Question

Answer ALL questions
Section A
Question 1
a) The HY group acquired 35% of the equity share capital of SX on 1 July 2019 paying R70,000. This shareholding enabled HY group to exercise significant influence over SX.
At 1 July 2019 the equity of SX comprised:
R
R1 equity shares 100,000
Retained earnings 50,000
SX made a profit for the year ended 30 June 2020 (prior to dividend distribution) of R130,000 and paid a dividend of R80,000 to its equity shareholders.
Calculate the value of HY’s investment in SX for inclusion in its consolidated statement of financial position at 30 June 2020. (Total for sub-question (a) = 5 marks)
b) CD had 5,000,000 R1 ordinary shares in issue. Subsequently, CD made a rights issue of 1 new ordinary share at R3.50 per share for every 5 ordinary shares currently held. At the same date CD’s ordinary shares were trading at R4.75.
Required:
(i) Explain the difference between a bonus issue and a rights issue of shares.
(ii) Prepare the journal entries required to record CD’s rights issue in its financial records, assuming that all rights were taken up.
(Total for sub-question (d) = 5 marks)

c) HI, a parent entity, is planning to acquire a shareholding in ABC. The following
alternative investment strategies are being considered:
(i) HI can purchase 80,000 preferred shares in ABC;
(ii) HI can purchase 40,000 equity shares and 50,000 preferred shares in ABC;
(iii) HI can purchase 70,000 equity shares in ABC and no preferred shares.
ABC has the following issued share capital:
R
R1 Equity shares 100,000
R1 10% Preferred Shares 100,000
Holders of preferred shares do not have any votes at annual general meetings.
Required:
Identify with reasons how HI would classify its investment in ABC in its consolidated financial statements for each of the alternative investment strategies. (Total for sub-question (e) = 5 marks)
d) Keswick Co acquired 80% of the share capital of Derwent Co on 1 June 20X5. The summarised draft statements of profit or loss for Keswick Co and Derwent Co for the year ended 31 May 20X6 are shown below:
Keswick Co Derwent Co
R000 R000
Revenue 8,400 3,200
Cost of sales (4,600) (1,700)
–––––– ––––––
Gross profit 3,800 1,500
Operating expenses (2,200) (960)
–––––– ––––––
Profit before tax 1,600 540

Tax (600) (140)
–––––– ––––––
Profit for the year 1,000 400
–––––– ––––––
During the year Keswick Co sold goods costing R1,000,000 to Derwent Co for R1,500,000. At 31 May 20X6, 30% of these goods remained in Derwent Co’s inventory.
Required:
(a) Prepare the Keswick group consolidated statement of profit or loss for the year ended 31 May 20X6. Note: The statement should stop once the consolidated profit for the year has been determined. The amounts attributable to the non-controlling interest and equity owners of Keswick are not required. Show all workings as credit will be awarded to these as appropriate.
(b) Which of the following formulas describes the amount to be entered in the consolidated statement of profit or loss as ‘Profit attributable to: Equity owners of Keswick Co’?
A Group profit after tax – non-controlling interest
B Group profit after tax + non-controlling interest
C Keswick Co’s profit after tax
D Group profit after tax

(c) What amount should be shown in the consolidated statement of profit or loss for the non-controlling interest?

Answer 1