,QUESTION 1
The following balances appeared in the trial balances of the individual companies in the TWP
Group for the year ended 31 December 2014:
T W P
Limited Limited Limited
R R R
Credits
Share capital - 500 000 ordinary shares 500 000 - -
- 200 000 ordinary shares - 200 000 -
- 150 000 ordinary shares - - 150 000
Retained earnings - 1 January 2014 215 000 60 000 80 000
Mark-to-market reserve 27 520 6 880 -
Deferred tax on mark-to-market reserve 4 480 1 120
Accumulated depreciation 120 000 98 500 155 000
Trade and other payables 64 444 32 460 14 596
Revenue 950 000 710 000 350 000
Other income 22 450 15 750 2 300
Fair value adjustments (before tax) – other investments (2014 –
SoCI) 1 500 1 800 -
1 905 394 1 126 510 751 896
Debits
Property, plant and equipment 513 170 319 252 477 000
Investments: W Limited at fair value 215 000 - -
P Limited at fair value - 175 000 -
C Limited
- 40 000 ordinary shares at fair value 92 000 - -
- 10 000 preference shares at fair value 12 000 - -
Other investments - at fair value 50 000 20 000
Trade and other receivables 250 000 82 000 2 000
Inventories 50 000 19 000 12 000
Ordinary dividends paid - 31 December 2014 6 500 5 000 9 000
Cost of sales 430 000 350 000 150 000
Other expenses 188 500 70 900 62 850
Income tax expense 98 224 85 358 39 046
1 905 394 1 126 510 751 896
Additional information
The directors of the TWP Limited Group decided to expand the company’s operations and the details of
the acquisitions follow hereunder.
1. W Limited
On 1 January 2011 T Limited acquired 166 000 of the ordinary shares of W Limited for R210 000. On
that date the retained earnings of W Limited amounted to R40 000 and the mark-to-market reserve
relating to other investments amounted to R3 855. There were no other reserves on that date.
On the acquisition date of W Limited, no unidentified assets, liabilities or contingent liabilities existed
and the fair value of all the assets, liabilities and contingent liabilities were confirmed to be equal to
the carrying amounts thereof.
,2. P Limited
W Limited acquired 75% of the ordinary share capital in P Limited on 1
January 2014 for R175 000.
At the date of acquisition of P Limited a portion of land that was stated in the records of P
Limited at R322 000 was valued by a sworn appraiser by R10 000 more. Therevaluation was not
recorded in the records of P Limited. This was the only item in the records of P Limited that
had a fair value that was not equal to its carrying amount at the date of acquisition. At this date,
no unidentified assets, liabilities or contingent liabilities existed.
3. Q Limited
On 1 January 2013, T Limited acquired 40% of the issued share capital of Q Limited when the
retained earnings of RaspC Limited amounted to R20 000. The cost price of the investment in
RaspC Limited amounted to R92 000. On the same date T Limited acquired a
20% interest in the 10% non-redeemable preference share capital of RaspC Limited for R10 000.
Since that date T Limited has exercised significant influence over the financial and operating
policy decisions of Q Limited.
On the above acquisition dates, there were no unidentified assets, liabilities or contingent liabilities
and the fair value of all the assets, liabilities and contingent liabilities were confirmed to be equalto
the carrying amounts thereof.
The trial balance for Q Limited for the year ended 31 December 2014 is as follows:
R
Credits
Share capital - 100 000 ordinary shares 100 000
Share capital - 10% 50 000 non-redeemable preference shares 50 000
Accumulated depreciation 17 000
Trade and other payables 6 000
Revenue 779 500
Other income 18 000
970 500
Debits
Property, plant and equipment 76 000
Accumulated loss 245 000
Trade and other receivables 81 416
Inventories 47 000
Ordinary dividends paid – 31 December 2014 12 000
Cost of sales 332 200
Other expenses 176 884
970 500
QUESTION 1 (continued)
The following additional information is relevant to the question:
(i) Mark-to-market reserve
The mark-to-market reserve and deferred tax on the mark-to-market reserve which is included in the
trial balance is made up as follows:
T W
Limited Limited
R R
Mark-to-market reserve:
Investments in group companies – 1 January 2014 6 020 -
Other investments – 1 January 2014 21 500 6 880
27 520 6 880
Deferred tax on mark-to-market reserve:
Investments in group companies – 1 January 2014 980 -
, Other investments – 1 January 2014 3 500 1 120
4 480 1 120
Intragroup transactions
Inventories:
During the current year W Limited sold inventories to T Limited. The following details applied to the
intragroup inventory sales:
Profit mark-up of 35% on selling price;
Total intragroup sales for 2014 amounted to R115 000; and
Inventories on hand (31 December 2014) of T Limited which were purchased from
W Limited amounted to R45 000.
Q Limited has purchased all its inventories from T Limited since 1 January 2013 at a
25% mark-up on cost price. Q Limited had inventory on hand at 31 December 2013 and 31
December 2014 respectively, of R40 000 and R47 000.
Machinery:
On 1 April 2014, W Limited sold machinery with a carrying amount of R55 000 to P Limited for R73
000. The machinery was acquired on 1 April 2008 by W Limited and had an expected useful life of 5
years at the original purchase date, which has remained unchanged. The entities' policy is to
provide for depreciation over the expected useful life of machinery using the straight-line method
which is consistent with the tax allowances of the South African Revenue Service.
(iii) Accounting policies
The TWP Limited Group accounts for their investments in other companies as available-for-sale
financial assets. Any fair value adjustments are recorded directly in other comprehensive income.
The TWP Limited Group uses the partial (proportionate) goodwill method to recognize goodwill.
The TWP Limited Group accounts for investments in associates using the equity method.
(iv) Sundry information
On 31 December 2014 the directors of the TWP Limited Group assessed goodwill and found that
the goodwill of W Limited had been impaired by R2 500 from the time that the investment in W Limited
was acquired.
The share capital of the companies has remained unchanged since 1 January 2010.
The SA normal tax rate has remained unchanged at 28% since 1 March 2010
Assume that each share carries on vote.
REQUIRED:
(a) Calculate the following amounts that will be disclosed in the consolidated statement of financial
position of the TWP Limited group as at 31 December 2014:
(i) Investment in associate. (10)
(ii) Non-controlling interest. (28)
(iii) Deferred tax (clearly indicate if the end balance is an asset or liability) (5)
(b) Prepare only the “assets” section of the consolidated statement of financial position of the TWP
Limited Group as at 31 December 2014.
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