QUESTION $1(30$ marks$)$

You have been presented below with the Statement of Financial Position of Crazy Crafts Ltd as at $29$ February $2024.$

Crazy Crafts Ltd

Statement of Financial Position as at $29$ February $2024$

$2024$

R

ASSETS

Non$-$current assets $1950000$

Equipment

$1450000$

Investment property

$500000$ Current assets $470000$

Inventory

$350000$

Bank

$120000$

TOTAL ASSETS

$2420000$

EQUITY AND LIABILITIES

Equity $1970000$

Ordinary share capital

$1000000$

Retained earnings

$970000$

LIABILITIES

Current liabilities $450000$

Trade payables

$450000$

TOTAL LIABILITIES

$450000$

TOTAL EQUITY AND LIABILITIES

$2420000$

ANNEXURE F: FORMATIVE ASSESSMENT $1$

$64$ HFAC$331-1-$Jul$-$Dec$2024-$FA$1-$SK$-$V$4-04072024$

Additional information:

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Crazy Crafts Ltd declared and paid dividends of R$100000$ on $29$ February $2024.$ The payment of dividends occurred after the acquisition$/$s mentioned in scenarios $1$ and $2$ below. The payment was not yet recorded in the above annual financial statements of Crazy Crafts Ltd for the current financial year.

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Crazy Crafts Ltd$$s incremental rate of borrowing is $10\%$ p$.$a$.$

The above Statement of Financial Position and all the additional information applies to both the following two independent scenarios:

Scenario $1$

Scrapbook Ltd acquired $100\%$ of the issued ordinary share capital of Crazy Crafts Ltd on $29$ February $2024$ and paid the previous shareholder as follows:

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Scrapbook Ltd issued $20000$ shares $($a minority stake$)$ of their own ordinary shares. Scrapbook Ltd$$s shares were trading at R$40$ per share on $29$ February $2024.$

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Inventory that cost Scrapbook Ltd R$65000.$ The inventory had a fair value of R$80000$ on $29$ February $2024.$

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A cash payment of R$1232000$ that will be paid on $28$ February $2025($one year after the acquisition date$)$ since Scrapbook Ltd did not have cash resources at the time of acquiring Crazy Crafts Ltd$.$ The business combination agreement, however, states that no interest will be charged on this amount.

Share issue costs of R$6200$ were incurred and paid in cash by Scrapbook Ltd on $29$ February $2024.$

The identifiable assets and liabilities of Crazy Crafts Ltd were considered to be fairly valued at the date of acquisition.

Scenario $2$

Scrapbook Ltd acquired all of the assets and liabilities of Crazy Crafts Ltd on $29$ February $2024$ for R$2000000.$ The transaction was done in cash.

The identifiable assets and liabilities of Crazy Crafts Ltd were considered to be fairly valued at the date of acquisition.

ANNEXURE F: FORMATIVE ASSESSMENT $1$

$65$ HFAC$331-1-$Jul$-$Dec$2024-$FA$1-$SK$-$V$4-04072024$

Other information:

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Scrapbook Ltd recognises investments in subsidiaries at cost in accordance with IAS $27\mathrm{.}10($a$)$ in its separate financial statements.

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Ignore all taxation.

REQUIRED:

The following questions relate to Scenario $1$:

$1\mathrm{.}1$

Identify the parent. $(1$ mark$)$

$1\mathrm{.}2$

Identify the subsidiary. $(1$ mark$)$

$1\mathrm{.}3$

Calculate the total value of the purchase consideration for the $100\%$ stake acquired in Crazy Crafts Ltd$.(6$ marks$)$