QUESTIONS AND
ANSWERS
FOR ASSISTANCE CONTACT
EMAIL:gabrielmusyoka940@gmail.com
, lOMoARcPSD|44660598
UNIVERSITY EXAMINATIONS
May/June 2020
FAC3704
GROUP FINANCIAL REPORTING
100 marks
3 hours
30 minutes for uploading
THIS PAPER CONSISTS OF TEN (10) PAGES.
INSTRUCTIONS:
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PLEASE NOTE:
1. The paper consists of THREE (3) questions.
2. All questions must be answered.
3. All calculations must be shown.
5. Each question attempted, must commence on a new (separate) page.
6. PROPOSED TIME-TABLE: (Avoid deviating from this as far as possible.)
Question Subject Marks Time
number (minutes)
1 Consolidation of a group of entities 42 76
2 Consolidation of a group of entities 44 79
3 MCQ and journal entries 14 25
TOTAL 100 180
Open Rubric
, lOMoARcPSD|44660598
2 FAC3704
05/06 2020
QUESTION 1 (42 marks)(76 minutes)
The following are the trial balances of the entities in the Heartland Ltd Group for the year ended
28 February 2019:
Heartland Spartan Pegasus
Ltd Ltd Ltd
R R R
Debits
Property, plant and equipment at cost price ...... 8 934 000 1 680 500 2 404 200
Investments in equity instruments:
- Spartan Ltd at cost price .................................. 600 000 - -
- Pegasus Ltd at cost price ................................. 300 000 - -
Inventories .......................................................... 370 000 185 000 246 500
Trade and other receivables .............................. 340 200 312 000 652 800
Cash and cash equivalents ................................ 260 000 177 000 384 200
Accumulated loss – 1 March 2018 ..................... - 370 500 -
Income tax expense ........................................... 796 678 533 128 220 427
Dividends paid – 28 February 2019 ................... 165 000 45 000 47 600
11 765 878 3 303 128 3 955 727
Credits
Share capital:
- 600 000 ordinary shares ................................. 1 200 000 - -
- 330 000 ordinary shares ................................. - 330 000 -
- 240 000 ordinary shares ................................. - - 816 000
Retained earnings – 1 March 2018 .................... 1 518 000 - 1 062 386
Accumulated depreciation .................................. 5 825 200 450 000 1 000 250
Trade and other payables .................................. 377 400 619 100 289 850
Profit before tax .................................................. 2 845 278 1 904 028 787 241
11 765 878 3 303 128 3 955 727
Additional information
Spartan Ltd
1. On 1 March 2016, Heartland Ltd acquired control over Spartan Ltd by acquiring 214 500 of
the issued ordinary shares in Spartan Ltd from Briar Ridge Ltd. On this date the retained
earnings of Spartan Ltd amounted to R550 000 and the market value of Spartan Ltd’s
shares were R2,60 per share. The purchase price was settled as follows:
- a cash amount of R450 000.
- Heartland Ltd issued 30 000 ordinary shares with a fair value of R5 each to Spartan Ltd.
Costs incurred in issuing these shares amounted to R1 500.
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, lOMoARcPSD|44660598
3 FAC3704
05/06 2020
QUESTION 1 (continued)
At the acquisition date the fair value of the identifiable assets and liabilities of Spartan Ltd
were considered to be equal to the carrying amounts thereof, except for the following
assets:
Fair value Carrying amount
R R
Trade receivables 180 000 220 000
Inventory 138 000 162 000
The fair value adjustment was not accounted for in the accounting records of Spartan Ltd.
2. On 1 March 2018, Spartan Ltd sold a manufacturing machine to Heartland Ltd for
R155 000. The profit mark-up on the selling price was 25%. On 1 March 2018 the machine
had a remaining useful life of 3 years. The entity’s policy is to provide for depreciation over
the expected useful life of the machinery, using the straight-line method which is in line with
the allowance received from the South African Revenue Service.
Pegasus Ltd
3. On 28 February 2017, Heartland Ltd acquired 96 000 ordinary shares in Pegasus Ltd. The
full consideration of R300 000 was paid in cash. At the date of acquisition, Pegasus Ltd’s
retained earnings amounted to R172 000 and the identifiable assets and liabilities were
considered to be fairly valued and equal to the carrying amounts thereof. Since
28 February 2017, Heartland Ltd exercised significant influence over the financial and
operating policy decisions of Pegasus Ltd.
4. Since 28 February 2017, Pegasus Ltd sold inventory to Heartland Ltd. The intragroup sales
during the current year amounted to R500 000. The inventory was sold at a mark-up of 20%
on the cost price. Heartland Ltd had inventory on hand on 28 February 2019 that was
purchased from Pegasus Ltd amounting to R120 000 (28 February 2018: R90 000).
Other information
5. Heartland Ltd measures its investments in subsidiaries and associates at cost price in its
separate accounting records in terms of IAS 27, Separate Financial Statements.
6. The Heartland Ltd Group measures non-controlling interests at their proportionate share of
the acquiree’s identifiable net assets at acquisition date. Goodwill relating to the investment
in Spartan Ltd was tested for impairment on 28 February 2019 and it was determined that
the goodwill was impaired by R12 000.
7. The Heartland Ltd Group accounts for investments in associates and joint ventures using
the equity method in terms of IAS 28, Investments in Associates and Joint Ventures.
8. According to the group accountant the consolidated profit of the Heartland Ltd Group for the
current year amounted to R3 565 896. You may assume that this amount is correct.
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