1 Group Financial Statements

 Refer to your Notes on Group Financial

Statements textbook for this section
 Coverage for this section is chapters 1 to 7
(excluding chapter 2)
H LTD
CONTROL:
H OWNS
100% OF S
SHARES

S LTD
 How is an investment in shares
recorded and disclosed?

 E.g. 1.

 H Limited acquired 100 000 shares in S

Limited on 31 December 2019 for R100
000 cash.
 Parent’s books
DR?
CR?
 Disclosure in the SOFP of the Parent?
How is an investment in shares
recorded and disclosed?
 E.g. 1.
 H Limited acquired 100 000 shares in S
Limited on 31 December 2019 for
R100 000 cash.
 Parent’s books
DR Investment (SOFP) 100 000
CR Bank (SOFP)
100 000
 Disclosure in the SOFP of the Parent?
Investment (SOFP) 100 000
How is an investment in shares
recorded and disclosed?

 E.g. 2 Dividends are declared and

received from the investee totalling
R1 000 on 31 March 2020.

 Required: What is the journal in the

individual books of the parent?
 DR Bank (SOFP) 1 000
 CR Dividend Income (P/L) 1 000
How is an investment in shares
recorded and disclosed?

 E.g. 3: Dividends are declared (but not

yet received) from the investee
totalling
R3 000 on 30 June 2020. (Assume a 30
June year end) Journal entry?

DR Accrued Income (SOFP) 3 000

Cr Dividend Income (P/L)
3 000
CONSOLIDATIONS

 What is a consolidation?
 It is where one company (known as the
parent or holding company)
 has acquired a controlling interest
(normally through the acquisition of a
major/influential number of shares)
and controls
 another company (known as a
subsidiary)
What is a consolidation?

H LTD
CONTRO
L

S LTD
9 Chapter 1

 Terminology
 Parent: This company owns /
has majority shareholding in
other companies
 Subsidiary: This company is
owned / has majority of it’s
shares owned by another
company (parent company)
Definitions

 A group: the parent and all of

its subsidiaries viewed as one.

 Consolidated financial
statements: the combined
financial statements of the group
(holding company plus its
subsidiary/s).
 What is a consolidation?
H LTD GROUP

H LTD

CONTROL

S LTD
 What do group financial
statements consist of?

 Consolidated annual financial

statements:
 consolidated statement of
comprehensive income
 consolidated statement of financial
position
 consolidated statement of changes in
equity
 consolidated statement of cash flows
 Notes to the financial statements
13 Scope
 An entity shall present consolidated
financial statements unless it meets ALL
4 of the following conditions:
1. It is a wholly owned or partly owned
subsidiary of another entity and all its
other owners have been informed about
and do not object to the parent not
presenting consolidated financial
statements
2. Its debt or equity instruments are not
traded in a public market
14 Scope continued…

3. It did not file, nor is in the process of

filing, its financial statements with a
securities commission or other
regulatory organisation for the purpose
of issuing any class of instruments in a
public market
4. Its ultimate or any intermediate parent
produces consolidated financial
statements that are available for public
use and comply with IFRSs.
 Control
15
 An investor considers all the relevant facts and
circumstances when it assess whether it controls
an investee and on an ongoing basis reassess the
situation.
 An investor controls an investee if and only if an
investor has ALL of the following:
 Power over the investee
 Exposure, or rights to, variable returns
from its involvement with the investee,
AND
 The ability to use its power over the
investee to affect the amount of the
investor’s returns.
16 Power
 This is when an investor has existing
rights that give it the current ability to
direct the relevant activities (that is the
activities that significantly effect the
investee’s returns).
 Power arises from rights which would
normally be voting rights, however, this
could be more complex and may require
more than one factor to be considered.
 An investor can have power over an
investee even if other entities have
existing rights.
17 Power continued…

 When assessing whether an

entity has power over an
investee only substantive
rights are considered.
Protective rights are not
taken into account.
18 Substantive Rights

 For a right to be substantive it needs

to be:
 Exercisable when decisions about the
direction of the relevant activities
need to be made AND
 The holder must have the practical
ability to exercise the rights.
19 Protective Rights

 Are rights designed to protect

the interest of the party
holding those rights without
giving the party power over
the entity to which those rights
relate.
20 Example 1.1 Page 4
 A Ltd and B Ltd form Med Ltd to develop and
market a medical product.
 A Ltd is responsible for developing and
obtaining a regulatory approval of the medical
product.
 Once the regulator has approved the product,
B Ltd will manufacture and market the product.
 Both investors have the unilateral ability to
make all decisions relating to their respective
responsibility.

 Required: How is control assessed by A Ltd and

B Ltd?
21 Solution 1.1 Page 4
 If all the activities are relevant activities then
each investor must determine whether it is
able to direct the activities that MOST
SIGNIFICANTLY affect the investee’s
returns. We need to consider:
 Purpose and design of investee
 Factors that determine the profit margin,
revenue etc.
 Effect on the investee’s returns
 Investor’s exposure to variability of returns
 In this case we would consider the uncertainty
of obtaining regulatory approval as well as
which investor controls the product once the
development phase is successful.
22 Rights that give an investor
power over an investee
 Examples of rights, individually or in
combination are:
 Voting rights
 Rights to appoint / remove key
management personnel
 Rights to appoint / remove another entity
that directs relevant activities
 Rights to direct the investee to enter into
transactions for the benefit of the investor
 Other rights that give the holder the ability
to direct the relevant activities
23 Example 1.2 Page 5

 A Ltd holds 45% of the equity

shares (voting rights) of B Ltd. 2
other investors each hold 30%
and 25% respectively.

 Does A Ltd control B Ltd?

24 Solution 1.2 Page 5

 No, as only 2 other investors

would need to cooperate to
prevent A Ltd from directing the
activities of B Ltd it cannot be
concluded that A Ltd has the
power to exercise control.
25 Example 1.3 Page 5

 A Ltd holds 45% of the equity shares in B

Ltd. No other investor holds more than a
1% interest in B Ltd and there has been
no past history of shareholders
cooperation. Historically shareholders
holding 12% of the equity shares in B Ltd
(other than A Ltd) participate at
shareholders meetings.

 Does A Ltd control B Ltd?

26 Solution 1.3 Page 5

 Yes, it is clear that in terms of

shareholders participation at
shareholder meetings and the
wide spread of shareholding that
A Ltd has the power to exercise
control.
27 Example 1.4 Page 5

 A Ltd holds 35% of the equity shares

of B Ltd. 3 other shareholders each
hold 8% with the remaining shares
widely dispersed. At recent
shareholder meetings 75% of voting
rights have been exercised

 Does A Ltd control B Ltd?

28 Solution 1.4 Page 5

 No, as A Ltd does not have a

majority of active voting rights
(only 47% determined by the
35%/75%)
29 Potential voting rights

 When assessing control: an investor

considers its potential voting rights
as well as potential voting rights of
others to determine whether it has
power. Examples of potential voting
rights are convertible
instruments and options. They
are only considered if the
rights are substantive.
30 Potential voting rights
 If the investor also has voting or other
decision making rights relating to the
investee’s activities, the investor
assesses whether those rights, in
combination with potential voting
rights, give the investor power.
31 Example 1.5 Page 6
 A Ltd holds 70% of the equity shares (voting
rights) of B Ltd. X Ltd holds 30% of the equity
shares of B Ltd and has an option to acquire
half of A Ltd’s shares. The option is exercisable
in the next 2 years at a price of R20 per share.
B Ltd’s shares are currently trading at R8 per
share and are not expected to exceed R10 per
share over the next 2 years.
 A Ltd has been exercising its votes and is
actively directing the activities of B Ltd

 Which company is in control of B Ltd?

32 Solution 1.5 Page 6

 Although X Ltd has a currently

exercisable option which if
exercised would give it the majority
of the voting rights the terms and
conditions associated with the
options are such that they are
unlikely to be substantive. A Ltd
therefore controls B Ltd.
33 Delegated power

 A decision maker is not an agent

simply because other parties can
benefit from the decisions it makes.
 A decision maker shall consider the
overall relationship between:
 Itself
 The investee
 Other parties involved with the
investee
 In determining whether it is an agent
34 Delegated power

 In particular, the following factors are

considered:
 Scope of the decision making power
 Rights held by other parties
 Remuneration to which it is entitled in
accordance with the remuneration
agreement
 The decision makers exposure to
variability of returns from other
interests it holds in the investee
35 Example 1.6 Page 6
 Mr Jones is a fund manager and manages a
publicly traded fund. Mr Jones must make
decisions in the best interests of all investors
and in accordance with the funds governing
agreements, but he has wide decision making
powers.
 Mr Jones receives a market-based fee as
follows:
 1% assets managed
 10% of the profits earned above a specified rate
 Mr Jones has a 5% interest in the fund.

 Is Mr Jones an agent?
36 Solution 1.6 Page 6

 It is likely that Mr Jones is an agent.

The fee is commensurate with the
services he renders. He does have
decision making powers that give
him the power to direct the activities
of the fund, however, his exposure
(5%) is such that it is unlikely to be of
such significance to suggest he is a
principal.
37 Accounting Requirements
 Summary of accounting requirements:
 Consolidated financial statements (uniform
accounting policies)
 Consolidation of subsidiary begins on
date the parent gains control and
ceases on the date the parent loses
control.
 The NCI shall be presented in the SOFP
within equity but separately from the
equity of the parent.
 Changes in a parent’s ownership that does
not result in a loss of control are
considered equity transactions.
38 Degree of influence and
effective interest
 Degree of influence
 The degree of influence enables one to
determine the status of a parent’s
investment and the method to be used
to account for such investment in the
group financial statements.
Degree of influence Accounted for in group AFS
Control Consolidate
Joint control Dependent on joint arrangement
Significant influence Equity method
Less than significant influence Financial asset per IFRS 9
39 Effective interest
 The effective interest of the parent in
the investee will reflect the parent’s
actual (net) share in the equity
(profits and reserves) of the
investee.
 The % of effective interest in an
investee does not always equal the
% of control (voting rights)of the
parent in such investee. This can be
due to potential voting rights and
contractually ceded voting rights.
40 Examples of effective
interest
A
60%
B
25%
30%
C
 Both B and C are subsidiaries of A. Since B is a
subsidiary of A, B’s 30% holding in C is fully
controlled by A.
 Hence the 30% together with the 25% that A owns in
C, is controlled by A and C is therefore a subsidiary of
A. A must produce group AFS including A, B and C
 A’s effective interest in C is less than 50% (25% +
60% of 30% = 43%) but this does not effect the
degree of influence (control) that A has over C
41 Examples of effective
interest
A
40%

25% B
30%

C
 C is not a subsidiary of A. B is not controlled
by A and A therefore does not control the
30% interest that B has in C.
 Hence only 25% of C is under the control of A
and C is not a subsidiary of A. A is not a
parent company and neither B nor C is a
subsidiary of A.
42 Separate financial
statements (IAS 27)
 An entity may choose to account
for subsidiaries, jointly controlled
entities and associates either:
 At cost OR
 In accordance with IFRS 9
 In their separate financial
statements.
 The same method shall be used
for each category of investment
43 Disclosure of interest in
other entities
 The objective of IFRS 12 is to
require the disclosure of
information that enables users of
the financial statements to evaluate:
 The nature of, and risks associated
with, its interests in other entities
 The effects of those interests on its
financial position, financial
performance and cash flows
44 Disclosures

 Significant judgments and

assumptions
 Interests in subsidiaries
 Interests in joint arrangements and
associates
 Interests in unconsolidated
structured entities
 Aggregation
45 Chapter 3
 Carrying amounts of assets correspond with fair
values
 3 examples are examined:
 Company H acquires the business of company
S by purchasing all the assets and liabilities of
S for R300 000 (S is then liquidated)
 Company H acquires the business of company
S by purchasing all the issued shares of S
from its present shareholders for R300 000 (S
becomes a wholly owned subsidiary of H)
 Company S is formed with an issued share
capital of R400 000 and company H acquires
all these shares for R400 000
46
Example 3.1 Page 33
 S Ltd
 Statement of Financial Position at 1/01/08
R
ASSETS
Non-Current 240 000
Current 100 000
340 000
EQUITY 220 000
Share capital (100 000 shares) 120 000
Other reserves 25 000
Retained earnings 75 000
LIABILITIES 120 000
Non-Current 90 000
Current 30 000
340 000
47
Example 3.1 Page 34
 H Ltd
 Statement of Financial Position at 1/01/08
R
ASSETS
Non-Current 650 000
Current 750 000
1 400 000
EQUITY 1 050 000
Share capital (100 000 shares) 500 000
Other reserves 200 000
Retained earnings 350 000
LIABILITIES 350 000
Non-Current 180 000
Current 170 000
1 400 000
48 Example 3.1 Page 34
 H Ltd pays S Ltd R300 000 cash for its net
assets. In deciding how much it is willing to pay
for these net assets, H Ltd considers the assets
of S Ltd to be fairly valued in its books.
 H Ltd records the net assets of S ltd as follows:
DR Non-Current Asset 240 000
(SOFP)
DR Current Asset (SOFP) 100 000
DR Goodwill (SOFP) 80 000
CR Non-Current Liability 90 000
(SOFP)
CR Current Liability (SOFP) 30 000
CR Bank (SOFP) 300 000
 Goodwill is calculated as the difference between
the purchase price and the fair value of the net
identifiable assets purchased.
49 Example 3.1
 S Ltd’s only asset at this stage will be the
R300 000 cash received from H Ltd.
Assuming that S Ltd is to liquidate, the cash
is paid to S Ltd’s shareholders.
 The 2 businesses have now merged to form 1
entity, and the financial statements of H Ltd
will include the assets and liabilities and the
profit of the ”new” entity.
 It is not necessary for the 2 businesses
physically to move into the same premises
now that they have merged. The business
previously carried on by S Ltd can still be
performed at its separate premises but it now
forms part of the enlarged entity.
50  H Ltd
Example 3.1
 Statement of Financial Position after purchase
R
ASSETS
Goodwill 80 000
Non-Current (650 + 240) 890 000
Current (750 – 300 + 100) 550 000
1 520 000
EQUITY 1 050 000
Share capital (100 000 shares) 500 000
Other reserves 200 000
Retained earnings 350 000
LIABILITIES 470 000
Non-Current 270 000
Current 200 000
1 520 000
51 Example 3.2

 Use the same information as per example 3.1,

except that all the shares in S Ltd (and not the
net assets) are purchased by H Ltd, the
purchase will be recorded in H Ltd’s books as
follows:
 DR Investment in S (SOFP) R300 000
 CR Bank (SOFP) R300 000
 Example 3.1: purchase of net assets effects 2
parties
 Example 3.2 purchase of shares only effects H
Ltd
 Example 3.2 Page 36
52  Statement of Financial Position after purchase

H Ltd S Ltd
ASSETS
Non-Current: PPE 650 000 240 000
Investment in S 300 000 0
Current 450 000 100 000
1 400 000 340 000
EQUITY 1 050 000 220 000
Share capital (100 000 shares) 500 000 120 000
Other reserves 200 000 25 000
Retained earnings 350 000 75 000
LIABILITIES 350 000 120 000
Non-Current (180 + 90) 180 000 90 000
Current (170 + 30) 170 000 30 000
1 400 000 340 000
53 Steps: At acquisition
 Step 1: Combine the trial balance of the
parent and the subsidiary together; and
 Step 2: Eliminate the parent’s
investment in each subsidiary and the
parent’s portion of equity of each
subsidiary. Raise goodwill if applicable
 (Note: These eliminating journals are
known as proforma journal entries.
You will see more examples of proforma
journals being used in the consolidation
process later.)
54 Example 3.2 Page 37

 Points to be noted:
 The consolidated statement of
financial position is the same as in
example 3.1.
 H Ltd’s equity is not altered as a
result of the acquisition.
 The investment in S Ltd represents an
asset in the books of H Ltd. It
represents the value placed on the
underlying net assets of S Ltd.
55 Example 3.2 Page 38
 Upon consolidation we need to process
“pro-forma” journal entries.
DR Share capital (SOFP) 120 000
DR Other reserves (SOFP) 25 000
DR Retained earnings 75 000
(SOFP)
CR Investment in S (SOFP) 300 000
DR Goodwill (SOFP) 80 000

 You need to eliminate S Ltd’s equity and

the investment in S Ltd, the remaining
balance is referred to as goodwill.
56 Example 3.2 Page 38

 Remember:
 Goodwill is the difference
between the purchase price and
the fair value of net identifiable
assets acquired.
57 Example 3.3 Page 39

 H Ltd forms S Ltd on 1 January 09

and subscribes for S Ltd’s entire
share capital.
 Example 3.3 Page 39
58  Statement of Financial Position after purchase

H Ltd S Ltd
ASSETS
Non-Current: PPE 650 000 0
Investment in S 400 000 0
Current 350 000 400 000
1 400 000 400 000
EQUITY 1 050 000 400 000
Share capital (100 000 shares) 500 000 400 000
Other reserves 200 000 0
Retained earnings 350 000 0
LIABILITIES 350 000 0
Non-Current (180 + 90) 180 000 0
Current (170 + 30) 170 000 0
1 400 000 400 000
59 Example 3.3 Page 39
 If a consolidated Statement of Financial
Position is prepared immediately, the
pro-forma journal entry would be:
DR Share Capital 400
(SOFP) 000
CR Investment in S (SOFP) 400
 And the consolidated statement 000
of
financial position would be as follows:
60 
Example
H Ltd Group
3.3 Page 39
 Consolidated Statement of Financial Position after purchase

R
ASSETS
Non-Current 650 000
Current 750 000
1 400 000
EQUITY 1 050 000
Share capital (100 000 shares) 500 000
Other reserves 200 000
Retained earnings 350 000
LIABILITIES 350 000
Non-Current 180 000
Current 170 000
1 400 000
 Carrying amounts of S’s net
61
assets do not equal the fair
values
 Note: These adjustments to the
carrying amounts of identifiable assets
and liabilities are only for the purposes
of the consolidated financial statements
and they are not made in the books of
the subsidiary.
 The CA becomes the COST to the
GROUP.
 We will ignore the deferred tax
consequences on these adjustments for
2nd year.
 Example 3.4 Page 40
62

 On 1 January 09, H Ltd purchased all

the shares in S Ltd for R400 000. With
the exception of the land and
buildings (which H Ltd valued at R110
000), all the identifiable assets of S Ltd
were fairly valued in its books.
 Example 3.4 Page 40
63  Statement of Financial Position after purchase
H Ltd S Ltd
ASSETS
Non-Current: Land and buildings 750 000 60 000
Plant and machinery: Cost 1 000 000 240 000
Plant and machinery: AD (400 000) (100 000)
Investment in S Ltd 400 000 0
Current 600 000 320 000
2 350 000 520 000
EQUITY 1 950 000 320 000
Share capital 1 200 000 315 000
Other reserves 150 000 0
Retained earnings 600 000 5 000
LIABILITIES 400 000 200 000
Non-Current 250 000 100 000
Current 150 000 100 000
2 350 000 520 000
64 Example 3.4 Page 41
 In order to prepare a consolidated
statement of financial position at the
date of acquisition, the following pro-
forma journal entries are required:
DR Plant: AD (SOFP) 100 000
CR Plant: Cost (SOFP) 100 000

DR Share Capital (SOFP) 315 000

DR Retained Earnings 5 000
(SOFP)
DR Land (SOFP) 50 000
CR Investment in S (SOFP) 400 000
DR Goodwill (SOFP) 30 000
65 Example 3.4 Page 41
 Note: The pro-forma journal entries
do not appear in the books of S Ltd
nor H Ltd, ONLY GROUP financials.
 If S Ltd decided to revalue it’s land
in it’s own books, the pro-forma
journal entry would be:
DR Share Capital (SOFP) 315 000
DR Retained Earnings (SOFP) 5 000
DR REVAL RESERVE (OCI) 50 000
CR Investment in S (SOFP) 400 000
DR Goodwill (SOFP) 30 000
66 Chapter 4
 Partly owned subsidiaries
 The purchase price of the shares may
represent only a portion of the value of the
net assets of the subsidiary.
 If H owns 60% of S, we should include only
100% of the assets / liabilities of S Ltd in
the group financial statements and show the
portion that H controls and the “non-
controlling interest” portion – this is called
proportionate consolidation.
 The portions owned by H and NCI are
shown in the equity section of the group
AFS.
67 Non-controlling interests

 There are 2 alternatives to

recognising the amount of NCI on
acquisition of a subsidiary:
 Share of identifiable assets and
liabilities of S
 Goodwill = H Ltd only
 Fair value
 Goodwill = H Ltd and NCI
68 Example 4.1 Page 44
 H Ltd acquires 60% of the shares of S
Ltd on 1 January 09 for R85 000. H Ltd
considers the net assets per S Ltd’s
statement of financial position to be
fairly valued. The NCI are recognised
at their share of the net
identifiable assets.
 Required: Prepare the consolidated
statement of financial position at 1
January 09.
 Example 4.1 Page 44
69  Statement of Financial Position after purchase

H Ltd S Ltd
ASSETS
Plant and machinery: 700 000 100 000
Cost
Plant and machinery: (300 000) (20 000)
AD
Investment in S Ltd 85 000 0
Current assets 615 000 100 000
1 100 000 180 000
EQUITY
Share capital 550 000 105 000
Other reserves 150 000 0
Retained earnings 200 000 20 000
LIABILITIES
Non-Current 100 000 25 000
Current 100 000 30 000
70 Example 4.1 Page 45
 The pro-forma journal entries:

DR Plant: AD (SOFP) 20 000

CR Plant: Cost (SOFP) 20 000

DR Share Capital (SOFP) 105 000

DR Retained Earnings 20 000
(SOFP)
CR NCI (40% x 125) 50 000
(SOFP)
CR Investment in S (SOFP) 85 000
DR Goodwill (SOFP) 10 000
71 Example 4.2 Page 46
 Use the same information as in
example 4.1, except the policy of the
group is to recognise NCI at fair value.
On 1 January 09 the fair value of the
NCI was R54 000.
 Goodwill is calculated as:
Consideration Transferred 85 000
NCI 54 000
Total 139 000
Identifiable net assets 125 000
Therefore Goodwill 14 000
72 Example 4.2 Page 46
 The pro-forma journal entries:
DR Plant: AD (SOFP) 20 000
CR Plant: Cost (SOFP) 20 000

DR Share Capital (SOFP) 105 000

DR Retained Earnings 20 000
(SOFP)
CR NCI (FV) (SOFP) 54 000
CR Investment in S (SOFP) 85 000
DR Goodwill (SOFP) 14 000
73 Example 4.2 Page 46

 The goodwill is attributable to H

and NCI. It can be allocated as
follows:
 H (85 – [125 x 60%]) R10
000
 NCI (54 – [125 x 40%]) R4 000
 TOTAL Goodwill
R14 000
74 Example 4.3 Page 47

 H Ltd acquires 60% of the shares of

S Ltd on 1 January 09 for R115 000.
With the exception of the plant and
machinery (which has a fair value of
R50 000 above CA), all the
identifiable assets are considered to
be fairly valued. The NCI are initially
measured at their share of the
identifiable net assets.
 Example 4.3 Page 47
75  Statement of Financial Position after purchase

H Ltd S Ltd
ASSETS
Plant and machinery: 700 000 100 000
Cost
Plant and machinery: (300 000) (20 000)
AD
Investment in S Ltd 115 000 0
Current assets 685 000 100 000
1 200 000 180 000
EQUITY
Share capital 550 000 105 000
Other reserves 150 000 0
Retained earnings 200 000 20 000
LIABILITIES
Non-Current 100 000 25 000
Current 200 000 30 000
76 Example 4.3 Page 47
 The pro-forma journal entries:
DR Plant: AD (SOFP) 20 000
CR Plant: Cost (SOFP) 20 000

DR Share Capital (SOFP) 105 000

DR Retained Earnings (SOFP) 20 000
DR Plant (SOFP) 50 000
CR NCI (40% x 175) (SOFP) 70 000
CR Investment in S (SOFP) 115 000
DR Goodwill (SOFP) 10 000
77 Example 4.3 Page 47
 If S Ltd decided to revalue it’s plant in
it’s own books, the pro-forma journal
entry would be:
DR Share Capital (SOFP) 105 000
DR Retained Earnings (SOFP) 20 000
DR REVAL RESERVE (OCI) 50 000
CR NCI (40% x 175) (SOFP) 70 000
CR Investment in S (SOFP) 115 000
DR Goodwill (SOFP) 10 000
78 Example 4.4 Page 49
 H Ltd acquires 60% of the shares of S Ltd
on 1 January 09 for R100 000. With
exception of the plant and machinery
(which H Ltd values at R50 000 above
book value), all the identifiable assets
are considered to be fairly valued. The
NCI are initially recognised at their share
of the identifiable assets.
 Required: Prepare the consolidated
statement of financial position of the
group at 1 January 09.
 Example 4.4 Page 49
79  Statement of Financial Position after purchase

H Ltd S Ltd
ASSETS
Plant and machinery: 700 000 100 000
Cost
Plant and machinery: (300 000) (20 000)
AD
Investment in S Ltd 100 000 0
Current assets 500 000 70 000
1 000 000 150 000
EQUITY
Share capital 550 000 105 000
Other reserves 150 000 0
Retained earnings 200 000 20 000
LIABILITIES
Non-Current 100 000 25 000
1 000 000 150 000
80 Example 4.4 Page 49
 The pro-forma journal entries:
DR Plant: AD (SOFP) 20
000
CR Plant: Cost (SOFP) 20 000

DR Share Capital (SOFP) 105

000
DR Retained Earnings (SOFP) 20 000
DR Plant (SOFP) 50 000
CR NCI (40% x 175) (SOFP) 70 000
CR Investment in S (SOFP) 100
000
CRGoodwill will be
Retained Earnings shown as “gain on
(SOFP) 5 000
bargain purchase” in SOCI.
81 Example 4.5 Page 51
 H Ltd acquired 60% of the shares in S Ltd on 31
December 02 for R65 000.
 At that date all the identifiable assets of S Ltd
were considered to be fairly valued, with the
exception of land and buildings which were
considered to be worth R20 000 more than the
carrying amount. S Ltd did not revalue the land
and buildings in its own books.
 The NCI are initially measured at their share of
the identifiable net assets.
 Required: Prepare the consolidated statement of
financial position for the group at 31 December
02.
 82
Example 4.5 Page 51
 Statement of Financial Position after purchase
H Ltd S Ltd
ASSETS
Land and buildings: Cost 185 000 60 000
Investment in S Ltd 65 000 0
Current assets 40 000 25 000
290 000 85 000
EQUITY
Share capital 200 000 50 000
Other reserves 40 000 20 000
Retained earnings 30 000 10 000
LIABILITIES
Non-Current 20 000 5 000
290 000 85 000
83 Example 4.5 Page 51
 The pro-forma journal entries:
DR Share Capital (SOFP) 50 000
DR Other Reserves (SOFP) 20 000
DR Retained Earnings (SOFP) 10 000
DR Land (SOFP) 20 000
CR NCI (40% x 100) (SOFP) 40 000
CR Investment in S (SOFP) 65 000
DR Goodwill (SOFP) 5 000
 Example 4.5 Page 52
84  H Ltd Group

 Statement of Financial Position after purchase

R
ASSETS
Goodwill 5 000
Non-Current (185 + 60 + 20) 265 000
Current (40 + 25) 65 000
335 000
EQUITY 310 000
Share capital 200 000
Other reserves 40 000
Retained earnings 30 000
Non-controlling interest 40 000
Non-Current (20 + 5) 25 000
335 000
85 Example 4.6 Page 52

 Same as example 4.5 except that

the NCI are initially measured at
their fair value which was R41
000 on 31 December 02.
 Required: Draft the analysis of
equity worksheet of S Ltd.
 Example 4.6 Page
52
Date Details Equity of Total Analysis of Equity
Subsidiary
SC OR RE Land NCI INV (GW)
31/12
86 Pur 60% 50 20 10 20 100 000 41 65 (6)

• Note: R1 000 of the goodwill is

attributable to the NCI as follows:
• H Ltd (65 – [100 x 60%]) R5 000
• NCI (41 – [100 x 40%]) R1 000