Flower Ltd owns the following investments in other entities: Equity shares Non-equity shares (ordinary share capital)...

  

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Flower Ltd owns the following investments in other entities: Equity shares Non-equity shares (ordinary share capital) Tulip Ltd Petunia Ltd Orchid Ltd Marigold Ltd 75% 45% 28% 49% Additional information: i.e. redeemable, non-convertible preference shares 1 July 2022 Issued during the year 0% 0% 0% 90% Share capital (1 000 000 shares at R1 each) R 1 000 000 Petunia Ltd: The investment in Petunia Ltd's ordinary shares was obtained at the start of the financial year i.e., on 1 July 2022. On the same day (acquisition date), Petunia Ltd also issued 1 000 000 cumulative preference shares at R2 each. The 7% preference shares are non-redeemable. Flower Ltd paid R1 200 000 for its investment in these preference shares. Details from the Statement of Changes in Equity of Petunia Ltd for the year ended 30 June 2023 are as follows: Preference share capital reserve (1 000 000 shares at R2 each) R Cumulative preference shares (with voting rights) 2 000 000 0% 60% 0% 0% Revaluation Retained earnings R R 763 000 Total comprehensive income for the year Dividends (preference dividends not yet paid i.e. in arrears) Dividends (ordinary) 30 June 2023 1 000 000 2 000 000 350 000 Orchid Ltd: Flower Ltd has appointed five of the seven directors of Orchid Ltd. 2.1 350 000 2.2 740 000 (140 000) Additional information: • All investments in entities are recognized at cost in the separate financial state- ments of Flower Ltd. 1 363 000 • Flower Ltd accounts for NCI (non-controlling interests) using the partial goodwill method (at the proportionate share of identifiable net assets). REQUIRED: Discuss whether or not each of the four entities is a subsidiary of Flower Ltd at 30 June 2023. If an entity is not a subsidiary, then discuss how the investment should be classified instead. (25 marks) Now assume that Flower Ltd acquired 55% of Petunia Ltd's ordinary shares on 1 July 2022 for R985 500 instead of 45% (given that all other information is the same). Prepare the pro forma joumal entries to account for Petunia Ltd in the group financial statements of Flower Ltd for the financial year ended 30 June 2023 using this new ownership interest. Ignore all taxation, dates, and narrations. (25 marks) Flower Ltd owns the following investments in other entities: Equity shares Non-equity shares (ordinary share capital) Tulip Ltd Petunia Ltd Orchid Ltd Marigold Ltd 75% 45% 28% 49% Additional information: i.e. redeemable, non-convertible preference shares 1 July 2022 Issued during the year 0% 0% 0% 90% Share capital (1 000 000 shares at R1 each) R 1 000 000 Petunia Ltd: The investment in Petunia Ltd's ordinary shares was obtained at the start of the financial year i.e., on 1 July 2022. On the same day (acquisition date), Petunia Ltd also issued 1 000 000 cumulative preference shares at R2 each. The 7% preference shares are non-redeemable. Flower Ltd paid R1 200 000 for its investment in these preference shares. Details from the Statement of Changes in Equity of Petunia Ltd for the year ended 30 June 2023 are as follows: Preference share capital reserve (1 000 000 shares at R2 each) R Cumulative preference shares (with voting rights) 2 000 000 0% 60% 0% 0% Revaluation Retained earnings R R 763 000 Total comprehensive income for the year Dividends (preference dividends not yet paid i.e. in arrears) Dividends (ordinary) 30 June 2023 1 000 000 2 000 000 350 000 Orchid Ltd: Flower Ltd has appointed five of the seven directors of Orchid Ltd. 2.1 350 000 2.2 740 000 (140 000) Additional information: • All investments in entities are recognized at cost in the separate financial state- ments of Flower Ltd. 1 363 000 • Flower Ltd accounts for NCI (non-controlling interests) using the partial goodwill method (at the proportionate share of identifiable net assets). REQUIRED: Discuss whether or not each of the four entities is a subsidiary of Flower Ltd at 30 June 2023. If an entity is not a subsidiary, then discuss how the investment should be classified instead. (25 marks) Now assume that Flower Ltd acquired 55% of Petunia Ltd's ordinary shares on 1 July 2022 for R985 500 instead of 45% (given that all other information is the same). Prepare the pro forma joumal entries to account for Petunia Ltd in the group financial statements of Flower Ltd for the financial year ended 30 June 2023 using this new ownership interest. Ignore all taxation, dates, and narrations. (25 marks)

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21 Discussion of Subsidiary Classification Tulip Ltd Flower Ltd owns 75 of the equity shares of Tulip Ltd Since Flower Ltd has control over more than 50 of the voting rights in Tulip Ltd Tulip Ltd is ... View the full answer