FAC3704 EXAM PREP FOR 2022 (Group Financial Reporting)

FAC3704 EXAM PREP FOR 2022. Group Financial Reporting. Identifying a Subsidiary- When an entity holds directly or indirectly 51% or more of the voting power of the investee and has control over the investee. 2. Calculating Goodwill and Non Controlling Interest (on both Full Goodwill method amd Partial Goodwill method) 3. Processing transaction of the following periods; General Consolidation Procedures for a Subsidiary 1. For a subsidiary, you consolidate 100% of Assets, Liabilities, Expenses and Income, see below; CONSOLIDATING A SUBSIDIARY LEARNING UNIT 1 - At Acquisition Goodwill or Bargain Purchase - Since Acquisition to beginning of Current Year - Unrealised Gains and Losses - Current Year - Inter-company transactions What is Control? B can only be a subsidiary of A, if and only if A has controll over B. 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 Parent(A) Subsidiary(B) Say Company A acquired 65% interest in Company B, Company A Company B Consolidated Land 20 10 30 Trade Receivables 15 10 25 Trade Payables 10 8 18 Revenue Cost of Sales 60 45 105 B A R B I C A N A C C O U N T I N G S C H O O L E : e n q u i r i e s @ b a r b i c a n a c . c o . z a 2. Eliminate intercompany transactions like Dividends, Intercompany sales, etc 3. Eliminate the Share Capital of the subsidiary against the Investment in Subsidiary. It implies that on the consolidated balance sheet we don’t want to see the Investment in Subsidiary and the Share Capital of the Subsidiary. 4. Adjust for any unrealised gains or losses. Keep the following on your figure tips; 1. Goodwill -Is an Non-Cureent Asset in the consolidated Statement of Financial Position. a. It can be impaired, impairment of Goodwill is accounted for in other expenses (P/L). 2. Bargain Purchase- this arise if purchase consideration is less than the net assets acquired. It’s a discount on acquisition. a. Please note that Bargain Purchase is not an asset like Goodwill. This will be recognised in the P/L on acquisition date(IFRS 3.34). It’s income in your P/L. 3. When NCI is measured at Fair-Value (Full Goodwill Method); NCI will get a share of Goodwill and when that Goodwill is impaired, NCI will also get a share of that impairement loss. 4. Carefully go through the following learning questions to fully understand how to deal with a subsidiary in a consolidations question B A R B I C A N A C C O U N T I N G S C H O O L E : e n q u i r i e s @ b a r b i c a n a c . c o . z a Learning Qn 1. B A R B I C A N A C C O U N T I N G S C H O O L E : e n q u i r i e s @ b a r b i c a n a c . c o . z a 4. Plasma Planet Ltd is not regarded as a share trader for income tax purposes or as an investment entity in terms of IFRS 10 Consolidated Financial Statements. B A R B I C A N A C C O U N T I N G S C H O O L E : e n q u i r i e s @ b a r b i c a n a c . c o . z a 5. Assume a tax rate of 28% and a capital gains tax inclusion rate of 80%. Ignore the effects of Dividend tax and Value Added Tax (VAT). Solution Note: Effective 01 March 2016, the Capital Gains Inclusion rate changed from 66.6% to 80%. However, you must use the tax rate given in the questions. Required [30] Communication skills: Presentation and layout [1] Please note: • Journal narrations are required. • Round off all amounts to the nearest Rand. • Your answer must comply with International Financial Reporting Standards (IFRS). Prepare the pro forma journal entries for the Plasma Planet Ltd Group for the year ended 31 December 2013. Journal entries related to deferred taxation are also required. Interest Acquired in TV Sales 70% Acquisition Date 01 Aug 2012 Plasma Obtained Control over TV Sales - Plasma Planet Ltd is exposed to variable returns from its involvement with TV Sales Ltd - Has the ability to affect those returns through its power over TV Sales Ltd - thefore ,TV Sales is a Subsidiary of Plasma Planet (by virtue of control) Journals are equired for : 1 At Acquisition 2 Since Acquisition to beginning of Current Year 3 Current Year AT ACQUISITIN (01 Aug 2012) DR CR J1 Share Capital (SCE) 100 000 Retained Earnings (SCE) 475 000 Revaluation Surplus (SCE) 19 000 Land (SFP) [] 11 000 Deferred Tax on Land (SFP) [11 000 x 80% x 28%] 2 464 Trade Debtors (SFP) [) 6 000 Deferred Tax on Debtors (SFP) [6 000 x 28%] 1 680 Investment in TV Sales (SFP) (C1) 447 000 Non- Controlling Interest (SFP) (C2) 192 000 Goodwill (SFP)- balancing figure 40 784 Elimination of at acquisition equity B A R B I C A N A C C O U N T I N G S C H O O L E : e n q u i r i e s @ b a r b i c a n a c . c o . z a SINCE ACQUISITION TO BEGINNING OF CURRENT YEAR (01 Aug 2012 to 31 Dec 2012) DR CR J2 Retained Earnings (SCE) [589 000 - 475 000 - 2 592 +108] x 30% 33 455 Non Controlling Interest (SFP) 33 455 Accounting for non-controlling interests' share of since acquisition Retained Earnings J3 Retained Earnings (SCE) [3 600 x 72%] 2 592 Deferred Tax (SFP) (3 600 x 28%) 1 008 PPE (SFP) [ 12 000 x 30%] 3 600 Accumulated Depn (SFP)[3 600/4 x 2/12) 150 Deferred Tax (SFP) (150 x 28%) 42 Retained Earnings (SCE) [150 x 72%] 108 Reversal of intragroup unrealised profit and depreciation in 2012..................................