HIGHER EDUCATION PROGRAMMES
Academic Year 2023: July- December
Summative Assessment 1: Financial Accounting 3B:
Groups (HFAC302-1)
NQF Level, Credits: 6, 18
Weighting: 50%
Assessment Type: Closed book
Examiner: G.Toringepi
Educator: G.Toringepi
Due Date: 13 November 2023
Total: 100 marks
Duration: 3 hours
Instructions:
1. This examination script consists of 9 pages including the cover sheet. Ensure that you
have all the pages.
2. This examination consists of Essay-Type questions.
3. No answers in pencil will be marked.
4. This is a Paper-Based Invigilated Assessment Event - you must submit a handwritten
answer sheet. We have provided an Assessment Answer Book. If you cannot print
this, you may use it as a template to guide you and/or to replicate it in your
handwritten answer sheet. You may not type your answers in the Assessment Answer
Book.
5. Answer all questions.
6. Show all calculations.
7. Good Luck!
1 HFAC302-1-JULY-DEC2023-SA1-GT-V3-11072023
The following Learning Outcomes are assessed:
• Prepare pro-forma consolidation journals for a group with a partly owned
subsidiary at a date after acquisition.
• Prepare pro-forma consolidation journals to eliminate intracompany balances
and transactions and account for that in the consolidated financial statements for
group.
• To account for deferred tax on intracompany transactions where applicable.
• Prepare pro-forma consolidation journals for the group where a subsidiary has
preference shares in issue.
• Prepare pro-forma consolidation journals for a group with a partly owned
subsidiary at a date after acquisition.
• Prepare pro-forma consolidation journals to eliminate intracompany balances
and transactions and account for that in the consolidated financial statements for
group.
• To account for deferred tax on intracompany transactions where applicable
2 HFAC302-1-JULY-DEC2023-SA1-GT-V3-11072023
QUESTION 1 (60 marks)
The following are the condensed financial statements of Ocean Gate Ltd and Titanic
Ltd for the year ended 31 December 2022:
STATEMENT OF FINANCIAL POSITION Ocean Gate Titanic Ltd
Ltd
R R
ASSETS
Machinery at cost 81 250 27 777
Accumulated depreciation – Machinery (33 333) (5 555)
Investment in Titanic Ltd:
24 999 ordinary shares at cost 33 333 -
694 preference shares at cost 2 083 -
Listed investments 6 944 -
Trade receivables 8 333 41 666
Inventory 19 444 33 333
118 054 97 221
EQUITY AND LIABILITIES
Ordinary share capital (55 556/ 27 777 shares) 55 556 27 777
10% R2-Preference shares 6 944 5 555
Asset replacement reserve 1 388 1 112
Retained earnings 45 833 43 333
Trade payables 8 333 19 444
118 054 97 221
3 HFAC302-1-JULY-DEC2023-SA1-GT-V3-11072023
STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME
Ocean Gate Titanic Ltd
Ltd R
R
Revenue 119 444 72 222
Cost of sales (69 444) (34 722)
Gross profit 50 000 37 500
Other income (including dividend income) 6 388 -
Other expenses (including depreciation) (9 166) (9 722)
Profit before tax 47 222 27 778
Income tax expense (13 888) (9 722)
Total comprehensive income 33 334 18 056
STATEMENT OF CHANGES IN EQUITY (EXTRACT)
RETAINED EARNINGS
Ocean Gate Titanic Ltd
Ltd R
R
Balance at 31 December 2021 14 583 26 944
Total comprehensive income 33 333 18 055
Transfer to asset replacement reserve (1 388) (1 111)
Preference dividends declared (694) (555)
Balance at 31 December 2020 45 834 43 333
4 HFAC302-1-JULY-DEC2023-SA1-GT-V3-11072023
Additional information:
• Ocean Gate Ltd acquired its interest in the ordinary shares of Titanic Ltd on
1 January 2021, when the balance of retained earnings was R6 944. The asset
replacement reserve was only created during the 31 December 2022 year.
• Ocean Gate Ltd acquired its interest in the 10% R2-preference shares of
Titanic Ltd on 31 December 2021. These preference shares are non-
cumulative.
• At the acquisition date, the assets and liabilities were considered to be fairly
valued in accordance with IFRS 3. It is Ocean Gate Ltd’s policy to measure
any non-controlling interest in an acquiree as its proportionate share of the
acquiree’s identifiable net assets.
• The investments in Titanic Ltd are accounted for using the cost price model.
• Ocean Gate Ltd purchases certain of its inventory from Titanic Ltd at cost plus
20%. The following were taken from the inventory records of Ocean Gate Ltd
with regards to the inventory purchased from Titanic Ltd for the year ended 31
December 2022:
Purchases from Titanic Ltd for the current year were R9 722.
Opening inventory purchased from Titanic Ltd was R3 750.
Closing inventory purchased from Titanic Ltd was Rnil.
• Included in the PPE (property plant and equipment) of Titanic Ltd is a machine
that Titanic Ltd bought from Ocean Gate Ltd on 1 January 2022 for R22 222.
The machine was inventory in the records of Ocean Gate Ltd. Ocean Gate
Ltd sells these machines at a profit of 25% on the selling price. The remaining
useful life of the machine is 5 years with no residual value. Both companies
depreciate machinery over a useful life of 5 years with no residual value.
• Titanic Ltd declared the preference dividend at year-end, but it has not yet been
paid. Ocean Gate Ltd did account for the dividend receivable.
• Accept a tax rate of 28% and a capital gains tax rate of 14%.
• It is the entity’s policy to measure any non-controlling interest in an acquiree as
its proportionate share of the acquiree’s identifiable net assets.
5 HFAC302-1-JULY-DEC2023-SA1-GT-V3-11072023
REQUIRED:
1.1 Prepare the pro-forma consolidation journal entries required to account for the
• elimination of shareholders' interest in Titanic Ltd at acquisition.
• the inventory transactions and
• the machinery purchase transaction in the consolidated financial
statements of Ocean Gate Ltd and its subsidiary for the year ended
31 December 2022.
(Journal explanations are not required. Clearly indicate whose journal entry it
is Ocean Gate (parent) vs Titanic (subsidiary)).
(25 marks)
1.2 Prepare the Consolidated Statement of Profit or Loss and Other
Comprehensive Income of Ocean Gate Ltd and its subsidiary for the year
ended 31 December 2022. (Notes are not required.)
(15 marks)
1.3 Prepare only the asset section of the Consolidated Statement of Financial
Position of Ocean Gate Ltd and its subsidiary at 31 December 2022. (Notes
are not required.)
(20 marks)
6 HFAC302-1-JULY-DEC2023-SA1-GT-V3-11072023
QUESTION 2 (40 marks)
The following are the condensed statements of financial position, statements of profit
or loss and other comprehensive income and statements of changes in equity of
Cameron Ltd and its partly owned subsidiary, Marine Ltd:
STATEMENTS OF FINANCIAL POSITION AT 31 DECEMBER 2022
Cameron Marine
Ltd Ltd
ASSETS R R
Investment in Marine at fair value:
34 286 ordinary shares 40 229 -
Equipment at cost 43 701 53 063
Accumulated depreciation – Equipment (10 844) (9 349)
Loan to Marine Ltd 1 429 -
Trade receivables 20 717 26 943
Inventory 9 902 15 286
Bank 4 666 -
109 800 85 943
EQUITY AND LIABILITIES
Share capital (51 429; 42 857 shares) 51 429 42 857
Retained earnings 46 714 9 800
Mark-to-market reserve 1 109 -
Loan from Cameron Ltd - 1 429
Deferred tax 1 333 949
Trade payables 9 215 12 286
Bank overdraft - 18 622
109 800 85 943
7 HFAC302-1-JULY-DEC2023-SA1-GT-V3-11072023
STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2022
Cameron Marine
Ltd Ltd
R R
Revenue 121 995 98 603
Cost of Sales (62 743) (87 558)
Gross Profit 59 252 11 045
Other income (dividends received included) 5 486 2 726
Other expenses (6 024) (4 629)
Profit before tax 58 714 9 142
Income tax expense (14 943) (3 200)
Profit for the year 43 771 5 942
Other comprehensive income
Mark to market reserve (after tax) 443 -
Total comprehensive income for the year 44 214 5 942
STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER
2022 (EXTRACT)
Mark to Market RETAINED EARNINGS
Reserve
Cameron Cameron Marine
Ltd Ltd Ltd
R R R
Balance at 31 December 2021 666 7 514 4 886
Total comprehensive income 443 43 771 5 943
Ordinary dividend paid 20 December - (4 571) (1 029)
2022
Balance at 31 December 2022 1 109 46 714 9 800
8 HFAC302-1-JULY-DEC2023-SA1-GT-V3-11072023
Additional information:
• On 1 January 2017, Cameron Ltd purchased 34 286 ordinary shares of Marine Ltd
when the retained earnings of Marine Ltd was R2 286.
• The ordinary share capital has remained unchanged since that date. At the
acquisition date, the assets and liabilities were considered to be fairly valued in
accordance with IFRS 3. It is Cameron Ltd’s policy to measure any non-controlling
interest in an acquiree as its proportionate share of the acquiree’s identifiable net
assets.
• The investments in Marine Ltd are classified as at fair value through other
comprehensive income and all fair value adjustments are accordingly recognised
in equity.
• On 31 July 2021, Cameron Ltd sold equipment to Marine Ltd at a profit of R2 171.
Marine Ltd is not a trader in equipment. The remaining useful life at the date of the
sale is estimated at 6 years with no residual value. Marine Ltd depreciate assets
over their useful lives according to the straight-line method.
• Since 1 January 2017, Cameron Ltd has been purchasing all its inventory from
Marine Ltd at a profit mark-up of 20% on the cost of the goods. These goods are
inventory in the records of Cameron Ltd. Total sales from Marine Ltd to Cameron
Ltd during the current reporting period amounted to R63 429. Cameron Ltd’s
inventory balance on 1 January 2022 amounted to R5 571.
• The tax rate remained unchanged at 28%. The capital gains tax rate is 22,4% (80%
of capital profit x 28% current tax rate).
• Goodwill has not been impaired since acquisition.
REQUIRED:
Prepare the pro-forma consolidation journal entries to eliminate Cameron Ltd’s
investment in Marine Ltd and to eliminate and account for all the transactions and
balances in preparation of the consolidated financial statements of Cameron Ltd and
its subsidiary for the year ended 31 December 2022.
(40 marks)
9 HFAC302-1-JULY-DEC2023-SA1-GT-V3-11072023
