Question 1                                                                                                            (15 marks)

Kamdan Limited (Kamdan), a public limited company, acquired 30% of the voting rights of Vishwal Limited (Vishwal). The remaining voting rights are held by four other investors holding 25%,25%, 10% and 10% respectively. A shareholder agreement grants Kamdan the right to appoint, remove and set the remuneration of management responsible for key business decisions of Vishwal. To change this agreement, a vote (50% +1) of the shareholders’ is required. Kamdan have never exercised their rights to appoint, remove and set the remuneration of management and have no intention of doing so in the foreseeable future.

 

Required

Discuss, using the IFRS 10 definition of control, whether Kamdan controls Vishwal and whether Kamdan should consolidate Vishwal as a subsidiary in its group financial statements

 

 

 

 

 

Question 2                                                                                                           (15 marks)

On 1 January 2021, A Limited acquired 80% of B Limited for N$3,6 million.  At acquisition date, the following information was relevant for B limited

 

B Limited was a lessee under an operating lease agreement in terms of which it was required to pay an annual rental of N$150 000 on 31 December each year for the remaining three years of the lease agreement.  The market rentals for a similar property were N$200 000 per annum.  An appropriate discount rate is 15%.                                                             (8 marks)

 

1. B had a radio license for southern Namibia which had a fair value of N$ 115,000 at the acquisition date. However, since A is completely in a different sector, they intend to discontinue that line of B business immediately after the acquisition. The license had been acquired for free from the government in an effort to promote local languages in the region.

(3 marks)

 

1. At the date of acquisition, B had a present obligation of N$ 2.5 million arising from a claim by a competitor in connection with the alleged infringement of its trademark. The fair value of this present obligation was determined at N$1,2 million at date of acquisition as the claim was subject to court appeal by B Limited and the related outflow of economic benefits was not considered probable. During August 2021 however, B Limited settled this matter out of court for a total amount of N$700 000. None of the transactions relating to this event has been recorded by B limited.                                                                                             (4 marks)

 

 

Required:

Show the relevant consolidation journal entries for A limited for the year ended 31 December 2021 in respect of the above transactions. Marks allocations are shown under each section and workings are required where necessary.                                                      (15 marks)

 

 

 

 

 

Question 3                                                                                                         (30 marks)

On 1^st January 2021, Parent Enterprise acquired a 70% share in Subsidiary Enterprise. The draft statements of financial position of Subsidiary and Parent as of 31 December 2021 are as follows:

	Parent	Subsidiary
	N$ 000	N$ 000
ASSETS
Non-current assets:
Intangible assets	50	140
Tangible assets	3 900	1 110
Investment in Subsidiary	281	–
	4 231	1 250
Current assets:
Inventory	752	379
Trade receivables	456	273
Bank	101	10
	1 309	662
TOTAL ASSETS	5 540	1 912
EQUITY AND LIABILITIES Equity:
Ordinary shares 25c	3 200	–
Ordinary shares 50c	–	960
Share premium account	1 200	350
Retained earnings	300	200
	4 700	1 510
Liabilities
Non-current liabilities:
8% debentures	60	–
5% debentures	–	100
Current liabilities	780	302
TOTAL EQUITY AND LIABILITIES	5 540	1 912

  (Note that figures in the above table are in 000’s – thousands)

The following information is also available:

1. On 1^st January 2021, the acquisition date, the fair value of the tangible non-current assets of Subsidiary was $100 000 more than their book value and which had a remaining useful life of 10 years. This revaluation has not been included in Subsidiary’s financial statements.
2. The fair value of all other assets and liabilities at the acquisition date was equal to book value. The retained earnings of Subsidiary at that date were $60 000.

• The group policy is to depreciate tangible assets to Nil using straight line method.

1. The consideration for the acquisition was agreed and paid as follows: N$ 280 843 payables on 01 January 2021 and another N$ 200 000 payable for the next five years starting 01 January 2022. Only the initial payment has been recorded in the books of Parent.
2. No further share or debenture issues have been made by Subsidiary since the acquisition date.
3. The share prices of Subsidiary were trading at 80c and 85c as of 01 January 2021 and 31 December 2021 respectively.

• Goodwill has not been impaired during the year ended 31 December 2021.
• The pretax rate (cost of capital) is 10%.

1. Ignore the effects of deferred tax

 

Required

1. Calculate the amount of goodwill arising on the acquisition of Subsidiary. It is the Parent group policy to use the fair value method in calculating goodwill (10 marks)

 

1. Prepare the Consolidated statement of financial position as at 31st December 2021 for Parent and its subsidiaries as per IFRS 10.                                                             (16 marks)

 

1. IFRS 10 outlines circumstances that a holding company (parent) may be exempted to prepare consolidated financial statements. Describe in sufficient detail the exceptions to the requirement to present consolidated financial statements.                         (4 marks)