Exam (elaborations)
FAC3704 ASSIGNMENT 2 OF 2022
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FAC3704 ASSIGNMENT 2 – SEMESTER 1 OF 2022(a) Five conditions which could indicate the existence of significant influence
➢ Representation on the board of directors or equivalent governing body of the investee.
➢ Participation in policy – making processes, including participation in decisions about dividend
or other distributions.
➢ Material transactions between the investor & the investee.
➢ Interchange of managerial personnel; and
➢ Provision of essential technical information.
(b) Pro Forma Journal Entries
% Interest of Thusanang in Kgotso Ltd = 75 000
* 100 = 25%
300 000
% Interest of Thusanang in Lethabo Ltd = 175 000 * 100 = 35%
500 000
DR CR
R R
Retained earnings – Beginning of year (SCE) 1 425
Share of profit of associate (P / L) 1 425
Elimination of unrealized profit in opening inventories
of Thusanang Ltd (28 500 * 20% * 25%)
Share of Profit (P / L) 399
Retained earnings – Beginning of year (SCE) 399
Tax implication of unrealized profit in opening
inventories of Thusanang Ltd (1 425 * 28%)
Share of Profit of associate (P / L) 1 875
Inventory (Thusanang) (SFP) 1 875
Elimination of unrealized profit in closing inventories
of Thusanang Ltd (37 500 * 20% * 25%)
Deferred Tax (SFP) 525
Share of profit of associate (P / L) 525
Tax implication of unrealized profit in closing
inventories of Thusanang Ltd (1 875 * 28%)
Profit on sale of land (P / L) 11 413
Investment in associate (SFP) 11 413
Elimination of unrealized profit on the sale of land
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