On 1 January 2020, Dargent Co acquired 75% of Latree Co’s equity shares by means of a share exchange of two shares in Dargent CO for every three Latree Co share acquired

On 1 January 2020, Dargent Co acquired 75% of Latree Co’s equity shares by means of a share exchange of two shares in Dargent CO for every three Latree Co share acquired. On that date, further consideration was also issued to the shareholders of Latree Co in the form of a R100, 8% loan note for every 100 shares acquired in Latree Co. None of the purchase consideration , nor outstanding interest on the loan notes on March, has been recorded by Dargent Co.

The summarized statement of Financial position of the two companies as at 31 March 2020 are:

The Following information is relevant:

1)At the date of acquisition, the fair values of Latree Co’s Assets were equal to the carrying amounts. However, Latree Co-operates a mine which requires to be decommissioned in five years’ time. No provision had been made for these decommissioning costs of Latree Co. The present value (discounted at 8%) of the decommissioning is estimated at R4m and will be paid five years from the date of acquisition (at the end of the mine’s useful life).

2)Dargent CO’s policy is to value the non-controlling interest at the fair value at the date of acquisition. Latree Co’s share price at that date can be deemed to be representative of the fair value of the shares held by the non-controlling interest.

3)The inventory of Latree Co includes goods bought from Dargent Co for R2.1m. Dargent CO applies a consistent mark-up on cost of 40% when arriving at its selling prices. On 28 March 2020, Dargent CO dispatched goods to Latree Co with the selling price of R700,000. These were not received by Latree CO until after the year-end, and so have not been included in the above inventory at 31 March 2020. At 31 March 2020, Dargent Co’s records showed a receivable due from Latree CO of R3m. This differed to the equivalent payable in Latree Co’s records due to the goods in transit. The intra-group reconciliation should be achieved by assuming that Latree Co had received the goods in transit before year end.

4)The investments in Amery Co represents 30% of its voting share capital and Dargent Co uses equity accounting to account for this investment. Amery Co’s profit for the year ended 31 March 2020 was R6m and Amery Co paid total dividends during the year ended 31 March 2020 of R2m. Dargent CO has recorded its share of the dividend received in Amery Co in investment income (and cash).

5)All profits and losses accrued evenly throughout the year

6)There were no impairment losses within the group for the year ended 31 March 2020.

7)On 31 March 2020, the share prices of Dargent OC and Latree Co are R3.50 and R2.00 respectively while on 1 January 2020, the share prices of Dargent CO and Latree Co were R3.20 and R1.80 respectively.