FINANCIAL ACCOUNTING 278

GROUP STATEMENTS CHAPTER 4

CLASS QUESTION (31.5 marks)

You are the financial manager of the Snow Limited group.

On 1 January 2013 Snow Limited acquired the following investment in Flake Limited and obtained
control, as defined in IFRS 10 Consolidated Financial Statements, of Flake Limited on this date:
Number of Number of Investment at
shares acquired issued shares by cost price
by Snow Limited Flake Limited
Ordinary shares 75 000 100 000 450 000

The ordinary shares have an issue price of R1 per share.

Flake Limited had retained earnings of R463 000 in their separate financial records on the date of
acquisition.

Additional information

1. It is the entity’s policy to measure any non-controlling interest in an acquiree as the

proportional interest of the acquiree’s identifiable net assets.

2. Both Snow Limited and Flake Limited have a 31 December year-end.

3. Assume that all identifiable assets acquired and the liabilities taken over on the date of
acquisition are shown at their fair values, as required in terms of IFRS 3 Business
Combinations.

4. On 31 December 2014 Snow Limited and Flake Limited presented the following financial
statements to you:

1
STATEMENTS OF FINANCIAL POSITION ON 31 DECEMBER 2014

Snow Flake
Limited Limited
R R
ASSETS
Non-current assets 2 275 000 809 750

Property, plant and equipment 1 825 000 809 750

Investment in Flake Limited at cost price 450 000 -

Current assets 250 000 171 750

Inventories 138 000 112 500

Trade and other receivables 44 000 -

Current account – Flake Limited 45 000

Cash and cash equivalents 23 000 59 250

2 525 000 981 500

EQUITY AND LIABILITIES

Equity 2 230 500 827 831

Ordinary share capital 850 000 100 000

Retained earnings 1 380 500 752 500

Current liabilities 294 500 129 000

Trade and other payables 44 500 69 000

Shareholders for dividends 250 000 60 000

2 525 000 1 473 060

EXTRACT FROM THE STATEMENTS OF COMPREHENSIVE INCOME FOR

THE YEAR ENDED 31 DECEMBER 2014
Snow Flake
2
 Limited Limited
R R
Total profit for the year* 480 960 217 125
Other comprehensive income for the year - -
Total comprehensive income for the year 480 960 217 125

* Included in the total profit for the year:

Snow Flake
Limited Limited
R R

Dividends received 45 000 -

SNOW LIMITED
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2014
Ordinary share Retained Total
capital earnings
R R R
Balance on 1 January 2014 850 000 1 149 540 1 999 540
Total comprehensive income for the - 480 960 480 960
year
Profit for the year - 480 960 480 960
Other comprehensive income for the - - -
year
Dividends paid - (250 000) (250 000)
Balance on 31 December 2014 850 000 1380 500 2 230 500

FLAKE LIMITED
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2014
Ordinary share Retained Total
capital earnings
R R R
Balance on 1 January 2014 100 000 595 375 695 375
Total comprehensive income for the - 217 125 217 125
year
Profit for the year - 217 125 217 125

3
 Other comprehensive income for the - - -
year
Dividends paid - (60 000) (60 000)
Balance on 31 December 2014 100 000 752 500 852 500

Marks
REQUIRED
Sub- Total
total

(a) Provide the pro-forma consolidation journal entries necessary for the
preparation of the consolidated financial statements of the Snow Limited
group for the year ended 31 December 2014.
Journal narrations are not required.
Ignore any tax implications.
Show all calculations clearly and cross reference to your answer as needed.
Round all amounts off to the nearest Rand. 9
Communication skills – presentation 0.5 9.5

(b) Compile the consolidated statement of changes in equity for the Snow Limited
group for the year ended 31 December 2014.
Notes are not required.
Comparative figures and total columns are not required.
Ignore any tax implications.
Show all calculations clearly and cross reference to your answer as needed.
Round all amounts off to the nearest Rand. 11
Communication skills – presentation 0.5 11.5

(c) Compile the consolidated statement of financial position for the Snow Limited 10 10.5
group on 31 December 2014.
0.5
Notes are not required.
Comparative figures are not required.
Ignore any tax implications.
4
 Show all calculations clearly and cross reference to your answer as needed.
Round all amounts off to the nearest Rand.
Communication skills – presentation

TOTAL MARKS 31.5

5
CLASS QUESTION 1 (Suggested solution)

a) Snow Limited group

Pro-forma consolidation journal entries for the year ended 31 December 2014

Description Debit Credit

J1 Share capital (SCE) 100 000

Retained earnings (SCE) 463 000
Goodwill (SFP) 27 750
Non-controlling interest (SCE) 140 750
Investment in Flake Limited (SFP) 450 000

J2 Dividends received (P/L) 45 000

Non-controlling interest (SCE) 15 000
Dividends declared (SCE) 60 000

J3 Retained earnings (SCE) 33 094

Non-controlling interest (SCE) (Ana.) 33 094

J4 Non-controlling interest (P/L) 54 281

Non-controlling interest (SCE) 54 281

J5 Shareholders for dividends (SFP) 45 000

Current account – Snow Limited (SFP) 45 000

J6 Current account – Snow Limited (SFP) 45 000

Current account – Flake Limited (SFP) 45 000

Share Retained Non-controlling

capital earnings interest
Balance on 1 January 850 000 1 248 821 B(1) 173 844 B(2)
2014
Total comprehensive - 598 804 54 281
income for the year
Profit for the year - 598 804 B(3) 54 281
Other comprehensive - - -
income
Dividends declared - (250 000) (15 000)
Balance on 850 000 1 597 625 213 125
31 December 2014
b) Snow Limited group
Consolidated statement of changes in equity for the year ended
31 December 2014

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Calculations:

(1) 1 149 540 (P) + 99 281 (Ana.)

(2) 140 750 (Ontl) + 33 094 (Ana.)
(3) 480 960 (P) + 162 844 (Ana.) – 45 000 (div. received – J2)

c)

Snow Limited group

Consolidated statement of financial position on 31 December 2014

NON CURRENT ASSETS 2 662 500

Property, plant and equipment [1 825 000 (P) + 809 750 (S)] 2 634 750
Goodwill (ana.) 27 750

CURRENT ASSETS 376 750

Inventories [138 000 (P) + 112 500 (S)] 250 500
Trade and other receivables [44 000 (P) + 0 (S)] 44 000
Cash and cash equivalents [23 000 (P) + 59 250 (S)] 82 250

TOTAL ASSETS 3 039 250

EQUITY AND LIABILITIES

Equity
Share capital 850 000
Retained earnings [SCE] 1 597 625
Non-controlling interest [SCE] 213 125
Total equity 2 660 750

CURRENT LIABILITIES 378 500

Trade and other payables [44 500 (P) + 69 000 (S)] 113 500
Shareholders for dividends [250 000 (P) + 60 000 (S) – 45 000 (J5)] 265 000

TOTAL EQUITY AND LIABILITIES 3 039 250

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CALCULATIONS:

*NCI = Non-controlling interest

1. Analysis of owners’ equity of Flake Limited

ORDINARY SHARE CAPITAL Total At-75% Since-75% NCI*-25%

At acquisition
Share capital 100 000 75 000 25 000
Retained earnings 463 000 347 250 115 750
422 250 140 750
Investment in Flake Limited 450 000
Goodwill 27 750

Since acquisition –
Until beginning of current year
Retained earnings 132 375 99 281 33 094
(595 375 – 463 000)

Current year
Profit for the year 217 125 162 844 54 281
Dividends (60 000) (45 000) (15 000)
217 125 213 125

2. Calculation of goodwill
Consideration + NCI – Net assets
450 000 + 140 750 – 563 000 = 27 750