QUESTION $2(37$ marks$)$

Candy Ltd $($Candy$)$ and Cocoa Ltd $($Cocoa$)$ are two companies in the confectionery

industry who have a $31$ December financial year end.

The following trial balances were obtained from the financial records of Candy Ltd

$($Candy$)$ and Cocoa Ltd $($Cocoa$)$ for the financial year ended $31$ December $2023$:

Trial balance Candy Ltd

$($R$)$

Cocoa Ltd

$($R$)$

DR CR DR CR

Ordinary Share capital $($R$1$

each$)$

$200000$

$100000$

Retained earnings: $1$

January $2023$

$3858307$

$1653700$

Trade and other payables

$460000$

$365500$

Deferred tax liability $19599310800$

Land $-650000$

Plant and equipment

$($at carrying value$)$

$54235002650000$

Trade and other

receivables

$395000210800$

Inventory $720500425000$

Investment in Cocoa

$($at cost$)$

$1440000-$

Profit before tax

$4450000$

$2420000$

Income tax expense $($P$/$L$)1185300653400$

Revaluation gain: Land

$($OCI$)$

$-50000$

Tax expense on revaluation

gain: Land $($OCI$)$

$-10800$

$9164300916430046000004600000$ Notes:

On $1$ January $2023,$ Candy acquired $80\%$ of the ordinary share capital of Cocoa from

a third party and thereby obtained control over Cocoa.

$1.$ The following information relates to the at$-$acquisition matters:

The purchase consideration was paid in cash by Candy.

At the acquisition date, all the assets and liabilities of Cocoa were considered to

be fairly valued except for the following:

Inventory which was considered to be R$25000$ higher than its carrying value.

Land which was considered to have a fair value of R$615000.$ The land is

Cocoas only piece of land which they purchased for R$600000$ on $1$ December

$2022.$

$2.$ The fair value of Cocoas land on $31$ December $2022$ was still the same as the cost

however on $31$ December $2023,$ it was considered to be R$650000.$ Cocoa

therefore subsequently revalued the land in its own records for the first time on $31$

December $2023.$

$3.$ Cocoa sold all of its at acquisition inventory to third parties at a profit of R$35000$

by the end of $31$ December $2023.$

$4.$ Since the acquisition date, a monthly management fee of R$15000$ is paid by Cocoa

to Candy. There were no management fees outstanding at the financial year end.

$5.$ From $1$ September $2023,$ Cocoa started to sell inventory to Candy which Candy

then sells to third parties. All inventory sales to Candy are made at cost plus $25\%.$

R$40000$ of the closing inventory of R$720500$ in Candys records was purchased

from Cocoa. Additional information:

Candy accounts for investments in subsidiaries at cost in accordance with IAS

$27\mathrm{.}10($a$)$ in its separate financial statements.

Both Candy and Cocoa measure their plant and equipment using the cost model

as per IAS $16$ in their respective separate financial statements

Cocoa measures their Land using the revaluation model as per IAS $16$ in their

separate financial statements.

Candy elected to measure the non$-$controlling interest in Cocoa at its

proportionate share of Cocoas identifiable net assets at acquisition date.

There have been no changes to the share capital $($e$.$g$.,$ number of shares in

issue$)$ of Cocoa since Candys initial investment in Cocoa on $1$ January $2023.$

For all financial years, the company Income Tax rate is $27\%$ and $80\%$ of Capital

Gains are included in taxable income.

Ignore the effects of Dividend Tax and Value Added Tax $($VAT$).$

REQUIRED:

Prepare the pro forma journal entries required to prepare the consolidated financial

statements of the Candy Ltd group for the year ended $31$ December $2023,$ in

accordance with the International Financial Reporting Standards.

Instructions:

Where pro forma journal entries affect the Profit and Loss accounts, be specific as

to which account it is $($e$.$g$.$ Depreciation: Vehicles $($Cocoa Ltd$)($P$/$L$)).$ In other

words, do not merely write Profit before tax.

Show and reference all your workings and calculations clearly.

Date and narrations are not required.

Round off to the nearest Rand, where applicable.