Tutorial set 1-AFU08501 – 2021/2022

1. Hammed Ltd acquired 250,000 ordinary TZS 500 shares in Boxer Ltd on 31 January 2019. The
consideration given for each share comprised TZS 2500 cash and 2 of Hammed’s TZS 250 ordinary
shares. The market value of Hammed’s ordinary shares at 31 January 2019 was TZS 3450.
Professional fees associated with the acquisition equalled TZS 100,000,000.
Boxer Ltd paid a dividend of TZS 100 per share on 15 September 2019 and proposed a dividend of
TZS 150 per share at the year-end, 31 December 2019.

Required:
(a) prepare journal entries to record the above transactions in the records of Hammed Ltd
for the year to 31 December 2019; and
(b) Assuming that Boxer Ltd has a total of 400,000 TZS500 ordinary shares comment
briefly on any implications of the investment in Boxer for Hammed Ltd.

2. On 1 October 2013 Eagle plc acquired 80,000 TZS1,000 ordinary shares for TZS 316,000,000 in
Heron Ltd. The profit and loss reserves at the date of acquisition totalled TZS 250,000,000.
On 30 September 2014 Eagle plc acquired, for TZS 47,000,000, 20,000 TZS1,000 ordinary shares in
Sparrow Ltd. The profit and loss reserves at the date of acquisition totalled TZS 35,000,000.
Summarised balance sheets at 30 September 2020, and profit and loss accounts for the year ended on
that date were as follows:

Eagle plc Heron Ltd Sparrow Ltd

TZS’000’ TZS’000’ TZS’000’
Profit & loss accounts
Operating profit 147,000 54,000 51,000
Interest (20,000) (5,000) (4,000)
Profit before tax 127,000 49,000 47,000
Taxation (42,000) (23,000) (15,000)
Profit for the year 85,000 26,000 32,000

Balance sheets
Investments:
Subsidiary 316,000 - -
Associate 47,000 - -
Other net assets 308,000 441,000 128,000
671,000 441,000 128,000

Share capital 220,000 100,000 50,000

Profit & loss reserves 451,000 341,000 78,000
671,000 441,000 128,000

Following an impairment review of goodwill in 2016, TZS 9,000,000 of the goodwill relating to
Heron was written off.
Heron did not pay any dividends during the year to 30 September 2020. Sparrow paid a dividend of
TZS10,000,000 in 2020.

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 Eagle includes dividends received in operating profit.
During the year to 30 September 2020 Sparrow sold goods to Eagle for TZS 40,000,000. These
goods had cost Sparrow TZS 33,500,000. At 30 September 2020 Eagle had 25% of these goods in
stock.

Required:
Prepare the Eagle plc’s consolidated profit and loss account and consolidated balance
sheet for the year ended 30 September 2020.

3. Sprint owns 90% of Run which owns 70% of Jog. The income statements of the three companies for
the year to 31 January 2020 are as follows.

Sprint Run Jog

TZS’000,000’ TZS’000,000’ TZS’000,000’
Revenue 25,000 20,000 18,000
Cost of sales (16,000) (15,000) (9,000)
Gross profit 9,000 5,000 9,000
Operating expenses (2,000) (1,500) (6,000)
Investment income 1,800 700 -
Profit before tax 8,600 4,200 3,000
Taxation (2,100) (1,400) (900)
Profit for the period 6,500 2,800 2,100

Additional information:

1. During the year to 31 January 2020 Jog paid a dividend of TZS 1000m and Run a
dividend of TZS 2000m.

2. Jog sold good to Sprint for TZS600,000,000 in December 2020. Sprint had one-quarter
of these goods in stock at the year-end. Jog also sold goods to Run for TZS 400,000,000.
Run had half of these goods in stock at the year-end. Jog made a gross margin of 30% on
both sales.

Required: Prepare any necessary consolidation journal entries.

4. Cameron acquired 70% of Delaney on 30 June 2016 when Delaney’s reserves were £100,000.
Delaney acquired 80% of Efron in September 2020 when Efron’s reserves were TZS 80,000,000.

Cameron paid TZS 210,000,000 for its holding in Delaney. Delaney paid TZS 190,000,000 for its
holding in Efron.

The share capital of the companies is as follows:

Cameron 500,000 TZS 1000 ordinary shares

Delaney 300,000 TZS 500 ordinary shares
Efron 400,000 TZS250 ordinary shares

Required: Calculate the goodwill arising on the acquisition of Delaney and Efron and
prepare the consolidation journals.

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5. The following information is given for Saturn Ltd and its subsidiaries as at 30 November 2020.

Saturn Ltd Mercury Ltd Venus Ltd

TZS 000 TZS 000 TZS 000
Investment in subsidiary 91,000 50,000 -
Other net assets 149,000 _80,000 62,000
240,000 130,000 62,000

Ordinary shares 200,000 100,000 50,000

General reserves 30,000 18,000 4,000
Profit and loss reserves _10,000 _12,000 _8,000
240,000 130,000 62,000

1. Saturn Ltd acquired 75% of Mercury Ltd in December 2012 at a cost of TZS 91,000,000. At
that date Mercury Ltd had TZS 6,000,000 credit on general reserves and TZS 4,000,000 credit
on profit and loss reserves.
2. Mercury Ltd acquired 80% of Venus Ltd at a cost of TZS
50,000,000 in December 2014 when Venus Ltd had a general reserve of TZS 2,000,000 and a
balance of TZS 5,000,000 on the profit and loss reserves. The general reserve and profit and
loss reserve balances of Venus Ltd in December 2012 were TZS 1,000,000 and TZS 3,000,000
respectively.
3. There has been no impairment of goodwill.

Required: Prepare the consolidated balance sheet of Saturn Ltd as at 30 November 2020.

6. Robertson, Thomas and Johnston (ALL CURRENCY FIGURE IN THOUSANDS)

This is a complex example. To avoid depression do not attempt it until you think you have
understood Consolidation process as it involves a number of issues covered in the topic.

Thomas Ltd acquired 26,000 ordinary shares of Johnston Ltd on 1 January 2012 when the
reserves of Johnston were TZS 42,000. Robertson Ltd acquired 105,000 ordinary shares of
Thomas Ltd on 30 April 2016. At that date the reserves of Thomas were TZS 120,000. The
reserves of Johnston at 30 April 2016 were TZS 35,000. Draft accounts have been prepared for
the three companies as follows.

Statement of financial position as at 31 December 2020

Notes Robertson Thomas Johnston

TZS TZS TZS
Tangible Assets 600,000 350,000 100,000
Investments 1 320,000 90,000 -
Stock 2 70,000 30,000 20,000
Debtors 3 65,000 50,000 30,000
Bank 10,000 - -

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 1,065,000 520,000 150,000

Share Capital 4 400,000 200,000 50,000

P/L reserves 605,000 180,000 55,000
Debentures - 5% 2019 - 100,000 -
Creditors 5 60,000 30,000 30,000
Bank Overdraft - 10,000 15,000
1,065,000 520,000 150,000

Statement of financial operation for the year to 31 December 2020

Robertson Thomas Johnston
TZS TZS TZS
Turnover 1,567,000 885,000 931,000
Cost of Sales 1,000,000 682,000 590,000
567,000 203,000 341,000
Distribution Costs (210,000) (97,000) (170,000)
Administrative Expenses (120,000) (60,000) (85,000)
237,000 46,000 86,000
Investment Income 23,000 26,000 -
Profit before tax 260,000 72,000 86,000
Tax (70,000) (20,000) (30,600)
Profit for the period 190,000 52,000 55,400
Notes:

1. Thomas Ltd paid TZS 90,000 for its stake in Johnston. Robertson paid TZS 300,000 to
acquire shares of Thomas.

2. In December 2020 Thomas sold goods which cost TZS 30,000, to Robertson for TZS 50,000.
Three quarters of the goods are in stock at the year end. Earlier in the year Robertson had
bought TZS 100,000 of goods from Johnston. All of these had been sold at the year end.

3. Share capitals are made up as follows:

Robertson Thomas Johnston

TZS TZS TZS
Ordinary TZS1000 shares 400,000 150,000 40,000
4% TZS1000 Preference Shares - 50,000 10,000

4. The group has decided to carry fixed assets at valuation. Independent valuers have provided
the following values for fixed assets as at 31 December 2020:

TZS
Robertson 900,000
Thomas 460,000
Johnston 160,000

The directors of the group have decided to incorporate these values into the group accounts
as at 31 December 2020.

5. At 31 December 2020 Robertson owed TZS 30,000 to Johnston and Thomas owed TZS
18,000 to Robertson.

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6. During the year to 31st December Johnston sold a fixed asset on 31st July 2020 to Robertson
for 17,500. This asset was acquired in 1st January 2017 by Johnston for 20,000. It is group
policy to depreciate asset for its useful life of eight years on straight line basis with zero
scrap value.

7. Following an impairment review the directors have decided that 20% is to be written-off the
value of goodwill of each company in the current year. This is the first such impairment.

8. During the year to 31 December 2020 Robertson, Thomas and Johnston paid dividends of
TZS 80,000, TZS 32,000 and TZS 40,400 respectively. All dividends have been correctly
recorded.

Required:
Prepare the statement of financial position as at 31 December 2020 and the statement of
financial operation for the year to that date for the Robertson Group in accordance with
IAS 1 so far as the information permits. Notes to the accounts are not required.