HIGHER EDUCATION PROGRAMMES

MEMORANDUM

Academic Year 2023: July- December

Summative Assessment 1: Financial Accounting 3B:
Groups (HFAC302-1)
NQF Level, Credits: 6, 18
Weighting: 50%
Assessment Type: Exam
Examiner: G.Toringepi
Educator: G.Toringepi
Date: 13 November
Total: 100 marks
Duration: 3 hours

Instructions:

1. This memorandum examination script consists of 14 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-Memo-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-Memo-GT-V3-11072023
QUESTION 1 (60 marks)

1.1 (25 marks)

MARKS AVALAIBLE: 30 MARKS MAXIMUM MARKS: 25 MARKS

JNL1 – Elimination of interest in ordinary share capital

Debit Credit
Share Capital (Titanic) (SFP) 27 777
Retained Earnings (Titanic)
6 944
(SFP)
Goodwill (SFP) (Balancing figure) 2 083
Investment in S Ltd (Titanic) (SFP) 33 333
Non-controlling Interest (SFP)
3 472
((27 777 + 6 944) x 10%)

JNL2 – Elimination of interest in preference share capital

Debit Credit
Preference share capital (Titanic)
5 555
(SFP)
Goodwill (SFP) (Balancing figure) 694
Investment in S Ltd (Titanic) (SFP) 2 083
Non-controlling Interest (SFP)
4 166
(5 555 x 75%)

3 HFAC302-1-JULY-DEC2023-SA1-Memo-GT-V3-11072023
JNL3 – Adjustment to ensure that the consolidated retained earnings at the
beginning of 2022 is in agreement with the consolidated retained earnings at the
end of 2021, due to unrealised profit on sale of inventory included in opening
inventory

Debit Credit
Retained earnings (Titanic) (SCE) 450
Income tax expense (Titanic) (SPL)
175
(625 x 28%)
Cost of Sales (Titanic) (SPL)
625
(3 750 x 20/120)
JNL4 – Elimination of intragroup inventory sales for the year

Debit Credit
Revenue (Titanic) (SPL) 9 722
Cost of Sales (Ocean Gate )(SPL) 9 722

JNL5 – Elimination of unrealised profit on the sale of machinery

Debit Credit
Other income (Ocean Gate ) (SPL) 5 555
Machinery (Titanic) (SFP) (22 222 x
5 555
25/100)

JNL6 – Tax effect of unrealised profit on the sale of machinery

Debit Credit
Deferred tax (Titanic) (SPL) 1 555
Income tax (Ocean Gate ) (SPL) (5 555 x
1 555
28%)

4 HFAC302-1-JULY-DEC2023-SA1-Memo-GT-V3-11072023
JNL7 – Recording of unrealised intercompany profit on sale of machinery
realised during 2022
Debit Credit
Accumulated depreciation (Titanic) (SFP) 1 111
Depreciation (Ocean Gate ) (SPL) (5 555 /
1 111
5)

JNL8 – Recording tax effect of unrealised intercompany profit on sale of

machinery realised during 2022
Debit Credit
Income tax expense (Ocean Gate ) (SPL)
311
(1 111 x 28%)
Deferred tax (Titanic) (SFP) 311

5 HFAC302-1-JULY-DEC2023-SA1-Memo-GT-V3-11072023
 1.2 (15 marks)

MARKS AVALAIBLE: 23 MARKS MAXIMUM MARKS: 15 MARKS

Ocean Gate LTD AND SUBSIDIARY

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER

COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2022 

Ocean Gate Titanic JOURNALS GROUP

R R R R
Revenue 119 444 72 222 -9 722 (JNL4) 181 944
+625 (JNL3)
Cost of Sale (69 444) (34 722) +9 722 (JNL4) (93 819)
Gross Profit 50 000 37 500 88 125
-5 555 (JNL5)
-139 (555 x 25%)
Other income 6 388 - (Pref div) 694
Other expenses (9 166) (9 722) +1 111 (JNL7) (17 777)
Profit before tax 47 222 27 778 71 042
-175 (JNL3)
+1 555 (JNL6)
Income tax expenses (13 888) (9 722) -311 (JNL8) (22 541)
Profit after tax 33 334 18 056 48 501
Other comprehensive
income - - -
Total
comprehensive
income for the year 33 334 18 056 48 501

Total comprehensive income attributable to:

Owners of the parent (Balancing figure) 46 380
Non-controlling interest
((18 056 – 630 + 175 – 555) x 10%) + (555 x 75%) 2 121
48 501

6 HFAC302-1-JULY-DEC2023-SA1-Memo-GT-V3-11072023
1.3 (20 marks)

MARKS AVALAIBLE: 21 MARKS MAXIMUM MARKS: 20 MARKS

Ocean Gate LTD AND SUBSIDIARY

CONSOLIDATED STATEMENT OF FINANCIAL POSITION 2022

Group
Ocean
ASSETS Gate Titanic WORKINGS GROUP
Non-current assets 90 277 22 222 76 660
Machinery at cost 81 250 27 777 -5 555 103 472
Accumulated
depreciation (33 333) (5 555)  +1 111 (37 777)
Investment in Titanic
Ltd - Ordinary 33 333 -  -33 333 -
Investment in Titanic
Ltd - Preference 2 083 -  -2 083 -
Listed investments 6 944 -  6 944
Deferred tax - - 1 555 - 311 1 244
Goodwill - - 694 + 2 083 2 777

Current assets 27 777 74 999 102 637

-139 (Pref div
Trade receivables 8 333 41 666  receivable) 49 860
Inventory 19 444 33 333  52 777

TOTAL ASSETS 118 054 97 221 179 297

7 HFAC302-1-JULY-DEC2023-SA1-Memo-GT-V3-11072023
 Workings:
Analysis of the shareholders' interest in the ordinary shares of Titanic LTD
Ocean Gate LTD (90%)
NCI
Total SINCE
AT (10%)
RE ARR
At date of acquisition
Share capital 27 777 25 000 2 777
Asset replacement reserve - - -
Retained earnings 6 944 6 250 694
34 721 31 250 - - 3 471
Goodwill 2 083
Consideration 33 333

Since acquisition
· To beginning of current year
Asset replacement reserve - - -
Retained Earnings 19 550 17 595 1 955
Balance beginning of year 26 944
Balance at acquisition (6 944)
Unrealised profit – opening inventory
(625)
(13,500 x 20/120)
Tax effect – opening inventory
175
(625x 28%)

· Current year
Profit for the year (SPL) 17 951 16 156 1 795
Per SPL 18 056
Unrealised profit – opening inventory 625
Tax effect – opening inventory (175)
Preference dividend (555)
Transfer to ARR (1 111x 90%) - (1000) 1000 -
72 222 32 751 1000 7 221

8 HFAC302-1-JULY-DEC2023-SA1-Memo-GT-V3-11072023
Workings:
Analysis of the shareholders' interest in the preference shares of Titanic LTD

Ocean Gate LTD (25%)

NCI
Total SINCE
AT (75%)
RE ARR
At date of acquisition
Share capital 5 555 1 388 4 167
Goodwill 694
Consideration 2 082

Since acquisition
· To beginning of current year
N/A - -

· Current year
Profit attribute PS 555 500 1,500
Preference dividends (555) (500) (1,500)
5 555 - - 4 167

Ref: Chapter 4; page 157 – 210; Chapter 6; page 319 – 406; Chapter 8; page 525
- 571
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.

9 HFAC302-1-JULY-DEC2023-SA1-Memo-GT-V3-11072023
QUESTION 2 (40 marks)

MARKS AVALAIBLE: 52 MARKS MAXIMUM MARKS: 40 MARKS

JNL 1 – Reversal of fair value adjustment on Cameron Ltd investment

Debit Credit
Mark-to-market reserve (Cameron) (SFP) (1 109– 443) 666
Mark-to-market reserve (Cameron) (SPL-OCI) (Given) 443
Deferred tax (Cameron) (SFP) (1 429 x 22.4%) 320
Investment in ordinary shares (Cameron) (SFP)
(1 109 / (100 – 22,4) x 100)) 1 429

JNL 2 - Elimination of shareholders' interest of Marine Ltd against the

investment account

Debit Credit
Share Capital (Marine) (SFP) 42 857
Retained earnings (Marine) (SFP) 2 286
Goodwill (SFP) (Balancing figure) 2 686
Investment in Marine (40 229 - 1 429) (SFP) 38 800
Non-controlling interest (SFP) ((42 857+ 2 286) x 20%) 9 029

JNL 3 - Adjustment to ensure that the consolidated Retained earnings at the

beginning of 2022 is in agreement with the consolidated Retained earnings at
the end of 2021 – unrealised profit included in the opening inventory

Debit Credit
Retained earnings (Marine) (SCE) 669
Income tax expense (Marine) (SPL) (929 x 28%) 260
Cost of Sales (Marine) (SPL) (5 571 x 20/120) 929

10 HFAC302-1-JULY-DEC2023-SA1-Memo-GT-V3-11072023
JNL 4 - Recording of non-controlling interest in the retained earnings of the
subsidiary for the period since acquisition to beginning of current year

Debit Credit
Retained earnings (Marine) (SCE) 386
Non-controlling interest (SFP)
((4 886 – 2 286 – 669) x 20%) 386

JNL 5 - Elimination of intragroup sales

Debit Credit
Revenue (Marine) (SPL) 222,000
Cost of Sales (Cameron) (SPL) 222,000

JNL 6 - Elimination of unrealised intercompany profit included in closing

inventory of Cameron Ltd

Debit Credit
Cost of Sales (Marine) (SPL) (9 902 x 20/120) 1650
Inventory (Cameron) (SFP) 1650

JNL 7 – Tax effect of unrealised intercompany profit included in closing

inventory of Cameron Ltd

Debit Credit
Deferred tax (Cameron) (SFP) (1 650 x 28%) 462
Income tax expense (SPL) (Marine) 462

JNL 8 - Recording of non-controlling interest in the profit after tax for the current
year
Debit Credit
Non-controlling interest (SPL)
(5 943 + 669 – 1 650+ 462) x 20%) 1 085
Non-controlling interest (SFP) 1 085

11 HFAC302-1-JULY-DEC2023-SA1-Memo-GT-V3-11072023
JNL 9 - Elimination of intercompany dividend
Debit Credit
Ordinary dividend received (Cameron) (SPL) (1 029 x 80%) 823
Non-controlling interest (SFP) (1 029 x 20%) 206
Ordinary dividends paid (Marine) (SCE) 1 029

JNL 10 - Elimination of the unrealised intragroup profit included in the

equipment of company due to sale of equipment
Debit Credit
Retained earnings (Cameron)(SCE) (Balancing figure) 1 455
Deferred tax (Cameron) (SFP) ((2 171 - 151) x 28%) 565
Accumulated depreciation: Equipment (Cameron) (SFP)
(2 171/6 x 5/12) 151
Equipment (Marine) (SFP) (Given) 2 171

JNL 11 - realisation of unrealised profit included in the equipment of Marine as

a result of depreciation – for the current year
Debit Credit
Accumulated depreciation: Equipment (SFP) (Marine) 362
Depreciation (Cameron) (SPL) (2 171/ 6) 362

JNL 12 - Tax implication of the realisation of unrealised profit included in the

equipment of Marine as a result of depreciation – for the current year
Debit Credit
Income tax expense (Cameron) (SPL) (362 x 28%) 101
Deferred tax (SFP) 101

JNL 13 - Elimination of intragroup loan

Debit Credit
Loan from Cameron Ltd (Marine) (SFP) 1 429
Loan to Marine Ltd (Cameron) (SFP) 1 429

12 HFAC302-1-JULY-DEC2023-SA1-Memo-GT-V3-11072023
Workings:
Analysis of the shareholders' interest of Marine Ltd
Cameron Ltd (80%)
Total SINCE NCI
AT
RE (20%)
At date of acquisition
Share capital 150,000 120,000 30,000
Retained earnings 8,000 6,400 1,600
158,000 126,400 - 31,600
Consideration (140,800 – (3,880 / (100 – 22,4)
135,800
x 100))
Goodwill 9,400
Since acquisition
· To beginning of current year
Retained earnings 6,760 5,408 1,352
Beginning current year 17,100
At acquisition (8,000)
Unrealised profit – opening inventory
(3,250)
(19,500 x 20/120)
Tax effect – opening inventory (3,250 x 28%) 910
· Current year
Profit for the year (SPL) 18,981 15,185 3,796
Per SPL 20,800
Unrealised profit – opening inventory 3,250
Tax effect – opening inventory (910)
Unrealised profit – closing inventory
(5,776)
(34,657 x 20/120)
Tax effect – closing inventory (5,776 x 28%) 1,617
Ordinary dividends (3,600) (2,880) (720)
180,141 17,713 36,028

13 HFAC302-1-JULY-DEC2023-SA1-Memo-GT-V3-11072023
Ref: Chapter 4; page 157 – 210; Chapter 6; page 319 – 406; Chapter 8; page 525
- 571
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.

14 HFAC302-1-JULY-DEC2023-SA1-Memo-GT-V3-11072023