ASSESSMENT $03-$ SCENARIO

QUESTION $1(50$ marks$)(100$ minutes$)$

ThinkT Ltd is a company in the aviation sector, manufacturing drones and offering seed funding to small businesses to develop creative ideas in the technology space, in partnership with the Technology Innovation Fund established by the government.

Influenced by the global environmental impact discussion, ThinkT Ldd$\text{'}$s directors tabled an agenda item in the meeting of directors held on $1$ February $2023$ to acquire interest in InTech Lid, provided the acquisition agreement is approved by the South African Competition Board. This is a condition for transfer of legal ownership. InTech Ltd is a company exploring growth in the agricultural industry, providing support to farmers using agricultural technologies. ThinkT Ltd received an approval notification from the South African Competition Board on $31$ March $2023.$ ThinkT Ltd paid the purchase consideration of R$654000$ on $31$ March $2023$ for the $60\%$ interest acquired in the ordinary shares of $ln$ Tech Ltd$.$ The year$-$end of both companies is $30$ June.

Each ordinary share carries one voting right. Voting rights alone determine control.

The carrying value of the net assets and liabilities of InTech Ltd were equal to the fair value at date of acquisition.

On the date of acquisition, the equity of InTech Ltd consisted of the following balances, read with the paragraph that follows just after:

$\backslash$table$[[,$R$],[$Share capital: Ordinary shares $....................................................................................,280000],[$Share capital: $15\%$ Cumulative,$200000],[$Retained Earnings: $1$ July $2022,275600],[$Revaluation surplus $.....................................................................................................,195000]]$

The profit for the year of InTech amounted to R$223000$ from $1$ July $2022$ to $31$ March $2023$ and R$286000$ from $1$ July $2022$ to $30$ June $2023$ respectively. All preference dividends were declared and paid on $30$ June $2022.$ No dividends were in arrears at acquisition as dividends were again declared and paid the day before acquisition date and again at year end of $30$ June $2023.$ Ordinary dividends were also declared at the end of $2023.$

The following relates to financial information of ThinkT Ltd and InTech Lid as at $30$ June $2024$:

Additional information:

The issued share capital of both companies remained unchanged since incorporation.

It is the group's policy to disclose goodwill at cost less impairment in the consolidated financial statements. Goodwill was not impaired in the current year.

The revaluation performed in the current year for ThinkT Ltd increased the property, plant and equipment by R$80000$ to R$1680000$ and the revaluation surplus to R$230000$ on $30$ June $2024.$

$3$

$34$QUESTION $1($continued$)$An extract from the financial record of ThinkT Ltd and InTech Ltd presented the followingbalances for the financial year ending $30$ June $2024$:Sales.s$..****.$Cost of salesDividends paid: Ordinary dividendsDividends paid: $15\%$ cumulative preference sharesDepreciation $....$Other expensesTaxation expenses $...............$Retained earnings: $1$ July $2023$InventoryProperty, plant and equipment at carrying value.Revaluation surplusShare capital $-$Ordinary sharesShare capital $-15\%$ Cumulative preference share capital...ThinkT LtdQuantity Date$400100015$ June$202331$ March$2024$Inventory system: FIFORThinkT LtdDetailsGPS tracking devices@ $25\%$mark$-$up on cost$(3135000)370000$GPS tracking devices @ $25\%(27800$o$)90000125000$Price$517980135000(528300)23400001680000(230000)$INTRAGROUP TRANSACTION OF INVENTORY$(550000)$ThinkT Ltd $\text{'}$s clients suffered losses due to the theft of livestock and agricultural produce. Asresult, ThinkT Ltd started selling GPS tracking devices purchased from InTech Ltd$.$ ThinkTLtd prepared the following document to keep record of intragroup transactions of inventorypurchased from InTech Ltd and balances at the end of each year.InTech Ltd$(2360000)678000(118040)$RR$260000$o $200$ units$22288000$R$650000$ R$377002??38600089200$Date: $30$ JUNE $2024(511600)17200001340000$Inventory atyear$-$end inThinkT Ltd'sbooks$(195000)(280000)(200000)$The use of Artificial Intelligence has transtormed the agricultural space, drones are now beingused for stock taking. On $1$ January $2024$ InTech Ltd purchased a drone operating vehicle fromThinkT Ltd$,$ to service large scale agricultural sectors$,$ at a cost of R$470000.$ Depreciation isprovided for at $20\%$ on the carrying value method.Included in the other income amount of ThinkT Ltd is dividen ds received of R$42000$ fromInTech Ltd$,$ profit on sale of an asset amounting to R$115000($see note $3)$ and subscription feeamount of R$90000.$ The subscription fee relates to an amount paid by InTech Ltd to ThinkTLtd, for tree training offered to its client, on innovation and seed funding opportunities.

QUESTION $1($continued$)$

REQUIRED:

$\backslash$table$[[,$Marks$],[\backslash$table$[[$a$)$ Discuss the acquisition of Intech Ltd during the $2023$ financial year. You