Class notes
BAC 300
- Course
- FRK300
- Institution
- University Of Pretoria (UP)
Lecture notes of 2 pages for the course FRK300 at UP (SUMMARIES)
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QUESTION 2 – SUGGESTED SOLUTION (30 marks) Other incomea. (8 marks) Champion Limited 80 000
CHAMPION LIMITED GROUP Beast Limited 105 000
EQUITY ACCOUNTING JOURNAL ENTRIES FOR THE YEAR ENDED Kolbe Limited (deduct ½ mark if Kolbe is included here) 0
31 DECEMBER 2018 Intragroup dividends
Debit Credit - Beast Limited [10 000 x 75%] (7 500) ^
- Kolbe Limited [5 000 x 30%] (1 500) ^
J1 Share of profit of associate (P/L) ^ 21 600 Intragroup management fee (60 000) ^
[25/75^ x 216 000^ x 30%^ (15 000/ 50 000)] Intragroup rent (deduct ½ mark if included here) –
Equipment at cost (SFP) ^ 21 600 116 000 2½
(Elimination of intragroup profit on sale of equipment)
J2 Deferred tax (SFP) ^ [21 600 x 28%] 6 048 (^) c. (16 marks)
Share of profit of associate (P/L) ^ 6 048 Property, plant and equipment
(Tax implication on elimination of intragroup profit on
sale of equipment) Champion Limited [1 028 500 + 378 000] 1 406 500 ^
Beast Limited [1 166 600 + 400 000] 1 566 600 ^
(do NOT penalize again if Kolbe is included here)
J3 Accumulated depreciation: Equipment (SFP) ^ 3 240
Unrealised profit on intragroup sale of equipment [W2] (18 360)
Share of profit of associate (P/L) ^ 3 240
[21 600(^) / 5yrs^ x 9/12^] Carrying amount on 31 December 2018 2 954 740 2
(Realisation of intragroup profit on sale of equipment)
Carrying amount of investment in associate
J4 Share of profit of associate (P/L) ^ 907 (^)
Deferred tax (SFP) ^ [3 240 x 28%] 907 Cost of investment in ordinary shares 30 000 ^
(Tax implication on realisation of intragroup profit on Gain on bargain purchase 14 362 2½
sale of equipment) Share of since acquisition reserves [W1] 105 120 2½
Carrying amount on 31 December 2018 149 482 5½
b. (6 marks)
Goodwill
Cost of sales
Beast only (deduct ½ mark if Kolbe is included here) 4 000
Champion Limited 6 000 000 Retained earnings
Beast Limited 3 040 000
Kolbe Limited (deduct ½ mark if Kolbe is included here) 0 Champion Limited:
Intragroup sales (195 000) ^ Opening retained earnings 890 000 ^
Intragroup profit realised on opening inventories Profit for the year 910 000 ^
[36 000^ x 20/120^] (6 000) () Dividends paid (20 000)
Unrealised intragroup profit on closing inventories Beast Limited 688 950
[48 000^ x 20/120^] 8 000 1 Kolbe Limited 105 120 (^)
8 847 000 3½ Unrealised profit on intragroup sale of equipment (13 219) ()
Gain on bargain purchase 14 362 ()
Unrealised profit on intragroup sale of inventories
[8 000(^) x 72%^] (5 760) 1
Retained earnings balance on 31 December 2018 2 569 453 6½
Other components of equity
Kolbe Limited Nil
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