Question 1 (50 marks)
Costa Ltd is a company with a 30 June year end. The following information relates to Costa Ltd and its subsidiary Jumbo for the year ended 30 June 20.22.

  Costa Ltd Jumbo Ltd
  Dr Cr Dr Cr
Property at cost 600 000   160 000  
Equipment at cost 300 000   180 000  
Inventories 100 000   80 000  
Investment in Jumbo Ltd @ fair value – 30 000 ordinary shares

(Cost is equal to fair value)

204 000      
Bank – Obese Bank 1200   12 000  
Trade and other receivables 124 400   406 800  
Income tax expense 190 000   170 000  
Provisional tax payments 100 000   90 000  
Loan to parent (interest free)     140 000  
Dividends paid – ordinary

shares

40 000   30 000  
Dividends paid – preference

shares

12 000   7 500  
  1 671 600   1 276 300  
         
Issued share capital – Ordinary

shares of R2 each

  200 000   100 000
Issued – 15% Cumulative

preference shares, R1 each

  80 000   50 000
Retained earnings – beginning

of year

  190 000   138 000
Accumulated depreciation –

Equipment

  128 000   94 000
Bank overdraft – GG Bank   48 000    
Trade and other payables   175 600   238 300
Taxation paid   190 000   170 000
Loan from subsidiary   120 000    
Profit before tax   540 000   486 000
         
    1 671 600   1 276 300
         

Additional information:

1. Costa Ltd acquired its interest in Jumbo Ltd at 1 July 20.18. at that date, Jumbo Ltd’s retained earnings amounted to R55 000. Costa Ltd paid R204 000, R75 000 of which was paid for goodwill. The balance was attributable to the revaluation of Jumbo Ltd’s property. The carrying amount of the assets and liabilities were equal to the fair value thereof. At the date of acquisition there was no arrear preference dividend. Each share carries one vote.
2. Costa Ltd has bought all its inventories from Jumbo Ltd since 1 July 20.21. jumbo Ltd made a profit of 25% on the cost price of inventories sold to Costa Ltd.
3. Jumbo Ltd paid no preference dividends for the period 1 July 20.18 to 30 June 20.20. on 30 June 20.21 Jumbo Ltd paid a preference dividend of R22 500.
4. On 29 June 20.22 Jumbo Ltd sent inventories to the value of R20 000 to Costa Ltd, Costa Ltd only received the inventories on 3 July 20.22.
5. On 2 January 20.21, Costa Ltd sold a machine to Jumbo Ltd at a profit of R40 000. It is group policy to provide for depreciation at 25% per annum according to the reducing balance method.
Ignore all forms of taxes.

QUESTION 2 (39 marks)

Roundworm Ltd is a group of companies with a 31 December year-end. The Roundworm group financial statements for the years 20.21 and 20.22 are given below:

Roundworm Group Ltd
Consolidated statement of comprehensive income for the year ended 31 December 20.22 (Extract)

    R
Revenue   600 000 000
Cost of sales   (300 000 000)
Gross profit   300 000 000
     
Operating expenses   (150 000 000)
Finance costs   (44 000 000)
Share of profits from associate   17 000 000
Profit before tax   123 000 000
Taxation   (35 000 000)
    88 000 000
Other comprehensive income: Gain on revaluation of PPE   15 000 000
    103 000 000
Profit attributable to:    
–     Non-controlling interests   10 000 000
–     Parent shareholders   78 000 000
    88 000 000
Total comprehensible income attributable to:    
–     Non-controlling interest   12 000 000
–     Parent shareholders   91 000 000
     
    103 000 000

Roundworm Group Ltd
Consolidated statement of financial position as at 31 December 20.21 and 20.22 (Extract)

  20.22 20.21
ASSETS R R
Non-Current Assets    
–     Property, plant and equipment 240 000 000 280 000 000
–     Investments in associates 80 000 000 70 000 000
–     Goodwill 25 000 000 19 000 000
  345 000 000 369 000 000
Current Assets    
–     Inventory 105 000 000 90 000 000
–     Receivables 120 000 000 100 000 000
–     Cash and cash equivalents 30 000 000 75 000 000
  255 000 000 265 000 000
     
TOTAL ASSETS 600 000 000 634 000 000
     
EQUITY AND LIABILITIES    
Equity    
–     Share capital 100 000 000 100 000 000
–     Retained earnings 194 000 000 142 000 000
–     Revaluation reserve 103 000 000 90 000 000
–     Non-controlling reserve 72 000 000 40 000 000
Total Equity 469 000 000 372 000 000
Non-current Liabilities    
–     12% debentures   90 000 000
–     Deferred taxation 30 000 000 24 000 000
Total Non-current Liabilities 30 000 000 114 000 000
Current Liabilities    
–     Trade payables 65 000 000 55 000 000
–     Taxation 10 000 000 8 000 000
–     Bank overdraft 26 000 000 85 000 000
Total Current Liabilities 101 000 000 148 000 000
Total Liabilities 131 000 000 262 000 000
TOTAL EQUITY AND LIABILITIES 600 000 000 634 000 000

Additional information:

1. Acquisition of subsidiary
During the year ended 31 December 20.22, Roundworm purchased 80% of the issued equity share capital of Chong Ltd for R100 000 000, payable in cash. The net assets of Chong at the date of acquisition were assessed at fair value as follows:

    R
Property, plant and equipment   60 000 000
Inventory   30 000 000
Receivables   25 000 000
Bank and cash   10 000 000
Trade payables   (15 000 000)
Taxation   (5 000 000)
    105 000 000

It is group policy to measure NCI at the proportionate share of the fair value of net assets at acquisition.

2. Goodwill
Goodwill suffered an impairment during the year.

3. Property, plant and equipment

The only disposal in the year was of land with a carrying value of R90 million. The profit on disposal of R10m is included within operating expenses. Depreciation of R58m was charged on PPE in the year.

QUESTION 3 (11 marks)

Midrand Ltd acquired a 90% interest in Bramely Ltd on 2 December 20.21 for R2 million. The consideration was settled as follows:

  R
Cash payment, 1000 000
Issue of 100 000 shares to the seller 650 000
Issue of debentures to the seller 450 000

Legal and other costs incurred in relation to the acquisition of the shares in relation to Bramely Ltd amounted to R126 000. Costs to issue the shares and the debentures amounted to R89 000 and R77 500 respectively.

Answers to Above Questions on Financial Accounting

Answer 1: The consolidated financial statements of Costa Ltd and its subsidiary for the year ended 30 June 20.22 is calculated as follows:

answer

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