Tutorial 2.
Suggested solution
Part 1 – Reconciliation of Goodwill
Balance at 30 June 20x5 70 000 000 1
Impairment (14 000 000) 1
Balance at 30 June 20x6 56 000 000 1
Impairment (8 000 000) 1
Acquisition of subsidiary W1 5 204 000 8
Balance at 30 June 20x7 53 204 000 1
13
W1:
Cost of acquisition 9 400 000 1
Fair value of original interest 2 200 000 1
NCI 2 200 000 1
SC + RE (8 047 200) 1
Revaluation surplus (820-520) x 78.4% (235 200) 2
Land (400 000) 1
Deferred tax on land (x 21.6%) 86 400 1
Goodwill on acquisition 5 204 000
Part 2 – Tesla Tax Rate Reconciliation
Expected Tax 3 200 000 x 27% (864,000) 1
Dividend Income 4 200 000 x 25% x 27% (283,500) 2
Additional R&D allowance 2 300 000 x 50% x 27% (310,500) 2
Assessed loss previously
not recognised (22 000 000 - 16 000 000) x 27% (1,620,000) 2
Actual tax (income) (3,078,000) 1
Total 11
Adherence to instructions +1
Incorrect items -1
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Part 3 – Machine X
MEMORANDUM 1
To: Financial Director of Musk Ltd
From: Clever Student
Date: 4 October 20x7
Subject: Accounting considerations of Machine X
As Musk owns 25% of SF, we can presume that Musk has significant influence in 1
SF, and thus can be classified as an associate to the Musk group. Machine X was
1
purchased from SF, an associate. This is an upstream transaction in accordance
with IAS 28, and as such, the Musk group can only recognise unrealised profit to 1
the extent of the unrelated investors interests.
1
Even though Musk purchased the machine for R800 000, this cost should be 1
adjusted in the group financial statements due to the profit earned on the sale by
SF as part of the upstream transaction. This cost should be reduced by R60 000
(R800 000 – 560 000) x 25%, and this will reduce earnings from associate by the 1
same amount.
1
The machine will be depreciated by Musk (and the Musk group) by R75 000 (800 1
000 – 50 000)/5 x 6/12 in profit or loss. The unrealised profit earned by SF now
1
becomes realised, and should increase the accumulated depreciation of the
machine by R6 000 (60 000/5 x 6/12), and increase earnings from associate by the 2
same amount.
1
These adjustments result in the machine having a carrying amount of R671 000 1
(800 000 – 60 000 - 75 000 + 6 000) in the group statement financial position of
Musk as at 30 June 20x7.
The carrying amount of the machine is R671 000 and the tax base of the machine
will be same for Musk group as it is for Musk (company). The tax base is R700 000
1
(800 000/4 x 6/12). This will result in a deductible temporary difference of R29 000
(671 000 – 700 000) resulting in a deferred tax debit balance of R7 830. This would
be set of against other deferred tax balances in the Musk group, where allowed by
IAS 12. Should the resultant temporary differences result in a deferred tax asset, 1
it should be determined if these can be recognised. 1
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1
R6 750 (75 000 – 100 000) x 27% of this should be debited to deferred tax in profit
or loss and R14 580 (60 000 – 6 000) x 27% should be credited to earnings from
associate (alternatively, this can also be credited to deferred tax in profit or loss).
1
Total 20
Max 14
Efficient communication – logical argument +1
Part 4 – Earnings from associate
Earnings from associate See AoE of SF 3 099 080 12
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Part 5 – Group profit
Musk profit 93 000 000 1
EFA (Prefs) 2 500 x 200/500 1 000 000 1
SF preference dividend (1 000 000) 1
FX ordinary dividend 16 x 76% (12 160 000) 1
Tesla (from AoE) 927 080 6
FX (from AoE) 17 686 400 4
Goodwill impairment (8 000 000) 1
Profit on disposal of FX 2.7 - (9.4+1.2) x 12/88 (1 254 545) 1+4
Tax x 21.6% 270 982 1
90 469 917 1
Total 22
Part 6 – Group Statement of profit or loss and other comprehensive income
Musk Ltd Group
Statement of profit or loss and other comprehensive income for the year ending 30 June
20x7
Profit after tax 90 469 917 1
Other comprehensive income
Amount that will not be reclassified to profit or loss
Fair value gains on financial instruments W2 470 000 1+2
Share of associate’s OCI W3 7 840 1+6
Tax on items of OCI W4 (101 520) 1+2
Total comprehensive income 90 846 237
Attributable to:
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Shareholders of the parent Bal 91 543 315 1
Non-controlling interests W5 (697 078) 1+3
90 846 237
Total 22
Headings, layout +3
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W2: Fair value gains
FX equity instruments 890 000 – 820 000 70 000 1
Musk 12% in FX 2 200 000 – 1 800 000 400 000 1
470 000
W3: Share of associates OCI: See AoE of SF
W4: Tax on OCI:
Fair value gains 470 000 x 21.6% 101 520 1
101 520
W5: TCI attributable to NCI:
Tesla See AoE of Tesla 373 968 1
FX See AoE of FX 2 128 954 1
Goodwill impairment R8m x 40% (3 200 000) 1
(697 078)
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©2025 UCT, All Rights Reserved.