Questions and answers for Group accounting, Leases, IFRS 15 Revenue, and Impairment losses, Changes in accounting policies, and Employee benefits. And all the other IFRS and IAS.
Old papers and questions.
Panem Ltd is a company that produces combat equipment and invests in other similar entities in South
Africa. Everdeen Ltd manufactures bows and arrows. All the companies in the Panem Ltd Group have a
31 December year end.
The following are extracts of the trial balances of the entities in the Panem Ltd Group for the year ended
31 December 20.17:
Panem Everdeen Mellark
Ltd Ltd Ltd
R R R
Credits
Share capital:
– 1 000 000 ordinary shares 1 000 000 - -
– 350 000 ordinary shares - 500 000 -
– 80 000 8% cumulative preference shares - 80 000 -
Share capital – 250 000 ordinary shares - - 250 000
Retained earnings – 1 January 20.17 2 777 600 960 000 90 000
Accumulated depreciation 1 650 000 214 000 390 000
Trade and other payables 150 000 82 000 76 000
Revenue 4 114 000 2 200 000 1 050 000
Other income 386 000 96 000 20 000
10 077 600 4 132 000 1 876 000
Debits
Property, plant and equipment at cost 5 589 294 1 788 728 843 800
Investments in equity instruments:
– Everdeen Ltd at cost: ordinary shares 584 706 - -
– Everdeen Ltd at cost: cumulative preference shares 40 000 - -
– Mellark Ltd at cost 136 000 - -
Trade and other receivables 200 000 115 000 50 000
Cash and cash equivalents 190 000 260 000 98 000
Inventories 380 000 280 000 85 000
Ordinary dividends paid – 31 December 20.17 200 000 50 000 10 000
Preference dividends paid – 31 December 20.17 - 6 400 -
Cost of sales 1 600 000 950 000 530 000
Other expenses 480 000 423 600 150 000
Income tax expense 677 600 258 272 109 200
10 077 600 4 132 000 1 876 000
Additional information
1. On 1 January 20.14, Panem Ltd acquired control of Everdeen Ltd by acquiring 85% of the issued
ordinary shares in Everdeen Ltd for R710 000. The retained earnings of Everdeen Ltd amounted to
R300 000 on 1 January 20.14.
2. On 1 January 20.14, Panem Ltd also acquired 50% of the issued cumulative preference shares of
Everdeen Ltd for R40 000. No preference dividends were in arrears on 1 January 20.14 and all
preference dividends had been declared and paid until 31 December 20.17. On 1 January 20.14
the fair value of the identifiable assets and liabilities of Everdeen Ltd were considered to be equal to
the carrying amounts thereof.
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QUESTION 1 (continued)
3. Panem Ltd acquired a 40% interest in Mellark Ltd on 1 January 20.17. In terms of a contractual
agreement with other operators, Panem Ltd exercises joint control over the economic activities of
Mellark Ltd. The arrangement was classified as a joint venture as per IFRS 11, Joint Arrangements
and the consideration paid was equal to the fair value of the net assets of Mellark Ltd on the date of
acquisition. At acquisition date the fair value of the identifiable assets and liabilities of Mellark Ltd
were considered to be equal to the carrying amounts thereof.
4. Since 20.16, Panem Ltd purchased inventory from Everdeen Ltd at a margin of 25% on the cost
price. During the current year Panem Ltd purchased inventories to the value of R750 000 from
Everdeen Ltd. On 31 December 20.17, 50% of the inventory on hand in the records of Panem Ltd
had been purchased from Everdeen Ltd (31 December 20.16: R110 000).
5. On 1 March 20.17, Panem Ltd sold a vacant piece of land to Mellark Ltd for R600 000. The vacant
piece of land was originally acquired by Panem Ltd on 1 May 20.14 for R500 000.
6. Panem Ltd is responsible for the day-to-day management of Mellark Ltd at an agreed management
fee of R28 000 per annum in accordance with the contractual arrangement. Management fees
paid to Panem Ltd are included in <other expenses= of Mellark Ltd and management fees received
are included in <other income= of Panem Ltd.
7. On 1 May 20.17 Panem Ltd disposed of 52 500 of the ordinary shares held in Everdeen Ltd for an
amount of R255 000 (fair value) to non-controlling shareholders. The profit on the disposal of
shares is included in <other income= of Panem Ltd. Panem Ltd continued to control Everdeen Ltd.
8. The disposal of the interest in the subsidiary, Everdeen Ltd, did not comply with the criteria of IFRS
5, Non-current Assets Held for Sale and Discontinued Operations until the date of disposal.
9. The profit of Everdeen Ltd and Mellark Ltd was earned evenly during the current year.
10. The Panem Ltd Group measures its investments in equity instruments at cost, in accordance with
IAS 27, Separate Financial Statements.
11. The Panem Ltd Group uses the partial (proportionate) goodwill method to recognise goodwill.
Goodwill relating to the Everdeen Ltd investment was tested for impairment at 31 December 20.17
and it was determined that the fair value of the goodwill was R22 000 on 31 December 20.17.
Panem Ltd did not recognise any impairment on its investment in Everdeen Ltd in its separate
accounting records.
12. The SA normal tax rate is 28% and capital gains tax is calculated at 80% thereof (effective capital
gains tax rate of 22,4%). You may assume that the tax rate has remained unchanged since
1 January 20.14.
13. Each share carries one vote and the issued share capital of all the entities in the group remained
unchanged since 1 January 20.14.
REQUIRED:
(a) Prepare the consolidated statement of profit or loss and other comprehensive income of the
Panem Ltd Group for the year ended 31 December 20.17. (37)
(b) Prepare the consolidated statement of changes in equity for the Panem Ltd Group for the year
ended 31 December 20.17. (13)
Please note: Total columns are not required in the consolidated statement of changes in equity.
Your answer must comply with the requirements of International Financial Reporting Standards (IFRS).
Comparative figures and notes to the consolidated financial statements are not required.
All amounts are to be calculated to the nearest R1.
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QUESTION 1 (SUGGESTED SOLUTION)
PART A
PANEM LTD GROUP
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDING 31 DECEMBER 20.17
R
Revenue (4 114 000 + 2 200 000 - 750 000) 5 564 000
Cost of sales (1 600 000 + 950 000 - 22 000 (110 000 x 25/125) - 750 000 + 38 000
38 000 (380 000 x 50% x 25/125)) (1 816 000)
Gross profit 3 748 000
Other income (386 000 + 96 000 - 4 000 (10 000 x 40% div JV) - 40 000 (C1) – 270 094
35 000 (50 000 x 70%div sub) - 3 200 (6 400 (80 000 x 8%) x 50% preference div) -
129 706 (C3))
Share of profit of joint venture ((1 050 000 + 20 000 – 530 000 – 150 000 -109 200) x
40%) 112 320
Other expenses (480 000 + 423 600 + 8 000 (C5)) (911 600)
Profit before tax 3 218 814
Income tax expense (677 600 + 258 272 + 6 160 (22 000 x 28%) – 8 960 (C2) -
10 640 (38 000 x 28%)) (922 432)
PROFIT FOR THE YEAR 2 296 382
Other comprehensive income for the year -
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 2 296 382
Total comprehensive income for the year attributable to:
Owners9 of the parent 2 134 582
Non-controlling interests (35 262(C5) + 123 338(C5) + 3 200(preference shares) 161 800
2 296 382
PART B
PANEM LTD GROUP
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED
31 DECEMBER 20.17
Share Retained Change in Non-
capital earnings ownership controlling
interests
R R R R
Balance at 1 January 20.17 1 000 000 3 325 136 4
256 6241
Total comprehensive income:
-Profit for the year 2 134 582 161 8005
Disposal of interest (C4) 3 114 251 886
Ordinary dividends paid (200 000) (15 000)2
Preference dividends paid (3 200)3
Balance at 31 December 20.17 1 000 000 5 259 718 3 114 652 110
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