IFRS 3 & IFRS 10

Q1: The financial statements of the parent and its subsidiaries are being consolidated. Should the end of the reporting periods of the companies (parent and subsidiary/ies) differ, the subsidiary should:

1. 1. Never be included in the consolidation.

2. 2. Change it’s year end to match the parents year end.

3. 3. Prepare financial statements as of the same date as the financial statements of the parent for consolidation purposes.

4. 4. Prepare financial statements as of the same date as the financial statements of the parent to be included in the financial statements as an addendum.

Which of the statements are true?

• Option 1

• Option 3

• Option 1 & 4

• Option 4

The following information relates to both question 2 and 3:

Rose Ltd acquired a 75 % interest in Daisy Ltd a company in the retail industry, on 1 January 2023 for R1 100 000. On the date of acquisition Daisy Ltd.'s share capital was R1 000 000 (1 000 000 shares of R1 each) and the retained earnings was R105 000. All the identifiable net assets were fairly valued except for machinery which had a carrying amount of R175 000 and fair value of R250 000. The machine had a remaining useful life of 3 years and is depreciated on the straight-line basis over its useful.

Additional information:

• - The group has a 31 December year end.

• - Non-controlling interest is measured according to the fair value method.

• - Daisy Ltd.'s shares had a fair value of R1,50 on 1 January 2023.

• - Assume a normal tax rate of 27% and a capital gains inclusion rate of 80%.

Q2: The journal entry to eliminate the equity at acquisition is?

• Option A

• Option B

• Option C

The following information relates to both question 2 and 3:

Rose Ltd acquired a 75 % interest in Daisy Ltd a company in the retail industry, on 1 January 2023 for R1 100 000. On the date of acquisition Daisy Ltd.'s share capital was R1 000 000 (1 000 000 shares of R1 each) and the retained earnings was R105 000. All the identifiable net assets were fairly valued except for machinery which had a carrying amount of R175 000 and fair value of R250 000. The machine had a remaining useful life of 3 years and is depreciated on the straight-line basis over its useful.

Additional information:

• - The group has a 31 December year end.

• - Non-controlling interest is measured according to the fair value method.

• - Daisy Ltd.'s shares had a fair value of R1,50 on 1 January 2023.

• - Assume a normal tax rate of 27% and a capital gains inclusion rate of 80%.

Q3: Assume the same information as in question 2, except for the fact that the NCI is measured at the proportionate share of the net assets. The journal entry to eliminate the equity at acquisition is?

• Option A

• Option B

• Option C

Q4: Which of the following are true when an investor controls the investee:

1. 1. Power over the investee.

2. 2. Owns a share in the investee.

3. 3. Exposure, or rights, to variable returns from its involvement with the investee, and

4. 4. The ability to use its power over the investee to affect the amount of the investor's returns.

• 1, 2 and 3

• All of the above

• 1, 2 and 4

• 1, 3 and 4

Q5: Pafuri (Pafuri) Ltd is a company listed on the JSE which provides information technology services to a wide range of companies. The current financial year ends on 31 December 2023

 

On 1 January 2022 Pafuri purchased 80% of the issued share capital in Sweni (Pty) Ltd (Sweni) for R16.5 million thus gaining control of the company. The acquisition meets the definition of a business combination in terms of IFRS 3 Business combinations. At the acquisition date Sweni's equity consisted of issued share capital of R10 million and retained earnings of R8 million. Pafuri measured non-controlling interest in Sweni at their proportionate share of the recognised amounts of Sweni's identifiable net assets at the acquisition date.

 

At the acquisition date Sweni owed The South African roads Agency (SANRAL) R800 000 in respect of invoices owing for toll fees. Sweni has never settled these invoices because SANRAL has been unable to enforce payment of outstanding toll fees and Sweni's directors did not believe that it was probable that an outflow of economic benefits would be required to pay the toll fees and therefore did not recognise a provision for the toll fees outstanding. The fair value of the amount that Sweni owes SANRAL for toll fees, taking into account the probability that SANRAL can enforce payment of the toll fees, at acquisition date is estimated to be R80 000. This fair value has not changed since 1 January 2022.

 

The following is a summary of Sweni's equity balances at 31 December 2022 and 2023 (please find the information in the attached table). Assume a normal tax rate of 27%.

Goodwill recognised on the acquisition of Sweni on 1 January 2022 was:

• R2 146 720

• R2 100 000

• R2 164 000

• R2 168 480

Rate the following statement true or false (based on who wins these financial accounting quizzes):

I own the GAAP textbook (financial accounting textbook), which is the prescribed textbook as per IAS's policies.

• True, I do own this textbook.

• False, I do not own this textbook.