Exam (elaborations)
FAC3704 EXAM PACK 2025 {DETAILED QUESTIONS AND ANSWERS }
- Course
- Group Financial Reporting
- Institution
- University Of South Africa
FAC3704 EXAM PACK 2025 {DETAILED QUESTIONS AND ANSWERS }
[Show more]
Content preview
lOMoAR cPSD| 49343224Downloaded by Vincent master ()
, lOMoAR cPSD| 49343224
FAC3704/501
(a) Consideration only consists of cash
EXAMPLE 1.1
Information provided:
Assume the P Ltd Group elected to measure non-controlling interests at their proportionate
share of the acquiree’s identifiable net assets at acquisition date.
P Ltd obtained control with the acquisition of an 80% equity interest in the share capital of S
Ltd on 1 January 20.15 and paid R140 000 cash to settle the purchase price.
At acquisition date the equity of S Ltd consisted of the following:
R
Share capital (100 000 shares) 100 000
Retained earnings 50 000
If the purchase price of the interest in a subsidiary is settled by only transferring cash from
the parent to the subsidiary, the following journals are recorded:
JOURNALS IN THE SEPARATE ACCOUNTING RECORDS OF P LTD
Dr Cr
R R
Investment in S Ltd 140 000
Bank (cash) 140 000
PRO FORMA CONSOLIDATION JOURNALS FOR THE P LTD GROUP
Dr Cr
R R
Share capital 100 000
Retained earnings 50 000
Goodwill ((140 000 + 30 000) – (100 000 + 50 000)) 20 000
Investment in S Ltd 140 000
Non-controlling interests ((100 000 + 50 000) x 20%) 30 000
(b) Consideration consists of a combination of cash and non-current assets
EXAMPLE 1.2
Assume the same information as provided in example 1.1, except that P Ltd paid R100 000
in cash and transferred a vehicle with a carrying amount of R40 000 (equal to market value)
and an original cost of R60 000, to S Ltd to settle the payment for the purchase price of
R140 000.
3
Downloaded by Vincent
master
()
, lOMoAR cPSD| 49343224
If the purchase price of the interest in a subsidiary is settled with both cash transferred from
the parent to the shareholders as well as a vehicle, the following journals are recorded:
JOURNALS IN THE SEPARATE ACCOUNTING RECORDS OF P LTD
Dr Cr
R R
Investment in S Ltd 140 000
Bank (cash) 100 000
Vehicle (at cost)* 60 000
Accumulated depreciation – vehicles (60 000 – 40 000)* 20 000
*The carrying amount of the vehicle needs to be derecognised from P Ltd's records.
PRO FORMA CONSOLIDATION JOURNALS FOR THE P LTD GROUP
Dr Cr
R R
Share capital 100 000
Retained earnings 50 000
Goodwill ((140 000 + 30 000) – (100 000 + 50 000)) 20 000
Investment in S Ltd 140 000
Non-controlling interests ((100 000 + 50 000) x 20%) 30 000
LECTURER’S COMMENT
The asset is transferred to the previous shareholder(s) at the market
value of the asset.
There is no difference between the at acquisition date pro forma
consolidation journals between examples 1.1 and 1.2. The only
difference is in the separate records of P Ltd. P Ltd derecognises the
vehicle transferred, as P Ltd no longer owns the vehicle
(c) Consideration consists of a combination of cash and an investment in equity
shares
EXAMPLE 1.3
Assume the same information provided as in example 1.1, except that P Ltd paid R100 000
cash and transferred 10 000 ordinary equity shares in W Ltd, with a market value of R4 per
share, to settle the purchase price of R140 000 for the acquisition of an 80% interest.
The payment of the cash and the transfer of the shares (transfer of asset) in W Ltd will be
recorded as follows:
JOURNALS IN THE SEPARATE ACCOUNTING RECORDS OF P LTD
Dr Cr
R R
Investment in S Ltd 140 000
4
Downloaded by Vincent master ()
, lOMoAR cPSD| 49343224
FAC3704/501
Bank (cash) 100 000
Investment in W Ltd (10 000 shares x R4) 40 000
PRO FORMA CONSOLIDATION JOURNALS FOR THE P LTD GROUP
Dr Cr
R R
Share capital 100 000
Retained earnings 50 000
Goodwill ((140 000 + 30 000) – (100 000 + 50 000)) 20 000
Investment in S Ltd 140 000
Non-controlling interests ((100 000 + 50 000) x 20%) 30 000
EXAMPLE 1.4
Assume the same information provided as in example 1.1, except that P Ltd paid R100 000
cash and issued 10 000 of its own ordinary equity shares, with a market value of R4 per
share, to the non-controlling shareholders of S Ltd to settle the purchase price of R140 000.
The payment of the cash and the transfer of the shares (transfer of asset) in P Ltd will be
recorded as follows:
JOURNALS IN THE SEPARATE ACCOUNTING RECORDS OF P LTD
Dr Cr
R R
Investment in S Ltd 140 000
Bank (cash) 100 000
Share capital (10 000 shares x R4) 40 000
JOURNALS IN THE SEPARATE ACCOUNTING RECORDS OF S LTD
There is no separate journal entry in S Ltd's own records, since P Ltd acquired its interest
directly from the non-controlling interests. Thus, the shares in P Ltd are the investment of
the different parties making up the non-controlling interests of S Ltd and not S Ltd itself.
PRO FORMA CONSOLIDATION JOURNALS FOR THE P LTD GROUP
Dr Cr
R R
Share capital 100 000
Retained earnings 50 000
Goodwill ((140 000 + 30 000) – (100 000 + 50 000)) 20 000
Investment in S Ltd 140 000
Non-controlling interests ((100 000 + 50 000) x 20%) 30 000
5
Downloaded by Vincent
master
()
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through EFT, credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying this summary from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller MasterVincent. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy this summary for R47,28. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
68175 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy summaries for 15 years now