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SECTION B: (COMPULSORY)(50 MARKS)
Question 21
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QUESTION TWO(30 MARKS)
Croc Ltd is a subsidiary of Able with non-controlling interest of 15%. Its parent company is Able Ltd. Able Ltd also controls 65% of Rovaldo Ltd. Rovaldo Ltd controls 75% of Apple Ltd. Able ltd controls 35% of Vodacom and has significant influence. Croc Ltd controls 50% of white’s shareholdings using equity method for joint ventures.
Amounts are in millions of Rands
Required: fill in the table (10)
Calculate the amount in the group statement in terms of
1) Land
2) Profit
3) Non-controlling interest
Equity holding of the parent (20)
1. Land
- Land of Croc Ltd: The amount will be reported in the group statement as 100.
- Land of Rovaldo Ltd: The amount will be reported in the group statement as 0, as Rovaldo Ltd is not a majority-owned subsidiary.
- Land of Apple Ltd: The amount will be reported in the group statement as 0, as Apple Ltd is not a majority-owned subsidiary.
- Land of Vodacom: The amount will be reported in the group statement as 0, as Vodacom is an associate and not consolidated.
2. Profit:
- Profit of Croc Ltd: The amount will be reported in the group statement as 50.
- Profit of Rovaldo Ltd: The amount will be reported in the group statement as 0, as Rovaldo Ltd is not a majority-owned subsidiary.
- Profit of Apple Ltd: The amount will be reported in the group statement as 0, as Apple Ltd is not a majority-owned subsidiary.
- Profit of Vodacom: The amount will be reported in the group statement as 0, as Vodacom is an associate and not consolidated.
- Profit of joint ventures: The amount will be reported in the group statement as 25 (50% of White's shareholdings controlled by Croc Ltd).
3. non-controlling interest:
- Non-controlling interest in Croc Ltd: The amount will be reported in the group statement as 15 (15% of Croc Ltd.'s equity).
- Non-controlling interest in Rovaldo Ltd: The amount will be reported in the group statement as 0, as Rovaldo Ltd is not consolidated.
- Non-controlling interest in Apple Ltd: The amount will be reported in the group statement as 0, as Apple Ltd is not consolidated.
- Non-controlling interest in Vodacom: The amount will be reported in the group statement as 0, as Vodacom is an associate and not consolidated.
4. Equity holding of the parent
1. Equity holding of the parent in Croc Ltd: 100% (since it is a subsidiary)
2. Equity holding of the parent in Rovaldo Ltd: 65%
3. Equity holding of the parent in Apple Ltd: 65% (since it is controlled by Rovaldo Ltd, in which Able Ltd has a 65% equity holding)
4. Equity holding of the parent in Vodacom: 35% (since Able Ltd has significant influence)
5. Equity holding of the parent in White's Shareholdings (a joint venture): 50% (since Croc Ltd has an equity holding of 50%)
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Question 22
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QUESTION THREE(20 MARKS)
P Limited acquired a 60% interest in S Limited at 1 January 2015,
Analyse the Equity of S Ltd
When analysing the equity of the subsidiary at the acquisition date, the fair value adjustment for the land would be ‘replaced’ by the revaluation surplus; draw up the proforma journal entries to record the elimination of the cost of the land.
To record the elimination of the cost of the land in the proforma journal entries, the following entry should be made:
Debit: Land (at the subsidiary's carrying amount)
Credit: Revaluation surplus (related to the land)
This entry will remove the cost of the land from the subsidiary's equity and replace it with the revaluation surplus. The revaluation surplus represents the fair value of the land at the acquisition date.