50.1K

Verified Solution

Link Copied!

FACULTY OF COMMERCE, MANAGEMENT AND LAW Question 3 15 Marks Part a The objective of IAS 36 Impairment of assets is to prescribe the procedures that an entity applies to ensure that its assets are not impaired. Required: Explain what is meant by an impairment review. Your answer should include reference to assets that may form a cash generating unit. Note: you are NOT required to describe the indicators of an impairment or how impairment losses are allocated against assets. (4 marks) Part b (1) Chaghamazot acquired an item of plant at a cost of N$800,000 on 1 April 2019 that is used to produce and package pharmaceutical pills. The plant had an estimated residual value of N$50,000 and an estimated life of five years, neither of which has changed. Chaghamazot uses straight-line depreciation. On 31 March 2021, Chaghamazot was informed by a major customer (who buys products produced by the plant) that it would no longer be placing orders with Chaghamazot. Even before this information was known, Chaghamazot had been having difficulty finding work for this plant. It now estimates that net cash inflows earned from the plant for the next three years will be: year ended: 31 March 2022 31 March 2023 31 March 2024 NS000 220 180 170 On 31 March 2024, the plant is still expected to be sold for its estimated realisable value. Chaghamazot has confirmed that there is no market in which to sell the plant at 31 March 2021. Chaghamazot's cost of capital is 10% and the following values should be used: value of N$1 at: N$ end of year 1 0.91 end of year 2 0.83 end of year 3 0.75 (ii) Chaghamazot owned a 100% subsidiary, Mizbach that is treated as a cash generating unit. On 31 March 2021, there was an industrial accident (a gas explosion) that caused damage to some of Mizbach's plant. The assets of Mizbach immediately before the accident were: N$000 Goodwill 1,800 Patent 1,200 Factory building 4,000 Plant 3,500 Receivables and cash 1.500 12.000 Page 20 of 22 FACULTY OF COMMERCE, MANAGEMENT AND LAW As a result of the accident, the recoverable amount of Mizbach is N$6.7 million The explosion destroyed to the point of no further use) an item of plant that had a carrying amount of N$500,000. aliczbach has an open offer from a competitor of N$1 million for its patent. The receivables and cash are already stated at their fair values less costs to sell (net realisable values). Required: Calculate the carrying amounts of the assets in (i) and (ii) above at 31 March 2021 after applying any impairment losses. Calculations should be to the nearest N$1,000. The following mark allocation is provided as guidance for this requirement: (i) 4 marks (ii) 7 marks Total (11 marks) Question 4 40 Marks On 1 July 2018, Wakanda Ltd acquired 75% of Forever Ltd's equity shares when the retained earnings of Forever Ltd were N$15,000. The summarised financial statements of the two companies for the 2020 financial year are shown below: Forever Ltd N$ STATEMENTS OF FINANCIAL POSITION AS AT 30 JUNE 2020 Wakanda Ltd N$ ASSETS Non-current assets Property, plant & equipment 910,000 Investment in Forever Ltd (75 000 shares at cost) 90,000 Current assets Trade and other receivables 350,000 100,000 Inventories Bank 50,000 50,000 45,000 20,000 15,000 1,500,000 130,000 TOTAL ASSETS 350,000 1,000,000 100,000 20,600 EQUITY AND LIABILITIES Equity Share capital Retained earnings Current liabilities Trade and other payables 150,000 9,400 1,500,000 130,000 TOTAL EQUITY AND LIABILITIES Page 21 of 22 Sales MERCE, EXTRACTS FROM THE STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2020 Wakanda Forever Ltd Ltd N$ N$ 968,200 121,000 Cost of sales (650,100) (66,000) Gross profit 318,100 55,000 Dividend received 7,500 Operating expenses (100,600) (35,000) Profit before tax 225,000 20,000 Income tax expense (72,000) (6,400) PROFIT FOR THE YEAR 153,000 13,600 Other comprehensive income TOTAL COMPREHENSIVE INCOME FOR THE YEAR 153,000 13,600 EXTRACTS FROM THE STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2020 Retained earnings Wakanda Forever Ltd Ltd N$ N$ Opening Balance - 1 July 2019 900,000 17,000 Profit for the year 153,000 13,600 Other comprehensive income for the year Ordinary dividend (53,000) (10,000) Closing Balance - 30 June 2020 1,000,000 20,600 Additional notes Assume that the identifiable assets acquired and liabilities assumed at acquisition date are shown at their acquisition-date fair values. Wakanda Ltd elected to measure non-controlling interests in an acquiree at their fair value at acquisition date. The fair value of non-controlling interests was determined to be N$30,000. Wakanda Ltd recognises the equity investment in Forever Ltd in its separate financial statements using the cost method. Ignore tax implications. Required: For the year ending 30 June 2020 prepare the following for Wakanda Ltd group: a) Discuss the three elements of control in terms of IFRS 10. (3) b) Pro-forma journals necessary to prepare the consolidated financial statements. (12) (Journal narrations are not required) c) The consolidated statement of profit or loss and other comprehensive income. (9) d) The consolidated statement of financial position. (16) NB. Show all your workings T

Answer & Explanation Solved by verified expert

See Answer