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Financial Reporting 2 Final Exam 2020

1. At acquisition, Discovery recorded pro forma journal entries to adjust for the undervaluation of a building by the subsidiary. This included increasing the building value and accumulated depreciation, and decreasing depreciation expense. 2. The statement identifies errors in the associate carrying value calculation, including incorrectly adding dividend income and omitting a fair value adjustment to non-controlling interests. 3. The statement of financial position lists intangible assets including goodwill balances for investments in Kinetic and All Star, calculated based on share of profits and dividends received since acquisition. 4. The statement of comprehensive income adjusts net profit for group items including eliminating intercompany sales and dividends, and decreasing de

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245 views

Financial Reporting 2 Final Exam 2020

1. At acquisition, Discovery recorded pro forma journal entries to adjust for the undervaluation of a building by the subsidiary. This included increasing the building value and accumulated depreciation, and decreasing depreciation expense. 2. The statement identifies errors in the associate carrying value calculation, including incorrectly adding dividend income and omitting a fair value adjustment to non-controlling interests. 3. The statement of financial position lists intangible assets including goodwill balances for investments in Kinetic and All Star, calculated based on share of profits and dividends received since acquisition. 4. The statement of comprehensive income adjusts net profit for group items including eliminating intercompany sales and dividends, and decreasing de

Uploaded by

kate
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Financial reporting 2 final exam 2020

Question 1

1. Proforma journal entries relating to building:

A had building for 5 years before acquisition. Building has been in group statements
for 2 years.

Group change in depreciation:


(175000-24000)/(40-7+1)= 4441
(w1)

At acquisition proforma journal entries:


DR Building- undervalued (A) 175000
CR investment (A) 175000
Increased fair value of asset

DR accumulated depreciation (-A) (w1) 4441


CR depreciation expense (P/L). 4441
Decreased depreciation at a group level

DR depreciation (p/l) 4441


CR retained earnings (E) 4441
Increased profit for period

2. Error and explanation


Incorrect investment at carrying amount at This is the cost of the investment which is
1 september 2019 R750 000

Dividend income was added to arrive at Dividend income must be subtracted


associate carrying value because it decreases our investment in
associate. We have already shared in net
profits and cannot also share in the
dividend. Also, we are working with the
accrual basis.

Corrected: (19500)
Omitting a fair value adjustment to NCI A fair value gain of 0.5 cents was omitted to
balance. be shown at year end

The adjustment= 280-275=0.05x300000=


15000 x 30% = 4500

3. Statement of financial position of Diskovery as at 31 august 2020


Noncurrent assets
Intangibles
Goodwill balance (at year end)
- Kinetic investment – 528000 (W1)
- All star- 24000 (given)

W1.
At acquisition
Sc = 800000x0.3 240000
Re=450000x0.3 135000
= 375000
Amount paid (750000)
= (375000)
= Good will
Since acquisition
Share in profits 172500
Dividends received (19500)

NCI balance as at 31 august 2020 528000

4. Statement of comprehensive income of discovery ltd for the year ended 31 august
2020

Net profit 6062500

Parent 3650 000


A 2800000x0.8
K 575000x0.3
Group adjustments to net profit
Eliminate intercompany sale: (26684750)
Opening balance: 50x10500x115%x15/115= (1625)
Purchases= 2200x10500x115%=(26565000)
Closing balance: 75x10500x115%x15/115 = (118125)

=26684750
Decrease in current years depreciation 4441 (1.)
Eliminate intercompany dividends (219500)
250000x0.8+65000x0.3

Total comprehensive income 100000000

5. Statement of changes in equity of discovery ltd for the year ended 31 august 2020

Stated capital Retained earnings


OB R3000000 4000000
Adjustments
Capitalization issue 5250000
Dividends received (219500)
Decreased depreciation (931689)
expense

CB (R3000000+1500000/10 x 2 2848811
x 2.5 = 825000)

R8250000

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