4. IWP Ltd (The Institute for Wildlife Preservation) focusses on wildlife conservation and veterinary strategies. BigCat...

  

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4. IWP Ltd (The Institute for Wildlife Preservation) focusses on wildlife conservation and veterinary strategies. BigCat Ltd does research on various types of illnesses affecting wild cats. IWP Ltd acquired BigCat Ltd in order to expand on the business's capabilities. The information below represents the trial balances of IWP Ltd and its subsidiary, BigCat Ltd, as at 31 August 2022: Share capital - ordinary shares... - 20% preference shares. Retained earnings - 1 September 2021 Revaluation surplus. Trade and other payables. Long-term borrowings.. Loan from IWP Ltd... Property, Plant and Equipment. Investment in BigCat Ltd: Loan to BigCat Ltd..... Trade and other receivables. Bank Inventory... Sales Other income. Cost of sales. Taxation for the year. Interest paid.. - Ordinary shares (cost equals fair value). - 20% Preference shares (cost equals fair value) .... Other expenses. Dividends paid. 6. Additional information 1. 2. 3. IWP Ltd R (500 000) (3 855 000) (200 000) (450 000) (850 000) 5 700 000 1 100 000 49 500 300 000 1 136 600 (249 500) 980 000 (7 500 000) (540 000) 3 000 000 1 268 400 90 000 420 000 100 000 BigCat Ltd R (200 000) (90 000) (1 800 000) (350 000) (380 000) (1 000 000) (300 000) 4 300 000 930 000 (138 000) 1 000 000 (5 000 000) (398 000) 2 000 000 798 000 120 000 410 000 98 000 IWP Ltd acquired interest in both the ordinary share capital and preference share capital of BigCat Ltd as part of a business combination on 1 September 2020. IWP Ltd acquired 105 000 shares of the 150 000 issued ordinary shares in BigCat Ltd and 55% of preference shares. The retained earnings of BigCat Ltd amounted to R1 100 000 and the revaluation surplus amounted to R200 000 on date of acquisition. The carrying amounts of all other assets and liabilities were deemed equal to their fair values on this date. Since the acquisition date, BigCat Ltd did not purchase any land or sell any of its property. It is the policy the group to revalue land every second year. At the end of the current year, the land was revalued again. The issued share capital of both companies remained unchanged since acquisition. The preference share capital is classified as equity and no preference dividends were in arrears at acquisition date and in the year ending 2021. Assume each ordinary share carries one vote and that voting rights alone determine control. The group's policy is to disclose goodwill at cost less impairment in the consolidated financial statements. Goodwill was not impaired in the current year. Since the acquisition date, IWP Ltd purchased its veterinary products from BigCat Ltd at a cost price plus 20%. On 31 August 2022 the inventory on hand in IWP Ltd's records included R350 000 of veterinary products purchased from BigCat Ltd (R400 000 31 August 2021). The intragroup sales for the year amounted to R850 000. 5. On 28 February 2021, IWP Ltd sold a machine to BigCat Ltd and made a profit of R60 000 on this transaction. Plant & Machinery is depreciated at 25% per annum on cost using to the straight-line method. On 1 August 2021, BigCat Ltd entered into a loan agreement with IWP Ltd. They agreed that the capital amount is only payable on 31 August 2025. According to this signed agreement, BigCat Ltd will pay 10% interest on 31 August each year. All interest that occurred during the year was paid and received on 31 August 2022. The interest received is included in other income. 7. You may assume that profit after tax for BigCat Ltd amounts to R2 070 000 for the year. Part C IFRS 10 is an accounting standard that provides guidelines to consolidate financial statements for group companies. The following questions relate to a transaction between companies within a group where a sale of a non-depreciable asset occurred in the current year. (a) (b) Describe the consolidation procedure that will be applied to account for the sale of an asset between the parent and subsidiary in the consolidated financial statements. Discuss the effect of a profit and loss on sale on: (i) The consolidated statement of financial position (ii) The consolidated statement of profit or loss and other comprehensive Please note: Your answer should comply with the requirements of International Financial Reporting Standards (IFRS). Journals and preparation of financial statements are not required. Marks 1 4 [5] 4. IWP Ltd (The Institute for Wildlife Preservation) focusses on wildlife conservation and veterinary strategies. BigCat Ltd does research on various types of illnesses affecting wild cats. IWP Ltd acquired BigCat Ltd in order to expand on the business's capabilities. The information below represents the trial balances of IWP Ltd and its subsidiary, BigCat Ltd, as at 31 August 2022: Share capital - ordinary shares... - 20% preference shares. Retained earnings - 1 September 2021 Revaluation surplus. Trade and other payables. Long-term borrowings.. Loan from IWP Ltd... Property, Plant and Equipment. Investment in BigCat Ltd: Loan to BigCat Ltd..... Trade and other receivables. Bank Inventory... Sales Other income. Cost of sales. Taxation for the year. Interest paid.. - Ordinary shares (cost equals fair value). - 20% Preference shares (cost equals fair value) .... Other expenses. Dividends paid. 6. Additional information 1. 2. 3. IWP Ltd R (500 000) (3 855 000) (200 000) (450 000) (850 000) 5 700 000 1 100 000 49 500 300 000 1 136 600 (249 500) 980 000 (7 500 000) (540 000) 3 000 000 1 268 400 90 000 420 000 100 000 BigCat Ltd R (200 000) (90 000) (1 800 000) (350 000) (380 000) (1 000 000) (300 000) 4 300 000 930 000 (138 000) 1 000 000 (5 000 000) (398 000) 2 000 000 798 000 120 000 410 000 98 000 IWP Ltd acquired interest in both the ordinary share capital and preference share capital of BigCat Ltd as part of a business combination on 1 September 2020. IWP Ltd acquired 105 000 shares of the 150 000 issued ordinary shares in BigCat Ltd and 55% of preference shares. The retained earnings of BigCat Ltd amounted to R1 100 000 and the revaluation surplus amounted to R200 000 on date of acquisition. The carrying amounts of all other assets and liabilities were deemed equal to their fair values on this date. Since the acquisition date, BigCat Ltd did not purchase any land or sell any of its property. It is the policy the group to revalue land every second year. At the end of the current year, the land was revalued again. The issued share capital of both companies remained unchanged since acquisition. The preference share capital is classified as equity and no preference dividends were in arrears at acquisition date and in the year ending 2021. Assume each ordinary share carries one vote and that voting rights alone determine control. The group's policy is to disclose goodwill at cost less impairment in the consolidated financial statements. Goodwill was not impaired in the current year. Since the acquisition date, IWP Ltd purchased its veterinary products from BigCat Ltd at a cost price plus 20%. On 31 August 2022 the inventory on hand in IWP Ltd's records included R350 000 of veterinary products purchased from BigCat Ltd (R400 000 31 August 2021). The intragroup sales for the year amounted to R850 000. 5. On 28 February 2021, IWP Ltd sold a machine to BigCat Ltd and made a profit of R60 000 on this transaction. Plant & Machinery is depreciated at 25% per annum on cost using to the straight-line method. On 1 August 2021, BigCat Ltd entered into a loan agreement with IWP Ltd. They agreed that the capital amount is only payable on 31 August 2025. According to this signed agreement, BigCat Ltd will pay 10% interest on 31 August each year. All interest that occurred during the year was paid and received on 31 August 2022. The interest received is included in other income. 7. You may assume that profit after tax for BigCat Ltd amounts to R2 070 000 for the year. Part C IFRS 10 is an accounting standard that provides guidelines to consolidate financial statements for group companies. The following questions relate to a transaction between companies within a group where a sale of a non-depreciable asset occurred in the current year. (a) (b) Describe the consolidation procedure that will be applied to account for the sale of an asset between the parent and subsidiary in the consolidated financial statements. Discuss the effect of a profit and loss on sale on: (i) The consolidated statement of financial position (ii) The consolidated statement of profit or loss and other comprehensive Please note: Your answer should comply with the requirements of International Financial Reporting Standards (IFRS). Journals and preparation of financial statements are not required. Marks 1 4 [5]

Answer rating: 100% (QA)

A For the sale of an asset the consolidation process would be to revert the journal entries related ... View the full answer