DEC Ltd is a company in the entertainment industry, and CARDS Ltd manufactures gaming equipment and...
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DEC Ltd is a company in the entertainment industry, and CARDS Ltd manufactures gaming equipment and software programs. DEC Ltd could not adequately address the increase in demand for gaming equipment. As such on 1 July 2020, the directors of DEC Ltd decided to invest in CARDS Ltd. The following information relates to the accounting records of DEC Ltd and CARDS Ltd on 31 December 2021: 1. 2. 3. 4. DEC Ltd acquired 80% interest in the ordinary shares of CARDS Ltd on 1 July 2020. Assume each ordinary share carries one vote and that voting rights alone determine control. The carrying amounts of all the assets and liabilities of CARDS Ltd were deemed equal to the fair values at acquisition. The land of CARDS Ltd had a fair value of R1 500 500 at acquisition date. CARDS Ltd assessed the fair value of land in the current year to R2 050 000. This was the only revaluation in the current reporting period and the revaluation was recorded correctly in the accounting records of CARDS Ltd. CARDS Ltd applies the revaluation model to land. The issued share capital of both companies remained unchanged since acquisition date. Furthermore, it is also the group policy to disclose goodwill at cost less impairment in the consolidated financial statements. Goodwill was not impaired in the current year. On 1 August 2020, CARDS Ltd sold a printer to DEC Ltd for a cash consideration of R150 000. On the date of sale, the printer had a cost price of R200 000 and a carrying amount of R105 000. It is the group's policy to provide for depreciation on machinery at 20% per annum, using the straight-line method. Since acquisition, CARDS Ltd purchased inventory from DEC Ltd at a consistent mark-up on cost plus 20%. Inventory amounting to R580 000 remained on hand in CARDS Ltd's records at the end of the previous financial year, of which 30% was purchased from DEC Ltd. DEC Ltd sold inventory amounting to R1 500 000 to CARDS Ltd during the current year. The total dividend declared by CARDS Ltd in the current year amounted to R75 000, of which R15 000 was allocated to the non-controlling interests and R60 000 to DEC Ltd. This dividend has not yet been paid. REQUIRED: Draft the following pro-forma consolidation journal entries of the DEC Ltd Group for the year ended 31 December 2021, after taking the above-mentioned information into account: a) b) Recording of the non-controlling interests in the revaluation surplus for the current year. Elimination of the intra-group profit and the depreciation associated with the sale of the machine. c) Elimination of the unrealised profit included in opening inventory. d) Elimination of the intragroup dividend and recording of the non-controlling interests' share in the dividend declared. Please note: Indicate clearly to which company each account refers. Journal narrations are not required. Show all calculations and round off all amounts the nearest Rand. Ignore the taxation effect on unrealized profits and/or losses, capital gains tax and dividends withholding tax. Marks 2½ 8½¼ 3½ 2½ [17] DEC Ltd is a company in the entertainment industry, and CARDS Ltd manufactures gaming equipment and software programs. DEC Ltd could not adequately address the increase in demand for gaming equipment. As such on 1 July 2020, the directors of DEC Ltd decided to invest in CARDS Ltd. The following information relates to the accounting records of DEC Ltd and CARDS Ltd on 31 December 2021: 1. 2. 3. 4. DEC Ltd acquired 80% interest in the ordinary shares of CARDS Ltd on 1 July 2020. Assume each ordinary share carries one vote and that voting rights alone determine control. The carrying amounts of all the assets and liabilities of CARDS Ltd were deemed equal to the fair values at acquisition. The land of CARDS Ltd had a fair value of R1 500 500 at acquisition date. CARDS Ltd assessed the fair value of land in the current year to R2 050 000. This was the only revaluation in the current reporting period and the revaluation was recorded correctly in the accounting records of CARDS Ltd. CARDS Ltd applies the revaluation model to land. The issued share capital of both companies remained unchanged since acquisition date. Furthermore, it is also the group policy to disclose goodwill at cost less impairment in the consolidated financial statements. Goodwill was not impaired in the current year. On 1 August 2020, CARDS Ltd sold a printer to DEC Ltd for a cash consideration of R150 000. On the date of sale, the printer had a cost price of R200 000 and a carrying amount of R105 000. It is the group's policy to provide for depreciation on machinery at 20% per annum, using the straight-line method. Since acquisition, CARDS Ltd purchased inventory from DEC Ltd at a consistent mark-up on cost plus 20%. Inventory amounting to R580 000 remained on hand in CARDS Ltd's records at the end of the previous financial year, of which 30% was purchased from DEC Ltd. DEC Ltd sold inventory amounting to R1 500 000 to CARDS Ltd during the current year. The total dividend declared by CARDS Ltd in the current year amounted to R75 000, of which R15 000 was allocated to the non-controlling interests and R60 000 to DEC Ltd. This dividend has not yet been paid. REQUIRED: Draft the following pro-forma consolidation journal entries of the DEC Ltd Group for the year ended 31 December 2021, after taking the above-mentioned information into account: a) b) Recording of the non-controlling interests in the revaluation surplus for the current year. Elimination of the intra-group profit and the depreciation associated with the sale of the machine. c) Elimination of the unrealised profit included in opening inventory. d) Elimination of the intragroup dividend and recording of the non-controlling interests' share in the dividend declared. Please note: Indicate clearly to which company each account refers. Journal narrations are not required. Show all calculations and round off all amounts the nearest Rand. Ignore the taxation effect on unrealized profits and/or losses, capital gains tax and dividends withholding tax. Marks 2½ 8½¼ 3½ 2½ [17]
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