Answer the following:

ABC Ltd. is a multinational corporation based in South Africa that operates in various sectors, including manufacturing, retail, and technology. As part of its strategic growth, ABC Ltd. acquired a 60% stake in DEF Ltd., a company based in Nigeria that specializes in technology solutions. The acquisition was completed on January 1, 2023.

Following the acquisition, DEF Ltd. performed well, generating significant profits. However, there have been some concerns regarding the consolidation process and the accurate representation of financial performance and position in the consolidated financial statements of ABC Ltd.

Case Details:

Acquisition Details:

• ABC Ltd. acquired 60% of DEF Ltd. for ZAR 150 million.
• DEF Ltd.'s total equity at the acquisition date was ZAR 200 million.
• The fair value of DEF Ltd.'s identifiable assets and liabilities was estimated to be ZAR 220 million and ZAR 100 million, respectively.

Financial Performance:

• For the year ended December 31, 2023, DEF Ltd. reported revenues of ZAR 500 million and net profit of ZAR 80 million.
• ABC Ltd. reported consolidated revenues of ZAR 1.5 billion and consolidated net profit of ZAR 200 million for the same period.

Intercompany Transactions:

• During the year, DEF Ltd. sold goods worth ZAR 50 million to ABC Ltd. at a 10% markup. The closing inventory of ABC Ltd. includes ZAR 10 million of these goods.

Discussion Questions:

Provide detailed calculations and explanations for each question

Use relevant accounting standards (e.g., IFRS 10 and IFRS 3) to support answers

1. Consolidation Process:

• Explain the process of consolidating DEF Ltd.'s financial statements into ABC Ltd.'s consolidated financial statements. Include the steps involved in the initial consolidation and the treatment of non-controlling interests.

2. Goodwill Calculation:

• Calculate the goodwill arising from the acquisition of DEF Ltd. by ABC Ltd. Provide a detailed calculation, considering the fair value of identifiable net assets and the purchase price.

3. Consolidated Financial Statements:

• Do a simplified extract of the consolidated balance sheet of ABC Ltd. as of December 31, 2023, including the impact of the acquisition and non-controlling interest.
• Do a simplified extract of the consolidated income statement for the year ended December 31, 2023, reflecting the share of profit from DEF Ltd. and adjustments for intercompany transactions.

4. Impact of Intercompany Transactions:

• Discuss how the intercompany sales and inventory affect the consolidated financial statements. What adjustments need to be made to eliminate the effects of intercompany transactions?

5. Non-Controlling Interest:

• Analyze how the non-controlling interest in DEF Ltd. impacts the consolidated financial statements. How should the profit attributable to non-controlling interests be reported?