Discuss with reasons, the classification (nature) of the investment, and the accounting treatment thereof, in both the
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Discuss with reasons, the classification (nature) of the investment, and the accounting treatment thereof, in both the separate and the group financial statements.
Your discussion should include the accounting effects of the sale transaction.
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The board noted the accounting losses that the company has made over the past two financial years. Some of these losses are attributable to the impact of the COVID-19 Pandemic on student enrolments. It was suggested by Azania that the company relieves itself of the financial hardships by selling 20 000 of the equity shares it holds in Metagog Ltd ("Metagog"), an Educational Institution that is listed on the Johannesburg Stock Exchange (JSE). Azania explained that Utwisisa made this investment in Metagog in 2014 by purchasing 40 000 of the 50 000 equity shares in issue at Metagog for R2 600 000, thus obtaining an 80% shareholding. In terms of the purchase agreement, the relevant activities in Metagog, including the appointment and removal of key personnel and voting rights are all based on the percentage shareholding. The investors also share in profits and losses on the basis of their equity shareholding. The purchase of shares was funded by a loan of R2 400 000 from FinBank Ltd and R200 000 from the company reserves. The loan was taken out at the beginning of the FY2014, charged an interest of 12% per annum and was repayable in arrears in monthly instalments over a period of four years. Thandeka and Saadiya showed much interest in buying the shares directly from Utlwisisa in their capacity as the holders of shares in the company. The current market value of the shares on 13 June 2021 is R115 per share, however, it was resolved that Thandeka and Saadiya will buy the shares at a price of R100 per share. It is anticipated that the sale and transfer of shares to Thandeka and Saadiya be completed by 30 June 2022. The board noted the accounting losses that the company has made over the past two financial years. Some of these losses are attributable to the impact of the COVID-19 Pandemic on student enrolments. It was suggested by Azania that the company relieves itself of the financial hardships by selling 20 000 of the equity shares it holds in Metagog Ltd ("Metagog"), an Educational Institution that is listed on the Johannesburg Stock Exchange (JSE). Azania explained that Utwisisa made this investment in Metagog in 2014 by purchasing 40 000 of the 50 000 equity shares in issue at Metagog for R2 600 000, thus obtaining an 80% shareholding. In terms of the purchase agreement, the relevant activities in Metagog, including the appointment and removal of key personnel and voting rights are all based on the percentage shareholding. The investors also share in profits and losses on the basis of their equity shareholding. The purchase of shares was funded by a loan of R2 400 000 from FinBank Ltd and R200 000 from the company reserves. The loan was taken out at the beginning of the FY2014, charged an interest of 12% per annum and was repayable in arrears in monthly instalments over a period of four years. Thandeka and Saadiya showed much interest in buying the shares directly from Utlwisisa in their capacity as the holders of shares in the company. The current market value of the shares on 13 June 2021 is R115 per share, however, it was resolved that Thandeka and Saadiya will buy the shares at a price of R100 per share. It is anticipated that the sale and transfer of shares to Thandeka and Saadiya be completed by 30 June 2022.
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Answer The investment in Metagog Ltd would be classified as an equity investment in the companys fin... View the full answer
Related Book For
Accounting for Governmental and Nonprofit Entities
ISBN: 978-0078110931
16th Edition
Authors: Earl R. Wilson, Jacqueline L Reck, Susan C Kattelus
Posted Date:
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