The following information relates to Check Ltd and Fourty40 Ltd as of 30 June 2021:

1. Check Ltd is a grocery food chain, operating stores across South Africa. Fourty40 Ltd developed an application to allow for online grocery purchases and same-day delivery service. At the start of lockdown, Check Ltd acquired a 70% interest in the ordinary shares and a 40% interest in the 9% cumulative preference shares of Fourty40 Ltd on 1 April 2019. Preference shares are classified as equity.

At the acquisition date, Fourty40 Ltd had been in operation for only a few months. Fourty40 Ltd’s retained earnings amounted to R430 000, revaluation surplus was R45 000, ordinary share capital amounted to R550 000, and preference share capital to R240 000 on that date.

The carrying amounts of the assets and liabilities of Fourty40 Ltd were deemed equal to the fair values thereof at acquisition, except for land. The land was valued from R1 100 000 to R1 750 000. Due to all the administrative work surrounding the acquisition, Fourty40 Ltd omitted to adjust its financial records.

In June 2021, Fourty40 Ltd revalued its land again and its total revaluation surplus amounted to R750 000 after this was recorded.

The issued share capital of both companies remained unchanged since acquisition. Assume each ordinary share carries one vote and that voting rights alone determine control.

Furthermore, it is also group policy to disclose goodwill at cost less impairment in the consolidated financial statements. Goodwill was not impaired in the current year.

2. Check Ltd sold a few vehicles to Fourty40 Ltd, as Fourty40 Ltd needed vehicles to deliver groceries to households. The total carrying amount of the vehicles on 1 April 2020, the selling date, was R950 000. It was sold to Fourty40 Ltd for R1 100 000. Vehicles are depreciated at 20% per annum using the reducing balance method.

3. Fourty40 Ltd declared a preference dividend at year-end, for the current and previous year that was in arrears. The accountant of Fourty40 Ltd was on holiday when the dividend was declared and forgot to provide for it. Shareholders were also not notified. Hence, none of Fourty40 Ltd’s shareholders provided for the dividend received, either.

Draft the following Pro-forma consolidation journal entries of the Check Ltd Group for the year ended 30 June 2021, after taking the above-mentioned information into account:

Record the non-controlling interests’ share in the revaluation surplus.

Answer rating: 100% (QA)

To record the noncontrolling interests share in the revaluation surplus the following journal e... View the full answer