Navarra Ltd

Amarok Raceway Ltd acquired a 10% interest for R350 000 in Navarra Ltd on 31 May 2015. Navarra Ltd is an events company that assists with the organising of races.
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Amarok Raceway Ltd acquired a further 50% interest in Navarra Ltd on 1 August 2019 for a consideration of R2 million. The consideration consisted of undeveloped land that was leased to an unrelated third party. From 1 August 2019 Amarok Raceway Ltd had control over Navarra Ltd as per the definition of control in terms of IFRS 10 Consolidates Financial Statements. The fair value of the existing 10% interest amounted to R628 000 on this date, and the net asset value amounted to R4 244 845 (before any IFRS 3 Business Combinations items were taken into account). Amarok Raceway Ltd has elected to measure the non-controlling interests for the acquisition of Navarra Ltd at proportionate interest in the identifiable net assets at acquisition date.

All the assets and liabilities of Navarra Ltd were regarded to be fairly valued on 1 August 2019, except for the following:

• In 2018, one of the contestants crashed during the race. The contestant instituted a legal claim for R2,2 million against Navarra Ltd for medical expenses, as well as pain and suffering. Navarra Ltd’s legal advisors concluded on 30 June 2019 that Navarra Ltd has a present obligation due to negligence, however it is unlikely that the contestant will proceed with legal action against Navarra Ltd. For this reason, the financial manager of Navarra Ltd did not raise a provision, but only disclosed the claim as a contingent liability in the 2019 financial statements. On 1 August 2019 the fair value of the claim was estimated by an independent actuary at R900 000.

The purchase agreement between Amarok Raceway Ltd and the previous shareholders stipulates that the previous shareholders agree to reimburse Navarra Ltd for 65% of the damages should the legal claim against Navarra Ltd be successful.

Both the contingent liability and indemnification asset were included in the consolidated statements for the 2020 year in trade and other payables and trade and other receivables respectively. The claim will be deductible for taxation purposes should it succeed. The fair value of the claim remained unchanged at year end.

• Navarra Ltd also sells merchandise (goods like caps, t-shirts and water bottles) at races. Due to a nationwide lockdown because of the Covid-19 virus, Navarra Ltd had a contractual order backlog for 35 boxes of merchandise on 1 August 2019. A box of merchandise is sold at R25 000 per box at a profit markup of 50% on sales. The order backlog was completed and distributed by the end of June 2020. The price for a box of merchandise remained unchanged at R25 000 per box for the duration of the current financial year.

• The entire inventory balance of Navarra Ltd (carrying amount of R723 840) was considered to have a net realizable value of R700 540 (determined in accordance with IAS 2) and a fair

Question: Prepare the note to the consolidated statement of cash flows of the Amarok Raceway Ltd Group for the year ended 30 June 2020 relating to the business combination on 1 August 2019.

End the note clearly with the amount that would be shown on the face of the statement of cash flows relating to the business combination.

Answer rating: 100% (QA)

students name institution instructors name course title due date Prepare the note to the consolidated statement of cash flows of the Amarok Raceway Lt... View the full answer