31 December 2017 (compounding date)
(600 000 + 1 800 000) x 13% x 3/12 78 000
1 January 2018 – 28 February 2018
(600 000 + 1 800 000) + (26 000 + 78 000) = 2 504 000 x (13% x 2/12) 54 253
158 253
Alternative 2
1 June 2017 – 31 December 2017
600 000 x 13% x 7/12 45 500
30 September 2017 – 31 December 2017
1 800 000 x 13% x 3/12 58 500
1 January 2018 – 28 February 2018
(600 000 + 1 800 000) + (45 500 + 58 500) = 2 504 000 x (13% x 2/12) 54 253
158 253
66

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FAC3762/108
PART B
STORAGE SOLUTIONS LTD
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2018
After taking the following items into account:
R
Employee benefits
Short-term employee benefits 6 505 290
Termination benefits/retrenchment benefits (60 000 x 2 months) 120 000
CALCULATIONS
C1 Short-term employee benefits
R
Salaries and wages 6 000 000
Directors and managers 180 000 12 2 160 000
Sales reps 175 000 12 2 100 000
Manufacturing personnel
Packers 115 000 12 1 380 000
Security guards 60 000 6 360 000
Bonus
Current year provision for 30 Nov 2018
(180 000 + 175 000 + 115 000 = 470 000) x 1.06 x 4/12 166 067
Reversal of prior year provision for 30 Nov 2017
(180 000 + 175 000 + 115 000 = 470 000) + 60 000 = 530 000 x 4/12 (176 667)
Bonus paid in current year on 30 Nov 2017
(180 000 + 175 000 + 115 000) 470 000
Vacation leave
Current year leave accrual 189 790
(470 000(180 000 + 170 000 + 115 000 ) x 12 months/252 days x 1.06
x 8 days (2 + 6 days))
Reversal of prior year leave accrual (158 200)
Leave paid out in current year 14 300
6 505 290
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FAC3762/108
Investco Ltd is a company that sells online and paper magazines and has a 31 December
financial year-end.
Investment in Tego Ltd debentures
On 1 January 2018, Investco Ltd purchased 10 000 12% debentures in Tego Ltd at their
fair value of R550 per debenture. The coupon interest on the debentures is payable on
31 December of each year. The debentures were originally issued by Tego Ltd on
1 January 2016 at their face value of R600 each. The principal amount is mandatorily
redeemable on 31 December 2022 at face value and as a result, the future cash flows
pertaining to the debentures are solely interest and capital.
On 1 January 2018, Investco Ltd paid transaction costs amounting to R150 000 to
conclude the investment in the debentures of Tego Ltd.
The investment in the debentures of Tego Ltd is held within a business model whose
objective is to collect contractual cash flows of interest and principal on specified dates.
Investco Ltd’s chief financial officer is of the opinion that the debentures should be
classified and measured at fair value through profit or loss since the value of the
debentures is expected to increase over time.
Investment in Yellow Star Ltd shares
On 1 July 2018, Investco Ltd acquired 2 000 shares in Yellow Star Ltd at a price of R12
per share. The investment in Yellow Star Ltd represents 2% of the issued shares of
Yellow Star Ltd. On the same day, Investco Ltd paid transaction costs of R0,20 per share
to acquire the shares in Yellow Star Ltd. On 31 December 2018, the market value of one
Yellow Star Ltd share amounted to R13,50.
Trade receivables
Investco Ltd uses the simplified approach when assessing expected credit losses. At
reporting date, Investco Ltd’s trade receivables amounted to R6 600 000. Trade receivables
do not include a significant financing component.
Age analysis of trade receivables at 31 December 2018 R

Current .............................................................................................. 3 600 000
30 days .............................................................................................. 1 800 000
60 days .............................................................................................. 1 200 000
6 600 000
Based on past experience (adjusted for forward looking estimates), Investco Ltd expects
that, over the expected lifetime of the trade receivables, the default rate of the trade
receivables will be as follows:
Trade receivables Default rate

Current 0.2%
30 days 0.5%
60 days 1%
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FAC3762/108
REQUIRED:
Marks
(a) Discuss, in terms of IFRS 9, Financial Instruments, whether you agree with
the opinion of Investco Ltd’s chief financial officer regarding the classification
and measurement of the investment in the debentures of Tego Ltd. 5
(b) Prepare all journal entries required to account for the investment in the
debentures of Tego Ltd, in the accounting records of Investco Ltd, for the
financial year ended 31 December 2018. 11
(c) Prepare all journal entries required to account for the investment in
Yellow Star Ltd shares, in the accounting records of Investco Ltd, for the
financial year ended 31 December 2018. 7
(d) Calculate the balance of the expected credit loss allowance for trade
receivables in the statement of financial position of Investco Ltd as at
31 December 2018. 3
TOTAL [26]
Please note:
Ignore income tax and value-added tax (VAT).
Round the effective interest rate to two decimal places.
69

R1,135 per month?
FAC3762/108
PART A
The investment in debentures of Tego Ltd meets the definition of a financial asset as it
provides Investco Ltd with the contractual right to receive cash from Tego Ltd.
In terms of IFRS 9 par 4.1.1, financial assets must be classified and subsequently measured
on the basis of the entity’s business model for managing the financial asset and the
contractual/cash flow characteristics of the financial asset.
A financial asset must be measured at amortised cost if both of the following conditions are
met (IFRS 9.4.1.2):
a) The asset is held within a business model whose objective is to hold assets in order to
collect contractual cash flows.
b) The contractual terms of the financial asset give rise on specified dates to cash flows
that are solely payments of principal and interest on the principal amount outstanding.
The debentures are held within a business model whose objective is to hold assets in order
to collect contractual cash flows; as a result, the first condition is met.
The cash flows are made up of interest and principal only at specified dates; as a result, the
second condition is also met.
Conclusion
The investment should be classified as a financial asset subsequently measured at
amortised cost as both the conditions are met (IFRS 9 par. 4.1.2).
As a result, I do not agree with the chief financial officer’s opinion with regard to the
classification and subsequent measurement of the investment in debentures.
PART B
Dr Cr
R R
1 January 2018
Investment in debentures (SFP) 5 650 000
Bank (SFP) (10 000 x R550) + R150 000 5 650 000
Initial recognition of bonds at fair value, plus transaction costs
31 December 2018
Bank (SFP) (10 000 x R600 x 12%) 720 000
Investment in debentures (SFP) (R773 280 – R720 000) 53 280
Finance income (P/L) (R5 650 000 x 13.69%) 773 280
Recognition of coupon interest received and effective interest
income earned
ALTERNATIVE FOR JOURNAL 2
Finance income (P/L) (R5 650 000 x 13.69%) 773 280
Recognition of effective finance income earned
Bank (SFP) (10 000 x R600 x 12%) 720 000
Investment in debentures 720 000
Recognition of coupon payment received
70

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FAC3762/108
CALCULATIONS
C1 Effective interest rate
PV = -5 650 000 (5 500 000 + 150 000)
FV = 6 000 000 (10 000 x R600)
PMT = 720 000 (10 000 x R600 x 12%)
n =5
i = 13.69% per annum
PART C
Dr Cr
R R
1 July 2018
Investment in Yellow Star Ltd shares (SFP) (2000 shares x R12) 24 000
Transaction costs (P/L) (2000 x 0.20) 400
Bank (SFP) 24 400
Recognition of investment in shares and transaction costs separately
in P/L
31 December 2018
Investment in Yellow Star Ltd shares (SFP) (13.5 x 2000) – (R12 x 2 000) 720 000
Fair value adjustment on trading portfolio (P/L) 773 280
Recognition of movement in fair value at year-end
PART D
R
Current: R3 600 000 x 0.2% 7 200

30 days: R1 800 000 x 0.5% 9 000
60 days: R1 200 000 x 1% 12 000
Expected credit loss on trade receivables as at 31 December 2018 28 200
Ref:/ FAC3762_2020_TL_108_0_B_pdf
©
UNISA 2020
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FOR ASSISTANCE WITH THIS MODULE +27 67 171 1739

International Group and Financial Accounting

EXAMINATION PANEL: AS APPOINTED BY THE DEPARTMENT

This paper consists of TEN (10) pages.

1. This paper consists of TWO (2) questions.

2. All questions must be answered.

3. Basic calculations, where applicable, must be shown.

4. Each question attempted must commence on a new (separate) page.

5. The use of a programmable pocket calculator is permissible.

6. This a closed book examination

7. PROPOSED TIMETABLE: (Avoid deviating from this as far as possible.)

Question 1 74,5 134

Date: 19 October 2022

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Additional student instructions:

Question 1 (72,5 marks) (134 minutes)

2. Transaction with Ricardo M

Accrued employee benefits on 28 February 2021 R

4. Investments held by Bonang

Carrying amount Fair value

5. Entities within the Bonang Group

5.1 DeeDee Ltd (DeeDee)

5.2 Mohale (Pty) Ltd (Mohale)

6. Summarised financial information

Bonang DeeDee Mohale

7. Strategic contractual arrangement (after year-end)

8. Other information relating the Bonang Group

With respects to the separate financial statements of Bonang Ltd

a Disclose the following notes to the annual financial statements of

b Prepare the statement of financial position of Bonang Ltd as at 28

With respects to the consolidated financial statements of Bonang

c Prepare only the pro-forma consolidation journal entries that will be

d Draft an email to the Financial Director wherein you discuss, with

Question 2 (25,5 marks) (46 minutes)

Assuming that the lease is classified as a finance lease and a dealer

1. Profit before tax

Profit before tax includes the following:

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Effective interest at initial recognition

𝑃𝑉 = −(100 000 + 2 000) = −102 000

Amortisation table using effective interest rate of 13.4204% per

Date Instalment Effective Capital Closing

Expected credit losses = (105 689 ∗ 2%)

iii. Operating lease income

Straight - lining of lease income

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Operating lease income = (27 583.33 ∗ 7)

iv. Short – term employee benefits

(b) Extract of the Statement of Financial Position as at 28 February 2022

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Investment in listed investments 195 000

(a) Pro Forma Journal Entries